RIZVI ACADEMY OF MANAGEMENT

PoRTFOLIO MANAGEMENT through mutual

funds
AMIWESH KUMAR – 27, amiwesh@gmail.com
Acknowledgement

Intellectual alertness, creativity and innovation go side by side in

making of a Manager. In this context, the role of successful execution
of the project work can not be denied. My heartfelt Veneration in due
to Prof. Kalim Khan , Director at Rizvi Academy Of Management,
Mumbai, for his guidance on various facets of the project work and for
his timely advice to improve upon shortcomings and I am thankful to
him for his approval to perform this dissertation.
On this note, I feel inexpedient to express my profound
indebtedness and sincere thanks to our venerable Mr. Amit Samant,
guide from the institute respectively, for his indefatigable cooperation,
analytical guidance and boundless endeavors, which gave me great
help and revitalization at every step in completing my project.
I would also like to take this opportunity to convey my respect
and special gratitude towards Mr. Amarnath (All India Head, Mahindra)
who considered me worthy of doing project in their esteemed
establishment and never failed to satisfy my over-zealous thirst to
obtain information.
I also want to thank Miss Ujjwala (State Head, Mahindra Financial
Services Limited) and Miss Deepali Parkar(Relationship Manager,
Mahindra financial Services Limited) for their kind support for
successful completion of this project.
Working on this project has been a great experience. I am
thankful to all concerned people who have played active role in the
successful completion of this project.

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 INDEX
1) INTRODUCTION 7
2) PROJECT TITLE 8
3) OBJECTIVES 9
4) PURPOSE 10
5) SCOPE 10
6) LIMITATION 11
7) METHODOLOGY 11
8) OVERVIEW OF MUTUAL FUNDS 12
9) CURRENT SCENARIO 15
10) ORGANIZATION OF MUTUAL FUNDS 17
11) TYPES OF MUTUAL FUNDS SCEMES 20
12) PERFORMANCE MEASURES OF
MUTUAL FUNDS 25
13) RISK FACTORS 29
14) DIFFERENT AMC’S IN INDIA 50
15) REFERNECES 57

3
ABSTRACT

The rise in the level of capital market has manifested the importance
Mutual Funds as investment medium. Mutual Funds are now are
becoming a preferred investment destination for the investors as fund
houses offer not only the expertise in managing funds but also a host
of other services.
Over the last five year period from Mar’03 to Mar’08, the money
invested by FIIs was Rs.2,09,213cr into the stock market as compared
to Rs.38,964cr by mutual funds, yet MFs collectively made an
annualized return of 34% while it was 30% in case of FIIs.
Total Assets Under Management(AUM) in India as of today is $92b.
Volatile markets and year end accounting considerations have shaved
6% off in March, but much of that money should flow back in April. The
next five years will see the Indian Asset Management business grow at
least 33% annually says a study by McKinsey.
Funds in the diversified equity category which has the largest number
of funds(194) as well as the highest investor interest lost an average of
28.3% in Q4,2007-08 but gained an average of 21.4% over the four
quarters. Equity funds are estimated to have had net inflows of
Rs.7000cr for March 2008.More than 80% of equity funds managed to
outperform Sensex in terms of returns over the last five years.
Investor’s money inflow to mutual funds has sidelined for the time
being but the overall long term fundamental outlook on the economy
remains intact. To lower the impact of volatility one can stay invested
in diversified equity funds over a longer period of time through the
route of Systematic Investment Plan.

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ABOUT THE COMPANY

A subsidiary of Mahindra & Mahindra Limited, we are one of India’s

leading non-banking finance companies. Focused on the rural and
semi-urban sector, we provide finance for utility vehicles, tractors and
cars and have the largest network of branches covering these areas.
Our goal is to be the preferred provider of retail financing services in
the rural and semi-urban areas of India, while our strategy is to provide
a range of financial products and services to our customers through
our nationwide distribution network.

Vision of company
“Is to be the leading rural finance company and continue to retain the
leadership position for Mahindra product.”

INVESTMENT ADVISIORY SERVICES

We at Mahindra Finance are all-encompassing of clients’ needs. So
while we believe in making assets easily available, we also believe in
catering to those who want to create wealth from these assets. Our
Investment Advisory Services act as an avenue to help create and
multiply wealth.

Mutual Fund Distribution

Recently we have received the necessary permission from Reserve
Bank of India (RBI) to start the distribution of Mutual Fund products
through our network. Hitherto we were only participating in the liability

5
requirements of our customers but with a mutual fund distribution
business, we can also participate in their asset allocation.
When it comes to investing, everyone has unique needs based on their
own objectives and risk profile. While many investment avenues such
as fixed deposits, bonds etc. exist, it is usually seen that equities
typically outperform these investments, over a longer period of time.
Hence we are of the opinion that, systematic investment in equity
allows one to create substantial wealth.
However, investing in equity is not as simple as investing in bonds or
bank deposits, because only proper allocation of portfolio gives
maximum returns with moderate risk, and this requires expertise and
time.
Our Investment Advisory Services help you invest your money in equity
through different Mutual Fund Schemes. We ensure the best for our
clients by identifying products best suited to individual needs.

6
INTRODUCTION:
Mutual funds have been a significant source of investment in both
government and corporate securities. It has been for decades the
monopoly of the state with UTI being the key player, with invested
funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance
companies also hold a portfolio of stocks. Presently, numerous mutual
funds exist, including private and foreign companies. Banks - mainly
state-owned too have established Mutual Funds (MFs). Foreign
participation in mutual funds and asset management companies is
permitted on a case by case basis.

A Mutual Fund is a trust that pools the savings of a number of investors

who share a common financial goal. The money thus collected is then
invested in capital market instruments such as shares, debentures and
other securities. The income earned through these investments and
the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. 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 basket of
securities at a relatively low cost. The flow chart below describes
broadly the working of a mutual fund:

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 PROJECT TITLE

“PORTFOLIO MANAGEMENT THROUGH MUTUAL

FUNDS”

8
OBJECTIVE OF THE PROJECT

The objectives of the study on this topic are as follows:

Primary objective:
• To study the influence and role of mutual funds in managing a
portfolio.

• To analyze the various risk-return characteristics of Mutual funds

and attempt to establish a link between the demographics (age,
income, employment status etc), risk tolerance of investors.

• To analyze the performance of Top Mutual Funds in India.

Secondary objectives:
• Understanding the various characteristics of different Mutual
funds.

• Understanding the Investment pattern of AMC’s

• To get additional clients for the company and making them aware
about the benefits of mutual funds.

• To come up with recommendations for investors and mutual fund

companies in India based on the above study.

