Preface

This project report is submitted for the partial fulfillment of MBA (Master of Business Administration) degree from Uttarakhand Technical University, undertaken at HDFC Mutual Fund office, Lucknow. Mutual Fund as the name suggests are the investment products that operate on the principle of strength in numbers. They collect money from large group of investors, pool it together and invest in various securities. Mutual Funds are not magic investments vehicles that do it all. One has to come to terms with the fact that neither they assure returns nor the value of an original investment. It has to be accepted as a reality that even the experts in investments matter, can go wrong their assessments. Mutual Fund offers several features that make them a powerful and convenient wealth creation vehicle worthy of consideration. One can invest his money in allied ways in mutual funds such as small investments, diversified portfolio, liquidity, tax brakes etc. I have done my study on mutual fund of HDFC.

CONTENTS
1. OBJECTIVES 2. OVERVIEW 3. INTRODUCTION TO MUTUAL FUNDS 4. FUNDS STRUCTURE AND CONSTITUENTS 5. MUTUAL FUND STRUCTURE IN INDIA 6. ORGANISATION OF A MUTUAL FUND 7. ORGANISATION OF MUTUAL FUND 7.1. First phase: 7.2. Second phase: 7.3. Third phase: 7.4. Fourth phase: 7.5. Fifth phase: 8. MUTUAL FUNDS 9. TYPES OF MUTUAL FUND SCHEMES 9.1. By Structure 9.2. By Investment Objectives 9.3. Other Schemes 10. ADVANTAGES OF MUTUAL FUNDS 11. DISADVANTAGE OF MUTUAL FUNDS 12. HDFC MUTUAL FUNDS 13. HDFC ASSET MANAGEMENT COMPANY (AMC) 14. HDFC MUTUAL FUND PRODUCTS 14.1. 14.2. Equity Funds Balanced Funds
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1964 1987 1987 1993 1993 1996 1996 1999 1999 2004

14.3.

Debt Funds

15. COPARITIVE STUDY OF HDFC MUTUAL FUND WITH OTHER COMPANYS MUTUAL FUND 16. RESEARCH METHODOLOGY 17. DATA COLLECTION 18. STEP BY STEP ANALYSIS AND INTERPRETATION 19. FINDINGS 20. SUGGESTIONS AND RECOMMENDATIONS 21. CONCLUSION 22. QUESTIONNAIRE 23. BIBLIOGRAPHY

OBJECTIVE
For the project to be successful it is important to define its objective. The main objective of the project undertaken was: To do the comparative analysis of HDFCs mutual fund with other respective companies To find out the investment pattern of the consumers. To create the awareness about mutual funds. To spread awareness about HDFCs mutual funds.

Significance of the study

The underlying motivates of the research were to furnish the organization with vital information and facilitate the researcher to gain a practical insight to the market scenario. The study proved significant in terms of catering to the interests of both the company and the researcher.

Significance of the organization

The study enabled the organization to know about the perception of investors for investment. Further, company will be benefited with the systematic database of the study conducted to find out investment decisions made by the potential investors.

OVERVIEW
Overview of the Indian mutual fund industry
The unit trust of India dominates the Indian mutual funds industry. The UTI has many funds/ schemes in all categories i.e. equity, debt (income) etc. with some being open ended and some being close ended. UTI was floated by financial institutions and is governed by a special act of parliament. Most of its investors believe that the UTI is government owned and controlled, while legally incorrect, is true for all practical purposes. The second category of mutual fund in the ones floated by nationalized banks. Can bank asset management floated by Canara bank and SBI funds management floated by the state bank of India are the largest of these. GIC, AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The third largest category of mutual funds is the ones floated by the private sector and by foreign asset management companies. The largest of these are Birla sun life, standard chartered AMC etc.

INTRODUCTION TO MUTUAL FUNDS

Different investment avenues are available to investors. 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 the experts and consultants including agents and distributors of mutual funds schemes while making investments decisions. With an objective to make the investors aware of functioning of mutual funds, an attempt has been made to provide information in question-answer format which may help the investors in taking investment decisions.

CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

Mutual funds is a body corporate registered with the securities and exchange board of India (SEBI) that pools up the money from individual/corporate investors and invests the same on behalf of the investors/unit holders, in equity shares, government securities, bonds, call money markets etc, and distributes the profits. In the other words, a mutual fund allows investors to indirectly take a position in a basket of assets. 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 among a wide cross-section of industries and sectors thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at same time. Investors of mutual funds are known as unit holders. The investors in proportion to their investments share the profits or losses. 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 Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

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FUNDS STRUCTURE AND CONSTITUENTS

LEGAL STRUCTURE OF MUTUAL FUNDS
Mutual funds have a unique structure not shared with other entities such as companies or firms. It is important for the employees and agents to be aware of the special nature of this structure, because it determines the rights and responsibilities of the funds constituents i.e. sponsors, trustee, custodian, transfer agents and of course, the fund and asset management company (AMC). It also drives the inter-relationship between these constituents.

MUTUAL FUND STRUCTURE IN THE USA

In the USA, mutual funds are set up as investment companies, which may be thought of as the fund sponsors. An investment company may be a corporation, partnership or a unit investment trust. For our purposes, all these legal entities may be broadly understood as mutual funds. The investment company in turn appoints a management company, which may be either a closed end Management Company or company or an open-end management company. Only open end management companies are technically called mutual funds in the USA. The constituents of mutual funds in the USA are: The Management Company The management company is the Indian equivalent of an AMC where the AMC is approved by SEBI and is responsible for managing the funds by making investments in various types of securities. Underwriter

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Underwriter of a fund is nothing but the distributor or the marketing company which is responsible for selling the shares to the brokers or to the public. Management Group A management group is a family of management companies which is owned by a group of people or a corporation. Custodian Custodian may be defined as the entity that holds the funds assets on the behalf of the management company.

MUTUAL FUND STRUCTURE IN THE UK

In the UK mutual funds have two alternative structures. OPEN ENDED FUNDS Open ended funds are in the form of unit trust. These unit trusts are regulated by the securities and investment board. They must also be authorized by the relevant self-regulatory organization. CLOSE ENDED FUNDS Close ended funds are in the form of corporate entities although called as investment trust. These investments trusts are structured as companies and provision of the company act are applicable to them. NOTE: Separate regulatory mechanism exist for both types of entities.

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MUTUAL FUND STRUCTURE IN INDIA

India has a legal framework within which mutual funds must be constituted. In India open and close ended funds operate under the same regulatory structure, and are constitute along one unique structure as UNIT TRUSTS A mutual fund in India is allowed to issue open and close ended schemes under a common legal structure. Therefore, a mutual fund may have several different schemes under it. Mutual funds in India are laid down under SEBI regulation, 1996. In India mutual fund is step in the form of trust, which has Sponsor:Sponsor is defined under SEBI regulation as any person who is acting along or in combination with another body corporate established as mutual funds. Sponsors are basically the promoters of a company as they get the fund registered with SEBI. The sponsor will form a trust and appoint a Board of trustees. It also generally appoints asset management companies as fund managers.

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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Mutual funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.

