CHAPTER - 4 PORTFOLIO INVESTMENT BEHAVIOUR...

113

CHAPTER - 4

PORTFOLIO INVESTMENT BEHAVIOUR OF UTI AND OTHER

MUTUAL FUNDS

The principal aim of this chapter is to analyse the trends in the portfolio

investment behaviour of the various mutual funds operating in India, during the

period from March 1996 to March 2009. This study makes out a comparative study

of the behaviour between the UTI (the oldest public sector mutual fund) and the

other public and private sector mutual funds. Other public sector mutual funds

constitute a small share have been included in the category of private sector for the

purpose of comparison.

In this chapter portfolio investment behaviour of only the open-ended

schemes has been examined as the open-ended schemes are the actively traded and

constitute major part in the mutual fund market. This chapter is mainly divided into

three sections. Section-I deals with the comparative study of the portfolio investment

behaviour of UTI mutual fund and other mutual funds. Section II deals with the

scheme-wise portfolio investment behaviour of UTI and other mutual funds. And the

last section is related to instrument-wise investment behaviour of UTI and other

mutual funds.

114

A portfolio is a group of investments that is meant to serve a single goal.

Each distinct financial goal must have a distinct portfolio decided to it. Portfolio of a

mutual fund is the combination of different financial instruments like stocks, bonds,

debentures and other money market instruments.

Managing a portfolio is the crucial aspect of fund management by deciding

on the appropriate investment goal, allocating the assets and formulating suitable

investment strategies with the objective of the scheme. More over, unit holders

investment decisions are influenced by the pattern of asset allocation indicated in the

offer documents. The expected return and level of risk is associated with the pattern

of asset allocation. With in the given regulatory restrictions, there is enough scope

for operational flexibility, and a fund can optimize its market returns by adopting an

appropriate model of asset allocation and a defined scientific investment strategy.

Currently funds are required to reveal their portfolios once in every six months.

Transactions in the financial and capital markets in accordance with the

global economy forced the mutual funds to rebalance their portfolios from time to

time, particularly after deregulation. With this effect mutual funds whether it is

private or public sector are rebalancing their fund portfolios with different

combination of assets like stocks, bonds and money markets to fulfill the needs of

the investors by getting the benefits from the volatile financial market. More over,

SEBI has granted permission to mutual funds to trade in derivatives. So far, mutual

115

funds could only hedge and rebalance portfolios, but now they are on par with FIIs to

invest in futures and options of stocks and indices.

The mutual fund schemes invest their funds generally in different

instruments like a) Equity shares b) Government securities c) Preference shares d)

Bonds and debentures and e) Money market instruments.

a) Equity Shares: It includes equity shares issued by the government, public

and private sector companies and futures.

b) Government Securities: These are the securities issued by the Government

of India and various state governments.

c) Preference Shares: Preference shares issued by the public and private

companies are included under this category.

d) Bonds and Debentures: It includes debt, fixed deposits, ABS, NCD, of

different ratings.

e) Money Market instruments: These are the cash, money market, T-bills,

Repo, Current assets, Commercial papers, PTCs.

116

SECTION – I

Portfolio of the UTI Mutual Fund and Other Mutual Funds:

In this section, the portfolio investment behaviour of the UTI (the biggest

mutual fund) vis-à-vis the Other mutual funds has been studied

Table 4-1 Portfolio investment behaviour of UTI open-ended schemes

(Rs. in Crore)March 1996 March 2000 March 2004 March 2009

Amount % Amount % Amount % Amount %Equity Shares 27,116.73 50.53 36,213.82 53.30 7,813.54 42.48 14,631.88 39.76Government Securities (Central and State)

6,193.08 11.59 5,052.85 7.44 158.93 0.86 3,852.92 10.47

Preference Shares

39.41 0.07 269.03 0.40 - - - -

Other Bonds and Debentures

18,072.33 33.81 24,772.85 36.46 8,010.41 43.55 9,626.63 26.16

Money Market Instruments

2,029.55 3.80 1,635.26 2.41 2,411.03 13.11 8,690.37 23.61

Total 53,451.10 100.00 67,943.71 100.00 18,393.91 100.00 37,801.80 100.00

Source:- 1) AMFI and UTI-ICM, Mutual Fund year book – 20002) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value

Research) April-May and Feb-Mar 2009.

Note: Money Market instruments include cash, current assets, Money market, PTC, call money, Bank deposits, Commercial Papers, Treasury bills etc.,

117

Figure 4.1

Table 4.2 : Correlation Analysis

Equity Shares

Government Securities

Preference Shares

Other Bonds and

Debentures

Money Market

InstrumentsEquity Shares

1Government

Securities0.244732065 1

Preference Shares0.811615851 0.079622107 1

Other Bonds and

Debentures0.199562288 -0.866831775 0.128610342 1

Money Market

Instruments-

0.955575416 -0.038049863-

0.677727359 -0.43753 1

Portfolio investment behaviour of UTI open ended schemes

0

5000

10000

15000

20000

25000

30000

35000

40000

Mar-96 Mar-00 Mar-04 Mar-2009.

Month and Year

Rup

ees

in C

rore

s Equity Shares


Preference Shares

Other Bonds andDebenturesMoney Market Instruments

118

Table 4.3 ANOVA

Source of VariationSS df MS F F crit

Between Groups1.31E+09 4 3.27E+08 6.815323 3.055568

Within Groups7.19E+08 15 47958547

Total2.03E+09 19

1) Portfolio investment behaviour of UTI Open ended schemes:

Table 4.1 shows the portfolio investment behaviour of the UTI open-ended

schemes from March 1996 to March 2009. It is observed that the share of bonds and

debentures and equity shares in the total assets of the UTI has gradually fallen down

and this has been occupied by the money market instruments.

