PROJECT REPORT On

Exchange Traded Funds vs. Index Funds: Comparative Performance Analysis

SUMIT KUMAR

1NH17MBA79

Submitted to

DEPARTMENT OF MANAGEMENT STUDIES NEW HORIZON COLLEGE OF ENGINEERING, OUTER RING ROAD, MARATHALLI, BANGALORE

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

INTERNAL GUIDE EXTERNAL GUIDE

Mr. SHESHU A Mr. HEMANTH. L

ASSISTANT PROFESSOR RFP SPECIALIST, SSGA

2017-19

CERTIFICATE

This is to certify that SUMIT KUMAR bearing USN NO - 1NH17MBA79, is a bonafide student of Master of Business Administration course of the Institute 2017-19, autonomous program, affiliated to Visvesvaraya Technological University, Belgaum. Seminar report on “Exchange Traded Funds vs. Index Funds: Comparative Performance Analysis” is prepared by him/her under the guidance of Mr. SHESHU A, in partial fulfillment of requirements for the award of the degree of Master of Business Administration of Visvesvaraya Technological University, Belgaum Karnataka.

Signature of Internal Guide Signature of HOD Signature of Principal

DECLARATION

I, Sumit Kumar , hereby declare that the Seminar report entitled “ Exchange Traded Funds vs. Index Funds: Comparative Performance Analysis” with reference to “STATE STREET GLOBAL ADVISORS, Bangalore” prepared by me under the guidance of Mr. SHESHU A , faculty of M.B.A Department, New Horizon College of Engineering. I also declare that this project report is towards the partial fulfillment of the university regulations for the award of the degree of Master of Business Administration by Visvesvaraya Technological University, Belgaum. I have undergone an industry Seminar for a period of Eight weeks. I further declare that this report is based on the original study undertaken by me and has not been submitted for the award of a degree/diploma from any other University / Institution.

Signature of Student Sumit Kumar Place: Bangalore Date:

ACKNOWLEDGEMENT

I take this opportunity to thank Dr. Mohan Manghnani, chairman of New Horizon College of Engineering for providing us excellent infrastructure that is required for the development of our project.

I would like to thank Dr. Manjunatha, Principal, for providing us conductive ambience for developing the project.

I am also grateful to Dr. Sheehan Misra, HOD, Department of Management Studies, for providing support and encouragement.

I would like to express my sincere gratitude to my Project Guide, Mr. SHESHU A, Assistant Professor, Department of Management Studies, for his able assistance, timely suggestions and guidance throughout the duration of the project.

I would also like to express my sincere gratitude to STATE STREET GLOBAL ADVISORS, Bangalore Company for providing me an opportunity to work as an Intern and also helped in my project.

I also convey my gratitude to all the staff of Department of Management Studies and those who have contributed to this project directly or indirectly. TABLE OF CONTENTS

Chapter Title Page number

1 Introduction 1

2 Literature Review 49

3 Research Methodology 55

4 Data Analysis and Interpretation 57

5 Finding, Suggestions and Conclusions 66

6 Bibliography 67

LIST OF TABLES

Serial number Table name Page number

1 Annual Returns of Index Funds. 57

2 Annual Returns of Exchange Traded Funds. 58

3 Risk analysis of Index Funds. 59

4 Risk Analysis of Exchange Traded Funds. 60

LIST OF GRAPHS

Serial Number Graph Name Page Number

1. Franklin india Index Nifty Plan. 62

2. HDFC Index Fund Nifty Plan 62

3. IDBI Nifty Index Fund 63

4. UTI Nifty Index Fund 63

5. Kotak Nifty ETF 64

6. Aditya Birla Sun Life ETF 64

7. ICICI Prudential Nifty IWIN ETF 65

8. Reliance Equity Nifty BeES 65

EXECUTIVE SUMMARY

To do any report on the organization it is necessary to learn about the company in-depth. In this report people will come to know about the organization structure STATE STREET GLOBAL ADVISORS, Bangalore. The performance of the company in the market. SWOT analysis their strengths, weakness, opportunities, threats. Exchange Traded Funds (ETFs) and Index Funds both are innovative products. ETFs are baskets of securities that are traded on the stock exchange. It is a hybrid financial product that bears the twin features of a stock and a mutual fund whereas Index Funds are mutual funds which replicate the performance of broad market index but can be purchased or redeemed only at the end of the day at the value of their net assets (NAV). The proposed study aims to cover the performance evaluation of Indian ETFs and Index Funds which track the same benchmark. Four different index funds along with four different exchange traded funds are considered in the study respectively tracking same benchmark .The study is based on secondary data and covers a period of five years i.e. from 2014-18 for the purpose of evaluating relative performance of selected ETFs and Index Funds. The parameters used for evaluating the performance are: Return, Risk, Sharpe Ratio, Beta, Jensen’s Alpha and R square. This study will enable to recognize the difference in performance of two significant similar passive investment strategies. The project has given us a very good exposure to know the industry and to understand the working of industry.

CHAPTER 1

INTRODUCTION 1.1 Concept of Exchange traded funds

An Exchange-Traded Fund (ETF) is an investment company whose shares are traded intra-day on stock exchanges at market-determined prices. ETFs enable investors to buy or sell shares on the collective performance of a stock or bond portfolio. ETF is an innovative product which puts together favorable characteristics of open-ended and closed-ended mutual funds and presents a more flexible and liquid product for investors. Over the past decade, demand for ETFs has grown markedly as investors—both institutional and retail—increasingly turn to them as investment options in their portfolios. With the increase in demand, sponsors have offered more ETFs with a greater variety of investment objectives. While ETFs share some basic characteristics with mutual funds, there remain key operational and structural differences between the two types of investment products. An ETF is an investment company, typically a mutual fund or unit investment trust, whose shares are traded intraday on stock exchanges at market-determined prices. Investors may buy or sell ETF shares through a broker just as they would buy the shares of any publicly traded company. ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any other stock. An Index Fund is a Mutual Fund that aims to replicate the movements of an index of a specific financial market. An Index Fund follows a passive investing strategy called Indexing. It involves tracking an index say for example, the Sensex or the Nifty and builds a portfolio with the same stocks in the same proportions as the index. The Fund makes no effort to beat the index and in fact it merely tries to earn the same return. Exchange-traded funds (ETFs), which offer flexibility of a stock and protection of a fund, are catching on big time with Indian investors. ETFs, which invest in stocks comprising an index, traded on exchanges. Financial planners are increasingly recommending ETFs to investors who have long-term goals and want to invest in equity without taking too much risk. This is reflected in average assets under management in the retail ETF category, which have risen from Rs 59 crore in March 2009 to Rs 394 crore in March 2012 and finally stood 19,224.82 crores in 18th May 2016 according to the www.moneycontrol.com. Investors are now realizing the benefits of ETF’s and have started to invest in and find value in ETF’s and Index Based Fund.

1.2 ETF v/s Mutual Fund

Exchange traded funds are different from mutual funds in a way that ETFs are listed and traded on the stock exchanges, they can be bought and sold throughout the day, whereas mutual funds can be bought and sold at the end of the day at the fund’s net asset value (NAV). ETFs have lower expenses than mutual funds. ETFs don’t try to beat their underlying index, they replicate the performance of the index. They try to be the market and not try to beat it.

The first ETF Standard and Poor’s depository receipts, S&P SPDR (Spiders) started trading in the USA in 1993. Globally ETFs were passively managed; however currently there are many ETFs that are actively managed. ETFs today manage $4 trillion globally and there are 2000 ETFs listed in the USA. The first ETF in India was launched by Benchmark AMC in 2001 in the form of Nifty BeES. Benchmark sold all its schemes to Goldman Sachs mutual fund in 2011, which in turn sold them to Reliance Nippon Life. Majority of the ETFs in India are passively managed, they track their underlying benchmark indices. The current size of the Indian ETF market is INR 74963 Cr as on November 2017. Benchmark ETF managed INR 70 Cr in 2004 in ETFs. Growth of actively managed equity funds has been faster, actively managed equity funds have grown from INR 29360 Cr in 2004 to INR 8.55 lakh Cr as on October 2017.

Some of the types of ETF are:

• Index ETF • Gold ETF • Bank ETF • Liquid ETF

Index ETFs are the oldest and most common ETFs. Index ETFs invest in the same securities and in the same proportion of the index that they are tracking. Gold ETF gives investors exposure to gold without taking physical delivery of gold. The minimum ticket size to invest in physical gold is higher than if one were to invest in gold ETF, which can be bought in small denominations. Physical gold also needs to be stored and storage charges need to be incurred. Gold ETFs were more popular than equity ETFs even though gold ETFs were launched much after equity ETFs, however equity ETFs have gained more popularity in the last three years.

Bank ETFs invest in bank stocks listed on the index that it follows.

Liquid ETFs invest in basket of money market instruments of short maturities and short term government securities.

1.3 Advantages of ETF

ETFs have several advantages; some of them are listed below:

 ETFs provide convenience of buying and selling throughout the day, whereas index funds & mutual funds can be bought at the end of the day NAV.

 Low cost structure when compared to actively managed funds.

 Provide opportunity to investors to park their cash before they can decide to invest their funds in other assets at a low cost.

 Tracking error which is the difference between ETF portfolio returns and the benchmark or index it was meant to beat is low in the case of ETF when compared to normal index/mutual funds. This is due to lower expenses and unique creation/redemption process followed by the ETF. The lower the tracking error the better the ETF.

 The fund does not incur extra transactions costs while buying/selling index shares, these costs are borne by the authorized participant (APs)

 Investors enjoy flexibility of a stock and diversification of index fund.

 ETFs trade close to their NAVs due to the creation/redemption process. This provides transparency to the whole process.

1.4 Risks of ETFs

Some of the risks of ETFs are:

 ETF tracks an index, if the market falls down the ETF is not insulated.  ETFs can be bought and sold throughout the day, this may result in investors regularly trading ETFs, defeating the whole purpose of investing in an ETF.  Large investors and institutions may face liquidity risk while buying ETFs. It means that they may have to pay a premium to buy or sell at a discount.  Investors need to consider the tax implications while investing in ETFs.

1.5 ETF Structure

The important parties in an ETF are:  ETF Sponsor/AMC.  Authorised participants (APs).  Trading members & Investors.

ETF Sponsors

Companies or financial institutions which create and administer an ETF are called sponsors/AMC. They set the investment objective and constituents of the ETF. They also enlist authorised participants (APs). Once the sponsors have decided on which index they want to create ETFs they acquire shares that comprise that index. For e.g. if a sponsor wants to create an ETF on the CNX Nifty index then they will have to acquire shares that constitute the Nifty. The sponsors do not acquire the shares directly they have APs who delivery these securities to the sponsors. The sponsors deliver block of ETF shares called the creation unit to the APs. There is no exchange of cash here, the APs deliver the securities and the sponsor delivers the creation units. Once the APs receive the creation units they may sell the same in the secondary market.

Authorized Participants (APs)

ETF sponsors decide the APs for a particular ETF. Usually there are multiple APs to an ETF. APs are large ETF sponsors decide the APs for a particular ETF. Usually there are multiple APs to an ETF. APs are large creation/redemption process of the ETFs. This process keeps the ETFs priced at its fair value/in line with its NAV.

The creation/redemption process is important as it keeps the value of the ETF shares in line with the fund’s NAV. ETFs are traded like stocks, the price of these fluctuate on a daily basis depending on demand and supply. If on a given day there is lot of demand for ETFs, this will result in ETFs share price to trade above the value of its underlying securities. The APs intervene in this situation and buy underlying securities that compose the ETF and sell the ETF shares in the open market. This action of the AP will result in ETF shares trading at their fair value and it earns an arbitrage profit.

If there is lot of supply of ETFs on a given day the ETF share price will trade at a discount to the value of its underlying securities. The APs in this case will buy ETFs and redeem the underlying securities. This will bring back the ETF shares back to their fair value and APs earn an arbitrage profit.

Trading Members Trading members also known as broker dealers. They carry out buying and selling activities. They buy from APs and sell in the market and sell to APs and buy from the market. Retail investors and small institutions trade ETFs on the exchange and this is the secondary market. The creation/redemption process and large deals in ETFs happen in the primary market.

1.5 Index Funds

An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. These funds adhere to specific rules or standards (e.g. efficient tax management or reducing tracking errors) that stay in place no matter the state of the markets. Investing in an index fund is a form of passive investing. The primary advantage to such a strategy is the lower management expense ratio on an index fund. Also, a majority of mutual funds fail to beat broad indexes, such as the S&P 500. Index funds are generally considered ideal core portfolio holdings for retirement accounts, such as individual retirement accounts (IRAs) and 401(k) accounts. Since the fund managers of an index fund are simply replicating the performance of a benchmark index, they do not need the services of research analysts and others that assist in the stock selection process.

1.6 What are the advantages of investing in index funds? Index funds have a lot of advantages. They are as follows:-

 First, it should provide a satisfactory way to participate in whatever underlying market it represents with a single purchase.  Second, many index funds in the equity market tend to be run in a way that minimizes turnover. Low-turnover, or high passivity depending upon how we prefer to phrase it, has long been a key to successful investing.  Third, index funds tend to have lower mutual fund expense ratios than other mutual funds. This can add up to real money over time if you aren't fortunate enough to have a large portfolio with the requisite scale to take advantage of other opportunities and planning strategies.  Fourth, index funds have an enormous psychological advantage for people who are not inherently good at math.  Fifth, index funds, by nature of being diversified already, diffuse the dangers of investors who suffer from a cognitive bias called irrational escalation.  Sixth, index funds force people who cannot value businesses, and thus have no business owning stocks, to avoid the temptation to select individual ownership stakes in different enterprises.

