13-08-2012, 05:04 PM
Comparative Study of Investment in Equity & Mutual Fund Schemes
Comparative study of Investment in Equity & Mutual Fund Schemes.pdf (Size: 962.02 KB / Downloads: 149)
RESEARCH EXTRACT
In the current economic scenario interest rates are falling and fluctuation in the share market has put investors in confusion. One finds it difficult to take decision on investment. This is primarily, because of investments are risky in nature and investors have to consider various factors before investing in investment avenues.
These factors include risk, return, volatility of shares and liquidity. The main objective of comparing investment in equity shares with mutual fund schemes is to analyze the performance of mutual funds with their benchmark and comparing them with equities by using risk, return, beta and alpha as a parameter.
Historical data were taken for calculating risk, return, alpha and beta. Analysis has done on percentage method for comparing equity shares with mutual fund schemes. Compare to equities mutual funds are less risky with stable returns and mutual funds gives the investor a diversified portfolio. Those who have well knowledge in equity market they can go for equity investments rather that investing in mutual funds because no control on the expenses made by the fund manager.
The study will guide the new investor who wants to invest in equity and mutual fund schemes by providing knowledge about how to measure the risk and return of particular scrip or mutual fund scheme. The study recommends new investors to go for mutual funds rather than equities, because of high risk and market instability.
a. Background of the study:
Introduction to Equity Capital and Mutual Fund
Issue of shares is the most important method of raising capital. Finance raised by the issue of shares serves as a financial floor to the company’s capital structure. Shares indicate the ownership or equity interest in the assets of the company. Shares are of different nominal or face values and of different kinds to attract different kinds of investors. The maximum amount of capital to be raised by the issue of shares is mentioned in the memorandum of association.
During 1990-91 and 1991-92, equity accounts for 35 to 39 percent of the total capital raised respectively. This proportion was reversed in 1992-93, the first year of free pricing, when the share of equity increased to 62 percent. He share of equity finance increased to a high of 73.18 percent in 1994-95. However, in 1995-96 there is a rise in the importance of debt largely due to the high interest rates in the economy and negative returns from the secondary market.
The mutual fund industry in India started in 1964 with the formation of Unit Trust of India, at the initiative of the Government of India. The 1993 SEBI Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.
The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came in to existence during a period marked by great political and economic turmoil that depressed the financial market; entrepreneurs were rather hesitant to enter the capital markets.
Concept of Equity Capital and Mutual Fund
The term Equity literally means the stock or ownership of a company. They are also known as ordinary shares. The rate of dividend on equity shares varies according to the amount of profit available and the intention of board of directors. In the event of winding up of the company, equity shares can be refunded only after all other claims, including those of preference shares for the refund of their capital, have been met.
Equity capital or financing is money raised by a business in exchange for a share of ownership in the company. Ownership is represented by owning shares of stock outright or having the right to convert other financial instruments into stock of that private company. Two key sources of equity capital for new and emerging businesses are angel investors and venture capital firms.
Equity capital is represented by funds that are raised by a business, in exchange for a share of ownership in the company. Equity financing allows a business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time.
The Equity Capital Markets Group (ECM) oversees the Firm's activities in the primary equity and equity-linked markets, as well as monetization and
equity derivatives. It provides support in the origination of primary market transactions and manages their structuring, syndication, marketing and distribution.
The world over, it’s been shown that over long tenures, equities–with their risk premia–have provided approximately 7 percentage points higher returns than risk-free options. People have to accumulate significant amounts of wealth during their working years. Right now, a 17-year bond gives you only 5.5 per cent. So, it is imperative that these people have some exposure to equity.
A mutual fund is a trust that pools the money of many investors -- its shareholders -- to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits when the securities are sold, but subject to any losses in value as well.
A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. There are myriad kinds of mutual funds, each with its own goals and methodologies. Whether or not a mutual fund is a good investment is a matter of much public debate, with many claiming they are excellent for the average person, and others saying they are simply a poor way to invest.
For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of recordkeeping for your account, and diversify your rupees over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.
A mutual fund, by its very nature, is diversified -- its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify.
Many critics of mutual funds point out that scarcely over 20% of mutual funds outperform the Standard and Poor's 500 Index. This means that nearly 80% of the time, an investor would have been more profitable by simply buying equal shares in all 500 of the companies currently on the S&P 500.