SUMMER INTERNSHIP FINAL REPORT

ON
COMPARATIVE ANALYSIS OF DIFFERENT INVESTMENT
ALTERNATIVES

FOR THE PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE AWARD OF
POST GRADUATE DIPLOMA IN MANAGEMENT

Under the guidance of: Under the supervision of

Dr. Anubha gupta Mr. Hemant Nanda
Branch Manager
HDFC bank, Gomtinagar

Submitted by:
ANANT DEV MISHRA
PGDM 2008-10

INSTITUTE OF MANAGEMENT RESEARCH AND

TECHNOLOGY,
(APPROVED BY AICTE, MINISTRY OF HRD, GOVT. OF INDIA)
VIPUL KHAND-6 GOMTINAGAR LUCKNOW

FINAL REPORT
On
Comparative analysis of different investment
alternatives with mutual fund

By
ANANT DEV MISHRA
at

Summer internship report

2
 ACKNOWLEDGMENT
“Expression of feelings by words makes them less significant when it comes to make

statement of gratitude”

The Joy of Exploring! That’s why I am drawn to research work. Completion of this project to

the satisfaction of the company (HDFC bank Limited) is one of the most difficult and

interesting jobs I have ever done. First of all I am grateful to the GOD and my PARENTS

who gave me courage and moral support during hard times in the project development stages.

I thank the HDFC management, to provide me with this opportunity to practice my

knowledge about Research Methodology tools and especially to MR. HEMANT NANDA

under whom I undertook my research work, for his valuable suggestions and guidance.

I am grateful to all those people who could not find their place here but have helped me in

some ways.

ANANT DEV MISHRA

3
 DECLARATION

I hereby declare that this Project Report entitled “comparative analysis of different

investment alternatives” in HDFC bank ltd. submitted in the partial fulfilment of the

requirement of Post Graduate Diploma of Management (PGDM) to Institute of Management

Research & Technology, Lucknow is based on primary & secondary data found by me in

various departments, books, magazines and websites & Collected by me in under guidance of

Mr. HEMANT NANDA

I further declare that all the facts and figures furnished in this project report are the outcome

of my own intensive research and findings.

Submitted by-

ANANT DEV MISHRA

4
 PREFACE
Mutual fund is a trust that pools money from a group of investors (sharing common financial

goals) and invests the money thus collected into asset classes that match the stated investment

objectives of the schemes. Since the stated investment objectives of a mutual fund scheme

genrally forms the basis for an investor’s decision to contribute money to the pool, a mutual

fund can not deviate from its stated objective at any point of time.

Every mutual fund is managed by a fund manager, who using his investment management

skills and necessary research works ensures much better return than what an investor can

manage on his own. The capital appreciation and other incomes earned from these

investments are passed on to the investor (also known as unit holders) in proportion of the

number of units they own. Every Asset Management Company (AMC) sells its product with

the help of distributor .The distributor gets the fixed commission in return. Each Asset

Management Company adopt different ways to promote their mutual fund so that they can

attract more and more money.

5
The project focuses upon different ways of promoting and selling mutual funds. The project

also focuses on the core basic of mutual funds, their types, their promotional schemes and my

experiences of promoting and selling mutual funds. The project also focuses on impressing

the host organization with our hard work, sincerity, knowledge and ethics and the project also

focuses on customer segmentation on different investment basis.

Table of contents
S. no. Title Page no.
1. Acknowledgement 3
2. Declaration 4
3. Preface 5
4. Executive summary 10
5. Banking in India 12-20

➢ Banking overview
➢ Notification
➢ Liberalisation
➢ Current scenario
➢ Structure
6. About HDFC bank 21-26
7. Strategies of HDFC bank 27-32

➢ Business strategy

6
 ➢ Positioning strategy
➢ Life cycle segmentation strategy
8. Organisational chart 33
9. Product & services 34-44

➢ A/c & deposits

➢ Loans
➢ Cards
➢ Investment & insurance
➢ Forex services
➢ Payment services
10. Department in HDFC 45-48
11. About mutual fund 49-55

➢ Introduction
➢ Concept
➢ Investment strategy
12. Type of mutual fund 56-62
13. Risk Vs return 63
14. Performance evaluation of mutual fund 64-68

➢ Risk
➢ Return
➢ Liquidity
➢ Expense Ratio
➢ Composition of portfolio
15. How do investor choose between mutual fund 69-71
16. Time to invest 72
17. Most lucrative sectors & funds 73-76
18. Other investment options 77-84

7
19. Objective of study 85
20. Research methodology 87-88
21. Data analysis & interpretation 89-114
22. Findings 115
23. Conclusion 117
24. Suggestions % recommendations 118
25. Limitations of the study 119
26. overall experience 120
27. Bibliography 121
28. Annexure 122

List of figure

No. of figures Title Page no.

Fig. 1 Growth in banking assets 15
Fig. 2 Banking structure 19

8
Fig. 3 GDP paid to mortgages 31
Fig. 4 Org. Structure of HDFC bank 33
Fig. 5 What is Mutual fund 51
Fig. 6 Concept of mutual fund 52
Fig. 7 Types of mutual fund 57
Fig. 8 Mutual fund by objectives 58
Fig. 9 Risk Vs return 63
Fig. 10 Performance evaluation 65
Fig. 11 Right time to invest 72
Fig. 12 No of mutual fund betting on the sectors 75
Fig. 13 Most popular stocks 76
Fig. 14 Age distribution in corporate 90
Fig. 15 Gender wise distribution 91
Fig. 16 Income wise distribution 92
Fig. 17 No. of persons invested in mutual fund 93
Fig. 18 No. of females invested in mutual fund 94
Fig. 19 No. of males invested in mutual fund 96
Fig. 20 Causes of not investing in mutual fund 96
Fig. 21 Satisfaction level of investors 97
Fig. 22 Return expectation of investors 98
Fig. 23 Investment criteria 99
Fig. 24 Purpose of investment 100
Fig. 25 Age wise Investment motives 101
Fig. 26 Income wise investment motives 102
Fig. 27 Most preferred investment 103
Fig. 28(I) Age wise distribution of investment choices 104
Fig. 28(II) Income wise distribution of investment choices 105
9
111Fig. 28(III) No. of mutual fund investor choosing other 106
options
Fig. 28(IV) MF chosen by persons preferring other options 107
Fig. 29 Factors a investor like to have in mutual fund 108
Fig. 30 Returns 109
Fig. 31,32 Liquidity, investment objective 110
Fig. 33,34 Tax saving, past performance, service from agent 111
Fig. 35,36 Security, market conditions 112
Fig. 37,38 Reputation of the company, friends relatives 113
Fig. 39 Fund manager 114

10
 EXECUTIVE SUMMARY

In few years Mutual Fund has emerged as a tool for ensuring one’s 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 56% of the people with incomes

in India do not invest in mutual fund and 21% of the people 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 investors

11
This Project as a whole can be divided into three parts. The first part gives an insight about

the Company Profile and various strategies adopted, Objectives of the study, Research

Methodology. The second part of the Project consists of data and its analysis collected

through survey done on 100 people. For the collection of Primary data I made a questionnaire

and surveyed of 100 people. I also taken interview of many People those whom we visit at

their corporate and tried to cross sell our products i.e. Mutual Fund. The third part gives a

brief overview of what is mutual fund and its various features. One can have a brief

knowledge about Mutual Fund and its basics through the Project.

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 “COMPARITIVE ANALYSIS

OF DIFFERENT INVESTMENT ALTERNATIVES.” The data collected has been well

organized and presented. I hope the research findings and conclusion will be of use.

12
13
 BANKING IN INDIA

The Indian banking scenario witnessed a significant development in the recent years with

the entry of private banks and their focus on retail banking and convergence of services. The

business models of the leading players are adapting to this impending change as banks

widen the spectrum of savings and loan products they offer. Private Banks are the best

positioned to acquire market share in the emerging scenario: A change is expected to make

mergers between banks and Foreign Institutional Investors possible, which will. Benefit

14
large private bank group(s).

Nationalization

A significant milestone in Indian Banking happened in the late 1960s when the then Indira

Gandhi government nationalized, on 19th July, 1969, 14 major commercial Indian banks,

followed by nationalization of 6 more commercial Indian banks in 1980. The stated reason

for the nationalization was more control of credit delivery. After this, until the 1990s, the

nationalized banks grew at a leisurely pace of around 4%-also called as the Hindu growth of

the Indian economy.

After the amalgamation of New Bank of India with Punjab National Bank, currently there are

19 nationalized banks in India.

Liberalization

In the early 1990s the then Narasimha Rao government embarked on a policy of liberalisation

and gave licenses to a small number of private banks, which came to be known as New

Generation tech-savvy banks, which included banks like ICICI Bank and HDFC Bank. This

move along with the rapid growth in the economy of India, kick started the banking sector in

15
India, which has seen rapid growth with strong contribution from all the three sectors of

banks, namely, government banks, private banks and foreign banks. However there had been

a few hiccups for these new banks with many either being taken over like Global Trust Bank

while others like Centurion Bank have found the going tough.

The next stage for the Indian banking has been setup with the proposed relaxation in the

norms for Foreign Direct Investment, where all Foreign Investors in banks may be given

voting rights which could exceed the present cap of 10%.

Current scenario Indian banking industry

The Indian banking market is growing at an astonishing rate, with Assets expected to reach

US$1 trillion by 2010. An expanding economy, middle class, and technological innovations

16
are all contributing to this growth. The country’s middle class accounts for over 320 million

people. In correlation with the growth of the economy, rising income levels, increased

standard of living, and affordability of banking products are promising factors for continued

expansion.

Fig. 1

The Indian banking Industry is in the middle of an IT revolution, Focusing on the expansion

of retail and rural banking. Players are becoming increasingly customer - centric in their

approach, which has resulted in innovative methods of offering new banking products and

services. Banks are now realizing the importance of being a big player and are beginning to

focus their attention on mergers and acquisitions to take advantage of economies of scale

and/or comply with Basel II regulation. “Indian banking industry assets are expected to reach

US$1 trillion by 2010 and are poised to receive a greater infusion of foreign capital,” says

Prathima Rajan, analyst in Celent's banking group and author of the report. “The banking

industry should focus on having a small number of large players that can compete globally

rather than having a large number of fragmented players."

