SUMMER TRAINING REPORT ON

COMPARATIVE ANALYSIS OF MUTUAL FUNDS (WITH SPECIAL REFERENCE TO HDFC) WITH OTHER INVESTING ASSETS

FOR HDFC MUTUAL FUNDS

BY SMRITI PATHAK ROLL NO - B 52

In Partial Fulfillment for the award of the degree Post Graduate Diploma In Business Management July 2010-2012

NEW DELHI INSTITUTION OF MANAGEMENT (NDIM) SUMMER TRAINING REPORT ON COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH SPECIAL REFERENCE TO HDFC AND OTHER INVESTING ASSETS

FOR HDFC MUTUAL FUNDS

UNDER THE SUPERVISION OF

SUBMITTED BYSMRITI PATHAK ROLL NO- B 52

SUBMITTED TOMs. SAYANTI BANERJEE

DECLARATION I Smriti Pathak student of New Delhi Institution Of Management 2010-2012 Batch declare that every part of the Project Report Comparative analysis of Mutual Funds with special reference to HDFC and other investing assets that I have submitted is original. I was in regular contact with the nominated guide and contacted many times for discussing the project.

Date of project submission:

(Signature of student)

Facultys Comments:

Signature of Faculty guide: Name:

PREFACE

Finance & its functions are the part of economic activity. Finance is very essentially needed for all types of organizations namely; small, medium, largescale industries & service sector. Hence the role of finance manager & the subject finance accounting gained maximum importance. Liberalization, globalization & privatization created new challenges to entrepreneur & corporate in carrying theyre day to day activities. So, Finance is regarded as the life blood of a business organization. Master of business administrator is professional course which develop a new body of knowledge & skill set & make as available for those seeking challenging carriers in the of liberalization & globalization. The goal of the Summer Training is to give a corporate exposure to the students as well as to give them an opportunity to apply theory into the practice. The real business problems are drastically different from class-room case solving. Summer Project aims to providing little insight into working of an organization to a management trainee. Among every stage of knowledge being inculcated in students, practical training in the corporate world plays a significant role in exhibiting and pruning their capabilities. The purpose behind writing a report is to put in to works the practical training that is imparted into me that gives a better and a clear understanding of the experience I got. COMPARATIVE ANALYSIS OF MUTUAL FUNDS WITH SPECIAL REFERENCE TO HDFC MUTUAL FUND WITH OTHER INVESTING ASSETS

EXECUTIVE SUMMARY

The significant outcome of the government policy of liberalization in industrial and financial sector has been the development of new financial instruments. These new instruments are expected to impart greater competitiveness flexibility and efficiency to the financial sector. Growth and development of various mutual fund products in Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growth in the capital market. There is a substantial growth in the mutual fund market due to a high level of precision in the design and marketing of variety of mutual fund products by banks and other financial institution providing growth , liquidity and return.

In this context, prioritization, preference building and close monitoring of mutual funds are essentials for fund managers to make this the strongest and most preferred instrument in Indian capital market for the coming years. With the decline in the bank interest rates , frequent fluctuations in the secondary market and the inherent attitude of Indian small investors to avoid risk, it is important on the part of fund managers and mutual fund product designers to combine various elements of liquidity, return and security in making mutual fund products the best possible alternative for the small investors in Indian market.

There are various parameters which an investor should consider before investing in mutual funds. The comparative analysis between mutual fund and other investing assets will help the investors to take appropriate decision before investing their money in the market which is full of risks and uncertainity.

INTRODUCTION

MUTUAL FUNDS The first thing to understand about mutual funds is that they are pooled investments that are managed by a professional fund manager. The question arises in many peoples mind as to how mutual funds compare to other investment options. Mutual funds are also known as managed funds and unit trusts. Whatever their name they all follow the same pooling concept. The main benefits of this pooling of funds is that investors can invest in a range of different assets with smaller sums of money. Because of this you are able to diversify a lot easier than investing directly into other investment options. The use of the pooled funds gives the managers access to markets that require very large cash deposits and this would not be possible for many individuals. Mutual funds themselves invest in many asset classes and types of investment allowing you to invest into the other options without having to have too much investment knowledge you let the managers do their job by looking after the funds. The managers have access to market information worldwide that you would not necessarily have access to. They are on the spot to make decisions. When looking at other investments you do the decision making yourself, although you can have an adviser to make recommendations. You may or may not have expertise in the particular investment area. The option to invest directly gives you more personal control in what assets are included. However, you will undoubtedly require much larger amounts of money to gain true diversification. Of course

diversification can be achieved using a combination of mutual funds and direct investment. A fee based Financial Planner would normally rebate the entry fees as an entry fee does affect your investment at the outset. But if you were investing directly into shares there are brokerage fees for buying and selling whereas exit fees only normally apply to mutual funds that have not charged an entry fee. In the US noload mutual funds are sometimes preferred because they do not come loaded with fees .

OBJECTIVES: To know the awareness of mutual funds among people. To see the interest of people in investing in mutual funds. To know the investment behavior of investors in mutual fund according to different age group. To ascertain the percentage of income the investors invest in mutual fund. To know the different attitudes of people regarding risk, rate of return, Period of investment. To know the investors preferred financial product for investment

BENEFITS OF MUTUAL FUNDS: Mutual Funds invest in a number of companies across a broad cross section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. a. Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the investment objective of the scheme. An investor can buy into a portfolio of equities which would otherwise be extremely expensive. b. Tax Benefits Any income distributed after March 31, 2002 will be subject to tax in the assessment of all unit-holders. However, as a measure of concession to Unit holders of open ended and equity oriented funds, income distributions for the year ending March 31, 2003will be taxed at a concessional rate of 10%.

c. Return Potential Over a medium to long term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

d. Low Costs Investing in the capital markets because the benefits of scale in brokerage, mutual fund are a relatively less expensive way to invest compared to directly custodial and other fees translate into lower costs for investors.

e. Liquidity In open ended schemes, the investor gets the money back promptly at MAV related prices from the mutual fund. In closed ended schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the mutual fund. f. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund managers investment strategy and outlook. g. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. h. Well Regulated All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.

i. Tax breaks Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor.

They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation),

thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability.

Other benefits of using a mutual fund compared to investing in other options is the liquidity aspect as the funds are usually able to be accessed within days. They are also ideal to use for drip feed investing whereas this is not usually possible with many other investments options. Due to tax changes over recent times New Zealand managed funds are more tax effective than direct investments.

STRUCTURE OF MUTUAL FUNDS

Like other countries, India has a legal framework within which mutual funds must be constituted. In India, open and close end funds operate under the same regulatory structure, i.e. in India, all mutual funds are constituted along one unique structure as unit trust. A mutual fund in India is allowed to issue open end and close end schemes under a common legal structure. The structure, which is required to be followed by mutual funds in India, laid down under SEBI (Mutual Fund) Regulations,1996.

MUTUAL FUND INDUSTRY PHASES

First phase (1964-87); UTI was established Second phase(1987-93): public sector funds entered the market like LIC,GIC,SBI...etc Third phase(1993-03): private sector funds entered the market

Fourth phase (since February 2003):UTI bifurcated into to two separate entities namely undertaking of UTI and UTI mutual funds

MUTUAL FUND INDUSTRY PHASES The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The History of Mutual Funds in India can be broadly divided into four distinct phases. First Phase ( 1 9 6 4 - 8 7 )Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was setup by Reserve Bank of India and functioned under the regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of

India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase- 1987-1993(Entry of Public Sector Funds)1987 marked the entry of non-UTI, Public Sector Mutual Funds set up by Public Sector Banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non -UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun2290), Bank of Baroda Mutual Fund (Oct 92). LIC established its Mutual Fund in June1989 while GIC had set up its Mutual Fund in June 1989 while GIC had set up its Mutual Fund in December 1990.At the end of 1993, the Mutual Fund industry had assets under management of Rs.47,004 crores

Third Phase-1993-2003 (Entry of Private Sector funds)With the entry of private sector funds in 1993, a new era started in the Indian Mutual Fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being ,under which all Mutual Funds, except UTI were to be registered and governed. Theerst while Kothari pioneer (now merged with UTI were to be registered and governed. The erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first Private Sector Mutual Fund registered in July 1993.The 1993 SEBI (Mutual Fund) regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) regulations 1996.The number of Mutual Fund houses went on increasing, with many foreign Mutual Funds setting up funds in India and also the industry has

witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 Mutual Funds with total assets of Rs.1,21,805 Crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other Mutual Funds.

Fourth Phase (since February 2003)In February 2003, following the repeal of the Unit Trust of India Act 1963. UTI was bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores As at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other23 schemes. The specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile.UTI which had in March 2000 more than Rs. 76,000crores of assets under management and with the setting up of a UTI Mutual Fund, confirming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds ,the Mutual Fund industry has entered its current phase of consolidation and growth. As at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.1,26,726 crores under 386 schemes

ASSOCIATION OF MUTUAL FUNDS IN INDIA With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI is a apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holder.

THE OBJECTIVES OF ASSOCIATION OF MUTUAL FUNDS IN INDIA The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains high professional and ethical Standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the

mutual fund industry. Association of Mutual Fund in India does represent the Government of India ,the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programmed for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies

WHY COMAPARATIVE ANALYSIS OF MUTUAL FUNDS? All over the world, mutual fund is one of the most popular instruments for investment .Its popularity with consumer has dramatically increased over the last couple of years worldwide; the mutual fund has a long and successful history. The popularity of mutual fund has increased manifold. In developed financial market like United States, mutual has almost overtaken bank deposits and total assets of insurance funds. The mutual fund industry in India is regulated by Association of Mutual Funds in India (AMFI). The mutual fund industry in India is of 493,287 crores approx.

HDFC Mutual Fund HDFC mutual fund was set up on June30,2000 with two sponsors namely Housing Development Finance Corporation ltd. and Standard Life Insurance ltd. HDFC mutual fund came into existence on 10 Dec. 1999 and got approval from the SEBI on3rd July2000. Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India.

The project entitled Comparison of Mutual Fund with special reference to HDFC Mutual Fund and other investing assets gives me an opportunity to enhance my knowledge of mutual funds industry and gives me an insight of business processes of different types of client.

COMPANY BACKGROUND HDFC 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 the HDFC 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 Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore.

The present equity shareholding pattern of the AMC is as follows : Particulars % of the paid up equity capital Housing Development Finance Corporation Limited Standard Life Investments Limited 40 60

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals.

On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003.

HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. The vision of HDFC is to be a dominant player in the Indian Mutual Fund space, recognized for its high level ethical and professional conduct and a commitment towards enhancing investors interests.

Investment Philosophy The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the latest "fads" and trends.

Achievements HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the CRISIL Fund House Level 1 rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at H D F C A M C . I t is the only fund house to have been assigned this rating for two years in succession. Over the past, we have won a number of a w a r d s a n d a c c o l a d e s f o r i t s performance.

Products and Offerings We believe, that, by giving the investor long-term benefits, we have to constantly review the markets for new trends, to identify new growth sectors and share this knowledge with our investors in the form of product offerings. We have come up with various products across asset and risk categories to enable investors to invest in line with their investment objectives and risk taking capacity. Besides, we also offer Portfolio Management Services.

MUTUAL FUNDS can be classified based on its structure and investments: BY STRUCTURE: OPEN ENDED FUNDS An open ended fund is one that is available for subscription throughout the year.

These do not have fixed maturity. investors can conveniently buy and sell units at NAV related prices. The key feature of this scheme is liquidity.

CLOSE ENDED FUNDS Closed ended fund has a stipulated maturity period which generally ranges from 3 to 15 years. The fund is open for subscription only for a stipulated period.

INTERVAL FUNDS Interval funds have the features of both open ended and close ended funds. They are open for sale or redemption during predetermined intervals at NAV prices

BY INVESTMENT OBJECTIVE; GROWTH FUND The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus inequities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.

i.

Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

ii.

Balanced Fund:

The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

iii.

Money Market Funds:

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 instruments 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.

OTHER SCHEMES: TAX SAVING SCHEME These schemes provide tax rebates to the investors under specific provision of Indian Income Tax Laws as the government offers tax incentives for investment in specific avenues. Investments made in equity linked savings scheme and pension schemes are allowed as deductions under section 88 of Income Tax Act 1991.

INDEX SCHEME: Index funds attempt to replicate the performance of a particular index such as BSE Sensex or the NSE 50

ABOUT THE PROJECT

Mutual Funds: Anyone who is aware of stock market is not new to mutual funds. Mutual funds have gained in popularity with the investing public especially in the last two decades following what is now known as the longest bull run of twenty years. At the outset mutual funds have created wealth for retirees and general safe financial players with the rise in stock prices. But why invest in mutual funds and why is investing in mutual funds a popular option? How beneficial are they and what are the risk factors involved in mutual funds investing? Also what are the other investing assets available with the investors , after all they are also a kind of instruments of investments.

Investments In Mutual Funds: If a person is investing in stock market and is afraid of its somewhat unpredictable fluctuations, he can definitely consider investing in mutual funds. Some of the reasons that go strongly in favor of mutual funds are their lowest risk factors owing to diversification of assets in to various sectors and instruments within. As with the risk, the costs of unit share too are spread across making them affordable by almost any one. If anyone is looking at open end funds they can always purchase them from the company at the NAV minus some loads or expenses.

Risks involved: Fund managers allocate available funds in a specified proportion among various instruments of investments. Consider a fund being well diversified across the spectrum of exchange listed stocks and bonds which yield a guaranteed return in addition to being invested in money markets and real estates. While bonds and money market investments provide a low but steady return, other instruments are of high yielding character in a short period. The higher risk of high yielding portfolio is compensated for by the investments in bonds in events of adverse market behavior.

The portfolio will be constantly reviewed and adjusted to variations in order to maximize returns and minimize risks. This means, fund managers buy or sell stocks or bonds as per the dictates of the fund and market pulls. For example an investment in a perceived risky instrument will be sold immediately and reinvested in a prospective media of the time.

OTHER INVESTMENT OPTIONS: An investor has numerous investment options to choose from, depending on his risk profile and expectation of returns. Different investment options represent a different risk-reward trade off. Low risk investments are those that offer assured, but lower returns, while high risk investments provide the potential to earn greater returns. Hence, an investors risk tolerance plays a key role in choosing the most suitable investment. Bonds: A bond represents a loan obligation of the bond issuer (government, corporation, or individual) to the bondholder or investor. In essence, the investor loans funds to the bond issuer in exchange for interest payments for a set period of time. At the end of this time the borrower (bond issuer) pays the investor (bond holder/loaner) back the money loaned. A certificate of deposit is an example of a bond.

Investment in Bonds: A consumer goes to the bank and gives the bank money. In turn, the bank pays the consumer interest for the use of that money for a specified period. Then, the bank uses that money to invest in other projects, such as, small businesses or home mortgages.

Risks involved: The risks associated with bonds are tied to several factors. There are interest-rate risk, credit risk, call ability risk, reinvestment rate risk, and inflation risk. The safest bonds are short-term (less than 5 years) Treasury Bills followed by other short-term government bonds. The riskiest bonds are long-term bonds (12 years40 years), junk bonds, and high yield, or high return bonds. a. The longer the maturity of bonds, the greater the interest (coupon) rate risk while shorter term bonds have less risk but lower returns. Short-term bonds mature in 5 years or less. Intermediate bonds mature between 5 and 12 years. Long-term bonds have maturity dates of more than 12 years. b. Risk is also associated with the coupon or interest rate on the bond. Bonds with lower interest rates will experience more fluctuations in bond prices than bonds with higher interest rates. experience wider changes in prices. These changes in a bond's price will be reflected on broker statements, but are only realized if the bond is sold. c. Ratings on bonds also reflect assumed risk. Credit rating systems help consumers make more informed bond purchases from firms, individuals, and state and local governments. Higher rated bonds carry less risk while lower rated bonds (e.g., junk bonds or high yield/high return bonds) have more risk..

Returns;

Gold: Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. The history of the gold standard, the role of gold reserves in central banking, gold's low correlation with other commodity prices, and its pricing in relation to fiat currencies during the financial crisis of 2007 2010, suggest that gold behaves more like a currency than a commodity.

Investment in Gold: Historically, gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy. In the past year, the climb in the price of gold above $800 per ounce is due to many factors, one being that the dollar is losing value.

Changes in the gold prices in the last 5 years:

25000

20000

15000 prices 10000

5000

0 2007 2008 2009 2010 2011

Risks involved: Gold involves a high-risk and highly volatile investment. Unlike common stock, bonds, and real estate, the value of gold does not reflect underlying earnings. Gold is a purely speculative investment. Over the next few years, it may fall to $500 an ounce or rise to $2,000 an ounce.

Return Observing the trend of last decade the average rate of return had been high at 18.43% (refer rate of return report for last decade) and this trend expected to continue further. Return from gold had never been disappointed in long period of time. In fact last decade return has been much better than any other traditional form of investment like fixed deposit.

Advantages; This form of investment is advantageous when compared with the earlier two forms because it is easily portable. However there are lots of gold coins specific to national boundaries and the investor must have a clear idea of their values before trading. Gold coins are very liquid. Investment in gold has its own limitations for example, many investors blindly take decisions on the basis of the ups and downs in the stock markets and this creates havoc especially when the gold market is demonstrating a different behaviour. Gold investment is very important as it contributes to the national and international economy. These investments are also very high on maintenance

Real Estates: Real estate assets are typically very expensive in comparison to other widelyavailable investment instruments (such as stocks or bonds). Only rarely will real estate investors pay the entire amount of the purchase price of a property in cash. Usually, a large portion of the purchase price will be financed using some sort of financial instrument or debt, such as a mortgage loan collateralized by the property itself. The amount of the purchase price financed by debt is referred to as leverage. The amount financed by the investor's own capital, through cash or other asset transfers, is referred to as equity. The Indian real estate sector involves the development of commercial offices, industrial facilities, hotels, restaurants, cinemas, residential housing, retail outlets and the purchase and sale of land and land development rights. Historically, the real estate sector in India has been unorganized and characterized by various factors that impeded organized dealing, such as the absence of a centralized title registry providing title guarantees, a lack of uniformity in local laws and their application, non-availability of bank financing, high interest rates and transfer taxes and the lack of transparency in transaction values. In recent

years, however, the real estate sector in India has exhibited a trend towards greater organization and transparency, accompanied by various regulatory reforms. These reforms include: GoI support for the repeal of the Urban Land Ceiling Act, with nine state governments having already repealed the Act; Modifications in the Rent Control Act to provide greater protection to homeowners wishing to rent out their properties; Rationalization of property taxes in a number of states; and Computerization of land records. Real estate investments are expected to grow from Rs.10,218 billion invested between 2002-2006 to Rs.18,517 billion over 2007-2011.

Investment in real estate:

Before the start of the 1990s, real estate was always looked upon as a place to invest money, since prices were always escalating because of limited supply and heavy demand. Developers were building residential and commercial projects, which were sold out even before the construction began. Besides, during the course of construction, the property changed hands several times before the completion of the project, with further price increases.

But, those days are gone with the crash of the housing market in the mid 1990s. The higher the rise in real estate prices, the steeper the fall. This was true, especially, in the metros, e.g. Mumbai and New Delhi. The supply increased enormously and the demand remained steady, as prices had gone beyond the realistic levels. This decline in prices stabilised towards the end of the decade as rates became more reasonable and affordable. In the meantime, the housing finance industry started to expand rapidly, making home loans easily available to everyone. Besides the housing loans boosting the market demand, the tax benefits provided by the last four consecutive budgets have also encouraged the end-users and investors alike. Growing incomes of urban buyers coupled with fiscal incentives and falling interest rates, has seen disbursements by Housing Finance Companies grow at over 35% per annum in the past few years, as shown below

Risks involved: Real-estate-investment program will consume large amounts of your time, subject you to considerable financial risk, and force you to engage in the generally unpleasant task of dealing with tenants and maybe employees and subcontractors. No investment is without risks. The enormous increase in the quantity and value of real estate assets absorbs huge amount of savings. The way the savings are allocated to the real estate sector affects not only the long-term elasticity of supply of real estate space, but also the financial stability of the economy.

Returns;

A recent report by the Chamber of Indian Industries pointed out that globally real estate is and should always be considered as an income-generating asset. Indeed, real estate is an attractive investment option, as it gives regular returns and also provides capital appreciation. This scenario is presently unfolding in India.

ON COMPARISION of the advantages & disadvantages of investment in real estate and investment in mutual funds, it is clear that mutual funds offer a safer, legal & hassle free investment option. Mutual funds are not only managed by professional fund managers with minimal fees but they are also diversified. This reduces the risk involved to a large degree. Mutual fund transactions in AMCs like the HDFC Mutual Funds are transparent and there are no hidden costs that the investors are unaware of. Also, another major advantage that the mutual fund investments have over real estate investment is that in case of the latter the money loses liquidity. In case of mutual funds whether it be open & close ended the exit window option is always available to the investor

Fixed deposits:

Any investment portfolio should comprise the right mix of safe, moderate and risky investments. While mutual funds and stocks are the favorite contenders for moderate and risky investments, fixed deposits, government bonds etc. are considered safe investments. Fixed deposits have been particularly popular among a large section of investors in India as a safe investment option for a long period. With fixed deposits or FDs as they are popularly known, a person can invest an amount for a fixed duration. The banks provide interest rates depending on this loan amount and the tenure of deposit. Here are the benefits, drawbacks of fixed deposits and precautions one should take while making such investments.

Investments in fixed deposits:

1. Safety The fixed deposits of reputed banks and financial institutions regulated by RBI (Reserve Bank of India) the banking regulator in India are very secure and considered as one of the safest investment methods.

2. Regular Income Fixed deposits earn fixed interest rates for their entire tenure, which is usually compounded quarterly. So, those who want an income on a regular basis can invest into fixed deposits and use the interest rate as their income. This makes a fixed deposit very popular way of investing money for retirees.

3. Saves tax With the directives of the income tax department stating that investment in fixed deposits up to a maximum of Rs.100,000 for 5 years are eligible for tax deductions under section 80 C of income tax act, fixed deposits have again become popular. Fixed deposits save tax and give high returns on invested money.

Risk Involved: On the face of it, a fixed deposit might seem to be a very safe option considering that in equities there is often a loss of capital while this rarely happens in the deposit field. However, there is a risk involved in the process of investing in a fixed deposit. The risk is that of a credit default by the institution to which the money has been lent in the form of a deposit. If the financial situation of the borrower deteriorates then it might stop paying interest on the deposit and if the condition worsens further, even the capital amount might not be returned. This shows that there is a risk involved that does not make the deposit a fully safe option

Returns When we open a fixed deposit account, we are signing up for a fixed return scheme. This means, our financial institution is entitled to provide us fixed returns in any economic conditions during the tenure period. In addition to this, our financial institution is obliged to return our money on the maturity date including any interest as agreed upon. In short it could be said that fixed deposits gives us guaranteed returns.

% of people investing
30 25 20 15 10 5 0 Fixed deposits Equity Mutual linked funds insurance scheme Real estate Stock Gold and Others Market silver % of people investing

he main advantage is that FDs from reputed banks are a very safe investment because such banks are carefully regulated by the Reserve Bank of India. An advantage of FDs is that you have the option of receiving regular income through the interest payments that are made every month or quarter. This option is especially useful for retirees. On the other hand, a fixed deposit will not give an investor the same returns that he may get in the stock markets. For instance a

stock-portfolio may rise 20-30 per cent in a good year whereas a fixed deposit typically earns only 7-10 per cent. Mutual funds and stocks can offer higher returns but the main issue is whether there are low risk investment products which offer a better return than FDs. Many financial experts believe that fixed maturity plans (FMP) offer exactly such a superior alternative

STOCK MARKET: A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete) entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

INVESTMENT IN STOCK MARKET: Several economic factors affect the stock market that every investor should be aware of before getting involved in market investing.

Inflation And Deflation

Inflation is the rate at which the price of goods and services increases. It is the result of several factors, including a rise in the cost of manufacturing, transporting and selling goods. When inflation is at a low rate, the stock market responds with a surge in selling. High inflation causes investors to think that companies may hold back on spending; this causes an across the board decrease in revenue and the higher cost of goods coupled with the drop in revenue causes the stock market to drop. Deflation is when the cost of goods drops. While deflation sounds like it should be welcomed by investors, it actually causes a drop in the stock market because investors perceive deflation as the result of a weak economy.

Interest Rates Interest rates as established by the Federal Reserve Board and individual banks can have an affect on the stock market, according to an informational pamphlet titled "What Drives Stock Prices" published by the New York Stock Exchange. Higher interest rates mean that money becomes more expensive to borrow. To compensate for the higher interest costs, companies may have to cut back spending or lay off workers. Higher interest rates also mean that a company's money cannot borrow as much as it used to, and this has an adverse affect on company earnings. All of this adds up to a drop in the stock market.

Foreign Markets Economic trends in foreign markets can have an effect on the stock market in the United States, according to the article titled "Riding the Economic Roller Coaster" published in "Inc." magazine. When the economies in foreign countries are down, American companies cannot sell as many goods overseas as they used to. This causes a drop in revenue, and that can show up as a drop in the stock market. Foreign stock exchanges also have an effect on the American stock market. If foreign exchanges start to fail or experience sharp drops, then that kind of activity can cause American investors to anticipate a ripple effect, resulting in a drop in the United States stock exchange.

RISK INVOLVED: Investing in stocks is a risky business. There are some risks you have some control over and others that you can only guard against. Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level. However, other risks are inherent to investing you have no control over. Most of these risks affect the market or the economy and require investors to adjust portfolios .Economic Risks, Inflation are the two types of risk involved in investing in stock market.

RETURNS; Stock Market Returns are the returns that the investors generate out of the stock

market. This return could be in the form of profit through trading or in the form of dividends given by the company to its shareholders from time-to-time. Stock Market Returns can be made through dividends announced by the companies. Generally at the end of every quarter, a company making profit offers a part of the kitty to the shareholders. This is one of the source of stock market return one investor could expect. The most common form of generating stock market return is through trading in the secondary market. In the secondary market an investor could earn stock market return by buying a stock at lower price and selling at a higher price.

Stock Market Returns are not fixed ensured returns and are subject to market risks. They may be positive or negative. Stock Market Returns are not homogeneous and may change from investor-to-investor depending on the amount of risk one is prepared to take and the quality of his Stock Market Analysis. In opposition to the fixed returns generated by the bonds, the stock market returns are variable in nature. The idea behind stock return is to buy cheap and sell dear. But risk is part and parcel of this market and an investor can also see negative returns in case of wrong speculations.

Comparisons

share market investment is volatile to market conditions. Before investing you should have a thorough knowledge about its operation. Direct investment in the stock market is generally a high risk high returns ventures because market trends are affected factors that vary from weather change to political change to a

change in the economic climate of another trading economy at any point in time. Fund diversification and management is far more efficient and has lesser risk under skilled fund manager.

CONCLUSION Mutual funds are one of the most highly growing products in financial services market. Mutual funds are suitable for all types of investors from risk adverse to risk bearer. Mutual funds have many options of return, risk free return, constant

return, market associated return, etc. mutual funds are suitable to all age of investors, businessmen, salary person, etc. Investors need not to be expert in equity market; mutual funds can satisfy their need. Fund managers are expert in this area and invest fund in well diversified portfolio, high return with low risk is possible inn mutual fund. In todays world, investors are showing more trust in mutual fund than any other financial product. There is no need of a financial consultant, if you have good knowledge of mutual funds and their type to invest. Mutual fund is subject to market risk, despite of that it have low risk than stock market. This is proved in performance evaluation section of this report. Performance evaluation measurement ratios i.e. Treynors, Sharpes and Jensens are used by fund managers to take decision of investment and to diversify portfolio.

Making profit with mutual fund is often easier than you imagine. Investigation and some basic knowledge is essential and you best dont rely only on the advice of your bank because they want to sell their products and offer not always the best solution for you. It may be helpful to consult an independent financial planner before you make the decision to invest in mutual funds.

Mutual funds are often good investment instruments and their popularity has increased rapidly during the last several years. You always need to ensure to invest according to your investment profile and never invest more than you can afford. It is also best you sell mutual funds from time to time if they reach high returns and you are satisfied with the profit. A systematic investment plan in mutual funds is likely the best option to make profit with your mutual funds.

BIBILIOGRAPHY AND REFERENCE AMFI test workbook www.moneycontrol.com www.valueresearchonline.com www.mutualfundindia.com www.bseindia.com www.tradingeconomics.com/