sharad choudhary sip report[1]

8/6/2019 Sharad Choudhary Sip Report[1]

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,D E C L A R A T I O N

I, undersigned, hereby declare that the Project Report The Relation between risk &returns of equity schemes of Reliance Mutual Fund written and submitted by me to the

Indira School of Career Studies, Pune in partial fulfillment of the requirements for the awardof degree of Master of Business Administration under the guidance of Mrs.Sonal Parmar(College guide) and Mr. Rohidas Kedari is my original work and the conclusions drawntherein are based on the material collected by myself.

Place: Pune Sharad Choudhary

Date:


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CERTIFICATE

This is to certify that the Project Report entitled The Relation between risk & returns ofequity schemes of Reliance Mutual Fund which is being submitted herewith for the award

of degree of Post Graduation Programme in Indira School of Career Studies, Pune is theresult of the original research work completed by Mr.Sharad Choudhary under mysupervision and guidance and to the best of my knowledge and belief the work embodied inthis Project Report has not formed earlier the basis for the award of any degree or similar titleof this or any other University or examining body.

Place: Pune Mrs. Sonal Parmar

Date: Project Guide


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EXECUTIVE SUMMERY

This project is a part of two years syllabus of PGP programme to help the students get

familiar to current business environment and get practical knowledge of any industry.

Volatility analysis on various mutual fund schemes includes estimating the risk bycalculating Alpha, Beta, Standard deviation, Sharpe ratio and Portfolio Turnover Ratio. These

measures help an investor or fund manager to compare different mutual fund schemes on the

basis of their risk and returns.

I have selected this topic because choosing a mutual fund scheme is a tough task

today than ever. With over 30 fund houses to pick from, and most of them claiming first-rate

performance, investors are finding it extremely difficult to select a scheme. For example, if

one has to look at the performance of the equity funds in the last year, most of them havereturned 100% or more. It is also necessary for an investor to understand relationship

between risk and return of the scheme in which he is investing money. Hence study compares

equity schemes to find out how much risky a particular scheme is when compared to Index

and other equity schemes.

I have selected five Mutual fund schemes from Reliance Mutual Fund namely

Reliance Growth Fund, Reliance Vision Fund, Reliance Long Term Equity Fund, Reliance

Equity Opportunities Fund and Reliance Tax Saver (ELSS) Fund for this analysis. The

evaluation of the mutual fund provides a feed back about the performance to evolve better

management strategy. Even though evaluation of mutual funds performance is considered to

be the last stage of investment process. For this project I have following steps:

I extracted record of the company, brief history of the company and mutual fund

industry.

I studied all the equity schemes available with Reliance Mutual Fund.

I studied volatility measures used in the company. There are five volatility measureswhich Reliance uses for their schemes namely Beta, Standard Deviation, R squared,

Sharpe Ratio and Portfolio Turnover Ratio.

Then I selected five equity schemes to explain relationship between risk and return

based on their past three years performance.


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Comparison of Investment products:

Investor tends to constantly compare one form of investment with other Investors certainly

look for the best returns for different option. However, to determine which option is better,

the comparison should be made in terms of other benefits that the investor ought to look forin any investment.

Investment

Objective

Returns Risk

Tolerance

Investment

Horizon

Liquidity

Equity Capitalappreciation

High High Long term High

FI Bonds Income Moderate Low Med-long Moderate

Corporate

Debentures

Income Moderate High Med Low

CorporateFDs

Income Moderate High Med Low

BankDeposits

Income Low Generallylow

Flexible High

PPF Income Moderate Low Long term Moderate

LifeInsurance

Risk cover Low Low Long term Low

Gold Inflationhedge

Moderate Low Long term Moderate

Real Estate Inflationhedge

High Low Long term Low

MutualFunds

Capital growth& Income

High High Flexible High

(Table-1)

A Mutual fund uses the money collected from investors to buy those assets, which arespecifically permitted by its stated investment objective. Thus, an Equity Fund would buy

mainly Equity assets-ordinary shares, preference shares, warrants etc. A bond fund would

mainly buy debt instruments such as debentures, bonds or government securities. It is these

assets, which are owned by the investors in the same proportions as their contribution bears to

the total contribution of all investors put together.


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When an investor subscribes to a mutual fund, he or she buys a part of these assets or

the pool of funds that are outstanding at that time. Its no different from buying shares

of a joint stock company, in which case the purchase makes the investor a part owner of

the company and its assets. In fact, in the USA, a Mutual fund is constituted as an

investment company and an investor buys into the fund, meaninghe buys the shares

of the fund. In India, a mutual fund is constituted as a Trust and the investor subscribes

to the units issued by the fund, whichis where the term unit Trust comes from.

Every Mutual Fund is managed by a fund manager, who using his investment management

skills and necessary research works ensures much better return than what aninvestor can

manage on his own. he capital appreciation and other incomes earned from these

investments are passed on to the investors (also known as unit holders) in proportion of the

number of units they own.

(Figure-2)


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Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

established its mutual fund in June 1989.

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 fundindustry, 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. 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.

GRO TH OF MUTAL FUND IN INDIA:

(Fi ure-3)


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CONT IBUTION OF VARIOUS PLAYERS IN MUTUAL FUND MARKET IN

INDIA

Currently the total funds under mutual fund management in India are a little over

Rs.3, 26,388 crore. Out of this U I accounts for nearly 70 percent while the private funds

account for around 22 percent. he balance 8 percentis managed by mutual funds floated by

public sector banks and financialinstitutions.

(Figure-4)

As on august end 2009, there were 33 Funds with 391 schemes and assets undermanagement with Rs 1, 02,849 crores. he securities and Exchange Board of India came out

with comprehensive regulation in 1993 which defined the structure ofMutual Fund and Asset

Management Companies for the first time. Several private sectors Mutual Funds were

launched in 1993 and 1994. he share of the private players has risen rapidly since then.

Currently there are 34 Mutual Fund organi ations in India managing 1, 02,000 crores.

70%

22%

8%

CONTRIBUTION OF VARIOUS PLAYERS IN MUTUAL

FUNDS MARKET IN INDIA

UTI

PRIVATE FUNDS

PUBLIC BANKS


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THEORETICAL BACKGROUND

The basis for the study of volatility of mutual fund schemes is understanding volatilityand how it affects the schemes performance. It is also necessary to predict, compare,evaluate and select proper scheme. It aids an investor to select mutual fund scheme as per

his/her investment need and for fund managers to know if the portfolio is invested properlyand is giving expected returns.

Volatility means

1. A statistical measure of the dispersion of returns for a given security or marketindex. Volatility can either be measured by using the standard deviation or variance betweenreturns from that same security or market index. Commonly higher the volatility riskier is thesecurity.

2. A variable in option pricing formulas showing the extent to which the return of the

underlying asset will fluctuate between now and the options expiration. Volatility, asexpressed as a percentage coefficient within option-pricing formulas, arises from dailytrading activities. How volatility is measured will affect the value of the coefficient used.

In other words, volatility refers to the amount of uncertainty or risk about the size ofchanges in a security s value. A higher volatility means that a security s value can potentially

be spread out over a larger range of values. This means that the price of the security canchange dramatically over a short time period in either direction. A lower volatility means thatsecuritys value does not fluctuate dramatically, but changes in value at a steady pace over a

period.

PERFORMANCE MEASURES OF MUTUAL FUNDS:

Mutual Fund industry today, is one of the most preferred investment avenues in India.However, with a plethora of schemes to choose from, the retail investor faces problems inselecting funds. Factors such as investment strategy and management style are qualitative, butthe funds record is an important indicator too.

