A PROJECT REPORT

ON

“MUTUAL FUNDS IS THE BETTER

INVESTMENTS PLAN”

Submitted in partial fulfillment for

BACHELOR OF BUSINESS ADMIMISTRATION

Programme of

MODERN GIRLS COLLEGE OF

PROFESSIONAL STUDIES

LUCKNOW

Batch2008-10

1
 EXECUTIVE SUMMARY

In few years Mutual Fund has emerged as a tool for ensuring

one’s financial well being. Mutual Funds have not only

contributed to the India growth story but have also helped

families tap into the success of Indian Industry. As information

and awareness is rising more and more people are enjoying the

benefits of investing in mutual funds. The main reason the

number of retail mutual fund investors remains small is that

nine in ten people with incomes in India do not know that

mutual funds exist. But once people are aware of mutual fund

investment opportunities, the number who decide to invest in

mutual funds increases to as many as one in five people. The

trick for converting a person with no knowledge of mutual

funds to a new Mutual Fund customer is to understand which of

the potential investors are more likely to buy mutual funds and

2
to use the right arguments in the sales process that customers

will accept as important and relevant to their decision.

This Project gave me a great learning experience and at the

same time it gave me enough scope to implement my analytical

ability. The analysis and advice presented in this Project Report

is based on market research on the saving and investment

practices of the investors and preferences of the investors for

investment in Mutual Funds. This Report will help to know

about the investors’ Preferences in Mutual Fund means Are

they prefer any particular Asset Management Company (AMC),

Which type of Product they prefer, Which Option (Growth or

Dividend) they prefer or Which Investment Strategy they follow

(Systematic Investment Plan or One time Plan). This Project as

a whole can be divided into two parts.

The first part gives an insight about Mutual Fund and its various

aspects, the Company Profile, Objectives of the study, Research

Methodology. One can have a brief knowledge about Mutual

Fund and its basics through the Project.

3
The second part of the Project consists of data and its analysis

collected through survey done on 200 people. For the collection

of Primary data I made a questionnaire and surveyed of 200

people. I also taken interview of many People those who were

coming at the HDFC and BANK OF INDIA Branch where I

done my Project. I visited other AMCs in Lucknow to get some

knowledge related to my topic. I studied about the products and

strategies of other AMCs in; Lucknow to know why people

prefer to invest in those AMCs. This Project covers the topic

“THE MUTUAL FUND IS BETTER INVESTMENT PLAN.”

The data collected has been well organized and presented. I

hope the research findings and conclusion will be of use.

4
 CONTENTS

Acknowledgement

Declaration

Executive Summary

CHAPTER TOPICS PG. NO.

Chapter - 1 INTRODUCTION 12- 34

Chapter - 2 SYSTAMATIC 35- 49

INVESTMENT PLAN

Chapter - 3 COMPANY PROFILE 50- 63

Chapter- 4 OBJECTIVES AND 64- 66

SCOPE

Chapter-5 QUESTIONAIRE AND 67- 71

ANALYSIS

Chapter- 6 ANALYSIS OF DATA 72- 95

5
Chapter - 7 RESEARCH REPORT 96- 102

Chapter - 8 FINDINGS AND 1103- 108

CONCLUSIONS
Chapter - 9 SUGGESTIONS & 109- 111
RECOMMENDATIONS

BIBLIOGRAPHY 112

THANK YOU 113

6
 MUTUAL FUNDS

ALL ABOUT MUTUAL FUNDS

 WHAT IS MUTUAL FUND

 BY STRUCTURE

 BY NATURE

 EQUITY FUND

 DEBT FUNDS

 BY INVESTMENT OBJECTIVE

 OTHER SCHEMES

 PROS & CONS OF INVESTING IN MUTUAL

FUNDS

7
  ADVANTAGES OF INVESTING MUTUAL

FUNDS

 DISADVANTAGES OF INVESTING

MUTUAL FUNDS

 MUTUAL FUNDS INDUSTRY IN INDIA

 MAJOR PLAYERS OF MUTUAL FUNDS IN

INDIA

 HISTORY OF THE INDIAN MUTUAL FUND

INDUSTRY

 CATEGORIES OF MUTUAL FUNDS

 INVESTMENT STRATEGIES

 WORKING OF A MUTUAL FUND

 GUIDELINES OF THE SEBI FOR MUTUAL

FUND

 COMPANIES DISTRIBUTION CHANNELS

 DOES FUND PERFORMANCE AND RANKING

PERSIST?

 PORTFOLIO ANALYSIS TOOLS

RESEARCH REPORT

8
  OBJECTIVE OF RESEARCH

 SCOPE OF THE STUDY

 DATA SOURCES

 SAMPLING

 DATA ANALYSIS

 QUESTIONNAIRE

Chapter - 1

Introduction
9
INTRODUCTION TO MUTUAL FUND AND ITS

VARIOUS ASPECTS.

Mutual fund is a trust that pools the savings of a number of

investors who share a common financial goal. This pool of

money is invested in accordance with a stated objective. The

joint ownership of the fund is thus “Mutual”, i.e. the fund

belongs to all investors. The money thus collected is then

invested in capital market instruments such as shares,

debentures and other securities. The income earned through

these investments and the capital appreciations realized are

shared by its unit holders in proportion 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. A Mutual Fund is an

10
investment tool that allows small investors access to a well-

diversified portfolio of equities, bonds and other securities.

Each shareholder participates in the gain or loss of the fund.

Units are issued and can be redeemed as needed. The funds Net

Asset value (NAV) is determined each day.

Investments in securities are spread across a wide cross-

section of industries and sectors and thus the risk is reduced.

Diversification reduces the risk because all stocks may not

move in the same direction in the same proportion at the same

time. Mutual fund issues units to the investors in accordance

with quantum of money invested by them. Investors of mutual

funds are known as unit holders.

11
When an investor subscribes for the units of a mutual fund, he becomes

part owner of the assets of the fund in the same proportion as his

contribution amount put up with the corpus (the total amount of the

fund). Mutual Fund investor is also known as a mutual fund

shareholder or a unit holder.

Any change in the value of the investments made into capital market

instruments (such as shares, debentures etc) is reflected in the Net Asset

Value (NAV) of the scheme. NAV is defined as the market value of the

Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is

12
calculated by dividing the market value of scheme's assets by the total

number of units issued to the investors.

ADVANTAGES OF MUTUAL FUND

Professional Management

The idea behind a mutual fund is that individual investors generally lack the
time, the inclination or the skills to manage their own investment. Thus
mutual funds hire professional managers to manage the investments for the
benefit of their investors in return for a management fee.

The organization that manages the investment is the Asset Management

Company (AMC). Employees of the AMC who perform this role of
managing investments are the fund managers.

Diversification

13
The best mutual funds design their portfolios so individual investments will
react differently to the same economic conditions. For example, economic
conditions like a rise in interest rates may cause certain securities in a
diversified portfolio to decrease in value. Other securities in the portfolio
will respond to the same economic conditions by increasing in value. When
a portfolio is balanced in this way, the value of the overall portfolio should
gradually increase over time, even if some securities lose value.

Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing
easy and convenient.

Low cost

Mutual fund expenses are often no more than 1.5 percent of your
investment. Expenses for Index Funds are less than that, because index
funds are not actively managed. Instead, they automatically buy stock in
companies that are listed on a specific index.

Choice of Schemes

A mutual fund can, and typically does have several schemes to cater to
different investors preferences. The individual could choose to hire a
professional manager to manage his money as per his investment and risk
preferences. Such personal treatment often referred to as Portfolio
Management Scheme (PMS).

Legal Framework

Since the investors are often not so well qualified to invest, the mutual fund
business is highly regulated. Broadly the existing regulations are:
1. Pre-requisitions to start a mutual fund;

14
 2. Permissible schemes and investments;
3. Control over marketing process;
4. Checks and balances in the legal structure;
5. Valuation of securities;
6. Level of operational flexibility to the professional investors.

Tax Benefits

Dividend income from mutual fund units will be exempt from income tax
with effect from July 1, 1999. Further, investors can get rebate from tax
under section 88 of Income Tax Act, 1961 by investing in Equity Linked
Saving Schemes of mutual funds. Further benefits are also available under
section 54EA and 54EB with regard to relief from long term capital gains
tax in certain specified schemes.

Return Potential

Mutual funds allow you to allocate investments assets across different fund
categories to achieve a variety of risk/reward objectives thereby reducing
overall portfolio risk. In other words, the right way to benefit from Mutual
funds is to balance the risk as well as the potential to earn.

Liquidity

Open-end schemes offer liquidity through on-going sale and re-purchase

facility. Thus, the investor does not have to worry about finding a buyer for
his investment –a risk normally associated with direct investment in the
securities market.

