Performance of Tax Saving Schemes in Mutual Fund
Sambhram Academy of Management Studies, Bangalore Page 1
A STUDY ON PERFO...
Performance of Tax Saving Schemes in Mutual Fund
Sambhram Academy of Management Studies, Bangalore Page 2
CERTIFICATE OF O...
Performance of Tax Saving Schemes in Mutual Fund
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DECLARATION
I, V...
Performance of Tax Saving Schemes in Mutual Fund
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ACKNOWLEDGEMENT
...
Performance of Tax Saving Schemes in Mutual Fund
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EXECUTIVE SUMMAR...
Performance of Tax Saving Schemes in Mutual Fund
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ABSTRACT
Differe...
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CONTENT
Chapter ...
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LIST OF TABLES
T...
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4.18 Correlation...
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LIST OF FIGURES...
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LIST OF CHARTS
...
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Chapter – 1
Int...
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INTRODUCTION
Th...
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mostly if the i...
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Mutual funds co...
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Innovations in ...
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of the fund‟s c...
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of the unit-hol...
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Types of AMCs i...
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associated, the...
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 Closed ended ...
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securities in t...
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 Special Schem...
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the earlier yea...
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 ELSS comes wi...
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ADVANTAGES OF I...
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f) Liquidity: I...
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DISADVANTAGES O...
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AMFI is a apex ...
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 The sponsor h...
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Table 1.1 Banks...
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Chapter – 2
Rev...
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INTRODUCTION
Mu...
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that mutual fun...
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selected scheme...
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Markets for equ...
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 To compare th...
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 Average Mean:...
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Where, Beta =
n...
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the Treynor Rat...
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 Jensens Model...
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 The analysis ...
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Chapter – 3
Pro...
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INDUSTRY PROFIL...
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1987: PSU banks...
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The mutual fund...
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(Mutual Fund) R...
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Table 3.1 Asset...
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 Credit Risk :...
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 Liquidity Ris...
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The Company man...
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billion (as of ...
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ABOUT HDFC ASSE...
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On obtaining th...
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minimum applica...
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units of Frankl...
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ABOUT SBI FUNDS...
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institution has...
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ABOUT RELIANCE ...
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Settler /Sponso...
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Chapter – 4
Res...
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CALCULATION OF ...
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2. Franklin Ind...
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3. Reliance Tax...
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4. SBI Magnum T...
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5. ICICI Pruden...
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Standard deviat...
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COMPARISION BET...
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2. HDFC Tax Sav...
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3. Reliance Tax...
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4. SBI MAGNUM T...
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5. ICICI PRUDEN...
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CALCULATION OF ...
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2. HDFC Tax Sav...
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3. RELIANCE Tax...
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4. SBI Magnum T...
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5. ICICI Pruden...
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BETA VALUES OF ...
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CALCULATION OF ...
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2. HDFC TAX SAV...
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3. RELIANCE TAX...
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4. SBI MAGNUM T...
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5. ICICI PRUDEN...
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CORRELATION VAL...
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COEFFICIENT OF ...
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MEASURING THE P...
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2. Sharpe Ratio...
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3. Jensen Model...
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STATISTICAL ANA...
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Chapter – 5
Sum...
Tax saving schemes
Tax saving schemes
Tax saving schemes
Tax saving schemes
Tax saving schemes
Tax saving schemes
Tax saving schemes
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  1. 1. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 1 A STUDY ON PERFORMANCE OF TAX SAVING SCHEMES IN MUTUAL FUND Dissertation submitted in partial fulfillment of the requirements for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION of BANGALORE UNIVERSITY By VIKAS KUMAR SONI Reg. No: 11XWCMA117 Under the Guidance of Dr. SUBHASREE KAR Associate Professor SCHOOL OF MANAGEMENT SAMBHRAM ACADEMY OF MANAGEMENT STUDIES BANGALORE – 560097 APRIL 2013
  2. 2. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 2 CERTIFICATE OF ORIGINALITY This is to certify that the project titled “A STUDY ON PERFORMANCE OF TAX SAVING SCHEMES IN MUTUAL FUND” is an original work of VIKAS KUMAR SONI and is being submitted in partial fulfillment for the award of the Master‟s Degree in Business Administration of Bangalore University. The report has not been submitted earlier either to this University or elsewhere for the fulfillment of the requirement of any course. SIGNATURE OF SUPERVISOR SIGNATURE OF STUDENT PLACE: PLACE: DATE: DATE:
  3. 3. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 3 DECLARATION I, VIKAS KUMAR SONI do hereby declare that the dissertation report entitled “A STUDY ON PERFORMANCE OF TAX SAVING SCHEMES IN MUTUAL FUND” is an outcome of my original work done under the guidance of Dr. Subhasree Kar, Associate Professor, Sambhram Academy of Management Studies, Bangalore. This report has not been submitted to any institution or university for the award of any degree. PLACE: SIGNATURE OF THE STUDENT DATE:
  4. 4. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 4 ACKNOWLEDGEMENT This is a great privilege to acknowledge each and everyone who are associated with me while carrying out this study. I acknowledge each one of them for their support. First, I would like to thank Dr. K.C. John, Principal, and Dr. K.C. Mishra, Director, School of Management, Sambhram Academy of Management Studies for their encouragement and support throughout the completion of this study. I wish to acknowledge with gratitude to my project guide Dr. Subhasree Kar, Associate Professor, Sambhram Academy of Management Studies for her guidance, encouragement, support and generous help to make this porjet work successful. I am equally thankful to my family and friends for their help and support for the successful completion of this project. Place: Bangalore VIKAS KUMAR SONI Date:
  5. 5. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 5 EXECUTIVE SUMMARY The Indian capital market has been growing tremendously with the reforms in industry policy, reforms in public and financial sector and new economic policies of liberalization, deregulation and restructuring. The Indian economy has opened up and many developments have been taking place in the Indian capital market and money market with the help of the financial system and financial institution or intermediaries which faster saving and channel them to their most efficient use. The measurement of fund performance has been a topic of increased interest in both the academic and practitioner communities for the last four decades. It is more so because of growing scale of mutual theory. The investment environment is becoming increasingly complex. The study is aimed to understand the organisation of mutual fund industry and to examine the performance of tax saving schemes undertaken for study. It evaluates the performance of selected schemes in comparison with benchmark index S&P CNX Nifty, and also helps to the employ risk return measures.
  6. 6. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 6 ABSTRACT Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions. With an objective to make the investors aware of performance of mutual funds, an attempt has been made to provide information on the comparison of tax saving funds of selected Asset Management Companies such as HDFC, FRANKLIN INDIA, RELIANCE, SBI and ICICI which may help the investors in taking investment decisions. The analysis is also compared with the calculations based on the Standard deviation, Beta values, Correlation, Coefficient of determination, and also Sharpe ratio, Treynors ratio, Jensen measures for the period 2008-12. This paper is carried out to find out the returns of funds thereby studying the performance of the selected tax saving schemes in the market. The investor invests the funds based on the returns, net asset value and also the trend prevailing in the market. KEYWORDS Asset Management Companies, Performance, Tax saving schemes.
