SEEMA SETHI do hereby declare that the training report entitled "CHANGES IN INVESTMENT PATTERN AT HDFC BANK AMBALA CANTT” submitted by me for the partial fulfillment of degree of Master of Business Administration from MAHARISHI DAYANAND UNIVERSITY, ROHTAK is having original work conducted by me. The data and facts provided in the report are authentic to the best of my knowledge. I solemnly declare that the work done by me is original and no copy of it has been submitted to any other university for award of any other degree, diploma, and fellowship on similar topic.



Heartfelt thanks to those who supported me… It often happens that one is at loss of words when one is really thankful and sincerely wants to express one's feeling of gratitude towards those for rendering helpful and selfless service. A undertaken of study like this is never the outcome of effort of a single person so I would be failing in duty if I don’t say a word of thank to all those who have been the source of guidance, advice, co-operation and having taken pain in acquainting me required information and data for the fulfillment of my project report successfully. I am earnestly grateful to Mr. Vijay Sethi (Manager of HDFC Bank) for providing me an opportunity to undertake project work in their esteemed organization and practical training, which will go long term in shaping my career.

I am deeply indebted to our Director Dr. M.K. Sehgal and all my faculty members of the institute for their valuable contribution during the academic session and guidance in preparation of this project report. I especially want to thank my guide Mr. Adarsh Kumar Aggarwal (Faculty of Finance) for guiding, supporting, also for giving a very patient hearing whenever I needed. SEEMA SETHI







Emergence of modern instruments of investment like Mutual Funds. lot of development is taking place in the investment pattern of the economy and its multiplier impact would be there to be witnessed over a period of years. Investment scenario is changing very rapidly. The potential of India as a market and as a manufacturing base continues to attract more and more interest of the world at large. savings. liquidity. Undoubtedly. RBI Bonds. and tenure & safety aspect etc. Systematic Investment Plan. .Introduction Standing on the threshold of the economic revival of the Indian economy where the recovery and growth are already knocking at our door to usher the new order with a note of optimism. and Infrastructure Bonds proves to be a better option for the investors in comparison to the old instruments of investment such as fixed deposits. recurring deposits etc. This project deals with the thorough study of these modern instruments in respect of their returns.

an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money.History Of Banking In India Without a sound and effective banking system in India it cannot have a healthy economy. In fact. . For the past three decades India's banking system has several outstanding achievements to its credit. the journey of Indian Banking System can be segregated into three distinct phases. Today. Now it is simple as instant messaging or dial a pizza. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. was established in 1786. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. It is no longer confined to only metropolitans or cosmopolitans in India. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. Gone are days when the most efficient bank transferred money from one branch to other in two days. This is one of the main reason of India's growth process. The most striking is its extensive reach. Indian banking system has reached even to the remote corners of the country. though conservative. he has a choice. Not long ago. Money has become the order of the day. From 1786 till today. The first bank in India.

1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. Punjab National Bank Ltd. mostly small. I prefix the scenario as Phase I. Phase II and Phase III. To streamline the functioning and activities of commercial banks. Next came Bank of Hindustan shareholders. mostly Europeans In 1865 Allahabad Bank was established and first time exclusively by Indians. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks. As an aftermath deposit mobilization was slow. Bank of Baroda. The East India Company established Bank of Bengal (1809). Abreast of it the savings bank facility provided by the Postal department was comparatively safer. There were approximately 1100 banks. During those day’s public has lesser confidence in the banks. Phase I The General Bank of India was set up in the year 1786. To make this write-up more explanatory.New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. was set up in 1894 with headquarters at Lahore. Reserve Bank of India came in 1935. 23 of 1965). Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. Moreover. and Bengal Bank. Canara Bank. funds were largely given to traders. Indian Bank. Between 1906 and 1913. Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. Central Bank of India. Bank of India. and Bank of Mysore were set up. . the Government of India came up with The Banking Companies Act. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948.

1971: Creation of credit guarantee corporation. After the nationalization of banks. In 1955. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1949: Enactment of Banking Regulation Act. 14 major commercial banks in the country were nationalized. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.000%. Mrs. it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. major process of nationalization was carried out. It was the effort of the then Prime Minister of India. This step brought 80% of the banking segment in India under Government ownership. 1969. 1975: Creation of regional rural banks. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July. 1961: Insurance cover extended to deposits. . the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11. 1969: Nationalization of 14 major banks. Indira Gandhi. 1980: Nationalization of seven banks with deposits over 200 crore. 1955: Nationalization of State Bank of India.Phase II Government took major steps in this Indian Banking Sector Reform after independence. 1959: Nationalization of SBI subsidiaries.

and banks and their customers have limited foreign exchange exposure. a committee was set up by his name which worked for the liberalization of banking practices. It nationalized 14 banks then. Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank Indian Bank Indian Overseas Bank . Indira Gandhi the then prime minister. the foreign reserves are high. This is all due to a flexible exchange rate regime. the capital account is not yet fully convertible.Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. The country is flooded with foreign banks and their ATM stations. These banks were mostly owned by businessmen and even managed by them. Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure. Time is given more importance than money. Phone banking and net banking is introduced. under the chairmanship of M Narasimham. Nationalisation Of Banks In India The nationalization of banks in India took place in 1969 by Mrs. The entire system became more convenient and swift. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. In 1991. Efforts are being put to give a satisfactory service to customers.

1955 : Nationalisation of State Bank of India.a wide range of banking services. 1960. approximately 80% of the banking segment in India was under Government ownership.Bank of Baroda Union Bank Allahabad Bank United Bank of India UCO Bank Bank of India Before the steps of nationalization of Indian banks. The State Bank of India is India's largest commercial bank and is ranked one of the top five banks worldwide. . The second phase of nationalization of Indian banks took place in the year 1980. only State Bank of India (SBI) was nationalized. 1969 : Nationalisation of 14 major banks. It serves 90 million customers through a network of 9. 1959 : Nationalisation of SBI subsidiaries. Till this year.000 branches and it offers -. Seven more banks were nationalized with deposits over 200 crores. 1980 : Nationalisation of seven banks with deposits over 200 crores. After the nationalization of banks in India.000%.either directly or through subsidiaries -. Nationalisation of Seven State Banks of India (formed subsidiary) took place on 19th July. It took place in July 1955 under the SBI Act of 1955. the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11.

banks need to focus on core profit growth. . The new private sector banks with their technology driven business model are fast catching up with the PSBs. With the interest rates hardening up. capital market participants and insurers have developed a wide range of products and services to suit varied customer requirements. Financial institutions have combated the reduction in interest rates and pressure on their margins by constantly innovating and targeting attractive consumer segments. The PSBs (Public Sector Banks) still dominate the sector with 75% of the market share of business and profits. The sector. The Reserve Bank of India (RBI) has successfully introduced a regime where interest rates are more in line with market forces. Banks and trade financiers have played a vital role to promote the foreign trade of the country. The US$ 28 billion Indian financial sector has grown at around 15 per cent and has displayed stability for the last several years. over the years has become more efficient with the implementation of prudential norms for asset classification and improved thrust on technology advancement. The financial sector has kept pace with the growing needs of corporate and other borrowers. even when other markets in the Asian region were facing a crisis.Banking Sector : Growth & Evolution The Indian Banking sector has undergone a sea of change in the past decade with the Implementation of the ongoing banking sector reforms. Banks. The retailisation of the banks’ balance sheet has seen banks improve their asset mix with home loans. The role of an integrated financial infrastructure is to stimulate and sustain economic growth. The last two years has seen banks book windfall gains in treasury profits. Reforms are continuing as part of the overall structural reforms aimed at improving the productivity and efficiency of the economy. auto loans and personal loans GROWTH & EVOLUTION OF THE FINANCIAL SECTOR The financial sector is in a process of rapid transformation.

The sector is moving towards the emergence of financial supermarkets in the form of universal banks providing a set of services ranging from retail to corporate banking. in simple terms is defined as the sum of the deposits and advances as on a particular date. gradual recovery in commercial credit. business. . pick-up in agriculture credit and growth in deposits. Banking has grown into a technology concentrated and customer friendly model with a focus on convenience. While corporate banking is clearly the largest segment.644 billion in 2002-03 to Rs 32. national level and state level financial institutions meet longer-term requirements.2 per cent. Larger banks will be able to muster sufficient capital to finance asset expansion and fund investments in technology. Presently the total asset size of the Indian banking sector is 3US$ 270 billion while the total deposits amount to US$ 220 billion with a branch network exceeding 66. industrial lending and investment banking. The recent favorable government policies for enhancing limits of foreign investments to 49 per cent among other key initiatives have encouraged such activity.BANKING INDUSTRY The Indian banking system has a large geographic and functional coverage. led by continued growth in retail finance.000 branches across the country. BUSINESS ENVIRONMENT AND LIKELY FUTURE DIRECTION In the banking industry. While commercial banks cater to short and medium term financing requirements. Revenues of the banking sector have grown at 6 per cent CAGR over the past few years to reach a size of US$ 15 billion.229 billion by 2005-06 at a CAGR of 14. The business of scheduled commercial banks is estimated to grow from Rs 21. personal financial services is the highest growth segment.

The deposits of all scheduled banks are expected to grow from a level of Rs 14. With reduced avenues for investment of surplus funds. due to the introduction of newer. hence. customer-friendly products that are introduced by banks with the aid of technology (swipe-in and swipe-out) will divert some portion of demand deposits towards fixed deposits. banks turned to retail financing. I. the clearing cycle has shortened.929 billion as of March 2006 at a CAGR of 12.5 per cent. credit off take was low. The retail finance portfolio grew by around 27 per cent during the same period. savings deposits and term deposits. respectively. This will be driven by a growth of 8. savings deposits and term deposits. RTGS and CMS allow quick transfer of funds to and from any part of the country. 16. Sources of of funds different of Scheduled sources of Commercial funds Banks(SCBs) of SCBs Proportion Deposits Deposits consist of demand deposits (current account deposits). and probably slow down their growth. It’s estimated that demand deposits will grow at a CAGR of 4.668 billion as of March 2003 to Rs 1.045 billion as of March 2003 to Rs 19.2 per cent and 11. Technology-driven products also taper growth in demand deposits.4 per cent. This will encourage corporates/firms to reduce their balances in demand deposits. many corporate restructured themselves to survive.7 per cent in demand deposits.881 billion by end-March 2006. Further. Real Time Gross Settlements (RTGS) and Cash Management Systems (CMS).Due to the slowdown in industrial growth. Firms maintain demand deposits to meet their day-to-day cash requirements.1 percent from Rs 1. . technology-driven products/facilities. With the advent of new technology-driven products such as electronic fund transfers.

This has led to a drop in the share of the bank liability product from 68 per cent in 1998-99 to 57 per cent in 2002-03. With stricter capital adequacy norms and the growing loan book size.Alternative investment products Besides term deposits. During 2000-01 to 2002-03. going forward. banks will need to infuse more capital to maintain a healthy capital adequacy ratio.1 per cent CAGR from Rs 912 billion as of March 2003 to Rs 1. With low credit off take. Equity capital Another source of funds for the banking sector is the equity capital. Many of the public sector banks have reduced the government stake by raising equity from the market. Hence they parked them in investments. In the last 10 years. the total amount raised by public sector banks through equity was approximately Rs 7.4 per cent) CAGR. led by a strong growth in advances. mutual funds etc.5 per cent in the next year. Borrowings Borrowings are expected to grow at 7. the share of insurance and mutual funds in the total pie is increasing. the total equity capital raised by banks has gone up.7 billion. Hence. Increasing credit deposit ratio to slow down the growth rate of investments The investments portfolio of banks is likely to grow at CAGR of 8.122 billion by end-March 2006. borrowings of scheduled commercial banks grew by 22.9 per cent (5. While the share of small savings schemes in total investments has remained more or less stable. in order to maintain a healthy capital adequacy ratio.8 per cent during 2003-04 to 2005-06. Equity capital is estimated to grow at CAGR of 2. banks had no avenues to deploy funds. investors have the option of investing in insurance. II. although it is not the main source of funds for banks. and banks will embark on infusing more equity capital. small savings schemes. In 2002-03. The investment to deposit ratio grew from 42 .

Fiscal deficit. With the expected increase in demand for commercial credit. Interest rates to harden in 2004-05 The benchmark 10-year yield on government securities is estimated to rise by 183 basis points (bps) during 2004-05 to 7. the movement of interest rates depends on: 1. the investment-deposit ratio is expected to taper to 46 per cent by March 2006.Expected rate of inflation 5.2 per cent from Rs 504.per cent in 1998 to 51 per cent in 2003 and is estimated to have been 50. and the resultant borrowing programme of the government IV.3 billion as of end-March 2000 to Rs 853.00 per cent by March 2005 from 5. banks would prefer lending to the industrial sector than invest in government securities. The government has laid emphasis on improving the credit delivery to the agriculture . The growth in agriculture credit has been steady due to low penetration of agricultural credit in the rural areas and uneven agriculture output over the years.Growth in credit off take 3. Also.Growthinmoneysupply 2. Agri Credit During 1999-2000 to 2002-03. With the estimated slow down in investments.5 per cent in 2004. to meet the demand for commercial credit. as the former yields higher returns. agriculture credit recorded a CAGR of 19.50 per cent by March 2006. In general.17 per cent as of end-March 2004. The benchmark yield is expected to go up further by 50 bps during 2005-06 to touch 7. banks would prune their investment portfolio. Rising inflation and the gradual increase in credit demand has led to a hardening of interest rates.8 billion as of end-March 2003. 4.International interest rate. III. Banks have started moving to the short end of the curve with the rise in interest rates.

