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A
PROJECT REPORT
ON
PORTFOLIO ANALYSIS OF MUTUAL FUNDS
FOR
HDFC BANK LTD.
Submitted in partial fulfillment for the degree of
Bachelor of Business Administration
Submitted to
University of Rajasthan, Jaipur, Rajasthan
Session: - 2010-2011
Supervised By: - Submitted By:-
Ms. Payal Sharma Kishor Kumawat
B.B.A. Part-III
Seth Gyaniram Bansidhar Podar CollegeRambilas Podar
road, Nawalgarh, Rajasthan
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DECLARATION
I do hereby declare that the project entitled PORTFOLIO ANALYSIS OF
HDFC-MUTUAL FUND submitted as a part of the requirement for the partial
fulfillment of batchlarof Business Administration. It is an original piece of work done
by me under the guidance ofMr. Nipun Kumar.
Date: Signature
PREFACE
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Someone has rightly said that practical knowledge is far better than
classroom teaching. During the course of this project I actually realized
how true it is when I analyzed the Insurance Industry. This project
enabled us to know about the Human value and investors needs and
competitors activities in the real world Insurance. The subject of our
study isPORTFOLIO ANALYSIS OF MUTUAL FUNDS forwhich I
did a detailed study of features of Insurance offered by different
Companys followed by a market research in order to know the investing
patterns and concerns of the investors thereby identifying the potential
customers for these products.
The report contains at first, the brief introduction about the
company, the products and services being offered by the Future
Generally, comparative analysis of different products offered by different
Companys in Insurance Industry and then the findings and analysis of the
research on the basis of which final suggestions and conclusion has been
drawn..
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Acknowledgements
If words are considered to be signs of gratitude then let these
words Convey the very same my sincere gratitude to HDFC BANK for
providing me with an opportunity to work with BANK and giving
Necessary directions on doing this project to the best of my abilities.
I am highly indebted to Mr. Nipun Kumar, Sales Manager and
Company project guide, who has provided me with the necessary
information and also for the support extended out to me in the
Completion of this report and his valuable suggestion and comments On
bringing out this report in the best way possible.
I also thank Ms. Payal Sharma, Prof. of Management, who has
sincerely supported me with the valuable insights into the completion of
this project.
I am grateful to all faculty members of SETH G.B. PODAR COLLEGE
and my Teachers who have helped me in the successful completion of this
project.
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EXECUTIVE SUMMARY
Life has always been an uncertain thing. To be secure against
unpleasant possibilities, always requires the utmost resourcefulness and
foresight on the part of man. To pray or to pay for protection is the spirit
of the humanity. Man has been accustomed to pray God for protection
and security from time immemorial. In modern days Insurance Companies
want him to pay for protection and security. The insurance man says "God
helps those who help themselves"; probably he is correct.
Too many people in this country are not in employment; and work
for too many no longer guarantees income security. Several millions are
part-time, self employed and Low-earning workers living under pitiable
circumstances where there is no security cover against risk. Further the
inherent changing employment risks, the prospect of continual change in
the work place with its attendant threats of unemployment and low pay
especially after the adoption of New Economic Policy and the imminent
life cycle risks - a new source of insecurity which includes the changing
demands of family life, separation, divorce and elderly dependents are
tormenting the society.
Risk has become central to one's life. It is within this background
life insurance policy has been introduced by the insurance companies
covering risks at various levels. Life insurance coverage is againstdisablement or in the event of death of the insured, economic support for
the dependents. It is a measure of social security to livelihood for the
insured or dependents. This is to make the right to life meaningful, worth
living and right to livelihood a means for sustenance. Therefore, it goes
without saying that an appropriate life insurance policy within the paying
capacity and means of the insured to pay premium is one of the social
security measures envisaged under the Indian Constitution. Hence, right
to social security, protection of the family, economic empowerment to
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the poor and disadvantaged are integral part of the right to life and
dignity of the person guaranteed in the constitution.
Man finds his security in income (money) which enables him to buy
food, clothing, shelter and other necessities of life. A person has to earn
income not only for himself but also for his dependents, viz., wife and
children. He has to provide legally for his family needs, and so he has to
keep aside something regularly for a rainy day and for his old age. This
fundamental need for security for self and dependents proved to be the
mother of invention of the institution of life insurance.
Table of Content
S.N. Particulars Page no.1. Abstract of the Report 10-12
2. Introduction
Portfolio Analysis
13-23
3. WHY HDFC IS BETTER
?
24-26
4. MUTUAL FUNDS 27-55
5. Mutual Fund Portfolio
Construction
56-61
6. How do Mutual Funds
Earn Money?
62-67
7. Research
Methodology
68-71
8. Limitations of the
Study
72-74
9. Data Analysis 75-82
10. Finding & Suggestion 83-84
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11. Recommendation 85
12. Conclusion 86
13. Bibliography 87
ABSTRACT OF THE REPORT
The report basically deals with Mutual funds. It would enable the reader to
get an insight into the world of Mutual Funds. It gives a general overview of Mutual
Funds giving the definition, the objectives, characteristics, benefits, types and the
risk involved in Mutual Funds.
PORTFOLIO ANALYSIS OF HDFC MUTUAL FUNDS
This report contains the different investment strategies taken by the investors
(mainly small investors) and the trends of investment in different investment
instruments. Project focused on findings of risk tolerance of investors and the time
horizon they want to remain invested n the market. The project extended to find out the
instrument in which different investor is now investing evaluating the projecting risk in
the instrument.
To understand the trend of the investor I have gone through an already taken
field survey, based on investment strategy questionnaire. The result of the survey
depicts a clear picture of current investment trend in Indian market. The analysis shows
that the age groups of 18-30 years are more adaptable to the high risk where as the age
group of 41-50 are the safe players. Annual income and the disposable income also
played a major role in the investment strategies in the investors mind. Results reveal
that most investors first priority to invest is the Tax Savings
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PORTFOLIO ANALYSIS OF MUTUAL FUNDSInvesting in equities requires time, knowledge and constant monitoring of the market.
For those who need an expert to help to manage their investments, portfolio analysis
service (PAS) comes as an answer.
The business of portfolio analysis has never been an easy one. Juggling the limited
choices at hand with the twin requirements of adequate safety and sizeable returns is a
task fraught with complexities.
Given the unpredictable nature of the market it requires solid experience and strongresearch to make the right decision. In the end it boils down to make the right move in
the right direction at the right time. Thats where the expert comes in.
The term portfolio analysis in common practice refers to selection of securities and
their continuous shifting in a way that the holder gets maximum returns at minimum
possible risk. Portfolio analysis /management services are merchant banking activities
recognized by SEBI and these activities can be rendered by SEBI authorized portfolio
managers or discretionary portfolio managers.
A portfolio manager by the virtue of his knowledge, background and experience helps
his clients to make investment in profitable avenues. A portfolio manager has to
comply with the provisions of the SEBI (portfolio managers) rules and regulations,
1993.
The project also shows the factors that one considers for making an investment decision
and briefs about the information related to asset allocation.
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I have chosen this project of Mutual Funds becauseI have of the interest in
investments especially in mutual funds besides I have specially chosen HDFC
MUTUAL FUNDS as my interest area because of the following reasons:
FINANCIAL EXPERTISE: As a joint venture of leading financial services groups.
HDFC Mutual Funds has the financial expertise required to manage your investments
safely and efficiently.
RANGE OF SOLUTIONS: It has a range of individual and group solutions, which
can be easily customized to specific needs. Its group solutions have been designed to
offer you complete flexibility combined with a low charging structure.
STRONG ETHICAL VALUES: HDFC is an ethical and Cultural Organization. False
selling or false commitment with the customers is not allowed.
