Introduction
to the
Mutual Fund
Industry
1
MUTUAL FUNDS: AN INTRODUCTION
A Mutual Fund is an investment tool that allows small investors access to a welldiversified portfolio of equities, bonds and other securities. Each shareholder participates
in the gain or loss of the fund. Units are issued and can be redeemed as needed. The
fund's Net Asset Value (NAV) is determined each day. 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.
Mutual funds are financial intermediaries, which collect the savings of investors and
invest them in a large and well-diversified portfolio of securities such as money market
instruments, corporate and government bonds and equity shares of joint stock companies.
2
Mutual funds are conceived as institutions for providing small investors with avenues of
investments in the capital market.
Since small investors generally do not have adequate time, knowledge, experience and
resources for directly accessing the capital market, they have to rely on an intermediary,
which undertakes informed investment decisions and provides consequential benefits of
professional expertise. The raison d’être of mutual funds is their ability to bring down the
transaction costs. The advantages for the investors are reduction in risk, expert
professional management, diversified portfolios, and liquidity of investment and tax
benefits.
By pooling their assets through mutual funds, investors achieve economies of scale. The
advantage that such a investing logic offers to an individual investor is the advantage of
scale. A collected corpus can be used to procure a diversified portfolio, indicating greater
returns as also create economies of scale through cost reduction. This principle has been
effective world-wide as more and more investors are going the mutual fund way. This
portfolio diversification ensures risk minimization. The criticality of such a measure
comes in when you factor in the fluctuations that characterize stock markets. The
interests of the investors are protected by the SEBI, which acts as a watchdog. Mutual
funds are governed by the SEBI (Mutual Funds) Regulations, 1993.
INTRODUCTION TO MUTUAL FUND INDUSTRY
The mutual fund industry in India began with the setting up of the Unit Trust In India
(UTI) in 1964 by the Government of India. During the last 36 years, UTI has grown to be
a dominant player in the industry with assets of over Rs.24,464 Crores as of March 31,
2000. The UTI is governed by a special legislation, the Unit Trust of India Act, 1963. In
1987 public sector banks and insurance companies were permitted to set up mutual funds
and accordingly since 1987, 6 public sector banks have set up mutual funds. Also the two
Insurance companies LIC and GIC established mutual funds. Securities Exchange Board
3
of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first time
established a comprehensive regulatory framework for the mutual fund industry. Since
then several mutual funds have been set up by the private and joint sectors.
Mutual funds have been a significant source of investment in both government and
corporate securities. It has been for decades the monopoly of the state with UTI being the
key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned
insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds
exist, including private and foreign companies. Banks--- mainly state-owned too have
established Mutual Funds (MFs). Foreign participation in mutual funds and asset
management companies is permitted on a case by case basis.
UTI, the largest mutual fund in the country was set up by the government in 1964, to
encourage small investors in the equity market. UTI has an extensive marketing network
of over 35, 000 agents spread over the country. The UTI scrips have performed relatively
well in the market, as compared to the Sensex trend. However, the same cannot be said of
all mutual funds.
All MFs are allowed to apply for firm allotment in public issues. SEBI regulates the
functioning of mutual funds, and it requires that all MFs should be established as trusts
under the Indian Trusts Act. The actual fund management activity shall be conducted
from a separate asset management company (AMC). The minimum net worth of an AMC
or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs can be
penalized for defaults including non-registration and failure to observe rules set by their
AMCs. MFs dealing exclusively with money market instruments have to be registered
with RBI. All other schemes floated by MFs are required to be registered with SEBI.
In 1995, the RBI permitted private sector institutions to set up Money Market Mutual
Funds (MMMFs). They can invest in treasury bills, call and notice money, commercial
paper, commercial bills accepted/co-accepted by banks, certificates of deposit and dated
government securities having unexpired maturity up to one year.
MUTUAL FUND INDUSTRY IN INDIA
4
The end of millennium marks 36 years of existence of mutual funds in this country. The
ride through these 36 years is not been smooth. Investors opinion is still divided. While
some are for mutual funds others are against it.
UTI commenced its operation fom july 1964. The impetus
for establishing a formal institution came from the desire to increase the propensity of the
middle and lower groups to save and to invest. UTI came into existence during a period
marked by great political and economic uncertainity in India. With was on the borders
and economic turmoil that depressed the financial market, entrepreneurs were hesitant to
enter capital market. Though the growth was slow, But it accelerated from the year 1987,
when non- UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen a
dramatic improvement, both qualities wise as well
as quantity wise. Before, the
monopoly of the market had seen an ending phase: the Assent under Management(AUM)
was Rs.67bn. The private sector entry to the fund family raised the AUM to Rs.470bn in
March 1993 and till April 2004; it reached the height of 1,540bn.
Putting the AUM of the Indian Mutual Funds Industry into
comparison, the total of it is less than the deposits of SBI alone, constitute less than 11%
of the total depostits held by the Indian banking industry.
The main reason of its poor growth is theat the mutual fund industry in India is new in the
country. Large sections of Indian investrors are yet to be intellect wih the concept. Hence,
it is the prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling.
The mutual fund industry can be broadly put into four phases according to the
development of the sector, Each phase is briefly described as under.
First Phase-1964-87
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Unit Trust of India(UTI) was established on 1963 by Act of Parliament. It was set up by
the Reserve Bank of India and functioned uned the Regulatory and admisnistrative
control of the Reserve Bank f India. In 1978 UTI was de-linked from RBI and the
Industrial Development Bank of India(IDBI) took ove the regulatory and admistrative
control in place of RBI. The first scheme launched bye UTI was Unit Scheme 1964. At te
end of 1988 UTI had Rs.6,700 crores of assets under management.
Second phase 1987-1993(entry of public sector funds)
The period 1986-1993 can be termed as the period of public sector mutual funds (PMSs).
From one player in 1985 the number increased to 8 in 1993. Entry of non-UTI mutual
funds. SBI mutual fund was the first followed Canbank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Oct 90), Bank of
Baroda Mutual fund (oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.
47,000 as assets under management. The industry was one-entity show till 1986 when the
UTI monopoly was broken when SBI and BOI, LIC, GIC etc. sponsored by public sector
banks. Starting with an asset base of Rs. 0.25bn in 1964 the industry has grown at a
compounded average growth rate of 26.34% to its current size of Rs. 1130bn.
Third phase 1990-2003 (entry of private sector funds)
When the private sector made its debut in 1993-94, the stock market was booming. 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 Franklin Templeton) was the first private sector
mutual fund registered in july 1993. Other Private sector mutual funds are Morgan
Sanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with
the host of domestic players join the party. The 1993 SEBI (Mutual Fund)
Regulations substituted by a more comprehensive and revised Mutual Find regulations
1996. But for the equity funds, the period of 1994-96 was one of the worst in the history
of Indian Mutual Funds, But the year 1999 saw immense future potential and
developments in this sector. This year signaled the year of resurgence of mutual funds
6
and the regaining of investor confidence in these MF’s. As at the end of January 2003,
There were 33 mutual fund 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
This phase had bitter experience for UTI. It was bifurcated into two separate entities. One
is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as
on January 2003). The specified undertaking of Unit Trust of India, functioning under an
adminisratior and unde the rules framed by Government of India and Does not come
under the purview of the Mutual Fund Regulations.
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. 76,000 crores of
AUM and with the setting up of a UTI mutual fund, conforming 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 September 2004, There were 29 fund, Which manage assets of Rs.
153108 crores under 421 Structure of Mutual Funds in India. At the end of year 2006 the
AUM crossed 2,50,000 crores.
GROWTH IN ASSETS UNDER MANAGEMENT
7
8
Growth of the Mutual Fund Industry in India
The mutual fund industry in India came into being in 1963 with the setting up of the Unit
Trust of India (UTI). In 1987, Public Sector Banks and Insurance Companies opened
their own mutual funds, thus starting the second phase in the growth of the mutual funds
industry. By the end of 1988, the industry's total assets under management (AUM)
reached Rs.6billion.
The industry registered a major milestone in 1993 when the first private sector player, the
erstwhile Kothari Pioneer Mutual Fund (now merged with Franklin Templeton), was set
up. Since then, several international players have also entered the fray.
The industry has also witnessed a spate of mergers and acquisitions, the most recent ones
being the acquisition of Alliance Mutual by Birla Sun Life, GIC Mutual by Canbank
Mutual, and Sun F&C by Principal Mutual.
While the Indian mutual fund industry has grown in size by about 320% from March,
1993 (Rs 470 billion) to December, 2004 (Rs 1505 billion) in terms of AUM, the AUM
of the sector excluding UTI has grown over 8 times from Rs.152 billion in March 1999 to
Rs.1295 billion as at December 2004 (See Chart 1).
