A Study on Mutual Funds as a Growth Oriented Investment Option

A. Evaluation of Mutual Funds as an Investment Opportunity

HDFC Asset Management Company

A Corporate Exposure and Learning (CEL) Report

Rashmi Dhakappa
Reg. No: 1PI04MBA62

Guided by Ms.Anitha Yadav (Internal Guide) Mr. Venkitesh S (External Guide)

DECLARATION
I, Rashmi Dhakappa (1PI04MBA62), final year student of MBA in PESIT, hereby declare that this project report entitled EVALUATION OF MUTUAL FUNDS AS AN INVESTMENT OPPORTUNITY carried out at HDFC Asset Management Company has been submitted by

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A Study on Mutual Funds as a Growth Oriented Investment Option me in partial fulfillment of the requirement for the award of the degree of Master of Business Admistration by Vishveshwaraish Technological University (VTU), Belgaum, Karnataka. This project is an independent work and has not been submitted to any other university for any degree or diploma.

Date : Dhakappa Place : Bangalore No. 1PI04MBA62

Rashmi Reg.

ACKNOWLEDGEMENT
I would like to express my sincere gratitude to Vishveshwaraih Technological University (VTU), for the inclusion of this project as a part of the MBA curriculum, which gives us direct exposure to the industry. I would like to thank Prof. S.P. Kumar, Co-ordinator-MBA Programme, PESIT for his valuable support. I thank Mr. Venkitesh S, Senior Manager (sales) who gave me an opportunity to undertake my project in HDFC Asset Management Company and helped me by providing all the necessary information AIMA-NEW DELHI 2

A Study on Mutual Funds as a Growth Oriented Investment Option and guiding me all through my project. I would also like to thank Mr. S F.Patil for his valuable inputs. I would also like to convey my sincere gratitude to Ms Anita Yadav, Faculty, Department of management Studies, PESIT for her guidance and support. I would also like to thank the college staff for providing all the help related to the final completion of the report.

CONTENTS S.No.
Executive Summary 1 Introduction of the study 1.1 Introduction of the study 1.2 Background of the study Design of the study 2.1 Research design 2.2 Sample design 2.3 Sources of data 2.4 Field work 2.5 Statement of the problem 2.6 Scope of the study 2.7 Need of the study 2.8 Objective of the study 2.9 Review of the literature 2.10 Limitations of the study 2.11 Overview of the report Introduction to the industry Analysis and Interpretation

TITLE

Pg No. 3 3-15 16-23

3 4

24-51 52-91

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A Study on Mutual Funds as a Growth Oriented Investment Option

Findings, Suggestion and conclusion Annexure Bibliography

92-97 98 100

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A Study on Mutual Funds as a Growth Oriented Investment Option LIST OF TABLES

S. NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Pg.No. Name of the Table Table showing the comparison between banks vs. 53 mutual funds as an investment avenue. Table showing the fund monitor 55

Table showing the classification of investors based 57 on age group. Table showing the average amount that the 59 respondents invest annually. Table showing the lock-in period for the 61

investments. Table showing the investment preferences of the 63 respondents. Table showing the need to withdraw saving before 65 the stated time horizon. Table showing whether or not the respondents got 67 professional advice about investing. Table showing the percentage of respondents who 69 have invested in mutual funds. Table showing the most preferred AMC for mutual 71 funds. Table showing what customers look for first in their 73 investment. Table showing the safety model portfolio. 81

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A Study on Mutual Funds as a Growth Oriented Investment Option

LIST OF CHARTS
S No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Name of the charts Pg. No Chart showing the classification of investors based on 58 age group Chart showing the average amount that the 60 62

respondents invest annually Chart showing the lock-in period for the investments

Chart showing the investment preferences of the 64 respondents Chart showing the need to withdraw savings before 66 the stated time horizon. Chart showing whether or not the respondents got 68 professional advice about investing Chart showing the percentage of respondents who 70 have invested in mutual funds Chart showing the most preferred AMC for mutual 72 funds. Chart showing what customers look for first in their 74 investment. Chart showing the safety model portfolio. Chart showing income model portfolio. Chart showing income and moderate growth portfolio. 77 78 79

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A Study on Mutual Funds as a Growth Oriented Investment Option

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A Study on Mutual Funds as a Growth Oriented Investment Option

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A Study on Mutual Funds as a Growth Oriented Investment Option

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A Study on Mutual Funds as a Growth Oriented Investment Option EXECUTIVE SUMMARY

A report titled A study on Mutual funds as a growth oriented investment option has been submitted to AIMA, New Delhi as a part of curriculum for the completion of Post Graduation Diploma in management. Mutual fund is a fund established in the form of trust by sponsor, to raise money by trustees through the sale of units in the public, under one or more schemes, for investing in securities in accordance with these regulations. The main objective of the study: The study was conducted to throw more light on various investment options available in the form of mutual funds in contrast to conventional investment options used by middle class salaried people. The study is to evaluate various schemes under mutual funds. The study is to educate the reader to create a suitable portfolio of investment by taking into consideration wealth creation, liquidity factor, risk bearing capacity, long term needs, income tax benefits etc. In order to understand, the return from investment should surpass or beat inflation rate in order to grow or sustain wealth creation.

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A Study on Mutual Funds as a Growth Oriented Investment Option

All information relevant to the project has been drawn from both primary and secondary sources. Primary sources: This includes personal interviews conducted with bank managers and questionnaires rendered to the respondents through survey method etc. Secondary sources: Constitutes various brochures, publications, journals, pamphlets and websites of mutual fund operators. The study has been extended to give an insight to two large fund operators namely UTI mutual fund, the pioneer in this field in India, SBI mutual fund & HDFC mutual fund.

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A Study on Mutual Funds as a Growth Oriented Investment Option

CHAPTER 1 INTRODUCTION OF THE STUDY WHY MUTUAL FUNDS? A middle class Indian investor depended mainly on conventional investment options to save for their future needs. Some of the investment options commonly used by majority of people are: 1. Fixed deposit in banks 2. Recurring deposit in post office 3. National savings scheme 4. Pension plans offered by LIC etc. These instruments gave assured returns. Due to fall in interest rates, the returns started dwindling as seen from the history of interest rates offered by these schemes as given below: 1990 Banksfixed deposits Post office NSC 11% 12% 11.5% 9% 11% 10.5% 7% 10% 9% 5.5% 8% 8% 5.5% 8% 8% 1995 2000 2005 2009

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A Study on Mutual Funds as a Growth Oriented Investment Option

YoY (In %)

Current %

Qtr Ago

Yr Ago

Inflation

-1.53

0.70

12.53

IIP

7.80

0.20

5.40

GDP

6.7

5.30

8.80

CPI

11.89

9.63

7.69

CRR

5.00

5.50

7.50

Bank rate

6.00

6.00

6.00

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A Study on Mutual Funds as a Growth Oriented Investment Option

A downward trend in interest rates and rising prices in view of Continuous inflation, there is a need to maximize the returns on investment. In order to make these savings or the investments much rewarding, there is a need to look beyond for return on investment that can beat inflation. A direct investment in stock market needs market knowledge, analyzing and tracking companies and risk factors involved in it. Here comes the role of mutual fund as a tool in the hands of the common man and small investors. Unlike investments in a risky stock market where it is difficult for a common man to analyze and track companies, an investment in mutual fund relieves all such hassles while enjoying the same benefits of this
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A Study on Mutual Funds as a Growth Oriented Investment Option

investment options. In other words, mutual funds collect money from a large group of investors pooling together and invest it in various securities.

WHAT IS A MUTUAL FUND? The idea behind Mutual Fund is fairly simple. It is nothing but several people pooling together their money in a fund, aiming to invest in various securities. These investors would have a common financial goal. Each Mutual Fund has a fund manager or financial advisor, who invests the fund depending on the objective of the scheme. The investors proportionately share the returns. In other words, the dividends or interest paid on the securities by the fund holds are shared by the investors in proportion to their investment. So also, they share any capital gains or losses caused by sales of securities the fund holds. A Mutual Fund is considered most suitable for lay investors as it offers an uncomplicated system to invest in a variety of funds, with professional help at a relatively cheaper cost. In the complex market environs of today, a Mutual Find is a practical solution for ordinary investors for a number of reasons. Lay investors may not have the facilities, aptitude or time to follow the market always and make investment decisions accordingly. They also may fail to keep track of geo-political changes and decisions that may affect their investments.

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A Study on Mutual Funds as a Growth Oriented Investment Option

A Mutual Fund is ideal for such situations. The number one reason is that in Mutual Funds professionally qualified and experienced people manage various stages of investment. It may not be affordable for individual investors to hire such experienced people. But the large pool of money collected allows the fund to employ quailed people at a cost negligible to each investor. Mutual Funds gained popularity only after the World War II. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. To launch a Mutual Fund, a draft offer document is to be prepared. It would specify the funds investment objectives, the risk associated, the costs involved in the process and the broad rules for entry and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator. The Securities Exchange Board of India (SEBI) is the regulatory body in India. The SEBI would examine the track records of the sponsor and its financial strength before granting approval to the funds operations. Once the approval is gained, the sponsor hires an asset management company to invest the funds according to the investment objective. It also hires another entity to function as the custodian of the funds assets, and perhaps a third one to handle the registry work for the unit holders. WORKING OF A MUTUAL FUND

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A Study on Mutual Funds as a Growth Oriented Investment Option

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 appreciations realized are 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:

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

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There are many entities involved and the diagram below illustrates the or ganizational set up of a mutual fund:

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A Study on Mutual Funds as a Growth Oriented Investment Option

Organization of a Mutual Fund

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ADVANTAGES OF INVESTING IN A MUTUAL FUND Investing in a mutual fund has various benefits, which makes it an ideal investment avenue. Following are some of the primary benefits. 1. Professional investment management One of the primary benefits of mutual funds is that an investor has access to professional management. A good investment management is certainly worth the fees you will pay. Good mutual fund managers with an excellent research team can do better job of monitoring the companies they have chosen to invest in than you can, unless you have time to spend on researching the companies you select for your portfolio. That is because mutual funds hire full-time, high level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. When you buy a mutual fund. The primary asset you are buying is the manager, who will be controlling which assets are chosen to meet the funds stated investment objectives. 2. Diversification of risk A crucial element in investing is asset allocation. It plays a very big part in the success of any portfolio. However, small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification. Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any security.
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A Study on Mutual Funds as a Growth Oriented Investment Option

Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. 3. Low cost A mutual fund lets you participate in a diversified portfolio for as little as Rs. 5000, sometimes less. And with a no-load fund, you pay little or no sales charges to own them. 4. Conveniences and Flexibility Investing in mutual fund has its own convenience. While you own just one security rather than many, you still enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, collect the interest payments and see that your dividends on portfolio securities are received aid your rights exercised. It also uses the services of a high quality custodian registrar. Another advantage is that you can move your funds easily from one find to another within a mutual fund family. This allows you to easily rebalance your portfolio to respond to significant fund management or economic changes. 5. Liquidity In open-ended schemes, you can get your money back promptly at net asset value-related prices from the mutual fund itself.

