A STUDY ON THE PERFORMANCE OF HDFC MUTUAL FUND SCHEMES WITH RESPECTIVE TO THEIR COMPETITORS SCHEMES By G.S.

LAVANYA Register No: 35103135 of S.R.M. Engineering College A PROJECT REPORT Submitted to the School of Management In partial fulfillment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION SRM INSTITUTE OF SCIENCE AND TECHNOLOGY Deemed University May, 2005

BONAFIDE CERTIFICATE Certified that this project report titled A STUDY ON THE PERFORMANCE OF HDFC MUTUAL FUND SCHEMES WITH RESPECTIVE TO THEIR COMPETITORS SCHEME is the bonafide work of Ms. G.S.LAVANYA who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the Guide Name of the Guide signed by the H.O.D)

Signature of the HOD (Certificate to be counter

ABSTRACT The main aim of the project is to analyze the performance of HDFC schemes with respective to their competitors scheme. The study includes the analysis of mutual fund schemes for the below category of funds known as Equity Fund Income Fund Balanced Fund The idea behind selecting this category of funds is to focus on all type of investors say Aggressive, conservative and moderate investors. these schemes are evaluated from different parameters. The methodology 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 Each category of fund includes schemes from HDFC mutual funds and also their competitors. The performances of

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 reasons for the performance of various competitors schemes over a period of time. This analysis will help to overcome the shortfall that are existing in a scheme which are least performed when compared to the other competitors scheme. ACKNOWLEDGEMENT

At the outset, I wish to express my sincere & wholehearted guidance to all those who made this project a great success. I would like to thank our principal Mr. R.Venkatramani, B.E., M.Tech, F.I.E., for providing me an opportunity to do a project. Besides, I dedicate my special thanks to our Head of the Department Mrs. Dr. Jayashree Suresh, MBA., Ph.D., without whom this would have remained just a dream. My thanks are due to our guide, Mr. T.P. Nagesh, M.com, B.L.,F.I.C.W.A., for his help and valuable guidance in enabling me to successfully complete my project. Moreover, I would like to express my heartfelt thanks to Mr. Shrikanth, Senior Sales Manager of HDFC Asset Management Company who provided me an opportunity to do my project. I owe my special thanks to Mr. Ganesh, Sales Manager, who provided me all necessary details in furnishing the report and helped me in gaining knowledge about this sector.

I would also like to extend my thanks to Mr. Jerry Ninan Thomas for guiding me and for all other staff members of HDFC Asset Management Company who helped me in making this project successful. G.S. Lavanya

TABLE OF CONTENTS

S.NO Chapter 1

TITLE Introduction to mutual fund 1.1 Concept of mutual fund 1.2 Global Scenario 1.3 Indian Scenario 1.4 Organization structure 1.5 Different types of Schemes 1.6 Players in the Mutual Fund Industry 1.7 Facts and figures 1.8 Future scenario

PAGE NO. 1 2 4 6 7 15 16 18 20 21 23 29 29 30 30 31

Chapter 2 Chapter 3 Chapter 4 Chapter 5

Statement of the problem Objective of the study Review of Literature Research Methodology 5.1 Research Approach 5.2 Data Collection 5.3 Data Analysis 5.4 Statistical Tools Used 5.5 Limitation of the Study

Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10

Company Profile Analysis and Interpretation Findings Suggestions Conclusion Bibliography

32 37 68 70 72

LIST OF TABLES

TABLE NO. Tab 1.1 Tab 1.2 Tab 1.3 Tab 1.4 Tab 1.5

NAME OF THE TABLE UNITHOLDING PATTERN OF MUTUAL FUNDS INDUSTRY MUTUAL FUND DATA FOR THE MONTH ENDED - Mar 31 , 2005 ASSETS UNDER MANAGEMENT (AUM) AS AT THE END OF MAR-2005 FEATURES OF HDFC OPEN ENDED SCHEMES GROWTH OPTION -QUARTERLY

PAGE NO. 16 16 17 34 39

RETURNS FOR THE EQUITY CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 Tab 1.6 DIVIDEND OPTION QUARTERLY 40 RETURNS FOR THE EQUITY CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 Tab 1.7 GROWTH OPTION QUARTERLY 42 RETURNS FOR THE INCOME CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 Tab 1.8 DIVIDEND OPTION QUARTERLY 43 RETURNS FOR THE INCOME CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 Tab 1.9 GROWTH RETURNS OPTION FOR THE QUARTERLY BALANCED 45

CATEGORY SCHEMES DATED FROM 1-4-02

TO 31-3-05 Tab 1.10 DIVIDEND RETURNS TO 31-3-05 Tab 1.11 GROWTH OPTION - RISK AND RETURN PERFORMANCE Tab 1.12 OF EQUITY FUND 49 SCHEME FOR THE YEAR 2002-2005 DIVIDEND OPTION - RISK AND RETURN PERFORMANCE Tab 1.13 OF EQUITY FUND 51 SCHEME FOR THE YEAR 2002-2005 GROWTH OPTION - RISK AND RETURN PERFORMANCE Tab 1.14 OF INCOME FUND 52 SCHEME FOR THE YEAR 2002-2005 DIVIDEND OPTION - RISK AND RETURN PERFORMANCE Tab 1.15 OF INCOME FUND 53 SCHEME FOR THE YEAR 2002-2005 GROWTH OPTION - RISK AND RETURN PERFORMANCE Tab 1.16 OF BALANCED FUND 54 SCHEME FOR THE YEAR 2002-2005 DIVIDEND OPTION - RISK AND RETURN PERFORMANCE Tab 1.17 GROWTH OF BALANCED SHARPE FUND RATIO 57 SCHEME FOR THE YEAR 2002-2005 OPTIONCALCULATED FOR EQUITY FUND FOR THE YEAR 2002-2005 Tab 1.18 DIVIDEND OPTION- SHARPE RATIO CALCULATED FOR EQUITY FUND FOR THE YEAR 2002-2005 Tab 1.19 GROWTH OPTIONSHARPE RATIO 58 CALCULATED FOR INCOME FUND FOR THE YEAR 2002-2005 Tab 1.20 DIVIDEND OPTIONSHARPE RATIO 58 CALCULATED FOR INCOME FUND FOR 57 48 OPTION FOR QUARTERLY BALANCED 46 THE