The total assets of the open-ended schemes of the UTI were amounted to Rs.

53,451.10 crore in 1996. Amidst a stiff competition with private sector, the

volume of the assets of UTI had gone up further to Rs. 67,943 crore by the year

2000. And due to bifurcation of UTI in February 2003, and redemption pressure

by the investors, total assets have come down to Rs. 18,393.91 crore by the year

2004. There after the performance of UTI has gained confidence in the minds of

investors and led to improvement in assets to Rs. 37,801.80 crore. An other

factor for the improvement in the assets of UTI was acquisition of the schemes of

IL&FS Mutual Fund.

119

Out of the total assets of UTI, equity instruments occupied nearly 50 percent

(1996) and reached 53.30 per cent by the year 2000. Because of the bifurcation

of the UTI, this had come down to 43 per cent by the year 2004. In the year 2005,

equity funds delivered attractive returns and this has led for an increasing trend in

the assets and reached 46 per cent in March 2007. Due to world wide recession

from the year 2008 and fall of corporate profits, the share had come down to 40

percent by March 2009.

UTI as a government undertaking, which is aimed at benefiting the small

investors and supporting the government, invested 11.59 per cent in the state and

central government securities in the year 1996. Due to competition with other

public and private sector mutual funds it has with drawn its investments slowly

and diverted to invest in other commercial bonds and debentures, thereby its

share has tumbled down to less than one per cent by the year 2004. And there

after it has gained due to the failure of bond funds in giving attractive returns and

crossed 10 per cent mark.

The share of the other bonds and debentures in the year 1996 was 33.81 per cent.

Due to volatile stock market and opening up of many income funds, the share of

bonds and debentures in UTI open-end schemes has gained considerably and

reached to 43.55 per cent by the year 2004. This has come down to 26.16 per

cent due to reduction in interest rates and competition with buyount secondary

market.

120

The Share of the money market instruments varied from 2.41 per cent to 6.47 per

cent during the years 1996 to 2000, starting from 3.80 per cent. With the support

of pension fund investments and huge liquidity position in the mutual fund

market this had gone up to 23.61 per cent by March 2009.

From the above analysis it is clear that the share of bonds and

debentures in the assets of the UTI open-ended schemes has gradually fallen

down and the share of the money market instruments has gone up. In the case

of Government securities and equity shares though the share has decreased

during the period, it has recovered after the bifurcation of the UTI. The

correlation calculated between money market instruments and other

instruments of UTI for different years also proves it. The calculated value of F

(6.815323) is greater than the table value of F (3.055568) at 5 per cent level of

significance. Therefore, there is significant difference among the investment in

different instruments of UTI.

121

Table 4.4 Portfolio investment behaviour of Other Open-ended Mutual Fund

Schemes

(Rs. In crore)

Source: - 1) AMFI and UTI – ICM Mutual Fund year book –20002) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value Research) April-May and Feb-Mar 2009.

Note: 1) Money market instruments include cash, current assets, Money market, PTC, Call Money, Bank deposits, Commercial Papers, Treasury bills, etc., 2) Other Mutual Funds include all other public sector mutual funds like banks,

LIC and other Mutual funds of private and foreign institutions.

March 1996 March 2000 March 2004 March 2009

Amount % Amount % Amount % Amount %

Equity Shares 8,751.63 68.70 17,937.51 56.63 17,510.12 15.07 78,982.13 22.72Units of Other Mutual Funds

5.76 0.04 3.54 0.01 N.A.- N.A- 240.54 0.07

Preference Shares

7.05 0.06 1.18 0.01 N.A- N.A.- 29.09 0.01

Government Securities (Central and State)

160.66 1.26 5,395.99 17.03 5,093.19 4.38 2,560.06 0.74


3,127.80 24.55 7,386.61 23.30 65,037.12 55.98 1,40,789.94 40.50


686.79 5.39 955.96 3.02 28,528.66 24.57 1,25,007.70 35.96

Total 12,739.69 100.00 31,680.79 100.00 1,16,169.09 100.00 3,47,609.46 100.00

122

Figure 4.2

Table 4.5 CORRELATION ANALYSIS:

EquityShares

Units of Other

Mutual Funds

Preference Shares



Money Market

Instruments

Equity Shares1

Units of Other

Mutual Funds0.004511 1

Preference Shares0.784578 0.3114 1

Government

Securities0.302014 -0.59431 -0.347 1

Other Bonds and

Debentures-0.93112 -0.19154 -0.61979 -0.40252 1

Money Market

Instruments-0.88203 0.464192 -0.51928 -0.58484 0.750204 1

Portfolio investment behaviour of Other open ended Mutual Fund Schemes

0

20000

40000

60000

80000

100000

120000

140000

160000


Month and Year

Rs.

In

Cro

res

Equity Shares

Units of Other Mutual Funds

Preference Shares

Government Securies

Other Bonds andDebenturesMoney Market Instruments

123

Table 4.6 ANOVASource of

VariationSS df MS F F crit

Between Groups2.9E+09 4 7.26E+08 1.160271 6.388233

Within Groups2.5E+09 4 6.25E+08

Total5.4E+09 8

Portfolio investment behaviour of the Other Open-ended Mutual Fund

Schemes:

Table 4.4 shows the portfolio investment behaviour of all other mutual funds

(other than UTI) from March 1996 to March 2009. The analysis reveals that the

share of equity and government securities of the other mutual funds has tumbled

deteriorated steeply and they were diverted to bond and money market instruments.

Assets of all other private and public sector mutual funds have increased several

times and reached Rs. 3,47,609 crore mark in March 2009. Public sector mutual

funds which include the SBI MF, the BOB MF, Can bank mutual fund and LIC

mutual fund account only for Rs. 44,583 crore as at the end of the March 2009,

which was equal to 10 per cent of the assets of the whole mutual fund industry.

