EXECUTIVE SUMMARY

A Mutual fund is a scheme in which several people invest their money for a financial
clause. The collected money is invested in Capital markets & the money which they
earned, is divided based on the number of units which they hold.

The Mutual fund Industry was started in India in a small way with the UTI creating
what was effectively a small savings division within the RBI. This was fairly
successful for the next 25 years as it gave investors good returns. Due to this RBI
gave a go ahead to Public sector banks & financial institution to start Mutual Funds in
India and their success gave way to Private sector Mutual Funds.

The advantages of Mutual Funds are Portfolio Diversification, Liquidity, Professional

Management, Ease of Companies, Less Risk, Low Transaction cost, Transparency,
Safety.

The Disadvantages of Mutual Funds are Cost, Index Does Better, Fees, No Control
over Investments, Profitability of High returns reduced significantly, and Personal
Tax situation is not considered.

Mutual Funds have to follow specific rules and regulation which are prescribed by the
SEBI. AMFI is the apex body of all the Asset Management companies and is
registered with the SEBI. Association of Mutual Funds India has brought down the
Indian Mutual Fund Industry to a professional and healthy market with ethical lines
enhancing.

There are many types of mutual funds in India. You can classify on the basis of BY
STRUCTURE (Open Ended Schemes , Close-Ended Schemes & Interval schemes) ,
BY NATURE (Equity Fund, Debt Fund , Balanced Fund ) , BY INVESTMENT
OBJECTIVE (Growth Schemes , Income Schemes , Balanced Schemes & Money
Market Schemes) , OTHER SCHEMES (Tax Saving Schemes , Index Schemes ,
Sector Specific).

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Mutual Funds are very easy to buy and sell. You can buy mutual funds directly from
company or a broker. Before Investing in Mutual Funds one has to look at all the
factors like performance of the mutual funds from last 5 years , the returns given by
mutual funds from last 5 years & the company’s net worth has to be considered.

There are two types of Mutual Funds in India Public Sector Mutual Fund & private
sector mutual Fund. In Public Sector Mutual Funds there are UTI Mutual Fund , State
bank of India Mutual Funds , Bank of Baroda Mutual Funds & In Private sector
Mutual Funds there are Birla Sun Life Mutual , HDFC Mutual Fund ,ICICI Prudential
Mutual Fund , Reliance Mutual Fund etc..

The Most trend of Mutual Funds is the aggressive expansion of Mutual Funds.
Nowadays there is lot of Competition within the Mutual Fund as there are lot of
private sector & Public sector mutual funds have entered the industry.

Returns Comparison has been done between two Mutual Fund Companies like HDFC
Mutual Fund & SBI Mutual Fund. In this comparison we had taken both small &
midcap companies. In which markets they have invested the investors’ money and
how the returns for the 5 years has been done. It gives you an Idea how you can and
where you can invest.

“Mutual Funds are Subject to Market Risk, Please read the offer document
before Investing"

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 CHAPTER 1
INTRODUCTION OF MUTUAL FUNDS

Mutual fund is the pool of the money, based on the trust who invests the savings of a
number of investors who shares a common financial goal, like the capital appreciation
and dividend earning. The money thus collect is then invested in capital market
instruments such as shares, debentures, and foreign market. Investors invest money
and get the units as per the unit value which we called as NAV(net asset value).

Mutual fund is the most suitable investment for the common man as it offers an
opportunity to invest in diversified portfolio management, good research team,
professionally managed Indian stock as well as the foreign market, the main aim of
the fund manager is to taking the scrip that have under value and future will rising,
then fund manager sell out the stock .Fund manager concentration on risk – return
trade off , where minimize the risk and maximize the return through diversification of
the portfolio. The most common features of the mutual fund unit are low cost.

Most open-end mutual funds continuously offer new shares to investors. It is also
known as open ended investment company . It is different from close ended
companies .

Investment in securities are spread across a wide cross section of industries and
sectors thus the risk is reduced .Diversification reduces the risk because not all stocks
may move in the same direction in same proportion at same time . Mutual funds
issues units to the investors in accordance with quantum of money invested by them.

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Investors of mutual funds are known as ―unit holder‖. The profits and losses are
shared by the investors in proportion to their investment. The mutual fund comes out
with different schemes that varies from times to time .

1.1 DEFINITION OF MUTUAL FUNDS

―A mutual fund is a pool of money from numerous investors who wish to save or
make money just like you. Investing in a mutual fund can be a lot easier than buying
and selling individual stocks and bonds on your own. Investors can sell their shares
when they want.‖

―A mutual fund is nothing more than a collection of stocks and/or bonds. You can
think of a mutual fund as a company that brings together a group of people and
invests their money in stocks, bonds, and other securities. Each investor owns shares,
which represent a portion of the holdings of the fund.‖

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1.2 HISTORY OF MUTUAL FUNDS

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early
1990s, Government allowed public sector banks and institutions to set up mutual
funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are – to protect the interest of investors in securities
and to promote the development of and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors. SEBI notified regulations for the
mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities
were allowed to enter the capital market. The regulations were fully revised in 1996
and have been amended thereafter from time to time.
There are four Phases in which Mutual funds have evolved.

FIRST PHASE - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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.

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 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.

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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 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.

FOURTH PHASE - since February 2003

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 grow.

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Note:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of
the Unit Trust of India effective from February 2003. The Assets under management
of the Specified Undertaking of the Unit Trust of India has therefore been excluded
from the total assets of the industry as a whole from February 2003 onwards.

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1.3 Why select mutual fund ?

1. Built-in diversification

When you buy a mutual fund, your money is combined with the money from other
investors, and allows you to buy part of a pool of investments. A mutual fund holds a
variety of investments which can make it easier for investors to diversify than through
ownership of individual stocks or bonds. Not all investments perform well at the same
time. Holding a variety of investments may help offset the impact of poor performers,
while taking advantage of the earning potential of the rest. This is known
as diversification.

2. Professional management

You may not have the skills and knowledge to manage your own investments or want
to spend the time. Mutual funds allow you to pool your money with other investors
and leave the specific investment decisions to a portfolio manager. Portfolio managers
decide where to invest the money in the fund, and when to buy and sell investments.

3. Easy to buy and sell

Mutual funds are widely available through banks, financial planning firms, investment
firms, credit unions and trust companies. You can sell your fund units or shares at
almost any time if you need to get access to your money. But you may get back less
than you invested.

4. A wide range of funds to choose from

Mutual funds can be used to meet a variety of financial goals. For example:

 A young investor with a stable income and many years to invest may feel
comfortable taking more risk to achieve greater potential return. They may invest
in an equity fund.
 A mid-career investor trying to balance risk and return more moderately could
invest in a balanced mutual fund that buy a mix of stocks and bonds.
 An investor approaching retirement might be less comfortable with risk and more
interested in fixed income investments. They may invest in a bond fund.

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1.4 ADVANTAGES OF MUTUAL FUND

Portfolio Diversification:

Investing in a diversified portfolio can be very expensive. The nice thing about mutual
funds that they allow anyone to hold a diversified portfolio. The reason why investors
invest in a diversified portfolio is because it increases the expected returns while
minimizing the risk

Expert Management:

Mutual fund is favoured because it doesn’t require the investors to do the research and
asset allocation. A fund manager takes care of it all and makes decisions on what to
do with your investment. He/she decides whether to invest in equities or debt. He/she
also decide on whether to hold them or not and for how long.

Your fund manager’s reputation in fund management should be an important criterion

for you to choose a mutual fund for this reason. The expense ratio (which cannot be
more than 1.05% of the AUM guidelines as per SEBI) includes the fee of the manager
too.

Invest in smaller denominations:

By investing in smaller denominations (SIP), you get exposure to the entire stock (or
any other asset class). This reduces the average transactional expenses – you benefit
from the market lows and highs. Regular (monthly or quarterly) investments as
opposed to lumpsum investments give you the benefit of rupee-cost averaging.

Suit your financial goals:

There are several types of mutual funds available in India catering to investors from
all walks of life. No matter what your income is, you must make it a habit to set aside
some amount (however small) towards investments. It is easy to find a mutual fund
that matches your income, expenditures, investment goals and risk appetite.

