A STUDY ON PERFORMANCE EVALUATION OF MUTUAL FUNDS IN CHENNAI AT CD EQUISEARCH PRIVATE LIMITED

By V. INDUMATHI (REGISTER NO: ) of

JEPPIAAR ENGINEERING COLLEGE

CHENNAI A PROJECT REPORT Submitted To The FACULTY OF MANAGEMENT STUDIES In partial fulfillment of the requirements For the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION Anna university, chennai- 600 025 MAY -2012

ACKNOWLEDGEMENT

The successful completion of any task would be incomplete without mentioning the names of persons who helped to make it possible. I take this opportunity to express my gratitude in few words and respect to all those who helped me in the completion of this project. I express my deep gratitude to Mr. V. Raja, Chairman, Mr. A. Mohammed Ilyas, Vice-Chairman, Mr. K. Shivram Alva, Secretary,I.F.E.T College of Engineering. I am extremely grateful to Our Principal Dr. S.S. Jayachandran, M.E, Ph.D, to provide necessary and essential facilities to do this project work. I express our sincere thanks and deep sense of gratitude to

Prof Dr. R. Maheswari, B.E., M.B.A., M.Phil., Ph.D.,Head of the Department, Department of Management Studies for providing me an opportunity to study and her encouragement, support and guidance to complete this project work successfully. It is my immense pleasure to express our profound gratitude to my beloved guideMr.R.SendamizhiChelvan, M.B.A., M.Phil.,Lecturer, Department of

Management Studies, I.F.E.TCollege of Engineering for his consistent guidance in my project and for constant encouragement. His advice and systematic approach has given a new dimension to my project. I convey my heartiest thanks to Mr. Deepak Kumar Giya, Branch Manager, at UNICON INVESTMENT SOLUTION, Pondicherry, who kindly granted permission to do this project work in his esteemed organization. . Finally, I express my sincere thanks and deep sense of gratitude to my parents and friends for giving timely advice in all the ways and in all aspects for the success of this project work.

BONAFIDE CERTIFICATE

This is to certify that the project report titled A STUDY ON PERFORMANCE EVALUATION OF MUTUAL FUNDS IN CD EQUISEARCH PRIVATE LIMITED is thebonafide work of Ms.V.INDUMATHI Reg. no. Who carried out the research under my supervision. Certified further , that to the best of myknowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of Supervisor

Signature of HOD

Submitted to Project Viva Voce held on .

Internal Examiner

External Examiner

DECLARATION

I, V. INDUMATHI,hereby declare that this project work entitled A STUDY ON PERFORMANCE EVALUATION OF MUTUAL FUNDS IN CHENNAI AT CD

EQUISEARCH PRIVATE LIMITEDis an authenticated work carried out is me at CD EQUISEARCH PRIVATELIMITED,Chennai. The study has been undertaken in partial fulfillment for the Degree of Master of Business Administration at JeppiaarEngineering College, Chennai affiliated to Anna University.

I also declare that this project has not been submitted to any other institutions or university, for the award of any Degree or Diploma.

ABSTRACT
The project report entitled A study on performance Evaluation of Mutual funds in CHANGING DIMENSION EQUI SEARCH is intended to know the performance Evaluation of mutual funds at changing dimension equi search. The study has been conducted by secondary objectives.

Analysis based on the different types of tools like average return, standard deviation, beta, alpha, Sharpe, treynor method.

The study provides some findings that were inferred from the analysis of the collected data. The suggestions and recommendations given by the analysis of data can be used in the company.

SPECIMEN TABLE OF CONTENTS

1. Acknowledgement 2. Abstract 3. Table of Contents 4. List of Tables 5. List of Charts CHAPTER PARTICULARS INTRODUCTION Page No

1.1 1.2
I

Introduction of the study Industry Profile

10 14 19 23 24 25 26

1.3 Company Profile 1.4 Need for the Study 1.5 Objectives of the Study 1.6 Scope of the Study 1.7 Limitations of the Study
MAIN THEME OF THE PROJECT

II

2.1 Review of Literature 2.2 Research Methodology 2.3 Data Analysis and Interpretation
RESULTS, DISCUSSION AND CONCLUSION

28 37 43

3.1 Findings
III

60 63 64 65 66

3.2 Suggestions 3.3 Conclusion

BIBLIOGRAPHY ANNEXTURE

LIS T OF TABLES

Sl. No 1.2.1 2.3.1a 2.3.1b 2.3.1c 2.3.1d 2.3.1e 2.3.1f 2.3.1g 2.3.1h 2.3.2a 2.3.2b 2.3.2c 2.3.2d 2.3.2e 2.3.2f 2.3.2g 2.3.2h 2.3.1 2.3.3a 2.3.3b 2.3.3c 2.3.3d 2.3.3e 2.3.3f 2.3.3g 2.3.4a 2.3.4b 2.3.4c 2.3.4d

List of Tables List of Commodities Calculating average return of HDFC Mutual fund for year 2010 Arithmetic Mean of HDFC Mutual fund for year 2010 Calculating Standard Deviation of HDFC Mutual fund for year 2010 Standard Deviation of HDFC Mutual fund for year 2010 Beta of HDFC Mutual fund for year 2010 Alpha of HDFC Mutual fund for year 2010 Sharpe ratio of HDFC Mutual fund for year 2010 Treynor Ratio of HDFC Mutual fund for year 2010 Calculating average return of ICICI Mutual fund for year 2010 Arithmetic Mean of ICICI Mutual fund for year 2010 Calculating Standard Deviation of ICICI Mutual fund for year 2010 Standard Deviation of ICICI Mutual fund for year 2010 Beta of ICICI Mutual fund for year 2010 Alpha of ICICI Mutual fund for year 2010 Sharpe ratio of ICICI Mutual fund for year 2010 Treynor Ratio of ICICI Mutual fund for year 2010 Comparison of HDFC & ICICI Mutual Funds for Year 2010 Calculating average return of HDFC Mutual fund for year 2011 Arithmetic Mean of HDFC Mutual fund for year 2011 Calculating Standard Deviation of HDFC Mutual fund for year 2011 Standard Deviation of HDFC Mutual fund for year 2011 Beta of HDFC Mutual fund for year 2011 Alpha of HDFC Mutual fund for year 2011 Sharpe ratio of HDFC Mutual fund for year 2011 Treynor Ratio of HDFC Mutual fund for year 2011 Calculating average return of ICICI Mutual fund for year 2011 Arithmetic Mean of ICICI Mutual fund for year 2011 Calculating Standard Deviation of ICICI Mutual fund for year 2011

Page No 7 36 36 37 37 37 37 38 38 39 39 40 40 40 41 41 42 42 42 43 43 43 44 44 44 44 45 45 46

2.3.4e 2.3.4f 2.3.4g 2.34h 2.3.4i 2.3.2

Standard Deviation of ICICI Mutual fund for year 2011 Beta of ICICI Mutual fund for year 2011 Alpha of ICICI Mutual fund for year 2011 Sharpe ratio of ICICI Mutual fund for year 2011 Treynor Ratio of ICICI Mutual fund for year 2011 Comparison of HDFC & ICICI Mutual Funds for Year 2011

46 47 47 47 47 48

CHAPTER 1

INTRODUCTION
MUTUAL FUNDS:
Mutual funds, as the name indicates is the fund where in numerous investors come together to invest in various schemes of mutual fund. Mutual funds are dynamic institution, which plays a crucial role in an economy by mobilizing savings and investing them in the capital market, thus establishing a link between savings and the capital market. A mutual fund is an institution that invests the pooled funds of public to create a diversified portfolio of securities. Pooling is the key to mutual fund investing. Each mutual fund has a specific investment objective and tries to meet that objective through active portfolio management. Mutual fund as an investment company combines or collects money of its shareholders and invests those funds in variety of stocks, bonds, and money market instruments. The latter include securities, commercial papers, certificates of deposits, etc. Mutual funds provide the investor with professional management of funds and diversification of investment. Investors who invest in mutual funds are provided with units to participate in stock markets. These units are investment vehicle that provide a means of participation in the stock market for people who have neither the time, nor the money, nor perhaps the expertise to undertake the direct investment in equities. On the other hand they also provide a route into specialist markets where direct investment often demands both more time and more knowledge than an investor may possess. The price of units in any mutual fund is governed by the value of underlying securities. The value of an investors holding in a unit can therefore, like an investment in share, can go down as well as up. Hence it is said that mutual funds are subjected to market risk. Mutual fund cannot guarantee a fixed rate of return. It depends on the market condition. If the particular scheme is performing well then more return can be expected. It also depends on the fund manager expertise knowledge. It is also seen that people invest in particular funds depending on who the fund manager is. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. 10