9
PURPOSE OF THE PROJECT
Investment in mutual funds gives you exposure to equity and debt
markets. These funds are marketed as a safe haven or as smart
investment vehicles for novice investors.
The middle-class Indian investor who plays hot tips for a quick buck at
the bourses is the stuff of legends. The middle-class Indian investor
who runs out of luck and loses not only his money but his peace of
mind too is somewhat less famous by choice. Mutual funds, on the
other hand, sell us middling miracles. Consequently proof enough for a
research on Mutual Funds, which has exacting returns.
Every investor requires a healthy return on his/her investments. But
since the market is very volatile and due to lack of expertise they may
fail to do so. So a study of these mutual funds will help one to equip
with unwarranted knowledge about the elements that help trade
between risk and return thereby improving effectiveness. A meticulous
study on the scalability at which the mutual funds operate along with
diagnosis of the market conditions would endure managing the
investment portfolio efficiently. The study would also immunize on risks
and foresee healthy returns; incidentally in worst of conditions it has
given a return of 18 per cent.

SCOPE OF THE PROJECT

The project covers the financial instruments mobilizing in the Indian
Capital market in particular the Mutual Funds.
The mutual funds analysed for their performance are determined over
a period of 5 years fluctuations and returns. The elements taken into

10
consideration for choosing some of the top funds is on the basis of
their respective sharpe , beta, ratio, .
The project shelves some of the top asset management companies
operating in India , segregated on the basis of their performance over a
period of time. Scooping further the project inundates the success ratio
of the funds administered by top AMC’s.

LIMITATIONS
A well managed portfolio of various individual scripts which is rare,
would not help to draw a line of difference between portfolio managed
through mutual funds and the former.
The median used to choose the top AMC’s and the mutual funds to be
analysed is relative and personalized and need not be accepted
industry wide. Inaccessibility to certain information and data relating to
the project on account of it being confidential.
Market volatility would affect individuals perception which would rather
not be likely the way it is expressed, thus resulting in a very relative
data.

METHODOLOGY
A thorough study of literature on the mutual fund industry both in India
and abroad will be done. Different measures will be adopted to
understand and evaluate the risks and returns of funds efficiently and
effectively.

An extensive study of various articles and publications of SEBI, AMFI

and government of India and other agencies with respect to the
demographics of the population of the country and their investing

11
pattern will be a part of the methodology adopted. The project will be
carried out mainly through two researches:

Primary research:
• Field visits
• Meeting with the clients
Secondary research:
• Internet.
• AMFI book.
• Fact sheets of various mutual fund houses.

Overview of Indian Mutual Fund Industry

Assets under management

As of the end on 31 January 2008, the mutual fund industry had a debt
and equity assets of Rs 5,50,157 crore. Its equity corpus of Rs
2,20,263 lakh crore accounts for over 3 per cent of the total market
capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian
companies ranges between 1 per cent and almost 29 per cent, making
them an influential shareholder. Together with banks, insurance
companies and FIIs- collectively called institutional investors- they
have the ability to ask company managements some tough questions.
India’s market for mutual funds has generated substantial growth in
assets under management over the past 10 years.

Ownership of mutual fund shares

One notable characteristic of India’s mutual fund market is the high
percentage of shares owned by corporations. According to the
Association of Mutual Funds in India ( AMFI ) , Individual investors held
slightly under 50% of mutual fund assets, and corporations held over
50% as of the end of march 2007. This high percentage of corporate

12
ownership can be tracked back to tax reforms instituted in 1999 that
lowered the tax rate on dividend and interest income from mutual
funds, and made that rate lower than the corporate tax levied on
income from securities held directly by corporations.

Although there is no official data regarding the type investor in each

class, the typical pattern seems to be that individual investors
primarily invest in equity funds, while corporate investors favor bond
funds, particularly short-term money market products that provide a
way for corp[orations to invest surplus cash.

HISTORY OF MUTUAL FUNDS:

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

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of
Parliament. It was set up by the Reserve Bank of India and functioned
under the Regulatory and administrative control of the Reserve Bank of
India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI

13
was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of
assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up
by public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI Mutual Fund was the
first non- UTI Mutual Fund established in June 1987 followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug
89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June
1989 while GIC had set up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under
management of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the
Indian mutual fund industry, giving the Indian investors a wider choice
of fund families. Also, 1993 was the year in which the first Mutual Fund
Regulations came into being, under which all mutual funds, except UTI
were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) Regulations
1996.The number of mutual fund houses went on increasing, with
many foreign mutual funds setting up funds in India and also the
industry has witnessed several mergers and acquisitions. As at the end
of January 2003, there were 33 mutual funds with total assets of Rs.

14
1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets
under management was way ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act
1963 UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management
of Rs.29,835 crores as at the end of January 2003, representing
broadly, the assets of US 64 scheme, assured return and certain other
schemes. The Specified Undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by Government of
India and does not come under the purview of the Mutual Fund
Regulations.

CURRENT SCENARIO:

The fund industry has grown phenomenally over the past couple of
years, and as on 31 January 2008, it had a debt and equity assets of
Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore
accounts for over 3 per cent of the total market capitalization of BSE,
at Rs 58 lakh crore. Its holding in Indian companies ranges between
1 per cent and almost 29 per cent, making them an influential
shareholder. Together with banks, insurance companies and FIIs-
collectively called institutional investors- they have the ability to
ask company managements some tough questions.
More significant than this stupendous growth has been the regulatory
changes that the capital market watchdog, Securities and Exchange
Board of India, introduced in the past two years. Outgoing Sebi
Chairman M.Damodaran’s two year stint as chairman of Unit Trust of

15
India helped him reform the industry by making it much more
transparent than before. In the process, mutual funds have become a
tad cheaper.
Until 2007, for instance, initial issue expenses on close-ended funds,
which could be as high as 6 per cent of the amount raised, could be
amortized over the tenure of the fund. This basically meant that even if
an investor put in Rs 1 lakh, effectively only Rs 94,000 got invested by
the fund. The initial expenses of the fund include commissions paid to
distributors and money spent on billboards for advertising the new
offer. In 2006, the regulator had scrapped the amortization benefit for
open-ended schemes. Not surprisingly, asset management companies
started launching closed-ended funds. Of the 34 new fund offers in
2007, 24 were closed-ended. In January this year, SEBI said all closed-
ended mutual fund schemes too will meet sales and marketing
expenses from the entry load. This made it more transport for
investors, because funds had to either hike their expense ratio
(management fee and operating charges as a percentage of assets
under management) or change higher entry load.

