Summer Training Project

PORTFOLIO MANAGEMENT Through MUTUAL FUUNDS

COMPANY NAME

NITESH KUMAR TIWARI MBA Enrolment no: A7001909063 Specialization: FINANCE & MARKETING Industry Guides: Faculty Guide: Mr. Manish Guar Mrs. Parul Tripathi Branch Manager Sr. Lecturer HR Edelweiss Broking Ltd. ABS, Lucknow
(SUMMER INTERNSHIP REPORT IN PARTIAL FULFILLMENT OF THE AWARD OF FULL TIME MASTERS IN BUSINESS ADMINISTRATION (2009-11)

AMITY BUSINESS SCHOOL AMITY UNIVERSITY UTTAR PRADESH -LUCKNOW

DECLARATION
I hereby certify that the work which is being presented in the project entitled, PORTFOLIO MANAGEMENT THROUGH MUTUAL FUND. in partial fulfillment of the requirements for the award degree of Master of Business Administration at AMITY BUSINESS SCHOOL, AMITY UNIVERSITY, UTTAR PRADESH, LUCKNOW, is an authentic record of my own work carried out under the supervision of Mrs. PARUL TRIPATHI, Sr. Lecturer, ABS, Lucknow. The matter presented in this Project Report by me has not been submitted by anyone for the award of any other degree of this or any other University.

This is to certify that the above statement made by the candidate is correct and true to the best of my knowledge.

NITESH KUMAR TIWARI MBA (Finance & Marketing) Semester- 3rd En:-A7001909063

STUDENTS CERTIFICATE
Certified that this report is prepared based on the summer internship project undertaken by me in Edelweiss Broking Ltd.from 10th may 2010 toth june 2010, under the able guidance of Dr. Azara Isharat, Asst. Professor, ABS in partial fulfillment of the requirement for award of degree of Master of Business Administration (MBA-G) from Amity University, Uttar Pradesh.

Student. Nitesh Kr. Tiwari Signature

Faculty Guide Mrs. Parul Tripathi Signature

ABS Director Prof. R. P. Singh Signature

ACKNOWLEDGEMENT
In pursuit of an MBA degree, summer internship is a critical component of the entire process. Edelweiss Mutual Fund PVT. LTD. has given me the opportunity to gain invaluable experience under the guidance of Mr. Manish Guar (Sales Manager, Lucknow Region) & Mr. Ali Ashad (Team leader- Retail channel). Their continuous support and valuable in hand experience provided me with the conceptual understanding and practical approach needed to work efficiently for this project. The entire Edelweiss Mutual Funds staff is praiseworthy. Last but not the least; I would also like to thank Prof. R.P. Singh, Director ABS and my faculty Guide Mrs. Parul Tripathi Sr. Lecturer, ABS for her great advices and Guidance and also to the entire staff of Edelweiss Broking ltd.,Mr. Anurag Tripathi and Mr. Rochak Sahay and all my friends and colleagues who helped whenever I faced any difficult situation. I hope this report, reflecting my learning in the past eight weeks, is as beneficial to the organization as it had been to me. Again, I sincerely thank to all of them. Nitesh Kumar Tiwari MBA, 3rd Semester Amity Business School En.-A7001909063

Certificate

PREFACE
Finance & its functions are the part of economic activity. Finance is very essentially needed for all types of organizations viz; small, medium, large-scale industries & service sector. Hence the role of finance manager & the subject finance accounting gained maximum importance. Liberalization, globalization & privatization created new challengers to entrepreneur & corporate world in carrying theyre day to day activities. So, finance is regarded as the life blood of a business organization. Master of Business Administrator as a professional course develop a new horizon of knowledge & skill set & make as available for those seeking challenging carriers in the of liberalizing & globalizing scenario of the corporate world. The goal of the Summer Training is to give a corporate exposure (Real life situation) to the students as well as to give them an opportunity to apply theory into the practice. The real business problems are drastically different from class-room case solving. Summer Project aims to providing little insight into working of an organization to a management trainee. Among every stage of knowledge being inculcated in students, practical training in the corporate world plays a significant role in exhibiting and pruning their capabilities and skill sets. The purpose behind writing a report is to put in to works the practical training that is imparted into me that gives a better and a clear understanding of the experience I got.

PORTFOLIO MANAGEMENT THROUGH MUTUAL FUND being a very important aspect of Edelweiss Mutual Fund Pvt. Ltd., I have tried to explore many areas of the subject in my project report. While preparing this project report I got the knowledge about various aspects regarding financial decisions made in organization like Edelweiss Mutual Fund Pvt. Ltd. the business world.

Table of contents CHAPTER-1..9-11 1. Executive summary.09 2. Project objective......10 3. Research Methodology11 CHAPTER-2.12-21 1. Background.12-13 2. Trustee.14-16 3. Business principal17-18 4. Theme Research...19-20 5. Sponsor.21 CHAPTER-3...22-23 1. About Investment.22-23 CHAPTER-424-52 1. Introduction ...................................................24-30 2. Type of Mutual Fund.31-34 3. Benefits of the Mutual Fund..35-38 4. Disadvantage .39-43 5. History44-45 6. Industry Profile..46-51 7. Companies..52 CHAPTER-5.53-60 1. Port Folio Management.53-55 2. Types of Investors.56-58 3. Measurement of MF..58-60

CHAPTER-6.61-96 1. Scheme Portfolio.61-63 2. HDFC Equity Fund.64-76 3. ICICI Growth Fund.77-86 4. Core & Satellite Fund..87-92 5. ICICI Dynamic plan93-96 CHAPTER-7..971. Conclusion..97-98 2. Recommendations..99-101 ANNEXUR
Fact Sheet (Page-105) Curriculum Vitae ( Page -106-107)

List of Figures
FIGURE-1 FIGURE-2 FIGURE-3 FIGURE-4

List of Graphs
GRAPH-1 GRAPH-2 GRAPH-3 GRAPH-4 GRAPH-5

List of Tables
TABLE-1 TABLE-2 TABLE-3 TABLE-4 TABLE-5 TABLE-6 TABLE-7 TABLE-8 TABLE-9 TABLE-10

TABLE-11 TABLE-12 TABLE-13 TABLE-14 TABLE-15 TABLE-16 TABLE-17 TABLE-18 TABLE-19 TABLE-20

CHAPTER-1
INTRODUCTION
EXECUTIVE SUMMARY
Investment may be defined as an activity that commits funds in any financial/physical form in the present with an expectation of receiving additional return in the future. The expectation brings with it a probability that the quantum of return may vary from a minimum to a maximum. The possibility of variation in the actual return is known as investment risk. Thus every investment involves a return and risk. The investor can choose the investment funds he wants to invest his money, providing the investor an opportunity to have a direct stake in the performance of the financial markets. He can also benefit from attractive tax advantages. A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities. The fund manager, also known as portfolio manager, trades the fund's underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors. Today, the worldwide value of all mutual funds totals more than $26 trillion in assets.

The principal paid are invested in fund/funds of the investors choice (depending on the allocation rate) & units are allocated depending on the price of units for the fund/funds.

PROJECT OBJECTIVE: The premiums that are collected are invested in different funds like equity fund, midcap fund, debt fund, balanced fund and cash fund. The funds must be allocated such that their performance is stable and improves so that the investor gets high returns. Due to the increasing competition it becomes necessary that the companies fund is the best performing fund with highest return. Among the different mutual funds this study is to find out the best fund which will yield high returns to the investor and minimize there risk.

OBJECTIVES OF THE STUDY: To study the different investment guidelines prescribed by deferent mutual fund company. To analyze the present performance of different mutual funds To analyze that how deferent companies diversified their portfolio for maximum profit of their INVESTMENT. Based on the findings suitable suggestions are given.

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Research Methodology
Since I have to get project for the analysis of the portfolio in mutual fund, that is why I have not go through primary data. I have also Interacted to more than 100 customers through phone calling during the lead generation, which also Secondary objectives: I have selected the secondary data in my study to To understand the portfolio management process in mutual fund To know the effects of political, economical, social and technological factors on Mutual Fund Industry in India. Evaluating fund performance

Collection of data For the complete study I required data of Mutual Fund and getting from the secondary data base. Sources of the data collection will be, (1) Internet

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(2) Various magazines/bulletins (3) News papers (4) Related books Limitations It is based on Secondary Data. Time Constraint Lack of resources

CHAPTER-2
Overview
Edelweiss, a rare flower found in Switzerland. You will discover in our identity: A graphic flower that represents ideas. Around it, the protective arms of the letter e: We believe ideas create wealth, but values protect it. It is the practice of this core thought that has led to Edelweiss becoming one of the leading financial services company in India. Its current businesses include investment banking, securities broking, and investment management. We provide a wide range of services to corporations, institutional investors and high net-worth individuals. The core inspiring thought of ideas creating wealth and values protecting it is

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translated into an approach that is led by entrepreneurship and creativity and protected by intellectual rigour, research and analysis. Edelweiss Asset Management Limited, a subsidiary of Edelweiss Capital Limited (ECL) is the asset management company acting as an investment manager to Edelweiss Mutual Fund (EMF). Edelweiss Capital Limited is one of the leading and fastest growing financial services company in India. Founded in 1996, Edelweiss Capital including its subsidiaries offers a wide array of multi-line solutions including Investment Banking, Institutional Equities, Asset Management, Wealth Management, Private Client Business, Insurance Brokerage, Wholesale Financing and Treasury Operations. Edelweiss Asset Management Limited constitutes a team of experienced professionals from the Financial Services industry. The management team is highly qualified and carries a rich experience of working in the mutual fund industry and finance related areas. Edelweiss Asset Management Limited will follow a research based and process oriented investment approach. Edelweiss Asset Management Limited will observe the highest ethical standards while deploying investors monies and servicing investors and dealing with business partners.

