PREFACE

Sardar Patel University is offering the course of bachelor of

business administration.
In a classroom we are learning theories &
concepts but the main thing is we have to know how these
theories are applied in real situation. The company visit is the
best chance to understand the real application of the theories &
concepts which have learning in the classroom. This project is
the part of tY BBA(ITM) 6th SEMESTER programming.
This report is on the subject Comprehensive Project with respect
to any one companiy. All the companies are trying that they are
best maintain to fulfill the demand of customer.
I had research on hdfc mutual fund. I have learned lot of
practical knowledge about the hdfc bank.I have also got the
complete information regarding all the hdfc Mutual fund
Scemes.

Acknowledgement
The present research work cannot see the light of
the day unless it is blessed by the benign assistance of eminent
person. The help and co-ordination that I have received from
various quarters of in bringing this work to completion makes
me feel deeply indebted .This is not a work of individual but a
number of persons who helped me directly or indirectly in this
journey. So, I wish to express great fullness to all those who
have helped & assisted me in bringing the final shape of this
report.
First of all, I wish to express my deep sense of
gratitude to our In charge Principal Mr. Bhautik Patel for his
guidance and moral support all along the period of my study in
the institute.
I am deeply indebted to my project guide Prof
Mr.Ritesh Patel for his kind advice, encouragement, support &
proper guidance during the course of preparation of this project.
I got tremendous support in mastering fact & figures from him.
Really he had been a great source of information during the
period of study.
Last but not the least I wish to express my deep
sense of gratitude to all those who where knowingly or
unknowingly with me during the project tenure.

Karmvir K Chauhan

Table of Content
S.NO
Chapter 1

TITLE

PAGE NO.

Introduction to mutual
fund
1. Concept of mutual
1 fund

1.
2 Global Scenario

1.
3 Organization structure

1.
4 Different types of

Schemes
1.
5 Facts and figures

16

1.6 Statement of the

problem

20

1.7 Objective of the study

21

Chapter 2
Chapter 3

Review of Literature
Introduction of company

23

Chapter 4

Research Methodology

Chapter 5

4.
1 Introduction

29

5.
2 Data Collection

29

5.
3 Data Analysis

30

5.
4 Statistical Tools Used

30

5.
5 Limitation of the Study

31

Analysis and
Interpretation

37

Chapter 6

Recommendation And
Conclusion

72

Bibliography

CHAPTER-1
INTRODUCTION
An investment is a sacrifice of current money or other
resources for future benefits. Numerous avenues of investments
are available today. The two key aspects of any investment are
time and risk. Mutual funds also offer good investment
opportunities to the investors. Like all investments, they also
carry certain risks. The investors should compare the risks and
expected yields after adjustment of tax on various instruments
while taking investment decisions. The investors may seek
advice from experts and consultants including agents and
distributors of mutual funds schemes while making investment
decisions.

1.1 CONCEPT 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.
Investments in securities are spread across a wide cross-section
of

industries

and

sectors

and

thus

the

risk

is

reduced.

Diversification reduces the risk because all stocks may not move
in the same direction in the same proportion at the same time.
Mutual fund issues units to the investors in accordance with
quantum of money invested by them. Investors of mutual funds
are known as unit holders.
The profits or losses are shared by the investors in proportion

to their investments. The mutual funds normally come out with a

number of schemes with different investment objectives, which
are launched from time to time. A mutual fund is required to be
registered with Securities and Exchange Board of India (SEBI)
which regulates securities markets before it can collect funds
from the public.

1.2

GLOBAL SCENARIO
The money market mutual fund segment has a total corpus
of $ 1.48 trillion in the U.S. against a corpus of $ 100 million
in India.

Out of the top 10 mutual funds worldwide, eight are banksponsored. Only Fidelity and Capital are non-bank mutual
funds in this group.

In the U.S. the total number of schemes is higher than that

of the listed companies while in India we have just 277
schemes

Internationally, mutual funds are allowed to go short. In

India fund managers do not have such leeway.

In the U.S. about 9.7 million households will manage their

assets on-line by the year 2003, such a facility is not yet of
avail in India.

On- line trading is a great idea to reduce management

expenses from the current 2 % of total assets to about 0.75
% of the total assets.

72% of the core customer base of mutual funds in the top

50-broking firms in the U.S. is expected to trade on-line by
2003.

Internationally, on-line investing continues its meteoric rise.

Many have debated about the success of e- commerce and its
breakthroughs, but it is true that this aspect of technology could
and will change the way financial sectors function. However,
mutual funds cannot be left far behind. They have realized the
potential of the Internet and are equipping themselves to perform
better.
In fact in advanced countries like the U.S.A, mutual funds buy- sell
transactions have already begun on the net, while in India the Net is
used as a source of Information.

Such changes could facilitate easy access, lower intermediation

costs and better services for all. A research agency that
specializes in internet technology estimates that over the next
four years Mutual Fund Assets traded on- line will grow ten folds
from $ 128 billion to $ 1,227 billion; whereas equity assets traded
on-line will increase during the period from $ 246 billion to $
1,561 billion. This will increase the share of mutual funds from
34% to 40% during the period.

1.3 ORGANISATION STRUCTURE OF MUTUAL FUND

There are many entities involved and the diagram below
illustrates the organizational set up of a mutual fund:
Fig 1.1

A mutual fund is set up in the form of a trust, which has

sponsor,

trustees,

asset

Management

Company

(AMC)

and

custodian. The trust is established by a sponsor or more than one

sponsor who is like promoter of a company. The trustees of the
mutual fund hold its property for the benefit of the unit holders.
Asset Management Company (AMC) approved by SEBI manages
the funds by making investments in various types of securities.
Custodian, who is registered with SEBI, holds the securities of
various schemes of the fund in its custody. The trustees are vested
with the general power of
superintendence and direction over AMC. They monitor the
performance and compliance of SEBI Regulations by the mutual
fund.
SEBI Regulations require that at least two thirds of the

directors of trustee company

or board of trustees must be independent i.e. they should not be
associated with the sponsors. Also, 50% of the directors of AMC
must be independent. All mutual funds are required to be
registered with SEBI before they launch any scheme.

