INTRODUCTION OF BANKING

MEANING AND DEFINITION:

Bank is an institution that deals in money and its substitutes and provides crucial
financial services. The principal type of baking in the modern industrial world is
commercial banking & central banking.
Banking Means "Accepting Deposits for the purpose of lending or Investment of
deposits of money from the public, repayable on demand or otherwise and withdraw
by cheque, draft or otherwise."
-Banking Companies (Regulation) Act, 1949
The concise oxford dictionary has defined a bank as "Establishment for custody of
money which it pays out on customers order." In fact this is the function which the
bank performed when banking originated.

"Banking in the most general sense, is meant the business of receiving, conserving &
utilizing the funds of community or of any special section of it."
-By H.Wills & J. Bogan
"A banker of bank is a person, a firm, or a company having a place of business where
credits are opened by deposits or collection of money or currency or where money is
advanced and waned.
-By Findlay Sheras

Thus
A Bank:

Accept deposits of money from public.

Pays interest on money deposited with it.
Lends or invests money.
Repays the amount on demand,
Allow the money deposited to be withdrawn by cheque or draft.

ORIGIN OF THE WORD BANK:

The origin of the word bank is shrouded in mystery. According to one view point the
Italian business house carrying on crude from of banking were called banchibancheri"
According to another viewpoint banking is derived from German word "Branck"
which mean heap or mound. In England, the issue of paper money by the government
was referred to as a raising a bank.
ORIGIN OF BANKING:
Its origin in the simplest form can be traced to the origin of authentic history. After
recognizing the benefit of money as a medium of exchange, the importance of
banking was developed as it provides the safer place to store the money. This safe
place ultimately evolved in to financial institutions that accepts deposits and make
loans i.e., modern commercial banks.

INDIAN BANKING INDUSTRY

BANKING INDUSTRY AT GLANCE
Banking is nearly as old as civilization. The history of banking could be said to have
started with the appearance of money. The first record of minted metal coins was in
Mesopotamia in about 2500 B.C. the first European banknotes, which was
handwritten appeared in1661, in Sweden. Cheque and printed paper money appeared
in the 1700s and 1800s, with many banks created to deal with increasing trade.
The history of banking in each country runs in lines with the development of trade
and industry, and with the level of political confidence and stability. The ancient
Romans developed an advanced banking system to serve their vast trade network,
which extended throughout Europe, Asia and Africa.
Modern banking began in Venice. The word bank comes from the Italian word ban
co, meaning bench, because moneylenders worked on benches in market places. The
bank of Venice was established in 1171 to help the government raise finance for a
war.
At the same time, in England merchant started to ask goldsmiths to hold gold and
silver in their safes in return for a fee. Receipts given to the Merchant were sometimes
used to buy or sell, with the metal itself staying under lock and key. The goldsmith
realized that they could lend out some of the gold and silver that they had and charge
interest, as not all of the merchants would ask for the gold and silver back at the same
time. Eventually, instead of charging the merchants, the goldsmiths paid them to
deposit their gold and silver.

The bank of England was formed in 1694 to borrow money from the public for the
government to finance the war of Augsburg against France. By 1709, goldsmith were
using bank of England notes of their own receipts.
New technology transformed the banking industry in the 1900s round the world,
banks merged into larger and fewer groups and expanded into other country.

HISTORY OF INDIAN BANKING INDUSTRY

Banking in India has a long and elaborate history of more than 200 years. The
beginning of this industry can be traced back to1786, when the countrys first bank,
Bank of Bengal, was established. But the industry changed rapidly and drastically,
after the nationalization of banks in 1969.
Indian Banking sector is dominated by Public sector banks (PSBs) which accounted
for 72.6% of total advances for all SCBs as on 31st March 2008. PSBs have rapidly
expanded their foot prints after nationalization of banks in India in 1969 and further in
1980. Although there is a restrictive entry/expansion for private and foreign banks in
India, these banks have increased their presence and business over last 5 years.
Peculiar characteristic of Indian banks unlike their western counterparts such as high
share of household savings in deposits (57.4% of total deposits), adequate
capitalization, stricter regulations and lower leverage makes them less prone to
financial crisis, as was seen in the western world in mid FY09.

The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth
from FY04 to the mid of FY09. Total deposits, advances and net profit grew at CAGR
of 19.6%, 27.4% and 20.2% respectively from FY03 to FY08. Banking sector
recorded credit growth of 33.3% in FY05 which was highest in last 2 and half decades
and credit growth in excess of 30% for three consecutive years from FY04 to FY07,
which is best in the banking industry so far. Increase in economic activity and robust
primary and secondary markets during this period have helped the banks to garner
larger increase in their fee based incomes.

A significant improvement in recovering the NPAs, lowest ever increase in new

NPAs combined with a sharp increase in gross advances for SCBs translated into the
best asset quality ratio for banking sector in last two decades. Gross NPAs to gross
advances ratio for SCBs decreased from the high of 14% in FY2000 to 2.3% in FY08.
Within the group of banks, foreign and private sector banks grew at higher rate than
the industry from FY03 to FY08 primarily because of lower base effect and rapid
expansion undertaken by these banks. In FY09, overall growth in credit and deposits
was led by PSBs. However, growth of private and foreign banks was significantly
lower in FY09 due to their high exposure to stressed sectors and problems at parent
level for foreign banks.
Unsecured bank credit has risen over the years and stood at 23.3% of bank credit in
FY08 as compared to just 10.9% in FY2000. Lending to sensitive sector has also
grown at CAGR of 46.1% from FY05 to FY08. In the backdrop of the economic
downturn, we feel that the excellent performance seen in last five years ended FY08
will be difficult to repeat in coming years.
We expect that with the downturn in the economy, credit and deposit growth will
moderate in coming years. Credit growth will be led by spending on the infrastructure
while retail credit will show a moderate growth. Margin pressures due to lag effect of
rate cuts between interest rate on deposits and advances, lower treasury gains and core
fee income and increasing in provisions for NPAs is likely to put pressure in the
bottom line of the banks.
Going forward, PSBs which are close to the required lower level of government stake
and have concentrated presence in particular region are likely to consider its merger
with other PSB as an important option if they want to sustain the growth seen in past.

FUNCTIONS OF BANKS
Primary Functions
Acceptance of Deposits
Making loans & advances
Loans
Overdraft
Cash Credit
Discounting of bills of exchange
Secondary Functions
Agency functions
Collection of cheques & Bills etc.
Collection of interest and dividends.
Making payment on behalf of customers
Purchase & sale of securities
Facility of transfer of funds
To act as trustee & executor.
Utility Functions
Safe custody of customers valuable articles & securities.
Underwriting facility
Issuing of travellers cheque letter of credit.
Facility of foreign exchanges
Providing trade information
Provide information regarding credit worthiness of their customer.

STRUCTURE
The Indian banking system can be classified into nationalized banks, private banks
and specialized banking institutions. The industry is highly fragmented with 30
banking units contributing to almost 50% of deposits and 60% of advances. The
Reserve Bank of India is the foremost monitoring g body in the Indian Financial
sector. It is a centralized body that monitors discrepancies and shortcomings in the
system.
Banking segment in India functions under the umbrella of Reserve Bank of India
(RBI) the regulatory, central bank. This segment broadly consists of:
1. Commercial Banks
2. Co-operative Banks
The commercial banking structure in India consists of:
1. Schedule Commercial Banks
2. Unscheduled Banks
Schedule Commercial Banks constitute of those banks, which have included second
schedule of Reserve Bank of India (RBI) act 1934. RBI in turn includes only those
banks in this schedule that satisfy the criteria laid down vide section 42 (60 of the act)
this sub sector can broadly classified into:
1. Public Sector
2. Private Sector
3. Foreign Sector

Public sector banks have either government of India Reserve Bank of India (RBI) as
the majority shareholder. This segment comprises of:
1. State Bank of India (SBI) and its subsidiaries
2. Other Nationalized Banks
Industry estimates indicate that out of 274 commercial banks operating in the country,
223 banks are in the public sector and 51 are in the private sector. These private sector
banks include 24 foreign banks that have begun their operations here. The specialized
banking institutions that include cooperatives, rural banks, etc. form a part of the
nationalized banks category.

INDIAN BANKING SYSTEM

Reserve Bank of India

Schedule Banks

State co-op
Banks

Non-Schedule Banks

Central co-op
Banks and
Primary Cr.
Societies
Societies

Commercial
Banks

Indian

Public Sector
Banks

Commercial Banks

Foreign

Private Sector
Banks

HDFC,
ICICI, etc.
ICICI etc.

State Bank of
India and its
Subsidiaries

Other Nationalized
Banks

10

Regional
Rural Banks

CLASSIFICATION ON THE BASIS OF OWNERSHIP

On the basis of ownership banks are of the following types:
PUBLIC SECTOR BANKS
Public sector banks are those banks which are owned by the Government. The Govt.
runs these Banks. In India 14 banks were nationalized in 1969 & in 1980 another 6
banks were also nationalized. Therefore in 1980 the number of nationalized bank 20.
But at present there are 9 banks are nationalized. All these banks are belonging to
public sector category. Welfare is their principle objective.
PRIVATE SECTOR BANKS
These banks are owned and run by the private sector. Various banks in the country
such as ICICI Bank, HDFC Bank etc. An individual has control over their banks in
preparation to the share of the banks held by him.
CO-OPERATIVE BANKS
Co-operative banks are those financial institutions. They provide short term &
medium term loans to their members. Co-operative banks are in every state in India.
Its branches at district level are known as the central co-operative bank. The central
Co-operative bank in turn has its branches both in the urban & rural areas. Every state
Co-operative bank is an apex bank which provides credit facilities to the central co
operative bank. It mobilized financial resources from richer section of urban
population by accepting deposit and creating the credit like commercial bank and
borrowing from the money market. It also gets funds from RBI.

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ACCORDING TO RESERVE BANK OF INDIA ACT 1935

Banks are classified into following two categories son the basis of reserve bank Act.
1934.
SCHEDULED BANK
These banks have paid up capital of at least Rs. 5 lacks. These are like a joint stock
company. It is a co-operative organization. These banks find their mention in the
second schedule of the reserve bank.
NON SCHEDULED BANK
These banks are not mentioned in the second schedule of reserve bank paid up capital
of these banks is less then Rs.5 lacks. The no. such bank is gradually tolling in India.
CLASSIFICATION ACCORDING TO FUNCTION
On the basis of functions banks are classified as under
COMMERCIAL BANK
The commercial banks generally extend short-term loans to businessmen & traders.
Since their deposits are for a short-period only. They cannot lend money for a long
period. These banks reform various types or agency job for their customers. These
banks are not in a position to grant long-term loans to industries because their deposits
are only for a short period. The majority of joint stock banks in India are commercial
banks which finance trade & commerce only.

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SAVING BANKS
The principle function of these banks is to collect small saving across the country and
put them into productive use. These banks have shown marked development in
Germany & Japan. These banks are established in HAMBURG City of Germany in
1765. In India a department of post offices functions as a saving banks.
FOREIGN EXCHANGE BANKS
These are special types of banks which specialize in financing foreign trade. Their
main function is to make international payments through purchase & sale of exchange
bills. As it well known, the exporters of a country prefer to receive the payments for
exports in their own currency. Thus these banks convert home currency into foreign
currency and vice versa. It is on this account that these banks have to keep with
themselves stock of the currency of various countries. Along with that, they have to
open branches in foreign countries to carry on their business
INDUSTIRAL BANKS
The industrial banks extend long term loans to industries. In fact, they also help
industrials firms to sell their debentures and shares. Sometimes, they even underwrite
the debentures & shares of big industrial concerns.
These banks found their origin in India. These banks made a significant contribution
to the development of agricultural and industries before independence. Mahajans,
rural moneylenders and jewellers have been the forerunner of these banks in India.

