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ACKNOWLEDGEMENT
I am indebted to the all powerful Almighty God for all the blessings he showered
on me and for being with me throughout the study.
I place on record my sincere gratitude and appreciation to my project guide Dr,
Reader, Department of Banking Technology, for her kind co-operation and
guidance which enabled me to complete this project.
I express my sincere thanks to Dr.K.CHANDRASEKHAR RAO, HOD,
Department of Banking technology, School of Management, PondicherryUniversity, who provided me an opportunity to do this project.
I am deeply obliged to Mr.SATISH CHOWDARY, Cluster Head, Reliance
Money, Visakhapatnam (A.P.) for taking the role as my external guide and
guiding and supporting continuously in shaping my project, correcting errors,
clearing doubts throughout the project.
I would also like to extend my thanks to other members for their support
especially Mr.PRATAP POTAN, Centre Manager, Reliance Money,
Visakhapatnam (A.P.) and entire Reliance Mutual Fund Sales Team and Other
Private Banks Sales Team for their constant guidance and support.
Lastly, I would like to express my gratefulness to the parents for seeing methrough it all.
RAVI KUMA DOGGA(Signature of the Candidate)
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EXECUTIVE SUMMARY ABOUT MY SUMMER
INTERNSHIP TRAINING
I underwent my summer internship training at RELIANCE MONEY in
Visakhapatnam. The duration of my training program is for 45 days i.e from
14th may,2010 to 30th june,2010. This company is situated in the following
address
Reliance Money Ltd
47-15-14/2
VRC COMPLEX
DWARKANAGAR
VISAKHAPATNAM
KNOWLEDGE GAINED:
This internship training in RELIANCE MONEY helped me to gain more
pratical knowledge in the field of capital market and its related activities. It
gave me the complete understanding of mutual funds and how the
performance measures such as sharpes ratio, treynors ratio, beta, standarddeviation are calculated practically.
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This internship gave me a great learning experience and at the same time it gave
me enough exposure to implement my ideas that I learned during my first year of
MBA.
The analysis and advice provided by me in this internship is based on market
research and also from various offer documents.
In this internship I learned how the mutual funds are compared based on various
performance measures like Sharpes ratio, Treynors ratio,Beta and Returns for a
period of one year. I also learned that which scheme is better for the investor
based on risk profile.
I also found that, of all the investment avenues we are having in present day
scenario such as LIC, STOCK MARKETS, BANKS, REAL ESTATE etc, mutual
funds are better because of the returns that mutual funds have given to their
investors in the past. Compared to all the above said investment avenues, mutual
funds have better edge of returns with less risk.
Finally my observation after completing this summer internship is that, more
awareness should be created by AMFI or SEBI among the MUTUAL FUNDS
because most of the people were not aware of the advantages of investing in
mutual funds. Even now, most of the people for saving their money for future use,
they are depositing money in banks, investing in lics, etc,.
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TABLE OF CONTENTS
Introduction
Industry profile
Performance Measures of Mutual Funds
Company Profile
Research Methodology
Data Analysis and Interpretation
Observations
Limitations of the study
Suggestion
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Conclusion
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CHAPTER-1
INTRODUCTION & DESIGN
1.1INTRODUCTION
In the last decade we have seen enormous growth in the size of mutual fund
industry in India. Especially the private sector has shown tremendous growth.
With unmatched advances on the information technology, increased role of the
institutional investors in the stock market and the SEBI still in its infancy, the
mutual fund industry players gained unparalleled and unchecked power. Toensure the safety of investment of small investors against whims and fancies of
professional fund managers have become the need of the hour.
1.1.1WHAT IS INVESTMENT?
Trade off between risk and reward while aiming for incremental gain andpreservation of the invested amount (principal). In contrast, speculation aims at
'high gain or heavy loss,' and gambling at 'out of proportion gain or total loss.'Two main classes of investment are
Fixed income investment such asbonds,fixed deposits, preference shares
Variable income investment such as business ownership (equities),property ownership.
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In economics, investment means creation of capital or goods capable of producingother goods or services. Expenditure on education and health is recognized as aninvestment inhuman capital, and research and development in intellectualcapital. Return on investment (ROI) is a key measure of firms performance.
1.1.2 MUTUAL FUND SNAPSHOTS
100% growth in the last 6 years.
Numbers of foreign AMCs are in the queue to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under management
worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
We have approximately 37 mutual funds which are much less than US having
more than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing
cities.
Mutual fund can penetrate rural like the Indian insurance industry with simple and
limited products.
SEBI allowing the MF's to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Introduction of Financial Planners who can provide need based advice.
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The Indian mutual funds business is expected to grow significantly in the coming
years due to a high degree of transparency and disclosure standards comparable to
anywhere in the world, though there are many challenges that need to be
addressed to increase net mobilization of funds in this sector
Indian Mutual fund industry exhibited 200% growth in the last 10 yrs from
Rs.470 billion to Rs1400 billion in terms of assets under management (AUM).
The Mutual Funds industry is expected to jump sharply from its present share of
6% of GDP to 40% in the next 10yrs provided the countrys growth rate is
consistently above 6%. The growing investor preference for mutual funds has
resulted in the assets under management of mutual funds growing 8-folds in last 5
yrs. Number of foreign AMC's are in the queue to enter the Indian markets likeUS based Fidelity Investments, with over US$1trillion assets under management
worldwide. Our saving rate is over 23%, highest in the world. Only channeling
these savings in mutual funds sector is required. There is a big scope for
expansion as we have 37 mutual funds which are much less than US having more
than 800.
1.2 STATEMENT OF PROBLEM
Nowadays different types of mutual funds are available and these schemes are
offered by various AMCs across the country. In mutual fund investment is one of the
safest investment avenue for the investor because it reduces the risk involved in the
ivestment. Inorder to increase the return of mutual fund investment, different mutual fund
schemes like growth scheme, income scheme, dividend scheme etc., are available now
offered by various financial institution. The return and the benefits from the schemes
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differ from one another. One scheme yield highest return, another yield moderate return
and the other scheme yield less return. Hence inorder to compare the performance of
different schemes of mutual fund by different AMCs, this study has been undertaken
1.3 OBJECTIVES
1. To study the concept and the various types of mutual funds.
2. To assess the performance of selected mutual fund schemes offered by selected
AMCs.
3. To compare the performance of selected
4. To offer suitable suggestions
1.4 HYPOTHESIS
There are no differences between the incomes of different schemes of mutual fund
offered by selected asset management companies in india. So, the hypothesis of the
study involves comparison between
1. Kotak Emerging equity fund.
2. Reliance Equity Opportunities fund.
3. Franklin India Flexi fund.
4. HDFC Core & satellite fund.5. HSBC India Opportunities fund.
1.5 RESEARCH METHODOLOGY
The following methodology has been adopted to assess the performance of selected
mutual fund scheme
1.5.1 The Methodology involves randomly selecting Open-Ended equity schemes of
different fund houses of the country. The data collected for this project is basically fromthe following source, they are:-
1. Secondary sources: Collection of data from Internet and Books.
1.5.2 PERIOD OF STUDY:
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Three years of data were collected to compare the performance of various mutual fund
schemes offered by selected asset management companies in india.
1.5.3 SAMPLING:Among the various asset management companies(AMCs) or institutions, only five
companies were selected for the study
Among the various schemes offered by selected asset management companies, only
five schemes were selected for comparison.
The convenient sampling method has been used to select the company and the schemes
1.5.4 FRAMEWORK OF ANALYSIS:
The following tools were used to compare the performance of different mutual fund
schemes offered by selected AMCs in India. The tools are as follows:
A) Sharpes Ratio
B) Treynors Ratio
C) (Beta) co-efficient.
D) Returns
A)The Sharpes Measure:-
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is
a ratio of returns generated by the fund over and above risk free rate of return and the
total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned
about. So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where,
Si is Standard Deviation of the fund.
