1. KMAMC.Cochin
1
Musaliar College Of Engineering And Technology
Executive summary
In this paper an attempt is made to evaluate the performance of debt oriented and equity
oriented funds, the comparison is made with the specific reference to Kotak Mahindra
Asset Management Company.
In debt and equity oriented funds selected the Kotak funds for the comparison of debt and
equity fund. And also compares the performance of the kotak funds with its peer
competitors, in debt and equity there is four different categories each. In debt there is
income fund, accrual fund, ultra short term fund and liquid fund. In the equity category
there is large cap, tax planning, mid and small cap funds and blend flexi opportunity finds
For the purpose of comparison collect the past one year benchmark return and portfolio
returns of each fund, the past year means 15th June 2014 to 15th may 2015. Then find out
both the market and portfolio risk, beta, then check if it have the unsystematic risk if there
is unsystematic risk uses Sharpe ratio, if the fund is free from the unsystematic risk use
the treyners ratio as the tool. The acceptable standard for the unsystematic risk is 1
All the debt oriented funds are free from the unsystematic risk but in the equity there is
the tendency for showing the unsystematic risk, the funds with unsystematic risk they will
give more returns at the same unit risk.
For the purpose of made the project as alive one include one more objective is that to
understand prospective customers behavior for this purpose meet 25 people by using a
schedule contain 17 questions. From that understand one thing the awareness about the
mutual fund or other stock market instrument are not that much popular in the prospective
customers. And also they have the perception that those kind of schemes are may lose
their capital.
3. KMAMC.Cochin
3
Musaliar College Of Engineering And Technology
1.1 INTRODUCTION
Mutual fund is an important segment of the financial system. It is non-fund based special
type of institution which acts as one of the investment option. It is a mechanism of
pooling together the savings of large number of investor for collective investments with
an avowed objective of attractive yields and appreciation in their value. The SEBI
(Mutual Fund) Regulations 1996 defines a mutual fund as “a fund establishment in the
form of a trust to raise money through the sale of units to the public or a section of the
public under one or more schemes for the investing in securities, including money market
instrument.”
Some basic types of mutual funds are:
Liquid Funds
Short term debt funds.
Gilt funds
Debt funds
Balanced funds
Index funds
Diversified Equity funds
Sectoral funds
There are around 58 Asset Management Companies (AMC) offering mutual funds in
India. All
these fund houses have several mutual fund schemes in each segment like equity, debt,
gilt and
liquid funds. Out of which equity segment is flourished and most of the investors are
attracted
towards equity mutual fund schemes. Because of availability of wide range of equity
mutual fund schemes in each AMC, it would be difficult for the investor to choose the
best scheme. Present study focuses on identification of risk and returns of equity funds
and debt funds by applying performance evaluation techniques and suggests the investors
about outperforming funds before making their investment decisions.
Debt schemes are also known as income schemes. Their objective is to provide regular
and steady income to investors. Investment is generally made in fixed income securities
4. KMAMC.Cochin
4
Musaliar College Of Engineering And Technology
like bonds and debentures. Such schemes distribute periodically the income earned by
them. Capital appreciation in such schemes may be limited. The portfolio management of
these schemes does not want to make the investment in venturesome securities and for
this reason these schemes are known as defensive schemes and are less sensitive to the
market forces. These schemes are less risky as compared to the equity schemes. Investors
who want regular returns with less risk prefer to invest in these funds. These are ideal for
retired people and others with a need for capital stability and regular income and who
need some income to supplement their earnings. So the performance evaluation of the
fund is much helpful to understand about the mutual funds, and this study also trying to
understand the prospective consumers’ behaviour towards the mutual fund as Investment
Avenue by using schedule.
1.2 Background of the problem
Mutual funds provide a mechanism to invest in the stock market without knowing the
complexities of stock market. Mutual funds provide the best option to the investors who
have no knowledge of the stock market. Mutual fund is just the connecting bridge or a
financial intermediary that allows a group of investors to pool their money together with a
predetermined investment objective. They are responsible for investing the gathered
money into specific securities (stocks or bonds). They invest their money on the behalf of
investors. For this they charge only nominal fees. When you invest in a mutual fund, you
are buying units or portions of the mutual fund and thus on investing becomes a
shareholder or unit holder of the fund. Mutual funds provide more return with less risk.
The main advantage of mutual fund is that it diversifies the risk because the pooled
money is invested in diversified portfolio.
The background of this study is that, nowadays around 58 companies are in the
field of asset management, they are providing lots of funds for the public as investment
avenue This study is trying to conduct a performance evaluation of funds, the funds are
categorized mainly two types debt and equity funds. This study trying to conduct a
comparison between debt fund and equity fund with the benchmark return and risk the
study is conducted with the specific reference to the Kotak Mahindra asset management
company. And also do the comparison of selected kotak funds with the peer competitors
which are in both debt funds and equity funds
5. KMAMC.Cochin
5
Musaliar College Of Engineering And Technology
By this study aims that to compare the debt equity funds and its performance and also
trying to evaluate the performance of Kotak funds for a given period of one year that is
June 2014 to may 2015. And also trying to understand the behavior of prospective
customers towards the mutual fund with the help of a schedule
The study was conducted by the use of different tools such as Sharpe ratio and Treynere's
ratio, and also do a field visit for meet the prospective customers with a schedule
1.3 Scope of the study
Mutual fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with the objectives as disclosed in offer
document and now a days the mutual fund is becomes one of the most popular investment
avenue available for the people. So the understanding of what is mutual fund and also can
understand how its work this is the main scope of this study
The present study comprises of 37 mutual fund schemes launched by different private and
public sector players. The time period for the research work is from 18th may 2015 to
18th July 2015. Calculate the returns of are collected for one year that is June 15th 2014
to may 15th 2015, these schemes are compared with kotak funds and also make the
comparison between debt and equity funds with the specific reference to Kotak Mahindra
funds.
For evaluating the performance of these funds compare with the bench mark return of
each fund and also trying to understand the behaviour of prospective customers.
This study can helpful to find out the well diversified fund and also helps to find out the
risk of market and the portfolio. This study also serves as a reference to the future
research.
6. KMAMC.Cochin
6
Musaliar College Of Engineering And Technology
1.4 Rationale of the study
Mutual fund industry is a rapidly growing sector in Indian financial market and nowadays
the mutual fund quite popular among the house hold investors and all. The mutual fund
can't eliminate the risk but which can reduce and diversify the risk and can ensure the
high return than bank and post office investment
This study of the mutual funds cater to reduce the past research gap and also to update the
performance of mutual fund in current scenario, in this study an attempt has been made to
evaluate the performance of selected debt and equity funds of Kotak Mahindra and its
peer competitors'
In this study the kotak funds are compared with the peer competitor funds in each
category and also trying to compare equity and debt funds with respect to kotak funds,
with the help of ratios such as Sharpe ratio and Treyner’s ratio, beta, standard deviations
and all. Another attempt is that to understand the behaviour of the prospective customers.
1.5 Objective of the study
To compare the performance of debt fund and equity fund
To compare the kotak funds with its peer competitor in both debt and equity
To elicit the prospective customer behaviour of mutual funds
1.6 limitation of the study
Study is based on secondary data for the comparison.
Sample size is too small.
Present study is only confined to select equity funds. Results of the study cannot
be generalized to all categories of mutual fund schemes.
Present returns may not be guaranteed in future and investors have to consider
other aspects before investing in equity mutual funds.
8. KMAMC.Cochin
8
Musaliar College Of Engineering And Technology
REVIEW OF LITERATURE
Lots of studies have been conducted on performance evaluation of mutual funds in India.
Some of the studies has presented in a chronologically order:
Treynor (1965) presents a new way of viewing performance results. He attempted to rate
the performance of mutual funds on a characteristics line graphically. The steeper the
line, the more systematic risk or volatility a fund possesses. By incorporating various
concepts, he developed a single line index, Tn, called Treynor index. The systematic risk
is risk which is common to all securities of the same class in the market. His index
measures the risk premium of the portfolio, where risk premium equals the difference
between the return of the portfolio and the riskless rate. The risk premium is related to the
amount of systematic risk assumed in the portfolio, the higher the value of Tn, the better
the performance of fund.