Transparency

You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion
invested in each class of assets and the fund manager's investment strategy
and outlook.

Flexibility

15
Through features such as regular investment plans, regular withdrawal plans
and dividend reinvestment plans, you can systematically invest or withdraw
funds according to your needs and convenience.

Affordability

Investors individually may lack sufficient funds to invest in high-grade

stocks. A mutual fund because of its large corpus allows even a small
investor to take the benefit of its investment strategy.

LIMITATIONS OF MUTUAL FUNDS

No Guarantees

No investment is risk free. If the entire stock market declines in value, the
value of mutual fund shares will go down as well, no matter how balanced
the portfolio. Investors encounter fewer risks when they invest in mutual
funds than when they buy and sell stocks on their own. However, anyone
who invests through a mutual fund runs the risk of losing money.

Fees and commissions

16
All funds charge administrative fees to cover their day-to-day expenses.
Some funds also charge sales commissions or "loads" to compensate
brokers, financial consultants, or financial planners. Even if you don't use a
broker or other financial adviser, you will pay a sales commission if you buy
shares in a Load Fund.

Taxes

During a typical year, most actively managed mutual funds sell anywhere
from 20 to 70 percent of the securities in their portfolios. If your fund makes
a profit on its sales, you will pay taxes on the income you receive, even if
you reinvest the money you made.

Management risk

When you invest in a mutual fund, you depend on the fund's manager to
make the right decisions regarding the fund's portfolio. If the manager does
not perform as well as you had hoped, you might not make as much money
on your investment as you expected. Of course, if you invest in Index Funds,
you forego management risk, because these funds do not employ managers.

Dilution

It's possible to have too much diversification. Because funds have small
holdings in so many different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution
is also the result of a successful fund getting too big. When money pours
into funds that have had strong success, the manager often has trouble
finding a good investment for all the new money.

17
 HISTORY OF THE INDIAN

MUTUAL FUND INDUSTRY

A little history

The mutual fund industry started in India in a small way with the UTI Act
creating what was effectively a small savings division within the RBI. Over
period of 25 years this grew fairly successfully and gave investors a good
return, and therefore in 1989, as the next logical step, public sector banks
and financial institutions were allowed to float mutual funds and their

18
success emboldened the government to allow the private sector to foray into
this area. The initial years of the industry also saw the emerging years of the
Indian equity market, when a number of mistakes were made and hence the
mutual fund schemes, which invested in lesser-known stocks and at very
high levels, became loss leaders for retail investors. From those days to
today the retail investor, for whom the mutual fund is actually intended, has
not yet returned to the industry in a big way. But to be fair, the industry too
has focused on brining in the large investor, so that it can create a significant
base corpus, which can make the retail investor feel more secure.

HISTORY OF MUTUAL FUND

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian
mutual fund industry in the year 1963. The primary objective at that time
was to attract the small investors and it was made possible through the
collective efforts of the Government of India and the Reserve Bank of India.
The history of mutual fund industry in India can be better understood
divided into following phases:

19
Phase 1. Establishment and Growth of Unit Trust of
India - 1964-87:

Unit Trust of India enjoyed complete monopoly when it was established in

the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank
of India and it continued to operate under the regulatory control of the RBI
until the two were de-linked in 1978 and the entire control was transferred in
the hands of Industrial Development Bank of India (IDBI). UTI launched its
first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted
the largest number of investors in any single scheme over the years.
UTI launched more innovative schemes in 1970s and 80s to suit the needs of
different investors. It launched ULIP in 1971, six more schemes between
1981-84, Children's Gift Growth Fund and India Fund (India's first offshore
fund) in 1986, Master share (India’s first equity diversified scheme) in 1987
and Monthly Income Schemes (offering assured returns) during 1990s. By
the end of 1987, UTI's assets under management grew ten times to Rs 6700
crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players
entering the market in the year 1987. In November 1987, SBI Mutual Fund
From the State Bank of India became the first non-UTI mutual fund in India.
SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual
Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual
Fund and PNB Mutual Fund. By 1993, the assets under management of the
industry increased seven times to Rs. 47,004 crores. However, UTI remained
to be the leader with about 80% market share.

20
Phase III. Emergence of Private Sector Funds - 1993-
96

The permission given to private sector funds including foreign fund

management companies (most of them entering through joint ventures with
Indian promoters) to enter the mutual fund industry in 1993, provided a wide
range of choice to investors and more competition in the industry. Private
funds introduced innovative products, investment techniques and investor-
servicing technology. By 1994-95, about 11 private sector funds had
launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation
from the SEBI after the year 1996. The mobilization of funds and the
number of players operating in the industry reached new heights as investors
started showing more interest in mutual funds.

Inventors' interests were safeguarded by SEBI and the Government offered

tax benefits to the investors in order to encourage them. SEBI (Mutual
Funds) Regulations, 1996 was introduced by SEBI that set uniform
standards for all mutual funds in India. The Union Budget in 1999 exempted
all dividend incomes in the hands of investors from income tax. Various
Investor Awareness Programmes were launched during this phase, both by
SEBI and AMFI, with an objective to educate investors and make them
informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its
Special legal status as a trust formed by an Act of Parliament. The primary

21
objective behind this was to bring all mutual fund players on the same level.
UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The
UTI Mutual Fund

Presently Unit Trust of India operates under the name of UTI Mutual Fund
and its past schemes (like US-64, Assured Return Schemes) are being
gradually wound up. However, UTI Mutual Fund is still the largest player in
the industry. In 1999, there was a significant growth in mobilization of funds
from investors and assets under management which is supported by the
following data:

GROSS FUND MOBILISATION (RS. CRORES)

ASSETS UNDER MANAGEMENT (RS. CRORES)
PUBLIC PRIVATE
FROM
AS ON TO UTI UTI PUBLIC PRIVATE SECTOR TOTAL
TOT
SECTOR SECTOR
SECTOR AL
31-
01-April-98
31-March-99March- 11,679
53,320 1,732
8,292 7,966 6,860 21,377
68,4
99 72

31-
01-April-99 March- 13,536 4,039 42,173 59,748
00

31-
01-April-00 March- 12,413 6,192 74,352 92,957
01

31-
01-April-01 March- 4,643 13,613 1,46,267 1,64,523
02

31-
01-April-02 5,505 22,923 2,20,551 2,48,979
Jan-03

31-
01-Feb.-03 March- * 7,259* 58,435 65,694
03

31-
01-April-03 March- - 68,558 5,21,632 5,90,190
04

31-
01-April-04 March- - 1,03,246 7,36,416 8,39,662
05

31- 22
1,83,446
01-April-05 March- - 9,14,712 10,98,158
06
Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently,
examples of which are acquisition of schemes of Alliance Mutual Fund by
Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal
Mutual Fund. Simultaneously, more international mutual fund players have
entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were
29 funds as at the end of March 2006. This is a continuing phase of growth
of the industry through consolidation and entry of new international and
private sector players.

23
CATEGORIES OF MUTUAL FUND:

24
 Mutual funds can be classified as follow :

 Based on their structure:

• Open-ended funds: Investors can buy and sell the units

from the fund, at any point of time.

• Close-ended funds: These funds raise money from investors

only once. Therefore, after the offer period, fresh investments can not

be made into the fund. If the fund is listed on a stocks exchange the

units can be traded like stocks (E.g., Morgan Stanley Growth Fund).

Recently, most of the New Fund Offers of close-ended funds provided

liquidity window on a periodic basis such as monthly or weekly.

Redemption of units can be made during specified intervals. Therefore,

such funds have relatively low liquidity.

 Based on their investment objective:

Equity funds: These funds invest in equities and equity

related instruments. With fluctuating share prices, such funds

25
show volatile performance, even losses. However, short term

fluctuations in the market, generally smoothens out in the long

term, thereby offering higher returns at relatively lower

volatility. At the same time, such funds can yield great capital

appreciation as, historically, equities have outperformed all

asset classes in the long term. Hence, investment in equity funds

should be considered for a period of at least 3-5 years. It can be

further classified as:

i) Index funds- In this case a key stock market index, like BSE

Sensex or Nifty is tracked. Their portfolio mirrors the

benchmark index both in terms of composition and individual

stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in

equities spreading across different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified

funds except that they invest in companies offering high

dividend yields.

26
iv) Thematic funds- Invest 100% of the assets in sectors which

are related through some theme.

e.g. -An infrastructure fund invests in power, construction,

cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector.

e.g. - A banking sector fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit

to the investors.

