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All project reports are free for mba bba marketing recruitment etc etc by www.gameswala.com. Please play worlds best online games for free thanks bhai log apne dosto ko bhi fwd karein meri site. …

All project reports are free for mba bba marketing recruitment etc etc by www.gameswala.com. Please play worlds best online games for free thanks bhai log apne dosto ko bhi fwd karein meri site. Vikas (Chandigarh)

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  • 1. www.GamesWala.com G.E.N.Society GLOBAL BUSINESS SCHOOL BHAIRIDEVARKOPPA, HUBLI – 580025 (Recognized by AICTE, New Delhi & Affiliated to Karnataka University,Dharwad) Project Report on “MUTUAL FUND-DIVERSIFIED INVESTMENTS” At HDFC Asset Management Company Ltd. Hubli Submitted By: SHWETA.S.TONAPI Exam No. MBA09007044 M.B.A II Sem GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 1
  • 2. www.GamesWala.com UNDER THE GUIDANCE OF:Project Guide: Institute Guide:Mr. Yashwant.Ponkshe Mr. Mahesh BendigeriBranch Manager Faculty InHDFC Asset Management Company Ltd. GBS Hubli Submitted in partial fulfillment of the requirement for MBA Degree Course of KARNATAK UNIVERSITY, DHARWAD GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 2
  • 3. www.GamesWala.com Jai Shree Ram, Dosto i am vikas gupta, age 31 years . i start a gaming website named www.GamesWala.com which has PR4 and ratings below 4 lakh. i need here 1 help from you, as i have no money to promote my gaming site,i am running graphic shop with 1 PC (yes 1 PC :) think how i am surviving with 1 PC and a family with 2 kids :P ), I do not know much about how to promote my website, so i decided to talk with you friends to come and GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com3
  • 4. www.GamesWala.com join my site and play all the games for free, all games are personally selected by me from thousands of games. I am updating my website daily with lots of awesome games.You can play without register or register you id or you also can play with your facebook ID.hope you all will like my site and play free online games there, and dont forgot to tell your friends about my www.GamesWala.com :) Executive Summary GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com4
  • 5. www.GamesWala.comThe mutual fund is structured around a fairly simple concept, the mitigation of risk through thespreading of investments across multiple entities, which is achieved by the pooling of a numberof small investments into a large bucket. Yet it has been the subject of perhaps the most elaborateand prolonged regulatory effort in the history of the country.According to March 2010, the Indian mutual fund industry has 40 players. The number of publicsector players has reduced from 11 to 5. The public sector has gradually receded into thebackground, passing on a large chunk of market share to private sector players.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 theHDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.Title of my project is Mutual Funds- Diversified Investments. Main Objective is to study in detailabout Mutual Funds and its investment portfolio. Sub-Objectives are to understand the role offund manager in achieving the investment objective by diversifying the portfolio. (Comparingperformance of 3 selective funds).Comparison between growth and dividend option of 5 majorfunds. To study mutual fund investment valuation. To study the various types of Mutual Funds,investment pattern used by the fund managers for various fund, learn how to select a mutual fundand how mutual funds can be used for financial planning. Main Findings are Diversification is the main tool used by the fund managers to dilute the riskfactor. Diversification minimizes the concentration of investor’s money in single stock and thusminimizes the risk. There are mainly three patterns used by the fund managers duringinvestment. They are: Aggressive plan, Moderate plan, and Conservative plan. Each plan iscarefully designed by taking into account the asset allocation, risk and return and the investorsview. The NAV of Growth option is greater than the dividend option of the fund. As the investorwithdraws the dividend, that portion of the amount is not subject to growth. But in case ofgrowth option the investor can enjoy the growth of the whole amount. In dividend option, if theinvestor is able to use the dividend amount of fund ‘X’ in some other investment and the moneycan have a growth more than growth option’s NAV of fund ‘X’. Then it is a good decision to optfor dividend option. Otherwise, growth option gives better growth of the investment. Fundmanagers diversify their portfolio across different industries and maximum weightage is given tothose industries which have growth perspective in the future years. Now, it is banking, software,and consumer non durables industries that are given more weightage. But, in future fundmanagers have predicted that the infrastructure industry will have better prospects.To conclude mutual fund is a very smart avenue to invest as it is managed by fund managers whocarefully invest in different portfolio, and they diversify risk across the industries. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 5
  • 6. www.GamesWala.com ContentsChapter Contents Page No. Introduction: 2 a. Need for studyChapter I 3-7 b. Company profile 8-10 c. Industry Profile Objectives:Chapter II a. Conceptual aspect of mutual fund 11-30 b. Objectives 31 Methodology: a. Collection of data 33Chapter III b. Statistical Tools 33 c. Limitation of study 34 Analysis of the Study: a. Comparison between growth and dividend option plan 36-40 b. Analysis of fund manager diversification & portfolio 41-46 management plan.Chapter IV • HDFC Top 200 • HDFC Balance Fund • HDFC High Interest FundChapter V Findings 48-49Chapter VI Conclusion 50 GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 6
  • 7. www.GamesWala.comChapter VII References 51 Chapter I IntroductionContents • Need for study • Company Profile • Industry Profile GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 7
  • 8. www.GamesWala.comNeed for the StudyThe main purpose of doing this project was to know about mutual fund and its functioning. Thishelps to know in details about mutual fund industry right from its inception stage, growth andfuture prospects.It also helps in understanding different schemes of mutual funds. Because my study dependsupon prominent funds in India and their schemes like equity, income, balance as well as thereturns associated with those schemes. And how the fund managers diversify risk and obtainmaximum returns.The project study was done to ascertain the asset allocation, entry load, exit load, associated withthe mutual funds.Scope of the StudyIn my project the scope is limited to some prominent mutual funds in the mutual fund industry. Ianalyzed the funds depending on their schemes like equity, income, balance.My study is mainly concentrated on equity schemes, the returns, in income schemes the rating ofCRISIL, ICRA and other credit rating agencies. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 8
  • 9. www.GamesWala.comCompany ProfileHDFC Asset Management Company Limited (AMC)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 theHDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169,Backbay Reclamation, Churchgate, Mumbai - 400 020.In terms of the Investment Management Agreement, the Trustee has appointed the HDFC AssetManagement Company Limited to manage the Mutual Fund. The paid up capital of the AMC isRs. 25.161 crore.The present equity shareholding pattern of the AMC is as follows: % of the paid up equity Particulars capital GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 9
  • 10. www.GamesWala.com Housing Development Finance Corporation Limited 60 Standard Life Investments Limited 40The AMC is also providing portfolio management / advisory services and such activities are notin conflict with the activities of the Mutual Fund. The AMC has renewed its registration fromSEBI vide Registration No. - PM / INP000000506 dated December 21, 2009 to act as a PortfolioManager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registrationis valid from January 1, 2010 to December 31, 2012.The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists ofthe following eminent persons. • Mr. Deepak S. Parekh • Mr. N. Keith Skeoch • Mr. Keki M. Mistry • Mr. James Aird • Mr. P. M. Thampi • Mr. Humayun Dhanrajgir • Dr. Deepak B. Phatak • Mr. Hoshang S. Billimoria • Mr. Rajeshwar Raj Bajaaj • Mr. Vijay Merchant • Ms. Renu S. Karnad • Mr. Milind Barve • Mr. Deepak S. Parekh GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 10