  7. 7. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 7 CONTENT Chapter No. Topic Page No. 1 INTRODUCTION 1 - 19 2 REVIEW OF LITRATURE AND RESERCH DESIGN 20 - 29 3 INDUSTRY PROFILE / SELECTED ORGANISATION 30 - 46 4 RESULT, ANALYSIS AND DISCUSSION 47 - 74 5 SUMMARRY OF FINDING, SUGGESTION AND CONCLUSION 75 - 78 BIBLIOGRAPHY 79
  8. 8. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 8 LIST OF TABLES Table No. Title of the Tables Page No. 1.1 Banks v/s Mutual fund 19 3.1 Assets under Management (AUM) 34 3.2 Schemes renamed in HDFC mutual fund 40 3.3 SBI mutual fund schemes offers 43 4.1 Standard Deviation for HDFC Tax Saver 47 4.2 Standard Deviation for Franklin India Tax Shield 48 4.3 Standard Deviation for Reliance Tax Saving Fund 49 4.4 Standard Deviation for SBI Magnum Tax Gain 50 4.5 Standard Deviation for ICICI Prudential Tax Plan 51 4.6 Return vs. Risk estimated of selected tax saving schemes 52 4.7 Return of Franklin India Tax Shield Vs Benchmark's Return 53 4.8 Return of HDFC Tax Saver Fund Vs Benchmark's Return 54 4.9 Return of Reliance Tax Saving Fund Vs Benchmark's Fund 55 4.10 Return of SBI Magnum Tax Gain Fund Vs Benchmark's Fund 56 4.11 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund 57 4.12 Beta Calculation for Franklin India Tax Shield 58 4.13 Beta Calculation for HDFC Tax Saver 59 4.14 Beta Calculation for Reliance Tax Saving Fund 60 4.15 Beta Calculation for SBI Magnum Tax Gain 61 4.16 Beta Calculation for ICICI Prudential Tax Plan 62 4.17 Beta Values estimated of selected tax saving schemes 63
  9. 9. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 9 4.18 Correlation calculation for Franklin India Tax Shield 64 4.19 Correlation calculation for HDFC Tax Saver 65 4.20 Correlation calculation for Reliance Tax Saving Fund 66 4.21 Correlation calculation for SBI Magnum Tax Gain 67 4.22 Correlation calculation for ICICI Prudential Tax Plan 68 4.23 Correlation estimates of selected tax saving schemes 69 4.24 Coefficient of determination estimates of selected tax saving schemes 70 4.25 Statistical Analysis of selected tax saving scheme Performance 74
  10. 10. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 10 LIST OF FIGURES Figure No. Title of the Figures Page No. 1.1 Concept of mutual fund 3 1.2 Organisation structure of mutual fund 4
  11. 11. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 11 LIST OF CHARTS Charts No. Title of the Charts Page No. 4.1 Showing returns Vs risk of selected tax saving schemes 52 4.2 Return of Franklin India Tax Shield Vs Benchmark's Return 53 4.3 Return of HDFC Tax Saver Fund Vs Benchmark's Return 54 4.4 Return of Reliance Tax Saving Fund Vs Benchmark's Fund 55 4.5 Return of SBI Magnum Tax Gain Fund Vs Benchmark's Fund 56 4.6 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund 57 4.7 Beta value Plotted with the Selected tax saving schemes 63 4.8 Correlation on selected tax saving schemes 69 4.9 Coefficient of determination on selected tax saving schemes 70 4.10 Statistical Analysis of selected tax saving schemes Performance 74
  12. 12. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 12 Chapter – 1 Introduction
  13. 13. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 13 INTRODUCTION The Indian financial system based on four basic components like Financial Market, Financial Institutions, Financial Service, Financial Instruments. All are play important role for smooth activities for the transfer of the funds and allocation of the funds. The main aim of the Indian financial system is that providing the efficiently services to the capital market. The Indian capital market has been increasing tremendously during the second generation reforms. The first generation reforms started in 1991 the concept of LPG. (Liberalization, privatization, Globalization). Then after 1997 second generation reforms was started, still the it‟s going on, its include reforms of industrial investment, reforms of fiscal policy, reforms of ex- imp policy, reforms of public sector, reforms of financial sector, reforms of foreign investment through the institutional investors, reforms banking sectors. The economic development model adopted by India in the post independence era has been characterized by mixed economy with the public sector playing a dominating role and the activities in private industrial sector control measures emaciated form time to time. The last two decades have been a phenomenal expansion in the geographical coverage and the financial spread of our financial system. The spared of the banking system has been a major factor in promoting financial intermediation in the economy and in the growth of financial savings with progressive liberalization of economic policies, there has been a rapid growth of capital market, money market and financial services industry including merchant banking, leasing and venture capital, leasing, hire purchasing. Consistent with the growth of financial sector and second generation reforms its need to fruition of the financial sector. Its also need to providing the efficient service to the investor
  14. 14. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 14 mostly if the investors are supply small amount, in that point of view the mutual fund play vital for better service to the small investors. The main vision for the analysis for this study is to scrutinize the performance of five star rated mutual funds, given the weight of risk, return, and assets under management, net assets value, book value and price earnings ratio. Concept of Mutual Fund: Mutual fund is the pool of the money, based on the trust who invests the savings of a number of investors who shares a common financial goal, like the capital appreciation and dividend earning. The money thus collect is then invested in capital market instruments such as shares, debenture, and foreign market. Investors invest money and get the units as per the unit value which we called as NAV (net assets value). Mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in diversified portfolio management, good research team, professionally managed Indian stock as well as the foreign market, the main aim of the fund manager is to taking the scrip that have under value and future will rising, then fund manager sell out the stock. Fund manager concentration on risk – return trade off, where minimize the risk and maximize the return through diversification of the portfolio. The most common features of the mutual fund unit are low cost.
  15. 15. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 15 Mutual funds concept can be well understood with the following diagram Figure: 1.1 Concept of mutual fund Growth of Mutual Fund Industry The history of mutual funds dates support to 19th century when it was introduced in Europe, in particular, Great Britain. Robert Fleming set up in 1868 the first investment trust called Foreign and colonial investment trust which promised to manage the finances of the moneyed classes of Scotland by scattering the investment over a number of different stocks. This investment trust and other investment trusts which were afterward set up in Britain and the U.S., resembled today‟s close – ended mutual funds. The first mutual fund in the U.S., Massachusetts investor‟s trust, was set up in March 1924. This was the open – ended mutual fund. The stock market crash in 1929, the Great Depression, and the outbreak of the Second World War slackened the pace of growth of the mutual fund industry. I N V E S T O R S M U T U A L F U N D S C H E M E S M A R K E T F L U C T U A TI O N INVEST THEIR MONEY INVEST IN VARIETY OF STOCKS/BONDS PROFIT/LOSS FROM PORTFOLIO INVESTMENT PROFIT/LOSS FROM INDIVIDUAL INVESTMENT
  16. 16. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 16 Innovations in products and services increased the popularity of mutual funds in the 1950s and 1960s. The first international stock mutual fund was introduced in the US in 1940. In 1976, the first tax – exempt municipal bond funds emerged and in 1979, the first money market mutual funds were created. The latest additions are the international bond fund in 1986 arm funds in 1990. This industry witnessed substantial growth in the eighties and nineties when there was a significant increase in the number of mutual funds, schemes, assets, and shareholders. In the US the mutual fund industry registered s ten – fold growth the eighties. Since 1996, mutual fund assets have exceeds bank deposits. The mutual fund industry and the banking industry virtually rival each other in size. ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund Figure:1.2 Organisation structure of mutual fund Mutual funds have a unique structure not shared with other entities such as companies of firms. It is important for employees & agents to be aware of the special nature of this structure, because it determines the rights & responsibilities
  17. 17. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 17 of the fund‟s constituents viz., sponsors, trustees, custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the legal structure also drives the inter-relationships between these constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the fund in its custody.  Sponsor:- The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund & registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track record of business interest in the financial markets. Sponsor must have been profit making in at least three of the above five years. He must contribute at least 40% of the capital of the AMC.  Trustees:- The Mutual Fund may be managed by a Board of trustees a of individuals, or a trust company – a corporate body. Most of the funds in India are managed by board of trustees. While the board of trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate body, it would also be required to comply with the provisions of the companies act, 1956. the board of trustee company, as an independent body, act as protector
  18. 18. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 18 of the unit-holders interest. The trustees don‟t directly manage the portfolio of securities. For this specialist function, they appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives & in accordance with the trust deed & SEBI regulations. The trust is created through a document called the trust deed i.e., executed by the fund sponsor in favor of the trustees. The trust deed is required to be stamped as registered under the provision of the Indian registration act & registered with SEBI. The trustees begin the primary guardians of the unit-holders funds & assets, a trustee has to be a person of high repute & integrity.  Asset Management Company (AMC):- The role of an Asset management companies is to act as the investment manager of the trust. They are the ones who manage money of investors. An AMC takes decisions, compensates investors through dividends, maintains proper accounting & information for pricing of units, calculates the NAV, & provides information on listed schemes. It also exercises due diligence on investments & submits quarterly reports to the trustees. AMCs have been set up in various countries internationally as an answer to the global problem of bad loans. Bad loans are essentially of two types: bad loans generated out of the usual banking operations or bad lending, and bad loans which emanate out of a systematic banking crisis. It is in the latter case that banking regulators or governments try to bail out the banking system of a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to bail out the banking system itself.
