A project report on different schemes of mutual funds and their comparative analysis

Track Record of the Different Schemes of Mutual funds and their comparative

analysis

EXECUTIVE SUMMARY:

Primary investment objective of an individual or organization is to maximize the returns
and minimizing Market risk through effective diversification.

Mutual funds have become latest buzz word for the average person to invest their
money. It is said that the bank investment is the first priority of people to invest their
savings and next and safer investment place is in mutual funds. A Mutual fund pools
resources from thousands of investors and then diversifies its investment into many
different holdings such as in stocks ,bonds/debt instruments, Government securities etc.
in order to provide more safer and relatively high returns as compared with Fixed
deposits etc.
The Project is basically “FINANCE PROJECT” which tries to explain in layman’s
language about the history, growth and pros & cons of investing in mutual funds.

In the second part of this project it will cover the detailed track record of the three
Mutual fund schemes such as : Franklin Blue chip Fund
ICICI Prudential Power and
HDFC capital builder fund.
And also comparative analysis of these funds with their respective benchmark indices.
The main reason for selecting these three schemes is : All three schemes incepted in the
year 1994 and since then they are in market , it will give me an opportunity to take in
depth 15 year track records with market performance and also to know how these funds
performed during market crash/ups and downs of the market movement.

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analysis

Topic of the study:

“Track Record of the Different Schemes of Mutual funds and their comparative
analysis”

Main Objective of the Project:

“Understanding the Concept of Mutual funds, and comparative analysis of three
Mutual fund schemes”

Sub Objectives:
1. Study the Mutual fund industry in India
2. Analyzing the performance of three funds since 1994.
3. To study the performance of schemes compared to their respective benchmark.
4. To study the risk involved in these 3 schemes compared to their Benchmark.

Research Design:
Descriptive research is study of existing facts to a conclusion. In this research I will
make an attempt to analyze the performance of the funds and also how much risk
associated with them.



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Methodology:

Primary data: Discussion with company Guide and with other officials,

Secondary Data:

1. Materials Provided by Organization like
[1] Research reports [2] Monthly fact sheets

2. Business Magazines like
[1] Mutual funds insight
[2] Money Today etc.

3. Internet.: www.bseindia.com
www.nseindia.com
www.valueresearch.com etc.



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Benefits of the study:

1. This study will help us to know the workings and concept of Mutual funds.
2. this research helps to find how much return can earned by investing in Mutual
funds as compared with FD
3. It will also help to convince the others regarding how Mutual Funds re better risk
adjusted as compared with direct investment through shares.
4. and finally it will give Picture about how these three funds [Franklin
Bluechip,ICICI Prudential power,HDFC capital builder fund] performing over
last 15 years.

Limitations: Main Limitation is that in this project we are only considering three
schemes of mutual funds, and another limitation is data availability/collection is very
tedious



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FINDINGS OF THE PROJECT ARE:

• Among these three funds more popular among investors is Franklin blue chip
fund.
• Both Franklin blue chip fund and ICICI pru power fund faced problems during
2000 and 2001 main reasons are:
1.Ketan Parek’s case and
2.September 11th attack on US WTO

• HDFC capital Builder fund faced crucial period during 2006, main reason was its
portfolio then mainly consisting of FMCG companies and in that year they
drastically came down.

• Among these three funds highest Beta is of Franklin i.e 0.96,lowest is of HDFC
capital builder fund and sharp ratio high in case of Franklin and low in case of
HDFCCB fund .

• ICICI Pru Power’s performance is more or less is stable even if we see its
BETA,Alpha,Sharp ratio and average returns also good i.e 2.86.

• Average Return is high in case of HDFC CB Fund i.e 3.04

• Franklin blue-chip fund once upon a time it was considered to be as star in mutual
funds but due to high market volatility in the year 2006 and 2007 but now from
2008 January on words it could salvage some of its lost pride because of
comparatively low volatility in Blue chip stocks



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SUGGESTION/RECOMMENDATON TO INVESTORS:

By the study and analysis of the mutual fund industry it will be better to suggest that even
though mutual funds are subject to risk but they are better risk adjusted as compared with
stocks, from last five years it has become a buzz word for investment main reason it is
useful in case of getting tax reductions etc.

If a person wants to earn more as compared to Bank FD where possible returns are just
10-12% where as in mutual fund minimum is around 15-20% mutual funds are good
option compared with stock market .

If person does not want to take much risk then he can invest in the funds like HDFC
Capital builder fund because as we have already seen in returns chart, compared with
other two funds(Franklin blue-chip and ICICI power).that it has given constant returns in
shorter period of time, with less BETA and arithmetic mean return is also high

If a person is more interested and ready to take risk then the Franklin Blue-chip fund will
the good option. By looking at its BETA and SD Risk both are high but if person invest
in this fund for more than 4 years he will get returns around 35%.



analysis

Mutual funds

The concept:

In earlier times 'direct' was the only investment vehicle available. If we wanted to buy
fixed deposit/bond we had to apply on our own. Similarly, when we wanted to buy
shares, we had to call up stock brokers, who would procure shares on our behalf and
same was the case with property. The cost involved in 'direct' buying is least amongst all
investment vehicles. However we need to have skills and time to use this form of
investing.

Another investment vehicle is a mutual fund. Mutual fund works on the concept of
pooling in money. Assume there are 5 to 6 friends who want to invest money in a
particular asset class say equity. Also assume they do not have skills and time. However
one of them knows an expert who regularly invests in stock markets. All these friends go
to an expert and give him their investment amount. The expert invests on their behalf. If
there is profit in investment, they all benefit and if there is any loss they suffer. Experts
get certain fee for investing on their behalf. This is the concept of a mutual fund.
Investing in mutual fund is slightly expensive than "direct" form of investing. However
the decision-making and procedure of investing is transferred to the Mutual Fund
Company. Insurance as an investment vehicle works somewhat similar to mutual fund,
while traditional insurance plans invest only in debt-based products and are not market
linked.

A vehicle for investing in stocks and bonds

A mutual fund is not an alternative investment option to stocks and bonds, rather it pools
the money of several investors and invests this in stocks, bonds, money market
instruments and other types of securities.Buying a mutual fund is like buying a small



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slice of a big pizza. The owner of a mutual fund unit gets a proportional share of the
fund’s gains, losses, income and expenses.



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Each mutual fund has a specific stated objective

The fund’s objective is laid out in the fund's prospectus, which is the legal document that
contains information about the fund, its history, its officers and its performance

Fund Objective What the fund will invest in
Equity (Growth) Only in stocks
Debt (Income) Only in fixed-income securities
Money Market (includingIn short-term money market instruments (including
Gilt) government securities)
Balanced Partly in stocks and partly in fixed-income securities,
in order to maintain a 'balance' in returns and risk

Managed by an Asset Management Company (AMC)

The company that puts together a mutual fund is called an AMC. An AMC may have
several mutual fund schemes with similar or varied investment objectives.

The AMC hires a professional money manager, who buys and sells securities in line
with the fund's stated objective.

All AMCs Regulated by SEBI, Funds governed by Board of Directors

The Securities and Exchange Board of India (SEBI) mutual fund regulations require that
the fund’s objectives are clearly spelt out in the prospectus.

In addition, every mutual fund has a board of directors that is supposed to represent the
shareholders' interests, rather than the AMC’s.



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For small and medium investor – who does not have skills and time – mutual fund
seems the best option.

Currently in India we have mutual funds, which invest mainly in two asset classes, debt
and equity. And now many mutual fund companies also investing in real estate,
infrastructure projects, natural energy resources etc.

