Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Fundamental Analysis of
REALIANCE MUTUAL FUND
SESSION: 2011-2013
PREFACE
With the growth of rapid industrialization the need of management is felt everywhere management, A research report provides the most natural condition under which a student can learn and got success in implementing the theoretically learned in to the practical and current environment of daily practices done by the people (investor) it helps a student to learn, to improve, to improvise, to experiment, to find knowledge in all possible ways and to translate that knowledge into action. MBA is a foundation stone to the management career. The classroom learning needs to practical exposure. To develop concrete managerial and administrative skills of potential manager, it is important that the interaction to the real environment be there. The project is a real life venture for me. It is a great privilege that you have spread your for reading this. In forthcoming pages, an attempt has been made to present the different aspect of my project.
(AMANDEEP KAUR)
ACKNOWLEDGMENT
If words are considered as a symbol of approval and taken of appreciation then let the words play the heralding role expressing my gratitude. First of all I thank to my Gracie god who blessed me with all kind of facilities that had been provided to me for completion of my report. Im also grateful to my teacher for guiding me to learn and helped me on project on
Sr.no . 1 2 3 4 5 6
Title Introduction to Fundamental Aalysis Economic Analysis Industry Analysis Company Analysis Research Methodology Data Analysis Economic Industry Company
Page No.
7 8 9
Introduction
There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may invest in Mutual of companies where the risk is high and the returns are also proportionately high. The recent trends in the Mutual Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in Mutual markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. Like most developed and developing countries the mutual fund cult has been catching on in India. The reasons for this interesting occurrence are:
Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation.
Mutual fund brings the benefits of diversification and money management to the individual investor, providing a Opportunity for financial success that was once available only to a select few.
FUNDAMENTAL ANALYSIS
What is analysis?
Fundamental analysis is critical component in stock analysis. It is quite accessible, extremely valuable and you actually don't need a finance degree to get a basic understanding of it. The problem of fundamental analysis is however that it can very easily get quite complicated, but it doesn't have to be.
For a fundamental analyst, the market price of a stock tends to move towards its 'intrinsic value', which is the 'true value' of a company as calculated by its fundamentals. If the market value does not match the true value of the company, there is an investment opportunity. Example of this is that if the current market price of a stock is lower than the intrinsic price, the investor should purchase the stock because he expects the stock price to rise and move towards its true value. Alternatively, if the current market price is above the intrinsic price, the stock is considered overbought and the investor sells the stock because he knows that the stock price will fall and move closer to its intrinsic value. To determine the true price of the company's stock, the following factors need to be considered.
2. Profit Margins
Amount of earnings do not tell the full story, increasing earnings are good but if the cost increases more than revenues then the profit margin is not improving. The profit margin measures how much the company keeps in earnings out of every dollar of their revenues. This measure is therefore very useful for comparing similar companies, within the same industry.
Higher profit margin indicates that the company has better control over its costs than its competitors. Profit margin is displayed in percentages and a 10 percent profit margin denotes that the company has a net income of 10 cents for each dollar of their revenues. To get better understanding of profit margins it is good to compare two companies with alternative margins, see table below.
The reason for why this measure is so important is because it contains information about several factors, such as:
Leverage (which is the debt of the company) Revenue, profits and margins Returning values to shareholders
Good approximation is that ROE should be 10-40% greater than its peer.
3. Price-to-Earnings (P/E)
When taking the current market price into consideration, the most popular ratio is the Price-to-Earnings (P/E) ratio. As the name suggest it is the current market price divided by its earnings per share (EPS). It is an easy way to get a quick look of a stock's value. A high P/E indicates that the stock is priced relatively high to its earnings, and companies with higher P/E therefore seem more expensive. However, this measure, as well as other financial ratios, needs to be compared to similar companies within the same sector or to its own historical P/E. This is due to different characteristics in different sectors and changing markets conditions. This ratio does not tell the full story since it does not account for growth. Normally, companies with high earnings growth are traded at higher P/E values than companies with more moderate growth rate. Accordingly, if the company is growing rapidly and is expected to maintain its growth in the future this current market price might not seem so expensive. This is the reasoning for the existence of different investment styles; Value vs. Growth stocks. Example While some sectors normally have low P/E measures, other sectors commonly have higher ratios. For example, utilities commonly have P/E ranging from 5 to 10 while technology companies commonly have a P/E ratio ranging from 15 to 20 or above. This is due to expectations in the market about the sector and its earnings-growth possibilities. The utility sector has stable earnings and is not expected to grow rapidly while technology companies are expected to grow faster and tend to need less capital for its growth. In order to simplify, the following table illustrates four companies in two sectors with alternative figures.
