copy of kishor project

8/2/2019 Copy of Kishor Project

1/86

1

A

PROJECT REPORT

ON

PORTFOLIO ANALYSIS OF MUTUAL FUNDS

FOR

HDFC BANK LTD.

Submitted in partial fulfillment for the degree of

Bachelor of Business Administration

Submitted to

University of Rajasthan, Jaipur, Rajasthan

Session: - 2010-2011

Supervised By: - Submitted By:-

Ms. Payal Sharma Kishor Kumawat

B.B.A. Part-III

Seth Gyaniram Bansidhar Podar CollegeRambilas Podar

road, Nawalgarh, Rajasthan


2/86

2


3/86

3


4/86

4

DECLARATION

I do hereby declare that the project entitled PORTFOLIO ANALYSIS OF

HDFC-MUTUAL FUND submitted as a part of the requirement for the partial

fulfillment of batchlarof Business Administration. It is an original piece of work done

by me under the guidance ofMr. Nipun Kumar.

Date: Signature

PREFACE


5/86

5

Someone has rightly said that practical knowledge is far better than

classroom teaching. During the course of this project I actually realized

how true it is when I analyzed the Insurance Industry. This project

enabled us to know about the Human value and investors needs and

competitors activities in the real world Insurance. The subject of our

study isPORTFOLIO ANALYSIS OF MUTUAL FUNDS forwhich I

did a detailed study of features of Insurance offered by different

Companys followed by a market research in order to know the investing

patterns and concerns of the investors thereby identifying the potential

customers for these products.

The report contains at first, the brief introduction about the

company, the products and services being offered by the Future

Generally, comparative analysis of different products offered by different

Companys in Insurance Industry and then the findings and analysis of the

research on the basis of which final suggestions and conclusion has been

drawn..


6/86

6

Acknowledgements

If words are considered to be signs of gratitude then let these

words Convey the very same my sincere gratitude to HDFC BANK for

providing me with an opportunity to work with BANK and giving

Necessary directions on doing this project to the best of my abilities.

I am highly indebted to Mr. Nipun Kumar, Sales Manager and

Company project guide, who has provided me with the necessary

information and also for the support extended out to me in the

Completion of this report and his valuable suggestion and comments On

bringing out this report in the best way possible.

I also thank Ms. Payal Sharma, Prof. of Management, who has

sincerely supported me with the valuable insights into the completion of

this project.

I am grateful to all faculty members of SETH G.B. PODAR COLLEGE

and my Teachers who have helped me in the successful completion of this

project.


7/86

7

EXECUTIVE SUMMARY

Life has always been an uncertain thing. To be secure against

unpleasant possibilities, always requires the utmost resourcefulness and

foresight on the part of man. To pray or to pay for protection is the spirit

of the humanity. Man has been accustomed to pray God for protection

and security from time immemorial. In modern days Insurance Companies

want him to pay for protection and security. The insurance man says "God

helps those who help themselves"; probably he is correct.

Too many people in this country are not in employment; and work

for too many no longer guarantees income security. Several millions are

part-time, self employed and Low-earning workers living under pitiable

circumstances where there is no security cover against risk. Further the

inherent changing employment risks, the prospect of continual change in

the work place with its attendant threats of unemployment and low pay

especially after the adoption of New Economic Policy and the imminent

life cycle risks - a new source of insecurity which includes the changing

demands of family life, separation, divorce and elderly dependents are

tormenting the society.

Risk has become central to one's life. It is within this background

life insurance policy has been introduced by the insurance companies

covering risks at various levels. Life insurance coverage is againstdisablement or in the event of death of the insured, economic support for

the dependents. It is a measure of social security to livelihood for the

insured or dependents. This is to make the right to life meaningful, worth

living and right to livelihood a means for sustenance. Therefore, it goes

without saying that an appropriate life insurance policy within the paying

capacity and means of the insured to pay premium is one of the social

security measures envisaged under the Indian Constitution. Hence, right

to social security, protection of the family, economic empowerment to


8/86

8

the poor and disadvantaged are integral part of the right to life and

dignity of the person guaranteed in the constitution.

Man finds his security in income (money) which enables him to buy

food, clothing, shelter and other necessities of life. A person has to earn

income not only for himself but also for his dependents, viz., wife and

children. He has to provide legally for his family needs, and so he has to

keep aside something regularly for a rainy day and for his old age. This

fundamental need for security for self and dependents proved to be the

mother of invention of the institution of life insurance.

Table of Content

S.N. Particulars Page no.1. Abstract of the Report 10-12

2. Introduction

Portfolio Analysis

13-23

3. WHY HDFC IS BETTER

?

24-26

4. MUTUAL FUNDS 27-55

5. Mutual Fund Portfolio

Construction

56-61

6. How do Mutual Funds

Earn Money?

62-67

7. Research

Methodology

68-71

8. Limitations of the

Study

72-74

9. Data Analysis 75-82

10. Finding & Suggestion 83-84


9/86

9

11. Recommendation 85

12. Conclusion 86

13. Bibliography 87

ABSTRACT OF THE REPORT

The report basically deals with Mutual funds. It would enable the reader to

get an insight into the world of Mutual Funds. It gives a general overview of Mutual

Funds giving the definition, the objectives, characteristics, benefits, types and the

risk involved in Mutual Funds.

PORTFOLIO ANALYSIS OF HDFC MUTUAL FUNDS

This report contains the different investment strategies taken by the investors

(mainly small investors) and the trends of investment in different investment

instruments. Project focused on findings of risk tolerance of investors and the time

horizon they want to remain invested n the market. The project extended to find out the

instrument in which different investor is now investing evaluating the projecting risk in

the instrument.

To understand the trend of the investor I have gone through an already taken

field survey, based on investment strategy questionnaire. The result of the survey

depicts a clear picture of current investment trend in Indian market. The analysis shows

that the age groups of 18-30 years are more adaptable to the high risk where as the age

group of 41-50 are the safe players. Annual income and the disposable income also

played a major role in the investment strategies in the investors mind. Results reveal

that most investors first priority to invest is the Tax Savings


10/86

10

PORTFOLIO ANALYSIS OF MUTUAL FUNDSInvesting in equities requires time, knowledge and constant monitoring of the market.

For those who need an expert to help to manage their investments, portfolio analysis

service (PAS) comes as an answer.

The business of portfolio analysis has never been an easy one. Juggling the limited

choices at hand with the twin requirements of adequate safety and sizeable returns is a

task fraught with complexities.

Given the unpredictable nature of the market it requires solid experience and strongresearch to make the right decision. In the end it boils down to make the right move in

the right direction at the right time. Thats where the expert comes in.

The term portfolio analysis in common practice refers to selection of securities and

their continuous shifting in a way that the holder gets maximum returns at minimum

possible risk. Portfolio analysis /management services are merchant banking activities

recognized by SEBI and these activities can be rendered by SEBI authorized portfolio

managers or discretionary portfolio managers.

A portfolio manager by the virtue of his knowledge, background and experience helps

his clients to make investment in profitable avenues. A portfolio manager has to

comply with the provisions of the SEBI (portfolio managers) rules and regulations,

1993.

The project also shows the factors that one considers for making an investment decision

and briefs about the information related to asset allocation.


11/86

11

I have chosen this project of Mutual Funds becauseI have of the interest in

investments especially in mutual funds besides I have specially chosen HDFC

MUTUAL FUNDS as my interest area because of the following reasons:

FINANCIAL EXPERTISE: As a joint venture of leading financial services groups.

HDFC Mutual Funds has the financial expertise required to manage your investments

safely and efficiently.

RANGE OF SOLUTIONS: It has a range of individual and group solutions, which

can be easily customized to specific needs. Its group solutions have been designed to

offer you complete flexibility combined with a low charging structure.