Service Approach
Client Focus
Edelweiss is driven by the emphasis we place on building long-term relationships with our clients. We work closely with our clients to equip them with the ability to address large, fast-growing market opportunities. Our emphasis on long-term relationships also means that we have a significant ongoing involvement with almost all of the clients that we work with.

Execution Orientation
We focus obsessively on delivering high quality execution through our experienced team of professionals. Each team is led by senior personnel and is highly research and ideas driven. We place strong emphasis on confidentiality and integrity in a sensitive business environment.

Culture
Edelweiss fosters a culture that is entrepreneurial and results-driven and that

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emphasizes teamwork and intellectual rigour. Our team is encouraged to display higher levels of initiative, drive, and hunger for learning and taking on additional responsibility.

Professional Integrity
We place a strong emphasis on confidentiality, honesty and integrity in our business dealings. We expect our people to maintain high ethical standards, both in their professional and personal lives. We strive to be fair in all our dealings. We respect our competitors.

Research Driven
All our businesses are built on a research and analytics foundation. Our understanding of underlying market trends and strong analytical expertise has resulted in a demonstrated ability to identify emerging trends and themes early. We seek to provide the highest quality research and investment opinions to our clients.

Board of Directors
Mr. Rashesh Shah
Chairman, CEO and Founder of Edelweiss. Mr.Rashesh Shah has previously worked for ICICI (now ICICI Bank, Indias largest private sector financial conglomerate) where he handled a World Bank aided program for export-oriented projects.

Mr. Venkat Ramaswamy

Executive Director and Head of Investment Banking and Co-Founder of Edelweiss. Mr. Venkat Ramaswamy has previously worked with the Spartek Emerging Opportunities Fund and ICICI, where he worked on project-based lending to large corporates, analyzing and evaluating investment decisions. He subsequently

managed the Spartek Fund that focused on making equity investments in small and emerging companies..

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Mr. Narendra Jhaveri

Mr. Jhaveri, on his return from U.K., after a brief stint with NCAER as Senior Economist, joined the Economics Dept. of the Reserve Bank of India in 1965. He shifted to ICICI in 1974 as Chief Economist and then moved to project finance.. He also serves as the Chairman of the IMC Economic Research and Training Foundation Mr. Kunna Chinniah Mr. Kunna Chinniah is Executive Vice President with GIC Special Investments ("GIC SI"). GIC SI is the private equity arm of the Government of Singapore Investment Corporation ("GIC"). Mr Chinniah oversees the Asian private equity business for GIC SI. Mr Chinniah began his career in 1982 as a Senior Field Engineer with Schlumberger Wireline Services in the Middle East.

Mr. P.N. Venkatachalam Mr. P.N. Venkatachalam has over 40 years of experience in the banking sector in India and abroad. Mr. Venkatachalam joined the State Bank of India as a probationary officer on April 1967 and retired on March 2004 as a managing director

Mr. Navtej S. Nandra Mr. Nandra is currently serving as an Independent Board member at Edelweiss Capital Ltd., where he is a member of the audit and remuneration committees. He is also Senior Advisor to DTZ Holdings plc, a global real estate management and consultancy company headquartered in London. Mr. Nandra brings a wealth of global experience in helping financial services companies define and implement performance improvement and achieve growth.

Mr. Berjis Desai Mr. Berjis Desai, is an Independent Director on the Board of Directors of the Company. Mr. Desai is the Managing Partner, J. Sagar & Associates, one of India's leading law firms. He holds a Masters in Law. He is an Advocate and a Solicitor.

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Senior Management Team

Rashesh Shah Chairman & CEO Deepak Mittal CEO, Edelweiss Tokio Life Insurance Company Limited Naresh Kothari President & Co-head Institutional Equities, Private Client Services Peeyoosh Chadda Co-head - Asset Management Vikas Khemani Executive Vice President & Co-head - Institutional Equities

Venkat Ramaswamy Executive Director Himanshu Kaji CFO & Group COO Rujan Panjwani President & Co-head Asset Management Rajeev Mehrotra Executive Vice President & Head - Special Opportunities Investments Ravi Bubna Executive Vice President & Co-Head - ECL Finance

Our Principles:
Thinking and transparent organization Fair to our investors, partners and employees Ethical in all our actions Focus on growth Our assets are our stakeholders, reputation and capital

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Creativity and innovation in everything we do

FIGURE-1

Business Principles
Ideas create, values protect is how we define what Edelweiss believes in. But when we say values protect what do we mean? Heres a handy guide to the values and principles we will live by and live up to.

We will be a Thinking Organization. We will constantly bring thought to everything we do. Our clients and our own success depends on our ability to use greater ideation and more imagination in our approach.

We will be Fair to our clients, our employees and all stake holders. We want our clients and our employees to be richer for their relationship with us.

We will take care of our People seriously. Our policies in spirit and in letter will ensure transparency and equal opportunity for all. We will go beyond the normal goals of attracting, recruiting, retaining and rewarding fine talent: We will ensure that

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every individual in Edelweiss has an opportunity to achieve their fullest potential.

We will operate as a Partnership, internally and externally. Though individuals are very often brilliant, we believe teamwork and collaboration will always ensure a better and more balanced organization. We will also treat our clients as partners and show them the same respect and consideration that we would toward our internal team members.

We will focus on the Long Term. Though the world will change a lot in the coming years and our assumptions for the future may not hold up, we will reflect on the longterm implications of our actions. Even when making short-term decisions we will be aware of the long-term implications.

We will focus on Growth for our clients, employees and shareholders. Our Reputation and image is more important than any financial reward. Reputation is hard to build and even harder to rebuild. Reputation will be impacted by our ability to think for our clients, maintain confidentiality and by our adherence to our value system.

We will Obey and Comply with the rules of the land. We will maintain the highest standard of integrity and honesty. When we are unclear we will seek clarifications.

We will respect Risk. Our business is going to be a constant challenge of balancing risk and reward. Our ability to constantly keep one eye on risk will guide us through this fine balance.

Our Financial Capital is a critical resource for growth. We will Endeavour to grow, protect, and use our financial capital wisely.

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Ideas Create Value Protect

Theme Research
Theme-based fundamental research What is theme-based research? Inductive research or connecting the dots across economy-wide trends, thereby providing a different perspective. Creating a hypothesis of the evolution of trends over a longer period of time. Why are themes important? Themes play out over long periods of time; potential payouts are also over a longer duration. The breadth of the pay-back is also not restricted to a few companies, but potentially a number of multi-baggers are created in different sectors. We have been one of the earliest to cover the private capital markets in India and profile high growth sectors and companies. Edelweiss' research has helped in developing an in-depth understanding of these new, high growth

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areas, particularly in the Indian context, by analyzing industry dynamics and emerging trends as well as showcasing some of the exciting private companies in each sector. Our goal is to find companies in the early stages of significant growth. Economy and Strategy As emerging markets are increasingly seen as a distinct asset class for global investors, the Indian economy's strong growth brings it under the spot light. India has witnessed enviable growth, even by emerging market standards for about five years now. With macro-fundamentals in place and openness to foreign capital flows, global investor interest in India is on the rise. In this context, our macro economic research has a two fold purpose:

keeping pace with dynamic economic trendsboth Indian and international; and providing an outlook on future trends.

Our macro-economic research also provides a basis for implications of a top-down approach on various sectors. And, this is where our macro-strategy effort comes in; it aims at building plays from changes in policy as well as economic trends, based on their likely sectorial impact.

Stock Ideas Idea origination from first principles. Bottom-up research to spot potential multibaggers. Use of quantitative screens and qualitative mechanisms to identify undervalued high performing companies doing business in emerging sectors with high growth potential and operating in areas where India has a clear edge over the rest of the world. Leveraging considerable base of relationships with corporate India.

Quantitative and Alternative Research We are one of the leading quantitative research houses in India. Our four-person analytics team comprises of graduates in quantitative disciplines who generate innovative, quantitatively originated ideas backed by deep fundamental understanding.

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We generate a host of alternative investment strategies that cover the entire spectrum of opportunities:

Opportunistic market-timing e.g. leveraged positions and synthetic positions Market-neutral e.g. simultaneous long/short positions in stocks, sectors and indices Risk arbitrage e.g. event-driven arbitrage opportunities Interest / Volatility arbitrage e.g. cash-future and dispersion trades

We also create customized products and screens specific to clients investment styles:

Screens for deep-value, growth, momentum and income, turnaround investing styles System-based trading models for clients derived from rigorous back-testing.

Edelweiss Capital Limited (Edelweiss) offers a full range of services and transactions expertise, including capital raising services in public markets, private placements of equity, mezzanine and convertible debt, mergers and acquisitions and restructuring advisory services. Edelweiss has been empanelled with more than 50 foreign institutional investors and all leading domestic institutional investors and is recognized for cutting edge derivatives expertise with on of the largest market share in the institutional derivative market. Edelweiss core strength lies in differential research including top down, bottom up, quantitative analytics spanning across large cap and mid cap companies.