1.4 DIFFERENT TYPES OF MUTUAL FUND SCHEMES

SCHEMES ACCORDING TO MATURITY PERIOD:

A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity period.

OPEN-ENDED FUND/ SCHEME

An open-ended fund or scheme is one that is available for
subscription and repurchase on a continuous basis. These
schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) related
prices which are declared on a daily basis. The key feature of
open-end schemes is liquidity.

CLOSE-ENDED FUND/ SCHEME

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

SCHEMES ACCORDING TO INVESTMENT OBJECTIVE

A scheme can also be classified as growth scheme, income
scheme, or balanced scheme considering its investment objective.
Such schemes may be open-ended or close-ended schemes as
described earlier. Such schemes may be classified mainly as follows:

GROWTH / EQUITY ORIENTED SCHEME

The aim of growth funds is to provide capital appreciation over
the medium to long-term. Such schemes normally invest a major
part of their corpus in equities. Such funds have comparatively
high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the
investors may choose an option depending on their preferences.
The investors must indicate the option in the application form.
The mutual funds also allow the investors to change the options at
a later date. Growth schemes are good for investors having a
long-term outlook seeking appreciation over a period of time.
INCOME / DEBT ORIENTED SCHEME
The aim of income funds is to provide regular and steady
income to investors. Such schemes generally invest in fixed
income

securities

such

as

bonds,

corporate

debentures,

Government securities and money market instruments. Such

funds are less risky compared to equity schemes. These funds are
not affected because of fluctuations in equity markets. However,
opportunities of capital appreciation are also limited in such
funds. The NAVs of such funds are affected because of change in
interest rates in the country. If the interest rates fall, NAVs of such
funds are likely to increase in the short run and vice versa.
However, long term investors may not bother about these
fluctuation.
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. These are appropriate for investors looking for
moderate growth. They generally invest 40-60% in equity and
debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, 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, preservation of capital and moderate income. These
schemes invest exclusively in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and interbank call money, government securities, etc. Returns on these
schemes fluctuate much less compared to other funds. These funds
are appropriate for corporate and individual investors as a means to
park their surplus funds for short periods.

GILT FUND
These funds invest exclusively in government

securities.

Government securities have no default risk. 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.
INDEX FUNDS
Index Funds replicate the portfolio of a particular index such as
the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these
schemes

invest

in

the

securities

in

the

same

weightage

comprising of an index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by
the same percentage due to some factors known as "tracking
error" in technical terms. Necessary disclosures in this regard are

made in the offer document of the mutual fund scheme.

FEATURES/ROLE/BENEFITS
MOBILISING SMALL SAVINGS
Mutual funds mobilize funds by selling their own shares, known
as units to an investor a unit in mutual fund means ownership of a
proportional share of securities in

10

the portfolio of a mutual fund. This gives the benefit of

convenience and the satisfaction of owning shares in many
industries.thus,

mutual

funds

are

primarily

investment

intermediaries to acquire individual investments and pass on the

returns to small fund investors.
INVESTMENT AVENUE
One of the basic characteristics of a mutual fund is that it
provides as Ideal Avenue for investment for persons of small
means, and enables them to earn a reasonable return with the
advantages of relatively better liquidity. It offers investors a
proportionate claim on the portfolio of assets that fluctuate in
value in comparison to the value of the assets that comprise the
portfolio.
PROFESSIONAL MANAGEMENT
It is possible for the small investors to have the benefit of
professional and expert management of their funds. Mutual funds
employ professional experts who manage the investment portfolios
efficiently and profitably. Investors are relieved of the emotional
stress involved in buying or selling securities since mutual take care
of this function. With their professional knowledge and experience,
they act scientifically with the right timing to buy and sell for their
clients. Moreover, automatic reinvestment of dividends and capital
gains provides relief to the members of mutual funds. Expertise in
stock selection and timing is made available to investors so that the
invested funds generate returns.

DIVERSIFIED INVESTMENT
Mutual funds have the advantage of diversified investment of

funds in various industry segments spread across the country. This

is advantageous to small investors who cannot afford having the
shares of highly established corporate because of high market
price. Thus, mutual funds allow millions of investors to have
investment in a variety of securities of many different companies.
Small investors therefore share the benefits of an efficiently
managed portfolio and are free of the problem of keeping track of
share certificates etc of various companies, tax rules, etc.

BETTER LIQUIDITY
Mutual funds have the distinct advantage of offering to its
investors the benefit of better liquidity of investment. There is
always a ready market available for the mutual funds units. In
addition, there is also an obligation imposed by SEBI guidelines.
For instance, in the case of open- ended mutual fund units, it is
possible for the investor to divest holdings any time during the
year at the Net Asset Value.
REDUCED RISKS
There is only a minimum risk attached to the principal amount
and return for the investments made in mutual fund schemes.
This is usually made possible by expert supervision, diversification
and liquidity of units. Mutual funds provide small investors the
access to a reduced investment risk resulting from diversification,
economies of scale in transaction cost and professional finance
management.
INVESTMENT PROTECTION
Mutual funds in India are largely regulated by guidelines and
legislative provisions put in place by regulatory agencies such as
the SEBI. The Securities Exchange Commission (SEC) in the USA
allows for the provision of safety of investments. In order to
protect the investor interest, it is incumbent on the part of mutual
funds to broadly follow the provisions laid down in this regard.

