mutual fund (rajni-(mba(fin) rdias

8/9/2019 MUTUAL FUND (RAJNI-(MBA(FIN) RDIAS

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RAJANI -MBA(FIN)-4TH SEM ,(RDIAS-IPU)

CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION TO MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme.These could range from shares to debentures to money market instruments. The income earned in these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned bythem. Thus a Mutual Fund is the most suitable investment for the common man asit offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an invest able surplus of a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined i

nvestment objective and strategy.

A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily.

A mutual fund is answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a fulltime basis. The large pool of money collected in the fund allows it to hire such staff

at a very low cost to each investor. In fact, the mutual fund vehicle exploitseconomies of scale in all three areas research, investment and transaction processing.

A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objective of the fund, the risk associated, the cost involved in the process and the broad rulesfor entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI in ourcase. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations.

A sponsor then hires an asset management company to invest the funds accordingto the investment objective. It also hires another entity to be the custodian ofthe assets of the fund and perhaps a third one to handle registry work for theunit holders of the fund.In the Indian context, the sponsors promote the Asset Management Company also,in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset managerfor the funds collected under the schemes.

As per SEBI regulations, mutual funds can offer guaranteed returns for a maximumperiod of one year. In case returns are guaranteed, the name of the guarantor and how the guarantee would be honored is required to be disclosed in the offer d

ocument.

Investments in securities are spread across a wide cross-section of industries a


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nd sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum ofmoney invested by them. Investors of mutual funds are known as unit holders.

1.2 THE CONCEPT OF MUTUAL FUND IN DETAIL :-

A mutual fund uses the money collected from investors to buy those assets whichare specifically permitted by its stated investment objective. Thus, an equity fund would buy equity assets ordinary shares, preference shares, warrants etc.A bond fund would buy debt instruments such as debentures, bonds or government securities. It is these assets which are owned by the investors in the same propo

rtion as their contribution bears to the total contributions of all investors put together.

Any change in the value of the investments made into capital market instruments(such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme

s assetsnet of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme

s assets by the total number of units issued to the investors.

A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholderparticipates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day.

When an investor subscribes to a mutual fund, he or she buys a part of the assets or the pool of funds that are outstanding at that time. It is no different from buying shares of joint stock Company, in which case the purchase makes the investor a part owner of the company and its assets. In fact, in the USA, a mutual fund is constituted as an investment company and an investor buys in to the fund, meaning he buys the shares of the fund. In India, a mutual fund is constituted as a Trust and the investor subscribes to the units issued by the fund, which is where the term Unit Trust comes from. However, whether the investor getsfund shares or units is only a matter of legal distinction. In any case, a mutual fund shareholder or unit-holder is a part owner of the funds assets. The term unit-holder includes the mutual fund account-holder or close-end fund shareholder.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capitalmarket instruments such as shares, debentures and other securities. The incomeearned through these investments and the capital appreciation realized is sharedby its unit holders in proportion to the number of units owned by them. Thus Mutual fund is most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities ata relatively low cost.

1.3 MUTUAL FUND OPERATION FLOW CHART :-

CHART 1.2

From the above chart , it can be observed that how the money from the investors


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flow and they get returns out of it. With a small amount of fund, investors pooltheir money with the funds managers. Taking into consideration the market strategy the funds managers invest this pool of money into reliable securities. Withups and downs in market returns are generated and they are passed on to the investors. The above cycle should be very clear and also effective.The fund manager while investing on behalf of investors takes into considerationvarious factors like time, risk, return, etc. so that he can make proper invest

ment decision.1.4 ADVANTAGES OF MUTUAL FUND :-

The following are the major advantages offered by mutual funds to all investors:- PROFESSIONAL EXPERTISE : -Fund managers are professionals who track the market on an on going basis. Withheir mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets. DIVERSIFICATION :-Since a mutual fund scheme invests in number of stocks and/or debentures, the ss

ociated risks are greatly reduced.

RELATIVELY LESS EXPENSIVE :-When compared to direct investments in the capital market, mutual funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.

LIQUIDITY :-Investments in mutual funds are completely liquid and can be redeemed at Net Assets Value (NAV) related price on any working day.

TRANSPARENCY :-You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion alloc

ated to different assets and the fund managers investment strategy.

FLEXIBILITY :-Through features such as regular investment plans, regular withdrawal plans anddividend investment plans, you can systematically invest or withdraw funds according to your needs and convenience. SEBI REGULATED :-All mutual funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors.

1.5 DISADVANTAGES OF MUTUAL FUND :-The main disadvantages of mutual fund are high lightened as below:-

NO CONTROL OVER COST :-Any investor in a mutual fund has no control over the overall cost of investing.He pays investment management fees as long as he remains with fund, albeit in return for the professional management and research. Fees are payable even in declining stage. A mutual fund investor also pays fund distribution costs, which hewould not incur in direct investing. However, this shortcoming only means thatthere is a cost to obtain the benefits of mutual fund services.

NO TAILOR-MADE PORTFOLIOS :-Investors who invest on there own can build their own portfolios

of shares and bonds and other securities. Investing through funds 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 withi


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n their own management company. An investor can choose form different investmentplans and construct a portfolio of his own.

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 to select individual share

s or bonds to invest in.

ENTRY AND EXIT COST :-Mutual funds are a victim of their own success. When a large body like a f

und invests in shares, the concentrated buying and selling often results in adverse price movement i.e. at the time of buying, the fund ends up paying a high price and by selling it realizes a lower price. For obvious reasons, this problemis even more severe for funds investing in small capitalization stocks. However,given the large size of debt market, excluding UTI, most debt funds do not facethis problem.

CHANGE OF INDEX COMPOSITION :-The indices changing over the world to reflect changing market conditions. T

here is an inherent survivorship bias in this process, with the bad stocks bidedout and replaced by emerging blue chips. This is a severe problem in India withthe sensex having being changing twice in last 5 years, with each change beingquite substantial. Another reason for change index composition is Mergers and Acquisitions. The weight age of the shares of a particular company in the index changes if it acquires a large company not a part of the index.

1.6 WHY INVESTOR NEEDS MUTUAL FUND:-Mutual funds offer benefits, which are too significant to miss out. Any investment has to be judged on the yardstick of return, liquidity and safety. Convenienc

e and tax efficiency are the other benchmarks relevant in mutual fund investment. In the wonderful game of financial safety and returns are the tows opposite goals and investors cannot be nearer to both at the same time. The crux of mutualfund investing is averaging the risk.