Sharpe (1966) explains in a modern portfolio theory context that the expected return on
an efficient portfolio and its associated risk (unsystematic risk) are linearly related. By
incorporating various concepts he developed a Sharpe index. In this paper he attempted to
rate the performance on the basis of the optimal portfolio with the risky portfolio and a
risk-free asset is the one with the greatest reward-to-variability .The unsystematic risk is
related to particular security due to inefficient management. Moreover he has examined
34 open-end mutual funds (period 1954-1963) and finds considerable variability in the
Sharpe ratio, ranging from 0.78 to 0.43. He provides two potential explanations for the
result that the cross-sectional variation is either random or due to high fund expenses or
the difference is due to management skills.
Barua and Varma (1991) evaluated the performance of master share (1987-1991) using
CAPM approach from the view point of large investors, small investors and from fund
management. The study had used ET Index as a proxy for market behavior. The risk
adjusted performance is measured by using Sharpe, Jensen and Treynor measures. They
used capital market line to study the risk return relationship of the fund from the
prospective of large investors and security market line for small investors. The study
concludes that the fund performed better than the market for small investors and fund
management but the fund did not do well when compared to CML. Mishra, et al., (2002)
measured mutual fund performance using lower partial moment. In this paper, measures
of evaluating portfolio performance based on lower partial moment are developed. Risk
from the lower partial moment is measured by taking into account only those states in
9. KMAMC.Cochin
9
Musaliar College Of Engineering And Technology
which return is below a pre-specified “target rate” like risk-free rate. Acharya and Sidana
(2007) attempted to classify hundred mutual funds employing cluster analysis and using a
host of criteria like the 1 year total return, 2 year annualized return, 3 year annualized
return, 5 year annualized return, alpha, beta, R-squared, Sharpe’s ratio, mean and standard
deviation etc. The data is obtained from Value research online. They do find evidences of
inconsistencies between the investment style/objective classification and the return
obtained by the fund.
11. KMAMC.Cochin
11
Musaliar College Of Engineering And Technology
3.1 Current industry assessment
The Indian mutual fund industry has shown relatively slow growth in the period FY 10-13
growing at a CAGR of approximately 3.2 per cent. Average (AUM) stood at INR 8,140
billion as of September 2013. However, AUM increased to INR 8,800 billion as of
December 20131.Lackluster stock market performance, rising inflation and anticipation
of a rise in interest rates has led to a tapering of growth in the Indian mutual fund industry
in the recent years. In comparison to global markets, India’s AUM penetration as a per
cent of GDP is between 5-6 per cent while it is around77 per cent for the U.S. 40 per cent
for Brazil and 31 per cent for South Africa. Despite the relatively low penetration of
mutual funds in India, the market is highly concentrated. Though, there are 44 AMCs
operating in the sector, approximately 80 per cent of the AUM is concentrated with 8 of
the leading players in the market. There have been recent instances of consolidation in the
market and market concentration is expected to remain in the near-term.
Products and Investors
Indian stock markets have experienced inconsistent returns in the recent past. Higher
inflation and inconsistent economic growth has worried the retail investor who is now
concerned about assured returns. In such a scenario, the investor would divert their funds
from the equity market to liquid/money market the equity-debt mix is determined largely
by the performance of the capital markets and interest rate cycles. AUMs in debt and
liquid money market funds have seen an increase in FY14 due to the anticipation of RBI
rate cuts and desire for investors to seek a fixed return. Debt oriented products (investing
in debt instruments with maturity > months) have gained most traction in terms of
absolute net new money, with an absolute increase in AUM of INR 1000 billion
indicating a clear shift in investor interest from equity in recent times. Gold ETF’s have
grown at an extremely fast pace over the last few years albeit from a much smaller base
(CAGR of over per cent from FY10- FY13). These have gained popularity due to the
popularity of gold as an investment for Indians as well as due to the lowering of
administrative charges and distribution expenses which makes it easier for the product to
be distributed as well. As Figure 4 indicates, industry composition of AUM is driven
primarily by the corporate segment. Corporate investments constitute around 49 per cent
of AUM with a focus on debt/money market funds for the purpose of short term returns
and liquidity management. Retail share of AUM is 20 per cent and is expected to rise
driven by increased investor awareness, product penetration and greater distribution reach.
High Net worth Individual (HNIs) have emerged as the fastest growing investor segment
12. KMAMC.Cochin
12
Musaliar College Of Engineering And Technology
growing at a rate of 20 per cent over the period of FY10- FY13 with a preference for debt
oriented funds. However, AUM growth largely remains restricted to the top cities in India
viz. Mumbai, Delhi, Bangalore, Chennai and Kolkata (contributing 74 per cent of AUM
as of September2013). The top 35 cities continue to contribute around 90-92 per cent of
the industry AUM.
However, despite the potential offered by the mutual fund industry, there still remain
some key challenges faced by the industry which have had an impact on growth.
These include:
• Limited incentives for distributors for MF products as compared to other financial
products
• Lack of product differentiation and ability to communicate value to investors
• Low MF penetration and relatively lower addition of retail investors
• Lack of investor awareness about MF industry
• Evolving nature of industry regulations
The key to combating these challenges is to ensure a wider distribution reach to widen the
existing base of the industry. Additionally, there needs to be an improvement in overall
investor awareness through strategic initiatives and investor education drives to drive
growth. The next section elaborates key trends that may have an impact on the future
growth of the industry.
Indian mutual fund industry
3.2 The India Future Potentialof the Indian MF Industry
While the long-term outlook for the asset management industry in India seems to be
positive, our stance on short to medium term outlook is moderate. This can be attributed
to the existing performance in financial markets and the evolving market and regulatory
landscape. Equity markets haven’t performed since the global financial crisis. The broad
equity stock index NSE has grown only by2 per cent y-o-y and was below the 3 year
mark as of Sept2013. This was well reflected in the equity AUM growth, which has
undergone a negative growth in AUM base at 10
per cent and 20 per cent over the same time period2. The investors have redeemed their
investments and moved to products with stable yields. The performance of equity markets
will continue to reflect in the Equity AUM till the equity markets stabilize.HNIs3 have
13. KMAMC.Cochin
13
Musaliar College Of Engineering And Technology
emerged as the fastest growing investor class in the debt oriented products. In particular,
Fixed Maturity Plan (FMPs) continue to remain a popular product and have consistently
given better performance and tax advantage over Bank FDs. Debt oriented products are
slowly gaining recognition among the retail3 investors. Retail investments increased from
INR 228.3 billion in Sept 2010 to INR 331.6
Billion in Sept 2013. But they still have a long way to go and capture the small ticket
market. As the asset management industry grows and moves towards a mature stage, the
manufacturers and distributors have to constantly adapt to a changing market
environment and abide to new regulations that come along the way of development.
Manufacturers are continually developing a
broad range of products covering new asset classes (gold) and investment strategies (fund
of fund, arbitrage, duration etc. among others). But this product innovation has been a
mixed bag to garner new AUM. The level of financial literacy amongst the Indian
investors is still low and is the impending factor in new and innovative products
becoming successful in the Indian market. Sophisticated products still remain a very
small proportion of the Industry AUM. Some of the challenges which lead us to have a
moderate view on the growth prospects of the Indian mutual fund industry are described
in detail below.
Distribution of mutual fund products is one of the critical components in the entire value
chain of the asset management industry. More so, where investment is highly
underpenetrated. For example, the north eastern region holds tremendous potential on
account of its very low penetration and awareness about investments. The region has 2.5
per cent of total bank branches which accounts for 1.3 per cent of banking business but
only 0.3 per cent of AUM5. People save their money in banks rather than investing it in
the market. The investment advisors could help in serving this underserved region by
making them aware of the financial products.