MOST RESPECTED PRIVATE INSURANCE COMPANY
HDFC was awarded No-1 Private Investment Company In 2004 by the World Class
Magazine Business World. Integrity, Innovation and Customer Care.
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INTRODUCTION
PORTFOLIO ANALYSIS
Stock exchange operations are peculiar in nature and most of the Investors feel
insecure in managing their investment on the stock market because it is difficult for an
individual to identify companies which have growth prospects for investment. Further
due to volatile nature of the markets, it requires constant reshuffling of portfolios to
capitalize on the growth opportunities. Even after identifying the growth oriented
companies and their securities, the trading practices are also complicated, making it a
difficult task for investors to trade in all the exchange and follow up on post trading
formalities.
Investors choose to hold groups of
securities rather than single security that offer the greater expected returns. They
believe that a combination of securities held together will give a beneficial result if they
are grouped in a manner to secure higher return after taking into consideration the risk
element. That is why professional investment advice through portfolio management
service can help the investors to make an intelligent and informed choice between
alternative investments opportunities without the worry of post trading hassles.
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MEANING OF PORTFOLIO ANALYSIS
Portfolio analysis in common parlance refers to the selection of securities and
their continuous shifting in the portfolio to optimize returns to suit the objectives of an
investor. This however requires financial expertise in selecting the right mix of
securities in changing market conditions to get the best out of the stock market. In
India, as well as in a number of western countries, portfolio analysis/management
service has assumed the role of a specialized service now a days and a number ofprofessional merchant bankers compete aggressively to provide the best to high net
worth clients, who have little time to manage their investments. The idea is catching on
with the boom in the capital market and an increasing number of people are inclined to
make profits out of their hard-earned savings.
Portfolio analysis and management service is one of the merchant banking activities
recognized by Securities and Exchange Board of India (SEBI). The service can be
rendered either by merchant bankers or portfolio managers or discretionary portfolio
analysiss as defined in clause (e) and (f) of Rule 2 of Securities and Exchange Board
of India(Portfolio Managers)Rules, 1993 and their functioning are guided by the SEBI.
According to the definitions as contained in the above clauses, a portfolio manager
means any person who is pursuant to contract or arrangement with a client, advises or
directs or undertakes on behalf of the client (whether as a discretionary portfolio
manager or otherwise) the management or administration of a portfolio of securities or
the funds of the client, as the case may be. A merchant banker acting as a Portfolio
Manager shall also be bound by the rules and regulations as applicable to the portfolio
manager.
Realizing the importance of portfolio management services, the SEBI has laid down
certain guidelines for the proper and professional conduct of portfolio management
services. As per guidelines only recognized merchant bankers registered with SEBI are
authorized to offer these services.
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Portfolio analysis or investment helps investors in effective and efficient
management of their investment to achieve this goal. The rapid growth of capital
markets in India has opened up new investment avenues for investors.
SCOPE OF PORTFOLIO ANALYSIS
Portfolio analysis is an art of putting money in fairly safe, quite profitable and
reasonably in liquid form. An investors attempt to find the best combination of risk and
return is the first and usually the foremost goal. In choosing among different investment
opportunities the following aspects risk management should be considered:
a) The selection of a level or risk and return that reflects the investors tolerance for
risk and desire for return, i.e. personal preferences.
b) The management of investment alternatives to expand the set of opportunities
available at the investors acceptable risk level.
The very risk-averse investor might choose to invest in mutual funds. The more risk-
tolerant investor might choose shares, if they offer higher returns. Portfolio analysis in
India is still in its infancy. An investor has to choose a portfolio according to his
preferences. The first preference normally goes to the necessities and comforts like
purchasing a house or domestic appliances. His second preference goes to some
contractual obligations such as life insurance or provident funds. The third preference
goes to make a provision for savings required for making day to day payments. The next
preference goes to short term investments such as UTI units and post office deposits
which provide easy liquidity. The last choice goes to investment in company shares and
debentures. There are number of choices and decisions to be taken on the basis of the
attributes of risk, return and tax benefits from these shares and debentures. The final
decision is taken on the basis of alternatives, attributes and investor preferences.
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NEED FOR PORTFOLIO ANALYSIS:
Portfolio analysis is a process encompassing many activities of investment in
assets and securities. It is a dynamic and flexible concept and involves regular and
systematic analysis, judgment and action. The objective of this service is to help the
unknown and investors with the expertise of professionals in investment portfolio
analysis. It involves construction of a portfolio based upon the investors objectives,
constraints, preferences for risk and returns and tax liability. The portfolio is reviewed
and adjusted from time to time in tune with the market conditions. The evaluation ofportfolio is to be done in terms of targets set for risk and returns. The changes in the
portfolio are to be effected to meet the changing condition.
Portfolio construction refers to the allocation of surplus funds in hand among a
variety of financial assets open for investment. Portfolio analysis theory concerns itself
with the principles governing such allocation. The modern view of investment is
oriented more go towards the assembly of proper combination of individual securities to
form investment portfolio.
A combination of securities held together will give a beneficial result if they grouped
in a manner to secure higher returns after taking into consideration the risk elements.
The modern theory of portfolio analysis is of the view that by diversification risk
can be reduced. Diversification can be made by the investor either by having a large
number of shares of companies in different regions, in different industries or those
producing different types of product lines. Modern theory believes in the perspective ofcombination of securities under constraints of risk and returns.
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OBJECTIVES OF PORTFOLIO ANALYSIS:
The major objectives of portfolio analysis are summarized as below:-
1) SECURITY/SAFETY OF PRINICPAL: Security not only involves keeping
the principal sum intact but also keeping intact its purchasing power intact.
2) STABILITY OF INCOME: So as to facilitate planning more accurately and
systematically the reinvestment consumption of income.
3) CAPITAL GROWTH: This can be attained by reinvesting in growth securities
or through purchase of growth securities.
4) MARKETABILITY: i.e. is the case with which a security can be bought or
sold. This is essential for providing flexibility to investment portfolio.
5) LIQUIDITY I.E NEARNESS TO MONEY: It is desirable to investor so as to
take advantage of attractive opportunities upcoming in the market.
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ELEMENTS OF PORTFOLIO ANALYSIS:
Portfolio analysis is on-going process involving the following basic tasks:
Identification of the investors objectives, constraints and preferences.
Strategies are to be developed and implemented in tune with investment policyformulated.
Review and monitoring of the performance of the portfolio.
Finally the evaluation of the portfolio
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STEPS FOR PORTFOLIO CONSTRUCTION
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VISION STATEMENT
ACHIEVEMENTS
HDFC Asset Management Company Limited was awarded NDTV Profit
Business Leadership Award 2009 in the Mutual Funds Category for the period
April 1, 2008 to March 31, 2009 from amongst six nominees in the category.
NDTV Profit Business Leadership Awards have been instituted to honor
organization excellence and promise to acknowledge the best, the brightest and
the most dynamic of Indian organizations that have emerged as leaders in their
respective verticals and are taking India to economic superpower status. Theobjective of the Awards is to salute men and women who fuel Indias journey to
the forefront of the World Economy. Grand Thornton India is the Business
Process Advisors to the Awards instituted by NDTV Profit.
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VALUES
Integrity Innovation Customer centric. People care. Team work.
