madhan main final

8/8/2019 Madhan Main Final

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CHAPTER I

INTRODUCTION

1.1 INTRODUCTION ABOUT THE STUDY

The Indian financial market today is one of the fastest growing

emerging markets of the world. The new government policy of economic

liberalization, deregulation and measures of restructuring the economy, has

dismantled entry barriers in the financial market and created an environment

for efficient allocation of resources one of the new economic scene is the

mutual fund industry, which has emerged as the most dynamic segment of the

Indian financial system. Through out the world, mutual funds have played a

very significant role as financial intermediaries and have contributed to the

development of capital markets and the growth of the corporate sector.

Though the mutual fund industry in India is relatively new, it has grown

rapidly influencing various sectors of the financial market and the national

economy. Till 1987, the Unit Trust of India (UTI) was the only mutual fund in

India. The industry witnessed an unprecedented level of growth with the

entry of public sector mutual funds, sponsored by nationalized banks and

insurance companies, in 1987. The mutual fund activity attained momentum

in 1993 with the opening up of the industry to private sector fund operators.

After an enthusiastic beginning Indian mutual funds lost their

momentum and slowed down after 1994-95. The industry showed sluggish

growth in spite of market reforms inducements to competition, increased

operational transparency. And an expanding savings market. The overall

macro-economic uncertainties, particularly the fluctuating stock markets have

had an adverse impact on mutual fund resource mobilization. This has

affected the private sector considerably, unlike the public sector mutual funds

and UTI does not have government resources to full back.


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Indian financial system has witnessed revolutionary changes,

developments and innovations since 1991 due to economic reforms

undertaken by the government. With the advent of liberalization, privatizationand globalization, the financial services sector has become more dynamic and

vibrant. Many innovative methods of finance products, services, business and

regulatory bodies have emerged to make the Indian capital market more liquid

and strong to face the global challenges. Emergence of increasing role of

mutual fund industry in financial intermediation is one such development

following the structural reforms initiated in the Indian economy.

MUTUAL FUND

Mutual funds have emerged as dynamic financial intermediaries

between the suppliers and the users of money. Mutual Fund (MF) is basically

a trust that pools the savings of a number of investors who share a common

goal and invests the same in different types of securities as per pre-

determined objectives. The income earned through such investment by the

MF and capital appreciations realized by the scheme are shared by its unit

holders in proportion to the number of units owned by them.

Investment in securities was spread across a wide cross-section of

industries and sectors and thus the risk is reduced. Diversification reduces

the risk because all stocks may not move in the same direction in the same

proportion at the same time. Investors of Mutual Funds are known as unit

holders.


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CONCEPTS AND DEFINITIONS OF MUTUAL FUNDS

DEFINITION

According to JHON A. HALIN a mutual fund is almost like a co-

operative society of investors; that is why the word mutual is used. It collects

money from investors by issuing mutual fund shares invests this in shares and

securities and divides whatever dividend and interest is received among it

members

According to securities and exchange board of India regulationsmutual fund means a fund established in the form of trust by a sponsor to rise

money by the trustee through sale of units to the public under one or more

schemes for investing or securities in accordance with the regulation thus a

mutual fund collects money from the investors issues certificates to them

known as units and invests the money collected in securities so as to achieve

mutual benefit in terms of capital appreciates in such securities.

CONCEPTS

CAPITAL MARKET

It is that segment of the financial markets in which securities having

maturities exceeding one year are traded.

STOCK MARKET

An institution where stocks and shares are traded. Companies that

wish their stocks to be bought or sold list their shares in the Stock exchange

and members registered at the stock exchange either buy or sell these stocks

on behalf of their investor clientele.

STOCK MARKET INDICES

Stock market indices are numbers that measure the general movement

of the market. They represent the entire market or segments thereof.


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BSE SENSEX

Bombay stock Exchange Sensitive Index reflects the price movement

of 30 selected shares on the BSE.

NSE NIFTY

National stock exchange Nifty index reflects the price movements of 50

selected shares on the NSE.

NET ASSET VALUE

Net Asset Value (NAV) denotes the performance of a particular

scheme of a mutual fund. In simple words, Net Asset Value is the market

value of the securities changes every day NAV per unit is the market value of

securities of a scheme divided by the total number of units of the scheme on

any particular date.

NAV= (market value of the scheme investment +other current asset +

deposit all liabilities liabilities expect unit capital reserve and profit and lossaccount) /number of scheme units outstanding.

SALES OR REPURCHASE/REDEMPTION PRICE

The price or NAV a unit holder is charged while investing in an open-

ended scheme is called sales price. It may include sales load if applicable.

Re-purchase or Redemption price is the price or NAV at which an open-ended

scheme purchases or redeems its units from the unit holders. It may includeexit load if applicable.

LOAD OR NO-LOAD FUND

A load fund is one that charges a percentage of NAV for entry or exit.

The investors should take the loads into consideration while making

investment as these affect their yields/returns. A no load fund is one that

does not charge for entry or exit.


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ADVANTAGES OF MUTUAL FUNDS FOR INVESTORS

Investors derive a number of advantages by investing their money in

mutual funds. Some of these advantages are as under:

REDUCED RISK

Mutual funds invest in a number of reputed and well managed blue

chip companies. So, the fall in the price of a few scrips, will not affect them

much. Because of such diversification and economies of scale in transaction

cost, the risk of loss due to a fall in the value of few scrips is minimized.

EXPERTISE OF PROFESSIONAL MANAGEMENT

The investors get the expertise of professional money managers who

watch the funds portfolio and take necessary decisions on what scrips are to

be purchased, what scrips are to be sold and when they should be bought

and sold. The fund managers maximize the income of the fund.

DIVERSIFICATION OF PORTFOLIO

When a person invests in a mutual fund, he participates in a large

basket of shares of many different companies in a number of different

industries which are included in the funds portfolio. To achieve a similar

degree of diversification, an individual investor has to spend considerable time

and money. Further, since a fund purchases shares in large volumes it has

the advantage of paying the minimum brokerage.

AUTOMATIC REINVESTMENT

In a mutual fund it is possible to reinvest the dividends and capital

gains. An individual investor, on the other hand, may not always find it easy

to reinvest his dividends, which usually get frittered away. The automatic

reinvestment feature of a mutual fund is a form of forced saving and can make

a big difference in the long run.


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SELECTION AND TIMINGS OF INVESTMENT

Expertise in the selection of shares, debentures, etc., and timing is

made available to investors so that invested funds generate higher returns to

them.

LIQUIDITY OF INVESTMENT

Mutual funds are required by the Securities and Exchange Board of

India (SEBI) to provide liquidity to investors. Mutual funds are ready on any

day (after the initial lock-in period is over) to buy back the units from the

investors at the net asset value of the investment. They announce through

daily newspapers their re-purchase price of the units issued under different

schemes.

SAVING HABIT

Mutual funds encourage saving and investment habit among the public

at large. In India, the saving habit is very important for development of

economy.

TAX SHELTER

Some mutual funds are permitted by the Government to launch Equity-

Linked Tax Saving Schemes. Investors who invest in such schemes get tax

relief or tax rebate.

SAFETY OF FUNDS

Mutual funds are governed by SEBI (Mutual Funds) Regulations. 1993.

The SEBI acts as a watchdog and tries to protect the interest of investors.

So, the invested in Mutual Funds are generally regarded as safe.


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DIVERSIFICATION OF MUTUAL FUNDS

Mutual funds were subsequently allowed to diversify their activities inthe following areas:

Portfolio management services

Management of offshore funds

Providing advice to offshore funds

Management of pension or provident

Management of venture capital funds

Management of money market funds

Management of real estate funds

TYPES OF MUTUAL FUND SCHEME

There are two types of mutual funds are available. These are

I. Scheme according to maturity period.

II. Scheme according to investment objectives.

I. SCHEME ACCORDING TO MATURITY PERIOD

a. OPEN-ENDED FUND/SCHEME

An open-ended fund or scheme is available for subscription and re-

purchase on a continuous basis. These schemes do not have maturity period

but investors can conveniently buy and sell units at Net Asset Value (NAV).

The key feature of open-ended scheme is liquidity.


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b. CLOSE-ENDED FUND/SCHEME

A close-ended fund or scheme has a stipulated maturity period. Thefund is open for subscription only during a specified period at time of launch of

scheme. Investors can invest in the scheme at the time of the initial public

scheme and thereafter they can buy or sell the units of the scheme on the

stock exchange.