The latest phase in the industry's evolution began with the bifurcation of UTI. The Indian
mutual fund industry has grown by about 4.2 times from 1993 (Rs. 470 billion) to 2005
(Rs. 1992 billion) in terms of AUM. The private sector was allowed entry to set up asset
management companies in 1993. There was a brief period of five years during which the
asset growth was slow. The AUM for the mutual fund industry started to grow rapidly
after 1998. Between 1998 and 2005 the AUM of the sector excluding UTI grew by over
15 times from Rs.114 billion in 1998 to Rs.1738 billion as at 2005. Though India is a
minor player in the global mutual funds industry, its AUM as a proportion of the global
AUM has steadily increased, doubling from 1999 levels
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MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE
Worldwide, Mutual Fund or Unit Trust as it is referred to in some parts of the world, has
a long and.successful history. The popularity of Mutual Funds has increased manifold in
developed financial markets, like the United states. As at the end of March 2006, in the
US alone there were 8,002 mutual funds with total assets of over US$ 9.36 trillion
(Rs.427Iakh crores).In India, the mutual fund industry started with the setting up of the
Unit Trust of India In 1964. Public sector banks and financial institutions were allowed to
establish mutual funds in 1987. Since 1993, private sector and foreign institutions were
permitted to set up mutual funds. In February 2003, following the repeal of the Unit Trust
of India Act 1963 the erstwhile UTI was bifurcated into two separate entities viz. The
Specified Undertaking of the Unit Trust of India, representing broadly, the assets of US
64 scheme, assured returns and certain other schemes and UTI Mutual Fund conforming
to SEBI Mutual Fund Regulations. As at the end of March 2006, there were 29 mutual
funds, which managed assets of Rs. 2,31,862 crores (US$52 Billion) under 592 schemes.
This fast growing industry is regulated by the Securities and Exchange Board of
India(SEBI).
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STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY
The Indian Mutual Fund industry is dominated by the Unit Trust of India which has a
total corpus of 700 Billion collected from over 20 million investors. The UTI has many
funds/ schemes in all categories i.e. Equity, balanced, income etc. With some being open
ended and some being closed ended. The Unit scheme 1964 commonly referred to as US
64, which is a balanced fund, is the biggest scheme with a corpus of about 200 billion.
UTI was floated by financial institutions and is governed by a special act of Parliament.
Most of its investors believe that the UTI is government owned and controlled, which,
while legally incorrect, is true for all practical purposes.
The second largest category of mutual funds are the ones floated by nationalized banks.
Canbank asset management floated by Canara Bank and SBI Funds Management floated
by State Bank of India are the largest of these. GIC AMC floated by General Insurance
Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other
prominent ones. The aggregate corpus of the funds managed by this category of AMC’s
is around Rs.150
The third largest category of mutual funds are the ones floated by the private sector and
by foreign asset management companies. The largest of these are Birla Capital AMC and
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Kotak AMC . The aggregate corpus of the assets managed by this category of AMC’s is
about Rs. 60 billion.
Organization of A Mutual Fund
There are many entities involved in organization of Mutual Fund. Diagram given below
illustrates the organization set-up of a mutual fund.
The structure of mutual fund in India is governed by SEBI (Mutual fund) Regulation,
1996.
The Sponsor These regulation make it mandatory to a mutual fund to have three-tier
structure of Sponsor-Trustees-Asset Management Company.
is promoter of the mutual fund appoints trustees, custodians and the AMC with prior
approval of SEBI. The sponsor establishes the mutual fund and registers the same with
SEBI. Sponsors must contribute at least 40% of the capital of the AMC.
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Trust/ Board of Trustees: Trustees hold a fiduciary responsibility towards unit
holders by protecting their interests. Trustees float and
market schemes, and secure necessary approvals. They check if the AMC’s investments
are within well-defined limits, whether the fund’s assets are protected, and also ensure
that unitholders get their due returns. They also review any due diligence by the AMC.
For major decisions concerning the fund, they have to take the unitholders’consent. They
submit reports every six months to SEBI; investors get an annual report. Trustees are paid
annually out of the fund’s assets – 0.5 percent of the weekly net asset value
Fund Managers/ AMC: They are the ones who manage money of the investors. An
AMC takes decisions, compensates investors through dividends, maintains proper
accounting and information for pricing of units, calculates the NAV, and provides
information on listed schemes. It also exercises due diligence on investments, and
submits quarterly reports to the trustees. A fund’s AMC can neither act for any other fund
nor undertake any business other than asset management. Its net worth should not fall
below Rs. 10 crore. And, its fee should not exceed 1.25 percent if collections are below
Rs. 100 crore and 1 percent if collections are above Rs. 100 crore. SEBI can pull up an
AMC if it deviates from its prescribed role.
Custodian: Often an independent organization, it takes custody of securities and other
assets of mutual fund. Its responsibilities include receipt and delivery of securities,
collecting income-distributing dividends, safekeeping of the units and segregating assets
and settlements between schemes. Their charges range between 0.15-0.2 percent of the
net value of the holding. Custodians can service more than one fund.
Mutual Fund is managed either trust company or board of trustees. Provisions of Indian
Trust Act govern board of trustees and trust. If trustee is a company , it is also subject to
Indian Company Act. Trustees appoint AMC in consultation with the sponsors and
according to SEBI regulation. All mutual fund scheme floated by AMC have to be
13
approved by trustees. Trustees review and ensure that net worth of the company is
according to stipulated norms, every quarter.
Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first
functionary to be appointed , and is involved in appointment of all other functionaries.
The AMC structures the mutual fund products, markets them and mobilizes fund,
manages the funds and services the investors. It seeks the service other functionaries in
carrying out these functions.
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.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the
fund and perhaps a third one to handle registry work for the unit holders (subscribers) of
the fund.
In the Indian context, the sponsors promote the Asset Management Company also, in
which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the
Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the
Birla Sun Life Asset Management Company Ltd., which has floated different mutual
funds schemes and also acts as an asset manager for the funds collected under the
schemes.
Types of AMCs in Indian Context
The following are the types of AMCs we have in India
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AMCs owned by banks
AMCs owned by financial institutions
AMCs owned by the Indian private sector companies
AMCs owned jointly by Indian and foreign investors.
Different AMCs Working in India are
Name of the AMC
Nature of Ownership
Alliance Capital
Private Foreign
Anagram Wellington
Private Indian
Apple
Private Indian
Birla Capital International
Private Indian
Bank of Baroda
Banks
Bank of India
Banks
Canbank Investment
Banks
Cholamandalam Cazenove
Private Foreign
Dundee
Private Foreign
DSP Merrill Lynch
Private Foreign
Escorts
Private Indian
First India
Private Indian
GIC
Institutions
IDBI Investment
Institutions
Indfund Management Ltd.
Banks
ING Investment
Private Foreign
ITC Threadneedle
Private Foreign
RELIANCE Capital Management Private Indian
Ltd.
Jardine Fleming
Private Foreign
Kotak Mahindra
Private Indian
Morgan Stanley
Private Foreign
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Punjab National Bank
Banks
Reliance Capital
Private Indian
State Bank of India
Banks
Shriram
Private Indian
Sun F&C
Private Foreign
Sundaram Newton
Private Foreign
Tata
Private Indian
Credit Capital
Private Indian
Templeton
Private Foreign
UTI
Institutions
COMPARISON OF MUTUAL FUNDS WITH THE BANKS
Banks v/s Mutual Funds
BANKS
MUTUAL FUNDS
Returns
Low
Better
Administrative exp.
High
Low
Risk
Low
Moderate
Investment options
Less
More
Network
High penetration
Low but improving
Liquidity
At a cost
Better
Quality of assets
Not transparent
Transparent
Interest calculation
Minimum
balance
between Everyday
10th.&30th.Of every month
Guarantee
Max Rs.1 lakh on deposits
None
Capital flow in the economy
MFs make it possible for investors to assume risks in the expectation of the higher returns
even if the investor cannot actively manage these investments and the associated risks.
This increases the level of risk capital that is available in the economy for funding
enterprise. The MFs also add depth to the security markets where they invest, thus
16
contributing to liquidity and price discovery.
This again is a significant factor in
channelling more money into the markets, instead of this being locked up in unproductive
physical capital like gold, real estate etc.
Schemes and Units
Investment in a company is normally represented by a certain number of shares. People
invest in a company by acquiring its shares; they disinvest by selling its shares. The total
outstanding shares of a company multiplied by the face value of each share, constitutes
the share capital of the company.
What shares are for a company, units are for a mutual fund scheme. Thus investors
invest in a scheme by buying its units. They disinvest by selling its units. The total
outstanding units of a scheme multiplied by the face value of its units, constitutes the unit
capital of the scheme.
Every scheme has an investment objective or philosophy i.e. a promise by the AMC on
how the funds would be managed. Investors in a scheme are essentially buying into this
investment objective or philosophy.
