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A PROJECT REPORT ON MUTUAL FUND MANAGEMENT

MUHAMMED THOUSIF

(1051-13-684-024)

Project submitted in partial fulfillment of for the award of the degree of Bachelor of Business Administration

By

Osmania University, Hyderabad-500007

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CertificateThis is to certify that the project work entitled

A PROJECT

REPORT ON MUTUAL FUND MANAGEMENT

Is the bonafide work done by

NAME:

ROLL NO. : 1051-13-684-024

as a part of their curriculum in the Department of Commerce

Aurora’s Degree & PG College,

Chikkadpally, Hyderabad-500 020.

This work has been carried out under my guidance

Mr. VISWANADHAM BULUSU Mrs P.MADHAVI LATHA Mrs. ANUPAMA.N

Principal Head of Department Mentor External Examiner

Aurora’s Degree & PG College, Chikkadpally, Hyderabad-20.

ANNEXURE – I

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DECLARATION

I hereby declare that this Project Report titled MUTUAL FUND MANAGEMENT submitted

by me to the Department of Business Management, O.U., Hyderabad, is a bonafide work undertaken

by me and it is not submitted to any other University or Institution for the award of any degree

diploma / certificate or published any time before.

Name and Address of the Student Signature of the Student

ANNEXURE – II

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CERTIFICATION

This is to certify that the Project Report titled MUTUAL FUND MANAGEMENT

submitted in partial fulfilment for the award of BBA Programme of Department of Business

Management, O.U. Hyderabad, was carried out by MUHAMMED THOUSIF under my guidance.

This has not been submitted to any other University or Institution for the award of any

degree/diploma/certificate.

Name of the Mentor Signature of the Mentor

ACKNOWLEDGEMENT

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This project work would not have been complete without the mention of following people.

We express our hearty gratitude to our principal sir MR. VISHWANADHAM BULUSU for

providing us the opportunity and platform to work on the project.

And our project mentor Mrs. ANUPAMA.N who has supported and guided us throughout our

project.

MUTUAL FUND MANAGEMENT

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INTRODUCTION:

Many investors with common financial objectives pool their

money. Investors on a proportionate basis, get mutual fund

units for the sum contributed to the pool. The money collected

From investors is invested into shares, debentures and other

securities by the fund manager. The fund manager realizes

gains or losses and collects dividend or interest income. Any

capital gains or losses from such investments are passed on to

the investors in proportion of the number of units held by

them.

OBJECTIVES:● To provide a brief concept about the advantages accessible

for investing in mutual funds.

● To carry out a detailed survey on the current advancements

in the mutual funds sector.

● To find out the preferences of the investors for asset

management company.

SCOPE:

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A big boom has been witnessed in the mutual fund industry in

recent time. A large number of new players have entered the

market and trying to gain market share in this rapidly

improving market. The study will help to know the

preferences of the customers, which company, portfolio, mode

of investment, option for getting return and so on. The study

is limited to secondary data only.

METHODOLOGY:This report is based on primary as well as secondary data,

however secondary data collection is given more importance.

The research methodology helps in collecting, identifying,

analysing and interpreting the data. The secondary data has

been collected through various journals and websites.

LIMITATIONS:● Sample size may not adequately represent the whole market.

● The data is confined to a certain part.

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● Secondary data is not reliable.

INTRODUCTION

Mutual fund management is the management of investment fund that pools

money from many investors to purchase securities. It is applied to the collective

investment funds that are regulated and sold to the general public, since there is

no legal definition of the term. Mutual fund companies are also called as

‘investment companies’ or ‘registered investment companies’.

Advantages of mutual fund management are as follows:-

● These funds provide service and convenience.

● Mutual funds are regulated by Securities and exchange commission (SEC).

● Mutual fund decreases risk, as it holds many securities.

● Shareholders may sell their holdings back to the fund at a price equal to the

closing net asset value of fund’s holdings.

Disadvantages of mutual fund management are as follows:-

● Different expenses have to be paid.

● Recognition of gains may consume some time.

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● Oppurtunity to customize is nill.

History:-

Europe was the first to establish mutual funds. A dutch merchant was credited

for creating the first mutual fund in 1774 by a researcher.

Mutual funds in India:-

The introduction of a mutual fund in India took place in 1963, when the unit

trust of India was launched by the Government. UTI enjoyed a monopoly in the

Indian mutual fund market until 1987. Then Indian financial companies came

up with their own funds. State bank of India, Canara bank and Punjab national

bank is included in this. As a result of the constitutional amendments bought

forward by the then congress party mutual funds were privatised in 1993.

Kothari pioneer was the first private sector fund to operate in India tat later

merged with Franklin templeton. Mutual fund registration was formulated by

SEBI in 1996. Mutual fund investments are sourced both from companies and

individuals. Since January 2013 individual investors have started investing

directly with the mutual funds, as doing so will reduce the expenses incurred for

the management. Investment advisors and banks serve the individuals in direct

investment. Since 2009, Online platforms for investing in mutual funds have

also evolved.

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Types of mutual funds:-

●Open-end funds: These funds must be willing to buy back their shares from

their investors at the end of each working day at the net asset value computed

that day.

●Close-end funds: These funds are issue the shares to the public only once,

when they are created through initial public offering.

●Unit investment trusts: Unit investment trusts (UIT’s) generally have limited

life span, established during their creation. UIT’s can only issue once to the

public, when they are created.