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While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
B)The Treynor Measure:-
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of
return (generally taken to be the return on securities backed by the government, as there
is no credit risk associated), during a given period and systematic risk associated with it
(beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where,
Ri represents return on fund,
Rf is risk free rate of return,
and Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low andnegative Treynor's Index is an indication of unfavorable performance.
C) (Beta) Co-efficient:-Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV
of the fund vis--vis market. The more responsive the NAV of a Mutual Fund is to the
changes in the market; higher will be its beta. Beta is calculated by relating the returns
on a Mutual Fund with the returns in the market. While unsystematic risk can bediversified through investments in a number of instruments, systematic risk cannot. 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.
(Beta) is calculated as N ( XY) X YN ( X2) ( X) 2
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D) Returns:- Returns for the last one-year of different schemes are taken for the
comparison and analysis part.
1.6 NEED OF THE STUDY:
The projects idea is to project Mutual Fund as a better avenue for investment on a
long-term or short-term basis. Mutual Fund is a productive package for a lay-investor
with limited finances, this project creates an awareness that the Mutual Fund is a
worthy investment practice. Mutual Fund is a globally proven instrument. Mutual
Funds are Unit Trust as it is called in some parts of the world has a long and
successful history, of late Mutual Funds have become a hot favorite of millions of
people all over the world.
The driving force of Mutual Funds is the safety of the principal guaranteed, plus the
added advantage of capital appreciation together with the income earned in the form of
interest or dividend. The various schemes of Mutual Funds provide the investor with a
wide range of investment options according to his risk bearing capacities and interest
besides; they also give handy return to the investor. Mutual Funds offers an investor toinvest even a small amount of money, each Mutual Fund has a defined investment
objective and strategy. Mutual Funds schemes are managed by respective asset
managed companies sponsored by financial institutions, banks, private companies or
international firms. A Mutual Fund is the ideal investment vehicle for todays complex
and modern financial scenario.
The study is basically made to analyze the various open-ended equity schemes ofdifferent Asset Management Companies to highlight the diversity of investment that
Mutual Fund offer. Thus, through the study one would understand how a common man
could fruitfully convert a pittance into great penny by wisely investing into the right
scheme according to his risk taking abilities.
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1.7 SCOPE OF THE STUDY
The study here has been limited to analyse open-ended equity Growth schemes of
different Asset Management Companies namely Kotak Mahindra Mutual Fund,
Reliance Mutual Fund, HDFC Mutual Fund, Franklin Templeton Mutual Fund,
HSBC Mutual Fundseach scheme is analysed according to its performance against the
other, based on factors like Sharpes Ratio, Treynors Ratio, (Beta) Co-efficient,Returns.
1.8 LIMITATIONS OF THE STUDY
1. The study is limited only to the analysis of different schemes and its suitability
to different investors according to their risk-taking ability.
2. The study is based on secondary data available from monthly fact sheets,
websites and other books, as primary data was not accessible.
3. The study is limited by the detailed study of various schemes of Five Asset
Management Company.
1.9 SCHEME OF REPORT:
This project consists of five chapters. The first chapter is the introduction and design of
the study.
The second chapter explains the meaning of mutual fund, types of mutual fund and
other related concepts.
The third chapter highlighted the profile of Reliance Money.
Fourth chapter presents the analysis of various mutual fund schemes and the
comparison of schemes.
The last chapter summarizes the findings and suggestions.
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CHAPTER-2
AN OVERVIEW ABOUT
MUTUAL FUND
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2.1 WHAT IS A MUTUAL FUND?
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 then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as 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.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board
of India (SEBI) that pools up the money from individual/corporate investors and invests
the same on behalf of the investors/unit holders, in Equity shares, Government
securities, Bonds, Call Money Markets etc, and distributes the profits. In the other
words, a Mutual Fund allows investors to indirectly take a position in a basket of assets.
Mutual Fund is a mechanism for pooling the resources by issuing units to the investorsand investing funds in securities in accordance with objectives as disclosed in offer
document. Investments in securities are spread among a wide cross-section of industries
and sectors thus the risk is reduced. Diversification reduces the risk because all stocks
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may not move in the same direction in the same proportion at same time. Investors of
mutual funds are known as unit holders.
The investors in proportion to their investments share the profits or losses. The mutual
funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A Mutual Fund is required to be
registered with Securities Exchange Board of India (SEBI) which regulates securities
markets before it can collect funds from the public.
2.2 ORGANISATION OF A MUTUAL FUND:
There are many entities involved and the diagram below illustrates the organizational
set up of a utual Fund:
(For detailed definitions in the above chart refer to annexure 1)
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.
This is because by holding all your money in just one asset, the entire fortunes of your
portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced.
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Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds
contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A
very important risk involved in Mutual Fund investments is the market risk. However,
the company specific risks are largely eliminated due to professional fund management.
2.3 IMPORTANT CHARACTERISTICS OF A MUTUAL FUND
A Mutual Fund actually belongs to the investors who have pooled their
Funds. The ownership of the mutual fund is in the hands of the Investors.
A Mutual Fund is managed by investment professional and other
Service providers, who earns a fee for their services, from the funds.
The pool of Funds is invested in a portfolio of marketable investments.
The value of the portfolio is updated every day.
The investors share in the fund is denominated by units. The value
of the units changes with change in the portfolio value, every day. The
value of one unit of investment is called net asset value (NAV).
The investment portfolio of the mutual fund is created according to The stated
Investment objectives of the Fund.
2.4 OBJECTIVES OF A MUTUAL FUND:
To Provide an opportunity for lower income groups to acquire without
Much difficulty, property in the form of shares.
To Cater mainly of the need of individual investors, whose means are small?
To Manage investors portfolio that provides regular income, growth,
Safety, liquidity, tax advantage, professional management and diversification.
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2.5 ADVANTAGES OF MUTUAL FUNDS:
Reduced Risk.
Diversified investment. Botheration free investment.
Revolving type of investment (Reinvestment).
Selection and timings of investment.
Wide investment opportunities.
Investments care.
Tax benefits.
2.6 STRUCTURE OF A MUTUAL FUND
Sponsor
Mutualfund
Trustees
ASSETMANAGEMENTCOMPANY
Custodian
Registrar
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2.7 TYPES OF MUTUAL FUNDS:
1. OPEN-ENDED MUTUAL FUNDS:-
The holders of the shares in the Fund can resell them to the issuing Mutual Fund
company at the time. They receive in turn the net assets value (NAV) of the shares at
the time of re-sale. Such Mutual Fund Companies place their funds in the secondary
securities market. They do not participate in new issue market as do pension funds or
life insurance companies. Thus they influence market price of corporate securities.
Open-end investment companies can sell an unlimited number of Shares and thus keep
going larger. The open-end Mutual Fund Company Buys or sells their shares. These
companies sell new shares NAV plus a Loading or management fees and redeem shares
at NAV.In other words, the target amount and the period both are indefinite in such
funds
2. CLOSED-ENDED MUTUAL FUNDS:-
A closedend Fund is open for sale to investors for a specific period, after which
further sales are closed. Any further transaction for buying the units or repurchasing
them, Happen in the secondary markets, where closed end Funds are listed. Therefore
new investors buy from the existing investors, and existing investors can liquidate their
units by selling them to other willing buyers. In a closed end Funds, thus the pool ofFunds can technically be kept constant. The asset management company (AMC)
however, can buy out the units from the investors, in the secondary markets, thus
reducing the amount of funds held by outside investors. The price at which units can be
sold or redeemed Depends on the market prices, which are fundamentally linked to the
NAV. Investors in closed end Funds receive either certificates or Depository receipts,
for their holdings in a closed end mutual Fund.
2.8 ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:-
In India Mutual Fund usually formed as trusts, three parties are generally involved viz.
Settler of the trust or the sponsoring organization.
The trust formed under the Indian trust act, 1982 or the trust company
registered under the Indian companies act, 1956
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Fund mangers or The merchant-banking unit
Custodians.