Further. etc. and rising tenure of car. 3. The projected growth in the outstanding retail finance in the next 3 years would be mainly driven by the following factors.051. Increasing penetration vis-à-vis 3. . driven by continued growth in housing. housing and commercial vehicle portfolio. from 2004-05 to 2007-08.670 billion as of end-March 2006. The Ministry of Finance has advised all banks to increase their agriculture credit by 30 per cent over the next 3 years. several measures have been initiated.051 billion as of end-March 2003 to Rs 2. contributing to increase in demand.000.4 billion to Rs 1.Retail finance The net outstanding retail finance portfolio of the banks is expected to grow at a CAGR of 36 per cent during the period 2003-04 to 2005-06. This steady growth in retail finance portfolio was mainly on account of the following factors: 1.sector and thus improving agriculture production in the country. special agricultural credit plans. like increasing the credit limit of the Kisan credit card scheme.4 billion. banks cars and two wheelers NBFCs. waive margin money requirement for agricultural loans up to Rs 50. 2. Continued growth expected in housing finance. During 2000-01 to 2002-03. commercial of vehicles. Lower interest rates. the retail finance portfolio of banks has grown at a CAGR of 27 per cent from Rs 516. commercial vehicles and car finance. from Rs 1. Increasing market share of banks vis-à-vis NBFCs in the retail finance pie. V. The Reserve Bank of India has directed banks to restructure / reschedule the overdue agriculture loans. Agriculture credit had been growing between 17-18 per cent during the last few years. Increasing tenures of the loans. and cars and commercial vehicles finance. 1. Several banks have started restructuring their operations to meet the targeted agricultural growth. etc. for housing loans. Focus of large public and private sector banks on disbursements to the household sector 2.

84 per cent as of March 2003. Improving corporate performance: Since March 2003.8 percent to 4.VI. the corporate sector performance has improved significantly. Credit administration: Improved credit management.8 per cent as of end-March 2003. The gross NPA of the scheduled commercial banks have fallen from 12. But it’s estimated that gross NPAs will fall further to 5. while net NPA may drop to 2. . providing extensive training staff members undertaking appraisals. 2.54 per cent from 4.84 per cent by end-March 2006.4 per cent during the same period. putting in place an effective system of post disbursement monitoring of accounts. Higher provisions: The falling interest rate and corresponding increase in profit on sale of investments provided banks enough room to increase their provisioning / write off of bad loans while maintaining profit growth. Non Performing Assets By March 2006. which will help improve the risk profile of loans given to the industrial sector. the gross NPAs. with the growth in advances.56 billion as in March 2006. The primary drivers for the improvement are: 1.82 per cent as against as 8. with the aid of information technology. 2004. and we expect it to continue improving its profitability in the current industrial upturn. Risk management: Increased focus on the improving risk management. the gross NPA may come down to 5. but would rise thereafter to Rs 710. by improving the process of credit appraisals. 2003.42 per cent during the same period. At the gross level. 3.80 billion as on March 31.15 billion as on March 31. while net NPAs had fallen from 6. which stood at Rs 687.The prime drivers are: 1. have fallen to Rs 669.8 per cent as of end-March 2000 to 8.

enabling banks to pressurize the defaulters to clear the over dues. such as One Time Settlement Scheme (OTS). The expectation is that Banks with better risk management would be permitted lower regulatory capital. allowing them more room for growth. 2002. Banks have begun to offer whole portfolio of services because they aim at maximizing bank’s share of the customer’s wallet. Legal reforms: Reforms in the legal systems. something which Basel I did not do. It also prevented potential NPAs from becoming NPAs. Retail banking is less subject to economic cycles than wholesale or investment banking which explains the emphasis on retail banking within the model of universal banking. which allowed banks to restructure the bad loans or settle the bad loans at a discount. Best practices: Banks started adopting best practices. Corporate Debt Restructuring (CDR) etc. in the form of strengthening the Debt Recovery Tribunal (DRT) and enactment of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. . 3. The process has gone so far ahead that technology is no longer a differentiator between banks. The second trend is that of use of technology in reducing cost of operations. and building strong credit risk management to improve their loan portfolio. as compared to banks with weaker risk management. Regulatory measures: Regulators introduced various measures. and thus clean their balance sheet. The third trend is towards emergence of regulatory model in the form of Basel II which reconciles the market based assessment of risk with the regulatory capital.2. 4. GLOBAL BANKING SCENARIO The first major trend is that of universal banking as a model with emphasis on retail banking.

This implies a considerable scope for experimentation. Indian Aspirations In the context of these global trends. The combined effect of all the above trends would be increased competition among banks with tighter regulation. one can trace the sources of competitive strengths of the Indian banking sector. Effective corporate governance would correct information asymmetry. • Fifth. innovation. and expansion which can develop into long term competitive advantages for the sector. UK and Australia as compared to 6. ranging between 8 to 10% in US. Indian players also have international presence. the need to raise capital from the markets and stiffer legislation. .Lastly. mirrors the international trend. As far as the strengths are concerned • There has been sufficient deregulation in the financial sector over the last decade to induce elements of competition in the banking sector. I. • Thirdly. • Fourthly. if not the quality of the portfolio. there is a renewed emphasis on effective corporate governance arising as a response to the fiduciary nature of banking business. the Indian Banking sector has a longer experience of market economies than say the counterparts in Eastern Europe. Over 60% of the household still do not have access to banking services. increase efficiency and enhance brand image. India has a large and untapped market. • Secondly. over the last five years or so.5% for India. the growth of retail lending. enabling the financial sector to yield higher value addition per unit of capital employed and resulting in the financial sector accounting for a higher share of gross domestic product.

In spite of a series of VRS. technology platforms. Capital to risk-weighted assets ratio (CRAR) As of March 2003. management systems and corporate governance. There is certainly an efficient fringe in banking sector. Between March 2002 and March 2003. had their CRAR above the stipulated norm of 9 %. the haste to implement core banking is not matched by a similar urgency to introduce modest but more effective solutions relating to systems. have been holding capital in excess of the stipulated norm. an effective shield which the banks can use to nurture their competitive advantages. As regards risk assessment and mitigation. As regards corporate governance. except two banks. COMPETITOR ANALYSIS Parameter . the wage bill as percentage of total assets in case of public sector banks is higher by about 1 percentage point as compared to the new private sector banks which shows the scope for economies. for the moment. With the likely implementation of new Capital Accord (Basel II).• Lastly. more often that not. This was due to the increase in profitability and the fresh capital raised by many banks. has provided the managements a rationale to bypass risk based pricing of credit altogether. human resources. operating profit as a percentage of total assets is about 1 percentage point lower than that of foreign banks operating in India. In the area of technology. it is still looked at as a matter of conscience rather than business necessity. However one can hardly be complacent. if one looks at Indian banking in terms of cost structure. procedures and customer interface. the public ownership of roughly three fourth of the Indian Banking sector is.Capital adequacy ratio. but that fringe is overshadowed by public sector banks which constitute the bulk. especially those having a global presence. . we see a marked improvement in the nationalized banks. In case of public sector banks. all scheduled commercial banks. freeing up of interest rates. many banks.

New Technologies supporting these CSF’s 1. . Enterprise information management can be best addressed by using data warehousing technologies and disciplines. effective enterprise information management and optimized use of their technology and people resources. A key component of this strategy includes the network appliance. as opposed to constantly expanding and re-engineering expensive and cumbersome mainframecentric legacy environments. except ICICI Bank. The open systems based. The capital adequacy ratio of PSBs has shown a significant improvement in comparison to that of the new private sector banks on account of the aggressive lending strategy of new private sector banks in comparison to the aggressive capital raising strategy of the public sector banks. has improved. This will result in banks shifting their focus from investments towards advances. I. and incorporate Java as a core development component. CRITICAL SUCCESS FACTORS FOR BANKING INDUSTRY Critical success factors for banks today revolve around being more competitive in their chosen markets. model network Sun is encouraging the industry to adopt the network computing model. network computing model best positions a bank to effectively address these "critical success factors". delivering products and service to their customers "anytime/any where". Data warehousing: effective enterprise information management The Banking Industry is data rich but information poor. we see that the capital adequacy ratio of all banks. banks will prefer to increase their loan portfolio instead of investments. Data warehousing based solutions can be implemented the quickest and the 2. most Thin cost-effectively client: the on UNIX-based ideal open systems computing platforms. Because of their high utilization of workstations that perform basically single or dual repetitive operational functions. CRAR of top six banks With the expected increase in demand for credit. or Sun Ray.From the sample of six banks listed below.

Addressing the supply chain management challenge in banking Delivering products quickly and "any time/any where" requires a bank to focus on its channel delivery strategy and position itself to integrate its delivery channels in the future. utilizing the network appliance. Banks should be given more autonomy and independence and the unions should play a major role in building the banking industry. or corporate services. 3. which will bring down the NPA’s. banks should evolve new and attractive products and services to the customers. Banks should also ensure that its funds are effectively utilized in the priority sector. like home banking. While many banks have approached it initially as a sales and marketing vehicle. There should be rational thinking in sanctioning loans. The Internet can allow a bank to reduce its cost of delivering retail services. The Banking Industry has traditionally developed systems with a product or line of business focus. its real potential exists as a financial transaction medium and a customer support channel. This is changing to a customer relationship focus with integrated delivery of products and services. The banking sector is made more attractive with differential interest rates. Banks with their large customer base and good reputation can effectively counter the threats from NBFC’s and mutual funds.banks are ideally positioned to exploit the network computing model.Embracethe‘Net’economy The Internet has been identified as the next business frontier. 4. Banks with Their Intellectual Capital Should move towards Fee based activities. “How can bank leverage their strengths to have a better future?” Since the availability of funds is more and deployment is less. like Cash Management. and thus expand its customer and fee revenue base. Internet banking is growing in India where banking is made more user friendly. .

The yield on carry business is likely to improve with the gradual increase in credit demand from the commercial sector. with their stringent credit assessment norms. but are likely to face competition from other bank groups. The efficiency with which bank is able to manage the competitive forces will be reflected in their financial statements.Public Sector Banks These banks need to rein in their operating costs by controlling manpower costs and rationalizing operations. Public .Foreign Banks During 1999-00 to 2002-03. Foreign banks have the lowest NPA ratios and. who are increasing their worldwide presence. But the benefits of these large investments will accrue to them in the near future. are expanding their operations. II. operating expenses will be high. the asset quality may deteriorate. especially the new private sector banks. They will continue to have a high core fee income ratio. III. although the banks will try to maintain the net NPA ratio. the improvement could be restricted due to the expected drop in the yield on investments. which can affect productivity (if the excess manpower is not utilized properly).With The emergence of IT. foreign banks held on to their share of the business and also maintained the highest spreads.Other Scheduled Commercial Banks Since these banks. Because of the aggressive lending strategy adopted by the new private sector banks. Private sector banks have to concentrate on their credit management systems to improve the asset quality. using its intellectual resources banks should be able to attract funds and market their products nd services more effectively and efficiently. Greater spreads and a high core fee income ratio helped them in sustaining high operating expenses. will continue to maintain them. OVERALL ASSESSMENT I. Investments in technology may result in surplus staff. However. The gradual increase in commercial sector credit will enable a healthy growth in advances.

which will contribute to the growth in advances.sector banks need to reduce their exposure to investments by focusing on the core activity of lending. The asset quality of the public sector banks may improve on account of the expected improvement in credit management. But PSBs need to improve and be aggressive in their communication and business strategies to garner more customers. these banks have started focusing on retail finance. Moreover. if they want to attain mass in the retail finance segment .

The new Securitisation Act has given more power to the banking sector against defaulting borrowers.  Task force to be set up to explore reforms in the cooperative banking sector. Further. the budget has focused a lot on the need to improve credit to the agriculture sector and banks will be at the forefront of disbursing credit. the RBI has .  There has been a significant emphasis on making credit available towards infrastructure development.  FDI in the insurance sector to be hiked from 26% to 49%.  Securitisation Act to be amended. Falling interest rates as well as strengthening of the hands of banks (Securitisation Act) have changed the dynamics of the Indian banking sector itself. Nearly Rs 400 bn will be kept aside by this consortium for infrastructure support.Budget 2004-05: Banking The much-needed reforms in the banking sector have transformed the sector drastically in the last few years. changes to be implemented on the issue of voting rights among private sector banks is likely to speed up the consolidation process. BUDGET IMPACT  As per the common minimum program (CMP). Also.  Inter-institutional group comprising select banks and financial institutions incorporated to ensure speedy conclusion of loan agreements for infrastructure projects. BUDGET MEASURES  The government has proposed to double credit to the agriculture sector in the next three years. Vagaries of monsoons impact the agriculture sector heavily and banks are vulnerable if monsoon fails.

the quality of such advances is likely to be better.  A hike in the FDI in the insurance sector is likely to significantly raise investments in the nascent insurance sector. However.  Banks are likely to benefit from increased lending to the infrastructure sector. ING Vysya. Domestic banks like ICICI Bank. Kotak Bank and SBI who have joint ventures with international insurance majors will be able to infuse more capital into their insurance business. there may be an opportunity for these domestic banks to unlock value from such investments as well. In the future. The impact of these initiatives by the government will only be apparent over the long-term.released new guidelines for banks with regards to agricultural lending.e. . In this light. This will come about in two ways i. there is relatively less NPA risk. direct equity participation and indirectly (corporate borrowing for expanding capacity).  Reforms in the banking sector in the form of amendments to the Securitisation Act may strengthen the backbone of the financial sector. While this would provide an impetus to core advances of banks. it is too early to ascertain the impact.


