INTRODUCTION MUTUAL FUND: The SEBI regulations, 1993 defines a mutual fund as a fund in the Form of trust by a sponsor,

to raise money by the trustees trough the sale units to the public, under one or more schemes, for investing in securities in accordance with these Regulations A mutual fund is a professionally-managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In 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.

OBJECTIVES

To evaluate investment performance of mutual funds in terms of risk and return. To examine the funds sensitivity to the market fluctuations in terms of beta. To find out the financial performance of mutual fund schemes. To appraise investment performance of mutual funds with risk adjustment, the the oretical parameters as suggested by Sharpe, Treynor and Jensen. To analyze the performance of various schemes of mutual funds.

HISTORY OF THE MUTUAL FUND: Historians are uncertain of the origins of investment funds; some cite the closed-end investment companies launched in the Netherlands in 1822 by King William I as the first mutual funds, while others point to a Dutch merchant named Adrian van Ketwich whose investment trust created in 1774 may have given the king the idea. Van Ketwich probably theorized that diversification would increase the appeal of investments to smaller investors with minimal capital. The name of van Ketwich's fund, EENDRAGT MAAKT MAGT, translates to "unity creates strength". The next wave of near-mutual funds included an investment trust launched in Switzerland in 1849, followed by similar 2 vehicles which is followed by many kind of companies created in Scotland in the 1880s. The idea of pooling resources and spreading risk using closed-end investments soon took root in Great Britain and France, making its way to the United States in the 1890s. The Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S. The creation of the Alexander Fund in Philadelphia, Pennsylvania, in 1907 was an important step in the evolution toward what we know as the modern mutual fund. The Alexander Fund featured semi-annual issues and allowed investors to make withdrawals on demand. The Arrival of the Modern Fund: The creation of the Massachusetts Investors' Trust in Boston, Massachuset heralded the arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually spawning the mutual fund firm known today as MFS Investment Management. State Street Investors' Trust was the custodian of the Massachusetts Investors' Trust. Later, State Street Investors started its own fund in 1924 with Richard Paine, Richard Saltonstall and Paul Cabot at the helm. Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that would launch the first no-load fund in 1928. A momentous year in the history of the mutual fund, 1928 also saw the launch of the Wellington Fund, which was the first mutual fund to include stocks and bonds, as opposed to direct merchant bank style of investments in business and trade.

CONCEPT OF MUTUAL FUND A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow Chart below describes broadly the working of a mutual fund. ABOUT THE TOPIC MEANING: A mutual fund is a professionally-managed firm of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In 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

DEFINITION: The SEBI regulations, 1993 defines a mutual fund as a fund in the form of a trust by a sponsor, to raise money by the trustees trough the sale of units to the public, under one or more schemes, for investing in securities in accordance with this regulation

Mutual Fund Operation Flow Chart

Schemes of Mutual funds Types of mutual fund scheme 1) Open ended Return based 2) Close ended (income, growth, &income and growth fund)

Schemes according to Maturity Period OR by structure A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Scheme: An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Scheme: A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close ended 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 i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme: The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. Income / Debt Oriented Scheme: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity

schemes. These funds are not affected because of fluctuations in equity markets. Balanced Scheme: The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund: These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Tax Saving Schemes: These schemes offer tax rebates to the investors under section 80 CCC of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. Gilt Fund: These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes Index Funds: Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc, these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors

known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

IMPORTANCE OR BENEFITS OF MUTUAL FUND The mutual fund industry has grown at a phenomenal rate in the recent past. The following are some of the important advantages of mutual funds. Canalizing savings for investment: A number of schemes are being offered by MFs so as to meet the varied requirements of the peoples and savings are directed towards capital investments directly. In the absence of MFs these savings would have remained idle. Offering wide portfolio investment: Now the investors can enjoy the wide portfolio investment held by the mutual fund. The fund diversifies its risks by investing in large varieties of shares and bonds which cannot be done by small and medium investor. This is investors. This is in accordance with the maximum not to lay all eggs in one basket Providing better yields: Due to the large funds. Mutual funds are able buy cheaper and sell dearer than the small and medium investors. Thus they are able to the command better market rates and lower rates of brokerage. So they provide better yield to their customers .they also enjoy the economics of large scale and can reduce the cost of capital market participation Rendering expertise investment service at low cost: The management of the fund is generally assigned to professionals who are well trained and have adequate experience in the field of investment. Thus, investor are assured of quality services in there best