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Quick & painless process:

You can start with one mutual fund and slowly diversify. These days it is easier to
identify and handpick fund(s) most suitable for you. Maintaining and regulating the
funds too will take no extra effort from your side. The fund manager with the help of
his team of will decide when, where and how to invest. In short, their job is to
consistently beat the benchmark and deliver you maximum returns.

Tax-efficiency

You can invest up to Rs. 1.5 lakh in tax-saving mutual funds mentioned under 80C
tax deductions. ELSS is an example for that. Though a 10% Long Term Capital Gains
(LTCG) is applicable for returns in excess of Rs 1 Lakh after one year, they have
consistently delivered higher returns than other tax-saving instruments like FD in the
recent years.

Automated payments

It is common to forget or delay SIPs or prompt lump sum investments due to any
given reason. You can opt for paperless automation with your fund house or agent.
Timely email and SMS notifications help to counter this kind of negligence.

Liquidity

Another nice advantage to mutual funds is that the assets are liquid. In financial
language, liquidity basically refers to converting your assets to cash with relative ease.
Mutual funds are considered liquid assets since there is high demand for many of the
funds in the marketplace.

Professional Management:

Mutual funds do not require a great deal of time or knowledge from the Investor
because they are managed by professional managers. They can be a big help to
inexperienced investor who is looking to maximize their financial goals.

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Ease of Companies

Mutual funds are also convenient because they are easy to compare. This is because
many mutual fund dealer allow the investor to compare the funds on metrics such as
level of risk, return price. Because Information is easily available, the Investor is able
to make wise decisions.

Less Risk

Investors acquire a diversified portfolio of securities even with a small investment in

a mutual fund. The risk in diversified portfolio is lesser than investing in 2 or 3
securities.

Low Transaction cost

Due to Economies of scale mutual funds pay lesser transaction cost. The benefits are
passed on to investors.

Transparency

Funds provide investors with updated information pertaining to market & schemes.
All material facts are disclosed to the investor as required by regulator.

Safety
Mutual funds industry is a part of well-regulated investment envoirment where
interest of the investors is protected by the regulators. All funds are registered with
SEBI & complete transparency is followed.

Systematic or one-time investment

You can plan your mutual fund investment as per your budget and convenience. For
instance, starting an SIP (Systematic Investment Plan) on a monthly or quarterly basis
suits investors with less money. On the other hand, if you have surplus amount, go for
a one-time lump sum investment.

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1.5 DISADVANTAGES OF MUTUAL FUNDS


Cost

The downside of mutual funds is that they have a high cost associated with them in
relation to the returns they produce. This is because investors are not only charged for
the price of the fund but they will often face additional fees. Depending on the fund,
commission charges can be significant. You will need to pay fee that will go towards
the fund manager.

Index Does Better

In some cases, the stock Index may outperform the mutual fund. However this is not
always the case as it depends in large part on the mutual fund the investor has
invested in, as well as the skill set of fund manager. Therefore, it is a good idea to do
your research before investing in fund. It is historical data indicates that is
consistently underperformed compared to an index, then it is not wise investment.

Fees

The fees that are charged will depend on the type of mutual fund purchased. If a fund
is risker and more aggressive, the management fee will tend to be higher. In addition,
the investor will also be required to pay taxes, transaction fees as well as other costs
related to maintaining the fund.

No Control over Investments

You have absolutely no control over what the Fund manager Des with you money.
You can’t advise him on how your money is to be invested. You only sit back and
hope for the best.

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Profitability of High returns reduced significant

A mutual fund contains a diversified basket of securities. If a single security

outperforms by a significant margin the impact will be limited. Don’t Expect your
Investment to grow and give you profit Overnight. There will also be downward fall
in the limits of the fund.

Personal Tax situation is not considered

When you Invest in a Mutual Fund, your money is pooled together with others and
your personal tax situation is not considered while making Investment decisions. The
most you can do is to choose between growth fund.

Lock-in periods

Many mutual funds have long-term lock-in periods, ranging from 5 to 8 years. Exiting
such funds before maturity can be an expensive affair. A certain portion of the fund is
always kept in cash to pay out an investor who wants to exit the fund. This portion in
cash cannot earn interest for investors.

Dilution

While diversification averages your risks of loss, it can also dilute your profits.
Hence, you should not invest in more than 7-9 mutual funds at a time.As you have
just read above, the benefits and potential of mutual funds can certainly override the
disadvantages, if you make informed choices. However, investors may not have the
time, knowledge or patience to research and analyze different mutual funds.
Investing with Clear Tax could solve this as we have already done the homework for
you by hand-picking the top-rated funds from the best fund houses in the country.

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High Expense Ratios and Sales Charges
If you're not paying attention to mutual fund expense ratios and sales charges, they
can get out of hand. Be very cautious when investing in funds with expense ratios
higher than 1.20%, as they are considered to be on the higher cost end. Be wary
of 12b-1 advertising fees and sales charges in general. There are several good fund
companies out there that have no sales charges. Fees reduce overall investment
returns.

Management Abuses
Churning, turnover, and window dressing may happen if your manager is abusing his
or her authority. This includes unnecessary trading, excessive replacement, and
selling the losers prior to quarter-end to fix the books.

Poor Trade Execution

If you place your mutual fund trade anytime before the cut-off time for same-day
NAV, you'll receive the same closing price NAV for your buy or sell on the mutual
fund. For investors looking for faster execution times, maybe because of short
investment horizons, day trading, or timing the market, mutual funds provide a weak
execution strategy.

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1.6 Mutual fund fees and expenses

Mutual fund fees and expenses are charges that may be incurred by investors who
hold mutual funds. Operating a mutual fund involves costs, including shareholder
transaction costs, investment advisory fees, and marketing and distribution expenses.
Funds pass along these costs to investors in several ways.

Some funds impose "shareholder fees" directly on investors whenever they buy or sell
shares. In addition, every fund has regular, recurring, fund-wide "operating expenses".
Funds typically pay their operating expenses out of fund assets—which mean that
investors indirectly pay these costs. Although they may seem negligible, fees and
expenses can substantially reduce an investor's earnings when the investment is held
for a long period of time.

Transaction fees

Purchase fee

Purchase Fee—A type of fee that some funds charge their shareholders when they buy
shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to
a Stockbroker) and is typically imposed to defray some of the fund's costs associated
with the purchase.

Redemption fee

Redemption Fee—another type of fee that some funds charge their shareholders when
they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to
the fund (not to a Stockbroker) and is typically used to defray fund costs associated
with a shareholder's redemption.

Exchange fee

Exchange Fee—a fee that some funds impose on shareholders if they exchange
(transfer) to another fund within the same "family of funds".

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Management fee

Management fees are fees that are paid out of fund assets to the fund's investment
adviser for investment portfolio management, any other management fees payable to
the fund's investment adviser or its affiliates, and administrative fees payable to the
investment adviser that are not included in the "Other Expenses" category (discussed
below).[2] They are also called maintenance fees.

Account fee

Account fees are fees that some funds separately impose on investors in connection
with the maintenance of their accounts. For example, some funds impose an account
maintenance fee on accounts whose value is less than a certain dollar amount.

Distribution and service fee

Distribution and service fees are fees paid by the fund out of fund assets to cover the
costs of marketing and selling fund shares and sometimes to cover the costs of
providing shareholder services. They are also called 12b-1 fees after section 12 of
the Investment Company Act of 1940. "Distribution fees" include fees to compensate
brokers and others who sell fund shares and to pay for advertising, the printing and
mailing of prospectuses to new investors, and the printing and mailing of sales
literature. "Shareholder Service Fees" are fees paid to persons to respond to investor
inquiries and provide investors with information about their investments. Shareholder
Servicing Fees can be paid inside or outside of a Rule 12b-1 Plan.[3]

Other operating expenses

Transaction costs

These costs are incurred in the trading of the fund's assets. Funds with a high turnover
ratio, or investing in illiquid or exotic markets usually face higher transaction costs.
Unlike the Total Expense Ratio these costs are usually not reported.