13

INDIGENIOUS BANKS
These banks found their origin in India. These banks made a significant contribution
to the development of agricultural and industries before independence. Mahajans,
rural moneylenders and jewellers have been the forerunner of these banks in India.
CENTRAL BANK
The central bank occupies a pivotal position in the monetary and banking structure of
the country. The central bank is the undisputed leader of the money market. As such it
supervises controls and regulates the activities of commercial banks affiliated with it.
The central bank is also the higher monetary institution in the country charged with
the duty & responsibility of carrying out the monetary policy formulated by the
government. India's central bank known as the reserve bank of India was set up in
1935.
AGRICULTURAL BANK
The commercial and the industrial banks are not in a position to meet the credit
requirements of agriculture. Hence, there arises the need for setting up special type of
banks of finance agriculture. The credit requirements of the farmers are two types.
Firstly the farmers require short term loans to buy seeds, fertilizers, ploughs and other
inputs. Secondly, the farmers require long-term loans to purchase land, to effect
permanent improvements on the land to buy equipment and to provide for irrigation
works. There are two types of agriculture banks.
1.

Agriculture co-operative banks, and

2.

Land mortgage banks.

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OPPORTUNITIES
The Banking sector is considered the most lucrative option in todays job market. In
the industry, a position in Treasury or Forex is considered right on top and this is
followed by careers in Private Banking, Investment Banking and Retail Banking. One
could work in a variety of areas in banking industry including Recurring Deposit
account, banking officer, probationary officer, loan officer, assessor, personal loan
officer, home loan officer, home loan agent, loan manager, mortgage loan
underwriter, loan processing officer, accountant, product marketing and sales
executive, and customer service executive among others.
In the Financial Services, some of the important jobs include that of a stockbroker
who is essentially a person who buys and sells securities on behalf of individuals and
institutions for some commission. While some brokers like to practice with individual
clients others work for institutions. Brokers who work for institutional investors are
often called securities traders. Many prefer to work as dealers, advisors and securities
analysts. Security analysts are those who advise companies on floatations of shares
as they are expected to have sound knowledge of capital markets.
Investment analysts are the backbone of the financial services sector. They study the
financial reports of companies, assess various statistical information, profitability
projections, compare financial results, survey the industry as a whole and on the basis
of the available information, and finally conclude to a decision. Equity Analysts do
jobs similar to investment analysts and research the equity markets and make
predictions.

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MAJOR PLAYER IN INDIA

1. HDFC BANK LTD
2. ICICI BANK LTD
3. STATE BANK OF INDIA LTD
4. PUNJAB NATOINAL BANK LTD
5. BANK OF BARODA LTD
6. FEDERAL BANK LTD
7. AXIS BANK LTD
8. ING VYSYA BANK LTD
9. IDBI BANK LTD
10. INDUSIND BANK LTD
11. YES BANK LTD

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INTRODUCTION TO MUTUAL FUNDS

MUTUAL FUND INDUSTRY
The mutual fund industry in India is one of the emerging industries in India. Today,
the Indian mutual fund industry has 40 players. The number of public sector players
has reduced from 11 to 5. The public sector has gradually receded into the
background, passing on a large chunk of market share to private sector players.
The Association of Mutual Funds in India (AMFI) is the industry body set up to
facilitate the growth of the Indian mutual fund industry. It plays a pro-active role in
identifying steps that need to be taken to protect investors and promote the mutual
fund sector.
It is noteworthy that AMFI is not a Self-Regulatory Organization (SRO) and its
recommendations are not binding on the industry participants. By its very nature,
AMFI has an advisors or a counsellors role in the mutual fund industry. Its
recommendations become mandatory if and only if the Securities and Exchange
Board of India (SEBI) incorporates them into the regulatory framework it stipulates
for mutual funds.

17

The Indian mutual fund industry follows a 3-tier structure as shown below:

1. Sponsors
They are the individuals who think of starting a mutual fund. The Sponsor approaches
SEBI, the market regulator and also the regulator for mutual funds. Not everyone can
start a mutual fund. SEBI will grant a permission to start a mutual fund only to a
person of integrity, with significant experience in the financial sector and a certain
minimum net worth. These are just some of the factors that come into play.
2. Trust
Once SEBI is satisfied with the credentials and eligibility of the proposed Sponsors,
the Sponsors then establish a Trust under the Indian Trust Act 1882. Trusts have no
legal identity in India and thus cannot enter into contracts. Hence the Trustees are the
individuals authorized to act on behalf of the Trust. Contracts are entered into in the
name of the Trustees. Once the Trust is created, it is registered with SEBI, after which
point, this Trust is known as the mutual fund.
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3. Asset Management Company (AMC)

The Trustees appoint the AMC, which is established as a legal entity, to manage the
investors (unit holders) money. In return for this money management on behalf of
the mutual fund, the AMC is paid a fee for the services provided. This fee is to be
borne by the investors and is deducted from the money collected from them.
The AMC has to be approved by SEBI and it functions under the supervision of its
Board of Directors, and also under the direction of the Trustees and the regulatory
framework established by SEBI. It is the AMC, which in the name of the Trust, that
floats new schemes and manages these schemes by buying and selling securities.

19

20

HISTORY OF MUTUAL FUND INDUSTRY

The mutual fund industry started in 1963 with the formation of the Unit Trust of India
which was the initiative of the Government of India and the Reserve Bank of India.
The history of mutual funds in India can be broadly classified into four distinct
phases: First Phase: 1964 1987
An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative
control of the RBI. In 1978, UTI was delinked from RBI and the 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. 6700 crores of AUM.
Second Phase: 1987 1993 (Entry of Public Sector Funds)
In 1987, it was the entry of non-UTI, public sector mutual funds setup by public
sector banks and the 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.
1992-93

Amount Mobilized

Assets Under

Mobilization as %

Management

of gross Domestic
Savings

UTI

11,057

38,247

5.2%

Public Sector

1,964

8,757

0.9%

Total

13,021

47,004

6.1%

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Third Phase: 1993 2003 (Entry of Private Sector Funds)

With the entry of the private sector funds in 1993, a new era started in the Indian
Mutual Fund Industry, giving the investors a wider choice of fund families. Also,
1993 was the year in which 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 industry now functions under SEBI
Regulations, 1996. At the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1, 21,805crores. The UTI with Rs. 44,541 crores of AUM was way
ahead of other mutual funds.
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.
Growth in Assets under Management

22

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations.
The Assets under Management (AUM) have grown at a rapid pace over the past few
years at a CAGR of 35% for the past few years at a CAGR of 35 percent for the fiveyear period from 31 March, 2005 to 31 March, 2009. Over the 10-year period from
1999 to 2009 encompassing varied economic cycles, the industry grew at 22%
CAGR.
The Indian mutual fund industry has shown relatively slow growth in the period from
year 2010-2013 growing at a CAGR of approximately 3.2 per cent. Average (AUM)
stood at INR 8,140 billion as of September 2013. However, AUM increased to INR
8,800 billion as of December 2013.

WHAT IS AN INVESTMENT?
In finance, the purchase of a financial product or other item of value with an
expectation of favourable future returns. In general terms, investment means the use
money in the hope of making more money.
There are three fundamentals of investment:

Safety

Liquidity

Return

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INVESTMENT AVENUES
Investments

Debt

Small
Savings

Insurance

Equity

RBI
Bonds

Primary
Market

Secondary
Market

PPF

Post Office

Fixed Return Options

Variable Return Options

1) Post Office

Mutual Funds

2) Public Provident Fund

Shares and Stock Markets

3) Bank Fixed Deposits

Gold & Silver

4) Government Securities or Gilts

Property

5) RBI Taxable Bonds

Foreign Exchange

6) Insurance
7) Company Debentures
8) Company Fixed Deposits
9) Infrastructure Bonds

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WHAT IS A MUTUAL FUND?

A mutual fund is a legal vehicle that enables a collective group of individuals to:

Pool their surplus funds and collectively invest in instruments / assets for a
common investment objective.

Optimize the knowledge and experience of a fund manager, a capacity that

individually they may not have.

Benefit from the economies of scale which size enables and is not
available on an individual basis. Investing in a mutual fund is like an
investment made by a collective.

Concept of Mutual Funds

Many Investors with common financial objectives pool
their money

Investors, on a proportionate basis, get mutual fund units

for the sum contributed to the pool
The money collected from investors is invested into shares,
debentures and the other securities by the fund manager
The fund manager realize gains or losses, and collects
dividend or interest income

Any capital gains or losses from such investment are

passed on to the investors in proportion of the number of
units held by them
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An individual as a single investor is likely to have lesser amount of money at disposal

than say, a group of friends put together. Now, lets assume that this group of
individuals is a novice in investing and so the group turns over the pooled funds to an
expert to make their money work for them. This is what a professional Asset
Management Company does for mutual funds. The AMC invests the investors money
on their behalf into various assets towards a common investment objective.
Hence, technically speaking, a mutual fund is an investment vehicle which pools
investors money and invests the same for and on behalf of investors, into stocks,
bonds, money market instruments and other assets. The money is received by the
AMC with a promise that it will be invested in a particular manner by a professional
manager (commonly known as fund managers). The fund managers are expected to
honour this promise. The SEBI and the Board of Trustees ensure that this actually
happens.
When an investor subscribes for the units of a mutual fund, he becomes part owner of
the assets of the fund in the same proportion as his contribution amount put up with
the corpus (the total amount of the fund). Mutual Fund investor is also known as a
mutual fund shareholder or a unit holder.
Any change in the value of the investments made into capital market instruments
(such as shares, debentures etc.) is reflected in the Net Asset Value (NAV) of the
scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net
of its liabilities. NAV of a scheme is calculated by dividing the market value of
scheme's assets by the total number of units issued to the investors.

26

For example:

If the market value of the assets of a fund is Rs. 100,000

The total number of units issued to the investors is equal to 10,000.

Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00

Now if an investor 'X' owns 5 units of this scheme

Then his total contribution to the fund is Rs. 50 (i.e. Number of units held
multiplied by the NAV of the scheme).

MUTUAL FUNDS STRUCTURE

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund
established in the form of a trust by a sponsor to raise monies by the Trustees through
the sale of units to the public under one or more schemes for investing in securities in
accordance with these regulations.

27

These regulations have since been replaced by the SEBI (Mutual Funds) Regulations,
1996. The structure indicated by the new regulations is indicated as under. A mutual
fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and
custodian. The sponsor establishes the mutual fund and gets it registered with SEBI.
The mutual fund needs to be constituted in the form of a trust and the instrument of
the trust should be in the form of a deed registered under the provisions of the Indian
Registration Act, 1908.
The Custodian maintains the custody of the securities in which the scheme invests. It
also keeps a tab on corporate actions such as rights, bonus and dividends declared by
the companies in which the fund has invested. The Custodian is appointed by the
Board of Trustees. The Custodian also participates in a clearing and settlement system
through approved depository companies on behalf of mutual funds, in case of
dematerialized securities.
The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10
crore) of the asset management company. The board of trustees manages the MF and
the sponsor executes the trust deeds in favour of the trustees. It is the job of the MF
trustees to see that schemes floated and managed by the AMC appointed by the
trustees are in accordance with the trust deed and SEBI guidelines

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TYPES OF RETURN
There are three ways, where the total returns provided by mutual funds can be
enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays
out nearly all income it receives over the year to fund owners in the form of a
distribution.

If the fund sells securities that have increased in price, the fund has a capital
gain. Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the
fund's shares increase in price. You can then sell your mutual fund shares for a
profit. Funds will also usually give you a choice either to receive a check for
distributions or to reinvest the earnings and get more shares.

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INDICATORS OF INVESTMENT RISK

There are five main indicators of investment risk that apply to the analysis of stocks,
bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard
deviation and the Sharpe ratio. These statistical measures are historical predictors of
investment risk/volatility and are all major components of modern portfolio
theory (MPT).

