Hdfc Mutual Fund.docx

INDEX Sr. No 1.

Topic INTRODUCTION OF MUTUAL FUNDS 1.1 Overview of Mutual Funds 1.2 Mutual Funds operation 1.3 Glossaries 1.4 Definitions 1.5 History 1.6 Characteristics of Mutual Funds 1.7 Important/Advantages of Mutual Funds 1.8 Disadvantages of Mutual Fund 1.9 Growth in AUM 1.10 Organisation of Mutual Funds 1.11 Types of Mutual Funds 1.12 Regulatory Authority 1.13 Global Scenario 1.14 Housing Development Financial Corporation 1.15 Leading HDFC Mutual Funds for Short Term Investing

2.

3. 4.

1 2 3 7 8 12 13 16 17 21 22 28 31 32 41

RESEARCH METHODOLOGY 2.1 Objectives of study 2.2 Hypothesis of the study 2.3 Scope of the study 2.4 Limitations of the study 2.5 Significance of the Study 2.6 Selection of the problem 2.7 Sample size 2.8 Sampling method 2.9 Data Collection 2.10 Techniques and Tools LITERATURE REVIEW

46 47 48 49 50 51 51 51 52 53 58

DATA ANALYSIS AND INTERPRETATION 4.1 Data Interpretation

5.

Page No.

64

SUMMARY AND CONCLUSION 5.1 Findings 5.2 Suggestion 5.3 Conclusion  BIBLIOGRAPHY  WEBLIOGRAPHY  ANNEXURE

75 77 79 80 82 84

SR. NO 1 2 3 4 5

SR. NO 1 2 3

TOPIC

LIST OF CHARTS

1.1 1.5 1.9 1.10 1.11

Mutual Fund Operations History of Mutual Funds Growth in Assets under Management Organization of Mutual Funds Types of Mutual Funds

TOPIC 1.9 1.13 1.14

LIST OF GRAPHS Growth in Assets under Management Global Scenario of Mutual Funds HDFC Asset Management Company Ltd

PAGE NO. 2 11 19 21 22

PAGE NO. 20 31 23

INTRODUCTION OF MUTUAL FUNDS

1.1 OVERVIEW OF MUTUAL FUNDS To state in simple words, a mutual fund collects the savings from small investors, invest them in Government and other corporate securities and earn income through interest and dividends, besides capital gain. It works on the principle of” small drop of water makes a big ocean’. Mutual funds are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are investment companies regulated by the Investment Company Act of 1940. Related: opened fund, closed-end fund. The Mutual Fund Industry in India was started with a humble beginning by establishing the Unit Trust of India in the year 1963, by the Government of India. “The main aim of the UTI was to enable the common investors to participate in the prosperity of capital market through portfolio management aimed at reasonable return, liquidity and safety and to contribute to India’s industrial development by channelizing household savings into corporate investment”. By the year 1993, UTI occupied nearly 80 per cent of the market share and developed manifold in terms of number of investors, investable funds, reserves with wide marketing network and efficient leadership. The Chartered Financial Analyst had commented that, “Mutual Funds today form 1/10th of the banking industry’s size. If we compare this an indication in the current interest rate scenario, Mutual Fund has ample shelf-space to grow into an industry like the banking industry in India”

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1.2 MUTUAL FUNDS OPERATIONS The flow chart below describes broadly the working of a Mutual Fund.

Figure: 1.2 Mutual Fund Operations The simplest mutual funds definition is that they are an investment group set up by [professional investors and headed by an investment manager. Individuals are then able to invest small amounts of money into the fund for making a reasonable profit. There are an incredibly large number of mutual funds. While some mutual funds aim to produce short term, high yield profits, others look for the long term profit. Mutual funds are seemingly the easiest and least stressful way to invest in the stock market. Briefly put, a mutual fund is a pool of money contributed to by individual investors, companies and other organizations. There will be a fund. The manager usually diversifies in a manner such that the net average earning is expected to be considerably positive. But that is what any successful investor attempts to do, and anyone with a similar approach can expected to make the same earnings. 2

1.3 GLOSSARIES

➢

NET ASSET VALUE ( NAV)

Definition: The Net Asset Value or NAV is simply a measure of the current rupee value of one share of a mutual fund. It’s the fund’s assets minus its liabilities divided bby the number of outstanding shares. NAV’s are calculated at the end of each trading day. If the NAV increases, then it means the value of your holdings increase(if you are a shareholder.)

Net Asset Value (NAV) In simple words, NAV of a mutual fund is nothing but its PRICE PER UNIT. The NAV of mutual fund is to be calculated on a daily basis that is based on its performance with relation to other mutual funds. Technically speaking NAV of a fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. However, most people refer loosely to the NAV per unit as NAV, ignoring the “per unit”. NAV is computed on a daily basis for Open-ended funds and on a weekly basis for Close-ended listed funds whereas for close-ended unlisted fund’s NAV is computed once a month or once in 3 months as permitted by SEBI. Thus, if one sees a fund NAV as Rs. 10 then one can expect to buy the fund for Rs. 10 or sell it for Rs. 10(although some loaded funds don’t follow this logic). Since mutual funds hold a number of securities, the net asset value must be calculated at the end of the day on daily basis (as opposed to stocks that change prices by the second). 3

CALCULATING NET ASSET VALUE (NAV) Calculating mutual fund net asset values is easy. Simply take the current market value of the fund’s net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. So if a fund had net assets of Rs. 50 crore and there are 10 lakh shares of the fund, then the price per share (or NAV) is Rs. 50.00 The following formula is utilized for calculating NAV per unit: NAV= Total Assets - Total Liabilities Total no. of Outstanding Shares It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the “per unit”. We also abide by the same convention.

FORMULA OF THE CALCULATION OF NAV

Net Asset Value=

Market Value of Investments - Liabilities __________________________________ No. of units Outstanding

Illustration: For instance, HDFC mutual fund has introduced a scheme called Millionaire Scheme. The scheme size is Rs. 100 crore. The value of each unit is Ts, 10/-. It has invested all the funds in shares and the market value of the investment comes to Rs. 200 crore.

200 crore

value of each unit

Now NAV=100 crore

= 2 x 10 = 20 Thus, the value of each unit of Rs. 10/- is worth Rs. 20/-Hence the NAV = Rs. 20/4

HOW TO USE THE NET ASSET VALUES NAV’s are helpful in keeping an eye on your mutual fund’s price movement, but NAV’s are not the best way to keep track of performance. The reason for this is mutual fund distribution. Mutual funds are forced by law to distribute at least 90% of its realized capital gains and dividend income each year. When a fund pays out this distribution, the NAV drops by the amount paid. This is important because an investor may become frightened when they see their fund’s NAV drop by Rs. 3 even though they haven’t lost any money (the Rs. 3 wa paid out to the shareholder). The most important thing to keep in mind is that NAV’s change daily and are not a good indicator on how your portfolio is doing because things like distribution mess with the NAV (it also makes mutual funds hard to track)

➢ ENTRY LOAD Definition: Mutual fund companies collect an amount from investors when they join or leave a scheme. This fee is generally referred to as a 'load'. Entry load can be said to be the amount or fee charged from an investor while entering a scheme or joining the company as an investor.

Description: Generally, an entry load is collected to cover costs of distribution by the company. Different mutual funds houses charge different fees as an entry load. In India, this charge was usually of about 2.25% of the value of investment. From August 2009, however, SEBI has done away with this practice of charging entry load for mutual funds.

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➢

EXIT LOAD

Definition: Mutual funds companies collect an amount from investors when they join or leave a scheme. This fee charged is generally referred to as a 'load'. Exit load is a fee or an amount charged from an investor for exiting or leaving a scheme or the company as an investor. Description: The aim behind the collection of this commission at the time investors exit the scheme is to discourage them from doing so, i.e. to reduce the number of withdrawals by the investors from the schemes of mutual funds. Different mutual funds houses charge different fees as an exit load.

➢

BROKERAGE/COMMISSION

Definition: Commission is the incentive received by the insurance agent or salesperson for the sales achieved in a given period. Description: Commission is generally paid as a percentage of the premium on the insurance policies. This proves as an efficient way of rewarding the concerned person wherein his rewards are directly proportional to the policies sold by him.

➢

SIP

SIP works on the principle of regular investments. It is like your recurring deposit where you put in a small amount every month. It allows you to invest in a MF by making smaller periodic investments (monthly or quarterly) in place of a heavy one-time investment i.e. SIP allows you to pay 10 periodic investments of Rs 500 each in place of a one-time investment of Rs 5,000 in an MF. Thus, you can invest in an MF without altering your other financial liabilities. It is imperative to understand the concept of rupee cost averaging and the power of compounding to better appreciate the working of SIPs.

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1.4 DEFINATIONS SEBI (Mutual Funds) Regulations 1993, define Mutual Fund as follows “A fund established in the form of a trust by a sponsor to raise monies by the trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations”

Frank Reilly defines, Mutual Funds “as financial intermediaries which bring a wide variety of securities within the reach of the most modest investors”.

According to Weston J. Fred and Eugene F. Brigham Unit trusts are “corporations which accept dollars from savers and then use these dollars to buy stock, long term bonds, short term debt instruments issued by business or government units; these corporations pool funds and thus reduce risk by diversification”.

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1.5 HISTORY OF MUTUAL FUNDS

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India (UTI) at the initiative of the Reserve Bank of India (RBI) and the Government of India. The objective then was to attract small investors and introduce them to market investments. Since then, the history of mutual funds in India can be broadly divided into six distinct phases.