STRONG ETHICAL VALUES: HDFC is an ethical and Cultural Organization. False

selling or false commitment with the customers is not allowed.

MOST RESPECTED PRIVATE INSURANCE COMPANY

HDFC was awarded No-1 Private Investment Company In 2004 by the World Class

Magazine Business World. Integrity, Innovation and Customer Care.


12/86

12

INTRODUCTION

PORTFOLIO ANALYSIS

Stock exchange operations are peculiar in nature and most of the Investors feel

insecure in managing their investment on the stock market because it is difficult for an

individual to identify companies which have growth prospects for investment. Further

due to volatile nature of the markets, it requires constant reshuffling of portfolios to

capitalize on the growth opportunities. Even after identifying the growth oriented

companies and their securities, the trading practices are also complicated, making it a

difficult task for investors to trade in all the exchange and follow up on post trading

formalities.

Investors choose to hold groups of

securities rather than single security that offer the greater expected returns. They

believe that a combination of securities held together will give a beneficial result if they

are grouped in a manner to secure higher return after taking into consideration the risk

element. That is why professional investment advice through portfolio management

service can help the investors to make an intelligent and informed choice between

alternative investments opportunities without the worry of post trading hassles.
http://www.indiastudychannel.com/projects/820-Project-On-Portfolio-Management.aspxhttp://www.indiastudychannel.com/projects/820-Project-On-Portfolio-Management.aspxhttp://www.indiastudychannel.com/projects/820-Project-On-Portfolio-Management.aspxhttp://www.indiastudychannel.com/projects/820-Project-On-Portfolio-Management.aspx


13/86

13

MEANING OF PORTFOLIO ANALYSIS

Portfolio analysis in common parlance refers to the selection of securities and

their continuous shifting in the portfolio to optimize returns to suit the objectives of an

investor. This however requires financial expertise in selecting the right mix of

securities in changing market conditions to get the best out of the stock market. In

India, as well as in a number of western countries, portfolio analysis/management

service has assumed the role of a specialized service now a days and a number ofprofessional merchant bankers compete aggressively to provide the best to high net

worth clients, who have little time to manage their investments. The idea is catching on

with the boom in the capital market and an increasing number of people are inclined to

make profits out of their hard-earned savings.

Portfolio analysis and management service is one of the merchant banking activities

recognized by Securities and Exchange Board of India (SEBI). The service can be

rendered either by merchant bankers or portfolio managers or discretionary portfolio

analysiss as defined in clause (e) and (f) of Rule 2 of Securities and Exchange Board

of India(Portfolio Managers)Rules, 1993 and their functioning are guided by the SEBI.

According to the definitions as contained in the above clauses, a portfolio manager

means any person who is pursuant to contract or arrangement with a client, advises or

directs or undertakes on behalf of the client (whether as a discretionary portfolio

manager or otherwise) the management or administration of a portfolio of securities or

the funds of the client, as the case may be. A merchant banker acting as a Portfolio

Manager shall also be bound by the rules and regulations as applicable to the portfolio

manager.

Realizing the importance of portfolio management services, the SEBI has laid down

certain guidelines for the proper and professional conduct of portfolio management

services. As per guidelines only recognized merchant bankers registered with SEBI are

authorized to offer these services.


14/86

14

Portfolio analysis or investment helps investors in effective and efficient

management of their investment to achieve this goal. The rapid growth of capital

markets in India has opened up new investment avenues for investors.

SCOPE OF PORTFOLIO ANALYSIS

Portfolio analysis is an art of putting money in fairly safe, quite profitable and

reasonably in liquid form. An investors attempt to find the best combination of risk and

return is the first and usually the foremost goal. In choosing among different investment

opportunities the following aspects risk management should be considered:

a) The selection of a level or risk and return that reflects the investors tolerance for

risk and desire for return, i.e. personal preferences.

b) The management of investment alternatives to expand the set of opportunities

available at the investors acceptable risk level.

The very risk-averse investor might choose to invest in mutual funds. The more risk-

tolerant investor might choose shares, if they offer higher returns. Portfolio analysis in

India is still in its infancy. An investor has to choose a portfolio according to his

preferences. The first preference normally goes to the necessities and comforts like

purchasing a house or domestic appliances. His second preference goes to some

contractual obligations such as life insurance or provident funds. The third preference

goes to make a provision for savings required for making day to day payments. The next

preference goes to short term investments such as UTI units and post office deposits

which provide easy liquidity. The last choice goes to investment in company shares and

debentures. There are number of choices and decisions to be taken on the basis of the

attributes of risk, return and tax benefits from these shares and debentures. The final

decision is taken on the basis of alternatives, attributes and investor preferences.


15/86

15

NEED FOR PORTFOLIO ANALYSIS:

Portfolio analysis is a process encompassing many activities of investment in

assets and securities. It is a dynamic and flexible concept and involves regular and

systematic analysis, judgment and action. The objective of this service is to help the

unknown and investors with the expertise of professionals in investment portfolio

analysis. It involves construction of a portfolio based upon the investors objectives,

constraints, preferences for risk and returns and tax liability. The portfolio is reviewed

and adjusted from time to time in tune with the market conditions. The evaluation ofportfolio is to be done in terms of targets set for risk and returns. The changes in the

portfolio are to be effected to meet the changing condition.

Portfolio construction refers to the allocation of surplus funds in hand among a

variety of financial assets open for investment. Portfolio analysis theory concerns itself

with the principles governing such allocation. The modern view of investment is

oriented more go towards the assembly of proper combination of individual securities to

form investment portfolio.

A combination of securities held together will give a beneficial result if they grouped

in a manner to secure higher returns after taking into consideration the risk elements.

The modern theory of portfolio analysis is of the view that by diversification risk

can be reduced. Diversification can be made by the investor either by having a large

number of shares of companies in different regions, in different industries or those

producing different types of product lines. Modern theory believes in the perspective ofcombination of securities under constraints of risk and returns.


16/86

16

OBJECTIVES OF PORTFOLIO ANALYSIS:

The major objectives of portfolio analysis are summarized as below:-

1) SECURITY/SAFETY OF PRINICPAL: Security not only involves keeping

the principal sum intact but also keeping intact its purchasing power intact.

2) STABILITY OF INCOME: So as to facilitate planning more accurately and

systematically the reinvestment consumption of income.

3) CAPITAL GROWTH: This can be attained by reinvesting in growth securities

or through purchase of growth securities.

4) MARKETABILITY: i.e. is the case with which a security can be bought or

sold. This is essential for providing flexibility to investment portfolio.

5) LIQUIDITY I.E NEARNESS TO MONEY: It is desirable to investor so as to

take advantage of attractive opportunities upcoming in the market.


17/86

17

ELEMENTS OF PORTFOLIO ANALYSIS:

Portfolio analysis is on-going process involving the following basic tasks:

Identification of the investors objectives, constraints and preferences.

Strategies are to be developed and implemented in tune with investment policyformulated.

Review and monitoring of the performance of the portfolio.

Finally the evaluation of the portfolio


18/86

18

STEPS FOR PORTFOLIO CONSTRUCTION


19/86

19

VISION STATEMENT

ACHIEVEMENTS

HDFC Asset Management Company Limited was awarded NDTV Profit

Business Leadership Award 2009 in the Mutual Funds Category for the period

April 1, 2008 to March 31, 2009 from amongst six nominees in the category.

NDTV Profit Business Leadership Awards have been instituted to honor

organization excellence and promise to acknowledge the best, the brightest and

the most dynamic of Indian organizations that have emerged as leaders in their

respective verticals and are taking India to economic superpower status. Theobjective of the Awards is to salute men and women who fuel Indias journey to

the forefront of the World Economy. Grand Thornton India is the Business

Process Advisors to the Awards instituted by NDTV Profit.


