INTRODUCTION

CONCEPT :
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 appreciation 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 an entity that pools the money of many investorsits unit holders to invest in different securities. Investment may be in shares, debt securities, money market securities or a combination of these.

Invented in 1920s, mutual funds are pools of money managed by an investment company or advisor . Different mutual funds have different goals. For example , funds may seek growth, growth and income, specific market cap sizes, sectors etc

A mutual fund is the ideal investment vehicle for todays 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. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in the present form is a 20th century phenomenon. 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 basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a mutual fund:

WORKING OF MUTUAL FUNDS

Market value of scheme's assets by the total number of units issued to the investors When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or unit holder.

ADVANTAGES OF MUTUAL FUNDS:

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. 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. 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: Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. 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.

Diagram 3

DISADVANTAGES OF MUTUAL FUNDS

Professional ManagementDid you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. 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. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. Dilution It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?"). 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.

RETURNS OF INVESTING IN MUTUAL FUNDS :

Mutual Funds give returns in two ways - Capital Appreciation or Dividend Distribution. Capital Appreciation: An increase in the value of the units of the fund is known as capital appreciation. As the value of individual securities in the fund increases, the fund's unit price increases. An investor can book a profit by selling the units at prices higher than the price at which he bought the units.

Dividend Distribution: The profit earned by the fund is distributed among unit holders in the form of dividends. Dividend distribution again is of two types. It can either be re-invested in the fund or can be on paid to the investor.

CONSTITUENTS OF MUTUAL FUND

1 Sponsor:
What a promoter to a company, a sponsor is to a mutual fund. Sponsor is defined under SEBI Regulations as any person who is acting alone or in combination with another body corporate, establishes a mutual fund. The sponsor initiates the idea to set up a mutual fund. It could be registered company, scheduled bank or financial institution. In order to run a mutual fund in India, the sponsor has to obtain a license from SEBI. For this, a sponsor has to satisfy certain conditions, such as on capital track record (atleast 5 years operation in financial services), default-free dealings and a general reputation of fairness. 2. Trustees:

Trustees are like internal regulators in a mutual fund, and their job is to protect the interest of the unit holders. Trustees are appointed by sponsors, and can either be individuals or corporate bodies. In order to ensure they are impartial and fair, SEBI rules mandate that at least two third of the trustees be independent i.e. not having any association with the sponsor. Trustees float and market schemes and secure necessary approvals. They check if the asset management companys investments are within defined limits and whether the funds assets are protected. Trustees can be held accountable for financial irregularities in the mutual fund.

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3. Asset Management Company (AMC):

An Asset Management Company is the entity formed by the sponsor to run a mutual fund. Its the AMC that employs fund managers and analysts, and other personnel. Its the AMC that handles all operational matters of a mutual fund-from launching schemes to managing them to interacting with investors. It also exercises due diligence on investments, and submits quarterly reports to the trustees. The people in the AMC who should matter the most to you are those who take investment decisions. There is the head of the fund house, generally referred to as Chief Executive Officer (CEO). Under him comes the Chief Investment Officer (CIO), who shapes the funds investment philosophy, and fund managers, who manages its schemes. A team of analysts, who track market, sectors and companies, assists them. 4. Custodian:

A custodian handles the investment back office of a mutual fund. Its responsibilities include receipt and delivery of securities, collecting income-distributing dividends, segregating assets and settlement between schemes. The sponsor of a mutual fund cannot act as a custodian to the mutual fund. This condition, formulated in the interest of the investors, ensure that the assets of a mutual fund are not in the hands of its sponsors. 5. Registrar: Registrar also known as Transfer Agents handles all investor related services. This includes issuing and redeeming units, sending fact sheets and annual reports. Some

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fund houses handle such functions in house, others outsource it to registrar. Most mutual funds, in addition to registrar, also have investor service centers of their own in some cities. Mutual funds are one of the best investments ever created because they are very cost effective and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. A mutual fund is the ideal investment vehicle for todays 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.

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HISTORY OF MUTUAL FUNDS IN INDIA

The Indian mutual fund industry is as old as four decades, but its growth and awareness reached the present levels only during the last five years. Increased focus of the private sector on new distribution channels and hightech servicing has contributed immensely towards this.

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India (UTI), at the initiative of the Government of India and Reserve Bank of India (RBI).

The history of mutual funds in India can be broadly divided into four distinct phases
I. First Phase (1964-87) II. Second Phase (1987-93) III. Third Phase (1993-2003) IV. Fourth Phase (since 2003)

First Phase (1964-1987)

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In 1963, an Act of Parliament established Unit Trust of India. Operationally Unit Trust of India was set up by the Reserve Bank of India to serve as an investment vehicle for small investors. In 1964, Unit Trust of India was delinked from RBI and launched its first scheme-the unit64 scheme. At the end of 1988, UTI had Rs. 6700 crores of assets under management.

Second phase (1987-1993) (Entry of Public Sector Funds)

1987 marked the entry of non-UTI, public sector mutual funds set up by the public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). State Bank of India (SBI) mutual fund was the first non-UTI mutual fund established in June 1987. From four players in 1985 the number increased to eight in 1993.LIC established its mutual funds in 1989 while GIC had set up its mutual fund in 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.4700 crores.

Third Phase (1993-2003) (Entry of Private Sector Funds)

A new era in mutual fund industry began with the permission granted for the entry of private sector funds in1993, giving the Indian investors a broader choice of funds and increasing competition for the existing public sector funds. Kothari Pioneer was the first private sector fund set up in July 1993. Also, 1993 was the year in which the first mutual fund Regulation came into being, under which all mutual funds, except UTI were to be registered and governed. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised mutual fund Regulations in 1996.At

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the end of 2003, there were 33 mutual funds with total assets of Rs.121805 crores. The UTI with Rs.44545 crores of assets under management was ahead of other mutual funds.

Fourth Phase (since February 2003)

In February 2003, following the repeal of the UTI Act 1963, UTI was revamped and divided into two entities: UTI-I and UTI-II. UTI-I or Specified Undertaking of the UTI, having Government guarantee, consists of all assured return schemes. The UTI-II which was having Rs.76000 crores of assets under management in March 2000, with its division into two entities has increased its assets enormously. At the end of September 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

HOW A MUTUAL FUND IS LAUNCHED:

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.

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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 scheme.

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Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its investment

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By Structure:
Open-ended Funds: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed-ended Funds: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds: Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

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By Investment Objective:
Growth Funds: The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. Income Funds: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds: The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. 21

 Money Market Funds: The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds: A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds: A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

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Other Schemes:
Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000.

