SANGHAVI INSTITUTE OF MANAGEMENT AND SCIENCE<br />INDORE (M.P)<br />MARKET RESEARCH PROJECT REPORT (MRP)<br />STUDY OF ATTRACTIVE FEATURES OF HDFC MUTUAL FUND TO DEVELOP PERCEPTION LEVEL OF INVESTOR<br />ON<br />HDFC MUTUAL FUNDS, INDORE<br />FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR<br />THE DEGREE OF<br />POST GRADUAT DIPLOMA IN MANAGEMENT <br />SUBMITTED TO<br />SANGHAVI INSTITUTE OF MANAGEMENT AND SCIENCE<br />INDORE (M.P)<br />SUBMITTED BY<br />SUNIL SANJODIYA<br />P.G.D.M 5TH TRIMESTER (BATCH 2009-2011)<br />EXPRESSION OF GRATITUDE <br />I sincerely and religiously devote this folio to all the gem of persons who have openly or silently left an ineradicable mark on this assignment so that they may be brought into consideration and given their share of credit, which they genuinely and outstandingly deserve.<br />This expedition of assignment encountered many trials, troubles and tortures along the way. I am essentially indebted to my faculty, Prof. Sachidanand Pachori for this sweating learning experience. He overlooked my faults and follies, constantly inspired and mentored via the proficient direction. It was a privilege to work under his sincere guidance. <br />I express my thanks to Prof. Rakesh Shrivastava, Director General, Sanghvi Institute of Management and Science, Indore for his considerate support whenever and wherever needed. I express my indebtedness to the management of Sanghvi Institute of Management and Science, for inspiring us to grab and utilize this opportunity. <br />With profound sense of gratitude, I would like to truthfully thank a recognizable number of individuals whom I have not mentioned here, but who have visibly or invisibly facilitated in transforming this assignment into a success saga. <br />Above all, I would like to conscientiously thank the Omnipotent, Omnipresent and Omniscient God for His priceless blessings!<br />Sunil Sanjodiya<br />DECLARATION<br />I here declare that this project entitle work with sales and marketing is a record of independent work arrived out by me as per the curriculums requirement in Post Graduate Diploma in Management of Sanghvi Institute of Management and Science, Indore.<br /> Name : Sunil Sanjodiya<br />Specialization: Marketing & Finance<br />Sanghvi Institute of Management and Science (Indore).<br />ACKNOWLEDGEMENT<br />This research was made possible as per the requirement of the PGDM course under Sanghvi Institute of Management and Science. Many individual took interest and were supportive of my effort. In fact, many have given me their time generously and it is not possible to mention all of them here and there act of goodness. I take the opportunity to place and record my deep sense of gratitude to all who have helped me in completion of my study.<br />I express my heartiest thanks to Prof. Sachidanand Pachori who took keen interest towards my project and provided me with deep insight on importance of mutual fund awareness. I also humbly thank my friends and batch mates for their generous participation in the data collection process.<br />CERTIFICATE FROM FACULTY GUIDE<br />This is to certify that “Mr. Sunil Sanjodiya” of PGDM (Batch 09-11) in Sanghvi Institute of Management and Science, Indore has carried out a Major Research Project titled “Study of Attractive features of HDFC Mutual Fund to Develop Perception level of Investor”. The work done by him is genuine and authentic. <br />The work carried out by the student was found satisfactory. I wish him all the success in career. <br />Prof. Sachidanand Pachori<br /> Signature <br />PREFACE<br />A Major Research Project report is one of the most vital and active part of the curriculum of management student. Its basic idea behind this is to strengthen the student concept through partial training and make them acquainted with actual method and procedures.<br /> As the part of P.G.D.M course I undergone with market survey (Indore) within a period of nine (20.04.2011 to 10.05.2011) has imparted me in depth of knowledge on Analysis of mutual fund of HDFC BANK LTD. (Indore) I do the complete study of different mutual fund scheme of HDFC Bank and on the market survey of these mutual funds like perception of people regarding mutual fund, awareness of mutual fund, return of mutual fund, comparison of bank & mutual fund and all about mutual fund.<br />It had the privilege to being survey at HDFC SLIC under concern of HDFC at Indore. This survey is important as it is a vital part of our curriculum during the course and its gives me good experience of my work. I had the opportunity to interact with many people from diverse fields, which further enriched my knowledge.<br /> <br />CHAPTER – 1<br />INDUSTRY PROFILE<br />History of the Indian Mutual Fund Industry <br />The origin of the mutual fund industry in India was with the formation of UTI in the year 1963, at the initiative of the reserve bank and Government of India. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. It has seen 218.5% increases in assets under their management from 2003 to 2007(May 31st), 38 fund houses managing Rs. 3, 87,896 crores (May 31st, 2008). The main reason of its slow growth initially, was because mutual fund industry was new in India. I experienced that lot of investors are aware of mutual fund and how does it work but still they are not aware of how does it function and how does the investments decision take place. <br />DIFFERENT PHASES OF MUTUAL FUND INDUSTRY <br /><ul><li>First Phase: 1964-87 (Growth of Unit Trust of India)
Unit Trust of India (UTI) was established in 1963 by an act of Parliament. It was set up by the RBI and functioned under the Regulatory and administrative control of RBI. In 1978 UTI was De-linked from the RBI and IDBI took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was unit scheme in 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets under management.</li></ul> <br /><ul><li>Second Phase: 1987-1993 (Entry of Public sector funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by PSU banks and LIC& GIC. SBI Mutual fund was the first non- UTI Mutual fund established in June 1987 followed by can bank mutual fund (Dec87), Punjab National Bank Fund (Aug 89), Indian Bank (Nov 89), Bank of India (Jun90), Bank of Baroda (Oct 92), LIC established its mutual fund in June 1989 while GIC had established its mutual fund in December 1990.at the end of 1993 the mutual fund industry had assets under management of Rs. 47,004 cores.
Third Phase: 1993-1996 (Entry of Private Sector Funds
With the entry of private sector funds in 1993, a new era started in the Indian Mutual Fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first mutual fund regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund to be 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 houses went on increasing, with many foreign mutual funds setting up in India and also the industry had witnessed several mergers and acquisitions.
Fourth Phase: 1996-1999 (Growth and SEBI Regulation)
From here onwards mutual fund industry in India saw tighter regulations and higher growth. Competition arises because of deregulation and liberalization of the Indian economy. Measures were taken both by SEBI to protect the investor, and the government to enhance the investors returns through tax benefits.
NOTE: In 1996 SEBI introduced comprehensive set of regulation for all mutual fund companies operating in India. During this phase both SEBI and AMFI launched various investor awareness campaigns aimed at educating the investors about the investment through mutual fund.
Fifth Phase: 1999-2004 (Emergence of uniform industry)
In1999, dividends from mutual funds were tax exempt in the hands of the investors. In Feb 2003, UTI act was repealed. UTI no longer has special legal status as a trust established by an act of parliament. Instead it has to adopt the same structure as any fund in India-a trust and an AMC.