20/86

20

VALUES

Integrity Innovation Customer centric. People care. Team work.


21/86

21

VARIOUS PRODUCTS OFFERED BY HDFC- MF

HDFC GROWTH FUND (HGF)HDFC EQUITY FUND (HEF)HDFC TOP 200 FUND (HT200F)HDFC CAPITAL BUILDER FUND (HCBF)HDFC CORE & SATELLITE FUND (HC&SF)HDFC PREMIER MULTI-CAP FUND (HPMCF)HDFC INDEX FUND (HIF)HDFC ARBITRAGE FUND (HAF)HDFC CHIDRENS GILT FUND (HCGF)HDFC BALANCED FUND (HBF)HDFC PRUDENCE FUND (HPF)HDFC LONG TERM ADVANTAGE FUND (HLTAF)


22/86

22

SOME BASIC PRODUCTS OFFERED BY HDFC MUTUALs

Equity /

Growth Fund

Invest primarilyin equity andequity relatedinstruments

Debt/ Income

Fund

Invest in moneymarket and debtinstruments andprovideoptimumbalance of yield.

Children's

Gift FundChildren'sGift Fund

QuarterlyInterval Fund

The primaryobjective of theScheme is togenerate regularincome throughinvestment.

Fixed Maturity

PlanInvest primarilyin Debt / MoneyMarketInstruments andGovernmentSecurities...

Liquid Funds

Provide highlevel ofliquidity byinvesting inmoney marketand debtinstruments.

Exchange

Traded Funds

Invest primarilyin equity andequity relatedinstruments
http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1


23/86

23

WHY HDFC IS BETTER ?

1. Investment returns: investment returns and business growth provided byHDFC is validated by Bajaj Capital report. HDFC pacify the need of invertors

up to healthy level and make the strong relationship with them.

2. Financial Background and Experience: HDFC existing in the market since1977. It has a very handsome experience in the field of finance because it

completely involved in finance Sector only where as the others are running in

many other field also like Reliance (Petroleum, Textile, Telecom etc.)

3. Ethics and Values: HDFC is an ethical and cultural organization whichprevents the false selling and prohibits the false commitment to the customer.

4. Sales Force: Properly trend licensed and Educated People are the strength ofthe company. So that they could give the best customer service.

5. Huge branch network HDFC is having 450 branches in all over the country.

6. Online accessibility: It makes the process faster and make the customerdelighted.


24/86

24

PORTFOLIO ANALYSIS

Analyzing elements of a firm's product mix to determine the optimum allocation of its

resources. Two most common measures used in a portfolio analysis are market growthrate and relative market share.

WHAT IS INVOLVED IN PORTFOLIO ANALYSIS?

Portfolio analysis is broadly carried out for each asset at two levels:

risk appetite of an investor. Some of the investors may prefer to play safe and acceptlow profits rather thaninvestin risky assets generating high returns.

arecalculated through the average and compound return methods. An average return issimply the arithmetic average of returns from individual assets. However, compoundreturn is the arithmetic mean that considers the cumulative effect on overall returns.

The next step in portfolio analysis involves determining dispersion of returns. It is themeasure of volatility or standard deviation of returns for a particular asset. Simply put,dispersion refers is the difference between the realinterest rate

and the calculated average return. Measuring the recovery period after a negativemarket cycle is equally

PORTFOLIO ANALYSIS TOOLS

Several specialized portfolio analysis softwares are available in the market to ease thetask for an investor. These application tools can analyze and predict future trends foralmost everyinvestment asset

. They provide essential data for decision making on the allocation of assets, calculationof risks and attainment of investment objectives.

It is still advisable to hire professional experts for highly sophisticated portfoliocompositions as they can offer direct assistance to help their clients earn good returns.
http://www.businessdictionary.com/definition/element.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.businessdictionary.com/definition/product-mix.htmlhttp://www.businessdictionary.com/definition/optimum.htmlhttp://www.businessdictionary.com/definition/allocation.htmlhttp://www.businessdictionary.com/definition/resource.htmlhttp://www.businessdictionary.com/definition/common.htmlhttp://www.businessdictionary.com/definition/measures.htmlhttp://www.investorwords.com/3741/portfolio.htmlhttp://www.investorwords.com/208/analysis.htmlhttp://www.businessdictionary.com/definition/market-growth.htmlhttp://www.businessdictionary.com/definition/rate.htmlhttp://www.businessdictionary.com/definition/market-share.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.businessdictionary.com/definition/market-share.htmlhttp://www.businessdictionary.com/definition/rate.htmlhttp://www.businessdictionary.com/definition/market-growth.htmlhttp://www.investorwords.com/208/analysis.htmlhttp://www.investorwords.com/3741/portfolio.htmlhttp://www.businessdictionary.com/definition/measures.htmlhttp://www.businessdictionary.com/definition/common.htmlhttp://www.businessdictionary.com/definition/resource.htmlhttp://www.businessdictionary.com/definition/allocation.htmlhttp://www.businessdictionary.com/definition/optimum.htmlhttp://www.businessdictionary.com/definition/product-mix.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.businessdictionary.com/definition/element.html


25/86

25

IN SHORT

In financial terms,portfolioanalysis is a study of the performance of specificportfolios under different circumstances. It includes the efforts made to achieve the

best trade-off between risk tolerance and returns. The analysis of portfolio can beconducted either by a professional or aninvestorwho may utilize specialized softwareto do so.

PORTFOLIO ANALYSIS.

Portfolio analysis involves quantifying the operational and financial impact of theportfolio. It is vital to evaluate the functioning ofinvestmentsand timing the returnseffectively.

The analysis of a portfolio extends to all classes of investments such as bonds, equities,indexes, commodities, funds, options and securities. Portfolio analysis gainsimportance because each asset class has peculiar risk factors and returns associatedwith it. Hence, the composition of a portfolio impacts the rate of return on the overallinvestment.
http://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.htmlhttp://www.economywatch.com/investment/portfolio-analysis.html


26/86

26

MUTUAL FUNDS

INTRODUCTION:Nowadays, bank rates have fallen down and are generally below the inflation rate.

Therefore, keeping large amounts of money in bank is not a wise option, as in real

terms the value of money decreases over a period of time. One of the options is to

invest the money in stock market. But a common investor is not informed and

competent enough to understand the intricacies of stock market. This is where

mutual funds come to the rescue. Mutual Fund is an instrument of investing

money.

A mutual fund is a group of investors operating through a fund manager to purchase

a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and

very easy to invest in. By pooling money together in a mutual fund, investors can

purchase stocks or bonds with much lower trading costs than if they tried to do it on

their own. Also, one doesn't have to figure out which stocks or bonds to buy. Butthe biggest advantage of mutual funds is diversification.

Diversification means spreading out money across many different types of

investments. When one investment is down another might be up. Diversification of

investment holdings reduces the risk tremendously.

Different investment avenues are available to investors. Mutual funds also offergood investment opportunities to the investors. Like all investments, they also carry

certain risks. The investors should compare the risks and expected yields after

adjustment of tax on various instruments while taking investment decisions. The

investors may seek advice from experts and consultants including agents and

distributors of mutual funds schemes while making investment decisions.


27/86

27

THE DEFINITION:

A mutual fund is nothing more than a collection of stocks and/or bonds. You

can think of a mutual fund as a company that brings together a group of people

and invests their money in stocks, bonds, and other securities. Each investor

owns shares, which represent a portion of the holdings of the fund.

You can make money from a mutual fund in three ways:

1) Income is earned from dividends on stocks and interest on bonds. A fund pays

out nearly all of the income it receives over the year to fund owners in the form of a

distribution.

2) If the fund sells securities that have increased in price, the fund has a capital

gain. Most funds also pass on these gains to investors in a distribution.