Though past performance alone cannot be indicative of future performance, it is, frankly, theonly quantitative way to judge how good a fund is at present. Therefore, there is a need tocorrectly assess the past performance of different Mutual Funds. Worldwide, good MutualFund companies over are known by their AMCs and this fame is directly linked to their

superior stock selection skills.

For Mutual Funds to grow, AMCs must be held accountable for their selection of stocks. Inother words, there must be some performance indicator that will reveal the quality of stockselection of various AMCs.


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Return alone should not be considered as the basis of measurement of the performance of aMutual Fund scheme, it should also include the risk taken by the fund manager becausedifferent funds will have different levels of risk attached to them. Risk associated with a fund,in a general, can be defined as Variability or fluctuations in the returns generated by it. Thehigher the fluctuations in the returns of a fund during a given period, higher will be the risk

associated with it. These fluctuations in the returns generated by a fund are resultant of twoguiding forces. First, general market fluctuations, which affect all the securities, present inthe market, called Market risk or Systematic risk and second, fluctuations due to specificsecurities present in the portfolio of the fund, called Unsystematic risk. The Total Risk of agiven fund is sum of these two and is measured in terms of standard deviation of returns ofthe fund.

Systematic risk, on the other hand, is measured in terms of Beta, which representsfluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of aMutual Fund is to the changes in the market; higher will be its beta. Beta is calculated byrelating the returns on a Mutual Fund with the returns in the market. While Unsystematic risk

can be diversified through investments in a number of instruments, systematic risk cannot. Byusing the risk return relationship, we try to assess the competitive strength of the MutualFunds one another in a better way. In order to determine the risk-adjusted returns ofinvestment portfolios, several eminent authors have worked since 1960s to developcomposite performance indices to evaluate a portfolio by comparing alternative portfolioswithin a particular risk class.


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Reliance Mutual Fund uses following five measures of volatility:

1. BETA:

One measure of the relative volatility of a particular stock to the market is its beta. A

beta approximates the overall volatility of a security s returns against the returns of a relevant

benchmark (usually the S&P 500 is used). For example, a stock with a beta value of 1.1 has

historically moved 110% for every 100% move in the benchmark, based on price

level. Conversely, a stock with a beta of .9 has historically moved 90% for every 100% move

in the underlying index. It is common knowledge that mutual funds are benchmarked against

particular market indices. In general, diversified funds are benchmarked against Sensex or

Nifty, while sectoral funds are benchmarked against their particular sector index. It is fair to

then assume that the ups and downs of any index will affect the funds that are benchmarked

against it. In other words, if the Sensex falls, you can expect a diversified fund to fall as well.But while some funds might be affected more by an index s volatility, others might not. So, to

get an idea of how volatile a fund is with respect to its index Beta is the measure of a fund s

(or stock s) volatility relative to the market or benchmark.

For example, if a fund is benchmarked against the Sensex, a beta of more than 1 would imply

that the fund is more volatile than the index. And of course, a beta of less than 1 would imply

lesser volatility.

Allow me to explain further. Let s say there are two funds, one with a beta of 2.5 and theother with 0.4, both benchmarked against the same index. Now, if the market rises by 1 per

cent, the first fund will rise by approximately 2.5 per cent, while the latter will rise by 0.4 per

cent. A similar relationship will take place in a falling market. In simpler words, beta is a

quantitative measure of a fund (or stock) relative to the market.

In effect, beta expresses the fundamental trade-off between minimizing risk and

maximising return. This means that while an investor can expect high returns from a fund that

has a beta of 2, he can also expect the fund to be more risky and drop much more when the

market falls. A fund with a beta of 1 would flourish or diminish in the same vein as the

market.

So, how effective is beta in judging a fund s volatility? Well, that depends on the index used

to calculate it. If the beta of a large-cap fund is calculated against a mid-cap index, the


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resulting value would have no meaning. This is because the large-cap fund would not be

invested in the stocks making up the small-cap index.

Beta is fairly straightforward and offers a lucid, quantifiable and convenient measure of a

fund s volatility. However, beta does have its limitations. Beta is essentially a historic tool

and does not incorporate new information. For example, a company may venture into a new

business and assume a high debt level, but this new risk will not be captured by beta. Beta

relies on past movements and does not take new happenings into account. Hence, beta cannot

be calculated for new funds or stocks that have insufficient history.

In conclusion, investors should remember that beta is just an indication of a fund s (or

stock s) volatility. It gives a fair idea of the same and can be used as a reference, but should

not be relied upon completely since beta depends on past movements, which are not

foolproof predictors of future behaviour.

2. STANDARD DEVIATION:

It is one of the most popular risk measures -- one with a distinct advantage over beta.

While beta compares a fund s returns with a benchmark, standard deviation measures how far

a fund s recent numbers stray from its long-term average. For example, if Fund X has a 10%

average rate of return and a standard deviation of 5%, most of the time, its return will range

from 5% to 15%. A large standard deviation supposedly shows a more risky fund than a

smaller one. But here, again, what s problematic is your reference point. The number alone

doesn t tell you much. You have to compare one standard deviation with the others among a

fund s peers. But a more glaring problem is that the standard deviation system rewards

consistency above all else. A fund is considered stable based on the uniformity of its own

monthly returns. So if it loses money but does so very consistently it can have a very low

standard deviation -- down 3% each and every month wins a standard deviation of zero. That

doesn t signal a risk-free investment. And likewise, a fund that gains 10% one month and

15% the next would be penalized by a high standard deviation -- a reminder that volatility,

although perhaps a cousin to risk, itself isn t necessarily a bad thing.

3. R-squared:

A statistical measure that represents the percentage of a fund or security s movements that

can be explained by movements in a benchmark index. For fixed-income securities, the

benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-squared values range


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from 0 to 100. An R-squared of 100 means that all movements of a security are completely

explained by movements in the index. A high R-squared (between 85 and 100) indicates the

fund s performance patterns have been in line with the index. A fund with low R-squared (70

or less) doesnt act much like index. A higher R-squared value will indicate a more useful

beta figure. For example, if a fund has an R-squared value of close to 100 but has a betabelow 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you

should ignore the beta.

4. Sharpe Ratio:

This formula, worked by Nobel Laureate Bill Sharpe, tries to quantify how a fund

performs relative to the risk it takes. Take a funds returns in excess of a guaranteed

investment (a 90-day T-bill) and divide by the standard deviation of those returns. The bigger

the Sharpe ratio, the better a fund performed considering its riskiness. Here, again, you have

the problem of relativity -- the ratio itself doesn t tell you anything, you have to compare it

with the Sharpe of other funds. But this ratio has an advantage over alpha because it uses

standard deviation instead of beta as the volatility variable, and therefore you dont have to

worry that a fund doesn t relate well to the chosen index.

The Sharpe ratio tells investors whether an investment s returns are due to smart

investment decisions or the result of excess risk. This measurement is very useful because

although one portfolio or security can reap higher returns than its peers, it is only a goodinvestment if those higher returns do not come with too much additional risk. The greater an

investment s Sharpe ratio, the better its risk-adjusted performance.

Sharpe Ratio Dynamics: The Sharpe ratio, developed by Nobel Laureate William Sharpe,

is designed to measure how many excess units of returns an investor can achieve over the risk

free rate for each unit of risk taken. Thus, the Shape Ratio measures the risk/reward value of

investors assets class choices beyond the U S Treasury. Let s take a look at the efficient

frontier chart below to better illustrate the concept of risk, return and the Sharpe ratio.


