Final

INTRODUCTION TO MUTUAL FUNDS :
Mutual fund is an investment company that pools money from small investors and invests
in a variety of securities, such as stocks, bonds and money market instruments. Most open-
end Mutual funds stand ready to buy back (redeem) its shares at their current net asset value,
which depends on the total market value of the fund's investment portfolio at the time
of redemption. Most open-end Mutual funds continuously offer new shares to investors. It is
also known as an open-end investment company, to differentiate it from a closed-end
investment company.
Mutual funds invest pooled cash of many investors to meet the fund's stated investment
objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund’s
current net asset value: total fund assets divided by shares outstanding.
MUTUAL FUND SHEMES
MARKET (FLUCTUATIONS)
INVEST INVEST IN
VARIETY OF
THEIR STOCKS/BONDS
MONEY
INVESTOR
PROFIT/LOSS FORM PROFIT/LOSS FROM

PORTFOLIO OF INDIVIDUAL
INVESTMENT
In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to
the investors and investing funds in securities in accordance with objectives as disclosed in
offer document.
Investments in securities are spread across a wide cross-section of industries and sectors
and thus the risk is reduced. Diversification reduces the risk because not all stocks may move
in the same direction in the same proportion at the same time. Mutual fund issues units t o
the investors in accordance with quantum of money invested by them. Investors of Mutual
fund are known as unit holders. The profits or losses are shared by the investors in proportion
Performance of mutual funds at HDFC
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.
In India, A Mutual fund is required to be registered with Securities and Exchange Boa rd
of India (SEBI) which regulates securities markets before it can collect funds from the public.
In Short , a Mutual fund is a common pool of money in to which investors with

common investment objective place their contributions that are to be invested in
accordance with the state d investment objective of the scheme. The investment manager
would invest the money collected from the investor in to assets that are defined/ permitted
by the stated objective of the scheme. For example, a n equity fund would invest equity
and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc.
Mutual fund is a suitable investment for the common ma n a s it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a relatively low cost.
A MUTUAL FUND is simply a financial intermediary that allows a group of investors to pool
their money together with a predetermined investment objective. The mutual fund will have a
fund manager who is responsible for investing the pooled money into specific securities (usually
stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the
mutual fund and become a shareholder of the fund. Mutual funds are one of the best
investments ever created because they are very cost efficient and very easy to invest in (you
don't have to figure out which stocks or bonds to buy). If you would like to know the history of
mutual funds,
By pooling money together in a mutual fund, investors can purchase stocks or bonds with much
lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual
funds is diversification.
Diversification is the idea of spreading out your money across many different types of
investments. When one investment is down another might be up. Choosing to diversify your
investment holdings reduces your risk tremendously.
Sree vidyanikethan institute of management Page 1

The most basic level of diversification is to buy multiple stocks rather than just one stock.
Mutual funds are set up to buy many stocks (even hundreds or thousands). Beyond that, you
can diversify even more by purchasing different kinds of stocks, then adding bonds, then
international, and so on. It could take you weeks to buy all these investments, but if you
purchased a few mutual funds you could be done in a few hours because mutual funds
automatically diversify in a predetermined category of investments (i.e. - growth companies,
low-grade corporate bond )
A MUTUAL FUND is an investment company designed to pool the funds of smaller investors and
place them under professional management. A mutual fund allows small investors to diversify
their portfolios. When a mutual fund is formed, it issues a prospectus detailing its intended
investment strategy, and it is not permitted to deviate from that strategy without public
disclosure. A mutual fund prospectus also details the fees investors will be charged, which can
be substantial. In the US, a mutual fund is regulated by the SEC. A mutual fund may invest in
stocks, bonds, options, futures, currencies, and/or commodities. Although any specific mutual
fund is required to follow a specific investing strategy, the range of strategies available is wide.
A mutual fund such as an index fund may attempt to replicate market or sector index. A mutual
fund may specialize in large-cap, small-cap or even micro-cap stocks. Investors seeking regular
income can invest in a mutual fund that specializes in government bonds or, for the more
aggressive, corporate debt.
STOCKS
Stocks represent shares of ownership in a public company. Examples of public companies

include IBM, Microsoft, Ford, Coca-Cola, and General Motors etc. Stocks are the most common
ownership investment traded on the market.

BONDS
Bonds are basically a chance for you to lend your money to the government or a company. You
can receive interest and your principle back over predetermined amounts of time. Bonds are
the most common lending investment traded on the market.
There are many other types of investments other than stocks and bonds (including annuities,
real estate, and precious metals), but the majority of mutual funds invest in stocks and/or
bonds.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciation realized is shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund

ORGANIZATION OF MUTUAL FUND-
For organization of mutual fund there is a set criterion which has to be opted.
There are many entities involved and the diagram below illustrates the organizational set up of
a mutual fund

SPONSORS
The sponsor establishes the mutual fund and gets it registered with SEBI. The mutual fund
needs to be constituted in the form of a trust and the instrument of the trust should be in
the form of a deed registered under the provisions of the Indian Registration Act, 1908. The
sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10 crore) of the
asset management company. The board of trustees manages the MF and the sponsor executes
the trust deeds in favor of the trustees. It is the job of the MF trustees to see that schemes
floated and managed by the AMC appointed by the trustees are in accordance with the trust
deed and SEBI guidelines.
ASSET MANAGEMENT COMPANY
The sponsor also appoints the asset management company (AMC) for the investment and
administrative functions. The AMC does the research, the managers the corpus of the fund. It
launches the various schemes of the fund, manages them, and then liquidates them at the end
of their term. It also takes care of the other administrative work of the fund. It receives an
annual management fee from the fund for its services.
BOARD OF TRUSTEES
The board of trustees is responsible for protecting the investor’s interests. Under the SEBI
regulation 1996, trustee means a person who holds the property of the mutual fund in trust, for
the benefit of the unit holders. The word “trustee” can be used to denote board of trustees. In
case a trustee company governs the trust, it can be used to denote either the trustee company
or its directors.
CUSTODIANS
The custodians are appointed by the sponsor to look after the transfer and storage of securities.
Only a registered custodian under the SEBI Regulation can act as a custodian of a mutual fund.
The functions of custodian a cover a wider range of services like safe keeping of securities bid
settlement, corporate action, and transfer agent. In addition, they may be contracted to
perform administrative functions like fund accounting, cash management and other similar
function.

TYPES OF MUTUAL FUNDS SCHEMES-
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk
tolerance and return expectations etc. The table below gives an overview into the existing types
of schemes in the Industry.
Equity / Growth Fund Liquid Funds

Invest primarily in equity and Provide high level of liquidity
equity related instruments. by investing in money market
and debt instruments.
Children's Gift Fund
Debt/ Income Fund
Children's Gift Fund
Invest in money market and
debt instruments and provide
Fixed Maturity Plan optimum balance of yield, ...
Invest primarily in Debt /
Money Market Instruments
and Government Securities...
Mutual Fund Schemes
1. By Structure
 Open - Ended Schemes

 Close - Ended Schemes
 Interval Schemes
2. By Investment Objective
 Growth Schemes
 Income Schemes

 Balanced Schemes
 Money Market Schemes
3. Other Schemes
 Tax Saving Schemes

 Special Schemes
 Index Schemes
 Sector specific schemes
CLOSED ENDED MUTUAL FUND
A closed-end mutual fund has a set number of shares issued to the public through an initial
public offering. These funds have a stipulated maturity period generally ranging from 3 to 15
years.
The fund is open for subscription only during a specified period. 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 they are listed. nice underwritten, closed-end funds
trade on stock exchanges like stocks or bonds. The market price of closed-end funds is
determined by supply and demand and not by net-asset value (NAV), as is the case in open-end
funds. Usually closed mutual funds trade at discounts to their underlying asset value.
OPEN ENDED MUTUAL FUND
An open-end mutual fund is a fund that does not have a set number of shares. It continues to
sell shares to investors and will buy back shares when investors wish to sell. Units are bought
and sold at their current net asset value.
Open-end funds keep some portion of their assets in short-term and money market securities
to provide available funds for redemptions. A large portion of most open mutual funds is

invested in highly liquid securities, which enables the fund to raise money by selling securities
at prices very close to those used for valuations.
LARGE CAP FUNDS
Large cap funds are those mutual funds, which seek capital appreciation by investing primarily
in stocks of large blue chip companies with above-average prospects for earnings growth.
Different mutual funds have different criteria for classifying companies as large cap. Generally,
companies with a market capitalization in excess of Rs. 1000 crore are known large cap
companies. Investing in large caps is a lower risk-lower return proposition (vis-à-vis mid cap
stocks), because such companies are usually widely researched and information is widely
available.
MONEY MARKET MUTUAL FUNDS
A money market fund is a mutual fund that invests solely in money market instruments. Money
market instruments are forms of debt that mature in less than one year and are very liquid.
Treasury bills make up the bulk of the money market instruments. Securities in the money
market are relatively risk-free.
Money market funds are generally the safest and most secure of mutual fund investments. The
goal of a money-market fund is to preserve principal while yielding a modest return. Money-
market mutual fund is akin to a high-yield bank account but is not entirely risk free. When
investing in a money-market fund, attention should be paid to the interest rate that is being
offered.
VALUE FUNDS

Value funds are those mutual funds that tend to focus on safety rather than growth, and often
choose investments providing dividends as well as capital appreciation. They invest in
companies that the market has overlooked, and stocks that have fallen out of favour with
mainstream investors, either due to changing investor preferences, a poor quarterly earnings
report, or hard times in a particular industry.
Value stocks are often mature companies that have stopped growing and that use their
earnings to pay dividends. Thus value funds produce current income (from the dividends) as
well as long-term growth (from capital appreciation once the stocks become popular again).
3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They
invest in both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors with the best of
both the worlds. Equity part provides growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the
objectives of the fund. The investor can align his own investment needs with the funds
objective and invest accordingly.
BY INVESTMENT OBJECTIVE
 Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes
normally invest a major part of their fund in equities and are willing to bear short-term
decline in value for possible future appreciation.
 Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally
invest in fixed income securities such as bonds and corporate debentures. Capital
appreciation in such schemes may be limited.

 Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes
invest in both shares and fixed income securities, in the proportion indicated in their
offer documents (normally 50:50).
 Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in safer,
short-term instruments, such as treasury bills, certificates of deposit, commercial paper
and inter-bank call money.
OTHER SCHEMES
 Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax
laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions
made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
 Index Schemes: Index schemes attempt to replicate the performance of a particular
index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist
of only those stocks that constitute the index. The percentage of each stock to the total
holding will be identical to the stocks index weightage. And hence, the returns from
such schemes would be more or less equivalent to those of the Index.
 Sector Specific Schemes: These are the funds/schemes which invest in the securities of
only those sectors or industries as specified in the offer documents. e.g.
Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks,
etc. The returns in these funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on the performance of
those sectors/industries and must exit at an appropriate time
Types of returns:

There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:
 Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a distribution.
 If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution.
 If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the
earnings and get more shares
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of
investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have the
time or the expertise to manage their own portfolio. A mutual fund is considered to be
relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or

bonds, the investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any particular investment
is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus
help to reducing transaction costs, and help to bring down the average cost of the unit for their
investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available

instruments in the market, and the minimum investment is small. Most AMC also have
automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per
month basis.
Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus
many investors debate over whether or not the so-called professionals are any better than
mutual fund or investor himself, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging
extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a
few investments often don't make much difference on the overall return. Dilution is also the
result of a successful fund getting too big. When money pours into funds that have had strong
success, the manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is
triggered, which affects how profitable the individual is from the sale. It might have been more
advantageous for the individual to defer the capital gains liability.

MUTUAL FUNDS STRUCTURE
The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) 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 regulati.
These regulations have since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The
structure indicated by the new regulations is indicated as under. A mutual fund comprises four
separate entities, namely sponsor, mutual fund trust, AMC and custodian. The sponsor
establishes the mutual fund and gets it registered with SEBI.
The mutual fund needs to be constituted in the form of a trust and the instrument of the trust
should be in the form of a deed registered under the provisions of the Indian Registration Act,
1908.
The Custodian maintains the custody of the securities in which the scheme invests. It also keeps
a tab on corporate actions such as rights, bonus and dividends declared by the companies in
which the fund has invested. The Custodian is appointed by the Board of Trustees. The

Custodian also participates in a clearing and settlement system through approved depository
companies on behalf of mutual funds, in case of dematerialized securities.
The sponsor is required to contribute at least 40% of the minimum net worth (Rs. 10 crore) of
the asset management company. The board of trustees manages the MF and the sponsor
executes the trust deeds in favour of the trustees. It is the job of the MF trustees to see that
schemes floated and managed by the AMC appointed by the trustees are in accordance with
the trust deed and SEBI guidelines
TYPES OF RETURN
There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:
1. Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a distribution.
2. If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution.
3. If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the
earnings and get more shares.
INDICATORS OF INVESTMENT RISK

There are five main indicators of investment risk that apply to the analysis of stocks, bonds and
mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe
ratio. These statistical measures are historical predictors of investment risk/volatility and are all
major components of modern portfolio theory (MPT).
T
h
e
MPT is a standard financial and academic methodology used for assessing the performance of
equity, fixed-income and mutual fund investments by comparing them to market benchmarks.
All of these risk measurements are intended to help investors determine the risk-reward
parameters of their investments. In this article, we'll give a brief explanation of each of these
commonly used indicators.
UNDERSTANDING AND MANAGING RISK
All investments whether in shares, debentures or deposits involve risk: share value may go
down depending upon the performance of the company, the industry, state of capital markets
and the economy; generally, however, longer the term, lesser the risk; companies may default

in payment of interest/principal on their debentures/bonds/deposits; the rate of interest on an

investment may fall short of the rate of inflation reducing the purchasing power.
While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to
reduce risk through diversification and professional management. The experience and expertise
of Mutual Fund managers in selecting fundamentally sound securities and timing their
purchases and sales help them to build a diversified portfolio that minimize risk and maximizes
returns.
The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vice versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in
capital protected funds and the profit-bonds that give out more return which is slightly higher
as compared to the bank deposits but the risk involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds
provide professional management, diversification, convenience and liquidity. That doesn’t
mean mutual fund investments risk free. This is because the money that is pooled in are not
invested only in debts funds which are less riskier but are also invested in the stock markets
which involves a higher risk but can expect higher returns.
RISKS ASSOCIATED WITH MUTUAL FUNDS

At the cornerstone of investing is the basic principle that the greater the risk you take, the
greater the potential reward. Remember that the value of all financial investments will
fluctuate.
Individual tolerance for risk varies, creating a distinct "investment personality" for each
investor. Some investors can accept short-term volatility with ease, others with near panic. So
whether you consider your investment temperament to be conservative, moderate or
aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of
your investment moves up or down.
 Managing Risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification and
Automatic Investing (SIP) are two key techniques you can use to reduce your investment risk
considerably and reach your long-term financial goals.
 Diversification
When you invest in one mutual fund, you instantly spread your risk over a number of different
companies. You can also diversify over several different kinds of securities by investing in
different mutual funds, further reducing your potential risk.
Diversification is a basic risk management tool that you will want to use throughout your
lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who
are willing to maintain a mix of equity shares, bonds and money market securities have a
greater chance of earning significantly higher returns over time than those who invest in only
the most conservative investments.
Additionally, a diversified approach to investing -- combining the growth potential of equities
with the higher income of bonds and the stability of money markets -- helps moderate your risk
and enhance your potential return.
 Systematic Investment Plan (SIP)

The Unitholders of the Scheme can benefit by investing specific Rupee amounts periodically, for
a continuous period. Mutual fund SIP allows the investors to invest a fixed amount of Rupees
every month or quarter for purchasing additional units of the Scheme at NAV based prices.
Here is an illustration using hypothetical figures indicating how the SIP can work for investors:
Suppose an investor would like to invest Rs.1,000 under the Systematic Investment Plan on a
quarterly basis.
Amount Invested (Rs.) Purchase Price (Rs.) No. of Units

Purchased
Initial 1000 10 100

Investment
1 1000 8.20 121.95
2 1000 7.40 135.14
3 1000 6.10 163.93
4 1000 5.40 185.19
5 1000 6.00 166.67
6 1000 8.20 121.95
7 1000 9.25 108.11
8 1000 10.00 100.00
9 1000 11.25 88.89
10 1000 13.40 74.63
11 1000 14.40 69.44
TOTAL 12,000 - 1,435.90

Average unit cost Rs 12,000/1,435.9 = Rs 8.36
Average unit price 109.6/12 = Rs 9.13

Unit price at beginning of next quarter Rs 14.90
Market value of investment 1435.9 * 14.90= Rs 21,395/-
The investor liquidates his units and gets back Rs 21,395/-
Using the SIP strategy the investor can reduce his average cost per unit. The investor gets the
advantage of getting more units when the market is turned down
TYPES OF RISKS
All investments involve some form of risk. Even an insured bank account is subject to the
possibility that inflation will rise faster than your earnings, leaving you with less real purchasing
power than when you started (Rs. 1000 gets you less than it got your father when he was your
age).
Consider these common types of risk and evaluate them against potential rewards when you
select an investment.
 Market Risk

At times the prices or yields of all the securities in a particular market rise or fall due to broad
outside influences. When this happens, the stock prices of both an outstanding, highly
profitable company and a fledgling corporation may be affected. This change in price is due to
"market risk".
 Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster
than the earnings on your investment, you run the risk that you'll actually be able to buy less,
not more. Inflation risk also occurs when prices rise faster than your returns.
 Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest?
How certain are you that it will be able to pay the interest you are promised, or repay your
principal when the investment matures?
 Interest Rate Risk
Changing interest rates affect both equities and bonds in many ways. Investors are reminded
that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in
offseting these changes.
 Exchange Risk
A number of companies generate revenues in foreign currencies and may have investments or
expenses also denominated in foreign currencies. Changes in exchange rates may, therefore,
have a positive or negative impact on companies which in turn would have an effect on the
investment of the fund.
 Investment Risk
The sectoral fund schemes, investments will be predominantly in equities of select companies
in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity

performance of such companies and may be more volatile than a more diversified portfolio of
equities.
 Changes in Government Policy
Changes in Government policy especially in regard to the tax benefits may impact the business
prospects of the companies leading to an impact on the investments made by the fund.
REGULATORY AUTHORITIES
To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to
time. MF either promoted by public or by private sector entities including one promoted by
foreign entities is governed by these Regulations. SEBI approved Asset Management Company
(AMC) manages the funds by making investments in various types of securities. Custodian,
registered with SEBI, holds the securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the
investors in units of mutual funds that the mutual funds function within the strict regulatory
framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also
is engaged in upgrading professional standards and in promoting best industry practices in
diverse areas such as valuation, disclosure, transparency etc.