The remaining 90 per cent of the assets were accounted by the domestic and

foreign private sector mutual funds.

124

Out of the total assets of the other mutual funds, the share of equity instruments

was 68.7 per cent in March 1996. Due to volatile and unstable returns in equity

market, this share has decreased slowly and reached 15 per cent by the March

2004. However, it has gained strength from foreign institutional Investors (FIIs)

and the strong domestic market. In fact, only in 2005, the domestic mutual funds

pumped in an unbelievable amount of Rs. 13,190 crore into the stock market and

its share had reached to 22.72 per cent by the March 2009.

With regard to other bonds and debentures their share has more than doubled

from just 24 per cent in 1996 to about 56 per cent in 2004. This was mainly due

to attractive returns from money and debt markets. However it has come down to

40 per cent by March 2009, mostly due to a sharp drop in interest rates, low yield

of bond funds and emerging competition from the bullish equity market.

With the support of pension funds and heavy liquidity in the mutual fund market,

money market instruments have also gained share considerably from just 5.39

per cent in the year 1996 to about 36 per cent in March 2009 though there were

small corrections took place in the years 1998 and 2000.

The share of central and state government securities though reached to 17 per

cent in the year 2000, failed to attract the investors with low interest rates in

comparison with the returns of bonds and bullish equity returns, thereby

plummeted down to 0.74 per cent by the March 2009. On the other hand the

shares of Units of other mutual funds and Preference shares are very low.

125

Therefore from the above analysis it is evident that the other mutual

funds, particularly private sector mutual funds have reduced their equity

investments and Government securities and diverted their funds slowly to other

bonds and money market instruments. It is proved in the correlation analysis

too. The correlation between equity shares and money market instruments,

bonds and debentures is negative, as in the case of the Government securities

and money market instruments and bonds. However, the correlation between

equity shares and money market instruments is highly negative indicating the

increase in one instrument causing the same level of decrease in the other

instrument. The calculated value of F (1.160271) is less than the table value of F

(6.388233) at 5 per cent level of significance.

126

SECTION-II

Scheme-Wise Portfolio Investment Behaviour of UTI and other Mutual Funds

In this section scheme wise portfolio investment behaviour of UTI has been

studied by comparing with other mutual funds. For this purpose, total schemes of

UTI and other mutual funds are shown under three categories i) Equity schemes

ii) Bond schemes and iii) Balanced schemes. And percentage of investment in

different instruments for different years of UTI and other mutual funds has been

studied.

Table 4.7: Portfolio investment behaviour of UTI Equity schemes

(Percentages)

Percentage CompositionMarch 1996

March 2000

March 2004

March 2009

Equity Shares 77.15 78.94 94.45 92.55Government Securities (Central and State)

8.34 11.21 N.A. N.A.

Preference Shares 0.11 0.22 N.A. N.A.Other Bonds & Debentures 12.79 8.75 0.63 0.42Money Market Instruments 1.61 0.88 4.92 7.03Total 100.00 100.00 100.00 100.00

Source: - 1) AMFI and UTI – ICM Mutual Fund year book –20002) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value Research) April-May and Feb –March 2009.



127

Figure 4.3

Table 4.8 Correlation Analysis :

Equity Shares


Preference Shares

Other Bonds &

Debentures

Money Market

Instruments.Equity Shares 1

Government Securities -0.95044 1

Preference Shares 0.32605 -0.14537 1

Other Bonds &

Debentures -0.977 0.885974 -0.26307 1

Money Market

Instruments. 0.907619 -0.95953 -0.08931 -0.88999 1

Portfolio investment behaviour of UTI Equity schemes

0

10

20

30

40

50

60

70

80

90

100


Month and Year

per

cen

tag

es

Equity Shares


Preference Shares

Other Bonds &Debentures

Money MarketInstruments.

128

Table 4.9 ANOVA


Between Groups 21668.02 4 5417.004 170.9266 3.055568

Within Groups 475.3797 15 31.69198

Total 22143.4 19

1. Portfolio investment behaviour of the UTI Equity Schemes:

Table 4.7 depicts portfolio investment behaviour of UTI Equity schemes

from March 1996 to March 2009. The analysis reveals that the share of equity and

money market instruments of the UTI equity schemes had increased.

In March 1996, the UTI equity schemes have invested 77.15 per cent in equity

shares, 12.79 per cent in bonds and debentures, 8.34 per cent in state and central

government securities and 1.61 per cent in money market instruments.

After bifurcation of the UTI in February 2003, the UTI Mutual Fund which was

formed under the sponsorship of SBI, PNB, BOB and LIC of India, raised their

exposure to equity to compete with the private sector mutual funds, thereby this

has increased to over 94 per cent by March 2004 and stood at 92 per cent in

March 2009. This was gained mainly by bonds and debentures. With this effect

129

the share of bonds and debentures had dropped to 0.42 per cent by the March

2009.

On the other hand the share of money market instruments, which was only 0.88

per cent in March 2000, has increased to an attractive level of above seven per

cent by March 2009. Due to fall in interest rates and excess liquidity in the

market and to get short-term returns most of the funds have shifted their

investments from bonds to money market instruments.

From the above analysis it is clear that the share of equity and money

market instruments of the UTI equity schemes has increased by gaining from

the shares of bonds and debentures and state and central government securities.

It is statistically proved by the correlation analysis as the correlations is

negative between the equity shares, money market instruments and

Government securities, bonds and debentures. And the calculated value of F

(170.9266) is greater than the table value of F (3.055568) at 5 per cent level of

significance. Therefore, we conclude that there is a significant difference among

the investment in different instruments of UTI Equity Schemes.

