A COMPREHENSIVE PROJECT REPORT ON PERFORMANCE COMPARISON OF RELIANCE MUTUAL FUND AND HDFC MUTUAL FUND

SUBMITTED IN PARTIAL FULFILLMENT OF THE DEGREE MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO: L.J.INSTITUTE OF COMPUTER APPLICATIONS in Gujarat Technological University Under the guidance of Faculty Guide: PROF: ANKIT SHANGHVI SUBMITTED BY: YAGNESH NIRMAL [Batch: 2010-12, Enrollment No: 107300592054] BHAVIK JOSHI [Batch: 2010-12, Enrollment No: 107300592011] MBA SEMISTER III/IV L.J.INSTITUTE OF COMPUTER APPLICATIONS MBA PROGRAMME AFFILIATED TO GUJARAT TECHNOLOGICAL UNIVERSITY AHMEDABAD DECEMBER, 2011
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DECLARATION

We, Yagnesh Nirmal and Bhavin Joshi, hereby declare that the report for Comprehensive Project entitled PERFORMANCE COMPARISON OF RELIANCE MUTUAL FUND AND HDFC MUTUAL FUND is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged.

Place (Signature)

..

Date : Students).

(Name of

Institutes Certificate

Certified

that

this

Comprehensive

Project

Report

Titled

PERFORMANCE

COMPARISON OF RELIANCE MUTUAL FUND AND HDFC MUTUAL FUND is the bonfide work of Mr. Yagnesh Nirmal (Enrollment No: 107300592054) and Mr. Bhavik Joshi (Enrollment No: 107300592011), who carried out the research under my

supervision. I also certify further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the Faculty Guide

(Name and Designation of Guide)

(Certificate is to be countersigned by the Director/HoD)

PREFACE

There are different ways for practical study. While as a part of a student of M.B.A. is required to prepare a Grand Project every two year. Practice makes a man perfect, by merely sitting in classroom one cannot get the knowledge of management. So it makes M.B.A. students necessary to learn about a particular industry & its activities. A manager can be said to be a successful manager, only if he has the knowledge of practical aspects of business. Only theoretical knowledge acquired during classroom discussion leads a person nowhere. Management means at of getting the things done through others. Today we find management in each and every field. Its a developing field. This frequent change in its principles due to increasing complexities that we find around the world Assets Management industry is one of the most affecting lives everywhere sector in Todays world.. & it has been proven by the latest economic slowdown all over the world led by Banks. The objective of the Grand Project is to develop awareness among the students about Assets Management organization

atmosphere and how they are trying to change the scene of India & working for financial inclusion of each & every Indian.

ACKNOWLEDGEMENT It has been possible for me to serve this Project Report of our research work endeavor with the able guidance and inspiration from many individuals. The contribution of each one of them singularly and collectively is acknowledge with gratitude and gratefulness of my humble self. I owe my deep sense of gratitude to .. for all the support provided by him throughout the entire project period. During the actual project work, - ANKIT SHANGHVI (PROJECT GUIDE) has been a source of inspiration through her constant guidance, personal interest, encouragement and help. We convey our sincere thanks to her. In spite of her busy schedule she always found time to guide us through the project. The overall experience for the period from 1st Nov, 2011 to 18th Dec, 2011 has been an enriching one. I feel gratified to support given by ANKIT SHANGHVI for providing me the wide knowledge of the subject. I am also thankful to the respondents who have participated in our research work and co-operating us for the completion of the work. I am thankful to my colleague Bhavik Joshi for constant co-operation during the entire Project period. Last but not the least I am thankful to my family without their support the completion of the work was not possible. God almighty for his blessings on me.