In reality, the distinction among some of the stock fund objectives discussed is not clearcut. The actual stocks that constitute a specific mutual fund portfolio depend on the
analysis and perspective of the fund’s manager. Hence, a generic investment objective
(e.g. growth, income) can be interpreted and executed differently by different managers.
One company’s aggressive growth fund may look like another company’s specialty fund,
which may look like another company’s world fund. It is important to read the fund’s
prospectus and review the list of its top holdings before making your final investment
decision.
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Company Profile
STATE BANK OF INDIA
SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable
track record in judicious investments and consistent wealth creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The
institution has grown immensely since its inception and today it is India's largest
bank, patronised by over 80% of the top corporate houses of the country.
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SBI Mutual Fund is a joint venture between the State Bank of India and Society
General Asset Management, one of the world’s leading fund management
companies
that
manages
over
US$ 330 Billion worldwide.
In eighteen years of operation, the fund has launched thirty-two schemes and
successfully redeemed fifteen of them. In the process it has rewarded it’s investors
handsomely with consistently high returns.
A total of over 3.5 million investors have reposed their faith in the wealth
generation expertise of the Mutual Fund.
Schemes of the Mutual fund have consistently outperformed benchmark indices and
have emerged as the preferred investment for millions of investors and HNI’s.
Today, the fund manages over Rs. 20000 crores of assets and has a diverse profile
of investors actively parking their investments across 40 active schemes.
The fund serves this vast family of investors by reaching out to them through
network of over 100 points of acceptance, 26 investor service centers, 33 investor
service desks and 52 district organizers.
SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent
India Opportunities Fund. Growth through innovation and stable investment
policies is the SBI MF credo.
KEY PERSONNEL
Mr. Syed Shahabuddin
Managing Director
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Mr. G.S. Subramanian
SR. Vice President Cross Selling
Mr. Didier Turpin
Dy. Chief Executive Officer
Mr. G. Kandasubramanian
Asst. Vice President - Customer Service
Mr. Achal K. Gupta
Chief Operating Officer
Mr. Ganti N. Murthy
Fund Manager - Debt
Mr. Sanjay Sinha
Chief Investment Officer
Ms. Aparna Nirgude
Chief Risk Officer
Mr. R. S. Srinivas Jain
Chief Marketing Officer
Mr. Ashutosh P Vaidya
Company Secretary & Compliance Office
IMPORTANCE OF SBI MUTUAL FUND
20
1) SBI Mutual Fund helps in introducing a high degree of professional management
and marketing concept in to banking
2) SBI Mutual Fund creates Healthy competition on general efficiency levels in the
industry
3) SBI Mutual Fund is always trying to innovate the new products avenues, new
schemes, services etc.
More about SBI Mutual Fund
SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an
enviable track record in judicious investments and consistent wealt h creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The
institution has grown immensely since its inception and today it is India's largest
bank, patronized by over 80% of the top corporate houses of the country.
SBI Mutual Fund is a joint venture between the State Bank of India and Society
General Asset Management, one of the world’s leading fund management
companies that manages over US$ 330 Billion worldwide.
AWARDS AND ACHIEVEMENTS
1)
LIPPER AWARD- lipper India fund award –2007
21
2)
ICRA MUTUAL FUND AWARD -2007
3)
CNBC TV 18 - CRISIL MUTUAL FUND OF YEAR
AWARD -2007
4)
CNBC AWAAZ CONSUMER AWARD – 2006
5)
LIPPER AWARD- lipper India fund award -2006
6)
CNBC TV 18 - CRISIL MUTUAL FUND OF YEAR
AWARD -2006
7)
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ICRA MUTUAL FUND AWARD -2006
Business Objectives.
The Primary Objective of SBI Mutual Fund is to Enhance the Investments in the
country through the Provision of Different Mutual Fund Schemes in a systematic and
Professional Manner, and to Promote the Investments In the Mutual Fund
Organizational goal
SBI Mutual Fund Main goals are to
a) Develop a Close Relationship with Customer
b) Transform Ideas in to Viable and Creative Solutions
c) Provide Consistently high Returns to Shareholders,
d) To Grow through diversification by leveraging off the existing client base.
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Business Focus
SBI Mutual Fund mission is to be world class Mutual Fund its Main aim is to build
Customer Franchises across distinct business So as to be the Preferred Provider of
services in the Segments
That Fund Operates in and to achieve healthy growth in profitability, and consistency
The SBI Mutual Fund is Committed to maintain the highest level of ethical standards,
professional integrity and regulatory compliance
Subsidiaries and Associates
SBI Bank
SBI Mutual Fund
SBI Life insurance Company
SBI Securities
SBI NRI Services
Other Companies co- promoted by SBI
SBI Mutual Fund is Professionally managed organization with a board of directors
consisting of eminent persons who represent various fields including finance, taxation,
construction and Urban policy and development. The board primarily focuses on strategy
Formulation, policy and control, designed to deliver increasing value to the share holders
24
S B I MUTUAL FUND SCHEMES
1 EQUITY SCHEMES
The investments of these schemes will predominantly be in the stock markets and
endeavor will be to provide investors the opportunity to benefit from the higher
returns which stock markets can provide. However they are also exposed to the
volatility and attendant risks of stock markets and hence should be chosen only by
such investors who have high risk taking capacities and are willing to think long
term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index
Funds. Diversified Equity Funds invest in various stocks across different sectors
while sectoral funds which are specialized Equity Funds restrict their investments
only to shares of a particular sector and hence, are riskier than Diversified Equity
Funds. Index Funds invest passively only in the stocks of a particular index and
the performance of such funds move with the movements of the index.
Magnum COMMA Fund
Magnum Equity Fund
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Magnum Global Fund
Magnum Index Fund
Magnum MidCap Fund
Magnum Multicap Fund
Magnum Multiplier Plus 1993
Magnum Sector Funds Umbrella
MSFU - FMCG Fund
MSFU - Emerging Businesses Fund
MSFU - IT Fund
MSFU - Pharma Fund
MSFU - Contra Fund
SBI Arbitrage Opportunities Fund
SBI Blue chip Fund
SBI Infrastructure Fund - Series I
SBI Magnum Taxgain Scheme 1993
SBI ONE India Fund
2 DEBT SCHEMES
Debt Funds invest only in debt instruments such as Corporate Bonds, Government
Securities and Money Market instruments either completely avoiding any
investments in the stock markets as in Income Funds or Gilt Funds or having a
small exposure to equities as in Monthly Income Plans or Children's Plan. Hence
they are safer than equity funds. At the same time the expected returns from debt
funds would be lower. Such investments are advisable for the risk-averse investor
and as a part of the investment portfolio for other investors.
Magnum Children`s Benefit Plan
Magnum Gilt Fund

Magnum Gilt Fund (Long Term)
26

Magnum Gilt Fund (Short Term)
Magnum Income Fund

Magnum Income Plus Fund

Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)
Magnum Insta Cash Fund
Magnum InstaCash Fund -Liquid Floater Plan
Magnum Institutional Income Fund
Magnum Monthly Income Plan
Magnum Monthly Income Plan Floater
Magnum NRI Investment Fund
SBI Debt Fund Series

SDFS 15 Months Fund

SDFS 90 Days Fund

SDFS 13 Months Fund

SDFS 18 Months Fund

SDFS 24 Months Fund

SDFS 60 Days Fund

SDFS 180 Days Fund
SBI Premier Liquid Fund
3 BALANCED SCHEMES
Magnum Balanced Fund invest in a mix of equity and debt investments. Hence they are
less risky than equity funds, but at the same time provide commensurately lower returns.
They provide a good investment opportunity to investors who do not wish to be
27
completely exposed to equity markets, but is looking for higher returns than those
provided by debt funds.
Magnum Balanced Fund
Magnum NRI Investment Fund - FlexiAsset Plan
SBI EQUITY SCHEMES DETAILS
MAGNUM GLOBAL FUND
Investment Objective
To provide the investors maximum growth opportunity through well research ed
investments in Indian equities, PCDs and FCDs from selected industries with high
growth potential and Bonds.
Asset Allocation
Instrument
%of portfolio
Equity, Partly Convertible Debentures, Fully
Risk Profile
80-100%
HIGH
0-20%
LOW
Convertible Debentures and Bonds
Money Market instruments
Scheme Highlights
1.An open-ended equity scheme investing in stocks from selected industries with
high growth potential.
2. Minimum Investment Rs. 2000 and in multiples of Rs. 1000 with Dividend and
Growth options available. ^ Money Market Instruments will include Commercial
Paper,
Commercial
Bills,
Certificate
of
Deposit,
Treasury
Bills,
Bills
Rediscounting, Repos, Government securities having an unexpired maturity of less
28
than 1 year, call or notice money, usance bills and any other such short -term
instruments as may be allowed under the regulations prevailing from time to time.