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For example, a stock index fund will have a low turnover rate, but a bond fund,whether passively or actively managed, will have high turnover because active tradingis an inherent quality of bond investments. An aggressive small-cap growth stockfund will generally experience higher turnover than a large-cap value stock fund.

All things being equal, investors should favour low turnover funds. High turnover

equates to higher brokerage transaction fees, which reduce fund returns. Also,the more portfolio turnover in a fund, the more likely it will generate short-termcapital gains, which are taxable at an investor s ordinary income rate.

Turnover ratios for a mutual fund will vary from year to year, but the general rangecan be assessed by looking at the figure over a few consecutive years.

There are four major reasons why should fund investors be concerned about portfolioturnover, and they all impact a fund s investment quality:

a. There is an abundance of research that shows that buy-and-hold fundmanagers (low turnover) outperform their colleagues who trade frequently

(high turnover). One of the reasons for this is that the former spend less ontrading commissions than the latter. Trading costs are coming down, but theycan still represent a significant fund expense.

b. These trading costs are not included in a fund s expense ratio. Thus,transaction costs are often ignored by investors because they are buried as adollar figure, as opposed to a percentage of assets, in a fund s Statement ofAdditional Information (SAI). It is likely that only a tiny fraction of mutualfund investors are even aware of this document, let alone familiar with itscontent.

According to 2005 Lipper Services data, trading commissions add, on average,

an additional 0.15% to fund expenses. While the percentages may seemsmall, it can significantly ding returns over time. For example, consider twohypothetical $10,000 investments over 20 years in different funds withnontrading (operational) expenses of 1%, one with trading costs of 0.5% andthe other with trading costs of 1%. Assuming annual growth of 8%, aninvestor would end up with just under $34,500 in the first fund and about$31,100 in the second. The $3,400 difference represents a significant 11%

bonus in return for fund No.1 over fund No.2.

c. The components of an index fund change infrequently, which puts these typesof funds in a low trading mode. However, unlike index funds, managed fundshave human beings at the controls. And, the greater the number of trades, the

more often the manager has to be making the right decision. A high volume oftrading places a lot of pressure on managers to avoid making mistakes ininvestment judgments.

d. A high level of fund trading activity generally occasions a higher-than-averageamount of capital gain. Mutual funds must pay out these gains as dividends tofund shareholders, which are then subject to capital gains taxes. For investorsin taxable funds, i.e., not in tax-deferred accounts, high portfolio-turnoverfunds are not tax efficient.


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The Benefits of Low Turnover: A low Portfolio Turnover Rate is a very positive fund

investment quality. However, it must be remembered that the nature or investing style of a

fund can impose certain "structural" features on portfolio management that influence its

trading activities.

y Small-cap stock, international and growth fund tend to have higher turnover rates.

These funds are more transaction-intensive.

y Index funds should have low turnover rates, no matter what their category.

y Trading is a natural function of bond fund, which puts their turnover rates way up on

the scale.

y Funds that carry only a small number of securities in their portfolios oftentimes reflect

high turnover rates because of the impact of a single trade on a major holding.

Whatever the category of mutual fund being considered, the lower the portfolio turnover

percentage the better. While this measurement may vary from year to year, a fund s trading

activity is within the control of the manager and should consistently fall, historically, within a

reasonable range.

LITERATURE REVIE

PERFORMANCE IN INDIA:

The industry has steadily grown over the decade. For example, before the public

sector mutual funds entry, UTI was managing around Rs 6,700 crore on its own. Public sector

mutual funds also helped accelerate the growth of assets under management. UTI and its

public sector counterparts were managing around Rs 47,000 crore when Kothari Pioneer, the

first private sector mutual fund, set up shop in 1993. Before the US 64 fiasco, there were 33

mutual funds with total assets of Rs 1, 21,805 crore as on January 2003. The UTI was way

ahead of other mutual funds with Rs 44,541 crore assets under management. The industryoverall has performed well over the years. Of course, there were a few funds houses, which

disappointed investors. However, overall performance has been good. However, lack of

awareness still impedes the growth of the mutual fund industry. Unlike developed countries,

most of the household savings still go to bank deposits in India.


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1. Financial Mana ement of Private and Public Equity Mutual Funds in India: A n

Analysis of Profitability (By H.J Sondhi and PK Jain from The ICFAI Journal of

applied finance, July 2005)This article examines the rates of returns generated by equity

mutual funds,vis--vis,364 days T-bills and the Bombay Stock Exchange-100(BSE-100)

National Index during the period 1993-2002.Rate of return on 364 days T-bill is the surrogatemeasure for risk free return and the BSE-100 National index has been chosen as proxy for

market portfolio in our analysis. Equity mutual funds predominantly invest in company

equities and hence are risky investments while choosing to invest in equity mutual funds, the

investors expect not only risk premium but also better returns than the market portfolio. The

paper has been divided in to four sections.Section1 outlines the scope and methodology of the

study that includes, inter alia, the basis of computation of rate of return earned by the equity

mutual funds,364 days T-bills and BSE-100 National Index,Section2 computes and analyzes

rates of return.Section3 is concerned with comparison to rates of return of private sector

company sponsored equity mutual funds and PSU sponsored equity mutual funds Concluding

observations have been recapitulated in Section.

2. Relative Risk Return Analysis Use the Proprietary Bubble Analysis of the Relative Risk

and Return Analysis of Mutual Funds by the ICICI Bank Private Bank Advisory Group.

3. Mutual Fund Investments are subject to Market Risks(Portfolio Or anizer, October

2005) this article deals with the risk of Mutual Fund Investments, Types of risks, and the

common mistakes done by investor while choosing the funds for the purpose of investing,Investors responsibility in Investing.

4. Empirical Investi ation on the Investment Mana ers Stock Selection Abilities:The

Indian Experience (By Ramesh Chander from The ICFAI Journal of applied finance ,

Au ust 2005) The study examined the stock selection abilities of investment managers in

India across the fund characteristics as well as the persistence of such performance. It also

investigated performance variability for a sample of 80 investment schemes for the period

starting from January 1998-December 2002.On the whole, the results reported documents

significant statistical evidences for passive stock selection abilities of Indian investment

managers. It points to the consistency of performance across the measurement criteria.

Investment Performance depends on the stock selection and pertains to the successful micro

forecasting for company specific events. It refers to the managers ability to identify under or

overvalued securities.


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5. Mutual Fund Industry in India: On a rowth Trail (Cover Story, Chartered

Financial Analyst, July 2005) the mutual fund industry in India has been on a roll as the

assets under management continue to see strong spurt in growth. The assets under

management swelled to Rs. 1, 67,978 cr. By May 31, 2005 from Rs.1, 01,565 cr. In January

2000.This apart, the industry has also seen a spurt in the number of schemes on offer whichamount to 460 at present, catering to varied needs of investors. A booming economy, soaring

stock market and a conducive regulatory environment, amongst a slew of other factors have

added to the growth of the industry. Given the huge opportunity in sub-urban and rural

markets, which lie hitherto untapped and growing income levels in the country, the industrys

future look bright.