SWITCHING FACILITY
Mutual

funds

provide

investors

with

flexible

investment

opportunities, whereby it is possible to switch from one scheme to

another. This flexibility enables investors to shift from income

scheme to growth schemes, or vice versa, or from a close-ended

scheme to an open-ended scheme, all at will.
TAX BENEFITS

12

An attractive benefit of mutual funds is that the various

schemes offered by them provide Tax shelter to the investor. This
benefit is available under the provisions of the Income Tax Act.
LOW TRANSACTION COSTS
The cost of purchase and sale of mutual fund units is relatively
lower. This is due to the large volume of money being handled by
mutual funds in the capital market. The fees payable, such as
brokerage fee or trading commissions etc are lower. This
obviously enhances the quantum of distributable income available
for investors.
ECONOMIC DEVELOPMENT
Mutual Funds make contribution to the development of a
countrys economy. For instance, the efficient functioning of
mutual funds contributes to an efficient financial system. This in
turn paves the way for efficient allocation of the financial
resources of the country, thus contributing to the economic
development. This is made possible through the mobilization of
more savings and channelising them to the more productive
sectors of the economy.
DRAWBACKS
There

are

many

reasons

that

have

been

identified

by

researchers for the relatively poor performance of mutual funds

industry the world over. They are as follows

Expensive securities to be bought as part of portfolio buildup of mutual funds, thus increasing the overall cost and thus
reducing the returns.

Reduced returns on account of superfluous diversification.

Poor use of macro-economic forecast like gross national

product, disposal income, forecast of activities of various
industries, unemployment rate, inflation rate, interest rate,
RBI guidelines, corporate profit, etc

Poor use of investment alternatives.

RISK INVOVLED WHILE INVESTING IN MUTUAL FUNDS

THE RISK-RETURN TRADE-OFF
The most important relationship to understand is the risk-return
trade-off. Higher the risk greater the returns/loss and lower the
risk lesser the returns/loss. Hence it is upto the investor to decide
how much risk does he is willing to take- up. In order to take an
investment decision one should be aware about the various risk
involved in it.
MARKET RISK
Sometimes prices and yields of all securities rise and fall.
Broad outside influences affecting the market in general lead to
this. This is true, may it be big corporations or smaller mid-sized
companies.

This

is

known

as

Market

Risk.

Systematic

Investment Plan-SIP that works on the concept of Rupee Cost

Averaging might help mitigates this risk.

CREDIT RISK
The debt servicing ability (may it be interest payments or
repayment of principal) of a company through its cash flows
determines the Credit Risk faced by you. This credit risk is measured
by independent rating agencies like CRISIL who rate companies and
their paper. An AAA rating is considered the safest whereas a D
rating is considered poor credit quality. A well-diversified portfolio
may help to mitigate this risk.

INFLATION RISK
Things you hear people talk about:
Rs. 100 today is worth more than Rs. 100 tomorrow.

The root cause, Inflation. Inflation is the loss of purchasing power

over time. A lot of times people make conservative investment
decisions to protect their capital but end up with a sum of money
that can buy less than what the principal could at the time of the
investment. This happens when inflation grows faster than the
return on your

14

investment. A well-diversified portfolio with some investment in

equities might help mitigate this risk.
INTEREST RATE RISK
In a free market economy interest rates are difficult if not
impossible to predict. Changes in interest rates affect the prices of
bonds as well as equities. If interest rates rise the prices of bonds fall
and vice versa. Equity might be negatively affected as well in a rising
interest rate environment. A well-diversified portfolio might help
mitigate this risk.

POLITICAL/GOVERNMENT POLICY RISK

Changes in government policy and political decision can
change the investment environment. They can create a favorable
environment for investment or vice versa.
1.6 PLAYERS IN THE MUTUAL FUND
INDUSTRY BANK SPONSORED
1. Joint Ventures - Predominantly Indian
a. SBI Funds Management Ltd.
2. Others
a. BOB Asset Management Co. Ltd.
b. Canbank Investment Management Services Ltd.
c. UTI Asset Management Company Pvt. Ltd.
INSTITUTIONS
1. GIC Asset Management Co. Ltd.
2. Jeevan Bima Sahayog Asset Management Co. Ltd.
PRIVATE SECTOR
1. Indian
a. BenchMark Asset Management Co. Pvt. Ltd.
b. Cholamandalam Asset Management Co. Ltd.
c. Credit Capital Asset Management Co. Ltd.
d. Escorts Asset Management Ltd.
e. JM Financial Mutual Fund
f. Kotak Mahindra Asset Management Co. Ltd.
g. Reliance Capital Asset Management Ltd.
h. Sahara Asset Management Co. Pvt. Ltd

i. Sundaram Asset Management Company Ltd.

j. Tata Asset Management Private Ltd.
2. Joint Ventures - Predominantly Indian
a. Birla Sun Life Asset Management Co. Ltd.
b. DSP Merrill Lynch Fund Managers Limited

15

c. HDFC Asset Management Company Ltd.

3.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.

Joint Ventures - Predominantly Foreign

ABN AMRO Asset Management (I) Ltd.
Alliance Capital Asset Management
(India) Pvt. Ltd.
Deutsche Asset Management (India) Pvt.
Ltd.
Fidelity
Fund
Management
Private
Limited
Franklin Templeton Asset Mgmt. (India)
Pvt. Ltd.
HSBC Asset Management (India) Private
Ltd.
ING Investment Management (India) Pvt.
Ltd.
Morgan Stanley Investment Management
Pvt. Ltd.
Principal Asset Management Co. Pvt. Ltd.
Prudential ICICI Asset Management Co.
Ltd.

