comparison of fund performance with benchmark index

7/31/2019 COMPARISON OF FUND PERFORMANCE WITH BENCHMARK INDEX

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CONTENTSChapterIPageNo Introductionofthestudy3 Needandimportanceofthestudy 4-5 Objectivesofthestudy6 Methodology 7 Limitations8

ChapterII IndustryProfile 1-33 CompanyProfile 34-46

ChapterIII Theoreticalframeworkofthestudy 48-91

ChapterIV TabulationandAnalysis 9-134

ChapterV Summary 13-137 Findings 13-139 Suggestions 140141BIBLIOGRAPHY 142

ChapterI

INTRODUCTIONThestudyregardingtheCOMPARISONOFFUNDPERFORMANCEWITHBENCHMARKINDEXgivesanoverviewofthefundperformancestateoftheMutualFundindustryinIndia.ThestudyrevealsthepresenttrendspertainingintheMutualFundIndustryand

theupsanddownsintherecentpast.Astheindustryisrapidlygrowingfromthelastdecade,whichissignfortheenlistmentofthefinancialservices,whichareavailableinourcountry.

Theevolvingeconomicscenarioofferspromisingopportunitiestoalltheinvestors.TheemergingviewofpresenttrendswillofferhandsomereturnsfromstockmarketeitherdirectlyorthroughMutualFundproducts.

However,inrecenttimesMutualFundsaredoingwellwiththeentryofprivateassetmanagementcompanies.TheAssetManagementCompaniesarecomingupwithvariousnewschemesthatsuittherequirementsofthesmallinvestors.Oneofthealternativesavailablefortheinvestorstominimizeriskismutualfund.


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Sotheinvestorsshouldselectthebestsuitablefundsfromtheavailableschemeswhichsuittheirrisktolerancelevel.

NEEDANDIMPORTANCEOFTHESTUDYTheneedforinvestmentariseswhenthereisincomeoverexpenditureof

anindividual.Savingswillenableaninvestortothinktwiceandthrice,wheretoinvestwhataretheinvestmentopportunitiesavailablewhattypeofalternativewillyieldgoodreturnstohisinvestment.

MutualFundswillbeoneofthealternativesavailabletotheretailinvestorinnowaday,whichareofferingfruitfulreturnswithsomeextentofsafety.TheIndianMutualFundIndustrywithmorethan500fundsoffersaveritablechoiceforinvesting.Butthelargenumberandvarietyoffundsalsoposesachallengeinselectionofrightfundthatmeetsonesinvestmentneeds.

MutualFundsaretheproductswhichareslowlygainingimportancefromthepartoftheinvestors.Duetofallofinterestrates,theinvestorsaregoingforthoseoptionsofinvestment,whichhassafety.InthatwayMutualFundsaregainingimportancebecauseoftheirportfolioofinvestmentandprofessionalinvestmentobjectives.

ItisveryessentialforaninvestortoknowaboutthepresenttrendoftheMutualFundindustrytoinvestintheMutualFunds.

Thetraditionalviewisnottokeepalleggsinonebasket.mutualfundsinvestinadiverserangeofsecuritiesandovermanyindustries.Hence,allth

eeggsarenotplacedinonebasket.Normallyaninvestorhastohavelargesumofmoneytoachievethisobjective,ifheinvestsdirectlyinthestockmarket.Throughmutualfunds,hecanachievediversificationofportfolioatafractionofthecost.So,diversificationreducestheportfolioreducestheportfolioriskandhelpstomaximizethereturnsofsmallinvestors.

OBJECTIVESOFTHESTUDY

ThemajorobjectivesofthestudyregardingtheCOMPARISONOFFUNDPERFORMANCEWITHBENCHMARKINDEXare: TostudytheGrowthofMutualFundIndustryinIndia Tostudythetaxbenefitsavailabletotheinvestorsofmutualfunds. Tostudythegrowthofprudentialassetmanagementcompany. Tounderstandthetechniquesforcalculationofriskandreturnassociatedwith

mutualfunds. TocomparetheperformanceofschemesofPRUICICIwithbenchmarkindex.


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METHODOLOGYOFTHESTUDY

Thestudyisbasedonthesecondarydata.Thenetassetvaluesofthevariousfundsandthemarketindexfortheyear2003-2005iscollectedforthepurposeofanalysis.Therequireddataiscollectedfromnewlettersregardingthemutualfundoperations,investorguidanceprogram,bulletins,factsheetsandvariouswebsitesrelatedtothemutualfundcompanies.

LIMITATIONSOFTHESTUDY

Theriskfreerateofreturnassumedas5%perannum. ThestudyislimitedonlytofivefundsofPRUICICIduetotimeconstraint. Thepastperformanceofmutualfundsisnotanindicatoroffutureperformance

ftheschemesastheydependonthemarketperformance..

ChapterII

ProfileofmutualfundindustryinIndiaMutualfundsinIndiaTheendofmillenniummarks36yearsofexistenceofmutualfundsinthiscountry.Thisridethroughthese36yearsisnotbeensmooth.Investorisstilldivided.Whilesomeareformutualfundsothersareagainstit.UTIcommenceditsoperationsfromJuly1964.Theimpetusforestablishingaformalinstitutioncamefromthedesiretoincreasetheprosperityofthemiddlean

dlowergroupstosaveandtoinvest.UTIcameintoexistenceduringaperiodmarkedbygreatpoliticalandeconomicuncertaintyinIndia.Withwaronthebordersandeconomicturmoilthatdepressedthefinancialmarket,entrepreneurswerehesitanttoentercapitalmarket.Thealreadyexistingcompaniesfounditdifficulttoraisefreshcapital,asinvestorsdidnotrespondadequatelytonewissues.Earnesteffortswererequiredtocanalizesavingsofthecommunityintoproductiveusesinordertospeeduptheprocessofindustrialgrowth.ThethenFinanceMinister,T.T.Krishnamacharisetuptheideaofaunittrustthatwouldbeopentoanypersonorinstitutionasweseeitisintendedtocatert


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otheneedsofindividualinvestors,andevenamongthemasfaraspossible,tothosewhosemeansaresmall.FutureScenario

Theassetbasewillcontinuetogrowatanannualrateofabout30to35%overthenextfewyearsasinvestorsshifttheirassetsfrombanksandothertraditionalavenues.Someoftheolderpublicandprivatesectorplayerswilleithercloseshoporbetakenover.

Outoftenpublicsectorplayersfivewillsellout,closedownormergewithstrongerplayersinthreetofouryears.Intheprivatesectorthistrendhasalreadystartedwithtwomergersandonetakeover.Heretoosomeofthemwilldowntheirshuttersinthenearfuturetocome.

Butthisdoesnotmeanthereisnoroomforotherplayers.Themarketwillwitnessaflurryofnewplayersenteringthearena.Therewillbealargenumberofoffersfromvariousassetmanagementcompaniesinthetimetocome.SomebignameslikeFidelity,Principal,OldMutual,etc.arelookingatIndianmarketseriously.Oneimportantreasonforitisthatmostmajorplayersalreadyhavepresencehereandhencethesebignameswouldhardlyliketogetleftbehind.

ThemutualfundindustryisawaitingtheintroductionofderivativesinIndiaasthiswouldenableittohedgeitsriskandthisinturnwouldbereflectedinitsNetAssetValue(NAV).SEBIisworkingoutthenormsforenablingtheexistingmutualfundschemestotradeinderivatives.Importantly,manymarketplayershavecalledontheRegulatortoinitiatetheprocessimmediately,sothatthemutualfundscanimplementthechangesthatarerequiredtotradeinDerivatives.

HISTORYOFMUTUALFUNDS:ThemutualfundindustryinIndiastartedin1963withtheformationofUnitTrustofIndia,attheinitiativeoftheGovernmentofIndiaandReserveBankthe.ThehistoryofmutualfundsinIndiacanbebroadlydividedintofourdistinctphases.FirstPhase1964-87UnitTrustofIndia(UTI)wasestablishedon1963byanActofParliament.ItwassetupbytheReserveBankofIndiaandfunctionedundertheRegulatoryandadministrativecontroloftheReserveBankofIndia.In1978UTIwasde-linkedfromtheRBIandtheIndustrialDevelopmentBankofIndia(IDBI)tookovertheregulatoryandadministrativecontrolinplaceofRBI.ThefirstschemelaunchedbyUTIwasUnitScheme1964.Attheendof1988UTIhadRs.6,700croresofassetsundermanagement.

SecondPhase1987-1993(EntryofPublicSectorFunds)1987markedtheentryofnon-UTI,publicsectormutualfundssetupbypublicsectorbanksandLifeInsuranceCorporationofIndia(LIC)andGeneralInsuranceCorporationofIndia(GIC).SBIMutualFundwasthefirstnon-UTIMutualFundestablishedinJune1987followedbyCanbankMutualFund(Dec87),PunjabNationalBankMutualFund(Aug89),IndianBankMutual/Fund(Nov89),BankofIndia(Jun90),BankofBarodaMutualFund(Oct92).LICestablisheditsmutualfundinJune1989whileGIChadsetupitsmutualfundinDecember1990.


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Attheendof1993,themutualfundindustryhadassetsundermanagementofRs.47,004crores.ThirdPhase1993-2003(EntryofPrivateSectorFunds)Withtheentryofprivatesectorfundsin1993,anewerastartedintheIndianmutualfundindustry,givingtheIndianinvestorsawiderchoiceoffundfamilies.Also,1993wastheyearinwhichthefirstMutualFundRegulationscameintobeing,underwhichallmutualfunds,exceptUTIweretoberegisteredandgoverned.TheerstwhileKothariPioneer(nowmergedwithFranklinTempleton)wasthefirstprivatesectormutualfundregisteredinJuly1993.The1993SEBI(MutualFund)RegulationsweresubstitutedbyamorecomprehensiveandrevisedMutualFundRegulationsin1996.TheindustrynowfunctionsundertheSEBI(MutualFund)Regulations1996.Thenumberofmutualfundhouseswentonincreasing,withmanyforeignmutualfundssettingupfundsinIndiaandalsotheindustryhaswitnessedseveralmergersandacquisitions.AsattheendofJanuary2003,therewere33mutualfundswithtotalassetsofRs.1,21,805crores.TheUnitTrustofIndiawithRs.44,541croresofassetsundermanagementwaswayaheadofothermutualfunds.FourthPhasesinceFebruary2003InFebruary2003,followingtherepealoftheUnitTrustofIndiaAct1963UTIwasbifurcatedintotwoseparateentities.OneistheSpecifiedUndertakingoftheUnitTrustofIndiawithassetsundermanagementofRs.29,835croresasattheendofJanuary2003,representingbroadly,theassetsofUS64scheme,assuredreturnandcertainotherschemes.TheSpecifiedUndertakingofUnitTrustofIndia,functioningunderanadministratorandundertherulesframedbyGovernment

ofIndiaanddoesnotcomeunderthepurviewoftheMutualFundRegulations.ThesecondistheUTIMutualFundLtd,sponsoredbySBI,PNB,BOBandLIC.ItisregisteredwithSEBIandfunctionsundertheMutualFundRegulations.WiththebifurcationoftheerstwhileUTIwhichhadinMarch2000morethanRs.76,000croresofassetsundermanagementandwiththesettingupofaUTIMutualFund,conformingtotheSEBIMutualFundRegulations,andwithrecentmergerstakingplaceamongdifferentprivatesectorfunds,themutualfundindustryhasentereditscurrentphaseofconsolidationandgrowth.AsattheendofSeptember,2004,therewere29funds,whichmanageassetsofRs.153108croresunder421schemes.Thegraphindicatesthegrowthofassetsovertheyears

GROWTHINASSETSUNDERMANAGEMENTINVESTMENTPHILOSOPHYEquity:OurInvestmentphilosophyrevolvesaroundtheconceptofgrowthatareasonablepricewherebyweinvestingrowthorientedstockswhichareavailableatattractiverelativevaluations.WeuseacombinationoftheTopdownandBottomupapproachestoinvestment. Topdownapproachforsectorallocation BottomupapproachforstockselectionWeidentifyandinvestinbusinessesthathaveasustainablecompetitiveadvantage.Weinvestwithamediumtermview,withaninvestmenthorizonofatleast18months.Riskcontrolisanimportantelementofourstrategy.

