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Project work submitted in partial fulfillment of the requirements for the
award of the Degree of



Reg. No: 15UG01067

Under the guidance of

Assistant Professor
School of Economics and Commerce’s



MUTUAL FUNDS” is the result of the project work carried out by me under the
guidance of “SURESH” in partial fulfillment for the award of Bachelor’s Degree in
Commerce by CMR University.

I also declare that this project is the outcome of my own efforts and that it has not
been submitted to any other university or Institute for the award of any other degree
or Diploma or Certificate.

Place: Bangalore Name: VINITHA.C

Date: Register Number: 15UG01067



This is to certify that the Project work titled “A STUDY ON INVESTORS

bearing University Register Number 15UG01067 and is being submitted in partial
fulfillment for the award of the Bachelor’s Degree in Commerce of CMR University.
The report has not been submitted earlier either to this University /Institution for the
fulfillment of the requirement of a course of study


I would like to use this opportunity to express my gratitude to everyone who
supported me throughout the course of this project. I am thankful for their aspiring
guidance, invaluable constructive criticism and friendly advice during the project
work. I am sincerely grateful to them for sharing their truthful and illuminating view
related to the project.

I would also like to thank our Director Dr. Srinivas.K. T for giving me the
opportunity to do this project.

I pay my deep sense of gratitude to my guide Suresh for not only helping me but
also for his encouragement, motivation, and presentation inspiration and kind
supervision throughout the preparation of the project.

Chapter No Particulars Page No
I Introduction
II Industry Profile
III Research Design
IV Analysis And Interpretations
V Findings And Conclusions
Figure No Figure Name Page No

1.1 An Overview on mutual fund

A mutual fund is a financial intermediary that pools the savings of investors for
collective investment in a diversified portfolio of securities. A fund is ‘mutual’ as all of its
returns, minus its expenses, are shared by the fund’s investors.

The securities and Exchange Board of India (Mutual Funds) Regulations, 1996 defines a
mutual fund as a ‘a fund established in the form of a trust to raise money through the sale of
units to the public or a section of the public under one or more schemes for investing in
securities, including money market instruments’.

According to the above definition, a mutual fund in India can raise resources through sale
of units to the public. It can be set up in the form of a trust under the Indian Trust Act. The
definition has been further extended by allowing mutual funds to diversify their activity in the
following areas

 Portfolio management services

 Management of offshore funds
 Providing advice to offshore funds
 Management of pension or provident funds
 Management of venture capital funds
 Management of money market funds
 Management of real estate funds.

A mutual fund serves as a link between the investor and the securities market by
mobilizing savings from the investors and investing them in the securities market to generate
returns. Thus, a mutual fund is akin to portfolio management services (PMS). Although, both
are conceptually same, they are different from each other.

Mutual funds in India are not much different from portfolio managers for select
corporate and high net worth individuals whose collective share in MF investments is more
than 80 per cent.

Mutual fund is a collective savings scheme. Mutual funds play an important role in
mobilizing the savings of small investors and channelizing the same for productive ventures
in the Indian economy.

1.2 Meaning of Mutual fund

To state in simple words, a mutual fund collects the savings from small investors,
invest them in Government and other corporate securities and earn income through interest
and dividends, besides capital gains. It works on the principle of ‘small drops of water make
a big ocean’. For instance, if one has Rs. 1000 to invest, it may not fetch very much on its
own. But, when it is pooled with Rx. 1000 each from a lot of other people, then, one could
create a ‘big fund’ large enough to invest in a wide varieties of shares and debentures on a
commanding scale and thus, to enjoy the economies of large scale operations. Hence, a
mutual fund is nothing but a form of collective investment. investors to participate in and
derive the benefit of the capital market growth. It has emerged as a popular vehicle of
creation of wealth due to high return, lower cost and diversified risk.


The securities and Exchange Board of India (Mutual Funds) Regulations, 1993
defines a mutual fund as “a fund established in the form of a trust by a sponsor, to raise
monies by the trustees through the sale of units to the public, under one or more schemes, for
investing in securities in accordance with these regulations”

According to Weston J.Fred and Brigham, Eugene, F., unit Trusts are “Corporations
which accept dollars from savers and then use these dollars to buy stocks, long term bonds,
short term debt instruments issued by business or government units; these corporations pool
funds and thus reduce risk by diversification”.

Thus, mutual funds are corporations which pool funds by selling their own shares and
reduce risk by diversification”.

Fund Unit Vs Share:

Just like shares, the price of units of a fund is also quoted in the market. This price is
governed basically by the value of the underlying investment held by that fund. At this
juncture, one should not confuse a mutual fund investment on uni9ts with that of an
investment on equity shares. Investment on equity share represents investment in a particular
company alone. On the other hand, investment on an unit of a Fund represe4nts investment
in the parts of shares of a large number of companies. This itself gives an idea how safe the
units are. If a particular company fails, the share-holders of that company are affected very
much whereas the unit holders of that company are able to withstand that risk by means of
their profitable holdings in other company’s shares.

Again, investment on equity shares can be used as a tool by speculators and inveterate
stock market enthusiasts with a view to gaining abnormal profits. These people play an
investment game in the stock market on the basis of daily movement of prices. But, mutual
funds cannot be invested for such purposes and the mutual fund is not at all concerned with
the daily ebbs and flows of the market. In short, mutual fund is not the right investment
vehicle for speculators. Mutual fu8nds are, therefore, suitable only to genuine investors
whereas shares are suitable to both the genuine investors and the speculators.




In India, the Mutual Fund industry has been monopolized by the Unit Trust of India ever
since 1963. Now, the commercial banks like the State Bank of India, Canara Bank, Indian
Bank, Bank of India and the Punjab National Bank have entered into the field. To add to the
list are the LIC of Indian and the private sector banks and other financial institHDFCons.
These institution share successfully launched a variety of schemes to meet the diverse needs
of millions of small investors. The Unit Trust of India has introduced huge portfolio of
schemes like Unit 64, Mastergain, Mastershare etc. It is the country’s largest mutual fund
company with over 25 million investors and a corpus exceeding Rs.55,000 crores, accounting
for nearly 10% of the country’s stock market capitalization. The total corpus of the 13 other
mutual funds in the country is less than Rs. 15,000 crore. The SBI fund has a corpus of Rs.
2925 crore deployed in its 16 schemes servicing over 2.5 million shareholders.

On the whole, as on 30.9.95 there were nearly 25 mutual funds offering 80 different
schemes and servicing nearly 60 million investors.

There are also mutual funds with investments sourced abroad called ‘offshore Fund’.
They have been established for attracting NRI investments to the capital market in India. The
India Fund Unit scheme 1986 traded in the London Stock Exchange and the India Fund Unit
Scheme 1988 traded in the New York Stock Exchange were floated by the Unit Trust of India
and ‘the India Magnum Fund’ was floated by the State Bank of INDIA. At present, there are
16 different off share Indian funds which have brought about $2.7 billion to the Indian

Besides the above, the LIC and the GIC have also entered into the market. Again many
private organizations have entered into the field. Most of the schemes have declared a
dividend ranging between 13.5% and 17%. In most of the cases it is around 14% only.