Special Schemes
Industry Specific Schemes: Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc. Index Schemes:

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Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50

Sectoral Schemes: Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

CURRENT SCENARIO
The performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the

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sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes.

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The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds.

COMPANY PROFILE:

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VISION STATEMENT:
To be globally respected wealth creator with an emphasis on a customer care and a culture of good corporate governance.

MISSION STATEMENT:
To create and nurture a world class , high performance environment aimed at delighting our customers.

CORPORATE
Reliance Capital Asset Management Ltd. has a vision of being a leading player in the Mutual Fund business and has achieved significant success and visibility in the market.

However, an imperative part of growth and visibility is adherence to Good Conduct in the marketplace. At Reliance Capital Asset Management Ltd., the implementation and observance of ethical processes and policies has helped us in standing up to the scrutiny of our domestic and International investors.

Management:
The management at Reliance Capital Asset Management Ltd. is committed to good Corporate Governance, which includes transparency and timely dissemination of information to its investors and unitholders. The Reliance Capital Asset Management Limited Board is a professional body, including well-experienced and knowledgeable Independent Directors. Regular Audit Committee meetings are conducted to review the operations and performance of the company.

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Employees :
Reliance Capital Asset Management Ltd. has a preset code of conduct for all its officers. It has a clearly defined prohibition on insider trading policy and regulations. The management believes in the principles of propriety and utmost care is taken while handling public money, making proper and adequate disclosures. All personnel at Reliance Capital Asset Management Ltd. are made aware of the dos and donts as part of the Dealing policy laid down by the Securities and Exchange Board of India (SEBI). They are taken through a well-designed HR program, conducted to impart work ethics, the Code of Conduct, information security, Internet and e-mail usage and a host of other issues. One of the core objectives of Reliance Capital Asset Management Ltd. is to identify issues considered sensitive by global corporate standards, and implement policies/guidelines in conformity with the best practices as an ongoing process.

Reliance Capital Asset Management Ltd. gives top priority to compliance in true letter and spirit, fully understanding its fiduciary responsibilities.

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ABOUT RELIANCE ASSET CAPITAL MANAGEMENT LTD:

Reliance Capital Asset Management Limited (RCAM), a company registered under the Companies Act, 1956 was appointed to act as the Investment Manager of Reliance mutual

Reliance Capital Asset Management Limited is a wholly owned subsidiary of Reliance Capital Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset Management Limited is held by Reliance Capital Limited.

Reliance Capital Asset Management Limited was approved as the Asset Management Company for the Mutual Fund by SEBI vide their letter no IIMARP/1264/95 dated June 30, 1995. The Mutual Fund has entered into an Investment Management Agreement (IMA) with RCAM dated May 12, 1995 and was amended on August 12, 1997 in line with SEBI (Mutual Funds) Regulations, 1996. Pursuant to this IMA, RCAM is authorized to act as Investment Manager of Reliance Mutual Fund. The net worth of the Asset Management Company including preference shares as on March 31, 2005 is Rs 30.13 Crores. folio managers vide SEBI Registration No. INP000000423 and renewed effective 1st August, 2003. RCAM has commenced these activities. It has been ensured that key personnel of the AMC, the systems, back office, bank and securities accounts are segregated activity wise and there exists systems to prohibit access to inside information of various

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activities. As per SEBI Regulations, it will further ensure that AMC meets the capital adequacy requirements, if any, separately for each such activity.

RCAM has been appointed as the Investment Manager of "Reliance India Power Fund", a Venture Capital Fund registered with SEBI vide Registration no.IN/VCF/0506/062 dated June 16, 2005 but this activity is yet to commence.

ABOUT RELIANCE MUTUAL FUND:

Reliance Mutual Fund (RMF) has been established as a trust under the Indian Trusts Act, 1882 with Reliance Capital Limited (RCL), as the Settlor/Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the Trustee.

RMF has been registered with the Securities & Exchange Board of India (SEBI) vide registration number MF/022/95/1 dated June 30, 1995. The name of Reliance Capital Mutual Fund has been changed to Reliance Mutual Fund effective 11th. March 2004 vide SEBI's letter no. IMD/PSP/4958/2004 date 11th. March 2004. Reliance Mutual Fund was formed to launch various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.

OBJECTIVES:
The main objectives of the Trust are :

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To carry on the activity of a Mutual Fund as may be permitted at law and formulate and devise various collective Schemes of savings and investments for people in India and abroad and also ensure liquidity of investments for the Unit holders;

To deploy Funds thus raised so as to help the Unit holders earn reasonable returns on their savings and

To take such steps as may be necessary from time to time to realise the effects without any limitation>

Reliance mutual Fund has launched 26 schemes till date, namely:

Reliance Growth Fund ( sep 1995 ) Reliance Vision Fund ( sep 1995 ) Reliance Income Fund ( Dec 1997 ) Reliance liquid Fund ( march 1998) Reliance Medium Term Fund ( Aug 2000) Reliance Short Term Fund ( Dec 2002) Reliance Gilt securities Fund ( July 2003) Reliance Monthly income Plan ( Dec 2003) Reliance Banking Fund ( May 2003) Reliance Pharma fund ( may 2004) Reliance Floating Rate Fund ( Aug 2004) Reliance Media and Entertainment Fund. ( sep 2004) Reliance NRI Equity Fund ( Oct 2004) Reliance NRI Income Fund ( oct 2004) 32

 Reliance Index Fund ( Feb 2005) Reliance Equity opportunities fund ( Feb 2005) Reliance Regular Savings Fund (May 2005) Reliance Liquidity Fund ( June 2005) Reliance Tax Saver ( ELSS) Fund ( July 2005) Reliance Fixed Tenor Fund ( Nov 2005) Reliance Equity fund ( Feb 2006) Reliance Fixed Horizon Fund 1 ( Aug 2006) Reliance Fixed Horizon Fund ( April 2006) Reliance Fixed Horizon Fund 3 (March 2007) Reliance Fixed Horizon Fund 2 ( Nov 2006) Reliance Liquid Plus Fund ( March 2007) Reliance Long Term Equity Fund ( Nov 2006) Reliance Long Term Equity Fund ( Nov 2006) Reliance Interval Fund ( march 2007) Reliance Equity Advantage Fund ( June 2007)

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MANAGEMENT TEAM:

