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SUBMITTED
BONOFIDE CERTIFICATE
This is to certify that the Report on Project Work titled RISK RETURN ANALYSIS AND COMPARATIVE STUDY OF MUTUAL FUNDS for HDFC Asset Management Company Ltd. is a bonafide record of the work done by
Somesh Behere
studying in Master of Business Administration in Vidhyasagar Institute of Management ,Bhopal during the year 2008-10.
Internal examiner
External examiner
EXECUTIVE SUMMARY
The performance evaluation of mutual fund is a vital matter of concern to the fund managers, investors, and researchers alike. The core competence of the company is to meet objectives and the needs of the investors and to provide optimum return for their risk. This study tries to find out the risk and return allied with the mutual funds. This project paper is segmented into three sections to explore the link between conventional subjective and statistical approach of Mutual Fund analysis. To start with, the first section deals with the introductory part of the paper by giving an overview of the Mutual fund industry and company profile. This section also talks about the theory of portfolio analysis and the different measures of risk and return used for the comparison. The second section details on the need, objective, and the limitations of the study. It also discusses about the sources and the period for the data collection. It also deals with the data interpretation and analysis part wherein all the key measures related to risk and return are done with the interpretation of the results. In the third section, an attempt is made to analyse and compare the performance of the equity mutual fund. For this purpose -value, standard deviation, and risk adjusted performance measures such as Sharpe ratio, Treynor measure, Jenson Alpha, and Fema measure have been used. The portfolio analysis of the selected fund has been done by the measure return for the holding period. At the end, it illustrates the suggestions and findings based on the analysis done in the previous sections and finally it deals with conclusion part.
ACKNOWLEDGEMENT
I take this opportunity to express my deep sense of gratitude to all those who have contributed significantly by sharing their knowledge and experience in the completion of this project work. I am greatly obliged to, for providing me with the right kind of opportunity and facilities to complete this venture. My first word of gratitude is due to Mr.Sidhartha Chattergee Branch Manager, HDFC AMC,Allhabad, my corporate guide, for his kind help and support and his valuable guidance throughout my project. I am thankful to him for providing me with necessary insights and helping me out at every single step. I am also thankful to Prof Ashok Diwedi Executive Trainee, the former student of VIDHYASAGAR INSTITUTE OF MANAGEMENT, Bhopal for her constant valuable assistance and consultancy. I also thank Mr.Ankit Kumr, Unit Manager for his kind words of encouragement. Above all, I express my words of gratitude to HDFC AMC, Allahabad Branch for proving me with all the knowledge resources and enabling me to pass AMFI-MTUTUAL FUND (ADVISOR) MODULE; NSEs CERTIFICATION IN FINANCIAL MARKETS (NCFM) with 74.5 percentages. I am extremely thankful to Miss. Gargi Naidu my internal faculty guide under whose able guidance this project work was carried out. I thank her for her continuous support and mentoring during the tenure of the project. Finally, I would also like to thank all my dear friends for their cooperation, advice and encouragement during the long and arduous task of carrying out the project and preparing this report.
PREFACE
This is the age of technical up gradation. Nothing remains same for a long period every thing change with a certain span of time. So it is must for every organization to put a birds eye view on its over all functioning. This report was preparing during practical training of Master of business administration (M.B.A.) from Vidyasagar institute of management Bhopal (M.P.) .The student of M.B.A.essentially required a practical training of 4to6 weeks in any organization. It gives an opportunity to the student to test their acquired knowledge through practical experiences. The objective of my study was Risk Return Analysis And Comparative Study Of Mutual Funds HDFC Asset Management Company Ltd. I however present this report In all my modesty to the readers with a faith that it shall serve the causes of subject. .
PLACE-.. DATE..
SOMESH BEHERE
TABLE OF CONTENTS Part-I Executive Summary A. Mutual Fund Overview 1.1 Mutual Fund an Investment Platform
1.2 Advantages of Mutual Fund
Page No. 1-37 Iii 1-19 1-2 3 4 4-8 8 9-11 12 12-19 20-37 20-21 22 22-25 26 26-28 28-29 29-37 38-40
1.3 Disadvantage of Investing Through Mutual Funds 1.4 Categories of Mutual Fund 1.5 Investment Strategies 1.6 Organisation of Mutual Fund 1.7 Distribution Channels 1.8 HDFC AMC Company Overview B. Measuring and Evaluating Mutual Funds Performance 1.2.1 1.2.2 1.2.3 Purpose of Measuring and Evaluating Financial Planning for Investors referring to Mutual Funds Why Has It Become One Of The Largest Financial Instruments?
1.2.4 Evaluating Portfolio Performance 1.2.5 How to Reduce Risk While Investing 1.2.6 1.2.7 Part-II Research Methodology 2.1 Need For the Study 2.2 Objective of the Study 2.3 Limitations of the Study 2.4 Data Collection Part-III Case Analysis 3.1 Data Interpretation A Study of Portfolio Analysis from The Point Of Fund Manager Measures of Risk and Return
38-39 39 40 40 41-102
41-87
3.2 Analysis of the observation 3.3 Findings 3.4 Recommendations 3.5 Conclusion References
PART-I
investors. It is also known as an open-end investment company, to differentiate it from a closed-end investment company. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the funds current net asset value: total fund assets divided by shares outstanding.
Figure: 1.1
In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because not all stocks may move in the same direction in the same proportion at the same time. Mutual fund issues units t o the investors in accordance with quantum of money invested by them. Investors of Mutual fund are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The Mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.
MARKET (FLUCTUATIONS)
INVESTOR
In India, A Mutual fund is required to be registered with Securities and Exchange Boa rd of India (SEBI) which regulates securities markets before it can collect funds from the public.
In Short , a Mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the state d investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, a n equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is a suitable investment for the common ma n a s it offers an Oporto unity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Particulars Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small). Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.
1.
2.
3.
Less Risk Low Transac tion Costs Liquidit y Choice of Scheme s Transp arency
Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.
4.
5.
6.
7.
8.
Flexibili ty
9.
Safety
1.
Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund.
2.
The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.
3.
Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.
CLOSE-ENDED FUNDS
Figure:1.2
EQUITY FUNDS
BALANCED FUNDS
DEBT FUNDS
INDEX FUNDS DEVIDEND YEILD EQUITY DIVERSIFIED THEMANTIC FUND SECTOR FUND ELSS
LEQUID FUNDS DEBT ORIENTED EQUITY ORIENTED GUILT FUNDS INCOME FUNDS FMPS FUNDS FLOATING RATE ARBITAGE FUNDS
time.
Close-ended funds: These funds raise money from investors only once. Therefore,
after the offer period, fresh investments cannot be made into the fund. If the fund is listed on a stocks exchange, the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. Based on their investment objective:
Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed
all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as: 1. Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index in terms of both composition and individual stock weightages. 2. Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. 3. Dividend yield funds- it is similar to the equity-diversified funds except that they invest in companies offering high dividend yields. 4. Thematic funds- Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc. 5. Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks. 6. ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes:
2 3
Debt-oriented funds -Investment below 65% in equities. Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
Debt fund: They invest only in debt instruments, and are a good option for investors
averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.
1.
Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market.
2. Gilt funds ST- They invest 100% of their portfolio in government securities of and
T-bills.
3.
Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments, which have variable coupon rate.
4. Arbitrage fund- They generate income through arbitrage opportunities due to miss-
pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.
5. Gilt funds LT- They invest 100% of their portfolio in long-term government
securities.
6. Income funds LT- Typically, such funds invest a major portion of the portfolio in
of 10%-30% to equities.
8. FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that
of the fund.
High level of return, but has a high level of risk too Returns comparatively less risky than equity funds Money Provide stable but low level of return
Market funds
INVESTMENT STRATEGIES
1. Systematic Investment Plan: Under this, a fixed sum is invested each month on a fixed date of a month. Payment is made through post-dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: Under this, an investor invest in debt-oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
Figure:1.4
SPONSOR Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. TRUST The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.
TRUSTEE Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner. ASSET MANAGEMENT COMPANY (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 cores at all times. REGISTRAR AND TRANSFER AGENT
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.
schemes Reliance Mutual Fund HDFC Mutual Fund ICICI Prudential Mutual Fund UTI Mutual Fund Birla Sun Life Mutual Fund SBI Mutual Fund LIC Mutual Fund Kotak Mahindra Mutual Fund Franklin Templeton Mutual Fund IDFC Mutual Fund Tata Mutual Fund 263 202 325 207 283 130 70 124 191 164 175 108,332.36 78,197.90 70,169.46 67,978.19 56,282.87 34,061.04 32,414.92 30,833.02 25,472.85 21,676.29 21,222.81
Figure:1.5
Mutual funds posses a very strong distribution channel so that the ultimate customers doesnt face any difficulty in the final procurement. The various parties involved in distribution of mutual funds are:
1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The investors can approach to the AMCs for the forms. some of the top AMCs of India are; Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.
2. Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/subbroker to popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub brokers. 3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents, independent brokers, banks and several non- banking financial corporations too, whichever he finds convenient for him.
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Back bay Reclamation, Church gate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset Management Company Limited to manage the Mutual Fund
As per the terms of the Investment Management Agreement, the AMC will conduct the operations of the Mutual Fund and manage assets of the schemes, including the schemes launched from time to time.
Particulars
Housing Development Finance Corporation Limited 50.10 Standard Life Investments Limited 49.90
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals.
On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now migrated to HDFC Mutual Fund on June 19, 2003.
The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2004 to December 31, 2006.
Board of Directors
The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists of the following eminent persons.
Table:1.6
Mr. Deepak S. Parekh Mr. N. Keith Skeoch Mr. Keki M. Mistry Mr. James Aird Mr. P. M. Thampi Mr. Humayun Dhanrajgir Dr. Deepak B. Phatak Mr. Hoshang S. Billimoria Mr. Rajeshwar Raj Bajaaj Mr. Vijay Merchant Ms. Renu S. Karnad
Chairman of the board CEO of Standard Life Investments Ltd. Associate director Investment director Independent director Independent director Independent director Independent director Independent director Independent director Joint managing director
Managing director
Mr. Deepak Parekh, the Chairman of the Board, is associated with HDFC Ltd. in his capacity as its Executive Chairman. Mr. Parekh joined HDFC Ltd. in a senior management position in 1978. He was inducted as Wholetime Director of HDFC Ltd. in 1985 and was appointed as the Executive Chairman in 1993.
Mr. N. Keith Skeoch is associated with Standard Life Investments Limited as its Chief Executive and is responsible for all company business and investment operations within Standard Life Investments Limited.
