A PROJECT REPORT

ON
MUTUAL FUNDS OF HDFC
Project Submitted In partial fulfillment for the award of the degree

MBA 5 Years Integrated Course

By
MOHAMMED RAYEES
H.T.NO: 140214683003

DEPARTMENT OF BUSINESS ADMINISTRATION

AMJAD ALI KHAN COLLEGE OF BUSINESS
ADMINISTRATION

(APPROVED BY AICTE AND AFFILIATED TO OSMANIA

UNIVERSITY)

“Mount Pleasant” # 8-2-249, Road No.3, Banjara Hills,

Hyderabad – 500 034

(2014-2019)
 AMJAD ALI KAN COLLEGE OF BUSINESS ADMINISRTRATION

(Estd. By Sultan-ul-Uloom Education Society)

APPROVED BY AICTE AND AFFILICATED TO OSMANINA UNIVERSITY

Prof. SHEHBAZ AHMED Office: “Mount Pleasant”

Director # 8-2-249, Road No.3, Banjara Hills,
Hyderabad – 500 034
✆.040-23280242, Fax: 040-23280786
E-mail: [email protected]
amjadalikhan.college@gmail.
com
Website: www.amjadalikhancollege.edu.in

CERTIFICATE
I hereby declare that the project report on “Mutual Funds of HDFC” has been
submitted under partial fulfillment for the award MBA 5 YEARS
INTEGRATED COURSE, Osmania University, Hyderabad, which was carried
out by Mohammed Rayees bearing roll no 140214683003 student of MBA 5
YEARS INTEGRATED COURSE (FINANCE) under my guidance and
supervision.

This Project Report has not been submitted to any other University/Institution for
the award for Degree/Diploma/Certificate course.

PROF. SHEHBAZ AHMED

DIRECTOR
 AMJAD ALI KAN COLLEGE OF BUSINESS ADMINISRTRATION
(Estd. By Sultan-ul-Uloom Education Society)
APPROVED BY AICTE AND AFFILICATED TO OSMANINA UNIVERSITY

Mrs. Raghaveeni Office: “Mount Pleasant”

Associate Professor # 8-2-249, Road No.3, Banjara Hills,
Hyderabad – 500 034
✆.040-23280242, Fax: 040-23280786
E-mail: [email protected]
Website: www.amjadalikhancollege.edu.in

CERTIFICATE
I hereby declare that the project report on “Mutual Funds of HDFC” has been submitted under
partial fulfillment for the award MBA 5 YEARS INTEGRATED COURSE, Osmania
University, Hyderabad, which was carried out by Mohammed Rayees bearing roll no
140214683003 student of MBA 5 YEARS INTEGRATED COURSE (FINANCE) under my
guidance and supervision.

This Project Report has not been submitted to any other University/Institution for the award for
Degree/Diploma/Certificate course.

Mrs.T.Raghaveni

ASSOCIATE PROFESSOR
 DECLARATION

I hereby declare that this Project Report entitled “Mutual Funds of HDFC” submitted by

me to the Department of Business Management, O.U., Hyderabad, is a bonafide work

undertaken by me and it is not submitted to any other University or Institution for the

award of any degree diploma / certificate or published any time before.

Name and Address of the Student

Mohammed Rayees

TELANGANA, HYDERABAD.
 TABLE OF CONTENTS
Ref No TITLES Page
no.

1. INTRODUCTION

2. LITERATURE REVIEW
3. COMPANY PROFILE
4. DATA ANALYSIS
5. CONCLUSION
6. BIBILOGRAPHY
INTRODUCTION
 INTRODUCTION
The significant outcome of the government policy of liberalization in industrial and financial
sector has been the development of new financial instruments. These new instruments are
expected to impart greater competitiveness, flexibility and efficiency to the financial sector.
Growth and development of various mutual fund products in Indian capital market has
proved to be one of the most catalytic instruments in generating momentous investment
growth in the capital market. These is a substantial growth in the mutual fund market due to
a high level of precision in the design and marketing of variety of mutual fund products by
banks and other financial institution providing growth, liquidity and return. In this context,
prioritization, preference building and close monitoring of mutual funds are essential for
fund managers to make this the strongest and most preferred instrument in Indian capital
market for the coming years. With the decline in the bank interest rates, frequent fluctuations
in the secondary market and the inherent attitude of the Indian small investors to avoid risk,
Mutual Funds are taking their place.

Mutual funds combine various elements of liquidity, return and security in making
themselves as the best possible alternative for the small investors in Indian market. I have
attempted to study various need expectations of small investors from different types of
mutual funds available in the Indian market and identify the risk return perception with the
purchase of Mutual Funds. The Indian financial system in general and the mutual fund
industry in particular continue to take turn around from early 1990s. During this period
mutual funds have pooled huge investments for the corporate sector. The investment habit of
the small investors particularly has undergone a sea change.

Increasing number of players from public as well as private sectors has entered in to the
market with innovative schemes to cater to the requirements of the investors, in India and
abroad. For all investors, particularly the small investors, mutual funds have provided a
better alternative to obtain benefits of expertise- based equity investments to all types of
investors.
 NEED FOR THE STUDY

The main purpose of doing this project was to know about mutual fund and its functioning. This
helps to know in details about mutual fund industry right from its inception stage, growth and
future prospects.

It also helps in understanding different schemes of mutual funds. Because my study depends
upon prominent funds in India and their schemes like equity, income, balance as well as the
returns associated with those schemes. The project study was done to ascertain the asset
allocation, entry load, exit load, associated with the mutual funds.

Ultimately this would help in understanding the benefits of mutual funds to investors.
 OBJECTIVES OF THE STUDY

• This comparative study analysis is based on two of the main mutual fund schemes of
HDFC i.e., HDFC Balanced Funds and HDFC Equity Funds, it highlights some of its
main components as well as investment strategies and money instruments used in the
mutual fund process of both.
• It is to understand the concept of mutual funds as well as to know the scope of various
schemes.
• To Study and analyze the Economic impacts of growth of the Mutual Funds industry in
India.
 LIMITATIONS

• The lack of information sources for the analysis part.

• Though I tried to collect some secondary data but they were too inadequate for the
purposes of the study.
• Time and money are critical factors limiting this study.
• The data provided by the prospects may not be 100% correct as they too have their
limitations.
LITERATURE REVIEW
 Literature Review

Mutual funds industry is a growing at a very fast rate India. Various studies and research has
been on this industry by experts. Here are the lists of few books that have been referred to for the
purpose of the study.

Mr. M. Jaidev in his book has “Investment policy and performance of Mutual Fund” has studied
the Indian Public Sector Mutual Funds. In this book he has covered risk, rate of return.
“Investment policy and pricing of mutual funds” In this book he has done an empirical study
covering all aspects of mutual fund investment along with the regulatory framework.

Nailing Prava Tripathy in her book “Mutual Funds in India Emerging Issues” provides a
detailed evaluation of investment management which is not only helpful for influencing
marketing operations but also for securities selection, investment research and timing and
resource allocation.

Dr H. Sadak in his book “Mutual Funds in India” has highlighted the importance of financial
institutions in India, The basic focus on the growth and development of mutual funds in India.
The entire gamut of the theoretical aspects of the fund management has been critically examined
in the context of the performance of mutual funds and it provides an insight into fund
management and the areas of weakness.

