HDFC Final Report by Vikas

“SUMMER TRAINING PROJECT”
A REPORT
ON
“COMPARATIVE ANALYSIS OF MUTUAL

FUND WITH OTHER INVESTMENT
PRODUCTS AND THEIR EVALUATIONS”
SUBMITTED TO SUBMITTED BY
NISHANT VERMA
LECTURER BBA-5TH SEMESTER
SRCM, LUCKNOW SRCM, LUCKNOW
ACKNOWLEDGEMENT
The whole summer internship period with HDFC MUTUAL FUND
Kanpur has been full of learning and sense of contribution towards the
organization. I would like to thank HDFC MUTUAL FUND for giving us
an opportunity of learning and contributing through this project. I also
take this opportunity to thank all those people that made this
experience a memorable one.
A successful project can never be prepared by the single efforts
of the person to whom project is assigned, but it also demand the help
and guardianship of some conversant person who helped the
undersigned actively or passively in the completion of successful
project.
I would like to express my gratitude towards the following persons
who has helped me in making my summer internship full of learning
and interesting too.
 Mr. Gaurav virmani (Branch Manager)

 Mr. Qazi Asjad Ali
 Miss. Shweta Agarwal
 Miss. Neha Shukla
 Mr. Prashant Sinha
I would also like to express my gratitude to Mr. Gaurav

Virmani (Branch Manager) for assigning me such a worthwhile Project
“ Comparative Analysis Of Mutual Fund With Other Investment
Options And Their Evaluation ” to work upon in HDFC Mutual Fund.
2
SHUBHAM ARORA
INDEX
CONTENT
PAGE NO.
1. INTRODUCTION
5
a) CHARACTERISTICS OF MUTUAL FUND 6
b) ORGANISATION OF A MUTUAL FUND 7
c) HISTORY OF INDIAN MUTUAL FUND
10
d) CLASSIFICATION I OF MUTUAL FUND
13
e) TAX STRUCTURE OF MUTUAL FUND
20
f) ADVANTAGES OF MUTUAL FUND
21
3
2. MUTUAL FUND INVESTMENT STYLES
28
3. PERFORMANCE MEASURES OF MUTUAL FUND
30
4. EVALUATING FUNDS
34
5. SAVING AND OTHER INVESTMENT OPTIONS
48
6. INFLATION AND MUTUAL FUNDS
53
7. SURVEY FINDINGS AND RECOMMENDATIONS
56
a) INTERNAL ANALYSIS OF HDFC AMC
67
b) RECOMMENDATIONS
71
8. BIBLIOGRAPHY
74
9. QUESTIONNAIRE
75
4
COMPARATIVE ANALYSIS OF MUTUAL FUNDS
WITH OTHER INVESTMENT PRODUCTS.
INTRODUCTION
A Mutual fund is a collective investment that allows many investors, with a

common objective to pool individual investments and give to a professional
manager who in turn would invest these monies in line with the common
objective.
Since the mutual; fund is a common pool of money into which investors place
their contributions that are to be invested in with a stated objective. The
ownership of the fund is thus ‘mutual’; the fund belongs to all investors. A single
investor’s ownership in the fund is in the same proportion as the amount of the
contribution made by him/her bears to the total amount of the fund
.
The mutual fund uses the money collected from investors to buy those assets
which are specifically permitted by its stated investment objective. Thus, an
equity fund would buy mainly equity assets-ordinary shares, preference shares;
warrants etc. A bond fund would mainly buy debt instruments such as
debentures, bonds; or government securities. It is these assets which are owned
by the investors in the same proportion as their contribution bears to the total
contributions of all investors put together.
When an investor subscribes to a mutual fund, he or she buys a part of the

assets or the pool of funds that are outstanding at that time. It is similar to buying
‘shares’ of a joint stock company, in which case the investment makes the
5
investor a part owner of the company and its assets. A mutual fund allows
investors to indirectly take a position in a basket of assets.
Mutual fund investments are not risk free. The major risk involved is the market
risk. When the market is down most of the equity funds will also experience a
downturn. In fact, investing in mutual funds contains the same risk as investing
in the markets, the only difference being the professional management of funds,
which result in effective risk reduction.
In the USA a mutual fund is constituted as an investment company and an

investor ‘buys into the fund’ i.e. he buys the shares of the fund. In India the
mutual fund is constituted as a Trust, where the investor gets unit shares. In any
case, whether a share holder is a unit holder or a part owner of the fund’s assets
is only a matter of legal distinction. The term unit holder includes the mutual fund
account holder.
The Operational Flow Chart shown below demonstrates the flow of funds in
case of mutual funds.
Pool their
money
Characteristics of Mutual Funds are as follows:

 Investors own the mutual fund
Passed back to Invest in
 Professional managers (Asset Management Company or AMC) manage
the fund for a small fee.
Fee charged is specified by SEBI (Securities and Exchange Board of India)

and is expressed as a percentage of assets managed.
 The funds are invested in a portfolio of marketable securities in

accordance with the investment objective.
 Value of the portfolio and theGenerates

investor’s holdings, alters with change in the
market value of investments.
Investments in securities are spread among a wide cross section of industries

and sectors thus the risk is reduced. Diversification leads to risk reduction
6
because all stocks may not move in the same direction and in the same
proportion at the same time. Investors in mutual funds are known as unit holders.
The unit holders share the profits/losses in proportion with their respective
investments. The mutual fund providing companies come out with a variety of
schemes to achieve different investment objectives from time to time.
ORGANISATION OF A MUTUAL FUND
Sponsor
Asset
Management
Trustee Company Company
Fund Marketing
Fiduciary Operations
Management
responsibility
Distribution
to the
Investors Broker Registrar Custodian
s rr
Market Bank
Mutual funds diversify their risk by holding a portfolio many companies instead of
only one asset. This is because holding all the investors money in one asset will
result in absolute dependence of fortunes on that particular asset. On creating a
portfolio with a variety of assets, this risk is substantially reduced. In India, a
mutual fund must be registered with the SEBI which regulates securities markets
before it can collect funds from the public.
Today, if mutual funds are emerging as a favoured investment option it is due to

its advantages over other investment options it seems to be capitalising on. India
is a developing economy recording an approx. 8% GDP growth, an indicator of
7
the fact that the investor market is growing like never before. In the US 23% of
the household financial assets are held in mutual funds and the country manages
$11trillion of assets and 60% of the 500 US AMCs are independent advisors.
Every day, the fund manager counts up the value of the fund’s holdings, figures
out how many shares are purchased by shareholders, and then calculate the Net
Asset Value (NAV) of the mutual fund, the price of a single share of the fund on
that day. If the fund manager is doing a good job, the NAV figure increases-the
investor’s shares will be worth more. But exactly how does a mutual fund’s NAV
increase?
There are a few of ways that a mutual fund can make money in its portfolio. A
mutual fund can earn dividends from the stocks that it owns.
Dividends are shares of corporate profits paid to the stockholders of public
companies. The funds may have money in the bank that earns interest, or it
might receive interest payments from the bonds that it owns. These are all
sources of income for a fund. Mutual funds are required to hand out or ‘distribute’
this income to shareholders. Usually, this is done twice a year, in a move that is
called income distribution.
At the end of the year, a fund makes another kind of distribution, this time from
the profits made by selling stocks or bonds that have risen in price. These profits
are known as capital gains and the act of passing them out is called capital gains
distribution.
Income from Mutual Funds
 Income earned on stocks and interest on bonds. A fund pays out nearly all
the income it receives over the year to fund owners in the form of a
distribution.
 If a funds sells securities that have increases in price, the fund has a
capital gain most funds also pass on these gains to investors in
distribution.
 If fund’s holdings rise in price but are not sold by the fund manager, the
fund’s shares increase in price. Investors can sell their mutual fund shares
for a profit.
The mutual funds can be classified under 3 heads as follows :
8
• Equity Funds
• Balanced Funds
• Debt Funds
Equity Fund Schemes :
Equity schemes are those that invest predominantly in equity shares of

companies. An equity scheme seeks to provide returns by way of capital
appreciation.
Balanced Fund Schemes :
Balanced schemes invest both in equity shares and in income-bearing

instruments. They aim to reduce the risks of investing in stocks by having a stake
in both the equity and the debt markets. These schemes adopt some flexibility in
changing the asset composition between equity and debt. The fund managers
exploit market conditions to buy the best class of assets at each point in time. By
mixing stocks and bonds (and sometimes other types of assets as well, like call
money or commercial paper), a balanced scheme is likely to give a return
somewhere in between those of stocks and bonds. Bonds add stability during
market downturns and volatile periods, while stocks provide growth.
Debt Fund Schemes :
These schemes invest mainly in income-bearing instruments like bonds,

debentures, government securities, commercial paper, etc. These instruments
are much less volatile than equity schemes. Their volatility depends essentially
on the health of the economy e.g., rupee depreciation, fiscal deficit, inflationary
pressure. Performance of such schemes also depends on bond ratings. These
schemes provide returns generally between 7 to 12% per annum.
9
HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the government of India and the Reserve Bank. The
history of mutual funds in India can be broadly divided into four distinct phases.
First Phase (1964-‘87):
Unit trust of India was established in 1963 by an Act of Parliament by the

Reserve Bank of India. In 1978 UTI was delinked from the RBI and the Industrial
Development Bank of India (IDBI) took over its regulatory and administrative
control. The first scheme launched by UTI was Unit Scheme 1964. By the end of
1988 UTI had Rs.6, 700 crores of assets under management.
Second Phase-Entry of public sector funds (1987-’93):
 1987 marked the entry of non UTI, public sector mutual funds set up by
public sector banks, Life Insurance Corporation of India (LIC) and the
General Insurance Corporation of India (GIC).
 SBI mutual fund was the first non –UTI mutual fund established in June
1987 followed by Canbank Mutual Fund (December ’87), Punjab National
Bank (August ’89), Indian Bank Mutual Fund (November ’89), Bank of
India (June ’90), Bank of Baroda Mutual Fund (Oct ’92), LIC establishes its
mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990. At the end of 1993, the mutual funds industry had assets
under management of Rs 47,004 crores.
Third Phase-Entry of Private Sector Funds (1993-2003):
The entry of private sector funds in 1993 marked the beginning of a new era for
the Indian mutual fund industry, giving the investors a wider choice of fund
families. This was also the year in which First Mutual Fund Regulations came
10
into being. Under this, all mutual funds except the UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first private mutual fund company to be registered in July 1996.
The 1993 SEBI (Mutual fund) Regulations were substituted by more
comprehensive and revised mutual fund regulations in 1996. Today, the industry
functions under the SEBI (Mutual Fund) Regulations, 1996.The number of mutual
fund houses increased, with many foreign mutual funds setting up funds in India
and the industry witnessed several mergers and acquisitions. As in January
2003, there were 33 mutual funds with total assets of Rs44, 541 crores. The Unit
Trust of India with Rs. 44,541 crores of assets under management was way
ahead of other mutual funds.
Fourth phase (February 2003 onwards):
In February 2003, following the repeal of the United Trust of India Act of 1963,
UTI bifurcated into two separate families. One is the specified undertaking of the
United Trust of India with the assets under management of Rs. 29,835 crores as
the end of January 2003, representing broadly, the assets of US 64 scheme,
assured return and certain other schemes. The specified undertaking if the Unit
Trust of India, functioning under the administrator and under the rulings of the
Government of India does not come under the Mutual fund Regulations. The
second is the UTI Mutual Fund Ltd., sponsored by SBI, PNB, DOB and LIC.
With the bifurcation of the erstwhile UTI which had, in March 2000 more than Rs.
7,600 crores of assets under management and with the setting up of the UTI
Mutual Fund, conforming to the SEBI Mutual Funds Regulations and with the
recent mergers talking place in the private sector funds, the mutual fund industry
had entered its current phase of growth. As at the end of (research for present
day figures). Rs.323602.79 January 2006
11
Classification of Mutual Funds
Money market funds
Aiming for protection, money market funds are considered the safest place to
invest money in mutual funds. They do not provide much potential for income or
growth. However, they do seek to generate a small amount of return by loaning
money on a short-term basis, anywhere from one day to up to a year. These
loans are considered low-risk because they are such short-term. On the other
hand, they are also typically the class of fund that earns the least for investors.
Money market funds charge low interest rates for the loans, thus earning you
small amounts on your investment. Money market funds try to maintain a
consistent share price of $1 by paying out all of the earnings to shareholders and
by avoiding securities that can rise and fall in price (so there are no capital gains
to distribute).
12
You have a choice of varieties of money market funds:
• Taxable: These are simply called "money market funds" if offered by a