Phase I (1964-87): Growth Of UTI:

In 1963, UTI was established by an Act of Parliament. As it was the only entity offering mutual funds in India, it had a monopoly. Operationally, UTI was set up by the Reserve Bank of India (RBI), but was later delinked from the RBI. The first scheme, and for long one of the largest launched by UTI, was Unit Scheme 1964.

Later in the 1970s and 80s, UTI started innovating and offering different schemes to suit the needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was launched in 1971. The first Indian offshore fund, India Fund was launched in August 1986. In absolute terms, the investible funds corpus of UTI was about Rs 600 crores in 1984. By 1987-88, the assets under management (AUM) of UTI had grown 10 times to Rs 6,700 crores.

Phase II (1987-93): Entry of Public Sector Funds:

The year 1987 marked the entry of other public sector mutual funds. With the opening up of the economy, many public sector banks and institutions were allowed to establish mutual funds. The 8

State Bank of India established the first non-UTI Mutual Fund, SBI Mutual Fund in November 1987. This was followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. From 1987-88 to 1992-93, the AUM increased from Rs 6,700 crores to Rs 47,004 crores, nearly seven times. During this period, investors showed a marked interest in mutual funds, allocating a larger part of their savings to investments in the funds.

Phase III (1993-96): Emergence of Private Funds:

A new era in the mutual fund industry began in 1993 with the permission granted for the entry of private sector funds. This gave the Indian investors a broader choice of 'fund families' and increasing competition to the existing public sector funds. Quite significantly foreign fund management companies were also allowed to operate mutual funds, most of them coming into India through their joint ventures with Indian promoters.

The private funds have brought in with them latest product innovations, investment management techniques and investor-servicing technologies. During the year 1993-94, five private sector fund houses launched their schemes followed by six others in 1994-95.

Phase IV (1996-99): Growth and SEBI Regulation:

Since 1996, the mutual fund industry scaled newer heights in terms of mobilization of funds and number of players. Deregulation and liberalization of the Indian economy had introduced competition and provided impetus to the growth of the industry. 9

A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform standards for all funds. Erstwhile UTI voluntarily adopted SEBI guidelines for its new schemes. Similarly, the budget of the Union government in 1999 took a big step in exempting all mutual fund dividends from income tax in the hands of the investors. During this phase, both SEBI and Association of Mutual Funds of India (AMFI) launched Investor Awareness Program aimed at educating the investors about investing through MFs.

Phase V (1999-2004): Emergence of a Large and Uniform Industry:

The year 1999 marked the beginning of a new phase in the history of the mutual fund industry in India, a phase of significant growth in terms of both amount mobilized from investors and assets under management. In February 2003, the UTI Act was repealed. UTI no longer has a special legal status as a trust established by an act of Parliament. Instead it has adopted the same structure as any other fund in India - a trust and an AMC.

UTI Mutual Fund is the present name of the erstwhile Unit Trust of India (UTI). While UTI functioned under a separate law of the Indian Parliament earlier, UTI Mutual Fund is now under the SEBI's (Mutual Funds) Regulations, 1996 like all other mutual funds in India.

The emergence of a uniform industry with the same structure, operations and regulations make it easier for distributors and investors to deal with any fund house. Between 1999 and 2005 the size

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of the industry has doubled in terms of AUM which have gone from above Rs 68,000 crores to over Rs 1,50,000 crores.

Phase VI (From 2004 Onwards): Consolidation and Growth:

The industry has lately witnessed a spate of mergers and acquisitions, most recent ones being the acquisition of schemes of Allianz Mutual Fund by Birla Sun Life, PNB Mutual Fund by Principal, among others. At the same time, more international players continue to enter India including Fidelity, one of the largest funds in the world.

Figure 1.5 History of mutual funds

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1.6 Characteristics of Mutual Funds

➢

Assurance of minimum returns: In general mutual funds do not assure any minimum returns to their investors. However, Indian Mutual Fund Schemes launched during 1987 to 1990 assured specific returns till 1991, when the SEBI and Union Ministry of Finance order the mutual funds not to assure minimum returns. Recently, SEBI has formulated a policy that, mutual funds with a track record of five years will be allowed to offer fixed returns not exceeding one year period.

➢

Multiple Options: Most of the mutual fund schemes are offering different options to the investors under one scheme. For example, a growth oriented scheme may offer option of either regular income or re-investment of income. Under the regular income plan, dividend shall be distributed to investors and under the second dividend will be reinvested and total amount shall be paid at time of redemption.

➢

Lock in Period: Mutual Fund Schemes offer documents that contain a clause of lock-in period ranging from one year to three years. Till the completion of the minimum period the investors are to trade neither the units on the stock exchange nor to avail themselves of repurchase facility.

➢ Liquidity: Generally open-ended funds offer the facility of repurchase and the close ended are traded at stock exchange offering repurchase after a minimum lock in period of two to

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three years. Mutual funds also have a facility to pledge or mortgage at banks to obtain loan and can be transferred in favor of any individual.

➢

Incentives to early subscribers: Most of the close-ended mutual fund schemes are offering incentives to encourage early subscription to investors. This is more often in the tax planning schemes. For instance, if the scheme is open for a period of three months, the investor may be allowed a deduction from the amount to be invested at a certain specified rate, if the subscriptions were during the specified time limits.

1.7 IMPORTANCE/ADVANTAGES OF MUTUAL FUNDS Very often, we think we don’t need mutual funds in our portfolio and that our existing investments are enough to meet our future goals. But, to reach our goals we need a vehicle. Mutual funds are the only vehicle for reaching your goals, but they are certainly one of them.

❖

Emergency corpus: Long-term goals are important, but how do we cover unexpected calamities? Enter an emergency corpus, which can take care of sudden expenses that we couldn’t have planned for.

❖

Windfall gains: When salaried employees get a bonus or when someone inherits a large amount, what to do with it? Finding a vehicle to invest this money is crucial, else it could get spent.

❖

Funding down payments: Many of us want a house of our own. A combination of reasonable income and a housing loan can help you to pay your equated monthly installments (EMIs). But what about the

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down payment, which is a lump sum that you need to pay while, booking your house? Enter mutual funds again.

❖

Funding your goals: We all have dreams and financial goals. But how to realize them is always a big question. What if you want to send your child to a premier college for post-graduation, like an Indian Institute of Management (IIM)?

❖

Beat Inflation :

Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and energy on it. While most people consider letting their savings 'grow' in a bank, they don't consider that inflation may be nibbling away its value. Mutual Funds provide an ideal investment option to place your savings for a long-term inflation adjusted growth, so that the purchasing power of your hard earned money does not plummet over the years.

❖

Low Cost: Probably the biggest advantage for any investor is the low cost of investment that mutual funds offer, as compared to investing directly in capital markets. Most stock options require significant capital, which may not be possible for young investors who are just starting out. Mutual funds, on the other hand, are relatively less expensive. The benefit of scale in brokerage and fees translates to lower costs for investors. One can start with as low as Rs. 500 and get the advantage of long term equity investment.

❖ Convenience: Mutual funds are an ideal investment option when you are looking at convenience and timesaving opportunity. With low investment amount alternatives, the ability to buy or 14

sell them on any business day and a multitude of choices based on an individual's goal and investment need, investors are free to pursue their course of life while their investments earn for them.

❖ Diversification Going by the adage, 'Do not put all your eggs in one basket', mutual funds help mitigate risks to a large extent by distributing your investment across a diverse range of assets. Mutual funds offer a great investment opportunity to investors who have a limited investment

capital.

❖ Liquidity Investors have the advantage of getting their money back promptly, in case of openended schemes based on the Net Asset Value (NAV) at that time. In case your investment is close-ended, it can be traded in the stock exchange, as offered by some schemes

❖ Higher Return Potential Based on medium or long-term investment, mutual funds have the potential to generate a higher return, as you can invest on a diverse range of sectors and industries.

❖ Safety &Transparency Fund managers provide regular information about the current value of the investment, along with their strategy and outlook, to give a clear picture of how your investments are doing. Moreover, since every mutual fund is regulated by SEBI, you can be assured that your investments are managed in a disciplined and regulated manner and are in safe hands. Every form of investment involves risk. However, skilful management, selection of fundamentally sound securities and diversification can help reduce the risk, while increasing the chances of higher returns over time.

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1.8 DISADVANTAGES OF MUTUAL FUNDS 1. No Control Over Costs: An investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are payable even if the value of his investments is declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the mutual fund services.

2. No Tailor-Made Portfolio: Investors who invest on their own can build their own portfolios of shares and bonds and other securities, Investing through fund means he delegates this decision to the fund managers, The very high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual fund managers help investors overcome this constraint by offering families of funds - a large number of different schemes -within their own management company. An investor can choose from different investment plans and constructs a portfolio to his choices.

3. Managing a Portfolio of Funds: Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has individual shares or bonds to select.

4. The Wisdom of Professional Management: That's right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees.

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5. No Control: Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else's car.

6. Dilution: Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund's top holdings still doesn't make much of a difference in a mutual fund’s total performance.

7. Buried Costs: Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

1.9 GROWTH IN ASSET UNDER MANAGEMENT Assets under management (AUM) are the total market value of assets that an investment company or financial institution manages on behalf of investors. Assets under management definitions and formulas vary by company. Some financial institutions include bank deposits, mutual funds and cash in their calculations. Others limit it to funds under discretionary management, where the investor assigns responsibility to the company.