Balanced fund: Their investment portfolio includes both debt

and equity. As a result, on the risk-return ladder, they fall

between equity and debt funds. Balanced funds are the ideal

mutual funds vehicle for investors who prefer spreading their

risk across various instruments. Following are balanced funds

classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities,

remaining in debt.

27
Debt fund: They invest only in debt instruments, and are a

good option for investors averse to idea of taking risk associated

with equities. Therefore, they invest exclusively in fixed-

income instruments like bonds, debentures, Government of

India securities; and money market instruments such as

certificates of deposit (CD), commercial paper (CP) and call

money. Put your money into any of these debt funds depending

on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market

instruments, a large portion being invested in call money

market.

ii) Gilt funds ST- They invest 100% of their portfolio in

government securities of and T-bills.

iii) Floating rate funds - Invest in short-term debt papers.

Floaters invest in debt instruments which have variable coupon

rate.

iv) Arbitrage fund- They generate income through arbitrage

opportunities due to mis-pricing between cash market and

28
derivatives market. Funds are allocated to equities, derivatives

and money markets. Higher proportion (around 75%) is put in

money markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-

term government securities.

vi) Income funds LT- Typically, such funds invest a major

portion of the portfolio in long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-

90% to debt and an exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose

maturity is in line with that of the fund.

29
 INVESTMENT STRATEGIES

1. Systematic Investment Plan: under this a fixed sum is

invested each month on a fixed date of a month. Payment is

made through post dated cheques or direct debit facilities. The

investor gets fewer units when the NAV is high and more units

when the NAV is low. This is called as the benefit of Rupee

Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in

debt oriented fund and give instructions to transfer a fixed sum,

at a fixed interval, to an equity scheme of the same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to

withdraw from a mutual fund then he can withdraw a fixed

amount each month.

30
RISK V/S. RETURN:

31
 Chapter – 2

SYSTAMATIC
INVESTMENT
PLAN

(SIP)
32
Most of us have the same idea when it comes to money. All we want to do is
spend it. With a fantastic range of consumer products out there, investments
seem like the most boring things that you can consider. In fact, if it weren’t
for tax saving purpose, most of us would not end up investing anything at
all. We need to realize, however, that someday, our hard-earned money isn’t
going to be able to buy the same things as it used to. This is because of
inflation, the phenomenon that slowly eats up our purchasing powers
without us even realizing it.

Beating Inflation with Investment

Beating inflation has a very important role to play in protecting the value of
money. Most of us are so busy that we realize only later that our hard earned
money is not able to buy the same things that it used to. As the chart along
side explains, an inflation rate of only 5% per annum can erode your
purchasing power significantly over longer periods of time. To go one up on
inflation, you need to make your money grow fast enough to so that it can
still buy what it used to and more. All of us have some dreams to fulfill and
some needs to take care of. Whether it’s your children’s education, a
marriage, a car, a house, a foreign vacation or your retirement plan, the only
way you can make these things possible is by planning your savings and
investments wisely.

What is a Systematic Investment Plan (SIP)?

SIP is an investment option that is presently available only with mutual

funds. The other investment option comparable to SIPs is the recurring
deposit schemes from Post office and banks. Basically, under an SIP option
an investor commits making a regular (monthly) investment in a particular
mutual fund/deposit.

SIP is a method of investing a fixed sum, regularly, in a mutual fund. It is

very similar to regular saving schemes like a recurring deposit.

33
An SIP allows you to buy units on a given date each month, so that you can
implement an investment / saving plan for yourself. Once you have decided
on the amount you want to invest every month and the mutual fund scheme
in which you want to invest, you can either give post-dated cheques or ECS
instruction, and the investment will be made regularly. SIPs generally start
at minimum amounts of Rs 1,000 per month and the upper limit for using an
ECS is Rs 25000 per instruction. Therefore, if you wish to invest Rs 100,000
per month, you may need to do it on 4 different dates.

• A specific amount should be invested for a continuous period at

regular intervals under this plan.

• SIP is similar to a regular saving scheme like a recurring

deposit. It is a method of investing a fixed sum regularly in a mutual
fund.

• SIP allows the investor to buy units on a given date every

month. The investor decides the amount and also the mutual fund
scheme.

• While the investor's investment remains the same, more number

of units can be bought in a declining market and less number of units
in a rising market.

• The investor automatically participates in the market swings

once the option for SIP is made.

Lets take an example:

 An investor, ‘Rahul’ wants to invest in fund ‘X’ which can be an

equity, income or gilt fund.

 The policy of fund ‘X’ for entering in an SIP is that the investor will
have to issue 6 post-dated cheques of Rs 500/- in case of monthly
option or 4 cheques in a quarterly option. The minimum investment
for all its schemes is Rs 5,000. ‘Rahul’ issues 6 post-dated cheques of

34
 Rs 500/- each in the name of fund ‘X’, with the first cheque being
dated as on 7th May 2001.

 Now in the month of August 2001 ‘Rahul’ wants to change his SIP
structure from Rs 500/- to Rs 1,000/-. In this case he will have to
intimate the fund and will have to fill a new SIP form issuing news
post-dated cheques of Rs 1,000/- each.

 ‘Rahul’ is investing in three different schemes of fund ‘X’. In two of

the schemes ‘Rahul’ is the first holder and in the third scheme his wife
is the first holder. In this case he can fill a common SIP form where he
is the first holder and where his wife is the first holder he will have to
fill in a new SIP form.

 In the month of September 2001 ‘Rahul’ wants to exit from the fund.
He will have to just give a redemption request to the fund wherein his
units will be redeemed and his remaining post-dated cheques will be
returned back to him irrespective of whether he has completed his
minimum investment in the fund.

Investing in SIPs is also known as Rupee cost averaging. The advantage of

rupee cost averaging is that the Net asset value (NAV) is averaged out, as
the investor will be entering the fund at different NAVs, which may be
higher or lower depending on the market condition.

Lets take the example of ‘Rahul’ wherein he has started investing in units
every month since he issued the first cheque on 7th May 2001. In this
example we assume that he does not change his SIP structure and also does
not redeem the units.

Investment in fund 'X' of Mr. Rahul

Period Investment(Rs) NAV(Rs per unit) Units allocated
7th May'01 500.0 10.0 50.0
7th June,01 500.0 13.0 38.5
7th July'01 500.0 10.5 47.6
7th Aug'01 500.0 9.5 52.6

35
 7th Sep'01 500.0 8.0 62.5
Total a=2,500 b=251.2

Actual average NAV (Rs.) = Rs 10.2 per unit

NAV for Rahul= Rs 9.95 per unit (a/b)

The above table shows clearly how rupee cost averaging works and how it
was beneficial to ‘Rahul’. The actual average NAV of a fund is Rs 10.2/- per
unit, but the average NAV for ‘Rahul’ is Rs 9.95/- per unit, which is lower
than the current NAV.

An investor who is not having a lump-sum amount to invest and also does
not want to take much risk on his investment should always select a
‘Systematic Investment Plan’ option. This will enable him to invest
regularly i.e. improve investing discipline. Also, the investor stands to
benefit from rupee cost averaging.

How to invest in SIPs?

 The SIP option is available with all types of funds like equity, income
or gilt.

 An investor can avail the SIP option by giving post-dated cheques of

Rs 500 or Rs 1,000 according to the funds’ policy.

 If an investor wants to put more than Rs 500 or Rs 1,000 in any given

month he will have to fill in a new a form for SIP intimating the fund
that he is changing his SIP structure. Also he will be allowed to
change the SIP structure only in the multiples of the SIP amount.

 If an investor is investing in two different schemes of the same fund

he can fill in a common SIP form for all the schemes. However if the
first holders in those schemes are different than they will have to fill
different SIP forms, as the first holder has to sign on the form.

36
  The investor can get out of the fund i.e. redeem his units any time
irrespective of whether he has completed his minimum investment in
that scheme. In such a case his post-dated cheques will be returned
back to him.

5 reasons for Investing Systematically

Over the last 12 months investors in equity markets have seen it all. From all
time highs of 6,200 levels to dismal lows of 4,200. A lot of investors who
entered at 6,200 expecting the market to go even higher are very upset. Most
investors cannot really stomach the kind of volatility that is inherent in
equity markets. At the end of the day, investors who can take some risk are
actually shunning equities only because they entered equity markets at the
‘wrong time’. Systematic investment plans (SIPs) take care of this problem.
But market timing is not the only reason for you to plump for SIPs, there are
other advantages.

