Final Project

Name Santosh RajpurohitCollege G I H M (Pondicherry University)Internship Company

HDFC Mutual Fund

Company Guide Mr. Himanshu VermaInternship Coordinator

Mr. Anish Vasant

Mr. Shaurya Pratap Singh – College Director

Ms. Shipra Singh – College Coordinator Mr. Amit Doshi – Branch Manager HDFC AMC Ms. Prathna Dave – Manager HDFC AMC

PREFACE

For any management course, summer training is essential and important part of curriculum of MBA degree. It is an exposure to corporate environment and help MBA aspirants to get acquainted with organizational norms, procedure, practices, ethics, and culture. It also gives an insight of actual functioning of the organization. It helps the student to understand and to correlate with theoretical

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Special Thanks

aspect with practical reality. It was the great experience with HDFC AMC during summer project which has helped me to improve my communication and interpersonal skills and also give me the better understanding of the subject.

ACKNOWLEDGEMENT

Pondicherry University is outstanding among the Central Universities in India. Teaching and research are its primary functions as in other Central Universities. Pondicherry University believes in creating and disseminating knowledge and skills in core and frontier areas through innovative educational programs, research, consulting and publishing and developing a new age of professionals

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with a high level of competence and deep sense of ethics and commitment to the code of professional conduct.

I Santosh Rajpurohit the students of MBA Batch 2010-12 program is required to undertake Summer Internship Programmer in order to fulfill the requirements of the MBA course as per the assignments given by the Pondicherry university. SIP contains detailed information regarding the activities done. This SIP gives a clear-cut idea about practical field that how theoretical knowledge is different from practical aspects & how can I use my knowledge to solve these problems.However I have collected following Company, Customers and Competitors data during my SIP.

I extend my sincere thanks to all the staff members of HDFC AMC for providing a very hospitable and helpful work environment and making my summer training an exciting and memorable event I also acknowledge heart felt gratitude for all those people who have made available tons of information required for our Project. The successful accomplishment of any task is incomplete without acknowledging the contributing personalities who both assisted and inspired and lead us to visualize the things that turn them into successful stories for our successors. I thank the Almighty God for his grace bestowed on us throughout this project. Last, but not the least, I would like to thank my Parents and all my Friends for their wholehearted direct and indirect support and encouragement.

INSIDE

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Introduction of Mutual Fund

Company Details

Growth of HDFC Mutual Fund

History of Mutual Fund

Organization of Mutual fund

Research on Mutual fund

Types of Mutual fund

Conclusion

Bibliography

INTRODUCTION

The significant outcome of the government policy of liberalization in industrial and

financial sector has been the development of new financial instruments. These

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new instruments are expected to impart greater competitiveness, flexibility and

efficiency to the financial sector. Growth and development of various mutual fund

products in Indian capital market has proved to be one of the most catalytic

instruments in generating momentous investment growth in the capital market.

These is a substantial growth in the mutual fund market due to a high level of

precision in the design and marketing of variety of mutual fund products by banks

and other financial institution providing growth, liquidity and return. In this

context, prioritization, preference building and close monitoring of mutual funds

are essential for fund managers to make this the strongest and most preferred

instrument in Indian capital market for the coming years. With the decline in the

bank interest rates, frequent fluctuations in the secondary market and the

inherent attitude of the Indian small investors to avoid risk, Mutual Funds are

taking their place. Mutual funds combine various elements of liquidity, return and

security in making themselves as the best possible alternative for the small

investors in Indian market. I have attempted to study various need expectations

of small investors from different types of mutual funds available in the Indian

market and identify the risk return perception with the purchase of Mutual Funds.

The Indian financial system in general and the mutual fund industry in particular

continue to take turn around from early 1990s. During this period mutual funds

have pooled huge investments for the corporate sector. The investment habit of

the small investors particularly has undergone a sea change. Increasing number

of players from public as well as private sectors has entered in to the market with

innovative schemes to cater to the requirements of the investors, in India and

abroad. For all investors, particularly the small investors, mutual funds have

provided a better alternative to obtain benefits of expertise- based equity

investments to all types of investors.

COMPANY PROFILE

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HDFC Asset Management Company Limited (AMC)

Vision

To be a dominant player in the Indian mutual fund space recognized for its high

levels of ethical and professional conduct and a commitment towards enhancing

investor interests.