Assets under management describe how much of investors’ money an investment company controls. Investments are held in various investment vehicles including mutual funds, exchange-traded funds (ETFs) and hedge funds. Products are managed by a venture capital company, brokerage company or portfolio manager.

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AUM can be segregated in many ways. It is used to indicate the size of a fund and can refer to the total amount of assets managed for all clients or the total assets managed for a specific client. It includes the funds the manager can use to make transactions. For example, if an investor has $50,000 invested in a mutual fund, those funds become part of the total AUM and the fund manager can buy and sell shares in accordance with the fund's investment objective using all of the invested funds without obtaining any special permissions. Fluctuating daily, AUM depends on the flow of investor money in and out of a particular fund and asset performance. Increased investor flows, capital appreciation and reinvested dividends will increase the AUM of a fund. Adversely, decreased investor flows and market value losses will decrease the AUM of a fund. In the United States, once a firm has more than $30 million in assets under management, it must register with the Securities and Exchange Commission.

Methods of calculating assets under management vary among companies. Total firm assets under management will increase when investment performance increases or when new customers and new assets are acquired. Factors causing decreases in AUM include decreased market value from investment performance losses, fund closures and client redemptions. Assets under management includes all of the investor capital invested across all of the firm’s products and can include capital owned by the investment company executives.

Sep-17

Change

% Change

10,623

279,066

268,443

2,527

HDFC Mutual Fund

7,706

269,781

262,075

3,401

Reliance Mutual Fund

3,344

231,425

228,081

6,821

Mutual Funds ICICI Prudential Mutual Fund

Apr03

18

Aditya Birla Sun Life Mutual Fund

6,278

224,650

218,372

3,478

SBI Mutual Fund

3,651

188,030

184,379

5,050

UTI Mutual Fund Kotak Mahindra Mutual Fund Franklin Templeton Mutual Fund DSP BlackRock Mutual Fund

13,532

150,669

137,137

1,013

3,182

110,630

107,448

3,377

9,713

94,747

85,034

875

2,706

77,819

75,113

2,776

IDFC Mutual Fund

5,179

66,361

61,182

1,181

L&T Mutual Fund

929

52,749

51,820

5,578

Tata Mutual Fund

1,275

44,897

43,622

3,421

Sundaram Mutual Fund

1,292

33,150

31,858

2,466

LIC Mutual Fund JM Financial Mutual Fund Canara Robeco Mutual Fund Baroda Pioneer Mutual Fund

3,083

22,871

19,788

642

134

13,952

13,818

10,312

1,163

11,845

10,682

918

212

11,138

10,926

5,154

HSBC Mutual Fund PRINCIPAL Mutual Fund

1,077

10,179

9,102

845

1,848

5,826

3,978

215

Taurus Mutual Fund

77

575

498

647

Escorts Mutual Fund

86

247

161

188

Sahara Mutual Fund

2,530

66

(2,464)

(97)

Total

79,620

1,900,672

1,821,052

96

Figure: 1.9 Growth of ASSET UNDER MANAGEMENT (http://www.moneycontrol.com/mutual-funds/amc-assets-monitor)

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Figure 1.9 : Growth In Asset Under Management

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1.10 ORGANISATION OF MUTUAL FUNDS An organization (or organization — see spelling differences) is a social group which distributes tasks for a collective goal. The word itself is derived from the Greek word organon, itself derived from the better-known word ergon - as we know `organ` - and it means a compartment for a particular job. Management is interested in organization mainly from an instrumental point of view. For a company, organization is a means to an end to achieve its goals, which are to create value for its stakeholders (stockholders, employees, customers, suppliers, community). Moreover, (Samson, p 25. 2005) describes organizing as “the management function concerned with assigning tasks, grouping tasks into departments, and allocating resources to departments

Figure: 1.10 Organization of Mutual Funds

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1.11 TYPES OF MUTUAL FUNDS Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.

Figure: 1.11 Types of Mutual Funds

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➢ BY STRUCTURE:

1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors conveniently buy and sell units at Net Asset Value (“NAV”)related prices. The key feature of open-end schemes is liquidity.

2. Close - Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the schemes on the stock exchanges: where they are listed. In order to provide an exit route t0 the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least One of the two exit routes is provided t0 the investor.

3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

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➢

BY NATURE

1. Equity Fund: These funds invest the maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: • Diversified Equity Funds • Mid-Cap Funds • Sector Specific Funds • Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

2. Debt Funds The objective of these Funds is to invest in debt papers, Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: •Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interstate risk. These schemes are safer as they invest in papers backed by Government. • Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.

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• MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. •Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. •Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital, These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1 day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. •Balanced Funds: As the name suggest they are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with predefined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz; each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.

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➢

BY INVESTMENT OBJECTIVES •Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. •Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. •Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they can. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents(normally 50:50). •Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

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➢

OTHER SCHEMES •Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme(ELSS) are eligible for rebate. •Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. •Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents, e.g., Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

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1.12 REGULATORY AUTHORITY

A mutual fund is a trust made up of money collected from public or investors through the sale of units for investment in securities such as stocks, bonds, and money market instruments. Mutual Funds in India are governed by the Securities Exchange Board of India (Mutual Fund) Regulations 1996 with the exception of Unit Trust of India (UTI) as it was created by the UTI Act passed by the Parliament of India. All mutual funds must be registered with SEBI. Mutual Funds in India primarily have a 3-tier structure i.e. Sponsor (1st tier), Public Trust (2nd tier) and Asset Management Company (3rd tier). Sponsor is any person who himself or in association with another corporate, establishes a mutual fund. The Sponsor seeks approval from the Securities & Exchange Board of India (SEBI). Once SEBI approves it, the sponsor creates the Public Trust as per the Indian Trusts Act, 1882. Since Trusts have no legal identity in India, the Trust itself cannot enter into contracts. Thus, Trustees are appointed who are authorized to act on behalf of the Trust. The instrument of trust must be in the form of a deed between the Sponsor and the trustees of

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the mutual fund registered under the provisions of the Indian Registration Act. The Trust is then registered with SEBI leading to formation of mutual fund. Henceforth, the Trust is known as mutual fund. Sponsor and the Trust are two separate entities. The Trustee’s role is only to act as internal regulators of mutual fund where they see, whether the money is being managed as per the objectives. Trustees appoint the Asset Management Company (AMC), to manage money collected through sale of mutual fund’s units. The AMC’s Board of Directors have at least 50% of independent directors. The AMC is also approved by SEBI. The AMC functions under the supervision of its Board of Directors, the direction of the Trustees and SEBI. AMC in the name of the Trust floats new schemes and manage these schemes by buying and selling securities. In order to do this, the AMC needs to follow all rules and regulations prescribed by SEBI and as per the Investment Management Agreement it signs with the Trustees.

Regulation of mutual funds Mutual funds are regulated primarily by Securities and Exchange Board of India (SEBI). In 1996, SEBI formulated the Mutual Fund Regulation. SEBI is also the apex regulator of capital markets and its intermediaries. Issuance and trading of capital market instruments also comes under the purview of SEBI. Along with SEBI, mutual funds are regulated by RBI, Companies Act, Stock exchange, Indian Trust Act and Ministry of Finance. RBI acts as a regulator of Sponsors of bank-sponsored mutual funds, especially in case of funds offering guaranteed returns. In order to provide a guaranteed returns scheme, mutual fund needs to take approval from RBI. The Ministry of Finance acts as supervisor of RBI and SEBI and appellate authority under SEBI regulations. Mutual funds can appeal to Ministry of finance on the SEBI rulings.

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Some SEBI regulations for mutual funds

Mutual funds must set up AMC with 50% independent directors, a separate board of trustee companies with minimum 50% of independent trustees and independent custodians to ensure an arm’s length relationship between trustees, fund managers, and custodians. As the funds are managed by AMCs and the custody of assets are with trustees, a counter balancing of risks exists as both can keep tabs on each other.

SEBI takes care of the track record of a Sponsor, integrity in business transactions and financial soundness while granting permission. The particulars of schemes are required to be vetted by SEBI. Mutual funds must adhere to a code of advertisement. As per the current SEBI guidelines, mutual funds must have a minimum of Rs. 50 crore for an open-ended scheme, and Rs. 20 crore corpus for the closed-ended scheme. Within nine months, mutual funds must invest money raised from the saving schemes. This protects the mutual funds from the disadvantage of investing funds in the bullish market and suffering from poor NAV after that. Mutual funds can invest a maximum of 25% in money market instruments in the first six months after closing the funds and a maximum of 15% of the corpus after six months to meet short-term liquidity requirements. SEBI inspects mutual funds every year to ensure compliance with the regulations.

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1.13 GLOBAL SCENARIO A mutual fund is a pool of money from numerous investors who wish to save or make money. Investing in a mutual fund can be a lot easier than buying and selling individual stocks and bonds on your own. Investors can sell their shares when they want. First started by Massachusetts Investors Trust In Boston in 1924 The statistic presents the distribution of global mutual fund worldwide in 2016, by selected region. The United States accounted for almost half of the mutual fund and ETF (Exchange Traded Funds) assets in 2016.

