project report sagar
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PERFORMANCE EVALUATION OF SCHEMES OF HDFC MUTUAL FUNDS
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A
MINOR PROJECT REPORT
ON
“PERFORMANCE ANALYSIS OF SCHEMES OF HDFC MUTUAL FUNDS”
Submitted by
SAGAR LINGAM
(1225110149)
Under the Guidance of
Mrs. G. ARTI
GITAM UNIVERSITY
(Declared as Deemed to be University u\s 3 of the UGC Act, 1956)
Rushikonda, VISAKHAPATNAM.
A Project Report submitted in partial fulfillment of the requirement of
Master in Business Administration
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S no Name of the Topic Page no
1 Conceptual Framework 3
2The Present Study
10
3Organization Profile
14
4Analysis 21
5Findings, Suggestions and Conclusion 27
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CONCEPTUAL FRAMEWORK
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PREFACE
The National Stock Exchange of India Ltd. (NSE), set up in the year 1993, is today the largest
stock exchange in India and a preferred exchange for trading in equity, debt and derivatives
instruments by investors. NSE has set up a sophisticated electronic trading, clearing and settlement
platform and its infrastructure serves as a role model for the securities industry. The standards set
by NSE in terms of market practices; products and technology have become industry benchmarks
and are being replicated by many other market participants.
NSE has four broad segments Wholesale Debt Market Segment (commenced in June 1994), Capital
Market Segment (commenced in November 1994) Futures and Options Segment (commenced June
2000) and the Currency Derivatives segment (commenced in August 2008). Various products which
are traded on the NSE include, equity shares, bonds, debentures, warrants, exchange traded funds,
mutual funds, government securities, futures and options on indices & single stocks and currency
futures. Thousands of investors rely on the NSE’s accessible, liquid and transparent markets for order
execution.
MAIN SUBJECT: MUTUAL FUNDS
Concept
A mutual fund is a professionally managed type of collective investment scheme that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments and other securities. Mutual funds have a fund manager who invests the money on
behalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value of
all mutual funds totals more than $US 26 trillion.
Reason for Preferring
There are many reasons why investors prefer mutual funds. Buying shares directly from the
market is one way of investing. But this requires spending time to find out the performance of
the company whose share is being purchased, understanding the future business prospects of the
company, finding out the track record of the promoters and the dividend, bonus issue history of
the company etc.
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An informed investor needs to do research before investing. However, many investors find it
cumbersome and time consuming to pore over so much of information, get access to so much of
details before investing in the shares.
Investors therefore prefer the mutual fund route. It leaves it to the mutual fund and its
professional fund management team. Another reason why investors prefer mutual funds is
because mutual funds offer diversification. An investor’s money is invested by the mutual fund
in a variety of shares, bonds and other securities thus diversifying the investor’s portfolio across
different companies and sectors.
This diversification helps in reducing the overall risk of the portfolio. It is also less expensive to
invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low
(Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks and not get the
desired diversification. These are some of the reasons why mutual funds have gained in
popularity over the years.
Structure
Mutual Funds in India follow a 3-tier structure. There is a Sponsor (the First tier), who thinks of
starting a mutual fund. The Sponsor approaches the Securities & Exchange Board of India
(SEBI), which are the market regulator and also the regulator for mutual funds.
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SEBI checks whether the person is of integrity, whether he has enough experience in the
financial sector, his net worth etc. Once SEBI is convinced, the sponsor creates a Public Trust
(the Second tier) as per the Indian Trusts Act, 1882. Trusts have no legal identity in India and
cannot enter into contracts, hence the Trustees are the people authorized to act on behalf of the
Trust. Contracts are entered into in the name of the Trustees. Once the Trust is created, it is
registered with SEBI after which this trust is known as the mutual fund.
It is important to understand the difference between the Sponsor and the Trust. They are two
separate entities. Sponsor is not the Trust; i.e. Sponsor is not the Mutual Fund. It is the Trust
which is the Mutual Fund.
