an analysis of mutual fund performance of sbi & investor’s
TRANSCRIPT
An Analysis of Mutual Fund Performance of SBI & Investor’s Confidence on Fund Managers of SBI
Abhishek Singha0810PGDM002
POST GRADUATE DIPLOMA IN MANAGEMENT
Institute of Public EnterpriseO.U Campus, Hyderabad – 500 007
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1. Mutual Fund Industry in India
1.1 History of Mutual Funds in India
The mutual fund industry in India has been in existence since 1964 when the Government
of India established the United Trust of India (UTI) under a special Act of Parliament.
For almost twenty years, the various schemes offered by the UTI were the only options
available to the investors to invest in mutual funds. The monolithic structure of the
mutual funds in India was, however broken when Government of India permitted the
public sector banks and public sector insurance corporations such as Life Insurance
Corporation of India and general Insurance Corporation of India to launch their own
funds. Later in 1993, during the period of the emergence of liberalization and
globalization, the Government also permitted private sector to enter the mutual fund
business.
1.2 Elements of Mutual Fund
A mutual fund is set up by a sponsor. However, the sponsor cannot run the fund directly.
He has to set up two arms: a trust and Asset Management Company. The trust is expected
to assure fair business practice, while the AMC manages the money. All mutual funds
functions under Sebi (Mutual Fund) regulations 1996 except UTI.
The mutual fund collects money directly or through brokers from investors. The money is
invested in various instruments depending on the objective of the scheme. The income
generated by selling securities or capital appreciation of these securities is passed on to
the investors in proportion to their investment in the scheme. The investments are divided
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into units and the value of the units will be reflected in Net Asset Value or NAV of the
unit. NAV is the market value of the assets of the scheme minus its liabilities. NAV is the
net asset value of the scheme divided by the number of units outstanding on the valuation
date. Mutual fund companies provide daily net asset value of their schemes to their
investors. NAV is important, as it will determine the price at which you buy or redeem
the units of a scheme depending on the load structure of the scheme.
Classification of mutual funds in India-
1. Open-ended funds: Investors can buy and sell units of open-ended funds at NAV-
related price every day. Open-end funds do not have a fixed maturity and it is available
for subscription every day of the year. Open-end funds also offer liquidity to investments,
as one can sell units whenever there is a need for money.
2. Close-ended funds: These funds have a stipulated maturity period, which may vary
from three to 15 years. They are open for subscription only during a specified period.
Investors have the option of investing in the scheme during initial public offer period or
buy or sell units of the scheme on the stock exchanges. Some close-ended funds
repurchase the units at NAV-related prices periodically to provide an exit route to the
investors.
Mutual Funds are divided into two types which are as under:
1. Equity Funds: These are the types of funds where the capital of investor is invested in
the stock market. Equity funds are termed as high risk high return funds. Equity funds
can be open ended as well as closed ended. Equity funds also have a marginal exposure
to debt assets depending on the investment objective of the fund manager. Safety of
capital is not assured in equity funds.
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2. Debt Funds: These are funds where the safety of capital is assured. The capital of an
investor will be invested in the government bonds, securities and current assets. A debt
fund gives an assured return to its investor. It’s a low risk low return fund. Debt funds
can be open ended as well as closed ended. Debt funds can have a marginal exposure in
equity.
There are two options in equity and debt funds which are as follows:
A. Dividend: An investor will be awarded dividends whenever the fund declares it.
Broadly it’s the income generated by the mutual fund scheme on its investment is
distributed to the investor. Dividend is not assured by an Asset Management Company
and it is linked closely to the stock/debt market. The investor can choose either to encash
or re invest it in the same mutual fund scheme.
B. Growth: In growth option the investor does not receive an income. The growth option
reflects the growth in investments registered by the mutual fund scheme. The investor can
either redeem the entire money or can do partial withdrawal.
There are different types of mutual fund schemes in both equity and debt which are as
follows:
1. Interval Funds: These funds combine the features of both open and close-ended
funds. They are open for sale and repurchase at a predetermined period.
2. Growth funds: They normally invest most of their corpus in equities, as their
objective is to provide capital appreciation over the medium-to-long term. Growth
schemes are ideal for investors with risk appetite.
3. Income funds: As the name suggests, the aim of these funds is to provide regular and
steady income to investors. They generally invest their corpus in fixed income securities
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like bonds, corporate debentures, and government securities. Income funds are ideal for
those looking for capital stability and regular income.
4. Balanced funds: The objective of balanced funds is to provide growth along with
regular income. They invest their corpus in both equities and fixed income securities as
indicated in the offer documents. Balanced funds are ideal for those looking for income
and moderate growth.
5. Money market funds: These funds strive to provide easy liquidity, preservation of
capital and modest income. MMFs generally invest the corpus in safer short-term
instruments like treasury bills, certificates of deposit, commercial paper and inter-bank
call money. Returns on these schemes hinges on the interest rates prevailing in the
market. MMFs are ideal for corporate and individual investors looking to park funds for
short period.
6. Tax saving schemes: Tax saving schemes or equity-linked savings schemes offer tax
rebates to investors under section 88 of the Income Tax Act. They generally have a lock-
in period of three years. They are ideal for investors looking to exploit tax rebates as well
as growth in investments.
7. Special schemes: These schemes invest only in the industries specified in the offer
document. Examples are InfoTech funds, FMCG funds, pharma funds, etc. These
schemes are meant for aggressive and well-informed investors.
8. Index funds: Index Funds invest their corpus on the specified index such as BSE
Sensex, NSE index, etc. as mentioned in the offer document. They try to mimic the
composition of the index in their portfolio. Not only are the shares, even their weight age
replicated. Index funds are a passive investment strategy and the fund manager has a
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limited role to play here. The NAV’s of these funds move along with the index they are
trying to mimic save for a few points here and there. This difference is called tracking
error.
9. Sector specific schemes: These funds invest only specified sectors like an industry or
a group of industries or various segments like ‘A' Group shares or initial public offerings.
Features of mutual funds in India:-
Affordability: Mutual funds allow you to start with small investments. For example, if
you want to buy a portfolio of blue chips of modest size, you should at least have a few
lacs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs
1,000-5,000. A mutual fund can do that because it collects money from many people and
it has a large corpus.
Professional management: The major advantage of investing in a mutual fund is that
you get a professional money manager for a small fee. You can leave the investment
decisions to him and only have to monitor the performance of the fund at regular
intervals.
Diversification: Considered the essential tool in risk management, mutual funds makes it
possible for even small investors to diversify their portfolio. A mutual fund can
effectively diversify its portfolio because of the large corpus. However, a small investor
cannot have a well-diversified portfolio because it calls for large investment. For
example, a modest portfolio of 10 blue-chip stocks calls for a few a few thousands.
Convenience: Mutual funds offer tailor-made solutions like systematic investment plans
and systematic withdrawal plans to investors, which is very convenient to investors.
Investors also do not have to worry about the investment decisions or they do not have to
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deal with their brokerage or depository, etc. for buying or selling of securities. Mutual
funds also offer specialized schemes like retirement plan, children's plan, industry
specific schemes, etc. to suit personal preference of investors. These schemes also help
small investors with asset allocation of their corpus. It also saves a lot of paper work.
Cost effectiveness: A small investor will find that a mutual fund route is a cost effective
method. AMC fee is normally 2.5% and they also save a lot of transaction costs as they
get concession from brokerages. Also, they get the service of a financial professional for
a very small fee. If they were to seek a financial advisor's help directly, they may end up
pay more. Also, the size of the corpus should be large to get the service of investment
experts, who offer portfolio management.