More About Mutual funds

According to SEBI "Mutual Fund" means a fund established in the form
of a trust to raise monies through the sale of units to the public or a
section of the public under one or more schemes for investing in
securities, including money market instruments;"
To the ordinary individual investor lacking expertise and specialized
skill in dealing proficiently with the securities market a Mutual Fund is
the most suitable investment forum as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a

16
relatively low cost. India has a burgeoning population of middle class
now estimated around 300 million. A typical Indian middle class family
can pool liquid savings ranging from Rs.2 to Rs.10 Lacs. Investment of
this money in Banks keeps the fund liquid and safe, but with the falling
rate of interest offered by Banks on Deposits, it is no longer attractive.
At best a small part can be parked in bank deposits, but what are the
other sources of remunerative investment possibilities open to the
common man? Mutual Fund is the ready answer, as direct PMS
investment is out of the scope of these individuals. Viewed in this
sense India is globally one of the best markets for Mutual Fund
Business, so also for Insurance business. This is the reason that foreign
companies compete with one another in setting up insurance and
mutual fund business shops in India. The sheer magnitude of the
population of educated white-collar employees with raising incomes
and a well-organized stock market at par with global standards,
provide unlimited scope for development of financial services based on
PMS like mutual fund and insurance.
The alternative to mutual fund is direct investment by the investor in
equities and bonds or corporate deposits. All investments whether in
shares, debentures or deposits involve risk: share value may go down
depending upon the performance of the company, the industry, state
of capital markets and the economy. Generally, however, longer the
term, lesser is the risk. Companies may default in payment of interest/
principal on their debentures/bonds/deposits; the rate of interest on an
investment may fall short of the rate of inflation reducing the
purchasing power. While risk cannot be eliminated, skillful
management can minimise risk. Mutual Funds help to reduce risk
through diversification and professional management. The experience
and expertise of Mutual Fund managers in selecting fundamentally
sound securities and timing their purchases and sales help them to
build a diversified portfolio that minimises risk and maximises returns.

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ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:

The
Advantages of Investing in a Mutual Fund
The advantages of investing in a Mutual Fund extending PMS to the
small investors are as under:

• Professional Management- The investor avails of the services of

experienced and skilled professionals who are backed by a
dedicated investment research team, which 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

18
 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.
• Convenient Administration - Investing in a Mutual Fund reduces
paperwork and helps you avoid many problems such as bad
deliveries, delayed payments and unnecessary follow up with
brokers and companies. Mutual Funds save your time and make
investing easy and convenient.
• 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 - Mutual Funds are a relatively less expensive way to
invest compared to directly investing in the capital markets
because the benefits of scale in brokerage, custodial and other
fees translate into lower costs for investors.
• Liquidity- In open-ended schemes, you can get your money back
promptly at net asset value related prices from the Mutual Fund
itself. With close-ended schemes, you can sell your units on a
stock exchange at the prevailing market price or avail of the
facility of direct repurchase at NAV related prices which some
close-ended and interval schemes offer you periodically.
• 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 manager's investment strategy and outlook.
• Flexibility- 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.

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 • Choice of Schemes- Mutual Funds offers a family of schemes to
suit your varying needs over a lifetime.
• 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. The operations of Mutual
Funds are regularly monitored by SEBI.

Other Special Features of MFs in terms of Portfolio Functions

These are special safeguards for the investor prescribed by SEBI.
• Portfolio Investment operations are entrusted to a professional
company, i.e. The Asset Management Company. (AMC). Thus
while MFs offer PMS functions on behalf of its unit holders, the
actual PMS services are rendered by the AMCs.
• Physical custody of the securities is not with the AMC but with a
custodian, an independent organisation, appointed for the
purpose. For instance, the Stock Holding Corporation of India Ltd.
(SCHIL) is the custodian for most fund houses in the country.

Disadvantages:
1. No Control over Costs

2. No Tailor-made Portfolios

3. Managing a Portfolio of Funds

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Types of mutual fund schemes
The expertise and professional skill developed by different Mutual
Funds in Portfolio Management can be better expressed by listing the
different financial products they have developed to be offered to the
investors:

1. Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme

or close-ended scheme depending on its maturity period.
o An open-ended fund or scheme is one that is available for
subscription and repurchase on a continuous basis. These
schemes do not have a fixed maturity period
o Close-ended Fund/Scheme: A close-ended fund or scheme
has a stipulated maturity period e.g. 5-7 years. The fund is
open for subscription only during a specified period at the
time of launch of the scheme. 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 the units 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

21
 periodic repurchase at NAV related prices. These mutual
funds schemes disclose NAV generally on weekly basis
2. Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income
scheme, or balanced scheme considering its investment
objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified
mainly as follows:
o Growth / Equity Oriented Scheme: The aim of growth funds
is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their
corpus in equities. Such funds have comparatively high
risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and
the investors may choose an option depending on their
preferences. The mutual funds also allow the investors to
change the options at a later date. Growth schemes are
good for investors having a long-term outlook seeking
appreciation over a period of time.
o Income / Debt Oriented Scheme: 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, Government securities and
money market instruments. Such funds are less risky
compared to equity schemes. These funds are not affected
because of fluctuations in equity markets. However,
opportunities of capital appreciation are also limited in
such funds. The NAVs of such funds are affected because
of change in interest rates in the country. If the interest
rates fall, NAVs of such funds are likely to increase in the

22
 short run and vice versa. However, long term investors
may not bother about these fluctuations.
o Balanced Fund: The aim of balanced funds is to provide
both growth and regular income as such schemes invest
both in equities and fixed income securities in the
proportion indicated in their offer documents. These are
appropriate for investors looking for moderate growth.
They generally invest 40-60% in equity and debt
instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However,
NAVs of such funds are likely to be less volatile compared
to pure equity funds.
3. Money Market or Liquid Fund:
These funds are also income funds and their aim is to provide
easy liquidity, preservation of capital and moderate income.
These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper
and inter-bank call money, government securities, etc. Returns
on these schemes fluctuate much less compared to other funds.
These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short
periods.
4. Gilt Fund:
These funds invest exclusively in government securities.
Government securities have no default risk. NAVs of these
schemes also fluctuate due to change in interest rates and other
economic factors as is the case with income or debt oriented
schemes.
5. Index Funds:
Index Funds replicate the portfolio of a particular index such as
the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These

23
 schemes invest in the securities in the same weightage
comprising of an index. NAVs of such schemes would rise or fall
in accordance with the rise or fall in the index, though not
exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this
regard are made in the offer document of the mutual fund
scheme. There are also exchange traded index funds launched
by the mutual funds which are traded on the stock exchanges.