6. Mana in Mutual Fund Investments in the Era of chan e (By Kulbhushan Chandel

and OP Verma from the ICFAI Journal of applied finance, October 2005): The study is

confined to evaluate the performance of mutual funds on the basis of weekly returns

compared with risk free security returns and BSE Index. The present study includes the five

different sector specific schemes. Among these 25 schemes, only sector specific schemes

floated by different institutions have been studied .To evaluate the performance of funds only

three performance measures have been applied i.e. Sharpe Index, Treynor Index and Jensens

measure. It is observed that the performance of sample schemes during the study period is

best. However; there are some instances where poor performance has been reflected.

A number of studies have examined the impact of firm-specific variables such as firm

size and book-to-market-value, as in Fama and French (1992), while other studies have

examined the impact of the macro-economic factors, as in Chen, Roll and Ross (1986),

Antoniou, Garret and Priestly (1998), and Poon and Taylor (1992).

Journal of Research into New Media Conver ence: The International Technolo ies:

This very journal is basically an interview which is done by Patrick Crogan to Samuel Weber.

The title is Targeting, Television and Networking: An Interview with Samuel Weber. Here a

light is thrown on various aspects by the interviewee on the targeting, media and networking.

According to him;

The target is someone who doesnt fit the usual criteria so one doesnt have the

same kind of search procedures as in the normal hiring process. The target of opportunity can

be a function of affirmative action policy or be somebody whose qualifications are unusual

enough that one would not find them with a regular search process following criteria peculiar

to an individual discipline.


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On the one hand the association of targeting with the aim of controlling the future,

controlling the environment by identifying a target, localizing it and hitting it or reaching it,

depending on what area a person is in, and on the other hand the notion of opportunity, which

suggests the unpredictable emergence of an event that cant be entirely planned The coupling

of the two terms suggests that targeting, rather than just designating an abstract activity inwhich, unencumbered by constraints of time and space, he identify something that he/she

wants to accomplish or goals to be reach and then everything is done to achieve that, involves

responding in a very determinate situation spatially and temporally to an unpredicted,

unforeseen event, trying to get that event in some sense under control.

The word opportunity itself is interesting because it already condenses this idea of

the unpredictable, singular event being turned into an occasion to do something else. An

opportunity means precisely to be able to do something with the event. Quite literally, the

word suggests a portal, op-port-unity; a gateway through which one can pass into another

domain. The latter can be construed as a realm of goals, and then the opportunity is

instrumental zed, like the target. But it can also suggest an area that may not be definable

strictly or primarily in terms of goals, aims or ends. In the latter case you cant be absolutely

sure that you are going to be able to reach your target or even that there is one. So you have

this tension between the two terms, target and opportunity.

In the financial domain as well, where the maximization of profit in the short term

takes precedence over all other considerations and has come to undermine the very

foundations of the capitalist economy that produced it in the first place.

Analyzin Mutual Fund Risk By Arturo Neto , CFA (Contact Author | Bio raphy)Filed

Under: Economics, Mutual Funds:There are a number of attractive mutual funds and fund

managers that have performed very well over both long-term and short-term horizons.

Sometimes, performance can be attributable to a mutual fund manager s superior stock-

picking abilities and/or asset allocation decisions. In this article, we ll summarize how to

analyze a mutual funds portfolio and determine whether there are specific performance

drivers.

Port folio analysis: - All mutual funds have a stated investment mandate that specifies

whether the fund will invest in large companies or small companies, and whether those

companies exhibit growth or value characteristics. It is assumed that the mutual fund manager

will adhere to the stated investment objective. It s a good start to understand the funds


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specific investment mandate, but there is more to fund performance that can only be revealed

by digging a bit deeper into the fund s portfolio over time.

1. Sector ei hts: Sometimes fund managers will gravitate toward certain sectors either

because they have deeper experience within those sectors, or the characteristics they lookfor in companies force them into certain industries. A reliance on a particular sector may

leave a manager with limited possibilities if they have not broadened their investment net.

To determine a fund s sector weight, we must either use analytical software or sources

like Yahoo! or MSN. Regardless of how the information is obtained, the investor must

compare the fund to its relevant indexes to determine where the fund manager increased

or decreased his allocation to specific sectors relative to the index. This analysis will shed

light on the manager s over/underexposure to specific indexes in order to gain additional

insight on the fund manager s tendencies or performance drivers. The analysis can be as

simple as listing the fund and relevant indexes side by side with a breakdown by sector.

For example, for a large cap manager, the simplest way to determine sector reliance is to

place the fund s sector breakdown next to both the S&P 500 Growth Index and the S&P

500 Value Index. Both of these indexes exhibit unique sector breakdowns because certain

sectors routinely fall into the value category, while others fall into the growth category.

Technology, known more as a growth sector, will have a higher weight in the S&P

Growth Index than in the S&P 500 Value Index. Industrials, on the other hand, known as

a value sector, will have a higher weight in the S&P 500 Value Index than in the S&P 500

Growth Index. Identify any tendencies the fund manager may have.

2. Attribution Analysis: There are fund managers who claim to have a top-down

approach and others that claim to have a bottom-up approach to stock-picking. Top-down

indicates that a fund manager evaluates the economic environment to identify global

trends and then determines which regions or sectors will benefit from these trends. The

fund manager will then look for specific companies within those regions or sectors that

are attractive. A bottom-up approach, on the other hand, ignores, for the most part,

macroeconomic factors when searching for companies to invest in. A manager that

employs a bottom-up methodology will filter the entire universe of companies based on

certain criteria, such as valuation, earnings, size, growth, or a variety of combinations of

these types of factors. They then perform rigorous due diligence on the companies

that pass through each phase of the filtering process.

Step 1: Determine the sector weights for both the fund and the index.


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Step 2: Calculate the contribution of each sector for the fund by multiplying the sector

weight by the sector return. Repeat for the index.

Step 3: Calculate the rate of return for the fund by adding the contribution of each sector

together. Repeat for the index. In this case, the fund had a return for the period of 4.38%.

The second chart shows the same calculations for the relevant benchmark. We could seethat the total return for the benchmark was 3.55% and that the fund outperformed the

benchmark by 0.83%.

Step 4: Calculate the overweight amount by subtracting the index weight for each sector

from the fund weight for each sector.

Step 5: Calculate performance by subtracting the index return for each sector from the

fund return for each sector. Notice that the fund had a 30% weight to Sector 1 while the

benchmark only had a 20% weight. As such, the fund manager over allocated to this

sector assuming it would outperform. We can see from the return of 4.2% for Sector 1

within the fund was 2% less than the return for the same sector within the benchmark.

Now this might get a bit tricky: The fund manager made the correct choice of allocating

to Sector 1 as the sector for the benchmark had a return of 6.2%, the highest of all five

sectors; however, the security selection within the sector was not very good and therefore

the fund only had a 4.2% return.

Step 6: Calculate the selection attribution by multiplying the benchmark weight with the

difference in performance.

Step 7: Calculate the allocation attribution by multiplying the index return for each sector

by the overweight amount.

Step 8: Calculate the interaction by multiplying the overweight column by the

performance column.

The third chart shows the calculation of both allocation and security selection contribution. In

this example, the manager contribution to performance for overweighting Sector 1 was 0.62%

but the manager did a poor job of security selection, which resulted in a contribution of -0.4%.

The last chart shows the active management effect of positive 0.88% minus the unexplained

portion of -0.055, resulting in active management contribution of 0.825%.

As you can see, this information is very useful to determine whether a manager is driving

performance through asset allocation (top-down) or security selection (bottom-up) analysis.

The results of this analysis should be compared to the fund s stated mandate and the fund

manager s process.