CHAPTER 2
STATEMENT OF THE PROBLEM

Based on the definition of problem, it is clearly understandable

that a problem does not necessarily mean that something is
seriously wrong with a current situation that
needs to be rectified immediately. But a Problem could simply
indicate an interest in an issue where findings the right answers
might help to improve an existing situation.
The problem of the study involves identifying ways for the
Mutual fund players to improve their investment strategy and also
providing information about their competitors performance based
on which any shortfall existing within them can be overcome for
better results of performance.
Evaluating the performance of various fund schemes of different
mutual fund players in the market of different category of funds will
help to identify the actions taken by the fund managers of different
mutual fund players about the ways to handle the situations in
different manner by each of them when the market condition is up or
down and cautiously deciding their investment strategy in order to
reap profits at all the times.

20

CHAPTER 3
OBJECTIVE OF THE STUDY
The main objective of the study is to analyze and evaluate the
performance of HDFC Mutual Fund Schemes with respective to
their competitors schemes, the evaluation of performance of the
schemes is carried out for three major categories of the mutual
fund schemes such as
EQUITY FUND
HDFC Equity Fund Vs Franklin India Blue
Chip Fund Vs Reliance Vision Vs Tata pure
equity
INCOME FUND
HDFC Income Fund Vs Templeton India
Income Builder Vs Sundaram Bond saver
BALANCED FUND
HDFC Prudence fund Vs Franklin Templeton India
Balanced Fund Vs Alliance 95
The above category schemes are most preferred by the
investors for investing their funds. The idea behind selecting the
category of equity fund scheme is because of its
unique strength of getting high returns associated with high risk
mainly preferred by the aggressive investors. And the second
category the income fund scheme is mainly concerned for the
conservative investors who are willing to take up minimum risk
associated with minimum returns. Finally the balanced fund
category scheme is for the moderate investors who are willing
to take normal risk for normal returns.

The study includes both the GROWTH and DIVIDEND Options

of all the above mentioned schemes for the analysis. The selection
of the above category is to cover all type of investors. And the

above category schemes are analyzed in different parameters, in

order to evaluate the performance of the schemes in all the
angles.

21

The analysis part of the study is based upon the data collected
for the past three years of all the schemes and with help of using
some of the statistical tools for evaluation of performance of the
schemes. The analysis involves finding out the quarterly returns
for the past 3 years, risk and return analysis, the Sharpe measure,
rank analysis based on different parameters and finally analysis
on the sectoral allocation of the schemes with reference to the
latest data knowing the most preferred sectors to be invested for
better returns.
Based on the above measures, it will be helpful for us to
interpret the findings and evaluate the performance of the various
fund schemes of different categories knowing which scheme is
highly performing and the scheme which is least performing. This
study will help to find out the performance of various competitors
schemes and find out the reasons for their performance over a
period of time. On this analysis it will help to overcome the
shortfall that are existing in a scheme which are least performed
when compared to the other competitors scheme.
Based on this analysis, we can say whose strategy of investment
was proving better and by obtaining information through this
analysis the findings are traced out and provided suggestions for
the firms to improve their existing situation in an active manner
and earn high returns for their investors.

CHAPTER 4
LITERATURE REVIEW
Mutual Fund industry today, with about 34 players and more
than five hundred schemes, is one of the most preferred
investment avenues in India. However, with a plethora of schemes
to choose from, the retail investor faces problems in selecting
funds. Factors such as investment strategy and management style
are qualitative, but the funds record is an important indicator too.
Though past performance alone can not be indicative of future
performance, it is, frankly, the only quantitative way to judge how
good a fund is at present. Therefore, there is a need to correctly
assess the past performance of different mutual funds.
Worldwide, good mutual fund companies over are known by
their AMCs and this fame is directly linked to their superior stock
selection skills. For mutual funds to grow, AMCs must be held
accountable for their selection of stocks. In other words, there
must be some performance indicator that will reveal the quality of
stock selection of various AMCs.
Before analyzing the performance of the various mutual fund
schemes it would be more understandable if we know the
meaning of the variables that are involved in this study.
NET ASSET VALUE
The performance of a particular scheme of a mutual fund is
denoted by net asset value. Mutual funds invest the money
collected from the investors in securities markets. In simple
words, net asset value is the market value of the securities held
by the scheme. Since market value of securities changes everyday,
NAV of a scheme also varies on day to day basis. The NAV per unit
is the market value of securities of a scheme divided by the total
number of units of the scheme on any particular date.
PRICE EARNING RATIO

The ratio between the share price and the post tax earnings of a
company is called as price earning ratio or the P/E multiple. The P/E
multiple is an indicator of value the market assigns to every rupee
earned by a company. If a companys earnings per share in the last
financial year was Rs. 30, and if it is being traded in the markets at a
price of Rs.

23

450, the P/E multiple is 450/30 =15. This means that the market
is paying Rs.15 per rupee of earnings of this company.
DIVIDEND YIELD
The dividend paid out by the company, is usually a percentage
of the face value of a share. For example, if a company declares a
dividend of 20% the payout is Rs. @ per share of 10. However, a
20% return accrues to the investor only if he has bought the share
at Rs. 10. If the market price is different from Rs. 10, the return to
the investor would also be different.
EXPENSE RATIO
The ratio of total expenses of the fund to the net asset of the
fund. An expense ratio of 1.45% means that the fund spends Rs.
1.45 per 100 of net assets, towards operating expenses and fees
to service providers and AMC. Expense ratios can actually
understand the total expenses, because brokerage paid on
transactions of a fund are not included in the expenses. According
to the current SEBI norms, brokerage commissions are capitalized
and included in the cost of the transaction. Expense ratios are also
sensitive to the size and type of fund. Larger the fund, lower the
expense ratio. Equity funds have lower expense ratios than bond
funds.
PORTFOLIO TURNOVER RATIO
The ratio of aggregate sales/ purchases made by funds in the
market to the net assets of the fund. A higher turnover rate means
that the fund is churning its portfolio very aggressively. A 100%
turnover rate means tat transactions are large enough to have
churned the entire portfolio over. A high turnover rate means that
the fund manager is tiring to profit from most market turns, but

such a strategy comes with a higher transactions cost too. A fund

with a value based strategy is most likely having a lower turnover
ratio, while liquid funds are likely to have a large turnover ratio.
This ratio has to be evaluated against the stated objective of the
fund, and the investment philosophy of the fund manager.
FUND RANKING