●Exchange traded funds: ETF’s that are recently innovated are structured as

open-end investment companies or UTI’s.

Different expenses incurred in mutual fund management are:-

● Management Fee:-

This fee is rendered or paid to the management company the sponsors that

organize funds, provides the portfolio management or investment advisory

services. Some other administrative services are also provided by the fund

manager. The management fee declines as assets (either the specific fund or the

fund family as a whole) increase. The management fee is paid by the fund and is

included in the expense ratio.

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● Distribution charges:-

Distribution expenses pay for the marketing, distribution of the fund’s shares as

well as services to investors. There are three types of distribution charges:

• Front-end load or sales charges- These charges is a commission paid to a

broker by a mutual fund when shares are purchased.

• Back-end load- Back end loads are paid by the investors when the shares are

redeemed. Only few funds have this charge. The longer the investor holds

shares when the back-end load is declined it is called Contingent deferred sales

charges (CDSC).

• A no-load fund- This does not charge a front-end load or back-end load under

any circumstances and does not charge a 12b-1 fee greater than 0.25% of fund

assets.

● Securities transaction fees:-

The buying or selling of the securities in its portfolio are the related expenses

incurred in a mutual fund. Brokerage commissions are also incurred in these

expenses. Securities transaction fees increase the cost basis of investments

purchased and reduce the proceeds from their sales. The amount of securities

transaction fees paid by a fund is normally positively correlated with its trading

volume or turnover.

●Shareholders transaction fee:-

Shareholders may be required to pay fees for certain transactions. For example,

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The fee for maintaining an individual retirement account for an investor may be

charged by the fund. Redemption fees is charged by some funds when an

investor sells the shares shortly after buying them (usually after 30, 60 or 90

days of purchase); redemption fees are computed as a percentage of the sale

amount. Shareholder transaction fees is not part of the expense ratio.

● Fund service charges:-

A mutual fund may for other services including:

• Board of directors or trustees fees and expenses

• Custody fee

• Fund administration fee

• Fund accounting fee

• Professional services fee

• Shareholder communications expenses

• Transfer agent service fees and expenses

• Miscellaneous fees

Leading complexes:

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10 top performing mutual funds in first half of 2015 according to the Morning

star are as follows:-

1. T. Rowe price health sciences fund 2. Century small cap select fund (CSMVX)3. Vanguard health care fund (VGHCX)4. Fidelity select health care fund5. Scotia dynamic U.S growth6. Dreyfus opportunistic: small cap (DSCVX)7. Thornburg value fund (TVAFX)8. CGM focus fund (CGMFX)9. Sequoia (SEQUX)10.Fidelity small cap stock fund (FSLCX)

Share classes:-

A single mutual fund may give investors a choice of different combinations of

front-end loads, back-end loads and 12b-1 fees, by offering several different

types of shares, known as share classes. All of them invest in the same portfolio

of securities, but each has different expenses and, therefore, a different net asset

value and different performance results. Some of these share classes may be

available only to certain types of investors.

Different types of share classes of funds sold through brokers or other

intermediaries are as follows:

● Class A- These shares usually charge a front-end sales load with a small

12b-1 fee.

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● Class B- These shares usually do not have a front-end sales load; they have a

Contingent deferred sales charge (CDSC) that gradually declines over the years,

combined with a high 12b-1 fee.

● Class I-These shares usually have very high minimum investment

requirements and are known as “institutional” shares. They are no-load shares.

● Class C- These shares usually have a high 12b-1 fee and a modest contingent

deferred sales charge that is discontinued after one or two years.

● Class R- These shares are usually for use in retirement plans such as 401(k)

plans.

● Class N- These shares charge a 12b-1 fee of no more than 0.25% of fund

assets.

Controversy regarding mutual funds:-

According to the critics of fund industry the fund expenses are too high. They

believe that the market for mutual funds is not competitive and it is difficult for

investors to reduce the fees that they pay as there are many hidden costs. They

argue that the most effective way for investors to raise the returns they earn

from the mutual funds is to invest in funds with low expense ratios.

REVIEW OF LITERATURE

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The mutual fund industry in India started in 1963 with the information

of Unit Trust of India, at the initiative of the Government of India and

Reserve bank of India. The history of Mutual funds in India can be

broadly divided into four distinct phases.

First Phase- 1964-1987:-

Under an Act of Parliament the Unit trust of India was established in

1963. It was set up by the Reserve bank of India functioned under the

Regulatory and Administrative Control of the Reserve bank of India.

The Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI in 1978, when

the UTI was de-linked from the RBI. The first scheme launched by

UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6,700

crores of assets under management.

Second Phase- 1987-1993 ( Entry of Public sector funds):-

The public sector banks and Life Insurance Corporation of India

(LIC) and General Insurance Corporation of India (GIC) set up public

sector mutual funds in 1987. Public sector mutual funds were also

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called non- UTI funds. SBI Mutual fund was the first non-UTI Mutual

fund established in June 1987 followed by Canbank Mutual fund (Dec

87), Punjab National bank Mutual fund (Aug 89), Indian bank Mutual

fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual fund

in (Oct 92), LIC established its Mutual funds in June 1989 while GIC

had set up its mutual fund in December 1990. At the end of 1993, the

mutual fund industry had assets under management of Rs.47,004

crores.