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Edelweiss Mutual Fund (EMF) is set up as a Trust under the Indian Trusts Act, 1882 vide Trust Deed dated 30th January 2008, executed between Edelweiss Capital Limited (ECL) and Edelweiss Trusteeship Company Limited with restricted liability to seed corpus of Rs. 1 lac of ECL.

CHAPTER-3
Investors Portfolio

What is an Investment?

An investment is the use of capital to create more money through the acquisition of a security that promise the safety of the principal and generate a reasonable return.

Various Investment Options

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Savings form an important part of the economy of any nation. With the saving invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenue to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. There are basically two kinds of investments. One that gives returns at fixed rate and other where the rate of return is depending upon the certain factors of the economy.

1. Fixed Return Options

Post office monthly income scheme Public provident fund Bank fixed deposits Government securities or gilts RBI taxable bonds Insurance Company fixed deposits Infrastructure bonds

2. Variable Return Options

Mutual Funds Share and Stock market 1. Primary invested in equity (IPO) 2. Secondary market investment in equity 3. Derivative, Futures and Options Gold Real estate Foreign exchange assets

3. UNIT LINKED INSURANCE PLANS

1. 2. 3. 4. 5. ULIP capital secure fund. ULIP balanced fund. ULIP growth fund ULIP equity fund Pension capital secure fund

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6. Pension balanced fund 7. Pension growth fund

CHAPTER-4
INTRODUCTION TO MUTUAL FUNDS

Mutual fund is a buzz in the market these days. The mutual fund industry is burgeoning, it is completely untapped market. Only 5% of total potential of this

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industry has been grabbed. Hence this industry has a lot of opportunities in it. Thats why it is so much interactive. As Indian economy is growing at the rate of 8% per annum, we can see its effect in all areas. The Indian stock market and companies have become lucrative for foreign investors. More and more fund is pouring in our country. This is increasing liquidity in the market and hence increasing the money in the hands of people and thus investment. As the future prospects for Indian companies are bright, they have lots of opportunities to expand their business worldwide, the investment in Indian companies. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc.

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A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. Future Scenario

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The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, and Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

Market Trends A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with.

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Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now pass with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 199398 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector Mutual funds are now also competing with commercial banks in the race for retail investors savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way.

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India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank, the Financial Express September, 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.

WHAT IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. It offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

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GRAPH-1

Mutual Funds are popular among all income levels. With a mutual fund, we get a diversified basket of stocks managed by professionals These Trusts are run by experienced Investment Managers who use their knowledge and expertise to select individual securities, which are classified to form portfolios that meet predetermined objectives and criteria. These portfolios are then sold to the public. They offer the investors the following main services:

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 Portfolio Diversification: Diversification of the portfolio is the means to invest the assets in the deferent securities which leads to mitigate the risk in the Investment. Marketability: A new financial asset is created that may be more easily marketable than the underlying securities in the portfolio.

Organization of a Mutual Fund

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

GRAPH-2

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TYPES OF MUTUAL FUND SCHEMES

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

By Structure:
Open-ended Funds:

An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed ended Funds:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds: .

Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices

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By Investment Objective

Growth Funds:

The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.

Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Fund: The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. Money Market Funds: The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call

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money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

Other Schemes

Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.

Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50

Spectral Schemes

34

Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings

BENEFITS OF MUTUAL FUNDS

Diversification

Professional management benefits

Tax

35

Affordability FIGURE-3

Transparency

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification Mutual Funds invest in a number of companies across a broad cross section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the investment objective of the scheme. An investor can buy into a portfolio of equities, which would otherwise be extremely expensive.

36

Tax Benefits Any income distributed after March 31, 2002 will be subject to tax in the assessment of all unit-holders. However, as a measure of concession to Unit holders of open ended and equity oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional rate of 10%. Return Potential Over a medium to long term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs Investing in the capital markets because the benefits of scale in brokerage, mutual funds are a relatively less expensive way to invest compared to directly custodial and other fees translate into lower costs for investors. Liquidity In open ended schemes, the investor gets the money back promptly at MAV related prices from the mutual fund. In closed ended schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the mutual fund.

Transparency
You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook.

Flexibility

37

Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Well Regulated
All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.

Tax breaks
Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. Whats more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs 10,000 in the scheme in a year.

No assured returns and no protection of capital

If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India).

38

There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors.

Restrictive gains
Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security. In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation.

RISK ASSOCIATED WITH MUTUAL FUNDS

Credit inflation

Political

RISKS Liquidity Market

39

Figure-4

Risk-Return Trade Off The most important relationship to understand is the risk-return trade off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.

Market Risk Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA) might help mitigate the risk. Credit Risk The debt servicing ability of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A AAA rating is considered the safest whereas a D rating is considered poor credit quality. A well diversified portfolio might help mitigate this risk. Inflation Risk

40

Inflation is the loss of purchasing power over a time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could, at the time of investment. A welldiversified portfolio with some investment in equities might help mitigate this risk. Interest Rate Risk In a free market economy interest rates are difficult and not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise, the prices of bonds will fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk. Political Risk Changes in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa. Liquidity Risk Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. It can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. It simply means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.). This kind of a diversification may add to the stability of your returns, for example, during one period of time equities might under perform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity Markets.

DISADVANTAGES OF MUTUAL FUNDS

There are certainly some benefits to mutual fund investing, but you should also be aware of the drawbacks associated with mutual funds.

41

1.

No Insurance: Mutual funds, although regulated by the government, are not insured against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment.

2.

Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the fund's holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.

3.

Fees and Expenses: Most mutual funds charge management and operating fees that pay for the fund's management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up significantly. Some of these expenses are charged on an ongoing basis, unlike stock investments, for which a commission is paid only when you buy and sell .

4.

Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500,

42

and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor.
5.

Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You also should remember that you are trusting someone else with your money when you invest in a mutual fund.

6.

Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after they've calculated the current value of their holdings.

7.

Size: Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there are strict rules about how much of a single company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a result, the fund might be forced to lower its standards when selecting companies to invest in.

8.

Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the fund's money is

43

invested in cash instead of assets, which tends to lower the investor's potential return. Different Types: The advantages and disadvantages listed above apply to mutual funds in general. However, there are over 10,000 mutual funds in operation, and these funds vary greatly according to investment objective, size, strategy, and style. Mutual funds are available for virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and every country or region of the world. So even the process of selecting a fund can be tedious.

Net Asset Value (NAV) Open-end mutual funds price their shares in terms of a Net Asset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but it will not necessarily be the price at which you buy or sell closed-end shares). NAV is calculated by adding up the market value of all the fund's underlying securities, subtracting all of the fund's liabilities, and then dividing by the number of outstanding shares in the fund. The resulting NAV per share is the price at which shares in the fund are bought and sold (plus or minus any sales fees). Mutual funds only calculate their NAVs once per trading day, at the close of the trading session.

HISTORY OF MUTUAL FUND IN INDIA

HISTORY The Landmarks 1963: UTI is Indias first mutual fund. 1964: UTI launches US-64.

44

1971: UTIs ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched. 1986: UTI Master share, Indias first true mutual fund scheme, launched. 1987: PSU banks and insurers allowed floating mutual funds; State Bank of India (SBI) first off the blocks. 1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in shares and mutual funds. 1993: Private sector and foreign players allowed; Kothari Pioneer first private fund house to start operations; SEBI set up to regulate industry. 1994: Morgan Stanley is the first foreign player. 1996: Sebis mutual fund rules and regulations, which forms the basis of most current laws, come into force. 1998: UTI Master Index Fund is the countrys first index fund. 1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisition in the mutual fund industry. 2000: The industrys assets under management crosses Rs 1, 00,000 crore. 2001: US-64 scam leads to UTI overhaul. 2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned from giving commissions to investors; floating rate funds and Foreign debt funds debut. 2003: AMFI certification made compulsory for new agents; fund of funds launched.

45

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases.

INDUSTRY PROFILE:

GRAPH-5

46

GRAPH-6 (Industry Growth) Growth of asset under management from March-1965 to March-2009

STRUCTURE OF THE MUTUAL FUND IN INDIA

FIGURE-7 Like other countries, India has a legal framework within which mutual funds must be constituted. In India, open and close end funds operate under the same regulatory structure, i.e. in India, all mutual funds are constituted along one unique structure as

47

unit trust. A mutual fund in India is allowed to issue open end and close end schemes under a common legal structure. The structure, which is required to be followed by mutual funds in India, laid down under SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor Sponsor is defined under SEBI Regulations as any person who, acting alone or in combination with another body corporate establishes a mutual fund. The sponsor of a fund is akin to the promoter of companies he gets the fund registered with SEBI. The sponsor will form a Trust and appoint a Board of Trustees. All these appointments are made in accordance with the SEBI Regulations. As per the existing SEBI Regulations, for a person to qualify as a sponsor, must contribute at least 40% of the net worth of the AMC and issues a sound financial track over five years prior to registration.

Mutual Funds as Trusts Mutual Fund in India is constituted in the form of a Public Trust under the Indian Trust Act 1882. The fund invites investors to contribute their money in the common pool by subscribing to units issued by various schemes established by the Trust as evidence of their beneficial interest in the fund. The Trust or Fund has no legal capacity itself rather it is the Trustee(s) who have legal capacity and therefore the trustees take all acts in relation to the Trust itself.