It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment and another 15 million man-years of indirect employment. the Government needs to make low cost funds easily available and enforce legal and regulatory reforms.64 million units from urban areas.76 million units is from rural areas and 6. 1. . the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19. of which 12.Housing Finance Sector Against the milieu of rapid urbanization and a changing socio-economic scenario. The importance of the housing sector in the economy can be illustrated by a few key statistics.500 billion for this sector.4 million units. the demand for housing has grown explosively. Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002). In order to achieve this investment target. According to the National Building Organization (NBO). HDFC was promoted with an initial share capital of Rs. The housing industry is the second largest employment generator in the country. the National Housing Policy has envisaged an investment target of Rs. Background HDFC was incorporated in 1977 with the primary objective of meeting a social need – that of promoting home ownership by providing long-term finance to households for their housing needs. 100 million.

and e) to HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance.Business Objectives The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner. Organizational Goals HDFC’s main goals are to a) develop close relationships with individual households. The board primarily focuses on strategy formulation. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets. taxation. c) transform ideas into viable and creative solutions.. construction and urban policy & development. policy and control. b) maintain its position as the premier housing finance institution in the country. and to promote home ownership. . designed to deliver increasing value to shareholders. d) provide consistently high returns to shareholders.

Karnad (Executive Director) Mr. Shirish B Patel Mr. D M Sukthankar Mr. B S Mehta Mr. Ram S Tarneja Mr. Keshub Mahindra (Vice Chairman) Mr. N M Munjee Mr. D N Ghosh4 Dr. Deepak S Parekh (Chairman) Mr.BOARD OF DIRECTORS Mr. S A Dave Mr. Renu S. D M Satwalekar Ms. S Venkitaramanan Dr. K M Mistry (Managing Director) .

Mistry (Managing Director) Mr. Sukthankar (BOD) Mr.N Ghosh (BOD) Mr.S.Renu S.Shirish B Patel (BOD) Mr.A Dave (BOD) Mr. Rama Tarnej a (BOD ) AWARDS AND ACCOLADES .Keshub mahindra (Vice Chairman) Mr. D.D.ORGANISATION STRUCTURE DR.Karnad (Executive Director) Mr.S Parikh (chairman) MR. Mehta (BOD) Mr. S Venkitaramanan(BOD) Mr.

November 2004 o Rated by Deutsche Bank as one of the top 5 banks/Financial Institutions in Asia in October 2004 o Ranked among the Top 20 companies to deliver healthiest returns to shareholders.o HDFC Ranked as ‘India’s Third Best Managed Company’ by Finance Asia – 2005 o Mr. o One of the Top 10 Investor Friendly Companies. ranked by Business Today in March 2004. ) . o The Economic Times Lifetime Achievement Award .Chairman.'India's Best Managed Companies' by Finance Asia o Clean Sweep by HDFC at the 43rd ABCI Awards!!! o National Award for Excellence In Corporate Governance by The Institute of Company Secretaries of India o 2nd Best Company for Corporate Governance in India by the Asset magazine.2003. (For Mr. o HDFC receives the 'Dream Home' award for the best Housing Finance company for 2004 from Outlook Money magazine o Awards galore by HDFC at the 44th ABCI Awards!!! o 5th Best Company to work for in India.September 2004 o 1st Prize at the New York Festival's Gold Midas Awards for Environmental Communication Ad in August 2004 o Features in the Forbes list of Top 20 Leading Indian Companies in May 2004. o HDFC Ranked No. Outlook Money Magazine . HDFC Ltd. ranked by Business Today in November 2004 o Economic Times Corporate Citizen of the Year Award. 3 . Deepak Parikh awarded the 'Hall of Fame' award by Outlook Money magazine. Deepak Parikh .

o One of the Top Ten . o Best Managed Financial Institution in India' by fox Pitt Survey.2003 by Finance Asia.Most Admired Companies in India ' . Deepak Parikh ) o India's Second Best Managed Company . o Highest rating for ' Governance and Value Creation ' by CRISIL.Stern Steward Survey. . o One among the top ten ' Company Leaders in India' by the Far Eastern Economic Review Survey.2003 by Business Barons ( for Mr.Most Admired CEOs in India ' .o One of the Top Ten .2003 by Business Barons o One of the Top Ten .Most Respected Companies in India' by Business world. o India's Biggest Wealth Creator in the banking and financial serives by the fourth Business Today .

the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its . Promoter HDFC is India’s premier housing finance company and enjoys an impeccable track record in India as well as in international markets. The bank was incorporated in August 1994 in the name of ‘HDFC Bank Limited’. Its outstanding loan portfolio covers well over a million dwelling units. as part of the RBI’s liberalisation of the Indian Banking Industry in 1994. India. Since its inception in 1977.A PROFILE Background The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. with its registered office in Mumbai. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.HDFC BANK LIMITED .

Operational Excellence. Product Leadership and People. a strong market reputation.000 shareholders. large shareholder base and unique consumer franchise.309. With its experience in the financial markets. . Mumbai and the National Stock Exchange. Capital Structure The authorized capital of HDFC Bank is Rs.9 crore (Rs. The bank’s American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol “HDB”.2% of the bank’s equity and about 19.7% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 190. Roughly 31. HDFC was ideally positioned to promote a bank in the Indian environment. The bank is committed to maintain the highest level of ethical standards.housing related credit facilities.09 billion). HDFC Bank’s business philosophy is based on four core values .450 crore (Rs. Business Focus HDFC Bank’s mission is to be a World-Class Indian Bank. professional integrity.5% of the equity is held by the ADS Depository (in respect of the bank’s American Depository Shares (ADS) Issue). The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments.3. consistent with the bank’s risk appetite.4. corporate governance and regulatory compliance. The shares are listed on the The Stock Exchange. The paid-up capital is Rs. The HDFC Group holds 22.5 billion). and to achieve healthy growth in profitability. Customer Focus.

Plus/Cirrus and American Express Credit / Charge card holders./Times Group) was merged with HDFC Bank Ltd. Times Bank Limited (another new private sector bank promoted by Bennett. shareholders of Times Bank received 1 share of HDFC Bank for every 5.. Moreover. enhanced customer base. HDFC Bank’s ATM network can be accessed by all domestic and international Visa/MasterCard. The acquisition added significant value to HDFC Bank in terms of increased branch network.Times Bank Amalgamation In a milestone transaction in the Indian banking industry. 2000. Visa Electron/Maestro. Coleman & Co. All branches are linked on an online real-time basis. As per the scheme of amalgamation approved by the shareholders of both banks and the Reserve Bank of India. Distribution Network HDFC Bank is headquartered in Mumbai. The Bank’s expansion plans take into account the need to have a presence in all major industrial and commercial centres where its corporate customers are located as well as the need to build a strong retail customer base for both deposits and loan products. skilled manpower and the opportunity to cross-sell and leverage alternative delivery channels. the Bank has branches in the centers where the NSE/BSE have a strong and active member base.75 shares of Times Bank. Customers in over 120 locations are also serviced through Telephone Banking. . effective February 26. The Bank also has a network of about over 1054 networked ATMs across these cities. expanded geographic reach. The Bank at present has an enviable network of over 495 branches spread over 218 cities across India. Being a clearing/settlement bank to various leading stock exchanges.

Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs). . The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy. the bank believes that its people are a significant competitive strength. Technology HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry. Senior executives representing HDFC are also on the Board. Kapoor was a Deputy Governor of the Reserve Bank of India. the Corporate Banking business is supported by Flexible. and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. Mr.Management Mr. Mr. The systems are open. Aditya Puri. In terms of software. The Bank has made substantial efforts and investments in acquiring the best technology available internationally. both from i-flex Solutions Ltd. Jagdish Capoor took over as the bank's Chairman in July 2001. which enables the bank to offer speedy funds transfer facilities to its customers. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. while the Retail Banking business by Fin ware. The Managing Director. All the bank’s branches have online connectivity. has been a professional banker for over 25 years. industry and commercial banking. administration. scaleable and web-enabled. Prior to this. to build the infrastructure for a world class bank.

. the Bank provides a wide range of commercial and transactional banking services. small & mid-sized corporate and agri-based businesses. etc. Business Profile HDFC Bank caters to a wide range of banking services covering both commercial and investment banking on the wholesale side and transactional / branch banking on the retail side. It is recognized as a leading provider of cash management and transactional banking solutions to corporate customers. mutual funds. cash management. For these customers. transactional services. companies from the domestic business houses and prime public sector companies. including working capital finance. the Bank has succeeded in leveraging its market position. trade services. Based on its superior product delivery / service levels and strong customer orientation. blue-chip manufacturing companies in the Indian corporate sector and to a lesser extent.The Bank has prioritized its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. expertise and technology to create a competitive advantage and build market share. which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. The bank has three key business segments: a) Wholesale Banking Services The Bank’s target market is primarily large. stock exchange members and banks. The bank is also a leading provider of structured solutions. In each of its businesses. the Bank has made significant inroads into the banking consortia of a number of leading Indian corporate including multinationals.

It is also a leading provider of Depository Participant (DP) services for retail customers. the bank has three main product areas . Phone Banking. giving the customer a one-stop window for all his/her banking requirements. the bank is required to hold 25% of its deposits in government securities. With the liberalization of the financial markets in India. advice and product structures. Net Banking and Mobile Banking. corporate need more sophisticated risk management information. . information and advice on various investment avenues. b) Retail Banking Services The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services. To comply with statutory reserve requirements. The HDFC Bank Preferred program for high net worth individuals.c) Treasury Within this business. the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions. Personal Loans and Loans for Two-wheelers. Local Currency Money Market & Debt Securities. and Equities. The Bank also has a wide array of retail loan products including Auto Loans. providing customers the facility to hold their investments in electronic form.Foreign Exchange and Derivatives. The products are backed by world-class service and delivered to the customers through the growing branch network. These and fine pricing on various treasury products are provided through the bank’s Treasury team. as well as through alternative delivery channels like ATMs. Loans against marketable securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.

RATINGS/AWARDS a) Credit Rating HDFC Bank has its deposit programmes rated by two rating agencies . carrying negligible investment risk”. Ltd. This rating indicates “highest credit quality” where “protection factors are very high”.4 billion rated by CARE and Fitch Ratings India Private Limited. The Bank’s Fixed Deposit programme has been rated ‘CARE AAA (FD)’ [Triple A] by CARE. has assigned the rating “AAA(ind)” with the outlook on the rating as “stable”. By March 2005.) has assigned the “TAAA (ind)” rating to the Bank’s deposit programme.Credit Analysis & Research Limited.2 million cards. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits. Ltd. Loans. (CARE) and Fitch Ratings India Private Limited. The Bank launched its credit card business in late 2001. (100% subsidiary of Fitch Inc. etc. The Bank is also one of the leading players in the “merchant acquiring” business with over 42. In each of the cases referred to above. subordinated (Tier II) Bonds of Rs.000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. CARE has assigned the rating of “CARE AAA” for the Tier II Bonds while Fitch Ratings India Pvt. . the ratings awarded were the highest assigned by the rating agency for those instruments. Bill Payments. which represents instruments considered to be “of the best quality. Fitch Ratings India Pvt. the bank had a total card base (debit and credit cards) of 4. with the outlook on the rating as “stable”. HDFC Bank also has its long term unsecured.HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Master card Maestro debit card as well. CARE has also rated the Bank’s Certificate of Deposit (CD) programme “PR 1+” which represents “superior capacity for repayment of short term promissory obligations”.

Mr. which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency. the Bank also won the “Operational Excellence in Retail Financial Services – India” award as part of the Asian Banker Excellence in Retail Financial Services Program 2003. The bank has been assigned a ‘CRISIL GVC Level 1’ rating which indicates that the bank’s capability with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest. Forbes Global again named the Bank in its listing of ‘Best Under a Billion.b) Corporate Governance Rating The bank was one of the first four companies. HDFC Bank has received recognition and awards from various leading organisations and publications. Aditya Puri as the “Best Chief Executive Officer in India”. The Asset (Triple A Country Awards) rated HDFC Bank as the “Best Domestic Bank in India – 2004” and “Best Domestic Bank in India – 2003”. In May 2004. “Excellence in Retail Banking Risk Management Award for 2004”. HDFC Bank was selected by Finance Asia as the “Best Local Bank – India 2003”. and also awarded the Managing Director. in its November 2004 issue. The Credit Rating Information Services of India Limited (CRISIL). In June 2005. a pan-Asia recognition of the bank’s risk management abilities. both domestic and international. 100 Best Smaller Size Enterprises in Asia/Pacific and Europe”. The rating provides an independent assessment of an entity’s current performance and an expectation on its “balanced value creation and corporate governance practices” in future. c) Awards and Accolades Over the years. Best Overall Domestic Trade Finance Services Award”. “Best Local Cash Management Bank”. The said magazine also awarded the Bank with the titles of “Overall Most Improved Company for Best Management Practices in India” in the Best Managed Companies poll 2004. HDFC Bank won Asia money magazine’s “Best Domestic Commercial Bank Award 2005” for India. . The Bank was awarded The Asian Banker’s. The Bank was rated as the “Best Overall Local/Domestic Bank – India” in the Corporate Cash Management Poll conducted by the Hong Kong based Asia money magazine.

