CHAPTER I

INTRODUCTION

1.1 INTRODUCTION TO THE STUDY

Mutual fund is an investment vehicle preferred by small investors as it offers an

opportunity to invest in a diversified, professionally managed portfolio at a relatively low
cost. These investors buy units of a particular mutual fund scheme that has a defined
investment objective and strategy. The money thus collected is then invested by the fund
manager in different types of securities. These could range from shares to debentures to
money market instruments, depending upon the scheme's stated objectives. The income
earned through these investments and the capital appreciation realized by the scheme is
shared by its units in proportion to the number of units owned by them. Mutual Fund as an
instrument has become an important aspect in the Indian Financial System. The value of
mutual fund is depicted by NAV. The net asset value is the current market value of a fund's
holdings, minus the fund's liabilities, that is usually expressed as a per-share amount. The
Mutual Fund Industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank of India. This fast growing industry
is regulated by the Securities and Exchange Board of India (SEBI). Association of Mutual
Funds in India (AMFI) is the umbrella body of all the mutual funds registered with SEBI. It is
a nonprofit organization committed to develop the Indian Mutual Fund Industry on
professional, healthy and ethical lines and to enhance and maintain standards in all areas with
a view to protect and promote the interests of mutual funds and their unit holders. With the
increase in domestic savings and improvement in deployment of investment through markets,
the need and scope for mutual fund operation has increased tremendously. Mutual funds are
involved in the transformation of Indian capital market as they are playing a significant role
in spreading equity culture. This industry is growing at a phenomenal rate. The impressive
growth can be attributed to the entry of commercial banks and the private players in the
mutual fund industry coupled with the rapid growth of the Indian capital markets during the
last few years.

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 In this context, it becomes pertinent to study the performance of this industry. Close
monitoring and evaluation of balanced mutual funds on regular basis would be beneficial for
the investors. The main objective of investing in a mutual fund scheme is to diversify risk.
Though the mutual funds invest in diversified portfolio, the fund managers take different
levels of risk in order to achieve the scheme's objectives. Therefore, while evaluating and
comparing the performance of the schemes, the returns should be measured taking into
account the risks involved in achieving the returns.

Indian Mutual Fund Industry has grown enormously. Now it has plethora of schemes,
having different investment objective, available for small investor to choose from. This
present study has the objective of finding out the necessary facts regarding performance of
selected balanced schemes (Both growth and dividend), which can benefit the investors and
fund managers.

1.2 INTRODUCTION TO THE INDUSTRY

MUTUAL FUND INDUSTRY
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The history of
mutual funds in India can be broadly divided into four distinct phases

FIRST PHASE - 1964-1987

Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end
of 1988 UTI had Rs. 6,700 crores of assets under management.

SECOND PHASE - 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS)

1987 marked the entry of non-UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June 1987
followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),

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Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990. At the end of 1993, the mutual fund industry had assets under
management of Rs. 47,004 crores.

THIRD PHASE - 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS)

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual
funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector mutual fund registered in July
1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions
under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of
Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under
management was way ahead of other mutual funds.

FOURTH PHASE - SINCE FEBRUARY 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs. 29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB,
BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.

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 With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.
76,000 crores of assets under management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place
among different private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth.

STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY

The Indian mutual fund industry is dominated by the Unit Trust of India, which has a
total corpus of Rs700bn collected from more than 20 million investors. The UTI has many
funds/schemes in all categories i.e. equity, balanced, income etc with some being open-ended
and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which
is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. Most of its
investors believe that the UTI is government owned and controlled, which, while legally
incorrect, is true for all practical purposes.

The second largest category of mutual funds is the ones floated by nationalized banks.
Can bank Asset Management floated by Canara Bank and SBI Funds Management floated by
the State Bank of India are the largest of these. GIC AMC floated by General Insurance
Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other
prominent ones.

RECENT TRENDS IN MUTUAL FUND INDUSTRY

The most important trend in the mutual fund industry is the aggressive expansion of
the foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and
got off to a good start due to the stock market boom prevailing then. These banks did not
really understand the mutual fund business and they just viewed it as another kind of banking
activity. Few hired specialized staff and generally chose to transfer staff from the parent
organizations. The performance of most of the schemes floated by these funds was not good.
Some schemes had offered guaranteed returns and their parent organizations had to bail out
these AMCs by paying large amounts of money as the difference between the guaranteed and
actual returns.

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 The service levels were also very bad. Most of these AMCs have not been able to
retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they
have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector Indian companies was
also very similar. They quickly realized that the AMC business is a business, which makes
money in the long term and requires deep-pocketed support in the intermediate years. Some
have sold out to foreign owned companies, some have merged with others and there is
general restructuring going on.

They can be credited with introducing many new practices such as new product
innovation, sharp improvement in service standards and disclosure, usage of technology,
broker education and support etc. In fact, they have forced the industry to upgrade itself and
service levels of organizations like UTI have improved dramatically in the last few years in
response to the competition provided by these.

MARKET TRENDS

COMPARISION OF MUTUAL FUNDS WITH OTHER INSTRUMENT

A lone UTI with just one scheme in 1964 now competes with as many as 400 odd
products and 34 players in the market. In spite of the stiff competition and losing market
share, Last six years have been the most turbulent as well as exiting ones for the industry.
New players have come in, while others have decided to close shop by either selling off or
merging with others. Product innovation is now passé with the game shifting to performance
delivery in fund management as well as service. Those directly associated with the fund
management industry like distributors, registrars and transfer agents, and even the regulators
have become more mature and responsible.

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TYPES OF MUTUAL FUND SCHEME

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TYPES OF MUTUAL FUNDS BASED ON STRUCTURE

Open-Ended Funds: These are funds in which units are open for purchase or
redemption through the year. All purchases/redemption of these fund units are done at
prevailing NAVs. Basically these funds will allow investors to keep invest as long as they
want. There are no limits on how much can be invested in the fund. They also tend to be
actively managed which means that there is a fund manager who picks the places where
investments will be made. These funds also charge a fee which can be higher than passively
managed funds because of the active management. They are an ideal investment for those
who want investment along with liquidity because they are not bound to any specific maturity
periods.

Close-Ended Funds: These are funds in which units can be purchased only during
the initial offer period. Units can be redeemed at a specified maturity date. To provide for
liquidity, these schemes are often listed for trade on a stock exchange. Unlike open ended
mutual funds, once the units or stocks are bought, they cannot be sold back to the mutual
fund, instead they need to be sold through the stock market at the prevailing price of the
shares.

Interval Funds: These are funds that have the features of open-ended and close-
ended funds in that they are opened for repurchase of shares at different intervals during the
fund tenure. The fund management company offers to repurchase units from existing unit
holders during these intervals. If unit holders wish to they can offload shares in favour of the
fund.

TYPES OF MUTUAL FUNDS BASED ON INVESTMENT OBJECTIVE

Growth funds: Under these schemes, money is invested primarily in equity stocks
with the purpose of providing capital appreciation. They are considered to be risky funds
ideal for investors with a long-term investment timeline. Since they are risky funds they are
also ideal for those who are looking for higher returns on their investments.

Income funds: Under these schemes, money is invested primarily in fixed-income

instruments e.g. bonds, debentures etc. with the purpose of providing capital protection and
regular income to investors.

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 Hybrid funds: Hybrid funds invest in both equities and fixed income instruments in
line with the predetermined investment objective of the scheme. These funds provide both
stability of returns and capital appreciation to investors. These funds with equal allocation to
equities and fixed income securities are ideal for investors looking for a combination of
income and moderate growth. They generally have an investment pattern of investing around
60% in Equity and 40% in Debt instruments.

Liquid funds: Under these schemes, money is invested primarily in short-term or

very short-term instruments e.g. T-Bills, CPs etc. with the purpose of providing liquidity.
They are considered to be low on risk with moderate returns and are ideal for investors with
short-term investment timelines.

Gift Funds: Gift funds are mutual funds where the funds are invested in government
securities for a long term. Since they are invested in government securities, they are virtually
risk free and can be the ideal investment to those who don’t want to take risks.

OTHER SCHEMES

Tax-Saving Funds (ELSS): These are funds that invest primarily in equity shares.
Investments made in these funds qualify for deductions under the Income Tax Act. They are
considered high on risk but also offer high returns if the fund performs well.

Capital Protection Funds: These are funds where funds are are split between
investment in fixed income instruments and equity markets. This is done to ensure protection
of the principal that has been invested.

Fixed Maturity Funds: Fixed maturity funds are those in which the assets are
invested in debt and money market instruments where the maturity date is either the same as
that of the fund or earlier than it.

Pension Funds: Pension funds are mutual funds that are invested in with a really long
term goal in mind. They are primarily meant to provide regular returns around the time that
the investor is ready to retire. The investments in such a fund may be split between equities
and debt markets where equities act as the risky part of the investment providing higher
return and debt markets balance the risk and provide lower but steady returns. The returns
from these funds can be taken in lump sums, as a pension or a combination of the two.

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 Sector Funds: These are funds that invest in a particular sector of the market e.g.
Infrastructure funds invest only in those instruments or companies that relate to the
infrastructure sector. Returns are tied to the performance of the chosen sector. The risk
involved in these schemes depends on the nature of the sector.

Index Funds: These are funds that invest in instruments that represent a particular
index on an exchange so as to mirror the movement and returns of the index e.g. buying
shares representative of the BSE Sensex.

Fund of funds: These are funds that invest in other mutual funds and returns depend
on the performance of the target fund. These funds can also be referred to as multi manager
funds. These investments can be considered relatively safe because the funds that investors
invest in actually hold other funds under them thereby adjusting for risk from any one fund.

Emerging market funds: These are funds where investments are made in developing
countries that show good prospects for the future. They do come with higher risks as a result
of the dynamic political and economic situations prevailing in the country.

International funds: These are also known as foreign funds and offer investments in
companies located in other parts of the world. These companies could also be located in
emerging economies. The only companies that won’t be invested in will be those located in
the investor’s own country.