MUTUAL FUNDS IN INDIA
1) ABN AMRO Mutual Fund

2) Benchmark Mutual Fund
3) Birla Sun Life Mutual Fund
4) Bharti AXA Mutual Fund
5) BOB Mutual Fund
6) Canara Robero Mutual Fund
7) DBS Chola Mutual Fund
8) Deutsche Mutual Fund
9) DSP BlackRock Mutual Fund

10) Escorts Mutual Fund

11) Fidelity Mutual Fund
12) Fortis ( ABN ) Mutual Fund
13) Franklin Templeton Mutual Fund
14) HDFC Mutual Fund
15) HSBC Mutual Fund
16) ING Vysya Mutual Fund
17) JM Financial Mutual Fund
18) Kotak Mahindra Mutual Fund
19) LIC Mutual Fund
20) Principal Mutual Fund
21) ICICI Prudential Mutual Fund
22) Reliance Mutual Fund
23) Sahara Mutual Fund
24) SBI Mutual Fund
25) Standard Chartered Mutual Fund
26) Sundaram Mutual Fund
27) Tata Mutual Fund
28) Taurus Mutual Fund
29) UTI Mutual Fund

INDUSTRY PROFILE
India has a diversified financial sector undergoing rapid expansion, both in

terms of strong growth of existing financial services firms and new entities entering the market.
The sector comprises commercial banks, insurance companies, non-banking financial
companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The
banking regulator has allowed new entities such as payment banks to be created recently,
thereby adding to the type of entities operating in the sector. However, financial sector in India
is predominantly a banking sector with commercial banks accounting for more than 64% of the
total assets held by the financial system.
The Government of India has introduced several reforms to liberalise, regulate and enhance
this industry. The Government and Reserve Bank of India (RBI) have taken various measures to
facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These
measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guideline to
banks regarding collateral requirements and setting up a Micro Units Development and
Refinance Agency (MUDRA). With a combined push by Government and private sector, India is
undoubtedly one of the world's most vibrant capital markets. In 2017, a new portal named
'Udyami Mitra' was launched by Small Industries Development Bank of India (SIDBI) with an aim
to improve credit availability to MSMEs in the country. India has scored a perfect 10 in
protecting shareholders' rights on the back of reforms implemented by Securities and Exchange
Board of India (SEBI). There are three general types of financial services: personal, consumer,
and corporate. These three categories encompass the major players and influencers for
companies and organizations trying to climb the ladder of the industry.
Financial institutions that offer personal finance management (PFM) tools are particularly
attractive to younger, tech-savvy consumers. Some of the top players in the personal finance
market include.

Chime: This US neobank provides fee-free financial services through its mobile app. It
recently launched a new Visa credit card, designed to help customers build a credit history. And
during the coronavirus pandemic, Chime built customer loyalty by rolling out $200 stimulus
check advances to 100,000 customers.
 N26: This German-headquartered neobank has no branch network, meaning it reaches

consumers completely virtually. N26 products include a free checking account, personal loans,
and a suite of PFM tools.
 Personal Capital: This US-headquartered direct-to-consumer (D2C) digital wealth
manager offers savings and retirement planning services.
 Varo: In 2020 Varo became the first neobank to receive FDIC approval and to receive a
national bank charter. According to Insider Intelligence, Varo plans to use the approval to add
credit products such as short-term loans, credit cards, and home financing.
 Cleo: You may recognize this service from Facebook Messenger. This AI-powered money
management chatbot is now offered as an app that pulls in customers' bank data to analyze
spending in real time and generate personalized financial insights.
Consumer Finance
From investing in real estate to paying for college, consumer finance helps people afford
products and services by paying in installments over a fixed period of time. The consumer
financial services market is made up of key players including credit card services, mortgage
lenders, and personal and student loan services.
Some popular consumer finance services include:
 American Express: Amex is a popular payment firm, known for its charge and credit card
services accompanied by various rewards programs. Recently, Amex partnered with Marriott
Bonvoy to offer rewards for spending at gas stations and restaurants to a travel-focused credit
card, in an effort to adjust perks based on the effects of the pandemic.

 Ally Financial: This digital-only bank went public in 2014 and is currently used by over
8.5 million people. It provides financial services ranging from vehicle financing and insurance to
mortgages and personal loans.
 LendingTree: This is the largest online lending marketplace in the US. LendingTree
connects borrowers with various lenders to help them find the best deals on loans–including
car, home, and personal–credit cards, deposit accounts, and insurance.
Corporate Finance
Corporate financing is an all-encompassing term to describe the financial activities of a

business, such as sources of funding, capital structure, actions to increase the company value,
and tools to allocate resources.
Jobs in the corporate finance sector include accountants, analysts, treasurers, and investor
relation experts that all work to maximize the value of a company.
Three key sources of funding in corporate finance include:
Private equity: This is the value of company shares not publicly listed. High net worth investors
buy shares of private companies or established mature companies that are failing. They are
essentially in complete control of the companies they invest in.
 Venture capital: Venture capital (VC) is financing provided to startups that firms believe
are poised for long-term growth. Due to the risk associated with investing in young businesses,
venture capitalists typically invest in less than 50% of the equity of the companies.
 Angel investors: These are independently wealthy individuals looking for small
businesses and startups to invest in. Angel investors are essentially purchasing a portion of the
company, which forces founders to relinquish some control.
Market Size
Mutual Fund (MF) industry’s Assets Under Management (AUM) grew from Rs. 10.96
lakh crore (US$ 156.82 billion) in October 2014 to Rs. 28.22 lakh crore (US$ 361.59 billion) in
October 2020. Inflow in India's mutual fund schemes via the Systematic Investment Plan (SIP)
route reached Rs. 82,453 crore (US$ 11.70 billion) in 2019. Equity mutual funds registered a net
inflow of Rs. 8.04 trillion (US$ 114.06 billion) by end of December 2019.
Another crucial component of India’s financial industry is the insurance industry. Insurance
industry has been expanding at a fast pace. The total first year premium of life insurance
companies reached Rs. 2.59 lakh crore (US$ 36.73 billion) in FY20.
Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed
rapid expansion. In 2019, US$ 2.5 billion was raised across 17 IPOs. Furthermore, India’s leading
bourse, Bombay Stock Exchange (BSE), will set up a joint venture with Ebix Inc to build a robust
insurance distribution network in the country through a new distribution exchange platform.
Investments/Developments
 VC investments grew to US$ 3.6 billion in July-September 2020 from US$ 1.5 billion in
the previous quarter, powered by the mega deals, which included the US$ 1.3 billion
raised by the online retailer—Flipkart
 On November 6, 2020, WhatsApp started its UPI payment services in India on receiving
the National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a
graded manner.
 In October 2020, Unified Payments Interface (UPI) recorded 2.07 billion transactions
worth Rs. 3.86 lakh crore (US$ 52.10 billion).
 In August 2020, the National Payments Corporation of India (NPCI) has launched an
international arm—NPCI International Payments (NIPL). The primary aim of NIPL will be
to take its indigenously developed digital payment products such as RuPay and UPI to a
global level.
 In August 2020, PAG agreed to acquire 51% of the wealth management and capital
markets business of Edelweiss Financial Services for Rs. 2,244 crore (US$ 305.2 million)

 In September 2020, People's Bank of China made an equity investment in Bajaj Finance
to acquire less than 1%.
 Value of Unified Payments Interface (UPI) transactions was valued at Rs. 2.06 lakh crore
(US$ 29.22 billion) in March 2020, recording 1.25 billion transactions.
 In March 2020, ClearTax, an online tax filing platform, acquired GST software and
services business of Karvy Data Management Services for an undisclosed amount.
 In April 2020, Axis Bank acquired an additional 29% stake in Max Life Insurance.
 Turnover from derivatives segment reached Rs. 3,453.9 lakh crore (US$ 49.41 trillion) in
FY20 and stood at US$ 5.09 trillion in FY21 (till May 2020).
 In 2019, FPI investment in Indian equities touched a five-year high of Rs. 101,122 crore
(US$ 14.47 billion).
 Merger and Acquisition (M&A) worth US$ 25.162 billion was recorded in the first ten
months of 2019.
 Total value of private equity (PE)/venture capital (VC) investment grew 44% over past
three years in value terms to reach US$ 48 billion in 2019.
 In October 2019, ICICI Lombard General Insurance Company acquired Unbox
Technologies for an aggregate cash consideration of Rs. 225 crore (US$ 32.19 million).
 There were 9,659 non-banking financial companies (NBFCs) registered with the Reserve
Bank as on March 31, 2019.
Government Initiatives
 On November 11, 2020, The Cabinet Committee on Economic Affairs approved
continuation and revamping of the scheme for financial support to public-private
partnerships (PPPs) in ‘Infrastructure Viability Gap Funding (VGF) Scheme’ until 2024-25
with a total outlay of Rs. 8,100 crore (US$ 1.08 billion).
 In August 2020, the IRDAI modified its dividend criteria for investment—in which
insurers are now permitted to classify investments in preference and equity shares as
part of "approved investments“, if such shares have paid dividend for at least two out of

three consecutive years immediately preceding. This relaxation is valid from April 1,
2020 to March 31, 2021.
 In November 2019, Government allocated Rs. 10,000 crore to set up AIFs for revival of
stalled housing projects.
 Under the Interest Subvention Scheme for MSMEs, Rs. 350 crore (US$ 50.07 million) was
allocated under Union Budget 2019 20 for 2% interest subvention for all GST registered
MSMEs on fresh or incremental loans.
 In December 2018, Securities and Exchange Board of India (SEBI) proposed direct
overseas listing of Indian companies and other regulatory changes.
 Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on
Sensex 50 index from October 26, 2018.
 In September 2018, SEBI asked for recommendations to strengthen rules which will
enhance the overall governance standards for issuers, intermediaries or infrastructure
providers in the financial market.
 The Government of India launched India Post Payments Bank (IPPB) to provide every
district with one branch, which will help increase rural penetration. As of August 2018,
two branches out of 650 branches were already operational.
Road Ahead
 India is expected to be the fourth largest private wealth market globally by 2028.
 India is today one of the most vibrant global economies on the back of robust banking
and insurance sectors. The relaxation of foreign investment rules has received a positive
response from the insurance sector, with many companies announcing plans to increase
their stakes in joint ventures with Indian companies. Over the coming quarters, there
could be a series of joint venture deals between global insurance giants and local
players.
 The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in
AUM to Rs. 95 lakh crore (US$ 1.47 trillion) and more than three times growth in
investor accounts to 130 million by 2025.

