The Indian Mutual Funds have passed three phases. The first phase was etween !"#$ and !"%& and the 'nl( pla(er was the Unit Trust 'f India. The se)'nd phase is etween !"%& and !""* durin+ whi)h peri'd % funds were estalished. Third phase e+an with the entr( 'f private and f'rei+n se)t'rs in the Mutual Fund industr( in !""*. ,'thari pi'neer -utual fund was the first fund t' e estalished ( the private se)t'r in ass')iati'n with a f'rei+n fund.
The peri'd till !"%# the fund industr( was a 'neentit( sh'w. It was 'nl( !"%# UTI/S -'n'p'l( was r'0en S1I and 2anan0 Mutual Fund entered the arena. This was f'll'wed ( entr( 'f 'thers li0e 1OI3 LI23 4I23 et).3 sp'ns'red ( puli) se)t'rs an0. Startin+ with an asset ase 'f Rs. 5.67 illi'n in !"#$. The industr( has +r'wn at a )'-p'unded avera+e +r'wth rate. The 'penin+ 'f the assets -ana+e-ent usiness t' private se)t'r in !""* saw internati'nal pla(ers li0e M'r+an Stanle(3 8ardine Fle-in+3 8.P. M'r+an 4e'r+e S'r's and 2apital Internati'nal al'n+ with the h'st 'f d'-esti) pla(ers 9'in the part(3 ut f'r the e:uit( funds3 the peri'd 'f !""$ ; !""# was 'ne 'f the w'rst in the hist'r( 'f Indian Mutual Funds.
The asset ase will )'ntinue t' +r'w at an annual rate 'f a'ut *5< *7< 'ver the ne=t few (ears as invest'rs shift their assets fr'- an0 and 'ther traditi'nal avenues. S'-e 'f the 'lder puli) and private se)t'r pla(ers will either )l'se 'r e ta0en 'ver.
Out 'f the ten puli) se)t'r pla(ers five will set 'ut3 )l'se d'wn 'r -er+e with str'n+er pla(ers e)ause 'f their s-all si>e ( str'n+er pla(ers in *$ (ears. In private se)t'r this trend has alread( started with tw' -er+ers and 'ne ta0e'ver. ?ere s'-e 'f the- will d'wn their shutters in the near future t' )'-e. The -ar0et will witness a flurr( 'f new pla(ers enterin+ the arena. There will e a lar+e nu-er 'f 'ffers fr'- vari'us asset -ana+e-ent )'-panies in the ti-e t' )'-e. S'-e i+ na-es li0e Fidelit(3 Prin)ipal3 Old Mutual et).3 are l''0in+ at Indian -ar0et seri'usl(. One i-p'rtant reas'n f'r it is that -'st pla(ers alread( have presen)e here and hen)e these i+ na-es w'uld hardl( li0e t' +et left ehind. The Mutual Fund industr( is awaitin+ the intr'du)ti'n 'f derivatives in Indian as this w'uld enale t' hed+e the ris0 and this in turn w'uld e refle)ted in its N@A3SE1I is trade in derivatives. I-p'rtantl( I-p'rtantl( -an( -ar0et pla(ers have )alled 'n the re+ulat'r t' initiate the pr')ess i--ediatel( s' that the -utual funds and i-ple-ent the )han+es that are re:uired t' trade in derivatives.
Pr'du)t Inn'vati'n isn'w passed with +a-e shiftin+ t' perf'r-an)e deliver( in fund -ana+e-ent -ana+e-ent as well as servi servi)e. )e. Th'se dire)tl( ass') ass')iated iated with the fund -ana+e-ent industr( li0e distriut'rs3 re+istrars and transfer a+ents and even the re+ulat'rs have e)'-e -'re -ature and resp'nsile. The Industr( is als' havin+ a pr'f'und i-pa)t 'n finan)ial -ar0ets. Bhile UTI has alwa(s een a d'-inant pla(er 'n the 'urses as well as det -ar0et3 the new +enerati'ns 'f private funds3 whi)h have +ained sustantial -ass. Fund -ana+ers ( their sele)ti'n )riteria f'r st')0 have f'r)ed )'rp'rate +'vernan)e 'n the industr(. Rewardin+ h'nest and transparent
-ana+e-ent with hi+her valuati'ns has )reated a s(ste- 'f ris0 reward where the )'rp'rate se)t'r is -'re transparent than ef're.
Mutual funds are n'w als' )'-petin+ with )'--er)ial an0s in Cthe ra)e 'f retail invest'rs savin+s and )'rp'rate fl'ate -'ne(. The p'wer shift t'ward -utual funds has e)'-e 'vi'us. The )'-in+ (ears will sh'w that the traditi'nal savin+ avenues are l'sin+ 'ut in the )urrent s)enari'. Man( invest'rs are reali>in+ that invest-ents in savin+s a))'unt are as +''d as l''0in+ up their dep'sits in )l'set. The fund -'ili>ati'n trend ( -utual fund in the )urrent (ear indi)ates that -' -'ne( ne( is +'in+ t' Mutu Mutual al Funds in a i+ wa(.
India is the first sta+e 'f a rev'luti'n that has alread( pea0ed in US@. The U.S 'asts 'f an asset ase that is -u)h hi+her than its an0 dep'sits ut this trend is e+innin+ e+innin+ t' )han+e 'r it/s in the in initial itial phases in India India.. Re)ent fi+ures indi)ate that the first :uarter 'f the last (ear -utual fund assets went up ( !!7< whereas an0 dep'sits r'se ( 'nl( !&<. This is f'r)in+ a lar+e nu-er 'f an0s t' ad'pt the )'n)ept 'f narr'w an0in+ wherein the dep'sits are 0ept in +ilts and s'-e 'ther assets that i-pr'ves li:uidit( and redu)es ris0. The asi) fa)ts lies that an0s )ann't e i+n'red and the( will n't e )l'se d'wn )'-pletel( as an avenue in invest-ent. Their r'le as inter-ediaries )ann't e i+n'red. It is 9ust the Mutuial Funds are +'in+ t' )han+e the wa( an0s d' usiness in the future.
INTRODU2TION
Ba(6Bealth is a Invest-ent )'nsultan)( fir-3 that has een
laun)hed with the ai- 'f -a0in+ investin+ si-pler3 -'re understandale and pr'fitale f'r the invest'rs. Ba(6Bealth is pr'-'ted ( Sivan Se)urities and 4l'al Te)hn'l'+( Aentures Ltd. Prudential I2I2I @M2 pr'vides further stren+th t' Ba(6Bealth as strate+i) e:uit( partner.
Sivan Securities: Sivan Se)urities started in !"%$3
ein+ a-'n+st the pre-ier pre-ier Finan)i Finan)ial al Inter-ediaries Inter-ediaries in the )'untr( as well as ein+ an in)uat'r f'r IT start up fir-s.
4l 4l' 'al al Te Te)h )hn' n'l' l'+( +( Aent Aentur ures es @ pre-ier te)h invest'r
@n( advi)e +iven t' the )lients is ased 'n the resear)h d'ne (
the wa(6wealth Resear)h des0 in Mu-ai.
Ba(6Bealth/s resear)h )ell f')uses 'n data anal(sis t' help )ust'-ers -a0e s'und invest-ent de)isi'ns thr'u+ht )lient e=e)utives 'f wa(6wealth.