Outlook Money Awards selected HDFC Bank as the “Best Bank – Private Sector 2003-04” in February & Nasscom. In the FE-E&Y Best Banks Survey for 2002-03. It was also the winner of The Economic Times Award – Corporate Excellence for Emerging Company of the Year 2000-01. USA. Closer home. HDFC Bank was selected as the number one new generation private-sector bank. “Best Bank – India 2001”. Inc. HDFC Bank was ranked India’s Best Bank – 2003 by Business Today and as Best Bank for the year 2000 by Business India. HDFC Bank was awarded the Best IT User award 2003 (category: Banking) as part of the IT User Awards 2003 conferred by Economictimes. “Best Domestic Commercial Bank – India 2001”. Insurance & Real Estate category by Computer world. The Bank was selected by Business World as "one of India's Most Respected Companies" as part of The Business World Most Respected Company Awards 2004.“Best Local Bank in India 2002”. “Best Domestic Bank – India 2000” and “Best Bank – India 1999”. Euro money rated HDFC Bank as “Best Bank in India 2002”.. For its use of information technology the bank has been recognized as a “Computerworld Honors Laureate” and awarded the 21st Century Achievement Award in 2002 for Finance. “Best Domestic Commercial Bank – India 2000” and “Best Domestic Commercial Bank – India 1999”. . HDFC Bank was selected as the “Best Bank in India” for the second consecutive year in 2004 by Business Today.

Bill-Pay. You also get privileges like fee waivers. enhanced ATM withdrawal limit. at-par cheques. Phone-Banking. free Demat Account and lower interest rates on loans. between the four metros. home delivery of Demand Drafts. you can access your funds while your Fixed Deposit continues to earn high interest. The money is automatically swept in from your fixed deposit into your Savings Account. among others. Debit Card and MobileBanking. 25. HDFC Bank Plus: Apart from Regular and Premium Current accounts we also have HDFC Bank Plus. You can transfer up to Rs. In an emergency. So. Sweep-In Account: A fixed deposit linked to your Savings Account. etc. to name a few. you get a free ATM Card. get cash delivery/pickup upto Rs. a Current Account and then some more. Net-Banking. Fixed Deposits. priority locker allotment. HDFC Bank Preferred: A preferential Savings Account where you are assigned a dedicated Relationship Manager. Current and Demat Accounts Savings Account: Apart from the usual facilities. outstation cheque clearance facility. 50 lakh per month at no extra charge.000/-. you can issue a cheque (or use your ATM Card). Interbranch banking.Product Profile Savings. who is your one-point contact. . even if your Savings Account runs a bit short. Super Saver Account: Gives you an overdraft facility up to 75% of your Fixed Deposit. You can also avail of cheque clearing between the four metros.

Internet. No more standing in long queues or writing cheques. You can also view your Demat Account through Net Banking. Net-Banking: Access your bank account from anywhere in the world. and pay in Rupees. Use SMS technology to conduct your banking transactions from your cellphone. Innovative services for your convenience. Phone-Banking: 24-hour automated banking services with 39 PhoneBanking numbers available.. You can spend in any currency. phone or mobile phone.. you can also pay your utility bills and transfer funds. BillPay: Pay your telephone. at anytime. electricity and mobile-phone bills through our ATMs. Mobile-Banking: Access your account on your mobile phone screen at no airtime cost. International Debit Card: An ATM card you can shop with all over the country and in over 140 countries with. ATM 24-hour banking: Apart from routine transactions. Inter-city/Inter-branch Banking: Access your account from any of our 495 branches in 218 cities. at any of our ATMs across the country all year round. You can also access your Demat Account on the Internet. at your own convenience.Demat Account: Conduct hassle-free transactions on your shares. .

our loans come to you in easy-to-pay monthly installments. You can also access your demat account on the internet. inter-branch banking and much more. In case of Demat Shares. Mutual Funds: Apart from a wide choice of mutual funds to suit your individual needs. Current Account: Get a personalised cheque book. purchase of a computer or an exciting holiday. 20 lakh. you can get a Loans Against Shares of up to 65% of the market value of your shares. you benefit from expert advice on choosing the right funds based on in-depth market analysis. . monthly account statements. new or used! And the loans come to you with easy documentation and speedy processing at attractive interest rates. Demat Account: Protect your shares from damage. till Rs. New Car Loans and Used Car Loans: Finance up to 90% of the cost of a car.Loans for every need Now. 10 lakh at an attractive interest rate against physical shares. and are available with easy documentation and quick delivery. by maintaining your shares in electronic form. education. 3 lakh for a wedding. Personal Loans: Take a loan of up to Rs. up to 50% of the market value of your shares. loss and theft. Two Wheeler & Consumer Loans: To help you buy the best durables for your home. Loans Against Shares: Get an overdraft up to Rs.

or Health Plus Credit card. . to meet your travel needs. Savings Scheme. ensures NRIs all the banking support they need. If you have outstanding balance on your other credit card. Gold. Forex Facilities: Avail of foreign currency. foreign exchange demand drafts. Insurance*: HDFC Bank now brings you Life Insurance and Pension Solutions like Risk Cover Scheme. travellers cheques.International Credit Card: Get an option of Silver. Children’s Plan and Personal Plan from HDFC Standard Life Insurance Co. NRI Services: A comprehensive range. you can transfer that balance to this card at a lower interest rate. Ltd. backed by unmatched features and worldclass service. accepted worldwide from a world-class bank.

Venket Rao Gadwal Mr. Aditya Puri.Subramanian Harish Engineer Neeraj Swaaroop Paresh Sukthankar Samir Bhatia Sudhir M Joshi Vinod G Yennamadi VICE PRESIDENT (LEGAL)&COMPANY SECRETARY Sanjay Dongre . Vineet Jain Mrs. Renu Karnad Mr.Ram G. Anil Ahuja Dr.N. Ashim Sama SENIOR MANAGEMENT TEAM A. Managing Director Mr. Bobby Parekh Mr.Management Hierarchy Board of directors: Mr. chairman Mr. (Mrs.Parthasarathy A Rajan Abhay Aima Bharat Shah C. Rajan Kapur Mr.) Amla Samanta Mr. Jagdish Kapoor. Arvind Pande Mr. Keki Mistry Dr.

. HDFC is a leading bank in regard to home loans as compared to any private or public sector bank. The opening up of another private sector bank. The merger of the public sector banks thus making them stronger and efficient as compared to the private sector banks. Threats: 1. The faith of the people towards the public sector banks makes them all the more reluctant to switch over to a private bank. 3. 3. The staff does not provide complete information to employees regarding the penalties involved.SWOT ANALYSIS Strengths: 1. 2. According to the recent news in the economic times HDFC bank beats SBI as the most valuable financial firm. The direct selling agents are posing a threat to the reputation of the firm by not disclosing the complete information about their services. 2. The private sector banks are facing stiff and tough competition from the foreign banks. HDFC bank is going global to the Arabian countries. ICICI in the city. Awareness of the e-age services and greater demand of credit cards are posing greater opportunities. Opportunities: 1. 2. HDFC is an old and well renowned bank with well qualified employees 2. Weaknesses: 1.


internet.magazines. so we will be using Analytical Research Design to do our Research work. . The methodology of study will be through journals. internet and fact finding enquiries of different kinds. brochures etc. The major purpose of analytical research is description of the state of affairs as it exists at present. The main characteristic of this method is that the researcher has no control over the variables. Source of Data Sampling Plan: Secondary data. newspapers. Methods of data collection: Secondary Data: For secondary data the methods used for data collection are as follows: Internet. he can only report what has happened or what is happening. In social science and business research we quite often use the term Ex post facto research for analytical research studies. Analytical research includes journals magazinies.RESEARCH METHODOLOGY Type of Research: The type of research is analytical. bank’s manual. Research Design: As the research type is descriptive. Secondary data was collected from the bank’s annual report. brochures and its website.

Vs RD . Modern instruments of investments such as Mutual funds. 2.Objectives of the study: 1. saving account. At HDFC 4. ULIPetc. To study the traditional instruments of investments at HDFC BANK such as Fixed Deposits. Fixed deposits.current account etc. Recurring Deposits . 3. SIP. To assess the trends towards the investment pattern.

o As the human behavior is not constant so the results collected through Questionnaire may or may not apply to future period of time. . o The findings of the research are limited to a particular area & cannot be applied to all places.L i m i t at i o n s of t h e s t u d y : o The constraint of time available for carrying out this study is limited. o Human Bias can also be considered as an important limitation of the research.



Systematic Investment Plan. . what are the factors which a person look for before investing: a) Investments opportunities to optimize returns. One of the most important question in today’s scenario is that where would a person like his / her money to be i. liquidity. -All usual choices look the same. This project deals with the thorough study of these modern instruments in respect of their returns. RBI Bonds. savings. -Equity markets violate.e. d) Preserve capital. b) Focus on tax-free returns. Emergence of modern instruments of investment like Mutual Funds. c) Protect income flows. Investments have become a key complexity because of the following reasons: -Interest rates falling. and Infrastructure Bonds proves to be a better option for the investors in comparison to the old instruments of investment such as fixed deposits. and tenure & safety aspect etc.CHANGES IN INVESTMENT PATTERN Investment scenario is changing very rapidly. recurring deposits etc.


premature withdrawal before maturity period (which involves a loss of interest) etc. depending upon his requirements instructs the bank to keep the deposit for a certain period.4TIME DEPOSIT 6. he may ask the bank to prepare a fixed deposit receipt for a . Bank fixed deposits are one of the most common savings scheme open to an average investor. The deposit of specifies the period at the time of making the deposit. say for a minimum period of 15 days to five years and above. Investor gets a lump sum (principal + interest) at the maturity of the deposit.1 FIXED DEPOSITS A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period.5POST OFFICE MONTHLY INCOME SCHEMES 6.3NSC’s(National Saving Certificates) 6. thereby earning a higher rate of interest in return. The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the amount deposited. In this category we include deposits.2RECURRING DEPOSITS 6. For example. Fixed deposits also give a higher rate of interest than a savings bank account. These deposits are repayable after the maturity/expiry of the specified period. which are made with the bank for a fixed period. The depositor. if the depositor knows that he is not going to need the money for the next three years.TRADITIONAL INSTRUMENTS OF INVESTMENT The traditional instruments of investment were: 6.1FIXED DEPOSITS 6. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of India.

if he requires the money after say nine months or so. The idea is to select the right company to minimize the risk. the bank need not keep more cash reserves against it and can utilize such amount profitably elsewhere. As opposed to that. The major reasons being the slowdown in economy resulting in default by some companies. he may request the bank to prepare the fixed deposit receipt for a shorter period. The banks are free to offer varying interests in fixed deposits of different maturities. some NBFCs simply vanished with the depositors' money. Since the depositor parts with liquidity for a definite period.2 Features Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India (RBI) with regard to several policy and operational parameters. Company deposits as a saving instrument have declined in popularity over the last three years. They are the middle path investments with adequate returns and sufficient liquidity. Interest is compounded once a quarter. NBFCs and company deposits are more attractive. the yield is generally low with a maximum interest of 10 to 10. Also. 6. 6. As the date of repayment of the fixed deposits is determined in advance.period of three years. Some years ago fixed deposits are very popular among the depositors and constitute more than half of the total bank deposits. For nationalized banks. . The most common are bank deposits. Corporate performance is likely to improve and stricter control by RBI should improve NBFCs record.1.5% per annum for a period of three years or more. leading to a somewhat higher effective rate. There are basically three avenues for parking savings in the form of fixed deposits. All that is likely to change for the better. the bank offers higher rate of interest on fixed deposits.1. But one still needs to be selective. On the other hand.1 The joy of fixed returns Fixed deposits remain the most popular instrument for financial savings in India.

1. Before opening a FD account. Some banks have facility to pay interest every quarter or every month. The thing to consider before investing in an FD is the rate of interest and the inflation rate. be less than if one big deposit were to be encashed. depending on the maturity period (duration) of the FD and the amount invested. The bank will give applicable interest rates as on the date of receipt of the funds. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. It is advisable to keep the amount in five or ten small deposits instead of making one big deposit. Note: Interest rates are subject to change from time to time. A Bank FD does not provide regular interest income. but the interest paid may be at a discounted rate in case of monthly interest. Interest rate also varies between each bank. Request you to clear your cache to see the updated interest rates.The minimum deposit amount varies with each bank. The loss sustained in interest will. but a lump-sum amount on its maturity. o Tax at source is deducted as per the Income Tax regulations prevalent from time to time. The deposit period .3 Returns The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent. 100 to an unlimited amount with some banks. It can range from as low as Rs. and the Principal is increased to include interest earned during the previous quarter. The Interest payable on Fixed Deposit can also be transferred to Savings Bank or Current Account of the customer. A high inflation rate can simply chip away your real returns. In case of any premature withdrawal of partial amount. try to check the rates of interest for different banks for different periods. Deposits can be made in multiples of Rs. 100/-. thus. o Interest for re-investment is calculated every quarter. then only one or two deposit need be prematurely encashed. 6.

