Alekhya Sip Reportfinalll

8/6/2019 Alekhya Sip Reportfinalll

http://slidepdf.com/reader/full/alekhya-sip-reportfinalll 1/80

CHAPTER 1

INTRODUCTION

1



Financial planning overview

Financial Planning cultivates a positive attitude towards saving and investment. The

process of identifying the financial needs and setting them up as a goal changes the

way people look at their investment. Proper saving no longer remains a residual

activity it becomes a priority. Their goals give them idea about this. This givesdirection and meaning to individual financial decisions. The individual sees these

decisions as a part of whole process of planning and is able to make meaningful

decisions. He understands the short term and long-term effect of his financial

decisions on his goals. People often invest in various asset classes:

• To beat Inflation

• To fund future needs

• To meet contingencies

• To maintain same standard of living after retirement

Although, it is not possible for an individual investor to understand mutual fund

institutions and investing in such an environment, the process can become fairly time

consuming. Mutual funds (whose fund managers are paid to understand these issues

and whose Asset Management Company invests in research) provide an option of

investing without getting lost in the complexities.

The mutual fund industry has been growing at the annual growth rate of 25% to 30%

in terms of Asset under Management (AUM) in the last few years. Currently, the

industry’s AUM is more than Rs. 8 crores as on May 2010 .

Purpose of the study

The purpose of the study is to compare the HDFC mutual funds with its competitors

DSP Black Rock and Birla Sun Life Mutual Fund

Objective of the study

To evaluate the performance of HDFC mutual fund with its selected competitors DSP

Black Rock and Birla Sun Life Mutual Fund

Significance of Project

Stock markets are slowly recovering around the globe after the great financial crisis.

Hence in India there is a great scope for channelizing the savings of the people into

the mutual funds. This project enables us to determine if HDFC mutual fund is better

choice for investors to invest.

2



Limitations of the study

The following are the limitations of the study

• The study deals with only selected mutual funds and similar products offered by

those mutual funds.

• The study is limited to some of the products of Hdfc due to time constrain.• In the study, some of parameter values are not found due to which I couldn’t

compare based on those parameters.

•The data was analyzed for the month of may and it may be changing over a period of

time.

3



CHAPETR 2

METHODOLOGY

4



Sampling

In order to carry out the comparison, Birla Sun Life Mutual Fund, DSP Black Rock

were chosen. For both the fund houses, the study have randomly chosen four

categories of funds, Equity funds, Equity linked savings schemes, Balanced funds,

Debt funds.

Data Collection

All the data used in this study were secondary data which were mainly collected from

the websites, Fact sheets.

Evaluation Parameters

Following are the evaluation parameters based on which the analysis and comparison

of various schemes is done.Net asset value (NAV)

The value of a collective investment fund based on the market price of securities held

in its portfolio. NAV per share is calculated by dividing net assets of the scheme

/number of Units outstanding. It is the price per share or exchange-traded funds

(ETFs). The higher the value of NAV better is the performance. The reason is the trust

the fund enjoys over a period. Mutual funds pay out virtually all of their income and

capital gains. As a result, changes in NAV are not the best gauge of mutual fund

performance, which is best measured by annual total return.

Expense Ratio

A measure of what it costs an investment company to operate a mutual fund. An

expense ratio is determined through an annual calculation, where a fund's operating

expenses are divided by the average dollar value of its assets under management.

Operating expenses are taken out of a fund's assets and this lowers the return to a

fund's investors.The lower the expense ratio the better is the performance of the

mutual fund. This means that the fund is spending fewer amounts on day-to-day

expenses and eliminating unnecessary burden on investors.

Assets under Management

This is the market value of assets managed by an investment company on behalf of its

investors. Asset under management (AUM) is looked at as a measure of success

5



against the competition. It consists of growth/decline due to both capital

appreciation/losses and new money inflow/outflow.

A higher AUM portrays that the fund is better compared to one having a lower AUM.

BetaBeta is a measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is used in the capital asset pricing model

(CAPM), a model that calculates the expected return of an asset based on its beta and

expected market returns.A mutual fund that seesaws in perfect sync with the market

has a beta of 1.0. Portfolios that are more volatile relative to the underlying

benchmark, such as aggressive-growth funds, have betas greater than 1.0; more

conservative investments have coefficients of less than 1.0.

R-squared

This statistical measure represents the percentage of a fund or security's movements

that can be explained by movements in a benchmark index. For fixed-income

securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-

squared ranges from 0 to 100 and reflects the percentage of a fund's movements that

are explained by movements in its benchmark index. An R-squared of 100 means that

all movements of a fund are completely explained by movements in the index.

Conversely, a low R-squared indicates that very few of the fund's movements are

explained by movements in its benchmark index.

Portfolio Turnover

It is a measure of how frequently assets within a fund are bought and sold by the

managers.Portfolio turnover is calculated by taking either the total amount of new

securities purchased or the amount of securities sold - whichever is less - over a

particular period,divided by the total net asset value (NAV) of the fund. The

measurement is usually reported for a 12-month time period.Mutual funds with high

portfolio turnover tend to whack their investors with taxes at the end of the year. Thesame generally holds for individual investors – the higher the turnover, the poorer the

performance.

6



Sharpe Ratio

A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted

performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as

that of 24 the 10-year U.S. Treasury bond - from the rate of return for a portfolio and

dividing the result by the standard deviation of the portfolio returns.The Sharpe ratio formula is:

It is a ratio used to compare the rate of reward with the risk of gaining that reward.

The higher the ratio, the better is the risk-adjusted performance.

Standard Deviation

Standard deviation is applied to the annual rate of return of an investment to measure

the investment's volatility. Standard deviation is also known as historical volatility and

is used by investors as a gauge for expected volatility.

Standard Deviation helps in analyzing the ‘quality’ of the average. It tells us how much

the individual numbers deviate from the average. In other words, how closely the

average represents the underlying numbers. Higher the Standard Deviation of a fund,

means the fund is more volatile and its’ returns are likely to fluctuate more. Investing

in a fund with lower standard deviation one can expect to reduce the uncertainty of

returns. It does not mean that one will not lose money; only the probability is lower.

P/E Ratio (Price-Earnings Ratio)A valuation ratio of a company's current share price compared to its per-share

earnings.

P/E Ratio= Market value per share/earnings per share (EPS)

7



P/B Ratio (Price-To-Book Ratio)

Companies with higher growth rates command higher P/E ratios. Confidence that a

company will improve its profitability or remain profitable generally results in a higher

P/E ratio. If profits are threatened or weak, the P/E ratio is likely to drop. A ratio used

to compare a stock's market value to its book value. It is calculated by dividing thecurrent closing price of the stock by the latest quarter's book value per share. It is

also known as the "price-equity ratio" and is calculated as:

P/B ratio=stock price/(total assets-intangible assets and liabilities)

A lower P/B ratio could mean that the stock is undervalued. However, it could also

mean that something is fundamentally wrong with the company. As with most ratios,

this varies by industry. This ratio also gives some idea of whether you are paying too

much, for what would be left if the company went bankrupt immediately.

Alpha

It is a measure of performance on a risk-adjusted basis. Alpha takes the volatility

(price risk) of a mutual fund and compares its risk-adjusted performance to a

benchmark index. The excess return of the fund relative to the return of the

benchmark index is a fund's alpha.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.

Correspondingly, a similar negative alpha would indicate an underperformance of 1%.

8



CHAPTER 3

INDUSTRY OVERVIEW

9



Mutual funds An Overview

A mutual fund is a pool of money collected from investors and is invested

according to stated investment objectives. Mutual fund investors are like shareholders

and they own the fund. A mutual fund is just the connecting bridge or a financial

intermediary that allows a group of investors to pool their money together with apredetermined investment objective. The mutual fund will have a fund manager who is

responsible for investing the gathered money into specific securities (stocks or bonds).

When you invest in a mutual fund, you are buying units or portions of the mutual fund

and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as

compare to others they are very cost efficient and also easy to invest in, thus 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. But the biggest

advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

Mutual fund investors are not lenders or deposit holders in a mutual fund.

Everybody else associated with a mutual fund is a service provider, who earns a fee.

The money in the mutual fund belongs to the investors and nobody else. Mutual funds

invest in marketable securities according to the investment objective. The value of the

investments can go up or down, changing the value of the investors’ holdings. The net

asset value (NAV) of a mutual fund fluctuates with market price movements. The

market value of the investors’ funds is also called as net assets.Investors hold a proportionate share of the fund in the mutual fund. New investors

come in and old investors can exit at prices related to net asset value per unit.

10



Organization of Mutual fund: - There are many entities involved and the diagram

below illustrates the organizational set up of a Mutual Fund:

Mutual Funds diversify their risk by holding a portfolio of instead of only one

asset. This is because by holding all your money in just one asset, the entire fortunes

of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Mutual Fund investments are not totally risk

free. In fact, investing in Mutual Funds contains the same risk as investing in the

markets, the only difference being that due to professional management of funds the

controllable risks are substantially reduced. A very important risk involved in Mutual

Fund investments is the market risk. However, the company specific risks are largely

eliminated due to professional fund management.

Characteristics of Mutual Funds

1. A Mutual Fund actually belongs to the investors who have pooled their funds. The

ownership of the mutual fund is in the hands of the Investors.

2. A Mutual Fund is managed by investment professional and other Service providers,

who earns a fee for their services, from the funds.

3. The pool of Funds is invested in a portfolio of marketable investments.

4. The value of the portfolio is updated every day.

5. The investor’s share in the fund is denominated by “units”. The value of the units

changes with change in the portfolio value, every day. The value of one unit of

investment is called net asset value (NAV).6. The investment portfolio of the mutual fund is created according to the stated

Investment objectives of the Fund.

11



Objectives of Mutual fund

1. To Provide an opportunity for lower income groups to acquire without much

difficulty, property in the form of shares.

2. To Cater mainly of the need of individual investors, whose means are small.

3. To Manage investors portfolio that provides regular income, growth, Safety,liquidity, tax advantage, professional management and diversification.

Structure of Mutual Fund

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

corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net

worth of the Investment managed and meet the eligibility criteria prescribed under the

Securities and Exchange Board of India (Mutual Fund) 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.

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

12



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. At least 2/3rd directors of the Trustee are independent directors

who are not associated with the Sponsor in any manners.

Regulatory of Mutual Fund in India

• Role of SEBI: The capital market regulates the mutual funds in India. SEBI

requires all mutual funds to be registered with them. SEBI issues guidelines

for all mutual funds operations-investment, accounts, expenses etc. Recently,

it has been decided that Money Market Mutual Funds of registered mutual

funds will be regulated by SEBI through (Mutual Fund) Regulations 1996.

• Role of RBI : A supervisor of the Banks owned Mutual Funds-As banks in

India come under the regulatory Jurisdiction of RBI, banks owned funds to be

under supervision of RBI and SEBI. RBI has supervisory responsibility over all

entities that operate in the money markets.

• Role of Ministry of Finanace(MOF) : Ministry of Finance ultimately

supervises both the RBI and the SEBI and plays the role of apex authority for

any major disputes over SEBI guidelines.

• Role of Company Law Board : Registrar of companies is called Company

Low Board. AMCs of Mutual Funds are companies registered under the

companies Act 1956 .

