58 Corporate Finance
Chapter 3
Risk and Return
OBJECTIVES
How to measure security return for single and multiple periods.
Different measures of risk for a single and a portfolio of stocks.
The relationship between risk and return.
The intuitive reasoning behind the Capital Asset Pricing Model.
What are the competitors to CAPM.In the summer of 2002, the fund manager of ING Savings Trust was reviewing the mix of securities in their
INP Growth portfolios. ING operates three schemes in India. The ING Income Portfolio is an open-ended
scheme that seeks to generate attractive income by investing in a diversified portfolio of debt and money
market instruments of varying maturity and at the same time providing continuous liquidity along with
safety. The total assets under this scheme, as on March 2002, were Rs 196.08 crore.
The ING Growth Portfolio scheme seeks to provide long-term capital appreciation by investing pre-
dominantly in a portfolio of high quality equity and equity related securities. The scheme has the choice of
dividend and growth options. The total assets under management under this scheme, as on February 2002,
were Rs 79.60 crore.
The ING Balanced Portfolio is a open-ended scheme that seeks to generate long term growth of capital
and current income from a Portfolio of equity and fixed income securities. The scheme has the choice of
dividend and growth options. The total assets under management under this scheme, as on February 2002,
were Rs 41.71 crore.
THE MUTUAL FUND INDUSTRY
A mutual fund is a trust that pools the savings of a number of investors who share a common financial
goal. The money thus collected is invested by the fund manager in different types of securities depending
upon the objective of the scheme. These could range from shares to debentures to money market instru-
ments. The income earned through these investments and the capital appreciation realized by the scheme is