Third Phase-1993-2003( Entry of Private sector funds):-

With the entry of private sector funds in 1993, a new era started in the

Indian mutual fund industry, giving the Indian investors a wider

choice of fund families. Also, the first Mutual fund regulations came

into being in 1993, under which all mutual funds, except UTI were to

be registered and governed. The Erstwhile Kothari pioneer (now

merged with Franklin Templeton) was the first private sector mutual

fund registered in July 1993. At the end of Jan 2003, there were 33

mutual funds with total assets of Rs. 1,21,805 crores.

Fourth phase- since February 2003:-

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In February 2003 the UTI was bifurcated into two separate entities.

One is the specified undertaking of the unit Trust of India with assets

of Rs. 29,835 crores as at end of Jan 2003. The specified undertaking

of Unit trust of India functioned under an administrator and under the

rules framed by Government of India. The second is the UTI mutual

fund, sponsored by SBI, PNB, BOB and LIC. It is registered with

SEBI (Securities and Exchange board of India) and functions under

the Mutual fund Regulations. The mutual fund industry has entered its

phase of consolidation and growth currently.

Literature on mutual fund management or performance evaluation is enormous.

A few research studies that have influenced the study, helped in creating this

review of literature.

Sharpe (1966) introduced the measure known as reward-to-variability ratio in

order to evaluate the risk-adjusted performance of mutual funds. From the

period 1945-1963, Sharpe evaluated the return of 34 open-end mutual funds

with the help of this ratio. The results showed that to a major extent the capital

market was highly efficient due to which majority of the sample had lower

performance as compared to the Dow Jones index. Sharpe (1966) found only 11

funds outperformed the Dow-Jones industrial average (DJIA), While 23 funds

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were out performed by DJIA from the period of 1954-1963.

Jensen (1968) developed own measure to examine the risk portfolio’s risk-

adjusted performance and estimate the predictive ability of mutual fund

managers known as Jensen’s alpha. The measure was based on the theory of

pricing of capital assets. For this purpose 115 open-end mutual funds (For

which dividend and net asset information was available) was taken as a sample

for the period of 1955-1964. After applying the Jensen measure he concluded

that stock prices could be forecasted accurately with the help of mutual funds.

Therefore to take advantage buy and hold strategy could not be used.

Arditti (1971) criticized the reward-to-variability criterion proposed by Sharpe

(1966) on the grounds that it is utilized only the first two moments of

probability distribution of returns. Author proposed that the third moment a

measure of the direction and size of the distributions tail, if it is included in the

analysis. Arditti further argued that as positive skewness implied greater

probability of higher return, hence the investors preferred positive skewness.

Therefore if ratios also have relatively high third moments (high positive

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skewness) then the assets with relatively low-reward-to-variability ratios would

not be inferior investments. After re-examining the Sharpe (1966) data with this

additional information, the author found that average fund performance was not

inferior to Dow Jones industrial average (DJIA) performance because the

skewness of the DJIA return distribution was significantly less than fund

skewness.

Miller and Nicholas (1980) in the presence of non stationary conducted a

research to examine the risk-return relationships in order to obtain more precise

estimates of alpha and beta. For this purpose this study applied partition

regression and a partition selection rule for estimating the traditional CAPM in

case of non stationarity. For the period of 1973-1974 study applied these

procedures to price appreciation data for the market and 28 mutual funds. The

results indicated a good deal of non-consistency in the risk-return relationships.

Some weak positive relationships and some weak negative relationships

between beats and the rate of return for the market were shown in the results.

On the other hand the results showed some weak positive relationships and

some weak negative relationships between beats and alphas. However

significant relationships of either types were found, statistically.

Mc Donald (1973) developed a model to evaluate the investment performance

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of funds holding securities in two countries. A sample of eight mutual funds

was taken for this purpose. For the period of 1964-1969 monthly returns of

these funds were calculated and analyzed. The results showed that the French

market was inefficient with respect to the completeness and speed of

dissemination of information and that the funds generally produced superior

risk-adjusted returns. The author concluded by saying that those funds which

invested in French market in 1964-69 generally achieved lower return at a given

level of variance than that reflected in the U.S market returns. The fact that the

funds were generally able to attain superior returns relative to naïve portfolio

strategy was also found by Mc Donald.

Mc Donald (1974) conducted a research to study the objectives and

performance (risk and return) of American mutual funds in the period 1960-

1969. Using Treynor (1965) and Sharpe (1966) indexes a sample of 123

American mutual funds was analysed. The results indicated that the stated

objectives were significantly related to subsequent measures of systematic risk

and total variability. Therefore the funds with aggressive objectives generally

produced better performance. The results also showed that 67 funds perform

better than the stock market average in case of Treynor’s (1965) index while in

case of Sharpe (1966) index only 39 mutual funds showed higher performance

than the stock market average. Average fund return increases with increase in

risk was the conclusion by the author.

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A study was conducted by Henriksson (1984) in order to analyze the market-

timing performance of mutual funds. From February 1968 to June 1980 a

sample of 116 open-end mutual funds were taken. By using parametric and non

parametric techniques author examined the performance of these open-end

mutual funds using monthly data. The returns data included all dividends paid

by the fund and were net of all management costs and fees. The information that

mutual fund managers were unable to follow a successful investment strategy

was shown by both parametric and non parametric tests. The results also

showed that no evidence was found that forecasters were more successful in the

market timing activity with respect to predicting large changes in the value of

the market portfolio relative to smaller changes.

