INTRODUCTION OF

THE TOPIC

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 INTRODUCTION

A mutual fund is a pool of money, collected from investors, and is invested

according to certain investment options. A mutual fund is a trust that pools the

savings of a number of investors who share a common financial goal. A mutual fund

is created when investors put their money together. It is therefore a pool of the

investor’s funds. 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.

The most important characteristics of a fund are that the contributors and the

beneficiaries of the fund are the same class of people, namely the investors. The term

mutual fund means the investors contribute to the pool, and also benefit from the pool.

There are no other claimants to the funds. The pool of funds held mutually by

investors is the mutual fund

A mutual funds business is to invest the funds thus collected according to the

wishes of the investors who created the pool. Usually, the investors appoint

professional investment managers, to manage their funds. The same objective is

achieved when professional investment managers create a product and offer it for

investment to the investor. This product represents a share in the pool, and pre states

investment objectives. 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.

Investors in the mutual fund industry today have a choice of 39 mutual funds,

offering nearly 500 products. Though the categories of product offered can be

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classified under about a dozen generic heads, competition in the industry has led to

innovative alterations to standard Products. The most important benefit of product

choice is that it enables investors to choose options that suit their return requirements

and risk appetite. Investors can combine the options to arrive at their own mutual fund

portfolios that fit with their financial planning objectives.

MUTUAL FUND OPERATION FLOW CHART

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 HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in1963 with the formation of Unit

Trust of India, at the initiative of the government of India and Reserve Bank. The

history of mutual funds in India can be broadly divided into four distinct phases:

First Phase: - 1964 – 1987

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.6700 cores of assets

under management.

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

1987marked the entry of non-UTI, public sector mutual funds set by public

sector banks and life Insurance corporation of India (LIC) and General Insurance

Corporation of India (GIC). SBI Mutual funds was the first non-UTI Mutual fund

established in June 1987 followed by Can bank Mutual Fund ( Dec 87 ) , Punjab

National Bank Mutual Fund ( Aug 89 ), Indian Bank Mutual Fund ( Nov 89 , Bank

Of India ( Jun90),Bank Of Baroda

Mutual Fund (Oct92), LIC established it’s Mutual Fund in June 1989 while

GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual

fund industry had assets under management of Rs. 47,004crores.

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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 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) Regulation 1996.

The number of mutual fund houses went on increasing, with many foreign

mutual

Funds setting up funds in India and also the industry have 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 cores. The Unit Trust of India with Rs .44, 541 cores

of assets under management were way ahead of other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963

UTI was bifurcated into two separate entities. One is the specified Undertaking of the

Unit Trust of India with assets under management of Rs 29,835 cores as at the end o f

January 2003, representing broadly , the assets of US 64 scheme, assured return and

certain other Schemes. The specified Undertaking of Unit Trust of India, functioning

under administrators and under the rules framed by Government of India and does not

come under the purview of the Mutual Fund Regulations.

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 The second is the UTI Mutual Fund Ltd, sponsored by SBI, 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 cores

of assets under management 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. 151108 crores under 421schemes

Since February 2003   In February 2003, following the repeal of the Unit Trust of

India Act 1963 UTI was bifurcated into two separate entities. One is the Specified

Undertaking of the Unit Trust of India with assets under management of Rs.29,835

crores as at the end of January 2003, representing broadly, the assets of US 64

scheme, assured return and certain other schemes. 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, 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 assets under management 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.   The graph indicates the growth of assets

over the years.

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 GROWTH IN ASSETS UNDER MANAGEMENT

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of

the Unit Trust of India effective from February 2003. The Assets under management

of the Specified Undertaking of the

Unit Trust of India has therefore been excluded from the total assets of the industry as

a whole from February 2003 onwards.

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REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA

The structure of mutual fund in India is governed by the SEBI

Regulations, 1996. These regulations make it mandatory for mutual funds to have a

three-tier structure SPONSER –TRUSTEE-ASSET MANAGEMENT COMPANY

(AMC). The sponsor is the promoters of the mutual fund and appoints the AMC for

managing the investment portfolio. The AMC is the business face of the mutual fund.

As its manages all the affairs of the mutual fund. The mutual fund and the AMC have

to be registered with SEBI.

Mutual Funds can be structured in the following ways:

Company form. In which investors hold shares of the mutual fund. In this

structure management of the fund in the hands of an elected board, which in turn

appoints investment managers to manage the fund? Trust from, in which the investors

are held by the trust, on behalf of the investors. The appoints investment managers

and monitors their functioning in the interest of the investors.

The company form of organization is very popular in the United States. In

India mutual funds are organized as trusts. The trust is created by the sponsors who is

actually the entity interested in creating the mutual fund business. The trust is either

managed by a Board of trustees or by a trustee company, formed for this purpose. The

investors’ funds are held by the trust.

Though the trust is the mutual fund, the AMC is its operational face. The

AMC is the first functionary to be appointed, and is involved in the appointment of all

the other functionaries. The AMC structures the mutual fund products, markets them

and mobilizes the funds and services the investors. It seeks the services of the

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functionaries in carrying out these functions. All the functionaries are required to the

trustees, who lay down the ground rules and monitor them, working.

Working of Mutual Fund

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 REGULATORY FRAMEWORK

Regulatory jurisdiction of SEBI:

SEBI is the apex regulatory of capital markets. SEBI has enacted the SEBI

(mutual fund) Regulations, 1996, which provides the scope of the regulation of the

mutual fund in India. All Mutual funds are required to be mandatorily registered with

SEBI. The structure and formation of mutual funds, appointment of key functionaries,

operation of the mutual funds, accounting and disclosure norms, rights and

obligations of functionaries and investors, investment restrictions ,compliance and

penalties are all defined under the SEBI regulations. Mutual funds have to send half

yearly compliance reports to SEBI, and provide all information about their operations.

Regulatory jurisdiction of RBI:

RBI is the monetary authority of the country and is also the regulatory of the

banking system. Earlier bank sponsored mutual funds were under the dual regulatory

control of RBI and SEBI. These provisions are no longer in vogue. SEBI is the

regulator of all mutual funds. The present position is that the RBI is involved with the

mutual fund industry, only to the limited extent of being the regulator of the sponsors

of bank sponsored mutual funds.

Role of Ministry of Finance in Mutual Fund:

The Finance Ministry is the supervisor of both the RBI and SEBI. The

Ministry Of Finance is also the appellate authority under SEBI Regulations.

Aggrieved parties can make appeals to the Ministry of Finance on the SEBI rulings

relating to the mutual fund.

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Role of Companies Act in Mutual Fund:

The AMC and the Trustee Company may be structured as limited companies,

which may come under the regulatory purview of the Company Law Board

(CLB).The provisions of the Companies Act, 1956 is applicable to these company

forms of organizations. The Company Law Board is the apex regulatory authority for

companies. Any grievance against the AMC or the trustee company can be addressed

to the Company Law Board for redressed.

Role of Stock Exchanges:

If a mutual fund is listed its schemes on stock exchanges, such listings are

subject to the listing regulation of stock exchanges. Mutual funds have to sign the

listing agreement and abide by its provisions, which primarily deal with periodic

notifications and disclosure of information that may impact the trading of listed units.

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ASSET MANAGEMENT COMPANY

Its Appointment and Functions:

The role of the AMC is to act as the Investment Manager of the Trust. The

sponsors, or the trustees, if so authorized by the trust deed appoint the AMC. The

AMC so appointed is required to be approved by the SEBI. Once approved, the AMC

functions under the supervision of its own directors and also under the direction of the

trustees and the SEBI. The trustees are empowered to terminate the appointment of

the AMC by majority and appoint a new one with the prior approval of the SEBI and

the unit holders.

The AMC would, in the name of the trust, float and then manage the different

investment schemes as per the regulations of the SEBI and as per Investment

Management Agreement it signs with the trustees. Chapter IV of SEBI (MF)

Regulations, 1996 describes the issues relevant to appointment, eligibility criteria and

the restrictions on the business activities and obligations of the AMC.

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 CLASSIFICATION OF MUTUAL FUND SCHEMES

Any mutual fund has an objective of earning objective income for the

investors and / or getting increased value of their investments. To achieve these

objectives mutual funds adopt different strategies and accordingly offer different

schemes of investments. On these bases the simplest way to categorize schemes

would be to group these into two broad classifications:

 Operational Classification

 Portfolio Classification.

Operational Classification

a) Open ended schemes: As the name implies the size of the scheme (fund) is

open i.e. not specified or pre determined. Entry to the fund is always open to the

investor who can subscribe at any time. Such fund stands ready to buy or sell its

securities at any time. It implies that the capitalization of the fund is constantly

changing as investors sell or buy their shares. Further the shares or units are normally

not traded on the stock exchange but are repurchased by the fund at announced rates.

b) Close ended schemes: Such schemes have a definite period after which their

shares/ units are redeemed. Unlike open ended, these funds have fixed capitalization,

i.e. corpus normally does not change throughout its life period. Close ended funds

units’ trade among the investors in the secondary market since these are to be quoted

on the stock exchanges. Their price is determined on the basis of demand and supply

in the market. .