- Yagnesh Nirmal

CONTENTS SR.NO. 1 2 3 4 5 6 7 8 9 9.1 9.2 Preface Acknowledgement Basics of the Study Macro Information of Mutual Fund Types of mutual funds in India Structure of mutual funds in India Latest Regulation of Mutual Fund Literature Review Company profile/ product profile Reliance mutual Fund HDFC mutual Fund PARTICULARS

ABBREVIATIONS USED IN PROJECT

HDFC MF NAV AMC SEBI RBI NFO UTI AMFI MIP STP SIP ELSS AUM

Housing development financing corporation Mutual fund Net asset value Asset management company Security exchange board of India Reserve bank of India New fund offer Unit trust of India Association of mutual funds in India Monthly income plan Systematic term plan Systematic investment plan Equity linked saving scheme Asset under management

1. BASICS OF THE STUDY 1.1 NEED FOR THE STUDY The main purpose of doing this project was to know about mutual fund and its functioning. This helps to know in details about mutual fund industry right from its inception stage, growth and future prospects. It also helps in understanding different schemes of mutual funds. Because our study depends upon prominent funds in India and their schemes like equity, income, balance as well as the returns associated with those schemes. The project study was done to compare between two Mutual Funds companies through their performance in various schemes. Ultimately this would help in understanding the benefits of mutual funds to investors.

1.2 OBJECTIVE OF THE STUDY To study the Mutual Fund Industry in detail. To study the investment procedure of Mutual funds. To do Comparison of the two Mutual Funds Companies. To evaluate the performance of different types of funds offered by HDFC Mutual Fund and Reliance Mutual Fund. To Compare Mutual Funds of Selected Two Companies on the basis of their return and Sharpe ratio. To study the people in which age group, they prefer to invest in Mutual Fund to earn more return.

2. MACRO INFORMATION OF MUTUAL FUND

There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where there is low risk but low return. He may invest in Stock of companies where the risk is high and the returns are also proportionately high. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. 2.1CONCEPT OF MUTUAL FUND A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual; the fund belongs to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund Mutual Funds are trusts, which accept savings from investors and invest the same in diversified financial instruments in terms of objectives set out in the trusts deed with the view to reduce the risk and maximize the income and capital appreciation for distribution for the members. A Mutual Fund is a corporation and the fund managers interest is to professionally manage the funds provided by the investors and provide a return on them after deducting reasonable management fees. The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower income groups to acquire without much difficulty financial assets. They cater mainly to the needs of the individual investor whose means are small and to manage investors portfolio in a manner that provides a regular income, growth, safety, liquidity and diversification opportunities.

2.2DEFINITION

Mutual funds are collective savings and investment vehicles where savings of small (or sometimes big) investors are pooled together to invest for their mutual benefit and returns distributed proportionately. A mutual fund is an investment that pools your money with the unlimited number of other investors. In return, you and the other investors each own shares of the fund. The fund's assets are invested according to an investment objective into the fund's portfolio of investments. Aggressive growth funds seek long-term capital growth by investing primarily in stocks of fast-growing smaller companies or market segments. Aggressive growth funds are also called capital appreciation funds. 2.3 ORGANIZATION OF MUTUAL FUND Mutual funds have a unique structure not shared with other entities such as companies of firms. It is important for employees & agents to be aware of the special nature of this structure, because it determines the rights & responsibilities of the funds constituents viz., sponsors, trustees, custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the legal structure also drives the interrelationships between these constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the AMC formanaging the investment portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the fund in its custody.

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 Sponsor: The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund & registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track record of business interest in the financial markets. Sponsor must have been profit making in at least three of the above five years. He must contribute at least 40% of the capital of the AMC. Trustees: The Mutual Fund may be managed by a Board of trustees a of individuals, or a trust company a corporate body. Most of the funds in India are managed by board of trustees. While the board of trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate body, it would also be required to comply with the provisions of the companies act, 1956. the board of trustee company, as an independent body, act as protector of the unit-holders interest. The trustees dont directly manage the portfolio of securities. For this specialist function, they appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives & in accordance with the trust deed & SEBI regulations. The trust is created through a document called the trust deed i.e., executed by the fund sponsor in favor of the trustees. The trust deed is required to be stamped as registered under the provision of the Indian registration act & registered with SEBI. The trustees begin the primary guardians of the unit-holders funds & assets, a trustee has to be a person of high repute & integrity.

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 Asset Management Company (AMC): The role of an Asset management companies is to act as the investment manager of the trust. They are the ones who manage money of investors. An AMC takes decisions, compensates investors through dividends, maintains proper accounting & information for pricing of units, calculates the NAV, & provides information on listed schemes. It also exercises due diligence on investments & submits quarterly reports to the trustees. AMCs have been set up in various countries internationally as an answer to the global problem of bad loans. Bad loans are essentially of two types: bad loans generated out of the usual banking operations or bad lending, and bad loans which emanate out of a systematic banking crisis. It is in the latter case that banking regulators or governments try to bail out the banking system of a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to bail out the banking system itself.