2.9 MUTUAL FUNDS TRUST:Mutual fund trust is created by the sponsors under the Indian trust act, 1982
Which is the main body in the creation of Mutual Fund trust
The main functions of Mutual Fund trust are as follows:
Planning and formulating Mutual Funds schemes.
Seeking SEBIs approval and authorization to these schemes.
Marketing the schemes for public subscription.
Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited Attending to trusteeship function. This function as per guidelines can be
assigned to separately established trust companies too. Trustees are required to
submit a consolidated report six monthly to SEBI to ensure that the guidelines
are fully being complied with trusted are also required to submit an annual
report to the investors in the fund.
2.10 COMPANY (AMC) FUND MANAGERS (OR) THE ASSES
MANAGEMENT
AMC has to discharge mainly three functions as under:
I. Taking investment decisions and making investments of the funds through
market dealer/brokers in the secondary market securities or directly in the
primary capital market or money market instruments
II. Realize fund position by taking account of all receivables and realizations,
moving corporate actions involving declaration of dividends,etc to compensate
investors for their investments in units; and
III. Maintaining proper accounting and information for pricing the units and arriving
at net asset value (NAV), the information about the listed schemes and the
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transactions of units in the secondary market. AMC has to feed back the trustees
about its fund management operations and has to maintain a perfect information
system.
2.11 CUSTODIANS OF MUTUAL FUNDS:
Mutual funds run by the subsidiaries of the nationalized banks had their respective
sponsor banks as custodians like canara bank, SBI, PNB, etc. Foreign banks with
higher degree of automation in handling the securities have assumed the role of
custodians for mutual funds. With the establishment of stock Holding Corporation
of India the work of custodian for mutual funds is now being handled by it for
various mutual funds. Besides, industrial investment trust company acts as sub-
custodian for stock Holding Corporation of India for domestic schemes of UTI,
BOI MF, LIC MF, etc
2.12 Fee structure:-
Custodian charges range between 0.15% to 0.20% on the net value of the
customers holding for custodian services space is one important factor which has
fixed cost element.
2.13 RESPONSIBILITY OF CUSTODIANS:-
Receipt and delivery of securities
Holding of securities.
Collecting income
Holding and processing cost
Corporate actions etc
2.14 FUNCTIONS OF CUSTOMERS
Safe custody
Trade settlement
Corporate action
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Transfer agents
2.15 RATE OF RETURN ON MUTUAL FUNDS:-
An investor in mutual fund earns return from two sources: Income from dividend paid by the mutual fund.
Capital gains arising out of selling the units at a price higher than the
acquisition price
2.16 FORMATION AND REGULATION
1. Mutual funds are to be established in the form of trusts under the Indian trusts
act and are to be operated by separate asset management companies (AMC s)
2. AMCs shall have a minimum Net worth of Rs. 5 crores;
3. AMCs and Trustees of Mutual Funds are to be two separate legal entities and
that an AMC or its affiliate cannot act as a manager in any other fund;
4. Mutual funds dealing exclusively with money market instruments are to be
regulated by the Reserve Bank Of India
5. Mutual fund dealing primarily in the capital market and also partly money
market instruments are to be regulated by the Securities Exchange Board Of
India (SEBI)
6. All schemes floated by Mutual funds are to be registered with SEBI
2.17 SCHEMES
1. Mutual funds are allowed to start and operate both closed-end and open-end
schemes;
2. Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20
crore;
3. Each open-end scheme must have a Minimum corpus of Rs 50 crore
4. In the case of a Closed End scheme if the Minimum amount of Rs 20 crore
or 60% of the target amount, which ever is higher is not raised then the entire
subscription has to be refunded to the investors;
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5. In the case of an Open-Ended schemes, if the Minimum amount ofRs 50 crore
or 60 percent of the targeted amount, which ever is higher, is no raised then
the entire subscription has to be refunded to the investors.
2.18 INVESTMENT NORMS
1. No mutual fund, under all its schemes can own more than five percent of any
companys paid up capital carrying voting rights;
2. No mutual fund, under all its schemes taken together can invest more than 10
percent of its funds in shares or debentures or other instruments of any single
company;
3. No mutual fund, under all its schemes taken together can invest more than 15
percent of its fund in the shares and debentures of any specific industry, except
those schemes which are specifically floated for investment in one or more
specified industries in respect to which a declaration has been made in the offer
letter.
4. No individual scheme of mutual funds can invest more than five percent of its
corpus in any one companys share;
5. Mutual funds can invest only in transferable securities either in the money or in
the capital market. Privately placed debentures, securitized debt, and otherunquoted debt, and other unquoted debt instruments holding cannot exceed 10
percent in the case of growth funds and 40 percent in the case of income funds.
2.19 DISTRIBUTION:
Mutual funds are required to distribute at least 90 percent of their profits annually in
any given year. Besides these, there are guidelines governing the operations of mutual
funds in dealing with shares and also seeking to ensure greater investor protectionthrough detailed disclosure and reporting by the mutual funds. SEBI has also been
granted with powers to over see the constitution as well as the operations of mutual
funds, including a common advertising code. Besides, SEBI can impose penalties on
Mutual funds after due investigation for their failure to comply with the guidelines.
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2.20 MUTUAL FUND SCHEME TYPES:
2.20.1 Equity Diversified Schemes
These schemes mainly invest in equity. They seek to achieve long-term capital
appreciation by responding to the dynamically changing Indian economy by moving
across sectors such as Lifestyle, Pharma, Cyclical, Technology, etc.
2.20.2 Sector Schemes
These schemes focus on particular sector as IT, Banking, etc. They seek to generate
long-term capital appreciation by investing in equity and related securities of
companies in that particular sector.
2.20.3 Index Schemes
These schemes aim to provide returns that closely correspond to the return of a
particular stock market index such as BSE Sensex, NSE Nifty, etc. Such schemes invest
in all the stocks comprising the index in approximately the same weightage as they are
given in that index.
2.20.4 Exchange Traded Funds (ETFs)
ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE
Sensex. They are similar to an index fund with one crucial difference. ETFs are listed
and traded on a stock exchange. In contrast, an index fund is bought and sold by the
fund and its distributors.
2.20.5 Equity Tax Saving Schemes
These work on similar lines as diversified equity funds and seek to achieve long-termcapital appreciation by investing in the entire universe of stocks. The only difference
between these funds and equity-diversified funds is that they demand a lock-in of 3
years to gain tax benefits.
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2.20.6 Dynamic Funds
These schemes alter their exposure to different asset classes based on the market
scenario. Such funds typically try to book profits when the markets are overvalued and
remain fully invested in equities when the markets are undervalued. This is suitable for
investors who find it difficult to decide when to quit from equity.
2.20.7 Balanced Schemes
These schemes seek to achieve long-term capital appreciation with stability of
investment and current income from a balanced portfolio of high quality equity and
fixed-income securities.
3 Medium-Term Debt Schemes
These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of five to seven years.
4 Short-Term Debt Schemes
These schemes have a portfolio of debt and money market instruments where the
average maturity of the underlying portfolio is in the range of one to two years.
5 Money Market Debt Schemes
These schemes invest in debt securities of a short-term nature, which generally means
securities of less than one-year maturity. The typical short-term interest-bearing
instruments these funds invest in Treasury Bills, Certificates of Deposit, Commercial
Paper and Inter-Bank Call Money Market.
6 Medium-Term Gilt Schemes
These schemes invest in government securities. The average maturity of the securities
in the scheme is over three years.
7 Short-Term Gilt Schemes
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These schemes invest in government securities. The securities invested in are of short to
medium term maturities.
8 Floating Rate Funds
They invest in debt securities with floating interest rates, which are generally linked to
some benchmark rate like MIBOR. Floating rate funds have a high relevance when
interest rates are on the rise helping investors to ride the interest rate rise.
9 Monthly Income Plans (MIPS)
These are basically debt schemes, which make marginal investments in the range of 10-
25% in equity to boost the schemes returns. MIP schemes are ideal for investors who
seek slightly higher return that pure long-term debt schemes at marginally higher risk.