Mutual funds concept can be well understood with the following diagram:

M M
U A
T R
INVEST THEIR U INVEST IN K
I MONEY A VARIETY OF E
N L STOCKS/BONDS T
V F
E U F
S N L
T D U
O C
R S PROFIT/LOSS FROM T
S PROFIT/LOSS C INDIVIDUAL U
FROM PORTFOLIO H INVESTMENT A
INVESTMENT E TI
M O
E N
S

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Benefits through investing in Mutual funds:

Professional Money Management: Fund managers are responsible for implementing a
consistent investment strategy that reflects the goals of the fund. Fund managers monitor
market and economic trends and analyze securities in order to make informed
investment decisions.

Diversification: Diversification is one of the best ways to reduce risk Mutual funds
offer investors an opportunity to diversify across assets depending on their investment
needs

Liquidity: Investors can sell their mutual fund units on any business day and receive the
current market value on their investments within a short time period (normally three- to
five-days

Affordability: The minimum initial investment for a mutual fund is fairly low for most
funds (as low as Rs500 for some schemes).

Convenience: Most private sector funds provide you the convenience of periodic
purchase plans, automatic withdrawal plans and the automatic reinvestment of interest
and dividends. Mutual funds also provide you with detailed reports and statements that
make record-keeping simple. You can easily monitor the performance of your mutual
funds simply by reviewing the business pages of most newspapers or by using our Mutual

Funds section in Investor’s Mall.

Flexibility and variety: You can pick from conservative, blue-chip stock funds, sectoral
funds, funds that aim to provide income with modest growth or those that take big risks

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in the search for returns. You can even buy balanced funds, or those that combine stocks
and bonds in the same fund.

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Tax benefits on Investment in Mutual Funds:
1) 100% Income Tax exemption on all Mutual Fund dividends
2) Capital Gains Tax to be lower of -
10% on the capital gains without factoring indexation benefit and
20% on the capital gains after factoring indexation benefit.
3) Open-end funds with equity exposure of more than 50% are exempt from the
payment of dividend tax for a period of 3 years from 1999-2000.

Disadvantages of Mutual Funds:

• No Control Over the costs
• No tailor made portfolios

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INDUSTRY OVERVIEW
A little history:
Mutual funds made an opening in India in 1963 under the enactment f Unit Trust of India
(UTI), which came out with is debut scheme named US-64, an open ended scheme n,
which is operating till date. Up to 1986-87 it had launched 20 schemes, mobilizing net
resources amounting to Rs. 4564 crores.for these 23 long years up to 1987 UTI enjoyed
complete monopoly of the unit trust business in India. It remained one and the only
mutual fund in India. as the next logical step, public sector banks and financial
institutions were allowed to float mutual funds and their success emboldened the
government to allow the private sector to foray into this area.

The initial years of the industry also saw the emerging years of the Indian equity market,
when a number of mistakes were made and hence the mutual fund schemes, which
invested in lesser-known stocks and at very high levels, became loss leaders for retail
investors. From those days to today the retail investor, for whom the mutual fund is
actually intended, has not yet returned to the industry in a big way. But to be fair, the
industry too has focused on brining in the large investor, so that it can create a significant
base corpus, which can make the retail investor feel more secure.

Ups & Downs of Mutual fund Industry In India
Ten years ago, close-end funds were the order of the day. Most debt funds offered
assured returns. And even equity funds managed to convey the impression of fixed
returns by sporting calling themselves "Triple Plus" and "Double Square Plus". Equity
funds were largely judged by their dividends, rights and bonus offers, rather than by the
returns.

The mutual fund industry has lived through its share of crises of confidence over the past
ten years. And there are still grey areas. But the regulatory framework, disclosure norms

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and service standards have all changed beyond recognition, making mutual funds one of
the most investor-friendly avenues available today.

Private sector plays:

When the first crop of private sector-sponsored mutual funds (such as Kothari Pioneer,
20th Century Finance and Apple Finance) debuted in 1993-94, they had a difficult time
weaning investors away from the Unit Trust of India and the public sector bank-
sponsored funds.

The bull market of 1994 and the subsequent IPO boom changed all this. With retail
investors tasting the power of the equity, a spate of private equity funds made their debut
in 1994-95.

Funds such as the Apple Midas the Goldshare and Morgan Stanley Growth Fund drew
retail investors in large numbers. Unfortunately, as the IPO bubble burst, and the equity
market went into a slide, so did the NAV of the equity funds launched in the bull market.

But the important development during this period was the emergence of open-end funds,
which offered on-tap liquidity to their investors and raised the bar on NAV and portfolio
disclosures.

The second coming: After the upsets of 1994-95, it was a slow and painstaking recovery
for the private sector funds. In the five years that followed, many more private sector
funds threw their hat into the ring, some of them big global names such as Alliance
Capital, the Templeton group, Newton and Principal Financial.

With a lull in the equity market, fund houses spent this period expanding their portfolio
of debt offerings. Alongside the plain-vanilla debt funds, came the gilt, liquid, cash funds

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and treasury management plans, to cater to high net worth and corporate investors. There
was also a slew of balanced and hybrid fund launches.

During this period, assured return schemes from the UTI and the bank-sponsored funds
were buffeted by controversy, after some reneged on promises. This was followed by the
crisis in US-64. These events helped drive the concept of market-linked returns firmly
into the minds of investors. And this put private sector fund houses firmly back on the
radar screens of investors.

Restructuring pays off: The years from 1996 to 1998 saw equity funds restructuring
their portfolios and piling them up with FMCG, pharma and infotech stocks. By end-
1999, the secular bull run, led by the IT stocks, had helped many an equity fund build an
impressive record of performance. But this "second coming" of equity funds was also to
end in disappointment. The newfound fancy for equity saw the rollout of a slew of
technology funds at the height of the bull markets in 2000. When these crashed, some of
the goodwill painstakingly built by the equity funds also took a beating.

Debt in fashion: But, by then, private sector fund houses had managed to build up a
strong performance track record in their debt products. Helped by the secular decline in
interest rates and a basket of innovative offerings, mutual funds managed to deliver
returns that were substantially higher than what was available from alternative savings
avenues such as fixed deposits.

This led to a large-scale migration of assets to debt-oriented mutual funds.

By 2003, private sector mutual funds had wrested a lion's share of the mutual fund assets
from the UTI and the PSU bank-sponsored funds. By end-December 2003, the mutual
fund industry was managing Rs 1,40,000 crore of assets, with 80 per cent of it in private
sector funds.

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Swept by consolidation: The years from 1999-2003 saw a considerable churn in the
industry. With competition intensifying, the weaker players were taken over. There was
also a coming together of some of the larger fund houses.

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The takeover of the Kothari Pioneer funds by the Franklin Templeton group and the
Zurich funds by the HDFC group are instances. A few fund houses saw their foreign
partners pull out, only to be replaced by new ones. Over the past couple of years, some of
the big global names in financial services — HSBC, Grindlays and Deutsche Bank —
have made an entry into the Indian fund arena. With US fund behemoth — Fidelity —
now readying to enter the Indian market, the industry, at long last, appears to be reaching
maturity.

Regulations stay in tune: Regulations have kept pace with the rapid changes in the
industry structure over the past decade. Both the offer documents and the financial
statements of mutual funds have been simplified over the years. Half-yearly portfolio and
financial disclosures have been made compulsory.

Stringent investment norms have been put in place to prevent concentration and reduce
exposure to illiquid and thinly traded securities. Disclosure requirements have been fine-
tuned to reveal more about the pattern of ownership in a fund, and transactions with
related and group companies. SEBI recently trained its sights on reforming the
distribution and selling side of the mutual fund business.

Healthy competition: Intensifying competition has ensured that the fund houses have
kept two jumps ahead of the regulatory requirements, at least on disclosures and service
standards. Daily NAV is now a standard feature with funds, and transaction-processing
times have been compressed to less than 48 hours.

Many funds have moved to a monthly disclosure of portfolios. Dissemination of
information has leapfrogged with the use of websites for routine disclosures. Value-added
services such as systematic investment plans, switch options, cheque-writing facilities,
and call centre services promise to improve the investing experience for investors.