Ippolito (1989) conducted a research to analyze the efficiency in capital markets

when information is costly to obtain. A sample of 143 mutual funds were

reported in 1965 edition of Wiesenberger. The analysis was done for the period

of 1965-1984. Ippolito (1989) employed CAPM model and made a comparison

of results to those reported in Jenson (1968). The results showed that risk-

adjusted returns in mutual fund industry, net of fees and expenses, were

comparable to returns available in index funds. Portfolio turnover and

management fees were unrelated to fund performance was indicated in the

results. Researcher concluded that mutual funds with high turnover fees and

expenses, earn rates of return sufficiently high to offset the higher charges.

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Research also concluded that the mutual funds were efficient in the trading and

information-gathering activities.

In order to compare the performance of internationally diversified mutual funds

with international equity index and Morgan Stanley index for the United States

a research was conducted by Cumby and Jack (1990). Between 1982 and 1988

sample of fifteen U.S.- based internationally diversified mutual funds were used

in this study. The performance was then compared with the help of Jensen

(1968) measure and positive period weighting measure. The performance of

funds individually or as a whole was not higher than the performance of

international equity index was the conclusion of the results. The authors also

examined the performance of the funds relative to the Morgan Stanley index for

the United States and found some evidence that the funds outperform the U.S.

index.

Grinblatt and Sheridan (1992) conducted a research to analyze whether mutual

fund performance relates to past performance. For this purpose a sample of 279

funds was taken. Study divided the sample into two five year sub periods and

calculated the abnormal returns of each fund for each five year sub period. In

the cross-sectional regression the slope coefficient of abnormal returns was

computed. The results indicated a positive persistence in mutual fund

performance and fund managers were able to earn abnormal returns. The past

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performance of a fund provides useful information for investors who were

considering an investment in mutual funds was the conclusion of the study.

Malkiel (1995) conducted a research to analyze the performance of equity

mutual funds for the period 1971 to 1991. A data set that included the returns

from all mutual funds in existence in each year of the period was involved in the

study for this purpose. After analyzing the returns from all funds he found that

mutual funds underperformed the market. Survivorship bias was considered to

be important part of analysis. Study also examined the fund returns in the

context of the capital asset pricing framework and neither found any evidence of

excess return nor observed any risk return relationship stated by the capital asset

pricing model. Study concluded that it would be better if the investors

purchased a low expense index fund than to select an active fund manager.

Cai et al. (1996) evaluated the performance of Japanese open-type equity funds

from 1981 to 1992. For this purpose e a sample of 800 open-type mutual funds

run by 9 management companies was taken. Value-weighted single index

benchmark and three-factor benchmark were used in the analysis. This research

used Jensen measure, positive period weighting (PPW) measure and conditional

Jensen measure in order evaluate the performance of these funds. The value-

weighted and equal-weighted portfolios of 800 mutual funds underperform the

single-index benchmark by approximately 7.0% and 6.0% as shown in the

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results. The results showed that most of the funds were inclined to invest more

in large stocks.

Otten and Dennis (1999) analysed the performance of European mutual funds

from 1991 through December 1998. The performance of fund managers along

with the influence of fund characteristics on risk-adjusted performance was

examined in the study. A sample of 506 funds was taken and a 4-factor model

was used for this purpose. The results showed that the European mutual funds

especially small cap funds were able to add value and 4 out of 5 countries

exhibit significant outperformance at an aggregate level. The results also

revealed positive relation between risk-adjusted return and fund size and

negative relation between risk-adjusted and funds expense ratio.

Redman (2000) analyzed the risk adjusted returns for five portfolios of

international mutual funds. The study was conducted for three periods: 1985-

1994, 1985-1989 and 1990-1994. Using Treynor’s index and Sharpe index the

performance was measured and was compared with the U.S market. Results

showed that under Sharpe (1996) and Treynor (1965) indices the performance

of portfolios of International mutual funds was higher than the U.S market from

1985-1994 and 1985-1989. However the performance of U.S equity portfolio

and the market index was higher than global portfolios from 1990-1994.

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Aruguslan and Ajay (2008) examined the risk-adjusted performance of U.S

based international equity funds from 1994-2003. The analysis was done for a

five- year period 1999-2003 and a ten-year period (1994-2003). A sample of 50

large U.S based international equity funds was taken and a new method called

modigilani & modigilani (M squared) was applied for this purpose. Both

domestic and international indices were taken in to consideration for the sake of

comparision. The results showed that the risk has great impact on the

attractiveness of funds. Higher return funds may loose attractiveness due to

higher risk while the lower return funds may be attractive to investors due to

lower risk.

Dietze, Oliver and Macro (2009) conducted a research to evaluate the risk

adjusted performance of European investment grade corporate bond mutual

funds. A sample of 19 investment grade corporate bond funds was used for the

period of 5years (July 2000- June 2005). On the basis of Single index model,

several index and asset class factor models the funds were evaluated. To

account for the risk and return characteristics of investment grade corporate

bond funds both maturity based indices and rating based indices were used. The

results indicated that the corporate bond funds, on average under-performed the

benchmark portfolios and there was no single fund exhibiting a significant

positive performance. Results also indicated that the risk-adjusted performance

of larger and older funds and funds charging lower fees was higher.

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REFERENCES:-

Sharpe (1966), Mutual fund performance, the journal of business, 39, 1, 119-

138.

Jensen (1968), The performance of mutual funds in the period 1945-1964,

journal of finance, 23, 2, 1-36.