This is the role of the Asset Management Company (the Third tier). Trustees appoint the Asset
Management Company (AMC), to manage investor’s money. The AMC in return charges a fee
for the services provided and this fee is borne by the investors as it is deducted from the money
collected from them.
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The AMC’s Board of Directors must have at least 50% of Directors who are independent
directors. The AMC has to be approved by SEBI. The AMC functions under the supervision of
its Board of Directors, and also under the direction of the Trustees and SEBI. It is the AMC,
which in the name of the Trust, floats new schemes and manages these schemes by buying and
selling securities.
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Topic related concepts
MUTUAL FUND PRODUCTS AND FEATURES
1. EQUITY FUNDSa. Open ended and Closed ended funds
b. Index funds
c. Large cap funds
d. Mid cap funds
e. Sectoral funds
f. Arbitrage funds
g. Multi-cap funds
h. Growth schemes
i. ELSS
j. NAV
k. Entry and Exit load
2. GOLD ETFS
a. New Fund Offer
3. DEBT FUND
a. Capital Protection funds
b. Monthly Income Plans
c. Balanced funds
4. LIQUID FUNDS
a. Floating rate scheme
5. TAXATION
a. Capital Gainsb. FMPs- Growth and Dividend options
6. REGULATIONS
a. Objectives of AMFI
b. Systematic Investment Plan (SIP)
c. Systematic Transfer Plan (STP)
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THE PRESENT STUDY / METHODOLOGY
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a. Need of the Study:
The project’s idea is to venture Mutual Funds as a better avenue for investment on a long-
term or short-term basis. Mutual Fund is a productive package for a lay-investor with
limited finances, this project creates an awareness that the Mutual Fund is a worthy
investment practice. Mutual Fund is a globally proven instrument.
The driving force of Mutual Funds is the ‘safety of the principal’
guaranteed, plus the added advantage of capital appreciation together with the income earned
in the form of interest or dividend. The various schemes of Mutual Funds provide the
investor with a wide range of investment options according to his risk bearing capacities and
interest besides; they also give handy return to the investor. Mutual Funds offers an investor
to invest even a small amount of money, each Mutual Fund has a defined investment
objective and strategy. Mutual Funds schemes are managed by respective asset managed
companies sponsored by financial institutions, banks, private companies or international
firms. A Mutual Fund is the ideal investment vehicle for today’s complex and modern
financial scenario.
The study is basically made to analyze the performance of the any two growth schemes
of HDFC Mutual Funds based on factors like Sharpe’s Ratio, Treynor’s Ratio.
b. Objectives of the Study:
1. To project Mutual Fund as the ‘productive avenue’ for investing activities.
2. To show the wide range of investment options available in Mutual Funds by explaining
its various schemes.
3. To compare the schemes based on Sharpe’s ratio, Treynor’s ratio and show which
scheme is best for the investor based on his risk profile.
4. To help an investor make a right choice of investment, while considering the inherent
risk factors.
c. Scope of the study:
The scope of the study is to measure the Sharpe’s ratio and Treynor’s ratio of various
schemes in the organizations in order to identify the risk factor and evaluating the
performance of the schemes.
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1. The Sharpe’s 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 rate of 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.
While 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.
2. The Treynor Measure:-
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
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 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.
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ORGANIZATION PROFILE
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HDFC Mutual Fund
HDFC Mutual Fund (Housing Development Finance Corporation) is one of the largest
mutual funds and well-established fund house in the country with consistent and above
average fund performance across categories since its incorporation on December 10, 1999.
While our past experience does make us a veteran, but when it comes to investments, we have
never believed that the experience is enough.
Investment Philosophy:
The single most important factor that drives HDFC Mutual Fund is its belief to give the
investor the chance to profitably invest in the financial market, without constantly worrying
about the market swings. To realize this belief, HDFC Mutual Fund has set up the
infrastructure required to conduct all the fundamental research and back it up with effective
analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the
latest “fads” and trends.