Combating distribution challenges and navigating through the regulatory environment
will remain keys for growth prospects.
14. KMAMC.Cochin
14
Musaliar College Of Engineering And Technology
Key challenges
Table-1
Key challenges Key observations
Distribution
• Asset managers haven’t demonstrated the inclination
towards investing in their own distribution channel,
and are very much dependent on the third party
distributors
• Dynamics of distributing the mutual fund products
through third party channels is such that this growth
comes at a cost, hitting the profitability of the AMC –
hence AMCs are trying to strike a balance between
aggressive growth and profitability.
Evolving nature
of regulatory and
market
environment
• Constantly changing regulatory landscape to protect
the investor and increase the reach of mutual funds
and mutual fund penetration
• Regulations have made MF distribution less
attractive and have dampened industry growth
• Progressive steps taken for manufacturers to ensure
asset management can be a profitable business for
newer players who are trying to gain scalability
Key challenges Key observations Scale is important in an asset management landscape in
India. Once an asset manager gains sufficient scale, it has the capital strength to fund its
growth or in other words, it has the financial capacity to pay upfront and trail
commissions to the distributors and expand reach. Small and mid-sized mutual funds
have found it consistently difficult to increase their reach since the regulatory structural
change in 2009. This coupled with tepid stock markets has not been very favorable for
smaller mutual funds. Therefore the smaller players continue to struggle to gain market
share and remain profitable at the same time. This has resulted in some smaller players
exiting the industry in the recent past.
3.3 Key Upcoming Trends in the Indian Mutual Fund Industry
15. KMAMC.Cochin
15
Musaliar College Of Engineering And Technology
In order for the mutual fund industry to look at new avenues and areas for growth, in
India has analyzed a few areas which may impact growth in a positive manner.
Expansion outside Beyond -15 cities
Despite constant endeavor of the regulator to increase penetration of mutual fund
products beyond top 15 cities, the AUM composition has only marginally changed since
SEBI directive on additional TER on inflows from smaller cities was implemented in
October 1st, 2012. Contribution from the B-15 cities has remained at around 13 per cent
for the last two years. Drivers like lack of financial education and awareness, limited
distribution network, cultural bias towards physical assets are some of the key
impediments to growth in B-15 cities. In order to increase the geographical reach of
mutual funds, the fund houses are now allowed to charge an extra load of 30 basis points
from existing schemes subject to meeting certain conditions. The regulation has
incentivized fund houses to push mutual fund products in cities beyond the top 15.
The industry has adopted multi-pronged approach to reach out to investors in B-15 cities
which includes investor awareness, training and enrolling new cadre of distributors. In
addition, fund houses are paying additional commission to source applications from these
areas.
Key Challenges:
Lack of financial education and awareness
Financial literacy is one of the most fundamental factors impeding the growth of
penetration of any financial products in the smaller cities and towns. Investors need to be
made aware of their financial goals and the means to achieve the same. AMFI and SEBI
along with the Industry are making efforts for investor awareness campaign. Fund houses
are also mandated by regulation to invest 2 bps from scheme expenses towards, investor
education and awareness campaigns but India has a long way to go.
Limited Distribution network
The second critical issue for fund houses to distribute their products in smaller cities is
the availability of quality distribution infrastructure. Fund houses need infrastructure like
branches, adequate number of relationship managers and sales service staff in these
locations to be able to increase their sales volume coming from these geographies.
Distribution cost
Cost of establishing a distribution network in B-15 cities is quite high. It is the cost per
transaction or the low sales volume that makes the pursuit economically unviable or at the
least challenging. Although, additional TER can be levied to extend of inflows from these
16. KMAMC.Cochin
16
Musaliar College Of Engineering And Technology
cities (up to 30 bps); entering these markets have a long gestation period and requires a
capital investment for distributors.
Cultural bias towards physical assets
As of FY13, 46 per cent of total individual wealth in India is invested in physical assets
(gold and real estate)2. Although, in the past few decades, the investors have increasingly
relied on financial assets to invest their savings; the contribution of MFs in the asset
portfolio is very low. Insurance products constitute 17 per cent of the individual savings
in financial assets, whereas the share of mutual funds is much lower at 3.2 per cent
Key imperatives for expansion in B-15 cities
Unique problems call for innovative solutions. The distribution landscape, the cost
dynamics, underlying cultural imprint and investor behavior in the smaller cities is much
different than metros. Therefore, the fund houses could look at some innovative sales
strategies for these geographies.
• A trusted sales agent
Even today, in India, the financial investments are mostly driven by trust and relationship.
In such cases, investors would prefer to buy from a known face rather than an unknown
one. Independent Financial Adviser (IFAs) serves as an important link between the sellers
and buyers of the financial products. They have a good hold and influence over their
clients and their purchasing decisions. Therefore, it is important to tap the IFAs that have
a client base in B-15 cities. To increase the base of mutual fund distributors, the regulator
has permitted a new cadre of distributors which includes postal agents, retired
government and semi government officials, retired teachers, retired bank officers and
other persons (such as bank correspondents) to sell units of simple and performing mutual
fund schemes.
• Partnering with a bank
Fund houses could leverage from large network of bank branches covering the hinterland
as well. Bank sponsored AMCs such as HDFC MF, SBI MF have a greater advantage
over the other asset management players. Fund houses could leverage from a bank’s
network in multiple ways—the bank branches, employees, ATM network, banking
correspondents’— could be used as point of sales at various levels. Partnering or forming
a strategic alliance with a public sector bank with vast presence in non metro areas would
help fund houses in amassing assets from B-15 cities.
• Technology
17. KMAMC.Cochin
17
Musaliar College Of Engineering And Technology
Technology can be the game changer in the near future. As the cost of establishing a
distribution network in B-15 cities is comparatively high, technology could play a pivotal
role in garnering new AUM via internet and mobile banking channels. Online channel for
mutual funds is increasingly becoming popular amongst investors. Almost all, fund
houses in India provide service to transact online. There are 143 million internet users3 in
India, out of these, 24 million access internet through their mobiles. Mobile banking has
been very successful in countries like Zimbabwe and Kenya. India has over 904 million
telecom subscribers4 (97 per cent are wireless subscribers) as of 31 October 2013. 40 per
cent of these subscribers live in rural areas and can be tapped through mobile phones.
Using mobile phones to purchase mutual funds could have a huge potential to increase
investments in B-15 cities. Many mutual funds have already enabled purchase of mutual
fund units through immediate payment services (IMPS) and more recent National
Automated Clearing House system (NACH) platform, which have made the buying
mutual funds for investors’ paper less. The transactions can be done either via sms or via
an application. The technology is further developing to make it more user friendly and
hassle free. For example, now investors can invest in SIPs of various schemes at once. A
new investor needs to fill up the common application form, along with ‘know-your-
investor’ documents and a registration form. After the folio is created and the investor
receives personal identification number (PIN), he can download the mobile application to
buy and sell fund units. The existing investors can also avail of this facility. The third tool
in the hand of fund houses is enabling their sales channels with technology. Services like
portfolio management and data analytics can be easily performed on the go using smart
phones or tablets.
Emergence of Alternate Channels
Over the last few years, Indian mutual fund industry has grown at a rapid pace until
global financial crisis of 2008. The various distribution channels that have evolved over
the years for the asset management companies (AMCs) include:
• National and regional distributors
• Banks
• Independent Financial Advisors
• Direct selling
Further, apart from these channels, AMCs are also leveraging the extensive reach of the
India Post, which has a large investor base and branches spread across India. However,
the potential is not fully utilized yet. The post offices’ remarkable presence in both urban
18. KMAMC.Cochin
18
Musaliar College Of Engineering And Technology
and rural India has substantial sales potential and could emerge as an effective sales
channel in the future. National and regional distributors historically have constituted this
traditional channel for selling mutual funds. While banks and the national distributors
target mostly wealthy and corporate clients, the regional distributors, IFAs and India Post
primarily target regular retail investors. Direct and IFA channels could remain key to
unlocking growth in terms of sourcing equity inflows from outside the B-15 cities. Key
Challenges: Despite the presence of various alternative channels in the industry, the
distribution network still lacks proper strength and faces many challenges. All the
channels have a common concern of lack of adequate investor education and financial
literacy among investors.