The MPT is a standard financial and academic methodology used for assessing the
performance of equity, fixed-income and mutual fund investments by comparing them
to market benchmarks.
All of these risk measurements are intended to help investors determine the riskreward parameters of their investments. In this article, we'll give a brief explanation of
each of these commonly used indicators.
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UNDERSTANDING AND MANAGING RISK

All investments whether in shares, debentures or deposits involve risk: share value
may go down depending upon the performance of the company, the industry, state of
capital markets and the economy; generally, however, longer the term, lesser the risk;
companies

may

default

in

payment

of

interest/principal

on

their

debentures/bonds/deposits; the rate of interest on an investment may fall short of the

rate of inflation reducing the purchasing power.
While risk cannot be eliminated, skillful management can minimize risk. Mutual
Funds help to reduce risk through diversification and professional management. The
experience and expertise of Mutual Fund managers in selecting fundamentally sound
securities and timing their purchases and sales help them to build a diversified
portfolio that minimize risk and maximizes returns.
The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vice versa if he pertains to lower
risk instruments, which would be satisfied by lower returns. For example, if an
investors opt for bank FD, which provide moderate return with minimal risk. But as
he moves ahead to invest in capital protected funds and the profit-bonds that give out
more return which is slightly higher as compared to the bank deposits but the risk
involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual
funds provide professional management, diversification, convenience and liquidity.
That doesnt mean mutual fund investments risk free. This is because the money that
is pooled in are not invested only in debts funds which are less riskier but are also
invested in the stock markets which involves a higher risk but can expect higher
returns.
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RISKS ASSOCIATED WITH MUTUAL FUNDS

At the cornerstone of investing is the basic principle that the greater the risk you take,
the greater the potential reward. Remember that the value of all financial investments
will fluctuate.
Individual tolerance for risk varies, creating a distinct "investment personality" for
each investor. Some investors can accept short-term volatility with ease, others with
near panic. So whether you consider your investment temperament to be conservative,
moderate or aggressive, you need to focus on how comfortable or uncomfortable you
will be as the value of your investment moves up or down.
Managing Risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification
and Automatic Investing (SIP) are two key techniques you can use to reduce your
investment risk considerably and reach your long-term financial goals.
Diversification
When you invest in one mutual fund, you instantly spread your risk over a number of
different companies. You can also diversify over several different kinds of securities
by investing in different mutual funds, further reducing your potential risk.
Diversification is a basic risk management tool that you will want to use throughout
your lifetime as you rebalance your portfolio to meet your changing needs and goals.
Investors, who are willing to maintain a mix of equity shares, bonds and money
market securities, have a greater chance of earning significantly higher returns over
time than those who invest in only the most conservative investments.

32

Additionally, a diversified approach to investing -- combining the growth potential of

equities with the higher income of bonds and the stability of money markets -- helps
moderate your risk and enhance your potential return.
Systematic Investment Plan (SIP)
The Unit holders of the Scheme can benefit by investing specific Rupee amounts
periodically, for a continuous period. Mutual fund SIP allows the investors to invest a
fixed amount of Rupees every month or quarter for purchasing additional units of the
Scheme at NAV based prices.
Here is an illustration using hypothetical figures indicating how the SIP can work for
investors:
Suppose an investor would like to invest Rs.1,000 under the Systematic Investment
Plan on a quarterly basis.

Amount Invested (Rs.)

Purchase Price (Rs.)

No. of Units Purchased

Initial Investment

1000

10

100

1000

8.20

121.95

1000

7.40

135.14

1000

6.10

163.93

1000

5.40

185.19

1000

6.00

166.67

1000

8.20

121.95

1000

9.25

108.11

1000

10.00

100.00

1000

11.25

88.89

10

1000

13.40

74.63

11

1000

14.40

69.44

TOTAL

12,000

1,435.90

33

Average unit cost Rs 12,000/1,435.9 = Rs 8.36

Average unit price 109.6/12 = Rs 9.13
Unit price at beginning of next quarter Rs 14.90
Market value of investment 1435.9 * 14.90= Rs 21,395/The investor liquidates his units and gets back Rs 21,395/Using the SIP strategy the investor can reduce his average cost per unit. The investor
gets the advantage of getting more units when the market is turned down.

TYPES OF RISKS
All investments involve some form of risk. Even an insured bank account is subject to
the possibility that inflation will rise faster than your earnings, leaving you with less
real purchasing power than when you started (Rs. 1000 gets you less than it got your
father when he was your age).
Consider these common types of risk and evaluate them against potential rewards
when you select an investment.

34

 Market Risk

At times the prices or yields of all the securities in a particular market rise or fall due
to broad outside influences. When this happens, the stock prices of both an
outstanding, highly profitable company and a fledgling corporation may be affected.
This change in price is due to "market risk".
Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation sprints
forward faster than the earnings on your investment, you run the risk that you'll
actually be able to buy less, not more. Inflation risk also occurs when prices rise faster
than your returns.
Credit Risk

In short, how stable is the company or entity to which you lend your money when you
invest? How certain are you that it will be able to pay the interest you are promised, or
repay your principal when the investment matures?
Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Investors are
reminded that "predicting" which way rates will go is rarely successful. A diversified
portfolio can help in offsetting these changes.
Exchange Risk

A number of companies generate revenues in foreign currencies and may have

investments or expenses also denominated in foreign currencies. Changes in exchange
rates may, therefore, have a positive or negative impact on companies which in turn
would have an effect on the investment of the fund.

35

 Investment Risk

The sectorial fund schemes, investments will be predominantly in equities of select

companies in the particular sectors. Accordingly, the NAV of the schemes are linked
to the equity performance of such companies and may be more volatile than a more
diversified portfolio of equities.
Changes in Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the
business prospects of the companies leading to an impact on the investments made by
the fund.

REGULATORY AUTHORITIES
To protect the interest of the investors, SEBI formulates policies and regulates the
mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues
guidelines from time to time. MF either promoted by public or by private sector
entities including one promoted by foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the
securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or
board of trustees must be independent. The Association of Mutual Funds in India
(AMFI) reassures the investors in units of mutual funds that the mutual funds function
within the strict regulatory framework. Its objective is to increase public awareness of
the mutual fund industry. AMFI also is engaged in upgrading professional standards
and in promoting best industry practices in diverse areas such as valuation, disclosure,
transparency etc.
36

MARKET PLAYERS AS OF 2016

TATA

2%

AXIS

2%

DSP BlackRock

3%

Kotak Mahindra

4%

Franklin Templeton

6%

IDFC

4%

SBI

7%

UTI

8%

HDFC

13%

ICICI Prudential
Reliance

MUTUAL FUNDS IN INDIA

ABN AMRO Mutual Fund

Benchmark Mutual Fund

Birla Sun Life Mutual Fund

Bharti AXA Mutual Fund

BOB Mutual Fund

Canara Robero Mutual Fund

DBS Chola Mutual Fund

Deutsche Mutual Fund

DSP Black Rock Mutual Fund

Escorts Mutual Fund

Fidelity Mutual Fund

Fortis ( ABN ) Mutual Fund

37

13%
12%

Franklin Templeton Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

JM Financial Mutual Fund

Kotak Mahindra Mutual Fund

LIC Mutual Fund

Principal Mutual Fund

ICICI Prudential Mutual Fund

Reliance Mutual Fund

Sahara Mutual Fund

SBI Mutual Fund

Standard Chartered Mutual Fund

Sundaram Mutual Fund

Tata Mutual Fund

Taurus Mutual Fund

UTI Mutual Fund

38

TYPES OF MUTUAL FUNDS

There are wide variety of Mutual Fund schemes that cater to investor needs, whatever
the age, financial position, risk tolerance and return expectations. The mutual fund
schemes can be classified according to both their investment objective (like income,
growth, tax saving) as well as the number of units (if these are unlimited then the fund
is an open-ended one while if there are limited units then the fund is close-ended).

1. Open-ended schemes
These funds are sold at the NAV based prices, generally calculated on every business
day. These schemes have unlimited capitalization, open-ended schemes do not have a
fixed maturity - i.e. there is no cap on the amount you can buy from the fund and the
unit capital can keep growing. These funds are not generally listed on any exchange.
39

Open-ended funds are bringing in a revival of the mutual fund industry owing to
increased liquidity, transparency and performance in the new open-ended funds
promoted by the private sector and foreign players. Open-ended funds score over
close-ended ones on several counts. Some of these are listed below:
a) Any time exit option: The issuing company directly takes the responsibility of
providing an entry and an exit. This provides ready liquidity to the investors and
avoids reliance on transfer deeds, signature verifications and bad deliveries.
b) Tax advantage: Though Budget 2004 proposals envisage a tax rate of 20.91 %
(Corporate investors) and 13.06875% (Non-Corporate investors) on dividend
distribution made by the Debt funds, the funds continue to remain attractive
investment vehicles. In equity plans there is no distribution tax.
c) Any time entry option: An open-ended fund allows one to enter the fund at any
time and even to invest at regular intervals (a systematic investment plan).
2. Close ended schemes
Schemes that have a stipulated maturity period, limited capitalization and the units are
listed on the stock exchange are called close-ended schemes.
These schemes have historically seen a lot of subscription. This popularity is
estimated to be on account of firstly, public sector MFs having floated a lot of closeended income schemes with guaranteed returns and secondly easy liquidity on
account of listing on the stock exchanges.

40

Classification according to investment objectives

Objectives
Mutual funds have specific investment objectives such as growth of capital, safety of
principal, current income or tax-exempt income. In general mutual funds fall into
three general categories:

Equity Funds invest in shares or equity of companies.

Fixed-Income funds invest in government or corporate securities that offer

fixed rates of return.

Balanced Funds invest in a combination of both stocks and bonds.

i) Growth Funds
These funds seek to provide growth of capital with secondary emphasis on dividend.
They invest in shares with a potential for growth and capital appreciation. Because
they invest in well-established companies where the company itself and the industry
in which it operates are thought to have good long-term growth potential, growth
funds provide low current income. Growth funds generally incur higher risks than
income funds in an effort to secure more pronounced growth.
These funds may invest in a broad range of industries or concentrate on one or more
industry sectors. Growth funds are suitable for investors who can afford to assume the
risk of potential loss in value of their investment in the hope of achieving substantial
and rapid gains.
They are not suitable for investors who must conserve their principal or who must
maximize current income.

41

ii) Growth and Income Funds

Growth and income funds seek long-term growth of capital as well as current income.
The investment strategies used to reach these goals vary among funds. Some invest in
a dual portfolio consisting of growth stocks and income stocks, or a combination of
growth stocks, stocks paying high dividends, preferred stocks, convertible securities
or fixed-income securities such as corporate bonds and money market instruments.
Others may invest in growth stocks and earn current income by selling covered call
options on their portfolio stocks. Growth and income funds have low to moderate
stability of principal and moderate potential for current income and growth. They are
suitable for investors who can assume some risk to achieve growth of capital but who
also want to maintain a moderate level of current income.
iii) Fixed-Income Funds
The goal of fixed income funds is to provide current income consistent with the
preservation of capital. These funds invest in corporate bonds or government-backed
mortgage securities that have a fixed rate of return. Within the fixed-income category,
funds vary greatly in their stability of principal and in their dividend yields. Highyield funds, which seek to maximize yield by investing in lower-rated bonds of longer
maturities, entail less stability of principal than fixed-income funds that invest in
higher-rated but lower-yielding securities.
Some fixed-income funds seek to minimize risk by investing exclusively in securities
whose timely payment of interest and principal is backed by the full faith and credit of
the Indian Government. Fixed-income funds are suitable for investors who want to
maximize current income and who can assume a degree of capital risk in order to do
so.