2.21 DIFFERENT MODES OF RECEIVING THE INCOME
EARNED FROM MUTUAL FUND INVESTMENTS
Mutual Funds offer three methods of receiving income:
10 Growth Plan
In this plan, dividend is neither declared nor paid out to the investor but is built into the
value of the NAV. In other words, the NAV increases over time due to such incomes
and the investor realizes only the capital appreciation on redemption of his investment.
11 Income Plan
In this plan, dividends are paid-out to the investor. In other words, the NAV only
reflects the capital appreciation or depreciation in market price of the underlyingportfolio.
12 Dividend Re-investment Plan
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In this case, dividend is declared but not paid out to the investor, instead, it is
reinvested back into the scheme at the then prevailing NAV. In other words, the
investor is given additional units and not cash as dividend.
2.22 MUTUAL FUND INVESTING STRATEGIES:
1. Systematic Investment Plans (SIPs)
These are best suited for young people who have started their careers and need to build
their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals
in the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz
Mutual Fund scheme will need to invest a certain sum on money every
month/quarter/half-year in the scheme.
2. Systematic Withdrawal Plans (SWPs)
These plans are best suited for people nearing retirement. In these plans, an investor
invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at
regular intervals to take care of his expenses
3. Systematic Transfer Plans (STPs)
They allow the investor to transfer on a periodic basis a specified amount from onescheme to another within the same fund family meaning two schemes belonging to
the same mutual fund. A transfer will be treated as redemption of units from the scheme
from which the transfer is made. Such redemption or investment will be at the
applicable NAV. This service allows the investor to manage his investments actively to
achieve his objectives. Many funds do not even charge any transaction fees for his
service an added advantage for the active investor.
2.23 ADVANTAGES OF INVESTING TRHOURGH MUTUAL
FUNDS:
There are several reasons that can be attributed to the growing popularity and suitability
of Mutual Funds as an investment vehicle especially for retail investors:
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2.23.1 ASSET ALLOCATION
13 Mutual Funds offer the investors a valuable tool Asset Allocation. This is
explained by an example.
An investor investing Rs.1 lakh in a mutual fund scheme, which has collected Rs.100
crores and invested the money in various investment options, will have Rs.1 lakh
spread over a number of investment options as demonstrated below:
Investment Type Percentage of
Allocation (% of
total portfolio)
Total portfolio of
the Mutual Fund
scheme (Rs. In
crores)
Investors portfolio
allocation (Rs.)
EQUITY: 57% 57 57,000
State Bank of India 15% 15 15,000
Infosys Technologies 12% 12 12,000
ABB 10% 10 10,000
Reliance Industries 9% 9 9,000
MICO 7% 7 7,000
Tata Power 4% 4 4,000
DEBT: 43% 43 43,000
Govt. Securities 20% 20 20,000
Company Debentures 10% 10 10,000
Institution Bonds 9% 9 9,000
Money Market 4% 4 4,000
Total 100% 100 1,00,000
Thus Asset Allocation is allocating your investments in to different investment
options depending on your risk profile and return expectations.
2.23.2 DIVERSIFICATION
Diversification is spreading your investment amount over a larger number of
investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in
Information Technology (IT) stocks, this amount will only buy you a handful of
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stocks of perhaps one or two companies. A fall in the market price of any of these
company stocks will significantly erode your investment amount instead it makes
sense to invest in an IT sector mutual fund scheme so that your Rs.10,000 is spread
across a larger number of stocks thereby reducing your risk.
2.23.3PROFESSIONALS AT WORK
Few investors have the time or expertise to manage their personal investments every
day, to efficiently reinvest interest or dividend income, or to investigate the
thousands of securities available in the financial markets. Fund managers are
professionals and experienced in tracking the finance markets, having access to
extensive research and market information, which enables them to decide which
securities to buy and sell for the fund. For an individual investor like you, thisprofessionalism is built in when you invest in the Mutual Fund.
2.23.3 REDUCTION OF TRANSACTION COSTS
While investing directly in securities, all the costs of investing such as brokerage,
custodial services etc. Borne by you are at the highest rates due to small transaction
sizes. However, when going through a fund, you have the benefit of economies of
scale; the fund pays lesser costs because of larger volumes, a benefit passed on to its
investors like you.
2.23.5 EASY ACCESS TO YOUR MONEY
This is one of the most important benefits of a Mutual Fund. Often you hold shares
or bonds that you cannot directly, easily and quickly sell. In such situations, it could
take several days or even longer before you are able to liquidate his Mutual Fund
investment by selling the units to the fund itself and receive his money within 3
working days.
2.23.6 TRANSPARENCY
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The investor gets regular information on the value of his investment in addition to
disclosure on the specific investments made by the fund, the proportion invested in
each class of assets and the fund managers investment strategy and outlook.
2.23.7 SAVING TAXES
Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88 of
the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per
Financial year in a tax saving scheme. The rate of rebate under this section depends
on the investors total income.
2.23.8 INVESTING IN STOCK MARKET INDEX
Index schemes of mutual funds give you the opportunity of investing in scrips thatmake up a particular index in the same proportion of weightage that these scrips
have in the index. Thus, the return on your investment mirrors the movement of the
index.
2.23.9 INVESTING IN GOVERNMENT SECURITIES
Gilt and Money Market Schemes of Mutual Funds also give you the opportunity to
invest in Government Securities and Money Markets (including the inter banking
call money market)
2.23.10 WELL-REGULATED INDUSTRY
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.
2.23.11 CONVENIENCE AND FLEXIBILITY
Mutual Funds offer their investors a number of facilities such as inter-fund transfers,
online checking of holding status etc, which direct investments dont offer.
2.24 RISKS ASSOCIATED WITH MUTUAL FUNDS:-
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Investing in Mutual Funds, as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk the greater the potential return. The types of risk
commonly associated with Mutual Funds are:
1) MARKET RISK
Market risk relates to the market value of a security in the future. Market prices
fluctuate and are susceptible to economic and financial trends, supply and demand, and
many other factors that cannot be precisely predicted or controlled.
2) POLITICAL RISK
Changes in the tax laws, trade regulations, administered prices, etc are some of themany political factors that create market risk. Although collectively, as citizens, we
have indirect control through the power of our vote individually, as investors, we have
virtually no control.
3) INFLATION RISK
Interest rate risk relates to future changes in interest rates. For instance, if an investor
invests in a long-term debt Mutual Fund scheme and interest rates increase, the NAV of
the scheme will fall because the scheme will be end up holding debt offering lower
interest rates.
4) BUSINESS RISK
Business risk is the uncertainty concerning the future existence, stability, and
profitability of the issuer of the security. Business risk is inherent in all business
ventures. The future financial stability of a company cannot be predicted or guaranteed,
nor can the price of its securities. Adverse changes in business circumstances will
reduce the market price of the companys equity resulting in proportionate fall in the
NAV of the Mutual Fund scheme, which has invested in the equity of such a company.
5) ECONOMIC RISK
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Economic risk involves uncertainty in the economy, which, in turn, can have an adverse
effect on a companys business. For instance, if monsoons fail in a year, equity stocks
of agriculture-based companies will fall and NAVs of Mutual Funds, which have
invested in such stocks, will fall proportionately.
2.25 MUTUAL FUND INDUSTRY PHASES
The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The
History of Mutual Funds in India can be broadly divided into four distinct phases.
First Phase(1964-87)
Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set up
by Reserve Bank of India and functioned under the regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under
management.
Second Phase- 1987-1993(Entry of Public Sector Funds)
1987 marked the entry of non-UTI, Public Sector Mutual Funds set up by Public Sector
Banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non -UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab NationalBank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun
90), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June
1989 while GIC had set up its Mutual Fund in June 1989 while GIC had set up its
Mutual Fund in December 1990.
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At the end of 1993, the Mutual Fund industry had assets under management of
Rs.47,004 crores.