• Role of Stock Exchange Stock Exchanges are Self-regulatory organizations

supervised by SEBI. Many closed ended funds of AMCs are listed as stock

exchanges and are traded like shares.

• Role of office of the public trustee: Mutual Fund being public trust is

governed by the Indian Trust Act 1882. The Board of trustee or the TrusteesCompany is accountable to the office of public trustee, which in turn reports

to the Charity commissioner. transaction, online RTGS, clearing system helps

the industry a lot.

13



Evolution of Mutual Funds in India

The formation of Unit Trust of India marked the evolution of the Indian mutual fund

industry in the year 1963. The primary objective at that time was to attract the smallinvestors and it was made possible through the collective efforts of the Government of

India and the Reserve Bank of India. The history of mutual fund industry in India can

be better understood divided into following phases:

• Phase I. Establishment and Growth of Unit Trust of India (1963-1987)

Unit Trust of India enjoyed complete monopoly when it was established in the

year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of

India and it continued to operate under the regulatory control of the RBI untilthe two were de-linked in 1978 and the entire control was transferred in the

hands of Industrial Development Bank of India (IDBI). UTI launched its first

scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the

largest number of investors in any single investment scheme over the years. By

the end of 1987, UTI's assets under management (AUM) grew ten times to

Rs.6700crores.

• Phase II. Entry of Public Sector Funds (1987-1993)

The Indian mutual fund industry witnessed a number of public sector players

entering the market in the year 1987. In November 1987, SBI Mutual Fund

from the State Bank of India became the first non-UTI mutual fund in India.

SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund,

Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB

Mutual Fund. By 1993, the assets under management of the industry increased

seven times to Rs.47, 004 crores. However, UTI remained to be the leader with

about 80% market share.

• Phase III. Emergence of Private Sector Funds (1993-1996)

The permission given to private sector funds including foreign fund

management companies (most of them entering through joint ventures with

Indian promoters) to enter the mutual fund industry in 1993, provided a wide

range of choice to investors and more competition in the industry. Private funds

14



introduced innovative products, investment techniques and investor-servicing

technology. By 1994-95, about 11 private sector funds had launched their

schemes.

•

Phase IV. Growth and SEBI Regulation (1996-2004)The mobilization of funds and the number of players operating in the industry

reached new heights as investors started showing more interest in mutual

funds. Investors' interests were safeguarded by SEBI and the Government

offered tax benefits to the investors in order to encourage them. SEBI (Mutual

Funds) Regulations, 1996 was introduced by SEBI that set uniform standards

for all mutual funds in India. The Union Budget in 1999 exempted all dividend

incomes in the hands of investors from income tax. Various Investor Awareness

Programmes were launched during this phase, both by Securities and Exchange

Board of India (SEBI) and Association of Mutual Funds of India (AMFI), with an

objective to educate investors and make them informed about the mutual fund

industry.

In 1999, there was a significant growth in mobilization of funds from investors

and assets under management which is supported by the following data:

TABLE 1 Gross Fund Mobilization (Rs. In crores)

FROM TO UTI PUBLIC

SECTOR

PRIVATE

SECTOR

TOTAL

01-Apr-98 31-Mar-99 11,679 1,732 7,966 21,37701-Apr-99 31-Mar-00 13,536 4,039 42,173 59,748

01-Apr-00

31-Mar-01 12,413 6,192 74,352 92,957

01-Apr-01 31-Mar-02 4,643 13,613 1,46,267 1,64,52301-Apr-02 31-Jan-03 5,505 22,923 2,20,551 2,48,97901-Feb-03 31-Mar-03 - 7,259 8,435 65,69401-Apr-03 31-Mar-04 - 68,558 5,21,632 5,90,190

01-Apr-04 31-Mar-05 - 1,03,246 7,36,41601-Apr-05 31-Mar-06 - 1,83,446 9,14,712 10,98,158

Source: www.appuonline.com

15

http://www.appuonline.com/

http://www.appuonline.com/



• Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently,

examples of which are acquisition of schemes of Alliance Mutual Fund by Birla

Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund.Simultaneously, more international mutual fund players have entered India like

Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the

end of March 2006. This is a continuing phase of growth of the industry through

consolidation and entry of new international and private sector players.

Mutual Fund Industry in India

Though the evolution of Mutual Fund industry was marked by the formation of UTI in

1963, the UTI Act was repealed in February 2003 and UTI was stripped of its Special

legal status as ‘a trust formed by an Act of Parliament’. The primary objective behind

this was to bring all mutual fund players on the same level.

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past

schemes (like US-64, Assured Return Schemes) are being gradually wound up.

However, UTI Mutual Fund is still the largest player in the industry.

The continuing phase of growth of the Mutual Fund industry through the consolidation

and entry of new international and private sector players can best be illustrated as

follows:

16



Source: www.appuonline.com

Players in the Mutual Fund Industry

With the increase in mutual fund players in India, a need for mutual fund association

in India was generated to function as a non-profit organization. Association of Mutual

Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is the apex body of all Asset Management Companies (AMC) which has beenregistered with SEBI. Till date all the AMCs that have launched mutual fund schemes

are its members. It functions under the supervision and guidelines of its Board of

Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry

to a professional and healthy market with ethical lines enhancing and maintaining

standards. It follows the principle of both protecting and promoting the interests of

mutual funds as well as their unit holders.

The Mutual fund performance can be known by its Net Asset Value (NAV). It is

disclosed on daily basis in case of open-ended schemes and on weekly basis in case of

close-ended schemes. It is necessary for all top mutual funds in to put their NAVs on

the web site of Association of Mutual Funds in India (AMFI). Thus the investors can

access NAVs of all mutual funds at one place.

Some of the major players on the Indian mutual fund scene are

17



• ABN AMRO Mutual Fund Kotak Mahindra MutualFund

• Benchmark Mutual Fund LIC Mutual Fund

• Birla Mutual Fund Morgan Stanley Mutual Fund

• BOB Mutual Fund PRINCIPAL Mutual Fund

• Canbank Mutual Fund Prudential ICICI Mutual Fund

• Chola Mutual Fund Reliance Mutual Fund

• Deutsche Mutual Fund Sahara Mutual Fund

• DSP Merrill Lynch Mutual Fund SBI Mutual Fund

• Escorts Mutual Fund Standard Chartered Mutual Fund

• Fidelity Mutual Fund Sundaram Mutual Fund

• Franklin Templeton Investments Tata Mutual Fund

• HDFC Mutual Fund Taurus Mutual Fund

• HSBC Mutual Fund UTI Mutual Fund

• ING Vysya Mutual Fund JM Financial Mutual Fund

Factors impacting the industry

PEST Analysis (Political,Economical,Social,Technological)

Political Factors

• Government Regulation : SEBI regulates the industry and every decision

taken by them impact the industry very quickly.

• Stable constituency : The mutual fund industry can take long term decision

if the government is stable.

18



• Fiscal policy : tax structure plays a very important role in the growth of the

industry .If the tax structure will be high than there will be less savings and

investment. We have seen the interest rate reducing continuously which boost

the industry to sell products which are better than the FDs, PF, NSC and KVPs.

Economic factors

• Market performance : The last five years witnessed a sharp rise in the

markets. The mutual fund industry basically works parallel with the markets.

Suppose, if the markets always be on downside, then the investors will not be

so comfortable to invest. This will reduce the market size drastically.

• Global Standards : As the industry will grow better, India being a global

economy, the MF industry has to match to the global mature MF markets.

They have to give due emphasis on product innovation, cost reduction andpenetration.

• Inflation : price rise affects interest rate and reduces the chances of

investment.

Social factors

• Consumer behaviour : this is very unpredictable and based on sentiments

gets changed very frequently, which sometimes makes selling of products

difficult.• Income : The rich people are in bigger cities, so the mutual fund industry is

much more concentrated there.

• Technological factors : This is the era of information technology and due to

net banking, online transaction, clearing system helps the industry a lot.

Types of Mutual Funds

Mutual Funds are of various categories according to their stated objectives. Mainly

their classifications are as follows:

1. Based on term or structure of fund:

• Open ended and closed ended fund

19



2. Based on investment objective:

• Equity, Balanced and Debt fund

These funds are further sub-divided as follows:

• Equity funds consist of the following;

• Index fund

• Dividend yield fund

• Equity diversified fund

• Thematic fund

• Sector fund

• ELSS fund

Balanced fund further consists of the following:

• Debt-oriented fund and

• Equity-oriented fund

Debt funds are further subdivided into the following:

• Liquid fund

• Gilt fund

• Income fund

• FMPs(fixed maturity plan)

• Floating rate fund

• Arbitrage funds

• MIPs (monthly income plan)

20



Mutual funds can also be categorized based on the following objectives:

1. Based on load charged:

• Load and no-load fund

2. Based on market capitalization:

• Small-cap, Mid-cap and Large-cap funds

3. Type of investors:

• Offshore and pension funds

4. Management style:

• Managed and index funds

The classifications stated earlier can better be illustrated using the following chart:

•

Classification of Mutual Fund Schemes

21



Classification of Mutual Fund schemes:

Schemes are classified as Close-ended or Open-ended depending upon whether they

give the investor the option to redeem at any time (open-ended) or whether the

investor has to wait till maturity of the scheme.

Open ended funds : The units offered by these schemes are available for sale and

repurchase on any business day at NAV based prices. Hence, the unit capital of the

schemes keeps changing each day. Such schemes thus offer very high liquidity to

investors. An open-ended fund is not obliged to keep selling/issuing new units at all

times, and may stop issuing further subscription to new investors.

Close-ended funds: These funds raise money from investors only once. Therefore,

after the offer period, fresh investments can not be made into the fund. If the fund is

listed on a stock exchange the units can be traded like stocks. Redemption of units can

be made during specified intervals. Therefore, such funds have relatively low liquidity.

Equity Schemes

These schemes, also commonly called Growth Schemes, seek to invest a majority of

their funds in equities and a small portion in money market instruments. Such

schemes have the potential to deliver superior returns over the long term. However,

because they invest in equities, these schemes are exposed to fluctuations in value

especially in the short term. Equity schemes are hence not suitable for investors

seeking regular income or needing to use their investments in the short-term. They

are ideal for investors who have a long-term investment horizon

.

Balanced fund

It is a mutual fund that buys a combination of common stock, preferred stock, bonds,

and short-term bonds, to provide both income and capital appreciation while avoiding

excessive risk. The purpose of balanced funds (also sometimes called hybrid funds) is

to provide investors with a single mutual fund that combines both growth and income

objectives, by investing in both stocks (for growth) and bonds (for income). Such

diversified holdings ensure that these funds will manage downturns in the stock

market without too much of a loss. The flip side, of course, is that balanced funds will

usually increase less than an all-stock fund during a bull market.

Debt Schemes

22



These schemes, also commonly known as Income Schemes, invest in debt securities

such as corporate bonds, debentures and government securities. The prices of these

schemes tend to be more stable compared with equity schemes and most of the

returns to the investors are generated through dividends or steady capital

appreciation. These schemes are ideal for conservative investors or those who are notin a position to take higher equity risks.