Webelieveinpro-activefundmanagementtoout-performbenchmarkindices.Indeterminingourinvestmentuniverse,weemployamulti-stagefilteringprocess.Atthefirstlevelfilter,welookatliquidity.Atthesecondlevelfilter,welookatmanagementquality.Thethirdlevelisthecompetitivepositionofthecompanyandthefinallevelisthesharepricevaluation.Debt:Therearethreemaintypesofdebtfundsandtheinvestmentphilosophyforeachdiffersduetodifferentinvestmentobjectivesandtypeofinvestors.LiquidFund:TheinvestmentphilosophyofthisschemeistoinvestinshorttermmoneymarketdebtinstrumentslikeT-bills,commercialpaper,debentures,certificateofdeposits,etctoprovideahigherthanaveragerateofreturn.Indoin


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gsothreemaintypesofrisksareactivelymanaged.Liquidityrisk,CreditriskandInterestrateRisk.IncomeFund:Theincomefundinvestsinalltypesofdebtinstruments.Theinvestmentphilosophycanbebroadlydefinedasconsistingofactivedurationandinterestratemanagementtogiveoptimalreturns.ThefundisdividedmainlybetweenGovernmentSecuritiesandCorporateBondswithsomeresidualinvestmentsinmoneymarketinstruments.Managementofthisfundinvolvestakinginterestrateviewsbasedonvariousmacroandmicrofactorslikestateoftheeconomy,monetarypoliciesofRBI,Liquidityinthebankingsystem,creditgrowth,globalinterestrates,etc.Micromanagementconsistsofsectoralallocation,maturityprofile,creditreviews,yieldcurveanalysisandtradingbasedonspreadmovementsetc.Investmentsincorporatebondsaredoneafterextensivecreditappraisalsincetheinvestmentsareinlong-termdebentures.InvestmentsaredoneonlyuptoAAratedcategory.Unratedinstruments/companiesarenotconsidered.GiltFund:GiltFundinvestsinthegilt-edgedgovernmentsecurities,whichispredominantlyawholesalemarket.Itallowsretailinvestorstoparticipateinthismarket.TheGiltFundaimstomaximizereturnsbyactiveinterestratemanagement,withzerocreditrisk.Activeinterestratemanagementinvolvesstudyingthedomesticandinternationalpolitico-economicscenarioaswellasin-depthanalysisoftheliquidityinthesystem,theshapeoftheyieldcurveandspreadsbetweenvarioussectorsonthecurve.Tomaximizetheriskadjustedreturnsfortheinvestors,basedontheirrisktolerance.

ManagetheschemesonPortfoliobasis. Activemanagementofinterestraterisk. Creditriskmanagementbyfollowingtheconservativeapproach. Continuousmonitoring.

Typesofrisks:Allinvestmentsinvolvesomeformofrisk.Evenaninsuredbankaccountissubjecttothepossibilitythatinflationwillrisefasterthanyourearnings,leavingyouwithlessrealpurchasingpowerthanwhenyoustarted(Rs.1000getsyoulessthanitgotyourfatherwhenhewasyourage).Considerthesecommontypesofriskandevaluatethemagainstpotentialrewardswhenyouselectaninvestment

.MarketRisk:Attimesthepricesoryieldsofallthesecuritiesinaparticularmarketriseorfallduetobroadoutsideinfluences.Whenthishappens,thestockpricesofbothanoutstanding,highlyprofitablecompanyandafledglingcorporationmaybeaffected.Thischangeinpriceisdueto"marketrisk".InflationRisk:Sometimesreferredtoas"lossofpurchasingpower."Wheneverinflationsprintsforwardfasterthantheearningsonyourinvestment,youruntheriskthatyou llactuallybeabletobuyless,notmore.Inflationriskalsooccurswhenpricesrisefasterthanyourreturns.

CreditRisk:Inshort,howstableisthecompanyorentitytowhichyoulendyourmoneywhenyouinvest?Howcertainareyouthatitwillbeabletopaytheinterestyouarepromised,orrepayyourprincipalwhentheinvestmentmatures?

Interestraterisk:Changinginterestratesaffectbothequitiesandbondsinmanyways.Investorsareremindedthat"predicting"whichwayrateswillgoisrarelysuccessful.Adiversifiedportfoliocanhelpinoffsettingthesechanges.ExchangeRisk:Anumberofcompaniesgeneraterevenuesinforeigncurrenciesandmayhaveinvestmentsorexpensesalsodenominatedinforeigncurrencies.Changesinexchangeratesmay,therefore,haveapositiveornegativeimpactoncompanieswhichinturnwouldhaveaneffectontheinvestmentofthefund.InvestmentRisk:Thesectoralfundschemes,investmentswillbepredominantlyinequitiesofselectcompaniesintheparticularsectors.Accordingly,theNAVoftheschemesarelinkedtotheequityperformanceofsuchcompaniesandmaybem


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orevolatilethanamorediversifiedportfolioofequities.ChangesintheGovernmentPolicy:ChangesinGovernmentpolicyespeciallyinregardtothetaxbenefitsmayimpactthebusinessprospectsofthecompaniesleadingtoanimpactontheinvestmentsmadebythefund.ROLEOFSEBIINMUTUALFUNDSIntheyear1992,SecuritiesandexchangeBoardofIndia(SEBI)Actwaspassed.TheobjectivesofSEBIare-toprotecttheinterestofinvestorsinsecuritiesandtopromotethedevelopmentofandtoregulatethesecuritiesmarket.Asfarasmutualfundsareconcerned,SEBIformulatespoliciesandregulatesthemutualfundstoprotecttheinterestoftheinvestors.SEBInotifiedregulationsforthemutualfundsin1993.Thereafter,mutualfundssponsoredbyprivatesectorentitieswereallowedtoenterthecapitalmarket.Theregulationswerefullyrevisedin1996andhavebeenamendedthereafterfromtimetotime.SEBIhasalsoissuedguidelinestothemutualfundsfromtimetotimetoprotecttheinterestsofinvestors.AllmutualfundswhetherpromotedbypublicsectororprivatesectorentitiesincludingthosepromotedbyforeignentitiesaregovernedbythesamesetofRegulations.ThereisnodistinctioninregulatoryrequirementsforthesemutualfundsandallaresubjecttomonitoringandinspectionsbySEBI.Therisksassociatedwiththeschemeslaunchedbythemutualfundssponsoredbytheseentitiesareofsimilartype.ItmaybementionedherethatUnitTrustofIndia(UTI)isnotregisteredwithSEBIas-amutualfund(asonJanuary15,2002).Howisamutualfundsetup?Amutualfundissetupintheformofatrust,whichhassponsor,trustees,ass

etManagementCompany(AMC)andcustodian.Thetrustisestablishedbyasponsor/sthatislikepromoterofacompany.Thetrusteesofthemutualfundholditspropertyforthebenefitoftheunitholders.AssetManagementCompany(AMC)approvedbySEBImanagesthefundsbymakinginvestmentsinvarioustypesofsecurities.Custodian,whoisalsoregisteredwithSEBI,holdsthesecuritiesofvariousschemesofthefundinitscustody.ThetrusteesarevestedwiththegeneralpowerofsuperintendenceanddirectionoverAMC.TheymonitortheperformanceandcomplianceofSEBIRegulationsbythemutualfund.SEBIRegulationsrequirethatatleasttwothirdsofthedirectorsoftrusteecompanyorboardoftrusteesmustbeindependenti.e.theyshouldnotbeassociatedwiththesponsors.Also,50%ofthedirectorsofAMCmustbeindependent.AllmutualfundsarerequiredtoberegisteredwithSEBIbeforetheylaunchanyscheme.However,UnitTrustofIndia(UTI)isnotregisteredwithSEBI(asonJanua

ry15,2002).PERFORMANCEOFMUTUALFUNDSININDIALetusstartthediscussionoftheperformanceofmutualfundsinIndiafromthedaytheconceptofmutualfundtookbirthinIndia.Theyearwas1963.UnitTrustofIndiainvitedinvestorsorrathertothosewhobelievedinsavings,toparktheirmoneyinUTIMutualFund.For30yearsitgoaledwithoutasinglesecondplayer.Thoughthe1988yearsawsomenewmutualfundcompanies,butUTIremainedinamonopolyposition.TheperformanceofmutualfundsinIndiaintheinitialphasewasnotevenclosertosatisfactorylevel.Peoplerarelyunderstood,andofcourseinvestingwasoutofquestion.Butyes,some24millionshareholderswasaccustomedwithguaranteedhighreturnsbythebeginningofliberalizationoftheindustryin1992.ThisgoodrecordofUTIbecamemarketingtoolfornewentrants.Theexpectationso

finvestorstouchedtheskyinprofitabilityfactor.However,peopleweremilesawayfromthepreparednessofrisksfactoraftertheliberalization.TheAssetsunderManagementofUTIwasRs.67bn.bytheendof1987.LetmeconcentrateabouttheperformanceofmutualfundsinIndiathroughfigures.FromRs.67bn.theAssetsunderManagementrosetoRs.470bn.inMarch1993andthefigurehadathreetimeshigherperformancebyApril2004.ItroseashighasRs.1,540bn.Thenetassetvalue(NAV)ofmutualfundsinIndiadeclinedwhenstockpricesstartedfallingintheyear1992.Thosedays,themarketregulationsdidnotallowportfolioshiftsintoalternativeinvestments.Therewasrathernochoiceapart


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fromholdingthecashortofurthercontinueinvestinginshares.Onemorethingtobenoted,sinceonlyclosed-endfundswerefloatedinthemarket,theinvestorsdisinvestedbysellingatalossinthesecondarymarket.TheperformanceofmutualfundsinIndiasufferedqualitatively.The1992stockmarketscandal,thelossesbydisinvestmentsandofcoursesthelackoftransparentrulesinthewhereaboutrockedconfidenceamongtheinvestors.Partlyowingtoarelativelyweakstockmarketperformance,mutualfundshavenotyetrecovered,withfundstradingatanaveragediscountof1020percentoftheirnetassetvalue.Thesupervisoryauthorityadoptedasetofmeasurestocreateatransparentandcompetitiveenvironmentinmutualfunds.Someofthemwerelikerelaxinginvestmentrestrictionsintothemarket,introductionofopen-endedfunds,andpavingthegatewayformutualfundstolaunchpensionschemes.Themeasurewastakentomakemutualfundsthekeyinstrumentforlong-termsaving.Themorethevarietyoffered,thequantitativewillbeinvestors.Atlasttomention,aslongasmutualfundcompaniesareperformingwithlowerrisksandhigherprofitabilitywithinashortspanoftime,moreandmorepeoplewillbeinclinedtoinvestuntilandunlesstheyarefullyeducatedwiththedosanddontsofmutualfundsMutualFunds:MutualFundsarethebestwithexpertiseandprofessionalmanagementwhenitcomestomoneymanagementandinvestinginsecurities.Therearevariousoptionsavailabletochoosefromacombinationofdiversifiedschemes,sectorspecificschemes,midcapschemes,fundoffundsetctochoosefromdependingupontheriskappetite,investmenthorizonetc.Justtociteacaseinpointthe

gooddiversifiedschemeshavegivenreturnsintherangeof30-60%.Thusincaseifyouarecomfortablewithsomeriskassociatedwiththeequitymutualfundsitisoneofthebestwaysforwealthgenerationoveraperiodoftime.NewprovisionSection80Cintroducedinlieuofthediscontinuedbenefits.Thekeyfeaturesofthenewprovisionare: Thiswillbeinthenatureofexemptionleadingtolowertotalincome,earlierection88benefits,wereinthenatureofrebate.TotalexemptionavailableisRs100,000-nolimitorcaponanyspecificsavingmodeoroption Exemptionavailabletoalltaxpayersirrespectiveofincomebracket-earlierSetion88didnotprovidebenefittothosehavingincomeexceedingRs500,000. Noexemption/adjustmentforinterestincome Allsavingmodes/optionsunderSection88coveredandalso80CCCand80CCDcoveed.

TaxBenefitsonequity-orientedanddebt-orientedfundsSince,April1,2003,alldividends,declaredbydebt-orientedmutualfunds(i.e.mutualfundswithlessthan50%ofassetsinequities),aretax-freeinthehandsoftheinvestor.Adividenddistributiontaxof12.5%(includingsurcharge)istobepaidbythemutualfundonthedividendsdeclaredbythefund.Long-termdebtfunds,governmentsecuritiesfunds(G-sec/giltfunds),monthlyincomeplans(MIPs)areexamplesofdebt-orientedfunds.Dividendsdeclaredbyequity-orientedfunds(i.e.mutualfundswithmorethan50%ofassetsinequities)aretax-freeinthehandsofinvestor.Thereisalsonodividenddistributiontaxapplicableonthesefundsundersection115R.Diversi

fiedequityfunds,sectorfunds,balancedfundsareexamplesofequity-orientedfunds.Amountinvestedintax-savingfunds(ELSS)wouldbeeligiblefordeductionunderSection80C,howevertheaggregateamountdeductibleunderthesaidsectioncannotexceedRs100,000.

CapitalgainsSection2(42A):UnderSection2(42A)oftheAct,aunitofamutualfundistreatedasshort-termcapitalassetifthesameisheldforlessthan12months.Theunitsheldformorethantwelvemonthsaretreatedaslong-termcapitalasset.


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Section10(38):UnderSection10(38)oftheAct,longtermcapitalgainsarisingfromtransferofaunitofmutualfundisexemptfromtaxifthesaidtransactionisundertakenafterOctober1,2004andthesecuritiestransactiontaxispaidtotheappropriateauthority.Thismakeslong-termcapitalgainsonequity-orientedfundsexemptfromtaxfromassessmentyear2005-06.Short-termcapitalgainsonequity-orientedfundsarechargeabletotax@10%(pluseducationcess,applicablesurcharge).However,suchsecuritiestransactiontaxwillbeallowedasrebateunderSection88EoftheAct,ifthetransactionconstitutesbusinessincome.Long-termcapitalgainsondebt-orientedfundsaresubjecttotax@20%ofcapitalgainafterallowingindexationbenefitorat10%flatwithoutindexationbenefit,whicheverisless.Short-termcapitalgainsondebt-orientedfundsaresubjecttotaxatthetaxbracketapplicable(marginaltaxrate)totheinvestor.Section112:UnderSection112oftheAct,capitalgains,notcoveredbytheexemptionunderSection10(38),chargeableontransferoflong-termcapitalassetsaresubjecttofollowingratesoftax: ResidentIndividual&HUF--20%plussurcharge,educationcess. Partnershipfirms&Indiancompanies--20%plussurcharge. Foreigncompanies--20%(nosurcharge).CapitalgainswillbecomputedaftertakingintoaccountthecostofacquisitionasadjustedbyCostInflationIndex,notifiedbythecentralgovernment.

Units areincludedintheprovisotothesub-section(1)toSection112oftheActandhence,unitholderscanoptforbeingtaxedat10%(plusapplicablesur

charge,educationcess)withoutthecostinflationindexbenefitor20%(plusapplicablesurcharge)withthecostinflationindexbenefit,whicheverisbeneficial.UnderSection115ABoftheIncomeTaxAct,1961,longtermcapitalgainsinrespectofunits,purchasedinforeigncurrencybyanoverseasfinancial,heldforaperiodofmorethan12months,willbechargeableattherateof10%.Suchgainswillbecalculatedwithoutindexationofcostofacquisition.Nosurchargeisapplicablefortaxesundersection115AB,inrespectofcorporatebodies.

ProfileofprudentialICICIPrudentialICICIAssetManagementCompany,(55%:45%)ajointventurebetweenPrudentialPlc,UK sleadinginsurancecompanyandICICIBankLtd,India spremier

financialinstitution.ThejointventurewasformedwiththekeyobjectiveofprovidingtheIndianinvestormutualfundproductstosuitavarietyofinvestmentneeds.TheAMChasalreadylaunchedarangeofproductstosuitdifferentriskandmaturityprofiles.Clickheretolearnmoreabouttheproducts.PrudentialICICIAssetManagementCompanyLimitedhasanetworthofaboutRs.80.14crore(1crore=10million)asofMarch31,2004.BothPrudentialandICICIBankLtdhaveastrategiclong-termcommitmenttotherapidlyexpandingfinancialservicessectorinIndia.


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PRUDENTIALPUBLICLIMITEDCOMPANYPrudentialPublicLimitedCompanywasfoundedin1848.SincethenithasgrowntobecomethelargestproviderintheUKprovidingawiderangeofsavingsproductsfortheindividualincludinglifeinsurance,pensions,annuities,unittrustsandpersonalbanking.Ithasapresenceinover15countries,andcatersto10millioncustomers.ItmanagesassetsofoverUS$256billion(Rs.12,55,100croresapprox).(Dec31,2001)PrudentialisoneofthelargestUKbasedinsurerswithoperationsin15countriesinAsia.AsiahasalwaysbeenanimportantregionforprudentialfirstoverseasoperationwasinIndia,waybackin1923toestablishLifeandGeneralBranchagencies.IntheUS,prudentialownsJacksonNationalLife,oneoftheleadinglifeinsurancecompanies.PrudentialisfocusedontheInternetgenerationandisoneofthefirstfinancialservicesorganizationstousetheinternetonafullyintegratedbasis.InOctober1998,prudentiallaunchedabranchlessbankbasedontheInternet.TheBankhasinashortspanofitsexistencebecomealeadingbankingserviceproviderintheUK.Infact,inthefirstsixmonthsofitsexistence,itgarneredover5billionpounds(US$8billion)indepositsfromover5,00,000customers.Developmentofsuperiorproductsandservicesthatoffervalueformoneyandsecuritywhileproducingsuperiorfinancialreturnsenablesprudentialtomaximizethevalueofitsshareholdersinvestmentandtoestablishlastingrelationshipwithcustomersandpolicyholders.ICICIBANK:ICICIBankisIndia ssecond-largestbankwithtotalassetsofaboutRs.1,67,65

9croreatMarch31,2005andprofitaftertaxofRs.2,005crorefortheyearendedMarch31,2005(Rs.1,637croreinfiscal2004).ICICIBankhasanetworkofabout560branchesandextensioncountersandover1,900ATMs.ICICIBankoffersawiderangeofbankingproductsandfinancialservicestocorporateandretailcustomersthroughavarietyofdeliverychannelsandthroughitsspecializedsubsidiariesandaffiliatesintheareasofinvestmentbanking,lifeandnon-lifeinsurance,venturecapitalandassetmanagement.ICICIBanksetupitsinternationalbankinggroupinfiscal2002tocatertothecrossborderneedsofclientsandleverageonitsdomesticbankingstrengthstoofferproductsinternationally.ICICIBankcurrentlyhassubsidiariesintheUnitedKingdom,CanadaandRussia,branchesinSingaporeandBahrainandrepresentativeofficesintheUnitedStates,China,UnitedArabEmirates,BangladeshandSouthAfrica.ICICIBank sequitysharesarelistedinIndiaontheStockExchange,Mumbaiand

theNationalStockExchangeofIndiaLimitedanditsAmericanDepositaryReceipts(ADR)sarelistedontheNewYorkStockExchange(NYSE).AtApril4,2005,ICICIBank,withfreefloatmarketcapitalizationofaboutRs.308.00billion(US$7.00billion)rankedthirdamongstallthecompanieslistedontheIndianstockexchanges.ICICIBankwasoriginallypromotedin1994byICICILimited,anIndianfinancialinstitution,andwasitswholly-ownedsubsidiary.ICICI sshareholdinginICICIBankwasreducedto46%throughapublicofferingofsharesinIndiainfiscal1998,anequityofferingintheformofADRslistedontheNYSEinfiscal2000,ICICIBank sacquisitionofBankofMaduraLimitedinanall-stockamalgamationinfiscal2001,andsecondarymarketsalesbyICICItoinstitutionalinvestorsinfiscal2001andfiscal2002.ICICIwasformedin1955attheinitiativeoftheWorldBank,theGovernmentofIndiaandrepresentativesofIndianindustry.The

principalobjectivewastocreateadevelopmentfinancialinstitutionforprovidingmedium-termandlong-termprojectfinancingtoIndianbusinesses.Inthe1990s,ICICItransformeditsbusinessfromadevelopmentfinancialinstitutionofferingonlyprojectfinancetoadiversifiedfinancialservicesgroupofferingawidevarietyofproductsandservices,bothdirectlyandthroughanumberofsubsidiariesandaffiliateslikeICICIBank.In1999,ICICIbecomethefirstIndiancompanyandthefirstbankorfinancialinstitutionfromnon-JapanAsiatobelistedontheNYSE.AfterconsiderationofvariouscorporatestructuringalternativesinthecontextoftheemergingcompetitivescenariointheIndianbankingindustry,andthemo


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vetowardsuniversalbanking,themanagementsofICICIandICICIBankformedtheviewthatthemergerofICICIwithICICIBankwouldbetheoptimalstrategicalternativeforbothentities,andwouldcreatetheoptimallegalstructurefortheICICIgroup suniversalbankingstrategy.ThemergerwouldenhancevalueforICICIshareholdersthroughthemergedentity saccesstolow-costdeposits,greateropportunitiesforearningfee-basedincomeandtheabilitytoparticipateinthepaymentssystemandprovidetransaction-bankingservices.ThemergerwouldenhancevalueforICICIBankshareholdersthroughalargecapitalbaseandscaleofoperations,seamlessaccesstoICICI sstrongcorporaterelationshipsbuiltupoverfivedecades,entryintonewbusinesssegments,highermarketshareinvariousbusinesssegments,particularlyfee-basedservices,andaccesstothevasttalentpoolofICICIanditssubsidiaries.InOctober2001,theBoardsofDirectorsofICICIandICICIBankapprovedthemergerofICICIandtwoofitswholly-ownedretailfinancesubsidiaries,ICICIPersonalFinancialServicesLimitedandICICICapitalServicesLimited,withICICIBank.ThemergerwasapprovedbyshareholdersofICICIandICICIBankinJanuary2002,bytheHighCourtofGujaratatAhmedabadinMarch2002,andbytheHighCourtofJudicatureatMumbaiandtheReserveBankofIndiainApril2002.Consequenttothemerger,theICICIgroup

sfinancingandbankingoperations,bothwholesaleandretail,havebeenintegratedinasingleentity.

PruICICIFunds:PruICICIGROWTHPLAN:ItisanOpen-endedEquityfund.Theinvestmentpatternisequityandequityrelatedinstrumentsupto95%andDebt,Moneymarketandcashupto5%.whichisSuitableforinvestorswhoseektoinvestinequitysecurities.FundObjective:Longterminvestmentoffundsforcapitalappreciation.

PruICICIPOWERPLAN:ItisanOpen-endedgrowthfund.Theinvestmentpatternisequityandequityrelatedsecuritiesincludingnonconvertibleportionofconvertibledebenturesupto95%andatleast5%indebtandmoneymarketsecurities.WhichisSuitableforinvestorsareseekinglongtermcapitalappreciationthroughinvestinginequityandequityrelatedsecurities.FundObjective:Longterminvestmentoffundsforcapitalappreciationinaco

ncentratedmultisectorportfolio.

PruICICIDISCOVERYFUND:Itsanopen-endedequityfund.TheinvestmentpatternisEquityandequityrelatedservices80%to100%andcashandmoneymarketinstruments0%to20%.WhichisSuitableforinvestorsareseekinglongtermcapitalappreciationthroughinvestinginequityandequityrelatedsecurities.FundObjective:Longterminvestmentoffundsforcapitalappreciation.

PruICICIDynamicPlan:ItisanOpen-endedEquityfund.Theinvestmentpatternisequityandequityrelatedinstruments0to100%andDebt,Moneymarketandcash0to100%.WhichisSuitableforinvestorswithaninvestmenthorizonof2-3years.

FundObjective:Mediumterminvestmentoffundsforcapitalappreciationbymanagingcashandequityportfolio.

PruICICIEmergingS.T.A.R.Fund:Itsanopen-endedequityfundinvestmentpatternisequityandequitylinkedinstrument-90%to100%anddebtsecurities,cashandmoneymarketinstruments-0%to10%.whichisSuitableforinvestorswhoseektoinvestinequitysecurities.


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atternisDebtSecurities,moneymarketInstrumentssecuritizeddebt&Cashupto85%,equity&equityrelatedsecuritiesupto15%.SuitableforinvestorsseekregularreturnsandforthemediumtolongterminvestorFundObjective:Mediumterminvestmentinaportfolioofdebtandequityupto(15%)forcapitalappreciation.

PruICICILiquidPlan:Itisanopen-endedliquidincomefund.Investmentpatternismoneymarketupto80%&DebtInstrumentupto20%.WhichSuitableforinvestorswholookingforshort-terminvestmentatrelativelylowrisk.FundObjective:Temporaryparkingoffundswithhighliquidity.

PruICICIFloatingRatePlan:Itisanopen-endedIncomefund.Investmentpatternis65-100%=FloatingRateDebtInstruments.0-35%=Fixedratedebtinstrumentswithmaturitylessthan1year.FundObjective:Shorttermdeploymentoffunds.

PruICICIInfrastructureFund:Itisanopen-endedequityfund.InvestmentpatternisEquityandEquityrelated70-100%&Debt,MoneyMarketInstrumentsandCallmoney(Includingsecuritizeddebtofupto20%oftheassets)0-30%.Suitableforinvestorsseekinglong-termcapitalappreciationthroughinvestmentsinequityandequityrelatedsecurities.FundObjective:Togeneratecapitalappreciationandincomedistributiontounitholdersbyinvestingpredominantlyinequity/equityrelatedsecuritiesofthec

ompaniesbelongingtotheinfrastructureindustriesandbalanceindebtsecuritiesandmoneymarketinstrumentsincludingcallmoney.

ChapterIII

TheoreticalframeworkofthestudyCONCEPTAMutualFundisatrustthatpoolsthesavingsofanumberofinvestorswhoshareacommonfinancialgoal.Themoneythuscollectedistheninvestedincapitalmarketinstrumentssuchasshares,debenturesandothersecurities.Theincomeearnedthroughtheseinvestmentsandthecapitalappreciationrealizedissharedbyitsunitholdersinproportiontothenumberofunitsownedbythem.ThusaMutualFundisthemostsuitableinvestmentforthecommonmanasitoffersanopportunitytoinvestinadiversified,professionallymanagedbasketofsecuritiesatarelativelylowcost.Theflowchartbelowdescribesbroadlytheworkingofamutualfund:

MutualFundOperationFlowChart

ORGANISATIONOFAMUTUALFUNDTherearemanyentitiesinvolvedandthediagrambelowillustratestheorganizationalsetupofamutualfund:

OrganizationofaMutualFund


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TheorganizationofMutualFundisfourtiersystemswhichconsistsofMUTUALFUNDSTRUCTURETheSEBI(MutualFunds)Regulations1993defineamutualfund(MF)asafundestablishedintheformofatrustbyasponsortoraisemoniesbytheTrusteesthroughthesaleofunitstothepublicunderoneormoreschemesforinvestinginsecuritiesinaccordancewiththeseregulations.