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TRUSTEES:The mutual funds may be managed be board of trustees that may be a body of individuals or trust company. These boards of trustees are governed by the provision of the Indian Trust Act. The trustees of the mutual fund hold its property for the benefits of unit holders; they do not directly manage the portfolio of securities. For this they appoint the asset management company. RIGHTS OF TRUSTEES The trustees appoint the AMC with the prior approval of SEBI. They also approve each of the schemes floated by the AMC. They have the right to request any necessary information from the AMC concerning the operations of various schemes managed by AMC as often as required to ensure that the AMC is in compliance with the trust deed and the regulation. The trustees may take remedial action if they believe that the conduct funds business is not in accordance with SEBI regulation. The trustees have the right to ensure that, based on their quarterly review of the AMCs net worth; any short fall in the net worth is made up by the AMC. OBLIGATION OF TRUSTEES Trustees must ensure that the fund transactions are accordance with the trust deed. The trustees are responsible for ensuring that the AMC has proper systems and procedures in place and has appointed key personnel including fund mangers and a compliance officer, besides other constituents such as the auditors and registrars. The trustees must ensure the due diligence on the part of AMC for empanelment of brokers. The trustees must ensure that the AMC is managing schemes

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independent of other activities and that the interest of unit holders of one scheme are not compromise with those of others scheme. The trustees must furnish to SEBI on a half yearly basis, a report on the funds activities and a certificate stating that the AMC has been managing. The schemes independently of other activities.

THE ASSET MANAGEMENT COMPANY (AMC):The role of an AMC is to act as the investment manager of the trust; these are appointed by sponsors and the trustees and the trustees and have to be approved by SEBI. Once the AMC is approved by SEBI then it functions under the supervision of its own board of directors, and also under the direction of the trustees and SEBI. 50% of the directors of AMC must be independent. The AMC of mutual fund must have a net worth at least 10 crore at all times. Directors of AMC, both dependent and independent, should have adequate professional experience in financial services and should be individuals of high morale standing, a condition also applicable to other key personnel of the AMC. The AMC can not act as trustee of any other mutual funds. LIMITATIONS OF AMC Investment of funds is in accordance with the SEBI regulation and trust deed. They take responsibility for the act of its employee and others whose services it has procured. They are answerable to the trustees and must submit quarterly reports to them on AMC activity and compliance with SEBI regulations. If the AMC uses the services of a sponsor, associate or employee, it must make appropriate disclosure to unit holders, including the amount of brokerage or commission paid. They do not undertake any other activity conflicting with managing the fund. They will float schemes only after obtaining the prior approval of trustees and SEBI.

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 They will make the required disclosure to the investors in areas such as calculation of NAV and repurchased price. Each days NAV is updated on AMFIs web site by 8 pm. Of the relevant date.

WHAT IS NAV?
A mutual fund is a common investment vehicle where the assets of the fund belong directly to the investors. Investors subscription is accounted for/ by the fund not as liabilities or deposits but as Unit Capital. On the other hand, the investments made on the behalf of the investors are reflected on the assets side and are the main constituents of the balance sheet. However, there are liabilities of a strictly short-term nature that may be part of the balance sheet. The funds Net Assets are thereafter defined as the Assets minus Liabilities. As there are many investors in a fund, it is common practice for mutual funds to compute the share of each investor on the basis of the value of Net Assets per Share/Unit, commonly known as the Net Asset Value (NAV). Calculation of NAV according to SEBI: NAV= Net Assets of the scheme / Number of Units Outstanding i.e. NAV= Market Value of Investments + Receivable + Other Accrued Income + Other Assets Accrued Expenses Other Payables Other Liabilities / No. of Units Outstanding as at the NAV date Features of NAV: For the purpose of NAV calculation, the day on which NAV is calculated by the fund is known as the valuation date. NAV of all the schemes must be calculated and published at least weekly for closed end schemes and daily for open end schemes. NAVs for a day must also be posted on the AMFIs website by 8.00 p.m. on that day; this applies to both the open end and close end schemes. One exception is 18

that those close end schemes which are not mandatory required to be listed in any stock exchange may publish their NAV at monthly or quarterly intervals as permitted by SEBI. Example: Monthly income schemes that are not listed on a stock exchange. A funds NAV is affected by 4 sets of factors: Purchase and sale of investment securities Valuation of all investment securities held Other assets and liabilities, and Units sold or redeemed.

Now a day many funds calculate and announce their NAVs even daily. Such frequent computations of asset values involve valuation investment securities at their market prices and inclusion of other assets and liabilities.

Other assets include any income due to the fund but not received as on the valuation date for example dividend announced by a company yet to be received where as other liabilities are those which have to include expenses payable by the fund, for example custodian fees or the management fees payable to the AMC. These income and expenses have to include in the computation of NAV, therefore SEBI requires that all these income and expenses are accrued up to the valuation date and considered for NAV calculation.

In can be seen from the NAV definition that addition to and sales from the portfolio of securities, and changes in the number of units outstanding will both affect the per unit asset values. Such changes in securities and number of

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units must be recorded by the next valuation date but if the frequency of NAV declaration does not permit this, then at that time recording may be done within 7 days of the transaction, provided that the non recording does not affect the NAV calculation by more than 2%.

The NAV of money market fund is kept at $1, although not guaranteed to stay at $1, money market fund NAVs have usually been kept at $1 due to the stability of the underlying investments. This means that by if we own 3,380 areas, our fund will be worth $3,380, so that the fund manager must be able to maintain the $1 per share value allowing the dividend rate to fluctuate rather than the share price.

WHO IS FUND MANAGERS?

A fund manager is one who manages one of the best-performing equity funds in the country says the ability of the company managements to forecast the environment is very limited. He argues that management fails miserably in assessing the environment dispassionately and hence is often off the mark when it comes to predicting the future. That includes even the best companies such as Infosys - the company ended the year with double the earnings growth projected in this inputs any less important to the whole process of assessing the worthiness of a stock.

How to know the performance of a mutual fund schemes?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web site of Association of Mutual funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place. 20

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an effect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P, CNX, Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme

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INDUSTRY PROFILE
History of the Indian Mutual Fund Industry
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 history of mutual funds in India can be broadly divided into four distinct phases.

First Phase 1964-87 (Growth of Unit Trust of India)

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. At the end of 1988 UTI had Rs. 6,700 crores of assets under management.

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. At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crores.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 121,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase- 1996-1999 (Growth of SEBI Regulation)

Since 1996, the mutual fund industry in India saw tighter regulation and higher growth. It scaled new heights in terms of mobilization of funds and number of players. Deregulation and liberalization of the Indian economy had introduced competition and provided impetus to the growth of the industry. Finally, most investors - small or large - started showing interest in mutual funds.

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Measures were taken both by SEBI to protect the investor and by the Government to enhance investors' returns through tax benefits. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform standards for all funds. The erstwhile UTI voluntarily adopted SEBI guidelines for its new schemes. Similarly, the budget of Union Government in 1999 took a big step in exempting all mutual fund dividends from income tax in the hands of investors. Both the 1996 regulations and the 1999 Budget must be considered of historic importance, given their far-reaching impact on the fund industry. During this phase, both SEBI and AMFI launched Investor Awareness Programmed aimed at educating the investors about investing through mutual funds. AMFI published its booklet titled "MAKING MUTUAL FUNDS WORK FOR YOU - The Investors' Guide."

