A

CEC PROJECT REPORT

SUBMITTED TO

SHREE M. H. KADAKIYA INSTITUTE OF MANAGEMENT AND

COMPUTER STUDIES

AFFILIATED TO

GUJARAT TECHNOLOGICAL UNIVERSITY

CEC PROJECT REPORT

IN PARTIAL FULFILMENT OF THE

REQUIREMENT FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO:- Mrs. NIYATI RANA

SUBMITTED BY:-

MALIK NISHATJAHAN MOHAMEDAYAZ (ENROLL. NO. : 167710592025)

RANA SHITAL (ENROLL. NO. : 167710592027)

PREFACE
1
This study report was a memorable experience and it has allowed us to learn a lot of
things in a programmed way practically on the field.

And it really mattered as things are completely different and complicated as compared
to the theoretical concept. And I can say that my knowledge is increased after doing
this project. Really knew that theoretical is no use without getting practical
knowledge as there are the two sides of technical knowledge.

I have taken due care in framing this Study Report but there is any omission or error. I
request you to overlook upon this fact, as this is sincere attempt to perceive things in a
proper way.

MALIK NISHATJAHAN
RANA SHITAL

2
 INDEX

SR. NO. PARTICULARS PAGE

NO.
1. Strategic Financial Management 4
 Tata Steel’s Takeover of Corus and its 5
Strategic Objective
2. Management Financial Services 9
 The Board of banking supervision 10
inquiry into the circumstances of the
collapse of barings
3. Security Analysis and Portfolio Management 17
 Performance Evaluation Of Mutual 18
Funds Schemes
4. Findings 24
6. Conclusion 25
Bibliography 26

3
STRATEGIC FINANCIAL
MANAGEMENT

4
TATA STEEL’S TAKEOVER OF CORUS AND ITS STRATEGIC
OBJECTIVE
On January 31, 2007, Tata Steel Limited (Tata Steel), one of the leading steel
producers in India, acquired the Anglo Dutch steel producer Corus Group Plc (Corus)
for US$ 12.11 billion (€ 8.5 billion). The process of acquisition concluded only after
nine rounds of bidding against the other bidder for Corus - the Brazil based
Companhia Siderurgica Nacional (CSN).

Issues:

 Gain an in-depth knowledge about various corporate valuation techniques.

 Critically examine the rationale behind the acquisition of Corus by Tata Steel.

 Understand the advantages and disadvantages of cross-border acquisitions.

 Understand the need for growth through acquisitions in foreign countries.

 Study the regulations governing mergers & acquisitions in the case of a cross-
border acquisition.

 Get insights into the consolidation trends in the Indian and global steel
industries.

Corus accepts takeover bid by Tata Steel

The board of directors of Anglo-Dutch steelmaker Corus has accepted a $7.6 billion
takeover bid from Tata Steel, the two sides confirmed on Friday. The deal is the
largest Indian takeover of a foreign company and will create the world's fifth-largest
steel group. In 2005, Tata Steel was only the world's 56th biggest steel producer and
its takeover of Corus represents its first expansion outside Asia.

"The board has recommended Tata Steel's offer. We are hopeful that the shareholders
will accept it," David Jackson, director (communications) of Corus, told CNBC-TV18
news channel on Friday. Tata Group chairman Ratan Tata also confirmed that it has
agreed to acquire the European steel company at 455 pence per share, putting the
enterprise value of Corus at about $10 billion.

5
"This proposed acquisition represents a defining moment for Tata Steel and is entirely
consistent with our strategy of growth through international expansion," Tata said.
Jackson said the deal comes at the "right time and at the right price" and expressed
hope that shareholders as well as trade unions would respond positively to the offer.

Ratan Tata, who is also chairman of Tata Steel, was quoted in an AFX report as saying
that the two companies have compatible cultures of commitment to stakeholders and
complimentary strengths in technology, efficiency, product mix and geographical
spread. As per the agreement, 75 per cent of Corus shareholders would have to tender
their shares for the acquisition to be complete.