Liquidity: You can liquidate your investments anytime you want. Most mutual funds
dispatch checks for redemption proceeds within two or three working days. You also do
not have to pay any penal interest in most cases. However, some schemes charge an exit
load.
Tax breaks: You do not have to pay any taxes on dividends issued by mutual funds. You
also have the advantage of capital gains taxation. Tax-saving schemes and pension
schemes give you the added advantage of benefits under Section 88. Investments up to Rs
10,000 in them qualify for tax rebate.
Transparency: Mutual funds offer daily NAVs of schemes, which help you to monitor
your investments on a regular basis. They also send quarterly newsletters, which give
details of the portfolio, performance of schemes against various benchmarks, etc. They
are also well regulated and Sebi monitors their actions closely.
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The mutual fund pool money from investors and invest in shares and income earn from
the shares distributed between the account holders according to their share of holdings.
Indian mutual fund industry is sound and effective in case of investor's point of view.
In the recent years Indian mutual fund industry is witnessing a rapid growth as a result of
infrastructure development, increase in personal financial assets, and rise in foreign
participation. With the growing risk appetite, rising income and increasing awareness
mutual funds in India are becoming a preferred investment option compared to other
investment options such as fixed deposits and postal savings which are considered safe
but give comparatively low return destinations.
2. SBI MUTUAL FUND
SBI Mutual Fund, India’s largest bank sponsored mutual fund, is a joint venture between
State Bank of India and Sociate Generale Asset Management, one of the world’s top
notch fund management companies. Over the years, SBI Mutual Fund has curved a niche
for itself through prudent investment decisions and consistent wealth creation.
SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with an
investor base of over 5.4 million. With over 20 years of rich experience and expertise in
the area of fund management, SBI MF has been delivering value to its customers over the
years. SBI MF has an outstanding record of judicious investments and consistent wealth
creation. In its twenty years of operation SBI MF has launched 38 schemes and redeemed
15 of them successfully. Schemes of SBI MF have successfully outperformed the
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benchmark indices and emerged as a preferred investment option for millions of customer
and High Net worth Individuals (HNI).
SBI mutual fund has been the proud recipient of the ICRA online awards- 8 times, CNBC
TV 18- Crisil award 2006 and most recently with CNBC TV 18 Mutual Fund of the year
2007. Since the market has been becoming complex over the years there are requirements
for clear understanding of innumerable parameters regarding the market movements and
performance of mutual funds. At SBI MF, considerable resources are invested to gain,
maintain and sustain profitable insights into market movements. At SBI MF it is made
sure that the investors get maximum benefits year after year. The expert team at SBI MF
consisting of experienced and market savvy researchers prepare comprehensive analytical
and informative report on diverse sectors and identify stocks that promise high
performance in the future.
The team works in tandem with a compliance and risk monitoring department, which
ensures minimization of operational risk while protecting the interest of the investors.
Much of the credit for sustained performance of SBI Mutual Fund goes to the fund
management team. They are the real performers whose expertise, skills and capabilities
reward the investors. The risk management team also contributes enormously in
protecting the interest of the investors, headed by the chief risk officer (CRO). The CRO
is responsible for managing risk within the organization including investments,
marketing, operations etc. Since its inception, SBI MF has provided the investors with
maximum benefits on their investments and excellent customer service.
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3. LITRETURE REVIEW
Literature Review has a major impact on any research. The reviews of the mutual funds
which had significant impact while doing this research is mentioned below:
Europroperty 2004/2005 published an article on the Germany’s biggest open ended Fund
Managers trying to restore investors’ confidence by providing lot of transparency of the
funds they were managing. The four companies were CGI, Degi, Deka Immobilien
Investment and Difa have agreed to provide lot of transparency to the investors’ by
providing them adequate information about their portfolio including the rent and the
yields. They started giving clear description of the monthly inflows and outflows of the
funds to the customers. According to the Funds Association BVI, the Fund managers who
were pledging to become more transparent covered 82% of their total fund values.
A study done by Duffy, Maureen Nevin, Dec 2004, Vol 198 issue 6 from “When
Investor’s trust is shaken” explains the techniques that several Investment Advisors
applied while dealing with client concerns over the Mutual Fund trading scandals. The
study highlights the amount of dent in public confidence because of the unethical
practices applied by the US financial institutions. This study points out that Mutual Funds
have always been touted as an investment vehicle that allowed the average investor to
benefit from cost effective professional management. Then many firms took steps to be
well versed with the investigation and to be ready to answer any client query to restore
their confidence.
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“Manager- Investor conflicts in Mutual Funds” a research done by Mahoney, Paul.G,
Journal of Economic Perspectives, spring 2004, Vol. 18, issue 2 highlights the fact that
the Fund Manager’s stock selection efforts generate excess returns that justifies the
associated fees and the transaction costs. Their report suggests that Mutual Fund can be
considered as a Black Box wherein the investor is oblivious of the strategy incorporated
by the Fund Managers. This gives rise to the conflicts among the Investors and the Fund
Managers. This article points out the structure and regulation of the Mutual Funds and the
incentives which are associated with them who make decisions for the funds. The article
also fosters the cash flow structure from the Mutual Fund investors to the Fund Managers
through the Third party agencies. It even pointed out the punishments awarded to the
Fund managers and brokers who used improper trading practices.
“Mutual Fund flows and Investor’s returns- an empirical examination of fund investor
timing” by Friesen, Geoffrey.C, Sapp, Travis R.A. Journal of Banking and Finance, Sep
2007, Vol 31, Issue 9 examines the cash flow ability of the Mutual Fund investors using
cash flow data at the individual fund level. It was measured that Underperformance due
to poor timing was more in the load funds and in the large risk adjusted returns. It was
also measured that Investors in both actively managed fund and Index funds exhibit poor
investment timings. In their study they have come out with a consistent empirical study
on investor return chasing behavior.
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“Reputational Repair” by Risk, March 2004, Vol. 4, Issue 3, states how the Investor’s
confidence was badly hit after the WorldCom and Enron debacle. The situation was
repairing but then suddenly couple of bad news again hit the Mutual Fund Industry and in
turn the Investor’s Confidence got affected. A series of revelations related to market
timings has made the investors to exploit the arbitrage opportunities and late trading cost.
Reputational risks are very difficult to quantify according to the article. Reputational
risks directly affect the Investor’s Confidence as it hampers the long term relationship.
“Investor Profiling and Investment Planning” by Purkayastha, Saptarshi, ICFAI Journal
of Management Research, Dec 2008, Vol. 7, Issue 12 highlights that Risk tolerance, a
Person’s attitude towards accepting risk is an important concept for both financial service
providers and the consumers. They pointed out that a person’s age, occupation,
designation and income determines a person’s risk taking ability. They collected data
from International clients. This study analyzes the data in two ways. First stage they
analyzed whether the demographics of a client do affect his investment or not. In the
second stage people having certain demographics and risk appetite only invest money in
reality. However they came to the conclusion that people invest their major chunk of
money in the average risk Mutual Funds irrespective of their demographics and risk
appetite.
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“3 Funds that every investor should own” by Forbes, Sep 2003, Vol. 172, Issue 5 did a
thorough study of the Mutual Funds and came out that only 8300 portfolios are truly
stellar combining good performance and parsimonious fees. The study came out with 3
funds which did fulfill their expectation remarkably. Those 3 funds may return a bit more
or cost a bit less. They have rated the funds with grades. A grade for the best performance
and C grade for the worst performance. They also considered the Fund Managers savvy
and stamina while plucking out the right stocks at right time.