Study by Laukkanen (2006) explains that varied attributes present in a product or service
facilitate customer’s achievement of desired end state and the indicative facts of study show that
electronic services create value for customers in service consumption.
 MUTUAL FUND CONCEPT

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 investments
and the capital appreciation realized is shared by its unit holders in proportion to the number
of units owned by them. Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified professionally managed basket of
securities at a relatively low cost. The flow chart below describes broadly the working of
mutual fund.
DEFINITION: “A mutual fund is an investment that pools your money with the money of
an unlimited number of other investors. In return, you and the other investors each own
shares of the fund. The fund's assets are invested according to an investment objective
into the fund's portfolio of investments. Aggressive growth funds seek long-term capital
growth by investing primarily in stocks of fast-growing smaller companies or market
segments. Aggressive growth funds are also called capital appreciation funds”.

Mutual Fund is a trust that pools the savings of a number of investors who share common
financial goal; investments may be in shares, debt securities, money market securities or a
combination of these. Those securities are professionally managed on behalf of the unit-
holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits
when the securities are sold, but subject to any losses in value as well.

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.

Reasons to invest in Mutual Funds:

Inexpert on your side: When you invest in a mutual fund, you buy into the experience and
skills of a fund manager and an army of professional analysts.

Limited risk: Mutual funds are diversification in action and hence do not rely on the
performance of a single entity.

More for less: For the price of one blue chip stock for instance, you could get yourself a
number of units across a number of companies and industries when you invest in a fund!

Easy investing: You can invest in a mutual fund with as little as Rs. 5,000. Salaried
individuals also have the option of investing in a monthly savings plan.

Convenience: You can invest directly with a fund house, or through your bank or financial
adviser, or even over the internet.

Investor protection: A mutual fund in India is registered with SEBI, which also monitors
the operations of the fund to protect your interests.

Quick access to your money: It’s good to know that should you need your money at short
notice, you can usually get it in four working days.
Transparency: As an investor, you get updates on the value of your units, information on
specific investments made by the mutual fund and the fund managers strategy and outlook.

Low transaction costs: A mutual fund, by sheer scale of its investments is able to carry out
cost-effective brokerage transactions.

Tax benefits: Over the years, tax policies on mutual funds have been favorable to investors
and continue to be so.

Organization of a Mutual Fund:

Sponsor:

Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. The sponsor of a fund is akin to promoter of a company as he gets
the fund registered with SEBI. The sponsor will form a Trust and appoint a Board of
Trustees. The sponsor will also generally appoint as Asset Management Company as fund
managers. The sponsor, either directly or acting through the Trustees, will also appoint a
Custodian to hold the fund asset. All these appointments are made in accordance with SEBI
Regulations.

Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet
the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual
Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or short fall
resulting from the operation of the Schemes beyond the initial contribution made by it
towards setting up of the Mutual Fund.

Trust:

The Mutual Fund in India is constituted in the form of a public Trust created under the Indian
Trustees Act, 1882. The fund sponsor acts as the settler of the trust, contributing to its initial
capital, and appoints Trustees to hold the asset of the Trust for the benefit of the 11. Unit
holders, who are the beneficiaries of the Trust.

The fund then invites investors to contribute their money in the common pool, by subscribing
to „‟Units‟‟ issued by various schemes established by the trust, units being the evidence of
their beneficial interest in the fund.

It should be understood that mutual funds are just ‟a pass-through”vehicle. Under trusts Act
or the fund has no independent legal capacity itself, rather it is the Trustee or Trustees who
have the legal capacity and therefore all acts in relation to the trust are taken on its behalf by
the Trustees. The Trustees hold the unit holder’s money in a fiduciary capacity, i.e. the
money belongs to the unit – holders and is entrusted to the fund for the purpose of
investment. In legal parlance, the investor or the unit-holders are the ‟beneficial owners” of
the investment held by the Trust, even as these investments are held in the name of the
trustees on a day – to - day basis.

Being public Trusts, mutual fund can invite any number of investors as beneficial owners in
their investment schemes.
Trustee:

The trust – the mutual fund – may be a Board of Trustees – a body of individuals, or a Trust
company – a corporate body. Most of the funds in India are managed by Board of Trustees.
While the board of Trustees is governed by the provisions of the Indian Trusts Act, where the
Trustee is a corporate body, it would also be required to comply with the provisions of the
companies Act, 1956. The Board or the Trustee Company, as an independent body, act as
protector of the unit – holder’s interests. The Trustee doesn’t directly manage the portfolio of
securities. For this specialist function, they appoint an Asset Management Company. They
ensure that the fund is managed by the AMC as per the defined objectives and in accordance
with the Trust Deed and SEBI regulations.

The trust is created through a document called the Trust Deed that is executed by the fund
sponsor in favor of the Trustees. Trust Deed is required to be stamped as registered under the
provisions of the Indian Registration Act and registered with SEBI. Clauses in the Trust
Deed, inter alia, deal with the establishment of the Trust, the appointment of Trustees, their
powers and duties, and the obligations of the Trustees towards the unit-holders and AMC.
These clauses also specify activities that the fund/ AMC cannot undertake. The third
schedule of the SEBI (MF) Regulations, 1996 specifies the contents of the Trust Deed.

The Trustees being the primary guardians of the unit-holder’s funds and assets, a Trustee has
to be a person of high repute and integrity. SEBI has laid down a set of conditions to be
fulfilled by the individuals being proposed as trustees of mutual funds – independent and non
- independent. Besides specifying the „‟disqualifications‟‟, SEBI has also set down the
Right and obligations of the Trustees. Broadly, the Trustees must ensure that the investor’s
interests are safeguarded and that the AMC‟s operations are along professional lines. They
must also ensure that the management of the fund is in accordance with SEBI Regulations.

To ensure the independence of the trustee company, SEBI mandates a minimum of two-third
independent directors on the board of the trustee company.
Asset Management Company (AMC):

The role of an AMC is to act the investment manager of the Trust. The sponsors or the
trustees, if so authorized by the Trust Deed, appoint the AMC. The AMC so appointed is
required to be approved by SEBI. Once approved, the AMC functions under the supervision
of its own Board of Directors, and also under the directions of the Trustees and SEBI. The
Trustees are empowered to terminate the appointment of the AMC and appoint a new AMC
with the prior approval of SEBI and unit-holders.

The AMC of a mutual fund must have a net worth of at least Rs. 10 crores at all times.
Directors of the AMC, both independent and non independent should have adequate
professional experience in financial services and should be individuals of high moral
standing, a condition also applicable to other key personnel of the AMC. The AMC cannot
act as a trustee of any other mutual fund. Besides its role as the fund manager, it may
undertake specified activities such as advisory services and financial consulting, provided
these activities are run independently of one another and the AMC‟s resources are properly
segregated by activity. The AMC must always act in the interest of the unit-holders and
report to the trustees with respect to its activities. To ensure the independence of the asset
management company, SEBI mandates that a minimum of 50% of the directors of the board
of the asset management company should be independent directors.

Registrar and Transfer Agent:

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to
the Mutual Fund. The Registrar processes the application form; redemption requests and
dispatches account statements to the unit holders. The Registrar and Transfer agent also
handles communications with investors and updates investor records.