The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the schemes are shared by its unit holders in proportion to the number of units owned by them.
Mutual Fund Operation Flow Chart

Thus a mutual fund is the most suitable investment for the common person as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Since small investors generally do not have adequate time, knowledge, experience & resources for directly accessing the capital market, they have to rely on an intermediary, which undertakes informed investment decisions & provides consequential benefits of professional expertise. A collected corpus can be used to procure a diversified portfolio indicating greater returns has also create economies of scale through cost reduction. This principle has been effective worldwide as more & more investors are going the mutual fund way. This portfolio diversification ensures risk minimization. The criticality such a measure comes in when you factor in the fluctuations that characterize stock markets. The interest of the investors is protected by the SEBI, which acts as a watchdog. Mutual funds are governed by SEBI (Mutual Funds) regulations, 1996.

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ORGANISATION OF A MUTUAL FUND

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

Mutual funds have a unique structure not shared with other entities such as companies of firms. It is important for employees & agents to be aware of the special nature of this structure, because it determines the rights & responsibilities of the funds constituents viz., sponsors, trustees, custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the legal structure also drives the inter-relationships between these constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund, & appoints the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the fund in its custody. 12

 Sponsor:
The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund & registers the same with SEBI. He appointsthe trustees, Custodians & the AMC with prior approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track record of business interest in the financial markets. Sponsor must have been profit making in at leastthree of the above five years. He must contribute at least 40% of the capital of theAMC.

Trustees:
A Board of Trustees a body of individuals, or a trust company a corporate body, may manage the Trust. Board of Trustees manages most of the funds in India. The Trust is created through a document called the Trust Deed that is executed by the Fund Sponsor in favors of the trustees. They are the primary guardian of the unit holders funds and assets. They ensure that AMCs operations are along professional lines.

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14

INDUSTRY PROFILE
SHARE MARKET:
The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide on-line fully automated screen based trading system where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from a counter party. Screen based electronic system electronically matches orders on a strict price/time priority and hence cuts down on time, cost and risk of error, as well as on fraud resulting in improved operational efficiency. It allows faster incorporation of price sensitive information into prevailing prices, thus increasing the informational efficiency of markets. It enables market participants, irrespective of their geographical locations, to trade with one another simultaneous, improving the depth and liquidity of the market. It provides full anonymity by accepting orders, big or small, from members without revealing their identity, thus providing equal access to everybody. It also provides a perfect audit trial, which helps to resolve disputes by logging in the trade execution process entirety. Now dematerialization of shares is introduced a new concept which converts paper based physical trading into electronic trading. It is a safe and convenient way to hold securities. Screen based trading system helps in faster transfer of securities and no stamp duty is required on transfer of securities.

Commodity:
No balance sheet, P&L statement, EBITDA and reading between the lines. Commodity trading is about the simple economics of supply and demand. Supports are known, only resistance matters! Minimum support price acts as a statutory support for many commodities. No Dollar-Rupee premiums/discounts. No hedging on the NYMEX. Indian commodity derivatives hedge both forex and commodity specific risk, at a single cost. No brainstorming over market direction. Seasonality patterns quiet often provide a clue to both short-term and long-term players.

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No scam, no price rigging. Commodity trading comes with no insider trading information and company specific risk.

Multi Commodity Exchange (MCX):

Multi Commodity Exchange (MCX) is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). It is regulated by the Forward Markets Commission. MCX is India's No. 1 commodity exchange with 83% market share in 2009 The exchange's main competitor is National Commodity & Derivatives Exchange Ltd Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading The highest traded item is gold. MCX has several strategic alliances with leading exchanges across the globe As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8 billion MCX now reaches out to about 800 cities and towns in India with the help of about 126,000 trading terminals MCX COMDEX is India's first and only composite commodity futures price index METAL FIBER SPICES PULSES OIL&OIL SEEDS BULLION ENERGY PLANTATIONS PETROCHEMICALS CEREALS

Table 1.2.a: List of Commodities

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National Commodity and Derivatives Exchange (NCDEX):

National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. It was incorporated as a private limited company incorporated on 23 April 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on 9 May 2003. It has commenced its operations on 15 December 2003. NCDEX is a closely held private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets.

Mutual funds:
A mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.

Advantages of Mutual Funds

Mutual funds have advantages compared to direct investing in individual securities. These include: Increased diversification Daily liquidity Professional investment management Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight Ease of comparison

Disadvantages of Mutual Funds

Mutual funds have disadvantages as well, which include. Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize 17

Types of Mutual Funds:

Open-end funds Closed-end funds Unit investment trusts Exchange-traded funds

Investments and Classifications:

Money market funds Bond funds Stock or equity funds Hybrid funds Index (passively-managed) versus actively-managed

Mutual Funds Expenses:

Distribution charges Front-end load or sales charge Back-end load 12b-1 fees No-load funds Share classes Management fee Other fund expenses Shareholder transaction fees Securities transaction fees Expense ratio Controversy

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19

COMPANY PROFILE

CD Equi search is one of the leading brokerage houses with a strong presence in the institutional and HNI broking segment. With over 30 years of experience, you could besure of the best in class research, operations back-end support and above all, a name which inspires trust. At CD Equi search,the emphasis is on transparent and clean dealings. This has earned us our clients goodwill. This quality has stood the test of time and has helped us secure business from all quarters. At CD Equi search, people are not weighted down by tradition. Rather, we are inspired by the heritage of the company. Here, business is conducted by building long term relationships with our clients and associates by laying emphasis on ethical and clean dealings. Here, people practice the gentle art of finance with professionalism, skill and transparency. Continued growth which is so essential in todays fast paced and ever changing capital market has been a constant feature at CD equi search. With an eye on the future and in keeping with the changing times, we at CD equi search have earned the investors goodwill our most important assets over the year. After having a track record of servicing institutions and HNIs for over 3 decades, we are planning to foray into the growing retail segment in a big way. We would be expanding across the geography with a wide network of our regional offices, branches, franchisees and sub-brokers. We would be offering a complete basket in financial services. We are looking at ourselves amongst one of the top ten broking houses in india by 2014. To achieve that, we have very aggressive plans of expansion.

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MISSION AND VISSION

CDEqui search is passionate about providing friendly customer services on the greens of the investing world. Following the highest standards of ethics is entrenched in the DNA of CD Equi search. At CD Equi search, the selection and recommendations of wealth creating opportunities are primarily based on the 3C principle. Conservation of capital Consistent growth in value of investment over a period of time. Continual cash inflow through handsome dividends.

KEY PRODUCT OFFERINGS ARE AS FOLLOWS:

Equities Commodities Currency derivatives Online broking Depository participant Structured products Distribution of mutual funds Life insurance Alternate investment Distribution of IPO / FPO Bonds

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MANAGEMENT TEAM
Mr. Chandravadan Desai - Chairman Mr. Pranay Desai - Director Mr. VikashKalani- COO (Chief operating officer) Mr. JayeshVora - CFO ( Chief financial officer) Mr. Nilesh Vasa Mr. Hussain Sheriff Mr. Mahimai Raj Mr. Thulasi Raman Mr. Krishna Kumar - Director ( Group companies) - Assistant Vice President - Cluster Manager - Branch Manager

Mr. Loganathan - Team Manager - Relationship manager

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NEED FOR THE STUDY:

It helps in financial forecasting and planning to the organization. It helps in decision making to the organization. It is useful in comparison of the performance of the organization. It makes useful to the shareholders, creditors, investors, workers and government. It helps on communicating and coordinating within and outside of the organization.