  • 11. www.GamesWala.comSponsorsHOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC)HDFC was incorporated in 1977 as the first specialized Mortgage Company in India. HDFCprovides financial assistance to individuals, corporates and developers for the purchase orconstruction of residential housing. It also provides property related services (e.g. propertyidentification, sales services and valuation), training and consultancy. Of these activities, housingfinance remains the dominant activity. HDFC has a client base of around 11 lac borrowers, 10 lacdepositors, over 1.23 lac shareholders and 25,000 deposit agents, as at March 31, 2010.HDFC had raised funds from international agencies such as the World Bank, IFC (Washington),USAID, DEG, ADB and KfW, international syndicated loans, domestic term loans from banksand insurance companies, bonds and deposits. HDFC has received the highest rating for its bondsand deposits program for the fifteenth year in succession.STANDARD LIFE INVESTMENTS LIMITEDStandard Life Investments was launched as an investment management company in 1998. It isthe dedicated investment management company of the Standard Life group and is a whollyowned subsidiary of Standard Life Investments (Holdings) Limited, which in turn is a whollyowned subsidiary of Standard Life plc.With global assets under management of approximately US$224 billion (£138.7 billion) as atDecember 31, 2009 Standard Life Investments Limited is one of the worlds major investmentcompanies, operating in the UK, Canada, Hong Kong, China, Korea, Ireland and the USA, and isresponsible for investing money on behalf of five million retail and institutional clientsworldwide. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 11
  • 12. www.GamesWala.comTrusteesHDFC Trustee Company Limited, a company incorporated under the Companies Act, 1956 is theTrustee to HDFC Mutual Fund vides the Trust deed dated June 8, 2000, as amended from time totime. HDFC Trustee Company Ltd is wholly owned subsidiary of HDFCThe Board of Directors of HDFC Trustee Company Limited consists of the following eminentpersons. • Mr. Anil Kumar Hirjee • Mr. Vincent Joseph O’Brien • Mr. Shishir K. Diwanji • Mr. Ranjan Sanghi • Mr. V. Srinivasa RanganRegistrar & Transfer Agents Computer Age Management Services Pvt. Ltd., Rayala Towers - I, 158 Anna Salai, GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 12
  • 13. www.GamesWala.com Chennai 600002. Tel: (+91) 044 2852 0516 Fax: (+91) 044 4203 2952 Website: www.camsonline.comCustodian HDFC BANK LIMITED Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai 400 013. Website: www.hdfcbank.com CITIBANK N.A. Ramnord House, 77, Dr. Annie Besant Road, Worli, Mumbai 400 018. Website: www.citibank.comAuditors DELOITTE HASKINS & SELLS GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 13
  • 14. www.GamesWala.com Chartered Accountants 12, Dr. Annie Besant Road, Opp. Shiv Sagar Estate, Worli, Mumbai 400 018.Website: www.deloitte.com Awards ICRA Mutual Fund Awards 2010 ICRA Gold Award for Best Performance - Seven Star Fund Ranking • HDFC Prudence Fund in the category of Open Ended Balanced • HDFC MF Monthly Income Plan - Long Term Plan in the category of Open Ended Marginal Equity • HDFC High Interest Fund - Short Term Plan in the category of Open Ended Debt - Short Term for three year periodICRA Five Star Fund Ranking • HDFC Multiple Yield Fund - Plan 2005 • HDFC MF Monthly Income Plan - Long Term Plan • HDFC Cash Management Fund - Savings Plan GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 14
  • 15. www.GamesWala.comLipper Fund Awards 2010 • HDFC Equity Fund - Growth Option was Category (from amongst 53 schemes) • HDFC Prudence Fund – Growth Option category (from amongst 24 schemes) • HDFC MF Monthly Income Plan – Long Term Plan - Growth Option category (from amongst 58 schemes)CNBC TV18 - CRISIL Mutual Fund Awards 2010HDFC Top 200 Fund was among the only two schemes that won the “Best Performing MutualFund of the Year” Award # in the Large Cap Oriented Funds category at CNBC TV18 - CRISILMutual Fund Awards 2010 for the calendar year 2009 (from amongst 24 schemes)HDFC Cash Management Fund - Treasury Advantage Plan was among the only two schemesthat won the “Best Performing Mutual Fund of the Year” Award # in the Ultra Short Term DebtFunds category at CNBC TV18 - CRISIL Mutual Fund Awards 2010 for the calendar year 2009(from amongst 28 schemes)Mutual fund industry and structureSome facts for the growth of mutual funds in India • Mutual funds have seen 100% growth in the last 6 years. • Number of foreign AMCs are 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. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 15
  • 16. www.GamesWala.com • We have approximately 29 mutual funds which is 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 MFs to launch commodity mutual funds. • Emphasis on better corporate governance. • Trying to curb the late trading practices. • Introduction of Financial Planners who can provide need based advice.According to March 2010, the Indian mutual fund industry has 40 players. The number of publicsector players has reduced from 11 to 5. The public sector has gradually receded into thebackground, passing on a large chunk of market share to private sector players.The Association of Mutual Funds in India (AMFI) is the industry body set up to facilitate thegrowth of the Indian mutual fund industry. It plays a pro-active role in identifying steps that needto be taken to protect investors and promote the mutual fund sector. It is noteworthy that AMFI isnot a Self-Regulatory Organisation (SRO) and its recommendations are not binding on the GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 16
  • 17. www.GamesWala.comindustry participants. By its very nature, AMFI has an advisor’s or a counsellor’s role in themutual fund industry. Its recommendations become mandatory if and only if the Securities andExchange Board of India (SEBI) incorporates them into the regulatory framework it stipulatesfor mutual funds.The Indian mutual fund industry follows a 3-tier structure as shown below: Sponsor s Trust Asset Management CompanyLet’s understand what each of these terms means and their roles in the mutual fund industry.1. SponsorsThey are the individuals who think of starting a mutual fund. The Sponsor approaches SEBI, themarket regulator and also the regulator for mutual funds. Not everyone can start a mutual fund.SEBI will grant a permission to start a mutual fund only to a person of integrity, with significantexperience in the financial sector and a certain minimum net worth. These are just some of thefactors that come into play.2. TrustOnce SEBI is satisfied with the credentials and eligibility of the proposed Sponsors, the Sponsorsthen establish a Trust under the Indian Trust Act 1882. Trusts have no legal identity in India andthus cannot enter into contracts. Hence the Trustees are the individuals authorized to act onbehalf of the Trust. Contracts are entered into in the name of the Trustees. Once the Trust iscreated, it is registered with SEBI, after which point, this Trust is known as the mutual fund.3. Asset Management Company (AMC)The Trustees appoint the AMC, which is established as a legal entity, to manage the investor’s(unit holder’s) money. In return for this money management on behalf of the mutual fund, theAMC is paid a fee for the services provided. This fee is to be borne by the investors and isdeducted from the money collected from them. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 17
  • 18. www.GamesWala.comThe AMC has to be approved by SEBI and it functions under the supervision of its Board ofDirectors, and also under the direction of the Trustees and the regulatory framework establishedby SEBI. It is the AMC, which in the name of the Trust, that floats new schemes and managesthese schemes by buying and selling securities.Apart from these parties, we also have the following:1. CustodianThe Custodian maintains the custody of the securities in which the scheme invests. It also keepsa tab on corporate actions such as rights, bonus and dividends declared by the companies inwhich the fund has invested. The Custodian is appointed by the Board of Trustees. TheCustodian also participates in a clearing and settlement system through approved depositorycompanies on behalf of mutual funds, in case of dematerialized securities.2. Transfer AgentsRegistrar and Transfer Agents (RTAs) maintain the investor’s (unit holder’s) records, reducingthe burden on the AMCs.A comprehensive structure of a mutual fund appears as depicted in the chart below: SEBI Regulations Shareholding Sponsors Trust deed AMC Trustees Mutual I M agreement Fund Transfer Agent Custodian Unit Holders GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 18
  • 19. www.GamesWala.com Chapter II ObjectivesContents: • Conceptual aspect of mutual Fund • Objectives GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 19