1. Light on the wallet

Given that average per capital income of an Indian is approximately only Rs
25,000 (i.e. monthly income of Rs 2,083), a Rs 5,000 one-time entry in a
mutual fund is still asking for a lot (2.4 times the monthly income!). And
mutual funds were never meant to be elitist; far from it, the retail investor is
as much a part of the mutual fund target audience as the next high networth
investor (HNI). So if you cannot shell out Rs 5,000, that’s not a huge
stumbling block, take the SIP route and trigger your mutual fund investment
with as low as Rs 500 (in most cases).

2. Makes market timing irrelevant

If market lows give you the jitters and make you wish you had never
invested in equity markets, then SIPs can help you blunt that depression.
Most retail investors are not experts on stocks and are even more out-of-
sorts with stock market oscillations. But that does not necessarily make
stocks a loss-making investment proposition. Studies have repeatedly

37
highlighted the ability of stocks to outperform other asset classes (debt, gold,
property) over the long-term (at least 5 years) as also to effectively counter
inflation. So if stocks are such a great thing, why are so many investors
complaining? Its because they either got the stock wrong or the timing
wrong. Both these problems can be solved through an SIP in a mutual fund
with a steady track record.

3. Helps you build for the future

Most of us have needs that involve significant amounts of money, like
child’s education, daughter’s marriage, buying a house or a car. If you had to
save for these milestones overnight or even a couple of years in advance,
you are unlikely to meet your objective (wedding, education, house, etc).
But if you start saving a small amount every month/quarter through SIPs that
is treated as sacred and that is set aside for some purpose, you have a far
better chance of making that down payment on your house or getting your
daughter married without drawing on your PF (provident fund).

4. Compounds returns
The early bird gets the worm is not just a part of the jungle folklore. Even
the ‘early’ investor gets a lion’s share of the investment booty vis-à-vis the
investor who comes in later. This is mainly due to a thumb rule of finance
called ‘compounding’. According to a study by Principal Mutual Fund if
Investor Early and Investor Late begin investing Rs 1,000 monthly in a
balanced fund (50:50 – equity:debt) at 25 years and 30 years of age
respectively, Investor Early will build a corpus of Rs 8 m (Rs 80 lakhs) at 60
years, which is twice the corpus of Rs 4 m that Investor Late will
accumulate. A gap of 5 only years results in a doubling of the investment
corpus! That is why SIPs should become an investment habit. SIPs run over
a period of time (decided by you) and help you avail of compounding.

5. Lowers the average cost

SIPs work better as opposed to one-time investing. This is because of rupee-
cost averaging. Under rupee-cost averaging an investor typically buys more
of a mutual fund unit when prices are low. On the other hand, he will buy
fewer mutual fund units when prices are high. This is a good discipline since
it forces the investor to commit cash at market lows, when other investors
around him are wary and exiting the market. Investors may even be pleased
when prices fall because the fixed rupee investment would now fetch more
units.

38
Let us break some myths on SIP now.

Investment in equity mutual funds or unit linked insurance should

always be done in SIP mode:

In 1999 when Templeton Mutual fund would talk about SIP – the market
looked at it skeptically. And it took a lot of convincing for customers to
accept it. Now, life has come a full circle. Everybody wants to (always)
invest using an SIP. If you have the maturity and calmness to realize that
equities are for the long term and are willing to give your funds about 10
years, and you have a lump sum, you can afford to give the SIP route a pass.
However, if your horizon is less than five years, you must do an SIP.

I do rupee cost averaging in a single equity – that is a kind of SIP is it

not?

This is a question I face every day. No, a rupee cost averaging in a single
scrip cannot be equated to an SIP. When the market brings down the price of
a single scrip, it is giving you information. You need to react to that.

Let us take 2 examples – Lupin Laboratories – has moved from a high of Rs

700 to Rs 100 and back to Rs 700. The question to ask here is not whether
an SIP would have worked. The question to ask is whether you would have
had the stomach to continue the SIP through this period. Silverline
Technologies moved from Rs 30 to Rs 1300 to Rs 14! In this case, if you
had started an SIP at a price of Rs 1300, today you would be licking your
wounds. SIP works in a portfolio, not in a single scrip.

You cannot invest a lump sum in the same account in which you are
doing an SIP:

39
 Many people assume that if they are doing an SIP in a particular fund, and
suddenly they have a surplus, they cannot put that lump sum in that
account. Fact is, in case you are doing an SIP of Rs 10,000 per month in an
equity fund, and suddenly you have a surplus of Rs 100,000 and clearly you
have a 10-year view on the same, then you can just push it into your SIP
account. SIP is just a payment mode, not a scheme!

If I miss investing for a particular month, will they prosecute me?

Now, this is the fear of EMI that people have. In an SIP you are buying an
investment every month (or quarter), there is no question of prosecuting you
for missing one investment. As a matter of discipline, you should not miss
any month; however, missing one month’s investment is not a crime!

When you have a surplus (accumulation stage of your life) you should
do an SIP and during retirement you should do a Systematic
Withdrawal Plan (SWP):

No. You should ideally keep your withdrawals only from an income fund or
a bank fixed deposit. You should sell an equity fund on some other basis,
say deciding to sell 20% of your portfolio in a year so that the return is 4
times the 30 year historic return. SWP, by definition cannot work in an
equity fund!

SIP works for everybody, but does not work for me:

Another myth. SIP works in a well-diversified equity fund in the long run.
When people put forth arguments that it does not work for them, they have
either not chosen a good fund or are looking at a 12 month horizon.

SIP is only for small investors:

Nothing can be farther from the truth. I have a client who has invested Rs
32.66 lakhs using SIP, starting from January 1998 till date. Obviously, he
has invested much more in later years as his income went up and the funds
together are worth Rs 97 lakhs, substantially higher than his provident fund.

40
Market is at very high level to start an SIP:

I have heard this when the index was 3000 also. I have no clue where the
market is headed, but I know SIP works!

All fund houses are now charging a full load on the SIP, so now SIP will
not work Why not time the market?

Introducing an entry load was expected to happen and it has happened. What
actually hurts the retail investor is the asset management charges – 2.5% in
most cases is a bigger threat to compounding

If I do an SIP in a tax plan, can I withdraw all the money on completion

of 3 years?

Another regular question almost! Every installment has to be with the fund
house for 3 years. The lock-in comes from the Income tax rules, which say
that a tax saving scheme should have a 3-year lock-in. You cannot escape
that by doing an SIP!

Benefits of investing in HDFC MF SIP

HDFC MF SIP is similar to a Recurring Deposit. Every month on a specified

date an amount you choose is invested in a mutual fund scheme of your
choice. The dates currently available for SIPs are the 1st, 5th, 10th, 15th,
20th and the 25th of a month. You’ll be amazed to learn about the many
benefits of investing through HDFC MF SIP.

Benefit 1
Become A Disciplined Invester
Being disciplined - It’s the key to investing success. With the HDFC MF
Systematic Investment Plan you commit an amount of your choice
(minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) to be invested

41
every month in one of our schemes.

Think of each SIP payment as laying a brick. One by one, you’ll see them
transform into a building. You’ll see your investments accrue month after
month. It’s as simple as giving at least 6 postdated monthly cheques to us for
a fixed amount in a scheme of your choice. It’s the perfect solution for
irregular investors.

Benefit 2
Reach Your Financial Goal
Imagine you want to buy a car a year from now, but you don’t know where
the down-payment will come from. HDFC MF SIP is a perfect tool for
people who have a specific, future financial requirement. By investing an
amount of your choice every month, you can plan for and meet financial
goals, like funds for a child’s education, a marriage in the family or a
comfortable postretirement life. The table below illustrates how a little every
month can go a long way.

Monthly Savings - What your savings may generate

Savings per Total amount invested Rate of return
month (Rs. in Lacs) 6.0% 8.0% 10.0%
(for 15 years)
(rupees in lacs, 15 years
later)*
5000 9.0 14.6 17.4 20.9
4000 7.2 11.7 13.9 16.7
3000 5.4 8.8 10.4 12.5
2000 3.6 5.8 7.0 8.3
1000 1.8 2.9 3.5 4.2

*Monthly instalments, compounded monthly, for a 15-year period.

42
Benefit 3
Take Advantage of Rupee Cost Averaging
Most investors want to buy stocks when the prices are low and sell them
when prices are high. But timing the market is timeconsuming and risky. A
more successful investment strategy is to adopt the method called Rupee
Cost Averaging. To illustrate this we’ll compare investing the identical
amounts through a SIP and in one lump sum.