Many investors possibly dont know that considering returns alone, many mutual funds have outperformed a host of other investment products. Mutual funds have historically delivered yields averaging between 9% to 25% over a medium to long time frame. The duration is important because like wise, mutual funds return tastebitter with the passage of time. Investors should be prepared to lock in theirinvestments preferably for 3 years in an income fund and 5 years in an equity funds. Liquid funds of course, generate returns even in a short term.1.7 MUTUAL FUND RISK :-

Mutual funds face risks based on the investments they hold. For example, a bondfund faces interest rate risk and income risk. Bond values are inversely relatedto interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the changes in interest rates. Bond yieldsare directly related to interest rates falling as interest rates fall and rising as interest rates.Similarly, a sector stock fund is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk.Followings are glossary of some risks to consider when investing in mutual funds:-

COUNTRY RISK :-The possibility that political events (a war, national election), financial problems (rising inflation, government default), or natural disasters will weaken a


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countrys economy and cause investments in that country to decline.

INCOME RISK :-The possibility that political events (a war, national election), financial problems (rising inflation, government default), or natural disasters will weaken acountrys economy and cause investments in that country to decline.

MARKET RISK :-The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall.GRAPH 1.3:- RISK RETURN REWRAD IN MUTUAL FUND

This graph shows risk and return impact on various mutual funds. There is a direct relationship between risks and return, i.e. schemes with higher risk also have potential to provide higher returns.

CHAPTER-2

OBJECTIVES OF THE STUDY

The present study has been undertaken with the object of examining, analyzing and inferring the performance of the mutual funds, The main objectives of the study are as follows :-

1) Analyzing mutual fund awareness in retail investors of HDFC assets Management Company in DELHI.2) To know the Preferences for the portfolios.3) To find out the most preferred channel.4) To find out what should do to boost Mutual Fund Industry.

5) To know why one has invested or not invested in HDFC Mutual fund6) To analyze the history of HDFC mutual fund7) To learn about various aspect of HDFC mutual fund8) To understand the best way to attract customer investing in mutual fundby understanding the factors responsible for making a mutual fund successful.

2.1 PURPOSE OF THE STUDY

With liberalization, privatization and globalization there has been a major change in the Indian Mutual Funds Industry. The momentum is on and one is sure to see similar hectic activity at the offices of the new entrants especially after the 90s as private sector gained entry in the Indian markets.

With the private sector penetration, a large number of schemes have also been introduced due to which the average consumer has become vary sensitive to the newschemes coming its way. So to ensure about the various consumer attitudes, a survey was undertaken.

De facto, to ensure what the consumer thinks & what it thinks the best we undertook a consumer survey, to get a clear picture of the future of the Mutual Funds companies who are busy wooing the customers, with their lucrative schemes, to survive the rat race & emerge as no.1 in this field. The main purpose of the study are as follows:- To understand the best way to attract customer investing in mutual fundby understanding the factors responsible for making a mutual fund successful.

To find out what should do to boost Mutual Fund Industry. Analyzing mutual fund awareness in retail investors of HDFC assets Management Company in DELHI.


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To find out the most preferred channel.2.2 SCOPE OF THE STUDY

A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of new players have entered the market and trying to gain market share inthis rapidly improving market.The study will help to know the preferences of the customers, which company, por

tfolio, mode of investment, option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.

CHAPTER-3

RESEARCH METHODOLOGY OF THE STUDY

RESEARCH METHODOLOGY:-

Research methodology is a way to systematically show the research problem. It may be understood as a science of studying how research is done scientifically. Itis necessary for the researcher to know not only the research methods but alsothe methodology. This Section includes the methodology which includes. The research design, objectives of study, scope of study along with research methodology

and limitations of study etc.

3.1- RESEARCH DESIGN:-

Research design can be described as an out line of a research project working ora pattern. In a research design there are series of prior decision that together provide a master plan for completing a research project. Research design is proved to be a bridge between what has been established and what is to be done inconduct of the studies. Research design should be compressive and it should provide which method to be used and what work to be done.Research design describes as a master plan a series of key decisions that servesa model for conducting a research project. There are the main components of research design.

Objective of research Data inputs Analysis of data collected

The research design was exploratory type and the focus was on getting mutual funds employees views for various products, expectations from market.

EXPLORATORY RESEARCH:-Exploratory study goes beyond description and attempts to explain the reasons fo

r the phenomenon that the descriptive study only observed. The researcher uses theories or at least hypotheses to account for the forces that caused a certain phenomenon to occur.


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3.2 SOURCES OF DATA:-

The gathering of data may range from a simple observation at one location to a grandiose survey of multinational corporations at sites in different parts of theworld. The method selected will largely determine how the data are collected. DATA is the facts presented to the researcher from the studys environment. Chara

cteristics of the data are as follows:

Data are more metaphorical than real Data are processed by our senses-often limited in comparison to

The senses of other living organisms. Capturing data are said to be trustworthy because they may be

Verified. Data classify their verity by closeness to the phenomenaThere are two kinds of data that can be collected for research purpose. Based on the requirement in the research appropriate data is collected.

A - PRIMARY SOURCE:-

Primary data are collected and gathered for the first time. Primary data are sought for their proximity to the truth and controls over error. Advantages of primary data are: Researchers can collect precisely the information they want. They usually can specify the operational definitions used and can eliminate, or at least monitor and record the extraneous influences on the data as they are gathered.

B SECONDARY SOURCE:-

Someone else collects secondary data. So, it becomes secondary information for the research. Secondary data have had least one level of interpretation insertedbetween the event and its recording. The secondary data was collected on the basis of organizational file, official records, news papers, magazines, managementbooks, preserved information in the companys database and website of the company.Reasons for using the secondary data are listed below:

They fill a need for specific reference or citation on some point Secondary data are an integral part of a larger research study Secondary data may be used as the sole basis for a research study, since

In many research situations one cannot conduct primary researchBecause of physical, legal, or cost influences.

Analyzing the requirement of data, it was found that primary data is more important for achieving Research Objective. Primary data is collected with the help of interviews.

3.3- SAMPLING :-

Sampling refers to the method of selecting a sample from a given universe with aview to draw conclusions about that universe. A sample is a representative of the universe selected for study.

SAMPLE SIZE:-

Large sample gives reliable result than small sample. However, it is not feasible to target entire population or even a substantial portion to achieve a reliable result. So, in this aspect selecting the sample to study is known as sample si


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ze. Hence, for my project my sample size was 50.The Sample Size consists of both the Professional and Business class people. ITpeoples, Doctors, Jewelers, Timber Merchants & Real estate Agents are taken as Sample.

SAMPLING TECHNIQUE:-

Random sampling technique was used in the survey conducted.TOOLS OF ANALYSIS:-

Data has been presented with the help of bar graph, pie charts, line graphs etc.

PLAN OF ANALYSIS:-Tables were used for the analysis of the collected data. The data is also

neatly presented with the help of statistical tools such as graphs and pie charts. Percentages and averages have also been used to represent data clearly and effectively.