Launch Date:September 30, 1994
Entry Load
Investments below Rs. 5 crores - 2.25% Investments of Rs.5 crores and above –
NIL
Exit Load
Investments below Rs 5 crores <= 6 months - 1.00% and NIL thereafter.
Investments of Rs 5 crores and above - NIL
SBI GILT FUND DETAILS
SBI MAGNUM GILT FUND
Investment Objective
To provide the investors with returns generated through investments in government
securities issued by the Central Government and / or a State Government
Asset Allocation
Instrument
%of portfolio
Government of India Dated Securities
100%
State Governments Dated Securities
100%
Government of India Treasury Bills
100%
Risk Profile
Sovereign
Low
Sovereign
29
Scheme Highlights
1. Open ended Gilt Scheme.
2. The scheme will invest in government securities only with the exception of
investments made in the call money markets. Investment in Government Securities
signifies no risk of default (zero credit risk) either in payment of principal or even
interest on the investments made by the scheme. Long-Term Plan - for investors
with a long-term investment horizon. This Plan will have two options (a) Quarterly
Dividend option and (b) Growth option The Long Term Plan Dividend Plan and the
Growth Plan will each have three options for investment 1. Regular Dividend /
Growth Option : This option will be the existing option in this Plan wherein
investments in this option would be subject to a Contingent Deferred Sales Charge
(CDSC) of 0.25% for exit within 90 days from the date of investment. 2. PF
(Regular) Option : This option under both the Dividend and Growth Plans would be
a no-load option. 3. PF (Fixed Period) Option : This option under both the
Dividend and Growth Plan provides prospective investors with an option to lock -in
their investments for a period of 1 year, 2 years or 3 years from the date of t heir
investment Facility to reinvest dividend is available under both the Plans. Both the
Plans will have separate investment portfolios and separate NAVs. Under the Long Term Plan, the funds will normally be managed to an average portfolio -maturity
longer than three years.
Launch Date: January 1, 2003
Entry Load: Nil
Exit Load: Regular Plan (Long Term) - CDSC of 0.25% for exit within 90 days
from date of investment
30
SBI BALANCED FUND
Investment Objective
To provide investors long term capital appreciation along with the liquidity of an
open-ended scheme by investing in a mix of debt and equity. The scheme will
invest in a diversified portfolio of equities of high growth companies and balance
the risk through investing the rest in a relatively safe portfolio of debt.
Asset Allocation
Instrument
Equities
%of portfolio
Risk Profile
At least 50%
MED-HIGH
Debt Instruments like debentures, bonds,khokhas. UP TO 40%
Securitized Debt
Money Market Instruments
10%
MED-HIGH
Balance
Low
Scheme Highlights
1. An open-ended scheme investing in a mix of debt and equity instruments.
Investors get the benefit of high expected-returns of equity investments with the
safety of debt investments in one scheme.
2. On an ongoing basis, magnums will be allotted at an entry load of 2.25% to the
NAV.
3. Scheme open for Resident Indians, Trusts, Indian Corporates, on a fully
repatriable basis for NRIs and, Overseas Corporate Bodies.
4. Facility to reinvest dividend proceeds into the scheme at NAV available.
5. Switchover facility to any other open-ended schemes of SBI Mutual Fund at
NAV related prices.
6. The scheme will declare NAV, Sale and repurchase price on a daily basis.
31
7. Nomination facility available for individuals applying on their behalf either
singly or jointly upto three.
Launch Date : May 1, 1996
Entry Load: Investments below Rs. 5 crores - 2.25% Investments of Rs.5 crores
and above - NIL
Exit Load: Investments below Rs.5 crores < = 6 months - 1.00%, > 6 months but
< 12 months - 0.50% Investments of Rs.5 crores and above - NIL
32
ICICI Prudential Mutual Fund
ICICI Prudential Asset Management Company enjoys the strong parentage of
Prudential plc, one of UK's largest players in the insurance & fund management sectors
and ICICI Bank, a well-known and trusted name in financial services in India. ICICI
Prudential Asset Management Company, in a span of just over eight years, has forged a
position of pre-eminence in the Indian Mutual Fund industry as one of the largest asset
management companies in the country with assets under management of Rs. 37,906.24
crores (as of March 31, 2007). The Company manages a comprehensive range of
schemes to meet the varying investment needs of its investors spread across 68 cities in
the country.
PRUDENTIAL
Established in London in 1848, Prudential plc, through its businesses in the UK, US and Asia,
provides retail financial services products and services to more than 21 million customers,
policyholders and unit holders worldwide with over US$400 (as of 31st December, 2005) billion
in funds under management. Prudential employs some 23,000
staff worldwide.
In Asia, Prudential has life insurance and funds management operations across twelve countries China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore,
Taiwan, Thailand and Vietnam. Prudential has championed customer-centric products and
services for over 80 years, supported by an extensive network of over 145,000 staff and agents
across the region
ICICI BANK
ICICI Bank is India's second-largest bank with total assets of about Rs. 2,513.89 bn (US$ 56.3
bn) at March 31, 2006 and profit after tax of Rs. 25.40 bn (US$ 569 mn) for the year ended
March 31, 2006 (Rs. 20.05 bn (US$ 449 mn) for the year ended March 31, 2005). ICICI Bank
has a network of about 614 branches and extension counters and over 2,200 ATMs. ICICI Bank
33
offers a wide range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised subsidiaries and affiliates in the
areas of investment banking, life and non-life insurance, venture capital and asset management.
ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs
of clients and leverage on its domestic banking strengths to offer products internationally. ICICI
Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in
Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and
representative offices in the United States, United Arab Emirates, China, South Africa and
Bangladesh. Our UK subsidiary has established a branch in Belgium. ICICI Bank is the most
valuable bank in India in terms of market capitalisation.
34
ICICI PRUDENTIAL MUTUAL FUND SCHEMES
ICICI Prudential Infrastructure Fund
ICICI Prudential Services Industries Fund
ICICI Prudential FMCG Fund
ICICI Prudential Technology Fund
ICICI Prudential Discovery Fund
ICICI Prudential Power
ICICI Prudential Dynamic Plan
ICICI Prudential Emerging S.T.A.R Fund
ICICI Prudential Tax Plan
ICICI Prudential Growth Plan
ICICI Prudential Index Fund
ICICI Prudential Spice Fund
ICICI Prudential Child Care Plan
ICICI Prudential Banlanced Fund
ICICI Prudential Income Multiplier Fund
ICICI Prudential Monthly Income Plan
ICICI Prudential Gilt Fund-Investment Option
ICICI Prudential Income Plan
ICICI Prudential Flexible Income Plan
ICICI Prudential Long Term Floating Rate Plan
ICICI Prudential Blended Plan
ICICI Prudential Short Term Plan
ICICI Prudential Gilt Fund-Treasury Option
ICICI Prudential Short Term Floater
ICICI Prudential Liquid Plan
ICICI PRUDENTIAL PRODUCT DETAILS
35
EQUITY SCHEME
ICICI PRUDENTIAL DYNAMIC PLAN is a diversified equity fund that
could be your ideal choice to make the most of dynamic changes in the market. It has the
agility to capture upside opportunities across value and growth , large and midcap , index
and non-index stocks. On the flip side it also has ability to move into cash as markets get
overvalued
Investment Objective
To generate capital appreciation by actively investing in equity / equity related securities.
For defensive considerations, the Scheme may invest in debt, money market instruments,
to the extent permitted under the Regulations. The AMC will have the discretion to
completely or partially invest in any of the type of securities stated above so as to
maximize the returns.
INVESTMENT PHILOSOPHY
ICICI PRUDENTIAL DYNAMIC PLAN is a diversified equity plan that follows the
growth investment philosophy to invest in a portfolio of large, mid and small-cap stocks.
It has the ability to move gradually into cash as the market gets over-valued. It offers a
portfolio of stocks selected through rigorous bottom-up fundamental analysis across
market capitalisations on a diversified basis for long-term capital appreciation.
BENEFITS
1.Has the agility, aimed at capturing upside opportunities in the market across market
capitalizations.
2.On the flip side, in case stock markets get into an over valued position, the plan has the
ability to switch to cash thus seeking to limit the downside
36
PERFORMANCE
Entry Load: (i) For investments of less than Rs. 5 Crores : Entry load at 2.25% of
applicable NAV. (ii)For investments of Rs. 5 crores and Above : Nil
Exit Load: Nil
ICICI PRUDENTIAL GUILT FUND
Investment Objective
To generate income through investment in Gilts of various maturities.
37
INVESTMENT PHILOSOPHY
ICICI PRUDENTIAL GILT FUND is a pure debt fund that invests in short tenure
Government securities (G-Secs). These securities are essentially liquid and carry no
credit risk. Having said that, the portfolio's exposed to some interest rate risk as the
securities are marked to market, and therefore, respond to changes in market interest
rates. The portfolio seeks to limit volatility by deploying funds in short-term G-Secs, with
an average maturity not exceeding 3 years. The objective is to closely manage the
downside risks of the portfolio arising out of changes in the market rates, by actively
managing the duration of the portfolio.