Third Phase-1993-2003 (Entry of Private Sector funds)
With the entry of private sector funds in 1993, a new era started in the Indian Mutual
Fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under which
all Mutual Funds, except UTI were to be registered and governed. The erstwhile
Kothari pioneer (now merged with UTI were to be registered and governed. The
erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first Private
Sector Mutual Fund registered in July 1993.
The 1993 SEBI (Mutual Fund) regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) regulations 1996.
The number of Mutual Fund houses went on increasing, with many foreign Mutual
Funds setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 Mutual Funds with total
assets of Rs.1,21,805 Crores. The Unit Trust of India with Rs.44,541 crores of assets
under management was way ahead of other Mutual Funds.
Fourth Phase (since February 2003)
In February 2003, following the repeal of the Unit Trust of India Act 1963. UTI was
bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores As at the end of January2003, representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.
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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile.
UTI which had in March 2000 more than Rs. 76,000crores of assets under management
and with the setting up of a UTI Mutual Fund, confirming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private sector funds,
the Mutual Fund industry has entered its current phase of consolidation and growth. As
at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.1,
26,726crores under 386 schemes.
2.26 PERFORMANCE MEASURES OF MUTUAL FUNDS:
Mutual Fund industry today, with about 30 players and more than six hundred schemes,
is one of the most preferred investment avenues in India. However, with a plethora of
schemes to choose from, the retail investor faces problems in selecting funds. Factors
such as investment strategy and management style are qualitative, but the funds record
is an important indicator too.
Though past performance alone cannot be indicative of future performance, it is,frankly, the only quantitative way to judge how good a fund is at present. Therefore,
there is a need to correctly assess the past performance of different Mutual Funds.
Worldwide, good Mutual Fund companies over are known by their AMCs and this
fame is directly linked to their superior stock selection skills.
For Mutual Funds to grow, AMCs must be held accountable for their selection of
stocks. In other words, there must be some performance indicator that will reveal the
quality of stock selection of various AMCs.
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
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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. The more responsive the NAV of
a Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a Mutual Fund with the returns in the market. While
Unsystematic risk can be diversified through investments in a number of instruments,
systematic risk cannot. By using the risk return relationship, we try to assess the
competitive strength of the Mutual Funds one another in a better way. In order to
determine the risk-adjusted returns of investment portfolios, several eminent authors
have worked since 1960s to develop composite performance indices to evaluate a
portfolio by comparing alternative portfolios within a particular risk class.
The most important and widely used measures of performance are:
The TreynorMeasure
The Sharpe Measure
Jenson Model
Fama Model
) The Treynor Measure:-
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of
return (generally taken to be the return on securities backed by the government, as there
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is no credit risk associated), during a given period and systematic risk associated with it
(beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where,
Ri represents return on fund,
Rf is risk free rate of return, and
Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and
negative Treynor's Index is an indication of unfavorable performance.
2) The Sharpe Measure :-
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is
a ratio of returns generated by the fund over and above risk free rate of return and the
total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned
about. So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where,
Si is standard deviation of the fund,
Ri represents return on fund, and
Rf is risk free rate of return.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.
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Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the risk
premium by a numerical risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-diversified portfolios. On the other hand,
the systematic risk is the relevant measure of risk when we are evaluating less than
fully diversified portfolios or individual stocks. For a well-diversified portfolio the total
risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and
systematic risk (Treynor measure) should be identical for a well-diversified portfolio,
as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that
ranks higher on Treynor measure, compared with another fund that is highly
diversified, will rank lower on Sharpe Measure.
3) Jenson Model:-
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the differential Return
Method. This measure involves evaluation of the returns that the fund has generated vs.
the returns actually expected out of the fund1 given the level of its systematic risk. The
surplus between the two returns is called Alpha, which measures the performance of a
fund compared with the actual returns over the period. Required return of a fund at a
given level of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where,
Ri represents return on fund, and
Rm is average market return during the given period,
Rf is risk free rate of return, and
Bi is Beta deviation of the fund.
After calculating it, Alpha can be obtained by subtracting required return from
the actual return of the fund.
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Higher alpha represents superior performance of the fund and vice versa. Limitation of
this model is that it considers only systematic risk not the entire risk associated with the
fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of
market is primitive.
4) Fama Model:-
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two is
taken as a measure of the performance of the fund and is called Net Selectivity.
The Net Selectivity represents the stock selection skill of the fund manager, as it is theexcess returns over and above the return required to compensate for the total risk taken
by the fund manager. Higher value of which indicates that fund manager has earned
returns well above the return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where,
Ri represents return on fund,
Sm is standard deviation of market returns,
Rm is average market return during the given period, and
Rf is risk free rate of return.
The Net Selectivity is then calculated by subtracting this required return from
the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and
Jenson model use Systematic risk is based on the premise that the Unsystematic risk is
diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in a
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number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors. However, Sharpe measure and Fama model that consider
the entire risk associated with fund are suitable for small investors, as the ordinary
investor lacks the necessary skill and resources to diversify. Moreover, the selection of
the fund on the basis of superior stock selection ability of the fund manager will also
help in safeguarding the money invested to a great extent. The investment in funds that
have generated big returns at higher levels of risks leaves the money all the more prone
to risks of all kinds that may exceed the individual investors' risk appetit
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CHAPTER-3
COMPANY PROFILE OF
RELIANCE MONEY
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3.1 INTRODUCTION:
The Reliance group - one of India's largest business houses with revenues of Rs.
990 billion ($22.6 billion) that is equal to 3.5 percent of the country's gross
domestic product was split into two.
The group - which claims to contribute nearly 10 per cent of the country's
indirect tax revenues and over six percent of India's exports - was divided
between Mukesh Ambani and his younger brother Anil on June 18, 2005.
Reliance Mutual Fund (RMF) is one of Indias leading Mutual Funds, with
Average Assets under Management (AAUM) of Rs. 1, 18,973 Crores and an
investor count of over 74 Lakh folios. (AAUM and investor count as of May
2010).
Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani
Group, is one of the fastest growing mutual funds in the country. RMF offers
investors a well-rounded portfolio of products to meet varying investor
requirements and has presence in 159 cities across the country. Reliance Mutual
Fund constantly endeavors to launch innovative products and customer service
initiatives to increase value to investors. "Reliance Mutual Fund schemes aremanaged by Reliance Capital Asset Management Limited., a subsidiary of
Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM,
the balance paid up capital being held by minority shareholders."
3.2 SPONSOR
Reliance Capital Limited
Reliance Mutual Fund schemes are managed by Reliance Capital AssetManagement Limited., a subsidiary of Reliance Capital Limited, which holds
93.37% of the paid-up capital of RCAM, the balance paid up capital being held by
minority shareholders. Reliance Mutual Fund (RMF) has been sponsored by
Reliance Capital Ltd (RCL). The promoter of RCL is AAA Enterprises Private
Limited. Reliance Capital Limited is a Non Banking Finance Company. Reliance
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Capital Limited is one of the Indias leading and fastest growing financial services
companies, and ranks among the top three private sector financial services and
banking companies, in terms of net worth.
Reliance Capital has interests in asset management and mutual funds, life
and non-life insurance, private equity and proprietary investments, stock broking
and other activities in the financial services sector. The net worth of RCL is Rs.
6086 crores as on March 31, 2008. Given below is a summary of RCLs
financials:
Table 3.1
Particulars
(Rs. in crores)
2007-08 2006-07 2005-06
Total Income 2079.79 883.86 652.02Profit Before Tax 1171.45 733.18 550.61Profit After Tax 1025.45 646.18 537.61Reserves &Surplus
5779.06 4915.07 3849.58
Net Worth 5927.50 5161.23 4122.46Earnings per
Share (Rs.)
