Chapter-1

Introduction

1.1 Introduction of the Study

1
In this project I have studied Systematic Investment schemes of HDFC Fund House & ICICI
Fund House. Schemes of both the House are analyzed, a comparison is also made to determine
which fund is better for the investor and which would give him good returns in future.
Sip schemes of two different fund houses are compared with the help of Performance evaluating
Techniques that are:
1. Trenyor ratio method
2. Beta
On Applying these techniques investor can make his decision of choosing the fund
 thats better for him
 that gives good return over a period of time
 less risky

What is Systematic Investment Plan ?

A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save
regularly.
It is just like a recurring deposit with the post office or bank where you put in a small amount
every month. The difference here is that the amount is invested in a mutual fund.
The minimum amount to be invested can be as small as Rs 100 and the frequency of investment
is usually monthly or quarterly.

2
 A Systematic Investment Plan is not a type of mutual fund. It is a method of investing in a
mutual fund.

There are two ways in which you can invest in a mutual fund :

• A one-time outright payment

If you invest directly in the fund, you just hand over the cheque and you get your fund units
depending on the value of the units on that particular day.

• Periodic investments

This is referred to as a SIP.

That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end
of a year, you would have invested Rs 12,000 in your fund.

Many Banks & Financial institutions provide various SIP schemes for investing. Market status is
the important criterion in this method. If the market is down, more number of units is bought at
low cost. If the market is up, less number of units is bought at high cost. Though this variation
occurs, the investment is not affected. This is due to a concept called "Averaging out the cost”.

Let's say you want to invest Rs 10,000. All you have to do is approach the fund and buy units
worth Rs 10,000. There will be two factors determining how many units you get.

Entry load

This is the fee you pay on the amount you invest. Let's say the entry load is 2%. Two percent on
Rs 10,000* would Rs 200. Now, you have just Rs 9,800 to invest.

NAV

The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day you invest
is Rs 30.

So you will get 326.67 units (Rs 9800 / 30).

Exit Load

An exit load is a fee you pay the fund when you sell the units, just like the entry load is a fee you
pay when you buy the units. An exit load may be charged if you stop the SIP mid-way. Let's say
you have a one-year SIP but discontinue after five months, then an exit load will be levied. These
conditions will wary between mutual funds.

3
Minimum Investment

If you do a onetime investment, the minimum amount that you have to invest is Rs 5,000.

If you invest via an SIP, the amount drops. Each fund has their own minimum amount. Some
may keep it at least Rs 500 per month, others may keep it as Rs 1,000.

Modes for Payment of sip

You can opt for the Electronic Clearance Service from your bank; this means the mutual fund
will, as per your instructions, debit a certain amount from your account every month.

Let's say you have a SIP of Rs 1,000 every month and you have chosen to invest in it on the 10th
of every month. Under this option, you can instruct your mutual fund to directly debit your bank
account of Rs 1,000 on the due date.

If you don't have the required money in your account, then for that month, no units will be
allocated to you.

Alternately, you can give cheques to your mutual fund. In this case, they may ask for five Post
Dated Cheques upfront with your first investment. Since these cheques are dated ahead of time,
they cannot be processed till the date indicated.

1.2 FUND HOUSE PROFILE

HDFC FUND HOUSE

To

Fo
rm

Incorporated 30/6/2000

Ownership Private

4
Ownership Pattern Foreign - 40%,
Domestic-60%

Sponsor Housing Development Finance Corporation Ltd,

Standard Life Investments Ltd.

Total Assets (Rs Cr) 87,883.09 as on 12/31/2010

Equity Funds (Open End) 13

Debt Funds (Open End) 24

Commodities (Open End) 1

Hybrid Funds (Open End) 10

Closed-end Funds 36

Chief Executive Milind Barve

Chief Investment Officer Prashant Jain

Investor Relations Officer Yezdi Khariwala

Address Ramon House, 3rd Floor, H.T.Parekh Marg, 169,

Backbay Reclamation, Churchgate,
Mumbai - 400020

Telephone 022-22029111 / 66316333

Fax 022-22028862

URL www.hdfcfund.com

Email cliser@hdfcfund.com

(www.valueresearchonline.com)

5
HDFC Bank
HDFC TaxSaver –Growth Fund
Current Stats & Profile
Latest NAV 223.01(04/03/11)
52-Weak High 261.19(09/11/10)
52-Weal Low 198.54(25/05/10)
Fund Category Equity- Tax planning
Type Open End
Launch Date March 1996
Risk Grade Below Average
Return Grade Above Average
Net Assets 2937.3(31/12/10)
Benchmark S&P CNX500

Performance Detail
Returns and Risk Aggregates
Modern
Rating & Risk Volatility Measures
Portfolio Stat
R- 0.9 13.1
Fund Rating Mean
Squared 4 0
Fund Risk Below 7.0 Standard 32.3
Alpha
Grade Average 9 Deviation 0
Fund Return Above 0.9 Sharpe
Beta 0.27
Grade Average 5 Ratio

6
 (www.valueresearch.com)

Best and Worst Performance

Best (Period) Worst (Period)
34.19 (15/12/1999 - -32.30 (26/09/2008 -
Month
14/01/2000) 27/10/2008)
Quarte 78.93 (09/03/2009 - -39.75 (02/09/2008 -
r 10/06/2009) 02/12/2008)
272.59 (24/02/1999 - -55.57 (03/12/2007 -
Year
24/02/2000) 02/12/2008)