6. Sector specific funds/schemes:

These are the funds/schemes, which invest in the securities of
only those sectors, or industries as specified in the offer
documents. e.g. Pharmaceuticals, Software, Fast Moving
Consumer Goods (FMCG), Petroleum stocks, etc. The returns in
these funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher returns,
they are more risky compared to diversified funds. Investors
need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time. They
may also seek advice of an expert.
7. Tax Saving Schemes:
These schemes offer tax rebates to the investors under specific
provisions of the Income Tax Act, 1961 as the Government offers
tax incentives for investment in specified avenues. e.g. Equity
Linked Savings Schemes (ELSS). Pension schemes launched by
the mutual funds also offer tax benefits. These schemes are
growth oriented and invest pre-dominantly in equities. Their
growth opportunities and risks associated are like any equity-
oriented scheme
8. Load or no-load Fund:

24
 A Load Fund is one that charges a percentage of NAV for entry or
exit. That is, each time one buys or sells units in the fund, a
charge will be payable. This charge is used by the mutual fund
for marketing and distribution expenses. However, the investors
should also consider the performance track record and service
standards of the mutual fund, which are more important. Efficient
funds may give higher returns in spite of loads.
9. No-load fund: is one that does not charge for entry or exit. It
means the investors can enter the fund/scheme at NAV and no
additional charges are payable on purchase or sale of units.

10.Monthly Income Plan:

• To generate regular income through investments in debt
and money market instruments and also to generate long-
term capital appreciation by investing a portion in equity
related instruments.
• Fund Objective :-Investors seeking regular income through
investments in fixed income securities so as to get
monthly/quarterly/half yearly dividend. The secondary
objective of the scheme is to generate long term capital
appreciation by investing a portion of scheme’s assets in
equity and equity related instruments. Suitable for investor
with medium risk profile and seeking regular income.
11. FMP’s ( Fixed Maturity Plans ): These are close-ended income
schemes with a fixed maturity date. The period could range from
fifteen days to as long as two years or more. When the period
comes to an end, the scheme matures and money is paid back.
Like an income scheme, FMPs invest in fixed income instruments
i.e. bonds, government securities, money market instruments

25
 etc. The tenure of these instruments depends on the tenure of
the scheme.

• FMPs effectively eliminate interest rate risk. This is done by

employing a specific investment strategy. FMPs invest in
instruments that mature at the same time their schemes
come to an end. So a 90-day FMP will invest in instruments
that mature within 90 days.
• For all practical purposes, an FMP is an income scheme of a
mutual fund. Hence, the tax incidence would be similar to
that on traditional income schemes. The dividend from an
FMP will be tax free in the hands of an individual investor.
However, it would be subject to the dividend distribution
tax.
• Redemptions from investments held for less than a year
will be short-term gains and added to the investor's income
to be taxed at slab rates applicable. If such an investment
were held for more than a year, the long-term gains would
get taxed at 20 per cent with indexation or at 10 per cent
without. These rates are subject to the surcharge and
education cess as normally applicable. One can avail the
benefit of double indexation and save tax on FMPs held for
more than one year.

PERFORMANCE MEASURES OF MUTUAL

FUNDS
Mutual Fund industry today, with about 34 players and more than five
hundred schemes, is one of the most preferred investment avenues in
India. However, with a plethora of schemes to choose from, the retail
investor faces problems in selecting funds. Factors such as investment

26
strategy and management style are qualitative, but the funds record
is an important indicator too. Though past performance alone cannot
be indicative of future performance, it is, frankly, the only quantitative
way to judge how good a fund is at present. Therefore, there is a need
to correctly assess the past performance of different mutual funds.
Worldwide, good mutual fund companies over are known by their
AMCs and this fame is directly linked to their superior stock selection
skills. For mutual funds to grow, AMCs must be held accountable for
their selection of stocks. In other words, there must be some
performance indicator that will reveal the quality of stock selection of
various AMCs.
Return alone should not be considered as the basis of measurement of
the performance of a mutual fund scheme, it should also include the
risk taken by the fund manager because different funds will have
different levels of risk attached to them. Risk associated with a fund,
in a general, can be defined as variability or fluctuations in the returns
generated by it. The higher the fluctuations in the returns of a fund
during a given period, higher will be the risk associated with it. These
fluctuations in the returns generated by a fund are resultant of two
guiding forces. First, general market fluctuations, which affect all the
securities present in the market, called market risk or systematic risk
and second, fluctuations due to specific securities present in the
portfolio of the fund, called unsystematic risk. The Total Risk of a given
fund is sum of these two and is measured in terms of standard
deviation of returns of the fund. Systematic risk, on the other hand, is
measured in terms of Beta, which represents fluctuations in the NAV of
the fund vis-à-vis market. The more responsive the NAV of a mutual
fund is to the changes in the market; higher will be its beta. Beta is
calculated by relating the returns on a mutual fund with the returns in
the market. While unsystematic risk can be diversified through
investments in a number of instruments, systematic risk can not. By

27
using the risk return relationship, we try to assess the competitive
strength of the mutual funds vis-à-vis one another in a better way.
In order to determine the risk-adjusted returns of investment
portfolios, several eminent authors have worked since 1960s to
develop composite performance indices to evaluate a portfolio by
comparing alternative portfolios within a particular risk class. The
most important and widely used measures of performance are:
Ø The Treynor Measure
Ø The Sharpe Measure
Ø Jenson Model
Ø Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds
on the basis of Treynor's Index. This Index is a ratio of return
generated by the fund over and above risk free rate of return
(generally taken to be the return on securities backed by the
government, as there is no credit risk associated), during a given
period and systematic risk associated with it (beta). Symbolically, it
can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rf is risk free rate of return and
Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a
high and positive Treynor's Index shows a superior risk-adjusted
performance of a fund, a low and negative Treynor's Index is an
indication of unfavorable performance.