• Discouraging norms for IFAs
IFAs have the potential to widen the distribution network and expand the reach on a
sustainable basis. As indicated in the chart above, IFAs have comparatively performed
well beyond the top 15 cities. However, not much has been done to strengthen this
channel. In fact, the new slew of norms and regulations has put pressure on further
evolution of this channel e.g. Abolishing of entry loads etc. One of the major threats to
IFAs arises out of direct plan option for investors. With SEBI incentivizing the direct
plans in 2012, it would be detrimental to the business of the IFA if investors shift their
focus to direct plans. To retain clients and prevent them from opting for direct plans, the
quality of advice and service has to be improved. Their approach needs to be more service
oriented rather than transaction oriented.
• Channel – Product Alignment
Distribution channels fail to market the MF products properly. They need to customize
the product delivery system, and make it investor-oriented. Introducing a scheme in a
semi-urban or a rural zone depends on the needs of the investors and IFAs are better than
the rest of the channels in understanding the varied needs of the investors.
• Technology for simplification of processes
To increase the footprint through technological advancements, product and process
simplification is required. Key is to simplify rather than innovate. Also, internet
penetration is low in India as compared to other countries. India’s Internet penetration is
only 17 percent (6.7 per cent in rural India) compared to 81 per cent in the U.S. and 42.3
per cent in China. Mobile internet penetration stood at merely 2.4 per cent6. Furthermore,
issues like transaction failure and rejections for online transactions will continue to
remain key deterrents. Key Imperatives for alternate channels: We can believe that
19. KMAMC.Cochin
19
Musaliar College Of Engineering And Technology
following steps should be implemented to harness the potential of technology and also to
increase overall awareness.
Table-2 Initiative and Key interventions
Initiative Key interventions
Creating
awareness
• Multiple promotiona l programs on TV and radios even in
regional languages could
help in creating better connect and industry awareness
• Social media can also emerge as a channel to create awareness
about mutual fund
Products and to help establish better connect specially with
youth.
• Continue d sustenance of district adoption programs and multi-
city radio campaigns by AMFI
Use of stock
exchange
infrastructure
• Further encouragement to use the infrastructure of stock
exchanges to purchase and redeem mutual fund units directly
from AMCs on behalf of their clients
Harnessing
technology
potential for
sales and
service
• Increased use of online tools to help in providing sales
literature, grievance redressal, carrying out routine transactions
and allowing for easy switches/redemption between multiple
mutual fund instruments
• Utilizing established infrastructure of ATMs, POS terminals
and touch screen kiosks for offering MF products
Mobile
platform
• Enabling the distributors or agents with mobiles or tablets
which takes the POS to
the investor in rural underpenetrated areas facilitates better
access to products along
with education
• Utilizing of existing mobile banking solutions (m-pesa) to
expand scope for transactions in MFs
20. KMAMC.Cochin
20
Musaliar College Of Engineering And Technology
Emergence of Investment Advisors
In the recent few years from abolishing entry loads on mutual funds to a host of other
measures, SEBI has been looking at increasing regulation with a view to improve the
investment climate Recently, SEBI has announced a new series of regulations governing
investment advisors7. The regulation was made with the intent of ensuring the regulation
of individuals, firms and corporations providing investment advice to investors. This
move was aimed at drawing a distinction between agents and advisers who provide
financial advice to the investor for a fee but will not seek a commission from the AMC
for directing investors toward investing in a particular scheme/plan. This regulation was
also undertaken to ensure that the advisory functions of investment companies will not be
motivated by the desire to earn distributor commissions or commissions from product
manufacturers leading to a potential conflict of interest. While the regulation was
intended to have a positive effect, there has been limited movement in terms of
individuals/firms looking to register as investment advisers. SEBI has indicated that it has
received over 70 applications, but currently only 11 investment advisers have received
licenses8. Most of the advisers who have received licenses have a good reputation in the
market as wealth advisers and financial planners indicating their seriousness and
willingness to receive a fee from investors for their advisory services. Most of the AMCs
have adopted a ‘wait and watch’ strategy before choosing to engage with this particular
channel. We believe that the onset of this regulation brings with it certain key advantages
to the Indian investor who is looking to invest in mutual funds in terms of greater trust
and access to advice from certified financial planners for the mass affluent/medium net
worth individuals segment (MNI).
Key Challenges:
• Investor mentality
India is still a relatively under penetrated market when it comes to paying for financial
advice. Most investors are not comfortable paying a fee when it comes to receiving
financial advice and even more so in years where the market sees greater volatility and
when there may be potential losses on investments. In the past, HNIs who have the
knowledge and wherewithal to appoint someone to manage their finances have paid for
advice. However, in the mass affluent segment, paying for advice still remains a relatively
nascent concept.
• Lack of investor awareness
21. KMAMC.Cochin
21
Musaliar College Of Engineering And Technology
As opposed to developed markets, financial awareness and literacy of the average Indian
investor is relatively low. Given the propensity of the Indian investor to prefer savings in
physical form like real estate, housing and gold, investments in MF instruments are
relatively low compared to these other instruments. MF instruments constituted ~3% of
Indian financial assets as opposed to gold and real estate which contributed ~46% of
financial assets. Increasing awareness to promote MF investment will remain a key
challenge.
• Blurred lines between the adviser and distributor
While SEBI has tried to draw a line between advisers and distributors, there may still be
some potential grey areas. Advisers can still earn commissions and their investors may
not be aware of the same. Furthermore, distributors also provide informal advice to
investors, while still receiving commissions from product manufacturers which are not in
line with the regulations by SEBI. Key imperatives for Investment Advisers: While the
complete impact of these regulations is yet to be felt, additional clarity from SEBI should
lead to registration and empanelment of more certified financial planners. The regulations
can largely help ensure that financial advisers who will be charging a fee for their
services will look at recommending direct schemes/plans of the AMCs which have
demonstrated a consistent track record of fund performance and have strong brand equity
in the market. Given that they would look at investor retention and the increasing share of
the wallet, investment advisers may not be incentivized to favor any particular product
and may look at the interest of the investor. However, there can be instances of regulatory
arbitrage where a financial adviser can get a fee from a investor but use a related party to
make the investment on behalf of the investor and still end up getting a commission from
the AMC. Given that there are approximately 44 AMCs operating in the market offering a
wide range of products across equity, debt and hybrid schemes10; it offers a multitude of
options to the Indian investor looking to invest in mutual funds. Navigating through these
options require substantial time and investment from an investor which could be made
easier through a financial planner. Investment advisers could gain relevance as a sounding
board and help investors navigate through complexity. However, the concept would win
approval from the investors only when they see value in terms of returns and advice from
the financial planner/ adviser. This channel can emerge as a relevant model in the
medium-term when the industry moves towards an advisory led model.