Arditti (1971), Another look at mutual fund performance, journal of finance

and quantitative analysis, 6, 909-912.

Miller & Nicholas(1980),Non stationary & evaluation of mutual funds

performance, the journal of finance & quantitative analysis, 15, 3, 639-654.

Mc Donald (1973), Mutual fund performance: Evaluation of internationally-

diversified portfolios, The journal of Finance, 28, 5, 1161-1180.

Mc Donald (1974), objectives and performance of Mutual funds 1960-1969,

journal of financial and Quantitative analysis, 9, 3, 311-333.

Henriksson (1984), Market timing and mutual fund performance: An Empirical

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Investigation, The journal of Business, 57, 1, 73-96.

Ippolito (1989) Efficiency with costly information: A study of Mutual fund

performance, 1965-1984, The Quarterly journal of Economics, 104, 1, 1-23.

Cumby and Jack (1990), Evaluating the performance of International mutual

funds. Journal of Finance 45, 2, 497-521.

Grinblatt and Shridan (1992), the Persistence of Mutual fund performance, The

journal of Finance, 47, 5, 1977-1984.

Malkiel (1995), ‘Returns from investing in equity mutual funds 1971 to 1991’,

Journal of Finance, 50, 2, 549-572.

Cai et al (1997), Aggregate performance of Japanese mutual funds, The review

of Financial studies, 10, 2, 237-273.

Otten and Dennis (1999),European mutual fund performance, European

Financial management, 8, 1, 75-101.

Redman (2000), the performance of Global and International mutual funds,

journal of Financial and Strategic decisions 13, 1, 75-85.

Aruguslan & Ajay (2007), evaluating large US- based equity mutual funds

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using risk-adjusted performance measures, International journal of Commerce

& management, 17, ½, 6-24.

Dietze, Oliver and Macro (2009), The performance of investment grade

corporate bond funds: evidence from the European market, the European

journal of finance, 15, 2, 191-209.

DATA ANALYSIS AND INTERPRETATION

A mutual fund is a trust that pools the savings of number of investors who share

a common financial goal. The money collected from the investors is invested in

capital market instruments such as shares, debentures and other securities.

Mutual fund issues units to the investors in accordance with amount of money

invested by the investors. Investors of mutual funds are known as unit holders.

The income earned through these investments and capital appreciation is shared

by its unit holders in proportion to the number of units owned by them. Thus a

mutual fund is the most suitable investment for the common man as its offers an

opportunity to invest in a diversified, professionally managed basket of

securities at a relatively lower cost.

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In India, there are many companies, both public and private that are engaged in

the trading of mutual funds. Wide varieties of Mutual fund schemes are

available in the market. Investors can invest their money in different types of

mutual funds depending upon their individual investment objectives.

Like different investments plans, mutual funds also offer advantages and

disadvantages, which are important for any investor to consider and understand

before they decide to invest in a mutual fund.

Advantages of Mutual funds:

Diversification, Continuous professional management, Economies of scale,

Liquidity is the important advantages of mutual funds.

Disadvantages of Mutual funds:

Fluctuating returns, Diversification, Misleading advertisement and Operating

costs are the disadvantages of Mutual funds.

Scope of study:

The main focus of the study was to know about the performance of the different

mutual fund schemes. Since different companies come out with similar themes

in the same season, it becomes difficulty for the company to constantly perform

well so as to survive the competition and provide maximum capital appreciation

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or return. Other than the market, the performance of the fund depends on the

kind of stock or the portfolio selected by the fund managers of the company.

The analysis is done on the performances of funds with the same theme or

sector and reason out why a fund performs better than the others in the lot. It is

limited to investors and their investment preferences. Study objective is to

investigate the return on investment in share market and to understand the fund

sponsor qualities influencing the selection of mutual funds/schemes. And also to

find out that how far the mutual fund schemes are able to win the confidence of

the investors.

Need for the study:

The main purpose of this study is to know about mutual fund and its

functioning. This helps to know in details about mutual fund industry right from

its inception stage, growth and future prospects. It also helps in understanding

different schemes of mutual funds, since the study depends upon different

schemes like equity, debt, balanced as well as the returns associated with those

schemes. The study was done to analyse the returns associated with the different

mutual funds. This also helps in understanding the benefits of mutual funds to

investors.

Objectives of the study:

1. To study the various schemes available at Kotak mutual fund and HDFC Mutual fund.

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2. To analyse and compare the performance of different mutual fund schemes offered by Kotak mutual fund and HDFC mutual fund.

3. To know the factors that affects on the performance of mutual fund schemes.

4. To find the best scheme available for investors by comparing their performance.

5. To compare the similar schemes of Kotak mutual fund with HDFC mutual fund and find out the reasons behind the difference in their performance.

Research methodology:

The type of data used in the study is mostly secondary data. The sampling area

used is the private sector. The methodology of the sampling used is

Convenience sampling. Period of study is 5 years from 2010-11 to 2014-15.

Methods of data collection used are Fund factsheet published by Kotak mutual

fund and HDFC mutual fund, other published mutual funds and research based

online portals. Statistical tools and techniques used are Standard deviation,

Sharpe ratio, Beta, R- squared, Alpha.

Limitations of the study:

1. Research is based on the secondary data.2. The study is restricted to only two mutual fund companies.3. The data is limited to performance of the mutual funds only for the period

of last five years.4. The data is limited to 16 schemes only.