Fifth Phase 1999-2004 (Emergence of a Large and Uniform Industry)

The other major development in the fund industry has been the creation of a level playing field for all mutual funds operating in India. This happened in February 2003, when the UTI Act was repealed. Unit Trust of India no longer has a special legal status as a trust established by an Act of Parliament. Instead, it has also adopted the same structure as any other fund in India - a Trust and an Asset Management Company. UTI Mutual Fund is the present name of the erstwhile Unit Trust of India. While UTI functioned under a separate law of Indian parliament earlier, UTI Mutual Fund is now under the SEBI's (Mutual Funds) Regulations, 1996 like all other mutual funds in India. UTI Mutual Fund is still the largest player in the Indian fund industry. All SEBI compliant schemes of the erstwhile UTI are under its charge. All new schemes offered by UTI Mutual Fund are SEBI approved. Other schemes (US 64, Assured Return Schemes) of erstwhile UTI have been placed with a special undertaking administered by the Government of India. These schemes are being gradually wound up.

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The emergence of a uniform industry with the same structure, operations and regulations makes it easier for distributors and investors to deal with any fund house in India. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 121,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way ahead of other mutual funds 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 among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September 20, 2004 there were 29 funds, which manage assets of Rs. 153108 crores under 421 schemes.

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MUTUAL FUNDS
Dictionary definition of a mutual fund might go something like this: a single portfolio of stocks, bonds, and / or cash managed by an investment company on behalf of many investors. The Investment Company is responsible for the management of the fund and it sells shares in the fund to individual investors. When you invest in a mutual fund, you become a part owner of the large investment portfolio, along with all the other shareholders of the fund. When you purchase shares, the fund manager invests your hands, along with the money contributed by the other shareholders. Every day, the fund manager counts up the value of all the funds holdings, figures out how many shares have been purchased by shareholders, and then calculate the Net Asset Value (NAV) of the mutual fund, the price of a single share of the fund on that day. If the fund manager is doing a good job, the NAV of the will usually gets bigger- your shares will be worth more. But exactly how does mutual funds NAV increase? There are a couple of ways that a mutual fund can make money in its portfolio. A mutual fund can receive dividends from the stocks that it owns. Dividends are shares of corporate profits paid to the stockholders of public companies. The fund might have money in the blank that earns interest, or it might receive interest payments from bonds that it owns. These are all sources of income for the fund. Mutual funds are required to hand out (or distribute) this income to shareholders. Usually they do this twice a year; in a move thats called an income distribution. At the end of the year, a fund makes another kind of distribution, this time from the profits they might make by selling stocks or bonds that have gone up in price. These profits are known as capital gains, and the act of passing them out is called a capital gains distribution. You can make money from a mutual fund in three ways:

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Income is earned from dividends on stocks and interest on bonds. A fund manager pays out nearly all income it receives over the year to fund owners. If the fund sells securities that have increased in price, the fund have a capital gain most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the funds shares increase in price. You can sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for

distributions or to reinvest the earnings and get more shares. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

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TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the industry.

TYPES OF MUTUAL FUND SCHEMES BY STURUCTURE

Open Ended Schemes Close Ended Schemes Interval Schemes

BY INVESTMENT OBEJECTIVE
Growth Schemes Income schemes Money Market Schemes

OTHER SCHEMES
Tax Saving Schemes Special Schemes Index Schemes Sector Specific Schemes

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TYPES OF MUTUAL FUNDS

SCHEMES ACCORDING TO STURUCTURE:
A mutual fund schemes can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

1. 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.

2. Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 3 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 closeended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI regulations stipulated that at least one of the two exits routes is provided to the investor i.e. either repurchases facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

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SCHEMES ACCORDING TO INVESTMENT OBJECTIVES:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

1. Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like 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, some major types of equity funds according to higher to lower risks level are as follows: Aggressive Growth funds Growth funds Specialty funds Sector funds Offshore funds Small Cap equity funds 32

Option income funds Diversified Equity funds Equity Linked Saving Schemes-An Indian Variant Equity Index funds Value funds Equity Income funds

2. 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. Some major types of debt funds with different risk profiles: Diversified debt funds Focused debt funds Higher Yield Debt funds Assured Return Funds- An Indian Variant Fixed Term Plan Series-Another Indian Variant

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3. 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.

4. 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 to park their surplus funds for short periods.

OTHERS SCHEMES: 1. Tax Saving Fund

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues e.g. Equity Linked Saving Schemes (ELSS). Pension schemes

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launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest predominantly in equities-oriented scheme.

2. Special schemes:
a) 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 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. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. b) Sector Specific schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/ industries and must exit at an appropriate time. They may also seek advice of an expert.

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What is a Load or no-load Fund?

A Load Fund is one that charges a percentage of NAV of entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track records and standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale or units.

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ADVANTAGES OF INVESTING IN MUTUAL FUNDS Return Potential:

Mutual funds offer a higher return potential than banking products as they invest in various instruments of the financial markets. Mutual funds investing in equity linked schemes are able to offer higher returns to their investor because of the performance of the markets

Tax Benefit:
Some Mutual funds schemes offer you tax rebates under section 80 C. In addition, the returns from mutual funds (dividends and capital appreciation) are also eligible for favorable tax treatment.

Convenient Administration:
Investing in mutual funds enables the investor to be mentally free of any troubles. An investor leaves all decisions up to the fund manager, and is only required to decide the entry and exit from a particular scheme.

Well Regulated:
Mutual fund industry is well regulated. SEBI has issued strict guidance Well Regulated Mutual fund industry is well regulated. SEBI has issued strict declines governing the operations of a mutual fund. From time to time SEBI keeps updating the rules and regulations governing the mutual fund industry. Mutual fund industry is well regulated. SEBI has issued strict guidelines governing the operations of a mutual fund. From time to time SEBI keeps updating the rules and regulations governing the mutual fund industry.

Diversification:

37

One rule of investing that both large and small investors should follow is asset diversification. Used to manage risk, diversification involves the mixing of investments within a portfolio. To achieve a truly diversified portfolio, you may have to buy stocks with different capitalization from different industries and bonds having varying maturities from different issuers. By purchasing mutual funds, you are provided with the immediate benefit of instant diversification and asset allocation without the large amounts of cash needed to create individual portfolios.

Economies of Scale:

Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors. When you buy a mutual fund, you are able to diversify without the numerous commission charges. Imagine if you had to buy the 10-20 stocks needed for diversification. The commission charges alone would eat up a good chunk of your savings. Add to this the fact you would have to pay more transaction fees every time you wanted to modify your portfolio as you can see the costs begin to add up. Mutual funds are able to make transactions on a much larger scale.