Annual Returns
2010 2009 2008 2007 2006
Fund Return 26.42 99.07 -51.55 39.44 34.12
Rank In
5/37 3/32 8/29 24/26 10/23
Category
Category
18.78 81.79 -55.56 59.25 30.18
Average
Sensex 17.43 81.03 -52.45 47.15 46.70
S&P CNX Nifty 17.95 75.76 -51.79 54.77 39.83

HDFC Balanced – Growth

Snapshot of the Fund
Current Stats & Profile
Latest NAV 52.816 (04/03/11)
52-Week High 58.38 (09/11/10)
52-Week Low 46.251 (05/03/10)
Fund Category Hybrid: Equity-oriented
Type Open End
Launch Date August 2000
Risk Grade Below Average

7
 Return Grade High
Net Assets (Cr) 224.97 (31/12/10)
Fund Details
VR Category Hybrid: Equity-oriented
Type Open End
Load
Entry Load Nil
Exit Load 1% for redemption within 365 days

Systematic Investment Plan

SIP Yes

Initial Investment (Rs) --

Additional Investment (Rs) 500

No of Cheques 12

Note

The scheme also offers Quarterly SIP

with a minimum investment in multiples
of Rs 1500 and 4 cheques.

Returns and Risk Aggregates

Modern Portfolio
Rating & Risk Volatility Measures
Stat
0.9
Fund Rating R-Squared Mean 13.65
2
Below 9.2 Standard
Fund Risk Grade Alpha 23.88
Average 7 Deviation
Fund Return 0.9
High Beta Sharpe Ratio 0.39
Grade 7

8
HDFC debt income
Detail of the Fund

Fund Details Eligiblity

VR Category Debt: Income
Type Open End Who is eligible to invest?
Load
Entry Load Nil · Individuals · HUFs
· NRI · Minors
Exit Load 0.5% for
· Association of Persons · Company
redemption within
· PartnerShip Firm · Trust
180 days
· Societies · FIIs
· OCBs

Repatriable Yes

Investment Details
Basics
Min Investment (Rs) 5000
Subsequent Investment (Rs) 1000
Min Withdrawal (Rs) 500
Min Balance --
Pricing Method Forward
Purchase Cut-off Time (hrs) 15
Redemption Cut-off Time (hrs) 15
Redemption Time (days) 3
Lock-in --
Cheque Writing --

Systematic Investment Plan

SIP Yes

Initial Investment (Rs) --

Additional Investment (Rs) 500

9
 No of Cheques 12

Note

The scheme also offers Quarterly SIP with a

minimum investment in multiples of Rs
1500 and 4 cheques.

Snapshot of the Fund

Current Stats & Profile

Latest NAV 22.5874 (04/03/11)
52-Week High 22.5874 (04/03/11)
52-Week Low 21.1844 (08/03/10)
Fund Category Debt: Income
Type Open End
Launch Date August 2000
Risk Grade High
Return Grade Above Average
Net Assets (Cr) 594.77 (31/12/10)
Benchmark Crisil Comp BFI

Returns and Risk Aggregates

Modern Portfolio
Rating & Risk Volatility Measures
Stat
0.0
Fund Rating R-Squared Mean 5.43
1
1.5 Standard
Fund Risk Grade High Alpha 2.46
6 Deviation
Fund Return Above 0.0
Beta Sharpe Ratio 0.64
Grade Average 3

10
ICICI PRUDENTIAL FUND HOUSE

Top of Form
14

Bottom of Form

Incorporated 25/8/1993

Ownership Foreign JV

Ownership Pattern Foreign - 49%,

Domestic-51%

Sponsor Prudential plc, ICICI Bank

Total Assets (Rs Cr) 65,876.50 as on 12/31/2010

Equity Funds (Open End) 28

Debt Funds (Open End) 73

Commodities (Open End) 1

Hybrid Funds (Open End) 15

Closed-end Funds 64

Chief Executive Nimesh Shah

Chief Investment Officer Sankaran Naren

Investor Relations Officer Ranganath Athreya

Address 3rd Floor, Hallmark Business Plaza, Sant Dyaneshwar Marg,

11
 Bandra(East),
Mumbai - 400051

Telephone 022-26428000

Fax 022-26554165

URL www.icicipruamc.com

Email enquiry@icicipruamc.com

ICICI Prudentiual EQUITY Taxplaning Fund

Fund Detail of the Fund
Current Stats & Profile

Latest NAV 135.1 (04/03/11)

52-Week High 155.09 (10/11/10)

52-Week Low 121.25 (25/05/10)

Fund Category Equity: Tax Planning

Type Open End

Launch Date August 1999

Risk Grade Average

Return Grade High

Net Assets (Cr) 1,320.28 (31/12/10)

Benchmark S&P CNX Nifty

12
Relative Performance of the Fund

Relative Performance (Fund Vs Category Average)

Returns and Risk Aggregates

Modern Portfolio
Rating & Risk Volatility Measures
Stat
Fund Rating R-Squared 0.92 Mean 13.73
Standard
Fund Risk Grade Average Alpha 7.60 35.01
Deviation
Fund Return
High Beta 1.01 Sharpe Ratio 0.27
Grade