Sponsors

Housing Development Financial Corporation Limited (HDFC)

HDFC was incorporated in 1977 as the first specialized housing finance

institution in India. HDFC provides financial assistance to individuals, corporate

and developers for the purchase or construction of residential housing. It also

provide property related services (e.g. property identification, sales services and

valuation), training and consultancy. Of course activities, housing finance

remains the dominant activity. HDFC currently has a client base of over 800000

borrowers, 1200000 depositors, 92000 shareholders and 50000 deposit agents.

HDFC raises funds from international agencies such as the World Bank, IFC

(Washington), USAID, CDC, ADB and KFW, domestic term loans from banks

and insurance companies, bonds and deposits. HDFC has received the highest

rating for its bonds and deposits program for the 9 th year in succession. HDFC

Standard Life Insurance Company Limited. Promoted by HDFC was the 1st life

insurance company in the private sector to be granted a Certificate of

Registration(on October 23, 2000) by the Insurance Regulatory and

Development Authority to transact life insurance business in India.

Standard Life Investment Limited

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The Standard Life Assurance Company was established in 1825 and has

considerable experience in global financial markets. In 1998, Standard Life

Investment Limited became the dedicated investment management company of

The Standard Life Group and is owned 100% by the Standard Life Assurance

Company. With the global assets under management of approximately

US$186.45 billion as at March 31, 2005, Standard Life Investment Limited is one

of the world’s major investment companies and is responsible for investing

money on behalf of five million retail and institutional clients worldwide. With its

headquarters in Edinburgh, Standard Life Investment Limited has an extensive

and developing global presence with operations in the United Kingdom, Ireland,

Canada, USA, China, Korea and Hong Kong. In order to meet the different needs

and risk profiles of its clients, Standard Life Investment Limited manages a

diverse portfolio covering all the major markets world-wide, which includes a

range of private and public equities, government and company bonds, property

investments and various derivative instruments.

HDFC Trustee Company Ltd.

A company incorporated under the Companies Act, 1956 is the Trustee to the

Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to

time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC

Limited.

HDFC asset Management Company (AMC)

HDFC AMC was incorporated under the Companies Act, 1956, on December 10,

1999, and was approved to act as an Asset Management Company for the

Mutual Fund by SEBI on July 3, 2000. The registered office of the AMC is

situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay

Reclamation, Churchgate, Mumbai - 400 020.

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In terms of the Investment Management Agreement, the Trustee has appointed

HDFC Asset Management Company Limited to manage the Mutual Fund. The

paid up capital of the AMC is Rs. 75.161 crore.

The present share holding pattern of AMC is as follows:

Particulars% of the paid up share

capital

HDFC 50.10

Standard Life Investment Limited

49.90

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund,

following a review of its overall strategy, had decided to divest its Asset

Management business in India. The AMC had entered into an agreement with

ZIC to acquire the said business, subject to necessary regulatory approvals.

On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund

has now migrated to HDFC Mutual Fund on June 19, 2003. The AMC is

managing 18 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund

(HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid

Fund (HLF), HDFC Tax Plan 2000 (HTP), HDFC Children's Gift Fund (HDFC

CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index

Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF),

HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC

TaxSaver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund

(HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund

(HCMF). The AMC is also managing the respective Plans of HDFC Fixed

Investment Plan, a closed ended Income Scheme. The AMC has obtained

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registration from SEBI vide Registration No. - PM / INP000000506 dated

December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio

Managers) Regulations, 1993. The Certificate of Registration is valid from

January 1, 2001 to December 31, 2003. The AMC is also providing portfolio

management / advisory services and such activities are not in conflict with the

activities of the Mutual Fund.

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What exactly is a Mutual Fund?

A Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is then invested in

capital market instruments such as shares, debentures and other securities. The

income earned through these investments and the capital appreciation realized

are shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost. The flow chart below describes broadly the

working of a mutual fund.

The Situation could vary as per age groups, mindsets and risk taking ability, but

the solution, in each case wants money to grow. Most of the investors don’t have

sufficient knowledge about different investment options, financial instrument’s

nature, market information, analytical skills and therefore their funds are lacking

proper management and diversification to get market-linked return with flexibility

as well as liquidity. These kinds of investors should prefer mutual funds to

channelise their funds properly.

A security that gives 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. Shares are issued and can be redeemed as needed.

Mutual Funds are the unique instrument that offers an individual professional

management, diversification, flexibility, liquidity and a chance to get market

linked returns. Mutual funds are indeed the best tool for wealth creation.

Whatever other instruments can do, mutual funds can do too – and more

efficiently.

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MUTUAL FUND INDUSTRY

Alone UTI with just one scheme in 1964 now competes with as many as 400 odd

products and 34 players in the market. In spite of the stiff competition and losing

market share, UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the

industry. New players have come in, while others have decided to close shop by

either selling off or merging with others. Product innovation is now passé with the

game shifting to performance delivery in fund management as well as service.