mutual fund company; or "money market accounts" if offered by a bank.
Both make short-term loans, but those offered by a bank are FDIC
insured. Those offered by mutual funds are insured by the private insurer,
SIPC (Securities Investors Protection Corporation).
• Government: These funds only make loans to national governments or
agencies of those governments. Earnings are free from federal taxation.
• Municipal: These funds only make loans to various state and local
governments and their agencies. The income from these funds is free
from federal taxation, and any portion of the income that comes from the
state in which you live is also free from state taxation. You can also find
money market funds that make loans only within a particular state, so you
can find a money market fund for your own state and generally be free
from all taxation.
Fund of Funds
A fund of funds, as the name suggests, is a mutual fund that holds shares of
other mutual funds (stock funds, bond funds, maybe both). This is one way of
achieving a high level of diversification. However, the expense ratio tends to be
high since the fund must pay for itself as well as the expenses charged by the
holdings. Further, because many mutual funds have similar holdings, buying
shares in many different funds doesn't always result in diversification of holdings.
Bond Funds
Aiming for income, bond funds loan money to corporations and/or government
agencies. So, in general, if you invest in a bond fund, you are loaning money in
order to receive regular interest payments until the borrower has repaid the
balance of the loan (or you've sold your shares). Bond funds, therefore, are
typically for earning a somewhat predictable amount of income. In times of falling
interest rates, however, a bond fund could increase in value, growing your money
13
through capital appreciation, as stock funds are meant to do. The opposite is also
true; in times of rising interest rates, the bonds in your fund may lose value and
cause you to lose money, even while you're earning income from interest.
Types of bond funds
Bond funds tend to be grouped according to the kinds of bonds in the fund. You
can buy a fund that invests in:
• Corporate bonds: a corporation is the borrower

• Government bonds: the national government or its agency is the
borrower
• Municipal bonds: a state or local government or its agency is the
borrower
Bond funds can also be grouped according to the average length of the life of the
bonds (their "average maturity") in the fund:
• Short-term bond funds: bonds typically maturing in less than five years
• Intermediate bond funds: bonds typically maturing in five to ten years
• Long-term bond funds: bonds typically maturing in ten to thirty years
Share prices, interest rates and yield
Share prices of bond funds reflect the value of the fund's underlying bonds. If
interest rates drop, the fund's share price (net asset value) will tend to rise
because the bonds in the fund will appreciate in value. If rates rise, the share
prices will usually fall.
Yield is the percentage you're earning on your investment. It will differ depending
on when you invest. For example, if the bond fund is earning $1 a share
annually, and you paid $10 a share, you would have a yield of 10%. But if you
waited until the NAV dropped and then paid $9 a share, you would have a yield
of 11%.
A fund's yield, or earnings, will differ from your total return. If the NAV drops, the
loss in value of your investment will reduce your overall return (called total
14
return). If you sell your fund shares while the NAV is down, you could actually
lose money even if you have earned some income.
Average maturity and credit rating
This is the average number of years until the bonds in the fund expire (mature).
Generally, the longer the average maturity of a fund, the higher the fund's yield,
because loans for longer periods tend to be made at higher interest rates.
However, credit rating can also affect the price of a bond fund. Generally, the
better the overall credit rating of the bonds held in the fund, the lower the fund's
overall yield - but the higher the stability of the fund's NAV.
Stock Funds
Stock funds generally aim for growth, income or a combination of both. Stock
funds are probably the most common of all mutual funds, even though they come
in many shapes and sizes. A stock fund invests mainly in stocks and may focus
on a particular type of stock or segment of the stock market, depending on its
goal and strategy.
Types of stock funds

The fund's strategy focuses on the types of securities the managers will target as
potential investments. For example, it might be stocks of well-established
companies, or stocks of small companies with high growth potential.
• Aggressive growth. These are the start-up, or relatively new companies

who have not yet established themselves in their product or service
market. They may also be companies in high risk businesses, such as the
Internet, biotechnology, and a number of other highly competitive and
money-intensive industries.
• Growth. These are companies that have moved beyond the phase of
uncertainty but still have a lot of room to grow. The more and faster they
grow, the more stock price movement investors can expect to see.
15
• Value. These are well-established companies with histories of consistent
earnings and growth, whose stock prices are viewed by the portfolio
manager as being an attractive value.
• Industry and sector. Some industries will do well while others will do
poorly. The companies in the software business are in the same industry;
while others in the high tech hardware business are in a different industry.
All of these companies, however, would be grouped into the high tech
sector.
• Country or region. The economies of different countries act differently at
different times. So there are mutual funds, for instance, that invest in
specific countries or regions. If you hear the term, "emerging growth fund,"
it may be a fund that invests in countries that have small but growing
economies.
OTHER FUNDS
Balanced funds
Balanced funds aim for the best of both stocks and bonds. These funds mix
stocks and bonds to give you a mixture of growth potential and income potential,
as well as a little more protection during periods of dropping prices. The stocks
are typically meant to provide price appreciation potential, while the bonds are
meant to provide income and a measure of price stability.
Balanced funds may either keep their ratio of stocks to bonds fairly constant or
switch the ratio of stocks to bonds depending on market conditions. Because of
the mix, balanced funds tend to offer a return on investment over the long-term
somewhere between a growth stock fund and a traditional bond fund.
Asset Allocation Funds
Asset allocation funds can invest in a mixture of stocks, bonds and cash
equivalents. The ratio of each asset class is typically based on investor risk
profiles, such as conservative, moderate and aggressive.
Index funds
16
Index funds are low-cost mutual funds that seek to mirror the performance of the
broader markets they represent. Years of investment research show that mutual
fund managers who try to buy and sell individual companies based on their own
research have a hard time outperforming the broader markets over time. That's
why index funds are so attractive.
Lifestyle Funds
These funds aim to provide all the diversification that you need in a single fund.
They have gained in popularity along with the growth in 401(k) plans. They are
designed for consumers who don’t have much time or knowledge to make
investment decisions. They can go by a number of different names, such as
retirement, target date (e.g., target date 2040), life-cycle or asset allocation
funds.
Some lifestyle funds are geared to a certain risk level. So, for example, there
may be funds designed for conservative, moderate and aggressive investors.
With these funds, it is up to the consumer to switch into a different fund if their
goals change.
With lifestyle funds that are designed for a specific age group or retirement target
date, the asset mix shifts as time goes on. As the group ages or moves closer to
retirement, the asset mix automatically becomes more conservative.
Exchange traded funds (ETFs): An alternative
Exchange Traded Funds are baskets of stocks, somewhat like mutual funds, that
are traded on the stock market. The fees may be even lower than mutual funds,
and the tax consequences more favorable.
But you pay a commission to buy them, just like when you buy stocks. So, if you
want to invest on a regular basis, ETFs can get very expensive because you pay
a commission every time you buy more shares. For example, if you automatically
invest $100 out of your checking account each month into an ETF, you would
pay a commission every month. So, for automatic investing, you would likely be
better off investing in mutual funds.
Open Ended funds V/s Closed Ended Funds:
17
An open ended fund is one that has units available for sale and repurchase at all
times. An investor can buy or redeem units from the fund itself based on the Net
Asset Value (NAV) per share.
The NAV per unit is obtained by dividing the amount of market value of the fund’s
assets (adding accrued income and subtracting the fund’s liabilities) by the
number of units outstanding. The number of units outstanding goes up/ down
every time the fund purchases new/repurchases existing units. In other words,
the unit capital of an open ended mutual fund is variable. The fund size and its
total investment go up if more new subscriptions come in from new investors
than redemptions by existing investors; the fund shrinks when redemptions of
units exceed fresh subscriptions.
In the case of a close ended fund, the unit capital is fixed, as it makes a one-time
sale of a fixed number of units. Unlike open ended funds, closed ended funds do
not allow investors to buy or redeem units directly from the fund. Investors are
provided the much needed liquidity by many close ended funds getting listed in
the Stock Exchange(s).Trading through a stock exchange enables investors to
buy/sell units of a close ended mutual fund from each other, through a stock
broker, in the same fashion as buying and selling stocks of a company. The
fund’s units may be traded at a discount or premium to NAV based on the

investor’s perception about the fund’s future performance and other market
factors affecting the demand for a fund’s unit.
Note, that the number of outstanding units of a close ended fund do not vary on
account of trading in the fund’s units in a stock exchange. On the other hand,
funds often do ‘buy back’ of fund shares/units, thus offering another avenue of
liquidity for close ended funds. In this case, the number the mutual fund actually
reduces the number of units outstanding with investors.
Load v/s No Load Funds:
Marketing of a new mutual fund scheme involves initial expenses. These

expenses may be recovered from the investors in different ways at different
times. Three usual ways in which a fund’s sales expenses may be recovered
from the investors are:
1. At the time of investor’s entry into the fund/scheme by deducting a specific

amount from his initial contribution, or
2. By charging the fund/scheme with a fixed amount each year, during the
stated number of years, or
3. At the time of the investor’s exit from the fund/scheme, by deducting a

