CHAPTER 1

INTRODUCTION

INTRODUCTION
The concept of Mutual fund is a new feature in the cap of Indian capital market
but not to international market. The concept of mutual fund spread to USA in the beginning
of 20th century and three mutual fund companies were started in 1924. Mutual funds have
been successfully working in the USA and some western countries. These funds have been
useful in filling the gap between the demand and supply of capital in the market. A mutual
fund motivates small and big investors to entrust their savings to it so that these are
professionally employed in sharing good return. A large number of investors have small
savings with them. They can at the most buy shares of one or two companies. When small
savings are pooled and entrusted to mutual fund then these can be used to buy blue chips
where regular returns and capital appreciation are ensured.
Fund is an American concept. The terms like investment company, money fund
investment trust and mutual funds are used interchangeably and used to describe the same
thing in American literature. In British literature mutual funds has not been explained but is
considered as a synonym of investment trust of US.
Differed ordinary shares are a form of ordinary shares which are entitled to a
dividend only after a certain date or only if profits rise above a certain amount. Voting
rights might also differ from those attach to other ordinary shares. Financing a company
through the sale of stock in accompany is known as equity financing. Alternatively debt
financing can be done to avoid giving up shares of ownership of the company. Equity
financing are usually used for longer term investment projects such as investment in a new
factory or a new foreign market
2

WHY MUTUAL FUNDS?

Let's suppose you're just getting started as an investor and have $5,000 to invest and you
have three important goals you want to achieve. First, you don't want to lose your money in

a risky venture so you want security, like that found in a certificate of deposit or other fixed
income investment. But you also want to make the most money you can, so you want the
prospect for growth potential, too. Finally, since you don't have the time or knowledge to
actively manage your money, you want professional money management -- occasionally
diversifying your investments into promising new opportunities. That sounds like a very
good plan, but where can you invest your money and have a chance to meet all three
criteria? Certificates of deposit and other fixed income investments offer security, but often
with low rates of interest and a fixed potential for growth.
Individual stocks may carry greater potential for growth, but $5,000 isn't a lot to
invest and if you put it all in one stock, you risk everything if it performs poorly. And,
brokers and investment advisors can offer you advice and money management, but at a
price -- you pay for their services, which reduces further the amount you have available to
invest.
More than 80 million people, or one out of every two households in America, invest
in mutual funds. Currently, over $6 trillion is invested in mutual funds. While funds have
been around since the 1920's, their popularity over the past 25 years has soared. The
reasons:

Mutual funds bring diversification and professional money management to the

individual investor

Mutual funds make it easy and less costly for investors to satisfy their need for
capital growth, income and/or income preservation

A mutual fund is a company that pools the money of many investors -- its shareholders -to invest in a variety of different securities. Investments may be in stocks, bonds, money
market securities or some combination of these. Those securities are professionally
managed on behalf of the shareholders, and each investor holds a pro rata share of the
portfolio -- entitled to any profits when the securities are sold, but subject to any losses in
value as well.
For the individual investor, mutual funds provide the benefit of having someone else
manage your investments, take3care of record keeping for your account, and diversify your
dollars over many different securities that may not be available or affordable to you
otherwise. Today, minimum investment requirements on many funds are low enough that
even the smallest investor can get started in mutual funds.

A mutual fund, by its very nature, is diversified -- its assets are invested in many
different securities. Beyond that, there are many different types of mutual funds with
different objectives and levels of growth potential, furthering your chances to diversify.

NET ASSET VALUE

The net asset value of the fund is the cumulative market value of the assets fund net
of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the
assets in the fund, this is the amount that the shareholders would collectively own. This
gives rise to the concept of net asset value per unit, which is the value, represented by the
ownership of one unit in the fund. It is calculated simply by dividing the net asset value of
the fund by the number of units. However, most people refer loosely to the NAV per unit as
NAV, ignoring the "per unit". We also abide by the same convention.
The price measured per unit is called the Net asset value NAV of the unit. Just as a share or
a bond is brought at a price, a mutual fund is bought and sold at its NAV. If for example u
were to invest Rs.10000 in a scheme when its NAV is Rs.10 you will be allotted 1000 units
(10000/10) roughly the fund charges a nominal processing fee. The NAV of any scheme
tells how much each unit of it is worth at any point in time, and is therefore the simplest
measure of how it is performing. A schemes NAV is its Net assets (market value of the
securities is owns minus whatever it owes) divided by the number of units it has issued.
A schemes NAV is a dynamic figure. The market value of the schemes portfolio
changes from day to day as prices of shares and bonds move up or down. The number of
units outstanding also changes, as new investors come into the scheme and old ones leave.
If the NAV of your schemes rises from Rs.10 to Rs.11 over a period of time, your scheme is
said to have generated a return of 10 percent. Similarly if its Net NAV falls form Rs.10 to
Rs. 9, it is said to have lost 10 percent. Fund houses have to calculate and disclose, the
NAVs of their schemes daily. Fund NAVs can be easily looked up. While the general dailies
give a random listing of schemes, the financial papers are more exhaustive in their
coverage. When invested in a 4scheme, its NAV is the figure to track, as it quantifies your
returns, and your purchase price will be based on it. Random listing of schemes, the
financial papers random listing

TYPES OF MUTUAL FUNDS

This section provides descriptions of the characteristics -- such as investment objective and
potential for volatility of your investment -- of various categories of funds. These
descriptions are organized by the type of securities purchased by each fund: equities, fixedincome, money market instruments, or some combination of these.
This table organizes these fund types by how aggressive or conservative they are and by
investment objective. Because mutual funds have specific investment objectives such as
growth of capital, safety of principal, current income or tax-exempt income, you can select
one fund or any number of different funds to help you meet your specific goals.
In general mutual funds fall into these general categories:

Equity Funds invest in shares of common stocks.

Fixed-Income Funds invest in government or corporate securities which offer fixed

rates of return.

Balanced Funds invest in a combination of both stocks and bonds.

Money Market Funds for high stability of principal, liquidity and income.

Bond Funds, both tax-exempt and taxable funds to generate income.

Specialty/Sector Funds to diversify holdings within an industry.

BENEFITS OF MUTUAL FUNDS

1) PROFESSIONAL INVESTMENT MANAGEMENT: By pooling the funds of thousands
of investors, mutual funds provide full-time, high-level professional management that
few individual investors can afford to obtain independently. Such management is vital
to achieving results in today's complex markets. Your fund managers' interests are tied
to yours, because their compensation is based not on sales commissions, but on how
well the fund performs. These managers have instantaneous access to crucial market
information and are able to execute trades on the largest and most cost-effective scale.
5

In short, managing investments is a full-time job for professionals.

2) DIVERSIFICATION: Mutual funds invest in a broad range of securities. This limits
investment risk by reducing the effect of a possible decline in the value of any one

security. Mutual fund shareowners can benefit from diversification techniques usually
available only to investors wealthy enough to buy significant positions in a wide variety
of securities.
3) LOW COST: If you tried to create your own diversified portfolio of 50 stocks, you'd
need at least $100,000 and you'd pay thousands of dollars in commissions to assemble
your portfolio. A mutual fund lets you participate in a diversified portfolio for as little as
$1,000, and sometimes less. And if you buy a no-load fund, you pay or no sale charges
to own them.
4) CONVENIENCE AND FLEXIBILITY: You own just one security rather than many, yet
enjoy the benefits of a diversified portfolio and a wide range of services. Fund
managers decide what securities to trade, clip the bond coupons, collect the interest
payments and see that your dividends on portfolio securities are received and your
rights exercised. It's easy to purchase and redeem mutual fund shares, either directly
online or with a phone call.
5) QUICK, PERSONALIZED SERVICE: Most funds now offer extensive websites with a
host of shareholder services for immediate access to information about your fund
account. Or a phone call puts you in touch with a trained investment specialist at a
mutual fund company who can provide information you can use to make your own
investment choices, assist you with buying and selling your fund shares, and answer
questions about your account status.
6)

EASE OF INVESTING: You may open or add to your account and conduct
transactions or business with the fund by mail, telephone or bank wire. You can even
arrange for automatic monthly investments by authorizing electronic fund transfers
from your checking account in any amount and on a date you choose. Also, many of the
companies featured at this site allow account transactions online.

7) TOTAL LIQUIDITY, EASY WITHDRAWAL: You can easily redeem your shares
anytime you need cash by letter, telephone, bank wire or check, depending on the fund.
6

Your proceeds are usually available within a day or two.