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Board of Directors Amitabh Chaturvedi Kanu Doshi Manu Chadha Sushil Tripathi Management Team President Vikrant Gugnani Chief K.Rajagopal Head Madhusudan Kela Equity Fund Managers Equity Fund Manager Equity Fund Manager Equity Fund Manager Debt Fund Managers Head Fixed Income Debt Fund Manager Debt Fund Manager Head Of Departments Brand and Communication Finance and Accounts Human Resource Development Information Technology Legal & Compliance Risk Management Operations & Settlement Infrastructure & Administration R&T operations Sales and Distribution Zonal Heads Northern Zone Head Western Zone Head Southern Zone Head Aashwin Dugal 35 Daga Devendra Gurbir Chopra Abraham Alapatt Amit Bapna Rajesh Derhgawen Vinay Nigudkar Balkrishna Kini Lav Chaturvedi Geeta Chandran Pradeep Andrade Prashanth D Pereira Sundeep Sikka Amitabh Mohanty Amit Tripathi Prashant Pimple Sunil B. Singhania Ashwani Kumar Shailesh Raj Bhan Equity Investments Investment Officer

SERVICE PROVIDERS:
Registrar to the schemes of Reliance Capital Asset Managment: Karvy Computershare Pvt. Ltd Custodians to the schemes of Reliance Capital Asset Managment Deutsche Bank AG Bankers to the Schemes of Reliance Capital Asset Managemen

HDFC Bank Limited Reliance Fixed Maturity Fund Reliance Monthly Income Plan Reliance Reliance Reliance Reliance Reliance Reliance Reliance Reliance Reliance Reliance Reliance Reliance Income Medium Liquid Short Gilt Term Securities Fund Term Fund Fund

ICICI Bank Limited Reliance Reliance Reliance Fund Reliance Reliance Reliance Fixed Monthly Income Medium Liquid Short Gilt Fixed Floating NRI Term Securities Term Rate Maturity Income Fund Plan

Fund Term Fund Fund Fund Fund

Fund Reliance Reliance Reliance Reliance

Fixed Term Scheme Floating NRI Rate Fund Fund

Scheme Fund Fund Fund Fund Fund Fund

Income Growth

Income

Fund Reliance Fund Fund Fund Reliance Reliance Reliance

Growth Vision NRI Equity

Vision NRI Equity

Index

Index

Reliance Equity Opportunities Fund Reliance Equity Opportunities Fund

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Reliance

Banking

Fund

Reliance

Banking

Fund

Reliance Diversified Power Sector Reliance Diversified Power Sector Fund Reliance Pharma Fund Fund Reliance Pharma Fund

Reliance Media & Entertainment Reliance Media & Entertainment Fund Fund

ABN Amro Bank Reliance Reliance Reliance Reliance Reliance Reliance Liquid Income Medium Term

Citibank N. A. Fund Reliance Fund Reliance Fund Reliance Income Liquid Short Term Fund Fund Fund

Vision Growth Short Term

Fund Reliance Gilt Securities Fund (Long Fund Term) Fund Reliance Gilt Securities Fund (Short

Reliance Gilt Securities Fund (Long Term) Term) Reliance Vision Fund (Dividend &

Reliance Gilt Securities Fund (Short Redemption) Term) Reliance Reliance Reliance Reliance Fixed Fixed Floating Fixed Maturity Term Rate Maturity Reliance Growth Fund (Dividend & Fund Redemption) Scheme Reliance Monthly Income Plan

Fund (Redemption) Fund Reliance Medium Term Fund

(Redemption) Reliance Banking Fund (Redemption)

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Standard Chartered Bank Reliance Reliance Reliance Income Liquid Short Term

Deutsche Bank AG Fund Reliance Liquid Fund Fund Fund

Reliance Fixed Term Scheme-IPO A/C. Reliance Floating Rate Fund

HSBC Bank Reliance Reliance Reliance Reliance Reliance Reliance Reliance Income Liquid Vision Growth Medium Short Term Term

UTI Bank Fund Reliance Liquid Fund

Fund Reliance Short Term Fund Fund Fund Fund Fund Fund

Banking

Reliance Gilt Securities Fund (Long Term) Reliance Gilt Securities Fund (Short Term) Reliance Reliance Reliance Monthly Income Plan Fund Fund

Income Medium Term

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Reliance Gilt Securities Fund (Long Term) Reliance Gilt Securities Fund (Short Term) Reliance Reliance Reliance Banking Fixed Floating Term Rate Fund Scheme Fund

Reliance Media & Entertainment Sector Reliance Reliance NRI NRI Equity Income Scheme Fund Fund

Reliance Index Fund IDBI Bank Reliance Reliance Reliance Reliance Reliance Liquid Vision Growth Short Medium Term Term Ing Vysya Bank Fund Reliance Fund Reliance Liquid Short Term Fund Fund

Fund Reliance Income Fund Fund Fund

(Redemption) Reliance Monthly Income Plan

(Redemption) Reliance Income Fund (Redemption) Reliance Banking Fund (Redemption

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RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY
Research Methodology is a way to systematically study & solve the research problems. If a researcher wants to claims his study as a good study. He must clearly state the methodology adopted in conducting the research so that it may be judged by the reader whether the methodology of work done is sound or not.

MEANING OF RESEARCH
Research is defined as a scientific & systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. Research is a systematized effort to gain new knowledge.

RESEARCH PROBLEM
I am trying to study the comparison of various sectoral schemes on the basis of their performance, return and risk in both long run and short run period of time.

RESEARCH OBJECTIVES
The first and the foremost objective of the present study is to evaluate various sectoral fund:

To have an insight of sectoral fund schemes. To analyze the performance of various following fund objective sectoral funds on the basis of

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fund style fund detail Sectoral allocations portfolios

To evaluate risk and return level of selected sectoral fund. Comparison and analysis of selected funds on the basis of: Alpha Beta Standard deviation Sharpe ratio

SOURCES OF DATA
In order to achieve the various stated objectives secondary data available on the subject was used and other necessary information has been collected from the Reliance Mutual Fund Chandigarh and other Mutual Fund Houses, newspapers, journals, magazines etc.

TOOLS APPLIED
Data collected from various secondary sources was used for comparing the Mutual fund scheme using Sharpe ratio, Standard Deviation, Beta and Alpha value measures of risk and performance of mutual funds.

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STANDARD DEVIATION:

It is a statistical measure of the historic volatility of a portfolio. It measures the dispersion of a fund's periodic returns (often based on 36 months of monthly returns). The wider the dispersions, the larger the standard deviation and the higher the risk. For example:

Fund A posts annual returns of 8%, 10%, and 12%. Over the 3 years, it earns an average annual return of 10%, with a standard deviation of 1.63.

Fund B returns 1%, 9%, and 20%. It, too, earns an average return of 10%, but its standard deviation is 7.79.

Thus we know that Fund B has been more volatile than Fund A. Standard deviation, like the other measures, cannot be used in isolation, one needs to check the standard deviations of other funds to get a better picture of the fund's relative volatility. A problem with standard deviation is that it rewards consistency above all else and hence, even if a fund loses money but does it so very consistently it can have a very low standard deviation.