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Loads

Definition of a load

Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale
of shares. A load is a type of commission. Depending on the type of load a mutual
fund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of
both. The different types of loads are outlined below.

Front-end load

Often associated with class 'A' shares of a mutual fund. Also known as Sales Charge,
this is a fee paid when shares are purchased. Also known as a "front-end load", this
fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce the
amount of your investment. For example, let's say you have $1,000 and want to invest
it in a mutual fund with a 5% front-end load. The $50 sales load you must pay comes
off the top, and the remaining $950 will be invested in the fund. The Maximum sales
load under the Investment Company Act of 1940 is 9%. The maximum sales load
under NASD Rules is 81⁄2%.[2]

Back-end load

Associated with class "B" mutual fund shares. Known as a Contingent Deferred Sales
Charge (CDSC or sometimes Deferred Sales Charge), this is a fee paid when shares
are sold. Also known as a "back-end load", this fee typically goes to
the Stockbrokers that sell the fund's shares. Back-end loads start with a fee about 5 to
6 percent, which incrementally discounts for each year that the investors own the
fund’s shares. The rate at which the fee declines is disclosed in the prospectus.[4] The
amount of this type of load will depend on how long the investor holds his or her
shares and typically decreases to zero if the investor holds his or her shares long
enough.[2]

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Level load/low load

It's similar to a back-end load in that no sales charges are paid when buying the fund.
Instead a back-end load may be charged if the shares purchased are sold within a
given time frame. The distinction between level loads and low loads as opposed to
back-end loads, is that this time frame where charges are levied is shorter.

No-load fund

Associated with Class "C" Shares. As the name implies, this means that the fund does
not charge any type of sales load. But, as outlined above, not every type of
shareholder fee is a "sales load". A no-load fund may charge fees that are not sales
loads, such as purchase fees, redemption fees, exchange fees, and account fees. Class
"C" shares have the highest annual expense charges.

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 CHAPTER 2

RESEARCH METHODOLOGY

1) Research Design:-

a) Problem Defining :- In a competitive market there are multiple mutual funds

working in the Indian market. It is necessary to know mutual fund as the performance
of the mutual fund decides the future of Mutual Fund Company. In my study I have
compared returns of 5 years of the two mutual funds that is HDFC Mutual funds &
SBI Mutual funds.

b) Types of Research: - This research is qualitative and analytical in nature.

Qualitative research talks about the quality of the research work & analytical research
is concerned with determining validity of hypothesis based on analysis of facts
collected.

c) Data Collection Design:-

1) Sources of Data

Primary Data: - I have used questionnaire as primary source for collecting data for
my study.

Secondary Data:- I have collected secondary data from various mutual funds books ,
from various mutual fund websites.

2) Sampling: - It represents the whole population. It is a process of choosing samples

from whole populations. I have chosen some people who have invested in Mutual
funds.

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3) Sampling Size: - It represents how many candidates you have chosen to fill up
your questionnaire. I had chosen sample of 100 candidates.

4) Sampling Technique: - Questionnaire sampling is something that is sent to the

candidates who want to invest in mutual funds. By Questionnaire you can understand
peoples taste & preferences so it is easy to convince.

5) Data Interpretation: - Data Interpretation is that in which we analyses the whole

collected data & try to give it in simple words that is understandable.

Objective of the Study of Mutual Funds

The objective of the study is to analyses, in detail the growth pattern of the mutual
funds industry in India and to evaluate performance of different schemes floated by
most preferred Mutual Funds in public fund in public and private sector.

The Main Objectives of this project.

 To Study about the Mutual Funds in India
 To Study about returns of the Mutual Funds
 To give brief Idea about mutual funds available in India
 To give an idea about the schemes available
 To study market trends in mutual funds.
 To study some mutual fund companies and their funds
 To give idea about the regulation of mutual fund
 To study about mutual fund schemes

Many individuals own mutual funds today. Indeed mutual fund industry is very big. It
comprises of many investors financial assets, whether for retirement or taxable saving
purposes. To a large extent, mutual funds are investment vehicle for the majority of
households in India.

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The overall study of my study on this project is to know which companies provide
better returns HDFC Mutual funds & SBI Mutual Funds and also calculate their
returns from last 5 years. We have to examine carefully all the possibility while
calculating the returns. I am doing my Project on ―Small & Midcap companies‖. We
have to make comparison so it is very useful for investors to make a decision.

LIMITATIONS

 The lack of information sources for the analysis part .

 Though I tried to collect some primary data but they were too inadequate for
the purpose 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 .
 The study is limited to selected mutual fund scheme

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 CHAPTER 3

PARAMETERS AND CRITERIA FOR SELECTING THE BEST

MUTUAL FUNDS

Each individual investor is unique in his investment decisions. They may be driven by
various decisions and motives to choose a mutual fund to invest into. When choosing
to invest in mutual fund plans, the investors must carefully look into select parameters
and criteria for choosing the best plan which suits them the best. It becomes very
important to align ones financial position, decisions, financial objectives and risk
appetite with the mutual fund plan that they choose to invest in.

Let us take a look at some of the parameters and criteria for choosing a mutual fund
plan that may help meet the above objectives of mutual fund investment.

a) Investment Objective

It is important to assess the objective of investing in mutual funds. Any investment

made is done for a fixed period of time. Investments may range from short to mid to
long-term and hence require a thoughtful approach while choosing one. The
investment objective may help assess the risk factor that one may be willing to take
over the period of investment made. An investment objective helps in deciding the
macro-level selection of the mutual fund types. Choosing to invest in long-term or
short-term plans or a mix of both can have an instrumental impact on your investment
decision.

b) Consistency in Performance

Consistency in the performance of the mutual fund plans gives investors a heads-up
on how good a mutual fund plan is over a past period of time. The previous 1 year, 3
years or 5 years performance of the mutual fund may suggest how consistent or
fluctuating has the mutual fund been in the market conditions.

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c) The Outlook for the Economy

It is highly unlikely that the assessment of the economic outlook, present or in

foreseeable future, may help in making an exact prediction of a mutual funds’
performance in the present situation or in the coming future. Nevertheless, a
judgemental approach is a must to have an informed mind about the overall outlook
for the economy. There are various factors that affect the economy ranging from
government decisions to industrial and market performances. It is a matter of
anticipation and hence the most advisable option is to diversify the investments
keeping in mind the short-term and long-term objectives.

d) Asset Under Management

The confidence of the investor in any particular mutual fund scheme is substantiated
and further solidified through assessment of the net asset of a mutual fund scheme.
This confidence grows over time and helps in choosing the right schemes that have
seen a good market performance and stay ahead of other schemes in the growth cycle.
The flagship mutual fund schemes with high asset under management are generally
managed by the best and experienced fund managers.

e) Expense Ratio

The expense ratio is an important consideration while choosing a scheme as they are
known to take away a substantial chunk of the returns. As per industry standards, an
expense ratio of 1.5% is a viable deal. Good performing schemes with high expense
ratio may not affect adversely either. However, in an event of the bad performance,
the same expense ratio may adversely impact the returns. For more details on Expense
Ratio, visit ClearTax.in

f) Exit Load

The mutual fund schemes are time bound. In an event of early withdrawal from the
scheme before the maturity period, the investor is required to pay an exit load.
Financial needs of individuals are unpredictable and in case of emergency, one may
be required to withdraw from mutual fund schemes prematurely to gain liquidity of
assets. It is advisable to avoid schemes with stringent exit load and choose schemes

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with minimal exit load to minimize its impact on the returns earned.
The given parameters and criteria for choosing the best mutual fund schemes to suit
ones’ investment decisions and objective may help in selecting the most appropriate
schemes to construct a balanced portfolio. The well-informed choice of plans of
schemes, when aligned with investment objectives, may help gain returns over the
period of time. Nevertheless, it is an advice worth remembering that as with all other
investment options, mutual funds too, are subject to market risks that cannot be
overlooked but can surely be contained to an extent. The parameters and criteria for
selecting the best mutual funds are aimed at meeting all those objectives. At Clear
Tax, we offer you hand-picked funds aimed at meeting your target, keeping in mind
your risk tolerance.