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of
Sharpe Ratio, which is a ratio of returns generated by the fund over

28
and above risk free rate of return and the total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors
are concerned about. So, the model evaluates funds on the basis of
reward per unit of total risk. Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted
performance of a fund, a low and negative Sharpe Ratio is an
indication of unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both
divide the risk premium by a numerical risk measure. The total risk is
appropriate when we are evaluating the risk return relationship for
well-diversified portfolios. On the other hand, the systematic risk is
the relevant measure of risk when we are evaluating less than fully
diversified portfolios or individual stocks. For a well-diversified
portfolio the total risk is equal to systematic risk. Rankings based on
total risk (Sharpe measure) and systematic risk (Treynor measure)
should be identical for a well-diversified portfolio, as the total risk is
reduced to systematic risk. Therefore, a poorly diversified fund that
ranks higher on Treynor measure, compared with another fund that is
highly diversified, will rank lower on Sharpe Measure.
Jenson Model
Jenson's model proposes another risk adjusted performance measure.
This measure was developed by Michael Jenson and is sometimes
referred to as the Differential Return Method. This measure involves
evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund given the level of its systematic risk.
The surplus between the two returns is called Alpha, which measures
the performance of a fund compared with the actual returns over the

29
period. Required return of a fund at a given level of risk (Bi) can be
calculated as:
Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After
calculating it, alpha can be obtained by subtracting required return
from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice
versa. Limitation of this model is that it considers only systematic risk
not the entire risk associated with the fund and an ordinary investor
cannot mitigate unsystematic risk, as his knowledge of market is
primitive.

Fama Model
The Eugene Fama model is an extension of Jenson model. This model
compares the performance, measured in terms of returns, of a fund
with the required return commensurate with the total risk associated
with it. The difference between these two is taken as a measure of the
performance of the fund and is called net selectivity.
The net selectivity represents the stock selection skill of the fund
manager, as it is the excess return over and above the return required
to compensate for the total risk taken by the fund manager. Higher
value of which indicates that fund manager has earned returns well
above the return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns. The net selectivity
is then calculated by subtracting this required return from the actual
return of the fund.
Among the above performance measures, two models namely, Treynor
measure and Jenson model use systematic risk based on the premise
that the unsystematic risk is diversifiable. These models are suitable
for large investors like institutional investors with high risk taking

30
capacities as they do not face paucity of funds and can invest in a
number of options to dilute some risks. For them, a portfolio can be
spread across a number of stocks and sectors. However, Sharpe
measure and Fama model that consider the entire risk associated with
fund are suitable for small investors, as the ordinary investor lacks the
necessary skill and resources to diversified. Moreover, the selection of
the fund on the basis of superior stock selection ability of the fund
manager will also help in safeguarding the money invested to a great
extent. The investment in funds that have generated big returns at
higher levels of risks leaves the money all the more prone to risks of
all kinds that may exceed the individual investors' risk appetite.

RISK FACTOR
All investments involve some form of risk. Even an insured bank
account is subject to the possibility that inflation will rise faster than
your earnings, leaving you with less real purchasing power than when
you started (Rs. 1000 gets you less than it got your father when he
was your age).
The discussion on investment objectives would not be complete
without a discussion on the risks that investing in a mutual fund
entails.
At the cornerstone of investing is the basic principle that the greater
the risk you take, the greater the potential reward. Remember that the
value of all financial investments will fluctuate. Typically, risk is defined
as short-term price variability. But on a long-term basis, risk is the
possibility that your accumulated real capital will be insufficient to
meet your financial goals. And if you want to reach your financial
goals, you must start with an honest appraisal of your own personal
comfort zone with regard to risk. Individual tolerance for risk varies,
creating a distinct "investment personality" for each investor. Some
investors can accept short-term volatility with ease, others with near

31
panic. So whether you consider your investment temperament to be
conservative, moderate or aggressive, you need to focus on how
comfortable or uncomfortable you will be as the value of your
investment moves up or down.
Managing risks
Mutual funds offer incredible flexibility in managing investment risk.
Diversification and Systematic Investing Plan (SIP) are two key
techniques you can use to reduce your investment risk considerably
and reach your long-term financial goals.
Diversification
When you invest in one mutual fund, you instantly spread your risk
over a number of different companies. You can also diversify over
several different kinds of securities by investing in different mutual
funds, further reducing your potential risk. Diversification is a basic risk
management tool that you will want to use throughout your lifetime as
you rebalance your portfolio to meet your changing needs and goals.
Investors, who are willing to maintain a mix of equity shares, bonds
and money market securities have a greater chance of earning
significantly higher returns over time than those who invest in only the
most conservative investments. Additionally, a diversified approach to
investing -- combining the growth potential of equities with the higher
income of bonds and the stability of money markets -- helps moderate
your risk and enhance your potential return.
Types of risks:
Consider these common types of risk and evaluate them against
potential rewards when you select an investment.

32
Market Risk
At times the prices or yields of all the securities in a particular market
rise or fall due to broad outside influences. When this happens, the
stock prices of both, an outstanding, highly profitable company and a
fledgling corporation may be affected. This change in price is due to
"market risk.”
Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever
inflation sprints forward faster than the earnings on your investment,
you run the risk that you'll actually be able to buy less, not more.
Inflation risk also occurs when prices rise faster than your returns.
Credit Risk
In short, how stable is the company or entity to which you lend your
money when you invest? How certain are you that it will be able to pay
the interest you are promised, or repay your principal when the
investment matures?
Interest Rate Risk
Changing interest rates affect both equities and bonds in many ways.
Investors are reminded that "predicting" which way rates will go is
rarely successful. A diversified portfolio can help in offsetting these
changes.
Effect of loss of key professionals and inability to adapt
business to the rapid technological change
An industries' key asset is often the personnel who run the business i.e.
intellectual properties of the key employees of the respective
companies. Given the ever-changing complexion of few industries and
the high obsolescence levels, availability of qualified, trained and
motivated personnel is very critical for the success of industries in few

33
sectors. It is, therefore, necessary to attract key personnel and also to
retain them to meet the changing environment and challenges the
sector offers. Failure or inability to attract/retain such qualified key
personnel may impact the prospects of the companies in the particular
sector in which the fund invests.

Exchange Risks
A number of companies generate revenues in foreign currencies and
may have investments or expenses also denominated in foreign
currencies. Changes in exchange rates may, therefore, have a positive
or negative impact on companies which in turn would have an effect
on the investment of the fund.
Investment Risks
The sectoral fund schemes, investments will be predominantly in
equities of select companies in the particular sectors. Accordingly, the
NAV of the schemes are linked to the equity performance of such
companies and may be more volatile than a more diversified portfolio
of equities.
Changes in the Government Policy
Changes in Government policy especially in regard to the tax benefits
may impact the business prospects of the companies leading to an
impact on the investments made by the fund.
Measuring Risks:

34
Risk Measure Implication Impact On Investor
High average More sensitive to Higher volatility in
maturity and interest rate changes returns
modified duration
Low average Less sensitive to Lower volatility in
maturity and interest rate changes returns
modified duration
Greater allocation Low risk default Lower yield with lower
to high credit rated risk
instruments
Greater allocation Higher risk of default Higher yield but with
to low rated greater risk
instruments