specified amount from the redemption proceeds payable to the investor.
18
These charges are made by the fund managers to the investors to cover
distribution/sales/marketing expenses are called loads. The load charged on the
entry of the investor into the scheme is called a front end load or an entry load.
This is the Case 1 above. The load amount charged to the scheme over a period
of time is called a deferred load. This is the Case 2. The load that the investor
pays at the time of his exit is called a back end or exit load. This is the Case 3.
Some funds may also charge different amounts of loads to the investors,
depending on the number of years the investor has stayed with the fund; the
longer the time period for which the investor has stayed with the fund the lesser
the exit load charged. This is called the contingent deferred sales charge.
Note that the front end load amount is deducted from the initial
contribution/purchase amount paid by the incoming investor, thus reducing his
initial investment amount. Similarly exit loads would reduce the redemption
proceeds paid out to the outgoing investor. If the sales charge is made on a
deferred basis directly on the scheme, the amount of the load may not be
apparent to the investor, as the scheme’s NAV would reflect the net amount after
the deferred load.
Funds that change front end, back end or deferred loads are called load funds.
Funds that make no such charges or loads for sales expenses are called no load
funds.
Tax Exempt V/s Non –Tax Funds:
When a fund invests in tax exempt securities, it is called a tax exempt fund. For
example, in the US municipal bonds pay interest that is tax free, while interest on
corporate and other bonds is taxable. In India, after the 1999 Union Government
Budget, all of the dividend income received from any of the mutual funds is tax
free in the hands of the investor. However, other than equity funds have to pay a
distribution tax, before distributing income to investors. Equity mutual funds are
tax exempt investment avenues.
Tax rules for mutual fund investors as per Finance Bill 2008: Equity Oriented
schemes.
19
TAX STRUCTURE OF MUTUAL FUNDS
Short Term
FOR Capital Gains Long Term Capital Dividend
Dividend
EQUITY Tax Gains Tax Income
Distribution tax TDS
2007- 2008- 2007-‘08 2008-‘09 2007-‘ 2008- 2007-‘0 2008-‘ 2007-‘ 2008-‘
‘08 ‘09 08 ‘09 8 09 08 09
Resident 10% !5% Nil Nil Tax Tax Nil Nil Nil Nil
individual / HUF
free free
Partnership !0% 15% Nil Nil Tax Tax Nil Nil Nil Nil
firms/AOP/BOI
free free
Domestic 10% 15% Nil Nil Tax Tax Nil Nil Nil Nil
Companies
free free
NRIs 10% 15% Nil Nil Tax Tax Nil Nil STCG-10%
LTCG Nil
free free
Short Term Dividend Dividend

Capital Gains Long Term Capital Gains Dividend Distribution tax- Distribution tax-
FOR DEBT Tax Tax Income Other than Liquidity/Money TDS
liquid/money Market Schemes
market Schemes
2007- 2008- 2007-‘08 2007-‘08 2008- 2008- 2007-‘08 2008-‘ 2007-‘0 2008-‘ 2007- 2008-
‘08 ‘09 ‘09 ‘09 09 8 09 ‘08 ‘09
Resident individual / As As 10% 10% ( Tax Tax 14.025% 14.1% 14.025% 28.3% Nil Nil
HUF per per (20% 20% Free Free
slab slab indexation) indexation)
Partnership As As 10% ( 10% Tax Tax 22.44% 22.6% 22.4% 28.3% Nil Nil
firms/AOP/BOI per per 20% ( 20% Free Free
Domestic Companies As As 10% 10% Tax Tax 22.44% 22.6% 28.3% 28.3% Nil Nil
per per ( 20% ( 20% Free Free
NRIs As As 10% ( 10% ( Tax Tax 14.025% 14.2% 14.025% 28.3% STCG-30%
per per 20% 20% Free Free LTCG-20%
ADVANTAGES OF MUTUAL FUNDS:
20
Mutual Funds:
A Packaged Product
Diversification
Professional
Management
Liquidity
Convenience Tax Benefits
Mutual funds offer a number of advantages, including diversification, professional

management, cost efficiency and liquidity.
• Diversification. A mutual fund spreads your investment dollars around

better than you could do by yourself. This diversification tends to lower the
risk of losing money. Diversification usually results in lower volatility,
because when some investments are doing poorly, others may be doing
well.
• Professional management. Many people don't have the time or expertise

to make investment decisions. A mutual fund's investment managers,
however, are trained to search out the best possible returns, consistent
with the fund's strategies and goals. In essence, your mutual fund
investment brings you the services of a professional money manager.
• Cost efficiency. Putting your money together with other investors creates
collective buying power that may help you achieve more than you could on
your own. As a group, mutual fund investors can buy a large variety and
number of specific investments. They can also afford to pay for
21
professional money managers and fund operating expenses, where they
wouldn't be able to afford it on their own.
• Liquidity. With most funds, you can easily sell your fund shares for cash.
Some mutual fund shares are traded only once a day at a fixed price,
while stocks and bonds can be bought or sold any time the markets are
open at whatever price is then available.
• Convenient Administration Investing in a Mutual Fund reduces
paperwork and helps you avoid many problems such as bad deliveries,
delayed payments and follow up with brokers and companies. Mutual
Funds save your time and make investing easy and convenient.
• Return Potential Over a medium to long-term, Mutual Funds have the
potential to provide a higher return as they invest in a diversified basket of
selected securities.
• Transparency You get regular information on the value of your
investment in addition to disclosure on the specific investments made by
your scheme, the proportion invested in each class of assets and the fund
manager's investment strategy and outlook.
• Flexibility Through features such as regular investment plans, regular
withdrawal plans and dividend reinvestment plans, you can systematically
invest or withdraw funds according to your needs and convenience.
• Affordability Investors individually may lack sufficient funds to invest in
high-grade stocks. A mutual fund because of its large corpus allows even
a small investor to take the benefit of its investment strategy.
Funds typically give you two ways in which to invest:
22
• Lump sum. You can invest any amount you want at one time, as long as
you meet the minimum requirements of that fund. Some funds have no
minimum for opening an account or no minimum for additional share
purchases, while others do.
• Automatic investment. Most funds offer plans that allow you to transfer
set amounts on a regular basis automatically from your bank account or
paycheck. This is a great way to save money on a routine basis.
With automatic investing, you get the benefits of dollar cost averaging.
That is, when you make regular investments in a mutual fund, such as
investing $100 every month, you can take advantage of both the ups and
downs of the market. When the market is down, your monthly investment
typically buys you more shares of the fund, helping to increase your
ownership in the fund. When the market is up, your monthly investment
typically buys you fewer shares of the fund, helping you avoid buying too
many shares at higher prices. Over a long period of time, the end result is
that the average cost of your fund shares is lower than the average price
of the fund shares during the same period.
Exchanging and selling shares
Many funds allow you to make free exchanges of your shares for shares of
another fund owned by the same fund company. Typically, there is a limit to the
number of free exchanges you can make. Be aware that even though an
exchange may be free, there may be tax consequences associated with it.
To sell shares, you either call the fund directly if you have a no-load fund, or have
your broker or bank officer do it if you have a load fund. Typically, you are given
the option to have the proceeds deposited into your account or sent directly to
you by check or wire. Some funds will charge you a fee if you don't keep the fund
shares for a minimum amount of time (e.g., 90 or 180 days).
23
Share price
The value of a mutual fund share is calculated based on the value of the assets
owned by the fund at the end of every trading day. Here is how it works:
• The fund calculates the value: A share's value is called the Net Asset
Value (NAV). The fund calculates the NAV by adding up the total value of
all of the securities it owns, subtracting the expenses of the fund, and then
dividing by the number of shares owned by shareholders like you.
• Value changes daily: Since the value of the stocks or bonds owned by
the fund can change daily, the value of the fund can also change daily.
Therefore, a fund is required by law to adjust its price once every trading
day to provide investors with the most current NAV.
• How many shares you own: To see the value of your investment, you
take the value of one share and multiply it by the number of shares you
have in the fund. Or, if you are considering investing say $1,000 in the
fund, you would divide that money by the value of one share to see how
many shares that $1,000 would give you. While you cannot buy a fraction
of a share of stock, you can own a fraction of a mutual fund share, if the
amount you invest does not divide evenly by the NAV.
Earning money
Once your money is in a fund, it can provide you with earnings in three ways.
• Appreciation: The value of a fund share can appreciate or go up in value.

(Of course, it can also go down in value.) When the total value of the
securities owned by the fund rises, the value of your fund shares rises with
it. Again, the reverse is also true.
• Dividends: If the fund receives dividends from stocks, interest from
bonds, or other investment income, it distributes those earnings to
shareholders as a dividend according to the terms outlined in its
prospectus. Depending on the fund, these distributions can be monthly,
quarterly, or annually.
• Capital gain distributions: Every time the fund manager sells securities
at a profit, the fund earns capital gains. Funds are required to distribute
these gains to the shareholders at regular intervals, typically once or twice
24
a year. You can choose to have the fund automatically reinvest the money
in more fund shares, keep it as cash in your account, or send the money
to you.
Choosing a Mutual Fund

Choosing the right funds—and trusting your decisions enough to back them with
your money—is challenging. To keep from getting overwhelmed, be sure you
understand what you want for your money (protection, income, growth), then look
only at the funds that aim for the same thing. But where can you look for
information?
Look at the fund prospectus
The prospectus is essentially the user's manual for a mutual fund. It has the
reputation of being dense and complicated to read, but recent changes in
regulations have required funds to make every prospectus much simpler,
especially in the key areas of understanding performance and expenses. Simply
looking at the charts and tables in the first few pages will tell you a lot you need
to know.
What's in a prospectus?
The SEC requires every fund to publish a prospectus and update it annually. It
covers all of the important elements, such as the history, management, financial
condition, performance, expenses, goals, strategies, types of allowable
investments, and policies.
• Performance. Each fund must tell you how much it has increased or
decreased in value in each of the past 10 years (or for every year of its
existence, if shorter). This is labeled in the prospectus as "performance" or
as "annual total return." Fund performance is required to be shown against a

relevant industry benchmark, a performance measure used by the industry of
how the market segment has performed as a whole compared to the
investments in that segment held by the fund. Typically, the benchmark will
be an "index" for that category.
• Average annual return. While every fund has to show its annual
performance, every fund also must to tell you its average return on a
yearly basis. Average annual return is important because it keeps funds
25
from promoting their best years and ignoring their worst years. It takes the
total returns for each year and averages them across the number of years
the fund has been in existence.
• Fees and expenses. The prospectus will tell you if a fund charges a sales
charge or is a "no-load" fund, meaning that there is no up-front sales
charge. All funds charge management fees and expenses, which will be
described in the prospectus.
Risks
Because mutual funds typically hold a large number of securities, their level of
diversification provides them with a lower level of risk than investing in a single
stock or bond.
However, investing in mutual funds still contains a number of risks that you
should consider before investing, including:
• You could lose money