Sector Specific Equity Schemes

These are the funds/schemes which invest in the securities of only those sectors or

industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast

Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds

are dependent on the performance of the respective sectors/industries. While these

funds may give higher returns, they are more risky compared to diversified funds.

Investors need to keep a watch on the performance of those sectors/industries and

must exit at an appropriate time. In order to succeed, the sector of the sectoral fund

must be big enough, with enough stock and must have long term potential. An

investment in a Sectoral fund can have an impact only when it is held on for a long

term.

Tax Saving Schemes

Investors are being encouraged to invest in equity markets through Equity Linked

Savings Scheme (ELSS) by offering them a tax rebate. Here, the units purchasedcannot be assigned / transferred/ pledged / redeemed / switched - out until the

completion of 3 years from the date of allotment of the respective Units. The Scheme

is subject to SEBI (Mutual Funds) Regulations, 1996 and the notifications issued by

the Ministry of Finance (Department of Economic Affairs), Government of India

regarding ELSS. Subject to such conditions and limitations, subscriptions to the Units

not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an

amount equal to 20% of the amount subscribed. Investors can also avail a tax benefit

of Rs.1 lakh under the section 80C of Income Tax Act, 1961.

Dividend yield funds

These are the diversified equity funds, which invest predominantly in stocks with a

high dividend yield. Dividend yield is defined as the dividend per share divided by the

stock's market price at the time of investment. The objective of Equity Income or

23



Dividend Yield Equity Funds is to generate high recurring income and steady capital

appreciation for investors by investing in those companies which issue high dividends

(such as Power or Utility companies whose share prices fluctuate comparatively lesser

than other companies' share prices). Traditionally, stocks with a high dividend yield

are considered to be attractive investments, as they tend to be stable performers overlonger time frames and are generally exposed to the lowest risk level as compared to

other equity funds.

Diversified equity fund

Except for a small portion of investment in liquid money market, diversified equity

funds invest mainly in equities without any concentration on a particular sector(s).

These funds are well diversified and reduce sector-specific or company-specific risk.

However, like all other funds diversified equity funds too are exposed to equity market

risk. One prominent type of diversified equity fund in India is Equity Linked Savings

Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS

should be in equities at all times. ELSS investors are eligible to claim deduction from

taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS

usually has a lock-in period and in case of any redemption by the investor before the

expiry of the lock-in period makes him liable to pay income tax on such income(s) for

which he may have received any tax exemption(s) in the past.

Thematic fund

Thematic funds were meant to be the solution to that malaise. Thematic funds invest

in a theme rather than in a single sector. So while the fund manager’s investment

options remained restricted to the theme, there are still several sectors to choose from

within that theme. A theme like infrastructure for instance, has several related sectors

like cement, steel, capital goods/engineering as also unrelated sectors like banking

and finance. Hence during stock-picking, the fund manager of a thematic fund has

more flexibility compared to a fund manager of a sectoral fund.

Income Schemes

These schemes invest in money markets, bonds and debentures of corporate

companies with medium and long-term maturities. These schemes primarily target

current income instead of capital appreciation. Hence, a substantial part of the

distributable surplus is given back to the investor by way of dividend distribution.

24



These schemes usually declare quarterly dividends and are suitable for conservative

investors who have medium to long term investment horizon and are looking for

regular income through dividend or steady capital appreciation.

Gilt FundsThese mutual funds are the safest type of debt funds available since they invest in

bonds backed by the full faith of the government. These funds invest in Government of

India and state government securities and bonds that are guaranteed by the central

and state governments. Hence, the investor usually does not have to worry about

credit risk since Government Debt is generally credit risk free.

Liquid funds

Liquid funds are used primarily as an alternative to short-term fixed deposits. They

invest in short-term debt instruments with maturities of less than one year. Therefore,

they invest in money market instruments, short-term corporate deposits and treasury.

The maturity of instruments held is between three and six months. A liquid fund

provides good liquidity, low interest rate risk and the prevailing yield in the market.

Returns from deposits are taxable depending on the tax bracket of the investor, which

considerably pulls down the actual return. Dividends from liquid funds are tax-free in

the hands of investor, which is why they are more attractive than deposits. But a

Dividend Distribution Tax of 14.16% for individual and 28.32 for corporate is deducted

if dividend option is chosen while investing.

Arbitrage funds

Arbitrage funds are often promoted by fund houses as “risk-free” investments. As a

strategy, arbitrage involves simultaneous purchase and sale of identical or equivalent

instruments from two or more markets in order to benefit from a discrepancy in their

prices. The profit in arbitrage strategy is the difference between the prices of the

instrument in different markets (like cash and derivative markets for instance).

Fixed maturity plan (FMP)

A FMP is a type of a mutual fund that invests in financial instruments whose maturity

date coincides with a specific time period indicated in advance by the fund. FMPs

primarily invest in debt instruments and money market instruments. The instruments

are held till maturity and give less volatile returns to the investor in comparison to

25



equity funds. These plans suit investors who have a time horizon of 15 days, 1 month,

3 months, 6 months and 1 year. Few schemes are also available with a maturity of 3

years and 5 years. FMPs are also less risky than equity funds because of the kind

assets they invest in. FMPs help in the mitigation of interest rate risk, credit risk and

liquidity risk.

Monthly income plan (MIP)

MIPs are debt-oriented funds with a mandate to invest a portion (generally upto 20

per cent) of their assets in equities. They operate on the proposition of combining the

power of equities with the stability of debt. Though MIPs are intended to offer monthly

income, like other market-linked investment avenues, this income is not assured. Thedistribution of income (in form of dividends) is a factor of availability of distributable

surplus. MIPs are typically suited for investors with a low to modest risk appetite.

Investors who would have typically invested in debt funds or assured return

instruments like fixed deposits can consider investing in MIPs if they are willing to take

on a higher degree of risk for generating higher returns.

Load fund

A mutual fund that comes with a sales charge or commission is basically referred to asa load fund. The fund investor pays the load, which goes to compensate a sales

intermediary (broker, financial planner, investment advisor, etc.) for his or her time

and expertise in selecting an appropriate fund for the investor. The load is paid up

front at the time of purchase (entry load), when the shares are sold (exit load), or as

long as the fund is held by the investor (level-load).

No-load fund

Mutual funds in which shares are sold without a commission or sales charge arereferred to as a no-load fund. The reason for this is that the shares are distributed

directly by the investment company, instead of going through a secondary party.

Because there is no transaction cost to purchase a no-load fund, all of the money

invested is working for the investor.

Large cap funds

26



Large cap funds are those which seek capital appreciation by investing primarily in

stocks of large blue chip companies with above-average prospects for earnings

growth. Different mutual funds have different criteria for classifying companies as

large cap. Generally, companies with market capitalization in excess of Rs.1000crore

are known large cap companies. Investing in large caps is a lower risk-lower returnproposition, as such companies are usually widely researched and information is

widely available

Mid cap funds

Mid cap funds are those mutual funds, which invest in medium sized companies. i.e.:

these companies have a market capitalization between Rs.500crore and

Rs.1,000crore. Big investors like mutual funds and Foreign Institutional Investors are

increasingly investing in mid caps nowadays because the price of large caps hasincreased substantially. Such companies offer higher growth potential and therefore an

opportunity to benefit from higher than average valuations.

Small cap funds

Small cap funds are those mutual funds, which invest in small sized companies, i.e.:

companies that have market capitalization of just upto Rs.500crore. Just like mid-cap

funds, investors prefer small cap funds too due to the price rise of large cap funds.

Since the small sized companies tend to be under researched, thus they present an

opportunity to invest in a company that is yet to be identified by the market. Such

companies offer higher growth potential going forward and therefore an opportunity to

benefit from higher than average valuations.

Offshore fund

Offshore funds are those that invest in securities of foreign companies, after requisite

permission from RBI. The objective behind launching offshore funds is to attract

foreign capital for investment in the country of the issuing company. These funds

facilitate cross border fund flow, which is a direct route for getting foreign currency.

From the investment point of view, offshore funds open up domestic capital markets to

the international investors and global portfolio investments.

Pension fund

27



Pension Plan helps an investor to accumulate wealth over a period in order to meet

his/her expenses after retirement. Usually it is the insurance companies that draw

customers with an array of pension plans. Lesser known is the fact that Mutual Fund

also manages pension products. Currently the only mutual fund which caters to the

investors pension need is the Templeton India Pension Plan (TPP), country’s first andonly central government approved private sector pension scheme under Section 88.

Investing in this pension plan provides tax saving benefits similar to tax saving Mutual

Funds (ELSS) and other investing instruments such as National Saving Certificate

(NSC) and Public Provident Fund (PPF). Though both tax saving mutual funds and

pension plans are in the same investment genre as they offer tax-deduction benefits,

both have varying rates. The investment amount on which tax benefits can be claimed

by investing in tax-saving funds is restricted to a maximum permissible limit of Rs

10,000 (approximately).

Index schemes

An Index is used as a measure of the performance of the market as a whole, or a

specific sector of the market. It also serves as a relevant benchmark to evaluate the

performance of mutual funds. Some investors are interested in investing in the market

in general rather than investing in any specific fund. Hence an index fund builds its

portfolio by buying stock in all the companies of a particular index. As it is not

practical to invest in each and every stock in the market in proportion to its size, theseinvestors are comfortable investing in a fund that they believe is a good representative

of the entire market. Index Funds are launched and managed for such investors.

Managed funds

Managed funds - also known as unit trusts - are vehicles that allow the investor to

pool their money with a number of other investors into a single fund that then is able

to invest in assets that might otherwise be out of reach. Managed funds are basically

funds managed for you by others - namely, investment professionals such as fundmanagers. Managed funds can invest in a variety of assets including shares, property

and fixed interest or a combination of these. All managed funds have a prospectus

which allows one to know where the funds are being invested.

Some of the other innovative funds that have been launched by the mutual fund

players are as follows:

28

http://www.franklintempletonindia.com/GeneralAccess/Mfs/pension.asp

http://www.franklintempletonindia.com/GeneralAccess/Mfs/pension.asp



Money Market Schemes

Money market funds are generally the safest and most secure of mutual fund

investments. The goal of a money-market fund is to preserve principal while yielding a

modest return. These schemes invest in short term instruments such as commercial

paper ("CP"), certificates of deposit ("CD"), treasury bills ("T-Bill") and overnightmoney ("Call"). The schemes are the least volatile of all the types of schemes because

of their investments in money market instrument with short-term maturities. These

schemes have become popular with institutional investors and high net-worth

individuals having short-term surplus funds. When investing in a money-market fund,

attention should be paid to the interest rate that is being offered.

Fund of funds

A fund of funds is a mutual fund scheme that invests primarily in other schemes of the

same mutual fund or other mutual funds. Hence, it is a step ahead of mutual fund in

the sense that while a mutual fund keeps a track of the stocks it invests, a fund of

fund keeps track of the mutual funds it invests and hence manages the portfolio on

behalf of investors. Such funds are treated as a debt-oriented fund for tax purposes.

Fund of funds are designed to achieve greater diversification than traditional mutual

funds. But on the flipside, expense fees on fund of funds are typically higher than

those on regular funds because they include part of the expense fees charged by the

underlying funds.

Derivative funds

They invest in the derivative market which limit the downside risk by selecting hedging

approach and also offer additional return through shorting procedure.