Mr. Keki M. Mistry is an associate director on the Board. He is the Vice-Chairman & Managing Director of Housing Development Finance Corporation Limited (HDFC Ltd.) He is with HDFC Ltd. since 1981 and was appointed as the Executive Director of HDFC Ltd. in 1993. He was appointed as the Deputy Managing Director in 1999, Managing Director in 2000 and Vice Chairman & Managing Director in 2007. SPONSORS HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC): HDFC was incorporated in 1977 as the first specialised housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity. HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000 depositors, 92,000 shareholders and 50,000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the ninth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in
the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. STANDARD LIFE INVESTMENTS LIMITED The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. In 1998, Standard Life Investments Limited became the dedicated investment management company of the Standard Life Group and is owned 100% by The Standard Life Assurance Company. With global assets under management of approximately US$186.45 billion as at March 31, 2005, Standard Life Investments Limited is one of the world's major investment companies and is responsible for investing money on behalf of five million retail and institutional clients worldwide. With its headquarters in Edinburgh, Standard Life Investments Limited has an extensive and developing global presence with operations in the United Kingdom, Ireland, Canada, USA, China, Korea and Hong Kong. In order to meet the different needs and risk profiles of its clients, Standard Life Investments Limited manages a diverse portfolio covering all of the major markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative instruments. The company's current holdings in UK equities account for approximately 2% of the market capitalization of the London Stock Exchange.
Equity Funds HDFC Growth Fund HDFC Long Term Advantage Fund HDFC Index Fund HDFC Equity Fund HDFC Capital Builder Fund HDFC Tax saver HDFC Top 200 Fund HDFC Core & Satellite Fund HDFC Premier Multi-Cap Fund HDFC Long Term Equity Fund HDFC Mid-Cap Opportunity Fund Balanced Funds HDFC Children's Gift Fund Investment Plan HDFC Children's Gift Fund Savings Plan HDFC Balanced Fund HDFC Prudence Fund Debt Funds HDFC Income Fund HDFC Liquid Fund HDFC Gilt Fund Short Term Plan HDFC Gilt Fund Long Term Plan HDFC Short Term Plan HDFC Floating Rate Income Fund Short Term Plan HDFC Floating Rate Income Fund Long Term Plan HDFC Liquid Fund - PREMIUM PLAN HDFC Liquid Fund - PREMIUM PLUS PLAN
HDFC Short Term Plan - PREMIUM PLAN HDFC Short Term Plan - PREMIUM PLUS PLAN HDFC Income Fund Premium Plan HDFC Income Fund Premium plus Plan HDFC High Interest Fund HDFC High Interest Fund - Short Term Plan HDFC Sovereign Gilt Fund - Savings Plan HDFC Sovereign Gilt Fund - Investment Plan HDFC Sovereign Gilt Fund - Provident Plan HDFC Cash Management Fund - Savings Plan HDFC Cash Management Fund - Call Plan HDFCMF Monthly Income Plan - Short Term Plan HDFCMF Monthly Income Plan - Long Term Plan HDFC Cash Management Fund - Savings Plus Plan HDFC Multiple Yield Fund HDFC Multiple Yield Fund Plan 2005
ACHIEVEMENT AND AWARDS CNBC - TV 18 - CRISIL Mutual Fund of the Year Awards 2008 : HDFC Prudence Fund was the only scheme that won the CNBC - TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Most Consistent Balanced Fund under CRISIL ~ CPR for the calendar year 2007 (from amongst 3 schemes). HDFC Cash Management Fund - Savings Plan was the only scheme that won the CNBC TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Most Consistent Liquid Fund under CRISIL ~ CPR for the calendar year 2007 (from amongst 5 schemes). HDFC Cash Management Fund - Savings Plan was the only scheme that won the CNBC -
TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Liquid Scheme Retail Category for the calendar year 2007 (from amongst 19 schemes).
Lipper Fund Awards 2008: HDFC Equity Fund - Growth has been awarded the 'Best Fund over Ten Years' in the 'Equity India Category' at the Lipper Fund Awards 2008 (form amongst 23 schemes). It was awarded the Best Fund over ten years in 2006 and 2007 as well. 2008 makes it three in a row. Lipper Fund Awards 2009 : HDFC Equity Fund - Growth has been awarded the 'Best Fund over Ten Years' in the 'Equity India Category' (form amongst 34 schemes) and HDFC Prudence Fund Growth Plan in the Mixed Asset INR Aggressive Category (from amongst 6 schemes), have been awarded the Best Fund over 10 Years by Lipper Fund Awards India 2009. ICRA Mutual Fund Awards 2008 : HDFC MF Monthly Income Plan - Long Term Plan - Ranked a Seven Star Fund and has been awarded the Gold Award for "Best Performance" in the category of "Open Ended Marginal Equity" for the three year period ending December 31, 2007 (from amongst 27 schemes) HDFC High Interest Fund - Short Term Plan - Ranked a Five Star Fund indicating performance among the top 10% in the category of "Open Ended Debt - Short Term" for one year period ending December 31, 2007 (from amongst 20 schemes). HDFC Prudence Fund - Ranked a Five Star Fund indicating performance among the top 10% in the category of "Open Ended Balanced" for the three year period ending December 31, 2007 (from amongst 16 schemes)
1. Variation in the funds performance due to change in its management/ objective. 2. The funds performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund. 4 .Beta, a technical measure of the risk associated may also surge. 5. The funds ratings may go down in the various lists published by independent rating agencies. 6. It can merge into another fund or could be acquired by another fund house.
Performance measures:
Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.
Debt fund: Likewise, the performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.
Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio. Concept of benchmarking for performance evaluation: Every fund sets its benchmark according to its investment objective. The funds performance is measured in comparison with the benchmark. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark then the correlation between them is exactly 1. And if in case the return is lower than the benchmark then the fund is said to be underperformed.
Some of the benchmarks are: 1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE 500 index, BSE bankex, and other sectoral indices. 2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds. 3. Liquid funds: Short Term Government Instruments Interest Rates as Benchmarks, JPM TBill Index.
To measure the funds performance, the comparisons are usually done with: I) with a market index. ii) Funds from the same peer group. iii) Other similar products in which investors invest their funds.
Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning. Steps in financial planning are:
In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund managers. A fund
manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives.
If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. Measuring these form investment options on the basis of the mentioned parameters, we get this in a tabular
Table:1.7
Return
Safety
Volatility
Liquidity
Convenienc e
Equity
High
Low
High
High
Moderate
Bonds
Moderate
High
Moderate
Moderate
High
Moderate
Moderate
Moderate
Low
Low
Moderate
Low
Low
Low
Moderate
Low
High
Low
High
High
PPF
Moderate
High
Low
Moderate
High
Low
High
Low
Low
Moderate
Moderate
High
Moderate
Moderate
Gold
High
Moderate
High
Low
Low
High
High
Moderate
High
High
We can very well see that mutual funds outperform every other investment option. On three parameters, it scores high whereas its moderate at one. comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesnt makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just moderate. Now looking at bank deposits, it scores better than equities at all fronts but lags badly in the parameter of utmost important ie; it scores low on return , so its not an happening option for person who can afford to take risks for higher return. The other option offering high return is real estate but that even comes with high volatility and moderate safety level, even the liquidity and convenience involved are too low. Gold have always been a favourite among Indians but when we look at it as an investment option then it definitely doesnt gives a very bright picture. Although it ensures high safety but the returns generated and liquidity are moderate. Similarly, the other investment options are not at par with mutual funds and serve the needs of only a specific customer group. Straightforward, we can say that mutual fund emerges as a clear winner among all the options available.
I)Mutual funds combine the advantage of each of the investment products: mutual fund is one such option which can invest in all other investment options. Its principle of diversification allows the investors to taste all the fruits in one plate. just by investing in it, the investor can enjoy the best investment option as per the investment objective. II) Dispense the shortcomings of the other options: every other investment option has more or less some shortcomings. Such as if some are good at return then they are not safe, if some are safe then either they have low liquidity or low safety or both.likewise, there exists no single option which can fit to the need of everybody. But mutual funds have definitely sorted out this problem. Now everybody can choose their fund according to their investment objectives.
III) Returns get adjusted for the market movements: as the mutual funds are managed by experts so they are ready to switch to the profitable option along with the market movement. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments. IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one more reason which has established mutual funds as one of the largest financial intermediary and that is the flexibility that mutual funds offer regarding the investment amount. One can start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100 in some cases.
Not all award-winning funds may be suitable for everyone Many investors feel that a simple way to invest in Mutual funds is to just keep investing in award winning funds. First of all, it is important to understand that more than the awards; it is the methodology to choose winners t at is more relevant. A rating firm generally elaborates on the criteria for deciding the winners i.e. consistent performance, risk adjusted returns, total returns and protection of capital. Each
of these factors is very important and ha s its significance for different categories of funds. Besides, each of these factors has varying degree of significance for different kinds of
investors. For example, consistent return re ally focuses on risk. If someone is afraid of negative returns, consistency will be a more import ant measure than tot al ret urn i.e. Growth in NAV as well as dividend received. A fund can have very impressive total ret urns overtime, but can be very volatile and tough for a risk adverse investor. Therefore, all the ward winning funds in different categories may not be suitable for everyone. Typically, when one has to select funds, the first step should be to consider personal goals and objectives. Invest ors need to decide which element they value the most and the n prioritize the other criteria Once one knows what one is looking for, one should go about selecting the funds according to the asset allocation. Most investors need just a few funds, carefully picked, watched and managed over period of time.