FUTURE OUTLOOK

17
• Total banking assets are expected to double and grow to $915 billion by 2010 - a

CAGR of 15%

• $70 billion additional equity needed for growth plus Basel II compliance

• Mutual Funds: Assets Under Management (AUM) are expected to grow by 15% till

2010

POTENTIAL

• Demographic profile favours higher retail offtake - 54% of the population is in the 15-

35 years age group

• Capital expenditure by the Government and private industry is expected to grow at a

high rate

• Economic growth of about 12% p.a. in nominal terms

• SME lending, a largely untapped market, presents a significant opportunity - SMEs

account for 40% of the industrial output and 35% of direct exports

• Regulatory and technological enablers leading to high growth:

• The Banking system is technologically enabled with RTGS and cheque truncation in

place

18
 BANKING STRUCTURE IN INDIA

The banking institutions in the organized sector, commercial banks are the oldest institutions,

some them having their genesis in the nineteenth century. Initially they were set up in large

numbers, mostly as corporate bodies with shareholding with private individuals. In the sixties

of the 20th century a large number of smaller and weaker banks emerged in the country.

Subsequently there has been a drift towards state ownership and control. Today 27 banks

constitute a strong Public Sector in Indian Commercial Banking.

Commercial Banks operating in India fall under the different sub categories on the basis of

their ownership and control over management.

1. Public Sector Banks: Public Sector Banks emerged in India in three stages. First the

conversion of the then existing Imperial Bank of India into State Bank of India in

1955, followed by the taking over of the seven associated banks as its subsidiary.

Second the nationalization of 14 major commercial banks in 1969and last the

nationalization of 6 more commercial Bank in 1980. Thus 30 banks constitute the

Public Sector Banks.

2. New Private Sector Banks: after the nationalization of the major banks in the private

sector in 1969 and 1980, no new bank could be setup in India for about two decades,

though there was no legal bar to that effect. The Narasimham Committee on financial

19
 sector reforms recommended the establishment of new banks of India. RBI thereafter

issued guidelines for setting up of new private sector banks in India in January 1993.

These guidelines aim at ensuring that new banks are financially viable and

technologically up to date from the start. They have to work in a professional

manner, so as to improve the image of commercial banking system and to win the

confidence of the public.

Eight private sector banks have been established including banks sector by financially

institutions like IDBI, ICICI, and UTI etc.

3. Local Area Banks: Such Banks can be established as public limited companies in the

private sector and can be promoted by individuals, companies, trusts and societies.

The minimum paid up capital of such banks would be 5 crores with promoters

contribution at least Rs. 2 crores. They are to be set up in district towns and the area

of their operations would be limited to a maximum of 3 districts. At present, four

local area banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra

Pradesh.

4. Foreign Banks: foreign commercial banks are the branches in India of the joint stock

banks incorporated abroad. There number was 40 as on 31.03.2009.

5. Cooperative Banks: Besides the commercial banks, there exists in India another set of

banking institutions called cooperative credit institutions. These have been made in

20
 existence in India since long. They undertake the business of banking both in urban

and rural areas on the principle of cooperation. They have served a useful role in

spreading the banking habit throughout the country. Yet, there financial position is

not sound and a majority of cooperative banks has yet to achieve financial viability on

a sustainable basis. Today there are 68 co-operative banks

BANKING STRUCTURE IN INDIA

Reserve bank of India

Central bank and supreme monetary authority

Scheduled Banks

Commercial banks Co-operative banks

Foreign banks Regional Rural banks Urban cooperative State cooperative

(52) (16)
(40) (196)

21
Public sector banks Private sector banks (30)
(27)

Old (22) New (8)

Fig.up2under various Cooperative Societies Acts enacted by

The cooperative banks have been set

State Governments. Hence the State Governments regulate these banks. In 1966, need was

felt to regulate their activities to ensure their soundness and to protect the interests of

depositors. Consequently, certain provisions of the Banking Regulation Act1949 were

made applicable to the cooperative Banks as well. These Banks have thus fallen under dual

control viz., that of the State Government and tat of the RBI which exercises control over

them so far as their banking Operations are concerned.

22
“I am confident that India will become a Developed Nation by 2020. Come, let us

strive together to turn this resolve into reality” – Atal Bihari Vajpayee

23
We understand your world

24
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.

Promoted in 1995 by Housing Development Finance Corporation (HDFC), India's

leading housing finance company, HDFC Bank is one of India's premier banks

providing a wide range of financial products and services to its over 15 million customers

across hundreds of Indian cities using multiple distribution channels including a pan-India

network of branches, ATMs, phone banking, net banking and mobile banking. Within a

relatively short span of time, the bank has emerged as a leading player in retail banking,

wholesale banking, and treasury operations, its three principal business segments.

The bank’s competitive strength clearly lies in the use of technology and the ability to deliver

world-class service with rapid response time. Over the last 13 years, the bank has

successfully gained market share in its target customer franchises while maintaining healthy

profitability and asset quality.

As of March 31, 2009, the Bank had a distribution network with 1,412 branches and 3,295

ATMs in 528 cities.

For the quarter ended March 31, 2009, the Bank earned total income of INR 53.65 billion

(Rs.5,365.5crore) as against INR 35.05 billion (Rs.3,505.5crore) in the corresponding period

25
of the previous year. Net revenues (net interest income plus other income) for the quarter

ended March 31, 2009 were INR 29.66 billion (Rs.2, 966.7crore), up by 35.4% over INR

21.91 billion (Rs.2191.4crore) for the quarter ended March 31, 2008. Net Profit for the

quarter ended March 31, 2009 was INR 6.30 billion (Rs.630.9crore), up by 33.9% over the

corresponding quarter ended March 31, 2008.

The Bank’s total balance sheet size increased by 37.6% from INR 1331.77 billion (Rs.

133,177 crore) as of March 31, 2008 to INR 1832.71 billion (Rs.183,271crore) as of March

31, 2009. Total deposits were INR 1428.12 billion (Rs.142,812crore), an increase of 41.7%

from March 31, 2008.

Total income for the year ended March 31, 2009 grew by 58.2% to INR 196.22 billion

(Rs19622.9crore) over the corresponding year ended March 31, 2008.

Leading Indian and international publications have recognized the bank for its performance

and quality.

Vision

To build a world class bank

Mission
26
Use enabling technology to provide valued added products and services to customers. The

objective is to build sound customer franchises across distinct businesses so as to be the

proffered provider of banking services for target retail and wholesale customer segments, and

to achieve healthy growth in profitability, consistent with the bank’s risk appetite. The bank

is committed to maintain the highest level of ethical standards, professional integrity,

corporate governance and regulatory compliance.

Market Position of HDFC bank

27
CRISIL`s rating reflects HDFC Bank`s healthy resource profile, strong asset quality and

earnings profile. The rating is also supported by HDFC Bank`s good market position and

healthy capitalisation levels which enables it to absorb asset-side risks.

HDFC Bank has a healthy resource profile, backed by a large deposit base, coupled with a

high proportion of low-cost current and savings account (CASA) deposits. During the last

one year, the bank`s deposit base has grown by around 50%; as on Dec. 31, 2007, HDFC

Bank had deposits of Rs 993.87 billion, of which CASA deposits constituted 50.9%, as

against the system average of 36%. The bank has a high proportion of stable retail deposits,

which account for about 64% of its total deposits. The high CASA levels and limited reliance

on wholesale deposits have enabled the bank to maintain a low cost of deposits; the bank`s

cost of deposits, at 4.34% in 2006-07 (refers to financial year, April 1 to March 31), was

among the lowest in the industry.

The bank`s corporate loan book is healthy, with a large exposure to entities rated AAA and

AA. The bank`s retail portfolio also exhibits healthy asset quality. HDFC Bank has

implemented stringent appraisal mechanisms and strong origination skills. Consequently, as

on Dec. 31, 2007, HDFC Bank`s gross NPAs stood at 1.2% of total advances, as against the

system average estimated at around 3%.

Further, HDFC Bank`s strong earnings profile is marked by a high net profitability margin

(NPM) of 3.03% (on a yearly average basis for 2006-07), as against the system average of

1.6%. The bank derives its high profitability levels from its low cost of deposits. Its

28
profitability is also supported by fee income of 1.8%, which is higher than the system average

of 1.1%.

HDFC Bank`s healthy capitalisation is underpinned by its large net worth of Rs 113.58

billion translating into a high Tier I capital adequacy ratio of 10.5% as on Dec. 31, 2007. In

June and July of 2007, the bank raised equity from its promoters and through an American

Depository Share (ADS) issue. Additionally, HDFC Bank is the second largest private sector

bank in India, with a market share of 3.2%. The bank has a widespread network of branches

and automatic teller machines, although these are restricted largely to the urban areas. HDFC

Bank is also the second largest player in the non-mortgage retail finance segment.

Shares of the company gained Rs 25, or 1.62%, to settle at Rs 1,564.1. The total volume of

shares traded was 36,860 at the BSE. (Friday)

29
30
Business Strategy of HDFC bank

HDFC BANK mission is to be "a World Class Indian Bank", benchmarking themselves

against international standards and best practices in terms of product offerings, technology,

service levels, risk management and audit & compliance. The objective is to build sound

customer franchises across distinct businesses so as to be a preferred provider of banking

services for target retail and wholesale customer segments, and to achieve a healthy growth in

profitability, consistent with the Bank's risk appetite. Bank is committed to do this while

ensuring the highest levels of ethical standards, professional integrity, corporate governance

and regulatory compliance. Continue to develop new product and technology is the main

business strategy of the bank. Maintain good relation with the customers is the main

and prime objective of the bank.

Strategy emphasises on following:

• Increase market share in India’s expanding banking and financial services industry by

following a disciplined growth strategy focusing on quality and not on quantity and

delivering high quality customer service

31
 • Leverage our technology platform and open scalable systems to deliver more products

to more customers and to control operating costs.

• Maintain current high standards for asset quality through disciplined credit risk

management.

• Develop innovative products and services that attract the targeted customers and

address inefficiencies in the Indian financial sector

• Continue to develop products and services that reduce bank’s cost of funds.