  19. 19. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 19 Types of AMCs in Indian Context The following are the various types of AMCs we have in India.  AMCs owned by banks.  AMCs owned by financial institutions.  AMCs owned by Indian private sector companies.  AMCs owned by foreign institutional investors.  AMCs owned by Indian & foreign sponsors.  Custodian:- Often an independent organization, it takes custody all securities & other assets of mutual fund. Its responsibilities include receipt & delivery of securities collecting income-distributing dividends, safekeeping of the unit & segregating assets & settlements between schemes. Mutual fund is managed either trust company board of trustees. Board of trustees & trust are governed by provisions of Indian trust act. If trustee is a company, it is also subject Indian Company Act. Trustees appoint AMC in consultation with the sponsors & according to SEBI regulation. All mutual fund schemes floated by AMC have to be approved by trustees. Trustees review & ensure that net worth of the company is according to stipulated norms, every quarter. Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first functionary to be appointed, & is involved in appointment of all other functionaries. The AMC structures the mutual fund products, markets them & mobilizes fund, manages the funds & services to the investors. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre-specifies investment objectives of the fund, the risk
  20. 20. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 20 associated, the cost involved in the process & the broad rules to enter & to exit from the fund & other areas of operation. In India as in most countries, these sponsors need approval from a regulator, SEBI in our case. SEBI looks at track records of the sponsor & its financial strength granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund & perhaps the third one to handle registry work for the unit holder of the fund.  Registrars & Transfer Agent (R & T Agent):- The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investor applications; record details provide by the investors on application forms; send out to investors details regarding their investment in the mutual fund; send out periodical information on the performance of the mutual fund; process dividend payout to investor; incorporate changes in information as communicated by investors; & keep the investor record up-to-date, by recording new investors & removing investors who have withdrawn their funds. TYPES OF MUTUAL FUND SCHEMES 1) By Structure  Open-ended Funds: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
  21. 21. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 21  Closed ended Funds: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.  Interval Funds: Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre- determined intervals at NAV related prices 2) By Investment Objective  Growth Funds: The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.  Income 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 and Government securities. Income Funds are ideal for capital stability and regular income.  Balanced Fund: The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income
  22. 22. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 22 securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.  MoneyMarketFunds: The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. 3) Other Schemes  Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 80C of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.  Gilt Fund: These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
  23. 23. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 23  Special Schemes  Industry Specific Schemes: Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.  Sectoral Schemes: Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.  Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. TAX PLANNING AND MUTUAL FUND Investors in India have option for the tax-saving mutual fund schemes for the simple reason that it helps them to save money. The tax-saving mutual funds or the equity-linked savings schemes (ELSS) receive certain tax exemptions under Section 88 of the Income Tax Act. That is one of the reasons why the investors in India add the tax-saving mutual fund schemes to their portfolio. The tax-saving mutual fund schemes are one of the important types of mutual funds in India that investors can option for. There are several companies in India that offer tax saving mutual fund schemes in the country. While planning our investments we spend a considerable amount of time evaluating various options and determining which suits us the best. But when it comes to planning out investments from a tax saving perspective, more often than not, we simply go the traditional way and do the exact same thing that we did in
  24. 24. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 24 the earlier years. Well, in case you were not aware the guidelines governing such investments are a lot different this year and lethargy on your part to rework your investment plan could cost you dear. TAX SAVING SCHEME Equity Linked Saving Schemes (ELSS): Equity Linked Saving Scheme (ELSS) is also a type of mutual fund and falls under the Equity Mutual Fund category. As the name indicates, ELSS mutual fund invests major portion of its corpus into equity and equity related instruments. But there are some distinct features which makes ELSS plans different from other equity mutual funds. Investments made in ELSS plans are eligible for deduction from the taxable income under Section 80C of the Income Tax Act. There is no limit for investments in ELSS plans, but investments of upto Rs 1,00,000 qualify for income tax benefits. Investments made in normal mutual funds (other than ELSS plans) do not qualify for income tax deduction. Features of an ELSS Plan  ELSS is an equity linked tax saving investment instrument.  Money collected under ELSS plan is mainly invested in equity and equity related instruments.  This financial product is more suited to those investors who are willing to take high risk and looking for high returns.  There is no upper limit on investments that can be made in ELSS. However investments upto INR 1,00,000 made in ELSS in a financial year qualify for deduction from taxable income under Section 80C of the Income Tax Act.
  25. 25. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 25  ELSS comes with a 3 year lock in period.  Long term capital gains earned on investments from ELSS are tax free.  Also dividends earned from ELSS plan are tax free in the hands of the investor. SWOT ANALYSIS SWOT Analysis presents the information about external and internal environment of mutual fund in structured from where by key external opportunity and threats can be compared systematically with internal capabilities and weakness. The basic objectives of SWOT analysis is provide a framework to reflect on the industry capabilities to avail opportunities or to overcome thrats presented by environment. Strength  Full benefit of diversification  Tax benefit  Transparancy & flexibility  Expert investment management Weakness  Lesser return compared to equity  Poor technology & service level  Lack of proper marketing Opportunity  Government policies & Tax concession  Setting up a specific fund  Technology development Threats  Arrival of more private & foreign players  Introduction of more debt instrument in market.
  26. 26. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 26 ADVANTAGES OF INVESTING IN MUTUAL FUNDS There are several that can be attributed to the growing popularities and suitability of mutual funds as an investment vehicle especially for retail investors. a) Professional management: Mutual funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analysis the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. b) Diversification: Mutual funds invest in a number of companies across a broad cross- section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the sane time and in the same proportion. You achieve this diversification through a mutual fund with far less money than you can do on your own. c) Convenient administration: Investing in a mutual fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payment and follow up with brokers and companies. Mutual funds save your time and make investing easy and convenient. d) Return potential: Over a medium to long term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. e) Low costs: Mutual funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
  27. 27. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 27 f) Liquidity: In open ended schemes, the investors get the money back promptly at net asset value related prices from the mutual fund. In closed end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by mutual fund. g) Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager‟s investment strategy and outlook. h) Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. i) Affordability: Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. j) Choice of schemes: Mutual funds offer a family of schemes to suit your varying needs over a lifetime. k) Safety: Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.
  28. 28. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 28 DISADVANTAGES OF INVESTING IN MUTUAL FUNDS  No Guarantees :- No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio.  Dilution :- Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution.  Fees and Expenses :- Most mutual funds charge management and operating fees that pay for the fund‟s management expenses (usually around 1.0% to 1.5% per year for actively managed funds). In addition, some mutual funds charge high sales commissions, and redemption fees.  Management risk :- When we invest in a mutual fund, we depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as we had hoped, we might not make as much money on our investment as we expected.  Taxes :- During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If our fund makes a profit on its sales, we will pay taxes on the income we receive, even if we reinvest the money made. ASSOCIATION OF MUTUAL FUNDS IN INDIA With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.
  29. 29. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 29 AMFI is a apex body of all Asset Management Companies (AMFI) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holder. SEBI Guidelines for Mutual Funds Securities and Exchange Board of India (SEBI) is a board (autonomous body) created by the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with its head office at Mumbai. SEBI (MFs) Regulation 1993, defines Mutual Fund as follows; “Mutual fund means a fund established in the form of a trust by a sponsor to raise money by the Trustees through the sale of units to the public under one or more schemes for investing in Securities in accordance with these Regulations”.  The sponsor has to register the mutual fund with SEBI.  To be eligible to be a sponsor, the body corporate should have a sound track record and a general reputation of fairness and integrity in all his business transactions.  The sponsor should hold at least 40% of the net worth of the AMC.  A party which is not eligible to be a sponsor shall not hold 40% or more of the net worth of the AMC.
  30. 30. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 30  The sponsor has to appoint the trustees, the AMC and the custodian.  The trust deed and the appointment of the trustees have to be approved by SEBI.  An AMC or its officers or employees can not be appointed as trustees of the mutual fund.  At least two thirds of the business should be independent of the sponsor.  Only an independent trustee can be appointed as a trustee of more than one mutual fund, such appointment can be made only with the prior approval of the fund of which the person is already acting as a trustees. Recent Market Trends India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, the Financial Express September, 2012).
  31. 31. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 31 Table 1.1 Banks v/s Mutual fund Characterstics Banks Mutual Fund Returns Low Better Network High penetration Low but improving Administrative exp. High Low Liquidity At a cost Better Risk Low Moderate Quality of assets Not transparent Transparent Interest calculation Minimum balance between 10th & 30th of every month Everyday Investment options Less More
  32. 32. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 32
  33. 33. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 33 Chapter – 2 Review of Literature and Research Design
  34. 34. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 34 INTRODUCTION Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in. Investors in India opt for the tax-saving mutual fund schemes for the simple reason that it helps them to save money. The tax-saving mutual funds or the equity-linked savings schemes (ELSS) receive certain tax exemptions under Section 80C of the Income Tax Act. That is one of the reasons why the investors in India add the tax-saving mutual fund schemes to their portfolio. The tax-saving mutual fund schemes are one of the important types of mutual funds in India that investors can opt for. The present study is carried out to find out the returns of funds thereby studying the performance of the tax saving funds in the market. The investor invests the funds based on the returns, net asset value and also the trend prevailing in the market. Since the market being high volatile there is a need to study the performance and comparative statement of various tax saving funds performing in the market. REVIEW OF THE LITERATURE Early studies on mutual funds included the several works of Treynor (1965), Sharp (1966) and Jensen (1968), who used the capital asset pricing model to compare risk adjusted returns of funds with that of a benchmark market portfolio. The findings of Sharpe and Jensen demonstrated that mutual funds under perform market indexes and suggest that the returns were not sufficient to compensate investors for the diverse mutual fund charges. John and Donald (1974) examined the relationship between the stated fund objectives and their risks-return attributes and concluded that on an average, the fund managers appeared to keep their portfolios within the stated risk. It concludes
  35. 35. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 35 that mutual funds on aggregate offer superior returns but they are offset by expenses and load charges. Barua, Raghunathan and Varma (1991) evaluated the performance of Master Share during the period 1987 to 1991 using Sharpe, Jensen and Treynor measures and concluded that the fund performed better that the market, but not so well as compared to the Capital Market Line. Although emerging markets such as India have attracted the attention of investors all over the world, they have remained devoid of much systematic research, especially in the area of mutual funds. A study by Gupta and Aggarwal (2007) sought to check the performance of mutual funds operation in India. In this regard, quarterly returns performance of all the equity-diversified mutual funds during the period from January 2002 to December 2006 was tested. 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 analyzed 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. 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 is 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
  36. 36. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 36 selected schemes having exposure more than 90percent of corpus to equity stocks of 25 fund houses. The empirical results reported reveal 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. Devasenathipathi (2011) investigated the performance of public-sector and private-sector mutual funds for the period of 2005 to 2007. Selected funds of LIC (Public sector) and Reliance (Private sector) were chosen for the purpose of analysis. Statistical techniques like Mean, Standard Deviation and Coefficient of Variation were applied to study the consistency in returns subject to market risks of each fund. The study revealed that performance of all the funds seemed to be volatile during the study period; as such it was quite difficult to earmark one particular fund that out performed consistently. STATEMENT OF THE PROBLIEM A The Indian capital market has been growing tremendously with the reforms in industry policy, reforms in public and financial sector and new economic policies of liberalization, deregulation and restructuring. The Indian economy has opened up and many developments have been taking place in the Indian capital market and money market with the help of the financial system and financial institution or intermediaries which faster saving and channel them to their most efficient use. The measurement of fund performance has been a topic of increased interest in both the academic and practitioner communities for the last four decades. It is more so because of growing scale of mutual theory. The investment environment is becoming increasingly complex.