Performance of the Fund

Best and Worst Performance
Best (Period) Worst (Period)
41.05 (03/12/1999 - -38.84 (11/04/2000 -
Month
04/01/2000) 12/05/2000)
85.19 (22/11/1999 - -55.59 (22/02/2000 -
Quarter
22/02/2000) 23/05/2000)
158.38 (05/03/2009 - -57.93 (13/03/2000 -
Year
05/03/2010) 13/03/2001)
Annual Returns
2010 2009 2008 2007 2006
Fund Return 24.11 112.00 -56.03 40.95 26.15
Rank In
9/37 1/32 16/29 22/26 17/23
Category
13
 Category
18.78 81.79 -55.56 59.25 30.18
Average
Sensex 17.43 81.03 -52.45 47.15 46.70
S&P CNX Nifty 17.95 75.76 -51.79 54.77 39.83

ICICI Pru Balanced – Growth

Snapshot of the Fund
Fund Details
VR Category Hybrid: Equity-oriented
Type Open End
Load
Entry Load Nil
Exit Load 1% for redemption within 365 days

(www.valueresearchonline.com)
Systematic Investment Plan
SIP Yes
Initial Investment (Rs) 1000
Additional Investment (Rs) 1000
No of Cheques 5
14
 Note
The scheme also offers a quarterly SIP with
minimum investment of Rs 5000 and 4 post-
dated cheques of Rs 5000 each.

ICICI Hybrid Fund

Snapshot of the Fund
Current Stats & Profile
Latest NAV 44.12 (07/03/11)
52-Week High 48.59 (09/11/10)
52-Week Low 39.44 (25/05/10)
Fund Category Hybrid: Equity-oriented
Type Open End
Launch Date October 1999
Risk Grade Average
Return Grade Below Average
Net Assets (Cr) 274.21 (31/12/10)
Benchmark Crisil Balanced

Returns and Risk Aggregates

Modern Portfolio
Rating & Risk Volatility Measures
Stat
0.9
Fund Rating R-Squared Mean 4.29
5
-
Standard
Fund Risk Grade Average Alpha 0.0 22.47
Deviation
9
Fund Return Below 0.9
Beta Sharpe Ratio -0.00
Grade Average 3
(www.valueresearchonline.com)

` ICICI Prudential Income

Snapshot of the Fund

Eligiblity
Fund Details

15
VR Category Debt: Income Who is eligible to invest?
Type Open End
Load · Individuals · HUFs
Entry Load Nil · NRI · Minors
Exit Load Nil · Association of Persons · Company
· PartnerShip Firm · Trust
· Societies · FIIs
· OCBs

Repatriable Yes

Investment Details
Basics
Min Investment (Rs) 5000
Subsequent Investment (Rs) 500
Min Withdrawal (Rs) 500
Min Balance (Rs) 5000
Pricing Method Forward
Purchase Cut-off Time (hrs) 15
Redemption Cut-off Time (hrs) 15
Redemption Time (days) 1
Lock-in --
Cheque Writing

Systematic Investment Plan

SIP Yes
Initial Investment (Rs) --
Additional Investment (Rs) 1000
No of Cheques 5
Note
The scheme also offers a quarterly SIP with
minimum investment of Rs 5000 and 4 post-dated
cheques of Rs 5000 each.
(www.valueresearchonline.com)

16
ICICI Pru Debt Income Fund
Snapshot of the Fund
(www.Valueresearchonline.com)

Current Stats & Profile

Latest NAV 30.8096 (04/03/11)
52-Week High 30.8096 (04/03/11)
52-Week Low 29.7623 (05/03/10)
Fund Category Debt: Income
Type Open End
Launch Date June 1998
Risk Grade Above Average
Return Grade Average
Net Assets (Cr) 328.10 (31/12/10)
Benchmark Crisil Comp BFI

Trailing Returns
As on 04 Mar 2011 Fund Category
Year to Date 0.18 0.90
1-Month 0.55 0.63
3-Month 0.92 1.53
1-Year 3.52 5.24
3-Year 8.79 6.28
5-Year 8.70 6.49
Return Since Launch 9.29 --
Returns upto 1 year are absolute and over 1 year are annualize
.

Returns and Risk Aggregates

Rating & Risk Modern Portfolio Stat Volatility Measures
Fund Rating R-Squared 0.04 Mean 3.22
Fund Risk Grade Above Average Alpha -0.66 Standard Deviation 1.97
Fund Return Grade Average Beta 0.07 Sharpe Ratio -0.33

(www.Valueresearchonline.com)

17
 Best and Worst Performance
Best (Period) Worst (Period)
Month 15.77 (18/11/2008 - 18/12/2008) -6.76 (05/01/2009 - 04/02/2009)
Quarter 21.54 (06/10/2008 - 05/01/2009) -6.88 (05/01/2009 - 06/04/2009)
Year 26.60 (03/07/2008 - 03/07/2009) -1.91 (16/10/2003 - 15/10/2004)
(www.Valueresearchonline.com)

REGULATORY BODIES
Mutual funds in India are regulated by two following regulatory bodies. These governing make
rules and to make it‘s functioning smooth so that care can be taken of all the parties involve in
the industry. 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.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

18
ASSOCIATION OF MUTUAL FUNDS IN INDIA

SECURITIES AND EXCHANGE BOARD OF INDIA

ESTABLISHMENT
In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government
of India through an executive resolution, and was subsequently upgraded as a fully autonomous
body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board
of India Act (SEBI Act) on 30th January 1992. The basic objectives of the Board were identified
as:

To protect the interests of investors in securities;

To promote the development of Securities Market;
To regulate the securities market and
For matters connected therewith or incidental thereto.