In order to account for growth, the P/E ratio can be modified into the Price/Earnings to Growth (PEG) ratio. A PEG ratio is calculated by dividing the stock's P/E ratio by its expected 12 month growth rate. A common rule of thumb is that the growth rate ought to be roughly equal to the P/E ratio and thus the PEG ratio should be around 1. A relatively low PEG ratio indicates an undervalued stock and a PEG ratio much greater than 1 indicates an overvalued stock. The PEG ratio can be very informative figure, especially for fast growing and cyclical companies. In this one ratio you get an understanding of the company's earnings, growth expectations and whether it is trading at a reasonable price relative to its fundamentals. 4. Price-to-Book (P/B) A price-to-book (P/B) ratio is used to compare a stock's market value to its book value. It can be calculated as the current share price divided to the book value per share, according to previous financial statement. In a broader sense, it can also be calculated as the total market capitalization of the company divided by all the shareholders equity. This ratio gives certain idea of whether you are paying too high price for the stock as it denotes what would be the residual value if the company went bankrupt today A higher P/B ratio than 1 denotes that the share price is higher than what the company's assed would be sold for. The difference indicates what investors think about the future growth potential of the company.
This can be due to other factors, such as news releases and changes in future outlook, which also have effect on the price. Trends in the market and investors emotions also effect the short-term fluctuation in stock prices resulting in the current market price deviating from its true value. If you pay too high price for even the best stock in the world, you will never make a good return on your investment. Therefore, a great investment does not likely have a high price. The point of this question is that the price you pay for a stock does matter enormously; it is the most important factor in your return. Accordingly, doing your fundamental analysis (thoroughly) is of a great importance when making your investments. When determining whether a company's stock is a good investment, fundamental analysis is a great toolbox to reach a conclusion.
Economic Forecast
First and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the tide and the various industry groups and individual companies are like boats. When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. Many economists link economic expansion and contraction to the level of interest rates. Interest rates are seen as a leading indicator for the stock market as well. Below is a chart of the S&P 500 and the yield on the 10-year note over the last 30 years. Although not exact, a correlation
11
between stock prices and interest rates can be seen. Once a scenario for the overall economy has been developed, an investor can break down the economy into its various industry groups.
Group Selection
If the prognosis is for an expanding economy, then certain groups are likely to benefit more than others. An investor can narrow the field to those groups that are best suited to benefit from the current or future economic environment. If most companies are expected to benefit from an expansion, then risk in equities would be relatively low and an aggressive growth-oriented strategy might be advisable. A growth strategy might involve the purchase of technology, biotech, semiconductor and cyclical stocks. If the economy is forecast to contract, an investor may opt for a more conservative strategy and seek out stable income-oriented companies. A defensive strategy might involve the purchase of consumer staples, utilities and energy-related stocks. To assess a industry group's potential, an investor would want to consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much, or more, influence on the stock price. When stocks move, they usually move as groups; there are very few lone guns out there. Many times it is more important to be in the right industry than in the right stock! The chart below shows that relative performance of 5 sectors over a 7-month time frame. As the chart illustrates, being in the right sector can make all the difference.
12
Value Spotting Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power. Business Acumen One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the
business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield). Knowing Who's Who Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in
relative
valuations.