Imagine Suresh invests Rs. 1000 every month in an equity mutual fund
scheme starting in January. His friend, Rajesh, invests Rs. 12000 in one
lump sum in the same scheme. The following table illustrate how their
respective investments would have performed from Jan to Dec:

Suresh’s Investment Rajesh’s Investment

Month NAV Amount Units Amount Units
Jan-04 9.345 1000 107.0091 12000 1284.1091
Feb-04 9.399 1000 106.3943
Mar-04 8.123 1000 123.1072
Apr-04 8.750 1000 114.2857
May-04 8.012 1000 124.8128
Jun-04 8.925 1000 112.0448
Jul-04 9.102 1000 109.8660
Aug-04 8.310 1000 120.3369
Sep-04 7.568 1000 132.1353
Oct-04 6.462 1000 154.7509
Nov-04 6.931 1000 144.2793
Dec-04 7.600 1000 131.5789

*NAV as on the 10th every month. These are assumed NAVs in a volatile
market

As seen in the table, by investing through SIP, you end up buying more units
when the price is low and fewer units when the price is high. However, over

43
a period of time these market fluctuations are generally averaged. And the
average cost of your investment is often reduced.

At the end of the 12 months, Suresh has more units than Rajesh, even though
they invested the same amount. That’s because the average cost of Suresh’s
units is much lower than that of Rajesh. Rajesh made only one investment
and that too when the per-unit price was high.

Suresh’s average unit price = 12000/1480.6012 = Rs. 8.105

Rajesh’s average unit price = Rs. 9.345

44
Benefit 4
Grow Your Investment With Compounded Benefits
It is far better to invest a small amount of money regularly, rather than save
up to make one large investment. This is because while you are saving the
lump sum, your savings may not earn much interest.

With HDFC MF SIP, each amount you invest grows through compounding
benefits as well. That is, the interest earned on your investment also earns
interest. The following example illustrates this.

Imagine Neha is 20 years old when she starts working. Every month she
saves and invests Rs. 5,000 till she is 25 years old. The total investment
made by her over 5 years is Rs. 3 lakhs.Arjun also starts working when he is
20 years old. But he doesn’t invest monthly. He gets a large bonus of Rs. 3
lakhs at 25 and decides to invest the entire amount.

Both of them decide not to withdraw these investments till they turn 50. At
50, Neha’s Investments have grown to Rs. 46,68,273* whereas Arjun’s
investments have grown to Rs. 36,17,084*. Neha’s small contributions to a
SIP and her decision to start investing earlier than Arjun have made her
wealthier by over Rs. 10 lakhs.

45
*Figures based on 10% p.a. interest compounded monthly.

Benefit 5
Do All This Effortlessly

Investing with HDFC MF SIP is easy. Simply give us post-dated cheques or

opt for an Auto Debit from your bank account for an amount of your choice
(minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) and we’ll invest
the money every month in a fund of your choice. The plans are completely
flexible. You can invest for a minimum of six months, or for as long as you
want. You can also decide to invest quarterly and will need to invest for a
minimum of two quarters.

HDFC Mutual Fund has proposed to revise the minimum amount per
Systematic Investment Plan (SIP) installments with effect from 16 March
2009.

As per the revision, monthly SIP and Group SIP-Monthly Plan have been
seperated. Under Group Systematic Investment plan (GSIP) - Monthly plan,
the minimum amount per installment for schemes other than HDFC Tax
Saver and HDFC Long Term Advantage Fund will be Rs 500 and in
multiples of Rs 100 thereafter. And the minimum amount per installment for
HDFC Tax Saver and HDFC Long Term Advantage Fund will be Rs 500
and in multiples of Rs 500 thereafter.

There is no change in the Monthly Systematic Investment Plan. Before

revision, minimum amount per SIP installment provision is same for
monthly SIP and group SIP. Presently, the minimum amount per installment
for schemes other than HDFC Tax Saver and HDFC Long Term Advantage
Fund is Rs 1000 and in multiples of Rs 100 thereafter. And the minimum
amount per installment for HDFC Tax Saver and HDFC Long Term
Advantage Fund is Rs 500 and in multiples of Rs 500 thereafter.

46
 Chapter – 3

Company Profile

MAN WITH A MISSION

47
If ever there was a man with a mission it was Hasmukhbhai Parekh, Founder
and Chairman-Emeritus, of HDFC Group who left this earthly abode on
November 18, 1994. Born in a traditional banking family in Surat, Gujarat,
Mr. Parekh started his financial career at Harkisandass Lukhmidass – a
leading stock broking firm. The firm closed down in the late seventies, but,
long before that, he went on to become a towering figure on the Indian
financial scene.
In 1956 he began his lifelong financial affair with the economic world, as
General
Manager of the newly-formed Industrial Credit and Investment Corporation
of India (ICICI). He rose to become Chairman and continued so till his
retirement in 1972.
At the ripe age of 60, Hasmukhbhai started his second dynamic life, even
more illustrious than his first. His vision for mortgage finance for housing
gave birth to the Housing Development Finance Corporation – it was a
trend-setter for housing finance in the whole Asian continent.
He was also a writer in his own right. There are over 200 published articles
by him...

48
In 1992, the Government of India honoured him with the Padma Bhushan
Award. The London School of Economics & Political Science conferred on
him an Honorary Fellowship.
He was one of the Founder Members of the Centre for Advancement of
Philanthropy, and it’s Chairman till 1993.
He took active interest in the Bombay Community Public Trust, designed
specifically to serve the needs of the city’s underprivileged citizens.
When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he
said: “Taking over from H.T. Parekh is a formidable task; his vision…
brought about not only an institution, but an entire concept which has proved
itself to be of lasting importance.”
Today we are the largest residential mortgage finance institution in India,
with a net worth of Rs. 2,703 cores as of March 31, 2006 and an asset base
of over Rs. 22,000 cores. We also aim to increase the flow of resources to
the housing sector by integrating the housing finance sector with the overall
domestic financial markets.
Over a span of 25 years, HDFC has become the pioneer in housing finance
in India and made it possible for over two million Families to own their
homes, through housing loans worth over Rs. 42,000 cores.

ABOUT COMPANY HDFC

49
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.

ORGANIZATION AND MANAGEMENT

HDFC is a professionally managed organization with a board of directors

consisting of eminent persons who represent various fields including
finance, taxation, construction and urban policy & development. The board
primarily focuses on strategy formulation, policy and control, designed to
deliver increasing value to shareholders.
Name and Designation Location Contact
Number
Mr. Deepak S. Parekh is the executive Chairman of
the Corporation. He is fellow of the Institute of
Chartered Accountants (England & Wales).Mr.
Parekh joined the Corporation in a senior
management position in 1978.He was inducted as a whole time director of
the Corporation in 1985 and was appointed as the Chairman in 1993. He is
the chief executive officer of the Corporation Mumbai.

50
Mr. K. M. Mistry the Managing Director of the
Corporation. Is a Fellow of the Institute of Chartered
Accountants of India? He has been employed with the
Corporation since 1981 and was the executive director
of the Corporation since 1993. He was appointed as
the deputy managing director in 1999 and the Managing Director in 2000.
He is also a member of the Investors’ Grievance Committee of Directors.

Ms. Renu S. Karnad the Executive Director of the

Corporation. Is a graduate in law and holds a Master’s
degree in economics from Delhi University. She has
been employed with the Corporation since 1978 and
was appointed as the Executive Director of the
Corporation in 2000. She is responsible for overseeing
all aspects of lending operations of HDFC.New Delhi.

BOARD OF DIRECTORS
Mr. D S Parekh - Chairman Mr. D N Ghosh

Mr. Keshub Mahindra - Vice Chairman Dr. S A Dave

Ms. Renu S. Karnad - Executive Director Mr. S Venkitaramanan

Mr. K M Mistry - Managing Director Dr. Ram S Tarneja

Mr. Shirish B Patel Mr. N M Munjee

Mr. B S Mehta Mr. D M Satwalekar

51
HDFC ASSET MANAGEMENT COMPANY LIMITED
(AMC)
AMC was incorporated under the Companies Act, 1956, on December 10,
1999, and was approved to act as an AMC for the Mutual Fund by SEBI on
July 30, 2000.

The registered office of the AMC is situated at Ramon House, 3rd Floor,
H.T. Parekh Marg, 169, Back bay Reclamation, Church gate, Mumbai - 400
020.
In terms of the Investment Management Agreement, the Trustee has
appointed HDFC Asset Management Company Limited to manage the
Mutual Fund

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.