@ hi+hl( :ualified tea- that is trained e=tensivel( -ana+es the resear)h )ell. The( -a0e a s'und anal(sis 'f fa)ts3 past perf'r-an)e and )redile -ar0et inf'r-ati'n. On)e the inf'r-ati'n is )'-piled it is passed 'n t' the wa(6wealth 'ffi)es spread all 'ver India and the )lients servi)e e=e)utive present it t' the )lients.
1,T,#' !,/
@ Mutual Fund is a 'd( )'rp'rate that p''ls the savin+s 'f a
nu-er 'f invest'rs and invests the sa-e in a variet( 'f different finan)ial instru-ents3 'r se)urities. The in)'-e earned thr'u+h these invest-ents and the )apital appre)iati'n realised ( the s)he-e are shared ( its unit h'lders in pr'p'rti'n t' the nu-er 'f units 'wned ( the-. Mutual funds )an thus e )'nsidered as finan)ial finan)ial inter-edi inter-ediaries aries in the investinvest-ent ent usiness wh' )'lle)t funds fr'- the puli) and invest 'n ehalf 'f the invest'rs. The l'sses and +ains a))rue t' the invest'rs 'nl(. The Invest-ent '9e)tives 'utlined ( a Mutual Fund in its pr'spe)tus are indin+ 'n the Mutual Fund s)he-e. The invest-ent '9e)tives spe)if( the )lass 'f se)urities a Mutual Fund )an invest in. Mutual Funds invest in vari'us asset )lasses li0e e:uit(3 'nds3 deentures3 )'--er)ial )'--er)ial paper and +'vern-ent se)ur se)urities ities @n @sset Mana+e-ent 2'-pan( G@M2H is a hi+hl( re+ulated 'r+anisati'n that p''ls -'ne( fr'- invest'rs and invests the sa-e in a p'rtf'li'.
(istor of Indian 1utual !unds Industr.
The -utual fund industr( in India started in !"#* with the
f'r-ati'n 'f Unit Trust 'f India3 at the initiative 'f the 4'vern-en 4'vern-entt 'f India mutual funds in India can be broadl and Reserve 1an0. The hist'r( 'f mutual divided into four distinct phases
The +raph indi)ates the +r'wth 'f assets 'ver the (ears. 4ROBT? IN @SSETS UNDER M@N@4EMENT
The different tpes of 1utual funds
2a3 On the basis of Ob4ective &5uit !unds6 *rowth !unds
Funds that invest in e:uit( shares are )alled e:uit( funds. The( )arr( the prin)ipal '9e)tive '9e)tive 'f )apital appr appre)iati'n e)iati'n 'f the in invest-ent vest-ent 'ver the -ediu- t' l'n+ter-. l'n+ter-. The returns in su)h funds are v'latile sin)e the( are dire)tl( lin0ed t' the st')0 -ar0ets. The( are est suited f'r invest'rs wh' are see0in+ )apital appre)iati'n. There are different t(pes 'f e:uit( funds su)h as Diversified funds3 Se)t'r spe)ifi) funds and Inde= ased funds.
/iversified funds
These funds invest in )'-panies spread a)r'ss se)t'rs. These funds are +enerall( -eant f'r ris0ta0in+ invest'rs wh' are n't ullish a'ut an( parti)ular se)t'r. Sector funds
These funds invest pri-aril( in e:uit( shares 'f )'-panies in a parti)ular usiness se)t'r 'r industr(. industr(. These funds are tar+eted at invest invest'rs 'rs wh' are e=tre-el( ullish a'ut a parti)ular se)t'r.
Inde7 funds
These funds invest in the sa-e pattern as p'pular -ar0et indi)es li0e SP
755 and 1SE Inde=. The value 'f the inde= fund varies in pr'p'rti'n t' the en)h-ar0 inde=. inde=.
Ta7 Saving !unds
These funds 'ffer ta= enefits t' invest'rs under the In)'-e Ta= @)t. Opp'rtunities pr'vided under this s)he-e are in the f'r- 'f ta= reates Us %%. The( are est suited f'r invest'rs see0in+ ta= )'n)essi'ns.
'ong Term /ebt 6 Income !unds
These Funds invest pred'-inantl( in hi+hrated fi=edin)'-eearin+ fi=edin)'-eearin+ instru-ents li0e 'nds3 deentures3 +'vern-ent +'vern-ent se)urities3 )'--er)ial paper and 'ther -'ne( -'ne( -ar0et instruinstru-ents. ents. The( are est suited ff'r 'r the -ediu- t' l'n+ter- invest'rs wh' are averse t' ris0 and see0 )apital preservati'n. The( pr'vide pr'vide re+ular in)'-e and safet( tt' ' the invest'r.
'i5uid !unds 6 1one 1ar0et !unds
These funds invest in hi+hl( li:uid -'ne( -ar0et instru-ents. The peri'd 'f invest-ent )'uld e as sh'rt as a da(. The( pr'vide eas( li:uidit(. The( have e-er+ed as an alternative f'r savin+s and sh'rtter- fi=ed dep'sit a))'unts with )'-parativel( hi+her returns. These funds are ideal f'r 2'rp'rates3 instituti'nal invest'rs and usiness h'uses wh' invest their funds f'r ver( sh'rt peri'ds.
*ilt !unds
These funds invest in 2entral and State 4'vern-ent se)urities. Sin)e the(
are 4'vern-ent a)0ed 'nds the( +ive a se)ured return and als' ensure safet( 'f the prin)ipal a-'unt. The( are est suited f'r the -ediu- t' l'n+ ter- invest'rs wh' are averse t' ris0.
8alanced !unds
These funds invest 'th in e:uit( shares and fi=edin)'fi=edin)'-eearin+ eearin+ instru-ents GdetH in s'-e pr'p'rti'n. The( pr'vide a stead( return and redu)e the v'latilit( 'f the fund while pr'vidin+ s'-e upside f'r )apital appre)iati'n. The( are ideal f'r -ediu- t' l'n+ter- invest'rs willin+ t' ta0e -'derate ris0s.
(edge !unds These funds ad'pt hi+hl( spe)ulative tradin+ strate+ies. The( hed+e ris0s in
'rder t' in)rease the value 'f the p'rtf'li'.
2b3 On the basis of !le7ibilit Open-ended !unds
These funds d' n't have a fi=ed date 'f rede-pti'n. 4enerall 4enerall( ( the( are 'pen f'r sus)ripti'n and rede-pti'n thr'u+h'ut the (ear. Their pri)es are lin0ed t' the dail( net asset value GN@AH. Fr'- the invest'rs perspe)tive3 the( are -u)h -'re li:uid than )l'sedended funds. Invest'rs are per-itted t' 9'in 'r withdraw fr'- the fund after an initial l')0in peri'd.
lose-ended !unds
These funds are 'pen initiall( f'r entr( durin+ the Initial Puli) Offerin+ GIPOH and thereafter )l'sed f'r entr( as well as e=it. These funds have a fi=ed date 'f rede-pti'n. One 'f the )hara)teristi)s 'f the )l'seended s)he-es is that the( are +enerall( traded at a dis)'unt t' N@AC ut the dis)'unt narr'ws as -aturit( nears. These funds are 'pen f'r sus)ripti'n 'nl( 'n)e and )an e redee-ed 'nl( 'n the fi=ed date 'f rede-pti'n. The units 'f these funds are listed Gwith )ertain e=)epti'nsH3 are tradale and the sus)riers t' the fund w'uld e ale t' e=it fr'- the fund at an( ti-e thr'u+h the se)'ndar( -ar0et.