13
14
Company Profile
15
Reliance Group Holdings has grown from a small office data-processing equipment firm in 1961 into a major insurance and financial-services group in one generation under one chief. Reliance's insurance operations constitute the nation's 27th-largest property and casualty operation. The parent company also includes a development subsidiary in commercial real estate. Reliance's international consulting group contains several energy, environment, and natural resources consulting. A financial arm invests in other businesses, primarily television stations. Reliance Insurance started as the Fire Association of Philadelphia in 1817, organized by 5 hose and 11 engine fire companies. It became the nation's first association of volunteer fire departments. Business got a boost as a result of the Great Chicago Fire of 1871. The association soon developed a field of agents to write policies across the country. For the first two years, shareholders received dividends twice a year of $5 a share, which increased gradually to $10 in 1876. In 1972, the Reliance insurance group divided its pool so that Reliance Insurance Company and its subsidiaries handled most standard lines, while United Pacific Insurance Company handled the nonstandard and other operations. In 1977, the company moved into real estate, forming Continental Cities Corporation, which became Reliance Development Group, Inc. This division handled all real estate operations of the parent company and other subsidiaries. Reliance Capital Group, L.P. constituted the investment branch of the Reliance conglomerate.
16
In December 1989, Reliance Capital sold its investment, Days Corporation, parent company of Days Inn of America, the world's third-largest hotel chain; it had been purchased in 1984. Reliance Industries Limited. The Group's principal activity is to produce and distribute plastic and intermediates, polyester filament yarn, fiber intermediates, polymer intermediates, crackers, chemicals, textiles, oil and gas. The refining segment includes production and marketing operations of the Petroleum refinery. The petrochemicals segment includes production and marketing operations of petrochemical products namely, High and Low density Polyethylene. "Growth has no limit at Reliance. I keep revising my vision. Only when you can dream it, you can do it."
17
Reliance Mutual Fund, a part of the Reliance Anil Dhirubhai Ambani Group is the No. 1 Mutual Fund in India. Reliance Mutual Fund offers investors a well rounded portfolio of products to meet varying investor requirements. Reliance Mutual Fund has a presence in over 100 cities across the country, an investor base of over 3.9 million and manages assets over Rs. 67,598 Crores as on August 31, 2007. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Ltd.,a wholly owned subsidiary of Reliance Capital Ltd. Reliance Capital Ltd. is one of Indias leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management and mutual funds, life and general insurance, private equity and proprietary investments, stock broking and other financial services. No.1 basis Assets under Management (AUM) as on August 31, 2007.
18
As you probably know, mutual funds have become extremely popular over the last 20years. What was once just another obscure financial instrument is now a part of our daily lives. In fact, too many people, investing means buying mutual funds. After all, it's common knowledge that investing in mutual funds is (or at least should be) better than simply letting your cash waste away in a savings account, but, for most people, that's where the understanding of funds ends. It doesn't help those mutual fund sales people speak a strange language that, sounding sort of like English, is interspersed with jargon like MER, NAVPS, load/no-load, etc.
Originally mutual funds were heralded as a way for the little guy to get a piece of the market. Instead of spending all your free time buried in the financial pages of the investment Journal, all you have to do is buy a mutual fund and you'd be set on your way to financial freedom. As you might have guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in reality, they haven't always delivered. Not all mutual funds are created equal, and investing in mutuals isn't as easy as throwing your money at the first salesperson who solicits your business.
20
ECONOMIC ANALYSIS
Economic analysis is marginal analysis. In marginal analysis, one examines the consequences of adding to or subtracting from the current state of affairs. Consider, for example, an employer's decision to hire a new worker. The employer must determine the marginal benefit of hiring the additional worker as well as the marginal cost. The marginal benefit of hiring the worker is the value of the additional goods or services that the new worker could produce. The marginal cost is the additional wages the employer will have to pay the new worker. An economic analysis of the decision to hire the new worker involves weighing the marginal benefits against the marginal costs. If the marginal benefits are greater than the marginal costs, then it makes sense for the employer to hire the worker. If not, then the new worker should not be hired. Economic analysis provides a detailed look at the economy through the lens of economists, the news media and bloggers. This topic covers the economy, economic indicators and the general economic outlook in these troubled times.
Important
Economic analysis is important to understanding the forces that drive and shape monetary systems and the economic stability of a region. Without this study, inflation could run rampant and unpredictable, the distribution of wealth could be restricted, and forces of supply and demand would go unmonitored resulting in significant market swings. Economic analysis, however, requires specific tools and methodologies to produce its results.