A study on the performance and characteristics on the Swedish fund market Author:


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UNDERSTANDING RISK:-Many investors believe the United States is in a period of great

uncertainty in its investment markets. This is a conclusion that applies during all market

conditionsexcept in hindsight. The risk an investor takes is what provides the opportunity

for higher returns. Recognizing this makes it clear that more emphasis should be placed on

risk analysis when CPAs and their clients make investment decisions. Risk analysis is centralto mutual fund research. Focusing on the long-term relationship between risk and return will

enable CPAs to establish realistic expectations as to expected performance under various

market conditions.

Risk exists when there is uncertainty about whether future returns will differ from the

expected returns. Risk is an attribute that without context is neither good nor bad.

Accordingly, the CPAs role is not to eliminate risk but, rather, to control risk and to make

sure that clients are adequately compensated for the risks they take. The difference betweenthe required rate of return on a mutual fundgiven its riskand the risk-free rate is the risk

premium.

MEASURING RISK: - Since assuming risk is inherent to the investment process, mutual

fund investors must be adequately and consistently rewarded for the risks they assume.

Prudent research means searching for fund managers who consistently produce returns

justifying the risks they have taken.

Modern portfolio theory research developed a number of statistics that make it possible to

more precisely quantify the relationship between risk and return. These measurements help

determine

y Funds volatility (Standard Deviation).

y How closely a fund mirrors a particular market index (R ).

y How volatile a fund is compared with that market index (Beta).

y How much of funds risk-adjusted return is created by a talented manager (Sharpe)


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OBJECTIVE THE PROJECT

To study concept of Mutual Fund.

To understand the various volatility measures and their significance.

To evaluate performance of Equity Mutual Fund Schemes. To find out risk and return relationship and comparison between these schemes.

To find out if Fund Managers are taking unnecessary risk in portfolio.

To know if the funds are giving expected returns on these schemes.

To study the effect of volatility on performance of funds.


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SCOPE OF THE STUDY

The Mutual Fund industry is laying an important role in the industrial and economicgrowth of the country. A Mutual fund uses the money collected from investors to buy thoseassets, which are specifically permitted by its stated investment objective. Thus, an Equity

Fund would buy mainly Equity assets-ordinary shares, preference shares, warrants etc. A bond fund would mainly buy debt instruments such as debentures, bonds or governmentsecurities. It is these assets, which are owned by the investors in the same proportions as theircontribution bears to the total contribution of all investors put together.

Volatility measures help investors to know a funds riskiness. It also helps them toselect appropriate fund as per investment objective. These measures of return are often usedto evaluate the performance of a portfolio. These ratios help to make the performance of one

portfolio comparable to that of another portfolio by making an adjustment for risk.

These ratios help to analyse various situations affecting the funds and is also useful

for judging credit worthiness of a particular fund. Volatility analysis helps to appraiseefficiency of performance in relation to those other companies in the same industry.

Techniques of risk and return can be used as an effective mechanism to provide suggestion to

an investor of Reliance Mutual Fund. Hence it is beneficial to the managers as well.


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LIMITATIONS OF THE STUDY

y The study is based on secondary data.

y The analysis is based on only one company.

y The study is restricted to limit duration (2 months).y Risk management is the wide topic and its difficult to analyze thoroughly

with in the short period.

y This analysis is carried based on certain assumptions hence the analysis

would be biased.

y Analysis is based on Equity Schemes only.

y Debt Schemes are not considered because of time constraint.

y There are only five schemes considered for the study.


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The main objectives of the Trust are :

y To carry on the activity of a Mutual Fund as may be permitted at law and formulateand devise various collective Schemes of savings and investments for people in Indiaand abroad and also ensure liquidity of investments for the Unit holders;

y To deploy Funds thus raised so as to help the Unit holders earn reasonable returns ontheir savings and

y To take such steps as may be necessary from time to time to realise the effects withoutany limitation.

Vision and Mission Statement

Vision Statement: To be a globally respected wealth creator with an emphasis on customercare and a culture of good corporate governance.

Mission Statement: To create and nurture a world-class, high performance environmentaimed at delighting our customers.

Different Products By Reliance Mutual Fund

Equity/Growth Schemes The aim of growth funds is to provide capital appreciationover the medium to long- term. Such schemes normally invest a major part of theircorpus in equities. Such funds have comparatively high risks. These schemes providdifferent options to the investors like dividend option, capital appreciation, etc. and theinvestors may choose an option depending on their preferences. The investors mustindicate the option in the application form. The mutual funds also allow the investors tochange the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Debt/Income SchemesThe aim of income funds is to provide regular and steady incometo investors. Such schemes generally invest in fixed income securities such as bonds,corporate debentures, Government securities and money market instruments. Such fundsare less risky compared to equity schemes. These funds are not affected because ofluctuations in equity markets. However, opportunities of capital appreciation are alsolimited in such funds. The NAVs of such funds are affected because of change in interest

rates in the country. If the interest rates fall, NAVs of such funds are likely to increase inthe short run and vice versa. However, long term investors may not bother about thesefluctuations.

Sector Specific SchemesThese are the funds/schemes which invest in the securities oonly those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals,Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in


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these funds are dependent on the performance of the respective sectors/industries. Whilethese funds may give higher returns, they are more risky compared to diversified funds.Investors need to keep a watch on the performance of those sectors/industries and mustexit at an appropriate time. They may also seek advice of an expert.

Exchan e Traded Funds (ETFs) Exchange Traded Funds (ETFs) are usually passivelymanaged mutual fund schemes tracking a benchmark index and reflect the performancof that index. These schemes are listed on the stock exchange and therefore have thflexibility of trading like a share on the stock exchange. It can also be looked assecurity that tracks an index, a commodity or a basket of assets like an index fund, buttrades like a stock on an exchange, thus experiencing price changes throughout the day asit is bought and sold.

Fixed Maturity Plans (FMPs) Fixed Maturity Plans (FMPs) are basically debt orientedinvestment schemes with a pre-specified tenure offered by mutual funds. FMPs invest ina portfolio of debt instruments whose maturity coincides with the maturity of theconcerned FMP. The primary objective of a FMP is to generate income while aiming to

protect the capital by investing in a portfolio of debt and money market securities. SinceFMPs are available with several maturity options, one can invest in the relevant plandepending upon his investment horizon and the requirement of cash flows.

Awards and Achievements

y Reliance Mutual Fund is one of Indias leading Mutual Funds, with Average Assets

Under Management (AAUM) of Rs. 1,02,179 Crores (AAUM as of July 2010 )(source: www.amfiindia.com) and an investor count of over 73 Lakh folios.

y *(Over73 lakh investor folios is calculated on the basis of live folios as on February,2010 and includes investors across all the schemes of Reliance Mutual Fund andPresence in over 400 locations includes the Designated Investor Service Centres(DISCs) of RCAM and Registrar & Transfer Agents , Offices and ResidentRepresentatives of RCAM as on December 31, 2009)

y Reliance Mutual Fund has over 14 years of extensive market experience, 35 schemes(as on January 31, 2010) combined with a strong performance track record.

y Reliance Capital Asset Mana ement Limited has won the prestigious US based,2010 CIO 100 award. The 2010 CIO 100 Awards is presented by the CIO magazine &honors 100 companies worldwide that are creating new business value by innovatingwith technology.

y Vinay Ni udkar, CTO, Reliance Caital Asset Mana ement Limited has beenawarded this honor for implementation of the CRMnext System that integrates salesforce automation, lead management, customer service and other sales and analysisapplications.