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VARIOUS PRODUCTS OFFERED BY HDFC- MF
HDFC GROWTH FUND (HGF)HDFC EQUITY FUND (HEF)HDFC TOP 200 FUND (HT200F)HDFC CAPITAL BUILDER FUND (HCBF)HDFC CORE & SATELLITE FUND (HC&SF)HDFC PREMIER MULTI-CAP FUND (HPMCF)HDFC INDEX FUND (HIF)HDFC ARBITRAGE FUND (HAF)HDFC CHIDRENS GILT FUND (HCGF)HDFC BALANCED FUND (HBF)HDFC PRUDENCE FUND (HPF)HDFC LONG TERM ADVANTAGE FUND (HLTAF)
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SOME BASIC PRODUCTS OFFERED BY HDFC MUTUALs
Equity /
Growth Fund
Invest primarilyin equity andequity relatedinstruments
Debt/ Income
Fund
Invest in moneymarket and debtinstruments andprovideoptimumbalance of yield.
Children's
Gift FundChildren'sGift Fund
QuarterlyInterval Fund
The primaryobjective of theScheme is togenerate regularincome throughinvestment.
Fixed Maturity
PlanInvest primarilyin Debt / MoneyMarketInstruments andGovernmentSecurities...
Liquid Funds
Provide highlevel ofliquidity byinvesting inmoney marketand debtinstruments.
Exchange
Traded Funds
Invest primarilyin equity andequity relatedinstruments
http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=09ce5a0f-6a28-4fc8-88fc-7e5544fca014http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=e11cbbf0-8a15-4104-871d-835014344bf9http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=ef2d7196-18b8-42d1-b1e8-981df943ea4dhttp://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=f6b4d7de-50ab-4216-939f-59b9054f1f81http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=3903d9f0-737d-43cc-af8c-f49fa01dc138http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=b8b13ca0-60e9-4aaf-ae60-284cac9d9dd8http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae1http://www.hdfcfund.com/Products/SchemeList.aspx?FundID=1eec86b8-02ff-4bc4-9557-58bafbcb2ae18/2/2019 Copy of Kishor Project
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WHY HDFC IS BETTER ?
1. Investment returns: investment returns and business growth provided byHDFC is validated by Bajaj Capital report. HDFC pacify the need of invertors
up to healthy level and make the strong relationship with them.
2. Financial Background and Experience: HDFC existing in the market since1977. It has a very handsome experience in the field of finance because it
completely involved in finance Sector only where as the others are running in
many other field also like Reliance (Petroleum, Textile, Telecom etc.)
3. Ethics and Values: HDFC is an ethical and cultural organization whichprevents the false selling and prohibits the false commitment to the customer.
4. Sales Force: Properly trend licensed and Educated People are the strength ofthe company. So that they could give the best customer service.
5. Huge branch network HDFC is having 450 branches in all over the country.
6. Online accessibility: It makes the process faster and make the customerdelighted.
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PORTFOLIO ANALYSIS
Analyzing elements of a firm's product mix to determine the optimum allocation of its
resources. Two most common measures used in a portfolio analysis are market growthrate and relative market share.
WHAT IS INVOLVED IN PORTFOLIO ANALYSIS?
Portfolio analysis is broadly carried out for each asset at two levels:
risk appetite of an investor. Some of the investors may prefer to play safe and acceptlow profits rather thaninvestin risky assets generating high returns.
arecalculated through the average and compound return methods. An average return issimply the arithmetic average of returns from individual assets. However, compoundreturn is the arithmetic mean that considers the cumulative effect on overall returns.
The next step in portfolio analysis involves determining dispersion of returns. It is themeasure of volatility or standard deviation of returns for a particular asset. Simply put,dispersion refers is the difference between the realinterest rate
and the calculated average return. Measuring the recovery period after a negativemarket cycle is equally
PORTFOLIO ANALYSIS TOOLS
Several specialized portfolio analysis softwares are available in the market to ease thetask for an investor. These application tools can analyze and predict future trends foralmost everyinvestment asset
. They provide essential data for decision making on the allocation of assets, calculationof risks and attainment of investment objectives.
It is still advisable to hire professional experts for highly sophisticated portfoliocompositions as they can offer direct assistance to help their clients earn good returns.
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IN SHORT
In financial terms,portfolioanalysis is a study of the performance of specificportfolios under different circumstances. It includes the efforts made to achieve the
best trade-off between risk tolerance and returns. The analysis of portfolio can beconducted either by a professional or aninvestorwho may utilize specialized softwareto do so.
PORTFOLIO ANALYSIS.
Portfolio analysis involves quantifying the operational and financial impact of theportfolio. It is vital to evaluate the functioning ofinvestmentsand timing the returnseffectively.
The analysis of a portfolio extends to all classes of investments such as bonds, equities,indexes, commodities, funds, options and securities. Portfolio analysis gainsimportance because each asset class has peculiar risk factors and returns associatedwith it. Hence, the composition of a portfolio impacts the rate of return on the overallinvestment.
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MUTUAL FUNDS
INTRODUCTION:Nowadays, bank rates have fallen down and are generally below the inflation rate.
Therefore, keeping large amounts of money in bank is not a wise option, as in real
terms the value of money decreases over a period of time. One of the options is to
invest the money in stock market. But a common investor is not informed and
competent enough to understand the intricacies of stock market. This is where
mutual funds come to the rescue. Mutual Fund is an instrument of investing
money.
A mutual fund is a group of investors operating through a fund manager to purchase
a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and
very easy to invest in. By pooling money together in a mutual fund, investors can
purchase stocks or bonds with much lower trading costs than if they tried to do it on
their own. Also, one doesn't have to figure out which stocks or bonds to buy. Butthe biggest advantage of mutual funds is diversification.
Diversification means spreading out money across many different types of
investments. When one investment is down another might be up. Diversification of
investment holdings reduces the risk tremendously.
Different investment avenues are available to investors. Mutual funds also offergood investment opportunities to the investors. Like all investments, they also carry
certain risks. The investors should compare the risks and expected yields after
adjustment of tax on various instruments while taking investment decisions. The
investors may seek advice from experts and consultants including agents and
distributors of mutual funds schemes while making investment decisions.
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THE DEFINITION:
A mutual fund is nothing more than a collection of stocks and/or bonds. You
can think of a mutual fund as a company that brings together a group of people
and invests their money in stocks, bonds, and other securities. Each investor
owns shares, which represent a portion of the holdings of the fund.
You can make money from a mutual fund in three ways:
1) Income is earned from dividends on stocks and interest on bonds. A fund pays
out nearly all of the income it receives over the year to fund owners in the form of a
distribution.
2) If the fund sells securities that have increased in price, the fund has a capital
gain. Most funds also pass on these gains to investors in a distribution.
3) If fund holdings increase in price but are not sold by the fund manager, the fund's
shares increase in price. You can then sell your mutual fund shares for a profit.
Funds will also usually give you a choice either to receive a check for distributions
or to reinvest the earnings and get more shares.
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MUTUAL FUNDS: CONCEPT:
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciation realized is
shared by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket
of securities at a relatively low cost.
MUTUAL FUND CYCLE:
The flow chart below describes broadly the working of a mutual fund:
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Mutual fund is a mechanism for pooling the resources by issuing units to the
investors and investing funds in securities in accordance with objectives as
disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries
and sectors and thus the risk is reduced. Investors of mutual funds are known as
unit holders.
The profits or losses are shared by the investors in proportion to their
investments. The mutual funds normally come out with a number of schemes
with different investment objectives which are launched from time to time. A
mutual fund is required to be registered with Securities and Exchange Board ofIndia (SEBI) which regulates securities markets before it can collect funds from
the public.
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HISTORY OF MUTUAL FUND IN INDIA
The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Reserve Bank & Government of India. The objective then
was to attract the small investors and introduce them to market investments. Since then,
The history of mutual fund in India can be broadly divided in to six distinct phases.