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OBJECTIVES: Primary Objective:

To analysis performance evaluation in mutual funds in Changing Dimension Equisearch private limited.

Secondary objective:
To compare the various mutual funds scheme in respect to their risk and return. To analyzing the performance of mutual funds scheme with bench mark. To identify the awareness of the financial product.

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SCOPE OF THE STUDY

o The project deals with mutual funds. The scope of study of mutual funds is very large but my study is confined only 2 AMCs mutual funds. o This study confines as how mutual funds is good investment avenue for investors. o The study considers performance evaluation of mutual funds based on measures such as average return, sharpes measure and Treynors measure.

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LIMITATIONS:
The analysis is done on the basis of past performance of the funds. But the past performance may not be an indicator of future performance. Performance of mutual funds is largely affected by environmental factors, which are beyond the control of investors. I have done the performance evaluation only for Two years (Jan2010-Dec2011) from this data we cannot get the results accurately. I have compared two funds of HDFC& ICICI, which may not represent the entire Mutual Fund industry. I have chosen only two mutual fund schemes, whereas there are numerous mutual funds available. I was given a time period of Ninety Days Only, which may not suffice the required tenure to study the changing dimension equisearch private ltd.

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CHAPTER 2
2.1 MAIN THEME OF THE PROJECT
27

2.1.1 REVIEW OF LITERATURE This document lists selected papers in mutual fund performance evaluation to helpSyracuse University Finance Ph.D. students prepare for their comprehensive exams. For general literature review, see Shukla and Trzcinka (1992) and Ippolito (1993).The classics in mutual fund performance evaluation are Treynor (1965), Sharpe(1966), and Jensen (1968). Chang and Lewellen (1985), and Connor and Korajczyk (1986) use APT frameworks to measure performance. Lehmann and Modest (1987) discuss the effect of benchmark used on the performance. Grinblattand Titman (1989b) discuss some important issues in performance evaluation and provide a more general, period weighting measure. Some theoretical papers related to the issue of performance evaluation are

Admati,Bhattacharya, Piederer, and Ross (1986), Dybvig and Ross (1985b), Dybvig and Ross(1985a),Henriksson and Merton (1981) provide a theoretical model and Henriksson (1984)provide an empirical test of the timing ability of fund managers. Some papers implementing performance evaluation methods are Grinblatt and Titman (1989a), Grinblatt and Titman (1994), and Malkiel (1995). Most tests of performance evaluation do not support the hypothesis that managershave superior ability and performance. Ippolito (1989) provides evidence to the contrary. Elton, Gruber, Das, and Hlavka (1993) provide an point out some aws in Ippolito (1989)s test design and nd no evidence for superior performance after correcting these aws. Most performance evaluation methods depend on an asset pricing model to

measuresuperior performance. These measures suffer from Roll (1978)s critique.

Papers thatprovide measures that do not depend on an asset pricing model include Cornell (1979)and Grinblatt and Titman (1993). 28

Two issues related with performance evaluation are persistence of performance andsurvivorship bias. For persistence of performance, see Hendricks, Patel, and Zeckhauser (1993), Brownand Goetzmann (1995), Grinblatt and Titman (1992), Shukla and Trzcinka (1994), Elton, Gruber, and Blake (1996).

2.1.2 RIGHT OF TRUSTEES

a) Appoint the AMC with the prior approval of SEBI b) Approve each of the schemes floated by the AMC c) Have the right to request any necessary information from the AMC concerning the operations of various schemes managed by the AMC Obligations of the AMC and its Directors They must ensure that: a) Investment of funds is in accordance with SEBI Regulations and the Trust Deed b) Take responsibility for the act of its employees and others whose services it has procured c) Do not undertake any other activity conflicting with managing the fund

Asset Management Company (AMC ):

The role of an Asset management companies is to act as the investment manager of the trust. They are the ones who manage money of investors. An AMC takes decisions, compensates investors through dividends, maintains proper accounting & information for

Pricing of units, calculates the NAV, & provides information on listed schemes. It also exercises due diligence on investments & submits quarterly reports to the trustees. 29

AMCs have been set up in various countries internationally as an answer to the global problem of bad loans. Custodian: The custodian is appointed by the Board of Trustees for safekeeping of securities in terms of physical delivery and eventual safe keeping or participating in the clearing system through approved depository companies.

Registrars & Transfer Agent(R & T Agent):

The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investor applications; record details provide by the investors on application forms; send out to investors details regarding their investment in the mutual fund; send out periodical information on the performance of the mutual fund; process dividend payout to investor; incorporate changes in information as communicated by investors; & keep the investor record up-to-date, by recording new investors & removing investors who have withdrawn their funds.

2.1.3 SEBI Securities and Exchange Board of India:

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover both development & regulation of the market, and independent powers has been set up. Paradoxically this is a positive outcome of the Securities Scam of 1990 -91.

The basic objectives of the Board were identified as: To protect the interests of investors in securities. To promote the development of Securities Market. 30

To regulate the securities market Since its inception SEBI has been working targeting the securities and is attending

to the fulfillment of its objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced the market. SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue, merchant bankers, brokers and sub -brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. It has framed bye -laws, risk identification and risk management systems for Clearing houses of stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the end investor. Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A market Index is a convenient and effective product because of the following reasons: It acts as a barometer for market behavior. It is used to benchmark portfolio performance. It is used in derivative instruments like index futures and index options. It can be used for passive fund management as in case of Index Funds. Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the trading products, so that there is an increase in number of traders including banks, financial institutions, insurance companies, mutual funds , prima ry dealers etc. to transact through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real landmark.

2.1.4 TYPES OF MUTUAL FUND SCHEMES :

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 By Structure Open-ended schemes Close-ended schemes Interval schemes By Investment Objective Growth schemes Income schemes Balance schemes Money Market schemes Other types of schemes Tax Saving schemes Special schemes Index schemes Sector specific schemes Closed-end funds: A closed-end mutual fund bears a number of shares which are issued to the public by an initial public offering (IPO). Open-end funds : Open end funds are managed by mutual fund houses for raising money from shareholders and they invest in a group of assets. Large cap funds : Large cap funds are those mutual funds, which look for capital appreciation by way of investing in blue chip stocks. Mid-cap funds : Mid cap funds invest in small/medium sized companies, but with no proper definition of classifying a company. Equity funds : Equity mutual funds, also known as stock mutual funds invest pooled amounts of money in public company stocks.

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 Balanced funds : Balanced funds are also known as hybrid fund, buying a combination of common stock, preferred stock, bonds, and short-term bonds. Growth funds : Growth funds are mutual funds that target at capital appreciation by investing in growth stocks. Exchange traded funds : Exchange Traded Funds (ETFs) are a basket of securities being traded on an exchange, just similar to that of a stock. They are not like the conventional mutual funds. Sector funds : These funds are funds that restrict the investments to a specific segment or sector. Index funds : An index fund aims to replicate the actions of an index of a specific financial market. The

Advantages of investing in a Mutual Fund are:

Professional Management The primary advantage of funds (at least theoretically) is the professional

management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Diversification By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.

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 Economies of Scale
Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial, Demat costs, depository costs etc and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

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 Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affor dability Investors individually may lack sufficient funds to invest in high -grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well-Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. AMFI is the supervisory body of Mutual Fund Industry.

Simplicity
Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis

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TheDisadvantages of investing in a Mutual Fund are: Professional Management Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.

Costs
Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial have devoted an entire section to the subject.

Dilution
It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?". Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital -gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

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2.2 RESEARCH METHODOLOGY

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2.2.1 Research Meaning

Research is an art of scientific investigation. According to redmen and Mary research is a systematic effort to gain knowledge. Research methodology is away to systematically solve the research problem. It is a plan of action for a research project and explains in detail how data are collected and analyzed. This research study is a descriptive research study.