  • 20. www.GamesWala.comConceptual aspect of mutual FundMutual Fund A mutual fund is an investment vehicle which pools investors’ money and invests the same forand on behalf of investors, into stocks, bonds, money market instruments and other assets. Themoney is received by the AMC with a promise that it will be invested in a particular manner by aprofessional manager (commonly known as fund managers). The fund managers are expected tohonor this promise. The SEBI and the Board of Trustees ensure that this actually happens.The organization that manages the investments is the Asset Management Company (AMC). TheAMC employs various employees in different roles who are responsible for servicing andmanaging investments. The AMC offers various products (schemes/funds), which are structuredin a manner to benefit and suit the requirement of investors’. Every scheme has a portfoliostatement, revenue account and balance sheet.Some less known facts about Mutual Funds:  Mutual Funds perform well even during market downfall. This is because of the investment decisions taken by the AMC. The SENSEX considers the trading in only 30 indices and decides the market volatility. But MF’s on the other hand invest in the top 300 indices and not just the 30 which BSE considers. Therefore even when the SENSEX falls, the MF’s outperform i.e. they give good returns because not all 300 companies register a fall at a time.  The returns given by Mutual Funds Equity related funds the tax on long term growth is tax free. While Income schemes/FMPs bear a tax rate of 22.115% for short term(less than a year) and for a long term (more than a year) it is 11.22% and if dividend is distributed, it is 14.16% at TDS and in the hands of investor it is TAX FREE, whereas the amount deposited in fixed deposits of the Banks on maturity have to pay a tax rate of 33.3% (depending on the depositors IT slab). Thus the investors who invest in MF’s earn a tax benefit over the investors in bank. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 20
  • 21. www.GamesWala.comTypical classification of mutual fund schemes on various bases: ♦ TenorTenor refers to the ‘time’. Mutual funds can be classified on the basis of time as under;1. Open ended fundsThese funds are available for subscription throughout the year. These funds do not have a fixedmaturity. Investors have the flexibility to buy or sell any part of their investment at any time, atthe prevailing price (Net Asset Value - NAV) at that time.We can buy and sell at any point of time. But if we do so before maturity we must bear the exitload.2. Close Ended fundsThese funds begin with a fixed corpus and operate for a fixed duration. These funds are open forsubscription only during a specified period. When the period terminates, investors can redeemtheir units at the prevailing NAV. Some closed ended funds are converted into open ended fundafter certain lock-in period. (egg: HDFC Tax saver) ♦ Asset classes1. Equity fundsThese funds invest in shares. These funds may invest money in growth stocks, momentumstocks, value stocks or income stocks depending on the investment objective of the fund. Thesefunds are volatile in nature and gives higher returns.(eg: HDFC Equity fund and HDFC Growth fund)Performance of Top EquityFundsEquity Diversified Asset Size NAV (in cr.) (Rs./unit) 1wk 1mth 3mth 6mth 1yr 2yr 3yrICICI Pru Discovery Fund 1,083.58(G) 45.57 0.7 8.2 7.8 14 68.8 83 61.3IDFC Small&Midcap Eqty 686.89-G 17.33 2 8.8 8.2 15.2 54.3 93 --IDFC Premier Equity - A 1,376.30(G) 29.92 2.2 11.7 9.1 14.9 54.7 59 77.5 GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 21
  • 22. www.GamesWala.comBirla SL Dividend Yield 384.83(G) 78.82 1.7 8.5 11.7 14.5 53.1 86 68DSP-BR Small & Mid Cap 847.67-RP (G) 16.65 2.3 9.2 10 14.3 64.6 69 45.7Equity Tax Saver Asset Size NAV (in cr.) (Rs./unit) 1wk 1mth 3mth 6mth 1yr 2yr 3yrCan Robeco Eqty TaxSaver 174.14(G) 24.37 1 6.8 5.7 12.3 43.3 72 63.8 1,159.48ICICI Pru Tax Plan (G) 131.7 1.6 8.6 4.4 9.4 55 50 43.8 2,465.31HDFC Tax Saver (G) 216.1 1.6 8.9 5.3 10.1 48.9 64 39.4 97.58Religare Tax Plan (G) 16.58 0.9 9.3 6.1 10.4 46 60 57.6 1,155.62Fidelity Tax Advantage (G) 20.41 1.5 10.4 8.3 12.5 46.4 54 452. Debt funds or Income fundsThese funds invest money in bonds and money market instruments. These funds may invest into/long-term and/or short-term maturity bonds. They give lower returns, these returns are theinterest on debentures. Debt funds are suggestible to retired individuals and companies who wantto make short term investments.( eg: HDFC High Interest Fund)Top Funds in Debt CategoryDebt Short -Term Asset Size(in NAV (Rs./ cr.) unit) 1wk 1mth 3mth 6mth 1yr 2yr 3yrIDFC SSIF -MTP - RP A (G) 58.92 16.07 0.2 0.4 2.9 4.9 9.6 24 32.6Kotak Bond (Deposit) (G) 40.8 25.26 0.1 -0.9 3.5 4.4 6.5 26 34.3Can Robeco Income (G) 215.44 19.93 -- 0.1 2.6 2.9 5.3 36 47.4Fortis Flexi Debt Fund-RP (G) 322.72 16.15 0.1 0.1 1.5 2.9 5.1 26 36.9HDFC High Interest - STP (G) 3,891.48 18.7 0.2 0.3 1.7 3.3 7.2 22 34Debt Long -Term Asset Size(in NAV (Rs./ cr.) unit) 1wk 1mth 3mth 6mth 1yr 2yr 3yr GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 22
  • 23. www.GamesWala.com 11.Birla Sun Life GSec - LTF (G) 86.42 27.45 0.1 0.3 5.7 7 9 37 36.6ICICI Pru Gilt Inv Plan - PF 79.17 18.49 -- 0.2 1.4 1.9 2.5 44 55.2Templeton (I) ST Income (G) 4,991.56 1,876.90 0.1 0.4 1.7 3.4 8.7 23 33.8DSP-BR Govt. Sec. (G) 68.75 32.72 0.2 0.1 3.2 3.9 4.5 33 40.5Birla SL Dynamic Bond -RP(G) 8,611.67 15.72 0.2 0.4 1.5 3.3 7 21 343. Hybrid fundsThese funds invest in a mix of both equity and debt. In order to retain their equity status for taxpurposes, they generally invest at least 65% of their assets in equities and roughly 35% in debtinstruments, failing which they will be classified as debt oriented schemes and be taxedaccordingly. Monthly Income Plans (MIPs) fall within the category of hybrid funds. MIPs investup to 25% into equities and the balance into debt.4. Real asset fundsThese funds invest in physical assets such as gold, platinum, silver, oil, commodities and realestate. Gold Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs) fallwithin the category of real asset funds.(eg: HDFC Infrastructure Fund) ♦ Investment Philosophy1. Diversified Equity FundsThese funds diversify the equity component of their Asset Under Management (AUM), acrossvarious sectors. Such funds avoid taking sectoral bets i.e. investing more of their assets towards aparticular sector such as oil & gas, construction, metals etc. Thus, they use the diversificationstrategy to reduce their overall portfolio risk.2. Sector FundsThese funds are expected to invest predominantly in a specific sector. For instance, a bankingfund will invest only in banking stocks. Generally, such funds invest 65% of their total assets in arespective sector.3. Index FundsThese funds seek to have a position which replicates the index, say BSE Sensex or NSE Nifty.They maintain an investment portfolio that replicates the composition of the chosen index, thusfollowing a passive style of investing.4. Exchange Traded Funds (ETFs) GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 23
  • 24. www.GamesWala.comThese funds are open-ended funds which are traded on the exchange (BSE / NSE). These fundsare benchmarked against the stock exchange index. For example, funds traded on the NSE arebenchmarked against the Nifty. The Benchmark Nifty BeES is an example of an ETF which linksto the stocks in the Nifty. Unlike an index fund where the units are traded at the day’s NAV, inETFs (since they are traded on the exchange) the price keeps on changing during the tradinghours of the exchange. If you as an investor want to buy or sell ETF units, you can do so byplacing orders with your broker, who will in-turn offer a two-way real time quote at all times.The AMC does not offer sale and re-purchase for the units. Today, ETFs are available for pre-specified indices. (eg: HDFC Gold ETF)5. Fund of Funds (FOF)These funds invest their money in other funds of the same mutual fund house or other mutualfund houses. They are not allowed to invest in any other FOF and they are not entitled to investtheir assets other than in mutual fund schemes/funds, except to such an extent where the fundrequires liquidity to meet its redemption requirements, as disclosed in the offer document of theFOF scheme.6. Fixed Maturity Plan (FMP)These funds are basically income/debt schemes like Bonds, Debentures and Money marketinstruments. They give a fixed return over a period of time. FMPs are similar to close endedschemes which are open only for a fixed period of time during the initial offer. However, unlikeclosed ended schemes where your money is locked for a particular period, FMPs give you anoption to exit. Remember though, that this is subject to an exit load as per the funds regulations.FMPs, if listed on the exchange, provide you with an opportunity to liquidate by selling yourunits at the prevailing price on the exchange. FMPs are launched in the form of series, havingdifferent maturity profiles. The maturity period varies from 3 months to one year. ♦ Geographic Regions1. Country or Region FundsThese funds invest in securities (equity and/or debt) of a specific country or region with anunderlying belief that the chosen country or region is expected to deliver superior performance,which in turn will be favourable for the securities of that country. The returns on country fundare affected not only by the performance of the market where they are invested, but also bychanges in the currency exchange rates.2. Offshore Funds GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 24