• Your money may lose buying power
• You may not achieve your goal
• Your investment may rise and fall in value
• Other risks
You could lose money
Every mutual fund prospectus will highlight this point. It's the most obvious and
feared risk of investing. There are, however, many strategies for managing this
risk, particularly over the long term.
Your money may lose buying power
This risk is also known as inflation risk: as prices increase, your investments
must increase in value at least at the same pace, or you'll lose purchasing power.
You may not achieve your goal
Probably the biggest, yet most overlooked risk of investing, is the risk of not
achieving your goal. It's probably overlooked so often because so few investors
actually set goals, and many others set unrealistic goals. Furthermore, many
investors don't buy the right investments to help them achieve their goals. This
type of risk is often called shortfall risk (falling short of your goal). For example, if
26
you are investing to pay for a future college education, a money market fund
might feel safe. But it's highly unlikely that you'll reach your goal
Your investment may rise and fall in value
Almost all investments have the potential to gain and lose value. This is known
as market risk. In other words, the price of any investment, whether it's stocks,
bonds, mutual funds, or any other, is likely to rise and fall over time. Seasoned
investors tend to ignore the relatively small price movements in their investments,
preferring to try and capture the more significant fluctuations they can better
anticipate. If you invest for longer periods of time, market risk may become less
dangerous to you. That's because, over the long-term, most investments tend to
rise in price. Market risk, however, can place investors at a significant
disadvantage if they are forced to sell at a time when prices happen to be down.
Foreign exchange or currency risk
If you invest overseas, the exchange rate between your home currency and the
foreign currency adds an extra layer of risk to your investment. The stock or bond
you buy may go up, but the exchange rate may go down so far that it wipes out
your gain.
The halo effect
When something wonderful happens to one stock in an industry, many of the

others in that industry may also enjoy a rise. This is known as the Halo Effect.
But it also occurs in reverse, taking value out of perfectly good investments just
because they are linked in the minds of investors to another investment that is
experiencing a problem.
27
Mutual Fund Investment Styles
The growth in the number of mutual funds is due, in part, to the variety of
investment styles employed by money managers. Studies have shown that
investment style can play an important role in fund returns; as a result, there is
considerable debate within the investment community about the effectiveness of
the various styles. The following is an overview of the dominant styles employed
by today’s money managers.
Active vs. Passive
Active investors believe in their ability to outperform the overall market by picking
stocks they believe may perform well. Passive investors, on the other hand, feel
that simply investing in a market index fund may produce potentially higher long-
term results. The majority of mutual funds underperform market indexes.*
Passive investors believe this is due to market efficiency. In other words, all
information available about a company is reflected in that company’s current
stock price, and it’s impossible to forecast and profit on future stock prices.
Rather than trying to second-guess the market, passive investors can buy the
entire market via index funds.
Growth vs. Value
Active investors can be divided into growth and value seekers. Proponents of
growth seek companies they expect (on average) to increase earnings by 15% to
25%. Of course, there is no assurance that this objective will be obtained. Stocks
in these companies tend to have high price to earnings ratios (P/E) since
investors pay a premium for higher returns. They usually pay little or no
dividends. The result is that growth stocks tend to be more volatile, and therefore
more risky.
Value investors look for bargains — cheap stocks that are often out of favor,
such as cyclical stocks that are at the low end of their business cycle. A value
investor is primarily attracted by asset-oriented stocks with low prices compared
to underlying book, replacement, or liquidation values. Value stocks also tend to
have lower P/E ratios and potentially higher dividend yields. These potentially
higher yields tend to cushion value stocks in down markets while certain cyclical
stocks will lead the market following a recession.
Small Cap vs. Large Cap
28
Some investors use the size of a company as the basis for investing. Studies of
stock returns going back to 1925 have suggested that "smaller is better." On
average, the highest returns have come from stocks with the lowest market
capitalization (common shares outstanding times share price). But since these
returns tend to run in cycles, there have been long periods when large-cap
stocks have outperformed smaller stocks.
Small-cap stocks also have higher price volatility, which translates into higher
risk. Some investors choose the middle ground and invest in mid-cap stocks with
market capitalizations between $500 million and $8 billion — seeking a tradeoff
between volatility and return. In so doing, they give up the potential return of
small-cap stocks.
Bottom-Up vs. Top-Down
A top-down investor looks first at economic factors and then selects industries
accordingly. For example, during periods of low inflation, consumer spending
increases, which might be a good time to buy automobile stocks or retail stocks.
The top-down investor would then search for the best values in these industries.
A bottom-up investor is more concerned with individual companies’
fundamentals. They reason that even if its industry is doing poorly, a strong
company will still outperform the market. Both of these styles emphasize
fundamentals, but place different emphasis on the economic environment.
Technical vs. Fundamental Analysis
Another difference is that some equity investors look at the fundamentals of

individual stocks, while others invest based on technical analysis.
Fundamentalists, who represent the majority, spend time poring over annual
reports and visiting companies attempting to uncover investment opportunities
and seek greater return potential over the long run. Technical analysts pore over
charts of stock prices and economic data in an attempt to divine patterns that
could be indicative of future trends, and are more concerned with short-term
market timing than individual stock picking.
Although technical analysts fell out of favor as studies questioned their

forecasting powers, increased access to information and the growing power of
computers have led to a resurgent interest.
29
Performance Measures of Mutual Funds
Mutual Fund industry today, with about 34 players and more than five hundred
schemes, is one of the most preferred investment avenues in India. However,
with a plethora of schemes to choose from, the retail investor faces problems in
selecting funds. Factors such as investment strategy and management style are
qualitative, but the funds record is an important indicator too. Though past
performance alone can not be indicative of future performance, it is, frankly, the
only quantitative way to judge how good a fund is at present. Therefore, there is
a need to correctly assess the past performance of different mutual funds.
Worldwide, good mutual fund companies over are known by their AMCs and this
fame is directly linked to their superior stock selection skills. For mutual funds to
grow, AMCs must be held accountable for their selection of stocks. In other
words, there must be some performance indicator that will reveal the quality of
stock selection of various AMCs.
Return alone should not be considered as the basis of measurement of the

performance of a mutual fund scheme, it should also include the risk taken by the
fund manager because different funds will have different levels of risk attached to
them. Risk associated with a fund, in a general, can be defined as variability or
fluctuations in the returns generated by it. The higher the fluctuations in the
returns of a fund during a given period, higher will be the risk associated with it.
These fluctuations in the returns generated by a fund are resultant of two guiding
forces. First, general market fluctuations, which affect all the securities present in
the market, called market risk or systematic risk and second, fluctuations due to
specific securities present in the portfolio of the fund, called unsystematic risk.
The Total Risk of a given fund is sum of these two and is measured in terms of
standard deviation of returns of the fund. Systematic risk, on the other hand, is
measured in terms of Beta, which represents fluctuations in the NAV of the fund
vis-à-vis market.
The more responsive the NAV of a mutual fund is to the changes in the market;
higher will be its beta. Beta is calculated by relating the returns on a mutual fund
with the returns in the market. While unsystematic risk can be diversified through
investments in a number of instruments, systematic risk can not. By using the
risk return relationship, we try to assess the competitive strength of the mutual
funds vis-à-vis one another in a better way.
30
In order to determine the risk-adjusted returns of investment portfolios, several
eminent authors have worked since 1960s to develop composite performance
indices to evaluate a portfolio by comparing alternative portfolios within a

particular risk class. The most important and widely used measures of
performance are:
• The Treynor Measure

• The Sharpe Measure
• Jenson Model
• Coefficient of Variation
The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on the

basis of Treynor's Index. This Index is a ratio of return generated by the fund
over and above risk free rate of return (generally taken to be the return on
securities backed by the government, as there is no credit risk associated),
during a given period and systematic risk associated with it (beta). Symbolically,
it can be represented as:
Treynor's Index
(Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta
of the fund.
All risk-averse investors would like to maximize this value. While a high and
positive Treynor's Index shows a superior risk-adjusted performance of a fund, a
low and negative Treynor's Index is an indication of unfavorable performance.
The Sharpe Measure
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,

which is a ratio of returns generated by the fund over and above risk free rate of
return and the total risk associated with it. According to Sharpe, it is the total risk
of the fund that the investors are concerned about. So, the model evaluates
funds on the basis of reward per unit of total risk. Symbolically, it can be written
as:
Sharpe Index (Si) = (Ri - Rf)/Si
31
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted
performance of a fund, a low and negative Sharpe Ratio is an indication of
unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the
risk premium by a numerical risk measure. The total risk is appropriate when we
are evaluating the risk return relationship for well-diversified portfolios. On the
other hand, the systematic risk is the relevant measure of risk when we are
evaluating less than fully diversified portfolios or individual stocks. For a well-
diversified portfolio the total risk is equal to systematic risk. Rankings based on
total risk (Sharpe measure) and systematic risk (Treynor measure) should be
identical for a well-diversified portfolio, as the total risk is reduced to systematic
risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure,
compared with another fund that is highly diversified, will rank lower on Sharpe
Measure.
Jenson Model
Jenson's model proposes another risk adjusted performance measure. This

measure was developed by Michael Jenson and is sometimes referred to as the
Differential Return Method. This measure involves evaluation of the returns that
the fund has generated vs. the returns actually expected out of the fund given the
level of its systematic risk. The surplus between the two returns is called Alpha,
which measures the performance of a fund compared with the actual returns over
the period. Required return of a fund at a given level of risk (Bi) can be
calculated as:
Er = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it,
alpha can be obtained by subtracting required return from the actual return of the
fund.
Higher alpha represents superior performance of the fund and vice versa.
Limitation of this model is that it considers only systematic risk not the entire risk
associated with the fund and an ordinary investor can not mitigate unsystematic
risk, as his knowledge of market is primitive.
Among the above performance measures, two models namely, Treynor measure
and Jenson model use systematic risk based on the premise that the
32
unsystematic risk is diversifiable. These models are suitable for large investors
like institutional investors with high risk taking capacities as they do not face
paucity of funds and can invest in a number of options to dilute some risks. For
them, a portfolio can be spread across a number of stocks and sectors. However,
Sharpe measure considers the entire risk associated with fund are suitable for
small investors, as the ordinary investor lacks the necessary skill and resources
to diversified. Moreover, the selection of the fund on the basis of superior stock
selection ability of the fund manager will also help in safeguarding the money
invested to a great extent. The investment in funds that have generated big
returns at higher levels of risks leaves the money all the more prone to risks of all
kinds that may exceed the individual investors' risk appetite.
Coefficient of Variation
Coefficient of Variation is the measure of dispersion which gives us a feel about

dispersion, ie. total risk associated with the fund, relative to its mean return. It is
expresses as standard deviation of the fund as a percentage of the mean return.
It can be calculated as
Coefficient of Variation = (Si/ Ri) * 100
Where Si stands for standard deviation of the fund & Ri stands for mean return of
the fund. A lower coefficient of variation describes a better total risk adjusted
performance of the fund & vice versa.
Evaluating funds on basis of Risk and Return