interest. The intermediation fee is the lowest being 1% in the case of a mutual fund. Providing research services: Each fund maintains large research team, which constantly analyses the companies and the industries and recommends the fund to buy or sell a particular share. Thus investment is made purely on the basis of a thorough research. Offering tax benefits: Certain funds offer tax benefits to its customers. Thus, apart from dividend, interest And capital appreciation, investors also stand to get the benefit of tax concession. Under the wealth tax act, investments in MFs are exempted up to Rs. 5 lakhs. Introducing flexible investment schedule: Some mutual funds are permitted the investor exchange their units from one schemes to another and this flexibility is a great boon to investors. Providing greater affordability and liquidity: Even a very small investor can afford to invest in mutual funds. They provide an attractive and cost effective alternative to direct purchase of shares. Again there is greater liquidity. Units can be sold to the fund at any time at the net asset value and thus quick access to liquid cash is assured. Besides, branches of the sponsoring bank are always ready to provide loan facility against the unit certificates. Simplified record keeping: The investor has to keep a record of only one deal with the mutual fund. Even if he does not keep a record, the MF sends statements very often to the investors. Supporting capital market: The savings of the people are directed towards investments in capital market through these mutual funds. Mutual funds also provide a valuable liquidity to the capital market, and thus the market is made very active and stable. Promoting industrial development: All industrial units have to raise their funds by resorting to the capital market by the issue of shares and debentures. The mutual funds not only create a demand for these capital market instruments but also supply a large source of funds to the market.

Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value.

10

SEBI REGULATION ON THE INVESTMENT OF A MUTUAL FUND The investments of a mutual fund are subjected to a set of regulations prescribed by SEBI. Presently following restrictions apply. No term loan shall be granted by a mutual fund scheme. A mutual fund, under all its schemes taken together, will not own more than 10% of any companys paid up capital carrying voting rights. A scheme may invent in another scheme under the same Asset Management Company or any other mutual fund without charging any fees, A scheme may invest in another scheme under the same asset management Company or any other mutual fund without charging any fees, provided that the Aggregate inter scheme investment made by all the schemes under the same Management. Transfers of investment from one scheme to another scheme of mutual fund Permitted provided that: a. such transfers are done At the prevailing market price for quoted instruments on spot basis. . The securities so transferred shall be in conformity with the investment objectives of the schemes to which such transfer has been made. . The registration and accounting of the transactions is completed and Ratified in the next meeting of the board of trustees. A mutual fund may borrow to meet liquidity needs, for the purpose of repurchase, redemption of units, or repayment of interest or dividend to the unit holders. Such borrowings shall not exceed 20% of the net asset of the scheme and the duration of the borrowing shall not exceed 6 months. The fund may borrow from permissible entities at prevailing market rates and may offer the assets of the schemes as collateral for such borrowings. A scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer which are rated not below investment grade by an authorized Credit rating agency. Such

11

investment limit may be extended to 20% of the NAV Of the scheme with the prior approval of Board of Trustees and the Board of Asset Management Company. This limit, however, is not applicable for investment in governments securities and money market instruments. A scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. A mutual fund will buy and sell securities on the basis of deliveries. It cannot Make short sales or engage in carry forward transactions. A scheme shall not make any investment in a. Any unlisted security of an associates or group company of the sponsor. b. Any security issued by way of private placement by an associate or group Company of the sponsor c. The listed securities of group companies of the sponsor in excess of 25% of the Net assets. The investment manager may invest in a scheme from time to time. The percentage of such investments to the total net assets may vary from time to time and can be up to 100% of the net assets of the schemes. A scheme shall not invest more than 10% of its NAV in the equity shares or equity related instruments of any one company. A scheme may invest in ADRs/GDRs of Indian companies listed on overseas stock exchanges to the extent and in a manner approved by RBI. A scheme shall not invest more than 5% of its NAV in unlisted equity shares Or equity related instruments in case of an Open ended schemes and 10% of its NAV in case a of closed ended scheme.