The present share holding pattern of the AMC is as follows:

Particulars % of the paid up capital

Housing Development Finance Corporation Limited 50.10
Standard Life Investments Limited 49.90

52
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. These
schemes have been renamed as follows:

FORMER NAME NEW NAME

Zurich India Equity Fund HDFC Equity Fund
Zurich India Prudence Fund HDFC Prudence Fund
Zurich India Capital Builder Fund HDFC Capital Builder Fund
Zurich India Tax Saver Fund HDFC Tax Saver Fund
Zurich India Top 200 Fund HDFC Top 200 Fund
Zurich India High Interest Fund HDFC High Interest Fund
Zurich India Liquidity Fund HDFC Liquidity Fund
Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund

The AMC is managing 2 close ended Income Scheme viz. HDFC Fixed
Investment Plan and HDFC Long Term Equity Fund and 23 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 Long Term Advantage Fund, 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

53
Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund,
(HT200), HDFC Capital Builder Fund (HCBF), HDFC Tax Saver (HTS),
HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC
Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund (HCMF),
HDFC MF Monthly Income Plan (HMIP), HDFC Core & Satellite Fund
(HSCF), HDFC Multiple Yield Fund (HMYF), HDFC Premier Multi-Cap
Fund (HPM) and HDFC Multiple Yield Fund Plan 2005 (HMY2005).

The AMC is also providing portfolio management / advisory services and

such activities are not in conflict with the activities of the Mutual Fund. The
AMC has renewed its 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, 2004 to December 31, 2006.

SPONSORS

HOUSING DEVELOPMENT FINANCE

CORPORATION LIMITED (HDFC):

HDFC was incorporated in 1977 as the first specialised 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
these activities, housing finance remains the dominant activity.

54
HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000
depositors, 92,000 shareholders and 50,000 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 ninth year in
succession. HDFC Standard Life Insurance Company Limited, promoted by
HDFC was the first 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.

HDFC is India's premier housing finance company and enjoys an

impeccable track record in India as well as in international markets. Since its
inception in 1977, the Corporation has maintained a consistent and healthy
growth in its operations to remain the market leader in mortgages. Its
outstanding loan portfolio covers well over a million dwelling units. HDFC
has developed significant expertise in retail mortgage loans to different
market segments and also has a large corporate client base for its housing
related credit facilities. With its experience in the financial markets, a strong
market reputation, large shareholder base and unique consumer franchise,
HDFC was ideally positioned to promote a bank in the Indian environment.

STANDARD LIFE INVESTMENTS LIMITED

55
The Standard Life Assurance Company was established in 1825 and has
considerable experience in global financial markets. In 1998, Standard Life
Investments Limited became the dedicated investment management
company of the Standard Life Group and is owned 100% by The Standard
Life Assurance Company.

With global assets under management of approximately US$186.45 billion

as at March 31, 2005, Standard Life Investments Limited is one of the
world's major investment companies and is responsible for investing money
on behalf of five million retail and institutional clients worldwide. With its
headquarters in Edinburgh, Standard Life Investments 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
Investments Limited manages a diverse portfolio covering all of the major
markets world-wide, which includes a range of private and public equities,
government and company bonds, property investments and various
derivative instruments. The company's current holdings in UK equities
account for approximately 2% of the market capitalization of the London
Stock Exchange.

HDFC MUTUAL FUND PRODUCTS

56
Equity Funds
HDFC Growth Fund
HDFC Long Term Advantage Fund
HDFC Index Fund
HDFC Equity Fund
HDFC Capital Builder Fund
HDFC Tax saver
HDFC Top 200 Fund
HDFC Core & Satellite Fund
HDFC Premier Multi-Cap Fund
HDFC Long Term Equity Fund
HDFC Mid-Cap Opportunity Fund

Balanced Funds
HDFC Children's Gift Fund Investment Plan
HDFC Children's Gift Fund Savings Plan
HDFC Balanced Fund
HDFC Prudence Fund
Debt Funds
HDFC Income Fund
HDFC Liquid Fund
HDFC Gilt Fund Short Term Plan
HDFC Gilt Fund Long Term Plan
HDFC Short Term Plan
HDFC Floating Rate Income Fund Short Term Plan

57
HDFC Floating Rate Income Fund Long Term Plan
HDFC Liquid Fund - PREMIUM PLAN
HDFC Liquid Fund - PREMIUM PLUS PLAN
HDFC Short Term Plan - PREMIUM PLAN
HDFC Short Term Plan - PREMIUM PLUS PLAN
HDFC Income Fund Premium Plan
HDFC Income Fund Premium plus Plan
HDFC High Interest Fund
HDFC High Interest Fund - Short Term Plan
HDFC Sovereign Gilt Fund - Savings Plan
HDFC Sovereign Gilt Fund - Investment Plan
HDFC Sovereign Gilt Fund - Provident Plan
HDFC Cash Management Fund - Savings Plan
HDFC Cash Management Fund - Call Plan
HDFCMF Monthly Income Plan - Short Term Plan
HDFCMF Monthly Income Plan - Long Term Plan
HDFC Cash Management Fund - Savings Plus Plan
HDFC Multiple Yield Fund
HDFC Multiple Yield Fund Plan 2005

HDFC MUTUAL FUND AT A GLANCE

58
Name of Unit : HDFC MUTUAL FUND

Address : 2nd Floor, Shiv Darshan, 5 Jagnath

Plot,Dr.Radhakrishna Road,

Form of Organization : Private Sector

Contact Number : (0281)-5524881/82

Establishment year : 2000

Sponsors : Housing Development Finance
Corporation Limited (HDFC),
Standard Life Investments Limited.

Management : Trustee.
HDFC Asset Management Company Limited
(AMC).

Working Hours : 9.30 am to 9.00 p.m

Web site : www.hdfcfund.com

59
 ACHIEVEMENT AND AWARDS

 “HDFC Prudence fund” has been ranked ICRA-MFR 1, and Has Been
awarded the Gold Award for ‘Best Performance’ in the category of
“Open Ended Balanced Scheme” for one year Period Ending Dec 31,
2005.

 “HDFC Tax saver fund” has been ranked ICRA-MFR 1, and Has Been
Silver award for “Second Best Performance” in the category of “Open
Ended Equity Linked Saving Scheme(ELSS)” for Three year Period
Ending Dec 31, 2005.

 “HDFC MIP~LTP” has been ranked ICRA-MFR 1, and Has been

awarded the Gold Award For “Best Performance” in the category of
“Open Ended Marginal Equity Scheme” for one year Period Ending Dec
31, 2005.

60
 Chapter - 3

Objectives and

scope

61
OBJECTIVES OF THE STUDY

1. To find out the Preferences of the investors for Asset

Management Company.

2. To know the Preferences for the portfolios.

3. To know why one has invested or not invested in SBI

Mutual fund

4. To find out the most preferred channel.

5. To find out what should do to boost Mutual Fund Industry.

Scope of the study

62
A big boom has been witnessed in Mutual Fund Industry in

resent times. A large number of new players have entered the

market and trying to gain market share in this rapidly improving

market.

The research was carried on in I had been sent at one of the

branch of State Bank of India where LUCKNOW. I completed

my Project work. I surveyed on my Project Topic “A study of

preferences of the Investors for investment in Mutual Fund” on

the visiting customers of the SBI Boring Canal Road Branch.

The study will help to know the preferences of the customers,

which company, portfolio, mode of investment, option for

getting return and so on they prefer. This project report may

help the company to make further planning and strategy.

63
 Chapter – 4

QUESTIONAIRE

AND

ANALYSIS

64
 QUESTIONAIRE

A study of preferences of the investors for

investment in mutual funds.

1. Personal Details:

(a). Name:-

(b). Add: - Phone:-

(c). Age:-

(d). Qualification:-

Graduation/PG Under Graduate Others

(e). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick (√).

Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001

Rs.10,000 15000 20,000 30,000 and above

2. What kind of investments you have made so far? Pl tick (√). All
applicable.

65
 a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund
e. Post Office- f. g. Gold/ h. Real Estate
NSC, etc Shares/Debentures Silver

3. While investing your money, which factor will you prefer?

.
(a) Liquidity (b) Low Risk (c) High (d) Trust
Return

4. Are you aware about Mutual Funds and their operations? Pl tick (√).
Yes No

5. If yes, how did you know about Mutual Fund?

a. b. Peer c. Banks d. Financial

Advertisement Group Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√). Yes

No

7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All
applicable.

66
 a. b. c. d. e. Kotak f. Other. specify
SBIMF UTI HDFC Reliance

9. If invested in HDFCMF, you do so because (Pl. tick (√), all applicable).

a. HDFCMF is associated with HDFC Bank.

b. They have a record of giving good returns year after year.
c. Agent’ Advice

10. If NOT invested in HDFCMF, you do so because (Pl. tick (√) all
applicable).

a. You are not aware of HDFCMF.

b. HDFCMF gives less return compared to the others.
c. Agent’ Advice

11. When you plan to invest your money in asset management co. which
AMC will you prefer?

Assets Management Co.

a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI

12. Which Channel will you prefer while investing in Mutual Fund?

(a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will you
prefer? Pl. tick (√).