When complete, this would be the largest takeover by an Indian company overseas.
The deal would also catapult the combined entity to among the world's largest steel
companies with a total capacity of about 24 million tonnes per year. B Muthuraman,
managing director of Tata Steel, said in a press meet in London that the new,
combined entity of Tata Steel-Corus would have a capacity of 40 million tonne by
2011-12.

"The combined entity will have a turnover of $32 billion by 2011-12 with an EBIDTA
margin of 25%," Muthuraman said. He also discussed the six-pronged strategy
outlined by Tata Steel in 2003 where the target was to increase capacity from 4
million tonne then to 30 million tonne by 2015.

Muthuraman was addressing the media in a meet attended by Tata Group chief Ratan
Tata along with the top management team of Corus CEO Phillipe Varin and chairman
Jim Leng. Ratan Tata said the"offer" was the right offer, and was it was not
"appropriate" to say anything more on the issue.

Kaushik Chatterjee, VP (Finance) of Tata Steel, said the transaction has been based on
an enterprise value of $10.26 billion. Out of this Tata Steel will fund $3.5 billion, and
the remaining would be raised through the SPV floated for the purpose. Muthuraman
said that there will be no change in Corus management. "We are not going to stop
with here. Corus will complete its own plans, and there will be no change in Corus
management," Muthuraman said. He added that an integration committee will be put
in place, and the buy will open new markets for the company.

6
The London-based Corus Group is one of the world's largest producers of steel and
aluminium. Corus was formed in 1999 following the merger of Dutch group
Koninklijke Hoogovens N.V. with the UK's British Steel Plc on October 6, 1999. It
employs 47,300 people worldwide and 24,000 people in the United Kingdom.

It is listed on the London Stock Exchange, Euronext Amsterdam and the New York
Stock Exchange.

Corus has four divisions: strip products division, long products division, distribution
and building systems division, and aluminium division. Corus has an annual turnover
of $18 billion.

After the Arcelor-Mittal Steel merger, the buzz was that Corus too would soon be a
part of the next round of consolidation in the global steel industry, and likely partners
could include, among others, Tata Steel.

On October 5 2006, Tata Steel announced that it was looking at various acquisition
opportunities, including Corus Group. The announcement was followed by another on
October 17, 2006 stating that Tata was is in discussions with the Board and
Management of Corus Group and that it has made an indicative non-binding offer to
acquire 100 per cent equity in Corus Group at 455 pence per share.

The Corus shares have risen in recent months on speculation the Anglo-Dutch group
could face a takeover following the recent creation of Arcelor Mittal. Tata Steel
produced more than five million tonnes in the year ending March 2006 and aims to
reach 7.5 million tones by 2008. It has $3.8 billion in annual turnover.

TATA STEEL-CORUS: A WIN-WIN SITUATION

The Tata Steel's bid for Corus Steel, the first multi-billion dollar bid for an overseas
company, is a landmark case in Indian corporate history. The Tata Steel's interest in
acquiring Corus is in line with its growth objective of entering new, higher end
markets and acquiring sophisticated customer base. Enhanced scale will position the
combined group as the fifth largest steel company in the world by production and will
create vertically integrated global steel company with crude steel output of more than
23 MT. Cost concerns forced Corus to search for a strategic partner.

7
Tata steel is the world's lowest cost producer of steel, while Corus's cost of production
is almost twice that of Tata Steel. The deal will be finalized on the 4th of December
2006 at an extraordinary general meeting held by Corus. The company would require
support of half of the shareholders present at the meeting and 75% of shares in value.
If the deal goes through, it will be India's largest ever-foreign takeover, extending a
wave of consolidation in the fragmented steel sector after Mittal Steel's $31 bn
acquisition of rival Arcelor.

Benefits

To Tata Steel:

 Tata Steel will leapfrog from the fifty-sixth largest steel producer in the world
to the fifth position.

 The company will have better geographical mix. Tata steel will have access to
40 countries across the globe, transforming it into a major global player from a
domestic player.

 It will also achieve access to high-developed markets and premium customer

base.