 India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate
(CAGR) of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions will
touch Rs. 32 trillion (USD$ 492.6 billion) during the same period.
Some of the most common business models in the financial services industry include:
 Billing Management: Franchises such as Claim-Tek Systems and American Business

Systems LLC provide medical billing, electronic claims processing and other
management services to healthcare providers. New coding requirements, rising costs
and declining profits make it increasingly practical for healthcare providers to outsource
medical billing.
 Business Consulting: Franchises such as Blue Coast Savings Consultants and Valcor
Worldwide Financial Consulting specialize in working with businesses to help their
owners reach full potential and improve revenue. With steady increases of U.S. small
businesses anticipated, the franchises have unlimited growth opportunities.
 Financial Education: Franchises including Online Training Academy and Real Estate Sales
LLC provide financial advising and mentoring services to individuals interested in pursing
trading or real estate investments. These franchises cater to individuals who want to
conduct their own transactions, though are willing to invest in preparation and
education to succeed.
 Insurance: Franchises such as AllState or Farmers Insurance provide agents with the
backing of a respected national insurer when offering clients a range of insurance
coverage. Agents often establish long-term relationships, serving both commercial and
consumer clients as their needs for coverage related to health, auto, real estate and life
insurance coverage change over time.
 Lending: Franchises such as Lendio and Vernon Street Capital help small-to-medium-size

businesses and individuals identify and qualify for funding to help them accomplish
residential or commercial real estate purchases or business growth. Platforms vary from
franchises that act as lending brokers to those that originate the funding themselves.

 Real Estate Management: Franchises such as Rentals America and All County Property
Management specialize in managing investment properties in the growing rental market
that represents more than one-third of real estate purchases. Of the homes sold in the
United States in 2016, 37 percent were purchased for investment purposes, according
to a report by HedegedEquity.com.
 Tax Preparation: Franchises including Liberty Tax Service and H&R Block primarily
prepare tax forms but also can offer other financial services to ensure steady, year-
round revenue streams. While many do-it-yourself options are available, USA Today
reported that about half of individuals filing taxes rely on professionals to assist with tax
preparation to save time and ensure accuracy
Mutual Funds Industry in India
The origin of mutual fund industry in India is with the introduction of the concept of mutual
fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year
1987 when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen a 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 in 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. Large sections of Indian investors are yet to be intellectuated with the concept. 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 UTI 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 UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of
assets under management.
Second Phase - 1987-1993 (Entry of Public Sector Funds)
Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank 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
UTI 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 UTI. 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 UTI 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
UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the setting up of a
UTI 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. As at the end of September, 2004, there were 29
funds, which manage assets of Rs.153108 crores under 421 schemes.

Classification according to investment objectives
Objectives
Mutual funds have specific investment objectives such as growth of capital, safety of principal,
current income or tax-exempt income. In general mutual funds fall into three general
categories:
 Equity Funds invest in shares or equity of companies.

 Fixed-Income funds invest in government or corporate securities that offer fixed rates of
return.
 Balanced Funds invest in a combination of both stocks and bonds.
i) Growth Funds
These funds seek to provide growth of capital with secondary emphasis on dividend. They
invest in shares with a potential for growth and capital appreciation. Because they invest in
well-established companies where the company itself and the industry in which it operates are
thought to have good long-term growth potential, growth funds provide low current income.
Growth funds generally incur higher risks than income funds in an effort to secure more
pronounced growth.
These funds may invest in a broad range of industries or concentrate on one or more industry
sectors. Growth funds are suitable for investors who can afford to assume the risk of potential
loss in value of their investment in the hope of achieving substantial and rapid gains.

They are not suitable for investors who must conserve their principal or who must maximize
current income.
ii) Growth and Income Funds
Growth and income funds seek long-term growth of capital as well as current income. The
investment strategies used to reach these goals vary among funds. Some invest in a dual
portfolio consisting of growth stocks and income stocks, or a combination of growth stocks,
stocks paying high dividends, preferred stocks, convertible securities or fixed-income securities
such as corporate bonds and money market instruments. Others may invest in growth stocks
and earn current income by selling covered call options on their portfolio stocks. Growth and
income funds have low to moderate stability of principal and moderate potential for current
income and growth. They are suitable for investors who can assume some risk to achieve
growth of capital but who also want to maintain a moderate level of current income.
iii) Fixed-Income Funds
The goal of fixed income funds is to provide current income consistent with the preservation of
capital. These funds invest in corporate bonds or government-backed mortgage securities that
have a fixed rate of return. Within the fixed-income category, funds vary greatly in their stability
of principal and in their dividend yields. High-yield funds, which seek to maximize yield by
investing in lower-rated bonds of longer maturities, entail less stability of principal than fixed-
income funds that invest in higher-rated but lower-yielding securities.

Low Risk High
Some fixed-income funds seek to minimize risk by investing exclusively in securities whose
timely payment of interest and principal is backed by the full faith and credit of the Indian
Government. Fixed-income funds are suitable for investors who want to maximize current
income and who can assume a degree of capital risk in order to do so.
iv) Balanced Fund
The Balanced fund aims to provide both growth and income. These funds invest in both shares
and fixed income securities in the proportion indicated in their offer documents. Ideal for
investors who are looking for a combination of income and moderate growth.
v) Money Market Funds/Liquid Funds
For the cautious investor, these funds provide a very high stability of principal while seeking a
moderate to high current income. They invest in highly liquid, virtually risk-free, short-term
debt securities of agencies of the Indian Government, banks and corporations and Treasury
Bills. Because of their short-term investments, money market mutual funds are able to keep a
virtually constant unit price; only the yield fluctuates.

Therefore, they are an attractive alternative to bank accounts. With yields that are generally
competitive with - and usually higher than -- yields on bank savings account, they offer several
advantages. Money can be withdrawn any time without penalty. Although not insured, money
market funds invest only in highly liquid, short-term, top-rated money market instruments.
Money market funds are suitable for investors who want high stability of principal and current
income with immediate liquidity.
vi) Specialty/Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as health
care, technology, leisure, utilities or precious metals. The funds enable investors to diversify
holdings among many companies within an industry, a more conservative approach than
investing directly in one particular company.
Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is
"in favor" but also entail the risk of capital losses when the industry is out of favor. While sector
funds restrict holdings to a particular industry, other specialty funds such as index funds give
investors a broadly diversified portfolio and attempt to mirror the performance of various
market averages.
Index funds generally buy shares in all the companies composing the BSE Sensex or NSE Nifty or
other broad stock market indices. They are not suitable for investors who must conserve their
principal or maximize current income.

A summary is presented in the table below of the various funds and their investment
objectives.


Comparison with Other Investment Avenues

Comparison between FD, Bonds and Mutual Fund – Features
Characteristics FD's Bonds Mutual Funds

Accessibility Low Low High
Tenor Fixed(medium) Fixed(Long) No Lock-in
Min. Investment Rs.1000 Rs.5000 Rs.5000
Tax Benefits None 80L, 88 Dividend Tax-Free
Liquidity Low Very Low Very High
Convenience Medium Tedious Very High
Transparency None None Very High
Funds differ in terms of their risk profile
Equity Funds High Level of Return, but has a high level of risk too
Debt Funds Returns comparatively less risky than equity funds
Liquid and Money Market Provide stable but low level of return
Funds

BENEFITS OF INVESTING THROUGH A MUTUAL FUND
A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest
in different securities. Investments may be in shares, debt securities, money market securities
or a combination of these. Those securities are professionally managed on behalf of the unit-
holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits
when the securities are sold, but subject to any losses in value as well.
Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as
they manage large pools of money. The managers have real-time access to crucial market
information and are able to execute trades on the largest and most cost-effective scale.
ii) Diversification
Mutual funds invest in a broad range of securities. This limits investment risk by reducing the
effect of a possible decline in the value of any one security. Mutual fund unit-holders can
benefit from diversification techniques usually available only investors wealthy enough to buy
significant positions in a wide variety of securities.
iii) Low Cost
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and
sometimes less. And with a no-load fund, you pay little or no sales charges to own them.
iv) Convenience and Flexibility
You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and
a wide range of services. Fund managers decide what securities to trade, collect the interest
payments and see that your dividends on portfolio securities are received and your rights
exercised. It also uses the services of a high quality custodian and registrar in order to make
sure that your convenience remains at the top of our mind.

v) Personal Service
One call puts you in touch with a specialist who can provide you with information you can use
to make your own investment choices. They will provide you personal assistance in buying and
selling your fund units, provide fund information and answer questions about your account
status.
vi)Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related
prices from the mutual fund itself.
vii) Transparency
You get regular information on the value of your investment in addition to disclosure on the
specific investments made by the mutual fund scheme.
DISADVANTAGES OF MUTUAL FUND
1. Costs Control Not in the Hands of an Investor: Investor has to pay investment
management fees and fund distribution costs as a percentage of the value of his
investments, irrespective of the performance of the fund.
2. No Customized Portfolios: The portfolio of securities in which a fund invests is a

decision taken by the fund manager. Investors have no right to interfere in the decision
making process of a fund manager, which some investors find as a constraint in
achieving their financial objectives.
3. Difficulty in Selecting a Suitable Fund Scheme: Many investors find it difficult to select
one option from the plethora of funds/schemes/plans available

PERFORMANCE MEASURES OF MUTUAL 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-à-vis market. The more
responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta.
Beta is calculated by relating the returns on a mutual fund with the returns in the market. While
unsystematic risk can be diversified through investments in a number of instruments,
systematic risk cannot. By using the risk return relationship, we try to assess the competitive
strength of the mutual funds vis-à-vis one another in a better way.
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:
Ø The Treynor Measure
Ø The Sharpe Measure
Ø Jenson Model

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
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a
low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a
numerical risk measure. The total risk is appropriate when we are evaluating the risk return
relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant
measure of risk when we are evaluating less than fully diversified portfolios or individual stocks.
For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total
risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-
diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly
diversified fund that ranks higher on Treynor measure, compared with another fund that is
highly diversified, will rank lower on Sharpe Measure.
Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the Differential Return Method.
This measure involves evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund given the level of its systematic risk. The surplus between the
two returns is called Alpha, which measures the performance of a fund compared with the
actual returns over the period. Required return of a fund at a given level of risk (Bi) can be
calculated as: Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it, alpha can be
obtained by subtracting required return from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund and
an ordinary investor can not mitigate unsystematic risk, as his knowledge of market is primitive.

Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return commensurate
with the total risk associated with it. The difference between these two is taken as a measure of
the performance of the fund and is called net selectivity.
The net selectivity represents the stock selection skill of the fund manager, as it is the excess
return over and above the return required to compensate for the total risk taken by the fund
manager. Higher value of which indicates that fund manager has earned returns well above the
return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns. The net selectivity is then calculated by
subtracting this required return from the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and Jenson
model use systematic risk based on the premise that the unsystematic risk is diversifiable.
These models are suitable for large investors like institutional investors with high risk taking
capacities as they do not face paucity of funds and can invest in a number of options to dilute
some risks. For them, a portfolio can be spread across a number of stocks and sectors.
However, Sharpe measure and Fama model that consider the entire risk associated with fund
are suitable for small investors, as the ordinary investor lacks the necessary skill and resources
to diversified. Moreover, the selection of the fund on the basis of superior stock selection
ability of the fund manager will also help in safeguarding the money invested to a great extent.

COMPANY PROFILE
HDFC Bank Limited
Type Public
NSE: HDFCBANK
Traded as
BSE: 500180
BSE SENSEX Constituent
NSE NIFTY 50 Constituent

ISIN INE040A01034
Industry Financial services
Founded August 1994 (26 years ago)
Founder Hasmukhbhai Parekh
Headquarters Mumbai, Maharashtra
,
India
Area served India
Key people Shyamala Gopinath
(Chairman)
Sashidhar Jagdishan
(CEO)
Products Credit cards, consumer
banking, banking, finance and
insurance, investment
banking, mortgage loans, private
banking, private equity, wealth

management[1]
Revenue ₹147,068.27
crore (US$21 billion) [2] (2020)
Operating ₹114,032.21
income crore (US$16 billion) [2] (2020)
Net income ₹27,253.95
crore (US$3.8 billion) [2] (2020)
Total assets ₹1,580,830.44
Total equity ₹175,810.38
Number of 1,16,971 (31 March 2020) [4]
employees
Subsidiaries HDFC Securities[5]
Website www.hdfcbank.com
FORMATION OF THE COMPANY

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. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited',
with its registered office in Mumbai, India. HDFC Bank commenced operations as a
Scheduled Commercial Bank in January 1995.
 PROMOTER
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.
 BUSINESS FOCUS
HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound
customer franchises across distinct businesses so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank's risk appetite. The bank is committed to maintain the
highest level of ethical standards, professional integrity, corporate governance and regulatory
compliance. HDFC Bank's business philosophy is based on four core values - Operational
Excellence, Customer Focus, Product Leadership and People.
CAPITAL STRUCTURE
The authorized capital of HDFC Bank is Rs550 crore (Rs5.5 billion). The paid-up capital is Rs424.6
crore (Rs.4.2 billion). The HDFC Group holds 19.4% of the bank's equity and about 17.6% of the
equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS)
Issue). Roughly 28% of the equity is held by Foreign Institutional Investors (FIIs) and the bank
has about 570,000 shareholders. The shares are listed on the Stock Exchange, Mumbai and the
National Stock Exchange. The bank's American Depository Shares are listed on the New York
Stock Exchange (NYSE) under the symbol 'HDB'.
 TIMES BANK AMALGAMATION
In a milestone transaction in the Indian banking industry, Times Bank Limited (another new
private sector bank promoted by Bennett, Coleman & Co./Times Group) was merged with HDFC
Bank Ltd., effective February 26, 2000. As per the scheme of amalgamation approved by the
shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank received

1 share of HDFC Bank for every 5.75 shares of Times Bank. The acquisition added significant
value to HDFC Bank in terms of increased branch network, expanded geographic reach,
enhanced customer base, skilled manpower and the opportunity to cross-sell and leverage
alternative delivery channels.
 DISTRIBUTION NETWORK
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of over
1229 branches spread over 444 cities across India. All branches are linked on an online real-
time basis. Customers in over 120 locations are also serviced through Telephone Banking. 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 need 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.
The Bank also has a network of about over 2526 networked ATMs across these cities.
Moreover, 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.
 MANAGEMENT
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was
a Deputy Governor of the Reserve Bank of India.
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years and
before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of experience
in public policy, administration, industry and commercial banking. Senior executives
representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad head various
businesses and functions and report to the Managing Director. Given the professional expertise
of the management team and the overall focus on recruiting and retaining the best talent in the
industry, the bank believes that its people are a significant competitive strength.
 TECHNOLOGY
HDFC Bank operates in a highly automated environment in terms of information technology

and communication systems. All the bank's branches have online connectivity, which enables
the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also
provided to retail customers through the branch network and Automated Teller Machines
(ATMs).
The Bank has made substantial efforts and investments in acquiring the best technology
available internationally, to build the infrastructure for a world class bank. The Bank's business
is supported by scalable and robust systems which ensure that our clients always get the finest
services we offer.
The Bank has prioritized its engagement in technology and the internet as one of its key goals
and has already made significant progress in web-enabling its core businesses. In each of its
businesses, the Bank has succeeded in leveraging its market position, expertise and technology
to create a competitive advantage and build market share.
 BUSINESS FOCUS
HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound
customer franchises across distinct businesses so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank's risk appetite. The bank is committed to maintain the

highest level of ethical standards, professional integrity, corporate governance and regulatory
compliance. HDFC Bank's business philosophy is based on four core values - Operational
Excellence, Customer Focus, Product Leadership and People
 RATING
I. Credit Rating
The Bank has its deposit programs rated by two rating agencies - Credit Analysis & Research
Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed Deposit programme has
been rated 'CARE AAA (FD)' [Triple A] by CARE, which represents instruments considered to be
"of the best quality, carrying negligible investment risk". CARE has also rated the bank's
Certificate of Deposit (CD) programme "PR 1+" which represents "superior capacity for
repayment of short term promissory obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary
of Fitch Inc.) has assigned the "tAAA ( ind )" rating to the Bank's deposit programme, with the
outlook on the rating as "stable". This rating indicates "highest credit quality" where
"protection factors are very high".
The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by CARE and Fitch
Ratings India Private Limited and its Tier I perpetual Bonds and Upper Tier II Bonds rated by
CARE and CRISIL Ltd. CARE has assigned the rating of "CARE AAA" for the subordinated Tier II
Bonds while Fitch Ratings India Pvt. Ltd. has assigned the rating "AAA (ind)" with the outlook on
the rating as "stable". CARE has also assigned "CARE AAA [Triple A]" for the Banks Perpetual
bond and Upper Tier II bond issues. CRISIL has assigned the rating "AAA / Stable" for the Bank's
Perpetual Debt programme and Upper Tier II Bond issue. In each of the cases referred to above,
the ratings awarded were the highest assigned by the rating agency for those instruments.
II. Corporate Governance Rating
The bank was one of the first four companies, which subjected itself to a Corporate Governance
and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of
India Limited (CRISIL). The rating provides an independent assessment of an entity's current

performance and an expectation on its "balanced value creation and corporate governance
practices" in future. The bank has been assigned a 'CRISIL GVC Level 1' rating which indicates
that the bank's capability with respect to wealth creation for all its stakeholders while adopting
sound corporate governance practices is the highest.
2.2 PRODUCT SCOPE:

HDFC Bank offers a bunch of products and services to meet the every need of the people. The
company cares for both, individuals as well as corporate and small and medium enterprises.
For individuals, the company has a range accounts, investment, and pension scheme,
different types of loans and cards that assist the customers. The customers can choose the
suitable one from a range of products which will suit their life-stage and needs.
For organizations the company has a host of customized solutions that range from
Funded services, Non-funded services, Value addition services, Mutual fund etc. These
affordable plans apart from providing long term value to the employees help in enhancing
goodwill of the company.
The products of the company are categorized into various sections which are as follows:
 Accounts and deposits.