25 % 8.5 years to 10 years.4 How to apply One can get a bank FD at any bank. or foreign.5 % 9-10. a deposit receipt or an account statement is issued to him. 6 months.5-10. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in.5 % 8.can vary from 15.5-9.5 % 9. 1. However. 1 year.5-10.1. When a depositor opens an FD account with a bank.5-10.5 % 7-9. You have to open a FD account with the bank.5 years 1. private.5 % 9. some banks insist that you maintain a savings account with them to operate a FD.5-2 years 2-3 years 3-5 years 5 years Interest rate (%) per annum 4 -7 % 5-8 % 6-8 % 6. . Duration 5-30 days 30-45 days 46-90 days 91-180 days 181-365 days 1-1. 30 or 45 days to 3. which can be updated from time to time. and make the deposit. be it nationalised.5-11 % 6. depending on the duration of the FD and the frequency of the interest calculation.

Safety FDs have conventionally been the premier choice for investors with a low risk appetite. Some Additional Benefits FD’S from reputed entities offer additional benefits e. a further hike in rates offered by fixed deposits cannot be ruled out. pick the short tenured one. In a rising rate scenario. market linked instruments like mutual funds may not be a bad deal. Even if a 3-Yr FD looks like a lucrative proposition as compared to one. those with a “AAA” rating even if their rates seem modest vis-à-vis those offered by company deposits. Locking your investments in longer tenured instruments may lead to an opportunity loss. Company deposits are unsecured in nature and investing in them would imply taking on disproportionately higher risk. assured returns is the key factor. which attracts investors towards deposits. how easily can your investments be liquidated. 1. 2. you could be more than compensated for the lower returns at present. . which runs over a year or so.Liquidity Find out how your FD fares on the premature encashment front i.e. Stick to FDs of the highest credit rating i.e. which FD investors must consider at the time of investment. 3.We present a few pointers.g. With interest rates on the ascent.Tenure Short tenured fixed deposits continue to be your best bet. 4. Also enquire about the penalty clause. they can be used as collateral security against which loans can be raised. If as an investor you are open to investing in instruments involving higher risk levels.

5000.Y. It is possible to get a loans up to75. • Company Fixed Deposit’s are non-transferable that means there is no fear of FD receipt being stolen.- • Further. so that interest from one company does not exceed Rs. advantage of investing in company fixed deposits is that one can analyses the company before investing in it because companies accepting deposits are old-established reputed companies with proven track records. 1998-99.and above per annum. it cannot be misused. 000/. bank deposits are totally exempt from wealth tax.12. from A. With effect from A.5000/. nomination facility has been introduced in company fixed deposits. investment on bank deposits. In case it falls into wrong hands.Y.90% of the deposit amount from banks against fixed deposit receipts. The FD holder in such a case should write to the company. which shall issue duplicate deposit receipt upon execution of an indemnity and cancel the previous one. 1993-94.under Section 80L.One can spread his investment in more than one company. tenure should be for 1-3 years depending upon the rate of interest. The interest charged will be 2% more than the rate of interest earned by the deposit.Benefits of Company Fixed Deposits as an investment avenue Advantages Bank deposits are the safest investment after Post office savings because all bank deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of India.e. • It is also important that company fixed deposit should be made for short term.. i. • No income tax is deducted at source if the interest income is up to Rs 5000/-in one financial year. The 1995 Finance Bill Proposals introduced tax deduction at source (TDS) on fixed deposits on interest incomes of Rs. along with other specified incomes. Also. This will help the investor to switch to other company if need be • Recently. is exempt from income tax up to a limit of Rs. .

therefore.25. The benefits of company deposit are numerous like superior returns from reputed companies. The numbers of depositors have increased to around 5 million.6. The concept of company fixed deposits was started in India in 1964 by Bajaj Capital Ltd.1. premature encashment. WHERE NOT TO INVEST  Companies which pay a rate of interest higher than 14%  Companies. wide choice. TDS benefits.  It is best to avoid private limited companies.East India Hotels Ltd.  New companies belonging to first generation of promoters. All these features have made company deposits a preferred instrument of investment. Since then company deposit market has grown by leaps and bounds. Birla. Today.The success of East India Hotels prompted others private and public sector companies which started accepting deposits from public. and government companies like HUDCO are accepting deposits from public. launching first ever Company Fixed Deposit of Oberoi Group . Godrej etc. very difficult to judge their performance.). Such companies are under no obligation to publish their balance sheets working results and it is.(now EIH Ltd. company deposit market has grown to approximately Rs. . simplicity of transactions.000 crores. which have yet to prove their credit worthiness. fixed and assured returns. which are not paying regular dividends to their shareholders. Hundreds of top companies belonging to reputed industrial houses like Tata. It basically grew out of the need of Corporate Sector for raising short-term finance and requirements of small investors to earn superior returns as compared to returns offered by the Banks.7 History of Company Fixed Deposits in India Company Fixed Deposit market in India has an interesting phase of evolution. and partnership firms and other unincorporated bodies.

How to choose a company for making deposit There are many companies operating in Company Deposit market. Investors should avoid those companies. have to be careful while selecting a company for investing their hard earned money. Following is a checklist for selecting good companies: Credit Rating/ Reputation and Size of Industrial Group The first thing to check out is the rating of the deposit scheme. In this way an investor will be able to diversify his risk among various Industries/ Companies. The whole procedure of making investment in company deposits can be described in two words. It is simple for depositor to put in and get back his money anytime after 6 months. Investors should not put more than 10% of their total portfolio in one particular company. In this case investor should look at the background of promoters and financial track record. reputation and size of industrial group to which the company belongs is the key criteria for safety and reliability. Investors. In manufacturing companies. In case of manufacturing companies. It is also simple for company to raise money in form of fixed deposits. which have below ‘A’ rating. . Companies whose balance sheets show accumulated losses. Don't put all your eggs in one Basket The deposits should be spread over a large number of companies engaged in different industries. it’s however not mandatory to get rating.  Companies with a poor liquidity position and below investment grade rating. however. it is simple and liquid.

A watch should also be kept over the companies by checking their share prices. annual reports and other news reported in the commercial columns of daily papers. 1. or c). is one of the best investment option for the low income groups. the deposit. At the end.. RECURING DEPOSITS The Recurring deposit in Bank is meant for someone who want to invest a specific sum of money on a monthly basis for a fixed rate of return. you will get the principal sum as well as the interest earned during that period. whether to renew or reshuffle. A guardian on behalf of a minor or a person of unsound mind. or ii) to either of them or survivor. Persons who can open an account I) An account may be opened by a) A single adult.Period of Deposit Ideally the investment should be for 1 to 3 years depending upon the rate of interest. Periodic Review of the Companies The performance of the companies should be reviewed at maturity i. or b) Two adults jointly. or d). .A minor who has attained the age of ten years. a systematic way for long term savings. The scheme. the amount due on the account being payablei) To both jointly or survivor.e. in his own name.

a default fee is chargeable for delayed deposit at the rate of Rs.2. it cannot guard against inflation if it is more than the rate of return offered by the bank. 100/. 100/. The interest is calculated quarterly or as specified by the bank.50/. The rate of interest varies between 7 and 11 percent depending on the maturity period and amount invested.per month for deposits up to 5 years and Rs. In case of default in payment.1 Features The minimum investment of Recurring Deposit varies from bank to bank but usually it begins from Rs 100/-. lower the gap between the interest rate on a recurring deposit and inflation. Worse. 1. 2/.per Rs. Premature withdrawal is also possible but it demands a loss of case of longer maturities. The deposit shall be paid as monthly installments and each subsequent monthly installment shall be made before the end of the calendar month and shall be equal to the first deposit. There is no upper limit in investing.6. lower your real rate of return. Since a recurring deposit offers a fixed rate of return.for every Rs. The period of maturity ranging from 6 months to 10 years. .

a pass-book or an account statement is issued to him. When a depositor opens a Recurring Bank Deposit account with a bank.698 Rs 78.132 Rs 19. How it works .2. They can transfer their account to any branch of SBI free.3 Advantages Some Nationalised banks are giving more facilities to their customer. However. 6. per year.2. per branch. Tax benefit on the interest earned on Recurring Deposit up to Rs 12000 Tax Deductible at source if the interest paid on deposit exceeds Rs 5000/-per customer. The interest is calculated quarterly or as specified by the bank. The terms and conditions vary from bank to bank.2 Returns The rate of interest varies between 7 and 11 percent depending on the maturity period and amount invested.792 6.2. These are fixed deposits with a difference. State Bank of India give Free Roaming Recurring Deposit facility to their customers. some banks insist that you maintain a savings bank account with them to operate a Recurring Bank Deposit account.6.4 How to open an Account A Recurring Bank Deposit account can be opened at any branch of a bank that offers this facility. Amount invested per month Rs 100 Rs 500 Rs 750 Rs 3000 Maturity amount in 2 years (5%interest) Rs 2626 Rs 13.

In a normal fixed deposit, you put in an amount and, after a specific period of time, you are free to withdraw it. Meanwhile, you do not touch the money or add to it. A recurring deposit works on a similar principle. The difference is: instead of putting in a bulk amount, you put in a specified amount (which you decide when you open your recurring account) every month. This could be a small amount that will not pinch your pocket or make a dent in your lifestyle At the end of the tenure, you get a nice amount. And the interest that you earn -- to a maximum of Rs 12,000 per year -- is exempt from tax (under Section 80L of the Income Tax Act, 1961). There are two ways you can open a recurring deposit:

1. With your bank. How it works
Your bank automatically deducts a fixed amount from your savings account. So, every month, when your salary cheque is put in your account, your bank will debit the amount you initially agreed upon and credit it to your recurring deposit account. If you tell them to put in Rs 1,000 every month, this amount will automatically move from your savings account to your recurring deposit account. So with no effort on your part, at the end of 12 months, you will have Rs 12,000 to which you can add the interest the bank will give you. With banks, you determine beforehand how much you would like to put in every month and that is how it stays -- you cannot change that figure till the end of your recurring term. So if you fix it at Rs 1,000 every month, that is the amount that will move to your recurring account -- nothing more, nothing less.

What you should know o Though banks score high on convenience, they offer lower returns. The rates vary from three percent to seven percent per annum. o Banks offer you flexibility, in that you can start with a term that is as low as one year onwards.

2. With the local post office How it works
You can put in amounts as low as Rs 10 per month. There is no upper limit. The post office deposit will give you 7.5 per cent per annum.

What you should know
o The post office scheme is for five years. o You have to make a trip every month to your post office to deposit your amount. So, as far as recurring deposit options are concerned, you will either make a trip to your local post office or tell your local bank that you would like a recurring deposit option. The tenure of the deposit, the interest rate and the minimum amount to be regularly deposited will vary from bank to bank.

6.3.Time Deposit

6.3.1 What is Time Deposit A Post-Office Time Deposit Account (RDA) is a
banking service similar to a Bank Fixed Deposit offered by Department of post, Government of India at all post office counters in the country. The scheme is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of one year to two years, three years and a maximum period of five years. Investor gets a lump sum (principal + interest) at the maturity of the deposit. Time Deposits scheme return a lower, but safer, growth in investment.

6.3.2 Features Time Deposits can be made for the periods of 1 year, 2 years, 3
years and 5 years. The minimum investment in a post-office Time deposit is Rs 200 and then its multiples and there is no prescribed upper limit on your investment. Account may be opened by an individual, Trust, Regimental Fund and Welfare Fund. The account can be closed after 6 months but before one year of opening the account. On such closure the amount invested is returned without interest. 2 year, three year and five year accounts can be closed after one year at a discount. They involve a loss in the interest accrued for the time the account has been in operation. Interest is payable annually but is calculated on a quarterly basis at the prescribed rates. Post maturity interest will be paid for a maximum period of 24 months at the rate applicable to individual savings account. One can take a loan against a time deposit with the balance in your account pledged as security for the loan.

6.3.3 Returns This investment option pays annual interest rates between 6.25 and
7.5 per cent, compounded quarterly. Time deposit for 1 year offers a coupon rate of 6.25%, 2-year deposit offers an interest of 6.5%, 3 years is 7.25% while a 5-year Time Deposit offers 7.5% return.
Duration of Account Quarterly Compound Interest

5% 7. Regimental Fund and Welfare Fund.3. 6.25% 6.5 How to start a Time Deposit A Time Deposit account can be opened at any post-office in the country. Although the amount invested in this scheme is not exempted as per section 88 of Income Tax. 6.3.1year 2 years 3 years 5 years 6. The account can be closed after 6 months of opening the account. the amount of interest earned is tax free under Section 80-L of Income Tax Act.4 Advantages In this scheme your investment grows at a pre. Single.determined rate with no risk involved. i. On such closure the amount invested is returned with/without interest depending on the time the deposit was maintained.4. Joint A/B (not more than two adults) Trust. Account may be opened by an individual. you will receive an account statement stating the amount deposited and the duration of the account.25% 7.5% 6. National Savings Certificates . your principal as well as the interest accrued is assured under the scheme. With a Government of India-backing. The rate of interest is relatively high compared to the 4.5% annual interest rates provided by banks.e.. On opening a Time Deposit.