1.7 What are the disadvantages of investing in index funds?  Lack of Downside Protection.  Lack of Reactive Ability.  No Control over Holdings.  Limited Exposure to Different Strategies.  Dampened Personal Satisfaction.

1.8 Comparison of ETFs, close ended and open-ended funds

Parameters Open ended Fund Closed Ended Fund Exchange Traded Fund

Fund Size Flexible Fixed Flexible

NAV Daily Daily Real Time

Liquidity provider Fund Itself Stock Market Stock market/ Fund Itself

Sale Price At NAV plus load, if Significant premium/ Very close to actual any discount of NAV NAV of the scheme

Availability Fund itself Through exchange Through exchange where listed where listed/ fund itself

Portfolio Disclosure Monthly Monthly Daily/Real Time

Uses Equitising cash - Equitising cash, hedging, arbitrage.

Intra Day Trading Not possible Expensive Possible at low cost

Apart from the above, ETFs have lower costs when compared to mutual funds as they passively track indices. ETFs have a total expense ratio (TER) of 0.05% – 0.10% annually. The TER of actively managed funds can go as up as high as 3%. Reasons for difference in costs are because transactions of ETFs are carried out on the exchanges whereas asset management companies (AMC) which manage mutual funds have overheads to run their day to day operations and attract exit loads.

1.9 ETF and Index Funds – Similarities

 Both Index Funds and ETFs are classified under the head of ‘indexing’ as it involves making an investment in an underlying benchmark index. The objective is to beat actively managed funds in multiple ways.

 They have low expense ratios compared to actively managed funds

 Funds are managed professionally and aim to reduce risks through diversification.

 They have a Net Asset Value determined as Total Value of the Underlying assets minus Fees / Total Number of Shares

1.10 Why are there different types of Mutual Funds?

1.10.1 Open-Ended Funds, Close-Ended Funds and Interval Funds

Open-ended funds are open for investors to enter or exit at any time, even after the NFO. The on-going entry and exit of investors implies that the unit capital in an open-ended fund would keep changing on a regular basis.

Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme, from the fund, only during its NFO. The fund makes arrangements for the units to be traded, post- NFO in a stock exchange. This is done through listing of the scheme in a stock exchange. Such listing is compulsory for close-ended schemes.

Interval funds combine features of both open-ended and close-ended schemes. They are largely close-ended, but become open-ended at pre-specified intervals. The benefit for investors is that, unlike in a purely close-ended scheme, they are not completely dependent on the stock exchange to be able to buy or sell units of the interval fund. However, between these intervals, the units have to be compulsorily listed on stock exchanges to allow investors an exit route.

1.10.2 Actively Managed Funds and Passive Funds

Actively managed funds are funds where the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective of the scheme. Since this increases the role of the fund manager, the expenses for running the fund turn out to be higher. Investors expect actively managed funds to perform better than the market.

Passive funds invest on the basis of a specified index, whose performance it seeks to track. Thus, a passive fund tracking the S&P BSE Sensex would buy only the shares that are part of the composition of the S&P BSE Sensex. Thus, the performance of these funds tends to mirror the concerned index. They are not designed to perform better than the market. Such schemes are also called index schemes.

Exchange Traded Funds (ETFs) are also passive funds whose portfolio replicates an index or benchmark such as an equity market index or a commodity index. The units are issued to the investors in a new fund offer (NFO) after which they are available for sale and purchase on a stock exchange.

1.10.3 Debt, Equity and Hybrid Funds

Equity schemes have an investment portfolio invested largely in equity shares and equity-related investments such as convertible debentures. The investment objective of such funds is to seek

capital appreciation through investment in these growth assets. Such schemes are called equity schemes.

Debt funds are Schemes with an investment objective that limits them to investments in debt securities such as Treasury Bills, Government Securities, Bonds and Debentures are called debt funds.

Hybrid funds have an investment charter that provides for investment in both debt and equity. Some of them invest in gold along with either debt or equity or both.

1.10.4 Types of Debt Funds

Debt funds can be categorized on the basis of the type of debt securities they invest in. The distinction can be primarily on the basis of the tenor of the securities—short term or long term, and the issuer: government, corporate, PSUs and others. The risk and return of the securities will vary based on the tenor and issuer. The strategy adopted by the fund manager to create and manage the portfolio can also be a factor for categorizing debt funds. On the basis of Issuer

Gilt funds invest in only treasury bills and government securities, which do not have a credit risk (i.e. the risk that the issuer of the security defaults). These securities pay a lower coupon or interest to reflect the low risk of default associated with them.

Corporate bond funds invest in debt securities issued by companies, including PSUs. There is a credit risk associated with the issuer that is denoted by the credit rating assigned to the security. Such bonds pay a higher coupon income to compensate for the credit risk associated with them.

On the basis of Tenor

Liquid schemes or money market schemes are a variant of debt schemes that invest only in short term debt securities. They can invest in debt securities of upto 91 days maturity. Short term debt schemes invest in securities with short tenors that have low interest rate risk of significant changes in the value of the securities. The contribution of interest income and the gain/loss in the value of the securities and the volatility in the returns from the fund will vary depending upon the tenor of the securities included in the portfolio.

Ultra short-term plans are also known as treasury management funds, or cash management funds. They invest in money market and other short term securities of maturity upto 365 days.

Short Term Plans combines short term debt securities with a small allocation to longer term debt securities. Short term plans earn interest from short term securities and interest and capital gains from long term securities.

Long-term debt schemes such as Gilt funds and Income funds invest in longer-term securities issued by the government and other corporate issuers. The returns from these schemes are 9

significantly impacted by changes in the value of the securities and therefore see greater volatility in the returns.

On the basis of Investment Strategy

Diversified debt funds or Income fund, invest in a mix of government and non-government debt securities such as corporate bonds, debentures and commercial paper.

Junk bond schemes or high yield bond schemes invest in securities that have a lower credit rating indicating poor credit quality.

Dynamic debt funds are flexible in terms of the type of debt securities held and their tenors. They do not focus on long or short term securities or any particular category of issuer but look for opportunities to earn income and capital gains across segments of the debt market. Duration of these portfolios are not fixed, but are dynamically managed.

Fixed maturity plans are a kind of debt fund where the duration of the investment portfolio is closely aligned to the maturity of the scheme. AMCs tend to structure the scheme around pre- identified investments. Further, being close-ended schemes, they do not accept money post-NFO, therefore, the fund manager has little ongoing role in deciding on the investment options.

Floating rate funds invest largely in floating rate debt securities i.e. debt securities where the interest rate payable by the issuer changes in line with the market. The NAVs of such schemes fluctuate lesser than other debt funds that invest more in debt securities offering a fixed rate of interest.

1.10.5 Types of Equity Funds

Diversified equity fund is a category of funds that invest in a diverse mix of securities that cut across sectors and market capitalization. The risk of the fund’s performance being significantly affected by the poor performance of one sector or segment is low.

Market Segment based funds invest in companies of a particular market size. Equity stocks may be segmented based on market capitalization as large- cap, mid-cap and small-cap stocks.

Large- cap funds invest in stocks of large, liquid blue-chip companies with stable performance and returns. Top 100 companies in terms of market capitalization are termed as large cap funds.

Mid-cap funds invest in mid-cap companies that have the potential for faster growth and higher returns. These companies are more susceptible to economic downturns. Companies ranging from 100- 250 in terms of market capitalization are known as mid cap funds.

Small-cap funds invest in companies with small market capitalization with intent of benefitting from the higher gains in the price of stocks. The risks are also higher. Companies above 250 in terms of market capitalization are known as small cap funds.

Sector funds invest in only a specific sector. The performance of such funds can see periods of under-performance and out-performance as it is linked to the performance of the sector, which tends to be cyclical. Entry and exit into these funds need to be timed well so that the investor does not invest when the sector has peaked and exit when the sector performance falls. This makes the scheme more risky than a diversified equity scheme.

Thematic funds invest in line with an investment theme. The investment is thus more broad- based than a sector fund; but narrower than a diversified equity fund and still has the risk of concentration.

Strategy-based Schemes have portfolios that are created and managed according to a stated style or strategy. Equity Income/Dividend Yield Schemes invest in securities whose shares fluctuate less, and the dividend represents a larger proportion of the returns on those shares. They represent companies with stable earnings but not many opportunities for growth or expansion. The NAV of such equity schemes are expected to fluctuate lesser than other categories of equity schemes.

Value fund invest in shares of fundamentally strong companies that are currently under-valued in the market with the expectation of benefiting from an increase in price as the market recognizes the true value. Such funds have lower risk. They require a longer investment horizon for the strategy to play out.

Growth Funds portfolios feature companies whose earnings are expected to grow at a rate higher than the average rate. These funds aim at providing capital appreciation to the investors and provide above average returns in bullish markets. The volatility in returns is higher in such funds.

Focused funds hold portfolios concentrated in a limited number of stocks. Selection risks are high in such funds. If the fund manager selects the right stocks then the strategy pays off. If even a few of the stocks do not perform as expected the impact on the scheme’s returns can be significant as they constitute a large part of the portfolio.

Equity Linked Savings Schemes (ELSS) are diversified equity funds that offer tax benefits to investors under section 80 C of the Income Tax Act up to an investment limit of Rs. 150,000 a year. ELSS are required to hold at least 80 percent of its portfolio in equity instruments. The investment is subject to Lock-in for a period of 3 years during which it cannot be redeemed, transferred or pledged.

1.10.6 Types of Hybrid Funds

Hybrid funds invest in a combination of asset classes such as equity, debt and gold. The combination of asset classes used will depend upon the investment objective of the fund. The risk and return in the scheme will depend upon the allocation to each asset class and the type of securities in each asset class that are included in the portfolio.

Debt-oriented Hybrid funds invest primarily in debt with a small allocation to equity. The equity allocation can range from 5 percent to 30 percent and is stated in the offer document. The debt component is conservatively managed to earn coupon income, while the equity component provides the booster to the returns.

Monthly Income Plan is a type of debt-oriented hybrid fund that seeks to declare a dividend every month. There is no guarantee that a dividend will be paid each month.

Multiple Yield Funds generate returns over the medium term with exposure to multiple asset classes, such as equity and debt.

Equity-oriented Hybrid funds invest primarily in equity, with a portion of the portfolio invested in debt to bring stability to the returns.

Balanced Fund are schemes which provides investors simultaneous exposure to both equity and debt in one portfolio. The objective of these schemes is to provide growth and stability (or regular income), where investments in equity instruments are made to meet the objective of growth while debt investments are made to achieve the objective of stability. The balanced funds can have fixed or flexible allocation between equity and debt.

Capital Protected Schemes are close-ended schemes, which are structured to ensure that investors get their principal back, irrespective of what happens to the market.

Arbitrage funds take opposite positions in different markets / securities, such that the risk is neutralized, but a return is earned. Most arbitrage funds take contrary positions between the equity market and the futures and options market. These are designed to help investors to take positions or protect their risk in some other security, such as an equity share. They are traded in exchanges like the NSE and the BSE.

1.10.7 Real Estate Mutual Fund Schemes / Real Estate Investment Trusts.

Real Estate Mutual Funds scheme means a mutual fund scheme that invests directly or indirectly in real estate assets or other permissible assets in accordance with the SEBI (Mutual Funds) Regulations, 1996. These funds are closed-end funds and have to be listed on a stock exchange.

Real Estate Investment Trusts (REIT) are trusts registered with SEBI that invest in commercial real estate assets. The REIT will raise funds through an initial offer and subsequently through 12

follow-on offers, rights issue and institutional placements. The units will be listed on the stock exchange.

1.10.8 Commodity Funds

Gold Exchange Traded fund, which is like an index fund that invests in gold, gold receipts or gold deposit schemes of banks. Each ETF unit typically represents one gram of gold. The NAV of such funds moves in line with gold prices in the market.

Gold funds invest in the units of Gold Exchange Traded Funds. They operate just like other mutual funds as far as the investor is concerned.

Gold Sector fund will invest in shares of companies engaged in gold mining and processing. Though gold prices influence these shares, the prices of these shares are more closely linked to the profitability and gold reserves of the companies.

1.10.9 International Funds

International funds invest in markets outside India, by holding certain foreign securities in their portfolio. The eligible securities in Indian international funds include equity shares of companies listed abroad, ADRs and GDRs of Indian companies, debt of companies listed abroad, ETFs of other countries, units of index funds in other countries, units of actively managed mutual funds in other countries. International equity funds may also hold some of their portfolios in Indian equity or debt.

1.10.10 Fund of Funds

A Fund of Funds (FoF) is a mutual fund that invests in other mutual funds. It does not hold securities in its portfolio, but other funds that have been chosen to match its investment objective. These funds can be either debt or equity, depending on the objective of the FoF. A Fund of Funds either invests in other mutual funds belonging to the same fund house or belonging to other fund houses.

1.10.11 Exchange Traded Funds

Exchange Traded funds (ETF) are open-ended funds, whose units are traded in a stock exchange. Investors buy units directly from the mutual fund only during the NFO of the scheme. All further purchase and sale transactions in the units are conducted on the stock exchange where the units are listed. The mutual fund issues further units and redeems units directly only in large lots defined as creation units.