2.2.2 Research Design

A research design is the arrangement of conditions for collection and analysis data in a manner that aims to combine relevance to the researcher purpose with economy in procedure. The research design undertaken for the study is descriptive one. A study, which wants to portray the characteristics of a group or individual or situation, is known as descriptive study .it is mostly qualitative in nature.

2.2.3 Descriptive study

A study is defined as the characteristics of a group or individuals or situation, is known as Descriptive study. It is mostly qualitative in nature.

2.2.4 Data Used

The data is collected from secondary data by using BSE and Nifty.

THE TOOLS USED FOR CALCULATION

Arithmetic Mean Standard Deviation Beta Alpha Sharpe ratio Treynor ratio

ARITHMETIC MEAN
38

 = Y/N Where, Y= Return of NAV values, N= Number of Observation Average return that can be expected from investment. The arithmetic average return is appropriate as a measure of the central tendency of a number of returns calculated for a particular time i.e. for five years.

STANDARD DEVIATION

S.D= (y-Y) 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 describes the relationship between the stocks return and index returns. There can be direct or indirect relation between stocks return and index return. Indirect relations are very rare. 1) Beta = + 1.0 It indicates that one percent change in market index return causes exactly one percent change in the stock return. It indicates that stock moves along with the market.

2) Beta= + 0.5

39

One percent changes in the market index return causes 0.5 percent change in the stock return. It indicates that it is less volatile compared to market. 3) Beta= + 2.0 One percent change in the market index return causes 2 percent change in the stock return. The stock return is more volatile. The stocks with more than 1 beta val ue are considered to be very risky. 4) Negative beta value indicates that the stocks return move in opposite direction to the market return. 5) Beta= N*XY - (X) (Y) / N(X) * (x) 2 Where, N= No of observation X = Total of market index value Y = Total of return to Nav

ALPHA
Alpha = Y- beta(X) Where, Y = Average return to nav return X =Average return to market index. Alpha indicates that the stock return is independent of the market return. A positive value of alpha is a healthy sign. Positive alpha values would yield profitable return.

SHARPE RATIO
S t= Rp Rf 40

S.D Where, R p = Avereage Return on Portfolio R f= Risk Free Rate of Interest S.D = Standard Deviation Sharpes performce index gives a single value to be used for the performance ranking of various funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. The risk premium is the dif ference between the portfolios average rate of return and the risk less rate of return. The standard deviation of the portfolio indicates the risk. Higher the value of sharpe ratio better the fund has performed. Sharpe ratio can be used to rank the desirability of funds or portfolios. The fund that has performed well comapred to other will be ranked first then the others.

TREYNOR RATIO
Ty= R p R f B WHERE, R p = Average Return to Portfolio R f= Risk Less Rate of Interest. B = Beta Coeffecient

Treynor ratio is based on the concept of characteristic line. Characteristic line gives the relation between a given market return and funds return. The funds performance is measured in relation to market performance. The ideal funds return rises at a faster rate 41

than the market performance when the market is moving upwards and its rate of return declines slowly than the market return, in the decline. Treynors risk premium of the portfolio is the difference between t he aveage return and the risk less rate of return. The risk premium depends on the systematic risk assumed in a portfoilo.

42

2.3 The Calculations, Analysis and Interpretation

Calculating Average Return, Beta, Alpha, Sharpe Ratio &Treynor Ratio
43

HDFC MUTUAL FUND FROM JANUARY 2011 TODECEMBER 2011

HDFC MUTUAL BOND 2010 BSE-100 Date 4-Jan-11 2-Feb-11 2-Mar-11 1-Apr-11 Close 9958.22 9066.7 8427.29 9901.99 X 0.00 -8.95 -7.05 17.50 22.55 22.58 -1.54 8.73 -2.34 10.18 -10.09 11.64 X2 0.00 80.15 49.73 306.22 508.44 509.91 2.38 76.24 5.49 103.66 101.89 135.52 1879.63 NAV 13.196 12.582 10.663 11.567 13.433 15.783 16.054 16.981 16.955 18.346 17.845 19.148 Dividend Y 0.00 -4.65 -15.25 8.48 16.13 17.49 1.72 5.77 -0.15 8.20 -2.73 7.30 0 41.6558 107.561 148.356 363.756 395.039 -2.6485 50.4176 0.35868 83.5306 27.5659 85.0018 1300.594 X*Y NAV 26.213 24.992 24.112 26.158 30.376 35.692 36.305 38.4 38.343 41.487 40.356 43.299 Growth Y 0.00 -4.66 -3.52 8.49 X*Y 0 41.7012 24.832 148.487

4-May-11 12134.8 2-Jun-11 1-Jul-11 3-Aug-11 1-Sep-11 1-Oct-11 3-Nov-11 1-Dec-11 TOTAL 14874.9 14645.5 15924.2 15551.2 17134.6 15404.9 17198.3

16.13 363.598 17.50 395.184 1.72 5.77 -0.15 8.20 -2.73 7.29 -2.6491 50.3852 0.34773 83.4858 27.5186 84.895

160222.5 63.20

182.553 42.31

405.733 54.04 1217.786

Table2.3.1a: Calculating average return of HDFC Mutual fund for year 2011

TOOLS FOR CALCULATION

44

ARITHMETIC MEAN: Table 2.3.1b: Arithmetic Mean of HDFC Mutual fund for year 2011

ARITHMETIC MEAN X= Y N

DIVIDEND OPTION 42.31 12 = 3.52

GROWTH OPTION 54.04 = 4.50 12

CALCULATION FOR STANDARD DEVIATION:

Table 2.3.1c: Calculating Standard Deviation of HDFC Mutual fund for year 2011 HDFC MUTUAL BOND 2011 Dividend Date 4-Jan-11 2-Feb-11 2-Mar-11 1-Apr-11 4-May-11 2-Jun-11 1-Jul-11 3-Aug-11 1-Sep-11 1-Oct-11 3-Nov-11 1-Dec-11 TOTAL NAV 13.196 12.582 10.663 11.567 13.433 15.783 16.054 16.981 16.955 18.346 17.845 Y 0.00 -4.65 -15.25 8.48 16.13 17.49 1.72 5.77 -0.15 8.20 -2.73 Z 0.00 -8.18 -18.78 4.95 12.61 13.97 -1.81 2.25 -3.68 4.68 -6.26 3.78 3.53 Z2 0 66.8956 352.613 24.521 158.913 195.11 3.27251 5.05447 13.5362 21.8839 39.1486 14.2561 895.2042 NAV 26.213 24.992 24.112 26.158 30.376 35.692 36.305 38.4 38.343 41.487 40.356 Growth Y Z 0.00 -4.66 -3.52 8.49 0 -9.16 -8.02 3.98 Z2 0.00 83.93 64.39 15.86 135.07 168.94 7.76 1.61 21.64 13.66 52.26 7.78 572.89

16.13 11.62 17.50 13.00 1.72 5.77 -0.15 8.20 -2.73 -2.79 1.27 -4.65 3.70 -7.23

19.148 7.30 182.553 42.31

43.299 7.29 2.79 405.733 54.04 4.50

STANDARD DEVIATION: Table 2.3.1d: Standard Deviation of HDFC Mutual fund for year 2011

45

S.D S.D= (Z) (N)

DIVIDEND (895.2042) 12 = 8.63

GROWTH (572.89) 12 = 6.9

BETA

Table 2.3.1e: Beta of HDFC Mutual fund for year 2011 BETA DIVIDEND GROWTH

= N*XY - (X) (Y) N* (X) -(X)

= 12(1300.594)-(63.20)(42.31) 12(1879.63) - (63.20) 2 = 0.69

12(1217.78)-(63.20)(54.04) 12(1879.63) - (63.20) 2 = 0.60

ALPHA:Table 2.3.1f: Alpha of HDFC Mutual fund for year 2011 ALPHA = Y-B(X) DIVIDEND = 3.52-0.69(5.2) = -0.068 GROWTH = 4.50-0.60(5.2) = 1.38