NOTE: UTI mutual fund is the present name of the erstwhile Unit Trust of India.
Phase Sixth: 2004 onwards (Consolidation and growth)
As at the end of May 2007, there were 38 fund houses. Now it is the time to strengthen what is the best channel to invest your funds. The stage is set for growth through consolidation and new entry both in international and private sectors. </li></ul>CHAPTER 2<br />COMPANY PROFILE<br />HDFC MUTUAL FUND <br />Introduction to HDFC Asset Management Company.<br />Overview and Background: - The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity. HDFC has a client base of around 11 lac borrowers, 9 lac depositors, 1.95 lac shareholders and about 25,000 deposit agents, as at December 31, 2010. <br />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 banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the fifteenth year in succession. <br />HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. (Data source from-www.hdfcfund.com) 2011<br />STANDARD LIFE INVESTMENTS LIMITED <br />Standard Life Investments was launched as an investment management company in 1998. It is the dedicated investment management company of the Standard Life group and is a wholly owned subsidiary of Standard Life Investments (Holdings) Limited, which in turn is a wholly owned subsidiary of Standard Life plc With global assets under management of approximately US$213.9 billion as at June 30, 2010 Standard Life Investments Limited is one of the world's major investment companies, operating in the UK, Canada, Hong Kong, China, Korea, Ireland and the USA, and is responsible for investing money on behalf of five million retail and institutional clients worldwide The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. The company was present in the Indian life insurance market from 1847 to 1938 when agencies were set up in Kolkata and Mumbai. The company re-entered the Indian market in 1995, when an agreement was signed with HDFC to launch an insurance joint venture. In April 2006, the Board of The Standard Life Assurance Company recommended that it should demutualise and Standard Life plc float on the London Stock Exchange. At a Special General Meeting held in May voting members overwhelmingly voted in favor of this. The Court of Session in Scotland approved this in June and Standard Life plc floated on the London Stock Exchange on 10th July 2006.In order to meet the different needs and risk profiles of its clients, Standard Life Investments Limited manages a diverse portfolio covering all of the major markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative instruments. The company's current holdings in UK equities account for approximately 1.8% of the market capitalization of the London Stock Exchange. <br />VISION <br />To be a dominant player in the Indian Mutual Fund industry recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests. <br />SPONSOR <br />HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC).<br />The sponsor of HDFC MF is Housing Development Finance Corporation (HDFC). HDFC was incorporated in 1977 as the first specialized housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for purchase or construction of residential housing. As on December 31st, 2002, HDFC’s cumulative loan disbursement are Rs.40, 060 crores financing over 2.1 million units all over India.<br />PARTNERS <br />Standard Life Insurance Company of UK set up base in 1825. It is today the largest pension fund in UK and the largest Mutual life assurance company in Europe. Standard Life Investment was set up as a dedicated investment management company. <br />MANAGEMENT <br />HDFC Trustee Company Limited <br />A company incorporated under companies Act, 1956 is the trustee to the Mutual Fund vide the trust deed dated June 8th, 2000 as amended from time to time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited.<br />HDFC ASSET MANAGEMENT COMPANY LIMITED (HDFC AMC) <br />It was incorporated under the company’s act, 1956, on December 10th, 1999 and was approved to act as an asset management company for the MF by SEBI on July 3rd 2000. In terms of the Joint participation agreement dated October 29th, 1999 entered between Housing Development Finance Corporation (HDFC) and Standard Life Investment , 25.6% of the paid up share capital of the AMC had been transferred by HDFC to Standard Life assurance company, the parent company of Standard Life Investment Limited, on April 17th 2001. Pursuant to the shareholders agreement dated October 17th entered between Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited. 13.9% of the paid up share capital of the AMC has been transferred by HDFC to Standard Life Investments Limited as on January 31st, 2002.<br />The present share holding pattern of the AMC is as follows: <br />HDFC 50.1% <br />Standard Life Investments 49.9%<br />The AMC is managing many schemes as per the requirements of the varied class of investors. The AMC has obtained registration from SEBI vide registration no. PM /inp0000000506 dated December 22nd, 2000 to act as a portfolio manager under the SEBI regulations, 1993. The certificate of registration is valid from January 1st, 2003 to December 31st, 2003. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the mutual funds.<br />TYPES OF MUTUAL FUNDS<br />There are a number of mutual funds to suit the needs and preferences of investors. The choice of the fund is linked to the demand of the investor. The earning objective of investor helps in deciding the types of funds where investment should be done. To achieve the differing objective of investors, mutual funds adopt different strategies and accordingly offer different schemes of investment. <br />According to structure:<br />The most important classification of mutual fund is on the basis of the structure of their operations as all types of mutual funds fall under this classification. Accordingly, to this scheme, the mutual funds can be divided into three categories, i.e. open ended funds, close-ended funds and the interval funds.<br />Open-ended schemes <br />Open-ended scheme means a scheme of mutual fund, which offers units for sale without specifying any duration for redemption. These schemes do not have a fixed maturity and entry or exit to the fund is always open to the investors who can subscribe at any time. The fund redeems or repurchases the units or shares at periodically announced rates. First, open-end mutual fund shares are priced at their net asset value (NAV) , which are computed on a daily basis when market is closed. These repurchase rates are based upon the net current assets of the fund. Thus, Open-ended funds provide better liquidity to the investors. In the same manner the price at which the units are offered to the public is also announced periodically. <br />Note: It should be noted here that an open-end mutual fund’s performance needs to be judged by its total return, both annually and over extended periods of time, and not its net asset value. <br />Close-ended schemes <br />The mutual fund industry did begin its innings in India with close ended equity funds. A close ended equity scheme means any scheme of mutual fund in which the period of maturity of the scheme is specified. Unlike open-ended funds, the corpus of close-ended scheme is fixed and an investor can subscribe directly to the scheme only at the time of initial issue. After the initial issue is closed, a person can buy or sell the units of the scheme in the secondary market i.e. the stock exchanges where these are listed. The price in the secondary market is determined on the basis of demand and supply and hence could be different from the net assets value.<br />According to investment objective:<br /> <br />Equity funds <br />These funds invest a major portion of their corpus in equity shares issued by companies. Equity funds are considered at the high end of risk spectrum. Equity oriented investors should invest in equity mutual funds to earn better returns and also save on time and efforts which goes in direct investing in shares. <br />Debt funds (or income funds) <br />The aim of the debt funds is to provide regular and steady income to the investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and government securities. Debt funds are ideal for capital stability and regular income. Debt funds are largely considered as income funds as they don’t target capital appreciation, look for high current income, and therefore distribute a substantial part of their surplus to the investors. Different investment objectives set by the fund managers would result in different risk profiles like diversified debt funds (funds that invest in all available types of debt securities, issued by entities across all industries),focused debt funds (funds which have a narrow focus, with less diversification in its investment), high yield debt funds (usually , debt funds control the borrower default risk by investing in securities issued by borrowers who are rated by credit rating agencies and are considered to be of “investment grade”).