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A Study on Mutual Funds as a Growth Oriented Investment Option

6. Transparency Regulations for mutual funds have made the industry very transparent. You can track the investments that have been made on your behalf and the specific investments made by the mutual fund scheme to see where your money is going. In addition to this, you get regular information on the value of your investment. 7. Variety There is no shortage of variety when investing in mutual funds. You can find a mutual fund that matches just about any investing strategy you select. There are funds that focus on blue-chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge can be sorting through the variety and picking the best for you. 8. Tax benefits Certain funds offer tax benefits to the customers. Dividends in the hands of investors are exempted from tax. Investor can invest in such schemes and save some tax.

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A Study on Mutual Funds as a Growth Oriented Investment Option

DISADVANTAGES OF MUTUAL FUNDS: 1. Professional Management - Did you notice how we qualified the advantage of professional management with the word theoretically? Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. Well talk about this in detail in a later section. 2. Costs Mutual funds dont exist solely to make your life easier- all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. 3. Dilution Its possible to have too much diversification. Because funds have smallholdings in so many different companies, high returns from a few investments often dont make much difference on the overall return. Dilution is also the result of a successful fund too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes When making decisions about your money, fund managers dont consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

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TYPES OF MUTUAL FUND SCHEMES Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

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A Study on Mutual Funds as a Growth Oriented Investment Option

BACKGROUND OF THE STUDY The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases: First Phase 1964-87 An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug
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A Study on Mutual Funds as a Growth Oriented Investment Option

89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 corers. Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. At the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase since February 2003

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A Study on Mutual Funds as a Growth Oriented Investment Option

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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A Study on Mutual Funds as a Growth Oriented Investment Option

The graph indicates the growth of assets over the years. GROWTH IN ASSETS UNDER MANAGEMENT

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CHAPTER 2
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DESIGN OF THE STUDY 2.1 RESEARCH DESIGN The study was conducted on the basis of survey through questionnaires given to respondents. The answers were tabulated and classified into tables and graphs in order to achieve the objectives. Statistical techniques are being applied top numerical data. 2.2 SAMPLE DESIGN Population of 100 was taken for the study. The respondents were chosen from different age and income groups. The data is collected through convenience sampling. SAMPLE SIZE Sample size: 100 Area of sampling: sampling is done within Bangalore.

SAMPLING TECHNIQUE ADOPTED Sampling is a process of learning about the population on the basis of sample drawn from it. The sampling technique adopted in this dissertation is conveniencesampling, researchers or field workers have the freedom to choose whomever they find, thus the name convenience. 2.3 SOURCES OF DATA

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A Study on Mutual Funds as a Growth Oriented Investment Option

There are two types of data: Primary data Secondary data The primary data was collected from the questionnaires rendered to the respondents. There are 3 widely used methods of gathering primary data: Survey method Observation method Experimental method This includes personal interviews conducted with bank managers, and questionnaires rendered to the respondents through survey method etc. Secondary data is data originally generated for some purpose, other than present research objective. It includes findings based on research done by outside agencies of organization, various brochures, publication, journals, pamphlets, company websites and other research websites. The study has been extended to give an insight to two large fund operators namely UTI mutual fund, the pioneer in this field in India, and SBI mutual funds. Associate of the premier banking in India.

2.4 FIELD WORK

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Information was collected through questionnaires and company personal has been used to collect first hand information relating to mutual funds. The information has been collected mainly for UTI and SBI Mutual Fund Schemes.

2.5

STATEMENT OF THE PROBLEM

The main focus of the study is to give an insight to small investors, on how mutual fund will be an effective tool in parking their hard earned money.

2.6

OBJECTIVE OF THE STUDY

The study aims to bring out various options available in the market. To give a data based analysis to take judicious decision. The study aims to evaluate various schemes under mutual fund by two largest fund operators in India. The study aims to make accessible to investments that can fetch returns that top inflation by a fair margin.

2.7

NEED OF THE STUDY

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A Study on Mutual Funds as a Growth Oriented Investment Option

The need of the study is to bring awareness to public about the existence of mutual fund, as an investment option. This is required as the interest income from term deposits of banks are decreasing and investors are not getting satisfactory returns on their investments. This is to guide retired people who have to depend on returns on the investment.

2.8

SCOPE OF THE STUDY

This study is to impart knowledge of mutual funds and its working. The scope is to identify investment options for a middle class family. This study is to guide to maximize returns vis--vis risk factors and the liquidity requirements of the investor.

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2.9 REVIEW OF LITERATURE PURPOSE: Literature review is one of the prime parts of dissertation. The very basic purpose of the literature is to gain insight on the theoretical background of the research problem. It helps the researcher to gain strong theoretical basis of the problem under study and also helps to explore where any one has done research on related issue. Thats why literature review helps one find out the path of problem solving. In this regard, the very basic purpose of literature review in this dissertation is same as mentioned above. TERMINOLOGIES: Mutual fund: It collects the saving from small investor, invest them in government and other corporate securities and earn income through interest and dividends, besides capital gains. Portfolio: is a collection/combination/group of assets/securities. Risk: is the variability of the actual return from the expected returns associated with a given investment. Return: is the actual income received plus any changes in market price of an asset/investment.

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Growth funds: It aims to achieve capital appreciation in the medium to long term. These funds do not pay dividend, instead they reinvest in the returns. Balanced funds: provide both growth as well as regular income to the investor. Income funds: It aims to generating and distributing regular income to the members on a periodical basis. Equity funds: invest a major portion of their corpus in equity shares issued by companies. Net Asset Value (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 It is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price: Is the price at which a close-ended scheme repurchases its units and it may include a back Redemption Price: 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. -End load. This is also called Bid Price.

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Sales Load: It 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: It is a charge collected by a scheme when it buys back the units from the unit holders.

2.10 LIMITATIONS OF THE STUDY

1. The study is conducted only on 100 respondents; hence the variation is limited to this. 2. The data was collected through convenience sampling. 3. The study was conducted only in Bangalore city. 4. The study is only limited to understanding the investment goals of the customers and profiling them only.

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2.11 OVERVIEW OF THE REPORT

CHAPTER 1: Introduction of the study This shall explain comprehensive description about introduction to the study and background of the topic.

CHAPTER 2: Design of the study In design the various aspects of methodology, statement of the problem, scope of the study, need of the study, objective of the study, research design, fieldwork, limitations of the study.

CHAPTER 3: Introduction of the industry It shall explain about background, history and various mutual fund schemes present in UTI and SBI banks.

CHAPTER 4: Analysis and interpretation It analyses the detailed analysis various option strategies with respect to secondary data available. CHAPTER 5: Findings, Conclusion and Suggestions It shall describe the findings conclusion and suggestions.

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CHAPTER 3 INTRODUCTION TO THE INDUSTRY UTI MUTUAL FUND INTRODUCTION UTI Mutual Fund is managed by UTI Asset Management Company Private Limited (Est.: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private Limited for managing the schemes of UTI Mutual Fund and the schemes transferred / migrated from UTI Mutual fund. The UTI Asset Management Company has its registered office at: UTI Tower, Gn Block, Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide professionally managed back office support for all business services of UTI Mutual Fund (excluding fund management) in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-the-art systems and communications are in place to ensure a seamless flow across the various activities undertaken by UTI AMC. UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on February 3 2004, for undertaking portfolio management services and also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands.

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UTI Mutual Fund has come into existence with effect from 1st February 2003. UTIAMC presently manages a corpus of over Rs. 67,252 Crores* as on 31st July 2009. UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizens . UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizenry. It has a nationwide network consisting 114 UTI Financial Centers (UFCs) and representative offices in Dubai and London. With a view to reach to common investors at district level, 11 satellite offices have also been opened in select towns and districts. It has well-qualified, professional fund management teams, who have been highly empowered to manage funds with greater efficiency and accountability in the sole interest of unit holders. The fund managers are also ably supported with a strong in-house equity research department. To ensure better management of funds, a risk management department is also in operation. It has reset and upgraded transparency standards for the mutual funds industry. All the branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-effective quick and efficient service. All these have evolved UTI Mutual Fund to position as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant entity. VISION To be the most preferred Mutual Fund.

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MISSION The most trusted brand, admired by all stakeholders. The largest and most efficient money manager with global presence. The best in class customer service provider. The most preferred employer The most innovative and best wealth creator A socially responsible organization known for best corporate governance

SIP / STP / SWP Systematic Investment Plan (SIP) Systematic Withdrawal Plan (SWP) Systematic Transfer Plan (STP)

Systematic Investment Plan (SIP) A mutual fund is a trust. It pools money from like-minded shareholders and invests in diversified portfolio of securities, through various schemes that address different needs of investors. The Asset Management Company (AMC) in different types of securities then invests the pool of money thus collected. These could include shares, debentures,
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convertibles, bonds, money market instruments or other securities, based on the investment objective of a particular scheme. Such objective is clearly laid down in the offer document for that scheme. The fund adds value to the investment in two ways: income earned and any capital appreciation realized through sale. Unit holders in proportion to the number of units they own share this. Systematic Withdrawal Plan (SWP) SWP is a Tax efficient way of obtaining regular income. Investor can opt for SWP for periodic withdrawal of sums from their accounts. Investor can opt for any one of the following two options offered by the Schemes Fixed Amount Encashment Under this facility, the Unit holders can opt to redeem/ switch (transfer) fixed amount of money from their accounts at periodic intervals. Capital Appreciation Encashment Under this facility, the Unit holders can opt to redeem amounts equivalent to the appreciation in their investment value at periodic intervals. Thus the appreciation, if any, earned by the Scheme during the specified period shall be automatically redeemed and paid to the investors at the Applicable NAV. Presently this option is available only for investors in Growth Plan/Option The amount thus withdrawn / switched shall be converted into units at the Applicable NAV, subject to load, if any, and such units shall be subtracted from the Unit balance of that unit holder. This facility shall be subject to the terms and conditions contained in the SWP / STP enrollment form. The Registrar may terminate SWP/ STP on receipt of
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A Study on Mutual Funds as a Growth Oriented Investment Option

appropriate notice from the Unit holder. It will terminate automatically if all Units are liquidated or withdrawn from the account or upon the receipt of notification of death or in capability of the Unit holder. SWP / STP shall not be available for investments under 54 EA / 54 EB of the Income Tax Act, 1961, during the stipulated lock-in-period of 3 years / 7 years respectively. The withdrawal / Transfer would happen on the date prescribed by the Investment Manager and would be subject to applicable load structures for respective schemes. Investors desiring to opt for these benefits are requested to read the instructions contained in the enrollment form carefully SWP can be modified/terminated by the unit holder by submitting a written request 5 days in advance. Systematic Transfer Plan (STP) The Systematic Transfer Plan gives investors the option of systematic transfer of fixed amounts/ capital appreciation on a periodic basis to another Plan/ Scheme of the Mutual Fund. STP can availed of as a monthly or quarterly basis from one plan to another plan in the same scheme or to another scheme within the fund All transfers will take place on the 30th/ 31st of every Month/ Quarter based on the NAV of that day. An investor can opt for systematic transfer of fixed amount or of the Capital Appreciation on investment in the scheme to any desired scheme on a monthly or quarterly basis. STP of Capital Appreciation is available only under the Growth plan and not under Dividend Plan. The amount of transfer under STP will be considered as redemption and will be made at the applicable redemption price on the day of transfer and at the applicable load, if any.