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Savvy investors: As the equity market pauses after the secular bull run of 2003, equity
funds appear to be back in the investors' good books. Hybrid products such as the MIPs
(Monthly Income Plans) and equity funds have attracted sizeable inflows in the recent
months. Is this a sign that retail investors are finally beginning to channel their
investments in equities through mutual funds? Or, are they, yet again, falling into the age-
old trap of jumping onto the bandwagon, in the late stages of a stock market rally?

It is early days yet to say which of these is true. But there are a couple of positive signals
from the pattern of fund flows in the recent months.

For one, inflows have been pretty selective, a sign that investors are tracking fund
performance far more closely than before.

Second, outflows from equity funds have also been rising, which suggests that investors
are selling out when their target returns are met.

These are signs that mutual fund investors may be on to the two crucial skills for
successful investing — a sense of timing and investment discipline; and that, too, at the
same time.

Basis on which Mutual funds are compared :

Choosing a mutual fund seems to have become a very complex affair lately. There are no
dearth of funds in the market and they all clamor for attention.

The most crucial factor in determining which one is better than the rest is to look at
returns. Returns are the easiest to measure and compare across funds.

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At the most trivial level, the return that a fund gives over a given period is just the
percentage difference between the starting Net Asset Value (price of unit of a fund) and
the ending Net Asset Value.

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Returns by themselves don't serve much purpose. The purpose of calculating returns is to
make a comparison. Either between different funds or time periods. And, you must be
careful not to make a mistake here. Or else, you could end up investing in the wrong
funds.

Absolute returns

Absolute returns measure how much a fund has gained over a certain period. So you look
at the NAV on one day and look at it, say, six months or one year or two years later. The
percentage difference will tell you the return over this time frame.

But when using this parameter to compare one fund with another, make sure that you
compare the right fund. To use the age-old analogy, don't compare apples with oranges.
So if you are looking at the returns of a diversified equity fund (one that invests in
different companies of various sectors), compare it with other diversified equity funds.
Don't compare it with a sector fund which invests only in companies of a particular
sector. Don't even compare it with a balanced fund (one that invests in equity and fixed
return instruments).

Benchmark returns

This will give you a standard by which to make the comparison. It basically indicates
what the fund has earned as against what it should have earned. A fund's benchmark is
an index that is chosen by a fund company to serve as a standard for its returns. The
market watchdog, the Securities and Exchange Board of India, has made it mandatory for
funds to declare a benchmark index. In effect, the fund is saying that the benchmark's
returns are its target and a fund should be deemed to have done well if it manages to beat
the benchmark.

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Let's say the fund is a diversified equity fund that has benchmarked itself against the
Sensex.

So the returns of this fund will be compared vis-a-viz the Sensex. Now if the markets are
doing fabulously well and the Sensex keeps climbing upwards steadily, then anything
less than fabulous returns from the fund would actually be a disappointment.

If the Sensex rises by 10% over two months and the fund's NAV rises by 12%, it is said
to have outperformed its benchmark. If the NAV rose by just 8%, it is said to have
underperformed the benchmark.

But if the Sensex drops by 10% over a period of two months and during that time, the
fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark.
A fund's returns compared to its benchmark are called its benchmark returns.

At the current high point in the stock market, almost every equity fund has done
extremely well but many of them have negative benchmark returns, indicating that their
performance is just a side-effect of the markets' rise rather than some brilliant work by
the fund manager.

Time period

The most important thing while measuring or comparing returns is to choose an
appropriate time period.

The time period over which returns should be compared and evaluated has to be the same
over which that fund type is meant to be invested in.

If you are comparing equity funds then you must use three to five year returns. But this is
not the case of every other fund.

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For instance, cash funds are known as ultra short-term bond funds or liquid funds that
invest in fixed return instruments of very short maturities. Their main aim is to preserve
the principal and earn a modest return. So the money you invest will eventually be
returned to you with a little something added.

Investors invest in these funds for a very short time frame of around a few months. So it
is alright to compare these funds on the basis of their six month returns.

Market conditions

It is also important to see whether a fund's return history is long enough for it to have
seen all kinds of market conditions.

For example, at this point of time, there are equity funds that were launched one to two
years ago and have done very well. However, such funds have never seen a sustained
declining market (bear market). So it is a little misleading to look at their rate of return
since launch and compare that to other funds that have had to face bad markets.

If a fund has proved its mettle in a bear market and has not dipped as much as its
benchmark, then the fund manager deserves a pat on the back.

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TYPES OF MUTUAL FUNDS: Mutual fund schemes can be broadly classified in to
two categories. They are

• PORTFOLIO CLASSIFICATION
• OPERATIONAL CLASSIFICATION

MUTUAL FUND SCHEME

Portfolio classification operational classification

 Return based
• Income scheme
• Growth scheme Open-ended scheme
• Conservative scheme

 Investment based
• Equity scheme
• Bond scheme
• Balanced structure

 Sector based
• Real Estate schemes
• Industry specific Closed ended scheme
• Other scheme

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 Leveraged Based
• Leveraged schemes
• Non-leveraged
 Other schemes
• Gilt scheme
• Index funds

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Operational schemes

A) Open-ended schemes
In these schemes, size of the fund is not predetermined as
entry to or exit from the funds is open to investor who can buy or sell the securities to
the fund at any time. This fund has greater liquidity to the funds along with the
predetermined repurchase price based on the declared Net Asset Value. Portfolio mix
of such schemes consists of actively traded securities in the market, preferably equity

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shares. As investors can anytime withdraw from the fund, therefore the management
of such funds is quiet tedious.

B) Closed –ended schemes
This scheme has deposits redemption date unlike open-
ended schemes. These funds have fixed capital base and are traded among the
investors among the secondary market. the forces of demand and supply hence
determine their price. Price is free to deviate from its net asset value. Management of
such fund is comparatively easier because manager can evolve long term investment
plans depending upon the life of the scheme.
Within these two broad operational classification there are following
classification being made.

RETURN –BASED CLASSIFICATION
Income funds: These are for the investors who are more concerned about regular
returns from their investment.
Growth funds: The main objective of this fund is to achieve an increase in value of
investment through capital appreciation and not the regular income.

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Conservative funds: These funds aim at giving reasonable rate of return in addition to
capital appreciation.
Investment –based classification:
Equity funds :These funds invest in the equity shares of companies and undertake greater
risk associated with it. This gives good rate of return in rising market.

Bond funds: These funds provide greater security to investors by investing in bonds,
debenture, etc. investment here has no capital appreciation.

Balanced funds: These funds are a combination of both debt and equity .trends in market
will determine which proportion of the mix is to be determined.

Sector based classification: These funds or the schemes that invest in the securities of
only those sectors or industries as specified in the offer documents.eg pharmaceuticals,
software, fast moving consumer goods (FMCG), petroleum stocks etc. the returns on
these funds or the schemes depends on the performance of that particular
sector/industries. These schemes may give the higher returns but are very risky compared
to diversified funds. Investors need to keep an eye on the performance of these of these
sectors and should exit on an appropriate time.

Leverage based classification:In this type of fund or scheme investment is made by
borrowing money from the market and making investment in fund there by making
leverage benefits available to mutual fund investor, i.e. giving good returns to the
investors from the income earned by investing borrowed funds.

Index-based classification :Index funds replicate the portfolio of a particular index such
as the BSE sensitive index, S&P NSE 50 index (nifty). These schemes invest in the

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securities in the same weight age comprising of an index. NAVs of such schemes would
rise or fall in accordance with the rise or fall in the index, through not exactly by the

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same by the same percentage due to some factors. Necessary disclosure in this regard is
made in offer document of the mutual fund schemes. There are also exchange traded
index funds launched by the mutual funds that are traded on the stock exchanges.

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 are the case with income or debt –oriented
schemes.

DIFFERENT TYPES OF PLANS THE MUTUAL FUND OFFERS

Mutual fund offers different types of plans to its investors. they are as follows.