<br />Balanced funds (65% equity and 35% debt) <br />Balanced funds attempt to provide investors with the best of both worlds. They aim for growth (through a high equity allocation) and stability (through the debt allocation) of the investment. Balanced funds invest both in equity and debt. These are ideal for investors looking for a combination of both income and growth. Investing in a balanced fund ensures that fixed proportion stays in equity and debt, because of equity holdings these funds are affected by fluctuations in share prices in the stock market.<br />Money Market Funds <br />The aim of money market funds is to provide easy liquidity, preservation of capital and moderate-income. These schemes generally invest in safer short term investments such as treasury bills, certificates of deposit, commercial paper and inter- bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.<br />Gilt funds <br />Gilts are government securities with medium to long term maturities typically of over one year (under one year instruments being money market securities). In India, we have now seen the emergence of government securities or gilt funds that invest in government paper called dated securities (unlike treasury bills that mature in less than one year). Since the issuer is the government of India, these funds have little risk of default and hence better protection of principle.<br />Hybrid funds <br />We have seen that in terms of the nature of financial securities held, there are three major mutual fund types: money market, debt and equity. Many mutual funds mix these different types of securities in their portfolios. Thus, most funds, equity or debt, always have some money market securities in their portfolios as these securities offer the much-needed liquidity. However, money market holdings will constitute a lower proportion in the overall portfolios of debt or equity funds like balanced funds (funds that has a portfolio comprising debt instruments, convertible securities, and preference and equity shares).<br />Load funds<br /> Load fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the funds, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the good performance history. <br />No- Load funds <br />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.<br />Commodity funds <br />While all of the debt/equity/money market funds invest in financial assets, the mutual fund vehicle is suited for investment in any other: example- physical assets. Commodity funds specialize in investing the different commodities directly or through shares of commodity companies or through commodity futures contracts. Specialized funds may invest in single commodity or a commodity group such as edible oil or grains, while diversified Commodity funds will spread their assets over many commodities. A most common example of commodity funds is the so called the precious metal funds.<br />Real Estate funds <br />Specialized Real Estate funds would invest in real estate directly, or may fund real estate developers, or lend to them, or buy shares of housing finance companies or may even buy their securities assets. These funds may have a growth orientation or seek to give investors regular income. Recently there has been an initiative to offer such an income by the HDFC. <br />Bond funds <br />These funds employ their resources in bonds. These investments ensure fixed and regular income. Sometimes bonds are available in the market at lower than face value, the net income on these a bond goes higher because interest will be received on the face value of the bond. Some companies offer non-convertible bonds along with the shares. Any person subscribing for the shares will have to take up bonds also. Bonds funds may have a tie up with the companies and offer certain price if the subscribers want to sell their bonds at the time of allotment. Bond fund will pay a fixed amount to the company and some amount will be paid by the subscriber also. The shareholder is saved of the both eration of buying bonds compulsorily while bond fund will Payless than the face value of the bond, thus saving some money. Bond fund ensure regular income to the investors.<br />Exchange Trade funds<br />An exchange traded funds is a mutual fund that trades like a stock. An ETF represents a basket of stocks that reflect an index. An ETF, however, is not a mutual fund; it trades just like any other company on a stock exchange.<br /> Fund of Funds <br />It is a mutual fund that invests in other mutual funds. A normal mutual fund invests in a portfolio of securities such as debt or equity, on the other side “fund of funds” invest in a portfolio of the units of the other mutual fund schemes. It uses an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities.<br />According to Security Selection <br />The type of security that the fund invests in is what determines this particular group. <br /><ul><li>Technical Funds-
These funds are those that use technical analysis to select scripts.
These funds are those that invest only in triple a rated or higher rated securities.</li></ul>CONCEPTUAL FRAMEWORK<br />MUTUAL FUNDS <br />Dictionary definition of a mutual fund might go something like this: portfolio of stocks, bonds or Cash managed by an investment company on behalf of many investors. The Investment Company is responsible for the management of the fund and it sells shares in the fund to individual investors. When u invests in mutual fund, you become a part owner of the large investment portfolio, along with all the other shareholders of the fund. When you purchase the shares, the fund manager invests your money along with the money contributed by the rest of the shareholders. Every day, the fund manager counts up the value of the entire fund’s holdings figures out how many shares have been purchased by the shareholders and then calculate the Net Asset Value (NAV) of the mutual fund, the price of the single share of the fund on that day. If the fund manager is doing a good job, the NAV of the will usually gets bigger- your shares will be worth more. But exactly how does mutual fund’s NAV increase? There are a couple of ways that a mutual fund can make money in its portfolio<br />NET ASSET VALUE (NAV) <br />The Net Asset Value or NAV is a measure of the current value of one share of a mutual fund. The value of a mutual fund share is calculated based on the value of the assets owned by the fund at the end of every trading day. The fund calculates the value: A share’s value is called the Net Asset Value (NAV). The fund calculates the NAV by adding up the total value of all the securities it owns, subtracting the expenses of the fund, and then dividing by the number of shares owned by the shareholders. <br />NAV= Net Assets of the scheme / number of outstanding units. <br />Net assets of the scheme= market value of investments + receivables + other accrued income + other assets – accrued expenses –other payables – other liabilities. <br />Value changes daily: Since the value of the stocks or bonds owned by the fund can change daily, hence the value of the fund can also change daily. Therefore, a fund is required by the law to adjust its price once every trading day to provide investors with the most current NAV. <br />SYSTEMATIC INVESTMENT PLAN<br />An existing unit holder can benefit under this facility by investing specified amount regularly. By investing a fixed amount of rupees at regular interval, one would end up buying more units of the funds when the price is lower and fewer units when the price is high. As a result, over a period, the average cost per unit to the unit holders with always is less than the average subscription price per unit, irrespective of whether it is a rising, falling or fluctuating market. Thus the unit holders automatically gain averages out the fluctuation of the market without having the market price day to day basis. This concept is called” RUPEE COST AVERAGING”.<br />.The following should be noted regarding SIP:<br /><ul><li>All the mutual funds specify the minimum amount for investing in scheme. In case of SIPs.
Facility of minimum amount is much lower around Rs. 500 to Rs. 1000.
Every mutual fund specifies the minimum number of payment that should be invested in order to get this facility.
It might be twelve cheques of Rs. 500 each of six cheque Rs 1000each.
It is mandatory that the cheque should be of same value.
The frequency of investment offered for SIP varies from fund to fund. However, in general all mutual funds offer monthly or quarterly investment facility.</li></ul>SYSTEMATIC TRANSFER PLAN <br />A systematic transfer plans gives investor facility to transfer from one scheme to another scheme at periodic interval. The following are the important features:<br /><ul><li>Investor can choose between a fixed systematic transfer plan and capital appreciation systematic transfer plan.