II. SCHEME ACCORDING TO INVESTMENT OBJECTIVE

A Scheme can also be classified as growth scheme income schemeconsidering its investment objective, such scheme may be open-ended or

close-ended schemes and such schemes may classify mainly as follows:

a. GROWTH/EQUITY ORIENTED SCHEME

The aim of growth funds is to provide capital appreciation over the

medium to long-term, such scheme normally invest a major part of their

corpus in equities, such schemes provide different options to the investors likedividend option, capital appreciation etc. Normally these funds have the risk

at very high comparatively to other.

b. INCOME/DEBT ORIENTED

The aim of income funds is to the investors. Such scheme generally

invests in bonds, corporate debentures, Government securities and money

market instruments. Such schemes are less risky compared to equityschemes. These funds are not affected by the fluctuations in equity market.

However the opportunities of capital appreciation are also limited in such

funds.


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c. BALANCED FUND

The aim of balanced fund is to provide both growth and regular incomeas such funds invest both in equities and fixed income securities in the

proportion indicated ion the document. These funds are also affected

because of fluctuations in share prices in the stock market.

d. MONEY MARKET OR LIQUID FUND

These funds are also income funds and their aim is to provide easy

liquidity, preservation of capital and moderate income. These schemes investexclusively in safer short-term instruments such as Treasury Bills, Certificates

of Deposit, Commercial Paper and Inter-Bank Call Money, Government

Securities, etc. Returns on the scheme fluctuate much less compared to

other funds.

e. GILT FUNDS

These funds invest exclusively in government securities. Governmentsecurities have no default risk. Net Asset Value (NAV) of their schemes also

fluctuates due to change in interest rates.

f. INDEX FUNDS

Index funds replicate the portfolio of a particular index such as the BSE

Sensitive Index, S&P CNX Nifty, etc. These schemes invest in the securities

in the same weightage comprising of an index. Net Asset Value (NAV) ofsuch schemes would rise or fall in accordance with the rise or fall in index,

through not exactly by the same percentage due to some factors known as

tracking error in technical terms.

There are also exchange traded index funds launched by the mutual

funds, which are traded on the stock exchanges.


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g. SECTOR SPECIFIC FUNDS

There are the funds/schemes, which invest in the securities of onlythose sectors or industries as specific in the offer document, (e.g.)

Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), etc. The

returns in there funds are dependent on the respective sectors. While there

funds are may give higher returns, they are more risky compared to diversified

funds.

h. TAX SAVING SCHEMES

These schemes offer tax rebates to the investor under the provision of

the income tax act, 1961 as the government offer tax incentives for invest in

specified avenues, (e.g.) Equity linked Savings Schemes (ELSS). Pension

schemes launched by the mutual funds also offer tax benefits.

i. LEVERAGE FUND

It was also known as borrowed funds; these are used to increase thesize of value of portfolio and benefit to members by gains arising out of

excess of gains over cost of borrowed funds. Such mutual funds invest in

risky investments and indulge in speculative trading.

j. HEDGE FUNDS

Mutual funds, which employ their funds by speculative trading i.e.,

buying shares whose prices, are likely to rise and selling shares whose pricesare likely to dip, are called hedge funds.


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Managed by a

board of

trusteesMutual

Fund

Asset managementCompany

Sponsor

CompanyEstablishes MF as a

trust Registers MF with

SEBI

Floats MF finds

Manages fund as per

SEBI guidelines and

AMC agreement

Holds unit-holders fundin MF Ensures

compliance to SEBI

Enters into agreement

with AMC

Provides necessary

Custodian servicesCustodian

Bankers

Provide registrar

services and act as

transfer agents

Provides banking

Services

Registrars and

Transfer agents

Managed by a

board of

trusteesMutual

Fund

Asset managementCompany

Sponsor

CompanyEstablishes MF as a

trust Registers MF with

SEBI

Floats MF finds

Manages fund as per

SEBI guidelines and

AMC agreement

Holds unit-holders fundin MF Ensures

compliance to SEBI

Enters into agreement

with AMC

Provides necessary

Custodian servicesCustodian

Bankers

Provide registrar

services and act as

transfer agents

Provides banking

Services

Registrars and

Transfer agents

STRUCTURE OF INDIA MUTUAL FUNDS

As per the 1996 regulations, a mutual fund shall be constituted in heform of a trust and the instrument of trust shall be in the form of a deed, duly

registered under the provisions of the Indian Registration Act,1908 (16 of

1908), executed by the sponsor in favor of trustees named in such an

instrument.

A mutual fund comprises four separate entities sponsor, mutual fund

trust, Asset Management Company (AMC) and custodian. These are, of

course, assisted by; other independent administrative entities, such as banks,

registrars and transfer agents.

STRUCTURE OF MUTUAL FUNDS IN INDIA


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SPONSOR

The Sponsor for a mutual fund can be any person who, acting alone orin combination with another corporate body, establishes the mutual fund and

gets it registered with SEBI. The sponsor is required to contribute at least

40% of the minimum net worth (Rs.10 crore) of the Asset Management

Company (AMC). He must have a sound track record and a reputation for

fairness and integrity in all his business transactions.

BOARD OF TRUSTEES

The mutual fund is managed by the board of trustees of trustee

company, and the sponsor executes the trust deeds in favor of the trustees.

The trustees must see to it that the schemes floated and managed by the

AMC are in accordance with the trust deeds and SEBI guidelines. The

trustees have the right to obtain relevant information from the AMC and they

can also dismiss the AMC under certain conditions, as per SEBI regulations.

The trustee of a particular mutual fund cannot be appointed as a trustee of

any other mutual fund, unless he is an independent trustee and obtains prior

permission from the mutual fund in which he is a trustee.

ASSET MANAGEMENT COMPANY

A mutual fund is managed through on Asset Management Company

(AMC). The AMC is appointed by the sponsor company or by the trustees.

The AMC should be registered with SEBI. Its net worth should be in the form

of cash and all assets should be held in its name. In case it wants to carry out

other fund management business, it should satisfy the capital adequacy

requirement for each such business independently. It is required to disclose

the scheme particulars and the base of calculation of the NAV. The

appointment of the AMC can be terminated by a decision of 75% of the unit-

holders or a majority of the trustees.


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CUSTODIAN

The SEBI regulations provide for the appointment of a custodian by thetrustees for carrying on the activity of safekeeping of the

securities of participating in any clearing system on behalf of the

mutual fund. The custodian must have a sound track record and

adequate relevant experience. At the time of appointment, he

should not be associated with the AMC, or act as a sponsor or

trustee to any mutual fund.

SEBI GUIDELINES FOR MUTUAL FUNDS

The Securities and Exchange Board of India had issued a set of

regulations and code of conduct on 20th January, 1993 for the smooth conduct

and regulation of mutual funds.

Mutual funds cannot deal in option trading, short selling or

carrying forward transactions in securities.

They can invest only in transferable securities in the money and

capital market or any privately placed debenture or debt

securities.

Mutual funds are required to be formed as trusts and managed

by separately formed asset management companies. The

minimum net worth of the asset management company is

stipulated at Rs. 5 crore out of which the minimum contribution

of the sponsor shall be 40%.

Restrictions to ensure that investments under an individual

scheme do not exceed 5% of the corpus of any companys

shares, and investments under all schemes do not exceed 10%

of the funds in the shares, debentures or securities of a single

company.


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Investments under all the schemes cannot exceed 15% of the

funds in the shares and debentures of a single company.

Curbs on the transfer of investment from one scheme to another

and borrowing to finance investment.

SEBI will grant registration to only those mutual funds, which

can prove an efficient and orderly conduct of business.

Parameters for deciding this will include the track record of

sponsors, a minimum experience of five years in the relevant

field of financial services, integrity in business transactions andfinancial soundness.

The application forms for granting registration, seeking detailed

information of the sponsor, trustees of the fund and the AMC.

The advertisement code for marketing schemes of the mutual

funds, the contents of the trust deed, investment management

agreement and the scheme-wise balance sheet have tot be in

prescribed form.

The minimum net worth of AMC is Rs. 5 crores, of which the

minimum contribution of the sponsor should be 40%.