1.10.12 Infrastructure Debt Schemes

These are closed-ended schemes with a tenor of at least five years that invest in debt securities and securitized debt of infrastructure companies. 90 percent of the fund’s portfolio should be invested in the specified securities. The remaining can be invested in the equity shares of infrastructure companies and in money market instruments. The NAV of the scheme will be disclosed at least once each quarter.

Infrastructure Investment Trusts (InvIT) are trusts registered with SEBI that invest in the infrastructure sector. The InvIT will raise funds from the public through an initial offer of units. The offer shall be for not less than Rs. 250 crores and the value of the proposed assets of the InvIT shall not be less than Rs. 500 crores. The minimum subscription size will be Rs. 10 lakh. The units will be listed on a stock exchange.

1.11 RETURN, RISK AND PERFORMANCE OF FUNDS

1.11.1 Drivers of Returns and Risk in a Scheme

The portfolio is the main driver of returns in a mutual fund scheme. The asset class in which the fund invests, the segment or sectors of the market in which the fund will focus on, the styles adopted to select securities for the portfolio and the strategies adopted to manage the portfolio will all determine the risk and return in a mutual fund scheme. The underlying factors are different for each asset class.

Equity Schemes

Equity as an asset class represents growth investment. The returns to an investor are primarily from appreciation in the value of the asset. The risk to the investor arises from the absence of defined and fixed returns from these investments which can be volatile from period to period. The returns from equity are linked to the earnings of the business. Moreover, investors have to continue to evaluate the business to ensure that it remains profitable and worthy of investment. There are two broad approaches to security analysis: fundamental and technical analysis.

Fundamental Analysis entails review of the company’s fundamentals viz. financial statements, quality of management, competitive position in its product / service market etc. The analyst sets price targets, based on financial parameters like

Earnings per Share (EPS): Net profit after tax ÷ No. of equity shares outstanding This tells investors how much profit the company earned for each equity share that they own.

Price to Earnings Ratio (P/E Ratio): Market Price per share ÷ EPS When investors buy shares of a company, they are essentially buying into its future earnings. P/E ratio indicates how much investors in the share market are prepared to pay (to become owners of

the company), in relation to the company’s earnings. This forward PE ratio is normally calculated based on a projected EPS for a future period (also called forward EPS)

The Price Earnings to Growth (PEG) ratio relates the PE ratio to the growth estimated in the company’s earnings. A PEG ratio of one indicates that the market has fairly valued the shares, given its expected growth in earnings. A ratio less than one indicates the shares are undervalued, and greater than one indicates an overvalued share.

Book Value per Share: Net Worth ÷ No. of equity shares outstanding This is an indicator of how much each share is worth, as per the company’s own books of accounts. The accounts represent a historical perspective, and are a function of various accounting policies adopted by the company.

Price to Book Value: Market Price per share ÷ Book Value per Share An indicator of how much the share market is prepared to pay for each share of the company, as compared to its book value. The drawback with this is that the book value is an accounting measure and may not represent the true value of the assets of the company.

Dividend Yield: Dividend per Share ÷ Market price per Share This is used as a measure of the payouts received from the company, in percentage, for each rupee of investment in the share. Since dividends are not guaranteed or fixed, investors who are particular about receiving payouts look at the trend in dividend yields over a period of time. Dividend yield is considered as a parameter by conservative investors looking to identity steady and lower risk equity investments.

The discipline of Technical Analysis has a completely different approach. Technical Analysts believe that price behaviour of a share over a period of time throws up trends for the future direction of the price. Along with past prices, the volumes traded indicate the underlying strength of the trend and are a reflection of investor sentiment, which in turn will influence future price of the share. Technical Analysts therefore study price-volume charts of the company’s shares to decide support levels, resistance levels, break outs, and other triggers to base their buy/sell/hold recommendations for a share, etc. Both types of analysts swear by their discipline. It is generally agreed that longer term investment decisions are best taken through a fundamental analysis approach, while technical analysis comes in handy for shorter term speculative decisions, including intra-day trading. Even where a fundamental analysis-based decision has been taken on a stock, technical analysis might help decide when to implement the decision i.e. the timing.

Investment Styles – Growth and Value

Growth investment style entails investing in high growth stocks i.e. stocks of companies that are likely to grow much faster than the market. Many market players are interested in accumulating such growth stocks. Therefore, valuation of these stocks tends to be on the higher side. Further,

in the event of a market correction, these stocks tend to decline more. Such stocks typically feature high PE and PEG ratios and lower dividend yield ratio.

Value investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis. The belief is that the market has not appreciated some aspect of the value in a company’s share – and hence it is cheap. When the market recognizes the intrinsic value, then the price would shoot up. Such stocks are also called value stocks. Investors need a longer investment horizon to benefit from the price appreciation in such stocks.

Portfolio building approach – Top down and Bottom up

In a top down approach, the portfolio manager evaluates the impact of economic factors first and narrows down on the industries that are suitable for investment. Thereafter, the companies are analyzed and the good stocks within the identified sectors are selected for investment.

A bottom-up approach on the other hand analyses the company-specific factors first and then evaluates the industry factors and finally the macro-economic scenario and its impact on the companies that are being considered for investment. Stock selection is the key decision in this approach; sector allocation is a result of the stock selection decisions.

1.4.2 Measures of Returns

The returns from an investment is calculated by comparing the cost paid to acquire the asset (outflow) or the starting value of the investment to what is earned from it (inflows) and computing the rate of return. The inflows can be from periodic payouts such as interest from fixed income securities and dividends from equity investments and gains or losses from a change in the value of the investment. The calculation of return for a period will take both the income earned and gains/loss into consideration, even if the gains/loss have not been realized.

Simple Return Whatever the nature of a mutual fund scheme, its value is reflected in the NAV. Suppose you invested in a scheme, when its NAV was Rs12. Later, you found that the NAV has grown to Rs15. How much is your return?

The Simple Return can be calculated with the following formula:

Annualized Return Annualization helps us compare the returns of two different time periods. Two investment options have indicated their returns since inception as 5 percent and 3 percent respectively. If the 16

first investment was in existence for 6 months, and the second for 4 months, then the two returns are obviously not comparable. The annualized return can be calculated as:

Compounded Return If the two investment options mentioned above were in existence for 6 years and 4 years respectively, then it is not possible to calculate the annualized return using the above formula as it does not consider the effect of compounding. Compounded return can be calculated using a formula:

Where, ‘LV’ is the Later Value; ‘IV’ is the Initial Value; and ‘n’ is the period in years.

Compounded Annual Growth Rate (CAGR) Whenever a dividend is paid – and compounding is to be considered - the CAGR technique prescribed by SEBI is used. This calculation is based on an assumption that the dividend would be re-invested in the same scheme at the ex-dividend NAV. The above three formulae are thus applicable only for growth schemes, or for dividend schemes that have not paid a dividend during the period for which return is being calculated. The compound interest formula can be applied as follows:

Where, ‘LV’ is the Later Value; ‘IV’ is the Initial Value; and ‘n’ is the period in years.

1.12 Measures of Risk

Fluctuation in returns is used as a measure of risk. Therefore, to measure risk, generally the periodic returns (daily / weekly / fortnightly / monthly) are first worked out, and then their fluctuation is measured against the average return. The fluctuation or variation may be to the higher or lower side. Both are taken as risky. The fluctuation in returns can be assessed in

relation to itself, or in relation to some other index. Accordingly, the following risk measures are commonly used.

Variance Variance measures the fluctuation in periodic returns of a scheme, as compared to its own average return. Variance as a measure of risk is relevant for both debt and equity schemes.

Standard Deviation Standard deviation is a measure of total risk in an investment. As a measure of risk it is relevant for both debt and equity schemes. Mathematically, standard deviation is equal to the square root of variance.

Beta Beta is based on the Capital Asset Pricing Model (CAPM), which states that there are two kinds of risk in investing in equities – systematic risk and non-systematic risk.

Systematic risk is integral to investing in the market; it cannot be avoided. For example, risks arising out of inflation, interest rates, political risks etc. This arises primarily from macro- economic and political factors. This risk cannot be diversified away.

Non-systematic risk is unique to a company; the non-systematic risk in an equity portfolio can be minimized by diversification across companies. For example, risk arising out of change in management, product obsolescence etc. Since non-systematic risk can be diversified away, investors need to be compensated only for systematic risk, according to CAPM. This systematic risk is measured by its Beta. Beta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in periodic returns of a diversified stock index over the same period. The diversified stock index, by definition, has a Beta of 1. Companies or schemes, whose beta is more than 1, are seen as more risky than the market. Beta less than 1 is indicative of a company or scheme that is less risky than the market.

Modified Duration This measures the sensitivity of value of a debt security to changes in interest rates. Higher the modified duration, higher the interest sensitive risk in a debt portfolio. A professional investor would rely on modified duration as a better measure of sensitivity to interest rate changes.

Weighted Average Maturity Weighted average maturity of debt securities in a scheme’s portfolio is indicative of the interest rate sensitivity of a scheme.

Credit Rating The credit rating profile indicates the credit or default risk in a scheme. Government securities do not have a credit risk. Similarly, cash and cash equivalents do not have a credit risk. Investments in corporate issuances carry credit risk. Higher the credit rating, lower is the default risk.

Benchmarks and Performance Mutual fund schemes invest in the market for the benefit of Unit-holders. How well did a scheme perform this job? An approach to assess the performance is to pre-define a comparable – a benchmark – against which the scheme can be compared.

Choice of benchmark is simplest for an index fund. The investment objective is clear on the index that the scheme would mirror. That index would then be the benchmark for the scheme.

For other schemes, choice of benchmark is subjective. The benchmark for a scheme is decided by the AMC in consultation with the trustees. Offer document of the scheme has to mention the benchmark. Further, along with the past performance of the scheme, the performance of the benchmark during the same period is to be mentioned. 1.6 Quantitative Measures of Fund Manager Performance

Absolute & Relative Returns Absolute return is the return of the scheme in a particular period. Relative return is the comparison of the scheme return with the benchmark.

Risk-adjusted Returns Relative returns comparison is one approach to evaluating the performance of the fund manager of a scheme. A weakness of this approach is that it does not differentiate between two schemes that have assumed different levels of risk in pursuit of the same investment objective. Therefore, although the two schemes share the benchmark, their risk levels are different. Evaluating performance, purely based on relative returns, may be unfair towards the fund manager who has taken lower risk but generated the same return as a peer. An alternative approach to evaluating the performance of the fund manager is through the risk reward relationship. The underlying principle is that return ought to be commensurate with the risk taken. A fund manager, who has taken higher risk, ought to earn a better return to justify the risk taken. A fund manager who has earned a lower return may be able to justify it through the lower risk taken. Such evaluations are conducted through Risk-adjusted Returns.

There are various measures of risk-adjusted returns. Some of them are as follows:-

Sharpe Ratio Sharpe Ratio uses Standard Deviation as a measure of risk. It is calculated as

(Rs-Rf) ÷ Standard Deviation

Thus, Rs is the return of the scheme and Rf is the risk free return from the investment. Sharpe Ratio is effectively the risk premium per unit of risk. Higher the Sharpe Ratio, better the scheme is considered to be. Care should be taken to do Sharpe Ratio comparisons between comparable schemes. For example, Sharpe Ratio of an equity scheme is not to be compared with the Sharpe Ratio of a debt scheme.

Treynor Ratio Like Sharpe Ratio, Treynor Ratio too is a risk premium per unit of risk. Computation of risk premium is the same as was done for the Sharpe Ratio. However, for risk, Treynor Ratio uses Beta.

Treynor Ratio is thus calculated as: (Rs minus Rf) ÷ Beta Higher the Treynor Ratio, better the scheme is considered to be. Since the concept of Beta is more relevant for diversified equity schemes, Treynor Ratio comparisons should ideally be restricted to such schemes.

Alpha Non-index schemes too would have a level of return, which is in line with its higher or lower beta as compared to the market. Let us call this the optimal return. The difference between a scheme’s actual return and its optimal return is its Alpha – a measure of the fund manager’s performance. Positive alpha is indicative of out-performance by the fund manager; negative alpha might indicate under-performance.

Tracking Error Tracking error is calculated as the standard deviation of the excess returns generated by the fund. The tracking error has to be low for a consistently out-performing fund. Tracking error is a measure of the consistency of the out-performance of the fund manager relative to the benchmark. Earlier it was used as a measure of how closely an index fund tracked the returns from the benchmark to which it was indexed. The tracking error was expected to be zero. Now, the tracking error is used to measure how consistently a fund is able to out-perform its benchmark. It is not enough if the fund is able to generate a high excess return, it must do so consistently.

Sortino ratio The Sharpe ratio considers both positive and negative excess returns (w.r.t risk free rate).The Sortino ratio considers only the negative excess returns while calculating the standard deviation. So higher positive value is better.

Upside capture For a given period, how much of the benchmark gains has the fund captured? Higher the better. If the capture ratio is 70%, then the fund has captured only 70% of the benchmarks positive performance. Therefore higher (>100%) the upside capture ratio, the better.

Downside capture For a given period, how much of the benchmarks losses has the fund captured? Lower the better. If a fund records a downside capture ratio of 65%, it means that it has captured only 65% of the benchmarks loss. So lower the downside ratio (<100), the better.

Information ratio

It is defined as the average excess return of the fund w.r.t benchmark for a given period, divided by the standard. Deviation of the excess return (tracking error).Higher the ratio, more efficient the fund performs. It is generally considered that a figure of 0.5 reflects a good performance, 0.75 very good, and 1 outstanding.