  • 25. www.GamesWala.comThese funds mobilize money from investors for the purpose of investment within as well asoutside their home country. So we have seen that funds can be categorized based on tenor,investment philosophy, asset class, or geographic region. Now, let’s get down to simplifyingsome jargon with the help of a few definitions, before getting into understanding the nitty-grittyof investing in mutual funds.Advantages of investing in mutual fundsWhile everyone fantasizes about investing in the stock markets and is passionate about investingin stocks, what’s more important is; how smartly are these investments done.One can invest in the stock markets either through the direct route i.e. stocks or through theindirect route i.e. mutual funds.Both have their own pros and cons, and so it’s important for us to understand both routes beforeembarking on an investment spree.If an investor has a profound insight into stocks and investments with the requisite time and skillto analyze companies, then he can surely begin independent stock-picking. However, if aninvestor lacks any one or all these pre-requisites, then he’s better off investing in stocks throughthe indirect route i.e. through mutual funds. Mutual funds offer several important advantagesover direct stock picking.1. Diversification • Investing in stocks directly has one serious drawback - lack of diversification. By putting your money into just a few stocks, you can subject yourself to considerable risk. • Decline in a single stock can have an adverse impact on your investments, damaging the returns of your portfolio. A mutual fund, by investing in several stocks, tries to overcome the risk of investing in just 3-4 stocks. • By holding say, 15 stocks, the fund avoids the danger of one rotten apple spoiling the whole portfolio. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 25
  • 26. www.GamesWala.com • A diversified portfolio may thus fall to a lesser extent, even if a few stocks fall dramatically. Also, a mutual fund’s NAV may certainly drop, but mutual funds tend to not fall as freely or as easily as stocks. • The legal structure and stringent regulations that bind a mutual fund do a very good job of safeguarding investor interest.2. Professional management • Active portfolio management requires not only sound investment sense, but also considerable time and skill. • Track of the prospects and potential of the companies in the mutual fund portfolio are maintained by skilled research professionals appointed by the mutual fund houses, professionals whose job it is to continuously research and monitor these companies.3. Lower entry level There are very few quality stocks today that investors can buy with Rs. 5,000 in hand. This is especially true when valuations are expensive. Sometimes, with as much as Rs 5,000 you can buy just a single stock. In the case of mutual funds, the minimum investment amount requirement is as low as Rs. 500. This is especially encouraging for investors who start small and at the same time take exposure to the fund’s portfolio of 20-30 stocks. Minimum investments: • 5000/- lumpsum • 1000/- through SIP • 500/- Tax free scheme4. Economies of scale By buying a handful of stocks, the stock investors lose out on economies of scale. This directly impacts the profitability of portfolio. If investors buy or sell actively, the impact on profitability would be that much higher. On the other hand, in case of mutual funds, frequent voluminous purchases/sales results in proportionately lower trading costs than individuals thus translating into significantly better investment performance.5. Innovative plans/services for investors • By investing in the stock market directly, investors deprive themselves of various innovative plans offered by fund houses. • For example, mutual funds offer automatic re-investment plans, systematic investment plans (SIPs), systematic withdrawal plans (SWPs), asset allocation plans, and triggers GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 26
  • 27. www.GamesWala.com etc., tools that enable you to efficiently manage your portfolio from a financial planning perspective too. • These features allow you to enter/exit funds, or switch from one fund to another, seamlessly -something that will probably never be possible in case of stocks.6. Liquidity • A stock investor may not always find the liquidity in a stock to the extent they may want. • There could be days when the stock is hitting an upper/lower circuit, thus curtailing buying/selling. Further, if an investor is invested in a penny stock, he may find it difficult to get out of it. • On the other hand, mutual funds offer some much required liquidity while investing. In case of an open-ended fund, you can buy/sell at that days NAV by simply approaching the fund house directly, or by approaching your mutual fund distributor or even by transacting online. • As highlighted above, investing in mutual funds has some unique benefits that may not be available to stock investors. However by no means are we insinuating that mutual fund investing is the only way of clocking growth. This can also be done even by investing directly into the right stocks. However, mutual funds offer the investor a relatively safer and surer way of picking growth minus the hassle and stress that has become synonymous with stocks over the years. • On account of the aforementioned advantages which mutual funds offer, they (mutual funds) have emerged as immensely popular asset class, especially for retail investor, and for the investor looking for growth with lower risks.Disadvantages of investing in Mutual Funds: • Some funds charge hefty fees, leading to lower overall returns. • Over time, statistics have shown that most actively managed funds tend to underperform their benchmark averages • Mutual Funds cannot be bought or sold during regular trading hours, but instead are priced just once per day. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 27
  • 28. www.GamesWala.comHow mutual funds can be used for financial Planning“This time, like all other times, is a very good time, if we but know what to do with it."- Ralph Waldo EmersonFinancial Planning couldn’t have been summed up better; to put it simply it allows an investor toknow today what is required for achieving financial goals tomorrow.A financial plan helps an investor in the following ways:1. Enabling investors to identify his goals and investment needs2. Understand the various financial products with respect to their risk, return, liquidity andmaturity profile3. Combine the features of financial products with the investor’s financial needs and determineappropriate mix of investments, technically referred to as asset allocation4. Suggest suitable instruments as part of asset allocation Mutual fund allows a financial plannerto enhance the effectiveness of his financial plan in the following fashion: GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 28
  • 29. www.GamesWala.com1. DiversificationDiversification as practiced in financial planning can be done at three levels by assets,investment style and management style. a. Diversification of assets – Assets can be diversified on many levels for example holding a mix of stocks, bonds and cash. Possibly then by geographic sector taking advantage of global opportunities and the fact that if one economy is weak, another is strong. And then by economic sector, to include a variety of industries, because when one industry is slowing down, another is picking up. Each of these diversifications will serve to increase returns and reduce risk. b. Diversification of styles - Each asset class is then diversified into multiple investment styles – such as growth, value, and opportunities. c. Diversification of managers - Portfolio returns can be enhanced by using multiple managers with complementary investment styles who react in their own ways to varying market conditions. However, we opine investors not to provide primacy to the fund managers in the diversification criteria.Asset AllocationExcept for the most conservative portfolios which do not hold equities, every portfolio should bediversified to hold all major assets classes:a. Cash for security and liquidity, so that one can take advantage of opportunities as they ariseb. Bonds, to help preserve capital and provide a steady incomec. Stocks, for growth to help you beat inflation and counter the impact of taxesd. Real estate, because of their low correlation with stocks and bondse. Gold, for its ability to be a hedge against uncertaintiesAn important inference could be, that one should spend considerable amount of time and energyin choosing a tailor made or customized asset allocation strategy. Once the strategy is in place,then the next important action point would be the instruments to fulfill the role of respective assetclasses. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 29