22. KMAMC.Cochin
22
Musaliar College Of Engineering And Technology
Regulations
In mid 2012, SEBI took note of the fact there is a lack of penetration of mutual fund
products, inadequate distribution network, regulation of distributors, investor protection,
etc. To address these issues, SEBI announced slew of measures to develop a long term
policy including financial inclusion to achieve sustainable growth of the mutual fund
industry. While the measures are positive steps to increase the foot print of the mutual
fund industry, certain other emerging issues may need to be addressed separately. Feet-
on-Street distribution Postal agents, retired officials of government, retired teachers, and
retired bank officers etc. who have been in service for at least 10 years were allowed to
sell simple products so as to increase the distribution base for mutual fund. To take this
initiative further, AMFI decided to include Intermediaries/Agents engaged in distribution
of financial products e.g. insurance agent, FD agent, National Savings Scheme products,
PPF, etc. registered with any other Financial Services Regulator within the ambit of
mutual fund distributors. To incentivize this new force to undertake mutual fund selling,
AMFI has waived off registration fees for all first time registrations and new cadre of
distributors subject to fulfillment of prescribed conditions. While the measure could boost
the foot print of AMC, there is increasing need to be cautious of the risk of mis-selling
due to lack of knowledge on the investor’s part. Fungibility of TER In an attempt to
increase mutual fund foot print, AMCs are allowed to charge an additional TER10 upto
30 bps, if 30 per cent of their net sales or 15 per cent of their AUM (whichever is higher)
originates from places beyond top 15 cities B-15. If inflow from B-15 is less than 30 per
cent of net sales or 15 per cent of AUM, the proportionate amount will be allowed as
additional TER. While this step has the effect of reducing the investors returns in short
term, it may give AMCs more scope to incentivise distributors to expand their
geographical reach. Penetration SEBI has also permitted small investors (who may not be
tax payers and also do no not have PAN/Bank Account) such as farmers, small
traders/businessmen/workers to make a cash investment up to Rs. 20,000 in mutual fund
schemes. While there is no requirement for the investors to have a PAN/ Bank account, it
is unclear how the redemption proceeds would be paid to such investors since it is
mandated that any repayment should be credited to the bank account of the investors. The
distributor could find this mode of investment unattractive as handling of cash requires
higher safeguards. As also, cash investments could also give rise to opportunity for
money laundering, frauds and meddling by tax officials. Considering the cost involved in
handling cash investments coupled with other complexities, this measure may have
23. KMAMC.Cochin
23
Musaliar College Of Engineering And Technology
several difficulties in implementation. Self Regulatory Organization (SRO) presently,
distributors have to obtain certification from National Institute of Securities Market
(NISM) and registration with AMFI. Apart from the code of conduct prescribed by SEBI
and AMFI, there are no such regulations governing distributors. In order to avoid mis-
selling and to protect investors interest, SEBI plans to appoint a SRO which would
regulate the distributors of mutual fund products, portfolio management products etc.
SRO will form rules and regulations for distributors, hear investor complaints against
distributors among many others. The SRO should aid SEBI to ensure a cordial
relationship between mutual fund houses and distributors and broad basing the MF
industry. Overseas distributor In order to encourage the growth prospects of the Indian
mutual fund industry in the international market, SEBI recently prescribed that overseas
distributor would neither be required to obtain certification from NISM nor would require
AMFI registration. The sole requirement is to comply with the extant laws, rules and
regulations applicable in their jurisdictions. Despite SEBI guidelines, the AMFI
Registration Number committee has suggested that overseas distributors may register
with AMFI for tracking and MIS purpose. The AMC’s are bestowed with the
responsibility to carry out due diligence of overseas distributor. This measure will remove
entry barriers and bolster NRI investment in Indian mutual fund. Members of stock
exchange Recently, SEBI permitted Mutual Fund Distributors and Independent Financial
Advisor (IFA) registered with AMFI to become members of stock exchanges to leverage
the stock exchange network and infrastructure so that they can augment their reach and
distribution. Distributors and IFA can purchase and redeem mutual fund units on behalf
of client from fund houses using the stock exchanges trading platform. Till date, SEBI
registered stock-brokers and clearing members were allowed to transact in mutual fund’s
leaving the distributor/IFA behind in race. Considering the fact that major chunk of
mutual funds are sold through this medium, the change will give an impetus to the
distributor. With this new circular, the investor can inform his/her distributor/IFA to
purchase units on stock exchange and the payment for the same will be made directly by
investors to the recognized clearing corporation. However, the additional financial and
compliance burden may create a deterrent for the distributor from seeking membership.
24. KMAMC.Cochin
24
Musaliar College Of Engineering And Technology
3.4 Way Forward
The Mutual fund industry needs to have an ‘outside-in’ perspective as compared to
‘inside-out’ perspective. Understanding investors’ needs should be followed by a
product channel alignment. A number of change catalysts discussed in the previous
section like technology, investment in B-15 cities, investment adviser etc. would be
required to help ensure the overall objective of prudent growth and profitability.
Increasing financial literacy will be the key to unlock the doors to B-15 and also to
remove the perception that equates mutual fund to only equity. Investor awareness
campaigns should be conducted to increase the AUM in smaller cities which would help
industry to progress in a holistic manner. AMC, distributors and IFAs are all doing their
bit but AMFI and SEBI should also play a major role in creating awareness. Knowledge
about mutual fund industry should be included in educational curriculum. The mantra
should be—to catch them young. Fund houses may need to find and partner with the right
distributor to make the products available to investors in smaller cities. Therefore, Banks
and IFA should play a pivotal role in reaching the investor base. Also, distributors should
be incentivized enough to ensure that they project mutual funds as a long-term investment
for fulfilling financial goals. For future growth, tax could act as an enabler as tax
benefits can be a pull factor for investors. For example, fund of funds does not get the
required tax benefit from the government. May be, government could look at such funds
and few offshore funds from India for tax benefits. Technology can act as a key enabler
and help the fund houses reach investors at a low cost and more efficient manner. AMCs
need to make the relevant investments in technology to help reach investors to help
ensure transactions on the channels of their choice. The future potential of Investment
Advisors could be decided by Investors and the regulators. Presence of an unbiased
advisor could build investor trust on the one hand and reward performing products on the
other. These measures should help the industry on the path to better growth. However, we
need all stakeholders viz. asset management companies, distributors, regulators to work
together to help ensure the common goal of growth along with profitability is achieved.
26. KMAMC.Cochin
26
Musaliar College Of Engineering And Technology
COMPANY PROFILE
Established in 1985, the Kotak Mahindra group has been one of India's most reputed
financial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the group's
flagship company was given the license to carry on banking business by the Reserve
Bank of India (RBI). This approval created banking history since Kotak Mahindra
Finance Ltd. is the first non–banking finance company in India to convert itself in to a
bank as Kotak Mahindra Bank Ltd. Today, the bank is one of the fastest growing bank
and among the most admired financial institutions in India.
The bank has over 323 branches and a customer account base of over 2.7 million. Spread
all over India, not just in the metros but in Tier II cities and rural India as well, it is
redefining the reach and power of banking. Presently it is engaged in commercial banking,
stock broking, mutual funds, life insurance and investment banking. It caters to the
financial needs of individuals and corporate. The bank has an international presence
through its subsidiaries with offices in London, New York, Dubai, Mauritius, San
Francisco and Singapore that specialize in providing services to overseas investors
seeking to invest into India.
4.1 Products and Services
The bank offers complete financial solutions for infinite needs of all individual
and non–individual customers depending on the customer's need – delivered
through a state of the art technology platform. Investment products like Mutual
Funds, Life Insurance, retailing of gold coins and bars etc are also offered. The
bank follows a mix of both open and closed architecture for distribution of the
investment products. All this is backed by strong, in–house research on Mutual
Funds.
The bank’s savings account goes beyond the traditional role of savings, and
allows us to put aside a lot more than just money. The worry–free feature of
Savings Account provides a range of services from funds transfer, bill payments,
2–way sweep through our Active Money feature and much more. We can place
standing instructions for investment options that can be booked through Internet
or through Phone banking services. The Savings Account thus provides for
27. KMAMC.Cochin
27
Musaliar College Of Engineering And Technology
attractive returns earned through a comprehensive suite products and services that
offer investment options, all delivered seamlessly to the customer by well
integrated technology platforms.
Apart from Phone banking and Internet banking, the Bank offers convenient
banking facility through Mobile banking, SMS services, Netc@rd, Home banking
and Bill Pay facility among others.
The Depository services offered by the Bank allows the customers to hold equity
shares, government securities, bonds and other securities in electronic or Demat
forms.
The Salary 2 Wealth offering provides comprehensive administrative solutions for
Corporate with features such as easy and automated web based salary upload
process thereby eliminating the paper work involved in the process, a dedicated
relationship manager to service the corporate account, customized promotions and
tie – ups and many such unique features. The whole gamut of investment products
and investment advisory services is available to the salary account holders as well.