Interval funds
These funds )'-ine the features 'f 'th 'pen;ended and )l'seended funds wherein the fund is )l'seended f'r the first )'uple 'f (ears and 'penended thereafter. S'-e funds all'w fresh sus)ripti'ns and rede-pti'n at fi=ed ti-es ever( (ear Gsa( ever( si= -'nthsH in 'rder t' redu)e the ad-inistrative aspe)ts 'f dail( entr( 'r e=it3 (et pr'vidin+ reas'nale li:uidit(.
2c3 On the basis of geographic location
/omestic funds
These funds -'ili>e the savin+s 'f nati'nals within the )'untr(. Offshore !unds
These funds fa)ilitate )r'ss 'rder fund fl'w. The( invest in se)urities 'f f'rei+n )'-panies. The( attra)t f'rei+n )apital f'r invest-ent.
The different plans that 1utual !unds offer *rowth 9lan and /ividend 9lan
@ +r'wth plan is a plan under a s)he-e wherein the returns fr'invest-ents are reinvested and ver( few in)'-e distriuti'ns3 if an(3 are -ade. The invest'r thus 'nl( realises )apital appre)iati'n 'n the invest-ent. This plan appeals t' invest'rs in the hi+h in)'-e ra)0et. Under the dividend plan3 in)'-e is distriuted fr'- ti-e t' ti-e. This plan is ideal t' th'se invest'rs re:uirin+ re+ular in)'-e.
/ividend )einvestment 9lan
Dividend plans 'f s)he-es )arr( an additi'nal 'pti'n f'r reinvest-ent 'f in)'-e distriuti'n. This is referred t' as the dividend reinvest-ent plan. Under this plan3 dividends de)lared ( a fund are reinvested 'n ehalf 'f the invest'r3 thus in)reasin+ the nu-er 'f units held ( the invest'rs.
Under the @ut'-ati) Invest-ent Plan G@IPH als' )alled S(ste-ati) Invest-ent Plan GSIPH3 the invest'r is +iven the 'pti'n f'r investin+ in a spe)ified fre:uen)( 'f -'nths in a spe)ified s)he-e 'f the Mutual Fund f'r a )'nstant su- 'f invest-ent. @IP all'ws the invest'rs t' plan their savin+s thr'u+h a stru)tured re+ular -'nthl( savin+s pr'+ra-.
#utomatic "ithdrawal 9lan
Under the @ut'-ati) Bithdrawal Plan G@BPH als' )alled S(ste-ati) Bithdrawal Plan GSBPH3 a fa)ilit( is pr'vided t' the invest'r t' withdraw a predeter-ined predeterined a-'unt fr'- his fund at a pre predeter-ined deter-ined in interval. terval.
Terms to be considered
&ntr6&7it 'oad
@ L'ad L'ad iiss a )har+e3 whi)h the @M2 -a( )'lle)t 'n entr( and'r e=it
fr'- a fund. @ l'ad is levied t' )'ver the upfr'nt )'st in)urred ( the @M2 f'r sellin+ the fund. It als' )'vers 'ne ti-e pr')essin+ )'sts. S'-e funds d' n't )har+e an( entr( 'r e=it l'ad. These funds are referred t' as QN' L'ad Fund/. Funds usuall( )har+e an entr( l'ad ran+in+ etween !.55< and 6.67<. E=it l'ads var( etween 5.7< and 6.55<. F'r e+. Let us assu-e an invest'r invests Rs. !53555 and the )urrent N@A is Rs.!*. If the entr( l'ad levied is !.55<3 the pri)e at whi)h the invest'r invests is Rs.!*.!* per unit. The invest'r re)eives !5555!*.!* &#!.#!$# units. GN'te that units are all'tted t' an invest'r ased 'n the a-'unt
invested and n't 'n the asis 'f n'. 'f units pur)hasedH. Let us n'w assu-e that the sa-e invest'r de)ides t' redee- his &#!.#!$# units. Let us als' assu-e that the N@A is Rs !7 and the e=it l'ad is 5.75<. Theref're the rede-pti'n pri)e per unit w'r0s 'ut t' Rs. !$."67. The invest'r theref're re)eives
&#!.#!$# = !$."67 Rs.!!*#&.!5
N'te This als' in)ludes in)ludes servi)eta=.
9urchase price
SalesPur)hase pri)e is the pri)e paid t' pur)hase a unit 'f the fund. If the fund has n' entr( l'ad3 then the sales pri)e is the sa-e as the N@A. If the fund levies an entr( l'ad3 then the sales pri)e w'uld e hi+her than the N@A t' the e=tent 'f the entr( l'ad levied. )edemption )edemptio n 9rice 6 )epurchase price
Rede-pti'n pri)e is the pri)e re)eived 'n sellin+ units 'f 'penended s)he-e. If the fund d'es n't lev( an e=it l'ad3 the rede-pti'n pri)e will e sa-e as the N@A. The rede-pti'n pri)e will e l'wer than the N@A in )ase the fund levies an e=it l'ad
repurchase price
Repur)hase pri)e is the pri)e at whi)h a )l'seended s)he-e repur)hases its units. Repur)hase )an either e at N@A 'r )an have an e=it l'ad.
Switch
S'-e Mutual Funds pr'vide the invest'r with an 'pti'n t' shift his invest-ent fr'- 'ne s)he-e t' an'ther within that fund. F'r this 'pti'n the fund -a( lev( a swit)hin+ fee. Swit)hin+ all'ws the Invest'r t' alter the all')ati'n 'f their invest-ent a-'n+ the s)he-es in 'rder t' -eet their )han+ed invest-ent needs3 ris0 pr'files 'r )han+in+ )ir)u-stan)es durin+ their lifeti-e. minimum loc0-in period for m units There is n' l')0in peri'd in the )ase 'f 'penended funds. ?'wever in the
)ase 'f ta= savin+ funds a -ini-u- l')0in peri'd is appli)ale. The l')0in peri'd f'r different different ta= savin+ s) s)he-es he-es are as f'll'ws f'll'ws Section
It is the a)tual value 'f the s)he-e/s unit 'n an( usiness da(.
The appli)ati'ns re)eived upt' * p.- ( the Mutual Fund al'n+ with a l')al )he:ue 'f de-and draft pa(ale at par at the pla)e where the appli)ati'n is re)eived3 the )l'sin+ N@A 'f the da( 'n whi)h appli)ati'n is re)eived shall e appli)ale.
Re)eivales @))rued In)'-e 2urrent @ssets
N@A
; Liailities ; @))rued E=penses
Nu-er 'f the s)he-es units 'utst 'utstandin+ andin+
9# and 8an0 /etails
In )ase 'f Invest-ents 'f Rs. 753555 and a've the
invest'rs have
t' furnish In)'-e Ta= P@N nu-er.