Global funds: These are funds where the investment made by the fund can be in a
company in any part of the world. They are different from international/foreign funds because
in global funds, investments can be made even the investor's own country.

Real estate funds: These are the funds that invest in companies that operate in the
real estate sectors. These funds can invest in realtors, builders, property management
companies and even in companies providing loans. The investment in the real estate can be
made at any stage, including projects that are in the planning phase, partially completed and
are actually completed.

Commodity focused stock funds: These funds don’t invest directly in the
commodities. They invest in companies that are working in the commodities market, such as
mining companies or producers of commodities. These funds can, at times, perform the same
way the commodity is as a result of their association with their production.

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 Market neutral funds: The reason that these funds are called market neutral is that
they don’t invest in the markets directly. They invest in treasury bills, ETFs and securities
and try to target a fixed and steady growth.

Inverse/leveraged funds: These are funds that operate unlike traditional mutual
funds. The earnings from these funds happen when the markets fall and when markets do
well these funds tend to go into loss. These are generally meant only for those who are
willing to incur massive losses but at the same time can provide huge returns as well, as a
result of the higher risk they carry.

Asset allocation funds: The asset allocation fund comes in two variants, the target
date fund and the target allocation funds. In these funds, the portfolio managers can adjust the
allocated assets to achieve results. These funds split the invested amounts and invest it in
various instruments like bonds and equity.

Exchange traded funds: These are funds that are a mix of both open and close ended
mutual funds and are traded on the stock markets. These funds are not actively managed, they
are managed passively and can offer a lot of liquidity. As a result of their being managed
passively, they tend to have lower service charges (entry/exit load) associated with them.

ADVANTAGES OF MUTUAL FUNDS

 Instant diversification: A mutual fund will provide you with a "basket of stocks" that
will provide diversification in your portfolio.
 Effective for smaller accounts: Since a mutual fund provides exposure to hundreds
or thousands of stocks, you don't need to go out and buy hundreds or thousands of
stocks on your own, which could be very prohibitive for you if you have a smaller-
sized investment account and limited capital to invest with.
 Professional money management: Mutual funds are run by investment managers
who would likely be considered "experts" in their field. Mutual fund companies have
resources that are above and beyond what one may have as an individual, retail
investor.

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DISADVANTAGES OF MUTUAL FUNDS

 No intraday-trading on mutual funds: If you want to make a trade on your mutual

fund, you'll likely not know what the "NAV" price will be when you lock in the trade.
That is because the NAV (Net Asset Value) is settled at the end of each trading day. If
you don't lock your trade in before the end of the stock market close, you'll receive the
NAV as of the close of business the following day. This makes it difficult and/or
impossible to capitalize on sudden movements in the market (if that is something
you're trying to do).
 Not tax-efficient: In a non IRA account, mutual funds will process capital gain
distributions about once per year, which you will then be taxed on, even if you did not
take any capital gains that year. The end investor has little impact or say on how much
a fund will decide to spit out in capital gain distributions. The funds have the freedom
to delay capital gain distributions in some years, essentially kicking the can down the
road for later years. This could adversely impact you as the end investor.
 Subject to the herd: If you are a disciplined investor and you know not to "buy high"
and "sell low," then you won't panic when volatility occurs in the marketplace.
However, when investing in a large mutual fund, chances are that many of your
fellow investors will not have the same discipline. They will sell at a low point,
causing the fund to sell positions in order to account for the redemption requests. In
other words, your performance may suffer because of the lack of discipline of other
investors that also own the same fund.
 Impersonal connection: When investing in a mutual fund, you do not usually have
easy access to the one making the investment decisions. There may be quarterly
investor calls and updates, but there will be a significant lack of interpersonal
communication with the main folks in charge of the fund.
 Costs: Mutual funds always carry some kind of costs. In all cases, costs will decrease
your overall rate of return. That is why it is important to limit the annual expenses of
mutual funds, the potential front-end or back-end loads, and turnover costs. It takes
more than a novice investor to navigate these issues, but this is one of the most
important downsides to using mutual funds and thus, should certainly be evaluated
and address by all investors.

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BENEFITS OF MUTUAL FUNDS

 Mutual Funds offer diversification in your investment portfolio

 Mutual Funds are managed by professional fund managers
 Spoiled for choice with Mutual Funds
 Mutual Funds have lower investment thresholds
 Mutual Funds encourage systematic investing and withdrawals
 Mutual Funds allow automatic reinvestment
 Mutual Funds are transparent
 Mutual Funds offer liquidity
 Mutual Fund performance is tracked and recorded
 Investing in Mutual Funds is safe

RISKS ASSOCIATED WITH MUTUAL FUNDS

Mutual funds face risks based on the investments they hold. The risk return trade-off
indicates that if investor is willing to take higher risk then correspondingly he can expect
higher returns and vice versa if he pertains to lower risk instruments, which would be
satisfied by lower returns.

 RISK RETURN TRADE OFF

 MARKET RISK
 CREDIT RISK
 INFLATION RISK
 INTEREST RATE RISK
 POLITICAL RISK
 LIQUIDITY RISK

HYBRID MUTUAL FUND

Hybrid funds are mutual funds that invest in both debt and equity to achieve perfect
blend of maximum diversification and decent returns. The choice of hybrid fund depends on
your risk preferences and investment objective.

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AIM OF THE BALANCED FUND

Balanced Funds Dividend The aim of balanced funds dividend is to provide both
dividend and regular income. Such schemes periodically distribute a part of their earning and
invest both in equities and fixed income securities in the proportion indicated in their offer
documents. Balanced Funds Growth The aim of balanced funds is to provide both growth
and regular income. Such schemes periodically distribute a part of their earning and invest
both in equities and fixed income securities in the proportion indicated in their offer
documents.

WORKING OF HYBRID FUNDS

Hybrid funds aim to achieve wealth appreciation in the long-run and generate income
in the short-run via a balanced portfolio. The fund manager allocates your money in varied
proportions in equity and debt based on investment objective of the fund. Hybrid funds can
be equity-oriented or debt-oriented.

When the fund manager invests 65% or more of the fund’s assets in equity and rest in
debt and money market instruments, it’s called an equity-oriented fund. Conversely, an asset
allocation of 60% or more in debt and rest in equity is called a debt-oriented fund. For the
sake of liquidity, some part of the fund would also be invested in cash and cash equivalents.

The equity component of the fund comprises of equity shares of companies across
industries like FMCG, finance, healthcare, real estate, automobile, etc. The debt component
of the fund constitutes investment in fixed-income havens like government securities,
debentures, bonds, treasury bills, etc. The fund manager may buy/sell securities to take
advantage of market movements.

TYPES OF HYBRID FUNDS

Hybrid funds can be differentiated as per their asset allocation. Some types of hybrid
funds have a higher equity allocation while others allocate more to debt. Let’s have a look in
detail.

 Balanced funds

These are the most popular type of hybrid funds. Balanced funds invest at least 65% of
their portfolio in equity and equity-oriented instruments.

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 This allows them to qualify as equity funds for the purpose of taxation. It means that
gains over and above Rs 1 lakh from balanced funds held for a period of over 1 year are
taxable at the rate of 10%.

The rest of the fund’s assets are invested in debt securities and some amount might also
be kept in cash. Balanced funds are ideal investments for conservative investors who wish to
benefit from the return-earning capacity of equities without taking too much risks. The fixed
income exposure of balanced funds helps in mitigating equity-related risks.

 Monthly income plans

These are hybrid funds that invest predominantly in debt instruments. A monthly income
plan (MIP) would generally have 15-20% exposure to equities. This would allow it to
generate higher returns than regular debt funds. MIPs provide regular income to the investor
in the form of dividends. An investor can choose the frequency of dividends, which can be
monthly, quarterly, half-yearly or annually. These options are available in the dividend
option.

MIPs also come with the growth option that don’t pay out a dividend but lets the
investments grow in the fund’s corpus. Hence, MIPs should not be treated as a mere monthly
income investment. The name can be misleading to new investors. Consider MIPs to be
hybrid funds that invest mostly in debt and some amount in equities.

 Arbitrage funds

Arbitrage funds are equity-oriented mutual funds that try to take advantage of the mis-
pricing in the price of a stock between the derivatives market and futures market. The fund
manager looks for such opportunities to maximise returns by buying the stock at a lower
price in one market and selling it at a higher price in another market.

However, arbitrage opportunities are not always available easily. In the absence of
arbitrage opportunities, these funds might stay invested in debt instruments or cash. This is
why they can be considered to be hybrid funds. By design, arbitrage funds are relatively safer
funds. They are treated like equity funds as regards taxability and long-term returns earned
from them are taxable.

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 Some fund houses offer hybrid funds especially for children’s education or retirement.
These funds are offered with a preset goal-orientation. Understand the asset allocation
carefully before you invest in them.

THINGS AN INVESTOR SHOULD CONSIDER

 Risk:

It would be unwise to assume hybrid funds to be completely risk-free. Any instrument

which invests in equity markets will have some kind of risk. It might be less risky than pure
equity funds but you need to exercise caution and portfolio rebalancing regularly.

 Return:

Hybrid funds don’t offer guaranteed returns. The performance of underlying securities
affect Net Asset Value (NAV) of these funds and may fluctuate due to market movements.
Moreover, these might not declare dividends during market downturns.

 Cost:

Hybrid funds would charge a fee for managing your portfolio which is known as expense
ratio. Before investing in a hybrid fund, ensure it has a low expense ratio than other
competing funds. This translates into higher take home returns for the investor.

 Investment Horizon:

Hybrid funds may be ideal for a medium-term investment horizon of say 5 yrs. If you
want to earn a risk-free rate of return, you may go for arbitrage funds which bet on price
differentials of securities in different markets.

 Financial Goals:

Hybrid funds may be used for intermediate financial goals like buying a car or funding
higher education of one’s own. Retirees may invest in balanced funds and go for a dividend
option to supplement their post-retirement income.

 Tax on Gains:

The equity component of hybrid funds are taxed like equity funds. Long-term capital
gains in excess of Rs 1 lakh on equity component are taxed at the rate of 10%.