MUTUAL FUNDS IN INDIA

In India the MF industry started with the setting up of UTI in 1964 and

the same was the only player in the segment till 1987. The Government of

India allowed Public Sector Bank and Financial Institutions to set up MFs in

1987. As a result, leading public sector banks viz, SBI, Canara bank, Punjab

National bank, Bank of India and Insurance companies such as LIC, GIC, etc.,

entered this new segment. In 1993 the Indian private institutions were

allowed to set up MF were the first entrants respectively into this field after

liberalization.


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Starting with an asset base of Rs.0.25 billion in 1964, the industry has

grown at a compounded average growth rate of 26.34% to its current size of

Rs.1130 billion. Of the total 31 players, 11 are in the public sector includingUTI, 758 schemes offered by all the Funds, of which around 120 are close-

ended and the remaining are open-ended. Several innovative schemes, viz

income, growth, balanced, money market, gilt, tax saving, sector specific, etc

have been designed to suit the needs of the different types of investors. In

India the activities of this fast growing industry is regulated by the norms of

Securities Exchange Board of India (SEBI).

The Mutual Funds industry has witnessed three different phases of

development.

- Phase I : July 1964- November 1987

- Phase II : November 1987 October 1993

- Phase III: October 1993 onwards,

PHASE-I UNIT TRUST OF INDIA (UTI)

Until 1987, UTI was the only financial institution in the mutual fund

industry. The first and most popular product launched by UTI was unit 64.

UTI launched a reinvestment plan in 1966-67 and another popular scheme,

Unit Linked Insurance Plan (ULIP) was launched in 1971. By the end of June

1987 the unit capital of UTI was worth Rs.3, 72611 crore and investable funds

totaled over Rs.4.563 crore, while unit holding accounts amounted to 29.79

lakhs.

PHASE-II PUBLIC SECTOR COMPETITION

This period was marked by the entry of Non-UTI public Sector Mutual

Funds into the market, which brought in a degree of competition. With the

opening up of the economy, many public sector financial institutions

established mutual funds in India. However, the mutual funds industry

remained the exclusive domain of the public sector in this period.


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The first Non-UTI Mutual Fund SBI Mutual Fund was launched by

State Bank of India in November 1987. In 1990 the registration of mutual

funds with SEBI was mandatory. The guidelines were revised and theSecurities and Exchange Board of India (Mutual Funds) regulations, 1993,

came into effect on 20, January 1993. Rules for the formation, administration

and management of mutual funds in India were clearly laid down. The

regulations made the formation of Asset Management Company (AMC) and

the listing of close-ended schemes compulsory. With a view to protecting

investors rights, disclosure norms were also tightened.

PHASE-III EMERGENCE OF PRIVATE SECTOR

A new era in the mutual funds industry began in 1993 with the entry of

private sector funds, which posed serious competition to the existing public

sector funds. Private sector funds have distinct operational advantages, such

as the following:

Most of them are floated jointly by Indian organizations and

experienced foreign asset management companies, which

facilitate access to the latest technology and foreign fund

management strategies.

Private sector funds are able to attract the best managerial

talent from the public sector.

Their job has been made easier by the infrastructure inputs

already created by the public sector mutual funds.

The first private sector mutual fund to launch a scheme was the

Madras-based Kothari Pioneer Mutual Fund. It was launched the open-ended

Prima Fund in November 1993.


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MILESTONES IN THE JOURNEY OF MUTUAL FUNDS IN INDIA

It is quite interesting to know the path of historical developments ofMutual Fund industry in India. It can be understood from the following

historical events that the MFs industry has taken almost three decades to

reach from infancy to adolescent stage in India.

YEAR MILESTONES

1963 The UTI Act enacted

1964 The first Mutual Fund scheme US 64 was launched

1978 Rs.100 crores mobilized by UTI

1985 Rs.1000 crores mobilized by UTI

1986 End of UTI monopoly and allowing public sector banks to

start Mutual Funds

1990 Mutual Funds by LIC and GIC

1990 Rs. 5000 crores mobilized by UTI and Rs.3000 crores

mobilized by other PSU mutual funds.

1991 Stock market gets into bull frenzy. Overheated markets crash

as the magnitude of the of the stock market scam unfolds.

1993 Mutual funds book heavy losses. And allowing Private sector

participation in mutual funds.

1994 Entry of Foreign Mutual Fund Morgan Stantly; Allowing the

entry of FIIs to participate in Stock market investment; 20

new mutual funds registered with SEBI; Total corpus of all

mutual funds reached Rs.72000 cores; UTI alone accounts

for Rs.55000 crores.


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1995 Annual sales of mutual funds total Rs.15000 crores,

representing around 7% of all household savings.

1996 Stock markets crash, Fresh funds inflow reduced to a trickle.

Mutual funds as a derivative of equity market reflect poor

performance.

1997 Mutual fund 2000 vision documents from SEBI, new

guidelines introduced, government announces tax sops, fund

with proven performance attract steady subscriptions.

1998 Funds riding on i t, Pharma, FMCG and IT wave whip up

spectacular performance.

1999 Budget announces further concessions and the Bull Run for

mutual funds begin all over again.

2000 Establishment of the Association of Mutual Funds of India

(AMFI).


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RECENT TREND IN MUTUAL FUND INDUSTRY

The most important trend in the mutual fund industry is the aggressiveexpansion of the foreign-owned mutual fund companies and the decline of the

companies floated by nationalized banks and smaller private sector players.

Private players have been largely dependent upon big customers and have

generally failed to get retail. Many nationalized banks got into the mutual fund

business in the early nineties 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 Asset

Management Company (AMC) by paying large amounts of money as the

difference between the guaranteed and actual returns. The service levels

were also very poor. Most of these Asset Management Companys (AMC)

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 Asset Management

Company (AMC) floated by private sector Indian companies was also very

similar. The quickly realized that the Asset Management Company (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.

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. In fact, they have forced the industry to upgrade

itself and service levels of organizations like UTI have improved dramaticallyin the last few years in response to the competition provided by them. Those


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directly associated with the fund management industry like distributors,

registrars and transfer agents and even the regulators have become more

mature and responsible. Considering the changing trend in the capitalmarket, the funds have shifted their focus to the recession-free sector like

Pharma, FMCG etc. Mutual funds are now also competing with commercial

banks in the race to retain investors savings and corporate float money.

Recent figures indicate that mutual fund assets went up by only 17%. It is just

that mutual funds are going to change the way banks do business in the

future.


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1.2 STATEMENT OF PROBLEM

In recent years lot of studies relating to stock markets, have beengiven importance to the mutual funds and their trends. Only few studies are

on the performance of mutual funds in the stock markets. And that to, it is very

difficult to find a simple study in the context. The important problem, we must

identify that is whether mutual fund will have any impact or influence on BSE

Sensex and S&P CNX Nifty in the stock market.

Many Medias had stated that market sentiment in BSE and NSE had

made an improvement only because of mutual funds. But this might not be

true. Since many factors might have contributed to the better sentiment like

transaction from Indian financial institutions, better economic indicator and

other political factors. To capture this issue, the researcher had undertaken

the present study to bring out the relevant facts by titling A STUDY ON

IMPACT OF MUTUAL FUNDS IN INDIAN STOCK MARKET.


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1.3 OBJECTIVE OF THE STUDY

The main objectives of the study are:

To analyze the effect of purchase and sale of mutual funds on

the performance of SENSEX and S&P CNX NIFTY.

To estimate the effect of resource mobilization of private, public

and UTI mutual funds on the performance of SENSEX and S&P

CNX NIFTY.

To observe the trends of mutual funds on the Indian market.


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1.4 SCOPE OF THE STUDY

The present study confined only to the performance of mutual funds in

gross purchase/sales of equity and debt and the resource mobilization of

public, private and UTI sector on the benchmark index of Sensex and Nifty.

The study does not confined to any investment company and also the returns

earned by the scheme.

This study also helps to understand the movement of BSE Sensex andS&P CNX Nifty which is considered as the important indicator of the Indian

stock market. As an investor one could identify the reasons behind the

volatility in the Indian stock market. But this might not be a helping tool in

selecting a stock. Further research can be done on the mutual fund with the

help of daily data on mutual fund and its impact on market capitalization,

volatility.


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1.5 LIMITAITONS OF THE STUDY

The study points out the trends in mutual funds as factors which

have a relationship with benchmark index and testing and the inter

relationship is on the further side of scope of the study.

The study considered the trends in mutual funds from January 2000

to July 2004.

The study considered only the monthly closing price of the SENSEX

and S&P CNX NIFTY.