RISK FACTORS OF MUTUAL FUNDS

a. Market Risk

We all would have seen that one-liner in all advertisements that Mutual Funds are
subject to Market Risk.

Market risk is basically a risk which may result in losses for any investor due to a
poor performance of the market. There are a lot of factors which affect the market. A
few examples are a natural disaster, inflation, recession, political unrest, fluctuation of
interest rates. Market risk is also known as systematic risk. Diversifying a
person’s portfolio won’t help in these scenarios. The only thing which the investor
can do is wait for the storm to calm.

b. Concentration Risk

Concentration generally means focusing on one thing. Concentrating a huge amount

of a person’s investment in one particular scheme is not a good option. Profits will be
huge if lucky, but losses will be more. Best way to minimize this risk is
by diversifying your portfolio. Concentrating and investing heavily in one sector is
also very risky. The more diverse the portfolio, the lesser the risk is.

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c. Interest Rate Risk

Interest rate changes depending upon the credit available with lenders and the demand
from borrowers. They are inversely related to each other. Increase in the interest rates
during the investment period may result in a reduction of the price of securities

For example, an individual decides to invest Rs 100 with a rate of 5% for a period of
x years. If the interest rate changes due to changes in the economy and it become 6%,
the individual will no longer be able to get back the Rs 100 he invested owing to the
fact that the rate is fixed. The only option here is reducing the market value of
the bond. If the interest rate reduces to 4% on the other hand, the investor can sell it at
a price above the invested amount.

d. Liquidity Risk

Liquidity risk refers to the difficulty to redeem an investment without incurring a loss
in the value of the instrument. It can also occur when a seller is unable to find a buyer
for the security.

In mutual funds, like ELSS, the lock-in period may result in liquidity risk. Nothing
can be done during the lock-in period. In yet another case, Exchange traded funds
(ETFs) might suffer from liquidity risk. As you may know, ETFs can be bought and
sold on the stock exchange like shares.

Sometimes due to lack of buyers in the market, you might be unable to redeem your
investments when you need them the most. The best way to avoid this is to have a
very diverse portfolio and making fund selection diligently.

e. Credit Risk

Credit risk basically means that the issuer of the scheme is unable to pay what was
promised as interest. Usually, agencies which handle investments are rated by rating
agencies on this criteria. So, a person will always see that a firm with a high rating
will pay less and vice-versa.

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Mutual Funds, particularly debt funds, also suffer from credit risk. In debt funds, the
fund manager has to incorporate only investment-grade securities. But sometimes it
might happen that to earn higher returns, the fund manager may include lower credit-
rated securities.

This would increase the credit risk of the portfolio. Before investing in a debt fund,
have a look at the credit ratings of the portfolio composition.

f. The Risk-Return Trade-Off

The most important relationship to understand is the risk- return trade-off. Higher the
risk greater the returns/loss and lower the risk lesser the returns/loss.

Hence it is up to you, the investor to decide how much risk you are willing to take .In
order to do this you must first be aware of the different types of risks involved with
your investment decisions.

g. Political / Government Policy Risk

Changes in government policy and political decision can change the investment
environment. They can create a favourable environment for investment or vice versa.

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 CHAPTER 4
WORKING OF MUTUAL FUNDS

HOW DO MUTUAL FUNDS WORK?

In simple words, a mutual fund is a collective fund where individuals of the same
mind pool in money to invest in a chosen asset class. This gives you the ability to
invest in an asset class which you could probably not afford alone or not be able to
due to lack of knowledge, experience and information.

This collected money is then managed by an expert who decides when and where the
entire amount or part of money is to be invested to make profits!

So the expert, called the fund manager, is similar to a well-informed individual who
makes his own investments in equity or debt markets to make money. The only
difference here is that the fund manager is handling a lot more money belonging to
different people. Therefore, the role of a fund manager is vital, as he is the one
deciding on where the money is to be invested to make it grow for investors.

However, this expert management of money comes with a small annual fee. The total
profit made is then returned to the investors, depending on their share in the entire
pool of money.

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4.1 STRUCTURE OF MUTUAL FUND IN INDIA

The structure of Mutual Funds in India is a three-tier one. There are three distinct
entities involved in the process – the sponsor (who creates a Mutual Fund), trustees
and the asset management company (which oversees the fund management). The
structure of Mutual Funds has come into existence due to SEBI (Securities and
Exchange Board of India) Mutual Fund Regulations, 1996. Under these regulations, a
Mutual Fund is created as a Public Trust. We will look into the structure of Mutual
Funds in a detailed manner.

The Fund Sponsor :-

The Fund Sponsor is the first layer in the three-tier structure of Mutual Funds in India.
SEBI regulations say that a fund sponsor is any person or any entity that can set up a
Mutual Fund to earn money by fund management. This fund management is done
through an associate company which manages the investment of the fund. A sponsor
can be seen as the promoter of the associate company. A sponsor has to approach
SEBI to seek permission for a setting up a Mutual Fund. Once SEBI agrees to the
inception, a Public Trust is formed under the Indian Trust Act, 1882 and is registered
with SEBI. Trustees are appointed to manage the trust and an asset management

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company is created complying with the Companies Act, 1956. There are eligibility
criteria given by SEBI for the fund sponsor: The sponsor must have experience in
financial services for a minimum of five years with a positive Net worth for all the
previous five years. The net worth of the sponsor in the immediate last year has to be
greater than the capital contribution of the AMC. The sponsor must show profits in at
least three out of five years which includes the last year as well. The sponsor must
have at least 40% share in the net worth of the asset management company. Any
entity that fulfills the above criteria can be termed as a sponsor of the Mutual Fund.

Trust and Trustees :-

Trust and trustees form the second layer of the structure of Mutual Funds in India. A
trust is created by the fund sponsor in favour of the trustees, through a document
called a trust deed. The trust is managed by the trustees and they are answerable to
investors. They can be seen as primary guardians of fund and assets. Trustees can be
formed by two ways – a Trustee Company or a Board of Trustees. The trustees work
to monitor the activities of the Mutual Fund and check its compliance with SEBI
(Mutual Fund) regulations. They also monitor the systems, procedures, and overall
working of the asset management company. Without the trustees’ approval, AMC
cannot float any scheme in the market. The trustees have to report to SEBI every six
months about the activities of the AMC.

Asset Management Companies :-

Asset Management Companies are the third layer in the structure of Mutual Funds.
The asset management company acts as the fund manager or as an investment
manager for the trust. A small fee is paid to the AMC for managing the fund. The
AMC is responsible for all the fund-related activities. It initiates various schemes and
launches the same. The AMC is bound to manage funds and provide services to the
investor. It solicits these services with other elements like brokers, auditors, bankers,
registrars, lawyers, etc. and works with them. To ensure that there is no conflict
between the AMCs, there are certain restrictions imposed on the business activities of
the companies.

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Other Components in the Structure of Mutual Funds

Custodian:-

A custodian is responsible for the safekeeping of the securities of the Mutual Fund.
They manage the investment account of the Mutual Fund, ensure the delivery and
transfer of the securities. They also collect and track the dividends & interests
received on the Mutual Fund investment.

Registrar and Transfer Agents (RTAS) :-

These are the entities who provide services to Mutual Funds. RTAs are more like the
operational arm of Mutual Funds. Since the operations of all Mutual Fund companies
are similar, it is economical in scale and cost effective for all the 44 AMCs to seek the
services of RTAs. CAMS, Karvy, Sundaram, Principal, Templeton, etc are some of
the well-known RTAs in India. Their services include.

 Processing investors’ application

 Keeping a record of investors’ details
 Sending out account statements to the investors
 Sending out periodic reports
 Processing the payouts of the dividends
 Updating the investor details i.e. adding new members and removing those who
have withdrawn from the fund.

Auditor :-

Auditors audit and scrutinise record books of accounts and annual reports of various
schemes. Each AMC hires an independent auditor to analyse the books so as to keep
their transparency and integrity intact.