It is -andat'r( f'r the appli)ants t' +ive their an0 a))'unt details su)h as t(pe 'f a))'unt3 a))'unt nu-er3 nu-er I.T. )ir)le 'ffi)e address
Sstematicc Investment 9lan SI9; Sstemati
Under this plan3 the invest'rs )an invest -'ne( in the f'r- 'f
p'st dated )he:ues 'f -ini-uini-u- #'''3whi)h #'''3whi)h is paid f'r !6 -'nths. 'nths. @ll the SIP )he:ues -ust e unif'r-l( dated either the !st3&th3!5th 'r 65th3 'f a -'nth. Invest'rs )an invest :uarterl( 'r -'nthl( interval ( pr'vidin+ p'stdated )he:ues.
In s)he-es that have an entr( l'ad3 the sa-e will )urrentl( e waived f'r SIP invest'rs. Su)h invest-ents will h'wever e )har+ed an e=it l'ad e:uivalent t' the waived entr( l'ad. If redee-ed with in 'ne (ear 'f the all't-ent.
Sstematic "ithdrawal 9lan 2S"9H
It is the fa)ilit( +iven t' the invest'rs t' withdraw a )ertain
@-'unt fr'- the -'ne( invested.
In 'rder t' start the SBP fa)ilit( the -ini-u- a))'unt alan)e
Sh'uld e Rs. 67555.
Mini-u- withdrawal under the fi=ed a-'unt 'pti'n is Rs.
!555
@n invest'r )ann't parti)ipate in a s(ste-ati) invest-ent plan
and
The issuers of 1utual funds in India
Unit Trust 'f India was the first -utual fund whi)h e+an
The factors that influence the performance of 1utual !unds
The perf'r-an)es 'f Mutual funds are influen)ed ( the perf'r-an)e 'f the st')0 -ar0et as well as the e)'n'-( as a wh'le. E:uit( Funds are
influen)ed t' a lar+e e=tent ( the st')0 -ar0et. The st')0 -ar0et in turn is influen)ed ( the perf'r-an)e 'f the )'-panies )'-panies as well as the e)'n'-( as a wh'le. The perf'r-an)e perf'r-an)e 'f the se)t'r funds depends t' a lar+e e=tent 'n the )'-panies within that se)t'r. 1'ndfunds are influen)ed ( interest rates and )redit :ualit(. @s interest rates rise3 'nd pri)es fall3 and vi)e versa. Si-ilarl(3 'nd funds with hi+her )redit ratin+s are less influen)ed ( )han+es in the e)'n'-(.
The rights that are available to a 1utual !und holder
@s per SE1I Re+ulati'ns 'n Mutual Funds3 an invest'r is entitled t' !. Re)eive Unit )ertifi)ates 'r state-ents 'f a))'unts )'nfir-in+ ('ur title within # wee0s fr'- the date ('ur re:uest f'r a unit )ertifi)ate is re)eived ( the Mutual Fund. 6. Re)eive inf'r-ati'n a'ut the invest-ent p'li)ies3 invest-ent '9e)tives3 finan)ial p'siti'n and +eneral affairs 'f the s)he-eC *. Re)eive dividend within $6 da(s 'f their de)larati'n and re)eive the rede-pti'n 'r repur)hase pr')eeds within !5 da(s fr'- the date 'f rede-pti'n 'r repur)hase $. The trustees shall e 'und t' -a0e su)h dis)l'sures t' the unit h'lders as are essential in 'rder t' 0eep the- inf'r-ed a'ut an( inf'r-ati' inf'r-ati'n n whi)h -a( have an adverse earin+ 'n their invest-ents.
7. &7< 'f the unit h'lders with the pri'r appr'val 'f SE1I )an ter-inate the @M2 'f the fund. #. &7< 'f the unit h'lders )an pass a res'luti'n t' windup the s)he-e.
8enefits of Investing in 1utual !unds
Pr'fessi'nal Mana+e-ent Invest'rs -'ne( is -ana+e ( Pr'fessi'nal wh' have the
e=perien)e and res'ur)es t' anal(ses the e)'n'-( and the finan)ial -ar0ets.
Li:uidit( Investin+ and +ettin+ a)0 ('ur -'ne( is eas( t' tra)0 and
-'nit'r ('ur invest-ents.
Ta= 1enefits
se)ti'n
S'-e 'f the s)he-es 'f -utual funds 'ffer ta= reate under
Other lassific lassification ation of 1utual !unds
•
&5uit &5u it !un !unds ds
E:uit( fund is als' 0n'wn as +r'wth fund. The ai- 'f e:uit( fund is t' pr'vide )apital appre)iati'n 'ver the -ediu- t' l'n+ ter-. Su)h funds have hi+h ris0s. It pr'vide different 'pti'ns t' the invest'rs li0e the dividend 'pti'n3 )apital appre)iati'n et).3 This funds pr'vide l'n+ ter- 'utl''0 see0in+ appre)iati'n 'ver a peri'd 'f ti-e.
?en)e3 e:uit( instru-ents ( nature are v'latile and pr'ne t' pri)e flu)tuati'ns flu)tuati'ns 'n a dail( asis due tt' ' 'th -a)r' aand nd -i)r' fa)t'rs. Tradin+ v'lu-es3 settle-ent peri'ds and transfer pr')edures -a( restri)t the li:uidit( 'f these invest-ents.
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/ebtt ! /eb !und unds: s:
Det funds are als' 0n'wn as In)'-e funds. These funds pr'vide re+ular re+ular in)'-e t' the iinvest'rs. nvest'rs. Su)h s)hes)he-es es +enerall( invest in fi=ed in)'-e se)urities and -'ne( -ar0et instru-ents. Su)h funds are less ris0( )'-pared t' e:uit( -ar0ets. ?en)e3 alth'u+h the ris0 is less when )'-pared t' the e:uit( funds3 the values 'f these funds are influen)ed ( the interest rate ris0.
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8alanced 8ala nced !unds !unds::
@re th'se funds in whi)h ('u have the -i=ture 'f 'th e:uit( and det in -'re 'r less alan)ed -anner.
The '9e)tive 'f the alan)ed s)he-e is t' )'-ine +r'wth and stailit(. These funds are als' affe)ted e)ause 'f flu)tuati'ns in the share pri)es in the st')0 -ar0ets.
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1onthl 1ont hl In Income come 9 9lans lans::
The '9e)tive 'f this plan is that it see0s t' earn re+ular in)'-e thr'u+h invest-ent in fi=ed in)'-e se)urities. It als' see0s t' pr'vide re+ular in)'-e thr'u+h a p'rtf'li' 'f pred'-inantl( hi+h :ualit( fi=ed in)'-e se)urities with a -a=i-u- e=p'sure 'f 65< 'f e:uit( and the rest t' det.
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1one 1one 1ar0e 1ar0ett Sch Schemes: emes:
Det instru-ents3 whi)h have a -aturit( 'f less than 'ne (ear at the ti-e 'f issue3 are )alled -'ne( -ar0et instru-ents. These instru-ents are hi+hl( li:uid and have ne+li+ile ris0. The -a9'r -'ne( -ar0et instru-ents are treasur( ills3 )ertifi)ate 'f dep'sit3 )'--er)ial papers et).3
The '9e)tive 'f this s)he-e is t' pr'vide invest'rs with hi+h safet(3 a hi+h de+ree 'f li:uidit( and )urrent in)'-e thr'u+h invest-ent in hi+h :ualit( -'ne( -ar0et instru-ents.