Under my Dissertation study I have decided to evaluate open ended equity
diversified fund schemes of H.D.F.C Mutual Fund. I have selected the top five
equity diversified schemes of H.D.F.C Mutual Fund on the basis of the past 12
month’s performance.
Now, for evaluating these schemes, the performance
measures I have selected are as under:
• % Return over 12 month period

• Treynor’s Measure
• Sharpe’s Measure
• Jenson Model
• Coefficient of Variation
33
Funds Returns
H.D.F.C EQUITY ORIENTED FUNDS
1. H.D.F.C GROWTH FUND 36.48%

2. H.D.F.C EQUITY FUND 16.16%
3. H.D.F.C TOP 200 FUND 25.72%
4. H.D.F.C CAPITAL BUILDER FUND 25.82%
5. H.D.F.C CORE & SATELLITE FUND 14.26%
For the evaluation of the funds, the following parameters are considered:
 Risk free rate has been taken as the 91 day T – Bill rate as on March,
2008 = 5%
 Benchmark Market return over 12 month period.
1. H.D.F.C GROWTH FUND

Objective:
To generate long term capital appreciation from a
portfolio that is invested predominantly in equity and equity
related instruments.
Investment Information
Type of Scheme Open Ended

Nature of Scheme Equity
Launch 11-09-2000
Face Value(Rs./unit) 10
Fund size(Rs. In lakhs) 87867.92 march 31, 2008
Plans Growth
Returns and Risk Aggregates
Annual Returns (Ri) 36.48 %
34
Beta (Bi) 0.9230
Standard Deviation (Si) 7.20%
Benchmark Market Return (Rm) 19.56%
Risk Free Rate (Rf) 5%
PERFORMANCE ANALYSIS :
- 12 month return = 36.48% = 0.3648
- Treynor’s Ratio = (Ti) = (Ri - Rf)/Bi
= (0.3648 – 0.05)/ 0.9230 = 0.3410
- Sharpe’s Ratio = (Si) = (Ri - Rf)/Si
=(0.3648 – 0.05)/ 0.072 = 4.37
- Jenson’s Model = Ri – (Er)
Er= 0.05 + 0.9230(0.1956-0.05) = 0.1844
Alpha = 0.3648 – 0.1844 = 0.1804
- Coefficient of Variation = (Si/ Ri) * 100
= (0.072/ 0.3648) * 100 = 19.74 %
35
2. H.D.F.C EQUITY FUND
Objective:
To achieve capital appreciation.

Launch 01-01-1995
Plans Growth
Annual Returns (Ri) 16.16%

Beta (Bi) 0.8890
- 12 month return = 16.16% = 0.1616
36
= (0.1616 – 0.05)/ 0.8890 = 0.1255
=(0.1616 – 0.05)/ 0.073 = 1.53
Er= 0.05 + 0.8890(0.2151-0.05) = 0.1968
Alpha = 0.1616 – 0.1968 = 0.0352
= (0.073/ 0.1616) * 100 = 45.17 %
37
3. H.D.F.C TOP 200 FUND
Objective :
To generate long term capital appreciation from a
portfolio of equity and equity linked instruments primarily drawn
from companies in BSE 200 index.

Launch 11-10-1996
Plans Growth

Beta (Bi) 0.8730
38
- 12 month return = 25.72% = 0.2572
= (0.2572 – 0.05)/ 0.8730 = 0.2373
=(0.2572 – 0.05)/ 0.07 = 2.96
Er= 0.05 + 0.8730(0.2399-0.05) = 0.2157
Alpha = 0.2572 – 0.2156 = 0.0416
= (0.07/ 0.2572) * 100 = 27.21 %
39
4. H.D.F.C CAPITAL BUILDER FUND
Objective:
To achieve capital appreciation in the long term.

Launch 01-02-1994
Plans Growth

Beta (Bi) 0.9470
40
- 12 month return = 25.82% = 0.2582
= (0.2582 – 0.05)/ 0.9470 = 0.2199
=(0.2582 – 0.05)/ 0.081= 2.57
Er= 0.05 + 0.9470(0.2151-0.05) = 0.2063
Alpha = 0.2582 – 0.2063 = 0.0519
= (0.081/ 0.2582)*100 =31.37%S
41
5. H.D.F.C CORE & SATELLITE FUND
Objective:
To generate capital appreciation through equity
investment in companies whose shares are quoting at prices
below their true value.

Launch 17-09-2004
Fund size(Rs. In lakhs) 42974.98 march 31 2008
Plans Growth

Beta (Bi) 0.9430
Benchmark Market Return (Rm) 23.99
42
PERFORMANCE ANALYSIS:
- 12 month return = 14.26 = 0.1426
= (0.1426 – 0.05)/ 0.9430 = 0.0981
=(0.1426 – 0.05)/ 0.08= 1.16
Er= 0.05 + 0.9430(0.2399-0.05) = 0.2290
Alpha = 0.1426 – 0.2290 = 0.0864
= (0.08/ 0.1426)*100 =56.10%
43
RANKING OF FUNDS BASED ON 12 MONTHS RETURN AS ON
31st MARCH, 2008
RANK NAME OF FUND 12 MONTH RETURN

%
2. H.D.F.C CAPITAL BUILDER 25.82%
FUND
3. H.D.F.C TOP 200 FUND 25.72%
5. H.D.F.C CORE & SATELLITE 14.26%
FUND
RANKING OF FUNDS BASED ON TREYNOR’S RATIO
RANK NAME OF FUND TREYNOR’S RATIO
44
1. H.D.F.C GROWTH FUND .3410
2. H.D.F.C TOP 200 FUND .2373
3. H.D.F.C CAPITAL BUILDER
FUND .2199
4. H.D.F.C EQUITY FUND .1255
5. H.D.F.C CORE & SATELLITE .0981
FUND
RANKING OF FUNDS BASED ON SHARPE’S RATIO
RANK NAME OF FUND SHARPE’S RATIO

1. H.D.F.C GROWTH FUND 4.37
2. H.D.F.C TOP 200 FUND 2.96
FUND 2.57
4. H.D.F.C EQUITY FUND 1.53
5. H.D.F.C CORE & SATELLITE 1.16
FUND
RANKING OF FUNDS BASED ON JENSON’S MODEL - ALPHA
RANK NAME OF FUND ALPHA
45
1. H.D.F.C GROWTH FUND .1804
2. H.D.F.C CORE & SATELLITE
FUND .0864
FUND .0519
4. H.D.F.C TOP 200 FUND .0416
5. H.D.F.C EQUITY FUND .0352
RANKING OF FUNDS BASED ON COEFFICIENT OF VARIATION
RANK NAME OF FUND COEFFICIENT OF

VARIATION %
1. H.D.F.C CORE & SATELLITE 56.10%
FUND
FUND 31.37%
4. H.D.F.C TOP 200 FUND 27.21%
46
Saving and other Investment Options: In India
There are many savings and investment options available in India. Although all
these are not provided necessarily provided in an organised fashion, they can,
nonetheless, be made available.
.
Bank Fixed Deposits (FD)
Fixed Deposit or FD is the most preferred investment option today. It yields up to

8.5% annual return depends on the Bank and period. Minimum period is 15 days
and maximum is 5 years and above. Senior citizens get special interest rates for
Fixed Deposits. This is considered to be a safe investment because all banks
operated under the guidelines of Reserve Bank of India.
National Saving Certificate (NSC)
NSC is backed by Govt. of India so it is a safe investment method. Lock in period

is 6 years. Minimum amount is Rs100 and no upper limit. You get 8% interest
calculated twice a year. NSC comes under Section 80C so you will get an
income tax deduction up to Rs 1, 00,000. From FY 2005-'06 onwards interest
accrued on NSC is taxable.
Public Provident Fund (PPF)
PPF is another form of investment backed by Govt. of India. Minimum amount is

Rs500 and maximum is Rs70,000 in a financial year. A PPF account can be
opened in a head post office, GPO and selected branches of nationalized banks.
PPF also comes under Section 80C so individuals could avail income tax
deduction up to Rs 1, 00,000. Lock in period for PPF is 15 years and interest rate
is 8%. Unlike NSC, PPF interest rate is calculated annually. Both PPF and NSC
considered to be best investment option as it is backed by Government of India.
Stock Market
Investing in share market is another investment option to get more returns. But
share market investment is volatile to market conditions. Before investing you
should have a thorough knowledge about its operation. Direct investment in the
stock market is generally a high risk –high returns ventures because market
trends are affected factors that vary from weather change to political change to a
change in the economic climate of another trading economy at any point in time.
Fund diversification and management is far more efficient and has lesser risk
under skilled fund managers.
47
Gold
Gold is a unique risk-return matrix, a safe-haven asset, an efficient diversifier

against inflation against falls in the equity market and badly performing fixed
securities. In India, gold is highly liquid. It is a reserve asset – a defense against
domestic currency fluctuations, providing the means to tackle a debt crisis,
preserving confidence in the economy, and providing a private investment
portfolio, which among the Indian public is now estimated at 10,000 to 15,000
tones. Finally, gold can act as a stabilizing factor to manage India’s external
crises.
It is crucial for those living in rural and semi-urban parts of India to have access
to gold as an investment option since a majority of people living in these areas
lack complete knowledge of the financial markets. Studies conducted by SEBI
(Security Exchange Board of India) reveal that gold, either in primary or in
jewellery form, still remains the second most preferred option among the Indian
public after deposits in the banks.
Gold is chiefly held for its safety and liquidity though very little gold is purchased
for investment purposes. This is mainly due to its liquidity and the fact that there
are not many players involved in either the sales or purchases of gold as an
investment product. Although India is still the among largest consumer of
physical gold, there is no benchmark price at any given point of time or on any
given date.
For instance, we would not know exactly how much 100gms of gold, 12gms of
gold or 10gms of gold would cost in Delhi, or how much it would be worth if one
wanted to sell the same amount of gold in Mumbai or in Agra or in Jaipur.
Therefore, a benchmark price needs to be established.
A Comparison of mutual fund with other Investment options:
48
Investment in Real estate
In general, property is considered a fairly low-risk investment, and can be less

volatile than shares (although, this is not always the case). Some of the
advantages of investing in property include:
• Tax benefits – a number of deductions can be claimed on your tax return,