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 Portfolio Classification of Funds:

Following are the portfolio classification of funds, which may be offered. This

classification may be on the basis of (a) Return (b) Investment Pattern (c) Specialized

sector of investment (d) Leverage (e) Others

a) Return Based Classification

To meet the diversified needs of the investors, the mutual fund schemes are

made to enjoy a good return. Returns expected are in form of regular dividends or

capital appreciation or a combination of these two.

1) Income Funds: For investors who are more curious for returns, income funds

are floated. Their objective is to maximize current income. Such funds distribute

periodically the income earned by them. These funds can further be spitted up into

categories: those that stress constant income at relatively low risk and those that

attempt to achieve maximum income possible, even with the use of leverage.

Obviously, the higher the expected returns, the higher the potential risk of the

investment.

2) Growth Funds: Such funds aim to achieve increase in the value of the

underlying investments through capital appreciation. Such funds invest in growth

oriented securities which can appreciate through the expansion production facilities in

long run. An investor who selects such funds should be able to assume a higher than

normal degree of risk.

3) Conservative Funds : The fund with a philosophy of “all things to all” issue

offer document announcing objectives as (I) To provide a reasonable rate of return,

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(ii) To protect the value of investment (iii) To achieve capital appreciation consistent

with the fulfillment of the first two objectives.

b) Investment Based Classification:

Mutual funds may also be classified on the basis of securities in which they

invest. Basically, it is renaming the subcategories of return based classification.

Equity Fund: Such funds, as the name implies, invest most of their investible

shares in equity shares of companies and undertake the risk associated with the

investment in equity shares. Such funds are clearly expected to outdo other funds in

rising market, because these have almost all their capital in equity. Equity funds again

can be of different categories varying from those that invest exclusively in high

quality ‘blue chip’ companies to those that invest solely in the new, unestablished

companies. The strength of these funds is the expected capital appreciation. Naturally

they have a higher degree of risk.

Bond Funds: Such funds have their portfolio consisted of bonds, debentures, etc.

this type of fund is expected to be very secure with a steady income and little or no

chance of capital appreciation. Obviously risk is low in such funds.

Balanced Fund: The funds which have in their portfolio a reasonable mix of

equity and bonds are known as balanced funds. Such funds will put more emphasis on

equity share investments when the outlook is bright and will tend to switch to

debentures when the future is expected to be poor for shares.

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Specialized Sector Based Funds:

There are number of funds that invest in a specified sector of economy. While

such funds do have the disadvantage of low diversification by putting all their all eggs

in one basket, the policy of specializing has the advantage of developing in the fund

managers an intensive knowledge of the specific sector in which they are investing.

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 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. Hedge fund involves a very high risk since it is mostly traded in the

derivatives market which is considered very volatile.

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 TYPES OF MUTUAL FUNDS

All mutual fund would be either close ended or open ended or either load or

no load. These classifications are general. For example all open – end funds operate

the same way; or in case of a load a deduction is made from investor’s subscription or

redemption and only the net amount used to determine his number of shares

purchased or sold.

Funds are generally distinguished from each other by their investment

objectives and types of securities they invest in. The major types of funds available:-

Money Market Funds

Often considered to be at the lowest ring in the order of risk level. Money

Market Funds invest insecurities of short term nature which generally means

securities of less than one year maturity. The typical short term interest bearing

instruments these funds invest in Treasury Bills issued by governments, Certificate of

Deposits issued by banks and Commercial Paper issued by companies. The major

strengths of money market funds are the liquidity and safety of principal that the

investors can normally expect from short term investments.

Gilt Funds

Gilts are the governments’ securities with medium to long term maturities

typically of over one year (under one year instruments being money market

securities). In India, we have now seen the emergence of government securities or gilt

funds that invest in government paper called dated securities. Since the issuer is the

government, these funds have little risk of default and hence offer better protection of

principal. However, investors have to recognize the potential changes in values of

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debt securities held by the funds that are caused by changes in the market price of

debt securities held by the funds that are caused by changes in the market price of

debt securities quoted on the stock exchanges.

Debt Funds (Income Funds)

These funds invest in debt instruments issued not only by the governments,

but also by private companies, banks and financial institutions and other entities such

as infrastructure companies. By investing in debt these funds target low risk and

stable income for the investor as their key objectives.

Debt funds are largely considered as income funds as they do not target capital

appreciation, look for high current income and therefore distribute a substantial part

of their surplus to investors. The income funds fall largely in the category of debt

funds as they invest primarily in fixed income generating debt instrument

Diversified Debt Fund

A debt fund that invests in all available types of debt securities, issued by

entities across all industries and sectors is properly diversified debt fund. While debt

fund offer high income and less risk as compared to equity funds, investors need to

recognize that debt securities are subject to risk of default by the issuer on payment of

interest or principal.

Focused Debt Fund

Some debt funds have a narrower focus, with less diversification in its

investment. Examples include sector, specialized and off shore debt funds. These are

much similar to the equity funds that these are less income oriented and less risky.

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High Yield Debt Funds

Usually debt funds control the borrower default risk by investing in securities

issued by the borrowers who are rated by the credit rating agencies and are considered

to be of “investment grade”. There are however, high yield debt funds that seek to

obtain higher interest returns by investing in the debt instruments that are considered

“below investment grade”. These funds are exposed to greater risks.

Assured Return Funds – An Indian Variant

Fundamentally, mutual funds hold assets in trust for investors. All returns and

risks are for account of the investors. The role of the fund manager is to provide the

professional management service and to ensure the highest possible return consistent

with the investment objective of the fund. The fund manager or the trustees do not

give any guarantee of any minimum return to the investor.

However in India, historically the UTI offered assured return to the investor. If

there is any shortfall it will be borne by the sponsor.

Fixed Term Plan Series

A mutual fund would normally be either open ended or close ended.

However in India, mutual funds have evolved an innovative middle option between

the two, in response to the investor needs.

Fixed Term Plan Series are essentially close ended in nature. In that the

mutual fund AMC issues a fixed number of units for each series only for once and

closes the issue after an initial offering period like a close end scheme offering.

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Equity Funds

As investors move from debt funds category to equity funds, they face

increased risk level . However there are a large variety of equity funds and all of them

is not equally risk prone. Investor and their advisors need to sort out and select the

right equity fund that risk appetite.

Equity funds adopt different investment strategies resulting in different levels

of risk. Hence they are generally separated into different types in terms of their

investment styles. Some of these equity funds are as under:

Growth Funds

Growth funds invest in companies whose earnings are expected to rise at an

average. These companies may be operating in sectors like technology considered

having a growth potential, but not entirely unproven and speculative. The primary

objective of growth fund is capital appreciation over a span of 3 to 5 years. Growth

funds are therefore less volatile than funds that target aggressive growth.

Specialty Funds

These funds have a narrower portfolio orientation and invest only in

companies that meet pre determined criteria. Some funds may build portfolio that will

exclude Tobacco companies. Within the specialty funds category some funds may be

broad based in terms of investments in the portfolio. However most specialty funds

tend to be concentrated funds, since diversification is limited to one type of

investment. Clearly concentrated specialty fund tend to be more volatile than the

diversified funds.

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Diversified Equity Funds

A fund that seeks to invest only in equities for a very small portion in liquid

money market securities but is not focused on any one or few sectors or shares may be

termed as diversified equity funds. While exposed to all equity risks, diversified

equity funds seek to reduce the sector or stock specific risks through diversifications.

They have mainly market risk exposure. Such general purpose but diversified funds

are clearly at the lower risk level than growth funds.

Equity Linked Savings Scheme

In India the investors have been given tax concessions to encourage them to

invest in equity markets through these special schemes. Investments in these schemes

entitles the investors to claim an income tax rebate, but usually has a lock in period

before the end of which funds cannot be withdrawn. These funds are subject to the

general SEBI investment guidelines for all equity funds and would be in the

Diversified Equity Fund category. However as there are no specific restrictions on

which sectors these funds ought to invest in ,investors should clearly look for where

the AMC proposes to invest and accordingly judge the level of risk involved.

Equity Index Funds

An index fund tracks the performance of a specific stock market index. The

objective is to match the performance of the stock market by tracking an index that

represents the overall market. The fund invests in shares that constitute the index in

the same proportion as the index. Since they generally invests in a diversified market

index portfolio these funds take only the overall market risks while reducing the

sector and the stock specific risks through diversifications.