#SS&T 1##*&1&T O19#I&S
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!ran0lin Templeton Investments
Is 'ne 'f the lar+est finan)ial servi)es +r'ups in the w'rld ased at San Mate'3 2alif'rnia3US@ 2alif'rnia3US@.. The )'-pan( 'ff 'ffers ers 'ver 6$5 invest-ent pr'du)ts3 availale under the Fran0lin Te-plet'n and Mutual Series 'f rand na-es3 servi)ed and supp'rted ( #$55 e-pl'(ees in -'re than 6% )'untries. Bith 'ver 75 (ears 'f e=perien)e in internati'nal invest-ent -ana+e-ent3 -ana+e-ent3 it servi)es -'re than !5 -illi'n unit h'lders. Fran0lin Te-plet'n has a)hieved the JDalar Servi)e @wardK in the US si= ti-es in the past ten (ears f'r superi'r )ust'-er servi)e and a)0 'ffi)e supp'rt.
Is a 9'int venture etween Prudential Pl)3 U,/s leadin+ )'-pan( and I2I2I 1an0 Ltd3 India/s pre-ier finan)ial instituti'n. The 9'int venture was f'r-ed with the 0e( '9e)tive 'f pr'vidin+ the Indian Indian Mutual Fund pr'du)ts t' suit a variet( 'f invest-ents needs. The )'-pan( has alread( laun)hed a ran+e 'f pr'du)ts t' suit different different ris0 and -aturit( pr'files. pr'files.
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Tata #sset 1anagement 'imited
Is 'ne 'f the fastest +r'win+ fund -ana+e-ent )'-panies It is a part 'f the Tata +r'up 'ne 'f India/s lar+est and -'st respe)ted industrial +r'up. The Tata 4r'up is 'ne 'f India/s est0n'wn )'n+l'-erates in the private se)t'r with a turn'ver 'f ar'und US !!.6 illi'n.
The +r'up has alwa(s elieved in returnin+ wealth t' the s')iet(3 whi)h it serves. Thus3 nearl( tw'thirds 'f the e:uit( 'f Tata s'ns3 the +r'up/s pr'-'ter )'-pan(3 is held ( philanthr'pi) trusts whi)h have )reated a h'st 'f nati'nal instituti'ns in natural s)ien)es3 -edi)al )are3 ener+( and the arts3 and whi)h +ive sustantial annual +rants and end'w-ents t' deservin+ individuals and instituti'ns in the areas 'f edu)ati'n3 health)are and s')ial uplift-ent
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,TI 1utu 1 utual al !u !und nd
It has a tra)0 re)'rd 'f -ana+in+ a variet( 'f s)he-es )aterin+ t' the needs 'f ever( )lass. It has a nati'nwide netw'r0 )'nsistin+ 'f 7$ ran)h 'ffi)es3 * UTI Finan)ial 2entres and representative 'ffi)es in Duai and L'nd'n. It has a well:ualified3 pr'fessi'nal fund -ana+e-ent tea-3 tea-3 wh' has een hi+hl( e-p'wered t' -ana+e ana+e the funds.
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(/! (/! 1utu 1utual al !u !und nd
. The Sp'ns'rs OF ?DF2 Mutual Fund are ?DF2 and Standard Life @ssuran)e 2'-pan(.
?DF2 was in)'rp'rated in !"&& as the first spe)iali>ed h'usin+ finan)e instituti'n in India. ?DF2 pr'vides finan)ial assistan)e t' individual3 )'rp'rates and devel'pers f'r the pur)hase 'r )'nstru)ti'n 'f residential h'usin+. ?DF2 has re)eived the hi+hest ratin+ f'r its 'nds and dep'sits pr'+ra- f'r the ei+ht(ear in su))essi'n.
The Standard Life @ssuran)e 2'-pan( was estalished in !%67 and has )'nsiderale e=perien)e in +l'al finan)ial -ar0ets. In !""%3 Standard life Invest-ents li-ited e)a-e the dedi)ated invest-ent -ana+e-ent )'-pan( 'f the Standard life +r'up and is 'wned !55< ( the Standard Life @ssuran)e 2'2'-pan(. pan(.
The Standard Life @ssuran)e 2'-pan( was 0een t' re enter the Indian -ar0et in !""73 si+ned an a+ree-ent with ?DF2 t' laun)h an insuran)e 9'int venture. ?DF2 and Standard Life Invest-ents Li-ited are neither resp'nsile n'r liale f'r an( l'ss resultin+ fr'- the 'perati'n 'f the s)he-e e('nd their )'ntriuti'n 'f an a-'unt 'f 'ne la0h ea)h -ade ( the- t'wards the )'rpus 'f the Mutual Fund.
The fl'w 'f invest'rs -'ne( fr'- invest'rs a)0 t'
invest'rs is sh'wn in this )hart
Mutual Fund Operation Flow Chart
)esearch /esign
Resear)h desi+n is a state-ent 'r spe)ifi)ati'n 'f pr')edures f'r )'lle)tin+ and anal(>in+ the inf'r-ati'n re:uired f'r the s'luti'n 'f spe)ifi) pr'le-. It pr'vides pr'vides a s)ientifi) ffra-ew'r0 ra-ew'r0 f' f'rr )'ndu)tin+ sasa-ee resear)h investi+ati'n.
@))'rdin+ TO 4raha- and TullK @ resear)h desi+n is the spe)ifi)ati'n 'f -eth'ds and pr')edures f'r a):uirin+ the inf'r-ati' inf'r-ati'n n needed. It is the 'verall 'perati'nal pattern 'r fra-ew'r0 'f the pr'9e)t that fr'- whi)h s'ur)es and ( what pr')edures.
Title Of Stud
The title 'f the stud( underta0en f'r dissertati'n w'r0 is “ST,/$ O! S&'&T&/ /IV&)SI!I&/ &<,IT$ 1,T,#' !,/S "IT( S9&I#' ##'$SIS O! 9O)T!O'IO S&'&TIO= 9O)T!O'IO &V#',#TIO #/ 9O)T!O'IO 9&)!O)1#& 1&#S,)&1&T.”
Statementt of problem Statemen
The pr'le- that fa)es the Indian Mar0et s)enari' is the )'ntinu'us flu)tuati'n 'f pri)es in Mutual funds due t' the Envir'n-ental Envir'n-ental fa)t'rs. On the 'ther hand3 Indian -ar0et fa)es tw' 0inds 'f ris0
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S(ste-ati) Ris0 Ris0 refers t' that p'rti'n 'f the variailit variailit( ( in return )aused ( the fa)t'rs affe)tin+ the pri)es 'f all se)urities. E)'n'-i)3 p'liti)al and s')i'l'+i)al s')i'l'+i)al )han+es are tthe he s'ur)es 'f s(stes(ste-ati) ati) ris0. Their effe)t is t' )ause the pri)es 'f nearl( allindividual )'-)'--'n 'n st')0s and 'r all individual 'nds t' -'ve t'+ether in the sa-e -anner. E=a-ple If the e)'n'-( is -'vin+ t'wards re)essi'n and )'rp'rate pr'fits shift d'wnwards3 st')0 pri)es -a( de)line a)r'ss a r'ad fr'nt.