2.4 HISTORY OF MUTUAL FUND Mutual fund industry in phases The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The History of Mutual Funds in India can be broadly divided into four distinct phases. First Phase (1964-87) Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set up by Reserve Bank of India and functioned under the regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase- 1987-1993(Entry of Public Sector Funds) 1987 marked the entry of non-UTI, Public Sector Mutual Funds set up by Public Sector Banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non -UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab
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National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June 1989 while GIC had set up its 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 004 crore. 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 UTI were to be registered and governed. The erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first Private Sector Mutual Fund registered in July 1993. The 1993 SEBI (Mutual Fund) regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) regulations 1996. The number of Mutual Fund houses went on increasing, with many foreign Mutual Funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 Mutual Funds with total assets of Rs.1, 21,805 Crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other Mutual Funds. Fourth Phase (since February 2003) In February 2003, following are 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 Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.

2.5 TYPES OF MUTUAL FUNDS SCHEMES IN INDIA Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below:
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A). BY STRUCTURE 1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 3. Close - Ended Schemes: Closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. 4. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. B). BY NATURE 1. Equity Fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt Funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

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Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. 3. Balanced Funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. C). BY INVESTMENT OBJECTIVE: Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in
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both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Load Funds: A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds: A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. OTHER SCHEMES: Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weight age. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

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4. STRUCTURE OF A MUTUAL FUND India has a legal framework within which Mutual Fund have to be constituted. In India open and close-end funds operate under the same regulatory structure i.e. as unit Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes under a common legal structure. The structure that is required to be followed by any Mutual Fund in India is laid down under SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor: Sponsor is defined under SEBI regulations as any person who, acting alone or in combination of another corporate body establishes a Mutual Fund. The sponsor of the fund is akin to the promoter of a company as he gets the fund registered with SEBI. The sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints the Asset Management Company as fund managers. The sponsor either directly or acting through the trustees will also appoint a custodian to hold funds assets. All these are made in accordance with the regulation and guidelines of SEBI. As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at least 40% of the net worth of the Asset Management Company and possesses a sound financial track record over 5 years prior to registration.

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Mutual Funds as Trusts: A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund sponsor acts as a settler of the Trust, contributing to its initial capital and appoints a trustee to hold the assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the trust. The fund then invites investors to contribute their money in common pool, by scribing to units issued by various schemes established by the Trusts as evidence of their beneficial interest in the fund. It should be understood that the fund should be just a pass through vehicle. Under the Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance the investors or the unit-holders are the beneficial owners of the investment held by the Trusts, even as these investments are held in the name of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can invite any number of investors as beneficial owners in their investment schemes. Trustees: A Trust is created through a document called the Trust Deed that is executed by the fund sponsor in favour of the trustees. The Trust-the Mutual Fund may be managed by a board of trustees-a body of individuals, or a trust company-a corporate body. Most of the funds in India are managed by Boards of Trustees. While the boards of trustees are governed by the Indian Trusts Act, where the trusts are a corporate body, it would also require to comply with the Companies Act, 1956. The Board or the Trust company as an independent body, acts as a protector of the of the unit-holders interests. The Trustees do not directly manage the portfolio of securities. For this specialist function, the appoint an Asset Management Company. They ensure that the Fund is managed by ht AMC as per the defined objectives and in accordance with the trusts deeds and SEBI regulations. The Asset Management Companies: The role of an Asset Management Company (AMC) is to act as the investment manager of the Trust under the board supervision and the guidance of the Trustees. The AMC is required to be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have a net worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and non-independent, should have adequate professional expertise in financial services and should be individuals of high morale standing, a condition also applicable to other key personnel of the AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independent of one another and the AMCs resources (such as personnel, systems etc.) are properly segregated by the activity. The AMC must always act in the interest of the unit-holders and reports to the trustees with respect to its activities.

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Custodian and Depositories: Mutual Fund is in the business of buying and selling of securities in large volumes. Handling these securities in terms of physical delivery and eventual safekeeping is a specialized activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or participating in any clearance system through approved depository companies on behalf of the Mutual Fund and it must fulfill its responsibilities in accordance with its agreement with the Mutual Fund. The custodian should be an entity independent of the sponsors and is required to be registered with SEBI. With the introduction of the concept of dematerialization of shares the dematerialized shares are kept with the Depository participant while the custodian holds the physical securities. Thus, deliveries of a funds securities are given or received by a custodian or a depository participant, at the instructions of the AMC, although under the overall direction and responsibilities of the Trustees. Bankers: A Funds activities involve dealing in money on a continuous basis primarily with respect to buying and selling units, paying for investment made, receiving the proceeds from sale of the investments and discharging its obligations towards operating expenses. Thus the Funds banker plays an important role to determine quality of service that the fund gives in timely delivery of remittances etc. Transfer Agents: Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and provide other related services such as preparation of transfer documents and updating investor records. A fund may choose to carry out its activity in-house and charge the scheme for the service at a competitive market rate. Where an outside Transfer agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides are going to be dependent on the transfer agent. 4.1 TERMINOLOGIES OF MUTUAL FUND

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. The net asset value (NAV) is the market value of the fund's underlying securities. It is calculated at the end of the trading day. Any open-end funds buy or sell order received on that day is traded based on the net asset value calculated at the end of the day. The NAV per units is such Net Asset Value divided by the number of outstanding units NAV = Market Value of Assets Liabilities - - - - - - - - - - - - - - - - - - - --------Units Outstanding For eg., if the market value of the securities of a mutual fund scheme is Rs. 200 lakhs & the mutual fund has issued 10 lakhs units at Rs. 10 to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a
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regular basis- daily or weekly- depending. Sale Price Is the price you pay when you invest in a scheme or NAV a unit holder is charged while investing in an open-ended scheme is sale price. Also called Offer Price. It may include a sales load if applicable. Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price Is the price at which open-ended schemes repurchase their units and closeended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. A load is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing & distribution expenses. Suppose the NAV per unit is Rs.10. if the entry as well as exit load charged were 1%, then the investors who buy would be required to pay Rs.10.10 & those who offer their units for repurchase to the mutual fund will get only Rs.9.9 per unit. No Load Schemes that do not charge a load are called No Load schemes. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units. 4.2 RISK FACTORS OF MUTUAL FUNDS: 1. The Risk-Return Trade-Off: The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns / loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision. 2.Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA) might help mitigate this risk. 3. Credit Risk: The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate
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companies and their paper. A AAA rating is considered the safest whereas a D rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk. 4. Inflation Risk: Things you hear people talk about: "Rs. 100 today is worth more than Rs. 100 tomorrow." "Remember the time when a bus ride coasted 50 paisa?" "Mehangai Ka Jamana Hai." The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happen when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk. 5. Interest Rate Risk: In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk. 6.Political / Government Policy Risk: Changes in government policy and political decision can change the investment Environment. They can create a favourable environment for investment or vice versa. 6. Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities.

4.3 ADVANTAGES OF MUTUAL FUND The following objectives can be said to be the major driving force for investors to take the Mutual Funds route: Liquidity of their Investments: The distinct advantage of a mutual fund over other forms of investments is that there is always a market for its unit or shares. The law (SEBI) too requires the mutual funds to ensure liquidity. It is mandatory for Closed-ended schemes to be listed on stock exchanges. Diversification of Risk: Mutual Funds are an extremely sound investment for the purposes of diversification. By investing in many companies the mutual funds can protect themselves from unexpected drop in values of some shares. Small

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investors can achieve wide diversification of their risks by investing in Mutual Funds, and hence do not have the fear of putting all their eggs in one basket. Expertise Supervision and Control of Investments: When investors buy mutual fund schemes, an essential benefit that they acquire is expert Portfolio Management of their investments. The professional fund managers who supervise funds portfolio take desirable decisions viz., what scripts are to be bought, what investments are to be sold and more appropriate decision as to timings of such buy and sell. Lower Costs: Mutual funds have very large funds at their disposal, and hence are in a position to reap the benefits of economies of scale. The brokerage and transaction fees or trading commission is in most cases reduced substantially. Reduced Risks and Safety of Investment: The legislation provides for the safety of investments by regulating the Mutual Funds Industry. The abovementioned advantages of Mutual Funds ensure minimization of the possible risks that investors could face. Tax Benefits: Depending on the scheme of mutual funds, tax shelter is also available to investors as per the Union Budget (1999). Income earned through dividends from mutual funds is 100% tax-free! Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity: In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency: Investors get regular information on the value of their investment in addition to disclosure on the specific investments made by their scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Affordability: Investors individually may lack sufficient funds to invest in highgrade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

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 Well Regulated: All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

4.4 DISADVANTAGES OF MUTUAL FUND No Control over Costs:

An investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are payable even if the value of his investments is declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the mutual fund services. No Tailor-Made Portfolio: Investors who invest on their own can build their own portfolios of shares and bonds and other securities. Investing through fund means he delegates this decision to the fund managers. The very-high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual fund managers help investors overcome this constraint by offering families of funds-a large number of different schemes-within their own management company. An investor can choose from different investment plans and constructs a portfolio to his choice. Managing a Portfolio Of Funds: Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has individual shares or bonds to select. The Wisdom of Professional Management: That's right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees. No Control: Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else's car. Dilution: Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's total performance. Buried Costs: Many mutual funds specialize in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

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5. LATEST REGULATION AND CHANGES IN MUTUAL FUNDS

Existing SEBI Regulation 25(8) already requires that any payment of brokerage or commission to the sponsor, any of its associates, employees or their relatives be disclosed in the half-yearly accounts of the relevant mutual fund. This SEBI circular merely seeks to standardise the manner in which this disclosure is to be made and compliance should give no cause for concern. From an investors point of view, the transparency can only be beneficial and to SEBI it will be simpler to identify malpractices. The only new move in this circular was in SEBI extending the ASBA facility (available to direct equity investors from Jan 2010) to investors applying for New Mutual Fund Offers. This is optional for investors because it is in addition to the normal facility of paying by cheques submitted along with the application. The few investors from outlying areas will hopefully not be at a disadvantage. Anyway 15 days is enough time for cheque clearances even from most remote bank branch locations.

ASBA is the acronym for "Application Supported by Blocked Amount" and allows the applicant to block money in a bank account, to be paid to the mutual fund only after the units are allotted and available. The investor has to provide an authorisation for enabling the specified bank to extend the ASBA facility. There is an ASBA authorisation form which has to be enclosed with the application (instead of a cheque).

SEBI has mandated mutual funds to provide necessary guidance in the various investor documentation associated with funds and their NFOs. Of course the websites will also provide all relevant details. ASBA offers investors the advantage of not paying money with applications and therefore they do not have to bother about refunds because bank accounts are debited only after the units are made available.

The mention on "Non availability of Unit Premium Reserve" is merely a reiteration or even a clarification of what has already existed in the accounting policies articulated in the Ninth and Eleventh Schedules of SEBI (mutual funds) Regulations. Reputed mutual fund houses have always, , restricted dividends to "realised earnings". Still, SEBIs warning must serve as a warning for those who indulge in sharp practices and regulatory arbitrage.

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It may also be worthwhile for SEBI to clarify on the treatment of the "Dividend Equalisation Reserve" when making dividend payments because although accounted for separately its inherent nature is really not too different from the Unit Premium Reserve. All said and done, there is no way we can look away from the fact that payment of dividends by mutual funds has in itself been a much questioned practice. Unfortunately even the most educated of investors have not seen through this witchcraft and continue to look for the "dividend track record" of mutual funds before selecting one to invest in.