BETA:
It is the statistical measure of a portfolio's sensitivity to market movements. For example, a benchmark index such as the BSE Sensex or S&P CNX 500 has a beta of 1.0. A beta of more or less than 1.0 shows that a fund's historical returns have fluctuated more or less than the relevant benchmark. 44

For example, if a fund has a beta of 1.1 and the market index declines 10%, you could expect the security to decline 11%(on average). A fund with a beta less than 1.0 is less volatile than the market, and could be expected to rise and fall at a slower rate.

ALPHA

The alpha of a mutual fund describes the difference between a funds actual return over a period of time and its expected return, given the fund's level of risk. In this case, risk of the fund is measured by its beta (see below). A fund with a positive alpha has done better than expected while a fund with a negative alpha has done worse than would be expected given the level of risk of the fund. Alphas are most commonly used with stock funds. Funds with positive alphas are considered to be better choices than those with negative alphas.

SHARPE RATIO:
Sharpe Ratio= Fund return in excess of risk free return/ Standard deviation of Fund So what does one do for funds that have low correlation with indices or benchmarks? Use the Sharpe ratio. Since it uses only the Standard Deviation, which measures the volatility of the returns there is no problem of benchmark correlation. The higher the Sharpe ratio, the better a funds returns relative to the amount of risk taken. Sharpe ratios are ideal for comparing funds that have a mixed asset classes. That is balanced funds that have a component of fixed income offerings

45

LIMITATIONS

The present study covers only sectoral funds. There is less awareness among the people regarding sectoral funds. Due to time constraint only selected sectoral funds have been taken for comparison.

As study is based on secondary data so it is not a reliable as primary source. The result from the analysis is qualitative and not quantitative

46

ANALYSIS

47

Sectoral funds:
Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy. These funds concentrate on one industry such as infrastructure, heath care, utilities, pharmaceuticals etc. The idea is to allow investors to place bets on specific industries or sectors, which have strong growth potential These funds tend to be more volatile than funds holding a diversified portfolio of securities in many industries. Such concentrated portfolios can produce tremendous gains or losses, depending on whether the chosen sector is in or out of favour.. There are now sectoral fund options galore for investors. These provide the opportunity for focussed investments and also the facility to construct your own portfolio in terms of sectoral preferences. But investors may have to read between the lines and look at the portfolios before making choices that are appropriate for them.The analysis of mutual fund is done either on qualitative or quantitative analysis. Qualitative analysis looks at factors such as the background and experience of the manager and the mutual fund company. Here, we look only at the quantitative factors such as performance, objective, investment style, sectoral allocation, portfolio, risk and return etc.The performance of Mutual funds is measured in terms of risk and returns a particular fund give. There is correlation between the risk n return a fund can achieve. The first and the foremost medium through which performance of any portfolio is expressed is the associated returns in a designated time period. Returns over the years are seen to measure the performance of any fund

48

Sectoral funds are ideal tools to invest in specific industries without risking exposure to one particular company. However one has to bear in mind that the performance of the fund can come only at higher risk than in a diversified fund. To succeed, a Sectoral fund must meet certain criteria. The sector needs to be big enough, with enough stock and must have long term potential. An investment in a Sectoral fund can have an impact only when it is held on for a long term. Changing market sentiments may make them volatile in the short term. The advantage that an investor gets is a focussed portfolio in a sector where he desires exposure. The flip side is that he loses the benefit of diversification, an inherent characteristic of any mutual fund.

COMPARATIVE ANALYSIS:
The analysis of mutual fund is done either on qualitative or quantitative analysis. Qualitative analysis looks at factors such as the background and experience of the manager and the mutual fund company. Here, we look only at the quantitative factors such as performance, objective, investment style, Sectoral allocation, portfolio, risk and return etc.The performance of Mutual funds is measured in terms of risk and returns a particular fund give. There is correlation between the risk n return a fund can achieve. The first and the foremost medium through which performance of any portfolio is

49

expressed are the associated returns in a designated time period. Returns over the years are seen to measure the performance of any fund. Risks are another factor used to analyses and compare the various schemes of mutual fund. Different terms as probability of loss, variability of returns, volatilities in returns etc.have been coined to represent risk involved in a given managed portfolio. The return alone cannot be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds may have different levels of risk attached to them. By using the risk return relationship, we try to access the competitive strength of the mutual funds vis-vis one another in a better way. A mutual fund may be ranked high both in terms of returns and risk-adjusted returns, but the important thing is that the investor should be aware of the level of risk. . Volatility is how risk manifests itself, so all the common "risk" measurements that you'll see below actually gauge how volatile an investment has been in the past not how "risky" it is. It's not enough to evaluate a fund based on performance alone. Financial professionals must also look at its risk-adjusted return, In this chapter attempt has been made to compare the various equity diversified schemes (selected schemes) with reliance equity diversified schemes. all open ended equity schemes of the various Mutual funds has been selected for comparison.

50

INVESTMENT RISK
Risks help in knowing the variation in portfolio returns. While past performance does not necessarily predict future returns, it can tell you how volatile a fund has been. Generally, the more volatile a fund, the higher the investment risk. Volatility is nothing but the fluctuation of the Net Asset Value (price of a unit of a fund). The higher the volatility, the greater the fluctuations of the NAV. Generally speaking, risk and potential return are related. This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities present in the market, called market risk or systematic risk And second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. Beta is calculated by relating the returns on a mutual

51

fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis-vis one another in a better way The various funds that have been taken for comparison are :

BANKING SECTOR FUND:

Reliance Banking fund. Benchmark BeEs fund

UTI banking fund

Power sector fund:

Reliance power sector fund ICICI power sector fund

PHARMACEUTICAL SECTOR:
Reliance pharma sector fund SBI Magnum pharma fund

UTI Growth sector Pharma. The comparison is done on following parameters.

52

Portfolio Returns Risk and volatility Enrty load, exit load, minimum investment required, investment style. Performance of the schemes/funds

THE VARIOUS SUB FACTORS THAT HAVE BEEN TAKEN FOR COMPARISON:

PORTFOLIO:
Market capitalization Portfolio turnover Asset under management Sectoral holdings P/E ratio

RISK AND VOLATALITY:

The sub class parameters for analysis are: Standard deviation Sharpe ratio Beta

53

Alpha

54

RETURNS:
NAV 6 months 1 year 3 year Return since inception

55

FUND SNAPSHOT

56

In this chapter attempt has been made to compare various sectoral schemes (selected schemes) ie 1. Banking sector fund 2. Power sectoral fund 3. Pharmaceutical sector fund 4. Media and Entertainment sector fund

Banking sector fund :

Banking sector funds are those funds that invest there money in only one sector i e bankig sector . In other words a banking sector fund invests all of its corpus in one sector ie it invests in only different banks. As a sector, banking is more amenable to sector-fund investing than other sectors. Banking is the lifeline of the economy and more than a handful of banks can be identified which have a high probability of surviving over the next decade. World over, banking stocks have generally fluctuated less vis--vis the market index suggesting that the risks are lower. In this backdrop, remaining invested in banking stocks for a longer period of time is possible compared to other stocks.