Figure : 1.13 Global scenario of Mutual Funds (https://www.statista.com/statistics/255595/share-of-total-global-mutual-fund-net-assetsby-selected-region/)

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1.14 HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)

HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at “HDFC House”, 2nd Floor, H. T. Parekh Marg, 165-166, Backbay Reclamation, Churchgate, Mumbai - 400 020. The Company Identification Number (CIN) is U65991MH1999PLC123027. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 26.319 crore as on September 30, 2017.

Figure: 1.14 HDFC Assets Management Company Ltd

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1.9. % Board of Directors The Band of Directors of the HDFC Asset Management Company Limited (AMC) consists of the following eminent persons. Mr. Deepak S. Parekh Mr. N Keith Skeoch Mr.Keki M. Mistry Mr. James Aird Mr. P. M. Thampi Mr.HumayunDhanrajgir Dr. Deepak Pathak Mr.Hoshang S. Billimoria Mr.Rajeshwar Raj Bajaaj Mr. Vijay Marchant Ms.Renu S. Karnad Mr.MilindBarve 1.9.

Chairman of the board CEO of Standard Life Investments Ltd. Vice-Chairman & CEO Investment Director Independent Director Independent Director Independent Director Independent Director Independent Director Independent Director Joint Managing Director Managing Director

Mr. Deepak Parekh, the Chairman of the Board, is associated with HDFC Ltd. in his capacity as its Executive Chairman. Mr. Parekh joined HDFC Ltd. in a senior management position in 1978. He was inducted as whole time Director of HDFC Ltd. in 1985 and was appointed as the Executive Chairman in1993. Mr. N. Keith Skeoch is associated with Standard Life Investments Limited as its Chief Executive and is responsible for all company business and investment operations within Standard Life Investments Limited. Mr. Keki M. Mistry is an associate director on the Board. He is the Vice-Chairman &Managing Director of Housing Development Finance Corporation Limited (HDFC Ltd.) He is with HDFC Ltd. since 1981 and was appointed as the Executive Director of HDFC Ltd. in1993. He was appointed as the Deputy Managing Director in 1999, Managing Director in2000 and Vice Chairman & Managing Director in 2007 33

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC): HDFC or the Housing Development Finance Corporation Limited is one of India’s premier financial conglomerates. It was established in 1977 as a mortgage company and has since grown into a financial giant that has major subsidiaries like HDFC Bank, HDFC Standard Life Insurance Company Limited and even HDFC Asset Management Company among others. The services provided by the company range from mortgages to insurance to Mutual Funds. HDFC was incorporated in 1977 as the first specialized housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity. HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000 depositors, 92,000shareholders and 50,000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the ninth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation

has

maintained a consistent and

healthy growth in

its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and a ls o h a s a la r g e c o r p o r a t e c l i e n t b a s e f o r it s h o u s i n g r e la t e d c r e d i t f a c i l i t i e s . W it h i t s experience in the financial markets, a strong market reputation,

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large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. In a recent move, HDFC Mutual Fund, which is India’s largest Mutual Funds manager, acquired Morgan Stanley’s business when they exited the country. The eight schemes of Morgan Stanley that were bought by HDFC had a combined value of Rs. 3,290 crore. This move has put HDFC Mutual Fund even further ahead of its competitors in the Mutual Funds market

HDFC MUTUAL FUND PRODUCTS Equity Funds HDFC Growth Fund HDFC Long Term Advantage Fund HDFC Index Fund HDFC Equity Fund HDFC Capital Builder Fund HDFC Tax saver HDFC Top 200 Fund HDFC Core & Satellite Fund HDFC Premier Multi-Cap Fund HDFC Long Term Equity Fund HDFC Mid-Cap Opportunity Fund

Balanced Funds HDFC Children's Gift Fund Investment Plan HDFC Children's Gift Fund Savings Plan

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HDFC Balanced Fund HDFC Prudence Fund Debt Funds HDFC Income Fund HDFC Liquid Fund HDFC Gilt Fund Short Term Plan HDFC Gilt Fund Long Term Plan HDFC Short Term Plan HDFC Floating Rate Income Fund Short Term Plan HDFC Floating Rate Income Fund Long Term Plan HDFC Liquid Fund - PREMIUM PLAN HDFC Liquid Fund - PREMIUM PLUS PLAN HDFC Short Term Plan - PREMIUM PLAN HDFC Short Term Plan - PREMIUM PLUS PLAN HDFC Income Fund Premium Plan HDFC Income Fund Premium plus Plan HDFC High Interest Fund HDFC High Interest Fund - Short Term Plan HDFC Sovereign Gilt Fund - Savings Plan HDFC Sovereign Gilt Fund - Investment Plan HDFC Sovereign Gilt Fund - Provident Plan

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HDFC Cash Management Fund - Savings Plan HDFC Cash Management Fund - Call Plan HDFCMF Monthly Income Plan - Short Term Plan HDFCMF Monthly Income Plan - Long Term Plan HDFC Cash Management Fund - Savings Plus Plan HDFC Multiple Yield Fund

HDFC Mutual Fund offers a wide variety of Mutual Funds for investors to choose from. They range from the regular equity and debt funds to funds of funds schemes, liquid funds, etc. 

Equity



Equity funds are designed to invest mostly in the equity markets. The management of these funds can be active or passive (index funds). The various fund options offered under this scheme are meant to meet the long-term investment needs of the customers.  

Debt / Income



The debt funds, or income funds invest in short or long-term bonds, the money market, floating rate investments, etc. The purpose of these investments is to generate an income for the investor and that is exactly what the plans offered by HDFC Mutual Fund do.   

Liquid



Liquid funds are funds that make investments in fixed-income, short-term securities that come with maturity periods of 91 or less days. This makes them a low-risk investment option. These funds come without exit loads.  

Children's Gift Fund



The Children’s Gift Fund offered by HDFCMF is a scheme that has been designed to provide a chance for the investor’s capital to grow over the long term. The fund was launched for investors to meet the goals set for their children.

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

Exchange Traded Funds



HDFC Mutual Fund’s Exchange Traded Funds or ETFs are funds that are traded on the stock market. They offer higher liquidity and come with lower fees when compared to other Mutual Funds. HDFC Mutual Fund offers 3 different types of funds in this category.  

Annual Interval Fund - Series 1



The investment objective of the plan under the scheme is to generate income through investments in Debt / Money Market Instruments and Government Securities maturing on or before the opening of the immediately following specified transaction period.  

Rajiv Gandhi Equity Savings Scheme



The Rajiv Gandhi Equity Savings Scheme (RGESS) is an equity investment scheme that offers investors tax benefits. It is meant to encourage small investors to start investing in the capital markets.  

Fixed Maturity Plan



The Fixed Maturity Plans offered by the company are Mutual Funds that invest in government securities and debt markets. They involve low risk and are closeended schemes.  

Fund of Fund Schemes



This scheme invests in other Mutual Funds. HDFC Mutual Fund offers Gold Fund and Dynamic PE Ratio Fund under this category.  

HDFC Capital Protection Oriented Schemes



  

This is a scheme that is aimed at generating income for investors by investing in the debt market. The instruments that they invest in come with fixed maturity dates.

    

Why choose HDFC Mutual Fund?



Infrastructure mutual fund schemes have delivered the highest average return of 43.6 per cent among all sectorial schemes, including banking and financial services, energy and power, FMCG, pharma and technology, in 2017. According to mutual fund advisors, 38

infrastructure schemes are likely to offer superior returns in the coming years, provided if the investor is prepared to hold on to investments for five to seven years.

HDFC Mutual Fund has a lot of offer to potential investors. The company boasts of offering customers a chance to invest profitably. This is made obvious by the following observations about the company.

  





Many of the products offered by the company come with CRISIL ratings of 3 and above.



The company offers investors a huge variety of funds to invest in.



Investors can get tax advantages by investing with HDFC MF’s ELSS.



The funds on offer range from short-term to long-term and can be used to meet investor goals. They offer both close and open-ended funds.



The company offers low, medium and high-risk products.

HDFC MF gets board’s nod for IPO The board of directors of HDFC Asset Management Company, the sponsor of HDFC Mutual Fund, has cleared a proposal to initiate the process of filing for its initial public offer. HDFC Mutual Fund will become the second fund house to list after Reliance Mutual Fund, the IPO of which was subscribed 81 times earlier this month. As of September quarter, HDFC MF is the second-largest fund house with assets worth ₹2.69 lakh crore under its management. The promoters of the asset management company — Housing Development Finance Corporation and Standard Life Investments — have also, in principle, approved the IPO by offering their shares to the public in one or more tranches. Post dilution in tranches, the shareholding of HDFC and SLI in HDFC AMC will be at least 50.01 per cent and 24.99 per cent, respectively, said HDFC MF in a statement on Thursday.

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Standard Life Aberdeen plc. (the promoter of Standard Life Investments), HDFC and HDFC AMC also confirmed their intention to enter into a collaboration agreement to work together to develop new products in India, which they believe will further enhance their successful long-term relationship. Unlocking biz value Deepak Parekh, Chairman, HDFC AMC, said the listing would unlock value for the shareholders and provide investors an opportunity to participate in the emerging asset management space within the group. Milind Barve, Managing Director, HDFC AMC, said the Indian asset management industry has seen strong inflows with increasing awareness of mutual fund products.

The improving penetration levels of mutual fund products provide an interesting opportunity to channelize investments more productively, he said.