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Corporate Governance

Corporate Governance Policy:

Reliance Capital Asset Management Ltd. has a vision of being a leading player in the MutualFund business and has achieved significant success and visibility in the market. However, an

imperative part of growth and visibility is adherence to Good Conduct in the marketplace. AtReliance Capital Asset Management Ltd., the implementation and observance of ethical

processes and policies has helped us in standing up to the scrutiny of our domestic andinternational investors.

Mana ement:The management at Reliance Capital Asset Management Ltd. is committed to good CorporateGovernance, which includes transparency and timely dissemination of information to itsinvestors and unit holders. The Board of Directors of RCAM is a professional body,including well-experienced and knowledgeable Independent Members. Regular AuditCommittee meetings are conducted to review the operations and performance of the company.

Employees:Reliance Capital Asset Management Ltd. has at present, a code of conduct for all its officers.It has a clearly defined prohibition on insider trading policy and regulations. Themanagement believes in the principles of propriety and utmost care is taken while handling

public money, making proper and adequate disclosures.

All personnel at Reliance Capital Asset Management Ltd are made aware of their rights,obligations and duties as part of the Dealing Policy laid down in terms of SEBI guidelines.They are taken through a well-designed HR program, conducted to impart work ethics, theCode of Conduct, information security, Internet and e-mail usage and a host of other issues.One of the core objectives of Reliance Capital Asset Management Ltd. is to identify issuesconsidered sensitive by global corporate standards, and implement policies/guidelines inconformity with the best practices as an ongoing process. Reliance Capital AssetManagement Ltd. gives top priority to compliance in true letter and spirit, fully understandingits fiduciary responsibilities.


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RESEARCH METODLOGY

Business Research is an organized, data based, systematic, critical, objective,

scientific inquiry or investigation in to a specific problem undertaken, with the purpose of

finding answers or solutions to it. The information provided could be the result of a carefulanalysis of data gathered first hand or of the data that are already available.

RESEARCH DESIGN

Descriptive research desi n:

The descriptive research includes surveys and fact-finding enquires of different kinds.

The major purpose of descriptive research is description of the state of affairs, as it exists at

present. The major characteristic of this method is researchers has no control over the

variables, he can only report what has happened or what is happening. The descriptive study

is under taken in order to ascertain and be able to describe the characteristics of the variables

of interest in a situation.

DATA COLLECTION

The data collection is the data constitute the foundation on which the super structure

of statistical analysis is built. The results obtained from the analysis are properly interpreted

and policy decisions are taken. Hence if the data inaccurate and inadequate, the whole

analysis may be faulty and the decisions will be misleading.

SECONDARY DATA COLLECTION:

The research has collected the secondary data from the companys records, products

pamphlet, internet, previous project reports. The study is based on secondary data.


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TECHNIQUES OF ANALYSIS

Reliance Growth Fund

Reliance Growth Fund

Year Rp Rm Rf Rm-Rf

(X)

Rp-Rf

(Y)

X2 XY X-X

bar (D)

D2

6 Months 7.74 2.87 5.3 -2.43 2.44 5.9049 -5.9292 -2.43 5.9049

1 Year 40.82 24.71 5.3 19.41 35.52 376.7481 689.4432 19.41 376.7481

3 Years 14.23 7.46 5.3 2.16 8.93 4.6656 19.2888 2.16 4.6656

Since

Inception

29.64 12.62 5.3 7.32 24.34 53.5824 178.1688 7.32 53.5824

Total 26.46 71.23 440.901 880.9716 26.46 440.901

(Table-2)

Where,

Rp - Portfolio Return-Reliance Growth Fund

Rm - Market Return-Funds Benchmark BSE-100

Rf - Risk free rate of return ofT-bill

y CALCULATION OF ARTHMETIC MEAN:-

= 7X / N

= 26.46/ 4

= 6.615

y CALCULATION OF STANDARD DEVIATION ():-

= 7(X-Xbar)2 / N

= 440.901/4


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= 110.22525

= 10.49882

y CALCULATION OF BETA CO-EFFICIENT;-

= N (7XY) 7X7Y

N (7X2) (7X) 2

= 4(880.9716) (26.46)(71.23)

4(620.901) (26.46) 2

= 3523.8864-1884.7458

2483.604-700.1316

= 1639.1406

1783.4724

= 0.919

y CALCULATION OF SHARPES RATIO:-

= Rp-Rf/

= 71.23/10.4988

= 6.784%


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Reliance Vision Fund

Reliance Vision Fund

Year Rp Rm Rf Rm-Rf

(X)

Rp-Rf

(Y)

X2 XY X-X bar

(D)

D2

6 Months 5.74 2.87 5.3 -2.43 0.44 5.9049 -1.0692 -2.43 5.9049

1 Year 35.29 24.71 5.3 19.41 29.99 376.7481 582.1059 19.41 376.7481

3 Years 8.57 7.46 5.3 2.16 3.27 4.6656 7.0632 2.16 4.6656

Since

Inception

24.92 12.62 5.3 7.32 19.62 53.5824 143.6184 7.32 53.5824

Total 26.46 53.32 440.901 731.7183 26.46 440.901

(Table-3)

Where,

Rp - Portfolio Return-Reliance Vision Fund




= 7X / N

= 26.46/ 4

= 6.615


= 7(X-Xbar)2 / N

=

440.901/4

= 110.22525

= 10.49882

y CALCULATION OF BETA CO-EFFICIENT;-


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= N (7XY) 7X7Y

N (7X2) (7X) 2

= 4(731.7183) (26.46)(53.32)

4(440.901) (26.46) 2

= 5643.388-1410.8472

2483.604-700.1316

= 1639.1406

1783.4724

= 0.85


= Rp-Rf/

= 53.32/10.49882

= 5.0786%


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Reliance Lon Term Equity Fund


Year Rp Rm Rf Rm-Rf(X)

Rp-Rf

(Y)

X2 XY X-Xbar (D)

D2

12.62 3.64 5.3 -1.66 7.32 2.7556 -12.1512 -8.2475 68.0212563

1 Year 42.17 27.22 5.3 21.92 36.87 480.4864 808.1904 15.3325 235.085556

3 Years 10.59 7.58 5.3 2.28 5.29 5.1984 12.0612 -4.3075 18.5545563

Since

Inception

12.07 9.11 5.3 3.81 6.77 14.5161 25.7937 -2.7775 7.71450625

Total 26.35 56.25 502.9565 833.8941 0 329.375875(Table-4)

Where,

Rp - Portfolio Return-Reliance Lon Term Equity Fund




= 7X / N

= 26.35/ 4

= 6.5875


= 7(X2)/N-(7X/N) 2

= 502.9565/4-43.3951

= 10.47817

CALCULATION OF BETA CO-EFFICIENT;-


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= N (7XY) 7X7Y

N (7X2) (7X) 2

= 4(833.8941) (26.35)(56.25)

4(502.9565) (26.35) 2

= 5643.388-1410.8472

2011.826-694.3225

= 1853.3889

1317.5035

= 1.40


= Rp-Rf/

= 56.25/10.47817

= 5.3683%


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Reliance Equity Opportunities Fund

Reliance Equity Opportunities Fund


Rp-Rf(Y)

X2 XY X-Xbar (D)