such as interest paid on the loan, repairs and maintenance, rates and taxes,
insurance, agent's fees, travel to and from the property to facilitate repairs,
and buildings depreciation.
• Negative gearing – tax deductions can also be claimed as a result of
negative gearing, where the costs of keeping the investment property exceed
the income gained from it.
• Long-term investment – many people like the idea of an investment that can
fund them in their retirement. Rental housing is one sector that rarely
decreases in price, making it a good potential option for long-term
investments .
• Positive asset base – there are many benefits from having an investment
property when deciding to take out another loan or invest in something else.
Showing your potential lender that you have the ability to maintain a loan
without defaulting will be highly regarded. The property can also be useful as
security when taking out another home, car or personal loan.
• Safety aspect – Low-risk investments are always popular with untrained
"mum and dad" investors. Property fits this criteria with returns in some
country areas reaching 10% per year. Housing in metropolitan areas is
constantly in demand with the high purchase price being offset by substantial
rental income and a yearly return of between 6% and 9%.
• High leverage possibilities – investment properties can be purchased at
80% LVR (loan to valuation ratio), or up to 90% LVR with mortgage
insurance. The LVR is calculated by taking the amount of the loan and
dividing it by the value of the property, as determined by the lender. This high
leverage capacity results in a higher return for the investor at a lower risk due
to having less personal finances ties up in the property (80% of the purchase
price was provided by the mortgagee).
49
Disadvantages of Investment in Real estate:
Liquidity – This can take many months unless you're willing to accept a price
less than the property is worth. Unlike the stock market, you will have to wait for
any financial rewards.
• Vacancies – Mortgage payments need to be covered from the investor’s
pocket due to the property being untenanted. This could just be a result of
a gap between tenants or because of maintenance issues.
• Bad tenants – Tenants significantly damage your property, refuse to pay
rent and refuse to leave. Disputes can sometimes take months to resolve.
• Property oversupply – Inner-city builders have created a glut of high-rise
apartment blocks, resulting in fierce competition and many units being
increasingly difficult to rent out.
• Ongoing costs – In addition to the standard costs associated with a
property, ongoing maintenance costs, especially with an older building,
can be substantial.
• Capital Gains Tax – Imposed by the Federal Government on the
appreciation of investments and payable on disposal.
• Other costs – Negative gearing may offer tax deductions each financial
year, however ongoing payments to cover the shortfall need to be
budgeted for every month. Also, costs involved in purchasing and
disposing of the property can be substantial.
ON COMPARISION of the advantages & disadvantages of investment in real

estate and investment in mutual funds, it is clear that mutual funds offer a safer,
legal & hassle free investment option. Mutual funds are not only managed by
professional fund managers with minimal fees but they are also diversified. This
reduces the risk involved to a large degree.
Mutual fund transactions in AMCs like the HDFC Mutual Funds are transparent
and there are no hidden costs that the investors are unaware of. Also, another
major advantage that the mutual fund investments have over real estate
investment is that in case of the latter the money loses liquidity. In case of mutual
funds whether it be open & close ended the exit window option is always
available to the investor.
Investment in Gold
50
Types of Gold
The investor can invest in physical gold or through paper documents like shares
and certificates. Some of the popular modes of investing gold are gold coin
investing, gold stock investing, online gold investing, and gold bullion investing.
Before you decide to invest in the metal you must decide which form suits you in
terms of convenience convertibility and preference. Some of the popular forms of
investment are as follows
Raw Gold
This is the most common form of gold. However it is not regarded to be safe and
maintenance becomes difficult. This is generally stored in commercial bank
lockers.
Jewellery
This form of investment is also equally famous. The advantage of raw gold and
jewellery is that they facilitate liquidity in no time. However, maintenance of
jewellery and gold is high.
Gold Coin
This form of investment is advantageous when compared with the earlier two
forms because it is easily portable. However there are lots of gold coins specific
to national boundaries and the investor must have a clear idea of their values
before trading. Gold coins are very liquid.
Investment in gold has its own limitations for example, many investors blindly
take decisions on the basis of the ups and downs in the stock markets and this
creates havoc especially when the gold market is demonstrating a different
behaviour. Gold investment is very important as it contributes to the national and
international economy. These investments are also very high on maintenance.
Fixed Deposits:
With FDs one deposits a lump sum of money for a fixed period ranging from a
few weeks to a few years and earns a pre-determined rate of interest. FDs are
offered by both banks and companies though putting your money with the latter
is generally considered riskier.
Advantages and disadvantages of Fixed Deposits:
51
The main advantage is that FDs from reputed banks are a very safe investment
because such banks are carefully regulated by the Reserve Bank of India.
An advantage of FDs is that you have the option of receiving regular income
through the interest payments that are made every month or quarter. This option
is especially useful for retirees. On the other hand, a fixed deposit will not give an
investor the same returns that he may get in the stock markets. For instance a
stock-portfolio may rise 20-30 per cent in a good year whereas a fixed deposit
typically earns only 7-10 per cent.
Mutual funds and stocks can offer higher returns but the main issue is whether
there are low risk investment products which offer a better return than FDs. Many
financial experts believe that fixed maturity plans (FMP) offer exactly such a
superior alternative.
Fixed Maturity Plans are similar to FDs in that they have a pre-determined
tenure (say 3 years like the maturity of an FD) ranging from a few weeks to a few
years. The investor’s money is invested in fixed-income assets like governments
bonds and money-market instruments which carry a low risk.
The main advantage of FMP's is that you can take into account inflation while
calculating your taxes which means that your after-tax return may be superior to
FDs, especially if you lie in the top income tax bracket.
Investment options and Inflation; Mutual Funds Beat

Inflation
Inflation is a persistent increase in price within an economy. It denotes an
increased money supply in the economy along with a fall in the value of money.
Inflation and its effect on the value of money affects the investments to a major
degree.
The nominal interest rate is the growth rate of your money, while the real interest
rate is the growth of your purchasing power. In other words, the real rate of
interest is the nominal rate reduced by the rate of inflation.
Fixed deposits do not offer protection against inflation. If inflation rises steeply
during the maturity of the Fixed Deposit then the inflation adjusted return will fall.
Say, for example, the inflation when the money was deposited was at a fixed
return of 8 per cent per annum is 3 per cent. Now when the FD matures say after
2 years, the inflation increases to 5 per cent.
In this case, the inflation adjusted returns is only 3 per cent (8-5). Had inflation
remained at 3 per cent by the time your deposit matured, the real rate of return
would be 5 per cent (8-3).
52
On the 10th of May 2008, Prabhakar Sinha, TNN reported in the article titled
‘Thanks to inflation, you are losing money on FDs’ reported “Inflation is no longer
just eating into your pocket by way of higher grocery bills. It's also eroding the
money you've safely put away in a fixed deposit in your bank or post office.
That's because at 7.61%, it is more than enough to offset your interest earnings,
giving you negative real returns. Most banks offer interest in the range of 8% to
8.75% on fixed deposits of tenures ranging from one year to 10 years.
The country's largest bank, SBI, for instance, offers 8.5% on deposits of two
years or more, while for shorter duration deposits, it gives 8.75 %.
That may seem like it still gives you some positive real return after accounting for
inflation, but that's an illusion for most. This is because the interest income is
taxable, even if your deposit is covered by Section 80C of the Income Tax Act.”
“Real estate and gold, which typically appreciate fast in inflationary periods, are
possible options that are relatively risk-free. Equity could be another option.”
When it comes to inflation, it is an especially important issue for people living on

a fixed income. The impact of inflation on an investor’s portfolio depends on the
type of securities you hold. If the investment is only in stocks, the investor has an
advantage. Over the long run, a company’s revenue and earnings should
increase at the same pace as inflation with the exception of stagflation. The
company is in the same situation as a normal consumer - the more cash it
carries, the more its purchasing power decreases with increases in inflation.
The main problem with stocks and inflation is that a company’s returns tend to be
Year WPI* Value of
overstated. Re Value of investors
Fixed-income FD** areValue 0f Nethit
the hardest of Inf BSE
by inflation. YOY Value of Net of FD
Rs 1 Lac Rs. 1 Lac return 1 Lac Inf
1.0000 100000 100000 100 100000