Offers:
We believe, that, by giving the investor long-term benefits, we have to constantly review
the markets for new trends, to identify new growth sectors and share this knowledge with our
investors in the form of product offerings. We have come up with various products across
asset and risk categories to enable investors to invest in line with their investment objectives
and risk taking capacity. Besides, we also offer Portfolio Management Services.
Our Achievements:
HDFC Asset Management Company (AMC) is the first AMC in India to have been
assigned the ‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance and
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Process Quality Rating which reflects the highest governance levels and fund management
practices at HDFC AMC It are the only fund house to have been assigned this rating for two
years in succession. Over the past, we have won a number of awards and accolades for our
performance.
Sponsors:
Housing Development Finance Corporation Limited (HDFC)
HDFC was incorporated in 1977 and it is the first specialized Mortgage Company 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 has a client base of around 12 lac borrowers, around 8 lac depositors, over 1.08
lac shareholders and 50,000 deposit agents, as at March 31, 2008.
HDFC has raised funds from international agencies such as the World Bank, IFC
(Washington), USAID, DEG, ADB and KfW, international syndicated loans, 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
thirteenth 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.
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Trustee
HDFC Trustee Company Limited, a company incorporated under the Companies Act,
1956 is the Trustee to HDFC Mutual Fund vides the Trust deed dated June 8, 2000, as
amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary of
HDFC
Awards & Accolades
CNBC - TV 18 - CRISIL Mutual Fund of the Year Awards 2008: (3 awards)
1. HDFC Prudence Fund was the only scheme that won the CNBC - TV 18 - CRISIL
Mutual Fund of the Year Award 2008 in the Most Consistent Balanced Fund under
CRISIL ~ CPR for the Calendar year 2007 (from amongst 3 schemes).
2. HDFC Cash Management Fund - Savings Plan was the only scheme that won the CNBC
- TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Most Consistent Liquid
Fund under CRISIL ~ CPR for the calendar year 2007 (from amongst 5 schemes).
3. HDFC Cash Management Fund - Savings Plan was the only scheme that won the CNBC
- TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Liquid Scheme – Retail
Category for the calendar year 2007 (from amongst 19 schemes).
ICRA Mutual Fund Awards 2008: (3 awards)
1. HDFC MF Monthly Income Plan-Long Term Plan- Ranked a Seven Star Fund and
has been awarded the Gold Award for "Best Performance" in the category of "Open
Ended Marginal Equity" for the three year period ending December 31, 2007 (from
amongst 27 schemes)
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2. HDFC High Interest Fund - Short Term Plan - Ranked a Five Star Fund indicating
Performance among the top 10% in the category of "Open Ended Debt - Short Term" for
one Year period ending December 31, 2007 (from amongst 20 schemes).
3. HDFC Prudence Fund - Ranked a Five Star Fund indicating performance among the
top 10% In the category of "Open Ended Balanced" for the three year period ending
December 31, 2007 (From amongst 16 schemes).
Lipper Fund Awards 2008:
• HDFC Equity Fund - Growth has been awarded the 'Best Fund over Ten Years' in
the 'Equity Indian Category at the Lipper Fund Awards 2008 (form amongst 23
schemes). It was awarded as the Best Fund over ten years in 2006 and 2007 as well.
2008 makes it three in a row.