For the business community, the bank offer comprehensive business solutions that
include the Current Account, Trade Services, Cash Management Service and
Credit Facilities. The bank’s wholesale banking products offer business banking
solutions for long–term investments and working capital needs, advice on mergers
and acquisitions and equipment financing. To meet special needs of the rural
market, the bank has dedicated business offerings for agricultural financing and
infrastructure. Its Agriculture Finance division delivers customized products for
capital financing and equipment financing needs of our rural customers.
For financial liquidity the bank offers loans that meet personal requirements with
quick approval and flexible payment options. To complete the personal financial
offerings space, the bank now offers Kotak Credit Card which is a hassle–free,
transparent product that also happens to be the first vertical credit card in the
industry.
Kotak Mahindra Bank addresses the entire spectrum of financial needs of Non–
Resident Indians. The bank has tie–up with the Overseas Indian Facilitation
Centre (OIFC) as a strategic partner, which gives them a platform to share their
28. KMAMC.Cochin
28
Musaliar College Of Engineering And Technology
comprehensive range of banking and investment products and services for Non
Resident Indians (NRIs) and Persons of Indian Origin (PIOs). Their Online
Account Opening facility and Live Chat service helps to get in touch at the
comfort of homes and at the convenience. These offerings are specifically
designed to suit the overseas Indian's personal financial needs and give the global
Indians a near to home feel.
4.2 Vision
To be the most trusted Global Indian Financial Services brand and the most preferred
financial services employer with focus on creating value.
The Global Indian Financial Services Brand
Our customers will enjoy the benefits of dealing with a global Indian brand that
best understands their needs and delivers customized pragmatic solutions across
multiple platforms.
We will be a world class Indian financial services group. Our technology and best
practices will be bench-marked along international lines while our understanding
of customers will be uniquely Indian.
We will be more than a repository of our customers' savings. We, the group, will
be single window to every financial service in a customer's universe.
4.3 Awards
ICAI Award – Excellence in Financial Reporting under Category 1 – Banking
Sector for the year ending 31st March, 2010
Asiamoney – Best Local Cash Management Bank 2010
IDG India – Kotak won the CIO 100 'The Agile 100' award 2010
IDRBT
Banking Technology Excellence Awards Best Bank Award in IT Framework and
Governance Among Other Banks' – 200
Banking Technology Award for IT Governance and Value Delivery, 2008
29. KMAMC.Cochin
29
Musaliar College Of Engineering And Technology
IR Global Rankings – Best Corporate Governance Practices – Ranked among the
top 5 companies in Asia Pacific, 2009
FinanceAsia – Best Private Bank in India, for Wealth Management business, 2009
Kotak Royal Signature Credit Card – Was chosen 'Product of the Year' in a survey
conducted by Nielsen in 2009
IBA Banking Technology Awards
Best Customer Relationship Achievement – Winner 2008 & 2009
Best overall winner, 2007
Best IT Team of the Year, 4 years in a row from 2006 to 2009
Best IT Security Policies & Practices, 2007
Euromoney – Best Private Banking Services (overall), 2009
Emerson Uptime Champion Awards – Technology Senate Emerson Uptime
Championship Award in the BFSI category, 2008
2010
Best Investment Bank in India, 2010
Best Equity House in India, 2010
Best Broker in India, 2010
Best Domestic Equity House, 2010
Best Local Brokerage in the Asia money Brokers Poll 2010
Best Investment Bank in India, 2010
Best Bank for Equity Finance in India, 2010
Best Domestic Investment Bank, 2010
Best Investment Bank in India, 2006, 2007, 2008, 2009 & 2010
Best Equity House in India, 2008 & 2010
Best Domestic Equity House, 2008, 2009 & 2010
Kotak Mahindra Bank has launched a credit card called Kotak Trump Card that
offers 10% cash back on dining as well as movie and play spends.
Kotak Mahindra Bank (KMB) has introduced Stock Ace, a new product offering
for individual customers which provides them the power of instant liquidity.
2011
Kotak Mahindra Bank launches interbank mobile payment service
30. KMAMC.Cochin
30
Musaliar College Of Engineering And Technology
4.4 Milestones
1986 – Kotak Mahindra Finance Ltd started the activity of Bill Discounting
1987 – Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market
2003 – Kotak Mahindra Finance Ltd. converted into a commercial bank – the first Indian
company to do so.
2009
Kotak Mahindra Bank Ltd. opened a representative office in Dubai. Entered
Ahmadabad Commodity Exchange as anchor investor.
Kotak Mahindra Group launches a pension fund under India's National Pension
System (NPS)
2014
Thrust on digital and social with the launch of innovative solutions - first-of-its-
kind fully integrated social bank account - 'Jifi', and world's first bank agnostic
instant funds transfer platform using Facebook - 'KayPay'. Subsequently in Jan
2015, 'Jifi Saver' - a savings bank account with secure and seamless transactions
on popular social networks was launched.
Kotak Mahindra Bank acquires 15% equity stake in Multi Commodity Exchange
of India Limited (MCX)
Kotak Mahindra Asset Management Company Ltd. acquires schemes of Pine
bridge Mutual Fund
Kotak Mahindra Group announces its foray into General Insurance business
2015 -Reserve Bank of India (RBI) approves merger of ING Vysya Bank with Kotak
Mahindra Bank effective April 1, 2015
4.5 KOTAK MAHINDRA ASSET MANAGEMENT COMPANY
Kotak Mahindra is one of India's leading financial institutions, offering complete
financial solutions that encompass every sphere of life. From commercial banking, to
31. KMAMC.Cochin
31
Musaliar College Of Engineering And Technology
stock broking, to mutual funds, to life insurance, to investment banking, the group caters
to the financial needs of individuals and corporate. The group has a net worth of Rs.7,911
crore and employs around 20,000 employees across its various businesses, servicing
around 7 million customer accounts through a distribution network of 1,716 branches,
franchisees and satellite offices across more than 470 cities and towns in India and offices
in New York, California, San Francisco, London, Dubai, Mauritius and Singapore.
Our business
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned
subsidiary of Kotak Mahindra bank Limited (KMBL), is the Asset Manager for Kotak
Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has
approximately 7.5 Lac investors in various schemes. KMMF offers schemes catering to
investors with varying risk - return profiles and was the first fund house in the country to
launch a dedicated gilt scheme investing only in government securities. The company is
present in 76 cities and has 79 branches.
Our purpose
Our vision is to be a responsible player in the Indian mutual fund space, always striving
to offer best in class products across investor lifecycle. We strive hard to deliver
consistent performance over the benchmark across all our products, thereby creating
customer satisfaction. Our 12 years of existence offering a broad range of investment
products across asset classes with varying risk parameters that cater to needs of various
customer segments, have enabled us to garner trust of over 10 lac investors.
Sponsor
Kotak Mahindra bank
Established in 1985, the Kotak Mahindra group has been one of India's reputed financial
organizations. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship
company was given the license to carry on banking business by the Reserve Bank of India
(RBI). This approval creates banking history since Kotak Mahindra Finance Ltd. is the
first non-banking finance company in India to convert itself in to a bank as Kotak
Mahindra Bank Ltd.The Bank offers comprehensive business solutions that include Trade
Services, Cash Management Service and Credit facilities, keeping in mind the needs of
the business community. Kotak Mahindra Bank has over 212 branches spread across 124
locations in the country offering both traditional banking products and investment
32. KMAMC.Cochin
32
Musaliar College Of Engineering And Technology
advisory services. The Bank has the products, the experience, the infrastructure and most
importantly the commitment to deliver pragmatic, end-to-end solutions that really work.
Service providers
Registrar – CAMS
Auditors – PWC
Custodians
1. Deutsche Bank AG
2. The Bank of Nova Scotia
3. Standard Chartered Bank
4.6 Products of KMAMC
Table-3 Equityfunds
FUND NAME DESCRIPTION
Kotak 50 Kotak 50 is an open-ended equity scheme. The investment objective
of the Scheme is to generate capital appreciation from a portfolio of
predominantly equity and equity related securities. The portfolio will
generally comprise of equity & equity related instruments of around
50 companies which may go up to 59 companies.