Custodian:

Mutual funds are in the business of buying and selling of securities in large volumes.
Handling these securities in terms of physical delivery and eventual safekeeping is therefore
a specialized activity. The custodian is appointed by the Board of Trustees for safe keeping
of physical delivery and eventual safekeeping is therefore a specialized activity. The
custodian is appointed by the Board of Trustees for safe keeping of physical securities or
participating in any clearing system through approved depository companies on behalf of
mutual fund in case of dematerialized securities. A custodian must fulfill its responsibilities
in accordance with its agreement with the mutual fund. The custodian should be an entity
independent of the sponsors and is required to be registered with SEBI.
 TYPES OF MUTUAL FUNDS

Mutual fund schemes may be classified on the basis of its structure and its
investments.
By Structure:

Open-ended Funds

An open-end fund is one that is available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value
("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest
in the scheme at the time of the initial public issue and thereafter they can buy or sell the
units of the scheme on the stock exchanges where they are listed. In order to provide an exit
route to the investors, some close-ended funds give an option of selling back the units to the
Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate
that at least one of the two exit routes is provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are open
for sale or redemption during pre-determined intervals at NAV related prices.
By Investment Objective

Income Funds

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

Balanced Funds

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

Growth Funds

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

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns
on these schemes may fluctuate depending upon the interest rates prevailing in the market.
These are ideal for Corporate and individual investors as a means to park their surplus funds
for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy
or sell units in the fund, a commission will be payable. Typically entry and exit loads range
from 1% to 2%. It could be worth paying the load, if the fund has a good performance
history.
No-Load Funds

A no-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no load
fund is that the entire corpus is put to work.

Other Schemes
Tax saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian
Income Tax laws as the Government offers tax incentives for investment in specified
avenues. Investments made in Equity Linked Savings Schemes (ELSS) and pension Schemes
are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides
opportunities to investors to save capital gains u/s 54EA by investing in Mutual Funds,
provided the capital asset has been sold prior to April 1, 2000 and the amount is invested
before September 30, 2000.

Special Schemes

 Industry Specific Schemes: Industry Specific Schemes invest only in the industries
specified in the offer document. The investment of these funds is limited to specific
industries like InfoTech, FMCG and Pharmaceuticals etc.
 Index Schemes: Index Funds attempt to replicate the performance of a particular
index such as the BSE Sense or the NSE 50
 Sectoral Schemes: Sectoral Funds are those, which invest exclusively in a specified
industry or a group of industries or various segments such as 'A' Group shares or
initial public offerings.
 PROCESS OF MUTUAL FUND

 The above image shows how Mutual Fund works and how investor earns money by
investing in the Mutual Fund. Investors put their saving as an investment in mutual
fund. The fund manager- who is a person who takes the decisions where the money
should be invested in securities according to the scheme’s objective. Securities
include Equities, Debentures, Govt. securities, Bonds and Commercial Paper etc.
These securities generate returns to the fund manager. The fund manager passes beck
return to the investor.

Mutual Funds – Organization

 There are many entities involved and the diagram below illustrates the organizational set
up of a mutual fund:
 Organization of a Mutual Fund

Rights of a Mutual Fund Unit holder: A unit holder in a Mutual Fund scheme governed
by the SEBI (Mutual Funds) Regulations is entitled to:

1. Receive unit certificates or statements of accounts confirming the title within 6 weeks
from the date of closure of the subscription or within 6 weeks from the date of request for a
unit certificate is received by the Mutual Fund.

2. Receive information about the investment policies, investment objectives, financial

position and general affairs of the scheme.

3. Receive dividend within 42 days of their declaration and receive the redemption or
repurchase proceeds within 10 days from the date of redemption or repurchase.

4. Vote in accordance with the Regulations to:-

a. Approve or disapprove any change in the fundamental investment policies of the scheme,
which are likely to modify the scheme or affect the interest of the unit holder. The
dissenting unit holder has a right to redeem the investment.

b. Change the Asset Management Company.

c. Wind up the schemes.

5. Inspect the documents of the Mutual Funds specified in the scheme's offer document.
 MUTUAL FUND INDUSTRY IN INDIA

Origin of mutual fund industry in India is with the introduction of the concept of mutual fund by
UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when
non-UTI players entered the industry

.In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities
wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the
Assets under Management (AUM) were Rs. 67bn. The private sector entry to the fund family
raised the AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540
bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than

The deposits of SBI alone constitute less than 11% of the total deposits held by the Indian
banking industry. The main reason of its poor growth is that the mutual fund industry in India is
new in the country. Large sections of Indian investors are yet to be intellectuated with the
concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling. Indian mutual funds industry was non – existent till 1960s. in 1963,
the govt. of India took the initiative by passing the UTI Act, under which the Unit Trust of India
(UTI) was set –up as a statutory body. The designated role of UTI was to act as a mutual fund.
This was expanded in 1985 to make UTI a financial institution as well.

UTI‟s first scheme, called the US-64, which was an open –end scheme, was launched in1964. It
subsequently launched a number of schemes to suit the differing needs of the investors. Till
1987, UTI was the only mutual fund in the market since no one else was legally allowed to set –
up mutual fund. In 1987, other public sector institutions like banks, financial institutions and
insurance companies started establishing mutual fund, following the government’s decision to
allow them to do so. State Bank of India became the first one to launch a mutual fund when it
launched the SBI Mutual fund in November, 1987. It was followed by the Can bank mutual fund,
LIC Mutual fund, etc. In this regulated era, UTI was acting more as a vehicle for the
implementation of the economic policies and the developmental activities of the government,
than as an investment vehicle for the investors. Finally in 1992, the government allowed private
sector players to set-up mutual funds.

A few of them are, Kothari pioneer MF, ICICI MF, Birla MF, Morgan Stanley MF, Tauras MF,
etc. As the number of mutual funds increased giving a choice to the competition in the industry
increased, thus jolting the hitherto complacent public sector mutual fund into action. As a result,
the investors not only had a wider choice regarding the kind of schemes and the sponsor of the
mutual fund, they started getting better service even from the old players. These private sector
funds provided an added advantage to the investors. These were generally set-up in partnership
with foreign mutual funds, with the letter providing the technology and the experience in
managing funds. The investors could thus derive the consequent benefits by investing in these
funds.

As the industry developed, the need was felt to regulate it. From the beginning, UTI was
governed by the provisions of the UTI Act 1963.Till 1987, as there were no other players in the
market, the need to come out with specific regulations for investment companies did not arise.
With the government allowing banks, financial institutions and insurance companies to set-up
mutual funds in 1987, a set of regulations was also needed. However, till 1989, the only
regulations in place were those which required banks to obtain RBI’s permission before setting
up a mutual fund.

In 1989, RBI came out with comprehensive guidelines applicable to mutual funds promoted by
banks. Following this, the Central Government came out with guidelines applicable to all mutual
funds in June, 1990. The letter was to be administered by SEBI.SEBI was initially established as
an interim body under the Ministry of Finance in April, 1988 to regulate and develop the capital
markets. It was later converted into a statutory body under the SEBI Act, 1992 and given wide
ranging powers. Mutual funds were one of the players SEBI was authorized to regulate.

In August, 1990, SEBI ruled that the guidelines would only supplement those issued by the
Central Government. Hence the mutual funds sponsored by banks were required to fulfill
obligations under both sets of regulations.

After allowing private sectors to enter the 17, period of six months, causing panic among many
individual as well as large institutional investors. Shelving its assured returns quality, US-64
became a market – return NAV based mutual fund in January 2002. Its opening NAV was Rs.
5.81 against the face value of Rs. 10.In January 2003, the Government of India bifurcate the UTI
into UTI I and UTIII. UTI I is now managed by a public administrator, while UTI II was handed
over to the State Bank of India, Punjab National Bank, Bank of Baroda and the Life Insurance
Corporation, with each institutions having an equal share in the company. It also came under the
ambit of regulation by SEBI. UTI II was renamed UTI mutual fund in February2003. As on 31
March 2003, UTI AMC had under its management, 42 SEBI complaints schemes and 4 offshore
funds, aggregating to a corpus of more than Rs. 15,000crore from about 10 million investor
accounts.