Wealth Management
Wealth Management is a type of financial planning that provides
high net worth individuals and families with private banking, estate
planning, legal resources, and investment management, with the goal
of sustaining and growing long-term wealth. Whereas financial
planning can be helpful for individuals who have accumulated wealth
or are just starting to accumulate wealth, you must already have

35
accumulated a significant amount of wealth for the wealth
management process to be effective.
Services typically include:
• Portfolio Management and Portfolio Rebalancing
• Investment Management and Strategies
• Trust and Estate Management
• Private Banking and Financing
• Tax Advice
• Family Office Structures

Portfolio Management
PORTFOLIO:
A Portfolio is a diversified professionally managed basket of
securities. A healthy investment portfolio has the following features:
• The right mix of assets and liabilities
• Regular monitoring
• Rebalancing portfolio when the asset mix gets skewed
• Optimum returns in a reasonable time period
As per definition of SEBI Portfolio means "a collection of securities
owned by an investor”. It represents the total holdings of securities
belonging to any person". Obviously Portfolio Management refers to
the management or administration of a portfolio of securities to protect
and enhance the value of the underlying investment. SEBI has directed
that portfolio management as a service by a financial intermediary is
to be carried out only by corporate entities. Portfolio management by a
corporate body can be either for management of its own pool of
securities created out funds collected from diverse sources or it can be
offered as a financial service to other investors, who choose to avail
the expertise and skill of this company to carry out portfolio
investment/management on their behalf. Insurance companies, mutual

36
funds, pension and provident funds etc. carry out operations of
portfolio management for investing their own funds in remunerative
channels. These companies are also referred as investment companies
or institutional investors. In fact they are portfolio managers in respect
of the back-end of their business activities. After initially pooling these
funds from smaller investors, they choose to invest them in a portfolio
of securities intended as a lucrative deployment option.
Portfolio Management
The goal of Portfolio Management is to assemble various securities
and other assets into portfolios that address investor needs and then
to manage these portfolios so as to achieve investment objectives. The
investor’s needs are defined in terms of risk, and the portfolio manager
maximizes return for investment risk undertaken.
Portfolio Management consists of three major activities: 1) Asset
Allocation, 2) Shifts in weighting across major assets classes, and 3)
Security selection within asset classes. Asset allocation can best be
characterized as the blending together of major asset classes to obtain
the highest long-run return at the lowest risk. Managers can make
opportunistic shifts in asset class weightings in order to improve return
prospects over the longest-term objective.
RISK RETURN TRADE OFF
In selecting asset classes for portfolio allocation, investors need to
consider both the return potential and the riskiness of the asset class.
It is clear from empirical estimates that there is a high correlation
between risk and return measured over longer periods of time.
Furthermore capital market theory, posits that there should be a
systematic relationship between risk and return. This theory indicates
that securities are priced in the market so that high risk can be
rewarded with high return, and conversely, low risk should be
accompanied by correspondingly lower return.

37
 Expected
Return International
Equities

Venture
Capital
Capital Market Line

Domestic
Corporate Equities
Real
Bonds Estate

Government Slope indicates the required

Bonds Return per unit of risk
Treasury
Rf Bills

Above
Moderate Average Average High
Low Risk
Risk risk Risk
Risk

Risk

Relationship between Risk and Return

In the above figure a capital market line showing an expected

relationship between risk and return for representative asset classes
arrayed over a range of risk. Note that the line is upward-sloping,
indicating that higher risk should be accompanied by higher return.
Conversely, the capital market relationship can be considered as
showing that higher return can be generated only at the “expense” of
higher risk. When measured over longer periods of time, the realized
return and risk of the asset classes conform to this sort of relationship.
Note that treasury bills are positioned at the low end of the risk range,
consistent with these securities’ generally being considered as
representative of risk-free investing, at least for short holding periods.
Correspondingly, the return offered by T-bills is usually considered as a
basic risk-return. On the other hand, equities as a class show the
highest risk and return, with venture capital at the very highest
position on the line, as would be expected. International equities, in
turn, are shown as higher risk than domestic equities. Bonds and real
estate are at an intermediate position on the capital market line, with

38
real estate showing higher risk relative to both corporate and
government bonds.
Types of portfolio based on Risk and Return
Whenever the money is invested a risk of not getting the money back
is borne by the investor. An investor wants a compensation for bearing
such a risk also known as returns. In theory “the higher is the risk the
greater are the returns” and vice versa. The chart below can explain
the different types of securities and their associated risk.

Located towards the right of the diagram are investments that offer
investors a higher potential for above-average returns, but this
potential comes with a higher risk. Towards the left are much safer
investments, but these investments having a lower potential for high
returns.

Conservative Portfolio
This model is ideal for those who wish to take least amount of risk and
want a steady income over a period of time from his investments.
Conservative portfolio is designed by investing greater proportion in
the lower risk securities. Such a portfolio always tends to generate
income for the investor. Such a model aims at protecting the principal
value of the portfolio. Hence the investment is generally done in fixed
income and money market securities. Very less amount of the capital is

39
 invested in the equities. The model is often known as the ‘capital
preservation portfolio’.

Moderately Conservative Portfolio

A moderately conservative portfolio is ideal for those who want a fixed
and steady income as well as capital appreciation. This model not only
offers a fixed income but also grows the money of the investor.
Although maximum amount of allocation is done in lower risk
securities, investment is also made in equities to some extent so that
the capital grow

Source: Investopedia.com

Source: Investopedia.com

40
Moderately Aggressive Portfolio

A moderately aggressive portfolio is ideal for those who want a balance

of growth and income. The asset composition is divided among equity
and fixed income securities. Maximum amount of investment is made
in the equities. Assets allocated to the fixed income securities is also
no less. Such a model is often referred to as “balance portfolio”

Source: Investopedia.com

Aggressive portfolios mainly consist of equities. So the value tends to

fluctuate. Such a portfolio provides long term appreciation to the
capital. But to have some liquidity fixed income securities are also
added to the portfolio. It is always better to invest in such a portfolio
for a longer period of time so that the money gets sufficient time to
grow. Such a portfolio is risky.

41
Source: Investopedia.com

42
Very Aggressive Portfolio

A very aggressive portfolio is one which consist mostly of equities. The

portfolio is suitable for those who have risk taking ability. Since the
investment is done in equities hence it provides a growth to the
capital. The portfolio is designed for those who can invest for a longer
time period.

Source: Investopedia.com

Investment Risk Pyramid

Once the risk acceptable in the portfolio has been decided by
acknowledging the time horizon and bankroll one can use the risk
pyramid approach for balancing the assets.