 There will be a transfer, from Europe to India, of technology, and expertise,

research and development capabilities in the automotive, packaging and
construction sectors, increased procurement knowledge and in effect, a better
bargaining power.

To Corus, the primary benefit:

 Corus does not have any significant mining interest or asset since the second
half of 2002, when it sold off its minority holding in Avesta Polarit to
Outokumpu. On the other hand, the link-up with a low-cost producer with
access to raw materials will enable Corus to compete on a global scale.

8
 MANAGEMENT FINANCIAL
SERVICES

THE BOARD OF BANKING SUPERVISION INQUIRY

INTO THE CIRCUMSTANCES OF THE COLLAPSE OF
BARINGS:
9
OVERVIEW OF THE BARINGS COLLAPSE:

Barings had a long history in London, with a presence in merchant banking of over
230 years. At the time of the collapse, the Barings Group comprised an authorised
bank in the UK (Baring Bros & Co), a securities company (Barings Securities Limited
– BSL) and various subsidiaries and branches operating in the UK and other
countries. From the late 1980s, Barings had been involved in major structural
changes, entering new areas of business and attempting to incorporate those new
activities into the Group structure. The most challenging task was the incorporation of
the securities business into a structure which, until then, had been dominated by
banking activities and culture.

The collapse of the Barings Group was the product of losses incurred within one of its
subsidiary companies, Barings Futures Singapore (BFS). Subsequent investigation by
the Bank of England (BoE) revealed that at end December 1994, cumulative losses of
over £200 million had not been recognised in Barings’ accounts, with unrecognised
losses in 1994 amounting to £185 million. This contrasted with the financial position
indicated in the draft financial accounts for 1994, where pre-tax profit of £102 million
was shown (this result was after allowing for transfers to a Group bonus pool of the
same amount).

The magnitude of the true loss as at December 1994, had the position been discovered
at that time, might not have brought about the collapse of Barings. At that point,
recorded Group capital was in the order of £350 million. Over the course of the next
two months, however, cumulative unreported losses grew almost threefold, reaching
£827million by 27February 1995. Adding in the costs of closing out all positions,
cumulative losses incurred on BFS’s unauthorised trading totalled £927 million.

The proximate cause of the losses, and the subsequent collapse, was the unauthorised
trading activities of the head of BFS, Nick Leeson. Leeson was authorised to engage
in active trading out of Singapore, but only as part of a ‘switching’ (or arbitrage)
operation between the Singaporean and Osaka futures exchanges. These activities
were viewed as low-risk operations by Barings management, given that they did not

10
involve outright, open positions on the exchanges. It is now known, however, that
Leeson had engaged, for a period of 21/2 years, in unauthorised position – taking in
Nikkei futures and Japanese Government Bond (JGB) futures on SIMEX and Osaka
futures exchanges. In addition, Leeson had exposed the capital of the Group to
unlimited potential loss by writing, again without authority, exchange-traded options
against the Nikkei Index on those same exchanges. By early 1995, Leeson had
adopted a trading strategy which saw him taking:

To be profitable, the respective positions would have required futures prices on the
Nikkei Index to have increased, Japanese bond prices to have fallen and for volatility
in the Nikkei Index to have remained low. In fact, from around mid January, the
Nikkei fell, at times sharply. This led to a deterioration in both the Nikkei futures and
options positions. Similarly, an easing in Japanese interest rates saw losses incurred
from the short JGB futures positions. The sequence of profits and losses from the
various positions in the different markets was not even over January and February. At
times, losses in one market were offset by gains in another. At one point in early
February, Leeson had recovered losses made from the start of the year. In the final
two weeks of February, however, all the markets in which he held open positions
turned against him. It was over this two week period that the bulk of the net losses
was recorded.

The official Bank of England report said Nick Leeson, the Singapore-based futures
trader, ran up losses totalling pounds 827m which he covered up in secret accounts
and false accounting. He was allowed to do so by Christopher Thompson, a senior
Bank of England official who gave Barings a special waiver to fund hundreds of
millions of share deals in the Far East and who resigned last week.