2.1 Industry profile and company profile

State Street Global Advisors (SSGA) is the investment management division of State Street Corporation and the world's third largest asset manager with nearly $2.8 trillion (USD) in assets under management as of 31 December 2018.

The company services financial clients by creating and managing investment strategies for non- profit foundations, businesses, corporations, associations, governments, educational institutions, and religious organizations. In addition to institutional services, SSGA produces investment vehicles for the retail market in the United States, Europe, Asia, and Australia.

Global Advisors, the asset management division of State Street Bank, was founded in 1978[4] in Boston, Massachusetts.

Its first three products were a domestic index fund, an international index fund (based on the MSCI EAFE index), and a short-term investment fund. By 1989 the division had $53 billion (USD) in assets under management.

In 1990 State Street Global Advisors was formed as a separate entity from State Street Bank with the mission of expanding globally: first London, 10 more international locations by 1994, with 15 by 1999.

SSGA invented the investment vehicle known as the exchange-traded fund (ETF) in 1993 with the introduction of the S&P 500 SPDR product (Ticker: NYSE Arca: SPY), which is traded on the American Stock Exchange. SSGA is the number two ETF manager in the world second only to BlackRock.

Assets under management climbed to $161 billion (USD) in 1994 and more than quadrupled to $667 billion by 1999.

As of 2006, one-third of assets under management were from non-US investors.

In 2003, SSGA's Boston office moved to the newly completed State Street Financial Center building at One Lincoln Street.

SSGA launched the first foreign real estate ETF in 2006 (Ticker: NYSE Arca: RWX), which provides investors in the US an easy way to access the international housing and commercial development markets.

In January 2011, SSGA completed its acquisition of Bank of Ireland Asset Management (BIAM). The acquisition was first announced in October 2010 for approximately €57 million. SSGA's presence in Ireland, which began 1996, had by 2010 grown to "more than 2,000 local employees."

For March 2017, State Street Global Advisors commissioned a statue, Fearless Girl by Kristen Visbal, and located it temporarily in the Financial District, Manhattan, in front of the Wall Street icon Charging Bull. The statue is an advertisement for an index fund which comprises gender diverse companies that have a higher percentage of women among their senior leadership.

2.1.1 Promoters of the company Cyrus Taraporevala President, Chief Executive Officer

Cyrus is president and chief executive officer of State Street Global Advisors, the investment management arm of State Street Corporation and a global leader with nearly $2.8 trillion in assets under management. Cyrus is also a member of State Street Corporation's Management Committee, the company's most senior strategy and policy-making team. Prior to this role, Cyrus was Head of the Global Institutional Group at State Street Global Advisors, responsible for leading the global client-facing, product and marketing teams delivering State Street Global Advisors' capabilities to institutional investors around the world.

Cyrus has more than 28 years of experience in asset management. Prior to joining State Street Global Advisors in 2016, Cyrus led Fidelity Investments' Retail Managed Accounts and Life Insurance & Annuities businesses. Cyrus joined Fidelity from BNY Mellon Asset Management, where he was Head of North American Distribution. Previously, Cyrus helped to oversee Legg Mason's institutional business, directed business strategy for Citigroup Global Investment Management, and was a partner in the Financial Institutions practice of McKinsey & Company, based in New York and Copenhagen in the course of his 14 years at the management consulting firm.

Cyrus received his Bachelor's degree from Sydenham College, University of Bombay and his MBA from Cornell University's Johnson Graduate School of Management. He serves as a board member of The Trustees of Reservations, a Massachusetts-based non-profit conservation organization.

Christopher Micah Baker Managing Director, Chief Compliance Officer

Chris Baker has 19 years of experience as a Compliance professional in the finance industry with 16 years focused in asset management. Chris is the Chief Compliance Officer for State Street Global Advisors at State Street. In this role he is responsible for implementing a compliance program that adheres to global regulations and supports all State Street Global Advisors functions, including sales, product, broker-dealer and investments. Chris is a member of the State Street Global Advisors Executive Management Group and the Senior Leadership Team.

Prior to assuming his current role at State Street Global Advisors in February 2018, Chris was the Senior Compliance Officer for Alternative Investment Solutions (AIS), Sector Solutions, and Global Marketing at State Street. Chris was responsible for managing Compliance Oversight Programs (COPs) that advise and monitor AIS on the management of regulatory risk in the provision of accounting, administration, middle and front office trade support and risk services to hedge funds, private equity funds and real estate funds. Chris was responsible for overseeing 12 AIS COPs supporting 36 legal entities across North America, EMEA, and APAC. His team managed the relationships with 15 global regulators that oversee AIS, and Chris was the primary contact with the Federal Reserve Bank of Boston for AIS exams and their continuous monitoring programs. Chris was a member of the AIS Senior Leadership Committee and AIS Executive Risk & Compliance Committee. Chris advised the Sector Solutions and Global Marketing teams in adhering to Sales Practices regulations, including those governing sales and marketing material, employee and product licensing, customer complaints, and RFPs.

Prior to assuming the AIS role in March 2015 and the Sector Solutions/Global Marketing roles in 2017, Chris was Global Head of Investment and Marketing Compliance at State Street Global Advisors for 5 years. While at State Street Global Advisors, Chris enhanced investment compliance monitoring by significantly increasing rule automation in collaboration with Investment Management teams, IT support, and vendor industry groups. Chris created the initial social media policy in support of State Street Global Advisors ETF marketing strategies. His team established a Compliance Trade Oversight Program that allowed Compliance to independently validate adherence to best execution, monitor for market manipulation, review 23

trade cost analysis, and perform communication and transaction surveillance. He also coordinated off-shoring of specific compliance functions to Bangalore to increase efficiency and reduce cost. Chris was named a member of the State Street Global Advisors Senior Leadership Team in 2014.

Chris started his career at MFS Investment Management in 1998 managing compliance for specialized products and performing security valuation oversight. Chris maintained accuracy of portfolio compliance tests for fixed income structured products and reviewed MFS pricing, fair value, and liquidity procedures and policies as a member of the MFS Valuation Committee.

Chris received his Bachelor's degree from Franklin & Marshall College and his MBA from Boston University's Questrom School of Business.

Lynn S. Blake Executive Vice President, CIO, Global Equity Beta Solutions

Lynn is an Executive Vice President of State Street Global Advisors and CIO of Global Equity Beta Solutions. In this capacity, she oversees a team of 80 portfolio managers and analysts globally, and more than 1,400 portfolios with assets in excess of $1.4 trillion across all equity index and smart beta strategies. She also oversees State Street Global Advisors' ESG Investments and Asset Stewardship Team as well as the Company Stock Group which manages fiduciary transactions and company stock investments, including company stock ownership and 401K plans. In addition, she is a Director of the State Street Global Advisors Trust Company and member of the State Street Global Advisors Fiduciary and Conduct Committee and the Investment Committee. Lynn also serves as a member of State Street Global Advisors' Executive Management Group.

Prior to her current role, Lynn was head of non-US markets of passive equities, responsible for overseeing the management of all non-US equity index strategies, as well as serving as portfolio manager for several equity index portfolios. She joined State Street Global Advisors in 1987.

Lynn has a Master of Business Administration in finance from Northeastern University, and a Bachelor of Science from the Boston College Carroll School of Management. She earned the Chartered Financial Analyst (CFA) designation and is a member of the CFA Institute and the Boston Security Analyst Society. Lynn serves on the Board for the Posse Foundation Boston, a non-profit organization that partners with top colleges and universities to recruit and sustain 24

outstanding young leaders from diverse backgrounds. She also is a member of the Sustainability Accounting Standards Board's (SASB) Investment Advisory Group and serves on various index advisory boards.

Marc P. Brown Executive Vice President, Chief Administrative Officer

Marc is Chief Administrative Officer of State Street Global Advisors, a member of the Executive Management Group, State Street Global Advisors’ most senior executive strategy team, and an Executive Vice President of State Street Corporation. Marc is responsible for State Street Global Advisors’ global infrastructure including all operations, technology, data management and project management functions. He served as Deputy Director State Street Global Advisors’ International Offices from 1999 to 2004, during which time State Street Global Advisors’ global business became an important component of its broad investment solutions capability. In 2005, Marc led State Street Global Advisors’ global strategy and product development efforts and in 2006, he also assumed responsibility for State Street Global Advisors’ client facing teams in the U.S, Canada and Latin America, before moving to his current CAO position.

Marc joined State Street Global Advisors in 1999 from State Street Corporation, where he worked for 18 years. In 1989, he established the Investment Manager Services Division, which provided transaction processing and relationship support to the investment managers contracted by State Street's institutional clients. In this role, Marc partnered with many large investment managers to formulate their strategic infrastructure and straight-through processing plans. Prior to this, Marc managed State Street's global sub custodian network. He assumed this position after serving a variety of roles in the Global Custody Department and U.S. Master Trust Division.

Marc holds a BA in Economic and Governmental Legal Studies from Bowdoin College.

Cuan Coulter Executive Vice President, Head of State Street Global Advisors EMEA

Cuan Coulter is executive vice president and head of EMEA at State Street Global Advisors. In this role, he is responsible for coordinating State Street Global Advisors' entire EMEA business, leading the preparation for regulatory change in Europe, and acting as State Street Global Advisors' primary interface with regulators and governing boards.

Cuan joined State Street in July 2008 when he took on the role of head of North American compliance at State Street Global Advisors. In April 2009, he became State Street Global Advisors' global chief compliance officer. While at State Street Global Advisors, he was also a member of their Executive Management Group, the business unit's most senior strategy and policy-making team. In January 2011, he took on the role of State Street's chief compliance officer. In June 2017, he transitioned back over to State Street Global Advisors as the head of EMEA.

Prior to joining State Street, Cuan was a partner at PricewaterhouseCoopers LLP (PwC), in their investment management industry group. Based in PwC's Boston office, his clients included several large, complex, U.S.-based financial institutions. Prior to joining PwC's Boston office in 1999, he was based in PwC's Johannesburg office where he joined the firm in December 1995.

Cuan has a Bachelor of Commerce and a Bachelor of Accountancy from the University of the Witwatersrand and is a Chartered Accountant (South Africa).

Lochiel Crafter Executive Vice President, Head of Global Institutional Group

Lochiel Crafter, Executive Vice President is Head of the Global Institutional Group of State Street Global Advisors, is a member of the firm's Executive Management Group and a board member of a number of State Street Global Advisors operating entities. In his role as Head of the Global Institutional Group Lochiel has responsibility for all of State Street Global Advisors' institutional distribution efforts across the globe.

Prior to his current role, Lochiel was based in Sydney as Head of Asia Pacific, and previously Head of Investments for Asia Pacific. Before joining State Street Global Advisors in 2010, Lochiel was CEO of the Australian Reward Investment Alliance. He was also with State Street Global Advisors for seven years as regional CIO for the Asia Pacific region and has held other roles in the investment management industry.

Lochiel holds the Chartered Financial Analyst designation and is a member of CFA Institute. He received an MBA from the University of Melbourne and a BS with First Class Honours, majoring in Statistics, from the University of New South Wales.

Kem Danner Senior Vice President, Head of Human Resources

Kem Danner is the Head of Human Resources and a Senior Vice President for State Street Global Advisors and is a member of the State Street Global Advisors Executive Management Group (EMG).

Kem joined State Street Global Advisors in late 2015 after over 17 years at Bank of America where she served as the Head of Diversity and Inclusion for a number of business units responsible for designing and executing a sustainable diversity and inclusion strategy for the respective business units. Kem held various roles within Global Human Resources at Bank of America including Senior HR Business Partner during and after the Bank of America Merrill Lynch merger in the Global Markets & Banking business, head of HR for Global Markets Technology & Operations as well as head of Human Resources for Merrill Lynch Wealth Management.

Kem began her career in 1997 at Bank of America in the Management Associate Program in Charlotte, NC and served various business roles in the Retail, Preferred & Small Business including the launch of the company's Online Banking & Bill Pay initiatives prior to joining the bank's Global Human Resources division. Kem served in various roles in several mergers and acquisitions at Bank of America including a merger related assignment living abroad in Europe.

Kem is actively involved in various charitable organizations relating to childhood education & development as well as cancer research for the Samuel Waxman Foundation, Storefront Academy and the St Jude Children's Research Hospital and volunteers for various local and national charities. She is also a member of various employee network groups within the company including the Professional Women's Network as a mentor and executive advisor to the Black Professionals Group. She is also a steering committee member for the State Street Global Advisors Global Diversity and Inclusion Council. Kem attended the University of North Carolina at Chapel Hill and Appalachian State University for summer internship programs, undergraduate and graduate studies. Kem resides in Boston, Massachusetts at the State Street Corporation's company headquarters.

Olivia Engel Senior Managing Director, CIO, Active Quantitative Equities

Olivia is a Senior Managing Director of State Street Global Advisors and CIO of Active Quantitative Equity. She has global oversight of the broader AQE research agenda, investment process, portfolio management, and product innovation.

Prior to serving as Deputy CIO for AQE in 2017, Olivia led the Active Quantitative Equity team in Asia Pacific, and was responsible for all benchmark unaware strategies globally for the team.

Olivia joined State Street Global Advisors in 2011, after eight years at GMO, as a Senior Portfolio Manager in the Australian Equities group, responsible for portfolio management across all Australian strategies. She has been working in the investment industry since 1997 in roles including research, portfolio management, and trading.

Olivia has a Bachelor of Economics and a Bachelor of Commerce from the Australian National University. She has earned the Chartered Financial Analyst designation, is a member of the CFA Institute and is a Past President of the CFA Society of Sydney.