3.4 - DATA COLLECTION INSTRUMENT DEVELOPMENT:-

The mode of collection of data will be based on Survey Method and Field Activity. Primary data collection will base on personal interview. I have preparedthe questionnaire according to the necessity of the data to be collected.

3.5 LIMITATIONS OF THE STUDY:-This study also includes some limitations which have been discussed as fo

llows:

Though every one used to be very co-operative but every detail was unable to be disclosed to me as the officials has to maintain secrets of the company.

It is difficult to cover all the function of the company.

Because of the limited time period, the survey work was conducted in theDelhi region and the sample size was taken as 20 respondents only. Some of the persons were not so responsive. Some respondents were reluctant to divulge personal information which can affect the validity of all responses. Possibility of error in data collection because many of investors may have not given actual answers of my questionnaire.

CHAPTER 4

REVIEW OF LITERATURE

All information pertaining to mutual fund has been collected through vast sourceof literature which includes books, journals, websites and some topics have been picked from newspaper as well.

BOOKS: - Books have proved to be the most important source of information contained in the project most theoretical aspects related to mutual funds have been taken from it, topics like advantages and disadvantage of mutual fund, types of mutual fund and structure have been directly from there.

WEBSITES:- Guidelines of SEBI and other aspects of mutual fund which are subject to change over time have been collected from websites of securities and exchange board of India national stock exchange and mutual fund sites.

NEWSPAPER:- Newspaper have provided with the fresh updates and other informationrelated to what investment strategies can be recommended to the investors.


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JOURNAL:- Bostan journal have also provided with some valuable information pertaining to model portfolios which has helped in better understanding of the subject concerned.

CHAPTER-5

INTRODUCTION TO THE INDUSTRY

5.1 THE HISTORY OF INDIAN MUTUAL FUND:-

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry.In the past decade, Indian mutual fund industry had seen a dramatic improvement,both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs67 billion.The private sector entry to the fund family raised the Aum to Rs. 470 billion inMarch 1993 and till April 2004; it reached the height if Rs. 1540 billion.The Mutual Fund Industry is obviously growing at a tremendous space with the mut

ual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

FIRST PHASE -1964-87 (MONOPOLY OF UTI) :-

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatoryand administrative control in place of RBI. The first scheme launched by UTI wasUnit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.

SECOND PHASE -1987-93( ENTRY OF PUBLIC SECTOR FUNDS) :-

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General InsuranceCorporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), and Bank of BarodaMutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC hadset up its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

THIRD PHASE-1993-2003(ENTRY OF PRIVATE SECTOR FUNDS):-


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With the entry of private sector funds in 1993, a new era started in the Indianmutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came intobeing, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive

and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

FOURTH PHASE-(SINCE FEBRUARY 2003) :-

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of th

e Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assuredreturn and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Governmentof India and does not come under the purview of the Mutual Fund Regulations.The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It isregistered with SEBI and functions under the Mutual Fund Regulations. With thebifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of October 31, 2003,there were 31 funds, which manage assets of Rs.126726 crores under 386 schemes.

GRAPH:-5.1:- The following figure shows the growth in AUM (Asset under Management) of the Indian Mutual Fund Industry as on March 2009Erstwhile UTI was bifurcated into UTI Mutual fund and the Specified Undertakingof the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has thereof been executed from the total assets of the industry as a whole from February 2003 onwards. Today there are over 30 AMCs offering a huge number of schemes giving the investor a huge horizon to choose from. The market has become very competitive with the companies fighting tooth and nail to attract and keep the investor from investing in their competitors schemes.

5.2 STRUCTURE OF A MUTUAL FUND :-

CHART-5.2:-

THE STRUCTURE CONSISTS OF:-SPONSOR:-Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the networth of the Investment managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. T

he sponsor is not responsible or liable for any loss or shortfall resulting fromthe operation of the Schemes beyond the initial contribution made by it towardssetting up of the Mutual Fund.


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TRUSTThe Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

TRUSTEE

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interestof the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documentsof the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any mannerFOLLOWING ARE THE RIGHTS OF TRUSTEES:- Approve each of the schemes floated by the assets Management Company. Right to request any necessary information from assets Management Company. Right to take corrective action if they believe that of funds business.

Right to dismiss the assets Management Company. Ensure that any shortfall in net worth of the assets Management Companyis made up.FOLLOWING ARE THE OBLIGATIONS OF TRUSTEES:- Enter in to an investment management agreement with the assets Management Company. Ensure that the funds transactions are in accordance with the trust deed. Furnish to SEBI on a half yearly basis, a report on the funds activities. Ensure that no change in the fundamental attributes of any scheme or thetrust or any other change, which would affect the interest of unit holder, happens with informing to unit holder.

Review the investor complaints received and redressed of the same by assets Management CompanyASSET MANAGEMENT COMPANY (AMC)The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50%of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 coresat all times.FOLLOWING ARE THE OBLIGATIONS OF ASSETS MANAGEMENT COMPANY:- Float investment schemes only after getting approval from the trustees and SEBI. Send quarterly reports to trustees. Make the required disclosures to the investors in the area such as calculation of NAV and repurchase price. Must maintain a net worth of at least Rs.10 crores at all the times Will not purchase or sale securities through any broker with the brokerage of 5 % or more of the aggregate purchases and sale of securities made by theMutual Fund in all its schemes. Assets Management Company cannot act as trustees of any other Mutual Fund. Do not undertake any other activity conflicting with managing the fund.

FOLLOWING ARE THE BODIES APPOINTED BY THE TRUSTEES/AMC:- Custodian is the responsible person for physical handling and safe keeping of the securities. He should be independent of the sponsor and registered wit


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h SEBI. Indian capital market is moving away from physical certificates for securities to dematerialized form with a depository. He holds dematerialized security holdings of Mutual Fund.REGISTRAR AND TRANSFER AGENTThe AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemptio

n requests and dispatches account statements to the unit holders. The Registrarand Transfer agent also handles communications with investors and updates investor records.

5.3 INVESTORS PROFILE:-

An investor normally prioritizes his investment needs before undertaking an investment. So different goals will be allocated to different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance, this is the area forthe risk-averse investors and here, Mutual Funds are generally the best option.One can avail of the benefits of better returns with added benefits of anytime

liquidity by investing in open-ended debt funds at lower risk, this risk of default by any company that one has chosen to invest in, can be minimized by investing in Mutual Funds as the fund managers analyze the companies financials more minutely than an individual can do as they have the expertise to do so.Moving up the risk spectrum, there are people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for riskis also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment, armed with expertise of investment techniques, they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. Since they can reshuffle their portfolio as per market conditions, they are likely to generate moderate returns even in pessimisticmarket conditions.

Next comes the risk takers, risk takers by their nature, would not be averse toinvesting in high-risk avenues. Capital markets find their fancy more often thannot, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated isgenerally on the higher side of the spectrum, the return-potential compensatesfor the risk attached.