Trustees in mutual fund A Board of Trustees a body of individuals, or a trust company a corporate body, may manage the Trust. Board of Trustees manages most of the funds in India. The Trust is created through a document called the Trust Deed that is executed by the

48

Fund Sponsor in favors of the trustees. They are the primary guardian of the unit holders funds and assets. They ensure that AMCs operations are along professional lines. Right of Trustees a) Appoint the AMC with the prior approval of SEBI b) Approve each of the schemes floated by the AMC c) Have the right to request any necessary information from the AMC concerning the operations of various schemes managed by the AMC Obligations of the AMC and its Directors They must ensure that: a) Investment of funds is in accordance with SEBI Regulations and the Trust Deed b) Take responsibility for the act of its employees and others whose services it has procured c) Do not undertake any other activity conflicting with managing the fund Asset Management Company The role of an Asset Management Company (AMC) is to act as the investment manager of the trust under the Board supervision.

Transfer Agents Transfer Agents are responsible for issuing and redeeming units of the mutual fund and provide other related services such as preparation of transfer documents updating investors records. A fund may choose to opt this activity in-house or by an outside transfer agent.

49

Distributors AMCs usually appoint distributors or brokers, who sell units on behalf of the fund. Some funds require that all transactions to be routed through such brokers. Bankers A funds activities involved dealing with the money on a continuous basis primarily with respect to buying and selling units, paying for investment made, receiving the proceeds from sale of investment and discharging its obligations towards operative expenses. A funds banker therefore plays a crucial role with respect to its financial dealings.

Custodian and Depository The custodian is appointed by the Board of Trustees for safekeeping of securities in terms of physical delivery and eventual safe keeping or participating in the clearing system through approved depository companies.

ASSOCIATION OF MUTUAL FUNDS IN INDIA

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 a 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

50

schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holder. The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund in India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programmed for investors in order to promote proper understanding of the concept and working of mutual funds.

51

 At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

Companies in India
1. Edelweiss Mutual Fund 2. ABN AMRO Mutual Fund 3. Birla Sun Life Mutual Fund 4. Bank of Baroda Mutual Fund (BOB Mutual Fund) 5. HDFC Mutual Fund 6. HSBC Mutual Fund 7. ING Vysya Mutual Fund 8. Prudential ICICI Mutual Fund 9. Sahara Mutual Fund 10. State Bank of India Mutual Fund 11. Tata Mutual Fund 12. Kotak Mahindra Mutual Fund 13. Unit Trust of India Mutual Fund

52

14. Reliance Mutual Fund 15. Standard Chartered Mutual Fund 16. Franklin Templeton India Mutual Fund 17. Morgan Stanley Mutual Fund India 18. Escorts Mutual Fund 19. Alliance Capital Mutual Fund 20. Benchmark Mutual Fund 21. Canbank Mutual Fund 22. Chola Mutual Fund 23. GIC Mutual Fund 24. LIC Mutual Fund 25. Fidelity Mutual Fund 26. IL&FS Mutual Fund 27. DSP Merill lynch Mutual Fund 28. Sundaram Mutual Fund 29. Principal Mutual Fund 30. Taurus Mutual Fund 31. Deutsche Mutual fund 32. IDBI Investment Company Ltd. 33. Bank of India Mutual Fund

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CHAPTER-5
Portfolio Management

People have different investment objective and risk appetite so to get the highest returns asset allocation through active portfolio management is the key element. Asset allocation is a method that determines how you divide your portfolio among different investment instruments and provides you with the proper blend of various asset classes. It is based on the theory that the type or class of security you own equity, debt or money market- is more important than the particular security itself. In other words asset allocation is way to control risk in your portfolio. Different asset class will react differently to market conditions like inflation, rising or falling interest rates or a market segment coming into or falling out of favor. Asset allocation is different from simple diversification. Suppose you diversify your equity portfolio by investing in five or ten equity funds. You really have not done much to control risk in your portfolio if all these funds come from only one particular segment of the market say large cap stocks or mid cap stocks. In case of an adverse reaction for that segment, all the funds will react similarly means they will go down. If you build your portfolio with various top performing growth funds without really bothering to analyze their portfolio allocation, you may end up with over-exposure to a particular segment. Another point you need to remember is that growth funds are highly correlated- they tend to move in the same direction in response to a given market force. The advantage of asset allocation lies in achieves superior returns when markets are down while minimizing the exposure of the portfolio to volatility. In fact, asset allocation is based on certain dimensions that, when combined tend to control the volatility while achieving targeted returns.

54

Portfolio Management Process Portfolio management is a complex activity, which may be broken down into the following steps:

1. Specification of investment objectives and constraints: The typical objectives sought by an investor are current income, capital appreciation, safety, fixed returns on principal investment.

2. Choice of asset mix: The most important decision in portfolio management is the asset mix decision. This is concerned with the proportions of Stock or Units of mutual fund or Bond in the portfolio. The appropriate mix of Stock and Bonds will depend upon the risk tolerance and investment horizon of the investor. 3. Formulation of portfolio strategy: Once the certain asset mix has been chosen an appropriate portfolio strategy has to be decided out. Two broad portfolio choices are available An active portfolio management: it strive to earn superior risk adjusted returns by resorting to market timing, or sector rotation or security selection or some combination of these. A passive portfolio management involves holding a broadly diversified portfolio and maintaining a pre-determined level of risk exposure.

55

Designing a model Portfolio There are certain objectives that should keep in mind while designing a portfolio these are: Higher absolute rate of return and high real rate of return Maximization current income High post tax returns Positive real return Preservation of capital Growth in capital

For my study I am making three dummy portfolios for three different kinds of investors.

Types of Investor
1. Cautious Investor: Its kind of investor who is less bothers about high returns. He wants to lower down his risk profile and demand for fixed income on his investment. His main objective of investment is fixed returns with less risk. 2. Balanced Investor: Its a kind of investor who is bothers about returns as well as risk. He wants moderate returns with moderate risk. 3. Aggressive Investor:

56

Its a kind of investor who is ready to take risk. He believes in high risk and high returns. So he only wants to invest in equity schemes. I have made an assumption that each investor want to invest Rs.5 Lakh . Portfolio for Cautious Investor Investment Instrument Kisan Vikas Patra PPF Bank Fixed Deposits NSC Post office monthly MIP TOTAL Amount 1,50,000 Rs. 70,000 Rs. 1,00,000 Rs. 80,000 Rs. 1,00,000 Rs. 5,00,000 Rs. Table-1 Returns 8.4% p.a. 8.5% p.a. 6.5% p.a. 8.16% p.a. 8% p.a.

Logic behind selection of particular Instrument: As investor does not want to take risk, he is satisfied with fixed return rather they are less than equity investments returns. So I took thus instrument which provides good return as well as secure also. All of these instruments will give him return around 8% annually. Portfolio for Balance Investor

Investment Instrument HDFC Prudence Fund Reliance Vision Fund Bank Fixed Deposits PPF Kisan Vikas Patra TOTAL

Amount 1,30,000 Rs. 1,00,000 Rs. 1,00,000 Rs. 70,000 Rs. 1,00,000 Rs. 5,00,000 Rs. Table-2

Returns 54.2% p.a. 78.3% p.a. 6.5% p.a. 8.5% p.a. 8.4% p.a.

Logic behind selection of particular Instrument:

57

As investor does not want to take high risk, he is satisfied with fixed return plus some equity exposure. But he wants some safety in equity exposure also. So I took thus instrument which provides good return as well as safety also. Fixed return instruments like PPF, Bank FD and kisan viaks patra will give him return around 8% annually and I suggest Balance kind of funds to him where he will have exposure of both equity as well as debts. HDFC prudence fund is best performing fund under balance scheme. To increase the ratio of equity in portfolio I suggested Reliance vision fund which is mainly based on large and mid cap companies.

Portfolio for Aggressive Investor Investment Instrument HDFC Core & Satellite Fund Prudential ICICI Emerging Star Fund Franklin Flexi Cap Fund Fidelity Equity Fund DSP Top 100 TOTAL Amount 1,30,000 Rs. 90,000 Rs. 1,10,000 Rs. 80,000 Rs. 90,000 Rs. 5,00,000 Rs. Table-3 Returns 83.56% p.a. 93.3% p.a. 86.25% p.a. 82.4% p.a. 79.28% p.a.

Logic behind selection of particular Instrument: As investor ready to take high risk, he is looking for high returns on his investment. I took thus instrument which provides good return. All of these instruments will give him return around 80% annually. Currently Mid cap companies will perform better than large cap companies so, I select more funds which are focusing on mid cap companies like HDFC, Franklins funds. To take the benefit of increasing Sensex I took DSP top 100.

Measurement of Returns on Portfolios

The realized rate of return will be calculated by

58

1.