Daniel P. Farley Executive Vice President, CIO, Investment Solutions Group

Dan is an Executive Vice President of State Street Global Advisors, and CIO of the Investment Solutions Group. In this role, he oversees a global team of over 75 investment professionals managing over US$266B in multi asset class portfolios. This includes active asset allocation, the firm's target date fund suite, outsourced CIO, exposure management and working with clients in developing investment portfolios to meet their specific objectives. He is also a member of the firm's Executive Management Group.

Dan joined the firm in 1992 and has over 25 years of investment experience. Prior to this role he was responsible for the US multi-asset class solutions team.

Dan holds an MBA from Bentley University, a BSBA from Stonehill College and has earned the Charter Financial Analyst (CFA) designation. He is a member of the CFA Institute and the CFA Society Boston. He is executive sponsor of the firm's Latin American Professionals Group. Dan

is a frequent speaker with the media and conferences on a variety of investment topics. He is also the Chairman of the Board at the Crispus Attucks Children's Center.

Barry Glavin Senior Managing Director, CIO Fundamental Value Equities

Barry Glavin is the Chief Investment Officer of SSGA's Dublin-based Fundamental Value Team, and the Portfolio Manager responsible for the International Value Spotlight Strategy.

He joined the business in November 2006 as Head of Industrials Research, and led the Research Team for six years until his appointment as CIO in July 2013. Prior to SSGA, Barry spent seven years with the HSBC group; in London, as Head of Industrials Research with HSBC Halbis Partners; and in Paris, as a Portfolio Manager with the Multi Asset Class team. Barry began his financial career as a derivatives broker with Cargill Investor Services in Paris.

Barry holds a BA in Politics and Philosophy from University College Dublin and earned the Chartered Financial Analyst designation in 2003.

Greg Hartch Senior Vice President, Chief Risk Officer

Greg is the Chief Risk Officer for State Street Global Advisors responsible for all investment, liquidity, counterparty, and operational risks across State Street Global Advisors' global operations and client assets. He is a member of State Street Global Advisors' Executive Management Group and serves on State Street Global Advisors' Risk, Fiduciary, Investment and Product Committees. Prior to this role, Greg was the Integration Leader & Stamford Business Location Head, responsible for overseeing the integration of GE Asset Management into State Street Global Advisors and the business leadership in the Stamford location.

Greg joined State Street Global Advisors in July 2016 through its acquisition of GE Asset Management (GEAM). He joined GEAM in 2002 as a portfolio manager for Alternative Assets on behalf of GE's insurance clients and held a number of different roles including Chief Risk Officer & Chief Operating Officer, Director of Fixed Income Research, Head of Tactical Asset Allocation, Portfolio Manager for the GE Total Return Fund, and Trustee of the GE Pension Trust. Prior to joining GEAM, Greg spent four years at Deutsche Bank in Global Markets and

previously worked for two years at Goldman Sachs in Real Estate Investment Banking. Greg serves as chairman of the Brunswick School board.

Greg has an AB in Politics from Princeton University, graduated with a JD from the University of Virginia and has earned the Chartered Financial Analyst designation.

Lori M. Heinel Executive Vice President, Deputy Global Chief Investment Officer

Lori is Deputy Global Chief Investment Officer for State Street Global Advisors. In this capacity, Lori is responsible for a range of activities that impact the effective delivery of investment strategies and solutions to our global client base, including representing our market outlook and investment themes, taking a lead role in investment strategy oversight, governance and innovation and managing the implementation of enterprise-wide initiatives.

Prior to this role, she was Chief Portfolio Strategist, leading a team of professionals responsible for helping advisors, consultants and institutional clients analyze economic and market developments, assess the impact to their portfolios and identify specific products and solutions to help them manage risk and take advantage of market opportunities. She is a member of the company's Executive Management Group, Investment Committee and Global Product Committee.

Before joining State Street Global Advisors, Lori was Chief Investment Strategist and Head of Investment Products for OppenheimerFunds, Inc., a $250 billion asset management firm. In that capacity, she and her team identified market opportunities, spearheaded new product development and created thought leadership aimed at helping clients navigate markets and position their portfolios effectively. Prior to that, she was a managing director and head of Investments for Citi Private Bank. She and her team worked with ultra-high net worth clients, family offices, private foundations and institutional clients to develop investment strategies designed to meet financial, cash management and risk management needs. Before joining Citi, Lori ran the Global Investment Products Group for SEI Investments, where she developed innovative strategies to manage pension plans and other institutional assets, launched a series of investor portfolios designed to address specific client needs and pioneered integrated managed accounts with portfolio overlayfunctionality.

Earlier in her career, Lori managed the new business development effort for Mellon Financial's Eastern Region, and was a senior vice president at Parker/Hunter Incorporated running the equity 30

and fixed income sales and trading departments. She began her career at Credit Suisse First Boston, where she analyzed investment and financing alternatives for institutional clients.Lori received her MBA from Carnegie Mellon University and her AB in religion from Princeton University. She earned the Chartered Financial Analyst designation and is a member of the CFA Institute and the Boston Security Analysts Society.

Richard F. Lacaille Executive Vice President, Global Chief Investment Officer

Rick Lacaille, Executive Vice President is Global Chief Investment Officer (CIO) of State Street Global Advisors and a member of the firm's Executive Management Group. In his role as Chief Investment Officer Rick has responsibility for all investment management activity at State Street Global Advisors, including research and trading.

Prior to his current role, Rick was Head of Global Active Equities, and previously European CIO. Before joining State Street Global Advisors in 2000, he held a wide variety of posts in quantitative fund management and research at Gartmore Investment Management, including periods as Head of Quantitative Research and Head of Structured Equities.

Rick has a BSc (Hons) in Operational Research from Lancaster University and MSc in Econometrics from London Guildhall University.

Rick is a member of the FTSE Russell Policy Advisory Board, the MSCI Editorial Advisory Board and the Asset Management Committee of the Investment Association. He is a regular writer and broadcaster on investment issues and speaks frequently at industry conferences.

Susan Lasota Senior Managing Director, Business Transformation Programs

Susan is Senior Managing Director of State Street Global Advisors and head of Business Transformation Programs. In this role, she is responsible for driving a strategic program to drive operating model, technology and process improvements across the organization. She is also a member of the Executive Management Group and is the site leader for our Stamford, CT location.

Susan joined State Street Global Advisors in July through its acquisition of GE Asset Management (GEAM) where she was the Chief Information Officer and head Investment Operations. She joined GE in 2003 and has played a variety of senior leadership roles across GE Capital and GE Asset Management. She has over 20 years of experience supporting a variety of business functions and technologies and including 15 years in Financial Services. Prior to joining GE, she worked for several financial services companies.

Susan attended Providence College and graduated with a degree in mathematics and computer science. She also attended the executive MBA program at Columbia University. She began her career in management consulting working with numerous clients in the telecom, pharmaceutical, and financial services industries.

Steven Lipiner Senior Vice President, Chief Financial Officer

Steve is Chief Financial Officer of State Street Global Advisors, the investment management arm of State Street Corporation and a global leader in asset management. He is also a member of the Executive Management Group and Finance Executive Team.

Steve joined State Street Global Advisors in December 2015 after 13 years as Global Chief Financial Officer with BNY Mellon Investment Management, where he was responsible for the financial management of the asset management boutiques, distribution and wealth management businesses. In 2002, Steven joined Mellon Financial as CFO for Mellon Institutional Asset Management and served as Chief Financial Officer for Mellon International, based in London from 2005-2007. Prior to joining Mellon Financial, Steve was with BankBoston / Fleet Bank from 1990 - 2002 serving in a variety of finance and operations positions. From 1999 - 2002, he was the Chief Operating Officer and Chief Financial Officer for the European businesses of Fleet Bank based in London.

Steve holds a B.A. in political science from State University of New York at Buffalo and an M.B.A. in finance from City University of New York at Baruch College. Steven is also a member of the Board of Directors for Boston Healthcare for the Homeless Program (BHCHP) and Victory Programs/Boston Living Center.

James K. MacNevin Senior Managing Director, Head of Asia Pacific

James is a Senior Managing Director and Head of State Street Global Advisors, Asia Pacific. He chairs State Street Global Advisors’ Asia Pacific Executive Committee and serves on the board of State Street Global Advisors Australia Limited and several other boards across Asia Pacific.

Prior to his current role, James served as Chief Operating Officer for State Street Global Advisors Asia Pacific.

James is a 20 year veteran of State Street Global Advisors and has worked in a wide variety of roles across SSGA and around the world including leading the development and launch of Australia's first ETF, SPDR' S&P'/ASX 200 Fund in 2001 and establishing the firm's offices in India in 2007. From 2009 he served as International Head of Operations and Technology for SSGA based in London and returned to Australia in 2012.

James holds a BA from ANU and a financial markets diploma from Securities Institute of Australia and is a graduate of the Australian Institute of Company Directors.

Kate Sandman McKinley Senior Managing Director, General Counsel

Kate is a Senior Managing Director and General Counsel of State Street Global Advisors. In this role, Kate is responsible for the global legal affairs of State Street Global Advisors and oversees a team of experienced attorneys, paralegals and assistants located in Boston, London, Paris, Tokyo, Montreal, Hong Kong and Sydney. Kate is also a member of the Executive Management Group at State Street Global Advisors.

Prior to taking on this role, Kate was the Chief Operating Officer of the Americas Institutional Client Group. Kate partnered with the Head of the Institutional Client Group in developing the strategic direction, daily management and operation of the firm's institutional business in the US, Canada and Latin America, and oversaw and the execution of business strategy and the transformation of the firm's institutional client relationship management and servicing model.

Prior to her role as COO, Kate served as Deputy General Counsel at State Street Global Advisors and led the legal team supporting the institutional and intermediary distribution channels. In

addition, Kate provided legal support to the Global DC business as well as the Investment Solutions Group and advised on general fiduciary, securities law and ERISA-related matters.

Prior to joining State Street Global Advisors in 2010, Kate was Assistant General Counsel at Bank of America, where she supported Columbia Management's mutual funds and hedge funds, institutional and intermediary distribution channels and registered investment adviser. Prior to working at Bank of America, Kate was an associate in the Investment Management Group at Wilmer Cutler Pickering Hale and Dorr LLP, representing fund boards of trustees, investment advisers and broker-dealers, as well as mutual funds, hedge funds and other pooled investment vehicles.

Kate earned her Juris Doctor from Boston College Law School and a Bachelor of Arts in English from Boston College.

Miles O'Connor Senior Managing Director, Head of Institutional, EMEA

Miles is a Senior Managing Director of State Street Global Advisors, and head of the EMEA Institutional Client Group (ICG), leading the strategic direction and growth of the institutional business for clients in Europe, the Middle East and Africa.

Miles oversees the Sales and Relationship Management functions across the region and leads initiatives related to product development and driving business opportunities in both the pre- and post-retirement worlds. Miles is a member of the firm's Executive Management Group.

Miles has more than thirty-five years of experience in financial services with a focus on institutional sales and distribution. Miles joined State Street Global Advisors at the beginning of 2018, having most recently combined running his own investment management consulting business with serving as chairman and non-executive director for Unigestion (UK) Ltd.

Prior to Unigestion, Miles held several senior roles at Schroders Investment Management ltd. including head of EMEA Institutional, head of UK Institutional and CEO of Schroders NewFinance Capital.

Before joining Schroders, Miles held senior distribution roles at Barclays Global Investors and at Bank of America Investment Management. He began his career at Coutts & Co in their global security services division.

Jim Ross Executive Vice President, Chairman of the Global SPDR

Jim is an Executive Vice President of State Street Global Advisors and is Chairman of Global SPDR. He also serves as Chairman of the Board of State Street Global Advisors Funds Management, Inc., State Street Global Advisors' Registered Investment Advisor, and as Chairman and Chief Executive Officer of State Street Global Advisors Funds Distributors, LLC, State Street Global Advisors' registered broker dealer.

In these roles, Jim is responsible for leading State Street Global Advisors' engagement with ETF stakeholders including regulators, mutual fund and ETF Boards of Directors, industry associations, key clients, partners and the media. Jim leads State Street Global Advisors' positioning on important issues related to ETFs and is responsible for advancing State Street Global Advisors' long-term ETF strategy and innovation. He has an extensive history with exchange traded funds and is frequently quoted in the media. Jim is responsible for State Street Global Advisors' Global Funds Management organization and is a member of the State Street Global Advisors' Executive Management Group as well as State Street Global Advisors' Global Product Committee. Jim also serves on the Investment Company Institute's Board of Governors and is Chairman of the ICI's Exchange Traded Funds Committee.

Jim serves as a volunteer board member of the Alzheimer Association of MA/NH.

Prior to joining State Street in 1992, he worked for Ernst & Young as a senior accountant, responsible for auditing investment companies and insurance companies. Jim holds a Bachelor's degree in Accountancy from Bentley College.

Barry F.X. Smith Senior Managing Director, Head of Americas Institutional Client

Barry is a Senior Managing Director of State Street Global Advisors, and head of the Americas Institutional Client Group (ICG), leading the strategic direction and growth of the institutional business for clients in N. America, Canada and Latin America.

Barry oversees Sales and Relationship Management and leads initiatives related to focus products and driving business opportunities. Barry is a member of the firm's Executive Management Group.

Barry has more than twenty-five years of experience in financial services with a focus on institutional sales and distribution. He was previously Chief Operating Officer for ICG and Head of State Street Global Advisors' Global Cash Business. In this role he led the day-to-day management of ICG and was accountable for the overall client experience.