8) LIFE CYCLE PLANNING: With no-load mutual funds, you can link your investment
plans to future individual and family needs -- and make changes as your life cycles

change. You can invest in growth funds for future college tuition needs, then move to
income funds for retirement, and adjust your investments as your needs change
throughout your life. With no-load funds, there are no commissions to pay when you
change your investments.
9) MARKET CYCLE PLANNING: For investors who understand how to actively manage
their portfolio, mutual fund investments can be moved as market conditions change.
You can place your funds in equities when the market is on the upswing and move into
money market funds on the downswing or take any number of steps to ensure that your
investments are meeting your needs in changing market climates. A word of caution:
since it is impossible to predict what the market will do at any point in time, staying on
course with a long-term, diversified investment view is recommended for most
investors.
10) INVESTOR INFORMATION: Shareholders receive regular reports from the funds,
including details of transactions on a year-to-date basis. The current net asset value of
your shares (the price at which you may purchase or redeem them) appears in the
mutual fund price listings of daily newspapers. You can also obtain pricing and
performance results for the all mutual funds at this site, or it can be obtained by phone
from the fund.
11) PERIODIC WITHDRAWALS: If you want steady monthly income, many funds allow
you to arrange for monthly fixed checks to be sent to you, first by distributing some or
all of the income and then, if necessary, by dipping into your principal.
12) DIVIDEND OPTIONS: You can receive all dividend payments in cash. Or you can
have them reinvested in the fund free of charge, in which case the dividends are
automatically compounded. This can make a significant contribution to your long-term
investment results. With some funds you can elect to have your dividends from income
paid in cash and your capital gains distributions reinvested.
13) AUTOMATIC DIRECT DEPOSIT: You can usually arrange to have regular, third-party
payments -- such as Social7 Security or pension checks -- deposited directly into your
fund account. This puts your money to work immediately, without waiting to clear your
checking account, and it saves you from worrying about checks being lost in the mail.

14) RECORDKEEPING SERVICE: With your own portfolio of stocks and bonds, you
would have to do your own recordkeeping of purchases, sales, dividends, interest, shortterm and long-term gains and losses.
15) SAFEKEEPING: When you own shares in a mutual fund, you own securities in many
companies without having to worry about keeping stock certificates in safe deposit
boxes or sending them by registered mail. You don't even have to worry about handling
the mutual fund stock certificates; the fund maintains your account on its books and
sends you periodic statements keeping track of all your transactions.
16) RETIREMENT AND COLLEGE PLANS: Mutual funds are well suited to Individual
Retirement Accounts and most funds offer IRA-approved prototype and master plans
for individual retirement accounts (IRAs) and Keogh, 403(b), SEP-IRA and 401(k)
retirement plans. Funds also make it easy to invest -- for college, children or other longterm goals. Many offer special investment products or programs tailored specifically for
investments for children and college.
17) ONLINE SERVICES: The internet provides a fast, convenient way for investors to
access financial information. A host of services are available to the online investor
including direct access to no-load companies.
18) SWEEP ACCOUNTS: With many funds, if you choose not to reinvest your stock or
bond fund dividends, you can arrange to have them swept into your money market fund
automatically. You get all the advantages of both accounts with no extra effort.
19) ASSET MANAGEMENT ACCOUNTS: These master accounts, available from many
of the larger fund groups, enable you to manage all your financial service needs under a
single umbrella from unlimited check writing and automatic bill paying to discount
brokerage and credit card accounts.
20) MARGIN: Some mutual fund shares are marginable. You may buy them on margin or
use them as collateral to borrow money from your bank or broker. Call your fund
company for details.

MARKET TRENDS

Alone UTI with just one scheme in 1964, now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing market
share, UTI still remains a formidable force to reckon with.
Last six years have been the most turbulent as well as exiting ones for the industry.
New players have come in, while others have decided to close shop by either selling off or
merging with others. Product innovation is now pass with the game shifting to
performance delivery in fund management as well as service. Those directly associated
with the fund management industry like distributors, registrars and transfer agents, and
even the regulators have become more mature and responsible.
The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generation of private funds which have gained substantial mass are now seen flexing their
muscles. Fund managers, by their selection criteria for stocks have forced corporate
governance on the industry. By rewarding honest and transparent management with higher
valuations, a system of risk-reward has been created where the corporate sector is more
transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals,
FMCG and technology sector. Funds performances are improving. Funds collection, which
averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled
to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn.
Total collection for the current financial year ending March 2000 is expected to reach
Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by the
private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw
a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net
inflow of Rs.604.40 crore in the case of public sector funds.
Mutual funds are now also competing with commercial banks in the race for retail
9
investors savings and corporate
float money. The power shift towards mutual funds has

become obvious. The coming few years will show that the traditional saving avenues are
losing out in the current scenario. Many investors are realizing that investments in savings

accounts are as good as locking up their deposits in a closet. The fund mobilization trend by
mutual funds in the current
year indicates that money is going to mutual funds in a big way. The collection in the first
half of the financial year 1999-2000 matches the whole of 1998-99.
India is at the first stage of a revolution that has already peaked in the U.S. The U.S.
boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund
assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent
figures indicate that in the first quarter of the current fiscal year mutual fund assets went up
by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial
Express September, 99) This is forcing a large number of banks to adopt the concept of
narrow banking wherein the deposits are kept in Gilts and some other assets which
improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and
they will not close down completely. Their role as intermediaries cannot be ignored. It is
just that Mutual Funds are going to change the way banks do business in the future.

COMPARISON OF BANKS, MUTUAL FUNDS, EQUITY & DERIVATIVES

BANKS

MUTUAL
FUNDS

EQUITY

DERIVATIVES

Returns

Low

Better

Better

Better

Administrati
ve exp.

High

Low

Low

Low

Risk

Low

Moderate

High

High

Investment
options

Less

More

More

Less

Network

High penetration

Low but
improving

Liquidity

At a cost

Better

Better

Better

Quality of

Not transparent

Transparent

Transparent

10

High penetration High penetration

assets
Interest
Minimum balance
calculation between 10th. & 30th.
Of every month

Guarantee

Maximum Rs.1 lakh

on deposits

Everyday

NA

NA

None

NA

NA

RECENT TRENDS IN MUTUAL FUND INDUSTRY

The most important trend in the mutual fund industry is the aggressive expansion of
the foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and
got off to a good start due to the stock market boom prevailing then. These banks did not
really understand the mutual fund business and they just viewed it as another kind of
banking activity. Few hired specialized staff and generally chose to transfer staff from the
parent organizations. The performance of most of the schemes floated by these funds was
not good. Some schemes had offered guaranteed returns and their parent organizations had
to bail out these AMCs by paying large amounts of money as the difference between the
guaranteed and actual returns. The service levels were also very bad. Most of these AMCs
have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring
a few exceptions, they have serious plans of continuing the activity in a major way.
The experience of some of the AMCs floated by private sector Indian companies
was also very similar. They quickly realized that the AMC business is a business, which
makes money in the long term and requires deep-pocketed support in the intermediate
years. Some have sold out to foreign owned companies, some have merged with others and
there is general restructuring going on.
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The foreign owned companies have deep pockets and have come in here with the
expectation of a long haul. They can be credited with introducing many new practices such
as new product innovation, sharp improvement in service standards and disclosure, usage of
technology, broker education and support etc.

FUTURE SCENARIO
The asset base will continue to grow at an annual rate of about 30 to 35 % over the
next few years as investors shift their assets from banks and other traditional avenues.
Some of the older public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger
players in three to four years. In the private sector this trend has already started with two
mergers and one takeover. Here too some of them will down their shutters in the near future
to come.
But this does not mean there is no room for other players. The market will witness a
flurry of new players entering the arena. There will be a large number of offers from
various asset management companies in the time to come. Some big names like Fidelity,
Principal, and Old Mutual etc. are looking at Indian market seriously. One important reason
for it is that most major players already have presence here and hence these big names
would hardly like to get left behind.
The mutual fund industry is awaiting the introduction of derivatives in India as this
would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value
(NAV).
SEBI is working out the norms for enabling the existing mutual fund schemes to
trade in derivatives. Importantly, many market players have called on the Regulator to
initiate the process immediately, so that the mutual funds can implement the changes that
are required to trade in Derivatives.

PROBLEMS & PROSPECTS OF MUTUAL FUNDS

1) Wrong positioning : The mutual funds in India have been quite wrongly promoted as
an alternative to equity industry. Thus creating very high expectations in the minds of
the investors. In a falling market, these expectations have been belied. Only the pure
equity schemes can be compared with the stock market index. However pure equity
12
schemes are few in India, further,
investment is not purely linked to a particular index.

Therefore returns form mutual funds cannot really be compared with stock market
index.

2) Limited product range: Indian mutual funds have remained centered around a limited
product range basically income, income-cum-growth and tax saving schemes. Efforts to
develop and expand the market through innovative new products have been negligible.
These have happened due to the tendency to avoid risk, inability to understand future
market developments, and change in investor preference. Therefore the extent of mutual
funds market has remained limited.
3) Confused market situation: probably the introduction and implementation of new
regulatory norms has contributed in some measure to market sluggishness, as the
emerging market was, initially, not able to respond to the regulatory objectives.
4) Absence of Innovative Marketing Network: The absence of product diversification
and a confused market situation has been made worse by the absence of an innovative
marketing network for mutual funds. The agent oriented network has largely been
failure because most of the agents have not been specifically trained to sell mutual
funds products,
5) Lack of adequate research infrastructure: the passive approach of some mutual funds
in managing investors funds is compounded by the lack of adequate research
infrastructure. Consequently, returns commensurate with the market movement could
not be realized by many schemes, which has tended to show up Indian mutual funds in a
bad light.
6) Inefficient management: Management is considered to be a key factor for the
operational efficiency of any business venture. This factor becomes even more crucial
for service ventures such as mutual funds. What mutual funds require are managers who
have a clear understanding of prevailing and emerging market potential, investor
preference and macroeconomic fundamentals.
7) Lack of investors education: The market success of any new product particularly a
financial product depends largely on its acceptance by consumers, in this case investors.
Mutual funds must undertake a well design and comprehensive program of investor
education especially aimed 13
at investors in rural and semi-urban areas. However this has
been mostly neglected in India.
8) Lack of media support: investors understanding about mutual funds product and it
feature must be increased as it was found to be very low so far. This problem requires

quick and structured attention. This can be solved with effective use of media. A
positive media support is also required and mutual funds need to be media friendly. A
very closer coordination between AMFI, mutual funds and the media to promote
investor education in India.
9) Ignorance of liquidity management: over emphasis on asset management has often
ignored the crucial importance of liability management in mutual funds, leading many
Indian funds into a liquidity trap at the time of redemption. A more scientific approach
needs to be adopted by the funds.
10) Risk management ignored: Derivatives have been widely used by the mutual funds as
a measure of risk management as a complex and competitive market place. Further the
practice of stock lending, used widely in the western market has induced efficiency in
funds management a regulatory environment for mutual funds need to encouraged this
practices in India.