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Value Funds

The growth funds that we reviewed above holds shares of the companies with

good or improving profit prospects and aim primarily at capital appreciation. These

concentrate on future growth prospects may be willing to pay high price/ earnings

multiples for companies considered to have good potential. In contrast to the growth

investing other funds follow Value Investing Approach.

Equity Income Funds

Usually income funds are in the debt funds category, as they target fixed

income investments. However there are equity funds that can be designed to give the

investors a high level of current income along with some steady capital appreciation,

investing mainly in shares of companies with high dividend yields.

Hybrid Funds

We have seen that in terms of the nature of financial securities held, there are

three major mutual fund types: money market, debt and equity. Many mutual fund

mix these different types of securities in their portfolios. Thus, most funds equity or

debt always have some money market securities in their portfolios as these securities

offer the much needed liquidity. However money market holdings will constitute a

lower proportion in the overall portfolios. These are the funds that seek to hold

relatively balanced holdings of debt or equity in their portfolios. Such funds are

termed as “hybrid funds” as they have a dual equity/ bond focus.

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Balanced Funds

A balanced fund is the one that has a portfolio comprising debt instruments,

convertible securities, and preference and equity shares. Their assets are generally

held in more or less equal proportion between debt / money market securities and

equities. By investing in a mix of this nature, balanced funds seek to attain the

objectives of the income, moderate capital appreciation and preservation of capital

and are ideal for investors with a conservative and long term orientation.

Growth and Income Funds

Unlike income or growth focused funds, these funds seek to strike a balance

between capital appreciation and income for the investor. Their portfolios are a mix

between companies with good dividends paying records and those with potential for

capital appreciation. These funds would be less risky than the pure growth funds

though more risky than the income funds.

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 Advantages of Mutual Funds
There are numerous benefits of investing in mutual funds and one of the key

reasons for its phenomenal success in the developed markets like US and UK is the

range of benefits they offer, which are unmatched by most other investment avenues.

We have explained the key benefits in this section. The benefits have been broadly

split into universal benefits, applicable to all schemes and benefits applicable

specifically to open-ended schemes.

The advantages of investing in a Mutual Fund are:

 Affordability

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending

upon the investment objective of the scheme. An investor can buy in to a portfolio of

equities, which would otherwise be extremely expensive. Each unit holder thus gets an

exposure to such portfolios with an investment as modest as Rs.500/-. This amount

today would get you less than quarter of an Infosys share! Thus it would be affordable

for an investor to build a portfolio of investments through a mutual fund rather than

investing directly in the stock market.

 Diversification

The best mutual funds design their portfolios so individual investments

will react differently to the same economic conditions. For example, economic

conditions like a rise in interest rates may cause certain securities in a diversified

portfolio to decrease in value. Other securities in the portfolio will respond to the

same economic conditions by increasing in value. When a portfolio is balanced in

this way, the value of the overall portfolio should gradually increase over time,

even if some securities lose value.

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 Professional Management
Most mutual funds pay topflight professionals to manage their

investments. These managers decide what securities the fund will buy and sell.

Qualified investment professionals who seek to maximize returns and minimize risk

monitor investor's money. When you buy in to a mutual fund, you are handing your

money to an investment professional that has experience in making investment

decisions. It is the Fund Manager's job to (a) find the best securities for the fund,

given the fund's stated investment objectives; and (b) keep track of investments and

changes in market conditions and adjust the mix of the portfolio, as and when

required.

Tax Benefits: Any income distributed after March 31, 2002 will be subject to

tax in the assessment of all Unit holders. However, as a measure of concession to Unit

holders of open-ended equity-oriented funds, income distributions for the year ending

March 31, 2003, will be taxed at a concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction up to Rs. 9,000

from the Total Income will be admissible in respect of income from investments

specified in Section 80L, including income from Units of the Mutual Fund. Units of

the schemes are not subject to Wealth-Tax and Gift-Tax.

Regulations: Securities Exchange Board of India (“SEBI”), the mutual funds

regulator has clearly defined rules, which govern mutual funds. These rules relate to

the formation, administration and management of mutual funds and also prescribe

disclosure and accounting requirements. Such a high level of regulation seeks to

protect the interest of investors.

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 Regulatory oversight

Mutual funds are subject to many government regulations that protect

investors from fraud.

 Liquidity
It's easy to get your money out of a mutual fund. Write a check, make a

call, and you1ve got the cash.

 Convenience

You can usually buy mutual fund shares by mail, phone; or over the
Internet.

 Low Cost

Mutual fund expenses are often no more than 15 percent of your

investment. Expenses for Index Funds are less than that, because index funds are

not actively managed. Instead, they automatically buy stock in companies that are

listed on a specific index.

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 DRAWBACKS OF MUTUAL FUNDS

Mutual funds have their drawbacks and may not be for everyone:

 No Guarantees

No investment is risk free. If the entire stock market declines in value, the value

of mutual fund shares will go down as well, no matter how balanced the

portfolio. Investors encounter fewer risks when they invest in mutual funds than

when they buy and sell stocks on their own. However, anyone who invests

through a mutual fund runs the risk of losing money.

 Fees and commissions

All funds charge administrative fees to cover their day-to-day expenses. Some

funds also charge sales commissions or "loads" to compensate brokers, financial

consultants, or financial planners. Even if you don't use a broker or other

financial adviser, you will pay a sales commission if you buy shares in a Load

Fund.

 Management risk
When you invest in a mutual fund, you depend on the fund's manager to make

the right decisions regarding the fund's portfolio. If the manager does not

perform as well as you had hoped, you might not make as much money on your

investment as you expected. Of course, if you invest in Index Funds, you forego

management risk, because these funds do not employ managers. Pan cards and

mutual funds to go hand in hand

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 INVESTMENT PLANS

The term investment plans generally refers to the services that the funds

provide to investors offering different ways to invest or invest. The different

investment plans are important considerations in the investment decisions because

they determine the level of flexibility available to the investors. Alternate investment

plans offered by the fund allow the investor freedom with respect to investing at one

time or at regular intervals, making transfers to different schemes within the same

fund family or receiving income at specified intervals or accumulating distributions.

Some of the investment plans offered are as follows:-

Automatic Reinvestment Plans (ARP)

In India, many funds offer two options under the same scheme the dividend

option and the growth option. The dividend option or the Automatic Reinvestment

Plans (ARP) allows the investor to reinvest in additional units the amount of

dividends or other distribution made by the fund, instead of receiving them in cash.

Reinvestment takes place at the ex-dividend NAV. The ARP ensures that the

investors reap the benefit of compounding in his investments. Some funds allow

reinvestments into other schemes in the fund family.

Automatic Investment Plans (AIP)

These require the investor to invest a fixed sum periodically, there by letting

the investor save in a disciplined and phased manner. The mode of investment could

be through debit to the investor’s salary or bank account. Such plans are also known

as the Systematic Investment Plans. But mutual funds do not offer this facility on all

the schemes. Typically they restrict it to their plain vanilla schemes like diversified

equity funds, income funds and balanced funds. SIP works best in equity funds. It
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enforces saving discipline and helps you profit from market volatility- you buy more

units when the market is down and fewer when the market is up.

Systematic Withdrawal Plan (SWP)

Such plan allow the investor to make systematic withdrawal from his fund

investment account on a periodic basis, thereby providing the same benefit as regular

income. The investor must withdraw a specific minimum amount with the facility to

have withdrawal amounts sent to his residence by cheque or credited directly into his

bank account. The amount withdrawn is treated as redemption of units at the

applicable NAV as specified in the offer document. For example, the withdrawal

could be at NAV on the first day of the month of payment. The investor is usually

required to maintain a minimum balance in his bank account under this plan. Agents

and the investors should understand that the SWP’s are different from the Monthly

Income Plans, as the former allow investors to get back the principal amount invested

while the latter only pay the income part on a regular basis.

Systematic Transfer Plans (STP)

These plans allows the customer tom transfer on a periodic basis a specified

amount from one scheme to the another within the same fund family- meaning two

schemes by the same AMC and belonging to the same fund. A transfer will be treated

as the redemption of the units from the scheme from which the transfer is made, and

as investments in units of the scheme into which the transfer is made. Such

redemption or investment will be at the applicable NAV for the respective schemes as

specified in the offer document. It is necessary for the investor to maintain a

minimum balance in the scheme from which the transfer is made .Both UTI and other

private funds now generally offer these services to the investor in India. The service

30
allows the investor to maintain his investment actively to achieve his objectives.

Many funds do not even change any transaction fees for this service.

Tracking Mutual Fund Performance

Having identified appropriate measures and benchmarks for the mutual funds

available in the market, the challenge is to track fund performance on a regular basis.

This is indeed the key towards maximizing wealth through mutual fund investing.

Proper tracking allows the investor to make informed and timely decisions regarding

his fund portfolio –whether to acquire attractive funds, dispose of poor performers or

switch between funds/plans.