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6. LITERATURE REVIEW Literature on mutual fund performance evaluation is enormous. A few research studies that have influenced the preparation of this paper substantially are discussed in this section. As our research topic Performance Comparison of Reliance Mutual Fund and HDFC Mutual Fund we have gone through past researches, from that we have found that most of the research was carried away for the Performance Evaluation of the Mutual Fund. As we have stated in Bibliography section that we have gone through the various Websites, Journals, Magazines, Books from that all research we have concluded to research on this topic from the available past Data and tools and techniques that are developed for understanding of Mutual Fund. The following Literature for the Analysis of Mutual Fund that we have reviewed is given below in this section. Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance. Drawing on results obtained in the field of portfolio analysis, economist Jack L. Treynor has suggested a new predictor of mutual fund performance, one that differs from virtually all those used previously by incorporating the volatility of a fund's return in a simple yet meaningful manner. Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance (Jensens alpha) that estimates how much a managers forecasting ability contributes to funds returns. As indicated by Stat man (2000), the e SDAR of a fund portfolio is the excess return of the portfolio over the return of the benchmark index, where the portfolio is leveraged to have the benchmark indexs standard deviation. S.Narayan Rao, et. al., evaluated performance of Indian mutual funds in a bear market through relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio, Sharpes measure , Jensens measure, and Famas measure. The study used 269 open-ended schemes (out of total schemes of 433) for computing relative performance index. Then after excluding funds whose returns are less than risk-free returns, 58 schemes are finally used for further analysis. The results of performance measures suggest that most of mutual fund schemes in the sample of 58 were able to satisfy investors expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk. Bijan Roy, et. al., conducted an empirical study on conditional performance of Indian mutual funds. This paper uses a technique called conditional performance evaluation on a sample of eighty-nine Indian mutual fund schemes .This paper measures the performance of various mutual funds with both unconditional and conditional form of CAPM, Treynor- Mazuy model and HenrikssonMerton model. The effect of incorporating lagged information variables into the evaluation of mutual fund managers performance is examined in the Indian context. The results suggest that the use of conditioning lagged information variables improves the performance of mutual fund schemes, causing alphas to shift towards right and
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reducing the number of negative timing coefficients. Mishra, et al., (2002) measured mutual fund performance using lower partial moment. In this paper, measures of evaluating portfolio performance based on lower partial moment are developed. Risk from the lower partial moment is measured by taking into account only those states in which return is below a pre-specified target rate like risk-free rate. Kshama Fernandes (2003) evaluated index fund implementation in India. In this paper, tracking error of index funds in India is measured .The consistency and level of tracking errors obtained by some well-run index fund suggests that it is possible to attain low levels of tracking error under Indian conditions. At the same time, there do seem to be periods where certain index funds appear to depart from the discipline of indexation. K. Pendaraki et al. studied construction of mutual fund portfolios, developed a multi- criteria methodology and applied it to the Greek market of equity mutual funds. The methodology is based on the combination of discrete and continuous multi-criteria decision aid methods for mutual fund selection and composition. UTADIS multi-criteria decision aid method is employed in order to develop mutual funds performance models. Goal programming model is employed to determine proportion of selected mutual funds in the final Portfolios. Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds matched to randomly select conventional funds of similar net assets to investigate differences in characteristics of assets held, degree of portfolio diversification and variable effects of diversification on investment performance. The study found that socially responsible funds do not differ significantly from conventional funds in terms of any of these attributes. Moreover, the effect of diversification on investment performance is not different between the two groups. Both groups underperformed the Domini400 Social Index and S & P 500 during the study period.

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7 COMPANY PROFILE 7.1 RELIANCE AMC Introduction: Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. RMF is one of Indias leading Mutual Funds, with Average Assets Under Management (AAUM) of Rs. 88,388 crs (AAUM for 30th Apr 09) and an investor base of over 71.53 Lackhs. Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of products to meet varying investor requirements and has presence in 118 cities across the country. Vision Statement: To be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance. Mission Statement: To create and nurture a world-class, high performance environment aimed at delighting our customers. Sponsor: Reliance Capital Ltd. Trustee: Reliance Capital Trustee co. Ltd. The Main Objectives of the Trust: To carry on the activity of a Mutual Fund as may be permitted at law and formulate and devise various collective Schemes of savings and investments for people in India and abroad and also ensure liquidity of investments for the Unit holders; To deploy Funds thus rose so as to help the Unit holders earn reasonable returns on their savings. To take such steps as may be necessary from time to time to realise the effects without any limitation

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7.2 HDFC AMC Introduction: HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund SEBI vide its letter dated July 3,2000. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The present equity shareholding pattern of the AMC is as follows: Particulars Housing Development Finance Corporation Limited Standard Life Investments Limited % of the paid up equity capital 60 40

Vision statement To be a Dominant Player in the Indian Mutual Fund Space, recognized for its high level ethical and professional conduct and a Commitment towards enhancing investors interests. Trustee: 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 Ltd. Company is wholly owned HDFC Company Ltd. Sponsors: 1. Housing Development Finance Corporation Limited (HDFC). 2. Standard Life Investment Limited.

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