Gross Domestic Product (GDP) Monetary policy and Liquidity Inflation Interest rates
21
International influences Fiscal policy Influences on long term expectations Influences on short term expectations
Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP per capita is often considered an indicator of a country's standard of living; GDP per capita is not a measure of personal income. Example: the expenditure method: GDP = private consumption + gross investment + government spending + (exports imports), or
Inflation The rate at which the general level of prices for goods and services is rising, and,
subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.
As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
Interest ratesAn interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Specifically, the interest rate (I/m) is a percent of principal (P) paid at some rate (m). For example, a small company borrows capital from a bank to buy new assets for its business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed as a percentage of the principal for a period of one year. In the past two centuries, interest rates have been variously set either by national
22
governments or central banks. For example, the Federal Reserve federal funds rate in the United States has varied between about 0.25% to 19% from 1954 to 2008, while the Bank of England base rate varied between 0.5% and 15% from 1989 to 2009, and Germany experienced rates close to 90% in the 1920s down to about 2% in the 2000s.[10][11] During an attempt to tackle spiraling hyperinflation in 2007, the Central Bank of Zimbabwe increased interest rates for borrowing to 800%.
International influences
Rapid growth in overseas market can create surges in demand for exports, leading to growth in export sensitive industries and overall GDP. In contrast, the erection of trade barriers, quotas, currency restrictions can hinder the free flow of currency, goods, and services, and harm the export sector of an economy.
Fiscal policyGovernment spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and government spending, in an effort to control the economy.
23
INDUSTRY ANALYSIS
A type of fundamental analysis of the health of a company by examining its strengths(S), weakness (W), business opportunity (O), and any threat (T) or dangers it might be exposed to.
I. STRENGTHS
Brand strategy: as opposed to some of its competitors (e.g. HSBC), Reliance ADAG operates a multi-brand strategy. The company operates under numerous well-known brand names, which allows the company to appeal to many different segments of the market.
products. Its online and Internet-based access offers a combination of excellent growth prospects and its retail direct business also saw growth of 27% in 2002 and 15% in 2003.
Various sources of income: Reliance has many sources of income throughout the group, and this diversity within the group makes the company more flexible and resistant to economic and environmental changes.
24
II. WEAKNESS
Emerging markets: since there is more investment demand in the United States, Japan and the rest of Asia, Reliance should concentrate on these markets, especially in view of low global interest rates.
Mutual funds are like many other investments without a guaranteed return: there is always the possibility that the value of your mutual fund will depreciate. Unlike fixed-income products, such as bonds and Treasury bills, mutual funds experience price fluctuations along with the stocks that make up the fund. When deciding on a particular fund to buy, you need to research the risks involved just because a professional manager is looking after the fund, that doesnt mean the performance will be stellar.
Fees: In mutual funds, the fees are classified into two categories: shareholder fees and annual operating fees. The shareholder fees, in the forms of loads and redemption fees are paid directly by shareholders purchasing or selling the funds. The annual fund operating fees are charged as an annual percentage usually ranging from 1-3%. These fees are assessed to mutual fund investors regardless of the performance of the fund. As you can imagine, in years when the fund doesnt make money, these fees only magnify losses.
III. OPPORTUNITIES
Potential markets: The Indian rural market has great potential. All the major market leaders consider the segments and real markets for their products. A senior official in a one of the leading company says foray into rural India already started and there has been realization that the rural market is both price and quantity conscious.
25
Entry of MNCs: Due to multinationals are entering into market job opportunities are increasing day by day. Also India Mutual Fund majors are tie up with other financial institutions.
IV. THREATS
Hedge funds: sometimes referred to as as hot money, are also causing a threat for mutual funds have gained worldwide notoriety for bringing the markets down. Be it a crash in the currency, A stock or A bond market, A usually a hedge fund prominently figures somewhere in the picture.