Exchange Traded Fund (ETF)

An ETF is one whose investment objective is to achieve the same return as a particular

market index. An ETF is similar to an index fund in that it will primarily invest in thesecurities of companies that are included in the selected market index. An ETF invests

in a basket of stocks which blindly mimics a chosen market index. And unlike regular

open-end mutual funds, ETFs can be bought and sold throughout the trading day like

any stock. The investment objective of an ETF is to achieve the same return as a

particular market index .

29



The table below depicts the risk profile of certain popular types of mutual fund

schemes:

Table 2

Valuation of Investment

A mutual fund manages the investors’ money on their behalf. Hence, the investors

hold the right to be informed of the value of their investments on a regular basis. Thevalue of a mutual funds investment is reflected in the net asset value. In simple

words, Net Asset Value (NAV) is the market value of the securities held by the

scheme. Since market value of securities changes every day, NAV of a scheme also

varies on day to day basis. The NAV per unit is the market value of securities of a

scheme divided by the total number of units of the scheme on any particular date.

Investment Pattern Risk Profile of Various Types of Schemes

Scheme Type Time Horizon Risk Profile Typical Investment Pattern

Objective

Ope

n

ende

d

Close

ended

Equity

%

Debt

%

Money Mkt.

/ others %

Money

marketYes No Short Term Low 0 0-20 80-100

Income Yes YesMed-Long

Term

Low-

Medium0

80-

1000-20

Growth Yes Yes Long Term High 80-100 0-20 0-20

Balanced Yes Yes Long TermMedium-

High0-60 0-40 0-20

Tax Saving Yes Yes Long Term High 80-10080-

1000-20

30



NAV is required to be disclosed by the mutual funds on a regular basis - daily or

weekly - depending on the type of scheme.

NAV= (Receivables + accrued Income - liability - accrued liability) / no. of

shares per unit outstanding

Regulations require the NAV of a scheme to be calculated and published in atleast twonewspapers on a weekly basis. However close-ended schemes which do not

necessarily have to be listed on stock exchanges, may do so on a monthly or quarterly

basis, subject to permission by SEBI. But now-a-days, mutual funds have recently

started updating the NAV and sale/repurchase prices of their schemes on the website

www.amfiindia.com. Hence SEBI has decided in consultation with AMFI that all mutual

funds should update their NAVs and sale/repurchase prices on AMFI website by 8.p.m.

everyday. This will help the investors and the newspapers to access the NAVs of all the

mutual funds at one place .

Ways of Investing in Mutual Funds

• One-time outright payment

Here, in order to invest directly in the fund, one just needs to hand over the cheque

and the fund units will be received depending on the value of the units on that

particular day. E.g.: to invest Rs.10,000, all that has to be done is to approach the

fund and buy units worth Rs.10,000. The two factors that will determine the number

of units that will be received are entry load and the net asset value.

• Systematic Investment Plan (SIP)

This plan, which is based on rupee cost averaging, allows investors to invest a fixed

amount at regular intervals. This gives the investor a way to save and invest in a

disciplined and phased manner.

• Automatic Reinvestment Plan (ARP)

The reinvestment plan, as the name suggests, can be either in the same scheme or in

another scheme of the same fund. The scheme has two options, dividend option and

growth option. The reinvestment happens at ex-dividend NAV. Investor is allotted

extra units equivalent to dividend due less dividend tax, if any.

31



• Systematic Transfer Plan (STP)

STP provides a facility to transfer on a periodic basis a specific amount from one

scheme to another scheme of the same mutual fund. The redemption from the old

scheme and investment in new scheme happen at the applicable NAVs.

Advantages of Mutual Fund Investment

Small investors usually do not have the necessary expertise and the time to undertake

any study that can facilitate informed decisions on stock market investments. While

this is the predominant reason for the popularity of mutual fund, there are many other

benefits that can accrue to small investors. Some of the advantages are listed below:

• Diversification benefits : Diversified investment improves the risk-return profile

of the portfolio. Diversification becomes possible as the corpus of a mutual fund is

bigger compared to individual investment.

• Low transaction cost : Large volume of investments attract lower brokerage

commissions as compared to the smaller volumes of transactions entered into by

individual investors. Brokers quote a lower rate of commission due to two reasons.

First is competition for institutional investors business. Second reason is that the

overhead costs for executing a trade do not differ much for large and small orders.

Hence, for large order, these costs spread over a larger volume, enabling the

broker to quote a lower commission rate.

• Availability of various schemes : Investors can chose between regular income

schemes and growth schemes, between schemes that invest in the money market

and those that invest in stock market, etc. some schemes provide added

advantage. For example, automatic reinvestment schemes reinvest the distributed

income automatically, thus making the management of funds easier.

• Professional management : Mutual funds are generally managed by

knowledgeable, experienced professionals who are solely devoted to tracking and

updating the portfolios. Hence apart from saving time, mutual funds also provides

better results for the investor• Liquidity : A mutual fund generally stands ready to buy and sell its units on a

regular basis. Thus, it is easier to liquidate holdings in a mutual fund as compared

to direct investment in securities.

• Tax benefits : In India, the dividend received by the investor is tax free. This

enhances the yield on mutual fund marginally as compared to income from other

32



investment options. Also, in the case of long-term (more than one year) capital

gains, the investor need not pay for all equity purchases after March1, 2003.

• Flexibility : Mutual fund possess features such as regular investment plan(SIP),

regular withdrawal plan and dividend reinvestment plan. Because of these

features, one can systematically invest or withdraw according to ones’ needs andconvenience.

• Well regulated : All mutual funds are registered with SEBI and they function

within the provisions of strict regulations designed to protect the interest of

investors. The operations of mutual funds are regulated by SEBI

Disadvantages of Mutual Fund

Investment in mutual fund has its disadvantages as well, which are:• Investors cannot choose the securities they want to invest in, or the

securities they want to sell.• The investors also face the risk of fund managers not performing well.• If the fund manager’s performance is linked to the fund performance, then

he’d be tempted to show god results for short-term without paying attention

to long-term performance of the fund.• The management fees charged by the fund can also reduce the returns

available to the investors.• Lastly, while investors in securities can decide the amount of earnings they

want to withdraw in a particular period, investors in a mutual fund have no

such discretion as the amount of earnings that are to be paid out to the

investors in a particular year is decided by the mutual fund.

ASSET MANAGEMENT COMPANY

In order to understand the role and position of an Asset Management Company in the

mutual fund concept, it is important to understand the structure of the flow of

operations of a mutual fund.

33



Structure of an Asset Management Company

The role of an Asset Management Company is highly significant in the mutual fund

operations. They are the fund managers i.e., they invest the investors money in

various securities (equity, debt and money market instruments) after proper research

and analysis. They also look after the administrative functions of a mutual fund for

which they charge management fee (subject to the ceiling prescribed by SEBI).

It is the sponsor who appoints the asset management company (AMC) for the

investment and administrative functions. The AMC does the research, and manages

the corpus of the fund. It launches the various schemes of the fund, manages them

and then liquidates them at the end of their term. It also takes care of the other

administrative work of the fund. It receives an annual management fee from the fundfor its services. There is also an Asset Management Agreement between the AMC and

the Trustee.

Sponsors

MutualFund

(Trust)Investors

AMC

Trustees

Make theright

investment

34



Intermediary

The role of intermediary is very important in the mutual fund industry. They act as link

between the mutual fund companies and the investors. The intermediaries that include

brokers, sub-brokers, investment houses like Bajaj Capital, not only help in the

subscription of units but also provide guidance to the investors regarding investmentin various mutual fund schemes.

Registrar as an Intermediary

Other intermediaries like registrars and transfer agents performs activities which are

associated with maintaining records concerning units already issued or to be issued by

a company. On a broad reckoning, a registrar renders services in processing

applications received by a company for the issue of its units and in the allotment of

these units to the investors. As a transfer agent, he handles the work related to the

transfer of units issued by a company. Other activities relating to dividend payment,

investor grievance, etc, are also performed by the registrar.

The Asset Management Company (AMC) is required to fulfil the following conditions:• It is required to be formed and registered under Companies Act, 1956. It is also

required to be approved as an AMC by SEBI• It should hold the approval of the board of trustees• It shall have a minimum net worth of Rs.100 million• In an AMC, any of its directors, officers or employees shall not act as a trustee

of any mutual fund or act as director in any other AMC• The board of directors of the AMC will consist of atleast 50% directors who are

not associates of, or associated in any manner with the sponsor or any of its

subsidiaries or the trustees. i.e. they should be independent• The minimum contribution of the sponsor should be atleast 40% of share

capital of AMC• The appointment of the AMC can be terminated by the consent of majority of

the trustees or by 75% of the unit holders of the scheme.

Channels of an Asset Management Company

The various ways through which an Asset Management Company can distribute its

mutual fund products to the customers are:

35



1. Direct selling

• 2. Banks

• Public bank• Private bank

3. Distributors• Regional distributors• National distributors

4. Individual financial Advisor

An AMC has the Following Obligations:

•

An AMC is responsible for floating schemes for the mutual fund and managingthe funds mobilized under various schemes in accordance with the trust deed,

SEBI regulations and the investment objectives stated in the offer document.• The details of transactions in securities by the key personnel of the AMC,

whether in their own name, or on behalf of the AMC, have to be reported by

the AMC to the trustees on a half-yearly basis. This is to help the trustees

ensure that there is no front running or self dealing by either the AMC, or its

key personnel.• The AMC is required to report to the trustees any securities transaction taken

place with any of its associates. This requirement helps ensure that such

transactions are not against the unit holders’ interest.• The AMC should inform the trustees and SEBI about the interest of its directors

in other companies. This information should be updated every six months. It

also has to report about the transaction of dealing in securities on a quarterly

basis. This is to ensure that the fund’s corpus is not being utilized for the

benefit of the sponsor, the AMC or its director, in a way that is detrimental to

the unit holder’s interest.• It is the AMC’s responsibility to appoint registrars and share transfer agents for

the fund. It has to ensure that these parties are registered with SEBI.• It has to submit a report on the functioning of the schemes of the mutual fund

to the trustees on a quarterly basis, or as at such intervals as required by the

trustees

36



• They should limit 5% of aggregate purchase and sales of Securities under all its

scheme per broker per quarter• As far as possible, AMC should avoid services of its sponsor• All security transactions with a Sponsor and his associates must be disclosed

• An AMC should also ensure disclosure of transactions with a company whichhas invested more than 5% on NAV in any scheme.

An AMC can do only the following businesses:

• Asset Management Services• Portfolio Management Services• Portfolio Advisory services• In granting the approval for the AMC, SEBI takes into account the sound track

record, general reputation, fairness in transactions and SEBI’s explanation for

‘sound track record’ is net worth, divided paying capacity and profitability of

the AMC.

Asset under Management (AUM)

Asset under Management (AUM) denotes the market value of the assets that an

investment company manages on behalf of investors. AUM is looked at as a measure

of success against competition and consists of growth/decline due to both capital

appreciation/losses and new money inflow/outflow.

Factors that affect AUMs are foreign exchange movements, structural effects of the

company, market performance i.e.:gains/losses and Net New Asset (NNAs). NNA

refers to the amount of money that has come by way of any new investment from a

client.