Liquidity:
Another advantage of mutual funds is the ability to get in and out with relative ease. You can sell mutual funds at any time as they are as liquid as regular stocks. Both the liquidity and smaller denominations of mutual funds provide mutual fund investors the ability to make periodic investments through monthly purchase plans while taking advantage of Rupee cost averaging.

Professional Management:
When you buy a mutual fund, you are also choosing a professional money manager. This manager will use the money that you invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to research thoroughly every

38

investment before you decide to buy or sell, you have a mutual funds money manager to handle it for you.

Transparency:

You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund managers investment strategy.

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

SEBI regulated:
All mutual funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors AMFI is the supervisory body of Mutual Fund Industry While most investment options provide most of these features, only Mutual Funds provide all of these options. 1. Returns on mutual fund vary according to the scheme opted. Equity Funds can provide high but inconsistent returns depending on the market performance. Debt funds provide relatively stable returns. (Past performance is not a guarantee for future return.) 2. Debt funds are subject to interest rate risk and credit risk. Debt funds are

comparatively safer invest in government securities and highly rated corporate and government papers. 3. Liquidity in mutual funds is high, as it promises to pay on demand.

39

4. Diversification is important parameter for mutual funds as they invest in diverse securities, which is not available with others. This also reduces the risk factor.

40

DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS

While the benefits of investing through mutual funds far outweigh the disadvantages, an investor and his advisor will do well to be aware of a few shortcomings of using the mutual funds as investment vehicles.

No Control over Costs:

An investor in a mutual fund has any control over the overall cost of investing. He pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the benefits of mutual fund services. However, this cost is often less than the cost of direct investing by the investors.

No Tailor-made Portfolios:
Investors who invest to their own can build their own portfolio of shares, bonds and other securities. Investing through funds means he delegates this decision to the fund managers. The very high-net-worth individuals or large corporate investors may find this to be a constraints in achieving their objectives. However, most mutual funds help investors overcome these constraints by offering families of schemes a large number of different schemes within the same fund. An investor can choose from different investment plans and construct a portfolio of his choice.

No Guarantees:
No investments are risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well. No matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy 41

and sell stocks on their own. However, any one who invests through a mutual fund runs the risk of losing money.

Fees and commissions:

All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or loads to compensate brokers, financial consultants, or financial planners. Even if you dont use a broker or other financial advisor, you will pay a sales commission if you buy shares in a load fund.

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

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

42

How to choose the right kind of Mutual Fund scheme

Once you are comfortable with these basics, the next step is to understand your investment choices, and draw up your investment plan relevant to your requirements. Choosing your investment mix depends on factors such as your risk appetite, time horizon of your investment, your investment objectives, age etc. What should be kept in mind before investing in Mutual Funds? Mutual Fund investment decision, require consistent effort on the part of the investor. Before investing in Mutual funds, the following steps must be given due weight age to decide the right type of scheme: 1. 2. 3. 4. Identifying the Investment Objective Selecting the Right Scheme category Selecting the right Mutual Fund Evaluation of Portfolio

1. Identifying the Investment Objective:

Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expensed among many other factors. Therefore the first step is to assess you needs. Begin by asking yourself these simple questions:

Why do I want to Invest?

The probable answers could be: I need regular income I need to buy a house/finance a wedding

43

Educate my children or A combination of all the above

How much risk am I willing to take?

Depending on various factors the risk taking capacities of individuals vary. Investors can be classified as: o Very conservative Investor o Conservative Investor o Moderate Investor o Aggressive Investor o Very Aggressive Investor You may ascertain your risk appetite by filling the Investment Style check Questionnaire in the latter half of the Guide. What are my cash flow requirements? Regular Cash Flow Lump sum after a fixed period of time for some specific need in the future No need of cash. Want to built fixed assets for the future

2. Selecting the Scheme Category:

The next step is to select a scheme category that matches your investment objectives:-

44

 For capital Appreciation go for equity sector funds, equity diversified funds, balanced funds. For Regular Income and stability go for income funds/MIPS For short-term Parking of Funds go for liquid funds, floating rate funds, and Short term funds. For Growth with Tax Planning go for equity tax relief funds. Investment Objective Investment horizon Ideal Instruments Short Term Investment 1 - 6 Months Liquid/short term plans Capital Appreciation Over 3 yrs Diversified Equity/Balanced fundsRegular IncomeFlexible Monthly Income Plans / Income fundsTax saving3 yrs lock in Equity linked saving scheme (ELSS)

3. Selecting the right Mutual fund

Once you have a clear strategy in mind, you now have to choose which Mutual fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provided supplementary details like the track record of other schemes managed by the same Fund Manager. Some important factors to evaluate before choosing a particular Mutual Fund are: 45

The track record of performance over that last few years in relation to the appropriate yardstick and similar funds in the same category. How well the Mutual Fund is organized to provide efficient, prompt and personalized service. The degree of transparency as reflected in frequency and quality of their communications.

4. Evaluation of portfolio-

Evaluation of equity fund involve analysis of risk and return, volatility, expense ratio, fund managers style of investment, portfolio diversification, fund managers experience. Good equity fund should provide consistent returns over a period of time. Also expense ratio should be within the prescribed limits. These days fund house charge around 2.50% as management fees. Evaluation of bond funds involve its assets allocation analysis, returns consistency, its rating profile, maturity profile, and its performance over a period of time. The bond fund with deal mix of corporate debt and gilt fund should be selected. Tax Implications on Mutual Funds Investments. Debt orientedIndividual cases: Tax free in the hands of investor. Mutual fund has to pay a dividend distribution tax of 12.5% plus 2.5% surcharge plus 2% education cess (13.07%). Corporate Case: Tax free in the hands of investor. Mutual fund has to pay a dividend distribution tax of 20% plus 2.5% surcharge plus 2% education cess (20.91%).

46

Long Term Capital Gain/Loss investment in the mutual funds held for more than 12 months Equity oriented Exempt from tax Long term capital loss from Mutual Funds can be set off only against Long term capital gain from Mutual Fund or any other asset Any unabsorbed LTCL in a year can be carried forward for set off in subsequent eight years against any other LTCG 20% with indexation with 2% education cess Debt oriented 10% with indexation with 2% education cess Short Term Capital Gain/Loss investment in the mutual funds held for Less than 12 months Equity oriented Flat rate of 10% - Short-term capital loss from Mutual Funds can be set off against Short term capital gain. Long Term capital gain from Mutual Fund is exempt from income tax. Debt oriented Applicable tax rate as per the tax slab of the investor, i.e., 10%, 20% or 30%.

47

48

HDFC MUTUAL FUND

VISION
To be a dominant player in the Indian MF industry recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests.

SPONSOR
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC) The sponsor of the HDFC MF is the housing development finance corporation Limited (HDFC). HDFC was incorporated in 1977 as the first specialized housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for purchase or construction of residential housing. As on December 31st, 2002, HDFCs cumulative loan disbursement are Rs 40,060 crore financing over 2.1 million units all over India.

PARTNERS
Standard Life Insurance Company of UK set up base in 1825. It is today the largest pension fund in UK and the largest Mutual life assurance company in Europe. Standard Life Investment was set up as a dedicated investment management company.