57

The various funds that have been taken for comparisons are: UTI Banking fund Reliance banking fund.

Bank bech banking fund.

UTI BANKING FUND : INVESTMENT OBJECTIVE:

An open- ended equity fund with the objective to provide capital appreciation through investments in the stocks of the companies/ institutions engaged in the banking and financial services activities.

58

INVESTMENT STYLE:

Asset management company Launch date Fund manager Type of scheme Nature of scheme Minimum investment Total assests

uti mutual fund 9 march 2004 Ms. Gautami Desai Open ended Sectoral Rs 5000 Rs 84.36 crores

Load structure :

Investment value <Rs 2 crores >= Rs 2 crores

Entry load 2.25% Nil

Holding period <= 180 days <= 180 days

Exit load 1% 0.50%

59

PORTFOLIO CHARACTERSTIC Asset Alloction

AS ON 31/07/07 Equity Debt Others

% NET ASSETS 98.09 0.00 1.91

60

SECTORAL ALLOCATION:

TOP FIVE SECTOR Banks Banks Banks Banks Finance 24.84% 21.67% 10.01% 5.43% 5.08%

% of net assets

8% 15%

8% 37%

banks banks banks banks

32%

finance

61

TOP TEN HOLDINGS:

ICICI bank SBI HDFC BANK AXIS BANK HDFC FEDERAL BANK UNION BANK OF INDIA PUNJAB NATIONAL BANK INFRASTRUCTURE DEVP POWER FINANCE CORP

24.84% 21.67% 10.01% 5.43% 5.08% 3.72% 3.59% 3.57% 3.22% 2.98%

62

RELIANCE BANKING FUND: Investment objective :

The primary investment objective of the scheme is to seek to generate continuous return by actively investing in equity / equity related or fixed income securities of banks.

FUND DETAILS

Asset management company Launch date Fund manager Type of scheme Minimum investment Entry load

Reliance mutual fund ltd May 08 2003 Sunil singhania Open ended Rs 5000 2.25 %

Exit load

Nil

63

PORTFOLIO CHARACTERISTICS ASSET ALLOCATION:

AS ON 31/07/07 EQUITY DEBT OTHERS

%NET ASSETS 79.28% 0.00% 20.72%

64

SECTORAL ALLOCATION:
TOP 5 SECTORS Cash & bank balance St bank of India J M financial ICICI BANK Federal Bank 20.72% 16.48% 7.47% 7.14% 7.10%

% of net assets

cash &bank balance 7.1 7.14 7.47 16.48 st bank of India 20.72 J M Financial ICICI bank Federal bank

BENCHMARK BeES BANKING FUND:

65

INVESTMENT OBJECTIVE :
The scheme aims to generate returns that are commensurate with the performance of the CNX Bank Index subject to tracking error by investing atleast 90% of its total assets in the stocks of underlying index.

DETAILS ABOUT THE FUNDS:

Lanch date Fund manager Minimum investment Type of scheme Entry load Exit load

26- 05-04 Vishal jain 10000 Open ended 2.25 0%

66

FUND STYLE:

PORTFOILO CHARACTERISTIC ASSET ALLOCATION:

As on 31- 03-07 Equity Debt Others

% of Net Assets 99.73% 0.00% 0.27%

67

PORTFOILO CONCENTRATION:

As on 31-03-07 Top 3 holdings Top 5 holdings

% of NET ASSETS 99.73% 79.48%

SECTORAL ALLOCATION:

TOP 5 SECTORS ICICI Bank ST bank of INDIA HDFC Bank Kotak mahindra bank Axis Bank 29.22% 25.37% 11.88% 7.18% 5.78%

68

TOP 5 SECTORS ICICI Bank ST bank of INDIA HDFC Bank Kotak mahindra bank Axis Bank
7.18% 11.88% 5.78% 29.22%

25.37%

Power fund :
Power is one of the key drivers for the development in the economy. The various funds that have been taken for comparison are : Reliance power diversified ICICI power fund

69

Reliance Diversified power sector fund :

Reliance Diversified power sector fund is the pioneer in its category .

Investment objective:
The primary investment objective of the scheme is to seek to generate continuous returns by actively investing in equity and equity related or fixed income securities of power and other associated companies. The fund hails from one of the most reputed and trusted fund houses of India named Reliance capital Asset management that manages more than Rs 59000 of asset under management with more than Rs 32 lakhs of investor base.

FUND SNAPSHOT

Fund manager Scheme corpus as on 28/06/07 Inception date Entry load Minimum Investment 52 week NAV High/low

Mr.sunil singhania 1032.23 April 2004 2.25 5000 43.27/22.78

70

STYLE OF THE FUND:

SECTORAL ALLOCATION:

Top 5 sectors Cash & bank balance Reliance energy Jindal steel Jaiprakash Assoc ABB 29.36% 8.34% 7.61% 5.87% 5.81%

71

% of net assets

cash & bank bal Reliance energy Jindal steal Jai prakash Assoc ABB

ASSET ALLOCATION:

AS ON 31/ 07 / 07 Equity Debt Others

% OF NET ASSETS 70.64% 0.00% 29.36%

ICICI PRU POWER SECTOR FUND: INVESTMENT OBJECTIVE:

The scheme seeks to achieve long term capital appreciation through investment in the core sectors of the economy like telecom, transportation, energy and financial services.