Those directly associated with the fund management industry like distributors,

registrars and transfer agents, and even the regulators have become more

mature and responsible.

The industry is also having a profound impact on financial markets. While UTI

has always been a dominant player on the bourses as well as the debt markets,

the new generations of private funds which have gained substantial mass are

now seen flexing their muscles. Fund managers, by their selection criteria for

stocks have forced corporate governance on the industry. By rewarding honest

and transparent management with higher valuations, a system of risk-reward has

been created where the corporate sector is more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals,

FMCG and technology sector. Funds performances are improving. Funds

collection, which averaged at less than Rs100bn per annum over five-year period

spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year

mobilization till now have exceeded Rs300bn. Total collection for the current

financial year ending March 2000 is expected to reach Rs450bn.

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What is particularly noteworthy is that bulk of the mobilization has been by the

private sector mutual funds rather than public sector mutual funds. Indeed private

MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the

year as against a net inflow of Rs.604.40 crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in the race for retail

investor’s savings and corporate float money. The power shift towards mutual

funds has become obvious. The coming few years will show that the traditional

saving avenues are losing out in the current scenario. Many investors are

realizing that investments in savings accounts are as good as locking up their

deposits in a closet. The fund mobilization trend by mutual funds in the current

year indicates that money is going to mutual funds in a big way. The collection in

the first half of the financial year 1999-2000 matches the whole of 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. The

U.S. boasts of an Asset base that is much higher than its bank deposits. In India,

mutual fund assets are not even 10% of the bank deposits, but this trend is

beginning to change. Recent figures indicate that in the first quarter of the current

fiscal year mutual fund assets went up by 115% whereas bank deposits rose by

only 17%. (Source: Thinktank, The Financial Express September 99)   This is

forcing a large number of banks to adopt the concept of narrow banking wherein

the deposits are kept in Gilts and some other assets, which improves liquidity

and reduces risk. The basic fact lies that banks cannot be ignored and they will

not close down completely. Their role as intermediaries cannot be ignored. It is

just that Mutual Funds are going to change the way banks do business in the

future.

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HISTORY & BACKGROUND

Four Phases Of Mutual Fund In India

The mutual fund industry can be broadly put into four phases according to the

development of the sector. Each phase is briefly described as under.

First Phase - 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up

by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked

from the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched

by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of

assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by

Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),

Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda

Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked

Rs.47, 004 as assets under management.

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Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into

being, under which all mutual funds, except UTI were to be registered and

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)

was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual

funds setting up funds in India and also the industry has witnessed several

mergers and acquisitions. As at the end of January 2003, there were 33 mutual

funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with

Rs.44,541 crores of assets under management was way ahead of other mutual

funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate

entities. One is the Specified Undertaking of the Unit Trust of India with AUM of

Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust

of India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual Fund

Regulations.

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It

is registered with SEBI and functions under the Mutual Fund Regulations. With

the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,

000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to

the SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current

phase of consolidation and growth. As at the end of September, 2004, there were

29 funds, which manage assets of Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

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TYPES OF MUTUAL FUNDS

Mutual fund schemes may be classified on the basis of its structure and its

investments.

By Structure:

Open-ended Funds

An open-end fund is one that is available for subscription all through the year.

These do not have a fixed maturity. Investors can conveniently buy and sell units

at Net Asset Value ("NAV") related prices. The key feature of open-end schemes

is liquidity.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from

3 to 15 years. The fund is open for subscription only during a specified period.

Investors can invest in the scheme at the time of the initial public issue and

thereafter they can buy or sell the units of the scheme on the stock exchanges

where they are listed. In order to provide an exit route to the investors, some

close-ended funds give an option of selling back the units to the Mutual Fund

through periodic repurchase at NAV related prices. SEBI Regulations stipulate

that at least one of the two exit routes is provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes.

They are open for sale or redemption during pre-determined intervals at NAV

related prices.

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By Investment Objective:-

Income Funds

The aim of income funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds,

corporate debentures and government securities. Income Funds are ideal for

capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such

schemes periodically distribute a part of their earning and invest both in equities

and fixed income securities in the proportion indicated in their offer documents. In

a rising stock market, the NAV of these schemes may not normally keep pace, or

fall equally when the market falls. These are ideal for investors looking for a

combination of income and moderate growth.