12

Regulation and Expansion By 1929, there were 19 open-end mutual funds competing with nearly 700 closed end funds. With the stock market crash of 1929, the dynamic began to change as highlyleveraged closed-end funds were wiped out and small open-end funds managed to survive.Government regulators also began to take notice of the fledgling mutual fund industry. The creation of the Securities and Exchange Commission (SEC), the passage of the Securities Act of 1933 and the enactment of the Securities Exchange Act of 1934 put in place safeguards to protect investors: mutual funds were required to register with the SEC and to provide disclosure in the form of a prospectus. The Investment Company Act of 1940 put in place additional regulations that required more disclosures and sought to minimize and minimize grievience of investor of different catogeries conflicts of interest. The mutual fund industry continued to expand. At thebeginning of the 1950s, the number of open-end funds topped 100. In 1954, the financial markets overcame their 1929 peak, and the mutual fund industry began to grow in earnest, adding some 50 new funds over the course of the decade. The 1960s saw the rise of aggressive growth funds, with more than 100 new funds established and billions of dollars in new asset inflows. Hundreds of new funds were launched throughout the 1960s until the bear market of 1969 cooled the public appetite for mutual funds. Money flowed out of mutual funds as quickly as investors could redeem their shares, but the industry's growth later resumed. Massachusetts Investors Trust (now MFS Investment Management) was founded on March 21, 1924, and, after one year, had 200 shareholders and $392,000 in assets. The entire industry, which included a few closed-end funds, represented less than $10 million in 1924. The stock market crash of 1929 slowed the growth of mutual funds. In response to the stock market crash, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require that a fund be registered with the (SEC) . SETUP OF MUTUAL FUNDS A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset management company (AMC) approved by SEBI managers the fund by making investments in various

13

schemes of the in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund. SEBI regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e., they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. The performance of a particular scheme of a mutual fund is denoted by net value (NAV). MUTUAL FUND VS OTHER INVESTMENT Mutual funds offer several advantages over investing in individual stocks. For example, the transaction costs are divided among all the mutual fund shareholders, who also benefit by having a third party (professional fund managers), apply expertise and dedicate time to manage and research investment options. However, despite the professional management, mutual funds are not immune to risks. They share the same risks associated with the investments made. If the fund invests primarily in stocks, it is usually subject to the same ups and downs and risks as the stock market.

SHARE CLASSES Many mutual funds offer more than one class of shares. For example, you may have seen a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool (or investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution

14

COMPANY PROFILE HDFC Mutual Funds is one among the several types of Mutual funds in India and also one of the most popular and largest Mutual Funds in India. The HDFC Mutual Fund was introduced in India on December 10th, 1999. The business policy of HDFC Mutual Fund is something that has attracted several clients for the reason that it has been consistently performing and has offered funds above average for the investors. This fund scheme offers reliable and effective analysis policies, based on which the investors can invest profitably and need not worry about the market swings. The HDFC Mutual Funds have solid infrastructure with which a sound financial analysis is successfully conducted and the research that is done of the market can be well relied on. This mutual fund also pays emphasis on controlling and managing the risk of the latest market trends. The success mantra of the HDFC Mutual Fund lies on the fact that it works for the benefit of the investor and at the same time keeping in mind the new market trends. The fund scheme provided to the investors are offered after doing a sound market research based on which the investors are also told about the new growth sectors and the sectors in which investing will pay huge benefits after a certain period of time. The success story of HDFC Mutual Fund is evident from the fact that it has been assigned the "CRISIL Fund House Level-1" rating. This rating proves the fact that HDFC Mutual Fund expertise in fund management practice and has the highest level of governance in the field of investing and investor's benefit.

15

Abstract HDFC Mutual Fund is governed by HDFC Asset Management Company Limited (AMC). The HDFC mutual fund was approved by SEBI in June 2000. Equity Funds, Balanced Funds, and Debt Funds are the mutual fund schemes offered by HDFC Mutual Fund. An Overview of HDFC Mutual FundHDFC Mutual Fund has witnessed significant growth in the past few years. It is regulated by HDFC Asset Management Company Limited (AMC) which works as an Asset Management Company (AMC) for HDFC Mutual Fund. HDFC Asset Management Company Limited (AMC) is a Joint Venture concern between the large-scale housing finance company HDFC and British investment firm Standard Life Investments Limited. The HDFC Asset Management Company Limited conducts the activities carried out by the HDFC Mutual Fund and manages the assets of various mutual fund schemes. The August 2006 report states that the fund has assets of Rs. 25,892 crores under Asset Management Company (AMC). HDFC Asset Management Company Limited (AMC) entered into an agreement with Zurich Insurance Company (ZIC) with the aim to develop the asset management business in India in the year 2003. Following to this, all the mutual fund schemes of Zurich Mutual Fund in India got transferred to HDFC Mutual Fund and gained the name of HDFC schemes.