Out of the variables, the study has not considered the variables

other than those mentioned in the methodology.


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CHAPTER II

REVIEW OF LITERATURE

In this chapter an attempt has been made to review the related

empirical investigation relation to mutual funds as follows:

Dulari Pancholi1 in his study, The Benefits of Hybrid Mutual Funds, for

this purpose of the study he collected data form Morningstar for the period

1998-2002 and representative hedge fund data was obtained from Evaluation

Associates Hedge Fund Indices and CISDM Alternative Investment Database.

These funds were examined and classified into Return Enhancers, risk

Reducers, Total Diversifiers, Pure diversifiers and Return Modifiers based on

their correlation with an equal weighted stock (S&P 500) and bond (Lehman

US Government/Credit bond index) [schneeweis and Spurgin, 2000].

Classification was made primarily as:

Return Enhancer: High return and High correlation with the existing

stock/bond portfolio.

Risk Reducer: Lower return and Low correlation with the existing


Total Diversifier: High return and low correlation with the existing


Pure diversifiers: Low or Negative returns and High Negative

correlation with the existing stock/bond portfolio.

Return Modifies: Low return and High positive correlation with

existing stock bond portfolio.

1 DULARI PANCHOLI (2003), The Benefits Of Hybrid Mutual Funds,

Submitted to Isenberg School of Management, University of Massachusetts.


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This classification was than used to create an equal weighted index for

all the return enhancer, return modifiers and risk reducer funds in the sample

to study their risk-return performance and to examine the types ofdiversification benefits that could be extracted by inclusion of these funds in

existing portfolios. To analyze factor sensitivity for each fund, monthly returns

of the fund were regressed on monthly returns of the factor.

Finally his results of this study provide important information to the

investment community about the benefits of hybrid mutual funds:

First, hybrid mutual funds provide small investors a unique risk-return

opportunity not usually provided by most of the traditional investment vehicles.

Some of these funds are even able to offer positive Sharpe ratio in a declining

market at affordable price. Thus hybrid mutual fund provides affordable

hedge fund-like mutual funds to small investors.

Second, as a part of a larger portfolio, hybrid mutual funds can provide

efficient diversification. They provide the investors with exposure to benefits

of derivatives instruments which most of traditional mutual funds fail to offer.

This may increase the risk of the investment, but if handled by a good

manager it could help the investor achieve positive results in a declining

market.

Saravanambiga Devi.S2, in her study, A study on the perception of

investors towards UTI, she tries to find out the,

1. To highlight the features of various UTI schemes.

2. To review the progress and prospects of UTI.

3. To study the portfolio structure UTI.

2 SARAVANAMBIGA DEVI. S (2002), A Study on The Perception of

Investors Towards UTI, Dissertation submitted to Master of Philosophy,Bharathiar University, Coimbatore.


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4. To identify the factors which influence the investors for the

selection of UTI scheme.

5. Examine the perception of investors towards UTI services.

For this purpose of the study she collected both primary and secondary

data relating to the progress of UTI. From the annual reports or UTI and

interviewed 50 UTI investors by judgment sampling method.

She used the statistical tools for analysis such as compound growth

rate, average rate, and coefficient of range. And to test the hypotheses

various non-parametric tests viz, chi-square test, kruskal-wallis, H-test,

Wilcoxon-mann-whitney utest and kolmogrov simirnov n test cox and Stuart

test was used to evaluate the progress of UTI.

Finally, she concludes that UTI has to take necessary steps to retain

unit holders as will as to attract new invests by offering varies of schemes.

Lubos Pastor and Robert F. Stambaugh3 in their study, Investing in

Equity Mutual Funds they construct optimal portfolios of equity funds by

combining historical returns of funds and passive indexed with prior views

about asset pricing and skill. By including both benchmark and non-

benchmark indexes, they distinguished pricing-model inaccuracy form

managerial skill. Even modest confidence in a pricing model helps construct

portfolios with high Sharpe ratios. Investing in active mutual funds can be

optimal even for investors who believe active managers cannot outperform

passive indexes. Optimal portfolios exclude not-hand funds even for investors

who believe momentum is priced. Our large universe of funds offers no close

substitutes for the Fama-French and momentum benchmark.

3 LUBOS PASTOR and ROBERT F. STAMBAUGH (2001), Investing in

Equity Mutual Funds submitted to the Rodney L. White Center for Financial

Research, The Wharton School, University of Pennsylvania.


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For this study they collected the data from the 1998 CRSP Survivor

Bias Free Mutual Fund Database. They took an initial sample of 2,609

domestic equity mutual funds. They exclude multiple share classes for thesame fund as well as funds with only a year or less of available returns.

They construct portfolios having the ex ante maximum Sharpe ratio

based on a Bayesian predictive distribution that combines the information in

historical returns with an investors prior beliefs, accounting for parameter

uncertainty. They entertain priors representing a range of beliefs about

managerial skill as well as the accuracy of each of three pricing models: the

CAPM, the three-factor Fama-French model, and the four-factor model of

Carhart (1997).

The last model supplements the three Fama-French benchmarks with

a momentum factor, the current months difference in returns between the

previous years best-and worst-performing stocks. They used Bayesian

econometric framework for performance estimation rather than investment

decision making.

Finally they found that portfolios with maximum Sharpe ratios from a

universe of 503 no-load equity mutual funds. The optimal portfolios are

substantially affected by prior beliefs about pricing and skill as well as by

including the information in non-benchmark assets. A pricing model is useful

to an investor seeking a high Sharpe ratio, even if the investor has less than

complete confidence in the models pricing accuracy and cannot invest

directly in the benchmarks. With investment in the benchmarks precluded,even investors who believe completely in a pricing model and rule out the

possibility of manager skill can include active funds in their portfolios. The

fund universe offers no close substitutes for the benchmarks than passive

funds. We also find that the hot-hand portfolio of the previous years best-

performing funds does not appear in the portfolio of funds with the highest

Sharpe ratio, even when momentum is believed to the priced.


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Richard K. Lyons et al4 in their study, Mutual Fund in Emerging

Markets: An Overview International mutual funds are key contributors to the

globalization of financial markets and one of the main sources of capital flowsto emerging economies. First, they describe their relative size, asset

allocation, and country allocation.

Second, they focus on funds behavior during emerging markets crises

in the 1990s, analyzing data at both the fund-manager and fund-investor

levels. Due to large redemptions and injections, funds flows are not stable.

The data collected form the World Bank and the Bank for International

Settlements (BIS), the Securities and Exchange commission (SEC), the

Investment Company Institute, Morningstar, Emerging market Funds

Research, frank Russell, AMG Data services, Lipper analytical Services, and

State Street Bank have partial information on institutional investors.

Finally they found that the importance and behavior of international

mutual funds, institutional investors were the main channel of financial flows

to emerging markets, and mutual funds were large among the institutional

investors. Moreover, they were the only class of institutional investors for

which reliable data was available on an ongoing basis. Several general

findings emerged.

First, equity investment in emerging markets has grown rapidly in the

1990s. A significant proportion of that equity flow was channeled through

mutual funds. Collectively, these funds were large investors, and hold a

sizeable share of market capitalization in emerging countries.

Second, at the same time that mutual funds in many cases have

experienced growth, Asian and Latin American funds were the ones achieving

4RICHARD K. LYONS et al (2001), Mutual Fund In Emerging Markets: An

Overview, World Economic Review, 15:2, Pp.315-340.


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the fastest growth. Their size remains small, however, when compared to

domestic U.S. funds and global funds.

Third, when investing abroad, U.S. Mutual funds invest mostly in equity

rather than bonds. Funds in the global category mainly invest in developed

nations (the U.S., Canada, Europe, and Japan).

Ten percent of their investment is devoted to Asia and Latin America.

Mutual funds mainly invest in only a subset of countries within each region. In

Latin America, they primarily invest in Brazil and Mexico, then in Argentina

and Chile. In Asia, the largest shares are in Hong Kong, India, Korea,

Malaysia, Taiwan, and Thailand. In transition economies, mutual funds invest

most of their assets in the Czech Republic, Hungary, Poland, and Russia &

CIS.

Fourth, mutual fund investment was very responsive during the crises

of the 1990s. The Mexican crisis mostly affected Latin America, while the

Asian and Russian crises had a large impact on Asian and Latin American

funds.