MANAGEMENT
HDFC Trustee Company Limited A company incorporated under companies act 1956, is the trustee to the Mutual Fund vide the trust deed dated June 8th, 2000 as amended from time to time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited.

49

HDFC ASSET MANAGEMENT COMPANY (AMC)

LIMITED

It was incorporated under the companys act 1956, on December 10th 1999 and was approved to act as an asset management company for the MF by SEBI on July 3rd, 2000. The registered office of the AMC is situated at Ramon house, 3 rd floor, H.T Parekh marg, 169 Bacbey Reclamation, Church gate, Mumbai-400020. In terms of the joint participation agreement dated October 29 th, 1999 entered between Housing Development Finance Corporation Limited (HDFC) and standard life investment limited, 25.6% of the paid up share capital of the AMC had been transferred by HDFC to the standard life assurance company, the parent company of standard life investments limited, on April 17th, 2001. Pursuant to the shareholders agreement dated October 17 th, entered between Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited. 13.9% of the paid up share capital of the AMC had been transferred by HDFC to standard life investments limited on January 31st, 2002. The present share holding pattern of the AMC is as follows HDFC Standard life investments 50.1% 49.9%

The AMC is managing many schemes as per the requirements of varied class of investors. The AMC has obtained registration from SEBI vide registration no. PM/inp0000000506 dated December 22nd, 2000 to act as a portfolio manager under the SEBI (portfolio managers) regulations, 1993. The certificate of registration is valid from January 1st, 2003 to December 31st, 2003. The AMC is also providing portfolio management /advisory services and such activities are not in conflict with the activities of the mutual funds. INVESTMENT PHILOSOPHY:

50

 Consider above average return. Conservative investment decisions. Premium services. Essentially positioned as a No Surprise Fund

51

HDFC MUTUAL FUND PRODUCTS

EQUITY FUNDS
HDFC Growth fund HDFC Long term advantage fund HDFC Index fund HDFC Equity fund HDFC Capital builder fund HDFC Tax saver HDFC top 200 funds HDFC Core & satellite fund HDFC Premier Multi-cap fund HDFC Long term equity fund

BALANCED FUNDS
HDFC Childrens gift fund investment plan HDFC Childrens gift fund savings plan HDFC Balanced fund HDFC Prudence fund

DEBT FUNDS
HDFC Income fund HDFC Liquid fund HDFC Gilt fund short term plan HDFC Guilt fund long term plan HDFC Short term plan HDFC Floating rate income fund short term plan HDFC Floating rate income fund long term plan HDFC Liquid fund PREMIUM PLAN

52

HDFC Liquid fund PREMIUM PLUS PLAN HDFC Short term plan PREMIUM PLAN HDFC Short term plan PREMIUM PLUS PLAN HDFC Income fund premium plus plan HDFC High interest fund HDFC High interest fund Short term plan HDFC Cash management fund-Savings plan HDFC Cash management fund Call plan HDFC MF Monthly income plan Short term plan HDFC MF Monthly income plan Long term plan HDFC Cash management fund Savings plus plan HDFC Multiple yield fund plan

53

54

COMPARATIVE STUDY OF HDFC MUTUAL FUND ALONG WITH OTHER COMPANYS MUTUAL FUNDS HDFC EQUITY FUND :( large cap fund)
NATURE OF SCHEME: OPEN ENDED GROWTH SCHEME. INVESTMENT OBJECTIVE: TO ACHIEVE CAPITAL APPRECIATION

FUND MANAGER: PRASHANT JAIN. INCEPTION DATE: January 1, 1995 ENTRY/SALES LOAD (Non-SIP/STP): In respect of each purchase/switch in
of units less than Rs.5 crore in value, an entry load of 2.25% is payable. In respect of each purchase/switch in of units equal to or greater than Rs.5 crore in value, no entry load is payable.

EXIT LOAD (Non-SIP/): NIL INVESTMENT PLAN OPTION (Growth and dividend): The dividend
plan/option offers dividend payout and reinvestment facility.

MINIMUM APPLICATION AMOUNT (under each plan): FOR NEW INVESTORS: Rs. 5,000 and in multiplies of Rs. 100 thereafter. FOR EXISTING INVESTORS: Rs. 1,000 and in multiplies of Rs.100 thereafter. LOCK IN PERIOD: NIL
55

NET ASSET VALUE (NAV): Every business day REDEMPTION PROCEEDS: Normally dispatched within 3 business days.

PORTFOLIO TOP 10 HOLDINGS (As at May 31, 2007) COMPANY

CROMPTON GREAVES LTD. AMTEK AUTO LTD.

INDUSTRY
INDUSTRIAL CAPITAL GOODS AUTO ANCILLARIES PRODUCTS PETROLEUM INDUSTRIAL CAPITAL GOODS OIL SOFTWARE INDUSTRIAL CAPITAL GOODS CONSTUCTION TELECOM SERVICES PHARMACEUTICALS

% TO NAV
5.26%

4.56%

RELIANCE INDUSTRIES LARSEN AND TURBO OIL & NATURAL GAS CORP. LTD. INFOSYS TECHNOLOGIES BHARAT HEAVY ELECTRICALS LTD. PUNI LOYD LTD. BHARTI AIRTEL LTD. SUN PHARMACEUTICALS

4.55% 4.46% 4.36% 4.11% 3.78% 3.63% 3.54% 3.39%

56

*TOTAL OF TOP TEN EQUITY HOLDINGS TOTAL EQUTY & EQUITY RELATED HOLDINGS *OTHER CURRENT ASSETS (including reverse repos/ CBLO)

41.64%

97.94%

2.06%

GRAND TOTAL
NET ASSETS (Rs. In Lakhs) PORTFOLIO TURNOVER RATIO (Last 1 year)

100%

444,1116

185.22%

57

HDFC CAPITAL BUILDER FUND

NATURE OF SCHEME: OPEN ENDED GROWTH SCHEME INVESTMENT OBJECTIVE: TO ACHIEVE CAPITAL APPRECIATION IN
THE LONG TERM.

FUND MANAGER: CHIRAG SETALVAD

INCEPTION DATE: FEBRUARY 1, 1994

ENTRY/SALES LOAD (NON-SIP/STP): In respect of each purchase/switch in

of units Less than Rs.5 crore in value, an entry load of 2.25% is payable. In respect of each purchase/switch in of units equal to or greater than Rs.5 crore in value, no entry load is payable.

EXIT LOAD (NON-SIP/STP): NIL

INVESTMENT PLAN/OPTIONS: Growth and dividend .the dividend

plan/option offers dividend payout and reinvestment facility.

MINIMUM APPLICATION AMOUNT:

FOR NEW INVESTORS: Rs. 5,000 and in multiples of Rs. 100 thereafter.

FOR EXISTING INVESTORS: Rs. 1,000 and in multiples of Rs. 100 thereafter.

58

LOCK-IN-PERIOD: NIL

NET ASSET VALUE (NAV): EVERY BUSINESS DAY

REDEMPTION PROCEEDS: NORMALLY DISPATCHED WITHIN 3

BUSINESS DAYS.