  • 30. www.GamesWala.com2. Portfolio StrategyMost portfolios are structured with 5 financial objectives in mind:a. Growthb. Incomec. Inflation protectiond. Peace of mind and preservation of capitale. Minimize taxesA financial planner has to balance the importance of each of these, and keep them in mind as hegoes about structuring a portfolio. There is no such thing as an optimal balance that’s right foreveryone. The balance is a personal choice depending on the relative importance of these factorsfor a given investor. While doing financial planning through mutual funds, one must try toanswer the following questions.a. Towards what objective/goal is the investor allocating his moneyKnowing the objective of investing enables the investor to select the right options offered by amutual fund house. For example, if an individual has a long term objective, then he may go in fora long term equity fund and for investors with short term objectives or needing intermediatereturns, a liquid fund is the right option.b. What is the time horizon?Time horizon refers to, when does the investor want to enjoy the fruit of investment? Thisascertainment is critical because both, the risk and the reward of investments can vary accordingto the time horizon. Generally, a longer horizon allows for more aggression in investment. Theless time, the more one needs to avoid risk.c. What is the risk tolerance of the investor?There is a risk-reward continuum running from cash to bonds to stocks. Returns arecommensurate with the risk someone is willing to tolerate. Risk has other dimensions investor toreplace capital. If not earning any income, replacing lost capital will be difficult, which means amore conservative approach. Other considerations could be the present financial situation,estate planning and level of taxation. One other important factor is age. As a general rule, theyounger one is, the more aggressive someone can afford to be with their investment portfolio.This is because the investor has more time to recover from any possible setbacks in the value ofthe portfolio. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 30
  • 31. www.GamesWala.com3. RebalancingRebalancing is the action of bringing a portfolio of investments that has deviated away fromtarget asset allocation. The goal of rebalancing is to move the current asset allocation back inline to the originally planned asset allocation. Rebalancing is primarily warranted underconditions where the returns have significantly deviated than expected or to stay in line withmarket conditions. For example, an equity heavy portfolio needs to be restructured incontraction phases where company profits are hit harder and interest rates move up. It could bedone by moving a portion of equity holdings to debt instruments. Mutual funds probably allowthe easiest window to rebalancing due to their diversity of offerings.A case would help to understand better on rebalancing.Mr. X has planned for his son’s marriage in 2020, for which the estimated cost in 2020 would beRs 1.7 crores. In 2010 he is advised to invest Rs 70,000 in equity and Rs 30,000 in Debtassuming an average return of 12% for equity and 5% for debt the expected value of investmentsat year end would be 78,400 for equity and 31,500 for debt. At year end, at 8%, the equitymarkets performed worse than expected and at 14% the debt markets performed better thanexpected. Hence, the portfolio value, instead of the planned Rs 109,900 ended up as Rs 109,800.Consequently, the ratio of debt to equity changed from the original 70:30 to 69:31. To rebalancethe portfolio, Mr. X has to liquidate his debt holdings by Rs 2,700 and invest in equity and alsoadd Rs 100 cash from his own personal reserves.4. Tax efficiencyWhere mutual funds score head and shoulder over other instruments in a financial planner’s eyesis when it comes to tax efficiency and reduction in transaction charges. Imagine a scenario wherea person holds the individual stocks BSE-Sensex in the same proportion as it is meant to be andanother person holds a unit of an index fund. The chances are that the Mutual Fund unit holderwould be a happier person for the fact that:a. The mutual fund unit holder is safe from transaction fees the stockholder might have to pay forusing his DEMAT account for equity tradingb. The incidence of capital gains tax would be zero for a mutual fund holder as it is the fundwhich is involved in equity trading and that equity trading is considered primary business andhence is exempt GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 31
  • 32. www.GamesWala.comc. Dividends declared by equity-oriented funds (i.e. mutual funds with more than 65% of assetsin equities) are tax-free in the hands of investor. There is also no dividend distribution taxapplicable on these funds under section 115R. Diversified equity funds, sector funds, balancedfunds are examples of equity-oriented funds.Thus, mutual funds allow the financial planner to align the investment goals on the mantra ofDIVERSIFICATION + PATIENCE = SUCCESSTo invest prudently in a mutual fund, one can taking into the account the following 10 pointersfor the concluding quick read.How to select a mutual fundThe increased number of New Fund Offerings (NFOs) lately has led also to an increaseddilemma in the mind of investors. Investors often get confused when it comes to selecting theright fund from the plethora of funds available. Many investors also feel that any mutual fundcan help them achieve their desired goals. But the fact is, not all mutual funds are same. Thereare various aspects within a fund that an investor must carefully consider before short-listing itfor making investments. These aspects which were briefly covered in the Path to Knowledgesection are given in a little more detail below: ♦ PerformanceThe past performance of a fund is important in analyzing a mutual fund. But, as learnt earlierpast performance is not everything. It just indicates the fund’s ability to clock returns acrossmarket conditions. And, if the fund has a well-established track record, the likelihood of itperforming well in the future is higher than a fund which has not performed well.Under the performance criteria, we must make a note of the following: 1. Comparisons: A fund’s performance in isolation does not indicate anything. Hence, it becomes crucial to compare the fund with its benchmark index and its peers, so as to deduce a meaningful inference. Again, one must be careful while selecting the peers for comparison. For instance, it doesn’t make sense comparing the performance of a mid-cap fund to that of a largecap. 2. Time period: GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 32
  • 33. www.GamesWala.com It’s very important that investors have a long term (atleast 3-5 years) horizon if they wish to invest in equity oriented funds. So, it becomes important for them to evaluate the long term performance of the funds. However this does not imply that the short term performance should be ignored. Besides, it is equally important to evaluate how a fund has performed over different market cycles (especially during the downturn). During a rally it is easy for a fund to deliver above-average returns; but the true measure of its performance is when it posts higher returns than its benchmark and peers during the downturn. Remember. 3. Returns: Returns are obviously one of the important parameters that one must look at while evaluating a fund. But remember, although it is one of the most important, it is not the only parameter. Many investors simply invest in a fund because it has given higher returns. In our opinion, such an approach for making investments is incomplete. In addition to the returns, investors must also look at the risk parameters, which explain how much risk the fund has taken to clock higher returns. 4. Risk: We have seen in our Definitions section and on our Path to Knowledge, that risk is normally measured by Standard Deviation (SD). SD signifies the degree of risk the fund has exposed its investors to. From an investor’s perspective, evaluating a fund on risk parameters is important because it will help to check whether the fund’s risk profile is in line with their risk profile or not.For example, if two funds have delivered similar returns, then a prudent investor will invest inthe fund which has taken less risk i.e. the fund that has a lower SD. 5. Risk-adjusted return: This is normally measured by Sharpe Ratio. It signifies how much return a fund has delivered vis-à-vis the risk taken. Higher the Sharpe Ratio better is the fund’s performance. From an investor’s perspective, it is important because they should choose a fund which has delivered higher risk-adjusted returns. In fact, this ratio tells us whether the high returns of a fund are attributed to good investment decisions, or to higher risk. 6. Portfolio Concentration: Funds that have a high concentration in particular stocks or sectors tend to be very risky and volatile. Hence, investors should invest in these funds only if they have a high risk GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 33