INTRODUCTION ON EQUITY SHARES

Equity is a term commonly used to describe the ordinary share capital of the
business. Ordinary share in the equity capital of the business entitle the holders to all
distributed profits after the holders of debentures and preference shares have been paid.
Ordinary shares are issued to the owners of the company. It is important to understand the
market values of companys shares have little relationship to their nominal or face value.
The market value of the company share is determined by the price another investor is
prepared to pay for them. In the case of publicly quoted companied, this is reflected in the
market value of the ordinary shares traded on the stock exchange. In case of privately
owned companies, where there is unlikely to be much trading in shares, market value is
often determined when the business is sold or when the minority share holding is valued for
taxation purpose.
Differed ordinary shares are a form of ordinary shares which are entitled to a
dividend only after a certain date or only if profits rise above a certain amount. Voting
14
rights might also differ from those
attach to other ordinary shares. Financing a company

through the sale of stock in accompany is known as equity financing. Alternatively debt
financing can be done to avoid giving up shares of ownership of the company. Equity

financing are usually used for longer term investment projects such as investment in a new
factory or a new foreign market.
Equity investment generally refers to the buying and holding of shares of stock on a
stock market by individuals and funds in anticipation of income from dividends and capital
gain as the value of stock rises. It also sometimes refers to the acquisition of equity
(ownership) participation in a private (unlisted) company or a start up. (A company being
created or newly created). When the investment is in infant companies it is refer to as
venture capital investing and is generally understood to be higher risk than investment in
listing, going concern situations.

ON INDEX INTRODUCTION
Stock market talk is everywhere, from T.V and radio, to the newspapers and the
web. But what does it mean? When people say that the market turned a great performance
today. What is the market anyway?
As it turns out, when most people talk about the market they are actually referring
to an index. With the growing importance of the stock market in our society the names of
indexes such as S & P 500, NIFTY, and SENSEX have become part of our vocabulary.
Index can be defined as a statistical measure of changes in the portfolio of stocks
representing the portion of the overall market. It would be difficult to track every single
security trading in the country. To get around this we take a smaller sample of the market
that is representative of the whole. Thus, just a pollsters use a political survey to gauge the
sentiment of population, the investors use indexes to track the performance of the stock
market. Ideally change in price of an index would represent and exactly proportionate
change in the stocks included in the index.
Indexes are great tools for telling us what direction the market is taking, what trends
are prevailing. An index is a number use to represent the changes in a set of values
15

between a base time period and another time period A stock index is number that helps
you measure the levels of the market. Most stock indexes attempt to be proxies for the
market they exist in. returns on the index are thus supposed to represent the returns on the
market i.e the returns that u could get if u had the entire market in your portfolio.

REVIEW ON LITERATURE

Benchmarking of Mutual Funds

Aru Srivatsava
You can't tell how well a mutual fund has performed by studying its historical returns
alone. Instead, you should compare those returns with the returns-over the same period-of
an appropriate benchmark, or measuring stick. You can generally find benchmark
performance figures in the fund's prospectus and annual report, as well as in newspapers
and financial publications. Two types of benchmarks are used to gauge fund performance:
Market Index. Tracks the total returns of all the securities in the market or a segment of the
market. For example, the BSE SENSEX tracks 30 stocks representing important sectors of
Indian economy. Peer Group Average. Measures the average returns of a group of funds
with similar investment goals and
16 policies.
When trying to determine a measure of performance, mutual fund investors usually look
around for an appropriate benchmark to get some idea about how well their funds are
doing. Many investors make the mistake of comparing all of their mutual funds to the most

widely known of benchmarks, the S&P 500 Index. But this comparison can be a downright
mistake which can lead to inaccurate conclusions about a fund's performance. How many
times have we heard the saying "compare apples to apples and not to bananas", the idea of
establishing correct or rather relevant benchmarks against which you can compare your
funds performance is similar.
Coming back to comparing apples with apples -Income or Debt funds normally invest in
fixed-income securities like bonds and corporate debentures. These schemes have
investments with a short-to-medium term period with a specific focus of preserving the
capital. Equity, or Growth funds invest predominantly in stock market instruments.
Balanced Funds invest partly in equity and partly in debt and normally should be looked at
with a 3-5 years time horizon. Money market and liquid funds invest mainly in short-term
instruments like treasury bills, government securities, certificates of deposit, commercial
paper and call money and are for a much shorter duration like even 30 days.
One of the most well known index which serves as a good equity related schemes
benchmark is the S&P CNX 500 is India's first broadband benchmark of the Indian capital
market. The S&P CNX 500 represents about 90% of total market capitalization and about
98% of the total turnover on the NSE. The S&P CNX 500 companies are desegregated into
76 industries, each of which has an index - The S&P CNX Industry Index. Industry
weightages in the index dynamically reflect the industry weightages in the market. S&P
CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX Nifty Junior is
an index built out of the next 50 large, liquid stocks in India. It is not as liquid as the S&P
CNX Nifty, which implies that the information in the S&P CNX Nifty Junior is not as
noise-free as that of the S&P CNX Nifty. It may be useful to think of the S&P CNX Nifty
and the CNX Nifty Junior as making up the 100 most liquid stocks in India. S&P CNX
Nifty is the front line blue-chips, large and highly liquid stocks. The CNX Nifty Junior is
the second rung of growth stocks, which are not as established as those in the S&P CNX
Nifty.
A stock like Satyam Computers, which recently graduated into the S&P CNX Nifty, was in
the CNX Nifty Junior for a long
17 time prior to this. CNX Nifty Junior can be viewed as an
incubator where young growth stocks are found. As with the S&P CNX Nifty, stocks in the
CNX Nifty Junior are filtered for liquidity, so they are the most liquid of the stocks
excluded from the S&P CNX Nifty. The medium capitalized segment of the stock market is
being increasingly perceived as an attractive investment segment with high growth

potential. The primary objective of the CNX MidCap 200 Index is to capture the movement
and be a benchmark of the midcap segment of the market. The CNX MidCap 200 Index is a
market capitalization weighted index with its base period of the index being the calendar
year 1994 and base value as 1000. For inclusion in the index, the average market
capitalization of a company must range between Rs.1.5 billion to Rs.15 billion. The
distribution of industries in the CNX MidCap 200 Index represents the industry distribution
in the MidCap segment of the market. All companies are evaluated for trading interest and
financial performance. With the Information Technology (IT) sector in India growing at a
fast rate, there is a need to provide investors, market intermediaries and regulators an
appropriate benchmark that captures performance of this sector. Companies in this index
should have more than 50% of their turnover from IT related activities like software
development, hardware manufacture, vending, support and maintenance. The index is a
market capitalization weighted index with its base period being December 1995 with base
value 1,000.

The table given below shows which index to refer to for a particular market segment -

Stock Market

Segment Index

All INDIAN stocks

Standard & Poor's CNX500

,BSE 500

Large-capitalization
stocks

INDIAN Standard & Poor's CNX500 ,

BSE Sensex30, CNX Nifty 50.

Mid-capitalization
stocks

INDIAN Standard & Poor's MidCap 400

Index

Pharma Companies

BSE Healthcare Index

FMCG Companies

BSE FMCG Index

IT Companies

BSE IT Index, ET Mindex

Capital Goods Companies

BSE Capital Goods Index

Consumer Durables

BSE Consumer Durables

Bonds, Treasury Bills of all J.P.Morgan India Treasury Bill

18
Maturities
Index

Choosing your Mutual Fund

 Rajaneesh Mittal
The last few weeks saw one of the worst periods in the Indian Financial markets. The
sentiments in all the markets were bearish. Sensex went below the 4000 mark, the rupee
touched all time lows against the dollar and consequently the RBI was forced to take some
liquidity tightening measures by increasing the interest rates. In fact, the high short term
yields in the money markets produced a inverted yield curve last week, when the yield on
90 day T-bill was fixed at a higher level than the 364 day T-bill by the RBI.
In such a scenario, a naive investor must be wondering where to put his hard earned
savings. The equity market is clueless and the traditional avenues, although they are
relatively less risky, provide meager yields. So the only choice that comes to the minds of
investors at large is the Mutual Funds (MFs). These MFs provide an advantage of
diversification of risk and the professional expertise of Fund Managers.
Now the question is, in which category of MFs to invest, equity or debt or balanced. Equity
funds are relatively more risky because of the uncertainty and volatility in the equity
markets. In today's scenario, when the interest rates are rising, most of the bond funds are
facing the brunt because the increased interest rates have pulled down the prices of most of
the bonds and their portfolio has come down in value. There is no clear cut direction the
interest rates might take in the future. So even the bond funds have become more riskier in
such a scenario. This leaves only the balanced funds. Let us take a closer look at these
balanced funds.
Balanced funds are those funds, which invest a certain percentage of their corpus in equity
and rest in the bonds. This gives the benefits of both the equity investment and fixed
income investment. In today's scenario, it would be best to invest in a balanced scheme of a
MF. The reason being, investing in such a MF would give the benefits of diversification
across the class of securities. After the introduction of index futures, it has become easier
for the MFs to hedge themselves against the market risk. But even that hedge works upto a
certain point of time, so the exposure to the equities should be limited. Also, there are
balanced funds that takes more exposure to certain sectors, like some Indian MFs were
19

doing trying to ride the ICE boom. But such funds are again more riskier because the
returns from such funds depends upon the performance of a particular sector.

