Thesis On Mutual Fund

Analysis of various Balanced and Liquid Funds
SUMMER TRAINING PROJECT REPORT ON
ANALYSIS OF THE VARIOUS BALANCED AND LIQUID

FUNDS
SUBMITTED TO:
INDIAN INSTITUTE OF FINANCE
SUBMITTED BY:
PREFACE
ACKNOWLEDGEMENT
.
CONTENT
CHAPTER-1
INTRODUCTION
Introduction of Mutual Fund

Mutual Fund Structure
CHAPTER-2
Company profile
About Anand Rathi

Strength
Fact Sheet
Philosophy
Products
CHAPTER-3
Introduction of Balanced and Liquid Funds

Balanced Funds
Liquid Funds
CHAPTER-4
Introduction of SBI Mutual Fund
CHAPTER-5
Analytical Part of the Project

Sharp Ratio
Treynor Ratio
Standard Deviation
Comparison of various Balanced and Liquid Funds
CHAPTER-6
Survey and Questionnaire
Survey
Limitations of Survey
Future Of Mutual Fund Industry
CHAPTER-7
Conclusion and Suggestion
Conclusions
Suggestions
BIBLIOGRAPHY
OBJECTIVE
The objective of the project is to do comparative analysis of various balanced & liquid
funds of different AMCs.
There are variours mutual funds in the market an investor are often confused in which
fund to invest, balanced & liquid funds were in vogue in recent time so I have tried to
analyze the performance of these funds in order to identify the best among these.
To fulfill the objective of my study I have used various statistical & analytical tools like
Standard deviation
Beta
Sharpe ratio
Treynor ration
CHAPTER 1
INTRODUCTION
1.1 Introduction about Mutual Funds
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciations realized by the scheme are shared
by its unit holders in proportion to the number of units owned by them (pro rata). Thus a
Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed portfolio at a relatively low
cost. Anybody with an investible surplus of as little as a few thousand rupees can invest
in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy.
A mutual fund is the ideal investment vehicle for today‘s complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of
events, understand their implications and act speedily. An individual also finds it difficult
to keep track of ownership of his assets, investments, brokerage dues and bank
transactions etc.
A mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time basis. The large
pool of money collected in the fund allows it to hire such staff at a very low cost to each
investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas -
research, investments and transaction processing. While the concept of individuals
coming together to invest money collectively is not new, the mutual fund in its present
form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the
Second World War. Globally, there are thousands of firms offering tens of thousands of
mutual funds with different investment objectives. Today, mutual funds collectively
manage almost as much as or more money as compared to banks.
A draft offer document is to be prepared at the time of launching the fund. Typically, it
pre specifies the investment objectives of the fund, the risk associated, the costs involved
in the process and the broad rules for entry into and exit from the fund and other areas of
operation. In India, as in most countries, these sponsors need approval from a regulator,
SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the
sponsor and its financial strength in granting approval to the fund for commencing
operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the
fund and perhaps a third one to handle registry work for the unit holders (subscribers) of
the fund.
In the Indian context, the sponsors promote the Asset Management Company also, in which it
holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management
Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset
Management Company Ltd., which has floated different mutual funds schemes and also acts as an
asset manager for the funds collected under the schemes.
Future Scenario
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next
few years as investor‘s shift their assets from banks and other traditional avenues. Some
of the older public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger
players in three to four years. In the private sector this trend has already started with two
mergers and one takeover. Here too some of them will down their shutters in the near
future to come.
But this does not mean there is no room for other players. The market will witness a
flurry of new players entering the arena. There will be a large number of offers from
various asset management companies in the time to come. Some big names like Fidelity,
Principal, and Old Mutual etc. are looking at Indian market seriously. One important
reason for it is that most major players already have presence here and hence these big
names would hardly like to get left behind.
The mutual fund industry is awaiting the introduction of derivatives in India as this would
enable it to hedge its risk and this in turn would be reflected in it‘s Net Asset Value
(NAV).
SEBI is working out the norms for enabling the existing mutual fund schemes to trade in
derivatives. Importantly, many market players have called on the Regulator to initiate the process
immediately, so that the mutual funds can implement the changes that are required to trade in
Derivatives.
Market Trends
A lone UTI with just one scheme in 1964 now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing market
share, UTI still remains a formidable force to reckon with.
Last six years have been the most turbulent as well as exiting ones for the industry. New
players have come in, while others have decided to close shop by either selling off or
merging with others. Product innovation is now passé with the game shifting to
performance delivery in fund management as well as service. Those directly associated
with the fund management industry like distributors, registrars and transfer agents, and
even the regulators have become more mature and responsible.
The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generations of private funds which have gained substantial mass are now seen flexing
their muscles. Fund managers, by their selection criteria for stocks have forced corporate
governance on the industry. By rewarding honest and transparent management with
higher valuations, a system of risk-reward has been created where the corporate sector is
more transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG
and technology sector. Funds performances are improving. Funds collection, which
averaged at less than Rs100bn per annum over five-year period spanning 1993-98
doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded
Rs300bn. Total collection for the current financial year ending March 2000 is expected to
reach Rs450bn.
What is particularly noteworthy is that bulk of the mobilization has been by the private
sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net
inflow of Rs. 7819.34 crore during the first nine months of the year as against a net
inflow of Rs.604.40 crore in the case of public sector funds.
Mutual funds are now also competing with commercial banks in the race for retail
investor‘s savings and corporate float money. The power shift towards mutual funds has
become obvious. The coming few years will show that the traditional saving avenues are
losing out in the current scenario. Many investors are realizing that investments in
savings accounts are as good as locking up their deposits in a closet. The fund
mobilization trend by mutual funds in the current year indicates that money is going to
mutual funds in a big way. The collection in the first half of the financial year 1999-2000
matches the whole of 1998-99.
India is at the first stage of a revolution that has already peaked in the U.S. The U.S.
boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund
assets are not even 10% of the bank deposits, but this trend is beginning to change.
Recent figures indicate that in the first quarter of the current fiscal year mutual fund
assets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank,
the Financial Express September, 99) This is forcing a large number of banks to adopt
the concept of narrow banking wherein the deposits are kept in Gilts and some other
assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be
ignored and they will not close down completely. Their role as intermediaries cannot be
ignored. It is just that Mutual Funds are going to change the way banks do business in the
future.
What is a Mutual Fund?
A mutual fund is a common pool of money in to which investors with common investment
objective place their contributions that are to be invested in accordance with the stated investment
objective of the scheme. The investment manager would invest the money collected from the
investor in to assets that are defined/ permitted by the stated objective of the scheme. For
example, an equity fund would invest equity and equity related instruments and a debt fund
would invest in bonds, debentures, gilts etc.
1.2 Mutual Fund Structure:
The structure consists
Sponsor: Sponsor is the person who acting alone or in combination with another body
corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the Securities and
Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or
liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial
contribution made by it towards setting up of the Mutual Fund.
Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian
Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act,
1908
Trustee: Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders
and inter alia ensure that the AMC functions in the interest of investors and in accordance with
the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of
the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the
Trustee are independent directors who are not associated with the Sponsor in any manner.
Asset Management Company (AMC): The AMC is appointed by the Trustee as the
Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities
and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund.
At least 50% of the directors of the AMC are independent directors who are not associated with
the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times.
Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints
the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application
form, redemption requests and dispatches account statements to the unit holders. The Registrar
and Transfer agent also handles communications with investors and updates investor records.
1.3 Types of Schemes:
Investment Objective : Schemes can be classified by way of their stated investment

objective such as Growth Fund, Balanced Fund, Income Fund etc
Equity Oriented Schemes: These schemes, also commonly called Growth Schemes,
seek to invest a majority of their funds in equities and a small portion in money market
instruments. Such schemes have the potential to deliver superior returns over the long term.
However, because they invest in equities, these schemes are exposed to fluctuations in value
especially in the short term.
Equity schemes are hence not suitable for investors seeking regular income or needing to use
their investments in the short-term. They are ideal for investors who have a long-term investment
horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock
which are influenced by external factors such as social, political as well as economic. HDFC
Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes.
General Purpose: The investment objectives of general-purpose equity schemes do not

restrict them to invest in specific industries or sectors. They thus have a diversified portfolio of
companies across a large spectrum of industries. While they are exposed to equity price risks,
diversified general-purpose equity funds seek to reduce the sector or stock specific risks through
diversification. They mainly have market risk exposure. HDFC Growth Fund is a general-purpose
equity scheme.
Sector Specific: These schemes restrict their investing to one or more pre-defined sectors,
e.g. technology sector. Since they depend upon the performance of select sectors only, these
schemes are inherently more risky than general-purpose schemes. They are suited for informed
investors who wish to take a view and risk on the concerned sector.
Special Schemes:
Index Schemes
The primary purpose of an Index is to serve as a measure of the performance of the market as a
whole, or a specific sector of the market. An Index also serves as a relevant benchmark to
evaluate the performance of mutual funds. Some investors are interested in investing in the
market in general rather than investing in any specific fund. Such investors are happy to receive
the returns posted by the markets. As it is not practical to invest in each and every stock in the
market in proportion to its size, these investors are comfortable investing in a fund that they
believe is a good representative of the entire market. Index Funds are launched and managed for
such investors. An example to such a fund is the HDFC Index Fund.
Tax saving schemes
Investors (individuals and Hindu Undivided Families (―HUFs‖)) are being encouraged to
invest in equity markets through Equity Linked Savings Scheme (―ELSS‖) by offering
them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed /
switched– out until completion of 3 years from the date of allotment of the respective
Units.The Scheme is subject to Securities & Exchange Board of India (Mutual Funds)
Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of
Economic Affairs), Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,
1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from
income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a
fund.
Real Estate Funds:

Specialized real estate funds would invest in real estates directly, or may fund real estate
developers or lend to them directly or buy shares of housing finance companies or may even buy
their securitized assets.
Debt Based Schemes:
These schemes, also commonly called Income Schemes, invest in debt securities such as
corporate bonds, debentures and government securities. The prices of these schemes tend to be
more stable compared with equity schemes and most of the returns to the investors are generated
through dividends or steady capital appreciation. These schemes are ideal for conservative
investors or those not in a position to take higher equity risks, such as retired individuals.
However, as compared to the money market schemes they do have a higher price fluctuation risk
and compared to a Gilt fund they have a higher credit risk.
Income Schemes
These schemes invest in money markets, bonds and debentures of corporate with medium and
long-term maturities. These schemes primarily target current income instead of capital
appreciation. They therefore distribute a substantial part of their distributable surplus to the
investor by way of dividend distribution. Such schemes usually declare quarterly dividends and
are suitable for conservative investors who have medium to long term investment horizon and are
looking for regular income through dividend or steady capital appreciation. HDFC Income Fund,
HDFC Short Term Plan and HDFC Fixed Investment Plans are examples of bond schemes.
Money Market Schemes
These schemes invest in short term instruments such as commercial paper (―CP‖), certificates of
deposit (―CD‖), treasury bills (―T-Bill‖) and overnight money (―Call‖). The schemes are the least
volatile of all the types of schemes because of their investments in money market instrument with
short-term maturities. These schemes have become popular with institutional investors and high
net worth individuals having short-term surplus funds.
Gilt Funds
This scheme primarily invests in Government Debt. Hence the investor usually does not have to
worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is an
example of such a scheme.
Hybrid Schemes: These schemes are commonly known as balanced schemes. These
schemes invest in both equities as well as debt. By investing in a mix of this nature, balanced
schemes seek to attain the objective of income and moderate capital appreciation and are ideal for
investors with a conservative, long-term orientation. HDFC Balanced Fund and HDFC Children‘s
Gift Fund are examples of hybrid schemes.
Constitution: Schemes can be classified as Closed-ended or Open-ended depending upon

whether they give the investor the option to redeem at any time (open-ended) or whether the
investor has to wait till maturity of the scheme.
Open ended Schemes: The units offered by these schemes are available for sale and
repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes
keeps changing each day. Such schemes thus offer very high liquidity to investors and are
becoming increasingly popular in India. Please note that an open-ended fund is NOT obliged to
keep selling/issuing new units at all times, and may stop issuing further subscription to new
investors. On the other hand, an open-ended fund rarely denies to its investor the facility to
redeem existing units.
Closed ended Schemes: The unit capital of a close-ended product is fixed as it makes a
one-time sale of fixed number of units. These schemes are launched with an initial public offer
(IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices.
In the interim, investors can buy or sell units on the stock exchanges where they are listed. Unlike
open-ended schemes, the unit capital in closed-ended schemes usually remains unchanged. After
an initial closed period, the scheme may offer direct repurchase facility to the investors. Closed-
ended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a
discount to the NAV. This discount tends towards the NAV closer to the maturity date of the
scheme.
Interval Schemes: These schemes combine the features of open-ended and closed-ended
schemes. They may be traded on the stock exchange or may be open for sale or redemption
during pre-determined intervals at NAV based prices.
Risk:
The Risk-Return Trade-off: The most important relationship to understand is the

risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the
returns/loss.
Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do
this you must first be aware of the different types of risks involved with your investment decision.
Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside
influences affecting the market in general lead to this. This is true, may it be big corporations or
smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan
(―SIP‖) that works on the concept of Rupee Cost Averaging (―RCA‖) might help mitigate this
risk.
Credit Risk: The debt servicing ability (may it be interest payments or repayment of
principal) of a company through its cash flows determines the Credit Risk faced by you. This
credit risk is measured by independent rating agencies like CRISIL who rate companies and their
paper. A ‗AAA‘ rating is considered the safest whereas a ‗D‘ rating is considered poor credit
quality. A well-diversified portfolio might help mitigate this risk.
Inflation Risk: Things you hear people talk about:

―Rs. 100 today is worth more than Rs. 100 tomorrow.‖
―Remember the time when a bus ride costed 50 paise?‖
―Mehangai Ka Jamana Hai.‖
The root cause, Inflation is the loss of purchasing power over time. A lot of times people make
conservative investment decisions to protect their capital but end up with a sum of money that can
buy less than what the principal could at the time of the investment. This happens when inflation
grows faster than the return on your investment. A well-diversified portfolio with some
investment in equities might help mitigate this risk.
Interest Rate Risk: In a free market economy interest rates are difficult if not
impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If
interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as
well in a rising interest rate environment. A well-diversified portfolio might help mitigate this
risk.
Political/Government Policy Risk: Changes in government policy and political

decision can change the investment environment. They can create a favorable environment for
investment or vice versa.
Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that
one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid securities.
Diversification: The nuclear weapon in your arsenal for your fight against Risk. It simply
means that you must spread your investment across different securities (stocks, bonds, money
market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information
technology etc.). This kind of a diversification may add to the stability of your returns, for
example during one period of time equities might underperforms but bonds and money market
instruments might do well enough to offset the effect of a slump in the equity markets. Similarly
the information technology sector might be faring poorly but the auto and textile sectors might do
well and may protect you principal investment as well as help you meet your return objectives.
Risk vs. Reward
Before you can begin to build a successful investment portfolio, you should understand the basic
elements of mutual fund investing and how they can affect the potential value of your
investments over the years.
When you invest in mutual funds, there is no guarantee that you will end up with more money
when you withdraw your investment than you put in to begin with -- and that's a scary prospect.
Loss of value in your investment is what is considered risk in investing. Even so, the opportunity
for investment growth that is possible through investments in mutual funds far exceeds that
concern for most investors. Consider why.
At the cornerstone of investing is the basic principal that the greater the risk you take, the greater
the potential reward. Or stated another way, you get what you pay for and you get paid a higher
return only when you're willing to accept more volatility.
Risk then, refers to the volatility -- the up and down activity in the markets and individual issues
that occurs constantly over time. This volatility can be caused by a number of factors -- interest
rate changes, inflation or general economic conditions. It is this variability, uncertainty and
potential for loss, that causes investors to worry. We all fear the possibility that a stock or bond
we invest in will fall substantially. But it is this very volatility in stocks, bonds and their markets
that is the exact reason that you can expect to earn a higher long-term return from these
investments than you can from CDs and passbook savings accounts.
Different types of mutual funds have different levels of volatility or potential price change, and
those with the greater chance of losing value are also the funds that can produce the greater
returns for you over time. So risk has two sides: it causes the value of your investments to
fluctuate, but it is precisely the reason you can expect to earn higher returns.
You might find it helpful to remember that all financial investments will fluctuate. There are very
few perfectly safe havens and those simply don't pay enough to beat inflation over the long run.
Banks v/s Mutual Funds
BANKS MUTUAL FUNDS

Returns Low Better
Administrative exp. High Low
Risk Low Moderate
Investment options Less More
Network High penetration Low but improving
Liquidity At a cost Better
Quality of assets Not transparent Transparent
Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday
Guarantee Maximum Rs.1 lakh on deposits None
1.4 Benefits of Mutual Fund investment

There are numerous benefits of investing in mutual funds and one of the key reasons for
its phenomenal success in the developed markets like US and UK is the range of benefits
they offer, which are unmatched by most other investment avenues. We have explained
the key benefits in this section. The benefits have been broadly split into universal
benefits, applicable to all schemes and benefits applicable specifically to open-ended
schemes.
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme. 1.
Professional Investment Management.
By pooling the funds of thousands of investors, mutual funds provide full-time, high-
level professional management that few individual investors can afford to obtain
independently. Such management is vital to achieving results in today's complex markets.
Your fund managers' interests are tied to yours, because their compensation is based not
on sales commissions, but on how well the fund performs. These managers have
instantaneous access to crucial market information and are able to execute trades on the
largest and most cost-effective scale. In short, managing investments is a full-time job for
professionals.
Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries
and sectors. This diversification reduces the risk because seldom do all stocks decline at
the same time and in the same proportion. You achieve this diversification through a
Mutual Fund with far less money than you can do on your own.
Mutual funds invest in a broad range of securities. This limits investment risk by
reducing the effect of a possible decline in the value of any one security. Mutual fund
shareowners can benefit from diversification techniques usually available only to
investors wealthy enough to buy significant positions in a wide variety of securities.
‗The nuclear weapon in your arsenal for fight against Risk‘ It simply means that you
must spread your investment across different securities (stocks, bonds, money market
instruments, real estate, fixed deposits etc.) and different sectors (auto, textile,
information technology etc.). This kind of a diversification may add to the stability of
your returns, for example during one period of time equities might underperforms but
bonds and money market instruments might do well enough to offset the effect of a
slump in the equity markets. Similarly the information technology sector might be faring
poorly but the auto and textile sectors might do well and may protect your principal
investment as well as help you meet your return objectives.
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payments and follow up with brokers and companies. Mutual
Funds save your time and make investing easy and convenient.
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return
as they invest in a diversified basket of selected securities.
Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and other fees
translate into lower costs for investors.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a
stock exchange at the prevailing market price or the investor can avail of the facility of
direct repurchase at NAV related prices by the Mutual Fund.
Transparency
you get regular information on the value of your investment in addition to disclosure on
the specific investments made by your scheme, the proportion invested in each class of
assets and the fund manager's investment strategy and outlook.
Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your
needs and convenience.
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the
investment objective of the scheme. An investor can buy in to a portfolio of equities,
which would otherwise be extremely expensive. Each unit holder thus gets an exposure to
such portfolios with an investment as modest as Rs.500/-. This amount today would get
you less than quarter of an Infosys share! Thus it would be affordable for an investor to
build a portfolio of investments through a mutual fund rather than investing directly in
the stock market.
Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of Mutual
Funds are regularly monitored by SEBI.
Life Cycle Planning
With no-load mutual funds, you can link your investment plans to future individual and
family needs -- and make changes as your life cycles change. You can invest in growth
funds for future college tuition needs, then move to income funds for retirement, and
adjust your investments as your needs change throughout your life. With no-load funds,
there are no commissions to pay when you change your investments.
Market Cycle Planning
For investors who understand how to actively manage their portfolio, mutual fund
investments can be moved as market conditions change. You can place your funds in
equities when the market is on the upswing and move into money market funds on the
downswing or take any number of steps to ensure that your investments are meeting your
needs in changing market climates. A word of caution: since it is impossible to predict
what the market will do at any point in time, staying on course with a long-term,
diversified investment view is recommended for most investors.
Periodic Withdrawals
If you want steady monthly income, many funds allow you to arrange for monthly fixed
checks to be sent to you, first by distributing some or all of the income and then, if
necessary, by dipping into your principal.
Dividend Options
You can receive all dividend payments in cash. Or you can have them reinvested in the
fund free of charge, in which case the dividends are automatically compounded. This can
make a significant contribution to your long-term investment results. With some funds
you can elect to have your dividends from income paid in cash and your capital gains
distributions reinvested.
Automatic Direct Deposit
You can usually arrange to have regular, third-party payments -- such as Social Security
or pension checks -- deposited directly into your fund account. This puts your money to
work immediately, without waiting to clear your checking account, and it saves you from
worrying about checks being lost in the mail.
Recordkeeping Service
With your own portfolio of stocks and bonds, you would have to do your own
recordkeeping of purchases, sales, dividends, interest, short-term and long-term gains and
losses. Mutual funds provide confirmation of your transactions and necessary tax forms
to help you keep track of your investments and tax reporting.
Safekeeping
When you own shares in a mutual fund, you own securities in many companies without
having to worry about keeping stock certificates in safe deposit boxes or sending them by
registered mail. You don't even have to worry about handling the mutual fund stock
certificates; the fund maintains your account on its books and sends you periodic
statements keeping track of all your transactions.
Retirement and College Plans
Mutual funds are well suited to Individual Retirement Accounts and most funds offer
IRA-approved prototype and master plans for individual retirement accounts (IRAs) and
Keogh, 403(b), SEP-IRA and 401(k) retirement plans. Funds also make it easy to invest -
- for college, children or other long-term goals. Many offer special investment products
or programs tailored specifically for investments for children and college.
Online Services
The internet provides a fast, convenient way for investors to access financial information.
A host of services are available to the online investor including direct access to no-load
companies. Visit Company Links to access these Companies.
Sweep Accounts
With many funds, if you choose not to reinvest your stock or bond fund dividends, you
can arrange to have them swept into your money market fund automatically. You get all
the advantages of both accounts with no extra effort.
Asset Management Accounts
These master accounts, available from many of the larger fund groups, enable you to
manage all your financial service needs under a single umbrella from unlimited check
writing and automatic bill paying to discount brokerage and credit card accounts.
Margin
Some mutual fund shares are marginable. You may buy them on margin or use them as
collateral to borrow money from your bank or broker. Call your fund company for
details.
Structure of the Indian mutual fund industry
The Indian mutual fund industry is dominated by the Unit Trust of India which has a total
corpus of Rs700bn collected from more than 20 million investors. The UTI has many
funds/schemes in all categories ie equity, balanced, income etc with some being open-
ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US
64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI
was floated by financial institutions and is governed by a special act of Parliament. Most
of its investors believe that the UTI is government owned and controlled, which, while
legally incorrect, is true for all practical purposes.
The second largest category of mutual funds is the ones floated by nationalized banks.
Canbank Asset Management floated by Canara Bank and SBI Funds Management floated
by the State Bank of India are the largest of these. GIC AMC floated by General
Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of
the other prominent ones. The aggregate corpus of funds managed by this category of
AMCs is about Rs150bn.
The third largest category of mutual funds is the ones floated by the private sector and by
foreign asset management companies. The largest of these are Prudential ICICI AMC and
Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs
is in excess of Rs250bn.
Some of the AMCs operating currently are:
Name of the AMC Nature of ownership