PORTFOLIO: TOP 10 HOLDINGS (AS AT MAY 31, 2007) COMPANY INDUSTRY % TO NAV

59

TOTAL OF TOP TEN HOLDINGS

55.22%

TOTAL EQUITY & EQUITY RELATED HOLDINGS

93.29%

OTHER CURRENT ASSETS (Including reverse Repos/ CBLO)

6.71%

SINTEX INDUSTRIES LTD. CONTAINER CORP. OF INDIA LTD. BHARAT ELECTRONICS LTD. SKF INDIA LTD. JINDAL STEEL & POWER LTD. BHARAT HEAVY ELECTRICALS LTD. CROMPTOM GREAVES LTD. MOTOR INDUSTRIES COMPANY LTD. TY STATE BANK OF INDIA

GRAND TOTAL

INDUSTRIAL PRODUCTS TRANSPORTATION INDUSTRIAL CAPITAL GOODS INDUSTRIAL PRODUCTS FERROUS METALS INDUSTRIAL CAPITAL GOODS INDUSTRIAL CAPITAL GOODS AUTO ANCILLARIES PHARMACEUTICALS BANKS 60

100% 6.90% 6.88% 6.58% 6.40% 6.17% 5.10% 4.82% 4.54% 4.23% 3.60%

NET ASSETS (Rs. In Lakhs) PORTFOLIO TURNOVER RATIO (Last 1 year)

71379.03

39.98

COMPOUNDED ANNUAL RATE OF RETURN

25.92%

61

HDFC TAX SAVER

NATURE OF SCHEME: OPEN ENDED EQUITY LINKED SAVINGS SCHEME
WITH A LOCK IN PERIOD OF 3 YEARS.

INVESTMENT OBJECTIVE: TO ACHIEVE LONG TERM

CAPITAL.

GROWTH OF

FUND MANAGER: VINAY KULKARNI INCEPTION DATE: DECEMBER 18, 1995 ENTRY/ SALES LOAD (NON SIP/STP): In respect of each purchase / switchin of units less than Rs. 5 crore in value, an entry load of 2.25% is payable. In respect of each purchase / switch in of units equal to or greater than Rs. 5 crore in value, no entry load is payable.

EXIT LOAD (NON-SIP/ STP): NIL INVESTMENT PLAN/OPTIONS: Growth and dividend. The dividend plan
offers dividend pay out and reinvestment facility.

MINIMUM APPLICATION AMOUNT: For new & existing investors: Rs. 500
and in multiples thereafter.

LOCK-IN-PERIOD: 3 YEARS FROM THE DATE OF ALLOTMENT OF THE

RESPECTIVE UNITS.

62

NET ASSET VALUE (NAV): EVERY BUSINESS DAY. REDEMPTION PROCEEDS: Normally dispatched within 3 business days.
(Subject to completion of lock-in-period)

PORTFOLIO: TOP 10 HOLDINGS (As at may 31st 2007)

COMPANY
RELIANCE INDUSTRIES LTD. DECCAN CHRONICLE HOLDINGS LTD. INFOSYS TECHNOLOGIES LTD. SATYAM COMPUTER SERVICES LTD. LARSEN & TURBO LTD. BHARAT AIRTEL LTD. THERMAX LTD. CROMPTON GREAVES LTD. SIEMANS LTD. BHARAT HEAVY

INDUSTRY
PETROLEUM MEDIA & ELECTRONICS SOFTWARE SOFTWARE INDUSTRIAL CAPITAL GOODS TELECOM SERVICES INDUSTRIAL CAPITAL GOODS INDUSTRIAL CAPITAL GOODS INDUSTRIAL CAPITAL GOODS INDUSTRIAL CAPITAL

% TO NAV
7.54% 6.29% 4.98% 4.91% 4.87% 4.64% 4.37% 4.23% 4.09% 3.39%

63

ELECTRICALS LTD. TOTAL OF TOP 10 EQUITY HOLDINGS TOTAL EQUTIY & EQUITY HOLDINGS OTHER CURRENT ASSETS (Including reverse Repos/ CBLO)

GOODS 49.31%

94.66%

1.34%

GRAND TOTAL
NET ASSETS (Rs. In Lacs) PORTFOLIO TURNOVER RATIO (Last 1 Year) *COMPOUNDED ANNUAL RATE OF RETURN SINCE INCEPTION (31st March 1996)

100%

107263.09

123.32%

38.92%

64

HDFC MUTUAL FUND MONTHLY INCOME PLAN

NATURE OF SCHEME: An open ended income scheme. Monthly income is not

assured and subject to availability of distributable surplus.

INVESTMENT OBJECTIVE: The primary objective of scheme is to generate

regular income through investment primarily in debt and money market instruments. The secondary objective of the scheme is to generate long term capital appreciation by investing a portion of the scheme assets in equity and equity related instruments. However, there can be no assurance that the investment objective of the scheme be achieved.

FUND MANAGERS: LTP- PRASHANT JAIN (EQUITIES)

SHABBIR KAPASI (DEBT) STP- VINAY KULKARNI (EQUITIES) SHOBIT MEHROTRA (DEBT)

INCEPTION DATE: DECEMBER 26, 2003. ENTRY / SALES LOAD (NON-SIP/STP): NIL EXIT LOAD (NON-SIP/STP):
FOR SHORT TERM PLAN In respect of each purchase/ switch- in of units up to and including Rs.10 lakhs in value, an Exit load of 0.50% is payable if units are redeemed/ switched out within 6 months from the date of allotment. In respect of each purchase/ switch in of units greater than Rs. 10 lakhs in value an exit load of 0.25% is payable if units are redeemed/ switched- out within 3 months from the date of allotment.

65

FOR LONG TERM PLAN In respect of each purchase/ switch- in of units less than Rs. 5 crore in value, an exit load of 1% is payable if units are redeemed/ switched out within 1 year from the date of allotment. In respect of each purchase/ switch in of units equal to or greater than Rs. 5 crore in value, no exit load is payable.

INVESTMENT PLAN / OPTIONS : SHORT TERM PLAN (STP) & LONG

TERM PLAN (LTP). Each plan offers Growth, Monthly Dividend option. The dividend option offers dividend pay out and reinvestment facility.

MINIMUM APPLICATION AMOUNT: STP for new investors: (growth &

quarterly dividend option) - Rs. 5,000 and in multiples of Rs. 100 thereafter under each option. (Monthly Dividend Option)- Rs. 25,000 and in multiples of Rs. 100 thereafter.

For existing investors: Rs.1000 and in multiplies of Rs.100 thereafter. LTP: For new investors: (Growth & quarterly dividend option)-Rs. 5,000 and in multiples of Rs.100 thereafter under each option. (Monthly Dividend Option)- Rs. 25,000 and in multiples of Rs.100 thereafter. For existing investors: Rs. 1,000 and in multiples of Rs. 100 thereafter.

LOCK- IN PERIOD: NIL NET ASSET VALUE (NAV): EVERY BUSINESS DAY. REDEMPTION PROCEEDS: NORMALLY DESPATCHED WITHIN 3
BUSINESS DAYS.