PREAMBLE
[ACT NO. 15 OF 1992]
The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as:
“…..to protect the interests of investors in securities and to promote the development of, and to
regulate the securities market and for matters connected therewith or incidental thereto”

ROLE OF SEBI IN MUTUAL FUND INDUSTRY

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

THE SEBI (MUTUAL FUNDS) REGULATIONS, 1996:

The revised regulations embodied far reaching changes in the regulation and functioning of
mutual funds. The revised regulations provide for enhanced level of investor protection
empowerment of investors stringent disclosure norms in the offer documents, so that investors
are better informed, better advised, better aware of risks and rewards standardization of norms
for valuation of assets, computation of Net Asset Values (NAVs) of schemes of mutual funds

19
and accounting standards and policies complete freedom to asset management companies to
structure schemes in accordance with investor preferences removal of quantitative restrictions on
investment by mutual funds and replacement by prudential supervision replacement of vetting of
offer documents by filing guaranteed return schemes by mutual funds permitted provided returns
including capital were guaranteed indication of expected returns based on hypothetical portfolio
permitted better governance of mutual funds through higher responsibilities and empowerment
of trustees as front-line regulators of mutual funds closer scrutiny through off site and on site
inspections code of ethics for asset management companies

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India
was generated to function as a non-profit organization. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management
Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have
launched mutual fund schemes are its members

ASSOCIATION OF MUTUAL FUNDS IN INDIA

706-708, Balarama
Bandra-Kurla Complex
Bandra (East)
Mumbai - 400 051.
Tel No. : 26590382 / 26590206 / 26590243 / 26590246
FAX No. : 26590235 / 26590209
AMFI Website: http://www.amfiindia.com/

AWARDS
2009

20
 `

2008

2007

21
2006

22
A Systematic Investment Plan or SIP allows us to take advantage of the growth potential of stock
mutual funds, even if we do not have a large sum of money to invest. Infact most mutual funds
require a minimum of just Rs.500 per month to get started.

Most of us are used to paying for a car or home purchase with monthly EMIs (Equated Monthly
Investments). Think of a SIP investment along thoseeth lines - only, you are paying yourself a
monthly sum, and investing in the stock market, to build long-term wealth!

23
 Advantages of a Systematic Investment Plan
You can budget for a SIP investment every month if you are say, looking to invest only a small
amount on a regular basis.
Even if you have a lump sum to invest, you may not want to invest all of it at one go. And a
systematic investment plan where you spread out the investment in the stock market over several
months can provide several advantages. It will help you mitigate market risk and volatility. It
helps you test out the waters and build your portfolio one step at a time.

Please look carefully at the table above. It becomes clear that most importantly, a systematic
investment plan provides the benefits of what is called "rupee cost averaging". In other words, if
the stock market goes down, your next payment will buy more units. And If the market goes up,
your investment will increase in value.

24
So, What's a good time to start a SIP?
We have seen record highs in 2007 and record lows too, in 2008. Now in June 2009, we are
seeing a market that showed a remarkable recovery from the lows of as recent as March 2009.
Will it sustain or go down again? No one knows. It is simply not possible to time the market
accurately. If it was that easy all the fund managers would be sitting at home with their fortunes,
isn't it.
So, how do you decide when is a good time to start investing in a SIP? The answer is simple.
Anytime is good. If you can maintain the discipline of making regular monthly investments.
Consider the graphic below carefully. We are looking at an example where a investor started at
possibly the worst time in the recent history of our markets - February 2000 - at the peak of the
dot-com bull market. He started investing Rs. 1000 every month in a composite fund (consisting
of the 10 largest open-ended equity funds with 10 yr plus track records) and continued investing
till Sep 2008.

With the hindsight knowledge of the huge fall from the dot-com/technology driven high of year
2000, its a good bet that nobody would have advised the investor to start a SIP at that time. But
look at the annualised returns of 29% compounding even after starting just before the market
crashed! Now that's as good a record, as any.

So we can see that it really did not matter when he started. Neither did it matter as much that
again in Sep 2008 the market was touching record lows. 2001 to 2003 was a sticky bear market.
But that meant that the investor was actually buying units of the mutual fund at very low prices.
His patience and discipline got rewarded when the market finally took off in 2003.
And again from Sep 2008 to Mar 2009, if he continued investing he would have purchased those
units at low prices, and reaping the benefits now.

25
There is a lession from this history. That if you have a fairly long investing time-horizon -
upwards of 5 years, at the least - a systematic investment plan can reap you huge rewards.
Now that you are convinced of the utility of a SIP, why SIP is a smart move, and why you need
to be regular with your instalments, you are probably ready to invest.
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.
So what's a Systematic Investment Plan?

SIP is a way of investing specifically designed for those who are interested in building wealth
over a long-term and plan out a better future for themselves and their family. It is useful for those
who want to get their investments going, but don't have a large sum of money to invest.

Who can buy a Systematic Investment Plan?

Anyone can enrol for this facility by starting an account with minimum investment amount -
usually Rs 500 per month for one year. One can give post-dated cheques based on one’s
convenience.

Why you should invest in a Systematic Investment Plan?

• Discipline
The cardinal rule of building your corpus is to stay focused, invest regularly and maintain
discipline in your investing pattern. A few hundreds set aside every month will not pinch your
monthly disposable income too much. You will also find it easier to part with a few hundreds
every month rather than investing a big lump sum in one go.