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A Study on Mutual Funds as a Growth Oriented Investment Option

STP can be modified/terminated by the unit holder by submitting a written request 5 days in advance. UTI FUNDS AT A GLANCE 1. LIQUID FUNDS CATEGORY
a)

UTI Money market fund It seeks to provide highest possible current income, by investing in a diversified portfolio of short-term money market securities. UTI Liquid fund cash plan The objective of the scheme is to generate reasonable returns with low risk and high liquidity from a portfolio of money market securities and high quality of debt instruments. UTI Floating rate fund To generate regular income through investment in a portfolio comprising substantially of floating rate debt/money market instruments and fixed rate debt/money market instruments.

b)

c)

2. INCOME FUNDS CATEGORY

UTI Liquid fund short-term plan The objective of the scheme is to generate reasonable returns with low risk and high liquidity from a portfolio of money market securities and high quality of debt instruments. UTI G Sec funds invest only in central government securities including call money, treasury bills and repose of varying maturities with a view of generating credit risk free return. UTI GILT Advantage Fund to generate credit risk-free return through investment in sovereign securities issued the central and/ or a state government.
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b)

c)

A Study on Mutual Funds as a Growth Oriented Investment Option

UTI Bond fund open-end pure debt scheme, which invests in rated corporate debt papers and government securities with relatively low risk and easy liquidity. UTI Bond Advantage fund It aims to generate attractive return consistent with capital preservation and liquidity.

e)

f)

UTI Monthly Income scheme aims to distribute income periodically. Best suited to the investors who are looking for regular income with relatively low levels of risk appetite. Also suitable to meet the requirements of corporate and institutional investors with surplus funds. UTI MIS Advantage plan Endeavors to make periodic income distribution to unit holders through investments in fixed income securities and equity and equity related instruments. UTI Childrens career plan An open-ended debt oriented fund with 100% investment in debt/G sec. Investment can be made in the name of the children up to the age of 15 years so as to provide them, after they attain the age of 18 years, a means to receive scholarship to meet the cost of higher education and/or to help them in setting up a profession, practice or business or enabling them to set up a home or finance the cost of other social obligation.

g)

h)

3. BALANCED FUNDS CATEGORY

UTI Balanced fund Aims to invest in portfolio of equity/equity related securities and fixed income securities
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A Study on Mutual Funds as a Growth Oriented Investment Option

with a view to generating regular income together with capital appreciation.

UTI

US

2002

Aims

to

provide

income

distribution/cumulation of income and capital appreciation over a long-term from a prudent portfolio mix of equity and income securities.
c)

UTI Mahila Unit scheme To invest in a portfolio of equity/equity related securities and debt and money market instruments with a view to generating reasonable income with moderate capital appreciation. UTI Childrens career plan - An open-ended debt oriented fund with investment in Debt/G-Sec of minimum 60% and a maximum of 40% in Equity. Investment can be made in the name of the children up to the age of 15 years so as to provide them, after they attain the age of 18 years, a means to receive scholarship to meet the cost of higher education and/or to help them in setting up a profession, practice or business or enabling them to set up a home or finance the cost of other social obligation. UTI CRTS - This is an open-end income oriented scheme. The scheme aims at catering to the investment needs of charitable, religious, educational trusts and similar institutions to provide them an investment vehicle to avail of tax exemption and also to have regular income. UTI ULIP - An open-ended balanced fund with an objective of investing not more than 40% of the funds in equity and equity related instruments and balance in debt and money market instruments with low to medium risk profile. Investment by an individual in the scheme is eligible for
AIMA-NEW DELHI 45

d)

e)

f)

A Study on Mutual Funds as a Growth Oriented Investment Option

exemption under section 88 of the IT Act 1961. In addition the scheme also offers Life Insurance and Accident Insurance cover.
g)

UTI Retirement Benefit Pension Fund - An open-ended balanced fund with a maximum equity allocation of 40% and the balance in debt. This ensures to provide pension to investors particularly self-employed persons after they attain age of 58 years, in the form of periodical cash flow up to the extent of repurchase value of their holding through systematic withdrawal plan.

4. ASSET ALLOCATION FUNDS CATEGORY

investment Scheme is an open-ended scheme with dynamic allocation between equity and debt classes.

5. INDEX FUNDS CATEGORY

a)

UTI Master Index Fund - UTI MIF is an open-ended

passive fund with the primary investment objective to invest in securities of companies comprising the BSE sensex in the same weight age as these companies have in BSE sensex...

b)

UTI Nifty Index Fund - UTI NIF is an open-ended passive

fund with the objective to invest in securities of companies comprising of the S&P CNX Nifty in the same weight age as they have in S&P CNX Nifty...

c)

UTI Index Select Fund - An open-ended equity fund with

the objective to invest in select stocks of the BSE Sensex and the S & P

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A Study on Mutual Funds as a Growth Oriented Investment Option

CNX Nifty. The fund does not replicate any of the indices but aims to attain performance better than the performance of the indices.

d)

Sunder - The objective of the scheme is to provide

investment returns that, before expenses, closely correspond to the performance and yield of the basket of securities underlying the S&P CNX NIFTY Index. 6. EQUITY FUNDS CATEGORY
a) UTI Equity Tax Saving Plan - An open-ended equity fund

investing a minimum of 80% in equity and equity related instruments. It aims at enabling members to avail tax rebate under Section 88 of the IT Act and provide them with the benefits of growth. b) UTI Master equity Plan Unit scheme - The scheme primarily aims at securing for the investors capital appreciation by investing the funds of the scheme in equity shares of companies with good growth prospects. c) UTI Master share - An open-end equity fund aiming to provide benefit of capital appreciation and income distribution through investment in equity. d) UTI Master Plus - An open-ended equity fund with an objective of long-term capital appreciation through investments in equities and equity related instruments, convertible debentures, and derivatives in India and also in overseas markets. e) UTI Equity Fund (Mastergain) - Mastergain is open-ended equity scheme with an objective of investing at least 80% of its funds in equity and equity related instrument with medium to high risk profile and up to 20% in debt and money market instruments with low to medium risk profile.
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A Study on Mutual Funds as a Growth Oriented Investment Option

f) g) h)

UTI Growth & Value Fund - To seek capital appreciation UTI Dynamic Equity Fund - Capital appreciation by UTI Petro Fund - An open-ended fund that invests

through opportunities arising out of listed growth and undervalued stocks. primarily investing in equity and equity related instruments. exclusively in the equities of the Petro Sector companies. One of the Growth Sectors Funds aiming to provide growth of capital over a period of time as well as to make income distribution from investment in stocks of Petro Sector. i) UTI Pharma & Healthcare Fund - An open-ended fund, which exclusively invests in the equities of the Pharma & Healthcare sector companies. This fund is one of the growth sector funds aiming to invest in companies engaged in business of manufacturing and marketing of bulk drug, formulations and healthcare products and services. j) UTI Software Fund - An open-ended fund that invests exclusively in the equities of the Software Sector companies. One of the growth sectors funds aiming to invest in equity shares of companies belonging to information technology sector to provide returns to investors through capital growth as well as through regular income distribution. k) UTI Auto Sector Fund - An open-ended equity fund with the objective to provide Capital appreciation through investments in the stocks of the companies engaged in the automobile and auto-ancillary industry. l) UTI Banking Sector Fund - An open-ended equity fund with the objective to provide capital appreciation through investments in the stocks of the companies/institutions engaged in the banking and financial services activities. m) UTI Mastergrowth - An open-ended equity fund for investment in equity shares, convertible & non-convertible debentures
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A Study on Mutual Funds as a Growth Oriented Investment Option

and other capital and money market instruments with a provision to invest up to 50% of its corpus in PSUs equities and equity related products. The fund aims to provide unit holders capital appreciation & income distribution. n) UTI Master Value Fund - An open-ended equity fund investing in stocks, which are currently under valued to their future earning potential and carry medium risk profile to provide 'Capital Appreciation'. o) UTI MNC Fund - An open-ended equity fund with the objective to invest predominantly in the equity shares of multinational companies in diverse sectors such as FMCG, Pharmaceutical, Engineering etc. p) UTI Brand Value Fund - An open-ended debt oriented fund investing a minimum of 90% of its exclusively in the equities of companies having strong products or corporate brands to provide investors benefits of capital appreciation. q) UTI Service Sector Fund - An open-ended fund, which invests in the equities of the Services Sector companies of the country. One of the growth sector funds aiming to provide growth of capital over a period of time as well as to make income distribution by investing the funds in stocks of companies engaged in service sector such as banking, finance, insurance, etc. r) UTI Large Cap Fund - An open-ended equity fund with the objective to provide capital appreciation through investment in companies from the universe of top 50 companies in terms of market capitalization. s) cap stocks. UTI Mid Cap Fund - An open-ended equity fund with the objective to provide 'Capital appreciation' by investing primarily in mid

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A Study on Mutual Funds as a Growth Oriented Investment Option

t)

UTI Basic Industries Fund - An open-ended equity fund

with the objective to provide Capital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, Building materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of the companies, which form part of Basic Industries. u) UTI PSU Fund - An open-ended equity fund with the objective to provide Capital appreciation through investing in the stocks of the companies where the State/Central Government owns the majority of the holding or management control is vested with State/Central Govt. v) UTI India Advantage Equity Fund - Capital appreciation by investing in listed companies that are / have potential to emerge as global players in their respective sectors. w) UTI Dividend Yield Fund - UTI Dividend Yield Fund is an open-ended equity oriented scheme, which endeavors to provide medium to long term capital gains and/or dividend distribution by investing predominantly in equity and equity related instruments that offer a high dividend yield. x) UTI Opportunities Fund - This scheme seeks to generate capital appreciation and/or income distribution by investing the funds of the scheme in equity shares and equity-related instruments.