66

PORTFOLIO- TOP 10 HOLDINGS (AS AT MAY 31, 2007) COMPANY

AMTEK AUTO LTD. BANK OF BARODA KEC INTERNATIONAL LTD. CMC LTD. CROMPTON GREAVES GLAXOSMITHKLINE CONSUMER HEALTH STATE BANK OF INDIA THE FEDERAL BANK LTD. NESTLE INDIA EXIDE INDUSTRIES TOTAL OF TOP 10 EQUITY HOLDINGS TOTAL EQUTIY & EQUITY HOLDINGS OTHER CURRENT ASSETS (Including reverse Repos/ CBLO)

INDUSTRY
AUTO ANCILLARIES BANKS POWER HARDWARE INDUSTRIAL CAPITAL GOODS CONSUMER NON DURABLES BANKS BANKS CONSUMER NON DURABLES AUTO ANCILLARIES

% TO NAV
1.83% 1.65% 1.52% 1.50% 1.48% 1.40% 1.37% 1.22% 1.04% 1.04% 14.05%

26.88%

3.28%

67

GRAND TOTAL
NET ASSETS (Rs. In Lacs) *COMPOUNDED ANNUAL RATE OF RETURN SINCE INCEPTION (8th December, 2003)

100%

111,537.67 13.28%

68

HDFC PRUDENCE FUND

NATURE OF SCHEME: OPEN ENDED BALANCED SCHEME INVESTMENT OBJECTIVE:
To provide periodic returns and capital appreciation over along period of time from a judicious mix of equity and debt investments with an aim to prevent/ minimize any capital erosion.

FUND MANAGER: PRASHANT JAIN INCEPTION DATE: FEBRUARY 1, 1994 ENTRY/ SALES LOAD (NON-SIP/STP): In respect of each purchase/ switch
in of units less than Rs. 5 crore in value, an Entry load of 2.25% is payable. In respect of each purchase/ switch in of units equal to greater than Rs. 5 crore in value, no Entry load is payable.

EXIT LOAD(NON-SIP/STP): In respect of each purchase/switch in of units less

than Rs.5 crore in value, an exit load of 1% is payable if units are redeemed/ switchedout within 1year from date of allotment. In respect of each purchase/ switch-in of units equal to or greater than Rs.5 crore in value, no exit load is payable.

INVESTMENT PLAN/ OPTIONS: GROWTH AND DIVIDEND PAY OUT LOCK IN PERIOD: NIL NET ASSET VALUE (NAV): EVERY BUSINESS DAY REDEMPTION PROCEEDS: NORMALLY DESPATCHED WITHIN 3
BUSINESS DAYS. 69

PORTFOLIO: TOP 10 HOLDINGS (AS AT 31 MAY 2007)

COMPANY
AIA ENGINEERING LTD. CROMPTON GREAVES LTD. PUNJ LLOYD LTD. STATE BANK OF INDIA BANK OF BARODA AMTEK AUTO LTD. PIDILITE INDUSTRIES LTD. ELECON ENG. COMPANY LTD INFOSYS TECHNOLOGIES LTD. KEC INTERNATIONAL LTD. TOTAL OF TOP 10 EQUITY HOLDINGS TOTAL EQUTIY & EQUITY HOLDINGS

INDUSTRY
INDUSTRIAL CAPITAL GOODS INDUSTRIAL CAPITAL GOODS CONSTRUCTION BANKS BANKS AUTO ANCILLARY CONSUMER NON DURABLES INDUSTRIAL CAPITAL GOODS SOFTWARE POWER

% TO NAV
4.36% 3.79% 3.77% 3.02% 3.00% 2.75% 2.73% 2.64% 2.64% 2.53%

31.23%

76.56%

GRAND TOTAL

100%

70

NET ASSETS (Rs. In Lacs) *COMPOUNDED ANNUAL RATE OF RETURN SINCE INCEPTION (8th December, 2003)

252,248.54

22.87%

71

DIVERSIFIED EQUITY FUNDS

HDFC EQUITY FUND
Very stable fund & since inception in Dec 94 i.e. almost 12 years ago it has registered an annualized compounded growth of 25% which is remarkable as every one was aware that capital market of India was not so strong & almost stagnant when sensex was around 2000. In that context the consistent performance of fund shows grand selection & churning of portfolio of fund manager from time to time. It is the most preferred fund for the person seeking risk free zones i.e. long term investors. Under this category we have got DSPML TOP 100 equity fund, HSBC equity fund, ICICI Prudential discovery fund, RELIANCE equity fund.

DSPML TOP 100 EQUITY FUND

Date of inception is 10th Feb. 2003 & it has registered a CAGR of 54.90% which appears to be pretty impressive as compared to HDFC equity fund, here one thing is of paramount importance to note that if spread upon a time scale of say, 13 years & keeping in view the stagnancy in sensex, one prudent fund investor would prefer to invest in HDFC Equity fund because of the reason that it has shown a constant performance under bad weather as well. Comparing to last 3 years returns HDFC equity fund has done fairly well being 53.61% and DSPML being 49.28%.

HSBC EQUITY FUND

This fund was launched 14 November 2002 dealing mainly with large cap shares. It has marked a CAGR of 56.78% while CAGR for 3 years being 44.54% as already mentioned under DSPML, HSBC equity fund is required to show a constant performance for ensuring many years to be at par with HDFC equity fund.

72

ICICI PRUDENTIAL DISCOVERY FUND

It was recently launched on 18 august, 2004 &since inception its returns are 44.43% it has yet to complete 3 years and in financial jargon it is in infancy period on comparing with HDFC equity fund it can be concluded that it has to prove its metal on a time scale to show the stability of the performance.

RELIANCE EQUITY FUND

In comparison to all funds it is the latest fund launched on 7 March 2006 is basically a hedge fund and since inception it has given a CAGR of 22.75%. It is facing the teething problem because of being the clear movement of sensex on one hand is hedging nature on the other hand.

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MID CAP FUNDS

HDFC CAPITAL BUILDER
On comparing the caption fund with similar category of other companys fund it is evident that a ton of innings it has faced since October 95 giving a new ray of investors for investing in midcap fund ever when sensex of country was almost standing still & having 10%. Despite these facts the fund has shown splendid performance & enjoys a very solid reputation amongst the investors & helps to build their capital significantly. In this category of mid cap equity fund DSPML, small & mid cap fund, HSBC mid cap equity fund, ICICI prudential emerging star fund and Reliance growth fund, fall. India is undergoing a sea change in economy, from developing country to a developed country. In this phenomenon it gives a great scope to small and mid cap companies.

DSPML SMALL & MIDCAP FUND

This fund was launched recently on 16th October, 2006 and has given a CAGR of 18.09% undoubtedly it has got a great scope to grow.

HSBC MID CAP EQUITY FUND

The captioned fund was incepted on 12th April, 2005 and has shown a CAGR of 44.87%. This fund has to sustain the performance by doing excellence in selection of scrip points in the portfolio.