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Eddie George, Governor of the Bank of England, said last night there would be no
prosecutions of the 23 former Barings top executives, and that he could not rule out
that they would take new jobs in the City.

11
Kenneth Clarke, the Chancellor, denied in the Commons that the banking regulatory
system was at fault and blamed Mr Thompson, number four in the Bank's banking
supervision division, for making "an informal concession" to Barings, allowing it to
breach the safety margin imposed on all banks.

Mr Clarke, who faced Labour allegations of complacency, said the Board of Banking
Supervision, which carried out the report, found a "number of shortcomings" and a
"lack of rigour" by the Bank. MPs hooted in derision as he said: "The arrangements
are as good as the people who carry them out."

Charging Mr Leeson with overwhelming responsibility for the collapse, Mr George

said: "This was a premeditated thing, developed over a long period of time and with
great care. The law will take its course."

The report could not determine Mr Leeson's motives nor could it rule out the
possibility that he may have been acting with others. But Mr George said there would
be no further resignations and sought to confine the blame within the bank to Mr
Thompson.

However, the Chancellor's statement widened the damaging rift between the Bank and
the Treasury over who should be responsible for regulating Britain's financial
services. The 337-page Report of the Board of Banking Supervision inquiry into the
circumstances of the collapse of Barings was the result of five months of
investigation. However, the investigators did not have access to the key player, who is
still in a Frankfurt jail awaiting a decision on an extradition request to Singapore. Nor
did the inquiry receive much assistance from the authorities in Singapore, where Mr
Leeson's ruinous derivatives speculation was carried out.

Mr Leeson's wife, Lisa, broke down and wept when told that her husband was the key
focus of blame in the report. "I don't suppose we expected anything different," she
said at Elizabeth's Tea Rooms in Maidstone, Kent, where she works as a part-time
waitress. "We just feel as if we are in a deep, dark tunnel."

The report stated: "The Barings collapse was due to the unauthorised and ultimately
catastrophic activities of, it appears, one individual [Leeson] that went undetected as a

12
consequence of a failure of management and other internal controls of the most basic
kind."

In considerable detail, the report traces how Mr Leeson used a secret account, 88888,
to carry out trades for which he had no authority, and to hide the steady mounting
losses. All this time his superiors in London and Singapore believed he was one of
Barings' star traders.

He was due a bonus worth pounds 450,000 as reward for the profits he earned for the
bank in 1994. In reality, however, by the end of 1994 the secret account already hid
losses amounting to pounds 208m. After his double or quits gamble to extract himself
from this ruinous derivatives speculation, Mr Leeson brought the bank crashing down
in February.

Senior management, from Peter Baring, the former chairman, downwards, are
castigated for running a global securities operation with hopelessly inadequate
controls, and for failing to heed warning signs. "We consider that those with direct
executive responsibility for establishing effective controls must bear much of the
blame."

Labour and Tory MPs said Mr Leeson and Mr Thompson were being made scapegoats
for the catastrophic losses and said they did not believe it could be blamed on one
"rogue trader".

In spite of Mr Clarke's relaxed Commons performance, he was given a rough ride by

his own side. Whitehall sources said he had briefed a hand-picked group of Tory MPs
before the statement and had made clear in private that he had been deeply
embarrassed by the failures at the Bank. "There was a great deal of embarrassment
over this. He found little he could say that was good about it," said one source.

Mr George angrily rejected suggestions that the collapse of Barings had resulted from
a breakdown in the City's old boys' network, or that the report had been soft on the
13
Bank. "If you regard this report as old boy nod and wink I don't think you will find
that the people out there do," he said.

'Barings' collapse was due to the unauthorised and ultimately catastrophic activities
of, it appears, one individual (Leeson) that went undetected as a consequence of a
failure of management and other internal controls of the most basic kind' Inquiry
report 'The report must by its very nature be flawed since it was compiled without
speaking to the central character in the collapse of Barings' Stephen Pollard, Nick
Leeson's lawyer 'The report has provided a damning indictment of the Bank of
England's whole approach to supervision of the banking system' Gordon Brown,
Shadow Chancellor 'If you regard this report as an old boy nod and wink, I don't think
that you will find the people out there do' Eddie George, Governor of the Bank of
England.