Brokers :-

AMC uses the services of brokers to buy and sell securities on the stock market. The
AMCs uses research reports and recommendations from many brokers to plan their
market moves. The three-tier structure of the Mutual Funds is in place keeping the
fiduciary nature of the Mutual Funds in mind. This structure of Mutual Funds is in
line with the international standards and thus there is a proper separation of
responsibilities and functioning of each constituent of the structure.

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4.2 Regulatory Body of Mutual Funds in India

SEBI (Securities & Exchange Board of India)

As far as Mutual funds are concerned, SEBI (Securities & Exchange Board of
India) formulates policies and regulates the mutual funds to protect the interest of the
investor.

In January 1993, SEBI prescribed registration of mutual funds integrity in business

transactions and financial soundness while granting permission. This would curb
excessive growth of mutual funds and protect investor’s interest by registering only
the sound promoters with proven track record & financial strength.

The offer documents of schemes launched by mutual funds and the scheme particulars
are required to be vetted by SEBI. A standard format for mutual fund prospectuses is
being formulated.

Mutual funds have been required to adhere to a code of advertisement.

SEBI has introduced a change in the Securities Control and Regulations Act
governing the mutual funds. The mutual funds which have been in the market for at
least five years are allowed to assure a maximum return of 12 per cent only, for one
year.

The current SEBI guidelines on mutual funds prescribe a minimum start-up of Rs.50
crore for an open-ended scheme, and Rs.20 crore for closed-ended scheme, failing
which application money has to be refunded. AMFI (Association of Mutual Funds in
India) have appealed to regulatory authority of India for scrapping the minimum
requirement

Also, 50% of the directors of AMC must be independent. All mutual funds are
required to be registered with SEBI before they launch any scheme.

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The transparent and well understood declaration or Net Asset Values (NAVs) of
mutual fund schemes is an important issue in providing investors with information as
to the performance of the fund. SEBI has warned some mutual funds earlier of
unhealthy market

Trustees shall immediately report to the Board of any special developments in the
mutual fund.

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 Director.
Association of Mutual Funds India has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines enhancing.

The Objectives of Association of Mutual Funds in India.

The Association of Mutual Fund of India with 30 registered AMCs of the country. It
has certain defined objectives with the guidelines of its board of directors. The
objectives are as follows.

 The 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 including agencies connected
or involved in the field of capital markets and financial services.

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 To interact with the Securities and Exchange Board of India (SEBI) and to
represent to SEBI on all matters concerning the mutual fund industry.
 To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
 To undertake nationwide investor awareness programme so as to promote
proper understanding of the concept and working of mutual funds.
 To Dessisimate information on Mutual Fund Industry and to undertake studies
and research directly and/or in association with other bodies.
 To regulate conduct of distributors including disciplinary actions (cancellation
of ARN) for violation of code of conduct.
 To protect Interest of Investor / Unit holder.

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 CHAPTER 5
TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

A) BY STRUCTURE
Open-Ended - This scheme allows investors to buy or sell units at any point in
time. This does not have a fixed maturity date. Investors can conveniently buy & sell
units at Net Asset Value related Prices. The key feature of Open Ended scheme is
liquidity.

Closed-Ended - A closed-end fund has a fixed number of shares outstanding and

operates for a fixed duration (generally ranging from 3 to 15 years). The fund would
be open for subscription only during a specified period and there is an even balance of
buyers and sellers, so someone would have to be selling in order for you to be able to
buy it. Closed-end funds are also listed on the stock exchange so it is traded just like
other stocks on an exchange or over the counter. Usually the redemption is also
specified which means that they terminate on specified dates when the investors can
redeem their units.
Interval – Interval schemes combine the features of open-ended and close-ended
funds. The units may be traded on the stock exchange or may be open for sale or

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redemption during pre-determined intervals at NAV-related prices. Fixed maturity
plans, or, FMPs are examples of these types of schemes.

B) BY NATURE

Equity Fund - Equities are a popular mutual fund category amongst retail
investors. They invest the funds into Equity holdings. The structure of the fund may
vary different for different schemes and the fund manager’s outlook on different
stocks. These funds are sub- classified depending on Investment objective such as

a) Diversified Equity Funds

b) Mid-Cap Funds

c) Sector Specific Funds

d) Tax Savings Funds (ELSS)

Debt Funds - Debt funds are mutual funds that invest in fixed income securities
like bonds and treasury bills. Gilt fund, monthly income plans (MIPs), short term
plans (STPs), liquid funds, and fixed maturity plans (FMPs) are some of the
investment options in debt funds. Apart from these categories, debt funds include
various funds investing in short term, medium term and long term bonds.

Balanced Funds - This scheme allows investors to enjoy growth and income at
regular intervals. Funds are invested in both equities and fixed income securities; the
proportion is pre-determined and disclosed in the scheme related offer document.
These are ideal for the cautiously aggressive investors.

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C) BY INVESTMENT OBJECTIVE

Growth Schemes - Growth Schemes are also known as equity schemes. The aim
of these schemes is to provide capital appreciation over medium to long term. These
schemes normally invest a major part of funds in Equities & look for capital
appreciation.

Income Scheme - Income Scheme are also known as debt schemes. The aim of
the scheme is to provide regular and steady income to the investor. These Schemes
invest in fixed income securities such as bonds & corporate debentures. In such
schemes capital appreciation may be limited.

Balance Scheme - This scheme allows investors to enjoy growth and income at
regular intervals. Funds are invested in both equities and fixed income securities; the
proportion is pre-determined and disclosed in the scheme related offer document.
These are ideal for the cautiously aggressive investors.

Money Market scheme - This is ideal for investors looking to utilize their
surplus funds in short term instruments while awaiting better options. These schemes
invest in short-term instruments such as treasury bills, certificate of Deposit,
commercial paper & Intercompany call money and seek to provide reasonable returns
for the investors.

D) OTHER SCHEMES

Tax Saving Schemes – As the name suggests, this scheme offers tax benefits to
its investors. The funds are invested in equities thereby offering long-term growth
opportunities. Tax saving mutual funds (called Equity Linked Savings Schemes) has a
3-year lock-in period.

Index Schemes - - Index schemes is a widely popular concept in the west. These
follow a passive investment strategy where your investments replicate the movements
of benchmark indices like Nifty, Sensex, etc.

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Sector Specific Schemes –Sectoral funds are invested in a specific sectors like
infrastructure, IT, pharmaceuticals, etc. or segments of the capital market like large
caps, mid-caps, etc. This scheme provides a relatively high risk-high return
opportunity within the equity space.

Comparison between FD, Bonds and Mutual Fund- features

Organization of Mutual Funds.

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The graph indicates the growth of assets under management over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

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 CHAPTER 6

MUTUAL FUNDS IN INDIA

The mutual fund industry in India began in 1963 with the formation of the Unit Trust
of India (UTI) as an initiative of the Government of India and the Reserve Bank of
India. Much later, in 1987, SBI Mutual Fund became the first non-UTI mutual fund in
India.

The year 1963 heralded a new era of Mutual funds in India. His was marked by the
entry of private companies in the sector. After the Securities and Exchange Board of
India (SEBI) Act was passed in 1992, the SEBI Mutual Fund Regulations came into
being in 1996. Since then, the Mutual fund companies have continued to grow
exponentially with foreign institutions setting shop in India, through joint ventures
and acquisitions.

As the industry expanded, a non-profit organization, the Association of Mutual Funds

in India (AMFI), was established on 1995. Its objective is to promote healthy and
ethical marketing practices in the Indian mutual fund Industry. SEBI has made AMFI
certification mandatory for all those engaged in selling or marketing mutual fund
products.

Major Mutual Fund Companies in India

Public Sector Mutual Funds

 Bank of Baroda Mutual Fund
 State Bank of India Mutual Fund
 LIC Mutual Fund
 UTI Mutual Fund
 Canara Bank Mutual Fund

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Private Sector Mutual Fund
 ABN AMRO Mutual Fund
 Birla Sun Life Mutual Fund
 HDFC Mutual Fund
 HSBC Mutual Fund
 ICICI Prudential Mutual Fund
 Tata Mutual Fund
 Standard Chartered Mutual Fund
 Morgan Stanley Mutual Fund
 Alliance Capital Mutual Fund
 Franklin Templeton Mutual Fund
 Reliance Mutual Fund
 DSP Blackrock Mutual Fund

These above are the Various Mutual Funds in India which has given a good return.