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Uns(ste-ati) Uns(ste-at i) Ris0 It is the p p'rti'n 'rti'n 'f the t'tal t 'tal ris0 th that at is uni: uni:ue ue t' a fir- 'r industr(. Fa)t'rs su)h as -ana+e-ent )apailit(3 )'nsu-er
preferen)es and la'ur la'ur stri0es )ause ss(ste-ati) (ste-ati) variailit variailit( ( 'f returns in a fir-. Uns(ste-ati) fa)t'rs are lar+el( independent 'f fa)t'rs affe)tin+ se)urities -ar0et in +eneral3 e)ause these fa)t'rs effe)t 'ne fir-.
Th Thee pr' pr'l lee- th that at th thee pr' pr'9e 9e)t )t see0 see0ss t' addr addres esss is insp inspit itee ' 'ff
the a've-enti'ned arriers3 h'w t' i-pr'vise the p'rtf'li' after a series 'f anal(sis.
Ob4ectives:
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T' assess the effi)a)( 'f t''ls availale with the Fund Mana+er su)h as P'rtf'li' sele)ti'n3 Evaluati'n and Revisi'n.
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T' anal(>e the w'r0in+ 'f the Mutual Funds in the Mar0et.
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T' 0n'w the i-pa)t 'f the Ris0 and Return 'n vari'us Mutual Funds.
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T' @nal(>e the Ris0 T'leran)e and its i-pa)t 'n Return.
1ethodolog
The stud( is ased 'n the vari'us data pr'vided ( the
)'-pan( and data pr'vided fr'- internet3 whi)h were th'r'u+hl( studied and interpreted.
Sources of /ata:
Pri-ar( S'ur)e Data )'lle)ted fr'- the 'perati'ns tea- 'f Ba(6Bealth fr'- the head 'ffi)e GResiden)( R'ad.H
Se)'ndar( S'ur)e Data )'lle)ted fr'- the Internet3 Te=t 1''0s3 et).3
Scope of stud: •
The referen)e peri'd 'f the stud( )'vers the peri'd fr'Mar)h 6556 ; Mar)h 6557.
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The stud( is ased 'n the s)he-es 'ffered ( the @sset Mana+e-ent 2'-panies. The( are as f'll'w E:uit( S)he-e
Tools and Techni5ues:
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Statisti)al T''ls used are tales3 )harts3 and +raphs.
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Finan)ial T''ls used are Mar0'wit> M'del 'f P'rtf'li' Sele)ti'n3 Sharpe/s and Tre(n'r/s @ppr'a)h 'f P'rtf'li' Evaluati'n.
'imitations:
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The Stud( will e )'nfined 'nl( t' sele)ted s)he-es.
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The Stud( )'vers Operati'nal Statisti)s up t' three (ears dated @pril 6556 ; Mar)h 6557.
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Due t' ti-e )'nstraint3 n't )'vered all the aspe)ts 'f Ris0 -easures
9O)T!O'IO S&'&TIO on the basis )is0-)eturn
Ris0Return -easures 'n p'rtf'li' are the -ain deter-inants
'f an invest'r/s attitude t'wards the-. Be need t' l''0 )l'sel( at the -anner in whi)h ris0 effe)ts the return.
#ssumptionss of the 1ar0owit> 1odel are as follows: #ssumption
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Invest'r/s de)isi'n are ased 'n tw' para-eters3 the( are Return and Ris0.
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Invest'rs are Ris0 @verse.
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Invest'rs see0 t' a)hieve hi+hest Return at a +iven level 'f Ris0.
Thus3 t' understand in dept the p'rtf'li' sele)ti'n Pr')edure3 lets +' thr'u+h in detail the vari'us t''ls used ( Mar0'wit> are as f'll'ws
E=pe)ted Return Se)urit( @nal(sts )ann't e e=pe)ted with )ertaint( whether a st')0/s pri)e will in)rease in)rease 'r de)rease 'r ( h'w -u)h. This e=i e=isten)e sten)e 'f un)ertaint( d'es n't -ean that se)urit( anal(sis is valueless. It d'es n't -ean that anal(sts -ust strive t' pr'vide n't 'nl( )areful and reas'nale esti-ates 'f return. M'st i-p'rtant 3 the anal(st -ust e prepared t' :uantif( the ris0 that a +iven st')0 will fail t' reali>e its e=pe)ted. @ de)isi'n whether whether t' sele)t a st')0 t' u( 'r n't whi)h has a e=pe)ted return 'f !5 per)ent 'ver s'-e h'ldin+ peri'd3 an anal(st -i+ht su++est that the return )'uld e a've 'r el'w 'r e:ual t' !5 per)ent. Thus3 the e=pe)ted return is the avera+e 'f the t'tal N@A/s f'r a parti)ular peri'd. peri'd. Ris0 The vari'us s'ur)es 'f ris0 in h'ldin+ )'--'n st')0s -ust e :uantified s' that the anal(st )an e=a-ine ris0 in relati'nship t' -easures 'f return e-pl'(ed. @reas'nale surr'+ate 'f ris0 is the variailit( 'f return. This pr'=( -easure in statisti)s is )'--'nl( the varian)e 'r standard deviati'n 'f the return 'n a st')0 ar'und the e=pe)ted return. In realit(3 the variati'n in return el'w what is e=pe)ted is the est -easure 'f ris0.
UTILITY
Opti-al p'rtf'li' f'r an invest'r is 'ne that ta0es int' a))'unt 'th
ris0 and return. This is )alled Ris0 @d9usted Return. F'r si-pli)it( it )an e ter-ed as the Utilit( 'f the p'rtf'li' f'r the invest'r.
Thus3 the Utilit( is the e=pe)ted return 'f the p'rtf'li' -inus the ris0 penalt(. The Opti-al Opti-al est p'rtf'li' ff'r 'r an invest'r w w'uld 'uld e the 'ne ffr'r'the effi)ient fr'ntier G'pp'rtunit( setH that -a=i-i>es utilit(.
Utilit( Return 'n P'rtf'li' Ris0 Penalt(.
RIS, PEN@LTY
The -'re ris0 'ne -ust ear3 the -'re undesirale is an additi'nal unit 'f ris0. The ris0 penalt( depends 'n the p'rtf'li' ris0 and invest'r/s Ris0 T'leran)e. Ris0 Penalt( Ris0 S:uared Ris0 T'leran)e
RIS, SVU@RED
It is the varian)e 'f the return 'f the P'rtf'li'. It als' depi)ts the ris0 inv'lved in the p'rtf'li'. Thus3 It )an als' e put a)r'ss as the s:uare 'f the standard deviati'n.
Ris0 S:uared 'r Aarian)e
GN@A ; RETURN H N!