On 26 February 1995, administrators were appointed to manage the affairs of the

Barings Group parent company and a number of other companies within the Barings
Group. This followed the discovery of massive trading losses incurred by Barings
Futures Singapore (BFS), an indirect subsidiary of the Barings bank, on Singaporean
and Japanese exchanges. On the following day an Inquiry by the Board of Banking
Supervision was announced by the Chancellor of the Exchequer. Its main objective
was to investigate the circumstances of the collapse, and to draw lessons from the
experience for institutions, for the Bank of England’s supervisory arrangements and
for the structure of regulation within the UK financial system more generally. The
Board issued its Report on 18 July. It detailed the recent history of the Barings Group,
the nature of the trading activities conducted within the Group, and how losses arose
within BFS, were concealed and, ultimately, discovered.

The Inquiry considered the question of how unauthorised trading activities continued
for more than two years without detection by the Barings management, by the internal
and external auditors, or by various supervisors and regulators.1 Finally, the Inquiry
drew some conclusions and lessons from the experience.

This article provides a short summary of the circumstances which led to the Barings
collapse. It then outlines the main findings and conclusions of the Board of Banking
Supervision, and makes some observations on the possible implications of those
14
findings for banking supervisors. Finally, it makes some brief comments on the
Barings collapse from the perspective of the Reserve Bank.

SOME OBSERVATIONS ON THE BARINGS:

The Report contains a comprehensive description and analysis of the events that led to
the collapse of the Barings Group. The conclusions that neither the products traded
nor Barings business was particularly complex, and that the problem was one of
inadequate systems to measure, monitor and manage risk, follow directly from the
facts as revealed. It was essentially a problem of the management and staff of an
institution not adhering to practices that many would regard as quite basic to any
global trading operation.

That said, it is puzzling that Barings management, for the most part comprised of
experienced bankers, should have failed so dramatically in their duties. A second issue
is why the risk management and detection structures, which in theory at least existed
within the Barings Group of companies, proved to be so inadequate. That Barings
Group management were looking to improve control systems is acknowledged in the
Report. Indeed, one of the central aims of the organisational restructure which was
under way within the Group was to improve risk management systems, especially in
the securities side of the business. One hurdle which Barings management faced in
pursuing that objective was that the two broad businesses – the bank and the securities
house – possessed greatly different management styles, cultures and, perhaps,
appetites for risk. In those circumstances, long lead times can be involved in
establishing integrated systems and giving practical effect to them.

While those improved systems are being put in place, there are risks that controls
could be subverted and a particularly heavy responsibility tends to fall on the line
management and staff. Such was the case at Barings. This does not excuse the gross
failings of systems and individuals. Rather, the lesson to be drawn is that appropriate
high-level systems need not only to be adopted and identified as a bank policy, but
also be made to work in a measurable time-frame.

A further point is that, while the contracts traded by Leeson were not intrinsically
complex, the authorised business environment had features which provided

15
camouflage for the unauthorised activities. The authorised activities involved
exceptionally large (though theoretically riskless) positions spanning exchanges in
two countries, four subsidiaries (viewed as clients on some occasions and ‘in house’
counterparties at other times) and involved margining requirements which did not
appear to be appreciated by senior management in London. This helps to explain why
Barings management was not surprised or alerted by the large trading volumes, the
large ‘profits’ and the large requirements to fund margins at the exchanges. Another
lesson of the Barings experience is the speed with which problems in a trading area
can manifest themselves.

Although Leeson was involved in unauthorised activities for between two and three
years, losses even up to early February were not sufficient to ‘break the bank’. It is
also worth recalling that one-quarter of the eventual gross losses of the Barings Group
were incurred on a single day. For supervisors, a lesson is that emphasis on statistical
reporting will not generally provide effective early warnings where market risk is
concerned; instead the focus must be on the methodologies employed by banks to
identify and measure risk, and on their systems to achieve good risk management
practice.