There is a nominal fee for registering the transfer. o Though premature encashment is not possible under normal course. o One person can be nominated for certificates of denomination of Rs. Tax benefits are available on amounts invested in NSC under section 88. Rs 1. singly or jointly or on behalf of minors and trust can purchase a NSC by applying to the Post Office through a representative or an agent. . o Individuals.4. They can also be transferred from one post office to another. 100. Government of India and are available at all post office counters in the country. o The certificates are easily transferable from one person to another through the post office. a housing finance company approved by the National Housing Bank etc with the permission of the concerned post master.4.000 for a maturity period of 6 years. Rs 5. 6. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act.000. 1961.and more than one person can be nominated for higher denominations. Rs 500.000 and Rs 10. a corporation or a government company. under subrule (1) of rule 16 it is possible after the expiry of three years from the date of purchase of certificate. There is no prescribed upper limit on investment. and exemption can be claimed under section 80L for interest accrued on the NSC. The duration of a NSC scheme is 6 years. It is a long term safe savings option for the investor. o One can take a loan against the NSC by pledging it to the RBI or a scheduled bank or a co-operative society.2 Features NSCs are issued in denominations of Rs 100.6. Interest accrued for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.1 What is National Savings Certificate National Savings Certificates (NSC) are certificates issued by Department of post.

and exemption can be claimed under section 80L for interest accrued on the NSC. stolen or mutilated.60 Rs 88. Interest rates for the NSC Certificate of Rs 1000 YEAR 1 year 2 year 3 year 4 years 5 years 6 years RATE OF INTEREST Rs 81. Post maturity interest will be paid for a maximum period of 24 months at the rate applicable to individual savings account.4.80 6. The issue of certificate will be subject to the realization of the cheque. DD. If a certificate is lost.4.4. destroyed.30 Rs 111. NSCs can be transferred from one person to another through the post office on the payment of a prescribed fee. pay order. The date of the certificate will be the date of realization or encashment of the cheque. 6.30 Rs95. on completion of 6 years. Interest accrued for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.4 Advantages Tax benefits are available on amounts invested in NSC under section 88. They can also be transferred from one post office to another.6.3 Return It is having a high interest rate at 8% compounded half yearly.5 How to start Any individual or on behalf of minors and trust can purchase a NSC by applying to the Post Office through a representative or an agent. The scheme has the backing of the Government of India so there are no risks associated with your investment.70 Rs 120. Payments can be made in cash. cheque or DD or by raising a debit in the savings account held by the purchaser in the Post Office.50 Rs103. A 1000 rs denomination certificate will increase to 1601Rs. a duplicate can be issued by the post-office on payment of the prescribed .

6.000 1. Only individuals can open the account.fee.2 Features Only one deposit is available in an account. 50 paise and above will be rounded off to next rupee.00.000 for both single and joint accounts Deposit Rs 5. The minimum investment in a Post-Office MIS is Rs 1. therefore.3 Returns The post-office MIS gives a return of 8% plus a bonus of 10 per cent on maturity.30. more beneficial for retired persons. It is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood.000 for both single and joint accounts.00. The scheme is.5.500 11. The duration of MIS is six years. Interest rounded off to nearest rupee i. The MIS is not suitable for an increase in your investment.10.000 1.000 2.00.000 3. The maximum investment for a single account is Rs 3 lakh and Rs 6 lakh for a joint account.000 3. 6.5. It is meant to provide a source of regular income on a long term basis.20.( two or three).000 50.000 . The minimum investment in a Post-Office MIS is Rs 1.000 2.5.5 Post Office Monthly Income Scheme 6. this 10 per cent bonus is not available in case of premature withdrawals.000 10.1 What is post office monthly income scheme? The post-office monthly income scheme (MIS) provides for monthly payment of interest income to investors.000 Monthly Interest 33 66 333 667 1333 2000 Amount returned on maturity 5. either single or joint. However. 6.000 55.e.

but a discount of 5%. Closing of account after three years will not have any deductions.000 4000 6. no TDS is deductible on the interest income. 3. you will get a certificate issued by the post office. When you open an MIS. MODERN INSTRUMENTS OF INVESTMENT 1.5. 1961.000 6. Investors can withdraw money before three years. Monthly interest can be automatically credited to savings account provided both the accounts standing at the same post office. MUTUAL FUNDS SIP (Systematic investment plan) RBI Bonds Infrastructure Bonds .00. 4. the investor is provided with a passbook to record his transactions against his MIS. The interest income accruing from a post-office MIS is exempt from tax under Section 80L of the Income Tax Act.5.5 How to Open You can buy a post office MIS at any post-office in India. 6.60. In addition. The balance is exempt from Wealth Tax. Moreover.6. 2. Deduction of an amount equal to 5 per cent of the deposit is to be made when the account is prematurely closed.4 Advantages Premature closure of the account is permitted any time after the expiry of a period of one year of opening the account.

Like all investments. which are launched from time to time. which regulates securities markets before it can collect funds from the public. Mutual funds also offer good investment opportunity to the investors. an Attempt has been made to provide information in question-answer format which may help the investors in taking investments decisions. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. With objectives to make the investors aware of functioning of mutual funds. The investors should compare the risks and expected yields after adjustments of tax on various instruments while taking investment decisions. Diversification reduces the risk because4 all stocks may not move in the same direction bin the same proportion at the same time. . mutual fund issues units to the investors in accordance with quantum of money invested by them. 1. Investors of mutual funds are known as unit holders. The mutual funds normally come out with a number of schemes with different investments objectives. they also carry certain risks. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.MUTUAL FUNDS 1.1. The investors in proportion to their investments share the profits or losses. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI).2 Definition of mutual fund 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.1 Introduction Different investments avenues are available to investors.

SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. The objectives of SEBI are. The trustees are vested with . mutual funds sponsored by private sector entities were allowed to enter the capital market. asset Management Company (AMC) and custodian. A protect the interest of investors in securities and to promote the development of and to regulate the securities market.1. which has sponsor. Government allowed public sector banks and institutions to set up mutual funds. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. who is registered with SEBI. trustees.Therefore. As far as mutual funds are concerned.3 History of Mutual Fund in India and role of SEBI in mutual funds industry Unit Trust of India was the first mutual fund set up in India in the year 1963. The regulations were fully revised in 1996 and have been amended therefore from time to time. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The trustees of the mutual fund hold its property for the benefits of the unit holders. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations.4 Mutual fund set up A mutual fund is set up in the form of a trust. SEBI notified regulations for the mutual funds in 1993. holds the securities of various schemes of the fund in its custody. 2002) 1. Securities and exchange Board of India (SEBI) Act was passed. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. It may be mentioned here that Unit Trust of India (UTI) is not registered with SEBI as a mutual fund (as on January 15. In early 1990’s. Asset Management Company (AMC) approved buy SEBI manages the funds by making investments in various types of securities. In the year 1992.

Also. Mutual funds invest the money collected from the investors in securities markets. Net Asset Value is the market value of the securities held by the schemes. 2002).ended Fund/ Scheme An open –ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. Investors can conveniently buy and sell units at Net Asset Value (NAV) . The NAV per unit is the market value of securities of a scheme divided by the total number of units of the schemes on any particular date.daily or weekly –depending on the type of scheme. then the NAV per units of the fund is Rs. NAV of a scheme also varies on day-to-day basis. All mutual funds are required to be registered with SEBI before they launch any schemes.the general power of superintendence and direction over AMC. Unit Trust of India (UTI) is not registered with SEBI (as on January 15.6 Different types of mutual fund schemes 1. 50% of the directors of AMC must be independent. 10 each to the investors.e. if the market value of securities of a mutual fund schemes is Rs 200 lakes and the mutual fund has issued 10 lakes units of Rs. Since market value of securities changes every day. These schemes do not have a fixed maturity period.6(1)Schemes according to Maturity Period: A mutual fund schemes can be classified into open-ended schemes or close-ended scheme depending on its maturity period. they should not be associated with the sponsors. Open. NAV is required to be disclosed by the mutual funds on a regular basis. They monitor the performance and compliance of SEBI Regulations by the mutual fund.5 Net Asset Value (NAV) Of Schemes The performance of a particular scheme of a mutual fund is denoted by net asset value (NAV). 1. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustee must be independent i.20. 1. For example. In simple words. However.

The key feature of open-end schemes is liquidity. The fund is open for subscription only during a specified period at the time of launch of the scheme. Close –ended Fund/Schemes A close –ended fund or schemes has a stipulated maturity period e. 5-7 years. either repurchase facility or through listing on stock exchanges.related prices which are declared on a daily basis. Investors can invest in the schemes at the time of the initial public issue and therefore they can buy or sell the units of the scheme on the stock exchange where the units are listed. some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. This mutual funds scheme discloses NAV generally on weekly basis.g. In order to provide an exit route to the investors.e. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i. .

Government securities and money market instruments. Such schemes may be open-ended or close-ended schemes as described earlier. income scheme. NAVs of such funds are likely to increase in the short run and vice versa. The mutual funds also allow the investors to change the options at later date. Such schemes generally invest in fixed income securities such as bonds. etc.6(2)Schemes according to Investment Objective: Schemes can also be classified as growth scheme. The investors must indicate the option in the application form. and the investors may choose an option depending on their preferences. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. or balanced scheme considering its investment objective. Such schemes normally invest a major part of their corpus in equities. Such schemes may be classified mainly as follows: o Growth /Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long-term. The NAVs of such funds are affected because of change in interest rates in the country.1. Such funds are less risky compared to equity schemes. However. Such funds have comparatively high risks. If the interest rates fall. However. capital appreciation. Income/ Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. long-term investors may not bother about these fluctuations. These schemes provide different options to the investors like dividend option. These funds are not affected because of fluctuations in equity markets. opportunities of capital appreciation are also limited in such funds. corporate debentures. .

These funds are also affected because of fluctuations in share prices in the stock markets. preservation of capital and moderate income. etc. Returns on these schemes fluctuate much less compared to other funds. These schemes invest in the securities in the same weight age comprising of an index. etc. S&P NSE 50 index (Nifty). Government securities have no default risk. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index. commercial paper and inter-bank call money. though not exactly by the same percentage due to some factors known as “tracking error” in technical terms. These are appropriate for investors looking for moderate growth. These schemes invest exclusively in safer short-term instruments such as treasury bills. certificates of deposit. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index. government securities.Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60%in equity and debt instruments. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. However. . Gilt Fund These funds invest exclusively in government securities. NAVS of such funds are likely to be less volatile compared to pure equity funds. MONEY Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity.

each time one buys or sells units in the fund.Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.9. e.g. Their growth opportunities and risks associated are like any equity-oriented scheme. Software. etc.g. They may also seek advice of an expert. then the investors who buy would be required to pay Rs. Pension schemes launched by the mutual funds also offer tax benefits. This charge is used by the mutual fund for marketing and distribution expenses. The investors should take the loads into consideration while making investment as these affect their yields/returns. the investors should also consider the performance track .10 and those who offer their units for repurchase to the mutual fund will get only Rs. Investors need to keep a watch on the performance of those sectors/ industries and must exit at an appropriate time. Fast Moving Consumer Goods (FMCG). Suppose the NAV per unit is Rs. Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act. which invest in the securities of only those sectors or industries as specified in the offer documents. Pharmaceuticals. a charge will be payable. 10. 10. 1961 as the Government offers tax incentives for investment in specified avenues. if the entry as well as exit load charged is 1%. That is.90 per unit. Sector Specific funds/ schemes These are the funds/schemes. While these funds may gibe higher returns. Equity Linked Savings Schemes (ELSS). These schemes are growth oriented and invest pre-dominantly in equities. they are more risky compared to diversified funds. E. There are also exchange traded index funds launched by the mutual funds.Petroleum stocks. However. Load or no–load Fund A Load Fund is one that charges a percentage of NAV for entry or exit. which are traded in the stock exchanges. the returns in these funds are dependent on the performance of the respective sectors/industries.

Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unit holders. if applicable. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. if applicable.record and service standards of the mutual fund. A no-load fund is one that does not charge for entry or exit. It may include sales load. It means the investors can enter the fund/ scheme at NAV and no additional charges are payable on purchase or sale of units. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year. which are more important. Assured return scheme Assured return schemes are those schemes that assure a specific return to the unit holders irrespective of performance of the scheme. Sales or repurchase/ redemption price The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Efficient funds may give higher returns in spite of loads. . It may include exit load.

He must give his bank account number so as to avoid any fraudulent encashment of any cheque / draft issued by the mutual fund at a later date for the purpose of dividend or repurchase.9 Procedure to fill up the application form of a mutual fund scheme An investor must mention clearly his name. 1. 1. On the other hand they must consider the track record of the mutual fund and should take objective decisions. Any changes in the address. /gifts given by agents/ distributors for investing in a particular scheme.1. the post offices and banks also distribute the units of mutual funds.8 Can non-resident Indians (NRIs) invest in mutual funds or not Yes. Now a day. bank account number. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. However. also help in this regard. number of units applied for and such other information as required in the application form. Forms can be deposited with mutual funds through the agents and distributors who provide such services. etc at a later date should be informed to the mutual fund immediately. the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given to them. . address. Necessary details in this respect are given in the offer documents of the schemes. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.7 Ways to invest in a scheme of a mutual fund Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors should not be carried away by commission. non-resident Indians can also invest in mutual funds.