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1) KOTAK SELECT FOCUS V/s HDFC CAPITAL BUILDER FUND:-

Table No. 1.1:

Investment information

Kotak Select Focus Fund

HDFC Capital Builder Fund

Fund objective The investment objective of the scheme is to generate long-term capital return from the portfolio of equity and equity related securities, generally focused on a few selected sectors.

The fund seeks to invest in companies that are priced below their fair value there by generating capital return in the long-term.

Fund type Open-ended equity Open-ended equityInvestment plan Growth GrowthRisk grade Average AverageAsset size as on 31.3.2015

Rs.2450 crore Rs.890.8 crore

NAV as on 31.3.2015 Rs.22.809 Rs.199.457

KOTAK SELECT FOCUS Vs HDFC CAPITAL BUILDER FUND

Table No. 1.2:

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YEAR Kotak Select Focus Fund (%)

HDFC Capital Builder Scheme (%)

2014-15 57.87 51.952013-14 6.18 10.372012-13 33.45 28.422011-12 -22.29 -23.642010-11 20.05 28.44

Interpretation:

Kotak Select Focus fund and HDFC Capital Builder fund, both schemes are

focused on large sector, so there is long term growth with minimum fluctuation.

Table 1.2 revealed that both schemes have given good return in last five years

except in the year 2011-12v because of down trend in the large cap fund. If the

data of the current year is compared, Kotak Select focus has given more returns

than HDFC Capital Builder fund where as in the year 2013-14, HDFC Capital

Builder scheme was good. It means both the schemes are good and very well

managed as well as giving similar average return in long period.

2) KOTAK MID-CAP V/s HDFC MID-CAP OPPURTUNITIES FUND

Table no: 2.1

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Kotak Mid-Cap Fund

HDFC Mid-Cap Opportunities Fund

Fund objective Kotak Mid-Cap is an open-ended equity growth scheme. The investment objective is to generate capital appreciation. From a diversified portfolio of equity & equity related instruments.

The aim of the fund is to generate long-term capital return from a portfolio that is substantially constituted of equity and equity related securities of mid and small cap companies.

Fund type Open-ended equity Open-ended equityInvestment plan Growth GrowthRisk grade Above average Above averageReturn grade Below average Above averageAsset size as on 31.3.2015

Rs.343 crore Rs. 9645.8 crore

NAV as on 31.3.2015

Rs. 51.159 Rs. 36.748

KOTAK MID-CAP Vs HDFC MID-CAP OPPORTUNITIES FUND

Table No: 2.2

Year Kotak Mid-Cap (%) HDFC Mid-Cap

2014-15 74.02 76.632013-14 -4.91 9.642012-13 50.23 39.622011-12 -26.90 -18.312010-11 28.00 32.13

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Interpretation:

Kotak Mid-Cap and HDFC Mid-Cap, both schemes focus on only medium

and small sector, so there are high returns with maximum risk. Table 2.2

shows that HDFC Mid- Cap has given good returns in last 4 years than

Kotak Mid-Cap except in the year 2012-13 where Kotak Mid-Cap has given

11% extra returns. In the current year, both the schemes have given very

good return because of BJP win in the election and stable government.

During the year 2013-14 Kotak Mid-Cap has given negative returns and

HDFC Mid-Cap has given positive return which shows that HDFC Mid-Cap

is very well managed than Kotak Mid-Cap and there is scope for

improvement for Kotak Mid-Cap.

3) KOTAK TAX SERVER Vs HDFC TAX SAVER FUND

Table No: 3.1

Investment information

Kotak Tax Saver fund

HDFC Tax Saver fund

Fund objective The investment objective of the scheme is to generate long-term capital return from a diversified portfolio of equity and equity related securities and enable investors to avail the income tax rebate, as permitted from time to time

The scheme seeks capital return with at least 80 per cent exposure to equities, FCDs, preference shares and bonds of companies.

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Fund type Open-ended Open-endedInvestment plan Growth GrowthRisk grade High Above averageReturn grade Average AverageAsset size as on 31.3.2015

Rs.512 crore Rs.5032.4 crore

NAV as on 31.3.2015

Rs. 31.398 Rs. 398.162

KOTAK TAX SAVER FUND Vs HDFC TAX SAVER FUND

Table No: 3.2

Year Kotak Tax Saver fund (%)

HDFC Tax Saver fund (%)

2014-15 56.61 56.362013-14 -6.25 5.092012-13 36.25 26.592011-12 -26.03 -22.622010-11 19.93 26.42

Interpretation:

Kotak Tax Saver fund and HDFC Tax Saver are the schemes that invest its

money for 3 year lock period for the purpose of tax saving. The scheme aim

is not to achieve high return but saving the Tax. Table 3.2 shows that Kotak

Tax Saver scheme is more aggressive than HDFC Tax Saver because it has

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given high positive returns as well as high negative returns. If we compare

the data in the year 2013-14, Kotak Tax Saver has given negative returns

where as HDFC Tax Saver has given positive returns and during the year

2012-13, Kotak Tax Saver has given high returns than HDFC Tax Saver. It

means Kotak scheme is more aggressive than HDFC scheme.

4) KOTAK 50 Vs HDFC TOP 200 FUND

Table No: 4.1

Investment information

Kotak 50 fund HDFC Top 200 fund

Fund objective The investment objective of the scheme is to generate capital return from a portfolio of predominantly equity and equity related securities. The portfolio will generally comprise of equity related instruments of around 50 companies which may go up to 59 companies.