SBI MUTUAL FUND INTRODUCTION

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A Study on Mutual Funds as a Growth Oriented Investment Option

SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with an investor base of over 5.4 million. With over 20 years of rich experience in fund management, SBI MF brings forward its expertise in consistently delivering value to its investors. Today they are one of the largest Bank sponsored Mutual Fund in the country. They have launched 38 Schemes, of which 15 have been redeemed, yielding handsome returns to investors. The fund has over Rs. 34,441 Crores as assets under management. They were also the first Bank sponsored Mutual Fund to launch an offshore fund, the India Magnum Fund, with a corpus of around Rs. 225 Crores.The fund serves this vast family of investors by reaching out to them through network of over 130 points of acceptance, 28 Investor Service Centers, 46 Investor Service Desks and 56 District Organizers; they constantly endeavor to get closer to our growing family of investors. SBI Mutual Fund draws strength from India's premier and largest bank, the State Bank of India. Set up on July 1, 1955, the State Bank of India is the largest banking operation in the country. Through years of commitment to service and national development, SBI has grown into an instrument of social change. Today, it has 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the largest banking network to the Indian customer. It presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries in India SBI entered into a Memorandum of Understanding with Socit Gnrale Asset Management (SGAM), which offers retail investors, corporate clients and institutional investors a wide range of
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A Study on Mutual Funds as a Growth Oriented Investment Option

investment products. SGAM is a dominant player in Global Mutual Fund arena with presence in over 20 countries spanning Europe, United Sates, and Asia, managing over US$ 500 Billion worldwide

SBI FUNDS AT A GLANCE

Magnum Instacash Fund To provide the investors an investment opportunity to earn returns that are likely to be superior to the returns offered by comparable investment avenues, through investment in debt and money market securities, while retaining a very high level of liquidity to meet unexpected needs for cash. Magnum Institutional Income Fund Saving plan: - To provide attractive returns to the Magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt and money market instruments. Magnum Income Fund To provide investors an opportunity to earn, in accordance with their requirements, through capital gains or through regular dividends, returns that would be higher than returns offered by comparable investment avenues through investment in debt and money market securities. Magnum Gilt fund To provide the investors with returns generated through investments in government securities issued by the central government/or a state government. Magnum Monthly Income Plan To provide regular income, liquidity and attractive returns to the investors through an

2.

3.

4.

5.

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A Study on Mutual Funds as a Growth Oriented Investment Option

actively managed portfolio of debt, equity and money market instruments.

Magnum Childrens Benefit Plan To provide attractive returns to the magnum holders by means of capital appreciation through an actively managed portfolio of debt, equity and money market instruments. Magnum Income Plus Fund To provide attractive returns to the magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt, equity and money market instruments. Magnum NRI investment Fund - To provide attractive returns to the magnum holders either through periodic dividends or through capital appreciation through an actively managed portfolio of debt, equity and money market instruments. Magnum Balanced Fund To provide investors long-term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt. Magnum index Fund The scheme will invest in stocks comprising the S&P CNX Nifty index in the same proportion as in the index with the objective of achieving returns equivalent to the total returns index of S&P CNX Nifty Index By minimizing the performance difference between the benchmark index and the scheme. Magnum Equity Fund To provide investors long-term capital appreciation along with the liquidity of an open-ended

7.

8.

9.

10.

11.

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A Study on Mutual Funds as a Growth Oriented Investment Option

scheme. The scheme will invest in a diversified portfolio of equities of high growth companies.
12.

Magnum Multiplier Plus 1993 - To provide investors longterm capital appreciation along with the liquidity of an openended scheme. The scheme will invest in a diversified portfolio of equities of high growth companies. Magnum Global Fund To provide investors maximum growth opportunity through well-researched investments in Indian equities, PCDs and FCDs from selected industries with high growth potential and in bonds. Magnum Midcap fund To provide investors with opportunities for long-term growth in capital along with liquidity of an open-ended scheme by investing predominantly in a well-diversified basket of equity stocks of companies whose market capitalization is between Rs. 200crores to Rs. 2000crores and in debt and money market instruments. Magnum Taxgain scheme 1993 The prime objective of scheme is to deliver the benefit of investment in a portfolio of equity share, while offering tax deduction on such investments made in the scheme under section 80C of the income-tax Act, 1961. It also seeks to distribute income periodically depending on distributable surplus. Magnum Sector Funds Umbrella To provide the investors maximum growth opportunity through equity investments in stocks of growth oriented sectors of the economy. There are five sub-funds dedicated to specific investment themes viz. Information Technology, Pharmaceuticals, FMCG, Contarian and Emerging Businesses.

13.

14.

15.

16.

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A Study on Mutual Funds as a Growth Oriented Investment Option

HDFC BANK HDFC Mutual Fund is one of the largest mutual funds and wellestablished fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. While our past experi ence does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. Investment Philosophy The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the latest fads and trends. Offer We believe, that, by giving the investor long-term benefits, we have to constantly review the markets for new trends, to identify new growth sectors and share this knowledge with our investors in the form of product offerings. We have come up with various products across asset and risk categories to enable investors to invest in line with their

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A Study on Mutual Funds as a Growth Oriented Investment Option

investment objectives and risk taking capacity. Besides, we also offer Portfolio Management Services Achievements HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the CRISIL Fund House Level 1 rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at HDFC AMC It is the only fund house to have been assigned this rating for third year in succession. Over the past, we have won a number of awards and accolades for our performance Key Statistics As on 31 July 2009 Average Assets under Management : Rs. 93,874.19 crore No. of investors : 3,268,732 No. of ARN certified distributors : 33,327 FUNDS AT A GLANCE Equity / Growth Fund
1. HDFC Growth Fund - The primary investment objective of the

Scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. objective will be to identify "businesses with superior growth prospects and good management, at a reasonable price".
2. HDFC Index Fund - Sensex Plan- The objective of this Plan is to

generate returns that are commensurate with the performance of the

A Study on Mutual Funds as a Growth Oriented Investment Option

SENSEX, subject to tracking errors. The SENSEX Plan and the Nifty Plan will be managed passively with investments in stocks in a proportion that is as close as possible to the weightages of these stocks in the respective indices
3. HDFC Balanced Fund - The primary objective of the Scheme is

to generate capital appreciation along with current income from a combined portfolio of equity and equity related and debt and money market instruments
4. HDFC Equity Fund - The investment objective of the Scheme is

to achieve capital appreciation The aim will be to build a portfolio, which represents a cross-section of the strong growth companies in the prevailing market. In order to reduce the risk of volatility, the Scheme will diversify across major industries and economic sectors
5. HDFC TaxSaver (ELSS)- The investment objective of the

Scheme is to achieve long term growth of capital. For new & existing investors :Rs.500 and in multiples thereafter.
6. HDFC Prudence Fund- The investment objective of the Scheme

is to provide periodic returns and capital appreciation over a long period of time, from a judicious mix of equity and debt investments, with the aim to prevent/ minimise any capital erosion.
7. HDFC Top 200 Fund - To generate long term capital appreciation

from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. The Scheme may also invest upto 25% of net assets of the Scheme in derivatives

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A Study on Mutual Funds as a Growth Oriented Investment Option

such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and and other uses as may be permitted under the regulations and guidelines.
8. HDFC Long Term Advantage Fund (ELSS)- The primary

objective of the Scheme is to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments. The net assets of the Scheme will be invested primarily in equity and equity related instruments. The Scheme may invest a part of its net assets in debt and money market instruments,
9. HDFC Core and Satellite Fund- The primary objective of the

Scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value. The net assets of the Scheme will be invested primarily in equity and equity related instruments in a portfolio comprising of 'Core' group of companies and 'Satellite' group of companies. The 'Core' group will comprise of well established and predominantly large cap companies whereas the 'Satellite' group will comprise of predominantly small-mid cap companies that offer higher potential returns but at the same time carry higher risk.

Children's Gift Fund

objective of the Scheme is to generate long term capital appreciation. However, there can be no assurance that the investment objective of the Scheme / Plans will be achieved. The net assets of the Plan will be primarily invested in Debt and Money
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market instruments. The AMC will also invest the net assets of the Plan in Equities and Equity related instruments. This Plan seeks to generate steady long term returns with relatively low levels of risk.
2. HDFC Children's Gift Fund - Investment Plan - The net assets

of the Plan will be primarily invested in Equities and Equity related instruments. The AMC will also invest the net assets of the Plan in Debt / Money market instruments with an objective of generating long term returns and maintaining risk under control. The idea is to develop a model that allows us to identify "businesses with superior growth prospects and good management, at a reasonable price".

Quarterly Interval Fund The primary objective of the Scheme is to generate regular income through investments in Debt / Money Market Instruments and Government Securities. Scheme will invest in securitised debt upto 75% of net assets. The Scheme may take derivative position (maximum 20% of the net assets of the respective Plans), for Hedging and Portfolio Balancing, based on opportunities available subject to SEBI Regulations.The Scheme may seek investment opportunity in Foreign Debt Securities (maximum 75% of Net Assets) in accordance with the guidelines stipulated in this regard by SEBI and RBI from time to time.

Liquid Funds
1. HDFC Cash Management Fund - Savings Plan - The investment

objective of the Scheme is to generate optimal returns while maintaining safety and high liquidity.

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A Study on Mutual Funds as a Growth Oriented Investment Option 2. HDFC Liquid Fund Premium Plus Plan - The primary objective

of the Scheme is to enhance income consistent with a high level of liquidity, Through a judicious portfolio mix comprising of money market and debt instruments.
3. HDFC Liquid Fund - The Scheme will retain the flexibility to

invest in the entire range of money market and debt instruments. Growth Option - For new/ existing investors :Rs.10000 and any amount thereafter..Dividend Option - For new/ existing investors : Rs. 100000 and any amount thereafter.
4. HDFC Cash Management Fund - Call Plan- The investment

objective of the Scheme is to generate optimal returns while maintaining safety and high liquidity. For new/ existing investors Rs.100000 and any amount thereafter (Under each Option). Debt/ Income Fund Various Plans as Follows1. HDFC Short Term Plan 2. HDFC High Interest Fund - Short term Plan 3. HDFC MF Monthly Income Plan - Short Term Plan 4. HDFC Gilt Fund - Short Term Plan 5. HDFC High Interest Fund 6. HDFC Floating Rate Income Fund -Short Term Plan 7. HDFC Multiple Yield Fund

Fixed Maturity Plan Various Plans as Follows1. HDFC FMP 18M January 2008
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2. HDFC FMP 14M February 2008 3. HDFC FMP367D March 2009 (1) 4. HDFC FMP 14M February 2009 (1) 5. HDFC FMP 90D December 2008 (1) 6. HDFC FMP 16M December 2008 (1) 7. HDFC FMP 17M November 2008 (1) 8. HDFC FMP 370D November 2008 (1) Many More