It’s Competitors:
Major Mutual Fund Companies in India:
• ABN AMRO MUTUAL FUND
• BRILA SUNLIFE MUTUAL FUND
• HDFC MUTUAL FUND
• HSBC MUTUAL FUND
• ING VYSYA MUTUAL FUND
• PRUDENTIAL ICCI MUTUAL FUND
• SAHARA MUTUAL FUND
• TATA MUTUAL FUND
• STATE BANK OF INDIA MUTUAL FUND
• KOTAK MAHINDRA MUTUAL FUND
• UNIT TRUST OF INDIA MUTUAL FUND
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• RELIANCE MUTUAL FUND
• LIC MUTUAL FUND
• GIC MUTUAL FUND
• BANK OF BARODA MUTUAL FUND
It’s Products:
HDFC Mutual Fund Product Schemes:
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 funds
HDFC core and satellite fund
HDFC premier multi-cap fund HDFC long-term equity fund
Balanced Fund
HDFC Children’s Gift Fund Investment Plan
HDFC Children’s Gift Fund Savings Plan
HDFC Balanced Fund
HDFC Prudence Fund
Debt Funds
HDFC income fund
HDFC liquid fund
HDFC gilt fund short-term plan
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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 PLUSPLAN
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
HDFC cash management fund-savings plan
HDFC cash management-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 multiple yield fund plan-2005
Value Added Services:
• SIP (systematic investment plan)
• STP (systematic transfer plan)
• SWAP (systematic withdrawal advantage plan)
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ANALYSIS
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1. HDFC MF Monthly Income Plan (HDFC MF MIP)
Nature of Scheme: An open-ended income scheme
Monthly income is not assured and is subject to availability of distributable surplus.
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 Scheme’s assets in equity
and equity related instruments.
Inception Date (Date of Allotment): December 26, 2003
Exit Load (For Short-Term Plan & Long-Term Plan)
● In respect of each purchase / switch-in of Units, an Exit Load of 1% is payable if units are
redeemed / switched-out within 1 year from the date of allotment.
● No Exit Load is payable if Units are redeemed /switched-out after 1 year from the date of
allotment.
Investment Plan / Options: (Short Term Plan (STP) & Long Term Plan (LTP)
Each Plan offers Growth, Monthly Dividend & Quarterly Dividend Option. The Dividend
Option offers Dividend Payout and Reinvestment facility.
Net Asset Value (NAV): Growth Option: 17.2169, Monthly Dividend Option: 11.1509,
Quarterly Dividend Option 11.4654.
Redemption Proceeds: Normally dispatched within 3-4 Business Days.
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Calculations:
1.Mean(X bar): ∑X/N, where n is the number of observations.
2.Standard Deviation σ: √ S(X-X bar) 2 / N
3.Beta Coefficient β: (N(∑XY) – ∑X ∑Y)/(N(∑X2) – (X)2)4.Sharpe’s Ratio: ∑(Rp-Rf)/β
5.Treynor’s Ratio: ∑(Rp-Rf)/σ
Relative Performance (Growth Option):;
Where, Rp - Portfolio Return, Rm- Benchmark returns-SENSEX, Rf- Risk free rate of return.
Σ 2.07829 Sharp Ratio -0.00491
Β 1.08262 Treynor ratio -0.00942
Year Rp Rm Rf Rm-
Rf
Rp-
Rf
X2 XY X-X
bar
D2
Returns Benchmark Risk free X Y D
Last 6 month 2.98 3.98 7.47 -3.49 -4.49 12.1801 15.6701 -3.414 11.6554
Last 1 year 6.73 7 7.47 -0.47 -0.74 0.2209 0.3478 -0.394 0.15523
Last 3 years 6.49 5.7 4.82 0.88 1.67 0.7744 1.4696 0.956 0.91393
Last 5 years 7.09 7.9 5 2.9 2.09 8.41 6.061 2.976 8.85657
Since
Inception
7.92 7.27 7.47 -0.2 0.45 0.04 -0.09 -0.124 0.01537
Summation 31.21 31.85 32.23 -0.38 -1.02 21.6254 23.4585 0 21.5965
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PER
Graph showin
1. HDFC M
Nature of Scheme:
An open-ended income scheme
Investment Objective:
To optimize returns while maint
Inception Date (Date of Allotm
September 11, 2000
Exit Load:
• In respect of each purcha
are redeemed / switched-
• No Exit Load is payable
date of allotment.