PHASE 11964- 1987: GROWTH OF UNIT TRUST OF INDIA
In 1963, UTI was established by an Act of Parliament. As it was the only entity
offering mutual funds in India, it was monopoly. Operationally, UTI was set up by the
Reserve Bank of India, but was later de-linked from the RBI. The first scheme and for
long one of the largest number of investors in any single investment scheme. It was
also at least partially the first open end scheme in the country.
PHASE-21987- 1993: ENTRY OF PUBLIC SECTOR FUNDS
1987 marked the entry of public sector mutual funds. With the opening of the economy,
many public sector banks financial institutions were allowed to establish mutual fund.
State Bank of India established the first non-UTI mutual. Fund- SBI mutual fund in
Nov 1987. this was followed by can bank Mutual fund , LIC Mutual Fund, Indian Bank
Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund & PNB Mutual Fund.
These funds helped in enlarging the investor community & investible funds. From
1987-88 to 1992-93, the assets under management increased from Rs. 6700 cr. To Rs.
47004 Cr. nearly seven times.
During this period, investor showed a marked interest in mutual funds, allocating a
larger part of their savings to investment in the funds. UTI was still the largest segment
of the industry, with about 80% market share.
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PHASE 3 -1993-96: EMERGENCE OF PRIVATE FUNDS
A new era in the mutual fund industry began in 1993 with the permission granted for
the entry of private sector funds. This gave the Indian investors a broader choice offund families and increasing competition to the existing public sector funds. Quite
significantly, foreign fund management companies were also allowed to operate mutual
funds, most of them coming into India through their joint ventures with Indian
promoters. These private funds have brought in with them the latest product
innovations, investment management techniques and investor-servicing technology that
make the Indian mutual fund industry today a vibrant and growing financial
intermediary.
PHASE-4 1996-99: GROWTH AND SEBI REGULATION
Since 1996, the mutual fund industry in India saw tighter regulation and higher growth.
It scaled new heights in terms of mobilization of funds & no. of players. Deregulation
& liberalization of Indian economy had introduce competition provide impetus to the
growth of the industry. Finally most investors small or large started showing interest inmutual funds.
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PHASE 5 -1999-2004: EMERGENCE OF LARGE & UNIFORM
INDUSTRY
The major development in the fund industry has been the creation of a level playingfield for all mutual funds operating in India. This happened in February 2003, when the
UTI Act was repealed. UTI has no longer legal status as a trust established by Act of
Parliament. Instead, it has also adopted the same structure as any other fund in India- a
Trust and an Asset Management Company. UTI Mutual Fund is present name of the
erstwhile Unit trust of India. While UTI functioned under separate law of Indian
Parliament earlier, UTI Mutual Fund is now under the SEBIs Regulation, 1996 like all
other Mutual Funds in India. UTI Mutual Fund is still the largest player in the Indian
fund industry. All SEBI compliant schemes of the erstwhile UTI are under its charge.
All new schemes offered by UTI Mutual Fund are SEBI approved. Other schemes of
erstwhile UTI have been paced with a special undertaking administered by the
Government of India. These schemes are being gradually wound up.
Phase 6 -From 2004 Onwards: Consolidation & Growth
The industry has lately witnessed a spate of mergers & acquisitions, most recent ones
being the acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C
Mutual Fund by Principal & PNB Mutual Fund by Principal. At the same time, more
international players continue to enter India, Including Fidelity, one of the largest fund
in world. The stage is set now for growth through consolidation and entry of new
international and private sector players. At the end of March 2006, there were 29
Funds.
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ORGANISATION OF MUTUAL FUND
A mutual fund is set up in the form of a trust, which has sponsor, trustees,
Asset Management Company (AMC) and custodian. The trust is established by
a sponsor or more than one sponsor who is like promoter of a company. Thetrustees of the mutual fund hold its property for the benefit of the unit holders.
Asset Management Company (AMC) approved by SEBI manages the funds by
making investments in various types of securities. Custodian, who is registered
with SEBI, holds the securities of various schemes of the fund in its custody.
The trustees are vested with the general power of superintendence and direction
over AMC. They monitor the performance and compliance of SEBI Regulations
by the mutual fund.
SEBI Regulations require that at least two thirds of the directors of trustee
company or board of trustees must be independent i.e. they should not be
associated with the sponsors. Also, 50% of the directors of AMC must be
independent. All mutual funds are required to be registered with SEBI before
they launch any scheme. However, Unit Trust of India (UTI) is not registered
with SEBI (as on January 15, 2002).
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Mutual Fund Custodian:
A trust company, bank or similar financial institution responsible for holding
and safeguarding the securities owned within a mutual fund. A mutual fund's
custodian may also act as the mutual funds transfer agent, maintaining records
of shareholder transactions and balances. Also refers to as a "mutual fund
corporation".
Since a mutual fund is essentially a large pool of funds from many different
investors, it requires a third-party custodian to hold and safeguard the securities
that are mutually owned by all the fund's investors. This structure mitigates the
risk of dishonest activity by separating the fund managers from the physical
securities and investor records.
Sponsor:Sponsor is the person who acting alone or in combination with another body
corporate establishes a mutual fund. Sponsor must contribute atleast 40% of the
net worth of the Investment Managed and meet the eligibility criteria prescribed
under the Securities and Exchange Board of India (Mutual Funds) Regulations,
1996.The Sponsor is not responsible or liable for any loss or shortfall resulting
from the operation of the Schemes beyond the initial contribution made by it
towards setting up of the Mutual Fund.
Trust:
The Mutual Fund is constituted as a trust in accordance with the provisions of
the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under
the Indian Registration Act, 1908.
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Trustee:Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest
of the unit holders and ensure that the AMC functions in the interest of
investors and in accordance with the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the
Offer Documents of the respective Schemes.
Asset Management Company (AMC):The AMC is appointed by the Trustee as the Investment Manager of the Mutual
Fund. The AMC is required to be approved by the Securities and Exchange
Board of India (SEBI) to act as an asset management company of the Mutual
Fund. The AMC must have a net worth of at least 10 crore at all times.
Registrar and Transfer Agent :The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer
Agent to the Mutual Fund. The Registrar processes the application form,redemption requests and dispatches account statements to the unit holders. The
Registrar and Transfer agent also handles communications with investors and
updates investor records.
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ADVANTAGES OF MUTUAL FUND:
If mutual fund is emerging as the favorite investment vehicle, it is because of the
many advantages it has over other forms and avenues of investing, particularly
for the investor who has limited resources available in terms of capital and
ability to carry out detailed research and market monitoring. The following are
the major advantages offered by mutual funds to all investors:
1. Professional Management: Even if the investor has a big amount of capitalavailable to him, he benefits from the professional management skills brought
in by the fund in the management of the investors portfolio. The investment
skills, along with the needed research into available investment options, ensure
a much better return than what an investor can manage on his own. Few
investors have the skills and resources of their own to succeed in todays fast -
moving, global and sophisticated markets.
2. Reduction/Diversification of Risk: An investor in a mutual fund acquires adiversified portfolio, no matter how small his investment. Diversification
reduces the risk of loss, as compared to investing directly in one or two shares
or debentures or other instruments. When an investor invests directly, all the
risk of potential loss is his own. While investing in the pool of funds with other
investors, any loss in one or two securities is also shared by other investors.
This risk reduction is one of the most important benefits of a collective
investment vehicle like mutual fund.
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3. Reduction in Transaction Costs: What is true of risk is also true of thetransaction costs. A direct investor bears all the costs of investing such as
brokerage or custody of securities. When going through a fund, he has the
benefit of economies of scale; the funds pay lesser costs because of larger
benefits passed on to its investors.