CATEGORY SCHEMES DATED FROM 1-4-02

THE YEAR 2002-2005 Tab 1.21 GROWTH OPTIONSHARPE RATIO 59 CALCULATED FOR BALANCE FUND FOR THE YEAR 2002-2005 Tab 1.22 DIVIDEND OPTIONSHARPE RATIO 59 CALCULATED FOR BALANCE FUND FOR THE YEAR 2002-2005 Tab 1.23 Tab 1.24 Tab 1.25 Tab 1.26 EQUITY FUND - RANK ANALYSIS INCOME FUND - RANK ANALYSIS BALANCEDFUND RANKANALYSIS EQUITY SECTORS Tab 1.27 INCOME SECTORS Tab 1.28 BALANCED FUND - PROPORTIONS OF FUNDS ALLOCATED IN THE VARIOUS SECTORS LIST OF FIGURES FIGURE NO. Fig 1.1 Fig 1.2 Fig 1.3 Fig 1.4 Fig 1.5 Fig 1.6 Fig 1.7 NAME OF THE FIGURE ORGANISATION MUTUAL FUND STRUCTURE OF PAGE NO. 6 33 40 41 43 44 46 67 FUND PROPORTIONS OF 66 FUNDS ALLOCATED IN THE VARIOUS FUND PROPORTIONS OF FUNDS ALLOCATED IN THE VARIOUS 61 62 63 65

SHAREHOLDING PATTERN OF THE AMC GROWTH OPTION -QUARTERLY RETURNS FOR THE EQUITY CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 DIVIDEND OPTION - QUARTERLY RETURNS FOR THE EQUITY CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 GROWTH OPTION - QUARTERLY RETURNS FOR THE INCOME CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 DIVIDEND OPTION - QUARTERLY RETURNS FOR THE INCOME CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 GROWTH OPTION QUARTERLY

Fig 1.8

Fig 1.9 Fig 1.10 Fig 1.11 Fig 1.12 Fig 1.13 Fig 1.14

RETURNS FOR THE BALANCED CATEGORY SCHEMES DATED FROM 1-402 TO 31-3-05 DIVIDEND OPTION - QUARTERLY RETURNS FOR THE BALANCED CATEGORY SCHEMES DATED FROM 1-402 TO 31-3-05 GROWTH OPTION - RISK AND RETURN PERFORMANCE OF EQUITY FUND SCHEME FOR THE YEAR 2002-2005 DIVIDEND OPTION - RISK AND RETURN PERFORMANCE OF EQUITY FUND SCHEME FOR THE YEAR 2002-2005 GROWTH OPTION - RISK AND RETURN PERFORMANCE OF INCOME FUND SCHEME FOR THE YEAR 2002-2005 DIVIDEND OPTION - RISK AND RETURN PERFORMANCE OF INCOME FUND SCHEME FOR THE YEAR 2002-2005 GROWTH OPTION - RISK AND RETURN PERFORMANCE OF BALANCED FUND SCHEME FOR THE YEAR 2002-2005 DIVIDEND OPTION - RISK AND RETURN PERFORMANCE OF BALANCED FUND SCHEME FOR THE YEAR 2002-2005

47

49 50 51 52 54 55

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. Basic Changes That Have Taken Place since the Advent of the Net. Lower Costs: Distribution of funds will fall in the online trading regime by 2003. Mutual funds could bring down their administrative costs to 0.75% if trading is done online. As per SEBI regulations, bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are low, the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base. Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning. In India, brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net.

New investors would prefer online: Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption.

1.3 INDIAN SCENARIO Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases FIRST PHASE - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964.

SECOND PHASE - 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by 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 established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

THIRD PHASE - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions

.FOURTH PHASE - since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the

setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

1.4 ORGANISATION STRUCTURE OF MUTUAL FUND There 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 of

superintendence 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.

1.5 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 closeended 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 longterm. 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 fluctuations.

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.

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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 countrys 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.

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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 RISK Sometimes 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 RISK In 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 RISK Changes 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. INSTITUTIONS 1. 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. k. Standard Chartered Asset Mgmt Co. Pvt. Ltd.

1.7 FACTS AND FIGURES OF THE MUTUAL FUND INDUSTRY Tab 1.1: UNITHOLDING PATTERN OF MUTUAL FUNDS INDUSTRY CATEGOR Y Individual s NRIs/OC Bs FIIs Corporate / Institutio ns/ Others 324,979 TOTAL

NUMBER OF INVESTOR S ACCOUNT S % TO TOTAL INVESTOR S ACCOUNT S NET ASSET VALUE (RS.CRORE ) % TO TOTAL NET ASSET VALUE

15,557,506

84,311

2,058

15,968,854

97.42

0.53

0.01

2.04

100.00

32,691.12

878.51

561.67

45,469.53

79,600.83

41.07

1.10

0.71

57.12

100.00

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Tab 1.2: MUTUAL FUND DATA FOR THE MONTH ENDED - Mar 31 , 2005 (IN CRORES) No. of Sales Redemptio Assets Under new n Management schemes New Existin Total Total as on as on Inflow launche scheme g Mar Feb / d during s scheme 31 , 28 , Outflo the s 2005 2005 w month 3 1035 11808 1284 3 1061 1159 12518 3191 26220 19246 29103 28996 3010 3143 107 -133 265 -51

Category

B Bank Sponsored

C Institutions 1 98 D Private Sector & Joint Venture : I Indian 7 3348 II Predominantl y Indian III Predominantl y Foreign Grand Total (A+B+C+D ) 3 2399

23697 2704 5 17333 1973 2 34650 3776 0 88549 9853 9

30750 30485 30885 30936

3110

40662

55852 59693 -3841

21

9990

101837

14960 15325 -3653 0 3

Tab 1.3 Assets under Management (AUM) as at the end of Mar-2005 (Rs in Lakhs) Average AUM Mutual Fund Name 1. ABN AMRO Mutual Fund 2. Alliance Capital Mutual Fund AUM 92299.57 120566.64 Adjusted AUM 92299.57 120566.64 For The Month 0

17

3. Benchmark Mutual Fund 4. Birla Sun Life Mutual Fund 5. BOB Mutual Fund 6. Canbank Mutual Fund 7. Chola Mutual Fund 8. Deutsche Mutual Fund 9. DSP Merrill Lynch Mutual Fund 10. Escorts Mutual Fund 11. Franklin Templeton Mutual Fund 12. GIC Mutual Fund 13. HDFC Mutual Fund 14. HSBC Mutual Fund 15. ING Vysya Mutual Fund 16. JM Financial Mutual Fund 17. Kotak Mahindra Mutual Fund 18. LIC Mutual Fund 19. Morgan Stanley Mutual Fund 20. PRINCIPAL Mutual Fund 21. Prudential ICICI Mutual Fund 22. Reliance Mutual Fund 23. Sahara Mutual Fund 24. SBI Mutual Fund 25. Standard Chartered Mutual Fund 26. Sundaram Mutual Fund 27. Tata Mutual Fund 28. Taurus Mutual Fund

48702.36 1037328.96 14487.19 162304.04 102448.57 181412.77 550210.49 13034.39 1535361.42 12024.61 1500982.61 624704.98 119106.4 406103.77 664928.21 289037.84 154434.43 552126.19 1529827.98 954264.22 23892.87 659528 693669.59 185617.07 678404.01 16880.39

48702.36 1037328.96 14487.19 162300.04 102448.57 181412.77 550210.49 13034.39 1535361.42 12024.61 1500982.61 624704.98 119106.4 406103.77 664928.21 289037.84 154434.43 552126.19 1529827.98 954264.22 23892.87 659528 677588.89 185617.07 678404.01 16880.39 17617.39 215448.78 686347 158766.22 704540.08 1608465.02 195040.58 222710.34

18

29. UTI Mutual Fund Total

2073957.19 14997646.76

2073957.19 14981562.06

2130773.26

1.8 FUTURE SCENARIO: The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors 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 who want to hedge their exposure to the commodities they deal with.