5.4 POSITIONING STRATEGY OF MUTUAL FUND INDUSTRY: -

Positioning starts with a product. But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of prospect. A companys differentiating and positioning strategy must change as the product, market, and competitors change over time. . There should be no under positioning, over positioning, confused positioningor doubtful positioning.CHANNEL OF DISTRIBUTION:-

In Every asset Management Companys distribution channel played very important roles.Here assets management companies have distributors like:- Consultants Agents Distributors Advisers Broker

Their role is very important for Assets Management Companys Office.

5.5 PROMOTIONAL TOOLS EMPLOYED BY VARIOUS MUTUAL FUND COMPANIES:-


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Some specific other document help to increase selling product like: -

BANNERS:-Banners define brief idea of scheme, it should be very attractive with specific

objective & its related picture in city, and Banners keep in specific places which very help to do good publicity. It distributes only by AMCs office.

When any new scheme is launched or any new NFO coming up that times company makebanners before few days. Its helps to good advertising & easy cover to customeror people.

APPLICATION FORM :-Any product like Equity, debt and balance, investor should fill up its common

Application forms.Form define acknowledge slip which give return to customer. Actually 3-time stamp done in form, one of them is acknowledged slip These forms are distributed by

Assets Management Companys office. It is all Assets Management Companys officeduty to dispatch forms to their customer like agents, brokers, and advisers time to time. BROACHERS:-Broachers include brief history of company. It defines when and where assets management Company invests investors money.This defines performance of each scheme product & also defines its comparison tolast 3 months to more than 5 years.In end of every month Assets Management Companys office send Boucher to their investors, brokers, agents, advisers regularly.

5.6 MUTUAL FUND INVESTING STRATEGIES:

Systematic Investment Plans (SIPs)These are best suited for young people who have started their careers and need to build their wealth. SIPs entail an investor to invest a fixed sum of money atregular intervals in the Mutual fund scheme the investor has chosen, an investoropting for SIP in xyz Mutual Fund scheme will need to invest a certain sum on money every month/quarter/half-year in the scheme.

Systematic Withdrawal Plans (SWPs)These plans are best suited for people nearing retirement. In these plans, an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum ofmoney at regular intervals to take care of his expenses

Systematic Transfer Plans (STPs)They allow the investor to transfer on a periodic basis a specified amount fromone scheme to another within the same fund family meaning two schemes belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made. Such redemption or investment willbe at the applicable NAV. This service allows the investor to manage his investments actively to achieve his objectives. Many funds do not even charge any transaction fees for his service an added advantage for the active investor.

5.7 NET ASSET VALUE:-The Net Asset Value or NAV is a term used to describe the value of an entity

s a

ssets less the value of its liabilities. The term is commonly used in relation to collective investment schemes. It may also be used as a synonym for the book value of a firm.


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NAV covers the company

s current asset and liability position. Investorsmight expect the company to have large growth prospects, in which case they would be prepared to pay more for the company than the NAV suggests.The NAV is usually below the market price because the current values of the funds assets are higher than the historical financial statements used in the NAV calculation. CALCULATING NET ASSET VALUE

Unit capital is the investors subscriptions. In MF it is not treatedas a liability. Investments made on behalf of the investors are assets side ofthe balance sheet. There are liabilities of short-term nature.

FUNDS NET ASSET = ASSET LIABILITIES

NAV = Net Assets

Issued Units

I.e.NAV= (market value of investments + other accrued income + other assets accrued expenses other payables other liabilities)/ (no. Of units outstanding as at the NAV date)

THE FACTOR AFFECTING THE NAV ARE AS FOLLOWING:

1. Capital gains or losses on the sale or purchase of investmentSecurities.

2. Dividend and income earned on the assets

3. Capital appreciation in the underlying value of the stocks holds in the portfolio

4. Other assets and liabilities5. Number of units sold or purchased

5.8 FACTS ABOUT MUTUAL FUND Equity Instruments like shares form only a part of the securities held by Mutual Funds. Mutual Funds also invest in debt securities, which are relatively much safer.

The biggest advantage of Mutual Funds is their ability to diversify therisk.

Mutual Funds are there in India since 1964. Mutual Funds market is muchevolved in U.S.A and is there for last 60 years.

Mutual Funds are the best solution for people who want to manage risk and get good returns.

The size of Mutual Funds market in India is Rs. 107728 crores and that in U.S.A is many times higher.

According to the SEBI - NCAER Survey of Indian Investors about 15 million or 8.7% of the households have invested in Mutual Funds and there are nearly 23 million unit holders in India.

30% of investors fall in the income group of investors having monthly in

come up to Rs. 10,000/-.

In U.S.A there are more deposits in the mutual funds than in bank deposi


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ts.

The truth is, as investors we should always pay attention to our mutualfunds and continue to monitor them.

5.9 PERFORMANCE MEASURES OF MUTUAL FUNDS:Mutual Fund industry today, with about 30 players and more than six hundred sche

mes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too.Though past performance alone cannot be indicative of future performance, it is,frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different Mutual Funds. Worldwide, good Mutual Fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For Mutual Funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal thequality of stock selection of various AMCs.

Return alone should not be considered as the basis of measurement of the performance of a Mutual Fund scheme, it should also include the risk taken by the fundmanager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as Variability orfluctuations in the returns generated by it. The higher the fluctuations in thereturns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of twoguiding forces. First, general market fluctuations, which affect all the securities, present in the market, called Market risk or Systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of these two and ismeasured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations

in the NAV of the fund vis--vis market. The more responsive the NAV of a Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a Mutual Fund with the returns in the market. While Unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try toassess the competitive strength of the Mutual Funds one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class.The most important and widely used measures of performance are: The TreynorMeasure The Sharpe Measure Jenson Model Fama Model

THE TREYNOR MEASURE:-Developed by Jack Treynor, this performance measure evaluates funds on the basisof Treynor

s Index.This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as:

Treynor

s Index (Ti) = (Ri - Rf)/Bi.

Where,Ri represents return on fund,Rf is risk free rate of return, and


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Bi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high and positive Treynor

s Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor

s Index is an indication of unfavorable performance.