The objective should be to differentiate investment skill of the fund manager from luck and to identify those funds with the greatest potential of future success.
investment purely and solely because at the very beginning we take the risk of parting with our funds, for getting higher value back at a later date. Partition it self is a risk. known economist and Nobel Prize recipient William Sharpe tried to segregate the total risk faced in any kind of investment into two parts - systematic (Systemic) risk and unsystematic (Unsystematic) risk. Systematic risk is that risk which exists in the system. Some of the biggest examples of systematic risk are inflation, recession, war, political situation etc. Inflation erodes returns generated from all investments e .g. If return from fixed deposit is 8 percent and if inflation is 6 per cent then real rate of return from fixed deposit is reduced by 6 percent. Similarly if returns generated from equity market is 18 percent and inflation is still 6 per cent then equity returns will be lesser by the rate of inflation. Since inflation exists in the system there is no way one can stay away from the risk of inflation. Economic cycles, war and political situations have effects on all forms of investments. Also these exist in the system and there is no way to stay away from them. It is like learning to walk. Anyone who wants to learn to walk has to first fall; you cannot learn to walk systematic risk. without falling. Similarly, anyone who wants to invest has to first face
Therefore, one can never make any kind of investment without systematic risk. Another form of risk is unsystematic risk. This risk does not exist in the system and hence is not applicable to all forms of investment. Unsystematic risk is associated with particular form of investment. Suppose we invest in
stock market and the market falls, then only our investment in equity gets affected OR if we have placed a fixed deposit in particular bank and bank goes bankrupt, than we only lose money placed in that bank. always reduce the While there is no way to keep away from risk, we can Diversification helps in reducing the impact of impact of risk.
unsystematic risk. If our investment is distributed across various asset classes, the impact of unsystematic risk is reduced. If we have placed fixed deposit in several banks, then even if one of the banks goes bankrupt our entire fixed de posit investment is not lost. Similarly if our equity To reduce the of both investment is in Tata Motors, HLL, Infosys, adverse news about Infosys will only impact investment in Infosys, all other stocks will not have any impact . the impact of risk. impact of systematic risk, we should invest regularly. By investing regularly, we average out Mutual fund, as an investment vehicle gives us benefit diversification and averaging. Portfolio of mutual funds consists of multiple securities
and hence adverse news about single security will have nominal impact on overall portfolio. By systematically investing in mutual fund, we get benefit of rupee cost averaging. Mutual
fund as an investment vehicle helps reduce, both, systematic as well a s unsystematic risk
Effective use of portfolio management disciplines improves customer satisfaction, reduces the number of risks problems, and increases success. The goal of portfolio analysis is to realize these same benefits at the portfolio level by applying a consistent structured management approach. The considerations underlying the portfolio analysis is a matter of concern to the fund managers, investors, and researchers alike. This study attempts to answer two questions relating to the portfolio analysis: Make an average (or fair) return for the level of risk in the portfolio
To find out the portfolio which best meets the purpose of the investor.
At a minimum, any comprehensive mutual fund selection and analysis approach should include the following generalized processes:
Fund selection Fund prioritize/ reprioritize Selection of the acceptable and required fund Fund analysing and monitoring Corrective action management
The fund portfolio analysis gives the ability to select funds that are aligned with the investors strategies and objectives. It helps the fund manager to make the best use of available opportunities by applying to the highest priority of the investor. A fund manager can regularly assess how securities and stocks are contributing to portfolio health and can make the corrective action to keep the portfolio in compliance with the investors interest and objectives. Mutual funds do not determine risk preference. However, once investor determines his/her return preferences, he/she can choose a mutual fund a large and growing variety of alternative funds designed to meet almost any investment goal. Studies have showed that the funds generally were consistent in meeting investors stated goals for investment strategies, risk, and return. The major benefit of the mutual fund is to diversify the portfolio to eliminate unsystematic risk. The instant diversification of the funds is especially beneficial to the small investors who do not have the resources to acquire 100 shares of 12 or 15 different issues required to reduce unsystematic risk. Mutual funds have generally maintained the stability of their correlation with the market because of reasonably well diversified portfolios. There are some measures for the analysis and each of them provides unique perspectives. These measures evaluate the different components of performance.
Risk is variability in future cash flows. It is also known as uncertainty in the distribution of possible outcomes. A risky situation is one, which has some probability of loss or unexpected results. The higher the probability of loss or unexpected results is, the greater the risk. It is the uncertainty that an investment will earn its expected rate of return. For an investor, evaluating a future investment alternative expects or anticipates a certain rate of return is very important. Portfolio risk management includes processes that identify, analyse, respond to, track, and control any risk that would prevent the portfolio from achieving its business objectives. These processes should include reviews of project level risks with negative implications for the portfolio, ensuring that the project manager has a responsible risk mitigation plan. Additionally, it is important to do a consolidated risk assessment for the portfolio overall to determine whether it is within the already specified limits. Since portfolio and their environments are dynamic, managers should review and update their portfolio risk management plans on a regular basis through the fund life cycle.
Simple measure of returns:
The return on mutual fund investment includes both income (in the form of dividends or investment payments) and capital gains or losses (increase or decrease in the value of a security). The return is calculated by taking the change in a funds Net Asset Value, which is the market value of securities the fund holds divided by the number of the funds shares during a given time period, assuming the reinvestment all income and capital gains distributions, and dividing it by the original net asset value. The return is calculated net of management fees and other expenses charged to the fund. Thus, a funds monthly return can be expressed as follows:
Measure of risk
Investors are interested not only in funds return but also in risk taken to achieve those returns. So risk can be thought as the uncertainty of the expected return, and uncertainty is generally equated with variability. Variability and the risk are correlated; hence high returns will tend to high variability.
Standard deviation:
in simple terms standard deviation is one of the commonly used statistical parameter to measure risk, which determines the volatility of a fund. Deviation is defined as any variation from a mean value (upward & downward). Since the markets are volatile, the returns fluctuate every day. High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility.
Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--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 cannot. By using the risk return
relationship, we try to assess the competitive strength of the Mutual Funds vis--vis one another in a better way.
Beta is used to measure the risk. It basically indicates the level of volatility associated with the fund as compared to the market. In case of funds, as compared to the market. In case of funds, beta would indicate the volatility against the benchmark index. It is used as a short term decision making tool. A beta that is greater than 1 means that the fund is more volatile than the benchmark index, while a beta of less than 1 means that the fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the funds performance closely matches the index or benchmark. The success of beta is heavily dependent on the correlation between a fund and its benchmark. Thus, if the funds portfolio doesnt have a relevant benchmark index then a beta would be grossly inappropriate. For example if we are considering a banking fund, we should look at the beta against a bank index.
R-Squared (R2):
R squared is the square of R (i.e.; coefficient of correlation). It describes the level of association between the funs market volatility and market risk. The value of R- squared ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a reliable measure to analyze the performance of a fund. Beta should be ignored when the rsquared is low as it indicates that the fund performance is affected by factors other than the markets. For example: Case 1 R2 B 0.65 1.2 Case 2 0.88 0.9
In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention that the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85 and beta value is 0.9. it means that this fund is less aggressive than the market.
Portfolio turnover ratio:
Portfolio turnover is a measure of a fund's trading activity and is calculated by dividing the lesser of purchases or sales (excluding securities with maturities of less than one year) by the average monthly net assets of the fund. Turnover is simply a measure of the percentage of portfolio value that has been transacted, not an indication of the percentage of a fund's holdings that have been changed. Portfolio turnover is the purchase and sale of securities in a fund's portfolio. A ratio of 100%, then, means the fund has bought and sold all its positions within the last year. Turnover is important when investing in any mutual fund, since the amount of turnover affects the fees and costs within the mutual fund. Total expenses ratio: A measure of the total costs associated with managing and operating an investment fund such as a mutual fund. These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount, which represents the TER: Total expense ratio = (Total fund Costs/ Total fund Assets)
The most important and widely used measures of performance are: The Sharpe Measure The TreynorMeasure Jenson Model Fama Model
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:
Where, Si is standard deviation of the fund, Ri represents return on fund, and Rf is risk free rate of return.
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 unfavourable performance.
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:
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. 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 fund1 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:
After calculating it, Alpha can be obtained by subtracting required return from the actual return of the fund.
p= Ri [ Rf + Bi (Rm - Rf) ]
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 cannot mitigate unsystematic risk, as his knowledge of market is primitive.
Fama Model: The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called Net Selectivity. The Net Selectivity represents the stock selection skill of the fund manager, as it is the excess returns over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him.
Selectivity: measures the ability of the portfolio manager to earn a return that is consistent with the portfolios market (systematic) risk. The selectivity measure is:
Ri [ Rf + Bi (Rm - Rf) ]
Diversification: measures the extent to which the portfolio may not have been completely diversified. Diversification is measured as:
However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversify. 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.
PART-II
RESEARCH METHODOLOGY
2.1 NEED FOR THE STUDY
The Mutual Fund Companies periodically build up a study, which can prioritize and analyse the portfolio of the mutual funds. This study is helpful in having a comparison among the mutual funds based on the risk bearing capacity and expected return of the investor and will also carry out an analysis of the portfolio of the selected mutual fund. The mutual fund industry is growing globally and new products are emerging in the market with all captivating promises of providing high return. It has become difficult for the investors to choose the best fund for their needs or in other words to find out a fund which will give maximum return for minimum risk. Therefore, they turn to their financial adviser to get precise direct investment. Hence, the company asked me to prepare a model, which will facilitate them to analyse the fund and to have reasonable estimation for the fund performance. The driving force of Mutual Funds is the safety of the principal guaranteed, plus the added advantage of capital appreciation together with the income earned in the form of interest or dividend. The various schemes of Mutual Funds provide the investor with a wide range of investment options according to his risk bearing capacities and interest besides; they also give
handy return to the investor. Mutual Funds offers an investor to invest even a small amount of money, each Mutual Fund has a defined investment objective and strategy. Mutual Funds schemes are managed by respective asset managed companies, sponsored by financial institutions, banks, private companies or international firms. A Mutual Fund is the ideal investment vehicle for todays complex and modern financial scenario.
The study is basically made to analyze the various open-ended equity schemes of HDFC Asset Management Company to highlight the diversity of investment that Mutual Fund offer. Thus, through the study one would understand how a common person could fruitfully convert a meagre amount into great penny by wisely investing into the right scheme according to his risk taking abilities.
Sharpe ratio is a performance measure, which reflects the excess return earned on a portfolio per unit of its total risk (standard deviation). Treynor measure indicates the risk premium return per unit risk of the portfolio. While Jensen alpha talks about the deviation of the actual return from its expected one. Fema measure decomposes the portfolio total return into two main components: systematic return and the unsystematic return. It determines whether the portfolio is perfectly diversified or not. Hence, it is a significant measure to evaluate the performance of the fund manager. The analysis of the fund portfolio has been done to find out the influence of the top holdings on the performance of the fund. All these measures give fair implication and results about the portfolio performance and can show the ground reality to a rational investor.
Whether the growth oriented Mutual Fund are earning higher returns than the benchmark returns (or market Portfolio/Index returns) in terms of risk.
Whether the growth oriented mutual funds are offering the advantages of Diversification, Market timing and Selectivity of Securities to their investors
This study provides a proper investigation for logical and reasonable comparison and selection of the funds.
It also assists in analysing the portfolio of the selected funds.
The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability. The study is based on secondary data available from monthly fact sheets, websites and other books, as primary data was not accessible.
The study is limited by the detailed study of six schemes of HDFFC.
Many investors are all price takers. The assumption that all investors have the same information and beliefs about the distribution of returns.