Fifth, the investment of underlying investors of Asian and Latin

American funds was volatile. Injections and redemptions were large relative

to total funds under management. The cash held by managers during

injections/redemptions does not fluctuate significantly, so the investors

actions are typically reflected in emerging market inflows and outflows.

Sitalakshmi Ramanan5 in her study, Performance Evaluation of Private

sector Mutual Fund growth schemes. In her study tries

1. To evaluate the portfolio returns of private sector growth

schemes in comparison with the returns of market portfolio.

5 SITALAKSHMI RAMANAN (2000), Performance Evaluation of Private

Sector Mutual Fund Growth Schemes, Dissertation submitted to Master of

Philosophy, Bharathiar University, Coimbatore, India.


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2. To analyze the impact of differ market indices on portfolio

returns of private sector growth schemes.

3. To examine the returns from private sector growth schemes vis-

-vis returns from risk free asset.

4. To determine the ability of fund managers to earn superior

returns from selection of securities.

She collected the data from Sensex and BSE 100 from the BSE Official

Directory for 1996, 1997 and 1998. She calculated the returns on the basis of

month end net asset values published in Express Investment Week.

The tools for this analysis of evaluating the portfolio performance was

based on the Capital Asset Pricing Model which specifies that in equilibrium,

there is a linear relationship between return on a security and the risk

associated with it.

Finally, she concluded that performance evaluation of private sector

growth funds reveals a very positive picture. The years 1996 to 1999 have

not been favorable to Indian stock market. The study indicates that private

sector mutual funds have on the whole, Performance creditably and in most of

the cases was consistent.

Roger M. Edelen et al6 in their study, Transaction-cost Expenditures

and the Relative Performance of Mutual Funds they directly estimate annual

trading costs for a sample of equity mutual funds and find that these costs are

large and exhibit substantial cross sectional variation. Trading costs average

0.78% of fund assets per year and have inter-quartile range of 0.59%.

6ROGER M. EDELEN et al (1999), Transaction-cost Expenditures and the

Relative Performance of Mutual Funds, Submitted to the Rodney L. WhiteCenter for Financial Research, The Wharton School, University of

Pennsylvania.


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Trading costs, like expense ratios, was negatively related to fund

returns and they found no evidence that on average trading costs was

recovered in higher gross fund returns.

They found that direct estimates of trading costs have more

explanatory power for fund returns than turnover. Finally, trading costs are

associated with investment objectives. However, variation in trading costs

within investment objectives was greater than the variation across objectives.

They collected the data from the 1987 summer volume of Morningstars

Source book, they took a sample size of 165 funds, out of them 29 funds was

dropped because portfolio holdings data were not available. Four funds were

dropped because the funds held less than 50% of their assets in equity for the

entire sample period (1984-1991). They require a minimum of 50% of assets

in equity because their trading cost data was limited to equity securities. The

sample of 132 funds represents a variety of investment objectives. Using

CRSP mutual fund investment objective classifications, their sample was 25%

aggressive growth funds, 39% growth funds, 28% growth and income funds,

and 8% income funds. They used the correlation and regression as tools for

analysis.Finally, they found that the negative association between fund

returns and trading costs suggests that it pays to have fund managers who

mitigate the cost of such trades. The poor returns cause higher trading costs

because investors leave funds with poor returns which generate additional

trading costs.

Robert and Jack7

in their study, Evaluation of Performance ofinternational mutual fund they examined the performance of sample of 15 US

based internationally diversified mutual funds between 1981 and 1982. Two

measures of performance was developed which were utilized in this study.

7ROBERT E. CUMBY and JACK D. GLEN (1999) in their study, Evaluation

of Performance of International Mutual Fund, The Journal of Finance, vol.

XLV, No. 2, June-99, Pp. 497-520.


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They first use the security market line to evaluate fund performance. The

second used positive period weighting measure.

In section II, it examined the efficiency of a single portfolio benchmark

and multiple portfolio benchmarks; section III presented evidence on the

performance of a sample of internationally diversified mutual.

The second was two-portfolio benchmark consisting of the world index

and equally weighted portfolio of Euro currency deposit. Section IV examines

the performance of funds relative to the US market and conducted test for

market time ability.

JAYADEV.M 8 in his study Mutual Fund Performance: An Analysis of

Monthly Returns

He attempts to answer two questions relating to mutual fund performance:

1. Whether the growth oriented Mutual Fund are earning higher returns

than the Benchmark returns (or market Portfolio/Index returns) in

terms of risk.

2. Whether the growth oriented mutual funds are offering the

advantage of Diversification, Market timing and Selectivity of

Securities to their investors

This paper attempts to answer the questions raised, by initially

describing some basic concepts and later by employing a methodology, which

was used, by Jenson (1968), Treynor (1965), and Sharpe (1966). Two

growth oriented mutual funds selected for the purpose of this study are

Capital Growth Unit Scheme or popularly Mastergain 1991 of UTI and

Magnum Express of SBI Mutual Fund. The study period is 21 months (June

1992 to March 1994). The data source is monthly Net Asset Values (NAVs)

8 JAYADEV. M,(1996) Mutual Fund Performance: An Analysis of Monthly

Returns, FINANCE INDIA, Vol. X, No. 1, March 1996, Pp. 7384.


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published in The Economic Times. The Economic Times Ordinary Share

Price Index (ETOSHPI) is assumed as Market Index or the Benchmark.

From the above analysis, it can be noted that the two growth oriented

mutual funds have not performed better than their benchmark indicators.

Though Master Gain has performed better than the benchmark of its

systematic risk (volatility) but with respect to total risk the fund has not out

performed the Market Index.

Growth oriented mutual funds are expected to offer the advantages of

Diversification, Market timing and Selectivity. In the sample, Magnum Express

is found to be highly diversified fund and because of high diversification it has

reduced total risk of the portfolio. Whereas, Master gain is low diversified and

because of low diversification its total risk is found to be very high. Further,

the fund managers of two funds are found to be poor in terms of their ability of

market timing and selectivity. The fund manager of Master gain can improve

the returns to the investors by increasing the systematic risk of the portfolio,

which in turn can be one by identifying highly volatile shares.

Alternatively, Mastergain can take advantage by diversification, which

goes to reduce the risk if the same return is given to the investor at a reduced

risk level, the compensation for risk might seem adequate. The fund manager

of Magnum Express can earn better returns by adopting the marketing timing

strategy and selecting the under priced securities.

Sharpe9 (1996), developed a composite performance measure to

evaluate Mutual Funds, which used total risk measured by standard deviation.

The Sharpe ratio relates risk premium to standard deviation of rates of return

for the fund. Sharpe studied 34 open-ended mutual funds during the period

1944-63 and found that the ration varied from 0.43 to 0.78 compared to the

Dow Jones Industrial Average (DJIA) Performance of 0.667 Sharpe studied to

relationship between good performance and expense ratios and found that

9

WILLLIAM F.SHARPE (1996), Mutual Fund Performance, journal ofbusiness, vol. 39, no. 1, Pp 138-199.


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they inversely related with a rank correlation coefficient of 0.505. A high and

positive Sharpe ration is a sign of good performance. White a low and

negative ratio indicates inferior performance of fund.

Grinblatt and Titman10 (1994) in their A study on monthly mutual fund

returns and performance evaluation Techniques examined the mutual fund

returns and three different performance evaluation techniques on a sample of

279 mutual funds and 109 positive portfolios, using a variety of benchmark

portfolios. They found that difference performance measures generally yield

similar inferences when using the same benchmark but inferences varied

even from the same measures, when using difference benchmark. They also

analyzed the determinants of mutual funds performance and found that

turnover is significantly positively related to the ability of fund managers to

earn abnormal returns.

Shome (1994)11 studied growth scheme, which had completed at least

one year before April 1993. There were 17 such schemes .911 of them

belonging to UTI and the public sector financial intuitions and bank

sponsored. The performance of the mutual funds industry during the period

April 1993 to march 1994 was examined in relation to the BSE sensitive index

which was considered the market index. The study reveled that the average

returns of mutual funds were marginally lower than market returns. The

average returns of the industry was 5.16 percent against market returns of

5.78 percent and six schemes had out performed the market in term of

returns. The total risk of the portfolios varied from 3.9813 to 18.8265. The

standard deviation of the industry (10.0140) was higher than that of the

market (9.0504). The beta of the industry was low (0.6580) compared with

the market (1.00)

10GRINBLATT.M and TITMAN.S, (1994) A Study of Monthly Mutual Fund

Returns and Performance Evaluation Technologies, Journal of Financial andQuantitative Analysis, vol.29, No.3, September 1994, Pp. 419 444.