41.75(Basic +Diluted)
28.39(Basic +Diluted)
29.74(Basic +Diluted)
Dividend (%) 55% 35% 30%
Paid up EquityCapital 246.16 246.16 223.40
Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution
to the corpus for the setting up of the Mutual Fund. Reliance Capital Ltd. is
responsible for discharging its functions and responsibilities towards the Fund in
accordance with the Securities and Exchange Board of India (SEBI) Regulations.
3.3 The ASSET MANAGEMENT COMPANY
Reliance Capital Asset Management Ltd.
Reliance Capital Asset Management Ltd. (RCAM) is an unlisted Public Limited
Company incorporated under the Companies Act, 1956 on February 24, 1995.
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Vision Statement:
To be a globally respected wealth creator, with an emphasis on customer care
and a culture of good corporate governance.
Mission Statement:
To create and nurture a world-class, high performance environment aimed at
delighting their customers.
Pursuant to this IMA, RCAM is authorized to act as Investment Manager of the
Mutual Fund. The net worth of the Asset Management Company based on audited
accounts as on March 31, 2009 is Rs. 841.32 Crore. Table 2.6
No. of schemes 57
No. of schemes including
options
185
Equity Schemes 60
Debt Schemes 100
Short term debt Schemes 15
Equity & Debt 2
Money Market 0
Gilt Fund 6
Corpus under management Rs. 109485.69 crores as on May 31, 2010
3.4 MANAGEMENT TEAM
1. Sundeep Sikka (CEO),
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2. Madhusudan Kela (Hd-Equity),
3. Rajesh Derhgawen (Hd-HRD),
4. Himanshu Vyapak (Sales & Dist),
5. Milind Nesarikar (IRO),
6. Suresh T Viswanathan (Compliance),
7. Muneesh Sud (Legal)
3.5 FUND MANAGERS
1. Amit Tripathy,
2. Hiren Chandaria ,
3. Krishan Daga ,
4. Omprakash Kuckien ,
5. Sailesh Raj Bhan ,
6. Sunil Singhania
3.6 INVESTMENT OBJECTIVES OF THE SCHEMES
Reliance Monthly Income Plan aims to generate regular income in order
to make regular dividend payments to unit holders and the secondary objective is
growth of capital.
Reliance Income Fund aims to generate optimal returns consistent with
moderate levels of risk. This income may be complemented by capital
appreciation of the portfolio. Accordingly, investments shall predominantly be
made in Debt and Money Market Instruments.
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Reliance Medium Term Fund aims to generate regular income in order
to make regular dividend payments to unit holders and the secondary objective is
growth of capital.
Reliance Liquid Fund aims to generate optimal returns consistent with
moderate levels of risk and high liquidity. Accordingly, investments shall
predominantly be made in Debt and Money Market Instruments.
Reliance Liquidity Fund aims to generate optimal returns consistent with
moderate levels of risk and high liquidity. Accordingly, investments shall
predominantly be made in Debt and Money Market Instruments
Reliance Short Term Fund aims to generate stable returns for investors
with a short term investment horizon by investing in fixed income securities of a
short term maturity.
Reliance Gilt Securities Fund aims to generate optimal credit risk free
returns by investing in a portfolio of securities issued and guaranteed by the
Central Government and State Governments
Reliance Floating Rate Fund aims to generate regular income through
investment in a portfolio comprising substantially of Floating Rate Debt
Securities (including floating rate securitized debt and Money Market Instruments
and Fixed Rate Debt Instruments swapped for floating rate returns). Reliance Regular Savings Fund Debt Option: The primary investment
objective of this plan is to generate optimal returns consistent with moderate level
of risk. This income may be complemented by capital appreciation of the
portfolio. Accordingly investments shall predominantly be made in Debt &
Money Market Instruments.
Reliance Regular Savings Fund Equity Option: The primary investment
objective is to seek capital appreciation and or consistent returns by activelyinvesting in equity / equity related securities.
Reliance Regular Savings Fund Hybrid Option: The primary
investment objective is to generate consistent return by investing a major portion
in debt & money market securities and a small portion in equity & equity related
instruments.
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Reliance Growth Fund aims to achieve long term growth of capital by
investment in equity and equity related securities through a research based
investment approach.
Reliance Vision Fund aims to achieve long term growth of capital by
investment in equity and equity related securities through a research based
investment approach.
Reliance Equity Opportunities Fund aims to generate capital
appreciation & provide long term growth opportunities by investing in a portfolio
constituted of equity securities & equity related securities
Reliance Banking Fund aims to generate continuous returns by actively
investing in equity / equity related or fixed income securities of banks.
Reliance Diversified Power Sector Fund seek to generate consistent
returns by investing in equity / equity related or fixed income securities of Power
and other associated companies
Reliance Pharma Fund aims generate consistent returns by investing in
equity / equity related or fixed income securities of Pharma and other associated
companies.
Reliance Media & Entertainment Fund to generate consistent returns by
investing in equity / equity related or fixed income securities of media &entertainment and other associated companies.
Reliance Index Fund-Sensex Plan aims to replicate the composition of
the Sensex, with a view to endeavor to generate returns, which could
approximately be the same as that of Sensex.
Reliance Index Fund-Nifty Plan aims to replicate the composition of the
Nifty, with a view to endeavor to generate returns, which could approximately be
the same as that of Nifty. Reliance NRI Equity Fund aims to generate optimal returns by investing
in equity and equity related instruments primarily drawn from the Companies in
the BSE 200 Index.
Reliance Equity Fund: The primary investment objective of the scheme
is to seek to generate capital appreciation & provide long-term growth
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opportunities by investing in a portfolio constituted of equity & equity related
securities of top 100 companies by market capitalization & of companies which
are available in the derivatives segment from time to time and the secondary
objective is to generate consistent returns by investing in debt and money market
securities.
3.7 CUSTODIAN
Deutsche Bank, AG
Deutsche Bank AG, the Custodian shall, inter alia:
Provide post-trading and custodial services to the Mutual Fund.
Keep Securities and other instruments belonging to the Scheme in safe
custody.
Ensure smooth inflow/outflow of securities and such other instruments as
and when necessary, in the best interests of the unit holders.
Ensure that the benefits due to the holdings of the Mutual Fund are
recovered and
Be responsible for loss of or damage to the securities due to negligence on
its part on the part of its approved agents.
3.8 REGISTRAR
M/s. Karvy Computershare Pvt. Limited
The Registrar is responsible for carrying out diligently the functions of a Registrar
and Transfer Agent and will be paid fees as set out in the agreement entered into
with it and as per any modification made thereof from time to time.
3.9 TRUSTEE
Reliance Capital Trustee Co. Limited
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Reliance Capital Trustee Co. Limited (RCTC), a company incorporated under
the Companies Act, 1956, has been appointed as the Trustee to the Fund vide the
Trust Deed dated April 25, 1995 executed between the Sponsor and the Trustee.
3.10 BANKERS TO THE SCHEMES OF RELIANCE CAPITAL
ASSET MANAGEMENT
ABN AMRO Bank Axis Bank
Citibank N. A.
Deutsche Bank AG
Development Bank of Singapore - only for online investors
HDFC Bank Limited
HSBC Bank
ICICI Bank Limited IDBI Bank
ING Vysya Bank
Kotak Mahindra Bank
State Bank of India
Standard Chartered Bank
Yes Bank
AWARDS AND ACHIEVEMENTS:
Reliance Capital Asset Management Limited has won the prestigious US
based, 2010 CIO 100 award. The 2010 CIO 100 Awards is presented by the
CIO magazine & honors 100 companies worldwide that are creating new
business value by innovating with technology.
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Vinay Nigudkar, CTO, Reliance Caital Asset Management Limited has been
awarded this honor for implementation of the CRMnext System that integrates
sales force automation, lead management, customer service and other sales and
analysis applications.
What makes this award more special is that Reliance Capital Asset
Management Limited is the only Indian Company to receive 2010 CIO 100
award.