Banks are free to accept deposits at any interest rate within the ceilings fixed by the
Reserve Bank of India and interest rate can vary from client to client. Hence, there can be inaccuracy in the risk free rates. The study excludes the entry and the exit loads of the mutual funds.
The NAVs of the funds have been taken from AMFI websites for the period starting from 31 st jan 2007 to 31st May, 2009. For the Benchmark prices, data has been taken from BSE and NSE sites.
Part-III
CASE ANALYSIS
3.1 DATA INTERPRETATION
Risk returns analysis and comparative study of funds In this section, a sample of HDFC equity related funds have been studied, evaluated and analysed. This study could facilitate to get a fair comparison. The expectations of the study are to give value to the funds by keeping the risk in the view. Here equity funds are taken as they bear high return with high risk.
Following are the products of HDFC Mutual Fund, which have been taken the evaluation purpose. HDFC Equity Fund Growth option HDFC Capital Builder HDFC Growth Fund HDFC Long Term Advantage Fund HDFC Top 200 Fund
Investment Objective The investment objective of the Scheme is to achieve capital appreciation. Basic Scheme Information
Table:3.1
Nature of Scheme Inception Date Option/Plan Entry Load (purchase / additional purchase / switchin)
Open Ended Growth Scheme Jan 01, 1995 Dividend Option, Growth Option, NIL (With effect from August 1, 2009)
Nil
Rs.5000 and in multiples of Rs.100 thereof to open an account / folio. Additional purchases is Rs. 1000 and in multiples of Rs. 100 thereof
Investment Pattern The asset allocation under the Scheme will be as follows:
Table:3.2
SR NO.
TYPE OF INSTRUMENTS
80-100
0-100
Low to medium
Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the Regulations. Investment Strategy & Risk Control In order to provide long term capital appreciation, the Scheme will invest predominantly in growth companies. Companies selected under this portfolio would as far as practicable consist of medium to large sized companies which: are likely achieved above average growth than the industry; enjoy distinct competitive advantages, and have superior financial strengths. The aim will be to build a portfolio, which represents a cross-section of the strong growth companies in the prevailing market. In order to reduce the risk of volatility, the Scheme will diversify across major industries and economic sectors. Benchmark Index : S&P CNX 500. HDFC Equity, which is benchmarked to S&P CNX 500 Index is not sponsored, endorsed, sold or promoted by Indian Index Service & Products Limited (IISL).
SEP OCT NOV DEC 2009 JAN FEB MAR APL MAY Total average
Figure:3.1
m= 123.9077
=11.13239
(Beta) =[N ( XY) X Y ]/[ N ( X2) ( X) 2 ] = (98937.047- 859.6872)/( 97977.214- 833.54264) = 98077.36/ 97143.672 = 1.0096114
Table:3.4 Ri 2007 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN -6.71185 0.972895 6.001318 6.695554 2.499984 4.241651 -2.02989 8.300213 15.0186 -1.96101 8.317166 -15.6293 -8.05529 2.24564 7.133692 5.096606 0.730242 4.966289 -1.31236 12.61843 17.54465 -2.31318 6.62913 -16.2974 1.34344 -1.27274 -1.13237 1.598948 1.769742 -0.72464 -0.71753 -4.31822 -2.52605 0.352172 1.688036 0.668127 -1.3111 1.305086 1.164715 -1.56661 0.75698 0.75698 0.749866 4.350562 2.558392 -0.31983 -1.65569 -0.63579 1.71898 1.70325 1.356561 2.454256 0.573018 0.573018 0.5623 18.92739 6.545367 0.102291 2.741324 0.404223 Rm Ri-Rm Dev frm ave sq of Dev frm av
FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2009 JAN FEB MAR APL MAY Total avrage
-0.43838 -11.624 7.481241 -4.81843 -15.5856 5.967689 4.751673 -8.30774 -24.2923 -7.71741 10.38131 -7.67328
1.784819 -9.34478 9.130678 -5.58525 -16.9731 7.454188 0.751491 -9.93165 -26.3694 -4.52145 7.585078 -2.67611
-2.2232 -2.27926 -1.64944 0.76682 1.387467 -1.4865 4.000182 1.623906 2.077092 -3.19596 2.796228 -4.99717
2.255543 2.311604 1.681778 -0.73448 -1.35513 1.518841 -3.96784 -1.59156 -2.04475 3.228297 -2.76389 5.029507
5.087475 5.343511 2.828377 0.539459 1.836366 2.306878 15.74376 2.533078 4.181006 10.4219 7.639067 25.29594
Standard Deviation for the funds excess return (S.D.) i=5.722694 =2.392215
Treynor's Index (Ti) = (Ri - Rf)/Bi. =(1.063454-5)/ 1.0096114 =-3.89907 Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ] = 1.063454 - [ 5+1.0096114 (1.031112-5)] =0.070488
Expected return E(Ri) = Rf + Bi (Rm - Rf) =[ 5+1.0096114 (1.031112-5)] =0.992965 Fema Measures Selectivity =Ri [ Rf + Bi (Rm - Rf) ] = 1.063454 - [ 5+1.0096114 (1.031112-5)]
=0.070488
Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf) ] =[5+(1.031112-5)(2.392215/11.13139)]- [ 5+1.0096114 (1.031112-5)] =3.154092 Net selectivity= selectivity- diversification =0.070488-3.15409 =-3.0836
Investment Objective The Investment Objective of the Scheme is to achieve capital appreciation in the long term. Basic Scheme Information
Open Ended Growth Scheme February 01, 1994 Dividend Option,Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility.
Exit Load (as a % of the Applicable NAV) (Other than Systematic Investment Plan (SIP)/ Systematic Transfer Plan (STP))
In respect of each purchase / switch-in of Units less than Rs. 5 crore in value, an Exit Load of 1.00% is payable if Units are redeemed/switched-out within 1 year from the date of allotment.
In respect of each purchase / switch-in of Units equal to or greater than Rs. 5 crore in value, no Exit Load is payable. No Exit Load shall be levied on bonus units and units allotted on dividend reinvestment.
Minimum Application Amount (Other than Systematic Investment Plan (SIP)/ Systematic Transfer Plan
For new investors :Rs.5000 and any amount thereafter. For existing investors : Rs. 1000 and any amount thereafter.
(STP)) Lock-In-Period Net Asset Value Periodicity Redemption Proceeds Nil Every Business Day. Normally despatched within 3 business Days
On the first 100 crores average weekly net assets 2.50% On the next 300 crores average weekly net assets 2.25% On the next 300 crores average weekly net assets 2.00% On the balance of the assets 1.75%
Pattern The asset allocation under the Scheme will be as follows : Sr.No. 1 2 Asset Type (% of Portfolio) Risk Profile Medium to High
Equities and Equity Related Instruments Upto 100% Debt & Money Market Instruments
Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the scheme. Investment Strategy This Scheme aims to achieve its objectives by investing in strong companies at prices which are below fair value in the opinion of the fund managers. The Scheme defines a "strong company" as one that has the following characteristics :
strong management, characterized by competence and integrity strong position in its business (preferably market leadership) efficiency of operations, as evidenced by profit margins and asset turnover, compared to its peers in the industry
working capital efficiency consistent surplus cash generation high profitability indicators (returns on funds employed)
In common parlance, such companies are also called 'Blue Chips'. The Scheme defines "reasonable prices" as :
a market price quote that is around 30% lower than its value, as determined by the discounted value of its estimated future cash flows
a P/E multiple that is lower than the company's sustainable Return on funds employed a P/E to growth ratio that is lower than those of the company's competitors in case of companies in cyclical businesses, a market price quote that is around 50% lower than its estimated replacement cost
Fund Manager Mr. Chirag Setalvad (since Apr 2, 07) Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities
64.459 61.259
MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT
60.3 65.818 69.818 73.27 76.914 76.323 83.09 96.061 99.034 106.53 8 88.367 87.439 75.967 79.418 75.065 64.169 67.228 70.149 63.365 47.587
4605.89 4934.46 5185.95 5223.82 5483.25 5411.29 6094.11 7163.3 6997.6 7461.48 6245.45 6356.92 5762.88 6289.07 5937.81 4929.98 5297.47 5337.28 4807.2 3539.57
-1.56548 9.150912 6.077365 4.944284 4.973386 -0.76839 8.866266 15.61078 3.094908 7.577196 -17.0559 -1.05017 -13.12 4.542762 -5.48113 -14.5154 4.767099 4.344916 -9.67084 -24.9002
