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MUTUAL_FUNDS Powered By Docstoc

   Presented by:
    Group no. 8
• Functional entities involved in Mutual
  Funds Operation
• Taxation Policy
• Major Risk Indicators
• Various Risk
• Comparison of two Funds
       Functional Entities involved in Mutual Funds
                         •They form mutual funds under the existing Trust or
 Trust or Trustee         Companies Acts.
    Company              •Trust managed by the Trustees & Trustee Companies
                          are managed by the board of Directors.

Asset Management
                         Undertakes the administration & investment activities
    Company              Of the fund

                                 He/She is an independent entity who is
    Custodian                 Responsible for safekeeping the fund’s assets
                                      i.e., stocks, bonds and cash

                         • They handle sales and redemption related
Registrars/ Transfer       activities of the fund.
      Agents             • They also maintain records of the shareholders and
                           send the payment cheques to the investors

                         • They are the fund distributors/underwriters to
                           handle the sales of units.
   Distributors          • The underwriters act as an wholesale selling units to the
                           brokers who in turn , sell to the retail investors
• Investor is taxed for
  – Capital Gains
  – Security Transaction Tax

• Also tax rules are different
  – Scheme wise
  – Investor wise
Capital Gains Taxation
Some of the main indicators
of Mutual funds investment
    • alpha- investment performance on a risk
            adjusted basis to a benchmark index
    • beta- investment performance on a risk adjusted
            basis to the market as a whole.
    •R-squared- represent %age of a fund portfolio or
                    security movement that can be
                    explained in a benchmark index.
    • Standard Deviation- how much the return on a
                    fund is deviating from the expected
                    return based on its historical
 To make investment in small denominations at
  regular intervals of time.
 Underlying intention-benefit from the volatility
  stock market
         •lower average purchase cost
         •more investment in disciplines manner
         •no lack of monies
         •make market timing irrelevant
         •not good in rising market
         •poor managed funds
Performance Measure of
     Mutual Funds
     Treynor Measure
     Sharpe Measure
     Sortino Ratio
    Expense Ratio
     Jenson Model
     Fama Model
     M-M model
     Turnover Ratio
   It calculates the ratio generated by the fund
   over and above risk free return during a
   given period & systematic risk associated
   with it.

          T.I.= (R.I.- R.F.)/ B
                 R.I.= return on fund
                 R.F.= risk free return
                 B= beta of the fund

          High and +ve value shows superior
          risk adjusted performance, low and –
          ve shows unfavourable.
    Same as Treynor only difference is that it
   covers total risk instead of systematic risk

            T.I.= (R.I.-R.F.)/ S.I.
                 S.I.= standard deviation of the
            B= when evaluating well
                  diversified portfolio.
            S.I. = when evaluating less
                         than fully diversified
                         portfolio or individual

    For well diversified portfolio S.I=B
A financial ratio, similar to the Sharpe ratio, that
measures the risk-adjusted return of investments
or portfolios.

Unlike the Sharpe ratio, the Sortino uses
downside-volatility(sometimes referred to as
semi-volatility) as the denominator instead of
standard deviation

The use of downside-volatility allows the Sortino
ratio to measure the return of “negative”
  For example, assume investment A has a
  return of 10% in year one and -10% in year
  two. Investment B has a 0% return in year
  one and a 20% return in year two. The total
  variance in these investments is the same,
  20%. However, investment B is obviously
  more favorable.

         T.I= (R.I.-R.F.)/ DV
  where , DV=Downside-Volatility

  Large Sortino Ratios indicate a low risk of
  large losses occurring and should be
  considered more by risk conscious investors.
           Expense Ratio
•The expense ratio of a stock or asset fund
is the total percentage of fund assets used
for administrative, management,
advertising and all other expenses.
•An expense ratio of 1% per annum means
that each year 1% of the fund's total assets
will be used to cover expenses. The expense
ratio does not include sales loads or
brokerage commissions.
           JENSON MODEL
•Jensen's alpha (or Jensen's Performance Index) is used to
determine the excess return of a security or portfolio of
securities over the security's theoretical expected return.

•It measures evaluation of the returns that the funds has
generated v/s return actually expected out of the fund given
the level of its systematic risk.
Realised    Expected
 return      Return
              JENSON MODEL
• The basic idea is that to analyze the performance of an
  investment manager you must look not only at the
  overall return of a portfolio, but also at the risk of that
• High alpha= superior performance
• Low alpha= Lower performance

Limitations :
• It only considers systematic risk
                    FAMA MODEL
• FAMA Model compares a portfolio to three distinct risks
  found in the equity market to assist in decomposing returns
• It says a portfolio’s beta explains about 70% of its actual
  returns. And the other 30% is due to other factors not related
  to beta.
Three Factors :
• Beta
• The amount of value stock exposure in relation to the
   – In the long run, value stocks have generated higher returns than
     growth stocks, albeit because value stocks have higher risk.
• Size
   – In the long run, small stocks have generated higher returns than large
     stocks, although the extra return is not free. There is more risk in small
It is the extension of JENSON model

Difference in this known as net selectivity.