To be able to track fund performance, the first step is to find the relevant

information on NAV, expenses cash flow, appropriate indices and so on. The

following are the sources of information in India:

Mutual Funds’ Annual and Periodic Reports: These include data on the

fund’s financial performance, so indicators such as

Income/expense ratios and Total Return can be computed on the basis of this

data. The annual report includes a listing of the fund’s portfolios holdings at market

value, statement of revenue and expenses, unrealized appreciation/depreciation at

year-end, and changes in the net assets. On the basis of the annual report, the investors

can develop a perspective on the quality of the fund‘s assets and portfolio

concentration and risk profile, besides computing returns. He can also assess the

quality of the fund management company by reviewing all their scheme’s

performance. The profit and loss account part of the annual report will also give

details of transaction costs such as brokerage paid, custodian/registrar fees and stamp

duties.

31
Mutual Funds’ Websites: With the increasing spread of the internet as a

medium, all mutual funds have their own websites. SEBI even requires funds to

disclose certain types of the information on these sites- for example, the Portfolio

Composition. Similarly, AMFI itself has a websites, which displays all of its

member’s funds’ NAV information.

Financial papers: Daily newspapers such as the Economic Times provide daily

NAV figures for the open end schemes and share prices of the closed end listed

schemes. Besides, weekly supplements of the economic newspapers give more

analytical information on the fund performance. For example, Business Standard- the

Smart Investor gives total returns over 3month, 1 year and 3 year periods, besides the

fund size and rankings with the other funds separately for Equity, Balanced, Debt,

Money Market, Short Term Debt and Tax Planning Funds. Similarly, Economic

Times weekly supplement gives additional data on open end schemes such as Loads

and Dividends besides the NAV and other information, and performance data on

closed end scheme.

Fund Tracking Agencies: In India, agencies such as Credence and Value

Research are a source of information for mutual fund performance data and

evaluation. This data is available only on request and payment.

Newsletters: Many stockbrokers, mutual fund agent and banks and non-ranking

firms catering to retail investors publish their own newsletters, sometimes free or else

for their subscribes, giving fund performance data and recommendations.

Prospectus: SEBI Regulations for mutual fund require the fund sponsors to

disclose performance data relating to scheme being managed by the concerned AMC,

such as the beginning and end of the year.

32
 Evaluating Fund Performance

Importance of Benchmarking in Evaluating Fund Performance

The measures mentioned above are obsolete, i.e., none of the measure should

be used to evaluate the fund performance in isolation. A fund’s performance can only

be judged in relation to the investor’s expectations. However, it is important for the

investor to define his expectations in relation to the certain “guideposts” on what is

possible to achieve, or moderate his expectations with realistic investments

alternatives available to him in the financial market. These guideposts or the

indicators of performance can be thought of as benchmarks against which a fund’s

performance ought to be judged. For example, an investor’s expectations of returns

from equity fund should be judged against how the overall stock market performed, in

the other words by how much the stock market index itself moved up or down, and

whether the fund gave a return that was better or worse than the index movement. In

this example, we can use a market index like S&P CNX Nifty or BSE SENSEX as

“benchmarks to evaluate the investor’s mutual fund performance.

The advisor needs to select the right benchmark to evaluate a fund’s

performance, so that he can compare the measured performance figures against the

selected benchmark. Historically, in India, investors’ only option to evaluate the

performance of the units was UTI schemes or the bank fixed deposit interest rates.

UTI itself to tended to “benchmark” its returns against what interest rates were

available on bank deposits of 3/5 year maturity. Thus, for a long period, US 64

scheme dividends were compared on bank interest rates and investors would be happy

if the Dividend Yield on US 64 units was greater than comparable deposits interest

rate. However, with increasing investment options in the market, bank interest rates

33
should not be used to judge a mutual fund’s performance in all cases. Let us therefore

look at how to choose the correct benchmarks of mutual fund performance.

Basis of choosing an Appropriate Performance Benchmark

The appropriate benchmark for any fund as to be selected by reference to:

i. The asset class it invests in. Thus, an equity fund has to be judged by

an appropriate benchmark from the equity markets, a debt fund performance against a

debt market bench mark and so on; and

ii. The fund’s stated investment objective. For example, if a fund invests

in long term growth stocks, its performance ought to be evaluated against a

benchmark that captures a growth stocks’ performance.

There are in fact three types of benchmarks that can be used to evaluate a

fund’s performance relative to the market as whole, relative to other mutual funds,

comparable financial products or investments options open to the investor.

Benchmarking relative to the market:

Equity Funds

Index Funds- a Base Index: If an investor were to choose an Equity Fund, now

being offered in India, he can expect to get the same return on his investments as the

return on the equity index used by the fund as its benchmark, called the Base Index.

The fund would invest in the index stocks, and expects NAV changes to mirror the

changes in the index itself. The fund and therefore the investor would not expect to

beat the benchmark, but merely earn the same return as the index.

Tracking Error: In order to obtain the same returns as the index, an index fund

invests in all of the stocks included in the index calculation, in the same proportion as

34
the stocks’ weight age in the index. The tracking error arises from the practical

difficulties faced by the fund manager in trying to always buy or sell stocks to remain

in line with the weight age that the stock enjoys in the index.

“Active” Equity Funds: An index fund is passively managed, to track a given index.

However, most of the other equity funds/ schemes are actively managed by the fund

managers. If an investor holds such an actively managed equity fund, the fund

manager would not specify in advance the benchmark to evaluate his expected

performance as in case of an index fund. However, the investor still needs to know

whether the fund performance is good or bad. To evaluate the performance of the

equity scheme, therefore, we still need to select an appropriate benchmark and

compare its return to the returns on the benchmark; usually this means using the

appropriate market index. The appropriate index to be used to evaluate a broad based

equity fund should be decided on the basis of the size and the composition of the

fund’s portfolio. If the fund in question has a large portfolio, a broader market index

like BSE 100 or 200 or NSE 100 may have to be used as the rather than S&P CNX

NIFTY or BSE 30. An actively managed fund expects to be able to beat the index, in

other words give higher returns than the index itself.

Somewhat like the Index Funds, the choice of benchmarks in case of Sector

Funds is easier. Clearly, for example, an investor in InfoTech or Parma sector funds

can only expect the same return as the relative sectored indices. In such cases, he

should expect the same or higher returns than the InfoTech or Parma sector index if

such index exists. In other words, the choice of the correct equity index as a

benchmark also depends upon the investment objective of the fund. The performance

of a small cap fund has to be compared with the small cap index. A Growth Fund

investing in new growth sectors but is diversified in many sectors can only be judged

35
against the appropriate growth index if available. If not, the returns can only be

compared to either a broad based index or a combined set of sectored indices.

Evaluating the Fund Manager /Asset Management Company

While every fund is exposed to market risks, good funds should at least match

major market indices, and be able to sustain bearish market phases better than other

funds. Good funds manager operate long term perspective, do not sacrifice investor

value by excessive trading which generates a high level of transaction costs, and will

turn out more consistent performance, which is more valuable than one-time high and

otherwise volatile performance record.

The investor must evaluate the fund manager’s track record, how his schemes

have performed over the years. There is a difference between institution-managed

funds that have a team of managers with successful records as against funds that are

managed by the individuals only. The team approach also helps by offsetting bad

performance by one manager with good performance from the others in the team. In

practice, however, single person managed funds are widely prevalent in the countries

like the U.S. In India, many individuals operate as Portfolio Managers. However,

currently, we have mainly institution sponsored funds, either bank-sponsored,

corporate owned or government / financial institution –owned. The reliability and

track record of these sponsors has been an important factor in investor perceptions.

In the final analysis, Asset Management Companies and their fund managers

ought to be judged on consistency in the returns obtained, and performance record

against competing or peer group managers running similar funds. While transaction

costs incurred are also an important factor, this information is not generally available

in India.

36
 CLASSIFICATION OF INVESTOR NEEDS

Needs are generically classified into protection needs and investment needs.

Protection needs refer to needs that have to be primarily taken care of to protect the

living standards, current requirement and survival requirement of investors. Needs for

regular income. Need for retirement income and need for insurance cover are

protection needs. Investment needs are additional financial needs that can be served

through saving and investments .These is needs for children’s professional growth.

37
 WEALTH CYCLE CLASSIFICATION OF

INVESTORS

Wealth cycle based classification of investor’s financial needs. Refers to using

a generalized approach to saving and investment as the classifications, than age or life

stages . The following table illustrates:

STAGE FINANCIAL INVESTMENT

NEEDS PREFERENCES

Accumulation Investing for long term Growth option and

stage identified financial goals long term products. High
risk appetite

Transition stage Near term needs for Liquid and medium

funds as per specified term investment.
needs draw closer Preference for income and
debt products.