INVESTMENT OBJECTIVE AND SCHEMES The study on mutual funds as a growth-oriented investment is done in relation to investment need as well as potential of a middle class family. For large public whose requirements are varied, mutual funds offer a variety of funds to choose and satisfy the needs of investing public in relation to: - Periodic returns - Wealth creation - Risk factors - Liquidity requirements - Income tax requirements The study attempts to cover various schemes/options available in the market. Mutual funds offer a host of risk-return mix. A large number of mutual fund operators together offer 1000 plus schemes with numerous permutations and combinations of investment exposures. The schemes available are classified as under: AIMA-NEW DELHI 61

A Study on Mutual Funds as a Growth Oriented Investment Option

1. Equity oriented/ growth funds 2. Debt oriented/ income funds 3. Balanced funds 4. Money market/ liquid funds 5. Gilt funds 6. Index funds

1. EQUITY FUNDS In the long run equities have been known to out perform every other asset class. Equity funds pool savings of many investors and invest this sum in a bunch of stocks-typically, 25-30 stocks across various sectors. The high fame companies in each sector shall figure in the combo list. That means an investor, starting from Rs.1000, can pick up a stake in all those high fame companies through an equity fund. The equity funds while maximizing returns on investment carry risk. The family equity funds comprise many kinds of schemes, each of which services a specific investment objective. These are categorized as under in relation to risk-return spectrum. 1.1 Diversified equity funds Among various equity funds, diversified equity funds are the most popular diversified equity funds invest in many stocks across many sectors and aim to out perform the market. Here the expertise of fund
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A Study on Mutual Funds as a Growth Oriented Investment Option

manager plays a high role in maximizing returns while controlling risk. Hence it is important for an investor to choose the right fund operator and the right scheme as well. 1.2 Equity-linked savings schemes Equity linked saving schemes is diversified equity funds that additionally offer income tax benefits to individuals. ELSS offers tax benefit under section 88 of the income tax like other popular debt options like Public Provident Fund, National Savings Scheme and infra structure bonds. The ELSS with returns as any other equity fund offers income tax benefit at a cost. There is a lock in period of 3 years. That is an investor can sell only after the lock-in period of 3 years. Hence ELSS lacks liquidity among other equity schemes. 1.3 Index funds An index fund is a diversified equity fund, which operates within the framework of specified sensex stocks in the same proposition as their weightage in the sensex index. There is no role for a fund manager in this. The passive nature of index funds makes them less risky than actively managed equity funds. Exchange-Traded funds (ETFs) Exchange-traded funds also operate on the basis of index funds. The nature of ETFs as compared to index fund is that ETF is listed on the stock exchange and do not have to buy or sell securities. This means less
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A Study on Mutual Funds as a Growth Oriented Investment Option

operating expenses. ETFs are extremely popular globally. In India, it is not popular but expected to catch up due to its superiority in passive fund (Index fund) management. 1.5 Sector funds Sector funds invest in stocks from only one sector or a handful of sectors. It is a very narrow focus, because of which sector funds are considered the riskiest among all equity funds. Some of the prominent sectors are IT, Pharmaceuticals, FMCG and petroleum. Sector funds are recommended for only those who understand the working of the sector they are investing in. Among sector funds there are defensive sectors like pharmacy where a steady 10-20 percent annual growth consistently is assured. In sector funds where swings are dramatic, timing of entry and exit is important to maximize returns. Specialty funds These are new schemes offered by mutual fund operators. These are a mix of investments offering value through new investment exposures. Mid-cap funds These are diversified funds that target companies on fast growth track. These are investments in companies showing signs of growth. These companies are referred as mid-size companies or mid-cap stocks. Midsize companies have more scope to expand than larger companies. In

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A Study on Mutual Funds as a Growth Oriented Investment Option

mid-cap funds the reward can be greater but equally the risks are also greater.

The Pretenders These are funds offered by mutual funds to keep increasing in size and projected with fancy names. But these are diversified equity funds or sector funds in a different name. 2. DEBT FUNDS Debt funds are schemes that invest only in fixed income instruments such as company bonds, debentures and government securities. The investor gets to know how much is the return and when he gets the return. The objective of debt fund is to generate steady returns while preserving the capital, a feature that makes them worthy investment options for those whom safety is more important. Although debt funds are far less than equity funds, they are never devoid of risk. Although they invest in fixed income instruments, they dont always yield steady returns.

The risks involved are: 1. Default risk 2. Interest rate risk 3. Liquidity risk

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A Study on Mutual Funds as a Growth Oriented Investment Option

2.1.1 Default risk The investment in debt funds can be divided into two i.e., those issued by the government and those issued by the companies. All government debt is guaranteed by the exchequer and there is no risk in defaulting. Corporate debt doesnt have such guarantee and is prone to the risk of its defaulting. In order to avoid the default risk by corporate, companies are selected on the basis of credit rating. 2.2.2 Interest rate risk A debt fund has 2 income steams namely a) Interest earnings b) Capital gains, while the interest earnings are predictable, capital gains are unpredictable. The relationship between interest rate and security prices is inversely proportional. A majority of debt securities are listed and traded in the market. The security prices change every day and this can cause the capital gain risk. 2.3.3 Liquidity risk Though the government securities and treasury record good trading volumes, the corporate bond market face serious liquidity issues as trading of corporate bonds is confined mostly to high rated bonds. ADVANTAGES OF INVESTING THROUGH DEBT FUNDS 1. Indirect investment

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A Study on Mutual Funds as a Growth Oriented Investment Option

Investment through debt fund delivers a total return made of interest income and capital gains as compared to a direct investment, which provides only interest income.
2. Access to many debt instruments

It is very difficult for a small investor to invest in corporate bonds and debentures, government securities and money market instruments. By investing in debt funds, a small investor can get access to this large pool of debt securities indirectly. 3. Diversified portfolio As most debt funds are diversified by investing in a multiple debt securities which enables them to spread its risk wider, thus keeping a diversified portfolio. 4. High liquidity An investor in a debt fund can exit at any time at NAV linked prices but all debt instruments directly purchased will have lock-in period. 2. INCOME FUNDS Income funds aim to maximize debt returns for the medium to long term. They are the most inclusive of all debt funds in that they can invest in all kinds of debt securities.

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Income funds, by virtue of investing mostly in corporate paper and longdated securities should generate higher returns than all other kinds of debt funds. 2.1. Floating rate funds These income funds invest mostly in floating rate instruments. These funds are more insulated from interest risk than their conventional peers. These funds invest in debt securities whose coupon adjusts automatically and in exact proportion to changes in benchmark interest rates. This imparts greater surety to returns from such funds, which makes them preferred over various debt funds. The debt market: Instrument Corporate bonds Government securities Treasury bills Commercial paper Commercial deposits Call money market (As of June 2009) 2.2 Gilt funds Gilt funds invest only in debt instruments issued by the government. The government guarantee that comes with them means they carry zero default risk, which explains the term gilt . Due to zero risk, the returns from gilt funds are lower than income funds. Interest rate (%) 5.5- - 7.0 7.47--8.08 3.35--4.7 4.0 4.5 4.70 8.0 2.25-4.30 Tenure > 1 year > 1 year 91 364 days 15 364 days 90 364 days 1 15 days

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2.3. Liquid funds Income funds and Gilt funds are debt options for the medium to longterm investment where as liquid funds cater to the short-term-say up to 1 year. Liquid funds offer as an alternative to banks. As compared to banks, these funds offer better returns inspite of safety. Since liquid funds are invested in huge safety short-term financial instrument issued by government, banks, these funds are referred as money market mutual funds. 2.4. Short-term funds Short-term funds are open-ended income funds but with a medium term focus. They achieve an average maturity of about 2 years. These funds are invested in money market instruments with dome exposure to long term with the intention of earning higher returns, without taking on too much risk. 2.5. Flexible funds These funds operate with complete freedom to fund manager to choose his asset mix with the objective of maximizing returns. These are funds, which are not tied with any asset class as seen in other debt funds. Debt funds Fund Income funds - An overview Risk Medium Objective Maximize steady Gilt funds Medium Tenure 1 year and

and more year and

regular returns. Steady, regular 1

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returns. Liquid funds Short-term funds Flexible funds Low Low High

more

Earn more than 6 months to 1 bank deposits. year Earn more than 6 months to 1 bank deposits. Maximize returns debt instruments year 1 year and

from more

3. BALANCED FUNDS As the name goes, these are schemes that invest in both equity and debt in varying propositions and generate some capital appreciation and earn some regular income. According to the degree of balancing that is according to the ratio of equity to debt funds these are categorized as: 1. 2. 3. 4. Aggressive Moderate Conservative Ultra conservative

Aggressive funds invest 50% to 70% in equities and balance in debt funds with high equity exposure these are volatile. These are funds for those who can bear risk. Moderate funds hold 50-60 percent in equity and balance in debt funds. The relatively lower equity exposure makes them less risky.

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Conservative funds prefer maximum towards debt, capping their equity exposure at 40 percent and are suitable for those looking for relatively greater safety. Ultra conservative funds are monthly income plans (MIPs), which are positioned as debt funds that give a monthly income. As interest rates started falling, these MIPs started taking little exposure to equity in order to generate higher returns marginally.

4. OTHER FUNDS Fund of Funds These are schemes that invest in mutual fund schemes. This Fund of funds can be equity Fund of funds, debt Fund of funds, balanced Fund of funds. The objective of a Fund of funds is to help investors to spread the risk across a large set of schemes. By spreading the across a handful of schemes, even if one scheme were to falter there is a chance that some others will cover up for it. A Fund of funds enables to achieve greater diversification through just one scheme. Dynamic funds Dynamic funds have more room to maneuver. They can invest in both debt and equities in any ratio. The fund management is aggressive, characterized by short-term positions and portfolio churning. It is a high-

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risk, high-return proposition, suitable only for those willing to take that high risk. Indexation Indexation means that the purchase price is marked up by an inflation index resulting in lower capital gains and hence lower tax. Inflation index for the year of transfer Inflation index = Inflation index for the year of acquisition What is NAV? Net Asset Value is the marked price of each unit of particular scheme in relation to all assets of the scheme. NAV shows the performance of the fund. If NAV is more than the face value of the unit, it indicates that the money invested on that units has appreciated and funds has performed well. Calculation of NAV: NAV of fund = Sum of market value of shares\ debentures + liquid assets or Cash + Dividends or interest accrued All liabilities.

NAV per unit = NAV of fund/ Outstanding number of units.