THE SHARPE MEASURE:-

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,which is a ratio of returns generated by the fund over and above risk free rateof return and the total risk associated with it.According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where,Si is standard deviation of the fund,Ri represents return on fund, and

Rf is risk free rate of returnWhile a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and TreynorSharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we areevaluating the risk return relationship for well-diversified portfolios. On theother hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based

on total risk (Sharpe measure) and systematic risk (Treynor measure) should beidentical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure.Calculation of Treynor and sharp ratio for selected mutual funds schemes:-TABLE-5.3:-Measures/ schemes HDFC equity fund (Growth) SBI Magnum comma fund (Growth) LICMF Equity Fund- (Growth)

Return on fund (Ri) 7.2% 6% 5%Risk free rate of return (Rf) 9% 8% 7%Beta 0.85 0.92 1.08Standard deviation 5.09 5.71 6.48Treynor ratio(Ti) = (Ri - Rf)/Bi. 7.2-9/0.85= -2.11 6-8/0.92= -2.17 5-7/1.08= -1.85Sharp ratio(Si) = (Ri - Rf)/Si 7.2-9/5.09= -0.353 6-8/5.71= -0.350 5-7/6.48= -0.308All risk-averse investors would like to maximize this value. While a high and po

sitive Treynor

s Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor

s Index is an indication of unfavorable performance.While a high and positive Sharpe Ratio shows a superior risk-adjusted performanc


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e of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Findings: All these three mutual fund shows the unfavorable performance but HDFC equity growth plan having the low negative value so it will be the greater performer over the past three year.

Same as sharp ratio for SBI magnum comma fund growth and LIC equity fundgrowth are having high negative value that depicts the performance of these plans are lower comparison to HDFC equity growth plan.

JENSON MODEL :-Jenson

s model proposes another risk adjusted performance measure. This measurewas developed by Michael Jenson and is sometimes referred to as the differentialReturn Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund1 given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated

as:Ri = Rf + Bi (Rm - Rf)Where,Ri represents return on fund, and

Rm is average market return during the given period,Rf is risk free rate of return, andBi is Beta deviation of the fund.After calculating it, Alpha can be obtained by subtracting required return fromthe actual return of the fund.Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire riskassociated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive.

FAMA MODEL:-The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called Net Selectivity.The Net Selectivity represents the stock selection skill of the fund manager, asit is the excess returns over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the levelof risk taken by him.Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where,Ri represents return on fund,Sm is standard deviation of market returns,

Rm is average market return during the given period, andRf is risk free rate of return.The Net Selectivity is then calculated by subtracting this required return fromthe actual return of the fund.Among the above performance measures, two models namely, Treynor measure and Jenson model use Systematic risk is based on the premise that the Unsystematic riskis diversifiable. These models are suitable for large investors like institutio

nal investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measu


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re and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversify. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generatedbig returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors

risk appetite.

5.10 RECENT TRENDS IN THE MUTUAL FUND INDUSTRY:-The most important in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by the nationalized bank and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and go off to a goodstart due to the stock market boom prevailing then. These banks did not reallyunderstand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally choose to transfer staff from the parent organization. Some schemes had offered guaranteed returns and their patent organization had to bail out these AMCs by paying large amount ofmoney the difference between the guaranteed and actual returns. The service level was also bad. Most of these AMCs have not been able to retain staffs, float,

and new schemes etc. and it is doubtful whether barring a few expectations, theyhave serious plans of continuing the activity in a major way.The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMCs business is a business,which makes money in the long term and requires deep pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with the others and there is general restructuring going on.The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in the service standards anddisclosure, usage of technology, broker education etc. In fact, they have forced the industry to upgrade itself and service levels of the organization like UTIhave improved dramatically in the last few years in response to the competition

provided by these.

5.11 FUTURE SCENARIO:-The asset base will continue to grow at an annual rate of about 30 to 35% over the next few years as investors shift their asset from banks and other traditional avenues. Some of the older public and private sector players will either close or be taken over. Out of ten public sectors players five will sell out, closedown or merge with strong players in three to four years. In the private sectorthis trend has already started with two mergers and one takeover. Here too someof them will down their shutter in the near future to come.But this does not mean there is no room for other players. The market will witness a flurry of new players entering the area. There will be a large number of offers from various asset management companies in times to come. Some big names like Fidelity, Principal and Old Mutual etc. are looking at Indian market seriously.The mutual fund industry is awaiting the derivation in India as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV).SEBI is working out the norms for enabling the existing mutual fund scheme to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in derivates.


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CHAPTER-6COMPANY PROFILEOFHDFC MUTUAL FUND

INTRODUCTION:-

HDFC Mutual Fund is governed by HDFC Asset Management Company Limited (AMC). TheHDFC mutual fund was approved by SEBI in June 2000. Equity Funds, Balanced Funds, and Debt Funds are the mutual fund schemes offered by HDFC Mutual Fund.HDFC Mutual Fund has witnessed significant growth in the past few years. It is regulated by HDFC Asset Management Company Limited (AMC) which works as an AssetManagement Company (AMC) for HDFC Mutual Fund. HDFC Asset Management Company Limited (AMC) is a Joint Venture concern between the large-scale housing finance company HDFC and British investment firm Standard Life Investments Limited.The HDFC Asset Management Company Limited conducts the activities carried out bythe HDFC Mutual Fund and manages the assets of various mutual fund schemes. TheAugust 2006 report states that the fund has assets of Rs. 25,892 crores under (AMC)HDFC Asset Management Company Limited (AMC) entered into an agreement with Zuric

h Insurance Company (ZIC) with the aim to develop the asset management businessin India in the year 2003. Following to this, all the mutual fund schemes of Zurich Mutual Fund in India got transferred to HDFC Mutual Fund and gained the nameof HDFC schemes.HDFC Asset Management Company Ltd (AMC) was set up on December 10, 1999 under the Companies Act, 1956. It got the approval to function as an Asset Management Company for the HDFC Mutual Fund by SEBI on June 30, 2000. AMC was appointed in order manage the HDFC Mutual Fund. The registered office of HDFC Asset ManagementCompany Limited (AMC) is located at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.As per the terms of the Investment Management Agreement, the AMC will conduct the operations of the Mutual Fund and manage assets of the schemes, including theschemes launched from time to time.

The present share holding pattern of the AMC is as follows:Particulars % of the paid up capitalHousing Development Finance Corporation Limited 50.10Standard Life Investments Limited 49.90

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management

business in India. The AMC had entered into an agreement with ZIC to acquire thesaid business, subject to necessary regulatory approvals.On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund h


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as now migrated to HDFC Mutual Fund on June 19, 2003. These schemes have been renamed as follows:FORMER NAME NEW NAMEZurich India Equity Fund HDFC Equity FundZurich India Prudence Fund HDFC Prudence FundZurich India Capital Builder Fund HDFC Capital Builder FundZurich India Tax Saver Fund HDFC Tax Saver Fund

Zurich India Top 200 Fund HDFC Top 200 FundZurich India High Interest Fund HDFC High Interest FundZurich India Liquidity Fund HDFC Liquidity FundZurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund

The AMC is managing 2 close ended Income Scheme viz. HDFC Fixed Investment Planand HDFC Long Term Equity Fund and 23 open-ended schemes of the Mutual Fund viz.HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFCLiquid Fund (HLF), HDFC Long Term Advantage Fund, HDFC Tax Plan 2000 (HTP), HDFCChildren

s Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund(HEF), HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC Tax S

aver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund (HCMF), HDFC MF Monthly Income Plan (HMIP), HDFC Core & Satellite Fund (HSCF), HDFC Multiple Yield Fund (HMYF), HDFC Premier Multi-Cap Fund (HPM) and HDFC Multiple Yield Fund Plan 2005 (HMY2005).