130

Table 4.10 Portfolio investment behaviour of Other Equity schemes

(Percentages)


March 2000

March 2004

March2009

Equity Shares 88.15 95.81 92.64 88.95

Units of other Mutual Funds 0.07 0.00 N.A. 0.12

Preference Shares 0.00 0.00 N.A. 0.01


(Central and State)0.10 0.85 0.52 0.08

Other Bonds and Debentures 10.62 2.40 0.23 1.62

Money Market Instruments 1.06 0.94 6.61 9.22

Total 100.00 100.00 100.00 100.00

Source: - 1) AMFI and UTI – ICM Mutual Fund year book –20002) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value Research) April-May and Feb-March 2009.


LIC and other mutual funds of private and foreign institutions.

131

Figure 4.4

Table 4.11 Correlation Analysis

Equity Shares

Units of other

mutual funds

Preference Shares



Money Market

Instruments

Equity Shares 1

Units of other

Mutual Funds -0.835751

Preference Shares -0.459310.825879 1

Government

Securities 0.249381-0.55176 -0.3401 1

Other Bonds and

Debentures -0.551210.28121 -0.29826 -0.5008 1

Money Market

Instruments -0.30710.459905 0.768317 0.340321 -0.62477 1

Portfolio investment behaviour of Other equity schemes

0

20

40

60

80

100

120


Month and Year

per

cen

tag

es

Equity Shares

Units of other Mutual Funds

Preference Shares


Other Bonds andDebentures


132

TABLE 4.12 ANOVA

Source of Variation SS df MSF

F crit

Between Groups25751.42 5 5150.284 42.99015 2.772853

Within Groups2156.427 18 119.8015

Total27907.85 23

Portfolio investment behaviour of Other Equity schemes:

Table 4.10 analyses portfolio investment behaviour of Other Equity schemes

(other than UTI) from March 1996 to March 2009. The analysis concludes that the

share of investment in bonds and debentures of other equity mutual funds was

diverted to the money market instruments.

During March 1996 other equity mutual fund schemes had invested 88 per

cent in equity shares, 10.62 per cent in other bonds and debentures and only 1.06 per

cent in the money market instruments. The share of equity was almost constant and

stood at 89 per cent in March 2009. However, there had been rise from March 2000

to 2004 due to buoyancy of secondary market.

The share of the other bonds and debentures has decreased from10.62 per cent in

March 1996 to 1.62 per cent by the March 2009. This was due to decline in

interest rates for several reasons like cut in repo rates, and abundant liquidity.

Therefore, there was a push to reduce interest rates in India as the remaining

133

world reduced them. Contrarily investment in money market instruments have

rised from just 1 per cent in March 1996 to 9.22 per cent by the March 2009. The

shares of the state and central government securities, units of other mutual funds

and preference shares are very low and did not influence the investment pattern

of the other mutual funds.

Therefore, from the above analysis, it is evident that the investment in

equity shares of other mutual fund schemes is almost constant and the share of

bonds and debentures have been occupied by the money market instruments.

The correlation exists between money market instruments and other bonds and

debentures is also negative. The calculated value of F (42.99015) is greater than

the table value of F (2.772853) at 5 per cent level of significance. It shows that

there is a significant difference among the investment in different instruments

of other equity schemes.

134

Table No.4.13 Portfolio Investment behaviour of UTI Bond schemes

(Percentages)


March 2000

March 2004

March 2009

Equity Shares 14.07 27.07 0.24 18.26



Preference Shares 0.03 0.56 - -

Other Bonds & Debentures 62.99 63.56 68.88 28.99


Total 100.00 100.00 100.00 100.00




135

Figure 4.5

Table 4.14 correlation Analysis.

Equity Shares


Preference Shares

Other Bonds &

Debentures

Money Market

InstrumentsEquity Shares 1

Government Securities 0.128461 1


Other Bonds &

Debentures -0.31556 0.359782 0.290293 1

Money Market

Instruments -0.29323 -0.65675 -0.62003 -0.78129 1

Portfolio Investment behaviour of UTI Bond schemes

0

10

20

30

40

50

60

70

80


Month and Year

per

cen

tag

es Equity Shares


Preference Shares

Other Bonds & Debentures


136

TABLE 4.15 ANOVA


Between Groups7603.569 4 1900.892 9.704768 3.055568

Within Groups2938.08 15 195.872

Total10541.65 19

2. Portfolio investment behaviour of UTI Bond schemes:

Table 4.13 reveals portfolio investment behaviour of the UTI Bond schemes

from March 1996 to March 2009. It is significant to note that the investment in

bonds and debentures, and state and central government securities of the UTI bond

funds have been decreased during the above period.

In March 1996 the UTI bond fund schemes invested 63 per cent in bonds and

debentures, 14 per cent in equity shares, 16 per cent in central and state government

securities and about 7 per cent in the money market instruments.

Share of bonds and debentures from March 1996 to March 2004 had an

increasing tendency and reached 69 per cent mainly due to reduction in fixed

deposit rates of banks and rates of post office and small saving instruments. In

such a scenario debt mutual funds did manage a better performance than the

other schemes. There after due to buoyancy of secondary market, most of the

137

funds were transferred to equity and thereby share of bonds and debentures have

fallen down to 29 per cent by the March 2009.

In the case of investment in equity shares there were wide fluctuations during the

decade due to volatile stock market and reached to 18.26 per cent by March

2009. It is significant to note that after the bifurcation of UTI, this share has

fallen down to a megre 0.24 per cent. Investments in state and central

government securities have decreased because of long maturity period and

dwindled significantly from 16 per cent to 2.42 per cent. On the other hand

money market instruments have gained more and occupied more than half of the

assets particularly after 2004 due to failure of bonds in giving attractive returns

and keeping money to trade in derivatives.