Net Asset Value (NAV)

The Net Asset Value (NAV) of a mutual fund is the price at which the units of a
mutual fund are bought and sold. It is the market value of the fund after deducting its
liabilities. The value of all units of a mutual fund portfolio are calculated on a daily
basis, from this all expenses are then subtracted. The result is then divided by the total
number of units the resultant value is the NAV. NAV is also sometimes referred to as
Net Book Value or book Value.

NAV indicates the market value of the units in a fund. So, it helps an investor keep
track of the performance about the mutual fund. An investor can calculate the actual
increase in the value of their investment by determining the percentage increase in the
mutual fund NAV. NAV, therefore, gives accurate information about the performance
about the mutual fund.

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Calculation of NAV

Mutual fund assets usually fall under two categories – securities & cash. Securities,
here, include both bonds and stocks. Therefore, the total asset value of a fund will
include its stocks, cash and bonds at market value. Dividends and interest accrued and
liquid assets are also included in total assets

The formula for calculating NAV:

NAV of a mutual funds = (Assets of the fund – Liabilities of the fund)

Number of outstanding units of the fund

The mutual fund itself and/or certain accounting firms calculate the NAV of a mutual
fund. Since, mutual funds depend on stock markets, they are usually declared after the
closing hours of the exchange.

All Mutual Funds are required to publish their NAV at every business day as per
SEBI guidelines.

NAV is obtained after subtracting the expense ratio of a fund. This expense ratio is
the total of all expenses made by the mutual fund annually, including the operating
expenses and the management fees, distribution and marketing fees, transfer agent
fees, custodian fees and audit fees.

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Example of calculation of NAV

As an example, assume there are two investors X and Y who have invested in a
mutual fund which decided to issue out units at Rs 1/-
X invests Rs 100/- and Y invests Rs 200/-.
The total corpus of the mutual fund will be Rs 100 + Rs 200 = Rs 300/- and X will get
100 units and Y will get 200 units.
Now suppose the mutual fund manager invests smartly over a year and makes the
investment grow and the corpus becomes Rs 800/-.

The NAV will be calculated as

NAV of a mutual funds = (Assets of the fund – Liabilities of the fund)
Number of outstanding units of the fund
= [Rs 800/- 0] / 300 = 2.67
= The NAV is 2.67.
= So X’s value of investments will be 100 units * 2.67 = Rs 267/- and
= Y’s value of investments will be 200 units * 2.67 = Rs 534/-.
As per the regulator SEBI’s guidelines, all mutual funds are required to publish the
NAV of their schemes at least once a week and in two leading newspapers.

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 CHAPTER 7

COMPARATIVE STUDY OF MUTUAL FUNDS IN INDIA

(Reference to HDFC Mutual Fund & SBI Mutual Fund)

A ) HDFC MUTUAL FUND

HDFC Mutual Fund has been constituted as a trust in accordance with the provisions
of the Indian Trusts Act, 1882, as per the terms of the trust deed dated June 8, 2000
with Housing Development Finance Corporation Limited (HDFC) and Standard Life
Investments Limited as the Sponsors / Settlers and HDFC Trustee Company Limited,
as the Trustee. The Trust Deed has been registered under the Indian Registration Act,
1908. The Mutual Fund has been registered with SEBI, under registration code
MF/044/00/6 on June 30, 2000.

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HDFC Asset Management Company Limited (AMC)

HDFC Asset Management Company Ltd (AMC) was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset
Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July
3, 2000.

In terms of the Investment management Agreement, the trustee has appointed HDFC
Asset Management Company Limited to manage the mutual funds. As per the terms
of the Investment Management Agreement, the AMC will conduct the operations of
the Mutual Fund and manage assets of the schemes, including the schemes launched
from time to time.

Funds Managed by HDFC Mutual Fund.

 Equity Fund
 Balanced Funds
 Income Fund

Achievement of HDFC

 HDFC Asset Management company (AMC) is the first AMC in India to have
been assigned the CRISIL Fund House -1 rating.
 This is the highest fund governance and process quality rating which reflect
the highest governance levels and fund management practices at HDFC AMC.
 It is only fund house to have been assigned this rating for 2 years in
succession.

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INVESTMENT OBJECTIVE
To provide long-term capital appreciation by investing predominantly in Small-Cap
and Mid-Cap companies.

Current Expense Ratio 2.50% On the first 100 crores daily net assets
(Effective Date 28th June 2014) On the next 300 crores daily net assets 2.25%
On the next 300 crores daily net assets 2.00%
On the balance of the net assets 1.75%

Plan Date NAV Date NAV Amount

Direct Dividend Plan 12-Sep-16 22.578

Direct Growth Plan 12-Sep-16 31.231

Dividend Plan 12-Sep-16 21.617

Growth Plan 12-Sep-16 30.179

Product Labelling
The product is suitable for investors who are seeking:

 The product is suitable for investors who are seeking:

 Investment predominantly in equity and equity related instruments of Small-

Cap and Mid-Cap companies

 Investors should consult their financial advisers if in doubt about whether the
product is suitable for them

 Investors understand that their principal will be at moderately high risk.

Page | 45
Comparing Returns of HDFC Mutual Fund for Last 5 years

Investment Info

Investment Objective: The investment objective of the scheme is to generate long-

term capital growth from an actively managed portfolio of equity and equity-related
securities including equity derivatives.

As per the above chart you can see HDFC Mutual Fund is open ended. Its average
asset size is 859.76 crores. HDFC Introduced small and midcap growth fund in 2008.
Since then it has given good returns.

Page | 46
Performance of the Different Mutual Funds

Portfolio Holdings of the HDFC Mutual Funds

Page | 47
Asset under Management Movement

The Below graph shows the Variation in the assets under management

Asset Allocation of Mutual Funds

The below diagram shows how much Equity has contributed to the Mutual Funds

Top Sector holding & Percentage allocation

Sector Name Percentage allocation
Financial Services 20.08 %
Pharma 13.28 %
Consumer Goods 11.02 %
Industrial Manufacturing 9.85 %

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Construction 8.74 %
Market Capitalization

From the above table you can see that market capitalization of midcap fund is 46.24%
more as compared to Large cap 26.81% and small cap 22.80%.

HDFC Mutual Fund NAV

The mutual fund NAV denotes a price at which units of a mutual fund can be bought
or sold. The market value of a fund’s holdings, less expenses is the net asset value.
Per unit NAV is calculated by dividing the net asset value of the mutual fund schemes
by the number of units outstanding on the valuation date.

The below NAV calculation shows the returns of HDFC Mutual Funds with the help
of the graph

HFDC Small & Midcap Fund Growth

Page | 49
Performance Analysis of HDFC Mutual Fund

Fund Performance as per different years

All returns are compounded annualized for a period greater than 1 year, and absolute
for a period of 1 year or less. Performance and SIP returns as of 21/09/2016.
Statistical ratios are for a period of 3-year as of 21/09/2016. SIP purchases are
assumed to be on the 1st of every month. Expense ratio is as disclosed at monthly
frequency.

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 B) SBI Mutual Fund

The SBI mutual fund Private Ltd is a joint venture between ―The state bank of India‖
and Societe Generale Asset management (France).The fund manages over Rs 42,100
crore of assets and has a diverse profile of Investors actively parking their investments
across 38 active schemes.

At SBI Mutual Fund we know that every investor has unique financial goals and
requires different sets of products. This is why we have a wide range of schemes that
fulfills every kind of Investors requirements. Each scheme is managed by devising a
different strategy which is reflective of the investors profile and carries with different
risks and rewards.

Vision: - ―To be the most preferred and the largest fund house for all asset classes,
with a consistent track record of excellent returns and best standards in customer
service, product innovation, technology and HR practices.‖

SBI Funds Management has emerged as one of the largest player in India advising
various financial institutions, pension funds, and local and international asset
management companies.

SBI Funds makes one of the largest investment management firms in India, managing
investment mandates of over 5.4 million investors.