1979-80 Inflation0.9132
9.50% and Mutual91324 Funds:
8.50% 108500 99087 129 29.00% 129000 117808
1980-81 9.10% 0.8371 83707 9.50% 118808 99450 173 34.11% 173000 144813
1981-82 The Business
12.70% 0.7427Line e 74274
paper on 11th October
10.00% 130688read, 97067
“The stock 218market,
26.01%on an 218000 161917
1982-83 average, provides
8.00% 0.6877 a return
68772 of 20-25
9.00% per cent annually.
142450 When the
97966 212returns
-2.75%are 20212000 145797
1983-84 per
12.50% cent, the maturity
0.6113 value
61131 at the
10.00% end of 20
156695years would
95789 be doubled
245 to
15.57%Rs 24245000 149771
1984-85 lakhs. Investment
5.20% 0.5811 of Rs 500 10.00%
58109 every month could get
172365 a return 354
100160 of Rs 44.49%
30- Rs 35 354000 205707
1985-86 lakhs after0.5426
7.10% 20 years whereas
54257 the actual investment
10.00% 189601 is only for 574
102872 6 or 762.15%
years. No 574000 311435
1986-87 other savings could match the return provided by Mutual Funds.
9.20% 0.4969 49686 10.00% 208561 103626 510 -11.15% 510000 253398
1987-88 9.30% 0.4546 45458 10.00% 229417 104289 398 -21.96% 398000 180924
1988-89 9.70% 0.4144 41439 10.00% 252359 104574 714 79.40% 714000 295872
1989-90 5.40% 0.3932 39316 10.00% 277595 109138 781 9.38% 781000 307055
1990-91 13.70% 0.3458 fund 34578
As far as mutual 11.00%
investment 308131
was concerned, 106547
the investors1168
would49.55%
be able1168000
to 403876
1991-92 13.10% 0.3057 30573 12.00% 345106 105510 4285 266.87%
earn more money only if they increase their understanding and knowledge of the 4285000 1310067 1
1992-93 8.00% 0.2831
various funds 28309
by reading news10.00% 379617
articles about them.” 107464 2281 -46.77% 2281000 645720
1993-94 8.60% 0.2607 26067 10.00% 417579 108850 3779 65.67% 3779000 985067
1994-95 9.50% 0.2381 23805 10.00% 459336 109347 3261 -13.71% 3261000 776293
This is evident from the following chart:
1995-96 9.70% 0.2170 21700 11.00% 509863 110643 3367 3.25% 3367000 730653
1996-97 10.40% 0.1966 19656 11.00% 565948 111244 3361 -0.18% 3361000 660644
1997-98 6.30% 0.1849 18491 11.00% 628203 116162 3893 15.83% 3893000 719864
1998-99 15.30% 0.1604 16037 11.00% 697305 111830 3740 -3.93% 3740000 599802
1999-00 0.50% 0.1596 15958 10.25% 768779 122679 5001 33.72% 5001000 798045
2000-01 3.50% 0.1542 15418 9.75% 53843735 130088 3604 -27.93% 3604000 555668
2001-02 5.20% 0.1466 14656 8.25% 913343 133859 3469 -3.75% 3469000 508416
2002-03 4.30% 0.1405 14052 7.25% 979560 137645 3049 -12.11% 3049000 428438
54
SURVEY FINDINGS
AND
RECOMMANDATIONS
Survey findings
Q1
55
what percentage of your income doyousave?
Cumulative
Frequency Percent Valid Percent Percent
Valid 0-10% 10 33.3 33.3 33.3
10-15 7 23.3 23.3 56.7
15-30 11 36.7 36.7 93.3
above 30% 2 6.7 6.7 100.0
Total 30 100.0 100.0
Q2
56
which of the available investment options are u aware of?
Cumulative
Valid mutual funds 3 10.0 10.0 10.0
fd's 2 6.7 6.7 16.7
national saving certificate 1 3.3 3.3 20.0
ppf 1 3.3 3.3 23.3
insurance 4 13.3 13.3 36.7
others 1 3.3 3.3 40.0
all 18 60.0 60.0 100.0
Total 30 100.0 100.0
Q3
57
if u invest which investment option would u prefer?
Cumulative
Valid mutual funds 12 40.0 40.0 40.0
fd's 8 26.7 26.7 66.7
Nsc's 2 6.7 6.7 73.3
insurance 7 23.3 23.3 96.7
real estate n other
1 3.3 3.3 100.0
precious metals
Total 30 100.0 100.0
58
Q4
what is the usual time period of your investment?
Cumulative
Valid less than 1 year 2 6.7 6.7 6.7
1-3 year 12 40.0 40.0 46.7
3-5 year 6 20.0 20.0 66.7
more than 5 year 9 30.0 30.0 96.7
5 1 3.3 3.3 100.0
Total 30 100.0 100.0
59
Q5
how much return do u get from your investment at present?
Cumulative
Valid less than 5% 2 6.7 6.7 6.7
5-10% 13 43.3 43.3 50.0
10-30% 11 36.7 36.7 86.7
above than 30% 4 13.3 13.3 100.0
Total 30 100.0 100.0
Q6
what r ur investment goal?
Cumulative
Valid tax saving 10 33.3 33.3 33.3
future security 12 40.0 40.0 73.3
long termprofits 4 13.3 13.3 86.7
short termprofits 3 10.0 10.0 96.7
others 1 3.3 3.3 100.0
Total 30 100.0 100.0
Q7
doesur present investment satisfyyour investment goals?
Cumulative
Frequency Percent ValidPercent Percent
Valid yes 22 73.3 73.3 73.3
no 7 23.3 23.3 96.7
4 1 3.3 3.3 100.0
Total 30 100.0 100.0
60
Q8
do you invest in mutual fund?
Cumulative
Valid yes 20 66.7 66.7 66.7
no 10 33.3 33.3 100.0
Total 30 100.0 100.0
Q9
61
if u have invested in mutual funds plz specify the AMC?
Cumulative
Valid UTI 1 3.3 3.3 3.3
HDFC 9 30.0 30.0 33.3
ICICI 3 10.0 10.0 43.3
RELIANCE 3 10.0 10.0 53.3
BIRLA 1 3.3 3.3 56.7
n.a 13 43.3 43.3 100.0
Total 30 100.0 100.0
Q10
do you think that mutual funds are an efficient way of achieving
investment goals?
Cumulative
Valid yes 18 60.0 60.0 60.0
no 12 40.0 40.0 100.0
Total 30 100.0 100.0
Q11
62
acc.to u which mutual fund is the most trustable?
Cumulative
Valid UTI 3 10.0 10.0 10.0
HDFC 12 40.0 40.0 50.0
ICICI 2 6.7 6.7 56.7
RELIANCE 4 13.3 13.3 70.0
TATA 5 16.7 16.7 86.7
BIRLA 4 13.3 13.3 100.0
Total 30 100.0 100.0
Q12
what do u think is most efficient promoting investments?
Cumulative
Valid advertisements 13 43.3 43.3 43.3
word of mouth 14 46.7 46.7 90.0
presentations
3 10.0 10.0 100.0
by co's heads
Total 30 100.0 100.0
Q13
63
what is your method of managing funds?
Cumulative
Valid investment advisors 6 20.0 20.0 20.0
news reports in channels
5 16.7 16.7 36.7
n newspapaers
self management 17 56.7 56.7 93.3
others 2 6.7 6.7 100.0
Total 30 100.0 100.0
Q14
if u prefer other investment options over mutual funds what is ur reason for doing so?
Cumulative
Valid better returns 2 6.7 6.7 6.7
safer investments 23 76.7 76.7 83.3
better advertisements 1 3.3 3.3 86.7
better schemes 4 13.3 13.3 100.0
Total 30 100.0 100.0
Data Analysis:
The Sample size of the research is 30 people from which 53.3% belonged to the
Business class & 46.7 % belonged to the service class. The income distribution
of the sample taken was fairly even with 33 % between the income brackets of
<2 lakhs annually & 2-3 Lakhs annually, 26.6% earning between 3-5 Lakhs
annually & 6% earning above 5 Lakhs annually. The age group of the sample lay
40% in >30 years, 20% between 30-40 years, 40-50 years & >50 years
respectively. This shows that the analysis represents a random sample that is
inclusive of all income groups, age groups & covers the business & service
classes in the areas.
From the sample collected 1 commercial area in the city of Kanpur 33% of the
people saved 0-10% of their savings while 37% save 15-30% of their income.
This shows that the income- saving habits of the people have developed. Thus,
there as an immense potential for growth of investment options in the city.
64
50% of the people in the sample taken were graduates and 33.3% had been
educated at a post graduate level. The knowledge about the various investment
options in the market varied from 3.3% for options like National Savings
Certificate to 10% for mutual funds. 60% of the sample of the population had
knowledge about most of the options available where as the percentage
investing their savings is 73.3%.
Thus, there is still a lack of absolute awareness of investments even among the
present day investors. The sample percent i.e. 23.7%, which does not invest
does not do so for various reasons. 6% sight the reason to be better returns in
other investment options like Fixed Deposit Schemes & Insurance, 10% state
other reasons like ,3% find the promotion methods of other investment options
like Insurance policies more effective. 80% prefer other investment options to
mutual funds because they believe that the other investments are safer options.
For managing funds, it is evident that most investors i.e. 56.7% prefer self
management as compared to the 20% who refer to investment advisors & the
16.7% who follow the newspapers & news channels for investment advice.
To promote investments in the market, 46.7% of the sample units believe that
word of mouth is the most effective way whereas 43.3% consider the advertising
medium effective.
Between the 70% of the sample that do invest their savings the most popular
investment option (40% of the sample) is Mutual funds followed by approx 26.7%
in Fixed deposits & 23.3% in Insurance schemes. The latter two, as mentioned
above, are favoured by 80% of the sample because they are considered safer
investment options as compared to mutual funds.
The time period of investments drawn from this market is mostly 1-3 years (40%
of the sample), followed by >5 year investments (30% of sample) and then 3-5
years (20% of sample). It is clear that a only a small percentage (6.7%) of the
investors in the sample opt for short term investments. This highlights the
significance of the potential investments in the mutual funds because long term
investments are far more profitable for any AMC/ commercial bank/ other
investment promoting company.
From the present investments, 43.3% of the investors are presently getting 5-
10% returns only, whereas 36.7% get a 10-30% yield. Approx 7% even get
returns below 5% & 13% above 30% on their present investment. On analysis it
is evident that most mutual fund investors fall in the 10-30% yield bracket.
As discussed in the paper earlier mutual funds in general are expected to yield at
least 15-25% in an economy developing like present day India. Still there are
investors who opt for investments with yield <5% returns. This mainly because of
the fact that there is improper knowledge about the mutual fund investment
65
options in the economy. There is still a need to increase the awareness of
potential customers & to promote professional management & diversification of
funds of the investor.
The two objectives of investment that came through in the research are tax
saving (33%) & future security (40%), as compared to only 23% of the investors
aiming at short term (10%) & long term profits (13%).
Out of the investors in the sample 66.7% invest in mutual funds. Within these
10% invest in Reliance & ICICI mutual funds and 3% in UTI. As compared to
these, HDFC mutual fund seems to be an extremely popular choice between
investors with 30% if the investors opting for it as a viable investment option.
23.3% of the people in the sample are not satisfied with their present investments
where as 60% believe that mutual funds are an efficient way of achieving
investment goals.
40% of the sample size believed that HDFC was the most trustable AMC. As
compared to the 16.7% who trust Tata and the 13% who trust Reliance AMCs
the most.
The analysis clearly shows that HDFC mutual funds are the most accepted &
trusted AMC within the investors present in the market.
There is the 20% of the sample size, which does not invest their savings and the
reason for this varies from reinvesting all savings in present business for the
business class, to beating the inflation by the service sector or for reasons like
education of children.
All these reasons and the ‘unsafe’ tag that comes along with investment in
mutual fund are the major reasons for presence of non-investors in the market
today.
As shown in the course of the paper, in reality HDFC mutual funds can break
these myths in the market by approaching the investor on a one-one level with
the help of distributors.
HDFC mutual funds offer various schemes that can actually curb inflation, they
help the businessman park his money for even 7 days in the liquid money market
& there are Growth Schemes that are tailor made for investment in education.
Hence, though HDFC AMC is the leader in the present day market, there is still
scope of growth in investments by increasing awareness amongst the potential
investors.
66
Internal Analysis Of HDFC AMC
TOTAL AUM IN KANPUR 2200 cr
Client Services:
Client services have always been the first preference and the most emphasized
matter in HDFC AMC LTD. The company is very sensitive on the issues of client
services which bring client services before sales in the list of accomplishments.
HDFC as a fund house believes that transparency, integrity, ethics are the fuel of
that drive the company on the path of customer satisfaction and a dominant
player in the Mutual Fund Industry. There is always a jive to innovate ways to
make client services faster and better for the investors and the distributors, as a
result of which HDFCMF online was launched as a service to its investors by
which they can transact online from their email account with a password
provided, with this facility an investor can do all the transactions except changing
of Bank Account details and Change in Address for which a signed transaction
slip with bank account details with proof is required at the transaction point or an
ISC.
SWOT Analysis
Strengths:
1) Strong Investment & Research Team – HDFC AMC has a strong

investment team which does all the analysis study and even visits the
company’s premises whose stock they intend to buy. Only on being
completely sure of the dealing, business future, books of accounts etc. it
recommends to buy the stock. This is one of India’s best teams. CRISIL
has awarded ‘CRISIL LEVEL-1 Fund House’ rating to HDFC AMC. This is
its highest fund governance and process quality rating. The rating reflects
67
the highest governance levels and fund management practices at HDFC
AMC. HDFC AMC is the only fund house to have been assigned this
rating for two years in succession.
2) Consistent returns– HDFC as a fund house has always emphasized on
consistent returns. Even in very bullish market the fund managers have
always emphasized on consistent returns not taking any momentum
stocks into their portfolio to shoot up their returns which other AMCs had
done. This strategy was looked as a shortcoming of the AMC by some
distributors and investors too but after the recent market crash all the
glossy picture has vanished, HDFC was among a few fund houses that
had less impact of the crash as compared to other AMCs.
3) Service – this is one area where HDFC AMC emphasizes more than
others. Service is considered more important. The company feels that it is
more important to provide service to existing customers first and then think
about more business. This is the reason why HDFC AMC has less service
issues. Also HDFC AMC has started the HDFCMF online facility which is
an added advantage.
4) Compliance – HDFC AMC is more compliant. Complete compliance to
SEBI norms is considered first and foremost. At hdfc AMC ISCs too it is
told in simple terms ti the distributor that non-compliance will not be
tolerated. End of the day it’s the distributor and investor who is benefited
by this stand.
Weakness:
1) Marketing & Advertising – HDFC AMC has less advertising campaigns