D2

6 Months 12.48 2.87 5.3 -2.43 7.18 5.9049 -17.4474 -11.12 123.6544

1 Year 63.4 24.71 5.3 19.41 58.1 376.7481 1127.721 10.72 114.9184

3 Years 12.03 7.46 5.3 2.16 6.73 4.6656 14.5368 -6.53 42.6409

Since

Inception

25.63 20.92 5.3 15.62 20.33 243.9844 317.5546 6.93 48.0249

Total 34.76 92.34 631.303 1442.365 0 329.2386

(Table-5)

Where,

Rp - Portfolio Return-Reliance Equity Opportunities Fund




= 7X / N

= 34.76/ 4

= 8.69


= 7(X2)/N-(7X/N) 2

= 631.303/4-(34.76/4)2

= 9.072


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Reliance Tax Saver (ELSS) Fund

Reliance Tax Saver Fund


Rp-Rf(Y)

X2 XY X-X bar(D)

D2

6 Months 10.62 2.87 5.3 -2.43 5.32 5.9049 -12.9276 -10.2975 106.0385

1 Year 40.48 24.71 5.3 19.41 35.18 376.7481 682.8438 11.5425 133.2293

3 Years 8.98 7.46 5.3 2.16 3.68 4.6656 7.9488 -5.7075 32.57556

Since

Inception

15.59 17.63 5.3 12.33 10.29 152.0289 126.8757 4.4625 19.91391

Total 31.47 54.47 539.3475 804.7407 0 291.7573

(Table-6)

Where,

Rp - Portfolio Return-Reliance Tax Saver (ELSS) Fund




= 7X / N

= 31.47/ 4

= 7.86


= 7(X2)/N-(7X/N) 2

= 539.3475/4-(31.47/4)2

= 8.5404


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(Fi ure-6)

Interpretation:

Reliance Growth Fund has Beta less than 1 which signifies that this fund less risky

than BSE 100 hence when safety of investment is important, a fund with a beta of less than

one is a better option. Also that Beta is close to 1 which signifies that this fund is almost as

risky as its benchmark BSE 100 hence it will experience fluctuations quite similar to the

index. Standard Deviation of 4.38 indicates that the current returns of 27.77% can go up to

32% if market conditions are favourable. The Sharpe ratio of .0648 tells that the investment s

returns are due to smart investment decisions and not the result of excess risk. The greater an

investment s Sharpe ratio, the better its risk-adjusted performance. Fund performed very well

when compared with Benchmark index (BSE SENSEX) since inception.

0

5

10

15

20

25

30

35

40

45

6 Months 1 Year 3 Years 5 Years Since Inception

Growth Fund

BSE 100


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Reliance Vision Fund as on June 30, 2010

Investment Objective: The primary investment objective of the Scheme is to achieve long-term growth of capital by investment in equity and equity related securities through aresearch based investment approach.

Volatility Measures:

Standard deviation 4.2691

Sharpe ratio 0.0411

Beta 0.8515

R squared 0.9253

NAV AS ON JUNE 30TH

2010

Dividend Plan 43.3006

Growth Plan 265.4515

PERFORMANCE OF RELIANCE VISION FUND vs. BSE 100 index as on June 30, 2010

Period 6 months 1 Year 3 Years 5 yearsSince

Inception

Reliance Vision Fund 5.74 35.29 8.57 23.73 24.92

BSE100 2.87 24.71 7.46 19.95 12.62

(Table-8)


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(Fi ure-7)

Interpretation:

Reliance Vision Fund has Beta of .8515 which is close to 1 which signifies that this

fund is almost as risky as its benchmark BSE 100 hence it will experience fluctuations quite

similar to the index. Standard Deviation of 4.2691 indicates that the current returns of

23.73% can go up to 28% approx if market conditions are favourable. The Sharpe ratio is low

at .00411 indicates that the investments of portfolio are not unnecessarily risky. The greater

an investment s Sharpe ratio, the better its risk-adjusted performance. Fund performed very

well when compared with Benchmark index (BSE SENSEX) since inception.

0

5

10

15

20

25

30

35

40

6 Months 1 Year 3 Years 5 Years Since Inception

Vision Fund

BSE 100


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Reliance Lon Term Equity Fund as on June 30, 2010

Investment objective: The primary investment objective of the scheme is to generatecontinuous returns by actively investing in equity and equity related or fixed incomesecurities of Banks.



Sharpe ratio 0.0515

Beta 0.7170

R squared 0.7598

NAV AS ON JUNE 30TH 2010


Growth Plan 15.1499

PERFORMANCE OF RELIANCE LONG TERM EQUITY FUND vs. BSE 100 index as on

June 30, 2010


InceptionReliance Long Term

Equity Fund 12.62 44.46 23.87 27.23 35.58

S&P CNX Bank

Index 8.60 33.05 12.99 21.67 29.48

(Table-9)


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(Fi ure-8)

Interpretation:

Reliance Long Term Equity Fund has Beta 0.7170 which signifies that this scheme islow risky than its benchmark BSE 200. Standard Deviation of 3.9669 indicates that thecurrent returns will fluctuate with 4% depending upon markets. The Sharpe ratio of 0.0515 isquite low. The greater an investment s Sharpe ratio, the better its risk-adjusted performance.Fund performed very well when compared with Benchmark index (BSE SENSEX) sinceinception.

0

5

10

15

20

25

30

35

40

45

50

Relia

ce L

g Term EquityFu d

BSE 200


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Reliance Equity Opportunity Fund as on June 30, 2010

Investment objective:The primary investment objective of the scheme is to seek to generatecapital appreciation & provide long-term growth opportunities by investing in a portfolioconstituted of equity securities & equity-related securities and the secondary objective is togenerate consistent returns by investing in debt and money market securities.



Sharpe ratio 0.0554

Beta 0.8609

R squared 0.8753



Growth Plan 32.9375

PERFORMANCE OF RELIANCE EQUITY OPPORTUNITIES FUND vs. BSE 100 index as

on June 30, 2010

Period 6 months 1 Year 3 Years 5 years

Since

Inception

Equity

Opportunities fund12.48 63.4 12.03 25.23 25.63

BSE 100 2.87 24.71 7.46 19.95 20.92

(Table-10)


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(Fi ure-9)

Interpretation:

Reliance Equity Opportunities Fund has Beta of 0.8609 which signifies that this fundless risky than BSE 100 hence when safety of investment is important; a fund with a beta ofless than one is a better option. Also that Beta is close to 1 which signifies that this fund isalmost as risky as its benchmark BSE HC hence it will experience fluctuations quite similarto the index. Standard Deviation of 4.4376 indicates that the current returns of 25.23% can goup to 30% if market conditions are favourable. The Sharpe ratio of .0554 tells that theinvestment s returns are due to smart investment decisions and not the result of excess risk.The greater an investment s Sharpe ratio, the better its risk-adjusted performance. Fund

performed very well when compared with Benchmark index (BSE HC) since inception.

0

10

20

30

40

50

60

70

6 Months 1 Year 3 Years 5 Years Since

Inception

Equity Opportunities Fund

BSE-HC


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Reliance Tax Saver (ELSS) Fund (RTSF) as on June 30, 2010

Investment objective: The primary objective of the scheme is to generate long term capitalappreciation from a portfolio that is invested predominantly in equity and equity-relatedinstruments.