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to

long-term. Such schemes normally invest a majority of their corpus in equities. It

has been proven that returns from stocks, have outperformed most other kind of

investments held over the long term. Growth schemes are ideal for investors

having a long-term outlook seeking growth over a period of time.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of

capital and moderate income. These schemes generally invest in safer short-

term instruments such as treasury bills, certificates of deposit, commercial paper

and inter-bank call money. Returns on these schemes may fluctuate depending

upon the interest rates prevailing in the market. These are ideal for Corporate

and individual investors as a means to park their surplus funds for short periods.

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Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each

time you buy or sell units in the fund, a commission will be payable. Typically

entry and exit loads range from 1% to 2%. It could be worth paying the load, if

the fund has a good performance history.

No-Load Funds:

A no-Load Fund is one that does not charge a commission for entry or exit. That

is, no commission is payable on purchase or sale of units in the fund. The

advantage of a no load fund is that the entire corpus is put to work.

Other Schemes:-

Tax saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the

Indian Income Tax laws as the Government offers tax incentives for investment

in specified avenues. Investments made in Equity Linked Savings Schemes

(ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income

Tax Act, 1961. The Act also provides opportunities to investors to save capital

gains u/s 54EA by investing in Mutual Funds, provided the capital asset has been

sold prior to April 1, 2000 and the amount is invested before September 30,

2000.

Special Schemes:-

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the

offer document. The investment of these funds is limited to specific

industries like InfoTech, FMCG and Pharmaceuticals etc.

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Index Schemes

Index Funds attempt to replicate the performance of a particular index

such as the BSE Sense or the NSE 50

Sectoral Schemes

Sect oral Funds are those, which invest exclusively in a specified industry

or a group of industries or various segments such as 'A' Group shares or

initial public offerings.

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PROCESS OF MUTUAL FUND

In the above graph shows how Mutual Fund works and how investor earns

money by investing in the Mutual Fund. Investors put their saving as an

investment in mutual fund. The fund manager, who is a person who takes the

decisions where the money should be invested in securities according to the

scheme’s objective. Securities include Equities, Debentures, Govt. securities,

Bonds and Commercial Paper etc. These securities generate returns to the fund

manager. The fund manager passes beck return to the investor.

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Mutual Funds – Organization

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

Organization of a Mutual Fund

Rights of a Mutual Fund Unit holder

A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds)

Regulations is entitled to:

1. Receive unit certificates or statements of accounts confirming the title

within 6 weeks from the date of closure of the subscription or within 6

weeks from the date of request for a unit certificate is received by the

Mutual Fund.

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

financial position and general affairs of the scheme.

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3. Receive dividend within 42 days of their declaration and receive the

redemption or repurchase proceeds within 10 days from the date of

redemption or repurchase.

4. Vote in accordance with the Regulations to:-

a. Approve or disapprove any change in the fundamental investment

policies of the scheme, which are likely to modify the scheme or

affect the interest of the unit holder. The dissenting unit holder has

a right to redeem the investment.

b. Change the Asset Management Company.

c. Wind up the schemes.

5. Inspect the documents of the Mutual Funds specified in the scheme's offer

document.

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Why should one invest in mutual funds……?

One can avail of the benefits of better returns with added

benefits of anytime liquidity by investing in open-ended debt

funds at lower risk.

One can minimize his risk by investing in mutual funds as the

mutual fund managers analyze the companies’ financials more

minutely than an individual can do as they have the expertise to

do so. They can manage the maturity of their portfolio by

investing in instruments of varied maturity profile.

Moreover, mutual funds are better placed to absorb the

fluctuations in the prices of the securities as a result of interest

rate variation and one can benefits from any such price

movement.

Liquid funds offer liquidity as well as better return than banks and

so attract investors. Many funds provide anytime withdrawal

enabling a big investor to take maximum benefits.

Apart from liquidity, the funds provide very good post-tax returns

on year-to-year basis. Even some of the debt funds have

generated superior returns at relatively low level of risk. On an

average debt funds have posted returns over 10 percent over

one year horizon. In nutshell we can say that these funds have

delivered more than what one expects of debt avenues such as

post office schemes or bank fixed deposits.

Mutual funds specialize in identification of stocks through

dedicated experts in the field and this enables them to pick

stocks at the right movement. Sector funds provide an edge and

generate good returns if the particular sector is doing well.

The benefits listed so far are essentially for the small retail

investor but the industry can attract investments from institutional

and big investors as well.

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Moving up in the risk spectrum, there are many people who

would like to take some risk and invest in equity funds/capital

market. However, since their appetite for risk is also limited, they

would rather have some exposure to debt as well. For these

investors, balanced funds provide an easy route of investment.