2.24564 7.133692 5.096606 0.730242 4.966289 -1.31236 12.61843 17.54465 -2.31318 6.62913 -16.2974 1.784819 -9.34478 9.130678 -5.58525 -16.9731 7.454188 0.751491 -9.93165 -26.3694
-3.51551 65.27979 30.97394 3.610525 24.69927 1.008405 111.8784 273.8857 -7.15908 50.23022 277.9672 -1.87436 122.6035 41.4785 30.61343 246.3716 35.53486 3.265164 96.04744 656.603
1.214527 6.10258 4.065494 -0.30087 3.935177 -2.34347 11.58732 16.51353 -3.34429 5.598018 -17.3285 0.753707 -10.3759 8.099566 -6.61636 -18.0042 6.423076 -0.27962 -10.9628 -27.4005
1.47507 7 37.2414 8 16.5282 4 0.09052 3 15.4856 2 5.49186 3 134.266 272.696 8 11.1842 9 31.3378 300.278 6 0.56807 5 107.659 1 65.6029 6 43.7761 9 324.151 4 41.2559 1 0.07818 8 120.182 2 750.788
5.042 897 50.88 956 25.97 54 0.533 254 24.66 403 1.722 29 159.2 248 307.8 146 5.350 8 43.94 536 265.6 065 3.185 58 87.32 486 83.36 928 31.19 497 288.0 859 55.56 493 0.564 738 98.63 768 695.3
3 NOV DEC 2009 JAN FEB MAR APL MAY TOTAL AVERA GE 44.556 48.064 45.564 43.34 46.604 53.006 67.6 3379.53 3635.87 3538.57 3403.33 3720.51 4278.54 5480.11 -6.36939 7.873238 -5.2014 -4.88105 7.531149 13.73702 27.53273 21.08029 0.752867 -4.52145 7.585078 -2.67611 -3.82188 9.319696 14.99875 28.08365 28.87114 1.031112 28.79888 59.71913 13.91953 18.65479 70.18802 206.0381 773.2195 3270.029 116.7868 -5.55257 6.553966 -3.70723 -4.85299 8.288584 13.96764 27.05253 0 0 30.8309 8 42.9544 7 13.7435 2 23.5515 6 68.7006 2 195.094 9 731.839 6 3469.41 7 123.907 7
455 20.44 354 57.53 341 7.161 582 14.60 679 86.85 673 224.9 625 788.6 911 3499. 186
Figure:3.2
m = 123.9077 =11.13239
(Beta) =[N ( XY) X Y ]/[ N ( X2) ( X) 2 ] = (91560.82- 608.6119)/ (97977.21- 833.5426) = 90952.21/ 97143.67 = 0.936265
Table:3.6
Ri 2007 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV -4.9644 -1.56548 9.150912 6.077365 4.944284 4.973386 -0.76839 8.866266 15.61078 3.094908 7.577196 -17.0559 -1.05017 -13.12 4.542762 -5.48113 -14.5154 4.767099 4.344916 -9.67084 -24.9002 -6.36939
Rm
Ri-Rm
sq of Dev frm av
-8.05529 2.24564 7.13369 2 5.09660 6 0.73024 2 4.96628 9 -1.31236 12.6184 3 17.5446 5 -2.31318 6.62913 -16.2974 1.78481 9 -9.34478 9.13067 8 -5.58525 -16.9731 7.45418 8 0.75149 1 -9.93165 -26.3694 -4.52145
3.090893 -3.81112 2.01722 0.980759 4.214041 0.007097 0.54397 -3.75217 -1.93386 5.408088 0.948066 -0.75845 -2.83499 -3.77523 -4.58792 0.10412 2.457673 -2.68709 3.593425 0.260807 1.469223 -1.84793
-3.36914 3.532879 -2.29546 -1.259 -4.49229 -0.28534 -0.82221 3.473923 1.655617 -5.68633 -1.22631 0.480204 2.55674 3.496982 4.309671 -0.38237 -2.73592 2.408844 -3.87167 -0.53905 -1.74747 1.569689
11.35109 12.48124 5.269159 1.585089 20.18063 0.08142 0.676037 12.06814 2.741069 32.33438 1.503837 0.230596 6.536922 12.22888 18.57326 0.146203 7.485245 5.802531 14.98983 0.290577 3.053642 2.463923
Standard Deviation for the funds excess return (S.D.) i=6.477719 =2.545136 Sharpe Index (Si) = (Ri - Rf)/Si = (0.752867-5)/ 2.545136 =-1.66872 Treynor's Index (Ti) = (Ri - Rf)/Bi. =(0.752867-5/ 0.936265 =-4.53625 Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ] =0.752867 = [5+0.936265(1.031112-5)] -0.39357
-0.39357
Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf) ] =[5+(1.031112-5)( 2.545136/11.13139)]- [5+0.936265(1.031112-5)] =2.808464 Net selectivity= selectivity- diversification =-0.39357-2.808464 =-3.33967
HDFC GROWTH FUND Investment objective The primary investment objective of the Scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. Basic Scheme Information
Table:3.7
Nature of Scheme Inception Date Option/Plan Entry Load (purchase / additional purchase / switchin)
Open Ended Growth Scheme Sep 11, 2000 Dividend Option, Growth Option, NIL (With effect from August 1, 2009)
Nil
Rs.5000 and in multiples of Rs.100 thereof to open an account / folio. Additional purchases is Rs. 1000 and in multiples of Rs. 100 thereof
Investment pattern The corpus of the Scheme will be invested primarily in equity and equity related instruments. The Scheme may invest a part of its corpus in debt and money market instruments, in order to manage its liquidity requirements from time to time, and under certain circumstances, to protect the interests of the Unit holders. The asset allocation under the Scheme will be as follows :
Table:3.8
SR NO.
TYPE OF INSTRUMENTS
80-100
0-100
Low to medium
Investment Strategy & Risk Control The investment approach will be based on a set of well established but flexible principles that emphasise the concept of sustainable economic earnings and cash return on investment as the means of valuation of companies. In summary, the Investment Strategy is expected to be a function of extensive research and based on data and reasoning, rather than current fashion and emotion. The objective will be to identify "businesses with superior growth prospects and good management, at a reasonable price". Benchmark Index : SENSEX Fund Manager : Mr. Shrinivas Rao
Figure:3.3
Table:3.10 Ri 2007 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV -7.91136 0.91904 6.863025 9.503715 2.814016 7.351677 -0.9299 9.71291 15.45284 1.646264 7.585286 -15.0715 -0.88409 -8.36982 6.510056 -5.11058 -14.8711 6.259351 3.611468 -7.35676 -22.4734 -5.18885 -8.18137 1.035779 6.12197 4.84481 0.729144 6.146407 -1.49437 12.8765 14.72949 -2.39339 4.770908 -13.0048 -0.39657 -11.0035 10.5013 -5.04266 -17.9949 6.642227 1.45433 -11.7003 -23.8901 -7.10396 0.270008 -0.11674 0.741056 4.658905 2.084872 1.20527 0.564474 -3.16359 0.723351 4.039651 2.814378 -2.0667 -0.48752 2.633708 -3.99125 -0.06792 3.123803 -0.38288 2.157138 4.34358 1.416689 1.915115 0.077092104 0.463838642 -0.393955855 -4.311805316 -1.737772055 -0.85817039 -0.217374552 3.510692544 -0.376251086 -3.692551406 -2.467278063 2.413797413 0.834616326 -2.286608411 4.338346289 0.415022146 -2.776702677 0.729975995 -1.810037944 -3.996480234 -1.069589295 -1.568014871 0.005943 0.215146 0.155201 18.59167 3.019852 0.736456 0.047252 12.32496 0.141565 13.63494 6.087461 5.826418 0.696584 5.228578 18.82125 0.172243 7.710078 0.532865 3.276237 15.97185 1.144021 2.458671 66.93478 1.072838 37.47851 23.47219 0.53165 37.77832 2.233155 165.8043 216.9577 5.728304 22.76156 169.1245 0.15727 121.0777 110.2774 25.4284 323.8174 44.11918 2.115076 136.898 570.737 50.46627 Rm Ri-Rm Dev frm ave sq of Dev frm av Rm2
Standard Deviation for the funds excess return (S.D.) i=6.490725 =2.54769 Sharpe Index (Si) = (Ri - Rf)/Si = (1.085701-5)/ 2.54769 =-1.53641 Treynor's Index (Ti) = (Ri - Rf)/Bi. =(1.085701-5)/ 0.921779 =-4.24646 Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ] =1.08570 1= [5+0.921779 (0.738601-5)] 0.013767
=1.071934
Fema Measures Selectivity =Ri [ Rf + Bi (Rm - Rf) ] =1.08570 1= [5+0.921779 (0.738601-5)] 0.013767
Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)] =[5+(0.738601-5)( 2.54769/10.98971)]- [5+0.921779 (0.738601-5)] =2.940167 Net selectivity= selectivity- diversification =0.013767-2.940167 =-2.9264
Investment Objective To achieve long term capital appreciation. Basic Scheme Information
Nature of Scheme
Close Ended Equity Scheme with a maturity period of 5 years with automatic conversion into an open-ended scheme upon maturity of the Scheme.
10-Feb-06 27-Jan-06 Dividend Option,Growth Option. Dividend Option currently offers payout facility only.
Exit Load (as a % of the Applicable NAV) (Other than Systematic Investment Plan (SIP)/ Systematic Transfer Plan (STP))
Upto 12 months 4% After 12 months upto 24 months 3% After 24 months upto 36 months 2% After 36 months upto 48 months 1% After 48 months upto 54 months 0.5% After 54 months upto Maturity Nil
No Exit Load shall be levied on bonus units and units allotted on dividend reinvestment. Specified Redemption Period A Unit holder can submit redemption/ switch-out request only during the Specified Redemption Period. Presently, the
Specified Redemption Period is the first five Business Days immediately after the end of each calendar half year. Minimum Application Amount (Other than Systematic Investment Plan (SIP)/ Systematic Transfer Plan (STP)) Lock-In-Period Net Asset Value Periodicity Redemption Proceeds Nil Every Business Day. Normally dispatched within 3 Days Currently no purchases/ switch-ins are allowed into this scheme.