  37. 37. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 37 Markets for equity shares, debentures, bonds and other fixed income instruments; real estate, derivatives and other assets have reached their maturity and are driven by latest up-to-date information. A mutual fund is thus the ideal investment vehicle for today‟s complex and modern financial scenario. NEED FOR THE STUDY Generally, most of the investors investing in mutual funds in order to avail tax benefits and also to earn returns, in this connection they would park their funds in the tax saving schemes. A study required to analyze the performance of selected tax saving schemes to fulfill the objectives of the investors. Hence the study has been undertaken. SCOPE OF THE STUDY The study is all about understanding the customer‟s perception to the tax benefit in mutual fund. The purpose of this study of performance evaluation of tax saving mutual funds by taking five selected companies which are ICICI, HDFC, SBI, Relince and Franklin is to employ the resources in such a manner as to afford for the investors combine benefits of low risk, steady returns, high liquidity and capital appreciation through diversification and expert management. OBJECTIVES OF THE STUDY The main objective of the study is to make investors aware of performance and provide information on the comparison of tax saving funds of selected asset management companies. The specific objectives are:  To understand the organisation of mutual fund industry.  To employ performance evaluation measure using risk return models.
  38. 38. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 38  To compare the performance of selected tax saving schemes in comparison with market portfolio.  To measure the comparative beta analysis of selected AMC.  To offer suggestion based on the finding arrived from the study. RESEARCH METHODOLOGY The following research methodology has been adopted for assessing the performance of tax saving funds of selected Asset Management Companies in the market. Sources of data The present study is purely based on secondary data. Top five ELSS schemes were as per their AUM as on 30th June 2012. The sample ELSS schemes are HDFC Tax Saver, ICICI Prudential Tax Plan, Reliance Tax Saver, SBI Magnum Tax Gain and Franklin India Tax shield. The data is collected from the fact sheets, reports, websites, magazines, books and journals etc. are considered. The deviations are properly analyzed. For each of the scheme, the risk ratios (Average return, Beta, Standard Deviation, Correlation, Coefficient of Determination, Sharpe Ratio, Treynor‟s Ratio and Jensen Model) were also observed carefully and correlated with the returns. Accordingly, proper findings were found out and conclusions were drawn about the best performance scheme among all. TOOLS FOR PERFORMANCE MEASURES In this study, the tools used for the analysis are Standard Deviation, Beta, Correlation, Coefficient of Determination, Treynor‟s Ratio, Sharp Ratio and Jensen Measure for a period of 5 years from 2008 to 2012.
  39. 39. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 39  Average Mean: The most popular & widely used measure for representing the entire data by one value is what most layman call an „average‟ & what the statistician call the „arithmetic mean‟. It is obtained by adding together all the items & by dividing this total by the number of items. = Where: = Average Mean ΣX = Sum of the frequency N = Total number of frequency.  Standard Deviation: The degree that a single value in a group of values varies from the mean (average) of the distribution. Standard deviation is a statistical measure that uses past performance of an investment or portfolio to determine the potential range of future performance and assess the probability of that performance. Standard deviations can be calculated for an individual security or for the entire portfolio.  Beta: It describes the relationship between the stock‟s return and the index returns. The beta value may be interpreted in the following manner, „a 1% change in Nifty index would cause a 1.042% (beta) change in the particular fund. It is the slope of characteristic regression line. It signifies that a fund with a beta of more than 1 will rise more than the market and also fall more than market.
  40. 40. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 40 Where, Beta = n – Number of year x – Returns of the index y – Returns of the fund  Correlation: These correlation values indicate the degree to which the fund's performance is related to its market (using the benchmark as a proxy for the market). A high correlation to its benchmark is generally considered to be favorable for the fund if their investment thesis closely follows the benchmark. r =  Cefficent of Determination: the coefficent of determination is useful because it gives the proportion of the variance (fluctuation) of one variable that is predictable from the other variable. It is a measure that allows us to determine how certain one can be in making prediction from the certain model/graph. The coefficent of is the ratio of the explained variation to total variation for e.g: if r = 0.922, then r2 = 0.850, which means 85% of the total variation in y can be explained by the linear relationship between x and y. the other 15% of the total variation are remain unexplained. Coefficent of Determination = r2  Treynor’s Ratio: The Treynor Ratio, named after Jack L. Treynor, one of the fathers of modern portfolio theory, helps analyze returns in relation to the market risk of the fund. The Ratio, also known as the reward-to-volatility ratio, provides a measure of performance adjusted for market risk. Higher
  41. 41. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 41 the Treynor Ratio, the better the performance under analysis. It is a ratio that helps the portfolio managers to determine the excess return generated as the difference between the fund‟s return and the risk free return. The excess return to beta ratio measures the additional return on a fund per unit of systematic risk. Ranking of the funds is done based on this ratio. Treynor‟s Ratio = Where, p – Avarage return on portfolio. Rf – Risk free rate of return. βp – Beta on portfolio  Sharpe ratio: The Sharpe index measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. The Sharpe measure should only be used for portfolios but not for single securities. The sharpe ratio tells us whether the returns of a portfolio are because of smart investment decisions or a result of excess risk. This risk premium is difference between the portfolios average rate of return & the riskfree rate of interest dividing the result by the standard deviation of the portfolio return. Thus, Where, Sharp ratio = p – Avarage return on portfolio. Rf – Risk free rate of return. σ – Standard deviation on portfolio
  42. 42. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 42  Jensens Model: Jansen‟s model proposes another risk adjusted performance measure. Michael Jenson developed this measure and is something referred as the differential return method. This measure involves evaluation of returns that the fund has generated Vs the return actually out of the fund given at that level of systematic risk. The surplus between the two returns in called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required rate of return on fund at a given level of Beta. p- Where: p = Portfolio beta Rp = Average return of portfolio Rf = Risk free rate of return Rm = Average market return LIMITATIONS OF STUDY  The study was limited by the time constraint; hence extent to study is not possible.  The study was limited to 5 companies only.  The policy and application are applicable to the particular assessment year only.
  43. 43. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 43  The analysis and interpretation purely based on the data collected from various website. The accuracy of interpretation depends upon the accuracy of these data.  The return from the mutual fund depends upon the returns of the securities involved in the portfolio. The return from the market depends upon the efficiency of the market and other various factor affecting the fund and economy as a whole. So the researcher doesn‟t claim the 100% accuracy of the result conducted from the study. CHAPTER SCHEME The study is structured into five chapters.  Chapter one is deal with an overview of Mutual Funds. It covers the aspects such as introduction, type of Mutual Funds, organisation setup, regulation, risk and market trend, advantages of investing in Mutual Funds and tax benefits.  Chapter two reviews the literatures that focus on the performance of tax saving schemes. This chapter provides insights into the tools they have used and their findings that form the basis for the present study and Research design for the study.  Chapter three presents an overview of the industry profile and sample companies selected for the purpose of this study.  Chapter four is devoted to results, analysis and discussions.  Chapter five provides the major findings of the study and the policy implications.