67
 a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose?

a. Having only debt b. Having debt & c. Only equity

portfolio equity portfolio. portfolio.

15. How would you like to receive the returns every year? Pl. tick (√).

a. Dividend payout b. Dividend re- c. Growth in NAV

investment

16. Instead of general Mutual Funds, would you like to invest in sectorial
funds?
Please tick (√). Yes No

Chapter – 5

ANALYSIS

68
 OF

DATA

ANALYSIS & INTERPRETATION OF THE DATA

1. (a) Age distribution of the Investors of LUCKNOW

Age Group <= 30 31-35 36-40 41-45 46-50 >50

No. of 12 18 30 24 20 16
Investors

69
 35

Investors invested in Mutual Fund

30

25

20

15 30
24
10 18 20
16
5 12

0
<=30 31-35 36-40 41-45 46-50 >50
Age group of the Investors

Interpretation:

According to this chart out of 120 Mutual Fund investors of

Lucknow the most are in the age group of 36-40 yrs. i.e. 25%,

the second most investors are in the age group of 41-45yrs i.e.

20% and the least investors are in the age group of below 30

yrs.

(b). Educational Qualification of investors of Lucknow

Educational Qualification Number of Investors

Graduate/ Post Graduate 88

Under Graduate 25

70
 Others 7

Total 120

6%
23%

71%

Graduate/Post Graduate Under Graduate Others

71
Interpretation:

Out of 120 Mutual Fund investors 71% of the investors in lucknow are

Graduate/Post Graduate, 23% are Under Graduate and 6% are others

(under HSC).

c). Occupation of the investors of lucknow

Occupation of customer No. of investors

Govt. service 35
Pvt. Service 45
Business 30
Agriculture 04
Others 06

72
 50
No. of Investors

40
30
20 45
35 30
10
4 6
0
Govt. Pvt. Business Agriculture Others
Service Service
Occupation of the customers

Interpretation:

73
In Occupation group out of 120 investors, 38% are Pvt.

Employees, 25% are Businessman, 29% are Govt.

Employees, 3% are in Agriculture and 5% are in others.

(d). Monthly Family Income of the Investors of lucknow.

Income Group No. of Investors

<=10,000 5
10,001-15,000 12
15,001-20,000 28
20,001-30,000 43
>30,000 32

50
45
40
No. of Investors

35
30
25
20 43
15 32
28
10
5 12
5
0
<=10 10-15 15-20 20-30 >30
Income Group of the Investorsn (Rs. in Th.)

Interpretation:

In the Income Group of the investors of lucknow, out of

120 investors, 36% investors that is the maximum

74
investors are in the monthly income group Rs. 20,001 to

Rs. 30,000, Second one i.e. 27% investors are in the

monthly income group of more than Rs. 30,000 and

the minimum investors i.e. 4% are in the monthly

income group of below Rs. 10,000

(2) Investors invested in different kind of investments.

Kind of Investments No. of Respondents

Saving A/C 195
Fixed deposits 148
Insurance 152
Mutual Fund 120
Post office (NSC) 75
Shares/Debentures 50
Gold/Silver 30
Real Estate 65

75
 65

Kinds of Investment
30
50

r
ve
NS /Sil
75

d
ol

C)
120

G
152

ce(
148
ffi

ce
O

an
195
st

ur
Po

c
In

A/
g n 0 50 100 150 200 250
vi
Sa

No.of Respondents

Interpretation: From the above graph it can be inferred that

out of 200 people, 97.5% people have invested in Saving A/c,

76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund,

37.5% in Post Office, 25% in Shares or Debentures, 15% in

Gold/Silver and 32.5% in Real Estate.

3. Preference of factors while investing

Factors (a) (b) Low (c) High (d) Trust

Liquidity Risk Return

No. of 40 60 64 36

76
 Respondents

18% 20%

32% 30%

Liquidity Low Risk High Return Trust

77
Interpretation:

Out of 200 People, 32% People prefer to invest where there is

High Return, 30% prefer to invest where there is Low Risk,

20% prefer easy Liquidity and 18% prefer Trust

4. Awareness about Mutual Fund and its Operations

Response Yes No
No. of Respondents 135 65

33%

67%

Yes No

78
Interpretation:

From the above chart it is inferred that 67% People are aware of

Mutual Fund and its operations and 33% are not aware of

Mutual Fund and its operations.

5. Source of information for customers about Mutual

Fund

Source of information No. of Respondents

Advertisement 18
Peer Group 25
Bank 30
Financial Advisors 62

70
60
Respondents

50
No. of

40
30 62
20
25 30
10 18
0
AdvertisementPeer Group Bank Financial
Advisors
Source of Information

79
Interpretation:

From the above chart it can be inferred that the Financial

Advisor is the most important source of information about

Mutual Fund. Out of 135 Respondents, 46% know about

Mutual fund Through Financial Advisor, 22% through Bank,

19% through Peer Group and 13% through Advertisement.

6. Investors invested in Mutual Fund

Response No. of Respondents

YES 120
NO 80
Total 200

80
 No
40%

Yes
60%

Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40%

do not have invested in Mutual Fund.

7. Reason for not invested in Mutual Fund

Reason No. of Respondents

Not Aware 65
Higher Risk 5
Not any Specific Reason 10

81
 6%
13%

81%
Not Aware Higher Risk Not Any

Interpretation:

Out of 80 people, who have not invested in Mutual Fund, 81%

are not aware of Mutual Fund, 13% said there is likely to be

higher risk and 6% do not have any specific reason.

8. Investors invested in different Assets Management Co.

(AMC)

Name of AMC No. of Investors

SBIMF 55
UTI 75
HDFC 30

82
 Reliance 75
ICICI Prudential 56
Kotak 45
Others 70

Others
70
HDFC
30
Name of AMC

Kotak 45
SBIMF
55
ICICI
56
Reliance
75
UTI 75

0 20 40 60 80
No. of Investors

83
 Interpretation:

In lucknow most of the Investors preferred UTI and Reliance

Mutual Fund. Out of 120 Investors 62.5% have invested in each

of them, only 46% have invested in SBIMF, 47% in ICICI

Prudential, 37.5% in Kotak and 25% in HDFC.

9. Reason for invested in HDFCMF

Reason No. of Respondents

Associated with SBI 35
Better Return 5
Agents Advice 15

84
 27%

9% 64%

Associated with SBI Better Return Agents Advice

Interpretation:

Out of 55 investors of HDFCMF 64% have invested because of

its association with Brand HDFC, 27% invested on Agent’s

Advice, 9% invested because of better return.

10. Reason for not invested in HDFCMF

Reason No. of Respondents

Not Aware 25
Less Return 18
Agent’s Advice 22

85
 34%
38%

28%
Not Aware Less Return Agent's Advice

Interpretation:

Out of 65 people who have not invested in HDFCMF, 38%

were not aware with HDFCMF, 28% do not have invested due

to less return and 34% due to Agent’s Advice.

11. Preference of Investors for future investment in Mutual

Fund

Name of AMC No. of Investors

SBIMF 76
UTI 45
HDFC 35
Reliance 82
ICICI Prudential 80
Kotak 60
Others 75

86
 Others 75

Kotak 60
Name of AMC
ICICI Prudential 80

Reliance 82

HDFC 35

UTI 45

SBIMF 76

0 20 40 60 80 100

No. of Investors

Interpretation:

Out of 120 investors, 68% prefer to invest in Reliance, 67% in

ICICI Prudential, 63% in SBIMF, 62.5% in Others, 50% in

Kotak, 37.5% in UTI and 29% in HDFC Mutual Fund.

12. Channel Preferred by the Investors for Mutual Fund

Investment

Channel Financial Advisor Bank AMC

No. of 72 18 30

Respondents

87
 25%

60%
15%

Financial Advisor Bank AMC

Interpretation:

Out of 120 Investors 60% preferred to invest through Financial

Advisors, 25% through AMC and 15% through Bank.

13. Mode of Investment Preferred by the Investors

Mode of Investment One time Investment Systematic Investment Plan

(SIP)
No. of Respondents 78 42

88
 35%

65%

One time Investment SIP

Interpretation:

Out of 120 Investors 65% preferred One time Investment and

35 % Preferred through Systematic Investment Plan.