The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2004 to December 31, 2006. HDFC assets Management Companys punch line is continuing a tradition o

f trust.

In Gujarat HDFC assets Management Company is located at Ahmadabad, Surat, vadodara, Rajkot.

HDFC assets Management Company is working from 9:30 a.m. onwards.

HDFC assets Management Company Have 200 and more distributors in Surat.

HDFC assets Management Company Provide account statements to investors according to investors requirement.

HDFC assets Management Company Provide good services to investors.

SNAPSHOT-I

CHART-6.1 HDFC Standard Life insurance Company- HDFC holds 72.26 %. HDFC Asset Management Company HDFC holds 60% HDFC Bank- HDFC holds 23.26%. Intelenet Global (Business Process Outsourcing) HDFC holds 50%. HDFC Chubb General Insurance Company HDFC holds 74%.

MAN WITH A MISSIONIf ever there was a man with a mission it was Hasmukhbhai Parekh, Founder and Chairman-Emeritus, of HDFC Group who left this earthly abode on November 18, 1994.


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Born in a traditional banking family in Surat, Gujarat, Mr. Parekh started hisfinancial career at Harkisandass Lukhmidass a leading stock broking firm. Thefirm closed down in the late seventies, but, long before that, he went on to become a towering figure on the Indian financial scene.In 1956 he began his lifelong financial affair with the economic world, as GeneralManager of the newly-formed Industrial Credit and Investment Corporation of Indi

a (ICICI). He rose to become Chairman and continued so till his retirement in 1972.At the ripe age of 60, Hasmukhbhai started his second dynamic life, even moreillustrious than his first. His vision for mortgage finance for housing gave birth to the Housing Development Finance Corporation it was a trend-setter for housing finance in the whole Asian continent.He was also a writer in his own right. There are over 200 published articles byhim... In 1992, the Government of India honoured him with the Padma Bhushan Award. The London School of Economics & Political Science conferred on him an Honorary Fellowship.He was one of the Founder Members of the Centre for Advancement of Philanthropy,and its Chairman till 1993.He took active interest in the Bombay Community Public Trust, designed specifica

lly to serve the needs of the citys underprivileged citizens.When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he said: Takingover from H.T. Parekh is a formidable task; his vision brought about not only an institution, but an entire concept which has proved itself to be of lasting importance.Today we are the largest residential mortgage finance institution in India, witha net worth of Rs. 2,703 cores as of March 31, 2006 and an asset base of over Rs. 22,000 cores. We also aim to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.Over a span of 25 years, HDFC has become the pioneer in housing finance in Indiaand made it possible for over two million Families to own their homes, throughhousing loans worth over Rs. 42,000 cores.

VISION

To be a dominant player in the Indian mutual fund space, recognized for its highlevels of ethical and professional conduct and a commitment towards enhancing investor interests.

ORGANIZATION AND MANAGEMENT

HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance, taxation,construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to deliver increasing value to shareholders.Name and Designation Location Contact NumberMr. Deepak S. Parekh is the executive Chairman of the Corporation. He is fellowof the Institute of Chartered Accountants (England & Wales).Mr. Parekh joined the Corporation in a senior management position in 1978.He was inducted as a wholetime director of the Corporation in 1985 and was appointed as the Chairman in 1993. He is the chief executive officer of the Corporation Mumbai.

Mr. K. M. Mistry the Managing Director of the Corporation. Is a Fellow of the Institute of Chartered Accountants of India? He has been employed with the Corporation since 1981 and was the executive director of the Corporation since 1993. Hewas appointed as the deputy managing director in 1999 and the Managing Directorin 2000. He is also a member of the Investors Grievance Committee of Directors

.

Ms. Renu S. Karnad the Executive Director of the Corporation. Is a graduate in l


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aw and holds a Masters degree in economics from Delhi University. She has beenemployed with the Corporation since 1978 and was appointed as the Executive Director of the Corporation in 2000. She is responsible for overseeing all aspects of lending operations of HDFC.New Delhi.

BOARD OF DIRECTORSMr. D S Parekh - Chairman Mr. D N Ghosh

Mr. Keshub Mahindra - Vice Chairman Dr. S A DaveMs. Renu S. Karnad - Executive Director Mr. S VenkitaramananMr. K M Mistry - Managing Director Dr. Ram S TarnejaMr. Shirish B Patel Mr. N M MunjeeMr. B S Mehta Mr. D M Satwalekar

SPONSORS OF HDFC ASSETS MANAGEMENT COMPANY:-

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC):-HDFC was incorporated in 1977 as the first specialized Mortgage Company in India. HDFC provides financial assistance to individuals, corporates 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 has a client base of around 9.5 lack borrowers, around 1 million depositors, over 91,000 shareholders and 50,000 deposit agents as at March31, 2007. HDFC has raised funds from international agencies such as the World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated loans, d

omestic term loans from banks and insurance companies, bonds and deposits. HDFChas received the highest rating for its bonds and deposits program for the twelfth year in succession. HDFC Standard Life Insurance Company Limited, promoted byHDFC was the first life insurance company in the private sector to be granted aCertificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India.

STANDARD LIFE INVESTMENTS LIMITED:-The Standard Life Assurance Company was established in 1825 and has considerableexperience in global financial markets. The company was present in the Indian life insurance market from 1847 to 1938 when agencies were set up in Kolkata andMumbai. The company re-entered the Indian market in 1995, when an agreement wassigned with HDFC to launch an insurance joint venture. On April 2006, the Boardof The Standard Life Assurance Company recommended that it should demutualise and Standard Life plc float on the London Stock Exchange. At a Special General Meeting held in May voting members overwhelmingly voted in favor of this. The Courtof Session in Scotland approved this in June and Standard Life plc floated on the London Stock Exchange on 10 July 2006. Standard Life Investments was launchedas an investment management company in 1998. It is a wholly owned subsidiary ofStandard Life Investments (Holdings) Limited, which in turn is a wholly owned subsidiary of Standard Life plc. Standard Life Investments is a leading asset management company, with approximately US$ 269 billion as at March 30, 2007, of assets under management. The company operates in the UK, Canada, Hong Kong, China,Korea, Ireland and the USA to ensure it is able to form a truly global investment view. In order to meet the different needs and risk profiles of its clients, S

tandard Life Investments Limited manages a diverse portfolio covering all of themajor markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative inst


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ruments.