16
 SECURITY ANALYSIS AND
PORTFOLIO MANAGEMENT

PERFORMANCE EVALUATION OF MUTUAL FUNDS

SCHEMES:
INTRODUCTION
Performance evaluation is a technique to evaluate past, current and projected
performance of a concern. Generally financial appraisal is concerned with the analysis
of financial statements. This analysis can be applied to any kind of detailed
information of financial data. The main purpose of this analysis is to evaluate whether
the organization use its resources effectively and efficiently or not. According to R. K.
Anthony, ―The overall objective of a business is to earn satisfactory return on the
funds invested in it, consistent with maintaining a sound financial position. According
17
to S. K. Das, ―The primary objectives of appraisal of financial statements are to
determine the measure of efficiency of operations or the profitability from its income
statement and to appraise financial strength as compared with similar situated
concern.‖ Financial appraisals are intended to give an accurate picture of the financial
condition of a concern in condensed form.

John C. Bogie (1970) described the unconventional approach to performance

evaluation seems more likely to provide solid ground for the measurement of the
record of an investment account.

The formulation of this approach will endeavor to prove among other these two basic
points:

 That the long held saying that risk and reward go hand in hand, in the sense
that the relationship between a fund‘s long-term average return and the
variability of that return from year to year fits a rather consistent pattern.
 That the performance of fund groups (balanced, income/growth, growth and
aggressive are the categories used) bear a highly consistent relationship to the
action of the market and has in fact, been rather rigidly predictable. (It should
be emphasized that it is group relative performance that is predictable, not
individual fund performance nor absolute performance).

The majority of US studies conclude that actively managed portfolios, on average,

under perform market indices. For eg. Jensen (1968) and Sharpe (1966) argue
mutual funds underperform the market by the amount of expenses they charge the
investor. A study of Ippolito (1989), however, documented significantly positive
performance of US mutual funds when compared to Standard and poor‘500 Index
(S & P 500). The Ippolito article marked the renewed interest in mutual fund
performance measurement. Subsequently authors argued that Ippolito‘s results
were mainly driven by non-S&P 500 holdings in mutual fund portfolios. This led
to the emergence of extended models that control for several stock market
anomalies.
For instance, fama and French, (1992, 1996) add proxies for size and book-to-
market, while Carhart (1997) introduces a stock-momentum variable. Finally
Ferson and Schadt (1996) explore the added value of introducing timevarying
betas and alphas in existing models. By doing this we take into account the fact

18
 that fund managers change their portfolios over time, based on observable
information variables. Two models can be used for evaluating mutual fund
performance, one is conditional model and another is unconditional model.

PROCESS OF FINANCIAL EVALUATION:

Financial evaluation is generally directed towards evaluating the liquidity, stability

and profitability of a concern. The financial appraisal of a concern involves the
following steps:

 Collection of financial data

 Classification and tabulation of financial data
 Application of appropriate techniques

FINANCIAL AND STATISTICAL TOOLS OF MEASUREMENT:

The tools like return, risk, and risk-free rate of return were used for risk-return
analysis of schemes in relation to that of the market as per Sharpe, Treynor and Jensen
Models. The major portion of funds mobilized through growth schemes are invested
in equity shares. In analyzing the risk-return relationship the CAPM is used widely.
The CAPM uses the concept of beta to link risk with return.

Beta as a measure of systematic risk shows how the NAV of a growth scheme
responds to changes in market performance. Using the beta concept the CAPM helps
to define the required return on a security.

The equation for calculating the expected return based on CAPM is as follows:

Ri= Rf + (Rm - Rf)

Ri = Expected return

Rf = Risk-free return

β= Measure of systematic risk

Rm = Market return

The following tools of analysis adopted in this study were the same as used in the
previous studies by Carlson Robert S(1970), Fama Eugene(1972), Sarkar A K(1991),
Shashikant Uma(1993), Yadav R A(1996), Jayadev M(1996), Wilfred L

19
Dellava(1998), Gupta Amitabh(2000), Sondhi H J(2005), and others over the time
period.

PORTFOLIO RETURN:

Portfolio return refers to the yield from the selected growth schemes with growth
option. Portfolio returns (Rp) are calculated on the basis of changes in the NAV on a
weekly basis. Average of such weekly returns (ARp) is calculated on a yearly basis
and for the entire period of study as follows:

Rp =

Rp is the return of the portfolio on a weekly basis

‘t’ is the time period

MARKET RETURN:

Market Return is calculated on the basis of the changes in the BSE 100 Index on a
weekly basis (Rm) and the averages of such weekly returns (ARm) are arrived at for
every year and for the total period of study. BSE 100 index was used as a benchmark
for the selected growth schemes as it is widely considered as a market proxy or
benchmark for the purpose of academics, research and practicing fund managers.

BSE 100 index is used as a benchmark as it is a broad based index, consisting of 100
actively traded equity shares representing more than 70 percent of the total market
capitalization in Bombay Stock Exchange.

The market return is calculated as follows:

Rm =

RISK:

Risk is the uncertainty and variability of returns / capital appreciation or loss of both.
Total risk is measured with the help of standard deviation of both scheme and market
20
returns. The total risk of an investment consists of two components: Diversifiable and
non-diversifiable risk.

CLOSED-END V/s OPEN-ENDED MUTUAL FUND SCHEMES-

INDIAN SCENARIO:

Earlier in the Indian market close ended schemes were more popular than the open
ended schemes till SEBI made some regulatory changes in close ended schemes such
as removal of initial issue expenses and ban on early exits by investors from these
schemes (2008-09). Open ended schemes had been popular neither with individual
investor nor with the mutual fund organization as they were perceived by investors as
less safe than close ended mutual fund schemes in thought to provide liquidity to them
through listing. Mutual fund organizations also hesitated to offer genuinely open-
ended schemes because of insufficient liquidity of the Indian securities market.
Liquidity is limited to a few securities and even in these so called liquid securities,
realization of sale proceeds take several weeks after the trade. This hampers quick
turnaround of funds through sale and purchase of securities on delivery basis. Hence
open-end funds can face cash problems if there is a sudden surge of demand foe
encashment of holdings by investors.

Thus close ended schemes dominated the Indian mutual fund scene. This is in contrast
to the most developed countries (like USA and UK) where open ended funds are more
popular because of their simplicity and reliability. The open-ended arrangement there
assures the investor that he will always be able to realize the NAV whereas listing
does not. In case of close ended funds liquidity to their holders are provided through
listing of units on stock exchanges. There are two problems here. First not all
investors have easy access to recognized brokers to execute a transaction on the stock
exchange, second even listing of units does not ensure active trading in them, as is
true for many listed shares. Hence, listing of a mutual fund schemes does not
guarantee liquidity nor does it guarantee a price equal to NAV.

The day to day prices of units on the stock exchange have been to differ from NAV,
mostly being lower than NAV. There is no certainty about prices realization in the
case of listed units because all prices. On stock exchange keep on fluctuating
21
considerably. Further close ended schemes force on the investors three
insurmountable problems. First at the time of redemption, the mutual funds dump the
entire maturity proceeds on the lap of the investors; even he does not need the money
at that juncture. He is forced to pay tax there on and reinvest the remaining funds in
similar schemes. Secondly, such close ended schemes may not be available to the
investor when even he has investible funds with him. Thirdly, close ended schemes
continue to be listed even if the mutual fund has its doors open for repurchase. The
investor in distress goes to the market with a hope to get money much earlier than
what is possible through repurchase because it is known fact that some of the mutual
funds take undue time in making payment against repurchases.

The brokers in the market have been taking undue advantage of this situation by
managing to hold the prices at a heavy discount over the NAV. This market price is
not only heavily discounted to NAV, but investors also have to fork out brokerage
while selling units besides having to wait longer to get their money. However when
someone tries to buy the units at the quoted price he is not able to do so. The jobbing
difference is unreasonably high. On the other hand (from the investor point of view)
open ended funds have weighty advantages. Open-ended arrangement completely
assures liquidity whereas listing does not.