24

If we are able to compute the Sharpe ratio for funds in the

same group say equity funds, comparing them with the S& P CNX
500 index, the Sharpe ratio that we get can be used to rank the
funds. The fund with the highest Sharpe ratio will be the top
performer, since it has delivered the highest return per unit of
risk. Mutual fund ranking involves the comparison of mutual fund
performance over a period of time, using several criteria to judge
for consistency in performance.
PORTFOLIO MANAGEMENT STYLE
Though fund managers may be investing in the equity markets, it
can be seen that each one of them shows a preference for certain
kind of stocks. For example, some funds tend to focus n large and
liquid companies. Some tend to be primarily invested in smaller
companies with greater promise of appreciation, but limited liquidity.
These preferences of fund managers for choosing securities with
certain characteristics, is called style. Fund management styles are
the most differentiates in the performance of funds.

Return alone should not be considered as the basis of

measurement of the performance of a mutual fund scheme, it
should also include the risk taken by the fund manager because
different funds will have different levels of risk attached to them.
Risk associated with a fund, in a general, can be defined as
variability or fluctuations in the returns generated by it. The
higher the fluctuations in the returns of a fund during a given
period, higher will be the risk associated with it. These
fluctuations in the returns generated by a fund are resultant of
two guiding forces. First, general market fluctuations, which
affect all the securities, present in the market, called market risk

or systematic risk and second, fluctuations due to specific

securities present in the portfolio of the fund, called unsystematic
risk.
The Total Risk of a given fund is sum of these two and is
measured in terms of standard deviation of returns of the fund.
Systematic risk, on the other hand, is measured in terms of Beta,
which represents fluctuations in the NAV of the fund vis--vis market.
The more responsive the NAV of a mutual fund is to the changes in
the market; higher will be its beta. Beta is calculated by relating the
returns on a mutual fund

25

with the returns in the market. While unsystematic risk can be

diversified through investments in a number of instruments,
systematic risk can not. By using the risk return relationship, we
try to assess the competitive strength of the mutual funds vis--vis
one another in a better way.
In order to determine the risk-adjusted returns of investment
portfolios, several eminent authors have worked since 1960s to
develop composite performance indices to evaluate a portfolio by
comparing alternative portfolios within a particular risk class. The
most important and widely used measures of performance are:
The Treynor Measure
The Sharpe Measure
The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates
funds on the basis of Treynor's Index. This Index is a ratio of
return generated by the fund over and above risk free rate of
return (generally taken to be the return on securities backed by
the government, as there is no credit risk associated), during a
given period and systematic risk associated with it (beta).
Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rf is risk free rate of return
and Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a
high and positive Treynor's Index shows a superior risk-adjusted
performance of a fund, a low and negative Treynor's Index is an
indication of unfavorable performance.
The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of

Sharpe Ratio, which is a ratio of returns generated by the fund
over and above risk free rate of return and the total risk
associated with it. According to Sharpe, it is the total risk of the
fund that the investors are concerned about. So, the model
evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si

26

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior riskadjusted performance of a fund, a low and negative Sharpe Ratio
is an indication of unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they
both divide the risk premium by a numerical risk measure. The
total risk is appropriate when we are evaluating the risk return
relationship for well-diversified portfolios. On the other hand, the
systematic risk is the relevant measure of risk when we are
evaluating less than fully diversified portfolios or individual
stocks. For a well-diversified portfolio the total risk is equal to
systematic risk. Rankings based on total risk (Sharpe measure)
and systematic risk (Treynor measure) should be identical for a
well-diversified portfolio, as the total risk is reduced to systematic
risk. Therefore, a poorly diversified fund that ranks higher on
Treynor measure, compared with another fund that is highly
diversified, will rank lower on Sharpe Measure.
RUPEE COST AVERAGING
If an investor invests a fixed amount in an investment avenue, say
mutual funds, he will benefit from thus disciplined approach, in
the long run, even if the Nav of the mutual fund in which he is
investing is fluctuating from time to time. This is because, if a
fixed sum is invested, when the Nav is high, the investor will buy
fewer units; he will buy more units when the NAV is lower. This
results in the average cost of investment being lower to the
investor. This strategy is called as dollar cost averaging.
Thus rupee cost averaging helps an investor follow a systematic
approach to investing. Many mutual funds offer systematic
investment plans (SIPs) to enable investors to do rupee cost
averaging.

COMPANY PROFILE

HDFC ASSET MANAGEMENT COMPANY LIMITED

(AMC)

VISION
To be a dominant player in the Indian mutual fund space
recognized for its high Levels of ethical and professional conduct
and a commitment towards enhancing Investor interests.
MANAGEMENT
HDFC TRUSTEE COMPANY LIMITED
A company incorporated under the Companies Act, 1956 is the
Trustee to the Mutual Fund vides the Trust deed dated June 8,
2000, as amended from time to time. HDFC Trustee Company
Limited is a wholly owned subsidiary of HDFC Limited.

HDFC ASSET MANAGEMENT COMPANY LIMITED

HDFC

Asset

Management

Company

LTD

(AMC)

was

incorporated under the Companies Act, 1956, on December 10,

1999, and was approved to act as an Asset Management Company
for the Mutual Fund by SEBI on June 30, 2000.
In terms of the Investment Management Agreement, the
Trustee has appointed the AMC to manage the Mutual Fund. As
per the terms of the Investment Management Agreement, the
AMC will conduct the operations of the Mutual Fund and manage
assets of the schemes, including the schemes launched from time
to time.