• Power of compounding
Investment gurus always recommend that one must start investing early in life. One of the main
reasons for doing that is the benefit of compounding. To explain with an example. Person A
started investing Rs 10,000 per year at the age of 30. Person B started investing the same amount
every year at the age of 35. When they attained the age of 60 respectively, person A had built a
corpus of Rs 12.23 lakh while person B’s corpus was Rs 7.89 lakh. A rate of return of 8%
compounded has been assumed. So the difference of Rs 50,000 in amount invested made a
difference of more than Rs 4 lakh to their end corpus. That difference is due to the effect of
compounding. The longer the compounding period, the better for you.

26
Now instead of investing Rs 10,000 each year, suppose person A invested Rs 50,000 after every
5 years, starting at the age of 35. The total amount invested, thus remains the same, which is Rs 3
lakh. However, when he is 60, his corpus will be Rs 10.43 lakh. Again, he loses the advantage of
compounding in the early years.

• Rupee cost averaging

This is especially true for investments in equities. When you invest the same amount in a fund at
regular intervals over time, you buy more units when the price is lower. Thus, you would reduce
your average cost per share or per unit over time. This strategy is called 'rupee cost averaging'.
With a sensible and long-term investment approach, rupee cost averaging can smooth out the
market's ups and downs and reduce the risks of investing in volatile markets.

Sharma aptly sums it up, "In developing economies like India, where securities markets (equities
and fixed income instruments) can be volatile and it is rarely possible to time the markets and
predict the future. We can seldom accurately predict when a particular stock will move up or
where the interest rates are headed."

He says, "Systematic Investment Plan makes the volatility of the securities markets work in your
favor. Since the amount invested per month is a constant, the investor ends up buying more units
when the price is low and fewer units when the price is high. Therefore, the average unit cost
will always be less than the average sale price per unit, irrespective of the market rising, falling,
or fluctuating. This concept is called Rupee Cost Averaging (RCA)."

Some examples:
HDFC MUTUAL FUND
SCHEME: HDFC CAPITAL BUILDER FUND
Returns SIP Normal
5 year 41.81% 19.39%
3 year 69.28% 56.15%
1 year 86.47% 47.62%
PRU ICICI MUTUAL FUND
SCHEME: PRU ICICI GROWTH FUND
Return SIP Norma
s l
5 year 27.60 7.37%
%
3 year 44.89 35.3%
% RELIANCE
1 year 54.39 13.89 MUTUAL FUND
% % SCHEME:
RELIANCE
GROWTH FUND

27
 Return SIP Norma
s l
5 year 52.17 20.19
% %
1 year 80.34 37.89 Convenience
% % This is a very convenient way
of investing. You have to just
submit cheques with the completed enrollment form. The mutual fund will deposit the cheques
on the requested date and credit the units to one’s account and will send the confirmation for the
same.

Other advantages
Most fund houses waive entry or exit loads on SIP investments
Capital gains, wherever applicable, are taxed on a first-in first-out basis.

28
 Chapter2
Literature Review

SIP or systematic investment planning is method through which you can invest in mutual
funds through small and periodic installments. Infact you can invest as low as Rs. 1000/- on
a monthly basis. Moreover you can also select the tenure of the instalments.
Investing in SIP’s is a smart choice
SIP’s Inculcate financial discipline and helps you make investment your first priority from it
being your last priority.
SIP’s Average out your cost of investment and hence reduces your risk of investment.

29
Let’s say you invested Rs 1000 every month. And lets say the scheme invested in is
available at a rate of Rs 20 per unit. Then in month 1, you will be able to obtain 50 units. In
month 2 if the unit value goes down to Rs 10 then you will be able to obtain 100 units.
Hence for Rs 2000 invested over 2 months the total value of your investment at the end of 2
months is Rs 1500. However if you had invested a straight sum of Rs 2000 in month 1 when
the
rate was Rs 20 per unit your net value at the end of month 2 will only be Rs 1000/-.
Hence an SIP helps you average out your cost and thereby reduce risk resulting in
generating superior returns. Helps in compounding your wealth.

Sip provides disciplined savings

Every month you are forced to keep aside a fixed amount. This could either be debited directly
from your account or you could give the mutual fund post-dated cheques. it helps you make
money over the long term. Since you get more units when the NAV drops and fewer when it
rises, the cost averages out over time. So you tide over all the ups and downs of the market
without any drastic losses.
Also, a number of mutual funds do not charge an entry load if you opt for an SIP. This fee is a
percentage of the amount you are investing. And if you do not exit (sell your units) within a year
of buying the units, you do not have to pay an exit load (same as an entry load, except this is
charged when you sell your units).
If, however, you do sell your units within a year, you would be charged an exit load. So it pays to
stay invested for the long-run.
The best way to enter a mutual fund is via an SIP. But to get the benefit of an SIP, think of at
least a three-year time frame when you won't touch your money.
Of course you would lose money if your units lost value over time.
What most SIP Mutual funds don't tell you is that they recover their fees as monthly charges by
selling your units, so while you are buying more units when the market is down, more of your
units are also being sold to fund the monthly charges of the Mutual fund. Also the Bid and Offer
of the Mutual Fund is around 7% and this is the front load or expense you pay for buying the
units each month. Also sometimes the Mutual fund will have annual fee charges.
In spite of the above drawbacks the retail investors' benefit in the long term horizon of 5-8 years
is enormous. Only make sure that you can switch your funds from stock market to money market
at short notice when the markets are really in a correction phase to safeguard the profits which
you have made when the market was in a booming phase.