On the first 100 crores average weekly net assets 2.50% On the next 300 crores average weekly net assets 2.25% On the next 300 crores average weekly net assets 2.00% On the balance of the assets 1.75%
Investment Pattern The following table provides the asset allocation of the Schemes portfolio. Type of Instruments Minimum Allocation Minimum Allocation Risk Profile of the Instrument (% of Net Assets) Equity & Equity related instruments Fixed Income Securities (including money market instruments) 0 30 Low 70 (% of Net Assets) 100 High
Investment Strategy The investment strategy of the Scheme is to build and maintain a diversified portfolio of equity stocks that have the potential to appreciate in the long run. Companies identified for selection in the portfolio will have demonstrated a potential ability to grow at a reasonable rate for the long term. The aim will be to build a portfolio that adequately reflects a cross-section of the growth areas of the economy from time to time. While the portfolio focuses primarily on a buy and hold strategy at most times, it will balance the same with a rational approach to selling when the valuations become too demanding even in the face of reasonable growth prospects in the long run. Fund Manager Mr. Srinivas Rao Ravuri (since Apr 3, 06) Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities
DEC 2008 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2009 JAN FEB MAR APL MAY TOTAL AVG
128.983 112.202 110.554 96.105 103.44 99.18 85.045 88.972 93.359 82.286 63.504 57.237 61.406 58.709 55.785 59.209 68.298 87.958
20286.99 17648.71 17578.72 15644.44 17287.31 16415.57 13461.6 14355.75 14564.53 12860.43 9788.06 9092.72 9647.31 9424.24 8891.61 9708.5 11403.25 14625.25
7.985265 -13.0102 -1.46878 -13.0696 7.632277 -4.11833 -14.2519 4.617555 4.930765 -11.8607 -22.8253 -9.86867 7.28375 -4.39208 -4.9805 6.137851 15.35071 28.78562 6.828943 0.243891
4.770908 -13.0048 -0.39657 -11.0035 10.5013 -5.04266 -17.9949 6.642227 1.45433 -11.7003 -23.8901 -7.10396 6.099275 -2.31225 -5.6517 9.1872 17.45635 28.2551 20.68083 0.738601
38.09697 169.1954 0.582478 143.8121 80.14885 20.76733 256.4613 30.67085 7.17096 138.7739 545.298 70.10665 44.42559 10.15559 28.14829 56.38966 267.9674 813.3405 3065.056 109.4663
4.032307 -13.7434 -1.13517 -11.7421 9.762702 -5.78126 -18.7335 5.903626 0.715729 -12.4389 -24.6287 -7.84256 5.360674 -3.05085 -6.3903 8.448599 16.71775 27.5165 0 0
16.2595 188.8807 1.28862 137.8777 95.31035 33.42296 350.9451 34.8528 0.512268 154.7273 606.5731 61.50578 28.73683 9.307696 40.83598 71.37883 279.4832 757.1579 3381.666 120.7738
22.76156 169.1245 0.15727 121.0777 110.2774 25.4284 323.8174 44.11918 2.115076 136.898 570.737 50.46627 37.20116 5.346504 31.94174 84.40465 304.7242 798.3508 3396.941
Figure:3.4
m= 120.7738 =10.98971 (Beta) =[N ( XY) X Y ]/[ N ( X2) ( X) 2 ] = (85821.57- 141.2282)/ (95114.34- 427.6966) = 85680.34/ 94686.64 = 0.904883
Table:3.12
Ri 2007 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2009 JAN FEB MAR -7.81526 -1.64612 6.127153 5.384876 4.281232 2.265256 -0.33891 6.87246 7.754376 1.066125 7.985265 -13.0102 -1.46878 -13.0696 7.632277 -4.11833 -14.2519 4.617555 4.930765 -11.8607 -22.8253 -9.86867 7.28375 -4.39208 -4.9805 6.137851
Rm
Ri-Rm
sq of Dev frm av
-8.18137 1.035779 6.12197 4.84481 0.729144 6.146407 -1.49437 12.8765 14.72949 -2.39339 4.770908 -13.0048 -0.39657 -11.0035 10.5013 -5.04266 -17.9949 6.642227 1.45433 -11.7003 -23.8901 -7.10396 6.099275 -2.31225 -5.6517 9.1872
0.366111 -2.6819 0.005183 0.540065 3.552088 -3.88115 1.15546 -6.00404 -6.97511 3.459513 3.214357 -0.00545 -1.07221 -2.0661 -2.86903 0.924329 3.743063 -2.02467 3.476435 -0.16032 1.064835 -2.76471 1.184475 -2.07983 0.671205 -3.04935
-0.860821325 2.187192079 -0.499893333 -1.034775537 -4.046798071 3.386440599 -1.650170515 5.509332488 6.48039862 -3.954222903 -3.709067209 -0.489256261 0.577496505 1.571389464 2.374315379 -1.419039116 -4.237772814 1.529961243 -3.971144712 -0.334386466 -1.559545364 2.26999821 -1.679185121 1.585118054 -1.165915514 2.554639268
0.741013 4.783809 0.249893 1.07076 16.37657 11.46798 2.723063 30.35274 41.99557 15.63588 13.75718 0.239372 0.333502 2.469265 5.637374 2.013672 17.95872 2.340781 15.76999 0.111814 2.432182 5.152892 2.819663 2.512599 1.359359 6.526182
Standard Deviation for the funds excess return (S.D.) i=5.538895 =2.353486 Sharpe Index (Si) = (Ri - Rf)/Si = (0.243891-5)/ 2.353486 =-2.02088 Treynor's Index (Ti) = (Ri - Rf)/Bi. =(0.243891-5)/ 0.904883 =-5.25605 Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ] =0.243891- [5+0.904883 (0.738601-5)] = -0.90004
Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)] =[5+(0.738601-5)( 2.353486/10.98971)]- [5+0.904883 (0.738601-5)] =2.943474 Net selectivity= selectivity- diversification =-0.90004-2.943474 =-3.84352
HDFC TAXSAVER Investment Objective The investment objective of the Scheme is to achieve long term growth of capital. Basic Scheme Information
Table:3.13
Nature of Scheme
Mar 31, 1996 Dividend Option, Growth Option, NIL (With effect from August 1, 2009)
Nil
thereof to open an account / folio. Lock-In-Period Net Asset Value Periodicity Redemption Proceeds 3 yrs Every Business Day Normally despatched within 3 Business days Investment Pattern The asset allocation under the Scheme will be as follows:
Table:3.14
SR NO.
ASSET TYPE
(% OF PORTFOLIO)
Minimum 80%
Minimum 20%
Low to medium
Investment in Securitized debt, if undertaken, would not exceed 20% of the net assets of the scheme.
The Scheme may also invest up to 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and and other uses as may be permitted under the regulations and guidelines.
The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time. The ELSS (Equity Linked Savings Scheme) guidelines, as applicable, would be adhered to in the management of this Fund. If the investment in equities and related
instruments falls below 80% of the portfolio of the Scheme at any point in time, it would be endeavoured to review and rebalance the composition. Benchmark Index : S&P CNX 500. HDFC Tax saver, which is benchmarked to S&P CNX 500 Index is not sponsored, endorsed, sold or promoted by Indian Index Service & Products Limited (IISL). Fund Manager : Dhawal Mehta
2007 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN FEB MAR APL
146.134 135.133 133.882 144.308 153.765 156.535 163.61 161.481 173.27 198.737 196.735 204.284 173.277
MAY JUN JULY AUG SEP OCT NOV DEC 2009 JAN FEB MAR APL MAY TOTAL AVG
148.793 126.45 135.953 142.358 132.682 99.119 90.957 98.972 93.555 89.449 97.063 112.05 144.827
5937.81 4929.98 5297.47 5337.28 4807.2 3539.57 3379.53 3635.87 3538.57 3403.33 3720.51 4278.54 5480.11
-6.07155 -15.0162 7.515223 4.711187 -6.79695 -25.2958 -8.23455 8.811856 -5.47327 -4.38886 8.512113 15.44049 29.25212 15.36369 0.548703
-5.58525 -16.9731 7.454188 0.751491 -9.93165 -26.3694 -4.52145 7.585078 -2.67611 -3.82188 9.319696 14.99875 28.08365 28.87114 1.031112
33.91109 254.8707 56.01989 3.540414 67.50492 667.0357 37.23212 66.83862 14.64708 16.77372 79.3303 231.588 821.5062 3293.627 117.6295
-6.61636 -18.0042 6.423076 -0.27962 -10.9628 -27.4005 -5.55257 6.553966 -3.70723 -4.85299 8.288584 13.96764 27.05253 0
Figure:3.5
m= 123.9077 =11.13139 (Beta) =[N ( XY) X Y ]/[ N ( X2) ( X) 2 ] = (92221.54- 443.5671)/ (97977.21- 833.5426) = 91777.98/ 97143.67 = 0.944765
Table:3.16 Ri Rm Ri-Rm Dev frm ave sq of Dev frm av
2007 JAN FEB MAR APL MAY JUN JULY AUG SEP OCT NOV DEC 2008 JAN FEB MAR APL MAY -7.52802 -0.92575 7.787455 6.553344 1.80145 4.519756 -1.30127 7.300549 14.69787 -1.00736 3.837141 -15.1784 -0.82642 -11.5366 4.204052 -6.07155 -8.05529 2.24564 7.133692 5.096606 0.730242 4.966289 -1.31236 12.61843 17.54465 -2.31318 6.62913 -16.2974 1.784819 -9.34478 9.130678 -5.58525 0.527266 -3.17139 0.653763 1.456738 1.071208 -0.44653 0.011095 -5.31788 -2.84678 1.305818 -2.79199 1.119058 -2.61124 -2.19178 -4.92663 -0.4863 -1.00968 2.688985 -1.13617 -1.93915 -1.55362 -0.03588 -0.4935 4.835475 2.364366 -1.78823 2.30958 -1.60147 2.128833 1.709373 4.444217 0.003894 1.019444 7.230641 1.290886 3.760291 2.413726 0.001287 0.243546 23.38182 5.590227 3.197757 5.334158 2.564696 4.531929 2.921956 19.75106 1.52E-05
JUN JULY AUG SEP OCT NOV DEC 2009 JAN FEB MAR APL MAY TOTAL AVG
-15.0162 7.515223 4.711187 -6.79695 -25.2958 -8.23455 8.811856 -5.47327 -4.38886 8.512113 15.44049 29.25212 15.36369 0.548703
-16.9731 7.454188 0.751491 -9.93165 -26.3694 -4.52145 7.585078 -2.67611 -3.82188 9.319696 14.99875 28.08365 28.87114 1.031112
1.956929 0.061035 3.959696 3.134702 1.073584 -3.71309 1.226778 -2.79715 -0.56698 -0.80758 0.441737 1.168474 -13.5075 -0.48241
-2.43934 -0.54344 -4.44211 -3.61711 -1.55599 3.230684 -1.70919 2.314743 0.08457 0.325174 -0.92415 -1.65088
5.950372 0.295331 19.7323 13.08349 2.421115 10.43732 2.921319 5.358035 0.007152 0.105738 0.854046 2.725415 147.1251 5.254467
= 2.292262
Sharpe Index (Si) = (Ri - Rf)/Si = (0.548703-5)/ 2.292262 =-1.94188 Treynor's Index (Ti) = (Ri - Rf)/Bi. =(0.548703-5)/ 0.944765 =-4.71154
Expected return E(Ri) = Rf + Bi (Rm - Rf) =[5+0.944765 (1.031112-5)] =1.250332 Fema Measure: Selectivity =Ri [ Rf + Bi (Rm - Rf) ] =0.548703 = -0.70163 [5+0.944765 (1.031112-5)]
Diversification = [Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)] =[5+(1.031112-5)( 2.292262/11.13139)]- [5+0.944765 (1.031112-5)] =2.932363 Net selectivity= selectivity- diversification =-0.70163-2.932363 =-3.63399
Investment Objective
The investment objective is to generate long-term capital appreciation from a portfolio of equity and equity linked instruments. The investment portfolio for equity and equity-linked instruments will be primarily drawn from the companies in the BSE 200 Index. Further, the Scheme may also invest in listed companies that would qualify to be in the top 200 by market capitalisation on the BSE even though they may not be listed on the BSE This includes participation in large IPOs where in the market capitalisation of the company based on issue price would make the company a part of the top 200 companies listed on the BSE based on market capitalisation. Basic Scheme Information
Table:3.17
Nature of Scheme Inception Date Option/Plan Entry Load (purchase / additional purchase / switchin)
Open Ended Equity Growth Scheme Oct 11, 1996 Dividend Option, Growth Option, NIL (With effect from August 1, 2009)
Nil Rs.5000 and in multiples of Rs.100 thereof to open an account / folio. Additional purchases is Rs. 1000 and in multiples of Rs. 100 thereof.
Lock-In-Period
Nil
Investment Pattern The asset allocation under the Scheme will be as follows:
Table:3.18
SR NO.