Reaping stage Higher liquidity Liquid and medium

requirements term investment ., for
income low risk appetite

Inter generation Long term investment Low liquidity needs ,

transfer of inheritance Ability to take risks and
invest for the long term

Sudden wealth Medium to long term Wealth preservation.

surge Preference for low risk
products.

38
 Asset Allocation

Asset Allocation refers to the process of deciding the composition of a portfolio. In

order to achieve the goals of a financial plan, investors should allocate their funds to equity,

debt and other asset classes, according to the risk and return features of these classes. This

process is called asset allocation.

Asset Allocation Strategies for Investors

Benjamin Graham recommends the following allocations

Basic Managed Portfolio 50% in diversified equity value funds

25% in government securities fund
25% in high grade corporate bond fund

Basic Indexed Portfolio 50% in stock market index fund

50% in bond market index fund

Simple Managed portfolio 85% in balanced fund

15% in medium term bond fund

Complex Managed Portfolio 20% in diversified equity fund

20% in aggressive growth fund
10% in specialty fund
30% in long term bond funds
20% in short term bond funds

Readymade Portfolio Single index fund with 60% in equity and

40% in debt

39
Model Portfolios that can be recommended for investors according to

their Life Cycle Stages

The model portfolio that has been recommended by Jacobs for investors is as follows:

INVESTOR RECOMMENDEDMODEL
PORTFOLIO

Young unmarried professional 50% in aggressive equity funds

25% in high yield bond funds, growth and
income funds
25% in conservative money market funds

Young couple with 2 incomes and 2 10% in money market funds

children
30% in aggressive funds
25% in high yield bond funds and long term
growth funds
35% in municipal bond funds

Older couple single income 30% in short term municipal funds

35% in long term municipal funds
25% in moderately aggressive equity
10% in emerging growth equity

Recently retired couple 35% in conservative equity funds for capital

preservation/ income
25% in moderately aggressive equity for
modest capital growth
40% in money market funds.

Future of Mutual Funds in India

40
By December 2004, Indian mutual fund industry reached Rs 1, 50,537 crore. It is
estimated that by 2011 March-end, the total assets of all scheduled commercial
banks should be Rs 40, 90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the
decade. In the last 5 years we have seen annual growth rate of 9%. According to
the current growth rate, by year 2011, mutual fund assets will be double.

Let us discuss with the following table:

Aggregate deposits of Scheduled Com Banks in India(Rs. Crore)

Month/Yea Mar- Mar-13 Mar-14 Mar-15 Mar-16 Mar- Mar-18 Mar-19
r 12 17
Deposits 60541 851593 989141 1131188 128085 - 156725 1622579
0 3 1
Change in - 15 14 13 12 - 18 3
% over last
Year
Source-RBI

Mutual Fund AUM’s Growth

Month/Yea Mar- Mar- Mar- Mar- Mar- Mar-17 Mar- Mar-19
r 12 13 14 15 16 18
MF AUM’s 68984 93717 83131 94017 75306 137626 151141 149300
Change in - 26 13 12 25 45 9 1
% over last
Year

Comparison of returns given by various financial instruments:

41
Returns is the prime factor that motivates any investor to make the investments.

Ultimate objective of any investment is to generate high returns for the future so that

better standard of living can be attained. In today’s world where modernization has

changed the life style of people and standard of living has also gone up very sharply,

there is need for those instruments which generate higher returns with low risk

Instruments Returns (%)approximate

And annualized

Financial institutions bonds 5.5%

Corporate debentures 6%

Bank deposits 8% to 9%

PPF 8%

NSC 8%

KVP 8%

Equity No assured returns

Mutual funds No assured returns

42
 Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC's is in the queue to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under management
worldwide.

 Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.

 We have approximately 29 mutual funds which are much less than US

having more than 800. There is a big scope for expansion.

 “B” and “C” class cities are growing rapidly. Today most of the mutual
funds are concentrating on the”A”class cities. Soon they will find scope in the
growing cities.

 Mutual fund can penetrate rural like the Indian insurance industry with
simple and limited products.

 SEBI allowing the MF’s to launch commodity mutual funds .

 Emphasis on better corporate governance.

 Trying to curb the late trading practices.

43
Comparison of various financial investment avenues

There are various investment avenues available in the market which have different
risk and return parameters. Every investor has his own objective accordingly to which
he makes the investment. The investment options can be broadly compared on the
following aspects:

Instruments Risk Returns Liquidity Taxation Safety

Equity High High High No Low

LTCG

Financial institution High Moderate Low Taxable Moderate

bonds

Bank deposits Low Low Low Taxable High

PPF Low Moderate Low Tax free High

NSC Low Moderate Low Tax free High

KVP Low Moderate Low Tax free High

Mutual funds Low High High No tax High




44
 Mutual Funds: SIP or lump
sum investment, which one
is better?
Lump sum investors expose their portfolios to the caprices of the market while SIPs

reduce the risk of being wrong as an investment is spread out.

One can be wrong about the assessment of low and may enter at the wrong time.

Many people ask whether lump sum investment is a better option than systematic

investment plan (SIP). I would say both are good options and both have their own

advantage. The only relevant question is when to deploy either of these options.

45
Before we dig into the debate about SIP vs lump sum, we need to understand that

whether one has enough investible surplus that can be called as lump sum.

One needs to have a substantial lump sum amount to see any meaningful returns.

Second point is that just because lump sum is available it does not mean that money

should be invested in one go. There can be various other tactics to deploy your funds

more efficiently. Both methods work in a different set of circumstances.

Total returns

Let us say we are in a rising bull market. Investor X invests `4,000 per month for 12

months and investor Y invests `48,000 as lump sum. Investment in mutual funds

totals `48,000 for both investors. In the 12 months, if the market appreciates by

average 1% every month, then investor Y would have got a total return of `53,760

while for investor X the total return would have been approximately `50,880. The

average cost for SIP investors would be higher in the rising market against lump sum

investors as they have invested at the lower end of the range.

Now take another example of a falling market. For easy comparison, we will keep the

amount same for investors X and Y. If we take that market on average loses 1% every

month then losses for investor X (SIP) would be comparatively less than investor Y

(lump sum) as cost of purchase would be higher than average cost of purchase in SIP.

Lump sum in rising markets

So when the market is moving up continuously, lump sum investment will give a

higher return as the base or cost is lower but in practice, the market never goes up or

down continuously. Lump sum is productive when the market is low but it is difficult

to calculate the market’s low. One can be wrong about the assessment of low and may

enter at the wrong time.

46
The only drawback of lump sum is that very few people have the guts to again invest

if they have additional money and their previous investment is giving a negative

return. Suppose investors had invested lump sum in December 2007 when the market

was trading at its peak. Investors would have helplessly watched the market fall till

March 2009 but if an individual would have invested lump sum at lows during March

2009 then he would have made big gains.

SIP reduces risks

Lump sum investors expose their portfolios to the caprices of the market while SIPs

reduces the risk of being wrong as an investment is spread out. For small investors

too, SIP is suitable. Smart investors recognise bottoming out of the market and invest

in one go but not all are smart investors though one can look at this historical value to

gauge how undervalued or overvalued market is.

Just because the market has corrected 1000 points do not assume that it is better to

invest a lump sum amount. A better option is to look at the Nifty P/E ratio.

Historically, whenever P/E ratio is less than 12, we have seen good returns in three,

five and seven years while whenever P/E ratio is above 24, then average 3-year return

is in negative while mildly positive in five and seven years.

These are the extreme ranges and we would advise any investor thinking ofmaking a

lump sum investment to do it when Nifty P/E ratio is under 12. Currently, Nifty P/E

ratio is at 28 so the market clearly is in the overbought zone. So the best option right

now would be to start investing through SIP route rather than investing lumpsum at

the top end of the range.

47
 Significance of the Study

In Indian financial market, recent trends shows that the retail investor are more

concern about the risk factors of the Indian Economy and most importantly returns on

the money invested by them.

Now people are more interested towards NFOs of the Mutual Funds. Being a

student of management I shall try to find out what could be the major factors because

of which people are choosing NFOs.

48
OBJECTIVES OF

THE STUDY

49
 OBJECTIVES OF THE STUDY

 This project has been prepared with an objective of getting an idea of different styles

of investment.

 How needs are changing and resulting in how a person change his approach for

investing his money i.e. from conservative to aggressive approach.

 The project also shows the potential of Mutual Fund market in India.

 Which are the market leaders in this sector and what percent of market share them

have-are the topic of great concern in this study?

 It is also being trying to know the future of Mutual Funds in India.

50
COMPANY PROFILE

51
What we do

HDFC Mutual Fund is one of the largest mutual funds and well-established fund

house in the country with focus on delivering consistent fund performance across

categories since the launch of the first scheme(s) in July 2018. 

Vision

To be a dominant player in the Indian mutual fund space recognized for its high levels

of ethical and professional conduct and a commitment towards enhancing investor

interests.