SBI introduced Systematic Investment Plans for the benefit of the investors where the
investors can make monthly payments like investing in a recurring deposit.
There are some schemes in SBI SIP plan which are generating good returns more consistently.
Some of the schemes are:

30
SBI Magnum Sector Funds Umbrella
SBI Chotta SIP fund
SBI Magnum Sector Funds Umbrella - Emerging Fund
SBI Magnum Midcap Fund
SBI Magnum Taxgain Scheme
SBI Blue Chip Fund
Example of one such fund offered by SBI is:

Magnum Sector Funds Umbrella

Launched in August 1999 Registrar

Minimum investment of Rs. 2000 per sector NAV Information
Entry Load : Investments below Rs. 5 crores – 2.25% Fact sheet
Investments of Rs.5 crores and above – NIL" SIP/STP - 2.25% Archives
Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 Application Form
months and < 12 months - 0.50% Investments of Rs.5 crores and Apply Online
above - NIL
SIP /STP-< 6 months from the date of investment of each
instalment - 1.00%
SIP : Minimum amount Rs.500/month - 12 months
Rs.1000/month - 6months, Rs.1500/quarter - 12 months

STP : Minimum amount Rs.1000/- month - minimum period of 6

months Rs.3000/ Quarter - minimum period of 6 months
Inter scheme switches to other equity schemes will not carry an Entry Load. However exit
load will be applicable. In respect of STP transactions, an investor would now be permitted to
transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000
pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance
requirement as stipulated for the switch out scheme. The minimum period for STP will be
atleast 6 months.

31
Chapter 3
RESEARCH
METHODOLOGY

32
Research Methodology

3.1 Objectives:
a) To study Systematic Investment schemes
b)Comparing schemes of two Fund House & selecting the one in which maximum return can be
gained.
c) To ascertain the factors for differential performance in various schemes.
d) To study how can an investor gain good returns by having proper understanding of the the sip
plans.

Data collection:
Secondary Data is taken for this study and based on that performance evaluation of the
schemes is done.
Sampling Framework:

a.) Sampling Plan

The sampling plan calls for two decisions.

i. Sampling unit:
The target must be defined that has to be sampled. It is necessary so as to develop a sampling
frame so that everything in the target population has an equal chance of being sampled. The
sampling unit of this project are Fund House of ICICI & HDFC Bank.

ii. Sample Size: How many Funds are selected?

The sample Consist of three funds from each of the fund houses.
1. Tax saving Fund from both the fund house are taken
2. Income Fund of HDFC & ICICI are considered.
3. Balanced- Growth Fund from both the Fund House are taken.

Selection of Funds from each of the Fund Houses is done on the basis of Convenient Sampling.

33
TOOLS FOR EVALUATING PERFORMANCE

The tools which are taken for evaluating the performance are risk adjusted
measures.

RISK ADJUSTED MEASURES ARE:

BETA
Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility
associated with the fund as compared to the benchmark. A beta that is greater than one means that
the fund is more volatile than the benchmark, while a beta of less than one means that the fund is
less volatile than the index.

ALPHA
Alpha is the difference between the returns one would expect from a fund, given its beta, and the
return it actually produces. An alpha of 1.0 means the fund produces a return 1% higher than its
beta would predict. An alpha of -1.0 means the fund produces a return 1% lower.

TREYNOR RATIO
This ratio is similar to the above except it uses beta instead of standard deviation. It's also known
as the Reward to Volatility Ratio, it is the ratio of a fund's average excess return to the fund's beta.
It measures the returns earned in excess of those that could have been earned on a riskless
investment per unit of market risk assumed.
T = Return of Portfolio - Return of Risk Free Investment
Beta of Portfolio

SCOPE OF THE STUDY

Scope of the study is limited only to MUTUAL Fund Sip schemes. And moreover only HDFC &
ICICI Fund House schemes are taken in this study. This study will prove helpful for those
investors who want to invest their money for long terms.

34
IMPORTANCE OF THE STUDY
The investor would naturally be interested in knowing which (SIP) scheme is better for him. He
would have to make intelligent decision that which funds to choose so that he can get a good
return on his investment. So to help the investor in choosing the right fund by evaluating certain
criteria’s and then stating which fund is better is the motto of this study.

Chapter – 4
35
Data Analysis
And
Interpretations

ANALYSIS AND FINDINGS

Comparing HDFC Debt Income Fund Vs ICICI Debt Income Fund

Snapshot of the two Funds

36
 1
Lau Category Rating Risk Grade Return Grade Yea Expe
Fund
nch r nse
Name F ilte r F ilte r F ilte r Filte r
Date Ret Ratio
urn
HDFC 200 Debt: Income 3 Star High Above Avg. 6.5 2.02
Incom 0- 4
e 08A
ug-
200
0
ICICI 199 Debt: Income 2 Star Above Avg. Avg. 3.5 2.09
Prude 8- 2
ntial 06J
Incom un-
e 199
8

Risk & Volatility Chart

Fund Risk Grade

Standard Sharpe R-
Fund Name Beta Alpha
Filter Deviation Ratio Squared

HDFC Income High 2.46 0.64 0.03 1.56 0.01

ICICI Prudential Above Avg. 1.97 -0.33 0.07 -0.66 0.04

Income

(SOURCE: WWW.VALUERESEARCHONLINE.COM)

Performance Evaluation of Fund on the basis of Beta of the two

Funds
Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility
associated with the fund as compared to the benchmark. So quite naturally the success of beta is
heavily dependent on correlation between a fund and its benchmark. Thus if the fund’s portfolio
doesn’t have a relation with the benchmark index then a beta would be grossly inadequate. A
beta that is greater than one means that the fund is more volatile than the benchmark, while a
beta of less than one means that the fund is less volatile than the index. A fund with a beta very
close to 1 means the fund’s performance closely matches the index or benchmark. If, for

37
example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been moving 3%
more than the index. Therefore, if the BSE Sensex increased 10% the fund would be expected to
increase 10.30%.
Investors expecting the market to be bullish may choose funds exhibiting high betas,
which increase investors’ chances of beating the market. If the investor expects the market to be
bearish in the near future, the funds that have betas less than 1 are a good choice because they
would be expected to decline less in value than the index.