Therefore from the above analysis, it is clear that the state and central

government securities, bonds and debentures have lost their share from the UTI

bond schemes and it has been gained by the money market instruments and a

small part by equity shares. The negative correlation between the money

market instruments and bonds and debentures, state and central government

securities also tells the same fact. And the calculated value of F (9.704768) is

greater than the table value of F (3.055568) at 5 per cent level of significance. It

shows that there is a significant difference among the investment in different

instruments of UTI Bond schemes.

138

Table 4.16 Portfolio investment behaviour of Other Bond schemes

(Percentages)


March 2000

March 2004

March 2009

Equity Shares 13.88 1.64 1.60 1.13

Units of Other Mutual Funds 0.00 0.00 N.A. 0.03


Government Securities (Central and State)

0.00 23.79 5.18 0.92



Total 100.00 100.00 100.00 100.00




139

Figure 4.6

Table 4.17 Correlation Analysis:

EquityShares

Units of other

Mutual Funds

Preference Shares



Money Market

Instruments

Equity Shares 1

Units of other

Mutual Funds -0.36814 1

Preference

Shares 0.999306 -0.33333 1

Government

Securities -0.4249 -0.39319 -0.4484 1

Other Bonds

and Debentures -0.04864 -0.89325 -0.08553 0.732321 1

Money Market

Instruments -0.04734 0.83267 -0.01345 -0.82624 -0.94934 1

Portfolio investment behaviour of Other Bond schemes

0

10

20

30

40

50

60

70

80


Month and Year

Per

cen

tag

es

Equity Shares

Units of other MutualFundsPreference Shares


Other Bonds andDebenturesMoney MarketInstruments

140

TABLE 4.18 ANOVA

Source of Variation SS df MS F F crit

Between Groups11059.7 5 2211.939 18.17883 2.772853

Within Groups2190.179 18 121.6766

Total 13249.88 23

Portfolio investment behaviour of Other Bond schemes:

Table 4.16 reveals the portfolio investment behaviour of the Other Bond

schemes (other than UTI) during March 1996 and March 2009. It is interesting to

note that the investment in money market instruments of the Other mutual fund

schemes occupies more than half of the share.

During March 1996 the other bond mutual fund schemes have invested 58

per cent in bonds and debentures 28 per cent in money market instruments and 14

per cent in the equity shares.

The share of bonds and debentures increased till March 2004, there after it has

decreased due to cut in interest rates and reached to 43.76 per cent by March

2009. The share of equity was very less except in march 1996 and reached 1.13

per cent by the March 2009. Money market instruments have gained strength and

reached 54.16 per cent to the March 2009.

141

Share of money market instruments in March 2000 was very low (3.5%) because

most of these funds were diverted to the state and central government securities.

Contrarily the share of state and central government securities which was zero in

the March 1996 had reached 0.92 per cent with the highest investment of 23.79

per cent in March 2000. Money market instruments which include mostly short-

term instruments like T-bills, call money, commercial papers, and cash are the

fancy investment now-a-days. It provides easy liquidity and can be easily

switched over to other instruments in the current volatile market. Investment in

money market instruments was doubled during the above period.

The above analysis concludes that the share of money market

instruments of the other bond funds have almost doubled by gaining the share

from other instruments. The statistical analysis of the table also reveals negative

correlation between the money market instruments and other instruments

(except units of other mutual funds which has negligible part) and the

correlation between money market instruments and bonds and debentures is

highly negative which shows the increase in the investment of one instrument

causes the same level of decrease in the other instrument. The calculated value

of F (18.17883) which is greater than the table value of F (2.772853) shows

significant difference at 5 per cent level of significance. Therefore it can be

concluded that there is a significant difference among the investment in

different instruments of Other Bond schemes.

142

Table 4.19 Portfolio investment behaviour of UTI Balanced schemes

(Percentages)

Percentage CompositionMarch

1996

March

2000

March

2004

March

2009

Equity Shares 21.26 47.66 37.32 29.12


(Central and State)0.00 1.37 - 24.55



Money Market Instruments60.70 4.72 7.38 14.38

Total100.00 100.00 100.00 100.00


Note: 1) Money market instruments include cash, current assets, Money market, PTC, Call Money, Bank deposits, Commercial Papers, Treasury bills, etc., 2) Other Mutual Funds include all other public sector mutual funds like banks, LIC and other Mutual funds of private and foreign institutions.

143

Figure 4.7


Equity Shares


Preference Shares


Money Market

InstrumentsEquity Shares 1

Government

Securities -0.23687 1


Other Bonds and

Debentures 0.810114 -0.22377 0.327943 1

Money Market

Instruments -0.83145 -0.2162 -0.43357 -0.86892 1

Portfolio investment behaviour of UT I Balanced schemes

0

10

20

30

40

50

60

70

M ar-96 M ar-00 M ar-04 M ar-09.

M onth a nd Ye a r

Per

cen

tag

es

E quity Shares

Governm ent S ecurit ies

P reference S hares

Other B onds andDebentures

M oney M ark etIns trum ents

144

TABLE 4.21 ANOVA


Between Groups4353.471 4 1088.368 4.432904 3.055568

Within Groups3682.803 15 245.5202

Total 8036.274 19

3. Portfolio investment behaviour of UTI Balanced schemes:

Table 4.19 shows portfolio investment behaviour of the UTI Balanced

schemes from March 1996 to March 2009. The analysis reveals that the UTI

balanced schemes have increased the investment in bonds and debentures, state and

central government securities during the above period.

In march 1996 the UTI balanced schemes have invested 61 per cent in money

market instruments, 21 per cent in equity shares and 18 per cent in the other

bonds and debentures.