3) If fund holdings increase in price but are not sold by the fund manager, the fund's

shares increase in price. You can then sell your mutual fund shares for a profit.

Funds will also usually give you a choice either to receive a check for distributions

or to reinvest the earnings and get more shares.


28/86

28

MUTUAL FUNDS: CONCEPT:

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

capital market instruments such as shares, debentures and other securities. The

income earned through these investments and the capital appreciation realized is

shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket

of securities at a relatively low cost.

MUTUAL FUND CYCLE:

The flow chart below describes broadly the working of a mutual fund:


29/86

29

Mutual fund is a mechanism for pooling the resources by issuing units to the

investors and investing funds in securities in accordance with objectives as

disclosed in offer document.

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

and sectors and thus the risk is reduced. Investors of mutual funds are known as

unit holders.

The profits or losses are shared by the investors in proportion to their

investments. The mutual funds normally come out with a number of schemes

with different investment objectives which are launched from time to time. A

mutual fund is required to be registered with Securities and Exchange Board ofIndia (SEBI) which regulates securities markets before it can collect funds from

the public.


30/86

30

HISTORY OF MUTUAL FUND IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of

India, at the initiative of the Reserve Bank & Government of India. The objective then

was to attract the small investors and introduce them to market investments. Since then,

The history of mutual fund in India can be broadly divided in to six distinct phases.

PHASE 11964- 1987: GROWTH OF UNIT TRUST OF INDIA

In 1963, UTI was established by an Act of Parliament. As it was the only entity

offering mutual funds in India, it was monopoly. Operationally, UTI was set up by the

Reserve Bank of India, but was later de-linked from the RBI. The first scheme and for

long one of the largest number of investors in any single investment scheme. It was

also at least partially the first open end scheme in the country.

PHASE-21987- 1993: ENTRY OF PUBLIC SECTOR FUNDS

1987 marked the entry of public sector mutual funds. With the opening of the economy,

many public sector banks financial institutions were allowed to establish mutual fund.

State Bank of India established the first non-UTI mutual. Fund- SBI mutual fund in

Nov 1987. this was followed by can bank Mutual fund , LIC Mutual Fund, Indian Bank

Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund & PNB Mutual Fund.

These funds helped in enlarging the investor community & investible funds. From

1987-88 to 1992-93, the assets under management increased from Rs. 6700 cr. To Rs.

47004 Cr. nearly seven times.

During this period, investor showed a marked interest in mutual funds, allocating a

larger part of their savings to investment in the funds. UTI was still the largest segment

of the industry, with about 80% market share.


31/86

31

PHASE 3 -1993-96: EMERGENCE OF PRIVATE FUNDS

A new era in the mutual fund industry began in 1993 with the permission granted for

the entry of private sector funds. This gave the Indian investors a broader choice offund families and increasing competition to the existing public sector funds. Quite

significantly, foreign fund management companies were also allowed to operate mutual

funds, most of them coming into India through their joint ventures with Indian

promoters. These private funds have brought in with them the latest product

innovations, investment management techniques and investor-servicing technology that

make the Indian mutual fund industry today a vibrant and growing financial

intermediary.

PHASE-4 1996-99: GROWTH AND SEBI REGULATION

Since 1996, the mutual fund industry in India saw tighter regulation and higher growth.

It scaled new heights in terms of mobilization of funds & no. of players. Deregulation

& liberalization of Indian economy had introduce competition provide impetus to the

growth of the industry. Finally most investors small or large started showing interest inmutual funds.


32/86

32

PHASE 5 -1999-2004: EMERGENCE OF LARGE & UNIFORM

INDUSTRY

The major development in the fund industry has been the creation of a level playingfield for all mutual funds operating in India. This happened in February 2003, when the

UTI Act was repealed. UTI has no longer legal status as a trust established by Act of

Parliament. Instead, it has also adopted the same structure as any other fund in India- a

Trust and an Asset Management Company. UTI Mutual Fund is present name of the

erstwhile Unit trust of India. While UTI functioned under separate law of Indian

Parliament earlier, UTI Mutual Fund is now under the SEBIs Regulation, 1996 like all

other Mutual Funds in India. UTI Mutual Fund is still the largest player in the Indian

fund industry. All SEBI compliant schemes of the erstwhile UTI are under its charge.

All new schemes offered by UTI Mutual Fund are SEBI approved. Other schemes of

erstwhile UTI have been paced with a special undertaking administered by the

Government of India. These schemes are being gradually wound up.

Phase 6 -From 2004 Onwards: Consolidation & Growth

The industry has lately witnessed a spate of mergers & acquisitions, most recent ones

being the acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C

Mutual Fund by Principal & PNB Mutual Fund by Principal. At the same time, more

international players continue to enter India, Including Fidelity, one of the largest fund

in world. The stage is set now for growth through consolidation and entry of new

international and private sector players. At the end of March 2006, there were 29

Funds.


33/86

33

ORGANISATION OF MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees,

Asset Management Company (AMC) and custodian. The trust is established by

a sponsor or more than one sponsor who is like promoter of a company. Thetrustees of the mutual fund hold its property for the benefit of the unit holders.

Asset Management Company (AMC) approved by SEBI manages the funds by

making investments in various types of securities. Custodian, who is registered

with SEBI, holds the securities of various schemes of the fund in its custody.

The trustees are vested with the general power of superintendence and direction

over AMC. They monitor the performance and compliance of SEBI Regulations

by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee

company or board of trustees must be independent i.e. they should not be

associated with the sponsors. Also, 50% of the directors of AMC must be

independent. All mutual funds are required to be registered with SEBI before

they launch any scheme. However, Unit Trust of India (UTI) is not registered

with SEBI (as on January 15, 2002).


34/86

34

Mutual Fund Custodian:

A trust company, bank or similar financial institution responsible for holding

and safeguarding the securities owned within a mutual fund. A mutual fund's

custodian may also act as the mutual funds transfer agent, maintaining records

of shareholder transactions and balances. Also refers to as a "mutual fund

corporation".

Since a mutual fund is essentially a large pool of funds from many different

investors, it requires a third-party custodian to hold and safeguard the securities

that are mutually owned by all the fund's investors. This structure mitigates the

risk of dishonest activity by separating the fund managers from the physical

securities and investor records.

Sponsor:Sponsor is the person who acting alone or in combination with another body

corporate establishes a mutual fund. Sponsor must contribute atleast 40% of the

net worth of the Investment Managed and meet the eligibility criteria prescribed

under the Securities and Exchange Board of India (Mutual Funds) Regulations,

1996.The Sponsor is not responsible or liable for any loss or shortfall resulting

from the operation of the Schemes beyond the initial contribution made by it

towards setting up of the Mutual Fund.

Trust:

The 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.


35/86

35

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 interest

of 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 Documents of the respective Schemes.

Asset 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. The AMC must have a net worth of at least 10 crore at all times.

Registrar and Transfer Agent :The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer

Agent to the Mutual Fund. The Registrar processes the application form,redemption requests and dispatches account statements to the unit holders. The

Registrar and Transfer agent also handles communications with investors and

updates investor records.


36/86

36

ADVANTAGES OF MUTUAL FUND:

If mutual fund is emerging as the favorite investment vehicle, it is because of the

many advantages it has over other forms and avenues of investing, particularly

for the investor who has limited resources available in terms of capital and

ability to carry out detailed research and market monitoring. The following are

the major advantages offered by mutual funds to all investors:

1. Professional Management: Even if the investor has a big amount of capitalavailable to him, he benefits from the professional management skills brought

in by the fund in the management of the investors portfolio. The investment

skills, along with the needed research into available investment options, ensure

a much better return than what an investor can manage on his own. Few

investors have the skills and resources of their own to succeed in todays fast -

moving, global and sophisticated markets.