  44. 44. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 44 Chapter – 3 Profile of Industry/ Selected Companies
  45. 45. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 45 INDUSTRY PROFILE The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. History – The Landmarks 1963: UTI is India‟s first mutual fund. 1964: UTI launches US-64. 1971: UTI‟s ULIP (Unit-Linked Insurance Plan) is second scheme to be Launched. 1986: UTI Master share, India‟s first true „mutual fund‟ scheme, launched.
  46. 46. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 46 1987: PSU banks and insurers allowed floating mutual funds; State Bank of India (SBI) first off the blocks. 1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in shares and mutual funds. 1993: Private sector and foreign players allowed; Kothari Pioneer first private fund house to start operations; SEBI set up to regulate industry. 1994: Morgan Stanley is the first foreign player. 1996: Sebi‟s mutual fund rules and regulations, which forms the basis of most current laws, come into force. 1998: UTI Master Index Fund is the country‟s first index fund. 1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisition in the mutual fund industry. 2000: The industry‟s assets under management crosses Rs 1, 00,000 crore. 2001: US-64 scam leads to UTI overhaul. 2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned from giving commissions to investors; floating rate funds and Foreign debt funds debut. 2003: AMFI certification made compulsory for new agents; fund of funds launched.
  47. 47. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 47 The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases. 1. First Phase - 1964-87 (UTI MONOPOLY) Unit Trust of India (UTI) was established on 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. 2. Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management. 3. 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
  48. 48. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 48 (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. 4. Fourth Phase - since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003). 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 Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM 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. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
  49. 49. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 49 Table 3.1 Assets under Management (AUM) AS ON 31st MARCH AUM (Rs. Crores) 1965 24.67 1970 88.30 1975 169.95 1980 455.30 1985 2,209.61 1990 19,130.92 1995 72,967.17 2000 103,452.98 2005 486,650 2010 7,15,466 2012 5,87,217 RISK FACTORS IN MUTUAL FUND Just like in any other investment, Mutual Fund investment also carry certain risks, the risks in particular scheme of a mutual fund is a basically a function of five factor.  Market Risk :- In generally, there are certain risks associated with every kind of investments of shares. They are called market risks. The market risks can be reduced. But cannot be completely eliminated even by good investment management. The prices of shares are subjected to wide price fluctuations depending upon market conditions. Eg, cycle – boom & slump and recovery.
  50. 50. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 50  Credit Risk :- The debt servicing ability of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A „AAA‟ rating is considered the safest whereas a „D‟ rating is considered poor credit quality. A well – diversified portfolio might help mitigate this risk.  Scheme Risks :- There are certain risks inherent in the scheme itself. T all depends upon the nature of the scheme. For instance, in a pure growth scheme, risks are greater. It is obvious because if one expects more returns an in the case of a growth scheme, one has to take more risks.  Investment Risks :- Whether the Mutual Fund makes money in shares or loses depends upon the investment expertise of the Asset management Company (AMC). If the investment advice goes wrong, the fund has to suffer a lot. The investment expertises of various funds are different and it is reflected on the returns which they offer to investors.  Business Risk :- The corpus of a Mutual Fund might have been invested in company‟s shares. If the business of that company suffers any set back, it cannot declare any dividend.  Political Risk :- Successive Governments bring with them fancy new economy ideologies and policies. It is often said that many economy decisions are politically motivated. Changed in Government bring in the risk of uncertainty which every player in the financial service industry has to face. So Mutual Funds are no exception to it.
  51. 51. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 51  Liquidity Risk :- Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. It can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. It simply means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.). This kind of a diversification may add to the stability of your returns, for example, during one period of time equities might under perform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity Markets.  Inflation Risk :- Inflation is the loss of purchasing power over a time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could, at the time of investment. A well–diversified portfolio with some investment in equities might help mitigate this risk. COMPANY PROFILE ABOUT ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY ICICI Prudential Asset Management Company Ltd. (IPAMC/ the Company) is the joint venture between ICICI Bank, a well-known and trusted name in financial services in India and Prudential Plc, one of UK‟s largest players in the financial services sectors. IPAMC was incorporated in the year 1993. The Company in a span of over 18 years since inception and just over 13 years of the Joint Venture, has forged a position of preeminence in the Indian Mutual Fund industry as the third largest asset management company in the country, contributing significantly to the growth of the Indian mutual fund industry.
  52. 52. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 52 The Company manages significant Mutual Fund Asset Under Management (AUM), in addition to Portfolio Management Services and International Advisory Mandates for clients across international markets in asset classes like Debt, Equity and Real Estate with primary focus on risk adjusted returns. IPAMC has witnessed substantial growth in scale. From merely 2 locations and 6 employees during inception to the current strength of over 700 employees with reach across around 150 locations, the growth momentum of the Company has been exponential. The organization today is an ideal mix of investment expertise, resource bandwidth & process orientation. IPAMC‟s Endeavour is to bridge the gap between savings & investments to help create long term wealth and value for investors through innovation, consistency and sustained risk adjusted performance ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$ 93 billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the year ended March 31, 2012. The Bank has a network of 2,890 branches and 10,021 ATMs in India, and has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. Prudential PLC Established in London in 1848, Prudential plc, through its businesses in the UK and Europe, the US and Asia, provides retail financial services products and services to more than 26 million customers, policyholder and unit holders worldwide. Today, Prudential has millions of customers worldwide and over £363
  53. 53. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 53 billion (as of 30 June 2012) of funds under management. In Asia, Prudential is the leading European life insurance company with a vast network of life and fund management operations in thirteen countries - China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, Vietnam and United Arab Emirates. The ICICI Prudential edge comes from our commitment to our customers, in all that we do be it product development, distribution, the sales process or servicing. Here's a peek into what makes us leaders. The AMC has secured a leading position in the Indian mutual fund industry with AUM of Rs.1.5 lakh millions as on March 31, 2012. The AMC manages a comprehensive range of Schemes to meet the varying investment needs of its investors spread across various cities through its 264 Official Point of Transactions in the country. Starting with an AUM base of Rs. 160 crores in May 1998, ICICI prudential has successfully managed to grow its assets by over 200 times to Rs. 1.5 lakh crore (as on March 31, 2012). Having started with 2 schemes in 1998, the company currently has over 30 schemes in its product portfolio. In order to address the issue of penetration and to offer customer convenience, the company has expanded its network from a presence in merely 2 cities to more than 80 cities across India.
  54. 54. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 54 ABOUT HDFC ASSET MANAGEMENT COMPANY LIMITED HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. Investment Philosophy The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the latest "fads" and trends. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.169 crore. Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals.
  55. 55. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 55 On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003. These Schemes have been renamed as follows: Table 3.2 Schemes renamed in HDFC mutual fund Former Name New Name Zurich India Equity Fund HDFC Equity Fund Zurich India Prudence Fund HDFC Prudence Fund Zurich India Capital Builder Fund HDFC Capital Builder Fund Zurich India TaxSaver Fund HDFC TaxSaver Zurich India Top 200 Fund HDFC Top 200 Fund Zurich India High Interest Fund HDFC High Interest Fund Zurich India Liquidity Fund HDFC Cash Management Fund Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund* AWARDS & RECOGNITION  ICRA Mutual Fund Awards 2012  Bloomberg UTV Financial Leadership Awards, 2012  Outlook Money Awards 2011  CNBC-TV18-CRISIL Mutual Fund Awards 2012 HDFC TaxSaver (ELSS) The nature of the scheme is open ended equity linked savings (ELSS) scheme with a lock-in period of 3 years. It will be comes in market at March 31, 1996. The
  56. 56. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 56 minimum application amount is for new & existing investors Rs.500 and in multiples of Rs. 500 thereafter. FRANKLIN TEMPLETON MUTUAL FUND FTMF has been constituted as a Trust on January 4, 1996 in accordance with the provisions of the Indian Trusts Act, 1882 and the Deed of Trust is registered under the Indian Registration Act, 1908. FTMF has been sponsored by Templeton International Inc. (liability restricted to the seed corpus of Rs.l lakh) with Franklin Templeton Trustee Services Pvt. Ltd. (“Trustee”) as the Trustee. The Trustee has entered into an Investment Management Agreement dated January 5, 1996 with Franklin Templeton Asset Management (India) Pvt. Ltd. (“AMC”) appointing the AMC as the Investment Manager for all the schemes of FTMF. FTMF is registered with SEBI on February 19, 1996. Templeton International Inc. is a part of the Franklin Templeton Group, which is one of the largest Investment Management Company with US$683.5 bln (approximately Rs.3,856,478 crore) in assets under management as on May 31, 2012 and around 26 million Shareholder Accounts. Franklin Templeton has offices in over 30 countries including the United States of America, Bahamas, Canada, Argentina, France, Germany, Italy, Luxembourg, Poland, Russia, the United Kingdom, Hong Kong, Singapore, Korea, India, China, Australia and South Africa. Review of activities of Franklin Templeton Mutual Fund: During the year under review, the Mutual Fund continued to focus on launching meaningful products with investment objectives that are relevant to investors. The Mutual Fund launched Templeton India Corporate Bond Opportunities Fund, an open end debt fund investing in corporate bonds, mobilizing over Rs.250 crore, FT India Feeder - Franklin U.S. Opportunities Fund, a fund of funds scheme investing in the
  57. 57. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 57 units of Franklin U. S. Opportunities Fund, an overseas fund that invests primarily in U. S. securities, mobilizing over Rs.100 crore and Franklin Templeton Fixed Tenure Fund Series XVI mobilizing over Rs.68 crore. As a part of product rationalization process to make the offerings more meaningful and easy to understand for investors and to reduce product overlap between similar schemes, few schemes / plans were merged during the year. The Liquid Plan of Templeton India Treasury Management Account (TITMA) was merged into Regular Plan of TITMA effective September 4, 2011. Franklin FMCG Fund and Franklin Pharma Fund merged into Franklin India Prima Plus effective September 9, 2011. Franklin India Index Tax Fund (FITF) merged into Franklin India Index Fund – NSE Nifty Plan effective September 9, 2011. Franklin India Index Tax Fund (FITF) was launched in February 2001 as open end passively managed ELSS scheme. The scheme invested in companies, whose securities are part of the S&P CNX Nifty, with the aim to generate returns commensurate with S&P CNX Nifty. As part of our product rationalization process and with a view to reduce overlap between similar schemes, it was decided to merge FITF with the Growth Option under the Nifty Plan of Franklin India Index Fund. The effective date of the merger was September 9, 2011. As on March 31, 2012, the Mutual Fund served more than 20 lakh active investors through its 34 branches and 105 offices of our collection partners across India. Frankline India Tax Sheild The nature of the scheme is open ended equity linked savings (ELSS) scheme with a lock-in period of 3 years. It will be comes in market at April 10 1999. The minimum application amount is for new & existing investors Rs.500 and in multiples of Rs. 500 thereafter.