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CHAPTER 4 ANALYSIS AND INTERPRETATION

1)

To study the array of investment products available in the market

25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

20.16% 14.47% 9.74% 7.62%

1 Inflation Equities Corporate fixed deposits bank fixed deposits gold

OBSERVATION: As inflation grew at a rate of -.68 %, gold has shown a growth rate of 9.22%, Bank fixed deposits have grown at 7.74% while company fixed deposits have shown a growth rate of 14.47%. However, equity investment has emerged with a growth rate of 20.16%. INFERENCE: Mutual funds with average returns of 20.16% will fetch high return and real growth of investment or and above the general inflation rate in the country. Table 4.1
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Table showing the comparison between banks vs. mutual funds as an investment avenue: BASES Returns Administrative Risk Investment option Network Liquidity Quality of Assets Interest calculation BANKS Low High Low Less High penetration At a cost Not Transparent MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent

Min balance between Everyday 10th and 30th of every month Max Rs.1 Lakh on None deposits

Guarantee

ANALYSIS: The above table clearly indicates the demarcation between the investments in banks and mutual funds. It can inferred that mutual fund proves to better investment avenue because of its better returns and liquidity and the transparency in quality of assets.

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INFERENCE: Banks have been the roots of financial system in India. However, today, the interest rate structure in the country is headed southwards, keeping inline with global trends. With banks offering little above 6% in their fixed deposit for 1 year, the yields have come down substantially in recent times. Added to this, the inflationary pressures in the economy have reduced the earnings on savings. Thus mutual funds come into the picture, which gives a higher rate of return, which extends from 13% onwards. This proves that mutual funds are a brighter and a more attractive investment avenue for an investor.

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Evaluation of performance of various mutual funds Table No. 4.3 Tables showing the fund monitor Equity Diversified Equity Fund Absolute returns (%) as on 21 Aug 2009 Current NAV % % 3 1 Mth Mths Mths % 6 1 Yr 3 % % Yrs

UTI Equity Fund Growth 39.9 HDFC Equity Fund - Growth 185.12 SBI Magnum Equity Fund - Growth 33.51 HSBC Equity Fund Growth 84.49 4.61 2.91 2.76 1.26 16.29 15.88 11.07 10.31 60.05 87.62 76.28 47.68 13.55 11.92 20.28 13.65 11.92 13.53 3.8 12.52

Source: MutualfundsIndai.com

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E.L.S.S FUNDS PERFORMANCE ANALYSIS,Aug,2109

Performance Returns Scheme Name Current NAV (Rs) for the last 1 Mth Mths % HDFC Tax saver - Growth SBI Magnum Tax Scheme 93 UTI Equity Tax Savings 31.34 1.82 12.33 54.92 2.08 5.39 Plan - Growth Franklin India Tax shield - 150.47 Growth 2.25 11.82 65.1 12.03 10.87 160.29 % 3 % 6 Mths 1 Yr %

(%)

3 Yrs % 8.75

4.09 16.55

77.99 15.61

Gain 48.55

2.6

11.12

68.17 7.98

11.15

11) To study the financial goals of the investors Table No: 4.1
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Table showing the classification of investors based on Age group Age (years) Below 20 20-25 25-30 30-35 35-40 40-45 45-50 50 and above Total No. Of Respondents Nil I6 22 14 12 14 10 12 100 Percentage Nil 16 22 14 12 14 10 12 100

Source: Questionnaire INFERENCE: Age is one important demographic characteristic that influences the investment habits. It can be inferred that people in the age group of 30-35 years are keen investors. It is also shown that disposable income is there even in the age group of 40-45 years and 20-25 years, so these groups must also be taken as potential investors.

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Chart No: 4.1 Chart showing the classification of investors based on Age group

25 No. Of Respondents 20 15 10 5 0

0 Age (years) 25-30 30-35 35-40 40-45 454-50 50 and above

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Table No: 4.2

Table showing the average amount that the respondents Invest annually

Amount Less than 25,000 25,000 50,000 75,000 1,00,000 More than 1,00,000 Total Source: Questionnaire INFERENCE:

No. Of Respondents 10 35 40 15 100

Percentage 10 35 40 15 100

The potential for the money invested is very high in India, nearly 40% of the respondents invest large amounts, which is between 75,000 1,00,000 annually. 35% of the respondents between 25,000 50,000 and 15% invest above 1,00,000; this must be tapped and utilized efficiently.

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Chart No: 4.2 Chart showing the average amount that the respondents invest annually

No. Of Respondents

15%

10%

35% 40%

Less than 25,000 75,000 1,00,000

25,000 50,000 More than 1,00,000

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Table No: 4.3

Table showing the lock-in period for the investments

Time Horizon 6 months 6 months 1 year Above 1 year Total

No. Of Respondents 12 24 64 100

Percentage 12 24 64 100

Source: Questionnaire

INFERENCE: The most ideal lock-in period is above 1 year, as this give both profit and flexibility to the customers. 24% of the respondents prefer 6 month 1 year as it balances the ups and downs in the market, and a few respondents believe in short period is ideal for investment.

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Chart No: 4.3

Chart showing the lock-in period for investments

12% 24%

64%

6 months

6 months 1 year

Above 1 year

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Table No: 4.4 Table showing the investment preferences of the respondents

Instruments Mutual funds Real Estate Fixed Deposits Gold Bond Share Market Post Office saving Source: Questionnaire INFERENCE:

Total Score 142 176 184 194 222 229 253

Overall Ranking 1 2 3 4 5 6 7

The most preferred investment is mutual funds across all age groups, followed by real estate, fixed deposits, gold, bond, share market and lastly post office savings. From this it is evident that investors prefer safety to return when it comes to investment, as share market was ranked the least preferred ones, in spite of its high return because of the risk associated with it.

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Chart No: 4.4 Chart showing the investment preferences of the respondents.

7 6 5 Overall Ranking 3 2 1 4

Mutual funds Gold Post Office saving

Real Estate Bond

Fixed Deposits Share Market

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Table No: 4.5 Table showing the need to withdraw saving before the stated Time horizon

Decision Strongly Agree Neutral Disagree Total Source: Questionnaire

No. Of Respondents 0 30 70 100

Percentage 0 30 70 100

INFERENCE: 70% of the respondents do not want the liberty to draw money as and when required and will take the money only after the stated time. 30% of them are not sure of whether or not to withdraw the savings.

Chart No: 4.5

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Chart showing need to withdraw saving before the stated time

0% 30%

70%

Strongly Agree

Neutral

I disagree

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Table No: 4.6 Table showing whether or not the respondents got professional Advice about investing

Person Broker Banker None Total Source: Questionnaire INFERENCE:

No. Of Respondents 10 30 60 100

Percentage 10 30 60 100

60% of the respondents did not get any professional advice, it is clear that most people invest in certain investments because of peers or news about that investment doing really well and only a small percentage of them ask for help professionally.

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Chart No: 4.6 Chart showing whether or not the respondents got professional Advice about investing

No. Of Respondents

10%

30% 60%

Broker

Banker

None

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Table No: 4.7 Table showing the percentage of respondents who have Invested in mutual funds

Decision Yes No Total

No. Of respondents 54 46 100

Percentage 54 46 100

Source: Questionnaire

INFERENCE: A majority of the respondents have already invested in mutual funds because of the balance between risks and return that only mutual funds can give.

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Chart No: 4.7 Chart showing the percentage of respondents who have Invested in mutual funds

No. Of respondents

46%

54%

Yes

No

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Table No: 4.8 Table showing the most preferred AMC for mutual funds

Name SBI UTI Franklin Templeton Pru ICICI IDBI Kotak Sundaram HSBC Reliance HDFC Source: Questionnaire INFERENCE:

No. Of Respondents 20 18 18 16 12 7 4 2 2 1

Overall Ranking 1 2 2 3 4 5 6 7 7 8

The most preferred AMC is SBI with its magnum tax gain scheme 1993, and equity tax relief fund (ELSS) topping the rest of funds with absolute return of 94.34% as on 10th Jan 2006(30.50% since inception), followed by UTI having a strong network in urban as well as rural with encouraging results of UTI - growth sector funds doing well.

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Chart No: 4.8 Chart showing the most preferred AMC for mutual funds

8 7 6 5 No. of 4 Respondents 3 2 1 0 1 Name

SBI Pru ICICI Sundaram HDFC

UTI IDBI HSBC

Franklin Templeton Kotak Reliance

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Table No: 4.9 Table showing what customers look for first in there Investment Parameters Safety Returns Tax Benefits Liquidity Convenience Total Source: Questionnaire INFERENCE This justifies the Indian outlook on investments. Respondents invariably look for returns first rather than all the mentioned parameters, followed by safety and tax benefits. Liquidity and convenience comes last as priority in investments. No. Of Respondents 25 64 5 0 1 100 Percentage 25 64 10 0 1 100

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Chart No: 4.9 Chart showing what customers look for first in there Investment

70 60 50 No. of Respondents 40 30 20 10 0 1 Parameters

Safety

Returns

Tax Benefits

Liquidity

Convenience

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) To device a standardized portfolio for the investors keeping In mind their investment needs. This project aims at establishing standardized portfolio models to accommodate individual investors preferences. The right allocation of the investors investment to build a portfolio depend on factors such as: Investors goals Risk tolerance Investment lock-in period Portfolio management is a two way process. In addition to learning about a client, the advisor needs to provide an investor with information he needs to fully understand how his objective and risks are related to an investment strategy. Every investors base of financial knowledge is different and therefore it is imperative that the investment concepts need to be explained like the relationship between the risks and return, longterm vs. short-term investing, diversification of investment and the investment expectation in order to meet clients objective. It also proves that there is a direct con-elation between the risk and return. It is generally observed that higher the risk, higher the return. Diversification in an investment portfolio will be recommended to achieve an effective well-rounded investment strategy. Yet the optimum number of funds in ones mutual portfolio is an issue subject to wide open because there is no standardized formula to determine the quantity of funds in any given portfolio. Different types of funds offer distinct risk/return objectives and diversification increases as the combination of different risk/return objectives increases.
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Based on the investors requirements risk/return and the diversification to reduce the risk, an advisor builds a portfolio. Based on the individual risk profile, the investor should optimize risk and return expectations by investing appropriate mix of available investment options across asset classes. A simple profiling process is dividing the respondents on to three basic groups: Aggressive Conservative Moderate If you are a person who broadly falls into the investment growth category you might be interested in looking at an aggressive portfolio. On the other hand if you are leaning towards an interest income with minimal risk investments you might look at a conservative asset allocation. Someone who wants a bit of steady income as well as asset growth might go in for a moderate or balanced asset allocation.

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Portfolio based on investment model A. Aggressive growth portfolio Chart showing the aggressive portfolio model

25%

65%

10%

debt funds

liquid funds

equity funds

Inference: An aggressive growth portfolio suggests 65% of the investors portfolio in equity funds, 25% in debt funds and 10% in liquid funds. This portfolio is suitable for a fresh investor. The younger the investor the greater is his ability to withstand higher risk. The equity part of the portfolio is meant for capital growth to meet long-term goals while the debt funds are to provide for medium term needs. This profile would be subject to frequent price volatility and high risk to capital and is recommended for holding periods of over 5 years.

