Beyond the Codes_Repositioning towards sustainable development
Comparative study of investment in equity capital
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A study
On
“COMPARATIVE STUDY OF INVESTMENT IN EQUITY CAPITAL
& MUTUAL FUND SCHEMES”
Submitted in Partial Fulfillment of the Requirements of
Sikkim Manipal University for the Award of the Degree of
MASTER OF BUSINESS ADMINISTRATION
By
ANAND PRAKASH
Reg. No : 521102449
Under the Guidance of
Prof. S.P.TIWARI
5th Mile ,Tadong , Gangtok ,Sikkim-737102
1st Floor , Syndicate House , Manipal-576104
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DECLARATION
I, Anand Prakash , hereby declare that this dissertation titled, “Comparative study of investment in equity capital & mutual fund schemes, “ is based on the original project study conducted by me under the guidance of Prof. S.P.Tiwari
This has not been submitted earlier for the award of any other degree / diploma by Sikkim Manipal University or any other University.
Date:
Place: (ANAND PRAKASH)
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CERTIFICATE
Certified that this dissertation titled “Comparative Study of Investment in Equity Capital & Mutual Fund Schemes” is based on the study conducted by Mr. ANAND PRAKASH of IV Semester MBA(finance) under the guidance of Prof. S.P.Tiwari
This dissertation is based on the original project study undergone and has not formed the basis for the award of any other degree/diploma by Bangalore University or any other University.
Prof. S.P.Tiwari Mr.A.K.Singh
Department of Management Studies Director
Set Academy Set Acedemy
Date: Date:
Place: Place:
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CERTIFICATE FROM THE GUIDE
Certified that this dissertation titled “Comparative Study of Investment in Equity Capital & Mutual Fund Schemes” is based on an original project study conducted by Mr. ANAND PRAKASH of IV Semester MBA under my guidance.
This dissertation has not formed the basis for the award of any other degree / diploma by Sikkim Manipal University or any other University.
Date:
Place: (Mr.S.P.Tiwari)
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Acknowledgement
The successful completion of this project report would be incomplete without mentioning the people who made it possible, whose guidance and encouragement served as path of success.
First I express my gratitude to Mr.A.K.Singh, Director of Set Academy ,Sasaram (Authorize learning center SMU) for providing necessary support and facilities to carry out this Project.
I express my heart-felt gratitude to Prof. S.P.Tiwari, (Head of the department MBA, Set Academy ,Sasaram) for his guidance and supervision without which my study would not have been successfully completed.
I am thankful to Mr. Kalyan Annand, ((Facility of Management ,Set Academy ,Sasaram),
I also wish to thank all those respondents who were patient enough in giving the answer to my questionnaire.
I am thankful to my parents, all the faculty members, friends, and all the persons who directly and indirectly supported me in carrying out this Project.
(Anand Prakash)
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TABLE OF CONTENTS
Chapter No.
Description
Page No.
1
INTRODUCTION
1-15
Equity capital
1
Advantages of equity capital
2
Disadvantages of equity capital
3
Mutual fund
4
Schemes of Mutual funds
6
Advantages of mutual funds
9
Disadvantages of mutual funds
13
2
RESEARCH DESIGN
16- 24
Statement of the Problem
16
Objectives of the Study
16
Review of Literature
17
Scope of the Study
19
Research Methodology
19
Sampling technique
20
Sampling design
20
Sample Size
20
Sample description
21
Chapter schemes
24
3
INDUSTRY PROFILE
25- 41
Introduction of Indian stock market
26
History of Indian stock market
27
Introduction about BSE
30
Mutual fund industry in India
35
List of BSE 30 companies
41
4
ANALYSIS AND INTERPRETATION OF DATA
42- 80
5
FINDINGS AND SUGGESTIONS
81- 84
Findings
81
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Suggestions
82
6
CONCLUSION
85
BIBLIOGRAPHY
LIST OF TABLES
Table No.
Tables
Page No.
2.1
Sample description of equity companies
21
2.2
Sample description of mutual fund companies
21
2.3
NAV of Reliance growth fund
22
2.4
NAV of Franklin India prima fund
22
2.5
NAV of HDFC equity fund
23
2.6
NAV of Sundaram BNP Paribas
23
2.7
NAV of Birla Sun life mid cap fund
24
3.1
History of Indian stock market
27
3.2
Pre-independence scenario of stock market
27
3.3
Gross fund mobilization
38
3.4
List of BSE Sensex 30 companies
41
4.1
Calculation of risk and return of BSE benchmark
42
4.2
Calculation of risk and return of Infosys
44
4.3
Calculation of beta of Infosys
46
4.4
Market factors of Infosys
47
4.5
Calculation of risk and return of ONGC
48
4.6
Calculation of beta of ONGC
50
4.7
Market factors of ONGC
51
4.8
Calculation of risk and return of Reliance industries
52
4.9
Calculation of beta of Reliance industries
54
4.10
Market factors of Reliance industries
55
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4.11
Calculation of risk and return of TCS limited
56
4.12
Calculation of beta of TCS limited
58
4.13
Market factors of TCS limited
59
4.14
Calculation of risk and return of NTPC
60
4.15
Calculation of beta of NTPC
62
4.16
Market factors of NTPC
63
4.17
Average risk of selected equity companies
64
4.18
Average return of selected equity companies
65
4.19
Calculation of risk and return of Sundaram BNP Paribas
66
4.20
Calculation of Beta of Sundaram BNP Paribas
67
4.21
Calculation of risk and return of Franklin India prima fund
68
4.22
Calculation of Beta of Franklin India prima fund
69
4.23
Calculation of risk and return of HDFC equity fund
70
4.24
Calculation of Beta of HDFC equity fund
71
4.25
Calculation of risk and return of Reliance growth fund
72
4.26
Calculation of Beta of Reliance growth fund
73
4.27
Calculation of risk and return of Birla Sun life mid cap fund
74
4.28
Calculation of Beta of Birla Sun life mid cap fund
75
4.29
Average risk of selected mutual fund companies
76
4.30
Average return of selected mutual fund companies
77
4.31
Risk in equity & mutual fund companies
79
4.32
Return in equity & mutual fund
80
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companies
LIST OF CHARTS
Table No
Charts
Page No
3.1
Growth in assets under management
39
4.1
Market factors of Infosys
47
4.2
Market factors of ONGC
51
4.3
Market factors of Reliance industries
55
4.4
Market factors of TCS limited
59
4.5
Market factors of NTPC
63
4.6
Average risk of selected mutual fund companies
76
4.7
Average return of selected mutual fund companies
77
4.8
Risk in equity & mutual fund companies
79
4.9
Return in equity & mutual fund companies
80
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INTRODUCTION
Equity Capital
The term Equity literally means the stock or ownership of a company. They are also known as ordinary shares. The rate of dividend on equity shares varies according to the amount of profit available and the intention of board of directors. In the event of winding up of the company, equity shares can be refunded only after all other claims, including those of preference shares for the refund of their capital, have been met.