Though the share of equity in March 2000 rised to 47.66 per cent, it had come

down to 29.12 per cent by March 2009. Share of other bonds and debentures has

also rised and reached about 32 per cent by March 2009, by registering the

highest level of 55.30 per cent in March 2004. Share of money market

instruments fell sharply and reached to 4.72 per cent in March 2004. Thereafter it

has improved and reached to14.38 per cent by March 2009. And it is surprising

145

that the share of state and central government securities which was registered

zero in March 1996 rised to 24.55 per cent by the March 2009.

A balanced fund will allocate its assets in the ratio of 40:60 to equity and bond

instruments respectively. Every fund should shift its assets from one instrument

to another to gain profits in the volatile equity and debt markets. The UTI also

shifted its assets from one instrument to another to get the benefit from the

financial and capital markets.

It can be observed from the above analysis that the share of money

market instruments in the UTI balanced schemes has been decreased and

mostly it has been occupied by the state and central government securities,

equity shares and other bonds and debentures. It is evident from the negative

correlation between money market instruments and other instruments. And it is

also worthnote that the correlation between Government securities and other

instruments also negative though it is not significant. The calculated value of F

(4.432904) which is just above the table value of F (3.055568) shows the

significant difference at 5 per cent level of significance. Hence, it can be

concluded that there is significant difference among the investment in different

instruments of UTI Balanced Schemes.

146

Table. 4-22 Portfolio investment behaviour of Other Balanced Schemes

(Percentages)


March 2000

March 2004

March 2009

Equity Shares 50.12 51.39 58.57 62.76

Units of Other Mutual Funds 0.07 0.00 - 0.08




Other Bonds & Debentures 39.47 40.73 29.71 20.15


Total 100.00 100.00 100.00 100.00

Source: - 1) AMFI and UTI – ICM Mutual Fund year book –20002) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value Research) April-May and Feb-Mar 2009.

Note: 1) Money market instruments include cash, current assets, Money market, PTC, Call Money, Bank deposits, Commercial Papers, Treasury bills, etc., 2) Other Mutual Funds include all other public sector mutual funds like banks, LIC and other Mutual funds of private and foreign institutions.

147

Figure 4.8


Portfolio investment behaviour of Other Balanced schemes

0

10

20

30

40

50

60

70


Month and Year

Per

cen

tag

es

Equity Shares

Units of Other Mutual Funds

Preference Shares


Other bonds & Debentures


Equity Shares

Units of Other

Mutual Funds

Preference Shares


Other bonds &

Debentures

Money Market

Instruments

Equity Shares 1Units of Other Mutual Funds 0.220808 1Preference Shares -0.62171 0.498161 1Government Securities -0.36247 -0.54799 -0.43461 1Other bonds & Debentures -0.98196 -0.40094 0.482864 0.45503 1Money Market Instruments 0.796389 0.680008 -0.02186 -0.78752 -0.88296 1

148

TABLE 4.24 ANOVA


Between Groups10383.39 5 2076.677 78.51034 2.772853

Within Groups476.1181 18 26.451

Total 10859.5 23

Portfolio Investment behaviour of Other Balanced schemes:

Table 4.22 depicts portfolio investment behaviour of Other Balanced scheme

(other than the UTI) from the March 1996 to March 2009. The analysis reveals that

the investment in equity and money market instruments was increased.

In March 1996 other balanced mutual fund schemes invested 50 per cent in

equity shares, 40 per cent in bonds and debentures and 10 per cent in the money

market instruments.

The share of equity in other balanced mutual fund schemes has constantly

increased and reached to 62.76 per cent by the March 2009. In the case of bonds

and debentures it has come down to 20.15 per cent by the March 2009, by

touching the highest share of 40.73 per cent in March 2000. Where as money

market instruments have gained share and reached to 15.82 per cent to March

2009 by registering a lowest share of 3.22 per cent in March 2000. And share of

the state and central government securities is low in almost all the years.

149

Other balanced schemes which constitute mostly private sector funds gave more

exposure to equity, rather than bonds and debentures. Private sector which has

best managerial talents with latest technology is giving priority to equity to

capture the capital gain from the stock market.

The above analysis reveals that the share of bonds and debentures of

other balanced schemes has gained by the equity and money market

instrument. It is evident by the negative correlation between bonds and

debentures and equity, money market instruments. And the calculated value of

F (78.51034) is greater than the table value of F (2.772853) at 5 per cent level of

significance. Therefore, it can be concluded, that there is a significant difference

among the investment in different instruments of other balanced schemes.

150

SECTION-III

Instrument-wise portfolio investment behaviour of UTI and Other Mutual Funds

A Comparative study of instrument wise portfolio investment behaviour of

UTI and other mutual funds were analysed under this section. For this purpose the

important investment instruments of mutual funds like a) Equity Shares b) Bonds

and Debentures c) State and Central Government Securities and d) Money Market

Instruments have been used for comparison.

Table 4.25 Investment of UTI and Other Mutual Funds in Equity shares(Rs. In crore)

Year(at the end of March)

UTI Other MFs Total

1996 27,116.73(75.60) 8,751.63(24.40) 35,868.36(100.00)

2000 36,213.82(66.88) 17,937.51(33.12) 54,151.33(100.00)

2004 7,813.54(30.85) 17,510.12(69.15) 25,323.66(100.00)

2009 14,631.88 (15.63) 78,982.13 (84.37) 93,614.01 (100.00)

Correlation -0.988


Note: 1) Money market instruments include cash, current assets, Money market, PTC, Call Money, Bank deposits, Commercial Papers, Treasury bills, etc., 2) Other Mutual Funds include all other public sector mutual funds like banks, LIC and other Mutual funds of private and foreign institutions.3) Figures in brackets are percentages

151

Figure 4.9

a. Investment of UTI and Other Mutual Funds in Equity shares:

Table 4.25 explains investment pattern of the UTI and Other mutual funds in

equity shares from the March 1996 to March 2009. The analysis reveals that the

investment in equity shares by other mutual funds had increased and reached a peak

level of 84 per cent.