37



Table 3 Current AUMs of various fund houses (in alphabetical order)

Mutual fund No of

schemes

As on corpus AUM

AIG Global Investment

Group Mutual Fund

44 Apr 30, 2010 1,093.24

Axis Mutual Fund 42 Apr 30, 2010 3,477.98Baroda Pioneer Mutual Fund 29 Apr 30, 2010 4,362.69Benchmark Mutual Fund 14 Apr 30, 2010 1,930.53Bharti AXA Mutual Fund 45 Apr 30, 2010 595.35Birla Sun Life Mutual Fund 223 Apr 30, 2010 69,508.69Canara Robeco Mutual Fund 87 Apr 30, 2010 10,050.84Deutsche Mutual Fund 108 Apr 30, 2010 10,111.61DSP Blackrock Mutual Fund 92 Apr 30, 2010 21,948.76Edelweiss Mutual Fund 41 Apr 30, 2010 216.16Escorts Mutual Fund 30 Apr 30, 2010 205.46Fidelity Mutual Fund 53 Apr 30, 2010 7,684.70Fortis Mutual Fund 467 Apr 30, 2010 6,902.15Franklin Templeton Mutual

Fund

173 Apr 30, 2010 34,107.00

HDFC Mutual Fund 162 Apr 30, 2010 94,702.79HSBC Mutual Fund 89 Apr 30, 2010 6,005.03ICICI Prudential Mutual Fund 316 Apr 30, 2010 83,035.51IDFC Mutual Fund 168 Apr 30, 2010 25,177.28ING Mutual Fund 92 Apr 30, 2010 1,652.84JM Financial MutualFund 90 Apr 30, 2010 8,568.80JPMorgan Mutual Fund 32 Apr 30, 2010 4,114.75Kotak Mahindra Mutual Fund 119 Apr 30, 2010 33,743.49L&T Mutual Fund 63 Apr 30, 2010 4,125.69LIC Mutual Fund 62 Apr 30, 2010 40,507.21Mirae Asset Mutual Fund 39 Apr 30, 2010 245.06Morgan Stanley Mutual Fund 10 Apr 30, 2010 2,305.89Peerless Mutual Fund 20 Apr 30, 2010 496.26PRINCIPAL Mutual Fund 85 Apr 30, 2010 7,470.15Quantum Mutual Fund 11 Apr 30, 2010 101.34Reliance Mutual Fund 186 Apr 30, 2010 111,819.33Religare Mutual Fund 86 Apr 30, 2010 13,829.25Sahara Mutual Fund 44 Apr 30, 2010 804.57SBI Mutual Fund 116 Apr 30, 2010 39,826.35Shinsei Mutual Fund 11 Apr 30, 2010 222.28Sundaram BNP Paribas

Mutual Fund

147 Apr 30, 2010 14,361.18

Tata Mutual Fund 169 Apr 30, 2010 22,051.27Taurus Mutual Fund 47 Apr 30, 2010 2,347.23UTI Mutual Fund 200 Apr 30, 2010 79,456.70

38

http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM051


















































































CHAPTER 4

COMPANY PROFILE

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)

Internal Structure and Processes :

Management Team : HDFC Trustee company Limited: a company incorporated under

39



the Companies Act, 1956 is the Trustee to the Mutual Fund vide the Trust deed dated

June 8, 2000, as amended from time to time. HDFC Trustee Company Limited is a

wholly owned subsidiary of HDFC Limited.

HDFC Asset Management Company Ltd (AMC) was incorporated under the

Companies Act, 1956, on December 10, 1999, and was approved to act as an AssetManagement Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3,

2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T.

Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai-400020. In terms of

the Investment Management Agreement, the Trustee has appointed the HDFC Asset

Management Company Limited to manage the Mutual Fund. The paid up capital of the

AMC is Rs. 45.161crore. The present equity shareholding pattern of the AMC is as

follows :

Particulars % of the paid up equity capitalHDFC Limited 60Standard Life Investments Limited 40

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 Process Quality Rating which reflects the highest governance levels and fund

management practices at HDFC AMC It is 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. HDFC Mutual Fund 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.

STRENGTHS

• Wide range of products: The AMC has got good number of differentiated

products in the entire asset class.

40



• Consistent performance: The funds have given consistent performance over

10 years.• Experienced team: HDFC has fund managers with rich experience whose

consistent performance has made this AMC CRISIL level one fund house.

• Strong Compliance: The AMC has very strong compliance of industry set rulesto protect the interest of the investors.

• Risk management team: AMC has a separate risk management team which

constantly monitors the risk exposure related to different fund management.

WEAKNESSES

• Restrictive reach: HDFC business is more concentrated on urban areas. HDFC

has very limited offices.•

Less Aggressive in Marketing and execution: HDFC does match theaggressiveness required in the industry and are slow in execution.

HDFC MUTUAL FUND AT A GLANCE

Name of Unit : HDFC MUTUAL FUND

Managing Director : Mr . Milind Barve

Address : sapphire square, 2nd floor, Somajiguda,

Hyderabad. .

Form of Organization : Private Sector

Establishment year : 2007

Sponsors : HDFC Corporation limited, Standard life Investments

Limited

Management: Trustee : HDFC Asset Management Company Limited (AMC).

Web site : www.hdfcfund.com

ACHIEVEMENT AND AWARDS

41



• “HDFC Prudence fund” has been ranked ICRA-MFR 1, and Has Been awarded

the Gold Award for ‘Best Performance’ in the category of “Open Ended

Balanced Scheme” for one year Period Ending Dec 31, 2005.• “HDFC Tax saver fund” has been ranked ICRA-MFR 1, and Has Been Silver

award for “Second Best Performance” in the category of “Open Ended EquityLinked Saving Scheme(ELSS)” for Three year Period Ending Dec 31, 2005.

• “HDFC MIP~LTP” has been ranked ICRA-MFR 1, and Has been awarded the

Gold Award For “Best Performance” in the category of “Open Ended Marginal

Equity Scheme” for one year Period Ending Dec 31, 2005.

42



CHAPTER 5

DATA ANALYSIS

Description of Hdfc products

43



1. Hdfc equity fund

Investment objective: The investment objective of the Scheme is to achieve capital

appreciation.

Scheme information

Nature of scheme Open Ended growth scheme

Inception Date January 01, 1995Option/Plan Dividend Option, Growth Option. The

Dividend Option offers Dividend Payout

and Reinvestment Facility.Entry Load

(purchase / additional purchase / switch-

in)

NIL

(With effect from August 1, 2009)

Exit Load

(as a % of the Applicable NAV)

• In respect of each purchase / switch in

of units, an Exit Load of 1.00% 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.

NAV details

Plan name NAV date NAV amount

Dividend option 09 Jun 2010 44.3600

Growth option 09 Jun 2010 241.3660

Investment pattern:

Asset type Portfolio(%) Risk profile

Equities and Equity Related 80 - 100 Medium to High

44



Instruments

Debt & Money Market

Instruments

0 - 20 Low to Medium

Investment Strategy:

In order to provide long term capital appreciation, the Scheme will invest

predominantly in growth companies. Companies selected under this portfolio would as

far as practicable consist of medium to large sized companies which:

1. Are likely to achieve above average growth in the industry

2. Enjoy distinct competitive advantages.

3. Have superior financial strengths

Returns

45



S&P CNX 500 is the benchmark index. Absolute returns for funds less than one year

and compounded annualized returns for funds more than one year.

Fund Manager : Mr.Prashanth Jain

2. Hdfc Top 200 fund

HDFC Equity Fund(NAV as at evaluation date 30 April 2010, Rs. 244.512 Per

unit)Fund Date period Nav per

unit(rs)

Returns(%) Benchmark

returns(%)March 30, 2010 Last 1127

days

142.602 19.08 11.22

October 30,

2009

Last Six

months (182

days)

209.023 16.98 13.36

April 29, 2009 Last 1 Year

(366 days)

127.097 92.04 63.81

April 30, 2007 Last 3 Years

(1096 days)

151.160 17.37 8.93


(1827 days)

65.356 30.16 20.91


(3654 days)

21.860 27.28 15.11

January 1, 1995 Since

Inception

(5598 days)

10.000 23.17 10.28

46



Investment objective : To generate long term capital appreciation from a portfolio

that is invested in equity and equity related instruments primarily drawn from

companies in BSE 200 index.

Basic Scheme Information

Nature of scheme Open Ended growth scheme

Inception Date October 11, 1996

Option/Plan Dividend Option, Growth Option. The




in)

NIL


Exit Load


• In respect of each purchase / switch

in of units, an Exit Load of 1.00% is

payable if Units are redeemed /

switched-out within 1 year from the

date of allotment..

• No Exit Load is payable if Units are



NAV details




The investment strategy : It is of primarily restricting the equity portfolio to the BSE

200 Index scrips is intended to reduce risks while maintaining steady growth. Stock

specific risk will be minimised by investing only in those companies / industries that

have been thoroughly researched by the investment manager's research team. Risk

will also be reduced through a diversification of the portfolio.

Investment pattern

47




Equities and Equity Related

Instruments

80 - 100 Medium to High

Debt & Money Market

Instruments

0 - 20 Low to Medium

Returns

• *Absolute Returns

• ** Compounded Annualised Returns

• Benchmark index BSE 200

• Fund Manager : Mr.Prashanth jain

3. Hdfc tax saver

Investment objective : To generate long term capital appreciation

HDFC top 200 Fund(NAV as at evaluation date 30-April-2010, Rs. 187.894Per


unit(rs)


returns(%)

March 30, 2007 Last 1127days

104.504 20.92** 12.35**

October 30,

2009

Last Six

months (182

days)

166.119 13.11* 13.62*


(366 days)

107.584 74.38**~ 66.28**~


(1096 days)

111.805 18.87** 10.2**


(1827 days)

49.931 30.31** 22.1**


(3654 days)

16.100 27.82** 15.84**

October 11,

1996

Since

Inception

(4949 days)

10.000 25.98** 15.57**

48




Nature of scheme Open Ended Equity Linked Savings

Scheme with a lock-in period of 3 years

Inception Date December 18, 1995





in)

NIL


Exit load


No Exit Load shall be levied on bonus

units and units allotted on dividendreinvestment

NAV details




Investment pattern:

The asset allocation under the respective Plans will be as follows



Instruments

Minimum 80% Medium to High

49



Debt & Money Market

Instruments

Maximum 20% Low to Medium

Investmnet strategy

Debt securities (in the form of non-convertible debentures, bonds, secured premium

notes, zero interest bonds, deep discount bonds, floating rate bond / notes, securitised

debt, pass through certificates, asset backed securities, mortgage backed securities

and any other domestic fixed income securities including structured obligations etc.)

include, but are not limited to :

• Debt obligations of the Government of India, State and local Governments,

Government Agencies and statutory bodies (which may or may not carry a

state / central government guarantee),• Securities that have been guaranteed by Government of India and State

Governments,• Securities issued by Corporate Entities (Public / Private sector undertakings),• Securities issued by Public / Private sector banks and development financial

institutions.