Details of HDFC Mutual FundHDFC Asset Management Company Ltd (AMC) was set up on December 10, 1999 under the Companies Act, 1956. It got the approval to function as an Asset Management Company for the HDFC Mutual Fund by SEBI on June 30, 2000. AMC was appointed in order manage the HDFC Mutual Fund. The registered office of HDFC Asset Management Company Limited (AMC) is located at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.

16

HDFC GROUP The housing development finance corporation (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in january 1995. HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsor namely Housing Development Finance Corporation Limited and Standard Life Investments Limited. The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. In 1998, Standard Life Investments Limited became the dedicated investment management company of the Standard Life Group and is owned 100% by The Standard Life Assurance Company. With global assets under management of approximately US$126 billion as at May 15, 2003, Standard Life Investments Limited is one of the world's major investment companies and is responsible for investing money on behalf of five million retail and institutional clients worldwide. The Trustee Company of HDFC Mutual Fund is HDFC Trustee Company Limited and AMC is HDFC Asset Management Company Limited, incorporated with the SEBI on December 10,1999. The products of HDFC Mutual Fund are as follows: Equity Funds Balance Funds Debt Funds Apart from this it also provides the following value added services: SIP (Systematic Investment Plan) STP (Systematic Transfer Plan) SWAP (Systematic Withdrawal Advantage Plan)

17

HDFC Bank (NYSE: HDB), one amongst the firsts of the new generation, tech-savvy commercial banks of India, was incorporated in August 1994, after the Reserve Bank of India allowed setting up of Banks in the private sector. The Bank was promoted by the Housing Development Finance Corporation Limited, a premier housing finance company (set up in 1977) of India. Net Profit for the year ended March 31, 2006 was Rs. 1,141 cores. Results of the latest quarter ended June 2007, indicate that the bank continues to grow in a steady manner. HDFC bank also have the different banking fuction: Personal banking Wholesale banking NRI banking

Branch network: Currently HDFC Bank has 753 branches, 1,716 ATMs, in 320 cities in India, and all branches of the bank are linked on an online real-time basis. The bank offers many innovative products & services to individuals, corporate, trusts, governments, partnerships, financial institutions, mutual funds, insurance companies. It is the path breaker in the Indian banking sector. HDFC PRODUCT RANGE: HDFC Bank India provides the Following range of products: Savings Account HDFC Bank Preferred Sweep-In Account Super Saver Account HDFC Bank Plus Demat Account HDFC Mutual Fund HDFC Standard Life Insurance HDFC India innovative services HDFC Phone Banking HDFC ATM HDFC Inter-city/Inter-branch Banking HDFC Net Banking HDFC International Debit Card

18

 HDFC Mobile Banking HDFC Bill Pay HDFC MUTUAL SCHEMES HDFC Growth fund: Objective: To generate long term capital appreciation from a portfolio that is predominantly invested equity and equity related instruments. HDFC Equity fund: Objective: To achieve capital appreciation. HDFC Top 200 schemes: Objective: To generate long term capital appreciation from a portfolio of equity and equity related instruments primarily drawn from the companies in BSE 200index. HDFC Capital Builder fund: Objective: To achieve capital appreciation in long term. HDFC Core & Satellite Fund: Objective: To generate capital appreciation through equity investment in Companies whose shares are quoting at prices below their true value. HDFC Premier Multi-Cap fund: Objective: To generate capital appreciation in long term through equity Investment by investing in a diversify portfolio of Mid Cap and Large Cap blue-chip companies. HDFC Index fund: Objective: Nifty plan: to generate returns those are commensurate with the performance of nifty, subject to tracking errors. Sensex plan: to generate returns those are commensurate with the performanceof nifty, subject to tracking errors. Sensex Plus Plan: to invest 80 to 90% of the assets of the plan in companieswhose securities are included in sensex and between 10 to 20% of the net assets in companies whose securities are not included in the sensex. HDFC Arbitrage fund: Objective: To generate income through arbitrage opportunities between cashand derivative segment and by deployment of surplus cash in debt securitiesand money market instruments.