Kotak Midcap Kotak Midcap is an open-ended equity growth scheme. The
investment objective is to generate capital appreciation from a
diversified portfolio of equity & equity related instruments.
Kotak
Opportunities
Kotak Opportunities is an open-ended equity growth scheme. The
investment objective of the scheme is to generate capital appreciation
from a diversified portfolio of equity & equity related instruments.
Kotak Classic
Equity
Kotak Classic Equity is an open - ended equity growth scheme. The
investment objective of the scheme is to generate capital appreciation
from a diversified portfolio of equity and equity related securities.
33. KMAMC.Cochin
33
Musaliar College Of Engineering And Technology
Kotak Tax
Saver
Kotak Tax Saver is an open-ended equity linked saving scheme. The
investment objective of the scheme is to generate long-term capital
appreciation from a diversified portfolio of equity and equity related
securities and enable investors to avail the income tax rebate, as
permitted from time to time.
Kotak Equity
Arbitrage
Fund
Kotak Equity Arbitrage is an open-ended equity growth scheme. The
investment objective of the scheme is to generate capital appreciation
and income by predominantly investing in arbitrage opportunities in
the cash and derivatives segment of the equity market, and by
investing the balance in debt and money market instruments.
Kotak
Emerging
Equity
Scheme
Kotak Emerging Equity is a open ended equity growth scheme. The
investment objective of the scheme is to generate long-term capital
appreciation from a portfolio of equity and equity related securities by
investing predominantly in mid and small cap companies.
Kotak Global
Emerging
Market
Kotak Global Emerging Market Fund is an open-ended equity
scheme. The investment objective of the scheme is to provide long-
term capital appreciation by investing in an overseas mutual fund
scheme that invests in a diversified portfolio of securities as
prescribed by SEBI from time to time in global emerging markets.
Kotak Select
Focus Fund
Kotak Select Focus Fund is an open-ended equity scheme. The
investment objective of the scheme is to generate long-term capital
appreciation from a portfolio of equity and equity related securities,
generally focused on a few selected sectors.
Kotak
Infrastructure
& Economic
The investment objective of the Scheme is to generate long-term
capital appreciation from a diversified portfolio of predominantly (at
least 65%) equity and equity-related securities of companies involved
in economic development of India as a result of potential investments
34. KMAMC.Cochin
34
Musaliar College Of Engineering And Technology
Reform Fund in infrastructure and unfolding economic reforms. There is no
assurance that the investment objective of the Scheme will be
achieved.
Kotak World
Gold Fund
The primary investment objective of the Scheme is to provide long
term capital appreciation by investing predominantly in units of
Falcon Gold Equity Fund. The Scheme may, at the discretion of the
Investment Manager, also invest in the units of other similar overseas
mutual fund schemes. The Scheme may also invest a certain portion
of its corpus in debt and money market securities and/or units of
debt/liquid schemes of Mutual Funds, in order to meet liquidity
requirements from time to time. However, there is no assurance that
the investment objective of the Scheme will be realized.
Kotak US
Equity Fund
The primary investment objective of the scheme is to provide long
term capital appreciation by investing in units of a fund that invests
predominantly in equity and equity-related securities of companies
having assets, products or operations in the United States. However,
there is no assurance that the objective of the scheme will be realized.
35. KMAMC.Cochin
35
Musaliar College Of Engineering And Technology
Table-4 Debt funds
FUND NAME DESCRIPTION
Kotak Monthly
Income Plan
Kotak Monthly Income Plan is an open ended income fund. Monthly
income is not assured and is subject to availability of distributable
surplus. The investment objective of the scheme is to enhance returns
over a portfolio of debt instruments with a moderate exposure in equity
and equity related instruments.
Kotak Bond Kotak Bond is an open ended debt scheme, with an investment
objective to create a portfolio of debt and money market instruments of
different maturities so as to spread the risk across a wide maturity
horizon and different kinds of issuers in the debt market.
Kotak Bond
Short Term
Kotak Bond Short Term plan is an open ended debt scheme. The
investment objective of Kotak Bond Short Term is to provide
reasonable returns and high level of liquidity by investing in debt and
money market instruments of different maturities so as to spread the
risk across different kind of issuers in the debt market.
Kotak Liquid Kotak Liquid fund is an open ended debt scheme. The investment
objective is to provide reasonable returns and high level of liquidity by
investing in debt and money market instruments of different maturities
so as to spread risk across different kinds of issuers in the debt markets.
Kotak Banking
and PSU Debt
Fund
Kotak Banking and PSU Debt Fund is an Open Ended Debt Scheme.
The investment objective of the scheme is to generate income by
predominantly investing in debt & money market securities issued by
Banks & PSUs and Reverse repos in such securities, sovereign
36. KMAMC.Cochin
36
Musaliar College Of Engineering And Technology
securities issued by the Central Government and State Governments,
and / or any security unconditionally guaranteed by the Govt. of India.
Kotak Gilt
Investment
Kotak Gilt Investment is an open ended dedicated gilt unit scheme. The
investment objective of the scheme is to generate risk free returns
through investments in sovereign securities issued by the Central and/or
State Government(s) and / or reverse repos in such securities.
Kotak Flexi
Debt
Kotak Flexi Debt is an open ended debt scheme. The investment
objective is to maximize returns through active management of a
portfolio of debt and money market securities.
Kotak Treasury
Advantage
Fund
The investment objective of the Scheme is to generate returns through
investments in debt and money market instruments with a view to
reduce the interest rate risk. However, there is no assurance or
guarantee that the investment objective of the scheme will be achieved.
Kotak Floater
Short Term
Kotak Floater Short Term is an open ended debt scheme. The
investment objective of the scheme is to reduce the interest rate risk
associated with investments in fixed rate instruments by investing
predominantly in floating rate securities, money market instruments
and using appropriate derivatives. There is no assurance that or
guarantee that the investment objective of the scheme will be achieved.
Kotak Income
Opportunities
Fund
The Kotak Income Opportunities Fund is an open ended debt scheme.
The investment objective of Kotak Income Opportunities is to generate
income by investing in debt and money market securities across the
yield curve and credit spectrum. The scheme would also seek to
maintain reasonable liquidity within the fund. There is no assurance
that or guarantee that the investment objective of the scheme will be
achieved.
37. KMAMC.Cochin
37
Musaliar College Of Engineering And Technology
Kotak Multi
Asset
Allocation Fund
Kotak Multi Asset Allocation Fund is an open ended debt scheme. The
investment objective is to generate income by predominantly investing
in debt and money market securities, and to generate growth by taking
moderate exposure to equities and equity related instruments and
provide diversification by investing in gold ETFs.
Kotak Hybrid
FTP Series 1
Kotak Hybrid Fixed Term Plan - Series I, a close-ended debt scheme
with 24 months maturity. The Objective of the Scheme is to generate
income and reduce interest rate volatility by investing in Debt &
Money Market securities that mature on or before the maturity of the
scheme, and also to generate capital appreciation by investing in equity/
equity related securities.
Kotak Low
Duration Fund
The primary objective of the Scheme is to generate income through
investment primarily in low duration debt & money market securities.
There is no assurance or guarantee that the investment objective of the
scheme will be achieved.
Kotak
Corporate Bond
Fund
The Fund seeks to generate income and capital appreciation largely
through a focus on investments in corporate debt securities. There is no
assurance or guarantee that the investment objective of the scheme will
be achieved.