  58. 58. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 58 ABOUT SBI FUNDS MANAGEMENT LTD (SBIFM) SBI Funds Management Ltd. is the investment manager of SBI Mutual Fund. SBI Mutual Fund has been constituted as a trust, sponsored by State Bank India. Today the Fund has an investor base of over 2.8 million spread over 23 schemes. With a large network of collecting branches and investor service centers, SBI Mutual Fund constantly endeavors to get closer to its growing family of investors. SBI is the largest public sector Bank in India with 8,836 branches all over India. SBI is the leader in providing loans to trade & industry. It also provides related services, which generate significant fee- based income. It has also identified project finance and consumer banking as key areas. Currently the SBI Mutual Fund offers 177 schemes in with different investment objective and needs, as follows. Table 3.3 SBI mutual fund schemes offers No. of schemes including options 177 Equity Schemes 36 Debt Schemes 115 Short term debt Schemes 11 Equity & Debt 3 Money Market 0 Gilt Fund 12 SBI Mutual fund is India‟s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. The fund traces its lineage to SBI India‟s largest banking enterprise. The
  59. 59. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 59 institution has grown immensely since its inception and today it is India‟s largest bank patronized by over 80% of the top corporate houses of the country. Started in July 1987, the fund has launched 67 schemes and successfully redeemed 15 schemes. In the process, it has rewarded its investors handsomely with consistently high returns. A total of over 3.5 million investors have reposed their faith in the wealth generation expertise of the mutual fund. Schemes of the mutual fund have consistently outperformed benchmarks indices and have emerged as the preferred investment for the millions of investors. Today the fund manages Rs.29492.9685 crore as on Mar 31, 2012 of assets and has diversified profile of investors actively parking their investments across 37 active schemes. The fund serves this vast family of investors by reaching out to them through network of 100 collection branches, 26 investor service centers, 28 investor service desks, and 52 district organizers. SBI Mutual fund is the first bank sponsored fund to launch an off-shore fund called Resurgent India Opportunity Fund Growth through innovation and stable investment policies is the SBI mutual fund. SBI Magnum Tax Gain (ELSS) The nature of the scheme is open ended equity linked savings (ELSS) scheme with a lock-in period of 3 years. It will be comes in market at 1996. The minimum application amount is for new & existing investors Rs.500 and in multiples of Rs. 500 thereafter.
  60. 60. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 60 ABOUT RELIANCE MUTUAL FUND Reliance Mutual Fund ('RMF') is one of India‟s leading Mutual Funds, with Average Assets under Management (AUM) of Rs. 90,636 Crores and an investor count of over 58.42 and 64.53 Lakh folios. (AUM and investor count as of Oct to Dec '12). Reliance Mutual Fund, a part of the Reliance Group, is one of the fastest growing mutual funds in India. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 179 cities across the country. Reliance Mutual Fund constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. Reliance Capital Asset Management Limited („RCAM‟) is the asset manager of Reliance Mutual Fund. RCAM is a subsidiary of Reliance Capital Limited (RCL). Presently, RCL holds 65.23% of its total issued and paid-up equity share capital and the balance of its issued and paid up equity share capital is held by other shareholders which includes Nippon Life Insurance Company (“NLI”), holding 26% of RCAM‟s total issued and paid up equity share capital. NLI acquired the said 26% share holding in RCAM on August 17, 2012. Reliance Capital Ltd. is one of India‟s leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial services. Reliance Mutual Fund (RMF) was initially set up as a Trust in accordance with the provisions of the Indian Trust Act, 1882 by Reliance Capital Limited acting as a
  61. 61. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 61 Settler /Sponsor, vide a Trust Deed dated April 25, 1995 (the “Original Trust Deed”).The Original Trust Deed was duly registered under the Indian Registration Act, 1908. The Original Trust Deed was subsequently amended from time to time. In order to consolidate all amendments to the Original Trust Deed in one document, an Amended and Restated Trust Deed was executed on March 15, 2011 (the “Amended and Restated Trust Deed”). The Amended and Restated Trust Deed was subsequently registered under the Indian Registration Act, 1908 and the Amended and Restated Trust Deed was duly filed with SEBI. Reliance Capital Trustee Co. Limited entered into an Investment Management Agreement dated May 12, 1995 with Reliance Capital Asset Management Ltd. (RCAM) to function as the Investment Manager for all the Schemes of RMF.