PRODUCT DETAILS:-Different Types of Products:-EQUITY BALANCED DEBT

EQUITY SCHEMES OF HDFC ASSET MANAGEMENT COMPANY:-

1. HDFC Equity Fund:-

Investment Objective: The investment objective of the SchemeIs to achieve capital appreciation.

Investment Options: Dividend & Growth Option

Nature of Scheme: - Open Ended Growth Scheme

Inception Date: - January 01, 1995

2. HDFC growth fund:- Investment Objective: - The primary investment objective of the Scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. Investment Options: Dividend & Growth Option

Nature of Scheme: - Open Ended Growth Scheme Inception Date: -September 11, 2000

3. HDFC Top 200 fund:-

Investment Objective: - To generate long-term capital appreciation froma portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. Investment Options: Dividend & Growth Option

4. HDFC mid cape opportunity fund;- Investment Objective: - To generate long-term capital appreciation froma portfolio that is substantially constituted of equity and equity related securities of small and Mid-Cap companies. Investment Options: Dividend & Growth Option Nature of Scheme:- Open Ended Growth Scheme Inception Date:- May 07, 20075. HDFC capital builder fund:- Investment Objective: - To generate long-term capital appreciation froma portfolio that is substantially constituted of equity and equity related securities of small and Mid-Cap companies. Investment Options: Dividend & Growth Option Nature of Scheme:- Open Ended Growth Scheme Inception Date:- February 01, 19946. HDFC core and satellite fund:-

Investment Objective: - The primary objective of the Scheme is to generate capital appreciation through equity investment in companies whose shares arequoting at prices below their true value.


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Investment Options: Dividend & Growth Option Nature of Scheme:- Open Ended Growth Scheme Inception Date:- September 17, 20047. HDFC premier multicape fund:- Investment Objective: - The primary objective of the Scheme is to generate capital appreciation in the long term through equity investments by investing

in a diversified portfolio of Mid Cap and Large Cap `blue chip` companies. Investment Options: Dividend Plan, Growth Plan, The Dividend Plan offersDividend Payout and Reinvestment Facility. Nature of Scheme: - Open Ended Growth Scheme Inception Date: - April 06, 2005

BALANCED SCHEMES OF HDFC ASSET MANAGEMENT COMPANY:-1) HDFC balanced fund: - Investment Objective: - The primary objective of the Scheme is to generate capital appreciation along with current income from a combined portfolio of equity and equity related and debt and money market instruments. Investment Options: Dividend & Growth Option

Nature of Scheme: - Open Ended balanced fund Inception Date: - September 11, 20002) HDFC prudence fund:- Investment Objective: - The investment objective of the Scheme is to provide periodic returns and capital appreciation over a long period of time, froma judicious mix of equity and debt investments, with the aim to prevent/ minimize any capital erosion Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended balanced fund Inception Date: - February 01, 1994

3. HDFC short term plan:-

Investment Objective: - The primary objective of the HDFC Short Term Plan is to generate regular income through investment in debt securities and moneymarket instruments. Investment Options: Growth Plan, Dividend Plan. The Dividend Plan offersDividend Payout and Reinvestment Facility. Nature of Scheme:- Open Ended income fund Inception Date: - February 28, 2002

4. HDFC multi yield fund:- Investment Objective: - The primary objective of the Scheme is to generate positive returns over medium time frame with low risk of capital loss overmedium time frame. Investment Options: Growth Plan, Dividend Plan. The Dividend Plan offersDividend Payout and Reinvestment Facility. Nature of Scheme: - Open Ended income fund Inception Date: - September 17, 2004

DEBT SCHEMES OF HDFC ASSET MANAGEMENT COMPANY:-1. HDFC Income Fund:- Investment Objective: - The primary objective of the Scheme is to optimize returns while maintaining a balance of safety, yield and liquidity. Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended Income Scheme Inception Date: - September 11, 20002. HDFC Income Fund: - Investment Objective: - The investment objective of HDFC High Interest F

und is to generate income by investing in a range of debt and money market instruments of various maturity dates with a view to maximizing income while maintaining the optimum balance of yield, safety and liquidity.


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Investment Options: Dividend & Growth Option Nature of Scheme: - Open Ended Income Scheme Inception Date: - April 28, 1997

3. HDFC MF Monthly Income Plan - Short Term Plan:- Investment Objective: - The primary objective of Scheme is to generateregular returns through investment primarily in Debt and Money Market Instrument

s. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Schemes assets in equity and equity related instruments. However, there can be No assurance that the investment objectiveof the Scheme will be achieved. Investment Options: Quarterly Dividend Option, Monthly Dividend Option,and Growth Plan. The Dividend Plan offers Dividend Payout and Reinvestment Facility Nature of Scheme: - An open-ended income scheme. Monthly income is not assured and is subject to availability of distributable surplus Inception Date:- December 26, 2003

4. HDFC MF Monthly Income Plan - Long Term Plan:-

Investment Objective: - The primary objective of Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Schemes assets in equity and equity relatedinstruments. However, there can be no assurance that the investment objective of the Scheme will be achieved Investment Options: Growth Plan, Quarterly Dividend Option, Monthly Dividend Option. The Dividend Plan offers Dividend Payout and Reinvestment Facility. Nature of Scheme: - An open-ended income scheme. Monthly income is not assured and is subject to availability of distributable surplus Inception Date: - December 26, 20035. HDFC Floating Rate Income Fund Long Term Plan:-

Investment Objective: - The primary objective of the Scheme is to generate regular income through investment in a portfolio comprising substantially offloating rate debt / money market instruments, fixed rate debt / money market instruments swapped for floating rate returns, and fixed rate debt securities andmoney market instruments.

Investment Options: Dividend Plan, Growth Plan. The Dividend Plan offers Reinvestment Facility only

Nature of Scheme: - An open-ended income scheme.

Inception Date: - January 16, 2003

LOCATION DETAILSHDFC AMC is located at Yagnik road which is in the heart of the city where service is easily available for all customer and easy access compare with other placethat available in city. Location has major impact on success or failure of operation. Advantages of this type of location are that service cost and distribution cost is minimum comparison with other place.

The major investor service centres of HDFC MUTUAL FUND are as below.

Locations of HDFC Assets Management Company


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ACHIEVEMENT AND AWARDS HDFC Prudence fund has been ranked ICRA-MFR 1, and Has Been awarded the Gold Award for Best Performance in the category of Open Ended Balanced Scheme for one year Period Ending Dec 31, 2005.

HDFC Tax saver fund has been ranked ICRA-MFR 1, and Has Been Silver a

ward for Second Best Performance in the category of Open Ended Equity LinkedSaving Scheme(ELSS) for Three year Period Ending Dec 31, 2005.

HDFC MIP~LTP has been ranked ICRA-MFR 1, and Has been awarded the GoldAward For Best Performance in the category of Open Ended Marginal Equity Scheme for one year Period Ending Dec 31, 2005.