• Focus on high earnings growth with low volatility

HDFC Unique Positioning

HDFC incorporated without any government ownership, allowing it to have a very unique

position within the Indian economy. Even though HDFC did not suffer from

government ownership, its major competitors did. Up to this day, nineteen different Indian

banks are considered nationalized.

Private banks without any government ownership generally are held liable by their

shareholders and generally strive to maximize profits. In addition, without any government

ownership these organizations face a real potential for going bankrupt without any help from

the government. These realities encompass a hard budget constraint, which means the

organization faces a real chance of death; the management will have more of an incentive to

grow and expand the business.

The government ownership of these banks conceivable changes the priorities of these banks

from profit maximization to abiding by what priorities the Indian government lays down. If

32
the Indian government decides that the additional growth is necessary within small business

loans; the Indian banks will feel pressured to issue all loans that are in relation to small

business’s even if they may result in a lose. In addition, government controlled banks will

fear bankruptcy less because of the fact their organization is owned by the Indian

government. This mentality will result in these organizations being run less efficiently as well

as less emphasis placed on profit maximization.

Therefore, HDFC, one of the few private banks in India with profit maximization as its sole

priority competing against government controlled banks with possibly multiple priorities in

one of the premier growth markets.

The Growing Indian Middle Class

The central customer base for HDFC is India’s middle class and upper class. In the last

ten years the percentage of the population that makes up the middle class has doubled

from 7% to nearly 15%.5 The current economic growth of seven percent will probably be

maintained for the foreseeable future allowing for additional growth in the middle class.

By all accounts, if the growth rate is maintained then half of India will turn middle class

between 2020 and 2040.

These potential growth prospects for HDFC are enormous especially with their key client

base will experience so much growth over the next two decades assuming that current growth

rates are maintained.

HDFC Present Strategy

33
Mortgages In India

HDFC present strategy concentrates greatly around the growth of the Indian mortgage

market. At present mortgage payments only contribute approximately 3 percent of India’s

GDP as compared to other countries with significantly bigger mortgage markets. HDFC

believes it can break the cultural barrier and expand into the Indian mortgage market, which

has the potential for tremendous growth. Factors working for a good market scenario:

• Rising Disposable Income

• Low Interest Rates

• Generally Stable Property Prices

• Increased Urbanization

• Housing Shortages 7

Percentage GDP Paid to Mortgages vs. Individual Countries

Percentage GDP Paid to Mortgages vs. Individual Countries

HDFC has the ability to expand the present Indian mortgage market because of the ideally

strong market climate, but also because HDFC has the home court advantage in respect to

culture in India. Like most culture, Indians would like to borrow from a “local” bank rather

than a foreign controlled bank such as Citigroup or HSBC.

Fig. 3

34
Life cycle segmentation strategy

Lifecycle strategies are the most common used approach in segmenting investor based on

their income group and determining the investment. This approach is based on the financial

periods of an investor during his or her life. The table below illustrates the different strategies

of banks which it presents to the investor which he or she can take at different points of his or

her life

Early years Middle years Leading to Retirement years

(Up to mid 30s) (Mid 30s-late retirement (50+ years)
40s) (Late 40s-
retirement)

Your goals Get Started Build and Consolidate for Income and
Invest future Security

Your Build emergency Increase savings Maximise Invest to

investment fund Start investing Set solid savings investment generate
life stage Set short-term strategy Focus Goals tend to sufficient return
financial goals on short, shift to medium- for living
medium and term expenses Focus
long- term on meeting short
financial goals to medium- term
goals

35
Your When and how to Family Plan To have
concerns start saving commitments retirement sufficient
Savings need to be (mortgage, Manage existing income for
liquid to cover short- paying for investments to retirement
term obligations child’s obtain Return on
education) maximum investment that
Managing returns is sufficient to
investments maintain pre-
retirement living
standards

Your Develop a plan Diversify Ensure Continue to

investment Start investing investments diversification invest but shift
strategies regularly to save for Larger but re-evaluate asset allocation
asset allocation mix towards
short-term needs and proportion of mix by reducing
retirement Growth growth/equity the percentage more
oriented investments investments of higher risk conservative
for longer term investments assets

ORGANISATIONAL CHART

Managing director

Group head

Business head

Regional head Product head

36

State head/ Zone head

Product manager

RMSr.
1/Relationship
RM 2/
manager/ RM 3/ RM 4/
Fig. 4

37
 PRODUCTS AND SERVICES

Accounts and deposits

1. Savings account: These accounts are primarily meant to inculcate a sense of

saving for the future, accumulating funds over a period of time. Whatever your

38
 occupation, we are confident that you will find the perfect banking solution. Open an

account in your name or register for one jointly with a family member today

a) Regular savings account

b) Savings plus

c) Savings max account

d) “No frills” savings account

e) Senior citizen account

f) Institutional saving account

g) Salary account

• Classic:

• Payroll

• Regular

• Premium

• Defence

• Kisan No Frills savings

• Reimbursement

1. Current account: Now, with an HDFC Bank Current Account, experience the
freedom of multi-city banking! You can have the power of multi-location access to

your account from any of our 1412 branches in 528 cities. Not only that, you can do

most of your banking transactions from the comfort of your office or home without
39
 stepping out.

We make it our business to help you with your business by offering you a Current

Account with all the benefits you need to stay ahead of your competition.

At HDFC Bank, we understand that running a business requires time and money, also

that your business needs are constantly evolving. That's where we come in. We

provide you with a choice of Current Account options to exclusively suit your

business - whatever the size or scope.

Open an HDFC Bank Current Account & control your business operations centrally.

a) Plus current account

b) Regular current account

c) Apex current account

d) Trade current account

e) RFC-domestic account

f) Max current account

g) Premium current account

h) Flexi current account

1. Fixed deposits: Long-term investments form the chunk of everybody's future

plans. An alternative to simply applying for loans, fixed deposits allow you to borrow

40
 from your own funds for a limited period, thus fulfilling your needs as well as

keeping your savings secure.

a) Regular Fixed deposits:

b) Super saver:

c) Sweep in facility

d) 5 year tax savings

1. Demat account: HDFC BANK is one of the leading Depository Participant (DP)
in the country with over 8 Lac demat accounts.

HDFC Bank Demat services offers you a secure and convenient way to keep track of

your securities and investments, over a period of time, without the hassle of handling

physical documents that get mutilated or lost in transit.

HDFC BANK is Depository particpant both with -National Securities Depositories

Limited (NSDL) and Central Depository Services Limited (CDSL).

2. Safe deposits locker: A Safe Deposit Locker with HDFC Bank is the solution to

your concern. Located at select branches in cities all over the country, our lockers

ensure the safe keeping of your valuables.

41
Loans
Haven't you occasionally dreamt of buying a PC, a car of your choice or even travelling

abroad? Your dreams are now within your reach. Whatever your need, we offer an entire

range of loan products

1. Personal loans

2. Smart draft

3. Home loans

4. Two wheeler loans

5. New car loans

6. Used car loans

7. Express loans

8. Gold loans

9. Educational loans

10. Loans against securities

11. Loan against property

12. Loan against rental receivables

13. Tractor loans

14. Commercial vehicle finance

15. Working capital finance

16. Construction equipment finance

17. Warehouse receipt finance

42
Cards

1. Credit cards: Besides arming you with unmatched spending power, our Credit
Cards are designed to meet your unique needs. Choose one that's tailored for you. The

best credit cards are available here, including even the online credit cards service

Netsafe.

a) Classic card

• Silver credit card

a) Special benefit cards

• Value plus benefit cards

a) Premium cards

• Gold credit cards

• Titanium credit cards

• Woman’s gold card

• Platinum plus credit cards

• Visa signature credit cards

• World master card credit card

a) Commercial cards

• Corporate platinum cards

• Corporate credit cards

• Business credit cards

43
1. Debit cards: What if you could carry your bank account with you? HDFC Bank
Debit Cards give you complete and instant access to the money in your accounts

without the risk or hassle of carrying cash

a) Classic card

• Easy shop international debit card

a) Premium cards

• Easy shop gold debit cards

a) Specialised cards

• Easy shop international business debit card

• Easy shop woman’s advantage debit card

• Easy shop NRO debit card

• Kisan card

• Easy shop pro gold debit debit card

1. Prepaid cards: besides offering convenience, our prepaid cards have been

tailored to answer your travel and gifting needs.

a) Forex plus card: A pre-paid traveller's card designed to give you a secure and

hassle-free travel experience

b) Gift plus card: A pre-paid gift card designed to give your loved ones the freedom

to buy the gift of their choice.

44
 c) Food plus card: Prepaid Food Plus Card - Freedom from cumbersome meal

vouchers

d) Money plus card: The Corporate Payment Card - Freedom from cash

disbursement / administrative hassles.

Investment and insurance

When you bank with us, we ensure your money is not just in safe hands; it also works to your

advantage. We help you invest wisely through our financial and investment services. Profit

from our expertise.

1. Mutual fund: Invest through the Mutual Fund route to meet your varied

investment objectives.

2. Insurance: Life insurance is designed to offer financial protection for you and

your family during the times of uncertainties. Choose from a range of traditional

insurance and unit linked plans designed to help you with your savings, retirement,

investment and protection needs.

Traditional plans Unit linked plans

HDFC Children's Plan HDFC unit linked young star plus 2

HDFC money back plan HDFC unit linked endowment plus 2

HDFC saving assurance plan HDFC unit linked enhanced life protection 2

HDFC assurance plan HDFC unit linked pension 2

HDFC term assurance plan HDFC unit linked endowment 2

HDFC loan cover term assurance plan HDFC unit linked young star 2

HDFC endowment assurance plan HDFC unit linked pension maximiser 2

45
HDFC single premium whole of life HDFC unit linked young star champion

insurance plan

HDFC unit linked endowment winner

HDFC unit linked wealth multiplier

3. General and health insurance: Complete protection for you business, health,
travel & more.

• Home insurance

• Health insurance

• Travel insurance

• Car/motorbike insurance

• Shop/office insurance

1. Bonds: Just as people need money, so do companies and governments. A company

needs funds to expand into new markets, while governments need money for

everything from infrastructure to social programs. The problem large organizations

run into is that they typically need far more money than the average bank can provide.