19

For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short term and long-term U.S. treasuries etc. In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end. In developed countries like the U.S.A there are funds to satisfy everybodys 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 its 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. CHAPTER 2 STATEMENT 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

20

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. 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 EQUITY FUND HDFC Equity Fund Vs Franklin India Blue Chip Fund Vs Reliance Vision Vs Tata pure equity INCOME FUND HDFC Income Fund Vs Templeton India Income Builder Vs Sundaram Bond saver 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

21

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. 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 competitors 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.

22

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 companys 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.

23

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

24

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-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

25

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--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: The Treynor Measure The 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

26

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.

27

CHAPTER 5 RESEARCH METHODLOGY 5.1 RESEARCH APPROACH 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 investors 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 investors views indirectly and also about their own perspective towards the investment made in the mutual funds.

28

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

30

CHAPTER 6 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

31

HDFC 50.10 % HDFC ASSET MANAGEMENT COMPANY

STANDARD LIFE INVESTMENTS 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 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. OUTLOOK OF VARIOUS HDFC MUTUAL FUND SCHEMES

Tab 1.4 FEATURES OF HDFC OPEN ENDED SCHEMES

32

NAME OF THE SCHEME INVESTME NT OBJECTIVE

HDFC GROWTH FUND

HDFC EQUITY FUND

To generate long To achieve term capital capital appreciation appreciation from a portfolio that is invested predominantly in equity and equity related instruments Growth &Dividend Payout & reinvestment For New investors For Existing investors : In respect of each purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores Nil Every Business Day Growth &Dividend Payout & reinvestment Rs. 5,000 Rs. 1,000 In respect of each purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores Nil Every Business Day

INVESTME NT OPTIONS MINIMUM APPLICATI ON AMOUNT ENTRY / SALES LOAD

EXIT LOAD NET ASSET VALUE

HDFC CAPITAL BUILDER FUND To generate long To achieve term capital capital appreciation appreciation in from a portfolio the long term. of equity linked instruments primarily drawn from the companies in BSE 200 index Growth Growth &Dividend &Dividend Payout & Payout & reinvestment reinvestment and in multiples of Rs.100 and in multiples thereof of Rs.100 thereof In respect of In respect of each purchase / each purchase / switch in of switch in of units less than units less than Rs.5 crore in Rs.5 crore in value, an entry value, an entry load of 2.25% is load of 2.25% is payable and no payable and no entry load if the entry load if the value is more value is more than 5crores than 5crores Nil Nil Every Business Day Every business Day

HDFC TOP 200 FUND

33

NAME OF THE SCHEME NATURE OF SCHEME INVESTME NT OBJECTIVE

HDFC BALANCED FUND Open-ended Balanced scheme To generate capital appreciation along with current income from a combined portfolio of equity & equityrelated and debt &money market instruments. Growth &Dividend Payout & reinvestment For New investors For Existing investors :

HDFC PRUDENCE FUND Open-ended Balanced scheme To provide periodic returns and capital appreciation over a long period of time from a judicious mix of equity and debt investments with an aim to prevent/minimi ze any capital erosion Growth &Dividend Payout & reinvestment Rs. 5,000 and in multiples of Rs.100 thereof Rs. 1,000 and in multiples of Rs.100 thereof In respect of each purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores

HDFC LONG TERM ADVANTAGE FUND Open-ended Equity Linked Scheme with a lock-in period of 3 years To generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity-related instruments

HDFC TAX SAVER Open-ended Equity Linked Scheme with a lock-in period of 3 years To achieve long term growth of capital

INVESTME NT OPTIONS MINIMUM APPLICATI ON AMOUNT

Growth &Dividend Payout & reinvestment For New investors For Existing investors : In respect of each purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores

Growth &Dividend Payout & reinvestment Rs.500 and in multiples thereof Rs.500 and in multiples thereof

ENTRY / SALES LOAD

In respect of each purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores

In respect of each purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores

34

EXIT LOAD NET ASSET VALUE

Nil Every Business Day

Nil Every Business Day

Nil Every Business Day

Nil Every business Day

NAME OF THE SCHEME NATURE OF SCHEME INVESTME NT OBJECTIVE

HDFC CORE AND SATELLITE FUND Open-ended Growth Scheme The objective of the scheme is to generate capital appreciation through equity investment in companies whose shares are quoting at prices below their true value

HDFC INDEX FUND Open-ended Index Linked Scheme Nifty Plan: To generate returns that are commensurate with the performance of the Nifty, subject to tracking errors. Sensex Plan: To generate returns that are commensurate with the performance of the Sensex subject to tracking errors. Sensex plus plan : To invest 80 to 90% of the net assets of the plan in companies whose securities are included in Sensex and between 10% & 20% of the net assets in companies whose securities are not included in the Sensex Nifty plan, Sensex plan, Sensex plus plan. At present each plan offers Growth option Rs. 5,000 and in multiples Rs. 1,000 and in multiples

HDFC CHILDRENS GIFT FUND Open- ended Balanced Scheme The primary objective of both the plans under the scheme is to generate long term capital appreciation.

INVESTME NT OPTIONS MINIMUM APPLICATI ON AMOUNT

Growth & Dividend Payout & reinvestment For New investors For Existing investors :

Investment Plan : Equity Oriented Savings Plan : Debt Oriented of Rs.100 thereof of Rs.100 thereof

35

ENTRY / SALES LOAD

EXIT LOAD

In respect of each NIL purchase / switch in of units less than Rs.5 crore in value, an entry load of 2.25% is payable and no entry load if the value is more than 5crores Nil In respect of each purchase/switch in of units upto and including Rs. 5lakh in value, an exit load of 1.00% is payable if units are redeemed within one year from the date of allotment. No exit load for value more than Rs.5 lakh

Investment plan 2.25% Savings Plan 1.25%

For units subject for lock-in period : Nil For units not subject to lock-in-period: 3% if the units are redeemed/switched-out within one year from the date of allotment; 2% if theUnits are redeemed/switched out between the first and second year of the date of allotment; 1% if units are redeemed / switched out between the second and 3rd year of the date of allotment; Nil if the units are redeemed /Switchedout after third year from the date of allotment. Every Business Day

NET ASSET VALUE

Every Business Day

Every Business Day

CHAPTER 7 DATA ANALYSIS AND INTERPRETATION 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.