Time Weighted Rate of Return (TWROR)

It is calculated by using Dietz Algorithm Ri= [(Pi-0.5Ci)/ (Po+0.5Ci)-1}*100 Po= Portfolio value at the beginning of the period Pi= Portfolio value at the end of the period Ci= Net contributions during time interval Ri= Rate of Return for the time interval a) Rate of return for cautious investor Current Value 1,62,600 75,950 1,06,500 86,528 1,08,000 5,39,578

Investment Instrument Kisan Vikas Patra PPF Bank Fixed Deposits NSC Post office monthly MIP TOTAL

Amount

Returns

1,50,000 Rs. 8.4% p.a. 70,000 Rs. 8.5% p.a. 1,00,000 Rs. 6.5% p.a. 80,000 Rs. 8.16% p.a. 1,00,000 Rs. 8% p.a. 5,00,000 Rs. Table-4

Time Weighted Rate of Return (TWROR) Ri= [(Pi-0.5Ci)/ (Po+0.5Ci)-1}*100 = {(539578-0.5(0))/ (500000+0.5(0))-1}*100 b) Rate of return for balance investor Investment Instrument HDFC Prudence Fund Reliance Vision Fund Bank Fixed Deposits Amount 1,30,000 Rs. 1,00,000 Rs. 1,00,000 Rs. Returns 54.2% p.a. 78.3% p.a. 6.5% p.a. Current Value 2,00,460 1,78,300 1,06,500 = 7.91% p.a.

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PPF Kisan Vikas Patra TOTAL

70,000 Rs. 1,00,000 Rs. 5,00,000 Rs. Table-5

8.5% p.a. 8.4% p.a.

75,950 1,08,400 6,69,610

Time Weighted Rate of Return (TWROR) Ri= [(Pi-0.5Ci)/ (Po+0.5Ci)-1}*100 = {(669610-0.5(0))/ (500000+0.5(0))-1}*100 = 33.92%p.a.

c) Rate of return for aggressive investor

Investment Instrument HDFC Core & Satellite Fund Prudential ICICI Emerging Star Fund Franklin Flexi Cap Fund Fidelity Equity Fund DSP Top 100 TOTAL

Amount 1,30,000 Rs. 90,000 Rs. 1,10,000 Rs. 80,000 Rs. 90,000 Rs. 5,00,000 Rs. Table-6

Returns 83.56% p.a. 93.3% p.a. 86.25% p.a. 82.4% p.a. 79.28% p.a.

Current Value 2,38,628 1,73,790 2,04,875 1,45,920 1,61,352 9,24,565

Time Weighted Rate of Return (TWROR) Ri= [(Pi-0.5Ci)/ (Po+0.5Ci)-1}*100 = {(924565-0.5(0))/ (500000+0.5(0))-1}*100 = 84.91%p.a.

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CHAPTER-6
INTERPRETATION OF THE EXISTING MUTUAL FUNDS Scheme Portfolio

Like investors portfolio different scheme under mutual fund have different portfolio. By scheme portfolio we mean portfolio or companies in which fund manager invested the fund. The selection of companies depend upon many issue which have great impact in current scenario as well as in near future. Fund manager has to do lot of research before investing into particular script. Before going into detail one should understand Sensex movement. Mutual fund returns are based on Sensex. Their Net Asset Value is directly related to Share market. The below table shown the Sensex change on monthly basis. Means what is % change in Sensex during one month.

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Sensex Journey Percentage Changes at the End of the Day Date Opening Closing Change 30-Sep-08 8,672.66 8,634.48 -38 3-Oct-08 8,662.99 8,697.65 35 31-Oct-08 7,717.07 7,892.32 175 2-Nov-08 7,953.28 8,072.75 119 30-Nov-08 8,962.92 8,788.81 -174 2-Dec-08 9,010.58 8,961.61 -49 30-Dec-08 9,339.32 9,397.93 58 2-Jan-09 9,422.49 9,390.14 -32 31-Jan-09 9,892.23 9,919.89 27 2-Feb-09 9,890.90 9,843.87 -47 28-Feb-09 10,308.71 10,370.24 62 2-Mar-09 10,597.19 10,626.78 29 31-Mar-09 11,325.96 11,279.96 -46 TABLE-7

Change in % -0.43 0.44 2.26 1.49 -0.19 -0.54 0.62 -0.33 0.27 -0.47 0.61 0.27 -0.4 1

Percentage Changes at the End of the Month Change Date 30-Sep-08 Opening 8,672.66 Closing 8,634.48 Prices Nil In Closing Change in % Nil

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31-Oct-08 30-Nov-08 30-Dec-08 31-Jan-09 28-Feb-09 31-Mar-09

7,717.07 8,962.92 9,339.32 9,892.23 10,308.71 11,325.96

7,892.32 8,788.81 9,397.93 9,919.89 10,370.24 11,279.96

896 609 522 451 909

742 8.59 11.35 6.92 5.55 4.54 8.76

Table-8

Graph-8(Sensex Journey) Sensex has boomed with lots of ups and down from last year 2009. It seems very fluctuating.

For my study purpose I have taken HDFC Equity Fund and HDFC Core & Satellite Fund. What is their portfolio means in which companies the fund manager invested the fund. How he has allocated funds among various industries as well as various companies. After studying both the funds portfolio I compare them with Reliance

63

Growth fund, Prudential ICICI Growth Fund, DSP Tiger Fund and Kotak Opportunity Fund. Comparison is based on per month returns and Sensex returns during the same period. HDFC Equity Fund Portfolio Top 10 Holdings For October S. No. Company Industry Oil & Natural Gas Corporation 1 2 3 4 5 6 7 8 9 10 Ltd. State Bank of India Infosys Technologies Ltd. Satyam Computer Services Ltd. Bharat Heavy Electricals Ltd. Amtek Auto Ltd. Maruti Udyog Ltd. United Phosphorus Ltd. Crompton Greaves Ltd. Mahindra & Mahindra Ltd. Oil Banks Software Software Industrial

% of NAV 9.11 9.02 7.97 7.68 Capital 7.25 6.05 5.21 4.69 4.67 4.54 66.09 33.91 100

Goods Auto Ancillaries Auto Ancillaries Pesticides Industrial Capital Goods Auto Top 10 Holdings Others Equity Holdings TOTAL Table-9

NAV Changed During the Month (GROWTH) Date NAV Change % Change 1, Oct 2008 31, Oct 2008 93.055 -4.7 88.295 6 -5.11 Table-10

Compare returns with Sensex Movement Date 30-Sep-08 Closing 8,634.48 Change % change

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31-Oct-08

7,892.32

-742

-8.59 TABLE-11

HDFC Equity Fund Portfolio Top 10 Holdings For December S. No. Company Industry Oil & Natural Gas Corporation 1 2 3 4 5 6 7 8 9 10 Ltd. Infosys Technologies Ltd. Tata Motors Ltd. Satyam Computer Services Ltd. State Bank of India Crompton Greaves Ltd. Amtek Auto Ltd. Mahindra & Mahindra Ltd. Bharat Heavy Electricals Ltd. Maruti Udyog Ltd. Oil Software Auto Software Banks Industrial

% of NAV 9.14 8.91 8.67 7.72 5.19 Capital

Goods 4.87 Auto Ancillaries 4.76 Auto 4.45 Industrial Capital Goods Auto Ancillaries Top 10 Holdings Others Equity Holdings TOTAL TABLE-12 4.44 4.36 62.51 37.49 100

NAV

Changed

During

the

Month

(GROWTH) Date NAV 1, Dec 2008 102.827 3o, Dec 2009 107.009 Change 4.182 % Change 4.06 TABLE-13

Compare returns with Sensex Movement Date 30-NovClosing 8,788.8 Change % change

65

08 30-Dec08

1 9,397.9 3 609 6.92 TABLE-14

In the month of December Sensex has grown by 6.92% but funds return were only 4.06% which indicating towards lower performance of fund.

HDFC Equity Fund (Comparison of Oct. & Dec.) How Fund's Portfolio effected Returns October % Industry Software Industrial Capital Goods Auto Banks Oil Auto Ancillaries Pesticides Power Transportation Petroleum Products Allocation 19.97 13.73 12.73 9.28 9.11 8.68 4.69 4.07 2.74 2.41 Of Industry Software Auto Industrial Capital Goods Oil Banks Auto Ancillaries Pesticides Consumer Non Durables Transportation Metals December % Allocation 20.14 17.48 13.77 9.14 7.73 7.19 3.98 3.27 3.15 2.25 Of

66

Hardware Textile Metals Pharmaceuticals Chemicals

2.11 1.92 1.76 1.45 0.88

Gas Pharmaceuticals Hardware Textile Chemicals Telecom-service Construction IT Consulting Services

2.01 1.63 1.5 2.57 0.82 0.79 0.21 & 0.09

TABLE-15 Oct-Dec Month Portfolio Industry Software Auto Industry Capital Goods Oil Banks Auto Ancillaries Pesticides Consumer Non Durables Transportation Metals Gas Pharmaceuticals Hardware Textile Chemicals Change 0.17 4.75 0.04 0.03 -1.55 -1.49 -0.71 3.27 0.41 0.51 2.01 0.18 -0.61 0.66 -0.06 TABLE-16

Tata Motors Share Benefit Date 31, Oct 2008 31, dec2008 Price 472 639.55 Change % Change 167.55 35.49% TABLE-17

67

Fund manager added auto industry by taking Tata motors to 8.67 % which had no exposure in the month of October in the portfolio. During that time Tata Motors has grown from 472 to 639.55 Rs means 35.49% increase which fletched fund performance in to positive. So, fund manager decision of taking Tata Motors has proved right.