4. Liquidity: Often investors hold shares or bonds they cannot directly, easily andquickly sell. Investment in mutual fund, on the other hand, is more liquid. An
investor can liquidate the investment by selling the units to the fund if it is an
open-ended fund, or by selling the units in the stock market if the fund is a
closed-ended fund, since closed-end funds have to be listed on a stock
exchange, in any case, the investor in a closed-ended fund receives the sale
proceeds at the end of a period specified by the mutual fund or the stock
exchange.
5. Flexibility: Mutual fund management companies offer many investor servicesthat a direct market investor cannot get. Within the same fund family, investors
can easily transfer/switch their holdings from one scheme to another. They can
also invest or withdraw their money as regular investors in most open-ended
schemes.
6. Convenience: Mutual fund investment process has been made further moreconvenient with the facility offered by funds for investors to buy or sell their
units through the internet or email or using other communication means.
7. Regulated Operations: Mutual fund industry is well regulated; all funds areregistered with SEBI, which lays down rules to protect the investors. Thus,
investors also benefit from the safety of a regulated investment environment.
8. Higher Returns: As these funds are well managed and well diversified, theytend to perform better than market over longer period of time; there is potential
for the unit holders to get better returns compared to fixed income avenues over
longer period of time.
9. Tax Benefits: Mutual funds enjoy tax benefits on the incomes received by themas well as on capital gains. The unit holders also enjoy certain tax benefit on the
income earned, the capital gains made, and on amount invested in certain types
of funds.
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DISADVANTAGES OF INVESTING IN MUTUAL FUND:
While the benefits of investing through mutual funds far outweigh the
disadvantages, an investor and his advisor will do well to be aware of a few
shortcomings of using the mutual fund as an investment vehicle.
1. No Control over Costs: An investor in a mutual fund has any control over theoverall cost of investing. He pays investment management fees as long as he
remains with fund, albeit in return for the professional management and
research. Fees are usually payable as a percentage of the value of his
investments, whether the fund value is rising or declining. A mutual fund
investor also pays fund distribution cost, which he would not incur in direct
investing. However, this shortcoming only means that there is a cost to obtainthe benefits of mutual fund services, and this cost is often less than the cost of
direct investing by the investors. Besides, the regulators have prescribed a
ceiling on the maximum expenses that the fund managers can charge to the
schemes, thus limiting the investors expense of investing through mutual
funds.
2. No Tailor-made Portfolios: Investors who invest on their own can build theirown portfolios of shares, bonds and other securities. Investing through funds
means that he delegates this decision to the fund managers. High-net-worth
individuals or large corporate investors may find this to be a constraint in
achieving their objectives. However, most mutual funds help investor overcome
this constraint by offering families of schemes a large number of different
schemes within the same fund. In each schemes there are various plans and
options. An investor can choose from different investment
schemes/plans/options and construct an investment portfolio that meets his
investment objectives.
3. Managing a Portfolio of Funds: Availability of a large number of optionsfrom mutual funds can actually mean too much choice for the investor. He may
again need advice on how to select a fund to achieve his objectives, quite
similar to the situation when he has to select individual shares or bonds to invest
in. Fortunately, India now has a large number of AMFI registered and tested
fund distributors and financial planners who are capable of guiding the
investors.
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THE IMPORTANCE OF DIVERSIFICATION:
We cannot overemphasize the importance of having a well balanced and
diversified mutual fund portfolio. But what does this exactly mean? A total
investment of between $5000 and $6000 could make your portfolio fairly
diversified. Even the mutual funds themselves can be diversified in a variety of
investments. The mutual funds that are better diversified tend to do better than
the non-diversified funds. The same is true with your overall portfolio. In short,
diversification provides insurance.
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PORTFOLIO - TOP 10 HOLDINGs
COMPANY % TO NAV
EQUITY & EQUITY RELATED
Banks 6.22
Consumer Non-Durables 6.01
Software 5.74
Industrial Goods 5.52
Pharmaceuticals 5.23
Oil 5.14
Petroleum Products 4.77
Media & Entertainment 4.18
Auto Ancillaries 3.93
Fertilisers 3.89
TOTAL TOP-10 EQUITY HOLDINGS 50.63
Gas 3.54
Chemicals 3.09
Construction PROJECT 2.68
Power 2.06
Paper PRODUCT 0.97
Ferrous Metals 0.81
Telecom Services 0.68
Industrial Products 0.66
Engineering 0.42
Finance 0.35
TOTAL EQUITY & EQUITY RELATED HOLDINGS 96.08
Short Term Deposits as margin for Futures & Options 0.78
Cash Margin 0.08
Other Cash, Cash Equivalents and Net Current Assets 3.06
GRAND TOTAL 100
Net Assets (Rs. In Lakhs) 1,27,541.18
INTERPRETATION- The above table shows the allocation of funds collected by afund manager in different sectors at different %. Here 50% of funds are invested in Top
10 holdings, so that the risk is minimized and returns are obviously high and the
remaining amount is invested in other sectors as required to get the best returns on time
according to the set of investments.
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PERFORMANCE OF VARIOUS FUNDS TILL 2010
DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept
30'09
Last 6
Months 68.47 8.82
Mar
31'09 1 Year 38.73 92.38
Mar
30'07 3 Year 45.46 17.87
Mar
31'05 5 Year 24.17 25.24
sept
11'00 Inception 10 23.39
INTERPRETATION- Above graph shows that the NAV on September 2000 was Rs
10 per unit and the return rate was 23.39% it has been increasing yearly with a
continuous growth and till Sept 09 it has reached to 68.47 Rs per unit and return rate
shows a constant growth for last 10 years.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept
30'09
Last 6
Months 211.82 11.54
Mar31'09 1 Year 108.85 117.06
Mar
30'07 3 Year 142.6 18.29
Mar
31'05 5 Year 66.83 28.71
Mar
31'00 10 Year 24.89 25.22
Jan
01'95 Inception 10 23.04
INTERPRETATION- As HDFC provides effective results investments in Equity has
increased since Jan01 1995 to Sept 30 2009.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept
30'09
Last 6
Months 171.76 6.96
Mar31'09 1 Year 92.55 98.51
Mar
30'07 3 Year 104.5 20.65
Mar
31'05 5 Year 52.3 28.55
Mar
31'00 10 Year 21.55 23.89
Oct
11'96 Inception 10 25.95
INTERPRETATION- FromOct 11 1996 to Sept 30 2009 HDFCs TOP 200
FUND has given effective performance.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept 30'09
Last 6
Months 143.33 1.61
Mar 31'09 1 Year 82.68 76.16
Mar 30'07 3 Year 120.32 6.56
Mar 31'05 5 Year 61.5 18.81
July 17'02 Inception 32.16 21.64
INTERPRETATION- As hdfc implements effective portfolio management strategies
and efficient research techniques, it has succeded in increasing its NAV in case of
Index funds also.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept
30'09
Last 6
Months 23.25 4.72
Mar31'09 1 Year 11.99 87.95
Mar
30'07 3 Year 17.63 11.08
April
06'05 Inception 10 19.06
INTERPRETATION- As HDFC ltd. provides effective services to its customers,
there is a rise in 2007-09 in its customers and multi cap funds gave a record NAV in
mutual funds.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept
30'09
Last 6
Months 41.44 13.89
Mar
31'09 1 Year 25.93 81.96Mar
30'07 3 Year 29.18 17.35
Mar
31'05 5 Year 19.96 18.76
Sept
11'00 Inception 10 17.63
INTERPRETATION- HDFC balanced funds has constantly shown significant returns
throughout September 2000 to September 2009.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept
30'09
Last 6
Months 161.18 12.95
Mar31'09 1 Year 91.47 99.02
Mar
30'07 3 Year 110.13 18.2
Mar
31'05 5 Year 59.26 23.15
Mar
31'00 10 Year 20.54 24.37
Feb
01'94 Inception 10 21.57
INTERPRETATION- From Feb. 01 94 till Sept 30 09 prudence fund has given
stable returns which shows minimum risk and its useful for customers which propose
minimum risk and constant returns.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept30'09
Last 6Months 183.3 12.21
Mar
31'09 1 Year 97.06 111.9
Mar
30'07 3 Year 133.88 15.36
Mar
31'05 5 Year 67.55 24.93
Mar
31'00 10 Year 41.56 23.57
Mar
31'96 Inception 10 32.57
INTERPRETATION- As the above analysis gives the clear idea that most of the
Investors prefer Tax saver fund of hdfc due to tax saving factor benefit provided by
hdfc mutual fund investments has good results over other investments.