1. GROWTH PLAN
Under growth plan the investor realizes only the capital
appreciation on the investment and does not get any income in the form of dividend.

2. INCOME PLAN
Under income plan, the investor realizes income in the form of
dividend. However, his NAV will all to the extent of the dividend.

3. DIVIDEND RE-INVESTMENT PLAN
Here the dividend accrued on the mutual funds is
automatically re-invested in the purchasing additionally units in the open ended
funds. In most cases mutual funds offer the investor an option of collecting dividends
or re-investing the same.

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4. SYSTEMATIC INVESTMENT PLAN In this type of plan the investor is given
the option of preparing a predetermined number of post dated cheques in favour of the
fund. He will get the units on the date of cheque at the existing NAV. For instances , if on
the 5th March ,he has given a post dated cheque for June 5 th 2006, he will get units on 5 th
June 2006 at the existing NAV.

5. SYSTEMATIC WITHDRAWAL PLAN As opposed to SIP, the systematic
withdrawal plan allows the investor the facility to withdraw predetermined
amount/units from his fund at a pre-determined interval. The investor’s units will
be redeemed at the existing NAV as on that day. The unit holder may set-up a
systematic Withdrawal plan on a monthly, quarterly or semi annually or on a
annual basis to redeem a fixed number of units or redeem enough units to provide
a fixed amount of money.

6. RETIREMENT PENSION PLAN Some schemes are linked with retirement
pension. Individuals participate in these plans for themselves, and corporate for their
employees.

7. INSURANCE PLANS:
Some schemes launched by UTI and LIC offer insurance cover to investor.

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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, eg: Equity Linked Saving Scheme (ELSS). Pension schemes
launched by the mutual fund also offer tax benefits. These schemes are growth-
oriented and invest pre-dominantly in equities. Their growth opportunities and risk
associated are like any equity oriented scheme.

LOAD OR NO LOAD FUND

A load fund is one that charges a percentage of NAV for entry or exit. That is,
each time one buys or sells the units in the fund, a charge will be payable. This charge
is used by the mutual fund for marketing and distribution expenses. Suppose the NAV
per unit is Rs.10 .if the entry as well as exit load charge is 2% , then the investors who
buy would be required to pay Rs.10.20 and those would want to repurchase must pay
Rs.9.80 per unit. A no-load fund is the 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 the purchase or sale of units.

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Terminologies Demystified…

• Asset Allocation
– Diversifying investments in different assets such as stocks, bonds, real
estate, cash in order to optimize risk.

• Fund Manager
– The individual responsible for making portfolio decision for a mutual
fund, in line with fund’s objective.

• Fund Offer Document
– Document with investment objectives, risk factors, expenses summary,
how to invest etc.

• Dividend
– Profits given to the investor from time to time.

• Growth
– Profits ploughed back into scheme. This causes the NAV to rise.

• NAV
– Market value of assets of scheme minus its liabilities.

• Per unit NAV = Net Asset Value
No. of Units Outstanding on Valuation date

• Entry Load/Front-End Load (0-2.25%)
– The commission charged at the time of buying the fund.

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– To cover costs for selling, processing

• Exit Load/Back- End Load (0.25-2.25%)
– The commission or charge paid when an investor exits from a mutual
fund. Imposed to discourage withdrawals
– May reduce to zero as holding period increases.

• Sale Price/ Offer Price
– Price you pay to invest in a scheme. May include a sales load. (In this
case, sale price is higher than NAV)

• Re-Purchase Price/ Bid Price
– Price at which close-ended scheme repurchases its units

• Redemption Price
– Price at which open-ended scheme

34


analysis

35


analysis

ASSOCIATION OF MUTUAL FUNDS IN INDIA[AMFI]

With increase in Mutual Fund players in India, a need for mutual fund association in
India was generated to function as a non-profit organization.
Association of mutual funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Assets Management Companies (AMC) which has been
registered with Security Exchange Board of India (SEBI) .till date all the AMCs are that
have mutual fund 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 a healthy market with the 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 holders.

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 activities of Mutual Fund
and Assets Management. The agencies that are by any means connected or involved in
this code of conduct of the association.

36


analysis

 AMFI interacts with SEBI and works according to SEBI’s guidelines in the mutual
fund industry.

 Association of Mutual Fund of India do 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
programme of training and certification for all intermediaries and other engaged in
the Mutual Fund Industry.
.

 AMFI undertakes all India awareness programme for investors in order to promote
proper understanding of the concept and working of mutual funds.

 At last Association of mutual fund of India also disseminate information on mutual
fund industry and undertakes studies and research either directly or in association
with other bodies.

37


analysis

The sponsors of Association of Mutual Funds in India.

Bank sponsored

1) SBI Mutual management Ltd.

2) BOB asset management CO. Ltd.

3) Canbank Investment Management Services. Ltd

4) UTI Asset management Company Pvt, Ltd.

Institution
• GIC Asset management Co.Ltd
• Jeevan Bima sahayog asset management Company.

PRIVATE SECTOR
INDIAN
• Benchmark asset management company
• Cholamandalam Asset Management Co.Ltd
• Credit Capital Asset Management Co.Ltd
• Escorts Asset Management Ltd
• JM Financial Mutual fund
• Kotak Mahindra asset management company
• Reliance capital Asset management Ltd
• Sahara Asset management Co.Ltd
• Sundaram Asset management Co.Ltd

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analysis

• Tata Asset Management Private Ltd

39


analysis

Indian joint ventures
• Birla Sun life Asset management company
• DSP Merill Lynch Fund Managers company
• HDFC Asset management company

Predominantly Foreign Joint Ventures:-

 ABN AMRO Asset Management (I) Ltd.
 Alliance Capital Asset Management (India) Pvt. Ltd.
 Deutsche Asset Management (India) Pvt. Ltd.
 Fidelity Fund Management Private Limited
 Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
 HSBC Asset Management (India) Private Ltd.
 ING Investment Management (India) Pvt. Ltd.
 Morgan Stanley Investment Management Pvt. Ltd.
 Principal Asset Management Co. Pvt. Ltd.
 Prudential ICICI Asset Management Co. Ltd.
 Standard Chartered Asset Mgmt Co. Pvt. Ltd.

Association of Mutual Funds in India Publications: AMFI publishes mainly two types
of bulletin. One is on the monthly basis and the other is quarterly. These publications are
of great support for the investors to get intimation of the know how of their parked
money.

40


analysis

SEBI REGULATIONS ON MUTUAL FUNDS

The Government brought Mutual Funds in the Securities market under the regulatory
framework of the Securities and Exchange board of India (SEBI) in the year 1993.

41


analysis

SEBI issued guidelines in the year 1991 and comprehensive set of regulations relating to
the organization and management of Mutual Funds in 1993.

SEBI REGULATIONS 1993 (20.1.1993)

The regulations bar Mutual Funds from options trading, short selling and carrying
forward transactions in securities. The Mutual Funds have been permitted to invest only
in transferable securities in the money and capital markets or any privately placed
debentures or securities debt. Restrictions have also been placed on them to ensure that
investments under an individual scheme, do not exceed five per cent and investment in all
the schemes put together does not exceed 10 per cent of the corpus. Investments under
all the schemes cannot exceed 15 per cent of the funds in the shares and debentures of a
single company.

SEBI grants registration to only those mutual funds that can prove an efficient and
orderly conduct of business. The track record of sponsors, a minimum experience of five
years in the relevant field of Investment, financial services, integrity in business
transactions and financial soundness are taken into account. The regulations also
prescribe the advertisement code for the marketing schemes of Mutual Funds, the
contents of the trust deed, the investment management agreement and the scheme-wise
balance sheet. Mutual Funds are required to be formed as trusts and managed by
separately formed as trusts and managed by separately formed Asset Management
Companies (AMC). The minimum net worth of such AMC is stipulated at Rs.5 crores of
which, the Mutual Fund should have a custodian who is not associated in any way with
the AMC and registered with the SEBI.