36

The analysis part of the study involves using some of the statistical tools for the evaluation of the performance of the schemes involve: Calculating quarterly returns for the past 3 years for all the schemes and representing the performance using graphical presentation Risk and return analysis Rank analysis The Sharpe measure Analysis on Sectoral allocation of the schemes

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 reasons for the performance of various competitors schemes over a period of time. This analysis will help to overcome the shortfall that are existing in a scheme which are least performed when compared to the other competitors scheme.

ANALYSIS BASED ON PAST 3 YEAR QUATERLY RETURNS PERFORMANCE PROCEDURE: The analysis is based on the collection of the NAV values of all the schemes for the past 3 years for both the growth and dividend option. Based on the NAV values of all the schemes the quarterly returns are calculated by using the rate of return technique. TECHNIQUE USED: Growth option NAV at the end - NAV at the beginning PERCENTAGE CHANGE = of the period of the period IN NAV NAV at the beginning of the period Dividend option

37

SIMPLE TOTAL RETURN = EQUITY FUND

NAV at the end - NAV at the beginning + Dividend paid of the period of the period during the period NAV at the beginning of the period

The aim of this fund is to provide capital appreciation over the medium to long-term. Such schemes invest their corpus in equities having comparatively high risks. Equity schemes are good for investors having a long term outlook seeking appreciation over a period of time.

SAMPLE USED The sample used for the analysis of the study is the NAV values for the past 3 years of the following schemes named as follows: HDFC Equity Fund Franklin India Blue Chip fund Reliance Vision Tata pure Equity GROWTH OPTION Tab 1.5 QUARTERLY RETURNS FOR THE EQUITY CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 (In percentage) QUARTER HDFC Franklin India Reliance Tata pure Equity Blue chip Vision equity 1 -2.48 -5.47 -1.36 2 -10.76 -9.87 -16.23 3 14.98 15.57 12.27 4 -2.79 -4.80 -8.65 5 33.61 25.67 27.53 34.73 6 30.47 29.34 36.83 30.06 7 32.30 39.61 41.49 41.73 8 -1.32 0.59 -9.12 -2.41 9 -14.39 -13.05 -12.94 -12.99 10 18.09 12.21 20.55 19.19 11 18.29 17.52 18.10 19.12 12 -0.35 -3.43 4.52 0.97

38

Fig 1.3
3 YEAR QUARTERLY RETURN
50.00% 40.00% 30.00% 20.00% RETURN 10.00% 0.00% -10.00% -20.00% 1 2 3 4 5 6 7 8 9 10 11 12 QUARTER

HDFC EQUITY RELIANCE VISION

FRANKLIN INDIA BLUE CHIP TATA PURE EQUITY

DIVIDEND OPTION Tab 1.6 QUARTERLY RETURNS FOR THE EQUITY CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 (In percentage) Quarter HDFC Franklin India Reliance Tata pure Equity Blue chip Vision equity 1 -2.59 -5.50 2 -10.75 -9.93 3 14.96 15.61 4 -2.72 -4.76 5 33.59 25.74 27.40 6 43.04 26.70 36.36 7 32.21 39.64 40.01 39.15 8 -1.60 0.52 -8.61 -2.13 9 -14.39 -13.06 -14.22 -13.01 10 18.10 12.22 20.63 19.24 11 17.05 17.54 18.00 18.29 12 -0.35 -3.91 -9.49 0.99

39

Fig 1.4
3 YEAR QUARTERLY RETURN
50.00% 40.00% 30.00% 20.00% RETURN 10.00% 0.00% -10.00% -20.00% 1 2 3 4 5 6 7 8 9 10 11 12 QUARTER HDFC Equity Reliance Vision Franklin India Blue Chip Tata Pure Equity

INTERPRETATION Based on the above table 1.5 the quarterly returns of the various schemes seem to be fluctuating. During the period of 2002-03 the quarters 1, 2, 3 & 4 the performance of the various scheme are varying with different returns, say in the 3rd quarter the Franklin was performing good when compared to others next with HDFC Equity . Again during 2003-04 the performance of TATA Pure Equity was proving good with higher returns. But again in 2004-05 the reliance was performing well. Since returns of all the schemes are keeping varying over period of time it shows that each investment strategy work outs for certain time. Based on the above table 1.6 the nav of this option will be lower than the growth scheme because the dividend are paid out to the investors when dividend is declared to that extent of amount the price will come down, during the 2002-03 the returns were almost in negative at least for 3 quarters. And at 2003-04 the well performed market condition period proves that HDFC Equity and Reliance Vision were performing equally well. And finally at the end of 2005 we say that though reliance at the mid of the Period but later on dropped down even HDFC Equity was also managed to perform quite well but overall during that period TATA pure equity performance was good.

INCOME / DEBT ORIENTED SCHEME

40

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. SAMPLE USED The sample used for the analysis of the study is the NAV values for the past 3 years of the following schemes named as follows: HDFC Income Fund Templeton India Income Builder Account Sundaram Bond Saver Fund GROWTH OPTION Tab 1.7 QUARTERLY RETURNS FOR THE INCOME CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 (In percentage) Quarter HDFC Income Templeton India Sundaram Bond Builder 1 2 3 4 5 6 7 8 9 10 11 12 0.96 4.16 6.29 0.57 3.31 3.55 0.80 0.99 -1.38 -0.40 0.81 1.09 Income Builder 0.89 4.14 7.08 -0.74 3.24 3.11 0.77 0.98 -1.91 -0.25 0.23 0.23 Fig 1.5 1.49 3.98 7.08 -0.45 3.61 3.16 0.76 0.70 -1.80 -0.40 0.55 0.60 Saver

41

3 YEAR QUARTERLY RETURN

8.00% 7.00% 6.00% 5.00% 4.00% RETURN 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% 1 2 3 4 5 6 7 8 9 10 11 12 QUARTER HDFC INCOME FUND TEMPLETON INDIA INCOME BUILDER SUNDARAM BOND SAVER