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DATE PERIOD NAV/UNIT(Rs) RETURNS-%
Sept 29'09 Last 6 Months 30.3 2.83
Mar 31'09 1 Year 29.21 6.67
Mar 30'07 3 Year 24.31 8.6
Mar 31'05 5 Year 32.14 6.13
Mar 31'00 10 Year 14.34 8.07
April 28'97 Inception 10 9.19
INTERPRETATION- Investments in high interest funds have increased at a rapid
pace because of hdfcs strategies of allocation of funds in AAA rated sectors like banks
and other industries, it helps in getting high interest.
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FREQUENTLY USED TERMS:
AMCA Company formed under the Companies Act and registered with SEBI to
manage investors funds collected through different schemes. The trustee
delegates the task of floating schemes and managing the collected money to a
company of professionals, usually experts who are known for smart stock picks.
This is an Asset Management Company (AMC). AMC charges a fee for the
services it renders to the MF trust. Thus, the AMC acts as the investment
manager of the trust under the broad supervision and direction of the trustees.
UnitA unit in a mutual fund scheme means one share in the assets of a particular
scheme. So, a person holding units in a scheme is referred to, as a unit holder.
Net Asset Value (NAV)The performance of a particular scheme of a Mutual Fund is denoted by Net
Asset Value (NAV). Mutual Funds invest the money collected from the
investors in securities markets. In simple words, NAV is the market value of the
securities held by the scheme. Since market value of the securities changes
every day, NAV of a scheme also varies on a day-to-day basis. The NAV per
unit is the market value of the securities of a scheme divided by the total
number of units of the scheme on any particular date. For e.g., if the market
value of securities of a mutual fund scheme is Rs. 300 lakhs and the mutual
fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per
unit of the fund is Rs. 30. NAV is required to be disclosed by the mutual funds
on a regular basis-daily or weekly-depending on the type of scheme.
Sale PriceIt is the price you pay when you invest in a scheme. It is also called as Offer
Price. It may include a Sales or Entry Load.
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Repurchase PriceIt is the price at which an investor sells back the units to the Mutual Fund. This
price is NAV related and may include the exit load. When an investor chooses
to withdraw money from his investment in an open-ended fund at any point of
time, the units are sold at NAV (after deduction of the Exit Load, if any) to the
fund. When a close-ended fund completes tenure, it is redeemed at the
prevailing NAV and investors are paid the proceeds thereof. It is also called as
Bid Price.
Redemption PriceIt is the price at which open-ended schemes repurchase their units and close-
ended schemes redeem their units on maturity. Such prices are NAV related.
Statement of AccountA Statement of Account is a document that serves as a record of transactionsbetween the fund and the investor. It contains details of the investor with the
various transactions executed during he period, i.e., sales, repurchase, switch-
over in, switch-over out. The Statement of Account is issued every time any
transaction takes place.
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LOAD AND TYPES OF LOAD:Load is a charge collected by a mutual fund on units.
It is of three types.
Entry Load: When a charge is collected at the time of entering into a scheme itis called as entry load or front end load or sales load. The entry load percentage
is added to the NA at the time of allotment of units.
Exit Load: An Exit load or Back-end load or repurchase load is a charge that iscollected at the time of redeeming or for transfer between schemes. (Switch).
The exit load percentage is deducted from the NAV at the time of redemption or
transfer between schemes.
Contingent Deferred Sales Load (CDSL): The load amounts charged to unitswhen recovered at various period of time is called as deferred load. This load
reduces the redemption proceeds paid out to the outgoing investors. Depending
on how many years the investor stays with the fund, some funds may charge
different mounts of loads to the investor- the longer the investor stays with the
fund, lesser is the amount of exit load charged to him. This is called Contingent
the Deferred Sales Charge (CDSC) and Contingent Deferred Sales Load
(CDSL).
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Equity Funds:
Funds that invest in stocks represent the largest category of mutual funds. Generally,the investment objective of this class of funds is long-term capital growth with someincome. There are, however, many different types of equity funds because there are
many different types of equities. A great way to understand the universe of equity fundsis to use a style box, an example of which is below.
The idea is to classify funds based on both the size of the companies invested in and theinvestment style of the manager. The term value refers to a style of investing that looksfor high quality companies that are out of favor with the market. These companies arecharacterized by low P/E and price-to-book ratios and high dividend yields. Theopposite of value is growth, which refers to companies that have had (and are expected
to continue to have) strong growth in earnings, sales and cash flow. A compromisebetween value and growth is blend, which simply refers to companies that are neithervalue nor growth stocks and are classified as being somewhere in the middle.
For example, a mutual fund that invests in large-cap companies that are in strongfinancial shape but have recently seen their share prices fall would be placed in theupper left quadrant of the style box (large and value). The opposite of this would be afund that invests in startup technology companies with excellent growth prospects.Such a mutual fund would reside in the bottom right quadrant (small and growth).
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MUTUAL FUND PORTFOLIO CONSTRUCTION
Steps One - Identify your investment needs.Your financial goals will vary, based on your age, lifestyle, financial
independence, family commitments, level of income and expenses among many
other factors. Therefore, the first step is to assess your needs. Begin by asking
yourself these questions:
1. What are my investment objectives and needs?Probable Answers: I need regular income or need to buy a home or finance a
wedding or educate my children or a combination of all these needs.
2. How much risk I am willing to take?Probable Answers: I can only take a minimum amount of risk or I am willing to
accept the fact that my investment value may fluctuate or that there may be a
short-term loss in order to achieve a long-term potential gain.
3. What are my cash flow requirements?Probable Answers: I need a regular cash flow or I need a lump sum amount to
meet a specific need after a certain period or I don't require a current cash flow
but I want to build my assets for the future.
By going through such an exercise, you will know what you want out of your
investment and can set the foundation for a sound Mutual Fund investment
strategy.
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Step Two - Choose the right Mutual Fund.Once you have a clear strategy in mind, you have to choose which Mutual Fund
and scheme you want to invest in. The offer document of the scheme tells you
its objectives and provides supplementary details like the track record of other
schemes managed by the same Fund Manager. Some factors to evaluate before
choosing a particular Mutual Fund are:
1) The track record of performance over the last few years in relation to theappropriate yardstick and similar funds in the same category.
2) How well the Mutual Fund is organized to provide efficient, prompt andpersonalized service.
3) Degree of transparency as reflected in frequency and quality of theircommunications.
Step Three - Select the ideal mix of Schemes.Investing in just one Mutual Fund scheme may not meet all your investment
needs. You may consider investing in a combination of schemes to achieve your
specific goals.
The following tables could prove useful in selecting a combination of schemes
that satisfy your needs.