The minimum amount raised in closed-ended scheme should be Rs.20 Crores and for the
open-ended scheme, Rs.50 Crores. In case, the amount collected falls short of the
minimum prescribed, the entire amount should be refunded not later than six weeks from

42


analysis

the date of Closure of the scheme. If this is not done, the fund is required to pay an
interest at the rate of 15 per cent per annum from the date of expiry of six weeks. In

addition to these, the Mutual Funds are obliged to maintain books of accounts and
provision for depreciation and bad debts.

Further, the Mutual Funds are now under the obligation to publish scheme-wise annual
reports, furnish six month un-audited accounts, quarterly statements of the movements of
the net asset value and quarterly portfolio statements to the SEBI. There is also a
stipulation that the Mutual Funds should ensure adequate disclosures to the investors.
SEBI has agreed to let the Mutual Funds buy back the units of their schemes. However,
the funds cannot advertise this facility in their prospectus. SEBI is also empowered to
appoint an auditor to investigate into the books of accounts or the affairs of the Mutual
Funds.

SEBI can suspend the registration of Mutual Funds in the case of deliberate manipulation,
price rigging or deterioration of the financial position of Mutual Funds.

SEBI REGULATIONS, 1996

SEBI announced the amended Mutual Fund Regulations on December 9, 1996 covering
Registration of Mutual Funds, Constitution and Management of Mutual funds and
Operation of Trustees, Constitution and Management of Asset Management Companies
(AMCs) and custodian schemes of MFs, investment objectives and valuation policies,
general obligations, inspection and audit. The revision has been carried out with the
objective of improving investor protection, imparting a greater degree of flexibility and
promoting innovation.

The increase in the number of MFs and the types of schemes offered by them
necessitated uniform norms for valuation of investments and accounting practices in

43


analysis

order to enable the investors to judge their performance on a comparable basis. The
Mutual Fund Regulations is sued in December 1996 provide for a scheme-wise report
and justification of performance, disclosure of large investments which constitute a
significant portion of the portfolio and disclosure of the movements in the unit capital.

The existing Asset Management Companies are required to increase their net worth from
Rs.10 crores within one year from the date of notification of the amended guidelines.
AMCs are also allowed to do other fund-based businesses such as providing investment
management services to offshore funds, other Mutual Funds, Venture Capital Funds and
Insurance Companies. The amended guidelines retained the former fee structure of the
AMCs of 1.25% of weekly average Net Asset Value (NAV) up to Rs.100 crores and 1%
of NAV for net assets in excess of Rs.100 crores.

The consent of the investors has to be obtained for bringing about any change in the
fundamental attributes of the scheme on the basis of which the unit holders had made
initial investments. The regulation empowers the investor. The amended guidelines
require portfolio disclosure, standardization of accounting policies, valuation norms for
NAV and pricing. The regulations also sought to address the areas of misuse of funds by
introducing prohibitions and restrictions on affiliate transactions and investment
exposures to companies belonging to the group of sponsors of mutual funds. The
payment of early bird incentive for various schemes has been allowed provided they are
viewed as interest payment of early bird incentive for early investment with full
disclosure.

The various Mutual Funds are allowed to mention an indicative return for schemes for
fixed income securities. In 1998-99 the Mutual Funds Regulation were amended to
permit Mutual Funds to trade in derivatives for the purpose of hedging and portfolio
balancing. SEBI registered Mutual Funds and Fund managers are permitted to invest in

44


analysis

overseas markets, initially within an overall limit of US $500 million and a ceiling for an
individual fund at US$ 50 million.

SEBI made (October 8, 1999) investment guidelines for MFs more stringent. The new
guidelines restrict MFs to invest no more than 10% of NAV of a scheme in share or share
related instruments of a single company. MF’s in rated debt instruments of a single
issuer is restricted to 15% of NAV of the scheme (up to 20% with prior approval of
Board of Trustees or AMC). Restrictions in un- rated debt instruments and in shares of
unlisted companies. The new norms also specify a maximum limit of 25% of NAV for
any scheme for investment in listed group companies as against an umbrella limit of 25%
of NAV of all schemes taken together earlier. SEBI increased (June 7, 2000) the
maximum investment limit for MFs in listed companies from 5% to 10% of NAV in
respect of open-ended funds. Changes in fundamental attributes of a scheme was also
allowed without the consent of three fourths of unit holders provided the unit holders are
given the exit option at NAV without any exit load. MFs are also not to make assurance
or claim that is likely to mislead investors. They are also banned from making claims in
advertisement based on past performance.

45


analysis

COMPANY PROFILE
The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial conglomerates, offering complete
financial solutions that encompass every sphere of life. From commercial banking, to
stock broking, to mutual funds, to life insurance, to investment banking, the group caters
to the financial needs of individuals and corporates.

The group has a net worth of over Rs. 5,609 crore, employs around 17,100 people in its
various businesses and has a distribution network of branches, franchisees, representative
offices and satellite offices across 344 cities and towns in India and offices in New York,
London, Dubai, Mauritius and Singapore. The Group services around 3.6 million
customer accounts.

Kotak Group Products & Services:
1. Bank
2. Life Insurance
3. Mutual Fund
4. Car Finance
5. Securities
6. Institutional Equities
7. Investment Banking
8. Kotak Mahindra International
9. Kotak Private Equity
10. Kotak Realty Fund

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analysis

KOTAK SECURITIES: Kotak Securities Ltd. 100 % subsidiary of Kotak
Mahindra Bank is one of the oldest and largest broking firms in the Industry with a
market share of 8.5 % (as on 30th September).

Their offerings include stock broking through the branch and Internet, Investments in
IPO, Mutual funds and Portfolio management service.

Their Accolades include:

Best Performing Equity Broker in India – CNBC Financial Advisor Awards 2008

Avaya Customer Responsiveness Awards (2007) in Financial Services Sector

Best Brokerage Firm in India by Asiamoney in 2007

The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007

Euromoney Award (2006 and 2007) - Best Provider of Portfolio Management: Equities

Avaya Customer Responsiveness Awards (2006) in Financial Institution Sector

Asiamoney Award (2006) - Best Broker in India

Euromoney Award (2005) - Best Equities House in India

Finance Asia Award (2005) - Best Broker in India

Finance Asia Award (2004) - India's best Equity House

Prime Ranking Award (2003-04) - Largest Distributor of IPO's

They have been the first in providing many products and services which have now
become industry standards. Some of them are:

47


analysis

Facility of Margin Finance to the customers

Investing in IPOs and Mutual Funds on the phone

SMS alerts before execution of depository transactions

Mobile application to track portfolios

Auto Invest - A systematic investing plan in Equities and Mutual funds

Provision of margin against securities automatically against shares in your Demat
account

They have a full-fledged research division involved in Macro Economic studies, Sectoral
research and Company Specific Equity Research combined with a strong and well
networked sales force which helps deliver current and up to date market information and
news.

They are also a depository participant with National Securities Depository Limited
(NSDL) and Central Depository Services Limited (CDSL), providing dual benefit
services wherein the investors can avail our brokerage services for executing the
transactions and the depository services for settling them. They use to process more than
600000 trades a day which is much higher even than some of the renowned international
brokers.

Their network spans over 310 cities with 867 outlets.

Kotak Securities Limited has over Rs. 4000 crore of Assets Under Management (AUM)
as of 31st December, 2007. The portfolio Management Service provides top class service,
catering to the high end of the market. Portfolio Management from Kotak Securities

48


analysis

comes as an answer to those who would like to grow exponentially on the crest of the
stock market, with the backing of an expert.

49


analysis

ORGANIZATION STRUCTURE OF KOTAK SECURITIES

Chairman & MD

Vice-President

Regional Heads

North South East west

State heads State heads State heads State heads

Area Area Area Area
managers managers managers managers

BR Mgr BR Mgr BR Mgr BR Mgr

RM RM RM RM

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analysis

ANALYSIS PART OF THE PROJECT

Analysis part of the project starts from the detailed information about the funds selected
that is as follows:

Franklin India Blue ICICI Prudential HDFC capital
chip Fund Power builder fund
Objective: : Aims to achieve Objective: To generate Objective: The fund
a high degree of capital capital appreciation through plans to achieve capital
appreciation through investments in equity appreciation in fixed
investments in well- related securities in core period of time by
established, large size blue sectors and associated investing predominantly
chip companies feeder industries. in equity oriented
securities

Type: Open Ended diversified Type: Open Ended Type: Open Ended
equity Scheme diversified equity Scheme diversified equity
Scheme

Bench mark:BSE sensex Benchmark:S&P CNX Nifty Bench mark: S&P
CNX500

Inception: Nov 30, 1993 Inception: Aug 24, 1994 Inception: Dec 31, 1993
Minimum Investment Min Investment:Rs 5000 Min Investment:Rs 5000
(Rs:5000

Fund Manager: K. N. Siva Fund Manager: Fund Manager:
Subramanian Mr Anand Shah Chandresh Nigam

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analysis

TRACK RECORD OF THE PROJECTS:-

Under this project we selected those funds that are introduced during the year 1993-94
As this was the year when major private sectors entered into mutual fund business, until
that only the UTI enjoyed the monopoly in this industry. The main reason for this is to
study and analyze the industry properly.

Franklin India Blue-chip Fund(G)

About Franklin Templeton
Franklin Templeton is one of the largest* private sector fund houses in the country with
over Rs.31,175 crores of assets under management for over 24 lakh investor accounts (as
of December 31, 2007). It manages one of the most comprehensive ranges of mutual
funds (48) catering to varied investor requirements and offering different investment
styles to choose from. It has Offices in 33 cities and Collection Centres in another 46
locations across the country.

Franklin Templeton Investments is one of the largest financial services groups in the
world based at San Mateo, California USA. The group has US$ 647 billion in assets
under management globally (as of November 30, 2007). Franklin Templeton has 60 years
of experience in investment management and with offices in over 29 countries, provides
investment management and advisory services to a client base of over 17.7 million
unitholder accounts.

52


analysis

Franklin Templeton Mutual Funds are managed by Franklin Templeton Investments - a
global investment management major. Franklin Templeton started their India operations
in 1996 as Templeton Asset Management India Pvt. Limited. It flagged off the mutual
fund business with the launch of Templeton India Growth Fund in September 1996.
Franklin Templeton Asset Management (India) Private Limited acts as the asset
management company with Templeton holding a majority of 75 per cent of the equity.

Franklin India Blue chip Fund

Fund Details:

Type of Scheme Open Ended
Nature of Scheme Equity
Inception Date Nov 30, 1993
Face Value(Rs/Unit) 10
Fund Size (Rs. in crores) 2471.4888 on Jan 31, 2008
Increase/Decrease since Dec 31, 2007 (Rs.
-452.855
in crores)
Previous Name Pioneer ITI Bluechip - Growth
Minimum Investment (Rs) 5000
Purchase Redemptions Daily
NAV Calculation Daily
Fund Manager K. N. Siva Subramanian
Entry Load Entry Load is 2.25%.
Exit Load Exit Load is 0%.

Objective: Aims to achieve a high degree of capital appreciation through investments in
well-established, large size blue chip companies

Scheme Performance (%) as on Mar 4 , 2008

14 days 1 month 3 months 1 year 3 yrs* Inception*
-7.81 -10.88 -17.43 27.3 32.4 27.5
Top 10 Holdings as on Jan 31, 2008

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analysis

Company Nature Value (Cr.) %
Reliance Industries Ltd EQ 185.99 7.53
Bharati Tele - Ventures EQ 169.46 6.86
Larsen & Toubro Limited EQ 169.3 6.85
Housing Development Finance Corporation Ltd EQ 156.39 6.33
Grasim Industries Ltd EQ 138.59 5.61
ICICI BANK LTD. EQ 131.75 5.33
Kotak Mahindra Bank Ltd. EQ 123.94 5.01
Infosys Technologies Ltd EQ 120.31 4.87
Aditya Birla Nuvo Limited. EQ 103.9 4.2
Bharat Heavy Electricals Ltd EQ 98.04 3.97

Top Industry Allocation as on Jan 31, 2008

Banks 13.5176%
Oil & Gas, Petroleum & Refinery 12.172%
Engineering & Industrial Machinery 9.3138%
Telecom 8.3178%
Finance 7.1913%
Computers - Software & Education 7.1902%
Electricals & Electrical Equipments 6.9137%
Auto & Auto ancilliaries 6.7521%
Cement 6.0963%
Textiles 4.2038%

54


analysis

Special Features: Easy liquidity : all transactions are processed within 3 working days.
Pioneer ITI Bluechip - Growth changed to Franklin India Bluechip - Growth w.e.f Aug
30, 2002.

Asset Allocation as on Jan 31, 2008

Equity Debt Money Market
96.54 0 3.46

Best and worst performance:

Best (Period) Worst (Period)

Month 41.78 (16/02/1994 - 18/03/1994) -27.80 (12/05/2006 - 13/06/2006)
Quarter 55.99 (15/12/1998 - 16/03/1999) -31.51 (22/02/2000 - 23/05/2000)
Year 199.42 (04/01/1999 - 04/01/2000) -36.54 (15/09/2000 - 17/09/2001)

Relative performance [fund v/s Category wise]

55


analysis

Fund Style:

Performance Analysis:

FRANKLIN INDIA Bluechip Fund--formerly Pioneer ITI Bluechip Fund--has been a top
performer almost since its inception in October 1993. After the Franklin Templeton-
Pioneer ITI merger in July 2002, the scheme is managed by Franklin Templeton
Investments, but the equity fund management team is intact. K.N. Siva Subramanian is
still the fund manager and Ravi Mehrotra continues as Chief Investment Officer.
Allaying investors' fears about a change in fund management styles, Mehrotra says: "The
stock picking style will remain, as that was a prerequisite demanded by Pioneer ITI while
selling the funds."

FIBCF was launched as a three-year close-ended fund but was converted to an open-
ended one in January 1997. The fund aims to provide medium to long-term capital
appreciation by seeking steady and consistent growth from well-established large
companies.

56


analysis

57


analysis

Rating. Outlook Money has consistently ranked FIBCF among the top performing funds
in the diversified equity category. The fund has a good performance track record and has
delivered steady and consistent returns. In last five years, its CAGR (compounded
annualised growth rate) has been 26.14 per cent; its three-year performance is 0.62 per
cent, and one-year performance is 14.74 per cent.

Its benchmark index, BSE Sensex, on the other hand, has reported a pathetic -1.93 per
cent for five years, -11.37 per cent for three years and -1.79 per cent for one year. In
money terms, Rs 10,000 invested in FIBCF at inception (December 1, 1993) would have
grown to Rs 52,270 as of today. In contrast, Sensex would have given a meagre Rs 9,808.
By outperforming its benchmark index, FIBCF has proved (at least historically) that
active funds can outperform index funds in long term.

58


analysis

ICICI PRUDENTIAL POWER FUND

ABOUT ICICI PRUDENTIAL

ICICI Prudential Asset Management Company enjoys the strong parentage of
Prudential plc, one of UK's largest players in the insurance & fund management sectors
and ICICI Bank, a well-known and trusted name in financial services in India. ICICI
Prudential Asset Management Company, in a span of just over eight years, has forged a
position of pre-eminence in the Indian Mutual Fund industry as one of the largest asset
management companies in the country with assets under management of Rs. 37,906.24
crore (as of March 31, 2007). The Company manages a comprehensive range of schemes
to meet the varying investment needs of its investors spread across 68 cities in the
country.

Sponsors

ICICI Bank is India's second-largest bank with total assets of about Rs. 344,658 crores as
at March 31, 2007 and profit after tax of Rs. 3,110 crores for the year ended March 31,
2007 (Rs. 2,540 crores for the year ended March 31, 2006). ICICI Bank has a network of
about 710 branches and 45 extension counters and over 3,271 ATMs. ICICI Bank offers a
wide range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised subsidiaries and
affiliates in the areas of investment banking, life and non-life insurance, venture capital
and asset management. ICICI Bank set up its international banking group in fiscal 2002
to cater to the cross border needs of clients and leverage on its domestic banking
strengths to offer products internationally. ICICI Bank currently has subsidiaries in the
United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri
Lanka and Dubai International Finance Centre and representative offices in the United
States, United Arab Emirates, China, South Africa and Bangladesh. UK subsidiary of

59


analysis

ICICI Bank has established a branch in Belgium. ICICI Bank is the most valuable bank in
India in terms of market capitalisation.

Headquartered in London, Prudential plc is a leading international financial services
group, offering a significant portfolio of life insurance and fund management products in
the United Kingdom, the United States, Asia and continental Europe.

Prudential plc is a leading international financial services group providing retail financial
products and services and fund management to many millions of customers worldwide.
As a group Prudential plc has, as of December 31, 2006, over GBP251 billion of funds
under management, more than 20 million customers and over 23,000 employees
worldwide as of December 31, 2006.In the United Kingdom Prudential is a leading life
and pensions provider offering a range of retail financial products. M&G is Prudential's
UK & European Fund Manager, with around £250 billion of funds under management (as
of 31 December 2006). Jackson National Life, acquired by Prudential in 1986, is a
leading provider of long-term savings and retirement products to retail and institutional
customers throughout the United States. Egg provides banking, insurance and investment
products through its Internet site www.egg.com. In Asia, Prudential is the leading
financial services group with an extensive network of over 30 life insurance and 10 fund
management operations spanning 13 diverse markets.

60


analysis

61


analysis

ICICI PRUDENTIAL POWER MUTUAL FUND-G

ICICI Prudential Power, is an open-ended equity fund which does just that. The
portfolio is made up of large-cap and mid-cap stocks, and is aimed at capturing the
growth opportunities across multiple sectors in the market.

INVESTMENT PHILOSOPHY:

ICICI Prudential Power follows a blend of top-down macro research to identify growth
sectors and bottom-up fundamental research to identify stocks. It seeks to optimise risk-
adjusted return by building a portfolio of large and mid-cap stocks across select sectors.
ICICI Prudential Power is a multi-sector fund focused on investing in carefully selected
stocks offering optimum risk-adjusted return across select growth sectors.

Investment objective: To generate capital appreciation by actively investing in equity/
equity related securities. For defensive considerations, the Scheme may invest in debt,
money market instruments, to the extent permitted under the Regulations. The AMC will
have the discretion to completely or partially invest in any of the type of securities stated
above so as to maximize the returns.

62


analysis

Benefits by investing in this fund:

ICICI Prudential Power offers the following key benefits:
• It gives you a core large-cap portfolio with some exposure to mid-cap stocks
• It provides you the edge as it seeks to capture the best sectoral opportunities in the
market.

Fund information

Inception Date Aug 24, 1994
Fund Size (Rs. in crores) 1094.0721 on Mar 31, 2008
Increase/Decrease since Feb 29,
-186.953
2008 (Rs. in crores)
Rolled Over To Open Ended
Previous Name Prudential ICICI Power
Amount Bet. 0 to 49999999 then Entry
Entry Load load is 2.25%. and Amount greater than
50000000 then Entry load is 0%.
Exit Load If redeemed bet. 0 Months to 6 Months;
and Amount Bet. 0 to 49999999 then Exit
load is 1%. If redeemed bet. 6 Months to
12 Months; and Amount Bet. 0 to
49999999 then Exit load is 0.5%. and
Amount greater than 50000000 then Exit
load is 0%.
Fund manager
Mr Anand Shah

63


analysis

Top Ten holdings as on Feb 29, 2008

Reliance Industries Ltd EQ 93.61 7.31
Steel Authority of India Ltd EQ 62.71 4.9
Sterlite Industries (India) Ltd EQ 62.23 4.86
Bharti Airtel Ltd EQ 57.84 4.51
Zee Entertainment Enterprises Ltd EQ 54.85 4.28
Larsen & Toubro Limited EQ 46.66 3.64
Sun Pharmaceuticals Industries Ltd EQ 43.93 3.43
Union Bank Of India Ltd EQ 41.89 3.27

Top industry allocation as on Feb 29, 2008

Banks 12.7765%
Oil & Gas, Petroleum & Refinery 11.5705%
Housing & Construction 9.3932%
Entertainment 8.7206%
Steel 6.5094%
Pharmaceuticals 5.0092%
Telecom 4.9636%
Metals 4.8579%
Computers - Software & Education 4.5851%

Asset Allocation as on Mar 31, 2008

64


analysis

94.59 0 5.41

65


analysis

Scheme Performance (%) as on Apr 3 , 2008

NA -9.72 -29.4 15.48 32.69 17.35

Net Asset Value (Rs/Unit) 86.89 As On Apr 3, 2008

Best and worst performance period :

Best period Worst period
Month 34.39 (03/12/1999 - 04/01/2000) -35.48 (11/04/2000 - 12/05/2000)
Quarter 78.29 (22/11/1999 - 22/02/2000) -46.59 (22/02/2000 - 23/05/2000)
Year 215.03 (08/03/1999 - 07/03/2000) -59.60 (13/03/2000 - 13/03/2001)

Relative Performance (Fund v/s category)

66


analysis

Performance Analysis:

This fund isn't shooting out the lights but has put up a respectable return. Its 13-year
performance is suggestive of a decent record with neither a blockbuster performance, nor
a massive blow-up. Only one year (2000) did it land in the bottom quartile.

The fund's focus on fundamentals is its strength. It would be rare to come across any
unheard names in its portfolios. If they did appear, it would be in miniscule proportions.
Since the fund refuses to chase momentum plays that have the tendency to fall as
dramatically as they rise, it steered clear of real estate stocks which had been in fashion in
the last couple of years. This is precisely why the fund doesn't set the charts on fire, but
neither does it give its investors sleepless nights.

Although this is encouraging, instability at the helm rarely benefits investors. The high
degree of churn in fund management continues to worry. Under Anand Shah's leadership
(since January 2007), the portfolio has become more focused with under 35 stocks, as
against the earlier count of 50. Consequently, the concentration in the top three holdings
has also gone up from 15 per cent to over 20 per cent. But once you realize that these
holdings include Reliance Industries, Bharti Airtel and ICICI Bank, any apprehensions on
this front disappear.

Its theme of core and feeder industries is more diverse than what appears at first blush. Its
inclusion of sectors as diverse as energy, transportation, financial services, info tech,
healthcare, electricity, media and hotels, give it a more diversified slant. The large-cap tilt
along with its concentrated portfolio and broad theme make it an appealing option.

67


analysis

HDFC CAPITAL BUILDER FUND

ABOUT HDFC ASSET MANAGEMENT COMPANY:

HDFC Asset Management Company Limited (AMC) was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset
Management Company for the Mutual Fund by SEBI on June 30, 2000. The sponsor
HDFC was incorporated in 1977 as first specialised housing finance institution in India.
HDFC provides financial assistance to individuals, corporates and developers for the
purchase and construction of residential housing. It also provides property-related
services, training and consultancy. In the mutual fund venture, HDFC has tied up with
Standard Life, one of the leading Insurance companies in the United Kingdom, having
vast experience in management of funds. HDFC has developed a strong and dedicated
team of agents that market its fixed deposit products. These key partners would constitute
the backbone of the marketing and distribution network of Mutual Fund and will remain a
central theme of the organisational framework in times to come.

No. of schemes 88
No. of schemes including options 351
Equity Schemes 34
Debt Schemes 292
Short term debt Schemes 15
Equity & Debt 6
Money Market 0
Gilt Fund 4

Fund Managers : Anil Bamboli , Chirag Setalvad , Dhawal Mehta , Mustafa Mehmood ,
Prashant Jain, Shabbir Kapasi, Shobhit Mehrotra , Srinivas Rao Ravuri , Vinay R
Kulkarni.

68


analysis

ABOUT HDFC CAPITAL BUILDER FUND:

HDFC Capital Builder is a value-style diversified equity fund investing in midcaps
(benchmark S&P CNX 500). Value style investing involves identifying good stocks that
trade at a steep discount to their fair value.

INVESTMENT STYLE

FUND INFORMATION:

Inception Date Dec 31, 1993
Fund Size (Rs. in crores) 645.7181 on Mar 31, 2008
Increase/Decrease since Feb 29, 2008 (Rs.
-102.576
in crores)
Rolled Over To Open Ended
Zurich I C B F - Zurich India Quantum
Previous Name
Growth Fund
Fund Manager Chandresh Nigam
Amount Bet. 0 to 49999999 then Entry load
Entry Load is 2.25%. and Amount greater than
50000000 then Entry load is 0%.
Exit Load Exit Load is 0%.
Top Ten holdings are as follows:

69


analysis

State Bank of India EQ 40.52 5.41
Crompton Greaves Ltd EQ 34.38 4.59
Sintex Industries Ltd EQ 30.91 4.13
Exide Industries Ltd EQ 30.24 4.04
IPCA Laboratories Ltd EQ 29.74 3.97
SKF Bearings India Ltd EQ 29.17 3.9
Indraprastha Gas Ltd EQ 25.28 3.38
Thermax Limited EQ 24.86 3.32

Top industry allocation Feb 29, 2008

Banks 17.7639%
Electricals & Electrical Equipments 9.973%
Pharmaceuticals 9.491%
Finance 8.2077%
Auto & Auto ancilliaries 7.9401%
Steel 5.6552%
Chemicals 5.0128%
Metals 4.166%
Plastic 4.1309%

70


analysis

Top ten holdings

Banks

Electricals & Electrical
Equipm ents
Pharm aceuticals

Finance

Auto & Auto anci

Engineering &
Industrial Machinery
Steel

Chem icals

Metals

Plastic

Asset Allocation as on Mar 31, 2008 :

92.2 0 7.8

Scheme Performance (%) as on Apr 4 , 2008

NA -10.87 -32.9 22.93 25.76 14.92

71


analysis

Best and Worst performance of the fund:

Best performance worst performance
Month 30.93 (20/03/1998 - 21/04/1998) -33.87 (12/05/2006 - 13/06/2006)
Quarter 45.72 (22/09/2003 - 22/12/2003) -32.90 (04/01/2008 - 04/04/2008)
Year 146.48 (24/04/2003 - 23/04/2004) -46.06 (30/11/1994 - 30/11/1995

Relative performance of the fund(fund v/s category average)

72


analysis

Performance analysis of the fund:

Equity fund investors have rarely had it so ironical. During 2003 time they were jubilant
spectators to an astonishing surge in equity markets that saw them double their money in
less than 12 months. A year later they have seen more than 25% of their gains shaved off.
While there is nothing startling about this to the seasoned equity fund investor, it is
nevertheless disquieting to investors with a low to moderate risk profile. At Personalfn
we have seen a lot of investors who have been distraught at the volatility in stock markets
over the last few months. This got us to look at funds that did reasonably well during the
bull run last year and redeemed themselves equally well during the slide over the last 3
months. One fund that caught our eye was HDFC Capital Builder.

HDFC Capital Builder is a fund that has for long lived in the shadow of its more
renowned siblings – HDFC Equity and HDFC Top 200. However, the fund is now
emerging as a force to reckon with and its performance in the year 2004 and 2005. HDFC
Capital Builder is a value-style diversified equity fund investing in midcaps (benchmark
S&P CNX 500). Value style investing involves identifying good stocks that trade at a
steep discount to their fair value.

Investors can retain their holdings in HDFC Capital Builder. After hugely under
performing the market in 2006, the fund has saw a pick-up in performance over a one-
year period. Capital Builder’s portfolio has undergone a major overhaul and wears a more
aggressive look. This makes it more suitable to investors with a risk appetite.

While the fund enjoys a long track record, it has displayed a chequered performance over
the past three years. This may be partly due to the frequent changes in the fund’s
positioning. Capital Builder has changed its focus from a value/defensive fund to a mid-
cap focused fund in 2003-04 and now sports a profile similar to other diversified funds.

73


analysis

Some of the changes are likely to have occurred due to fund manager changes; three fund
managers have handled this fund in the last three years. Investors can wait for the fund to
display a greater consistency in its performance over the next year or so, before
contemplating fresh exposures. For now, the fund need not form a core part of your
portfolio. HDFC Capital Builder has generated a return of about 55 per cent during 2005,
beating the category average of about 45 per cent. Until 2006, Capital Builder did display
a strong performance record and was among top choices for those who desired a fund
with a mid-cap focus.

However, it was a laggard in 2006. In a year when only an aggressive investment strategy
helped funds outpace the markets, Capital Builder’s focus on defensive sectors such as
FMCG and its well-diversified approach to investing worked against its favour.

The massive underperformance resulted in considerable outflows from the fund, which
added instability to its performance. Over the past year, however, the portfolio appears to
have undergone significant changes. Capital Builder shed its exposure to FMCG and auto
ancillaries and has considerably stepped up its holdings in banks, electricals and electrical
equipments, capital goods and metals stocks etc.

74


analysis

RETURNS OF THE FUNDS COMARED TO BENCH MARK:

1.FRANKLIN INDIA BLUE-CHIP FUND

40
35
30
25
FIBCF
20
BSE SENSEX
15
10
5
0
since 5 yr since 3 yr since 1 yr

2.ICICI PRUDENTIAL POWER FUND

60

50

40
ICICI PPF
30
S&P CNX NIFTY
20

10

0

3.HDFC CAPITAL BUILDER FUND

75


analysis

60

50

40
HDFC CBF
30
S&P CNX 500
20

10

0

Risk and Return Analysis of the Schemes

Whenever an investor goes for investment he/she will use to analyze the Risk associated
with that particular investment and what may be the expected return by investing their,
But some times expected returns may vary due to some reasons so it is very important for
a investor to calculate about the rate of risk associated with the particular stock. There are
mainly two types of risks:

1. Systematic Risk
2. unsystematic Risk

Systematic risk: The systematic risk affects the entire market. The economic
conditional, political situations, sociological changes affect the entire market in
turn affecting the company and even the stock market. These situations are
uncontrollable by the corporate and investor.

Unsystematic risk: The unsystematic risk is unique to industries. It differs from
industry to industry. Unsystematic risk stems from managerial inefficiency,
technological change in the production process, availability of raw materials,
changes in the consumer preference, and labor problems. The nature and magnitude

76


analysis

of above mentioned factors differ from industry to industry and company to
company.

77


analysis

THE TOOLS USED FOR CALCULATION OF RISK AND RETURN:

1. Standard Deviation
2. Beta

3. Alpha

4. Sharp ratio

5. Treynor ratio

6. Arithmetic mean

STANDARD DEVIATION

S.D= √(y-Y)²

N

The standard deviation is a measure of the variables around its mean or it is the
square root of the sum of the squared deviations from the mean divided by the
number of observations.S.D is used to measure the variability of return i.e. the
variation between the actual and expected return.

BETA

Beta = N*∑XY- (∑X) (∑Y/ N(X*X) * (∑x)

Where

78

A project report on different schemes of mutual funds and their comparative analysis

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A project report on different schemes of mutual funds and their comparative analysis