Equity capital or financing is money raised by a business in exchange for a share of ownership in the company. Ownership is represented by owning shares of stock outright or having the right to convert other financial instruments into stock of that private company. Two key sources of equity capital for new and emerging businesses are angel investors and venture capital firms.
Equity capital is represented by funds that are raised by a business, in exchange for a share of ownership in the company. Equity financing allows a business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time.
The Equity Capital Markets Group (ECM) oversees the Firm's activities in the primary equity and equity-linked markets, as well as monetization and equity derivatives. It provides support in the origination of primary market transactions and manages their structuring, syndication, marketing and distribution.
The world over, it’s been shown that over long tenures, equities–with their risk premium–have provided approximately 7 percentage points higher returns than risk-free options. People have
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to accumulate significant amounts of wealth during their working years. Right now, a 17-year bond gives you only 5.5 per cent. So, it is imperative that these people have some exposure to equity.
Equity capital is raised in many ways; the major types of equity capital are unlisted equity, listed equity and hybrids. Equity capital market practices traditionally advise in a full range of equity, debt equity-linked, and hybrid, asset-backed, credit-linked and derivative products that are offered in capital markets.
Advantages of Equity Capital:
1. High dividend and high value:-
In times of prosperity, the equity shareholders get a very high rate of dividend, sufficiently higher than that on preference shares. At the same time, their share value will also go up in the market.
2. Voting rights:-
It is only the equity shareholders who enjoy voting rights on all the policy matters of the company.
3. Pre-emptive right to new shares:-
Equity shareholders have the pre-emptive right to purchase new shares. Under the provisions of the companies act, the existing shareholders of the company have a right to allotment of newly issued shared.
4. Many privileges and rights:-
Equity shareholders enjoy many privileges and rights. For example, they can vote at meetings, elect directors, control the directors to run the company efficiently and profitably, look into the books and records of the company and transfer or sell their shareholdings.
Disadvantages of Equity Capital:
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1. No refund of capital:-
Since equity shares cannot be refunded, excessive issue of such shares may leads to overcapitalization, particularly when the earning capacity of the company declining.
2. Benefits only in prosperity:-
During the periods of prosperity, the company has to distribute heavy dividends on these shares.
3. Manipulation of control:-
Since the equity shares have proportionate voting power, the company’s management may be vitiated by manipulation of votes, clique-formation, abuse of proxy rights etc.
4. High risk:-
Equity share holders cannot claim dividend as a matter of right, because the decision to fit the rate of dividend on equity shares is vested in the Board of Directors. Therefore investors as a class may find equity shares unsafe, unattractive and unremunerative.
5. Unhealthy Speculation:-
During the period of boom, the market value of shares will go up, which leads to unhealthy speculation in the stock market.
Mutual Fund
A mutual fund is a trust that pools the money of many investors -- its shareholders -- to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits when the securities are sold, but subject to any losses in value as well.
A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. There are myriad kinds of mutual funds, each with its own goals and methodologies. Whether or not a mutual fund is a good investment is a matter of much public debate, with many claiming they are excellent for the average person, and others saying they are simply a poor way to invest.
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For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of recordkeeping for your account, and diversify your rupees over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.
A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify
Diversification is the efficient allocation of funds in various assets, it helps to reduce or minimize the risk. We this effort, the investors can reduce financial risk and business risk. By owing shares of multiple companies, the fund value is not devastated if an individual company has attained poor performance.
Selecting securities, the allocation of cash in securities, and timing of purchase done by the fund manager. The fund manger has the training, time and the resources to make the best informed investment decisions.
Some mutual fund providers now offer their schemes with insurance cover also. This is the real growth in the mutual fund sector. It attracts the eyes of all segments.
Mutual funds collect the funds from the investor and invest the same in securities and converted in units. Initially each unit priced at Rs.10 and invested in market. The growing fund in the market is called as Net Asset Value (NAV). NAV is the market value of the securities held by the scheme. Since the price of the security is varies the NAV also vary. The net asset value per unit is the market value of securities held divided by the total number of the units outstanding.
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Schemes of Mutual funds
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.
Open-ended Scheme:
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. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended 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 periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
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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:
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.
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.
Balanced Scheme:
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.
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.
Gilt Fund:
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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.