FUTURE SCENARIO:- The asset base will continue to grow at an annual rate of about 35 to 40% over the next five year as investors shift their assets from banks and othertraditional avenues. Some of the older public and private sector players will either close shop or be taken over.

Out of ten public players five will sell out, close down or merge with stronger player in three to four years. In the private sector this trend has already started with two mergers and one take over. Here too some of them will downtheir shutters in the near future to come.

But this does not mean that there is no room for other players. The market will witness a flurry of new players entering the areas. There will be a large no. of offers from various asset management companies in the time to come, some big names like Principle, SBI, Fidelity, old mutual etc are looking at Indianmarket seriously. One important reason for it is that most major players have presence here and hence these big names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives inIndia as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on theRegular to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

CHAPTER- 7

TYPES OF MUTUAL FUNDS

TYPES OF MUTUAL FUND:-There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whetheras the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Fundsare as follows:-CHART-7.1BASED ON THEIR STRUCTURE:- OPEN-ENDED FUNDS: - Investors can buy and sell the units from the fund,at any point of time.

CLOSE-ENDED FUNDS: - These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stock


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s (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore,such funds have relatively low liquidity.BASED ON THEIR INVESTMENT OBJECTIVE:- EQUITY FUNDS: - These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even

losses. However, short term fluctuations in the market, generally smoothens outin the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years.It can be further classified as:- Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms ofcomposition and individual stock weightages. Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. Dividend yield funds- it is similar to the equity diversified funds exce

pt that they invest in companies offering high dividend yields. Thematic funds- Invest 100% of the assets in sectors which are related through some theme.e.g. -An infrastructure fund invests in power, construction, cements sectors etc. Sector funds- Invest 100% of the capital in a specific sector. e.g. - Abanking sector fund will invest in banking stocks. ELSS- Equity Linked Saving Scheme provides tax benefit to the investors BALANCED FUND:- Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes:-

Debt-oriented funds -Investment below 65% in equities. Equity-oriented funds -Invest at least 65% in equities, remaining in debt. DEBT FUND:- They invest only in debt instruments, and are a good optionfor investors averse to idea of taking risk associated with equities. Therefore,they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any ofthese debt funds depending on your investment horizon and needs. Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market. Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills. Floating rate funds - Invest in short-term debt papers. Floaters investin debt instruments which have variable coupon rate. Arbitrage fund- They generate income through arbitrage opportunities dueto mis-pricing between cash market and derivatives market. Funds are allocatedto equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. Gilt funds LT- They invest 100% of their portfolio in long-term government securities. Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers. MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities.

FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.


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CHAPTER-8

REGULATORY ASPECTSAMFI (Association of Mutual fund in India):- AMFI not a Self Regulatory Organization (SRO). Its made to promote mutual fund in the masses and give recommendation in order to uphold the interest of the investor.OBJECTIVES OF AMFI:- To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry. To recommend and promote best business practices and code of conduct tobe followed by members and others engaged in the activities of mutual fund and a

sset management including agencies connected or involved in the field of capitalmarkets and financial services. To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the mutual fund industry. To develop a cadre of well-trained Agent distributors and to implement aProgramme of training and certification for all intermediaries and other engaged in the industry. To undertake nation wide investor awareness Programme so as to promote proper understanding of the concept and working mutual fund.SEBI (Security Exchange Board of India) :-Securities and Exchange Board of India ("SEBI"), the Capital Markets regulator h

as clearly defined rules, which govern mutual funds. These rules relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.

All Mutual Funds are registered with SEBI and they function within the provisionof strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

RBI (Reserve Bank of India):-Reserve bank of India was the regulator of Mutual Fund before SEBI. It regulatedmutual fund initially and there were only few schemes in the market. But now with coming of SEBI, it has now become the main regulator of the Mutual Fund. RBInow only governs Bank Sponsored Mutual Fund.

MINISTRY OF FINANCE:-The Ministry of Finance, which is charged with implementing the government policies, ultimately supervises both the RBI and the SEBI. Besides being the ultimatepolicy making and supervising entity, the MOF has also been playing the role ofan Appellate Authority for any major disputes over SEBI guidelines on certain specific capital market related guidelines in particular any cases of insider trading or mergers and acquisitions.COMPANY LAW BOARD:-Mutual fund Asset Management Companies and corporate trustees are companies registered under the Companies Act, 1956, and are therefore answerable to regulatory

authorities empowered by the Companies Act.The primary legal interface for all companies is the Register of Companies (RoC). The Department of Company Affairs in turn supervises roCs. The DCA forms part


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of Company Law Board, which is part of the Ministry of Law and Justice of the Govt. of India.The RoC ensures that the assets management company or the Trustee Company as thecase may be is in compliance with all Companies Act provisions. All assets management company accounts and records are filed with the Roc, who may demand additional information and documents from the company. The RoC plays the role of a watchdog with respect to regulatory compliance by companies.

The Company Law Board (CLB) is the apex regulatory authority under the CompaniesAct. While the CLB guides the DCA, another arm of the CLB called the Company Law Bench is the Appellate Authority for corporate offences.The Company Law Board (CLB) is a body specially constituted by the Central Government for carrying out judicial proceedings with respect to company affairs. Since mutual fund assets Management Company are companies, the CLBs role assumes importance.As the members of assets management companies or Trustee companies will usuallybe the sponsors and their joint venture partners or associates, it is unlikely that mutual fund investors will have anything to do with any of these regulators.The authorities would generally regulate the assets management companies whoseshareholders may have recourse to them in specific cases.

INVESTORS RIGHTS:- Proportionate right to beneficial ownership of schemes assets Right to obtain information from trustees Entitled to receive dividend warrants within 30 days of declaration of dividend Inspect major documents of the fund Appointment of the assets management company can be terminated by 75% ofthe unit holders of the scheme present and voting Right to approve of changes in fundamental attributes of a close ended scheme (75 % of unit holders should approve) - right to be informed so in open ended schemes so that they can redeem Right to receive a copy of annual financial statements of fund and periodic transaction statements

75% of the unit holders can resolve to wind up the scheme

LEGAL LIMITATIONS TO INVESTORS:-

Unit holders can not sue the trust Can initiate legal proceedings against trustees Sponsor of mutual funds have no obligation to meet any shortfall in theassured return - unless explicitly guaranteed in the offer document No rights to a prospective investor

INVESTOR OBLIGATIONS:-

Carefully study the offer document before investing Monitor his investment in a scheme by referring financial statements, performance updates and research reports sent by the assets management company.


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CHAPTER-9

ANALYSIS & INTERPRETATION

The analysis is based on the responses given by customers through questionnaires.

ON THE BASIS OF AGE OF THE INVESTORSTABLE-9.1Age group No. of Respondents31-35 4

36-40 341-45 246-50 1