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B. Conservative portfolio model Chart showing the conservative portfolio model

25%

50% 25%

debt funds

liquid funds

equity funds

Inference: The conservative portfolio suggests 25% in equity funds, 50% in debt and 25% in liquid funds. This is ideal for someone who is about to retire or has recently retired. The source of income after retirement may be limited the savings would finally generate enough income for long way and 25% equity portfolio can assist an investor in staying ahead of inflation. The recommended holding period for this portfolio is more than 1 year.

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C. Moderate growth portfolio Chart showing the moderate portfolio model

30%

50%

20%

debt funds

liquid funds

equity funds

Inference: A moderate growth portfolio seeks to balance growth and stability. It recommends around 50% of the portfolio in equity, 30% in debt funds and 20% in liquid funds. This portfolio would seek to provide regular income with moderate protection against inflation. The equity component provides the potential for growth where as the debt funds and liquid funds help balance out fluctuations. The recommended holding period is over 3 years.

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Model portfolios Based on the investors responses and profile from the questionnaire a portfolio model can be built. Investors profile is of various types: a. Safety b. Income c. Income and moderate growth d. Balanced growth e. Aggressive growth f. Maximum growth One of the benefits of asset allocation-the process of spreading your money across a variety of investments-is that it ensures one part of your portfolio will always be performing better than the other parts. Thus the experts estimate mix suit the various investment types. a. Safety 25% Income funds 75% Liquid funds

Growth funds may not be a suitable investment. Option: He has to consider income and liquid fund as an investment option.

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Table No: 4.10 Table showing the safety model portfolio This a safety model portfolio given Rs. 100 Mutual Portfolio fund allocation % Rs. Income 25 25 fund Liquid fund Total 75 100 75 100 Expected returns % Rs. 9 27.25 7 80.25 107.2 5 Best case Worst case

scenario % Rs. 12 28 8 81 109

scenario % Rs. 5 26.25 6 79.5 105.75

Observation: 25% of the investment is in income funds and 75% is in liquid funds. It is evident from the table that this model can deliver the expected returns of 107.25 and would reap 109 in the best-case scenario and 105.75 in the worst-case scenario. This estimate still proves higher returns than would have been generated if the money would have been invested in bank deposits, PPF. Since the investor looks for safety of capital as an investment criterion, this portfolio would generate positive returns even in the worst market conditions.

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b. Income 5% Growth fund 15% Balanced fund 70% Income fund 10% Money market fund

The investor requires a regular income from his investment to meet his financial requirements. He is willing to slight increase the risk of his portfolio in order to generate the required income and have capital appreciation.

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Table No: 4.11 Table showing income model portfolio This is an income model portfolio for Rs. 100 Mutual fund type Growth Portfolio allocation % Rs. 5 5 15 70 10 100 Expected returns % Rs. 25 15 8 7 6.25 17.2 5 75.6 10.7 109. 8 Observation: The investment is allocated as follows: 5% of the total investment in equity fund, 15% in balanced fund, and 70% in income funds and the remaining 10% in liquid or money market funds. The equity exposure is curtailed to 12.5% of the portfolio even in the worst market scenario and the portfolio as a whole remains positive through the growth component can have negative returns. Best case Worst case

scenario % Rs. 50 30 10 8 7.5 19.25 10 8 114.5 5

scenario % Rs. -50 -5 6 6 2.5 14.25 74.2 10.6 101.55

fund Balanced 15 fund Income fund Liquid fund Total 70 10 100

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c. Income and moderate growth 20% Growth fund 20% Balanced fund 55% Income fund 5% Liquid fund

This portfolio is suitable for an investor whose primary focus is to create an income but not necessarily dependent on his portfolios income to supplement his standard of living. This portfolio helps to build capital appreciation and is suitable where the investor is not willing to put his entire investment at risk.

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Table No: 4.12 Table showing income and moderate growth portfolio This is an income and moderate growth portfolio for Rs. 100 Mutual fund type Growth Portfolio allocation % Rs. 20 20 20 55 5 100 Expected returns % Rs. 25 15 8 7 25 23 59.4 5.35 112.7 5 Observation: The above table indicates that 20% of the total investment is in growth fund, 20% in balanced fund, 55% in income fund and the remaining 5% investment in money market or liquid funds. This model can deliver the expected return of Rs. 112.75 and would reap returns of Rs. 121.9 in the best-case scenario and Rs. 96.5 in the worst-case scenario. Best case Worst case scenario % Rs. -50 -5 6 6 10 19 58.3 5.3 92.6

scenario % Rs. 50 30 10 8 30 26 60.5 5.4 121.9

fund Balanced 20 fund Income fund Liquid fund Total 55 5 100

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D. Balanced Growth fund 30% Growth fund 30% Balanced fund 35% Income fund 5% Money market fund

This portfolio model is suitable when the investor wants to incorporate risk as component of inventing. He wishes to equalize the investment that could lead to capital growth and generate income. He recognizes that the market will fluctuate and is willing to sustain some risk is in order to increase his potential returns while investing long-term.

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Table No. 4.13

Table showing the balanced growth portfolio This is balanced growth portfolio for Rs. 100 Mutual fund type Growth Portfolio allocation % Rs. 30 30 30 35 5 100 Expected returns % Rs. 25 15 8 7 37.5 34.5 37.8 5.35 115.1 5 Observation: The above table indicates that 30% of the total investment is made in growth fund, 30% in balanced fund, 35% in income funds and the remaining in money market funds. This model is capable of delivering the expected returns of Rs. 115.15 and would give Rs. 127.9 in the best-case scenario and Rs. 85.9 in the worst-case scenario. This estimate still proves ahead of return that would have been generated had the money been invested elsewhere. This portfolio suits investors who are ready to withstand a little more than 10% capital erosion. Best case Worst case scenario % Rs. -50 -5 6 6 15 28.5 37.1 5.3 85.9

scenario % Rs. 50 30 10 8 45 39 38.5 5.4 127.9

fund Balanced 30 fund Income fund Liquid fund Total 35 5 100

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E. Aggressive growth profile

20% Sectoral funds 55% Growth funds 5% Balanced funds 15% Income funds 5% Money market funds

This model is suitable to an investor whose objective is to maximize his potent investment within reasonable levels of risk. The investor is not concerned about generating income; because he has a long investment time horizon and will take on additional risk to get rewarded with higher investment returns.

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Table No. 4.14 Table showing Aggressive growth portfolio This is aggressive growth portfolio for Rs. 100 Mutual Portfolio Expected returns % 50 25 15 8 7 Rs. 30 68.75 5.75 16.2 5.35 126.0 5 Observation: The above table indicates that 20% of the total investment is made in sectoral fund, 55% in growth fund, 5% in balanced fund, 15% invested towards income fund and the remaining 5% towards the money market fund. This model can deliver the expected return of Rs. 126.05 and it would reap returns of Rs. 150.9 in the best-case scenario and Rs. 55.45 in the worst-case scenario. Best scenario % 100 50 30 10 8 Rs. 40 82.5 6.5 16.5 5.4 150. 9 case Worst scenario % -90 -50 -5 6 6 Rs. 2 27.5 4.75 15.9 5.3 55.45 case

fund type allocation % 20 55 Rs. 20 55 5 15 5 100

Sectoral funds Growth

funds Balanced 5 funds Income funds Liquid funds Total 15 5 100

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This estimate still proves ahead of a return that would have been generated had the money been invested elsewhere. It is suitable for an aggressive investor to get super normal returns but at the same time if the market fall the investor can lose 505 of his capital. This shows the relationship between risk and return. F. Maximum Growth 25% Sectoral funds 70% Growth funds 5% Money market funds

This model is suitable to an investor who is willing to accept higher levels of risk in spite of market fluctuations, it is appropriate for that investor who is looking to generate long term capital growth and is willing to expose his principles to potentially greater investment returns at higher risk.

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Table no: 4.15 Table showing the maximum growth portfolio This table shows the maximum growth portfolio for Rs. 100 Mutual Portfolio fund type Sectoral 25 funds Growth funds Liquid funds Total allocation % Rs. 25 70 5 100 Expected returns % Rs. 50 25 7 37.5 82.5 5.35 130.3 5 Best case Worst case scenario % Rs. -90 -50 6 2.5 35 5.3 42.8

scenario % Rs. 100 50 8 50 105 5.4 160. 4

70 5 100

Observation: The above table indicates that 25% of the total investment to be invested in sectoral funds, 70% in growth funds and the remaining 5% in money market fund. This model is capable of delivering the expected returns of Rs. 160.4 in the best-case scenario and Rs. 42.8 in the worst-case scenario. This estimate still proves ahead of a return that would have been, generated had the money been invested elsewhere.

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FINDINGS:

1. The HDFC Growth Fund, HDFC Equity Fund, HDFC Top 200 Fund, HDFC Capital Builder Fund, HDFC Core and Satellite Fund, HDFC Prudence Fund, HDFC Tax Saver Fund have constantly performed well above the benchmarks established. 2. However, the HDFC Index Fund under the Nifty Plan, Sensex Plan and Sensex Plus Plan have not performed that well and have been able to just reach the benchmark for the first few years since its inception but over the past 3-4 years have not been able to reach the benchmarks established.

3. Indian mutual funds have remained centered around a limited product range- basically income, income-cum growth and taxsaving schemes. 4. Efforts to develop and expand the market through innovative new products have been negligible. 5. The absence of product diversification and a confused market situation has been made worse by the absence of an innovative marketing network for mutual funds. 6. Mutual funds give a high rate of return; hence it is more attractive investment option as compared to bank deposits. 7. Age is one important demographic characteristic that influences the investment habits. It can be inferred that people in the age group of 25
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30 years are keen investors. It is also shown that disposable income is there even in the age group of 45 50 and 30 35 years, so these groups must also be taken as potential investors. 8. 9. 46% 0f the respondents are not aware of mutual funds. The most ideal lock-in period is 1 year, as this gives both profit and enough flexibility to the customers. 24% of the respondents prefer 6 months 1 year lock-in period and 12 % of the respondents prefer short or long period of investment 10. The most preferred investment is mutual funds among all age groups followed by real estate, fixed deposits, gold, bond, share market and post office. 11. 60% of the respondents did not get any professional advice, it is clear that most people invest in certain investments because of peers or news about that investment doing really well. 12. Equity liked saving scheme ( ELSS) is offered with lock-in period of 3 years to suit income tax payers. 13. Systematic Investment Plan (SIP) helps small investors to contribute monthly installments and there by providing a chance to hold a portion of stock of reputed companies; otherwise it is impossible for a small investor to get these highly priced stocks. 14. Mutual funds offer a large number of schemes with different fund combinations for investors to select the appropriate one according to the
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individual choice, need and preferred features like safety, returns, liquidity, tax benefits etc. 15. A large number of fund operators from banking as well as individual houses entering the field of mutual fund have created awareness among general public. Most reputed funds need to work for better results in order to attract public. This results in better fund management and consequent higher returns for the common investor. 16. Safety portfolio 25% of the investment is in income funds and 75% is in liquid funds. It is evident from the table that this model can deliver the expected returns of 107.25 and would reap 109 in the bestcase scenario and 105.75 in the worst-case scenario. This estimate still proves higher returns than would have been generated if the money would have been invested in bank deposits, PPF. Since the investor looks for safety of capital as an investment criterion, this portfolio would generate positive returns even in the worst market conditions. 17. Income profile The investment is allocated as follows: 5% of the total investment in equity, 15% in balanced funds, 70% in income funds and the remaining 10% in liquid or money market funds. 18. Income and Moderate growth fund 20% of the total investment is in growth fund, 20% in balanced funds, 55% in income fund and the remaining 5% investment in money market or liquid funds. This model can deliver the expected return of Rs. 112.75 and would reap returns of Rs. 121.9 in the best-case scenario and Rs. 92.6 in the worst-case scenario.