SHARPE RATIO: (RF is assumed to be 8 %) Table 2.3.1g: Sharpe ratio of HDFC Mutual fund for year 2011 SHARPE RATIO Rp-Rf S.D DIVIDEND = 3.52 0.08 = 0.398 8.63 GROWTH = 4.50 0.08 = 0.64 6.9

TREYNOR RATIO: (RF is assumed to be 8 %) Table 2.3.1h: Treynor Ratio of HDFC Mutual fund for year 2011 46

TREYNOR RATIO Rp-Rf B

DIVIDEND = 3.52 0.08 = 4.98 0.69

GROWTH 4.50 0.08 0.60 = 7.36

II.ICICI MUTUAL FUND FROM JANUARY 2011 TO DECEMBER 2011:

Table 2.3.2a Calculating average return of ICICI Mutual fund for year 20 11

ICICI MUTUAL BOND 2011 BSE-100 Date 4-Jan-11 1-Feb-11 2-Mar-11 1-Apr-11 3-May-11 1-Jun-11 1-Jul-11 2-Aug-11 1-Sep-11 1-Oct-11 1-Nov-11 1-Dec-11 TOTAL Close 17558.73 X 0.00 X2 0.00 46.92 6.49 30.09 3.00 21.92 31.99 10.67 0.48 NAV 10.86 10.25 10 10.67 11.86 13.48 12.94 13.76 13.48 Dividend Y 0.00 -5.62 -2.44 6.70 11.15 13.66 -4.01 6.34 -2.03 9.05 -5.10 8.39 0 X*Y NAV 26.99 Growth Y 0.00 -5.67 -2.44 6.72 11.13 13.68 0.42 6.36 -1.06 7.97 -5.10 8.41 X*Y 0 38.82869 -6.20157 36.87922 -19.28 -64.0504 2.364372 20.78367 -0.73243 98.00408 2.231802 -20.8939

16356.03 -6.85 16772.56 17692.62 2.55 5.49

38.47372 25.46 -6.21133 36.7529 -19.3231 -63.9558 -22.6572 24.84 26.51 29.46 33.49 33.63

17386.08 -1.73 16572.03 -4.68 17509.33 18081.21 18205.87 5.66 3.27 0.69

20.69736 35.77 -1.40294 35.39

20445.04 12.30 151.27 14.7 20355.63 -0.44 19850 -2.48 0.19 6.17 13.95 15.12 151.07

111.3129 38.21 2.231218 36.26 -20.8334 39.31

216785.1 13.76 309.18

36.09 75.08433 385.32

40.42 87.93351

TOOLS FOR CALCULATION

47

ARITHMETIC MEAN: Table 2.3.2b: Arithmetic Mean of HDFC Mutual fund for year 2011 ARITHMETIC MEAN X= Y N DIVIDEND OPTION 36.09 12 = 3.00 GROWTH OPTION 40.42 = 3.36 12

CALCULATION FOR STANDARD DEVIATION:

Table 2.3.2c: Calculating Standard Deviation of HDFC Mutual fund for year 2011

ICICI MUTUAL BOND 2011 Dividend Z Z2 0.00 -8.62 -5.45 3.69 8.15 10.65 -7.01 3.33 -5.04 6.04 -8.11 5.38 3.01 0 74.37782 29.66261 13.63592 66.34835 113.466 49.18567 11.0864 25.42377 36.51942 65.76165 28.94205 514.4097 Growth Y Z Z2 0.00 -5.67 -2.44 6.72 11.13 13.68 0.42 6.36 -1.06 7.97 -5.10 8.41 40.42 0 -9.04 -5.80 3.35 7.76 10.31 -2.95 2.99 -4.43 4.60 -8.47 5.04 3.37 0.00 81.67 33.68 11.25 60.21 106.32 8.71 8.97 19.63 21.16 71.77 25.43 448.80

Date 4-Jan-11 1-Feb-11 2-Mar-11 1-Apr-11 3-May-11 1-Jun-11 1-Jul-11 2-Aug-11 1-Sep-11 1-Oct-11 1-Nov-11 1-Dec-11 TOTAL

NAV 10.86 10.25 10 10.67 11.86 13.48 12.94 13.76 13.48 14.7 13.95 15.12 151.07

Y 0.00 -5.62 -2.44 6.70 11.15 13.66 -4.01 6.34 -2.03 9.05 -5.10 8.39 36.09

NAV 26.99 25.46 24.84 26.51 29.46 33.49 33.63 35.77 35.39 38.21 36.26 39.31 385.32

STANDARD DEVIATION: Table 2.3.2d: Standard Deviation of HDFC Mutual fund for year 2011 48

S.D S.D= (Z) (N)

DIVIDEND (514.4097) 12 = 6.54

GROWTH (448.80) 12 = 6.11

BETA: Table 2.3.2e: Beta of HDFC Mutual fund for year 2011 BETA = N*XY - (X) (Y) N* (X) -(X) DIVIDEND GROWTH

= 12(75.08)-(13.76)(36.09) 12(309.18) - (13.76) 2 = 0.114

12(87.9335)-(13.76)(40.42) 12(309.18) - (13.76) 2 = 0.141

ALPHA: Table 2.3.2f: Alpha of HDFC Mutual fund for year 2011 ALPHA = Y-B(X) DIVIDEND = 3.0-0.114(1.14) = 2.87 GROWTH = 3.36-0.141(1.14) = 3.19

TREYNOR RATIO: (Rfis assumed to be 8 %) Table 2.3.2h: Treynor Ratio of HDFC Mutual fund for year 2011 TREYNOR RATIO Rp-Rf B DIVIDEND = 3.00 0.08 = 25.61 0.114 GROWTH 3.36 0.08 0.141 = 23.26

SHARPE RATIO: (Rf is assumed to be 8 %) Table 2.3.2i: Sharpe ratio of HDFC Mutual fund for year 2011

49

SHARPE RATIO Rp-Rf D

DIVIDEND = 3.00 0.08 6.54 = 0.446

GROWTH = 3.36 0.08 6.11 = 0.536

THE COMPARISON:
Table 2.3.1: Comparison of HDFC &ICICI Mutual Funds for Year 2011 HDFC MUTUAL FUND 2011 Dividend Average Return Beta SD Alpha Sharpe ratio Treynor ratio 3.52 0.69 8.63 -0.068 0.398 4.98 Growth 4.50 0.60 6.90 1.38 0.640 7.36 ICICI MUTUAL FUND 2011 Dividend 3.00 0.114 6.54 2.87 0.446 25.61 Growth 3.36 0.141 6.11 3.19 0.536 23.26

ANALYSIS & INTERPRETATION:

50

 The HDFC MUTUAL FUND Dividend option has given high returns compared to ICICI MUTUAL FUND. Also in growth option HDFC MUTUAL FUND has given high returns compared to ICICI MUTUAL FUND. Date HDFC MUTUAL FUNDS2012 Since the market has risen up, this has resulted in funds positive return. Since the funds objective is to invest in Diversified portfolios the benchmarks index has performed very good, which has resulted in good performance of the fund. The larger the Sharpe ratio, better the fund is performing. So, the HDFC MUTUAL FUND has a greater Sharpe ratio compared to ICICI FUND in Growth option. But in case of Dividend option ICICI MUTUAL FUND is better performing fund compared to HDFC MUTUAL FUND, all options show the positive value, and this means funds are performing well. The negative value of Alpha incase of HDFC MUTUAL FUND, which has resulted in low returns compared to ICICI MUTUAL FUND in Dividend Option. When comparing, ICICI MUTUAL FUND gives high returns in growth option also. As per the Treynor index, the ICICI MUTUAL FUND has given higher returns compared to HDFC MUTUAL FUND, in Dividend option due to which the risk is also high. In Growth option also, in HDFC MUTUAL FUND returns are low and the risk is high. The Beta for dividend option of HDFC MUTUAL FUND is 0.69 which indicates that one percent change in market index return has caused 0.69 percent change in the stock return. This shows that the stock is less volatile compared to the market. In case of ICICI MUTUAL FUND, beta for dividend option is 0.114 which indicates that one percent change in market index return has caused 0.114 per cent change in the stock return. This shows that the stock is less volatile compared to market. When comparing the Beta for Dividend & Growth option, HDFC MUTUAL FUND has high risk when compared to ICICI MUTUAL FUND. When market index changes to 1%, it changes to 0.69 percent in dividend & 0.60 percent in growth option while ICICI MUTUAL FUND changes to 0.114 percent in dividend & 0.141 percent in growth option.