TheseregulationshavesincebeenreplacedbytheSEBI(MutualFunds)Regulations,1996.Thestructureindicatedbythenewregulationsisindicatedasunder.Amutualfundcomprisesfourseparateentities,namelysponsor,mutualfundtrust,AMCandcustodian.ThesponsorestablishesthemutualfundandgetsitregisteredwithSEBI.ThemutualfundneedstobeconstitutedintheformofatrustandtheinstrumentofthetrustshouldbeintheformofadeedregisteredundertheprovisionsoftheIndianRegistrationAct,1908.Thesponsorisrequiredtocontributeatleast40%oftheminimumnetworth(Rs.10crore)oftheassetmanagementcompany.TheboardoftrusteesmanagestheMFandthesponsorexecutesthetrustdeedsinfavorofthetrustees.ItisthejoboftheMFtrusteestoseethatschemesfloatedandmanagedbytheAMCappointedbythetrusteesareinaccordancewiththetrustdeedandSEBIguidelines.

SponsorThefourtiersystemhasbeenprovidedtoensurearmslengthdistancebet

weenthesponsorandthefund.SEBIsguidelineshavemadeitclearthatsponsorslnotbeabletousethecorpusofthefundsfortheirownbenefit.Trustee

AMutualFundshallbeconstitutedintheformofatrustandtheinstru

mentoftrustshallbeintheformofadeed,dulyregisteredundertheprovisionsofIndianRegistrationAct,1908executedbythesponsorinfavorofthetrusteesnamedinsuchaninstrument.

PrudentialICICITrustLimited(theTrustee),acompanyincorporatedunderthecompaniesAct,1956istheTrusteetotheFundVideTrustDeeddatedAugust25,1993asamendedfromtimetotime.Prudentialplc.,throughitswhollyownedsubsidiary,PrudentialCorporationHoldingsLimited,UK.Holds550/0oftheequitysharecapitaloftheTrusteeandICICIholdsthebalanceof45%AssetManagementCompany

Thesponsor,ifsoauthorizedbythetrustdeed,thetrusteesshall,appointanAMC,whichhasbeenapprovedbytheboard.ThedirectorsoftheAMCarepersonshavingprofessionalexperienceinfinanceandfinancialservicesrelatedfieldandnotfoundguiltyormoralturpitudeorconvictedofanyeconomicoffe

nceorviolationofanysecuritieslaws.TheAMCshalltakeallresponsiblestepsandexerciseduediligencetoe

nsurethattheinvestmentoffundspertainingtoanyschemeisnotcontrarytotheprovisionoftheregulationsandthetrustdeed.TheAMCshallberesponsiblefortheactsofcommissionoromissionsbyitsemployeesorthepersonswhoseserviceshavebeenprocured.

ICICIAssetManagementCompany(AMC),acompanyregisteredundertheCompaniesAct,1956wasestablishedbyICICIasitswhollyownedsubsidiary,toactastheinvestmentmanageroftheICICIMutualFundvidetheinvestmentManagementAgreementdatedSeptember3,1993.Consequenttoreviewoflongtermbusiness


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strategyoftheAMC,itwasdecidedtofurtherstrengthenitscommitmenttotheindividualinvestorsegment.AsapartofthisplankPrudentialCorporationplc(formerlyknownasPrudentialCorporationHoldingsLimited,hasbeenissuedandallottedshareaggregating55%stockinthesharecapitalofAMC.ICICIholdsthebalance45%shareholdingintheAMCwasapprovedbySEBItoactastheinvestmentmanagersofICICIMutualFundvideitsletterno.IIMARP/MF/22356datedOctober12,1993.Consequenttotherestructuringofshareholdingpatternasstatedabove,SEB1631/98datedMarch11,1998accordeditsapprovalfortheinductionofPrudentialCorporationplc(throughitswhollysubsidiary,PrudentialCorporationHoldingsLimited).CUSTODIAN(Role):HDFCBankLimited,providesthefollowingservicestoPruICICI Post-tradingandcustodialservicestotheMutualFund. Ensurethatthebenefitsdueontheholdingsarereceivedontime. DetailedmanagementinformationandotherreportsasrequiredbytheAMC. Maintainconfidentialityofthetransactions. BeresponsibleforthelossordamagetotheassetsbelongingtotheSchemeduetonegligenceonitspartoronthepartofitsapprovedagentsandsegregateassetsofeachScheme.Registrar(Role):AsRegistrartotheScheme,CAMShandlescommunicationswithinvestors,performsdataentryservices,maintainsinvestordataanddispatchesAccountStatementsreflectingtheholdingandtransactionsoftheinvestors.

BenefitsofMutualFundsTheadvantagesofinvestinginaMutualFundare: ProfessionalManagement Diversification ConvenientAdministration ReturnPotential LowCosts Liquidity Transparency Flexibility Choiceofschemes Taxbenefits Wellregulated

PersonalService

TYPESOFMUTUALFUNDSSCHEMESWidevarietyofMutualFundSchemesexiststocatertotheneedssuchasfinancialposition,risktoleranceandreturnexpectationsetc.ThetablebelowgivesanoverviewintotheexistingtypesofschemesintheIndustry.ByStructure: OpenEndedSchemes ClosedEndedSchemes IntervalSchemesByInvestmentObjective:

GrowthSchemes IncomeSchemes BalancedSchemes MoneyMarketSchemesOtherSchemes: TaxSavingSchemesSpecialSchemes: IndexSchemes SectorSpecificSchemesOpen-endedschemes:ThesefundsaresoldattheNAVbasedprices,generallycalc


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ulatedoneverybusinessday.Theseschemeshaveunlimitedcapitalization,open-endedschemesdonothaveafixedmaturity-i.e.thereisnocapontheamountyoucanbuyfromthefundandtheunitcapitalcankeepgrowing.Thesefundsarenotgenerallylistedonanyexchange.Open-endedfundsarebringinginarevivalofthemutualfundindustryowingtoincreasedliquidity,transparencyandperformanceinthenewopen-endedfundspromotedbytheprivatesectorandforeignplayers.Open-endedfundsscoreoverclose-endedonesonseveralcounts.Someofthesearelistedbelow:Anytimeexitoption:Theissuingcompanydirectlytakestheresponsibilityofprovidinganentryandanexit.Thisprovidesreadyliquiditytotheinvestorsandavoidsrelianceontransferdeeds,signatureverificationsandbaddeliveries.Anytimeentryoption:Anopen-endedfundallowsonetoenterthefundatanytimeandeventoinvestatregularintervals(asystematicinvestmentplan).TheopenendedfundsofferedbyPRUICICIareLiquidPlan,IncomePlan,Gilt-Treasury,Gilt-Investment,BalancedFund,GrowthFund,TaxPlan,FMCGFund,TechnologyFund,MonthlyIncomePlan,FixedMaturityPlan,ChildCarePlan,PowerandShortTermPlan.Closeendedschemes:Schemesthathaveastipulatedmaturityperiod,limitedcapitalizationandtheunitsarelistedonthestockexchangearecalledclose-endedschemes.Theseschemeshavehistoricallyseenalotofsubscription.Thispopularityisestimatedtobeonaccountoffirstly,publicsectorMFshavingfloatedalotofclose-endedincomeschemeswithguaranteedreturnsandsecondlyeasyliquidityo

naccountoflistingonthestockexchanges.Theclosed-endedfundmanagedbyPruICICIisICICIPremier.

Intervalfunds Intervalfundscombinethefeaturesofopenendedandcloseendedschemes.Theyareopenforsaleorredemptionduringpre-determinedintervalsatNAVrelatedpricesClassificationaccordingtoinvestmentobjectives:Mutualfundshavespecificinvestmentobjectivessuchasgrowthofcapital,safetyofprincipal,currentincomeortax-exemptincome.Ingeneralmutualfundsfallintothreegeneralcategories: EquityFundsinvestinsharesorequityofcompanies. Fixed-Incomefundsinvestingovernmentorcorporatesecuritiesthatofferfixe

ratesofreturn. BalancedFundsinvestinacombinationofbothstocksandbonds.i)GrowthFunds:Theaimofgrowthfundsistoprovidecapitalappreciationoverthemediumtolongterm.Suchschemesnormallyinvestamajorityoftheircorpusinequities.Ithasbeenproventhatreturnsformstocks,haveoutperformedmostotherkindofinvestmentsheldoverthelongterm.Growthschemesareidealforinvestorshavingalong-termoutlookseekinggrowthoveraperiodoftime.ii)IncomeFunds:Theaimofincomefundsistoprovideregularandsteadyincometoinvestors.Suchschemesgenerallyinvestinfixedincomesecuritiessuchasbonds,corporatedebenturesandGovernmentsecurities.Incomefundsareidealforcapitalstabilityandregularincome.iii)Fixed-IncomeFunds:Thegoaloffixedincomefundsistoprovidecurrentincomeconsistentwiththepreservationofcapital.

Thesefundsinvestincorporatebondsorgovernment-backedmortgagesecuritiesthathaveafixedrateofreturn.Withinthefixed-incomecategory,fundsvarygreatlyintheirstabilityofprincipalandintheirdividendyields.High-yieldfunds,whichseektomaximizeyieldbyinvestinginlower-ratedbondsoflongermaturities,entaillessstabilityofprincipalthanfixed-incomefundsthatinvestinhigher-ratedbutlower-yieldingsecurities.Somefixed-incomefundsseektominimizeriskbyinvestingexclusivelyinsecuritieswhosetimelypaymentofinterestandprincipalisbackedbythefullfaithandcreditoftheIndianGovernment.Fixed-incomefundsaresuitableforinvestorswhowanttomaximizecurrentincomeandwhocanassumeadegreeofcapitalri


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skinordertodoso.iv)Balanced:TheBalancedfundaimstoprovidebothgrowthandincome.Thesefundsinvestinbothsharesandfixedincomesecuritiesintheproportionindicatedintheirofferdocuments.Idealforinvestorswhoarelookingforacombinationofincomeandmoderategrowth.v)MoneyMarketFunds/LiquidFunds:Theaimofmoneymarketfundsistoprovideeasyliquidity,preservationofcapitalandmoderateincome.Theseschemesgenerallyinvestinsafershortterminstrumentssuchastreasurybills,certificatesofdeposit,commercialpaperandinterbankcallmoney.Returnsontheseschemesmayfluctuatedependingupontheinterestratesprevailinginthemarket.TheseareidealforCorporateandindividualinvestorsasameanstoparktheirsurplusfundsforshortperiods.Moneymarketfundsaresuitableforinvestorswhowanthighstabilityofprincipalandcurrentincomewithimmediateliquidity.OtherschemesTaxsavingschemes:TheseschemesoffertaxrebatestotheinvestorsunderspecificprovisionsoftheIndianincometaxlawsastheGovernmentofferstaxincentivesforinvestmentinspecifiedavenues.InvestmentmadeinEquityLinkedSavingsSchemes(ELSS)andPensionSchemesareallowedasdeductionu/s88oftheincometaxact1961.Theactalsoprovidesopportunitiestoinvestorstosavecapitalgainsu/s54EAand54EBbyinvestinginMutualFunds.vi)Specialty/SectorFunds:Thesefundsinvestinsecuritiesofaspecificindustryorsectoroftheeconomysuchashealthcare,technology,leisure,utilitiesorpreciousmetals.Thefundsenableinvestorstodiversifyholdingsamongmany

companieswithinanindustry,amoreconservativeapproachthaninvestingdirectlyinoneparticularcompany.Sectorfundsoffertheopportunityforsharpcapitalgainsincaseswherethefund sindustryis"infavor"butalsoentailtheriskofcapitallosseswhentheindustryisoutoffavor.Whilesectorfundsrestrictholdingstoaparticularindustry,otherspecialtyfundssuchasindexfundsgiveinvestorsabroadlydiversifiedportfolioandattempttomirrortheperformanceofvariousmarketaverages.IndexfundsgenerallybuysharesinallthecompaniescomposingtheBSESensexorNSENiftyorotherbroadstockmarketindices.Theyarenotsuitableforinvestorswhomustconservetheirprincipalormaximizecurrentincome.NetAssetValueAlsoknownasNAV,thisistheunitprice(orrupeevalue)ofoneunitofamutu

alfund.NAViscalculatedattheendofeverybusinessday.Itiscalculatedbyaddingupthevalueofallthesecuritiesandcashinthemutualfund sportfolio(itsassets),subtractingthefund sliabilities,anddividingthatnumberbythenumberofunitsthatthefundhasissued.Itdoesnotincludeasalescharge.TheNAVincreases(ordecreases)whenthevalueofthemutualfund sholdingsincrease(ordecrease).NAV=MARKETVALUEOFASSETSLIABILITIESUNITOUTSTANDING

RedemptionPrice:Thepriceatwhichamutualfund sunitsareredeemed(bought

back)bythefund.TheredemptionpriceisusuallyequaltothecurrentNAVperunit.SalePrice:Isthepriceyoupaywhenyouinvestinascheme.AlsocalledOfferPrice.Itmayincludeasalesload.Repurchaseprice:Isthepriceatwhichaclose-endedschemerepurchasesitsunitsanditsmayincludeaback-endload.ThisisalsocalledBidPrice.SalesLoad:Isachargecollectedbyaschemehenceitsellstheunits.Alsocalled,Front-endloadSchemesthatdonotchargealoadarecalledNoLoadschemes.RepurchaseorBack-endLoad:Isachargecollectedbyaschemewhenitbuysbacktheunitsfromtheunitholders.


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PerformanceMeasuresofMutualFundsMutualFundindustrytoday,withabout34playersandmorethanfivehundredschemes,isoneofthemostpreferredinvestmentavenuesinIndia.However,withaplethoraofschemestochoosefrom,theretailinvestorfacesproblemsinselectingfunds.Factorssuchasinvestmentstrategyandmanagementstylearequalitative,butthefundsrecordisanimportantindicatortoo.Thoughpastperformancealonecannotbeindicativeoffutureperformance,itis,frankly,theonlyquantitativewaytojudgehowgoodafundisatpresent.Therefore,thereisaneedtocorrectlyassessthepastperformanceofdifferentmutualfunds.Worldwide,goodmutualfundcompaniesoverareknownbytheirAMCsandthisfameisdirectlylinkedtotheirsuperiorstockselectionskills.Formutualfundstogrow,AMCsmustbeheldaccountablefortheirselectionofstocks.Inotherwords,theremustbesomeperformanceindicatorthatwillrevealthequalityofstockselectionofvariousAMCs.Returnaloneshouldnotbeconsideredasthebasisofmeasurementoftheperformanceofamutualfundscheme,itshouldalsoincludetherisktakenbythefundmanagerbecausedifferentfundswillhavedifferentlevelsofriskattachedtothem.Riskassociatedwithafund,inageneral,canbedefinedasvariabilityorfluctuationsinthereturnsgeneratedbyit.Thehigherthefluctuationsinthereturnsofafundduringagivenperiod,higherwillbetheriskassociatedwithit.Thesefluctuationsinthereturnsgeneratedbyafundareresultantoftwoguidingforces.First,generalmarketfluctuations,whichaffectallthesecuritiespresentinthemarket,calledmarketriskorsystematicriskandsecond,fluctuationsduetospecificsecuritiespresentintheportfolioofthefund,call

edunsystematicrisk.TheTotalRiskofagivenfundissumofthesetwoandismeasuredintermsofstandarddeviationofreturnsofthefund.Systematicrisk,ontheotherhand,ismeasuredintermsofBeta,whichrepresentsfluctuationsintheNAVofthefundvis--vismarket.ThemoreresponsivetheNAVofamutualfundistothechangesinthemarket;higherwillbeitsbeta.Betaiscalculatedbyrelatingthereturnsonamutualfundwiththereturnsinthemarket.Whileunsystematicriskcanbediversifiedthroughinvestmentsinanumberofinstruments,systematicriskcannot.Byusingtheriskreturnrelationship,wetrytoassessthecompetitivestrengthofthemutualfundsvis--visoneanotherinabetterway.

Inordertodeterminetherisk-adjustedreturnsofinvestmentportfolios,severaleminentauthorshaveworkedsince1960stodevelopcompositeperformanceindicestoevaluateaportfoliobycomparingalternativeportfolioswithinaparticularriskclass.Themostimportantandwidelyusedmeasuresofperformanceare:TheTreynorMeasureTheSharpeMeasureJensonModelFamaModelTheTreynorMeasure:DevelopedbyJackTreynor,thisperformancemeasureevaluatesfundsonthebasisofTreynor sIndex.ThisIndexisaratioofreturngeneratedbytheonsecuritiesbackedbythegovernment,asthereisnocreditriskassociated),duringagivenperiodandsystematicriskassociatedwithit(beta).Symbolically,itcanberepresentedas:

Treynor sIndex(Ti)=(Ri-Rf)/Bi.Where,Rirepresentsreturnonfund,RfisriskfreerateofreturnandBiisbetaofthefund.Bi=NXY-XYNX-(X)WhereN=numberofobservationsX=MarketindexreturnY=FundreturnAllrisk-averseinvestorswouldliketomaximizethisvalue.WhileahighandpositiveTreynor sIndexshowsasuperiorrisk-adjustedperformanceofafund,alowandnegativeTreynor sIndexisanindicationofunfavorableperformance.


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TheSharpeMeasure:Inthismodel,performanceofafundisevaluatedonthebasisofSharpeRatio,whichisaratioofreturnsgeneratedbythefundoverandaboveriskfreerateofreturnandthetotalriskassociatedwithit.AccordingtoSharpe,itisthetotalriskofthefundthattheinvestorsareconcernedabout.So,themodelevaluatesfundsonthebasisofrewardperunitoftotalrisk.Symbolically,itcanbewrittenas:SharpeIndex(Si)=(Ri-Rf)/SiWhere,Siisstandarddeviationofthefund.WhileahighandpositiveSharpeRatioshowsasuperiorrisk-adjustedperformanceofafund,alowandnegativeSharpeRatioisanindicationofunfavorableperformance.ComparisonofSharpeandTreynorSharpeandTreynormeasuresaresimilarinaway,sincetheybothdividetheriskpremiumbyanumericalriskmeasure.Thetotalriskisappropriatewhenweareevaluatingtheriskreturnrelationshipforwell-diversifiedportfolios.Ontheotherhand,thesystematicriskistherelevantmeasureofriskwhenweareevaluatinglessthanfullydiversifiedportfoliosorindividualstocks.Forawell-diversifiedportfoliothetotalriskisequaltosystematicrisk.Rankingsbasedontotalrisk(Sharpemeasure)andsystematicrisk(Treynormeasure)shouldbeidenticalforawell-diversifiedportfolio,asthetotalriskisreducedtosystematicrisk.Therefore,apoorlydiversifiedfundthatrankshigheronTreynormeasure,comparedwithanotherfundthatishighlydiversified,willrankloweronSharpeMeasure.JensonModel

Jenson smodelproposesanotherriskadjustedperformancemeasure.ThismeasurewasdevelopedbyMichaelJensonandissometimesreferredtoastheDifferentialReturnMethod.Thismeasureinvolvesevaluationofthereturnsthatthefundhasgeneratedvs.thereturnsactuallyexpectedoutofthefundgiventhelevelofitssystematicrisk.ThesurplusbetweenthetworeturnsiscalledAlpha,whichmeasurestheperformanceofafundcomparedwiththeactualreturnsovertheperiod.Requiredreturnofafundatagivenlevelofrisk(Bi)canbecalculatedas:Ri=Rf+Bi(Rm-Rf)

Where,Rmisaveragemarketreturnduringthegivenperiod.Aftercalculatingit,alphacanbeobtainedbysubtractingrequiredreturnfromtheactualreturnofthefund.

=Averageoffundreturn-*averagemarketreturnHigheralpharepresentssuperiorperformanceofthefundandviceversa.Limitationofthismodelisthatitconsidersonlysystematicrisknottheentireriskassociatedwiththefundandanordinaryinvestorcannotmitigateunsystematicrisk,ashisknowledgeofmarketisprimitive.

FamaModelTheEugeneFamamodelisanextensionofJensonmodel.Thismodelcomparestheperformance,measuredintermsofreturns,ofafundwiththerequiredreturncommensuratewiththetotalriskassociatedwithit.Thedifferencebetweenthesetwoistakenasameasureoftheperformanceofthefundandiscallednetselectivity.Thenetselectivityrepresentsthestockselectionskillofthefundmanager,as

itistheexcessreturnoverandabovethereturnrequiredtocompensateforthetotalrisktakenbythefundmanager.Highervalueofwhichindicatesthatfundmanagerhasearnedreturnswellabovethereturncommensuratewiththelevelofrisktakenbyhim.Requiredreturncanbecalculatedas:Ri=Rf+Si/Sm*(Rm-Rf)Where,Smisstandarddeviationofmarketreturns.Thenetselectivityisthencalculatedbysubtractingthisrequiredreturnfromtheactualreturnofthefund.Amongtheaboveperformancemeasures,twomodelsnamely,TreynormeasureandJensonmodelusesystematicriskbasedonthepremisethattheunsystematicriskis


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diversifiable.Thesemodelsaresuitableforlargeinvestorslikeinstitutionalinvestorswithhighrisktakingcapacitiesastheydonotfacepaucityoffundsandcaninvestinanumberofoptionstodilutesomerisks.Forthem,aportfoliocanbespreadacrossanumberofstocksandsectors.However,SharpemeasureandFamamodelthatconsidertheentireriskassociatedwithfundaresuitableforsmallinvestors,astheordinaryinvestorlacksthenecessaryskillandresourcestodiversify.Moreover,theselectionofthefundonthebasisofsuperiorstockselectionabilityofthefundmanagerwillalsohelpinsafeguardingthemoneyinvestedtoagreatextent.Theinvestmentinfundsthathavegeneratedbigreturnsathigherlevelsofrisksleavesthemoneyallthemorepronetorisksofallkindsthatmayexceedtheindividualinvestors riskappetite.

NationalStockExchange(NSE)IntroductionTheNationalStockExchange(NSE),locatedinBombay,isIndiasfirstdebtmarket.Itwassetupin1993toencouragestockexchangereformthroughsystemmodernizationandcompetition.Itopenedfortradinginmid-1994.ItwasrecentlyaccordedrecognitionasastockexchangebytheDepartmentofCompanyAffairs.OnitsrecognitionasastockexchangeundertheSecuritiesContracts(Regulation)Act,1956inApril1993,NSEcommencedoperationsintheWholesaleDebtMarket(WDM)segmentinJune1994.TheCapitalMarket(Equities)segmentcommencedoperationsinNovember1994andoperationsinDerivativessegmentcommencedinJune2000.NationalStockExchangewassetupin1993toencouragestockexchangereformth

roughsystemmodernizationandcompetition.TheNationalStockExchange(NSE)isIndia sleadingstockexchangecovering361citiesandtownsacrossthecountry.NSEwassetupbyleadinginstitutionstoprovideamodern,fullyautomatedscreen-basedtradingsystemwithnationalreach.

TheExchangehasbroughtaboutunparalleledtransparency,speed&efficiency,safetyandmarketintegrity.Ithassetupfacilitiesthatserveasamodelforthesecuritiesindustryintermsofsystems,practicesandprocedures.NSEhasplayedacatalyticroleinreformingtheIndiansecuritiesmarketintermsofmicrostructure,marketpracticesandtradingvolumes.Themarkettodayusesstate-of-artinformationtechnologytoprovideanefficientandtransparenttr

ading,clearingandsettlementmechanism,andhaswitnessedseveralinnovationsinproducts&servicesviz.demutualizationofstockexchangegovernance,screenbasedtrading,compressionofsettlementcycles,dematerializationandelectronictransferofsecurities,securitieslendingandborrowing,professionalisationoftradingmembers,fine-tunedriskmanagementsystems,emergenceofclearingcorporationstoassumecounterpartyrisks,marketofdebtandderivativeinstrumentsandintensiveuseofinformationtechnology.

NSEisacompletecapitalmarketprimemover.Itswholly-ownedsubsidiaries,NationalSecuritiesClearingCorporationLtd.(NSCCL)providesclearingandsettlementofsecurities,IndiaIndexServicesandProductsLtd.(IISL)providesindicesandindexserviceswithaconsultingandlicensingagreementwithStandard&P

oor s(S&P),andNSE.ITLtd.formsthetechnologystrengththatNSEworkson.

Today,weareoneofthelargestexchangesintheworldandstillforgingahead.AtNSE,weareconstantlyworkingtowardscreatingamoretransparent,vibrant&innovativecapitalmarket.Thisinvariablyimpliesthatourneedforcompetentpeopleiscontinuous.Astheleadingstockexchangeandfiscalentityinthecountry,webelieveinrecruitingthefinestoftalentintheindustry.


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TheS&PCNXNiftyInIndia,theS&PCNXNiftyisthemostscientificIndexthatwasconstructedkeepinginmindIndexfundsandIndexderivatives.TheS&PCNXNiftyisamarketcapitalization-weightedIndexwithbaseyearasNovember03,1995.Thebasevaluehasbeensetat1000.TheS&PCNXNiftyisanevent-drivenIndexi.e.,pricechangeinanyoftheIndexsecuritieswillleadtoachangeintheIndex.ItalsotakesintoaccountsubstitutionsintheIndexsetandimportantly,corporateactionssuchasstocksplits,rights,etcwithoutaffectingtheIndexvalue.ForthepurposeofIndexation,marketcapweightedIndexofferstheadvantageofsimplifyingthedaytodaymanagementofthefund.Asmarketpricesriseorfall,thevalueoftheIndexfundrisesandfallsintandemwiththetargetIndex.Sincemarketpricechangedoesnotrequireanyrebalancing,therearesavingsinthenumberoftransactions,thusreducingtransactioncost.TheconstructionoftheS&PCNXNiftywasmotivatedbytheneedtocreateamethodologytointelligentlyaddressthefollowingfourmajorissuesinIndexcreation:-

EvolutionofanIndexsetIndiascorporatesectorisdynamic:oldcompaniesgodefunct,andIPOs(includingnewlydisinvestedpublicsectorcompanies)frequentlyturnintosomeofthelar

gestcompaniesinthecountry.TheproblemofstalepricesThemarketIndexshouldreflectmarketconditionsatapointintimewhensomecomponentstradeinfrequently,theydetractfromthisobjective.Stringentliquidityconditionsshouldbeappliedsoastominimisethedifficultiescausedbynon-synchronoustrading,anditsmoreextremeversion,non-trading.ThesizeoftheIndexsetShouldanIndexsetcomprise30,or50,or100,or3000stocks?Weshouldhaveaclearquantitativefoundationforimplementingthechoiceofthesetsize.

ModernapplicationsTheIndexshouldhaveliquidityofaformwhichiswell-suitedformodernapplicationssuchasIndexfundsandIndexderivatives,bothofwhichrequiretheentireIndexsettobetreatedandtradedasaportfolio.AnIndexCommitteeconsistingofeminentpersonalitiesinthefieldoffinancesuchasmutualfundmanagers,tradingmembers,academiciansandpersonswhohaveexperiencetradinginfuturesandoptionsmarketsabroad,designedtheS&PCNXNiftysoastomakeitmorerepresentativeoftheentiremarket,providehighhedgingeffectivenessforanyportfolioandminimizesimpactcostoftransactions.Amongthebiggestfindingsofthecommitteewasthatthenumber50wasfoundtobetheidealsizeoftheIndexandthatliquidityshouldbejudgedbyimpactcost.ItisindeedthecasethatputtingmorestocksintotheIndexyieldsmorediversification.However,twothingsgowrongwhenwedothistoomuch:Firstly,th

erearediminishingreturnstodiversification.Goingfrom10stocksto20givesasharpreductioninrisk.Goingfrom50stocksto100stocksgivesverylittleReductioninrisk.Goingbeyond100stockstogivesalmostzeroreductioninrisk.Hence,thereislittlegainbydiversifying,beyondapoint.Themoreseriousproblemistheinclusionofilliquidstocksduetodiversification.Liquidityoftheassetisoneofthemostimportantcriteriaforaninvestor.Inthederivativesmarket,investorsaremoreconcernedwiththeliquidityoftheunderlying.AllthesecuritiesconstitutingtheS&PCNXNiftyarehighlyliquid.LiquidityoftheS&PCNXNiftyisimportantinreducingthereflectionofstalepricesandinenablingspot-to-futuresarbitrage.Avarietyofmeasuressuchastradingv


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olume,tradingfrequency,bid-askspreadetcareusedforquantifyingliquidity.FormeasuringliquidityofNiftysecurities,theirimpactcostshavebeencalculated.Impactcostofasecurityasthetermsuggests,isthecostofexecutingatransactioninthegivensecurityinproportionofitsweightageintheportfoliounderconsideration,onimmediatebasisatanypointoftimeinthemarket.SelectionCriteriaAllcompaniestobeincludedintheIndexshouldhaveamarketcapitalizationofRs.5billionormoreCompanyenteringtheIndexshouldhavedoublethemarketcapitalizationofthecompanyleavingtheIndexLiquidity(ImpactCost)Allsecuritiesshouldfullysatisfytherequiredexecutionon90%ofthetradingdaysatanimpactcostoflessthan0.75%inthelastsixmonths.TotalReturnsIndexATotalReturns(TR)IndexiscalculatedonS&PCNXNifty.ThisIndexshowsthereturnsontheIndexportfolio,inclusiveofdividend.ThedifferencebetweenthetwoIndexesNiftyandTRIndexatanygiventimeisthereturnobtainedonreinvestmentofdividendsthroughtheinterveningperiod.ThusitistheidealbenchmarkforIndexFundswhichearnsdividendandreinvestspromptly.CalculationMethodologyoftheS&PCNXNiftyTheS&PCNXNiftyiscomputedusingmarketcapitalizationweightedmethodwhereintheleveloftheIndexreflectsthetotalmarketvalueofallthestocksintheIndexrelativetothebaseperiodNovember3,1995.Thetotalmarketcapofacompanyorthemarketcapitalizationistheproductofmarketpriceandthetotal

numberofoutstandingsharesofthecompany.MarketCapitalization=OutstandingEquityCapital*PriceInthismethodtheweightagesarenotfixed,theychangewiththestockpricemovementsandchangesinthenumberofsharesoutstanding.AllselectedsecuritiesintheNiftybearaweightintheproportionoftheirmarketcapitalization.GeneralIndexformulacalculationBaseCapitalizationMethod

Indexvalue=Currentmarketcapital*Baseindexvalue(1000)Basemarketcapital

BasemarketcapitaloftheIndexistheaggregatemarketcapitalisationofeachscripintheIndexduringthebaseperiod.Themarketcapduringthebaseperiod

isequatedtoanIndexvalueof1000knownasthebaseIndexvalue.CurrentmarketcapitaloftheIndexistheaggregatemarketcapitalizationofeachscripintheIndexduringthecurrentperiod.ThecurrentpriceofeachstockismultipliedbythenumberofsharesoutstandingtogivetheaggregatecurrentmarketcapoftheIndexAtanygiventime,theIndexlevelisequaltothetotalcurrentmarketvalueoftheportfolio,dividedbythebaseperiodmarketvalue,multipliedbybaseIndexvalue.ANiftyIndexlevelof1500willindicatethattheaggregatepriceoftheportfoliohasrisenby50%overthebaseperiod.BENCHNMARKINGWhatisbenchmarking?Itisanevaluationofanindividualfundsperformanceincomparisontoitspeergroupofsimilarfundsortoanappropriatemarketindex.Justbesurethatthefundsindicatedcomparisonsarevalidandappropriate.Youwanttocompareappleswithapples.Youwanttocomparetotalreturnsforthes

meperiodforbothfunds.Uselong-termperformancedata.Trytousetwotypesofbenchmarks---marketindexesandpeergroupaverages.TheS&P500Indexisthemostwidelyusedbenchmarkformeasuringmutualfundperformancebutitisnottheappropriatebenchmarkforthemajorityoffunds.However,asastartingpoint,trybenchmarkingyourfundfundsagainstabroadindexliketheS&P500.Then,benchmarkyourfundagainstanappropriatebenchmark.Checkyourfundsprospectuseachfundcitesanindexasabenchmark.Youcanaskyourfundprovider(Vanguard,Fidelity,TIAA-CREF,etc.),orthebrokeryoupurchasedthefundfromtoprovideyouwiththeproperbenchmark.Itsessentialto


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compareyourreturnstoanappropriatebenchmarktoexaminewhetheryourinvestmentstrategyisworkingforalarge-capfund;acommonbenchmarktouseistheS&P500Index.Checkwww.spglobal.comforindexdata.Forlarge-capgrowthorvaluefunds,usetheS&P500Barra/GrowthortheS&P500BarraValue.CheckS&P500BarraGrowthorS&P500BarraValueindexesfoundatwww.barra.com,itisessentialforyou,asaninvestor,tocompareyourindividualfundsreturnoryourportfolioreturntoanappropriatebenchmarktoexaminehowwellyouaredoing.Ifyourstrategyorasuggestedstrategy---failsoveraperiodoryearstooutperformabroadmarketindex---youmightsimplyconsidermatchingthatindexsreturnbybuyingalow-expensemutualfundthatreproducestheindex.Inthatmanner,younotonlyensurethatyouwillnotfallunderthemarketaverages,butyouwillsavethetimeandenergythatgoesintotheselectionandkeepingtrackofthebusinessthatyouinvestin.Agoodnumberofexpertssaythatyoushouldcheckyourfundsversustheirbenchmarksquarterly.Theyaddthatanyfundthatconsistentlyunderperformsitsbenchmarkbymorethanoneortwopercentagepoints,annualized,shouldbeputonawatchlistorsold.Somesuggestthatyoushouldnotdumpafunduntilyouaredissatisfiedwithitsrelativeperformanceforayear.Below,youwillfindaBenchmarkslistingwhichdetailstheMarketIndex,theDescriptionofthatindexanditsusefulnessasaBenchmark.ImportanceofBenchmarking-Afundsperformancecanbejudgedinrelationtoinvestorsexpectations.-Theseguidelinesorindicatorsofperformancecanbethoughtofasbenchmarksagainstwhichafundsperformanceoughttobemeasured.

-Forinstance,BSE-30willbeabenchmarkfordiversifiedequityfundandBSEITindexfortechfunds.Whileanadvisorneedstolookattheabsolutemeasuresofperformance,heneedstoselecttherightbenchmarktoevaluateafundsperformance,sothathecancomparethemeasuredperformancefiguresagainsttheselectedbenchmark.Theappropriatebenchmarkhastobeselectedbyreferenceto: TheassetClassitinvestsin.Thus,anequityfundhastobejudgedbyfromaappropriatebenchmarkfromtheequitymarketandsoon. ThefundsstatedInvestmentObjective.TherearethreetypesofbenchmarksthatcanbeusedtoevaluateafundsPerformance: Relativetothemarketasawhole

Relativetoothermutualfunds. Relativetoothercomparablefinancialproductsorinvestmentsoptionsopentoheinvestor.BenchmarkingrelativetomarketEquityFunds IndexFunds-abaseindex:- Ifaninvestorweretochooseanequityindexfund,hecanexpecttogetthesamereturnasontheIndexcalledtheBaseIndex.- Forindexfunds,thebenchmarkisclearandpre-specifiedbythefundmanagerinadvance.

TrackingError:-AnIndexFundinvestsinallofthestocksincludedintheindexcalculation,

inthesameproportionasthestocksweightintheindex.-Anindexfundactualreturnmaybebetterorworsebywhatiscalledthetrackingerror.-Thetrackingerrorarisesfromthepracticaldifficultiesfacedbythefundmangerintryingtoremaininlinewiththeweightthatthestocksenjoyintheindex. ActiveEquityFunds:- Usingappropriatemarketindex.- Theappropriateindextobeusedtoevaluateabroad-basedequityfundsshouldbedecidedonthebasisofthesizeandthecompositionofthefundsport


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folio.- Ifthefundhasalargeportfolio,aboardermarketindexlikeBSE100or200orNSE100maybeusedtobenchmarkratherthanS&PNIFTYorBSE30.- Anactivelymanagedfundexpectstobeattheindex. SectorFunds:- BenchmarkwillbetherelativeSectoralindex.- AninvestorinInfoTechorpharmacysectorfundsacanexpectthesamereturnastherelativesectoralindices.- Inotherwords,thechoiceofacorrectequityindexasabenchmarkalsodependsupontheinvestmentobjectiveofthefund.Forexample,asmallcapfundhastobecomparedwithasmallcapindex. DebtFunds:- Usingappropriatedebtmarketindex.- Abroadbasedbondfundordebtfundshouldbebenchmarkedwithbroadbaseddebtindexwhereasanarrowergovernmentsecuritiesfund,onlythegovernmentsectorsub-segmentofthebroadbasedindexhastobeused.- Closed-endfundswithclearmaturitycanbecomparedwithbankdeposits.- I-SECsI-BEXismostcommonlyusedbysomeanalysts. MoneyMarketFunds:- Moneymarketfundsduetotheirshort-termnaturearebenchmarkedagainstthegovernmentfundsofappropriatematurities.- J.P.MorgansT-Billindexisusedbyanalysts.- NSEsmibid/miborratesthatreflectinterbankcallmoneymarketinterestratecanalsobeusedasabenchmark.

BenchmarkingrelativetootherMFsWhilecomparingtwofunds,itisextremelyimportanttoensurethatcomparisonsaremeaningfulandmeetthefollowingcriteria:TheInvestmentObjectivesandRiskProfiles.- Oftwofundsbeingcomparedmustbesame.- Forexampleandequityfundcannotbecomparedwithadebtfund.

PortfolioCompositions- Ofthefundscomparedmustbesimilar.- Highreturnsfundinvestinginhighrisk-pronesecuritiescannotbecomparedwithaschemethatinvestinlowrisksecurities.CreditQualityandAverageMaturity

- Thecreditratingsoftheinvestmentshavetocomparable,forexampleasecuritywithinvestmentsinAAAisnotsameasAA-.- Afundwithmaturityof3yrsisnotsamethefundwith6yrsFundSize- Fundsofequalsizeshouldbecompared.ExpenseRatio- Expenseratiosaffectfundsperformance.Evenwhentwofundsofsimilarcharacteristicsarecompared,theirreturnsmustbecalculatedonthefollowingcomparablebasis: Comparethereturnsoverthesameperiodonly. Onlyannualizedcompoundreturnsarecomparable,i.e.datamustbeavailablefolongenoughperiods. Onlyafter-taxreturnsoftwodifferentschemesshouldbecompared.

TrackingMFPerformanceTotrackfundperformance,thefirststepistofindtherelevantinformationonNAV,expenses,cashflow,appropriateindicesetc.thecommonsourcesofinformationare: MutualFundsAnnualandperiodicReportsincludedataonthefundsfinancialrmancewhichareindicatorsforexpenseratiosandtotalreturn.Italsoincludesalistingofthefundsportfolioholdingsatmarketvalue,statementofrevenueandexpenses,unrealizedappreciation/depreciationatyearendandchangesinnetassets. FinancialPress:DailynewspaperslikeEconomictimesprovidedailyNAVfigures


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foropen-endschemes.TherearealsoweeklysupplementslikesmartInvestorofBusinessstandardandInvestorsguideofeconomicTimesalsogiveenoughinformationforevaluation. FundTrackingagencieslikecredenceandvalueresearcharesourcesforMFperfrmancedataandevaluation. Newsletters:ManyMFs,banksandnon-bankingfirmscateringtoretailinvestorspublishtheirownnewsletters.Prospectus:SEBIregulationsrequiresponsorstodiscloseperformancedatarelatingtoschemesbeingmanagedbythem.

CHAPTERIV

InthisstudycollectedtheNETASSETVALUESoffivefundsofPRUDENTIALICICIandcomparedthereturnswiththeBenchmarkindexi.e.,S&PCNXNifty.TheperformanceevaluationcanbedonebycomparingthereturnswiththereturnofS&PCNXNiftyaccordingtotheSHARPESPERFORMANCEINDEXMODEL,TREYNORINDEXMODEL,JENSENMODELandFAMAMODEL.TheNetAssetValuescalculatedforthepasttwoyearsandrankingsaregiventothefundsbasedontheabovemodels.Thefundshadbeenselectedforperformanceevaluationisopenendedequityfundsthoseare1. PruICICIDynamicplan

2. PruICICIGrowthplan3. PruICICIPower4. PruICICITaxplan5. PruICICIIndexfund

PruICICIDynamicPlan

FundSuitability:Mediumterminvestmentoffundsforcapitalappreciationbymanagingcashandequityportfolio.Whichsuitableforinvestorswithaninvestmenthorizonof2to3years.THEFOLLOWINGTABLESHOWSMONTHLYRETURNSOFINDEXFUNDANDS&PCNXNIFTY.NAVDATE DYNAMICPLAN

(NAVPRICE) RETURN% S&PCNXNIFTY(VALUE) RETURN%6/2/03 8.6615 11.99446 1015.15 11.382557/1/03 9.7004 6.185312 1130.7 5.7530738/1/03 10.3004 15.30717 1195.75 15.070049/1/03 11.8771 3.374561 1375.95 3.263210/1/03 12.2779 12.74648 1420.85 12.7247811/1/03 13.8429 3.385129 1601.65 3.49639412/1/03 14.3115 15.20316 1657.65 15.359091/1/04 16.4873 -7.50942 1912.25 -7.491182/3/04 15.2492 4.182514 1769 4.731487


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3/1/04 15.887 -1.88834 1852.7 -1.783884/1/04 15.587 -3.23539 1819.65 -2.90995/3/04 15.0827 -16.2802 1766.7 -14.64886/1/04 1 2.6272 2.387703 1507.9 1 .94317/1/04 12.9287 6.92413 1537.2 6.6256838/2/04 13.8239 0.015914 1639.05 -0.219649/1/04 13.8261 8.831124 1635.45 8.54199210/1/04 15.0471 1.332483 1775.15 1.27313211/1/04 15.2476 9.288019 1797.75 9.13920212/1/04 16.6638 8.008377 1962.05 7.7954181/3/05 17.9983 -2.83582 2115 -2.607572/1/05 17.4879 0.892045 2059.85 1.1918343/1/05 17.6439 -0.77987 2084.4 -0.803594/1/05 17.5063 -7.00262 2067.65 -7.298145/2/05 16.2804 9.072873 1916.75 8.9109176/1/05 17.7575 2087.55

DynamicPlanVs.S&PCNXNifty

INDEX Amt.inLakhsAUTO 8.78BANKS 16.03CEMENT 3.98CHEMICAL 0.65CONSUMERNONDURABLE 10.89FERROUSMETALS 7.77FERTILIZERS 0.52FINANCE 2.91GAS 2.88INDUSTRIALCAPITALGOODS 5.89MEDIA&ENTERTAINMENT 0.92

NON-FERROUSMETALS 3.73OIL 20.27PETROLEUMPR4ODUCTS 15.58PHARMACEUTICAL 8.06POWER 2.72SOFTWARE 32.41TELECOMSERVICES 8.16TRANSPORTATION 0.68CASH,CALL,CBLO&REVERSEREPO 47OTHERCURRENTASSETS 47.06


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Theabovepiechartrepresentsthesectorallocationofportfolio.

CALCULATIONOFBETAVALUESANDALPHAVALUES

NAVDATE FUND Y(RETURN) S&PCNXNIFTY X(RETURN)x*x x*y6/2/03 8.6615 11.99446 1015.15 11.38255 129.5625136.52767/1/03 9.7004 6.185312 1130.7 5.753073 33.0978535.584558/1/03 10.3004 15.30717 1195.75 15.07004 227.1061230.67979/1/03 11.8771 3.374561 1375.95 3.2632 10.6484711.0118710/1/03 12.2779 12.74648 1420.85 12.72478 161.92162.196111/1/03 13.8429 3.385129 1601.65 3.496394 12.2247711.8357512/1/03 14.3115 15.20316 1657.65 15.35909 235.9017

233.50671/1/04 16.4873 -7.50942 1912.25 -7.49118 56.1177156.254352/3/04 15.2492 4.182514 1769 4.731487 22.3869719.789513/1/04 15.887 -1.88834 1852.7 -1.78388 3.1822383.3685714/1/04 15.587 -3.23539 1819.65 -2.9099 8.4675199.4146585/3/04 15.0827 -16.2802 1766.7 -14.6488 214.5868238.48576/1/04 12.6272 2.387703 1507.9 1.9431 3.7756364.639544

7/1/04 12.9287 6.92413 1537.2 6.625683 43.8996845.877098/2/04 13.8239 0.015914 1639.05 -0.21964 0.048241-0.00359/1/04 13.8261 8.831124 1635.45 8.541992 72.9656275.4353810/1/04 15.0471 1.332483 1775.15 1.273132 1.6208651.69642611/1/04 15.2476 9.288019 1797.75 9.139202 83.5250184.8850812/1/04 16.6638 8.008377 1962.05 7.795418 60.7685462.428651/3/05 17.9983 -2.83582 2115 -2.60757 6.799395

7.3945942/1/05 17.4879 0.892045 2059.85 1.191834 1.4204691.063173/1/05 17.6439 -0.77987 2084.4 -0.80359 0.6457550.6266974/1/05 17.5063 -7.00262 2067.65 -7.29814 53.2628551.106125/2/05 16.2804 9.072873 1916.75 8.910917 79.4044480.847626/1/05 17.7575 2087.55


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Y 79.59975 X 79.43922 x*x 1523.339 x*y 1564.652

Bi=NXY-XYNX-(X)2Bi=37551.6486323.26436560.1366310.554=0.93182Interpretation:Onepercentchangeinmarketindexreturncauses.93%changeinthefundreturn.Alpha:=Y-i* X

=4.1543950.931821*3.309968=1.070098Interpretation:Theforecastingabilityofthefundmanagerindicatedbyalphavalue.Positivealphavaluehelpsthefundmanagertoearnmorethanriskfreereturn.Standarddeviation:Standarddeviationindicatesthevolatilityofthefund.ThestandarddeviationoftheDynamicPlanis(7.44)greaterthanstandarddeviationS&PCNXNifty(7.30).sotheDynamicplanisriskierthanS&PCNXNifty.

SharpeRatio:St=PortfolioaveragereturnriskfreerateofinterestStandarddeviationofportfolio

St=4.1543955/7.442381=>-0.11362Interpretation:Sharperatioindicatestheriskpremium(-0.11362)perunitoftotalrisk(S.D)TreynorRatio:

Tn=PortfolioaveragereturnriskfreerateofinterestBetaco-efficientofportfolio

Tn=4.1543955/0.931821=>-0.90748Interpretation:TheTreynorratioindicatestheriskpremium(-0.90748)perunitofsystematicrisk.JensonRatio: Ji=i/i

Ji=1.070098/0.931821=>1.148394Interpretation:Positivevalueindicatesthatpredictiveabilityoffundmanagerhelpstoearnmorethanriskfreereturn.FamaModel:

Ri=Rf+Si/Sm*(RmRf)Ri=5+7.4423/7.30*(3.3095)=>3.2643

Interpretation:HighervalueofFamaRatioindicatesthatfundmanagerhasearnedreturnswellabovethereturncommensuratewiththelevelofrisktakenbyhim.


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PruICICIGrowthPlan

FundSuitability:Longterminvestmentoffundsforcapitalappreciation.Whichsuitableforinvestorswhoseektoinvestinequitysecurities.THEFOLLOWINGTABLESHOWSMONTHLYRETURNSOFINDEXFUNDANDS&PCNXNIFTY.

NAVDATE GROWTHPLAN(NAVPRICE) RETURN% S&PCNXNIFTY(VALUE) RETURN%6/2/03 20.38 9.568204 1015.15 11.382557/1/03 22.33 7.120466 1130.7 5.7530738/1/03 23.92 13.33612 1195.75 15.070049/1/03 27.11 4.795278 1375.95 3.263210/1/03 28.41 14.43154 1420.85 12.7247811/1/03 32.51 4.706244 1601.65 3.49639412/1/03 34.04 15.01175 1657.65 15.359091/1/04 39.15 -6.46232 1912.25 -7.491182/3/04 36.62 5.980339 1769 4.7314873/1/04 38.81 -4.04535 1852.7 -1.78388

4/1/04 37.24 -2.47046 1819.65 -2.90995/3/04 36.32 -15.7764 1766.7 -14.64886/1/04 30.59 1.274926 1507.9 1.94317/1/04 30.98 5.939316 1537.2 6.6256838/2/04 32.82 2.193784 1639.05 -0.219649/1/04 33.54 7.18545 1635.45 8.54199210/1/04 35.95 1.947149 1775.15 1.27313211/1/04 36.65 8.294679 1797.75 9.13920212/1/04 39.69 11.06072 1962.05 7.7954181/3/05 44.08 -3.33485 2115 -2.607572/1/05 42.61 4.76414 2059.85 1.1918343/1/05 44.64 0.62724 2084.4 -0.803594/1/05 44.92 -7.19056 2067.65 -7.29814

5/2/05 41.69 10.12233 1916.75 8.9109176/1/05 45.91 2087.55

GrowthplanVs.S&PCNXNifty


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GROWTHAUTO 1018.65AUTOANCILLARIES 511.91BANKS 4086.04CEMENT 1089.22CONSTRUCTION 656.12COSUMERNON-DURABLE 958.81DREDGING 306.82FERROUSMETALS 2381.22FERTILIZERS 183.75INDUSTRIALCAPITALGOODS 695.86INDUSTRIALPRODUCTS 182.72MEDIA&ENTERTAINMENT 926OIL 2213.25PESTICIDES 857.49PETROLEUMPRODUCTS 982.89

PHARMACEUTICALS 2823.62SOFTWARE 3778.36CASH,CALL,CBLO&REVERSEREPO 978.78OTHERCURRENTASSETS 359.37


CalculationofBetavaluesandAlphavalues

NAVDATE FUND Y(RETURN) S&PCNXNIFTY X(RETURN)x*x x*y6/2/03 20.38 9.568204 1015.15 11.38255 129.5625108.91067/1/03 22.33 7.120466 1130.7 5.753073 33.09785

40.964568/1/03 23.92 13.33612 1195.75 15.07004 227.1061200.97599/1/03 27.11 4.795278 1375.95 3.2632 10.6484715.6479510/1/03 28.41 14.43154 1420.85 12.72478 161.92183.638111/1/03 32.51 4.706244 1601.65 3.496394 12.2247716.4548912/1/03 34.04 15.01175 1657.65 15.35909 235.9017


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230.56691/1/04 39.15 -6.46232 1912.25 -7.49118 56.1177148.41042/3/04 36.62 5.980339 1769 4.731487 22.3869728.295893/1/04 38.81 -4.04535 1852.7 -1.78388 3.1822387.2164294/1/04 37.24 -2.47046 1819.65 -2.9099 8.4675197.1887985/3/04 36.32 -15.7764 1766.7 -14.6488 214.5868231.10556/1/04 30.59 1.274926 1507.9 1.9431 3.7756362.4773097/1/04 30.98 5.939316 1537.2 6.625683 43.8996839.352028/2/04 32.82 2.193784 1639.05 -0.21964 0.048241-0.481849/1/04 33.54 7.18545 1635.45 8.541992 72.9656261.3780510/1/04 35.95 1.947149 1775.15 1.273132 1.6208652.47897711/1/04 36.65 8.294679 1797.75 9.139202 83.5250175.8067512/1/04 39.69 11.06072 1962.05 7.795418 60.76854

86.222941/3/05 44.08 -3.33485 2115 -2.60757 6.7993958.6958272/1/05 42.61 4.76414 2059.85 1.191834 1.4204695.6780663/1/05 44.64 0.62724 2084.4 -0.80359 0.645755-0.504044/1/05 44.92 -7.19056 2067.65 -7.29814 53.2628552.477725/2/05 41.69 10.12233 1916.75 8.910917 79.4044490.199256/1/05 45.91 2087.55

Y 89.0797 X 79.43922 x*x 1523.339 x*y1543.157

Bi=NXY-XYNX-(X)2Bi=37035.7687076.421=0.99040636560.1366310.554Interpretation:Onepercentchangeinmarketindexreturncauses(0.99%)changeinthefundreturn.Alpha:=Y-i* X

=3.7116540.990406*3.309968

=0.433442Interpretation:Theforecastingabilityofthefundmanagerindicatedbyalphavalue.Positivealphavaluehelpsthefundmanagertoearnmorethanriskfreereturn.Standarddeviation:Standarddeviationindicatesthevolatilityofthefund.ThestandarddeviationoftheGrowthPlanis(7.35551)greaterthanstandarddeviationS&PCNXNifty(7.30).sotheGrowthplanisriskierthanS&PCNXNifty.

SharpeRatio:


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St=PortfolioaveragereturnriskfreerateofinterestStandarddeviationofportfolio

St=3.7116545/7.35551=>-0.17515Interpretation:Sharperatioindicatestheriskpremium(-0.17515)perunitoftotalrisk(S.D)TreynorRatio:




Ri=Rf+Si/Sm*(RmRf)Ri=5+7.35551/7.30*(3.3095)=>3.284623


PruICICIPower

FundSuitability:Longterminvestmentoffundsforcapitalappreciationinaconcentratedmultisectorportfolio.Whichsuitableforinvestorswhoseekinlongtermcapitalappreciationthroughinvestinginequityandequityrelatedsecurities.THEFOLLOWINGTABLESHOWSMONTHLYRETURNSOFINDEXFUNDANDS&PCNXNIFTY.NAVDATE POWERPLAN(NAVPRICE) RETURN% S&PCNXNIFTY(VALUE) RETURN%

6/2/03 14.97 12.69205 1015.15 11.382557/1/03 16.87 9.602845 1130.7 5.7530738/1/03 18.49 13.35857 1195.75 15.070049/1/03 20.96 7.299618 1375.95 3.263210/1/03 22.49 12.09426 1420.85 12.7247811/1/03 25.21 6.902023 1601.65 3.49639412/1/03 26.95 14.10019 1657.65 15.359091/1/04 30.75 -8.94309 1912.25 -7.491182/3/04 28 6.5 1769 4.7314873/1/04 29.82 -2.98457 1852.7 -1.78388


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4/1/04 28.93 -0.76046 1819.65 -2.90995/3/04 28.71 -12.992 1766.7 -14.64886/1/04 24.98 2.76221 1507.9 1.94317/1/04 25.67 5.414881 1537.2 6.6256838/2/04 27.06 4.323725 1639.05 -0.219649/1/04 28.23 7.190932 1635.45 8.54199210/1/04 30.26 1.619299 1775.15 1.27313211/1/04 30.75 8.845528 1797.75 9.13920212/1/04 33.47 11.65223 1962.05 7.7954181/3/05 37.37 -2.94354 2115 -2.607572/1/05 36.27 3.198235 2059.85 1.1918343/1/05 37.43 -0.85493 2084.4 -0.803594/1/05 37.11 -4.50013 2067.65 -7.298145/2/05 35.44 8.493228 1916.75 8.9109176/1/05 38.45 2087.55

PowerPlanVs.S&PCNXNifty

POWERAUTO 2027.22BANKS 8793.6CEMENT 2712.62CHEMICAL 236.87CONSTRUCTION 1164.22CONSUMERDURABLE 656.11CONSUMERNONDURABLE 3700.13FERROUSMETALS 1496.27FERTILIZERS 873.6

INDUSTRIALCAPITALGOODS 6470.94NON-FERROUSMETALS 1094.53PESTICIDES 2813.16PETROLEUMPRODUCTS 5786.13PHARMACEUTICALS 4967.92SOFTWARE 8525.85CASH,CALL,CBLO&REVERSEREPO 3102.49OTHERCURRENTASSETS 1833.38


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NAVDATE FUND Y(RETURN) S&PCNXNIFTY X(RETURN)x*x x*y6/2/03 14.97 12.69205 1015.15 11.38255 129.5625144.4687/1/03 16.87 9.602845 1130.7 5.753073 33.0978555.245878/1/03 18.49 13.35857 1195.75 15.07004 227.1061201.31429/1/03 20.96 7.299618 1375.95 3.2632 10.6484723.8201110/1/03 22.49 12.09426 1420.85 12.72478 161.92153.896811/1/03 25.21 6.902023 1601.65 3.496394 12.22477

24.1321912/1/03 26.95 14.10019 1657.65 15.35909 235.9017216.56611/1/04 30.75 -8.94309 1912.25 -7.49118 56.1177166.994252/3/04 28 6.5 1769 4.731487 22.3869730.754663/1/04 29.82 -2.98457 1852.7 -1.78388 3.1822385.3241314/1/04 28.93 -0.76046 1819.65 -2.9099 8.4675192.2128525/3/04 28.71 -12.992 1766.7 -14.6488 214.5868190.3168

6/1/04 24.98 2.76221 1507.9 1.9431 3.775636 5.3672497/1/04 25.67 5.414881 1537.2 6.625683 43.8996835.877298/2/04 27.06 4.323725 1639.05 -0.21964 0.048241-0.949669/1/04 28.23 7.190932 1635.45 8.541992 72.9656261.4248810/1/04 30.26 1.619299 1775.15 1.273132 1.6208652.06158211/1/04 30.75 8.845528 1797.75 9.139202 83.5250180.8410712/1/04 33.47 11.65223 1962.05 7.795418 60.7685490.83397

1/3/05 37.37 -2.94354 2115 -2.60757 6.7993957.6754662/1/05 36.27 3.198235 2059.85 1.191834 1.4204693.8117673/1/05 37.43 -0.85493 2084.4 -0.80359 0.6457550.6870114/1/05 37.11 -4.50013 2067.65 -7.29814 53.2628532.842625/2/05 35.44 8.493228 1916.75 8.910917 79.4044475.68245


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6/1/05 38.45 2087.55

Y 102.0711 X 79.43922 x*x 1523.339 x*y 1511.202


=4.2529630.930936*3.309968=1.171595Interpretation:Theforecastingabilityofthefundmanagerindicatedbyalphavalue.Positivealphavaluehelpsthefundmanagertoearnmorethanriskfreereturn.Standarddeviation:Standarddeviationindicatesthevolatilityofthefund.ThestandarddeviationofthePowerPlanis(7.013092)lesserthanstandarddeviationS&PCNXNifty(7.30).sothePowerplanislessriskierthanS&PCNXNifty.

SharpeRatio:

St=PortfolioaveragereturnriskfreerateofinterestStandarddeviationofportfolioSt=4.2529635/7.013092=>-0.10652

Interpretation:Sharperatioindicatestheriskpremium(-0.10652)perunitoftotalrisk(S.D)TreynorRatio:



Ji=1.171595/0.930936=>1.258513

Interpretation:Positivevalueindicatesthatpredictiveabilityoffundmanagerhelpstoearnmorethanriskfreereturn.FamaModel:

Ri=Rf+Si/Sm*(RmRf)Ri=5+7.013092/7.30*(3.3095)=>3.3644782



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PruICICITaxPlan

FundSuitability:Mediumterminvestmentoffundswithtaxbenefitsforcapitalappreciation.Whichsuitableforinvestorsseekingtobenefitfrommediumterminvestmentoffundswithtaxbenefitsforcapitalappreciation.

THEFOLLOWINGTABLESHOWSMONTHLYRETURNSOFINDEXFUNDANDS&PCNXNIFTY.

NAVDATE TAXPLAN(NAVPRICE) RETURN% S&PCNXNIFTY(VALUE) RETURN%6/2/03 14.35 15.60976 1015.15 11.382557/1/03 16.59 8.559373 1130.7 5.7530738/1/03 18.01 19.26707 1195.75 15.070049/1/03 21.48 7.960894 1375.95 3.263210/1/03 23.19 6.554549 1420.85 12.7247811/1/03 24.71 10.36018 1601.65 3.49639412/1/03 27.27 17.38174 1657.65 15.359091/1/04 32.01 -16.9947 1912.25 -7.491182/3/04 26.57 0.752729 1769 4.7314873/1/04 26.77 0.896526 1852.7 -1.78388

4/1/04 27.01 3.480193 1819.65 -2.90995/3/04 27.95 -11.9857 1766.7 -14.64886/1/04 24.6 3.414634 1507.9 1.94317/1/04 25.44 11.47799 1537.2 6.6256838/2/04 28.36 12.65867 1639.05 -0.219649/1/04 31.95 5.226917 1635.45 8.54199210/1/04 33.62 1.784652 1775.15 1.27313211/1/04 34.22 15.57569 1797.75 9.13920212/1/04 39.55 10.69532 1962.05 7.7954181/3/05 43.78 1.256281 2115 -2.607572/1/05 44.33 6.654636 2059.85 1.1918343/1/05 47.28 2.961083 2084.4 -0.803594/1/05 48.68 -3.59491 2067.65 -7.29814

5/2/05 46.93 12.5293 1916.75 8.9109176/1/05 52.81 2087.55

TaxPlanVs.S&PCNXNifty


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TAXAUTOANCILLARIES 675.76BANKS 294.57CEMENT 146.11CHEMICAL 520.11CONSTRUCTION 16.37COSUMERNON-DURABLE 110.08FERROUSMETALS 223.81FERTILIZERS 45.06FINANCE 129.38HOTELS 261.6INDUSTRIALCAPITALGOODS 711.45INDUSTRIALPRODUCTS 550.99NON-FERROUSMETALS 167.97PESTICIDES 358.38PETROLEUMPRODUCTS 172.09PHARMACEUTICALS 474.73SOFTWARE 430.1

TELECOM 99.73TEXTILES-COTTON 26.67TEXTILES-PRODUCTS 58.38CASH,CALL,CBLO&REVERSEREPO 48OTHERCURRENTASSETS 144.44



NAVDATE FUND(NAVPRICE) Y(RETURN) S&PCNXNIFTY X(RETURN)x*x x*y6/2/03 14.35 15.60976 1015.15 11.38255 129.5625177.67897/1/03 16.59 8.559373 1130.7 5.753073 33.0978549.24278/1/03 18.01 19.26707 1195.75 15.07004 227.1061290.3556

9/1/03 21.48 7.960894 1375.95 3.2632 10.6484725.9779910/1/03 23.19 6.554549 1420.85 12.72478 161.9283.4051811/1/03 24.71 10.36018 1601.65 3.496394 12.2247736.2232712/1/03 27.27 17.38174 1657.65 15.35909 235.9017266.96771/1/04 32.01 -16.9947 1912.25 -7.49118 56.11771127.3102


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2/3/04 26.57 0.752729 1769 4.731487 22.386973.5615263/1/04 26.77 0.896526 1852.7 -1.78388 3.182238-1.59934/1/04 27.01 3.480193 1819.65 -2.9099 8.467519-10.1275/3/04 27.95 -11.9857 1766.7 -14.6488 214.5868175.57576/1/04 24.6 3.414634 1507.9 1.9431 3.7756366.6349757/1/04 25.44 11.47799 1537.2 6.625683 43.8996876.049518/2/04 28.36 12.65867 1639.05 -0.21964 0.048241-2.780349/1/04 31.95 5.226917 1635.45 8.541992 72.9656244.6482810/1/04 33.62 1.784652 1775.15 1.273132 1.6208652.27209711/1/04 34.22 15.57569 1797.75 9.139202 83.52501142.349312/1/04 39.55 10.69532 1962.05 7.795418 60.7685483.374511/3/05 43.78 1.256281 2115 -2.60757 6.799395-3.27584

2/1/05 44.33 6.654636 2059.85 1.191834 1.4204697.9312233/1/05 47.28 2.961083 2084.4 -0.80359 0.645755-2.379494/1/05 48.68 -3.59491 2067.65 -7.29814 53.2628526.236135/2/05 46.93 12.5293 1916.75 8.910917 79.40444111.64756/1/05 52.81 2087.55

Y 142.4829 X 79.43922 x*x 1523.339 x*y 1717.28


=5.936780.988312*3.309968=2.665507Interpretation:Theforecastingabilityofthefundmanagerindicatedbyalphavalue.Positivealphavaluehelpsthefundmanagertoearnmorethanriskfreereturn.Standarddeviation:Standarddeviationindicatesthevolatilityofthefund.

ThestandarddeviationoftheTaxPlanis(8.650477)greaterthanstandarddeviationS&PCNXNifty(7.30).sotheTaxplanisriskierthanS&PCNXNifty.

SharpeRatio:St=Portfolioaveragereturnriskfreerateofinterest

StandarddeviationofportfolioSt=5.936785/8.650477=>0.108293

Interpretation:Sharperatioindicatestheriskpremium(0.108293)perunitoftotalrisk(S.D)TreynorRatio:


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Tn=5.936785/0.988312=>0.947866Interpretation:TheTreynorratioindicatestheriskpremium(0.947866)perunitofsystematicrisk.JensonRatio: Ji=i/i


Ri=Rf+Si/Sm*(RmRf)Ri=5+8.650477/7.30*(3.3095)=>2.982624


PruICICIIndexfund

FundSuitability:LongterminvestmentoffundsforcapitalappreciationbyreplicatingS&PCNXNiftyindex.Whichsuitableforinvestorswhoseektoinvestin

equitysecurities.THEFOLLOWINGTABLESHOWSMONTHLYRETURNSOFINDEXFUNDANDS&PCNXNIFTY.

NAVDATE FUND(NAVPRICE) RETURN% S&PCNXNIFTY(VALUE) RETURN%6/2/03 8.6615 11.99446 1015.15 11.382557/1/03 9.7004 6.185312 1130.7 5.7530738/1/03 10.3004 15.30717 1195.75 15.070049/1/03 11.8771 3.374561 1375.95 3.263210/1/03 12.2779 12.74648 1420.85 12.7247811/1/03 13.8429 3.385129 1601.65 3.49639412/1/03 14.3115 15.20316 1657.65 15.359091/1/04 16.4873 -7.50942 1912.25 -7.49118

2/3/04 15.2492 4.182514 1769 4.7314873/1/04 15.887 -1.88834 1852.7 -1.783884/1/04 15.587 -3.23539 1819.65 -2.90995/3/04 15.0827 -16.2802 1766.7 -14.64886/1/04 1 2.6272 2.387703 1507.9 1 .94317/1/04 12.9287 6.92413 1537.2 6.625

comparison of fund performance with benchmark index

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