DIVIDEND OPTION Tab 1.8 QUARTERLY RETURNS FOR THE INCOME CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 (In percentage) Templeton India Sundaram Bond Quarter HDFC Income Builder 1 2 3 4 5 6 7 8 9 10 11 12 -1.41 1.75 2.96 0.60 0.22 3.23 0.56 0.84 -1.53 -0.52 0.68 -0.23 Income Builder 0.85 4.14 7.08 -9.15 3.24 3.11 0.77 -0.12 -1.91 -0.26 0.23 0.45 1.44 3.75 -1.10 -0.48 3.11 2.72 0.46 0.40 -1.96 -0.41 0.46 0.58 Saver

42

Fig 1.6

3 YEAR QUARTERLY RETURN

8.00% 6.00% 4.00% 2.00% RETURN 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% 1 2 3 4 5 6 7 8 9 10 11 12 QUARTER HDFC INCOME FUND TEMPLETON INDIA INCOME BUILDER SUNDARAM BOND SAVER

INTERPRETATION Based on the table 1.7 the returns are not fluctuating as an equity market, though the returns are less when compared to equity but the risk rate also less. During the 2002-03 HDFC was showing returns in positive figures which is most preferred by the investors but even then the situation of HDFC proved to be well in the 2003-04 period also. Finally in 2004-05 the market condition was not much favoring as earlier since negative returns shown by all the funds in the earlier quarters of 2004-05 but later on the mutual fund players had overcome the situation and finally HDFC was performing quite well. Based on the table 1.8 the returns where less when compared to growth options but almost all the period they were doing well with almost positive figures. During the 200203 the HDFC was good, in the next year Templeton was well and again in the year 200405 Sundaram started performing well.

BALANCED FUND

43

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. SAMPLE USED The sample used for the analysis of the study is the NAV values for the past 3 years of the following schemes named as follows: HDFC Prudence fund Franklin Templeton India Balanced Fund Alliance 95 GROWTH OPTION Tab 1.9 QUARTERLY RETURNS FOR THE BALANCED CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 (In percentage) Quarter HDFC Prudence FranklinTempleton Sundaram Bond India Balanced Saver -1.59 -0.97 1 2 3 4 5 6 7 8 9 10 11 12 -6.65 13.96 -0.54 30.58 19.60 22.59 -2.46 -6.72 13.59 16.13 0.69 0.00 -8.86 10.16 9.59 0.74 -6.25 8.38 -4.62 18.41 22.39 23.16 -2.41 -9.14 12.95 18.50 -4.85

Fig 1.7

44

3 YEARLY QUARTER RETURN

35.00% 30.00% 25.00% 20.00% 15.00% RETURN 10.00% 5.00% 0.00% -5.00% -10.00% 1 2 3 4 5 6 7 8 9 10 11 12 QUARTER

HDFC PRUDENCE

FRANKLIN BALANCE

ALLIANCE '95

DIVIDEND OPTION Tab 1.10 QUARTERLY RETURNS FOR THE BALANCED CATEGORY SCHEMES DATED FROM 1-4-02 TO 31-3-05 (In percentage) Quarter HDFC Prudence FranklinTempleton Sundaram Bond India Balanced Saver -1.59 -1.02 1 2 3 4 5 6 7 8 9 10 11 12 -6.63 13.96 -0.64 30.44 17.92 22.45 -2.64 -6.71 13.59 16.14 -2.89 0.00 -8.90 10.11 9.61 0.77 -6.25 7.98 -4.60 18.45 22.39 22.75 -2.73 -9.14 12.98 17.62 -4.13

Fig 1.8

45

3 YEARLY QUARTERLY RETURN

35.00% 30.00% 25.00% 20.00% RETURN 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% 1 2 3 4 5 6 7 8 9 10 11 12 QUARTER HDFC PRUDENCE FRANKLIN BALANCE ALLIANCE '95

INTERPRETATION Based on the table 1.9 the quarterly returns seems to be performing well during the period 2003-04 the 5, 6, &7 the quarter when compared to the previous year data and HDFC prudence was highly performing well during that particular period. And even in the 2004-05 periods HDFC prudence continued to play good in the market. Based on the table 1.10 the quarterly returns does not perform well during the 2002-03 because of unfavorable market conditions. But later the performance was improved in the 2003-04 and 2004-05 showing the outstanding performance by HDFC prudence.

RISK AND RETURN ANALYSIS This analysis is mainly focused on the risk and return rates of all the schemes over a particular period of time. It interprets that a particular rate of return of a

46

scheme would be associated with that particular rate of risk during that particular period of time. PROCEDURE The Return of the scheme is calculated as using the techniques known as the percentage change in Nav Return for the calculation of return for growth option and simple total return for dividend option. Based on the returns of the quarterly period, the risk associated with it is calculated which is the standard deviation of the return is known as the risk of the scheme. The total rate of return for a particular year is taken to compare the risk associated with it for a scheme. EQUITY FUND - GROWTH OPTION Tab 1.11 RISK AND RETURN PERFORMANCE OF EQUITY FUND SCHEME FOR THE YEAR 2002-2005 (IN PERCENTAGE) Name HDFC Equity -1.05 10.87 95.07 16.77 21.64 15.83 Franklin India Blue Chip -4.57 11.37 95.22 16.56 13.25 14.07 Reliance Vision Tata pure equity -13.97 12.15 104.11 19.56 26.29 15.61

Return 2002-03 Risk 2002-03 Return 2003-04 Risk 2003-04 Return 2004-05 Risk 2004-05

96.73 22.95 30.23 15.38

Fig 1.9

47

3 YEARS RETURN AND RISK PERFORMANCE Risk 2004-05 Return 2004-05

VARIABLES

Risk 2003-04

Return 2003-04 Risk 2002-03 Return 2002-03 -50 0 50

IN PERCENTAGE

100

150

HDFC Equity Reliance Vision

Franklin India Blue Chip Tata pure equity

EQUITY FUND - DIVIDEND OPTION Tab 1.12 RISK AND RETURN PERFORMANCE OF EQUITY FUND SCHEME FOR THE YEAR 2002-2005 (IN PERCENTAGE) Name Return 2002-03 Risk 2002-03 Return 2003-04 Risk 2003-04 Return 2004-05 Risk 2004-05 HDFC Equity -1.09 10.85 107.23 19.54 20.41 15.51 Franklin India Blue Chip -4.59 11.40 92.61 16.36 12.78 14.17 Reliance Vision 95.16 22.24 14.92 18.13 Tata Pure Equity 25.52 15.00

Fig 1.10

48

3 YEARS RETURN AND RISK PERFORMANCE

Risk 2004-05 VARIABLES Return 2004-05 Risk 2003-04 Return 2003-04 Risk 2002-03 Return 2002-03 -50 0 50 100 150

HDFC Equity Reliance Vision

IN PERCENTAGE Franklin India Blue Chip Tata Pure Equity

INTERPRETATION The above table 1.11 and 1.12 shows the risk and return rates of various schemes over a period of time, during the period 2002-03 the return were in the negative figures even for which risk was also associated to it. When the market condition is not favorable there are chances for negative returns any how an investor needs to bear this situation since mutual funds do not guarantee assured returns. But 2003-04 seems to be favorable period for the investors because of high returns they gained during that particular period associated with high risk. But again in 2004-05 the market condition seems to be moderate for the investors since moderate returns are yielded. Overall analysis will prove that TATA pure equity was performing well over last 2 years.