19

HDFC Childrens gilt fund: Objective: To generate long term capital appreciation. HDFC Balanced fund: Objective: To generate capital appreciation along with current income from combined portfolio of equity, debt and money market instruments. HDFC Prudence Fund: Objective: To provide periodic returns and capital appreciation over a long Period of time from a judicious mix of equity and debt to minimize capital erosion HDFC Long Term Advantage fund: Objective: To generate long term capital appreciation from a portfolio that is predominantly invested equity and equity related instruments. HDFC Tax Saver: Objective: To achieve long term growth of capital. HDFC MF Monthly Income Plan: Objective: To generate the regular return through investment primarily in debt and money market instruments. HDFC Multiple Yield Fund: Objective: To generate positive returns over medium time frame with low risk of capital loss over medium time frame . HDFC Income Fund: Objective: To optimize returns while maintaining a balance of safety, yield and Liquidity. HDFC High Interest Fund (HHIF) Objective: To generate income by investing in a range of debt and money market instruments of various maturity dates with a view to maximize income with safety, yield and security . HDFC Short Term Plan (STP): Objective: To generate regular income through investment in debt securities and money market instruments HDFC Liquid Fund (HLF): Objective: To enhance income consistent with a high level of liquidity, through a judicious portfolio mix comprising of money market and debt instruments

20

HDFC Cash Management Fund: Objective: Savings and call plan . HDFC Floating Rate Income Fund: Objective: To generate regular income through investment in a portfolio comprising substantially of floating rate debt/money market instruments, fixedrate debt/ money market instruments swapped for floating rate return and fixedrate debt securities and money market instruments. HDFC Gilt Fund: Objective: To generate credit risk-free return through instruments in sovereignsecurities issued by the central government and or a state govern.

Performance of Mutual Funds in India Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders was accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the praparedness of risks factor after the liberalization. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual fund.

21

Asset Management Company It also reffered to as the investment manager, is a separate company appointed by the trustees to run the mutual fund. The AMC should have a certificate from sebi to act as portfolio manager under SEBI rules and regulations, 1993. Custodian: The custodian handles the investment back office operations of a mutual fund. It looks after the receipt and delivery of securities, collection of income, distribution of dividends, and segregation of assets between schemes. The sponsor of a mutual fund cannot act as its custodian. Registrars and transfer agents: The registrars and transfer agents handle investor related services such as issuing units, redeeming units, sending fact sheets and annual reports, and so on. Some funds handle such fuctions in house, while others outsource it tobSEBI approved registrars and transfer agents like karvy and CAMS.The legal structure and organization of mutual funds as laid down by SEBI guidelines is as follows.

22

23

CURRENT SCENARIO MARKET TREND: A lone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now pass with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs.100bn per annum over five-year period spanning 1993-98 doubled to Rs.210bn in 1998-99. In the current year mobilization till now have exceeded Rs.300bn. Total collection for the current financial year ending March 2000 IexpectedtoreachRs.450bn.towards mutual funds has become obvious. The coming few years will show that the Traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The

24

collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S.boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. The Financial Express September, 99) this is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future. FUTURE OF MUTUAL FUND Indian mutual fund industry reached Rs 1, 50,537 crore by March 2004. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40, 90,000 crore. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years there is an annual growth rate of 9%. According to the current growth rate, by year 2010, Mutual fund India assets will be double. 100% growth in the last 6 years. Number of foreign AMC's is in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under manage Worldwide Our saving rate is over 23%, highest in the world. Only canalizing these Savings in mutual funds sector is required. We have approximately 29 mutual funds, which is much less than US having More than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are Concentrating on the 'A' class cities. Soon they will find scope in the growing Cities.

25

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

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.

26

ROLE OF MUTUAL FUND IN STOCK EXCHANGE Mutual funds are an ideal vehicle for investment by retail investors in the stock market for several reasons. It pools investments of small investors together increasingly thereby the Participation in the stock market. Mutual funds being institutional investors, can invest in market analysis generally not available or accessible to individual investors, providing therefore informed decisions to small investors. Mutual fund can diversify the portfolio in better way as compared with individual investors due to the expertise and availability of funds. Mutual funds in India, because of their mall size and slower growth in the recent past, have tended to play only a limited role in the stock market. the share of mutual funds in total turnover of the stock market (BSE+NSE), which was 4.9% in January 2000, declined to 3.6% by January 2003. Mutual Funds FAQs: (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include sales load. Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include aback-end load. This is also called Bid Price. Redemption Price

27

Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-end Load Is a charge collected by a scheme when it buys back the units from the unit holders? The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains a high professional and ethicalStandards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of Conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutualFund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engagedIn the mutual fund industry.