“Success in complex decision contexts- The impact of the Consumer knowledge,
involvement and risk willingness on Return on Investments in Mutual Funds and Stocks”
by Martenson, Rita, International Review of Retail, Distribution and Consumer
Research, Oct 2005, Vol 15, Issue 4, their study showed that Consumer knowledge
involvement and risk are the key concept in Consumer Behavior Research. The study
reveals the relationship between these 3 concepts and the Return on investment in Mutual
Funds. The study analyzed that the knowledge concept should be modeled in terms of
three dimensions i.e. ability, opportunity and familiarity. It was stated by them that
Consumer’s ability and opportunity to access stock market has a significant impact on the
returns which in turn familiarity and risk willingness. Their study also showed that risk
willingness has a stronger effect on returns than the familiarity.
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4. Research Objective
1. To determine the Net Asset Value (NAV) returns pattern of SBI Mutual Funds
during boom and recession.
2. To determine the Assets under Management (AUM) patterns of SBI Mutual
Funds during boom and recession.
3. To study the portfolio change patterns of SBI Mutual Funds during boom and
recession.
4. To determine the investor’s confidence on Fund Manager during boom and
recession.
5. Methodology
There are two traditional measurement techniques that are used to identify and measure
the relationship between the dependent variable and the independent variables. In this
case Investor’s confidence on Fund Manager is considered as dependent variables.
Market Information, Market conditions, attitude of the investor, return on investment and
reference group are the predictor or independent variables.
There are two types of data analysis has been done for this research. Firstly a secondary
data analysis has been done and then a primary data analysis has been done. The source
of secondary data is the monthly fact sheets of SBI mutual funds. It gave clear details of
the NAV and AUM of the funds on monthly basis. The time period for the secondary
data has been considered from April 07 to March 09. The time period has been divided
into two parts i.e. April 07 to Jan 08 has been termed as the boom period and from Feb 08
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to March 09 has been termed as recession period. A t test has been performed over NAV
returns of both equity and debt funds of two periods and simultaneously the interpretation
has been done. Similarly T- test has been performed over the AUM inflows and outflows
of both equity and debt funds of the two periods and simultaneously interpretation has
been done.
The second part of the research comprises of the primary data and its analysis. The
primary data has been collected from a sample size of 40. The sample has a mixture of
respondents as it includes HNI’s, Government employees, Middle level managers and
Market Analysts. The sample was segregated to get a more precise analysis. After the
data collection regression is done on the primary data to understand the impact of the
independent variables on the dependent variables. Lastly an investor behavior cycle is
determined.
6. HYPOTHESES
To investigate the average return of mutual funds we need to analyze the effect of the
independent variables on the dependent variables. We will introduce the null hypothesis
and alternate hypothesis and analyze the performance of the SBI mutual funds based on
that.
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7. Secondary Data Analysis
7.1 Comparative analysis on the NAV returns of the Equity & Debt Funds
1. To do a comparative analysis on the NAV returns of the Mutual Funds (Equity) of SBI
during a boom period (April 07 – Jan 08) and a recession period (Feb 08- March 09).
Null Hypothesis:
There is no significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09
He01- SBI Multicap Fund
He02- SBI Equity Fund
He03- SBI Index Fund
He04- SBI Multiplier plus Fund
He05- SBI Bluechip Fund
He06- SBI Tax gain Fund
He07- SBI Contra Fund
He08- SBI Emerging Opportunities
He09- SBI FMCG Fund
He010- SBI IT Fund
He011- SBI Pharma Fund
He012- SBI Comma Fund
He013- SBI Global Fund
He014- SBI Mid Cap Fund
He015- SBI Arbitrage Fund
He016- SBI Balanced Fund
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Alternate Hypothesis:
There is a significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09.
Hea1- SBI Multicap Fund
Hea2- SBI Equity Fund
Hea3- SBI Index Fund
Hea4- SBI Multiplier Plus Fund
Hea5- SBI Bluechip Fund
Hea6- SBI Tax Gain Fund
Hea7- SBI Contra Fund
Hea8- SBI Emerging Opportunities
Hea9- SBI FMCG Fund
Hea10- SBI IT Fund
Hea11- SBI Pharma Fund
Hea12- SBI Comma Fund
Hea13- SBI Global Fund
Hea14- SBI Mid Cap Fund
Hea15- SBI Arbitrage Fund
Hea16- SBI Balanced Fund
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Table 1: t -test of NAV returns of the Equity Funds.
H.no. Fund
Name
Reference
period 1
Reference
Period 2
t value Significance
Value
Supporting
hypotheses
1. Multicap April 07 –
Jan 08
Feb 08 –
March 09
3.777 .005 Hea1
2. Equity April 07 –
Jan 08
Feb 08 –
March 09
3.856 .005 Hea2
3. Index April 07 –
Jan 08
Feb 08 –
March 09
3.074 .015 Hea3
4. Multiplier
Plus
April 07 –
Jan 08
Feb 08 –
March 09
4.178 .003 Hea4
5. Bluechip April 07 –
Jan 08
Feb 08 –
March 09
3.460 .009 Hea5
6. Tax Gain April 07 –
Jan 08
Feb 08 –
March 09
3.531 .008 Hea6
7. Contra April 07 –
Jan 08
Feb 08 –
March 09
3.364 .010 Hea7
8. Emerging April 07 –
Jan 08
Feb 08 –
March 09
3.766 .005 Hea8
9. FMCG April 07 –
Jan 08
Feb 08 –
March 09
1.995 0.081 He09
10. IT April 07 – Feb 08 – 1.130 .291 He10
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Jan 08 March 09
11. Pharma April 07 –
Jan 08
Feb 08 –
March 09
1.379 .205 He11
12. Comma April 07 –
Jan 08
Feb 08 –
March 09
0.515 .619 He12
13. Global April 07 –
Jan 08
Feb 08 –
March 09
3.301 .011 Hea13
14. Midcap April 07 –
Jan 08
Feb 08 –
March 09
4.171 .003 Hea14
15. Arbitrage April 07 –
Jan 08
Feb 08 –
March 09
-.361 .727 He15
16. Balanced April 07 –
Jan 08
Feb 08 –
March 09
3.536 .008 Hea16
Interpretation
Multicap, Equity, Index, Multiplier Plus, Bluechip, Tax gain, Contra, Emerging, Global,
Midcap, and Balanced funds has the significance level less than or equal to 0.05 which
means the alternate hypothesis has been accepted and the null hypothesis is rejected for
these funds.
The reason for the acceptance could be the during the boom period (April 07 – Jan 08)
these funds gave excellent returns because the stocks these funds were holding witnessed
sharp rise in their prices and Sensex rose from 12000 points to 21000 points during that
period. One important point over here is the Fund Managers increased the large cap
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allocation more during the boom period because market was witnessing a sharp rally
which was very unpredictable. So the Fund managers increased their assets in large cap
because the large cap stocks had good fundamentals and their EPS and PE were also
good.
But during the recession period (Feb 08 – March 09) the Fund Managers of these funds
reduced their large cap allocation and simultaneously increased the mid cap allocation
because they would have thought when market came down to 16000 points from 21000
points that would make midcaps more profitable if the market rises again. But the
markets continued to fell because of the global woes and sharp rise in the prices of crude
oil. Those funds were hit very badly because midcap stocks were hammered and Fund
Managers made the mistake of increasing midcap allocation. During the period from
October 2008 the Fund Managers started reducing their mid cap allocation and
subsequently increased their Current assets allocation. This particular move made the
funds to revive and the funds started giving marginal profits during Feb 09 and March 09.