The investor wanting to liquidate his holdings sells directly to the mutual fund
organization in the case of open-ended fund which is simpler than going through
brokers. The price which can be realized on sale will be known to investor and is
stable because it is tied to NAV. It thus gives investors a fair exit route at zero
discount to the NAV. An open ended scheme gives investors ‗real price‘ when they
put in their redemption request. Since most of the open ended schemes dispatch only
statements of accounts in lieu of unit certificates, efforts associated with the actual
handling of stocks are greatly reduced.

These all have made open-ended schemes more popular with the investors in the later
part of 1993. Increasing popularity of open-ended funds was evident from the success
of UTI‘s US-64 scheme, which has a corpus of ₨17,000 crore and an investor base
of 25 million and more recently by the madras based Kothari Prima Fund which grew
109% in less than a year. The success of these two has encouraged others to go for
open-ended schemes and they are being backed by banks and financial institutions in
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their effort. At least 20 new open funds hit the market with a corpus of ₨5,000 crore
in the first quarter of 1995.

Other mutual fund likely to move fastest into this track is GIC mutual fund. GIC
mutual fund, which planned to capitalize on its Soros link, was planning to float at
least two open-ended schemes by March 1995, if one goes by its annual plan. The
ICICI mutual fund announced its open-ended schemes by the end of 1994. Also
waiting in the wings was Canbank mutual fund, which was planning to launch an
open-ended scheme on the lines of UTI-64 by December 94. Also SBI mutual fund
found their way in the market in early 95.

FINDINGS

 The board of directors of Anglo-Dutch steelmaker Corus has accepted a $7.6

billion takeover bid from Tata Steel

 The largest Indian takeover of a foreign company and will create the world's
fifth-largest steel group.

 When complete, this would be the largest takeover by an Indian company

overseas.

 The Board of Banking Supervision sought to establish how the massive losses
were incurred and why the true position within BFS, and thus within the
Barings Group, was not identified earlier.

 The Board identified a number of failings associated with the measurement

and management of risks within the global operations of Barings.

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  Performance evaluation is a technique to evaluate past, current and projected
performance of a concern. Generally financial appraisal is concerned with the
analysis of financial statements.

 Financial evaluation is generally directed towards evaluating the liquidity,

stability and profitability of a concern.

 The tools like return, risk, and risk-free rate of return were used for risk-return
analysis of schemes in relation to that of the market as per Sharpe, Treynor
and Jensen Models.

CONCLUSION

"The board has recommended Tata Steel's offer. We are hopeful that the shareholders
will accept it," David Jackson, director (communications) of Corus, told CNBC-TV18
news channel on Friday. Tata Group chairman Ratan Tata also confirmed that it has
agreed to acquire the European steel company at 455 pence per share, putting the
enterprise value of Corus at about $10 billion.

The Barings collapse is another reminder of the serious problems which can arise
within banks. In this instance, the difficulties led to the failure of a banking group
with a history spanning over 230 years. Contrary to initial and popular reactions to the
collapse, however, the Barings experience says less about the ‘problems’ with banks’
use of derivatives than about the problems that arise when risk management systems
and practices and accounting procedures are ineffective. The experience also
demonstrates the particular problems that can arise where there is deceptive activity
and fraud on the part of senior bank staff.
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Thus close ended schemes dominated the Indian mutual fund scene. This is in contrast
to the most developed countries (like USA and UK) where open ended funds are more
popular because of their simplicity and reliability. The open-ended arrangement there
assures the investor that he will always be able to realize the NAV whereas listing
does not. In case of close ended funds liquidity to their holders are provided through
listing of units on stock exchanges.

BIBLIOGRAPHY

 https://www.equitymaster.com/detail.asp?
date=11/13/2006&story=1&title=Tata-Steel%2DCorus-A-Win%2DWin-
Situation

 https://m.rediff.com/money/2006/oct/20tata.htm

 https://www.gov.uk/government/publications/report-into-the-collapse-of-
barings-bank
 http://www.independent.co.uk/news/bank-of-england-offloads-blame-for-
barings-collapse-1592093.html

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