2. Reduction/Diversification of Risk: An investor in a mutual fund acquires adiversified portfolio, no matter how small his investment. Diversification

reduces the risk of loss, as compared to investing directly in one or two shares

or debentures or other instruments. When an investor invests directly, all the

risk of potential loss is his own. While investing in the pool of funds with other

investors, any loss in one or two securities is also shared by other investors.

This risk reduction is one of the most important benefits of a collective

investment vehicle like mutual fund.


37/86

37

3. Reduction in Transaction Costs: What is true of risk is also true of thetransaction costs. A direct investor bears all the costs of investing such as

brokerage or custody of securities. When going through a fund, he has the

benefit of economies of scale; the funds pay lesser costs because of larger

benefits passed on to its investors.

4. Liquidity: Often investors hold shares or bonds they cannot directly, easily andquickly sell. Investment in mutual fund, on the other hand, is more liquid. An

investor can liquidate the investment by selling the units to the fund if it is an

open-ended fund, or by selling the units in the stock market if the fund is a

closed-ended fund, since closed-end funds have to be listed on a stock

exchange, in any case, the investor in a closed-ended fund receives the sale

proceeds at the end of a period specified by the mutual fund or the stock

exchange.

5. Flexibility: Mutual fund management companies offer many investor servicesthat a direct market investor cannot get. Within the same fund family, investors

can easily transfer/switch their holdings from one scheme to another. They can

also invest or withdraw their money as regular investors in most open-ended

schemes.

6. Convenience: Mutual fund investment process has been made further moreconvenient with the facility offered by funds for investors to buy or sell their

units through the internet or email or using other communication means.

7. Regulated Operations: Mutual fund industry is well regulated; all funds areregistered with SEBI, which lays down rules to protect the investors. Thus,

investors also benefit from the safety of a regulated investment environment.

8. Higher Returns: As these funds are well managed and well diversified, theytend to perform better than market over longer period of time; there is potential

for the unit holders to get better returns compared to fixed income avenues over

longer period of time.

9. Tax Benefits: Mutual funds enjoy tax benefits on the incomes received by themas well as on capital gains. The unit holders also enjoy certain tax benefit on the

income earned, the capital gains made, and on amount invested in certain types

of funds.


38/86

38

DISADVANTAGES OF INVESTING IN MUTUAL FUND:

While the benefits of investing through mutual funds far outweigh the

disadvantages, an investor and his advisor will do well to be aware of a few

shortcomings of using the mutual fund as an investment vehicle.

1. No Control over Costs: An investor in a mutual fund has any control over theoverall 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 usually payable as a percentage of the value of his

investments, whether the fund value is rising or declining. A mutual fund

investor also pays fund distribution cost, which he would not incur in direct

investing. However, this shortcoming only means that there is a cost to obtainthe benefits of mutual fund services, and this cost is often less than the cost of

direct investing by the investors. Besides, the regulators have prescribed a

ceiling on the maximum expenses that the fund managers can charge to the

schemes, thus limiting the investors expense of investing through mutual

funds.

2. No Tailor-made Portfolios: Investors who invest on their own can build theirown portfolios of shares, bonds and other securities. Investing through funds

means that he delegates this decision to the fund managers. High-net-worth

individuals or large corporate investors may find this to be a constraint in

achieving their objectives. However, most mutual funds help investor overcome

this constraint by offering families of schemes a large number of different

schemes within the same fund. In each schemes there are various plans and

options. An investor can choose from different investment

schemes/plans/options and construct an investment portfolio that meets his

investment objectives.

3. Managing a Portfolio of Funds: Availability of a large number of optionsfrom mutual 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 shares or bonds to invest

in. Fortunately, India now has a large number of AMFI registered and tested

fund distributors and financial planners who are capable of guiding the

investors.


39/86

39


40/86

40

THE IMPORTANCE OF DIVERSIFICATION:

We cannot overemphasize the importance of having a well balanced and

diversified mutual fund portfolio. But what does this exactly mean? A total

investment of between $5000 and $6000 could make your portfolio fairly

diversified. Even the mutual funds themselves can be diversified in a variety of

investments. The mutual funds that are better diversified tend to do better than

the non-diversified funds. The same is true with your overall portfolio. In short,

diversification provides insurance.


41/86

41

PORTFOLIO - TOP 10 HOLDINGs

COMPANY % TO NAV

EQUITY & EQUITY RELATED

Banks 6.22

Consumer Non-Durables 6.01

Software 5.74

Industrial Goods 5.52

Pharmaceuticals 5.23

Oil 5.14

Petroleum Products 4.77

Media & Entertainment 4.18

Auto Ancillaries 3.93

Fertilisers 3.89

TOTAL TOP-10 EQUITY HOLDINGS 50.63

Gas 3.54

Chemicals 3.09

Construction PROJECT 2.68

Power 2.06

Paper PRODUCT 0.97

Ferrous Metals 0.81

Telecom Services 0.68

Industrial Products 0.66

Engineering 0.42

Finance 0.35

TOTAL EQUITY & EQUITY RELATED HOLDINGS 96.08

Short Term Deposits as margin for Futures & Options 0.78

Cash Margin 0.08

Other Cash, Cash Equivalents and Net Current Assets 3.06

GRAND TOTAL 100

Net Assets (Rs. In Lakhs) 1,27,541.18

INTERPRETATION- The above table shows the allocation of funds collected by afund manager in different sectors at different %. Here 50% of funds are invested in Top

10 holdings, so that the risk is minimized and returns are obviously high and the

remaining amount is invested in other sectors as required to get the best returns on time

according to the set of investments.


42/86

42

PERFORMANCE OF VARIOUS FUNDS TILL 2010

DATE PERIOD NAV/UNIT(Rs) RETURNS-%

Sept

30'09

Last 6

Months 68.47 8.82

Mar

31'09 1 Year 38.73 92.38

Mar

30'07 3 Year 45.46 17.87

Mar

31'05 5 Year 24.17 25.24

sept

11'00 Inception 10 23.39

INTERPRETATION- Above graph shows that the NAV on September 2000 was Rs

10 per unit and the return rate was 23.39% it has been increasing yearly with a

continuous growth and till Sept 09 it has reached to 68.47 Rs per unit and return rate

shows a constant growth for last 10 years.


43/86

43


Sept

30'09

Last 6

Months 211.82 11.54

Mar31'09 1 Year 108.85 117.06

Mar

30'07 3 Year 142.6 18.29

Mar

31'05 5 Year 66.83 28.71

Mar

31'00 10 Year 24.89 25.22

Jan

01'95 Inception 10 23.04

INTERPRETATION- As HDFC provides effective results investments in Equity has

increased since Jan01 1995 to Sept 30 2009.


44/86

44


Sept

30'09

Last 6

Months 171.76 6.96

Mar31'09 1 Year 92.55 98.51

Mar

30'07 3 Year 104.5 20.65

Mar

31'05 5 Year 52.3 28.55

Mar

31'00 10 Year 21.55 23.89

Oct

11'96 Inception 10 25.95

INTERPRETATION- FromOct 11 1996 to Sept 30 2009 HDFCs TOP 200

FUND has given effective performance.


45/86

45


Sept 30'09

Last 6

Months 143.33 1.61

Mar 31'09 1 Year 82.68 76.16

Mar 30'07 3 Year 120.32 6.56

Mar 31'05 5 Year 61.5 18.81

July 17'02 Inception 32.16 21.64

INTERPRETATION- As hdfc implements effective portfolio management strategies

and efficient research techniques, it has succeded in increasing its NAV in case of

Index funds also.