Alliance Capital Asset Management (I) Private Limited Private foreign
Birla Sun Life Asset Management Company Limited Private Indian
Bank of Baroda Asset Management Company Limited Banks
Bank of India Asset Management Company Limited Banks
Canbank Investment Management Services Limited Banks
Cholamandalam Cazenove Asset Management Company Private foreign
Limited
Dundee Asset Management Company Limited Private foreign
DSP Merrill Lynch Asset Management Company Limited Private foreign
Escorts Asset Management Limited Private Indian
First India Asset Management Limited Private Indian
GIC Asset Management Company Limited Institutions
IDBI Investment Management Company Limited Institutions
Indfund Management Limited Banks
ING Investment Asset Management Company Private Limited Private foreign
J M Capital Management Limited Private Indian
Jardine Fleming (I) Asset Management Limited Private foreign
Kotak Mahindra Asset Management Company Limited Private Indian
Kothari Pioneer Asset Management Company Limited Private Indian
Jeevan Bima Sahayog Asset Management Company Limited Institutions
Morgan Stanley Asset Management Company Private Limited Private foreign
Punjab National Bank Asset Management Company Limited Banks
Reliance Capital Asset Management Company Limited Private Indian
State Bank of India Funds Management Limited Banks
Shriram Asset Management Company Limited Private Indian
Sun F and C Asset Management (I) Private Limited Private foreign
Sundaram Newton Asset Management Company Limited Private foreign
Tata Asset Management Company Limited Private Indian
Credit Capital Asset Management Company Limited Private Indian
Templeton Asset Management (India) Private Limited Private foreign
Unit Trust of India Institutions
Zurich Asset Management Company (I) Limited Private foreign
1.5 Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the
foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and got
off to a good start due to the stock market boom prevailing then. These banks did not
really understand the mutual fund business and they just viewed it as another kind of
banking activity. Few hired specialized staff and generally chose to transfer staff from the
parent organizations. The performance of most of the schemes floated by these funds was
not good. Some schemes had offered guaranteed returns and their parent organizations
had to bail out these AMCs by paying large amounts of money as the difference between
the guaranteed and actual returns. The service levels were also very bad. Most of these
AMCs have not been able to retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious plans of continuing the activity in a
major way.
The experience of some of the AMCs floated by private sector Indian companies was also
very similar. They quickly realized that the AMC business is a business, which makes
money in the long term and requires deep-pocketed support in the intermediate years.
Some have sold out to foreign owned companies, some have merged with others and
there is general restructuring going on.
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.
1.6 FREQUENTLY USED TERMS/QUESTIONS
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit
NAV is the net asset value of the scheme divided by the number of units outstanding on the
Valuation Date.
Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales
load.
Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include a back-end
load. This is also called Bid Price.
Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem
their units on maturity. Such prices are NAV related.
Sales Load
Is a charge collected by a scheme when it sells the units. Also called, ‗Front-end‘ load. Schemes
that do not charge a load are called ‗No Load‘ schemes.
Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the unit holders.
1.7 Rules and Regulations

Mutual Funds in India are governed by the SEBI (Mutual Fund) Regulations 1996 as amended
from time to time.
Also, SEBI keeps on issuing various guidelines and circulars on varied topics relating to mutual
fund industry.Latest issuances related to MF’s
Circulars
30 June, 2006 Undertaking from trustees for new scheme offer document
16 June, 2006 Gazette notification no. S.O. 783(E) dated May 22, 2006 pertaining
to SEBI Mutual Funds) (Second Amendment) Regulations 2006
21 April, 2006 Dividend Distribution Procedures for Mutual Funds

Introduction of Gold Exchange Traded Funds in India
04 April, 2006 Rationalisation of Initial Issue Expenses and Dividend distribution

procedure for Mutual Funds
Amendments
22 May, 2006 Securities And Exchange Board Of India (Mutual Funds) (Second
Amendment) Regulations, 2006
In addition, mutual funds of India have formed their association i.e. Association of Mutual
Funds of India ( AMFI ) which acts as a self regulatory body for its members.
Association of Mutual Funds of India (AMFI)
AMFI, the apex body of all the registered Asset Management Companies was incorporated
on August 22, 1995 as a non-profit organization. As of now, all the 30 Asset Management
companies that have launched mutual fund schemes are its members.
Objectives
To define and maintain high professional and ethical standards in all areas of operation of
mutual fund industry
To recommend and promote best business practices and code of conduct to be followed
by members and others engaged in the activities of mutual fund and asset management
including agencies connected or involved in the field of capital markets and financial
services.
To interact with the Securities and Exchange Board of India (SEBI) and to represent to
SEBI on all matters concerning the mutual fund industry.
To represent to the Government, Reserve Bank of India and other bodies on all matters
relating to the Mutual Fund Industry.
To develop a cadre of well-trained Agent distributors and to implement a programme of
training and certification for all intermediaries and other engaged in the industry.
To undertake nation wide investor awareness programme so as to promote proper

understanding of the concept and working of mutual funds.
To disseminate information on Mutual Fund Industry and to undertake studies and

research directly and/or in association with other bodies.
How these mutual funds scored 100%
It is one thing to ride a bull wave and quite another to keep pace in turbulent waters. As
the relentless bull-run on the bourses carried the Sensex past several "Ks" during the last
financial year, making money must have been rather easy.
With stocks of almost all shapes and sizes right from consumer, infrastructure and
engineering riding the wave, fund managers could have just dozed off doing nothing and
yet made mega bucks.
The fund managers' report card for the past fiscal does look impeccable. Out of a total of
261 pure equity funds, nine equity schemes earned more than 100 per cent returns; about
96 beat the widely accepted benchmark Sensex which itself gained a phenomenal 73 per
cent; 175 gave returns in excess of 50 per cent; and none, just none, slipped into red.
With 36 per cent of fund managers beating the benchmarks, not all the gains can be
attributed to buoyant markets though. "We have been facing a situation where the market
breadth is increasing and people are looking beyond a particular sector for out-
performance," says Chetan Sehgal, fund manager at Franklin Templeton Mutual Fund.
"It was difficult to choose the sectors as almost all sectors have been a part of the rally.
Except for capital goods there is no other sector that has outperformed significantly,"
says Viraj Ghatlia, head of financial planning, IL&FS Investsmart.
Cent per cent true. A look at the top ranking equity funds over the past one year should
demonstrate this point better. The top ranking funds constitute a variety of schemes
ranging from sectoral funds to diversified funds, from large-caps to mid-caps and even
funds that usually promise to tread the path the stocks markets have abandoned.
The top-ranking fund, for instance, was Prudential ICICI FMCG Fund, which delivered
118 per cent return. Another sectoral fund Reliance Power delivered 110 per cent during
the period with a 65 per cent allocation to power related stocks.
Apart from the three diversified equity funds from SBI Mutual, which have held on to
their top slot through this bull run, Kotak Opportunities (thematic fund that takes
concentrated bet in few sectors), Sundaram Leadership (invests in leaders in various
businesses) were some thematic funds which had a spectacular run. Besides, mid-cap
oriented funds from Sundaram and Prudential were the other two in the toppers' list.
In short, whatever the mandate of the fund, there was enough opportunity in the market to
beat the averages provided you chose the right stocks.
The toppers were generally overweight on sectors such as capital goods, construction and
sugar to name a few.
They steered clear of or cut exposure to pharma and technology. While big names like
Hindustan Lever, BHEL and Siemens, Bajaj Auto, Maruti and Tata Motors, Reliance
Industries helped beat the Street, some smaller companies like Kalpataru Power, Havells
India and Alps Industries, and even metal stock Hindustan Zinc worked as kickers to the
winning portfolios.
For instance Kalpataru Power, where Prudential ICICI Emerging Star allocated 3.32 per
cent of its assets and Sundaram Select Mid-cap placed 4.09 per cent of its assets, gained a
whopping 302 per cent in the past one year.
Deccan Holdings, another winner picked by Prudential ICICI Emerging Star Fund,
gained 203 per cent during the year. The fund had invested 5.22 per cent of its assets in
the stock.
Where winners kept the faith...

Considering that capital goods has had a spectacular run over the past couple of years,
most funds managers have been consistently overweight on the sector.
Last year, the BSE Capital Goods Index was the best performing index delivering 155 per
cent returns. With returns bettering every quarter - in Q1, the index posted a return of 16
per cent and in Q4, it nearly doubled that much at 34 per cent - fund-men allocated most
of their assets to this sector. Capital goods accounted for about 10.50 per cent of the total
allocation in Q4 (See Top Sector Holdings).
TOPPERS
Scheme Name (all equity schemes) 1 Year
Prudential ICICI FMCG – Growth 118.49
SBI Magnum Multiplier Plus 93 - Growth 111.50
Reliance Diversified Power Fund - Growth 110.18
Prudential ICICI Emerging STAR Fund –

109.48
Growth
SBI Magnum Tax Gain Scheme 93 103.67
SBI Magnum Global Fund 94 – Growth 103.23
Kotak Opportunities Fund – Growth 102.84
SBI Magnum Sector Umbrella - Contra –

101.88
Growth
Sundaram India Leadership Fund - Growth 101.64
Sundaram Select Midcap – Growth 99.45

Returns in %
The average holding of the top 10 schemes over the last four quarters in this sector was
around 15-16 per cent.
For instance, SBI Magnum Multiplier Plus had an allocation of over 8 per cent each in
Crompton Greaves and Thermax, which delivered 138 per cent and 151 per cent returns
respectively in the past year. Taking together all equity diversified funds, the allocation to
the sector has gone up from 6.10 per cent to 10.20 per cent.
Housing and construction sectors have been the most under-researched sectors according
to A K Sridhar, chief investment officer, UTI Mutual Fund. Still, the top 10 performing
funds hiked their exposure to the construction sectors from 4.23 to 5.09 per cent over the
past year.
"We stayed invested in housing and construction segment because of the sheer volume of
construction activities happening in the country," says Sanjay Sinha, fund manager, SBI
Mutual fund.
SBI Magnum Global Fund 94, again a top performing fund, has increased its allocation to
the housing and construction sector from 4.94 per cent to 10.44 per cent over the last four
quarters. One stock that the fund has bought into is Ansal Properties, which accounted for
4.58 per cent of net assets in March 2006. Some other construction bets include
Nagarjuna Construction (3.07 per cent) and IVRCL Infrastructure (3.37 per cent) both of
which were stunning performers last year.
SBI Magnum Multiplier Plus 93, another front-runner, has however maintained an
average allocation of around five per cent through all four quarters. On an average top 10
schemes held around 4-5 per cent of assets in Housing and construction over the financial
year. While all diversified equity schemes almost doubled their allocation to this sector
from 1.03 per cent to 2.04 per cent in the four quarters.
Another sector where winning funds hiked exposure was auto and auto ancilliaries. Last
year, the BSE Auto index gave 110 per cent return, second best after capital goods. The
allocations to this segment went up from 4.84 per cent in Q1 from 6.37 per cent in Q4 for
all diversified equity funds.
"We still fancy two wheelers a lot and are positive on stocks like Hero Honda and
Maruti," says Sri Vidhya, fund manager, Sundaram Leadership fund, which managed to
deliver 101 per cent return.
Last year though FMCG stocks were truly fast moving with the BSE FMCG index
gaining 109 per cent. Even the consumer durables did well with the BSE Consumer
Durable index posted a return of 115 per cent on the back of outstanding performance by
watch and jewellery market Titan Industries and Videocon.
Prudential ICICI FMCG, the topper last year, however, played it safe by maintaining an
average exposure of 15 per cent in textiles and consumer durables over the past year.
The fund did well taking exposure to lesser known companies like Alps Industries which
returned 95 per cent and emerging consumer major Dabur (124 per cent) where the fund
had placed 6.59 per cent of its net assets.
For Sundaram India Leadership Fund, the favourite was sugar. The fund almost doubled
its allocation to around 6 per cent from 3 per cent in March 2005. "We are holding sugar
since the inception of the fund. The fact that crude oil prices have risen sharply, and the
demand for ethanol has gone up, has pushed up sugar prices," says Sundaram's Sri
Vidhya.
...where they wavered
The BSE Metal was the worst performing index over the last four quarters, giving
negative returns in three of the last four quarters and just about 40 per cent over the past
year. Ironically, the top 10 performing funds constantly raised their stakes in metal stocks
(including steel) from 2.6 per cent to 4.37 per cent over the last four quarters.
Defending the move, says Nilesh Shah, CIO, Prudential ICICI Mutual Fund, "We are
looking for companies which produce value-added products, since they can escape the
vagaries of price movements."
Notably, true to its label, SBI Contra Fund, which primarily seeks to beat the market by
betting against the market, has about 10 per cent allocation to metals including steel. Its
top holding at the end of March 2006 was Hindustan Zinc constituting 5.78 per cent of
net assets. Last year, the stock zoomed 195 per cent and the party continues on the
bourses.
Over the last quarter, Prudential ICICI Emerging Star Fund, the fourth top performing
fund also increased its metal exposure to around 5.7 per cent from 1.8 per cent over the
last four quarters. On an average the top 10 schemes held around 4-5 per cent of assets in
metal stocks. The holding of all diversified equity schemes in this sector is up from 3.26
per cent to 4.47 per cent.
Textiles stocks have however been treaded with cautious optimism by fund managers
with allocations by top 10 funds averaging around 3 per cent.
Prudential ICICI FMCG fund had been more bullish than others with weightage around
6-7 per cent for the sector. That is also partly because of the nature of businesses the fund
is supposed to invest in. SBI Magnum Multiplier Plus 93 also had a weightage of 5-6 per
cent to textiles during the period.
...and what they skipped
Similarly, another laggard was pharma stocks. Over the last 12 months, the BSE
Healthcare lagged behind the Sensex posting a return of 51 per cent returns. Predictably,
those that did well did so by being underweight on the sector.
The top 10 funds pruned their exposure to pharmaceuticals from 6.07 per cent to 4.37 per
cent over the last four quarters. Sankaran Naren, fund manager, Prudential ICICI AMC.
"We are bullish on select pharma stocks with focus on exports," he adds.
In a market that has been sizzling on the glory of a resurging domestic economy, the
export-oriented technology sector seem to have been relegated to the background. One
fund manager regrets having bough mid-cap IT stocks over the last year, which have
been laggards. The average allocation to the sector by all diversified equity schemes is up
from 6.8 per cent to 7.93 per cent during the past year.
With greater earnings visibility in the sector, especially after the fourth quarter results and
bullish guidance by the top-tier companies, fund managers are back on a buying spree. "I
am bullish on the visibility in top-line growth for the IT sector.
Another disappointment has been banking stocks, which remained volatile during the year due to
uncertainties on interest rates. On an average top 10 schemes held around 3-4 per cent of assets in
banks over the past financial year.
CHAPTER 2
PROFILE OF THE COMPANY
2.1 About Anand Rathi
Anand Rathi (AR) is a leading full service securities firm providing the entire gamut of
financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India
presence as well as an international presence through offices in Dubai and Bangkok.
AR provides a breadth of financial and advisory services including wealth management,

investment banking, corporate advisory, brokerage & distribution of equities,
commodities, mutual funds and insurance - all of which are supported by powerful
research teams.
The firm's philosophy is entirely client centric, with a clear focus on providing long term
value addition to clients, while maintaining the highest standards of excellence, ethics
and professionalism. The entire firm activities are divided across distinct client groups:
Individuals, Private Clients, Corporate and Institutions.
Milestones
1994: Started activities in consulting and Institutional equity sales with staff of 15
1995: Set up a research desk and empanelled with major institutional investors
1997: Introduced investment banking businesses
1999: Lead managed first IPO and executed first M & A deal
2001: Initiated Wealth Management Services
2002: Retail business expansion recommences with ownership model
2003:
Wealth Management assets cross Rs1500 crores
Retail Branch network exceeds 50
Insurance broking launched
Launch of Wealth Management services in Dubai
2004:
Retail Branch network expands across 100 locations within India
Commodities brokerage and real estate services introduced
Wealth Management assets cross Rs3000crores
Institutional equities business re launched and senior research team put in place
2005:
Real Estate Private Equity Fund Launched
2.2 Strengths
Breadth of Services
In line with its client-centric philosophy, the firm offers to its clients the entire spectrum
off financial services ranging from brokerage services in equities and commodities,
distribution of mutual funds, IPO‘s and insurance products, real estate, investment
banking, merger and acquisitions, corporate finance and corporate advisory.
Clients deal with a relationship manager who leverages and brings together the product
specialists from across the firm to create an optimum solution to the client needs.
Management Team
AR brings together a highly professional core management team that comprises of

individuals with extensive business as well as industry experience.
In-Depth Research
Our research expertise is at the core of the value proposition that we offer to our clients.
Research teams across the firm continuously track various markets and products. The aim
is however common - to go far deeper than others, to deliver incisive insights and ideas
and be accountable for results.
Management Team
Senior Management comprises a diverse talent pool that brings together rich experience
from across industry as well as financial services.
Mr. Anand Rathi - Group Chairman

Chartered Accountant
Past President, BSE
Held several Senior Management positions with one of India's largest industrial groups
Mr. Pradeep Gupta - Managing Director

Plus 15 years of experience in Financial Services
Mr. Amit Rathi - Managing Director

Chartered Accountant & MBA
Plus 9 years of experience in Financial Services
2.3 Fact Sheet
1994:
Started activities in consulting and Institutional equity sales with staff of 15
1995:
Set up a research desk and empanelled with major institutional investors
1997:
Introduced investment banking businesses
Retail brokerage services launched
1999:
Lead managed first IPO and executed first M & A deal
2000:
Group becomes India's largest retail broker - presence across 100 cities in India
Also ranked among top 5 institutional broking & investment banking groups
2001:
Initiated Wealth Management Services
2002:
Retail business expansion recommences with ownership model
2003:
Wealth Management assets cross Rs1500 crores
Retail Branch network exceeds 50
Insurance broking launched
Launch of Wealth Management services in Dubai
2004:
Commodities brokerage and real estate services introduced
Wealth Management assets cross Rs3000crores
Institutional equities business relaunched and senior research team put in place
2005:
Retail Branch network expands across 170+ locations within India
Real Estate Private Equity Fund Launched
2.4 Philosophy
We at Anand Rathi try and understand your financial needs; to offer you personal advice
and expert analysis that you need to make your assets go the extra mile. Our ability to
think far ahead and formulate a long-term strategy, coupled with long hours of practice
and research are the key drivers, which make your wealth work harder for you.
We believe that the key to build wealth lies in allocating assets across various markets,
financial instruments and industry sectors. Keeping this in mind we leverage our
expertise in scientific asset allocation, to help you maximize returns and minimize risks.
Process
We realize the need to simplify the complexities of the investment strategies and we
achieve this by offering highly customized wealth management product.
Our Personalized Relationship Managers along with the expert team of analysts and
advisors will assist you in analyzing all your investment needs and advice you on
specialized solutions created exclusively for you.
We have a dedicated research team who constantly screens the market for investment
prospects. The team provides support in fine-tuning the investment strategy & suggests
how to capitalize on these opportunities.
2.5 Products
Equity & Derivatives: AnandRathi provides end-to-end equity solutions to institutional

and individual investors. Consistent delivery of high quality advice on individual stocks,
sector trends and investment strategy has established us a competent and reliable research
unit across the country.
Clients can trade through us online on BSE and NSE for both equities and derivatives.
They are supported by dedicated sales & trading teams in our trading desks across the
country. Research and investment ideas can be accessed by clients either through their
designated dealers, email, web or SMS.
Mutual Funds: AR is one of India's top mutual fund distribution houses. Our success lies
in our philosophy of providing consistently superior, independent and unbiased advice to
our clients backed by in-depth research. We firmly believe in the importance of selecting
appropriate asset allocations based on the client's risk profile.
We have a dedicated mutual fund research cell for mutual funds that consistently churns
out superior investment ideas, picking best performing funds across asset classes and
providing insights into performances of select funds.
Depository Services: AR Depository Services provides you with a secure and convenient
way for holding your securities on both CDSL and NSDL.
Our depository services include settlement, clearing and custody of securities, registration
of shares and dematerialization. We offer you daily updated internet access to your
holding statement and transaction summary.
Commodities: Commodities broking - a whole new opportunity to hedge business risk

and an attractive investment opportunity to deliver superior returns for investors.
Our commodities broking services include online futures trading through NCDEX and
MCX and depository services through CDSL. Commodities broking is supported by a
dedicated research cell that provides both technical as well as fundamental research. Our
research covers a broad range of traded commodities including precious and base metals,
Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and spices
such as sugar, jeera and cotton.
In addition to transaction execution, we provide our clients customized advice on hedging

strategies, investment ideas and arbitrage opportunities.
Insurance: As an insurance broker, we provide to our clients comprehensive risk

