Performance Analysis of Mutual Funds a Comparative Study

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INTRODUCTION TO THE STUDY

Financial management is an integral part of overall management and not merely a

staff Function. It is not only confined to fund raising operation but extends beyond it

is to Cover utilization of funds and monitoring its uses .These functions influence the

operations of other crucial functional areas of the firm such as production, marketing

and human resources. The financial management of a firm affects its very survival

because the survival of the firm depends on strategic decisions made in such

important matters such as product development, market development, entry in new

product line, retrenchment of a product, expansion of the plant, change in location etc.

In all these Matters assessment of financial implications of inescapable.

The management of the finances of a business / organization in order to achieve

financial objectives

Taking a commercial business as the most common organizational structure, the key

objectives of financial management would be to:

Create wealth for the business

Generate cash, and

Provide an adequate return on investment bearing in mind the risks that

the business is

Taking and the resources invested there are three key elements to the process of

financial management

(1) Financial Planning

Management need to ensure that enough funding is available at the right time to

meet the needs of the business. In the short term, funding may be needed to

invest in equipment and stocks, pay employees and fund sales made on credit.

In the medium and long term, funding may be required for significant additions

to the productive capacity of the business or to make acquisitions.

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(2) Financial Control

Financial control is a critically important activity to help the business ensure that the

business is meeting its objectives. Financial control addresses questions such as:

Are assets being used efficiently?

Are the businesses assets secure?

Does management act in the best interest of shareholders and in

accordance with business rules?

(3) Financial Decision-making

The key aspects of financial decision-making relate to investment, financing and

dividends:

Investments must be financed in some way however there are always

financing alternatives that can be considered. For example it is possible to

raise finance from selling new shares, borrowing from banks or taking credit

from suppliers

A key financing decision is whether profits earned by the business should be

retained rather than distributed to shareholders via dividends. If dividends are

too high, the business may be starved of funding to reinvest in growing

revenues and profits further.

Financial services industry is the main stay of any economy as it mirrors the

financial health of the country. Indian financial markets are highly regulated

with different authorities keeping an eye on every avenue of financial sub-

segments viz. Stock markets, mutual funds, insurance and banking. Stock

markets are regulated by Securities and Exchange Board of India (SEBI) while

Insurance Regulatory and Development Authority (IRDA) keep an eye on the

insurance industry. Similarly, Reserve Bank of India (RBI) keeps a check on the

Indian banking sector and Association of Mutual Funds in India (AMFI) takes

care of the mutual fund segment. India boasts of a Rs 23, 000 crore (US$ 4.44billion) - financial services distribution and advice market. Recent developments,

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Government measures, key facts and figures pertaining to the same are

discussed hereafter.

Insurance Sector

Even when the turbulent times are prevalent in the global financial markets,

India Consumers have not lost faith in their financial systems. This fact is

Marjory driving Indian insurance market.

Banking Services

Ratings agency Moody's believe that strong deposit base of Indian lenders and

Government's persistent support to public sector and private banks would act as

positive Factors for the 64 trillion (US$ 1.23 trillion) Indian banking industry amidst

the negative Global scenario.

According to the RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled

Commercial Banks', March 2011, Nationalized Banks, as a group, accounted For

53.0 per cent of the aggregate deposits, while State Bank of India (SBI) and its

Associates accounted for 21.6 per cent. The share of new private sector banks,

Old private Sector banks, foreign banks and Regional Rural banks in aggregate

deposits was 13.4 per Cent, 4.6 per cent, 4.4 per cent and 3 per cent respectively.

Mutual Funds Industry in India

Mutual Funds Definition refers to the meaning of Mutual Fund, Which is a fund,

managed by an investment company with the financial objective of generating high

Rate of Returns. These asset management or investment management companiescollects money from the investors and invests those money in different Stocks, Bonds

and other financial securities in a diversified manner. Before investing they carry out

thorough research and detailed analysis on the market conditions and market trends of

stock and bond prices. These things help the fund managers to speculate properly in

the right direction.

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Recent data released by AMFI stated that the cumulative average Asset Under

Management (AUM) of all fund houses aggregated to about Rs 6,87,640 core

(US$ 132.77 billion) in the last quarter of 2011.

Investing in the financial markets is no easy task, but learning the basics can move,

you ahead and make you feel confident about where you decide to put your money.

Thats what getting started is all about a mutual fund is a trust that pools the savings

of a number of investors who share a common financial goal. The money thus

Collected is invested by the fund manager in different types of securities depending

upon the objective of the scheme. These could range from shares to debentures to

money market instruments. The income earned through these investments and thecapital appreciations realized by the scheme are shared by its unit holders in

proportion to the number of units owned by them (pro rata). Thus a mutual fund is the

most suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed portfolio at a relatively low cost. Anybody with

an inventible surplus of as little as a few thousand rupees can invest in mutual funds.

Each mutual funds scheme has a defined investment objective and strategy.

A mutual fund is the ideal investment vehicle for todays complex and modern

financial scenario markets for equity shares, bounds and other fixed income

instruments, real estate, derivatives and other assets have become mature and

information driven. Price changes in these assets are driven by global events

occurring in faraway places. A typical individual is unlikely to have the knowledge,

skills, inclination and time to keep track of events, understand their implications and

act speedily. An individual also finds it difficult to keep track of ownership of his

assets, investment brokerage dues and bank transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified

and experienced staffs that manage each of these functions on a full time basis. The

large pool of money collected in the fund allows it to hire such staff at a very low cost

to each investor. In effect, the mutual fund vehicle exploits economies of scale in all

three areas research, investments and transaction processing. While the concept of

individuals coming together to invest money collectively is not new, the mutual fund

in its present form is a 20 th century phenomenon.

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In fact, mutual funds gained popularity only after the Second World War. Globally,

there are thousands of firms offering tens of thousands of mutual funds with different

investment objectives. Today, mutual funds collectively manage almost as much as or

more money as compared to banks.

A draft offer document is to be prepared at the time of launching the fund. Typically,

it per specifies the investment objectives of the fund, the risk associated, the costs

involved in the process and broad rules for entry into and exit from the fund and other

areas of operation. In India, as in most countries, these sponsors need approval from a

regulator, SEBI (Securities exchange board of India) in our case. SEBI looks at track

records of the sponsor and its financial strength in granting approval to the fund forcommencing operations.