 Loans.
 Investments and Insurance.
 Forex and payment services.
 Cards.
 Customer center.
March 2018 March 2019 March 2020
Citied 228 316 327
Branches 535 684 761

ATMs 1323 1605 1977
The HDFC Bank was incorporated on August 1994 by the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995.
The Housing Development Finance Corporation (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.HDFC Bank is
headquartered in Mumbai. The Bank at present has an enviable network of over 1416 branches
spread over 550 cities across India. All branches are linked on an online real–time basis.
Customers in over 500 locations are also serviced through Telephone Banking. The Bank also
has a network of about over 3382 networked ATMs across these cities.
The promoter of the company HDFC was incepted in 1977 is India's premier
housing finance company and enjoys an impeccable track record in India as well as in
international markets. 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.
The shares are listed on the Bombay Stock Exchange Limited and The
National Stock Exchange of India Limited. The Bank's American Depository Shares ( ADS ) are
listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global
Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange.
On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was formally
approved by Reserve Bank of India to complete the statutory and regulatory approval process.
As per the scheme of amalgamation, shareholders of CBoP received 1 share of HDFC Bank for
every 29 shares of CBoP.

The merged entity now holds a strong deposit base of around Rs. 1,22,000
crore and net advances of around Rs. 89,000 crore. The balance sheet size of the combined
entity would be over Rs. 1,63,000 crore. The amalgamation added significant value to HDFC
Bank in terms of increased branch network, geographic reach, and customer base, and a bigger
pool of skilled manpower.
In a milestone transaction in the Indian banking industry, Times Bank
Limited (another new private sector bank promoted by Bennett, Coleman & Co. / Times Group)
was merged with HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two
private banks in the New Generation Private Sector Banks. As per the scheme of amalgamation
approved by the shareholders of both banks and the Reserve Bank of India, shareholders of
Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank.
HDFC Bank offers a wide range of commercial and transactional
banking services and treasury products to wholesale and retail customers. The bank has three
key business segments:
1. Wholesale Banking Services
2. Retail Banking Services
3. Treasury
WHOLE SALE BANKING SERVICES :
The Bank's target market ranges from large, blue–chip
manufacturing companies in the Indian corporate to small & mid–sized corporates and agri–
based businesses.
RETAIL BANKING SERVICES :
The objective of the Retail Bank is to provide its target market
customers a full range of financial products and banking services, giving the customer a one–
stop window for all his/her banking requirements.
TREASURY :

Within this business, the bank has three main product areas – Foreign Exchange
and Derivatives, Local Currency Money Market & Debt Securities, and Equities. The Treasury
business is responsible for managing the returns and market risk on this investment portfolio.
HDFC Securities (HSL) and HDB Financial Services (HDBFSL) are its subsidiaries.
Services offered by the company:
Personal Banking :
 Accounts & Deposits

 Loans
 Cards
 Forex
 Investments & Insurance
NRI Banking :
 Accounts & Deposits

 Remittances
 Investments & Insurance Loans Payment Services
Wholesale Banking :
 Corporate
 Small & Medium Enterprises
 Financial Institutions & Trusts
 Government Sector

Achievements/ Recognition :–
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Mastercard , Maestro debit card as well.
Achievements in the year 2020 :
ET Innovation Awards 2020 Marketing and Brand Innovation of the Year Award
Asiamoney Asia's Outstanding

Most Outstanding Company - Financial Sector
Companies Poll 2019?
2020 BrandZ™ Top 75 Most Valuable HDFC Bank ranked India’s Most Valuable Brand for
Indian Brands the 7th consecutive year
Euromoney (Global) Awards For

Lifetime Achievement Award - Aditya Puri
Excellence 2020
FinanceAsia Country Awards 2020 Best Bank in India
Euromoney Awards for Excellence 2020 India’s Best Bank
HDFC Bank certified as a ‘Great Place to Work’ for

Great Place To Work
2020
Asiamoney Best Bank Awards 2020 HDFC Bank adjudged Best Domestic Bank in India
Business Today 18th Best Companies to HDFC Bank Among Top 10 Best Companies to work
work for in India Survey for in India
Best Managed Company- Ranked 1st

HDFC Bank voted ‘Best Managed’, ‘Best Best Corporate Governance- Ranked 1st
Governed’ Indian Company Best CEO- Aditya Puri, MD ranked 1st
Best Environmental Stewardship- Ranked 2nd

India’s Leading Private Bank – BFSI

Dun & Bradstreet BankTech Awards Best Use of Banking Technology - Data
2020 Analytics/BI/Big Data (Joint Winner with SBI)
Best Use of Banking Technology - API Open Banking
Bank of the Year - HDFC Bank jointly with SBI

Business Today – Money Today Financial
Best Large Bank - HDFC Bank
Awards 2019
Best Fintech Engagement - HDFC Bank
CNBC-TV18 India Business Leader

Awards (IBLA) 2019-20 HDFC Bank - Outstanding Company of the year
award
Achievements in 2019 :
Outlook Money Awards 2019 Private Bank of the Year
CNBC-AWAAZ CEO AWARDS 2019 Mr. Aditya Puri has been adjudged CEO of The Year
ICAI Awards for Excellence in Financial

Winner - Gold Shield category
Reporting for 2018-19
HDFC Bank MD Aditya Puri inducted in CA Hall of

13th ICAI Awards 2019
Fame
11th Inclusive Finance India Awards (IFI) HDFC Bank adjudged winner in Innovation and
2019 Inclusiveness in Priority Sector Lending
The Advertising Club Marquees Awards

Excellence in Marketing - HDFC Bank
2019
DSCI Excellence Award for Best Security Practices in

Nasscom DSCI Excellence Awards 2019
Banking Sector, 2019: HDFC Bank

DSCI Excellence Award for Security Leader of the

Year, 2019: Mr Sameer Ratolikar
DSCI Facebook Privacy Application Challenge:
Runner-up Mr Rahul Rajendraprasad
2nd SIDBI-ET India MSE Awards 2019 HDFC Bank adjudged Best MSE Bank (Private Sector)
QIMPRO Platinum Standard Awards 2019 - National

QIMPRO Awards 2019
Statesman for Quality in Business
Outstanding Company among banks in India - HDFC

Asia's Outstanding Companies Poll
Bank
BrandZ Top 75 Most Valuable Indian HDFC Bank - India's Most Valuable Brand for 6th year
Brands 2019 in a row
Institutional Investor All-Asia (ex-Japan)

Among The Most Honored Company List
Executive Team 2019 survey
Euromoney Awards for Excellence 2019 India's Best Bank
Joint No. 1 in Large Corporate Banking with 75 per

cent share of market
Leader in overall Quality of client relationship in
Corporate Banking
Greenwich Associates study
No. 1 in Middle-Market Banking with 60 per cent
share of market
Leader in overall Quality of client relationship in
Middle-Market Banking
Euromoney Awards for Excellence 2019 India’s Best Bank
UTI MF -CNBC TV18 Financial Advisor

Best Performing Bank (Private sector)
Awards '18-19

BrandZ Top 100 Most Valuable Global HDFC Bank featured for the fifth time in the BrandZ's
Brands 2019 Top 100 Global Brands List
-Digital Bank
Governance Now BFSI Awards 2019.
-Tech Trendsetter
-Best Large Bank

Businessworld Magna Awards 2019
-Fastest Growing Large Bank - Runner up
Aditya Puri honoured for corporate and

American Indian Foundation
philanthropic leadership
Leadership Award for Outstanding Initiatives in Big

Express Computer BFSI Digital Innovation
Data / Analytics Artificial Intelligence Enterprise
Awards 2019
Applications
The Banker Bank of the Year Awards

Bank of the Year - India
2018
The Banker Global Private Banking

Best Private Bank in India
Awards 2018.
Winner - Robotic Process Automation (Software)

Mint - EY Emerging Technology Awards
category
Forbes' World's Best Banks report No. 1 Bank in India - HDFC Bank
Euromoney Trade Finance Survey 2019 Best Service (Asian Banks only) - India
Market Leader (Asian Banks only) - India
The Financial Express India's Best Banks Best Bank - New Private Sector category
Awards 2017-18
FE CFO Awardss 2019 Best CFO / Newsmaker of the Year
Asiamoney Best Bank Awards 2019 Best Digital Bank (India)

AIMA-JRD Tata Corporate Leadership HDFC Bank MD Mr. Aditya Puri has been conferred
Award 2018 the AIMA-JRD Tata Corporate Leadership Award for
the Year 2018
Outlook Money Awards 2019 Best Private Sector Bank Award - Gold
IDC Financial Insights Innovation Awards Asia's Most Secure Bank

(FIIA) 2019
Dun & Bradstreet BFSI Awards 2019 India's Leading Bank - Private Sector
Euromoney Private Banking and Wealth No. 1 in Asset Management category

Management Survey 2019
Business Today - KPMG India's Best Bank - Bank of the Year - HDFC Bank and SBI
Awards 2019 Best Large Bank - HDFC Bank
FE Best Bank Awards Best Bank: New Private Sector
BENEFITS OF INVESTING THROUGH A MUTUAL FUND
A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest
in different securities. Investments may be in shares, debt securities, money market securities
or a combination of these. Those securities are professionally managed on behalf of the unit-
holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits
when the securities are sold, but subject to any losses in value as well. Mutual
funds hire full-time, high-level investment professionals. Funds can afford to do so as they
manage large pools of money. The managers have real-time access to crucial market
information and are able to execute trades on the largest and most cost-effective scale.
ii) Diversification

Mutual funds invest in a broad range of securities. This limits investment risk by reducing the
effect of a possible decline in the value of any one security. Mutual fund unit-holders can
benefit from diversification techniques usually available only to investors wealthy enough to
buy significant positions in a wide variety of securities.
iii) Low Cost
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and
sometimes less. And with a no-load fund, you pay little or no sales charges to own them.
iv) Convenience and Flexibility
You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and
a wide range of services. Fund managers decide what securities to trade, collect the interest
payments and see that your dividends on portfolio securities are received and your rights
exercised. It also uses the services of a high quality custodian and registrar in order to make
sure that your convenience remains at the top of our mind.
v) Personal Service
One call puts you in touch with a specialist who can provide you with information you can use
to make your own investment choices. They will provide you personal assistance in buying and
selling your fund units, provide fund information and answer questions about your account
status.
vi)Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related
prices from the mutual fund itself.
vii) Transparency