management techniques, both within the business as well as on the personal front. Risk
management includes identification, measurement and assessment of the risk and
handling of the risk, of which insurance is an integral part. The firm deals with both life
insurance and general insurance products across all insurance companies.
Our guiding philosophy is to manage the clients' entire risk set by providing the optimal
level of cover at the least possible cost. The entire sales process and product selection is
research oriented and customized to the client's needs. We lay strong emphasis on timely
claim settlement and post sales services.
Services
Risk Management
Due diligence and research on policies available
Recommendation on a comprehensive insurance cover based on clients needs
Maintain proper records of client policies
Assist client in paying premiums
Continuous monitoring of client account
Assist client in claim negotiation and settlement
IPO’s: We are a leading primary market distributor across the country. Our strong
performance in IPO‘s has been a result of our vast experience in the Primary Market, a
wide network of branches across India, strong distribution capabilities and a dedicated
research team. We have been consistently ranked among the top 10 distributors of IPO‘s
on all major offerings. Our IPO research team provides clients with in-depth overviews of
forthcoming IPO‘s as well as investment recommendations. Online filling of forms is
also available. Other IPO‘s handled –
Name of Company Date of Issue
Bombay Rayon Fashions Limited Nov 17, 2005
Prithvi Information Solutions Ltd Oct 28, 2005
Shri Ramrupai Balaji Steels Limited Jul 14, 2005
Provogue (India) Limited Jun 16, 2005
Emami Limited Mar 10, 2005
NRIs: AR is the perfect gateway to the wealth of investment opportunities in India for
Non-Resident Indians. With our dedicated NRI desk in India and Relationship Managers
in your own country, you get the best of both worlds - real understanding of your
investment needs as well on-the-ground expertise.
CHAPTER 3
Introduction to Balanced fund’s Liquid Funds
3.1Balanced funds
Definition
A mutual fund that buys a combination of common stock, preferred stock, bonds, and
short-term bonds, to provide both income and capital appreciation while avoiding
excessive risk. The purpose of balanced funds (also sometimes called hybrid funds) is to
provide investors with a single mutual fund that combines both growth and income
objectives, by investing in both stocks (for growth) and bonds (for income). Such
diversified holdings ensure that these funds will manage downturns in the stock market
without too much of a loss; the flip side, of course, is that balanced funds will usually
increase less than an all-stock fund during a bull market.
An explanation of mutual funds, with specific emphasis on advantages and disadvantages

of this type of investment. If you were thinking of investing in a mutual fund, read this
article!
Describes some of the terminology necessary to understand mutual fund investments,
including open-end, closed-end, net asset value, public offering price, dividends and
capital gains distributions, family, share classes, and dual-purpose fund.
In order to evaluate a mutual fund, you should read its prospectus and annual report,
which describe the fund's investment objective, strategy, fees and expenses, past
performance, risks, and largest holdings. Click here to learn more about each of these
topics.
Balanced funds may lock into higher equity pie
Come June, balanced funds may have to alter their structure to step up their equity
exposures and maintain it at 65 per cent, if they are to avail themselves of the tax benefits
extended to equity oriented funds.
The recent Budget proposes to tweak the official definition of "equity oriented funds" to
include only those funds which have 65 per cent or more of their investments in stocks.
Currently, all funds that have a 50 per cent equity exposure are "equity oriented funds".
These enjoy exemption from dividend distribution tax and lower rates of tax on short-
term capital gains.
Balanced funds currently allocate between 60-65 per cent of their assets to stocks. But
they have considerable leeway in their objectives to swing between a 40 per cent and a 60
per cent equity exposure. Now, fund houses may have to tweak this structure to "fix" the
equity exposure at 65 per cent, if they want their balanced funds to enjoy tax benefits.
"The tax benefits are substantial. We will be changing the structure of the scheme and
increasing the equity exposure, but after we take a formal decision," said Mr N.
Sethuram, Chief Investment Officer of SBI Mutual Fund. SBI's Magnum Balanced Fund
had a 65 per cent exposure to equities by end-January.
Mr Sethuram also feels that the changes will blur the boundary between pure equity funds
and balanced funds. "Equity funds can hold up to 30 per cent of their portfolio in cash;
balanced funds will now have to hold 65 per cent in stocks. There is not much of a
difference between the two," he pointed out.
Franklin Templeton, which manages Franklin Templeton India Balanced Fund and FT
Dynamic P/E ratio Fund, said it is discussing the proposals with tax consultants before
finalising a decision. But the fund already has an equity allocation of 65 per cent on FT
India Balanced Fund. "Our exposure to equity has been on the higher side, on account of
our conviction about the long-term potential of equities. Having said that, these proposals
may impact the asset allocation of balanced funds that wish to offer tax-free dividends to
investors," said Mr Sukumar Rajah, CIO of the fund house.
With the stocks markets on a dream run, most fund houses have tended to take a bullish
view of equities. While most balanced funds had 60-65 per cent in stocks, HDFC
Prudence was the only outlier with a 59 per cent equity allocation by end-January. A
higher equity allocation may become a permanent feature if fund houses decide to take
advantage of the new proposals.
But as one fund manager pointed out, "You can have a lower allocation to equities over a
month or two, because the 65 per cent limit is reckoned on the average of monthly
balances through the year." Funds also have a comfortable three-month window until
June 1, to make these changes. That is when these proposals, if passed into law, will take
effect
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking for moderate growth. They
generally invest 40-60% in equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets. However, NAVs of such
funds are likely to be less volatile compared to pure equity funds
These schemes generally have a three-fold objective :
i) to conserve the initial principal,
ii) to pay current income and
iii) to promote long-term growth of both principal and income.

Fund managers achieve these objectives through a diversified portfolio of equities and
debt instruments. While equities provide growth, debt instruments provide current
income and stability.
For the small investor, a balanced fund is the best way to practice asset allocation, which
means dividing your portfolio among different investments such as equity and bonds.
Fund managers apportion your investment into debt and equity investments within the
limits prescribed in the offer document.
Current tax laws have accorded a tax-free status to open-ended schemes investing more
than 50 per cent in equities. Therefore, if you are looking for tax benefits, take a look at
the asset allocation table in the offer document to ensure that the fund invests more than
50 per cent in equities.
The balanced fund is ideal :
i) for those seeking a balance between stability and growth with some protection against
inflation
ii) Those unable to choose between equities and fixed income securities.
iii) Those who have never invested in equities, and are eager to take their first step.
3.2 WORKING OF BALANCED FUNDS
Balanced mutual funds make it possible by investing in an assortment of investment

instruments such as stocks, money markets and bonds etc. Balanced mutual funds are one
of the types of various mutual funds available in the market. This article discusses:
What is the principle behind balanced mutual fund?
What is the objective of the balanced fund?
Differentiate between balanced funds and other types of funds

Balanced mutual funds are one of the types of various mutual funds available in the
market. If you are wondering if there is any fund that can combine benefits of income and
capital appreciation, look no further, this is it. Balanced mutual funds make it possible by
investing in an assortment of investment instruments such as stocks, money markets and
bonds etc. Alternately these are also called as asset allocation funds.
The proportion in which the balanced mutual funds allocate their assets is usually 60 % to
65 % in stocks and the balance in bonds. The proportion is not disturbed while managing
the fund as it is to remain within the pre set minimum and maximum limits.
Agreed that mutual funds provide better and safer investment domains for ordinary
public, but they are not completely devoid of risks and violent market fluctuation.
Balanced mutual funds try to address these concerns in a way unique to mutual funds
alone.
Investment in Stocks : One can draw some similarity of balanced funds with well
diversified funds. Asset allocated for stocks are diversified into different sectors which
are performing with high returns. Fund allocation weightage is determined by the stocks'
return potentials. The top stock, for example may get an allocation of say 10% and the
lesser the potential the lesser is the percentage allocation of funds. The same pattern is
then repeated for another sector of stocks. Sectors are chosen subject to various
parameters.
Investment in Bonds : The allocation to bonds is distributed among bonds issued by

governments and banks. Municipal bonds, called as munis, some times find their way
into this. This investment provides guaranteed returns at a steady rate over a period. This
gives the stability to the entire fund cushioning the violent fluctuations of aggressive
stock investment.
Balanced Fund v/s Other Types of Funds

The objective of the fund is to generate income while being able to grow capital.
Blend of Growth and Safety : The unique proposition of spreading the investment into
two broad divisions of mutual fund investing is hard to find in other class of funds.
Freedom to decide allocation : freedom to switch over from one proportion to the other,
which is from 60:40 to 40:60 patterns. You can switch over when you perceive a growth
opportunity or a threat into the other from the existing. This you can reverse when you
perceive the situation leading to it has changed. No other type of fund has this freedom,
having chosen the fund, you have to go through the mandate of the fund.
Best balanced mutual funds keep allocation flexible and open to changes as per demands
of market conditions but subject to regulations by laws of government and SEC
(Securities & Exchange Commission).
Risky Proposition : Consider a situation when the stock market is having a bull run (long
rally). Then you can expect a great appreciation in its principal. Naturally any manager
would be tempted to divert as much cash at his command to stocks as possible. It could
go as high as 80% with just 20% for debt instruments. Other types of funds differ here
because of SEC regulations and funds' own mandate.
3.3ADVANTAGES OF BALANCED FUNDS
For balanced mutual funds, this is one Budget where the devil is truly in the detail. By
tweaking the definition of equity-oriented funds to include only those funds that have
invested at least 65 per cent of their assets in equities, the Budget proposals put balanced
funds in a quandary.
Until now, funds with an equity exposure of 50 per cent or more were defined as "equity-
oriented funds". Investors in these funds are exempted from paying long-term capital
gains tax; and short-term gains are taxed at a concessional 10 per cent. Equity funds are
also exempt from paying dividend distribution tax, at 12.5 per cent for individuals, when
they pay out dividends.
Balanced funds that would like their investors to enjoy lower rates of tax will now be
forced to retain their equity exposure at 65 per cent, or a higher proportion, of their
assets. Funds that prefer a conservative equity exposure will have no choice but to forego
the tax benefits. Rather than lose the tax benefits, most balanced fund managers may opt
for a permanent higher allocation to equities. The proposals, if passed into law, take
effect on June 1.
More equity exposure
Given the substantial tax benefits associated with being classified as an èquity-oriented
fund', most fund-houses are likely to tweak their balanced funds to fit in with the new
objectives.
The immediate impact on the asset allocation pattern of balanced funds may not be too
significant. With corporate earnings growing at a healthy clip and the stock market on a
dream run, most fund-houses have taken a bullish view on equities and maintain a high
equity allocation in their respective balanced funds.
Tilted towards equities
Of the various long-running balanced funds, Franklin Templeton India Balanced Fund,
Magnum Balanced Fund and Kotak Balance already had equity exposures of 65 per cent
or more by end-January 2006. Others such as Sundaram Balanced and PruICICI
Balanced, were at a 64 per cent equity exposure and need only to peg it up a whisker to
make it over the threshold. Only HDFC Prudence had an equity allocation substantially
lower than the threshold, at 59.9 per cent, by end-January.
Of course, the equity allocation for this purpose is reckoned on the average monthly
balances through the year. Therefore, a fund need not necessarily retain a 65 per cent
equity exposure at all times to be eligible for the tax benefits. There could be temporary
spikes or a shortfall in the equity allocation over a month or two that could be made up in
the rest of the year.
Since these proposals take effect only in June, funds have a fairly long, three-month
window to think through and rejig their asset allocation pattern.
Less flexibility
But it is the loss of flexibility that this rule entails that is a greater worry for investors in
balanced funds. With the proportion of equity investments in a balanced fund
straitjacketed at 65 per cent, managers of such funds will have less flexibility to move to
debt investments if the equity market appears overheated.
Individual investors, on their own, are seldom savvy enough to book profits on their
equity portfolio at the right time, given the difficulty of taking a view about stock
valuations or the direction of interest rates. Managers of balanced funds are better placed
to make this call.
Most balanced funds at present have considerable leeway in their asset allocation. Their
objectives usually allow equity investments to swing between 40 per cent and 60 per cent
of their assets. In practice, though, equity investments account for 60-65 per cent of the
assets.
This flexibility has stood some funds in good stead. Successful balanced funds such as
HDFC Prudence have turned in an impressive performance by making this kind of
"tactical" asset allocation call.
If the equity exposure in this fund is "fixed" at 65 per cent, the fund may have to load up
on stocks, irrespective of whether the fund manager is really comfortable with such an
allocation. Investors could lose out on the value addition that comes from fluid asset
allocation.
Balanced funds still attractive
Do these proposals make investing in balanced funds an unattractive proposition? Could

an investor substitute a balanced fund by investing 65 per cent of his money in equity
funds and 35 per cent in debt funds? No, because balanced funds will continue to offer
three distinct advantages over this strategy. One, balanced funds periodically re-balance
assets between equity and debt — difficult for an individual investor to manage on his
own.
Second, the tax advantages over direct investing. When a fund manager books profits on
stocks or bonds to re-balance his portfolio, the fund pays no capital gains tax on these
transactions. As an investor, you will have to pay short-term capital gains tax, if you rejig
your portfolio at short intervals.
Third, balanced fund managers will still be able to add some value on asset allocation.
They could choose to have a much higher equity exposure than 65 per cent and juggle
between the debt and cash components.
Details regarding SBI Magnum‘s Balanced Fund
Magnum Balanced Fund
Magnum Balanced Fund invest in a mix of equity and debt investments. Hence they are
less risky than equity funds, but at the same time provide commensurately lower returns.
They provide a good investment opportunity to investors who do not wish to be
completely exposed to equity markets, but is looking for higher returns than those
provided by debt funds. The main features of the scheme are:
In operation since October 1995

Minimum investment of Rs. 1000
Ideal for investors who wish to benefit from equity growth without excessive
volatility
Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores
and above – NIL" SIP/STP - 2.25%
Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and 12
months - 0.50% Investments of Rs.5 crores and above - NIL
SIP /STP-< 6 months from the date of investment of each instalment - 1.00%
SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months,
Rs.1500/quarter - 12 months
STP : Minimum amount Rs.1000/- month - minimum period of 6 months
Rs.3000/ Quarter - minimum period of 6 months
Inter scheme switches to other equity schemes will not carry an Entry Load. However
exit load will be applicable.
In respect of STP transactions, an investor would now be permitted to transfer any

amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or
Rs.3000 per quarter, without any restriction on maintaining the minimum balance
requirement as stipulated for the switch out scheme. The minimum period for STP will be
atleast 6 months.
SBI Magnum Balanced Fund
INVESTORS in SBI Magnum Balanced Fund may retain their holdings, as there has
been a substantial improvement in the fund's performance over the past three years. The
equity portfolio has a neat mix of mid-cap stocks and large-cap stocks.
Despite a sizeable allocation to large-cap stocks, the fund has performed impressively.
The mid-cap stocks in the portfolio have delivered attractive returns as they have enjoyed
several bouts of re-rating over the past couple of years. It has outperformed the CRISIL
Balanced Fund Index and the BSE-100 by a comfortable margin.
Over a five-year period, the NAV has, however, remained largely flat.
In the 10 years since launch, the fund has turned in annual returns of 16 per cent; a large
part of this owing to the sharp improvement in fund performance since early 2003.
The recovery of SBI Magnum Balanced and the move to the top of the ranks along with
HDFC Prudence in the balanced funds category is in line with the trend evident in all the
SBI-managed funds.
The fund has consistently maintained 60-65 per cent of assets in equities. This has helped
perk up returns, aided in no small measure by the largely bullish equity market of the past
two years.
The fund has been aggressively managed and appears to have picked the right themes and
stocks to ride the momentum in the market.
Even in the large-cap space, the fund has shuffled its portfolio over the past few months.
Reliance, SBI and Jet Airways have replaced the likes of ACC, Gujarat Ambuja and
NTPC.
Among mid-cap stocks, the fund has replaced Pantaloon Retail and Uttam Galva Steels
with IVRCL Infrastructure and Adlabs Films. So far, such changes have yielded
attractive returns.
Suitability: The fund is appropriate for investors who seek a mix of equity and debt and
prefer to go through the balanced funds route.
This is especially true for investors who do not have the time and inclination to construct
a balanced portfolio and ensure that the asset allocation remains in line with their
investment objective and risk preferences.
Unlike HDFC Prudence, SBI Magnum Balanced Fund still has a small asset base of a tad
less than Rs 100 crore.
This provides for a high degree of flexibility in asset management, coupled with the
quality of stock selection, and holds promise of the fund sustaining the momentum in
NAV.
Investors may opt for the dividend option as payments are exempt from tax.
Fund facts: The fund was launched in October 1995. The minimum investment is Rs
5,000.
The entry load is 2.25 per cent. There is no exit load. Mr Sachin S. Sawarikar is the
manager.
Unitholders can retain their exposure in Magnum Balanced Fund. A high exposure to
equity during the three-year bull rally has helped SBI Magnum Balanced Fund deliver an
impressive performance through most of this period.
Over a one-year period, the fund has generated a return of 57 per cent, which makes it
one of the top performers in the category. Its returns beat the benchmark Crisil Balanced
Index by about 20 percentage points. Over a longer time-frame, however, HDFC
Prudence still enjoys a better track record.
Suitability: The latter may also be better suited for those who have a conservative risk
profile.
Prudence has maintained a 60 per cent equity allocation, compared to 65 per cent and
more in most other balanced funds. Magnum Balanced, however, had about 75 per cent
invested in equity as of April 30.
It also frequently makes "tactical" asset allocation calls, with its holdings in equity
swinging widely from 62 per cent in November 2005to 86 per cent in March 2006. These
calls have, no doubt, paid off for the fund over the past year. The fund may, however, not
be suitable for investors who want a stable mix of debt and equity in their portfolios.
Notably, most balanced funds may no longer have the flexibility to substantially cut their
exposure to equity in volatile times. Already, most have at least 65 per cent of their assets
in equity.
Recent changes in the definition of "equity-oriented" funds, to determine the tax payable
at the hands of the investor, are also likely to ensure that this bias towards equity remains
in most cases.
According to the new rules, a fund should have at least 65 per cent invested in equity, as
against 50 per cent earlier, for investors to enjoy the capital gains and dividend
distribution tax benefits of equity.
Most balanced funds may, therefore, be forced to fix their equity allocation at 65 per cent
for a greater part of the year, if they want their investors to enjoy tax benefits. The
distinction between these funds and equity is, therefore, likely to blur somewhat.
In this context, Magnum Balanced may not have a much higher risk profile than others in
its category. Balanced funds may, in general, be better suited for those who want at least
a 65 per cent exposure to equity at any given time.
Portfolio overview: The fund invests in a good mix of large-cap and mid-cap stocks.
About 30 per cent is invested in stocks with a market capitalisation of more than Rs
10,000 crore. The top ten stocks account for about 35 per cent of its assets.
Its top three sectors — consumer goods, IT and engineering — account for about a third
of the portfolio. The fund invests mainly in corporate debt. It had about 10 per cent in
cash as of April 30.
Fund Facts: SBI Magnum Balanced was launched in 1995. It has an asset base of Rs 215
crore. It offers dividend and growth options. The minimum investment is Rs 1,000
DETAILS OF TWO IMPORTANT BALANCED FUNDS FLOATED BY

SBI MAGNUM
MAGNUM NRI INVESTMENT FUND FLEXI ASSET PLAN :

Investment Objective
The investment objective of the scheme will be to provide attractive returns to the
Magnum holders either through periodic dividends or through capital
appreciation through an actively managed portfolio of debt, equity and money
market instruments. Income may be generated through the receipt of coupon
payments, the amortization of the discount on the debt instruments, receipt of
dividends or purchase and sale of securities in the underlying portfolio.
Asset Allocation
% of Portfolio of
Instrument Risk Profile
Plan A & B
Corporate Debenture and Bonds/PSU, FI, Up to 90% of the

Government guaranteed Bonds including investments in debt Medium to High
Securitized Debt and In instruments
Not more than 30%

Of which Securitized Debt of the investments Medium to High
in debt instr
Up to 100% of the
Government Securities investments in debt Low
instruments
Atleast 10% and not

Equity and equity related instruments exceeding 80% at High
any time
Within approved
Derivative Instruments Low
limits
Cash and Call and Money Market Up to 25% Low

Instruments
Scheme Highlights
1.All Plans have Growth and Dividend Options. 2.The returns under the Growth
option to be through capital appreciation only, The FlexiAsset Plan to follow an
Asset Allocation Model wherein depending on market conditions/based on
certain triggers, the Fund Manager can take a view on the p ercentage of
investments that can be allocated to equity.
3.This Plan would have a minimum of 10% investment in equity related
instruments which can be increased up to 80% depending on market
fundamentals.
4.The investment universe for equity stocks will be limited to such equity stocks
that form a part of BSE-100. 5.The scheme will declare NAV, Sale and
Repurchase prices on all business days.
6.All Plans will have separate asset classes and will declare separate NAVs for
different options.
7.Dividends distributed under the scheme will be subject to a dividend
distribution tax of 12.5% and will be tax free in the hands of the investor.
Investments in Mutual Funds by NRIs are fully repatriable in case the funds are
remitted through NRE/FCNR accounts. Short -term/Long-term Capital Gains
would be subject to a withholding tax of 30%/20%.
Launch Date Minimum Application
January 2, 2004 Rs. Rs. 50,000 and multiples of Rs.

1,000. No maximum limit.
Entry Load Exit Load
Entry Load : Investments below Rs. 5 Investments below Rs.5 crores < = 6
crores - 2.25%Investments of Rs.5 months - 1.00% and NIL thereafter.
crores and above - NIL Investments of Rs.5 crores and above -
NIL
SIP SWP
Minimum amount Rs.500/month - 12 A minimum of Rs. 1000 can be

months Rs.1000/month - 6months, withdrawn every month or quarter by
Rs.1500/quarter - 12 months Minimum indicating in the application form or by
amount issuing advance
instructions to the Registrars at any
time.
Nav's
Plan Latest Nav Date
FlexiAsset Plan - Growth 22.378 30/03/2007
FlexiAsset Plan - Dividend 22.3756 30/03/2007
MAGNUM BALANCED FUND::
To provide investors long term capital appreciation along with the liquidity of an
open-ended scheme by investing in a mix of debt and equity. The scheme will
invest in a diversified portfolio of equities of high growth companies and balance
the risk through investing the rest in a relatively safe portfolio of debt.
Asset Allocation
% of Portfolio of
Plan A & B
Equities At least 50% Medium to High
Debt Instruments like debentures,

Up to 40%
bonds,khokhas, etc.
Not more than 10%

Securitized Debt of investments in Medium to High
debt
Money Market Instruments Balance Low
Scheme Highlights
1. An open-ended scheme investing in a mix of debt and equity instruments.

