FINAL PRESENTATION

Presented By-Ankit Dhanuka

Roll No:109
Faculty Guide:Prof. Subir Srimani
Company Guide:Mr.JagdishSingh
(Head, Corporate Treasury, ITC Ltd)

OBJECTIVE

To find out the methodology

of ranking Debt Mutual Fund
Schemes that can be adopted
by ITC Limited to invest its
surplus cash.
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TREASURY OPERATIONS AT ITC LTD

TREASURY OPERATIONS AT ITC LTD

VALUE
PROPOSITION

To always remain
state of art,
reliable & optimal

MISSION

usiness Friendly Solutions

VISION

To become the smartest Corporate

Treasury in the country

INVESTMENT OF SURPLUS CASH

Pattern followed around the world by the
Corporates to allocate surplus cash1. 58% use Bank Deposits.
2. 51% use money market mutual funds.
3. 24% use direct investments

(Source: Survey conducted by gtnews.com)

Condt..

INVESTMENT OF SURPLUS CASH

(Source: Survey conducted by Ernst & Young)

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OBJECTIVE
To understand the Mutual Fund Industry and the factors
affecting it.
To understand the Ranking Methodology of debt Mutual
Fund schemes used in the Industry.
To critically examine the Ranking Methodology used by
the Industry.This is to identify the pros and cons of the
ranking methodology that would help in developing a
new methodology of ranking mutual fund schemes.
To suggest a ranking methodology to ITC Limited that
would also meet its twin objective of Capital Protection
& Return Optimization.
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METHODOLOGY

Interacting
Referring
Discussing
Meeting Fund with Analyst
Presentations with
Managers
from Credit
& text books
Managers
Rating Agency

LIMITATIONS

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ALTERNATIVES FOR SURPLUS DEPLOYMENT

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WHY RANKING IS NOT DONE FOR OTHER

AVENUES

Bonds/Deposits
Fixed
Maturity
Income Plans
Funds

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Mutual Funds
A mutual Fund is a pool of money
collected from investors and is invested
according to stated investment objective.
Which Is given
Back to

That
generates

Pool their money in

Which Is invested In

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Organization

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Structure

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PROS & CONS

Pros

No control over costs

No tailor-made portfolios
No say on the management

Portfolio Diversification
Professional Management.
Risk Reduction.
Reduction in transaction cost.
Liquidity.
Tax benefits.

Cons

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Risk & Return

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Debt/Income Schemes

Junk
Money
Gilt
Bond
Balanced
Bond
Market
Scheme Scheme
Scheme
Scheme Scheme
Debt/Income Schemes

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RISKS OF INVESTING IN DEBT

SECURITIES

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WHY ONLY LIQUID & ULTRA

SHORT TERM SCHEMES?
1. Based on liquidity available.
2. Very sensitive to the interest rate
movements.
3. Difficult to invest based on a pre
defined ranking methodology.

1. Used for daily cash management.

2. A ranking methodology can be
assigned as it shows less volatility
with interest rates.

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RANKING METHODOLOGY

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FILTERING
Corpus Size of the Scheme =500 Crores
Portfolio diversification.
Investors confidence.
Supports high value redemptions.
Helps preventing selling of securities at throwaway prices.
Control on Statutory Limit of 20%.
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FILTERING
Investment in AAA or Equivalent rated papers = 90%
Highest degree of Safety & hence ensures Capital Protection.

Highly Liquid

Takes pressure of high value redemptions.

(Investment in papers rated less than AAA = 10%)

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FILTERING
Investment in GOI Securities = 5%

Volatility is very high in this class of securities.

Investment is done by Fund Managers most to enhance yields.

If GOI component is higher in the portfolio, NAV might fall due to

volatility, when corporate needs funds.
Investment in GOI Securities also requires MTM on a regular basis,
thus impacting the NAV.
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FILTERING
Average Maturity:This refers to the weighted average maturity period of all the
instruments under the corpus of the schemes as a whole.

The longer the average maturity, the greater the risk of rising interest rates.

When interest rates move down, bond prices move up, thus boosting debt funds' return and
vice versa when rates move up.
The price of long-term debt securities generally fluctuates more than that of short-term
securities when the interest rate changes. Consequently, mutual funds with several longmaturity papers in its portfolio are more sensitive to NAV fluctuations.
Liquid Schemes180 days (90 days from May, 09)
Ultra Short Term Schemes60-365 days.

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CRITERIA APPLICATION
Point To Point Returns
7 Days

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REASONS FOR ACCEPTING

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RATIOS FOR PERFORMANCE

EVALUATION
Alpha Ratio
Ratio
Sharpe Ratio
SortinoRatio
TreynorRatio
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27 Schemes
8 Failed Corpus Filter
3 Failed AA Filter
1 Failed Average Maturity

Scheme that failed Average Maturity Filter also failed the AA Filter. Hen
here are only 16 (27-8-3) Schemes left for analysis
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For calculation of Final rankings, the ratios calculated are give

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Ranking Analysis

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FINDINGS
The analysis shows that Various Ratios calculated are not working in
favour of the investor investing for relatively shorter period for cash
managemet,like ITC.
The portfolio return calculated based on 7 days and 15 days is the most
suited for investors investing for shorter period.
This is also based on the premise that though Past returns do not guarantee
future returns ,they are indication of the same.
This also calls for sure that the Fund Manager who has been able to
generate better returns from the market is most likely to achieve the same
(at least in the shorter time horizon).

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CONCLUSION
Corporates like ITC Limited should use the portfolio return calculated
based on 7 days and 15 days.
They should always avoid the Jargons that are used to create unnecessary
confusions.
They should also put restriction on the maximum investible amount per
Scheme.This should ideally be kept at a maximum of 10% of the Schemes
Corpus.However,it can never go beyond 20% as explained earlier.
They should also put restriction on the maximum investible amount per
Asset Management Company. This is ideally decided by every corporate
based on its Treasury size ,its relationship with the AMC,the credentials of
the AMC,etc.This Is to avoid any counter party risk.

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Thank You

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