  • 34. www.GamesWala.com appetite. Ideally, a well diversified fund should hold no more than 40% of its assets in its top 10 stock holdings. Remember: Make sure your fund does not put all its eggs in one basket. 7. Portfolio Turnover: The portfolio turnover rate measures the frequency with which stocks arebought and sold. Higher the turnover rate, higher the volatility. The fund might not be able tocompensate the investors adequately for the higher risk taken. Remember: Invest in funds with alow turnover rate if you want lower volatility. ♦ Fund ManagementThe performance of a mutual fund scheme is largely linked to the fund manager and his team.Hence, it’s important that the team managing the fund should have considerable experience indealing with market ups and downs. As mentioned earlier, investors should avoid fund’s that owetheir performance to a ‘star’ fund manager. Simply because if the fund manager is present today,he might quit tomorrow, and hence the fund will be unable to deliver its ‘star’ performancewithout its ‘star’ fund manager. Therefore, the focus should be on the fund houses that are strongin their systems and processes. Remember: Fund houses should be process-driven and not starfund manager driven. ♦ CostsIf two funds are similar in most contexts, it might not be worth buying the high cost fund if it isonly marginally better than the other. Simply put, there is no reason for an AMC to incur highercosts, other than its desire to have higher margins.The two main costs incurred are: 1. Expense Ratio: Annual expenses involved in running the mutual fund include administrative costs, management salary, overheads etc. Expense Ratio is the percentage of assets that go towards these expenses. Every time the fund manager churns his portfolio, he pays a brokerage fee, which is ultimately borne by investors in the form of an Expense Ratio. Remember: Higher churning not only leads to higher risk, but also higher cost to the investor. 2. Exit Load: Due to SEBI’s recent ban on entry loads, investors now have only exit loads to worry about. An exit load is charged to investors when they sell units of a mutual fund within a GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 34
  • 35. www.GamesWala.com particular tenure; most funds charge if the units are sold within a year from date of purchase. As exit load is a fraction of the NAV, it eats into your investment value. Remember: Invest in a fund with a low expense ratio and stay invested in it for a longer duration. Among the factors listed above, while few can be easily gauged by investors, there are others on which information is not widely available in public domain. This makes analysis of a fund difficult for investors and this is where the importance of a mutual fund advisor comes into play.Investment Pattern used by the fund managersAggressive Plan: ♦ This plan has 60-70% of growth schemes that is purely equities which helps the investor’s money to grow over years. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 35
  • 36. www.GamesWala.com ♦ 10-20% of the fund is in balanced schemes which have both debt and equities in certain proportions. ♦ 10-15% is in income schemes which give timely interest on debt funds.Moderate Plan: GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 36
  • 37. www.GamesWala.com ♦ This plan has 30-40% of growth schemes that is equities, because here the investor is not ready to take higher risk. ♦ 40-50% of the fund is in balanced schemes which have both debt and equities in certain proportions. Here the fund manager balances the fund such that he gets maximum returns and manages the risk. ♦ 20% are in income schemes which give timely interest on debt funds.Conservative Plan: GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 37
  • 38. www.GamesWala.com ♦ This plan has 10% of growth schemes that is equities, because here the investor wants very low amount of risk. ♦ Balanced fund is 20-30% because even balanced fund has some amount of risk, so to reduce risk it is taken in small portion. ♦ 50-60% is in income schemes which give timely interest on debt funds, which the retired investors expect.Investment Valuation of Mutual Funds GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 38
  • 39. www.GamesWala.com 1. Net Asset Value (NAV)NAV is the sum total of all the assets of the mutual fund (at market price) less the liabilities(fund manager fees, audit fees, registration fees among others); divide this by the number of unitsand you arrive at the NAV per unit of the mutual fund.NAV (per unit) =Net Assets of the scheme / No. of units of the schemeEg: Total Assets = 20, 00,000 No. of units= 20,000NAV= 20, 00,000/20,000= 100 2. Standard Deviation (SD)SD is the measure of risk taken by, or volatility borne by, the mutual fund. Mathematicallyspeaking, SD tells us how much the values have deviated from the mean (average) of the values.SD measures by how much the investor could diverge from the average return either upwards ordownwards. It highlights the element of risk associated with the fund. The SD is calculated byusing returns of the scheme i.e. Net Asset Value (NAV).A fund that has consistent 4 year return of 3% would have a mean of 3%. The S.D for this fundwould then be zero because the fund’s return in any given year does not differ from its four yearmean of 3%. On the other hand the fund that returned in each of last four years -4%, 17%, 2%,and 30% will have a mean return of 11% the fund will also exhibit a high S.D because each thereturn differs from the mean return, this fund is therefore more risky because it fluctuates. 3. Sharpe Ratio (SR)SR is a measure developed to calculate risk-adjusted returns. It measures how much return youcan expect over and above a certain risk-free rate (for example, the bank deposit rate), for everyunit of risk (i.e. Standard Deviation) of the scheme. Statistically, the Sharpe Ratio is thedifference between the annualized return (Rib) and the risk-free return (Rf) divided by theStandard Deviation (SD) during the specified period.Sharpe Ratio = (Rib-Rf)/SD.Higher the magnitude of the Sharpe Ratio, higher is the performance rating of the scheme. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 39
  • 40. www.GamesWala.com 4. Compounded Annual Growth Rate (CAGR)It means the year-over-year growth rate of an investment over a specified period of time.Mathematically it is calculated as under: 1 CAGR= Ending Value # of years Beginning Value -1Eg: 1 Jan 2004 NAV of a fund is 10 and 31 Dec 2004 NAV is 14. What is the compoundedreturn per annumCAGR = [(14/10)1/2]-1 =.1832 =18.32% 5. Absolute ReturnsThese are the simple returns, i.e. the returns that an asset achieves, from the day of its purchase tothe day of its sale, regardless of how much time has elapsed in between. This measure looks atthe appreciation or depreciation that an asset - usually a stock or a mutual fund – achieves overthe given period of time. Mathematically it is calculated as under: Ending Value – Beginning Value x 100 Beginning ValueAccording to above example: =[(14-10)/14]*100 =28.57% 6. BetaBeta determines the volatility or risk of a fund in comparison to that of its index or benchmark.Fund with a beta very close to 1 means the fund’s performance closely matches the index orbenchmark. A beta greater than 1 indicates greater volatility than the overall market. A beta lessthan 1 indicates less volatility. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 40
  • 41. www.GamesWala.comIf a fund has a beta of 1.1 in relation to the Sensex the fund has been moving 10% more than theindex. Therefore if the Sensex increased 20% the fund would be expected to increase 22% on theother hand a fund with a beta of 2.4 would be expected to move 2.4 times more than itscorresponding index. So, if the Sensex moved 20% the fund would be expected to rise 48% andif the Sensex declined 10% the fund would be expected to lose 24%Title of the Project: Mutual Funds- Diversified Investments.Objectives:Main Objective: To study in detail about Mutual Funds and its investment portfolio.Sub-Objectives: 1. To understand the role of fund manager in achieving the investment objective by diversifying the portfolio. (comparing performance of 3 selective funds) 2. Comparison between growth and dividend option of 5 major funds. 3. To study mutual fund investment valuation. 4. To study the various types of Mutual Funds, investment pattern used by the fund managers for various fund, learn how to select a mutual fund and how mutual funds can be used for financial planning. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 41
  • 42. www.GamesWala.com Chapter III MethodologyContents: a. Collection of data a. Primary Data GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 42