RIS, TOLER@N2E It is a nu-er fr'- 5 t' !55. The si>e 'f the Ris0 T'leran)e nu-er refle)ts the invest'r/s willin+ness t' ear -'re ris0 f'r -'re return. L'w T'leran)e indi)ates l'w willin+ness t' invest in ris0( funds and vi)eversa. Thus3 the Ris0 T'leran)e nu-er is different f'r the invest'rs3 as the( will e havin+ different Ris0 T'leran)e. 1ut we )an assu-e that -a9'rit( 'f the invest'rs w'uld li0e a -'derate ris0 in there invest-ents. Thus3 0eepin+ this in -ind we shall assu-e the Ris0 T'leran)e as 75.
ra-WPS.=ls
PORTFOLIO PERFORMANCE EVALUATION
The 0e( di-ensi'n di-ensi'n 'f P'rtf'li' Per Perf'r-an)e f'r-an)e Evalua Evaluati'n ti'n are as f'll'ws
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RETURN Invest'rs want t' -a=i-i>e e=pe)ted returns su9e)t t' their t'leran)e f'r ris0. Return is the -'tivatin+ f'r)e and the prin)ipal reward reward in the investinvest-ent ent pr')ess3 and it is the 0e( -eth'd availale t' invest'rs in )'-parin+ alternative invest-ents
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Measurnin+ hist'ri)al returns all'ws the invest'rs t' assess h'w well the( have d'ne3 and it pla(s a part in the esti-ati'n 'f future3 un0n'wn returns. E=pe)ted Return is the return fr'- an asset that invest'rs anti)ipate the( will earn 'ver s'-e future peri'd. It is a predi)ted
return. It -a( 'r -a( n't '))ur. Invest'rs sh'uld e willin+ t' pur)hase a parti)ular parti)ular asset if the e=pe)ted e=pe)ted return is ade:u ade:uate3 ate3 ut the( -ust understand that their e=pe)tati'n e=pe)tati'n -a( n't -ateriali>e. ateriali>e.
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RIS, Ris0 in h'ldin+ se)urities is +enerall( ass')iated with the p'ssiilit( that reali>ed reali>ed returns wi will ll e less than the returns returns that were E=pe)ted. The s'ur)e 'f su)h disapp'int-ent is the failure 'f dividends and the se)urit(/s pri)e t' -ateriali>e as e=pe)ted.
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PERFORM@N2E ME@SURES There are three -eth'ds that help in evaluatin+ the perf'r-an)e 'f
the p'rtf'li'. The( are as f'll'ws
!. S?@R S?@RPE/S PE/S M ME@SU E@SURE RE Sha Sharpe/ rpe/ss Inde= M Measur easures es the ris ris0 0 pre-iu- 'f the the p'rtf'li' whe where re the ris0 prepre-iuiu- is the e=)ess return re:uired ( invest'rs f'r the assu-pti'n 'f ris0 relative t' the t'tal a-'unt 'f ris0 in the p'rtf'li'. Thus3 Sharpe/s Measure su--ari>es the ris0 and return 'f a P'rtf'li' in a sin+le -easure that )ate+'ri>es the perf'r-an)e 'f the fund 'n a ri ris0 s0 ad9usted asis. ?en)e3 @ P'rtf'li' with a hi+her Sharpe/s Inde= is a etter P'rtf'li' P'rtf'li' despite the fa) fa)tt that the 'ther p p'rtf'li's 'rtf'li's have hi+her return.
Sharpe/s Inde= Measure
Return 'n P'rtf'li' ; Ris0 Free Return Ris0 'f P'rtf'li'
6. TREYN TREYNOR/S OR/S ME ME@SUR @SURE E Tre(n'r/ Tre(n'r/ss Inde= M Measur easures es the ris ris0 0 pre-iu- 'f the the P'rtf'li'3 w where here the ris0 prepre-iuiu- e:uals the differen)e etween the return 'f the p'rtf'li' and the ris0 less rate. This ris0 pre-iu- is related t' the a-'unt 'f s(ste-ati) ris0 assu-ed in the p'rtf'li'. Thus3 the Tre(n'r/s Inde= su-s up the ris0 and return 'f a p'rtf'li' in a sin+le nu-er3 while )ate+'ri>in+ the perf'r-an)e 'f the P'rtf'li' P'rtf'li'..
?en)e3 @ P'rtf'li' with a hi+her Tre(n'r/s Inde= is a etter P'rtf'li' P'rtf'li' despite the fa) fa)tt that the 'ther p p'rtf'li's 'rtf'li's have hi+her return.
Tre(n'r/s Inde= Measure
Return 'n P'rtf'li' ; Ris0 Free Return 1eta 'f P'rtf'li'
*. 8ENSE 8ENSEN/S N/S ME ME@SUR @SURE E 8ens 8ensen/s en/s att atte-p e-pts ts t' )'nst )'nstru)t ru)t a -easure 'f as'lute perf'r-an)e 'n ris0 ad9usted asis3 that is a definite standard a+ainst whi)h the perf'r-an)e 'f the vari'us funds )an e -easure. This standard is ased 'n -easurin+ the P'rtf'li' Mana+ers Predi)tive ailit( that is3 his ailit( t' earn returns thr'u+h su))essful predi)ti'n 'f the se)urit( pri)es whi)h are hi+her than th'se whi)h we w'uld e=pe)t +iven the level 'f ris0iness 'f his p'rtf'li'. In 'ther w'rds3 we are tr(in+ t' deter-ine if -'re than e=pe)ted returns are ein+ earned f'r the p'rtf'li'/s ris0iness.
It -easures the n'ndiversifiale ris0. 1eta sh'ws h'w the pri)e f'f a se)urit( resp'nds t' the -ar0et f'r)e. 1eta is )al)ulated ( relatin+ the returns 'n a se)urit( with returns f'r -ar0et.
The 1eta f'r a se)urit( is the wei+hted avera+e 'f its relative resp'nse due t' that event. @n a))urate predi)ti'n 'f 1eta is the -'st i-p'rtant ele-ent in predi)tin+ the future ehavi'ur 'f a p'rtf'li'. That is in the p'rtf'li' )'nte=t3 )'nte=t3 the relevant ri ris0 s0 'f a se)urit( li lies es in its i-pa)t 'n tthe he ris0 'f a p'rtf'li'. Further3 the ris0 'f a welldiversified p'rtf'li' is al-'st e=)lusivel( lin0ed t' the sensitivit( 'f its )'-p'nents se)urities t' future -ar0et -'ves. P'rtf'li's are )'nstru)ted ( 'pti-i>in+ eta )'effi)ients t' appr'a)h the pr'le- 'f st')0 sele)ti'n. @ eta 'f !.5 w'uld indi)ate a st')0 with avera+e v'latilit( relative t' the -ar0et. @eta 'f 6.5 w'uld -ean that if the -ar0et return was f're)ast as !5 per)ent3 the st')0 w'uld have an esti-ated return 'f 65 per)ent. St')0s with ne+ative etas w'uld pr'vide resistan)e t' the -ar0et d'wntrend.
ra-Wp'rtf'li' evaluati'n.=ls
PORTFOLIO PERFORM@N2E ME@SUREMENT
The Previ'us 2hapters sh'wed h'w feasile p'rtf'li's were +enerated. @ sin+le est p'rtf'li' was )h'sen f'r h'ldin+3 un-ana+ed3 f'r a f'rward peri'd. In this )ase it is the Fran0lin Te-plet'n 4r'wth Fund in the E:uit( se)t'r. Ta0in+ the Inde= i.e. NSE Nift( we )an d' perf'r-an)e Measure-ent f'r Fran0lin Te-plet'n. The returns 'n the tw' p'rtf'li's )an e ta0en and used f'r f'r evaluatin+ usin+ S Sharpe3 harpe3 Tre(n'r and 8ensen appr'a)hes t' p'rtf'li'. Our )al)ulati'n 'f returns uses 'nl( pri)e )han+es. Dividends are n't ta0en int' )'nsiderati'n. The Treasur( ill rate 'n a :uarterl( return asis avera+ed 7.67 < 'ver the perf'r-an)e evaluati'n peri'd.