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1.15 LEADING HDFC MUTUAL FUNDS FOR SHORT TERM INVESTING One of the most common bits of advice that investment experts tend to offer new mutual fund investors is to keep a long term investment horizon of 5 years or more. However mutual funds are an extremely flexible investment tools hence investors do have quite a few options if they are seeking short term investment options ranging from a year to less than 5 years. At present, HDFC Mutual Fund AMC offers investors a range of debt funds that investors – both retail and institutional can choose from. The following is a short list of HDFC debt funds that can offer investors high ROI in case they choose to make a short term investment. Launched in 2013, this relatively new debt fund from HDFC Mutual Funds AMC has offered investors with returns of close to 9.5% since its launch. Officially, the fund seeks to provide investors with regular income through investments made into a range of money market and debt investments. Officially designated as a short term debt fund, you have to consider the fund’s an exit load of 0.75% of total amount redeemed in case unit redemption is made within 180 days of unit allotment. This exit load is however not applicable in case the redemption is less than 15% of total units allocated. As per recent portfolio records, the fund has invested around 86% of its available capital in high quality bonds with money market instruments accounting for the rest of this fund’s investment portfolio.

HDFC Corporate Debt Opportunities Fund The HDFC Corporate Debt Opportunities Fund is a scheme focused on providing investors with capital appreciation as well as income generation through investments focused primarily on corporate bonds. Historically most analysts have designated this fund to have an overall medium quality portfolio which includes both high quality AAA41

rated bonds along with relatively lower quality BBB– rated bonds. The higher quality bonds provide stability to the overall fund portfolio while the lower quality bonds feature a higher coupon rate which helps the fund generate higher accrual income. In case you plan to invest in this debt fund, you should be aware of exit loads that are applicable in case you redeem your investments prior to completion of 540 days from the unit allotment date. The fund’s exit load is 1% for redemptions made within 365 days of unit allotment and 0.5% for redemptions made between 366 and 540 days. Your redemptions will however be exempt from exit load in case you are redeeming less than 15% of total units held in the scheme.

HDFC Cash Management Fund – Treasury Advantage Plan This HDFC mutual fund is specifically designed to fulfill the short to medium term investment objectives of investors. In order to provide a viable alternative to traditional investments such as fixed deposits and savings accounts, the HDFC Cash Management Fund – Treasury Advantage Plan primarily invests in various corporate debt as well as money market investments. Classified as an ultra-short term debt fund, this scheme does not have any exit load no matter how long or short a period you remain invested in scheme. Launched in 1999, this scheme has gone through multiple economic cycles and has provided returns of close to 7.5% since its launch. In terms of investment quality, this scheme primarily invests in high quality bonds with residual maturity of less than a year which is a key reason for the low interest rate sensitivity of this scheme. What’s even better for you in case you decide to invest in this scheme is the fact that it features a low expense ratio of less than 1% which sets it apart from many of its peers. In case you are interested in purchasing units of this fund, as a new investor, the minimum lump sum investment amount is fixed at Rs. 5000.

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HDFC Short Term Opportunities Fund This HDFC mutual fund scheme is designed to provide investors with regular income by making investments in various money market instruments and debt securities. Since its launch in 2013, this fund has emerged as one of the most popular short term investment options offered by HDFC Mutual Fund AMC. If you are investing in HDFC Short Term Opportunities Fund, you should know that this scheme is mostly invested in short term corporate debt securities along with a smaller portion of capital invested in sovereign debt instruments. The average residual maturity of this scheme’s investments ranges from 1.4 year to 1.7 year which leads to most of these investments being held till maturity. Thus the overall portfolio of this fund features high credit quality along with relatively low levels of interest rate sensitivity. This has promoted the fund’s overall perception of a low volatility investment alternative making it one of the largest funds (in terms of AUM) within its category. In case you are new investor in this scheme, the minimum initial lump sum deposit amount required is Rs. 5000.

HDFC Cash Management Fund – Savings Plan The HDFC Cash Management Fund – Savings Plan is a specialized investment option for investors seeking short term or medium term debt investment. This HDFC mutual fund scheme is mainly focused on making money market and corporate debt securities. As per its stated objective, this scheme endeavors to provide regular dividends from the income generated by the fund’s investments. Historically, this scheme has featured low levels of 43

volatility and relatively consistent returns which have made this fund a popular investment choice among retail as well as institutional investors with short term investment horizons. Designated as a liquid fund, this scheme has zero entry and exit loads. It is mainly invested in money market instruments such as commercial papers, certificate of deposit and treasury bills that feature maturities of 90 days or less. In case you invest in this scheme, you will also receive the benefit of its extremely low expense ratio which was recorded at 0.30% on October 31, 2017.

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RESEARCH METHODOLOGY 45

2.1 OBJECTIVES OF THE STUDY Objectives are the base and foundation of any research. The above study is undertaken on the basis of certain objectives which are as follows. 1. To understand the concept of Mutual Funds. 2. To overview organization structure, types and History of Mutual Funds. 3. To understand the benefits, Terms associated with Mutual Funds and disadvantages of Mutual Funds. 4. To know the growth trend of Mutual Funds and Assets Under Management (AUM). 5. To understand the investors behaviour towards Mutual Fund investments. 6. To find out necessary facts related to selected HDFC Mutual Funds Schemes which can benefits investors and fund managers. 7. To come out with suggestions and recommendation enhancing the growth of Mutual Funds.

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2.2 HYPOTHESIS OF THE STUDY

In order to fulfill and achieve the above stated objectives of the research the study has been made on the basis of certain hypothesis bifurcated according to the various dimensions of the Indian mutual funds industry. The hypotheses of the study have been made according to the need and importance of the study. The study has taken into consideration the growth and development of Indian mutual funds industry in to and in term of net resource mobilization related to the Indian mutual funds industry, the performance evaluation of HDFC mutual fund schemes and its diversification as criteria for hypothesis. For testing purpose the following hypotheses have been formulated.

Hypothesis H0: The investment performance of HDFC mutual funds schemes is not superior to the relevant benchmark portfolio, while the alternate hypothesis of the study assumes,

H1: The investment performance of HDFC mutual funds schemes is superior to the relevant benchmark portfolio.

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2.3 SCOPE OF THE STUDY The scope has grown enormously over the years. In the first age of mutual funds, when the investment management companies started to offer mutual funds, choices were few. Even though people invested their money in mutual funds as these funds offered them diversified investment option for the first time. By investing in these funds they were able to diversify their investment in common stocks, preferred stocks, bonds and other financial securities. At the same time they also enjoyed the advantage of liquidity. With Mutual Funds, they got the scope of easy access to their invested funds on requirement. But, in today’s world, Scope of Mutual Funds has become so wide, that people sometimes take long time to decide the mutual fund type, they are going to invest in. Several Investment Management Companies have emerged over the years who offer various types of Mutual Funds, each type carrying unique characteristics and different beneficial features.

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2.4 LIMITATIONS OF THE STUDY 1. Data limitations All the sources, from where the data of the present study has been extracted do not provide the complete data, often data available is only for the recent two or three years, not enough for analysis. A few private corporate bodies are providing data but getting those data is also very difficult and often they charge exorbitantly in their coverage.

2. Sampling Errors The study is mainly based on secondary sources of the primary surveys conducted by AMFI and SEBI therefore error of primary surveys bound to be occurred.

3. Impact of Time The study on impact of policy measures on the growth and development of AMFI cannot be seen in a short span of time where the reforms are an on-going process.

4. Frequent Changes The world is very fast and changes are happening frequently due to the globalization and liberalization. The researcher may not be able to consider all the changes and therefore there will be a gap of time span for further studies in future. However, the researcher is of strong opinion, that the result of the study in no way would be affected.

5. Sample size The above study is based on the 100 investors of Kalyan city only, which indicates their attitude towards the Mutual Fund Investments. Hence this study is restricted to the selected area only.

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2.5

SIGNIFICANCE OF STUDY

Mutual funds are the vehicle through which an investor can achieve his financial goals. Mutual Funds are subject to market risk it requires continuous study of market fluctuations.

❖

❖

❖

❖

❖

❖

Mutual Funds helps investors to generate better inflating adjusted returns without spending lot of time and energy on it.

Mutual Fund investment is the low cost of investment as the brokerage charges are lower for investors.

Mutual Fund investments provide opportunity to investors to diversify their investments in different portfolios.

Mutual Fund investments generate higher returns on investments in different schemes offered by different companies.

Fund Managers provide regular information about current value of investments along with their strategy and outlook.

HDFC Mutual Fund schemes offer better opportunities to investors in terms of growth and returns.

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2.6

SELECTION OF THE PROBLEM

The study on investor’s behaviour toward mutual fund investments is undertaken in order to know their attitudes, investment patterns and buying habits of them. The study is undertaken to know overview of Mutual Funds industry and working of HDFC Mutual Fund Investment. The study is undertaken to understand various terms associated to Mutual Funds. It helps to know the benefits and growth of Mutual Fund investment. It is undertaken in order to identify the problems associated with it and the possible solutions relating to Mutual Fund investments.

2.7

SAMPLE SIZE

Sample size for above study is 100. Different area of investors are considered for the study purpose. The data is collected from 100 people of different age, gender and different education background of Kalyan city.

2.8 SAMPLING METHOD For the purpose of study convenience non probably sampling method is used. The data is collected from different people who are selected randomly on the basis of convenience.