BENEFITS
1.Enables exposure to a pure Government security portfolio.
2.Facilitates participation in the wholesale market for Government debt, even for smaller
ticket-size exposures.
3.Provides the benefits of professional management of investment portfolios.
PERFORMANCE OF THE
FUND
38
Entry Load:Nil
Exit Load: Nil
ICICI PRUDENTIAL BALANCED FUND: Asset allocation is the key to investing
success. It helps to reduce the volatility of returns. A Balanced Fund takes care of this
asset allocation by investing in equity for capital appreciation and debt for stable returns.
It focuses on reducing volatility of returns by increasing / decreasing equity exposure
based on the market outlook and using a core debt portfolio to do the rebalancing.
39
Investment Objective
To seek to generate long-term capital appreciation and current income from a portfolio
that is invested in equity and equity related securities as well as in fixed income
securities.
INVESTMENT PHILOSOPHY
an open-ended fund that allocates to both equity and debt markets, reflects this wisdom.
In a bullish market equity allocation can go upto 80%. In a bearish market equity
allocation can go down to 65%. This dynamic allocation along with core debt portfolio
reduces the volatility of return.
BENEFITS
Balanced fund brings you the twin benefits of growth from equity markets and steady
income from debt markets
PERFORMANCE
40
Entry Load: (i) For investments of less than Rs. 5 Crores : 2.25% of applicable
NAV.(ii) For investments of Rs. 5 crores and Above : Nil
Exit Load: Nil
Key Information
41
CATEGORIES OF MUTUAL FUND SCHEMES
1.SCHEMES ACCORDING TO MATURITY PERIOD:
A mutual fund scheme can be classified into open-ended scheme or close-ended
scheme depending on its maturity period.
1.1OPEN-ENDED FUND/ SCHEME
An open-ended fund or scheme is one that is available for subscription and
repurchase on a continuous basis. These schemes do not have a fixed maturity period.
Investors can conveniently buy and sell units at Net Asset Value (NAV) related
prices, which are declared on a daily basis. The key feature of open-end schemes is
liquidity.
1.2CLOSE-ENDED FUND/ SCHEME
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The
fund is open for subscription only during a specified period at the time of launch of
the scheme. 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 the units are listed. In order to provide an exit route to the investors, some
42
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 i.e. either repurchase facility or
through listing on stock exchanges. These mutual funds schemes disclose NAV
generally on weekly basis.
2.SCHEMES ACCORDING TO INVESTMENT OBJECTIVE:
A scheme can also be classified as growth scheme, income scheme, or balanced
scheme considering its investment objective. Such schemes may be open-ended or
close-ended schemes as described earlier. Such schemes may be classified mainly as
follows:
2.1GROWTH / EQUITY ORIENTED SCHEME
The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the investors may choose
an option depending on their preferences. The investors must indicate the option in
the application form. The mutual funds also allow the investors to change the options
at a later date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.
2.2INCOME / DEBT ORIENTED SCHEME
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,
Government securities and money market instruments. Such funds are less risky
compared to equity schemes. These funds are not affected because of fluctuations in
43
equity markets. However, opportunities of capital appreciation are also limited in such
funds. The NAVs of such funds are affected because of change in interest rates in the
country. If the interest rates fall, NAVs of such funds are likely to increase in the short
run and vice versa. However, long-term investors may not bother about these
fluctuations.
2.3BALANCED FUND
The aim of balanced funds is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion
indicated in their offer documents. These are appropriate for investors looking for
moderate growth. They generally invest 40-60% in equity and debt instruments.
These funds are also affected because of fluctuations in share prices in the stock
markets. However, NAVs of such funds are likely to be less volatile compared to pure
equity funds.
2.4MONEY MARKET OR LIQUID FUND
These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively in
safer short-term instruments such as treasury bills, certificates of deposit, commercial
paper and inter-bank call money, government securities, etc. Returns on these
schemes fluctuate much less compared to other funds. These funds are appropriate for
corporate and individual investors as a means to park their surplus funds for short
periods.
2.5GILT FUND
44
These funds invest exclusively in government securities. Government securities have
no default risk. NAVs of these schemes also fluctuate due to change in interest rates
and other economic factor as is the case with income or debt oriented schemes.
2.6INDEX FUNDS
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive
index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the
same weightage comprising of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by the same
percentage due to some factors known as "tracking error" in technical terms.
Necessary disclosures in this regard are made in the offer document of the mutual
fund scheme.
There are also exchange traded index funds launched by the mutual funds, which are
traded on the stock exchanges.
Other Schemes
Tax Saving Schemes
These schemes offer tax rebates to the investors under tax laws as prescribed from time to
time. This is made possible because the Government offers
tax incentives for investment in specified avenues. For example, Equity Linked Savings
Schemes (ELSS) and Pension Schemes. The details of such tax saving schemes are
provided in the relevant offer documents.
Ideal for: . Investors seeking tax rebates.
Special Schemes
This category includes index schemes that attempt to replicate the erformance of a
particular index such as the SSE Sensex or the NSE 50, or industry specific schemes
(which invest in specific industries) or sectoral schemes (which invest exclusively in
segments such as 'IXGroup shares or initial public offerings).
45
Index fund schemes are ideal for investors who are satisfied with a return
approximately equal to that of an index.
Sectoral fund schemes are ideal for investors who have already decided to invest in a
particular sector or segment. Keep in mind that anyone scheme may not meet all your
requirements for all time. You need to place your money judiciously in different schemes
to be able to get the combination of growth, income and stability that is right for you.
Remember, as always, higher the return you seek higher the risk you should be prepared
to take.
A few frequently used terms are explained here
FREQUENTLY USED TERMS
NET ASSET VALUE(NAV)
Net Asset Value is the market value of the assets of the scheme
minus its liabilities. The per unit NAV is he net asset value of the scheme divided by the
number of units outstanding on the Valuation date. Net Asset Value is the market value
of securities of scheme divided by the total number of units of the scheme on any
particular date. For example, if the market value of the securities of a mutual fund
scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units at Rs. 10 each to
the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed
by the mutual funds on a regular basis- daisy or weekly- depending on the type of scheme
Sale Price
Is the price you pay when you invest in a scheme or NAV a unit
holder is charged while investing in an open-ended scheme is sale price. Also called
Offer Price. It may include a Sale load, if applicable.
46
Repurchase Price
Is the price at which a close-ended scheme repurchases its units
and it may include a back-end load. This is also called Bid Price.
Redemption Price
Is the price at which open-ended schemes repurchase their units
and close-ended schemes redeem their units on maturity. Such prices are NAV related.
Sales load
Is a charge collected by a scheme when it sells when it sells the
units also called, ‘Front-end’ load. A Load is one that charges a percentage of NAV for
entry or exit. That is, each time one buys or sells units in the fund, a charge will be
payable. This charge is used by the mutual fund for marketing and distribution expenses.
Suppose the NAV per unit is Rs. 10. If the entry as well as exit load charged were 1%,
then the investors who buy would be required to pay Rs. 10.10 and those who offer their
unit for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors
should take the loads into consideration while making investment as these affect their
yields/returns
“Whether a mutual fund impose fresh load or increase the load beyond the
level mentioned in the offer documents”
Mutual funds cannot increase the load beyond the leel mentioned
in the offer document. Any change in the load will be applicable only to prospective
investments and not to the original investments. In case of imposition of fresh loads or
increase in existing loads, the mutual funds are required to amend their offer documents
so that the new investors are aware of loads at the time of investments.
47
No load
Schemes that do not charge a load are called ‘No Load’ schemes.
A no load fund is one that does not charge for entry or exit. It means the investors can
enter the fund/scheme at NAV and not additional charges are payable on purchase or sale
of units.
BENEFITS OF MUTUAL FUNDS
PROFESSIONAL MANAGEMENT:
Mutual Funds are backed by experienced and skilled professionals, a dedicated
investment research team that analyses the performance and prospects of companies and
selects investments.
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. This is
important when you want to have a diversified portfolio through direct equity
investments.
DIVERSIFICATION :
Mutual Funds always have an investment mix. The diversity in this mix spreads out the
probability of profits and losses, reducing the risk of a substantial fall in the money you
have invested.
RETURN POTENTIAL :
Over a medium to long-term, Mutual Funds have the potential to provide a higher net
return as they invest in a diversified basket of selected securities.
48
ECONOMIES:
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 NAV pegged
prices. In closed-end schemes, the units can be sold on a stock exchange at the prevailing
market price. The fund also repurchases from the investors at NAV pegged prices. There
is scope to speedily disinvest assets and obtain disinvestments proceeds.
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.
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.
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.