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 schemes invest in the securities in the same weight age comprising of an index. NAV’s 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.
Sector Specific 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.
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.
Advantages of Mutual Fund:
1. Professional Investment Management:-
By pooling the funds of thousands of investors, mutual funds provide full-time, high-level professional management that few individual investors can afford to obtain independently. Such management is vital to achieving results in today's complex markets. Your fund managers' interests are tied to yours, because their compensation is based not on sales commissions, but on how well the fund performs.
2. Diversification:-
Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund shareowners can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.
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3. Low Cost:-
If you tried to create your own diversified portfolio of 50 stocks, you'd need at least Rs.1, 00,000 and you'd pay thousands of rupees in commissions to assemble your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as Rs.500, and sometimes less. And if you buy a no-load fund, you pay or no sale charges to own them.
4. Convenience and Flexibility:-
You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, clip the bond coupons, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised.
5. Quick, Personalized Service:-
Most funds now offer extensive websites with a host of shareholder services for immediate access to information about your fund account. Or a phone call puts you in touch with a trained investment specialist at a mutual fund company who can provide information you can use to make your own investment choices, assist you with buying and selling your fund shares.
6. Easy of Invest:-
You may open or add to your account and conduct transactions or business with the fund by mail, telephone or bank wire. You can even arrange for automatic monthly investments by authorizing electronic fund transfers from your checking account in any amount and on a date you choose.
7. Total Liquidity, Easy Withdrawal:-
You can easily redeem your shares anytime you need cash by letter, telephone, bank wire or check, depending on the fund. Your proceeds are usually available within a day or two.
8. Life Cycle Planning:-
With no-load mutual funds, you can link your investment plans to future individual and family needs -- and make changes as your life cycles change. You can invest in growth funds for future college tuition needs, then move to income funds for retirement, and adjust your investments as your needs change throughout your life.
9. Market Cycle Planning:-
For investors who understand how to actively manage their portfolio, mutual fund investments can be moved as market conditions change. You can place your funds in equities when the market is on the upswing and move into money market funds on the downswing or
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take any number of steps to ensure that your investments are meeting your needs in changing market climates.
10. Investor Information:-
Shareholders receive regular reports from the funds, including details of transactions on a year-to-date basis. The current net asset value of your shares (the price at which you may purchase or redeem them) appears in the mutual fund price listings of daily newspapers. You can also obtain pricing and performance results for the all mutual funds at their site, or it can be obtained by phone from the fund manager.
11. Periodic Withdrawals:-
If you want steady monthly income, many funds allow you to arrange for monthly fixed checks to be sent to you, first by distributing some or all of the income and then, if necessary, by dipping into your principal.
12. Dividend Options:-
You can receive all dividend payments in cash. Or you can have them reinvested in the fund free of charge, in which case the dividends are automatically compounded. This can make a significant contribution to your long-term investment results.
13. Automatic Direct Deposit:-
You can usually arrange to have regular, third-party payments -- such as Social Security or pension checks -- deposited directly into your fund account. This puts your money to work immediately, without waiting to clear your checking account, and it saves you from worrying about checks being lost in the mail.
14. Recordkeeping Service:-
With your own portfolio of stocks and bonds, you would have to do your own recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and losses. Mutual funds provide confirmation of your transactions and necessary tax forms to help you keep track of your investments and tax reporting.
15. Safekeeping:-
When you own shares in a mutual fund, you own securities in many companies without having to worry about keeping stock certificates in safe deposit boxes or sending them by registered mail. You don't even have to worry about handling the mutual fund stock certificates; the fund maintains your account on its books and sends you periodic statements keeping track of all your transactions.
16. Retirement and College Plans:-
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Mutual funds are well suited to Individual Retirement Accounts and most funds offer IRA- approved prototype and master plans for individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k) retirement plans.
17. Online Services:-
The internet provides a fast, convenient way for investors to access financial information. A host of services are available to the online investor including direct access to no-load companies. Visit Company Links to access these Companies.
18. Sweep Accounts:-
With many funds, if you choose not to reinvest your stock or bond fund dividends, you can arrange to have them swept into your money market fund automatically. You get all the advantages of both accounts with no extra effort.
19. Asset Management Accounts:-
These master accounts, available from many of the larger fund groups, enable you to manage all your financial service needs under a single umbrella from unlimited cheque writing and automatic bill paying to discount brokerage and credit card accounts.
Disadvantages of Mutual Fund:
There are certainly some benefits to mutual fund investing, but you should also be aware of the drawbacks associated with mutual funds.
1. No Insurance:-
Mutual funds, although regulated by the government, are not insured against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk- reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment.
2. Dilution:-
Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the fund's holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.
3. Fees and Expenses:-
Most mutual funds charge management and operating fees that pay for the fund's management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds
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charge high sales commissions, 12b-1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up significantly.
Some of these expenses are charged on an ongoing basis, unlike stock investments, for which a commission is paid only when you buy and sell (see Investor Guide University: Fees and Expenses).
4. Poor Performance:-
Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor.
5. Loss of Control:-
The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You also should remember that you trust someone else with your money when you invest in a mutual fund.
6. Trading Limitations:-
Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after they've calculated the current value of their holdings.
7. Size:-
Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there is strict rules about how much of a single company a fund may own.
If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a result, the fund might be forced to lower its standards when selecting companies to invest in.
8. Inefficiency of Cash Reserves:-
Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the fund's money is invested in cash instead of assets, which tends to lower the investor's potential return.
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9. Different Types:-
The advantages and disadvantages listed above apply to mutual funds in general. However, there are over 10,000 mutual funds in operation, and these funds vary greatly according to investment objective, size, strategy, and style. Mutual funds are available for virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and every country or region of the world. So even the process of selecting a fund can be tedious.