Amtek Share Benefit Date 31, Oct 2008 31, dec2008 Price 273.7 297 Change % Change 24 8.79% TABLE-18

Fund manager reduced Amtek exposure in the portfolio by 1.26 % which proved right because its share price rose only by 8.79% where Sensex was increasing at 19.2%.so Amtek performed lower than market so its good to sell this script from portfolio. HDFC Equity Fund Portfolio Top 10 Holdings For February % S. No. 1 2 3 4 5 6 7 8 9 Company Infosys Technologies Ltd. State Bank of India Satyam Computer Services Ltd. Bharat Heavy Electricals Ltd. Oil & Natural Gas Corporation Ltd. Tata Motors Ltd. Maruti Udyog Ltd. ITC Ltd. Amtek Auto Ltd. Industry Software Banks Software Industrial Capital Goods Oil Auto Auto Ancillaries Consumer Non Durables Auto Ancillaries Top 10 Holdings Others Equity Holdings TOTAL NAV 8.78 7.92 7.24 7.05 6.58 6.55 6.04 5.97 5.48 61.61 38.39 100 of

TABLE-22

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NAV

Changed

During

the

Month

(GROWTH) Date NAV 1, Feb 2009 113.063 28, Feb 2009 116.844

Change 3.781

% Change Beta 0.83 0.83 3.344

Compare returns with Sensex Movement

Date 31-Jan-06 28-Feb-06

Closing Change 9236 8800 436

% change -4.72 TABLE-

Industry Wise Allocation

January Industry

February Of Industry

Of

69

Software Auto Industry Capital Goods Banks Oil Auto Ancillaries Consumer Non Durables Pesticides Transportation Gas Metals Pharmaceuticals Hardware Textile Chemicals IT Consulting & Services

Allocation 22.03 18.16 15.35 8.6 7.89 6.65 3.94 3.93 2.84 2.1 1.42 1.38 2.04 0.7 0.1 TABLE-24

Software Industry Capital Goods Auto Consumer Non Durables Auto Ancillaries Banks Oil Pesticides Transportation Metals Pharmaceuticals Hardware Textile Chemicals IT Consulting & Services

Allocation 21.06 17.32 12.59 10.16 8.9 7.92 6.58 3.7 2.32 1.78 1.45 1.29 2.09 0.67 0.12

Jan-Feb Month Portfolio Industry Change Software -0.97 Industry Capital Goods 1.97 Auto -5.57 Consumer Non Durables 6.22 Auto Ancillaries 2.25 Banks -0.68 Oil -1.31 Pesticides -0.23 Transportation -0.62 Metals -0.07 Pharmaceuticals 0.03

70

Hardware Textile Chemicals IT Consulting & Services ITC Share Benefit Date 31, Jan 2006 28, Feb 2006 Price 154.8 172.45

-0.09 0.05 -0.03 0.02 TABLE-25

Change 17.65

% Change

11.41 TABLE-26

Add ITC to 5.97 which had no exposure in the month of January in the portfolio. During that time ITC has grown from 154.8 to 172.45 Rs means 11.41% increase which is higher than Sensex 4.54% growth, this decision gave return at 3.44%.

Crompton Greaves Share Benefit % Date 31, Jan 2006 28, Feb 2006 Price 906.3 5 892.4 5 -13.9 -1.53 TABLE-27 Change Change

Reduce share of Crompton Greaves which had less exposure in the month of February than January in the portfolio. During that time Crompton has felt from 906.35 to 892.45 Rs means 1.53% decrease. Due to this funds performance has not felt.

HDFC Equity Fund Portfolio Top 10 Holdings For March 09 SR. No. Company

Industry

of

71

1 2 3 4 5 6 7 8 9 10

Infosys Technologies Ltd. State Bank of India ITC Ltd. Satyam Computer Services Ltd. Tata Motors Ltd. Bharat Heavy Electricals Ltd. Maruti Udyog Ltd. Crompton Greaves Ltd. Siemens Ltd. Amtek Auto Ltd.

Software Banks Consumer Non Durables Software Auto Industrial Capital Goods Auto Ancillaries Industrial Capital Goods Industrial Capital Goods Auto Ancillaries Top 10 Holdings Others Equity Holdings TOTAL TABLE-28 Month

NAV 8.72 7.88 7.81 6.86 5.87 5.71 5.5 5.06 4.78 4.57 62.76 37.24 100

NAV

Changed

During

the

(GROWTH) Date NAV 1, Mar 2009 116.844 31, Mar 2009 127.151 Change 10.307 % Change Beta 0.88 0.88 8.821 TABLE-29

Compare returns with Sensex Movement Date Closing 28-Feb-06 8800 31-Mar-06 9568.14 Change 768.14 % change 8.73 TABLE-30

Industry Wise Allocation February % Industry Software Industry Capital Goods Auto Consumer Non Durables Auto Ancillaries Allocation 21.06 17.32 12.59 10.16 8.9 Of Industry Software Industry Capital Goods Consumer Non Durables Auto Banks March % Of Allocation 18.09 17.35 12.46 11.37 7.88

72

Banks Oil Pesticides Transportation Metals Pharmaceuticals Hardware Textile Chemicals IT Consulting & Services

7.92 6.58 3.7 2.32 1.78 1.45 1.29 2.09 0.67 0.12

Auto Ancillaries Oil Media & Entertainment Pesticides Telecom- Services Metals Transportation Hardware Textile Pharmaceuticals Chemicals IT Consulting & Services TABLE-31

7.67 3.86 3.29 2.87 2.65 2.13 1.86 1.81 2.05 1.09 0.87 0.08

Feb-March Month Portfolio Industry Change Software -2.97 Industry Capital Goods 0.03 Consumer Non Durables 2.3 Auto -1.22 Banks -0.04 Auto Ancillaries -1.23 Oil -2.72 Media & Entertainment 3.29 Pesticides -0.83 Telecom- Services 2.65 Metals 0.35 Transportation -0.46 Hardware 0.52 Textile -0.04 Pharmaceuticals -0.36 Chemicals 0.2 IT Consulting & Services -0.04 TABLE-32 Crompton Greaves Share Benefit Date 28, Feb 2006 Price 892.4 Change % Change

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5 1049. 31, March 2006 3 156.85 17.57 TABLE-33

Add share of Crompton Greaves which had less exposure in the month of February in the portfolio. During March Crompton has grown from 892.45 to 1049.3 Rs means 17.57% increase. So, these decision results in 8.4% return on fund.

Satyam Computer Share Benefit Date 28, Feb 2006 31, March 2006 Price 769.6 5 848.5 Change % Change

78.85

10.24 TABLE-34

Satyam computer has grown at the rate of 10.24% which is 20% higher than Sensex growth in that time period

Prudential ICICI Growth Fund January 09 S. No 1 2 3 4 5 6 7 8 9 10 Companies Hindalco Industry Ltd. Bharat Heavy Electricals Limited Associated Cement Companies Ltd Oil & Natural Gas Company Ltd Grasim Industries Limited Reliance Industries Limited Satyam Computer Services Ltd. Jaiprakash Associates Ltd Mahindra & Mahindra Limited ITC Limited TABLE-35 Industry Non Ferrous Metals Industrial Capital Goods Cement Oil Cement Petroleum Products Software Construction Auto Consumer Non Durables % of NAV 5.43 4.16 3.87 3.73 3.47 3.36 3.14 3.08 3.03 3

Industry Wise Allocation

74

GRAPH-9 NAV Changed During the Month

(GROWTH) Date NAV 1, Jan 2009 68.7 31, Jan 2009 70.42

Change 1.72

% Change Beta 0.98 0.98 2.5 TABLE-36

In January, ICICI Growth Fund has given only 2.5% returns where HDFC Equity Fund has given 5.34% returns. So we can say that HDFC has performed better in January.

Reliance Industry Share Benefit Date 31, Dec 2008 31, Jan 2009 Price 897.85 713.9 Change -183.95 % Change -20.4 TABLE-37

In the month of January Reliance Industrys share price has come down to 713.9 Rs which is 20.4% lesser than December price. ICICI has exposure of reliance industry in to portfolio which harms the funds overall returns.

75

Jai Prakash Associate Shares Benefit Date 31, Dec 2008 31, Jan 2009 Price 379.9 408.25 Change 28.35 % Change 7.46 TABLE

ICICI has exposure of Jai Prakash Associates which has rose by 7.46% in January month. HDFC Mutual fund did not have Jai Prakashs exposure in their portfolio.