The schemes seeks capital appreciation and would invest up to 90 per cent in equity and remaining in debt instruments. Also, the stocks would be drawn from the companies in the BSE 200 index as well as 200 largest capitalized companies in India.

Fund type Open-ended equity Open-ended equityInvestment plan Growth GrowthRisk grade Average AverageReturn grade Above average Above averageAsset size as on 31.3.2015

Rs. 725 crore Rs. 13488.4 crore

NAV as on 31.3.2015 Rs. 173.55 Rs. 342.678

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KOTAK 50 Vs HDFC 200 FUND

Table No: 4.2

Year KOTAK 50 (%) HDFC TOP 200 (%)2014-15 42.46 46.522013-14 4.26 4.062012-13 23.41 32.432011-12 -18.46 -24.302010-11 16.29 25.05

Interpretation:

Kotak 50 scheme has been focusing on top 50 to 59 companies where as

HDFC 200 has been focusing on top 200 companies. These schemes have

been focusing on top companies, so there are high returns with minimum

fluctuation. If the data available above is compared, it can be said that both

schemes are very good and very well managed. The schemes have been

given positive returns in last 5 years except in the year 2011-12 because of

European crisis, unstable government and high inflation rate. HDFC Top 200

was more aggressive than Kotak 50, so it has high positive as well as

negative returns.

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5) KOTAK BALANCE Vs HDFC BALANCED FUND

Table No: 5.1

Investment information

Kotak Balance fund HDFC Balanced fund

Fund objective To achieve growth by investing in equity & equity related instruments, balanced with income generation by investing in debt & money market instruments.

The scheme seeks to generate capital appreciation with current income from a combined portfolio of equity and debt instruments. Under normal circumstances the scheme would take 60% exposure to equity instruments while the balance would be allocated to debt instruments.

Fund type Open-ended and Hybrid equity- oriented

Open-ended and Hybrid equity- oriented

Investment plan Growth GrowthRisk grade Below average Below averageReturn grade Below average Below averageAsset size as on 31.3.2015

Rs. 371 crore Rs. 3541 crore

NAV as on 31.3.2015

Rs. 15.65 Rs. 107.455

KOTAK BALANCE Vs HDFC BALANCED FUND

Table No: 5.2

Year Kotak Balance fund HDFC Balanced

40

(%) fund (%)

2014-15 28.55 51.472013-14 6.23 8.782012-13 24.79 26.582011-12 -14.06 -10.572010-11 12.43 25.49

Interpretation:

Kotak Balance fund and HDFC Balanced fund, both schemes have been

investing its money into equity as well as Debt fund, so there are high

returns with minimum fluctuations. As seen in the above information HDFC

Balanced fund has given very good returns than Kotak Balance during last 5

years. Its shows that HDFC Balanced fund, is well managed and very good

portfolio than Kotak Balanced fund, so investors should select HDFC

scheme should select HDFC scheme than kotak in Balanced fund.

6) KOTAK SENSEX ETF FUND Vs HDFC INDEX FUND- SENSEX PLAN

Table No: 6.1

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Investment information

Kotak Sensex ETF fund

HDFC Index fund- Sensex plan

Fund objective The objective of the scheme is to provide returns that correspond to the total returns of BSE Sensex index

The scheme aims to generate returns that are commensurate with the performance of BSE Sensex, subject to tracking errors.

Fund type Open-ended and Equity large cap

Open-ended and Equity; large cap

Investment plan Growth GrowthRisk grade Average AverageReturn grade Average Below averageAsset size as on 31.3.2015

Rs 8 crore Rs 83.6 crore

NAV as on 31.3.2015

Rs 281.08 crore Rs. 237.20 crore

KOTAK SENSEX ETF FUND Vs HDFC INDEX FUND- SENSEX PLAN

Table No: 6.2

Year Kotak Sensex ETF fund (%)

HDFC Index fund- Sensex plan (%)

2014-15 31.12 30.632013-14 10.34 10.062012-13 27.24 26.532011-12 -23.94 -25.172010-11 18.32 17.56

Interpretation:

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Kotak Sensex fund and HDFC Index fund Sensex plan, both the schemes

are indexed scheme which means their portfolio is similar to Index and in

this case the portfolio of both the schemes are matched to Sensex top 30

Blue chip companies. Table above shows that both the schemes have

given similar returns because their portfolio is similar but still there is

little difference in every year because of their cash money ratio means

their investment in cash form. So it can be said that both schemes are very good and investors can select any scheme according to their convenience.