!. Relia Relian)e n)e 4r' 4r'wth wth Fun Fund d has 'ut perf'rperf'r-ss a-'n a-'n+ + all the 'th 'ther er funds that had ta0en int' )al)ulati'n. Thus 'ne )an ver( safel( tell that Relian)e 4r'wth Fund is a feasile p'rtf'li'.
6. Ris0 T'l T'leran) eran)ee has pla(ed an ii-p'rt p'rtant ant r'le wh while ile sele sele)tin+ )tin+ th thee p'rtf'li's. Mar0'wit> Mar0'wit> in his sele)t sele)ti'n i'n -'del has intr intr'du)ed 'du)ed this ter-.
*. Ris03 an an'ther 'ther ii-p'rt p'rtant ant fa)t fa)t'r 'r whi)h pla(s pla(s an i-p i-p'rta 'rtant nt r'le n't 'nl( in P'rtf'li' Sele)ti'n ut als' in P'rtf'li' Evaluati'n. @s e=plained in the previ'us )hapters the tw' distin)t )'n)ept under ris0 i.e.3 Diversified Ris0 and N'nDiversif N'nDiversified ied Ris0.
$. Tre(n Tre(n'r/s 'r/s33 Sharp Sharpe/s e/s -ea -easures sures ref refle)t le)t the e= e=)ess )ess ret return urn earn earned ed per unit 'f ris0. ris0. Th'u+h 'th the -easures easures p'stulate a linea linearr relati'nship etween ris0s and return the( e-pl'( different -easure 'f ris0 Gi.e.3H standard deviati'n and eta.
7. 8ense 8ensen/s n/s -eas -easure ure refl refle)ts e)ts the di differ fferen)e en)e etw etween een the ret return urn a)tuall( earned 'n a p'rtf'li' and the return the p'rtf'li' was supp'sed t' earn.
#. @s the inve invest-e st-ent nt peri'd peri'd len+thens3 len+thens3 th thee avera+ avera+ee (earl (earl( ( retur return n 'ver the peri'd is su9e)t t' lesser v'latilit( e)ause 'f l'w returns in s'-e (ears -a( e 'ffset ( hi+h returns in 'ther (ears and vi)e versa. The i-pli)ati'n is est )aptured el'w.
#llocation of Stoc0 omponent of 9ortfolio
Ti-e ?'ri>'n
)is0 Tolerance
L'w
M'd M'dera erate te
?i+ ?i+h h
Sh'rt Ter-
5
67
75
Mediu- Ter-
67
75
&7
L'n+ Ter-
75
&7
!55
S,**&STIOS
!. Irre Irrespe)t spe)tive ive 'f h'w wel welll ('u have )'nstru )'nstru)ted )ted ('ur ('ur p'rtf p'rtf'li' 'li'33 it s''n tends t' e)'-e ineffi)ient due t' 'ne 'f the reas'n Gi.e.H diversified 'r n'ndiversified n'ndiversified ris0. Thus3 the p'rtf'li' sh'uld e peri'di)all( revised revised either shift shiftin+ in+ fr'- e:uit( funds t' 'nds 'r vi)e versa 'r re assessin+ the ris0 and return )hara)teristi)s )hara)teristi)s 'f vari'us se)urities )an d' this. 6. In pra) pra)ti)e3 ti)e3 h' h'weve wever3 r3 there are are pr'le-s pr'le-s in deve devel'pin l'pin+ + Ris0 ; Return indifferen)e )urve. Thus3 the f'll'win+ wa(s )an e ad'pted t' spe)if( the invest-ent '9e)tives. a. Ma=iMa=i-i>e i>e the e=pe) e=pe)ted ted rate rate 'f re return turn33 su9 su9e)t e)t t' tthe he ris ris0 0 t'leran)e level . Mini-i>e the ris0 ee=p'sure3 =p'sure3 with'ut s)arif(in+ a )erta )ertain in e=pe)ted rate 'f return.
*. Three aappr'a ppr'a)hes )hes sh' sh'uld uld e e-pl'(e e-pl'(ed d f'r the se sele)t le)ti'n i'n 'f e:uit( shares Te)hni)al @nal(sis3 Funda-ental @nal(sis and Rand'- Sele)ti'n. •
Te)hni)al @nal(sis It l''0s at the pri)e ehavi'ur.
•
Funda-ental @nal(sis It f')uses 'n the earnin+s level and Ris0 e=p'sure.
•
Rand'- Sele)ti'n It is ased 'n the pre-ise that -ar0et is effi)ient and se)urities are pr'perl( pri)ed.
$. @ 2lien 2lientt Servi Servi)e )e E=e)utive E=e)utive ssh'ul h'uld d as0 tw' -ain ain :ues :uesti'ns ti'ns as as33 the finan)ial situati'n and assessin+ the te-pera-enta te-pera-entall t'leran)e 'f the invest'r t'ward the ris0.
Thus3 at the end 'f the da( pre)auti'n ta0en will have a etter endin+ than )urin+. This )an e well supp'rted ( the eff'rts put f'rth ( the 2lient Servi)in+ Tea- wh' 'n a ti-el( asis )an ta0e up steps t' i-pr'vise 'n their de)isi'n 'f invest-ent.
O',SIO
@s Peter O. Diet> 8eannette R. ,irs)h-an wr'te JF'r a))ura)( 'f )'-putati'n3 perf'r-an)e sh'uld e )'-puted as 'ften as pra)ti)al3 ut results sh'uld n't e ta0en as si+nifi)ant ( the invest'r 'r the invest-ent -ana+er until a reas'nale peri'd 'f ti-e.
Se)urit( @nal(sis is uilt ar'und the idea that invest'rs are )'n)erned with tw' prin)ipal pr'perties inherent in se)urities the return that )an e e=pe)ted fr'- h'ldin+s in a se)urit( and ris0 that the return that is a)hieved will e less than the return that was e=pe)ted.
Thus t' 2'n)lude3 the stud( was 9ust an 'ver view 'f the perf'r-an)e 'f the -ar0et and the perf'r-an)e 'f individual Funds. Relian)e 4r'wth Fund has 'ut perf'rthe 'ther funds )an e )'n)luded. This Fund )an e re)'--ended t' the invest'rs ased 'n the 9ustifi)ati'n pr'vided in the earl( earl( )hapters. )hapters.
1I1LIO4R@P?Y
!. Se)ur Se)urit( it( @n @nal(si al(siss and P'rtf' P'rtf'li' li' Ma Mana+ena+e-ent ent
1( Prasanna 2handra.
6. Se)ur Se)urit( it( @ @nal(s nal(sis is and P'rt P'rtf'li f'li' ' Man Mana+ea+e-ent ent