You get regular information on the value of your investment in addition to disclosure on the
specific investments made by the mutual fund scheme.
DISADVANTAGES OF MUTUAL FUND
4. Costs Control Not in the Hands of an Investor: Investor has to pay investment
management fees and fund distribution costs as a percentage of the value of his
investments, irrespective of the performance of the fund.
5. No Customized Portfolios: The portfolio of securities in which a fund invests is a

decision taken by the fund manager. Investors have no right to interfere in the decision
making process of a fund manager, which some investors find as a constraint in
achieving their financial objectives.
6. Difficulty in Selecting a Suitable Fund Scheme: Many investors find it difficult to select
one option from the plethora of funds/schemes/plans available.
PERFORMANCE MEASURES OF MUTUAL 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-à-vis market. The more
responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta.
Beta is calculated by relating the returns on a mutual fund with the returns in the market. While
unsystematic risk can be diversified through investments in a number of instruments,
systematic risk cannot. By using the risk return relationship, we try to assess the competitive
strength of the mutual funds vis-à-vis one another in a better way.
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:
Ø The Treynor Measure
Ø The Sharpe Measure
Ø Jenson Model
Ø Fama Model
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
Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a
low and negative Sharpe Ratio is an indication of unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a
numerical risk measure. The total risk is appropriate when we are evaluating the risk return
relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant
measure of risk when we are evaluating less than fully diversified portfolios or individual stocks.
For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total
risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-
diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly
diversified fund that ranks higher on Treynor measure, compared with another fund that is
highly diversified, will rank lower on Sharpe Measure.

Jenson Model
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the Differential Return Method.
This measure involves evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund given the level of its systematic risk. The surplus between the
two returns is called Alpha, which measures the performance of a fund compared with the
actual returns over the period. Required return of a fund at a given level of risk (Bi) can be
calculated as: Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it, alpha can be
obtained by subtracting required return from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund and
an ordinary investor can not mitigate unsystematic risk, as his knowledge of market is primitive.
Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return commensurate
with the total risk associated with it. The difference between these two is taken as a measure of
the performance of the fund and is called net selectivity.
The net selectivity represents the stock selection skill of the fund manager, as it is the excess
return over and above the return required to compensate for the total risk taken by the fund
manager. Higher value of which indicates that fund manager has earned returns well above the
return commensurate with the level of risk taken by him.
Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market returns. The net selectivity is then calculated by
subtracting this required return from the actual return of the fund.
Among the above performance measures, two models namely, Treynor measure and Jenson
model use systematic risk based on the premise that the unsystematic risk is diversifiable.
These models are suitable for large investors like institutional investors with high risk taking
capacities as they do not face paucity of funds and can invest in a number of options to dilute
some risks. For them, a portfolio can be spread across a number of stocks and sectors.
However, Sharpe measure and Fama model that consider the entire risk associated with fund
are suitable for small investors, as the ordinary investor lacks the necessary skill and resources
to diversified. Moreover, the selection of the fund on the basis of superior stock selection
ability of the fund manager will also help in safeguarding the money invested to a great extent.

REVIEW OF LITERATURE Gupta and Sehgal (1998) evaluated performance of 80

mutual fund schemes over a four years (1992-96).The study tested the proposition relating to
fund diversification, consistency of performance, parameter of performance and risk-return
relationship. The study noticed the existence of inadequate portfolio diversification and
consistency in performance among the sample schemes Trey nor (1965) presents a new way of
viewing performance results. He attempted to rate the performanceof mutual funds on a
characteristics line graphically. The steeper the line, the more systematic risk or volatility a fund
possesses. By incorporating various concepts, he developed a single line index, Tn, called Trey
nor index. Verma’s book (1997) „Guide to mutual funds and Investment portfolios of Indian
mutual funds with some statistical data guidelines to the investors in selection of schemes etc.
Bansal’s book (1996) “mutual fund management & working”included a descriptive study of
concept of mutual funds, Management of mutual funds, accounting & disclosure standards,
Mutual fund schemes etc. S. Anand & V Murugaiah (2003) indicates that the majority of
schemes were showed underperformance in comparison with risk free return. Cochran (2001)
has examined 'predictability' of stock returns. They suggested that stock returns arepredictable.
The degree of predictability increases as the time horizon lengthens. The author has examined
the predictability of stock returns using international stock market data from 18 countries. Their
results show that dividend yield can predict stock returns and the level of predictability increase
as the return horizon increase from one month to 48 months
Sharma Esha (2012) concluded that- The liberalized policy of the govt. of India permitted entry
to the Hdfc in the banking; the industry has witnessed a generation of private players. That’s
why the present paper special emphasis has been laid down on the financial analysis of the
bank by using different research ant statistical tools.
GoelCheenu&Rekhi Bhutani Chitwan (2013) concluded that the analysis supports that new
banks are more efficient than old ones. The public sector banks are as not profitable as other
sectors are. It means that efficiency and profitability are inter related.

BansalRohit (2014) Concluded that Federal has best price earnings ratio among other banks.
The total assets turnover ratio of federal bank shows that it keeps significantly highly assets to
meet the debt. Overall Federal bank is the most financially stable company in comparison to
others.
Soni Kumar Anil &KapreAbhay, Regional rural bank play a vital role in the agriculture and
rural development of India. The Study Is diagnostic and exploratory in nature and makes use of
secondary data. The study finds and concludes that performance of RRBs has significantly
improved.
The present research work serve as a guideline to public sector banks to look up the financial
performance and make superior allocation for improving efficiency for the coming time.Private
sector banks is high compare to public sector banks.
NEED FOR THE STUDY

Generally the investors invest in mutual funds to reduce the risk and increase their returns.This
study study is useful to the investors to taking decisions relating to investment in mutual funds
for this they would invest in mutual funds hence the study is required to examine the how for
the index fund fulfilling their objectives of such investors.
OBJECTIVES OF THE STUDY

1. To find out the Preferences of the investors for Asset Management Company.
2. To know the Preferences for the portfolios.
3. To know why one has invested or not invested in SBI Mutual fund
4. To find out the most preferred channel.
5. To find out what should do to boost Mutual Fund Industry.
RESEARCH METHODOLOGY
All the findings and conclusions obtained are based on the survey done in the working area
within the time limit. I tried to select the sample representative of the whole group during my
job training. I have collected data from people linked with different profession at Pune.

RESEARCH PLAN:
Preliminary Investigation: In which data on the situation surrounding the problems shall be
gathered to arrive at
 The correct definition of the problem.
 An understanding of its environment.
Exploratory Study: To determine the approximate area where the problem lies.
RESEARCH DESIGN:
Research was initiated by examining the secondary data to gain insight into the
problem. By analyzing the secondary data, the study aim is to explore the short comings of the
present system and primary data will help to validate the analysis of secondary data besides on
unrevealing the areas which calls for improvement
DEVELOPING THE RESEARCH PLAN:
The data for this research project has been collected through self Administration. Due to
time limitation and other constraints direct personal interview method is used. A structured
questionnaire was framed as it is less time consuming, generates specific and to the point
information, easier to tabulate and interpret. Moreover respondents prefer to give direct
answers. In questionnaires open ended and closed ended, both the types of questions has been
used.
COLLECTION OF DATA:
1: Secondary Data: It was collected from internal sources. The secondary data was collected on
the basis of organizational file, official records, news papers, magazines, management books,
preserved information in the company’s database and website of the company.
2: Primary data: All the people from different profession were personally visited and
interviewed. They were the main source of Primary data. The method of collection of primary
data was direct personal interview through a structured questionnaire.
SAMPLING PLAN:
Since it is not possible to study whole universe, it becomes necessary to take sample
from the universe to know about its characteristics.

 Sampling Units: Different professionals Chartered Accountants, Tax Consultants,

Lawyers, Business Man, Professionals and House Wives of Pune.
 Sample Technique: Random Sampling.
 Research Instrument: Structured Questionnaire.
 Contact Method: Personal Interview.
SAMPLE SIZE:
My sample size for this project was 200 respondents. Since it was not possible to cover
the whole universe in the available time period, it was necessary for me to take a sample size of
200 respondents.
DATA COLLECTION INSTRUMENT DEVELOPMENT: The mode of collection of data will be based
on Survey Method and Field Activity. Primary data collection will base on personal interview. I
have prepared the questionnaire according to the necessity of the data to be collected.
GEOGRAPHICAL SCOPE:
The same problem was with the all other branches of HDFC Bank even out of the Pune city. The
management is conducting the same research on a big ground while my contribution is tiny.
Though my sample size and geographical area was defined and confine to a particular territory
but the application of out put from the research are going to be wide.

PRODUCT SCOPE:
 Studying the increasing business scope of the bank.
 Market segmentation to find the potential customers for the bank.
 To study how the various products are positioned in the market.
 Corporate marketing of products.
 Customers’ perception on the various products of the bank.
LIMITATIONS:
 It was not possible to understand thoroughly about the different performance aspects
of the Financial Consultant within 60 days.
 As stipend, money was not given it was difficult to continue the project work.
 All the work was limited in some limited areas of tirupathi so the findings should not be
generalized.