SHAREHOLDING PATTERN OF THE AMC

Fig 1.2

31

HDFC
50.10 %

HDFC
ASSET
MANAGEMENT
COMPANY
STANDARD LIFE
INVESTMENTS
LIMITED

49.90%

Zurich Insurance Company (ZIC), the Sponsor of Zurich India

Mutual Fund, following a review of its overall strategy, had
decided to divest its Asset Management business in India. The
AMC had entered into an agreement with ZIC to acquire the said
business, subject to necessary regulatory approvals. On obtaining
the regulatory approvals, the Schemes of Zurich India Mutual
Fund have migrated to HDFC Mutual Fund on June 19, 2003.
The AMC is managing 21 open-ended schemes of the Mutual
Fund and also managing the respective Plans of HDFC Fixed
Investment Plan, a closed ended Income Scheme.
The AMC has renewed

its registration from SEBI vide

Registration No. - PM / INP000000506 dated December 4, 2003 to

act as a Portfolio Manager under the SEBI (Portfolio Managers)
Regulations, 1993. The Certificate of Registration is valid from
January 1, 2004 to December 31, 2006. The AMC is also providing
portfolio management / advisory services and such activities are
not in conflict with the activities of the Mutual Fund.

CHAPTER 4
RESEARCH METHODLOGY
4.1 Introduction
Research methodology is a way to systematically solve the
research problem. It is understood as science of studying how
research is done scientifically.
It guides and analyzes the various steps of the research along
with the logic behind them. It is the framework, which specifies
the type of information to be collected, sources of information and
the techniques for data analysis.
The data collected for the study of the project involves both the
primary and secondary source of data. The primary data collected
is mainly based on the observations and interaction made with the
agents and the distributors. And the secondary data is collected
through

various

sources

such

as

fact

sheets,

pamphlets,

magazines, newspaper and from the websites of the respective.

5.2 DATA COLLECTION

PRIMARY DATA
The observation is mainly depend upon to know about the
investors perspective towards their investment in the mutual fund
an outperforming investment avenue and also knowing their views
and needs in selecting the best among the schemes currently
available in the market. Since the AMC has the customer support
service block where investors walk-in daily neither for their
investments nor for redemption purpose which helped me to
gather the raw data.
The interaction made with the distributors and agents through
telephonic conversation benefited with good experience to know
about the investors views indirectly and also about their own

perspective towards the investment made in the mutual funds.

SECONDARY DATA
The fact sheets are issued by the AMC updated periodically on
the various information of the schemes. It involves portfolio of the
scheme, sectoral allocation, performance compared to their
benchmarks over a period of time and portfolio turnover ratio etc
acted as a complete profile about the facts and features of the
various schemes of the AMC.
The monthly edition magazine on mutual fund named insight to
mutual funds and newspaper helped me to collect data on the current
situation of the mutual fund industry, the recent changes taken place
and emerging sectors for the investment of the funds.

And finally, through surfing the internet data had been collected
through

accessing

various

www.mutualfundindia.com,

websites

such

as

www.amfiindia.com,

www.valueresearchonline.com etc.

5.3 DATA ANALYSIS

The data collected were analyzed on various parameters since
the main objective of the study involves in evaluating the
performance among the schemes needs to be focused in different
angles. All the data are analyzed with the help of statistical tool
and also based on the current scenario information of the mutual
fund Industry.

5.4 STATISTICAL TOOLS USED

RISK AND RETURN ANALYSIS
The NAV of the various schemes are collected and had taken it
as the basis for calculation of the return on the mutual fund

schemes. The returns are calculated for the past 3years on

quarterly

basis

by

applying

scientific

formula

assigned

particularly for calculation of returns on mutual fund schemes.

Risk involved in the investment of the mutual fund scheme is also
been evaluated through based on the returns calculated and also by
applying the scientific measuring tool

29

known for finding out the historical risk pertained over the
various period of various schemes.
RANK ANALYSIS
Rank analysis is also been used to evaluate the scheme
performance based on value at risk, means the return and risk are
taken as two parameters for all the schemes and ranked the
scheme on the basis where higher return is obtained at a lower
rate of risk.
THE SHARPE MEASURE
In this model, performance of a fund is evaluated on the basis
of Sharpe Ratio, which is a ratio of returns generated by the fund
over and above risk free rate of return and the total risk
associated with it.

ANALYSIS ON SECTORAL ALLOCATION

The mutual fund schemes allocate the funds on various
business and promotional sectors will also act as an important
parameter for the evaluation which clearly shows proportion of
allocation of funds by various mutual fund players by which an
analysis is made with the purview of the present well performing
sectors in the country.

5.5 LIMITATION OF THE STUDY

A study holding advantage on one side also has limitations on the
other side, based on this perspective there are few limitations that
can been seen in this project study is that

Past performance may or may not sustain in the future

Unpredictable change in the market condition will prove

difficulty in analysis of preferred sector for investing.

Investor preference is analyzed based only on observation.

Only few schemes are taken for the study.