Armed with the expertise of investment techniques, they can

invest in equity as well as in good quality debt thereby reducing

risk and providing the investor with better returns than he could

otherwise manage.

Next problem is that of our funds or money. A single person can’t

invest in multiple high-priced stocks for the sole reason that his

pockets are not likely to be deep enough. This limits him from

diversifying his portfolio as well as benefiting from multiple

investments.

Investing through MF route enables an investor to invest in many

good stocks and reap benefits even through a small investment.

This not only diversifies the portfolio and helps in generating

returns from a number of sectors but reduces the risk as well.

Through identification of the right fund might not be an easy task,

a good investment consultants and counselors will can investors

take informed decision.

Investing in just one Mutual Fund scheme may not meet all

investment needs. One might consider investing in a

combination of schemes to achieve your specific goals. Here is

the risk, return grid that shows how and where an investor can

invest according to his risk, returns appetite. An investor can see

different kinds of funds where in he can get maximum benefit

with utmost care.

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Common investment mistakes that people can make

Knowing about some investment mistakes people can make.

1. Investing without a clear plan of action: Many people neglect to take

the time to think about their needs and long-term financial goals before

investing. Unfortunately, this often results in falling short of their

expectations. You should decide whether you are interested in rice

stability, growth, or a combination of these. Determine your investment

goals. Then, depending on your age and your tolerance for risk, select

mutual fund with objective similar to yours.

2. Meddling with your account too often: You should have clear

understanding of your investments so that you are comfortable with their

behavior. If you keep transferring investments in response to downturns in

prices, you may miss the upturns as well. Even in the investment field, the

“tortoise” that is more patient, may win over the “hare”. While past

performance does not necessarily guarantee future performance, your

understanding of the behavior of various investments over a time can help

prevent you from becoming shortsighted about your long-term goals.

3. Losing sight of inflation: While may be aware of the fact that the cost of

goods and services are rising, people tend to forget the impact of inflation

will have on investment in long-term. The value of Rs.100 in 1980 was

down to Rs. 26 in 1995. This means that the buying power of rupee has

decreased, you can not buy as much for Rs.100 now that you could back

in 1980. (Consumer price index for urban non-manual employees has

grown by 9.35% per annum between 1980-81 and 1994-95. Source: RBI

report on Currency and Finance).You have to keep in mind that will eat

into your savings faster than you can imagine.

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4. Investing too little too late: People do not “pay themselves first”. Most

people these days have too many bills to pay every month, and planning

for your future often takes a backseat. Regardless of age or income, if you

do not place long-term investing among your top priorities, you may not be

able to meet your financial goals. The sooner you start, the less you have

to save every month to reach your financial goals.

5. Do not put all your eggs into one basket, diversify: When it comes to

investing, most of us do not appreciate the importance of diversification.

While we know that we should not “put all our eggs in one basket”, we

often relate this concept to stocks and bonds. Take the time to discuss the

importance of diversifying investments among different assets categories

and industries. When you spread your holdings around, you do not have

to rely on the success of just one investment.

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BENEFITS OF MUTUAL FUND

Benefits of Mutual Funds

Mutual funds serve as a link between the saving public and the capital markets.

They mobilize savings from the investors and bring them to borrowers in the

capital markets. Today mutual funds are fast emerging as the favorite investment

vehical because of the many advantages they have over other forms and

avenues of investing. The major advantages offered by mutual funds to all

investors are:

Professional Management

Mutual Funds provide the services of experienced and skilled professionals,

backed by a dedicated investment research team that analyses the performance

and prospects of companies and selects suitable investments to achieve the

objectives of the scheme.

Diversification

Mutual Funds invest in a number of companies across a broad cross-section of

industries and sectors. This diversification reduces the risk because seldom do

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all stocks decline at the same time and in the same proportion. You achieve this

diversification through a Mutual Fund with far less money than you can do on

your own.

Variety

Mutual funds offer a tremendous variety of schemes. This variety is beneficial in

two ways: first, it offers different types of schemes to investors with different

needs and risk appetites; secondly it offers an opportunity to investors to

invest sums across a variety of schemes, both debt and equity. For example, an

investor can invest his money in a Growth Fund ( equity scheme) and Income

Fund (Debt scheme) depending on his risk appetite and thus creates balanced

portfolio easily or simply just buy a Balanced scheme.

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.

Return Potential

Over a medium to long-term, Mutual Funds have the potential to provide a higher

return as they invest in a diversified basket of selected securities.

Low Cost

Mutual Finds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage,

custodial and other fees translate into lower costs for investors.