The solution is to raise money by issuing bonds (or other debt instruments) to a public

market. Thousands of investors then each lend a portion of the capital needed. A bond

is nothing more than a loan for which you are the lender. The organization that sells a

46
 bond is known as the issuer. You can think of a bond as an IOU given by a borrower

(the issuer) to a lender (the investor).

2. Equities and derivatives: In financial markets, the only constant thing is

change. At such times, HDFC Securities offers you a unique gamut of services

designed to put you in charge of your finances and lets you trade in the comfort of

your home or office. Finally, you can trade with complete ease.

3. Mudra gold bar: HDFC Bank presents Mudra, an offering worth its weight in
gold. Mudra is a 24 Carat, 99.99% pure gold bar that you can purchase for

investment or gifting.

Gold continues to be one asset that appreciates steadily. HDFC Bank now offers Pure

Gold bars imported from Switzerland with an Assay certification, signifying the

highest level of purity as per international standards.

Forex services
Are you a frequent flyer for business or often holiday abroad? Are you an importer/exporter

of foreign and Indian goods?

If you need to deal in foreign currency and keep tabs on exchange rates every now and then,

transfer monies to India, make payments etc., HDFC Bank has a range of products and

services that you can choose from to transact smoothly, efficiently and in a timely manner.

47
 1. Travellers cheques

2. Foreign currency cash

3. Foreign currency drafts

4. Cheque deposits

5. Remittances

6. Cash to master

7. Trade services

8. Forex service branch locator

Payment services
1. Netsafe

2. Merchant services

3. Prepaid mobile refill

4. Bill pay

5. Visa bill pay

6. Pay now

7. Insta pay

8. Direct pay

9. Visa money transfer

10. e-monies national electronic funds transfer

11. online payment of excise and service tax

48
12. Religious offering

13. donate to charity

49
 DEPARTMENTS IN HDFC BANK
There are three main departments in the bank, they are described below

1. Treasury/ corporate: Within this business, the bank has three main product areas -
Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities,

and Equities. With the liberalisation of the financial markets in India, corporate need

more sophisticated risk management information, advice and product structures.

50
 These and fine pricing on various treasury products are provided through the bank's

Treasury team. To comply with statutory reserve requirements, the bank is required to

hold 25% of its deposits in government securities. The Treasury business is

responsible for managing the returns and market risk on this investment portfolio

2. Wholesale: The Bank's target market ranges from large, blue-chip manufacturing
companies in the Indian corporate to small & mid-sized corporate and agri-based

businesses. For these customers, the Bank provides a wide range of commercial and

transactional banking services, including working capital finance, trade services,

transactional services, cash management, etc. The bank is also a leading provider of

structured solutions, which combine cash management services with vendor and

distributor finance for facilitating superior supply chain management for its corporate

customers. Based on its superior product delivery / service levels and strong customer

orientation, the Bank has made significant inroads into the banking consortia of a

number of leading Indian corporate including multinationals, companies from the

domestic business houses and prime public sector companies. It is recognised as a

leading provider of cash management and transactional banking solutions to corporate

customers, mutual funds, stock exchange members and banks

3. Retail: The objective of the Retail Bank is to provide its target market customers a
full range of financial products and banking services, giving the customer a one-stop

window for all his/her banking requirements. The products are backed by world-class

service and delivered to customers through the growing branch network, as well as

51
through alternative delivery channels like ATMs, Phone Banking, NetBanking and

Mobile Banking.

The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank

Plus and the Investment Advisory Services programs have been designed keeping in

mind needs of customers who seek distinct financial solutions, information and advice

on various investment avenues. The Bank also has a wide array of retail loan products

including Auto Loans, Loans against marketable securities, Personal Loans and Loans

for Two-wheelers. It is also a leading provider of Depository Participant (DP) services

for retail customers, providing customers the facility to hold their investments in

electronic form.

HDFC Bank was the first bank in India to launch an International Debit Card in

association with VISA (VISA Electron) and issues the Mastercard Maestro debit card

as well. The Bank launched its credit card business in late 2001. By March 2009, the

bank had a total card base (debit and credit cards) of over 13 million. The Bank is also

one of the leading players in the “merchant acquiring” business with over 70,000

Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant

establishments. The Bank is well positioned as a leader in various net based B2C

opportunities including a wide range of internet banking services for Fixed Deposits,

Loans, Bill Payments, etc

• Retail branch banking

52
 • Retail asset banking

• Retail DBC/ direct sales marketing

Other than above there are other departments as follows:

1. Equity and private banking

2. Depository and custodial services & merchant services

3. Operations

4. Credit and market risk

5. Human resource

6. Audit and compliance

7. Information technology

8. Finance and legal

9. Trading

53
54
 INTRODUCTION TO MUTUAL FUND
A mutual fund is a professionally-managed form of collective investments that pools money

from many investors and invests it in stocks, bonds, short-term money market instruments,

and/or other securities.[1In a mutual fund, the fund manager, who is also known as the

portfolio manager, trades the fund's underlying securities, realizing capital gains or losses,

and collects the dividend or interest income. The investment proceeds are then passed along

to the individual investors. The value of a share of the mutual fund, known as the net asset

value per share (NAV) is calculated daily based on the total value of the fund divided by the

number of shares currently issued and outstanding.

Legally known as an "open-end company" under the Investment Company Act of 1940(the

primary regulatory statute governing investment companies), a mutual fund is one of three

basic types of investment companies available in the United States.[2] Outside of the United

States (with the exception of Canada, which follows the U.S. model), mutual fund may be

used as a generic term for various types of collective investment vehicle. In the United

Kingdom and Western Europe (including offshore jurisdictions), other forms of collective

investment vehicle are prevalent, including unit trusts, open-ended investment companies

(OEICs), SICAVs and unitized insurance funds. In Australia and New Zealand the term

mutual fund" is generally not used; the name "managed fund" is used intead.

55
What is mutual fund
Mutual funds belong to the class of firms known as investment companies. While companies

may offer a "family" of funds under a single umbrella name and common administration - for

example, the Vanguard Group, Fidelity Investments, or Strong Funds - each fund offered is a

separately incorporated investment company. These are entities that pool investor money to

buy the securities that make up the fund’s portfolio. The idea behind this pooling of investor

money is to give each investor the benefits that come from the ownership of a diversified

portfolio of securities chosen and monitored daily by experience, professional advisers.

The funds create and sell new shares on demand. Investors` shares represent aportion of the

fund’s portfolio and income proportional to the number of shares they purchase. Individual

shareholders of the mutual funds have voting rights in the operation of the fund, just as most

holders of common stocks in corporations have the right to vote on certain issues involving

the running of the company. The key attribute of a mutual fund, regardless of how it is

structured, is that the investor is entitled to receive on demand, or within a specified period

after demand, an amount computed by reference to the value of the investor’s proportionate

interest in the net assets of the mutual fund. This means that the owner of mutual fund shares

can "cash in," or redeem his or her shares at any time.

56
 Fig. 5

Mutual funds, therefore, are considered a liquid investment. The investor’s selling

(redemption) price may be higher or lower than the purchase price. It all depends on the

performance of the fund’s portfolio. The fund has an adviser who charges a fee for managing

the portfolio. The adviser decides when and what securities to buy and sell, and is responsible

for providing or causing to be provided all services required by the mutual fund in carrying

on its day-to-day activities. All fund investors get this built-in portfolio management whether

they own 50 shares or 10,000.The adviser generally purchases many different securities for

the portfolio, since investment theory holds that diversification reduces risk. It is this

diminished risk that is one of the attractions of mutual funds. The fund also has a custodian,

usually a financial institution such as a bank, which holds all cash and securities for the fund.

57
 Fig. 6

WHY MUTUAL FUNDS

Advantages of mutual fund

Sr. Advantages Particulars

No.
1 Portfolio Mutual Funds invest in a well-diversified portfolio of securities
. diversification which enables investor to hold a diversified investment portfolio
(whether the amount of investment is big or small).

2 Professional Fund manager undergoes through various research works and

. management has better investment management skills which ensure higher
returns to the investor than what he can manage on his own.

3 Less risk Investors acquire a diversified portfolio of securities even with a

small investment in a Mutual Fund. The risk in a diversified

58
 portfolio is lesser than investing in merely 2 or 3 securities

4 Low transaction Due to the economies of scale (benefits of larger volumes),

. cost mutual funds pay lesser transaction costs. These benefits are
passed on to the investors

5 Liquidity An investor may not be able to sell some of the shares held by
. him very easily and quickly, whereas units of a mutual fund are
far more liquid.

6 Choice of schemes Mutual funds provide investors with various schemes with
. different investment objectives. Investors have the option of
investing in a scheme having a correlation between its
investment objectives and their own financial goals. These
schemes further have different plans/options

7 Transparency Funds provide investors with updated information pertaining to

. the markets and the schemes. All material facts are disclosed to
investors as required by the regulator.

8 Flexibility Investors also benefit from the convenience and flexibility

. offered by Mutual Funds. Investors can switch their holdings
from a debt scheme to an equity scheme and vice-versa. Option
of systematic (at regular intervals) investment and withdrawal is
also offered to the investors in most open-end schemes.

9 Safety Investors also benefit from the convenience and flexibility

. offered by Mutual Funds. Investors can switch their holdings
from a debt scheme to an equity scheme and vice-versa. Option
of systematic (at regular intervals) investment and withdrawal is
also offered to the investors in most open-end schemes.

Disadvantages of mutual fund

59
Sr. Disadvantages Particulars
No.

1 cost control not in Investor has to pay investment management fees and fund
. the hand of distribution costs as a percentage of the value of his investments
investor (as long as he holds the units), irrespective of the performance
of the fund.

2 No customised The portfolio of securities in which a fund invests is a decision

. portfolio taken by the fund manager. Investors have no right to interfere
in the decision making process of a fund manager, which some
investors find as a constraint in achieving their financial
objectives.

3 Difficult in Many investors find it difficult to select one option from the
. selecting a plethora of funds/schemes/plans available. For this, they may
suitable fund have to take advice from financial planners in order to invest in
the right fund to achieve their objectives

Some facts for the growth of mutual funds in India

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the que to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.