Prior to joining State Street Global Advisors in 2010, Barry worked at BlackRock, where he served as managing director and head of the Private Label Cash Management business. Barry joined BlackRock via its acquisition of Merrill Lynch Investment Managers, where he served as head of institutional cash management and in various sales and marketing management roles.

Barry earned a BA in financial economics from Saint Anselm College, where he currently serves as a member of the Board of Trustees.

Michael Solecki Senior Managing Director, CIO for Fundamental Growth and Core Equity

Michael is a Senior Managing Director at State Street Global Advisors and Chief Investment Officer for Fundamental Growth and Core Equity. He is also a member of State Street Global Advisors' Executive Management Group. Previously, Michael was Chief Investment Officer for Fundamental International Equities. He has been a portfolio manager for the International Equity (EAFE) strategy since 1995, the State Street Institutional International Equity Fund, Elfun International Equity Fund and a member of the ACWxUS Equity portfolio team.

Michael joined State Street Global Advisors in July 2016 through its acquisition of GE Asset Management (GEAM). Previously at GEAM, as part of the International Equity team, he held roles as Chief Investment Officer, Co-Chief Investment Officer, Director of Portfolio Management and a Director of Research for the International Equity research team. He joined GEAM in 1991 after completing GE's Financial Management Program where he had financial assignments at GE Energy, GE Capital and GEAM. While at GEAM, Michael started as an analyst in International Equities in 1991 responsible for Latin America and Canada. He relocated to GEAM's London offices in 1992 where he led their European equity research until 1995. Since 1995, Michael has managed various equity portfolios and covered a variety of sectors outside the US equity market. Prior to GE, he worked for Monarch Capital Corporation.

Michael has a Bachelor of Science in Finance from Western New England College and an MBA from Fordham University. He is a holder of the Chartered Financial Analyst designation and is a member of the New York Society of Security Analysts.

Matt Steinaway Senior Managing Director, CIO, Global Fixed Income, Currency & Cash

Matthew Steinaway is a Senior Managing Director of State Street Global Advisors and is the Chief Investment Officer of the firm's Global Fixed Income, Currency and Cash Group. In this role, he oversees a team of approximately 120 professionals managing more than US$816BN (as of December 31, 2017) of assets across active, smart beta and passive strategies for fixed income, cash and currency portfolios. Matt joined the company in 2003 and has more than 24 years of credit and investment experience. He is also a member of State Street Global Advisors' Executive Management Group and Investment Committee.

Prior to his current role, Matt was the Chief Risk Officer for State Street Global Advisors where he was responsible for all investment, credit, and operational risks across State Street Global Advisors' global investment platform. He also previously was the Head of Global Cash Management, where he oversaw the global investment activities of short duration and money investment strategies and has served in leadership roles in the firm's Cash and Fixed Income research efforts.

Matt has a BA in Philosophy from Saint Anselm College, graduated with an MBA from Bentley College and has earned the Chartered Financial Analyst designation.

Dick Taggart Executive Vice President, Global Head of Operations

Dick Taggart is an executive vice president with global responsibility for State Street Global Advisors Investment Operations. In this role, he is responsible for all aspects of operations, data, and client support services. Mr. Taggart joined State Street in March 2012 to head the Investment Manager Services business in North America, and became global head of IMS in 2013.

Prior to joining State Street, he was senior vice president and head of Global Operations at Alliance Bernstein, responsible for institutional investment management operations, fund services and broker-dealer operations. Mr. Taggart also served on the board of the Depository Trust and Clearing Corporation. He currently serves on the Board of Managers at OMGEO (a DTCC company).

He spent the majority of his career at Morgan Stanley as a managing director, where he was responsible for a variety of operations functions, including Transformation Services, Institutional Equity Operations, Global Custody Operations and MSCI Product Development. His international assignments have included Tokyo, London and Geneva.

Mr. Taggart also served as a principal in two start-up firms in technology and business process outsourcing. He was senior vice president and head of Global Business Architecture at JPMorgan Chase Global Investment Services, and vice president and head of Research Operations at Greenwich Associates.

Dick is also board chairman at Mass Insight Education, a non-profit based in Boston, focused on closing the achievement gap in underperforming school districts around the country via Turnaround Services as well as AP/STEM Programs to increase academic rigor.

He received his Master of Science degree in industrial engineering and operations research from Columbia University, and his Bachelor of Science degree in mathematics from St. Lawrence University.

Sue Thompson Executive Vice President, Head of SPDR Americas Distribution

Sue Thompson is an executive vice president of State Street Global Advisors and serves as Head of SPDR Americas Distribution. In this role, she is responsible for developing and leading the SPDR ETF distribution strategy across all client channels in the Americas, including institutional, intermediary and strategic relationships.

Prior to joining State Street Global Advisors in 2018, she was at Thompson Peak Advisory where she was CEO and President of her own consulting firm, advising some of the world's largest and most sophisticated investment managers on their growth and distribution strategies.

Previously, Sue worked for BlackRock for eight years where she was responsible for growing the iShares franchise with the intermediary and institutional asset manager channels in the Americas. Prior to BlackRock, Sue was at Vanguard, where she held a number of positions culminating in a senior role in developing their ETF business.

Stephen Tisdalle Senior Managing Director, Chief Marketing Officer

Stephen Tisdalle is Chief Marketing Officer and Senior Managing Director for State Street Global Advisors overseeing global brand and advertising, channel marketing, digital strategy and creative services. Prior to joining State Street Global Advisors, Stephen served as Senior Vice President and Head of Marketing for OppenheimerFunds, Inc. and its subsidiary OFI Global. He was responsible for Brand Advertising, Corporate Communications and PR, Digital Strategy, Creative Services and Integrated Channel Marketing to promote the firm's thought leadership and investment strategies across Retail, HNW and Institutional channels.

Prior to joining OppenheimerFunds, Stephen was Managing Director at Ogilvy & Mather in New York overseeing the Strategic Marketing Services Consulting. He oversaw brand and marketing strategy, performance measurement and CRM for the agency's largest Agency of Record (AOR) accounts such as BlackRock, Barclays, British Airways, Cisco, IBM and UPS.

Before joining Ogilvy, Stephen served as Head of Saffron Brand Consultants, managing their U.S. business and implementing major brand strategy assignments for Goldman Sachs, Bain & Co, KPMG and Swiss Re. Previously, Stephen was Strategy Director for IBM Global Services 39

where he led the major transformation and repositioning of IBM's services business. Before IBM acquired PwC Consulting, Stephen was Director, Strategy & Change Practice where he led and implemented major change management strategies for British Airways, Galileo, HP, OneWorld Alliance and the STAR Alliance.

Stephen earned his M.A. in History from the University of California, Los Angeles and his B.A. (Hons) in History from the University of British Columbia.

Rory Tobin Executive Vice President, Head of Global SPDR

Rory Tobin is an executive vice president of State Street Global Advisors and serves as Chairman of State Street Global Advisors EMEA and Head of the Global SPDR ETF business. In this role, he is responsible for defining, leading and executing the growth strategy for the Global SPDR ETF business. Mr. Tobin is a member of the firm's Executive Management Group.

Prior to joining State Street Global Advisors in 2014, he was at Barclays Wealth & Investment Management, where he served as CEO of Barclays Asset Management and was global head of the Investments and Solutions business. In this role, Mr. Tobin led all aspects of product, service development and distribution across banking, credit, investment management, advisory and execution, fiduciary trust and investment solutions.

Previously, he worked for BlackRock/BGI for seven years, most recently as co-CEO of the Global iShares ETF business where he was responsible for defining, executing and leading the growth strategy for the iShares business in Europe, Asia and Latin America. He joined BGI in 2004 as head of the Global Index and Markets Group, where he was responsible for investment performance, business strategy definition and leadership for several EMEA business units, including index equity portfolio management, asset allocation strategies, cash portfolio management, securities lending and transition management. Mr. Tobin began his career at Goldman Sachs, where he spent 14 years in equity capital markets, equity derivative distribution, and distribution leadership roles.

Mr. Tobin graduated from Trinity College Dublin in 1988 with a degree in Mathematics and Computer Engineering.

Don W. Torey Executive Vice President, CIO, Alternative Investments

Don is an Executive Vice President of State Street Global Advisors and Alternative Investments Chief Investment Officer. In this role he is responsible for investments in private equity, real estate, hedge funds, and liquid and factor-based alternative investments. He is also a member of the company's Investment Committee. Don joined State Street Global Advisors in July 2016 through its acquisition of GE Asset Management (GEAM).

Don began his GE career in 1979 on the company's Financial Management Program and held roles in International Finance and Consumer Products. He joined GEAM in 1986 where he held several roles in finance, fixed income, and private equity, in addition to serving as GEAM's CFO (and Assistant Treasurer for GE Company), and most recently as President of Alternative Investments. From 1989-1993, he was Manager - M&A Finance for GE Company before rejoining GEAM.

Don has a BA in Economics from Hamilton College and an MBA from Wharton at the University of Pennsylvania.

Stanley J. Wasilauski Senior Managing Director, Chief Technology Officer

Stan is a Senior Managing Director and the Chief Technology Officer for State Street Global Advisors. His key responsibilities include infrastructure management, application development and support, information security, governance, technology innovation and service desk operations. He is also a member of the firm's Executive Management Group.

Stan has worked in the investment management and financial services industry for 20 years. Prior to joining State Street Global Advisors, he served as chief technology officer for Pioneer Investment Management. Before that, Stan held a variety of technology leadership positions within State Street's corporate technology organization in support of the core asset servicing business lines, product development initiatives, technical sales support and strategic global client relationships. He helped launch both the Investment Manager Services and Wealth Management Services business lines and platform capabilities. He was also very active within State Street's corporate planning and investment banking process, functioning as technical lead for several large acquisitions and successful integrations. 41

Additionally, Stan has held a variety of senior consulting positions with Computer Sciences Corporation, focused within the financial services industry.

Stan holds an MBA from the University of Massachusetts-Amherst, and a Bachelor of Science in Finance and Economics from North Adams State College.

David Wiederecht Executive Vice President, Head of Global OCIO

Dave is an Executive Vice President and Head of the Global Outsourced Chief Investment Officer (OCIO) business. In this role, he is a part of the State Street Global Advisors Investment Solutions Group, overseeing a team of investment professionals managing more than $125 billion of OCIO assets. Dave joined State Street Global Advisors in July 2016 through its acquisition of GE Asset Management (GEAM).

Dave joined GEAM in 1988 after several leadership positions throughout GE. During his GEAM tenure, he served in various investment roles, most recently as President and Chief Investment Officer ' Investment Solutions.

Dave also serves on the Board of Directors of the USA Swimming Foundation, a non-profit organization focusing on support of the USA Swimming National Team and inner city learn-to- swim programs through its "Make a Splash" campaign.

Dave holds a BA in Economics from St. Lawrence University.

2.1.2 Mission, Vision and Quality Policy Mission- Fostering an environment that encourages the authenticity of our employees is essential to our business. By educating, inspiring, and empowering our employees at every level, we cultivate a global force of leaders that reflects the diverse markets we serve. That’s why we focus on attracting, hiring, developing, and advancing talent of all kinds. Vision- we aim to provide clients with a comprehensive servicing platform across the investment process, supported by deep enterprise data management capabilities. Quality policy- The lasting relationships we build with our employees, clients, shareholders and communities are the foundation of our business. One way we keep these stakeholders at the heart

of everything we do is through our commitment to corporate responsibility (CR). It’s infused across our corporate strategy and values, and is an important part of our way ahead. 2.1.3 Organizational structure SSGA follows flat organizational structure.

2.1.4 Products/ Services Profile SSGA creates customized investment strategies for institutions.SSGA manages the assets for clients by setting up commingled funds (otherwise known as common trust funds). In addition to institutional products, SSGA has 46 ETF investment products in the US market,as of March 2007. The ETFs track international and domestic indices based on market capitalization, investment style, sector, industry, or commodity. ETF products are also available in other parts of the world such as Belgium, France, Hong Kong, and Singapore under the street Tracks brand. SSGA has 26 Mutual Fund products divided by investment type: money markets, bonds, equities, and diversified funds of funds (also known as life style funds). SSGA partners with seven companies in various markets to produce local investment strategies for clients. They are Advanced Investment Partners; Asian Direct Capital Management; GovernanceMetrics International (GMI); Innovest Strategic Value Advisors, Inc.; Rexiter 43

Capital Management Limited; Shott Capital Management, LLC; SSARIS Advisors, LLC; The Tuckerman Group, LLC; and Wilton Asset Management, LLC. Our clients include corporations, private and public pension plans, endowments and foundations, sovereign wealth funds, central banks and intermediary investors. Their challenges – and ultimately, the people that depend on them for financial security – are what keep us coming to work every day.

2.1.5 Areas of Operation

Institutions & Consultants. Through every phase of the investment cycle, we work closely with pensions, endowments and other institutional investors, and the consultants who guide them, applying our research and deep expertise to each client’s unique investing challenges.

Defined Contribution Plan Sponsors. From designing a sustainable framework, to ensuring a smooth rollout, to driving results through employee communications, we help employers do more with – and get more from – their defined contribution retirement plans.

Cash Managers & Treasurers. Our dedicated Cash Management team offers global presence, scale, and disciplined portfolio-building and risk-management capabilities to help cash managers and treasurers balance their need for liquidity, security and yield.

Official Institutions. With a dedicated focus on central bank reserves and sovereign wealth funds, our Official Institutions Group (OIG) works closely with its specialized client base to help navigate today’s shifting monetary and market landscape.