Money Market Instruments include :

• Commercial papers• Commercial bills• Treasury bills• Government securities having an unexpired maturity upto one year• Collateralised Borrowing & Lending Obligations (CBLO)• Certificate of deposit

• usance bills

• Permitted securities under a repo / reverse repo agreement

• Any other like instruments as may be permitted by RBI / SEBI from time totime

Returns

50



HDFC tax saver fund(NAV as at evaluation date 30-April-2010, Rs. 209.191


unit(rs)


returns(%)

March 30, 2007Last 1127

days133.882 15.55** 11.22**

October 30,

2009

Last Six

months (182

days)

177.317 17.98* 13.36*

April 29, 2009Last 1 Year

(366 days)112.05 86.38**~ 63.81**~

April 30, 2007Last 3 Years

(1096 days)144.308 13.16** 8.93**

April 29, 2005 Last 5 Years(1827 days)

68.640 24.94** 20.91**

April 28, 2000Last 10 Years

(3654 days)18.820 27.2** 15.11**

March 31, 1996

Since

Inception

(5143 days)

10.000 32.51** 13.88*

• *Absolute Returns• ** Compounded Annualised Returns• Benchmark index S&P CNX 500• Fund Manager : Mr. Vinay Kulkarni

4. Hdfc prudence fund

Investment objective : To provide periodic returns and capital appreciation over a

long period of time from a judicious mix of equity and debt investments with an aim to

prevent/minimize any capital erosion.


Nature of scheme Open Ended Balanced Scheme

Inception Date February 01, 1994



51





in)

NIL


Exit load


In respect of each purchase / switchin of

units, an Exit Load of 1.00% is payable if

Units are redeemed / switched-out within

1 year from the date of allotment.

No Exit Load is payable if Units are



NAV details

Investment pattern following table provides the asset allocation of the Scheme's

portfolio.The asset allocation under the respective Plans will be as follows.






Instruments

40 - 75% Medium to High

Debt & Money Market

Instruments

25 - 60% Low to Medium

52



Investment Strategy :

As outlined above, the investments in the Scheme will comprise both debt and

equities. The Fund would invest in Debt instruments such as Government securities,

money market instruments, securitised debts, corporate debentures and bonds,

preference shares, quasi Government bonds, and in equity shares. In the long term,the mix between debt instruments and equity instruments is targeted between 60:40

and 40:60 respectively. The exact mix will be a function of interest rates, equity

valuations, reserves position, risk taking capacity of the portfolio without

compromising the consistency of dividend pay out (in the case of Dividend Plan), need

for capital preservation and the need to generate capital appreciation.

Returns

53





• Benchmark index CRISIL Balanced Fund Index

• Fund Manager : Mr. Prashant Jain

5. Hdfc Monthly Income Plan long term:

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 theScheme`s assets in equity and equity related instruments. However, there can be no

assurance that the investment objective of the Scheme will be achieved.

. Basic Scheme Information

HDFC prudence fund (NAV as at evaluation date 30-April-2010, Rs. 188.453

per unit)Fund Date period Nav per

unit(rs)



days

110.132 19** 11.29**

October 30, 2009 Last 182 days 160.038 17.76* 9.1*


(366 days)

104.758 79.61**~ 33.82**


(1096 days)

115.438 17.73** 9.9**


(1827 days)

60.743 25.38** 17.01**


(3654 days)

#N/A N.A. N.A.

February 1, 1994 Since

Inception

(5932 days)

10.000 21.71** N.A.

54



NAV details


portfolio.The asset allocation under the respective Plans will be as follows

Nature of scheme An open-ended income scheme. Monthly

income is not assured and is subject to

availability of distributable surplus

Inception Date December 26, 2003





in)

NIL


Exit load


In respect of each purchase / switchin of

units, an Exit Load of 1.00% is payable if

Units are redeemed / switched-out within

1 year from the date of allotment.

No Exit Load is payable if Units are




Long Term Growth Plan 09 Jun 2010 21.4471Long Term Monthly

Dividend Option

09 Jun 2010 12.7057

Long Term Quarterly

Dividend Option

09 Jun 2010 13.1351



Instruments

75 Low to Medium

Debt & Money Market

Instruments

25 Medium to High

55



Returns



• Benchmark index CRISIL MIP blended Index

• Fund Manager : Mr. Shobhit Mehrotra

6. Hdfc Liquid fund

Investment objective : The primary objective of the Scheme is to enhance income

consistent with a high level of liquidity, through a judicious portfolio mix comprising of

money market and debt instruments.Basic Scheme Information

Nav details

HDFC MIP fund(NAV as at evaluation date 30-April-2010, Rs. 21.4447 per unit)

Fund Date period Nav per

unit(rs)



days

14.7446 12.9** 8.52**

October 30, 2009 Last 182 days 20.0979 6.7* 4.73*


(366 days)

17.2035 24.58** 9.97**


(1096 days)

14.987 12.67** 8.2**


(1827 days)

11.300 13.65** 8.84**


(3654 days)

#N/A N.A. N.A.

December 26,2003

SinceInception

(2317 days)

10.000 12.77** 7.28**

Nature of scheme Open Ended High Liquidity Income

Scheme

Inception Date October 17 , 2000

Option/Plan Dividend Plan,Growth Plan. The Dividend

Plan offers Daily Dividend option

(reinvestment facility only); Weekly andMonthly Dividend option (with payout

and Reinvestment facility).Entry Load


in)

NIL


Exit load


NIL

56



Returns



• Benchmark index CRISIL liquid fund Index

• Fund Manager : Mr. Shobhit Mehrotra

Plan Name NAV Date NAV Amount

Daily Div Reinvest 09 Jun 2010 10.1982

Weekly Dividend Option 09 Jun 2010 10.3129

Monthly Dividend Option 09 Jun 2010 10.2748

Growth Plan 09 Jun 2010 18.3939

HDFC liquidfund(NAV as at evaluation date 30-April-2010, Rs. 18.305 per

unit)

Fund Date period Nav per

unit(rs)


returns(%)

Apr 23,10

Last 7 days 18.28 0.08 0.06

Apr 15,10

Last 15 days 18.27 0.18 0.14

Mar 30,10

Last 1 month 18.23 0.37 0.31

Jan 29,10

Last 3 months (1096

days)

18.12 0.99 0.97

Oct 30,09

Last 6months (1827

days)

17.94 1.98 1.67

Apr 29,09

Last 1 year (3654

days)

17.54 4.33 3.17

Apr 30,07

Last 3 years 14.994 6.87 6.37

Apr 30,05

Last 5 years 13.21 6.73 6.21

Oct 17,00

Since inception(3482

days)

10.00 6.54 N.A

57



Investment pattern: The following table provides the asset allocation of the

Scheme's portfolio.The asset allocation under the respective Plans will be as follows.

Investment strategy : The Scheme will retain the flexibility to invest in the entire

range of money market and debt instruments.

7. Hdfc cash management savings plan

Investment objective

The investment objective of the Scheme is to generate optimal returns while

maintaining safety and high liquidity.


Type of Instruments Normal

Allocation

(% of Net

Assets)

Normal

Deviation

(% of Normal

Allocation)

Risk Profile of

the Instrument

Money Market

Instruments (including

cash/ call money)

50-90 50 Low

Debt

Instruments(including

securitised debt)

10-50 50 Low to Medium

58



NAV details


portfolio.The asset allocation under the respective Plans will be as follows

Returns

Nature of scheme Open Ended High Liquidity Income

Scheme

Inception Date November 18, 1999

Option/Plan Growth Option, Daily dividend option(reinvestment facility only) and Weekly

dividend option (with payout and

Reinvestment facility).Entry Load


in)

NIL


Exit load


NIL

Plan Name NAV date NAV amount

Daily Div Reinvest 09 Jun 2010 10.6364

Growth Option 09 Jun 2010 19.42



Instruments

Upto 100 Low to Medium

Debt & Money Market

Instruments

Upto 100 Very low

59





• Benchmark index CRISIL liquid fund Index

• Fund Manager: Mr. Anil Bamboli

Comparative Analysis of HDFC with DSP BLACK ROCK and BIRLA SUN LIFE:

In this study I have considered 3 categories of funds namely Equity, Debt, Balanced.

In Equity category I have considered Hdfc Equity fund, Hdfc Top 200, Hdfc Tax saver,

Hdfc Infrastructure. In Debt category I have considered Hdfc Liquid fund, Hdfc cash

Mananagemnt Fund, Hdfc MIP long term

1. Equity funds

These funds often aims to provide medium to long term capital appreciation through

investment in shares of quality companies and by focusing on well established large

HDFC Cash management (NAV as at 30-April-2010, Rs. 19.3238 per unit)

Date period NAV per

unit(Rs.)


returns(%0

Apr 23,10

Last 7 days 19.30 0.09 0.06

Apr 15,10

Last 15 days 19.28 0.19 0.14

Mar 30,10Last 1 month 19.24 0.41 0.31

Jan 29,10

Last 3 months

(1096 days)

19.11 1.09 0.97

Oct 30,09

Last 6months

(1827 days)

18.91 2.16 1.67

Apr 29,09

Last 1 year

(3654 days)

18.46 4.61 3.17

Apr 30,07

Last 3 years 15.75 7.04 6.37

Apr 30,05Last 5 years 13.84 6.89 6.21

Apr 28 ,00 Last 10 years 10.07 6.73 N.ANov 18,99 Since inception 10.00 6.54 N.A

60



sized companies often leaders in their respective businesses with a scale and size that

makes them less prone to external shocks.

NAV : Higher the value better is the performance. When the NAV of Hdfc equity fund

(244.72) is compared with other funds such as DSP and Birla equity.Birla equity hasmore NAV than HDFC and DSP

• The Asset managed by Hdfc equity fund , which is huge. Whereas, Asset managed

by other funds are very less compared to this and come no way near to this fund.

• Expense Ratio - Expenses are a big factor in long-term, relative performance, and

funds with lower expenses generally outperform those with higher expenses. In this

case Hdfc Equity fund has successfully kept the expense ratio low compared to all

other Equity funds.

• Portfolio turnover the conventional wisdom when it comes to stock investing is

that lower turnover is better. In this case, Hdfc Equity Growth enjoys the top position

having lowest portfolio turnover. This indicates that the fund is having the lowest

churning and is less prone to risk when compared to other funds

To evaluate the risks, parameters like Standard deviation, Sharpe Ratio, Beta

and Rsquared are measured.

parameters Hdfc equity fund Dsp equity fund Birla sun life equity

fundNAV 250.88 15.48 255.64AUM 337374.40 124173.01 118293.33Expense ratio 1.83 2.04 2.00Portfolio(%) 81.84 259.00 84.00Standard deviation 36.17 33.55 36.95Sharpe ratio 0.42 0.41 0.23beta 0.99 0.91 1.01R squared 0.94 0.92 0.93alpha 7.95 7.05 1.32P\E ratio 25.04 25.37 21.96P\B ratio 4.65 4.19 3.45One year return 39.44 29.21 22.65

61



• Higher the Standard Deviation of a fund, means the fund is more volatile

and its’ returns are likely to fluctuate more.. • On the basis of standard deviation ,

the maximum volatility is seen in the Birla sunlife Equity fund obviously they are more

risky and can result into higher profit to investors followed by Hdfc equity growth fund.