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19.

Balanced growth 30% of the total investment is made in growth fund, 30% in balanced funds, 35% in income funds and the remaining in money market funds. This model is capable of delivering the expected returns of Rs. 115.15 and would give Rs. 127.9 in the best-case scenario and Rs. 85.9 in the worst-case scenario. This estimate still proves ahead of return that would have been generated had the money been invested elsewhere. This portfolio suits investor who is ready to withstand a little more than 10% capital erosion during worst market scenario.

20.

Aggressive growth portfolio 20% of the total investment is made in sectoral fund, 55% in growth fund, 5% in balanced fund, 15% in income fund and the remaining 5% towards money market fund. This model can deliver the expected return of Rs. 126.05 and it would reap returns of Rs. 150.9 in the best-case scenario and Rs. 55.45 in the worstcase scenario.

21.

Maximum growth portfolio 25% of the total investment to be invested in sectoral funds, 70% in growth fund and the remaining 5 % in money market fund. This model is capable of delivering the expected returns of Rs. 130.35 and it would reap returns of Rs. 160.4 in the bestcase scenario and Rs. 42.8 in the worst-case scenario.

22.

The country's fund houses saw an increase in the average assets under management (AUM) in August, with HDFC Mutual Fund registering the highest increase in its assets by Rs 10,508 crore

RECENT NEWS: At the end of April, the MF industry had seen inflows worth Rs 1,54,192 crore in various schemes.
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The MF industry has witnessed outflows worth Rs 83,937 crore in June after two consecutive months of inflows, which analysts believe was mainly on the back of heavy pull out by banks.

"A key feature in this trend is that the months following the quarter ending (March and June) have seen large inflows, which indicate that outflows witnessed were of a very short term nature," Crisil said. Crisil FundServices is India's leading provider of fund evaluation and research to the Indian Mutual Fund industry.

During July, fixed income plans with assured returns saw a maximum investment of Rs 95,764 crore, followed by liquid or money market funds with higher liquidity and short maturity period which saw inflows worth Rs 24,698 crore. Besides, equity funds investing in stocks attracted investments worth Rs 4,232 crore.

Analysts feel that as increasing number of fund houses flooded the counter with new fund offers (NFOs) before the implementation of entry load ban from August 1, inflows increased substantially during the month. During July, FIIs invested over Rs 11,600 crore in Indian equities, while MFs bought Rs 1,825 crore shares, as per data available on the website of SEBI. At the end of July, investors poured in funds worth Rs 1,23,679 crore in all the 36-fund houses of the country, recording the second biggest inflow in the fiscal 2009-10.
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Riding on the back of fresh inflows into various schemes, the MF industry's AUM totalled Rs 7.20 lakh crore a 24 per cent rise over the previous month, Crisil FundServices said in a report. "Income and liquid funds saw strong inflows in July, with banks again parking money in mutual funds after withdrawals in June end to meet quarter-end capital adequacy related requirements," Crisil FundServices Director Krishnan Sitaraman said.

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SUGGESTIONS As interests on bank deposits are decreasing and touching a low of 5%, and interest on deposits with companies are fetching only 8%, it is suggested to find various options available to an investor to augment income from investments. One of the best alternatives is investing in mutual funds. It is suggested that an appropriate portfolio consisting of various options in a ratio, which satisfies the need of investor in terms of returns, income requirement, liquidity, risk factors, income tax issues should be identified.

First time investors in Mutual Funds act in the face of imperfect information and often get overwhelmed by uncertainties characterizing the investment situation. But theres more to Mutual Fund investing than market timing.

First things first

The first thing an aspiring unit holder must do is to establish what type of portfolio he wants to build. In other words, to decide the right asset allocation. Asset allocation is a method that determines how you invest your money in different investments with the proper mix of various asset classes. Remember, the type or class of security you own i.e. equity, debt

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or money market is much more important than the particular security itself. The popular thumb rule for asset allocation says that whatever the investors age, he should keep that percentage of his portfolio in debt instruments.

For example,

If an investor is 25, he should have 25% of his investments in debt instruments and the rest in equity. However, in reality, different circumstances and financial position for each individual may require different allocation. Portfolio variable is another factor that one needs to understand to practice asset allocation. These are age, occupation, number of dependants in the family. Usually the younger you are, the more riskier the investments you can hold for getting superior returns.

How to pick the right fund/s?

Next, focus on selecting the right fund/s. The key is to select the fund/s based on their investment philosophy and consistency in terms of returns. To ensure you are selecting the right type of funds that are appropriate for your needs, consider following: Determine what your financial goals are. Are you investing for retirement? A childs education? Or for current income?
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Consider your time frame. Do you need money in three months time or three years?-- The longer your time horizon, the more risk you may be able to take. How do you feel about risk? ---Are you in a position to tolerate the ups and downs of the stock market for the possibility of higher returns? It is necessary to know your own risk tolerance. It can be a guide for choosing the right schemes. Remember, regardless of the potential returns, if you are not comfortable with a particular asset class, you should consider other options.

Remember, all these factors will have a direct impact on the fund you choose and the return that you can expect to get. If you are a long-term investor with some appetite for risk and are looking for returns to beat inflation, equity funds are your best bet. MFs offer a variety of equity and equity-oriented schemes. For a beginner, it makes sense to begin with a diversified fund and gradually have some exposure to sector and specialty funds

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CONCLUSION The right choice for a middle class family will be a basket of portfolios in - Popular tax saving schemes like LIC, PF etc. - Debt funds and - Various equity schemes in suitable ratios Considering income tax liability, life protection, periodical returns, wealth creation over a period of time, liquidity requirement and finally risk bearing capacity. A wise investor should aim to achieve an annual growth much higher than the countrys inflation rate so as to achieve a real growth of money invested.

Keeping Track

Filling up an application form and writing out a cheque is not the end of the story. It is equally important to keep an eye on how your investments are performing. While having a qualified and professional advisor helps both in terms of making the right decision as well as measuring performance, it makes sense to know how to do yourself with a little help from these sources:

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Fact sheets and Newsletters:

MFs publish monthly fact sheets and quarterly newsletters that contain portfolio information, a report from the fund manager and performance statistics on the schemes managed by it. Websites:

MF web sites provide performance statistics, daily NAVs, fund fact sheets, quarterly newsletters and press clippings etc. Besides, the Association of Mutual funds in India, AMFI, website, contains daily and historical NAVs, and other scheme.

Newspapers:

Newspapers have pages reporting the net asset values and the sales and redemption prices of MF schemes besides other analysis and reports.

Remember, it is very important for you to be well informed. To achieve this, you need to spend a little time to understand and analyze the information to enhance the chances of success. Even if you spend one percent of the time that you spend on earning money, itll be a good beginning. Above all, take help of a professional advisor to select the right fund as well as the right mix of one time investment, SIP and the STP. Mutual Funds are the fastest growing institutions in the household savings sector. Growing complications and risks in the stock market, rising tax rates and increasing inflation have pushed household towards mutual funds. The growth of the share of mutual funds in

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personal/household savings is one indicator of the importance of mutual funds as a savings instrument, but what is more important is the rate of growth of this share. The share of other instruments like commercial banks, thrifts and insurance declined significantly. The fierce competition between mutual funds and the banking industry in the USA has caused a severe fall in bank deposits. a similar trend has been observed in Europe. In India, there has been a steady increase in the share of mutual funds in household savings (financial assets) since 1988-89 i.e., after the entry of public sector mutual funds. Investors preference patterns in India have undergone a tremendous change during recent times, along with changes in the share of financial assets in the total annual savings. Indian investors have moved towards more liquid, growth-oriented tradable instruments like shares/debentures and units of mutual funds. This shift in asset holding pattern of investors has been significantly influenced by the equity and unit culture. While the holders of company shares/debentures are concentrated in urban areas, small/medium investors in semi-urban and rural areas are tending towards mutual funds. Mutual Funds in India have certainly created awareness among investors about equity & debt-oriented investment and its benefits. Modern Investment is serious business and is heavily dependent not only on the processing of information but also on the quality of research inputs. Formulation of investment strategies requires exploration of alternatives and identification of costs and returns. Forecasting, which is a more technical exercise than information gathering, forms an integral part of the research. Mutual funds develop the internal mechanism to monitor external research results as well as to undertake research internally. Research can add value to the investment, minimize costs and alter the cost-return equation.

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QUESTIONNAIRE 1. 2. Name: Age Below 20 ( ) 40-45 ( ) 3. 20-25 ( ) 25-30 ( ) 35-40 ( )

45-50 ( ) 50 & above ( )

What is the average amount you invest annually? Less than 25,000 ( ) 75,000-1,00,000 ( ) 25,000-50,000 ( ) more than 1,00,000 ( )

4.

What is your preferred lock-in period for the investment? 6 months ( ) 6-1 year ( ) 1 year & above ( )

5.

Where do you preferred to invest? Rank accordingly? Mutual Funds ( ) Gold ( ) Post office savings ( ) Real Estate ( ) Fixed Deposits ( ) Bonds ( ) Share Market ( )

6.

What do you feel about withdrawing savings before the stated time? I strongly agree ( ) Neutral ( ) yes I disagree ( )

7.

Did you or will you seek a professionals advice before investing? If yes whom? Brokers ( ) Bankers ( ) None ( )

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8.

Have you invested in Mutual Fund? Yes ( ) No ( )

9.

Which is the most preferred AMC for Mutual Funds? UTI ( ) Pru ICICI ( ) IDBI ( ) SBI ( ) Kotak ( ) Franklin Templeton ( ) Sundaram ( )

10.

Which feature you prefer the most while investing? Safety ( ) Liquidity ( ) Returns ( ) Convenience ( ) Tax benefits ( )

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BIBLIOGRAPHY Websites referred:

Periodicals referred:
1) Mutual funds review UTI , SBI and HDFC 2) Brochures UTI , SBI and HDFC 3) Pamphlets UTI , SBI and HDFC

4) Outlook money books The laymens guide to mutual funds

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