  • 43. www.GamesWala.com b. Secondary Data b. Statistical Tools a. Graphs b. Charts c. Limitation of studyCollection of DataPrimary: • Discussion with the branch manager and the employees of HDFC AMC Ltd Hubli Branch. The discussion was based on basics of mutual funds, working of mutual funds, financial planning, and some calculation based on NAV, Sharpe Ratio, and Beta etc.Secondary: • Information regarding Mutual Fund industry and working of mutual funds was referred from Personal FN magazine • Performance of funds, their industry allocation, and other facts of funds were captured from Fact Sheets GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 43
  • 44. www.GamesWala.com • Information regarding company profile, products, NAV and Returns was taken from the website www.hdfcfund.com • Performance of some were observed from www.moneycontrol.com • Growth and Dividend option of some top funds were compared and the information was got from www.mutualfundindia.comStatistical ToolsGraphsGraphs are used to analyze the difference between growth option and dividend option.Charts • Charts depicting the pattern used by fund managers are used. • Pie chart depicting the different debt and money market instruments used in HDFC High interest fund is used.Limitation of the Study 1. This study is limited to some prominent funds and all the funds of HDFC AMC are not taken into account. 2. Due to unavailability of investor’s information regarding the growth and dividend option comparison of the funds, I have compared the NAV’s of the both option. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 44
  • 45. www.GamesWala.com GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com45
  • 46. www.GamesWala.com Chapter IV Analysis of the StudyContents:a. Comparison between growth and dividend option planb. Analysis of fund manager diversification & portfolio management plan. i. HDFC Top 200 ii. HDFC Balance Fund iii. HDFC High Interest FundComparison between Dividend option and Growth option of HDFC Top 200 Fund. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 46
  • 47. www.GamesWala.comTime period- 5yrs (from July, 2005 to July, 2010)Name KeyHDFC Top 200 – DividendHDFC Top 200 – GrowthInference:The NAV of Growth option is greater than the dividend option of the fund. As the investorwithdraws the dividend, that portion of the amount is not subject to growth. But in case ofgrowth option the investor can enjoy the growth of the whole amount.As HDFC Top 200 fund is equity oriented fund it yields high returns, but during the year2008-09 the dividend option of this fund observed negative NAV but the growth option observedonly positive values. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 47
  • 48. www.GamesWala.comComparison between Dividend option and Growth option of HDFC Growth Fund.Time period- 5yrs (from July, 2005 to July, 2010)Name KeyHDFC Growth Fund - DividendHDFC Growth Fund - GrowthInference:The NAV of Growth option is greater than the dividend option of the fund. As the investorwithdraws the dividend, that portion of the amount is not subject to growth. But in case ofgrowth option the investor can enjoy the growth of the whole amount.As HDFC Growth fund is equity oriented fund it yields high returns, but during the year 2008-09the dividend option of this fund observed negative NAV but the growth option observed onlypositive values. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 48
  • 49. www.GamesWala.comComparison between Dividend option and Growth option of HDFC Tax Saver.Time period- 5yrs (from July, 2005 to July, 2010)Name KeyHDFC TaxSaver – DividendHDFC TaxSaver – GrowthInference:The NAV of Growth option is greater than the dividend option of the fund. As the investorwithdraws the dividend, that portion of the amount is not subject to growth. But in case ofgrowth option the investor can enjoy the growth of the whole amount. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 49
  • 50. www.GamesWala.comIn case of HDFC Tax Saver fund the dividend option and the growth option NAV’s are close andthere is and by 2010 there is much difference between the two because of the hike in SensexComparison between Dividend option and Growth option of HDFC Balanced Fund.Time period- 5yrs (from July, 2005 to July, 2010)Name KeyHDFC Balanced Fund - DividendHDFC Balanced Fund - GrowthInference:The NAV of Growth option is greater than the dividend option of the fund. As the investorwithdraws the dividend, that portion of the amount is not subject to growth. But in case ofgrowth option the investor can enjoy the growth of the whole amount. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 50
  • 51. www.GamesWala.comCompared to all other funds balanced fund has less fluctuations in its NAV this is because it isbalanced with the debt and equity funds and balanced funds are preferred by investors who wantsto take lesser risk.Comparison between Dividend option and Growth option of HDFC Balanced Fund.Time period- 5yrs (from July, 2005 to July, 2010)Name KeyHDFC Income Fund - DividendHDFC Income Fund - GrowthInference: GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 51
  • 52. www.GamesWala.comThe NAV of Growth option is greater than the dividend option of the fund. As the investorwithdraws the dividend, that portion of the amount is not subject to growth. But in case ofgrowth option the investor can enjoy the growth of the whole amount.HDFC Income Fund is a debt and money market oriented fund and its returns are in the form ofinterest earned by the instruments. There is a huge difference between the growth and dividendoption’s NAV.HDFC TOP 200Investment ObjectiveTo generate long term capital appreciation from a portfolio of equity and equity-linkedinstruments primarily drawn from the companies in BSE 200 index.Fund Manager DetailsMr. Prashant Jain (since Jun19, 03)Mr. Anand Laddha - Dedicated Fund Manager - Foreign SecuritiesInvestment Scheme and Risk ExposureSr.no. Asset Type (% of Portfolio) Risk Profile Equities and Upto 100% (including use of derivatives for Equity Related hedging and other uses as permitted by1 Instruments prevailing SEBI Regulations) HighPortfolio Holdings(as on May 31, 2010) Company Industry+ % to NAV EQUITY & EQUITY RELATED State Bank of India Banks 6.97 Infosys Technologies Ltd. Software 5.34 ICICI Bank Ltd. Banks 4.43 Oil & Natural Gas Corporation Ltd. Oil 4.34 Bank of Baroda Banks 4.04 Construction Larsen & Toubro Ltd. Project 3.79 ITC Ltd. Consumer 3.56 GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 52
  • 53. www.GamesWala.com Non Durables Petroleum Reliance Industries Ltd. Products 3.49 GAIL (India) Ltd. Gas 3.03 LIC Housing Finance Ltd. Finance 2.81 Total of Top Ten Equity Holdings 41.8 Total Equity & Equity Related Holdings 96.81 Total Money Market Instrument & Other Credit Exposures (aggregated holdings in a single issuer) 0 Cash margin / Earmarked cash for Futures & Options 0.09 Other Cash, Cash Equivalents and Net Current Assets 3.1 Grand Total 100 Net Assets (Rs. In Lakhs) 749021.2Industry Allocation % of % ofIndustry allocation Industry allocationBanks 20.99 Power 3.68Consumer Non Durables 8.73 Telecom-Services 2.3Pharmaceuticals 8.29 Transportation 1.87Software 7.81 Media and Entertainment 1.85Oil 6.55 Ferrous Metals 1.67Construction Project 5.97 Non- Ferrous Metals 1.14Auto 5.59 Diversified 1.07Petroleum Products 5.37 Hardware 0.44Finance 4.96 Auto Ancillaries 0.25Industrial Capital Goods 4.44 Cement 0.12Gas 3.72Relative PerformanceHDFCTop 200Fund (NAV as at evaluation date 31-May-2010, Rs. 184.857 Per unit) NAV Per Unit Returns (%) Benchmark ReturnsDate Period (Rs.) $$ ^ (%) #30-Mar-07 Last 1158 days 104.504 19.69** 10.75**30-Nov-09 Last Six months (182 176.161 4.94* 2.22* GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 53
  • 54. www.GamesWala.com days)29- Last 1 Year (367May-09 days) 139.341 32.46** 21.27**31- Last 3 Years (1096May-07 days) 119.096 15.77** 6.81**31- Last 5 Years (1826May-05 days) 54.931 27.45** 19.32**31- Last 10 Years (3652May-00 days) 15.83 27.84** 16.5** Since Inception (498011-Oct-96 days) 10 25.65** 15.16**HDFC Balanced FundInvestment Objective The primary objective of the Scheme is to generate capital appreciation along with currentincome from a combined portfolio of equity and equity related and debt and money marketinstruments.Fund Manager DetailsMr. Chirag Setalvad (since April 2, 07)Mr. Anand Laddha - Dedicated Fund Manager - Foreign SecuritiesInvestment Scheme and Risk ProfileSr. Normal Normal Risk Profile ofNo. Type of Instruments Allocation Deviation the instrument (% of Net (% of Normal Assets) Allocation) Equity and Equity Related Medium to1 Instruments 60 20 High2 Debt Securities (including 40 30 Low to GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 54