 The area of research was tirupathi and it was too vast an area to cover within 60 days.
DATA ANALYSIS AND INTERPRETATION

Investment Avenues available in the market, that investor are aware of?
Postal schemes
Government securities
Direct equity investment
Bank FD’s

Mutual funds
Insurance
INFERENCE:
According to the investors in Rourkela, 33% of investors prefer to deposit there
money in bank FD’s. Where as 8% of the investors want to invest in postal scheme, 4% in
government security, 15% invest in direct equity 20% of investors they prefer mutual fund &
insurance, as there investment house which is not very high, but at the same time mutual
fund concept is growing
More attractive about mutual funds at hdfc bank ?
Returns
Moderate risk
Tax benefits
Hassle free
Past performance
Well regulated
No idea
.
INFRENCE:
According to people of Rourkela they attract with past performance of the company if
company past records is good then they interested to invest. After that people attract with
tax benefit then return on investment
Percentage of entire investment includes mutual funds at hdfc bank ?
Below 20%
20 to 50%
50 to 80%
80% above

INFRENCE:
By this we come to know that most of the people use to go for mutual fund as we can
see by the above graph that 83 people from 200 goes for 20% to50% investment in Mutual
Funds.
For Investments in Mutual Fund, which company investors prefer?
 HDFC MF
 ABN AMRO MF
 PRUDENTIAL ICICI MF
 RELIANCE MF
 BIRLA SUNLIFE
INFERENCE:
According to the Investors in Rourkela 35% of investors prefer to invest in HDFC

mutual fund, 27% of investors prefer Reliance mutual fund where as Birla share 12% and ICICI
by 17%.but only 9% investors invest in ABN AMRO mutual fund. I have compared these five
fund house because they are the main competitors in Rourkela
How do investors manage his investment portfolio?
Solely of my own
On advise of a friend
On advise of a distributor/agent
On advise of your banker
On advice of mutual fund house people

INFRENCE:
According to my survey most no of people manage his investment port folio by own,
84 people out of 200 manage his portfolio by own and 45 & 36 people manage with the help
of bankers and MF house
Savings/investment avenues 5 year back?
Bank FD, Savings

Insurance
Mutual funds
Equity market
Govt. securities

Real estate
Postal savings, FD
INFRENCE:
According to my survey before 5 year most of the people(113) of Rourkela city

invested his money in insurance sector and 90 people out of 200 invested in bank FD. But
only 43 people out of 200 invest in mutual fund which was very low
Among the huge number of people going for mutual fund, in which kind of fund they
normally invest?
 Equity Oriented
 Debt Oriented
 Balanced Oriented

INFERENCE:
In the city like Rourkela in between the age group 18-30, 62% investor invested in equity
oriented, and only 18% people invest in debt fund. But group of people more than 50 year
55% investor invest in debt fund and only 23% people invest in equity fund. It mean younger
people attract with equity fund and old man attract with debt fund. but in balanced fund
every groups are equally invest
Risk appetite of people in Orissa Preferred Risk and Return
 High risk high return (H,H)

 Moderate risk moderate return (M,M)
 Low risk low return (L,L)

INFERENCE:
According to the survey, we can conclude that, people in rural areas mostly believe in
Moderate risk, and moderate returns. Even mutual funds have moderate risk and the return
is quite less than as it is in case of equities. So, for the people of Rural areas mutual funds are
the right kind of investment option.
How seriously people in Rourkela thing about undergoing a financial planning for
them?
 Yes
 No

INFRENCE:
According to my survey of Rourkela people , most no of people are more serious

about financial planning


FINDINGS
In India Mutual fund Industry has seen Dramatic improvements in Quality as well as quality of
products and services offering over the past decade, but the industry has witnessed growth in
the last 10 years considerably below potential. The Asset under Management have grown from
about Rs. 470 billion in march 1993 to Rs. 1,540 billion in April 2004(CAGR of 11.4 percent) &
now it grown to Rs. 5,620 billion till sep 2008. This has mainly achieved due to collection
through mutual fund IPO’s that has been increasing due to the investors feeling that it is
cheaper in its IPO stage on account of its Rs. 10 NAV.
There has been a strong appreciation in equities in comparison to the debt market, which has
shown a downward trend last year. And in turn Mid-cap and diversified funds have delivered
the highest in comparison to other funds. As the Indian economy is showing a growing trend
with GDP more than 6% and expected to show 8% and Indian household saving being 24% of
the entire GDP. There is a strong growth potential of Mutual fund industry in India.
In Orissa i.e. rural area it is still a new concept so it will take some more time to really penetrate
into this market apart from people who are HNI’s though these people are given more
emphasis by all the Mutual funds and distribution channels. With the introduction of SIP’s the
industry has created some options clear for retail investors to enter this market. My survey says
that it the awareness level that is playing acting as an obstacle in the growth of Mutual fund
Industry in Orissa as a whole.

Some of the Major Findings
1. It is found that HDFC is a favorable Mutual Fund.

2. The basis objective behind investments are mainly long-term capital appreciation,
current income & to some extent tax benefits.
3. The performance of HDFC Core & Satellite & HDFC Top 200 Fund is very good.
4. It is seen that the investment in growth fund is very high. Because the scope of income
and capital appreciation in the long term.
5. It is observed that the driving aspects of investments in mutual fund are safety, fund
performance, Service, Liquidity, return & tax benefits.
6. The type of investment plan that most investor s prefer is to get principal safety at all
time with low returns rather than high return with no safety.
7. HDFC Mutual Fund does not provide ‘monthly income scheme’ which other mutual
funds have and performance is very appreciable.
8. Fund Managers have suggested HDFC prudence ,HDFC Taxsaver , HDFC Equity for
investment , For the top 5.
9. HDFC Prudence is performing good with comparition to the prudence fund of any other
mutual fund house.
10. At this period of time when market condition is not so good, it is better for investors to
invest through Systamatic Investment plan. Which reduces the market risk.

SUGGESTIONS
HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the
country with consistent and above average fund performance across categories since its
incorporation on December 10,1999.The single most important factor that drives HDFC Mutual
Fund is its belief to give the investor the chance to profitably invest in the financial market,
without constantly worrying about the market swings.
Some major recommendation:

1) Fund managers should continuous Investor awareness Programs to make the
investors aware of technicalities of fund management and the return aspects.
2) Agents, Service personnel must be able to give correct and timely information
about NAV and the return on different schemes.
3) Monthly income scheme should be introduced.
4) Scheme should be offered as per the needs and the requirement of the
industries.
5) The regulatory norms provided by the regulatory authorities like SEBI are
required to be known to all including investors.

CONCLUSION
The global financial market has transformed from Seller’s market to Buyer’s market with
liberalization, Globalizations and privatization. The Indian mutual fund market has also become
global when foreign funds entered, they came up with probably best marketing strategies to
beat Indian giants like BIRLA, HDFC, and ICICI have come up with aggressive strategies to beat
the foreign funds. Now the cutthroat competition goes on and on.
HDFC Mutual funds have rewarded investors with hand some returns. The good news is that
this is poised to become a trend. The mutual funds have strengthened their distribution
networks, become more transparent and investor friendly and are rewarding investors. The
mutual fund is finally, proving itself as a vehicle of safety for investments. But it is still the fund
manager’s investment philosophy that makes the difference between the winner and the
losers.
Careful market analysis, consumer segmentation, identification of investor needs, service

designing are to be carried out for the successful implementation of different schemes by
mutual fund organizations. Regulatory measures by SEBI should be clearly explained to the
investors. Positioning of the schemes and their branding will help a lot for growth of the
industry. Creativity and innovation are the means of marketing in the days to come for Indian
mutual fund market.

BIBLIOGRAPHY:-
MAGAZINES
INDIA TODAY
BUSINESS WORLD
WEB SITES
WWW.HDFCFUND.COM
http://www.hdfcfund.com/AboutUs/
http://www.hdfcfund.com/Products/
WWW.AMFIINDIA.COM
http://www.amfiindia.com/showhtml.asp?page=mfconcept#A

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INTRODUCTION TO MUTUAL FUNDS :

PROFIT/LOSS FORM PROFIT/LOSS FROM

In Short , a Mutual fund is a common pool of money in to which investors with

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Stocks represent shares of ownership in a public company. Examples of public companies

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ORGANIZATION OF MUTUAL FUND-

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TYPES OF MUTUAL FUNDS SCHEMES-

Equity / Growth Fund Liquid Funds

Mutual Fund Schemes

 Open - Ended Schemes

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 Tax Saving Schemes

CLOSED ENDED MUTUAL FUND

OPEN ENDED MUTUAL FUND

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LARGE CAP FUNDS

MONEY MARKET MUTUAL FUNDS

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2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or

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5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available

Disadvantages of Investing Mutual Funds:

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MUTUAL FUNDS STRUCTURE

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INDICATORS OF INVESTMENT RISK

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UNDERSTANDING AND MANAGING RISK

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in payment of interest/principal on their debentures/bonds/deposits; the rate of interest on an

RISKS ASSOCIATED WITH MUTUAL FUNDS

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Amount Invested (Rs.) Purchase Price (Rs.) No. of Units

Initial 1000 10 100

1 1000 8.20 121.95

2 1000 7.40 135.14

3 1000 6.10 163.93

4 1000 5.40 185.19

5 1000 6.00 166.67

6 1000 8.20 121.95

7 1000 9.25 108.11

8 1000 10.00 100.00

9 1000 11.25 88.89

10 1000 13.40 74.63

11 1000 14.40 69.44

TOTAL 12,000 - 1,435.90

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Average unit cost Rs 12,000/1,435.9 = Rs 8.36

Average unit price 109.6/12 = Rs 9.13

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 Changes in Government Policy

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MUTUAL FUNDS IN INDIA

1) ABN AMRO Mutual Fund

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