Prudential ICICI Growth Fund February S. No 1 2 3 4 5 6 7 8 9 10 Companies Bharat Heavy Electricals Limited Jaiprakash Associates Ltd Reliance Industries Limited Industry Industrial

(TABLE-)

% of NAV Capital

Goods 4.84 Construction 4.14 Petroleum Products 3.99 Consumer Non 3.82 3.73 3.71 3.68 3.45 3.44 3.44

ITC Limited Durables Grasim Industries Limited Cement Associated Cement Companies Ltd Bajaj Auto Limited Satyam Computer Services Ltd. Mahindra & Mahindra Limited Oil & Natural Gas Company Ltd Cement Auto Software Auto Oil

Industry Wise Allocation

76

GRAPH

NAV

Changed

During

the

Month

(GROWTH) Date NAV 1, Feb 2009 70.42 28, Feb 2009 71.79

Change 1.37

% Change Beta 0.96 0.96 1.94

In February market has boomed by 4.54% where HDFC Equity fund has given 3.33% returns. So it has performed similar to market trend but ICICI Growth fund has given only 1.94% in same period. So, we can say that this fund has performed lower than market Prudential ICICI Growth Fund

77

March S. No 1 2 3 4 5 6 7 8 9 10 Companies Bharat Heavy Electricals Limited Reliance Industries Limited Larsen & Toubro Limited ITC Limited Siemens India Limited Bajaj Auto Limited Associated Cement Companies Industry Industrial Capital Goods Petroleum Products Industrial Capital Goods Consumer Non Durables Industrial Capital Goods Auto % of NAV 4.84% 4.64% 4.03% 3.91% 3.82% 3.52% 3.49% 3.32% 3.28% 3.17%

Ltd Cement Mahindra & Mahindra Limited Auto Cipla Limited Pharmaceuticals Grasim Industries Limited Cement TABLE

Industry Wise Allocation

GRAPH

78

NAV Changed During the Month (GROWTH) Date NAV Change % Change Beta 0.78 1, March 2009 71.79 0.78 31, March 2009 80.94 9.15 12.74 TABLE ICICI Growth fund has grown up by 12.74% in March where HDFC Equity Fund has grown only by 8.8% CIPLA Shares Benefit Date 31, Dec 2008 31, Jan 2009 Price 552.15 662.25 Change 110.1 % Change 19.94 TABLE

ICICI has CIPLA script in their portfolio which has grown to 662.25 Rs. It has rose by 19.94% in March month. HDFC did not have CIPLAs exposure. This script has the main reason behind ICICI better performance over HDFC. Reliance Growth Fund January S. No. Companies % of NAV Bharat Earth Movers 1 2 3 4 5 6 7 8 9 10 Ltd. Kirloskar Brothers Crompton Greaves Ltd. Hindustan Lever Ltd. State Bank of India Strides Arcolabs Ltd. United Phosphorous Jindal Saw Ltd. Jaiprakash Associates Reliance Industries Ltd. 4.96 3.84 2.99 2.64 2.58 2.35 2.26 2.2 2.11 2.08 TABLE % Of Allocation 10.44 10.41 9.34 8.92

Industry Wise Allocation S. No. 1 2 3 4 Industry Industry Capital Goods Consumer Non Durable Industrial Products Software

79

5 6 7 8 9 10 11 12 13 14 15

Banks Pharmaceuticals Ferrous Metals Fertilizers Chemicals Construction Auto Ancillaries Pesticides Petroleum Products Auto Telecom Services

7.25 6.1 5.16 3.09 3.09 2.8 2.33 2.26 2.08 2.05 1.86 TABLE

Reliance Growth Fund March S. No. Companies % of NAV Bharat Earth Movers 1 2 3 4 5 6 7 8 9 10 Ltd. Reliance Industries Ltd. Kirloskar Brothers Bombay Dying Ltd. Bank of Baroda Crompton Greaves Ltd. Jaiprakash Associates Strides Arcolabs Ltd. Jindal Saw Ltd. JSW Steels Ltd. 4.91 4.6 4.18 2.66 2.58 2.57 2.31 2.16 2.1 2.04 TABLE

Industry Wise Allocation S. No. 1 2 3 4 5 6 7 8 9 10 Industry Industry Capital Goods Industrial Products Consumer Non Durable Software Pharmaceuticals Banks Ferrous Metals Petroleum Products Chemicals Construction % Of Allocation 10.76 10.19 8.37 8.17 7.78 7.19 6.98 5.95 4.55 3.11

80

11 12 13 14 15

Fertilizers Telecom Services Auto Auto Ancillaries Pesticides

2.78 2.56 2.34 2.19 2.14 TABLE

NAV Changed During the Month (GROWTH) Date NAV 1, Mar 2009 207.15 31, Mar 2009 229.76 Change 22.61 % Change 10.91 Beta 0.87 0.87

Reliance growth fund has given 10.91% returns to investors in the month of March where market has boomed by only 8.4%. In the same month HDFC Equity fund has given only 8.84 % returns. Kirloskar Brother Shares Benefit Date Price Change % Change 28, Feb 2009 196.55 31, Mar 2009 291.7 95.15 48.41 Kirloskar Brother Share price has risen from 196.55 to 291.7 Rs. This means 48.41% increase in March month. HDFC Mutual Fund had not this script into their portfolio.

Bombay Dyeing Shares Benefit Date 28, Feb 2009 31, Mar 2009 Price 375.35 596 Change 220.45 % Change 58.71

Bombay Dyeing shares have grown by 58.71% where the overall Sensex has grown only by 8.76% Reliance has 4.18% exposure to this script.

81

JSW Steel Shares Benefit Date 28, Feb 2009 31, Mar 2009 Price 205.1 302.85 Change 97.75 % Change 47.61

In the month of March JSW Steel has moved to 302.85 Rs which was 47.61% increase. Reliance has 2.04% exposure to this script.

Core & Satellite Fund

Nature of scheme : Open ended growth scheme Objective: To generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value. Fund Manager : Dhawal Mehta Inception Date : September 17, 2004

82

Core & Satellite Fund Portfolio Top 10 Holdings For October S.No . 1 2 3 4 5 6 7 8 9 10 Company State Bank of India Bharat Heavy Electricals Ltd. Infosys Technologies Ltd. Tata Motors Ltd. Satyam Computer Services Ltd. ITC Ltd. Crompton Greaves Ltd. Hindalco Industries Ltd. United Phosphorus Ltd. Hindustan Construction Company Ltd. Industry Banks Industrial Capital Goods Software Auto Software Consumer Capital Goods Industrial Capital Goods Non- Ferrous Metals Pesticides Construction Top 10 Holdings Others Equity Holdings TOTAL %To NAV 8.83 7.95 7.73 7.17 6.34 5.27 4.96 4.74 4.22 4.07 61.28 28.72 100

TABLE

NAV Changed During the Month (GROWTH) Date 1, oct 2008 31, oct 2008 NAV Change % Change Beta 1.03 17.18 15.699 (-1.481) (-8.6) 1.03 TABLE

Compare returns with Sensex Movement Date 30-Sep-08 31-Oct-08 Closing 8,634.48 7,892.32 Change % change

(-742)

(-8.59) TABLE

83

Core & Satellite Fund Portfolio Top 10 Holdings For December S. No. 1 2 3 4 5 6 7 8 9 10 Company Satyam Computer Services Ltd. Bharat Heavy Electricals Ltd. Tata Motors Ltd. State Bank of India Infosys Technologies Ltd. Crompton Greaves Ltd. Hindustan Construction Company Ltd. ITC Ltd. Hindalco Industries Ltd. Hindustan zinc Ltd. Industry Software Industrial Capital Goods Auto Banks Software Industrial Capital Goods Construction Consumer Non Durable Non- Ferrous Metals Non- Ferrous Metals Top 10 Holdings Others Equity Holdings Total % NAV 6.78 6.65 6.33 6.21 5.5 5.35 5.18 5.15 4.14 3.75 55.04 28.72 100 To

NAV Changed During the Month (GROWTH) Date NAV 1, Dec 2008 17.542 30, Dec 2008 18.822 Change 1.28 % Change 7.2 TABLE Beta 0.87 0.87

Compare returns with Sensex Movement Date 30-Nov08 30-Dec08 Closing 8,788.8 1 9,397.9 3 609 6.92 TABLE Change % change

Industry Wise Allocation

84

October % Industry Industry Goods Software Banks Auto Ancillaries Non-Ferrous Metals Auto Pesticides Consumer Durable Construction Industrial Products Chemicals Non 5.27 4.07 2.67 1.71 Allocation Capital 22.15 15.61 12.61 11.12 8.48 7.17 5.42 Of

December % Industry Industry Capital Goods Software Auto Ancillaries Banks Non-Ferrous Metals Auto Construction Consumer Non Durable Pesticides Industrial Products Chemicals Consumer Durables Of Allocation 21.42 14.03 10.76 9.75 7.89 6.33 5.18 5.15 4.96 2.94 2.12 1.43

Consumer Durables 1.29 Power 0.53 TABLE

Oct-Dec month portfolio Industry Industry Capital Goods Software Auto Ancillaries Banks Non-Ferrous Metals Auto Construction Consumer Non Durable Change -0.73 -1.58 -0.36 -2.86 -0.59 -0.84 -0.5 1.11

85

Pesticides Industrial Products Chemicals Consumer Durables

-0.12 0.27 0.41 0.14 TABLE

Hindustan Construction Ltd. Share Benefit Date Price Change % Change 31, Oct 2008 853.85 31, Dec2008 127.2 TABLE Fund bought Hindustan Construction Ltd. shares.

ICICI Dynamic Plan

January Portfolio S. No. 1 2 3 4 5 6 7 8 9 10 Companies Deccan Chronicle Holdings Ltd Subex Systems Limited Hindalco Industries Limited E.I.D. Parry (India) Limited State Bank of India Bajaj Hindustan Limited Reliance Industries Limited Larsen & Toubro Limited Sterlite Industries (India) Limited Grasim Industries Limited % of NAV 7.18 4.02 3.89 3.49 3.38 3.35 3.18 3.12

2.98 2.98 TABLE

86

Industry Wise Allocation

GRAPH NAV Changed During the Month

(GROWTH) Date NAV 1, Jan 2009 42.68 31, Jan 2009 44.51 Sterlite share's price Date 1, Jan 2009 31, Jan 2009 Price 1074.7 5 1363.4 5

Change 1.83

% Change Beta 0.91 0.91 4.28 TABLE

Change

% change

288.75

26.86 TABLE

Fund has 2.98% exposure of Sterlite which has grown 26.86% in January month.