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AGGRESSIVE PLAN
Money Market Schemes 5 %
Income Schemes 10-15%
Balanced Schemes 10-20 %
Growth Schemes 60-70 %
MODERATE PLAN
Money Market Schemes 10 %
Income Schemes 20 %
Balanced Schemes 40-50 %
Growth Schemes 30-40 %
CONSERVATIVE PLAN
Money Market Schemes 10 %
Income Schemes 50-60 %
Balanced Schemes 20-30 %
Growth Schemes 10 %
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Step Four - Invest regularlyFor most of us, the approach that works best is to invest a fixed amount at
specific intervals, say every month. By investing a fixed sum every month, you
buy fewer units when the price is higher and more units when the price is low,
thus bringing down your average cost per unit. This is called rupee cost
averaging and is a disciplined investment strategy followed by investors all over
the world. With many open-ended schemes offering systematic investment
plans, this regular investing habit is made easy for you.
Step Five- Keep your taxes in mindIf you are in a high tax bracket and have utilized fully the exemptions under
section 80L of the Income Tax Act, investing in growth funds that do not pay
dividends might be more tax efficient and improve your post-tax return.
If you are in a low tax bracket and have not utilized fully the exemptions
available under Section 80L of the Income Tax Act, selecting funds paying
regular income could be more tax efficient. Further, there are other benefits
available for investment in Mutual Funds under the provisions of the prevailing
tax laws.
You may therefore, consult your tax advisor or Chartered Accountant for specific
advice.
Step Six - Start earlyIt is desirable to start investing early and stick to a regular investment plan. If
you start now, you will make more than if you wait and invest later. The power
of compounding lets you earn income on income and your money multiplies at
the compounded rate of return.
Step Seven - The final stepAll you need to do now is to get a touch with a Mutual Fund or your
agent/broker and start investing. Reap the rewards in the years to come. Mutual
Funds are suitable for every kind of investor - whether starting a career or
retiring, conservative or risk-taking, growth oriented or income seeking.
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Mutual Fund Risk: Risk
Every type of investment, including mutual funds, involves risk. Risk refers to
the possibility that you will lose money (both principal and any earnings) or fail
to make money on an investment. A fund's investment objective and its
holdings are influential factors in determining how risky a fund is. Reading the
prospectus will help you to understand the risk associated with that particular
fund.
Generally speaking, risk and potential return are related. This is the risk/returntrade-off. Higher risks are usually taken with the expectation of higher returns
at the cost of increased volatility. While a fund with higher risk has the
potential for higher return, it also has the greater potential for losses or negative
returns. The school of thought when investing in mutual funds suggests that the
longer your investment time horizon is the less affected you should be by short-
term volatility. Therefore, the shorter your investment time horizon, the more
concerned you should be with short-term volatility and higher risk.
Following is a glossary of some risks to consider when investing in mutual
funds.
Call Risk: - The possibility that falling interest rates will cause a bond issuer toredeemor callits high-yielding bond before the bond's maturity date.
Country Risk: - The possibility that political events (a war, national elections),financial problems (rising inflation, government default), or natural disasters (an
earthquake, a poor harvest) will weaken a country's economy and cause
investments in that country to decline.
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Credit Risk: - The possibility that a bond issuer will fail to repay interest andprincipal in a timely manner. Also called default risk.
Currency Risk: - The possibility that returns could be reduced for Americansinvesting in foreign securities because of a rise in the value of the U.S. dollar
against foreign currencies. Also called exchange-rate risk.
Income Risk: - The possibility that a fixed-income fund's dividends will declineas a result of falling overall interest rates.
Industry Risk: - The possibility that a group of stocks in a single industry willdecline in price due to developments in that industry.
Inflation Risk: - The possibility that increases in the cost of living will reduceor eliminate a fund's real inflation-adjusted returns.
Interest Rate Risk: - The possibility that a bond fund will decline in valuebecause of an increase in interest rates.
Manager Risk: - The possibility that an actively managed mutual fund'sinvestment adviser will fail to execute the fund's investment strategy effectively
resulting in the failure of stated objectives.
Market Risk: - The possibility that stock fund or bond fund prices overall willdecline over short or even extended periods. Stock and bond markets tend to
move in cycles, with periods when prices rise and other periods when prices
fall.
Principal Risk: - The possibility that an investment will go down in value, or"lose money," from the original or invested amount.
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How do mutual funds earn money?
A mutual fund is a means of investing that enables individuals to share the risks
of investing with other investors. All contributors to the fund experience an
equal share of gains and losses for each dollar invested. A mutual fund owns the
securities of several corporations. A mutual fund pools money from hundreds
and thousands of investors to construct a portfolio of stocks, bonds, real estate,
or other securities, according to the kind of investments the mutual fund trades.
Investors purchase shares in the mutual fund as if it was an individual security.
Fund managers hired by the mutual fund company are paid to invest the money
that the investors have placed in the fund. Heeding the adage "Don't put all youreggs in one basket", the holders of mutual fund shares are able to gain the
advantage of diversification which might be beyond their financial means
individually.
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STRUCTURE OF MUTUAL FUNDS IN INDIA
Like other countries, India has a legal framework within which mutual
funds must be constituted. Unlike in the UK, where two distinct structures-
trust and corporate- are allowed with separate regulations, depending on
their nature- open end or closed end, in India, open end and closed end funds
are constituted along one unique structure- as unit trusts. A mutual fund in India
is allowed to issue open-end and closed-end schemes under a common legal
structure. Therefore, a mutual fund may have several different schemes (open
and closed-end) under it i.e.; under one unit trust, at any point of time.
However, like the USA; all the funds and their open end and closed end
schemes are governed by the same regulations and the regulatory body, the
SEBI. The structure that is required to be followed by mutual fund in India is
laid down under SEBI (mutual fund) Regulations, 1996.
Some facts of the growth of mutual funds in India 100% growth in the last 6 years. Numbers of foreign AMCs are in the queue to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under
management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing thesesavings in mutual funds sector is required.
We have approximately 29 mutual funds which are much less than US havingmore than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual funds areconcentrating on the 'A' class cities. Soon they will find scope in the growing
cities.
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Mutual fund can penetrate rural areas like the Indian insurance industry withsimple and limited products.
SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.
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Performance of Mutual Fund Industry from 1965 To 2008
The number of Indians putting their money on mutual fund investments is steadily
increasing. More and more people are being lured by the prospect of handsome profits
that investments in mutual funds carry for the investors. In recent years, many mutual
fund companies have sprung up in India. Now the investors have lots of mutual fund
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FUTURE OF MUTUAL FUNDS IN INDIA:By December 2004, Indian mutual fund industry reached Rs.1, 50,537 crore. It
is estimated that by 2010 March-end, the total assets of all scheduled
commercial banks should be Rs. 40, 90,000 crore. The annual composite rate of
growth is expected 13.4% during the rest of the decade. In the last 5 years we
have seen annual growth rate of 9%. According to the current growth rate, by
year 2010, mutual fund assets will be double.
In the Indian economy Mutual funds have grown faster than any other
investment instrument.
The table show net capitalization in Mutual fund sector during 2004 to
2009.
Year UTI Bank-
sponsored
mutual
funds
FI-
sponsored
mutual
funds
Private
sector
mutual
funds
Total
2004-05 -9434.1 1033.4 861.5 12122.2 4583.0
2005-06 1049.9 4526.2 786.8 41509.8 47872.7
2006-07 -2467.2 706.5 -3383.5 7933.1 2788.9
2007-08 3423.8 5364.9 2111.9 41581 52481.6
2008-09 7326.1 3032.0 4226.1 76687 91271.2
NET RESOURCES MOBILISED BY MUTUAL FUNDS 2004 to 2009
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REASONS FOR SLOW GROWTH OF MUTUAL FUNDS IN INDIA:
1. Social Fabric: Indian society is represented by skewed income patterns.Rural India is far from investible surplus. Whatever surplus a rural native
may have, he is not well informed about investible avenues and mutual
funds. Most of the residents of rural area are unaware of stock market and
economics. Mutual funds awareness has a long way to go.