Liquidity

In open-end schemes, the investor gets the money back promptly at net asset

value related prices from the Mutual Fund. In closed-end schemes, the units can

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be sold on a stock exchange at the prevailing market price or the investor can

avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

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

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 stock. A

mutual fund because of its large corpus allows even a small investor to take the

benefit of its investment strategy.

Choice of schemes

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Regulations

All Mutual Funds are registered with SEBI and they function within the provision

of strict regulations designed to protect the interests of investors. The operations

of Mutual Funds are regularly monitored by SEBI.

Tax BenefitsAny income distributed after March 31, 2002 will be subject to tax in assessment

of all unit holders. However, as a measure of concession to unit holders of open-

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ended equity-oriented funds, income distributions for the year ending March

31,2003,will be taxed at a concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction up to Rs 9000

from the Total income will be admissible in respect of income from investments

specified in Section 80L, including income from units of the Mutual Fund. Units of

the schemes are not subject to Wealth-Tax and Gift-Tax.

DRAWBACKS OF INVESTING IN MUTUAL FUNDS

Potential loss

Unlike a bank deposit, the investment in a mutual fund could fall in value, as the

fund is nothing bur a portfolio of different securities. Apart from a few assured

returns schemes, the fund does not guarantee any minimum percentage of

return.

The Diversification Penalty

While diversification reduces the risk of loss from holding a single security, it also

limits the larger gains if a single security increases dramatically in value. Also,

diversification does not protect the unit holders totally from an overall decline in

the market.

No tailor made portfolio

Mutual fund portfolios are created and marked by AMCs, in to which investors

invest. They can not made tailor made portfolio.

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MUTUAL FUND REGULATION

There was no uniform regulation of the mutual funds industry till a few years ago.

The UTI was regulated by a special Act of Parliament while funds promoted by

public sector banks were subject to RBI Guidelines of July 1989. The Securities

& Exchange Board of India (SEBI) was formed in 1993 as a capital market

regulator. One of its responsibilities was to regulate the mutual fund industry and

it came up with comprehensive regulations for the industry in 1993. The rules for

the formation, administration and management of mutual funds in India were

clearly laid down. Regulations also prescribed disclosure requirements.

The regulations were thoroughly reviewed and re-notified in December 1996. The

revised guidelines tighten the accounting and disclosure requirements in line with

recommendations of The Expert Committee on Accounting Policies, Net Asset

Values and Pricing of Mutual Funds. The SEBI (Mutual Funds) Regulations, 1996

have been further amended in 1997, 1998 and 1999. Today, all mutual funds are

regulated by SEBI. Efforts have been made to bring UTI schemes under SEBI's

ambit with the result that all schemes, with the exception of Unit 64, are now

regulated by the capital market regulator.

Some facts for the growth of mutual funds in India

100% growth in the last 6 years.

Number of foreign AMC's are in the queue to enter the Indian markets like

Fidelity Investments, US based, with over US$1trillion assets under

management worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing these

savings in mutual funds sector is required.

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We have approximately 29 mutual funds which is much less than US

having more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds

are concentrating on the 'A' class cities. Soon they will find scope in the

growing cities.

Mutual fund can penetrate rural like the Indian insurance industry with

simple and limited products.

SEBI allowing the MF's to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

Legal and Regulatory Framework

Mutual funds are regulated by the SEBI (Mutual Fund) regulations, 1996. SEBI is

the regulator of all funds, except offshore funds. Bank sponsored mutual finds

are jointly regulated by SEBI and RBI permission. If there is a bank sponsored

find, it cannot provide a guarantee without RBI permission. RBI regulates money

and govt. securities in which mutual fund invest. Listed mutual funds are subject

to the listing regulations of stock exchanges. Since the AMC and trustee co, are

Co.s they are regulated by the department of co affairs, they have to send

periodic report to the roc and the co law board is the appellate authority.

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Investors cannot sue the trust, as they are the same as the trust and cant sure

themselves. UTI is governed by the UTI act, 1963 and is voluntarily under SEBI

regulations. UTI can borrow as well as lend and also engage in other financial

services activities. SROs are the second tier in the regulatory structure; SROs

cannot do any legislation on their own. All stock exchanges are SROs. AMFI is

an industry association of mutual funds. AMFI is not yet a SEBI registered SRO.

AMFI has created code for mutual funds. AMFI aims at increasing investor

awareness about mutual finds, encouraging best practices and bringing about

high standards of professional behavior in the industry.

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Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund

association in India was generated to function as a non-profit organisation.