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EQUITY FUNDS & SCHEMES

The Primary objective of the equity asset class is to provide capital growth /
appreciation by Investing in the equity & equity related instrument companies over
medium and long term.
There are range of Schemes available which fulfill Every Kind of Investors
Requirements. Each Scheme Provides different strategy which is reflective of the
investors profile and carries with it different risks and rewards.

1) Equity Schemes

2) Debt/Income Schemes

3) Liquid Scheme.

4) Hybrid Schemes.

5) Fixed Maturity Plans

6) Exchange Traded Schemes

We would be looking at only Equity Schemes. Below are the Equity Schemes.
Equity / Growth Funds

1) SBI Magnum Equity Fund

2) SBI Magnum Global Fund

3) SBI Blue chip Fund

4) SBI Magnum Multicap Fund

5) SBI Magnum Multiplier Fund

6) SBI Small and Midcap Fund

7) SBI Magnum Midcap Fund

8) SBO Emerging Businesses Fund

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Sectoral Funds
1) SBI Contra Fund

2) SBI FMCG Fund

3) SBI IT Fund

4) SBI Pharma Fund

5) SBI Banking & Financial services Fund

Thematic Funds
1) SBI Magnum COMMA FUND

2) SBI Infrastructure Fund

3) SBI PSU FUND

ELSS Fund
1) SBI Magnum Tax Gain Scheme 1993

2) SBI Tax Advantage Fund – Series 1

3) SBI Tax Advantage Fund – Series 2

4) SBI Tax Advantage Fund - Series 3

Index Fund
1) SBI Index Nifty Fund

Market Neutral Strategy

1) SBI Arbitrage Opportunities fund

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But we will be only comparing the Funds in SBI Small and Midcap Funds.

SBI Small & Midcap Fund is an open ended equity scheme and primarily invests in
Small and Midcap equity and Equity related securities of the companies in the small
and midcap segments. The Portfolio will comprise of maximum of 30 stock.

This Product is suitable to the Investors who are seeking.

 Long term capital appreciation.

 Investment in diversified portfolio of predominantly in equity and equity-
related securities of small & midcap companies


 Investors should Consult their financial advisers if in doubt about whether the
product is suitable for them

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Objectives of the Schemes

The scheme seeks to generate income and long term capital appreciation by investing
in a diversified portfolio of predominantly in equity and equity related securities of
small & midcap companies. There can be no assurance the investment objective of the
scheme will be realized.


Investment in Asset Backed securities (Securitized Debt) will not exceed 10% of the
net assets of the scheme. The scheme will not invest in foreign securitized Debt.

Page | 55
Comparing Returns of SBI Mutual Fund for 5 years

Investment Info

Investment Objective: The Scheme seeks to generate income and long-term capital
appreciation by investing in a diversified portfolio of predominantly equity and equity
related securities of companies identified as industry leaders. However, there can be
no assurance that the investment objective of the Scheme will be realized and the
Scheme does not assure or guarantee any returns.

As per the above chart you can see SBI Mutual Fund is open ended. Its average asset
size is 753.50 crores. SBI introduced small and midcap growth fund in 2009. Since
then it has given good returns.

Performance of the SBI Mutual Fund

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Portfolio Holding of the SBI Mutual Fund.

Asset Under market Movement

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Assets allocation done in Various Companies

Top Sector Holding & Asset Portfolio

Sector Name Percentage

Consumer Goods 21.57 %

Chemicals 17.45 %

Industrial Manufacturing 13.85 %

Services 10.64 %

Automobile 10.07 %

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Market Capitalization

From the above table you can see that market capitalization of small cap fund is
45.66% more as compared to small cap 44.03%.

SBI Mutual Fund NAV.

The mutual fund NAV denotes a price at which units of a mutual fund can be bought
or sold. The market value of a fund’s holdings, less expenses is the net asset value.
Per unit NAV is calculated by dividing the net asset value of the mutual fund schemes
by the number of units outstanding on the valuation date.

Fund SBI Small & Midcap Fund

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Performance Analysis of SBI Mutual

Performance of the fund on last 5 years

All returns are compounded annualized for a period greater than 1 year, and
absolute for a period of 1 year or less. Performance and SIP returns as of
21/09/2016. Statistical ratios are for a period of 3-year as of 21/09/2016. SIP
purchases are assumed to be on the 1st of every month. Expense ratio is as disclosed
at monthly frequency

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 CHAPTER 8

DATA ANALYSIS AND INTERPRETATION

1) What is your age ?

From the Above Diagram, it can be said that 95.5% of the respondents are
from the age group of 15-25 years , whereas 2% people 25-35years , 0.9%
people are 35-45 years and the same goes for the age group of 45 and above.

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 2) What is your occupation ?

From the above pie chart, it can be interpreted that 20% of the respondents work in
private sector and 14.5% of them have their own business and 64.5% of them opted
for others option where there were majority of students.

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 3) What is your income?

This graph shows 55.8% of annual income of respondents is 1 lakh & above whereas
32.6% of the respondents have annual income of 2 lakh to 4 lakh, whereas rest 11.7%
of them were from the income group of 4-5 lakhs and above.

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 4) Do you invest in mutual fund ?

This diagram helps to interpret that majority of the respondents i.e. 63 people out of
107 said that they don’t invest in mutual fund, whereas 41.1% of them said yes they
invest in mutual funds.

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 5) What is the time duration of your investment?

This research result says that, 56.1% of people invest their mutual fund for the
time duration of 0-1 year, whereas 19.5% of the respondents invest for a time
duration of 1-2 years , 14.6% of them invest for 2-4 years, 9.8% of people
invest for more than 4 years.

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 6) In which kind of mutual fund you would like to invest?

From this diagram I can conclude that majority of the respondents that is
55.7% of them opt to invest in the private mutual fund, and the rest of them
that is 44.3 % went for the public mutual funds.

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7) From where you come to know about this company’s mutual fund
schemes?

This chart says us that, 42.9% of the respondents came to know about the
mutual funds from their friends and peers, and 36.7% of them came to know
about mutual funds from their family and relatives, whereas 18.4% of them
said they came to know from others and rest 2% of the respondents opted the
option of company employee.

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 8) With which company do you have invested in mutual funds?

From the above chart, we can conclude that, 30.3% of the people opted to
invest in the mutual funds of HDFC, 18% of them opted for LIC, 13.5% went
for Relaince, 10.1% of them selected the ICICI, 4.5% selected Kotak
Mahindra and SBI.
Also 19.1% of them also opted for the option of others.

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 9) While investing your money, which factor you prefer most?

This Pie Chart helps us interpret that 37.2% of the people consider low risk factor
while investing into mutual funds, 34% of them consider the high return factor, 18.1%
of them consider liquidity. And the rest10.6% consider company reputation.

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 10) What future of Mutual Fund Company allures you the most?

I can interpret from the responses that 54.7% of the people think that the most alluring
future of the mutual fund company is better return and safety, 16.8% said that tax
benefit is the future of mutual fund, 12.6% opted for regular income, 9.5% opted for
diversification, also 6.3% selected the option of reduction in risk and transit cost.

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 CHAPTER 9
LITERATURE REVIEW

1) Name of the Book: - Mutual Funds in India

Author: - D. V. Ingle

ISBN no – 9788177083323

Publishing year: - 2013

Abstract - This book provides an in-depth account of the functioning of mutual fund
industry in India. The Author D.V. Ingle has described everything about Mutual
Funds in India and why it is useful for small investors who cannot directly invest in
stock market. And also when the Mutual funds were created. This Book describes the
journey of Mutual Funds in India.