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2.9

DATA COLLECTION

The study is an empirical work based on the secondary data and primary data collected from various sources for the fulfillment of truthfulness of the analysis and interpretation and then to ensure the quality of research study.

a) Primary Data The primary source is the outcome of personal interviews with experts, fund manager, brokers and agents. Data is collected from group of 100 people of different age, different gender, different education background and different occupations.

b) Secondary Data The secondary data for the study have been collected from various secondary sources of information such as published reports of AMFI, SEBI, RBI annual reports and bulletin. The annual reports of various mutual funds and their monthly fact sheets have also been used. Other reports such ad various reports from Ministry of Finance, Department of Company Affairs etc. are also collected for supporting the literature references. Altogether relevant books, journals and periodicals, research papers, published thesis, articles, financial dailies, websites, are also consulted by the researcher for better referencing.

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2.10 TECHNIQUES AND TOOLS

The statistical tools used for the analysis and interpretation are: Mean, variance, standard deviation and linear regression. Beside these the following six measures were used to evaluate performance:

(a) Rate of Return (b) Sharpe Ratio (c) Treynor Ratio

(e) Sharpe Differential Measure (f) Famas‟ Composite of Investment Performance.

Considering the technical nature of certain statistical tools and the frequent use of these tools in the study a brief discussion of some relevant tools are as follows:

R-Squared R-squared values range from 0 to 100.R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index. A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an Rsquared value of close to 100 but has a beta below 1, it is most likely offering higher riskadjusted returns. A low R-squared means you should ignore the beta.

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Treynor Ratio The Treynor‟s reward to volatility ratio measures the excess return per unit of market (systematic) risk. We calculate Treynor ratios for the sample funds by using: TI = (Rp Rf)/ βp TI = Treynor‟s ratio Rp = Average return on fund p Rf = Return on risk free asset βp = Sensitivity of fund return on market return It measures portfolio risk in terms of beta, which is the weighted average of individual security beats. The ratio is relevant to investors, for whom the fund represents only a fraction of their total assets. The higher the ratio better is the performance.

Jensen Differential Measure Jensen attempts to construct a measure of absolute performance on a risk-adjusted basis that a definite standard against which performance of various funds can be measured. This standard is based on CAPM measures the portfolio manager’s predictive ability to achieve higher return than expected for the given riskiness. The basic model is Rpt - Rf = α + β (Rm - Rf) + ei Where Alpha (α) = the intercept βp = Systemic risk Rm = Market return Rpt = Fund return on time period t Rf = Return on risk free asset A positive value of Alpha for a portfolio would indicate that the portfolio has an average return greater than the benchmark return indicating the superior performance.

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Alternatively, a negative value of alpha would indicate that the fund has a return less than the benchmark.

Sharpe Differential Return Measure Sharpe has applied this measure to know the incremental returns earned by the mutual fund manager for the given level of risk. The Sharpe differential return is computed by using the following equation: Rpt - Rft = α + β [Rmt - Rft ] + Σpt Rpt = Return for the portfolio Rft = Risk – free return Rmt = Return on the market portfolio Σpt = Random error term, and α and β are parameters of the model The Sharpe measure is based on the Capital Market Line (CML). One of the major characteristics of CML is that only efficient portfolio can be plotted here. So it is assumed that, a managed portfolio (mutual fund scheme) is an efficient portfolio. In terms of CML, the risk premium expected to be earned by the portfolio is in relation to the total risk of the portfolio rather than the systematic risk. Thus, the differential return will be the difference between the actual average return of the fund and its expected return for the given level of risk. If a portfolio is well diversified, the two measures (Jensen and Sharpe) should indicate same level of differential return. If the portfolio is imperfectly diversified, the Sharpe differential return will be smaller. The differential return will be the difference between the actual average return of the mutual fund scheme and its expected return for the given level of risk. Sharpe measure therefore takes into consideration not only the manager’s stock selection ability but also his ability to provide diversification. A comparison of Sharpe’s differential returns and Jensen’s alpha reveals the impact of selectivity and diversification on the fund returns.

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Fama’s Components of Investment Performance The performance of the funds is also examined in terms of Fama’s Components of Investment Performance Measure. In terms of Fama’s framework, portfolio return constitutes the following four components: (a) Risk-free return, (b) compensation for systematic risk, (c) compensation for diversification and (d)net selectivity. The different components have been worked out using the following: Risk – free return: Given Compensation for systematic risk: [β (Rm – Rf) ], Compensation for diversification: [Rm – Rf] [σ p/ σ m - β], Net Selectivity: [Rp – Rf] – [σ p/ σ m ] [Rm – Rf] The rationale for using this measure is that, the difference between return on an active bet and return on a passive bet, which is obtained from the security market line, may arise due to selectivity skills of fund managers. This difference is analogous to Jensen‟s alpha. Fama developed a methodology that helps us to decompose selectivity skills into diversification return and net selectivity. The former is nothing but a compensation for diversifiable risk to which the active bet is exposed, while the latter reflects the true stock selection ability of the fund managers. A positive net selectivity indicates superior performance for a fund. However, in case of well diversified funds, both the net selectivity and selectivity are not likely to be significantly different from each other.

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LITURATURE REVIEW 57

CHAPTER 3: LITURATURE REVIEW Performance evaluation of mutual funds is one of the preferred areas of research where a good amount of study has been carried out. The area of research provides diverse views of the same.

Abhishek Kumar (October 2012), have studied Trend in Behavioral Finance and Asset Mobilization in Mutual Fund Industry of India. This paper tries to analyze some of the key issues noted below: 1. To understand the growth and the potential of Mutual Fund industry and analyze its success. 2. An exhaustive cross performance study of Mutual fund industry by analyzing around 1025 mutual fund schemes of India. 3. Performance analyses of various mutual fund schemes and its contributions to assets management during the study period (2002-2009). 4. Insight about the performance of the mutual fund under short term and long-term period and 5. Investor’s behavior in allocating their investments among various assets available in the market compared to Mutual funds in the changing economic Scenario.

Dr. B. Saritha, (Feb 2012) has studied Mutual Fund Investment Decisions by Using Fama Decomposition Models. Mutual Funds are dynamic Financial Institutions (FI) which play a crucial role in an economy by mobilizing savings and investing them in the capital market. Thus, establishing a link between savings and capital market. Therefore, the activities of mutual funds have both short and long term impact on the savings & capital markets and the national economy.

B. Raja Manner and Dr. B. Ramachandra Reddy (Oct 2012), Review and Performance of Select Mutual Funds Operated By Private Sector Banks: Axis Equity and Kotak 50 Funds – Growth Option. The two mutual funds (i) Axis Equity (G) and (ii) Kotak 50 (G) are reviewed in detail with a brief introduction of the fund houses itself. The funds are then statistically evaluated by correlation with the benchmark. S&P CNX 58

Nifty, standard deviation, Sharpe’s Index. Treynor’s Ratio,Jenson’s alpha, Fama’s Measure and M2.

Dr. R. Narayanasamy and V. Rathnamani (Apr 2013), have done Performance Evaluation of Equity Mutual Funds (On Selected Equity Large Cap Funds). This study, basically, deals with the equity mutual funds that are offered for investment by the various fund houses in India. This study mainly focused on the performance of selected equity large cap mutual fund schemes in terms of risk- return relationship. The main objectives of this research work are to analysis financial performance of selected mutual fund schemes through the statistical parameters such as (alpha, beta, standard deviation, r-squared, Sharpe ratio).

Dr. D. Rajasekar (Sep 2013), has done a Study on Investor`s Preference Towards Mutual Funds With Reference To Reliance Private Limited, Chennai -An Empirical Analysis. The data was analyzed using the statistical tools like percentage analysis, chi square, weighted average. The report was concluded with findings and suggestions and summary. From the findings, it was inferred overall that the investor are highly concerned about safety and growth and liquidity of investments. Most of the respondents are highly satisfied with the benefits and the service rendered by the Reliance mutual funds.

Rajiv G. Sharma (Aug 2013) has done a Comparative Study on Public and Private Sector Mutual Funds in India. The study at first tests whether there is any relation between demographic profile of the investor and selection of mutual fund alternative from among public sector and private sector. For the purpose of analysis perceptions of selected investors from public and private sector mutual funds are taken into consideration. The major factors influencing the investors of public and private sectors mutual funds are identified. The factors under consideration to compare between

59

perceptions of public and private sector mutual fund investors are Liquidity, Security, Flexibility, Management fee, Service Quality, Transparency, Returns and Tax benefits.

Dr. E. Priyadarshini (2013),has done Analysis of the Performance of Artificial Neural Network Technique for Forecasting Mutual Fund Net Asset Values. In this paper, the Net Asset Values of four Indian Mutual Funds were predicted using Artificial Neural Network after eliminating the redundant variables using CA and the performance was evaluated using standard statistical measures such as MAPE, RMSE, etc.

S. Palani and P. Chilar Mohamed (Dec 2013) have done study of Public and Private Sector Mutual Fund in India. Development of capital market in country is an important prerequisite which only would enable industrial development, Business growth and there by contribution towards economic development. Without any doubt it could be stated that economic development, measured in the form of growth in GDP or NNP is one of the objectives of every country in the world. A well-integrated Financial System alone could hasten economic growth which it does through channelizing productive resources towards industrial growth and development.

JafriArshadHasan, (2013), has studied The Performance Evaluation of Indian Mutual Fund Industry past, Present and Future. This article will discuss the past performance of the Indian mutual fund industry and the pace of growth it achieved after being succumbed to regulatory changes by SEBI,international factors and its nonperformance that affected the industry and its sentiments. It will also analyze the future implications of the current changes that are being implemented by the regulator.