Association of Mutual Funds in India (AMFI) was incorporated on 22nd August,

1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has

been registered with SEBI. Till date all the AMCs are that have launched mutual

fund schemes are its members. It functions under the supervision and guidelines

of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund

Industry to a professional and healthy market with ethical lines enhancing and

maintaining standards. It follows the principle of both protecting and promoting

the interests of mutual funds as well as their unit holders.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the

country. It has certain defined objectives which juxtaposes the guidelines of its

Board of Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional and ethical

standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of

conduct which is followed by members and related people engaged in the

activities of mutual fund and asset management. The agencies who are by any

means connected or involved in the field of capital markets and financial services

also involved in this code of conduct of the association.

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AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual

fund industry.

Association of Mutual Fund of India do represent the Government of India, the

Reserve Bank of India and other related bodies on matters relating to the Mutual

Fund Industry.

It develops a team of well-qualified and trained Agent distributors. It implements

a programme of training and certification for all intermediaries and other engaged

in the mutual fund industry.

AMFI undertakes all India awareness programme for investors in order to

promote proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate

information’s on Mutual Fund Industry and undertakes studies and research

either directly or in association with other bodies.

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FUTURE SCENARIO

The asset base will continue to grow at an annual rate of about 30 to 35 % over

the next few years as investor’s shift their assets from banks and other traditional

avenues. Some of the older public and private sector players will either close

shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with

stronger players in three to four years. In the private sector this trend has already

started with two mergers and one takeover. Here too some of them will down

their shutters in the near future to come.

But this does not mean there is no room for other players. The market will

witness a flurry of new players entering the arena. There will be a large number

of offers from various asset management companies in the time to come. Some

big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market

seriously. One important reason for it is that most major players already have

presence here and hence these big names would hardly like to get left behind.

In the U.S. most mutual funds concentrate only on financial funds like equity and

debt. Some like real estate funds and commodity funds also take an exposure to

physical assets. The latter type of funds are preferred by corporate’s who want to

hedge their exposure to the commodities they deal with.

For instance, a cable manufacturer who needs 100 tons of Copper in the month

of January could buy an equivalent amount of copper by investing in a copper

fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund

invests a fixed percentage of it’s corpus in Gold, Silver, Swiss francs, specific

stocks on various bourses around the world, short –term and long-term U.S.

treasuries etc.

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In U.S.A. apart from bullion funds there are copper funds, precious metal funds

and real estate funds (investing in real estate and other related assets as well.).In

India, the Canada based Dundee mutual fund is planning to launch a gold and a

real estate fund before the year-end.

In developed countries like the U.S.A there are funds to satisfy everybody’s

requirement, but in India only the tip of the iceberg has been explored. In the

near future India too will concentrate on financial as well as physical funds.

The mutual fund industry is awaiting the introduction of DERIVATIVES in the

country as this would enable it to hedge its risk and this in turn would be reflected

in it’s Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to

trade in Derivatives. Importantly, many market players have called on the

Regulator to initiate the process immediately, so that the mutual funds can

implement the changes that are required to trade in Derivatives.

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DIFFERENT TERMS

Sale Price

Sale price is the price you pay when you invest in a scheme. Also called Offer

Price. It may include a sales load.

Repurchase Price

Repurchase price is the price at which a close-ended scheme repurchases its

units and it may include a back-end load. This is also called Bid Price.

Redemption Price

Redemption price is the price at which open-ended schemes repurchase their

units and close-ended schemes redeem their units on maturity. Such prices are

NAV related.

Sales Load

Sales load is a charge collected by a scheme when it sells the units. Also called,

‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’

schemes.

NET ASSETS VALUE (NAV)

The performance of a particular scheme of mutual fund is denoted by Net Assets

Value (NAV).Mutual fund invest the money collected from the investors in

securities markets. In simple word, Net Asset Value is the market value of the

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securities held by the scheme. Since market value of securities changes every

day, NAV of a scheme also varies on day to day basis. The NAV per unit is the

market vale of securities of a scheme divided buy the total no of units of the

scheme of any particular date. For example if the market value if securities of a

mutual fund scheme is Rs. 200 lakhs and mutual fund has issue 10 lakhs units of

Rs.10 each to the investors, then the NAV per unit of the fund is Rs. 20 . NAV is

required to be disclosed by the mutual funds on a regular basis –daily of weekly-

depending on the type of scheme.

The net assets value (NAV) is the actual value of one unit of a given scheme in

any given business day. The NAV reflect the liquidation value of the funds

investments on that particular day after accounting for all expenses. It is

calculated by deducting all liabilities except unit capital of the fund from the

realizable value of all assets and dividing it by number of units outstanding.