Investors get the benefit of high expected-returns of equity investments with the
safety of debt investments in one scheme.
2. On an ongoing basis, magnums will be allotted at an entry load of 2.25% to
the NAV.
3. Scheme open for Resident Indians, Trusts, Indian Corporates, on a fully
repatriable basis for NRIs and, Overseas Corporate Bodies.
4. Facility to reinvest dividend proceeds into the scheme at NAV available.
5. Switchover facility to any other open-ended schemes of SBI Mutual Fund at
NAV related prices.
6. The scheme will declare NAV, Sale and repurchase price on a daily basis.
7. Nomination facility available for individuals applying on their behalf either
singly or jointly upto three.
Launch Date Minimum Application
May 1, 1996 Rs. subscription: 100 Magnums or

Rs.1,000/- whichever is lower, and in
multiples of Rs.500/-

Investments below Rs. 5 crores - Investments below Rs.5 crores < = 6
2.25% Investments of Rs.5 crores and months - 1.00%, > 6 months but < 12
above - NIL months - 0.50% Investments of Rs.5
crores and above - NIL
SIP SWP
Rs.500/month - 12 months Systematic Withdrawal Plan (SWP): A

Rs.1000/month - 6months minimum of Rs. 500 can be withdrawn
Rs.1500/quarter - 12 months every month or quarter by issuing
advance instructions to the Registrars at
any time. There is also a facility of a
Monthly Pension Plan, whereby
investors can withdraw a minimum
amount of Rs. 500/- every month.
Nav's
Growth 33.84 30/03/2007
Dividend 24.7 30/03/2007
3.4 LIQUID FUNDS
Liquid funds are used primarily as an alternative to short-term fix deposits. Liquid funds
invest with minimal risk (like money market funds).
Most funds have a lock-in period of a maximum of three days to protect against
procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours.
Liquid funds score over short term fix deposits. Banks give a fixed rate in the range 5%-
5.5% p.a. for a term of 15-30 days. Returns from deposits are taxable depending on the
tax bracket of the investor, which considerably pulls down the actual return. Dividends
from liquid funds are tax-free in the hands of investor, which is why they are more
attractive than deposits.
Liquidity:
Deposits marginally score over liquid funds as far as liquidity is concerned. In bank
deposits the investor's bank account is credited as soon as his FDR (fixed deposit receipt)
is surrendered to the bank. However, in case of liquid funds the investor has to give a
redemption request to the fund within the cut off time to receive that days NAV and the
cheque is issued to him on the next working day. However, some funds give the facility
of crediting the investor's bank account e.g. Franklin Templeton gives this facility to the
HDFC bank account holders.
Factoring in all these factors, liquid funds do emerge as a better option as compared to
fixed deposits. However, while investing money in these funds investors need to carefully
evaluate the fund's performance. There is a possibility that liquid funds may not deliver in
terms of expected returns owing to market factors. Therefore, if you have Rs 100 to
invest, you should probably split the money between a liquid fund and a fixed deposit.
Corporates park surpluses in short-term liquid funds
TURBULENT markets and expectations of hardening interest rates are forcing corporates
to move funds into short-term liquid funds. Liquid and floating rate funds have been
receiving higher inflows with the trend strengthening over the last two weeks.
The mutual fund industry expects this to maintain momentum till the post-budget trends
are visible.
According to Mr Deepak Mundra, Deputy General Manager, Finance, Grasim Industries

Ltd, all incremental cash flow in the last month has gone into liquid funds. About Rs
1,000 crore to Rs 1,500 crore from the top 100 corporates would have gone into liquid
funds over the last month with the impending rise in interest rates. Liquid funds are
typically most shielded from hardening interest rate than others.
Liquid funds have been posting average returns of 4.5 per cent for the last 12 months.
Returns from floating rate funds are 0.20 per cent to 0.25 per cent over this. Income
funds, from where a lot of corporate funds are moving out, have posted nearly zero per
cent return during the corresponding period.
Income funds have also dropped to 42 per cent of the assets under management of the
mutual fund industry in May 2004.
The risk of return erosion is low in liquid and cash funds. Corporates who entered the
market earlier are booking profits on income funds and parking this money in liquid and
floating funds. "The average maturity of liquid funds is currently 51 days," said Mr K.
Ramnathan, Fund Manager, Birla Sun Life Asset Management Company.
Oil companies such as BPCL are also looking at Mumbai Inter Bank Offered Rate
(MIBOR)-linked deposits, which banks offer with returns of around 4.5 per cent. Mr S.K.
Joshi, Executive Director, Corporate Treasury, BPCL said, "With all the markets-equity,
debt and forex turning turbulent corporates like us are putting money in MIBOR-linked
deposits and liquid funds."
BPCL like most oil companies, which have a surplus of Rs 50 crore on one day and a
borrowing requirement of Rs 150 crore on another day, are planning to test the waters
with the comparatively new money market lending and borrowing platform,
Collateralised Borrowing and Lending Obligation (CBLO).
Mr Naval Bir Kumar, Managing Director, Standard Chartered Mutual Fund, said that
actively managed liquid funds have posted high returns and corporates are using this
vehicle to maximise their returns at minimal risk exposures.
The concerns in the market are the rising domestic inflation figures towards the 6 per cent
mark. The high global oil prices, violence in West Asia and impending rise of the US
interest rates are not helping. Corporate treasurers are waiting for the budget to assess
market triggers and are especially interested in how the Finance Minister is planning to
raise resources for his ambitious social initiatives.
RETURN ON LIQUID FUNDS:
Investors who have money for short-term say 15-30 days generally invest in short-term
fixed deposits with the banks. Banks give a fixed rate in the range 5%-5.5% p.a. for a
term of 15-30 days. But how do these returns compare with those offered by liquid funds,
a comparable investment products? Here we have made a brief study for our investors as
to which is the right investment option for short-term investment.
Most of the banks considered in the above table give a fixed rate of return of over 5% p.a. for
tenure of 15-30 days. However, when tax is considered the actual returns on these deposits falls to
3.5% p.a. These returns are surely unattractive!
Other factors that you need to consider:
Fixed returns:
Deposits give fixed returns to the investor. However, liquid funds don't give a fixed
return to the investor but it is clear from the above study that liquid funds give higher
returns as compared to the deposits.
Tax efficiency:
Dividends from liquid funds are tax-free in the hands of investor, which is why they are
more attractive than deposits. Returns from deposits are taxable depending on the tax
bracket of the investor, which considerably pulls down the actual return (unless of course
the interest earned does not exceed the 80 L limit).
Let's take an example of two investors À' and `B' who invest in fixed deposit and Liquid
fund respectively. Both are in the highest tax bracket and invest for a tenure of 30 days.
À' makes a deposit of Rs 500,000 in HDFC Bank at the rate of 5% p.a. for a tenure of 30
days and `B' invests in `Templeton (I) Liquid fund' for the same period and amount.
Liquidity:
Deposits marginally score over liquid funds as far as liquidity is concerned. In bank
deposits the investor's bank account is credited as soon as his FDR (fixed deposit receipt)
is surrendered to the bank. However, in case of liquid funds the investor has to give a
redemption request to the fund within the cut off time to receive that days NAV and the
cheque is issued to him on the next working day. However, some funds give the facility
of crediting the investor's bank account e.g. Franklin Templeton gives this facility to the
HDFC bank account holders.
Factoring in all these factors, liquid funds do emerge as a better option as compared to
fixed deposits. However, while investing money in these funds investors need to carefully
evaluate the fund's performance. There is a possibility that liquid funds may not deliver in
terms of expected returns owing to market factors. Therefore, if you have Rs 100 to
invest, you should probably split the money between a liquid fund and a fixed deposit.
DETAILS OF LIQUID FUND FLOATED BY SBI MAGNUM
SBI PREMIER LIQUID FUND:
The investment objective of the scheme will be to provide attractive returns to the
Magnum holders either through periodic dividends or through capital appreciation
through an actively managed portfolio of debt and money market instruments. Inc ome
may be generated through the receipt of coupon payments, the amortization of the
discount on the debt instruments, receipt of dividends or purchase and sale of securities
in the underlying portfolio.
Asset Allocation
% of Portfolio of % of Portfolio of
Plan A & B Plan C
Within SEBI Within SEBI Medium to

Of which International Bonds
stipulated limits stipulated limits High
Within approved
Derivative instruments Within approved Medium
limits
Cash & call money Market

Upto 100% Upto 25% Low
Instruments
Corporate Debenture and

Bonds/PSU, FI, Government Low to
Upto 25%* Up to 100%
guaranteed Bonds Government Medium
Securities
Not more than Not more than

10% of the 10% of the Medium to
Of which Securitized Debt
investments in investments in High
debt inst debt inst
Scheme Highlights
1. There are 2 options - Institutional Plan and Super Institutional Plan. Both plans have
Growth and Dividend Options.
2. Under Dividend option of both plans, the frequency of dividen d payment will be
daily, weekly and fortnightly. Daily Dividend under Super Institutional plan will be
declared from March 24, 2007 subject to availability of distributable surplus and in
compliance with SEBI Regulations from time to time.
3. Daily Dividend will be subject to compulsory reinvestment at applicable NAV
irrespective of the amount of investment.
4. Payout and reinvestment facility will be available only under weekly and fortnightly
dividend options. The payout facility under weekly and fortnig htly dividend options in
the Institutional Plan will be offered only to such investors who have a minimum
investment of Rs 1 crore in these options.
5. The Fund as a whole will be managed as a single portfolio. Both plans will not
charge any entry or exit load and will declare NAV on all calendar days with effect
from March 23, 2007.
6. Investors who wish to exit from the scheme, can do it at applicable NAV, without
exit load, on or before March 22, 2007.
Launch Date
Minimum Application
March 23, 2007 Rs. For Institutional Plan - Rs 50 lacs and

multiples of Rs 1 lac. For Super
Institutional Plan - Rs 5 crores and
multiples of Rs 1 lac

Nil Nil
SWP
SIP
Nil Nil
Nav's
SBI Premier Liquid Fund - 10.1069 30/03/2007

Institutional - Fortnigtly
Dividend

Institutional - Weekly Dividend

Institutional - Daily Dividend

Institutional - Growth
SBI Premier Liquid Fund - 1111 30/03/2007

Super Institutional -
Fortnightly Dividend
SBI Premier Liquid Fund - 1111 30/03/2007

Super Institutional - Weekly
Dividend

Super Institutional - Growth
10.0325 30/03/2007
Chapter 4
INTRODUCTION OF SBI MUTUAL FUND

SBI Mutual Fund, India's largest bank sponsored mutual fund, is a joint venture between the
State Bank of India and Societe Generale Asset Management, one of the world's top-notch
fund management companies. Over the years, SBI Mutual Fund has carved a niche for itself
through prudent investment decisions and consistent wealth creation.
Since its inception, SBI Funds Management Private Ltd. has launched thirty-two schemes
and successfully redeemed fifteen of them. Throughout this journey, SBI Mutual Fund has
profusely rewarded the 20,00,000 investors who have reposed their faith in it.
Today, the SBI fund boasts of an expertise of managing assets over Rs. 13,000 crores and has
a diverse profile of investors actively parking their investments across 28 active schemes. A
vast network of 82 collection branches, 26 investor service centres, 21 investor service desks
and 21 district organizers helps the SBI Mutual Fund to reach out to their investors.
Here is a list of Mutual Funds of SBI:
Equity Funds
Magnum COMMA Fund
Magnum Equity Fund
Magnum Global Fund
Magnum Index Fund
Magnum MidCap Fund
Magnum Multicap Fund
Magnum Multiplier Plus
Magnum Sector Funds Umbrella
FMCG Fund
Emerging Businesses Fund
IT Fund
Pharmaceuticals Fund
Contra Fund
Magnum TaxGain Scheme
SBI Arbitrage Opportunities Fund
SBI Bluechip Fund
Debt Funds
Magnum Children‘s Benefit Plan
Magnum Gilt Fund

Magnum Gilt Fund (Long Term)
Mgnum Gilt Fund (Short Term)
Magnum Income Fund
Magnum Income Plus Fund
Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)
Magnum Insta Cash Fund
Magnum InstaCash Fund - Liquid Floater Plan
Magnum Institutional Income Fund
Magnum Monthly Income Plan
Magnum Monthly Income Plan Floater
Magnum NRI Investment Fund
SBI Debt Fund Series
15 Months Fund
SDFS 90 Days Fund
SDFS 60 Days Fund
SDFS 180 Days Fund
Balanced Funds
Magnum Balanced Fund
Magnum NRI Investment Fund FlexiAsset Plan

The investments of these schemes will predominantly be in the stock markets and
endeavor will be to provide investors the opportunity to benefit from the higher returns
which stock markets can provide. However they are also exposed to the volatility and
attendant risks of stock markets and hence should be chosen only by such investors who
have high risk taking capacities and are willing to think long term. Equity Funds include
diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds
invest in various stocks across different sectors while sectoral funds which are specialized
Equity Funds restrict their investments only to shares of a particular sector and hence, are
riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of
a particular index and the performance of such funds move with the movements of the
index.
Magnum Equity Fund
This actively managed fund offers growth through investment in a portfolio of select blue chip
stocks. The main features of the scheme are:
A diversified equity fund, focusing on aggressive growth

Minimum application of Rs. 1000
EntryLoad: – Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL" SIP/ST
2.25%
Exit Load – Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months -
0.50% Investments of Rs.5 crores and above - NIL SIP /STP-< 6 months from the date of
investment of each instalment - 1.00%
Ideal for investors who wish to benefit from the growth of the equity markets and are
comfortable with the attendant volatility
SIP Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter -
12 months
STP Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter -
minimum period of 6 months
Inter scheme switches to other equity schemes will not carry an Entry Load. However exit
load will be applicable.
In respect of STP transactions, an investor would now be permitted to transfer any
amount from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000
per quarter, without any restriction on maintaining the minimum balance requirement as
stipulated for the switch out scheme. The minimum period for STP will be atleast 6 months.
Please read the Offer Document before investing.
Magnum TaxGain
What is Magnum TaxGain Scheme about?
Magnum TaxGain Scheme is an Equity Linked Savings Scheme (ELSS) from SBI Mutual Fund
which offers investors tax benefits on an investment upto Rs 1 Lakh under Section 80C of
Indian Income Tax Act 1961. The fund was launched in the year 1993 and is one of the top
performers in the ELSS category.
Scheme Highlights:
Entry Load – Investments below Rs. 5 crores – 2.25%,Investments of Rs.5 crores and above –
NIL"
SIP/STP Entry Load - 2.25%
Exit Load : NIL
SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter -

12 months
STP : Minimum amount Rs.1000/- month - 6 months, Rs.3000/ Quarter - 6 months
Asset Allocation – 80-100% in Equity, partly convertible debentures and fully convertible
debentures and bonds & 0 – 20% in Money market instruments.
Minimum Application Amount – Rs 500 for purchase & Multiples of Rs 500 for additional
purchase.
Plans & Options – Dividend option with payout and reinvestment facility.
In respect of STP transactions, an investor would now be permitted to transfer any amount from
the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per quarter,
without any restriction on maintaining the minimum balance requirement as stipulated for the
switch out scheme. The minimum period for STP will be atleast 6 months.
Enter Section 8OC
Section 88 was scrapped in Finance Bill 2005. Instead, Section 80C has been introduced. All
avenues that were eligible for tax benefits under Section 88 were brought under the Section 80C
fold. However, instead of offering tax rebates, investments (up to Rs 100,000) under Section
80C qualify for deduction from gross total income. Hence a new system of claiming tax benefits
is now in place.
ConceptMagnum Index Fund
Magnum Index Fund invests only in the 50 stocks that constitute S&P CNX Nifty index in
proportion to each stock's weightage in the index. Hence, who the portfolio Manager is or what
his style is does not really matter in such funds. Volatility of such schemes will be in
synchronization with the index. This investment is ideal for:
Corporate, Institutions, Banks

HNIs and Retail Investors desirous of investing in a basket of Nifty Index stocks for an investment
as low as Rs. 5000/- with liquidity of Open-ended Mutual Fund
Entry load: Investments below Rs. 50 Lakhs – 1.25% Investments of Rs.50 Lakhs and above – NIL
SIP/STP - 1.00%
Exit Load: Nil SIP /STP- < 12 months from the date of investment of each instalment - 1.00%
12 months
STP : Minimum amount Rs.1000/- month - 6 months ,Rs.3000/ Quarter - 6 months
Dividend Option Available
switch out scheme. The minimum period for STP will be atleast 6 months
Magnum Sector Funds Umbrella
Launched in August 1999

Minimum investment of Rs. 2000 per sector
Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above –
NIL" SIP/STP - 2.25%
Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months -
0.50% Investments of Rs.5 crores and above - NIL
SIP : Minimum amount Rs.500/month - 12 months Rs.1000/month - 6months, Rs.1500/quarter
- 12 months
STP : Minimum amount Rs.1000/- month - minimum period of 6 months Rs.3000/ Quarter -
load will be applicable. In respect of STP transactions, an investor would now be permitted to
transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000
pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance
atleast 6 months.
Choice of 5 high-growth sectors:
I.T Fund
FMCG Fund
Pharma Fund
Contra Fund
Emerging Businesses Fund
Information Technology Sector:
With the threat of global economic slowdown looming large over the IT industry, software stocks
have been under pressure for quite some time now. Inspite of this, the Indian IT industry continues
to march ahead as seen by the latest results, making it one of the highest value-addition and net
foreign exchange earning industry. The Indian IT industry has zoomed from Rs.98.92 bn, five
years ago to Rs.554 bn in FY2000-01, a phenomenal CAGR of over 40%, which is almost double
the growth rate of IT industries in many of the developed countries.
The Indian IT industry can be classified into four sectors viz. Software, Hardware, Peripherals,
Networking & Internet service provider.
Fast Moving Consumer Goods:
Fast Moving Consumer Goods (FMCG) are products that are typically purchased and consumed
on a regular basis. Some examples of FMCG products include personal products (soaps,
shampoos, hair oils, toothpastes, shaving razors etc.), fabric care, processed foods (dairy products,
atta, edible oils, chocolates, ice creams etc.), beverages, cigarettes etc. to name a few. The
companies in this sector are sprucing up their brands and distribution networks to realize this huge
potential.
Pharmaceuticals:
Pharmaceutical industry is a continuous growth industry, largely immune to economic recession

and commodity cycles. The growth is spurred by a rising population, new disease incidence, and
resurgence of certain diseases.
The pharmaceutical industry grew at a compounded rate of 17% during the last 10 years. The
companies renewed focus on streamlining their production facilities and increased marketing has
seen these companies show a rise in their profits. In reflection of this, the stock prices have also
rallied in the past year.
Contra Fund:
The objective of the Fund is to invest in undervalued scrips, which may be currently out of favour
but are likely to show attractive growth in the long term. Thus, this fund provides an alternative to
investors for investing in the growth scrips of the future. The funds collected under this scheme
will be invested in the equities of :-
Companies that are fundamentally sound, but generally are undervalued at the time of investment
due to lack of investor interest.
Companies that have embarked on the path of turnaround by restructuring of operations, hiving off
unrelated business, etc. And where the results of the turnaround are likely to accrue in the long
term.
Companies with strong management, but operating in commodities where there are signs of
bottoming out of the business cycle.
Emerging Businesses Fund is an open-ended growth fund launched as the fifth sector fund in
Magnum Sector Funds Umbrella (MSFU). The Emerging Businesses Fund will primarily focus its
investments in emerging business themes, primarily based on the export/outsourcing opportunities
and/or global competitiveness of such themes. It will also focus on emerging domestic investment
themes.
Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL"
SIP/STP - 2.25%
Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months - 0.50%
Investments of Rs.5 crores and above - NIL
12 months
Inter scheme switches to other equity schemes will not carry an Entry Load. However exit load
will be applicable.
Magnum Multiplier Plus Scheme
A diversified equity fund, focussing on steady growth

Open-ended from April 1998
Minimum application of Rs. 1000
Entry Load : Investments below Rs. 5 crores – 2.25% Investments of Rs.5 crores and above – NIL"
SIP/STP - 2.25%
Exit Load: Investments below Rs.5 crores < 6 months - 1.00% 6 months and < 12 months - 0.50%
12 months
will be applicable.
Magnum Global Fund

The Magnum Global Fund Scheme 1994 commenced from 24th August 1994. This scheme
was launched as a close-ended scheme redeeming on 30th September 1999. the scheme was
converted into an Open-Ended Fund from 1st October 1999. Main features of the scheme are:
- 12 months
In respect of STP transactions, an investor would now be permitted to transfer any amount
from the switch-out scheme, subject to a minimum transfer of Rs.1000 pm or Rs.3000 per
quarter, without any restriction on maintaining the minimum balance requirement as stipulated
for the switch out scheme. The minimum period for STP will be atleast 6 months.
Magnum MidCap Fund
The latest investment option from SBI Mutual Fund enables you to benefit from our expertise in
the intricacies of MidCap stocks. So you can leave the hard part of choosing the right stock to
grow with and concentrate on enjoying your returns, now and in the long run:
Open-ended growth shceme

0.50%
12 months
will be applicable.
In respect of STP transactions, an investor would now be permitted to transfer anyamount from
switch out scheme.
Magnum Comma Fund
A first of its kind scheme. COMMA is an acronym for Commodities in Oil, Metals, Materials
and Agriculture. The objective of the scheme would be to generate opportunities for growth
along with possibility of consistent returns by investing predominantly in a portfolio of stocks
of companies engaged in the commodity business within the following sectors - Oil& Gas,
Metals, Materials & Agriculture and in debt & money market instruments
Key Features
An open-ended equity scheme investing in stocks of commodity based companies

- 12 months
load will be applicable. In respect of STP transactions, an investor would now be permitted to
transfer any amount from the switch-out scheme, subject to a minimum transfer of Rs.1000
pm or Rs.3000 per quarter, without any restriction on maintaining the minimum balance
atleast 6 months.
Magnum Multicap
SBI Mutual Fund launches Magnum Mutlicap Fund (An open ended Growth Scheme)
Objective
Scheme objective - To provide investors with opportunities for long-term growth in capital
along with the liquidity of an open-ended scheme through an active management of
investments in a diversified basket of equity stocks spanning the entire market capitalization
spectrum, debt and money market instruments.
Fund to invest in large, medium and small cap segments in equity instruments. The fund
would invest a minimum of 50 per cent of its equity/equity related instruments in large cap
stocks and the balance 50 per cent would be dividend between mid cap and small caps with a
provision to invest at least 10 per cent in mid cap stocks.
Market Cap Minimum Maximum