Sharpe ratio 0.0443

Beta 0.7924

R squared 0.8456



Growth Plan 19.8647

PERFORMANCE OF RELIANCE TAX SAVER (ELSS) FUND vs. BSE 100 index as on June

30, 2010


InceptionReliance Tax Saver

(ELSS) Fund10.62 40.48 8.98 N.A. 15.59

BSE 100 2.87 24.71 7.46 N.A. 17.63

(Table-11)


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(Figure-10)

Interpretation:

Reliance ax Saver Fund has Beta less than 1 which signifies thatthis fund less riskythan BSE 100 and also value of beta is quite low which is close .5 so the fund is almost halfrisky than its benchmarkBSE 100 hence it will experience less fluctuationsthan the index.Standard Deviation of 4.1556 indicates that the current returns of 15% can go up to 19% ifmarket conditions are favourable. he Sharpe ratio of .0648 tells thatthe investment's returnsare due to smart investment decisions and not the result of excess risk. he greater aninvestment's Sharpe ratio, the betterits risk-adjusted performance. Fund performed very wellwhen compared with Benchmarkindex (BSE SENSEX) since inception.

0

5

10

15

20

25

0

5

40

45

6

s 1 e

e

s S

ce

ce

e

ce

x S ve (

SS) F! "

BS # 100


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Comparison On The Basis of BETA

Fund Name Beta

Reliance Growth Fund 0.8514Reliance Vision Fund 0.8515

Reliance Long Term Equity Fund 0.7170

Reliance Equity Opportunities Fund 0.8609

Reliance Tax Saver Fund 0.7924

(Table-12)

(Fi ure-11)

Interpretation:

In the above graph it is seen that the Beta of Reliance Equity Opportunities Fund isthe highest (0.8609) among the five funds. As Beta is a measure of funds riskiness it can beinferred that this fund is most risky among the funds under consideration.

0

0.10.20.30.40.50.60.70.80.9

1

Beta

Beta


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Comparison On The Basis of Standard Deviation

Fund Name StandardDeviation

Reliance Growth Fund 4.3827

Reliance Vision Fund 4.2691

Reliance Long Term Equity Fund 3.9669



(Table-13)

(Fi ure-12)

Interpretation:

In the above graph it is seen that the Standard Deviation of Reliance EquityOpportunities Fund is the highest (4.4376) among the five funds. So there will be morefluctuations in returns of this Fund when compared to other funds under consideration.

3.73.83.9

44.14.24.34.44.5

Standard Deviation

Stan $ ar $ Deviation


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Comparison On The Basis of Sharpe Ratio

Fund Name Sharpe Ratio


Reliance Vision Fund 0.0411Reliance Long Term Equity Fund 0.0515



(Table-14)

(Fi ure-13)

Interpretation:

Reliance Growth Fund has the highest Sharpe ratio (0.0648) and hence it is giving the

better risk-adjusted returns than other funds and is the best among the funds taken foranalysis for the period June 2007 to June 2010 and Reliance Vision Fund is the mostconservative fund chosen for analysis for the period June 2007 to June 2010.

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

Sharpe Ratio

Sharpe % atio


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Performance Comparison of Equity Funds

SCHEME RETURNS


Reliance Vision Fund 8.57Reliance Long Term Equity Fund 10.59



(Table-15)

(Fi ure-14)

Interpretation:

The above figure shows that the Growth Fund has given maximum returns for past 3

years when compared to other four funds taken for analysis.

02468

10121416

RETURNS

& ETU & NS


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Findin s and Su estions

y As volatility indicators represent Reliance Equity Opportunities Fund has highestBeta and Standard Deviation which makes it aggressive Fund among the fundsconsidered for analysis.

y Growth fund has next highest Beta which is very close to Equity Opportunities Fund.

y Returns from Growth fund have been around 14.13 for past 3 years, as there wasslowdown in the industry from 2008-2009. Where as in the year 2009 the fund hasgiven 40.82% returns.

y Vision Fund, which has investment in large cap companies didnt perform well ascompared to other funds. But still it managed to perform better than its benchmark.

y Reliance Equity Opportunity is also performing well and expected to generate betterreturns in long run this can also be as a better option for investing.


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CONCLUSIONS

Many investors tend to focus exclusively on investment return, with little concern forinvestment risk. The five risk measures we have just discussed can provide some balance tothe risk-return equation. The good news for investors is that these indicators are calculatedfor them and are available on several financial websites, as well as being incorporated intomany investment research reports. As useful as these measurements are, keep in mind thatwhen considering a stock, bond, or mutual fund investment, volatility risk is just one of thefactors you should be considering that can affect the quality of an investment.

When looking to invest, you need to look at both risk and return. While return can be easilyquantified, risk cannot. Today, standard deviation is the most commonly referenced riskmeasure, while the Sharpe ratio is the most commonly used risk/return measure. The Sharperatio has been around since 1966, but its life has not passed without controversy. Even itsfounder, William Sharpe, admits the ratio is not without its problems.

The Sharpe ratio is a good measure of risk for large, diversified, liquid investments, but forothers, such as hedge funds, it can only be used as one of a number of risk/return measures.

After interpreting the above data the following conclusions have been made

Reliance Growth Fund:

y It is a diversified aggressive equity fund.

y It is a open-ended equity scheme

y Since the F ratio is high it implies the risk is high

y The returns generated are more than other four funds.

y Since Sharpe Ratio is the highest; returns generated are result of smart investment bythe fund managers and not by unnecessary risk.

y It is suitable for investors looking for high risk and high returns with in a time period of1-3 years.

Reliance Vision Fund:

y It is a Moderate Large-cap Oriented Fund.


y Since the F ratio is high it implies the risk is high.


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y And the low Sharpe Ratio signifies that the fund manager is taking unnecessary riskswhich are not giving good returns.

y This fund has the lowest returns amongst the five funds.


y It is moderate mid-cap and small-cap oriented Fund.

y It has the lowest Beta and Standard Deviation among all five funds which makes itless risky than other funds.

y It is suitable for investors having low risk appetite.

Reliance Equity Opportunities Growth Fund:

y It is a diversified equity fund.


y Since the F ratio is high it implies the risk is high

y In Reliance Equity Opportunities the returns are good compare to other equity schemes.

Reliance Tax Saver Fund:

y

It is an aaggressive large cap mid cap oriented Fund which has mix of minimum 50%exposure to top 100 companies by market capitalization and high quality mid capcompanies.

y It has a lock in of 3 years. This scheme gives dual advantage of tax savings & growthpotential.

y In Tax Saver the returns are low compare to other schemes.

y It is suitable for those investors who want to have growth as well as tax benefits.


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SUGGESTIONS:-

y The Asset Management Company must design the portfolio in such a way, to increase thereturns.

y The Asset Management Company must design the portfolio in such a way, to lessen the

risk that is common in the market.

y The Asset Management Company must dedicate itself, because it motivates the investorsand potential investors to invest in Mutual Funds.

y The Asset Management Company must manage the Fund efficiently and with dedicationto earn the goodwill of the public.

y The Asset Management Company must make the most advantageous use of print andelectronic media in order to motivate the investors and potential investors to invest inMutual Funds.

y The Fund Manager of Asset Management Company must wisely invest in aggressivelyequity funds.

y The Fund Manager of Asset Management Company must keep the administrativeexpenses low.


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BIBLIOGRAPHY

y NE S PAPERS

y WWW.BSEINDIA.COM

y WWW.MUTUALFUNDINDIA.COM

y MUTUAL FUND HAND BOOK

y FACT SHEET AND STATEMENT

y WWW.RELIANCEMUTUAL.COM

y WWW.MONEYCONTROL.COM

y WWW.AMFIINDIA.COM

y WWW.ONLINE ESE HONLINE.COM

sharad choudhary sip report[1]

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