The funds which shows the significance level of less than or equal to 0.05 are all equity
diversified funds. Their portfolio was diversified into all the sectors. The major sectors
were energy, financial services and manufacturing sector. Financial services sector was
badly hit because of the sub prime crisis. Even the energy and manufacturing sector were
also struggling due to the recession. Every stock was hammered during this period with
leaving the fund managers clueless.
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Multicap, Index, Multiplier plus, Bluechip, Contra, Global and Balanced fund has an
exposure to derivative market for hedging purposes. The derivative exposure also had
turned out to be a weaker move because derivative market also had a blood bath. This
could be one of the reason for these funds to have a significance level less than or equal
to 0.05.
Last but not the least the FII’s play a major role in the Indian stock market and as well in
the mutual fund investments. During the boom period they invested heavily in the equity
based mutual funds and during the recession period they pulled out a major chunk from
the mutual funds which resulted in sharp fall for all the funds. This pulls out made the
NAV’s of the funds to drop down sharply.
FMCG, IT, Pharma, Arbitrage and Comma funds had significance level of more than
0.05 which means the null hypothesis is accepted and alternate hypothesis is rejected.
These funds were not affected by the recession and the reason could be that they had no
exposure to derivatives. Moreover FMCG and Pharma are the two most conservative
sectors which didn’t get hit so badly during the recession period because they cater to the
daily needs of the peoples. Customers had a regular demand for these sectors.
2. To do a comparative analysis on the NAV returns of the Mutual Funds (Equity) of SBI
during a boom period (April 07 – Jan 08) and a recession period (Feb 08- March 09).
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Null Hypothesis:
There is no significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09.
Hd01- SBI Monthly Income Plan
Hd02- SBI Premiere Liquid Fund
Hd03- SBI Children’s Benefit Plan
Hd04- SBI Income plus Savings
Hd05- SBI Income Fund
Hd06- SBI Gilt Fund
Hd07- SBI Floater Plan
Hd08- SBI Floating Rate short term
Hd09- Floating rate long term
Hd010- SBI NRI Investment plan
Hd011- SBI Income Plus
Hd012- SBI Insta Cash
Hd013- SBI Insta Cash Liquid
Hd014- SBI Short Horizon (Liquid)
Hd015- SBI Short Horizon (Income)
Alternate Hypothesis:
There is a significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09.
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Hda1- SBI Monthly Income Plan
Hda2- SBI Premiere Liquid Fund
Hda3- SBI Children’s Benefit Plan
Hda4- SBI Income plus Savings
Hda5- SBI Income Fund
Hda6- SBI Gilt Fund
Hda7- SBI Floater Plan
Hda8- SBI Floating Rate short term
Hda9- Floating rate long term
Hda10- SBI NRI Investment plan
Hda11- SBI Income Plus
Hda12- SBI Insta Cash
Hda13- SBI Insta Cash Liquid
Hda14- SBI Short Horizon (Liquid)
Hda15- SBI Short Horizon (Income)
Table 2: t test of NAV returns of the Debt Funds
H.no. Fund Name Referen
ce
Period 1
Referenc
e Period
2
t value Signifi
cance
Level
Supporting
Hypothesis
1. Monthly
Income Plus
April 07
– Jan 08
Feb 08 –
March 09
2.942 .019 Hda1
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2. Premiere
Liquid
April 07
– Jan 08
Feb 08 –
March 09
-1.630 .142 Hd02
3. Children’s
Benefit
April 07
– Jan 08
Feb 08 –
March 09
-1.384 .200 Hd03
4. Income Plus
Savings
April 07
– Jan 08
Feb 08 –
March 09
2.348 .047 Hda4
5. Income April 07
– Jan 08
Feb 08 –
March 09
2.398 .043 Hda5
6. Gilt April 07
– Jan 08
Feb 08 –
March 09
.876 .407 Hd06
7. Floater April 07
– Jan 08
Feb 08 –
March 09
.744 .478 Hd07
8. Floating Rate
Short Term
April 07
– Jan 08
Feb 08 –
March 09
-.094 .928 Hd08
9. Floating Rate
Long term
April 07
– Jan 08
Feb 08 –
March 09
1.702 .127 Hd09
10. NRI
Investment
Long term
April 07
– Jan 08
Feb 08 –
March 09
2.357 .046 Hda10
11. Income Plus April 07
– Jan 08
Feb 08 –
March 09
2.310 .05 Hda11
12. Insta Cash April 07
– Jan 08
Feb 08 –
March 09
-2.294 .051 Hda12
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13. Insta Cash
Liquid
Floater
April 07
– Jan 08
Feb 08 –
March 09
-1.386 .203 Hd13
14. Short
Horizon
Liquid
April 07
– Jan 08
Feb 08 –
March 09
-.849 .552 Hd14
15. Short
Horizon
Income
April 07
– Jan 08
Feb 08 –
March 09
-.282 .825 Hd15
Interpretation
Monthly Income Plus, Income plus, Income fund, NRI Investment fund, Income plus
Savings and Insta cash scheme income are the funds which had the significance level of
less than or equal to 0.05. The alternate hypothesis is accepted and the null hypothesis is
rejected. Majority of these funds had a marginal equity exposure which could have been a
reason for the acceptance of alternate hypothesis. Moreover the funds which relied on
commercial papers and non convertible debentures had taken a hit. During the period
from April 07 to Sep 08 these funds relied on Commercial papers and Non convertible
debentures and after that the Fund Managers started reducing the commercial paper and
non convertible debentures allocation.
The Premiere Liquid, Gilt, Floater, Children’s benefit, Floating rate long term and short
term, Insta Cash liquid scheme , short horizon savings and short horizon liquid scheme
25
had significance level of more than 0.05 which means Null hypothesis is accepted and
Alternate hypothesis is rejected. These funds had more exposure to the Reverse Repo
which could have been the reason for their containment. RBI regularly reduced the
Reverse repo and these funds would have made profit out of that.
7.2 Comparative Analysis of Assets under Management (AUM) Patterns:
3. To do a comparative analysis on the AUM Patterns of the Mutual Funds (Equity) of
SBI during a boom period (April 07 – Jan 08) and a recession period (Feb 08- March 09).
Null Hypothesis:
There is no significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09.
Hm01- SBI Multicap Fund
Hm02- SBI Equity Fund
Hm03- SBI Index Fund
Hm04- SBI Multiplier Plus
Hm05- SBI Bluechip Fund
Hm06- SBI Tax Gain Fund
Hm07- SBI Contra Fund
Hm08- SBI Emerging Opportunities
Hm09- SBI FMCG Fund
Hm010- SBI IT Fund
Hm011- SBI Pharma Fund
26
Hm012- SBI Comma Fund
Hm013- SBI Global Fund
Hm014- SBI Mid Cap Fund
Hm015- SBI Arbitrage Fund
Hm016- SBI Balanced Fund
Alternate Hypothesis:
There is a significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09
Hma01- SBI Multicap Fund
Hma02- SBI Equity Fund
Hma03- SBI Index Fund
Hma04- SBI Multiplier Plus
Hma05- SBI Bluechip Fund
Hma06- SBI Tax Gain Fund
Hma07- SBI Contra Fund
Hma08- SBI Emerging Opportunities
Hma09- SBI FMCG Fund
Hma10- SBI IT Fund
Hma11- SBI Pharma Fund
Hma12- SBI Comma Fund
Hma13- SBI Global Fund
Hma14- SBI Mid Cap Fund
27
Hma15- SBI Arbitrage Fund
Hma16- SBI Balanced Fund
Table 3: t test of AUM returns of the Equity Funds.