FUND STYLE:
72

73

FUND DETAILS

FUND MANAGER ASSET MANAGEMENT COMPANY INCEPTION DATE NATURE OF SCHEME MINIMUM INVESTMENT ( Rs) MINIMUM SIP INVESTMENT(Rs) ENTRY LOAD EXIT LOAD TYPE OF SCHEME

Anand Shah ICICI prudential AMC 03-09-1994 Equity 5000 50 2.25% 0.00% Open Ended

PORTFOLIO CHARACTERISTICS: ASSET ALLOCATION:

As on 31/07/07 Equity Debt Others

% of Net Assets 89.23 1.88 8.89

74

PORTFOLIO CONCENTRATION:

As on 31/07/07 Top 3 sector Top 5 holdings Top 10 holdings

% of Net assets 47.23 29.15 44.97

SECTORAL ALLOCATION:

As on 31/07/07 Petroleum products Telecom services Cash & bank bal Software Software

% of Net Assets 7.00% 6.72% 5.74% 5.59% 5.39%

75

% of Net Assets

5.39%

7.00%

5.59% 6.72% 5.74%

Petroleum products Telecom services Cash & bank bal Software Software

TOP 5 HOLDINGS:

Name of Holding Reliance Industries Bharti Airtel TATA Consultancy Services Infosys Technologies ICICI Bank

Instrument Equity Equity Equity Equity Equity

% of Net Assets 7.00 6.72 5.59 5.39 4.45

76

PHARMACEUTICAL SECTORAL FUND :

The pharmaceutical industry is very important to the economy of every country. Pharmaceuticals, especially drugs, are so priceless that no nation can survive without them and every serious-minded government pays great attention to drugs.

The various funds that have been taken for comparisons are :

SBI MAGNUM PHARMA FUND. UTI GROWTH SECTOR FUND PHARMA. RELIANCE PHARMA FUND .

RELIANCE PHARMA FUND: INVESTMENT OBJECTIVE :

The primary investment objective of the scheme is to seek to generate continuous returns by investing in equity and equity related or fixed- income securities of pharma and other associated companies.

77

FUND SNAPSHOT

Mutual fund family AMC Asset Fund class Scheme Assets ( Rs in cr) Inception date Minimum investment Entry load Exit load Fund manager

Reliance capital asset management ltd 59857.01 Equity pharma 141.22 May -26-2007 Rs 5000 2.25 0% Sailesh Raj Bhan

ASSET ALLOCATION:
As on 31/07/07 Equity Debt others % of net assets 94.96 0.00 5.04

78

PORTFOLIO CONCENTRATION:

As on 31/ 07/07 Top 3 Sectors Top 5 holdings Top 10 hodings

%of Net Assets 93.46 59.13 80.03

SECTORAL ALLOCATION :

TOP 5 SECTORS Ankur drugs Divi s Lab Dishman pharma Sun pharma FDC 19.48% 15.28% 11.43% 6.78% 6.17%

79

SECTORAL ALLOCATION
TOP 5 SECTORS Ankur drugs Divi s Lab Dishman pharma Sun pharma
6.17% 6.78%

FDC
19.48%

11.43% 15.28%

UTI GROWTH SECTOR FUND PHARMA: INVESTMENT OBJECETIVE:

To invest in companies engaged in business of manufacturing and marketing of bulk drug, formulations and healthcare products and services.

80

FUND DETAILS

StructurE Inception date Minimum investment Entry load Exit load Fund Manager Fund Class

Open ended equity fund May 27 1999 Rs 5000 2.25% Nil Sanjay Ramdas Dongre Equity Pharma

ASSET ALLOCATION:

AS ON 31/07/07 Equity Debt Others

% of Net Assets 95.13 0.00 4.87

Portfolio concentration:

As on 31/0/07 Top 3 sectors Top 5 Holdings

% of Net Assets 95.13 41.50

81

Top 10 Holdings

69.62

SECTORAL ALLOCATION:

TOP 5 sectors pharmaceutical Pharmaceutical Pharmaceutical Pharmaceutical Pharmaceutical 10.11% 8.68% 8.31% 7.87% 6.53%

82

SECTORAL ALLOCATION
TOP 5 sectors pharmaceutical Pharmaceutical Pharmaceutical Pharmaceutical
6.53%

Pharmaceutical
10.11%

7.87% 8.68% 8.31%

SBI MAGNUM PHARMA FUND : INVESTMENT OBJECTIVE :

To provide the investors maximum growth opportunity through Equity investments in stocks of growth oriented sectors. There are four sub-funds dedicated to specific sectors viz IT , Pharmaceuticals,FMCG and a sub contra fund for investment in stocks currently out of favour.

FUND DETAILS

83

Mutual fund family AMC Asset Fund class Scheme Assets (Rs in cr ) Inception Date minimum investment Entry load Exit load Fund manager

SBI funds management private ltd. 20272.97 Equity pharma 49.22 Jul-31-1999 Rs 2000 2.25% 1% Vivek pandey

84

ASSET ALLOCATION
AS ON 31/07/07 Equity Debt Others % OF NET ASSETS 100.12 0.00 -0.12

PORTFOLIO CONCENTRATION:
AS ON 31/07/07 Top 3 sectors Top 5 Holdings Top 10 Holdings % OF NET ASSETS 100.12 65.51 98.82

SECTORAL ALLOCATION:
TOP 5 SECTORS Dishman Pharma Vimta labs Lupin Glaxosmithkline Orchid Chemicals 20.26% 12.97% 11.81% 11.00% 9.47%

85

TOP 5 SECTORS Dishman Pharma Vimta labs Lupin Glaxosmithkline Orchid Chemicals
9.47% 20.26% 11.00%

11.81%

12.97%

FUND STYLE:

86

FUND ANALYSIS: BANKING SECTOR FUNDS: PERFORMANCE:

Fund name Banking BeES Relince banking UTI banking 6mth return(%) 12.46 24.49 10.01 6mth rank 2/22 1/22 2/2 1 yr return 1yr rank 39.49 52.45 43.35 1/22 2/2 3yrs return 41.00 39.97 40.33 3yrs rank 4/19 2/2

PERFORMANCE
60 50 40 RETURN(%) 30 20 10 0
Fund name Banking Relince UTI BeES banking banking

1 yr return 3yrs return

FUNDS

87

PORTFOLIO:
FUND NAME Banking BeES Reliance banking UTI banking 27. 2.81 9297.79 5.00 175.38 44.18 P/ RATIO 22.89 E P/B ratio Market cap Turnover ASSET(RsCR TOP (%) 201.00 Holdings 79.48 5

3.09

31,690.65

6439.52

23.45

2.85

33,376.01

44.25

84.36

67.03

RISK AND VOLATALITY

Fund name Banking BeEs Reliance banking UTI banking Fund grade High Not rated Not rated risk Standard deviation 8.76 7.89 7.68 Sharpe ratio 0.35 0.37 0.38 Beta 0.98 0.86 0.89 Alpha 0.12 0.11 0.05

88

ANALYSIS OF THE BANKING SECTORAL FUND : STANDARD DEVIATION:

It is a statistical measure of the historic volatility of a portfolio. It measures the dispersion of a fund's periodic returns (often based on 36 months of monthly returns). The wider the dispersions, the larger the standard deviation and the higher the risk. The least the standard deviation the better is the fund. UTI banking fund has got the least standard deviation of 7.68 and it is followed by Reliance banking and Banking BeES. Since Banking BeES volatility. has got the maximum standard deviation it has high risk

BETA:
It is the statistical measure of a portfolio's sensitivity to market movements. For example, a benchmark index such as the BSE Sensex or S&P CNX 500 has a beta of 1.0. A beta of more or less than 1.0 shows that a fund's historical returns have fluctuated more or less than the relevant benchmark. From the above graph we can see that BANKING BeES has got the highest beta thus it is the most volatile fund and it is not advisable to invest in these funds. Reliance banking fund has got the least beta and it is followed by : UTI banking fund

89

Banking BeES fund

Thus reliance banking fund is performing better than others in its category.