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 Short-term capital gains on equity component are taxed at the rate of 15%. The debt
component of hybrid funds is taxed like debt funds. STCG from debt component are added to
the investor’s income and taxed according to his income slab. LTCG from debt component
are taxed at the rate of 20% after indexation and 10% without the benefit of indexation.

BALANCED FUND TAXATION

As I said above, there are two types of Balanced Funds. One is Equity-Oriented
Balanced Funds and another is Debt-Oriented Balanced Funds.

Equity Oriented Balanced Funds are treated like pure equity funds. However, Debt
Oriented Balanced Funds are treated as debt funds for taxation purpose.

The current tax structure of Mutual Funds is explained in below image. First let us
understand what is LTCG and STCG from below image.

ADVANTAGES OF BALANCED FUNDS

 Diversification

As these funds invest both in equity and debt category, you will find the diversification in
a single fund. Due to such diversification, these funds have lower standard deviation than the
pure equity funds. Lower standard deviation means lower risk.

 Re-Balance and Asset Allocation

The fund manager rebalances the portfolio based on market conditions and asset
allocation limits periodically and maintains the asset allocation without any tax implications
or exit load.

This will reduce the volatility and also preserve the gains. Hence, you are freed from
manual re-balancing.

 Taxation

For the taxation purpose, equity-oriented balanced funds are treated as equity funds.
Hence, even though such funds have a certain portion of debt portfolio, the debt portfolio also
be tax-free.

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 This seems to be the biggest advantage to many. In case you separate your asset
allocation between debt and equity by investing separately in debt funds or equity funds, then
for debt part, whether in short term or long term, you have to pay the tax (based on tax rules
shared above). However, with equity-oriented balanced funds, such debt part is completely
tax-free.

DISADVANTAGES OF BALANCED FUNDS

 Considering for short-term goals

Due to above-said advantages, many investors, in fact, many advisers recommending

equity-oriented balanced funds for short-term goals which may be even less than 5 years.

They completely neglecting the equity exposure of such funds.

 Unable to understand the portfolio

Many of us feel that minimum 65% of the portfolio is in equity and rest is in debt. Hence,
debt part is totally SAFE. But they fail to understand what types of debt portfolio the is
investing.

Even in case of the equity portfolio, you must analyze the stocks the fundholding. If the
fund has higher exposure towards mid and small cap stocks, then it is riskier than holding a
pure large cap fund.

DRAWBACKS OF BALANCED FUNDS

Some drawbacks are less concerning. Take into consideration that fund managers
typically have leeway to change their allocations between stocks and bonds as they see fit --
buying more stock or bonds when one appears to be a better investment relative to the other.
For investors who prefer to manage their own stock and bond allocation, a balanced fund is
probably not a good fit, as the stock and bond allocation may change dramatically, negating
their appeal to "hands-off" investors.

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HOW TO CHOOSE A LOW-COST BALANCED FUND

 Make sure that the prospective fund has an asset allocation that fits your needs. There are
six categories of conventional balanced funds in Canada, with equity contents ranging
from 5% to 90% (see previous section)
 Avoid loads: several no-load funds are available
 Check the minimum amount: unfortunately, several low-MER funds have a high
minimum investment
 If buying directly from the mutual fund company, make sure that the prospective fund is
available in your province
 If buying through a discount broker, make sure that it offers the prospective fund
 The lower the MER, the better, but also look at the long-term returns (5 years, 10 years,
15 years)

CRITICS OF BALANCED FUNDS MAKE THE FOLLOWING POINTS

 A balanced fund’s selection and weighing of asset classes may not match an
investor’s desired asset allocation.
 Investors having both registered and non-registered accounts can locate asset classes
in the most efficient way (see Tax-efficient investing) if they don't use a single
balanced fund, but instead use one fund per asset class. For example, Canadian
equities would be held in a taxable (non-registered) account, whereas US
Equities and Fixed income would be held in a Registered Retirement Savings
Plan (RRSP).
 The costs of balanced funds, even the "low-cost" ones listed above, are at least double
those of plain-vanilla exchange-traded funds (ETFs) or inexpensive index funds.

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ADVANTAGE OF INVESTING IN A HYBRID FUNDS

Deciding how much to invest or allocate to an asset class and when to do it is a

tedious pro cess. Investors unwilling to invest in a basket of products could choose balanced
funds that offer benefits of asset allocation in a single structure. The equity component seeks
to deliver long term returns, while the debt component provides stability to the portfolio.
This diversification limits the portfolio from downside risks if either equity or debt enters a
bearish phase. When the markets are high, the fund manager has to compulsory sell equity to
maintain the maximum level and likewise when the markets are low, the fund manager has to
buy equities to maintain the equity levels. This discipline followed by a fund helps investors.

UNDERSTANDING THE INTELLIGENT STRATEGY BEHIND

HYBRID MUTUAL FUNDS

 The theoretical justification for a balanced portfolio goes far beyond just balanced
mutual funds. The biggest advantage of the balanced approach is psychological,
rooted in a discipline known as behavioural economics. Put in its most basic terms,
investors are less likely to panic and do something dumb if their portfolio tends to
hold its value.
 As irrational as it is, most investors would prefer slightly lower returns that came in
smoother intervals than a higher return that came with massive drops and increases in
value. Accepting this truth about human nature may hold the key to a good night's
sleep and successful wealth accumulation.

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TOP 5 BEST BALANCED FUNDS 2018 TO INVEST IN INDIA

PROS OF A HYBRID FUND

 Rather than having to select a stock fund (or several stock funds) and a bond fund (or
several bond funds) you can own one fund which automatically chooses the
underlying stock and bond investments for you. The stock portion will be diversified
across many different types of stocks. It is a low-cost way to diversify your money
which reduces the chances of picking the wrong stock.
 The mutual fund management team is responsible for researching and selecting the
investments inside a fund. They also do all the day-to-day monitoring and investment
adjustments. So, not only do you NOT have to be an expert on stock or bond
investing, but you also do NOT have to determine which ones to sell or buy. You just
have to decide to put money in or take money out of the fund.
 Balanced funds are great when you have smaller amounts to invest, or when you don’t
understand investing very well and aren’t ready to hire a financial advisor. The fee
charged inside a mutual fund is called an expense ratio. You never see the expense as
they take it right out of the total mutual fund value. Before investing in a fund learn
about how mutual fund expenses work and choose funds with lower than average
fees.

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  In retirement a balanced fund allows you to easily take systematic withdrawals while
maintaining an appropriate asset allocation. This approach may work well for those
who have one account to draw from, such as $100,000 in an IRA where they want to
take out $400 a month.

CONS OF A HYBRID FUND

 Sometimes the fees in a balanced fund will be a bit higher than if you choose
your individual index funds because the fund management team is doing the work of
selecting the underlying mix of stocks and bonds and changing it as needed.
 Within the balanced fund, you cannot choose how much is in what type of stocks,
such as international, small cap, large cap; or what type of bonds, such as government,
corporate or high yields. Of course, the whole point of the balanced fund is that
someone else is making those asset class choices for you.
 As your portfolio size grows larger during your accumulation phase, if you have
investments across numerous different types of accounts it may make sense to locate
certain investment types, such as bonds, within your tax-deferred retirement accounts,
while locating stocks in your non-retirement brokerage accounts. You cannot do this
with a balanced fund as the same fund owns both bonds and stocks.
 In your retirement phase if you have a larger portfolio size and numerous types of
accounts you may want to use a bond ladder so that the bond portion of your portfolio
lines up in each account with the amount of withdrawals you will need from that
account. You will not be able to do this with a balanced fund.

1.3 INTRODUCTION TO THE COMPANY

JM Financial Limited is a holding company. The Company operates as core

investment company. It offers customized financial solutions to a range of client base. Its
segments include investment banking and securities business, fund-based activities,
alternative asset management and asset management.

JM Financial is one of India’s prominent financial services groups, specialising in

providing a spectrum of businesses to corporations, financial institutions, high net-worth
individuals and retail investors.

21
 We are known for our diverse businesses such as Investment Banking, Equity, Debt,
Commodity Sales and Trading, Wealth Management, Portfolio Management Services, Asset
Management, Alternative Asset Management, Financing and Lending, Housing Finance and
Distressed Asset Management.

COMPANY LOGO

The identity of JM Financial represents solidity, integrity, expertise, respectability and

dynamism.

Dynamic Growth Triangle

The red triangle represents movement, pace, agility and dynamism. It positions JM
Financial as a distinct, powerful and adaptable financial force.

The Colour Blue

Blue is the colour of the sky and sea meaning abundance. It is associated with depth
and stability. It represents knowledge, integrity and expertise.

VALUES

Client focus

We always put the interest of our clients before our own. We understand our client
needs, seek new opportunities for them, address them and deliver unique solutions as per
their expectations. The success of our clients is the biggest reward for us.

Integrity

Integrity is fundamental to our business. We adhere to moral and ethical principles in

everything we do as professionals, colleagues and corporate citizens. Our reputation based on
our high standards of integrity is invaluable.

22
Innovation

We understand our clients' needs and develop solutions for the most complex or the
simplest, the biggest or the smallest financial transactions, whether for individuals or
institutions. Creativity and innovation are key factors to everything we do. We encourage
new ideas which help us address unique opportunities.

Partnership

Our relationships with all our stakeholders reflect our spirit of partnership. Clients see
us as trusted advisors, shareholders see us as partners and employees see us as family. We
respect, trust and support all our stakeholders.

Team Work

We believe extensive teamwork is what makes it possible for us to work together

towards a common goal. We value and respect each individual's commitment to group effort.

Implementation

Our expertise, experience and our continuous focus on the quality of execution
ensures effective implementation of our strategies.

Performance

We believe in development of our people and continuously hone our skills, setting
higher targets of performance for ourselves. We strive to attract, develop and retain the best
talent. We recognize and reward talent based on merit.

VISION

To be the most trusted partner for every stakeholder in the financial world.
We believe:

Earning trust is a process (it can be gained and lost every day!)