1. structure. educational qualification and work experience of key personnel including fund managers. Due care must be given to portions relating to main features of the scheme. however. In case of open-ended schemes. investment pattern. entry or exit loads. initial issue expenses and recurring expenses to be scheme. SEBIhas prescribed minimum disclosures in the offer document. pending litigations and penalties imposed. The procedure of repurchase is mentioned in the offer document. should carefully read the offer document. before investing in a scheme. a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. risk factors. can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily having nationwide circulation and in a newspaper . performance of other schemes launched by the mutual fund in the past. which contains very useful information. 1. no change in the nature or terms of the scheme. etc.g. sponsor’s track record. etc. is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. In case of close-ended schemes. known as fundamental attributes of the scheme e. the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges.11 The investor gets certificate or statement of account after investing in a mutual fund after the following period Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme.10 Factors an investor look into an offer document Am abridged offer document. 1. An investor.12 Can a mutual fund change the nature of the scheme from the one specified in the offer document or not Yes.

published in the language of the region where the head office of the mutual fund is situated. Amfiindia.e. if any. which may occur in the mutual fund There may be changes from time to time in a mutual fund. Apart from it. 3 year. 1. In the meantime. The mutual funds are required to inform any material changes to their unit holders. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half yearly format. new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted. The unit holders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. 5 year and since inception of schemes. 1 year. many mutual funds send quarterly newsletters to their investors.14 Ways to know the performance of a mutual fund scheme The performance of a schemer is reflected units net asset value (NAV).com and thus the investors can access NAVs of all mutual funds at on e place. The mutual funds are also required to publish their performance in the form of halfyearly results which also include their returns/ yields over a period of time i. The NAVs of mutual funds are required to be published in newspapers. At present.13 Ways in which an investor come to know about the changes. . The NAVs are also available on the web sites of mutual funds. The mutual funds required similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor. 1. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www. offer documents are required to be revised and updated at least once in two years. last six months.

etc. Some mutual funds send the portfolios to their unit holders. which are published in the newspapers. which also contain portfolios of the schemes. and their quantity. equity. investment made in rated and unrated debt securities. The scheme portfolio shows investment made in each security i. . government securities. many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Some of the mutual funds send newsletters to the unit holders on quarterly basis.e. nonperforming assets (NPAs). On the basis of performance of the mutual funds. debentures money market instruments. etc. Apart from these. S&P CNX Nifty. These portfolio statements also required disclosing illiquid securities in the portfolio. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category.15 Ways to know where the mutual fund scheme has invested money mobilized from the investors The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis. 1. market value and % to NAV. the investors should decide when to enter or exit from a mutual fund scheme. The financial newspapers on a weekly basis are publishing various studies on mutual fund schemes including yields of different schemes. etc. They can also compare the performance of equityoriented schemes with the benchmarks like BSE Sensitive Index.The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year.

com.1. 1. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future. the investors should also see the quality of debt instruments. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. apart from looking into past returns. half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www. However. which has sponsored the mutual fund. investors may look for quality of portfolio. Similarly. higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls. in equities schemes also. which is reflected in their rating. this is one of the important factors for making investment decision.amfiindia. financial performance including the net worth of the sponsor for a period of three years is required to be given. Investors can also access the NAVs. A scheme with lower rate of return but having investments in better-rated instruments may be safer. AMFI has also published useful literature for the investors. 1. . In case of debt-oriented schemes.16 Ways to choose a scheme for investment from a number of schemes available As already mentioned. The only purpose is that the investors should know the track record of the company. They may also seek advice of experts. They may also compare the performance with other schemes having similar investment objectives.17 The higher net worth of the sponsor a guarantee for better returns or not In the offer document of any mutual fund scheme. the investors must read the offer document of the mutual fund scheme very carefully.18 An investor look out for information on mutual funds through: Almost all the mutual funds have their own web sites.

Investors can log on to the web site of SEBI www. draft offer documents filed by mutual funds. addresses of mutual and go to “Mutual Funds” section for information on SEBI regulations and guidelines. investors may approach their agents and distributors to guide them in this regard. which gives all necessary details. a lot of information on mutual funds is given. 1. which give a lot of information of various schemes of mutual funds including yields over a period of time. There are a number of other web sites.19After mutual fund scheme is wound up. Unit holders are entitled to receive a report on winding up from the mutual funds. data on mutual funds. Many newspapers also publish useful information on mutual funds on daily and weekly basis. money invested becomes In case of winding up of a scheme. in the annual reports of SEBI available on the web site.sebi. Also. the mutual funds pay a sum based on prevailing NAV after adjustments of expenses. .

Availability of tax rebate is also a big feature of Mutual fund investment. Along with it.g. some in Bonds so on while investing in Fixed deposits provides you for holding all your money in just one investment which is more risk prone.: It might happen that price of equity shares may decline but at the same time the price in debt market may be stable which is being offered by Mutual funds.5% rate of return while Mutual funds gives us up to 12-14%. people find it very convenient to invest their money in fixed deposits.e. On the other hand the emergence of Mutual funds as a strongest tool of investment gets unnoticed and most of the people have never made efforts to increase their awareness regarding this particular investment option. People are still unaware that there is a big margin in between the returns that we get while investing in fixed deposits & Mutual funds. Moreover the fixed and less return that we get after the completion of that fixed period are also taxable. Risk is also substantially reduced while investing in Mutual funds because Mutual funds provides you for investing in not just one particular investment but in a combination of investments like some money in equity shares.MUTUAL FUND Vs FD From the very beginning. Fixed deposits provide us with a 5. . But have we ever noticed the results that we get after investing in fixed deposits that is our money get blocked till the completion of that fixed period of time. Liquidity. some in government securities. For e. we can have our invested amount back whenever we feel like without any condition of time I.

2.S Y S T E M A T I C I N V E S T M E N T P L A N 2.2 Features :  Disciplined approach to investment Periodic & regular investment outflow.1 What is Systematic investment plan? Systematic Investment Plan is a feature specifically designed for those who are interested in building wealth over a long-term and plan out a better future for themselves and their family. Buy more when NAV is low & less when NAV is & less when NAV is high. the more wealth you accumulate  No entry load  Minimum investment of Rs1000/.  Rupee cost averaging . -Help overcome market volatility. Anyone can enroll for this facility by starting an account with (minimum investment amount) and giving 4/6 post-dated cheques of periodic investment based on one’s convenience 2.  Power of compounding Longer the period.through a standing instruction.

You can invest for a minimum of six months. like funds for a child’s education . It’s the perfect solution for irregular investors. The HDFFC SIP is a perfect tool for people who have a specific future financial requirement. Every month an amount you choose is invested in a mutual fund scheme of your choice.a marriage in the family or a comfortable post retirement life. one by one. you can plan for and meet financial goals. o Become a disciplined investor Being disciplined –it’s the key to investing success. Simple give us post dated Cheques amount of your choice (minimum of Rs. o Reach your financial goals Imagine you want to buy a car a year from now. or for as long as you want. The plans are completely flexible. you’ll see them transform into a building. 500 and in multiples Of for an Rs 100 there of) and we’ll invest the money every month in a fund of your choice.3 BENEFITS OF A MONTHLY INVESTMENT PLANS THE HDFC Mutual fund systematic investment plan (SIP) is similar to a recurring deposit.2. With the HDFC MF SIP no loads are charged for investment up to Rs 1 lakh (per . but you don’t know where the down payment will come from. with the HDFC MF Systematic investment plan you commit an amount of your choice(minimum of Rs 500&in multiples of Rs 100 thereof)to be invested in one of the schemes. You’ll be amazed to learn about the many benefits of investing through HDFC MF SIP. You can also decide to invest quarterly and will need to invest for a minimum of two quarters. By investing an amount of your choice every month. It’s as simple as giving at least 6 post-dated monthly cheques to us for a fixed amount in a scheme of your choice. think of each SIP Payment as laying a brick. Do all this effortlessly Investing with HDFC MF SIP is easy.

RBI BONDS . Neha’s small contribution to a SIP and her decision to start investing earlier than Arjun have made her wealthier by over Rs.36. The total investment made by her over 5 years is Rs. Arjun also starts working when he is 20 years old. At 50. your saving may not earn much interest. He gets a large bonus of Rs.But he dosen’t invest monthly.investor. You can even change your monthly investment amount. o Grow your investments with compounded benefits It is far better to invest a small amount of money regularly. 3 lakhs at 25 and decides to invests the entire amount. Every month she saves and invests Rs 5. The following example illustrates this: Imagine Neha is 20 years old when she starts working.46.That is.084. (Figures based on 10% p. per scheme/plan/option).a.rather than save up to make one large investment.68. the interest earned on your investment also earns interest.273 where as Arjun’s investments have grown to Rs. interest compounded monthly) 3. Both of them decides not to withdraw these investments till they turn 50. With HDFC MF SIP .17. 3 lakhs.000 till she is 25 years old. All you have to do after that is sit back and watch your investments accumulate. This is because while you are saving the lump-sum .10 lakhs.Neha’s investments have grown to Rs. each amount you invests grow through compounding benefits as well. per due date.

3.3 What are RBI Bonds?
RBI Bonds are tax saving bonds that have a special provision that allows the investor to save on tax. These Bonds are instruments that are issued by the RBI, and currently has two options – one carrying an 8% rate of interest p.a., which is taxable and the other one carries a 6.5% (tax-free) interest p.a. The interest is compounded halfyearly and there is no maximum limit for investment in these bonds. The maturity period of the 8%(taxable) bond is 6 years and that of the 6.5%(tax-free) bond is 5 years. Application forms for RBI Bonds are available and accepted at all branches of the Reserve Bank of India, designated branches of the SBI, and designated branches of nationalised banks across the country.

The minimum investment on RBI Savings Bonds is Rs 1,000. You can apply in multiples of Rs 1,000 thereafter. There is no prescribed upper limit to your investment in this instrument.

Under the cumulative option of the 6.5%(tax-free) RBI Relief Bond issued at a face value of Rs 1,000 would be redeemed at Rs 1,377 on maturity (after 5 years). And in case of the cumulative option of the 8% (taxable) RBI Relief Bond issued at a face value of Rs 1,000 would be redeemed at Rs 1,601 on maturity (after 6 years). You can opt to receive interest either on a half-yearly basis or on maturity of the instrument, along with the principal invested. If you opt to receive interest on a halfyearly basis, you will receive interest every six months from the date of issue of the bond up to 30th June or 31st December, whichever is earlier. Interest is paid on 1st July and 1st January each year.


The period of holding of 6.5 per cent (tax-free) RBI Relief Bond is 5 years from the date of issue. And for the 8 per cent (taxable) RBI Relief bond, the maturity period is 6 years. The bonds are repayable on the expiration of the maturity.

While the 8 per cent taxable Savings Bond cannot be redeemed prematurely and must be held for the entire duration (6 years), the 6.5 per cent tax-free Savings bond can be redeemed before the maturity period of 5 years. In this case, after a minimum lock in period of 3 years from the date of issue, an investor can surrender the bond any time after the 6th half year but redemption payment will be made on the following interest payment due date. Thus the effective date of premature encashment will be 1st July and 1st January every year. However, 50% of the interest due and payable for the last six months of the holding period will be recovered in such cases both in respect of cumulative and non-cumulative Bonds.

RBI Savings Bonds are not eligible as collateral for loans from banks, financial institutions and Non-Banking Financial Company (NBFC) etc. 3.7 TRANSFERRABLE: RBI Savings Bonds are not tradable in the secondary market. The Bonds in the form of Bond Ledger Account and Stock Certificate are not transferable except by way of gift to a relative by execution of appropriate Transfer Form and execution of an affidavit by the holder.



Market value of RBI Relief Bonds is determined on the basis of prevailing (6.5 p per cent and 8 per cent, as applicable) interest rates and market conditions.