C.Vijendra and D. Sakriya, (June 2013) have done a Study of Investor Behavior regarding Investment Decisions in Mutual Funds. A survey was conducted among 384 mutual funds investors from the twin cities of Hyderabad &Secundrabad to study the factors influencing the fund/schemes election behavior of these investors. It is hoped that this survey will underpin the AMCs with regards to planning and implementation of designing, marketing and selling of innovative products. 60

Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a research on Comparative Performance Analysis of Select Indian Mutual Fund Schemes. This study analyzes the performance of Indian owned mutual funds and compares their performance. The performance of these funds was analyzed using a five year NAVs and portfolio allocation. Findings of the study reveals that, mutual funds out perform naïve investment. Mutual funds as medium-to-long term investment option are preferred as a suitable investment option by investors.

C.SrinivasYadav and Hemanth N C (Feb 2014), have studied Performance of Selected Equity Growth Mutual Funds in India: An Empirical Study during 1stJune 2010 To 31st May 2013. The study evaluates performance of selected growth equity funds in India, carried out using portfolio performance evaluation techniques such as Sharpe and Treynor measure. S&P CNX NIFTY has been taken as the benchmark. The study conducted with 15 equity growth Schemes(NAV ) were chosen from top 10 AMCs ( based on AUM) for the period 1st June2010 to 31st may 2013(3 years).

VibhaLamba (Feb 2014), has done an analysis of Portfolio Management in India. The purpose of present study is to analyze the scope and importance of portfolio management in India. This paper also focuses on the types and steps of portfolio management which a portfolio manager should take to provide maximum returns and minimum risk to his clients for their investments.

Mrs.V. Sasikala and Dr. A. Lakshmi (Jan 2014) have studied The Mutual Fund Performance Between 2008 And 2010: Comparative Analysis. The paper entitled “comparative analysis of mutual fund performance between 2008 &2010. The paper was undertaken to know the after meltdown period risks and returns of 2008 top hundred mutual funds and compare with 2010 top hundred mutual funds published in Business today. The analysis of alpha, beta, standard deviation, Sharpe ratio and R-squared are declare high, low, average, above average and below average of risks and return of funds.

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Sowmiya. G, (Jan 2014), has studied Performance Evaluation of Mutual Funds in India. The objectives of this are to know the basic concepts and terminologies of the mutual funds in public limited companies and private limited companies. To analyze performance and growth of selected mutual funds schemes with their NAV and their returns. To identify the return variance and to provide suggestions based on the analysis.

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DATA ANALYSIS, INTERPRETATION AND PRESENTATION 63

1.What kind of investments you prefer most? Pl tick (√). All applicable Investment Fixed Deposits Insurance Mutual Funds Post Office Shares/Debentures Real Estate TOTAL

No. of People 19 15 25 19 12 10 100

% of people 19% 15% 25% 19% 12% 10% 100%

Investment

Fixed Deposits Insurance Mutual Funds Post Office Shares/Debentures Real Estate

Interpretation: According to above study, 19% of investors prefer to deposit their money in bank FD’s. Whereas 19% of the investors want to invest in postal scheme, 10% invest in Real estate, and 25% of investors prefer mutual fund.

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2. While investing your money, which factor you prefer most? Any one Risk Pattern

No. of People

% of people

Liquidity

20 20%

Low Risk

40 40%

High Return

22 22%

Company Reputation

18% 18

TOTAL

100 100%

PREFERENCE OF PEOPLE TO CHOOSE THE RISK FACTOR Company Reputation High Return PREFERENCE OF PEOPLE TO CHOOSE THE RISK FACTOR

Low Risk Liquidity

INTERPRETATION: According to people, about 40% of investors would like to invest their earnings in lower risk funds, almost same amount of people will invest in liquidity funds and higher risk funds and 18% of investors will invest according to the company’s reputation in market.

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3. More attractive about mutual funds? Particulars

No. of people 13 11 20 10 30 12 4 100

Returns Moderate Risk Tax Benefits Hassle Free Past Performance Well Regulated Others TOTAL

% of people 13% 11% 20% 10% 30% 12% 4% 100%

35 30 25 20 15 Attract

10 5 0

Interpretation:According to people they attract with past performance of the company if company past records is good then they interested to invest. After that people attract with tax benefit then return on investment.

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4. Percentage of entire investment includes mutual funds? Groups Below 20% 20 to 50% 50 to 80% 80% above

% of Investments 20 55 15 10

% of Investments 100 90 80 70 60

50

% of Investments

40 30 20 10 0 Below 20%

20 to 50%

50 to 80%

80% above

Interpretation:By this we come to know that most of the people use to go for mutual fund as we can see by the above graph that 55 people from 100 goes for 20%to50% investment in Mutual Funds

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5. For Investments in Mutual Fund, which company investors prefer? % of People

Particulars HDFC MF

35%

ICICI PRUDENTIAL MF

17%

BIRLA SUNLIFE

12%

RELIANCE MF

27%

Others

9%

BIRLA SUNLIFE 12% ICICI PRUDENTIAL MF 17%

RELIANCE MF 27%

OTHERS 9%

HDFC MF 35%

INTERPRETATION:According to the Investors, 35% of investors prefer to invest in HDFC mutual fund, 27% of investors prefer Reliance mutual fund whereas Birla share 12% and ICICI by 17%.and 9% investors invest in other mutual funds. I have compared these five fund house because they are the most known competitors in market.

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6. When you invest in Mutual Funds which mode of investment will you prefer?

One Time Investment

No. of People 32

% of people 32%

Systematic Investment Plan (SIP)

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68%

Particulars

MODE OF INVESTMENT

ONE TIME INVESTMENT SIP

Interpretation: According to study about 68% of people will go for Systematic Investment Plan and 32% people said they will invest their money in One Time Investment.

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7. How do investors manage his investment portfolio?

Manage by OWN FRIEND BANKER AGENT MF HOUSE TOTAL

No. of People

% of People 35 5 20 15 25 100

35% 5% 20% 15% 25% 100%

Manage by 100 90 80 70 60 50 40 30 20 10 0 OWN

FRIEND

BANKER

AGENT

MF HOUSE

INTERPRETATION:According to my survey most no of people manage his investment portfolio by own, 35 people out of 100 manage his portfolio by own and 20 & 25 people manage with the help of bankers and MF house respectively.

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8. Among the huge number of people going for mutual fund, in which kind of fund they normally invest? Age Group

Equity Fund

Debt Fund

Balance Fund

Others

18 to 30

52%

18%

20%

10%

30 to 40

40%

30%

16%

14%

40 to 50 50 above

22%

40%

20%

18%

22%

50%

20%

8%

120

100

80 Balance Fund 60

Debt Fund Equity Fund

40

20 0 18 to 30

30 to 40

40 to 50

50 above

INTERPRETATION:In the city like Kalyan in between the age group 18-30, 52% investor invested in equity oriented, and only 18% people invest in debt fund. But group of people more than 50 year 50% investor invest in debt fund and only 22% people invest in equity fund. It means younger people attract with equity fund and old man attract with debt fund. But in balanced fund every group is equally interested to invest.

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9. How would you like to receive the returns every year? Types of Returns

% of People

No. of People

Dividend Payout Dividend Re-investment Growth in NAV TOTAL

40 30 30 100

40% 30% 30% 100%

Dividend Payout Dividend Re-investment Growth in NAV

INTERPRETATION:According to above study, 40% of people will like to get their returns in forms of Dividend Payout, 30% of people would like to reinvest their interest on investment in another investment and 30% people go for growth in NAV.

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10. What financial goals do you plan to achieve through the money you will get from Mutual Funds? Financial Goal Marriage Child Education Tax Savings Retirement Any Other TOTAL

% of People

No. of People 7 25 28 30 10 100

7% 25% 28% 30% 10% 100%

30 25 20 15

Series 1

10 5 0 Marriage

Child Education

Tax Savings

Retirement

Any Other

Interpretation: According to study, about 30% people said they are investing for retirement support, 28% people will do invest for tax saving and 25% people said they do investment for their children education.

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CONCLUSION AND SUGGESTIONS

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CHAPTER 5 : CONCLUSION AND SUGGESTIONS

5.1 FINDINGS

As far as analysis is concerned, we found out that the HDFC Growth Fund was among the best performers fund. Although all the funds are affected by the global meltdown,(recession) still HDFC Growth Fund has better performed comparing to other funds for its systematic and unsystematic risk. It offers advantages of diversification, market timing, and selectivity. In the comparison of sample of funds, HDFC Growth fund is found highly diversified fund and because of high diversification, it has reduced the total risk of portfolio.

Further, other funds were found very poor in diversification, market timing, and selectivity. Although HDFC Top 200 Fund and Equity Fund performed better in terms of returns but these suffered by the systematic risk (market volatility) and lack of diversification. For the further clarification, we too studied the portfolio of HDFC Growth fund.

One of the findings that I came across is that generally, a good model of asset classes is the one that can explain a large portion of the variance of returns on the assets and there were some stocks in the fund portfolio, which were not aligned with strategy of the fund portfolio.

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The optimal situation involves the selection that proceeds from sensible assumptions, is carefully and logically constructed, and is broadly consistent with the data whilecollecting the stocks for the portfolio. The portfolio was showing constructiveoutco me in long time horizon and the results can be improved by making the minor changes in fund portfolio. Hence, the portfolio theory teaches us that investment choices are made on the basis of expected risk and returns and these expectations can be satisfied by having right mix of assets.