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, inwhich 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.

A stock exchange provides services for stock brokers and traders to trade stocks,bonds, and other securities. Stock exchanges also provide facilities for issue and

redemption of securities and other financial instruments, and capital events including

the payment of income and dividends .Securities traded on a stock exchange include

shares issued by companies, unit trusts, derivatives pooled investment products and

bonds. To be able to trade a security on a certain stock exchange, it must be listed

there. Usually, there is a central location at least for record keeping, but trade is

increasingly less linked to such a physical place, as modern markets are electronic

networks which give those advantages of increased speed and reduced cost of

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transactions. Trade on an exchange is by members only. The initial offering of stocks

and bonds to investors is by definition done in the primary market and subsequent

trading is done in the secondary market .There are two main major stock exchanges in

India. They are BSE and NSE. The Bombay Stock Exchange (BSE) is known as the

oldest exchange in Asia. It traces its history to the 1850s, when Stockbrokers would

gather under banyan trees in front of Mumbais Town Hall. The location of these

meetings changed many times, as the number of brokers constantly increased. Capital

market reforms in India and the launch of the Securities and Exchange Board of India

(SEBI) accelerated the integration of the second Indian stock exchange called the

National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE hasbecome the largest stock exchange in India.

Three segments of the NSE trading platform were established one after another. The

Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital

Market (CM) segment was opened at the end of 1994. Finally, the Futures and

Options segment began operating in 2000. Today the NSE takes the 14th position in

the top 40 futures exchanges in the world. In 1996, the National Stock Exchange of

India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most

liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different

economy sectors. The Indices are owned and managed by India Index Services and

Products Ltd (IISL) that has a consulting and licensing agreement with Standard &

Poors. In 1998, the National Stock Exchange of India launched its web-site and was

the first exchange in India that started trading stock on the Internet in2000. The NSE

has also proved its leadership in the Indian financial market by gaining many awards

such as Best IT Usage Award by Computer Society in India (in 1996 and 1997) and

CHIP Web Award by CHIP magazine (1999).

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NEED FOR THE STUDY

Indian mutual fund industry today, occupies a prominent place in Indias investment

industry the mutual fund industry today is being universally acknowledged as

knowledge-driven and globally competitive one of largest among in the developing

countries. Middle class people (or) investors with less risk lower try to invest in

Mutual Funds. Now-a-days three are number of Mutual Fund companies in India with

various investment options. So the investors are in a dilemma to select the Mutual

Fund Company. Hence the performance analysis of Mutual Funds will help Investors

to select a specific type of Mutual Fund. Hence there is a need to study an the topic

PERFORMANCE ANALYSIS OF MUTUAL FUNDS A COMPARATIVESTUDY OF ADITYA BIRLA AND ICICI PRUDENTIAL (GROWTH) FUNDS

OBJECTIVES OF THE STUDY

1. To understand the concept relating to mutual funds.

2. To know the profile of ADITYA BIRLA and ICICI Mutual funds.

3. To analyse the performance of growth scheme ICICI GROWTH and ADITYABIRLA Mutual Funds.

4. To make conclusions based on the study.

SCOPE OF THE STUDY

The scope of the project includes knowledge about the Mutual fund industry. As a

whole this includes the detailed study of Mutual Funds, their types, benefits, present

scenario, equities as a part of mutual funds, the risk return relationship related to

investment avenues.

Its also included the marketing and promotional aspects, the marketing &

promotional activities have been carried out at the ADITYA BIRLA MONEY,

Karimnagar. They have provided an opportunity to apply the financial planning

process in practice & recommending financial strategies to investors. It enabled to

create awareness among the investors about the right investment products, helping

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investors understand the risk & return in the fund investing recommending model

portfolios and selecting the right fund.

METHODOLOGY OF THE STUDY

DATA COLLECTION METHODS:

For the purpose of the study data was collected through secondary source. Major

source of the data are published Net Asset Value (NAV) of ICICI FMCG Equity

Fund.

The data is relating to daily NAV pertains to 3 year i.e., April 2010 to march 2012.

LIMITATIONS OF THE STUDY

The time period taken for doing the analysis has been taken from April 2009

to March 2012 only.

The performance of mutual fund cannot be judged with one year data.

The mathematic errors may arise due to round off calculation.

There is no overall performance of all mutual funds.

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MUTUAL FUND INDUSTRY IN INDIA

The first introduction of a mutual fund in India occurred in 1963, when

the Government of India launched Unit Trust of India (UTI). Until 1987, UTI enjoyed

a monopoly in the Indian mutual fund market. Then a host of other government-

controlled Indian financial companies came up with their own funds. These

included State Bank of India, Canara Bank, and Punjab National Bank. This market

was made open to private players in 1993, as a result of the historic constitutional

amendments brought forward by the then Congress-led government under the existing

regime of Liberalization, Privatization and Globalization (LPG). The firstprivate

sectorfund to operate in India was Kothari Pioneer, which later merged with Franklin

Templeton.

Mutual funds are an under tapped market in India

Despite being available in the market for over two decades now with assets

under management equaling Rs 7,81,71,152 Lakhs (as of 28 February 2010) (Source:

Association of Mutual Funds, India), less than 10% of Indian households have

invested in mutual funds. A recent report on Mutual Fund Investments in Indiapublished by research and analytics firm, Boston Analytics, suggests investors are

holding back from putting their money into mutual funds due to their perceived high

risk and a lack of information on how mutual funds work. This report is based on a

survey of approximately 10,000 respondents in 15 Indian cities and towns as of March

2010. There are 43 Mutual Funds recently.

The primary reason for not investing appears to be correlated with city size.

Among respondents with a high savings rate, close to 40% of those who live in metros

and Tier I cities considered suchinvestments to be very risky, whereas 33% of those in

Tier II cities said they did not how or where to invest in such assets.