43
Source: Investopedia.com
This pyramid can be thought of as an asset allocation tool that
investors can use to diversify their portfolio investments according to
the risk profile of each security. The pyramid, representing the
investor's portfolio, has three distinct tiers:
• Base of the pyramid: this area is comprised of investments that are
low in risk and have good returns.
• Middle portion: this area is made of medium risk investments that
not only offers stable returns but also allows capital appreciation.
• Summit (top): the summit is for high risk investments. This is the
area of the pyramid and should be made up of money one can
afford to lose.

Portfolio Management
Process of Portfolio Management
Following is the process of portfolio management:

1. Understanding the present market conditions

2. Framing of an Investment Policy
This involves mainly the following two parts:

44
 a. Investment Objectives of an investor
b. Investment Constraints of an investor
3. Portfolio Policies and Strategies
4. Asset Allocation Process
5. Security Selection
6. Portfolio Construction
7. Portfolio Implementation and Execution
8. Portfolio Analysis
9. Portfolio Rebalancing and Revision

After you've built your portfolio of mutual funds, you need to know how
to maintain it. Four common strategies can be followed for the same:

o The "Wing-It" Strategy

This is the most common mutual-fund strategy. Basically, if your
portfolio does not have a plan or a structure, then it is likely that you
are employing a wing-it strategy. If you are adding money to your
portfolio today, how do you decide what to invest in? Are you one that
searches for a new investment because you do not like the ones you
already have? A little of this and a little of that? If you already have a
plan or structure, then adding money to the portfolio should be really
easy. Most experts would agree that this strategy will have the least
success because there is little to no consistency.
o Market-Timing Strategy
The market timing strategy implies the ability to get into and out of
sectors or assets or markets at the right time. The ability to market
time means that you will forever buy low and sell high. Unfortunately
few investors buy low and sell high because investor behavior is
usually driven by emotions instead of logic. The reality is most
investors tend to do exactly the opposite – buy high and sell low. This

45
leads many to believe that market timing does not work in practice. No
one can accurately predict the future with any consistency.
o Buy-and-Hold Strategy
This is by far the most commonly preached investment strategy. The
reason for this is that statistical probabilities are on your side. Markets
generally go up 75% of the time and down 25% of the time. If you
employ a buy-and-hold strategy and weather through the ups and
downs of the market, you will make money 75% of the time. If you are
to be more successful with other strategies to manage your portfolio,
you must be right more than 75% of the time to be ahead. The other
issue that makes this strategy most popular is it is easy to employ.
This does not make it better or worse. It is just easy to buy and hold.

o Performance-Weighting Strategy
This is somewhat of a middle ground between market timing and buy
and hold. With this strategy, you will revisit your portfolio mix from
time to time and make some adjustments. Let's walk through an
oversimplified example using real performance figures.

Let's say that at the end of 2007, you started with an equity portfolio of
four mutual funds and split the portfolio into equal weightings of 25%
each.

Fund Allocation(Rs) Allocation (%)

Fund A 25000 25

Fund B 25000 25

Fund C 25000 25

Fund D 25000 25

100000 100

46
 After the first year of investing, the portfolio is no longer an equal 25%
weighting because some funds performed better than others.

• Fund • 1-yr return • End balance(Rs) • Allocation (%)

• Fund A • 13.60% • 28000 • 26.28

• Fund B • 6.80% • 26700 • 24.71

• Fund C • 8.50% • 27125 • 25.10

• Fund D • 3.40% • 25850 • 23.92

• • • 108075 • 100

The reality is that after the first year, most investors are inclined to
dump the loser (Fund D) for more of the winner (Fund A). However, the
right strategy is to do the opposite to practice sell high, buy
low. Performance weighting simply means that you sell some of the
funds that did the best to buy some of the funds that did the worst.
Your heart will go against this logic but it is the right thing to do
because the one constant in investing is that everything goes in cycles.

In year four, Fund A has become the loser and Fund D has become the
winner.

• Fund • 1-yr return

• Fund A • -16.00%

• Fund B • 22.30%

• Fund C • 9.60%

• Fund D • 15.20%

47
Performance weighting this portfolio year after year means that you
would have taken the profit when Fund A was doing well to buy Fund D
when it was down. In fact, if you had re-balanced this portfolio at the
end of every year for five years, you would be further ahead as a result
of performance weighting.
The key to portfolio management is to have a discipline that you
adhere to. The most successful money managers in the world are
successful because they have a discipline to manage money and they
have a plan. Warren Buffet said it best: "To invest successfully over
a lifetime does not require a stratospheric I.Q., unusual
business insight or inside information. What is needed is a
sound intellectual framework for making decisions and the
ability to keep emotions from corroding that framework."

What drives portfolio performance?

According to Mahindra Finance team of wealth management, the most
important step in wealth management is asset allocation. But the
least time is spent on this investment decision. This step affects almost
92% of the returns expected from any portfolio.

48
49
 Complex Copounds
The crisil complexity classification denotes how easy it is for an investor to
understand the risks associated with different products.
PRODUCT SIMPLE COMPLEX HIGHLY COMPLEX
Debt Gilt, Liquid, Debt
Funds funds,Fixed Maturity
Plans, Interval
Funds, Monthly
Income Funds
Mutual Capital protected Capital protected
Funds- funds-static hedge, funds- Leveraged,

Structure arbitrage funds constant,proportion

portfolio
d
insurance,dynamic
portfolio insurance
Mutual Plain equity,sector Derivative funds,fund Art funds
Funds- based of

Eqity and balanced,gold,etf’s,in funds,international,sp

dex linked funds ecial situation funds
Others
Equity Exchange-traded
Shares equity shares
Equity Buying index/stock Selling index/stock
Derivativ options options(short

es (long positions)
options),index/stock
futures(buying and
selling)
Commodit Commodity futures
y
Derivativ
es
Others PPF,NSC/Kisan Vikas Unit-linked insurance Real estate
Patra,Recuring plans investment trusts
deposit
Source: CRISIL
50
Dummy portfolio
Here I have taken two portfolios- 1) only scripts 2) scripts and
mutual funds
This dummy portfolio will enable us to understand how the portfolio is
managed through mutual funds. In the first portfolio I have taken a
total amount of approx Rs 100000 invested in 5 securities covering 5
different sectors so as to taste the flavor of diversification. The
portfolio has taken the exposure of 100% equity with a blend of growth
and large as its style. The companies taken into the portfolio contains
topost companies in its sector like ITC, Bharti Airtel, ONGC,Parsvnath
and ICICI bank.
The time duration of 1 year has been taken so as to taste the long term
results. But the overall results as of 1st juiy, 2008 stands negative. The
portfolio gives a loss of Rs 1643.70.The detailed analysis of the
portfolio can be well understood with the tables mentioned below.