28

AMFI undertakes all India awareness programme for investors in order to promoteProper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either Directly or in association with other bodies. The sponsor of Association of Mutual Funds in India Bank Sponsored: SBI Fund Management Ltd. BOB Asset Management Co. Ltd. Canbank Investment Management Services Ltd. UTI Asset Management Company Pvt. Ltd. Institutions GIC Asset Management Co. Ltd. Jeevan Bima Sahayog Asset Management Co. Ltd. Private Sector Indian Benchmark Asset Management Co. Pvt. Ltd. Cholamandalam Asset Management Co. Ltd. Credit Capital Asset Management Co. Ltd. Escorts Asset Management Ltd. JM Financial Mutual Fund Kotak Mahindra Asset Management Co. Ltd. Reliance Capital Asset Management Ltd.

29

ABOUT SPECIFIC AREA OF THE TOPIC CHOOSEN Investment management: Is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors maybe institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds) .The term asset management is often used to refer to the investment management of Collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". The provision of 'investment management services' includes elements of financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Investment managers and portfolio structures At the heart of the investment management industry are the managers who invest and divest client investments. A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments. ASSET ALLOCATION: The different asset classes and the exercise of allocating funds among these assets (and among individual securities within each asset class) is what investment management firms are paid for. Asset classes

30

exhibit different market dynamics, and different interaction effects; thus, the allocation of monies among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably, the skill of a successful investment manager resides in constructing the asset allocation, and separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer group of competing funds, bond and stock indices). LONG TERM RETURN It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (eg. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this is because equities are riskier (more volatile) than bonds which are they more risky than cash. DIVERSIFICATION Against the background of the asset allocation, fund managers consider the degree of diversification that makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification was originated by Markowitz and effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns.

Performance measurement: Fund performance is the acid test of fund management, and in the institutional Context accurate measurement is a necessity. For that purpose, institutions measure the Performance of each fund (and usually for internal purposes components of each fund) Under their management, and performance is also measured by external firms that Specialize in performance measurement. The leading performance measurement firms

31

(e.g. Frank Russell in the USA) compile aggregate industry data, e.g., showing how funds in general performed against given indices and peer groups over various time periods. In a typical case (let us say an equity fund), then the calculation would be made (as far as The client is concerned) every quarter and would show a percentage change compared With the prior quarter (e.g., +4.3% total return in US dollars).. Generally speaking, it is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short term fluctuations in performance and the influence of the business cycle. An enduring problem is whether to measure beforetax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary.

RISK ADJUSTED PERFORMANCE: Performance measurement should not be reduced to the evaluation of fund returns alone, but must also integrate other fund elements that would be of interest to investors, such as the measure of risk taken. Several other aspects are also part of performance measurement: The need to answer all these questions has led to the development of more sophisticated performance measures, many of which originate in modern portfolio theory. Modern portfolio theory established the quantitative link that exists between portfolio risk and return. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best known performance measure. It measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer to any benchmark, avoiding drawbacks related to a poor choice of benchmark. .Portfolio normal return may be evaluated using factor models. The first model, proposed by Jensen (1968), relies on the CAPM and explains portfolio normal returns with the market index as the only factor. It quickly becomes clear, however, that one factor is not enough to explain the returns and that other factors have to be considered.

32

33

STUCTURE OF MUTUAL FUND INDUSTRY IN INDIA MUTUAL FUND INDUSTRY

34

Advantages of Investing Mutual Funds 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

35

DATA ANALYSIS AND INTERPRETATION Analyses the performance of mutual fund with reference to mutual fund industry.

HDFC Growth Fund: Nature of the scheme: Scheme objective: term capital predominantly in Investment pattern: of Rs.100 multiples of Date of launch: Fund size: 11-09-2000 Rs.894.707 Crores Equity and equity related instruments. for new investor Rs.5000 and in multiple Thereafter. For existing investor Rs.1000 and in An open ended growth scheme. The objectives of the fund is to generate long Appreciation from a portfolio that is invested

NAV per unit as on 31th January 2008 Growth Option: Dividend Option: Benchmark: Load structure Entry load: entry load on Rs. 68.432 Rs. 33.714 Sensex 2.25% for investment of less than Rs,5 cr. No Investment of more than 5 cr. Exit load/CDSC: 1% on the investment below 5 cr. And redeemed within 365 days, and no exit load on the investment of more than 5 cr.