III. HDFC MUTUAL BOND FROM JANUARY 2012 TO DECEMBER 2012

51

BSE-100 Close 4-Jan-12 11-Feb-12 2-Mar-12 1-Apr-12 3 -May-12 1-Jun-12 1- July-12 1-Aug-12 1- Sep-12 1- Oct-12 1-Nov-12 1- Dec-12 TOTAL 5323.20 4826.85 5017.00 5290.50 5222.75 4970.20 5251.40 5481.65 5471.85 6143.40 6117.55 5980.90 65096.25 -9.30 3.93 5.45 -1.28 -4.83 5.65 4.38 -0.17 12.27 -0.42 -2.23 13.45 86.49 15.44 29.70 1.63 23.32 31.92 19.18 0.02 150.5 0.176 4.97 363.39 X X2 NAV 20.062 20.152 20.185 18.714 19.018 18.996 19.901 20.462 20.956 22.079 22.615 22.283 265.88

Dividend Y X*Y NAV 45.367 0.448 0.16 -7.28 1.62 -0.11 -4.76 2.81 2.41 5.35 2.42 -1.46 1.6 -4.16 0.62 -39.67 -2.07 0.53 -26.89 12.30 -0.40 65.64 -1.01 3.25 8.14 45.57 45.645 47.549 48.324 48.268 50.566 51.993 53.252 56.109 57.47 56.625 606.73

Growth Y X*Y

0.44 0.16 4.16 1.64 -0.11 4.76 2.82 2.42 5.36 2.42 -1.47 22.6

-4.09 0.62 22.67 -2.09 0.53 26.89 12.35 -0.41 65.76 -1.01 3.27 124.49

Table 2.3.3a Calculating average return of HDFC Mutual fund for year 2012

TOOLS FOR CALCULATION

ARITHMETIC MEAN: Table 2.3.3b: Arithmetic Mean of HDFC Mutual fund for year 2012

ARITHMETIC MEAN X= Y N

DIVIDEND OPTION 1.6 = 0.13 12

GROWTH OPTION 22.6 = 1.88 12

CALCULATION FOR STANDARD DEVIATION:

52

Table 2.3.3c: Calculating Standard Deviation of HDFC Mutual fund for year 201 2 HDFC MUTUALFUNDS 2011 Date 4 Jan 12 11 Feb12 2 Mar 12 1 Apr 12 3 May12 1 Jun 12 1 July 12 1 Aug 12 1 Sep 12 1 Oct 12 1 Nov 12 1 Dec 12 TOTAL Dividend NAV 20.062 20.152 20.185 18.714 19.018 18.996 19.901 20.462 20.956 22.079 22.615 22.283 245.42 0 0.44 0.16 -7.28 1.62 -0.11 4.76 2.81 2.41 5.35 2.42 -1.46 11.12 Y 0 0.31 0.03 -7.41 1.49 -0.24 4.63 2.68 2.28 5.22 2.29 -1.59 9.69 Z 0 0.096 0.0009 54.9 2.22 0.057 21.4 7.18 5.19 27.2 5.24 2.52 126.003 (Z)2 NAV 45.367 45.57 45.645 47.549 48.324 48.268 50.566 51.993 53.252 56.109 57.47 56.625 606.673 0 0.44 0.16 4.17 1.62 -0.11 4.76 2.82 2.42 5.36 2.42 -1.47 22.59 Growth Y 0 -1.44 -1.72 2.29 -0.26 -1.99 2.88 0.94 0.54 3.48 0.54 -3.35 1.91 Z 0 2.07 2.95 5.24 0.067 3.96 8.29 0.88 0.2916 12.11 0.2916 11.22 47.3702 (Z)2

STANDARD DEVIATION: Table 2.3.3d: Standard Deviation of HDFC Mutual fund for year 2012 S.D S.D= (Z) (N) DIVIDEND (126.003) 12 = 3.24 GROWTH (47.3702) 12 = 1.98

BETA: Table 2.3.3e: Beta of HDFC Mutual fund for year 2012 53

BETA = N*XY - (X) (Y) N* (X) -(X)

DIVIDEND

GROWTH

= 12(8.14)-(13.45)(1.6) 12(363.39) - (13.45) 2 = 0.018

12(124.49)-(13.45)(22.6) 12(363.39) - (13.45) 2 = 0.28

SHARPE RATIO: (Rf is assumed to be 8 %) Table 2.3.3f: Sharpe ratio of HDFC Mutual fund for year 2012 SHARPE RATIO Rp-Rf S.D DIVIDEND = 0.13 0.08 = 0.015 3.24 GROWTH = 1.88 0.08 = 0.90 1.98

TREYNOR RATIO: (Rfis assumed to be 8 %) Table 2.3.3g: Treynor Ratio of HDFC Mutual fund for year 2012 TREYNOR RATIO Rp-Rf B DIVIDEND = 0.13 0.08 = 2.77 0.018 GROWTH 1.88 0.08 0.28 = 6.42

IV. ICICI MUTUAL BOND FROM JANUARY 2012 TO DECEMBER 2012:

Table 2.3.4a Calculating average return of ICICI Mutual fund for year 2012

54

ICICI MUTUAL BOND 2012 BSE-100 Date 4-Jan-12 1-Feb-12 2-Mar-12 1-Apr-12 3-May-12 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 TOTAL Close 5232.2 4826.85 5017 5290.5 5222.75 4970.2 5251.4 5481.65 5471.85 6143.4 6117.55 X 0.00 -7.75 3.94 5.45 -1.28 -4.84 5.66 4.38 -0.18 X2 0.00 60.02 15.52 29.72 1.64 23.38 32.01 19.22 0.03 NAV 14.89 14.57 14.79 15.38 15.27 14.97 15.6 16.07 15.71 Dividend Y 0.00 -2.15 1.51 3.99 -0.72 -1.96 4.21 3.01 -2.24 7.07 1.43 0 16.6495 5.94834 21.7469 0.9159 9.50015 23.81 13.2098 0.4005 86.7143 -0.6004 X*Y NAV 40.28 39.41 40.01 41.6 41.3 40.5 42.21 43.48 43.86 46.97 47.64 Growth Y 0.00 -2.16 1.52 3.97 -0.72 -1.94 4.22 3.01 0.87 7.09 1.43 X*Y 0 16.7331 5.9976 21.6642 0.92351 9.36673 23.8882 13.1921 -0.1562 87.0234 -0.6002

12.27 150.62 16.82 -0.42 0.18 17.06

5980.9 -2.23 4.99 16.89 65006.25 15.01 337.33 188.02

-1.00 2.22588 47.15 -1.03 2.2975 13.15 180.521 514.41 16.27 180.3297

TOOLS FOR CALCULATION

ARITHMETIC MEAN: Table 2.3.4b: Arithmetic Mean of ICICI Mutual fund for year 2012 ARITHMETIC MEAN X= Y N DIVIDEND OPTION 13.15 12 = 1.09 GROWTH OPTION 16.27 = 1.35 12

CALCULATION FOR STANDARD DEVIATION:

Table 2.3.4c: Calculating Standard Deviation of ICICI Mutual fund for year 2012 55