46/86

46


Sept

30'09

Last 6

Months 23.25 4.72

Mar31'09 1 Year 11.99 87.95

Mar

30'07 3 Year 17.63 11.08

April

06'05 Inception 10 19.06

INTERPRETATION- As HDFC ltd. provides effective services to its customers,

there is a rise in 2007-09 in its customers and multi cap funds gave a record NAV in

mutual funds.


47/86

47


Sept

30'09

Last 6

Months 41.44 13.89

Mar

31'09 1 Year 25.93 81.96Mar

30'07 3 Year 29.18 17.35

Mar

31'05 5 Year 19.96 18.76

Sept

11'00 Inception 10 17.63

INTERPRETATION- HDFC balanced funds has constantly shown significant returns

throughout September 2000 to September 2009.


48/86

48


Sept

30'09

Last 6

Months 161.18 12.95

Mar31'09 1 Year 91.47 99.02

Mar

30'07 3 Year 110.13 18.2

Mar

31'05 5 Year 59.26 23.15

Mar

31'00 10 Year 20.54 24.37

Feb

01'94 Inception 10 21.57

INTERPRETATION- From Feb. 01 94 till Sept 30 09 prudence fund has given

stable returns which shows minimum risk and its useful for customers which propose

minimum risk and constant returns.


49/86

49


Sept30'09

Last 6Months 183.3 12.21

Mar

31'09 1 Year 97.06 111.9

Mar

30'07 3 Year 133.88 15.36

Mar

31'05 5 Year 67.55 24.93

Mar

31'00 10 Year 41.56 23.57

Mar

31'96 Inception 10 32.57

INTERPRETATION- As the above analysis gives the clear idea that most of the

Investors prefer Tax saver fund of hdfc due to tax saving factor benefit provided by

hdfc mutual fund investments has good results over other investments.


50/86

50


Sept 29'09 Last 6 Months 30.3 2.83

Mar 31'09 1 Year 29.21 6.67

Mar 30'07 3 Year 24.31 8.6

Mar 31'05 5 Year 32.14 6.13

Mar 31'00 10 Year 14.34 8.07

April 28'97 Inception 10 9.19

INTERPRETATION- Investments in high interest funds have increased at a rapid

pace because of hdfcs strategies of allocation of funds in AAA rated sectors like banks

and other industries, it helps in getting high interest.


51/86

51

FREQUENTLY USED TERMS:

AMCA Company formed under the Companies Act and registered with SEBI to

manage investors funds collected through different schemes. The trustee

delegates the task of floating schemes and managing the collected money to a

company of professionals, usually experts who are known for smart stock picks.

This is an Asset Management Company (AMC). AMC charges a fee for the

services it renders to the MF trust. Thus, the AMC acts as the investment

manager of the trust under the broad supervision and direction of the trustees.

UnitA unit in a mutual fund scheme means one share in the assets of a particular

scheme. So, a person holding units in a scheme is referred to, as a unit holder.

Net Asset Value (NAV)The performance of a particular scheme of a Mutual Fund is denoted by Net

Asset Value (NAV). Mutual Funds invest the money collected from the

investors in securities markets. In simple words, NAV is the market value of the

securities held by the scheme. Since market value of the securities changes

every day, NAV of a scheme also varies on a day-to-day basis. The NAV per

unit is the market value of the securities of a scheme divided by the total

number of units of the scheme on any particular date. For e.g., if the market

value of securities of a mutual fund scheme is Rs. 300 lakhs and the mutual

fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per

unit of the fund is Rs. 30. NAV is required to be disclosed by the mutual funds

on a regular basis-daily or weekly-depending on the type of scheme.

Sale PriceIt is the price you pay when you invest in a scheme. It is also called as Offer

Price. It may include a Sales or Entry Load.


52/86

52

Repurchase PriceIt is the price at which an investor sells back the units to the Mutual Fund. This

price is NAV related and may include the exit load. When an investor chooses

to withdraw money from his investment in an open-ended fund at any point of

time, the units are sold at NAV (after deduction of the Exit Load, if any) to the

fund. When a close-ended fund completes tenure, it is redeemed at the

prevailing NAV and investors are paid the proceeds thereof. It is also called as

Bid Price.

Redemption PriceIt is the price at which open-ended schemes repurchase their units and close-

ended schemes redeem their units on maturity. Such prices are NAV related.

Statement of AccountA Statement of Account is a document that serves as a record of transactionsbetween the fund and the investor. It contains details of the investor with the

various transactions executed during he period, i.e., sales, repurchase, switch-

over in, switch-over out. The Statement of Account is issued every time any

transaction takes place.


53/86

53

LOAD AND TYPES OF LOAD:Load is a charge collected by a mutual fund on units.

It is of three types.

Entry Load: When a charge is collected at the time of entering into a scheme itis called as entry load or front end load or sales load. The entry load percentage

is added to the NA at the time of allotment of units.

Exit Load: An Exit load or Back-end load or repurchase load is a charge that iscollected at the time of redeeming or for transfer between schemes. (Switch).

The exit load percentage is deducted from the NAV at the time of redemption or

transfer between schemes.

Contingent Deferred Sales Load (CDSL): The load amounts charged to unitswhen recovered at various period of time is called as deferred load. This load

reduces the redemption proceeds paid out to the outgoing investors. Depending

on how many years the investor stays with the fund, some funds may charge

different mounts of loads to the investor- the longer the investor stays with the

fund, lesser is the amount of exit load charged to him. This is called Contingent

the Deferred Sales Charge (CDSC) and Contingent Deferred Sales Load

(CDSL).


54/86

54

Equity Funds:

Funds that invest in stocks represent the largest category of mutual funds. Generally,the investment objective of this class of funds is long-term capital growth with someincome. There are, however, many different types of equity funds because there are

many different types of equities. A great way to understand the universe of equity fundsis to use a style box, an example of which is below.

The idea is to classify funds based on both the size of the companies invested in and theinvestment style of the manager. The term value refers to a style of investing that looksfor high quality companies that are out of favor with the market. These companies arecharacterized by low P/E and price-to-book ratios and high dividend yields. Theopposite of value is growth, which refers to companies that have had (and are expected

to continue to have) strong growth in earnings, sales and cash flow. A compromisebetween value and growth is blend, which simply refers to companies that are neithervalue nor growth stocks and are classified as being somewhere in the middle.

For example, a mutual fund that invests in large-cap companies that are in strongfinancial shape but have recently seen their share prices fall would be placed in theupper left quadrant of the style box (large and value). The opposite of this would be afund that invests in startup technology companies with excellent growth prospects.Such a mutual fund would reside in the bottom right quadrant (small and growth).
http://www.investopedia.com/terms/s/stylebox.asphttp://www.investopedia.com/terms/s/stylebox.asp


55/86

55

MUTUAL FUND PORTFOLIO CONSTRUCTION

Steps One - Identify your investment needs.Your financial goals will vary, based on your age, lifestyle, financial

independence, family commitments, level of income and expenses among many

other factors. Therefore, the first step is to assess your needs. Begin by asking

yourself these questions:

1. What are my investment objectives and needs?Probable Answers: I need regular income or need to buy a home or finance a

wedding or educate my children or a combination of all these needs.

2. How much risk I am willing to take?Probable Answers: I can only take a minimum amount of risk or I am willing to

accept the fact that my investment value may fluctuate or that there may be a

short-term loss in order to achieve a long-term potential gain.

3. What are my cash flow requirements?Probable Answers: I need a regular cash flow or I need a lump sum amount to

meet a specific need after a certain period or I don't require a current cash flow

but I want to build my assets for the future.

By going through such an exercise, you will know what you want out of your

investment and can set the foundation for a sound Mutual Fund investment

strategy.