H.no. Fund Name
Reference Period 1
Reference Period 2
t value Significance Value
Supporting Hypothesis
1. Multicap April 07 – Jan 08
Feb 08 – March 09
2.567 .033 Hma01
2. Equity April 07 – Jan 08
Feb 08 – March 09
4.415 .002 Hma02
3. Index April 07 – Jan 08
Feb 08 – March 09
1.147 .285 Hm03
4. Multiplier
Plus
April 07 – Jan 08
Feb 08 – March 09
3.252 .012 Hma04
5. Bluechip April 07 – Jan 08
Feb 08 – March 09
1.460 .183 Hm05
6. Tax Gain April 07 – Jan 08
Feb 08 – March 09
3.333 .010 Hma06
7. Contra April 07 – Jan 08
Feb 08 – March 09
2.644 .03 Hma07
8. Emerging April 07 – Jan 08
Feb 08 – March 09
2.500 .037 Hma08
9. FMCG April 07 – Jan 08
Feb 08 – March 09
1.005 .344 Hm09
10. IT April 07 – Jan 08
Feb 08 – March 09
.846 .422 Hm10
11. Pharma April 07 – Jan 08
Feb 08 – March 09
.538 .605 Hm11
12. Comma April 07 – Jan 08
Feb 08 – March 09
2.364 .046 Hma12
13. Global April 07 – Jan 08
Feb 08 – March 09
2.116 .067 Hm13
14. Midcap April 07 – Jan 08
Feb 08 – March 09
1.964 .085 Hm14
15. Arbitrage April 07 – Jan 08
Feb 08 – March 09
5.376 .001 Hma15
16. Balanced April 07 – Jan 08
Feb 08 – March 09
2.632 0.03 Hma16
28
Interpretation:
Multicap, Equity, Multiplier plus, Tax gain, Contra, Comma, Emerging, Arbitrage and
Balanced funds have significance level of less than or equal to .05. So the alternate
hypothesis is accepted and the null hypothesis is rejected in this case. Except Arbitrage
fund every fund is an equity diversified fund. Stock market performed extremely well
during the boom period (April 07 – Jan 08). These Funds gave very good returns during
the boom period but still the drop in AUM is quite evident in these funds. During the
recession period (Feb 08 – March 09) these funds witnessed a sharp drop in their AUM’s.
One reason could be the investor’s loosing faith in the equity market and started pulling
out their investments. And the investors include the FII’s and the Domestic institutional
investors (DII). Second reason could be that instead of the investors pulling out from the
funds, it could have happened that the price of the stock would have fallen drastically. So
it is not mandatory that the investors would have pulled out their money the price of the
stock holdings also could be a reason for the decline. Arbitrage fund has given a
consistent return during the boom and the recession period. When the return of Arbitrage
Fund was compared to other equity funds, almost every month it had given a positive
return. Its quite interesting that during the recession period Arbitrage fund’s AUM had
also dropped sharply considering its positive returns in that period.
Index, Bluechip, FMCG, IT, Pharma, Global and Midcap were the funds which had
significance level of more than .05. Null hypothesis is accepted and alternate hypothesis
is rejected for these funds. Apart from Bluechip and Index fund all these funds has a
29
major exposure to midcap stocks, investors might have thought during the fall of market
that its better to be invested with the midcap based funds because market came down to
around 16000 points from 21000 points. They might have hoped market can bounce back
and if it bounces they can make huge profits because it is seen whenever markets had a
rally the midcaps were the major gainers.
Bluechip Fund is a flagship fund of SBI mutual funds. It has given amazing returns
during the boom period and could have had the investors’ confidence. Bluechip and
Index fund had a mammoth large cap exposure which would have had the investor
confidence because many of them still believes that if market revives then it will be the
large cap stocks which will make the difference and their recovery is also very fast
compared to midcap and small cap stocks.
4. To do a comparative analysis on the AUM Patterns of the Mutual Funds (Debt) of SBI
during a boom period (April 07 – Jan 08) and a recession period (Feb 08- March 09).
Null Hypothesis:
There is no significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09.
Hp01- SBI Monthly Income Plus
Hpo2- SBI Premiere Liquid
Hp03- SBI Children’s Benefit
30
Hp04- SBI Income Plus Savings
Hp05- SBI Income Fund
Hp06- SBI Gilt Fund
Hp07- SBI Floater Plan
Hp08- SBI Floating Rate short term
Hp09- Floating Rate long term
Hp010- SBI NRI Investment Plan
Hp011- SBI Income Plus
Hp012- SBI Insta Cash
Hp013- Insta Cash liquid floater
Hp014- SBI Short Horizon (Liquid)
Hp015- SBI Short Horizon (Income)
Alternate Hypothesis:
There is a significant difference between the performance of the following funds during
the period April 07 – Jan 08 and Feb 08- March 09.
Hpa1- SBI Monthly Income Plus
Hpa2- SBI Premiere Liquid
Hpa3- SBI Children’s Benefit
Hpa4- SBI Income Plus Savings
Hpa5- SBI Income Fund
Hpa6- SBI Gilt Fund
Hpa7- SBI Floater Plan
31
Hpa8- SBI Floating Rate short term
Hpa9- Floating Rate long term
Hpa10- SBI NRI Investment Plan
Hpa11- SBI Income Plus
Hpa12- SBI Insta Cash
Hpa13- Insta Cash liquid floater
Hpa14- SBI Short Horizon (Liquid)
Hpa15- SBI Short Horizon (Income)
Table 5: t test of AUM returns of the Debt Funds
H. No. Fund Name Reference Period 1
Reference Period 2
t value Significance Value
Support Levels
1. Monthly
Income Plus
April 07 – Jan 08
Feb 08 – March 09
2.537 .035 Hpa1
2. Premiere
Liquid
April 07 – Jan 08
Feb 08 – March 09
-.204 .844 Hp02
3. Children’s
Benefit
April 07 – Jan 08
Feb 08 – March 09
2.896 .020 Hpa3
4. Income Plus
Savings
April 07 – Jan 08
Feb 08 – March 09
-.421 .685 Hp04
5. Income April 07 – Jan 08
Feb 08 – March 09
1.219 .258 Hp05
6. Gilt April 07 – Jan 08
Feb 08 – March 09
-1.452 .185 Hp06
32
7. Floater April 07 – Jan 08
Feb 08 – March 09
-2.318 .049 Hpa7
8. Floating Rate
Short Term
April 07 – Jan 08
Feb 08 – March 09
.703 .502 Hp08
9. Floating Rate
Long term
April 07 – Jan 08
Feb 08 – March 09
-1.168 .277 Hp09
10. NRI
Investment
Long term
April 07 – Jan 08
Feb 08 – March 09
-.922 .384 Hp10
11. Income Plus April 07 – Jan 08
Feb 08 – March 09
1.298 .231 Hp11
12. Insta Cash April 07 – Jan 08
Feb 08 – March 09
-.685 .513 Hp12
13. Insta Cash
Liquid
Floater
April 07 – Jan 08
Feb 08 – March 09
.974 .358 Hp13
14. Short
Horizon
Liquid
April 07 – Jan 08
Feb 08 – March 09
-.533 .688 Hp14
15. Short
Horizon
Income
April 07 – Jan 08
Feb 08 – March 09
-2.017 .293 Hp15
33
Interpretation:
Only monthly Income Plus fund has a significance level of less than or equal to .05.
where the alternate hypothesis is accepted and null hypothesis is rejected. Monthly
Income plus is not among the favored debt fund in SBI. The AUM of this fund has been
dropping since April 07 till March 09. The reason could be the Monthly Income Plans of
other funds could have done well compared to SBI monthly income plan. The second
reason could be investors have low confidence on Monthly income plans.