So NAV is equals to-

Market / fair value of schemes

(+) Receivables

(+) Accrued income

(+) Other assets

(-) Accrued expenses

(-) Payables

(-) Other liability

(/) Number of unit outstanding.

Here, "other assets" includes any income due to the fund but not received as on

the valuation date (for example, dividend announced by a company but yet to be

received). Similarly, "other liabilities" includes expenses payable by the fund, for

example management fees payable to the AMC. Thus, SEBI requires that all

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expenses and incomes are accrued up to the valuation date and considered for

NAV computation.

Net Asset Value - NAV

1. In the context of mutual funds, the total value of the fund's portfolio less

liabilities. The NAV is usually calculated on a daily basis.

2. In terms of corporate valuations, the book value of assets less liabilities.

Notes:

The NAV is usually below the market price because the current value of the

fund’s assets is higher than the historical financial Net Asset Value Per Share

- NAVPS

1. The value of a mutual fund share. Calculated by dividing the total net asset

value of the fund by its number of outstanding shares.

2. A fundamental analysis indicator that gives an estimate of the value of a

fund's shares after all assets are sold and all liabilities are paid off.

Notes:

1. In other words, NAVPS is the value of a single unit of a mutual fund. This

figure is affected by both its underlying value and market forces. It is

important to consider both these factors when buying a mutual fund

because the price that the fund investors pay is based on them.

2. The NAVPS is usually below the market price per share because the

current value of the fund's assets is higher than the value appearing on the

historical financial statements used in the NAVPS calculation. Financial

statements used in the NAV.

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Unit

Unit means the interest of the holders in a scheme. Each unit represents one

undivided share in the assets of a scheme. The value of each changes

depending on the performance of the fund.

Asset Management Company (AMC)

Making decisions regarding investment of the money of the unit holders is a

tricky affair. People at the helm of affairs need to have knowledge about

investment alternatives and should also have up- to- date information. This is

where the role of an Asset Management Company comes into play. The AMC

has to act as the investment manager of the Trust under the Board supervision

and direction of the Trustees. The AMC should also be approved and registered

with the SEBI as an AMC. Directors of the AMC should have adequate

professional experience in financial services and should be individuals of high

moral standing.

One of the other objectives of forming an AMC is that of bringing about

transparency in the working of a mutual fund. The AMC and its directors are

answerable to the Trustees and must submit quarterly reports to them on AMC

activities. They also have to make required disclosures to the investors in areas

such as calculation of NAV and repurchase price.

Lock in period:

Lock-in-period is the minimum period for which investment made in new units of

a scheme cannot be redeemed. Normally, this is specified for tax saving

schemes.

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Systematic transfer plan:

This is a plan offered by some funds under which an investor may choose to

transfer a specified amount from their investments in one scheme of the fund to

another scheme of the same fund at periodic intervals (usually monthly or

quarterly).

Systematic investments plan:

Under these plans, the investor gives a mandate to the mutual fund to allot fresh

units at specified intervals (monthly, quarterly, etc.) against which the investor

provides post-dated cheques. On the specified dates, the cheques are realized

by the mutual fund and, additional units at the prevailing NAV are allotted to the

investor.

This is highly convenient for a person who has a regular source of income and

wishes to allocate a portion of the same towards savings.

The investor does not need to spend time and effort in evaluating investments in

each time interval and probably ensures that the surplus funds do not remain

idle.

It carries an additional advantage of Rupee Cost Averaging. By investing a fixed

amount at regular intervals, one ends up buying more units when the price is low,

and fewer units when the price is high. As a result, over a period of time, the

average unit costs will always be less than average market price per unit,

irrespective of whether the market is rising, falling or fluctuating.

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Conclusion

Following were my learning at HDFC Mutual Fund:

Exposure to the financial market as a whole in practical world with respect

to financial management as a subject in our academics.

Knowledge with regards to getting the information from all employees

Practical exposures from the view point of dealing with people form

business prospective by offering them my company’s products.

First time experience of tracing the activities of the competitors in order to

provide competitive edge to My SIP Company.

Develop the ability to differentiate profitable and non-profitable customer

for organization.

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BIBLIOGRAPHY

WEBSITES

www.amfiindia.com

www.bseindia.com

www.rbi.org.in

www.investopedia.com

www.google.com

www.hdfcfund.com

BOOKS

INVESTMENT MANAGEMENT , SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT BY V.K.BHALLA

STATISTICS FOR MANAGEMENT BY LEVIN & RUBIN

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