2.1.6 Markets

SSGA employs 2,500 people in 25 locations (11 of which handle assets) around the world. SSGA has 3 offices in India i.e. Bangalore, Hyderabad, Mumbai.

2.1.7 Infrastructure Facilities A well-furnished office with exotic artifacts and well decorated surroundings. High speed internet, computers, direct communication with different offices through landline and wireless communication.

2.1.8 Competitor’s Information SSGA has huge number of competitors in Bangalore as well as all over globe. Some of the major competitors are as follows:- 1. Black rock 2. Goldman Sachs 3. JP Morgan and Chase 4. UBS 5. Vanguard 6. Morgan Stanley

2.2 SWOT Analysis of the Company Strength 1. Strong market position which enhances the brand image. 2. Strong capital position. 3. Geographically diversified revenue resources.

4. Successful track record of developing new products – product innovation. Weakness 1. Strong competition from other investment services companies means limited market share. 2. Need more investment in new technologies. 3. Investment in Research and Development is below the fastest growing players in the industry. 4. Not highly successful at integrating firms with different work culture. Opportunity 1. Diversifying global presence through acquisitions. 2. .Increasing commitment to service quality would improve the brand image in the industry.

3. New customers from online channel. 4. Opening up of new markets because of government agreement Threats 1. Susceptable to regulatory changes. 2. Intensifying competition. 3. Shortage of skilled workforce in certain global market 4. No regular supply of innovative products.

2.3 Application of Mckinsey 7S Framework to the company

The 7S framework of McKinsey is a value Based Management (VBM) model that describes how one can holistically and effectively organize a company. Together these factors determine the way a corporation operates. Shared values- SSGA has good ethics and cultural in the organization. It provides various platforms to express themselves and believes in unity in diversity. It hires people from all over India and implement a working environment for all individuals. Strategy- Company implements its resources judiciously so as to attain maximum results with minimum resources. It gives more values to quality services than quantity. 46

Structure- The Company follows flat organizational structure to carry out its business efficiently and smoothly. System- The Company has good IT Infrastructure and state of art facilities to carry out day to day operations smoothly and efficiently. Skill- The Company hires well experienced, qualified professionals so as to get high quality work and best services to their customers. Style- Management of the company respects all employees and provides equal opportunity to grow and learn in the organization. Staff- The company adopted hierarchical organizational structure where the number of employees is around 2500 members.

2.4 Future Growth and Prospects of the Company Global Advisors, the asset management division of State Street Bank, was founded in 1978 in Boston, Massachusetts. Its first three products were a domestic index fund, an international index fund (based on the MSCI EAFE index), and a short-term investment fund. By 1989 the division had $53 billion (USD) in assets under management. In 1990 State Street Global Advisors was formed as a separate entity from State Street Bank with the mission of expanding globally: first London, 10 more international locations by 1994, with 15 by 1999. SSGA invented the investment vehicle known as the exchange-traded fund (ETF) in 1993 with the introduction of the S&P 500 SPDR product (Ticker: NYSE Arca: SPY), which is traded on the American Stock Exchange. SSGA is the number two ETF manager in the world second only to BlackRock. Assets under management climbed to $161 billion (USD) in 1994 and more than quadrupled to $667 billion by 1999. As of 2006, one-third of assets under management were from non-US investors.

In 2003, SSGA's Boston office moved to the newly completed State Street Financial Center building at One Lincoln Street.

In January 2011, SSGA completed its acquisition of Bank of Ireland Asset Management (BIAM). The acquisition was first announced in October 2010 for approximately €57 million.[13] SSGA's presence in Ireland, which began 1996, had by 2010 grown to "more than 2,000 local employees."

2.5 Industry trends It is observed that even though mutual fund and ETF industry seems to grow in India the growth is concentrated both with respect to investor category and place. It is dominated by Institutional investors, T15 cities and debt oriented schemes leaving huge scope for growth. But large segment of investor are still outside the umbrella of the industry. The reach of the fund houses to different segments of investors is still a key challenge. One possible solution could be increasing financial knowledge and awareness to stimulate investors in mutual fund investment. This will attract investors towards mutual fund investment. The limited distribution network and investor service can be enhanced for wider reach beyond large cities.

CHAPTER 2

REVIEW OF LITERATURE

1. Estimating the dynamics of mutual fund Alphas and Betas Author- Harry Mamaysky, Matthew Spiegel, Hong Zhang, November 2008. Mutual fund managers often trade in the hope of generating superior returns. This trading naturally generates time-varying factor loadings. However, the standard multifactor ordinary least squares (OLS) is not designed to handle such time variation or to detect whether fund managers have the ability to time the market by appropriately varying their fund’s beta. Potential solutions to this problem are the TM and HM models, which include a market- timing parameter in addition to the standard factors. Using these models, Bollen and Busse (BB) find that while there is no evidence that fund managers possess market-timing ability in the monthly data, they are able to detect it in the daily data. However, the standard multifactor OLS is not designed to handle such time variation or to detect whether fund managers have the ability to time the market by appropriately varying their fund’s beta. Potential solutions to this problem are the TM and HM models, which include a market- timing parameter in addition to the standard factors. Using these models, BB find that while there is no evidence that fund managers possess market-timing ability in the monthly data, they are able to detect it in the daily data.

2. Kumarswamy Naidu G And Sravana Kumar B,” The Gold ETFs-The Nifty-Gritty,” Mutual Fund Industry in India-An introduction, ICFAI university press

Naidu Kumarswamy G and Sravana Kumar B have concentrated their study on gold Exchange Traded Funds. They have explained that the investment in gold ETF is cheaper and simpler way of investment in gold than the traditional purchase of gold. The gold ETFs are like the trading in stock market which gives the benefit of the real time value of the gold. Further they can be used for speculation also in the short term. Gold ETFs are very much liquid in nature and the investors can liquidate it fully or partly as per his need. It also eliminates the maintenance cost. However the researchers point it out that the investors should be well aware about the transactions and other regulations related to gold ETFs.

3. Do Investors Care about Risk? Evidence from Mutual Fund Flows. Author - Christopher P. Clifford , Bradford D. Jordan , Steve R., Jon A. Fulkerson.

The phrase “past performance is not indicative of future results” is ubiquitous in the finance industry, but equity mutual fund investors don’t believe it. Instead, they chase past raw returns to an extraordinary degree. Because of the way fund managers are compensated, their incentive is to take whatever action leads to the greatest possible growth in assets under management. Our evidence shows that higher raw return leads to greater fund flows, while 49

riskiness does not affect investors’ decisions. Further, net flows to funds are typically close to zero on average, so most of the growth in assets under management comes from the raw returns generated by the fund manager, thereby providing a second strong incentive to pursue maximum returns. Skilled fund managers are those who grow assets under management, not necessarily those who produce alpha. To date, however, whether this aspect of fund manager skill exists and/or persists is unexplored territory.

4. An Empirical Study on the Performance of Select Mutual Fund Schemes in India. Author - Ms.M.V.Subha, Ms.S.Jaya Bharathi.

This research give us idea about the Sharpe ratio, Treynor Ratio, Jensen differential return measure. It shows that if the ratio value is positive and higher than the fund would give good returns in future.

5. When investing in mutual funds, here's what you should know. Author- Sunil Dhawan, May 2016.

Reviewing of the equity mutual fund portfolio doesn't merely help us recognizing schemes in terms of performance but may also throw up surprises. We may be holding a too little or too much-diversified portfolio. Even the expense ratio of some of the schemes that we could be holding may be high compared to others within the same category. Most importantly, the review helps us validate if the investments are aligned to your goals.

6. Fund Manager Characteristics and Performance Author- Yi Fang and Haiping Wang, September 2014.

Fund manager characteristics affect comprehensive performance mainly through their impact on managers’ picking ability, which in turn affect excess return and, ultimately, comprehensive performance. Findings demonstrate that gender and major are essential characteristics for considering risk preferences.

7. Fund size, fund flow, transaction costs and performance: Size matters! Author - Howard W. H. Chan, Robert W. Faff , David R. Gallagher, Adrian Looi, February 2005.

We show that fund size negatively impacts on fund performance. We find that purchasing during periods of high inflow lead to sub-optimal purchasing, which in turn reduces fund performance. We find that large managers reduce market impact costs by having more stocks in their portfolio, thereby reducing the average overweight position in each stock. Large managers are also more likely to invest heavily in large liquid stocks, further reducing their aggregate market impact costs. Research shows that when large managers trade, they face 50

higher costs than small managers. Furthermore, the decision to alter portfolio configuration in an attempt to reduce market impact costs is itself costly since we show that the fund size effect is partially explained by these portfolio configuration preferences.

8. Prediction of Future Performance of Mutual Funds on the Basis of Past Performance. Author - Goel Sweta, Mani Mukta, June 2016

In this research both parametric and non-parametric techniques has been done in order to predict future performance of mutual funds. Techniques like regression analysis, Brown and Goetzmann’s odds ratio (OR), contingency tables are used in order to predict future performance of mutual funds. This study might be helpful for investors in taking investment decisions in mutual funds. It will allow mutual fund managers to track the investment strategies that might yield higher returns.

9. Risk and Return Analysis of Mutual Fund Industry in India Author- Bilal Ahmad Pandow, Khurshid Ahmad Butt, march 2017

Superior financial performance of fund managers has been the single most important factor that has the bearing on investors’ interest and growth of mutual fund industry. Therefore, the ultimate goal of fund managers is to deliver superior value to the fund investors in the form of returns at minimum risk. The performance of mutual funds is generally defined in terms of returns, risk adjusted returns or benchmark comparisons. These findings reinforce the fact that lesser, the risk lesser the return and if excess risk is taken beyond the accepted level, there is a likelihood of more loss of return. It also becomes clear from the above discussion that if the risk is kept within the tolerable limits, there are greater chances of earning a normal return.

10. Relative Benchmark rating and Persistence analysis: Evidence from Italian Equity Funds Author – Roberto Casarian, Marco Lazzarin, Loriana Pelizzon, domenico Sartore. December 2013.

First, there exists a very high rank correlation between performance measures based on absolute benchmarks and customized benchmarks; on the contrary there is only a weak relation between these measures and the information ratio. Second, the performance measure based on competitors (Morningstar Risk-Adjusted measure) is more persistent in both the analyses. Third, if we consider as winning Criterion the returns that exceeded the 75th percentiles even the performance measures based on absolute benchmarks show persistence. The information ratio shows contradictory behavior. The results of this paper lead to two clear implications. First, the ranking of the funds, and so the persistence level, are related to

the performance indicator chosen. Second, performance measures based on peer group benchmarks allow to distinguish funds that perform persistently better than competitors.

11. Mutual Fund Investors’ Perceived Experience & Mental Accounting– A study from Customer Communication Perspective Author- Tarak Paul, May 2017

The study confirmed the role of perceived experience on the mental accounting of retail mutual fund investors. The study showed significant association between retail investors’ degree of perceived experience and state of mental accounting in respect of customer communication. In other words, retail mutual fund investors’ perceived experience have an impact on their mental accounting. Therefore, the mental categorization process of the mutual fund retail investors’ depends on their perceived experience in respect to customer communication.

12. Performance Analysis of Indian Mutual Funds with S&P CNX Nifty Index Author- Inderpal Singh, kanika Khera, January 2015.

In this study risk measures ratios such as Sharpe, Treynor, Jensen’s alpha, standard deviation, beta, alpha is used to evaluate the performance of mutual funds. It was found that a scheme with high value of Sharpe, Treynor, and Jensen’s alpha out performanced the market and benchmark. It was also found that the schemes with low value of beta and high value of alpha generally gives good returns.

13. Penetration of Mutual Funds in India: Opportunities and Challenges Author- Rajesh Chakrabarti, Sarat Malik, Sudhakar Khairnar, Aadhaar Verma, March, 2016

In this study it was found that mutual fund major sales is in Mumbai and its surrounding districts as major AMC headquarters are situated in Mumbai .It was also found that major sales are in top 15 cities in India. In other cities people are less aware about the mutual fund schemes and it’s a difficult job to find right talent to spared awareness about mutual funds among people. So government as well as local bodies such as mutual fund agents are providing literacy among people. Government of India launching various programmes to open bank account. So that common people can use various services and can invest in financial instruments.

14. Portfolio Performance Evaluation Author – George O. Aragon and Wayne E. Ferson, March 2017.

In this study traditional risk measures of mutual funds and its shortcomings are pointed out. It was found out that investment performance can be classified in two categories. A fund or manager has investment ability if it generates returns that can be expected to exceed that of an otherwise equivalent benchmark, before costs and fees. A fund that outperforms the otherwise equivalent benchmark on an after-cost basis is said to add value for investors. The other one is fixed income performance in which various measures are taken into account to evaluate the returns of the scheme.

15. Mutual Fund Performance: An Empirical Decomposition into Stock- Picking Talent, Style, Transactions Costs, and Expenses: Discussion Author- Tobias J. Moskowitz, August 2000

In the study it was found that Active mutual fund managers may add value by limiting capital gains exposure through their trades, or they may subtract substantial value by imposing large tax consequences on clients from their trades. It was also found that that net fund returns are much less volatile than gross returns because the net returns have a smaller exposure to equities than the hypothetical portfolios. Therefore, although the average net performance deviates from gross performance, their Sharpe ratios may be identical.