Segment Allocation Allocation
Large Cap 50% 90%
Mid Cap 10% 40%
Small Cap 0% 10%
Key Features
Launch date –22nd August 2005

Scheme opened for continuous sale and repurchase.
0.50%Investments of Rs.5 crores and above - NIL
- 12 months
for the switch out scheme.
BLUE CHIP Fund
Launch date - 23rd December 2005

NFO open from 23rd December 2005 to 20th January 2006
Scheme reopens for continuous sale and repurchase from 17th February 2006
Minimum investment - Rs. 5000 and in multiples of Rs. 1000
Dividend and Growth options available. Reinvestment and payout facility available
Dividends will be completely tax-free. Long term capital gains to be completely tax-free. Short
-term capital gains to be taxed at 10% (plus applicable surcharge and cess)
Scheme objective: To provide investors with opportunities for long-term growth in capital
through an active management of investments in a diversified basket of equity stocks of
companies whose market capitalization is atleast equal to or more than the least market
capitalized stock of BSE 100 Index.
Systematic Investment Plan available during the NFO.
Asset allocation pattern
Normal
Risk
Type of Instrument Allocation (% of
Profile
Net Assets)
Equities and equity

related instruments 70% - 100% High
including derivatives
Debt and Money Market Medium

0% - 30%
instruments to Low
- 12 months
for the switch out scheme. The minimum period for STP will be atleast 6 months.
What would qualify as a blue chip stock?
Large companies with an established business presence,

Good reputation
Possible market leaders in their industry/sector
Less uncertainty in topline/ bottom line growth
Normally have a history of successful growth, high visibility and reach, good credit ratings
Excellent brand equity amongst the general public
Widespread interest amongst investing public.
Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there
is no assurance or guarantee that the scheme's objectives will be achieved. As with any other
investment in securities, the NAV of the Magnums issued under the schemes may go up or
down depending upon the factors and forces affecting the securities market. Past performance
of the Sponsors/AMC/Mutual Fund/Scheme(s) and their affiliates do not indicate the future
performance of the Scheme of the Mutual Fund. Please read the offer document before
investing. Statutory details: SBI Mutual Fund has been set up as a trust under the Indian Trusts
Act, 1882. State Bank of India ('SBI'), the sponsor is not responsible or liable for any loss
resulting from the operation of the schemes beyond the initial contribution made by it of an
amount of Rs. 5 lakhs towards setting up of the mutual fund
ANALYTICAL PART OF THE

PROJECT
MEHTODOLOGY
In this project ―comparative analysis of various balanced & liquid funds of different
AMC‘s I have collected data on the NAV values of the funds including the study from
may to june 2007
Basd on these data I have calculated the
Annualized return
Standard deviation
Beta
Coefficient of variation
Sharpe ratio
Treynor ratio
Based on these parameters I have tried to analyse the superiority of one fund over the
another
CHAPTER 5
Details of Various Analytical tools used for Analyzing and evaluating

Mutual Funds
5.1The Sharpe Ratio
The previous page showed that the efficient frontier is where the most risk-efficient
portfolios are, for a given collection of securities. The Sharpe Ratio goes further: it
actually helps you find the best possible proportion of these securities to use, in a
portfolio that can also contain cash.
The definition of the Sharpe Ratio is:
S(x) = ( rx - Rf ) / StdDev(x)
where
x is some investment
rx is the average annual rate of return of x
Rf is the best available rate of return of a "risk-free" security (i.e. cash)
StdDev(x) is the standard deviation of rx
The Sharpe Ratio is a direct measure of reward-to-risk. To see how it helps you in
creating a portfolio, consider the diagram of the efficient frontier again, this time with
cash drawn in.
There are three important things to notice in this diagram:
1. If you take some investment like "x" and combine it with cash, the resulting
portfolio will lie somewhere along the straight line joining cash with x. (This time
it's a straight line, not a curve; cash is riskless, so there's no "damping out" effect
between cash and x.)
2. Since you want the rate of return to be as great as possible, you want to select the
x that gives you the line with the greatest possible slope (like we have done in the
diagram).
3. The slope of this line is equal to the Sharpe Ratio of x.
Putting this all together gives you the method for finding the best possible portfolio from
this collection of securities: First, find the investment with the highest possible Sharpe
Ratio (this part requires a computer); Next, take whatever linear combination of this
investment and cash will give you your desired value for standard deviation. The result
will be the portfolio with the greatest possible rate of return.
The Sharpe ratio is a measure of risk-adjusted performance of an investment asset, or a

trading strategy. Since its revision by the original author made in 1994, it is defined as:
,
where R is the asset return, Rf is the return on a benchmark asset, such as the risk
free rate of return, E[R − Rf] is the expected value of the excess of the asset return
over the benchmark return, and σ is the standard deviation of the excess return.
Note, if Rf is a constant risk free return throughout the period,
. Sharpe´s 1994 revision acknowledged that the

risk free rate changes with time, prior to this revision the definition was
assuming a constant Rf.
The Sharpe ratio is used to characterize how well the return of an asset compensates
the investor for the risk taken. When comparing two assets each with the expected
return E[R] against the same benchmark with return Rf, the asset with the higher
Sharpe ratio gives more return for the same risk. Investors are often advised to pick
investments with high Sharpe ratios.
Sharpe ratios, along with Treynor ratios and Jensen's alphas, are often used to rank
the performance of portfolio or mutual fund managers.
This ratio was developed by William Forsyth Sharpe. Sharpe originally called it the
"reward-to-variability" ratio before it began being called the Sharpe Ratio by later
academics and financial professionals. Recently, the (original) Sharpe ratio has often
been challenged with regard to its appropriateness as a fund performance measure
during evaluation periods of declining markets.
[Examples
Suppose the asset has an expected return of 15%. We typically do not know the asset
will have this return; suppose we assess the risk of the asset, defined as standard
deviation of the asset's excess return, as 10%. Finally, suppose the risk-free rate of
return, Rf, is 4%. Then the Sharpe ratio will be 1.10 (R = 0.15, Rf = 0.04, and σ =
0.10).
Jensen's alpha
In finance, Jensen's alpha (or Jensen's Performance Index) is used to determine the excess
return of a stock, other security, or portfolio over the security's required rate of return as
determined by the Capital Asset Pricing Model. This model is used to adjust for the level
of beta risk, so that riskier securities are expected to have higher returns. The measure
was first used in the evaluation of mutual fund managers by Michael Jensen in the 1970's.
To calculate alpha, the following inputs are needed:
the realized return (on the portfolio),

the market return,
the risk-free rate of return, and
the beta of the portfolio.
Jensen's alpha = Portfolio Return - (Risk free return + (Market Return - Risk free
Return) * Beta)
Alpha is still widely used to evaluate mutual fund and portfolio manager performance,
often in conjunction with the Sharpe ratio and the Treynor ratio.
Sortino ratio
The Sortino ratio is a measure of a risk-adjusted return of an investment asset. It is an

extension of the Sharpe ratio. While the Sharpe ratio takes into account any volatility in
return of an asset, Sortino ratio differentiates volatility due to up and down movements.
The up movements are considered desirable and not accounted in the volatility.
That is, the Sortino ratio does not penalize a fund for its upside volatility. The ratio is
calculated as
,
where R is the asset return, Rf is the return on a benchmark asset, such as the risk
free rate of return, E[R − Rf] is the expected excess return, and σd is the downside
volatility. The downside volatility is computed using the standard deviation formula,
keeping only the contribution of negative excess returns. Other variations use the
semivariance as the denominator
Modern portfolio theory
Capital Market Line
Modern portfolio theory (MPT) proposes how rational investors will use diversification
to optimize their portfolios, and how a risky asset should be priced. The basic concepts of
the theory are Markowitz diversification, the efficient frontier, capital asset pricing
model, the alpha and beta coefficients, the Capital Market Line and the Securities Market
Line.
MPT models an asset's return as a random variable, and models a portfolio as a weighted
combination of assets; the return of a portfolio is thus the weighted combination of the
assets' returns. Moreover, a portfolio's return is a random variable, and consequently has
an expected value and a variance. Risk, in this model, is the standard deviation of the
portfolio's return.
Risk and reward
The model assumes that investors are risk averse. This means that given two assets that
offer the same expected return, investors will prefer the less risky one. Thus, an investor
will take on increased risk only if compensated by higher expected returns. Conversely,
an investor who wants higher returns must accept more risk. The exact trade-off will
differ by investor based on individual risk aversion characteristics. The implication is that
a rational investor will not invest in a portfolio if a second portfolio exists with a more
favourable risk-return profile - i.e. if for that level of risk an alternative portfolio exists
which has better expected returns.
Mean and variance
It is further assumed that investor's risk / reward preference can be described via a
quadratic utility function. The effect of this assumption is that only the expected return
and the volatility (i.e. mean return and standard deviation) matter to the investor. The
investor is indifferent to other characteristics of the distribution of returns, such as its
skew. Note that the theory uses a historical parameter, volatility, as a proxy for risk,
while return is an expectation on the future.
Under the model:
Portfolio return is the proportion-weighted combination of the constituent assets'

returns.
Portfolio volatility is a function of the correlation of the component assets. The
change in volatility is non-linear as the weighting of the component assets changes.
Mathematically
In general:
Expected return:
Where R is return.
Portfolio variance:
Portfolio volatility:
For a two asset portfolio:
Portfolio return:
Portfolio variance:
For a three asset portfolio, the variance is:
As can be seen, as the number of assets (n) in the portfolio increases, the calculation
becomes ―computationally intensive‖ - the number of covariance terms = n (n-1) /2. For
this reason, portfolio computations usually require specialized software. These values
can also be modeled using matrices; for a manageable number of assets, these statistics
can be calculated using a spreadsheet.
Diversification
An investor can reduce portfolio risk simply by holding instruments which are not
perfectly correlated. In other words, investors can reduce their exposure to individual
asset risk by holding a diversified portfolio of assets. Diversification will allow for the
same portfolio return with reduced risk. For diversification to work the component
assets must not be perfectly correlated, i.e. correlation coefficient not equal to 1.
Mathematically:
From the formulae above: if any two assets in the portfolio have a correlation of less
than 1 the portfolio variance and hence volatility will be less than the weighted average
of the individual instruments' volatilities.
Capital allocation line
The Capital Allocation Line (CAL) is the line of expected return plotted against risk
(standard deviation) that connects all portfolios that can be formed using a risky asset
and a riskless asset. It can be proven that it is a straight line and that it has the following
equation.
In this formula P is the risky portfolio, F is the riskless portfolio and C is a combination
of portfolios P and F.
The efficient frontier
Efficient Frontier
Every possible asset combination can be plotted in risk-return space, and the collection
of all such possible portfolios defines a region in this space. The line along the upper
edge of this region is known as the efficient frontier (sometimes ―the Markowitz
frontier‖). Combinations along this line represent portfolios for which there is lowest
risk for a given level of return. Conversely, for a given amount of risk, the portfolio
lying on the efficient frontier represents the combination offering the best possible
return. Mathematically the Efficient Frontier is the intersection of the Set of Portfolios
with Minimum Variance and the Set of Portfolios with Maximum Return.
The efficient frontier is illustrated above, with return μp on the y axis, and risk σp on the
x axis; an alternative illustration from the diagram in the CAPM article is at right.
The efficient frontier will be convex – this is because the risk-return characteristics of a
portfolio change in a non-linear fashion as its component weightings are changed. (As
described above, portfolio risk is a function of the correlation of the component assets,
and thus changes in a non-linear fashion as the weighting of component assets changes.)
The region above the frontier is unachievable by holding risky assets alone. No
portfolios can be constructed corresponding to the points in this region. Points below
the frontier are suboptimal. A rational investor will hold a portfolio only on the frontier.
[edit] The risk-free asset
The risk-free asset is the (hypothetical) asset which pays a risk-free rate - it is usually
proxied by an investment in short-dated Government securities. The risk-free asset has
zero variance in returns (hence is risk-free); it is also uncorrelated with any other asset
(by definition: since its variance is zero). As a result, when it is combined with any
other asset, or portfolio of assets, the change in return and also in risk is linear.
Because both risk and return change linearly as the risk-free asset is introduced into a
portfolio, this combination will plot a straight line in risk-return space. The line starts at
100% in cash and weight of the risky portfolio = 0 (i.e. intercepting the return axis at
the risk-free rate) and goes through the portfolio in question where cash holding = 0 and
portfolio weight = 1.
Mathematically:
Using the formulae for a two asset portfolio as above:

Return is the weighted average of the risk free asset, f, and the risky portfolio, p,
and is therefore linear:
Return =
Since the asset is risk free, portfolio standard deviation is simply a function of the
weight of the risky portfolio in the position. This relationship is linear.
Standard deviation =
Portfolio leverage
An investor can add leverage to the portfolio by borrowing the risk-free asset. The
addition of the risk-free asset allows for a position in the region above the efficient
frontier. Thus, by combining a risk-free asset with risky assets, it is possible to construct
portfolios whose risk-return profiles are superior to those on the efficient frontier.
An investor holding a portfolio of risky assets, with a holding in cash, has a

positive risk-free weighting (a de-leveraged portfolio). The return and standard
deviation will be lower than the portfolio alone, but since the efficient frontier is
convex, this combination will sit above the efficient frontier – i.e. offering a higher
return for the same risk as the point below it on the frontier.
The investor who borrows money to fund his/her purchase of the risky assets has
a negative risk-free weighting -i.e a leveraged portfolio. Here the return is geared to
the risky portfolio. This combination will again offer a return superior to those on the
frontier.
The market portfolio

The efficient frontier is a collection of portfolios, each one optimal for a given amount of
risk. A quantity known as the Sharpe ratio represents a measure of the amount of
additional return (above the risk-free rate) a portfolio provides compared to the risk it
carries. The portfolio on the efficient frontier with the highest Sharpe Ratio is known as
the market portfolio, or sometimes the super-efficient portfolio; it is the tangency-
portfolio in the above diagram.
This portfolio has the property that any combination of it and the risk-free asset will
produce a return that is above the efficient frontier - offering a larger return for a given
amount of risk than a portfolio of risky assets on the frontier would.
Capital market line
When the market portfolio is combined with the risk-free asset, the result is the Capital
Market Line. All points along the CML have superior risk-return profiles to any portfolio
on the efficient frontier. (The market portfolio with zero cash weighting is on the efficient
frontier; additions of cash or leverage with the risk-free asset in combination with the
market portfolio are on the Capital Market Line. All of these portfolio represent the
highest Sharpe ratios possible.)
The CML is illustrated above, with return μp on the y axis, and risk σp on the x axis.
One can prove that the CML is the optimal CAL and that its equation is:
Asset pricing
A rational investor would not invest in an asset which does not improve the risk-return
characteristics of his existing portfolio. Since a rational investor would hold the market
portfolio, the asset in question will be added to the market portfolio. MPT derives the
required return for a correctly priced asset in this context.
Systematic risk and specific risk

Specific risk is the risk associated with individual assets - within a portfolio these risks
can be reduced through diversification (specific risks "cancel out"). Systematic risk, or
market risk, refers to the risk common to all securities - except for selling short as noted
below, systematic risk cannot be diversified away (within one market). Within the market
portfolio, asset specific risk will be diversified away to the extent possible. Systematic
risk is therefore equated with the risk (standard deviation) of the market portfolio.
Since a security will be purchased only if it improves the risk / return characteristics of
the market portfolio, the risk of a security will be the risk it adds to the market portfolio.
In this context, the volatility of the asset, and its correlation with the market portfolio, is
historically observed and is therefore a given (there are several approaches to asset
pricing that attempt to price assets by modelling the stochastic properties of the moments
of assets' returns - these are broadly referred to as conditional asset pricing models). The
(maximum) price paid for any particular asset (and hence the return it will generate)
should also be determined based on its relationship with the market portfolio.
Systematic risks within one market can be managed through a strategy of using both long
and short positions within one portfolio, creating a "market neutral" portfolio.
Security characteristic line
The Security Characteristic Line (SCL) represents the relationship between the market
return (rM) and the return of a given asset i (r i) at a given time t. In general, it is
reasonable to assume that the SCL is a straight line and can be illustrated as a statistical
equation:
where αi is called the asset's alpha coefficient and βi the asset's beta coefficient.
Capital asset pricing model
The asset return depends on the amount paid for the asset today. The price paid must
ensure that the market portfolio's risk / return characteristics improve when the asset
is added to it. The CAPM is a model which derives the theoretical required return
(i.e. discount rate) for an asset in a market, given the risk-free rate available to
investors and the risk of the market as a whole.
The CAPM is usually expressed:
β, Beta, is the measure of asset sensitivity to a movement in the overall

market; Beta is usually found via regression on historical data. Betas
exceeding one signify more than average "riskiness"; betas below one
indicate lower than average.
is the market premium, the historically observed excess

return of the market over the risk-free rate.
Once the expected return, E(ri), is calculated using CAPM, the future cash
flows of the asset can be discounted to their present value using this rate to
establish the correct price for the asset. (Here again, the theory accepts in its
assumptions that a parameter based on past data can be combined with a
future expectation.)
A more risky stock will have a higher beta and will be discounted at a higher
rate; less sensitive stocks will have lower betas and be discounted at a lower
rate. In theory, an asset is correctly priced when its observed price is the same
as its value calculated using the CAPM derived discount rate. If the observed
price is higher than the valuation, then the asset is overvalued; it is undervalued
for a too low price
Mathematically:
(1) The incremental impact on risk and return when an additional risky asset, a, is added
to the market portfolio, m, follows from the formulae for a two asset portfolio. These
results are used to derive the asset appropriate discount rate.
Risk =
Hence, risk added to portfolio =
but since the weight of the asset will be relatively low,
i.e. additional risk =
Return =
Hence additional return =

(2) If an asset, a, is correctly priced, the improvement in risk to return achieved
by adding it to the market portfolio, m, will at least match the gains of spending
that money on an increased stake in the market portfolio. The assumption is
that the investor will purchase the asset with funds borrowed at the risk-free
rate, Rf; this is rational if .
Thus:
i.e. :
i.e. :
is the ―beta‖, β -- the covariance between the asset and the market
compared to the variance of the market, i.e. the sensitivity of the asset price to
movement in the market portfolio.
The relationship between Beta & required return is plotted on the securities market line
(SML) which shows expected return as a function of β. The intercept is the risk-free rate
available for the market, while the slope is . The Securities market line
can be regarded as representing a single-factor model of the asset price, where Beta is
exposure to changes in value of the Market. The equation of the SML is thus:
Comparison with arbitrage pricing theory

The SML and CAPM are often contrasted with the Arbitrage pricing theory (APT),
which holds that the expected return of a financial asset can be modeled as a linear
function of various macro-economic factors, where sensitivity to changes in each factor
is represented by a factor specific beta coefficient.
The APT is less restrictive in its assumptions: it allows for an explanatory (as opposed
to statistical) model of asset returns, and assumes that each investor will hold a unique
portfolio with its own particular array of betas, as opposed to the identical "market
portfolio". Unlike the CAPM, the APT, however, does not itself reveal the identity of its
priced factors - the number and nature of these factors is likely to change over time and
between economies.
Upside potential ratio
The upside potential ratio is a measure of a return of an investment asset relative to the
minimal acceptable return. The measurement allows to choose strategies with growth that
is as stable as possible for a given minimum return.
where R - return, Pr - probability of such return, Rmin, min - minimal acceptable

return.
The upside potential ratio may also be expressed as a ratio of partial moments.
The measure was developed by Frank A. Sortino.
5.2 Treynor ratio
The Treynor ratio is a measurement of the returns earned in excess of that which could
have been earned on a riskless investment (i.e. Treasury Bill) (per each unit of market
risk assumed).
The Treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over
the risk-free rate to the additional risk taken; however systematic risk instead of total risk
is used. The higher the Treynor ratio, the better the performance under analysis.
where
Treynor ratio,
portfolio return,
risk free rate
portfolio beta
Like the Sharpe ratio, the Treynor ratio (T) does not quantify the value added, if any, of
active portfolio management. It is a ranking criterion only. A ranking of portfolios
based on the Treynor Ratio is only useful if the portfolios under consideration are sub-
portfolios of a broader, fully diversified portfolio. If this is not the case, portfolios with
identical systematic risk, but different total risk, will be rated the same. But the portfolio
with a higher total risk is less diversified and therefore has a higher unsystematic risk
which is not priced in the market.
An alternative method of ranking portfolio management is Jensen's alpha, which

quantifies the added return as the excess return above the security market line in the
capital asset pricing model
Information ratio
The Information Ratio concept is one measure of volatility-adjusted return and is used in
the analysis of performance of mutual funds, hedge funds, etc. Specifically, the
information ratio is defined as excess return divided by tracking error. Excess return is
the amount of performance over or under a given benchmark index. Thus, excess return
can be positive or negative. Tracking error is the standard deviation of the excess return.
The ratio compares the annualized returns of the Fund in question with those of a selected
benchmark (e.g, 3 month Treasuries). Since this ratio considers the annualized standard
deviation of both series (as measures of risks inherent in owning either the fund or the
benchmark), the ratio shows the risk-adjusted excess return of the Fund over the
benchmark. The higher the Information Ratio, the higher the excess return of the Fund,
given the amount of risk involved, and the better a Fund manager. This ratio is calculated
as:
Information Ratio = (AnnRtn(r1, ..., rn) - AnnRtn(s1, ..., sn)) / AnnStdDev(e1, ..., en)
where:
r1, ..., rn = manager return series
s1, ..., sn = benchmark return series
e1, ..., en = r1 - s1, ..., rn - sn
The Information ratio is similar to the Sharpe Ratio, but there is a major difference. The
Sharpe Ratio compares the return of an asset against the return of Treasury bills, but the
Information Ratio compares excess return to the most relevant equity (or debt)
benchmark index.
5.3 Standard deviation
In probability and statistics, the standard deviation of a probability distribution, random

variable, or population or multiset of values is a measure of the spread of its values. It is
usually denoted with the letter σ (lower case sigma). It is defined as the square root of the
variance. In other words, the standard deviation is the root mean square (RMS) deviation
of values from their arithmetic mean.
For example, in the population {4, 8}, the mean is 6 and the standard deviation is 2. This
may be written: {4, 8} ≈ 6±2. In this case 100% of the values in the population are at one
standard deviation of the mean.
The standard deviation is the most common measure of statistical dispersion, measuring
how widely spread the values in a data set are. If the data points are close to the mean,
then the standard deviation is small. Conversely, if many data points are far from the
mean, then the standard deviation is large. If all the data values are equal, then the
standard deviation is zeroDefinition and calculation
Standard deviation of a random variable
The standard deviation of a random variable X is defined as:
where E(X) is the expected value of X.
Not all random variables have a standard deviation, since these expected values need
not exist. For example, the standard deviation of a random variable which follows a
Cauchy distribution is undefined.
If the random variable X takes on the values x1,...,xN (which are real numbers) with
equal probability, then its standard deviation can be computed as follows. First, the
mean of X, , is defined as a summation:
where N is the number of samples taken. Next, the standard deviation simplifies to:
In other words, the standard deviation of a discrete uniform random variable X can be
calculated as follows:
1. For each value xi calculate the difference between xi and the average
value .
2. Calculate the squares of these differences.
3. Find the average of the squared differences. This quantity is the variance σ2.
4. Take the square root of the variance.
Estimating population standard deviation from sample standard deviation
In the real world, finding the standard deviation of an entire population is unrealistic
except in certain cases, such as standardized testing, where every member of a population
is sampled. In most cases, the standard deviation is estimated by examining a random
sample taken from the population. The most common measure used is the sample
standard deviation, which is defined by
where is the sample and is the mean of the sample.
The reason for this definition is that s2 is an unbiased estimator for the variance σ2 of the
underlying population, if that variance exists and the sample values are drawn
independently with replacement. However, s is not an unbiased estimator for the standard
deviation σ; it tends to underestimate the population standard deviation. Although an
unbiased estimator for σ is known when the random variable is normally distributed, the
formula is complicated and amounts to a minor correction. Moreover, unbiasedness, in
this sense of the word, is not always desirable; see bias of an estimator.
Another estimator sometimes used is the similar expression