14. Preferred Portfolios by the Investors

Portfolio No. of Investors

Equity 56
Debt 20
Balanced 44

89
 37%
46%

17%

Equity Debt Balance

Interpretation:

From the above graph 46% preferred Equity Portfolio, 37%

preferred Balance and 17% preferred Debt portfolio

15. Option for getting Return Preferred by the Investors

Option Dividend Payout Dividend Growth

Reinvestment
No. of Respondents 25 10 85

90
 21%

8%

71%

Dividend Payout Dividend Reinvestment Growth

Interpretation:

From the above graph 71% preferred Growth Option, 21%

preferred Dividend Payout and 8% preferred Dividend

Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral

Funds

Response No. of Respondents

Yes 25
No 95

91
 21%

79%
Yes No

Interpretation:

Out of 120 investors, 79% investors do not prefer to invest in

Sectoral Fund because there is maximum risk and 21% prefer to

invest in Sectoral Fund.

92
 CHAPTER -7

Research report

Objective of research;

93
  The main objective of this project is concerned with getting the
opinion of people regarding mutual funds and what they feel about
availing the services of financial advisors.
 I have tried to explore the general opinion about mutual funds. It also
covers why/ why not investors are availing the services of financial
advisors.
 Along with it a brief introduction to India’s largest financial

intermediary, HDFC has been given and it is shown that how they
operate in mutual fund depts.
Scope of the study:

The research was carried on in the Northern Region of India. It is restricted

to LUCKNOW. I have visited people randomly nearby my locality, different
shopping malls, small retailers etc.

Data sources:
Research is totally based on primary data. Secondary data can be used only
for the reference. Research has been done by primary data collection, and
primary data has been collected by interacting with various people. The
secondary data has been collected through various journals and websites and
some special publications of HDFC.

Sampling:

94
 Sampling procedure:

The sample is selected in a random way, irrespective of them being

investor or not or availing the services or not. It was collected through
mails and personal visits to the known persons, by formal and
informal talks and through filling up the questionnaire prepared. The
data has been analyzed by using the measures of central tendencies
like mean, median, mode. The group has been selected and the
analysis has been done on the basis statistical tools available.

Sample size:

The sample size of my project is limited to 200 only. Out of which

only 135 people attempted all the questions. Other 65 not investing in
MFs attempted only 2 questions.

 Sample design:

Data has been presented with the help of bar graph, pie charts, line
graphs etc.

 Limitation:

 Time limitation.

 Research has been done only at LUCKNOW.

 Some of the persons were not so responsive.

 Possibility of error in data collection.

95
  Possibility of error in analysis of data due to small sample size.

Data analysis:

 Have you ever invested/ interested to invest in mutual funds?

YES 135
NO 65

96
  .what is the most important reason for not investing in mutual
funds? (only for above 65 participants)

Lack of knowledge about mutual 25

funds
Enjoys investing in other options 10
Its benefits are not enough to drive 18
you for investment
No trust over the fund managers 12

 .where do you find yourself as a mutual fund investor?

97
Totally ignorant 28
Partial knowledge of MFs 37
Aware of only scheme in which 46
invested
Good knowledge of MFs 24

 .where from you purchases mutual funds?

Directly from the AMCs 33

Brokers only ( large 28

98
intermediaries)
Broker/ sub-brokers 59
Other sources 15

99
Chapter – 8

Findings and

Conclusion

Findings

100
 In LUCKNOW in the Age Group of 36-40 years were more in

numbers. The second most Investors were in the age group of 41-45

years and the least were in the age group of below 30 years.

 In LUCKNOW most of the Investors were Graduate or Post

Graduate and below HSC there were very few in numbers.

 In Occupation group most of the Investors were Govt.

employees, the second most Investors were Private employees and the

least were associated with Agriculture.

 In family Income group, between Rs. 20,001- 30,000 were more

in numbers, the second most were in the Income group of more than

Rs.30,000 and the least were in the group of below Rs. 10,000.

 About all the Respondents had a Saving A/c in Bank, 76%

Invested in Fixed Deposits, Only 60% Respondents invested in Mutual

fund.

 Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least preferred

Trust.

 Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not.

101
 Among 200 Respondents only 60% had invested in Mutual Fund

and 40% did not have invested in Mutual fund.

 Out of 80 Respondents 81% were not aware of Mutual Fund,

13% told there is not any specific reason for not invested in Mutual

Fund and 6% told there is likely to be higher risk in Mutual Fund.

 Most of the Investors had invested in Reliance or UTI Mutual

Fund, ICICI Prudential has also good Brand Position among investors,

HDFCMF places after ICICI Prudential according to the Respondents.

 Out of 55 investors of HDFCMF 64% have invested due to its

association with the Brand HDFC, 27% Invested because of Advisor’s

Advice and 9% due to better return.

 Most of the investors who did not invested in HDFCMF due to

not Aware of HDFCMF, the second most due to Agent’s advice and

rest due to Less Return.

 For Future investment the maximum Respondents preferred

Reliance Mutual Fund, the second most preferred ICICI Prudential,

HDFCMF has been preferred after them.

 60% Investors preferred to Invest through Financial Advisors,

25% through AMC (means Direct Investment) and 15% through Bank.

102
 65% preferred One Time Investment and 35% preferred SIP

out of both type of Mode of Investment.

 The most preferred Portfolio was Equity, the second most was

Balance (mixture of both equity and debt), and the least preferred

Portfolio was Debt portfolio.

 Maximum Number of Investors Preferred Growth Option for

returns, the second most preferred Dividend Payout and then Dividend

Reinvestment.

 Most of the Investors did not want to invest in Sectoral Fund,

only 21% wanted to invest in Sectoral Fund.

Conclusion

Running a successful Mutual Fund requires complete

understanding of the peculiarities of the Indian Stock Market

and also the psyche of the small investors. This study has made

an attempt to understand the financial behavior of Mutual Fund

investors in connection with the preferences of Brand (AMC),

Products, Channels etc. I observed that many of people have

103
fear of Mutual Fund. They think their money will not be secure

in Mutual Fund. They need the knowledge of Mutual Fund and

its related terms. Many of people do not have invested in mutual

fund due to lack of awareness although they have money to

invest. As the awareness and income is growing the number of

mutual fund investors are also growing.

“Brand” plays important role for the investment. People invest

in those Companies where they have faith or they are well

known with them. There are many AMCs in LUCKNOW but

only some are performing well due to Brand awareness. Some

AMCs are not performing well although some of the schemes of

them are giving good return because of not awareness about

Brand. HDFC, Reliance, UTI, SBIMF, ICICI Prudential etc.

they are well known Brand, they are performing well and their

Assets Under Management is larger than others whose Brand

name are not well known like Principle, Sunderam, etc.

Distribution channels are also important for the investment in

mutual fund. Financial Advisors are the most preferred channel

for the investment in mutual fund. They can change investors’

104
mind from one investment option to others. Many of investors

directly invest their money through AMC because they do not

have to pay entry load. Only those people invest directly who

know well about mutual fund and its operations and those have

time.

Chapter – 9

Suggestions
105
 And

Recommendations

Suggestions and Recommendations

 The most vital problem spotted is of ignorance. Investors should

be made aware of the benefits. Nobody will invest until and unless he is

fully convinced. Investors should be made to realize that ignorance is

no longer bliss and what they are losing by not investing.

 Mutual funds offer a lot of benefit which no other single option

could offer. But most of the people are not even aware of what actually

a mutual fund is? They only see it as just another investment option. So

the advisors should try to change their mindsets. The advisors should

106
target for more and more young investors. Young investors as well as

persons at the height of their career would like to go for advisors due to

lack of expertise and time.

 Mutual Fund Company needs to give the training of the

Individual Financial Advisors about the Fund/Scheme and its objective,

because they are the main source to influence the investors.

 Before making any investment Financial Advisors should

first enquire about the risk tolerance of the investors/customers, their

need and time (how long they want to invest). By considering these

three things they can take the customers into consideration.

 Younger people aged under 35 will be a key new customer

group into the future, so making greater efforts with younger customers

who show some interest in investing should pay off.

 Customers with graduate level education are easier to sell to and

there is a large untapped market there. To succeed however, advisors

must provide sound advice and high quality.

 Systematic Investment Plan (SIP) is one the innovative products

launched by Assets Management companies very recently in the

107
 industry. SIP is easy for monthly salaried person as it provides the

facility of do the investment in EMI. Though most of the prospects and

potential investors are not aware about the SIP. There is a large scope

for the companies to tap the salaried persons.

BIBLIOGRAPHY

• NEWS PAPERS

• OUTLOOK MONEY

• TELEVISION CHANNEL (CNBC AAWAJ)

• MUTUAL FUND HAND BOOK

• FACT SHEET AND STATEMENT

• WWW.HDFCMF.COM

• WWW.MONEYCONTROL.COM

• WWW.AMFIINDIA.COM

• WWW.ONLINERESEARCHONLINE.COM

• WWW. MUTUALFUNDSINDIA.COM

108
109