CRISIL Fund House Level 1
CRISIL Fund House Level 1 rating denotes that RCAM has been judged by
CRISIL Limited (Rating Agency) to sess HIGHEST LEVEL CNBC TV18 -
CRISIL Mutual Fund of the Year Award for 2009:
Reliance Mutual Fund has won the CNBC TV18 - CRISIL Mutual Fund of the
Year Award in the Category Mutual Fund House of the Year (Awarded by
CRISIL FundServices, CRISIL Limited). In total 37 fund houses were
considered as the award universe
OF PROCESS QUALITY AND RISK MANAGEMENT CAPABILITY INFUND MANAGEMENT PRACTICES
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CHAPTER-4
DATA ANALYSIS &INTERPRETATION
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This chapter performs the analysis of selected mutual fund scheme offered by selected
AMCs. Five companies and five schemes were selected for assessing the performance.
The performance is analysed and compared with the help of sharpes ratio, treynor ratio,beta and returns. The results of the analyse are given below:
4.1 The Asset Management Companies selected for analysis are
4.1.1 KOTAK MUTUAL FUND
Kotak mutual fund sponsored by kotak Mahindra bank ltd.
It is wholly owned subsidiary of the bank, is our investment manager. It launched its first scheme in December,1998 and it has over 10 lac investors in
various schemes.
The awards won by Kotak Mutual Fund are Crisil best fund award 2003,
Outlook money best wealth creater debt 2003, lipper fund award 2006, NDTV
award 2009.
4.1.2 RELIANCE MUTUAL FUND
It is one of the Indias leading mutual fund with average Assets Under
Management(AAUM) of 1,01,320 crores.
It has an investor count of 74 lac folios.
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It is a part of Reliance-Anil Dhirubhai Ambani Group.
The awards won by Reliance Mutual Fund are Crisil Mutual Fund of the year
2006, Asia manager for the year 2009
4.1.3 HDFC MUTUAL FUND
This AMC is managing a total of 36 schemes.
HDFC AMC was awarded NDTV profit business leadership award 2009
It is the subsidiary of HDFC bank.
4.1.4 FRANKLIN INDIA TEMPLETON MUTUAL FUND
Franklin templeton investments is one of the largest financial groups in the
world which is based at San Mateo, California, USA.
It manages average asset under management(AAUM) of Rs.34563.92 crores.
Its having an investor base of around 22 lac.
4.1.5. HSBC MUTUAL FUND.
It is a part of the core global investment management of the HSBC group.
It is managing a total of 16 schemes which includes both equity funds and debt
funds.
It manages average asset under management(AAUM) of Rs 5812.13 crores.
4.2 The schemes selected for analysis are as follows
4.2.1 KOTAK EMERGING EQUTIY FUND
Kotak Emerging equity fund is a open-ended equity Growth scheme.
Kotak Emerging equity fund is a diversified aggressive equity scheme
The fund has portfolio turnover ratio.
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The fund manager is optimistic on the markets in the long term and expects good
returns from the same.
The fund manager is of the opinion that the market may not fall due to the abundent
liquidity in the system.However the fund managers sees high oil prices a big concern
in the global markets.
The fund has invested into equities to the tune of 94.45% of the total portfolio.
4.2.2 RELIANCE EQUITY OPPORTUNITIES FUND:
Reliance Equity Opportunities Fund is an Open-Ended Equity Scheme.
Reliance Equity Opportunities Fund is an aggressive diversified equity scheme
Reliance Equity Opportunities is to seek to generate capital appreciation and provide
long term growth opportunities by investing in a portfolio constituted of equity
securities and equity related securities.
The fund has a high portfolio turnover ratio.
It has Instrument type such as Equity & Equity related Instruments and Debt &
Money Market Instruments.
4.2.3 HDFC Core and Satellite Fund
HDFC Core and Satellite Fund is an Open-Ended Equity Scheme.
HDFC Core and Satellite Fund is an diversified equity scheme
The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity
and Debt Securities, in accordance with guidelines stipulated in this regard by SEBI
and RBI from time to time.
The net assets of the Scheme will be invested primarily in equity and equity related
instruments in a portfolio comprising of 'Core' group of companies and 'Satellite'
group of companies.
The 'Satellite' group will comprise of predominantly small-mid cap companies that
offer higher potential returns but at the same time carry higher risk
4.2.4 FRANKLIN INDIA FLEXI CAP EQUITY FUND
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Franklin india flexi cap Fund is an Open-Ended Equity Scheme.
Franklin india flexi cap Fund is an aggressive diversified equity scheme
It is an investment avenue that has the potential to provide steady returns and capital
appreciation over a five-year period through a mix of fixed income and equity
instruments.
It has a investment team has a rich experience of investing in both equity and fixed
income instrument that has translated in to a good investment performance from its
hybrid scheme
4.2.5 HSBC India opportunities Fund
HSBC India Opportunities Fund is an Open-Ended Equity Scheme.
It is a scheme seeking long term capital growth through investments across all
market capitalizations, including small, mid and large cap stocks.
The investment is to seek aggressive growth by focussing on mid cap companies in
addition to investments in large cap stocks.
The fund aims to be predominantly invested in equity and equity related securities
4.3KOTAK EMERGING EQUITY FUND
Fund Manager: (Mr. Anand Shah)
To generate capital appreciation from a diversified portfolio of equity and equity
related securities Kotak Emerging equity fund is a diversified equity scheme, with a
flexible investing style. It will invest in sectors, which our Fund Manager believes would
outperform others in the short to medium-term.This fund speciality lies in giving the
Fund Manager flexibility to act based on his views on the market; and in allowing him to
invest higher concentrations in sectors he believes will outperform others.As markets evolve and grow, new opportunities for growth keep emerging. Kotak
Emerging equity fund would endeavour to capture these opportunities to generate wealth
for its investors.
KOTAK EMERGING EQUITY FUND PERFORMANCE:-
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YEAR Rp Rm Rf
(Rm-
Rf)
(Rp-
Rf) X2 XY
(X
-Xbar) D2
X Y D LAST 1
MONTH 5.92 2.84 4.25 -1.41 1.67 1.98 -2.35 -20.11 404.71
LAST 3
MONTHS 24.6113.1
1 4.25 8.86 20.36 78.49 180.38 -9.847 96.97
LAST 6
MONTHS 34.4230.1
4 4.25 25.89 30.17 670.29 781.10 25.89 670.29
Since
Inception 78.1745.9
9 4.5 41.49 73.67 1721.42 3056.56 22.78 519.04
TOTAL 74.83125.8
7 2472.19 4015.70 18.70 1691.02
Where,
Rp - Portfolio Return- Kotak emerging equity fund
Rm - Market Return-Funds bench mark- S& P CNX 500
Rf - Risk free rate of return.
CALCULATION OF ARTHMETIC MEAN :-
= X / N
= 74.83/ 4
= 18.70 CALCULATION OF STANDARD DEVIATION ( ) :-
= (X-Xbar) 2 / N
= 1691.02/4
=422.75
=20.56
CALCULATION OF BETA CO-EFFICIENT:-
= N ( XY) X YN ( X2) ( X) 2
= 4(5208.85) (90.35)(126.21)
4(4117.22) (90.35) 2
= 4(4015.70)-(74.83)-(125.87)
4(2472.19)-(74.83) 2
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= 16062.8-9418.85
9888.76-5599
= 6643.95
4289.76
=1.54
CALCULATION OF SHARPES RATIO:-
= Rp-Rf / =125.87 /20.56
= 6.12
CALCULATION OF TREYNORS RATIO :-
= Rp-Rf / = 125.87/1.54
= 87.73/100
=0.8173
GRAPH SHOWING KOTAK OPPORTUNITIES FUND PERFORMANCE:-
Interpretation:-
KOTAK EMERGING EQUITY
5.92
24.61
34.42
78.17
2.84
13.11
30.14
45.99
4.25 4.25 4.25 4.5
LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION
KOTAK EMERGING EQUITY S&P 500 Rf
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Last I Month : It reveals that Kotak emerging equity Returns are 5.92
As compare to Funds Benchmark Returns are 2.84, and
The Risk Free Rate is common for next 9 months. (i.e., 4.25%)
Last III Months : It reveals that Kotak emerging equity Returns are 24.61
As compare to Funds Benchmark Returns are 13.11, and
The Risk Free Rate is common for next 6 months. (i.e., 4.25%)
Last VI Months : It reveals that Kotak emerging equity Returns are 34.42
As compare to Funds Benchmark Returns are 30.14, and
The Risk Free Rate is common for next 3 months. (i.e., 4.25%)
Since Inception : It reveals that Kotak emerging equity Returns are 78.17,
As compare to Funds Benchmark Returns are 45.99, and
There is a slight Increase in Risk Free Rate by 0.25% (i.e., 4.5%)
compare to last 9 Months.