Rest of all the debt funds have a significance level of more than .05, where the null
hypothesis is accepted and alternate hypothesis is rejected. This clearly shows the
investors exodus from equity to debt market during the recession period. Investors would
have found debt as the safest haven during recession because debt funds promises an
assured return and safety of capital. Equity market of the entire world had been hit badly
and investors could have found solace in debt funds.
Debt funds of SBI were having more exposure to net current assets which made them to
give decent returns to the investors. Non convertible debentures, Commercial papers,
Certificate of deposits and Securitized debts were the other avenues where the capital was
allocated.
34
8. Portfolio Churning:
The churning of portfolio by the Fund Manager is a very important aspect for investors
investing in a fund. A diagrammatic representation has been shown below for equity
funds and the debt funds during the period of April 07 to March 09. The churning of large
cap, mid cap, small cap and current assets is illustrated for the equity funds. The churning
of commercial papers, non convertible debentures, reverse repo and others which
comprises of securitized debts, certificate of deposits, coupon bonds, short term deposits,
and equity shares. The diagrammatic interpretation of the portfolio churning gives us the
idea of how the Fund Manager’s responded during the boom period i.e. during April 07
to Jan 08 and how they tackled the recession period i.e. during Feb 08 to March 09.
8.1 Portfolio Churning of Equity Funds
Large
0
20
40
60
80
100
120
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Months
Per
cen
tag
e
Large
Figure 1: Churning of large cap allocation during a period of April 07 to March 09
35
Mid
0
10
20
30
40
50
60
70
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Mid
Figure 2: Churning of Mid cap allocation during a period of April 07 to March 09
Small
02468
101214161820
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Small
Figure 3: Churning of Small cap allocation during a period of April 07 to March 09
36
Current Assets
0
5
10
15
20
25
30
35
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Current Assets
Figure 4: Churning of Current Assets allocation during a period of April 07 to March 09
8.2 Interpretation of portfolio churning patterns of Equity Funds
The above diagrams represent SBI Bluechip Fund for large cap, SBI Magnum Global
Fund for mid cap, SBI Emerging Opportunities Fund for small cap and SBI Multiplier
Plus for current assets. Every fund represents similar churning, so among them these
particular funds has been chosen.
Large Cap
Every fund has been churned almost in an identical way as shown in the above diagram
of SBI Bluechip Fund. The percentages of large cap exposure were increasing during the
boom period i.e. during April 07 to Jan 08. One reason might be that the rally of Sensex
from 12000 points to 21000 points was very fast and unpredictable and may be because
of that reason the fund managers would have parked their money more in large cap
stocks. Large cap stocks were fundamentally strong and would not have a collapse like
the mid cap or the small cap stocks. So during the rally of Sensex the fund managers
37
increased the large cap percentages and simultaneously decreased the mid cap, small cap
and current assets exposure. The large cap stocks gave fantastic returns during the boom
period and the Net Asset Value (NAV) of the mutual funds rose swiftly.
As soon as the markets started crashing after Jan 08 the fund managers started reducing
the large cap exposure and increased the exposure of mid cap and small cap stocks.
Sensex came down from 21000 points to 16000 points which might have enticed the fund
managers to increase the mid cap and small cap exposures. The fund managers would
have thought if the market climbs then the midcaps and the small caps will have a better
rally than the large cap. So during the entire recession period i.e. Feb 08 to March 09 the
fund managers were marginally reducing the large cap exposure. The reason might be
when the markets starts recovering the mid cap and the small cap stocks can give
exorbitant returns in quick time.
Mid Cap
The mid cap churning for all the funds were similar to the diagrammatic representation of
SBI Magnum Global Fund. The mid cap exposure kept decreasing during the boom
period and then it started during the recession period. The interesting fact is that during
Sep 08 the mid cap exposures were reduced considerably for each fund. The reason could
be the fall of Lehman Brothers and weaker global markets which forced the fund
managers to reduce the mid cap exposure and increase the current assets and large cap
exposures for time being. But since October 08 the mid cap exposure is increasing again
38
and fund managers might have a hope that markets will recover soon and they can book
quick profits from the mid cap exposures.
Small Cap
SBI Emerging Opportunities Fund represents the churning of the small cap stocks. The
diagram clearly gives us an understanding that small cap exposure was reduced
considerably during the boom period and then during the recession period it has been
increased significantly. The fund managers might be increasing the small cap exposures
in order to book quick profits if the market recovers.
Current Assets
Current Assets comprises of the reverse repo which is exercised by Reserve Bank of
India (RBI). SBI Multiplier Plus shows the diagrammatic representation of the current
assets. A holding in current assets was not a favored portfolio for a equity fund manager.
During the boom period the exposure was very miniscule in current assets. But as soon as
the recession loomed, the exposure in the current assets started increasing significantly.
The reason might be the funds were suffering from heavy loss and to contain the loss the
fund managers had to increase the current assets exposure. The current assets were the
safest haven during the recession period because RBI was continuously reducing the
reverse repo in order to increase the borrowing. Current assets were giving decent returns
during the recession period which tempted the fund managers to divert their exposure
into it. The exposure has increased significantly during the recession period as shown in
39
the diagram. It’s quite ironic that an equity diversified fund is having around 30%
exposure in current assets.
Therefore we can analyze that during the boom period the large cap exposure was
increased and then when the markets started tumbling the fund managers increased the
mid cap and small cap exposure. In the later half of 2008 when the big companies started
falling and GDP growth of countries started plummeting then the fund managers moved
towards a safer avenue which is the currents assets.
8.3 Portfolio churning of debt Funds
Commercial Paper
0
10
20
30
40
50
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Months
Per
cen
tag
e
Commercial Paper
Figure 5: Churning of Commercial Papers allocation during a period of April 07 to March
09
40
Non Convertible debentures
0
10
20
30
40
50
60
7-Jun
7-Sep
7-Dec
8-Mar
8-Jun
8-Oct
9-Jan
Months
Per
cen
tag
e
Non Convertible debentures
Figure 6: Churning of Non Convertible Debentures allocation during a period of April 07
to March 09
Reverse Repo
0
20
40
60
80
100
120
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Months
Per
cen
tag
e
Reverse Repo
Figure 7: Churning of Reverse Repo allocation during a period of April 07 to March 09
41
Others
0
20
40
60
80
100
7-May
7-Jul 7-Sep
7-Nov
8-Jan
8-Mar
8-May
8-Jul 8-Oct
8-Dec
9-Feb
Months
Per
cen
tag
e
Others
Figure 8: Churning of Others allocation during a period of April 07 to March 09
8.4 Interpretation of portfolio churning pattern of Debt Funds
The above diagrams represent SBI Floater Plan for Commercial Papers, SBI Income
Fund for Non Convertible Debentures, SBI Income Plus for Reverse Repo and SBI
Monthly Income Plans for Others which comprises of Securitized debts, Certificate of
Deposits, Equity shares and dated Government securities. Every fund represents similar
churning, so among them these particular funds have been chosen.
Commercial Papers
Commercial Papers are an unsecured, short term debt instrument issued by corporation
typically for meeting the short term liabilities. Commercial papers doesn’t have any kind
of collaterals, therefore companies with high debt ratings will easily find buyers without
offering substantial discounts.