As an August, 2004 the mutual fund industry had Rs.155, 845crore wroth of asset under its
management. Of this Rs.20, 256crore were those of UTI, Rs.1, 23,258.04 were those of the
private sector, and Rs.12, 171.20 were those of the other public sector. More than 75% of the
total assets under management were managed by the private sector mutual funds.
Major Mutual Fund Companies in India:
• Axis Asset Management Company.
• AIG Global Investment Group Mutual Fund
• Birla Sun Life Mutual Fund.
• Bank of Baroda Mutual fund.
• DBS Chola Mutual Fund.
• Fraanklin Templeton India Mutual Fund.
• HDFC Mutual fund.
• ICICI Prudential Mutual fund.
• ING Mutual fund.
• JM Financial Mutual fund.
• JP Morgan Mutual fund.
• Kotak Mahindra Mutual fund
• LIC Mutual fund.
• Reliance Mutual fund.
• Sahara Mutual fund.
• State Bank of India Mutual fund.
• Standard Charted Mutual fund.
• Sundaram BNP Paribas Mutual fund.
• Tata Mutual fund.
• Unit Trust of India Mutual fund
MUTUAL FUND REGULATION

There was no uniform regulation of the mutual funds industry till a few years ago. The UTI was
regulated by a special Act of Parliament while funds promoted by public sector banks were
subject to RBI Guidelines of July 1989. The Securities & Exchange Board of India (SEBI) was
formed in 1993 as a capital market regulator. One of its responsibilities was to regulate the
mutual fund industry and it came up with comprehensive regulations for the industry in 1993.
The rules for the formation, administration and management of mutual funds in India were
clearly laid down. Regulations also prescribed disclosure requirements.

The regulations were thoroughly reviewed and re-notified in December 1996. The revised
guidelines tighten the accounting and disclosure requirements in line with recommendations of
The Expert Committee on Accounting Policies, Net Asset Values and Pricing of Mutual Funds.
The SEBI (Mutual Funds) Regulations, 1996 have been further amended in 1997, 1998 and
1999. Today, all mutual funds are regulated by SEBI. Efforts have been made to bring UTI
schemes under SEBI's ambit with the result that all schemes, with the exception of Unit 64, are
now regulated by the capital market regulator.

Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC’s is in the queue to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.
 Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.
 We have approximately 29 mutual funds which are much less than US having more than
800. There is a big scope for expansion.
 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
 Mutual fund can penetrate rural like the Indian insurance industry with simple and
limited products.
 SEBI allowing the MF's to launch commodity mutual funds.
 Emphasis on better corporate governance.
 Trying to curb the late trading practices.
Legal and Regulatory Framework

Mutual funds are regulated by the SEBI (Mutual Fund) regulations, 1996. SEBI is the regulator
of all funds, except offshore funds. Bank sponsored mutual funds are jointly regulated by SEBI
and RBI permission. If there is a bank sponsored find, it cannot provide a guarantee without RBI
permission. RBI regulates money and govt. securities in which mutual fund invest. Listed mutual
funds are subject to the listing regulations of stock exchanges. Since the AMC and trustee co, are
co’s they are regulated by the department of co affairs, they have to send periodic report to the
roc and the co law board is the appellate authority.

Investors cannot sue the trust, as they are the same as the trust and cant sure themselves. UTI is
governed by the UTI act, 1963 and is voluntarily under SEBI regulations. UTI can borrow as
well as lend and also engage in other financial services activities. SROs are the second tier in the
regulatory structure; SROs cannot do any legislation on their own. All stock exchanges are
SROs. AMFI is an industry association of mutual funds. AMFI is not yet a SEBI registered SRO.
AMFI has created code for mutual funds. AMFI aims at increasing investor awareness about
mutual funds, encouraging best practices and bringing about high standards of professional
behavior in the industry.
 Association of Mutual Funds in India (AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in India
was generated to function as a non-profit organization. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995. AMFI is an apex body of all

Asset Management Companies (AMC) which has been registered with SEBI. Till date all the
AMCs are that have launched mutual fund schemes are its members. It functions under the
supervision and guidelines of its Board of Directors. Association of Mutual Funds India has
brought down the Indian Mutual Fund Industry to a professional and healthy market with
ethical lines enhancing and maintaining standards.

It follows the principle of both protecting and promoting the interests of mutual funds as well
as their unit holders.

The objectives of Association of Mutual Funds in India:

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It
has certain defined objectives which supports the guidelines of its Board of Directors. The
objectives are as follows:

• This mutual fund association of India maintains high professional and ethical
standards in all areas of operation of the industry.
• It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual
fund and asset management. The agencies who are by any means connected or
involved in the field of capital markets and financial services also involved in this
code of conduct of the association.
• AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund industry. Association of Mutual Fund of India does represent the Government of
India, the Reserve Bank of India and other related bodies on matters relating to the
Mutual Fund Industry.
• It develops a team of well qualified and trained Agent distributors. It implements a
program me of training and certification for all intermediaries and other engaged in
the mutual fund industry.
• AMFI undertakes all India awareness program me for investor’s in order to promote
proper understanding of the concept and working of mutual funds.
• At last but not the least association of mutual fund of India also disseminate
information’s on Mutual Fund Industry and undertakes studies and research either
directly or in association with other bodies.
 STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY:

Structure wise mutual fund industry can be classified into three categories;

Unit trust of India

The Indian mutual fund industry is dominated by the unit trust of India, which has a total corpus
of 51000 crore collected from over 20 million investors. The UTI has many fund/ schemes in all
categories in equity, balanced, debt, money market etc. With some being open ended and some
being closed ended. The unit scheme 1964 commonly referred to as US64,which is a balanced
fund, is the biggest scheme with a corpus of about 10000 crore.

Public sector mutual fund

The second largest categories of mutual funds are the ones floated by nationalized banks can
bank asset management floated by canara bank and sbi funds management floated by state bank
of India are the largest of these. Gicamc floated by general Insurance Corporation.

On line trading is a great idea to reduce management expenses from the current 2%of total assets
to about 0.75%of the total asset.

72% of the crore-customer base of mutual fund in the top 50-broking firms in the us is expected
to trade on line by 2003

Private Sector Mutual fund

The third largest categories of mutual funds are the ones floated by the private sector domestic
mutual funds and the private sector foreign mutual funds. The largest of these in private sector
domestic mutual funds are Reliance21 mutual fund, JM capital management company ltd. Tata
mutual, Axis mutual fund, Birla sun life asset management pvt. Ltd. and in private foreign
mutual funds these are alliance capital asset management private ltd, Franklin Templeton
Investments, Sun F&C asset management private ltd, Lurich asset management company pvt ltd.
The aggregate corpus of the assets managed by this category of AMC’s is about 42000 cr.
 FUTURE SCENARIO

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few
years as investor’s shift their assets from banks and other traditional avenues. Some of the older
public and private sector players will either close shop or be taken over. Out of ten public sector
players five will sell out, close down or merge with stronger players in three to four years. In the
private sector this trend has already started with two mergers and one takeover. Here too some of
them will down their shutters in the near future to come.

But this does not mean there is no room for other players. The market will witness a flurry of
new players entering the arena. There will be a large number of offers from various asset
management companies in the time to come. Some big names like Fidelity, Principal, and Old
Mutual etc. are looking at Indian market seriously. One important reason for it is that most major
players already have presence here and hence these big names would hardly like to get left
behind.

In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some
like real estate funds and commodity funds also take an exposure to physical assets. The latter
type of funds are preferred by corporate who want to hedge their exposure to the commodities
they deal with.