The least volatility is observed on the funds of DSP equity fund. Since volatility is less,one can infer that the risk associated with the fund is less.

• Sharpe ratio (also known as Reward-To-Volatility Ratio) indicates the excess return

per unit of risk associated with the excess return. The higher the ratio, the better is

the risk-adjusted performance. Hdfc equity fund is having highest Sharpe ratio when

compared with its counterparts.

• Beta measures the fund’s volatility to a broad benchmark. Hdfc equity, Dsp equity

has a beta of 0.99,and 0.91 which means that the fund is conservative and not in sync

with the market whereas Birla Sunlife Equity fund has a beta of 1.01, which makes it

an volatile portfolio.

• R-Squared : It is a measure of how much of a fund's past returns can be explained

by the returns from the market overall. R-squared reflects the percentage of a fund's

movements that are explained by movements in its benchmark index. All these funds

are having reasonable R squared. Hdfc equity is having highest R squared value.

• The P/E Ratio: It is a valuation ratio of a company's current share price compared

to its per share earnings. Confidence that a company will improve its profitability or

remain profitable generally results in a higher P/E ratio. In this case Dsp equity fund

has highest P/E ratio then followed by Hdfc equity fund.• The P/B Ratio: It is a ratio used to compare a stock's market value to its book

value. It is also known as the "price-equity ratio.” A lower P/B ratio could mean that

the stock is undervalued. This ratio also gives some idea of whether you're paying too

much, for what would be left if the company went bankrupt. In this case Hdfc equity

fund has highest P/B ratio when compared to others.

• Alpha is often considered to represent the value that a portfolio manager adds to or

subtracts from a fund's return. A positive alpha of 1.0 means the fund has

outperformed its benchmark index by 1%. Correspondingly, a similar negative alphawould indicate an underperformance of 1%. Hdfc Equity Growth fund has

outperformed its benchmark index

with an alpha of 7.95 compared to Dsp black rock equity fund, which is showing an

alpha of 7.05

• One year returns are more in Hdfc equity fund compared to others .

62



Hdfc Top 200 fund

The NAV of Hdfc top 200 fund is more and then followed by Dsp equity top 100 fund.

parameters Hdfc top 200 fund Dsp top100 equity

fund

Birla sunlife top100

NAV 192.50 93.16 20.71AUM 401875.25 130507.18 18064.26Expense ratio 1.83 1.83 2.32Portfolio(%) 50.95 316 42Standard deviation 33.30 30.19 30.56Sharpe ratio 0.46 0.38 0.20beta 0.92 0.83 0.84R squared 0.96 0.96 0.96alpha 8.80 5.40 -0.03P\E ratio 29.93 21.94 20.16P\B ratio 23.29 24.70 20.58One year return 4.72 4.93 3.84

63



• The Asset managed by Hdfc top 200 fund is 401875.25 lakhs, which is huge.

Whereas, Asset managed by other funds are very less compared to this and come no

way near to this fund.


funds with lower expenses generally outperform those with higher expenses. In thiscase,.In this case both Hdfc top 200 fund, Dsp equity top 100 fund has maintained

lower expense ratios.

• Dsp top 100 equity fund is having the highest portfolio turnover . The churning by

the fund manager in the securities is quite high. This may happen because lot of

managers think that churning can result into higher profits. However, the fact is higher

churning results into higher expense ratio.

•In case of Standard deviation , Hdfc Top 200 equity fund is lagging behind when

compared with funds like Dsp and Birla Sunlife. The fluctuation in Hdfc Top 200 equity

fund is more as compared to other funds, which is a cause of concern because higher

standard deviation means high risk. It indicates the tendency of fund’s NAV to rise and

fall in short period.

• In case of Sharpe Ratio Hdfc Top 200 equity fund is the best here and Birla sun

life top 100 equity fund is in the last position when compared with same category

funds and with its competitors.

• The Beta of all funds are less than 1, which shows that they are conservative in the

market.• The r squared value of all are below 90 which indicates that there is no strong

leader in this segment.

.•Hdfc top 200 fund has outperformed its benchmark index with an alpha of 8.80

compared to Dsp black rock equity fund, Birla sunlife.

.• In case of P/E ratio , P/E ratio of Dsp top 100 equity fund is 24.70, which is

slightly higher than the other funds but facing a tough competition from emerging

funds. All other funds have a similar P/E ratio.

• In case of P/B ratio , the best performance comes from Dsp top 100 equity fund,which is having a P/B ratio of 4.93, is followed closely by other ones like Hdfc and

Birla.

• One year returns for Hdfc top 200 are more compared with others.

64



Tax Benefit Funds

These funds often seeks medium to long-term growth of capital, with income tax

rebate.

Death and taxes, they say, are the two inevitabilities. While one can hardly do

anything about the first, tax saving instruments can offer relief to alleviate some of

the pain caused by the latter. While tax-saving instruments like EPF, PPF, and NSChave been there for long, equity linked savings scheme (ELSS) are now offering

investors a way to look beyond the world of low returns.

NAV : Hdfc tax saver fund has managed to maintain a very good position and aheadparameters Hdfc tax saver fund Dsp tax saver fund Birla sunlife tax

planNAV 216.30 16.43 12.82

AUM 152249.62 50520.47 4841.53Expense ratio 1.94 2.08 2.41

Portfolio(%) 18.99 114 72.00Standard deviation 33.83 35.77 34.58Sharpe ratio 0.33 0.37 0.06beta 0.92 0.95 0.94R squared 0.94 0.89 0.94alpha 4.37 6.36 -.4.64P/E ratio 22.21 23.57 25.29P\B ratio 4.73 5.23 5.171 year return 43.38 33.27 12.52

65



• In terms of AUM , Hdfc tax saver fund is the leader with assets of152249.62 lakhs .

Other competitors are no way near Hdfc tax saver fund in terms of assets.

• Expense ratio is sensitive to size and type of fund. Larger the fund, lower the

expense ratio. In terms of expense ratio, Hdfc tax saver fund races ahead of its

competitors because of having lowest expense ratio.• Portfolio turnover of Hdfc tax saver is very low at 18.99 as compared to others,

Dsp tax saver is having highest portfolio turnover of 114%, which means that it is

resulting into higher expenses for its unit holders and reducing their return.

• Dsp tax saver is having highest standard deviation followed by Birla sun life and

Hdfc tax saver. Highest Standard deviation suggests that fund is highly volatile and

can give heavy returns or losses.

•Hdfc tax saver, Dsp tax saver are having comparatively higher Sharpe ratio . The

other fund is lagging behind and is having lower Sharpe ratio. Higher the Sharpe ratio

better is the performance.

• A low- beta fund will rise less than the market on the way up and lose less on the

way down. When safety of investment is important, a fund with a beta of less than one

is a better option. Such a fund may not gain much more than the market on the

upside; it will protect returns better when market falls. The Beta of all funds is less

than 1, which shows that they are conservative in the market.

• All these funds are having reasonable r-squared .

• Birla sun life tax saver share the first position in the race with the P /E ratio of 25.29

followed by Dsp and Hdfc.• Dsp tax saver is highest P/B ratio , which shows the confidence of investors on this

fund.

• Alpha – Dsp tax saver has outperformed its benchmark index with an alpha of 6.36

compared to Hdfc tax saver, which is showing an alpha of 4.37 and negative alpha, is

shown by Birla sun life which indicates under performance.

• One year returns for Hdfc tax saver fund are more compared with others.

66



Balanced funds : They aim to provide a long-term capital appreciation and current

income by investing in equity and equity related securities and high quality fixedincome instruments

parameters Hdfc prudence fund Dsp balanced fund Birla sunlife

freedom fundNAV 195.29 62.39 32.36AUM 179176.37 26481.14 4646.67Expense ratio 1.84 2.04 2.38Portfolio(%) 242 269Standard deviation 29.14 24.99 19.70

Sharpe ratio 0.49 0.40 -0.03beta 1.07 0.93 0.69R squared 9.73 0.92 0.82alpha 0.89 6.05 -3.60P\E ratio 22.37 26.24 21.31P\B ratio 4.75 4.32 3.86One year return 38.97 22.74 -0.09

NAV of Hdfc prudence fund is the best among all the funds having NAV of 190.81

while all other funds’ NAV lies within 30 to 60.This fund has achieved NAV of sixty plus

which shows that stocks in the fund’s portfolio are extremely good and are giving good

returns.

• This type of funds usually has less amount of asset under management . These

types of funds are for those investors who want regular income on their investments

along with safety of their funds. As earlier said most of the population in India is

young and hence there are more risk takers. However, we see Hdfc prudence way

ahead of its competitors managing assets of around 179176.37 lakhs.

• Expense ratio of all the funds is on higher side and they are resulting into

unnecessary cut in the profits of unit holders. It shows if you invest Rs 10,000 in afund with an expense ratio of 1.84 per cent, then you are paying the fund Rs 184 to

manage your money. In other words, if a fund earns 10 per cent and has a 1.84 per

cent expense ratio, it would mean an 8.16 per cent return for an investor. Here, again

Hdfc prudence is giving the best returns compared to all other funds.

67



• Portfolio turnover ratios are not available for all the funds so comparison is not

possible.

• Birla sun life balanced fund has the lowest standard deviation and is comparatively

exposed to less risk while Hdfc prudence has highest standard deviation which

indicates that they are more exposed to risk.• Sharpe ratio is a measure that uses the standard deviation and excess return to

determine reward per unit of risk. High values indicate greater return per unit of risk.

Hdfc balanced fund steals the show on this factors loosely followed by Dsp balanced

fund.

• Beta of Dsp balanced, Birla sun life balanced are less than 1 which indicates that

they are very conservative and are not in tandem with market.Hdfc prudence fund is

having beta of 1.07 which indicates it is more volatile than the market.

• Again, R-squared of all the balanced funds are less than 95. This shows that there

is no strong leader in this segment.

• P/E Ratio of Dsp Balanced fund is the highest P/E Ratio showing the confidence that

the company will remain profitable.

• Hdfc prudence fund is having highest P/B ratio , which shows the confidence of

investors on this fund.


subtracts from a fund's return. In this case, Dsp Balanced fund has outperformed its

benchmark index with an alpha of 6.05. Other funds have a comparatively very low

alpha values or are negative in nature which indicates their underperformance.• One year returns for Hdfc prudence fund are more compared with others.

68



Income funds : These schemes invest in money markets, bonds and debentures of

corporate companies with medium and long-term maturities. These schemes primarily

target current income instead of capital appreciation.

1. MIP-Monthly Income Plan

• The NAV of Birla sun life Mip fund is more then followed by Hdfc Mip long term.

• The Asset managed by Hdfc Mip long term is 250962.56 lakhs, which is huge.

Whereas, Asset managed by other funds are very less compared to this and come no

way near to this fund.



case Hdfc Mip long term is maintaining lower expense ratio.