56/86

56

Step Two - Choose the right Mutual Fund.Once you have a clear strategy in mind, you have to choose which Mutual Fund

and scheme you want to invest in. The offer document of the scheme tells you

its objectives and provides supplementary details like the track record of other

schemes managed by the same Fund Manager. Some factors to evaluate before

choosing a particular Mutual Fund are:

1) The track record of performance over the last few years in relation to theappropriate yardstick and similar funds in the same category.

2) How well the Mutual Fund is organized to provide efficient, prompt andpersonalized service.

3) Degree of transparency as reflected in frequency and quality of theircommunications.

Step Three - Select the ideal mix of Schemes.Investing in just one Mutual Fund scheme may not meet all your investment

needs. You may consider investing in a combination of schemes to achieve your

specific goals.

The following tables could prove useful in selecting a combination of schemes

that satisfy your needs.


57/86

57

AGGRESSIVE PLAN

Money Market Schemes 5 %

Income Schemes 10-15%

Balanced Schemes 10-20 %

Growth Schemes 60-70 %

MODERATE PLAN


Income Schemes 20 %


Growth Schemes 30-40 %

CONSERVATIVE PLAN


Income Schemes 50-60 %


Growth Schemes 10 %


58/86

58

Step Four - Invest regularlyFor most of us, the approach that works best is to invest a fixed amount at

specific intervals, say every month. By investing a fixed sum every month, you

buy fewer units when the price is higher and more units when the price is low,

thus bringing down your average cost per unit. This is called rupee cost

averaging and is a disciplined investment strategy followed by investors all over

the world. With many open-ended schemes offering systematic investment

plans, this regular investing habit is made easy for you.

Step Five- Keep your taxes in mindIf you are in a high tax bracket and have utilized fully the exemptions under

section 80L of the Income Tax Act, investing in growth funds that do not pay

dividends might be more tax efficient and improve your post-tax return.

If you are in a low tax bracket and have not utilized fully the exemptions

available under Section 80L of the Income Tax Act, selecting funds paying

regular income could be more tax efficient. Further, there are other benefits

available for investment in Mutual Funds under the provisions of the prevailing

tax laws.

You may therefore, consult your tax advisor or Chartered Accountant for specific

advice.

Step Six - Start earlyIt is desirable to start investing early and stick to a regular investment plan. If

you start now, you will make more than if you wait and invest later. The power

of compounding lets you earn income on income and your money multiplies at

the compounded rate of return.

Step Seven - The final stepAll you need to do now is to get a touch with a Mutual Fund or your

agent/broker and start investing. Reap the rewards in the years to come. Mutual

Funds are suitable for every kind of investor - whether starting a career or

retiring, conservative or risk-taking, growth oriented or income seeking.


59/86

59

Mutual Fund Risk: Risk

Every type of investment, including mutual funds, involves risk. Risk refers to

the possibility that you will lose money (both principal and any earnings) or fail

to make money on an investment. A fund's investment objective and its

holdings are influential factors in determining how risky a fund is. Reading the

prospectus will help you to understand the risk associated with that particular

fund.

Generally speaking, risk and potential return are related. This is the risk/returntrade-off. Higher risks are usually taken with the expectation of higher returns

at the cost of increased volatility. While a fund with higher risk has the

potential for higher return, it also has the greater potential for losses or negative

returns. The school of thought when investing in mutual funds suggests that the

longer your investment time horizon is the less affected you should be by short-

term volatility. Therefore, the shorter your investment time horizon, the more

concerned you should be with short-term volatility and higher risk.

Following is a glossary of some risks to consider when investing in mutual

funds.

Call Risk: - The possibility that falling interest rates will cause a bond issuer toredeemor callits high-yielding bond before the bond's maturity date.

Country Risk: - The possibility that political events (a war, national elections),financial problems (rising inflation, government default), or natural disasters (an

earthquake, a poor harvest) will weaken a country's economy and cause

investments in that country to decline.


60/86

60

Credit Risk: - The possibility that a bond issuer will fail to repay interest andprincipal in a timely manner. Also called default risk.

Currency Risk: - The possibility that returns could be reduced for Americansinvesting in foreign securities because of a rise in the value of the U.S. dollar

against foreign currencies. Also called exchange-rate risk.

Income Risk: - The possibility that a fixed-income fund's dividends will declineas a result of falling overall interest rates.

Industry Risk: - The possibility that a group of stocks in a single industry willdecline in price due to developments in that industry.

Inflation Risk: - The possibility that increases in the cost of living will reduceor eliminate a fund's real inflation-adjusted returns.

Interest Rate Risk: - The possibility that a bond fund will decline in valuebecause of an increase in interest rates.

Manager Risk: - The possibility that an actively managed mutual fund'sinvestment adviser will fail to execute the fund's investment strategy effectively

resulting in the failure of stated objectives.

Market Risk: - The possibility that stock fund or bond fund prices overall willdecline 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.

Principal Risk: - The possibility that an investment will go down in value, or"lose money," from the original or invested amount.


61/86

61

How do mutual funds earn money?

A mutual fund is a means of investing that enables individuals to share the risks

of investing with other investors. All contributors to the fund experience an

equal share of gains and losses for each dollar invested. A mutual fund owns the

securities of several corporations. A mutual fund pools money from hundreds

and thousands of investors to construct a portfolio of stocks, bonds, real estate,

or other securities, according to the kind of investments the mutual fund trades.

Investors purchase shares in the mutual fund as if it was an individual security.

Fund managers hired by the mutual fund company are paid to invest the money

that the investors have placed in the fund. Heeding the adage "Don't put all youreggs in one basket", the holders of mutual fund shares are able to gain the

advantage of diversification which might be beyond their financial means

individually.


62/86

62

STRUCTURE OF MUTUAL FUNDS IN INDIA

Like other countries, India has a legal framework within which mutual

funds must be constituted. Unlike in the UK, where two distinct structures-

trust and corporate- are allowed with separate regulations, depending on

their nature- open end or closed end, in India, open end and closed end funds

are constituted along one unique structure- as unit trusts. A mutual fund in India

is allowed to issue open-end and closed-end schemes under a common legal

structure. Therefore, a mutual fund may have several different schemes (open

and closed-end) under it i.e.; under one unit trust, at any point of time.

However, like the USA; all the funds and their open end and closed end

schemes are governed by the same regulations and the regulatory body, the

SEBI. The structure that is required to be followed by mutual fund in India is

laid down under SEBI (mutual fund) Regulations, 1996.

Some facts of the growth of mutual funds in India 100% growth in the last 6 years. Numbers of foreign AMCs are in the queue to enter the Indian markets like

Fidelity Investments, US based, with over US$1trillion assets under

management worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing thesesavings in mutual funds sector is required.

We have approximately 29 mutual funds which are much less than US havingmore than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds areconcentrating on the 'A' class cities. Soon they will find scope in the growing

cities.


63/86

63

Mutual fund can penetrate rural areas like the Indian insurance industry withsimple and limited products.

SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.


64/86

64

Performance of Mutual Fund Industry from 1965 To 2008

The number of Indians putting their money on mutual fund investments is steadily

increasing. More and more people are being lured by the prospect of handsome profits

that investments in mutual funds carry for the investors. In recent years, many mutual

fund companies have sprung up in India. Now the investors have lots of mutual fund


65/86

65

FUTURE OF MUTUAL FUNDS IN INDIA:By December 2004, Indian mutual fund industry reached Rs.1, 50,537 crore. It

is estimated that by 2010 March-end, the total assets of all scheduled

commercial banks should be Rs. 40, 90,000 crore. The annual composite rate of

growth is expected 13.4% during the rest of the decade. In the last 5 years we

have seen annual growth rate of 9%. According to the current growth rate, by

year 2010, mutual fund assets will be double.

In the Indian economy Mutual funds have grown faster than any other

investment instrument.