For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could
buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent
Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of its corpus in Gold,
Silver, Swiss francs, specific stocks on various bourses around the world, short –term and long-
term U.S. treasuries etc.

In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate
funds (investing in real estate and other related assets as well.).

In India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate
fund before the year-end. In developed countries like the U.S.A there are funds to satisfy
everybody’s requirement, but in India only the tip of the iceberg has been explored. In the near
future India too will concentrate on financial as well as physical funds.

The mutual fund industry is awaiting the introduction of DERIVATIVES in the country as this
would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value
(NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in
Derivatives. Importantly, many market players have called on the Regulator to initiate the
process immediately, so that the mutual funds can implement the changes that are required to
trade in Derivatives.
COMPANY PROFILE
Housing Development Finance Corporation Limited (HDFC)

HDFC was incorporated in 1977 as the first specialized Mortgage Company in India. It is a
premier housing finance company in India. It provides financial assistance to corporate,
individuals, and developers for the purchase or setting of residential housing. It also provides
property related services (e.g. property identification, sales services and valuation), training
and consultancy. Of these activities, housing finance is the prime activity of HDFC. It has a
client base of around 10 lakh borrowers, around 10 lakh depositors, over 1, 23,000
shareholders and 50,000 deposit agents, as at March 31, 2009.

The Company has a total asset size of Rs. 96,993 crore as at March 31, 2009 and cumulative
approvals and disbursements of housing loans of Rs. 237,450 crore and Rs. 191,806 crore
respectively as at March 31, 20094. It has raised funds from international agencies such as
the World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated
loans, domestic term loans from banks and insurance companies, bonds and deposits. It has
received the highest rating for its deposits program for the fourteenth year in succession.

Standard Life Investments

Limited Standard Life Investments Limited is wholly owned subsidiary of Standard Life
Investments (Holdings) Limited, which in turn is a wholly 131 owned subsidiary of Standard
Life plc. It is the investment management company of standard life. It has global assets under
management of approximately US$ 169 billion as at March 31, 2009 and is one of the
world's largest investment company5. It invests money on behalf of five million institutional
and retail clients throughout the world. The company has its operation in USA, UK, Canada,
Korea, Ireland and Australia making it a truly global investment company.

The Trustee

The function of the trustee is performed by the HDFC Trustee Company Limited (the
"Trustee"). Its prime function is to ensure that the working of the AMC is being carried out
in accordance with the "SEBI (MF) Regulations". It also reviews the activities carried on by
the AMC. After having a comprehensive discussion about the establishment of HDFC
mutual funds, its organizational structure we will have a look at the sample funds chosen for
the purpose of study. The following sample funds were chosen taking consideration about
their duration of operation and their investment objectives. Attempts has been made that
equal number of observation is taken to find out the result of empirical analysis.
 HDFC Asset Management Company Limited (AMC)
Vision

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

Sponsors

Housing Development Financial Corporation Limited (HDFC)

HDFC was incorporated in 1977 as the first specialized housing finance institution in India.
HDFC provides financial assistance to individuals, corporate and developers for the purchase
or construction of residential housing. It also provides property related services (e.g. property
identification, sales services and valuation), training and consultancy. Of course activities,
housing finance remains the dominant activity.

HDFC currently has a client base of over 800000 borrowers, 1200000 depositors, 92000
shareholders and 50000 deposit agents. HDFC raises funds from international agencies such
as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans
from banks and insurance companies, bonds and deposits. HDFC has received the highest
rating for its bonds and deposits program for the 9th year in succession. HDFC Standard Life
Insurance Company Limited. Promoted by HDFC was the 1st life insurance company in the
private sector to be granted a Certificate of Registration (on October 23, 2000) by the
Insurance Regulatory and Development Authority to transact life insurance business in India.
Standard Life Investment Limited

The Standard Life Assurance Company was established in 1825 and has considerable
experience in global financial markets. In 1998, Standard Life Investment Limited became
the dedicated investment management company of The Standard Life Group and is owned
100% by the Standard Life Assurance Company. With the global assets under management
of approximately US$186.45 billion as at March 31, 2005, Standard Life Investment Limited
is one of the world’s major investment companies and is responsible for investing money on
behalf of five million retail and institutional clients worldwide. With its headquarters in
Edinburgh, Standard Life Investment Limited has an extensive and developing global
presence with operations in the United Kingdom, Ireland, Canada, USA, China, Korea and
Hong Kong. In order to meet the different needs and risk profiles of its clients, Standard Life
Investment Limited manages a diverse portfolio covering all the major markets world-wide,
which includes a range of private and public equities, government and company bonds,
property investments and various derivative instruments.

HDFC Trustee Company Ltd.

A company incorporated under the Companies Act, 1956 is the Trustee to the Mutual Fund
vides the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee
Company Limited is a wholly owned subsidiary of HDFC Limited.

HDFC asset Management Company (AMC)

HDFC AMC was incorporated under the Companies Act, 1956, on December 10, 1999, and
was approved to act as an Asset Management Company for the Mutual Fund by SEBI on
July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T.
Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. 3
In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset
Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC
is Rs. 75.161 crore.

The present share holding pattern of AMC is as follows:

Particulars % of the paid up share capital

HDFC 50.10

Standard Life Investment Limited 49.90

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

On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now
migrated to HDFC Mutual Fund on June 19, 2003. The AMC is managing 18 open-ended
schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF),
HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC Tax Plan 2000 (HTP), HDFC
Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan
(HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity
Fund (HEF), HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC
TaxSaver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC
Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund (HCMF). The AMC is also
managing the respective Plans of HDFC Fixed Investment Plan, a closed ended Income
Scheme.

The AMC has obtained registration from SEBI vide Registration No. - PM / INP000000506
dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers)
Regulations, 1993. The Certificate of Registration is valid from January 1, 2001 to December
31, 2003. The AMC is also providing portfolio management / advisory services and such
activities are not in conflict with the activities of the Mutual Fund.

HDFC has had a long and inspiring journey and is currently one of the largest financial
institutions in India. Started out mainly as a company specializing in loans, it now boasts of
numerous subsidiaries, of which HDFC Mutual Fund is one. HDFC Mutual Fund was
launched on 30th June 2000 as a trust as per the provisions of the Indian Trusts Act, 1882.
Top Fund Managers in HDFC Mutual Fund
 Mr. Prashant Jain
He is the Executive Director & Chief Investment Officer with 2 decades of industrial
experience in research and fund management.
Mr. Chirag Setalvad
With 11 years of experience in asset management and focused research in equity and equity-
oriented funds, Mr. Chirag is the Senior Fund Manager of HDFC.
Mr. Shobhit Mehrotra
With dual role of Credit Head and Senior Fund Manager, he has pushed the AMC to great
heights with his 18 years of experienced garnered in the field of credit rating and fixed
income markets.
Mr. Vinay R. Kulkarni
A Senior Fund Manager with 2 decades of industrial experience in equity funds, he has a
great track record as an asset manager.
Mr. Anil Bamboli, Mr. Srinivas Rao Ravuri, and Mr. Anupam Joshi are other renowned
names in the mutual fund industry from the HDFC fund house.

How to invest in HDFC Mutual Funds?