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http://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Unit_Trust_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Constitutional_amendmenthttp://en.wikipedia.org/wiki/Constitutional_amendmenthttp://en.wikipedia.org/wiki/Liberalizationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Franklin_Templeton_Investmentshttp://en.wikipedia.org/wiki/Franklin_Templeton_Investmentshttp://en.wikipedia.org/wiki/Assets_under_managementhttp://en.wikipedia.org/wiki/Assets_under_managementhttp://www.amfiindia.com/AmfiMonthly.aspxhttp://www.amfiindia.com/AmfiMonthly.aspxhttp://www.bostonanalytics.com/india_watch/india_watch.htmlhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Savings_ratehttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Unit_Trust_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Constitutional_amendmenthttp://en.wikipedia.org/wiki/Constitutional_amendmenthttp://en.wikipedia.org/wiki/Liberalizationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Private_sectorhttp://en.wikipedia.org/wiki/Franklin_Templeton_Investmentshttp://en.wikipedia.org/wiki/Franklin_Templeton_Investmentshttp://en.wikipedia.org/wiki/Assets_under_managementhttp://en.wikipedia.org/wiki/Assets_under_managementhttp://www.amfiindia.com/AmfiMonthly.aspxhttp://www.amfiindia.com/AmfiMonthly.aspxhttp://www.bostonanalytics.com/india_watch/india_watch.htmlhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Savings_ratehttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Asset


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Source: www.investopedia.com

On the other hand, among those who invested, close to nine out of

ten respondents did so because they felt these assets were more professionally

managed than other asset classes. Exhibit 2 lists some of the influencing factors for

investing in mutual funds. Interestingly, while non-investors cite risk as one of the

primary reasons they do not invest in mutual funds, those who do invest consider that

they are professionally managed and more diverse most often as their reasons to

invest in mutual funds versus other investments.

Source: www.investopedia.com

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COMPANY PROFILE - BIRLA SUNLIFE MUTUAL FUND

Birla Sun Life Asset Management Company Ltd.

(BSLAMC), the investment managers of Birla Sun Life

Mutual Fund, is a joint venture between the Aditya Birla

Group and the Sun Life Financial Services Inc. of Canada.

The joint venture brings together the Aditya Birla Group's

experience in the Indian market and Sun Life's global experience.

Established in 1994, Birla Sun Life Mutual fund has emerged as one of India's leading

flagships of Mutual Funds business managing assets of a large investor base. Our

solutions offer a range of investment options, including diversified and sector specific

equity schemes, fund of fund schemes, hybrid and monthly income funds, a wide

range of debt and treasury products and offshore funds.

Birla Sun Life Asset Management Company has one of the largest team of research

analysts in the industry, dedicated to tracking down the best companies to invest in.

BSLAMC strives to provide transparent, ethical and research-based investments and

wealth management services.

Heritage

The Aditya Birla Group

The Aditya Birla Group is one of India's largest business houses. Global in vision,

rooted in Indian values, the Group is driven by a performance ethic pegged on value

creation for its multiple stakeholders.

The Group operates in 26 countries India, UK, Germany, Hungary, Brazil, Italy,

France, Luxembourg, Switzerland, Australia, USA, Canada, Egypt, China, Thailand,

Laos, Indonesia, Philippines, UAE, Singapore, Myanmar, Bangladesh, Vietnam,

Malaysia, Bahrain and Korea.

A US $29 billion corporation in the League of Fortune 500, the Aditya Birla Group is

anchored by an extraordinary work force of 130,000 employees, belonging to 40

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different nationalities. Over 60 per cent of its revenues flow from its operations across

the world.

The Aditya Birla Group is a dominant player in all its areas of operations viz;

Aluminium, Copper, Cement, Viscose Staple Fibre, Carbon Black, Viscose Filament

Yarn, Fertilisers, Insulators, Sponge Iron, Chemicals, Branded Apparels, Insurance,

Mutual Funds, Software and Telecom. The Group has strategic joint ventures with

global majors such as Sun Life (Canada), AT&T (USA), the Tata Group and NGK

Insulators (Japan), and has ventured into the BPO sector with the acquisition of

TransWorks, a leading ITES/BPO company.

Sun Life Financial

Sun Life Financial Inc is a leading international financial services organization

providing a diverse range of wealth accumulation and protection products and

services to individuals and corporate customers. Chartered in 1865, Sun Life

Financial Inc and its partners today have operations in key markets worldwide,

including Canada, the United States, the United Kingdom, Hong Kong, the

Philippines, Japan, Indonesia, India, China and Bermuda.

Philosophy

Birla Sun Life Asset Management Company follows a long-term, fundamental

research based approach to investment. The approach is to identify companies, which

have excellent growth prospects and strong fundamentals. The fundamentals include

the quality of the companys management, sustainability of its business model and its

competitive position, amongst other factors.

Vision

To be a leader and role model in a broad based and integrated financial services

business.

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Mission

To consistently pursue investor's wealth optimization by:

Achieving superior and consistent investment results.

Creating a conducive environment to hone and retain talent.

Providing customer delight.

Institutionalizing system-approach in all aspects of functioning.

Upholding highest standards of ethical values at all times.

Values

Integrity

Commitment

Passion

Seamlessness

Speed

MANAGEMENT

Mr. A Balasubramanian

Chief Executive Officer - BSLAMC

Mr. Navin Tewari

Head - Sales and Marketing - BSLAMC

Mr. Ashok Suvarna

COO - BSLAM

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Mr. Parag Joglekar

Head - Finance and Accounts - BSLAMC

Ms. Rama Vasantharajan

Head-Compliance & Risk Management - BSLAMC

Mr. Kalpesh Teli

Head Business Development - BSLAM

Ms. Molly Kapoor

Head Customer Service - BSLAMC

Mr. Rajiv Joshi, Head

Legal, Compliance and Secretarial - BSLAMC

Mr. Maneesh Dangi

Co-Chief Investment Officer

Mr. Mahesh Patil

Co-Chief Investment Officer

Mr. Satyabrata Mohanty

Head - Mixed Assets

Since its inception in 1994, Birla Sun Life Mutual fund has emerged as one of India's

leading Mutual Funds managing assets of a large investor base. The fund offers a

range of investment options, which include diversified and sector specific equity

schemes, fund of fund schemes, hybrid and monthly income funds, a wide range of

debt and treasury products and offshore funds.