ICICI MUTUAL FUND 2012 Date 4-Jan-12 1-Feb-12 2-Mar-12 1-Apr-12 3-May-12 1-Jun-12 1-Jul-12 1-Aug-12 1-Sep-12 1-Oct-12 1-Nov-12 1-Dec-12 TOTAL Dividend NAV Y Z 14.89 14.57 14.79 15.38 15.27 14.97 15.6 16.07 15.71 16.82 17.06 16.89 0.00 -2.15 1.51 3.99 -0.72 -1.96 4.21 3.01 -2.24 7.07 1.43 -1.00 0.00 -3.24 0.41 2.89 -1.81 -3.06 3.11 1.92 -3.34 5.97 0.33 -2.09 1.10 Z 0 10.528 0.17169 8.37283 3.27904 9.36504 9.68964 3.67574 11.1275 35.6405 0.10974 4.3768 96.33657
2

NAV 40.28 39.41 40.01 41.6 41.3 40.5 42.21 43.48 43.86 46.97 47.64 47.15

Growth Y 0.00 -2.16 1.52 3.97 -0.72 -1.94 4.22 3.01 0.87 7.09 1.43 -1.03

Z 0 -3.52 0.17 2.62 -2.08 -3.29 2.87 1.65 -0.48 5.73 0.07 -2.38 1.36

Z2 0.00 12.36 0.03 6.85 4.31 10.84 8.22 2.73 0.23 32.89 0.00 5.69 84.16

188.02 13.15

514.41 16.27

STANDARD DEVIATION: Table 2.3.4d: Standard Deviation of ICICI Mutual fund for year 2012 S.D S.D= (Z) (N) DIVIDEND (96.336) 12 = 2.83 GROWTH (84.16) 12 = 2.64

BETA: Table 2.3.4e: Beta of ICICI Mutual fund for year 2012 BETA DIVIDEND GROWTH

56

= N*XY - (X) (Y) N* (X) -(X)

= 12(180.521)-(15.01)(13.15) 12(337.33) (15.01) 2 = 0.515

12(180.3297)-(15.01)(16.27) 12(337.33) (15.01) 2 = 0.502

ALPHA: Table 2.3.4f: Alpha of ICICI Mutual fund for year 2012 ALPHA = Y-B(X) DIVIDEND = 1.09 - 0.515(1.25) = 0.446 GROWTH = 1.36 - 0.502(1.25) = 0.722

SHARPE RATIO: (Rfis assumed to be 8 %) Table 2.3.4g: Sharpe ratio of ICICI Mutual fund for year 2012 SHARPE RATIO Rp-Rf S.D DIVIDEND = 1.09 0.08 = 0.356 2.83 GROWTH = 1.35 0.08 = 0.481 2.64

TREYNOR RATIO: (Rfis assumed to be 8 %) Table 2.3.4h: Treynor Ratio of ICICI Mutual fund for year 2012 TREYNOR RATIO Rp-Rf B DIVIDEND = 1.09 0.08 = 1.96 0.515 GROWTH 1.35 0.08 0.502 = 2.52

THE COMPARISON:

57

Table 2.3.2: Comparison of HDFC &ICICI Mutual Funds for Year 2012 HDFC MUTUAL FUND 2012 Dividend Average Return Beta SD Alpha Sharpe ratio Treynor ratio 0.13 0.018 3.24 0.11 0.015 2.77 Growth 1.88 0.28 1.98 1.56 0.90 6.42 ICICI MUTUAL FUND 2012 Dividend 1.09 0.515 2.83 0.446 0.356 1.96 Growth 1.35 0.502 2.64 0.722 0.48 2.52

ANALYSIS & INTERPRETATION:

58

 The HDFC MUTUAL FUND growth option has given high returns compared to ICICI MUTUAL FUND. But in dividend option, ICICI MUTUAL FUND has given high returns compared to HDFC MUTUAL FUND. Since the market has risen up, this has resulted in funds positive return. Since the funds objective is to invest in Diversified portfolios the benchmarks index has performed very good, which has resulted in good performance of the fund. The larger the Sharpe ratio, better the fund is performing. So, the HDFC MUTUAL FUND has a greater Sharpe ratio compared to ICICI FUND in Growth option. But in case of Dividend option ICICI MUTUAL FUND is better performing fund compared to HDFC MUTUAL FUND, all options show the positive value, and this means funds are performing well. Positive alpha values would yield profitable return. The value of Alpha incase of HDFC MUTUAL FUND, which has resulted in low returns compared to ICICI MUTUAL FUND in Dividend Option. But when comparing the alpha values, ICICI MUTUAL FUND gives low returns in growth option. As per the Treynor index, the HDFC MUTUAL FUND has given higher returns compared to ICICI MUTUAL FUND, in Dividend option due to which the risk is also high. In Growth option also, in ICICI MUTUAL FUND returns are low and the risk is high. The Beta for dividend option of HDFC MUTUAL FUND is 0.018 which indicates that one percent change in market index return has caused 0.018 percent change in the stock return. This shows that the stock is less volatile compared to the market. In case of ICICI MUTUAL FUND, beta for dividend option is 0.515 which indicates that one percent change in market index return has caused 0.515 per cent change in the stock return. This shows that the stock is less volatile compared to market. When comparing the Beta for Dividend & Growth option, ICICI MUTUAL FUND has high risk when compared to HDFC MUTUAL FUND. When market index changes to 1 Percent, it changes to 0.515 percent in dividend & 0.502 percent in growth option while HDFC MUTUAL FUND changes to 0.018 percent in dividend & 0.28 percent in growth option.

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CHAPTER 3

FINDINGS AND SUGGESTIONS

60

FINDINGS:

HDFC mutual fund had the average return for the dividend option Maximum of 3.52 for the year 2011 and minimum of 0.13 in 2012. HDFC mutual fund had the average return for the growth option Maximum of 4.5 for the year 2011 and minimum of 1.88 in 2012. HDFC mutual fund had the Beta for the dividend option Maximum of 0.69 for the year 2011 and minimum of 0.018 in 2012. HDFC mutual fund had the Beta for the growth option Maximum of 0.6 for the year 2011and minimum of 0.28 in 2012. HDFC mutual fund had the Standard Deviation for the dividend option 8.63 for the year 2011 and minimum of 3.24 in 2012. HDFC mutual fund had the Standard Deviation for the growth option Maximum of 6.9 for the year 2011and minimum of 1.98 in 2012. HDFC mutual fund had the alpha for the dividend option Maximum of 0.11 for the year 2011 and minimum of -0.068 in 2012. HDFC mutual fund had the alpha for the growth option Maximum of 1.56 for the year 2011 and minimum of 1.38 in 2012. HDFC mutual fund had the Sharpes ratio for the dividend option Maximum of 0.398 for the year 2011 and minimum of 0.015 in 2012. HDFC mutual fund had the Sharpes Ratio for the growth option Maximum of 0.9 for the year 2012 and minimum of 0.64 in 2011. HDFC mutual fund had the Treynors Ratio for the dividend option for the year 2011 and minimum of 2.77 in 2012. HDFC mutual fund had the Treynors Ratio for the growth option Maximum of 7.36 for the year 2011 and minimum of 6.42 in 2012. ICICI mutual fund had the average return for the dividend option Maximum of 3 for the year 2011 and minimum of 1.09 in 2012 Maximum of 4.98 Maximum of

. ICICI mutual fund had the average return for the growth option Maximum of 3.36 for the year 2011 and minimum of 1.35 in 2012.

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ICICI mutual fund had the Beta for the dividend option Maximum of 0.515 for the year 2012 and minimum of 0.114 in 2011. ICICI mutual fund had the Beta for the growth option Maximum of 0.502 for the year 2012 and minimum of 0.141 in 2011. ICICI mutual fund had the Standard Deviation for the dividend option Maximum of 6.54 for the year 2011 and minimum of 2.83 in 2012. ICICI mutual fund had the Standard Deviation for the growth option Maximum of 6.11 for the year 2011 and minimum of 2.64 in 2012. ICICI mutual fund had the alpha for the dividend option 2011 and minimum of 0.446 in 2012. ICICI mutual fund had the alpha for the growth option Maximum of 3.19 for the year 2011 and minimum of 0.722 in 2012. ICICI mutual fund had the Sharpes ratio for the dividend option Maximum of 0.446 for the year 2011 and minimum of 0.356 in 2012. ICICI mutual fund had the Sharpes Ratio for the growth option Maximum of 0.536 for the year 2011 and minimum of 0.48 in 2012. ICICI mutual fund had the Treynors Ratio for the dividend option Ma ximum of 25.61 for the year 2011 and minimum of 1.96 in 2012. ICICI mutual fund had the Treynors Ratio for the growth option Maximum of 23.26 for the year 2009 and minimum of 2.52 in 2010. Maximum of 2.87 forthe year

RECOMMENDATIONS:
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o The financial advisory is recommended that they should first analyze the needs of the investors and recommend that fund which fulfills the requirements of the investor. The risk taking ability of the investor should also be analyzed by looking into his income, nature of work, age of the investor, and time period of the investment. o As Treynor ratio speaks about the risk premium associated with the fund. Higher the ratio better the fund has performed. Compared to the two funds of HDFC & ICICI, the ICICI Mutual fund has a higher Treynor ratio in Growth option and dividend option of ICICI MUTUAL FUND which relates to excess return over risk free rate. So, I would recommend that the advisor should concentrate on this fund & recommend the investors the same. o Complete information should be provided regularly to the advisors as well as to the investors to keep them updated about developments. As the customers are not aware, the company should see how best it advises the investors and also provide the entire information about the Mutual Fund.

CONCLUSION:
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In Indian scenario the investments are spread over Bank Deposits, Savings Certificate, Post Office, Equity Markets and the latest Mutual Fund. Since Mutual Funds are subject to market risk the investor take help of advisory services for financial planning which helps the investor to take calculated risk.

The mutual fund industry has gained a higher growth in the recent years. There are around 34 Asset Management Companies which are currently operating and the numbers of Mutual funds are over 630 funds, so it is difficult to analyze each and every fund in order to known their riskiness and return. Some tools are used to find risk and return of the fund, which helps an investor to find out their risk. The schemes taken for study proved to be a good investment avenue for all the investors as the risk associated with these schemes are low and they are yielding a very good return. The volatility in the market might have affected the ratios but defin itely not the performance of the schemes. The schemes have been the one of the best schemes of HDFC & ICICI.

BIBLIOGRAPHY
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Reference Books: Donald E.Fischer&RonaldJ.Jordan-SecurityAnalysis portfolio Management V.A.Avadhan-Security Analysis Portfolio Management, Himalaya publishing house 2008.

WEBSITE:
http://in.finance.yahoo.com/q/hp?s=^NSEI&a=07&b=12&c=2009&d=07&e=15&f=2011 &g=d http://www.amfiindia.com/NavHistoryReport_Frm.aspx www.yahoofinance.com

ANNEXURE
65

SENSEX HISTORICAL DATA 2010-2011

DATE
1 Jan, 2010 2 Feb, 2010 2 Mar, 2010 1 Apr, 2010 4 May, 2010 1 Jun, 2010 1 Jul, 2010 3 Aug, 2010 1 Sep 2010 1 Oct, 2010 3 Nov, 2010 1 Dec, 2010 4 Jan, 2011 1 Feb, 2011 2 Mar, 2011 1 Apr, 2011 3 May, 2011 1 Jun, 2011 1 Jul, 2011 2 Aug, 2011 1 Sep, 2011 1 Oct, 2011 2 Nov, 2011 1 Dec, 2011

OPEN
1,294.45 1,141.10 1,010.00 1,079.70 1,300.00 1,875.00 1,737.90 1,825.00 1,760.00 2,180.10 2,190.00 2,253.05 2,265.00 2,045.00 1,990.00 2,085.00 2,291.00 2,260.00 2,290.00 2,520.00 2,772.00 3,250.00 3,201.00 2,998.00

HIGH
1,320.00 1,144.55 1,018.00 1,079.70 1,372.00 1,907.00 1,792.00 1,864.00 1,780.00 2,230.50 2,198.50 2,299.00 2,299.00 2,059.95 2,011.00 2,108.70 2,309.00 2,275.00 2,296.00 2,599.90 2,786.00 3,272.00 3,239.80 3,119.50

LOW
1,283.30 1,090.05 988.00 980.00 1,300.00 1,833.00 1,724.00 1,795.60 1,728.10 2,170.10 2,091.00 2,244.00 2,265.00 2,015.55 1,978.00 2,079.05 2,277.10 2,203.00 2,254.40 2,511.00 2,738.75 3,222.10 3,175.50 2,978.50

CLOSE
1,315.80 1,095.65 995.25 1,073.95 1,366.20 1,879.80 1,779.80 1,846.50 1,733.40 2,209.90 2,103.50 2,292.15 2,291.60 2,021.10 1,988.50 2,103.70 2,300.05 2,210.15 2,261.80 2,581.10 2,776.80 3,261.20 3,202.00 3,105.10

VOL

ADJ
793,100 972,700 883,500 1,273,000 808,300 602,700 536,100 477,600 327,300 676,500 862,900 552,500 329,200 521,800 290,800 182,200 344,200 369,100 381,800 397,600 305,200 398,800 376,900 762,500 1,276.25 1,062.71 965.33 1,041.67 1,325.13 1,823.29 1,755.16 1,820.94 1,709.41 2,179.31 2,074.38 2,260.42 2,259.88 1,993.12 1,971.09 2,085.28 2,279.91 2,190.80 2,261.80 2,581.10 2,776.80 3,261.20 3,202.00 3,105.10

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NIFTY HISTORICAL DATA 2010-2011

DATE
1 Dec, 2011 1 Nov, 2011 1 Oct, 2011 1 Sep, 2011 2 Aug, 2011 1 Jul, 2011 1 Jun, 2011 3 May, 2011 1 Apr, 2011 2 Mar, 2011 11 Feb, 2011 4 Jan, 2011 1 Dec, 2010 3 Nov, 2010 1 Oct, 2010 1 Sep, 2010 3 Aug, 2010 1 Jul, 2010 1 Jun, 2010 4 May, 2010 1 Apr, 2010 2 Mar, 2010 2 Feb, 2010 1 Jan, 2010

OPEN
5,871.00 6,092.30 6,030.30 5,403.05 5,369.55 5,312.05 5,086.25 5,278.40 5,249.20 4,935.60 4,757.25 5,200.90 5,039.70 4,712.25 5,087.20 4,662.20 4,633.80 4,292.30 4,450.40 3,478.70 3,023.85 2,764.60 2,872.35 2,963.30

HIGH
5,971.00 6,132.40 6,153.10 5,478.60 5,438.85 5,312.55 5,086.95 5,278.70 5,298.60 5,029.45 4,843.80 5,238.45 5,130.35 4,729.85 5,110.50 4,735.90 4,723.75 4,362.30 4,545.40 3,664.50 3,069.30 2,764.60 2,873.45 3,039.25

LOW
5,865.55 6,084.75 6,030.30 5,403.05 5,351.30 5,232.10 4,961.05 5,210.05 5,249.20 4,935.35 4,757.25 5,167.10 5,038.85 4,538.50 5,057.05 4,600.65 4,617.75 4,249.70 4,450.40 3,478.70 2,965.70 2,659.55 2,760.70 2,963.30

CLOSE

VOL
5,960.90 6,117.55 6,143.40 5,471.85 5,431.65 5,251.40 4,970.20 5,222.75 5,290.50 5,017.00 4,826.85 5,232.20 5,122.00 4,563.90 5,083.40 4,625.35 4,711.40 4,340.90 4,529.90 3,654.00 3,060.35 2,674.60 2,766.65 3,033.45

ADJ
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,960.90 6,117.55 6,143.40 5,471.85 5,431.65 5,251.40 4,970.20 5,222.75 5,290.50 5,017.00 4,826.85 5,232.20 5,122.00 4,563.90 5,083.40 4,625.35 4,711.40 4,340.90 4,529.90 3,654.00 3,060.35 2,674.60 2,766.65 3,033.45

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