INCOME FUND GROWTH OPTION

49

Tab 1.13 RISK AND RETURN PERFORMANCE OF INCOME FUND SCHEME FOR THE YEAR 2002-2005 (IN PERCENTAGE) Name Return 2002-03 Risk 2002-03 Return 2003-04 Risk 2003-04 Return 2004-05 Risk 2004-05 HDFC INCOME FUND 11.98 2.72 8.64 1.48 .12 1.47 Fig 1.11 TEMPLETON INDIA INCOME BUILDER 11.37 3.48 8.11 1.33 -0.99 1.01 SUNDARAM BOND SAVER 12.1 3.26 8.23 1.54 -1.06 1.13

3 YEAR RETURN AND RISK PERFORMANCE

Risk 2004-05 VARIABLES Return 2004-05 Risk 2003-04 Return 2003-04 Risk 2002-03 Return 2002-03

-5

5 IN PERCENTAGE

10 TEMPLETON INDIA

15

HDFC INCOME FUND SUNDARAM BOND SAVER

INCOME FUND DIVIDEND OPTION

50

Tab 1.14 RISK AND RETURN PERFORMANCE OF INCOME FUND SCHEME FOR THE YEAR 2002-2005 (IN PERCENTAGE) Name Return 2002-03 Risk 2002-03 Return 2003-04 Risk 2003-04 Return 2004-05 Risk 2004-05 HDFC INCOME FUND 3.89 1.86 9.85 7.99 -1.60 2.88 Fig 1.12 TEMPLETON INDIA INCOME BUILDER 2.92 7.53 7.01 6.29 -1.48 1.29 SUNDARAM BOND SAVER 3.61 2.19 6.69 1.49 -1.33 1.17

3 YEARS RETURN AND RISK PERFORMANCE

Risk 2004-05 VARIABLES Return 2004-05 Risk 2003-04 Return 2003-04 Risk 2002-03 Return 2002-03

-5

10

15

IN PERCENTAGE HDFC INCOME FUND TEMPLETON INDIA SUNDARAM BOND SAVER

51

INTERPRETATION The above table 1.13 and 1.14 shows the risk and return rates of various schemes under income category for over a period of time, when compared to equity fund the debt fund did not yield negative returns during 2002-03 , which shows that investors wherein safer side . Observing the risk rate is quite low when compared to neither an equity fund nor a balanced fund. During 2003 - 04 the returns were almost equal from all the schemes but can prove that HDFC Income Fund was performing well when compared to other for both the options. But 2004-05 seems to be unfavorable period for the investors since they yield negative returns.

BALANCED FUND GROWTH OPTION Tab 1.15 RISK AND RETURN PERFORMANCE OF BALANCED FUND SCHEME FOR THE YEAR 2002-2005 (IN PERCENTAGE) Name Return 2002-03 Risk 2002-03 Return 2003-04 Risk 2003-04 Return 2004-05 Risk 2004-05 HDFC PRUDENCE 5.19 8.85 70.31 14.14 23.69 10.8 FRANKLIN BALANCE 11.63 8.95 ALLIANCE '95 -3.45 6.55 61.54 12.05 17.46 13.42

52

Fig 1.13

3 YEARS RETURN AND RISK PERFORMANCE

Risk 2004-05 VARIABLES Return 2004-05 Risk 2003-04 Return 2003-04 Risk 2002-03

Return 2002-03 -20 0 20 40 60 80

IN PERCENTAGE HDFC PRUDENCE FRANKLIN BALANCE ALLIANCE '95

BALANCED FUND DIVIDEND OPTION Tab 1.16 RISK AND RETURN PERFORMANCE OF BALANCED FUND SCHEME FOR THE YEAR 2002-2005 (IN PERCENTAGE) Name Return 2002-03 Risk 2002-03 Return 2003-04 Risk 2003-04 Return 2004-05 Risk 2004-05 HDFC PRUDENCE 5.10 8.86 68.17 14.11 20.13 16.9 FRANKLIN BALANCE 11.59 8.96 ALLIANCE '95 -3.90 6.36 60.85 12.12 17.33 12.97

53

Fig 1.14

3 YEARS RETURN AND RISK PERFORMANCE

Risk 2004-05 VARIABLES Return 2004-05 Risk 2003-04

Return 2003-04 Risk 2002-03

Return 2002-03 -20 0 20 40 60 80

IN PERCENTAGE HDFC PRUDENCE FRANKLIN BALANCE ALLIANCE '95

INTERPRETATION The table 1.15 and 1.16 shows the risk and return rates of various schemes under balanced category for over a period of time. During the period 2002-03 the returns where normal under the HDFC Prudence but Alliance 95 show a negative return, but in the next year a boom period for the investment the returns were good for the investors. But again in the period 2004-05 the market condition was moderate earning normal returns. Overall performance of the various schemes proves that HDFC prudence is providing good returns for the past 3 years.

54

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. This measure is based on the comparison of excess return per unit of risk, risk being measured by standard deviation. Excess return is defined as the actual return of the fund less the risk free rate. The risk free rate is taken as 5.25% based on the present market scenario. 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:

TECHNIQUE USED

Sharpe Index = (Ri - Rf)/Si Where, Ri is fund return, Rf is risk free rate, and 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.

PROCEDURE USED Based on the above technique, the Sharpe ratio for all the categories of various schemes for the past 3 years are calculated using the past respective years data such as the return and risk of the various funds. The risk free rate is assumed to be 5.25% based on the current market condition. SHARPE RATIO CALCULATED FOR EQUITY FUND FOR THE YEAR 2002-2005 Tab 1.17 EQUITY FUND GROWTH OPTION TATA PURE EQUITY

YEAR

HDFC EQUITY

FRANKLIN INDIA BLUE CHIP

RELIANCE VISION

55

2002-03 2003-04 2004-05

-0.58 5.35 1.06

-0.90 5.12 0.55

4 1.61

-1.58 5.05 1.33

Tab 1.18 EQUITY FUND DIVIDEND OPTION TATA PURE EQUITY 1.38

YEAR 2002-03 2003-04 2004-05

HDFC EQUITY -0.58 5.21 0.95

FRANKLIN INDIA BLUE CHIP -0.90 5.36 0.55

RELIANCE VISION 4.04 0.54

INTERPRETATION Based on the above tables 1.17 and 1.18 the performance of the various schemes can be analyzed through looking at the high and positive ratios of the funds during the period 2003-04 and 2004-05 showing superior risk-adjusted performance of a fund, while during the 2002-03 a low and negative Sharpe Ratio shows an indication of unfavorable performance. HDFC Equity showing the highest and positive ratio seems to be well performed followed by Franklin India Blue Chip.