16. Momentum Investment Strategies of Mutual Funds, Performance Persistence, and Survivorship Bias Author- Russ Wermers, March 1997

In the study it was found out that an investor choosing last-year's best decile of funds would have achieved a pre-expense return three percent per year higher than an investor choosing last-year's average fund. However, the difference in returns disappears after controlling for the momentum effect in stock returns. The strategy of buying last year's best funds works well except for years when stocks with high past returns underperform stocks with low past returns. It was evidence that the performance persistence is, to a large extent, driven by the persistent use of active momentum investment strategies.

17. A Literature Review on Analyzing Investors’ Perceptions towards Mutual Funds Author- Prof. M.N.Dave, Dr. Hitesh. J. Shukla, May 2014.

In the study it was found out that the investor’s usage perceive a product as per the way it has been promoted to them. Investors usually consider various factors like professional advice, low transaction costs, etc. as the reasons for investment in MF’s. Investors are having the perception of the specific product due to the way they visualize the product and understand the product.

18. Mutual Fund Performance: An Analysis of Monthly Returns of an Emerging Market 53

Author- A.B.M. Munibur Rahman, March 2014.

It is found that, most of the mutual funds have performed better according to Jenson and Treynor measures but not up to the benchmark on the basis of Sharpe ratio. However, very few mutual funds are well diversified and have reduced its unique risk. The growth oriented funds have not performed better in terms of total risk and the funds are not offering advantages of diversification and professionalism to the investors. So, mutual funds cannot perform always better with their expertise and cannot beat the market.

19. Rajeshwer and Jutur Sharat,”Gold Exchange Traded Funds-Enter India”, Mutual Fund Industry in India-An introduction, ICFAI university press(publication division)

Sharad Jutur and Rajesher have focused on the introduction of Gold Exchange Traded Funds in India emerged in a new era in the market for gold. It is observed that historically gold has been the best hedge against inflation. As mentioned in the book, the purchasing power of the gold has remained unchanged since the ancient age. In the investment field, gold has always enjoyed always a unique status. It is considered as one of the best investment options and it is most liquid form of asset. Units of the Gold ETFs are expected to get better returns than the physical gold as they can be traded in the stock market and their liquidity is per the liquidity of the equity shares. The author feels that gold ETFs are going to open a new dimension in the industry in coming years.

20. Fernandes Kshama,”Evaluating Index Funds Implementation in India,” Working Paper Fernandes Kshama, tried to evaluate the process and developments of index funds implementation in India. In this working paper, tracking error of index funds in India is measured by the author. He has pointed out that it is possible for many of the index fund managers in India to lower the tracking error by applying professional management. He has also pointed out that many of the index fund managers are deviating from the basic principles of index investment which is dangerous for the investors.

CHAPTER 3

3.1 Research Methodology

3.1.1 Topic chosen for the study

Exchange Traded Funds Vs. Index Funds: Comparative Performance Analysis where various risk measures parameters are taken for each fund for analyzing and predicting its future performance.

3.1.2 Need for the study

There are around 2000 mutual fund schemes as well as ETF are available in Indian financial universe analyzing each fund one by one is not feasible. Hence some parameters should be made so as to filter best ETFs and index funds. Various risk measures and parameters are used which helps in searching best schemes for the investors.

3.1.3 Significance of the study

This study will help in knowing funds different risk measures and parameters to analyze ETFs and Index funds so that investors know about the fund and its performance before making a final call for investment in schemes. This study also brings into light the various analysis and parameters which requires in depth study to know more about the schemes in detail.

3.1.4 Methodology adopted

The purpose of present study it was not feasible to cover the entire market, thus only four ETFs and four Index funds tracking NIFTY 50 were considered. Selection of funds was based on average asset under management and Crisil ranking. The study covers a period of five years from 2014 to 2018 for the purpose of evaluating the performance of selected Index Funds and Exchange Traded Funds in India. Data used is entirely secondary and is extracted from Association of Mutual Funds in India (AMFI) reports, articles, newspapers, and websites of various asset management companies. Parameters used for evaluating the performance are Annual Returns, Risk, Sharpe Ratio, Beta, Alpha and R square.

3.1.5 Objectives of the study

This study aims to comparatively evaluate the performance of selected exchange traded funds and index funds on the basis of annual returns for the period of five years i.e. from 2014-2018.

3.1.6 Scope of the study

The proposed study aims to cover the performance evaluation of Indian ETFs and Index Funds which track the same benchmark. Four different index funds along with four different exchange traded funds are considered in the study respectively tracking same benchmark. The study is based on secondary data and covers a period of five years i.e. from 2014-18 for the purpose of evaluating relative performance of selected ETFs and Index Funds.

3.2 Data Collection Tools

The tools used to analyze funds for this study are as follows:-

1. Primary Data. 2. Secondary Data. 3. MS EXCEL. 3.3 Analysis and Interpretation

The Equity Model consist of various parameters and risk measures ratio such as

1. Return

2. Risk

3. R squared

4. Jensen’s Alpha

7. Beta

8. Sharpe Ratio

This study will enable to recognize the difference in performance of two significant similar passive investment strategies.

3.4 Limitations of the study

The major limitation of this study is that the sample size was reduced considerably .The results of this study could vary if the size of sample is increased. Thus there is a great scope for further study.

Chapter 4

4. Data Analysis and Interpretation

4.1 Returns Of ETFs And Index Funds In India.

ETFs have been widely gaining attraction of investors as they provide the twin feature of stock and mutual funds. They provide investors with broad exposure to the stock markets in different countries and specific sectors, with relative ease, on a real-time basis that too at a low cost.

Table below gives details relating to the annual returns of the ETFs and Index Funds during the period 2014 to 2018.

Table 1: Annual Returns of Index Funds (Figures in %)

S.No. Fund 2014 2015 2016 2017 2018 YTD Name

1 Franklin 31.17 -3.58 3.26 28.28 3.16 4.49 India Index Nifty Plan

2 HDFC 32.18 -3.09 3.81 29.67 4.51 4.73 Index Fund Nifty Plan

3 IDBI Nifty 30.80 -4.44 2.37 28.98 4.08 4.71 Index Funds

4 UTI Nifty 31.77 -3.35 4.00 29.68 4.26 4.74 Index Funds

Interpretation:- As per Table 1, Annual return of all the four Index Fund reveals that in 2014 UTI Nifty Index Funds provided highest return of 31.77%.Whereas, HDFC Index Fund Nifty Plan has outperformed in the year 2014 and 2015.In the year 2015 it was observed that index funds have performed negatively even then performance of HDFC Index Fund Nifty Plan is better than other index funds as it provided least negative returns. In the year 2016 again UTI Nifty Index Fund has managed to outperform all other selected index funds. In 2017 , 2018 and YTD HDFC Index Fund Nifty Plan and UTI Nifty Index Fund gave comparatively good returns.

Table 2: Annual Returns of Exchange Traded Funds (Figures in %)

S.No. Fund 2014 2015 2016 2017 2018 YTD Name

1 Kotak Nifty 31.22 -2.91 2.89 28.61 4.49 4.77 ETF

2 Aditya Birla 31.22 -2.54 4.63 29.72 4.39 4.29 Sun Life ETF

3 ICICI 32.36 -2.96 4.39 29.94 4.50 5.75 Prudential Nifty iWIN ETF

4 Reliance 31.22 -3.20 3.92 30.01 4.62 4.78 ETF Nifty BeES

Interpretation:- As per Table 2, In 2014 ICICI Prudential Nifty iWIN ETF provided highest return of 32.36%.Whereas, Kotak Nifty ETF has outperformed other funds in the year 2013.In subsequent years Aditya Birla Sun Life ETF provided better returns.

Through, Comparative analysis it was observed that, all the 8 funds are tracking Nifty 50 but still are providing different returns. In all the five years ETFs have provided highest return.In 2014,ICICI Prudential iWIN Nifty ETF provided with highest return of 32.36% even in 2015 which was seen an year of negative returns ETFs performed better than Index Funds as lowest negative return was provided by an ETF .Then in 2016 when market was recovering, ETFs recovered.at a greater pace than Index Funds and Aditya Birla Sun Life ETF provided highest return out of selected funds. In 2017 and 2018 Reliance ETF Nifty BeES gave good returns.

In totality it was observed that although Index Funds and ETFs are tracking same index but still ETFs are performing better than Index funds.

4.2 Risk Analysis of ETFs And Index Funds

Despite of looking at returns investors must evaluate the risk involved before investing. There are number of ratios which investors should consider before making their investments. Risk can be analyzed with the help of Standard Deviation, Sharpe Ratio, Beta, Alpha and R-squared.

Tables below provide the details relating to Standard deviation, Sharpe ratio, Beta, Alpha and R- squared value relating to selected index funds and exchange traded funds.

Table 3: Risk analysis of Index Funds (as on 28th Feb 2019)

S.No Fund Standard Sharpe Alpha Beta R Square Name Deviation(%) Ratio(%) (%) (%)

1 Franklin 12.87 0.71 -1.28 0.99 1.00 India Index Nifty Plan

2 HDFC 13.0 0.77 -0.47 1.0 1.00 Index Fund Nifty Plan

3 IDBI 12.97 0.66 -1.91 0.99 1.00 Nifty Index Funds

4 UTI Nifty 12.94 0.78 -0.36 0.99 1.00 Index Funds

Table 4: Risk Analysis of Exchange Traded Funds (as on 28th Feb 2019)

S.No Fund Standard Sharpe Alpha Beta R Square Name Deviation(%) Ratio(%) (%) (%)

1 Kotak 12.28 0.77 -0.54 0.99 97.85 Nifty ETF

2 Aditya 12.90 0.79 -0.19 0.99 98.40 Birla Sun Life ETF

3 ICICI 13.03 0.80 -0.13 1.00 95.89 Prudential Nifty iWIN ETF

4 Reliance 13.05 0.79 -0.20 1.00 98.31 ETF Nifty BeES

Note: The Risk Measures have been calculated using calendar month returns for the last three years.

Standard Deviation

Standard deviation is an especially useful tool in investing and trading strategies, as it helps measure market and security volatility. It is found that among the ETFs, Reliance ETF Nifty BeES is having the highest risk i.e. 13.62 % whereas in case of Index Funds, IDBI Nifty Index Fund has highest risk of 13.55 %. The standard deviations of the ETFs are higher than the Index Funds. It means that the deviation of expected return is more in ETFs than Index Funds. ETFs are riskier compared to Index Funds as a result, its returns are higher as compared to Index Funds as seen earlier.

Sharpe Ratio

Sharpe ratio shows the ratio of reward to variability. Higher the ratio, better performance, in terms of the return for the risk taken. It is found that all the ETFs and Index Funds are showing a positive Sharpe ratio. When compared to Index Funds, ETFs have the higher ratio. According to Sharpe ratio, ETFs are giving better performance for extra risk taken by the investors.

Alpha

The higher the alpha, more the portfolio is able to earn above the predicted level. In the ETFs and Index Funds Reliance Nifty BeES is giving highest alpha which means this index fund is able to perform much above the predicted level. Overall, ETFs have higher alpha values than index funds.

Beta Value

Beta measures the systematic risk and explains the nature of the volatility of the security return with that of the market return. If beta values are less than one, it means that funds risk is less than the market risk; if it is one, it means the funds risk is same as that of the market risk and if the beta is more than one, the risk of the funds is greater than that of the market. All the funds, by and large, have the beta values on an average approximately equal to 0.99, implying lower volatility in the returns of the ETFs and Index Funds than the underlying Index volatility. Risk of ETFs as well as Index Funds is found to be less than market risk.

R-Squared Value

All the ETFs and Index funds have the R-squared values as 1.00 except Kotak Nifty ETF. It means that, they have exact correlation with the underlying Index and are moving in the same direction as that of the market returns and as far Kotak Nifty is concerned it is unable to exactly track the underlying benchmark.

Chart 1 Performance Chart Of Index Funds

1. Frnaklin India Index Nifty Plan

2. HDFC Index Fund Nifty Plan

3. IDBI Nifty Index Fund

4. UTI Nifty Index Fund

Chart 2 Performance Chart Of ETF Funds

1. Kotak Nifty ETF

2. Aditya Birla Sun Life ETF

3. ICICI Prudential Nifty IWIN ETF

4. Reliance Equity Nifty BeES

CHAPTER 5

5.1 Findings

 Risk measures in mutual fund and ETF analysis.  Methods to analyze ETFs and Index schemes.  Various operations process involved in buying ETFs and mutual funds.  Looking at the various parameters to select funds for investment.  To understand mutual funds’ performance and its consistency in terms of returns.

5.2 Suggestions

 This model further need to be updated to get more precise information such as implementing weightage in each risk measures ratio.  Finding reason for abrupt quartile movement in a particular scheme.  Finding parameters to know such as warning signs so as to find which funds will perform better and which will give negative returns in future.

5.2 Conclusion

In this study eight funds were selected that tracked Nifty 50 for which risk and return was analyzed on the basis of data extracted from secondary sources. Analysis revealed that in terms of annual returns ETFs provided highest return in all the five years, even when market was falling ETFs managed to perform better than Index Funds. Further, risk was analyzed using standard deviation, Sharpe ratio, Beta, Alpha and R squared values. Through analysis it was discovered that ETFs are more risky than Index Funds thus are generating better returns. Value of alpha for all the eight fund is positive which is a noteworthy point as it shows that all the funds are generating excess return over market return. Beta value shows a lower volatility among funds. Further, the value of r square for approximately all the funds is either 0.99 or 1 which illustrates that funds are moving in same direction as of underlying index.

CHAPTER 6

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