The recent trend in the mutual fund industry is to go for tie-up arrangement with foreign
collaborators. We find Tata’s tying up with Kleinworth Benson; GIC with George Soros;
Credit Capital with Lazard Brothers; Kothari with Pioneer; ICICI with JP Morgan; 20 th
Century with Morgan and so on. Of course, these tie-ups would bring in new perspective,
systems and technology and this very foreign tag may add credit to the institHDFCon.

The private sector which entered the arena in 1993 is concentrating on the primary
market. It is so because, investments in new shares fetch appreciation between 30 and 1500
per cent in a very short period. Promoters too give preferential treatment to mutual funds
because it reduces their marketing cost. Again, they go for fund-participation in a venture
even before it goes public. They see potential for immense appreciation in unlisted securities
which intend to go to public with a short period of one year. In India, mutual funds have been
preferred as an avenue for investment by the household savers only from 1990s. The sales of
units of HDFC which were Rs.890 crores in 1985-86 rose to Rs.4100 crores in 1990-91 and
Rs.9500 crores in 1993-94. The public sector mutual funds were able to collect Rs.3800
cores in 1990-91. However, they could collect only Rs.400 crores in 1993-94. The private
sector mutual funds mobilized Rs.1700 crores in 1993-94. On the whole, the mutual fund
industry was able to mobilize approximately Rs.12000 crores in 1993-94 which amounts to
8% of the gross domestic house holding savings in the country. It is a good going indeed.
However, the rate of growth is comparatively slow and not very satisfactory.


The concept of mutual funds in India dates back to the year 1963. The era between
1963 and 1987 marked the existence of only one mutual fund company in India with Rs. 67
bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India

(UTI). By the end of the 80s decade, few other mutual fund companies in India took their
position in mutual fund market. The new entries of mutual fund companies in India were SBI
Mutual Fund, Can bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank
Mutual Fund, Bank of India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the
end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds
started penetrating the fund families. In the same year the first Mutual Fund Regulations
came into existence with re-registering all mutual funds except UTI. The regulations were
further given a revised shape in 1996.

Kothari Pioneer was the first private sector mutual fund company in India which has
now merged with Franklin Templeton. Just after ten years with private sector players’
penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund
companies in India. The origin of mutual fund industry in India is with the introduction of the
concept of mutual fund by HDFC in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-HDFC players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both
quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending
phase; the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the
fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the
height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison,
the total of it is less than the deposits of SBI alone, constitute less than 11% of the total
deposits held by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in
the country. Hence, it is the prime responsibility of all mutual fund companies, to market the
product correctly abreast of selling. The mutual fund industry can be broadly put into four
phases according to the development of the sector. Each phase is briefly described as under.

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 HDFC was de-linked from the RBI and the

Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by HDFC was Unit Scheme 1964. At the
end of 1988 HDFC had Rs.6, 700 crores of assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-HDFC mutual funds. SBI Mutual Fund was the first followed by Can
bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
in 1989 and GIC in 1990. The end of 1993 marked Rs. 47,004 as assets under management.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual
funds, except HDFC were to be registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector mutual fund registered in July
1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of
Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under
management was way ahead of other mutual funds.

Fourth Phase - since February 2003

This phase had bitter experience for HDFC. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835
crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning

under an administrator and under the rules framed by Government of India and does not
come under the purview of the Mutual Fund Regulations.

The second is the HDFC Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile HDFC which had in March 2000 more than Rs.76, 000 crores of
AUM and with the setting up of a HDFC Mutual Fund, conforming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of consolidation and growth.


ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee
(India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management
(India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life
Financial. Sun Life Financial is a global organization evolved in 1871 and is being
represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from
India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment.

Recently it crossed AUM of Rs. 10,000 crores.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992
under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the

AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG
is the custodian.


HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing
Development Finance Corporation Limited and Standard Life Investments Limited. HSBC
Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India)
Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the trustee
company of HSBC Mutual Fund.


ING Vysya Mutual Fund was setup on February 11, 1999 with the same named
Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment
Management (India) Pvt. Ltd. was incorporated on April 6, 1998.


The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of
the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup
on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee
Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset
Management Company Limited incorporated on 22nd of June, 1993.


Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial
Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited
incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up
capital of the AMC stands at Rs 25.8 crore.


State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch
offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it
is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes

out of which 15 have already yielded handsome returns to investors. State Bank of India
Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8
Lakhs spread over 18 schemes.


Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors
for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The
investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt.
Limited. Tata Asset Management Limited’s is one of the fastest in the country with more than
Rs. 7,703 crores (as on April 30, 2005) of AUM.


Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL.

It is presently having more than 1,99,818 investors in its various schemes. KMAMC started
its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to
investors with varying risk - return profiles. It was the first company to launch dedicated gilt
scheme investing only in government securities.


UTI Asset Management Company Private Limited, established in Jan 14, 2003,
manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited.
UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The
sponsors of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB),
State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of
UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds,
Equity Funds and Balance Funds.


Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882.
The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is
the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was
changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various

schemes under which units are issued to the Public with a view to contribute to the capital
market and to provide investors the opportunities to make investments in diversified


Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by
Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd.
Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was
incorporated with SEBI on December 20, 1999.


The group, Franklin Templeton Investments is a California (USA) based company

with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial
services groups in the world. Investors can buy or sell the Mutual Fund through their
financial advisor or through mail or through their website. They have Open end Diversified
Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax
Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and
Open end Fund of Funds schemes to offer.


Morgan Stanley is a worldwide financial services company and its leading in the
market in securities, investment management and credit services. Morgan Stanley Investment
Management (MISM) was established in the year 1975. It provides customized asset
management services and products to governments, corporations, pension funds and non-
profit organizations. Its services are also extended to high net worth individuals and retail
investors. In India it is known as Morgan Stanley Investment Management Private Limited
(MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close
end diversified equity scheme serving the needs of Indian retail investors focusing on a long-
term capital appreciation.


Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its
sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was
incorporated on December 1, 1995 with the name Escorts Asset Management Limited.


Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital
Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company
Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the
corporate office in Mumbai.


Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services
Pvt. Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company.
Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset
Management Company Pvt. Ltd. is the AMC.


Can bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as
the sponsor. Can bank Investment Management Services Ltd. incorporated on March 2, 1993
is the AMC. The Corporate Office of the AMC is in Mumbai.


Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance
Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee
Company and AMC is Cholamandalam AMC Limited.


Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It
contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as
a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company
started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed
Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC
Mutual Fund.


GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a

Government of India undertaking and the four Public Sector General Insurance Companies,
viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The
Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted
as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.


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

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..


Unit Trust of India was the first mutual fund set up in India in the year 1963. In
early 1990s, Government allowed public sector banks and institHDFCons to set up mutual
funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The
objectives of SEBI are – to protect the interest of investors in securities and to promote the
development of and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual
funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to
enter the capital market. The regulations were fully revised in 1996 and have been amended
thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to
time to protect the interests of investors.

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.
There is no distinction in regulatory requirements for these mutual funds and all are subject to
monitoring and inspections by SEBI. The risks associated with the schemes launched by the
mutual funds sponsored by these entities are of similar type.


The Association of Mutual Funds in India (AMFI) was established in 1993 when all the
mutual funds, except the HDFC, came together realizing the need for a common forum for
addressing the issues that affect the mutual fund industry as a whole. The AMFI is dedicated

of developing the Indian mutual fund industry professional, health, and ethical lines and to
enhance and maintain standards in all areas with a view to protecting and promoting the
interests of mutual funds and their unit holders.