ASSET TYPE
(% OF PORTFOLIO)
RISK PROFILE
Upto 100% (including use of derivatives for hedging and other uses as permitted by prevailing SEBI Regulations)
Medium to high
Low to medium
Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the regulations and guidelines. Investment Strategy & Risk Control The investment strategy of primarily restricting the equity portfolio to the BSE 200 Index scrips is intended to reduce risks while maintaining steady growth. Stock specific risk will be minimised by investing only in those companies / industries that have been thoroughly researched by the investment manager's research team. Risk will also be reduced through a diversification of the portfolio. Benchmark Index : BSE 200 Fund Manager : Mr. Prashant Jain
2007 JAN FEB MAR APRI L MAY JUNE JULY AUG SEPT OCT NOV DEC 2008 JAN FEB MAR APRI L MAY JUNE JULY AUG SEPT OCT NOV DEC 2009 JAN FEB MAR
112.359 103.269 104.504 111.805 119.096 120.34 127.614 126.201 140.49 160.215 158.356 169.794 147.718 147.689 131.544 143.025 137.675 115.424 123.902 129.235 118.754 92.324 86.546 92.798 88.074 84.379 92.552
1687.35 1545.27 1556.72 1666.14 1766.08 1804.81 1894.18 1857.7 2118.86 2439.87 2454.23 2656.52 2230.39 2217.47 1932.41 2157.52 2038.22 1644.18 1749.11 1782.08 1555.7 1145.68 1062.35 1156.59 1107.06 1044.94 1140.43 -8.09014 1.195906 6.986335 6.521175 1.044536 6.04454 -1.10725 11.32241 14.04015 -1.16032 7.222966 -13.0016 -0.01963 -10.9318 8.727878 -3.7406 -16.162 7.345093 4.304208 -8.11003 -22.2561 -6.25839 7.223904 -5.09063 -4.19534 9.686059 -8.4203 0.740971 7.028881 5.998295 2.192992 4.951768 -1.9259 14.05824 15.15013 0.588556 8.242504 -16.0409 -0.57927 -12.8552 11.64918 -5.5295 -19.3326 6.381905 1.884959 -12.7031 -26.356 -7.27341 8.870899 -4.28242 -5.61126 9.138324 68.12144 0.886131 49.10612 39.11594 2.290658 29.93116 2.132443 159.1733 212.71 -0.68291 59.53532 208.5581 0.011372 140.5298 101.6727 20.68366 312.4523 46.87568 8.113254 103.0228 586.5812 45.51987 64.08253 21.80018 23.54111 88.51435 -9.34081 -0.17954 6.108374 5.077788 1.272485 4.031261 -2.84641 13.13774 14.22962 -0.33195 7.321997 -16.9614 -1.49978 -13.7757 10.72868 -6.45 -20.2531 5.461398 0.964452 -13.6236 -27.2765 -8.19392 7.950392 -5.20292 -6.53177 8.217817 87.25075 0.032233 37.31223 25.78393 1.619219 16.25106 8.10203 172.6001 202.4821 0.110192 53.61163 287.6897 2.249334 189.7699 115.1045 41.60255 410.1865 29.82686 0.930167 185.6036 744.0068 67.14027 63.20874 27.07041 42.66396 67.53251 70.90152 0.549038 49.40517 35.97955 4.809216 24.52 3.709088 197.6342 229.5264 0.346398 67.93887 257.3108 0.335555 165.2559 135.7035 30.57534 373.7477 40.72871 3.553069 161.3696 694.6377 52.90249 78.69286 18.33909 31.48622 83.50896
107.584 139.341
1339.38 1772.82
16.52467 31.44073 0 0
Figure:3.6
m= 147.9045 =12.1616
Table:3.20 Ri 2007 JAN FEB MAR APRIL MAY JUNE JULY AUG SEPT OCT NOV DEC 2008 JAN FEB MAR APRIL MAY -8.09014 1.195906 6.986335 6.521175 1.044536 6.04454 -1.10725 11.32241 14.04015 -1.16032 7.222966 -13.0016 -0.01963 -10.9318 8.727878 -3.7406 -8.4203 0.740971 7.028881 5.998295 2.192992 4.951768 -1.9259 14.05824 15.15013 0.588556 8.242504 -16.0409 -0.57927 -12.8552 11.64918 -5.5295 0.330164 0.454935 -0.04255 0.52288 -1.14846 1.092773 0.818654 -2.73583 -1.10998 -1.74887 -1.01954 3.039273 0.559639 1.923436 -2.92131 1.788892 0.081521 -0.04325 0.454231 -0.11119 1.560142 -0.68109 -0.40697 3.147515 1.521668 2.160557 1.431223 -2.62759 -0.14795 -1.51175 3.332991 -1.37721 0.006646 0.001871 0.206326 0.012364 2.434043 0.46388 0.165624 9.906851 2.315473 4.668006 2.048399 6.90422 0.02189 2.285389 11.10883 1.896699 70.90152 0.549038 49.40517 35.97955 4.809216 24.52 3.709088 197.6342 229.5264 0.346398 67.93887 257.3108 0.335555 165.2559 135.7035 30.57534 Rm Ri-Rm dev frm av sq of dev Rm2
JUNE JULY AUG SEPT OCT NOV DEC 2009 JAN FEB MAR APRIL MAY
-16.162 7.345093 4.304208 -8.11003 -22.2561 -6.25839 7.223904 -5.09063 -4.19534 9.686059 16.24168 29.51833 37.30138 1.332192
-19.3326 6.381905 1.884959 -12.7031 -26.356 -7.27341 8.870899 -4.28242 -5.61126 9.138324 17.44517 32.36124 25.7742 0.920507
3.170579 0.963188 2.41925 4.593101 4.099889 1.015015 -1.647 -0.80821 1.415923 0.547736 -1.20349 -2.84291 11.52718 0.411685
-2.75889 -0.5515 -2.00756 -4.18142 -3.6882 -0.60333 2.058681 1.219896 -1.00424 -0.13605 1.615179 3.254597
7.611496 0.304156 4.030315 17.48424 13.60285 0.364007 4.238165 1.488145 1.008493 0.01851 2.608803 10.5924 107.7981 3.849932
373.7477 40.72871 3.553069 161.3696 694.6377 52.90249 78.69286 18.33909 31.48622 83.50896 304.3341 1047.25 4165.051
Standard Deviation for the funds excess return (S.D.) i=3.849932 =1.962124 Sharpe Index (Si) = (Ri - Rf)/Si = (1.332192-5)/ 1.962124 =-1.8693 Treynor's Index (Ti) = (Ri - Rf)/Bi. = (4.528901-5)/ 0.868932 =-4.22105 Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ] =1.332192- [5+0.868932 (0.920507-5)] = -0.12301
Fema Measure: Selectivity =Ri [ Rf + Bi (Rm - Rf) ] =1.332192- [5+0.868932 (0.920507-5)] = -0.12301
Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)] =[5+(0.920507-5)( 1.962124/12.1616)]- [5+0.868932 (0.920507-5)] =2.886626 Net selectivity= selectivity- diversification =-0.12301-2.886626 =-2.87834
Figure:3.7
Performance Evaluation against Benchmarks The above table presents return and risk of the six funds along with market return and risk. From the table it is evident that, Top 200, Equity fund and Growth fund have earned greater return as against the market earning. Capital builder, Long term advantage and Tax saver funds have not earned higher return than the Market portfolio. Long-term advantage and Tax saver funds have even negative returns.
Comparison of ratios:
Table:3.22 Fund name S.D. market S.D. fund B value Sharpe ratio Treynor ratio Jensons alpha Fema Retuns jan07may08(29 months) 12.22546
11.13239
2.392215
1.0096114
-1.64557
-3.89907
0.070488
-3.0836
11.13239
2.545136
0.936265
-1.66872
-4.53625
-0.39357
-3.33967
4.872865
10.98971
2.54769
0.921779
-1.53641
-4.24646
0.013767
-2.9264
16.48711
10.98971
2.353486
0.904883
-2.02088
-5.25605
-0.90004
-3.84352
-7.63043
11.13139
2.292262
0.944765
-1.94188
-4.71154
-0.70163
-3.63399
-0.89438
12.1616
1.962124
0.868932
-1.8693
-4.22105
-0.12301
-2.87834
24.0141
Standard Deviation of the Market: High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility. HDFC equity fund, HDFC capital Builder and HDFC Tax saver take S&P CNX 500 as their benchmark, HDFC Growth fund and HDFC long term have taken Sensex as bench mark and HDFC Top 200 has taken BSE 200 as its bench mark. We found out that BSE 200s S.D. is 12.1616, which is greater than Sensex and S&P CNX 500 having 10.98971 and 11.13139 S.D. respectively. Therefore, BSE 200 is more volatile than Sensex and S&P CNX 500. Standard deviation of the Fund: It has been found that HDFC Top 200s S.D. is lesser than all other funds. Although benchmark index (BSE 200) is more volatile as it has higher S.D. than other indexes still HDFC Top 200 is less volatile because of lesser fund S.D. This is might be because of diversification of unsystematic risk as it compensates the systematic risk. Value : As we know in case of funds, beta would indicate the volatility against the benchmark index. It is used as a short term decision making tool. A beta that is greater than 1 means that the fund is more volatile than the benchmark index, while a beta of less than 1 means that the fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the funds performance closely matches the index or benchmark. The analysis illustrates that HDFC Equity funds is less volatile and its performance is very close to its benchmark as its beta value is 1.0096114 compared to other funds which have beta value lesser than 1 point. HDFC Top 200s beta value is more volatile than the benchmark as its value is 0.868932, which is very far from point 1. Sharpe ratio: A fund with a higher Sharpe ratio means that these returns have been generated taking lesser risk. In other words, the fund is less volatile and yet generating good return. The analysis shows that all the funds have negative Sharpe ratio therefore they are more risky. Comparing all the funds HDFC growth fund has lesser negative marks that means its return 16.48711 is generated taking lesser risk.
Treynor ratio: 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 unfavourable performance (systematic risk associated with it (beta)). All the funds are having negative Treynors ratio which means they are affected by the volatility of the market (systematic risk)or by the great recession. Jensons alpha: Its 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. Higher alpha represents superior performance of the fund and vice versa. The analysis points out that all the funds are having negative alpha except HDFC Equity fund and HDFC Growth fund which have positive points. Jenson alpha ratio justifies that these two funds are at least able to achieve the expected return given the level of their systematic risk. Fema measure: The Net Selectivity (Fema) represents the stock selection skill of the fund manager, as it is the excess returns over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. It has been that all the funds are having negative net selectivity because of the higher risk found both in systematic risk (B) and unsystematic risk. This findings point out, that the stock selection of the fund manager has been failed because of the systematic risk i.e. recession. Comparing to other funds HDFC Growth fund (-2.9264) has lesser negative points in this time of great crisis. This indicates that HDFC Growth fund is getting enhanced return by nullifying systematic risk and unsystematic risk.