11SHOME, SUJAN (1994), A Study of the Performance of Indian MutualFunds unpublished study, Jhansi University.


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Ramola12 in her study says that in India the concept of mutual fund has its

baptism in the form of the creation of UTI under the UTI Act 1964. The first

open-ended scheme was floated by UTI in 1964. However the originalconcept different substantially form the shape and content of the present day

mutual fund schemes. The present day mutual fund schemes are close-

ended funds. They not only provide fixed income at regular intervals but also

have the benefits of capital appreciation at the end. These funds which are

earlier limited to UTI have new been given practical relevance and a large

number of mutual funds have recently been floated and many other are in the

process of being so.

Ippolito (1989) and Droms and Walker13 (1992), Efficiency with costly

information: A study of mutual fund performance examined the effects of

asset size, expense ratio, portfolio turnover, and load and no load status on

investment performance of domestic mutual funds. In both studies, it was

found that domestic mutual fund risk adjusted returns, net of fees and

expenses are comparable to returns to index funds. They found that portfolio

turnover is unrelated to fund performances.

In a study of 108 international equity mutual funds operating during

various periods from 1971 through 1990, Droms and Walker (1994) found that

risk-adjusted returns and expense ratios for international equity funds are

generally unrelated and that load funds generally under perform no-load funds

on a risk-adjusted basis for 1985-90. They also found that asset size and

turnover rates are not related to investment performance contradicting the

commonly held view that increases in asset size and high turnover rates

detract form investment performance results.

Roy and Merton14 analyzed the investment performance of 116 open

ended mutual fund in USA for the period 1968 80. The empirical results

12RAMOLA, (1992) Mutual Fund and the Indian Capital Market, Yojana,vol.36, No.11, June 30, 1992, Pp.9 10.

13 IPPOLITO. R.A. (1989), Efficiency With Costly Information: A Study ofMutual Fund Performance, 1965-84, Quarterly Journal of Economics, 104,Pp. 1-23.


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obtained in his study used the hypothesis that mutual fund mangers were able

to follows are investment strategy that successfully timed the return on the

market portfolio. In addition, no evidence was found that forecasts were moresuccessful in our market timing activity with respect to predicting large

charges in the value of the market portfolio relative to smaller changes.

14ROY D HERRIKASAN AND MERTON, (1984) Market Tuning Mutual FundPerformance, Journal of Business, vol.57, No.1, 1984, Pp.678 698.


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CHAPTER III

RESEARCH METHODOLOGY

RESEARCH DESIGN

A research design is the arrangement of conditions for collection and

analysis of data in a manner that aims to combine relevance to the research

purpose with economy in procedure.

The purpose of the study was to analyze the effect of Mutual Fundtransactions on the BSE Sensex and NSE Nifty as well as the statistical

estimation of the selected variables. The collection of data was time series

because the data was on monthly basis and was tested through statistical

application like correlation and multiple regression. Hence it was both

descriptive and analytical.

SOURCE OF DATA

The study was based on the secondary data. The required data had

been collected from the web site of Bombay Stock Exchange (BSE), National

Stock Exchange (NSE) and Securities Exchange Board of India (SEBI).

PERIOD OF STUDY

For this study the data were collected for 4 years and 7 months and it

is a monthly data from January 2000 to July 2004.

I period January 2000 December 2000

II period January 2001 December 2001

III period January 2002 December 2002

IV period January 2003 December 2003

V period January 2004 July 2004


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TOOLS FOR ANALYSIS

CORRELATION

Karl-Pearson correlation co-efficient has been used to find out the

relationship between the selected variables viz, Gross Equity purchase, Gross

Debt purchase, Gross Equity Sales, Gross Debt Sales, Gross Public sector,

Gross Private Sector, Gross UTI, Redemption public sector, Redemption

private sector, Redemption UTI, BSE Sensex and S&P CNX Nifty.

The correlation co-efficient is to measure of the degree of co-variability

of the variables X and Y. The values that the correlation co-efficient may

assume vary from -1 to +1. When r is positive, X and Y increase or decrease

together.

r = +1 implies that there is positive correlation between X and Y when r

is zero, then the two variables are uncorrelated.

The formula to find out the Karl Pearsons correlation

( )( )

yxn

YYXX

r

n

1iii

==

Where,

Xi is the ith observation of the variable X.

Yi is the ith observation of the variable Y

X - Mean of the observation of the variable X

Y - Mean of the observations of the variable Y

N Number of pairs of observation of X and Y

X, Y S.D. of the variable X and Y


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MULTIPLE REGRESSION

It was assumed that BSE Sensex and NSE Nifty was a function ofMutual Fund purchasing and sales of Equity and Debt. Hence the model took

the form:

SENSEX = f (GP, GS)

NIFTY = f (GP, GS)

Where, GP= Gross purchase of Equity and Debt Mutual Fund

GS = Gross Sales of Equity and Debt Mutual Fund

Before forming the above model into the equation it was mandatory to

transform all the original value of the colleted data in the natural log form.

After the transformation, the equation takes the following structure:

Y = b0 + b1 GP + b2 G + U

Y = b0 +b1 GPvt.S + b2 GPS + b3 GUTI + b4 RPvt.S + b5 RPS + b6

RUTI + U

Where

b0 = constant

GP = Gross Purchase of Equity and Debt Mutual Fund

GS = Gross Sales of Equity and Debt Mutual Fund

GPvt.S = Gross Private Sector

GPS = Gross Public Sector

GUTI = Gross UTI

RPvt.S = Redemption of Private Sector

RPS = Redemption of Public Sector

RUTI = Redemption of UTI

U = error term


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SELECTION OF VARIABLES

The selected variables for the Correlation are Equity Gross Purchase(EGP), Equity Gross Sales (EGS), Debt Gross Purchase (DGP), Debt Gross

Sales (DGS), Gross Private Sector (GPvt.S), Gross Public Sector (GPS),

Gross UTI Sector (GUTI), Redemption Private Sector (RPvt.S), Redemption

Public Sector (RPS), Redemption UTI Sector (RUTI), BSE Sensex and NSE

Nifty.

For the purpose of empirical analysis, Gross purchase and Gross

Sales of Mutual Fund in Equity and Debt had been selected as the

independent variables, while the BSE sensitive index (SENSEX) and NSE

Nifty index had been assumed to be the dependent variable. Resource

mobilization of Private, Public and UTI Mutual Fund had been selected as the

independent variables, while the BSE sensitive index (SENSEX) and NSE

Nifty index had been assumed to be the dependent variable


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CHAPTER IV

CORRELATION ANALYSIS

TABLE 4.1(1)

CORRELATION ANALYSIS OF EGP, EGS, DGP, DGS

INDEXEQUITYGROSS

PURCHASE

EQUITYGROSSSALES

DEBT GROSSPURCHASE

DEBTGROSSSALES

SENSEX 0.308* 0.228 -0.226* -0.285*

* - Correlation is significant at the 0.05 level (2 tailed)

The correlation coefficient brings out the relationship between two

selected variables. In the present study, correlation was applied to find out

the interrelationship between, the selected variables.

The table 4.1(1) revealed that the mutual fund Gross Purchase of

Equity was positively correlated significant with BSE Sensex having 31

percent. The relationship between Sensex and Gross Sales of equity Mutual

funds was having 23 percent relationship but found to be insignificant. This

positive correlation showed that whenever there was an increase or decrease

in the purchase behavior of Mutual fund, the Sensex also increased positively.

The Mutual fund gross purchase of debt was negatively correlated

significant with BSE Sensex having 23 percent. It was also found that mutual

funds gross sales of debt were negatively correlated and significant with BSE

Sensex having 29 percent.


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TABLE 4.1(2)

CORRELATION ANALYSIS OF EGP, EGS, DGP, DGS

INDEXEQUITYGROSS

PURCHASE

EQUITYGROSSSALES

DEBT GROSSPURCHASE

DEBTGROSSSALES

NIFTY 0.791** 0.786** -0.073 -0.047

** - Correlation is significant at the 0.01 level (2 tailed)

The Table 4.1(2) revealed that the mutual fund Gross Purchase of

Equity was positively correlated and significant with NSE Nifty having 79 per

cent relationship.