It is easier than ever to shortlist any HDFC mutual fund product and invest. ClearTax has
always been a reliable platform to find hand-picked funds that suit your investment purpose
and risk profile. Now, you can also select any product from a particular fund house (say, an
HDFC mutual fund) from ClearTax Save portal. One of the advantages of going through us
is, you need to do your KYC formalities only once. The entire investment process will take
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ClearTax gives you a quick and seamless process in 3 steps.
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Mutual fund products by HDFC

 HDFC EQUITY FUNDS

 HDFC DEBT/INCOME FUNDS

 HDFC LIQUID Funds

 HDFC CHILDREN’S GIFT FUND

 HDFC RETIREMENT SAVINGS FUND

 HDFC FIXED MATURITY PLANS

 HDFC EXCHANGE TRADED FUNDS

 RAJIV GANDHI EQUITY SAVINGS SCHEME

 DUAL ADVANTAGE FUND

 CAPITAL PROTECTION ORIENTED SCHEMES

 FUND OF FUND SCHEMES

 ANNUAL INTERVAL FUND – SERIES 1

 HDFC CANCER CURE FUNDS

Best HDFC Mutual Fund Schemes/Products:

HDFC Sensex ETF

HDFC Nifty 50 ETF

HDFC Gold

HDFC Corporate Bond

HDFC Gilt Fund

HDFC Floating Rate Debt Fund

HDFC Income

HDFC Low Duration Fund

HDFC Index Fund-NIFTY 50 Plan

HDFC Liquid

HDFC Overnight Fund

HDFC Focused 30 Fund

HDFC Equity

HDFC Dynamic Debt Fund

HDFC Capital Builder Value Fund

HDFC Index Sensex

HDFC Money Market Fund

HDFC Medium Term Debt Fund

HDFC Short Term Debt Fund

HDFC Gold ETF

HDFC TaxSaver

HDFC Multi – Asset Fund

HDFC Long Term Advantage

HDFC Liquid

HDFC Hybrid Debt Fund

HDFC Equity Savings Fund

HDFC Top 100 Fund

HDFC Arbitrage

HDFC Small Cap Fund

HDFC Infrastructure

HDFC Dynamic PE Ratio FOFs A

HDFC Mid-Cap Opportunities

HDFC Banking & PSU Debt Fund

HDFC Credit Risk Debt

HDFC Floating Rate Debt Fund

HDFC Retirement Savings – Equity

HDFC Retirement Savings – Hybrid Debt

HDFC Retirement Savings – Hybrid Equity

HDFC Growth Opportunities Fund

HDFC Balanced Advantage Fund

HDFC Hybrid Equity Fund

DATA ANALYSIS
This Data Analysis is based on two of the main mutual fund schemes of HDFC i.e., HDFC
Premier Multi-Cap Fund and HDFC Equity Funds, it highlights some of its main
components as well as investment strategies and money instruments used in the mutual fund
process of both.

HDFC Balanced Fund

HDFC Mutual Fund has announced the merger of two of its schemes, HDFC Premier

Multi-Cap Fund and HDFC Balanced Fund, to form a new scheme called
HDFC Hybrid Equity Fund. The new scheme will be a hybrid scheme, investing
predominantly in equity and equity-related instruments.

This scheme was launched in August 2000. The primary objective of the Scheme is to
generate capital appreciation. It also aims at to generating income by investing in portfolio
consisting of equity, debt and money market instruments. The share of equity in portfolio is
60 percent whereas the share of debt is 40 percent. The entry load for the fund is 1.5
percent6. The table contains basic information of the schemes.

HDFC Mutual Fund has announced the merger of two of its schemes, HDFC Premier Multi-
Cap Fund and HDFC Balanced Fund, to form a new scheme called HDFC Hybrid Equity
Fund. The new scheme will be a hybrid scheme, investing predominantly in equity and
equity-related instruments. The changes to the schemes will be effective from June 1. 

The new scheme, HDFC Hybrid Equity Fund, will be categorized under the aggressive
hybrid basket of schemes. The fund house, in a communication sent to investors, said that on
the effective date of merger of the schemes, the existing schemes shall cease to exist and the
unit holders will be allotted units under the corresponding option of the new scheme at the
last available applicable Net Asset Value. 

Mutual fund advisors say investors in HDFC Balanced Fund need not worry about the
change, but Premier Multi-cap investors should re-look at their investment. “For the multicap
investors, it is a clear fundamental attribute change. So, they should go through their
portfolio again. You can’t replace a multicap scheme with a balanced fund. But for the
HDFC Balanced fund investors, there is no need to worry,” says Vishal Dhawan, CFP, Plan
Ahead Wealth Advisors. 

Dhawan also points out that the expense ratio of HDFC Premier Multi-Cap Fund was high,
but the new scheme will have a lower expense ratio. 
 Basic Scheme Information
Nature of Scheme Open Ended Balanced Scheme

Inception Date 9/11/2000

Option/Plan Dividend Option,Growth The Dividend Option offers Dividend Payout and
Option. Reinvestment Facility.

Entry Load broker : (as a % of the Application routed through any distributor/agent/
Applicable NAV) (Other than Systematic broker: less than Rs. 5 crore in value, an Entry
Investment Plan In respect of each Load of 2.25% is payable. In respect of each
purchase / switch-in of Units / Systematic purchase / switch-in of Units equal to or greater
Transfer Plan (STP)) than Rs. 5 crore in value, no Entry Load is payable.
Application not routed through any
distributor/agent/broker: Nil No Entry Load shall
be levied on bonus units and units allotted on
dividend reinvestment.
Exit Load (as a % of the Applicable Plan In respect of each purchase / switch-in of
NAV) (Other than Systematic Investment Units / less than Rs. 5 crore in value, an Exit Load
Systematic Transfer Plan (STP) of 1.00% is payable. If Units are
redeemed/switched out within 1 year from the date
of allotment In respect of each purchase / switch-in
of Units equal to or greater than Rs. 5 crore in
value, no Exit Load is payable.
No Exit Load shall be levied on bonus units and
units allotted on dividend reinvestment.
Minimum Application Amount (Other For new investors: Rs.5000 and any amount
than Systematic Investment Plan / thereafter.
Systematic Transfer Plan (STP) For existing investors: Rs. 1000 and any amount
thereafter.
Lock-In-Period Nill

Net Asset Value Periodicity Every Business Day.

Redemption Proceeds Normally despatched within 3 Business

days
Source: HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue No.9 2.march
Investment Pattern

The investments under the schemes are made primarily in equity and equity related
instruments as well as in debt and in money market instruments. The table 4.4 provides the
asset allocation of the Scheme's portfolio.

Asset allocation under the HDFC Balanced Fund Scheme

Sr. Type of Instruments Normal Normal Deviation Risk Profile) of

No Allocation (% of Net Instrument
Risk Assets)

1 Equity and Equity Related 60 20 Medium to high

Instruments

2 Debt Securities (including 40 30 Low to Medium

debt) and Money Market
instruments securitized

Source: HDFC Fact Sheet “In Touch Mutually”Vol.5, Issue No.9 ,2march,

However besides the above mentioned allocation of funds under equity and debt instruments,
the AMC can invest in short term deposits of scheduled commercial banks as per the
investment objectives of the schemes.

Investment Strategy

The investment strategy of HDFC Balanced Fund is aimed at lowering risk and maximizing
return. In pursuance of this it allocates its fund in ratio of 6:4 in equity and debt respectively.
The Scheme also provides the Investment Manager to make investments as per the
worthiness of the securities. This means that fund manager can exercise their power and
make changes in assets allocation to meet the investment objectives of the schemes. As the
allocation of the balanced fund is based on the mix of equity and debt their ratio is critical in
determining future returns. A good balance between the two will optimize return and
minimize risks.
Investments in Equity

The investment of HDFC balanced fund in equity is to generate incomes by investing in

select category of assets class. For this, five principles are followed by the fund manager.
They are as follows:

 To focus on the long term investment

 To view investments as conferring a proportionate ownership of the business.