Investment Plan / Options:
Growth & Dividend. The Divide
0123456789
Returns
ORMANCE EVALUATION OF SCHEMES OF HDFC
23
HDFC Mutual Fund Monthly Income Plan:
Income fund (HDFC IF)
ining a balance of safety, yield and liquidity
ent):
se / switch-in of Units, an Exit Load of 0.5% is
ut within 6 months from the date of allotment.
if Units are redeemed / switched-out after 6 mo
d Option offers Dividend Payout and Reinvest
Last 6
month
Last 1
year
Last 3
years
Last 5
years
Since
Inception
Time Period
MUTUAL FUNDS
ayable if units
ths from the
ent facility.
Rp
Rm
Rf
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Net Asset Value (NAV): Every Business Day
Redemption Proceeds: Normally dispatched within 3-4 Business Days
Relative Performance^ (Growth Option):
Year Rp Rm Rf Rm-Rf Rp-Rf X2 XY X-Xbar D2
X Y D
Last 6 month 2.5 1.52 7.47 -5.95 -4.97 35.4025 29.57 -2.978 8.8684
Last 1 years 5.59 4.59 7.47 -2.88 -1.88 8.2944 5.414 0.092 0.0084
Last 3 years 7.67 5.68 4.82 0.86 2.85 0.7396 2.451 3.832 14.684
Last 5 years 6.71 5.58 5 0.58 1.71 0.3364 0.991 3.552 12.616
Since Inception 8.16 0 7.47 -7.47 0.69 55.8009 -5.15 -4.498 20.232
Summation 32.23 -14.86 -1.6 100.573 33.27 0 56.409
Sharpe’s and Treynor's ratio:
Σ 3.35886 Sharp Ratio -0.00476
Β 0.50557 Treynor ratio -0.03165
Graph showing HDFC Mutual Fund Monthly Income Plan:
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PER
0
1
2
3
4
5
6
7
8
9
ORMANCE EVALUATION OF SCHEMES OF HDFC
25
Last 6
month
Last 1 yearLast 3 yearsLast 5 years Since
Inception
MUTUAL FUNDS
Rp
Rm
Rf
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FINDINGS, SUGGESTIONS AND CONCLUSION
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1. Findings
• As observed in the project and the analysis done, financial planning is a very
important thing, every individual has to know in which route he has to invest so we
have found that, most of the people will invest by observing the returns of the
schemes but they are unaware of the return to risk factor.
• Most of the investors have an objective of earning good profits with low amount of
risk to attain their investment objective. As we have observed in the Questionnaire
conducted for 50 people, 70% investors investing only by seeing the returns of the
schemes. Their investment objective is to build a good corpus by investing in a
scheme with high returns.
• HDFC mutual funds are a top most reputed company which is giving very good
returns for the investors. Most of the people are opting for HDFC because of good
returns, well regulated funds; top most reputed ASSET MANAGEMENT
COMPANY (AMC) which is standing in the 3rd position out of the India’s top 20
mutual fund companies.
• As we have observed in the Questionnaire conducted in HDFC mutual funds with the
investors they convey that they don’t want to take much of risk as the market is
fluctuating continuously, they want safer mode for their investment.
• A very important thing we have to observe in the data analysis it is clearly proved that
most of the people are small investors who are interested in investing regularly in
long term with low risk. HDFC fund house is managing their funds in a very efficient
way to increase investors profit and to increase their productivity. It is competing with
the other asset management companies to come in the 1st position in the field of
mutual funds.
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2. Suggestions
• The Asset Management Company must design the portfolio in such a way, to increase the
returns.
• The Asset Management Company must design the portfolio in such a way, to lessen the
risk that is common in the market.
• The Asset Management Company must dedicate itself, because it motivates the investors
and potential investors to invest in Mutual Funds.
• The Asset Management Company must manage the Fund efficiently and with dedication
to earn the goodwill of the public.
• The Asset Management Company must make the most advantageous use of print and
electronic media in order to motivate the investors and potential investors to invest inMutual Funds.
Conclusion
After interpreting the above data the performance of the scheme also plays a major role for the
investor to make the decision of investment. The return of the scheme itself is not sufficient in
order to know where to invest. But the return to risk factor is also useful for an investor to decide
upon the purchase of a particular scheme.