From the data collected from the mutual funds, the following has been observed:-

 As on March 31, 2009 there are a total number of 4.76 crore investors accounts (it is
likely that there may be more than one folio of an investor which might have been
counted more than once and actual number of investors would be less) holding units
of Rs. 419,321.66 crore. Out of this total number of investors accounts, 4.61 crore are
individual investors accounts, accounting for 96.75% of the total number of investors
accounts and contribute Rs. 1,55,283.21crore which is 37.03% of the total net assets.
 Corporate and institHDFCons who form only 1.21% of the total number of investors
accounts in the mutual funds industry, contribute a sizeable amount of Rs.
2,36,233.35 crore which is 56.34% of the total net assets in the mutual funds industry.
 The NRIs and FIIs constitute a very small percentage of investors accounts (2.04%)
and contribute Rs. 27,805.10 crore (6.63%) of net assets

The details of unit holding pattern are given in the following table




Individuals 4,60,75,763 96.75 1,55,283.21 37.03

NRIs 9,71,430 2.04 22,821.28 5.44

FIIs 146 0.00 4,983.82 1.19

ns/Others 5,75,938 1.21 2,36,233.35 56.34

TOTAL 4,76,23,277 100.00 4,19,321.66 100.00


From the analysis of data on unit holding pattern of Private Sector Mutual Funds and Public
Sector Mutual Funds, the following observations are made:-

1. Out of a total of 4.76 crore investors accounts in the mutual funds industry, (it is likely
that there may be more than one folio of an investor which might have been counted more
than once and therefore actual number of investors may be less) 3.16 crore investors
accounts i.e. 66.27% of the total investors accounts are in private sector mutual funds
whereas the 1.61 crore investors accounts i.e. 33.73% are with the public sector mutual
funds which includes HDFC Mutual Fund.

2. However, the private sector mutual funds manage 80.46% of the net assets whereas the
public sector mutual funds own only 19.54% of the assets.

Details of unit holding pattern of private sector and public sector mutual funds are given in
the following tables:



Individuals 3,03,62,538 96.21 1,21,676.51 36.06

NRIs 8,13,062 2.58 21,093.62 6.25

FIIs 128 0.00 4,888.98 1.45

Corporates/InstitHDFCons/Others 3,83,783 1.22 1,89,723.52 56.23

TOTAL 3,15,59,511 100.00 3,37,382.63 100.00




Individuals 15,713,225 97.82 33,606.7 41.01

NRIs 1,58,368 0.99 1,727.66 2.11

FIIs 18 0.00 94.84 0.12

Others 1,92,155 1.20 46,509.83 56.76

TOTAL 16063766 100.00 81939.03 100.00

Status of Mutual Funds for the period April – May 2010

(Figures in Rs. Crore)

Private Sector

Mutual Funds Public Sector Mutual Funds Grand Total

A HDFC Others Sub-total

(i) (ii) (i)+(ii) A+B

Mobilization of
1,059,696.82 129,187.34 187,475.77 316,663.10 1,376,359.93

Repurchase /
Redemption Amt.
918,174.10 108,329.85 165,516.09 273,845.94 1,192,020.05

Net Inflow/ Outflow

(- ve) of funds
141,522.72 20,857.49 21,959.67 42,817.16 184,339.88

Cumulative Position 525,309.22 65,682.23 73,458.58 139,140.81

of net assets as on
79.06% 9.88 % 11.06 % 20.94 %
May 31, 2009 (%)

Note: Net assets of Rs. 727.97 crores pertaining to Fund of Funds Schemes is not included in
the above data.

HDFC has also served as consultant to international agencies such as World Bank,
United States’ Agency for International Development (USAID), Asian Development Bank,
United Nations’ Centre for Human Settlements, Common wealth Development Corporation
(CDC) and United Nations Development Programme (UNDP).

At the national level, HDFC’s execHDFCves have played a key role in formulating
national housing policies and strategies. Recognizing HDFC’s execHDFCves to join a
number of comities and task force related to housing finance, urban development and capital


 HDFC Bank.
 HDFC Mutual Fund.
 HDFC Standard Life Insurance Company.
 HDFC Securities.
 HDFC Reality.
 HDFC Chubb General Insurance Company ltd.
 Intel net Global services.
 Credit Information Bureau (India) Ltd.
 Other Companies Co-Promoted by HDFC.


HDFC Bank was incorporated in August 1994 in the name of ‘HDFC Bank Limited’,
with its registered office in Mumbai, India. The Bank commenced operations as a Scheduled
Commercial Bank in January 1995. 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, as part of the RBI’s liberalization of the
Indian Banking Industry in 1994. Headquartered in Mumbai, HDFC Bank, has a network of
over 531 branches spread over 228 cities across India. All branches are linked on an online
real-time basis. Customers in over 120 locations are serviced through Telephone Banking.
The Bank also has a network of about over 1054 networked ATMs across these cities.

HDFC Bank’s ATM network can be accessed by all domestic and international Visa,
MasterCard, Visa Electron, Maestro, Plus, Cirrus and American Express Credit, Charge
cardholders. The Bank’s expansion plans take into account the need to have a presence in all
major industrial and commercial centers where its corporate customers are located as well as
the to build a strong retail customer base for both deposits and loan products. Being a
clearing settlement bank to various leading stock exchanges, the Bank has branches in the
centers where the NSE/BSE has a strong and active member base. HDFC Bank also has

Private Banking Group which offers investment advisory and portfolio management services
to its clients.

HDFC Bank has won many awards for its excellent service. Major among them are
“Best Bank in India” by Hong Kong-based Finance Asia magazine in 2005 and “Company of
the Year” Award for Corporate Excellence 2004-05. Business Today has declared HDFC
Bank the “Best Bank” for the year 2006. Net Profit for the nine months ended 31st December
2006 up by 31.3%.

HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to remain the
market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling
units. HDFC has developed significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit facilities.
With its experience in the financial markets, a strong market reputation, large shareholder
base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the
Indian environment

Product & Services

You have the right to pursue financial independence ... your way. Use trade is
committed to help you do just that. We deliver State-of-the-art Tools, excellent Customer
Care, Affordable Pricing and Innovative Technology so you can follow your own path. Need
based solHDFCons that are what our Product Bouquet is all about…


At Hdfc sectrade, you can place online trades for virtually any stock listed on NSE &
BSE. Hdfc sectrade offers plenty of powerful ways to place stock orders ... along with the
trading tools and services that help you move quickly and conveniently. Ways to trade stock

Delivery based Trading:

Place delivery based orders for all stocks listed on NSE & BSE

Intra-day Trading:

Execute Margin Orders up to 3 to 4 times your available funds. The same is available
for select group of stocks listed on NSE & BSE.


Sell shares before you receive the same in your de mat account. You can avail of this
facility 1st and 2nd day after the buy order date.


With a Derivative-approved Hdfc sectrade account, you can pursue a wide range of

Futures & Options:

Trading strategies with speed and ease. We deliver the support, information and
structure that quickly let you spot potential opportunities and act on them fast

Mutual Fund:

At Use trade, we offer access to more than 1000 mutual fund schemes from leading
fund families. These funds provide broad diversification and cover a range of investment
objectives, philosophies, asset classes and risk exposures. Trades may be placed via the
Internet, Interactive Voice Response (IVR) phone system or with a broker.