Interpretation
The Beta for ICICI Pru Income Fund is .07 & Beta for HDFC Income fund is .03, in terms of
risk HDFC Fund is less risky than ICICI Pru Fund but as the value of beta for both funds is less
than one and close so investment can be made in any of the two.
Beta less the 1 signifies that the fund is less volatile than the index.

Evaluation of Performance based on treynor ratio :

The Treynor ratio, as devised by Jack Treynor, is a measurement of a portfolio’s return earned in
excess of what would be earned on a risk-free investment. The higher the Treynor ratio, the
better the performance of the portfolio or stock being analyzed.
The formula for the Treynor Ratio is as follows:

Treynor ratio = (Average portfolio return – Average risk return of risk-free investment) ÷
Beta of portfolio

38
So average Portfolio return of HDFC Income Fund – 14.5% (7/03/11) (3yrs)
(marketcontrol.com)
Average Risk return of risk-free investment – 8%
Beta of Portfolio - .03
(valueresearchonline.com)
Treynor ratio - (.145 – .08 )/ .03 =
Treynor ratio for HDFC income Fund is 2.1600
Treynor ratio for ICICI Pru Income Fund : Average Portfolio return of ICICI Pru Income
Fund – 15.2% (for 3yrs)
Risk free return – 8% Beta of Portfolio - .07
Treynor ratio – ( .15 2- .08 )/ .07 = 1.02 Trenyor ratio for ICICI Pru Income Fund – 1.02`
Interpretation
High the treynor ratio High is the performance of the Fund so HDFC Income Fund is a better
option for investment as the Trenyor ratio is more .Hence the fund will perform more and give
good returns.

Comparing HDFC Taxsaver Plan Vs ICICI Pru Taxsaver Plan

1
Lau Return Exp
Category Rating Risk Grade Yea
Fund nch Grade ense
r
Name Dat E q u ity : T a x P la n n in g F ilte r F ilte r Rati
A bov e A v g. Ret
e o
urn
HDF 199 Equity: Tax 5 Star Below Avg. Above Avg. 12. 1.86
C 6- Planning 14
Taxsa 03
ver Ma
r-
199
6
ICICI 199 Equity: Tax 4 Star Avg. High 8.1 1.99
Prude 9- Planning 6

39
 1
Lau Return Exp
Category Rating Risk Grade Yea
Fund nch Grade ense
r
Name Dat E q u ity : T a x P la n n in g F ilte r F ilte r Rati
A bov e A v g. Ret
e o
urn
ntial 08
Tax Au
Plan g-
199
9

Comparing Risk & Volatality of Funds

Fund Risk Grade
Standard Sharpe R-
Fund Name Beta Alpha
Filter Deviation Ratio Squared
HDFC Taxsaver Below Avg. 32.30 0.27 0.95 7.09 0.94
ICICI Prudential Avg. 35.01 0.27 1.01 7.60 0.92
Tax Plan

Evaluating Performance on the basis of Beta coefficient

Value of Beta for HDFC taxsaver Fund - .95
Value of Beta for ICICI Prudential Tax Plan – 1.01
Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility
associated with the fund as compared to the benchmark. A beta that is greater than one means that
the fund is more volatile than the benchmark, while a beta of less than one means that the fund is
less volatile than the index.
Interpretation
Value of Beta for HDFC taxsaver Fund is less than 1, so this fund is less volatile than the index. If
the market falls also it would not have much effect on the fund. Whereas ICICI Prudential Taxsaver
Fund is more volatile than its benchmark index. So here the better option for the customer is to go
for HDFC Taxsaver fund as this Fund is less risky and less volatile. It also offers better returns over
time. Evaluation of Performance of Fund on basis of Treynor Ratio The Treynor ratio, as devised by

40
Jack Treynor, is a measurement of a portfolio’s return earned in excess of what would be earned on a
risk-free investment. The higher the Treynor ratio, the better the performance of the portfolio or
stock being analyzed.
The formula for the Treynor Ratio is as follows:
Treynor ratio = (Average portfolio return – Average risk return of risk-free investment) ÷
Beta of portfolio
Average Portfolio return of HDFC Taxsaver Fund – 16.53 (3yrs) (moneycontrol.com)
Risk Free Return on Investment – 8%
Beta of Portfolio for HDFC Taxsaver Fund – .95 (valueresearchonline.com)
Treynor ratio = ( .1653 - .08 )/ .95 = .0897
Average Porfolio return of ICICI Pru Taxplan – 15.6 ( 3yrs) ( moneycontrol.com)
Risk Free Return On Investment – 8%
Beta of portfolio for ICICI Pru Taxplan – 1.01 (valueresearchonline.com)
Treynor ratio – ( .156 - .08 )/1.01 = .075

Interpretation
High the Treynor ratio High is the performance of the fund so one should go for investing in HDFC
taxsaver Plan.