Risk analysis of different mutual fund schemes of Kotak as on 31 March, 2015:

Tools Kotak select focus fund

Kotak mid-cap fund

Kotak tax saver fund

Kotak 50 fund

Kotak balance fund

Kotak sensex ETF fund

Standard deviation

15.29 19.25 16.70 15.41 9.81 13.64

Sharpe ratio

1.19 1.01 0.87 0.90 0.91 0.82

Beta 1.00 1.13 1.08 1.03 0.84 0.94R-squared

0.89 0.72 0.87 0.93 0.90 0.98

Alpha 8.18 8.15 3.68 3.43 2.46 1.76

Interpretation:

There are five major indicators of risk in investment. These are applicable

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to the analysis of Stocks, Bonds and Mutual fund portfolios. They are

alpha, beta, R-squared, Standard deviation and Sharpe ratio. The data

from the table revealed that standard deviation of Kotak mid-cap is higher

than other funds. It has indicated that Kotak mid-cap scheme is more

volatile because a higher SD indicates that the Net asset value(NAV) of

that mutual fund is more volatile and, it is riskier than a fund with lower

SD. While comparing Sharpe ratio, it can be said that only Kotak select focus has risk adjusted performance because a mutual fund with a higher

Sharpe ratio is better because it implies that it has generated higher

returns for every unit of risk was taken. Beta compares a fund’s volatility

to a benchmark index over a 36 month time period. All the funds except

kotak balance fund and Kotak sensex ETF fund have more than 1 Beta

which shows that these funds are more volatile than their benchmark. A

beta of lesser than 1 indicates the investments is less volatile than the

market and these schemes are conservative in nature. R-squared reflects

the percentage of a fund’s movement that can be explained by

movements in its benchmark index. If compared all the schemes in Kotak

mutual fund, it can be said that all the funds are giving similar returns to

their benchmark except kotak mid-cap which is having 0.72 R-squared. If

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the funds R-squared value is between 0.85 to 1, the fund’s performance

should be trusted. Alpha basically is the difference between the returns an

investor expects from a fund, given its beta, and the return it actually

produces. If compared Alpha mentioned in the above table, it can be said

that Kotak select focus and Kotak mid-cap has outperformed its

benchmark index and it offered higher positive Alpha. A positive Alpha

means the fund has outperformed its benchmark index. Whereas, a negative Alpha means the fund has underperformed to its benchmark

index. The more positive an Alpha is healthier for investors.

Risk analysis of different mutual fund schemes as on 31 march, 2015:

Tools HDFC capital builder fund

HDFC mid-cap

fund

HDFC saver

HDFC top 200

fund

HDFC balanced

fund

HDFC index fund

Standard deviatio

n

14.68 15.94 17.62 18.43 11.91 13.48

Sharpe ratio

1.07 1.36 0.80 0.69 1.21 0.80

Beta 0.96 0.89 1.10 1.21 0.92 0.93R-

squared0.90 0.64 0.82 0.90 0.73 0.98

Alpha 5.96 12.76 3.05 0.52 7.26 1.42

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Interpretation:-

The data from the above table has shown that Standard deviation of

HDFC Top 200 fund and HDFC tax saver are higher than other fund’s

which means that these two fund are more volatile in nature and riskier

than other funds. All other funds are also having high returns ( High risk

high returns). While comparing Sharpe ratio, HDFC mid-cap is having

higher Sharpe ratio which means this fund has generated high returns with minimum risk taken and it has better risk adjusted performance as

compared to others. Beta compares funds volatility to its benchmark

index, if compare Beta then it can be said that HDFC top 200 fund is

more volatile than its benchmark and generated high returns. More than 1

beta indicates that funds are more risky and aggressive in nature than its

benchmark. R-squared shows the correlation between funds movement to

its bench mark index. If compared all the schemes of HDFC, it can be

said that most of the funds are giving similar returns to their benchmark

but HDFC mid-cap and HDFC balanced fund are different than their

benchmark because these schemes are having less R-squared. If

compared above schemes Alpha then it can be said that HDFC mid-cap

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and HDFC balanced fund are having higher Alpha and these funds have

outperformed its benchmark index because higher positive Alpha shows

higher positive returns.

REFERENCES

BOOKS:-

1. Jaydev, ‘ Investment policy & performance of Mutual funds’, Kanishka publishers & Distributors, New Delhi (1998).

2. Rao, Mohana P, ‘ Working of mutual fund organisations in India’, Kanishka Publishers, New Delhi ( 1998)

3. Sahadevan S. and Thiripalraju M, ‘ Mutual funds: Data, Interpretation and Analysis’, Prentice hall of India private Limited, New Delhi ( 1997)

Journals, Research papers and Articles:

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1. Abhishek kumar ( 2012), “Trend in Behavioural Finance and Asset mobilization in Mutual fund industry of India”, International Journal of Scientific and Research publications, Volume 2, Issue 10, October

2012, pp 1-15.

2. Ansari, “ Mutual funds in India: Emerging trends”, The chartered Accountant, Vol. 42 (2), ( August 1993), pp. 88-93.

3. Bansal L K, “ Challenges for Mutual funds in India”, Chartered secretary, Vol. 21 (10), ( October 1991), pp. 825-26.

4. Batra and Bhatia, “ Indian Mutual funds: A study of Public sector”, paper presented, UTI institute of Capital market, Mumbai (1992)

5. Gupta Amitabh, “ Investment performance of Indian mutual funds: An Empirical study”, Finance India, Vol. XIV (3), ( September 2000), pp.

833-866.

6. Gupta Ramesh, “ Mutual funds”, The Management Accountant, Vol. 24(5), ( May 1989), pp. 320-322.

Factsheets:

1. HDFC Fund Factsheet

2. Kotak Fund Factsheet

Websites:

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1. http:// www.kotakmutual.com

2. http:// www.valueresearch.com

3. http:// www.moneycontrol.com

4. http:// www.amfiindia.com

5. http:// www.bseindia.com

6. http:// www.nseindia.com

7. http:// business. maps of India.com

8. http:// en.wikipedia.org/wiki/mutual fund

9. http:// MBA lectures.com/mutual funds

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