IPO or Initial Public Offer presents excellent opportunities for gaining high returns on
your investments in a relatively short period of time. We have made investing in IPOs hassle
free. All that is required is “Buying POWER” and rest is at the click of a button. No

paperwork no queues. Get information on IPO news, Forthcoming IPOs and a lot more on

Commodities: Metals, energies, grains and livestock —

whatever you wish to trade, you'll find it on our commodity trading system. Plus,
you'll get a comprehensive suite of educational, analytical, and execHDFCon tools that
makes trading commodities easy.


Use trade in association with Birla Sun life brings you a secure insurance option
without the hassles and worries of a conservative insurance plan. With least paperwork, you
get the dual benefit of a risk cover and savings. What's more, we shall send you regular
reminders about your premium payments due.


Fixed income securities can help reduce your risk within an investment portfolio
while providing a steady stream of income over time. Currently you can choose to invest
online in GOI Bonds. If you are looking to diversify your portfolio, possibly improve your
tax efficiency and/or reducing your risk exposure, you may want to consider making fixed
income securities part of your personal investment strategy.


Charting Tools - Get a combined view of stocks, rapid price changes and volume
increases with this pre-trade analytic tool. Enables you to do technical market analysis of
stocks on price, volume, market cap and P/E for NSE/BSE Benchmark against domestic as
well as International Indices.

Sector Watch :

You can access sector-wise information to track sectors and individual scripts within
the sector, which makes analysis easy for you.]

Corporate Infohub

We provide you with exhaustive company information, detailed financials and ratios.
And we also allow you to evaluate financials across peer companies. Our extensive database
covers more than 4000 companies.


View live market news from the most reliable sources on equity, debt, politics and
general events. You even have access to live news analysis, market commentary and
happening stocks.

Customer Service & Other Value Added Services

Online Query ResolHDFCon

With our "Quick Mail" tool you can resolve all your problems online.

Online Ledger

View your Digital Contract Note, summary of your transactions using Online "Bills &

My Inbox

Maintain records of all Important notifications related to your account.

SMS Alerts

Set Price based Alerts for Stocks of your choice

Dedicated Customer Care Centre & State-of-the-art Phone-2-Trade Desk.

Interactive Demo

A step-by-step guide to enable you to navigate through the process of Investing

Online on our website

Subscription to Mailers

Subscribe to our In house Research Reports covering our entire Product Bouquet..

Customer Education Sessions

Register Online for Customer Sessions & Workshops on various topics ranging from
Derivatives to Commodities & Market Analysis.

Investment Banking & Corporate Advisory Services

Investment Banking is one of the prime focus areas of the company and we provide value
added, customized solHDFCons to our clients. Leveraging on the knowledge, expertise and
experience of our professionals, we offer services that range from managing public issues,
debt and equity placements, corporate advisory services and financial consultancy to
facilitating mergers and acquisitions.

The Investment Banking Team's business philosophy emphasizes:

Long-term relationship with clients

 A strong research-based advice.

 Innovative solHDFCons and speedy execHDFCon.
 Ethical and transparent conduct of business.
It has always been the endeavor of HDFC Securities to bring all the market constituents
together in a mutually beneficial relationship.

Join Us As

 Independent Financial Advisor

 Business Associates who wish to offer all securities to its retail customers.
 Channel Partner who wishes to deal only in Mutual Fund and Fixed Income

Portfolio Management Services


Equities as an asset class outperform almost any other investment vehicle over a longer
time period. Anyone interested in wealth creation would invest a major chunk of the overall
investment portfolio in equities.

Despite this when many individuals enter the equity markets directly the results are often
disappointing, due to many factors:

 Markets are extremely sensitive to any positive or negative news

 Interest rates fluctuate
 Geopolitical situations around the world are constantly evolving
 Oil prices fluctuate….
 Markets move too quickly for non-professionals to take advantage.
 Investing on tips, hearsay, insufficient research etc. leads to losses
Basic principle of equity investing still applies despite the above mentioned facts. More
and more, it is for Professional Fund Managers who are exclusively and fully tuned to market
nuances. Here is where a Portfolio Management Service comes in.


 A group of experts design and manage your equity portfolio, suiting your
risk-return appetite.

 Benefit of Diversification and an element of customization.
 No Settlement hassles.
 Separately held securities.
 Greater Flexibility.
 Efficient switch between cash and equity positions.
 Portfolio designing is done as per market conditions and market
 Customized Performance Reporting.
 100% Transparency, managed under SEBI license and regulations.
 Competitive Fee Structure.

So your investments under PMS are risk diversified and research oriented.


Discretionary Portfolio Management

The Portfolio Manager undertakes the entire management of your portfolio. Starting
from buying and selling of securities to reshuffling and safe custody is undertaken. Your
involvement will be minimum, thereby allowing you the flexibility to attend to your personal
matters, while the Portfolio Manager takes care of your investments and keeps you posted on
a regular basis.

Non-Discretionary Portfolio Management

The Portfolio Manager passively manages your investments by taking care of execHDFCons,
payments, settlements and custody while you handle your own funds and take your own
investment decisions. In addition the Portfolio Manager also offers investment advice,
through the final decision and execHDFCon of the transaction rests with you.



Flexibility Liquidation of holdings Regulatory restrictions and
possible. large fund size do not allow

Customized Performance Yes No


Separately held securities Yes No

Relationship Management Personal Impersonal

STCG 10% 10%

LTCG NIL 10%-20%

Dividend DistribHDFCon Tax Not Applicable Applicable

Our valued clients include Banks, Overseas Corporate Bodies, High Networth
Individuals and Retail clients.

The company also has made its foray in retail broking and advisory services through
Retail Desk and is catering broking and advisory services to large number of Urban
Cooperative Banks. In a short span the company has captured the voluminous retail business
in Government Securities.

The quotes for wide range of NON SLR securities and PSU Bonds are regularly
floated to various Corporate, Provident Funds, Trusts, etc., by NON SLR Desk. Through the
net work of branches at key centers, the company has regular dealings with large number of
clients all over the country.

With excellent and professionally managed team work, the company aims at
becoming one of the top ten leading broking houses.

2.7 Origin of the Fund:

The origin of the concept of mutual fund dates back to the very drawn of commercial
history. It is said that Egyptians and Phoenicians sold their shares in vessels and caravans
with a view to spreading the risk attached with these risky ventures. However, the real credit
of introducing the modern concept of mutual fund goes to the Foreign and Colonial
Government Trust of London established in 1868. Thereafter, a large number of close-ended
mutual funds were formed in the U.S.A. in 1930’s followed by many countries in Europe, the
Far East and Latin America. In most of the countries, both open and close-ended types were
popular. In India, it gained momentum only in 1980, though it began in the year 1964 with
the Unit Trust of India launching its first fund, the Unit Scheme 1964.


The history of mutual funds dates back to nineteen century Europe, in particular,
Great Britain. Robert Fleming set up in 1868 the first investment trust called Foreign and
Colonial Investment Trust which promised to manage the finances of the moneyed classes of
Scotland by spreading the investment over a number of different stocks. This investment
trust and other investment trusts which were subsequently set up in Britain and the US,
resembled today’s close-ended mutual funds. This was the first open-ended mutual fund.