  62. 62. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 62 Chapter – 4 Results, Analysis and Discussions
  63. 63. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 63 CALCULATION OF STANDARD DEVIATION OF SELECTED FUNDS 1. HDFC Tax Saver Table 4.1 Standard Deviation for HDFC Tax Saver Average Return ( y) = = 77.91/5 = 15.58 ∑dy 2 = 9962.43 Variance = = 9962.43/4 = 2490.61 Standard Deviation (S.D) = = 49.90 YEAR RETURN (Y) AVERAGE RETURN ( y) dy = (Y- ) dy 2 2008 -51.55 15.58 -35.97 1293.84 2009 99.07 15.58 83.49 6970.58 2010 26.42 15.58 10.84 117.55 2011 -22.62 15.58 38.2 1459.24 2012 26.59 15.58 11.01 121.22 Total 77.91 9962.43
  64. 64. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 64 2. Franklin India Tax Shield Table 4.2 Standard Deviation for Franklin India Tax Shield Average Return ( y) = = 67.25/5 = 13.45 ∑dy 2 = 9373.86 Variance = = 9373.86/4 = 2343.47 Standard Deviation (S.D) = = 48.41 YEAR RETURN (Y) AVERAGE RETURN ( y) dy = (Y - ) dy 2 2008 -49.22 13.45 -62.67 3927.53 2009 78.81 13.45 65.36 4271.93 2010 23.47 13.45 10.02 100.40 2011 -15.19 13.45 -28.64 820.24 2012 29.38 13.45 15.93 253.76 Total 67.25 9373.86
  65. 65. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 65 3. Reliance Tax Saving Fund Table 4.3 Standard Deviation for Reliance Tax Saving Fund Average Return ( y) = = 73.97/5 = 14.79 ∑dy 2 = 11585.35 Variance = = 11585.35/4 =2896.34 Standard Deviation (S.D) = = 53.82 YEAR RETURN (Y) AVERAGE RETURN ( y) dy = (Y - ) dy 2 2008 -52.35 14.79 -67.14 4507.78 2009 82.01 14.79 67.22 4518.53 2010 22.49 14.79 7.7 59.29 2011 -24.23 14.79 -39.02 1522.56 2012 46.05 14.79 31.26 977.19 Total 73.97 11585.35
  66. 66. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 66 4. SBI Magnum Tax Gain Table 4.4 Standard Deviation for SBI Magnum Tax Gain Average Return ( y) = = 55.32/5 = 11.06 ∑dy 2 = 11759.78 Variance = = 11759.78/4 = 2939.95 Standard Deviation (S.D) = = 54.22 YEAR RETURN (Y) AVERAGE RETURN ( y) dy = (Y - ) dy 2 2008 -54.86 11.06 -65.92 4345.45 2009 86.41 11.06 75.35 5677.62 2010 12.98 11.06 1.92 2.69 2011 -23.50 11.06 -34.56 1194.39 2012 34.29 11.06 23.23 539.63 Total 55.32 11759.78
  67. 67. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 67 5. ICICI Prudential Tax Plan Table 4.5 Standard Deviation for ICICI Prudential Tax Plan Average Return ( y) = = 93.75/5 = 18.75 ∑dy 2 = 16496.93 Variance = = 16496.93/4 = 4124.23 Standard Deviation (S.D) = = 64.22 YEAR RETURN (Y) AVERAGE RETURN ( y) dy = (Y - ) dy 2 2008 -56.03 18.75 -74.78 5592.05 2009 112.00 18.75 93.25 8695.56 2010 24.11 18.75 5.36 28.73 2011 -23.96 18.75 -42.71 1824.14 2012 37.63 18.75 18.88 356.45 Total 93.75 16496.93
  68. 68. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 68 Standard deviation and return of selected tax saving schemes Table 4.6 Return vs. Risk estimeted of selected tax saving schemes Chart 4.1 Showing returns Vs risk of selected tax saving schemes Inference: From the table 4.6 shows that average return and standard deviation details. From the table it can be seen that ICICI fund making highest average return of 18.75% during the period. However it‟s also facing highest risk of 64.22 of all the four funds. The SBI fund, HDFC fund, Franklin india funds and Relience fund are making similar amount average return but risk is not much higier. 0 10 20 30 40 50 60 70 Return Standard Deviation Fund Return Standard deviation HDFC 15.58 49.90 Franklin 13.45 48.41 Reliance 14.49 53.82 SBI 11.06 54.22 ICICI 18.75 64.22
  69. 69. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 69 COMPARISION BETWEEN RETURNS OF FUND AND BENCHMARK RETURNS 1. Franklin India Tax Shield Table 4.7 Return of Franklin India Tax Shield Vs Benchmark's Return Year Returns on fund (y) Returns on index(x) 2008 -49.22 -51.79 2009 78.81 75.76 2010 23.47 17.95 2011 -15.19 -24.62 2012 29.38 27.70 Chart 4.2 Return of Franklin India Tax Shield Vs Benchmark's Return Inference: From table 4.7 show that that the fund yielded 78.81% return while index return is 75.76% in 2009 will be higher as compare to all year. In the year 2008 index return is -51.79% while fund return is -49.22% that shows fund will not perform well. -60 -40 -20 0 20 40 60 80 100 2008 2009 2010 2011 2012 Return on Fund (Y) Return on Index (X)
  70. 70. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 70 2. HDFC Tax Saver Table 4.8 Return of HDFC Tax Saver Fund Vs Benchmark's Return Year Returns on fund (y) Returns on index (x) 2008 -51.55 -51.79 2009 99.07 75.76 2010 26.42 17.95 2011 -22.62 -24.62 2012 26.59 27.70 Chart 4.3 Return of HDFC Tax Saver Fund Vs Benchmark's Return Inference: From the table 4.8 it is found that the HDFC tax saver fund will be performed well in 2009 which is 99.07% return of fund while index return is 75.76%. -60 -40 -20 0 20 40 60 80 100 120 2008 2009 2010 2011 2012 Return on Fund (Y) Return on Index (X)
  71. 71. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 71 3. Reliance Tax Saving Fund Table 4.9 Return of Reliance Tax Saving Fund Vs Benchmark's Fund Year Returns on fund (y) Returns on index(x) 2008 -52.35 -51.79 2009 82.01 75.76 2010 22.49 17.95 2011 -24.23 -24.62 2012 46.05 27.70 Chart 4.4 Return of Reliance Tax Saving Fund Vs Benchmark's Fund Inference: In table 4.9 shows that the fund yielded 82.01% return while index return is 75.76% in 2009. In the year 2008 index return is -51.79% while fund return is -52.35%. so that in year 2009 Reliance fund performe well. -60 -40 -20 0 20 40 60 80 100 2008 2009 2010 2011 2012 Return on Fund (Y) Return on Index (X)
  72. 72. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 72 4. SBI MAGNUM TAX GAIN Table 4.10 Return of SBI Magnum Tax Gain Fund Vs Benchmark's Fund Year Returns on fund (y) Returns on index(x) 2008 -54.86 -51.79 2009 86.41 75.76 2010 12.98 17.95 2011 -23.50 -24.62 2012 34.29 27.70 Chart 4.5 Return of Sbi Magnum Tax Gain Fund Vs Benchmark's Fund Inference: From the table 4.10 found that the fund yielded 86.41% return while index return is 75.76% in 2009. In the year 2008 index return is -51.79% while fund return is -54.86%. it shows that in 2008 fund and market are not performed. -80 -60 -40 -20 0 20 40 60 80 100 2008 2009 2010 2011 2012 Return on Fund (Y) Return on Index (X)
  73. 73. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 73 5. ICICI PRUDENTIAL TAX PLAN Table 4.11 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund Year Returns on fund (y) Returns on index(x) 2008 -56.03 -51.79 2009 112.00 75.76 2010 24.11 17.95 2011 -23.96 -24.62 2012 37.63 27.70 Chart 4.6 Return of ICICI Prudential Tax Plan Vs Benchmark's Fund Inference: Table 4.11 shows that the fund yielded 112% return while index return is 75.76% in 2009. It shows higher return amoung all the year. -80 -60 -40 -20 0 20 40 60 80 100 120 140 2008 2009 2010 2011 2012 Return on Fund (Y) Return on Index (X)
  74. 74. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 74 CALCULATION OF BETA VLAUES 1. Franklin India Tax Shield Table 4.12 Beta Calculation for Franklin India Tax Shield Year Returns on Fund (Y) Returns on Index (X) XY 2008 -49.22 -51.79 2549.10 2682.20 2009 78.81 75.76 5970.65 5739.58 2010 23.47 17.95 421.29 322.20 2011 -15.19 -24.62 373.98 606.14 2012 29.38 27.70 813.83 767.29 Total 67.25 45 10128.85 10117.41 Beta = = 5(10128.85)-(45*67.25)/5*(10117.41)-(45)2 = 0.98
  75. 75. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 75 2. HDFC Tax Saver Table 4.13 Beta Calculation for HDFC Tax Saver Year Returns on Fund (Y) Returns on Index (X) XY 2008 -51.55 -51.79 2669.77 2682.20 2009 99.07 75.76 7505.54 5739.58 2010 26.42 17.95 474.24 322.20 2011 -22.62 -24.62 556.90 606.14 2012 26.59 27.70 736.54 767.29 Total 77.91 45 11943 10117.41 Beta = = 5(11943)-(45*77.91)/5(10117.41)-(45)2 =1.16
  76. 76. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 76 3. RELIANCE Tax Saving Fund Table 4.14 Beta Calculation for Reliance Tax Saving Fund Year Returns on Fund (Y) Returns on Index (X) XY 2008 -52.35 -51.79 2711.21 2682.20 2009 82.01 75.76 6213.07 5739.58 2010 22.49 17.95 403.70 322.20 2011 -24.23 -24.62 596.78 606.14 2012 46.05 27.70 1275.59 767.29 Total 73.97 45 11200.35 10117.41 Beta = = 5(11200.35)-(45*73.97)/5(10117.41)-(45)2 = 1.08