ALPHA
The alpha of a mutual fund describes the difference between a funds actual return over a period of time and its expected return, given the fund's level of risk. In this case, risk of the fund is measured by its beta (see below). A fund with a positive alpha has done better than expected while a fund with a negative alpha has done worse than would be expected given the level of risk of the fund. Alphas are most commonly used with stock funds. Funds with positive alphas are considered to be better choices than those with negative alphas.

The higher the Alpha the better is the fund . In this case Banking BeES is having the maximum Alpha of 0.12 and it is followed by Reliance Banking Fund with alpha of 0.11. Since there is minor difference between Banking BeES and Reliance Banking Fund so they are performing equally. The UTI banking fund has got the lowest Alpha so it is more volatile fund and hence it is not advisable to invest in these funds.

SHARPE RATIO:
Sharpe Ratio= Fund return in excess of risk free return/ Standard deviation of Fund So what does one do for funds that have low correlation with indices or benchmarks? Use the Sharpe ratio. Since it uses only the Standard Deviation, which measures the volatility of the returns there is no problem of benchmark correlation. The higher the

90

Sharpe ratio, the better a funds returns relative to the amount of risk taken. Sharpe ratios are ideal for comparing funds that have a mixed asset classes. That is balanced funds that have a component of fixed income offerings

Sharpe ratio 0.38 0.37 0.36 0.35 0.34 0.33 Banking BeEs Reliance banking UTI banking Sharpe ratio

ANALYSIS:
Higher the sharpe ratio better is the fund performs. As we can see from the above graph that UTI banking fund has got the highest sharpe ratio of 0.38 . It is followed by Reliance Banking fund Banking BeEs fund

91

RANKS GIVEN TO VARIOUS BANKING SECTOR FUNDS

Fund name

Standard deviation

Ranks

Sharp e ratio

Ranks

Beta

Ranks

Alpha

Ranks

yr Ran k 3

return 3 0.98 3 0.12 1 39.49

Banking beES Reliance banking UTI banking

8.76

0.35

7.89

0.37

0.86

0.11

52.45

7.60

0.38

0.89

0.05

43.35

On the basis of overall analysis UTI banking is performing better than other funds in its category of certain selected sectoral funds

92

PHARMA SECTOR FUNDS: PERFORMANCE:

Fund name 6Mth return 6mth rank Magnum phrama Reliance phrama UTI phrama -4.00 2/5 -3.23 5/5 15.88 4/5 16.68 1/5 24.46 1/5 31.32 1/5 -4.87 3/5 1year return -2.96 1year rank 4/5 3 year 3year return 26.46 rank 2/5

93

ANALYSIS ON THE BASIS OF PERFORMANCE:

As we can see from the above graph that Reliance pharma fund is giving the highest 1yr return of 24.46% and it is followed by : On the basis of 3yr return we can see that Reliance pharma 31.32% and it followed by : SBI Magnum pharma fund with 26.46% 3yr return. UTI pharma & healthcare fund with 15.88% 3 yr return. So on analyzing 3 years return given by these funds Reliance pharma fund is giving better returns than the other 2 funds.

Portfolio

Fund name Magnum Pharma Reliance Pharma UTI Pharma

P/E Ratio 30.90

P/B ratio 4.55

Market Cap 2063.6 6

Turnover(% ) 1.00

Assets Top

(Rs cr) Holding 45.89 65.51

25.68

6.61

1925.2 7

26.00

37.44

59.13

25.41

5.07

4640.5 0

98.30

69.79

41.50

94

RISK AND VOLATILTY:

Fund name Magnum Pharma Reliance Pharma UTI Pharma

Standard

Sharp

Beta

Alpha

Deviation e Ratio 6.55 0.34 0.82 1.16

7.09

0.35

0.90

1.37

6.34

0.21

0.90

0.20

95

STANDARD DEVIATION:
As it has already been explained earlier that least the standard deviation the better the fund is performing because standard deviation is the deviation between the planned and actual performance. In this case ,UTI pharma and Healthcare is having the least standard deviation and it is followed by : SBI Magnum pharma fund with standard deviation 6.55 and Reliance Pharma fund with standard deviation of 7.09 So on the basis of standard deviation UTI pharma sectoral fund is performing best of the three other funds in its category.

BETA:
In the case of Beta also the least the beta is the better the fund is performing according to expectations .In this case SBI Magnum pharma Fund is having the least BETA of 0.82 and it is followed Reliance Pharma Fund with BETA of 0.90 and UTI Pharma Fund with same Beta as Reliance Pharma fund is having ie 0.90.

96

Since SBI Magnum is having the least Beta of 0.82 so it is performing better than the other three funds in its category. Since UTI pharma and Healthcare fund and Reliance Pharma fund are having the same BETA of 0.90 so they are performing equally and they are more volatile than SBI Magnum Pharma fund.

ALPHA:
As it has already been explained earlier that higher the Alpha ratio the better the fund is performing. As we can see from the above table that Reliance pharma has got the highest Alpha ratio of 1.37 and it is followed by : SBI Magnum Pharma fund with the alpha ratio of 1.16 % UTI pharma & healthcare fund with the Alpha Ratio of 0.20% Since UTI pharma fund has got the lowest alpha ratio it is more volatile than other funds in its category.

SHARPE RATIO:
AS it has already explained earlier the higher the sharpe ratio , the better a funds return relative to the amount of risk taken. Since we can see from the above graph that Reliance pharma fund is leading in its category with the highest sharpe ratio of 0.35% and it is followed by :

97

 SBI Magnum pharma fund with sharpe ratio of 0.34% UTI pharma & healthcare fund with sharpe ratio of 0.21% As we can observe that there is very little difference between reliance pharma fund and SBI Magnum pharma fund so they are performing equally.