42
From the above diagram we can analyze that the fund managers started increasing the
commercial papers exposure since August 07. The reason might be an increase in the
issuances of commercial papers by the organizations in order to meet their short term
obligations. It’s quite an interesting observation that during Quarter 2 and Quarter 3 of
both years i.e. 2007 and 2008 has witnessed a significance rise in the exposure of
commercial papers. The reason could be the top notch organizations issue lots of
commercial papers during that particular period. In January 2008 the fund managers
hiked the commercial papers exposure to around 40%.
September and October 08 saw a major increase in commercial papers exposure and the
reason behind it would be the global turmoil and the fall of some big organizations like
Lehman Brothers and AIG. The organizations might have issued lot of commercial
papers in order to shrug off their short term liabilities and to retain their stake holders’
interest. Since November 08 the exposure in commercial papers has reduced
considerably. The reason could be the Satyam fiasco which would have dismantled the
investor’s faith on commercial papers since it’s an unsecured loan.
Non Convertible Debentures
Non Convertible Debentures is an unsecured loan to the corporation. Non Convertible
Debentures cannot be converted into equity shares of the issuing company. Non
convertible debentures usually earn higher interest rates than convertible debentures.
Non Convertible debentures had a similar exposure as that of Commercial Papers. The
concept of Non convertible debentures is similar to commercial papers. Both are issued
43
as an unsecured loan to an organization. The exposure trend adopted by the Fund
Managers was also the same for both Non convertible debentures and Commercial
papers. Non convertible debentures exposure increased during Quarter 2 and Quarter 3 of
2007 and 2008. The fund managers reduced the non convertible exposure since
September 08. The financial meltdown would have been the prime reason for this fall.
Satyam fiasco also would be one of the reasons for tightening loans for any organization
which would have compelled the fund managers to reduce the exposure in non
convertible debentures.
Reverse Repo
Reverse repo is a process of purchasing of securities with an agreement to resell them at
higher price at a specified future date. Reverse repo also refers to the rate at which
Reserve Bank of India (RBI) borrow money from the banks.
The Reverse Repo exposure has moved northwards during the recession period. The
reason could be the continuous fall in the reverse repo rates by the RBI. The fund
managers had more confidence on the reverse repo as it became a very efficient part
during recession. Even the equity funds raised their exposure significantly in reverse
repo. The continuous fall in the reverse repo rates tempted the debt fund managers to
raise the exposure significantly. The most interesting part is since October 2008 SBI
Income Plus fund had 100% exposure in reverse repo which shows the positive intent of
the fund manager towards it.
44
Others
Others include the Securitized debts, Certificate of Deposits, dated Government securities
and equity shares. These are the risk free instruments in the market.
The Others part was having an average exposure during 2007 and 2008. But during 2009
the fund managers increased the exposure. The reason could be the fund managers’ more
faith on risk free instruments rather than the risk oriented instruments like the commercial
papers and non convertible debentures. The Satyam fiasco would have added more fuel to
high exposure of risk free instruments.
9. Primary Data Analysis
Case 1: Market Informations vs. Investor’s Confidence on Fund Manager
H0 – Market Informations does not impact the Investor’s Confidence on Fund Manager
H1 - Market Informations impacts the Investor’s Confidence on Fund Manager
Case 2: Return on Investment vs. Investor’s Confidence on Fund Manager
H2 – Return on Investment does not impact the Investor’s Confidence on Fund Manager
H3 – Return on Investment impacts the Investor’s Confidence on Fund Manager
Case 3: Attitude of an Investor vs. Investor’s Confidence on Fund Manager
H4 – Attitude of the Investor does not impact the Investor’s Confidence on Fund Manager
H5 – Attitude of the Investor impacts the Investor’s Confidence on Fund Manager
45
Case 4: Market Conditions vs. Investor’s Confidence on Fund Manager
H6 - Market Conditions does not impact the Investor’s Confidence on Fund Manager
H7 - Market Conditions impacts the Investor’s Confidence on Fund Manager
Case 5: Reference Group vs. Investor’s Confidence on Fund Manager
H8 – Reference Group does not impact the Investor’s Confidence on Fund Manager
H9 – Reference Group impacts the Investor’s Confidence on Fund Manager
Table 6: Regression Analysis
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
1 .635a .403 .315 .46830
a. Predictors: (Constant), RG, RI, MC, MI, AT
ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression 5.030 5 1.006 4.587 .003a
Residual 7.456 34 .219
Total 12.486 39
a. Predictors: (Constant), RG, RI, MC, MI, AT
b. Dependent Variable: DV
46
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant) .027 .928 .029 .977
MI .514 .141 .528 3.637 .001
RI .150 .129 .163 1.163 .253
AT .114 .252 .067 .452 .654
MC .186 .131 .193 1.422 .164
RG .034 .154 .031 .219 .828
a. Dependent Variable: DV
Interpretation
Market Informations impacts the investors’ confidence on fund managers. Market
Information is a composite ranging from firms fundamentals in terms of its performance.
The macro economic variables such as Foreign Institutional Investors (FII) inflows,
Gross Domestic Product (GDP) growth, inflation and interest rates influence the
performance of a firm. An investment decision gets carried away by market information.
As far as mutual fund investment is concerned an investor analyses the market
information and form a perception about fund manager which is supported in the data
analysis. Thus, market information remains a key variable to reflect the fund manager’s
capabilities.
47
Return on investment, Attitude of the investor, Market conditions and Reference group
has no impact on the investor’s confidence on fund manager. Thus it accepts the null
hypothesis and rejects the alternate hypothesis.
10. Investor behavior cycle – the influence of performance and information on investor confidence on fund managers
The crux of this research lies in understanding the factors that influence the investor
behavior cycle. With the above collected primary and secondary data a relationship will
be established among them which will signify the variation in investor’s confidence on
fund manager.
According to the market conditions the fund manager reacts first. The market conditions
will propel the fund manager to churn his fund portfolio. The fund manager can do an
aggressive or a conservative churning depending on the market conditions. The fund
manager’s reaction to the market conditions has to be fast in order to seize an available
opportunity or by avoiding a disaster. The churning of portfolio is a key skill for a fund
manager.
The portfolio churning of the fund manager is in turn information for an investor. An
investor keeps track of the market information. Market information also includes the Net
Asset Value (NAV) of a fund. The portfolio churning of the fund manager reflects the
performance of the fund. Performance of the fund will be information for an investor.
The NAV of the fund will be the parameter for its performance. An investor notices the
48
NAV first before investing in a fund. Almost every investor will check the rise and fall in
NAV of a fund before investing.
The fund performance will give confidence to the investor for investing in a particular
fund. The market information acquired by the investor will determine the investor’s
confidence on the fund manager. Market information is one of the key variables for an
investor to generate confidence on any fund manager. Good information from an
extremely reliable source can lead an investor to go bullish for a fund. The fund
managers also are very cautious while churning their portfolio. The fund managers are
extremely aware that the performance of their fund will be a source of information for an
investor. So the fund managers will be careful because proper churning might lure more
investors to invest in that fund and vice versa.
Investor’s confidence on the fund manager leads to investor’s behavior. Investor’s
behavior is indirectly reflected in the Assets Under Management (AUM) patterns. If the
investors’ has confidence on a fund manager then they might invest more in the fund
which in turn will increase the AUM of the fund. Disappointing market information about
a fund may also result in investors’ loosing confidence on the fund manager. That might
lead to pulling out of money by the investors’. Though AUM pattern is not completely
influenced by investors’ investments, the present study assumes the changes in AUM to
be the result of investors’ inflow or outflow from the fund.