• Portfolio turnover ratios are not available for all the funds so comparison is not

possible

•In case of Standard deviation , Hdfc Mip long term fund is lagging behind when

compared with funds like Dsp and Birla Sun life. The fluctuation in Hdfc Top 200 equityfund is more as compared to other funds, which is a cause of concern because higher

standard deviation means high risk. It indicates the tendency of fund’s NAV to rise and

fall in short period.

parameters Hdfc Mip longtem

fund

DspSavings

manager(aggressive

fund)

Birla sunlife Mip

fund

NAV 21.75 18.51 25.30AUM 250962.56 8318.50 11344.42Expense ratio 1.58 2.14 2.11Portfolio(%) - - 10.00

Standarddeviation

10.60 6.64 7.84

Sharpe ratio 0.69 0.59 0.48beta 1.14 0.70 0.78R squared 0.73 0.72 0.64alpha 4.43 2.13 1.74P\E ratio 23.80 16.93 23.73P\B ratio 4.82 3.59 4.51One year return 15.10 9.50 8.43

69



• In case of Sharpe Ratio Hdfc Mip long term fund is the best here and Birla sun life

Mip fund is in the last position when compared with same category funds and with its

competitors.

• The Beta of Hdfc Mip long term fund is more than 1, which shows that they are

more volatile relative to the benchmark index and remaining funds are conservative innature.

• The r squared values of all are below 90 which indicates that there is no strong

leader in this segment.

• In case of P/E ratio , Hdfc Mip long term fund is 23.80, which is slightly higher than

Birla sun life Mip.

• In case of P/B ratio , the best performance comes from Hdfc Mip long term fund,

which is having a P/B ratio of 4.82, is followed closely by Birla.

• In case of alpha Hdfc Mip long term fund has outperformed its benchmark index with

an alpha of 4.43.

• One year returns for Hdfc MIP long term fund are more compared with others.

2. Liquid fund

parameters Hdfc liquid fund Dsp liquidity fund Birla sunlife cash

70



plus fundNav 18.45 22.14 24.74AUM 3187.10 3134.59 12313.33Expense ratio 0.28 0.57 0.46Portfolio(%) - - -Standard deviation 0.19 0.20 0.19Sharpe ratio 6.14 0.67 2.01beta 0.02 0.01 0.01R squared 0.02 0.02 0.01alpha 0.89 0.37 0.371 year return 4.28 3.57 3.74

NAV: Birla sun life cash plus fund has managed to maintain a very good position and

ahead of its competitors in the segment with a NAV of Rs. 24.66. This shows that Birla

sun life cash plus fund is outperforming its competitors.

• In terms of AUM , Birla sun life cash plus fund is the leader with assets of12313.33

lakhs

• Expense ratio is sensitive to size and type of fund. Larger the fund, lower the

expense ratio. In terms of expense ratio, Hdfc liquid fund races ahead of its

competitors because of having lowest expense ratio.

• Portfolio turnover ratio of all the three funds are not available so comparison is

not possible.

• Standard Deviations of all the funds are similar and among these Dsp liquidity is

more which indicates volatility than competitors.

•Hdfc liquid fund is having comparatively higher Sharpe ratio . The other fund islagging behind and is having lower Sharpe ratio. Higher the Sharpe ratio better is the

performance.

• A low- beta fund will rise less than the market on the way up and lose less on the

way down. When safety of investment is important, a fund with a beta of less than one

is a better option. Such a fund may not gain much more than the market on the

upside; it will protect returns better when market falls. The Beta of all funds is less

than 1, which shows that they are conservative in the market.

• All these funds are having very low r-squared values.

• P/E ratios and P/B ratios of all the funds are not available so they cannot be

compared.


subtracts from a fund's return. All funds have a comparatively very low alpha values

which indicates their underperformance

• One year returns for Hdfc liquid fund are more compared with others.

71



3. Cash management fund

72



NAV : Higher the value better is the performance. The NAV of Dsp money manager

fund (244.72) is highest among all which shows good performance.

• The Asset managed by Hdfc cash management fund, which is huge. Whereas,

Asset managed by other funds are very less compared to this and come no way near

to this fund.



case Hdfc cash management fund and Birla sun life cash manager fund has

successfully kept the expense ratio low.• Portfolio turnover ratios are not available so they cannot be compared.

• Higher the Standard Deviation of a fund, means the fund is more volatile

and its’ returns are likely to fluctuate more.. On the basis of standard deviation , the

maximum volatility is seen in the Dsp money manager fund obviously they are more

risky and can result into higher profit to investors followed by Birla sunlife cash

manager fund. The least volatility is observed in Hdfc cash management fund. Since

volatility is less, one can infer that the risk associated with the fund is less.

• Sharpe ratio (also known as Reward-To-Volatility Ratio) indicates the excess return

per unit of risk associated with the excess return. The higher the ratio, the better is

the risk-adjusted performance. Hdfc cash management fund is having highest Sharpe

ratio when compared with its counterparts.

• Beta of all the funds is less than 1 which indicates that all funds are conservative in

market.

parameters Hdfc cash management

fund

Dsp money

manager fund

Birla sunlife

cash managerfund

NAV 19.49 1280.03 22.71AUM 117077.01 12105.48 2671.51Expense ratio 0.25 0.86 0.25Portfolio(%)Standard

deviation

0.18 0.36 0.20

Sharpe ratio 6.26 2.07 4.07beta 0.02 0.07 0.01R squared 1.13 0.00 0.01

alpha 0.03 0.74 0.821 year return 4.56 3.55 4.16

73



• R-Squared: It is a measure of how much of a fund's past returns can be explained

by the

Returns from the market overall. All these funds are having very low values which

indicate all the percentages of fund’s movements are not explained by movements in

its benchmark index.• The P/E Ratio and P/B Ratio are not available so they cannot be compared.

• Alpha of Hdfc cash management fund, Birla sun life cash manager fund Dsp money

manager fund are greater than 0 which means the fund is in sync with the benchmark

index.

• One year returns for Hdfc Cash management fund are more compared with others.

Thematic funds: Thematic funds were meant to be the solution to that malaise.

Thematic funds invest in a theme rather than in a single sector. So while the fund

manager’s investment options remained restricted to the theme, there are still several

sectors to choose from within that theme. A theme like infrastructure for instance, has

several related sectors like cement, steel, capital goods/engineering as also unrelatedsectors like banking and finance

parameters Hdfc infrastructure Dsp tiger fund Birla infrastructure fundNAV 11.70 46.79 17.00AUM 102325.27 178028.95 26577.32Expense ratio 1.90 1.78 2.22Portfolio(%) 20.01 95.00 65.00Standard

deviation

37.81 41.29

Sharpe ratio 0.24 0.26beta 1.04 1.12R squared 0.96 0.93alpha 1.54 2.63P\E ratio 27.84 22.51 24.68P\B ratio 3.72 3.50 3.281 year return 30.69 13.81 17.95

74



• The NAV of Dsp tiger fund funds is more (45.17) and followed by Birla sun life

infrastructure fund.

• The Asset managed by Dsp tiger fund is178028.95lakhs, which is huge.


funds with lower expenses generally outperform those with higher expenses. In thiscase, Dsp tiger fund has maintained low expense ratio.

• Dsp tiger fund is having the highest portfolio turnover . The churning by the fund

manager in the securities is quite high. This may happen because lot of managers

thinks that churning can result into higher profits. However, the fact is higher churning

results into higher expense ratio.

• Standard Deviation, Sharpe ratio, Beta, R squared, alpha value of all the funds are

not available. Hence, the comparison has not been possible.

• P/E ratio: Confidence that a company will improve its profitability or remain

profitable generally results in a higher P/E ratio. In this case Hdfc infrastructure fund

has highest P/E ratio then followed by Birla infrastructure fund.

• P/B ratio : A lower P/B ratio could mean that the stock is undervalued. It is highest

in Hdfc infrastructure fund.

• One year returns for Hdfc Infrastructure fund are more compared with others.

75



CHAPTER 6

FINDINGS AND CONCLUSION

76



FINDINGS AND CONCLUSION

Equity funds

• NAV : Higher the value better is the performance. When the NAV of Hdfc equity

fund (244.72) is compared with other funds such as DSP and Birla equity.Birla

equity has more NAV than HDFC and DSP.• Hdfc Equity fund has successfully kept the expense ratio low compared to all

other Equity funds.

• Sharpe ratio (also known as Reward-To-Volatility Ratio) indicates the excess

return per unit of risk associated with the excess return. The higher the ratio,

the better is the risk-adjusted performance. Hdfc equity fund is having highest

Sharpe ratio when compared with its counterparts.

• The NAV of Hdfc top 200 fund is more and then followed by Dsp equity top 100

fund.• Hdfc top 200 fund, Dsp equity top 100 fund has maintained lower expense

ratios.Hdfc Top 200 equity fund is the best here and Birla sun life top 100

equity fund is in the last position when compared with same category funds

and with its competitors.

Tax saver funds

• Hdfc tax saver fund has managed to maintain a very good position and ahead

of its competitors in the segment with a NAV of Rs. 211.33. This shows that

Hdfc tax saver fund is outperforming its competitors.

77



• Hdfc tax saver fund races ahead of its competitors because of having lowest

expense ratio

• Hdfc tax saver, Dsp tax saver are having comparatively higher Sharpe ratio .

Balanced funds

• NAV of Hdfc prudence fund is the best among all the funds having NAV of

190.81.• Hdfc prudence is giving the best returns compared to all other funds due to

smaller expense ratio.

• Hdfc prudence fund steals the show on the sharpe ratio factor loosely followed

by Dsp balanced fund.

Debt funds• The NAV of Birla sun life Mip fund is more then followed by Hdfc Mip long term

• Hdfc Mip long term is maintaining lower expense ratio.

• Sharpe Ratio of Hdfc Mip long term fund is the best here and Birla sun life Mip

fund is in the last position when compared with same category funds and with

its competitors.

• NAV of Birla sun life cash plus fund has managed to maintain a very good

position and ahead of its competitors in the segment with a NAV of Rs. 24.66.• Hdfc liquid fund races ahead of its competitors because of having lowest

expense ratio.

• Hdfc liquid fund is having comparatively higher Sharpe ratio . The other fund is

lagging behind and is having lower Sharpe ratio.

• The NAV of Dsp money manager fund (244.72) is highest among all which

shows good performance.• Hdfc cash management fund and Birla sun life cash manager fund has

successfully kept the expense ratio low.• Hdfc cash management fund is having highest Sharpe ratio when compared

with its counterparts.

Thematic fund

• The NAV of Dsp tiger fund funds is more (45.17) and followed by Birla sun life

infrastructure fund. Dsp tiger fund has maintained low expense ratio.

78



• All the one year returns of all the Hdfc funds are greater than Dsp and Birla

Sunlife Mutual funds.

The study concludes that all Hdfc products which are taken for comparison have been

performing well. This can be said based on the parameters considered such as Netasset value, Assets under management, Expense ratio. Assets managed by Hdfc

products are high when compared with Birla and Dsp black rock. Even The Expense

ratios have been very low which indicates that funds are performing well and One year

returns are also high for all the products. So Finally we can conclude that Hdfc

products have been performing well and we can also suggest the customers that Hdfc

would be a better alternative for them to invest.

CHAPTER 7

BIBLIOGRAPHY

79



BIBLIOGRAPHY

Websites

• www.valuresearchonline.com

• Hdfc fund.com

• www.amfiindia.com

• www.mutualfundsindia.com

• www.investopedia.com

• Brochures and fact sheets of various funds from respective web pages