42

iv) Balanced Fund

The Balanced fund aims to provide both growth and income. These funds invest in
both shares and fixed income securities in the proportion indicated in their offer
documents. Ideal for investors who are looking for a combination of income and
moderate growth.
v) Money Market Funds/Liquid Funds
For the cautious investor, these funds provide a very high stability of principal while
seeking a moderate to high current income. They invest in highly liquid, virtually
risk-free, short-term debt securities of agencies of the Indian Government, banks and
corporations and Treasury Bills. Because of their short-term investments, money
market mutual funds are able to keep a virtually constant unit price; only the yield
fluctuates.
Therefore, they are an attractive alternative to bank accounts. With yields that are
generally competitive with - and usually higher than -- yields on bank savings
account, they offer several advantages. Money can be withdrawn any time without
penalty. Although not insured, money market funds invest only in highly liquid, shortterm, top-rated money market instruments.
Money market funds are suitable for investors who want high stability of principal
and current income with immediate liquidity.
vi) Specialty/Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as
health care, technology, leisure, utilities or precious metals. The funds enable
investors to diversify holdings among many companies within an industry, a more
conservative approach than investing directly in one particular company.
43

Sector funds offer the opportunity for sharp capital gains in cases where the fund's
industry is "in favour" but also entail the risk of capital losses when the industry is out
of favour. While sector funds restrict holdings to a particular industry, other specialty
funds such as index funds give investors a broadly diversified portfolio and attempt to
mirror the performance of various market averages.
Index funds generally buy shares in all the companies composing the BSE Sensex or
NSE Nifty or other broad stock market indices. They are not suitable for investors
who must conserve their principal or maximize current income.
A summary is presented in the table below of the various funds and their
investment objectives.

44

Comparison with Other Investment Avenues

Investment
Avenues
Fixed Deposits

Equity shares

TAX
Liquidity

Safety

Returns

Volatility

CONVENIENCE
BENEFIT

Low
Moderate
to high

Low

Moderate

Low

No

Moderate

Low

Uncertain

High

No

Moderate

Co.Debenture

Low

Moderate

Moderate

Moderate

No

Low

Co. Deposit

Low

Moderate

Low

Low

No

Low

Life Insurance

Low

High

Low

Low

Yes

Moderate

High

Moderate

Moderate

High

No

High

High

Moderate

Moderate

High

Yes

High

Moderate

High

Moderate

Low

Yes

Moderate

High

High

Low

Low

No

High

PPF

Low

High

Moderate

Low

Yes

Moderate

Post Office

High

High

Good

Low

Yes

Moderate

NSC

Low

High

Moderate

Low

Yes

Moderate

Gold

High

High

Moderate

Moderate

No

High

Moderate

High

Moderate

Low

No

Low

Low

Moderate

Variable

High

Yes

High

Moderate

High

Moderate

Moderate

No

High

Low

High

Moderate

Low

Yes

Moderate

Mutual Funds
(Open ended)
Mutual Funds
(close ended )
RBI Bonds
Bank Fixed
Deposit

Infrastructure
Bonds
Real Estate
Public sec. & FII
Bonds
National Savings
Certificate

45

Comparison between FD, Bonds and Mutual Fund Features

Characteristics

FD's

Bonds

Mutual Funds

Accessibility

Low

Low

High

Tenor

Fixed(medium)

Fixed(Long)

No Lock-in

Min. Investment

Rs.1000

Rs.5000

Rs.5000

Tax Benefits

None

80L, 88

Dividend Tax-Free

Liquidity

Low

Very Low

Very High

Convenience

Medium

Tedious

Very High

Transparency

None

None

Very High

Funds differ in terms of their risk profile

Equity Funds

High Level of Return, but has a high level of risk too

Debt Funds

Returns comparatively less risky than equity funds

Liquid and Money Market

Provide stable but low level of return

Funds

46

BENEFITS OF INVESTING THROUGH A MUTUAL FUND

A mutual fund is an entity that pools the money of many investors -- its unit-holders -to invest in different securities. Investments may be in shares, debt securities, money
market securities or a combination of these. Those securities are professionally
managed on behalf of the unit-holders, and each investor holds a pro-rata share of the
portfolio i.e. entitled to any profits when the securities are sold, but subject to any
losses in value as well.
i) Professional investment management
Mutual funds hire full-time, high-level investment professionals. Funds can afford to
do so as they manage large pools of money. The managers have real-time access to
crucial market information and are able to execute trades on the largest and most costeffective scale.
ii) Diversification
Mutual funds invest in a broad range of securities. This limits investment risk by
reducing the effect of a possible decline in the value of any one security. Mutual fund
unit-holders can benefit from diversification techniques usually available only to
investors wealthy enough to buy significant positions in a wide variety of securities.
iii) Low Cost
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-,
and sometimes less. And with a no-load fund, you pay little or no sales charges to
own them.

47

iv) Convenience and Flexibility

You own just one security rather than many, yet enjoy the benefits of a diversified
portfolio and a wide range of services. Fund managers decide what securities to trade
collect the interest payments and see that your dividends on portfolio securities are
received and your rights exercised. It also uses the services of a high quality custodian
and registrar in order to make sure that your convenience remains at the top of our
mind.
v) Personal Service
One call puts you in touch with a specialist who can provide you with information
you can use to make your own investment choices. They will provide you personal
assistance in buying and selling your fund units, provide fund information and answer
questions about your account status.
vi) Liquidity
In open-ended schemes, you can get your money back promptly at net asset value
related prices from the mutual fund itself.
vii) Transparency
You get regular information on the value of your investment in addition to disclosure
on the specific investments made by the mutual fund scheme.

48

Disadvantages of Mutual Funds

Costs Control Not in the Hands of an Investor: Investor has to pay

investment management fees and fund distribution costs as a percentage of the
value of his investments, irrespective of the performance of the fund.

No Customized Portfolios: The portfolio of securities in which a fund invests

is a decision taken by the fund manager. Investors have no right to interfere in
the decision making process of a fund manager, which some investors find as
a constraint in achieving their financial objectives.

Difficulty in Selecting a Suitable Fund Scheme: Many investors find it

difficult to select one option from the plethora of funds/schemes/plans
available.

49

PERFORMANCE MEASURES OF MUTUAL FUNDS

Return alone should not be considered as the basis of measurement of the
performance of a mutual fund scheme, it should also include the risk taken by the
fund manager because different funds will have different levels of risk attached to
them. Risk associated with a fund, in a general, can be defined as variability or
fluctuations in the returns generated by it. The higher the fluctuations in the returns of
a fund during a given period, higher will be the risk associated with it. These
fluctuations in the returns generated by a fund are resultant of two guiding forces.
First, general market fluctuations, which affect all the securities present in the market,
called market risk or systematic risk and second, fluctuations due to specific securities
present in the portfolio of the fund, called unsystematic risk.
The Total Risk of a given fund is sum of these two and is measured in terms of
standard deviation of returns of the fund. Systematic risk, on the other hand, is
measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-vis market. The more responsive the NAV of a mutual fund is to the changes in the
market; higher will be its beta. Beta is calculated by relating the returns on a mutual
fund with the returns in the market. While unsystematic risk can be diversified
through investments in a number of instruments, systematic risk cannot. By using the
risk return relationship, we try to assess the competitive strength of the mutual funds
vis--vis one another in a better way.

50

In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance indices
to evaluate a portfolio by comparing alternative portfolios within a particular risk
class. The most important and widely used measures of performance are:
TheTreynor Measure
TheSharpe Measure
Jenson Model
Fama Model
The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index. This Index is a ratio of return generated by the fund over and above
risk free rate of return (generally taken to be the return on securities backed by the
government, as there is no credit risk associated), during a given period and
systematic risk associated with it (beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rfis risk free rate of return and Biis beta of the
fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and
negative Treynor's Index is an indication of unfavorable performance.

51

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which
is a ratio of returns generated by the fund over and above risk free rate of return and
the total risk associated with it. According to Sharpe, it is the total risk of the fund that
the investors are concerned about. So, the model evaluates funds on the basis of
reward per unit of total risk. Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of
a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the risk
premium by a numerical risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-diversified portfolios. On the other
hand, the systematic risk is the relevant measure of risk when we are evaluating less
than fully diversified portfolios or individual stocks. For a well-diversified portfolio
the total risk is equal to systematic risk. Rankings based on total risk (Sharpe
measure) and systematic risk (Treynor measure) should be identical for a welldiversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly
diversified fund that ranks higher on Treynor measure, compared with another fund
that is highly diversified, will rank lower on Sharpe Measure.

52

Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure
was developed by Michael Jenson and is sometimes referred to as the Differential
Return Method. This measure involves evaluation of the returns that the fund has
generated vs. the returns actually expected out of the fund given the level of its
systematic risk. The surplus between the two returns is called Alpha, which measures
the performance of a fund compared with the actual returns over the period. Required
return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm Rf)
Where, Rm is average market return during the given period. After calculating it,
alpha can be obtained by subtracting required return from the actual return of the
fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation
of this model is that it considers only systematic risk not the entire risk associated
with the fund and an ordinary investor cannot mitigate unsystematic risk, as his
knowledge of market is primitive.
Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two
is taken as a measure of the performance of the fund and is called net selectivity.
The net selectivity represents the stock selection skill of the fund manager, as it is the
excess return over and above the return required to compensate for the total risk taken

53

by the fund manager. Higher value of which indicates that fund manager has earned
returns well above the return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns. The net selectivity is then
calculated by subtracting this required return from the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and
Jenson model use systematic risk based on the premise that the unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in
a number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors.
However, Sharpe measure and Fama model that consider the entire risk associated
with fund are suitable for small investors, as the ordinary investor lacks the necessary
skill and resources to diversified. Moreover, the selection of the fund on the basis of
superior stock selection ability of the fund manager will also help in safeguarding the
money invested to a great extent.

54

LITERATURE REVIEW
Arzu Tektasetal (2005) states that An efficient asset-liability management requires
maximizing banks' profit as well as controlling and lowering various risks. This multiobjective decision problem aims to reach goals such as maximization of liquidity,
revenue, capital adequacy, and market share subject to financial, legal requirements
and institutional policies. This paper models asset and liability management (ALM) in
order to show how different managerial strategies affect the financial wellbeing of
banks during crisis.

Brent Finlay states that avoiding the top 7 business financing mistakes is a key
component in business survival. The key is to understand the causes and significance
of each so that the company is in a position to make better decisions.

No Monthly Bookkeeping

No Projected Cash Flow

Inadequate Working Capital

Poor Payment Management

Poor Credit Management

No Recorded Profitability

No Financing Strategy

Harris (2005) from the perspective of the chief financial officer, the concept of
working capital management is relatively straightforward: to ensure that the
organization is able to fund the difference between short-term assets and short-term
liabilities. In practice, though, working capital management has become the Achilles'

55

heel of scores of finance organizations, with many CFOs struggling to identify core
working capital drivers and the appropriate level of working capital.
As a result, companies can be limited in their ability to weather unforeseen or adverse
events and ensure that cash is readily available where it is needed, regardless of the
circumstances. By Understanding the role and drivers of working capital management
and taking steps to reach the 20 "right" levels of working capital, companies can
minimize risk, effectively prepare for uncertainty and improve overall performance.

Maynard E. Rafuse (1996) Argues that attempts to improve working capital by

delaying payment to creditors is counter-productive to individuals and to the economy
as a whole. He claims that altering debtor and creditor levels for individual tiers
within a value system will rarely produce any net benefit. Proposes that stock
reduction generates system-wide financial improvements and other important
benefits. Urges those organizations seeking concentrated working capital reduction
strategies to focus on stock management strategies based on lean supply-chain
techniques.

M.K. Kolay (1997) writes the article which analyses the pros and cons of
different strategies to be adopted to manage and avoid working capital crisis situations
in any organization. The working capital position depends on many organizational
parameters which are interrelated and interdependent, and also vary over time. In such
a situation, the use of a system dynamics approach has been advocated to reflect the
relevant dynamic cause-and-effect relationships for the development of appropriate
long-term and short-term strategies.

56

COMPANY PROFILE
History of HDFC Bank
The housing development Finance Corporation Limited (HDFC) was amongst the
first to receive as in principal approval from the Reserve Bank of India (RBI) to set up
a bank in the private sector, as part of the RBIS liberalization of the Indian Banking
Industry.
The bank was incorporated in August 1994 in the name of HDFC Bank Limited, with
its registered office in Mumbai, India. The Bank commenced operation as a scheduled
Commercial Bank in January 1995

Mission, Vision and Objectives

The mission of HDFC is to become a world class Indian bank, benchmarking
themselves against international standards and best practices in terms of product
offerings, technology, service levels, risk management and audit and compliance. The
objective is to build sound customer franchises across distinct business so as to be a
preferred provider of banking services for target retail and wholesale customer
segments and to achieve a healthy growth in profitability, consistence with the Banks
risk appetite. The bank is committed to maintain the highest level of ethical standards,
professional integrity, corporate governance and regulatory compliance. HDFC
Banks business philosophy is based on five core values: Operational Excellence,
Customer Focus, Product Leadership, People and Sustainability.
HDFC Banks business objectives emphasize the following:

Increase their market share in Indias expanding banking and financial

services industry by following a disciplined growth strategy and delivering
high quality customer service.
57

Leverage their technology platform and open, scale able systems to deliver
more products to more customers and to control operating costs.

Maintain their current high standards for asset quality through disciplined
credit risk management.

Develop innovative products and services that attract our targeted customers
and address inefficiencies in the Indian financial sector.

Continue to develop product and services that reduce our cost of funds.

Bank logo

Type

Private company

Traded as

BSE: 500180
NSE: HDFCBANK
NYSE: HDB
BSE SENSEX Constituent
CNX Nifty Constituent

Industry

Banking, Financial services

Founded

August 1994

Headquarters

Mumbai, Maharashtra, India

Area served

Worldwide

Key people

Aditya Puri (MD)

58

Products

Investment Banking
Investment Management
Wealth Management
Private Banking
Corporate Banking
Private Equity
Finance and Insurance
Consumer Banking
Mortgages
Credit Cards

Revenue

74,373.22 crore(US$11 billion)

(2016)

Profit

12,817.33 crore(US$1.9 billion)

(2016)

Total assets

687,892 crore(US$100 billion) (2015)

Total equity

505.64 crore(US$75 million)

Number of

76,286 (March 2015)

employees

Website

HDFCBank.com

59

Management - HDFC Bank

S.No

Name

Designation

Shyamala Gopinath

Chair Person

Paresh Sukthankar

Deputy Managing Director

A N Roy

Director

Keki Mistry

Director

Renu Karnad

Director

Umesh Chandra Sarangi

Additional Director

Mr. Aditya Puri

Managing Director

Kaizad Bharucha

Executive Director

Bobby Parikh

Director

10

Partho Datta

Director

11

Malay Patel

Director

Other Detail:
Business Group

HDFC Group

Listings

BSE , NSE , NYSE

ISIN No.

INE040A01018

Incorporation

31/12/1994

Public Issue Date

31/12/1995

60

Promoters
HDFC is Indias premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to
remain the market leader in mortgages. Its outstanding loan portfolio covers well over
a million dwelling units. HDFC has developed significant expertise in retail mortgage
loans to different market segments and also has a large corporate client base for its
housing related credit facilities. With its experience in the financial markets, strong
market reputation, large shareholder base and unique consumer franchise, HDFC was
ideally positioned to promote a bank in the Indian environment.
Capital Structure
As on 31st March, 2015 the authorized share capital of the Bank is Rs. 550 crore. The
paid-up share capital of the Bank as on the said date is Rs501,29,90,634/(2506495317 ) equity shares of Rs. 2/- each). The HDFC Group holds 21.67 % of the
Bank's equity and about 18.87 % of the equity is held by the ADS / GDR Depositories
(in respect of the bank's American Depository Shares (ADS) and Global Depository
Receipts (GDR) Issues). 32.57 % of the equity is held by Foreign Institutional
Investors

(FIIs)

and

the

Bank

has

4,41,457

shareholders.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock
Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed
on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's
Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under
ISIN No US40415F2002

61

Total balance sheet size as of June 30, 2016 was Rs.755,100crores as against
Rs.629,322 crores as of June 30, 2015. The Banks total income for the quarter ended
June 30, 2016 was Rs.19,322.6 crores, as against Rs.16,503.0 crores for the quarter
ended June 30, 2015. Net revenues (net interest income plus other income) increased
by 19.6% to Rs.10,588.1 crores for the quarter ended June 30, 2016 as against
Rs.8,850.7 crores in the corresponding quarter of the previous year.
Distribution Network
HDFC Bank is headquartered in Mumbai. As of March 31, 2015, the Banks
distribution network was at 4,014 branches in 2,464 cities. All branches are linked on
an online real-time basis. Customers across India are also serviced through multiple
delivery channels such as Phone Banking, Net Banking, Mobile Banking and SMS
based banking. The Banks expansion plans take into account the need to have a
presence in all major industrial and commercial centres, where its corporate customers
are located, as well as the need to build a strong retail customer base for both deposits
and loan products. Being a clearing / settlement bank to various leading stock
exchanges, the Bank has branches in centres where the NSE / BSE have a strong and
active member base.

As of June 30, 2016, the Bank also has a network of 4,541 branches and 12,013
ATMs across India. Moreover, HDFC Bank's ATM network can be accessed by all
domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and
American Express Credit/Charge cardholders.

62

Management
Mrs. Shyamala Gopinath holds a Masters Degree in Commerce and is a CAIIB. Mrs.
Gopinath has 39 years of experience in financial sector policy formulation in different
capacities at RBI. As Deputy Governor of RBI for seven years and member of the
Board. Mrs. Gopinath had been guiding and influencing the national policies in the
diverse areas of financial sector regulation and supervision, development and
regulation of financial markets, capital account management, management of
government borrowings, forex reserves management and payment and settlement
systems.
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25
years and before joining HDFC Bank in 1994 was heading Citibank's operations in
Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of
experience in public policy, administration, industry and commercial banking. Senior
executives representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad head
various businesses and functions and report to the Managing Director. Given the
professional expertise of the management team and the overall focus on recruiting and
retaining the best talent in the industry, the bank believes that its people are a
significant competitive strength.

63

Technology
HDFC Bank operates in a highly automated environment in terms of information
technology and communication systems. All the banks branches have online
connectivity, which enables the bank to offer speedy funds transfer facilities to its
customers. Multi-branch access is also provided to retail customers through the
branch network and Automated Teller Machines (ATMs).
The Bank has made substantial efforts and investments in acquiring the best
technology available internationally, to build the infrastructure for a world class bank.
In terms of core banking software, the Corporate Banking business is supported by
Flexcube, while the Retail Banking business by Finware, both from i-flex Solutions
Ltd. The systems are open, scaleable and web-enabled.
The Bank has prioritised its engagement in technology and the internet as one of its
key goals and has already made significant progress in web-enabling its core
businesses. In each of its businesses, the Bank has succeeded in leveraging its market
position, expertise and technology to create a competitive advantage and build market
share.

64

Business Profile

HDFC Bank caters to a wide range of banking services covering commercial and
investment banking on the wholesale side and transactional / branch banking on the
retail side. The bank has three key business segments:
Wholesale Banking Services
The Bank's target market ranges from large, blue-chip manufacturing companies in
the Indian corporate to small & mid-sized corporates and agro-based businesses. For
these customers, the Bank provides a wide range of commercial and transactional
banking services, including working capital finance, trade services, transactional
services, cash management, etc. The bank is also a leading provider of structured
solutions, which combine cash management services with vendor and distributor
finance for facilitating superior supply chain management for its corporate customers.
Based on its superior product delivery / service levels and strong customer
orientation, the Bank has made significant inroads into the banking consortia of a
number of leading Indian corporates including multinationals, companies from the
domestic business houses and prime public sector companies. It is recognized as a
leading provider of cash management and transactional banking solutions to corporate
customers, mutual funds, stock exchange members and banks.
Retail Banking Services
The objective of the Retail Bank is to provide its target market customers a full range
of financial products and banking services, giving the customer a one-stop window
for all his/her banking requirements. The products are backed by world-class service
and delivered to customers through the growing branch network, as well as through

65

alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking.
The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank
Plus and the Investment Advisory Services programs have been designed keeping in
mind needs of customers who seek distinct financial solutions, information and advice
on various investment avenues. The Bank also has a wide array of retail loan products
including Auto Loans, Loans against marketable securities, Personal Loans and Loans
for Two-wheelers. It is also a leading provider of Depository Participant (DP) services
for retail customers, providing customers the facility to hold their investments in
electronic form.
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the MasterCard Maestro debit card
as well. The Bank launched its credit card business in late 2001. By March 2015, the
bank had a total card base (debit and credit cards) of over 25 million. The Bank is also
one of the leading players in the merchant acquiring business with over 235,000
Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant
establishments. The Bank is well positioned as a leader in various net based B2C
opportunities including a wide range of internet banking services for Fixed Deposits,
Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the
liberalization of the financial markets in India, corporates need more sophisticated
risk management information, advice and product structures. These and fine pricing
on various treasury products are provided through the bank's Treasury team.

66

To comply with statutory reserve requirements, the bank is required to hold 25% of its
deposits in government securities. The Treasury business is responsible for managing
the returns and market risk on this investment portfolio.

Products of HDFC Bank

HDFC bank provides very large range of financial product to the customer for their
better financial transaction. The product of HDFC bank is below
Product Ranges:
Savings Account:
HDFC Bank Provide large range of saving account according to the need of the
customer. Bank provide the various saving account like Regular Savings Account,
Savings Plus Account, Saving Max Account, Senior Citizens Account, No Frills
Account, Institutional Savings Account
Current Account:
Through current account customers now get a personalized cheque book, monthly
account statements, interbranch banking and much more. HDFC Bank also provide
world class service to its current account holder. Different product of current account
which are provide by the HDFC bank are
HDFC Bank Preferred:
A preferential savings account is provided where customers are assigned a dedicated
relationship manager, who is their one-point contact. Customers also get privileges
like fee waivers, enhanced ATM withdrawal limit, and priority locker allotment, free
Demat Account and lower interest rates on loans.

67

Sweep-In Account:
It is fixed deposit linked to customers saving account. So, even if their savings
account runs a bit short, they can issue a cheque or use their ATM Card. The money is
automatically swept in from their fixed savings account.
Super Saver Account:
It gives an overdraft facility up to 75% of customers Fixed Deposit. In an emergency,
customers can access their funds while their Fixed Deposit continues to earn high
interest.
HDFC Bank Plus:
Apart from Regular and Premium Current accounts Bank also have HDFC Bank plus
and a current account. Customers can transfer up to Rs. 50 lacs per month at no extra
charge, between the four metros. They can also avail of cheque clearing between the
four metros,
Get cash delivery/pickup to Rs 25000/- home delivery of Demand Drafts, at par
cheque, outstation cheque clearance facility, etc.
Demat Account:
Protect their customers shares from damage, loss and theft. The customers can also
access their Demat account on the Internet.
Loans for every need:
Now, Banks loans come to people in easy-to-pay monthly installments, and are
available with easy documentation and quick delivery.

68

Personal loans:
Customers can now take a loan up to 3 lacks for a wedding, education, purchase of a
computer or an exciting holiday.
New car loans and used Car Loans:
The Bank also provides finance up to 90% of the cost of a car, either new or used!
And the loans come to the customers with easy documentation and speedy processing
at attractive interest rates.
Loans against shares:
Now customers are able to get overdraft up to Rs 10 lacks at an attractive interest rate
against physical shares and also up to 50% of the market value of their shares. In case
of Demat shares, they can get a loan against shares of up to 65% of the market value
of their shares, till Rs 20 lacks.
Two Wheeler & Consumer Loans:
Now the Bank helps its customers to buy the best durables for their home.
Mutual Funds:
Apart from a wide choice of mutual funds to suit customers individual needs,
customers benefit from expert advice on choosing the right funds based on in-depth
market analysis.

69

HDFC MUTUAL FUND PRODUCTS

SCHEMES
EQUITY FUNDS

HDFC Capital Builder Fund

HDFC Core & Satellite Fund

HDFC Equity Fund

HDFC Growth Fund

HDFC Long Term Equity Fund

HDFC Premier Multi-Cap Fund

HDFC Top 200 Fund

HDFC Mid-Cap Opportunities Fund

HDFC Index Fund

HDFC Index Fund Nifty Plan

HDFC Index Fund SENSEX Plan

HDFC Index Fund SENSEX Plus Plan

Equity Linked Savings Scheme

HDFC Long Term Advantage Fund

HDFC Tax Saver

BALANCED FUNDS-

HDFC Balanced Fund

HDFC Children's Gift Fund Investment Plan
HDFC Children's Gift Fund Savings Plan

70

DEBT FUNDS

HDFC Cash Management Fund - Savings Plus Plan

HDFC Floating Rate Income Fund

Long Term Plan

HDFC Floating Rate Income Fund Short Term Plan

HDFC Gilt Fund Short Term Plan

HDFC Gilt Fund Long Term Plan

HDFC High Interest Fund

HDFC High Interest Fund - Short Term Plan

HDFC Income Fund

HDFC MF Monthly Income Plan - Short Term Plan

HDFC MF Monthly Income Plan - Long Term Plan

HDFC Multiple Yield Fund

HDFC Multiple Yield Fund Plan 2005

HDFC Short Term Plan

HDFC Quarterly Interval Fund - Plan A

HDFC Quarterly Interval Fund - Plan B

HDFC Quarterly Interval Fund - Plan C

LIQUID FUNDS-

HDFC Cash Management Fund - Call Plan

HDFC Cash Management Fund - Savings Plan
HDFC Liquid Fund
HDFC Liquid Fund - PREMIUM PLAN
71

 HDFC Liquid Fund - PREMIUM PLUS PLAN

HDFC Fixed Maturity Plan
FMP
International Credit Card:
Here the customers get an option of silver, gold or health plus credit card, accepted
worldwide from a world-class Bank. If they have outstanding balance on their other
credit card, they can transfer that balance to this card at a lower interest rate.
NRI Services:
Here the Bank provides a comprehensive range, backed by unmatched features and
world-class service, which ensures NRIs all the banking support they need.
Forex Facilities:
The forex Facilities provide-avail of foreign currency, travelers cheque and foreign
exchange demand drafts to meet customers travel needs.
Insurance:
Apart from the above facilities HDFC Bank also brings for its customers life
insurance and pension solution like risk cover scheme, saving scheme, childrens plan
and personal plan from HDFC standards life insurance co. ltd.

72

SWOT ANALYSIS
SWOT Analysis is a powerful technique for understanding your Strengths and
Weaknesses, and for looking at the Opportunities and Threats you face. Used in a
business context, it helps you carve a sustainable niche in your market. Used in a
personal context, it helps you develop your career in a way that takes best advantage
of your talents, abilities and opportunities.
73

SWOT ANALAYSIS OF HDFC BANK

STRENGTH
Right strategy for the right products.
Superior customer service vs. competitors.
Great Brand Image
Products have required accreditations.
High degree of customer satisfaction.

Lower response time with efficient and effective service.

Dedicated workforce aiming at making a long-term career in the field.
WEAKNESSES
Some gaps in range for certain sectors.
Customer service staff needs training.
Processes and systems, etc.
Management cover insufficient.
Sectorial growth is constrained by low unemployment levels and competition

for staff.
OPPORTUNITIES
Profit margins will be good.
Could extend to overseas broadly.
New specialist applications.
Could seek better customer deals.
Fast-track career development opportunities on an industry-wide basis.
An applied research centre to create opportunities for developing techniques to

provide added-value services.

74

THREATS
Legislation could impact.
Great risk involved
Very high competition prevailing in the industry.
Vulnerable to reactive

attack by major competitors

Lack of infrastructure in rural areas could constrain investment.
High volume/low cost market is intensely competitive.

KEY POINT
SWOT Analysis is a simple but powerful framework for analyzing company's
Strengths and Weaknesses, and the Opportunities and Threats you face. This helps
you to focus on your strengths, minimize threats, and take the greatest possible
advantage of opportunities available to you.

75

OBJECTIVES OF THE STUDY

The main objectives of this project are:

To study the various Mutual Funds schemes in India.

To study the performance indices that can be used for mutual fund
comparison.

To compare mutual funds of selected five companies on the basis of their

return and Sharpe Index.

76

RESEARCH METHODOLOGY
Research is an organized enquiry designed and carried out to provide information for
solving a problem.
Research methodology is the process used to collect information and data for the
purpose of making business decisions. The methodology may include publication
research, interviews, surveys and other research techniques.
Research Design
A research design serves as a bridge between what has been established (the research
objectives) and how to accomplish these objectives. In fact, the research design is the
conceptual structure within which research is conducted; it constitutes the blueprint
for the collection, measurement and analysis of data. More explicitly, the design
decisions happen to be in respect of:
i) What is the study about?
ii) Why is the study being made?
iii) Where will the study be carried out?
iv) What type of data is required?
v) Where can be the required data found?
vi) What period of time will the study include?
vii) What will be the sample design?
viii) What technique of data collection will be used?
ix) How will the data be analyzed?
x) In what style will the report be prepared?

77

The function of research design is to provide for the collection of relevant evidence
with minimal expenditure of effort, time and money. But how all these can be
achieved depends mainly on the research purpose.
Research Type:
In this report I have used Descriptive research technique.
Descriptive research includes surveys and fact-finding enquiries of different kinds.
The major purpose of descriptive research is description of the state of affairs as it
exists at present. The main characteristic of this method is that the researcher has no
control over the variables.
Data Collection:
The task of data collection begins after a research problem has been defined. While
deciding about the method of data collection to be used for the study, the researcher
should keep in mind two types of data viz, primary and secondary.
PRIMARY DATA may be described as those data that have been observed and

recorded by the researchers for the first time to their knowledge. It is the data which
has been collected through personal contact.

Through Questionnaire Questionnaire is a written set of questions, the

answers to which are recorded by the respondents.

Through Personal Interaction In personal interaction an interviewer ask

questions in a face to face contact to the other person.

78

SECONDARY DATA is the data which are available in the form of fact and figures.

The sources of secondary data are:

Websites

Magazines

Articles
TECHNIQUES USED IN THIS STUDY

In this study, we have used various statistics tools like descriptive statistics,
percentage, indices available, etc. for analyzing, interpreting and comparison of
different mutual fund schemes. The Sharpe Index Model is also used to analyze the
performance evaluation and ranking for the difference mutual funds schemes in India.
SCOPE OF THE STUDY:
The 5 most preferred public and private sector mutual funds schemes have been taken
for the study. These public and private mutual funds schemes were studies during the
period of 1st April, 2015 to 31st March, 2016.
LIMITATIONS OF THE STUDY:
Due to shortage of time and money, we selected only 5 mutual funds company which
include public and private mutual funds. The data was collected for analysis from 1
April, 2015 to 1 April, 2016. My study is based on the limited 5 mutual funds
company only which affects the results of the study.

79

DATA ANALYSIS AND INTERPRETATION

CALCULATION OF RISK FREE RATE OF RETURN
For Calculating Risk free rate of returns the average monthly yields on 91-day
government of India treasury bills.

Here, 91-DAY GOVERNMENT OF INDIA TREASURY BILLS is used as

a risk-free asset, and they pay a fixed rate of interest and have exceptionally
low default risk.

The risk-free asset has zero variance in returns (hence is risk-free); it is also
uncorrelated with any other asset (by definition: since its variance is zero).

As a result, when it is combined with any other asset, or portfolio of assets, the
change in return and also in risk is linear.
Month

Yield

Apr-09

3.81

May-09

3.25

Jun-09

3.34

Jul-09

3.22

Aug-09

3.34

Sep-09

3.33

Oct-09

3.23

Nov-09

3.27

Dec-09

3.54

Jan-10

3.85

Feb-10

4.11

Mar-10

4.33

Yields on 91-Day Government of India Treasury

Therefore, the average yield = 3.55% is the risk free rate of return.
80

Birla Sun Life Mutual Fund

Birla Sun Life Asset Management Company Limited, the investment manager of Birla
Sunlife Mutual Fund, is a joint venture between the Aditya Birla Group and Sun Life
Financial Services, leading international financial services organization.
Established in 1994, Birla Sunlife AMC provides investors a range of 18 investment
options, which include diversified and sector specific equity schemes, a wide range of
debt and treasury products, and two offshore funds.
Both the sponsors have equal stakes in the AMC. In recognition to its high quality
investment products, Birla Sun Life Asset Management Company became India's first
asset management company to be awarded the coveted ISO 9001:2000 certification
by DNV Netherlands.
No. of schemes

71

No. of schemes including options

219

Gilt Fund

16

Equity Schemes

64

Debt Schemes

106

Short term debt Schemes

17

Equity & Debt

10

Money Market

Corpus Under Management: Rs.136560.90 crore as on December 31, 2015

Key Personnel: Mr. Kumar Mangalam Birla (Chairman), Mr. A Bala Subramanian
(CEO), Ms. Keerti Gupta (COO), Mr. Parag Joglekar (CFO), Mr. Siddhartha Damani
(CMO), Mr. Bhavdeep Bhatt (Head Products).
81

For Performance Comparison we take three Mutual Fund Schemes

of Company:
Birla Sun Life Equity Fund (Growth)
Birla Sun Life Income Fund (Growth)
Birla Sun Life Tax Plan (Growth)

The Monthly NAV & Returns of above three Mutual Fund Schemes as Follows:1. Birla Sun Life Equity Fund (Growth)
Month

Net Assets Value

Apr-15

123.90 - 183.76

48.3132

May-15

183.76 - 195.43

6.3507

Jun-15

195.43 - 194.66

-0.394

Jul-15

194.66 - 216.34

11.1374

Aug-15

216.34 - 216.34

Sep-15

216.34 - 231.95

7.2155

Oct-15

231.95 - 223.08

-3.8241

Nov-15

223.08 - 239.77

7.4816

Dec-15

239.77 - 252.08

5.1341

Jan-16

252.08 - 241.77

-4.09

Feb-16

241.77 - 237.14

-1.915

Mar-16

237.14 - 252.91

6.6501

AVERAGE RETURN

6.84%

82

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

6.84% 3.55%
13.39
S t 0.235
St

2. Birla Sun Life Income Fund (Growth)

Month

Net Assets Value

Apr-15

32.0807 - 31.9038

-0.5514

May-15

31.9038 - 32.3045

1.2560

Jun-15

32.3045 - 33.0633

2.3489

Jul-15

33.0633 - 32.8129

-0.7573

Aug-15

32.8129 - 33.0589

0.7497

Sep-15

33.0589 - 33.3736

0.9519

Oct-15

33.3736 - 33.9135

1.6177

Nov-15

33.9135 - 33.7813

-0.3898

Dec-15

33.7813 - 33.8415

0.1782

Jan-16

33.8415 - 33.7849

-0.1673

Feb-16

33.7849 - 33.7849

0.0000

Mar-16

33.7849 - 33.9643

0.5310

AVERAGE RETURN

0.4806 %

83

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

0.48% 3.55%
0.942
S t 3.259
St

3. Birla Sun Life Tax Plan (Growth)

Month

Net Assets Value

Apr-15

7.13 - 8.65

21.3184

May-15

8.65 - 10.66

23.2370

Jun-15

10.66 - 10.28

-3.5647

Jul-15

10.28 - 11.44

11.2840

Aug-15

11.44 - 11.44

0.0000

Sep-15

11.44 - 12.19

6.5559

Oct-15

12.19 - 11.42

-6.3167

Nov-15

11.42 - 12.24

7.1804

Dec-15

12.24 - 12.87

5.1471

Jan-16

12.87 - 12.15

-5.5944

Feb-16

12.15 - 12.09

-0.4938

Mar-16

12.09 - 12.85

6.2862

84

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

5.4199% 3.55%
9.60
S t 0.1947
St

Interpretation of the Funds Performance

Particular

Average

Sharpe Index

Return

Ratio

Birla Sun Life Equity Fund-Growth

6.8383 %

0.235

Birla Sun Life Income Fund -Growth

0.4806 %

-3.259

III

Birla Sun Life Tax Plan (Growth)

5.4199 %

0.1947

II

85

Rank

Average Return
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Birla Sun Life Equity
Fund-Growth

Birla Sun Life Income

Fund -Growth

Birla Sun Life Tax Plan

(Growth)

Sharpe Index Ratio

0.5
0
-0.5

Birla Sun Life Equity

Fund-Growth

Birla Sun Life Income

Fund -Growth

-1
-1.5
-2
-2.5
-3
-3.5

86

Birla Sun Life Tax Plan

(Growth)

Kotak Mahindra Mutual Fund

The fund is promoted by Kotak Mahindra Bank, one of India's leading financial
institutions that offer financial solutions ranging from commercial banking, stock
broking, life insurance and investment banking. Kotak Mahindra Asset Management
Company Limited, a wholly owned subsidiary of Kotak Mahindra Bank, is the asset
manager for Kotak Mahindra mutual fund.
The company is headed by Uday Kotak of Kotak Bank as chairman and the fund
management function is headed by Sandesh Kirkire, chief executive officer. Kotak
Mahindra mutual fund launched its schemes in December 1998 and today manages
assets of 4, 34,504 investors in various schemes. Kotak Mahindra mutual fund was the
first fund house in the country to launch a dedicated gilt scheme investing only in
government securities.
No. of schemes

50

No. of schemes including options

119

Equity Schemes

22

Debt Schemes

74

Short term debt Schemes

Equity & Debt

Money Market

Gilt Fund

Corpus Under Management: Rs. 39587 Crs. as on March 31, 2015

87

Key Personnel: Mr. Uday S Kotak (Chairman), Mr. Sandesh Kirkire (CEO), Mr.
Alroy Lobo (Chief Strategist & Global Head Equities Asset Mgmts.), Mr. V R
Narasimhan (CCO), Mr. R. Krishnan (COO), Mr. Sandeep Kamath (Compliance),
Mr. R. Chandrasekaran (IRO)

For Performance Comparison we take three Mutual Fund Schemes

of Company:
Kotak Equity-FOF-Growth
Kotak Income Plus-(Growth)
Kotak Tax Saver-Scheme-Growth
1. Kotak Equity-FOF-Growth
Month

Net Assets Value

Apr-15

18.755 - 20.77

10.7438

May-15

20.77 - 27.76

33.6543

Jun-15

27.76 - 27.516

-0.8790

Jul-15

27.516 - 30.134

9.5145

Aug-15

30.134 - 30.134

0.0000

Sep-15

30.134 - 32.362

7.3936

Oct-15

32.362 - 31.2190

-3.5319

Nov-15

31.2190 - 33.2560

6.5249

Dec-15

33.2560 - 34.354

3.3017

Jan-16

34.354 - 33.1050

-3.6357

Feb-16

33.1050 - 32.9910

-0.3444

Mar-16

32.9910 - 34.8960

5.7743

AVERAGE RETURN

5.7097%

88

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

5.709% 3.55%
10.06
S t 0.2144
St

2. Kotak Income Plus-Growth

Month

Net Assets Value

Apr-15

12.8357 - 13.1026

2.0794

May-15

13.1026 - 13.736

4.8342

Jun-15

13.736 - 13.6629

-0.5249

Jul-15

13.736 - 14.0937

3.1455

Aug-15

14.0937 - 14.0937

0.0000

Sep-15

14.0937 - 14.1651

0.5066

Oct-15

14.1651 - 14.2771

0.7907

Nov-15

14.2771 - 14.5153

1.6684

Dec-15

14.5153 - 14.6471

0.9080

Jan-16

14.6471 - 14.5702

-0.5250

Feb-16

14.5702 - 14.5597

-0.0721

Mar-16

14.5597 - 14.8148

1.7521

AVERAGE RETURN

1.2136%

89

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

1.2136% 3.55%
1.59
S t 1.4634
St

3. Kotak Tax Saver Scheme-Growth

Month

Net Assets Value

Apr-15

9.122 - 9.98

9.4058

May-15

9.98 - 13.789

38.1663

Jun-15

13.789 - 13.447

-2.4802

Jul-15

13.447 - 14.894

10.7608

Aug-15

14.894 - 14.894

0.0000

Sep-15

14.894 - 15.918

6.8753

Oct-15

15.918 - 14.9270

-6.2257

Nov-15

14.9270 - 16.06

7.5903

Dec-15

16.06 - 16.675

3.8294

Jan-16

16.675 - 15.85

-4.9475

Feb-16

15.85 - 15.8110

-0.2461

Mar-16

15.8110 - 17.1080

8.2031

90

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

5.911% 3.55%
11.66
S t 0.1637
St

Interpretation of the Funds Performance

Particular

Average

Sharp Index

Return

Ratio

Kotak Equity-FOF-Growth

5.7097 %

0.2144

Kotak Income Plus-(Growth)

1.2136 %

- 1.4634

III

Kotak Tax Saver-Scheme-

5.9110 %

0.1637

II

Growth

91

Rank

Average Return
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Kotak Equity-FOF

Kotak Income Plus

Kotak Tax Saver

Sharpe Index Ratio

0.5
0
Kotak Equity-FOF

Kotak Income Plus

-0.5
-1
-1.5
-2

92

Kotak Tax Saver

HDFC Mutual Fund

HDFC Asset Management Company Ltd (AMC) was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset
Management Company for the HDFC Mutual Fund by SEBI vide its letter dated June
30, 2000.The registered office of the AMC is situated at Ramon House, 3rd Floor,
H.T. Parekh Marg, 169, Back bay Reclamation, Church gate, Mumbai - 400 020.
In terms of the Investment Management Agreement, the Trustee has appointed the
AMC to manage the Mutual Fund.
As per the terms of the Investment Management Agreement, the AMC will conduct
the operations of the Mutual Fund and manage assets of the schemes, including the
schemes launched from time to time.
No. of schemes

13

No. of schemes including options

30

Equity Schemes

13

Debt Schemes

Short term debt Schemes

Equity & Debt

Money Market

Gilt Fund

Corpus Under Management: Rs. 2,09,263.48 Crs. as on July 31, 2016

Key Personnel: Mr. Prashant Jain (Chairma & MD), Mr. Vinay Kulkarni (CEO
& Compliance), Mr. Chirag Setalvad (CIO), Mr. Srinivas Rao Ravuri (IRO).
Fund Managers: Mr. Miten Lathia, Mr. Rakesh Vyas.
93

For Performance Comparison we take three Mutual Fund Schemes

of Company
HDFC Growth Plan (Growth)
HDFC Income Plan (Growth)
HDFC Tax Plan (Growth)
1. HDFC Growth Plan (Growth)
Month

Net Assets Value

Apr-15

34.8155 - 36.6330

5.2204

May-15

36.6330 - 56.9001

55.3247

Jun-15

56.9001 - 55.5782

-2.3232

Jul-15

55.5782 - 60.7149

9.2423

Aug-15

60.7149 - 60.7149

0.0000

Sep-15

60.7149 - 63.0134

3.7857

Oct-15

63.0134 - 60.7351

-3.6156

Nov-15

60.7351 - 64.4480

6.1133

Dec-15

64.4480 - 68.3673

6.0813

Jan-16

68.3673 - 65.7441

-3.8369

Feb-16

65.7441 - 64.8682

-1.3323

Mar-16

64.8682 - 70.1250

8.1038

AVERAGE RETURN

6.8970%

94

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

6.897% 3.55%
15.252
S t 0.210
St

2. HDFC Income Plan (Growth)

Month

Net Assets Value

Apr-15

27.1535 - 28.2081

3.8838

May-15

28.2081 - 27.8613

-1.2294

Jun-15

27.8613 - 28.1730

1.1188

Jul-15

28.1730 - 28.1160

-0.2023

Aug-15

28.1160 - 28.1160

0.0000

Sep-15

28.1160 - 28.3370

0.7860

Oct-15

28.3370 - 28.4620

0.4411

Nov-15

28.4620 - 28.9679

1.7775

Dec-15

28.9679 - 28.9170

-0.1757

Jan-16

28.9170 - 29.0567

0.4831

Feb-16

29.0567 - 29.0088

-0.1649

Mar-16

29.0088 - 29.2065

0.6815

95

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

Rp R f

S t

0.6167 3.55%
1.28
S t 2.289
St

3. HDFC Income Plan (Growth)

Month

Net Assets Value

Apr-15

25.9839 - 27.2905

5.0285

May-15

27.2905 - 37.1072

35.9711

Jun-15

37.1072 - 38.6629

4.1924

Jul-15

38.6629 - 40.8944

5.7717

Aug-15

40.8944 - 40.8944

0.0000

Sep-15

40.8944 - 42.8570

4.7992

Oct-15

42.8570 - 41.6245

-2.8758

Nov-15

41.6245 - 44.1556

6.0808

Dec-15

44.1556 - 45.8891

3.9259

Jan-16

45.8891 - 44.3687

-3.3132

Feb-16

44.3687 - 42.6067

-3.9713

Mar-16

42.6067 - 45.3606

6.4635

AVERAGE RETURN

5.1727 %

96

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

5.1727 3.55%
10.449
S t 0.155
St

Interpretation of the Funds Performance

Particular

Average

Sharp Index

Return

Ratio

HDFC Growth Plan (Growth)

6.8970 %

0.210

HDFC Income Plan (Growth)

0.6167 %

-2.289

III

HDFC Tax Plan (Growth)

5.1727 %

0.155

II

97

Rank

Average Return
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

Average Return

HDFC Growth Plan HDFC Income Plan

(Growth)
(Growth)

HDFC Tax Plan

(Growth)

Sharpe Index Ratio

0.5
0
-0.5

HDFC Growth Plan

(Growth)

HDFC Income Plan

(Growth)

-1

HDFC Tax Plan

(Growth)
Sharpe Index Ratio

-1.5
-2
-2.5

98

ICICI Prudential Mutual Fund

Prudential ICICI Mutual Fund is the largest private sector mutual fund in India with
assets of over Rs.34,119 crore under management as of Aug 2006.
The asset management company, Prudential ICICI Asset Management Company
Limited, is a joint venture between Prudential Plc., Europe's leading insurance
company and ICICI Bank, India's premier financial institution. Prudential Plc. holds
55 per cent of the asset management company and the balance by ICICI Bank.
No. of schemes

98

No. of schemes including options

317

Equity Schemes

59

Debt Schemes

213

Short term debt Schemes

23

Equity & Debt

Money Market

Gilt Fund

Corpus Under Management: Rs.68324.05 Crs. as on May31, 2016

Key Personnel: Ms. Chanda Kochhar (Chairman), Mr. Nimesh Shah (CEO & CIO),
Ms. Supriya Sapre (Compliance), Mr. Kamaljeet Saini (IRO)

99

For Performance Comparison we take three Mutual Fund Schemes

of Company
ICICI Prudential Growth Plan-(Growth Option)
ICICI Prudential Income Plan- (Growth Option)
ICICI Prudential Tax Plan-(Growth Option)
1. ICICI Prudential Growth Plan-(Growth Option)
Month

Net Assets Value

Apr-15

72.94 - 79.73

9.3090

May-15

79.73 - 99.72

25.0721

Jun-15

99.72 - 98.41

-1.3137

Jul-15

98.41 - 107.67

9.4096

Aug-15

107.67 - 107.67

0.0000

Sep-15

107.67 - 116.39

8.0988

Oct-1

116.39- 111.17

-4.4849

Nov-15

111.17 - 118.36

6.4676

Dec-15

118.36 - 123.01

3.9287

Jan-16

123.01 - 116.67

-5.1541

Feb-16

116.67 - 116.96

0.2486

Mar-16

116.96 - 125.02

6.8912

AVERAGE RETURN

4.8727%

100

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

4.8727% 3.55%
8.189
S t 0.1615
St

2. ICICI Prudential Income Plan- (Growth Option)

Month

Net Assets Value

Apr-15

27.7341 - 29.4577

6.2147

May-15

29.4577 - 29.0718

-1.3100

Jun-15

29.0718 - 29.4018

1.1351

Jul-15

29.4018 - 29.2732

-0.4374

Aug-15

29.2732 - 29.2732

0.0000

Sep-15

29.2732 - 29.3743

0.3454

Oct-15

29.3743 - 29.5396

0.5627

Nov-15

29.5396 - 30.0600

1.7617

Dec-15

30.0600 - 29.8737

-0.6198

Jan-16

29.8737 - 29.9950

0.4060

Feb-16

29.9950 - 29.7610

-0.7801

Mar-16

29.7610 - 29.9240

0.5477

AVERAGE RETURN

101

Monthly Return

0.6522%

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

Rp R f

S t

0.6522% 3.55%
1.9472
S t 1.488
St

3. ICICI Prudential Tax Plan- (Growth Option)

Month

Net Assets Value

Apr-15

56.88 - 63.84

12.2363

May-15

63.84 - 85.02

33.1767

Jun-15

85.02 - 85.95

1.0939

Jul-15

85.95 - 100.63

17.0797

Aug-15

100.63 - 100.63

0.0000

Sep-15

100.63 - 107.97

7.2940

Oct-15

107.97 - 106.29

-1.5560

Nov-15

106.29 - 113.55

6.8304

Dec-15

113.55 - 121.69

7.1686

Jan-16

121.69 - 118.88

-2.3091

Feb-16

118.88 - 120.47

1.3375

Mar-16

120.47 - 127.34

5.7027

AVERAGE RETURN

7.3379%

102

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

7.3379% 3.55%
9.9567
S t 0.3804
St

Interpretation of the Funds Performance

Particular

ICICI Prudential Growth Plan-

Average

Sharpe Index

Rank

Return

Ratio

4.8724 %

0.1615

II

0.6522 %

-1.488

III

7.3379 %

0.3804

(Growth Option)
ICICI Prudential Income Plan(Growth Option)
ICICI Prudential Tax Plan(Growth Option)

103

Average Return
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
ICICI Prudential
Growth Plan-(Growth)

ICICI Prudential
Income Plan(Growth)

ICICI Prudential Tax

Plan-(Growth)

Sharpe Index Ratio

0.5
0
-0.5

ICICI Prudential Growth ICICI Prudential Income

Plan-(Growth)
Plan- (Growth)

-1
-1.5
-2

104

ICICI Prudential Tax

Plan-(Growth)

Reliance Mutual Fund

Reliance mutual fund, promoted by the Anil Dhirubhai Ambani (ADAG) group, is
one of the fastest growing mutual funds in India having doubled its assets over the last
one year. In March, 2006, the Reliance mutual fund emerged as the largest private
sector fund house in the country, overtaking Prudential ICICI which has been holding
that position for many years.
The sponsor of the fund is Reliance Capital Limited, the financial services arm of
ADAG. Reliance Capital Asset Management Limited, a wholly owned subsidiary of
Reliance Capital Limited, acts as the AMC to the fund. Directors of the company
include Amitabh Jhunjhunwala, a senior executive of ADAG.
No. of schemes

57

No. of schemes including options

185

Equity Schemes

60

Debt Schemes

100

Short term debt Schemes

15

Equity & Debt

Money Market

Gilt Fund

Corpus Under Management: Rs.109485.69 Crs. as on May 31, 2016

Key Personnel: Mr. Sundeep Sikka (CEO), Mr. Madhusudan Kela (Hd-Equity), Mr.
Rajesh Derhgawen (Head HRD), Mr. Himanshu Vyapak (Sales & Dist.), Mr. Milind
Nesarikar (IRO).
105

For Performance Comparison we take three Mutual Fund Schemes

of Company:
Reliance Equity Fund-Growth Plan-(Growth Option)
Reliance Income Fund-Retail Plan - Growth Plan (Growth Option)
Reliance Tax Saver (ELSS) Fund-Growth Plan- (Growth Option)
1. Reliance Equity Fund-Growth Plan-(Growth Option)
Month

Net Assets Value

Apr-15

9.2882 - 10.0227

7.9079

May-15

10.0227 - 13.0391

30.0957

Jun-15

13.0391 - 12.9842

-0.4210

Jul-15

12.9842 - 14.0367

8.1060

Aug-15

14.0367 - 14.0367

0.0000

Sep-15

14.0367 - 14.9553

6.5443

Oct-15

14.9553 - 14.0006

-6.3837

Nov-15

14.0006- 14.7205

5.1419

Dec-15

14.7205 - 15.1637

3.0108

Jan-16

15.1637 - 14.5187

-4.2536

Feb-16

14.5187 - 14.4188

-0.6881

Mar-16

14.4188 - 14.8268

2.8296

AVERAGE RETURN

4.3241

106

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

Rp R f

S t

4.3241% 3.55%
9.3198
S t 0.0831
St

2. Reliance Income Fund (Growth Option)

Month

Net Assets Value

Apr-15

29.0575 - 30.4693

4.8586

May-15

30.4693 - 29.9680

-1.6453

Jun-15

29.9680 - 30.0525

0.2820

Jul-15

30.0525 - 29.9510

-0.3377

Aug-15

29.9510 - 29.9510

0.0000

Sep-15

29.9510 - 30.0241

0.2434

Oct-15

30.0241 - 30.2366

0.7084

Nov-15

30.2366 - 30.6048

1.2177

Dec-15

30.6048 - 30.5788

-0.0850

Jan-16

30.5788 - 30.7195

0.4601

Feb-16

30.7195 - 30.6491

-0.2292

Mar-16

30.7195 - 30.8515

0.6604

AVERAGE RETURN

0.5111%

107

Monthly Return

Calculation of Sharpe Index:

Sharpe Index =

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

0.5111% 3.55%
1.54
S t 1.9719
St

3. Reliance Tax Saver (ELSS) Fund (Growth Option)

Month

Net Assets Value

Apr-15

9.714 - 10.7404

10.5662

May-15

10.7404 - 14.0519

30.8322

Jun-15

14.0519 - 14.1409

0.6334

Jul-15

14.1409 - 15.4560

9.3000

Aug-15

15.4560 - 15.4560

0.0000

Sep-15

15.4560 - 16.5706

7.2114

Oct-15

16.5706 - 15.9138

-3.9636

Nov-15

15.9138 - 16.9834

6.7212

Dec-15

16.9834 - 18.2047

7.1911

Jan-16

18.2047 - 17.6641

-2.9696

Feb-16

17.6641 - 17.6091

-0.3114

Mar-16

17.6091 - 18.7234

6.3280

AVERAGE RETURN

5.9616%

108

Monthly Return

Calculation of Sharpe Index:

Sharpe Index=

Portfolio average return - Risk free rate of return

Standard Deviation

S t

Rp R f

5.9616% 3.55%
9.22
S t 0.2613
St

Interpretation of the Funds Performance

Particular

Average Return

Sharp Index

Rank

Ratio
Reliance Equity Fund-

4.3241 %

0.0831

II

0.5111 %

-1.9719

III

5.9666 %

0.2613

Growth Plan-(Growth
Option)
Reliance Income Fund-Retail
Plan - Growth Plan - Growth
Reliance Tax Saver (ELSS)
Fund-Growth Plan- (Growth
Option)

109

Average Return
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Reliance Equity Fund- Reliance Income Fund- Reliance Tax Saver (ELSS)
Growth Plan-(Growth Retail Plan - Growth Plan
Fund-Growth PlanOption)
- Growth
(Growth Option)

Sharpe Index Ratio

0.5
0
-0.5
-1

Reliance Equity Reliance Income

Fund-Growth Fund-Retail Plan Plan-(Growth
Growth Plan Option)
Growth

-1.5
-2
-2.5

110

Reliance Tax
Saver (ELSS)
Fund-Growth
Plan- (Growth
Option)

Sharp Index Ratio

FINDINGS
As far as analysis is concerned, HDFC Growth fund was among the best

performers fund. Although all the funds are affected by the global meltdown,
(recession) still HDFC Growth Fund has better performed comparing to other
funds for its systematic and unsystematic risk. It offers advantages of
diversification, market timing, and selectivity. In the comparison of sample of
funds, HDFC Growth Fund is found highly diversified fund and because of high
diversification, it has reduced the total risk of portfolio.
Further, other funds were found very poor in diversification, market timing, and

selectivity. Although HDFC Top 200 Fund and Equity Fund performed better in
terms of returns but these suffered by the systematic (market volatility) and lack
of diversification.
One of the findings that I came across is that generally, a good model of asset

class is the one that can explain a large portion of the variance of returns on the
assets and there were some stocks in the fund portfolio, which were not aligned
with strategy of the fund portfolio.
The optimal situation involves the selection that proceeds from sensible

assumptions, is carefully and logically constructed, and is broadly consistent with

the data while collecting the stocks for the portfolio. The portfolio was showing
constructive outcome in long time horizon and the result can be improved by
making the minor changes in fund portfolio.
Hence, the portfolio theory teaches us that investment choices are made on the

basis of expected risk and returns and these expectations can be satisfied by
having right mix of assets.

111

SUGGESTIONS/RECOMMENDATIONS
In regards to its Mutual funds of the Bank should be profitable for the
investors.
The Bank should also put emphasis on its Competitors mutual funds
industries.
The Bank should try to generate internal funds while calculating proprietary
ratio.
The Bank should review its investments in current assets and long term assets.
The Bank should have optimum capital mix so that the cost of capital should
be decreased.
The company should advertise their tax saving plan more so that they can gain
more customers.
HDFC must try to locate hard working distributors who are providing good
business in their respective geographical area.
AMCs should go for increasing more awareness about different facilities of
investment such as SIP & STP among investors.

112

CONCLUSION

8.00%
7.00%

7.34%
6.84%

6.00%

6.90%
5.91%

5.71%

5.42%

4.87%
5.00%

5.96%

5.17%

4.32%

4.00%
3.00%
2.00%

1.21%

1.00%

0.65%
0.62%
0.51%

0.48%

0.00%
Equity Fund (Growth)

Income Fund (Growth)

Tax Plan (Growth)

Birla Sun Life Mutual Fund

Kotak Mahindra Mutual Fund

HDFC Mutual Fund

ICICI Prudential Mutual Fund

Reliance Mutual Fund

Mutual fund industry is on growth now days. People are becoming more interested in
purchasing mutual funds because they find it less risky and more beneficial compared
to direct equity investment.
In this project, comparison has been done on the basis of technical ratios which depict
risk- return relationship and by analyzing past years returns of the funds..
HDFC Equity Fund had performed above average and given consistent returns year
over year.
Numbers of foreign AMCs are in the queue to enter the Indian markets. We have
approximately 29 mutual funds which is much less than US. There is a big scope for
expansion. Mutual fund can penetrate rural like the Indian insurance industry with
simple and limited products.

113

LIMITATIONS

The study was limited for only 5 companies.

Summer training program was only 8 weeks, so it was not possible to make
full study on the topic.

Bank doesnt provide full information about bank as that could violate data
protection Act.

114

BIBLIOGRAPHY
1. Books on mutual fund- AMFI publications, Investment Analysis and
Portfolio Management by Prasanna Chandra.
2. Financial Management- 11th Edition by I M Pandey.
3. Journals- ICFAI Publications- Overview on Mutual Funds.
4. Newspapers- The Economic Times, Business Standard.
5. Internet sites
a) www.Google.com
b) www.mutualfundsindia.com

c) www.investopedia.com
d) www.wikipedia.com
e) www.answers.com
f)

www.nribanks.com

g) www.mutualfunds.about.com/cs/history/a/fundhistory.html
h) www.kotakmutual.com
i)

www.mutualfund.birlasunlife.com

j) www.reliancemutual.com
6. Mutual fund insight magazine

115

116