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Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment

managers of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla

Group and the Sun Life Financial Services Inc. of Canada. The joint venture brings

together the Aditya Birla Group s experience in the Indian market and Sun Life s

global experience.

No. of schemes 71

No. of schemes including options 218

Equity Schemes 63

Debt Schemes 106

Short term debt Schemes 17

Equity & Debt 10

Money Market 0Gilt Fund 16

BIRLA SUN LIFE MUTUAL FUNDS DIFFERENT SCHEMES

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EQUITY SCHEMES DEBT SCHEMES

Birla Sun Life Advantage FundBirla Sun Life Short Term Opportunities

FundBirla Sun Life Dividend Yield Plus Birla Sun Life Dynamic Bond fund

Birla Sun Life Tax Plan Birla Sun Life Gilt Plus- liquid Plan

Birla Sun Life Index Fund Birla Sun Life Gilt Plus-PF Plan

Birla Sun Life India GenNect Fund Birla Sun Life Gilt Plus- Regular Plan

Birla Sun Life India Opportunities Fund Birla Sun Life Income Plus

Birla Sun Life Midcap Fund Birla Sun Life Govt. Securities(Long Term)

Birla Sun Life MNC Fund Birla Sun Life Govt. Securities(Short Term)

Birla Sun Life Basic Industries fundBirla Sun Life Income Fund- Half Yearly

Dividend

Birla Sun Life Buy India FundBirla Sun Life Income Fund- Quarterly

Dividend

Birla Sun Life Equity FundBirla Sun Life Liquid Plus-Institutional

Monthly Dividend

Birla Sun Life Frontline Equity FundBirla Sun Life Liquid Plus-Retail Monthly

Dividend

Birla Sun Life New Millennium fundBirla Sun Life Short Term Fund- Monthly

Dividend

Birla Sun Life Tax Relief96Birla Sun Life Top 100 fund


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COMPANY PROFILE ICICI PRUDENTIAL

ICICI Prudential Asset Management Company Ltd. is a joint venture between

ICICI Bank, Indias second largest commercial bank & a well-known and trusted

name in the financial services in India, & Prudential Plc, one of the United Kingdoms

largest players in the financial services sectors. In a span of over 18 years since

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inception and just over 13 years of the Joint Venture, the company has forged a

position of pre-eminence as one of the largest Asset Management Companys in the

country, contributing significantly towards the growth of the Indian mutual fund

industry.

The company manages significant Mutual Fund Assets under Management

(AUM), in addition to our Portfolio Management Services (PMS) and International

Advisory Mandates for clients across international markets in asset classes like Debt,

Equity and Real Estate with primary focus on risk adjusted returns.

As an Asset Management Company, we have over 18 years of experience and

are currently managing a comprehensive range of schemes of more than 46 Mutual

fund schemes and a wide range of PMS Products for our investors spread across the

country. We service this investor base with our own branch network of around 168

branches and a distribution reach of over 42,000 channel partners.

Sponsors

ICICI Bank

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ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34billion

(US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155

million) for the year ended March 31, 2011. The Bank has a network of 2,538

branches and about 6,810 ATMs in India, and has a presence in 19 countries,

including India. ICICI Bank 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 in the areas of investment banking, life and non

life insurance, venture capital and asset management. The Bank currently has

subsidiaries in the United Kingdom, Russia and Canada, branches in United States,

Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance

Centre and representative offices in United Arab Emirates, China, South Africa,

Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established

branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on

Bombay Stock Exchange and the National Stock Exchange of India Limited and its

American Depositary Receipts (ADRs) are listed on the New York Stock Exchange

(NYSE).

Prudential Plc (formerly known as Prudential Corporation plc):

Prudential plc is an international financial services group with significant operations

in Asia, the US and the UK. They serve approximately, 25 million customers and

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have 290 billion in assets under management. They are among the leading

capitalized insurers in the world with an Insurance Groups Directive (IGD) capital

surplus estimated at 3.4 billion (as at 31 December 2009).

The Group is structured around four main business units:

Prudential Corporation Asia (PCA):

PCA is a leading life insurer in Asia with presence in 12 markets and a top three

position in seven key locations:

Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, and Vietnam. PCA

provides a comprehensive range of savings, protection and investment products that

are specifically designed to meet the needs of customers in each of its local markets.

PCAs asset management business in Asia has retail operations in 10 markets and it

independently manages assets on behalf of a wide range of retail and institutional

investors across the region.

Management

Mr. Nimesh Shah- Managing Director & Chief Executive Officer

Nimesh Shah joined ICICI Prudential AMC as its Managing Director in July

2007.Nimesh has completed his Chartered Accountancy. Prior to joining ICICIPrudential AMC, Nimesh was Senior General Manager at ICICI Bank and has over 18

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years experience in banking and financial services. At ICICI Group, he has handled

many responsibilities including project finance, corporate banking and international

banking.

He was associated with one of the first batches of senior managers selected to

lead the foray of ICICI Bank into the international arena. He led ICICI Banks foray

into the Middle-Eastern region and Africa.

1. Mr. B Ramakrishna - Executive Vice President

2. Mr. Raghav Iyengar - National Head Sales and distribution

3. Mr. Kalyan Prasath - Head - Information Technology

4. Mr. Hemant Agarwal - Head - Operations

5. Mr. Ashish Kakkar - Head - Human Resources

6. Mr. Aashish Somaiyaa - Head Retail Business

Fund Management

1. Mr. S. Naren - Chief Investment Officer - Equity

2. Mr. Chaitanya Pande - Head Fixed Income

Board of Directors: Asset Management Company

1. Ms. Chanda Kochhar - Chairperson

2. Mr. Barry Stowe

3. Mr. Suresh Kumar

4. Mr. Vijay Thacker

5. Mr. Dileep C. Choksi

6. Mr. N.S. Kannan

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7. Mr. Nimesh Shah

8. Mr. C. R. Muralidharan

Directors of the Trustee Company

1. Mr. M. S. Parthasarthy

2. Mr. M. N. Gopinath

3. Mr. Keki Bomi Dadiseth

4. Mr. Vinod Dhall

5. Mr. Sandeep Batra

Equity Funds

ICICI Prudential Focused Bluechip Equity Fund

Diversification is needed to reduce risk, but too much diversification can result in

diminishing returns. Therefore, it makes sense to strike a balance betweenminimum risk and maximum returns, which is what a focused fund does. By

investing in the largest companies because of an outlook that they will be the

most stable through any situation, it strives to grow your wealth in the long run.