Table-5 Balancedfund
FUND NAME DESCRIPTION
Kotak Balance Kotak Balance is an open ended balanced scheme. The
38. KMAMC.Cochin
38
Musaliar College Of Engineering And Technology
investment objective is to achieve growth by investing in
equity and equity related instruments, balanced with
income generation by investing in debt and money market
instruments
Table – 6 Fund of funds
FUND NAME DESCRIPTION
Kotak Asset
Allocator Fund
Kotak Asset Allocator Fund is an open ended fund of
funds scheme. The investment objective of the scheme is
to generate long-term capital appreciation from a portfolio
created by investing in specified open-ended equity, and
debt schemes of Kotak Mahindra Mutual Fund. However,
there is no assurance that the investment objective of the
Scheme will be realized.
Kotak Gold Fund Kotak Gold Fund of Fund is an open ended fund of fund
scheme. The investment objective of the scheme is to
generate returns by investing in units of Kotak Gold
Exchange Traded Fund.
39. KMAMC.Cochin
39
Musaliar College Of Engineering And Technology
Table -7 Exchange traded funds
FUND
NAME
DESCRIPTION
Kotak Gold
ETF
Kotak Gold ETF is an open-ended gold exchange traded fund.
The investment objective of Kotak Gold ETF is to generate
returns that are in line with the returns on investment in
physical gold, subject to tracking error.
Kotak PSU
Bank ETF
Kotak PSU Bank ETF is an open-ended exchange traded fund.
The investment objective of the scheme is to provide returns
that closely correspond to the total returns of CNX PSU Bank
Index, subject to tracking errors
Kotak
Sensex ETF
Kotak SENSEX ETF is an open-ended exchange traded fund.
The investment of the scheme is to provide returns before
expenses that closely correspond to the total returns of the BSE
SENSEX, subject to tracking errors.
Kotak Nifty
ETF
Kotak Nifty ETF is an open-ended exchange traded fund. The
investment objective of the scheme is to provide returns before
expenses that closely correspond to the total returns of the S&P
CNX Nifty subject,to tracking errors.
41. KMAMC.Cochin
41
Musaliar College Of Engineering And Technology
METHODOLOGY
In the present study an attempt has been made to analyze and interpret the behaviour of
different mutual fund schemes with the market during the period of 15th June 2014 to 15th
may 2015. In order to achieve the pre-determined objectives an analysis has been made to
compare these schemes with the market on the basis of risk and return. Different
statistical and financial tools are used to evaluate the performance of these mutual fund
schemes under the present study. These tools and techniques include percentage method,
arithmetic mean, standard deviation, beta, Sharpe, Treynor,
5.1 AVERAGE RETURN:
The most common method of calculating the return is average simple return. This
method is easy to compute and understand. Hence, schemes are compared on the basis of
average weekly return generated by the schemes under the study as: Average Scheme
Return has been computed as:
ARp = ΣRp/n
Where
ARp = Average Portfolio Return
Rp = portfolio return
n = number of observations
Average Market Return has been computed as:
ARm = ΣRm/n
Where
ARm = Average Market Return
Rm = Market Return
n= number of observations
5.2 STANDARD DEVIATION:
It is measure of total risk of a fund. It measures the fluctuation of the return of the fund
during the period as compared to the average returns of the respective bench mark during
a particular period. A higher standard deviation characterize that the returns of the fund
have been more unstable and risky than fund having lower standard deviation. Hence, low
standard deviation means low risk in funds return. It has been calculated with the usage of
MS excel 2007 “STDEV” function where the cell range caters to the monthly fund returns
over the period.
42. KMAMC.Cochin
42
Musaliar College Of Engineering And Technology
5.3 BETA:
Beta is a measure of systematic risk of a portfolio. It determines the volatility of a fund in
comparison to that of its index or benchmark. Where the beta value of fund is very close
to 1, it indicates that the fund’s performance closely matches the market index. Beta value
of fund less than 1 indicates less volatility of the fund than the market index. For example,
if stock’s beta is 1.3, it is theoretically 30% more volatile than the market. Negative beta
reflects an inverse relationship between the security and the market.
Beta is computed by following formula:
Beta= Covariance (Stock, Index)/ Variance (Index).
Where, Covariance (Stock, Index) means covariance between scheme and market returns,
while Variance (Index) means variance of Index.
5.4 RISK FREE RATE:
Risk free rate is measured by the T-Bill rate on May 15th 2015. It is also measured on
weekly basis so as to have a compatibility with the monthly basis returns of the mutual
fund schemes.
5.5 SHARPE RATIO:
It is developed by Nobel laureate William F. Sharpe to measure risk adjusted performance.
It is a measure of a fund’s return per unit of risk assumed. Sharpe ratio is calculated by
deducting the risk free rate of return from the average weekly return for a portfolio and
dividing the result by the standard deviation of the portfolio returns. Higher ratio indicates
the better the fund’s historical risk-adjusted performance. The Sharpe ratio tells us
whether the portfolio’s returns are due to smart investment decisions or a result of excess
risk. This measurement is very useful because although one portfolio can reap higher
returns than its peers, it is treated as a good investment if those higher returns do not
come with too much additional risk. If fund‟s Sharpe ratio is greater than the benchmark,
the fund’s performance is superior over the market. If it is less than the benchmark, the
fund’s performance is not good in the market. Sharpe ratio is calculated with the usage of
following equation:
Sp = (ARp – ARf) / σp
Where,
ARp = Average Fund Return
43. KMAMC.Cochin
43
Musaliar College Of Engineering And Technology
ARf = Average risk-free return
σp = Standard deviation of fund returns
5.6 TREYNOR RATIO:
Treynor ratio is developed by Jack Treynor that measures return per unit of systematic
risk. It is similar to the Sharpe ratio, with the difference that the Treynor ratio uses beta as
the measurement of volatility. The scheme with the higher Treynor ratio offers a better
risk reward equation for the investor. It is also known as the “reward-to-volatility ratio”.
It is more appropriate for diversified funds, where the systematic risks have been
eliminated. For a completely diversified portfolio, one without any unsystematic risk, the
two measures give identical ranking. Alternatively, a poorly diversified portfolio could
have a high ranking based on Treynor ratio and a low ranking based on Sharpe ratio. The
difference in rank is because of the difference in diversification. Hence, both ratios
provide complementary yet different information. Treynor ratio is calculated for various
funds as:
Tp = AR p – ARf /ßp
Where,
AR p = Average fund return
ARf = Average risk- free return
ßp = beta of the fund
5.7 RETURN ANALYSIS:
The average monthly return is calculated on the basis of NAV. compared to the bench
mark index on the basis of average monthly return
5.8 RISK ANALYSIS:
The risk is analysed with the help of standard deviation, beta, systematic risk and
unsystematic risk
44. KMAMC.Cochin
44
Musaliar College Of Engineering And Technology
5.9 BASIS OF TOOL SELECTION:
If the unsystematic risk is exist the sharpe ratio is used for the evaluation if there is no
unsystematic risk is not exist then uses Treyner’s ratio, the accepted risk is that 1
5.10 DATA COLLECTION
The present study is based on secondary data which is collected from various sources like
online bulletins, journals, books, magazines, brochures, newspapers and other published
and online material. The weekly data for the mentioned schemes have been collected
from the websitewww.valueresearchonline.com, kmamc.com and kpmg.com. The data
has been collected from 15thJune 2014 to 15th may 2015.
And for the understanding of prospective consumer behaviour use a schedule as the
primary data collection tool. So this study is the blend of both secondary and primary data.
5.11 SAMPLE SELECTION
There are different types of mutual fund schemes available in India which is classified
under different categories. In the present study, 37 schemes have been selected for the
study period. The convenience sampling method is used for the sample selection. The
study is conducted with the special reference to the kotak Mahindra Asset Management
Company Cochin, for the purpose comparison of debt and equity fund select 10 funds of
kotak, in each category there is 5 funds. For the comparison with other funds select 3
funds of other asset management companies has been selected in debt and equity funds
there is also other four types of classification each
For the purpose of prospective customer selection select 25 people as the sample
also uses the convenience sampling.
ORGANIZATION OF THE STUDY
The study is conducted with the special reference to the kotak Mahindra Asset
management Company, Cochin
PERIOD OF STUDY
The period of the study is 18th May 2015 to 18th July 2015