Out of Rs. 35,868.36 crore total investments in equity in March 1996, UTI,

which was the dominant player in mutual fund market till the year 2000, had

invested Rs. 27,116.73 crore (75.60%). And the rest was invested by the other

private and public sector mutual funds.

Though, the investment in equity of the UTI has increased to Rs. 36,213.82 crore

by March 2000, its share has decreased to 66.88 per cent. Due to bifurcation of

152

the UTI in February 2003, its share has further come down to 30.85 per cent and

stood at 15.63 per cent by the March 2009.

Investment in equity shares of the other private and public sector mutual funds in

march 1996 was 8,751.63 crore (24.40%). It had been improved year by year and

reached to Rs. 78,982.13 (84.37%) which led to total investments to Rs.

93,614.01 crore by the March 2009. Private sector mutual funds, which

constituted nearly 80 per cent of the other mutual funds, are attracting FIIs and

other domestic investors, with innovative schemes and expertise managerial

talents.

More over India, being one of the biggest emerging markets has been offering

higher returns than developed nations. There fore, FIIs have pumped funds in

over Rs. 1,30,000 crore between 2001-051. When we look at the global asset

allocation of FIIs, the amount of money that have allocated to Indian equity

assets would be around 15 per cent of the total market cap of the Indian market.

More over corporate performance has improved, financial costs have come down

significantly and there by corporate margins improved.

Therefore, from the above analysis it is evident that the investments in

equity shares of other mutual funds were totally dominated (84%) unlike in the

past. The negative correlation calculated (-0.988) also proves that the increase in

investment in equity shares of other mutual funds cuases the decrease in the

equity shares of UTI.

1 Mutual Fund Insight, Value research publication, Oct-15, Nov-14, 2005

153

Table 4.26 Investment of UTI and Other Mutual Funds in Bonds and Debentures

(Rs. In crore)Year

(at the end of March)

UTI Other MFs Total

1996 18,072.33(85.25) 3,127.80(14.75) 21,200.13(100.00)

2000 24,772.85(77.03) 7,386.61(22.97) 32,159.45(100.00)

2004 8,010.41(10.97) 65,037.12(89.03) 73,047.53(100.00)

2009 9,626.63 (6.40) 1,40,789.94 (93.60) 1,50,416.11 (100.00)

Correlation : 0.998



Figure 4.10

154

b. Investment of UTI and Other mutual funds in Bonds and Debentures:

Table 4.26 shows investment of UTI and Other mutual funds in bonds and

debentures from March 1996 to March 2009. The analysis concludes that investment

in bonds and debentures by other mutual funds has occupied 94 per cent.

Total investment in bonds and debentures by all mutual fund companies in

March 1996 was Rs. 21,200.13 crore, Out of which Rs. 18,072.33 (85.25%) crore

belong to the UTI and the rest belong to the other public and private sector mutual

funds.

Though the investment in bonds and debentures of the UTI has rised to Rs.

24,772.85 crore to march 2000, its share in the mutual fund industry has

decreased from 85 per cent to 77 per cent. Thereafter due to the bifurcation of

UTI there was sudden fall in the share of UTI and reached to a very low level of

6.40 per cent to March 2009. On the other hand the share of the other private and

public sector funds which was Rs. 7,386.61 crore (22.97%) till march 2000, has

rised many folds and reached to Rs. 1,40,789.94 crore (93.60%) by March 2009.

Bond funds offer competitive returns compared to other investment avenues with

added advantage of liquidity, ease of transaction, convenience of tax benefits and

easy portfolio diversification. Retail investors can take advantage of prevailing

high short-term rates by investing in accrual products like liquidity, short-term,

floaters and fixed maturity plans. Fixed deposit rates in banks, Post office small

155

savings instruments too have come down. In such a scenario bond funds did

manage a better performance than these schemes. Other mutual funds which are

dominated by private sector attracted investors with a variety of schemes there by

increased their asset base in bond funds.

From the above analysis, it is clear that the investment in bonds and

debentures by the UTI has come down and it has been occupied by the other

mutual funds, particularly the private sector funds. The calculated correlation

also proves it.

156

Table. 4.27 Investment of UTI and Other Mutual Funds in Government Securities

(Rs. In crore)Year


UTI Other MFs Total

1996 6,193.08(97.47) 160.66(2.53) 6,353.74(100.00)

2000 5,052.85(48.36) 5,395.99(51.64) 10,448.84(100.00)

2004 158.93(3.03) 5,093.19(96.97) 5,252.12(100.00)

2009 3,852.92 (60.08) 2560.06(39.92) 6,412.98 (100.00)

Correlation – 0.896Source: - 1) AMFI and UTI – ICM Mutual Fund year book –2000

2) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value Research) April-May and Feb-Mar 2009.


Figure 4.11

Investment of UTI and Other Mutual Funds in Government Securities

0

1000

2000

3000

4000

5000

6000

7000

1996 2000 2004 2009

Year (at the end of March)

Rs.

in

cro

res

UTI

Other MFs

157

c. Investment of UTI and Other mutual funds in State and Central

Government securities:

Table 4.27 reveals investment of UTI and Other mutual funds in state and

central government securities from March 1996 to March 2009. From the analysis it

is clear that the UTI mutual fund has been maintaining a dominant share by investing

in the state and central government securities.