The table show net capitalization in Mutual fund sector during 2004 to

2009.

Year UTI Bank-

sponsored

mutual

funds

FI-

sponsored

mutual

funds

Private

sector

mutual

funds

Total

2004-05 -9434.1 1033.4 861.5 12122.2 4583.0

2005-06 1049.9 4526.2 786.8 41509.8 47872.7

2006-07 -2467.2 706.5 -3383.5 7933.1 2788.9

2007-08 3423.8 5364.9 2111.9 41581 52481.6

2008-09 7326.1 3032.0 4226.1 76687 91271.2

NET RESOURCES MOBILISED BY MUTUAL FUNDS 2004 to 2009


66/86

66

REASONS FOR SLOW GROWTH OF MUTUAL FUNDS IN INDIA:

1. Social Fabric: Indian society is represented by skewed income patterns.Rural India is far from investible surplus. Whatever surplus a rural native

may have, he is not well informed about investible avenues and mutual

funds. Most of the residents of rural area are unaware of stock market and

economics. Mutual funds awareness has a long way to go.

2. Government Players: Private sector entities are aggressive in marketingand reach more people with efforts. Indian mutual fund industry was with

UTI and then with public sector funds. It is a well known worldwide fact

that government owned entities lack in profit orientation because of

excessive job security provided to the employees and ownerships [i.e.

governments] profit motive absence. Management of these state owned

funds mostly vested with these ex-bank managers and government account

officials. They came on transfers or on deputation from the sponsor banks.

They did not have adequate specialized skills to manage funds. Their

performance was dismal in most cases and the industry faced investor

confidence crises for some years. UTIs US-64 burst also added to the fears.3. Protected Stock Market Environment: Indian stock market was protected

for several years. Reach and visibility was much less to attract visitors.

Physical shares, manual trust based systems, absence of foreign capital

flows, a scam per decade are some more reasons for investors slow and

cautious approach towards stock related [including mutual funds]

investments.

4. Regulatory Environment: It improved slowly over the years and is nowattracting more investors. Slow growth is comparative. Compared to

developed countries. Per se India has progressed well. More than organic

growth in mutual funds industry is witnessed. No specific blames to be

attributed to either government players or regulators. In fact every entity has

added to the progress.


67/86

67

Research Methodology

WHAT IS RESEARCH?

Research can be defined as the search for knowledge or as any systematicinvestigation to establish facts. The primary purpose forapplied research(as opposed to

basic research) isdiscovering,interpreting, and thedevelopmentof methods and

systems for the advancement of humanknowledgeon a wide variety ofscientific

mattersof our world and the universe. Research can use thescientific method, but need

not do so

TYPES OF RESEARCH---

Generally, research is understood to follow a certain structuralprocess. Though steporder may vary depending on the subject matter and researcher, the following steps areusually part of most formal research, both basic and applied:

Formation of the topic Hypothesis Conceptual definitions Operational definition Gathering ofdata Analysis of data Test, revising of hypothesis Conclusion, iteration if necessary

Research can also fall into two distinct types:

Primary research(collection of data that does not already exist) Secondary research(summary, collation and/or synthesis of existing research)

In social sciences and later in other disciplines, the following two research methods canbe applied, depending on the properties of the subject matter and on the objective of the

research:

Qualitative research(understanding of human behavior and the reasons that governsuch behavior)

Quantitative research(systematic empirical investigation of quantitative propertiesand phenomena and their relationships)

Research is often conducted using the hourglass model Structure of Research [1]. Thehourglass model starts with a broad spectrum for research, focusing in on the requiredinformation through the methodology of the project (like the neck of the hourglass),then expands the research in the form of discussion and results.
http://en.wikipedia.org/wiki/Applied_researchhttp://en.wikipedia.org/wiki/Applied_researchhttp://en.wikipedia.org/wiki/Applied_researchhttp://en.wikipedia.org/wiki/Basic_researchhttp://en.wikipedia.org/wiki/Basic_researchhttp://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Hypothesishttp://en.wikipedia.org/wiki/Hypothesishttp://en.wikipedia.org/wiki/Conceptual_definitionhttp://en.wikipedia.org/wiki/Conceptual_definitionhttp://en.wikipedia.org/wiki/Operational_definitionhttp://en.wikipedia.org/wiki/Operational_definitionhttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Primary_researchhttp://en.wikipedia.org/wiki/Primary_researchhttp://en.wikipedia.org/wiki/Secondary_researchhttp://en.wikipedia.org/wiki/Secondary_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Quantitative_researchhttp://en.wikipedia.org/wiki/Quantitative_researchhttp://en.wikipedia.org/wiki/Quantitative_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Secondary_researchhttp://en.wikipedia.org/wiki/Primary_researchhttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Operational_definitionhttp://en.wikipedia.org/wiki/Conceptual_definitionhttp://en.wikipedia.org/wiki/Hypothesishttp://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Basic_researchhttp://en.wikipedia.org/wiki/Applied_research


68/86

68

DIFFERENT SOURCES & METHODS OF DATA COLLECTION--

Sources of data collection

2.1Primary Data

This data is generated specifically for the purpose of working out the project. This data

means the first hand information, which is collected various sources schedules and

formally informal information.

1) Information relating to the project was collected during formal & informal

discussions with the Branch Head.

2) Queries arising in due course of the project brought into the notice of concerned

Authority and necessary explanation and solution are adapted.

2.2 Secondary Data

Data used in the comparative study is secondary data. In other word comparative study

is based on secondary data. Data is collected from Factsheet other required

information through internet.

Factsheet:

It is the monthly report of all schemes of Mutual Fund Company. It involves data

like Investment Performance, Portfolio & Asset Allocation, Investment Objectives,

Entry & Exit Load, AUM and much important information.


69/86

69

2.3 Population

HDFC MUTUAL FUND AURANGABAD Branch has one Branch Head, one

operation consultant regarding the various schemes, two peons and twenty distributors

who work for HDFC across the city having about Crores of investments.

Data Collection

1. MARKET SHARE OF HDFC MUTUAL FUND & OTHER PLAYERS IN

THE INDUSTRY FOR THE YEAR 2009.


70/86

70

Market Share of Mutual Fund companies in

India

0%

0%

0%

0%

9%

1%

0%

2%

3%

0%

0%

1%

1%

4%

11%

2%

10%

2%

1%

1%

0%

3%

4%

1%

0%

0%

2%

0%

16%

0%

6%

2%

4%

0% 10%

AIG Global Investment Group Mutual Fund Baroda Pioneer Mutual Fund

Benchmark Mutual Fund Bharti AXA Mutual Fund

Birla Sun Life Mutual Fund Canara Robeco Mutual Fund

DBS Chola Mutual Fund Deutsche Mutual Fund

DSP BlackRock Mutual Fund Edelweiss Mutual Fund

Escorts Mutual Fund Fidelity Mutual Fund

Fortis Mutual Fund Franklin Templaton Mutual Fund

HDFC Mutual Fund HSBC Mutual Fund

ICICI Prudential Mutual Fund IDFC Mutual Fund

ING Mutual Fund JM Financial Mutual Fund

JPMorgan Mutual Fund Kotak Mahindra Mutual Fund

LIC Mutual Fund Lotus India Mutual Fund

Mirae Asset Mutual Fund Morgan Stanley Mutual Fund

Principal Mutual Fund Quantum Mutual Fund

Reliance Mutual Fund Sahara Mutual Fund

SBI Mutual Fund Sundaram BNP Paribas Mutual Fund

Tata Mutual Fund Taurus Mutual Fund

UTI Mutual Fund


71/86

71

LIMITATIONS OF THE STUDY

So though the study aims to achieve the above mentioned Objective in full earnest and

accuracy, it may be hampered due to certain limitation. Some of the limitations are as

follows: