hdfc mutual fund
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22TRANSCRIPT
PREFACE
Sardar Patel University is offering the course of bachelor of business administration.
In a classroom we are learning theories & concepts but the main thing is we have to know how these theories are applied in real situation. The company visit is the best chance to understand the real application of the theories & concepts which have learning in the classroom. This project is the part of tY BBA(ITM) 6th SEMESTER programming.
This report is on the subject Comprehensive Project with respect to any one companiy. All the companies are trying that they are best maintain to fulfill the demand of customer.
I had research on hdfc mutual fund. I have learned lot of practical knowledge about the hdfc bank.I have also got the complete information regarding all the hdfc Mutual fund Scemes.
Acknowledgement
The present research work cannot see the light of the day unless it is blessed by the benign assistance of eminent person. The help and co-ordination that I have received from various quarters of in bringing this work to completion makes me feel deeply indebted .This is not a work of individual but a number of persons who helped me directly or indirectly in this journey. So, I wish to express great fullness to all those who have helped & assisted me in bringing the final shape of this report.
First of all, I wish to express my deep sense of gratitude to our In charge Principal Mr. Bhautik Patel for his guidance and moral support all along the period of my study in the institute.
I am deeply indebted to my project guide Prof Mr.Ritesh Patel for his kind advice, encouragement, support & proper guidance during the course of preparation of this project. I got tremendous support in mastering fact & figures from him. Really he had been a great source of information during the period of study.
Last but not the least I wish to express my deep sense of gratitude to all those who where knowingly or unknowingly with me during the project tenure.
Karmvir K Chauhan
Table of Content
S.NO TITLE PAGE NO.
Chapter 1Introduction to mutual fund1.1
Concept of mutual fund 1
1.2 Global Scenario 2
1.3 Organization structure 61.4 Different types of 7
Schemes
1.5 Facts and figures 161.6 Statement of the problem 201.7 Objective of the study 21
Chapter 2 Review of Literature 23Chapter 3 Introduction of companyChapter 4 Research Methodology
4.1 Introduction 295.2 Data Collection 295.3 Data Analysis 305.4 Statistical Tools Used 305.5 Limitation of the Study 31
Chapter 5Analysis and Interpretation 37
Chapter 6Recommendation And Conclusion 72Bibliography
CHAPTER-1
INTRODUCTION
An investment is a sacrifice of current money or other resources for future benefits. Numerous avenues of investments are available today. The two key aspects of any investment are time and risk. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.
1.1 CONCEPT OF MUTUAL FUND Mutual fund is a mechanism for pooling the resources by
issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.
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.
The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI)
which regulates securities markets before it can collect funds from the public.
1.2 GLOBAL SCENARIO
� The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India.
� Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group.
� In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes
� Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway.
� In the U.S. about 9.7 million households will manage their assets on-line by the year 2003, such a facility is not yet of avail in India.
� On- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets.
� 72% of the core customer base of mutual funds in the top 50-broking firms in the U.S. is expected to trade on-line by 2003.
Internationally, on-line investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better.
In fact in advanced countries like the U.S.A, mutual funds buy- sell
transactions have already begun on the net, while in India the Net is
used as a source of Information.
Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion to $ 1,227 billion; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period.
1.3 ORGANISATION STRUCTURE OF MUTUAL FUNDThere are many entities involved and the diagram below
illustrates the organizational set up of a mutual fund:
Fig 1.1
A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power ofsuperintendence and direction over AMC. They monitor the
performance and compliance of SEBI Regulations by the mutual
fund.
SEBI Regulations require that at least two thirds of the
directors of trustee company or board of trustees must be independent i.e. they should not be
associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
1.4 DIFFERENT TYPES OF MUTUAL FUND SCHEMES
SCHEMES ACCORDING TO MATURITY PERIOD:
A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity period.
OPEN-ENDED FUND/ SCHEME
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
CLOSE-ENDED FUND/ SCHEME
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
SCHEMES ACCORDING TO INVESTMENT OBJECTIVE
A scheme can also be classified as growth scheme, income
scheme, or balanced scheme considering its investment objective.
Such schemes may be open-ended or close-ended schemes as
described earlier. Such schemes may be classified mainly as follows:
GROWTH / EQUITY ORIENTED SCHEME
The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
INCOME / DEBT ORIENTED SCHEME
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuation.
BALANCED FUND
The aim of balanced funds is to provide both growth and
regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
MONEY MARKET OR LIQUID FUND
These funds are also income funds and their aim is to provide easy
liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these
schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to
park their surplus funds for short periods.
GILT FUND
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
INDEX FUNDS
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are
made in the offer document of the mutual fund scheme.
FEATURES/ROLE/BENEFITS
MOBILISING SMALL SAVINGS
Mutual funds mobilize funds by selling their own shares, known
as units to an investor a unit in mutual fund means ownership of a
proportional share of securities in
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the portfolio of a mutual fund. This gives the benefit of convenience and the satisfaction of owning shares in many industries.thus, mutual funds are primarily investment intermediaries to acquire individual investments and pass on the returns to small fund investors.
INVESTMENT AVENUE
One of the basic characteristics of a mutual fund is that it provides as Ideal Avenue for investment for persons of small means, and enables them to earn a reasonable return with the advantages of relatively better liquidity. It offers investors a proportionate claim on the portfolio of assets that fluctuate in value in comparison to the value of the assets that comprise the portfolio.
PROFESSIONAL MANAGEMENT
It is possible for the small investors to have the benefit of professional and expert management of their funds. Mutual funds employ professional experts who manage the investment portfolios efficiently and profitably. Investors are relieved of the emotional stress involved in buying or selling securities since mutual take care of this function. With their professional knowledge and experience, they act scientifically with the right timing to buy and sell for their clients. Moreover, automatic reinvestment of dividends and capital gains provides relief to the members of mutual funds. Expertise in stock selection and timing is made available to investors so that the invested funds generate returns.
DIVERSIFIED INVESTMENT
Mutual funds have the advantage of diversified investment of
funds in various industry segments spread across the country. This is advantageous to small investors who cannot afford having the shares of highly established corporate because of high market price. Thus, mutual funds allow millions of investors to have investment in a variety of securities of many different companies. Small investors therefore share the benefits of an efficiently managed portfolio and are free of the problem of keeping track of share certificates etc of various companies, tax rules, etc.
BETTER LIQUIDITY
Mutual funds have the distinct advantage of offering to its investors the benefit of better liquidity of investment. There is always a ready market available for the mutual funds units. In addition, there is also an obligation imposed by SEBI guidelines. For instance, in the case of open- ended mutual fund units, it is possible for the investor to divest holdings any time during the year at the Net Asset Value.
REDUCED RISKS
There is only a minimum risk attached to the principal amount and return for the investments made in mutual fund schemes. This is usually made possible by expert supervision, diversification and liquidity of units. Mutual funds provide small investors the access to a reduced investment risk resulting from diversification, economies of scale in transaction cost and professional finance management.
INVESTMENT PROTECTION
Mutual funds in India are largely regulated by guidelines and legislative provisions put in place by regulatory agencies such as the SEBI. The Securities Exchange Commission (SEC) in the USA allows for the provision of safety of investments. In order to protect the investor interest, it is incumbent on the part of mutual funds to broadly follow the provisions laid down in this regard.
SWITCHING FACILITY
Mutual funds provide investors with flexible investment opportunities, whereby it is possible to switch from one scheme to another. This flexibility enables investors to shift from income
scheme to growth schemes, or vice versa, or from a close-ended scheme to an open-ended scheme, all at will.
TAX BENEFITS
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An attractive benefit of mutual funds is that the various schemes offered by them provide Tax shelter to the investor. This benefit is available under the provisions of the Income Tax Act.
LOW TRANSACTION COSTS
The cost of purchase and sale of mutual fund units is relatively lower. This is due to the large volume of money being handled by mutual funds in the capital market. The fees payable, such as brokerage fee or trading commissions etc are lower. This obviously enhances the quantum of distributable income available for investors.
ECONOMIC DEVELOPMENT
Mutual Funds make contribution to the development of a country’s economy. For instance, the efficient functioning of mutual funds contributes to an efficient financial system. This in turn paves the way for efficient allocation of the financial resources of the country, thus contributing to the economic development. This is made possible through the mobilization of more savings and channelising them to the more productive sectors of the economy.DRAWBACKS
There are many reasons that have been identified by
researchers for the relatively poor performance of mutual funds
industry the world over. They are as follows
� Expensive securities to be bought as part of portfolio build-up of mutual funds, thus increasing the overall cost and thus reducing the returns.
� Reduced returns on account of superfluous diversification.
� Poor use of macro-economic forecast like gross national product, disposal income, forecast of activities of various industries, unemployment rate, inflation rate, interest rate, RBI guidelines, corporate profit, etc
� Poor use of investment alternatives.
RISK INVOVLED WHILE INVESTING IN MUTUAL FUNDS
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 upto the investor to decide how much risk does he is willing to take- up. In order to take an investment decision one should be aware about the various risk involved in it.
MARKET RISKSometimes prices and yields of all securities rise and fall.
Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan-SIP that works on the concept of Rupee Cost Averaging might help mitigates this risk.
CREDIT RISK
The debt servicing ability (may it be interest payments or
repayment of principal) of a company through its cash flows
determines the Credit Risk faced by you. This credit risk is measured
by independent rating agencies like CRISIL who rate companies and
their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’
rating is considered poor credit quality. A well-diversified portfolio
may help to mitigate this risk.
INFLATION RISK
Things you hear people talk about:“Rs. 100 today is worth more than Rs. 100 tomorrow.”
The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your
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investment. A well-diversified portfolio with some investment in
equities might help mitigate this risk.
INTEREST RATE RISKIn a free market economy interest rates are difficult if not
impossible to predict. Changes in interest rates affect the prices of
bonds as well as equities. If interest rates rise the prices of bonds fall
and vice versa. Equity might be negatively affected as well in a rising
interest rate environment. A well-diversified portfolio might help
mitigate this risk.
POLITICAL/GOVERNMENT POLICY RISKChanges in government policy and political decision can
change the investment environment. They can create a favorable environment for investment or vice versa.1.6 PLAYERS IN THE MUTUAL FUND
INDUSTRY BANK SPONSORED
1. Joint Ventures - Predominantly Indian a. SBI Funds Management Ltd.
2. Others a. BOB Asset Management Co. Ltd. b. Canbank Investment Management Services Ltd. c. UTI Asset Management Company Pvt. Ltd.
INSTITUTIONS1. GIC Asset Management Co. Ltd. 2. Jeevan Bima Sahayog Asset Management Co. Ltd.
PRIVATE SECTOR
1. Indian a. BenchMark Asset Management Co. Pvt. Ltd. b. Cholamandalam Asset Management Co. Ltd. c. Credit Capital Asset Management Co. Ltd. d. Escorts Asset Management Ltd. e. JM Financial Mutual Fund f. Kotak Mahindra Asset Management Co. Ltd. g. Reliance Capital Asset Management Ltd. h. Sahara Asset Management Co. Pvt. Ltd
i. Sundaram Asset Management Company Ltd. j. Tata Asset Management Private Ltd.
2. Joint Ventures - Predominantly Indian a. Birla Sun Life Asset Management Co. Ltd. b. DSP Merrill Lynch Fund Managers Limited
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c. HDFC Asset Management Company Ltd.
3. Joint Ventures - Predominantly Foreign a. ABN AMRO Asset Management (I) Ltd. b. Alliance Capital Asset Management (India) Pvt. Ltd. c. Deutsche Asset Management (India) Pvt. Ltd. d. Fidelity Fund Management Private Limited e. Franklin Templeton Asset Mgmt. (India) Pvt. Ltd. f. HSBC Asset Management (India) Private Ltd. g. ING Investment Management (India) Pvt. Ltd. h. Morgan Stanley Investment Management Pvt. Ltd. i. Principal Asset Management Co. Pvt. Ltd. j. Prudential ICICI Asset Management Co. Ltd.
CHAPTER 2STATEMENT OF THE PROBLEM
Based on the definition of problem, it is clearly understandable
that a problem does not necessarily mean that something is
seriously wrong with a current situation that
needs to be rectified immediately. But a “Problem” could simply
indicate an interest in an issue where findings the right answers
might help to improve an existing situation.
The problem of the study involves identifying ways for the Mutual fund players to improve their investment strategy and also providing information about their competitors performance based on which any shortfall existing within them can be overcome for better results of performance.
Evaluating the performance of various fund schemes of different
mutual fund players in the market of different category of funds will
help to identify the actions taken by the fund managers of different
mutual fund players about the ways to handle the situations in
different manner by each of them when the market condition is up or
down and cautiously deciding their investment strategy in order to
reap profits at all the times.
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CHAPTER 3
OBJECTIVE OF THE STUDY
The main objective of the study is to analyze and evaluate the performance of HDFC Mutual Fund Schemes with respective to their competitors schemes, the evaluation of performance of the schemes is carried out for three major categories of the mutual fund schemes such as
¾ EQUITY FUND HDFC Equity Fund Vs Franklin India Blue
Chip Fund Vs Reliance Vision Vs Tata pure
equity
¾ INCOME FUND HDFC Income Fund Vs Templeton India
Income Builder Vs Sundaram Bond saver
¾ BALANCED FUND HDFC Prudence fund Vs Franklin Templeton India
Balanced Fund Vs Alliance 95
The above category schemes are most preferred by the
investors for investing their funds. The idea behind selecting the
category of equity fund scheme is because of its
unique strength of getting high returns associated with high risk mainly preferred by the aggressive investors. And the second category the income fund scheme is mainly concerned for the conservative investors who are willing to take up minimum risk associated with minimum returns. Finally the balanced fund category scheme is for the moderate investors who are willing to take normal risk for normal returns.
The study includes both the GROWTH and DIVIDEND Options of all the above mentioned schemes for the analysis. The selection of the above category is to cover all type of investors. And the
above category schemes are analyzed in different parameters, in order to evaluate the performance of the schemes in all the angles.
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The analysis part of the study is based upon the data collected for the past three years of all the schemes and with help of using some of the statistical tools for evaluation of performance of the schemes. The analysis involves finding out the quarterly returns for the past 3 years, risk and return analysis, the Sharpe measure, rank analysis based on different parameters and finally analysis on the sectoral allocation of the schemes with reference to the latest data knowing the most preferred sectors to be invested for better returns.
Based on the above measures, it will be helpful for us to interpret the findings and evaluate the performance of the various fund schemes of different categories knowing which scheme is highly performing and the scheme which is least performing. This study will help to find out the performance of various competitors schemes and find out the reasons for their performance over a period of time. On this analysis it will help to overcome the shortfall that are existing in a scheme which are least performed when compared to the other competitor’s scheme.
Based on this analysis, we can say whose strategy of investment was proving better and by obtaining information through this analysis the findings are traced out and provided suggestions for the firms to improve their existing situation in an active manner and earn high returns for their investors.
CHAPTER 4
LITERATURE REVIEW
Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds.
Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs.
Before analyzing the performance of the various mutual fund schemes it would be more understandable if we know the meaning of the variables that are involved in this study.
NET ASSET VALUE
The performance of a particular scheme of a mutual fund is denoted by net asset value. Mutual funds invest the money collected from the investors in securities markets. In simple words, net asset value is the market value of the securities held by the scheme. Since market value of securities changes everyday, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.PRICE EARNING RATIO
The ratio between the share price and the post tax earnings of a
company is called as price earning ratio or the P/E multiple. The P/E
multiple is an indicator of value the market assigns to every rupee
earned by a company. If a company’s earnings per share in the last
financial year was Rs. 30, and if it is being traded in the markets at a
price of Rs.
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450, the P/E multiple is 450/30 =15. This means that the market
is paying Rs.15 per rupee of earnings of this company.
DIVIDEND YIELD
The dividend paid out by the company, is usually a percentage of the face value of a share. For example, if a company declares a dividend of 20% the payout is Rs. @ per share of 10. However, a 20% return accrues to the investor only if he has bought the share at Rs. 10. If the market price is different from Rs. 10, the return to the investor would also be different.
EXPENSE RATIO
The ratio of total expenses of the fund to the net asset of the fund. An expense ratio of 1.45% means that the fund spends Rs. 1.45 per 100 of net assets, towards operating expenses and fees to service providers and AMC. Expense ratios can actually understand the total expenses, because brokerage paid on transactions of a fund are not included in the expenses. According to the current SEBI norms, brokerage commissions are capitalized and included in the cost of the transaction. Expense ratios are also sensitive to the size and type of fund. Larger the fund, lower the expense ratio. Equity funds have lower expense ratios than bond funds.PORTFOLIO TURNOVER RATIO
The ratio of aggregate sales/ purchases made by funds in the market to the net assets of the fund. A higher turnover rate means that the fund is churning its portfolio very aggressively. A 100% turnover rate means tat transactions are large enough to have churned the entire portfolio over. A high turnover rate means that the fund manager is tiring to profit from most market turns, but
such a strategy comes with a higher transactions cost too. A fund with a value based strategy is most likely having a lower turnover ratio, while liquid funds are likely to have a large turnover ratio. This ratio has to be evaluated against the stated objective of the fund, and the investment philosophy of the fund manager.
FUND RANKING
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If we are able to compute the Sharpe ratio for funds in the same group say equity funds, comparing them with the S& P CNX 500 index, the Sharpe ratio that we get can be used to rank the funds. The fund with the highest Sharpe ratio will be the top performer, since it has delivered the highest return per unit of risk. Mutual fund ranking involves the comparison of mutual fund performance over a period of time, using several criteria to judge for consistency in performance.
PORTFOLIO MANAGEMENT STYLE
Though fund managers may be investing in the equity markets, it can be seen that each one of them shows a preference for certain
kind of stocks. For example, some funds tend to focus n large and liquid companies. Some tend to be primarily invested in smaller
companies with greater promise of appreciation, but limited liquidity. These preferences of fund managers for choosing securities with
certain characteristics, is called style”. Fund management styles are the most differentiates in the performance of funds.
Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called market risk
or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk.
The Total Risk of a given fund is sum of these two and is
measured in terms of standard deviation of returns of the fund.
Systematic risk, on the other hand, is measured in terms of Beta,
which represents fluctuations in the NAV of the fund vis-à-vis
market. The more responsive the NAV of a mutual fund is to the
changes in the market; higher will be its beta. Beta is calculated by
relating the returns on a mutual fund
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with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way.
In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are:
ØThe Treynor Measure
ØThe Sharpe Measure
The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Where, Ri represents return on fund, Rf is risk free rate of return
and Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.
The Sharpe Measure
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
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Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-
adjusted performance of a fund, a low and negative Sharpe Ratio
is an indication of unfavorable performance.
Comparison of Sharpe and Treynor
Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure.
RUPEE COST AVERAGING
If an investor invests a fixed amount in an investment avenue, say mutual funds, he will benefit from thus disciplined approach, in the long run, even if the Nav of the mutual fund in which he is investing is fluctuating from time to time. This is because, if a fixed sum is invested, when the Nav is high, the investor will buy fewer units; he will buy more units when the NAV is lower. This results in the average cost of investment being lower to the investor. This strategy is called as dollar cost averaging.
Thus rupee cost averaging helps an investor follow a systematic approach to investing. Many mutual funds offer systematic investment plans (SIPs) to enable investors to do rupee cost averaging.
COMPANY PROFILE
HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)
VISION
To be a dominant player in the Indian mutual fund space recognized for its high Levels of ethical and professional conduct and a commitment towards enhancing Investor interests.
MANAGEMENT
HDFC TRUSTEE COMPANY LIMITED
A company incorporated under the Companies Act, 1956 is the Trustee to the Mutual Fund vides the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited.
HDFC ASSET MANAGEMENT COMPANY LIMITED
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 Mutual Fund by SEBI on June 30, 2000.
In terms of the Investment Management Agreement, the Trustee has appointed the AMC 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.
SHAREHOLDING PATTERN OF THE AMC
Fig 1.2
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HDFC 50.10 %
HDFCASSET
MANAGEMENTCOMPANY
STANDARD LIFEINVESTMENTS
LIMITED49.90%
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003.
The AMC is managing 21 open-ended schemes of the Mutual Fund and also managing the respective Plans of HDFC Fixed Investment Plan, a closed ended Income Scheme.
The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 4, 2003 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. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund.
CHAPTER 4
RESEARCH METHODLOGY4.1 Introduction
Research methodology is a way to systematically solve the
research problem. It is understood as science of studying how
research is done scientifically.
It guides and analyzes the various steps of the research along with the logic behind them. It is the framework, which specifies the type of information to be collected, sources of information and the techniques for data analysis.
The data collected for the study of the project involves both the primary and secondary source of data. The primary data collected is mainly based on the observations and interaction made with the agents and the distributors. And the secondary data is collected through various sources such as fact sheets, pamphlets, magazines, newspaper and from the websites of the respective.
5.2 DATA COLLECTION
PRIMARY DATA
The observation is mainly depend upon to know about the investor’s perspective towards their investment in the mutual fund an outperforming investment avenue and also knowing their views and needs in selecting the best among the schemes currently available in the market. Since the AMC has the customer support service block where investors walk-in daily neither for their investments nor for redemption purpose which helped me to gather the raw data.
The interaction made with the distributors and agents through telephonic conversation benefited with good experience to know about the investor’s views indirectly and also about their own
perspective towards the investment made in the mutual funds.
SECONDARY DATA
The fact sheets are issued by the AMC updated periodically on the various information of the schemes. It involves portfolio of the scheme, sectoral allocation, performance compared to their benchmarks over a period of time and portfolio turnover ratio etc acted as a complete profile about the facts and features of the various schemes of the AMC.
The monthly edition magazine on mutual fund named insight to
mutual funds and newspaper helped me to collect data on the current
situation of the mutual fund industry, the recent changes taken place
and emerging sectors for the investment of the funds.
And finally, through surfing the internet data had been collected through accessing various websites such as www.mutualfundindia.com, www.amfiindia.com, www.valueresearchonline.com etc.
5.3 DATA ANALYSIS
The data collected were analyzed on various parameters since the main objective of the study involves in evaluating the performance among the schemes needs to be focused in different angles. All the data are analyzed with the help of statistical tool and also based on the current scenario information of the mutual fund Industry.
5.4 STATISTICAL TOOLS USED
RISK AND RETURN ANALYSIS
The NAV of the various schemes are collected and had taken it as the basis for calculation of the return on the mutual fund
schemes. The returns are calculated for the past 3years on quarterly basis by applying a scientific formula assigned particularly for calculation of returns on mutual fund schemes.
Risk involved in the investment of the mutual fund scheme is also
been evaluated through based on the returns calculated and also by
applying the scientific measuring tool
29
known for finding out the historical risk pertained over the
various period of various schemes.
RANK ANALYSIS
Rank analysis is also been used to evaluate the scheme performance based on value at risk, means the return and risk are taken as two parameters for all the schemes and ranked the scheme on the basis where higher return is obtained at a lower rate of risk.
THE SHARPE MEASURE
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it.
ANALYSIS ON SECTORAL ALLOCATION
The mutual fund schemes allocate the funds on various business and promotional sectors will also act as an important parameter for the evaluation which clearly shows proportion of allocation of funds by various mutual fund players by which an analysis is made with the purview of the present well performing sectors in the country.
5.5 LIMITATION OF THE STUDY
A study holding advantage on one side also has limitations on the other side, based on this perspective there are few limitations that can been seen in this project study is that
� Past performance may or may not sustain in the future
� Unpredictable change in the market condition will prove difficulty in analysis of preferred sector for investing.
� Investor preference is analyzed based only on observation.
� Only few schemes are taken for the study.
� Market risk is not taken in to consideration due to non possibility of information
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k. CHAPTER 5 Data Interpretation and Data Analysis
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED
STANDALONE HIGHLIGHTS
Rs in crores
2012-13
2011-12
Loan Approvals
Current Year
103,260
90,154
Cumulative
566,660
463,400
Loan Disbursements
Current Year
82,452
71,113
Cumulative
456,098
373,646
Spread on Individual Loans
1.96%
Spread on Non Individual Loans
2.94%
Spread on Loans
2.30%
2.27%
Net Interest Margin
4.21%
4.35%
Proposed dividend per share (Rs)(face value of Rs 2 per share)
12.50
11.00
Book Value per Share (Rs)
162
129
Adjusted Book Value - adjusted for unrealised gain on listed
investments (Rs)
360
294
Earnings Per Share
Basic (Rs)
31.84
27.97
Diluted (Rs)
31.45
27.54
Capital adequacy ratio
16.2%
14.6%
of which Tier I
13.8%
11.7%
Tier II
2.4%
2.9%
Non performing loans - Individual Loans
0.58%
0.55%
Non performing loans - Non Individual Loans
0.91%
1.05%
Non performing loans
0.70%
0.74%
Non performing loans (six months over due)
0.40%
0.44%
Write offs
14.74
25.40
Provision for Contingencies
1,316.95
1,218.09
Provision for non performing loans
(including additional provision made by the Corporation)
475.33
452.89
Total Provisions
1,792.28
1,670.98
Interest on Zero Coupon Debentires (ZCDs)
613.57
708.32
Less Deferred Tax on ZCD for the year
175.53
152.36
438.04
555.96
Less Deferred Tax on ZCD in respect of earlier years
-
70.89
Interest on ZCD utilised from securities premium account
438.04
485.07
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED
STANDALONE SCHEDULES
Rs in Crores
2012-13
2011-12
FY13Q4
FY12Q4
INCOME FROM OPERATIONS
Interest on loans
18,945.29
15,354.40
5,098.49
4,459.36
Other Interest
873.06
800.53
240.74
160.40
Surplus from Deployment in Cash Management Schemes
of Mutual Funds
252.34
319.78
51.35
62.57
Dividend Income
480.66
309.66
81.43
61.51
Fees and Other Charges
241.34
268.37
87.94
60.02
Other Operating Income
4.26
9.84
1.25
1.83
20,796.95
17,062.58
5,561.20
4,805.69
INTEREST AND OTHER CHARGES
INTEREST
Loans
2,192.40
3,141.10
285.14
726.92
Deposits
4,456.86
2,964.51
1,216.73
850.23
Bonds and Debentures
7,150.51
4,987.75
1,915.53
1,345.71
13,799.77
11,093.36
3,417.40
2,922.86
OTHER CHARGES
91.12
63.42
22.43
16.07
13,890.89
11,156.78
3,439.83
2,938.93
INVESTMENTS
Equity Shares - Subsidiaries & Associate Companies
8,217.69
8,181.42
Equity Shares - Other Companies
772.07
877.44
Convertible Preference Shares
85.50
65.50
Preference Shares
5.99
5.99
Convertible Debentures
-
2.00
Debentures and Bonds
300.32
361.34
Certificates of Deposits
522.99
-
Pass Through Certificates and Security Receipts
71.05
80.42
Properties
141.54
144.18
Government Securities
2,837.27
1,779.61
Mutual Funds and Other Funds
729.66
772.64
13,684.08
12,270.54
Less: Provision for Diminution in Value of Investments
70.62
63.54
13,613.46
12,207.00
Unrealised gains on listed investments including HDFC
Investments Limited
30,697.77
24,463.71
1 Crore = 10 Million
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED
STANDALONE RECONCILIATIONS
Rs in Crores
Borrowings
2012-13
2011-12
Term Loans
17,824
40,697
Bonds, Debentures and Commercial Paper
89,071
62,138
Deposits
51,933
36,293
158,828
139,128
Loans
2012-13
2011-12
Individuals
111,321
88,778
Corporate Bodies
56,955
50,190
Others
1,770
1,907
Loan Book
170,046
140,875
Less: Provision for non-performing loans (including additional
provision made by the Corporation)
475
453
169,571
140,422
Incremental Growth in the Loan Book
Increase in FY
As % of Total
Loans Outstanding (includes loans sold)
2013
Increase
Individuals
27,668
81%
Non-Individuals
6,677
19%
Total
34,345
100%
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED
CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED MARCH 31, 2013
Rs in crores
2012-13
2011-12
Income from Operations
22,032.46
18,223.92
Premium Income from Insurance business
12,650.29
11,155.57
Other Operating Income from Insurance Business
887.08
596.83
Profit on sale of Investments
378.35
299.46
Other Income
38.75
27.08
Total Income
35,986.93
30,302.86
Expenses
Interest and Other Charges
14,295.52
11,551.92
Staff Expenses
528.13
445.47
Establishment Expenses
125.54
90.38
Other Expenses
429.97
273.32
Claims paid pertaining to Insurance Business
5,221.28
3,797.72
Commission and operating expenses pertaining to Insurance Business
2,278.56
2,093.77
Other Expenses pertaining to Insurance Business
5,437.86
5,695.61
Depreciation
54.20
50.64
Provision for Contingencies
148.59
87.30
28,519.65
24,086.13
Profit Before Tax
7,467.28
6,216.73
Tax Expense
2,002.03
1,726.96
Net Profit (before Profit of Associates and adjustment of Minority Interest)
5,465.25
4,489.77
Share of profit of minority interest
(341.80)
(207.78)
Net share of profit from Associates
1,516.27
1,180.52
Profit after Tax attributable to the Corporation & its subsidiaries
6,639.72
5,462.51
Earnings Per Share (Rs) – Basic
43.6
37.1
Earnings Per Share (Rs) – Diluted
43.1
36.5
Return on Equity
24%
24%
1 Crore = 10 Million
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED
Consolidated Balance Sheet as at March 31, 2013
Rs in Crores
As at
31-Mar-13
31-Mar-12
EQUITY AND LIABILITIES
SHAREHOLDERS' FUNDS
Share Capital
309.27
295.39
Reserves and Surplus
31,751.08
23,920.64
32,060.35
24,216.03
MINORITY INTEREST
1,071.47
819.53
NON-CURRENT LIABILITIES
Policy Liabilities (Policyholders' Fund)
35,086.09
28,101.94
Long Term Borrowings
93,618.53
77,447.47
Other Long Term Liabilities
1,710.92
1,266.12
Long Term Provisions
1,872.48
1,697.50
132,288.02
108,513.03
CURRENT LIABILITIES
Short Term Borrowings
18,929.26
21,132.87
Trade Payables
2,203.19
1,811.44
Other Current Liabilities
- Policy Liabilities (Policyholders' Fund)
4,238.40
3,583.60
- Borrowings
51,114.90
43,898.86
- Others
6,415.41
4,672.64
Short Term Provisions
3,627.23
3,748.02
86,528.39
78,847.43
251,948.23
212,396.02
ASSETS
NON-CURRENT ASSETS
Fixed Assets
(i) Tangible Assets
611.11
611.91
(ii) Intangible Assets
54.39
52.43
(iii) Capital Work in Progress
32.43
6.33
(iv) Intangible Assets Under Development
0.03
0.24
697.96
670.91
GOODWILL ON CONSOLIDATION
185.08
177.53
NON-CURRENT INVESTMENTS
53,616.24
43,355.43
DEFERRED TAX ASSET (Net)
659.60
654.35
LONG TERM LOANS AND ADVANCES
Loans
157,399.33
129,738.35
Others
2,135.94
2,735.85
159,535.27
132,474.20
OTHER NON CURRENT ASSETS
1,014.69
1,674.41
CURRENT ASSETS
Current Investments
5,876.18
5,283.42
Trade Receivable
216.02
632.63
Cash and Cash equivalents
7,071.67
6,481.36
Short term Loans and Advances
- Loans
18,418.46
15,196.03
- Others
3,333.97
5,253.45
Other Current Assets
1,323.09
482.17
36,239.39
33,329.06
DEFICIT IN THE REVENUE ACCOUNT (Policyholders' Account)
-
60.13
251,948.23
212,396.02
Chapter 6
Recommendation and Conclusion
The Findings and the interpretations given in this project were based on the past performance, it may or may not be reflected in the future performance, so the investors were suggested to take due diligence in investing in the funds. It is the also to be noted that the interpretations and the suggestions given in this project were subject to change when more funds are put under analysis. The Following are the few suggestions:
1. HDFC Equity holds higher risk rate when compared to Tata pure equity providing higher returns in spite of its lower risk rate shows its investment strategy which can be focused.
2. HDFC Equity fund sectoral allocation shows that majority of their funds are invested in around five major sectors but the proportion of Tata pure Equity Seems to be diversified. To improve performance of HDFC Equity fund it is suggested to diversify into various sectors rather than investing more in selected sectors.
3. HDFC Equity Fund holds a lesser price earning ratio when
compared to Reliance Vision and Tata Pure Equity, which need
to be focused. Since the investors focus these P/E multiple to
make judgments about valuation of stocks.
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4. HDFC Income Fund though well performing when compared to others the benefit of it is enjoyed only by few, since the corpus is low. If measures are taken to create awareness among investors that even debt fund in HDFC is also performing well, will add value to the whole.
5. HDFC Prudence had performed well during the past 3 years
and if it has to continue its performance an active
investment strategy had to be adopted.
6. Generally to capitalize on the benefit of the power of
compounding the investor is expected to stay in fund for at
least three years
7. The Investor shall invest their money under systematic
investment plan, to get the benefit of the averaging effect.
8. HDFC Prudence though proved to be well when compared among others it’s but the Price earning ration seems to be lower, if measures are taken it can be topper in the Balanced Fund category.
9. It is always better to watch the market and follow the
practice of Active investment strategy than the passive
investment strategy.
10.The overall performance seems to be that HDFC Prudence holds the best place among balanced category over the period of time whereas the result of HDFC Equity and HDFC Income seems to be varying where it requires special attention to be focused on it. So that all the Schemes of HDFC can be the best under their respective category of Funds.
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CONCLUSION
To conclude, based on the analysis carried over on the various category of schemes shows that the performance where varying over the period of time. The performance of the fund schemes were good during 2003-04 showing that if market condition is performing well obviously the funds performance will also positively respond towards it. It clearly states that Mutual fund past performance is no way indicator for the future benefits. Since the investment style is to earn high return associating with high risk. If the market condition seems to be active and prospering then it can be a motivated situation for the investors to reap high benefits through investing in such a boom period.
There is tremendous scope for Mutual funds, as the industry grows more and more, the return on mutual funds investment is not going to be all that important but the quality of services they offer to investors. The investor awareness is the need of the day and hence every mutual fund has to make concerted effort to enlighten the investors. It is a well – recognized fact that the distorted return expectations of the investor (that is, the expectation of high return with an inhibition to bear the corresponding high risk) only retard the growth of the industry. This calls for the active support and involvement of the Association of Mutual Funds in India (AMFI) to educate the investors so as to make them to assess mutual fund investments in its right perspective.
As far as regulation of mutual funds is concerned, one of the positive developments is that SEBI has tightened its grip over the fund operators; The SEBI has already framed a set of guidelines to curb all unethical practices and to ensure investor protection. Combined with the change in the risk – return perception of
investors and the concerted efforts by the SEBI and other agencies, the mutual funds activity in India will emerge as the most vibrant segment of the financial system.
Bibliography
Prasanna Chandra, investment analysis and Portfolio
management, (2004) Tata McGraw- hill publishing Company
Limited.
S.P. Gupta, Statistical Method, (2000) sultan chand and sons. .
Dr. S. Gurusamy, Financial Services and System, (2004)
Vijay Nicole imprints private limited.
Websiteswww.amfiindia.comwww.mutualfundindia.comwww.valueresearchonline.comwww.indiainfoline.comwww.hdfcfund.comwww.nseindia.comwww.sebi.gov.in
SUGGESTIONS