The stock market crash in 1929, the Great Depression, and the outbreak of the Second
World War slackened the pace of growth of the mutual fund industry. Innovation in products
and services increased the popularity of mutual funds in the 1950’s and 1960’s. The first
international stock mutual fund was introduced in the US in 1940. In 1976, the first tax-
exempt municipal bond funds emerged and in 1979, the first money market mutual funds
were created. The latest additions are the international bond fund in 1986 and arm funds in
1990. This industry witnessed substantial growth in the 1980’s and 1990’s when there was a
significant increase in the number of mutual funds, schemes, assets, and shareholders. In the
US, the mutual fund industry registered a tenfold growth in the 1980’s (1980-89) only, with

25 per cent of the house hold sector’s investment in financial assets made through them.
Fund assets increased from less than USD 150 billion in 1980 to over USD 4 trillion by the
end of 1997. Since 1996, mutual fund assets have exceeded bank deposits. The mutual fund
industry and the banking industry virtually rival each other in size.

Indian Scene

In India mutual fund concept took root only in the nineteen sixties, after a century old
history elsewhere in the world. Reacting to the need for a more active mobilization of
household savings to provide investible resources to industry, the idea of first mutual fund in
India born out of the far sighted vision of Sri T.T.Krishanamachari, the then Finance
Minister. While introducing Unit Trust of India (UTI) Bill in Parliament, Sri Krishnamachari
observed, I would christen this attempt as on adventure in small savings and I am confident
that we are embarking on this adventure with every hope of being successful. He highlighted
UTI as on opportunity for the middle and lower income groups to acquire without much
difficulty property in the form of shares. UTI in 1964 started with a unit scheme popular as

Since Unit Trust of India was the result of a special enactment, no other open end
mutual fund activities could emerge because of restrictive conditions of Indian Companies
Act, 1956. Of course, close end investment companies existed for in-house investments as
well as portfolio investment for a long time. But their activities were again o restricted scale.
No company came out with public issue for a long period. The first of such companies
offering their shares to public were Hifeo Growth Fund Limited, First Growth of India
Limited and Nagarjuna Investment Trust Limited.

After US-64, between 1971 and 1987, HDFC introduced more schemes targeted for
different segments of the investor community. In 1986 it launched first off-shore fund called
India Fund for the non residents. The move by the RBI to allow commercial banks, in the
spirit of increasing disintermediation, to move into activities related to the capital markets
marked the beginning of development of the mutual fund industry.

The monopoly of HDFC came to an end of 1987 when Government of India by
amending Banking Regulations Act enabled commercial banks in Public Sector to set up by
subsidiaries operating as trusts to perform the functions of mutual funds. First of all State
Bank of India got the nod from RBI. Next to follow was Canara Bank. It was the Abid
hussian Committees unequivocal support to the concept that could be accepted as something
of a landmark. It called for a greater number of mutual fund players. The LIC and GIC also
entered the field of mutual funds. During 1987-92, nine mutual funds came to be set up with
invertible resources Rs.37000 crores. This amount was only 4563 crores until June 1987.
Major share was of HDFC.

In pre-1992 period, Indian mutual funds had certain peculiarities. These are:

Mutual funds in our country till this period were public sector banks and financial

Another distinguishing feature was that majority of mutual funds have been floated by
commercial banks and financial institHDFCons which gave the impression in the minds of
investors that responsibility of funds with the respective banks thus, investment is secured.

One feature which distinguished mutual funds in India from their counterparts in Europe was
that the latter normally do not have an in built promise of minimum return. The experience
of U.T.I. showed that its schemes with assured returns have been a tremendous success.

Disclosure practices of mutual funds were far away from international standards
despite the specific provisions in the regulatory framework.

One of the important features of mutual funds success in raising respectable quantum of
fund was the associated tax concessions. The launching of mutual funds by commercial banks
during 1986-87 was in the peculiar circumstance of the absence of any regulatory frame work

for conduct of their affairs. Unit Trust of India Act regulated only the affairs of HDFC.
Banking Companies Act guided commercial banking activities of banks. Indian Trust Act
was too general to take care of mutual fund characteristics. Thus mutual funds were having a
totally free hand to operate. As the popularity of mutual funds was on increase, a need for
regulating provisions was felt. On July 5, 1989 Reserve Bank of India issued guidelines for
banks sponsored mutual funds. Thereafter revised guidelines were issued twice and finally in
1993 SEBI came out with Mutual fund regulations which were again revised in 1996 and are
known as SEBI (Mutual Fund) Regulations 1996. It contains 78 regulations divided into
chapters covering registration, constitHDFCon, schemes, investment policies, valuation
norms, inspection, winding up of mutual funds etc. There are also 11 schedules forming part
of these regulations. In subsequent pages these regulations are referred to appropriate places.


The Indian mutual fund industry has evolved over distinct stages. The growth of the
mutual fund industry in India can be divided into four phases: phase I (1964-87), Phase II
(1987-92), Phase III (1992-97), and Phase IV (beyond 1997).

The mutual fund concept was introduced in India with the setting up of HDFC in
1963. The Unit Trust of India (UTI) was the first mutual fund set up under the UTI Act,
1963, a special act of the parliament. It became operational in 1964 with a major objective of
mobilizing savings through the sale of units and investing them in corporate securities for
maximizing yield and capital appreciation. This phase commenced with the launch of the
Unit Scheme 1964 (US-64), the first open-ended and the most popular scheme. UTI’s
investible funds, at market value (and including the book value of fixed assets) grew from RS
49 crore up 1965 to Rs 219 crore in 1970-71 to Rs 1,126 crore in 1980-81 and further to Rs
5,068 crore by June 1987.

Its investor base had also grown to about two million investors. It launched
innovative schemes during this phase. Its fund family included five income-oriented, open-
ended schemes, which were sold largely through its agent network built up over the years.
Master share, the quit growth fund launched in 1986, proved to be a grand marketing success.

Mater share was the first real close-ended scheme floated by UTI. It launched the India Fund
in 1986—the first Indian offshore fund for overseas investors, which we listed on the London
stock Exchange (LSE). UTI maintained its monopoly and experienced a consistent growth
till 1987.

Phase II
The second phase witnessed the entry of mutual fund companies sponsored by
nationalized banks and insurance companies. In 1987, SBI Mutual Fund and Canbank
Mutual Fund were set up as trusts under the Indian Trust Act, 1882. In 1988, HDFC floated
another offshore fund, namely. The India Growth Fund which was listed on the New York
Stock Exchange (NYSE). By 1990, the two nationalized insurance giants, LIC and GIC, and
nationalized banks, namely, Indian Bank, Bank of India, and Punjab National Bank had
started operations of wholly-owned mutual fund subsidiaries. The assured return type of
schemes floated by the mutual funds during this phase was perceived to be another banking
product offered by the arms of sponsor banks. In October 19+89, the first regulatory
guidelines were issued by the RBI, but they were applicable only to the mutual funds
sponsored by banks. Subsequently, the Government of India issued comprehensive
guidelines in June 1990 covering all mutual funds. These guidelines emphasized compulsory
registration with the SEBI and an arm’s length relationship be maintained between the
sponsor and asset management company (AMC). With the entry of public sector funds, there
was a tremendous growth in the size of the mutual fund industry with investible funds, at
market value, increasing to Rs 53,462 crore and the number of investors increasing to over 23
million. The buoyant equity markets in 1991-92 and tax benefits u under equity-linked
savings schemes enhanced the attractiveness of equity funds.