ICICI Prudential Focused Bluechip Equity Fund, an open-ended equity saims to

maximize long-term total returns, from a focused and optimally diversified

portfolio that is invested in equity and equity related securities of about 20

companies belonging to the large cap domain. This strategy has the potential to

generate positive returns from being overweight on certain high conviction stock

picks.

Investment Philosophy

This fund invests in about 20 equity and equity related securities, and seeks togenerate long term capital appreciation. The portfolio is mandated to select stocks

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from among the Top 200 stocks in terms of market capitalization on the NSE. This

fund adopts a bottom-up approach to Stock Selection and the fund manager has the

flexibility to choose between stocks across all themes, sectors and investment styles.

Investor Profile

This fund is ideal for -Investors looking at the comfort of investments in large-cap

companies. Investors seeking the benefits of concentrated bets on the stock ideas by

way of potentially higher returns.

Key Benefits

Higher Liquidity due to broader investor participation

Relatively lower volatility compared to mid and small cap stocks

Large caps generally recover faster than small and mid cap stocks

Benefit of optimal diversification strategy targeted at long term capital

appreciation

Awards and Recognition

ICICI Prudential AMC has constantly been on the forefront of innovation and has

introduced products aligned to meet customer needs leading to a well-diversified

product portfolio. As acknowledgment of our efforts, we have received valued

recognition from various organizations of international repute.

Bloomberg UTV Financial Leadership Awards 2011

ICICI Prudential AMC received the coveted UTV Bloomberg Financial Leadership

Award 2011 for Best Contribution in Investor Education & Category

Enhancement.

Mr. Nimesh Shah, Managing Director, ICICI Prudential AMC received this

prestigious accolade from Honorable Finance Minister, Shri Pranab Mukherjee.

Morning Star Mutual Fund Awards 2011

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India Debt Fund House Award 2011

Business World Mutual Fund Awards 2010

ICICI Prudential Discovery Fund adjudged Emerging Leader (Based on past 3-

year SIP performance)

ICICI Prudential Discovery Fund - Insti.1 adjudged Best Equity Fund Mid

and Small Cap for the year 2010

Mr Sankaran Naren adjudged Smartest Fund Manager (ICICI Prudential

Discovery Fund) for the year 2010

Mr Sankaran Naren adjudged Best Equity Fund Manager (ICICI Prudential

Discovery Fund) for the year 2010

NDTV Profit Mutual Fund Awards 2010

ICICI Prudential Discovery Fund - Category Emerging Leader (Based on

past 3-year SIP performance)

Lipper Fund Awards 2010 India:

ICICI Prudential Dynamic Plan-Growth - Best Fund over 3 Years (Mixed Asset

INR flexible)

ICICI Prudential Gilt Fund Investment Pl-PF Opt-Gth - Best Fund over 3 & 5

Years (Bond Indian Rupee Government).

ICICI Prudential Mutual Fund

Managed by ICICI Prudential Asset

Management Company, ICICI Prudential

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Mutual Fund is a joint venture between Prudential Plc and ICICI Bank. While

Prudential Plc is one of the largest players in insurance and fund management sectors

in UK, ICICI Bank, on the other hand, is Indias second largest bank in the private

sector. Prudential Plc is a dominant player in international financial services group,

with operations spread across Asia, the US, and the UK. ICICI Bank provides

numerous banking products and financial services to both corporate and retail

customers through different delivery channels and specialized subsidiaries in the areas

of investment banking, life and non-life insurance, venture capital, and asset

management. ICICI Prudential Mutual Fund offers plenty of retail and corporate

investment solutions ranging in a variety of asset classes, namely, Equity, Fixed

Income, Real Estate, and Gold.

Open Ended

ICICI Prudential Aggressive Plan

ICICI Prudential Balanced Fund

ICICI Prudential Banking and Financial Services Fund

ICICI Prudential Blended Plan

ICICI Prudential Cautious Plan

ICICI Prudential Child Care Plan

ICICI Prudential Discovery Fund

ICICI Prudential Dynamic Plan

ICICI Prudential Emerging STAR Fund

ICICI Prudential Equity & Derivatives Fund

ICICI Prudential Flexible Income Plan

ICICI Prudential Floating Rate Plan

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ICICI Prudential FMCG Fund

ICICI Prudential Focused Bluechip Equity Fund

ICICI Prudential Gilt Fund Investment Plan

ICICI Prudential Gilt Fund Treasury Plan

ICICI Prudential Income Plan

ICICI Prudential Index Fund

ICICI Prudential Indo Asia Fund

ICICI Prudential Infrastructure Fund

ICICI Prudential Liquid Plan

ICICI Prudential Long Term Floating Rate Plan

ICICI Prudential MIP 25

ICICI Prudential Moderate Plan

ICICI Prudential Monthly Income Plan

ICICI Prudential Nifty Junior Index Fund

ICICI Prudential Services Industries Fund

ICICI Prudential Short Term Plan

ICICI Prudential Spice Fund

ICICI Prudential Sweep Plan

ICICI Prudential Target Returns Fund

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ICICI Prudential Tax Plan

ICICI Prudential Technology Fund

ICICI Prudential Top 100 Fund

ICICI Prudential Top 200 Fund

ICICI Prudential Very Aggressive Plan

Close Ended:

Prudential ICICI Fusion Fund

Prudential ICICI Hybrid Fixed Maturity Plan

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DEFINITION & SETUP OF MUTUAL FUND

In Mutual Fund Book, published by Investment company of U.S.A., A

Mutual Fund is a financial service organization that receives money from

shareholders, invest it, earns returns on it, attempts to make it grows and aggress to

pay the share holders cash on demand for the current value of his investment. The

investment managers of the funds manage these savings in such a way that the risk is

minimized and steady return is ensured.

Securities and Exchange Board of India (Mutual Funds) Regulations,

1996 define Mutual Fund as, a fund established in the form of a trust to raise

monies through the sale of units to the public or a section of the public under one or

more schemes for investing in securities, including, money market instrument.

INVESTING WITH MUTUAL FUNDS

People have different investment needs depending on their financial goals,

tolerance for risk and time frame when they need the money they invested.

Our mutual funds are created with these needs in mind we start with you.

Before you choose investments, think about your financial goals, risk tolerance and

time frame.

CHARACTERISTICS OF MUTUAL FUNDS

1. A mutual fund actually belongs to the investors who have pooled their funds.

The ownership of the mutual fund is in the hands of the investors.

2. A mutual fund is managed by investment professionals and other services

providers, who earn a fee their services, from the fund.

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3. The pool of the funds is invested in a portfolio of marketable investments. The

value of the portfolio is updated every day.

4. The investors share in the fund is denominated by units. The value of the

units changes with the change in the portfolios value, everyday. The value of

one unit of the investment is called as the Net Asset Value or NAV

5. The investment portfolio of the mutual fund is created accordingly to the

stated investment objectives of the funds.

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MUTUAL FUND STRUCTURE

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SPONSOR

Sponsor is the person who acting alone or in combination with another body

corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net

worth of the Investment Managed and meet the eligibility criteria prescribed under the

Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. The

Sponsor is not responsible or liable for any loss or shortfall resulting from the

operation of the Schemes beyond the initial contribution made by it towards setting up

of the Mutual Fund.

TRUST

The Mutual Fund is constituted as a trust in accordance with the provisions of

the Indian Trusts Act, 1882 by the sponsor. The trust deed provisions of the India

Trusts Act, 1882 by the sponsor. The trust deed is registered under the Indian

Registration Act, 1908.

TRUSTEE

Trustee is usually a company (corporate body) or a Board of Trustees (body ofindividuals). The main responsibility of the Trustee is to safeguard the interest of the

unit holders and inter alia ensure that the AMC functions in the interest of investors

and in accordance with the securities and Exchange Board of India (Mutual Funds)

Regulations, 1996, the provisions of the Trust Deed and the offer Documents of the

respective Schemes. At least 2/3rd directors of the Trustee are independent directors

who are not associated with the sponsor in any manner.

ASSET MANAGEMENT COMPANY (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the

Mutual Fund. The AMC is required to be approved by the Securities and Exchange

Board of India (SEBI) to act as an asset management company of the Mutual Fund. At

least 50% of the directors AMC are independent directors who are not associated with

the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at

all times.

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REGISTAR AND TRANSFER AGENT

The AMC if so authorized by the Trust Deed appoints the Registrar and

Transfer Agent to the Mutual Fund. The Registrar processes the application form,

redemption requests and dispatches account statements to the unit holders. The

Registrar and Transfer agent also handles communications with investors and updates

investor records.

FACTORS CONDUCIVE TO THE GROWTH OF MUTUAL FUNDS

On observing the past trends, it can be seen that certain factors are essential

for the growth of mutual funds industry. These factors are:

INVESTOR BASE

A Mutual fund makes it possible for investors to earn a higher return on their

capital by pooling the capital of a large number of small investors and investing the

pooled sum in a diversified manner. As the small investors cannot diversify on their

own, their presence acts as a catalyst for the mutual funds to grow. As different

investors have different investment requirements their presence also acts as anincentive for the mutual funds to come up with new schemes, thus helping in further

evolution of the industry.

RETURNS ON MARKET

Mutual funds invest in a diversified manner; the returns generated by them are

generally reflective of the market returns. Higher the market returns, higher the

expected returns from mutual funds. Higher expected returns attract more investors,giving a boost to the mutual funds.

INVESTMENT AVENUES

The presence of certain investment avenues make mutual funds more

attractive than direct investment. One example of such investment avenues is money

market instruments. These instruments generally involve a large minimum

investment, which makes it impossible for a small investor to invest directly. Anotherexample is investment in real estate. While a small investor may not be able to invest

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in real estate, especially on a diversified basis, internationally, there are mutual funds

dedicated to such investments and are called Real Estate Mutual Funds (REMF) such

funds are not presently not operating in India. Then there are some investment

avenues which require in-depth knowledge of complex instruments, for example,

securitized debt, derivatives, etc. Small investors may not have the knowledge to

understand the complexities of such instruments on their own, and may find it

preferable to depend on the expert knowledge offered by mutual fund mangers. The

presence of such instruments makes investments flow to mutual MUTUAL FUND A

GLOBALLY PROVEN

INVESTMENT AVENUE

World wide, 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 Fund has increase

manifold in developed financial markets, like United States. As at the end of March

2006, in the US alone there were 8002 Mutual Fund with total assets of over US $

9.36 trillion (Rs. 427 lakh crore)

In India, the Mutual Fund industry started with the setting up of the Unit Trustof India in 1964. Public sector banks and financial institutions were allowed to

establish MF in 1987. Since 1993, private sector and foreign institutions were

permitted to set up MFs.

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 absets of US 64 schemes, assured

the turns and certain others scheme and UTI MF conforming to SEBI MF

Regulations.

As at the end of March 2006, there were 29 MFs, which managed assets of Rs

231862 crores (Us $52 billion) under 592 scheme this fast growing industry is

regulated by the Securities and Exchange Board of India (SEBI).

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The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank. The

history of mutual fund in India can be broadly divided into four distinct phases.

TYPES OF MUTUAL FUNDS SCHEMES

A Mutual Fund scheme can be classified into open-ended scheme or close-

ended scheme depending on its maturity period.

1. Open-ended Fund/Scheme

An open-ended fund scheme is one that is available for subscription and repurchase

on a continuous basis. These schemes do not have 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-ended schemes is liquidity.

2. Closed-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 a time of the initial public issue and

thereafter they can buy or sell the units of the scheme on the stock exchange where

the units are listed. In order to provide an exit route to the investors, some close-ended

funds give an option of selling back the units to the mutual fund through periods

repurchase of NAV-related prices. SEBI regulations stipulated 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 fund schemes disclose NAV generally on a

weekly basis.