Each mutual fund specifies the scheme in which the amount can be transferred the frequency also varies from fund to fund.</li></ul> <br /><ul><li>Generally funds offer weekly, monthly and quarterly option.</li></ul>CHAPTER - 3<br />NEED FO R STUDY<br />The basic reason for conducting this research is to find the awareness of HDFC-MF products and attractive features of HDFC Mutual Funds to develop Perception Level of Investor and try to analyzing the awareness of mutual funds in Indore and which investment option is most suitable for investors as their point of view. <br /> As mutual fund is an growing industry and more and more investors have become mutual fund owners over the year , there is a wide scope for analyzing the basis of preference for investing in mutual fund is they based on influenced by the variables such as liquidity, tax saving etc. thus we compared the performance of HDFC equity fund with equity schemes of other mutual fund and secondly performance of HDFC growth fund schemes with growth fund schemes of reliance and Tata as well as tax saving schemes.<br />CHAPTER - 4<br />LTERRATURE REVIEW<br />The Determinants of mutual fund Performance<br />A Cross-Country Study find that performance worsens with lagged fund size for Domestic U.S. funds, but not for non-U.S. funds and international funds. This finding is consistent with the view that diminishing returns to scale in the U.S. are explained by liquidity constraints due to a particular fund style (small stocks) or geographic focus (domestic stocks). Fund age and fees are negatively related to performance, while funds that belong to large fund families, solo-managed funds, and funds distributed in several countries perform better. Country characteristics also help to explain fund performance. Domestic funds located in developed countries, especially those with liquid stock markets and strong legal institutions, display better performance.<br />Competition in the mutual fund Industry: <br />Evidence and Implications for Policy – <br />Show higher advisory fees significantly reduce fund market shares, and so constrain fees. Fund performance is consistent with competition exerting a strong disciplinary force on funds and fees. Our findings lead us to reject the critics' views in favor of the legal framework established by §36(b) of the Investment Company Act and the lead case interpreting that law (the Gutenberg decision), while suggesting Gutenberg is best interpreted to allow the introduction of evidence regarding competition between funds.<br />Evaluating mutual fund - <br />They found that that the performance measures are badly misspecified. Regardless of the performance measure, there are indications of abnormal fund performance, including market-timing ability, when none exists.<br />Conflicts of Interest and Competition in the mutual fund Industry -<br />They find no evidence that investors derive any benefit from 12b-1 fees. Product differentiation strategies are also effective in obtaining market share. Families that perform better, and start more funds relative to the competition (a measure of innovation) have a higher market share. Innovation is rewarded more it he new fund is more differentiated from existing offerings and is in a less crowded objective. Finally, market share within an investment objective is driven primarily by a family's policies within that objective, but there are important performance spillover effects from other funds in the family. Our findings are robust to various tests for endogeneity of the explanatory variables. Overall, this paper highlights a number of conflicts between fund families and investors.<br />The Determinants of mutual fund Performance: <br />A Cross-Country Study <br />They find that fund performance worsens with lagged fund size for domestic U.S. funds, but not for non-U.S. funds and international funds. This finding is consistent with the view that diminishing returns to scale in the U.S. are explained by liquidity constraints due to a particular fund style (small stocks) or geographic focus (domestic stocks). Fund age and fees are negatively related to performance.<br />Estimation Risk in mutual fund Ratings: <br />The Case of Morningstar <br />As a result, investors can be somewhat less confident that the ratings of young funds are truly what they are estimated to be. We illustrate our point by investigating 1281 international equity mutual. Results for bond mutual funds are similar to those for equity mutual funds but hedge funds show better ex-post and ex-ante risk adjusted performance than do mutual funds. Sensible advice for most investors would be to hold low cost index funds and avoid holding past "active" loser funds. Only very sophisticated investors should pursue an active investment strategy of trying to pick winners - and then with much caution .The evidence suggests that ex-post, there are around 2-5% of top performing UK and US equity mutual funds which genuinely outperform their benchmarks whereas around 20-40% of funds have genuinely.<br />Improved Forecasting of Alphas and mutual fund Betas <br />It shows that the combined use of an OLS and Kalman filter model increases the number of funds with predictable out of sample alphas by about 60%. Overall, a strategy that uses very modest ex-ante filters to eliminate funds whose parameters likely derive primarily from estimation errors produces an out of sample risk adjusted return of over 4% per annum. <br />Mutual fund herding and the impact on stock prices <br />It finds much higher levels in trades of small stocks and in trading by growth-oriented funds. Stocks that herds buy outperform stocks that they sell by four percent during the following six months; this return difference is much more pronounced among small stocks. Our results are consistent with mutual fund herding speeding the price-adjustment process. <br />CHAPTER - 5<br />RESEARCH METHODOLOGY<br />Research Objective<br />The present study has been undertaken with the object of examining, analyzing and inferring the consumer’s perception about mutual investors which addresses the following issues.<br /><ul><li>Analyzing the awareness of mutual funds in Indore.
To find the awareness of HDFC MF products among investors.
Comparison among HDFC, Reliance and Tata on the basis of risk, return and portfolio.
Which investment option is most suitable to investors?</li></ul>Research Method<br />A questionnaire is designed in such a way so as to acquire maximum mindset of a person with reference to mutual funds and also what the person thinks about the alternative investment options available in the market. Copies were served to brokers and walk-in customers of HDFC mutual fund and private and public sector banks. In all around 100 was the sample size of the research. The research methodology implemented in this research report primarily consists of personal interviews with those very investors in Indore city who invest in mutual funds as well as other options such as shares, fixed deposits & insurance, etc. Interview was conducted in depth to know about their investments why they prefer to choose that particular investment type only, and are they satisfied with the returns they receive from their returns.<br />Sampling Procedure<br />In our study we have opted for judgmental sampling as we wanted to get feedback only from those investors who are already investors into mutual funds.<br />Sample size<br />The sample size was kept as 100. This sample size was fair enough to achieve reliable results for our study.<br />Sample unit<br />In this study, the sampling unit included only those people who are already investors in mutual funds to get to get reliable and true results.<br />Data Collection: <br />Primary data <br />Primary data helped in the knowledge gathered from our sources. Primary data was collected by means of:<br />Questionnaire<br />Personal interviews<br />Telephonic interviews<br />Data provided by HDFC AMC<br />Primary data helped a lot in order to analyze the whole scenario and to take out the relevant data from the data provided to us.<br />Secondary data <br />Secondary data provided the knowledge about the other investment options other than HDFC in terms of facts and figures. It is a data, which are arrived from the primary data and collected from the other various sources also as follows-Internet sites and newspapers.<br />Tools used in data analysis:<br />Correlation <br />Regression<br />ANOVA test<br />Trey nor ratio<br />Sharpe ratio<br />CONSUMERS PERCEPTION TOWARDS MUTUAL FUNDS IN CURRENT MARKET SCENARIO<br />RELATIONSHIP BETWEEN AGE OF AN INDIVIDUAL AND FACTORS CONSIDERED WHILE INVESTING IN A MUTUAL FUND BY MEANS OF CROSSTAB.<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentage * factors200100.0%0.0%200100.0%<br />age * factors Cross tabulationCountFactorsTotalriskreturn on investmenttime periodtax benefitsDiversificationage<18 years02001320-35 years1560109910335-50 years113831066850-60 years21214019>60 years060107Total28118142416200<br />The above case-processing summary shows that we have a sample size of 200 and we had valid feedback of all the 200 samples. The age factors cross tabulation matrix shows the relationship between the age of the individual and the factors that he considers while investing in a mutual fund. <br />The above table shows that for in the age group for below 18 years there is no person who considers risk before investing while 15 people look in for risk in the age group 20-35 years, 11 people take risk as a factor in 35-50 years group. Only 2 people consider risk in the 50-60 years and no one in >60 years age group. <br />As far as return on investment is considered 2 people are in the <18 years and the maximum number in the age group 20-35 years for this factor. There are 38 people in the 35-50 age group, 12 in 50-60 age group and 6 in >60 years age group.<br />CROSSTABS RELATIONSHIP BETWEEN AGE AND TIME PERIOD<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentage * time period200100.0%0.0%200100.0%<br />age * time period Cross tabulationCountTime periodTotal<6 months6months-1 year1-3 years3-5 years>5 yearsAge<18 years10110320-35 years3182354510335-50 years07154246850-60 years01612019>60 years011507Total427461149200<br />The third factor considered is time period. For less than 18 years, there is no person who looks in for it. <br />There are 10 people in the age group 20-35 years who look in for time period as a factor.<br /> Only three people correspond in the age 35-50 year and one in 50-60 years but no one in greater than 60-year group. Nobody looks in for tax benefit in less than 18 years age group.<br /> There are 9 people in the age group of 20-35 years, 10 in 35-50 years. 4 people consider tax benefit as an important factor in 50-60 year group and only one in greater than 60-year age group. <br />Now considering the relationship between age & time period a person looks in for before investing in a MF scheme. There is only one person who would like to invest for less than 6 months and three people in the age group 20-35 years. Whereas there is no case in 35-50, 50-60 and >60 years respectively. Considering this the maximum number is seen in age group 20-30 years with a time period of 3-5 years.<br />CROSSTABS RELATIONSHIP BETWEEN AGE AND INVESTMENT MODE<br />age * investment mode Cross tabulationCountInvestment modeTotalequity marketfixed depositssavings accountinsurancemutual fundsAge<18 years00102320-35 years241422103310335-50 years25847246850-60 years4323719>60 years103037Total54322069200<br />From the above table we can analyze that investors lying in the age group of 20-35 years prefer ‘mutual funds’ as their major mode of investment. <br />CROSSTABS RELATIONSHIP BETWEEN AGE AND PERCEPTION THEORY.<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentage * perception200100.0%0.0%200100.0%<br />age * perception Cross tabulationCountPerceptionTotalvehicle to pool money from investors in a basket of securities by a professional managerinvest money by a mutually cooperative grouphigh returns with moderate risksafe vehicle for investment purposesAge<18 years1110320-35 years5018181710335-50 years37101836850-60 years937019>60 years52007Total102344420200<br />From the above table we can analyze those investors lying in the age group of 20-35 regard mutual funds as a ‘vehicle to pool money from investors in a basket of securities by a professional manager.<br />CROSSTABS RELATIONSHIP BETWEEN AGE AND FACTORS<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentage * factors200100.0%0.0%200100.0%<br />age * factors Cross tabulationCountFactorsTotalRiskreturn on investmenttime periodtax benefitsdiversificationAge<18 years02001320-35 years1560109910335-50 years113831066850-60 years21214019>60 years060107Total28118142416200<br />From the above table we can analyze that investors lying in the age group of 20-35 years regard ‘return on investment’ as the major factor for investing in mutual funds. <br />CROSSTABS RELATIONSHIP BETWEEN AGE AND SCHEME OPTION<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentage * schemes200100.0%0.0%200100.0%<br />age * schemes Cross tabulationCountSchemesTotalopen ended schemeclose ended schemebothage<18 years003320-35 years5534510335-50 years284366850-60 years331319>60 years4037Total9010100200<br />From the above table we can analyze that investors lying in the age group of 20-35 years consider open ended scheme as the better option for investment.<br />CROSSTABS ANNUAL INCOME AND FACTORS<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentannual income * factors200100.0%0.0%200100.0%<br />annual income * factors Cross tabulationCountfactorsTotalRiskreturn on investmenttime periodtax benefitsdiversificationannual incomeupto1 lakh312211191-2 lakh014131192-3 lakh715265353-4 lakh144668680>4 lakh43136347Total28118142416200<br />From the above table we can analyze that all the investors falling in the income bracket from below 1 lakh-above 4 lakh consider ‘return on investment’ as a better factor while investing in a mutual fund.<br />ANNUAL INCOME AND SCHEME OPTION <br />Crosstabs<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentannual income * scheme option200100.0%0.0%200100.0%<br />annual income * scheme option Cross tabulationCountScheme optionTotalGrowthdividend-payoutdividend-reinvestmentAnnual incomeupto1 lakh1630191-2 lakh1351192-3 lakh18143353-4 lakh5522380>4 lakh2714647Total1295813200<br />In the above table we can analyze that all the investors falling in all the income brackets consider growth option as a scheme option to invest in mutual funds.<br />ANNUAL INCOME AND SCHEME <br />Crosstabs<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentannual income * schemes200100.0%0.0%200100.0%<br /> open ended schemeclose ended schemeBothTotalAnnual incomeupto1 lakh1108191-2 lakh1324192-3 lakh21312353-4 lakh3454180>4 lakh1103547Total9010100 200<br />From the above table we can analyze that customers falling in the 3-4 lakh income bracket prefer <br />Open-ended scheme as well as closed ended schemes to invest in mutual funds.<br />Crosstabs<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentannual income * time period200100.0%0.0%200100.0%<br />annual income * time period Cross tabulationCountTime periodTotal<6 months6months-1 year1-3 years3-5 years>5 yearsAnnual incomeupto1 lakh25750191-2 lakh08362192-3 lakh249200353-4 lakh091851280>4 lakh01932547Total427461149200<br />From the given table we can analyze that major investors prefer 3-5 years time period to invest in mutual funds. Secondly 1-3 years time period for investments. <br />ANNUAL INCOME AND FACTORS<br />Crosstabs<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentannual income * factors200100.0%0.0%200100.0%<br />annual income * factors Cross tabulationCountfactorsTotalRiskreturn on investmenttime periodtax benefitsdiversificationannual incomeupto1 lakh312211191-2 lakh014131192-3 lakh715265353-4 lakh144668680>4 lakh43136347Total28118142416200<br />From the given table we can analyze that investors primarily focus on “return on investment”, secondly “risk”.<br />ANNUAL INCOME AND PERCEPTION<br />Crosstabs<br />Case Processing SummaryCasesValidMissingTotalNPercentNPercentNPercentannual income * perception200100.0%0.0%200100.0%<br />annual income * perception Cross tabulationCountPerceptionTotalvehicle to pool money from investors in a basket of securities by a professional managerinvest money by a mutually cooperative grouphigh returns with moderate risksafe vehicle for investment purposesannual incomeupto1 lakh6652191-2 lakh8452192-3 lakh19565353-4 lakh381419980>4 lakh3159247Total102344420200<br />From the given table, we can analyze that major investors think that a mutual fund is a vehicle to pool money from investors in a basket of securities by a professional manage.<br />CHAPTER – 7<br />COMPARISON OF HDFC EQUITY FUND WITH RELIANCE AND TATA<br />HDFC EQUITY FUND<br />Nature of scheme – Open-ended scheme<br />Investment Objective – To achieve capital appreciation<br />Fund Manager – Mr. Prashant Jain<br />Inception date – January 1, 1995 <br />FundHDFC Equity FundReliance Equity FundTata Equity FundS & P NiftyApril 20080.0200.0040.0082.754May 2008-0.004-0.053-0.0032.616June 2008-0.008-0.0060.054-11.790July 2008-0.037-0.041-0.035-7.752August 2008-0.040-0.046-0.0427.016September 2008-0.049-0.051-0.048-4.699October 2008-0.069-0.063-0.063-26.983November 2008-0.070-0.060-0.060-12.398December 2008-0.046-0.044-0.0442.178January 2009-0.051-0.053-0.053-3.010February 2009-0.053-0.054-0.54-10.580March 2009-0.042-0.044-0.044-7.670<br /> <br />THE RELATIONSHIP OF THE NIFTY WITH HDFC, RELIANCE AND TATA EQUITY FUND-GROWTH PLAN WITH NIFTY HYPOTHESIS<br />Ho: There is no significant relationship of the fund with nifty return.<br />Ha: There is a significant relationship of the selected fund with nifty return<br />CorrelationsHdfc equity fundniftyHdfc equity fundPearson Correlation1.516Sig. (2-tailed).086N1212NiftyPearson Correlation.5161Sig. (2-tailed).086N1212<br />For HDFC Equity Fund the correlation comes to 51.6% when compared with nifty and the significance comes to .086. So in my study i accept null hypothesis because there is correlation OF HDFC equity fund with its benchmark that is nifty.<br /> Correlationsreliance equity fundniftyreliance equity fundPearson Correlation1.267Sig. (2-tailed).401N1212Pearson Correlation.2671Sig. (2-tailed).401N1212<br />For Reliance equity fund the correlation comes to 26.7% which is quite less and the significance is very high that is 0.401. But we accept the null hypothesis as there is correlation of reliance equity fund with its benchmark that is nifty.<br />CorrelationsTata equity fundNiftyTata equity fundPearson Correlation1.214Sig. (2-tailed).505N1212NiftyPearson Correlation.2141Sig. (2-tailed).505N1212<br />For Tata equity fund the correlation comes to very low that is 21.4% and the significance figure is also too less that is 0.505. We accept the null hypothesis as there is correlation of Tata equity fund with its benchmark that is nifty<br />TATA GROWTH FUND<br />Months HDFC Growth FundReliance Growth FundTata Growth FundSensexApril 2008-0.0460.004.0069.986May 2008-0.056-0.004-0.004-5.174June 2008-0.053-0.009-0.008-19.839July 2008-0.039-0.003-0.0056.431August 2008-0.046-0.001-0.0011.444September 2008-0.049-0.007-0.005-12.443October 2008-0.060-0.013-0.010-27.299November 2008-0.083-0.008-0.007-7.369December 2008-0.025-0.0060.0055.921January 20094.219-0.006-0.005-3.480February 2009-0.050-0.002-0.002-8.780March 2009-0.047-0.042-0.043-6.340<br />Nature of scheme – Open-ended growth scheme<br />Investment Objective – Aims to provide a vehicle to investors for generation of long term capital appreciation<br />Fund Manager – Mr. Mahendra Jajoo<br />Inception date – July 1, 1994<br />THE RELATIONSHIP OF THE NIFTY WITH HDFC, RELIANCE AND TATA GROWTH FUND-GROWTH PLAN WITH NIFTY<br />HYPOTHESIS<br />Ho: There is no significant relationship of the fund with nifty return.<br />Ha: There is a significant relationship of the selected fund with nifty return.<br />HDFC GROWTH FUND WITH NIFTY.<br />CorrelationsHdfc growth fundsensexHdfc growth fundPearson Correlation1.066Sig. (2-tailed).838N1212SensexPearson Correlation.0661Sig. (2-tailed).838N1212<br />For HDFC Equity Fund the correlation comes to 6.6% when compared with sense which is very less and the significance comes to .838. So in our study we accept null hypothesis because there is correlation OF HDFC growth fund with its benchmark that is sense.<br />RELIANCE GROWTH FUND WITH SENSEX.<br />CorrelationsReliance growth fundsensereliance growth fundPearson Correlation1.313Sig. (2-tailed).321N1212SensexPearson Correlation.3131Sig. (2-tailed).321N1212<br />For Reliance growth fund the correlation comes to 31.3% which is quite less and the significance is very high that is 0.401. But we accept the null hypothesis as there is correlation of reliance equity fund with its benchmark that is nifty.<br />CorrelationsTata growth fundsenseTata growth fundPearson Correlation1.402Sig. (2-tailed).196N1212SensexPearson Correlation.4021Sig. (2-tailed).196N1212<br />For Tata growth fund the correlation comes to very low that is 40.2% and the significance figure is also too less that is 0.196. We accept the null hypothesis as there is correlation of Tata growth fund with its benchmark that is sense<br />ONE WAY ANOVA TABLE<br />ANOVASum of SquaresdoMean SquareFSig.Hdfc growth fundBetween Groups16.710111.519..Within Groups.0000.Total16.71011reliance growth fundBetween Groups.00111.000..Within Groups.0000.Total.00111Tata growth fundBetween Groups.00211.000..Within Groups.0000.Total.00211<br />TAX SAVING FUNDS<br />Tax-saving fund (also referred to as Equity-Linked Savings Scheme) is a diversified equity which offers tax benefits. However unlike typical diversified equity funds, they are subject to a mandatory 3-Yr lock-in period. From the tax-planning stand-point, the biggest advantage offered by tax-saving funds is the opportunity to invest in sync with one's risk appetite. Investments for the purpose of tax-saving are no different from conventional investments and the principle of investing in tune with the risk appetite is equally applicable. <br />Tax-saving funds are similar to diversified equity funds in terms of risk profile i.e. they are high risk - high return investments. Investors with a flair for instruments of the aforesaid variety would approve of tax-saving funds. <br />Investing in equities should always be conducted with a long-term horizon; it is over this time frame that equities have the potential to truly unlock their value and outperform other comparable assets. Tax-saving funds (courtesy the mandatory lock-in period) propagate this cause. The fund manager is not bothered by factors like the fund's performance over shorter time frames or redemption pressures (which the fund manager of a conventional diversified equity fund is subject to) and can go about doing his job with a long-term perspective. From the investors' perspective, tax-saving funds instill a degree of discipline in the investment activity<br />COMPARISON OF HDFC TAX SAVER FUND WITH RELIANCE AND TATA<br />HDFC TAX SAVER FUND<br />Nature of scheme – Open-ended Equity Linked Savings Scheme with a lock-in period of 3 years.<br />Investment objective – To achieve long term growth of capital.<br />Fund Manager – Mr. Vinay Kulkarni<br />Inception date – March 31, 1996<br />RELIANCE TAX SAVER FUND<br />Nature of scheme – Open-ended Equity Linked Saving Scheme<br />Investment objective – To generate long-term capital appreciation.<br />Fund Manager – Ashwani Kumar<br />Inception date – Sep 22, 2005<br />TATA TAX SAVER FUND<br />Nature of scheme – Open-ended Equity Linked Saving Scheme<br />Investment objective – To generate long-term capital appreciation.<br />Fund Manager – Mr. Mahendra Jajoo<br />Inception date – March 31, 1996<br />MonthsHDFC Tax Saver FundReliance Tax Saver FundTata Tax Saver FundS & P NiftyApril 2008-0.0460.004-0.0442.753May 2008-0.0560.002-0.0512.615June 2008-0.0520.009-0.049-11.799July 2008-0.0390.003-0.039-7.752August 2008-0.0460.007-0.0467.015September 2008-0.0480.003-0.050-4.698October 2008-0.0140.010-0.063-26.983November 2008-0.0440.002-0.055-12.397December 2008-0.0410.003-0.0392.177January 2009-0.0560.002-0.048-3.010February 2009-0.0540.002-0.050-10.580March 2009-0.0430.004-0.044-7.670<br />THE RELATIONSHIP OF THE NIFTY WITH HDFC, RELIANCE AND TATA TAX SAVER FUND-GROWTH PLAN WITH NIFTY<br />HYPOTHESIS<br />Ho: There is no significant relationship of the fund with nifty return.<br />Ha: There is a significant relationship of the selected fund with nifty return.<br />HDFC Tax saver fund with nifty.<br />CorrelationsHdfc TaxSaver fundNiftyHdfc tax saver fundPearson Correlation1-.602*Sig. (2-tailed).038N1212NiftyPearson Correlation-.602*1Sig. (2-tailed).038N1212*. Correlation is significant at the 0.05 level (2-tailed).<br />For HDFC tax saver fund the correlation comes to 60.2% when compared with nifty and the significance comes to .038. So in our study we accept null hypothesis because there is correlation OF HDFC tax saver fund with its benchmark that is nifty.<br />Reliance tax saver fund with nifty<br />Correlationsreliance tax saver fundNiftyreliance tax saver fundPearson Correlation1.768**Sig. (2-tailed).004N1212NiftyPearson Correlation.768**1Sig. (2-tailed).004N1212**. Correlation is significant at the 0.01 level (2-tailed).<br />For Reliance tax saver fund the correlation comes to 76.8% and the significance is very high that is 0.004. But we accept the null hypothesis as there is correlation of reliance tax saver fund with its benchmark that is nifty.<br />Tata tax saver fund with nifty<br />CorrelationsTata TaxSaver fundNiftyTata tax saver fundPearson Correlation1.681*Sig. (2-tailed).015N1212NiftyPearson Correlation.681*1Sig. (2-tailed).015N1212*. Correlation is significant at the 0.05 level (2-tailed).<br />For Tata tax saver fund the correlation comes to that is 68.1% and the significance figure is 0.015. We accept the null hypothesis as there is correlation of Tata tax saver fund with its benchmark that is nifty.<br />PERFORMANCE ANALYSIS BASED ON TREYNOR RATIO <br /> <br />TREYNOR RATIO <br />A ratio developed by Jack Treynor that measures the returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk.<br />In other words, the Treynor ratio is a risk-adjusted measure of return based on a systematic risk. It is similar to the Sharpe ratio with the difference being that the Treynor ratio uses beta as the measurement of volatility. The Treynor ratio is a method often used by mutual fund to evaluate the performance of their funds and compare it to the market performance, the underlying philosophy being that the fund shall be classified as an out performer if it’s Treynor ratio comes to be greater than that of the market and vice versa.<br />The ratio signifies the return per unit of risk, thus the ratio is of the following form:<br />(R – R f) /<br />R = returns<br />R f = the risk free rate of return (prevailing rate on 90 day T- bill)<br />Beta = the measure of risk<br />Thus for the purpose of comparing the performance of our portfolio with the market, BSE200 was taken as the market benchmark. The comparison was done again for the period between 1st April, 2008 to 31st March; 2009.The Treynor ratio of S&P Nifty, for the aforementioned period was calculated as follows<br />(Rm – r f) /beta<br />HDFC Tax saver fundReliance Tax saver fundTata Tax saver fundS & P NiftyTreynor Ratio-0.59-0.75-0.95-0.015<br />FUNDHDFC Equity FundReliance Equity FundTata Equity FundS & P NiftyTREYNOR RATIO-0.51-0.69-0.82-0.015<br />FUNDHDFC Growth FundReliance Growth FundTata Growth FundTREYNOR RATIO-0.71-0.87-1.27<br />PERFORMANCE ANALYSIS ON THE BASIS OF SHARPE’S RATIO<br />The Sharpe’s Ratio<br />The Sharpe ratio is a single number which represents both the risk, and return inherent in the fund. As is widely accepted, high returns are generally associated with a high degree of volatility. The Sharpe ratio represents the tradeoff between risk and returns. At the same time, it also factors in the desire to generate returns, which are higher than risk-free returns.<br />Mathematically, the Sharpe ratio is the returns generated over the risk free rate, per unit of risk. Risk in this case is taken to be the fund’s standard deviation. A higher Sharpe ratio is therefore better as it represents a higher return generated per unit of risk. <br />The definition of the Sharpe ratio is:<br />S(x) = (Rx – RF)/ std dev(X)<br />X= investment<br />Rx = average annual rate of return of X <br />RF = best available rate of return of a “risk free “security (i.e. cash)<br />Std dev (X) = standard deviation of Rx<br />The Sharpe Ratio is a direct measure of reward-to-risk. <br />FundHDFC Tax Saver FundReliance Tax Saver FundTata Tax Saver FundSharpe Ratio0.830.720.77<br />FUNDHDFC Equity FundReliance Equity FundTata Equity FundSharpe Ratio -0.08-0.12-0.14<br />FUNDHDFC Growth FundReliance Growth FundTata Growth FundSharpe Ratio-0.12-0.14-0.21<br />ANALYSIS ON THE BASIS OF BETA<br />BETA <br />Beta is a statistical tool, which gives you an idea of how a fund will move in relation to the market. In other words, it is a statistical measure that shows how sensitive a fund is to market moves. If the sense moves by 25%, a fund’s beta number will tell you whether the fund’s returns will be more than this or less.<br />The beta value for an index itself is taken as 1. Beta depends on the index used to calculate it but it bears no correlation with the movements in the funds. The R-Square value shows how reliable the beta number is. It varies between 0 and 1. An R- squared value of one indicates perfect correlation with the index. Thus, an index fund investing in the Sensex should have an R-squared value of one when compared to the sense.<br />FundHDFC Equity FundReliance Equity FundTata Equity FundS & P NiftyBeta0.870.730.671<br />FundHDFC Growth FundReliance Growth FundTata Growth FundSensexBeta0.820.780.821<br /> <br />FundHDFC Tax Saver FundReliance Tax Saver FundTata Tax Saver FundS & P NiftyBeta0.830.720.771<br />CHAPTER - 7<br />PROBLEM FACED BY ME<br />During the two months learning experience, we came across several problems which dealing with prospective investors, as we made efforts to transform their wrong perspective about MF’s which unfortunately were a result of lack of information, & knowledge about this investment avenue.<br />A detailed account of the problem faced by us is mentioned here under: -<br />The misconception that MF’s are all about shares equity marketing-<br />This was probably the most difficult thing to explain to prospective investors that MF’s are not all about equity markets. It was an experience education them about the various avenues MF’s invested in, right from debt market, to call money & sovereign papers.<br />Misconception of all MF scheme being risk oriented<br />Yet another huge misconception that today exists in potential investors is that all scheme offered by MF are high risk oriented, thus it was again quite an experience explaining & informing them about several products available which cater to the risk appetite of investors across the board depending on the investors risk profile.<br />Comparison with governments assured return schemes & other assured return avenues-<br />The sales calls that we made had one thing in common people’s expectation for assured returns & their knacks of comparing MF’s with government offered schemes like PPF, IVP, KVP, etc and since MF’s do not offer assured returns it was tough task convincing investors that in today’s context assured returns are even more risk oriented propositions because of credit risk- and even more risk oriented propositions because of credit risk and further convincing them of the benefits of anytime liquidity offered by MF’s which other investment avenues did not offer.<br />FINDINGS<br />In the first part of our project we have compared the performance of HDFC Mutual fund with other mutual funds. In that we have compared the performance of HDFC Equity fund with equity schemes of other mutual funds. Secondly performance of HDFC Growth Fund with Growth Schemes of other mutual funds. Then HDFC Tax Saver Fund with tax savings schemes of other mutual funds. For the analysis of first part we took Sharpe ratio, Treynor ratio, beta coefficients as our tools to measure volatility of the schemes. Secondly we calculated correlations coefficients between schemes of mutual funds with their benchmark indices to evaluate the performance of schemes using SPSS Software. <br />In the second part of our project we constructed a questionnaire and took a sample of 200 and tried to find out the reasons about their perception towards investing in mutual fund. For the analysis of this part, we took the help of SPSS Software. In that we constructed cross tables to measure consumer perception with different characteristics. <br />Then we used discriminate analysis for categorical study of risk (1) and non-risk (2) with other independent variables to study consumer perception about mutual fund investments.<br />SUGGESTIONS:<br />1. Mutual Funds should maintain its quality of minimum risk for attracting large investment. <br />2. With the booming economy here is a need to provide proper knowledge about mutual funds so that investors invest easily.<br />3. Promotion efforts can increase the selling of mutual fund schemes, therefore these must be done timely & wisely.<br />CONCLUSION<br />Mutual funds have been a growth industry, and more and more investors have become mutual fund owners over the years. This reports all the sides of the issue and compares some of the equity schemes of HDFC Mutual Fund with Reliance and Tata. It focuses on a more objective approach to one of the most important decisions people make is how to invest their money appropriately. On the basis of the study undertaken by us and the data that was collected by us and thus analyzed it was found that people prefer to invest in mutual funds because of liquidity, tax benefits and for less amount of risk as compared to investing in the equity market. Since the concept of mutual fund is not new most of the people have awareness about it. The investors of HDFC mutual fund have great reliability on it because of the company’s good performance and its good brand image. At last it can be concluded that mutual fund is an ideal investment vehicle for today’s complex and modern scenario.<br />BIBLIOGRAPHY<br />www.ho.fund.com<br />www.bse.com<br />www.nseindia.com<br />www.moneycontrol.com<br />Kundkar.nagesh (marketing research)<br />JOURNALS<br />Kothari.s.p, (aug1997) “Evaluating mutual fund Performance” <br />Hubbard.gellen, coates.C.jhon (aug2007) Competition in the mutual fund Industry: Evidence and Implications for Policy<br />Kothari.s.p, warner.B.jerold (aug1997) “Evaluating mutual fund Performance<br />Khorana. jay, servais.henri,(july2004) “Conflicts of Interest and Competition in the mutual fund Industry”<br />APPENDIX<br />QUESTIONNAIRE<br />CONSUMER’S PERCEPTION TOWARDS INVESTING IN MUTUAL FUND IN CURRENT MARKET SCENARIO<br />Sample Characteristics:<br />Name:<br />Gender: Male ( ) Female ( )<br />Occupation:<br />Contact number:<br />What is your age?<br />(a) < 18 years (b) 20-35 years (c) 35-50 years (d) 50-60 years (e) > 60 years<br />What is your annual income?<br />(a) < Rs. 1 lakhs (b) 1-2 lakhs (c) 2-3 lakhs (d) 3-4 lakhs (e) > 4 lakhs<br />Your mode of major investment of savings.<br />(a) Equity market (b) Fixed deposits (c) Saving’s a/c (d) Insurance (e) Mutual Funds<br />What is your perception about Mutual funds?<br />A vehicle to pool money from investors in a basket of securities by a professional manager.<br />Invest the money by a mutually co-operative group.<br />High returns with moderate risk.<br />Safe vehicle for investment purposes.<br />Which factors do you consider while investing in mutual fund?<br />(a) Risk (b) Return on Investment (c) Time period (d) Tax benefits <br />(e) Diversification <br />Time frame you look in while investing in mutual fund.<br />(a) < 6months (b) 6months-1yr (c) 1-3yrs (d) 3-5 yrs (e) > 5 yrs<br />Which type of mutual fund scheme would you like to invest in?<br />(a) Open-ended scheme (b) close-ended scheme (c) both<br />Which type of scheme option would you prefer investing in?<br />(a) Growth (b) Dividend – Payout (c) Dividend – Reinvestment<br />Please rank the following statements on the basis of these graphic indications:<br /> : Strongly agree<br /> : Agree<br /> : Neither agrees nor disagrees<br /> : Disagree<br /> : Strongly disagree<br />Is investing in Mutual fund less risky as compared to other options available in the market.<br /> ( ) ( ) ( ) ( ) ( )<br />are you satisfied with the return on investment from the mutual fund.<br /> ( ) ( ) ( ) ( ) ( )<br />Does brand name of a company affects your investment decision in any mutual fund.<br /> ( ) ( ) ( ) ( ) ( )<br />A tax benefit offered by various schemes of mutual funds affects your investment decision.<br /> ( ) ( ) ( ) ( ) ( )<br />Systematic financial planning helps you in achieving your financial goals.<br /> ( ) ( ) ( ) ( ) ( )<br />Is mutual fund a better medium of investment as compared to other modes?<br /> ( ) ( ) ( ) ( ) ( )<br />We are grateful for your contribution for filling up this Questionnaire.<br />Date: ________________<br />