• Our saving rate is over 23%, highest in the world. Only channel zing these savings in
mutual funds sector is required.

• We have approximately 29 mutual funds which are much less than US having more
than 800. There is a big scope for expansion.

• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

• Mutual fund can penetrate rural like the Indian insurance industry with simple and
limited products.

• SEBI allowing the MF's to launch commodity mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

60
 • Introduction of Financial Planners who can provide need based advice

Investment strategies of mutual fund

Systematic investment plan (SIP)
These are best suited for young people who have started their careers and need to build their

wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in mutual

fund scheme the investor has chosen. For instance an investor opting for SIP in xyz mutual

fund scheme will need to invest a certain sum of money every month / quarter /half year in

the scheme.

Systematic withdrawal plan (SWP)

These plans are best suited for people nearing retirement. In these plans an investor invests in

a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals

to take care of expenses.

Systematic transfer plan (STP)

They allow the investors to transfer on a periodic basis a specified amount from one

scheme to another within the same fund family meaning two schemes belonging to the same

mutual fund. A transfer will be treated as redemption of units

from the scheme from which the transfer is made .Such redemption or investment will be at

the applicable NAV. This service allows the investor to manage his investment actively to

61
achieve his objectives. Many funds do not even charge even any transaction feed for this

service an added advantage for the active investor.

62
 TYPES OF MUTUAL FUND SCHEMES

BY STRUCTURE:

Open Ended Schemes

An open-end fund is one that is available for subscription all through the year. These do not

have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value

("NAV") related prices. The key feature of open-end schemes is liquidity.

Close Ended Schemes

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15

years. The fund is open for subscription only during a specified period. Investors can invest
Fig. 7
in the scheme at the time of the initial public issue and thereafter they can buy or sell the

63
units of the scheme on the stock exchanges where they are listed. In order to provide an exit

route to the investors, some closeended funds give an option of selling back the units to the

Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate

that at least one of the two exit routes is provided to the investor.

Interval Schemes
Interval Schemes are that scheme, which combines the features of open-ended and close-

ended schemes. The units may be traded on the stock exchange or may be open for sale or

redemption during pre-determined intervals at NAV related prices.

BY NATURE:
Fig. 8

1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The structure

of the fund may vary different for different schemes and the fund manager’s outlook on

different stocks. The Equity Funds are sub-classified depending upon their investment

objective, as follows:

• ·Diversified Equity Funds

• Mid-Cap Funds

• Sector Specific Funds

64
• Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on

the risk return matrix.

1. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private

companies, banks and financial institutions are some of the major issuers of debt papers.

By investing in debt instruments, these funds ensure low risk and provide stable income

to the investors. Debt funds are further classified as:

• Gilt Funds: Invest their corpus in securities issued by Government, popularly known

as Government of India debt papers. These Funds carry zero Default risk but are

associated with Interest Rate risk. These schemes are safer as they invest in papers

backed by Government.

• Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.

• MIPs: Invests maximum of their total corpus in debt instruments while they take

minimum exposure in equities. It gets benefit of both equity and debt market. These

scheme ranks slightly high on the risk-return matrix when compared with other debt

schemes.

• Short Term Plans (STPs): Meant for investment horizon for three to six months.

These funds primarily invest in short term papers like Certificate of Deposits (CDs)

65
 and Commercial Papers (CPs). Some portion of the corpus is also invested in

corporate debentures.

• Liquid Funds: Also known as Money Market Schemes, These funds provides easy

liquidity and preservation of capital. These schemes invest in short-term instruments

like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are

meant for short-term cash management of corporate houses and are meant for an

investment horizon of 1day to 3 months. These schemes rank low on risk-return

matrix and are considered to be the safest amongst all categories of mutual funds.

How are funds different in terms of their risk profile?

Equity funds High level of return, but has a high level of risk too.
Debt funds Returns comparatively low, less risky than equity
Liquid and money Provide stable but low level of return
market funds

1. Balanced funds: As the name suggest they, are a mix of both equity and debt funds.

They invest in both equities and fixed income securities, which are in line with pre-

defined investment objective of the scheme. These schemes aim to provide investors

with the best of both the worlds. Equity part provides growth and the debt part

provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter

viz,

66
Each category of funds is backed by an investment philosophy, which is pre-defined in the

objectives of the fund. The investor can align his own investment needs with the funds

objective and invest accordingly.

BY INVESTMENT OBJECTIVE

• Growth Schemes: Growth Schemes are also known as equity schemes. The aim of

these schemes is to provide capital appreciation over medium to long term. These

schemes normally invest a major part of their fund in equities and are willing to bear

short-term decline in value for possible future appreciation.

• Income Schemes: Income Schemes are also known as debt schemes. The aim of

these schemes is to provide regular and steady income to investors. These schemes

generally invest in fixed income securities such as bonds and corporate debentures.

Capital appreciation in such schemes may be limited.

• Balanced Schemes: Balanced Schemes aim to provide both growth and income by

periodically distributing a part of the income and capital gains they earn. These

schemes invest in both shares and fixed income securities, in the proportion indicated

in their offer documents (normally 50:50).

• Money Market Schemes: Money Market Schemes aim to provide easy liquidity,

preservation of capital and moderate income. These schemes generally invest in safer,

67
 short-term instruments, such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money.

OTHER SCHEMES

• Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax

laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions

made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

• Index Schemes: Index schemes attempt to replicate the performance of a particular

index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will

consist of only those stocks that constitute the index. The percentage of each stock to

the total holding will be identical to the stocks index weightage. And hence, the

returns from such schemes would be more or less equivalent to those of the Index.

• Sector Specific Schemes: These are the funds/schemes which invest in the securities

of only those sectors or industries as specified in the offer documents. e.g.

pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum

stocks, etc. The returns in these funds are dependent on the performance of the

68
 respective sectors/industries. While these funds may give higher returns, they are

more risky compared to diversified funds. Investors need to keep a watch on the

performance of those sectors/industries and must exit at an appropriate time

Risk vs return

69

Fig. 9
70
 PERFORMANCE EVALUATION OF MUTUAL FUND

Parameters

 Risk

 Returns

 Liquidity

 Expense ratio

 Composition of portfolio

Risk associated with mutual fund: Investing in mutual funds as with any security,
does not come without risk. One of the most basic economic principles is that risk and reward

are directly correlated. In other words, the greater the potential risk, the greater the potential

return. The types of risk commonly associated with mutual funds are:

71
 Fig. 10

Market risk:

Market risk relate to the market value of a security in the future. Market prices fluctuate and

are susceptible to economic and financial trends, supply and demand, and many other factors

that cannot be precisely predicted or controlled.

Political Risk:

Changes in the tax laws, trade regulations, administered prices etc. is some of the many

political factors that create market risk. Although collectively, as citizens, we have indirect

control through the power of our vote, individually as investors, we have virtually no control.

Inflation Risk:

72
Inflation or purchasing power risk, relates to the uncertainty of the future purchasing power

of the invested rupees. The risk is the increase in cost of the goods and services, as measured

by the Consumer Price Index.

Interest Rate Risk:

Interest Rate risk relates to the future changes in interest rates. For instance, if an investor

invests in a long term debt mutual fund scheme and interest rate increase, the NAV of the

scheme will fall because the scheme will be end up holding debt offering lowest interest

rates.

Credit risk:

The debt servicing ability (may it be interest payments or repayment of principal) of a

company through its cashflows determines the Credit Risk faced by you. This credit risk is

measured by independent rating agencies like CRISIL who rate companies and their paper.

An ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit

quality. A well-diversified portfolio might help mitigate this risk.

Liquidity risk:

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.

Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as

internal risk controls that lean towards purchase of liquid securities. You have been reading

about diversification above, but what is it? Diversification The nuclear weapon in your

arsenal for your fight against Risk. It simply means that you must spread your investment

73
across different securities (stocks, bonds, money market instruments, real estate, fixed

deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a

diversification may add to the stability of your returns.

Returns: Returns have to be studied along with the risk. A fund could have earned higher
return than the benchmark. But such higher return may be accompanied by high risk.

therefore, we have to compare funds with the benchmarks, on a risk adjusted basis. William

Sharpe created a metric for fund performance, which enables the ranking of funds on a risk

adjusted basis.

Risk Premium = Difference between the Fund’s Average return and Risk free return on

government security or treasury bill over a given period.

Liquidity: Most of the funds being sold today are open-ended. That is, investors can sell
their existing units, or buy new units, at any point of time, at prices that are related to the

NAV of the fund on the date of the transaction. Since investors continuously enter and exit

funds, funds are actually able to provide liquidity to investors, even if the underlying markets,

in which the portfolio is invested, may not have the liquidity that the investor seeks.

Expense ratio: Expense ratio is defined as the ratio of total expenses of the fund to the
average net assets of the fund. Expense ratio can actually understate the total expenses,

because brokerage paid on transactions of a fund are not included in the expenses. According

to the current SEBI norms, brokerage commissions are capitalized and included in the cost of

74
the transactions.

expense ratio=totalexpencesaverage net asset

Composition of the portfolio: Credit quality of the portfolio is measured by looking at

the credit ratings of the investments in the portfolio. Mutual Fund fact sheets show the

composition of the portfolio and the investments in various asset classes over time. Portfolio

turnover rate is the ratio of lesser of asset purchased or sold by funds in the market to the net

assets of the fund. If Portfolio ratio is 100% means portfolio has been changed fully. When

Portfolio ratio is high means expense ratio is high.

pertfolio ratio=total sales &purchasesnet assets of fund

In order to meaningfully compare funds some level of similarity in the following factors has

to be ensured:

• Size of the funds

• Investment objective

• Risk profile

• Portfolio composition

• Expense ratios

How do investors choose between funds?