36

Portfolio construction as on 31 the January 2008: Asset under management Rs. 894.707 crore

37

Performance of fund as on 31 th 2008

Quantitative data

Interpretation: This fund gave the sharper ratio, 4.006 shows that the fund performing better during five year history with the total risk of 7.75. by evaluating Treynor ratio the fund gave the return of 30.89 by considering the beta value of 1.003 it shows that even though in volatile condition the fund perform well, the Jensen gave the positive return of 8.30 it shows that actual return is more than benchmark return during 5 year history because it is difference between actual and benchmark return.

38

HDFC Equity Fund: Nature of the scheme: An open ended growth scheme. Scheme objective: The objectives of the fund is to generate long term capital appreciation Investment pattern: For new investor Rs.5000 and in multiples of Rs.100 thereafter.For existing investor Rs.1000 and in multiples of Rs.100 thereafter. Date of launch: Fund size: 01-01-1995 Rs.4, 716 Crores

NAV per unit as on 31th January 2008 Growth Option: Dividend Option: Benchmark: Rs. 188.420 Rs. 49.444 S & P CNX 500

Load structure: Entry load: 2.25% for investment of less than Rs,5 cr. No entry load on Investment of more than 5 cr. Exit load/CDSC: Nil

39

Portfolio construction as on 31 th January 2008: Asset under management Rs. 4,716 crores

40

Performance of fund as on 31th January 2008:

Quantitative data

Interpretation: This fund gave the sharp ratio of 3.74 that is reward of 3.47 with risk of 7-77% and giving good return to the investor. Tenor ratio gave the value of 32.98 means it gave the good return with overcoming market risk of 0.883 and succeed in the performance. The Jensen ratio measure that fund beat the benchmark return and gave the return of 8.44.

41

HDFC Top 200 Fund Nature of the scheme: An open ended growth scheme. Scheme objective: The objectives of the fund is to generate long term capital Appreciation from a portfolio of equity and equity-linked Instruments primarily drawn from the companies in BSE 200 index Investment pattern For new investor Rs.5000 and in multiples of Rs.100 thereafter for existing investor Rs.1000 and in multiples of Rs.100 thereafter. Date of launch: Fund size: 11-10-1996 Rs.2, 363.26 Crores

NAV per unit as on 31th January 2008 Growth Option: Dividend Option: Rs. 147.718 Rs. 48.858

Benchmark: BSE Sensex Load structure Entry load: 2.25% for investment of less than Rs,5 cr. No entry load on Investment of more than 5 cr. 1% on the investment below 5 cr. And redeemed And no exit load on the investment of more than 5 cr.

Exit load/CDSC: within 365 days,

42

Portfolio construction as on 31 th January 2008: Asset under management Rs. 2,363.26 crores:

Performance of fund as on 31 th January 2008

43

Quantitative data

Interpretation: This fund perform well and gave the sharp value of 4.11 by considering total risk and tenor ratio shows that the fund succeed in overcoming market risk and gave return of 43.43% and Jensen gave positive return 8.22 means that fund beat the benchmark return in its five year history.

44

HDFC Capital Builder Fund Nature of the scheme: An open ended growth scheme.

Scheme objective: The objectives of the fund is to generate long term capital appreciation in long term Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 there for existing investor Rs.1000 and in multiples of Rs.100 thereafter . Date of launch: 01-02-1994 Fund size: Rs.750.63 Crores

NAV per unit as on 31th January 2008 Growth Option: Dividend Option: Benchmark: Load structure Entry load: 2.25% for investment of less than Rs,5 cr. No entry load on Investment of more than 5 cr. Exit load/CDSC: Nil Rs. 88.367 Rs. 31.510 S & P CNX 500

Portfolio construction as on 31 th January 2008: Asset under management Rs.2, 363.26 crores:

45

Performance of fund as on 31 th January2008

46

Quantitative data

Interpretation: This fund able to compensate the risk and possible of giving return of 4.29, tenor gave the return of 33.17% with considering market risk of 0.8708 and able to beat the market risk. Jensen gave the value of 9.20 shows that the fund beat the benchmark return and gave the good return to the investors.

HDFC Index Fund :( Sensex plan): Nature of the scheme: An open ended index linked scheme.