2. Government Players: Private sector entities are aggressive in marketingand reach more people with efforts. Indian mutual fund industry was with
UTI and then with public sector funds. It is a well known worldwide fact
that government owned entities lack in profit orientation because of
excessive job security provided to the employees and ownerships [i.e.
governments] profit motive absence. Management of these state owned
funds mostly vested with these ex-bank managers and government account
officials. They came on transfers or on deputation from the sponsor banks.
They did not have adequate specialized skills to manage funds. Their
performance was dismal in most cases and the industry faced investor
confidence crises for some years. UTIs US-64 burst also added to the fears.3. Protected Stock Market Environment: Indian stock market was protected
for several years. Reach and visibility was much less to attract visitors.
Physical shares, manual trust based systems, absence of foreign capital
flows, a scam per decade are some more reasons for investors slow and
cautious approach towards stock related [including mutual funds]
investments.
4. Regulatory Environment: It improved slowly over the years and is nowattracting more investors. Slow growth is comparative. Compared to
developed countries. Per se India has progressed well. More than organic
growth in mutual funds industry is witnessed. No specific blames to be
attributed to either government players or regulators. In fact every entity has
added to the progress.
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Research Methodology
WHAT IS RESEARCH?
Research can be defined as the search for knowledge or as any systematicinvestigation to establish facts. The primary purpose forapplied research(as opposed to
basic research) isdiscovering,interpreting, and thedevelopmentof methods and
systems for the advancement of humanknowledgeon a wide variety ofscientific
mattersof our world and the universe. Research can use thescientific method, but need
not do so
TYPES OF RESEARCH---
Generally, research is understood to follow a certain structuralprocess. Though steporder may vary depending on the subject matter and researcher, the following steps areusually part of most formal research, both basic and applied:
Formation of the topic Hypothesis Conceptual definitions Operational definition Gathering ofdata Analysis of data Test, revising of hypothesis Conclusion, iteration if necessary
Research can also fall into two distinct types:
Primary research(collection of data that does not already exist) Secondary research(summary, collation and/or synthesis of existing research)
In social sciences and later in other disciplines, the following two research methods canbe applied, depending on the properties of the subject matter and on the objective of the
research:
Qualitative research(understanding of human behavior and the reasons that governsuch behavior)
Quantitative research(systematic empirical investigation of quantitative propertiesand phenomena and their relationships)
Research is often conducted using the hourglass model Structure of Research [1]. Thehourglass model starts with a broad spectrum for research, focusing in on the requiredinformation through the methodology of the project (like the neck of the hourglass),then expands the research in the form of discussion and results.
http://en.wikipedia.org/wiki/Applied_researchhttp://en.wikipedia.org/wiki/Applied_researchhttp://en.wikipedia.org/wiki/Applied_researchhttp://en.wikipedia.org/wiki/Basic_researchhttp://en.wikipedia.org/wiki/Basic_researchhttp://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Hypothesishttp://en.wikipedia.org/wiki/Hypothesishttp://en.wikipedia.org/wiki/Conceptual_definitionhttp://en.wikipedia.org/wiki/Conceptual_definitionhttp://en.wikipedia.org/wiki/Operational_definitionhttp://en.wikipedia.org/wiki/Operational_definitionhttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Primary_researchhttp://en.wikipedia.org/wiki/Primary_researchhttp://en.wikipedia.org/wiki/Secondary_researchhttp://en.wikipedia.org/wiki/Secondary_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Quantitative_researchhttp://en.wikipedia.org/wiki/Quantitative_researchhttp://en.wikipedia.org/wiki/Quantitative_researchhttp://en.wikipedia.org/wiki/Qualitative_researchhttp://en.wikipedia.org/wiki/Secondary_researchhttp://en.wikipedia.org/wiki/Primary_researchhttp://en.wikipedia.org/wiki/Datahttp://en.wikipedia.org/wiki/Operational_definitionhttp://en.wikipedia.org/wiki/Conceptual_definitionhttp://en.wikipedia.org/wiki/Hypothesishttp://en.wikipedia.org/wiki/Process_(science)http://en.wikipedia.org/wiki/Scientific_methodhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Epistemologyhttp://en.wikipedia.org/wiki/Knowledgehttp://en.wikipedia.org/wiki/Research_and_developmenthttp://en.wikipedia.org/wiki/Interpretation_(logic)http://en.wikipedia.org/wiki/Discovery_(observation)http://en.wikipedia.org/wiki/Basic_researchhttp://en.wikipedia.org/wiki/Applied_research8/2/2019 Copy of Kishor Project
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DIFFERENT SOURCES & METHODS OF DATA COLLECTION--
Sources of data collection
2.1Primary Data
This data is generated specifically for the purpose of working out the project. This data
means the first hand information, which is collected various sources schedules and
formally informal information.
1) Information relating to the project was collected during formal & informal
discussions with the Branch Head.
2) Queries arising in due course of the project brought into the notice of concerned
Authority and necessary explanation and solution are adapted.
2.2 Secondary Data
Data used in the comparative study is secondary data. In other word comparative study
is based on secondary data. Data is collected from Factsheet other required
information through internet.
Factsheet:
It is the monthly report of all schemes of Mutual Fund Company. It involves data
like Investment Performance, Portfolio & Asset Allocation, Investment Objectives,
Entry & Exit Load, AUM and much important information.
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2.3 Population
HDFC MUTUAL FUND AURANGABAD Branch has one Branch Head, one
operation consultant regarding the various schemes, two peons and twenty distributors
who work for HDFC across the city having about Crores of investments.
Data Collection
1. MARKET SHARE OF HDFC MUTUAL FUND & OTHER PLAYERS IN
THE INDUSTRY FOR THE YEAR 2009.
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Market Share of Mutual Fund companies in
India
0%
0%
0%
0%
9%
1%
0%
2%
3%
0%
0%
1%
1%
4%
11%
2%
10%
2%
1%
1%
0%
3%
4%
1%
0%
0%
2%
0%
16%
0%
6%
2%
4%
0% 10%
AIG Global Investment Group Mutual Fund Baroda Pioneer Mutual Fund
Benchmark Mutual Fund Bharti AXA Mutual Fund
Birla Sun Life Mutual Fund Canara Robeco Mutual Fund
DBS Chola Mutual Fund Deutsche Mutual Fund
DSP BlackRock Mutual Fund Edelweiss Mutual Fund
Escorts Mutual Fund Fidelity Mutual Fund
Fortis Mutual Fund Franklin Templaton Mutual Fund
HDFC Mutual Fund HSBC Mutual Fund
ICICI Prudential Mutual Fund IDFC Mutual Fund
ING Mutual Fund JM Financial Mutual Fund
JPMorgan Mutual Fund Kotak Mahindra Mutual Fund
LIC Mutual Fund Lotus India Mutual Fund
Mirae Asset Mutual Fund Morgan Stanley Mutual Fund
Principal Mutual Fund Quantum Mutual Fund
Reliance Mutual Fund Sahara Mutual Fund
SBI Mutual Fund Sundaram BNP Paribas Mutual Fund
Tata Mutual Fund Taurus Mutual Fund
UTI Mutual Fund
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LIMITATIONS OF THE STUDY
So though the study aims to achieve the above mentioned Objective in full earnest and
accuracy, it may be hampered due to certain limitation. Some of the limitations are as
follows: