A PROJECT REPORT

ON

MUTUAL FUNDS IS THE BETTER INVESTMENTS PLAN

Submitted in partial fulfillment for

BACHELOR OF BUSINESS ADMIMISTRATION

Programme of

MODERN GIRLS COLLEGE OF PROFESSIONAL STUDIES

LUCKNOW Batch2007-10

ACKNOWLEDGEMENT
With regard to my Project with Mutual Fund I would like to thank each and every one who offered help, guideline and support whenever required. First and foremost I would like to express gratitude to and other staffs for their support and guidance in the Project work. I am extremely grateful to my guide, for their valuable guidance and timely suggestions. I would like to thank all faculty members of HDFC MF, Lucknow for the valuable guidance& support. I would also like to extend my thanks to my members and friends for their support specially. And lastly, I would like to express my gratefulness to the parents for seeing me through it all.

EXECUTIVE SUMMARY
In few years Mutual Fund has emerged as a tool for ensuring ones financial well being. Mutual Funds have not only contributed to the India growth story but have also helped families

tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that nine in ten people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as many as one in five people. The trick for converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. This Project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this Project Report is based on market research on the saving and investment practices of the
4

investors and preferences of the investors for investment in Mutual Funds. This Report will help to know about the investors Preferences in Mutual Fund means Are they prefer any particular Asset Management Company (AMC), Which type of Product they prefer, Which Option (Growth or Dividend) they prefer or Which Investment Strategy they follow (Systematic Investment Plan or One time Plan). This Project as a whole can be divided into two parts. The first part gives an insight about Mutual Fund and its various aspects, the Company Profile, Objectives of the study, Research Methodology. One can have a brief knowledge about Mutual Fund and its basics through the Project. The second part of the Project consists of data and its analysis collected through survey done on 200 people. For the collection of Primary data I made a questionnaire and surveyed of 200 people. I also taken interview of many People those who were coming at

the HDFC and BANK OF INDIA Branch where I done my Project. I visited other AMCs in Lucknow to get some knowledge related to my topic. I studied about the products and strategies of other AMCs in; Lucknow to know why people prefer to invest in those AMCs. This Project covers the topic THE MUTUAL

FUND IS BETTER INVESTMENT PLAN. The data collected has been well organized and presented. I hope the research findings and conclusion will be of use.

CONTENTS

Acknowledgement Declaration Executive Summary . CHAPTER Chapter - 1 Chapter - 2 Chapter - 3 Chapter- 4 TOPICS INTRODUCTION SYSTAMATIC INVESTMENT PLAN COMPANY PROFILE OBJECTIVES AND SCOPE PG. NO. 12- 34 35- 49 50- 63 64- 66

Chapter-5 Chapter- 6 Chapter - 7 Chapter - 8 Chapter - 9

QUESTIONAIRE AND ANALYSIS ANALYSIS OF DATA RESEARCH REPORT FINDINGS AND CONCLUSIONS SUGGESTIONS & RECOMMENDATIONS

67- 71 72- 95 96- 102 1103- 108 109- 111

BIBLIOGRAPHY THANK YOU

112 113

MUTUAL FUNDS
ALL ABOUT MUTUAL FUNDS WHAT IS MUTUAL FUND BY STRUCTURE

 BY NATURE EQUITY FUND DEBT FUNDS BY INVESTMENT OBJECTIVE OTHER SCHEMES PROS & CONS OF INVESTING IN MUTUAL FUNDS ADVANTAGES OF INVESTING MUTUAL FUNDS DISADVANTAGES OF INVESTING MUTUAL FUNDS MUTUAL FUNDS INDUSTRY IN INDIA MAJOR PLAYERS OF MUTUAL FUNDS IN INDIA HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

10

 CATEGORIES OF MUTUAL FUNDS INVESTMENT STRATEGIES WORKING OF A MUTUAL FUND GUIDELINES OF THE SEBI FOR MUTUAL FUND
COMPANIES DISTRIBUTION CHANNELS DOES FUND PERFORMANCE AND RANKING PERSIST? PORTFOLIO ANALYSIS TOOLS

RESEARCH REPORT

OBJECTIVE OF RESEARCH SCOPE OF THE STUDY DATA SOURCES SAMPLING

DATA ANALYSIS
QUESTIONNAIRE

11

Chapter - 1 Introduction

12

INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS.

Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed

13

basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a welldiversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.

14

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market

15

instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.

ADVANTAGES OF MUTUAL FUND

Professional Management

16

The idea behind a mutual fund is that individual investors generally lack the time, the inclination or the skills to manage their own investment. Thus mutual funds hire professional managers to manage the investments for the benefit of their investors in return for a management fee. The organization that manages the investment is the Asset Management Company (AMC). Employees of the AMC who perform this role of managing investments are the fund managers. Diversification The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Low cost Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index. Choice of Schemes
17

A mutual fund can, and typically does have several schemes to cater to different investors preferences. The individual could choose to hire a professional manager to manage his money as per his investment and risk preferences. Such personal treatment often referred to as Portfolio Management Scheme (PMS).

Legal Framework Since the investors are often not so well qualified to invest, the mutual fund business is highly regulated. Broadly the existing regulations are: 1. Pre-requisitions to start a mutual fund; 2. Permissible schemes and investments; 3. Control over marketing process; 4. Checks and balances in the legal structure; 5. Valuation of securities; 6. Level of operational flexibility to the professional investors. Tax Benefits Dividend income from mutual fund units will be exempt from income tax with effect from July 1, 1999. Further, investors can get rebate from tax under section 88 of Income Tax Act, 1961 by investing in Equity Linked Saving Schemes of mutual funds. Further benefits are also available under section 54EA and 54EB with regard to relief from long term capital gains tax in certain specified schemes. Return Potential
18

Mutual funds allow you to allocate investments assets across different fund categories to achieve a variety of risk/reward objectives thereby reducing overall portfolio risk. In other words, the right way to benefit from Mutual funds is to balance the risk as well as the potential to earn.

Liquidity Open-end schemes offer liquidity through on-going sale and re-purchase facility. Thus, the investor does not have to worry about finding a buyer for his investment a risk normally associated with direct investment in the securities market. 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 manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

19

LIMITATIONS OF MUTUAL FUNDS

No Guarantees No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money. Fees and commissions All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.
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Taxes During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. Management risk When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers. Dilution It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

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HISTORY

OF

THE

INDIAN

MUTUAL FUND INDUSTRY

22

A little history
The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian equity market, when a number of mistakes were made and hence the mutual fund schemes, which invested in lesser-known stocks and at very high levels, became loss leaders for retail investors. From those days to today the retail investor, for whom the mutual fund is actually intended, has not yet returned to the industry in a big way. But to be fair, the industry too has focused on brining in the large investor, so that it can create a significant base corpus, which can make the retail investor feel more secure.

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HISTORY OF MUTUAL FUND

The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87: Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 198184, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share (Indias first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.
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Phase II. Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund From the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.

Phase III. Emergence of Private Sector Funds - 1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing
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technology. By 1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Inventors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilization of funds from investors and assets under management which is supported by the following data:

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ASSETS FUND MOBILISATION (RS. CRORES) GROSS UNDER MANAGEMENT (RS. CRORES) AS ON FROM UTI PUBLIC PUBLIC SECTOR SECTOR PRIVATE SECTOR PRIVATE SECTOR TOT TOTAL AL

TO

UTI

3131-March-99 01-April-98 March99 3101-April-99 March00 3101-April-00 March01 3101-April-01 March02 31-Jan03 3101-Feb.-03 March03 3101-April-03 March04 3101-April-04 March05 3101-April-05 March06

53,320 11,679

8,292 1,732

7,966

6,860

68,4 21,377 72

13,536

4,039

42,173

59,748

12,413

6,192

74,352

92,957

4,643

13,613

1,46,267

1,64,523

01-April-02

5,505

22,923

2,20,551

2,48,979

7,259*

58,435

65,694

68,558

5,21,632

5,90,190

1,03,246

7,36,416

8,39,662

1,83,446

9,14,712

10,98,158

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Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

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CATEGORIES OF MUTUAL FUND:

29

30

Mutual funds can be classified as follow :

Based on their structure: Open-ended funds: Investors can buy and sell the units

from the fund, at any point of time.

Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. Based on their investment objective:

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Equity funds: These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term

fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as: i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the

benchmark index both in terms of composition and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in

equities spreading across different sectors and stocks.

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iii|) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields. iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc. v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks. vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds

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vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes: i) Debt-oriented funds -Investment below 65% in equities. ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.

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i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market. ii) Gilt funds ST- They invest 100% of their portfolio in government securities and T-bills. iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. v) Gilt funds LT- They invest 100% of their portfolio in longterm government securities.

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vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers. vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.

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INVESTMENT STRATEGIES
1. Systematic Investment Plan: under this a fixed sum is invested

each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.

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RISK V/S. RETURN:

38

39

Chapter 2 SYSTAMATIC INVESTMENT PLAN (SIP)

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Most of us have the same idea when it comes to money. All we want to do is spend it. With a fantastic range of consumer products out there, investments seem like the most boring things that you can consider. In fact, if it werent for tax saving purpose, most of us would not end up investing anything at all. We need to realize, however, that someday, our hard-earned money isnt going to be able to buy the same things as it used to. This is because of inflation, the phenomenon that slowly eats up our purchasing powers without us even realizing it.

Beating Inflation with Investment

Beating inflation has a very important role to play in protecting the value of money. Most of us are so busy that we realize only later that our hard earned money is not able to buy the same things that it used to. As the chart along side explains, an inflation rate of only 5% per annum can erode your purchasing power significantly over longer periods of time. To go one up on inflation, you need to make your money grow fast enough to so that it can still buy what it used to and more. All of us have some dreams to fulfill and some needs to take care of. Whether its your childrens education, a marriage, a car, a house, a foreign vacation or your retirement plan, the only way you can make these things possible is by planning your savings and investments wisely.

What is a Systematic Investment Plan (SIP)?

SIP is an investment option that is presently available only with mutual funds. The other investment option comparable to SIPs is the recurring deposit schemes from Post office and banks. Basically, under an SIP option an investor

41

commits making a regular (monthly) investment in a particular mutual fund/deposit.

SIP is a method of investing a fixed sum, regularly, in a mutual fund. It is very similar to regular saving schemes like a recurring deposit. An SIP allows you to buy units on a given date each month, so that you can implement an investment / saving plan for yourself. Once you have decided on the amount you want to invest every month and the mutual fund scheme in which you want to invest, you can either give post-dated cheques or ECS instruction, and the investment will be made regularly. SIPs generally start at minimum amounts of Rs 1,000 per month and the upper limit for using an ECS is Rs 25000 per instruction. Therefore, if you wish to invest Rs 100,000 per month, you may need to do it on 4 different dates.

A specific amount should be invested for a continuous period at regular intervals under this plan.

SIP is similar to a regular saving scheme like a recurring deposit. It is a method of investing a fixed sum regularly in a mutual fund.

SIP allows the investor to buy units on a given date every month. The investor decides the amount and also the mutual fund scheme.

While the investor's investment remains the same, more number of units can be bought in a declining market and less number of units in a rising market.

The investor automatically participates in the market swings once the option for SIP is made.

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Lets take an example:

An investor, Rahul wants to invest in fund X which can be an equity, income or gilt fund. The policy of fund X for entering in an SIP is that the investor will have to issue 6 post-dated cheques of Rs 500/- in case of monthly option or 4 cheques in a quarterly option. The minimum investment for all its schemes is Rs 5,000. Rahul issues 6 post-dated cheques of Rs 500/each in the name of fund X, with the first cheque being dated as on 7th May 2001. Now in the month of August 2001 Rahul wants to change his SIP structure from Rs 500/- to Rs 1,000/-. In this case he will have to intimate the fund and will have to fill a new SIP form issuing news postdated cheques of Rs 1,000/- each. Rahul is investing in three different schemes of fund X. In two of the schemes Rahul is the first holder and in the third scheme his wife is the first holder. In this case he can fill a common SIP form where he is the first holder and where his wife is the first holder he will have to fill in a new SIP form. In the month of September 2001 Rahul wants to exit from the fund. He will have to just give a redemption request to the fund wherein his units will be redeemed and his remaining post-dated cheques will be returned back to him irrespective of whether he has completed his minimum investment in the fund.

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Investing in SIPs is also known as Rupee cost averaging. The advantage of rupee cost averaging is that the Net asset value (NAV) is averaged out, as the investor will be entering the fund at different NAVs, which may be higher or lower depending on the market condition. Lets take the example of Rahul wherein he has started investing in units every month since he issued the first cheque on 7th May 2001. In this example we assume that he does not change his SIP structure and also does not redeem the units.

Period 7th May'01 7th June,01 7th July'01 7th Aug'01 7th Sep'01 Total

Investment in fund 'X' of Mr. Rahul Investment(Rs) NAV(Rs per unit) Units allocated 500.0 500.0 500.0 500.0 500.0 a=2,500 10.0 13.0 10.5 9.5 8.0 50.0 38.5 47.6 52.6 62.5 b=251.2

Actual average NAV (Rs.) = Rs 10.2 per unit NAV for Rahul= Rs 9.95 per unit (a/b) The above table shows clearly how rupee cost averaging works and how it was beneficial to Rahul. The actual average NAV of a fund is Rs 10.2/- per unit, but the average NAV for Rahul is Rs 9.95/- per unit, which is lower than the current NAV.

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An investor who is not having a lump-sum amount to invest and also does not want to take much risk on his investment should always select a Systematic Investment Plan option. This will enable him to invest regularly i.e. improve investing discipline. Also, the investor stands to benefit from rupee cost averaging.

How to invest in SIPs?

The SIP option is available with all types of funds like equity, income or gilt. An investor can avail the SIP option by giving post-dated cheques of Rs 500 or Rs 1,000 according to the funds policy. If an investor wants to put more than Rs 500 or Rs 1,000 in any given month he will have to fill in a new a form for SIP intimating the fund that he is changing his SIP structure. Also he will be allowed to change the SIP structure only in the multiples of the SIP amount. If an investor is investing in two different schemes of the same fund he can fill in a common SIP form for all the schemes. However if the first holders in those schemes are different than they will have to fill different SIP forms, as the first holder has to sign on the form. The investor can get out of the fund i.e. redeem his units any time irrespective of whether he has completed his minimum investment in that scheme. In such a case his post-dated cheques will be returned back to him.

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5 reasons for investing Systematically

Over the last 12 months investors in equity markets have seen it all. From all time high of 6200 levels to dismal low of 4200. A lot of investors who entered at 6,200 expecting the market to go even higher are very upset. Most investors cannot really stomach the kind of volatility that is inherent in equity markets. At the end of the day, investors who can take some risk are actually shunning equities only because they entered equity markets at the wrong time. Systematic investment plans (SIPs) take care of this problem. But market timing is not the only reason for you to plump for SIPs, there are other advantages. 1. Light on the wallet Given that average per capital income of an Indian is approximately only Rs 25,000 (i.e. monthly income of Rs 2,083), a Rs 5,000 one-time entry in a mutual fund is still asking for a lot (2.4 times the monthly income!). And mutual funds were never meant to be elitist; far from it, the retail investor is as much a part of the mutual fund target audience as the next high networth investor (HNI). So if you cannot shell out Rs 5,000, thats not a huge stumbling block, take the SIP route and trigger your mutual fund investment with as low as Rs 500 (in most cases). 2. Makes market timing irrelevant If market lows give you the jitters and make you wish you had never invested in equity markets, then SIPs can help you blunt that depression. Most retail investors are not experts on stocks and are even more out-of-sorts with stock market oscillations. But that does not necessarily make stocks a loss-making investment proposition. Studies have repeatedly highlighted the ability of
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stocks to outperform other asset classes (debt, gold, property) over the longterm (at least 5 years) as also to effectively counter inflation. So if stocks are such a great thing, why are so many investors complaining? Its because they either got the stock wrong or the timing wrong. Both these problems can be solved through an SIP in a mutual fund with a steady track record. 3. Helps you build for the future Most of us have needs that involve significant amounts of money, like childs education, daughters marriage, buying a house or a car. If you had to save for these milestones overnight or even a couple of years in advance, you are unlikely to meet your objective (wedding, education, house, etc). But if you start saving a small amount every month/quarter through SIPs that is treated as sacred and that is set aside for some purpose, you have a far better chance of making that down payment on your house or getting your daughter married without drawing on your PF (provident fund). 4. Compounds returns The early bird gets the worm is not just a part of the jungle folklore. Even the early investor gets a lions share of the investment booty vis--vis the investor who comes in later. This is mainly due to a thumb rule of finance called compounding. According to a study by Principal Mutual Fund if Investor Early and Investor Late begin investing Rs 1,000 monthly in a balanced fund (50:50 equity:debt) at 25 years and 30 years of age respectively, Investor Early will build a corpus of Rs 8 m (Rs 80 lakhs) at 60 years, which is twice the corpus of Rs 4 m that Investor Late will accumulate. A gap of 5 only years results in a doubling of the investment corpus! That is why SIPs should become an investment habit. SIPs run over a period of time (decided by you) and help you avail of compounding. 5. Lowers the average cost SIPs work better as opposed to one-time investing. This is because of rupeecost averaging. Under rupee-cost averaging an investor typically buys more of
47

a mutual fund unit when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high. This is a good discipline since it forces the investor to commit cash at market lows, when other investors around him are wary and exiting the market. Investors may even be pleased when prices fall because the fixed rupee investment would now fetch more units.

Let us break some myths on SIP now.

Investment in equity mutual funds or unit linked insurance should always be done in SIP mode: In 1999 when Templeton Mutual fund would talk about SIP the market looked at it skeptically. And it took a lot of convincing for customers to accept it. Now, life has come a full circle. Everybody wants to (always) invest using an SIP. If you have the maturity and calmness to realize that equities are for the long term and are willing to give your funds about 10 years, and you have a lump sum, you can afford to give the SIP route a pass. However, if your horizon is less than five years, you must do an SIP.

I do rupee cost averaging in a single equity that is a kind of SIP is it not? This is a question I face every day. No, a rupee cost averaging in a single scrip cannot be equated to an SIP. When the market brings down the price of a single scrip, it is giving you information. You need to react to that.

48

Let us take 2 examples Lupin Laboratories has moved from a high of Rs 700 to Rs 100 and back to Rs 700. The question to ask here is not whether an SIP would have worked. The question to ask is whether you would have had the stomach to continue the SIP through this period. Silverline Technologies moved from Rs 30 to Rs 1300 to Rs 14! In this case, if you had started an SIP at a price of Rs 1300, today you would be licking your wounds. SIP works in a portfolio, not in a single scrip.

You cannot invest a lump sum in the same account in which you are doing an SIP: Many people assume that if they are doing an SIP in a particular fund, and suddenly they have a surplus, they cannot put that lump sum in that account. Fact is, in case you are doing an SIP of Rs 10,000 per month in an equity fund, and suddenly you have a surplus of Rs 100,000 and clearly you have a 10-year view on the same, then you can just push it into your SIP account. SIP is just a payment mode, not a scheme!

If I miss investing for a particular month, will they prosecute me? Now, this is the fear of EMI that people have. In an SIP you are buying an investment every month (or quarter), there is no question of prosecuting you for missing one investment. As a matter of discipline, you should not miss any month; however, missing one months investment is not a crime!

When you have a surplus (accumulation stage of your life) you should do an SIP and during retirement you should do a Systematic Withdrawal Plan (SWP):

49

No. You should ideally keep your withdrawals only from an income fund or a bank fixed deposit. You should sell an equity fund on some other basis, say deciding to sell 20% of your portfolio in a year so that the return is 4 times the 30 year historic return. SWP, by definition cannot work in an equity fund!

SIP works for everybody, but does not work for me: Another myth. SIP works in a well-diversified equity fund in the long run. When people put forth arguments that it does not work for them, they have either not chosen a good fund or are looking at a 12 month horizon. SIP is only for small investors: Nothing can be farther from the truth. I have a client who has invested Rs 32.66 lakhs using SIP, starting from January 1998 till date. Obviously, he has invested much more in later years as his income went up and the funds together are worth Rs 97 lakhs, substantially higher than his provident fund.

Market is at very high level to start an SIP: I have heard this when the index was 3000 also. I have no clue where the market is headed, but I know SIP works!

All fund houses are now charging a full load on the SIP, so now SIP will not work Why not time the market? Introducing an entry load was expected to happen and it has happened. What actually hurts the retail investor is the asset management charges 2.5% in most cases is a bigger threat to compounding
50

If I do an SIP in a tax plan, can I withdraw all the money on completion of 3 years? Another regular question almost! Every installment has to be with the fund house for 3 years. The lock-in comes from the Income tax rules, which say that a tax saving scheme should have a 3-year lock-in. You cannot escape that by doing an SIP!

Benefits of investing in HDFC MF SIP

HDFC MF SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice. The dates currently available for SIPs are the 1st, 5th, 10th, 15th, 20th and the 25th of a month. Youll be amazed to learn about the many benefits of investing through HDFC MF SIP. Benefit 1 Become A Disciplined Invester Being disciplined - Its the key to investing success. With the HDFC MF Systematic Investment Plan you commit an amount of your choice (minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) to be invested every month in one of our schemes. Think of each SIP payment as laying a brick. One by one, youll see them transform into a building. Youll see your investments accrue month after month. Its as simple as giving at least 6 postdated monthly cheques to us for a fixed amount in a scheme of your choice. Its the perfect solution for irregular investors.

51

Benefit 2 Reach Your Financial Goal Imagine you want to buy a car a year from now, but you dont know where the down-payment will come from. HDFC MF SIP is a perfect tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and meet financial goals, like funds for a childs education, a marriage in the family or a comfortable postretirement life. The table below illustrates how a little every month can go a long way.

Monthly Savings - What your savings may generate Savings per month Total amount invested (Rs. in Lacs) (for 15 years) 5000 4000 3000 2000 1000 9.0 7.2 5.4 3.6 1.8 Rate of return 6.0% 8.0% 10.0% (rupees in lacs, 15 years later)* 14.6 17.4 20.9 11.7 8.8 5.8 2.9 13.9 10.4 7.0 3.5 16.7 12.5 8.3 4.2

*Monthly instalments, compounded monthly, for a 15-year period.

Benefit 3 Take Advantage of Rupee Cost Averaging Most investors want to buy stocks when the prices are low and sell them when prices are high. But timing the market is time consuming and risky. A more

52

successful investment strategy is to adopt the method called Rupee Cost Averaging. To illustrate this well compare investing the identical amounts through a SIP and in one lump sum. Imagine Suresh invests Rs. 1000 every month in an equity mutual fund scheme starting in January. His friend, Rajesh, invests Rs. 12000 in one lump sum in the same scheme. The following table illustrates how their respective investments would have performed from Jan to Dec:

Sureshs Investment Month Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 NAV 9.345 9.399 8.123 8.750 8.012 8.925 9.102 8.310 7.568 6.462 6.931 7.600 Amount 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 Units 107.0091 106.3943 123.1072 114.2857 124.8128 112.0448 109.8660 120.3369 132.1353 154.7509 144.2793 131.5789

Rajeshs Investment Amount 12000 Units 1284.1091

*NAV as on the 10th every month. These are assumed NAVs in a volatile market

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As seen in the table, by investing through SIP, you end up buying more units when the price is low and fewer units when the price is high. However, over a period of time these market fluctuations are generally averaged. And the average cost of your investment is often reduced.

At the end of the 12 months, Suresh has more units than Rajesh, even though they invested the same amount. Thats because the average cost of Sureshs units is much lower than that of Rajesh. Rajesh made only one investment and that too when the per-unit price was high. Sureshs average unit price = 12000/1480.6012 = Rs. 8.105 Rajeshs average unit price = Rs. 9.345

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Benefit 4 Grow Your Investment With Compounded Benefits It is far better to invest a small amount of money regularly, rather than save up to make one large investment. This is because while you are saving the lump sum, your savings may not earn much interest. With HDFC MF SIP, each amount you invest grows through compounding benefits as well. That is, the interest earned on your investment also earns interest. The following example illustrates this. Imagine Neha is 20 years old when she starts working. Every month she saves and invests Rs. 5,000 till she is 25 years old. The total investment made by her over 5 years is Rs. 3 lakhs.Arjun also starts working when he is 20 years old. But he doesnt invest monthly. He gets a large bonus of Rs. 3 lakhs at 25 and decides to invest the entire amount.

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Both of them decide not to withdraw these investments till they turn 50. At 50, Nehas Investments have grown to Rs. 46,68,273* whereas Arjuns investments have grown to Rs. 36,17,084*. Nehas small contributions to a SIP and her decision to start investing earlier than Arjun have made her wealthier by over Rs. 10 lakhs. *Figures based on 10% p.a. interest compounded monthly.

Benefit 5 Do All This Effortlessly Investing with HDFC MF SIP is easy. Simply give us post-dated cheques or opt for an Auto Debit from your bank account for an amount of your choice (minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) and well invest the money every month in a fund of your choice. The plans are completely flexible. You can invest for a minimum of six months, or for as long as you want. You can also decide to invest quarterly and will need to invest for a minimum of two quarters.

HDFC Mutual Fund has proposed to revise the minimum amount per Systematic Investment Plan (SIP) installments with effect from 16 March 2009. As per the revision, monthly SIP and Group SIP-Monthly Plan have been seperated. Under Group Systematic Investment plan (GSIP) - Monthly plan, the minimum amount per installment for schemes other than HDFC Tax Saver and HDFC Long Term Advantage Fund will be Rs 500 and in multiples of Rs 100 thereafter. And the minimum amount per installment for HDFC Tax Saver and HDFC Long Term Advantage Fund will be Rs 500 and in multiples of Rs 500 thereafter.

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There is no change in the Monthly Systematic Investment Plan. Before revision, minimum amount per SIP installment provision is same for monthly SIP and group SIP. Presently, the minimum amount per installment for schemes other than HDFC Tax Saver and HDFC Long Term Advantage Fund is Rs 1000 and in multiples of Rs 100 thereafter. And the minimum amount per installment for HDFC Tax Saver and HDFC Long Term Advantage Fund is Rs 500 and in multiples of Rs 500 thereafter.

Chapter 3 Company Profile

57

MAN WITH A MISSION

If ever there was a man with a mission it was Hasmukhbhai Parekh, Founder and Chairman-Emeritus, of HDFC Group who left this earthly abode on November 18, 1994. Born in a traditional banking family in Surat, Gujarat, Mr. Parekh started his financial career at Harkisandass Lukhmidass a leading stock broking firm. The firm closed down in the late seventies, but, long before that, he went on to become a towering figure on the Indian financial scene. In 1956 he began his lifelong financial affair with the economic world, as General

58

Manager of the newly-formed Industrial Credit and Investment Corporation of India (ICICI). He rose to become Chairman and continued so till his retirement in 1972. At the ripe age of 60, Hasmukhbhai started his second dynamic life, even more illustrious than his first. His vision for mortgage finance for housing gave birth to the Housing Development Finance Corporation it was a trend-setter for housing finance in the whole Asian continent. He was also a writer in his own right. There are over 200 published articles by him... In 1992, the Government of India honored him with the Padma Bhushan Award. The London School of Economics & Political Science conferred on him an Honorary Fellowship. He was one of the Founder Members of the Centre for Advancement of Philanthropy, and its Chairman till 1993. He took active interest in the Bombay Community Public Trust, designed specifically to serve the needs of the citys underprivileged citizens. When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he said: Taking over from H.T. Parekh is a formidable task; his vision brought about not only an institution, but an entire concept which has proved itself to be of lasting importance. Today we are the largest residential mortgage finance institution in India, with a net worth of Rs. 2,703 cores as of March 31, 2006 and an asset base of over Rs. 22,000 cores. We also aim to increase the flow of resources to the housing
59

sector by integrating the housing finance sector with the overall domestic financial markets. Over a span of 25 years, HDFC has become the pioneer in housing finance in India and made it possible for over two million Families to own their homes, through housing loans worth over Rs. 42,000 cores.

ABOUT COMPANY HDFC

VISION To be a dominant player in the Indian mutual fund space , recognized for its high levels of ethical interests. and professional towards conduct and a commitment enhancing investor

ORGANIZATION AND MANAGEMENT

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HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance, taxation, construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to deliver increasing value to shareholders. Name and Designation Location Contact Number Mr. Deepak S. Parekh is the executive Chairman of the Corporation. He is fellow of the Institute of Chartered Accountants (England & Wales).Mr. Parekh joined the Corporation in a senior management position in 1978.He was inducted as a whole time director of the Corporation in 1985 and was appointed as the Chairman in 1993. He is the chief executive officer of the Corporation Mumbai. Mr. K. M. Mistry the Managing Director of the Corporation. Is a Fellow of the Institute of Chartered Accountants of India? He has been employed with the Corporation since 1981 and was the executive director of the Corporation since 1993. He was appointed as the deputy managing director in 1999 and the Managing Director in 2000. He is also a member of the Investors Grievance Committee of Directors.
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Ms. Renu S. Karnad the Executive Director of the Corporation. Is a graduate in law and holds a Masters degree in economics from Delhi University. She has been employed with the Corporation since 1978 and was appointed as the Executive Director of the Corporation in 2000. She is responsible for overseeing all aspects of lending operations of HDFC.New Delhi. BOARD OF DIRECTORS Mr. D S Parekh - Chairman Mr. Keshub Mahindra - Vice Chairman Ms. Renu S. Karnad - Executive Director Mr. K M Mistry - Managing Director Mr. Shirish B Patel Mr. B S Mehta Mr. D N Ghosh Dr. S A Dave Mr. S Venkitaramanan Dr. Ram S Tarneja Mr. N M Munjee Mr. D M Satwalekar

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)

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AMC was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an AMC for the Mutual Fund by SEBI on July 30, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Back bay Reclamation, Church gate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset Management Company Limited to manage the Mutual Fund As per the terms of the Investment Management Agreement, the AMC will conduct the operations of the Mutual Fund and manage assets of the schemes, including the schemes launched from time to time. The present share holding pattern of the AMC is as follows: Particulars Standard Life Investments Limited % of the paid up capital 49.90

Housing Development Finance Corporation Limited 50.10

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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 Schemes of Zurich India Mutual Fund has now migrated to HDFC Mutual Fund on June 19, 2003. These schemes have been renamed as follows: FORMER NAME Zurich India Equity Fund Zurich India Prudence Fund Zurich India Capital Builder Fund Zurich India Tax Saver Fund Zurich India Top 200 Fund Zurich India High Interest Fund Zurich India Liquidity Fund Zurich India Sovereign Gilt Fund NEW NAME HDFC Equity Fund HDFC Prudence Fund HDFC Capital Builder Fund HDFC Tax Saver Fund HDFC Top 200 Fund HDFC High Interest Fund HDFC Liquidity Fund HDFC Sovereign Gilt Fund

The AMC is managing 2 close ended Income Scheme viz. HDFC Fixed Investment Plan and HDFC Long Term Equity Fund and 23 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC
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Long Term Advantage Fund, HDFC Tax Plan 2000 (HTP), HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC Tax Saver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund (HCMF), HDFC MF Monthly Income Plan (HMIP), HDFC Core & Satellite Fund (HSCF), HDFC Multiple Yield Fund (HMYF), HDFC Premier Multi-Cap Fund (HPM) and HDFC Multiple Yield Fund Plan 2005 (HMY2005). The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2004 to December 31, 2006.

SPONSORS HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC):

65

HDFC was incorporated in 1977 as the first specialised housing finance institution in India. 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 currently has a client base of over 8, 00,000 borrowers, 12, 00,000 depositors, 92,000 shareholders and 50,000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, 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 ninth year in succession. 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. 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

66

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.

STANDARD LIFE INVESTMENTS LIMITED

The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. In 1998, Standard Life Investments Limited became the dedicated investment management company of the Standard Life Group and is owned 100% by The Standard Life Assurance Company. With global assets under management of approximately US$186.45 billion as at March 31, 2005, Standard Life Investments Limited is one of the world's major investment companies and is responsible for investing money on behalf of five million retail and institutional clients worldwide. With its headquarters in Edinburgh, Standard Life Investments Limited has an extensive and

67

developing global presence with operations in the United Kingdom, Ireland, Canada, USA, China, Korea and Hong Kong. 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 2% of the market capitalization of the London Stock Exchange.

HDFC MUTUAL FUND PRODUCTS Equity Funds

HDFC Growth Fund HDFC Long Term Advantage Fund HDFC Index Fund HDFC Equity Fund HDFC Capital Builder Fund HDFC Tax saver HDFC Top 200 Fund

68

HDFC Core & Satellite Fund HDFC Premier Multi-Cap Fund HDFC Long Term Equity Fund HDFC Mid-Cap Opportunity Fund

Balanced Funds
HDFC Children's Gift Fund Investment Plan HDFC Children's Gift Fund Savings Plan HDFC Balanced Fund HDFC Prudence Fund Debt Funds HDFC Income Fund HDFC Liquid Fund HDFC Gilt Fund Short Term Plan HDFC Gilt Fund Long Term Plan HDFC Short Term Plan HDFC Floating Rate Income Fund Short Term Plan HDFC Floating Rate Income Fund Long Term Plan HDFC Liquid Fund - PREMIUM PLAN HDFC Liquid Fund - PREMIUM PLUS PLAN HDFC Short Term Plan - PREMIUM PLAN HDFC Short Term Plan - PREMIUM PLUS PLAN

69

HDFC Income Fund Premium Plan HDFC Income Fund Premium plus Plan HDFC High Interest Fund HDFC High Interest Fund - Short Term Plan HDFC Sovereign Gilt Fund - Savings Plan HDFC Sovereign Gilt Fund - Investment Plan HDFC Sovereign Gilt Fund - Provident Plan HDFC Cash Management Fund - Savings Plan HDFC Cash Management Fund - Call Plan HDFCMF Monthly Income Plan - Short Term Plan HDFCMF Monthly Income Plan - Long Term Plan HDFC Cash Management Fund - Savings Plus Plan HDFC Multiple Yield Fund HDFC Multiple Yield Fund Plan 2005

HDFC MUTUAL FUND AT A GLANCE

70

Name of Unit Address :

HDFC MUTUAL FUND

2nd Floor, Shiv Darshan, 5 Jagnath Plot,Dr.Radhakrishna Road,

Form of Organization Contact Number Establishment year Sponsors : :

: : 2000

Private Sector (0281)-5524881/82

Housing Development Finance Corporation Limited (HDFC), Standard Life Investments Limited.

Management

: HDFC (AMC).

Trustee. Asset Management Company Limited

Working Hours Web site

: :

9.30 am to 9.00 p.m www.hdfcfund.com

71

ACHIEVEMENT AND AWARDS

HDFC Prudence fund has been ranked ICRA-MFR 1, and Has Been awarded the Gold Award for Best Performance in the category of Open Ended Balanced Scheme for one year Period Ending Dec 31, 2005. HDFC Tax saver fund has been ranked ICRA-MFR 1, and Has Been Silver award for Second Best Performance in the category of Open Ended Equity Linked Saving Scheme(ELSS) for Three year Period Ending Dec 31, 2005. HDFC MIP~LTP has been ranked ICRA-MFR 1, and Has been awarded the Gold Award For Best Performance in the category of Open Ended Marginal Equity Scheme for one year Period Ending Dec 31, 2005.

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Chapter - 3 Objectives and scope

73

OBJECTIVES OF THE STUDY 1. To find out the Preferences of the investors for Asset Management Company. 2. To know the Preferences for the portfolios.
3. To know why one has invested or not invested in HDFC

Mutual fund 4. To find out the most preferred channel. 5. To find out what should do to boost Mutual Fund Industry.

74

Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market. The research was carried on at one of the branch of Bank of India LUCKNOW. I surveyed on my Project Topic THE MUTUAL

75

FUND IS BETTER INVESTMENT PLAN on the visiting customers of the Bank of India. The study will help to know the preferences of the customers, which company, portfolio, mode of investment, and option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.

Chapter 4 QUESTIONAIRE
76

AND ANALYSIS

QUESTIONAIRE
A study of preferences of the investors for investment in mutual funds.

77

1. Personal Details: (a). Name:(b). Add: (c). Age:(d). Qualification:Graduation/PG Under Graduate Others Phone:-

(e). Occupation. Pl tick () Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick (). Up to Rs.10,000 Rs. 10,001 to 15000 Rs. 15,001 to 20,000 Rs. 20,001 to 30,000 Rs. 30,001 and above

2. What kind of investments you have made so far? Pl tick (). All applicable. a. Saving account e. Post OfficeNSC, etc b. Fixed deposits f. Shares/Debentures
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c. Insurance d. Mutual Fund g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer? . (a) Liquidity (b) Low Risk (c) High Return (d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (). No

Yes

5. If yes, how did you know about Mutual Fund? a. Advertisement 6. Have you ever invested in Mutual Fund? Pl tick (). No b. Peer Group c. Banks d. Financial Advisors Yes

7. If not invested in Mutual Fund then why? (a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (). All applicable.
79

a. SBIMF

b. UTI

c. HDFC

d. Reliance

e. Kotak

f. Other. specify

9. If invested in HDFCMF, you do so because (Pl. tick (), all applicable). a. HDFCMF is associated with HDFC Bank. b. They have a record of giving good returns year after year. c. Agent Advice 10. If NOT invested in HDFCMF, you do so because (Pl. tick () all applicable). a. You are not aware of HDFCMF. b. HDFCMF gives less return compared to the others. c. Agent Advice 11. When you plan to invest your money in asset management co. which AMC will you prefer? Assets Management Co. a. SBIMF b. UTI c. Reliance d. HDFC e. Kotak f. ICICI 12. Which Channel will you prefer while investing in Mutual Fund?
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(a) Financial Advisor

(b) Bank

(c) AMC

13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (). a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose? a. Having only debt portfolio b. Having debt & equity portfolio. c. Only equity portfolio.

15. How would you like to receive the returns every year? Pl. tick (). a. Dividend payout b. Dividend reinvestment c. Growth in NAV

16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (). Yes No

Chapter 5
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ANALYSIS OF DATA

82

ANALYSIS & INTERPRETATION OF THE DATA

1. (a) Age distribution of the Investors of LUCKNOW

Age Group No. of Investors

<= 30 12

31-35 18

36-40 30

41-45 24

46-50 20

>50 16

Investors invested in Mutual Fund

35 30 25 20 15 10 5 0 <=30 31-35 36-40 41-45 46-50 >50 Age group of the Investors 12 18 30 24 20 16

Interpretation:

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According to this chart out of 120 Mutual Fund investors of Lucknow the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.

(b). Educational Qualification of investors of Lucknow

Educational Qualification Graduate/ Post Graduate Under Graduate Others Total Number of Investors 88 25 7 120

84

6% 23%

71%

Graduate/Post Graduate
85

Under Graduate

Others

6% 23%

71%

Graduate/Post Graduate

Under Graduate

Others

Interpretation:
Out of 120 Mutual Fund investors 71% of the investors in lucknow are Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC).

86

c). Occupation of the investors of lucknow Occupation of customer Govt. service Pvt. Service Business Agriculture Others No. of investors 35 45 30 04 06

87

50 No. of Investors 40 30 20 10 0 Govt. Service Pvt. Service Business 35 45 30 4 Agriculture 6 Others

Occupation of the customers

88

Interpretation: In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in others. (d). Monthly Family Income of the Investors of lucknow. Income Group
<=10,000 10,001-15,000 15,001-20,000 20,001-30,000 >30,000

No. of Investors
5

12 28 43 32

89

50 45 40 35 30 25 20 15 10 5 0

No. of Investors

43 28 5 <=10 12 10-15 15-20 20-30 >30 32

Income Group of the Investorsn (Rs. in Th.)

Interpretation: In the Income Group of the investors of lucknow, out of 120 investors, 36% investors that is the maximum investors are in the monthly income group Rs. 20,001 to Rs. 30,000, Second one i.e. 27% investors are in the monthly income group of more than Rs. 30,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000
90

(2) Investors invested in different kind of investments.

Kind of Investments
Saving A/C

Fixed deposits Insurance Mutual Fund Post office (NSC) Shares/Debentures Gold/Silver Real Estate

No. of Respondents 195 148 152 120 75 50 30 65

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Kinds of Investment

Po st O G Sa In ffi su vi ce old ng /S ra ( ilv nc NS A/ C) er e c

65 30 50 75 120 152 148 195 0 50 100 150 200 250

No.of Respondents

Interpretation: From the above graph it can be inferred that out of 200 people, 97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or Debentures, 15% in Gold/Silver and 32.5% in Real Estate.

92

3. Preference of factors while investing

Factors (a) Liquidity (b) Low Risk No. of Respondents 40 60 (c) High Return 64 36 (d) Trust

93

18%

20%

32%

30%

Liquidity

Low R k is

H hR ig eturn

Trus t

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Interpretation: Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust

4. Awareness about Mutual Fund and its Operations

Response No. of Respondents

Yes 135

No 65

95

33%

67%

Y es

No

Interpretation: From the above chart it is inferred that 67% People are aware of Mutual Fund and its operations and 33% are not aware of Mutual Fund and its operations.

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5. Source of information for customers about Mutual Fund

Source of information Advertisement Peer Group Bank Financial Advisors No. of Respondents 18 25 30 62

7 0 6 0 5 0 4 0 3 0 2 0 2 5 1 0 1 8 0 Advertisem entPeer Group

No. of R espondents

6 2 3 0 B nk a F ncia ina l Advisors

S ource of Inform tion a

Interpretation: From the above chart it can be inferred that the Financial Advisor is the most important source of information about Mutual Fund. Out of 135 Respondents, 46% know about Mutual

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fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement.

6. Investors invested in Mutual Fund

Response YES NO Total No. of Respondents 120 80 200

No 40%

Yes 60%

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Interpretation: Out of 200 People, 60% have invested in Mutual Fund and 40% do not have invested in Mutual Fund.

7. Reason for not invested in Mutual Fund

Reason Not Aware Higher Risk Not any Specific Reason No. of Respondents

65 5 10

99

13%

6%

81%
Not Aware H her R k ig is Not Any

Interpretation: Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of Mutual Fund, 13% said there is likely to be higher risk and 6% do not have any specific reason.

8. Investors invested in different Assets Management Co. (AMC)

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Name of AMC
SBIMF UTI HDFC Reliance ICICI Prudential Kotak Others

No. of Investors 55 75 30 75 56 45 70

101

Others HDFC Name of AMC Kotak SBIMF ICICI Reliance UTI 0 20 40 No. of Investors 60 30 45 55 56

70

75 75 80

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Interpretation: In lucknow most of the Investors preferred UTI and Reliance Mutual Fund. Out of 120 Investors 62.5% have invested in each of them, only 46% have invested in SBIMF, 47% in ICICI Prudential, 37.5% in Kotak and 25% in HDFC.

9. Reason for invested in HDFCMF Reason

Associated with SBI Better Return Agents Advice

No. of Respondents
35 5 15

103

27%

9%

64%

As ociated with S s BI

B etter R eturn

Ag ents Advice

Interpretation: Out of 55 investors of HDFCMF 64% have invested because of its association with Brand HDFC, 27% invested on Agents Advice, 9% invested because of better return.

10. Reason for not invested in HDFCMF

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Reason
Not Aware Less Return Agents Advice

No. of Respondents
25 18 22

34%

38%

28%
Not Aware L Return ess Ag ent's Advice

Interpretation: Out of 65 people who have not invested in HDFCMF, 38% were not aware with HDFCMF, 28% do not have invested due to less return and 34% due to Agents Advice. 11. Preference of Investors for future investment in Mutual Fund
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Name of AMC
SBIMF UTI HDFC Reliance ICICI Prudential Kotak Others

No. of Investors 76 45 35 82 80 60 75

Others K otak Nam of AMC e IC I Prudential IC R eliance H F DC UTI S BIMF 0 20 35 45 60

75

80 82

76 40 60 80 100

No. of Inves tors

Interpretation:

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Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential, 63% in SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC Mutual Fund. 12. Channel Preferred by the Investors for Mutual Fund Investment
Channel No. of Respondents Financial Advisor 72 Bank 18 AMC 30

25%

15%
F ncia Advisor ina l B nk a AMC

60%

Interpretation:

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Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through AMC and 15% through Bank. 13. Mode of Investment Preferred by the Investors
Mode of Investment No. of Respondents One time Investment 78 Systematic Investment Plan (SIP) 42

35%

65%

One tim Inves ent e tm

S IP

Interpretation:

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Out of 120 Investors 65% preferred One time Investment and 35 % Preferred through Systematic Investment Plan. 14. Preferred Portfolios by the Investors Portfolio
Equity Debt Balanced

No. of Investors
56 20 44

37%

46%

17%

Equity

D ebt

Balance

Interpretation:

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From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17% preferred Debt portfolio 15. Option for getting Return Preferred by the Investors
Option No. of Respondents Dividend Payout 25 Dividend Reinvestment 10 Growth 85

21%

8% 71%
D ividend Payout D ividend R einves ent tm Growth

Interpretation:

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From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout and 8% preferred Dividend

Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral Funds Response Yes No No. of Respondents 25 95

21%

79%

Y es

No

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Interpretation: Out of 120 investors, 79% investors do not prefer to invest in Sectoral Fund because there is maximum risk and 21% prefer to invest in Sectoral Fund.

CHAPTER -7

112

Research report

Objective of research;

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 The main objective of this project is concerned with getting the opinion of people regarding mutual funds and what they feel about availing the services of financial advisors. I have tried to explore the general opinion about mutual funds. It also covers why/ why not investors are availing the services of financial advisors.
Along with it a brief introduction to Indias largest financial

intermediary, HDFC has been given and it is shown that how they operate in mutual fund depts. Scope of the study: The research was carried on in the Northern Region of India. It is restricted to LUCKNOW. I have visited people randomly nearby my locality, different shopping malls, small retailers etc. Data sources: Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites and some special publications of HDFC.

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Sampling: Sampling procedure:

The sample is selected in a random way, irrespective of them being investor or not or availing the services or not. It was collected through mails and personal visits to the known persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using the measures of central tendencies like mean, median, mode. The group has been selected and the analysis has been done on the basis statistical tools available. Sample size: The sample size of my project is limited to 200 only. Out of which only 135 people attempted all the questions. Other 65 not investing in MFs attempted only 2 questions. Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

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Limitation: Time limitation. Research has been done only at LUCKNOW. Some of the persons were not so responsive. Possibility of error in data collection. Possibility of error in analysis of data due to small sample size.

Data analysis: Have you ever invested/ interested to invest in mutual funds? YES NO 135 65

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.what is the most important reason for not investing in mutual funds? (only for above 65 participants)

Lack of knowledge about mutual 25 funds Enjoys investing in other options 10 Its benefits are not enough to drive 18 you for investment No trust over the fund managers 12
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 .where do you find yourself as a mutual fund investor?

Totally ignorant Partial knowledge of MFs

28 37

118

Aware of only scheme in which 46 invested Good knowledge of MFs 24

.where from you purchases mutual funds?

119

Directly from the AMCs Brokers only ( large intermediaries) Broker/ sub-brokers Other sources

33 28 59 15

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Chapter 8 Findings and Conclusion

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Findings

In LUCKNOW in the Age Group of 36-40 years were more in

numbers. The second most Investors were in the age group of 41-45 years and the least were in the age group of below 30 years.

In LUCKNOW most of the Investors were Graduate or Post

Graduate and below HSC there were very few in numbers. In Occupation group most of the Investors were Govt. employees,

the second most Investors were Private employees and the least were associated with Agriculture. In family Income group, between Rs. 20,001- 30,000 were more in

numbers, the second most were in the Income group of more than Rs.30,000 and the least were in the group of below Rs. 10,000. About all the Respondents had a Saving A/c in Bank, 76% Invested

in Fixed Deposits, Only 60% Respondents invested in Mutual fund.

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Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least preferred Trust. Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not. Among 200 Respondents only 60% had invested in Mutual Fund

and 40% did not have invested in Mutual fund. Out of 80 Respondents 81% were not aware of Mutual Fund, 13%

told there is not any specific reason for not invested in Mutual Fund and 6% told there is likely to be higher risk in Mutual Fund.

Most of the Investors had invested in Reliance or UTI Mutual

Fund, ICICI Prudential has also good Brand Position among investors, HDFCMF places after ICICI Prudential according to the Respondents.

Out of 55 investors of HDFCMF 64% have invested due to its

association with the Brand HDFC, 27% Invested because of Advisors Advice and 9% due to better return.

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Most of the investors who did not invested in HDFCMF due to not

Aware of HDFCMF, the second most due to Agents advice and rest due to Less Return.

For Future investment the maximum Respondents preferred

Reliance Mutual Fund, the second most preferred ICICI Prudential, HDFCMF has been preferred after them. 60% Investors preferred to Invest through Financial Advisors, 25%

through AMC (means Direct Investment) and 15% through Bank. 65% preferred One Time Investment and 35% preferred SIP out

of both type of Mode of Investment. The most preferred Portfolio was Equity, the second most was

Balance (mixture of both equity and debt), and the least preferred Portfolio was Debt portfolio. Maximum Number of Investors Preferred Growth Option for

returns, the second most preferred Dividend Payout and then Dividend Reinvestment.

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Most of the Investors did not want to invest in Sectoral Fund, only

21% wanted to invest in Sectoral Fund.

Conclusion
Running a successful Mutual Fund requires complete

understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC), Products, and Channels etc. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund. They need the knowledge of Mutual Fund and its related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As

125

the awareness and income is growing the number of mutual fund investors are also growing. Brand plays important role for the investment. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in LUCKNOW but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. HDFC, Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known Brand, they are performing well and their Assets Under Management is larger than others whose Brand name are not well known like Principle, Sunderam, etc. Distribution channels are also important for the investment in mutual fund. Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investors mind from one investment option to others. Many of investors

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directly invest their money through AMC because they do not have to pay entry load. Only those people invest directly who know well about mutual fund and its operations and those have time.

Chapter 9
127

Suggestions And Recommendations

Suggestions and Recommendations

128

The most vital problem spotted is of ignorance. Investors should be

made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option

could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time. Mutual Fund Company needs to give the training of the Individual

Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.

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Before making any investment Financial Advisors should

first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration. Younger people aged under 35 will be a key new customer group

into the future, so making greater efforts with younger customers who show some interest in investing should pay off. Customers with graduate level education are easier to sell to and

there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality. Systematic Investment Plan (SIP) is one the innovative products

launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.

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BIBLIOGRAPHY
NEWS PAPERS OUTLOOK MONEY TELEVISION CHANNEL (CNBC AAWAJ) MUTUAL FUND HAND BOOK FACT SHEET AND STATEMENT WWW.HDFCMF.COM WWW.MONEYCONTROL.COM WWW.AMFIINDIA.COM WWW.ONLINERESEARCHONLINE.COM

WWW. MUTUALFUNDSINDIA.COM

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