Total investment in government securities by all mutual funds in March 1996

was Rs. 6,353.74 crore, Out of which Rs. 6,193.08 crore (97.47%) was invested

by the UTI and the rest by the other mutual funds. This share had comedown to

nearly half (48.36%) by March 2000. And due to the bifurcation of the UTI,

again it had further decreased and reached to a minimum of 3 per cent. There

after it has gradually picked up and reached to 60 per cent by March 2009.

On the other hand, the share of the other public and private sector funds which

was 2.53 per cent in 1996 reached the highest level of Rs. 5,093.19 crore or 97

per cent by March 2004. There after, it has come down to about 40 per cent by

withdrawing nearly Rs. 2,500 crores between the years 2004 and 2009.

The UTI, being Government undertaking for a period of four decades with a

large number of investor base is aimed to benefit the small and retail investors,

had maintained a steady record by investing in the state and central government

bonds, except during the period of bifurcation. The other public and private

sector mutual funds, though invested in government bonds from the years 2000

158

to 2004 had withdrawn due to long maturity period and diverted to other

investment avenues like equity and money market instruments to get the benefit

from the volatile market.

It can be concluded that the UTI has been maintaining a dominant share

by investing in state and central government securities during the above period.

The negative correlation between the investment in state and central

government securities also proves the same.

Table. 4.28 Investment of UTI and Other mutual funds in Money Market Instruments

(Rs. In crore)Year


UTI Other MFs Total

1996 2,029.55(74.72) 686.79(25.28) 2,716.34(100.00)

2000 1,635.26(63.11) 955.96(36.89) 2,591.22(100.00)

2004 2,411.03(7.79) 28,528.66(92.21) 30,939.69(100.00)

2009 8,690.37 (6.50) 1,25,007.70 (93.50) 1,33,698.07 (100.00)

Correlation – 0.989Source: - 1) AMFI and UTI – ICM Mutual Fund year book –2000

2) Consolidated figures from www.mutualfundsindia.com3) Consolidated figures from ‘Mutual Fund Insight’ (Value Research) April-May and Feb-Mar 2009.


159

Figure 4.12

Investment of UTI and Other Mutual Funds in Money Market Instruments

0

20000

40000

60000

80000

100000

120000

140000

1996 2000 2004 2009

Year (at the end of March)

Rs.

in

cro

res

UTI

Other MFs

160

d. Investment of UTI and Other mutual funds in Money Market

Instrument:-

Table 4.28 depicts investment of the UTI and Other mutual funds in money

market instruments from March 1996 to March 2009. From the analysis, it is evident

that the investment in money market instruments was dominated by the other public

and private sector mutual funds.

Out of the total investments of Rs. 2,716.34 crore in money market instruments

by all mutual funds in 1996 Rs. 2,029.55 crore (74.72%) belonging to the UTI

and the rest belonging to the other private and public sector mutual funds.

Till the bifurcation, UTI was the dominant player and occupied more than half

the share. Thereafter, the share of investment in money market of the UTI

reached to 6.50 per cent to March 2009, inspite of the fact that the total assets

had rised to Rs. 8,690.37 crore. On the other hand the other private and public

sector mutual funds gradually raised their investment in money market

instruments from Rs. 686.79 crore (25.28%) to Rs. 1,25,007.70 (93.50%) crore

and thereby total assets in money market instruments reached to Rs. 1,33,698.07

crore during the above period.

Till the year 2003, money market instruments failed to attract the fund managers

and all mutual funds reduced their holdings of these instruments from their

161

portfolios. But from the year 2004, these are the fancy investments to all mutual

funds, particularly private sector players because these instruments have

flexibility to shift from one instrument to an other in the present volatile market.

More over during the short-run it will give attractive returns.

From the above it is evident that the investment in money market

instruments has been totally dominated by the other private and public sector

mutual funds, particularly after the bifurcation of the UTI unlike in the past.

The negative correlation (-0.989) between the investment in money market

instruments of UTI and other mutual funds also shows the increase in the share

of other mutual funds causes the decrease in the share of UTI.

162

Summary And Conclusion

The portfolio investment behaviour of the UTI mutual fund reveals that the

share of bonds and debentures has decreased and has diverted to money market

instruments. During the period the total assets of the UTI have also come down due

its bifurcation in February 2003 and the redemption pressure by the investors. In the

case of Government securities and equity shares though the share has decreased

during the period, it has recovered after the bifurcation of the UTI. Contrarily though

the assets of other mutual funds (other than UTI) increased manifold, the share of

public sector, other than UTI is only less than 10 per cent and the remaining 90 per

cent share is belonging to the private sector. During the above period, other mutual

funds particularly private sector mutual funds have reduced their investment in

equity share and in Government securities and diverted slowly to other bonds and

money market instruments.

Portfolio investment behaviour of the UTI equity schemes reveals that the

share of equity and money market instruments has increased by reducing the share of

investment in bonds and debentures and Government securities. In the case of other

mutual funds the share of equity in the total investment is constant during the above

period. And the share of investment in money market instruments has increased by

reducing the investment in bonds and debentures.

163

Due to fall in interest rates and long maturity period UTI bond funds have

reduced the investment in debentures and bonds and diverted to money market

instruments. Investment in equity has also increased due to buoyancy of secondary

market after bifurcation. On the other hand other bond funds have increased their

investment in money market instruments by reducing the investment in equity, bonds

and debentures.

UTI balanced schemes have reduced their investment in money market

instruments and equity and diverted to State and Central Government securities.

Contrarily the other balanced schemes increased their investment in equity and

money market instruments by reducing the investment in bonds and debentures.

Instrument wise investment behaviour of UTI and other mutual funds reveals

that the investment in equity shares bonds and debentures and money market

instruments was totally dominated by other mutual funds, particularly the private

sector funds, unlike UTI mutual fund in the beginning of the period. And it is

surprising that the share of investment in state and central government securities is

dominated by the UTI except-during the period of bifurcation.

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