  • 55. www.GamesWala.com securitized debt) and Money Market instruments MediumPortfolio - Holdings (as on June 30, 2010)Company / Issuer Industry+ / Rating % to NAVEQUITY & EQUITY RELATEDCoromandel International Ltd. Fertilizers 3.91Tata Consultancy Services Ltd. Software 3.6Ipca Laboratories Ltd. Pharmaceuticals 3.5Infosys Technologies Ltd. Software 3.34Balkrishna Industries Ltd. Auto Ancillaries 3.34Sun Pharmaceutical Industries Ltd. Pharmaceuticals 3.21 Consumer NonDabur India Ltd. Durables 3.15Biocon Ltd. Pharmaceuticals 3.12Motherson Sumi Systems Ltd. Auto Ancillaries 2.95Bank of Baroda Banks 2.94Total of Top Ten Equity Holdings 33.06Total Equity & Equity Related Holdings 66.87Total Credit Exposures (aggregated holdings in asingle issuer) 20.95Cash, Cash Equivalents and Net Current Assets 12.18Grand Total 100Net Assets (Rs. In Lakhs) 16702.24Industry Allocation % of % ofIndustry allocation Industry allocationPharmaceuticals 12.19 Construction Project 2.7Banks 8.5 Construction 2.17Software 7.23 Telecom-Services 2.03Fertilizers 6.98 Power 1.86Auto Ancillaries 6.37 Consumer Durables 1.69Industrial Capital Goods 5.26 Chemicals 1.29Consumer Non Durables 4.68 Industrial Products 1.03Petroleum Products 4.07 GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 55
  • 56. www.GamesWala.comRelative PerformanceHDFCBalanced (NAV as at evaluation date 30-June-2010, Rs. 50.713 Per unit)Fund NAV Per Unit Returns Benchmark ReturnsDate Period (Rs.) (%) ^ (%) #30-Mar-07 Last 1188 days 29.183 18.5** 10.95**30-Dec-09 Last 182 days 44.624 13.65* 3.05* Last 1 Year (36530-Jun-09 days) 36.003 40.86* 17.34* Last 3 Years (109729-Jun-07 days) 32.314 16.18** 8.73** Last 5 Years (182630-Jun-05 days) 20.698 19.62** 14.89** Last 10 Years (365230-Jun-00 days) N.A N.A. N.A. Since Inception (357911-Sep-00 days) 10 18.01** N.A.HDFC High Interest FundInvestment ObjectiveThe investment objective of HDFC High Interest Fund is to generate income by investing in arange of debt and money market instruments of various maturity dates with a view tomaximizing income while maintaining the optimum balance of yield, safety and liquidity.Fund Manager DetailsMr. Anil Bamboli (since Feb 16, 04),Mr. Anand Laddha - Dedicated Fund Manager - Foreign SecuritiesInvestment Scheme and Risk Profile (% OfSr.no. Asset Type Portfolio) Risk Profile1 Debt & Money Market Instruments * 100% Low to GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 56
  • 57. www.GamesWala.com MediumPortfolio Holdings as at May 31st 2010 Issuer Rating % to NAV Government Securities,Money Market Instruments and other Credit Exposure Government Securities Soverign 43.81 Power Finance Corporation Ltd AAA 7.89 National Housing Bank AAA 7.49 Rural Eleectrification Corporation Ltd AAA 5.5 National Aviation Company of India Ltd AAA(SO) 5.5 Indian Railways Finance Corporation AAA 5.35 Corporation Bank P1+ 5.06 National Bank for Agricuture and Rural Development AAA 3.5 Power Grid Corporation of India Ltd AAA 2.68 State Bank of India AAA 2.67 Total of 10 Government Secutities, Money market instruments and other credit exposure(aggregated holdings in a single issuer) 89.45 Others 2.63 Total of Government Secutities, Money market instruments and other credit exposure(aggregated holdings in a single issuer) 92.08 Cash, Cash Equalents and net Current Assets 7.92 Grand Total 100 Net Assets(in lakhs) 19,123.17Portfolio Classification by Asset Class (%) GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 57
  • 58. www.GamesWala.comRelative Performance (Growth option) Benchmark Returns ReturnsDate Period NAV (%) (%) Last six months(182Nov 30 2009 days) 30.8888 2.72 2.55 Last 1 Year (367May 29 2009 days) 30.1072 5.36 4.72 Last 3 Years (1096May 31 2007 days) 24.5138 8.97 7.06 Last 5 years (1826May 31 2005 days) 23.2925 6.37 5.71 Last 10 years (3652May 31 2000 days) 14.7 7.99 N.A Since inception (4781April 28 1997 days) 10 9.22 N.AAnalysis: Returns(Since Role of fundFund Name Fund Category Risk Profile inception) manager Highly activeHDFC Top 200 Pure Equity High 25.65HDFC Balanced Equity and Debt ModerateFund Instruments Medium 18.01HDFC High Debt and Money market ComparativelyInterest Fund instruments Low 9.22 passive GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 58
  • 59. www.GamesWala.comRisk Vs Return Pattern GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 59
  • 60. www.GamesWala.comChapter V: Findings 1. Mutual funds are classified across asset classes, time period and investment philosophy. 2. There are different types of plans designed for different types of investors depending on their risk taking ability and return expectation. 3. Diversification is the main tool used by the fund managers to dilute the risk factor. Diversification minimizes the concentration of investor’s money in single stock and thus minimizes the risk. 4. There are mainly three patterns used by the fund managers during investment. They are: Aggressive plan, Moderate plan, and Conservative plan. Each plan is carefully designed by taking into account the asset allocation, risk and return and the investors view. 5. The NAV of Growth option is greater than the dividend option of the fund. As the investor withdraws the dividend, that portion of the amount is not subject to growth. But in case of growth option the investor can enjoy the growth of the whole amount. 6. In dividend option, if the investor is able to use the dividend amount of fund ‘X’ in some other investment and the money can have a growth more than growth option’s NAV of fund ‘X’. Then it is a good decision to opt for dividend option. Otherwise, growth option gives better growth of the investment. 7. Equity funds have better NAV than balanced and income funds because they have greater risk involved. 8. In case of HDFC Tax Saver fund the dividend option and the growth option NAV’s are close and there is and by 2010 there is much difference between the two because of the hike in Sensex 9. Compared to all other funds balanced fund has less fluctuations in its NAV this is because it is balanced with the debt and equity funds and balanced funds are preferred by investors who wants to take lesser risk. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 60
  • 61. www.GamesWala.com 10. HDFC Income Fund is a debt and money market oriented fund and its returns are in the form of interest earned by the instruments. There is a huge difference between the growth and dividend option’s NAV. 11. Returns(Since Role of fundFund Name Fund Category Risk Profile inception) manager Highly activeHDFC Top 200 Pure Equity High 25.65HDFC Balanced Equity and Debt ModerateFund Instruments Medium 18.01HDFC High Debt and Money market ComparativelyInterest Fund instruments Low 9.22 passive 12. Fund managers diversify their portfolio across different industries and maximum weightage is given to those industries which have growth perspective in the future years. 13. Now, it is banking, software, and consumer non durables industries that are given more weightage. But, in future fund managers have predicted that the infrastructure industry will have better prospects. 14. In case of HDFC High Interest fund the fund managers have allocated the assets in Government securities, Certificate of Deposits, Credit Exposure and Cash equalents and Net current assets which are safe and give high interest GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 61
  • 62. www.GamesWala.comChapter VI: ConclusionMutual Fund market provides vast investment avenues for the prospective investors ranging frombonds to bank deposits and corporate debentures, which are low on risk and high on returns. Thelatest mutual fund market has indicated bearish trend which means that investors who are seekingfor profitable investments should opt for highly skilled fund managers who invests on theirbehalf.My experience in HDFC AMC Ltd was a very fruitful one. My external guideMr.Yashwant.Ponkshse guided me how to go about financial planning, how much it is importantfor an individual to invest his money in proper avenues. I learnt about mutual funds theirinvestment portfolio and how fund managers diversify their portfolio and overcome the riskfactor.There are many kinds of mutual funds to suit the requirements of the investor and each of themare managed by qualified and experienced fund managers who will smartly invest in properavenues.Working procedure at HDFC AMC Ltd. Hubli is very open. When a New Fund Offer isintroduced all the employees of the branch sit together and share their views that how this fundwill work in future and how to sell the fund.Finally, I conclude that my project work on the given topic was interesting and I personally feltof investing in mutual funds. As they are handled by fund managers who are experienced andmanage the funds by diversifying risk in different avenues. GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 62
  • 63. www.GamesWala.comChapter VII: ReferencesBooks  Personal FN magazine(mutual fund guide 2010)/ financial planning, Mutual Fund selection criteria, Mutual Fund Structure  Fact Sheets (issue of May 2010)/ asset allocation, latest NAV etc.  AMFI Study material/ calculations regarding NAV, Sharpe ratio etc.Websites  www.hdfcfund.com  www.moneycontrol.com  www.mutualfundindia.com GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com 63
  • 64. www.GamesWala.com GLOBAL BUSINESS SCHOOL, HUBLI www.GamesWala.com64