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5.2 SUGGESTION

Considering the above analysis, it can be noted that the three growth oriented mutual funds(HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund) have performed better than their benchmark indicators. Other funds such as HDFC Capital Builder Fund, HDFC Long term Advantage Fund did not perform well even some performed negatively. Though HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund have performed better than the benchmark of their systematic risk (volatility) but with respect to total risk the fund have not outperformed the Market Index. Growth oriented mutual funds are expected to offer the advantages of Diversification, Market timing and Selectivity. In the sample, HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund is found to be diversified fund and because of high diversification, it has reduced total risk of the portfolio. Whereas, others are low diversified and because of low diversification their total risk is found to be very high. Further, the fund managers of these under performing funds are found to be poor in terms of their ability of market timing and selectivity.

➢

The fund manager of HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200fund can improve the returns to the investors by increasing the systematic risk of the portfolio, which in turn can be done by identifying highly volatile shares.Alternativel y, these can take advantage by diversification, which goes to reduce the risk if the same return is given to the investor at a reduced risk level, thecompensation for risk might seem adequate. The fund manager of HDFC Capital Builder Fund, HDFC Long term Advantage Fund can earn better returns by adopting the marketing timing strategy and selecting the under-priced securities.

➢

The fund manager can divide all securities into several asset classes and tries to construct an efficient portfolio based on expected returns, risk, and correlations of indexes

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representing these asset classes. The investment should be done in the benchmark indexes to get an “efficient” portfolio in such a way that no other combination of these indexes would result in a portfolio with a higher return for a given level of risk. It should be emphasized, however, that this is not a fully efficient portfolio because information about correlations among individual securities within an index and across the indexes is lost in the transition from individual securities to the benchmarks that represent them.

➢

These measures are more useful to investors who are putting their money into one diversified fund and are able to use leverage or invest in the risk-free asset. When the investor is investing in the different funds, the fund’s marginal contribution to the portfolio’s risk and return is more important than its individual security characteristics. To construct an efficient portfolio, an investor must take account of the correlations among the being considered.

It is not advisable to apply just procedure or approach for all situations at least when it comes to investments though the used measures are highly reliable in the studies done on similar veins. Even at this juncture it would still be recommended that instead of going ahead only on the basis of risk and return, other indicators like new projects, sector impact, individual sentiments about companies etc. besides ‘common sense and intuition’ may also be looked into.

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5.3 CONCLUSION The ride through these 54 years is not been smooth. Investors opinion is still divided while some are for the mutual funds and others are against it. Mutual Funds (MF) have become one of the most attractive ways for the average person to invest his money. It is said that Bank investment is the first priority of people to invest their savings and the second place is for investment in Mutual Funds and other avenues. A mutual fund pools resources from thousands of investors and diversifies its investment into many different holdings such as stocks, bonds or Government Securities in order to provide high relative safety and returns. Also generate leads of the prospective investors in Mutual Funds for the Asset Management Company (AMC) There are many improvements pending the field and it has to happen as soon as possible so as to call the MF industry as an Organized and well-developed sector. Mutual fund has become one of the important sources for investing. It is quite likely that a more efficient portfolio can be constructed directly from funds. Thus, the two-step process of choosing an asset allocation based on the information about benchmark indexes and then choosing funds in each category may be one of the best realistically attainable approaches. To use this approach to portfolio selection effectively, investors would benefit from estimates of future asset returns, risks and correlations, as well as from fund management’s disclosure of future asset exposures and appropriate benchmarks. It has been a great opportunity for me to get a first experience of Mutual Funds. My study is to get the feel of how the work is carried out in relation to fund’s portfolio aspect. I got an opportunity in relation to the documentation and also the portfolio analysis that have been carrying out in facilitating the investor and the fund manager.

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Bibliography

➢ ➢ ➢

Narasimhan M S and Vijayalakshmi S (2001) “Performance Analysis of Mutual Funds in India”, Finance India, Vol. XV (1), March, pp.155-174. Nayak, Mahesh (2005) “The Great Mutual Fund Boom”, Business Today, November pp.112118 Raman T P (2003) “Mutual Funds: Focus on Retail Investor”, The Hindu Survey of Indian Industry, pp. 75-76

➢ ➢ ➢

Ramesh Chander (2002) “An Evaluation of Portfolio Performance Components across Fund Characteristics”, Finance India, Vol. XVI (4), December, pp. 1377-1391. Rao, Chandra Sekhara and Krishnan, Radha (2006) “Does Indian Mutual Funds Industry Pose A Revolutionary Shift?” Facts for you Vol. 26(4), January, pp.25-33. Saha, Tapas Rajan (2003) “Indian Mutual Fund Management”, Management Accountant, October, Vol. 38(10), pp.765-771.

➢

Agrawal G D (1992) “Mutual Funds and Investors’ Interest” The Journal for Corporate Professionals Vol. XXII (1), January, pp. 23-24.

➢

Anand, S. and Murugaiah, V. (2007) “Analysis of Components of Investment Performance An Empirical study of Mutual funds in India.”

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➢

Atmaramani K. N. (2001) “Mutual Funds: The Best Avenue for Investment”, Chartered Secretary, Vol. XXXI (1), January pp. 9-11.

➢

Avadhani.V.A. (2003) “Investment and Securities Market in India” Himalaya Publishing House, Mumbai.

➢ ➢ ➢ ➢

➢ ➢ ➢ ➢ ➢ ➢

Verma,M. (2007). Needs of a Healthy Investment Portfolio with Special Reference to Hybrid Funds. Portfolio Organizer, February, 8-11. Rao,H. and Mishra,V.K. (2007, March). MFs Industry in India: Attaining Maturity. Portfolio organizer, 18-23 Mohan,S. (2006).Mutual fund industry in India: development and growth. Global Business and Economic Review, 8(3-4), 280-289 Sondhi.H.K and Jain,P.K.(2005,July).Financial Management of Private and Public Equity Mutual Funds in India: An Analysis of Profitability. ICFAI Journal of Applied Finance, 1427. Sethi,G.(2006). Governance of Mutual Funds and the Institution of Trustee. Economic and Political Weekly, 41(15), 1413-1416 Kelly, et al. (2009).A Case Study of Ethics and Mutual Funds Mismanagement at Putnam. Ethics and Behaviour, 19(1), 25-35. Das, et al.(2008). Mutual Fund vs. Life Insurance: Behavioural Analysis of Retail Investors. International Journal of Business and Management3 (10), 89-103 Tripathy, N.P.(2007). Mutual Funds in India emerging Issues. New Delhi: Excel books Agarwal,N.and Gupta, M.(2007,September).Performance of Mutual funds in India: An Emperical study. ICFAI Journal of Applied Finance, 44-49. Sujatha, B. (2007, September). Real Estate Mutual Funds in India. ICFAI Reader, 38-42.

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Webliography

http://www.hdfcfund.com www.mutualfundindia.com www.mututalfunds.com www.moneycontrol.com www.rbi.org.in www.capitalmarket.com www.shamdham.org www.cybersurat.com www.amfi.com www.bseindia.com www.sebi.gov.in www.nseindia.com www.valueresearch.com 82

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ANNEXURE SECTION-I PERSONAL DATA Please fill up the questionnaire according to the questions asked. (Just put on a tick mark [√] wherever needed) Name-_______________________________________________________ 1. SEX: Male Fem ale 2. Marital Status: Married Unmarried Other

3.       

Age: <20-30> <30-40 <40-50 <50-above

4. Educational Qualification: Under GraduateGra duate PostGraduatePr ofessionalO ther

   

5.     

Occupation: Service (Govt.) Service (Pvt.) Business Self-employed Retired

6. Annual Income: Below 1 lakh1– 3 lakh3–

5 lakhAbove 5 lakh

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SECTION-II MUTUAL FUNDS RELATED INFORMATION 7. What kind of investments you prefer most? Pl tick (√). All applicable

  Fixed Deposits 













 

 Insurance

 Mutual Funds  Post Office

 Shares/Debentures  Real Estate



8. While investing your money, which factor you prefer most? Any one

  

 

  



 High returns



 Company Reputation





Low Risk



9.





Liquidity

     

More attractive about mutual funds?

Returns

 Moderate Risk Tax Benefits Hassle Free





Past Performance Well Regulated





 No Idea

10. Percentage of entire investment includes mutual funds?

  



Below 20%



 20 to 50%



 50 to 80%



 80% above



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11. For Investments in Mutual Fund, which company investors prefer?

   

   

HDFC MF ABN AMRO MF



ICICI PRUDENTIAL MF BIRLA SUNLIFE RELIANCE MF







12. When you invest in Mutual Funds which mode of investment will you prefer?  One Time Investment



   

Systematic Investment Plan

13. How do investors manage his investment portfolio?   Solely of my own

   

On advise of a friend



On advise of a distributor/agent



 On advise of your banker On advise of Mutual Fund House people



14. Among the huge number of people going for mutual fund, in which kind of fund they normally invest?

  Equity Oriented 

 

 Debt Oriented Balance Oriented



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15. How would you like to receive the returns every year?

  Dividend Payout 

 

Dividend Re-investment  Growth in NAV



16. What financial goals do you plan to achieve through the money you will get from Mutual Funds?

  Marriage 









 

 Child Education  Tax Savings  Retirement  Any Other

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