Sharing trust creates great teams (whether between employees or between

organisations)

Being trustworthy is the most efficient way of generating and retaining long-term
business

23
 Self–trust is the starting point of trusting others

MANAGEMENT

JM Financial Limited, the flagship listed company of the Group, is led by the Group
Chairman, Mr. Nimesh Kampani. The members of the Board meet periodically to discuss
and review the performance of the Company.

Mr. Bhanu Katoch has been associated with JM Financial Asset Management Ltd.
since 2006.

Mr. Bhanu Katoch

MD & CEO

BOARD OF DIRECTORS

Chairman -Mr. Nimesh Kampani

Non Executive & Independent Director -Mr. E. A. Kshirsagar

Non Executive & Independent Director -Mr. Darius E. Udwadia

Non Executive & Independent Director -Mr. Paul Zuckerman

Non Executive & Independent Director -Dr. Vijay Kelkar

Non Executive & Independent Director -Mr. Keki Dadiseth

Non Executive & Independent Director -Ms. Jagi Mangat Panda

Managing Director -Mr. Vishal Kampan

24
GROUP COMPANIES

JM Financial is an integrated financial services group, offering a wide range of

services to a significant clientele that includes corporations, financial institutions, High Net-
worth Individuals and retail investors.

The Group has interests in investment banking, institutional equity sales, trading,
research and broking, private and corporate wealth management, equity broking, portfolio
management, asset management, commodity broking, NBFC (Non-Banking Finance
Company) activities, private equity and asset reconstruction. While each of these businesses
is independent in itself, the Group's belief of trust being the most important factor for the
organisation is the common thread that unifies them all. The values of integrity, teamwork,
innovation, performance and partnership shape the corporate vision and drive it to its
purpose. They also help each of the individual businesses to align their respective goals and
objectives to those of the Group.

LIST OF GROUP COMPANIES

 JM Financial Limited
 JM Financial India Fund
 JM Financial India Trust II
 JM Financial Services Limited
 JM Financial Institutional Securities Limited (Formerly known as JM Financial
Securities Limited)
 JM Financial Capital Limited
 JM Financial Commtrade Limited
 JM Financial Products Limited
 JM Financial Asset Reconstruction Company Limited
 JM Financial Home Loans Limited
 Infinite India Investment Management Limited
 JM Financial Asset Management Limited
 JM Financial Trustee Company Private Limited
 JM Financial Properties & Holdings Limited
 CR Retail Malls (India) Limited

25
  JM Financial Overseas Holdings Private Limited
 JM Financial Singapore Pte Ltd.
 JM Financial Securities Inc

ASSET MANAGEMENT

 MUTUAL FUND

MUTUAL FUND

JM Financial Mutual Fund offers a bouquet of funds that caters to the diverse needs of
both, its institutional and individual investors. JM Financial Asset Management Limited, the
Asset Management Company of JM Financial Mutual Fund is sponsored by JM Financial
Limited. JM Financial Asset Management Limited started operations in December 1994 with
a launch of three funds.

Our mission is to manage risk effectively while generating top quartile returns across
all product categories. We believe that to cultivate investor loyalty, we must provide a safe
haven for their investments. We are focused on helping our investors realise their investment
goals through prudent advice, judicious fund management, impeccable research, and strong
systems of managing risk scientifically.

PRODUCTS

EQUITY FUNDSNDS

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 like dividend option,
capital appreciation, etc. to investors and investors may then choose an option that suits their
preferences.

ARBITRAGE FUNDS

These funds generate income through arbitrage opportunities emerging out of mis-
pricing between the cash market and the derivatives market. Arbitrageurs buy equity and sell
equal volume of futures so that their net position (in terms of risk) is zero.

26
 They remain unaffected by price movements in their arbitraged scrips. Any upward
movement will increase profits on their equity holdings and losses on futures positions and
vice versa.

DEBT FUNDS

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 by changes in the interest rates in the country. If the interest rates fall,
NAVs of such funds are likely to increase in the short-run and vice versa.

LIQUID FUNDS

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 papers, inter-bank
call money, etc. Returns on these schemes fluctuate much less as compared to other funds.
These funds are appropriate for corporate as well as individual investors as a means to park
their surplus funds for short periods.

HYBRID FUNDS

These funds invest in both, stocks and bonds. Hybrid funds offer investors the
opportunity to diversify their portfolio with a single investment vehicle. Based on the
percentage allocation to stocks and bonds, these funds may be classified as equity or debt
respectively. The ratio of stocks and bonds may remain fixed or vary over time.

FINANCING AND LENDING BUSINESS

We at JM Financial Group, understand the importance of financing & lending in the

success of a business. We offer financial solutions through lending, syndication, participation
in securities issuance and distribution through our two NBFCs viz JM Financial Products
Limited and JM Financial Credit Solutions Limited both of which are systemically important
non-deposit taking non-banking financial companies.

27
 We partner with our clients to evaluate the financial gaps and structure a customized
solution that works best for their requirements.

We have a wide range of product offerings to cater to diverse clients and market
segments.

OUR PRODUCTS

LOAN AGAINST SECURITIES

These loans facilitate our clients to capitalize on their investments by providing

liquidity against investments in Shares, Mutual Funds, and Bonds, without the need to sell the
securities.

The product includes the portfolio of

 Loan against mutual funds

 Loan against shares
 Loan against securities
 Loan against bonds

Loans are granted to as high as Rs.150 crores and for an extended tenure of 12
months. The loans can be utilized for fulfilment of any legal and legitimate purposes
including business loans, short term working capital requirements or meeting family
obligations like marriage in the family, higher education of self or children, medical expenses
and so on.

MARGIN TRADE FUNDING

These loans facilitate our clients to participate and to fund their settlement obligations
(Cash/F&O) of NSE and/or BSE and/or MCX and/or NCDEX or any other designated
exchange(s) that maybe applicable. This also facilitates the client to make investment/s in
Equity markets without having to deploy cash collateral towards the investment. A client can
also take a leveraged position on the basis of his existing investments.
Loan is granted as a short term working capital demand loan against an approved list of
shares and Mutual Funds for a maximum period of 12 months. With attractive interest rates
and no prepayment charges, the offering is designed to offer maximum leverage to participate
in Equity markets.

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EMPLOYEE STOCK OPTION SCHEME FUNDING

The ESOP funding product is offered to the employees of various corporates to

finance their employee stock options for up to 50% of the approved portfolio value,
eliminating the need to arrange liquidity for the same. We take great pride in offering tailor
made solutions which are easy for the employees to understand and benefit from.

BROKER FUNDING

In a case where the client is an existing broker, he may avail funding to meet his
working capital needs against the collateral of his existing investment. More than 500 stocks
are approved to cater to the extensive needs of the brokers. Loan amount can be up to Rs.100
crores.

Brokers can do part prepayment or foreclose the loan amount, without incurring any
prepayment/foreclosure charges. A dedicated Relationship Manager is accessible for
addressing all their needs.

IPO FUNDING

For clients who wish to participate in the Primary Market, this makes an excellent
offering. It enables a client to participate by giving a small margin and the balance would be
funded by JM Financial Products Ltd. This facility grants leverage to the retail clients to
apply for a larger application size in public issues and procure higher allotments thereby
maximizing gains. The documentation is minimal and funding is handled in a time bound
manner, so as to ensure speedy and timely processing.

LOAN AGAINST PROPERTY

Designed as secured loans against property, this product helps clients address funding
requirements for both personal and business needs. Clients leverage the economic worth of
their property without giving away ownership. The loan is given as a certain percentage
(usually around 40% to 60%) of the property's market value.

This proposition allows the client to avail the loans for tenures up to a maximum
period of 15 years. Loan against Property is suitable for meeting contingencies such as
marriage, higher education, medical treatment, or even for business expansions.

29
REAL ESTATE FUNDING

We provide integrated financial solutions to real estate developers. Besides providing

funding for real estate projects, we also look at financing through debt syndication as well as
distribution of Non-Convertible Debentures to High Net-worth Individuals.

With a predominant focus on residential development, we are currently focused on

funding projects located in Tier 1 cities like Mumbai, Pune, Bengaluru and Chennai. We have
successfully carried out lending against a few completed, Grade-A commercial properties, in
Mumbai and Bengaluru.

Our portfolio comprises of Loan against Property, Project Funding and Acquisition
Funding.

STRUCTURED FUNDING

Our Corporate Loans and Financing business aims to deliver credit solutions to
Sponsors, Holding Companies, Operating Companies and Special Purpose Vehicles, in order
to meet their diverse requirements when traditional templates of interest servicing, security,
tenor, principal repayment, may not prove to be feasible.

Over time we have built strong relationships with several of India’s Top 200 promoter
groups. Our endeavor is to strengthen the relationships with our existing clients, while also
prudently building new partnerships with more promoter groups and corporate houses. We
aim to create custom made lending solutions for unique situations that include strategic
acquisitions, without compromising on the standards of the securities pledged or mortgaged
in our favour.

30
1.4 SELECTED BALANCED FUND SCHEMES

SBI MUTUAL FUND

SBI Mutual Fund is a bank sponsored fund house with its corporate
headquarters in Mumbai, India. It is a joint venture between the State Bank of India, an
Indian multinational, Public Sector banking and financial services company and Amundi, a
European asset management company.

Launched in 1987, SBI Mutual Fund became the first non-UTI mutual fund in
India. In July 2004, State Bank of India decided to divest 37 per cent of its holding in its
mutual fund arm, SBI Funds Management Pvt Ltd, to Societe Generale Asset Management,
for an amount in excess of $35 million. Post-divestment, State Bank of India's stake in the
mutual fund arm came down to 67%. In May 2011, Amundi picked up 37% stake in SBI
Funds Management, that was held by Societe Generale Asset Management, as part of a global
move to merge its asset management business with Credit Agricole.