When the market is flooded with mutual funds, it’s a very tough job for the investors to

choose the best fund for them. Whenever an investor thinks of investing in mutual funds, he

must look at the investment objective of the fund. Then the investors sort out the funds whose

75
investment objective matches with that of the investor’s. Now the tough task for investors

start, they may carry on the further process themselves or can go for advisors like SBI . Of

course the investors can save their money by going the direct route i.e. through the AMCs

directly but it will only save 1-2.25% (entry load) but could cost the investors in terms of

returns if the investor is not an expert. So it is always advisable to go for MF advisors. The

mf advisors’ thoughts go beyond just investment objectives and rate of return. Some of the

basic tools which an investor may ignore but an mf advisor will always look for are as

follow:

1. Rupee cost averaging: The investors going for Systematic Investment Plans(SIP)

and Systematic Transfer Plans(STP) may enjoy the benefits of RCA (Rupee Cost

Averaging). Rupee cost averaging allows an investor to bring down the average cost

of buying a scheme by making a fixed investment periodically, like Rs 5,000 a month

and nowadays even as low as Rs. 500 or Rs. 100. In this case, the investor is always at

a profit, even if the market falls. In case if the NAV of fund falls, the investors can get

more number of units and vice-versa. This results in the average cost per unit for the

investor being lower than the average price per unit over time. The investor needs to

decide on the investment amount and the frequency. More frequent the investment

interval, greater the chances of benefiting from lower prices. Investors can also

benefit by increasing the SIP amount during market downturns, which will result in

reducing the average cost and enhancing returns. Whereas STP allows investors who

have lump sums to park the funds in a low-risk fund like liquid funds and make

periodic transfers to another fund to take advantage of rupee cost averaging.

76
2. Rebalancing: Rebalancing involves booking profit in the fund class that has gone up

and investing in the asset class that is down. Trigger and switching are tools that can

be used to rebalance a portfolio. Trigger facilities allow automatic redemption or

switch if a specified event occurs. The trigger could be the value of the investment,

the net asset value of the scheme, level of capital appreciation, level of the market

indices or even a date. The funds redeemed can be switched to other specified

schemes within the same fund house. Some fund houses allow such switches without

charging an entry load. To use the trigger and switch facility, the investor needs to

specify the event, the amount or the number of units to be redeemed and the scheme

into which the switch has to be made. This ensures that the investor books some

profits and maintains the asset allocation in the portfolio.

3. Diversification: Diversification involves investing the amount into different options.

In case of mutual funds, the investor may enjoy it afterwards also through dividend

transfer option. Under this, the dividend is reinvested not into the same scheme but

into another scheme of the investor's choice.

For example, the dividends from debt funds may be transferred to equity schemes.

This gives the investor a small exposure to a new asset class without risk to the

principal amount. Such transfers may be done with or without entry loads, depending

on the MF's policy.

1. Tax efficiency: Tax factor acts as the “x-factor” for mutual funds. Tax efficiency

affects the final decision of any investor before investing. The investors gain through

either dividends or capital appreciation but if they haven’t considered the tax factor

then they may end loosing. Debt funds have to pay a dividend distribution tax of

77
12.50 per cent (plus surcharge and education cess) on dividends paid out. Investors

who need a regular stream of income have to choose between the dividend option and

a systematic withdrawal plan that allows them to redeem units periodically. SWP

implies capital gains for the investor. If it is short-term, then the SWP is suitable only

for investors in the 10-per-cent-tax bracket. Investors in higher tax brackets will end

up paying a higher rate as short-term capital gains and should choose the dividend

option.

If the capital gain is long-term (where the investment has been held for more than one

year), the growth option is more tax efficient for all investors. This is because

investors can redeem units using the SWP where they will have to pay 10 per cent as

long-term capital gains tax against the 12.50 per cent DDT paid by the MF on

dividends.

All the tools discussed over here are used by all the advisors and have helped

investors in reducing risk, simplicity and affordability. Even then an investor needs to

examine costs, tax implications and minimum applicable investment amounts before

committing to a service.

Time to invest

78

Fig. 11
 For an investor the most appropriate time to invest in mutual fund is when the market

is lowest the investor purchases more of the units of a fund because they get more no.

of units and when the market grows their value grows. When the market is on high the

less potential is left so the investor buys less stock of the fund to reduce the chances

of loss or sells of its existing units in profit and waits for the market to grow.

What are the most lucrative sectors for mutual fund managers?

This is a question of utmost interest for all the investors even for those who don’t invest in

mutual fund. Because the investments done by the MFs acts as trendsetters. The investments

made by the fund managers are used for prediction. Huge investments assure liquidity and

reflects a positive picture whereas tight investment policy reflects crunch and investors may

look forward for a gloomy picture.

Their investments show that which sector is hot? And will set the market trends. The expert

management of the funds will always look for profitable and high paying sectors. So we can

have a look at most lucrative sectors to know about the recent trends:

79
Sector name No. of mutual
fund on it
Automotive 255
Banking and financial services 196
Cement and construction 237
Consumer durables 51
Conglomerates 218
Chemicals 259
Consumer non durables 146
Engineering and capital goods 317
Food and beverages 175
Information technology 284
Media and entertainment 218
Manufacturing 259
Metals and mining 275
Miscellaneous 250
Oil % gas 290
Pharmaceuticals 250
Services 200
Telecom 264
Tobacco 150
Utility 225

From the above data collected we can say that engineering & capital goods sector has

emerged as the hottest as most of the funds are betting on it. We can say that this sector is on

boom and presents a bright picture. Other than it other sectors on height are oil & gas,

80
telecom, metals & mining and information technology. Sectors performing average are

automotive, cement & construction, chemicals, media & entertainment, manufacturing,

miscellaneous, pharmaceuticals and utility. The sectors which are not so favourite are

banking & financial services, conglomerates, consumer non- durables, food & beverages,

services and tobacco.

And the sector which failed to attract the fund managers is consumer durables with just 51

funds betting on it. Thus this analysis not only gives a picture of the mindset of fund

managers rather it also reflects the liquidity existing in each of the sectors. It is not only

useful for investors of mutual funds rather the investors of equity and debt too could take a

hint from it. Asset allocation by fund managers are based on several researches carried on so,

it is always advisable for other investors too take a look on it. It can be further presented in

the form of a graph as follow:

Most popular stocks among fund managers

Company name No. of funds

Reliance industries limited 244

Larsen & turbo ltd. 206

ICICI bank ltd. 202

State bank of India 188

Bharti airtel ltd. 184

BHEL 200

81
Fig. 12
Reliance communications ventures ltd. 169

Infosys technology ltd. 159

Oil and natural gas corporation ltd. 153

ITC ltd. 143

We can easily point out that reliance industries limited emerges as a true winner over here

attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI

bank ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a place

at top 10 are SBI, Bharti airtel limited, reliance communications, Infosys technologies

limited, ONGC and at last ITC ltd.

Fig. 13

82
83
Equity

Equity investment generally refers to the buying and holding of shares of stock on a stock

market by individuals and funds in anticipation of income from dividends and capital gain as

the value of the stock rises. It also sometimes refers to the acquisition of equity (ownership)

participation in a private (unlisted) company or a start-up (a company being created or newly

created). When the investment is in infant companies, it is referred to as venture capital

investing and is generally understood to be higher risk than investment in listed going-

concern situations.

Corporate debentures

Corporate debentures are normally backed by the reputation and general creditworthiness of

the issuing company.

Corporations occasionally issue this type of debt securities in order to raise capital and like

bonds; the debentures too, are documented as indentures. It is a type of debt instrument that is

not covered by the security of physical assets or collateral. Debentures are a method of

raising credit for the company and although the money thus raised is considered a part of the

company's capital structure, it is not part of the share capital

Company fixed deposits

84
Fixed Deposits in companies that earn a fixed rate of return over a period of time are called

Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies

(NBFCs) also accept such deposits. Deposits thus mobilised are governed by the Companies

Act under Section 58A. These deposits are unsecured, i.e., if the company defaults, the

investor cannot sell the documents to recover his capital, thus making them a risky

investment option.

Benefits of investing in Company Fixed Deposits

• High interest.

• Short-term deposits.

• Lock-in period is only 6 months.

• No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one

financial year

• Investment can be spread in more than one company, so that interest from one

company does not exceed Rs. 5,000

Bank deposits

A fixed deposit is meant for those investors who want to deposit a lump sum of money for a

fixed period; say for a minimum period of 15 days to five years and above, thereby earning a

higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity

of the deposit.

85
Bank fixed deposits are one of the most common savings scheme open to an average

investor. Fixed deposits also give a higher rate of interest than a savings bank account. The

facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan)

facility on the amount deposited, premature withdrawal before maturity period (which

involves a loss of interest) etc. Bank deposits are fairly safer because banks are subject to

control of the Reserve Bank of India.

PPF (public provident fund)

The Public Provident Fund is the darling of all tax saving investments.

Little wonder! You invest in it and you get a deduction on your income. Besides, the interest

you earn on it is tax-free. Since it is a scheme run by the Government of India, it is also

totally safe. You can be sure no one is going to run away with your money.

The minimum amount to be deposited in this account is Rs 500 per year. The maximum

amount you can deposit every year is Rs 70,000. The interest you will earn is 8% per annum.

The PPF account is valid for 15 years.

Gold

Of all the precious metals, gold is the most popular as an investment. Investors generally buy

gold as a hedge or safe haven against any economic, political, social, or currency-based

crises. These crises include investment market declines, inflation, war, and social unrest.

Investors also buy gold during times of a bull market in an attempt to gain financially

86
Real estate sector

Real estate investing involves the purchase, ownership, management, rental and/or sale of

real estate for profit. Improvement of realty property as part of a real estate investment

strategy is generally considered to be a sub-specialty of real estate investing called real estate

development. Real estate is an asset form with limited liquidity relative to other investments,

it is also capital intensive (although capital may be gained through mortgage leverage) and is

highly cash flow dependent. If these factors are not well understood and managed by the

investor, real estate becomes a risky investment. The primary cause of investment failure for

real estate is that the investor goes into negative cash flow for a period of time that is not

sustainable, often forcing them to resell the property at a loss or go into insolvency.

ULIP/ Insurance

Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any

time varies according to the value of the underlying assets at the time. ULIP is life insurance

solution that provides for the benefits of protection and flexibility in investment. The

investment is denoted as units and is represented by the value that it has attained called as Net

Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many countries in the world. The reason

that is attributed to the wide spread popularity of ULIP is because of the transparency and the

flexibility which it offers.

87
As times progressed the plans were also successfully mapped along with life insurance need

to retirement planning. In today's times, ULIP provides solutions for insurance planning,

financial needs, financial planning for children’s marriage planning also can be done with

this.