SHARPE RATIO CALCULATED FOR INCOME FUND FOR THE YEAR 2002-2005 Tab 1.19 INCOME FUND GROWTH OPTION HDFC INCOME FUND 2.48 2.53

YEAR 2002-03 2003-04

TEMPLETON INDIA INCOME BUILDER 1.65 2.06

SUNDARAM BOND SAVER 2.07 1.79

56

2004-05

-3.55

-6.16

-5.55

Tab 1.20 INCOME FUND DIVEDEND OPTION HDFC INCOME FUND -0.67 0.59 -2.52

YEAR 2002-03 2003-04 2004-05

TEMPLETON INDIA INCOME BUILDER -0.30 0.28 -4.85

SUNDARAM BOND SAVER -0.57 1.17 -5.34

INTERPRETATION Based on the above tables1.19 and 1.20 the performance of the schemes can be analyzed through looking at the ratios of the funds for over a period of time. By looking at the ratio it is quite low performing when compared to the equity fund, these types of funds suits investors who are all low risk takers. During 2002-04 the ratios were in positive which is a sign favorable performance under the growth option but where as in the 2004-05 the ratio are in negative proving unfavorable performance. HDFC Income Fund proves to be well performed during 2002-04 since its ratio is high and positive. SHARPE RATIO CALCULATED FOR BALANCED FUND FOR THE YEAR 2002-2005 Tab 1.21 BALANCED GROWTH OPTION HDFC PRUDENCE -0.03 4.58 1.74

YEAR 2002-03 2003-04 2004-05

FRANKLIN BALANCE 0.75

ALLIANCE 95 -1.26 4.71 0.88

Tab 1.22 BALANCED DIVIDEND OPTION

57

YEAR 2002-03 2003-04 2004-05

HDFC PRUDENCE -0.03 4.45 0.87

FRANKLIN BALANCE 0.75

ALLIANCE 95 -1.46 4.60 0.91

INTERPRETATION Based on the above tables1.21 and 1.22 of Balanced Fund the performance of the schemes can be analyzed through looking at the ratios of the funds which is calculated for over a period of time. Again it seems to see the positive ratios during the period 2003-04, proving Alliance 95 was performed well under both the options. Whereas in 2004-05 HDFC Prudence started performing well when compared to its competitors. RANK ANALYSIS

Rank Analysis is done on basis of the following parameters such as: Corpus of the fund Credit profile P/E Ratio Risk Grade Return Grade Based on the importance of the parameters and investors preference the weightage has been assigned for the analysis of the fund performances of all the category schemes. S.NO 1 2 3 PARAMETER Corpus of the fund Credit profile P/E Ratio WEIGHTAGE 16 18 20

58

4 5

Risk Grade Return Grade

24 22

EQUITY FUND 1.23 RANK ANALYSIS NAME HDFC EQUITY Corpus Credit profile P/E ratio Risk Grade Return Grade Total value RANK Assumption Credit Profile - 80 - 100 Risk Grade Below average - 20 Low - 25 Average 15 Return Grade Above Average -25 High -30 2 1 3 4 17.54 Below average Above average 20960.96 16.24 Below average Above average 31059.28 14897.4 21.71 low high 19.28 Average Above average 5796.56 20 24 22 1133.76 FRANKLIN RELIANCE TATA INDIA BLUECHIP 1766.53 712.70 VISION PURE EQUITY 191.31 16 18 WEIGHTAGE

59

INTERPRETATION Based on the table 1.23 we can see that rank analysis took various parameters into consideration for the purpose of evaluating the performance of various schemes. This analysis is based on a different angle to analyze the performance. By assigning the weightage to the various parameters based on their importance will help us to show that Franklin India Blue chip ranked first followed by HDFC equity and later on by others. INCOME FUND Tab 1.24 RANK ANALYSIS NAME HDFC INCOME FUND TEMPLETON SUNDARAM WEIGHTAGE INDIA INCOME BUILDER ACCOUNT Corpus Credit profile Return Grade Above average Above Average 433854.56 1 Average 285640 2 24 average average 22 15,778.13 26,990.91 17735.00 16 18 BOND SAVER

Risk Grade Average Total value 254800.1 RANK Assumption Credit Profile - 60 - 80 Risk Grade Average 15 Above average -20 Return Grade Average - 20 Above average 25 3

60

INTERPRETATION Based on table 1.24 we can say that consideration of various parameters into account for analysis, it clearly shows that by assigning respective weightage to the parameter will prove that Templeton India Income Builder ranks first followed by sundaram bond saver. BALANCED FUND Tab 1.25 RANK ANALYSIS NAME HDFC FT INDIA FUND Corpus Credit profile P/E ratio 15.47 21.65 Average Above average 287711 2 194101.8 3 1 21.49 Above Average Average 20 24 22 Risk Grade Below Average Return High Grade Total value 1272975.8 RANK Assumption Credit Profile - 40 - 80 - 100 Risk Grade Below average- 20 Average 15 Above average 10 Return Grade Average -20 Above average -25 High - 30 79357.90 17808.00 12017.00 16 18 ALLIANCE WEIGHTAGE 95 PRUDENCE BALANCED

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INTERPRETATION Based on the table 1.25 we can say that the rank analysis took various parameters into consideration for the purpose of evaluating the performance of various schemes. This analysis is based on different angle to analyze the performance. By assigning the weightage to the various parameters based on their importance will help to analyze and rank the schemes by looking at the total value of the scheme. HDFC Prudence fund had been ranked as first. ANALYSIS ON SECTORAL ALLOCATION Each fund managers of the various mutual fund players have their own style of designing the portfolio for their schemes; they construct the portfolio based on knowledge of their performance of various sectors and their ability towards continuous growth in the market. 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. 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. The fund managers invest the amount collected from the investors in a diversified manner wherein the risk associated will be less. And these Funds are divided into different proportions of percentage in order to invest them into various sectors such as IT CONSULTING & SERVICES BANKS ELECTIRCAL COMPONENTS & EQUIPMENT COMMODITY CHEMICALS AUTOMOBILE MANUFACTURERS

The above Five Sectors are seemed to be highly well performing sector in the current scenario which encourages the fund manger to invest in these sectors in order to yield higher returns to the investors. Based on the performance of various sectors over a period of a time will motivate the fund manager to invest the maximum proportion of funds in the most well performed sector. The proportion of allocating funds in different sectors will be vary by the each mutual fund player because they have their own investment strategy to be followed in a purview of yielding high profits.