Net selectivity represents stock selection skill
of the fund manager, as it is the excess return
over and above the return reqd. to
compensate for the total    risk taken by the
fund manager.

R.I.= R.F. + (S.I/ S.M.)*(R.M.- R.F.)

S.M. represents std. deviation of market
               Turnover Ratio
• The percentage of a fund's assets that have changed
  over the course of a given time period, usually a year
• Turnover Ratio tracks the trading that goes on in a
• A turnover ratio of 100% means each security in the
  portfolio was sold throughout the year and news ones
• A ratio of 150% means each security was sold once
  and 1/2 of them were sold a 2nd time.
• It is number of times the holdings are being replaced
  with others over a specific period of time.
              Turnover Ratio
• A higher or lower Portfolio Turnover Ratio
  doesn’t matter as long as it‘s aligned with the
  funds investment philosophy.
• A high turnover ratio can be good for equity
  funds, though high trading costs bite into the
• A low turnover ratio can be good for Value
  funds, as investments are usually long term.
                   M-M Model
• Sharpe ratio may be too difficult for the average
  investor to understand
• This measure expresses a fund's performance
  relative to the market in percentage terms and they
  believe that the average investor would find the
  measure easier to understand.
• The Modigliani measure can be expressed as follows:
       Modigliani measure = [(R.I.-R.F.)/S.I.]S.M.+R.F.
 where, (R.I.- R.F.) – fund's average excess return
        S.I. - standard deviation of fund's excess return
        S.M. - standard deviation of index excess return.
                 M-M Model
• The Modigliani measure is equivalent to the
  return the fund would have achieved if it had the
  same risk as the market index.
• The fund with the highest Modigliani measure,
  like the fund with the highest Sharpe ratio, would
  have the highest return for any level of risk.

   S.I. used for small portfolio =
          FAMA and SHARPE

  B used for large portfolio =
         JENSON and TREYNOR



                        BIRLA SUN LIFE         UTI DIVIDEND YIELD
CATEGORY                Equity Diversified     Equity Diversified
                        Dividend Yield Funds   Dividend Yield Funds
TYPE                    Open Ended             Open Ended
INCEPTION               Feb’03                 May’05
BENCHMARK               S&P CNX 500            BSE 100
RATING                  ***                    ****
EXPENSE RATIO           2.35%                  2.08%
FUND MANAGER            Ankit Sancheti         Swati Kulkarni
ASSETS (Jan 31’09)      Rs. 187.16 crores      Rs.877.57 crores
Allocation to High DY 65-100%                  65-100%
Definition of high DY   Twice the DY of the    Greater then DY of
                        Sensex                 Nifty
                      BIRLA SUN LIFE        UTI DIVIDEND YIELD
                      DIVIDEND YIELD PLUS

Total Stocks          46                    50

Average Market Cap.   3920                  14547

Portfolio P/B Ratio   2.79                  2.94

Portfolio P/E Ratio   8.55                  10.65

3 Y Earning Ratio     -                     -

Return                Average               Above Average
                            BIRLA SUN LIFE DIVIDEND   UTI DIVIDEND YIELD
                            YIELD PLUS
     Bank of Baroda                   2.49                      1.06

   Clariant Chemicals                 1.47                      0.96

    Colgate-Palmolive                 1.99                      0.34

    Glaxosmithkline                   4.62                      1.69
 Great Eastern Shopping               1.13                      1.75

          HUL                         1.95                      2.80

     Indian Oil Corp.                 3.63                      4.36

         ONGC                         5.62                      4.33

   Power Finance Corp.                0.50                      1.14

P&G Hygiene Health & Care             1.67                      1.27

        Tata Steel                    0.45                      0.07

     Tata Chemicals                   3.01                      1.83

   Union Bank of India                2.67                      1.98
               Risk Analysis
                  BIRLA SUN       UTI DIVIDEND
                LIFE DIVIDEND         YIELD
                 YIELD PLUS
    S.D.              28.76           28.90

Sharpe Ratio          -0.2            0.02

   Beta               0.79            0.87

 R-Squared            0.74            0.89

   Alpha              -2.86           3.63

                  Below Average       Low
 Fund Performance Vs S&P CNX Nifty

UTI Dividend Yield   Birla Sun Life Dividend
                            Yield Plus
Quarterly Returns Comparison

 Birla Sun Life
 Dividend Yield   UTI Dividend Yield

Birla Sun Life Dividend Yield   UTI Dividend Yield

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