This form has a uniformly smaller mean squared error than does the unbiased estimator,
and is the maximum-likelihood estimate when the population is normally distributed.
Example
We will show how to calculate the standard deviation of a population. Our example will
use the ages of four young children: { 5, 6, 8, 9 }.
Step 1. Calculate the mean average, :
We have N = 4 because there are four data points:
Replacing N with 4
This is the mean.
Step 2. Calculate the standard deviation :

Replacing N with 4
Replacing with 7
So, tInterpretation and application
A large standard deviation indicates that the data points are far from the mean and a small
standard deviation indicates that they are clustered closely around the mean.
For example, each of the three data sets (0, 0, 14, 14), (0, 6, 8, 14) and (6, 6, 8, 8) has a
mean of 7. Their standard deviations are 7, 5, and 1, respectively. The third set has a
much smaller standard deviation than the other two because its values are all close to 7.
In a loose sense, the standard deviation tells us how far from the mean the data points
tend to be. It will have the same units as the data points themselves. If, for instance, the
data set (0, 6, 8, 14) represents the ages of four siblings, the standard deviation is 5 years.
As another example, the data set (1000, 1006, 1008, 1014) may represent the distances
traveled by four athletes in 3 minutes, measured in meters. It has a mean of 1007 meters,
and a standard deviation of 5 meters.
Standard deviation may serve as a measure of uncertainty. In physical science for

example, the reported standard deviation of a group of repeated measurements should
give the precision of those measurements. When deciding whether measurements agree
with a theoretical prediction, the standard deviation of those measurements is of crucial
importance: if the mean of the measurements is too far away from the prediction (with
the distance measured in standard deviations), then we consider the measurements as
contradicting the prediction. This makes sense since they fall outside the range of values
that could reasonably be expected to occur if the prediction were correct and the standard
deviation appropriately quantified.
he stGeometric interpretation
To gain some geometric insights, we will start with a population of three values, x1, x2, x3.
This defines a point P = (x1, x2, x3) in R3. Consider the line L = {(r, r, r) : r in R}. This is
the "main diagonal" going through the origin. If our three given values were all equal,
then the standard deviation would be zero and P would lie on L. So it is not unreasonable
to assume that the standard deviation is related to the distance of P to L. And that is
indeed the case. Moving orthogonally from P to the line L, one hits the point:
whose coordinates are the mean of the values we started out with. A little algebra
shows that the distance between P and R (which is the same as the distance between
P and the line L) is given by σ√3. An analogous formula (with 3 replaced by N) is
also valid for a population of N values; we then have to work in RN.
Rules for normally distributed data

Dark blue is less than one standard deviation from the mean. For the normal
distribution, this accounts for 68.27% of the set; while two standard deviations from
the mean (medium and dark blue) account for 95.45%; and three standard deviations
(light, medium, and dark blue) account for 99.73%.
In practice, one often assumes that the data are from an approximately normally
distributed population. If that assumption is justified, then about 68% of the values
are within 1 standard deviation of the mean, about 95% of the values are within two
standard deviations and about 99.7% lie within 3 standard deviations. This is known
as the "68-95-99.7 rule", or "the empirical rule"
The confidence intervals are as follows:
σ 68.26894921371%
2σ 95.44997361036%
3σ 99.73002039367%
4σ 99.99366575163%
5σ 99.99994266969%
6σ 99.99999980268%
7σ 99.99999999974%
Relationship between standard deviation and mean
The mean and the standard deviation of a set of data are usually reported together. In a
certain sense, the standard deviation is a "natural" measure of statistical dispersion if the
center of the data is measured about the mean. This is because the standard deviation
from the mean is smaller than from any other point. The precise statement is the
following: suppose x1, ..., xn are real numbers and define the function:
Using calculus, it is possible to show that σ(r) has a unique minimum at the mean:
(this can also be done with fairly simple algebra alone, since, as a function of r, it is a
quadratic polynomial).
The coefficient of variation of a sample is the ratio of the standard deviation to the
mean. It is a dimensionless number that can be used to compare the amount of variance
between populations with different means.
Chebyshev's inequality proves that in any data set, nearly all of the values will be nearer
to the mean value, where the meaning of "close to" is specified by the standard
deviation.
Rapid calculation methods
A slightly faster (significantly for running standard deviation) way to compute the
sample standard deviation is given by the following formula (though considerations
must be made for round-off error, arithmetic overflow, and arithmetic underflow
conditions):
or
where the power sums s0, s1, s2 are defined by
Similarly for population standard deviation:
Or from running sums:
See also algorithms for calculating variance.
An axiomatic approach
It is a nice fact that the mean value μ and the standard deviation σ is completely
characterized by the simple algebraic properties and

, together with a symmetry condition and the initial
condition
The set of two numbers,
so that
and
Consider the power sums:
The power sums sj are symmetric functions of the vector X, and the symmetric functions
μ and σ2 are written in terms of these like this:
(because
by polynomial expansion and rearrangement)

or
This formula for the special case n = 2 generalizes to preserving

the rules. The power sums are
5.4 Beta coefficient
Beta coefficient, in terms of finance and investing, is a measure of a stock (or

portfolio)‘s volatility in relation to the rest of the market. Beta is calculated for
individual companies using regression analysis. (See Investing below)
The beta coefficient is a key parameter in the capital asset pricing model (CAPM). It
measures the part of the asset's statistical variance that cannot be mitigated by the
diversification provided by the portfolio of many risky assets, because it is correlated
with the return of the other assets that are in the portfolio.
For example, if every stock in the New York Stock Exchange was uncorrelated with
every other stock, then every stock would have a Beta of zero, and it would be possible
to create a portfolio that was nearly risk free, simply by diversifying it sufficiently so
that the variations in the individual stocks' prices averaged out. This would be like
owning a casino royale: essentially none of the business risk of owning a casino comes
from the uncertain outcomes of the games of chance played by the customers, because
those are uncorrelated, and average out over any significant period of time. In reality,
investments tend to be correlated, more so within an industry, or when considering a
single asset class (such as equities), as was demonstrated in the Wall Street crash of
1929. This correlated risk, measured by Beta, is what actually creates almost all of the
risk in a diversified portfolio.
The formula for the Beta of an asset within a portfolio is ,
where ra measures the rate of return of the asset and rp measures the rate of return of the
portfolio of which the asset is a part. In the CAPM formulation, the portfolio is the
market portfolio that contains all risky assets, and so the rp terms in the formula are
replaced by rm, the rate of return of the market.
Beta is also referred to as financial elasticity or correlated relative volatility, and can be
referred to as a measure of the asset's sensitivity of the asset's returns to market returns,
its non-diversifiable risk, its systematic risk or market risk. On an individual asset level,
measuring beta can give clues to volatility and liquidity in the marketplace. On a
portfolio level, measuring beta is thought to separate a manager's skill from his or her
willingness to take risk.
The beta movement should be distinguished from the actual returns of the stocks. For
example, a sector may be performing well and may have good prospects, but the fact
that its movement does not correlate well with the broader market index may decrease
its beta. However, it should not be taken as a reflection on the overall attractiveness or
the loss of it for the sector, or stock as the case may be. Beta is a measure of risk and
not to be confused with the attractiveness of the investment.
The beta coefficient was born out of linear regression analysis. It is linked to a
regression analysis of the returns of a portfolio (such as a stock index) (x-axis) in a
specific period versus the returns an individual asset (y-axis) in a specific year. The
regression line is then called the Security Characteristic Line (SCL).
αa is called the asset's alpha coefficient and βa is called the asset's beta coefficient. Both
coefficients have an important role in Modern portfolio theory.
For example, in a year where the broad market or benchmark index returns 25% above
the risk free rate, suppose two managers gain 50% above the risk free rate. Since this
higher return is theoretically possible merely by taking a leveraged position in the broad
market to double the beta so it is exactly 2.0, we would expect a skilled portfolio
manager to have built the outperforming portfolio with a beta somewhat less than 2,
such that the excess return not explained by the beta is positive. If one of the managers'
portfolios has an average beta of 3.0, and the other's has a beta of only 1.5, then the
CAPM simply states that the extra return of the first manager is not sufficient to
compensate us for that manager's risk, whereas the second manager has done more than
expected given the risk. Whether investors can expect the second manager to duplicate
that performance in future periods is of course a different question.
5.5 COMPARISON OF VARIOUS BALANCED & LIQUID FUNDS
Comparision of Balanced and Liquid Funds of SBI Magnum with Balanced and
Liquid Funds Of other AMC’s
Main Sheet
Scheme Name NAV Launch date Corpus (in Crs)
BALANCE
FUND
Birla Balance Fund - 27.96 4-Oct-99 125.70 (30-Nov-06)
Growth
Birla SunLife 95 - 174.02 11-Feb-95 128.72 (30-Nov-06)

Growth
BOB Balance Fund - 22.10 3-Sep-03 0.99 (30-Nov-06)

Growth
Can Balanced - 28.01 20-Mar-98 61.81 (30-Nov-06)
Growth Plan
Can Balanced II 37.41 1-Feb-93 81.45 (30-Nov-06)
DSP ML Balanced 38.48 14-May-99 402.46 (30-Nov-06)

Fund - Growth
Escorts Balanced 46.27 20-Mar-01 4.35 (30-Nov-06)

Fund - Growth
Escorts Opportunities 25.20 26-Feb-01 71.51 (30-Nov-06)

Fund - Growth
Franklin India 35.25 13-Jul-00 44.05 (29-Jun-04)

Balanced Fund –
Growth
FT India Balanced 32.64 10-Dec-99 249.49 (30-Nov-06)

Fund - Growth
HDFC Balanced Fund 31.99 10-Aug-00 123.74 (30-Nov-06)

- Growth
HDFC Prudence Fund 113.76 31-Jan-94 2119.30 (30-Nov-06)

- Growth
ING Vysya Balanced 18.18 17-Apr-00 8.21 (30-Nov-06)

Fund - Growth
JM Balanced - 23.30 22-Dec-94 15.92 (30-Nov-06)

Growth
Kotak Balance - 23.59 29-Nov-99 104.59 (30-Nov-06)

Growth
LIC Balanced - Plan 45.46 1-Jan-91 30.04 (30-Nov-06)

C (Growth)
PRINCIPAL 21.89 14-Jan-00 31.12 (30-Nov-06)

Balanced Fund -
Growth
Prudential ICICI 34.63 7-Oct-99 482.62 (30-Nov-06)

Balanced - Growth
Reliance RSF - 11.51 10-May-05 2.18 (30-Nov-06)

Hybrid - Growth
SBI Magnum 35.37 31-Oct-95 252.91 (30-Nov-06)

Balanced Fund –
Growth
Sundaram BNP 32.25 25-May-00 47.79 (30-Nov-06)

Balanced Fund –
Growth
Tata Balanced Fund - 49.33 7-Oct-95 155.39 (30-Nov-06)

Growth
Unit Scheme 2002 - 13.8100 (21-Nov-06) 15-Nov-02 608.14 (31-Oct-06)
Growth
UTI Balanced Fund - 55.85 12-Feb-95 1198.32 (30-Nov-06)

Growth
Annualis
Since Sharpe Teynors
3 Years Rank Rank Beta Std. Dev. Months ed
Inception Rastio ratio
Returns
83.34 17 179.60 17 1.04 1.02 75.00 28.74 22.29 21.86
109.81 8 1640.20 1 0.96 1.02 155.00 126.98 118.61 126.02
75.40 20 121.00 20 1.41 1.53 40.00 36.30 19.80 21.49
46.04 23 299.96 9 1.03 1.07 105.00 34.28 26.43 27.46
136.03 3 288.07 10 1.14 1.17 167.00 20.70 12.56 12.89
110.63 5 284.83 11 1.13 1.08 79.00 43.27 34.50 32.98
108.87 9 361.71 7 1.15 1.15 69.00 62.91 49.48 49.48
47.39 22 151.79 18 0.99 1.00 70.00 26.02 20.02 20.22
99.49 12 252.50 12 1.16 1.13 78.00 38.85 29.07 28.32
99.85 11 226.36 14 1.16 1.13 84.00 32.34 23.31 22.70
84.30 15 219.91 15 1.14 1.13 77.00 34.27 25.02 24.80
145.73 2 1378.34 2 1.00 1.06 155.00 106.71 95.01 100.71
85.51 14 81.80 23 1.11 1.13 80.00 12.27 5.55 5.65
101.73 10 593.48 5 1.20 1.23 144.00 49.46 35.33 36.21

131.28 4 319.87 8 1.17 1.18 85.00 45.16 33.18 33.47
81.08 18 112.01 22 1.29 1.27 192.00 7.00 0.79 0.78
87.09 13 118.90 21 1.15 1.18 84.00 16.99 9.31 9.55
110.13 6 246.30 13 1.24 1.21 87.00 33.97 23.12 22.56
-- -- 14.78 24 0.20 0.28 20.00 8.87 10.24 14.34
166.10 1 704.47 4 1.11 1.13 134.00 63.09 50.52 51.43
83.76 16 217.71 16 0.94 0.97 79.00 33.07 27.91 28.80
109.92 7 572.14 6 1.19 1.20 135.00 50.86 37.38 37.69
63.82 21 148.83 19 1.01 1.00 49.00 36.45 30.45 30.15
78.72 19 925.81 3 0.94 1.00 143.00 77.69 71.69 76.27
COMPARISON ON THE BASIS OF STANDARD DEVIATION & BETA
LAUNCH
FUND NAME NAV DATE BETA ST. DEV
Can Balanced - 28.01 20-Mar-98 1.03 1.07

Growth Plan
Can Balanced II 37.41 1-Feb-93 1.14 1.17
DSP ML Balanced 38.48 14-May-99 1.13 1.08

Fund - Growth
Escorts Balanced 46.27 20-Mar-01 1.15 1.15

Fund - Growth
Escorts 25.20 26-Feb-01 0.99 1.00

Opportunities Fund -
Growth
Franklin India 35.25 13-Jul-00 1.16 1.13
Balanced Fund -
Growth
FT India Balanced 32.64 10-Dec-99 1.16 1.13

Fund - Growth
HDFC Balanced 31.99 10-Aug-00 1.14 1.13

Fund - Growth
HDFC Prudence 113.76 31-Jan-94 1.00 1.06

Fund - Growth
ING Vysya 18.18 17-Apr-00 1.11 1.13

Balanced Fund -
Growth
JM Balanced - 23.30 22-Dec-94 1.20 1.23

Growth
Kotak Balance - 23.59 29-Nov-99 1.17 1.18

Growth
LIC Balanced - Plan 45.46 1-Jan-91 1.29 1.27

C (Growth)
PRINCIPAL 21.89 14-Jan-00 1.15 1.18

Balanced Fund -
Growth
Prudential ICICI 34.63 7-Oct-99 1.24 1.21

Balanced - Growth
Reliance RSF - 11.51 10-May-05 0.20 0.28

Hybrid - Growth
SBI Magnum 35.37 31-Oct-95 1.11 1.13

Balanced Fund -
Growth
Sundaram BNP 32.25 25-May-00 0.94 0.97

Balanced Fund -
Growth
Tata Balanced Fund 49.33 7-Oct-95 1.19 1.20

- Growth
Unit Scheme 2002 - 13.81 15-Nov-02 1.01 1.00

Growth
UTI Balanced Fund 55.85 12-Feb-95 0.94 1.00

- Growth
BETA-ST.DEV ANALYSIS
1.4
1.2
0.8
BETA
ST. DEV
0.6
0.4
0.2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
The above fig. shows the relation between std deviation &beta pf the funds under
consideration we know that std deviation signifies total risk of the fund & beta signifies
systematic risk component only. The above fig clearly signifies that for BALANCED
funds the systematic risk component is pretty higher showing that investment in these
funds is bit more higher than liquid equity funds
COMPARIOSN ON THE BASIS OF ANNUALISED RETURN OF THE FUNDS
SINCE
FUND NAME NAV LAUNCH DATE INCEPTION RANK
Can Balanced - Growth 28.01 20-Mar-98 299.96 9

Plan
Can Balanced II 37.41 1-Feb-93 288.07 10
DSP ML Balanced Fund - 38.48 14-May-99 284.83 11

Growth
Escorts Balanced Fund - 46.27 20-Mar-01 361.71 7

Growth
Escorts Opportunities 25.20 26-Feb-01 151.79 18

Fund - Growth
Franklin India Balanced 35.25 13-Jul-00 252.50 12

Fund - Growth
FT India Balanced Fund - 32.64 10-Dec-99 226.36 14

Growth
HDFC Balanced Fund - 31.99 10-Aug-00 219.91 15

Growth
HDFC Prudence Fund - 113.76 31-Jan-94 1378.34 2

Growth
ING Vysya Balanced 18.18 17-Apr-00 81.80 23

Fund - Growth
JM Balanced - Growth 23.30 22-Dec-94 593.48 5
Kotak Balance - Growth 23.59 29-Nov-99 319.87 8

LIC Balanced - Plan C 45.46 1-Jan-91 112.01 22
(Growth)
PRINCIPAL Balanced 21.89 14-Jan-00 118.90 21

Fund - Growth
Prudential ICICI Balanced 34.63 7-Oct-99 246.30 13

- Growth
Reliance RSF - Hybrid - 11.51 10-May-05 14.78 24

Growth
SBI Magnum Balanced 35.37 31-Oct-95 704.47 4

Fund - Growth
Sundaram BNP Paribas 32.25 25-May-00 217.71 16

Balanced Fund - Growth
Tata Balanced Fund - 49.33 7-Oct-95 572.14 6

Growth
Unit Scheme 2002 - 13.8100 (21-Nov-06) 15-Nov-02 148.83 19

Growth
UTI Balanced Fund - 55.85 12-Feb-95 925.81 3

Growth
on the basis of annualized return i have tried to analyze various funds in the category of
BALANCED FUNDS the results are that on this basis this the HDFC BALANCED
FUND & SBI BALANCED FUND SECURED the position of 1 &4 respectively highest
return where as the lowest return is provided by RELIANCE ,LIC &PRINCIPAL
BALANCED FUNDS but knowing the fact that comparing simply on the basis of
annualized return is not a good practice so i have also included other parameters also like
sharpe ratio treynor ratio etc.
COMPARISION ON THE BASIS OF COEFFICEINT OF VARIATION
FUND Annualised COEF OF

NAME BETA ST. DEV Returns VARIATION
Can Balanced - 1.03 1.07 28.74

Growth Plan
27.9
Can Balanced II 1.14 1.17 126.98

111.4
DSP ML 1.13 1.08 36.3

Balanced Fund -
Growth 32.12
Escorts Balanced 1.15 1.15 34.28

Fund - Growth
29.81
Escorts 0.99 1 20.7

Opportunities
Fund - Growth 20.91
Franklin India 1.16 1.13 43.27

Balanced Fund -
Growth 37.3
FT India 1.16 1.13 62.91

Balanced Fund -
Growth 54.23
HDFC Balanced 1.14 1.13 26.02

Fund - Growth
22.82
HDFC Prudence 1 1.06 38.85

Fund - Growth
38.85
ING Vysya 1.11 1.13 32.34

Balanced Fund -
Growth 29.14
JM Balanced - 1.2 1.23 34.27
Growth
28.56
Kotak Balance - 1.17 1.18 106.71

Growth
91.21
LIC Balanced - 1.29 1.27 12.27

Plan C (Growth)
9.512
PRINCIPAL 1.15 1.18 49.46

Balanced Fund -
Growth 43.01
Prudential ICICI 1.24 1.21 45.16

Balanced -
Growth 36.42
Reliance RSF - 0.2 0.28 7

Hybrid - Growth
35
SBI Magnum 1.11 1.13 16.99

Balanced Fund -
Growth 15.31
Sundaram BNP 0.94 0.97 33.97

Balanced Fund -
Growth 36.14
Tata Balanced 1.19 1.2 8.87

Fund - Growth
7.454
Unit Scheme 1.01 1 63.09

2002 - Growth
62.47
UTI Balanced 0.94 1 33.07

Fund - Growth
35.18
As per the coefficient of UNIT SCHEME 220& PRINCIPAL BALANCED FUNDS

are the most superior fund with cov of 62.5& 43.6 TATA BALANCED FUND is
the most inferior with cov of only 7.454
COMPARISION ON THE BASIS OF SHARPE RATIO
SINCE ANNUAL SHARP

INCEPTI IZED E
NAME ST.DEV ON RETURN RATIO
FUND
Birla Balance Fund – Growth 1.02 179.60 28.74 0.22
Birla SunLife 95 – Growth 1.02 1640.20 126.98 1.19
BOB Balance Fund – Growth 1.53 121.00 36.30 0.20
Can Balanced – Growth Plan 1.07 299.96 34.28 0.26
Can Balanced II 1.17 288.07 20.70 0.13
DSP ML Balanced Fund – Growth 1.08 284.83 43.27 0.35
Escorts Balanced Fund – Growth 1.15 361.71 62.91 0.49
Escorts Opportunities Fund - Growth 1.00 151.79 26.02 0.20
Franklin India Balanced Fund – Growth 1.13 252.50 38.85 0.29
FT India Balanced Fund – Growth 1.13 226.36 32.34 0.23
HDFC Balanced Fund – Growth 1.13 219.91 34.27 0.25
HDFC Prudence Fund – Growth 1.06 1378.34 106.71 0.95
ING Vysya Balanced Fund - Growth 1.13 81.80 12.27 0.06
JM Balanced – Growth 1.23 593.48 49.46 0.35
Kotak Balance – Growth 1.18 319.87 45.16 0.33
LIC Balanced - Plan C (Growth) 1.27 112.01 7.00 0.01
PRINCIPAL Balanced Fund – Growth 1.18 118.90 16.99 0.09
Prudential ICICI Balanced - Growth 1.21 246.30 33.97 0.23
Reliance RSF – Hybrid – Growth 0.28 14.78 8.87 0.10
SBI Magnum Balanced Fund – Growth 1.13 704.47 63.09 0.51
Sundaram BNP Paribas Balanced Fund – Growth 0.97 217.71 33.07 0.28
Tata Balanced Fund – Growth 1.20 572.14 50.86 0.37

Unit Scheme 2002 – Growth 1.00 148.83 36.45 0.30
UTI Balanced Fund – Growth 1.00 925.81 77.69 0.72
SHARPE RATIO
1.4
1.2
0.8
SHARPE RATIO
0.6
0.4
0.2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
As per the SHARPE RATIO SBI MAGNUM BALANCED & RELIANCE

BALANCE FUNDS are the most superior fund & BIRLA SUNLIFE 95 FUND IS
the most inferior
COMPARISON ON THE BASIS OF TREYNOR RATIO BALANCED

FUNDS
SINCE ANNUALIZED TREYNOR

FUND NAME BETA INCEPTION MONTHS RETURN RATIO
Birla Balance Fund - 1.04 179.60 75.00

Growth
28.74 0.22
Birla SunLife 95 - 0.96 1640.20 155.00

Growth
126.98 1.26
BOB Balance Fund - 1.41 121.00 40.00

Growth
36.30 0.21
Can Balanced - 1.03 299.96 105.00

Growth Plan
34.28 0.27
Can Balanced II 1.14 288.07 167.00
20.70 0.13
DSP ML Balanced 1.13 284.83 79.00

Fund - Growth
43.27 0.33
Escorts Balanced 1.15 361.71 69.00

Fund - Growth
62.91 0.49
Escorts Opportunities 0.99 151.79 70.00

Fund - Growth
26.02 0.20
Franklin India 1.16 252.50 78.00

Balanced Fund -
Growth
38.85 0.28
FT India Balanced 1.16 226.36 84.00

Fund - Growth
32.34 0.23
HDFC Balanced 1.14 219.91 77.00
Fund - Growth
34.27 0.25
HDFC Prudence 1.00 1378.34 155.00

Fund - Growth
106.71 1.01
ING Vysya Balanced 1.11 81.80 80.00

Fund - Growth
12.27 0.06
JM Balanced - 1.20 593.48 144.00

Growth
49.46 0.36
Kotak Balance - 1.17 319.87 85.00

Growth
45.16 0.33
LIC Balanced - Plan 1.29 112.01 192.00

C (Growth)
7.00 0.01
PRINCIPAL 1.15 118.90 84.00

Balanced Fund -
Growth
16.99 0.10
Prudential ICICI 1.24 246.30 87.00

Balanced - Growth
33.97 0.23
Reliance RSF - 0.20 14.78 20.00

Hybrid - Growth
8.87 0.14
SBI Magnum 1.11 704.47 134.00

Balanced Fund -
Growth
63.09 0.51
Sundaram BNP 0.94 217.71 79.00

Paribas Balanced
Fund - Growth
33.07 0.29
Tata Balanced Fund - 1.19 572.14 135.00

Growth
50.86 0.38
Unit Scheme 2002 - 1.01 148.83 49.00

Growth
36.45 0.30
UTI Balanced Fund - 0.94 925.81 143.00
Growth
77.69 0.76
The above table shows the inverse relation between treynor ratio and the beta of a
portfolio. The higher the beta the lower the treynor ratio. And in the above table the SBI
MAGNUM BALANCED & BIRLA SUN LIFE have performed better than the other
funds.
TREYNOR RATIO
1.4
1.2
0.8
TREYNOR RATIO
0.6
0.4
0.2
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
COPMARISON ON THE BASIS OF INCEPTION OF THE FUND
FUND SINCE
NAME NAV LAUNCH DATE INCEPTION RANK
ABN AMRO 11.26 1-Sep-04 5.45 73

Cash Fund -
Growth
ABN AMRO 11.38 1-Sep-04 5.98 52

Cash Fund -
IP - Growth
Birla Cash 11.69 29-Mar-04 6.12 43

Plus -
Institutional
Premium Plan
- Growth
Birla SunLife 18.05 14-May-98 9.32 7

Cash
Manager -
Growth
DBS Chola 14.87 9-Oct-00 7.81 15

Liquid Fund -
Reg - Growth
DSP ML 1028.44 31-Jul-06 24.61 1

Liquid Plus
Fund -
Growth
DSP ML 1000.20 31-Jul-06 6.29 40

Liquid Plus
Fund - IP -
Daily Div
Escorts 10.71 29-Sep-05 5.70 68

Liquid Plan -
Growth
HDFC Cash 12.67 6-Feb-02 5.46 72

Mgmt Fund -
Call Plan -
Growth
HDFC Liquid 14.70 24-Feb-03 5.94 55
Fund -
Premium Plus
Plan - Growth
HSBC Cash 12.40 15-Sep-03 5.73 67

Fund - I P -
Growth
HSBC Cash 12.37 3-Dec-02 5.84 64

Fund - Reg -
Growth
ING Vysya 15.57 6-Jan-00 7.94 14

Liquid Fund -
Growth
JM High 12.18 4-Apr-03 5.82 65

Liquidity - I P
- Growth
JM Money 10.17 27-Sep-06 6.84 28

Manager
Fund -
Growth
Kotak Liquid 14.75 12-Mar-03 5.88 60

- IP - Growth
LIC MF 13.34 13-Mar-02 6.95 24

Liquid Fund -
Growth
Prudential 18.19 23-Feb-03 5.97 53

ICICI Liquid
- I P - Growth
Prudential 10.53 27-Mar-06 6.94 25

ICICI Liquid
Plan - FII -
Growth
Prudential 10.56 8-Mar-06 6.90 27

ICICI Sweep
Plan - Cash
Option -
Growth
Reliance 12.85 4-Dec-01 5.62 70

Liquid Fund -
Cash Plan -
Growth
Reliance 11.00 16-Jun-05 6.52 33

Liquidity
Fund -
Growth
SBI Magnum 16.48 19-May-99 8.46 10

Insta Cash -
Cash Plan
SBI Magnum 12.71 24-Sep-02 6.33 39
Insta Cash
Fund - Liquid
Floater Plan -
Growth
Sundaram 15.42 6-Mar-00 7.95 13

BNP Paribas
Money Fund -
Growth
Tata Liquid 1225.94 24-Feb-03 5.88 60

Fund - HIP -
Growth
UTI Liquid 1203.15 24-Jun-03 5.77 66

Fund - Cash
Plan - Growth
SINCE INCEPTION
30
25
20
15 SINCE INCEPTION
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
COMPARISON ON THE BASIS OF STD DEVIATION & BETA of
liquid funds
LAUNCH ST.
FUND NAME NAV DATE BETA DEV
ABN AMRO Cash Fund - Growth 11.26 1-Sep-04 0.15 0.01
ABN AMRO Cash Fund - IP - Growth 11.38 1-Sep-04 0.16 0.02
Birla Cash Plus - Institutional Premium Plan - Growth 11.69 29-Mar-04 0.16 0.01
Birla SunLife Cash Manager - Growth 18.05 14-May-98 0.16 0.02
DBS Chola Liquid Fund - Reg - Growth 14.87 9-Oct-00 0.14 0.02
DSP ML Liquid Plus Fund - Growth 1028.44 31-Jul-06 0.14 0.02
DSP ML Liquid Plus Fund - IP - Daily Div 1000.20 31-Jul-06 0.16 0.01
Escorts Liquid Plan - Growth 10.71 29-Sep-05 0.22 0.03
HDFC Cash Mgmt Fund - Call Plan - Growth 12.67 6-Feb-02 0.22 0.02
HDFC Liquid Fund - Premium Plus Plan - Growth 14.70 24-Feb-03 0.13 0.02
HSBC Cash Fund - I P - Growth 12.40 15-Sep-03 0.16 0.02
HSBC Cash Fund - Reg - Growth 12.37 3-Dec-02 0.15 0.01
ING Vysya Liquid Fund - Growth 15.57 6-Jan-00 0.12 0.02
JM High Liquidity - I P - Growth 12.18 4-Apr-03 0.13 0.01
JM Money Manager Fund - Growth 10.17 27-Sep-06 0.12 0.02
Kotak Liquid - IP - Growth 14.75 12-Mar-03 0.16 0.01
LIC MF Liquid Fund - Growth 13.34 13-Mar-02 0.12 0.01
Prudential ICICI Liquid - I P - Growth 18.19 23-Feb-03 0.14 0.02
Prudential ICICI Liquid Plan - FII - Growth 10.53 27-Mar-06 0.14 0.02
Prudential ICICI Sweep Plan - Cash Option - Growth 10.56 8-Mar-06 0.11 0.01
Reliance Liquid Fund - Cash Plan - Growth 12.85 4-Dec-01 0.13 0.02
Reliance Liquidity Fund - Growth 11.00 16-Jun-05 0.12 0.03
SBI Magnum Insta Cash - Cash Plan 16.48 19-May-99 0.08 0.01
SBI Magnum Insta Cash Fund - Liquid Floater Plan - Growth 12.71 24-Sep-02 0.08 0.01
Sundaram BNP Paribas Money Fund - Growth 15.42 6-Mar-00 0.09 0.01
Tata Liquid Fund - HIP - Growth 1225.94 24-Feb-03 0.12 0.01
UTI Liquid Fund - Cash Plan - Growth 1203.15 24-Jun-03 0.01 0.09
The above fig. shows the relation between std deviation &beta pf the funds under
consideration we know that std deviation signifies total risk of the fund & beta signifies
systematic risk component only. The above fig clearly signifies that for liquid funds the
systematic risk component is pretty higher showing that investment in these funds is bit
COMPARISON ON THE BASIS OF COEFFICENT OF VARIATIONOF VARIOUS LIQUID

FUNDS
ANNUALIZED COFF OF
FUND NAME RETURN BETA VARIATION
Birla Balance Fund - Growth 28.74 1.04 27.63462
Birla SunLife 95 - Growth 126.98 0.96 132.2708
BOB Balance Fund - Growth 36.3 1.41 25.74468
Can Balanced - Growth Plan 34.28 1.03 33.28155

Can Balanced II 20.7 1.14 18.15789
DSP ML Balanced Fund - Growth 43.27 1.13 38.29204
Escorts Balanced Fund - Growth 62.91 1.15 54.70435
Escorts Opportunities Fund - Growth 26.02 0.99 26.28283
Franklin India Balanced Fund - Growth 38.85 1.16 33.49138
FT India Balanced Fund - Growth 32.34 1.16 27.87931
HDFC Balanced Fund - Growth 34.27 1.14 30.0614
HDFC Prudence Fund - Growth 106.71 1 106.71
ING Vysya Balanced Fund - Growth 12.27 1.11 11.05405
JM Balanced - Growth 49.46 1.2 41.21667
Kotak Balance - Growth 45.16 1.17 38.59829
LIC Balanced - Plan C (Growth) 7 1.29 5.426357
PRINCIPAL Balanced Fund - Growth 16.99 1.15 14.77391
Prudential ICICI Balanced - Growth 33.97 1.24 27.39516
Reliance RSF - Hybrid - Growth 8.87 0.2 44.35
SBI Magnum Balanced Fund - Growth 63.09 1.11 56.83784
Sundaram BNP Paribas Balanced Fund - Growth 33.07 0.94 35.18085
Tata Balanced Fund - Growth 50.86 1.19 42.7395
Unit Scheme 2002 - Growth 36.45 1.01 36.08911
UTI Balanced Fund - Growth 77.69 0.94 82.64894

COFFICIENT OF VARIATION
140
COEFFICENT OF 120
100
VARIATION
80
Series1
60
40
20
0
1 3 5 7 9 11 13 15 17 19 21 23
BETA
As per the coefficient of variation birla sun life 95 LIQUID & SBI MAGNUM LIQUID
FUNDS are the most superior fund with cov of132 & 56.56 respectively & LIC liquid
fund the most inferior with cov of only 5.88
COMAPRIOSN ON THE BASIS OF TREYNOR RATIO
TREYNOR
FUND NAME BETA SINCE INCEP. ANN.RETURN RATIO
ABN AMRO Cash Fund 5.45

– Growth
0.15 2.34 -0.24
ABN AMRO Cash Fund 0.16 5.98

- IP – Growth
2.56 -0.21
Birla Cash Plus - 0.16 6.12
Institutional Premium
Plan - Growth 2.23 -0.24
Birla SunLife Cash 0.16 9.32

Manager - Growth
1.09 -0.31
DBS Chola Liquid Fund 0.14 7.81

- Reg - Growth
1.25 -0.34
DSP ML Liquid Plus 0.14 24.61

Fund - Growth
59.06 3.79
DSP ML Liquid Plus 0.16 6.29

Fund - IP - Daily Div
15.10 0.57
Escorts Liquid Plan - 0.22 5.70

Growth
4.56 -0.07
HDFC Cash Mgmt Fund 0.22 5.46

- Call Plan - Growth
1.11 -0.22
HDFC Liquid Fund - 0.13 5.94

Premium Plus Plan -
Growth 1.55 -0.34
HSBC Cash Fund - I P - 0.16 5.73

Growth
1.76 -0.26
HSBC Cash Fund - Reg 0.15 5.84

- Growth
1.46 -0.30
ING Vysya Liquid Fund 0.12 7.94

- Growth
1.13 -0.41
JM High Liquidity - I P - 0.13 5.82

Growth
1.49 -0.35
JM Money Manager 0.12 6.84

Fund - Growth
27.36 1.78
Kotak Liquid - IP - 0.16 5.88

Growth
1.50 -0.28
LIC MF Liquid Fund - 0.12 6.95

Growth
1.41 -0.38
Prudential ICICI Liquid 0.14 5.97

- I P - Growth
1.52 -0.32
Prudential ICICI Liquid 0.14 6.94

Plan - FII - Growth
9.25 0.23
Prudential ICICI Sweep 0.11 6.90
Plan - Cash Option -
Growth 8.28 0.21
Reliance Liquid Fund - 0.13 5.62

Cash Plan - Growth
1.12 -0.38
Reliance Liquidity Fund 0.12 6.52

- Growth
4.35 -0.14
SBI Magnum Insta Cash 0.08 8.46

- Cash Plan
1.12 -0.61
SBI Magnum Insta Cash 0.08 6.33

Fund - Liquid Floater
Plan - Growth 1.49 -0.56
Sundaram BNP Paribas 0.09 7.95

Money Fund - Growth
1.16 -0.54
Tata Liquid Fund - HIP - 0.12 5.88

Growth
1.53 -0.37
UTI Liquid Fund - Cash 0.01 5.77

Plan - Growth
1.65 -4.35
COMPARISON ON THE BASIS OF SHARPE RATIO
SHARPE
FUND NAME ST.DEV S.INCAPTION MONTH AN.RET RATIO
ABN AMRO Cash 5.45 28

Fund - Growth 0.01 2.34 -3.66
ABN AMRO Cash 0.02 5.98 28

Fund - IP - Growth 2.56 -1.72
Birla Cash Plus - 0.01 6.12 33

Institutional
Premium Plan -
Growth 2.23 -3.77
Birla SunLife Cash 0.02 9.32 103

Manager - Growth 1.09 -2.46
DBS Chola Liquid 0.02 7.81 75
Fund - Reg - Growth 1.25 -2.38
DSP ML Liquid 0.02 24.61 5

Plus Fund - Growth 59.06 26.53
DSP ML Liquid 0.01 6.29 5

Plus Fund - IP -
Daily Div 15.10 9.10
Escorts Liquid Plan 0.03 5.70 15

- Growth 4.56 -0.48
HDFC Cash Mgmt 0.02 5.46 59

Fund - Call Plan -
Growth 1.11 -2.44
HDFC Liquid Fund 0.02 5.94 46

- Premium Plus Plan
- Growth 1.55 -2.23
HSBC Cash Fund - I 0.02 5.73 39

P - Growth 1.76 -2.12
HSBC Cash Fund - 0.01 5.84 48

Reg - Growth 1.46 -4.54
ING Vysya Liquid 0.02 7.94 84

Fund - Growth 1.13 -2.43
JM High Liquidity - 0.01 5.82 47

I P - Growth 1.49 -4.51
JM Money Manager 0.02 6.84 3

Fund - Growth 27.36 10.68
Kotak Liquid - IP - 0.01 5.88 47

Growth 1.50 -4.50
LIC MF Liquid 0.01 6.95 59

Prudential ICICI 0.02 5.97 47

Liquid - I P -
Growth 1.52 -2.24

Liquid Plan - FII -
Growth 9.25 1.63

Sweep Plan - Cash
Option - Growth 8.28 2.28
Reliance Liquid 0.02 5.62 60

Fund - Cash Plan -
Growth 1.12 -2.44
Reliance Liquidity 0.03 6.52 18

SBI Magnum Insta 0.01 8.46 91 1.12 -4.88

Cash - Cash Plan
SBI Magnum Insta 0.01 6.33 51

Cash Fund - Liquid
Floater Plan -
Growth 1.49 -4.51
Sundaram BNP 0.01 7.95 82

Paribas Money Fund
- Growth 1.16 -4.84
Tata Liquid Fund - 0.01 5.88 46

HIP - Growth 1.53 -4.47
UTI Liquid Fund - 0.09 5.77 42

Cash Plan - Growth 1.65 -0.48
SHARPE RATIO
30
25
20
15
10 SHARPE RATIO
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
-5
-10
As per the SHARPE RATIO DSP MERRIL LYNCH & JP MORGAN STANLEY
LIQUID FUNDS are the most superior fund & SBI MAGNUM CASH PLAN & SBI
MAGNUM LIQUID PALN the most inferior
Comparison on the basis of coefficient of variation
Annualised
Scheme Name NAV Returns
COEFFICENT
Std. OF
BALANCE FUND Beta Dev. VARIATION
Birla Balance Fund - 27.96 1.04 1.02 28.74

Growth 28.17647059
Birla SunLife 95 - 174.02 0.96 1.02 126.98

Growth 124.4901961
BOB Balance Fund - 22.1 1.41 1.53 36.3

Growth 23.7254902
Can Balanced - Growth 28.01 1.03 1.07 34.28

Plan 32.03738318
Can Balanced II 37.41 1.14 1.17 20.7 17.69230769
DSP ML Balanced Fund 38.48 1.13 1.08 43.27

- Growth 40.06481481
Escorts Balanced Fund - 46.27 1.15 1.15 62.91

Growth 54.70434783
Escorts Opportunities 25.2 0.99 1 26.02

Fund - Growth 26.02
Franklin India Balanced 35.25 1.16 1.13 38.85 34.38053097

Fund – Growth
FT India Balanced Fund 32.64 1.16 1.13 32.34

- Growth 28.61946903
HDFC Balanced Fund - 31.99 1.14 1.13 34.27

Growth 30.32743363
HDFC Prudence Fund - 113.76 1 1.06 106.71

Growth 100.6698113
ING Vysya Balanced 18.18 1.11 1.13 12.27

Fund - Growth 10.85840708
JM Balanced - Growth 23.3 1.2 1.23 49.46 40.21138211
Kotak Balance - Growth 23.59 1.17 1.18 45.16 38.27118644
LIC Balanced - Plan C 45.46 1.29 1.27 7

(Growth) 5.511811024
PRINCIPAL Balanced 21.89 1.15 1.18 16.99

Fund - Growth 14.39830508
Prudential ICICI 34.63 1.24 1.21 33.97

Balanced - Growth 28.07438017
Reliance RSF - Hybrid - 11.51 0.2 0.28 8.87

Growth 31.67857143
SBI Magnum Balanced 35.37 1.11 1.13 63.09

Fund – Growth 55.83185841
Sundaram BNP Balanced 32.25 0.94 0.97 33.07

Fund – Growth 34.09278351
Tata Balanced Fund - 49.33 1.19 1.2 50.86

Growth 42.38333333
Unit Scheme 2002 - 13.8100 1.01 1 36.45

Growth (21-Nov-06) 36.45
UTI Balanced Fund - 55.85 0.94 1 77.69
Growth 77.69
COEFFICIENT OF VARIATION
140
120
100
80
60
40
20
0
11
13
15
17
19
21
23
1
COEFFICIENT OF VARIATION
As per the coefficient of variation SBI MAGNUM LIQUID PLAN &TATA LIQUID
FUNDS are the most superior fund &LIC PLAN & ESSCORTS OPPORTUNITY
PLAN are the most inferior plans . on the ground of coefficient of variation calculation
SURVEY & QUESTTIONAIRE

CHAPTER 6
6.1SURVEY
OBJECTIVE OF THE SURVEY
1. To study and analyze the perception of people when they invest in Mutual Funds
with special emphasis on Balance and Liquid Mutual Funds.
2. To study and analyze other investment preferences of people.
3. To use the information so collected to identify opportunities and challenges
faced by SBI Mutual Fund
4. To make recommendations, using the above analysis to help SBI Mutual Fund to
acquire and retain customers
SAMPLE AND SAMPLE SIZE
The sample consisted of 120 residents of Jaipur region. Most of the sample consisted of
walk-in customers at Anand Rathi Securities Ltd ( Jaipur).
PRIMARY DATA COLLECTION
Two methods were adopted:
1) Questionnaire: A questionnaire consisting of 10 questions aiming to study the

perceptions and preferences etc. of the respondents was designed and was
required to be filled by them.
2) Verbal Interaction: The respondents were verbally asked about their investment
preferences and awareness about Mutual Funds and also about their responses to
the questionnaires.
Questionnaire
Q1. On whose advise do you invest in MF?
Broker/ Friend Business newspaper/ news channel
Own expertise Any other, please specify_____________
Q2. Would you continue investing in MF‘s after such a crash?
Continue as usual Stop investing
Continue but slow down
Q3. Do you hold MF‘s of different AMC‘s at one time?
Yes No Sometimes
Q4. What‘s your normal time horizon in MF‘s?
Up to 3months 3-12months More than 1year
Q5. What are the factors you consider before investing in a particular MF?
Market situation Past performance of particular fund house/scheme
Brand name Recommendation of any friend/broker/expert/banker
Q6. What are the benefits do you think MFs offer?
Better risk diversification Tax benefits Well regulated
Better professional expertise Convenient investing e.g. SIP, STP,etc.
None of the above
Q7. When do you sell your MF units?
On completion of time horizon Negative market sentiment
Transfer to another investment avenue
Q8. Would you continue investing in MFs?
Yes No
Q9. What‘s your normal time horizon in MF?

Up to 1 year 1-3years More than 3years
Q10. What are your areas of preferred investment?
Bank deposits G-Securities Direct Equity
Real Estate Mutual Funds Insurance Others

_______________________________________________________________________
Personal details
Age Income
Occupation
THE DEMOGRAPHICS OF THE RESPONDENTS
Fig 1. Age-wise distibution of

respondents
8%
22%
13%
28%
29%
<25 25-35 36-45 46-60 Above 60

8% of the respondents lie in the age group of less than 25 years. This is the stage when
most of them would have just started to earn and are mostly single.
13% of the respondents lie in the age group of 25-35 years. This is the stage when people
are ambitious and are willing to take big risks with little money.
People lying between age groups 36-45 and 46-60 are 28% and 29% respectively. Such
people have been earning for quite some time now and would have accumulated wealth
and savings over the years.
People lying above the age of 60 years are mostly those who have retired from their work
and do not have a regular occupational income. Their income is derived usually from
retirement plans or returns from their investments. This age group is usually skeptical of
entering into new areas of investments esp. into capital market as they cannot risk to lose
all that they have as there is no way of earning it back again.
19% of respondents were self-employed. The awareness level is generally low in this
class about different investment avenues.
25% of respondents were professionals and mostly have good knowledge about
investment avenues available in the market.
About 43% of the respondents were doing service. It had characteristics of both self-
employed and professionals.
Nearly 13% of the respondents were retired. They had good knowledge about safe and
regular stream of income related investment avenues.
OBSERVATIONS
Fig 4. mutual fund invesments

among respondents
12%
88%
Invests in mutual funds Never invested in equity
As per my survey, 12% of the respondents invest in Mutual Funds. Thus, there is a vast
potential of investors lying untapped.
Around 35% of the respondents were investing directly in SBI mutual funds. And, rest 65% were
investing with other AMCs
Fig 6. Continuation with MFs

investments
25%
75%
Continue invesments in MFs Will not be investing
Almost 2/3 of respondents who have ever invested in MFs will continue with their investments,
thereby indicating high satisfaction.
Around 55% of respondents would either stop investing or slow down investments.
This can be good for the mutual fund industry provided they are able to convince the person
about the risk diversification concept.
Bank Deposits and real estate are the most preferred choice.
Fig. 8 Prefered Areas of Investment
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
ds
its
e
ty
s
ec
e
at
er
nc
ui
os
un
-S
st
th
eq
ra
ep
lF
le
G
O
su
ct
D
ua
ea
In
ire
nk
ut
R
D
M
Ba
The respondents have shown a preference for conventional investment options led by Savings
bank Account (42%) and followed by Real Estate (24%).
This shows that most people prefer secured and safe investment options and show a moderate to
low endurance to risky or uncertain investment options.
Even though, not all invest in Mutual Funds, but people have ranked them above Insurance and
others.
PEOPLE ARE NOT AWARE OF MUTUAL FUNDS AND THEIR WORKING.
PEOPLE BELIEVE THAT MUTUAL FUNDS ARE VERY RISKY
Fig. 9 Perception about MFs
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Insufficient Very risky Offers risk Better than
know ledge Diversification equity
As much as 44% of the respondents agree that they do not have complete knowledge of what the
Mutual Funds are and how do they operate. Even, amongst those who invest, respondents have
accepted that they have little knowledge as they may be investing on someone else‘s call.
23% of the respondents feel that Mutual Funds are too risky and they would never invest in them.
This makes more than 60% of the entire sample population that is ignorant about the nature and
operations of Mutual funds.
Only 20% know about the risk diversification, which MFs offer.
People have given prime importance to the Recommendation of banker/friend and Market
Situation in deciding on the funds to invest in.
Fig. 10 Factors considered while investing

in a fund
80%
70%
60%
50%
40%
30%
20%
10%
0%
Recommendation
Market situation
Brand name
performance of
of banker/friend
Past
fund
Also, while interaction it was felt brand name is also an important consideration. Though only
32% marked it as an important factor.
OPPORTUNITIES IDENTIFIED
CHALLENGES FACED
THE INVESTORS’ MIND

6.2 LIMITATIONS OF THE SURVEY
• The size of the sample is only 120.
• The respondents are restricted to Jaipur territory only.
• Most of the respondents are walk-in customers of SBI MUTUAL FUND .
• During the time of the survey market was highly volatile with a downward trend, thereby
changing respondents perception drastically.
• Many respondents were not willing to disclose their financial details.

6.3 FUTURE OF MUTUAL FUND INDUSTRY:
The financial year comes to a close and the tax payments have been done. The dues have been
settled and it‘s time to step into the next fiscal, also a good time to review how investments have
performed.
The year saw the continuation of the bull-run, in fact the fourth year of the climb. The
Bombay Stock Exchange Sensitive Index or the Sensex closed the fiscal with a 15% gain.
Feelers from the market place suggest that while the economy may grow this year too, the
equity markets might not depict the same buoyancy. The current year has already been
witnessing crests and troughs worth 300 points on a regular basis.
In such volatile times, mutual funds become the obvious choice for investors - both
individual and corporate. The assets under management for the mutual fund industry have
nearly doubled in the past two years. At Rs 3,53,300 crore the size of the industry is set to
grow further. Industry experts reckon the size would easily treble in the next five years
and there would be significant additions to the 32 players currently operating in the
market place.
While that sounds fabulous for the mutual funds industry, should it really excite the
investor? FE Investor carried out a simple study to look into this. Mutual funds, by virtue
of being handled by expert fund managers who charge a fee for their expertise, should be
out-performing the market in good times and perform better than the market, when it
slides. This is the large expectation created in the market place by mutual fund sales
professionals.
There are multiple ways to look at mutual fund performance; some are erudite enough to
create total confusion while others involve pointless number crunching. Each technique
could throw up different views. FE Investor took a rather simple approach to this.
A universe of 99 growth-based equity schemes was created for the study. The
performance was then divided over two phases. Phase I includes the period from March
2005 to February 2006. And Phase II from March 2006 to March 2007. The reason for
creating two phases was to trap a year that had a clear bull-run market and also a year that
witnessed mayhem.
Although a longer period of more than five years would present a fairer picture, experts
reckon that a typical holding period for Indian investors ranges from two to three years.
Hence, the two-year time frame was selected. Here again the change in net asset values
was tracked and compared against the Sensex. Now, there could be several views on
choosing the right benchmark for comparison; however, to keep matters simple, the 30
share readily available portfolio was chosen.
And the reading is quite clear. Over the last two years, the average returns (change in net
asset value) of the 99 schemes was around 35.4%, whereas the Sensex grew by 48.66% in
the same time frame. Not a very impressive performance.
However, when the markets saw a secular bull-run, the equity funds matched the
enthusiasm. In the period from March 2005 to February 2006, the first phase of the study
saw the mutual fund schemes match the Sensex performance. Nearly 48 schemes actually
outperformed the Sensex and a similar number under-performed, albeit the returns were
largely positive.
Mayhem victims
But when the markets tumbled in the May-mayhem, many fund managers were caught
unawares. Most of the fund managers had taken positions in mid-cap funds and had to
take the plundering. Many, it seems, have not yet recovered from that exposure. The
market fell by around 21% in the May crash and the average fall for funds was more
pronounced at 23%, largely because of mid-cap exposure.
Fund managers, however, are still bullish on mid-cap stocks. ―Where have all these
companies come from? Obviously, most of these have been mid-cap companies which
have ‗migrated‘ and have become large caps. With continued growth of India, we believe
this will continue to happen. But this takes time‖, says Tridib Pathak, CIO-equities, Lotus
India Mutual Fund.
Nikunj Doshi, fund manager, Kotak Mutual Fund, reckons, ―We believe mid-cap stocks
will perform well in future. As we enter FY08 and look at the valuation gap mid-caps
look very attractive. Also, if one considers a longer time frame, mid-caps have delivered
better returns as compared to large cap.‖
While the aggregate numbers have been mixed, there have been individual funds that
have managed to beat trends. Sundaram Select Midcap has been a relative exception to
this observation and has turned out to be one of the best performers in the two-year
period. However, going forward, there could be more bumps for the mid-cap funds. TP
Raman, MD and CEO, Sundaram BNP Paribas, avers, ―If the ongoing bout of risk
aversion does not shift quickly, we may witness a renewed period of investor apathy
towards mid- and small-cap stocks.‖
Specialised conundrum
While the mid-caps looked shaky over a two-year time frame, and are expected to deliver
over a longer time frame, some sector-specific specialised funds were able to provide
smart returns. Needless to say, the funds that did well were the ones where the underlying
industry was also performing well.
Infrastructure, though there is an obscurity as to what constitutes an infrastructure fund,

was one such area. Infrastructure funds have been exemplary performers with a
consistent average returns percentage hovering around 40-50 %. This indicates that the
volatility of the market has hardly impacted the returns flow of these funds. Also, the
varied options within an infrastructure fund result in offsetting of risks. DSP Merrill
Lynch India TIGER Fund has been consistent and has been the best performer,
withstanding the bearish trend.
Similar was the trend with media stocks and funds. The Reliance Media and
Entertainment fund recorded a return of around 60% in Phase-I and around 42% in
Phase-II. Going ahead, analysts believe the growth opportunities in the media industry
will offer more choices for fund managers and investors.
No such luck was witnessed by the pharma sector funds that saw a tremendous surge in
the phase I and then a dismal performance. SBI Pharma Growth fund, which was a best
performer in phase-I emerged as the worst performer in phase-II. Sanjay Sinha, head-
equities, SBI Fund Management, justifies a changed stance in pharma sector funds,
―Since large pharma stocks were reporting lacklustre performance, we have employed a
bottom-up approach.‖
Sinha adds, ―We believe that after consistently meeting and surpassing market
expectations in terms of earnings growth and sustainability, the market valuations for the
stocks in our portfolio will reflect their underlying strengths - a process which we expect
to happen over the course of the next year. We shall also be actively looking at various
modifications in the portfolio at opportune times to enhance returns to the maximum
degree possible.‖
Passively active
While fund managers have been churning their portfolios, index funds, or a passive way
of investing by simply replicating the index portfolio, have been providing sound returns.
Like the Sensex and the Nifty, the index funds have been closely tracking index gains.
―As such they are lower risk/lower return products within the equity space. So it is just a
strategy in terms of the risk levels the investor wants to take. We feel that actively
managed diversified funds will continue to beat the market indices for some time to
come,‖ says Pathak.
A point to note for investors is that index investing is a long-term game and index funds
typically provide strong returns over a ten-year time frame. ―Index funds can be a strong
avenue when the markets are bullish. In a bear phase investors are hurt,‖ says a fund
manager.
Lucrative avenues
It is perceived that 2007 may be a bit more volatile considering the returns the markets
have generated. Investors must be on the look out for funds that hedge their risks and
which give, if not stable, decent returns.
Systematic Investment Plan (SIP) investments would be the best bet to ride the volatility
in this period as it uses the averaging principle to keep acquisition costs fair in both rising
and falling markets.
Also, Sebi has banned mutual funds to allocate 6% fund expenses in the open-ended
schemes and not in closed ended ones. This has given importance to closed ended
schemes and saw a plethora of schemes launched after the rule was passed. It is a very
good move as redemption pressures will be reduced in case of a volatile market and long-
term money will be parked in these schemes, and in the end will benefit investors.
―This year could see the emergence of commodity funds (this will see investments from
many small and medium investors) along with real estate funds (it has received a nod
from Sebi) and exchange traded gold fund (considering India is a gold-loving country).
These funds will also serve as good investing options for investors,‖ says Satish Kamdar,
country head-mutual funds, Mata Securities.
Notwithstanding such good avenues and the growing economy, one thought, which
should be heeded with strong consideration, is: Mutual funds are not short-term
investment vehicles but a long-term means that facilitate a good and steady flow of
income. ―Our study of the markets for the last 27 years very clearly indicates that the
longer your investment horizons, surer are the returns. In fact, holding equities for longer
than 10 years virtually abolishes the probability of loss to zero,‖ concludes Pathak.
Lastly, the analysis carried out simply points out the fact that investors should not invest
arbitrarily with any fund, just because they claim to have experts managing the funds. An
astute fund manager must be sifted through the chaff. There is enough information
available for investors to get by with this. At the same time, selecting an appropriate fund
can truly enhance returns. There are funds that have exceeded expectations at all levels as
well.
The coming year will definitely see more action in this field with a wider array of
structured products being on the offer. After all, the mutual fund industry in India is still
in its teens and is beginning to mature.
CHAPTER 7
CONCLUSION & SUGGESTIONS:
7.1 CONCLUSION
VAST POTENTIAL: Currently, the investments in Mutual Funds are very low. As per my
survey, only 12% of the people surveyed invest in Mutual Funds. When applied to all of
India, this figure is expected to be lesser. Thus, it presents a vast potential for the growth and
development of Mutual Fund industry in India.
The Indian Consumer market represents a large market with a middle class of nearly
300million. The economy boasts of a young population, coupled with rising salaries,
tremendous potential with an ever-increasing demand for lifestyle products.
According to A.C. Nielson‘s global online consumer confidence survey- Indian

consumers are The Most optimistic The World Over, and are ranked among the
top 5 countries who are ready to purchase what they desire and invest in Mutual Funds and
Shares, way ahead of their Asian counterparts.
India has the third largest investor base in the world and one of the world‘s lowest
transaction costs based on screen-based transactions, paperless trading and a T+2 settlements
cycle.
HIGH SATISFACTION RATE: The survey shows that 75% of those who invest in
Mutual Funds shall continue to do so. This is a positive sign depicting that people are
satisfied with their investments in Mutual Funds. Thus, it shows that the retention of
customers is not that difficult a task than their acquisition.
7.2 SUGGESTION
The first and foremost necessity to be successful in acquiring more customers to invest in Mutual
Funds is to overcome the various barriers and challenges posed by the customers and the
environment.
CREATE AWARENESS: The biggest challenge faced by all the sellers and distributors of
Mutual Funds is that
Most of the people are not aware of mutual funds and how they work
Many consider Mutual Funds to be very risky and prefer to invest directly in share
market while the truth is that Mutual Funds are lesser risky than a direct individual
investment in equity as they present the benefits of calculated diversification which is no
possible for an individual retail investor.
Thus, any step towards creating awareness about Mutual Funds and its working will be in favor
of the SBI MUTUAL FUND as well as the entire Mutual Fund industry. Whoever adopts a
proactive approach in this direction and pioneers the initiative shall get the initiator’s
advantage, which will help acquire that player, a major chunk of the market.
Some of the steps that can be taken to create awareness and attract interest and participation can
be:
1. ADVERTISING – both electronic and print

Any awareness building advertisement should not be aimed at selling any of the
products of the Bank. An ad that is issued in public interest and public awareness and that
just mentions the issuer‘s/sponsor‘s name is held in great respect by
people and helps acquire a favorable social image as a better corporate citizen. Such an
image is very essential as people are more willing to hand their money to organizations
with such a public rapport and trust.
A very widespread and less expensive way of such an advertisement is the use of popular
Radio Channels like Radio Mirchi, Red FM and Radio City etc. They have a high
popularity rate and a mass reach to all classes of population.
Such an advertising strategy is used by Sharekhan, where it sponsors informative fillers
about various financial and economic concepts like inflation, investments etc. in simple
layman language to make it more interesting to know and learn. This has lead to a
widespread recognition recollection of the brand Sharekhan.
The advertisements should reach the people through more popular channels, which are
viewed, largely by people and not only business channels and magazines like CNBC or
Business World.
2. BROCHURES AND PAMPHLETS: An easy to understand, well designed, brief

and crisply presented pamphlet or a Brochure can act as a silent guide to make
customers aware of the Mutual Funds and it‘s working. Such Brochures should be
placed at the customer dealing counters at the Bank to attract interest and lead to
action.
3. COLLECT DATABASE FROM sources like database of members of various elite

clubs and societies that shall give SBI MUTUAL FUND a vast pool of data on
potential customers. TELE CALLING can be done to these potential customers.
4. TARGET THE YOUTH: they are the future. Tying up with professional institutions
like IITs, B-Schools etc. and conducting workshops and seminars on Mutual Funds
and Capital markets will help build a strong customer base for the future as these are
the people who shall have enough disposable income in years to come, thanks to the high
pay packages they shall be offered.
5. DSAs: Hire Direct Selling Agents and form alliances with more brokerage houses.
6. CREATE TRUST AND CONFIDENCE: Consistent and Serious efforts should be

made to create a feeling of trust among the customers. They should not feel that the
Relationship Manager or the Financial Planning Manager is trying to pitch them the
service to mint his own commission. The SBI‘s MUTUAL FUND representative should
be able to carry the spirit and ideology of the SBI MUTUAL FUND with him. They
should be able to make the customers understand and accept that their money is going in
safe hands and shall be managed by experienced and well-qualified professionals.
7. EFFICIENT FUND MANAGEMENT:
A study conducted by Price Waterhouse Cooper (PWC) on risk management by mutual

funds has posted interesting as well as worrying results. According to the survey, as many
as 50 percent of the respondent mutual funds are not managing risk properly. Also,
about 50 percent of the respondents did not have documented risk procedures or
dedicated risk managers.
It is unfortunate that the fund managers are not taking due care for minimizing the risk
and are in a race to post higher and higher returns during the phase of bull-run.
They should understand that the investors forget the high returns posted in any
specific period very soon but they take hell lot of time to forget the burns
The fund managers should disclose what they are doing at the hedging front. They should
come up and tell their investors as to what they do at times of high fluctuations. Normally
it has been seen that they outperform the broad market indices during the bull runs and
under perform the indices during the bear phases. Poor performance, poor servicing to
clients and failure of third party service providers, are the three major risk factors
identified in the survey by PWC. (Source: www.mutualfundindia.com)
Thus SBI MUTUAL FUND should make sure that the funds it is investing in are
efficiently managed and justify their claims. The in-house research center of SBI
MUTUAL FUND MF can conduct a thorough risk and return analysis of various funds to
arrive at the real situation.
8. INCREASE THE POOL OF FUNDS OFFERED:

There are only a handful of funds that SBI recommends and invests into, thus limiting
the choice while its competitors offer a wide choice. It should seek to increase the basket
after a clear evaluation of performance and scope of various funds.
9. TIE UP WITH MODERN RETAIL FORMATS
With large number of modern retail formats coming up in the country within a span of 2-
3years. (E.g. Reliance Retail expects to open around 3500 stores in Ist phase of
incorporation). There lies a huge opportunity to tap the middle and affluent class of the
society visiting these stores.
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Analysis of various Balanced and Liquid Funds

SUMMER TRAINING PROJECT REPORT ON

ANALYSIS OF THE VARIOUS BALANCED AND LIQUID

INDIAN INSTITUTE OF FINANCE

Introduction of Mutual Fund

About Anand Rathi

Introduction of Balanced and Liquid Funds

Introduction of SBI Mutual Fund

Analytical Part of the Project

Survey and Questionnaire

Conclusion and Suggestion

1.1 Introduction about Mutual Funds

The structure consists

1.3 Types of Schemes:

Investment Objective : Schemes can be classified by way of their stated investment

General Purpose: The investment objectives of general-purpose equity schemes do not

Tax saving schemes

Real Estate Funds:

Debt Based Schemes:

Money Market Schemes

Constitution: Schemes can be classified as Closed-ended or Open-ended depending upon

The Risk-Return Trade-off: The most important relationship to understand is the

Inflation Risk: Things you hear people talk about:

Political/Government Policy Risk: Changes in government policy and political

Risk vs. Reward

BANKS MUTUAL FUNDS

1.4 Benefits of Mutual Fund investment

Life Cycle Planning

Market Cycle Planning

Automatic Direct Deposit

Retirement and College Plans

Asset Management Accounts

Structure of the Indian mutual fund industry

Some of the AMCs operating currently are:

Name of the AMC Nature of ownership

1.5 Recent trends in mutual fund industry

1.6 FREQUENTLY USED TERMS/QUESTIONS

Net Asset Value (NAV)

Repurchase or ‘Back-end’ Load

1.7 Rules and Regulations

21 April, 2006 Dividend Distribution Procedures for Mutual Funds

04 April, 2006 Rationalisation of Initial Issue Expenses and Dividend distribution

Association of Mutual Funds of India (AMFI)

To undertake nation wide investor awareness programme so as to promote proper

To disseminate information on Mutual Fund Industry and to undertake studies and

How these mutual funds scored 100%

Where winners kept the faith...

Scheme Name (all equity schemes) 1 Year

Prudential ICICI FMCG – Growth 118.49

SBI Magnum Multiplier Plus 93 - Growth 111.50

Reliance Diversified Power Fund - Growth 110.18

Prudential ICICI Emerging STAR Fund –

SBI Magnum Tax Gain Scheme 93 103.67

SBI Magnum Global Fund 94 – Growth 103.23

Kotak Opportunities Fund – Growth 102.84

SBI Magnum Sector Umbrella - Contra –

Sundaram India Leadership Fund - Growth 101.64

Sundaram Select Midcap – Growth 99.45

...where they wavered

...and what they skipped

PROFILE OF THE COMPANY

2.1 About Anand Rathi

AR provides a breadth of financial and advisory services including wealth management,