BY 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:

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1. Growth/Equity-oriented Schemes

The aim of growth funds is to provide capital appreciation over the medium to

long-term. 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 preference. The investors must indicate the

option in the application form. Mutual funds also allow investors to change the

options at the later date. Growth schemes are good for investors having a long- term

outlook seeking appreciation over a period of time.

2. Income/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 equity markets. However, opportunities of capital appreciation are also

limited in such funds. The NAVs of such funds are affected because of a change inthe 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.

3. Balanced Fund

The aim of balanced fund 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 formoderate growth. They generally invest 40%-60% in equity and debt instruments.

The funds are also affected because of fluctuation in share prices in the stock markets.

However, NAVs of such funds are likely to be less volatile compared to pure equity

funds.

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4. Money mark mutual 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. 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.

5. Gilt Fund

These funds invest exclusively in government securities. Government

securities have no default risk. NAVs of these schemes also fluctuate due to changes

in interest rates and other economic factor as is the case with income or debt-oriented

schemes.

6. Index Fund

Index funds replicated the portfolio of a particular index such as the BSEsensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities

in the same weight age comprising an index. NAVs of such schemes would rise or fall

in accordance with the rise or fall in the index, through not exactly by the same

percentage due to some factors know as tracking error in technical terms. Necessary

disclosures in this regard are made in the offer documents of the mutual fund scheme.

These are also exchange traded index funds launched by the mutual funds are

traded on the stock exchanges.

SECTOR SPECIFIC FUNDS/SCHEMES

These are the funds/schemes, which invest in the securities of only those

sectors or industries as specified in the offer documents. E.g., pharmaceuticals,

software, Fast Moving Consumer Goods (FMCG), petroleum stocks, etc. The returns

in these funds are dependent on the performance of the respective sectors/industries.

While these funds may give higher returns, they are more risky compared to

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diversified funds. Investors need to keep a watch on the performance of these sectors/

industries and must exit at an appropriate time. They may also seek the advice of an

expert.

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provision of the

income Tax Act, 1961 as the government offers tax incentives for investment in

specific avenues e.g., Equities-Linked Saving Schemes (ELSS). Pension schemes

launched by the mutual fund also offer tax benefits. These schemes are growth-

oriented and invest predominantly in equities. Their growth opportunities and risk

associated are like any equity-oriented schemes.

Systematic Investment Plan (SIP)

Here the investor is given the option of preparing a pre-determined number of

post-dated cheques in favour of the fund. He will get units on the date of the cheque at

the existing NAV.

Systematic Withdrawal Plan

As opposed to the Systematic Investment Plan, the Systematic Withdrawal

Plan allows the investor the facility to withdraw a pre-determined amounts/units from

his fund at a pre-determined interval. The investors units will be redeemed at the

existing NAV as on the day.

ADVANTAGES OF MUTUAL FUNDS

Professional Management

Qualified professionals manage your money and they have research team that

continuously analyses the performance and prospects of companies. They also select

suitable investment to achieve the objectives of the schemes and expertise, which will

add value to your investment. These fund managers are in a better position to manage

your investment and get higher returns.

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Diversification

The clich, dont put all your eggs in one basket really applies to the

concept of intelligent investing. Diversification lowers your risk of loss by spreading

your money across various industries. It is a rare occasion when all the stocks decline

at the same time and in the same proportion. Sector funds will spread your investment

across only one industry and it would not be wise for your portfolio to be skewed

towards these types of funds for obvious reasons.

Choice of Schemes

Mutual Funds offer a variety of schemes that will suit your needs over a life

time. When you enter a new stage in your life, all you need to do is sit down with

your investment advisor who will help you to rearrange your portfolio to suit your

altered lifestyle.

Affordability

As a small investors, many find that it is possible to buy shares of large

corporations. Mutual funds generally buy and sell securities in large volumes whichallow investors to benefit from lower trading costs. The smallest investor can get

started on mutual funds because of the minimal investment requirements. You can

invest with a minimum of Rs. 500 on a regular basis.

Tax Benefits

Investments held by investors for a period of 12 months or more qualify for Capital

gains and will be taxed accordingly (10%of the amount by which the investmentappreciated, or 20%after factoring in the benefits of cost indexation, whichever is

lower). These investment also get the benefits of indexation.

Liquidity

With open-ended funds, you can redeem all or part of your investment any

time you wish and receive the current value of the shares or the NAV related price.

Funds are more liquid than most investment in shares, deposits and bonds and the

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process is standardized, making it quick and efficient so that you can get your cash in

hand as soon as possible.

Transparency

The performance of a mutual fund is reviewed by various publications and

rating agencies, making it easy for investors to compare one to the other. Once you

are part of a mutual fund scheme, you are provided with regular updates, for examples

daily NAVs, as well as information on the specific investment made and the fund

managers strategy and outlook of the scheme.

Well Regulated

All Mutual Funds are registered by SEBI and they function within the

provision of strict regulations designed to protect the interests of investors. The

operations of Mutual Funds are regularly monitored by SEBI.

Flexibility

Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, you can systematically invest or withdraw funds

accordingly to your needs and convenience.

Low Costs

Mutual Funds are a relatively less expensive way to invest compared to

directly investing in the capital markets because the benefits sale in brokerage,

custodial and other fees translate into lower costs for investor.

RISK ASSOCIATED WITH MUTUAL FUND INVESTMENT

At the cornerstone of investing is the basic principle that the greater the risk

you take, the greater the potential reward. Typically risk is defined as short-term price

variability. But on a long-term basis, risk is the possibility that your accumulated real

capital will be insufficient to meet your financial goals. And if you want to reach your

financial goals, you must start with an honest appraisal of your own personal comfort

zone with regard to risk, individual tolerance for risk varies, creating a distinct

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investment personality for each investors. Some investor can accept short-term

volatility with ease, others with near panic. So whether you consider your investment

temperament to be conservative, moderate or aggressive you need to focus on how

comfortable or uncomfortable you will be as the value of your investment moves up

or down. Mutual Funds offer incredible flexibility in managing Investment risk.

Diversification and Automatic Investing (SIP) are two key techniques you can to

reduce your investment risk considerably and reach your long-term financial goals.

TYPES OF RISKS

All investment involves some from of risk. Even an insured bank account is subject to

the possibility that inflation will rise faster than your earning, leaving you with less

real purchasing power than when you started (Rs. 1000 gets you less than it got your

father when he was your age). Consider these common types of risk and evaluate

them against potential rewards when you select an investment.

Market Risk

At times the prices or yields of all the securities in a particular market rise or

fall due to broad outside influence. When this happen, the stock prices of both an

outstanding, highly profitable company and a fledgling corporation may be affected.

This change in price is due to market risk.

Inflation Risks

Sometimes referred to as loss of purchasing power. Whenever inflation

sprints forward faster than earnings on your investment, you run the risk that youll

actually be able to buy less, not more. Inflation risk also occurs when prices rise faster

than your returns.

Credit Risk

In short, how stable is the company or entity to which you lend your money

when you invest. How certain are you that it will able to pay the interest you are

promised, or repay your principal when the investment matures?

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Interest Risk

Changing interest rates affect both equities and bonds in many ways. Investors

are reminded that predicting which way rates wick go is rarely successful. A

diversified portfolio can help in offsetting these changes.

Exchange Risk

A number of companies generate revenues in foreign currencies and may have

investments or expenses also denominated in foreign currencies. Changes in exchange

rates may, therefore, have a positive or negative impact on companies which in turn

would have an effect on the investment of the fund

Investment Risk

The sectoral fund schemes, investments will be predominantly in equities of

select companies in the particular sectors. Accordingly, the NAV of the schemes are

linked to the equity performance of such performance of such companies and may be

more volatile than a more diversified portfolio of equities.

Government Policy

Changes in Government Policy especially in regard to the tax benefits may

impact the business prospects of the companies leading to an impact on the

investments made by the fund.

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Their appeal is not just limited to these categories of investors. Specific goals

like career planning for children and retirement plans are also catered to by mutual

funds. Children funds have found their way in a big way with many of the fund

houses already having launched a children fund. Essentially debt oriented, these

schemes invite investments, which are locked till the child attains majority and

requires money for higher education. You can invest today and assure financial

support to your child when he / she requires them. The schemes have given very good

returns of around 14% in the last one-year period. These schemes are also designed to

provide tax efficiency. The returns generated by these funds come under capital gains

and attract tax at confessional rates.

Besides this, if the objective was to save taxes, the industry offers equity

linked savings schemes as well. Equity-based funds, they can take long-term call on

stocks and market conditions without having to worry about redemption pressure as

the money is locked in for three years and provide good returns. Some of the ELSS

have been exceptional performers in past and cater to equity investor with good

performances. The industry offered tax benefits under various sections of the IT Act.

NET ASSET VALUE (NAV)

The net assets value of the Fund is the cumulative market value of the assets

fund net of its liabilities. The Fund is dissolved or liquidated, by selling off all the

assets in the fund, this is the amount shareholders would collectively own. This gives

rise to the concept of the net assets value per unit, which is the value, represented by

the ownership of one unit in the fund. It is calculated simply by dividing the net assets

value fund by the number of units. However, most people refer loosely to the NAV

per unit as NAV, ignoring the per unit. We also abide by the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets owned

by the Fund. Once it is calculated, the NAV is simply the net value of the assets

divided by the number of units outstanding. The detailed method for the calculation of

the net asset value is given below.

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The net asset value is the actual value of a unit on any business day, NAV is

the barometer of the performance of the scheme. The net asset value is the market

value of the assets of the schemes minus its liabilities and expenses. The NAV is the

net asset value of the scheme divided by the number of units outstanding on the

valuation

NAV is calculated as follows

Market value of Fund investment + receivables + accrued income + Assets- liabilities accrued expenses- Payables

NAV =Number of Units outstanding

RETURN ON INVESTMENT:

Capital appreciation, profit earned on sale of units at a higher NAV than the original

cost.

Income distribution: When a fund makes a profit on its investment, this (dividend)

profit will be given to investor as a dividend which can be re-invested in the fund or

retain it in the form of cash.

r =

r = return on mutual fund

NAVt = NAV at the time period t

NAVt-1 = NAV at the time period t-1

It = Income at the time period t

Gt = Capital gain distribution at the time period t

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PERFORMANCE MEASURES 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 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 indicate of future 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 know by their AMCs and

this fame is directly linked to their superior stock selection of stocks. In other words,

there must be some performance indicator that will reveal the quality of stock

selection of various AMCs.

Returns 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

fluctuation in the returns generated by it. The higher the fluctuations in the returns of

a fund during a given period, higher will be the risk associated with it. These

fluctuations in the returns generated by a fund are resultant of two guiding forces.

First, general market fluctuations, which affect all the securities present in the market,

called market risk or systematic risk and second, fluctuations due to specific securities

present in the portfolio of the fund, called unsystematic risk.

The total risk of a given fund is sum of these two and is measured in terms of

standard deviation of returns of the fund. Systematic risk, on the other hand, is

measured in terms of beta, which represents fluctuations in the NAV of the fund vis-

-vis market; higher will be its beta. Beta is calculated by relating the returns on a

mutual funds with the returns in the market. While unsystematic risk can be

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diversified through investments in a number of instruments, systematic risk cannot.

By using the another in a better way.

In order to determine the risk adjusted returns of investments portfolios,

several eminent authors have worked since 1960s to develop composite performance

indices to evaluate a portfolio by comparing alternative portfolio within a particular

risk class. The most important and widely used measures of performance are:

1. The treynor measure

2. The sharpe measure

3. Jenson model

The treynor measure:

Developed by jack terynor, this performance measure evaluates fund on the

basis of treynors 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).

Treynors index (Ti)=(Ri-Rf)/Bi.

Where, Ri represents return of fund,

Rf is risk free rate

Bi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high and

positive Treynors index shows a superior risk-adjusted performance of a fund, low

and negative Treynors 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

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and the total risk associated with it. Accordingly 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.

Sharpe Index (Si)=(Ri-Rf)/Si

Si

Where, Si is standard deviation of the fund.

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 measure are similar in a way, since they both divide the

risk premium by a

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