Phase III
The year 1993 marked a turning point in the history of mutual funds in India. The
securities and Exchange board of India (SEBI) issued the Mutual fund Regulations in January
1993. The SEBI notified regulations bringing all mutual funds except HDFC under a
common regulatory framework. Private domestic and foreign players were allowed entry in
the mutual fund industry.

The Kothari group of companies, in joint venture with Pioneer, a US fund company,.
Set up the first private mutual fund, the Kothari Pioneer Mutual Fund, in 1993. Kothari

Pioneer introduced the first open-ended fund Prima in 1993. Several other private sector
mutual funds were set up during this phase. HDFC launched a new scheme, Master-gain, in
May 1992, which was a phenomenal success with a subscription of Rs. 78,655 crore and the
number of investor accounts increased to 50 million. However, the year 1995 was the
beginning of the sluggish phase of the mutual fund industry. During 1995 and 1996, unit
holders saw an erosion in the value of their investments due to a decline in the NAV’s of the
equity funds. Moreover, the service quality of mutual funds declined due to rapid growth in
the number of investor accounts, and in adequacy of service infrastructure. A lack of
performance of the public sector funds and miserable failure of foreign funds like Morgan
Stanley eroded the confidence of investors in fund managers. Investor’s perception about
mutual funds gradually turned negative. Mutual funds found it increasingly difficult to raise
money. The average annual sales declined from about Rs 13,000 crore in 1991-94 to about
Rs 9,000 crore in 1995 and 1996.

Phase IV
During this phase, the flow of funds into the kitty of mural funds sharply increased.
This significant growth was guided by a more positive sentiment in the capital market,
significant tax benefits, and improvement in the quality of investor service. Investible funds,
at market value, of the industry rose by June 2000 to over Rs 1, 10,000 crore with HDFC
having a 68 per cent of the market share. During 1999-2000 sales mobilization reached a
record level of Rs 73,000 crore as against Rs 31,420 crore in the preceding year. This trend
was, however, sharply reversed in 200-01. The HDFC dropped a bombshell on the investing
public by disclosing the NAV o f US -64—its flagship scheme as on 28 December 2000, just
at Rs 5.81 as against the face value of Rs 10 and the last sale price of Rs 14.50.

The disclosure of NAV of the country’s largest mutual fund scheme was the biggest
shock of the year to investors. Crumbling global equity markets, a sluggish economy coupled
with bad investment decisions made life tough for big funds across the world in 2001-02. The
effect of these problems was felt strongly in India also. Pioneer ITI, JP Morgan and Newton
Investment Management pulled out from the Indian market. The Bank of India MF
liquidated all its schemes in 2002.

Unit Trust of India lost out to other private sector players during this period. While
there was an increase in AUM by around 11 per cent during the year 2002, HDFC, on the

contrary, lost more than 11 per cent in AUM. The private sector mutual funds have benefited
the most from the debacle of US-64 of HDFC. The AUM of this sector grew by around 60
per cent for the ending March 2002. There was a record growth in funds mobilized through a
record number of new schemes during the year 2004-05. The assets under management
during the year 2004-05 was Rs. 1,49,554 crore which subsequently increased to Rs 1.65 lakh
crore on 30 June 2005 and Rs 3,26,388 crore on 31 March, 2007.

Types of Funds/Classification of Funds

In the investment market, one can find a variety of investors with different needs,
objectives and risk taking capacities. For instance, a young businessman would like to get
more capital appreciation for his funds and he would be prepared to take greater risks than a
person who is just on the verge of his retiring age. So, it is very difficult to offer one fund to
satisfy all the requirements of investors. Just as one shoe is not suitable for all legs, one fund
is not suitable to meet the vast requirements of all investors. Therefore, many types of funds
are available to the investor. It is completely left to the discretion of the investor to choose
any one of them depending upon his requirement and his risk taking capacity.

Mutual fund schemes can broadly be classified into many types as given on next page:

Close-ended Funds

Under this scheme, the corpus of the fund and its duration are prefixed. In other
words, the corpus of the fund and the number of units are de3termined in advance. Once the
subscription reaches the pre-determined level, the entry of investors is closed. After the
expiry of the fixed period, the entire corpus is disinvested and the proceeds are distributed to
the various unit holders in proportion to their holding. Thus, the fund ceases to be a fund,
after the final distribHDFCon.

Features: The main features of the close-ended funds are;

(i) The period and /or target amount of the fund is definite and fixed beforehand.
(ii) Once the period is over and /or the target is reached, the door is closed for the
investors. They cannot purchase any more units.
(iii) These units are publicly traded through stock exchange and generally, there is no
repurchase facility by the fund.
(iv) The main objective of this fund is capital appreciation.
(v) The whole fund is available for the entire duration of the scheme and there will
not be any redemption demands before its maturity. Hence, the fund manager can
manage the investments efficiently and profitably without the necessity of
maintaining and liquidity.
(vi) At the time of redemption, the entire investment pertaining to a closed-end
scheme is liquidated and the proceeds are distributed among the unit holders.
(vii) From the investor’s point of view, it may attract more tax since the entire capital
appreciation is realized in to at one stage itself.
(viii) If the market condition is not favorable, it may also affect the investor since he
may not get the full benefit of capital appreciation in the value of the investment.
(ix) Generally, the prices of closed-end scheme units are quoted at a discount of up to
40 per cent below their Net Asset Value (NAV).

Open-ended Funds

It is just the opposite of close-ended funds. Under this scheme, the size of the fund
and /or the period of the fund is not pre-determined. The investors are free to buy and sell
any number of units at any point of time. For instance, the unit scheme (1964) of the Unit
Trust of India is an open ended one, both in terms of period and target amount. Anybody can
buy this unit at any time and sell it also at any time at his discretion.

The main features of the Open-ended funds are:

(i) There is complete flexibility with regard to one’s investment or disinvestment. In

other words, there is free entry and exit of investors in an open-ended fund. There

is no time limit. The investor can join in and come out from the Fund as and
when he desires.
(ii) These units are not publicly traded but, the Fund is ready to repurchase them and
resell them at any time.
(iii) The investor is offered instant liquidity in the sense that the units can be sold on
any working day to the Fund. In fact, the Fund operates just like a bank account
wherein one can get cash across the counter for any number of units sold.
(iv) The main objective of this fund is income generation. The investors get dividend,
rights or bonuses as rewards for their investment.
(v) Since the units are not listed on the stock market, their prices are linked to the Net
Asset Value (NAV) of the units. The NAV is determined by the Fund and it
varies from time to time.
(vi) Generally, the listed prices are very close to their Net Asset Value. The fund fixes
a different price for their purchases and sales.
(vii) The fund manager has to be very careful in managing the investments because he
has to meet the redemption demands at any time made during the life of the

To put it in a nutshell, the open ended funds have a perpetual existence and their corpus is
ever-changing depending upon the entry and exit of members.

On the Basis of Income

Income Funds:

As the very name suggests, this Fund aims at generating and distribHDFCng regular
income to the members on a periodical basis. It concentrates more on the distribHDFCon of
regular income and it also sees that the average return is higher than that of the income from
bank deposits.