98

RANKS GIVEN TO VARIOUS FUNDS:

Fund name

Standard Deviation

Ranks Sharp e Ratio

Ranks Beta Ranks Alpha Ranks 1 year retur n

Ranks

Magnu m Pharma Relianc e Pharma UTI Pharma

6.55

0.34

0.82

1.16

-2.95

7.09

0.35

0.90

1.37

24.46

6.34

0.21

0.90

0.20

-3.23

ANALSIS ON THE BASIS OF RANKS:

As we can see from the above table Reliance pharma sector fund is performing better than the other two funds in its category ie SBI Magnum Pharma fund and UTI pharma & healthcare fund.

99

It is followed by SBI Magnum pharma fund which is average performing fund because it is giving average standard deviation of 6.55 % , sharpe ratio of 0.34%, alpha of 1.16% , 1 yr return of -2.95. UTI pharma and Healthcare fund is not performing good as it has lowest sharpe ratio of 0.21 and Alpha of 0.20% and 1 yr return of -3 .23.

POWER SECTORAL FUND: PERFORMANCE :

Fund name

6Mth return 6mth rank

1year return 26.60

1year rank 71/16 1

3 year 3year return 46.50 rank 17/83

ICICI power

Pru 6.25

99/166

Reliance power

28.57

1/6

67.79

1/4

64.25

1/3

100

ANALYSIS ON THE BASIS OF PERFORMANCE:

As we can see from the above graph that Reliance diversified power is giving the highest 1 yr return of 67.79% and it is followed by ICICI pru power sectoral fund which is giving the return of 26.60% On the Basis of 3yr returns given by these Funds we can see rom the above graph that again Reliance Diversified power sectoral fund is leading with 64.25% and it is followed by ICICI pru power sectoral fund which I giving return of 46.50%

PORFOLIO:

Fund name ICICI Pru power Reliance power

P/E Ratio 28.64

P/B ratio 6.76

Market Cap 30089.6 0

Turnover(% ) 198.00

Assets (Rs cr) 1514.1 9

Top

Holding 29.15

34.00

7.27

9023.02

30.00

1428.1 9

33.24

101

RISK AND VOLATITY:

Fund name

Fund Risk Grade

Standard

Sharp

Beta

Alpha

Deviation e Ratio

ICICI Pru power Reliance power

Average

6.01

0.55

0.96

0.74

Not Rated

6.68

0.64

0.88

1.94

102

ANALYSIS ON THE BASIS OF RISK AND VOLATITY:

BETA:
In case of BETA the lower the Beta the better the fund is performing. In other words we can say that the fund which is having the lowest beta is the best performing fund. As we can see from the above graph that Reliance Diversified power sectoral fund is having the lowest beta of 0.88 and it is followed by ICICI pru power sector fund with BETA of 0.96. Hence on the basis of BETA Reliance Diversified power sectoral fund is leading and it is followed by ICICI pru power sector fund.

ALPHA:
High alpha ratio represents that the fund is performing better than the expectations. In this case , Reliance diversified power sector is having the highest Alpha of 1.94 and it is followed by ICICI pru power sector fund with alpha of 0.74.

SHARPE RATIO:
In the case of sharpe ratio also higher the sharpe ratio the better is the fund.

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As we can see from the above graph that again Reliance diversified power sector fund is having the highest Sharpe ratio of 0.64 followed by ICICI pru power sector with Sharpe Ratio of 0.55.

RANKS GIVEN TO VARIOUS POWER SECTOR FUNDS:

Fund name

Standard Deviation

Ranks Sharp e Ratio

Ranks Beta Ranks Alpha Ranks 1 year return

Ranks

ICICI pru power Relianc e power

6.01

0.55

0.96

0.74

26.60

6.68

0.64

0.88

1.94

67.79

ANALYSIS ON THE BASIS OF RANKS GIVEN TO VARIOUS FUNDS:

As we can see from the above table that Reliance Diversified power sector fund is leading in its category of power sectoral funds as it has got the highest sharpe ratio of 0.64 and highest Alpha of 1.94 . It also has got the lowest BETA of 0.88.

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It is also giving the maximum return of 67.79. It is follwed by ICICI pru power sector fund with lowest standard deviation. Hence as a conclusion Reliance diversified power sector fund is leading in its category.

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CONCLUSION:
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 appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus realizing the necessity of the performance appraisal of various mutual funds schemes in the present scenario comparative study of selected mutual funds schemes (equity schemes) with reliance mutual funds has been undertaken. On the basis of oveall analysis I have concluded that in the case of banking sector UTI banking fund is performin better than others , and it is followed by Reliance banking sector fund Benchmark BeES.

PHARMA SECTOR:

In case of pharma sector it has been concluded that Reliance pharma sector fund is performing better than the other two funds in its category ie SBI Magnum Pharma fund and UTI pharma & healthcare fund.

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It is followed by SBI Magnum pharma fund which is average performing fund because it is giving average standard deviation of 6.55 % , sharpe ratio of 0.34%, alpha of 1.16% , 1 yr return of -2.95. UTI pharma and Healthcare fund is not performing good as it has lowest sharpe ratio of 0.21 and Alpha of 0.20% and 1 yr return of -3 .23.

POWER SECTOR:
The conclusion for power sector is that Reliance Diversified power sector fund is leading in its category of power sectoral funds as it has got the highest sharpe ratio of 0.64 and highest Alpha of 1.94 . It also has got the lowest BETA of 0.88. It is also giving the maximum return of 67.79. It is follwed by ICICI pru power sector fund with lowest standard deviation. Hence as a conclusion Reliance diversified power sector fund is leading in its category.

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SUGGESTIONS AND RECOMMENDATIONS

In the study it is observed that mutual fund have great potential in Indian market. Only little % of population put their money in mutual funds. So in order to attract more investors following recommendation should be taken care of. More awareness among the people must be created about the mutual funds. There should be better communication channels through which they can get to know about different schemes and funds. Service Marketing For increasing the clients provide them best service you can give and provide them all kind of facilities which can attract them and they invest more. Promotional strategies at investors level are also very important because once a client enters into the market for his lifetime a company flashes its first impression as the last impression. The people do not want to take risk. The AMC should launch more diversified funds so that the risk minimizes. This will lure more and more people to invest in mutual funds. Entry load usually varies from 2 to 2.25%. Therefore, a few no load based funds should be introduced. Thus, it would attract more and more customers for the industry and lead to its expansion

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BIBLOGRAPHY
SEARCH ENGINE www.google.com WEBSITES www.reliancemutual.com www.mutualfundsindia.com www.valueresearchonline.com www.amfiindia.com www.easyMF.com www.myiris.com www.Indiamart.com www.easyMF.com Monthly fact sheets issued by the companies Magazine: Author ICICI Bank, Investment Review, June 2007

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