51
52
 The second portfolio contains a blend of securities and
mutual funds so as to manage the portfolio in an efficient manner.
Here to get a feel of diversification I have taken 5 scripts which are
common as in the first portfolio but this time with a little changes in
the amount. This time I have taken a total amount of Rs 100000 with
Rs 50000 in scripts and Rs 50000 in mutual funds which are again not
concentrated. In the mutual funds I have taken gold ETFs , balanced
fund, index fund and opportunities fund. The reason being as the
portfolio has already taken the exposure of 100% equity in the scripts.
Therefore to bang upon the diversification I have taken different
mutual fund schemes. The result has been astonishing with approx 1
year as the time duration and a net profit on the whole portfolio
standing at Rs 14513. The analysis can be observed with the charts
provided below. This portfolio explores the experience of portfolio

53
diversification with an asset allocation in equity and a little in debts
and others. It also gets an exposure of mid cap and small cap.

54
Finally to summarise and come to a conclusion we can for sure observe
and deduce that portfilo can really be managed through mutual funds.
A number of permutation and combination can be applied to design a
model portfolio containing mutual funds. I have just arrived at one
portfolio which if present has really done wonders.

55
Different AMC’s in India
The Mutual Fund Industry in India has grown steadily over the last
couple of years and is today managing assets in excess of Rs 5,50,000
crore meeting different investment needs of millions of retail and
institutional clients across debt, equity and hybrid asset class.

56
 Incorpo Owners Foreig Domest
As on 31st march rated hip n- ic - Sponsor
2008 On
ABN AMRO ABN AMRO Asset
Mutual Fund 27/5/20 Management (Asia)
04 Private 75%, 25% Ltd.
Benchmark
Mutual Fund Niche Financial
_ Private 0%, 100% Services Private Ltd
Birla Mutual Sun Life (India) AMC
Fund 23/12/1 Foreign Investments Inc., Birla
994 JV 50%, 50% Global Finance Ltd
BOB Mutual
Fund 30/10/1
992 Public 0%, 100% Bank of Baroda
Canbank Mutual 15/12/1
Fund 987 Public 0%, 100% Canara Bank
DBS Chola 3/1/199 37.48 Cholamandalam DBS
Mutual Fund 7 Private %, 62.52% Finance Ltd.
Deutsche Asset
Deutsche Mutual 28/10/2 100% Management (Asia)
Fund 002 Private , 0% Limited
DSP Merrill Lynch Ltd,
DSP Merrill HMK Investment Pvt.
Lynch Mutual 16/12/1 Foreign Ltd., ADIKO Investment
Fund 996 JV 40%, 60% Pvt. Ltd.
Escorts Mutual 15/4/19
Fund 96 Private 0%, 100% Escorts Finance Ltd
Fidelity Mutual 17/2/20 100% Fidelity Internal
Fund 05 Private , 0% Investment Advisors
19/2/19 Foreign Franklin Resources,
Franklin 96 JV 75%, 25% Inc.
HDFC Mutual 30/6/20
Fund 00 Private 0%, 100% HDF Corporation Ltd
HSBC Securities and
HSBC Mutual 7/2/200 Capital Markets (India)
Fund 2 Private -- 100% Private Limited
National Nederlanden
Interfinance B.V (ING
Group),ING Vysya Bank
57
11/2/19 Foreign 85.68 Ltd., Kirti Equities Pvt.
ING Mutual Fund 99 JV %, 14.32% Ltd.(Mehta
 Top 5 Fund Houses
Fund House No. of top Total rated
rated funds funds
Reliance 10 17
Mutual Fund
ICICI 21 38
Prudential
Mutual Fund
Tata Mutual 14 30
Fund
Birla Sunlife 18 39
Mutual Fund
HSBC Mutual 6 13
fund
Source: Value Research

58
Fund Analysis Parameters

59
 Top Quartile
(Amongtop 25%in the category)

Second quartile
(Amongtop 50-75%in the category)

Third Quartile
(Amongbottom 25-50%in the category)

BottomQuartile
(Amongbottom 25%in the category)

The left-most bar in a series represents the

fund’s performance in the first quarter of a
calendar year. Similarly, subsequent bars
represent thefund’s performance in thesecond,
third and last quarter of the calendar year. All
data as on March 31, 2008. Returns up to 1 year
areabsoluteand above1 year areannualized.

Valuation
Growth Blend value

00 00 00
l
m
S
id
M
e
rg
a
L
n
o
itlz
p
a
C

00 00 00

00 00 00

A nine-box matrix that displays both the

fund’s investment approach and size of the
companies in which it invests. Vertically, the
three squares indicate size orientation of fund
– from the bottom, small-cap, mid-cap and
large cap. Horizontally, the three squares
indicate, from left to right, three stages on
the value-to-growth spectrum. Figures in the
boxed represent percentage of investments in
the respective matrix.

60
REFERENCES:

61
 I. http://en.wikipedia.org/wiki/Mutual_fund

II. http://finance.indiamart.com/markets/mutual_funds/

III. http://www.moneycontrol.com/mutualfundindia

IV. http://www.mutualfundsindia.com/icra_m_power_institutional.asp
#q3

V. http://www.amfiindi.com/navhistoryreport.asp

VI. www.nseindia.com

VII. www.bseindia.com

VIII. http://www56.homepage.villanova.edu/david.nawrocki/briefhisto
ryofdownsiderisknawrocki.pdf

IX. www.businessweek.com/investing/insights/blog/archives/2007/10
/new_research_co.html

X. www.unf.edu/~oschnuse/draft7.pdf

XI. www.sebigov.in

XII. www.kotaksecurities.com

XIII. http://www.moneycontrol.com/indiamutualfunds/mfinfo/14/51/sn
apshot/imdesc/UTI%20Leadership%20Equity%20Fund%20(G)/fde
c/UTI%20Asset%20Mgmt%20Company%20Pvt.%20Ltd./imid/MUT
096/imffid/UT

XIV. www.valueresearchonline.com

XV. www.waytowealth.com

XVI. www.eurekasecurities.comm

XVII. www.myrisis.com

XVIII. www.geojit.com

XIX. www.capitalmarket.com

XX. Investors Guide to Mutual Funds- January 2008

XXI. Business Today(July2,2006 edition)

62
XXII. Business World( March3, 2008 edition)

XXIII. Value research

XXIV. Economic times

XXV. & Factsheet of Different AMC’s.

63