Market risk is not taken in to consideration due to non

possibility of information

13

k.
CHAPTER 5 Data Interpretation and Data Analysis

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

STANDALONE HIGHLIGHTS

Rs in crores

2012-13

2011-12

Loan Approvals

Current Year

103,260

90,154

Cumulative

566,660

463,400

Loan Disbursements

Current Year

82,452

71,113

Cumulative

456,098

373,646

Spread on Individual Loans

1.96%

Spread on Non Individual Loans

2.94%

Spread on Loans

2.30%

2.27%

Net Interest Margin

4.21%

4.35%

Proposed dividend per share (Rs)(face value of Rs 2 per share)

12.50

11.00

Book Value per Share (Rs)

162

129

Adjusted Book Value - adjusted for unrealised gain on listed

investments (Rs)

360

294

Earnings Per Share

Basic (Rs)

31.84

27.97

Diluted (Rs)

31.45

27.54

Capital adequacy ratio

16.2%

14.6%

of which Tier I

13.8%

11.7%

Tier II

2.4%

2.9%

Non performing loans - Individual Loans

0.58%

0.55%

Non performing loans - Non Individual Loans

0.91%

1.05%

Non performing loans

0.70%

0.74%

Non performing loans (six months over due)

0.40%

0.44%

Write offs

14.74

25.40

Provision for Contingencies

1,316.95

1,218.09

Provision for non performing loans

(including additional provision made by the Corporation)

475.33

452.89

Total Provisions

1,792.28

1,670.98

Interest on Zero Coupon Debentires (ZCDs)

613.57

708.32

Less Deferred Tax on ZCD for the year

175.53

152.36

438.04

555.96

Less Deferred Tax on ZCD in respect of earlier years

70.89

Interest on ZCD utilised from securities premium account

438.04

485.07

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

STANDALONE SCHEDULES

Rs in Crores

2012-13
2011-12

FY13Q4
FY12Q4

INCOME FROM OPERATIONS

Interest on loans
18,945.29
15,354.40

5,098.49
4,459.36

Other Interest
873.06
800.53

240.74
160.40

Surplus from Deployment in Cash Management Schemes

of Mutual Funds
252.34
319.78

51.35
62.57

Dividend Income
480.66
309.66

81.43
61.51

Fees and Other Charges

241.34
268.37

87.94
60.02

Other Operating Income

4.26
9.84

1.25
1.83

20,796.95
17,062.58

5,561.20
4,805.69

INTEREST AND OTHER CHARGES

INTEREST

Loans
2,192.40
3,141.10

285.14
726.92

Deposits
4,456.86
2,964.51

1,216.73
850.23

Bonds and Debentures

7,150.51
4,987.75

1,915.53
1,345.71

13,799.77
11,093.36

3,417.40
2,922.86

OTHER CHARGES
91.12
63.42

22.43
16.07

13,890.89
11,156.78

3,439.83
2,938.93

INVESTMENTS

Equity Shares - Subsidiaries & Associate Companies

8,217.69
8,181.42

Equity Shares - Other Companies

772.07
877.44

Convertible Preference Shares

85.50
65.50

Preference Shares
5.99
5.99

Convertible Debentures
2.00

Debentures and Bonds

300.32
361.34

Certificates of Deposits
522.99
-

Pass Through Certificates and Security Receipts

71.05
80.42

Properties
141.54
144.18

Government Securities
2,837.27
1,779.61

Mutual Funds and Other Funds

729.66
772.64

13,684.08
12,270.54

Less: Provision for Diminution in Value of Investments

70.62
63.54

13,613.46
12,207.00

Unrealised gains on listed investments including HDFC

Investments Limited
30,697.77
24,463.71

1 Crore = 10 Million

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

STANDALONE RECONCILIATIONS

Rs in Crores

Borrowings

2012-13

2011-12

Term Loans
17,824

40,697

Bonds, Debentures and Commercial Paper

89,071

62,138

Deposits
51,933

36,293

158,828

139,128

Loans

2012-13

2011-12

Individuals
111,321

88,778

Corporate Bodies
56,955

50,190

Others
1,770

1,907

Loan Book
170,046

140,875

Less: Provision for non-performing loans (including additional

provision made by the Corporation)

475

453

169,571

140,422

Incremental Growth in the Loan Book

Increase in FY

As % of Total

Loans Outstanding (includes loans sold)

2013

Increase

Individuals
27,668

81%

Non-Individuals
6,677

19%

Total
34,345

100%

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED MARCH 31, 2013

Rs in crores

2012-13

2011-12

Income from Operations

22,032.46

18,223.92

Premium Income from Insurance business

12,650.29

11,155.57

Other Operating Income from Insurance Business

887.08

596.83

Profit on sale of Investments

378.35

299.46

Other Income
38.75

27.08

Total Income
35,986.93

30,302.86

Expenses

Interest and Other Charges

14,295.52

11,551.92

Staff Expenses
528.13

445.47

Establishment Expenses
125.54

90.38

Other Expenses
429.97

273.32

Claims paid pertaining to Insurance Business

5,221.28

3,797.72

Commission and operating expenses pertaining to Insurance Business

2,278.56

2,093.77

Other Expenses pertaining to Insurance Business

5,437.86

5,695.61

Depreciation
54.20

50.64

Provision for Contingencies

148.59

87.30

28,519.65

24,086.13

Profit Before Tax

7,467.28

6,216.73

Tax Expense
2,002.03

1,726.96

Net Profit (before Profit of Associates and adjustment of Minority Interest )

5,465.25

4,489.77

Share of profit of minority interest

(341.80)

(207.78)

Net share of profit from Associates

1,516.27

1,180.52

Profit after Tax attributable to the Corporation & its subsidiaries

6,639.72

5,462.51

Earnings Per Share (Rs) Basic

43.6

37.1

Earnings Per Share (Rs) Diluted

43.1

36.5

Return on Equity
24%

24%

1 Crore = 10 Million

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

Consolidated Balance Sheet as at March 31, 2013

Rs in Crores

As at
31-Mar-13
31-Mar-12

EQUITY AND LIABILITIES

SHAREHOLDERS' FUNDS

Share Capital
309.27

295.39

Reserves and Surplus

31,751.08
23,920.64

32,060.35
24,216.03

MINORITY INTEREST
1,071.47
819.53

NON-CURRENT LIABILITIES

Policy Liabilities (Policyholders' Fund)