 To maintain a margin of safety (i.e. the price of purchase represents a discount to the
intrinsic value of that business)

 To maintain a balanced outlook on the market by regularly monitoring economic trends

and investor sentiment.

 When the rise in value of equity has reached its optimum level and further improvement in
the present level is not possible.

 When other avenues of investments offers better return, or

 A fundamental change has taken place in the company or the market in which it operates.
All these are however subject to elaborative research based on data and reasoning.

Debt Investments

Debt securities (in the form of non-convertible debentures, bonds, secured premium notes,
zero interest bonds, deep discount bonds, floating rate bond / notes, securitised debt, pass
through certificates, asset backed securities, mortgage backed securities and any other
domestic fixed income securities including structured obligations etc.) include, but are not
limited to:

 Debt obligations of / Securities issued by the Government of India, State and local
Governments, Government Agencies and statutory bodies (which may or may not carry a
state / central government guarantee).

 Securities that have been guaranteed by Government of India and State Governments.

 Securities issued by Corporate Entities (Public / Private sector undertakings)

 Securities issued by Public / Private sector banks and development financial institutions.
Money Market Instruments

The investment in money market instruments includes the following:

 Commercial papers

 Commercial bills

 Treasury bills

 Government securities having an unexpired maturity upto one year

 Call or notice money

 Certificate of deposit

 Permitted securities under a repo / reverse repo agreement

 Any other like instruments as may be permitted by RBI / SEBI from time to time.

The investment of HDFC balanced fund are made through Initial Public Offers, secondary
market purchases, placement and right offers. The AMC has the liberty to invest in all types
of securities, debt and money market instruments. The investments in debt are usually made
in instruments ranked high investment grade by authorized rating agency. However if
investment is to be made in unrated security than prior approval of the committee constituted
for the purpose is required. This is in strict adherence to SEBI circular No. MFD/
CIR/9/120/20008. Further approval of such investment by the AMC board and the trustee is
required. The AMC also required to communicate details of such investments in their
periodical reports to the trustee outlining the parameters adopted to compile the reports. The
investment made in debt are less riskier than those in equity, money market instruments are
even less riskier than debt instruments. The maturity profile of debt instruments is selected in
accordance with the Fund Managers view regarding current market conditions, interest rate
outlook and the stability of ratings.
Controlling Risk

The portfolio construction of HDFC balanced fund is done in a way by the fund manager to

maintain the risk at moderate level. The Fund Manager avoids adopting either a very
defensive or aggressive posture at any point of time. To control risk, portfolio is diversified
and adequate level of liquidity is maintained to mitigate unforeseen circumstances. At the
macro level, continuous review of business and economic environment is carried out to find
out ongoing trend and take corrective measures likewise to minimize the risk. To earn higher
rate of return the fund manager can make investments in securities and other instruments not
mentioned earlier provided that such investment are in accordance with SEBI regulations.

Here are some details of the portfolio of the HDFC balanced fund as on 31st March 2008.
From the table it is evident that the total share of equity is 68.59. The reliance industries
limited has maximum of 6.99 percent followed by Coramandal Fertilizers Ltd. ICICI Bank
Ltd. has the least share of 3.45 percent. The debt and money market instruments together
constitute a share of 28 percent. The total net asset of HDFC balanced fund as on 31st
March, was 10047.03 lakh.

Comparison of HDFC Balanced Scheme and Market Return

HDFC Equity Fund

The scheme was launched in January 1995. Its objective is to achieve capital appreciation. It
can be observed from table 4.6 that it is an open ended scheme with no lock in period.
Further it is also evident from table that NAV of the scheme is calculated on daily basis.

Basic Scheme Information of HDFC Equity Fund

Nature of Scheme Open Ended Balanced Scheme

Inception Date 1/1/1995

Option/Plan Dividend Option Growth Option. The Dividend

Option offers Dividend Payout and
Reinvestment Facility

Entry Load (as a % of the Applicable NAV) Application routed through any
(Other than Systematic Investment Plan distributor/agent/broker : In respect of each
/Systematic Transfer Plan (STP)) purchase / switch-in of Units less than Rs. 5
crore in value, an Entry Load of 2.25% is
payable. In respect of each purchase / switch-in
of Units equal to or greater than Rs. 5 crore in
value, no Entry Load is payable. Application
not routed through any
distributor/agent/broker: Nil No Entry Load
shall be levied on bonus units and units allotted
on dividend reinvestment.
Exit Load (as a % of the Applicable NAV) In respect of each purchase less than Rs. 5
(Other than Systematic Investment Plan crore in value, an Exit Load of 1.00% is
/Systematic Transfer Plan (STP)) payable. If Units are redeemed/switched /out
within 1 year from the date of allotment In
respect of each purchase / switch-in of Units
equal to or greater than Rs. 5 crore in value, no
Exit Load is payable. No Exit Load shall be
levied on bonus units and units allotted on
dividend reinvestment
For new investors: Rs.5000 and any amount
Minimum Application Amount thereafter. For existing investors: Rs. 1000 and
(Other than Systematic Investment Plan/ any amount thereafter.
Systematic Transfer Plan (STP0))

Lock-In-Period Nill

Net Asset Value Periodicity Business Day.

Redemption Proceeds Normally dispatched within 3 Business days

Source: HDFC Fact Sheet “In Touch Mutually”Vol.5, Issue No.9, March
Investment Pattern

The investment under the scheme is made primarily in equity and debt money market
instruments.

 Minimum initial Investment ₹5,000

 Minimum Subsequent Investment₹1,000

The table provides the assets allocation of the schemes portfolio. The asset allocations under
the Scheme are as follows:

HDFC Equity Scheme

Sr.
No. Asset Type (% of portfolio) Risk Profile

1 Equity and Equity Related 80-100 Medium to High

Instruments

2 Debt % Money Market 0-20 Low to Medium

Instruments

Source: Compiled from Annual Reports of HDFC mutual funds

The Investment of the scheme in Securitised debt should not exceed 20% of the net
assets of the schemes. It can also invest upto 25% of the net assets in derivatives such as
futures and options or any such derivatives instruments launched during the period in order
to hedge the fund and maximize return on investment. All these are however subject to SEBI
Mutual Funds Regulation.

The HDFC equity scheme may engage in stock lending activities as per the SEBI MF
Regulations. If the investment in equities and related instruments falls below 70% of the
portfolio of the Scheme at any point of time, it would be endeavored to review and rebalance
the composition. However the asset allocation pattern may change from time to time as per
the prevailing market conditions, market opportunities and other macro economic factors.
This is due to the reason that prime objective of the scheme is capital appreciation.
This cannot be sacrificed at any cost by the fund manager. Therefore in order to protect
depreciation in NAV of the schemes the allocation of fund in equity, debt or other
instruments can vary time to time. This change impacting basic attributes of the scheme shall
be implemented only if it is in accordance with sub- regulation (15A) of regulation 18 of
SEBI regulations.

Investment Strategy

To achieve long term capital appreciation the scheme invests in growth companies. The
companies selected for investment are either medium or large sized company which:

 Are likely achieve above average growth than the industry

 Enjoy distinct competitive advantages, and

 Have superior financial strength

This is done to construct a portfolio representing a cross – section of strong growth

companies in the market. To reduce risk of volatility, the Scheme will diversify across major
industries and economic sectors. It represents the portfolio composition of the HDFC Equity
Mutual Funds. It can be observed from table that the maximum investment of 8.97% of the
HDFC equity scheme is in ICICI Bank Ltd. The total share of equity and equity related
holdings is 99.3 percent while investments in other assets are 0.69 percent. The total net asset
under the scheme is Rs. 394439.11 lakh.
Performance Evaluation of HDFC Equity Scheme:

The performance of HDFC Equity fund has been superior to the market for most of the
period as it can be observed from the figure below, with the exception of few years when it
return was lower than that of the bench mark index. Its average return during eight years
period of study was superior to that of the market. The average return of the equity fund was
0.027109 whereas the average returns of the market 0.01814. Beside this the average fund
return was superior to that of the risk free assets taken for the study.