As of Sept 2015, the fund house claims to serve around 5.8 million investors through
130 points of acceptance, 29 investor service centers, 59 investor service desks and 6 Investor
Service Points. As of July 2017, assets under management of SBI Mutual Fund are valued at
Rs. 1,82,916 crore ($28.4 billion). SBI Mutual Fund offers mutual fund schemes such as Debt
Schemes, Equity Schemes, Hybrid Schemes, Exchange-traded fund, Liquid Schemes and
Fixed Maturity Plans. It also offers Portfolio Management and Advisory Services to financial
institutions and asset management companies. Some of the major competitors for SBI
Mutual Fund in the mutual fund sector are Birla Sun Life Mutual Fund, HDFC Mutual Fund,
ICICI Prudential Mutual Fund, Reliance Mutual Fund & UTI Mutual Fund.

Asset allocation is vital for shielding an investor’s portfolio from wide market swings
of euphoria & panic. Balanced funds, as the name suggests, are hybrid funds which invest
in equity & debt instruments. They provide diversification to an investor’s portfolio by
blending the growth capability of equity with the relative stability of debt.

SBI Magnum Balanced Fund aims to provide investors long term capital appreciation,
along with the liquidity of an open-ended scheme by investing in a mix of debt and equity.
The scheme will invest in a diversified portfolio of equities of high growth companies and
balance the risk through investing the rest in a relatively safe portfolio of debt.

31
 The fund provides a suitable investment opportunity for those who wish to benefit
from the growth potential of equity without being completely exposed to equity markets.

SBI Magnum Balanced Fund aims to provide long-term capital appreciation as well as
the liquidity of an open-ended scheme through investments made into a mix of debt and
equity options. The scheme would balance the risk factors by investing a majority of its assets
in potentially high-growth equity and equity-related investments, while the rest would be
invested in a comparatively safe debt portfolio. The fund would make an investment in across
equity and equity related instruments, debt instruments and money market instruments to
balance capital appreciation with risk. The funds which are collected under the SBI Magnum
Balanced scheme will be invested according to the scheme objective. The investment strategy
would be to primarily maximize the profits on investments through profit booking, portfolio
mixing and through investing in primary market issues. The Fund also intends to invest in
foreign equities and might also use hedging techniques which subject to the discretion of RBI
& SEBI guidelines and approval. SBI MF offers 29 different schemes under its hybrid funds
category.

TATA BALANCED FUND

Tata Investment Corporation Tata Investment Corporation Limited (TICL) is a non-

banking financial company. Earlier named the Investment Corporation of India, the company
is primarily involved in investing in long-term investments such as equity shares, debt
instruments, listed and unlisted, and equity related securities of companies in a wide range of
industries. The sources of income of the Company consist of dividend, interest and profit on
sale of investments. TIC, along with Tata Sons, promotes the Tata Mutual Fund. The
company has built up a significant portfolio of investments.

Tata Balanced Fund is a Balanced - Equity Oriented fund and belongs to Tata Mutual
Fund. It was launched on 08-Oct-1995 and currently has an AUM of ₹5,371.08 crore. Tata
Balanced Fund is benchmarked against CRISIL Hybrid 35+65 - Aggressive Index as primary
index and S&P BSE SENSEX as secondary index. The NAV of Tata Balanced Fund
ended up ₹0.36(0.17%)yesterday to ₹206.68. The scheme seeks long term capital
appreciation by investing atleast 80% of its net assets in equity/equity related instruments of
the companies in the Consumption Oriented sectors in India. The Tata Balanced Fund is
managed by Murthy Nagarajan and Pradeep Gokhale.

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FRANKLIN INDIA BALANCED FUND

Franklin Resources Inc. is an American holding company that, together with its
subsidiaries, is referred to as Franklin Templeton Investments; it is a global investment firm
founded in New York City in 1947 as Franklin Distributors, Inc. It is listed on the New York
Stock Exchange under the ticker symbol BEN, in honor of Benjamin Franklin, for whom the
company is named, and who was admired by founder Rupert Johnson, Sr. In 1973 the
company's headquarters moved from New York to San Mateo, California. Today, Franklin
Templeton Investments is one of the world's largest asset management groups with US$740
billion in assets under management (AUM) on behalf of private, professional and institutional
investors as of March 31, 2017.

Franklin Templeton has over 200 different open-ended mutual funds and 7 closed-end
funds in the fund family. Included in these are 36 state and federal tax free income funds, an
area of investment pioneered by Franklin. Prominent funds in the fund family include the
Templeton Growth Fund, Inc. (opened 1954, $29.5bn assets[when?]), the Mutual Shares fund
(opened 1949, $7.9bn assets), and the Mutual Discovery Fund (opened 1992, $7.6bn assets)
and the Templeton Growth (Euro) Fund A (acc) ($6.1bn assets).

The Franklin Income Fund (FKINX, assets $33.6bn) is a mutual fund in Morningstar's
"conservative allocation" category and "large/value" style box. The fund was created in 1948
and has paid uninterrupted dividends for 60 years. The Franklin Income Fund is constructed
primarily of dividend-paying stocks and bonds (2%). The scheme seeks to achieve long-term
capital appreciation with stability of investment and current income from a balanced portfolio
of high quality equity and fixed-income securities.

The Franklin India Balanced Fund(D) declared its last dividend on 26 Mar 2018. The
quantum of dividend was 20.00%. As the name suggests, Franklin India Balanced Fund
invests in both Equities (min 65% of its assets) and Fixed Income (max 35% of its assets).
As an investor it helps you strike a balance between growth and stability. The equity
component is invested in a diversified portfolio with predominant exposure to large sized
companies. It maintains a diversified portfolio of equities to achieve growth combined with a
fixed income component to act as a cushion to the inherent volatility in equities. The equity
component is invested in a diversified portfolio with predominant exposure to large sized
companies. The fixed income component of the portfolio comprises of high quality fixed
income instruments.

33
 The firm specializes in conservatively managed mutual funds. It offers products
under the Franklin, Templeton, Mutual Series and Fiduciary brand names. Like other large
investment companies, the firm offers a wide variety of funds but is traditionally best known
for bond funds under the Franklin brand, international funds under the Templeton brand, and
value funds under the Mutual Series brand. As of July 31, 2008, Franklin Resources, Inc.
managed over $570 billion in total assets worldwide. In April 2007, Franklin Resources was
445th in the Fortune 500, and 7th overall among securities companies.

L&T INDIA PRUDENCE FUND

Larsen & Toubro is an Indian private sector company headquartered in Mumbai,

India. The company is into the business of financial services, manufacturing goods,
engineering and information technology. L&T has over 130 subsidiaries and 15 associate
companies. The company also has offices in the Middle East and other parts of Asia.

L&T Mutual Fund is a mutual fund company in India. It caters to

the investment needs of investors through various mutual fund schemes. The company claims
to have sound investment management practices and a knowledgeable fund management
team. The Asset Management Company (AMC) for all L&T Mutual Fund schemes is L&T
Investment Management Limited. The sponsor for the AMC is L&T Finance Holdings
Limited (LTFH) which is a listed company and registered with RBI as an NBFC.

L&T is popularly known in India for its Engineering and Construction activities. L&T
is publicly traded in India, listed on the BSE and NSE stock exchanges. The major
competitors for L & T Mutual Fund in the mutual fund sector are UTI Mutual Fund (Unit
Trust of India), Birla Sun Life Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, ICICI
Prudential Mutual Fund, Kotak Mutual Fund, Franklin Templeton Mutual Fund & Reliance
Mutual Fund.

L&T Mutual Fund is a mutual fund company in India. It has many mutual fund
schemes that cater to the investment needs of investors. L&T Investment Management
Limited is the asset management company for all L&T mutual fund schemes. It is sponsored
by L&T Finance Holdings Limited which is registered as a non-banking financial company
under RBI. L&T’s Mutual Funds follow a disciplined approach to risk and investment
management.

34
 L&T offers different types of mutual funds with different schemes to suit the
investment needs of its customers. Listed below are the different types of mutual funds
offered by L&T.

A type of mutual fund where investments are made in stocks or equities of companies,
the investment can either be short, medium or long term. Equity funds offer higher returns
when compared to other schemes. They are suitable for investors seeking high risk and long
term capital growth. A fund that solely invests in fixed income investments such as bonds or
certificates of deposits. Investors choosing this type of fund usually rely on their investments
to provide a regular flow of income. It is best suited for those with a low risk appetite. This is
a combination of equities and debt funds. It allows you to get the best of both worlds. This
category has funds with different mandates. At least 60% of the fund should be invested in
equity-based hybrid funds while the same applies for debt-based hybrid funds. This is a type
of fund that invests in other mutual funds. This type of funds allows the investor to obtain
diversification in a portfolio of hedge funds

L&T provides mutual funds for both risk-averse and risk-loving investors. L&T
Mutual Funds has plans to suit every investor’s need. It provides Dividend Transfer Plan
(DTP) which allows the investor to transfer their dividends to any open-ended scheme.
Investors have the option of applying for funds both online and offline. It offers low cost
funds and multi-scheme SIPs. It offers a top-up SIP facility which allows investors to begin
an SIP in any of the schemes and increase the instalment amount annually or bi-annually.

1.5 STATEMENT OF THE PROBLEM

There are so many investment avenues. So that investors does not know which
avenues provides best return. As per the financial rule of “Do not put all the eggs in one
basket” investor’s portfolio are most diversified. So that risk should be minimized. If the
person do not have knowledge of how to get maximum return with minimum risk or vice-
versa then they should be invest in mutual fund. There are so many funds and schemes are
available in mutual fund market. Investors know that how much risk they can take. Based on
that they have to choose hybrid mutual fund scheme. Problem is that chosen this scheme
provides the best return as compare to the market and other schemes. For that certain model
available Sharpe’s model, Treynor’s model and Jenson’s model. These models are suggested
that this scheme provides best return.

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 CHAPTER II

CONCEPTS AND REVIEWS

2.1 CONCEPTS USED

NET ASSET VALUE

Net asset value (NAV) is the value of a fund's asset less the value of its liabilities per
unit.

The net asset value formula is used to calculate a mutual fund's value per share. A
mutual fund is a pool of investments that are divided into shares to be purchased by investors.
Each share contains a weighted portion of each investment in the collective pool. The
premise of grouping in this manner is to minimize risk by diversifying.