35,086.09
28,101.94

Long Term Borrowings

93,618.53
77,447.47

Other Long Term Liabilities

1,710.92
1,266.12

Long Term Provisions

1,872.48
1,697.50

132,288.02
108,513.03

CURRENT LIABILITIES

Short Term Borrowings

18,929.26
21,132.87

Trade Payables
2,203.19
1,811.44

Other Current Liabilities

- Policy Liabilities (Policyholders' Fund)

4,238.40
3,583.60

- Borrowings
51,114.90
43,898.86

- Others
6,415.41
4,672.64

Short Term Provisions

3,627.23
3,748.02

86,528.39
78,847.43

251,948.23
212,396.02

ASSETS

NON-CURRENT ASSETS

Fixed Assets

(i) Tangible Assets

611.11
611.91

(ii) Intangible Assets

54.39
52.43

(iii) Capital Work in Progress

32.43

6.33

(iv) Intangible Assets Under Development

0.03
0.24

697.96
670.91

GOODWILL ON CONSOLIDATION
185.08
177.53

NON-CURRENT INVESTMENTS
53,616.24
43,355.43

DEFERRED TAX ASSET (Net)

659.60
654.35

LONG TERM LOANS AND ADVANCES

Loans
157,399.33
129,738.35

Others
2,135.94
2,735.85

159,535.27
132,474.20

OTHER NON CURRENT ASSETS

1,014.69
1,674.41

CURRENT ASSETS

Current Investments
5,876.18
5,283.42

Trade Receivable
216.02

632.63

Cash and Cash equivalents

7,071.67
6,481.36

Short term Loans and Advances

- Loans
18,418.46
15,196.03

- Others
3,333.97
5,253.45

Other Current Assets

1,323.09
482.17

36,239.39
33,329.06

DEFICIT IN THE REVENUE ACCOUNT (Policyholders' Account)

60.13

251,948.23
212,396.02

Chapter 6

Recommendation and Conclusion

The Findings and the interpretations given in this project were

based on the past performance, it may or may not be reflected in
the future performance, so the investors were suggested to take
due diligence in investing in the funds. It is the also to be noted
that the interpretations and the suggestions given in this project
were subject to change when more funds are put under analysis.
The Following are the few suggestions:
1. HDFC Equity holds higher risk rate when compared to Tata
pure equity providing higher returns in spite of its lower risk
rate shows its investment strategy which can be focused.
2. HDFC Equity fund sectoral allocation shows that majority of
their funds are invested in around five major sectors but the
proportion of Tata pure Equity Seems to be diversified. To
improve performance of HDFC Equity fund it is suggested to
diversify into various sectors rather than investing more in
selected sectors.
3. HDFC Equity Fund holds a lesser price earning ratio when
compared to Reliance Vision and Tata Pure Equity, which need
to be focused. Since the investors focus these P/E multiple to
make judgments about valuation of stocks.

67

4. HDFC Income Fund though well performing when compared

to others the benefit of it is enjoyed only by few, since the
corpus is low. If measures are taken to create awareness
among investors that even debt fund in HDFC is also
performing well, will add value to the whole.
5. HDFC Prudence had performed well during the past 3 years
and if it has to continue its performance an active
investment strategy had to be adopted.
6. Generally to capitalize on the benefit of the power of
compounding the investor is expected to stay in fund for at
least three years
7. The Investor shall invest their money under systematic
investment plan, to get the benefit of the averaging effect.
8. HDFC Prudence though proved to be well when compared
among others its but the Price earning ration seems to be
lower, if measures are taken it can be topper in the Balanced
Fund category.
9. It is always better to watch the market and follow the
practice of Active investment strategy than the passive
investment strategy.
10. The overall performance seems to be that HDFC Prudence
holds the best place among balanced category over the
period of time whereas the result of HDFC Equity and HDFC
Income seems to be varying where it requires special
attention to be focused on it. So that all the Schemes of
HDFC can be the best under their respective category of
Funds.

68

CONCLUSION
To conclude, based on the analysis carried over on the various
category of schemes shows that the performance where varying over
the period of time. The performance of the fund schemes were good
during 2003-04 showing that if market condition is performing well
obviously the funds performance will also positively respond towards
it. It clearly states that Mutual fund past performance is no way
indicator for the future benefits. Since the investment style is to earn
high return associating with high risk. If the market condition seems
to be active and prospering then it can be a motivated situation for
the investors to reap high benefits through investing in such a boom
period.

There is tremendous scope for Mutual funds, as the industry

grows more and more, the return on mutual funds investment is
not going to be all that important but the quality of services they
offer to investors. The investor awareness is the need of the day
and hence every mutual fund has to make concerted effort to
enlighten the investors. It is a well recognized fact that the
distorted return expectations of the investor (that is, the
expectation of high return with an inhibition to bear the
corresponding high risk) only retard the growth of the industry.
This calls for the active support and involvement of the
Association of Mutual Funds in India (AMFI) to educate the
investors so as to make them to assess mutual fund investments in
its right perspective.
As far as regulation of mutual funds is concerned, one of the
positive developments is that SEBI has tightened its grip over the
fund operators; The SEBI has already framed a set of guidelines
to curb all unethical practices and to ensure investor protection.
Combined with the change in the risk return perception of

investors and the concerted efforts by the SEBI and other

agencies, the mutual funds activity in India will emerge as the
most vibrant segment of the financial system.

Bibliography
Prasanna Chandra, investment analysis and Portfolio
management, (2004) Tata McGraw- hill publishing Company
Limited.
S.P. Gupta, Statistical Method, (2000) sultan chand and sons. .
Dr. S. Gurusamy, Financial Services and System, (2004)
Vijay Nicole imprints private limited.
Websites
www.amfiindia.com
www.mutualfundindia.com
www.valueresearchonline.com
www.indiainfoline.com
www.hdfcfund.com
www.nseindia.com
www.sebi.gov.in

SUGGESTIONS