Comparison of HDFC Equity Scheme and Market Return

 HDFC Balanced Fund Vs HDFC Equity Fund
HDFC Balanced Fund and HDFC Equity Fund both belong to the same Fund house, HDFC
Mutual Fund. Both the schemes belong to hybrid category equity oriented schemes. These
schemes invest their corpus in both equity as well as debt instruments. However, since they
are equity-based schemes under balanced category; they invest more in equity instruments as
compared to fixed income instruments. Though both the funds belong to the same fund
house, however; they exhibit different characteristics with respect to AUM, their current
NAV, returns, and many other related parameters.

So, let us understand the differences between HDFC Balanced Fund and HDFC Equity Fund
through this analysis.

Overview of HDFC Balanced Fund

(Merged with HDFC Hybrid Equity Fund) HDFC Balanced Fund, which is now merged with
HDFC Hybrid Equity Fund, is a part of HDFC Mutual Fund under Balanced Fund category.
It is an open-ended balanced fund scheme that was launched on September 11, 2000.

The objective of the scheme is to generate long-term capital appreciation along with current
income by Investing in a mix of equity and debt instruments. The scheme is suitable for
investors who are looking out for long-term capital growth along with current income.
HDFC Balanced Fund uses CRISIL Balanced Fund Index along with Nifty 50 Index to
construct its portfolio. As on January 31, 2018, the top constituents forming part of the
HDFC Balanced Fund’s portfolio include HDFC Bank Limited, Infosys Limited, ICICI Bank
Limited, Axis Bank Limited, and Tata Steel Limited. The scheme invests around 40% - 60%
of its accumulated fund money in equity instruments while the rest in debt instruments.
About

HDFC Equity Fund

HDFC Equity Fund, is also a part of HDFC Mutual Fund and was launched on February 01,
1995. It is an open-ended scheme whose investment objective is to periodic returns along
with capital appreciation by investing in a proper mix of equity and debt instruments. This
scheme based on its in-line objective invests around 40-75% of its corpus in equity
instruments and the remaining funds in fixed income instruments. HDFC Equity Fund is
suitable for investors looking out for periodic income combined with a capital appreciation
and preventing capital erosion over long-term.

As on January 31, 2018, some of the top 10 constituents of HDFC Equity Fund’s portfolio
include State Bank of India, Larsen & Toubro Limited, NTPC Limited, and Vedanta
Limited.
Though both the funds belong to the same fund house and same category yet; there exists a
difference between them with respect to AUM, current NAV, Fincash Ratings and much
more. These differences are divided into four sections, namely, Basics Section, Performance
Section, Yearly Performance Section, and Other Details Section. So, let us understand the
differences between both the funds based on these sections. Basics Section The various
comparable parameters in case of basics section are Scheme Category, Fincash Ratings,
Current NAV, AUM, expense ratio, and many more. To begin with the Scheme Category, it
can be said that both the schemes belong to the same category that is, Hybrid Balanced –
Equity.

In Fincash Ratings, we can say that HDFC Balanced Fund is rated as 5-Star, while HDFC
Equity Fund is rated as 3-Star.

The table given below summarizes the elements of this section.

Parameters HDFC Equity Fund HDFC Balanced

Growth Fund Fund
Details Growth Fund
Details
NAV ₹51.645 ↑ 0.63   (1.23 %) ₹188.872 ↑ 2.91

Net Assets ₹22,762 on 31 Jul 18 ₹₹37,850 on 31 Jul

18
Launch Date 6 Apr 05 11 Sep 00

Rating Category ☆☆Hybrid Equity ☆☆☆☆Hybrid

Dynamic Allocation
Risk Moderately High Moderately High

Expense Ratio 2.85 2.53

Performance Section

This section compares the CAGR or Compounded Annual Growth Rate for both the schemes
at various time periods. Some of the time periods for which the performance is compared are
1 Month Returns, 6 Month Returns, 1 Year Returns and Returns since Inception.

On a hindsight, we can say that there is not much difference on the returns generated by both
the schemes. In certain time periods, the returns generated by HDFC Balanced Fund is
higher while in other HDFC Equity Fund leads the race. The table given below shows the
CAGR performance of both the schemes.

HDFC
Parameters HDFC Equity Fund Balanced
Fund
1 Month 1.5% 2.6%

3 Month 1.7% 2.9%

6 Month -1.4% -1.2%

1 Year -5.1% 3.1%

Since Launch 12.5% 17.2%

Other Details Section

This is the last section of comparing funds. The comparable parameters that form part of
Other Details Section include Minimum SIP and Lumpsum Investment.

Being a part of the same fund house, the Minimum SIP and Lumpsum Investment for both
HDFC Balanced Fund and HDFC Equity Fund are the same. Here, the Minimum SIP
investment is INR 500 while the lumpsum investment is INR 5,000.
Growth of 10k Investments over the years.
HDFC Hybrid Equity Fund

Date Value
31 Jul 14 ₹10,000

31 Jul 15 ₹11,728

31 Jul 16 ₹11,365

31 Jul 17 ₹13,963

HDFC Balanced Fund Growth

Date Value
31 Jul 14 ₹10,000

31 Jul 15 ₹₹11,434

31 Jul 16 ₹11,952

31 Jul 17 ₹14,630
CONCLUSION
 CONCLUSION
Thus, from the above pointers, it can be said that both the schemes are different in case of
various parameters though they belong to the same category and fund house. Therefore,
individuals should always do a detailed study about a scheme before investing in it. They
should check whether the fund’s objective is in-line with their objective. If required, people
can consult a financial advisor for advice. This will ensure that their investment is safe and it
paves way for wealth creation.

Diversification is supposed to help reduce risk and maximise returns. So, when you are
splitting your investments into two balanced funds, you ensure two things: one, you don’t
have to depend on a single scheme to make money. Two, even if the scheme of your choice
fails for some reasons, you would still be better off if the other scheme pays off. Now, it need
not always play like this. Many people believe that when investors try to diversify with a
modest corpus, they end up compromising returns. So, they advocate focused investments or
concentrated portfolios. Needless to say, it may pay off but it can also backfire. 

Now since you know the background, what you need to do is figure out what kind of an
investor you are. Are you someone who likes to play it safe? Well, split your money into two
schemes and be happy with the average returns. Or do you want to bet on a single scheme
that has the potential to provide better returns? Well, bet on it. 

Both HDFC Equity fund and HDFC balanced scheme are part of my recommendation. 
 BIBILIOGRAPHY

https://shodhganga.inflibnet.ac.in/bitstream/10603/20562/7/chapter%204.pdf

https://www.google.com/search?
q=Comparison+of+HDFC+Equity+Scheme+and+HDFC+balanced+fund

https://www.fincash.com/l/compare/hdfc-balanced-fund-vs-hdfc-equity -fund

https://www.moneycontrol.com/mutual-funds/nav/hdfc-balanced-fund/MHD002

HDFC Fact Sheet “In Touch Mutually”Vol.5, Issue No.9 ,2march,

https://www.valueresearchonline.com/funds/excfunds.asp?schemecode=844