The main features of the Income Funds are

(i) The investor is assured of regular income at periodic intervals, say half-yearly or
yearly and so on.
(ii) The main objective of this type of Fund is to declare regular dividends and not
capital appreciation.
(iii) The pattern of investment is oriented towards high and fixed income yielding
securities like debentures, bonds etc.
(iv) This is best suited to the old and retired people who may not have any regular
(v) It concerns itself with short run gains only.

Pure Growth Funds (Growth Oriented Funds):

Unlike the Income Funds, Growth Funds concentrate mainly on long run gains, i.e.,
capital appreciation. They do not offer regular income and they aim at capital appreciation in
the long run. Hence, they have been described as “Nest Eggs” investments.

The main features of the Growth Funds are

(i) The growth oriented Fund aims at meeting the investors need for capital
(ii) The investment strategy therefore, conforms to the Fund objective by investing the
funds predominantly on equities with high growth potential.
(iii) The Fund tries to get capital appreciation by taking much risks and investing on
risk bearing equities and high growth equity shares.
(iv) The fund may declare dividend, but its principal objective is only capital
(v) This is best suited to salaried and business people who have high risk bearing
capacity and ability to defer liquidity. They can accumulate wealth for future

Balanced Funds:

This is otherwise called “income-cum-growth” fund. It is nothing but a combination

of both income and growth funds. It aims at distribHDFCng regular income as well as capital

appreciation. This is achieved by balancing the investments between the high growth equity
shares and also the fixed income earning securities.

Specialized Funds:

Besides the above, a large number of specialized funds are in existence abroad. They
offer special schemes so as to meet the specific needs of specific categories of people like
pensioners, widows etc. There are also funds for investments in securities of specified areas.
For instance, Japan Fund, South Korea Fund etc. In fact, these funds open the door for
foreign investors to invest on the domestic securities of these countries.

Again, certain Funds may be confined to one particular sector or industry like
fertilizer, automobiles, petroleum etc. These funds carry heavy risks since the entire
investment is in one industry. But, there are high risk taking investors who prefer this type of
Fund. Of course, in such cases, the rewards may be commensurate with the risk taken. At
times, it may be erratic. The best example of this type is the Petroleum Industry Funds in the

Money-Market Mutual Funds (MMMFs):

These funds are basically open ended mutual Funds and as such they have all the
features of the Open ended Fund. But, they invest in highly liquid and safe securities like
commercial paper, bankers acceptances, certificates of deposits, Treasury bills etc. These
instruments are called money market instruments. They take the place of shares, debentures
and bonds in a capital market. They pay money market rates of interest. These funds are
called ‘money funds’ in the U.S.A. and they have been functioning since 1972. Investors
generally use it as a “parking place” or “stop gap arrangement’ for their cash resources till
they finally decide about the proper avenue for their investment, i.e., long-term financial
assets like bonds and stocks.

Since MMMFs are a new concept in India, the RBI has laid down certain stringent
regulations. For instance, the entry to MMMFs is restricted only to scheduled commercial
banks and their subsidiaries. MMMFs can invest only in specified short term money market
instruments like Certificate of Deposits, Commercial Papers and 182 days Treasury bills.
They can also lend to call market.

These funds go for sage and liquid investment. Frequent realization of interest and
redemption of Fund at short notice are the special features of this Fund. The funds will not
be subjects to reserve requirements. The re-purchase could be subject to a minimum lock in
period of 3 months.

Since the RBI has fixed the minimum amount of investment as Rs. One lakh, it is out
of the reach of many small investors. In the U.S.A. the minimum amount is only $ 100.
Recently, the private sector funds have been permitted to deal in money market mutual funds.
Generally, it is best suited only to institHDFConal investors like banks and other financial

Taxation Funds:

A taxation fund is basically a growth oriented fund. But, it offers tax rebates to the
investors either in the domestic or foreign capital market. It is suitable to salaried people who
want to enjoy tax rebates particularly during the month of February and March. In India, at
present the law relating to tax rebates is covered under Sec. 88 of the Income Tax Act, 1961.
An investor is entitled to get 20% rebate in Income Tax for investments made under this fund
subject to a maximum investment of Rx. 10,000/- per annum. The Tax Saving Magnum of
SBI Capital Market Limited is the best example for the domestic type. HDFC’s US $60
million India Fund, based in the USA, is an example for the foreign type.


Leverage Funds:

These funds are also called borrowed funds since they are used primarily to increase
the size of the value of portfolio of a mutual fund. When the value increas3s, the earning
capacity of the fund also increases. The gains are distributed to the unit holders. This is
resorted to only when the gains from the borrowed funds are more than the cost of borrowed

Dual Funds:

This is a special kink of closed end fund. It provides a singly investment opportunity
for two different types of investors. For this purpose, it sells two types of investment stocks
viz., income shares and capital shares. Those investors who seek current investment income
can purchase income shares. They receive all the invere3st and dividends earned from the
entire investment portfolio.

However, they are g guaranteed a minimum annual dividend payment. The holders of
capital shares receive all the capital gains earned on those shares and they are not entitled to
receive any dividend of any type. In this respect, the dual fund is different from a balanced

Index Funds:

Index funds refer to those funds where the portfolios are designed in such a way that
they reflect the composition of some broad based market index. This is done by holding
securities in the same proportion as the index itself. The value of these index linked funds
will automatically go up whenever the market index goes up and vice versa. Since the
construction of portfolio is entirely based upon maintaining proper proportions of the index
being followed, it involves less administrative expenses, lower transactions costs, less
number of portfolio managers etc. It is so because only fewer purchases and sales of
securities world take place.

Bond Funds:

These funds have portfolios consisting mainly of fixed income securities like bonds.
The main thrust o0f these funds are mostly on income rather than capital gains. They differ
from income funds in the sense income funds offer an average returns higher than that from
bank deposits and also capital gains lesser than that in equity shares.

Aggressive Growth Funds:

These funds are just the opposite of bond funds. These funds are capital gains
oriented and thus the thrust area of these funds is ‘capital gains’. Hence, these funds are
generally invested in speculative stocks. They may also use specialized investment
techniques like short term trading, option writing etc. Naturally, these funds tend to be
volatile in nature.

Off-shore Mutual Funds:

Off-shore mutual funds are those funds which are meant for non-residential investors.
In other words, the sources of investments for these funds are from abroad. So, they are
regulated by the provisions of the foreign countries where those funds are registered.

These funds facilitate flow of funds across different countries, with free and efficient
movement of capital for investment and repatriation. Off-shore funds are preferred to direct
foreign investment. Since, it does not allow foreign domination over host country’s corporate
sector. However, these funds involve much currency and country risk and hence they
generally yield higher return.

In India, these funds are subject to the approval of the Department of Economic
Affairs, Ministry of Finance and the RBI monitors such funds by issuing directions then and
there. In India a number of off-shore funds exist. ‘India Fund’ and ‘India Growth Fund’
were floated by the HDFC in U.K. and U.S.A. respectively. The State Bank of India floated
the India Magnum Fund in Netherlands. ‘The Indo-Suez Himalayan Fund N.V.’ was
launched by Can bank Mutual Fund in collaboration with Indo-Suez Asia Investment
Services Ltd. It also floated ‘Commonwealth Equity Fund’.