It is important to note that net asset value does not look at future dividends and
growth as do other stock and bond valuation methods. The formula for net asset value only
looks at the fund's per share value based on its net assets.

The net asset value is determined by the mutual fund company and priced according
to this formula. Stock and bond valuation methods are not used due to mutual funds being
sold directly from the company and not through an exchange or on the secondary market.
Stocks, on the other hand, are sold through bid and ask pricing on the secondary market
which requires an investor to determine a share's value to them based on expected future
earnings, in which they bid accordingly.

NAV = (VALUE OF ASSETS-VALUE OF LIABILITIES)

NUMBER OF OUTSTANDING SHARES

RETURN

The daily returns are computed on the basis of the NAV of the different schemes and
returns in the market index are calculated on basis of Benchmark value on the respective date
for the 3 years.

36
 The return from a mutual fund scheme formula, is as follows:

[R.sub.st] = [NAV.sub.t]
[NAV.sub.t-1]

Where, [NAV.sub.t] and [NAV.sub.t-1] are net assets value for time period t and t-1,
respectively.

RISK

The risk is calculated on the basis of daily NAV. The following measures of risks
associated with mutual funds have been calculated for the study

Beta ([beta]): i.e., fund’s volatility as regard market index measuring the extend of co-
movement of fund with that of the benchmark index. Higher values of [beta] indicate a high
sensitivity of fund returns against market returns; the lower value indicates low sensitivity.
Higher [beta] values are desired for the mutual funds during bull phase of the market and
lower [beta] values are desired during the bear phase to outperform the market.

Standard Deviation (SD): i.e., fund's volatility or variation from the average expected return
over a certain period. Standard deviation is computed from daily returns. Standard deviation
is a statistical measurement; when applied to the annual rate of return of an investment, it
sheds light on the historical volatility of that investment. The greater the standard deviation of
a security, the greater the variance between each price and the mean, indicating a larger price
range. For further evaluation, the risk-return relation models given by Sharpe (1966), Treynor
(1965) and Jensen (1968) have been applied.

SHARPE RATIO

William F. Sharpe (1966) devised an index of portfolio performance measure,

referred to as reward to variability ratio. It is the risk-adjusted measure. Sharpe measure
provides the reward to volatility trade-off. It is the ratio of the fund portfolio's average excess
return divided by the standard deviation of returns.

37
SHARPE RATIO = (AVERAGE FUND RETURN – RISK FREE RATE )

STANDARD DEVIATION OF FUND RETURNS

By dividing the average return of the portfolio in excess of the risk-free return by the
standard deviation of the portfolio, we get the Sharpe ratio which measures the risk premium
earned per unit of risk exposure. In other words, it measures the change in the portfolio's
return with respect to a one unit change in the portfolio's risk. The higher this "Reward-to-
Variability-Ratio" the more attractive is the evaluated portfolio because the investor receives
more compensation for the same increase in risk.

TREYNOR RATIO

Jack Treynor (1965) conceived an index of portfolio performance measure called as

reward to volatility ratio, based on systematic risk. The Treynor measure is similar to the
Sharpe ratio, except that it defines reward (average excess return) as a ratio of the CAPM
beta risk. Treynor's performance measure is defined as the risk premium earned per unit of
risk taken. Thus, it is computed as the average return of the portfolio in excess of the risk-free
return divided by the portfolio's beta.

TREYNOR'S RATIO = (AVERAGE FUND RETURN – RISK FREE RATE)

BETA OF THE FUND

JENSEN RATIO

Michael C. Jensen (1968) has given different dimension and confined his attention to
the problem of evaluating a fund manager's ability of providing higher returns to the
investors. He defines his measure of portfolio performance as the difference between the
actual returns on a portfolio in any particular holding period and the expected returns on that
portfolio conditional on the risk-free rate, its level of "systematic risk", and the actual returns
on the market portfolio.

38
 JENSEN RATIO = RP – [RF + β (RP – RF )]

Where,

RP – AVERAGE FUND RETURN

RF – RISK FREE RATE

β – BETA OF THE FUND

2.2 REVIEW OF LITERATURE

Review of literature is an important part of any research problem. The review of

earlier studies is very essential and useful to give the right direction of any study. It explores
the developments in the subjects of the study. It helps the researcher in formulating the
methodology comprising establishing hypotheses and selecting the variables to be studied
and seeks to explore research gap. It describes what has actually been done and what remains
yet to be done on the specific subject/phenomenon. Secondary data is taken as a basis of
analysis in this research. Top five asset management companies is selected as per AUM as on
from 2015 to 2018. Daily data about the closing Net Asset Value of the selected companies
has collected from the websites www.indiainfoline.com and
www.nseindia.moneycontrol.com. The reference period for the data is taken from March
2015 to March 2018.

Prof.V.Vanaja and Dr. R. Karrupasamy (2013), have done a study on the

Performance of select Private Sector Balanced Category Mutual Fund Schemes in India. This
study of performance evaluation would help the investors to choose the best schemes
available and will also help the AUM’s in better portfolio construction and can rectify the
problems of underperforming schemes. The objective of the study is to evaluate the
performance of select Private Sector Balanced Schemes on the basis of returns and
comparison with their bench marks and also to appraise the performance of different category
of funds using risk adjusted measures as suggested by Sharpe, Treynor and Jensen.

Dr.Ashok Khurana and Kavita Panjwani (Nov,2010), have analysed Hybrid

Mutual Funds. Mutual fund returns can be compared using Arithmetic mean & Compounded
Annual Growth Rate. Risk can be analysed by finding out Standard Deviation, Beta while
performance analysis is based on Risk-Return adjustment.

39
Key ratios like Sharpe ratio and Treynor ratio are used for Risk-Return analysis. Funds are
compared with a benchmark, industry average, and analysis of volatility and return per unit to
find out how well they are performing with respect to the market value at Risk Analysis can
be done to find out the maximum possible losses in a month given the investor had made an
investment in that month. Based on the quantitative study conducted company a fund is
chosen as the best fund in the balance fund growth schemes.

Dr. K. Mallikarjuna Rao and H. Ranjeeta Rani, (Jul 2013), have studied Risk
Adjusted Performance Evaluation of Selected Balanced Mutual Fund Schemes in India. In
this paper, an attempt has been made to study the performance of selected balanced schemes
of mutual funds based on risk-return relationship models and various measures. Balanced
schemes of mutual funds are the ones which are mostly preferred by Indian investors because
of their balanced portfolio in equity and debt. A total of 10 schemes offered by various
mutual funds have been studies over the time period April, 2010 to March, 2013 (3 years).

Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a
Comparative Study on Performance Evaluation of Mutual Fund Schemes Of Indian
Companies. In this paper the performance evaluation of Indian mutual fund is carried out
through relative performance index, risk-return analysis, Treynor’s ratio, Sharpe’s ratio,
Sharpe’s measure, Jensen’s ratio, and Fama’s measure. The data used is daily closing NAVs.
The source of data is website of Association of Mutual Funds in India (AMFI). The study
period is 1st January 2007 to 31st December 2011. The results of performance measures
suggest that most of the mutual fund have given positive return during 2007 to 2011.

Dr. K. Rajender & Ch. Usha Rekha, have done a Portfolio Performance
Evaluation of Mutual Funds in India-A Study of Hybrid Growth Funds. This research paper
attempts to study the portfolio performance evaluation of selected Hybrid growth schemes
using Net Asset Values, Return, Beta and Standard Deviation and further used the risk
adjusted evaluation methods such as Sharpe, Treynor, and Sortino Ratio. There is significant
difference between scheme returns and benchmark returns of both Hybrid Equity Oriented
(HEO) schemes and Hybrid Debt Oriented (HOD) schemes, there is mismatch between ranks
of Risk and Return of sample funds.

40
 Treynor (1965), Sharpe (1966), and Jensen (1968) have developed the standard
indices to measure risk adjusted mutual fund returns. They came out with the models to
evaluate the portfolio's performance. Their models have been used in detail later in the study
to evaluate the performance.

John and Donald (1974) examined the relationship between the stated fund
objectives and their risks-return attributes. They conclude that an average, the fund manager
appears to offer superior aggregate returns but they are offset by expenses and load charges.

Lehmann and Modest (1987) came out with one of the cornerstone study of mutual
fund performance evaluation. They, for the first time used multifactor models for
performance measurement. Although evidence of persistence is found, the authors note that
results are highly dependent on performance metrics employed; the results show considerable
differences between rankings based on the Capital Asset Pricing Model (CAPM) and those
based on various applications of the Arbitrage Pricing Theory (APT) Model. Moreover,
substantial ranking differences occur also within alternative Arbitrage Pricing Theory
implementations.

Ippolito (1989) examined the relationship between mutual fund investment

performance and other variables such as asset size, expenses, turnover, and load status. It was
stated that domestic mutual fund risk-adjusted returns, net of fees and expenses, were
comparable to returns of index funds. However, portfolio turnover was unrelated to fund
performance.

Barua, Raghunathan and Varma (1991) evaluated the performance of Master Share
during the period 1987 to 1991 using Sharpe, Jensen and Treynor measures. They conclude
that the fund performed better that the market, but not so well as compared to the Capital
Market Line.

Goetzmann and Ibbotson (1994) analysed monthly total returns of 728 mutual funds
over 13-year period (1976-1988). Using total returns and the Jensen alphas as performance
measures they examined the power of various lengths of selection periods to predict the
performance measured from holding periods of the same length. The time horizons tested in
this study are one year, two year, three year and one month. Generally, the results are
significant, i.e., past performance has some predictive power on future performance for all
time horizons tested.

41
 To test robustness of the results over the conjecture whether the performance
persistence is related more to investment style than skill, they performed the same tests on a
sub-sample that consists only of the relatively homogenous growth funds. The tests indicate
that the performance persistence is not likely to be due to style differences.