as compared to other AMCs. With advertising and aggressive marketing
strategies a company is able to have Brand retention in minds of people
which help in improving sales.
2) Schemes – HDFC AMC has always been positive for diversified schemes.
All the schemes it offers are diversified equity funds. With this stand it did
68
not launch any sector fund until recently HDFC Infrastructure Fund was
launched. Most of other AMCs have launched such schemes long back.
HDFC AMC has to have such schemes in the near future as there is
demand for the same.
Opportunities:
1) Scope of business – This trend can be seen in every city in the country, the
chunk of all investment goes into either secured assets(Bank FDs),
ULIPs(Unit Linked Insurance Plans, or conventional Insurance
Plans(endowment, money back etc.). ULIPs alone constitute of more than
40% of total savings whereas Mutual Funds and Capital Markets together
have 5% share. Also HDFC AMC has started pitching Structured products
adapting the change.
2) Untapped areas – There are a lot of places from where business can be
generated. Still people in rural areas prefer bank deposits, they do not have
exposure in mutual funds. Although there has been much expansion in
HDFC AMC, mutual funds have less percentage share as compared to other
asset classes and HDFC as a brand has a lot of scope to generate business.
3) Widening product range – Mutual Funds now are undergoing a sea change
with product range widening. HDFC AMC recently went into structured
product ‘HDFC Real Estate PMS-1’ with HDFC LTD. Being the investment
advisor. Similar kind of products will follow in the future as the demand
increases.
Threats:
1) Changing tastes of investors – Investors mostly have different kind of

Mutual Funds in their portfolio; they have now started looking at new
products. Big as well as retail investors now want to invest in some kind of a
69
fund where it offers an avenue which the investor cannot approach directly,
this is the reason structured products have started to float in the market with
easy investment options but still have far to go. HDFC AMC will have to offer
funds other than
2) Competition from new entrants – India has become a dream destination
for every financial organization in the world. All the FIIs, Foreign Banks,
Financial Institutions and AMCs look at the next 10 years to be very
happening in India. So, every company wants to enter the Indian markets,
sooner the better. New AMCs in India are being able to collect fair amount of
funds with their NFOs and product range, also foreign AMCs have an edge
as they have business overseas which increases their reach and capacity to
spend on their establishment here. The existing AMCs, if want to retain their
customers would have to be above their competitors by giving better returns,
better service and new products being some.
70
RECOMMENDATIONS
1) Product offerings – HDFC AMC has long waited and has always been
on its stand of diversified fund house. Now that the investors have
themselves started asking for high risk sector funds and funds with totally
new concepts, HDFC must start offering them such products before it gets
left out. HDFC AMC recently joined the race with HDFC Infrastructure fund
but more must follow.
2) Aggressive marketing – HDFC AMC should be more aggressive in
marketing and advertising of the Brand. HDFC is left out to some AMCs as
they have extensive marketing strategies. Some marketing goodies for
distributors of locations like Kanpur and neighboring areas help as the
brand becomes more visible.
3) Customer follow up: At HDFC bank, the employees and concerned
officers did not keep a track of what the customer was planning to do,
what was his view of the plans told. This is the most important feature for
any company to earn a customer, by follow up of a customer, his view and
thinking about our product can be made positive.
4) Pitching of plan: At some HDFC Bank branches, like GK-II, sector-18

Noida, GK-1 and both the branches at Chandni chowk the officer pitched
the plans of Birla Sunlife Co first rather they should have pitched HDFC
which definitely has better plans, when asked the Bank employees
themselves told that the charges in birla is less that’s the reason they told
about it first.
5) Information: the company’s co-ex (contractual executive) were mostly

not present in the Branch as they have to go on calls, so there were some
points left out which were important and could have changed the decision
of the customer in our favour.
71
Future Expectations from Indian Mutual Fund Industry
Taking into consideration the above comparison and the current situation
prevailing in the capital markets, the realistic expectations from the Indian Mutual
fund Industry could be:
• Increased Penetration: Because of their experience in managing MFs the
AMCs will play an important role in the financial market and increasing
penetration.
• Increased Emphasis on Retail Investors: As urban markets reach a peak

mutual funds would target second rung cities and smaller towns to increase their
investor base.
• Diverse Range of Products: In order to make MFs more acceptable to the

retail investor mutual fund industry has to mature to offering comprehensive life
cycle financial planning and not products alone. These would include products
catering to specific life cycle needs like buying a house, funding college
admission etc.
• Increase in the need for financial advice: As the affluence of Indians

increases and the range of financial products available to meet people’s needs
expands – mortgages, deposits, life products, defined contribution pensions,
mutual funds, etc – the need for financial advice will increase. Mutual fund
distribution will become geared towards providing sound financial advice
according to investor’s risk profile and stage in life cycle.
72
Steps to be Taken by AMCs
• Make mutual fund offer documents more comprehensible by making

disclosures more simple and relevant, and fund structure more distinctive to the
common people.
• Make disclosures regarding the MF expenses more transparent especially

distributor expenses which form a major chunk of entry loads.
• Make fund managers accountable to unit holders. This can be done by

organizing Annual General Meetings of unit holders where performance of the
fund would be reviewed.
73
BIBLIOGRAPHY:
Primary survey:
Filling of questionnaire
Magazines:
Outlook Money
Investment Monitor
Investors INDIA
Business World
Newspapers:
Economic Times
Business Standard
Financial Express
Investors Guide
Business Line
Internet Sites:
www.google.com
www.equityresearch.com
www.moneycontrol.com
www.indiainfoline.com
www.bseindia.com
www.nseindia.com
www.outlookmoney.com
www.timesofmoney.com
www.rbi.gov
www.investopedia.com
74
QUESTIONNAIRE
1. What percentage of your income do you save?
• 0-10% 10-15%
• 15-30% Above 30%
2. Which of the available investment option(s) are you aware of?
• Mutual funds Fixed deposits
• ULIPS NSC s (National Saving Certificate)
• Public Provident Fund(P Insurance
• Post office schemes Other (Kindly specify)
3. Do you invest your savings?
• Yes No
4. If you invest your savings, please specify which investment option(s) do you
prefer?
• Mutual funds Fixed deposits
• ULIPS NSC s
• Public Provident Fund(PPF) Insurance Schemes
• Post office schemes Real estate and precious metals
5. What is the usual time period of your investments?
• Less than 1 year 1-3 years
• 3-5 years More than 5 years
6. How much return do you get from your investment at present?
75
• Less than 5% 5-10%
• 10-30% More than 30%
7. What are your investment goals?
• Tax saving Future security
• Long term profits Short term profits
• Other (kindly specify)
8. Does your present investment (if any) satisfy your investment goal(s)?
• Yes No
9. Do you invest in mutual funds?
• Yes No
10. If you have invested in mutual fund then please specify the AMC ?
11. Do you think that mutual funds are an efficient way of achieving investment
goals?
• Yes No
12. According to you, which mutual fund is the most trustable?
• UTI HDFC
• ICICI Reliance
• Tata Birla
76
13. What do you think is the most effective way of promoting investment?
• Advertisements & endorsement Word of mouth
• Presentations made by company heads Other (kindly specify)
14. What is your method of managing funds?
• Investment advisors News reports in channels & newspapers
• Self management Other (kindly specify)
15. If you prefer other investment options over mutual funds what is your reason
for doing so?
• Better returns Safer investment
• Better advertising Better schemes
DEMOGRAPHIC PROFILE
Name
Contact no.
Gender Male Female
Education Below graduation Graduation Post graduation
Profession Business Service
Designation If Business: - …………………… If Service: - ………………………
Age <30 30-40 40-50 > 50

Annual <200000 200000-300000 300000-500000 >500000
income
THANK YOU
GAGAN
UPADHYAY
77

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HDFC Final Report by Vikas

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“SUMMER TRAINING PROJECT”

“COMPARATIVE ANALYSIS OF MUTUAL

 Mr. Gaurav virmani (Branch Manager)

I would also like to express my gratitude to Mr. Gaurav

A Mutual fund is a collective investment that allows many investors, with a

When an investor subscribes to a mutual fund, he or she buys a part of the

In the USA a mutual fund is constituted as an investment company and an

Characteristics of Mutual Funds are as follows:

Fee charged is specified by SEBI (Securities and Exchange Board of India)

 The funds are invested in a portfolio of marketable securities in

 Value of the portfolio and theGenerates

Investments in securities are spread among a wide cross section of industries

ORGANISATION OF A MUTUAL FUND

Today, if mutual funds are emerging as a favoured investment option it is due to

Income from Mutual Funds

The mutual funds can be classified under 3 heads as follows :

Equity Fund Schemes :

Equity schemes are those that invest predominantly in equity shares of

Balanced Fund Schemes :

Balanced schemes invest both in equity shares and in income-bearing

Debt Fund Schemes :

These schemes invest mainly in income-bearing instruments like bonds,

First Phase (1964-‘87):

Unit trust of India was established in 1963 by an Act of Parliament by the

Second Phase-Entry of public sector funds (1987-’93):

Third Phase-Entry of Private Sector Funds (1993-2003):

Fourth phase (February 2003 onwards):

• Taxable: These are simply called "money market funds" if offered by a

Types of bond funds

• Corporate bonds: a corporation is the borrower

Share prices, interest rates and yield

Average maturity and credit rating

Types of stock funds

• Aggressive growth. These are the start-up, or relatively new companies

Asset Allocation Funds

Exchange traded funds (ETFs): An alternative

Open Ended funds V/s Closed Ended Funds:

fund’s units may be traded at a discount or premium to NAV based on the

Load v/s No Load Funds:

Marketing of a new mutual fund scheme involves initial expenses. These

1. At the time of investor’s entry into the fund/scheme by deducting a specific

3. At the time of the investor’s exit from the fund/scheme, by deducting a

Tax Exempt V/s Non –Tax Funds:

Short Term Dividend Dividend

ADVANTAGES OF MUTUAL FUNDS:

Convenience Tax Benefits

Mutual funds offer a number of advantages, including diversification, professional

• Diversification. A mutual fund spreads your investment dollars around

• Professional management. Many people don't have the time or expertise

Funds typically give you two ways in which to invest:

Exchanging and selling shares

• Appreciation: The value of a fund share can appreciate or go up in value.

Choosing a Mutual Fund

Look at the fund prospectus

as "annual total return." Fund performance is required to be shown against a

• You could lose money

Your money may lose buying power

You may not achieve your goal

Your investment may rise and fall in value

Foreign exchange or currency risk

The halo effect

When something wonderful happens to one stock in an industry, many of the

Active vs. Passive