RESEARCH METHODOLOGY
Statement of the Problem:
In the current economic scenario interest rates are fluctuating and volatility in the share market has put investors in confusion. One finds it difficult to take decision on investment. This is primarily, because investments are risky in nature and investors have to consider various factors before investing in investment avenues. Therefore the study aims to compare the investment outcomes if we invest in equity and mutual fund schemes in form their risk, return and liquidity and also creating awareness about Equity and Mutual Fund Schemes among the investors.
Objectives of the Study:
Saving money is not enough. Each of us also need to invest one’s savings intelligently in order to have enough money available for funding the higher education of one’s children, for buying a house, or for one’s own golden years. But the rapidly growing number of investment avenues often led to confusion. The Objectives of the study is to provide information to individual investors regarding their risk, and choosing the best investment options to match their goals and attitude to risk.
1. To compare Equity and Mutual Fund Schemes in respect of their risk & return.
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2. Analyzing the performance of equity shares and mutual fund schemes with their
benchmark.
3. Finding the Volatility of shares by using beta.
4. Provide information about pros and cons of investing in Equity and Mutual Funds
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REVIEW OF LITERATURE
Sharad Panwarand Dr.R.Madhumathi Indian Institute of Technology, Madras The study used sample of public-sector sponsored & private-sector sponsored mutual funds of varied net assets to investigate the differences in characteristics of assets held, portfolio diversification, and variable effects of diversification on investment performance for the period May, 2002 to May,2005. The study found that public-sector sponsored funds do not differ significantly from private-sector sponsored funds in terms of mean returns%. However, there is a significant difference between public-sector sponsored mutual funds and private-sector sponsored mutual funds in terms of average standard deviation, average variance and average coefficient of variation(COV).
The study also found that there is a statistical difference between sponsorship classes in terms of e SDAR(excess standard deviation adjusted returns)as a performance measure. When residual variance (RV) is used as the measure of mutual fund portfolio diversification characteristic, there is a statistical difference between public-sector sponsored mutual funds and private-sector sponsored mutual funds for the study period. The model built on testing the impact of diversification on fund performance and found a statistical difference among sponsorship classes when residual variance is used as a measure of portfolio diversification and excess standard deviation adjusted returns as a performance measure. RV, however, has a direct impact on Sharpe fund performance measure.
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.
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Scope of the Study:
The project primarily deals with equity, derivatives, mutual funds, portfolio management. The study is limited to compare equity capital and mutual fund schemes in respect of their risk, return and liquidity. The study covers 5 randomly selected stocks out of 30 BSE Sensex companies and 5 randomly selected mutual fund schemes out of mutual fund industry in India for comparison. The analysis is based on market capitalization and Net Asset value (NAV) + Total investment. It focuses on every month ending closing prices of during the period from 1st April, 2011 to 31st March, 2013.
Research Methodology:
The whole study can be termed as comparative study. It is also a desk research hence; there is no field work and collection of primary data for this research. The research involves secondary data which is collected from websites of stock exchange.
The study centers on comparing equity and mutual fund schemes in respect of their risk, return and liquidity. However, with the objective and scope of the study in mind, it was decided to base the study on return series of selected stocks and mutual fund schemes.
BSE being the premier exchange of India was chosen for selecting stocks. It is widely accepted that BSE Sensex is the one of the most reliable index of the country that reflects present day market condition. Since it is not possible to compare all the 30 scripts in the index with all Mutual Fund Schemes due to time and resource constraints, sampling techniques were considered. Randomly selected samples will facilitate inference of the population, in our case BSE Sensex and mutual fund industry in India. Hence by the stratified random sampling 5 scrip’s out of 30 sensex and 5 mutual fund schemes out of whole mutual fund industry were selected.
Monthly share price and unit prices of the selected scrip’s and units were collected from historical data. In order to avoid bias, at least two years monthly data (24 months) was decided to be necessary. The reference period is from 1st April, 2011 to 31st March, 2013.
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Sampling technique:
The quality of research output and the validity of its findings depend upon appropriateness of the sampling design selected for the study. It was needed to apply inferential statistical analysis; hence probability sampling was chosen to be essential.
Criteria for Selecting Sampling Techniques
It is intended to generalize the finding based on the sample examination to the population, therefore, probability sampling adopted in order to have a representative sample.
Since the population is heterogeneous stratified random sampling was taken.
Probability sampling produces high degree of precision compared to non probability sampling.
Sample Design:
1. Relative population – 30 BSE sensitivity index companies and mutual fund industry in
India.
2. Sampling frame – list of population, elements from which sample is drawn.
3. Method of sampling – stratified random sampling. Stratification or division of
population into homogeneous group was done on the basis of industry.
4. Variables – monthly calculated risk and returns were used for comparing equity and
mutual fund schemes.
Sample size:
Five Equity stock companies and five mutual fund schemes were selected. The five Equity stock companies are selected on the basis of there highest market capitalization and the Mutual Fund Schemes on the highest NAV basis.
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Sample Description:
Table: 2.1
EQUITIES
BENCHMARK
RELIANCE INDUSTRIES LIMITED
BSE SENSEX
ONGC (OIL AND NATURAL GAS CORP)
BSE SENSEX
NTPC
BSE SENSEX
INFOSYS
BSE SENSEX
TATA CONSULTANCY SERVICE LTD.
BSE SENSEX
Table: 2.2
MUTUAL FUNDS
BENCHMARK
RELIANCE GROWTH FUND – RETAIL PLAN (G)
BSE
FRANKLIN INDIA PRIMA FUND (G)
BSE
HDFC EQUITY FUND (G)
BSE
SUNDARAM BNP PARIBAS SELECT MID CAP- REGULAR PLAN (G):
BSE
BIRLA SUN LIFE MIDCAP FUND – PLAN A (G)
BSE
Equity Diversified Mutual Fund Companies
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Reliance Growth Fund - Retail Plan (G)
Table: 2.3
Date
NAV(Rs.)
16-Apr- 2013
448.680
15-Apr- 2013
450.337
14-Apr- 2013
451.504
13-Apr- 2013
451.504
12-Apr- 2013
451.964
11-Apr- 2013
452.044
10-Apr- 2013
452.044
09-Apr- 2013
452.044
08-Apr- 2013
449.005
07-Apr- 2013
452.492
06-Apr- 2013
450.910
05-Apr- 2013
450.307
04-Apr- 2013
443.711
03-Apr- 2013
443.711
02-Apr- 2013
443.711
01-Apr- 2013
443.711
Franklin India Prima Fund (G)
Table: 2.4
D
NAV(Rs.)
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Apr- 2013
02- Apr- 2013
107.350
01- Apr- 2013
107.350
INDUSTRY PROFILE
Issue of shares is the most important method of raising capital. Finance raised by the issue of shares serves as a financial floor to the company’s capital structure. Shares indicate the ownership or equity interest in the assets of the company. Shares are of different nominal or face values and of different kinds to attract different kinds of investors. The maximum amount of capital to be raised by the issue of shares is mentioned in the memorandum of association.
The mutual fund industry in India started in 1964 with the formation of Unit Trust of India, at the initiative of the Government of India. The 1993 SEBI Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.
The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came in to existence during a period
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marked by great political and economic turmoil that depressed the financial market; entrepreneurs were rather hesitant to enter the capital markets.
STOCK MARKET IN INDIA Introduction
Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).
Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less
35. 35 | P a g e
supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the Stock of ABC CO. Limited in the market, its price will fall down.
In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors don’t have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.
History of the Indian Stock Market - The Origin One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history. Table: 3.1
18th Century
East India Company was the dominant institution and by end of the century, business in its loan securities gained full momentum
1830's
Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. Trading list by the end of 1839 got broader
1840's
Recognition from banks and merchants to about half a dozen brokers
1850's
Rapid development of commercial enterprise saw brokerage business attracting more people into the business
1860's
The number of brokers increased to 60
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1860- 61
The American Civil War broke out which caused a stoppage of cotton supply from United States of America; marking the beginning of the "Share Mania" in India
1862- 63
The number of brokers increased to about 200 to 250
1865
A disastrous slump began at the end of the American Civil War (as an example, Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)
Pre-Independence Scenario - Establishment of Different Stock Exchanges
Table: 3.2
1874
With the rapidly developing share trading business, brokers used to gather at a street (now well known as Dalal Street) for the purpose of transacting business.
1875
"The Native Share and Stock Brokers' Association" (also known as "The Bombay Stock Exchange") was established in Bombay
1880's
Development of cotton mills industry and set up of many others
1894
Establishment of "The Ahmedabad Share and Stock Brokers' Association"
1880 - 90's
Sharp increase in share prices of jute industries in 1870's was followed by a boom in tea stocks and coal
1908
"The Calcutta Stock Exchange Association" was formed.
1920
Madras witnessed boom and business at "The Madras Stock Exchange" was transacted with 100 brokers.
1923
When recession followed, number of brokers came down to 3 and the Exchange was closed down
1934
Establishment of the Lahore Stock Exchange
1936
Merger of the Lahore Stock Exchange with the Punjab Stock Exchange
1937
Re-organization and set up of the Madras Stock Exchange Limited (Pvt.) Limited led by improvement in stock market activities in
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South India with establishment of new textile mills and plantation companies
1940
Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was established
1944
Establishment of "The Hyderabad Stock Exchange Limited"
1947
"Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares Exchange Limited" were established and later on merged into "The Delhi Stock Exchange Association Limited" Post Independence Scenario: The depression witnessed after the Independence led to closure of a lot of exchanges in the country. Lahore Stock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were: 1. Bombay 2. Calcutta 3. Madras 4. Ahmedabad 5. Delhi 6. Hyderabad 7. Bangalore 8. Indore Many more stock exchanges were established during 1980's, namely:
Cochin Stock Exchange (1980)
Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982)
Pune Stock Exchange Limited (1982)
Ludhiana Stock Exchange Association Limited (1983)
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Bombay Stock Exchange
Mumbai Shear Bajar
Type
Stock Exchange
Location
Mumbai, India
Coordinates
18°55′47″N 72°50′01″E18.929681°N 72.833589°E
Founded
1875
Owner
Bombay Stock Exchange Limited
Key people
Madhu Kannan (CEO) Mahesh L. Soneji (COO)
Currency
INR
No. of listings
4,700
Market Cap
US$ 1.1 trillion (Aug 29, 2012)
Volume
US$ 980 billion (2006)
Indexes
BSE Sensex
Website
Official Website
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The Bombay Stock Exchange Limited:
(Marathi: Mumbai Shear Bajar) (Formerly, the Stock Exchange, Mumbai; popularly called Bombay Stock Exchange, or BSE) is the oldest stock exchange in Asia and has the greatest number of listed companies in the world, with 4700 listed as of August 2007. It is located at Dalal Street, Mumbai, India. On 31 December 2007, the equity market capitalization of the companies listed on the BSE was US$ 1.79 trillion, making it the largest stock exchange in South Asia and the 12th largest in the world.
With over 4700 Indian companies listed & over 7700 scripts on the stock exchange, it has a significant trading volume. The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for most of the trading in shares in India.
History of Bombay Stock Exchange:-
The Bombay Stock Exchange is known as the oldest exchange in Asia. It traces its history to the 1850s, when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading Sensex futures contracts.
The development of Sensex options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition.
Timeline
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Following is the timeline on the rise and rise of the Sensex through Indian stock market history.
1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay.
1860-1865 Cotton price bubble as a result of the American Civil War
1870 - 90's Sharp increase in share prices of jute industries followed by a boom in tea stocks and coal
1978-79 Base year of Sensex, defined to be 100.
1986 Sensex first compiled using a market Capitalization-Weighted methodology for 30 component stocks representing well-established companies across key sectors.
30 October 2006 The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000.
5 December 2006 The Sensex on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark.
6 July 2007 The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.
19 September 2007 The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up113 points. The Sensex finally ended with a gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732.
26 September 2007 The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark. Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.
9 October 2007 The BSE Sensex crossed the 18,000-mark on October 9, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra- day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying
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after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election.
15 October 2007 The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670.
29 October 2007 The Sensex crossed the 20,000 mark on the back of aggressive buying by funds ahead of the US Federal Reserve meeting. The index took only 10 trading days to gain 1,000 points after the index crossed the 19,000-mark on October 15. The major drivers of today's rally were index heavyweights Larsen and Toubro, Reliance Industries, ICICI Bank, HDFC Bank and SBI among others. The 30-share index spurted in the last five minutes of trade to fly-past the crucial level and scaled a new intra-day peak at 20,024.87 points before ending at its fresh closing high of 19,977.67, a gain of 734.50 points. The NSE Nifty rose to a record high 5,922.50 points before ending at 5,905.90, showing a hefty gain of 203.60 points.
8 January 2011 The sensex peaks. It crossed the 21,000 mark in intra-day trading after 49 trading sessions. This was backed by high market confidence of increased FII investment and strong corporate results for the third quarter. However, it later fell back due to profit booking.
13 June 2011 The sensex closed below 15,200 mark, Indian market suffer with major downfall from January 21, 2011
25 June 2011 The sensex touched an intra day low of 13,731 during the early trades, then pulled back and ended up at 14,220 amidst a negative sentiment generated on the Reserve Bank of India hiking CRR by 50 bps. FII outflow continued in this week.
2 July 2011 The sensex hit an intra day low of 12,822.70 on July 2, 2011. This is the lowest that it has ever been in the past year. Six months ago, on January 10, 2011, the market had hit an all time high of 21206.70. This is a bad time for the Indian markets, although Reliance and Infosys continue to lead the way with mostly positive results. Bloomberg lists them as the top two gainers for the Sensex, closely followed by ICICI Bank and ITC Ltd.
6 October 2011 The sensex closed at 11801.70 hitting the lowest in the past 2 years.
10 October 2011 The Sensex today closed at 10527,800.51 points down from the previous day having seen an intraday fall of as large as 1063 points. Thus, this week turned out to be the week with largest percentage fall in the Sensex.
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18 May 2012 After the result of 15th Indian general election Sensex gained 2110.79 points from the previous close of 12173.42, a record one-day gain. In the opening trade itself the Sensex evinced a 15% gain over the previous close which led to a two-hour suspension in trading. After trading resumed, the Sensex surged again, leading to a full day suspension of trading. Mutual Fund Industry in India The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase1. Establishment and Growth of Unit Trust of India - 1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981- 84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share (India’s first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs.6700 crores. Phase II. Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry
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increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. Phase III. Emergence of Private Sector Funds - 1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various investor awareness programmers were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, GROSS FUND MOBILISATION (RS. CRORES)
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2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilization of funds from investors and assets under management which is supported by the following data: Table: 3.3 Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and FROM TO UTI PUBLIC SECTOR PRIVATE SECTOR TOTAL 01-April-98 31-March-99 11,679 1,732 7,966 21,377 01-April-99 31-March-00 13,536 4,039 42,173 59,748 01-April-00 31-March-01 12,413 6,192 74,352 92,957 01-April-01 31-March-02 4,643 13,613 1,46,267 1,64,523 01-April-02 31-Jan-03 5,505 22,923 2,20,551 2,48,979 01-Feb.-03 31-March-03 * 7,259* 58,435 65,694 01-April-03 31-March-04 - 68,558 5,21,632 5,90,190 01-April-04 31-March-05 - 1,03,246 7,36,416 8,39,662 01-April-05 31-March-06 - 1,83,446 9,14,712 10,98,158
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PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.
Fig: 3.1
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Mutual Fund Companies in India
1. ABN AMRO Mutual Fund
2. Birla Sun Life Mutual Fund
3. Bank of Baroda Mutual Fund (BOB Mutual Fund)
4. HDFC Mutual Fund
5. HSBC Mutual Fund
6. ING Vysya Mutual Fund
7. Prudential ICICI Mutual Fund
8. Sahara Mutual Fund
9. State Bank of India Mutual Fund (SBI)
10. Tata Mutual Fund
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BSE SENSEX 30 COMPANIES
Table: 3.4
SL NO.
Company Name
Industry
1
ACC
Cement - Major
2
Barthi airtel
Telecommunication services
3
BHEL
Engineering heavy
4
DLF
Construction & Contracting - Real Estate
5
Grasim
Diversified
6
HDFC
Finance - Housing
7
HDFC Bank
Banks - Private Sector
8
Hero Honda
Auto - 2 & 3 Wheelers
9
Hindalco
Aluminum
10
HUL
Personal Care
11
ICICI Bank
Banks - Private Sector
12
Infosys
Computers - Software
13
ITC
Cigarettes
14
Jaiprakash Asso
Construction & Contracting - Civil
15
Larsen
Engineering - Heavy
16
Mah and Mah
Auto - Cars & Jeeps
17
Maruti Suzuki
Auto - Cars & Jeeps
18
NTPC
Power - Generation/Distribution
19
ONGC
Oil Drilling And Exploration
20
Reliance
Refineries
21
Reliance Comm
Telecommunications - Service
22
Reliance Infra
Power - Generation/Distribution
23
SBI
Banks - Public Sector
24
Sterlite Ind
Metals - Non Ferrous
25
Sun Pharma
Pharmaceuticals
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26
Tata Motors
Auto – LCVs /HCVs
27
Tata Power
Power - Generation/Distribution
28
Tata Steel
Steel - Large
29
TCS
Computers - Software
30
Wipro
Computers - Software
DATA ANALYSIS AND INTERPRETATION
CALCULATION OF RETURN AND RISK OF SELECTED MUTUAL FUND SCHEMES AND THEIR BENCHMARKS
Table: 4.1
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Mark Return and Risk (TCS)
Return = (P1 /P0 *100)-100
Where, P1 = Current month price,
P0 = Previous month price
R1= ΣR/n, where n= number of months.
R1=86.02/24
=3.58
SD = √ Σ(R- R1) 2 /n
=3797.75 /24
=158.24
=12.58
Calculation of Beta of TCS:
Table: 4.12
Date
Return of compan
Return of mark
Ra- Ra1
Rm- m1
[ ( Ra- Ra1) ( Rm- R
( Rm- m1) 2
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Mark Return and Risk (NTPC)
Return = (P1 /P0 *100)-100
Where, P1 = Current month price,
P0 = Previous month price
R1= ΣR/n, where n= number of months.
R1=14.35/24
=0.60
SD = √ Σ(R- R1) 2 /n
=1861.82/24
=77.58
=8.81
Calculation of Beta of NTPC:
Table: 4.15
Date
Return of company
Return of market
Ra- Ra1
Rm- m1
[ ( Ra- Ra1) ( Rm- m1) ]
( Rm- Rm1) 2
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3
3
8
2
14.35
25.68
1457.11
2840.67
Calculation of Beta
B = *Σ (Ra –Ra1) (Rm-Rm1)+/ Σ (Rm-Rm1) 2
Rm= Return on market, Rm1= Average return on market
= 1457.11/2840.67
B = 0.51
Calculation of Alpha
Alpha = (Ra1-Rm1)*B
= (0.60-1.07)*0.51
=-0.24
Table: 4.16
FACTOR
PERCENTAGE
RISK
0.60
RETURN
8.81
BETA
0.51
ALFA
-0.24
Fig: 4.5
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Average Risk of selected Companies:
Company Risk
RELIANCE INDUSTRIES LIMITED 13.10
ONGC (OIL AND NATURAL GAS
CORP)
12.84
NTPC 8.81
INFOSYS 10.88
-5
0
5
10
NTPC
PERCENTAGE 0.6 8.81 0.51 -0.24
RISK RETURN BETA ALFA
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Table: 4.17
Average Risk = 58.21/5 = 11.64
ANALYSIS:
Reliance has got the highest risk factor of 13.10% with 1.07% of beta and -0.39% of alpha.
NTPC has the lowest risk factor of 8.81% with 0.51% of beta and -0.24% of alpha.
Bench mark has the risk factor of 10.88%.
On an average equity shares as the risk factor of 11.64%.
INTERPRETATION:
Risk is a major factor influence all type of investors. In the above selected Equity Shares average risk factor is 11.64% and the risk factor of bench mark is 10.88%, it is showing equities are more risky.
TATA CONSULTANCY SERVICE LTD.
12.58
TOTAL
58.21
BENCHMARK
10.88
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Average Return of selected Companies
Table: 4.18
Average Return = 9.25/5 = 1.85
ANALYSIS:
TCS shares
have got the highest return of 3.58%
NTPC shares has got the lowest return of 0.60%
Bench mark has the return of 1.07%.
On an average equity shares has got the return of 1.85% per month..
INTERPRETATION:
Return is a major factor influencing factor to all type of investors. In the above selected equity shares average return is 1.85%, compared to bench mark return of 1.07% selected equity shares returns are good and it will attract more and more customers.
Company
RETURN
RELIANCE INDUSTRIES LIMITED
0.71
ONGC (OIL AND NATURAL GAS CORP)
1.27
NTPC
0.60
INFOSYS
3.09
TATA CONSULTANCY SERVICE LTD.
3.58
TOTAL
9.25
BENCHMARK
1.07
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Calculation of Beta
B = *Σ (Ra –Ra1)(Rm-Rm1)+/ Σ(Rm-Rm1)2
Where Ra = Return on Company, Ra1= Average return on company
Rm = Return on market, Rm1= Average return on market
=3212.37/2840.67 = 1.13
Calculation of Alpha
Alpha = (Ra1 – Rm1)* B
= (2.02-1.07)*1.13 = 1.07
Calculation of Average Risk
Table: 4.29
Mutual Fund
Risk
Beta
Alfa
31/3/2013
8.19
6.68
6.17
5.61
26/2/2013
-1.88
0.44
-3.9
-0.63
29/1/2013
-4.24
-6.34
-6.26
-7.41
31/12/2012
4.7
3.18
2.68
2.11
30/11/2012
8.57
6.48
6.55
5.41
30/10/2012
-1.2
-7.18
-3.22
-8.25
30/9/2012
6.2
9.32
4.18
8.25
31/8/2012
7.52
-0.02
5.5
-1.09
31/7/2012
11.35
8.12
9.33
7.05
30/6/2012
-0.05
-0.9
-2.07
-1.97
29/5/2012
43.87
28.26
41.85
27.19
30/4/2012
18
17.46
15.98
16.39
31/3/2012
5.38
9.19
3.36
8.12
27/2/2012
-6.17
-5.65
-8.19
-6.72
30/1/2012
-8.26
-2.31
- 10.28
-3.38
31/12/2011
8.43
6.1
6.41
5.03
28/11/2011
-2.83
-7.1
-4.85
-8.17
31/10/2011
-26.29
-23.89
- 28.31
- 24.96
30/9/2011
-12.76
-11.7
- 14.78
- 12.77
29/8/2011
2.56
1.45
0.54
0.38
31/7/2011
3.97
6.64
1.95
5.57
30/6/2011
-18.69
-17.99
- 20.71
- 19.06
30/5/2011
-4.37
-5.04
-6.39
-6.11
30/4/2011
6.58
10.5
4.56
9.43
48.58
25.68
92. 92 | P a g e
Scheme
Reliance Growth Fund – Retail Plan (G)
11.03
0.993
0.67
Franklin India Prima Fund (G)
12.10
1.06
0.57
HDFC Equity Fund (G)
11.09
0.998
1.02
Sudaram BNP Paribas Select Midcap- Regular Plan (G)
14.00
1.20
1.22
Birla Sun Life Midcap Fund – Plan A (G)
13.01
1.13
1.07
Total
61.23
Bench mark
10.88
Average Risk = 61.23/5
= 12.25
93. 93 | P a g e
Risk Factor of Mutual Funds
0
2
4
6
8
10
12
14
16
Reliance Franklin HDFC Sudaram Birla Bench
mark
Risk, Beta and Alfa In %
Risk
Beta
Alfa
Fig: 4.6
ANALYSIS:
Sudaram BNP Paribas Select Midcap- Regular Plan (G) has the highest risk factor of
14% with 1.20% beta and 1.22% of alpha.
Reliance Growth Fund – Retail Plan (G) has the lowest risk factor of 11.03% with
0.993% of beta and 0.67% of alpha.
Bench Mark has the risk factor of 10.88 %
On an average Mutual Fund Schemes have the risk factor of 12.25%.
INTERPETATION:
Risk is a major factor influence all type of investors. In the above selected Mutual Fund
Schemes average risk factor is 12.25% even though the risk factor of bench mark is 10.88% it is
very close to average risk. It is showing Mutual Funds are also risky.
Calculation of Average Return
Table: 4.30
Mutual Fund
Scheme
Return
Reliance Growth
Fund – Retail Plan
(G)
1.74
Franklin India Prima
Fund (G)
1.61
HDFC Equity Fund
(G)
2.090
Sudaram BNP
Paribas Select
Midcap- Regular
Plan (G)
2.091
94. 94 | P a g e
Birla Sun Life Midcap
Fund – Plan A (G)
2.02
Total 9.551
Bench mark 1.07
Average Return = 9.551/5
= 1.91
Return of selected mutual funds
0
2
4
6
8
10
12
Reliance Franklin HDFC Sudaram Birla Total Bench
mark
Return In %
Return
Fig: 4.7
ANALYSIS:
Sudaram BNP Paribas Select Midcap- Regular Plan (G) has got the highest return of
2.091%
Franklin India Prima Fund (G) got the lesser return of 1.61%
Bench Mark return is 1.07%
On an average Mutual Fund Schemes have got 1.91% return per month.
INTERPETATION:
Return is a major factor influencing factor to all type of investors. In the above selected
Mutual Fund Schemes average return is 1.91%, compared to bench mark return mutual fund
returns are little high and it will attract more and more customers.
COMPARISON OF SELECTED EQUITY CAPITAL AND MUTUAL FUND SCHEMES IN
RESPECT THEIR RISK
95. 95 | P a g e
Table: 4.31
11.2
11.4
11.6
11.8
12
12.2
12.4
RISK
RISK 12.25 11.64
Mutual Fund Equity Capital
Fig: 4.8
ANALYSIS:
Mutual funds have the risk on an average of 12.25%
Equity shares have the risk on an average of 11.64%.
INTERPRETATION:
Equity capital and Mutual fund schemes are subjected to market risk. Based on the above
analysis equity capital have an average risk of 11.64% which is compared to mutual fund risk
of 12.25% is lower. Those who would like to take risk can go for mutual fund investments.
COMPARISON OF SELECTED EQUITY CAPITAL AND MUTUAL FUND SCHEMES IN
RESPECT THEIR RETURN
Table: 4.32
INVESTMENT
AVENUES
RISK
Mutual Fund 12.25
Equity Capital 11.64
96. 96 | P a g e
1.82
1.84
1.86
1.88
1.9
1.92
RETURN
RETURN 1.91 1.85
Mutual Fund Equity Capital
Fig: 4.9
ANALYSIS:
Mutual funds has an average of 1.91%
Equity shares has an average of 1.85%
INTERPRETATION:
Equity capital and Mutual fund schemes are subjected to market risk. Based on the above
analysis equity capital have an average return of 1.85% which is compared to mutual fund risk
of 1.91% is lower. Those who would like to take risk can go for mutual fund investments for
higher returns and those who don’t like to take more risk can go for equity capital for
minimum return.
INVESTMENT
AVENUES
RETURN
Mutual Fund 1.91
Equity Capital 1.85