Unit Linked Insurance Plan - is a financial product that offers you life insurance as well as an

investment like a mutual fund. Part of the premium you pay goes towards the sum assured

(amount you get in a life insurance policy) and the balance will be invested in whichever

investments you desire - equity, fixed-return or a mixture of both.

Investments in ULIP is covered under Section 80C.

FMP (fixed maturity plan)

FMPs, launched by mutual funds, invest in certificates of deposit (CDs) of banks,

commercial papers and bonds of companies and other similar instruments. They offer

“indicative returns” to the investors. FMPs usually offer returns that are slightly higher,

around 1percentage points, than FDs because of their exposure to other instruments As stocks

become the most hated word, FMPs have emerged as favourites by simply combining small

investments, tax savings and assured returns FMPs offer good fixed income. Their portfolios

do not change much. Risk-averse investors and especially those falling into the higher tax

brackets should go for these products.

With more than 27 fund houses having launched FMPs with tenures ranging from 3 months

to a few years, FMPs are being lapped up by all and sundry as a viable alternative to fixed

88
deposits in banks. The minimum investment of Rs 5,000 is attracting scores of smaller

investors. By investing in debt instruments with the intent of holding them to maturity, FMPs

are appearing to be a safer haven for all those who are fed up with falling share prices.

89
Scheme Return Safety Volatility Liquidity
convenience

Equity High Low High High

Moderate

Corporate Moderate Moderate Moderate Low

debentures
Low

90
Company fixed Moderate Low Low Low

Deposits

Bank deposits Low High Low High

High

PPF Moderate High Low Moderate

High

Life insurance Low High Low Low

Moderate

Gold Moderate High Moderate Moderate

Low

Real estate High Moderate High Low

Low

Mutual funds High High/moderate Moderate High

High

FMP High High Low Low

Moderate

Scheme Investment objective Risk tolerance Investment horizon

Equity Capital appreciation High Long

Corporate debentures Income High moderate Medium to long term

Company fixed Income Moderate Medium

Deposits Low

Bank deposits Income Generally Flexible all term

91
PPF Income Low Long

Life insurance Risk cover Low Long

Gold Inflation hedge Low Long

Real estate Inflation hedge Low Long

Mutual funds Income High Flexible all terms

FMP Income Moderate Medium to long term

92
 OBJECTIVE OF THE STUDY

1. To know the preferences of the customers over different investment options

2. To find out what to do to boost mutual fund industry

3. To know what factors affect a person’s decision

93
 4. To identify the customer segment of mutual fund

RESEARCH METHODOLOGY
This report is based on primary as well secondary data, however primary data collection was

given more importance since it is overhearing factor in attitude studies. One of the most

94
important users of research methodology is that it helps in identifying the problem,

collecting, analyzing the required information data and providing an alternative solution to

the problem .It also helps in collecting the vital information that is required by the top

management to assist them for the better decision making both day to day decision and

critical ones.

• Research design needed is exploratory where primary data can be used to analysis

consumer preference.

• Whereas Questionnaire method is used to provide the required data

Data sources:

Primary data

Primary data helped in the knowledge gathered from our sources. Primary data was collected

by means of:

➢ Questionnaire

➢ Personal interviews

➢ Telephonic interviews

➢ Data provided by HDFC bank & AMC

Primary data helped a lot in order to analyze the whole scenario and to take out the relevant

data from the data provided to us.

Secondary data

95
Secondary data provided the knowledge about the other investment options other than HDFC

in terms of facts and figures.

It is a data, which are arrived from the primary data and collected from the other various

sources also as follows- through various articles, books, reports and websites.

Sampling procedure:

Type of sampling used was clustering sampling, and data was selected of them who are the

customers of HDFC bank by visiting their corporate like TCS, Idea, Ansal API, HDFC

standard life insurance ltd., Aeges BPO, Nokia Siemens network and Radio Mirchi etc.

irrespective of them being investors or not. Through filling up the questionnaire prepared.

The data has been analyzed by using mathematical/ Statistical tool.

Sample size and composition-

Target population-

Elements Individuals male or female earner in the family responsible to take decision

Extent Lucknow

Time May ’09 to July ’09

Type of sample – Sampling without replacement

Sample size- 100 individuals

96
97
 DATA ANALYSIS AND INTERPRETATION

1. Age wise distribution of employees in corporate sector

S. no. Age group number

A 21-30 50
B 31-40 32
C 41-50 12
D 51-60 6

Interpretation

According to this chart out of 100 employees 50 are in the age group of 21-30 which is 50%

and second highest group is 31-40 age group where 32% of the employees are in this age

group whereas only 6% were in the age group of 50-60. The data mainly represents the big

corporate houses where youngsters are preferred as the field is related to market.

2. Gender wise distribution of employees

S.NO. SEX Number

A Male 86

98
B Female 14

Fig. 15

Interpretation

Out of 100 employees of different corporate only 14 % are female employees rest are male

employees.

3. Income of the investors

s. no. Income group Numbers

A 0-100000 16
B 100000-250000 31
C 250000-400000 31
D 400000 above 22

Fig. 16

Interpretation

99
Major income group is 1lakh to 4lakh per annum which consist of 31% each, and then 4lakh

group has 22% of employees which is a big number and have a potential to invest and below

1lakh is the least numbers i.e. 16% of the total. This shows that the investors have a good

investment capacity.

4. No. if persons investing in mutual funds

Options Numbers
yes 46
No 54

Fig. 17

a) No. of females investing in mutual funds

Option numbers

100
Yes 7
No 7

Fig. 18

b) No of males investing in mutual fund

Option Numbers
Yes 39
No 47

Fig. 19

101
Interpretation

Number of persons investing in mutual funds is less than the persons not investing in mutual

funds i.e. 56%. From the above given data it can be seen that females are more interested in

savings and investment in comparison to man. Where 50% of the women are interested in

mutual funds and rest 50% are not where as male are less mutual fund investment oriented as

55% of males have not invested in mutual funds.

1. Causes why a person don’t invest in mutual fund

Causes Numbers
Awareness 21
Not any specific 14

reason
Risk averse 19

Fig. 20

Interpretation

From the above data it is very clear that out of 54 people who are not investing in mutual

fund 39% are those who are not aware of the mutual fund, which is a big number for AMC

and a potential source for financial advisors to cater that part of customers, apart from this

102
people consider mutual fund as risky investment, and 26% of the customers doesn’t have any

specific reason but they work traditionally.

2. No. of investors satisfied with their investment in mutual funds

Scale Numbers
Highly satisfied -
Satisfied 23
Moderate 19
Dissatisfied 4
Highly dissatisfied -

Fig. 21

Interpretation

Out of those customers who have invested in mutual funds 50% are satisfied which is a main

cause and the focus area for a company, which provides customer loyalty, only 9% of those

customers are dissatisfied which is not a big number yet to be focussed upon. The above data

shows that mutual fund investors got satisfaction on their investment with the returns

provided by the company.

3. Return expected by customers on their investment

Returns Numbers

103
5-7% 4
8-14% 20
15-22% 52
23-30% 18
Above 30% 6

Fig. 22

Interpretation

More than 50% of the customers expect 15-22% returns on their investment which only

equity and mutual fund can give.

Person interested in returns of 15-22% and their investment criteria

Option Numbers

Mutual fund 22
Equity 7
Others 23

Fig. 23

Interpretation

Out of those 52 people who were interested in returns of more than 15%, only 42% are

investing in mutual funds and 14 % are investing in equity market rest 44% is under other

investment plans.

104
 4. Purpose of investment

Option Numbers
Tax saving 36
Income 41
Security/hedging 20
Other 3

Fig. 24

Interpretation

Out of 100 people 42% are interested in investing their money for growth purposes and they

consider mutual funds as a source of income. Whereas the second major part i.e. 36%

belongs to tax saver as per SEBI instructions rebate on tax is allowed if anyone invests in

mutual fund. Because of the volatile nature of mutual funds very less people wants to invest

for security motive.

Age wise Investment motives

Age
21-30 31-40 41-50 51-60 Total

105
Options Tax saving 23 7 4 2 36
Income 17 17 6 1 41
Security/hedging 7 8 2 3 20
others 3 0 0 0 3
Total 50 32 12 6 100

Fig. 25

Interpretation

Age group 21-30 mainly holds the concept of investing for tax saving as their priority and in

next group they look for income motive and people near their retirement age look for security

motive.

Income wise investment motives

Income
0-1lakh 1-2.5lakh 2.5-4lakh 4above Total
Options Tax saving 5 13 12 6 36
Income 5 11 15 10 41
Security/hedging 5 6 3 6 20
others 1 1 1 0 3
Total 16 31 31 22 100

106
Interpretation

0-1lakh income group invest equally for all motives, whereas in the next income group focus

is towards tax saving and in next two groups income is the main motive of investment from

the above diagram it is clear that in every income group people like to invest for income or

tax saving motive.

5. Most preferred investment

Option Numbers
Mutual fund 13
Insurance/ unit 18

linked plan

Fixed deposits 40
Equity 13
Gold 16

Interpretation

107
This was the most shocking result of the survey where after expecting too high from the

market and their investment plans people still work traditionally and put their money on

unproductive investment plans. Least growing fund (7% return) is being more preferred as

40% of the investors prefer this, whereas mutual fund and equity market are least preferred

by investors as 13% each.

With the increase in age, number of mutual fund investors also decrease. In the age group 30-

40 investors diversify their fund and there is a consistency in that period. In every age group

FD is most preferred investment

Income wise distribution of investment choices

Income
0-1lakh 1-2.5lakh 2.5-4lakh 4 above Total
MF 2 5 4 2 13
Unit 1 7 7 3 18

linked
FD 11 9 11 9 40
Equity 0 4 5 4 13

108
Investment

Gold 2 6 4 4 16
Total 16 31 31 22 100

Fig. 28(II)

In this diagram it is clearly shown that each income group prefer FD as their priority as the

income level rise it investors starts considering other options, but a low income group

consider Gold, MF & FD.

Fig. 28(III)

40% of the customers who invest in mutual fund also prefer FD, the second highest option

mutual investors prefer is unit linked plan i.e. 29%.