  77. 77. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 77 4. SBI Magnum Tax Gain Table 4.15 Beta Calculation for SBI Magnum Tax Gain Year Returns on Fund (Y) Returns on Index (X) XY 2008 -54.86 -51.79 2841.20 2682.20 2009 86.41 75.76 6546.42 5739.58 2010 12.98 17.95 233 322.20 2011 -23.50 -24.62 578.57 606.14 2012 34.29 27.70 949.83 767.29 Total 55.32 45 11149.02 10117.41 Beta = = 5(11149.02)-(45*55.32)/5(10117.41)-(45)2 = 1.10
  78. 78. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 78 5. ICICI Prudential Tax Plan Table 4.16 Beta Calculation for ICICI Prudential Tax Plan Year Returns on Fund (Y) Returns on Index (X) XY 2008 -56.03 -51.79 2901.79 2682.20 2009 112.00 75.76 8485.12 5739.58 2010 24.11 17.95 432.77 322.20 2011 -23.96 -24.62 589.90 606.14 2012 37.63 27.70 1042.35 767.29 Total 93.75 45 13451.93 10117.41 Beta = = 5(13451.93)-(45*93.75)/5(10117.41)-(45)2 = 1.29
  79. 79. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 79 BETA VALUES OF FIVE SCHEMES Table 4.17 Beta Values estimated of selected tax saving schemes Chart 4.7: Beta value plotted with the selected tax saving schemes Inference: The result of beta is present in table 4.17. It shows that only Franklin India tax shield fund beta value is (0.98< 1), that means only Franklin India tax shield fund will be performed in defensive way as compare to all the other selected tax saving schemes. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 ICICI Pru. Tax Plan SBI Magnum Tax Gain HDFC Tax Saver Fund Reliance Tax saving Fund Franklin India Tax Shield Beta Value Index Fund Beta value Findings ICICI Prudential Tax Plan 1.29 Aggressive SBI Magnum Tax Gain 1.10 Aggressive HDFC Tax Saver Fund 1.16 Aggressive Reliance Tax saving Fund 1.08 Aggressive Franklin India Tax Shield 0.98 Defensive
  80. 80. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 80 CALCULATION OF CORRELATION 1. Franklin India Tax Shield Table 4.18 Correlation calculation for Franklin India Tax Shield Year Returns on Fund (Y) Returns on Index (X) dy = (Y - ) dx = (X – ) dy 2 dx 2 dx dy 2008 -49.22 -51.79 -62.67 -60.79 3927.53 3695.42 3809.71 2009 78.81 75.76 65.36 66.76 4271.93 4456.89 4363.43 2010 23.47 17.95 10.02 8.95 100.40 80.10 89.68 2011 -15.19 -24.62 -28.64 -33.62 820.24 1130.30 964.22 2012 29.38 27.70 15.93 18.7 253.76 349.69 297.89 Total 67.25 45 9373.86 9712.4 5205.13 Average Return ( x) = ( x) = = 9 r = r = = 0.732
  81. 81. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 81 2. HDFC TAX SAVER TABLE 19 Correlation calculation for HDFC Tax Saver Year Returns on Fund (Y) Returns on Index (X) dy = (Y - ) dx = (X – ) dy 2 dx 2 dx dy 2008 -51.55 -51.79 -35.97 -60.79 1293.84 3695.42 2186.62 2009 99.07 75.76 83.49 66.76 6970.58 4456.89 5573.79 2010 26.42 17.95 10.84 8.95 117.55 80.10 97.02 2011 -22.62 -24.62 38.2 -33.62 1459.24 1130.30 1284.29 2012 26.59 27.70 11.01 18.7 121.22 349.69 205.89 Total 77.91 45 9962.43 9712.4 9347.61 Average Return ( x) = ( x) = = 9 r = r = = 0.950
  82. 82. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 82 3. RELIANCE TAX SAVING FUND TABLE 4.20 Correlation calculation for Reliance Tax Saving Fund Year Returns on Fund (Y) Returns on Index (X) dy = (Y - ) dx = (X – ) dy 2 dx 2 dx dy 2008 -52.35 -51.79 -67.14 -60.79 4345.45 3695.42 4081.44 2009 82.01 75.76 67.22 66.76 5677.62 4456.89 4487.61 2010 22.49 17.95 7.7 8.95 2.69 80.10 68.92 2011 -24.23 -24.62 -39.02 -33.62 1194.39 1130.30 1311.85 2012 46.05 27.70 31.26 18.7 539.63 349.69 584.56 Total 73.97 45 11759.78 9712.4 10534.38 Average Return ( x) = ( x) = = 9 r = r = = 0.986
  83. 83. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 83 4. SBI MAGNUM TAX GAIN TABLE 4.21 Correlation calculation for Sbi Magnum Tax Gain Year Returns on Fund (Y) Returns on Index (X) dy = (Y - ) dx = (X – ) dy 2 dx 2 dx dy 2008 -54.86 -51.79 -65.92 -60.79 4345.45 3695.42 4120.95 2009 86.41 75.76 75.35 66.76 5677.62 4456.89 4487.60 2010 12.98 17.95 1.92 8.95 2.69 80.10 68.92 2011 -23.50 -24.62 -34.56 -33.62 1194.39 1130.30 1311.85 2012 34.29 27.70 23.23 18.7 539.63 349.69 584.56 Total 55.32 45 11759.78 9712.4 10573.88 Average Return ( x) = ( x) = = 9 r = r = = 0.989
  84. 84. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 84 5. ICICI PRUDENTIAL TAX PLAN TABLE 4.22 Correlation calculation for ICICI Prudential Tax Plan Year Returns on Fund (Y) Returns on Index (X) dy = (Y - ) dx = (X – ) dy 2 dx 2 dx dy 2008 -56.03 -51.79 -74.78 -60.79 5592.05 3695.42 4545.87 2009 112.00 75.76 93.25 66.76 8695.56 4456.89 6225.37 2010 24.11 17.95 5.36 8.95 28.73 80.10 47.97 2011 -23.96 -24.62 -42.71 -33.62 1824.14 1130.30 1435.91 2012 37.63 27.70 18.88 18.7 356.45 349.69 353.06 Total 93.75 45 16493.93 9712.4 12608.18 Average Return ( x) = ( x) = = 9 r = r = = 0.996
  85. 85. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 85 CORRELATION VALUES OF FIVE SCHEMES Table 4.23 Correlation estimates of selected tax saving schemes Chart 4.8 Correlation on selected tax saving schemes Inference: Table 4.23 present the result of correlation estimated of selected tax saving schemes the analysis reveals that all the scheme are highly correlated with market index suggesting direct relationship between returns of tax saving schemes and benchmark index. It shows that the results follow the market index. Fund Correlation (r) Franklin India Tax Shield 0.732 HDFC Tax Saver Fund 0.950 Reliance Tax saving Fund 0.986 SBI Magnum Tax Gain 0.989 ICICI Prudential Tax Plan 0.996 0 0.2 0.4 0.6 0.8 1 1.2 Correlation Correlation
  86. 86. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 86 COEFFICIENT OF DETERMINATION OF FIVE SELECTED SCHEMES Table 4.24 Coefficient of determination estimates of selected tax saving schemes Chart 4.9 Coefficient of determination on selected tax saving schemes Inference: The result of coefficient of determination is present in table 4.24. It shows the percentage of variation attributes to the market movement. It is seen that except Franklin India all other scheme are highest values of (r2 ) indicates that much of the variation in return of the scheme are return by market. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Franklin India Tax Shield HDFC Tax Saver Fund Reliance Tax saving Fund SBI Magnum Tax Gain ICICI Pru. Tax Plan Correlation Coefficient of Determination Fund Correlation (r) Coefficient of Determination (r2 ) Franklin India Tax Shield 0.732 0.535 HDFC Tax Saver Fund 0.950 0.903 Reliance Tax saving Fund 0.986 0.972 SBI Magnum Tax Gain 0.989 0.978 ICICI Prudential Tax Plan 0.996 0.992
  87. 87. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 87 MEASURING THE PERFORMANCE OF THE SCHEMES 1. Treynor Ratio Treynor ratio = Franklin = = 5.56 HDFC = = 6.53 Relience = = 6.01 SBI = = 2.78 ICICI = = 8.33
  88. 88. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 88 2. Sharpe Ratio Sharpe Ratio = Franklin = = 0.113 HDFC = = 0.152 Relience = = 0.121 SBI = = 0.056 ICICI = = 0.167
  89. 89. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 89 3. Jensen Model Jensen model = p-[Rf+βp( m-Rf)] Franklin = 13.45-[8+0.98(9-8)] = 4.47 HDFC = 15.58-[8+1.16(9-8)] = 6.42 Relience = 14.49-[8+1.08(9-8)] = 5.41 SBI = 11.06-[8+1.06(9-8)] = 2 ICICI = 18.75-[8+1.29(9-8)] = 9.46
  90. 90. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 90 STATISTICAL ANALYSIS OF FUND PERFORMANCE Table 4.25 Statistical Analysis of selected tax saving scheme Performance Fund Treynor’s Measure Sharpe Measure Jensen Measure ICICI 8.33 0.167 9.46 HDFC 6.53 0.152 6.42 Reliance 6.01 0.121 5.41 Franklin 5.56 0.113 4.47 SBI 2.78 0.056 2 Chart 4.10 Statistical Analysis of selected tax saving schemes Performance Inference: The result of Treynor‟s, Sharpe and Jensen method is present in table 4.18. It show the performance level of all the five selected tax saving schemes. It is seen that analysis of returns in relation to the market risk of the fund.The higher returns are ranked accordingly ICICI fund is ranked 1st , HDFC fund 2nd , Reliance fund is 3rd , Frankline fund is 4th and SBI fund is 5th by using all the three methods. 8.33 6.53 6.01 5.56 2.78 0.167 0.152 0.121 0.114 0.056 9.46 6.42 5.41 4.47 2 ICICI HDFC Relience Franklin SBI Chart Title Treynor's Measures Sharpe Measure Jensen Measure
  91. 91. Performance of Tax Saving Schemes in Mutual Fund Sambhram Academy of Management Studies, Bangalore Page 91 Chapter – 5 Summary of Findings, Suggestions and Conclusion

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