Investor’s confidence on the fund manager determines whether an investor wants to
invest more on that particular fund or not. More confidence propels the investors to invest
49
more on the fund this activity of the investors’ lures the fund manager to churn the
portfolio in order to give more returns to the investors. So it is back to the position from
where it started i.e. portfolio churning by the fund managers.
Thus the interpretation clearly points out that the portfolio churning by a fund manager
according to the market information determines the fund performance. The NAV of the
fund is the key parameter while measuring a fund’s performance. The fund performance
will generate investors’ confidence on fund manager. The investor’s confidence will lead
to the investment behavior of an investor. Inflows and Outflows of money by the investor
from a fund depend on the investors’ confidence on fund manager. More confidence
leads to more investment which again re- iterates to portfolio churning by the fund
managers to ensure more returns to the investors.
50
Figure 9: Investor Behavior Cycle
11. Summary of Findings
Debt funds with higher reverse repo and secured loans exposure has performed well.
Equity funds have increased the current assets exposure during the recession period. Debt
funds AUM has fallen drastically during the boom period. Despite recession AUM’s of
all debt funds except Short Horizon Liquid fund moved southwards during Feb 08 to July
08. Premiere Liquid, Insta Cash, Insta Cash Liquid and Short Horizon Liquid have never
given negative return in NAV during April 07 to March 09. Premiere Liquid and Short
Portfolio Churning by Fund Manager
Market Information
Investor’s Behavior (AUM Patterns)
51
Investor’s Confidence on Fund Manager
Horizon Liquid funds had a sharp increase of 150% and 123% respectively in their
AUM’s during April 08. Short Horizon scheme Income has recorded the highest growth
of 594% during Feb 09. Insta Cash recorded second highest growth of 253% during Nov
08. SBI Gilt fund have recorded a return of 12% in NAV during Dec 08.
All equity funds have given positive returns during April 08, August 08 and Dec 08
despite recession. All equity funds have given positive returns in their AUM’s during
April 08, August 08 and Dec 08 despite recession. Arbitrage Opportunities is the only
fund which has given positive returns during boom and recession. SBI Comma fund has
recorded the highest return in NAV of 20% during Oct 07. SBI magnum midcap fund
recorded the highest fall in AUM during Oct 08 of 34% approx. SBI Magnum Index fund
recorded highest growth in AUM of 36% during April 08.
12. Suggestions
1. Market Information should be provided to each and every client. The study clearly
points out the importance of market information to the investors’. Fund fact sheets
should be sent to all clients through email. The investment advisors of SBI Mutual
Funds should highly emphasize the importance of the market information. The name
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of the fund manger, investment objective, returns, cost, sector allocation and top 10
holdings should be highlighted by the investment advisors.
2. Investor Education is a very significant factor for an investor and State Bank of India
Mutual Funds. SBI MF should conduct investor education programme to educate the
investors about various funds. They can make a profile sheet for an investor and can
measure their risk appetite and can subsequently suggest funds for the investors’.
Every weekend SBI MF can conduct the programme with a set of 10 or 20 retail
clients. With these programme also SBI MF can impart market information to the
retail clients.
3. Transparency is a major issue in today’s world. In many cases it happens that the
third party or a broking firm which sells mutual funds of different Asset Management
Company (AMC) might miss sell a fund to an investor. This can happen because the
revenues paid by the AMC to the broking firms are unknown to an investor. Any
broking firm can push more equity products to their clients instead of debt funds
because equity funds give more revenues to them. Similarly among equity products
also New Fund Offers (NFO) might offer higher revenues than existing good funds.
So the revenue distribution should be very transparent.
4. Introduce more Arbitrage funds which can blossom during boom period and can
withstand recession period. SBI Arbitrage Opportunity fund is one of the funds which
have not given a negative return during the period of April 07 to March 09. Arbitrage
funds will provide the hedging opportunities to SBI Mutual Funds.
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5. Investor’s are broadly divided into 3 categories which are aggressive, moderate, and
conservative. There can be few set of customers who fall in the grey areas between an
aggressive and moderate category or between a moderate and conservative category.
SBI should conduct a regular study to learn more about these set of investors and can
design funds based on their risk appetite. This initiative can be a unique one and if the
funds perform well then SBI can increase their market share in the mutual funds
sector.
6. SBI should consider introducing fund based trail fees to its distributors. SBI should
provide higher trail fees for the funds which are fundamentally good but
underperformed. This move might trigger the distributors to promote those under
performing funds of SBI more aggressively and can increase the market share of SBI.
The funds which have already performed extremely well should be available with
normal available trail fees as they are already known to investors.
13. Limitations
1. Though the AUM levels can also be argued as a composite of market values, in
the present study, AUM levels are taken as a proxy for measuring investor
behavior where investment activity (behavior) is construed as a reflection of
investor confidence in fund managers. According to the confidence levels,
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investors choose to be players in the market by participating in investment activity
which is reflected in the AUM levels
2. Data of Net asset Value (NAV), Assets Under Management (AUM) and Portfolio
details are not available for August 2008.
14. Scope of Future Research
The present work can be expanded in future with respect to incorporation and analysis of
variables such as the role of investor attitude, transparency levels in reporting, impact of
governance standards of corporations on market/investor reactions, credibility of rating
agencies and the investor perceptions thereof.
15. References
Books:
1. Mutual Funds, 2007, ICFAI, Hyderabad.
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2. Jayadev.M, 1998, Investment Policy and Performance of Mutual Funds, Kaniska
Publishers, New Delhi.
3. Jordan, Fischer, 1995, Security Analysis and Portfolio Management, New Delhi.
Journals:
1. Europroperty 2004/2005, Germany
2. Duffy, Maureen Nevin, Dec 2004, Vol 198 issue 6 from “When Investor’s trust
is shaken”.
3. “Reputational Repair” by Risk, March 2004, Vol. 4, Issue 3.
4. “Mutual Fund flows and Investor’s returns- an empirical examination of fund
investor timing” by Friesen, Geoffrey.C, Sapp, Travis R.A. Journal of Banking and
Finance, Sep 2007, Vol 31, Issue 9.
5. “Investor Profiling and Investment Planning” by Purkayastha, Saptarshi, ICFAI
Journal of Management Research, Dec 2008, Vol. 7, Issue 12.
6. “3 Funds that every investor should own” by Forbes, Sep 2003, Vol. 172, Issue
5.
7. “Success in complex decision contexts- The impact of the Consumer knowledge,
involvement and risk willingness on Return on Investments in Mutual Funds and
Stocks” by Martenson, Rita, International Review of Retail, Distribution and
Consumer Research, Oct 2005, Vol 15, Issue 4.
8. “Manager- Investor conflicts in Mutual Funds” a research done by Mahoney,
Paul.G, Journal of Economic Perspectives, spring 2004, Vol. 18, issue 2.
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Websites:
1. Prowess Online Database.
2. www.sbimf.com
3. www.amfiindia.com
4. www.sebi.gov.in
5. www.nseindia.com
6. www.valueresearchonline.com
7. www.benchmarkfunds.com
16. Appendix
1. NAV- Net Asset value
2. AUM- Assets under Management
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3. FII- Foreign Institutional Investor
4. DII- Domestic Institutional Investor
5. SBI- State Bank of India
6. MF- Mutual Funds
7. NFO- New Fund Offers
8. RBI- Reserve Bank of India
9. FMCG- Fast Moving Consumer Goods
10. IT- Information Technology
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