47

Scheme objective: The objectives of the fund are to generate returns that are commensurate with the performance of the sensex, subject to tracking record. Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 thereafter.for existing investor Rs.1000 and in multiples of Rs.100 thereafter. Date of launch: Fund size: 17-07-2002 Rs.78.02 Crores

NAV per unit as on 31th January 2008 Growth Option: Benchmark: Load structure Entry load: Nil Rs. 154.2977 Sensex

Exit load/CDSC: 1% on the investment below 5 cr. And redeemed within 365 days, and no exit load on the investment of more than 5 cr.

Portfolio construction as on 31 th January 2008: Asset under management Rs. 78.02 crores:

48

Performance of fund as on 31 th January 2008

49

Quantitative data

Interpretation: This fund able to compensate the risk and possible to return of 2.6. Treynor gave the normal return of 22.45 with beta by considering Jensen ratio we come to know that the fund performed well during five year of history which gave the ve -10.69. give the of 0.949 has not value of

HDFC Index Plan (Nifty Plan) Nature of the scheme: An open ended index linked scheme.

50

Scheme objective: The objectives of the fund are to generate returns that are commensurate with the performance of the nifty subject to tracking record. Investment pattern: for new investor Rs.5000 and in multiples of Rs.100 thereafter. For existing investor Rs.1000 and in multiples of Rs.100 thereafter . Date of launch: 17-07-2002 Fund size: Rs.49.42 crores

NAV per unit as on 31th January 2008 Growth Option: Benchmark: Load structure Entry load: Nil Rs. 46.6758 S & P CNX Nifty

Exit load/CDSC: 1% on the investment below 5 cr. And redeemed within 365 days, And no exit load on the investment of more than 5 cr.

Portfolio construction as on 31 th January 2008 Asset under management Rs. 49.42 crores

51

Performance of fund as on 31 th January 2008

52

Quantitative data

Interpretation: This fund gave the return of 2.45% with risk of 7.98, the fund not able to provide better return to the investor, by comparing the tenor ratio this fund gave the normal return of 23.06 with beta of 0.894. Jensen ratio provide that the fund performing well and not so good and it gave the negative value of -2.49

CONCLUSION

53

Mutual fund is booming sector now a days and it has lot of scope to generate income and providing return to the investor, the mutual fund is one of the way to development of country 113and helps to mobilizing dead money in the economy which helps to develop the economic conditions of the country and people. Mutual fund helps the people for studying the market conditions, it providing lot of opportunities to the people for research work and helps the people to know the new things going on around the world. It gave the more knowledge to the person, because it diversifies the risk by investing in different securities. Last few year have been peppered with sc scam in the financial sector (UTI-US64 fiasco, price rigging by ketan parekh in the stock market along with the people from responsible position acting as hand in glove with him. The home trade scam where Mr. Sanjay arawal exposed the loopholes in the risk management system of a co-operative bank and duped Nagpur central co-op bank ltd. By an amount in excess of Rs100crore) the wtc attack by bin laden also sent the world economy on the brink of a disaster All these factor have led to a situation where a retail investor is getting about the safely of the prevailing investment sector available in the market. The government has come into the picture and has launched a number of moves to cleanse the financial sector in the economy. It is precisely for this reason that it is felt that mutual funds would play an increasingly important role in the portfolio of a retail investor. In the current scenario of mutual fund HDFC mutual funds also playing an important role in the Indian mutual industry with their professional management and their scheme with less market risk and high return which is suitable for salaried individual that could match individual risk profile.

SUGGESSTIONS

54

Following are the suggestions for the both funds. The fund house has to reduce the total risk involved in the fund in order to increase the return with good portfolio construction. The fund house should select the innovative way of portfolio construction and should see the attracting areas of investing funds. The fund houses should concentrate on the market conditions according to that they have to set the benchmark and invest in different sectors. The fund houses should invest in good and attracting sectors to reduce standard Deviation. The fund house should try to reduce little more betas in order to generate more returns to investors. HDFC fund house gave the good return it showed by sharp ratio even though have to reduce the total risk by diversifying their portfolio and achieving aim. The HDFC investing in diversifies areas but not in upcoming areas like real estate and infrastructure better to invest in those areas to increase return. HDFC still it has to reduce the standard deviation to generate more return by reducing total risk factors associating with mutual funds, and analyses all the factors. HDFC has to concentrate on those funds which are performing less than their Benchmark return and take actions and analyze the market conditions.

55