62

EQUITY FUND Tab 1.26 PROPORTIONS OF FUNDS ALLOCATED IN THE VARIOUS SECTORS SECTOR ALLOCATION IT CONSULTING & SERVICES BANKS ELECTIRCAL COMPONENTS & EQUIPMENT COMMODITY CHEMICALS AUTOMOBILE MANUFACTURERS FRANKLIN INDIA BLUE CHIP 19.38 11.56

HDFC EQUITY 14.5 14.67 12.56 10.82 4.26

RELIANCE VISION 5.78 2.39

TATA PURE EQUITY 5.72 8.17

N.A 5.35 4.55

17.01 5.46 6.97

3.96 3.14 3.14

INTERPRETATION Based upon the table 1.26 the proportions of funds allocated into various major sectors are clear shown. HDFC Equity holds more than 50 % of its funds in the above sectors whereas Franklin holds around 40 % of its funds. The proportion of allocation of funds varies in different by the various players; since it shows that each follow their own investment strategy to reap profits. As a result of various analyses it seems that Tata Pure Equity had performed well whose allocation style also seems to be diversified widely into various sectors yielding higher returns to the investors. But the other players were focusing mainly on particular sectors with a view that these particular sectors will perform highly and earn more benefit to the investors. INCOME FUND TAB 1.27 PROPORTIONS OF FUNDS ALLOCATED IN THE VARIOUS SECTORS

63

ASSET ALLOCATION

HDFC INCOME FUND 49.52 26.58 17.93

TEMPLETON INDIA INCOME BUILDER 54.11 22.98 21.5 1.41

SUNDARAM BOND SAVER 20.07 25.86 27.45 26.62

CORPORATE DEBT PSU/PFI BONDS GILTS CALL,CASH OTHER ASSET AND

5.97

INTERPRETATION Based on the table 1.27 the proportion of allocation of funds can be clearly seen. Since it is an Income Fund the allocation of fund is focused in a different manner. The allocation style shows that HDFC Income Fund and Templeton India Income Builder had allocated their majority of funds in to two major sectors such as the Corporate Debt and PSU/PFI Bonds which seems to be highly attractive for the investments. But the allocation style of Sundaram Bond Saver Seems to be different when compared as they had diversified their funds in more or less equal proportions in all sectors. Since the Debt Market weakened over the past few years the performance of Income Fund also seems to be lowered when compared to the Equity Fund. Thus the proportion of allocation of funds seems to play a major role in deciding the return to the investors since the returns of each sector varies periodically. BALANCED FUND Tab 1.28 PROPORTIONS OF FUNDS ALLOCATED IN THE VARIOUS SECTORS

SECTOR ALLOCATION IT CONSULTING & SERVICES BANKS

HDFC PRUDENCE 4.38 9.32

FRANKLIN BALANCE 18.69 10.79

ALLIANCE '95 5.72 6.93

64

CONSTRUCTION MATERIALS AUTO PARTS AND EQUIPMENTS INDUSTRIAL CONGLOMERATE

4.61 6.15 3.19

11.47 9.57 7.99

3.62 5.58 8.08

INTERPRETATION Based on the above table 1.28 the proportion of allocation of funds is clearly shown, since it is a balanced fund the investment strategy is different when compared as they need to balance fund between Equity and Debt Instruments in order to moderate risk and return. The focus is mainly on the equity fund allocation. Franklin Balance shows that almost all its equity fund investment is allocated in the major sectors as shown above followed by HDFC prudence but there is little variation as they had diversified their funds much higher when compared. And also Alliance 95 seems to be highly diversified into various sectors. HDFC Prudence investment style proves that their strategy of allocating funds had highly resulted with good profits to the investors. FINDINGS The project was aimed at analyzing the performance of the funds under consideration in respect of their, returns, risk, Sharpe ratio, rank analysis and sectoral allocation. The following findings were derived from those analyses 1. The overall performance of the schemes shows that there was a high return in the year 2003 -04 when compared to other financial years. 2. A clear focus on the individual funds shows that Tata Pure equity was the best performer for the period during 2003 -05 under both the growth and dividend option when compared to other equity funds taken under consideration.

65

3. The equity funds were found to perform better than Income and Balanced fund. Since the returns were comparatively high and particularly focused during the period 2003- 2004 the returns were almost massive for the investors 4. The equity funds always prove that investor who take high risk will have high returns based on which the performance of Tata pure equity yielded high returns during the period 2003-04 associated with higher risk . Again in 2004-05 the reliance vision came in to focus with high returns almost carrying high rate of risk. 5. The performance of the funds gives a different picture when it is compared with the risk involved in it. Sharpe ratio shows that HDFC Equity fund yielded high return per unit of risk in the year 2003 - 04. Reliance vision has yielded high return per unit of risk in the year2004-05 under the growth option, wherein under the dividend option Tata pure Equity performed well. 6. When various parameters are taken into consideration for the analysis of performance through the ranking method proves that Franklin India blue chip had been ranked first followed by HDFC Equity. 7. HDFC Income Fund performance with respect to return and risk shows that it was yielding high returns with lower risk rate when compared to its competitors 8. HDFC Income Fund performance under Sharpe Measure shows that it had performed well during 2003-04, but it showed negative performance during 2004-05. 9. The Debt Market is not favorable for the investors during the period 2004-05 since it yielded negative returns , even 2003-04 a boom period for the equity players was also seems to be moderate for the debt market since it yielded lower returns when compared to equity. 10. A high fluctuation can be seen in the rate of returns of a balanced fund over various quarters of the years. But overall it had performed well during the period 2003- 04.

66

11. HDFC prudence proved to be the best fund under the balanced category since it had created a positive image about its performance under various analyses done on it. 12. The overall focus shows that the performance of the funds was good in the year 2003-04 when compared to the performance during the other periods under consideration. Ironically the Debt funds had yield more returns in the year 200203, than the year 2003-04. While reverse is the case with the equity funds. This shows that the year 2002-03 was a most favorable year for the debt funds and the year 2003-04 is was a favorable for the equity funds. SUGGESTIONS 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 its 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.

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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. Websites www.amfiindia.com www.mutualfundindia.com www.valueresearchonline.com www.indiainfoline.com www.hdfcfund.com www.nseindia.com www.sebi.gov.in