Comparing HDFC Balanced – Growth Vs ICICI Pru Balanced – Growth

1
Lau Exp
Category Rating Risk Grade Return Grade Yea
Fund nch ense
r
Name Dat H y b r id : Eq u ity - o r ie n te d 5 S ta r F ilte r H ig h Rati
Ret
e o
urn
HDF 200 Hybrid: Equity-oriented 5 Star Below Avg. High 13. 2.15
C 0- 44
Balan 08
ced Au
g-
200
0
ICICI 199 Hybrid: Equity-oriented 2 Star Avg. Below Avg. 9.2 2.30

41
 1
Lau Exp
Category Rating Risk Grade Return Grade Yea
Fund nch ense
r
Name Dat H y b r id : Eq u ity - o r ie n te d 5 S ta r F ilte r H ig h Rati
Ret
e o
urn
Prude 9- 9
ntial 10
Balan Oct
ced -
199
9

Risk & Volatality comparison

Fund Risk Grade
Standard Sharpe R-
Fund Name Beta Alpha
Filter Deviation Ratio Squared

HDFC Balanced Below Avg. 23.88 0.39 0.97 9.27 0.92

ICICI Prudential Avg. 22.47 -0.00 0.93 -0.09 0.95
Balanced

Evaluating Performance of the Funds on the basis of Beta Coefficient

Value of Beta for HDFC Balanced – Growth Fund - .97
Value of Beta for ICICI Prudential Balanced Growth Plan – .93
Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility
associated with the fund as compared to the benchmark. A beta that is greater than one means that
the fund is more volatile than the benchmark, while a beta of less than one means that the fund is
less volatile than the index.

Interpretation
As the Beta in both the cases is less than one so both the funds are less volatile than theier
Benchmark index. But as Beta of ICICI Prudential Balanced –G Fund is less than that of HDFC
Balanced –G Fund so ICICI Fund is a better option for investment as it is less risky than HDFC

42
Fund and also would offer better returns because if the market slips than it would have a less
impact on the performance of the fund.
Evaluation of Performance based on treynor ratio :The Treynor ratio, as devised by Jack
Treynor, is a measurement of a portfolio’s return earned in excess of what would be earned on a risk-free
investment. The higher the Treynor ratio, the better the performance of the portfolio or stock being
analyzed.

The formula for the Treynor Ratio is as follows:

Treynor ratio = (Average portfolio return – Average risk return of risk-free

investment) ÷ Beta of portfolio

Average portfolio return = 16.4 %

Average risk return of risk free investment = 8%
Beta for HDFC Balanced –G Fund = .93
Treynor ratio = (.164 - .08 )/.97= .086
Average portfolio return of ICICI Prudential Fund = 14.7%
Average risk return of risk frre investment = 8%
Beta for ICICI Balanced _ G Fund = .97
Treynor ratio = (.147 - .08 )/.93 = .072

Interpretation :
One should go for HDFC Balanced –Growth Fund as more the Treynor ratio more
is the performance of the fund and more are the returns which is what the investor
wants

43
44
Chapter -5 Findings of
the Study

5.1 FINDINGS OF THE STUDY

FINDINGS OF THE STUDY

1. On the Basis of Beta of HDFC taxsaver plan & ICICI Prudential Tax plan,
the Best Fund is
 HDFC Taxsaver plan
1. On the Basis of Trenyor ratio best Fund to invest is
 HDFC Taxsaver Plan

45
1. On the Basis of Beta of HDFC Balanced Growth & ICICI Prudential
Growth, the best one is
 ICICI Prudential Growth Plan
1. On the Basis of Treynor ratio best fund to invest is
 HDFC Balanced Growth
1. On the Basis of Beta of HDFC Income Fund & ICICI Pru Income Fund, the
Best one is
 HDFC Income Fund
1. On the Basis of Treynor ratio, best fund to invest is
 HDFC Income Fund

46
Chapter-6
Recommendation &
Conclusion

1.1 Recommendations
1. Investor should have knowledge of factors which could help him in making
good investment and getting good returns in future.
2. Beta & trenyor ratios are values using which Investor can invest his money in
Funds that are less risky & generate good returns in long term.
3. Past performances are areas investor should look into before selecting an SIP to
invest.
4. Investor should invest in SIP’s only if he is willing to invest for a longer period
because only then they are beneficial.

47
5. Sip’s are most lucrative schemes where you get benefits of Compounding,
Rupee cost averaging SO ARE BETTER options for long term investment than
bank FD’s , mutual Funds.

6.2 Conclusion

From this study we found that there are various factors which should be
considered before selecting a fund that is better and good for investment.
Investor can gain high returns if he has the right knowledge about
factors such as beta , alpha ,treynor ratio using them Investor can select
funds/schemes which are less risky & also generate high returns on
investment in a longer period.

6.3 LIMITATION

 The time constraint was one of the major problems.

 The study is limited to the schemes available under the mutual funds
sip’s selected.
 The study is limited to selected mutual fund sip schemes. lack of
information sources for the analysis part.
 As there are hundred’s of sip schemes available, it was tough to analyze
all of them. So through convinent sampling only few could be analzed.

BIBLIOGRAPHY

www.amfiindia.com
www.sebi.gov.in
www.sbimf.com
www.mutualfundsindia.com
www.valueresearchonline.com
www.utimf.com
www.hdfcmf.com
48
www.birlamf.com
www.licmf.com
www.icicimf.com
www.moneycontrol.com

REFERENCE BOOKS:

•Financial Management - Fisher and Jorden

•INVESTMENT MANAGEMENT - V.K.BHALLA

49