RBI Savings Bonds can be held at the credit of the holder in an account called BLA or in the form of PN. The bond can be held in demat form, i.e., a certificate of holding will be issued to the holder of bonds in the BLA. The bonds in the form of BLA are issued and held with the public debt offices of the RBI or any branch of a scheduled bank authorized by the RBI. The bonds in the form of PN are issued only at the offices of RBI. However, bonds issued in one form will not be eligible for conversion into the other. 3.10


In case of the 6.5 per cent RBI Savings Bond, the interest received is completely exempt from income tax as per the provisions of the Income Tax Act, 1961. But, In case of the 8 per cent RBI Savings Bond, the interest will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bondholder. RBI Savings Bonds are exempt from Wealth Tax. However, there is no tax benefit on the amount invested in these bonds. With most investment avenues such as stocks, deposits in banks and NBFCs losing their sheen, investors are seen with a sigh of relief by heading towards bonds issued by the Reserve Bank of India. Currently there are two such bonds available in the market, the already existing 8% relief bonds and the recently launched 7% savings bonds. Both these bonds offer a moderate rate of return and are a safe haven to lock one’s funds with.


with the falling interest rates the return on infrastructure bonds has also fallen.00. up to an investment of Rs. An attractive feature of infrastructure bonds is that the lock-in period is only three years. to the extent that investing in this instrument doubts one's financial prudence. Returns on investments in these bonds work out to much lower than the returns offered by Public Provident Fund (PPF) and National Savings Certificates (NSC). subject to a minimum investment of Rs 30.3 Minuses • Deduction on account of interest on infrastructure bonds under section 80L is not available. though they offer you an additional rebate on the investment under section 88. others like the Rural Electrification Corporation Ltd. The maximum investment limit to claim rebate under Section 88 has now been enhanced to Rs 1 lakh. In fact.1. 4.000.000 in infrastructure bonds.2 Pluses • The minimum lock-in period of only three years makes this scheme attractive for people who do not want their money locked in for too long. ICICI and IDBI are the major players in this segment. Investments in infrastructure bonds from various financial institutions qualify for a tax rebate under Section 88 of the Income Tax Act. have also received the permission to come up with the issues. Though it has a lock-in period of . • Infrastructure bonds.1 Infrastructure bonds provide tax-saving benefits under Section 88 of the Income Tax Act. subject to the bonds being held for a minimum period of three years from the date of allotment. 1961. do not make financial prudence any longer. 4.1What are Infrastructure Bonds? 4.4.

deduction under section 80L is not available here. Also they are subject to a 3-year lock-in period and any redemption prior to this tenure nullifies the tax benefits claimed at the time of making the investment. claiming tax benefits under Section 88 of the Income Tax Act means utilising conventional options which include taking insurance and investing in Public Provident Fund and National Savings Certificate. the aforementioned avenues account for only Rs 70.000 that can be claimed as rebates. These investments are in the form of shares/bonds/debentures and are issued by public financial institutions like IDBI and ICICI Bank. the balance Rs 30. Tax planning? Try infrastructure bonds For most investors who are conducting their annual tax-planning exercise. From the total Rs 100. they being issued by infrastructure companies (and not the government) are quite unsecured. • Small savings with big tax benefits! .as low as three years (the lowest among various other tax saving instruments). Infrastructure bonds are essentially for those who do not care to study better investment avenues and would be satisfied with bank fixed deposits. Moreover.000.000 is reserved for investments in infrastructure bonds amongst others. Moreover. the rate of interest is very near to what one would get on a one-year fixed deposit with banks. It makes more sense to pay tax and use the money to generate better returns than to lock the amount for three years and lose out to inflation. Some study in the financial markets can be well worth the effort.

While the aforementioned scheme is not available at present. returns offered by infrastructure bonds are modest at best.00% while it would be 6.64%.000 and get Rs 6. were available: • • Invest Rs 5. we have assumed that a similar one will be made available shortly when the tax-planning season kicks in. the following two variants i. coupon rate 5.580 after 5 years. respectively. Unlike small savings schemes that fall under the gamut of Section 88.14% for the second one. Hence the first option would carry a coupon rate of 6.50% and 5.030 after 3 years and 6 months.e.• How to invest and save tax In case a sale/redemption is made prior to the 3-year period. Under the cumulative option. Invest Rs 5. So how good an option are infrastructure bonds and should investors contemplate using the same. For the purpose of our study let's consider the previous issue of infrastructure bonds by a leading public financial institution. the tax rebate previously claimed is treated as investor's income for the year of sale. . Another assumption is that inflation will continue to spiral northwards as a result investors will be compensated with a coupon rate of 50 basis points above the previous issue. Let's perform a cost-benefit analysis to answer this question.000 and get Rs 6.

5-Yr 5-Yr 12. the returns on a compounded annualised growth rate (CAGR) basis would be as shown in Table 1.000 or Rs 4.000 20% Rs 150. Table 2: Risky but attractive! Returns* 3-Yr 5-Yr .000 or Rs 25. who would have invested Rs 30. Table 1: Are they good enough? Annual Income Tax Rebate Effective Return* 3. Returns of some of the top performers across categories have been listed in Table 2. one can safely conclude that the infrastructure bonds are far from attractive.500 depending on his tax bracket.04% 9. the returns are far from impressive.000 Nil Even after assuming a generous 50 basis point hike in the coupon rate which may not fructify.98% 15% 11.00% 6.500) should be invested in other investment avenues like mutual funds. which is another dampener since liquidating these investments before the 3-year lock-in would imply losing the tax rebates claimed.If the tax benefits for both the options were factored in. Now factor in the loss of liquidity. will instead incur an additional tax liability of Rs 6. The second option for investors is to pay up their tax liability and invest the balance sum in alternate avenues.000 in infrastructure bonds. Hence an investor.14% Upto Rs 150. The balance (Rs 24.98% 10.000 Over Rs 500.65% 6. Barring the tax breaks.000 – 500.

Investments in mutual funds are market-linked and not assured. Find out where you priorities lie and get invested accordingl . therefore historical returns may not be repeated in the future.27% NA 25. paying the taxes and investing in a welldiversified equity/balanced scheme may not be a bad proposition.e.89% 43. Investments should be governed by investors' risk-appetite and not how attractive the returns are However the motive behind investing in infrastructure bonds.58% 32. If you are an investor with an appetite for risk. i.22% 41.57% 32.A large number of investors who are habituated to riskfree investing might be unwilling to venture into market-linked products and rightly so.02% NA At the outset we would like to state that historical returns (in case of mutual funds) have been compared with future assured returns for infrastructure bonds.45% 13. The solution probably lies in striking a balance between the two.04% 18.e. to save taxes. what they are capable of delivering going forward. Secondly the risks associated with mutual fund investing are exponentially higher vis-àvis those in infrastructure bonds. But a 3-year period indicates reasonably well. i.Diversified Equity Funds HDFC Top 200 Franklin India Bluechip Sundaram Growth Balanced Funds HDFC Prudence Fund DSP ML Balanced FT India Balanced 50. the benefits of an investment avenue that offers assured yet modest returns coupled with tax benefits on one hand and a high risk-high return proposition on the other.84% 45. should not be so overbearing that it proves to be an infeasible proposition.66% 21.



. If you have invested in any investment scheme till yet. of Respondents 30 25 20 15 10 5 0 Fixed deposits Savings Responses Mutual funds Series1 (HOLDERS OF DIFFERENT INVESTMENT SCHEMES) Interpretation Out of 60 respondents. 25 in Savings & 15 in Mutual Funds. if yes. then which – Table1Response Fixed deposits Savings Mutual funds No. of respondents 20 25 15 Percentage 40% 50% 30% Graph1No.1. 20 respondents has invested in Fixed deposits.

25 respondents have given more than 5 points on the returns they get out of 10 & 35 have given less than 5 points. of the investment you have made on the scale of 1 to 10Table2Response No.2. of respondents 35 25 Percentage 70% 50% Less than 5 More than Graph240 30 20 10 0 More than 5 Less than 5 Responses Series1 Interpretation: Out of 60 respondents. of Respondents (SATISFACTION FROM RETURN OF DIFFERENT INVESTMENTS) . Please rate your satisfaction on the return. No.

of Respondents 50 40 30 20 10 0 Yes Responses No Series1 (COMPARISON BETWEEN MUTUAL FUNDS AND FD’S) Interpretation Out of 60 respondents . of respondents 40 20 Percentage 80% 40% Graph3No. . 40 respondents think that Mutual funds is a better investment option than Fixed deposits& 20 think that Fixed deposits is better. Do you think that mutual fund is a better option than FD’S –? Table3Response Yes No No.3.

4. of Responses 30 25 20 15 10 5 0 Risk Returns Responses Tenure Series1 (FACTORS TO BE CONSIDERED WHILE INVESTING IN SCHEMES) . What factor would you consider most important while investing in any investment schemeTable4Responses Risk Returns Tenure No. of respondents 25 20 15 Percentage 50% 40% 30% Graph4- No.

of respondents 15 45 Percentage 30% 90% (HOLDERS OF MUTUAL FUNDS) Interpretation Out of 60 respondents.Interpretation Out of 60 respondents. .20 of them think that Returns is important & 15 think that Tenure is important. 25 respondents think that Risk is the important factor to be considered while investing in an investment option . Do you invest in mutual fund? Table5Responses Yes No Graph5No. 15 respondents have invested in Mutual funds scheme & 45 respondents have not. of respondents 50 40 30 20 10 0 Yes Responses No Series1 No.

5. Are you satisfied with the results of mutual funds scheme? Table6Responses Satisfied Unsatisfied Neither Satisfied unsatisfied Graph6No. of Respondents 14 12 10 8 6 4 2 0 Satisfied Neither satisfied nor Unsatisfied Responses No. of Respondents 12 0 nor 3 Percentage 24% 0 6% Series1 (SATISFACTION WITH RESULTS OF MUTUAL FUNDS) .

.Interpretation Out of 15 respondents who have invested in mutual funds. 13 are satisfied with the results & 3 respondents are neutral that is they are neither satisfied nor dissatisfied.

7. Are you aware that mutual fund industry is regulated by SEBI? Table7Responses Yes No Graph7No. of Respondents 60 50 40 30 20 10 0 Yes Responses No Series1

No. of Respondents 55 5

Percentage 110% 10%


fund industry is

Out of 60 respondents, 55 respondents are aware that Mutual regulated by SEBI & 5 are unaware.

8 What do you think about the future of mutual fund in India? Is it? Table8Responses Very Bright Bright Very Bleak Bleak Doesn’t Know No. of Respondents 3 9 0 1 2 Percentage 6% 18% 0 2% 4%

Graph 8No. of Respondents 10 8 6 4 2 0
ht Br Ve igh t ry Bl ea k Do Bl ea se k n' tK no w Br ig


Ve ry



Interpretation Out of 15 Respondents who have invested in Mutual funds,3
think that it has very bright future,9 think that it has bright future,1 think that it has bleak future&2 doesn’t hold any opinion.

9. Why you have not invested in mutual fund?. Table9Responses Lack of information High Risk Any other No. of Respondents 40 15 5 Percentage 80% 30% 10%

Graph 9No. of Respondents 50 40 30 20 10 0 Lack of information High Risk Response s Any other Series1


Interpretation Out of 60 Respondents, 40 respondents have not invested in
mutual funds because of lack of information, 15 due of high risk& 5 due to any other reason.

of Respondents 12 10 8 6 4 2 0 Yes Responses No Series1 (PREFERANCE TOWARDS MUTUAL FUNDS) Interpretation Out of 15 respondents who have not invested in mutual funds. Would you consider investing in mutual fund? Table10Responses Yes No No. .10 would consider investing in it & 5 would not.. of Respondents 10 5 Percentage 20% 10% Graph10No.10.

of Respondents 60 50 40 30 20 10 0 News papers Relatives/Friends Responses Series1 No.11. . of Respondents 35 40 45 25 50 Percentage 70% 80% 90% 50% 100% (SOURCES OF INFORMATION) Interpretation Most of the respondents rely on Self analysis before investing in any investment scheme & then on Banks & Investment advisors. Which information do you rely on? Table11Responses Newspapers Banks Investment advisors Friends/relatives Self analysis Graph11No.


people are not satisfied with the low and taxable returns they are getting after a certain time period by investing in fixed deposits but they have no other choice because people are unaware about modern techniques of investment. This is very surprising and is due to the unawareness of people regarding the latest available investment options. Thus a decision can be drawn is that demand of modern techniques can be introduced by creating awareness in the minds of people regarding these investment opportunities available. Ambala Cantt.CONCLUSION: At last to conclude my study at the HDFC Bank. it was found that in this new emerging business scenario people still are investing their hard earned cash in Traditional instruments of investment like FD’s rather than in modern instruments like Mutual Funds. The factors responsible for their unawareness are lack of qualitative efforts by banks. . After making them aware about the existence of these techniques and their features they have shown keen interest in these. their rigid ness in investing in traditional techniques& high risk & uncertainty in returns etc. Also.


5) The bank needs to have dedicated. 7) The bank staff shall have to be imparted requisite technical and psychological training for handling these services products and to offer the best of services to valuable clients. bank need to adequately charge for each service with proper cost-benefit analysis. 4) More ATM machines should be there in the city. dynamic. Also due steps should be taken to charge for such services in commensurate with other non-banking financial institutions. net banking. self-contained and comprehensive websites. 6) To ensure maximum profitability.SUGGESTIONS 1) Awareness regarding Mutual funds scheme should be enhanced. who do not have their own pinup. 2) For Home loans and Personal loans separate counters should be made to avoid confusion. The most important such target group is of NRIs. 3) Advertising should be done to make people aware about the E-ages like phone banking. nationalized and foreign banks. 8) The bank may consider tapping and targeting big players. .


Indiamart.  www. Banking theory and Practice. 68-84  Natrajan 1-12  Kothari C. . 18th edition.  www. Finance..ingvysyabank. Himalayan Publishing  www.16th edition.. 3rd edition. 500-511  Shekhar &Shekhar. Himalayan Publishing House.pnb. 12831289. Vikas Publishing House Pvt.BOOKS  Jha S. 2005.M. Bank Marketing. Wishawa Parkashan. Banking Theory law and practice. A Sameeksha Trust Publication. 348372 WEBSITES  www. 2nd edition. March 19-25. Vol XL No Annual-report of HDFC (2004-05) Broachers of HDFC Journals  Economic and Political Weekly. Research  www.

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