4.4HDFC CORE& SATELLITE FUND:
The objective of the scheme is to generate capital appreciation through equity
investment in companies whose shares are quoting at prices below their true value.
HDFC CORE& SATELLITE FUND PERFORMANCE:-
YEAR Rp Rm Rf
(Rm-
Rf)
(Rp-
Rf) X2 XY
(X
-Xbar) D2
X Y D
LAST1MONTH 1.15 3.72 4.25 -0.53 -3.1 0.2809 1.643
-20.7925 432.3280563
LAST 3
MONTHS 16.4613.82 4.25 9.57
12.21 91.5849 116.8497
-10.6925 114.3295563
LAST
6MONTHS 35.6 31.1 4.25 26.8531.35 720.9225 841.7475 26.85 720.9225
Since
Inception 69.6449.66 4.5 45.16
65.14 2039.4256 2941.7224 24.8975 619.8855063
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TOTAL 81.05105.6 2852.2139 3901.9626 20.2625 1887.465619
Where,
Rp- Portfolio Return-HDFC core & Satellite Fund
Rm - Market Return-Funds benchmark-BSE-200
Rf- Risk free rate of return.
CALCULATION OF ARTHMETIC MEAN:-
= X / N
= 81.05/4
= 20.26
CALCULATION OF STANDARD DEVIATION () :-
= (X-Xbar)2 / N
= 1887.4/4
= 471.75
=21.71
CALCULATION OF BETA CO-EFFICIENT:-
= N ( XY) X Y
N ( X2) ( X) 2
= 4(3901.9) (81.05)(105.6)
4(4026) (89.75) 2
= 15607.5-8558.8
11408.8-6569.1
=7048.7
4839
=1.45
CALCULATION OF SHARPES RATIO:-
=Rp-Rf-/
=105.6/21.71
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=4.86
CALCULATION OF TREYNORS RATIO :-
= Rp-Rf/
= 105.6/1.45
= 72.82/100
=0.72
GRAPH SHOWING HDFC CORE& SATELLITE FUND PERFORMANCE:-
Interpretation:
Last I Month : It reveals that HDFC Core & Satellite Fund Returns are 1.15as compare to Funds Benchmark Returns are 3.72, and The Risk
Free Rate is common for next 9 months. (i.e., 4.25%)
Last III Months : It reveals that HDFC Core & Satellite Fund Returns are 16.46
HDFC Core & Satellite Fund Performance
1.15
16.46
35.6
69.64
3.72
13.82
31.1
49.66
4.25 4.25 4.25 4.5
0
10
20
30
40
50
60
70
80
LAST 1 MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION-
RETURNS
Rp Rm Rf
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as compare to Funds Benchmark Returns are 13.82, and The
Risk Free Rate is common for next 6 months. (i.e., 4.25%)
Last VI Months : It reveals that HDFC Core & Satellite Fund Returns are 35.6,
as compare to Funds Benchmark Returns are 31.1 and The Risk
Free Rate is common for next 3 months. (i.e., 4.25%)
Since Inception : It reveals that HDFC Core & Satellite Fund Returns are 69.64,
as compare to Funds Benchmark Returns are 49.66, and There is
a slight increase in Risk Free Rate by 0.25%(4.5%) compare to
last 9 Months.
4.5RELIANCE EQUITY OPPORTUNITIES FUND:
The primary investment objective of the scheme is to seek to generate capital
appreciation & provide long-term growth opportunities by investing in a portfolio
constituted of equity securities & equity related securities and the secondary
objective is to generate consistent returns by investing in debt and money market
securities.
RELIANCE EQUITY OPPORTUNITIES FUND PERFORMANCE:-
YEAR Rp Rm Rf
(Rm-
Rf)
(Rp-
Rf) X2 XY
(X
-Xbar) D2
X Y D
LAST 1
MONTH 2.4 3.72 4.25 -0.53 -1.85 0.2809 0.9805 -20.935 438.274225
LAST 3
MONTHS 16.22 13.82 4.25 9.57 11.97 91.5849 114.5529 9.57 91.5849
LAST 6MONTHS 29.46 31.1 4.25 26.85 25.21 720.9225 676.8885 6.445 41.538025
Since
Inception 54.99 50.23 4.5 45.73 50.49 2091.2329 2308.9077 45.73 2091.2329
TOTAL 81.62 85.82 2904.0212 3101.3296 40.81 2662.63005
Where,
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Rp - Portfolio Return-Reliance equity opportunities fund
Rm - Market Return-Funds Benchmark BSE-500
Rf - Risk free rate of return.
CALCULATION OF ARTHMETIC MEAN:-
= X / N
= 81.62/ 4
= 20.40
CALCULATION OF STANDARD DEVIATION () :-
= (X-Xbar)2 / N
= 2662.63/4
= 665.65
=25.80
CALCULATION OF BETA CO-EFFICIENT;-
= N ( XY) X Y
N ( X2) ( X) 2
= 4(3101.32) (81.62)(85.82)
4(2904.02) (81.62) 2
= 12405-7002.91
11616-6661.82
=5402.09
4954.18
=1.09
CALCULATION OF SHARPES RATIO:-
= Rp-Rf/
=85.8225.23
=7.29
CALCULATION OF TREYNORS RATIO :-
= Rp-Rf/
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= 85.82/1.47
= 37.32/100
=0.37
GRAPH SHOWING RELIANCE EQUITY OPPORTUNITIES FUND
PERFORMANCE:-
Interpretation:-
Last I Month : It reveals that Reliance Equity Opportunities Fund
Returns are 2.4 as compare to Funds Benchmark Returns Are
3.72, and The Risk Free Rate is common for next 9 months. (i.e.,
4.25%)
Last III Months : It reveals that Reliance Equity Opportunities
Fund Returns are 16.22 as compare to Funds Benchmark Returns
are 13.82, and The Risk Free Rate is common for next 6 months.
(i.e., 4.25%)
Last VI Months : It reveals that Reliance Equity Opportunities
Fund Returns are 29.46 as compare to Funds Benchmark Returns
are 31.1 and The Risk Free Rate is common for next 3 months.
(i.e., 4.25%)
RELIANCE EQUITY OPPORTUNITIES FUND
2.4
16.22
29.46
54.99
3.72
13.82
31.1
50.23
4.25 4.25 4.25 4.5
LAST 1MONTH LAST 3 MONTHS LAST 6 MONTHS SINCE INCEPTION
RETURNS
RELIANCE BSE-100 Rf
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Since Inception : It reveals that Reliance Equity Opportunities Fund Returns
are 54.99, as compare to Funds Benchmark returns are 50.23, and
There is a slight increase in Risk Free Rate by 0.25%(4.5%)
compare to last 9 months.
4.6 FRANKLIN INDIA FLEXI CAP EQUITY FUND
Fund Managers: (Mr. K N Siva Subramanian & R Sukumar Rajah)
Stocks of companies are usually categorized as large-cap, midcap, and small-cap
depending on their market capitalization. History has demonstrated that these categories
tend to perform differently through economic and market cycles. For example, mid or
small cap stocks could move up sharply during a certain time period while large cap
stocks remain range bound and vice versa. On the other hand, large-cap stocks tend to be
less volatile than mid