The investment in bonds assures a steady stream of income without taking the entire risk
inherent in the bond funds. Again, in today's scenario, where the direction of interest rates is
clueless, one should not take excessive exposure to bonds market. Thats why a balanced
fund is an ideal investment in today's scenario. A quick look at the returns from the schemes
of two of the MFs would put the things in a better perspective.
The three month return from DSP Balanced Fund works out to be 6.47%, where as the
return on DSP Equity Fund works out to be 5.85% over the same period and for DSP Bond
Fund, it works out to be 0.20%. So, one can see that the balanced fund has provided the
maximum return over the last three months. Similarly, the 3 month return on Magnum
Balanced Fund is 9.34% whereas the return on Magnum Equity Fund is 8.50% over the
same period. And this is true for most of the funds.
Usually, in rising markets, the returns on equities tend to be higher than other investments
but they also carry the maximum risk. And now that the SEBI has put a 16% circuit filter,
they have become all the more riskier. A Balanced Fund provides the benefits of equity
investments with limited risk and also a steady stream of income.
Therefore, in today's market scenario, one should invest in a Balanced Mutual Fund which
is not having considerable exposure to any particular sector. But an investor needs to keep
certain basic rules in mind while selecting balanced funds. Firstly, avoid funds where the
equity component is heavily skewed in favor of limited sectors. Secondly, avoid funds
where the debt component of balanced funds has an average maturity of beyond 2 years.
Thirdly, timing is very important. Currently, the equity markets are substantially corrected
and the debt markets hold good promise due to higher interest rates which virtually
diminishes the prospects of bond value depreciation. So go ahead and invest in balanced
funds, but do your homework well in advance.
BENCHMARKING IN EQUITIES:
Equity funds headed by FMCG, Pharma under the thematic funds performed impressively
in the month of June 2011 clocking 5.3 pct and 1.06 % as against the benchmark return of
4.8 pc and 0.08 pc for the same20period, thus outperforming the benchmark. Funds guided by
banking stocks delivered 1.7 pc for the June period as against its benchmark return of 2.2 %
Diversified equity funds on an average gained 0.8 pc but underperformed benchmark return
of 0.85 (BSE-100). The average returns under the flexi style investing rose 0.9 pc and under

value style investing gain 0.56 pc. ELSS scheme registered 1.16 pc average returns for the
investors.
Debt funds too managed to build value for investors as bond markets saw the yields
softening for both the short-term as well as the long-term debt papers, according to data
from ACE MF, PersonalFN Research, showed.
"FMCG and Pharma which is primarily the consumption story in India is quite strong and
so far unaffected by sticky inflation" says Rounaq Neroy, Senior Research Analyst at
PersonalFN.com. "It has encouraged fund managers to go long on the sector and has reaped
the right fruits for the FMCG funds while Pharma is a defensive sector and thus will always
continue to provide modest returns in the long-term", adds Neroy.
The infrastructure funds did not perform as well as investors would want it to, on back of
rising interest rate cost, delay in project completion and working capital problems faced by
most developers which kept away many investors away from the sector. The sector
managed to deliver 0.1325 pc average return but was still able to outperform its benchmark
which registered negative return of over 7 pc for the same period.
"Given the bottlenecks in the sector the returns on infra theme mutual funds are also not
very encouraging, given its scope and size", adds Neroy.
As far the banking sector goes, the banking stocks have reflected reasonable valuations
after the RBI has raised policy rates successively since March 2010. The BSE Banking
Index clocked over 2 pc return in the month of June with HDFC Bank and State Bank of
India gaining nearly 5 pc for the month.
Investment in Equity Markets
The Assets under management (AUM) of mutual fund industry has shown a jump of 6.1%
from the last quarter (January 2011 to March 2011). The AUM for the quarter April 2011 to
June 2011 is about Rs 743,084 crore.
21

22

CHAPTER-2
THEROTICAL FRAME OF THE WORK

NEED OF THE STUDY

The study helps the investor to compare various investment schemes and the returns
from those investments. The reader can have thorough knowledge on concepts and
trends of mutual funds.
The study helps to have the knowledge of various schemes and working of mutual
funds. User can make proper analysis of returns in different schemes comparing the
performance of the study period.
23

The study enables the readers to assess the Net Asset Value (NAV) by seeing the charts.
Researchers can think of further study by including the data of large period. The study
also enables us to understand the fluctuations related to Sensex and Nifty

SCOPE OF THE STUDY

The study covers the concept and details of mutual funds and introduction on equity,
derivatives and index. The study also includes returns of equity, mutual funds and
relative index of different sectors.
Equities year high and low is also included in the study. The project report covers the
study of Net Asset Value (NAV) of mutual funds in different sectors. The analysis part
includes the Net Asset Value (NAV) charts which gives the clear picture of the present
value of the mutual fund company. The study includes the information regarding the
selection of portfolio for different funds in theory part.
The theory part also includes following information related to mutual fund :

History of mutual funds

Concept of mutual funds

Why mutual funds

Net Asset Value (NAV)

Types and benefits of mutual funds

Trends in mutual funds

Future scenario

Problem of mutual fund industry in India.

OBJECTIVES OF THE STUDY

1) To ascertain the various fluctuation in different sectoral schemes of mutual funds
2) To examine mutual funds investment with equity shares and also relative to Nifty and
Sensex.
3) To study the performance of selected mutual fund companies and equity companies and
their performance in 1 year.

24

4) To reveal the current situation of mutual funds and equities as well as index in last one
year in India .

LIMITATIONS
1) Equity return is not taken from NSE stock exchange.
2) The data of mutual fund companies and equity companies is taken only for 3& 6
months and 1 year due to non availability of data.
3) Due to limitation of time all sectors are not studied, only selected sectors have been
studied.
4) Data for mutual funds available on website is day to day basis data. Data is updated
daily. Hence the data is available as on 31 march 2006.
5) only growth funds are taken.
6)Due to non availability of data NSE scrip tata consultancy information has not taken.

METHODOLOGY OF THE STUDY

All information related to the topic needs to be carefully scrutinized to avoid the
risk of biased analysis. Having once identified which information is relevant and need to be
collected, we will have to define how this will be done.
The method employed in the investigation depends on the purpose and scope of the
study. Let us try to understand methodology.
25

1) RESEARCH DESIGN: Research design is some statement or specification of

procedures for collecting and analyzing the information required for the solution of some
specific problem.

Here the exploratory research is used as investigation is mainly concerned with

determining the trends and positive and negative returns in different sectors of mutual funds
and equities. Exploratory research is generally carried out by three sources of information
A) Study of secondary sources
B) Discussion with individuals
C) Analyzing some specific areas
2) DATA COLLECTION METHODS: The key for creating useful system are selectivity
in collection of data and linking that selectivity to the analysis and decision issue of the
action to be taken. The accuracy of collected data is of great significance for drawing
correct and valid conclusions from the investigation.
The following are the main steps in data collection process
a) Type of information required in the investigation
b) Establishing the facts that are available at present and additional facts required.
c) Identification of sources from where the information can be available.
d) Selection of appropriate information i.e. collection method.

3) SOURCES OF INFORMATION: Data available in marketing research are either

primary or secondary.
Primary data: primary data are generated in an investigation according to the needs of
problem in head. Primary data is collected using case study methods. There are some set of
Qualitative techniques used for collection of some socio economic information about some
phenomenon.
Secondary data: Secondary26data can be defined as data collected by some one else for
purpose other than solving the problem being investigated. Secondary data is collected from
external sources which include information from published material of SEBI and some of
the information is collected online. The data sources also include various books, journals,
magazines, news papers, etc. The organization profile is collected from Branch Manager.

27

CHAPTER 3
INDUSTRY PROFILE

INDUSTRY PROFILE
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the28Government of India and Reserve Bank the. The history of
mutual funds in India can be broadly divided into four distinct phases

FIRST PHASE 1964-87 Unit Trust of India (UTI) was established on 1963 by
an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the
Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was delinked from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by UTI
was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under
management.

SECOND PHASE 1987-1993 (Entry of Public Sector Funds) 1987 marked

the entry of non- UTI, public sector mutual funds set up by public sector banks and Life
Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by
Canara Bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct
92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990. At the end of 1993, the mutual fund industry had assets under management
of Rs.47,004 crores.

THIRD PHASE 1993-2003 (Entry of Private Sector Funds) With the entry of
private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the
Indian investors a wider choice of fund families. Also, 1993 was the year in which the first
Mutual Fund Regulations came into being, under which all mutual funds, except UTI were
to be registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July 1993. The
1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing,
with many foreign mutual funds setting up funds in India and also the industry has
witnessed several mergers and acquisitions. As at the end of January 2003, there were 33
mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with
29

Rs.44,541 crores of assets under management was way ahead of other mutual funds.

FOURTH PHASE since February 2003 In February 2003, following the repeal of the
Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the

Specified Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64
scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust
of India, functioning under an administrator and under the rules framed by Government of
India and does not come under the purview of the Mutual Fund Regulations. The second is
the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC.
It is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores
of assets under management and with the setting up of a UTI Mutual Fund, conforming to
the SEBI Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of consolidation
and growth. As at the end of September, 2004, there were 29 funds, which manage assets of
Rs.153108 crores under 421 schemes. The graph indicates the growth of assets over the
years

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciation realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost. The flow chart below
describes broadly the working of a mutual fund:

30

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

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

GROWTH IN ASSETS UNDER MANAGEMENT

31

Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of
the Unit Trust of India effective from February 2003. The Assets under management of the
Specified Undertaking of the Unit Trust of India has therefore been excluded from the total
assets of the industry as a whole from February 2003 onwards.

INDUSTRY OVERVIEW:The securities market achieves one of the most important functions of channeling
idle resources to productive resources or from less productive resources to more productive
resources. Hence in the broader context the people who save and investors who invest focus
more towards the economys abilities to invest and save respectively. This enhances savings
and investments in the economy, the two pillars for economic growth. The Indian Capital
Market has come a long way in this process and with a strong regulator it has been able to
usher an era of a modern capital market regime. The past decade in many ways has been
remarkable for securities market in India. It has grown exponentially as measured in terms
of amount raised from the market, the number of listed stocks, market capitalization,
trading volumes and turnover on stock exchanges, and investor population. The market has
witnessed fundamental institutional changes resulting in drastic reduction in transaction
32

costs and significant improvements in efficiency, transparency and safety.

DEPENDENCE OF SECURITIES MARKET

Three main sets of entities depend on securities market- the corporate, the
government & households. While the corporate and governments raise resources from the
securities market to meet their obligations, the households invest their savings in securities.
PRIMARY MARKET & SECONDARY MARKET
The securities market comprises two segments- primary market (new issues, offer
for sale) & secondary market (trading of stocks). There are two major types of issuers who
issue securities. The corporate entities issue mainly debt and equity instruments (shares,
debentures, etc.), while the governments (central and state governments) issue debt
securities (dated Securities, treasury bills). The two major exchanges, namely the NSE and
the BSE provide trading of securities.
STOCK MARKET:When investors think of the stock market, they may imagine a specific place - such
as a stock exchange. In fact, the stock market is the abstract idea of stock trading and stock
exchange. All selling of stocks - at stock exchanges and in other ways - affects the market
overall. Following stock market information in the news can help you make the right
decisions about stock market investing.
NEED OF STOCK MARKET:The stock market is simply a term for the overall market or industry that is
concerned with buying and selling company stock, both private and publicly traded
securities. The stock market does many things. It helps to set prices of stocks. The more a
stock is traded on the market and the more in demand the stock, the higher is its value.
Having a stock market that is interconnected with stock markets around the world helps
traders and investors to see how Specific stocks are doing.
Of course, the stock market is mainly present to create money. Through the market,
investors - both companies and individuals - can buy stocks, which effectively make them
own a small part of a company. If the company prospers, investors are rewarded with
dividends and profits. Companies, by becoming public and offering stocks to the public,
can raise money and improve their profile through business expansions which can help
them make great profit.

33

INTRODUCTION TO THE BSE:Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as "BSE", it was established as "The Native Share & Stock
Brokers Association" in 1875. It is the first stock exchange in the country to obtain

permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualised and corporative entity incorporated under the provisions of the Companies
Act, 1956, pursuant to the BSE (Corporatizations and Demutualization) Scheme, 2005
notified by the Securities and Exchange Board of India (SEBI).Bombay Stock Exchange
Limited received its Certificate of Incorporation on 8th August, 2005 and Certificate of
Commencement of Business on 12th August.BSE as a brand is synonymous with capital
markets in India. The BSE SENSEX is the benchmark equity index that reflects the
robustness of the economy and finance. At par with international standards, BSE has been a
pioneer in several areas. It has several firsts to its credit even in an intensely competitive
environment.

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Senses

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing & Settlement

'BSE On-Line Trading System (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2: 2002.
First to have an exclusive facility for financial training Moved from Open Outcry to

Electronic Trading within just 50 days

An equally important accomplishment of BSE is the launch of a nationwide investor
awareness campaign - Safe Investing in the Stock Market - under which nationwide
awareness campaigns and dissemination of information through print and electronic
medium was undertaken. BSE also actively promoted the securities market awareness
campaign of the Securities and Exchange Board of India.
In 2002, the name The Stock Exchange, Mumbai, was changed to BSE. BSE, which
had introduced securities trading in India, replaced its open outcry system of trading in
34 trading through the BSE Online trading (BOLT) system
1995, when the totally automated

was put into practice. The BOLT network was expanded, nationwide, in 1997. It was at the
BSE's International Convention Hall that Indias 1st Bell ringing ceremony in the history

Capital Markets was held on February 18th, 2002. It was the listing ceremony of Bharti
Tele ventures Ltd.
BSE with its long history of capital market development is fully geared to continue its
contributions to further the growth of the securities markets of the country, thus helping
India increase its sphere of influence in international financial markets.
VISION:
"EMERGE AS THE PREMIER INDIAN STOCK EXCHANGE BY ESTABLISHING
GLOBAL BENCHMARKS"
Listing means admission of the securities to dealings on a recognized stock
exchange. The securities may be of any public limited company, Central or State
Government,

quasi

governmental

and

other

financial

institutions/corporations,

municipalities, etc.
The objectives of listing are mainly to:

provide liquidity to securities.

mobilize savings for economic development.

Protect interest of investors by ensuring full disclosures.

A company intending to have its securities listed on the Exchange has to comply with the
listing requirements prescribed by the Exchange.
Some of the requirements are as under
1.

Minimum Listing Requirements for new companies

2.

Minimum Listing Requirements for companies listed on other stock exchanges

3.

Permission to use the name of the Exchange in an Issuer Company's prospectus

4.

Submission of Letter of Application

5.

Allotment of Securities

6.

Trading Permission

7.

Requirement of 1% Security

8.

Payment of Listing Fees

9.

Compliance with Listing

Agreement
35

10.

Cash Management Services (CMS) - Collection of Listing Fees.

ABOUT NSE:Logo of NSE

The logo of the NSE symbolizes a single nationwide securities trading facility
ensuring equal and fair access to investors, trading members and issuers all over the
country. The initials of the Exchange viz., N, S and E have been etched on the logo and are
distinctly visible. The logo symbolizes use of state of the art information technology and
satellite connectivity to bring about the change within the securities industry. The logo
symbolizes vibrancy and unleashing of creative energy to constantly bring about change
through innovation.
MISSION OF NSE:NSE's mission is setting the agenda for change in the securities markets in India. The NSE
was set-up with the main objectives of

Establishing a nation-wide trading facility for equities, debt instruments and

hybrids.

Ensuring equal access to investors all over the country through an appropriate
communication network,

Providing a fair, efficient and transparent securities market to investors using

electronic trading systems,

Enabling shorter settlement cycles and book entry settlements systems, and

Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology has become

industry benchmarks and is being emulated by other market participants. NSE is more than
a mere market facilitator. It's that force which is guiding the industry towards new horizons
and greater opportunities.
36

FINANCIAL MARKETS:

A financial market can be defined as the market in which financial assets are created
or transferred. Financial assets represents represent a claim to the payments of a sum of
money sometime in the future and/or periodic payment in the form of interest or dividend.
Financial Market performs an important function of mobilization of savings and channeling
them into the most productive uses. The participants in the financial markets are financial
institutions, agents, brokers, dealers, borrowers, lenders, savers and others who are interlinked by the laws, contracts and communication networks.
Financial markets consist of Primary and Secondary Markets. The Primary markets
deal in new financial claims and securities and hence are known as new issue markets. The
secondary market deals in securities already issued, existing or outstanding. Financial
markets are also classified as Money and Capital Markets. Money markets deals with
transactions in short-term instruments (with period of maturity one year or less, e.g.
treasury bills), while capital market deals with transactions in long-term instruments (with
period of maturity above one year, e.g. corporate debentures and government bonds). On
the basis of the type of the financial claim, financial markets are classified as Debt and
Equity markets. By the timing of delivery, financial markets are classified as Cash or Spot
markets and Forward or Future market.
FINANCIAL INSTRUMENTS CATEGORIZATION:Financial instruments can be categorized by "asset class" depending on whether
they are Equity Based (reflecting ownership of the issuing entity) or Debt Based (reflecting
a loan the investor has made to the issuing entity). If it is debt, it can be further categorised
into Short Term (less than one year) or Long Term.
Foreign Exchange instruments and transactions are neither debt nor equity based
and belong in their own category.

37

CATEGORIZATION IN MATRIX:-

Instrument Type
Asset Class

Securities

Debt (Long Term)

>1 year

Debt (Short
Term)
<=1 year

Bonds

Other cash

Loans

Bills, e.g. T-Bills

Deposits
Commercial
Certificates of
paper
deposit

Equity

Stock

Foreign Exchange

N/A

N/A

Spot foreign
exchange

Exchangetraded
derivatives

OTC derivatives

Bond futures
Options on
bond futures

Interest rate swaps

Interest rate caps and
floors
Interest rate options
Exotic instruments

Short term
interest rate
futures

Forward rate
agreements

Stock options
Equity futures

Stock options
Exotic instruments

Currency
futures

Foreign exchange
options
Outright forwards
Foreign exchange
swaps
Currency swaps

POTENTIAL OF THE INDIA FINANCIAL MARKET:

India Financial Market helps in promoting the savings of the economy - helping to
adopt an effective channel to transmit various financial policies. The Indian financial sector
is well-developed, competitive, efficient and integrated to face all shocks. In the India
financial market there are various types of financial products whose prices are determined
by the numerous buyers and sellers in the market. The other determinant factor of the prices
of the financial products is the market forces of demand and supply. The various other types
of Indian markets help in the functioning of the wide India financial sector.
The classification of Financial Markets can be summarized as follows:
o
o
o
o

Money Market
Debt Market 38
Forex Market
Capital Market

CAPITAL
FOREX
DEBT MARKET
MARKET
MARKET

FINANCIAL marketmamaMARKET

MONEY MARKET

MONEY MARKETS:Money markets can be defined as a market for short term money and financial
assets that are near substitutes for money (any financial assets that can be quickly converted
into money with minimum transaction cost). One more important function of this market is
to channel savings into short term productive investments like working capital. Money
market aids banking, operates as a medium of integration between sub markets, promotes
maintaining of minimum reserve in the form of cash and liquidity and controls the interest
rates.

DEBT MARKET:Traditionally debt instruments are known for generating a predetermined income for a
given period of time, other than in cases of default. Hence they are also known as fixed
income instruments. The debt markets in advanced are significantly larger and deeper than
equity markets. But in India, the trend is just the opposite. The development of debt market
in India has not been as remarkable
as in the equity market. However the debt markets in
39
India have undergone a considerable change in the last few years. Characterized by
regulated interest rates, limited players and lack of trading earlier, the markets have become
more integrated and less regulated. The debt market in India is divided into two categories:

o Government securities market consisting of Central Government and State

Government securities.

o Bond market consisting of FI bond, PSU bonds and Corporate bonds/debentures.

FOREIGN EXCHANGE MARKET:
Foreign exchange or Forex market is the one where a countrys currency is traded
for another. The rate at which one currency is converted to another is known as the rate of
exchange. Forex market is the largest financial market in the world having a daily turn over
of couple of trillion dollars. The key participants in the forex market are importers (who
need foreign currency to pay off their imports), exporters (who want to convert their foreign
currency receipts into domestic), traders (who make a market in the foreign currency),
foreign exchange brokers (who bring together buyers and sellers), speculators (who tries to
profit from exchange rate movements) and portfolio managers who buy and sell foreign
currency. Speculative transactions account for more than 95% of the turnover on the Forex
markets.
CAPITAL MARKET
A Capital Market is a market for securities (debt or equity), where business
enterprises (companies) and governments can raise long-term funds. It is defined as a
market in which money is provided for periods longer than a year [1], as the raising of shortterm funds takes place on other markets (e.g., the money market). The capital market
includes the stock market(equity securities) and the bond market (debt). Financial
regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and
Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions

Derivatives

Cash
to ensure that investors
areMarkets
protected against fraud, among other duties.
BSE

Secondary Markets

BSE
NSE
or bond issues are sold to investors via a mechanism known as
I.P.O.- Debtprimary
/ Eq markets, new stock
OTCEI
Primary Markets
Rights Issue
Others markets, existing securities are sold and bought among
underwriting. In the secondary
Convertible Deb
investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.
Book Building
Issue thro Stock Ex

Capital markets
may be classified as primary markets and secondary markets. In
NSE

40

STOCK EXCHANGE:A place, whether physical or electronic, where stocks, bonds, and/or derivatives in
listed companies are bought and sold. A stock exchange may be a private company, a nonprofit, or a publicly-traded company (some exchanges have shares that trade on their own
floors). A stock exchange provides a regulated place where brokers and companies may
meet in order to make investments on neutral ground. The concept traces its roots back to
medieval France and the Low Countries, where agricultural goods were traded for cash or
debt. Most countries have a main exchange and many also have smaller, regional
exchanges. A stock exchange is also called a bourse or simply an exchange.
EQUITY MARKET:Equity is defined as stock or any other security representing an ownership interest in
a company listed on the stock exchange.
An equity share is a right to a share in the profits of a Company. If you want a share in the
company's profits, you can do so by buying an equity share.Perhaps, the best way to create
wealth, it is a means to achieve returns that beats inflation by a wide margin.

BASIC INFORMATION ON EQUITY INVESTING:Equity investment refers to buying a piece of a company. You do this by buying
shares in that company.Equity investment refers to buying a piece of a company. You do
this by buying shares in that company. There are two ways to acquire shares in a company:
41

from the primary market, where you buy a company's share when it first issues shares (or
equity). This first share offering is called an initial public offering (IPO). Or, you could buy
equity in the secondary market, which is the stock exchange. When you buy or sell equity
on a stock exchange, you have to do the transaction through an exchange-certified

broker/brokerage firm, who will now act as your agent whenever you want to buy or sell
equity.
Equity investments are high-risk high-return propositions. There is scope for serious
erosion of capital as well as considerable appreciation. This depends on many factors such
as performance of the company, general market conditions, state of the economy and so
on...
In an investment portfolio, the equity portion represents one end of the risk-return
spectrum, the high end. No other investment tool gives you this much scope for capital
appreciation.
EQUITY INVESTMENT COSTS:The charges applicable on equity investments are Brokerage, demat, security
transaction tax, Service tax and education cess
BROKERAGE CHARGES:
You pay a nominal one-time account-opening fee and then brokerage charges for
every purchase and sale transaction undertaken thereafter.
DEMAT CHARGES:
These are charges levied for maintaining your demat account. These charges include
periodical charges for account maintenance, transaction charges for each debit and credit of
shares, and other incidental charges.
PAYMENT OF SECURITIES TRANSACTION TAX (STT):
You pay the STT while buying or selling equity.
PAYMENT OF SERVICE TAX (ST) AND EDUCATION CESS (EC):
You pay ST and EC, at present levied together at a 12.24% rate, as a percentage of
brokerage due to the broker
TAX STRUCTURE ON INCOME FROM EQUITY INVESTMENT:Dividends received are tax free. Equity investments are subject to short term capital
gains (STCG) and long term capital gain (LTCG) also, as the case may be Dividend
received on stock is free from tax for the investor. This is the good news. However, you do
have to pay short-term capital gains tax on any capital gains you might make in the short
term ('short term defined as any period less that one year)
Thus gains from selling42equity shares that have been purchased and sold within a
year are taxed at 11.22% (10 per cent tax + 2 per cent education cess + 10 per cent
surcharge, if applicable). There is no tax on long-term capital gains.All this is over and
above the 12.24% service tax you pay on brokerage charges every time you transact
business in equity, i.e., buy and sell shares. In addition, you have to pay Securities

Transaction Tax (STT) on sale and purchase transactions of shares. The STT rate for
delivery-based transactions is 0.125% of the transaction value for both buyers and sellers.
For non-delivery based transactions, the STT is 0.025% of the transaction value.

MARKET RISKS:
The risk of market collapse; or that you have invested at the peak of a particular
stock. Which means chances are returns on that investment could be minimal at best or
worse, will run at a loss.
BENEFITS OF STOCK MARKET VOLATILITY:
Have you ever thought that stock market volatility can help you? Well, you may not
think so, but it can really boost up your stocks! Many investors when they foray wonder
what to do when the stock market falls. They sell or just sit on the fence and wait for the
downward trend to cave in. The irony is that they actually begin to invest when the stock
market is on the higher side.It is quite strange as it goes against the normal approach.
People tend to buy stuff when it is cheap while in stocks people purchase stocks when the
market is on a higher side. Such a concept is known as the heard mentality, which indicates
that since the market is ascending everybody is thinking that it will rise all the more and
begin purchasing.If you are an experienced investor, you will not be getting into such an
odd thing, you will be applying something very different instead. You will be purchasing
when the market is collapsing and that will be against the market, which is also called
contrarian theory.
As you are constructing your portfolio for the long term you dont need to be
bothered about the present stock market falls. Every descending movement is a prospect for
you to choose the stock. Dollar cost averaging is an alternate way to view it. You will
choose some more of the stock every time the stock hits a low as overall price of holding
will get minimized. This is the advantage of stock market instability which is usually
detested by many.The key aspect that you need to be careful about while employing the
stock market volatility for your43advantage is the fact that you need to do a decent research
and analysis before venturing into a particular stock. You should pick a stock that you
consider is good enough to be held for a minimum of ten years and will earn you money
after the decade. Defensive stocks will usually not come in this group.

Patience plays an important role in a long term investment. Besides, greediness should be
avoided and an investor should be ready to quit a stock in case it fails to deliver.Dont panic
when things go awry. You can still turn the tide in your favor with prudence and caution.

RISKS INHERENT IN EQUITY INVESTING:

The risk factor in equity investments is appreciably higher than fixed income
securities such as fixed deposits or National Saving Certificates, or post office monthly
income schemes.
Like any avenue of investment (except those whose returns are guaranteed by the
government, like the PPF), equity investing comes with risk. In fact, the risk factor in
equity investments is appreciably higher than fixed income securities such as fixed deposits
or National Saving Certificates (NSC), or post office monthly income schemes.
Company stocks are susceptible to risks, and these risks are carried forward to your
investments as well. Here are a few:
BUSINESS RISKS:
The risks associated with the prosperity of a business and the demand for its
products. There is always a risk that buyer profile or habits might change suddenly and a
company's product goes from being the rage to an also-ran.
FINANCIAL RISKS:
The skill with which a company's finances are managed to ensure that it has an
optimum level of debt, equity, reserves, etc. If a company's financials are ineptly handled,
even in the short term, chances are that the ineptness will show up as a run on the stock in
the future.
INDUSTRY RISK:
Changes in technology, regulations, vogue, etc. can affect the performance of an
industry sector as a whole, and a company stock of that sector might take the fall along with
all its other competitors in that sector.
MANAGEMENT RISKS:

44

The level of corporate governance, management skills and vision determines the
long term health of a company. Short term, ad hoc management decisions to ramp up profit
sheets invariably leads to long-term grief for that company.

EXCHANGE RATE RISKS:

These factors affect a company but are outside its control, such as a sudden
strengthening of the rupee that might affect exports, having adverse effect on an exportoriented company's stock.
SYSTEMIC RISK:
Before setting out to invest in stocks, an individual should understand and learn
about all sorts of risks. There isnt any investment without risk. Its something that cant be
taken lightly. Purchasing a stock means taking on risk. Thats the way it works. People take
risk in order to be rewarded eventually. Some win and some lose as they trade. It is
essential that you know the key risks, which you will have to face as a trader.
Knowing and understanding main risks allows you to offset forces, which are
obstructive to the costs of your shares and reduce the outcome of those forces on your
investments success. Systemic risk is the unavoidable outcome of working within any
system. In such a case, the stock market is the system. Traders could possibly safeguard
against certain risks, however they cannot safeguard against systemic risk. Therefore,
involvement in the markets comprises implicit approval of its systemic risk.
Systemic risk can involve stock market crunch with extensive outcomes. As it is
said A rising tide floats all boats. Inward tides definitely raise the whole stock market.
Nevertheless the self-same tide can also recoil and can leave the whole stock market
deserted. Hedging is an effective tool to offset the risk when the latter takes place.

45

CHAPTER-4
COMAPNY PROFILE

46

INDITRADE CAPITAL LTD

India Infoline is a one-stop financial services shop (Equity, Commodity, Mutual Funds,
General Insurance, Life Insurance), most respected for quality of its advice, personalized
service and cutting-edge technology. Keeping with its tradition of personalized service,
India Infoline provides customized and integrated equity solutions to Investors like you.
India Infoline is one of the best brands amongst Indian domestic broking houses
enjoying an unmatched & unparalleled brand recall. Financially sound with an
excellent track record of consistent market growth in all key business segments.
The India Infoline group, comprising the holding company, India Infoline Ltd and
its wholly owned subsidiaries offers the entire gamut of investment products. The
India Infoline group has a significant presence across the country with over 596
branches in over 345 cities across India.
It also undertakes equity Research which is acknowledged by none other than
Forbes as Best of the Web & must read for investors in Asia .
47

The group has memberships on BSE and NSE for equity trading, depository
participant with NSDL and CDSL and commodities trading with MCX and NCDX
Infoline group, comprising the holding company, India Infoline Ltd and its

Subsidiaries, straddles the entire financial services space with offerings ranging from
Equity research, Equities and derivatives trading, Commodities trading, Portfolio
Management Services, Mutual Funds, Life Insurance, Fixed deposits, Government bonds
and other small savings instruments to loan products and Investment banking. India Infoline
also owns and manages the websites, www.India Infoline.com and www.5paisa.com .
India Infoline Ltd, being a listed entity, is regulated by SEBI (Securities and
Exchange Board of India). It undertakes equities research which is acknowledged by none
other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. India
Infoline's research is available not just over the internet but also on international wire
services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where it
is amongst the most read Indian brokers.
VISION OF INDIAINFOLINE:Its VISION IS TO BE THE MOST RESPECTED COMPANY IN THE
FINANCIAL SERVICES SPACE.

INDIA INFOLINE GROUP:The India Infoline group, comprising the holding company, India Infoline Limited
and its wholly-owned subsidiaries, straddle the entire financial services space with offerings
ranging from Equity research, Equities and derivatives trading, Commodities trading,
Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds
and other small savings instruments to loan products and Investment banking.
India Infoline also owns and manages the websites www.indiainfoline.com and
www.5paisa.com. The company has a network of 596 branches spread across 345 cities and
towns. It has more than 500,000 customers.
INDIA INFOLINE MEDIA AND RESEARCH SERVICES LIMITED:The content services represent a strong support that drives the broking,
commodities, mutual fund and portfolio management services businesses. Revenue
generation is through the sale 48
of content to financial and media houses, Indian as well as
global.
INDIA INFOLINE COMMODITIES LIMITED:-

India Infoline Commodities Pvt Limited is engaged in the business of commodities

broking. Our experience in securities broking empowered us with the requisite skills and
technologies to allow us offer commodities broking as a contra-cyclical alternative to
equities broking. We enjoy memberships with the MCX and NCDEX, two leading Indian
commodities exchanges, and recently acquired membership of DGCX.
INDIA INFOLINE MARKETING AND SERVICES:
India Infoline Marketing and Services Limited is the holding company of India
Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

(a) India Infoline Insurance Services Limited is a registered Corporate Agent with the
Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate
Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life
Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in
early 2001.
(b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a
newly formed subsidiary which will carry out the business of Insurance broking. We have
applied to IRDA for the insurance broking license and the clearance for the same is
awaited. Post the grant of license, we propose to also commence the general insurance
distribution business.
INDIA INFOLINE INVESTMENT SERVICES LIMITED:
Consolidated shareholdings of all the subsidiary companies engaged in loans and financing
activities under one subsidiary. Recently, Orient Global, a Singapore-based investment
institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment
Services. India Infoline Investment Services Private Limited consists of the following stepdown
SUBSIDIARIES.
(a) India Infoline Distribution Company Limited (distribution of retail loan Products)
(b) Money line Credit Limited (consumer finance)
(c) India Infoline Housing Finance Limited (housing finance)
49

IIFL (ASIA) PRIVATE LIMITED :

IIFL (Asia) Private Limited is wholly owned subsidiary which has been
incorporated in Singapore to pursue financial sector activities in other Asian markets.

Further to obtaining the necessary regulatory approvals, the company has been initially
capitalized at 1 million Singapore dollars.

INDIA INFOLINE ORGANIZATION FLOWCHART:

Territorial
Manager

HR

Team
Leader
Relationshi
p Manager

RESEARCH:-

Sales
Manager

Sales
Manager

Team
Leader

Team
Leader

Relationship
Manager
50

Relationship
Manager

Sales
Manager

World class research reports, sector reports and update, corporate news,
announcements, Technical stocks Ideas on trader terminal, SMS (paid service),
fundamental investment ideas in Large Cap, Mid Cap, Small Cap, result updates, Daily
market strategies (DMS), Weekly wrap, Daily Derivatives Strategy, Daily Market watch
(DMV) and Online recommendations.
BACK OFFICE:

Web and application based online back office, centralized data processing.

Contract notes through e-mails and courier.

Online ledger accounts, DP accounts, trade information.

TRADE WITH THE BEST STAY AHEAD OF THE REST:

Trade online, over the phone or at our branches.

Dedicated, expert Relationship Managers.

Internationally acclaimed research.

Trade in shares, derivatives and commodities.

Apply for Online IPOs & Mutual Funds on our home page www.5paisa.com or
www.indiainfoline.com

TT ADVANCE LOOKS ( TRADING SOFTWARE) OF IIFL

51

52

CHAPTER 4
ANALYSIS & INTERPRETATION

53

ANALYSIS AND INTERPRETATION

PREFACE
The analysis is done to know whether, Mutual fund, is it investors best choice. The
information is collected of different sectors which include FMCG Sector, , Pharma Sector
and Index sector.
The returns of selected Mutual funds and selected Equities are calculated for 3&6
months and 1year period. Equities closing price are also given for half year and annually.
The information collected is shown in graphical form to make it more simple and easy to
understand by the Reader. The information regarding all Mutual Funds and Equities is
given in the Table.
The Analysis is done by comparing the Particular Sector Mutual Funds with
Equities and also with Relative Sensex and Nifty, index of BSE and NSE. The average of
Particular Sector Mutual Funds and Equities is taken and returns are calculated. Let us take
for example, In FMCG Sector the Returns of ICICI Prudential FMCG Fund, Franklin
FMCG fund and Magnum FMCG Fund are added and then divided by 3 hence the average
is taken as returns of FMCG Mutual Funds in the same way Returns of HLL Equity, Dabur
Equity, Colgate Equity, Tata tea Equity and Britannia Equity are also added and divided by
5 and the average is taken as the returns of FMCG sector Equities. The Returns of Relative
54

Sensex and Nifty is Calculated and then the Analysis is done to know the position of
Mutual Funds in the market in long term and short term period. The period of 3 months and
6 months is taken as short term and period of 1 year is taken as long term period. The
comparison of aggregate Mutual Funds and Equities is shown in Table.

TABULATION
A Table is a systematic arrangement of statistical data in rows and columns. Rows are
horizontal arrangements whereas columns are vertical. Tabulation is a systematic
presentation of data in a form suitable for analysis and interpretation. The tables used are as
follows:
1) One way table: It presents only one characteristic and hence in answering one or

more

independent questions with regard to those characteristics.

2) Two-way table: It contains sub divisions of a total and is able to answer two

mutually

dependent questions.
3) Three-way table: It sub-divides the total in to three distinct categories It is capable of
answering three mutually dependent questions

COMPARATIVE STUDY
Comparative study is made by comparing the different investment schemes including
mutual funds, equity and relative indexes. The returns of mutual funds and equity are
55

compared for different sectors. The Net Asset Value of different mutual fund companies is
also shown in the study. Overall the study is done by comparing different investment
schemes and what returns they give in the period of 1 year.

GRAPHICAL REPRESENTATION OF DATA

A picture is worth a thousand words. The impression created by a picture has much
greater impact than any amount of detailed explanation. Statistical data can be effectively
presented in the form of diagrams and graphs. Graphs and Diagrams make complex data
simple and easily understandable. They help to compare related data and bring out subtle
data with amazing clarity. The Diagram used is as follows:
1) Bar diagrams: Bar diagrams are used specifically for categorical data or series. They
consist of the group of equidistant rectangles, one for each group or category of data in
which the values of magnitudes are represented by length or height of rectangles.
2) Sample Bar diagram: It is used of comparative study of two or more aspects of a single
variable or single category of data.
3) Percentage bar diagram: If sub-divided bar diagrams are presented on a percentage
basis i.e. each component as a percentage of whole, it is said to be a percentage bar
diagram.

56

FMCG SECTOR MUTUAL FUNDS & EQUITIES

RETURNS OF FMCG SECTOR EQUITIES & MUTUAL FUNDS
TABLE 3.1

Absolute returns %

NAME

3
MONTHS

6 MONTHS

1 YEAR

Franklin FMCG Fund

15.12

-9.9

55.20

Pru ICICI FMCG

Fund

0.57

0.30

0.12

Magnum FMCG Fund

0.21

0.04

0.10

Hind Lever ltd Equity

0.84

0.95

0.84

Dabur equity

-0.82

0.38

0.01

Colgate Equity

0.72

0.48

0.79

Britannia Equity

0.0019

0.08

0.0013

Tata tea Equity

0.014

0.05

0.06

57

RETURNS OF MUTUAL FUNDS IN FMCG SECTOR

FIGURE 3.1

INTERPRETATION

From the above graph it shows that frankin fmcg mutual fund shows high returns than
pru icici and magnum fmcg mutual fund in 3months, 6months and 1year.

58

RETURNS OF EQUITIES IN FMCG SECTOR

FIGURE 3.2

INTERPRETATION
From the above figure it shows that hindusthan lever ltd shows high returns and Tatatea
equity shows low returns in 3months, 6months and 1year

59

FMCG MUTUAL FUNDS VS EQUITIES & RELATIVE INDEX

TABLE 3.2
ABSOLUTE RETURNS IN %
NAME
3 MONTHS

6 MONTHS

FMCG SECTOR
MUTUAL FUNDS

0.15

0.10

FMCG SECTOR
EQUITIES

0.023

0.019

0.017

RELATIVE TO
SENSEX

594.13

1476.18

1725.89

RELATIVE TO
NIFTY

6561.00

9965.46

9830.72

60

1 YEAR
0.55

RETURNS OF MUTUAL FUNDS AND EQUITIES IN FMCG SECTOR

FIGURE 3.3

INTERPRETATION
From the above figure it shows that fmcg mutual fund equities shows high returns in
3months,6months and 1year when compared to fmcg sector equities.

61

RETURNS OF NIFTY AND SENSEX IN FMCG SECTOR

FIGURE 3.4

INTERPRETATION
From the above figure it shows that Nifty shows high returns when compared to Sensex in
all 3months, 6months and 1year.

62

PHARMA-SECTOR MUTUAL FUNDS & EQUITIES

HIGH/LOW & RETURNS OF PHARMA SECTOR EQUITIES & MFS

TABLE 3.3
ABSOLUTE RETURS %
NAME
3MONTHS

6MONTHS

1 YEAR

Franklin Pharma Fund

0.07

0.05

0.46

Magnum Pharma Fund

0.29

-0.74

-0.02

UTI Pharma & health fund

0.08

0.01

0.27

Dr Reddys Equity

0.083

0.072

0.062

Ranbaxy Equity

0.027

0.027

0.042

Orchid equity

0.013

-0.012

0.010

Cipla equity

0.025

0.029

0.26

Sun Pharma Equity

0.022

0.024

0.030

63

RETURNS OF MUTUAL FUNDS IN PHARMA SECTOR

FIGURE 3.5

INTERPRETATION
From the above figure it shows that franklin fmcg fund has high returns in 3months and
1year and low returns in 6months and magnum mutual fund shows negative returns in
6months and 1year.

64
RETURNS ON
EQUITIES IN PHARMA SECTOR

FIGURE 3.6

INTERPRETATION
From the above figure it shows that Dr Reddys Equity, Sun Pharma Equity and Ranbaxy
& cipla equit also performs well. But we can also notice that Pharma Sector Equity such as
orchid gives negative Returns in the period of 6months . In the same way equity also gives
very poor Returns during the study period.

65
PHARMA SECTOR MUTUAL
FUNDS VS EQUITIES & RELATIVE
INDEX

TABLE 3.4

ABSOLUTE RETURNS IN %

NAME

3 MONTHS

6 MONTHS

1 YEAR

PHARMA
MUTUAL FUNDS

0.44

0.80

0.75

PHARMA
EQUITIES

0.17

0.16

0.40

RELATIVE TO
SENSEX

594.13

1476.18

1725.89

RELATIVE TO
NIFTY

6561.00

9965.46

9830.72

ABSOLUTE RETURNS OF MUTUAL FUNDS IN FMCG SECTOR

66

FIGURE 3.7

INTERPRETATION
From the above figure it shows that pharma mutual fund shows high returns in all 3months,
6months and 1year when compared to pharma equities.

67

ABSOLUTE RETURN ON NIFTY AND SENSEX IN PHARMA SECTOR

FIGURE 3.8

INTERPRETATION
From the above figure it shows that Nifty shows more returns in 3months, 6months
and 1year when compared to Sensex.

68

CHAPTER - 5
FINDINGS & SUGGESTIONS

FINDINGS
69

The Mutual funds shows better yields compare to equities.

In fmcg sector franklin fmcg fund shows negative returns in 6 months and positive

returns in 3months and 1year .

In fmcg sector Hindustan lever gives maximum returns when compared to other
equities.

In fmcg sector equities of Tata tea shows good returns in long period where as dabur
shows negative returns in short term period.

In fmcg sector the Nifty shows positive returns in 6months when compared to 3months
and negative returns when compared to 1year

In fmcg sector the Sensex shows increase in returns in 3month,6month and 1year

In Pharma Sector Mutual Funds perform better than Equities in long term period.

In pharma sector sbi mutual fund shows negative returns both in short & long term.

In pharma sector orchid shows negative returns in 6 months.

In pharma sector Nifty shows negative returns in 6months and positive returns in
3months and 1year.

70

SUGGESTIONS
It is better to invest in mutual funds rather than equities by considering risk factor.
Even though mutual funds shows in short term negative returns but it is better to
invest in mutual funds.
While investing in equities better to invest in blue chip companies by comparing
mid cap securites.
While investing in mutual funds, schemes must be selected by the investor based on
his risk taking ability & past performance.
The investor can be invested with long term perception in equity market.
The investor is better to view companies performance before investing in equities
market
While investing in mutual funds better to invest in schemes based on the financial
position of the investor.
In the present generation better to invest in mutual funds rather than equities
because of various schemes opportunity based on the financial position of the
investor.
.

71

CONCLUSIONS

Equities have existed and evolved over a long time, with roots I commodities market. In
the recent years advances in financial markets and the technology have made equities easy
for the investors.
Equities and mutual funds in India is growing rapidly unlike derivative markets. Trading in
equities require more than understand of finance. Being new to markets maximum number
of investors have not yet understood the full implications of the trading in equities. SEBI
should take actions to create awareness in investors about the equities market.
Introduction of mutual funds implies better risk management. These markets can give
greater depth, stability and liquidity to Indian capital markets. Successful risk management
with equities requires a thorough understanding of principles that govern the pricing of
financial derivatives.
In order to increase the equities in India SEBI should revise some of their regulation like
contract size, participation of FII in the equities market

72

BIBILIOGRAPHY

I. TEXT BOOK
1.

Security Analysis Portfolio Management

Donald Fisher
Ronald A Jordan

2.

Mutual Fund In India

H.Sadhak

II.

WEB SITES
www.mutualfundsindia.com
www.amfiindia.com
www.utimf.com
www.bseindia.com

III. MAGAINES
Business India
Business World

IV. NEWS PAPERS

Economic Times
Business Standard.

73