87

ICICI Dynamic Plan

February Portfolio

S. No. 1 2 3 4 5 6 7 8 9 10

Companies Deccan Chronicle Holdings Ltd Jain Irrigation Systems Limited Subex Systems Limited E.I.D. Parry (India) Limited Larsen & Toubro Limited Grasim Industries Limited Hindalco Industries Limited Reliance Industries Limited Century Textiles & Industries Ltd Amtek Ltd.

% of NAV 8.65 4.5 4.01 3.65 3.44 3.34 3.21 3.16

3.14 3.01 TABLE

Industry Wise Allocation

88

TABLE NAV Changed During the Month

(GROWTH) Date NAV 1, Feb 2009 44.51 28, Feb 2009 46.22

Change 1.71

% Change Beta 0.98 0.98 3.64

Century textile share's price Date Price Change 1, Feb 2009 2.9 28, Feb 2009 2.9 Nil

% Change Nil TABLE

Dynamic plan has 3.14% exposure of this script which has grown by 0 % means its share price remained same during the month of February.

ICICI Dynamic Plan March Portfolio

89

S. No. 1 2 3 4 5 6 7 8 9 10

Companies Deccan Chronicle Holdings Ltd Reliance Industries Limited Triveni Engineering & Industries Ltd Jain Irrigation Systems Limited Subex Systems Limited Century Textiles & Industries Ltd E.I.D. Parry (India) Limited Tata Consultancy Services Limited Grasim Industries Limited Larsen & Toubro Limited TABLE

% of NAV 7.31 5.17 4.98 3.89 3.7 3.46 3.36 3.18 2.97 2.93

Industry Wise Allocation

90

GRAPHNAV Changed During the Month (GROWTH) Date NAV Change % Change Beta 1, March 0.95 2009 31, 2009 46.22 March 53.35 7.13 15.42 TABLE 0.95

Triveni share's price Date Price 1, Mar 2009 76.95 125.9 31-Mar-09 5 Change % change

49 TABLE

64.47

Fund has increased Triveni shares in portfolio to 4.98% which has grown by 64.47% during March.

CHAPTER-7
91

Conclusion
The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The annual composite rate of growth is expected 13.4% during the rest of the decades. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double. The government is also helping in boosting mutual fund industry. Government is emphasizing a lot on infrastructure development and social spending and yet targeting a lower fiscal deficit. FIIs continued to be positive on emerging markets in general and the Indian markets in particular. FIIs buying have considerable portion in mutual funds buying. Key Points: Almost 100% growth in the last 6 years.(excepting 2008) Our saving rate is over 30%, highest in the world. Only channel zing these savings in mutual funds sector is required. We have some 70 mutual funds which are much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. SEBI allowing the MFs to launch commodity mutual funds.

92

This year budget has increased the limit of investment in overseas market by mutual funds to 33-35%. During last financial year investment habit of India has increased by and it is expected to grow by 30 % this year. 25 %

Recommendations
Studying the mutual fund industry I came to know that there are more then 700 types of funds available in the market. What I see that most of the fund managers who are

93

investing in equity market are putting their funds into large cap funds which is of course more secure but it is giving less return to the investors. i thought of preparing my own portfolio by investing 25 percent in money market and the rest of the 75 percent in mid cap equity To provide investors with opportunities for long term growth in capital along with the liquidity of an open ended scheme by investing predominantly in a well diversified basket of equity stocks of companies and in debt and money market instruments.. The portfolio is mentioned below:EQUITY Company Name Maharashtra Seamless Ltd Infotech Enterprises Limited Kesoram Industries Ltd Gitanjali Gems Ltd. KEC International Ltd. Nagarjuna Construction Company Ltd Thermax Limited Pantaloon Retail (India) Ltd. Equity Eastern Silk Industries Limited 3 i Infotech Limited. Crompton Greaves Ltd Welspun Gujarat Stahl Rohren Ltd Hotel Leela Venture Ltd Adlabs Films Limited Mangalam Cement Ltd Amtek Auto Ltd KEI Industries Elecon Engineering Company Ltd India Cements Ltd IVRCL Infrastructure & Projects Ltd. Raymond Ltd Opto Circuit Ltd. % of Net Assets 4.61 4.33 4.02 3.18 3.08 3.06 3.02 2.89 2.81 2.68 2.65 2.65 2.51 2.23 2.19 2.17 2.14 2.09 1.79 1.67 1.61 1.52

94

SKF Bearings India Ltd Crest Animation Studios Ltd Ansal Properties & Industries Ltd Gujarat Mineral Development Corporation Limited Lupin Ltd. Deepak Fertilizers & Petrochemicals Corp Ltd Usha Martin Ltd RPG Transmission Ltd Gujarat State Petronet Ltd. Jagran Prakashan Ltd Rajshree Sugars & Chemicals Ltd Indo Asian Fuse Gear Ltd Sri Adhikari Brothers Television Network Ltd Global Vectra Helicorp Ltd Sagar Cements Ltd Bharati Shipyard PVR Ltd. K E C Infrastructure Ltd. Dwarikesh Sugar Industries Tanla Solutions Ltd Mahindra Ugine Steel Company Ltd Redington India Ltd. Suryalakshmi Cotton Mills Ltd Top Industry Allocation Industry Steel Computers - Software & Education Housing & Construction Textiles 7.18% 6.09% 5.85% Allocation 8.35%

1.48 1.46 1.36 1.30 0.97 0.93 0.93 0.86 0.78 0.75 0.66 0.65 0.58 0.37 0.32 0.3 0.3 0.28 0.26 0.17 0.16 0.15 0.15

95

Diversified Electricals & Electrical Equipments Engineering & Industrial Machinery Entertainment Cement Power Generation, Transmission & Equip Asset Allocation Equity 74.06 Debt 3.94% 5.44% 5.11% 4.57%

5.63%

4.30%

Money Market 25.94

My Learning from PROJECT I have learnt many things which I might not be able to learn under class room training like looking at the stock market terminal and analyzing the stocks and thereby

96

deducing about their performance and thus designing the portfolio on the basis of their performances. I want to share some of experience or learning with you. First and the most important I learnt about Mutual Fund Industry. Before this project I dint have much knowledge about Mutual funds. But now I have good knowledge about Mutual Funds.

I learnt about marketing elements also. How the companies, banks and brokerage houses market their products in front of customer in presence of competitors products.

I learnt about mutual funds as well as other products like insurance, DMAT account, IPO, some of banking product and transactions and some financial services offered by EDELWEISS Broking Ltd.

I also learnt about the risk factor calculation of the mutual funds, how the various broking firms calculate the risk factors of various mutual funds.

97

ANNEXURE

98

FACT SHEET OF THE EDELWEISS MUTUAL FUND

99

Webography
hdfcfund.com google.com altavista.com investmart.com icicidirect.com amfiindia.com nseindia.com mutualfundsindia.com

Bibliography

Book on Portfolio Management by Press Magazine AAG by HDFC Bank, April issue. Business world

100

CARICULOUMN VITAE Nitesh Kumar Tiwari

Village & Post-Imbrahimpur Bhadohi-221310 Mob:-+91 9336826902 E-mail Id:-nityaprabhat@gmail.com

CAREER OBJECTIVE To build a career with a leading organization with an environment comprising of committed and dedicated people, helping organizational and individual growth and develop my professional competence to the fullest. EDUCATION

QUALIFICATION MBA (Finance/Marketing ) B.Sc.(Math) Intermediate High School

UNIVERSITY/BOARD AMITY UNIVERSITY V.B.S.Purvanchal ,University U.P.BOARD U.P. BOARD

%TAGE or CGPA 2nd Semester 57.8 69.0 60.5

YRPASSOUT 2009-011 2007 2004 2002

MAJOR SUBJECTS Finance/Marketing P.C.M. P.C.M, English, Hindi Science, Hindi, English, Math, Sanskrit, So-Science.

SPECIALIZATION Marketing Finance

COMPUTER SKILLS MS Word, Excel, PowerPoint etc. PROJECTS I have completed Marketing Research on Tata-NANO-Consumer Perception. (2010) Business Plan on Cloud Computing.(2010)

101

International Marketing Plan for GITS food Product Pvt. Ltd. (For Australian Market)(2010)

ACHIEVEMENTS

School prefect for class 11th & 12th.

EXTRA CURRICULAR ACTIVITIES Led cleanliness and health awareness drives in my village Volunteered in FRESHERS 2009-11 at AMITY UNIVERSITY. Volunteered in I-VIEW SAMANVAY 2010 at AMITY UNIVERSITY. Attended MILITARY TRAINING CAMP at MANESAR, GURGAON with an aim to further sharpen my team management and self-survival skills. Participated in Blood Donation Camp.

PERSONAL VITAE Strengths: Quick Learner and adept at adapting to different conditions. Good at communication skills. Patience on most occasions. Friendly Go getter

Hobbies & Interests: Traveling to new places. Listening to music. Bathroom singing Sketching Other Relevant Information:

Date of Birth: 16th of December, 1987 Linguistic Abilities: Hindi, English, French(Basic)

WORK EXPERIENCE
Taught Mathematics :

REFEREE

During my Gradation (2004-07) in (+ Coaching center in Mirzapur). After Graduation (2007-09) in (Sankalp & 3-D Sikha Sansthan in Varanasi)

Mr. Anil Sharma Professor (Strategy & Finance)

102

Amity Business School Mob: +91-9415610158 E Mail: an_ils@rediffmail.com

103