Summary of "NISM VA Mutual Fund Chapter 10 (Part 2) - RISK, RETURN & PERFORMANCE OF FUND | 2024 | #nism5a #nism"
Summary of Finance With Nobita - NISM VA Mutual Fund Chapter 10 (Part 2)
Topic: Risk, Return & Performance of Mutual Fund Schemes (2024) Presenter: Deepak (Finance With Nobita)
Key Finance-Specific Content
1. Mutual Fund Scheme Performance & Returns
- Focus on equity schemes with a minimum of 65% invested in equity stocks.
- Returns depend on business earnings growth; risk arises from variability in company performance.
- Fund managers construct portfolios aiming to match or outperform benchmarks by:
- Security selection: Choosing quality stocks.
- Market timing: Buying/selling at optimal times.
2. Investment Analysis Methodologies
Fundamental Analysis (Qualitative Approach)
Determines intrinsic value of stocks based on:
- Economy: GDP growth, inflation, fiscal/monetary policy.
- Industry: Growth prospects, regulations, raw material availability, cyclicality.
- Company: Financial statements, management quality, competitors, news, fraud inquiries.
Long-term investment decisions are best based on fundamentals.
Technical Analysis (Quantitative Approach)
Focuses on price and volume data, charts (candlesticks), support/resistance levels, breakout points, and volume patterns to time buy/sell decisions.
- Mostly used for short-term trading (intraday, swing trading).
- Considered speculative and riskier than fundamental investing.
3. Key Financial Ratios Explained
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Earnings Per Share (EPS): [ \text{EPS} = \frac{\text{Net Profit After Tax}}{\text{Number of Equity Shares Outstanding}} ] Example: Tata Motors’ EPS = ₹8 (Profit ₹2400 crore, Shares 300 crore).
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Price to Earnings Ratio (P/E or PE Ratio): [ \text{P/E} = \frac{\text{Market Price per Share}}{\text{EPS}} ] Indicates how much investors pay per ₹1 of earnings.
- Typical healthy range: 30–43
- Very high P/E (e.g., 80–90) may indicate overvaluation (e.g., Bajaj Finance).
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Price/Earnings to Growth Ratio (PEG Ratio): [ \text{PEG} = \frac{\text{P/E Ratio}}{\text{Earnings Growth Rate}} ] Helps assess if high P/E is justified by growth expectations.
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Book Value per Share: [ \text{Book Value} = \frac{\text{Total Assets} - \text{Total Liabilities}}{\text{Number of Equity Shares}} ] Reflects net asset value per share.
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Price to Book Value (P/B Ratio): [ \text{P/B} = \frac{\text{Market Price per Share}}{\text{Book Value per Share}} ] Indicates how much investors pay for net assets.
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Dividend Yield: [ \text{Dividend Yield (\%)} = \frac{\text{Dividend per Share}}{\text{Market Price per Share}} \times 100 ] Reflects income return on investment.
4. Investment Styles
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Growth Investing: Focus on companies with high growth potential; stocks may be expensive but expected to appreciate quickly. Example: Bajaj Finance often trades at high P/E due to growth expectations.
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Value Investing: Focus on undervalued stocks trading below intrinsic value; patience needed for market to recognize value. Example: ITC was undervalued at ₹200, later doubled to ₹400 as market recognized its value.
5. Portfolio Construction Framework
Analyze three layers before investing:
- Economy: Inflation, interest rates, GDP growth, fiscal deficit, balance of payments.
- Industry: Regulatory environment, competition, raw material prices, cyclicality.
- Company: Management quality, ownership, financial health, market share, fraud inquiries.
Approaches:
- Top-Down: Economy → Industry → Company
- Bottom-Up: Company → Industry → Economy
6. Factors Affecting Performance of Different Funds
- Equity Funds: Dependent on company earnings and market conditions.
- Real Estate Funds: Sensitive to economic cycles, interest rates, infrastructure development, and demand. Example: Metro construction in Mumbai increased nearby property values.
- Gold Funds: Viewed as a safe haven during economic or political instability.
- Gold prices inversely related to Rupee strength.
- Large countries and institutions hold gold as foreign reserves, influencing prices.
7. Return Calculations
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Simple Return: [ \frac{\text{Ending Value} - \text{Initial Value}}{\text{Initial Value}} \times 100 ]
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Annualized Return: [ \text{Simple Return} \times \frac{12}{\text{Number of months invested}} ]
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Compound Annual Growth Rate (CAGR): [ \left(\frac{\text{Ending Value}}{\text{Initial Value}}\right)^{\frac{1}{n}} - 1 \times 100 ] where n = years invested. Reflects annualized return assuming reinvestment of profits.
8. Risk Metrics
- Variance: Measures fluctuation of periodic returns around the average return.
- Standard Deviation: Square root of variance; indicates volatility/risk magnitude.
- Beta: Measures volatility relative to a benchmark index (e.g., Nifty 50).
- Beta > 1: More volatile than market.
- Beta < 1: Less volatile.
- Modified Duration: Used for debt securities; measures sensitivity to interest rate changes.
Explicit Recommendations & Cautions
- Fundamental analysis is preferred for long-term investing; technical analysis is useful for timing but speculative.
- High P/E stocks may be overvalued; exercise caution during market corrections.
- Value investing requires patience as the market may take time to recognize intrinsic value.
- Diversify portfolio across economy, industry, and company factors.
- Understand risk metrics before investing.
- Real estate and gold funds’ performance is linked to macroeconomic factors like interest rates and political stability.
Disclaimers
- Content is educational and exam-focused for NISM Mutual Fund certification.
- Not financial advice; users should conduct their own research.
- Emphasis on exam preparation with MCQs and conceptual clarity.
Mentioned Tickers / Assets / Sectors / Examples
- Stocks: Tata Motors, Bajaj Finance, ITC, Infosys
- Indices: Nifty 50
- Sectors: Real Estate, Chemical Industry, FMCG
- Instruments: Equity Mutual Funds, Real Estate Funds, Gold Funds, Debt Securities
- Ratios: EPS, P/E, PEG, P/B, Dividend Yield
Presenter
Deepak from Finance With Nobita
This summary captures the key finance concepts, methodologies, ratios, and frameworks discussed in the video for mutual fund performance, risk, and return analysis aligned with the NISM VA Mutual Fund certification syllabus.
Category
Finance