OPTIONS:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
49
INVESTOR SAFETY:
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.
LIMITATIONS OF MUTUAL FUND
No Guarantee:
No investment is risk free. If the entire stock market declines in value, the value of
mutual fund shares will go down as well, no matter how balanced the portfolio. Investors
encounter fewer risks when they invest in mutual funds than when they buy and sell
stocks on their own. However, anyone who invests through a mutual fund runs the risk
of losing money.
Fees and commissions:
All funds charge administrative fees to cover their day-to-day expenses. Some funds also
charge sales commissions or “loads” to compensate brokers, financial consultants, or
financial planners. Even if you don’t use a broker or other financial adviser, you will pay
a sales commission if you buy shares in a load fund.
Taxes:
During a typical year, most actively managed mutual funds sell anywhere from 20 to 70
percent of the securities in their portfolios. If your fund makes a profit on its sales, you
will pay taxes on the income you receive, even if you reinvest the money you made.
Management Risk:
When you invest in a mutual fund, you depend on the fund manager to make the right
decisions regarding the fund’s portfolio. If the manager does not perform as well as you
50
had hoped, you might not make as much money on your investments as you expected. Of
course, if you invest in Index Funds, you forego management risk, because these funds
do not employ managers.
1. ROLE OF INTERMEDIARIES IN THE INDIAN MUTUAL
FUND INDUSTRY
1.1
The mutual fund industry in India started in 1964 with the formation
Unit Trust of India (UTI). In 1987, other public sector
institutions
of the
entered
this
business, and it was in 1993 that the first of the private sector participants commenced
its operations.
1.2
From the beginning, UTI and other mutual funds have relied
intermediaries to market their schemes to investors. It
without intermediaries, the mutual fund
and breadth of coverage
played a
extensively on
would be accurate to say that
industry would not have achieved the depth
amongst investors that it enjoys today. Intermediaries have
pivotal and valuable role in popularizing the concept of mutual funds
across India. They make the forms available to clients, explain the schemes
provide administrative and paperwork support to
investors,
making
it
easy
and
and
convenient for the clients to invest.
1.3
Intermediation itself has undergone a change over the past few
While individual agents provided the foundation for growth
institutional agents, distribution companies and
an active role in promoting
secondary market
decades.
in the early years,
national brokers soon started to play
mutual funds. Recently, banks, finance companies,
brokers and even post offices have also begun to market mutual
funds to their existing and potential client bases.
1.4
It is, thus clear that all types of intermediaries are required for the growth of the
industry, and their wellbeing, quality orientation and
will have a significant impact on how the
ways of doing business
mutual fund industry in India
evolves in the future.
51
HOW SAFE ARE MUTUAL FUNDS
By investing in mutual funds, the risk is not totally removed but one will have the
benefits of diversification.
Any mutual fund is as safe or unsafe as the assets that it invests in.
NAV of growth funds mirrors the fluctuations of the share prices of its constituents.
Sometimes there is permanent erosion in value too.
Bond funds, in which the constituents are debt instruments, don't waver so much. Income
funds seldom face permanent value erosion.
Despite professional setups for both investment decisions and research, funds cannot be
immune to fluctuating market health. However, funds diversify the investment portfolio
substantially so that default in any single investment (in the case of an income fund) will
not affect the overall performance of a fund in a significant manner. In the event of
default of a part of the portfolio, an income fund is extremely unlikely to face erosion in
face value.
Generally, mutual funds are not guaranteed by anybody. However, in the Indian context,
some of the mutual funds have floated "guaranteed" or "assured" return schemes that
guarantee a certain annual return or guarantee a buyback at a specified price after some
time. Examples of these include funds floated by the TI, Cannabis Mutual Fund, BSI
Mutual Fund, etc. Many of these funds have not earned returns that they promised and
the asset management companies of the respective mutual funds or their sponsors have
made good their promises
Ground Rules of Mutual Fund Investing
Assess yourself: Self-assessment of one’s needs; expectations and risk profile is of prime
importance failing which, one will make more mistakes in putting money in right places
than otherwise. One should identify the degree of risk bearing capacity one has and also
clearly state the expectations from the investments. Irrational expectations will only bring
pain.
52
Try to understand where the money is going: It is important to identify the nature of
investment and to know if one is compatible with the investment. One can lose
substantially if one picks the wrong kind of mutual fund. In order to avoid any confusion
it is better to go through the literature such as offer document and fact sheets that mutual
fund companies provide on their funds.
Don't rush in picking funds, think first: one first has to decide what he wants the
money for and it is this investment goal that should be the guiding light for all
investments done. It is thus important to know the risks associated with the fund and
align it with the quantum of risk one is willing to take. One should take a look at the
portfolio of the funds for the purpose. Excessive exposure to any specific sector should
be avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with
a certain ideology such as the "Value Principle" or "Growth Philosophy". Both have their
share of critics but both philosophies work for investors of different kinds. Identifying the
proposed investment philosophy of the fund will give an insight into the kind of risks that
it shall be taking in future.
Invest. Don’t speculate: A common investor is limited in the degree of risk that he is
willing to take. It is thus of key importance that there is thought given to the process of
investment and to the time horizon of the intended investment. One should abstain from
speculating which in other words would mean getting out of one fund and investing in
another with the intention of making quick money. One would do well to remember that
nobody can perfectly time the market so staying invested is the best option unless there
are compelling reasons to exit.
Don’t put all the eggs in one basket: This old age adage is of utmost importance. No
matter what the risk profile of a person is, it is always advisable to diversify the risks
associated. So putting one’s money in different asset classes is generally the best option
as it averages the risks in each category. Thus, even investors of equity should be
judicious and invest some portion of the investment in debt. Diversification even in any
particular asset class (such as equity, debt) is good. Not all fund managers have the same
acumen of fund management and with identification of the best man being a tough task, it
53
is good to place money in the hands of several fund managers. This might reduce the
maximum return possible, but will also reduce the risks.
Be regular: Investing should be a habit and not an exercise undertaken at one’s wishes, if
one has to really benefit from them. As we said earlier, since it is extremely difficult to
know when to enter or exit the market, it is important to beat the market by being
systematic.
The basic philosophy of Rupee cost averaging would suggest that if one invests regularly
through the ups and downs of the market, he would stand a better chance of generating
more returns than the market for the entire duration. The SIPs (Systematic Investment
Plans) offered by all funds helps in being systematic. All that one needs to do is to give
post-dated cheques to the fund and thereafter one will not be harried later. The Automatic
investment Plans offered by some funds goes a step further, as the amount can be
directly/electronically transferred from the account of the investor.
Do your homework:
It is important for all investors to research the avenues available to them irrespective of
the investor category they belong to. This is important because an informed investor is in
a better decision to make right decisions. Having identified the risks associated with the
investment is important and so one should try to know all aspects associated with it.
Asking the intermediaries is one of the ways to take care of the problem.
Find the right funds
Finding funds that do not charge much fees is of importance, as the fee charged
ultimately goes from the pocket of the investor. This is even more important for debt
funds as the returns from these funds are not much. Funds that charge more will reduce
the yield to the investor
Risks involved in investing in Mutual Funds
Mutual Funds do not provide assured returns. Their returns are linked to their
performance. They invest in shares, debentures, bonds etc. All these investments involve
an element of risk. The unit value may vary depending upon the performance of the
company and if a company defaults in payment of interest/principal on their
54
debentures/bonds the performance of the fund may get affected. Besides incase there is a
sudden downturn in an industry or the government comes up with new a regulation which
affects a particular industry or company the fund can again be adversely affected. All
these factors influence the performance of Mutual Funds.
Some of the Risk to which Mutual Funds are exposed to is given below:
Market risk
If the overall stock or bond markets fall on account of overall economic factors,
the value of stock or bond holdings in the fund's portfolio can drop, thereby impacting the
fund performance.
Non-market risk
Bad news about an individual company can pull down its stock price, which can
negatively affect fund holdings. This risk can be reduced by having a diversified portfolio
that consists of a wide variety of stocks drawn from different industries.
Interest rate risk
Bond prices and interest rates move in opposite directions. When interest rates rise, bond
prices fall and this decline in underlying securities affects the fund negatively.
Credit risk
Bonds are debt obligations. So when the funds invest in corporate bonds, they run the risk
of the corporate defaulting on their interest and principal payment obligations and when
that risk crystallizes, it leads to a fall in the value of the bond causing the NAV of the
fund to take a beating.
Performance Measures or Risk Measurement Of Mutual Funds
Mutual Fund industry today, with about 34 players and more than five 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
55
such as investment strategy and management style are qualitative, but the funds record is
an important indicator too. Though past performance alone can not 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 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-àvis 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 can not. By using the risk return
relationship, we try to assess the competitive strength of the mutual funds vis-à-vis 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:
56
Ø The Treynor Measure
Ø The Sharpe Measure
Ø Jenson Model
Ø 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 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.
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.
57
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.
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.
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 fund 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
agiven level of risk (Bi) can be calculated as:
Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it, alpha
can be obtained by subtracting required return from
the actual return of the fund.
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
58
fund and an ordinary investor can not mitigate unsystematic risk, as his knowledge of
market is primitive.
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 the
excess return 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, Sm is standard deviation of market returns. 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 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
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 diversified. 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 appetite
59
Project
Details
60
Main Objective
To make Comparative performance analysis of SBI Mutual Fund with ICICI Prudential
Mutual Fund.
Sub-objectives
1. To study the different kinds of schemes provided by each of Mutual funds.
2. Comparative performance analysis of SBI Equity - Diversified with ICICI
Prudential Equity – Diversified Fund.
3. Comparative performance analysis of SBI Gilt Fund with ICICI Prudential Gilt
Fund
4. Comparative performance analysis of SBI Balance Fund with ICICI Prudential
Balance Fund.
The study Comprises of
1. Comparative analysis of Returns from SBI Mutual Fund and ICICI Prudential
Mutual fund.
2. Comparative analysis of Risk associated with SBI and ICICI Prudential fund, with
the use of Sharpe ratio, Expense ratio, Beta, Treynor Ratio and Standard
deviation..
61
3. To compare Mutual Fund Average Return with NIFTY Average Return
4. Comparative analysis of corpus of the funds.
METHODOLOGY
o Information is collected from the managers of Selected firms who deal in mutual
funds.
o Information is collected from the officials of SBI Mutual Fund officials.
o Information is also collected from the secondary sources like the offer documents,
fact sheets, key information memorandum, web sites, magazines, newspapers etc.
o In case of corpus size, lock in period, entry and exit load the information is
collected from SBI & ICICI Prudential the offer documents.
o In case of returns, minimum investment and performance (Track Record’s) is
collected from the offer documents & fact sheets.
o Extensive use of Mutual Fund Related magazines like “ Mutual Fund Review”,
“Mutual Fund Insight by value researchers” is being made.
62
Analysis of
the Data
63
SOURCES OF INFORMATION
PRIMERY SOURCES OF INFORMATION
Officials and sales executives of SBI Mutual fund.
Official and executives of SBI
Discussion about mutual funds with existing and new investors
SECONDARY SOURCES OF INFORMATION
Offer documents of SBI and ICICI Prudential Mutual Funds.
Mutual Fund related magazines like Mutual Fund Review, Mutual Fund Insight by value
researchers, Outlook Money.
Fact Sheets of SBI Mutual Fund and ICICI Prudential Mutual Fund
Web
sites,
mainly
www.mutualfundsindia.com,
sbimf.com
www.valueresearchersonline.com, www.indiainfoline.com. icicipruamc.com
LIMITATIONS OF THE STUDY
The analysis is done on the basis of past performance of the funds. But the past
performance may not be an indicator of future performance.
Performance of mutual funds is largely affected by environmental factors, which are
beyond the control of investors.
64
GILT FUND ANALYSIS
ABSOLUTE RETURNS
NIFTY
SBI
ICICI PRU
1ST YEAR
9.715344
5.36
8.09
2ND
YEAR
85.20646
8.88
11.34
3RD
YEAR
125.8813
13.07
16.65
ABSOLUTE RETURNS
140
120
100
NIFTY
80
SBI
60
ICICI PRU
40
20
0
1ST YEAR
2ND
YEAR
3RD
YEAR
The above diagram exhibits he absolute return from Gilts funds. These are the funds,
which are known for their high consistency. The consistent appraisal is assured in this
type of funds. This type of fund is suitable for retired people, dependants on income from
fund invested.
It is clear from the diagram that the performance of ICICI Prudential is marginally higher
than SBI Mutual fund at different point of time Gilt Fund.
65
BETA
RISK PREMIUM
1ST
YEAR
2ND
YEAR
3RD
YEAR
SBI
0.0004
ICICI
PRU
0.00035
-0.0001
0.00003
-0.0002
-0.002
-0.0002
-0.001
SHARPE INDEX RANKING
SBI
-0.86
-1.51
-1.35
-0.45
1ST YEAR
2ND YEAR
3RD YEAR
AVERAGE
ICICI
PRU
0.03
-1.4
-0.91
-0.76
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
-1.4
-1.6
1ST YEAR
2ND YEAR
3RD YEAR
Average Sharp Ratio
SBI
ICICI PRU
Sharpe Ratio, which measures risk free return from the fund, is favorable in case of
ICICI Prudential Fund when compared to SBI.Higher the Sharpe Ratio indicates higher
safety. So depending on Sharpe Ratio SBI is safer than SBI.
Standard Deviation of SBI is lower than ICICI Prudential. It indicates lower risk profile
of SBI when compared to ICICI Prudential.
66
Beta, which measures impact of market condition on funds, is lower in case of ICICI
Prudential when compared to SBI. It indicates lower risk profile of ICICI Prudential than
SBI.
TREYNOR INDEX RANKING
1ST YEAR
2ND YEAR
3RD YEAR
AVERAGE
SBI
-2.64
-4.66
-4.15
-3.82
ICICI
PRU
0.09
-4.99
-3.23
-2.71
1
0
-1
1ST YEAR
-2
2ND YEAR
-3
3RD YEAR
Average Treynor Ratio
-4
-5
SBI
ICICI PRU
A measure of a portfolio's excess return per unit of risk, equal to the portfolio's
rate of return minus the risk-free rate of return, divided by the portfolio's beta.
ICICI Prudential Mutual Fund is having a higher Treynor ratio of -2.71% as compared to
SBI Mutual Fund which is having a Treynor Ratio of -3.82%. A high Treynor Index
indicates that we're getting a good deal in terms of the return-to-risk ratio.
67
BALANCED FUND ANALYSIS
ABSOLUTE RETURNS
NIFTY
SBI BALANCED FUND
200
ICICI PRU BALANCED
FUND
180
1ST
YEAR
2ND
YEAR
3RD
YEAR
9.715344
25.96
85.20646
91.85
125.8813
172.5
23.16
77.69
148.41
160
140
120
100
80
60
NIFTY
SBI
ICICI PRU
40
20
0
1ST YEAR 2ND YEAR 3RD YEAR
The above Diagram exhibits the absolute return of SBI and ICICI Prudential Balance
Funds. Both the funds are fluctuating. But in many a point of time returns from SBI
Balance Fund are higher than ICICI Prudential Balance Fund
Balance funds are known for their consistent return and are suitable for the investors who
can bear moderate risk and investors seeking consistent return.
SBI
BETA
0.003
ICICI
PRU
-0.0003
68
RISK
PREMIUM
SHARPE RATIO
1ST YEAR
2ND YEAR
3RD YEAR
AVG
1ST YEAR
0.05
-0.004
2ND YEAR
3RD YEAR
0.23
0.09
-0.009
-0.008
ICICI
PRU
SBI
0.91
4.23
1.72
2.29
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
1.01
2.42
2.13
1.85
1ST YEAR
2ND YEAR
3RD YEAR
Average Sharp Ratio
SBI
ICICI PRU
Sharpe Ratio, which measures risk free return from the fund, is favorable in case of SBI
Mutual
Fund when compared to ICICI Prudential Fund. Higher the Sharpe Ratio
indicates higher safety. So depending on Sharpe Ratio SBI Magnum Balanced Fund is
safer than ICICI Prudential Balanced Fund.
Standard Deviation of SBI Mutual Fund is higher than ICICI Prudential . It indicates
lower risk profile of ICICI Prudential Fund when compared to SBI Mutual Fund
Beta, which measures impact of market condition on funds on funds, is higher in case of
SBI Mutual Fund when compared to ICICI Prudential. It indicates lower risk profile of
ICICI Prudential Balanced Fund than SBI Magnum Balanced Fund.
69
TREYNOR INDEX RANKING
1ST YEAR
2ND YEAR
3RD YEAR
AVERAGE
SBI
17.96
83.85
34.04
34.95
ICICI
PRU
15.16
36.27
31.8
27.74
90
80
70
60
50
40
30
20
10
0
1ST YEAR
2ND YEAR
3RD YEAR
Average Treynor Ratio
SBI
ICICI PRU
A measure of a portfolio's excess return per unit of risk, equal to the portfolio's
rate of return minus the risk-free rate of return, divided by the portfolio's beta.
SBI Balanced Fund is having a higher Treynor ratio of 34.95%. As Compared to ICICI
Prudential Balanced Fund having a Treynor Ratio of 27.74%. A high Treynor Index
indicates that we're getting a good deal in terms of the return-to-risk ratio.
EQUITY FUND ANALYSIS
1.ABSOLUTE RETURNS
AVERAGE RETURN
NIFTY
SBI MAGNUM GLOBAL
1ST
YEAR
9.72
17.93
2ND
YEAR
85.21
130.42
3RD
YEAR
125.88
320.76
70
FUND
ICICI PRUDENTIAL
DYNAMIC
43.56
148.63
319.79
ABSOLUTE RETURNS
RETURNS
400.00
300.00
200.00
NIFTY
SBI MAGNUM GLOBAL
100.00
ICICI PRU DYNAMIC
0.00
1
2
3
YEAR
The above diagram exhibits the absolute return from Equity Funds for different point of
time. It is clear from the diagram that the returns from Equity Funds are very fluctuating.
Only moderate risk takers invest in this fund. ICICI Prudential Magnum Global Fund
comparatively has given more return compared to SBI Magnum Global Equity Fund.
BETA
RISK PREMIUM
1ST
YEAR
2ND
YEAR
3RD
YEAR
SBI
0.08
ICICI
PRU
0.01
0.81
0.37
7.16
0.68
6.33
0.63
71
SHARPE RATIO
1ST YEAR
2ND YEAR
3RD YEAR
AVG SHARPE
RATIO
SBI
GLOBAL
0.07
0.58
0.51
0.387
ICICI
PRU
1.4
2.58
2.4
2.127
3
2.5
2
1ST YEAR
1.5
2ND YEAR
1
3RD YEAR
Average Sharp Ratio
0.5
0
SBI
ICICI PRU
Sharpe Ratio, which measures risk free return from the fund, is favorable in case of
ICICI Prudential Dynamic Fund when compared to SBI Magnum Global Fund. Higher
the Sharpe Ratio indicates higher safety. So depending on Sharpe Ratio ICICI Prudential
Dynamic Fund is safer than SBI Magnum Global Fund.
Standard Deviation of SBI Mangnum Global Fund is higher than ICICI Prudential . It
indicates lower risk profile of ICICI Prudential Dynamic Fund when compared to SBI
Mutual Fund
Beta, which measures impact of market condition on funds on funds, is higher in case of
SBI Magnum Global Fund when compared to ICICI Prudential Dynamic Fund. It
indicates lower risk profile of ICICI Prudential Balanced Fund than SBI Magnum
Balanced Fund.
72
TREYNOR RATIO
SBI
1ST YEAR
2ND YEAR
3RD YEAR
AVG
9.93
87.39
77.21
58.177
ICICI
PRU
35.56
65.19
60.84
53.87
90
80
1ST YEAR
70
60
2ND YEAR
50
40
3RD YEAR
30
20
Average Treynor
Ratio
10
0
SBI
ICICI PRU
A measure of a portfolio's excess return per unit of risk, equal to the portfolio's
rate of return minus the risk-free rate of return, divided by the portfolio's beta.
SBI Balanced Fund is having a higher Treynor ratio of 58.17%. As Compared to ICICI
Prudential Balanced Fund having a Treynor Ratio of 53.87%. A high Treynor Index
indicates that we're getting a good deal in terms of the return-to-risk ratio.
PORTFOLIO COMPOSITION OF SBI GILT FUND
73
PORTFOLIO COMPOSITION OF BALANCED FUND
PORTFOLIO
COMPOSITION OF
SBI Magnum Global
Equity Fund
74
75
Findings&
Recommendations
Balanced Funds
Returns from ICICI Prudential Balanced Fund for the past one year period is 23.16% and
returns from SBI Magnum Balanced Fund is higher at 25.96% for the same period
SBI Magnum Balance Fund is more consistently increasing than ICICI Balanced Funds
and it’s standard deviation is higher than ICICI Prudential Balanced Fund. SBI Magnum
Balanced Fun has standard deviation of 0.20% and ICICI Prudential Balanced Fund has
standard deviation of 0.15%.
Sharpe Ratio is comparatively favorable in case of ICICI Prudential Balance Fund.
Treynor ratio is comparatively favourable in case of SBI Magnum Balance Fund.Sharpe
Ratio and Treynor Ratio of SBI Magnum Balanced fund are 0.91, 34.95 respectively.
76
Sharpe Ratio and Treynor Ratio of ICICI Prudential Balanced Fund are 1.01, and 27.74%
respectively.
Beta coefficient of ICICI Prudential Balanced Fund is -0.0003, which is lower than SBI
Magnum Balance Fund’s Beta coefficient of 0.003.
GILT FUNDS
The present NAV of SBI Magnum Gilt and ICICI Prudential are Rs. Rs.17.26 and
Rs.22.62 respectively. Returns for the past one-year period for SBI Magnum Gilt Fund is
5.36%, which is lower than ICICI Prudential Gilt Fund Returns 8.09%.
SBI Magnum Gilt Fund’s NAV is more consistently increasing than ICICI Prudential
Gilt Fund. Standard Deviation of SBI Magnum Gilt Fund and ICICI Prudential Gilt Fund
is 0.35 and 0.31 respectively.
Sharpe Ratio is comparatively favorable in case of SBI Magnum Gilt Fund. ICICI
Prudential is having a good treynor ratio compared to SBI Magnum Fund. Sharpe Ratio
and Treynor Ratio of SBI Magnum Gilt Fund are -0.45, and -3.82. Sharpe Ratio and
Treynor Ratio of ICICI Prudential are -0.76 and -2.71 respectively.
77
Beta coefficient of SBI Magnum Gilt Fund 0.0004 which is lower than ICICI Prudential
Gilt Fund Beta coefficient of 0.00035
EQUITY FUND
NAV of SBI Magnum global Fund is Rs.48.48, and NAV of ICICI Prudential Dynamic
Fund is Rs.67.18.
Returns from
SBI Magnum global Fund
Fund are 17.93% and ICICI Prudential
Dynamic Fund returns are 43.56% for the past one year.
Returns and NAV of both the funds are very much fluctuating.
Sharpe Ratio and Treynor Ratio are comparatively favorable in case of ICICI Prudential
Dynamic Fund. Sharpe ratio and treynor ratio of SBI Mutual fund are 0.066 and 9.93
respectively. Sharpe ratio and treynor ratio of ICICI Prudential Dynamic fund are 1.40
and 35.5 respectively
Standard deviation of SBI Magnum Global Fund is 1.51 and ICICI Prudential has
standard deviation of 0.25
SUGGESTIONS
BALANCED FUNDS
It is favorable for the SBI Mutual fund to promote more of SBI Magnum Balanced Fund
over ICICI Prudential Balance Fund, because SBI Magnum balanced fund is giving
consistent returns since inception.
Supporting analysis for the above statement:
Returns of SBI Magnum Balanced Fund are marginally higher than ICICI Prudential
Balance Fund. Returns from SBI Magnum Balanced Fund for the past one-year period
were 25.96% and returns from ICICI Prudential Balanced Fund are lower at 23.16% for
the same period. Even the standard deviation of SBI Magnum Balanced Fund is higher
78
than ICICIC Prudential Balanced Fund’s Standard Deviation. SBI Magnum Balanced
Fund has a standard deviation of 0.20 where as ICICI Prudential Balanced Fund has
standard deviation of 0.15. It shows justified returns against risk in case of SBI Magnum
Balance Fund, the high fluctuation, higher the returns for SBI Magnum Balance Fund.
The Treynor ratio of SBI Magnum Balanced Fund is also high as compared to ICICI
Prudential Balanced Fund. The Treynor Ratio of SBI Magnum Balanced Fund and ICICI
Prudential Balanced Fund are 34.95 and 27.74 respectively.
GILT FUNDS
Its better to invest more in High yield Government Securities than investing in short term
Deposits with lower rate of interest
Supporting analysis for the above statement:
As everyone know the rate of return on short term deposits is obviously low however the
only advantage is the liquidity. It would, therefore, necessary to invest higher percentage
of corpus into Government Gilt Edged securities. With a view to maximize return on
funds the fund may consider to invest in certificate of deposits. The Portfolio of SBI
Magnum global is showing that 50% of the corpus is invested in short term deposits, the
percentage should be brought down, and invest more and more in High yield government
securities.
79
EQUITY FUND
As the Portfolio of the SBI Magnum Global is holding More of cash balance, The cash
balance should be reduced and invest same in Mid Cap and Small Cap.
Supporting analysis for the above statement:
As the portfolio of SBI Magnum Global Fund is showing that lot cash is idle i.e 30% only
70% of the corpus is utilized. Portfolio composition of SBI Magnum Global is 11% in
large cap, 52% in small cap, 9% in small cap and rest of the 30% is cash. To yield more
the cash balance should be reduced and invest the same in mid cap and small cap which
yield abnormal returns.
BIBLIOGRAPHY
AMFI Work Book
Mutual Fund review by ICICI Bank Ltd.
Mutual Fund Insight by Value Researcher.
Marketing Management by Philip Kotler
www.mutualfundsindia.com
www.indiainfoline.com
www.valueresearcersonline.com
www.icicidirect.com
80
www.amfi.com
www.sbimf.com
81