This chapter is allocated for Research Design

3.1 Objectives

The study will have a proper direction by setting the objectives of the study. The
following objectives are formulated for the present study:

1. To Study investors expectation from HDFC Mutual Funds

2. To examine factors which influence on investors decision making
3. To identify the scheme HDFC preference by investors
4. To identify the factors that influence the investor’s fund/scheme selection
5. To identify the information sources, influencing the scheme selection decision.
6. To offer measure and suggestions to the investors in choosing right schemes

3.2 Needs of the Study

It is widely believed that MF is a retail product designed to target small investors,

salaried people and others who are intimidated by the stock market but, nevertheless, like to
reap the benefits of stock market investing. At the retail level, investors are unique and are a
highly heterogeneous group. In the future, MF industry has to face competition not only
from within the industry but also from other financial products that may provide many of the
same economic functions as mutual funds but are not strictly MFs. For example, in US, one
savings institHDFCon has patented a product that promises to deliver consumers a pay off
indexed to college tuition costs, thus attempting to meet a common consumer requirement
[Ellen Schultz (1992)]. This product is structured as a certificate of deposit but it could have
been set up as a Mutual Fund. Such products will shortly appear in the Indian market also.
All this, in aggregate, heightens the consumer confusion in his selection of the product. He is
confused as to how to sift the grain from the chaff? Unless the MF schemes are tailored to his

changing needs, and unless the AMCs understand the fund selection/switching behavior of
the investors, survival of funds will be difficult in future. With this background an attempt is
made in this paper to study the factors influencing the fund scheme selection behavior of
Retail Investors.

3.3 Scope of Study

The study is about awareness of mutual funds as different types of investment

alternatives are available to the investors. They are shifting from the conventional types of
investments and started investing in mutual funds where they can purchase and redeem at any
time. As the mutual funds industry is the growing investment sector. Much number of
investors is trying to shift their investment plan to mutual funds. Even though there is a risk
by investing in mutual funds many of them are interested to invest in mutual funds due to
soaring stock market and conductive regulatory environment, amongst a slew of other factors
have added to the growth of mutual funds industry. Increased focus those on product and
distrib HDFC on innovations on part of the industry players have also helped for the growth
of the industry.

3.4 Data Collection

 Primary Data

Primary data are that is collected afresh and for the first time and is
original in character. No primary data has been used for the study.

 Secondary Data

Data that have been collected by someone else and which have already
been passed through statistical process. The data is collected from the offer documents of
HDFC, terms of reference, objectives and scope of Mutual Funds and their standing in the

3.5 Sampling:

In order to ascertain the opinions of the investors from different parts of Guntur
district has been selected. A Sample of 150 investors from Guntur district is taken for the
study on the basis convenience and judgmental sampling. While selecting the investors, care
has been taken to select them from Urban, Semi-Urban and Rural areas.

Sampling Procedure: Non probabilistic - convenience sampling.


 Sample size is limited to 150 educated investors in Urban and Semi-Urban Selected
towns of Guntur district only. The sample size may not adequately represent the national

 This study has not been conducted over an extended period of time having both market
ups and downs. The market state has a significant Influence on the buying patterns and
preferences of investors. For example, HDFC fall has sent violent shock waves across the
MF investor community and is bound to influence the scheme Preference/selection of the
investors. The study has not captured such Situations.

 The availability of time for the study is limited to 45 days which not sufficient for
comprehensive Study.

 The data was collected in a limited span of 35 days hence it was very difficult to gather
complete information.

3.7 Research Methodology

To achieve above objectives, data has been collected from both the primary and
secondary sources. The primary data has been collected through structured questionnaires
from both the investors. Apart from the questionnaires, discussions are undertaken with the
stock market specialists to elicit their opinions on various matters. The questionnaire has
focused on the investors’ attitudes towards risk return parameters of an investment
alternatives and their perception towards impact of reforms on Securities Market in India.
The perception of the intermediaries towards impact of reforms on Securities Market is also
ascertained. Secondary data has been collected from reports, Bulletins of RBI, Bulletins of
SEBI, books, journals, magazines, conference papers etc. To understand the impact of the
reforms, the data relating to the GDP, Market Capitalization etc., has been collected from
economic surveys, union budgets, SEBI bulletins, Indian Securities Market review etc.









The following are the Suggestions of the study.

 There are 756 mutual funds schemes operating in India out of which 488 are open
ended schemes and 268 are close ended schemes.

 The market activity depends on the investors. In any well developed or developing
market the role played by the retail investor is very crucial for the growth and
development of the same.

 An ideal mix of the genders is seen in the sample. The male members constituted
63.33% and the rest are female members.

 The educational qualifications are more than 60% of them are graduates and the
rest are below graduation.

 89% of the respondents have an income less than 4 Lakhs.

 Higher the risk higher will be the return. Majority of the investors expected a
return in the range of 10-20%.

 The major purposes of investments are better return, higher return and tax

 The investors do deal in both primary and secondary markets. Majority preferred
primary market to secondary market, may be in anticipation of lower risk.

 The preference for investment alternatives indicates first preference for mutual
funds, second for shares and third for Post Office / Bank Schemes.

 Majority of the investors depend on electronic media for their decisions, the
second influencer is the brokers followed by print media.

 The returns of the Growth Funds are rated as good by majority, Income Funds
majority felt that it is Reasonable, Tax Funds are rated as good by majority, and
other Funds are rated as good by majority.

 The first rank has been given for the Tax Funds, second rank has been given for
the Income Funds, third rank has been given for the Growth Funds and fourth rank
has been given for the Other Funds.


The Indian mutual fund industry in order to attract more investors it has to tap the semi-
urban and rural markets. To enable this, it needs to widen its range of products with
affordable and yet competitive schemes against low-risk assured returns of government
sponsored saving schemes such as post office saving deposits. The industry has still not been
able to penetrate among retail investors and it needs to share best practices from mature
markets like US and Britain where mutual funds are the most preferred form of investment.

Mutual fund companies should also take advantage of the growing opportunity in the
commodities market. Further, the mutual funds could also enable the small investors to
participate in the real estate boom through real estate mutual funds.


Journal of Product & Brand Management
An Attitude Model for the Study of Brand Preference - FrankM. Bass

The New York Times (Automobile Technology)


link of survey conducted:

1. Occupation of the Respondents
 Profession- (Teacher, Doctor, Lawyer)
 Business
 Others (Engineering)
 Students

2. Reason for buying New Car

 Fuel Efficiency
 Updating of Car
 Trouble free
 Less Maintenance

3. which brand would you prefer

 Ford
 Hyundai
 Maruti Suzuki
 Mahindra
 Honda
 Fiat
 Benz
 Volkswagen
 Audi

4. Reason for Choosing Particular Brand

 Looks Good
 Very Popular Brand
 Fuel Efficiency
 Highly Advertised

 Luxury
5. Purpose of Using Car
 An Asset
 A prestige symbol
 Family travel
 Convenience

6. Mode of Finance
 Loan
 Ready cash

7. Monthly Income of the Respondents

 10,000-20,000
 20,000-30,000
 30,000-40,000
 40,000 and above

8. Age Group of the Respondents

 15-25
 25-35
 35-45
 45 and above