26
COMPANY ANALYSIS
Mar 12 Mar 11 Mar 10 Mar 09 Mar 08
12
MONTHS
12
MONTHS
12
MONTHS
12
MONTHS
12
MONTHS
Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 3,271.00 3,271.00 3,273.37 3,273.37 3,270.37 3,270.37 1,573.53 1,573.53 1,453.39 1,453.39
0.00
0.00
0.00
69.25
1,682.40
0.00 159,698.00 3,127.00 166,096.00 6,969.00 51,658.00 58,627.00 224,723.00 Mar '12
0.00 142,799.95 5,467.00 151,540.32 10,571.21 56,825.47 67,396.68 218,937.00 Mar '11
0.00 125,095.97 8,804.27 137,170.61 11,670.50 50,824.19 62,494.69 199,665.30 Mar '10
0.00 112,945.44 11,784.75 126,372.97 10,697.92 63,206.56 73,904.48 200,277.45 Mar '09
0.00 77,441.55 871.26 81,448.60 6,600.17 29,879.51 36,479.68 117,928.28 Mar '08
27
12 mths
12 mths
12 mths
12 mths
Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments
54,008.00
37,651.54
23,228.62
21,606.49
22,063.60
Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions
55,268.00
47,871.89
39,004.19
19,908.23
20,692.91
29
Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
48,048.00
25,759.43
11,037.97
9,284.07
10,975.21
A] As a pure ratio:
For example the equity share capital of a company is Rs. 20, 00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is
30
In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs. 30,00,000. So the ratio of credit sales to cash sales can be described as
2.5 [30,00,000/12,00,000] = 2.5 times are the credit sales that of cash sales.
C] As a percentage:
Mar 12
Mar 11
Mar 10
Mar 09
Mar 08
Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Free Reserves Per Share (Rs) Bonus in Equity Capital 10.00 8.50 10.00 8.00 10.00 7.00 10.00 13.00 10.00 13.00
103.43
115.58
91.64
153.47
154.32
1,008.64
758.04
587.37
902.02
920.48
483.90
431.95
378.21
704.28
520.59
64.46
64.41
64.47
30.61
33.14
10.25
15.24
15.60
17.01
16.76
Profit Before Interest And Tax Adjusted Net Margin(%) Profit Margin(%) Gross Profit Return On Capital Margin(%) Employed(%) Cash Profit Return On Net Margin(%) Worth(%) Adjusted Cash Adjusted Return Margin(%) on Net Worth(%) Net Profit Return on Assets Margin(%) Excluding
6.70 5.99 6.80 12.18 8.97 12.29 8.97 11.42 5.99 498.21
9.65 8.08 9.76 12.60 13.24 13.88 13.24 13.42 8.08 446.25
10.02 8.35 10.13 11.35 13.29 12.64 13.29 11.95 8.35 392.51
13.19 10.65 13.35 10.96 14.58 13.36 14.58 13.76 10.65 727.66
13.06 14.45 13.14 15.68 13.73 24.66 13.73 17.28 14.45 542.74
In such a case, one item may be expressed as a percentage of some other items. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the gross profit may be described as
32
507.77
462.95
419.43
802.54
548.73
12.78
13.37
11.71
11.34
17.18
Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio 1.44 1.17 0.36 0.30 1.16 0.94 0.46 0.38 Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax 10.12 0.36 11.66 0.46 10.97 0.49 11.85 0.65 17.05 0.46 1.04 0.69 0.49 0.44 1.06 0.87 0.65 0.59 0.98 0.89 0.46 0.35
14.39
17.40
16.08
14.58
19.95
12.78
15.56
14.37
12.56
21.90
10.42
9.59
8.29
12.92
10.57
18.40
17.05
23.67
26.29
26.87
Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Average Raw Material Holding Average Finished Goods Held Number of Days In Working Capital
10.42
9.59
8.29
12.92
10.57
2.05
1.58
1.24
1.01
1.29
1.91
1.66
1.48
0.79
1.15
1.49
1.19
0.96
0.89
1.28
25.35
27.16
36.56
21.00
33.46
9.45
12.21
13.25
8.92
10.27
52.43
37.37
20.69
23.54
29.53
Profit & Loss Account Ratios Material Cost Composition Imported Composition of Raw Materials Consumed Selling Distribution Cost Composition Expenses as Composition of Total Sales 84.78 79.82 80.00 76.98 73.86
91.54
91.71
95.39
95.74
93.96
1.63
2.15
2.14
2.18
2.41
60.15
56.64
53.46
61.22
56.80
34
Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times 14.67 13.66 14.97 14.49 9.80
9.35
8.17
9.09
10.82
7.85
84.21
85.87
84.16
85.92
86.01
90.20
91.66
90.60
89.41
89.68
61.26 498.21
35
CONCEPTS
Types of Mutual Fund
36
Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments, and investment strategies. At the fundamental level, there are three varieties: of mutual funds 1) Equity funds (Mutual) 2)Fixed-income funds (bonds) 3) Money market funds
All mutual funds are variations of these three asset classes. For example, while equity Funds that invest in fast-growing companies are known as growth funds, equity funds that Invest only in companies of the same sector or region is known as specialty funds. Lets go over the many different flavors of funds. We'll start with the safest and then Work through to the more risky.
37
Bond/Income Funds
Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and" income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors. As such, the audience for these funds consists of conservative investors and retirees.
Bond funds are likely to pay higher returns than certificates of deposit and money market Investments, but bond funds aren't without risk. Because there are many different types of Bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much more risky than a fund that invests in government securities; also, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down.
38
Balanced Funds
The objective of these funds is to provide a "balanced" mixture of safety, income, and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed-income and equities. A typical balanced fund might have a weighting of 60% equity and40% fixed-income. The weighting might also be restricted to a specified maximum or minimum for each asset class. A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced fund, but these kinds of funds typically do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as the economy moves through the business cycle.
Equity Funds
Funds that invest in Mutual represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to understand the universe of equity funds is to use a style box, an example of which is below. The idea is to classify funds based on both the size of the companies invested in and the investment style of the manager. The term "value" refers to a style of investing that looks for
39
high quality companies that are out of favor with the market. These companies are characterized by low P/E ratios, price-to-book ratios, and high dividend yields, etc. The opposite of value is growth, which refers to companies that have had (and are expected to continue to have) strong growth in earnings, sales, and cash flow, etc. A compromise between value and growth is "blend," which simply refers to companies that are neither value nor growth Mutuals and so are classified as being somewhere in the middle.
For example, a mutual fund that invests in large-cap companies who are in strong
financial shape but have recently seen their share price fall would be placed in the upper left quadrant of the style box (large and value). The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects. Such a mutual would reside in the bottom right quadrant
Global/International Funds
An international fund (or foreign fund) invests only outside your home country. Global funds invest anywhere around the world, including your home country.
It's tough to classify these funds as either riskier or safer. On the one hand they tend to be more volatile and have unique country and/or political risks. But, on the flip side, they can, as part of a well-balanced portfolio, actually reduce risk by increasing diversification. Although the world's economies are becoming more inter-related, it is Likely that another economy somewhere is outperforming the economy of your home Country.
40
Index Funds
The last but certainly not the least important are index funds. This type of mutual fund replicates the performance of a broad market index such as the sensex and nifty. An investor in an index fund figures that most managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees.
Alliance Mutual Fund BOB Mutual Fund BOI Mutual Fund Birla Mutual Fund HDFC Mutual Fund Indian Bank Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Morgan Stanley Mutual Fund Pioneer ITI Mutual Fund PNB Mutual Fund
41
42
FLOW CHART
43
SALE PRICE
The price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.
44
REPURCHASE PRICE
The price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related.
REDEMPTION PRICE
The price at which close-ended schemes redeem their units on maturity. Such prices are NAV related.
SALES LOAD
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.
45
3-Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time,
its transaction costs are lower than you as an individual would pay.
4-Liquidity - Just like an individual Mutual, a mutual fund allows you to request that your shares be
converted into cash.
46
2-Costs-
Mutual funds don't exist solely to make your life easier--all funds are in it for a Profit.
The mutual fund industry is masterful at burying costs under layers of jargon .Because funds have small holdings in so many different companies, high returns from a few Investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong Success, the manager often has trouble finding a good investment for all the new money
3-Taxes- When making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is
47
triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability
Inflation risk
Changing interest rates affect both equities and bonds in many ways. Investors are reminded that predicting which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes.
An industries key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges all investments involve some form of risk, which should be evaluated them potential Rewards when an investment is selected.
Managing risk
48
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the Mutual prices of an out standing, highly profitable company and a fledgling corporation may be affected.
Credit risk
The sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which the fund invests.
Exchange risks
A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.
49
50
FUND HOUSE
JAN 2009
JAN 2008
DEC 2008
Reliance MF UTI MF Prudential ICICI HDFC MF Franklin Templeton Birla Sun Life SBI MF DSP Merrill Lynch TATA MF Standard Chartered Kotak Mahindra LIC MF HSBC Principal Figures in Rs crores
39,020 37,535 34,746 31,425 23,908 21,190 17,552 13,440 13,222 12,746 12,674 12,237 12,140 10,333
16,702 25,617 22,635 18,591 18,153 13,797 10,839 8,976 8,649 9,480 7,397 6,386 6,288 6,789
36,928 38,109 33,305 29,635 23,403 17,054 15,086 13,517 12,177 12,629 12,062 11,599 10,450 10,522
51
Birla Sun life was the best performer in January 2007 and Rs4, 136 crore to its assets
2. Reliance MF has become the top mutual fund house in the country by adding a very Impressive Rs2, 092 crore to assets under management 3 Previous Top Fund House UTI MF declined by Rs574 crore and position to Reliance. 4 SBI MF was able to acquire 7th position by an addition of Rs2, 466 crore 5 Tata MF gained Rs1, 045 crore and able to secure its position in top 10. lost its top
52
NNNNN
53
To study the Reliance Mutual Fund industry in detail. To study the investment procedure of Reliance Mutual Funds. To find out the market risk of sip plan. To aware the investors about mutual fund investments. To give the updated information to the investors about the high return and less risk fund.
54
But, in todays world, Scope of Mutual Funds has become so wide, that people sometimes take long time to decide the mutual fund type, they are going to invest in. Several Investment Management Companies have emerged over the years, who offer various types of Mutual Funds, Each type carrying unique characteristics and different beneficial features.
55
56
Findings
1) After getting in depth research study of Reliance, I came to know that Reliance is not much popular as other brands operating in Kanpur city. Bajaj Allianz, HDFC, ICICI are having much higher tapped market in respect to mutual funds. 2) Reliance as an investment option in Mutual Fund does not possess much proficiency and potential customers in Kanpur city. Though the financial advisors advise their clients to go for Mutual Fund as an investment option. About 42% of advisors advise their clients to invest in Mutual Funds, followed by investing in Insurance sector. 3) The advisors after having a deep thought says that it is the Returns that make them convince their clients to go for investment in mutual funds. 36% of advisors said that it is the Returns which make a person to invest in Mutual Fund. Followed by Risk which is quite lesser in other investment options. 4) A huge lot of advisors showed a positive response in dealing of for Mutual Fund. About 60% of them said that they are interested in dealing for Mutual Funds, because that results in higher brokerage. 5) As far as Reliance is concerned about 91% of the advisors said that they are not aware of the services provided by Reliance, including Mutual Fund. 6) When asked, 53% of advisors said that they are not interested to work with Reliance Securities, to the contrary with they dont have any such expansion plans and they have little knowledge about Reliance. In Kanpur city advisors dont have an appropriate knowledge about Reliance as an Investment hub.
57
Recommendations
There is high potential market. For mutual fund investors Kanpur city but this market need to bed explored as investors are still hesitated to invest their money in mutual fund. In Kanpur city, investor has inadequate knowledge of mutual fund, so proper marketing of various scheme is required, co. should arrange more and more seminar about mutual fund. Co. should also provide the knowledge of growth rate and expected growth rate of mutual fund in India. Reliance must be concentrate on the management of the co. so that every work can be done in a proper way. Reliance must be advertising its tie up co. fund along with their features that the investors can invest in that type of fund in Reliance. Reliance must be provided the advice to investors about mutual fund growing fund.
58
Conclusion
Most of investors are totally unaware about this investment. The awareness level of investors is low who are interested in dealing in mutual fund. Very less people knows about the service of Reliance. Past image of mutual fund is not good. Reliance can promote the investors by advertising, hording, and by interviews to invest in this fund. Most of the investors want to invest in public co.s fund just because of safety purpose. Most of the investors want to safer side in investment. Most of the investors want to invest in debt funds because those are the risk free funds; it gives the interest on investment. Most of the investors dont know about the mutual funds so they want advisory services from reliance which could provide them whole information about the market situation of mutual fund.
59
Bibliography
WEBSITEs:
http://www.moneycontrol.com http://www.amfi.com http://www.Reliance .com//v2/ www.amfiindia.com
60
61