MF chosen by persons preferring other options

Option Unit linked plan/ FD Equity Gold

insurance
Yes 10(56%) 14(35%) 5(38%) 6(38%)
No 8(44%) 26(65%) 8(62%) 10(62%)

Fig. 28(IV)

109
Interpretation

A person investing in Unit linked plan also prefer MF as 10 out of 18 also go for it. Whereas

if we talk of numbers investor of FD which is 40, 14 goes for MF which is 3rd in number and

at second position Equity and gold exists.

6. Factors a investor like to have in mutual fund

Options Numbers
Liquidity 36
Growth 71
Convenient amount 47
Security 56
Transparency 34

110
 Fig. 29

Interpretation

Customers rate growth as the most important factor for investing in mutual fund whereas

following by it security comes which a mutual fund doesn’t provide but from past records it

can be said that it is more secured than Equity investment and very rarely gives loss to

someone, following it convenient amount comes which is a great factor for the success of

mutual fund, every income group can invest now because of this convenient amount. There is

a very less difference in each factor as each one is important.

7. Factors affecting investor’s decision

Option Numbers
Returns 80
Liquidity 42
Investment objective 39
Tax savings 52
Past performance 35
Service from agent 22
Security 57
Market conditions 38
Reputation of company 40
Friends/ relatives 38
Fund manager 27

111
 Returns or growth on the investment is the main cause of why a investor puts his/her money
Fig. 30
in. As from the given pie chart it can be clearly seen that 80% of the people has accepted that

returns play a vital role in their decision making.

Liquidity of an asset means its saleability/marketability

Fig. 31this plays an important role while

deciding to invest as a customer wants to put its money at a place where it is easily

convertible into cash. Out of 100, 58% believe that this is important factor and they consider

it.

While making an investment 39% of the customers

52% of the ivestors consider tax saving as
consider their investment objective while making
their investment and most of them invest in
insurance plan so with this we can say that
insurance investors are rational investors over
Fig. 33
others

One of the important factor to be considered

Before putting the money to any plan .

112

Fig. 32
 Fig. 34

As from the above chart is is very clear that very few people only 22% consider service from

agent otherwise they look for funds and their returns. As far as past performance is

considered only 35% are looking for it. It doesn’t matter that how old is fund people are

ready to take risk.

Fig.35

Security is the degree of protection against danger and loss. Security comes with reliability

but there is a difference, that security must take into account the actions that can cause

destructions. 57% of the people look for security for their investment others have more risk

taking ability

Fig. 36

There are rational customers who look for market conditions if the market is goind down

some of them prefer to invest, some prefer in rising market. It is found out that 38% of the

customers go for market conditions and thes customers look for risk also.

113
 Fig. 37

With this chart it is very clear that brand doesn’t mean much now the customers are looking
for those who can give returns, like here only 40% looks for brand but rest 60% looks for
growth.

Fig. 38
38% of the investors refer their relatives and friends, and directly or indirectly these investors
depend on them. They buy and sell their securities on recommendations of their peers.

Fig. 39
Fund manager is one who professionally manages your securities and investment like a
trustee, 27% of the investor consider him as an important factor and in the rest most are
unaware of this thing.

114
 FINDINGS

➢ In corporate of Lucknow major section belong to 20-30yrs of age group, the second

highest group is in age group 31-40yrs and the least were in 51-60yrs age group.

➢ There are 54% of the people who are still not investing in mutual funds out of which

women are more saving cautious as 50% of the women invest in mutual fund this also

show that women’s have more risk taking ability whereas 45% of the males are

investing in mutual fund

➢ Out of the persons who don’t invest in mutual fund are not aware of it i.e.39% which

is the largest among all reasons and the second reason is risk averse means 31%

people don’t want to take risk and like to move traditional way and rest 26% which is

a big number don’t have any specific reason

➢ The satisfaction level of mutual fund investor is quite expected because of the

structure of mutual fund, it gives return, that is why most number of people who are

investing in mutual fund are satisfied i.e.50% and only 9% are dissatisfied with the

returns.

➢ Most of the people expect a rate of 15-22% i.e.52% and those who expect this rate

only 44% prefer mutual fund and 42% prefer equity rest prefer other investment

option which doesn’t offer this much rate.

➢ Out of all most preferred investment is FD which shows that still the employees are

following conventional way and mutual fund and equity funds are less preferred.

115
 ○ It is being seen that young people or newly employed person who are less than

of age 30 invest more in FD but as age grows investment pattern changes and

investment decreases. Youngsters prefer FD because they are new and don’t

prefer taking risk just because they are unknown.

➢ According to the survey mutual fund is the least preferred type of investment, in

comparison to others this investment only lacks security.

➢ Out of all factors growth and returns are the main factors which a customer want in its

mutual fund

➢ Return, tax saving, security, liquidity and reputation of the company are the main

factors which an investor look before putting his money to any investment.

➢ In this study it is found out that with the rise in income level investment pattern of

investors also change

➢ Before making any decision an investor considers return and security at the same

time.

➢ There is a lack of awareness in people below 30 yrs but as the time grows investment

pattern is moving towards diversification as people of age 40above have more

diversified investment.

➢ 40% of the mutual fund investor invests in FD, 27% invests in Unit linked plan. There

is a 35% chance that a Fix deposit investor will invest in Mutual fund, and 55% i.e.

with unit linked plan, there is a 38% chance that a gold & Equity investor also invest

in MF.

116
 CONCLUSION
➢ Mutual fund satisfies all the expectations of the investors except security, but with the

past records it is clear that it is also secure because of its structure, most of the

investors are not aware of mutual funds or due to lack of time they don’t invest in

mutual funds.

➢ Security plays an important role for investors in taking decisions.

➢ With rise in income and age the investment pattern also changes.

➢ There is a huge potential below income group of 4lakhs and due to lack of awareness

and time they can’t opt for MF

➢ SIP strategy of MF is found to be better for income group below 2.5lakh because they

don’t understand the intricacies of the market, and the person top of its carrier is

experienced and understand the market so he also prefer MF.

➢ There is a surprising outcome of male to female ratio and still its male dominated

sector.

➢ Investors are still unaware of the benefits of mutual fund they don’t know the

difference with other, thus they consider it risky but from the past performance it can

117
 be seen that it is very secure not because it offer liquidity but its structure which

averages the risk and return.

➢ Gold and Equity are riskier than the rest 2 options, this shows that a person investing

in FD and Unit linked plan feels safe and thus they go for risky investment and also

for income purpose.

SUGGESTIONS & RECOMMENDATIONS

➢ 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 good and they should realise that they

should be 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 time.

➢ 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.

118
➢ 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 under40 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.

➢ While explaining the product factors like growth, liquidity, tax saving benefits, past

performance of the fund and reputation of the company should be focussed.

➢ Investors investing in FD & Unit linked plan should be focussed as they are also a

potential customers to AMC.

LIMITATIONS OF THE STUDY

➢ Equity market continues going up and down

➢ Factors show that not a perfect time to invest expecting it to fall further.

➢ My visits were in corporate in account opening so the data is of those who are new to

the organisation.

➢ Some people unwillingly answer

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 OVERALL EXPERIENCE
In HDFC bank I worked in retail banking and I was under corporate salary relationship

manager (CSRM), my work was to cross sell the products of HDFC bank and product given

to me was mutual fund. During my whole course I sold 30 mutual funds.

Main work of CSRM is to take care of accounts of corporate given to them it mainly consist

of account opening of new employees hired in that organisation, and to cross sell them.

That was a great experience working with them I got the opportunity to visit some big

corporate houses and see their working culture.

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I could have done my work better if got opportunity to visit more organisations, due to

shortage of time I was able to visit few organisations those who were more preferred.

I learn how to talk to a customer, how to sell him, and how to identify his desire and convert

it into his need. I learn the importance of relationship with your peers and your customer; I

learn what the bank actually does and what are the departments in a bank.

This experience will help me guiding my carrier and in my future job as from initially I know

whom to report and what is the importance of hierarchy in any organisation.

BIBLIOGRAPHY
Name of the site URL of the site
About banking 1. http://www.bharatbook.com/Market-
Research-Reports/Report-on-Indian-Banking-
Sector.html
2. http://business.mapsofindia.com/banks-in-
india/

HDFC bank http://www.hdfcbank.com/personal/default.htm

About mutual funds 1. http://mutualfunds.about.com/

2. http://economictimes.indiatimes.com/Feature

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 s/The_Sunday_ET/Special_Report/HDFC_Bank
_Long_on_vision_long_on_objectives/articlesh
ow/3480663.cms
3. http://www.sec.state.ma.us/sct/sctprs/prsamf
/amfidx.htm
4. www.mutualfundsindia.com
5. www.hdfcfund.com

Books Research methodology : Naresh K. Malhotra

Business statistics : J.K Sharma

Annexure /Appendices

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 Questionnaire
Q1. What is your name................................

Q2. Gender Male Female

Q3. What is your age?

a) 20-30

b) 31-35

c) 36-50

d) 50 above

Q4. . What is your annual income?

a) 0-1 lakhs

b) 1-2.5 lakhs

c) 2.5-4 lakhs

d) 4 lakhs above

Q5. Have you invested in mutual funds?

a) Yes

b) No

Q6. If not then what is the cause?

a) Lakh of awareness

b) Not interested

c) Risk averse

Q6. Are you satisfied with the returns?

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Highly satisfied satisfied moderate dissatisfied highly dissatisfied

Q7. What return do you expect on your investment?

a) 5-7%

b) 8-14%

c) 15-20%

d) 20-25%

e) 25 above

Q8. What is your investment purpose?

a) Tax saving

b) Income

c) Security/ hedging

d) Others

Q9. Which type of investment do you most prefer?

a) Mutual fund

b) Insurance/unit linked plan

c) Fixed deposits

d) Equity

e) Gold

Q10. What would you like to have in mutual funds?

a) Liquidity

b) Growth

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 c) Convenient amount

d) Security

e) Transparency

Q11. What factors affect your decision?

a) Returns

b) Liquidity

c) Investment objective

d) Tax savings

e) Past performance of fund

f) Service from agent

g) Security

h) Market conditions

i) Reputation of company

j) Friends/ relatives

k) Fund manager

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