Jayadev (1996) evaluated the performance of two growth oriented mutual funds
(Mastergain and Magnum Express) on the basis of monthly returns compared to benchmark
returns. For this purpose, risk adjusted performance measures suggested by Jenson, Treynor
and Sharpe were employed. It was found that, Mastergain has performed better according to
Jenson and Treynor measures and on the basis of Sharpe ratio its performance is not up to the
benchmark. The performance of Magnum Express was poor on the basis of all those three
measures. However, Magnum Express is well diversified and has reduced its unique risk
where as Master Gain did not. These two funds were found to be poor in earning better
returns either adopting marketing or in selecting under-priced securities.

Gupta & Sehgal (1998) found out the investment performance of 80 schemes
managed by 25 mutual funds, 15 in private sector and 10 in public sector for the time period
of June 1992-1996. The study has examined the performance in terms of fund diversification
and consistency of performance. The paper concludes that mutual fund industry's portfolio
diversification has performed well and it supported the consistency of performance.

Gupta (2000) has examined the investment performance of Indian mutual funds using
weekly NAV data and found that the schemes showed mixed performance during 1994-1999.

Redman, Gullett and Manakyan (2000) examined the risk-adjusted returns using
Sharpe's Index, Treynor's Index, and Jensen's Alpha for five portfolios of international mutual
funds and for three time periods: 1985-1994, 1985-1989, and 1990-1994. The benchmarks for
comparison were the U. S. market proxied by the Vanguard Index 500 mutual fund and a
portfolio of funds that invest solely in U. S. stocks. The result shows that for 1985 through
1994 the portfolios of international mutual funds outperformed the U. S. market and the
portfolio of U. S. mutual funds under Sharpe's and Treynor's indices. During 1985-1989, the
international fund portfolio outperformed both the U. S. market and the domestic fund
portfolio. Returns declined below the stock market and domestic mutual funds during 1990-
1994.

42
 Kothari and Warner (2001) argued that standard performance measures depend on
the benchmarks' ability to mimic the fund style, and therefore benchmarks must be selected
carefully.

Korkeamaki and Smythe (2004) analysed the Finnish mutual fund industry from
1993 to 2000, and focused on market segmentation and mutual fund expenses. As per their
study, Finnish mutual funds have performed neutrally with the exception of equity funds
underperforming.

Aggarwal (2007) provided an overview of mutual fund activity in emerging markets

and described their size and asset allocation. His paper analysed the Indian mutual fund
industry's pricing mechanism with empirical studies on its valuation. He also analysed data at
both the fund-manager and fund-investor levels.

Gupta and Aggarwal (2007) examined the performance of mutual funds operation in
India. In this regard, quarterly return of all the equity-diversified mutual funds during the
period from January 2002 to December 2006 was tested. Analysis was carried out with the
help of Capital Asset Pricing Model (CAPM) and Fama-French Model. Amidst contrasting
findings from the application of the two models, the study calls for further research and
insights into the interplay between the performance determinant factor portfolios and their
effect on mutual fund returns.

Anand and Murugaiah (2008) examined the components and sources of investment
performance in order to attribute it to specific activities of Indian fund managers. They also
attempted to identify a part of observed return which was due to the ability to pick up the best
securities at given level of risk. For this purpose, Fama's methodology is adopted here. The
study covers the period between April 1999 and March 2003 and evaluates the performance
of mutual funds based on 113 selected schemes having exposure more than 90percent of
corpus to equity stocks of 25 fund houses. The empirical results reported reveals the fact that
the mutual funds were not able to compensate the investors for the additional risk that they
have taken by investing in the mutual funds. The study concludes that the influence of market
factor was more severe during negative performance of the funds while the impact selectivity
skills of fund managers was more than the other factors on the fund performance in times of
generating positive return by the funds.

43
 Thanou (2008) in his paper examined the risk adjusted overall performance of 17
Greek Equity Mutual Funds between the years 1997 and 2005. The performance evaluation
of each fund based on the CAPM performance, Treynor and Sharp indexes for the nine year
period as well as for three sub-periods displaying different market characteristics was done.
Then, he compared the rankings obtained by the two indexes and found significant
differences in rankings between up and down market conditions. Lastly, paper proceed to
analyze the fund managers' performance, distinguishing superior security selection ability and
market timing, using the standard and quadratic Jensen's performance measures. Results
indicate that the majority of the funds under examination followed closely the market,
achieved overall satisfactory diversification and some consistently outperformed the market,
while the results in market timing are mixed, with most funds displaying negative market
timing capabilities.

Sehgal and Janwar (2008) in his paper evaluated the performance of selected equity-
based mutual funds in India. Argument was made that multi-factor benchmarks provide better
selectivity and timing measures compared to one-factor CAPM as they control for style
characteristics such as size, value and momentum. The results timing ability, and to some
extent stock selectivity improve when daily data was used instead of monthly data. It was
concluded that higher observation frequency captures the trading skills of more active fund
managers in a better fashion. They showed that timing should be examined in a multi-
dimensional framework with additional measures for timing of style characteristics.

Guha (2008) focused on return-based style analysis of equity mutual funds in India
using quadratic optimization of an asset class factor model proposed by William Sharpe. The
study found the "Style Benchmarks" of each of its sample of equity funds as optimum
exposure to 11 passive asset class indexes. The study also analysed the relative performance
of the funds with respect to their style benchmarks. The results of the study showed that the
funds have not been able to beat their style benchmarks on the average.

Huang, Sialm and Zhang (2009) studied that mutual funds change their risk levels
significantly over time. Their paper investigates whether risk shifting has an impact on fund
performance? The result is consistent with risk shifters having inferior ability or acting
opportunistically due to agency conflicts and inconsistent with skilled fund managers taking
advantage of changing investment opportunities.

44
 Afza and Rauf (2009) evaluated mutual fund performance by using Sharpe ratio with
the help of pooled time-series and cross-sectional data and focused on different fund
attributes such as fund size, expenses, age, turnover, loads and liquidity. The quarterly sample
data were collected for all the open-ended mutual funds listed on Mutual Fund Association of
Pakistan (MUFAP), for the years 1999-2006. The results indicate that among various funds
attributes lagged return, liquidity and 12B-1 had significant impact on fund performance.

Debasish (2009) studied the performance of selected schemes of mutual funds based
on risk-return relationship models and measures. A total of 23 schemes offered by six private
sector mutual funds and three public sector mutual funds have been studied over the time
period April 1996 to March 2009 (13 years). The analysis has been made on the basis of
mean return, beta risk, co-efficient of determination, Sharpe ratio, Treynor ratio and Jensen
Alpha. The overall analysis finds Franklin Templeton and UTI being the best performers and
Birla SunLife, HDFC and LIC mutual funds showing poor below-average performance.

45
 CHAPTER-III

RESEARCH METHODOLOGY

3.1 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE

 The main objective of this project is to evaluating the performance of hybrid mutual
funds of 4 different fund houses.

SECONDARY OBJECTIVE

 To describe the functioning of mutual funds.

 To evaluate the virtue of hybrid mutual funds.
 To identify, which AMC’s gives highest return within one-year.
 To analyse the performance by means of evaluating the Indian Mutual Fund Selected
Balanced Schemes for 3 years using Return, Sharpe Ratio, Treynors Ratio and Jensen
Ratio.
 To interpret the selected hybrid mutual funds.

3.2 SCOPE OF THE STUDY

 The scope of the project is limited to do understand the basis of the hybrid /
balanced mutual funds.
 These funds provide both growth and regular income as these invest in debt and
equity.
 The NAV of these schemes is less volatile as compared pure equity funds.
 It offers a well-diversified investment portfolio.

3.3 NEED OF THE STUDY

 The study provides opportunities to know about the hybrid mutual fund scheme.
 The study mainly helps the investors to identify best performing hybrid mutual funds.
 The study helps the investors to get an opportunity to make profit.

46
3.4 IMPORTANCE OF THE STUDY

 Importance of the study is that a fund’s performance can be judged with respects to
investors’ expectation.
 These indicators of performance can acts against investors fund performance.
 It is very important to select the right benchmark to evaluate a fund’s performance.
 The problem arises that in which AMC they should invest according to their
preferences.

3.5 LIMITATION OF THE STUDY

 We have studied only hybrid mutual fund because of the limited time constraint.
 Since the funds selected for this study were open ended equity based hybrid mutual
funds the fund composition kept on changing over the time period.
 So it became difficult to understand the fund properties as historical data pertaining to
the fund structure was not available. 
 Because of unavailability of historical data and fund composition it was difficult to
ascertain the performance of the fund properties and a simple evaluation was done
against the market performance.

3.6 SOURCE OF DATA COLLECTION

Data which is required for the study is collected from secondary source.
Collection of Data
The Secondary data are collected by open sources data provides by AMC.
The benchmark index suitable for hybrid fund is:
CNX 500 – also known as NIFTY 500
The selected four mutual funds are:
TATA mutual fund -- TATA Balanced Fund
L&T mutual fund -- L&T Prudence Fund
FRANKLIN TEMPLETON mutual fund – FRANKLIN – INDIA Balanced Fund
SBI mutual fund -- SBI Magnum Balanced Fund

47
Sample Size
The sample size for the 3 years of NAV’s and Benchmark value is taken as 4
companies.
Sampling Technique
The study comes under the convenient sampling.
Hybrid Mutual Fund Scheme

Tata Balanced Fund, SBI Magnum Balanced Fund, L&T India Prudence Fund,
Franklin India Balanced Fund.

3.7 TOOLS USED FOR EVALUATION

 STANDARD DEVIATION
 BETA
 RETURNS
 SHARPE RATIO
 TREYNOR RATIO
 JENSEN RATIO
 RANK

48
 CHAPTER-IV

DATA ANALYSIS AND INTREPRETATION

Mutual fund performance can be analysed through various performance measurement

ratios. Composite portfolio performance measures have the flexibility of combining risk and
return performance into a single value. The most commonly used composite measures are:
Treynor, Sharpe and Jensen measures. While Treynor measures only the systematic risk
summarized by beta, Sharpe concentrates on total risk of the mutual fund.