2) Name of the Research Paper:-Comparative study of mutual funds of select

Indian companies

Author: - Mr. Sunil M. Adhav / Dr Pratap M Chauhan

ISSN NO: - 2394-1537

Publishing year: - 2015

Abstract: - India’s mutual fund market has witnessed phenomenal growth over the
last decade. The consistency in the performance of mutual funds has been a major
factor that has attracted many investors. The present research is an attempt to study
comparative performance of mutual funds of selected Indian companies. The study
focus on mutual fund schemes of selected Indian companies comprising Equity, Debt
and Hybrid Schemes. The total of 390 schemes comprising of 178 equity mutual
funds, 138 debt schemes and 74 hybrid schemes are selected for the study. The

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performance of selected Indian companies’ mutual fund is analyzed with the help of
Return, risk. Selected Mutual Fund are compared with their respective bench mark.
3) Name of the Research Paper:-A Study of Mutual Funds in India

Author: - MS Shalini Goyal / MS Dauli Bansal

ISSN NO: - 2229 – 5518

Publishing year: - 2013

Abstract: - This paper helps us to understand the study of the mutual funds in India.
This paper also says where and how we should invest mutual fund 7 why it dangerous
to directly invest in stock market as you might have to face loss. Investing in mutual
funds helps you to diversify your risk .This study was conducted to analyse and
compare different types of mutual funds in India.

4) Name of the Research Paper:- Investor’s preferences towards Mutual Fund and
Future Investments:

Author: - Y Prabhavathi, N T Krishna Kishore

ISSN NO: - 2250-3153

Publishing year: - 2013

Abstract: - The advent of Mutual Funds changed the way the world invested their
money. The start of Mutual Funds gave an opportunity to the common man to hope of
high returns from their investments when compared to other traditional sources of
investment. The main focus of the study is to understand the attitude, awareness and
preferences of mutual fund investors. Most of the respondents prefer systematic
investment plans and got their source of information primarily from banks and
financial advisors. Investors preferred mutual funds mainly for professional fund
management and better returns and assessed funds mainly through Net Asset Values
and past performance.

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5) Name of the Research Paper: - A Study on Indian Mutual Funds Equity
Diversified growth Schemes and their performance evaluation.

Author: - Dr. D.S.Chaubey

ISSN NO: - 2249-1619

Publishing year: - 2011

Abstract: - Indian Mutual Fund industry has experienced tremendous growth due to
infrastructure and also supported by high saving of funds. After liberalization and
globalization of Indian economy, market witness huge crowd towards the option of
investing in mutual funds but investment in a particular funds needs a lot of
specification like- investor’s objectives, cost, availability of funds, risk & return
factors etc. and thus invite fundamental study for better future and growth. This paper
aims to know how the performance of mutual funds is assessed and ranked after
analyzing the NAV and their respective returns so as to measure investment avenues.

6) Name of the Research paper: - Investor awareness and Perception about mutual
Funds.
Author: - Simran Saini / DR Bimal Anjum

ISSN NO: - 2231 5780

Publishing Year: - 2011

Abstract: - Indian Mutual Fund has gained popularity in last few years. The present
study analyses the mutual fund investments in relation to investor’s behavior.
Investors’ opinion and perception has been studied relating to various issues like type
of mutual fund scheme, main objective behind investing in mutual fund scheme, role
of financial advisors and brokers, investors’ opinion relating to factors that attract
them to invest in mutual funds, sources of information, deficiencies in the services
provided by the mutual fund managers, challenges before the Indian mutual fund
industry.

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 CHAPTER 10

SUGGESTION

Suggestion to the Mutual Fund Investors

 Understand the purpose of investment: The first point to analyze before

investing in a fund is to find out whether objective matches with the scheme.
If there is a mismatch in the scheme the investors would be affected with the
probable returns. For example the schemes that invest in large cap stocks is
not suitable for conservative Investors. He should first try to invest in small &
midcap funds. Similarly he should pick up schemes that will specify his
investment. Examples pension plans, Children’s plan sector specific schemes.
These are the schemes from where he can invest for the future.

 Low Risk Tolerance: - The Investors with low risk tolerance should invest in
small & midcap schemes as they are relatively safer when compared to
schemes like equity. Aggressive investors can go for equity investments and
can opt for schemes that invest in specific industry or sector

 Track record:-. Investors should go through schemes track record,

performance against relevant market benchmarks and its competitors.

 Period of Investment: - To get good returns on their Investments the investor

should hold their returns for longer periods that is for 3 years to 5 years in
order the schemes to generate good returns.

 Cost Factors:-Though the AMC is regulated, one should look at the expense
ratio of the fund before investing. This is because money is deducted from the
returns. A higher entry load or exit load will eat into the returns. So you have
to look at the cost factors before investing.

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  Points to be considered while departing from the scheme: Investor should
sell or redeem or repurchase the proceeds within 10 days of redemption or
repurchase. Most funds charge exit load when the period of exit is less than 6
months. You should sell your funds when one fund is taken over by other
fund. You may also Exit when your expenses on your scheme has increased.


 Diversification: - The most the amount the Investors invest, the greater is
the ability to afford diversification amount different asset classes and
investment styles. Asset allocation is the way in which one gives weightage to
each asset classes. Each Asset class has its own characteristic in terms of
fluctuation.

 Continuous Monitoring: - Investors should continuously monitor their

portfolio and revise by updating according to market position, that their
returns can be maximized.

 Other factors to be considered while investing - Investors should look for

top performing assets and focus on funds latest performance. A common
mistake nowadays investors do is they buy latest schemes which has no
pervious history as they give good returns. One should look at the NAV while
buying the funds so that good NAV can give you good returns.

 Starting small for Small time investor: - First time mutual fund investors are
advised to go small on their investments. Investors should invest in small &
midcap companies and wait for the returns and once they are satisfied they
should go for diversification of the funds.

 Taxing Saving Funds: - When markets are up it is advisable to invest in tax

saver, which are giving good returns compared too many other schemes.

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 CHAPTER 11

CONCLUSION

Mutual Fund Industry now represents perhaps most appropriate opportunity for most
Investors. The financial market is most sophisticated and complex. Investors need
required knowledge to invest in the mutual fund industry. Mutual fund industry also
gives good returns if the markets are high and you can also suffer losses if the market
does not do well or while investing fund manager makes some mistakes during
investment of Mutual Funds.
Mutual Fund Returns are compared on the basis of performance of the stock market.
If the stock market do well than the fund in which you have invested will also do well.
As the markets are diversified the loss is minimal.
In my above research I had compared SBI mutual fund & HDFC Mutual fund. I had
compared 5 years returns which Both the Mutual Funds have given good returns after
a specified period.
Since Inception SBI mutual fund has given good returns of 20 % where as HDFC
mutual fund has given a return of only 14 %.
But still Investors prefer to invest their money in Private mutual funds in the long run
as they feel that they would get good returns.
But looking at both the Mutual Funds three year ratio SBI Mutual Fund has given a
good return of 42 % where as HDFC has given a return of 25%.
“So as per my suggestion it is best for Investor to invest in SBI mutual fund as it
has given good returns”.

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 BIBLIOGRAPHY

Website

 www.sbimf.com
 www.hdfcmf.com
 www.amfiindia.com
 www.mutualfundsindia.com
 www.research gate.com

Books on Mutual Funds in India (D. V. Ingle)

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 ANNEXURE

QUESTIONAIRE
Personal details
a) Name:-
b) Email Id:-
1) What is your age ?
i. 15 – 25
ii. 25 – 35
iii. 35 – 45
iv. More than 45

2) What is your occupation?

i. Government servant
ii. Private sector
iii. Business
iv. Others

3) What is your income?

i. 1 lakh
ii. 2 – 4 lakh
iii. 4 – 5 lakh
iv. More than 5 lakh

4) Do you invest in mutual fund ?

i. Yes
ii. No

5) What is the time duration of your investment?

i. 0 – 1 year
ii. 1 – 2 year
iii. 2 – 4 year
iv. More than 4
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6) In which kind of mutual fund you would like to invest?
i. Public
ii. Private

7) From where you come to know about this company’s mutual fund schemes?
i. Family & relatives
ii. Friends & peers
iii. Company employee
iv. Others

8) With which company do you have invested in mutual funds?

i. Hdfc
ii. Icici
iii. Reliance
iv. Sbi
v. Lic
vi. Kotak Mahindra
vii. Other

9) While investing your money, which factor you prefer most?

i. Liquidity
ii. Low risk
iii. High return
iv. Company reputation

10) What future of mutual fund company allure you the most?
i. Diversification
ii. Better return & safety
iii. Reduction in risk and transaction cost
iv. Regular income
v. Tax benefit

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