Mr. Milind Barve

Managing Director

Message from MD

The last 4 years have been one of the most exciting phases in the history of Indian

financial markets. For the first time ever, we saw dominance of Indian retail investors

in equity markets, especially through mutual funds route. The industry assets are more

than INR 25 lakh crore with more than 2 crore investors, majority of which happen to

be retail investors.  

52
Indians traditionally have been great ‘savers’ but not good ‘investors’. Both the terms

used to be confused with each other and most of savings went into gold, real estate

and fixed deposits. However, what is happening now is nothing short of a revolution

with people preferring more of financial assets as compared to physical assets and

within the realm of financial assets, the allocation towards smarter investment

products like mutual funds is increasing compared to fixed deposits. With this strong

retail participation into capital market oriented products, I am confident that we have

reached a stage where the fortunes of our financial markets do not solely depend on

capital flows from foreign investors.

Another important trend we witnessed has been the emergence of Systematic

Investment Plans or SIPs, as they are popularly called, as the preferred vehicle for

participating in equity markets. The total amount invested through SIPs during FY

2019 stood at over INR 92,000 cr. The positive trend has continued this year too with

the month of June 2019 alone accounting for SIP inflows of Rs.8,122 cr.

This shift in investor preference, I reckon, is the first step towards financial freedom

for Indian retail investors. On our part, we will continue with our efforts to make

mutual funds, the preferred investment choice of each and every household in this

country.

With India emerging as the fastest growing among large nations along with its healthy

fundamentals, the future looks conducive for sustained participation into capital

market offerings. While, it cannot be denied that markets do face risks, especially

ones emanating globally, I am confident that this trust placed by investors on mutual

funds will be duly rewarded over a period of time. Happy Investing!

Date : 24th July 2019

53
HDFC Trustee Company Limited, a company incorporated under the Companies Act,

1956 is the Trustee to HDFC Mutual Fund vide the Trust deed dated June 8, 2000, as

amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary

of HDFC. The registered office of the Trustee company is situated at "HDFC House",

2nd Floor, H. T. Parekh Marg, 165-166, Backbay Reclamation, Churchgate, Mumbai

- 400 020. The Company Identification Number (CIN) is

U65991MH1999PLC123026.

Terms and Conditions of Appointment of Independent Directors. Please click here to

view.

The Board of Directors of HDFC Trustee Company Limited consist of the

following eminent persons.

 Previous

Mr. Ranjan Sanghi

Director

View profile

Mr. V. Srinivasa Rangan

Director

View profile
54
Mr. Vimal Bhandari

Director

View profile

Mr. Mehernosh Kapadia

Additional Director

Preamble

HDFC Asset Management Company Limited (AMC) is a subsidiary of HDFC Ltd.

Being a part of the HDFC group, corporate social responsibility (CSR) is an important

part of AMC's culture and value systems. AMC had set up a separate Corporate Social

Responsibility Fund with the object of participating and supporting projects

undertaken by Non-Governmental organizations (NGOs), community groups and

others; for social/philanthropic causes, investor centric initiatives, well before the

CSR provisions / rules were effective under the Companies Act, 2013 (Act).

As an Investment Manager to HDFC Mutual Fund, one of our unique initiative for

CSR was launching series of Cancer Cure Funds partnering with Indian Cancer

Society (ICS) to provide financial assistance to the needy cancer patients for their

treatment by tapping those investors who would be willing to donate part of the

dividend or entire dividend declared, if any, under the scheme for this purpose.

55
Our Vision

To be a dominant player in the Indian mutual fund space recognized for its high levels

of ethical and professional conduct and a commitment towards enhancing investor

interests. Our CSR initiatives will be aligned with the same principles to serve a social

purpose, sustainable development of the society and the environment in which it

operates.

ANNEXURE A (AS MENTIONED IN THE CSR POLICY)

INDIAN CANCER CURE FUND (ICCF) PROJECT

NDIAN CANCER CURE FUND (ICCF) PROJECT

As a philanthropic initiative, HDFC AMC as an Investment Manager of HDFC

Mutual Fund, launched HDFC Charity Fund for Cancer Cure with 2 plans – Arbitrage

Plan (a closed ended equity oriented scheme) and Debt Plan (a closed ended income

scheme) offering Plans – Direct and Regular with different options, where the

dividend received by the Investors from the said Schemes is donated to Indian Cancer

Society (ICS) on behalf of the Investors to Indian Cancer Cure Fund Project. This

Scheme is one of its kind in the industry that caters to philanthropic and corporate

social responsibility (CSR) needs of investors.

Cancer Cure Fund Project (CCF) is a flagship project of ICS which provides financial

assistance for treatment of needy and low income patients diagnosed for any curable

cancer with a reasonable survivor risk. As a part of its CSR initiative, HDFC AMC

has partnered with Indian Cancer Society and preferred contributing to CCF project.

HDFC AMC’s partnering involves direct contribution to ICS and also contribution of

dividend received from its investment made in the Scheme.

56
CCF Project falls under sub-clause (i) of Schedule VII of the Companies Act, 2013 -

Promotion of health care including preventive healthcare. HDFC AMC had agreed to

contribute an amount equivalent to the total dividend amount that would be

contributed under the Scheme on behalf of the Investors of the Scheme, subject to

ceiling limit of Rs. 15 crores per annum effective financial year 2017-18, dividend

received under the Scheme for the investment made by HDFC AMC till the maturity

of the Scheme. Thus, a total contribution of Rs. 15.49 crores was made to ICS

towards this Cancer Cure Project during the financial year 2018-19.

Click here to know about major contributors in HDFC Charity Fund for

Cancer Cure

THE RAY OF LIGHT FOUNDATION

Ray of Light Foundation, a charitable organisation based out of Chennai dedicated in

providing services and financial assistance to cancer affected poor children and

children from the lower socio economical group. In order to give these cancer affected

children the best chance of survival, the Foundation has joined hands with Kanchi

Kamakoti Childs Trust Hospital (KKCTH) which provides treatment to the cancer

affected children in their hospital. The Foundation has aided 124 children with their

medical treatment and has many more children who require urgent medical

assistances.

HDFC AMC has partnered with Ray of Light foundation for providing medical

assistance to cancer affected children who are in urgent need of medical treatment.

The contribution of Rs. 24.54 lakh made by the AMC is covered under sub-clause (i)

of Schedule VII - Promotion of health care including preventive healthcare.

57
FOUNDATION FOR OLYMPIC GOLD QUEST 

Olympic Gold Quest (OGQ), Foundation for Promotion of Games and Sports has an

objective to bridge the gap between the best athletes in India and the best athletes in

the world thus helping Indian athletes to win Olympic Gold medals. OGQ aims to

create a level playing field for Indian athletes to enable them to be competitive at the

highest level of sport.

The AMC has agreed to partner with OGQ for training of senior athletes supported by

OGQ who are preparing for Tokyo 2020 Olympic Games. Olympic Gold Quest

(OGQ) Junior Scholarship Program falls under the purview of sub-clause (vii) of

Schedule VII - Training for Olympic sports. HDFC AMC has partnered with OGQ in

the past under its CSR initiatives.

An amount of Rs. 50 lakh contributed to OGQ is being utilized for providing best

trainers to the selected athletes under the scholarship program, meeting expenses for

purchasing sport related accessories, participation in tournaments and also monthly

stipend for nutrition, training and other training requirements.

ARMY CENTRAL WELFARE FUND

Army Central Welfare Funds accepts donations for alleviation of distress among

servicemen and ex-servicemen, welfare of serving personnel and their families and

any other things that are incidental to the above mentioned objects.

58
The contribution of Rs. 75 Lakhs made by the AMC to Army Central Welfare Fund

falls under sub-clause (vi) of Schedule VII - Measures for the benefit of armed forces

veterans, war widows and their dependents.

NOTE: The copyright to the logo and pictures appearing here belongs to the

respective Institution(s) and they have permitted the Company to use the same.

59
Our Investment Philosophy

Invest Profitably Research & Analysis

The single most important factor that drives

HDFC Mutual Fund is its belief to give the To realize this belief, HDFC Mutual Fund

investor the chance to profitably invest in the has set up the infrastructure required to

financial market, without constantly worrying conduct all the fundamental research and

about the market swings. back it up with effective analysis.

We Offer

We believe, that, by giving the investor long-term benefits, we have to constantly

review the markets for new trends, to identify new growth sectors and share this

knowledge with our investors in the form of product offerings. We have come up with

various products across asset and risk categories to enable investors to invest in line

with their investment objectives and risk taking capacity.

To know more about our products please visit our Products section.

To find out your current financial health and tips about financial planning, please visit

out Calculators section. For additional information/ clarification you can email us

at cliser@hdfcfund.com

If you wish to speak to any of our customer service executives, you can SMS

HDFCMF to 56767 or provide us with your contact details and we will have someone

get in touch with you.

CONTACT US

60
This is a dedicated page for the benefit of unit holder of HDFC Mutual Fund who

wish to communicate with us. At HDFC Mutual Fund, we believe in offering the very

best of products and ensuring high service standards. As part of this endeavour, we

believe that you should beable to contact us to offer comments on our products /

services and also to air your grievances, if any.The following are the various avenues

for you as an investor to contact / write to us, depending on your convenience.

Call center

You can call us from 8.00 am to 8.00 pm (Monday to Friday) and 8.00 am to 1.00 pm

(Saturday) on the following numbers

Toll-free

1800 3010 6767 / 1800 419 7676

Investors calling from abroad may call on

91 44 33462406

E-mail

We strongly recommend that you email to the HDFC Mutual Fund Investor Service

Centre (ISC) where you normally transact. This will facilitate immediate attention to

your communication. The email ID of such ISC is available on the last statement of

account sent to you. You may also click here to locate your ISC and the related

email ID

Alternatively, you can also email us at our corporate email

ID cliser@hdfcfund.com

We will get in touch with you in 2 business days from the date of receipt of your

email or earlier wherever possible.

61
SMS

You can SMS 'HDFCMF' to 56767 and we will get in touch with you in 2 business

days from the date of receipt of your SMS or earlier wherever possible

62
 About Anand Rathi Group

Servicing Clients with the Highest Standards of Excellence, Ethics, Values and
Professionalism.

Inaugurated in 1994, Anand Rathi is one of India’s leading full services financial services firm
covering the entire gamut of investors and offering services such as Wealth Management,
Investment Banking, Corporate Finance & Advisory, Brokerage & Distribution in a vast sector
of Equities, Commodities, Mutual funds, Structured products, Insurance, Corporate deposits,
Bonds & Loans to Institutions, Corporations, High-net-worth individuals and Families.

The firm has cast its footprints not only across India but also in select international locations
such as Dubai, with presence across 1200 locations through its own branches, sub-brokers
and remisers and representative offices/associate companies. The group today employs over
2,500 professionals.

Services

Established in 1994, Anand Rathi is one of India’s leading financial services firm
offering Finance & Advisory, Brokerage & Distribution services in the areas of
equities, commodities, mutual funds, structured products, insurance, corporate
deposits, bonds & loans to institutions, corporations, high-net worth individuals and
families.The services we offer are:
• Broking
• Distribution
• Financing
• Advisory

Broking
Broking services help our Clients in formulating strategies, track and trade in multiple
products across various exchanges. It been divided into five categories i.e

63
• Equity: We offer end-to-end equity solutions to individual Investors and active
Traders serving them with quality advice on individual stocks, sector trends and
investment strategy.

• Commodity: Our team of experienced professionals form investment strategies

related to commodity trading.

• Currency: An offering that helps Clients take informed trading decisions related to
exchange traded currency futures.

• Derivatives: Basket of the entire Derivative trading ideas and strategies that suit
various Clients' perspectives.

• IPO: A leading primary market distributor across the country offering services to
invest in the market through IPOs.

Distribution
Providing our clients with investment options other than securities trading. It is been
divided into:-

• Mutual fund: A known Mutual Fund Distribution House in India providing a

spectrum of schemes across all top Mutual Funds.

• Insurance: An Insurance broking business licensed by IRDA to act as a broker for

Life as well as Non Life insurance sector and serving as a distribution partner to all
major insurance companies.

• Corporate Fixed Deposit: An investment option most suitable for investors looking
for lower risk and fixed returns.

• Structured Products: Product that provides a blend of investment instruments,

thereby reducing the risk on the product using a derivative instrument as insurance.

• NCD/Bonds: A stable investment instrument offering consistent returns along with

tax free benefits

• Portfolio Management Services: Bespoke professional service designed for portfolio

management and wealth creation for a niche set of investors.

64
• Real Estate: ARG Realty Solutions Private Limited is a Real Estate Advisory
company offering compressive services in all the relevant aspects of real estate
transactions.

Financing
Business involved in offering financing option through various products. It’s been sub
categorized as

• LAS (Loan against Shares): Facility provided to avail loan by pledging shares.

Advisory
Credible Advisory Services that best suits the Clients' needs. These services has been
sub divided into:

• Smart Basket: Investment in Basket is a Key to Success.

• Wills and Trust: Strategic planning and managing of wealth transition.

• Forex Advisory: Professional assistance provided in Forex risk management which

helps to be aligned with the ever evolving and dynamic Forex market.

65
 RESEARCH

METHODOLOGY

66
 RESEARCH METHODOLOGY

The success of any survey is depends upon resources, quality and timing and

integrity of the surveyor who compiles the primary data. So it is a very important task

is to manage all the available resources which make impact on the quality of survey.

Research Design

The research design is the conceptual structure with in the research is

conducted. As such the design includes an outline of what the researcher will do.

There are two main researches, Descriptive and Exploratory used in collection of the

data.

Instrument

Interview method was adopted to collect the information from the population

of the taken sample size. This was done with the help of questionnaire given to them.

Collection of Data

Data for the completion of the study was collected both from primary and

Secondary sources.

Primary data was collected from the respondent through the questionnaire.

Secondary data was collected from the Internet, Magazines, Books, and Journal.

Sample size

100 respondents

Analysis of the data

The analysis and interpretation of the data are based on simple %age bases.

67
SCOPE OF THE STUDY

68
Scope

This product will provide me the better platform to understand the History,

Growth and various other aspects of Mutual Funds. It will also help me to understand

the behavior of Indian investors regarding different investment tools.

69
THEORETICAL

FRAME WORK

70
 Theoretical Frame Work

All mutual fund would be either close ended or open ended or either load or

no load. These classifications are general. For example all open – end funds operate

the same way; or in case of a load a deduction is made from investor’s subscription or

redemption and only the net amount used to determine his number of shares

purchased or sold.

Funds are generally distinguished from each other by their investment

objectives and types of securities they invest in. The major types of funds available:-

Money Market Funds

Often considered to be at the lowest ring in the order of risk level. Money

Market Funds invest insecurities of short term nature which generally means

securities of less than one year maturity. The typical short term interest bearing

instruments these funds invest in Treasury Bills issued by governments, Certificate of

Deposits issued by banks and Commercial Paper issued by companies. The major

strengths of money market funds are the liquidity and safety of principal that the

investors can normally expect from short term investments.

Gilt Funds

Gilts are the governments’ securities with medium to long term maturities

typically of over one year (under one year instruments being money market

securities). In India, we have now seen the emergence of government securities or gilt

funds that invest in government paper called dated securities. Since the issuer is the

government, these funds have little risk of default and hence offer better protection of

principal.

71
DATA ANALYSIS &

INTERPRETATION

72
 Data Analysis & Interpretation

The questionnaires were sent to 100 people out of whom only 52 responded. I

have analyzed my survey on the basis of these respondents feedback. Once the

questionnaire was filled up, the next work that comes up is the analysis of the data

arrived. We find out that more Business Men were inclined towards investing their in

the Current A/c. Ladies are more inclined towards investing their funds in gold and

other jewellery. On the other hand, service class people and retired fellows prefer

more either Savings and/or Fixed Deposits. People with high income and who are

young enough to take risks prefer shares and mutual funds.

Similarly, people are interested in knowing what the returns of their

investments are. Similar large number of people is equally interested in the safety of

their funds. There are the people who want easy liquidity of money and these are

basically the business people who have to deal in the ready cash all the time.

Surprisingly, while a large number (34) of people are aware of the tax benefits, a very

small number of them, only 5, are interested in it.

Whilst a large number of people are aware of mutual funds, comparatively a

very less number invests into it. On asking how they get knowledge of Mutual Funds,

a large number of them attributed it to Print Media. Even Banks today follow the role

of investment advisors. Very few get any information from the Electronic Media or

the Relatives/Friends.

Hence AMCs must increase the awareness about their product through

Electronic Media (T.V.s, Cables, Radios etc) as well as and should not just

73
constrained itself to the print advertisement. Those who do not read

newspaper/magazines due to any reasons may watch or listen to the advertisements.

A large part of respondents said that their knowledge about MF does not allow

them to invest into it while to another segment considered government bonds much

better.

74
PRIORITY OF INVESTORS WHILE INVESTING

19% 10% Safety

Higher return
71% Liquidity

Interpretation:

At the time of investing out of 100 investors 71% investors wants safety, 19%

wants higher return while 10% wants liquidity in their investment.

75
 FREQUENCY OF INVESTMENT

33% Regularly
15%
Once a while
52% None of these

Interpretation:

In 100 investor it finds that 52% invest once a while, 33% investor invest

regularly

While 15% don’t invest.

76
 OBJECTIVE BEHIND INVESTMENT

29% 4% Income Generation

Tax Saving
67% Others

Interpretation:

The objective behind investment in 100 respondent shows that 67% investor

wants income generation, 29% wants tax saving while 4% investor invest for other

reasons.

77
 SOURCES OF AWARENESS

Newspaper/Magazi
ne

12% 10% Friends/Colleagues

48%
17% TV Advertisements

13% Factsheets

Others

Interpretation:

In 100 investors 48% got information from newspapers/magazine,17% from

TV advertisement,13% from factsheets,12% from friends/colleagues & 10 % from

other resources.

78
SPECIFIC APPREHENSIONS ABOUT INVESTING IN MUTUAL

FUNDS

Lack of
awareness
20%
Lack of trust
51% 12%
Inconvenience
18%
Others

Interpretation:

In 100 investor 12% investor have lack of trust on mutual fund,18% due to

inconvenience,19% have lack of awareness while 51% have other reasons.

79
 TIME PERIOD FOR INVESTMENT

Less than 1 year

19% 13% 50%

1 to 2 year

2 to 5 years
17%
More than 5 years

Interpretation:

Time period for investment in 100 investor finds that 50% invest in less than

one year,17% invest in between 1 to 2 year, 19% invest for 2 to 5 years while 14%

invest for more than 5 Years.

80
 PRIORITY OF INVESTORS TO INVEST IN VARIOUS

FINANCIAL PRODUCTS

Bank deposits

Mutual fund
18%
20% 51%
Government
Bonds
12%
Equity market

Interpretation:

In 100 investor only 12% prefer invest in mutual fund , 18% invest in equity

market,

19% invest in Gov. bonds & 51% invest in bank deposits.

81
 REASONS FOR NOT INVESTING IN MUTUAL FUNDS

Confidence
14% 12%
Knowledge
26%
Beter bonds
49%
Others

Interpretation:

The reason for not investing in mutual fund is 12% due to lack of confidence,

14% due to lack of knowledge,25% due to beter bonds while 49% due to other

reason.

82
FINDINGS

83
 Findings

Analysis about the Mutual Fund

On the basis of findings the researcher has also analyzed the following points:

 Today the most of the areas in Capital market is covered by Shares & Debentures

 .The Mutual Fund sector covers only 23% of the market.

 In Mutual Fund sector, the UTI govt. owned co. is a dominating company.

 It was found that there is still required to spread the knowledge about the Mutual

Fund because even 24% dealers & brokers have said that they do not prefer to deal

with Mutual Fund due to lacking awareness and 43% have said that investors do not

prefer to invest in Mutual Fund due to their own less awareness about Mutual Fund.

 The investors, who are aware about the Mutual Fund, invest in Mutual Fund for less

risk

 The brokers & dealers, both the deal in Mutual Fund or not, prefer to deal with UTI,

and RELIANCE comes at second place in preference list.

84
RECOMMENDATION

AND SUGGESTIONS

85
 RECOMMENDATION AND SUGGESTIONS

Investors point of view

The question the entire customer, irrespective of the age group and financial

status, think of is- Are Mutual Funds are a safe option? What makes them safe? The

basis of mutual fund industry’s safety is the way the business is defined and

regulations of law. Since the mutual fund invests in the capital market instruments, so

proper knowledge is essential.

Hence the essential requirement is the well informed seller and equally

informed buyer. Who understands and help them to understand the product (here we

can say the capital market and the money market instruments) are the essential pre-

conditions.

Being prudent investors one should:

1. Ask one’s agent to give details of different schemes and match the appropriate

ones.

2. Go to the company or the fund house regarding any queries if one is not

satisfied by the agents.

3. Investors should always keep an eye on the performance of the scheme and

other good schemes as well which are available in the market for the closed

comparison.

4. Never invest blindly in the investments before going through the fact sheets,

annual reports etc. of the company since, according to the guidelines of the SEBI, the

AMCs are bound to disclose all the relevant data that is necessary for the investment

purpose by the investor.

86
 Companies point of view

Following measures can be taken up by the company for getting higher

investments in the mutual fund schemes.

1. Educate the agents or the salesmen properly so that they can take up

the queries of the customer effectively.

2. Set up separate customer care divisions where the customers can any

time pose their query, regarding the scheme or the current NAV etc. These customer

care units can work out in accordance with the requirements of the customer and

facilitate him to choose the scheme that suits his financial requirements.

3. Conduct seminars or programs on about mutual funds where each and

every minute information about the product is outlined including the risk factor

associated with the different classes of assets.

4. Developed, design separate schemes for rural/semi urban areas and

lower the minimum investment amount from Rs.500.

5. Recruit appropriate number of agents for rural/urban and semi-urban

areas.

6. Make customer care services faster.

7. Choose appropriate media, newspaper/magazines, T.V. commercials,

etc. for marketing the product and educate the masses.

87
CONCLUSION

88
 CONCLUSION

 About all the respondents had a saving account in bank, 76% invested in fixed

deposits, only 24% respondents invested in mutual funds.

 Mostly respondents preferred high return while investment, the second most

preferred low risk then liquidity and the least preferred trust.

 Maximum investors are aware of all the investment options.

 Majority of investors invest 15 to 20% of their annual income

 Diversification and investment in alternative forms of investments have

become more important in recent times when the stock markets have proven to

be more volatile and the government bonds are barely able to match the

inflation rate.

 Investors are looking to put their money in assets, which give decent returns

even if the stock markets are tumbling. For example, the value of a piece of art

may rise if the inflation is on the rise irrespective of the performance of stock

markets.

89
 the real estate investments in the National Capital Region of Delhi have

consistently provided a return of more than 10% over the last three years, in

both the commercial and residential segments.

 This is much more than the 7-8% return provided by government

bonds and fixed deposits. At the same time, the returns are not as

volatile as that witnessed in the stock markets.

 At last it can be said that investment style has been change

dramatically over a period of time and it can be surely predicted that

such change will also continue in future.

 Taking the present scenario of Capital Market, there is much more

change in present than a decade ago. Before the 90s decade, the capital

market was having very little awareness amongst the general public,

physical dealing of security was done with any governance body and

operating with less capital formation rate in the country.

 The present situation of Indian Capital Market is not only different

with earlier, but also facilitating online trading, having SEBI Act, 1992

as a governance body, increased capital formation rate in the country.

Before the 90s decade, there were only two instruments of dealing in

capital market i.e. share & debenture. Later on, the Mutual Fund is

incepted as operating instrument in the capital market.

90
LIMITATION OF THE
STUDY

91
 LIMITATION OF THE STUDY

 This product is limited in scope as the survey is conducted with a shortage of time

constraints and is also based on secondary data.

 The answers given by the responds may be biased due to several reasons or could be

attachments to a particular bank or brand.

 Due to ignorance factor some of the respondents were able to give correct answers.

 The respondents were not disclosing their exact portfolio because they have a fear in

their mind that they can come under tax slabs.

92
BIBILOGRAPHY

93
 BIBILOGRAPHY

BOOKS & MAGAZINE

 R.SHARAN “INDIAN FINANCIAL SYSTEM” ” 3rd edition; Sultan Chand

& Sons Publication

 Madura “Financial Institution & Market” 7th edition; Thomson

Pulication;2007

 KOTHARI C.R. Research Methodology

 Analyst magazine

 Business Standard

 Smart investors

Websites

 www.mfea.com

 www.investments.com.ph

 www.camsindia.com

94
ANNEXURE

95
 QUESTIONNAIRE

Q1. IN WHICH SECTOR DO YOU WORK?

(A) Government sector [ ] (B) Self Employed [ ]

(C) Private Sector [ ] (D) Business [ ]

Q2. WHAT % OF YOUR INCOME DO YOU SAVE?

(A) Below 10% [ ] (B) 10-25% [ ]

(C) 25-50% [ ] (D) Above 50% [ ]

Q3. What is your priority of investment while investing?

(A) Safety [ ] (B) Higher return [ ]

(C) Liquidity [ ] (D) Others [ ]

Q4. How many times you invest?

(A) Regularly [ ] (B) Once a while [ ]

(C) None of these [ ]

Q5. What is the objective behind the investment?

(A) Income Generation [ ] (B) Tax saving [ ]

(C) Others [ ]

96
Q6. What is the source of awareness?

(A) Newspaper/ Magazines [ ] (B) Friends/ Colleagues [ ]

(C) TV advertisement [ ] (D) others [ ]

Q7. How much time you invest?

(A) Less than 1 year [ ] (B) 1 to 2 year [ ]

(C) 2 to 5 year [ ] (D) More than 5 years [ ]

Q8. In which sector of financial markets do you deal?

(A) Share & debentures [ ] (B) Loan & Leasing [ ]

(C)Insurance [ ] (D) Mutual fund [ ]

Q9. What is your priority to invest in various financial products?

(A) Bank Deposit [ ] (B) Government Bond [ ]

(C) Mutual Fund [ ] (D) Equity Fund [ ]

97