The relationship between Equity Gross Sales and NSE Nifty was

positively correlated and significant having 79 per cent. But the relationship

between Gross Purchase and Sales of Debt was negatively correlated having

7 per cent and 5 per cent respectively and it was found to insignificant.


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TABLE 4.1(3)

CORRELATION ANALYSIS OF GPvt.S, GPS, GUTI, RPvt.S, RPS, RUTI

INDEXGROSS

PRIVATESECTOR

GROSSPUBLICSECTOR

GROSSUTI

SECTOR

REDEMPTIONPRIVATESECTOR

REDEMPTIONPUBLIC

SECTOR

REDEMPTIONUTI SECTOR

SENSEX -0.187 -0.167 0.390** -0.177 -0.153 0.049


The correlation coefficient brings out the relationship between two

selected variables. In the present study, correlation was applied to find out

the inter-relationship between the Gross private sector, and BSE Sensex.

The Table 4.1(3) showed that it was found that relationship between

the Sensex and Gross private sector mutual fund was negatively correlated

having 19 percent relationship but it was found to be insignificant.

The mutual funds Gross public sector was negatively correlated with

BSE Sensex having 17 percent relationship but it was found to be

insignificant.

The Mutual funds Gross UTI was positively correlated significant with

BSE Sensex having 39 percent. This positive correlation showed that

whenever there was an increase or decrease in the Gross UTI sector Mutual

funds, the Sensex also increased positively.

It was also found that the relationship between Sensex and

Redemption private sector was negatively correlated having 18 percent

relationships, but it found to be insignificant.

It was also found that the relationship between Sensex and

Redemption public sector and Redemption private sector were negatively

correlated having 15 percent and 18 per cent relationship respectively but it

found to be insignificant. The Redemption UTI sector of Mutual funds was

positively correlated with BSE Sensex having 5 percent relationship but it was

found to be insignificant.


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TABLE 4.1(4)

CORRELATION ANALYSIS OF GPvt.S, GPS, GUTI, RPvt.S, RPS, RUTI

INDEXGROSS

PRIVATESECTOR

GROSSPUBLIC

SECTOR

GROSSUTI

SECTOR

REDEMPTIONPRIVATESECTOR

REDEMPTIONPUBLICSECTOR

REDEMPTIONUTI SECTOR

NIFTY 0.034 0.025 0.622** 0.060 0.069 0.387**


The table 4.1(4) showed that the Mutual Funds Gross private sectorwas positively correlated with NSE Nifty having 3 percent relationship but it

was found to be insignificant. It was also found that relationship between Nifty

and a Gross public sector Mutual fund was positively correlated having 3

percent relationship but it was insignificant. .

The Redemption private sector in Mutual Fund was positively

correlated with NSE Nifty having 6 percent but it was insignificant. The

Redemption public sector mutual fund was positively correlated with NSE

Nifty having 7 percent but it was insignificant.

It was also found that the Redemption UTI sector mutual fund was

found significantly correlated with NSE Nifty having 39 percent relationship.

The positive correlation showed that whenever there was an increase or

decrease in the Redemption UTI sector Mutual Funds, the Nifty also

increased positively.


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MULTIPLE REGRESSION ANALYSIS

TABLE 4.2(1)

MULTIUPLE REGRESSION OF SENSEX ON EGP, EGS, DGP, DGS

Dependent

Variable

Coefficient ofR2 F

b0 b1 b2 b3 b4

Sensex8.125

(1.127)

0.494*

(0.236)

-0.272

(0.279)

-0.0246

(0.186)

-0.164

(0.165)0.242 3.996

* - Significant at 0.05 level= 2.565

() Standard Error

The regression equation was used to find out the evidence of

influencing factors in the model framed. In this study, when Sensex was

regressed on the Equity and Debt purchase/sales respectively, it was found

that the coefficient of determination represented by R2 was 24 percent, i.e.,

the model was able to explain that 24 percent of the variation in the Sensex

could be explained by the selected explanatory variables. Since the table

value as F was less than the calculated F value, it was found to be significant

and presented a goodness of fit. Of the variable, which was regressed on, it

was made clear, that any mutual funds Equity purchase was found to be

significant, i.e., for every one percent increase in the Gross Purchase of

Equity, the Sensex increased by 49 percent.


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TABLE 4.2(2)

MULTIPLE REGRESSION OF SENSEX ON GPvt.S, GPS, GUTI, RPvt.S,AND RPS, RUTI.

Dependent variable

Coefficient of

R2 F

b0 b1 b2 b3 b4 b5 b6

Sensex8.145

(0.800)

-0.0348

(0.147)

-0.0628

(0.102)

0.279*

(0.068)

0.06252

(0.179)

-0.0832

(0.115)

-0.129

(0.097)0.314 3.512


() Standard Error

The above table revealed that the Sensex was dependent variable and

it was regressed on the independent variables such as Gross Public sector,

Gross Private sector, Gross UTI, Redemption Private Sector, Redemption

Public Sector and Redemption UTI. The table found that the coefficient of

determination represented by R2 was 31 percent and it explained that 31

percent of the variation in the Sensex could be explained by the selected

explanatory variables. Since the table value as F was less than the calculated

F value, it was found to be significant and this model represented as a

goodness of fit. Since the Gross UTI mutual fund was to be significant,

therefore for every one percent increase in the Gross UTI mutual fund, the

Sensex extended by 28 percent.


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TABLE 4.2(3)

MULTIPLE REGREESION OF NIFTY ON EGP, EGS, DGP, DGS

Dependent variable

Coefficient of R2 F

b0 b1 b2 b3 b4

NIFTY4.539

(0.343)

0.142

(0.072)

0.218*

(0.085)

-0.137*

(0.057)

0.04696

(0.050)0.734 34.509


() Standard Error

The table, which was showed above, explains that Nifty of dependent

variable and it was regressed on the independent variable such as Equity

Gross Purchase, Equity Gross Sales, Debt Gross Purchase and Debt Gross

Sales. The analyze showed that coefficient of determination represented by

R2 was 73 percent and the model was explained that 73 percent of variation in

the Nifty could be explained by selected explanatory variables. It was found

that calculated value F was more than the table value at 5 percent level

significant and this model represented as a goodness of fit. The Equity Gross

Sales was found to be significant, there fore every one percent increase in

Gross sales of Equity, the Nifty increased by 22 percent. It was also found

that Debt Gross sales was significant, there fore every one percent decrease

in Debt Gross sales, the Nifty increased by 14 percent.


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TABLE 4.2(4)

MULTIPLE REGRESSION OF NIFTY ON GPvt.S, GPS, GUTI, RPvt.S ANDRPS, RUTI

Dependent variable

Coefficient of

R2 F

b0 b1 b2 b3 b4 b5 b6

NIFTY6.144

(0.344)

-0.0119

(0.063)

-0.0458

(0.044)

0.152*

(0.029)

0.01609

(0.077)

-0.00507

(0.049)

0.004984

(0.097)0.490 7.373


() Standard Error

The regression equation was used to find out the evidence of

influencing factors in the model framed. In the above table showed that Nifty

as dependent variable and it was regressed on the independent variables

such as, Gross Private Sector, Gross public sector, Gross UTI Sector,Redemption private sector, Redemption public sector and Redemption UTI

sector. It was found that the coefficient of determination represented by R2

was 49 percent, which proved that 49 percent deviation in the Nifty could be

explained by the selected explanatory variables. Since the calculated value F

was more than the table value, and it was significant and this model proved as

a goodness of fit.

The above equation showed that out of the variables, which were

regressed on, it was made clear, that only Gross UTI sector was found to be a

significant, therefore, for every one percent increase in Gross UTI sector the

Nifty extended by 15 percent.


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CHAPTER V

FINDINGS

CORRELATION ANALYSIS

The study revealed that the mutual fund Gross Purchase of Equity was

positively correlated with BSE Sensex having 31 percent and NSE Nifty

having 79 percent. It was also found that Mutual funds Gross sales was

positively correlated with Nifty having 79 percent but the relationship between

Sensex and Gross Sales of mutual funds was having 23 percent relationship.

This positive correlation showed that whenever there was an increase or

decrease in the purchase behavior of Mutual fund, the Sensex and nifty also

increased positively.