4.1 PERFORMANCE EVALUATION OF HYBRID MUTUAL FUND

RETURN VALUE

Table No.4.1.1 shows the return value of PERFORMANCE EVALUATION OF TATA

BALANCED FUND for 3 years.

YEAR 2015-2016 2016-2017 2017-2018

RETURN -0.11343 0.212084 0.096457

49
 PERFORMANCE EVALUATION OF TATA
BALANCED FUND FOR 3 YEARS

0.25

0.2

0.15

0.1
RETURN
0.05

0
2015-2016 2016-2017 2017-2018
-0.05

-0.1

-0.15

Chart no.4.1.1 shows the return value of PERFORMANCE EVALUATION OF TATA

BALANCED FUND for 3 years.

INTERPRETATION

A return value of TATA BALANCED FUND is increasing year on year from 2015 to
2018. This indicates the potentially worthwhile investment and it’s a worth full investment.
The Graph generates the growth of the company.

50
Table No 4.1.2 shows the return value of PERFORMANCE EVALUATION OF L&T INDIA
PRUDENCE FUND for 3 years

YEAR 2015-2016 2016-2017 2017-2018

RETURN -0.15283 0.235909 0.07101

PERFORMANCE EVALUATION OF L&T

INDIA PRUDENCE FUND FOR 3 YEARS

0.3
0.25
0.2
0.15
0.1
0.05 RETURN
0
-0.05 2015-2016 2016-2017 2017-2018
-0.1
-0.15
-0.2

Chart no.4.1.2 shows the return value of PERFORMANCE EVALUATION OF L&T INDIA
PRUDENCE TATA FUND for 3 years.

INTERPRETATION

A return value of L&T INDIA PRUDENCE FUND is increasing year on year from
2015 to 2018. This indicates the potentially worthwhile investment and it’s a worth full
investment compared to 2015-2016. The Graph generates the growth of the company in
2016-2017.

51
Table No 4.1.3 shows the return value of PERFORMANCE EVALUATION OF FRANKLIN
INDIA BALANCED FUND for 3 years

YEAR 2015-2016 2016-2017 2017-2018

RETURN -0.18878 0.166047 0.048317

PERFORMANCE EVALUATION OF
FRANKLIN INDIA BALANCED FUND
FOR 3 YEARS
0.2

0.15

0.1

0.05

0
2015-2016 2016-2017 2017-2018 RETURN
-0.05

-0.1

-0.15

-0.2

-0.25

Chart no 4.1.3 shows the return value of PERFORMANCE EVALUATION OF FRANKLIN

INDIA BALANCED FUND for 3 years

INTERPRETATION

A return value of FRANKLIN INDIA BALANCED FUND is increasing year on year

from 2015 to 2018. This indicates the potentially worthwhile investment and it’s a worth full
investment compared to 2015-2016. The Graph generates the growth of the company in
2016-2017.

52
Table No. 4.1.4 shows the return value of PERFORMANCE EVALUATION OF SBI
MAGNUM BALANCED FUND for 3 years

YEAR 2015-2016 2016-2017 2017-2018

RETURN -0.0693 0.19391 0.165735

PERFORMANCE EVALUATION OF SBI

MAGNUM BALANCED FUND FOR 3
0.25
YEARS
0.2

0.15

0.1

0.05 RETURN

0
2015-2016 2016-2017 2017-2018
-0.05

-0.1

Chart No. 4.1.4 shows the return value of PERFORMANCE EVALUATION OF SBI
MAGNUM BALANCED FUND for 3 years

INTERPRETATION

A return value of SBI MAGNUM BALANCED FUND is increasing year on year

from 2015 to 2018. This indicates the potentially worthwhile investment and it’s a worth full
investment compared to 2015-2016. The Graph generates the growth of the company in
2016-2017.

53
Table No. 4.1.5 shows the return value of PERFORMANCE EVALUATION OF
SELECTED 4 HYBRID FUND schemes for 3 years

COMPANY TATA SBI L&T FRANKLIN

RETURN 0.178257 0.295327 0.318876 0.252417

PERFORMANCE EVALUATION OF 4
BALANCED FUND SCHEME FOR 3
YEARS
0.35

0.3

0.25

0.2
RETURN
0.15

0.1

0.05

0
Tata SBI L&T Franklin

Chart No. 4.1.5 shows the return value of PERFORMANCE EVALUATION OF

SELECTED 4 BALANCED FUND schemes for 3 years

INTERPRETATION

The above graph shows the return value of 4 balanced fund schemes. Mostly, this
graph indicates the potentially worthwhile investment and it’s a worth full investment. First,
L&T shows the better growth compared to all other schemes. Secondly, SBI shows the better
growth compared to FRANKLIN and TATA.

54
4.2 ANALYSIS ON PERFORMANCE OF HYBRID FUND SCHEMES

Table No 4.2.1 shows the analysis on performance of hybrid fund schemes

TECHNIQUES TATA L&T FRANKLIN SBI

INDIA

SHARPE 0.00448 0.053742 0.002223 0.006839

TREYNOR 6.16417 91.05933 3.347634 6.581091

JENSEN 0.09669 0.238249 0.163537 0.084618

RANK FOR SELECTED HYBRID FUND SCHEMES

Table No 4.2.2 shows the rank for selected balanced fund schemes

RANK

TECHNIQUES TATA L&T FRANKLIN SBI

INDIA

SHARPE 3 1 4 2

TREYNOR 3 1 4 2

JENSEN 3 1 2 4

55
 CHAPTER-V

FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 FINDINGS

RETURN

 The returns of TATA BALANCED FUND was better well in 2016-2017 with a
positive trend. But there is a downward value in 2015-2016 and slight downtrend
in 2017-2018 compared to 2016-2017.
 The L&T INDIA PRUDENCE FUND was performing well in 2016-2017 with a
positive trend in the returns. But there is a downward value in 2015-2016 and
slight downtrend in 2017-2018.
 The return value of FRANKLIN INDIA BALANCED FUND was performing well
in 2016-2017 with a positive trend. But there is a downward value in 2015-2016
and slight downtrend in 2017-2018 compared to 2016-2017.
 The return value of SBI MAGNUM BALANCED FUND was performing well in
2016-2017 with a positive trend. But there is a downward value in 2015-2016 and
slight downtrend in 2017-2018 compared to 2016-2017.Compared to other
schemes, SBI MAGNUM BALANCED FUND generates better growth.
 Finally, the return value of 4 balanced fund schemes was performing well. First, L&T
shows the better growth compared to all other schemes. Secondly, SBI shows the
better growth compared to FRANKLIN and TATA .

5.2 SUGGESTIONS

 Equity-oriented balanced funds will give higher returns of invested more than 5 years.
 Even if more than 5 years also, consider such funds as pure equity funds and try to
allocate some portion of your investable amount to debt funds also.
 Never try to chase the returns. Equity Oriented Balanced Funds are also risky like
other diversified equity funds.

56
  Never be in wrong belief that Debt Portfolio of the Equity Oriented Balanced Funds
are completely SAFE. Based on the modified duration (sadly I am unable to find for
these balanced funds), average maturity and credit rating of underlying bonds, the
bond portfolio shows you the volatility.
 Finally, never invest in such funds just with the intention that debt part of these funds
is tax-free.

5.3 CONCLUSION

 Finance sector plays a vital role in the growth of Indian capital market. In this study 4
AMC’s are selected to analysis their performance. In which mutual fund are
successful product.
 Fund are selected on quantitative parameters like volatility, risk adjusted returns, and
portfolio techniques coupled with a qualitative analysis of fund performance and
investment styles through regular interactions / due diligence processes with fund
managers.
 Balance funds have suddenly become the safest investment product for many
investors. Many extra conservative investors who abhor stock markets, retired folks
who loathe losing even a penny and even seasoned equity investors are queuing up to
invest in balanced schemes these days
 Sure, a balanced fund is a great investment product. It is also equally true that many
investors have started investing more in balanced funds recently. The assets under
management (AUM) of balanced funds more than doubled in the last two years due to
increased inflows and rising number of investors. Their performance is also
commendable over a long period.
 Four top-performing balanced funds have returned a little over 15 per cent over 10
years. Undoubtedly, balanced funds delivered the goods to long-term investors.
 Since balanced schemes invest in a mix of equity and debt, they are less volatile than
pure equity schemes that invest the entire corps in stocks. The debt part of the
portfolio helps balance funds contain volatility to a great extent.

57
 Balance funds also helps novices to book profits regularly and rebalance the portfolio
as per the asset allocation plan, something most investor will not be able to do it
themselves. Since these funds have to maintain a minimum of 65 per cent in stocks (to
qualify as equity schemes for taxation purpose) and the rest in debt, they rebalance
their portfolio by booking profits regularly. Most financial advisors attribute their
superior long-term performance to this practice of regular booking of profits and
rebalancing the portfolio.
 Finally, if you are a conservative investor looking to invest money for long-term
financial goals that are at least five years away, you can consider investing in
balanced funds. As you are aware now, they are less volatile than pure equity scheme.
However, don't rule out volatility completely. If at all there is some extra volatility,
don't panic and sell or discontinue your investment. Hold on to your investment to
achieve your long-term financial goals.

58
 BIBLIOGRAPHY

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Anand, S., and V. Murugaiah, (2008), 'Analysis of Components of Investment Performance--

An Empirical Study of Mutual Funds in India', 10th Indian Institute of Capital Markets
Conference, ICFAI: Hyderabad.

Barua, S. K., V. Raghunathan, and J. R. Verma, (1991), 'Master Share: A Bonanza for Large
Investors', Vikalpa, Vol. 17, No. 1, pp. 29-34.

Debasish, S.S., (2009),'Investigating Performance of Equity-based Mutual Fund Schemes in

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Goetzmann, W. N., and R.G. Ibbotson, (1994), 'Do Winners Repeat? Pattern in Mutual Fund
Performance', Journal of Portfolio Management, 20, pp. 9-17.

Guha, S., (2008), 'Performance of Indian Equity Mutual Funds vis-a-vis their Style
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