From the above analysis there is no fund which has consistency. The funds are being affected very badly either by the systematic risk or by the unsystematic risk. As we observe closely, it is the HDFC Growth fund, which has better option for the investment. Its Sharpe ratio is
lesser negative than other funds which illustrates that its return is less affected by overall risk. Its alpha value is more than 0 which means its less affected by the market risk (systematic risk) and also its Fema value (selectivity) has lesser negative value which has managed to nullify systematic risk and unsystematic risk during the time of recession. An investor who is entering into the capital market for making long-term investment, the volatility of the market is important to accomplish his or her goal and these expectations are often formed on the basis of historical record of monthly returns, measured for holding period and other important ratios. We will take this fund (HDFC Growth fund) for further analysis of its portfolio.
Equity & Equity Related (a) Listed / awaiting listing on Stock Exchanges State Bank of India Zee Entertainment Enterprises Ltd. ICICI Bank Ltd. Bharti Airtel Ltd. Crompton Greaves Ltd. Bharat Petroleum Corporation Limited Housing Development Finance Corporation Ltd.$ Exide Industries Ltd. Divis Laboratories Ltd. Banks Media & Entertainment Banks Telecom - Services Industrial Capital Goods Petroleum Products Finance Auto Ancillaries Pharmaceuticals 448,000 4,160,179 932,397 750,346 2,099,819 926,557 182,500 5,319,910 318,535 8,372.45 7,001.58 6,901.14 6,159.59 5,513.07 4,305.71 3,977.77 3,769.16 3,666.18 7.20 6.02 5.93 5.30 4.74 3.70 3.42 3.24 3.15
Sun Pharmaceutical Industries Ltd. H T Media Ltd. Solar Explosives Ltd. Nestle India Ltd. Dr Reddys Laboratories Ltd. ITC Ltd. Coromandel Fertilisers Ltd. Biocon Limited Reliance Industries Ltd. Hindustan Petroleum Corporation Ltd. Dabur India Ltd. Bank of Baroda Infosys Technologies Ltd MphasiS Limited Axis Bank Ltd Apollo Tyres Ltd Tata Steel Limited Hindustan Unilever Ltd. Noida Toll Bridge Company Ltd. Thermax Ltd. Oil & Natural Gas Corporation Ltd. Nagarjuna Construction Co. Ltd. Ballarpur Industries Ltd. Eimco Elecon (India) Ltd. Amara Raja Batteries Ltd. C & C Constructions Ltd
Pharmaceuticals Media & Entertainment Chemicals Consumer Non Durables Pharmaceuticals Consumer Non Durables Fertilisers Pharmaceuticals Petroleum Products Petroleum Products Consumer Non Durables Banks Software Software Banks Auto Ancillaries Ferrous Metals Consumer Non Durables Transportation Industrial Capital Goods Oil Construction Project Paper Products Industrial Capital Goods Auto Ancillaries Construction
272,365 2,307,000 913,257 160,268 420,000 1,462,305 1,433,271 1,319,006 104,250 633,721 2,050,115 469,151 120,000 569,000 220,000 5,367,120 400,000 653,355 3,607,000 367,366 111,353 711,738 3,967,287 276,428 836,454 396,496
3,305.83 2,861.83 2,807.81 2,766.79 2,719.50 2,685.52 2,608.55 2,397.95 2,368.46 2,300.09 2,264.35 2,058.63 1,926.12 1,916.96 1,713.69 1,682.59 1,621.40 1,507.94 1,441.00 1,345.29 1,301.99 990.03 987.85 811.18 705.97 635.78
2.84 2.46 2.41 2.38 2.34 2.31 2.24 2.06 2.04 1.98 1.95 1.77 1.66 1.65 1.47 1.45 1.39 1.30 1.24 1.16 1.12 0.85 0.85 0.70 0.61 0.55
Maytas Infra Ltd KNR Construction limited ISMT Ltd. Ahmednagar Forgings Ltd. Disa India Ltd Technocraft Industries (India) Ltd Sub total Total
552.01 531.53 413.25 245.21 207.85 199.07 101,548.67 101,548.67 1,000.00 5,072.00 8,679.32 116,299.99
0.47 0.46 0.36 0.21 0.18 0.17 87.33 87.33 0.86 4.36 7.45 100.00
Short Term Deposits as margin for Futures & Options Cash margin / Earmarked cash for Futures & Options Other Cash,Cash Equivalents and Net Current Assets Net Assets
Table:3.24 Sectoral Allocation of Assets(%) Banks Pharmaceuticals Media & Entertainment Consumer Non Durables Petroleum Products Industrial Capital Goods Telecom - Services Auto Ancillaries Finance Software Chemicals Fertilisers Ferrous Metals Construction Transportation 16.37 10.39 8.48 7.94 7.72 6.60 5.30 5.30 3.42 3.31 2.41 2.24 1.92 1.48 1.24
Oil Construction Project Paper Products Industrial Products Engineering Cash,Cash Equivalents and Net Current Assets TOTAL
Figure:3.8
Table:3.25 HDFC Growth Fund Date (NAV as at evaluation date 30-June-09, Rs. 57.219 Per unit) Period NAV Per Unit (Rs.) Returns (%) ^ Benchmark Returns (%) Sensex
December 30, 2008 June 30, 2008 June 30, 2006 June 30, 2004 June 30, 1999 September 11, 2000
Last Six months (182 days) Last 1 Year (365 days) Last 3 Years (1096 days) Last 5 Years (1826 days) Last 10 Years (3653 days) Since Inception (3214 days)
Figrure:3.9
3.4 FINDINGS
As far as analysis is concerned, we found out that the HDFC Growth Fund was among
the best performers fund. Although all the funds are affected by the global meltdown, (recession) still HDFC Growth Fund has better performed comparing to other funds for its systematic and unsystematic risk. It offers advantages of diversification, market timing, and selectivity. In the comparison of sample of funds, HDFC Growth fund is found highly diversified fund and because of high diversification, it has reduced the total risk of portfolio.
Further, other funds were found very poor in diversification, market timing, and
selectivity. Although HDFC Top 200 Fund and Equity Fund performed better in terms of returns but these suffered by the systematic risk (market volatility) and lack of diversification. For the further clarification, we too studied the portfolio of HDFC Growth fund.
One of the findings that I came across is that generally, a good model of asset classes
is the one that can explain a large portion of the variance of returns on the assets and there were some stocks in the fund portfolio, which were not aligned with strategy of the fund portfolio. The optimal situation involves the selection that proceeds from sensible assumptions, is carefully and logically constructed, and is broadly consistent with the data while collecting the stocks for the portfolio. The portfolio was showing constructive outcome in long time horizon and the results can be improved by making the minor changes in fund portfolio.
Hence, the portfolio theory teaches us that investment choices are made on the basis
of expected risk and returns and these expectations can be satisfied by having right mix of assets.
3.5 RECOMMENDATIONS:
Considering the above analysis, it can be noted that the three growth oriented mutual funds (HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund) have performed better than their benchmark indicators. Other funds such as HDFC Capital Builder Fund, HDFC Long term Advantage Fund did not perform well even some performed negatively. Though HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund have performed better than the benchmark of their systematic risk (volatility) but with respect to total risk the fund have not outperformed the Market Index. Growth oriented mutual funds are expected to offer the advantages of Diversification, Market timing and Selectivity. In the sample, HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund is found to be diversified fund and because of high diversification, it has reduced total risk of the portfolio. Whereas, others are low diversified and because of low diversification their total risk is found to be very high. Further, the fund managers of these under performing funds are found to be poor in terms of their ability of market timing and selectivity.
The fund manager of HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200
fund can improve the returns to the investors by increasing the systematic risk of the portfolio, which in turn can be done by identifying highly volatile shares. Alternatively, these can take advantage by diversification, which goes to reduce the risk if the same return is given to the investor at a reduced risk level, the compensation for risk might seem adequate. The fund manager of HDFC Capital Builder Fund, HDFC Long term Advantage Fund can earn better returns by adopting the marketing timing strategy and selecting the under priced securities.
The fund manager can divide all securities into several asset classes and tries to
construct an efficient portfolio based on expected returns, risk, and correlations of indexes representing these asset classes. The investment should be done in the bench mark indexes to get an efficient portfolio in such a way that no other combination of these indexes would result in a portfolio with a higher return for a given level of
risk. It should be emphasized, however, that this is not a fully efficient portfolio because information about correlations among individual securities within an index and across the indexes is lost in the transition from individual securities to the benchmarks that represent them.
These measures are more useful to investors who are putting their money into one
diversified fund and are able to use leverage or invest in the risk-free asset. When the investor is investing in the different funds, the funds marginal contribution to the portfolios risk and return is more important than its individual security characteristics. To construct an efficient portfolio, an investor must take account of the correlations among the being considered. It is not advisable to apply just procedure or approach for all situations at least when it comes to investments though the used measures are highly reliable in the studies done on similar veins. Even at this juncture it would still be recommended that instead of going ahead only on the basis of risk and return, other indicators like new projects, sector impact, individual sentiments about companies etc besides common sense and intuition may also be looked into.
3.6 CONCLUSIONS:
Mutual fund has become one of the important sources for investing. It is quite likely that a more efficient portfolio can be constructed directly from funds. Thus, the two-step process of choosing an asset allocation based on the information about benchmark indexes and then choosing funds in each category may be one of the best realistically attainable approaches. To use this approach to portfolio selection effectively, investors would benefit from estimates of future asset returns, risks and correlations, as well as from fund managements disclosure of future asset exposures and appropriate benchmarks. It has been a great opportunity for me to get a first experience of Mutual Funds. My study is to get the feel of how the work is carried out in relation to funds portfolio aspect. I got an opportunity in relation to the documentation and also the portfolio analysis that have been carrying out in facilitating the investor and the fund manager.
REFERENCES
Books:
1. Security Analysis and Portfolio Management (sixth Edition 1995) by Donald
E. Fisher and Ronald J. Jordan. Publication: Pearson education. 2. The Indian Financial System (second edition) by Bharati V. Pathak. Published by Dorling Kindersley (India) Pvt. Ltd., licensees of Pearson Education in South Asia. 3. Security Analysis and Portfolio Management by Khan and Jain. Magazines: Money Outlook (May &June 2009) Business world (May & June 2009)
Websites
www.hdfcfund.com www.amfiindia.com www.moneycontrol.com www.sebi.gov.in www.bseindia.com www.nseindia.com www.mutualfundsindia.com www.valueresearch.com www.indiainfoline.com www.in.finance.yahoo.com www.investing.businessweek.com www.businessline.com