From the interpretation we infer that mutual fund gross purchase of

debt was negatively correlated with BSE Sensex having 23 percent and the

relationship between NSE nifty and gross purchase of debt was negatively

correlated having 7 percent relationship. It was also found that mutual funds

gross sales of debt was negatively correlated with BSE Sensex having 29

percent but the relationship between NSE nifty and gross sales of debt was

negatively correlated having 5 percent relationship.

The analysis showed that the Mutual Funds Gross private sector was

positively correlated with NSE Nifty having 3 percent relationship. It was also

found that the relationship between the Sensex and Gross private sector

mutual fund was negatively correlated having 19 percent relationship. The

mutual funds Gross public sector was negatively correlated with BSE Sensex

having 17 percent relationship. It was also found that relationship between

Nifty and a Gross public sector Mutual fund was positively correlated having 3

percent relationship.

The Mutual funds Gross UTI was positively correlated BSE Sensex and

NSE Nifty having 39 percent and 62 percent respectively. This positive


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correlation showed that whenever there was an increased or decreased in the

Gross UTI sector Mutual funds, the Sensex and Nifty also increased

positively.

The Redemption private sector in Mutual Fund was positively

correlated with NSE Nifty having 6 percent. It was also found that the

relationship between Sensex and Redemption private sector was negatively

correlated having 18 percent relationship.

The Redemption public sector in mutual fund was positively correlated

with NSE Nifty having 7 percent. It was also found that the relationship

between Sensex and Redemption public sector was negatively correlated

having 15 percent relationships.

The Redemption UTI sector of Mutual funds was positively correlated

with BSE Sensex having 5 percent relationship. It was also found that the

Redemption UTI sector mutual fund was positively correlated with NSE Nifty

having 39 percent relationship. The positive correlation showed that

whenever there was an increase or decrease in the Redemption UTI sector

Mutual Funds, the Nifty also increased positively.

MULTIPLE REGRESSION ANALYSIS

In this study, when Sensex was regressed on the Equity and Debt

purchase/sales respectively, the table value as F was less than the calculated

F value, it was found to be significant and presented a goodness of fit. Of the

variable, which was regressed on, it was made clear, that any mutual funds

Equity purchase was found to be significant, i.e., for every one percent

increase in the Gross Purchase of Equity, the Sensex increased by 49

percent.

The analysis revealed that the Sensex was dependent variable and it

was regressed on the independent variables such as Gross Public sector,

Gross Private sector, Gross UTI, Redemption Private Sector, Redemption

Public Sector and Redemption UTI. The table value as F was less than the


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calculated F value, it was found to be significant and this model represented

as a goodness of fit. Since the Gross UTI mutual fund was to be significant,

therefore for every one percent increase in the Gross UTI mutual fund, theSensex extended by 28 percent.

The investigation, which was, identified that Nifty of dependent variable

and it was regressed on the independent variable such as Equity Gross

Purchase, Equity Gross Sales, Debt Gross Purchase and Debt Gross Sales.

It was found that calculated value F was more than the table value at 5

percent level significant and this model represented as a goodness of fit. The

Equity Gross Sales was found to be significant, there fore every one percent

increase in Gross sales of Equity, the Nifty increased by 22 percent. It was

also found that Debt Gross sales were significant, there fore every one

percent decrease in Debt Gross sales, the Nifty increased by 14 percent.

The interpretation showed that Nifty as dependent variable and it was

regressed on the independent variables such as, Gross Private Sector, Gross

public sector, Gross UTI Sector, Redemption private sector, Redemption

public sector and Redemption UTI sector. The calculated value F was more

than the table value, and it was significant and this model proved as a

goodness of fit. The Gross UTI sector was found to be a significant,

therefore, for every one percent increase in Gross UTI sector the Nifty

extended by 15 percent.

TRENDS IN EQUITY AND DEBT MUTUAL FUNDS

In the year 2000 the equity gross purchase and sales was under

performed with Sensex but not against Nifty. The debt gross purchase was

out performed with Nifty but not against Sensex. The debt gross sales was

under performed with Sensex and performed well against Nifty.

In the year 2001 the equity gross purchase was under performed with

Sensex and Nifty. The equity gross sales were performed well against Nifty

but not against Sensex. The debt gross purchase was out performed against


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Sensex and Nifty. The debt gross sales were under performed with Sensex

and performed well against Nifty.

In the year 2002 the equity gross purchase was under performed with

Sensex but not against with Nifty. The equity sales were performed well

against Nifty and it out performed against Sensex. The Debt gross purchase

was under performed against Sensex and performed well against Nifty. The

debt gross sales were out performed with Nifty but not against Sensex.

In the year 2003 the equity gross purchase and sales were under

performed with Sensex and performed well against Nifty. The debt gross

purchase was performed well against Sensex and Nifty but the debt gross

sales were performed well against Nifty but not against Sensex.

In the year 2004 up to July, equity gross purchase and sales were

under performed with Sensex and performed well against Nifty. The Debt

gross purchase and sales were under performed well against Sensex and

Nifty.


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CONCLUSION

The analysis thus for made to show that equity Gross purchase ofmutual fund had a significant relationship on Sensex and Nifty. The Gross

sale of equity mutual fund had a significant relationship on Nifty. The Debt

gross purchase and sales of mutual fund had a significant relation with

Sensex. The gross UTI sector had a significant relationship on Sensex and

Nifty.


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BIBLIOGRAPHY

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WEB SITES

www.amfi.com

www.bseindia.com

www.bestpapers.com

www.equitymaster.com

www.findarticles.com

www.finance.Wharton.upenn.edu\~rlwctr

www.indiainfoline.com

www.mutualfundsindia.com

www.nseindia.com

www.sebi.gov.in

www.venuscapital.com


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LIST OF DATA

TRENDS IN TRANSACTION OF MUTUAL FUNDS

EQUITY(Rs. In croes) DEBT(Rs. In crores)

PERIOD GROSS PURCHASE GROSS SALES GROSS PURCHASE GROSS SALES

Jan-00 41890 35670 10200 3310

Feb-00 37120 47120 11560 6970

Mar-00 31670 32110 5870 8350

Apr-00 15500 15080 6610 1950

May-00 15500 11980 9190 7920

Jun-00 15990 20490 6700 3160

Jul-00 12530 14240 9130 6080

Aug-00 12410 12210 8630 6570

Sep-00 16010 14800 6340 4150

Oct-00 11620 10070 8930 4370Nov-00 9270 13590 12000 5800

Dec-00 17290 16380 13310 9680

Jan-01 16800 25900 21670 12800

Feb-01 17000 28990 18980 12480

Mar-01 14070 17620 13710 9920

Apr-01 7465 10395 14645 7150

May-01 9944 14732 25483 14068

Jun-01 6586 7706 25195 18381

Jul-01 4753 9202 25535 14763

Aug-01 6437 10213 29520 17796

Sep-01 8785 7669 16146 18764

Oct-01 7514 14258 26260 16489

Nov-01 10035 13484 32817 16320

Dec-01 13404 12638 26178 16752

Jan-02 17222 21571 49223 28245

Feb-02 17053 20570 38913 30850

Mar-02 11783 16501 25659 26365

Apr-02 13001 16826 31543 17103

May-02 13662 15062 25119 20849

Jun-02 10832 14777 32669 23608

Jul-02 14446 17324 42327 25378

Aug-02 10202 12229 42612 27772

Sep-02 9595 9314 39524 29629Oct-02 12476 12920 55980 31576

Nov-02 10594 13949 46378 23875

Dec-02 14124 14099 40125 37962

Jan-03 15342 19372 52590 41085

Feb-03 10777 10466 31153 36120

Mar-03 10157 9536 26530 25637

Apr-03 13328 15110 40190 22676

May-03 22182 21420 54950 28409

Jun-03 19975 21931 50510 28095

Jul-03 26422 25712 64854 33468

Aug-03 31485 27451 65599 33840

Sep-03 28126 31027 58968 42170Nov-03 29173 27628 43759 23381


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Dec-03 46474 37954 54041 36735

Jan-04 50983 41604 55653 38322

Feb-04 26062 31399 31841 35128

Mar-04 38878 38106 62887 43808

Apr-04 36753 38946 60997 36539

May-04 48572 38521 43116 36844

Jun-04 21301 23899 40666 53381

JUL-04 26789 31493 43569 40064

RESOURCE MOBILIZATION

GROSS (in crores)

PERIOD PVT.SEC PUB.SEC UTI

Jan-00 29770 2206 11317

Feb-00 35145 2608 126

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