ICICI PRUDENTIAL EMERGING STAR FUND

The fund though launched on 1st November 2004, registered a CAGR of 55.91% and has yet to complete 3 years, comparing with HDFC capital builder fund on various parameters, it is evident that it will be another HDFC capital builder fund in stability provided the fund management keeps its acumen.

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RELIANCE GROWTH FUND

The most respected fund in mid cap category in India. This fund was launched on 25 th September 1995. It has registered a CAGR of 34.09% and a CAGR of 64.18% in 3 years time. Comparing this fund with HDFC capital builder fund it has documented its superb performance, stability, return on investment better than any other in this category in the country. The fund management has been so prudent that in 2005, it closed the sales for 3 months, just to consolidate and manage the assets under management. It is the investors most reliable fund who is prone to moderate risks.

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TAX SAVER FUNDS (U/S 80 C)

EQUITY LINKED SAVINGS SCHEME (ELSS)
Equity linked saving scheme (ELSS) is diversified equity funds that additionally offer income tax benefits to individuals. ELSS is one of the many section 88 instruments, along with more popular debt options like the PPF, NSC and infrastructure bonds. In this section 88 grouping, ELSS is unique, being the only instrument to offer a total equity exposure. Under section 88, individuals earning an income up to Rs 5 lakh a year can invest up to Rs. 1 lakh in specified instruments, within limits, and reduce their income tax payable by 15-30 percent of amount invested. Within this Rs. 1 lakh investment limit, you can invest up to Rs. 10,000 in ELSS in a financial year, but the tax rebate will be applicable only on Rs. 10,000. This tax waiver though comes at a cost invested in ELSS are subject to a similar lines as other section 88 instruments, none of the other equity funds impose such a condition . The staple debt based section 88 instruments like PPF, NSC and infrastructure bonds yield assured returns of 5-8 per cent a year. Although stocks dont assure returns they have the potential to deliver much more than that. In December 2003, for instance, infrastructure bonds which like ELSS have a lock in period of three years were offering an interest rate of 5.5% a year. This works out to an annual yield of 5.8% over three years, in other words, assuming parity in taxation, for an ELSS to appreciate 17.4% in three years. Realistically, thats achievable in the most markets.

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TAX REBATE FROM ELSS

Annual income claimable (Rs) ** UPTO Rs. 1 lakh Rs.1-1.5 lakh Rs.1.5-5 lakh Above Rs.5 lakh

Rebate (%)

Annual tax rebate

30 20 15 NIL

3000 2000 1,500 NIL

* As percentage of investment. ** Assuming an individual investment Rs. 10, 000 in ELSS (the maximum allowed )

HDFC TAX SAVER (OPEN ENDED EQUITY LINKED SAVINGS SCHEMES

WITH A LOCK IN PERIOD OF 3 YEARS) Have been designed keeping in mind the long term investor. Not only do they help you avail tax deduction under section 80c of the income tax act, 1961 but their successful investment philosophy helps you build wealth cover the long term.

Tax deduction under section 80c

As per section 80c and subject to provisions of the income tax act 1961 an individual is entitled to a deduction from gross total income up to Rs.1 lac (along with other prescribed investments) for amounts invested in equity linked saving schemes. The central board of direct taxes has clarified that investments made or on after 1st April, 2005, in plans, which are in accordance with ELSS, 1992 or ELSS 1992 as amended in 1998 are also eligible for tax benefits under section 80c of the income tax act 1961

77

The following example illustrates: Assume gross total income for the year is Investment in HDFC tax saver Income as which tax will be paid Tax saved on Rs.100, 000(tax rate assumed: 30%) Rs. 5, 00,000 Rs. 1, 00, 000 Rs. 4, 00,000 Rs. 30, 600*

* Including education less @ 2%

This implies that you will earn a return of Rs. 30,600 in tax savings itself on investment. This is along with the returns your investment would possibly earn in these funds.

LONG TERM INVESTING One of the benefits of successful equity investing is the ability to understand that companies grow over a long period of time. However all companies face tough times, squeezed margins, lower profits and crisis, putting pressure on the stock price in the short term. The three year lock in period in these funds provides the fund manager the flexibility to choose stocks with a longer term horizon and remain invested. Buying shares of companies with sound fundamentals lie at the core of the funds investment approach. The success of this investment philosophy is illustrated by the performance of the schemes since inception.

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LOW CHURN Short term pressures such as frequent redemptions often force fund managers to churn their portfolio, i.e. sell some of their holdings. Every time a fund manager sells or buys some shares, the fund incurs costs such as payments to brokers, security transaction tax, and depository higher the cost incurred by your investments. However, many redemption pressures on the fund manager helping them to keep a low churn ratio (also referred to as portfolio turnover ratio). The structure of the scheme helps to keep churn low.

HDFC TAX SAVER

HDFC tax saver fund enjoys a very good reputation amongst tax payers, viz retail investors, pocket houses, institutional investors etc as is evident that under ELSS schemes the returns are much higher than any other investment giving relief under section 80c. This fund was launched on 31st march 1996 and has given a CAGR of 38.92% since inception i.e. for more than 11 years. Further it registered a CAGR of 60.40% in 3 years which is simply superb. It is the flagship fund of HDFC mutual fund which made the fund house to enjoy a respectable asset management company. The perennial performance under various ads reflects the strength of the management and their sharpness in making the portfolio and churning it as per the requirement of the times. It is the safest tax saver fund as well as very good for investment. Under this category DSPML tax saver fund, HSBC tax saver fund, ICICI prudential tax plan and Reliance tax saver fund fall. DSPML tax saver fund and HSBC tax saver fund were launched recently and have yet to complete 1 year so the financial datas are not available for making comparison. One thing can easily be said that since both the companies are present globally, having deep search work, superb selection of funds, it is expected that both the funds will perform fairly good to long term investors. HSBC tax saver fund was launched on 15 December 2006 while DSPML tax saver was launched on 21st December 2006.

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ICICI PRUDENTIAL TAX PLAN

The fund was launched on 19th august 1999 and has shown a CAGR of 32.90%. Since inception further it has registered a CAGR of 54.39% since 3 years. This fund is trying to achieve the returns as par with HDFC tax saver.

RELIANCE TAX SAVER FUND

The captioned fund was launched on 23rd August, 2005 though very young in ELSS category and has yet to complete 3 years it has been able to register a CAGR of 29.55% since inception & since the fund manager of tax saver fund and reliance vision fund being the same i.e. Mr. Ashwani Kumar is obvious that the fund will achieve new heights in performance as reliance vision fund has done.

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BALANCED FUNDS
HDFC PRUDENCE FUND
It is the most respected balanced fund available in our country. It is a universal fact that the capital market of every country has ups and downs on a time horizon scale & passes through bull and bear phases interwoven with various factors governing the sensex of that country. This fund provides the best defense against all such volatile movement of sensex as it helps debt and equity components in a very balanced manner. At present the equity component can go up to 65% and debt component 35%. It has proven track record of 13 years enjoying 5 star rating. This fund was launched on 31 st January 1994 and despite being a balance fund it registered a superb CAGR of 22.87 since inception. The absolute returns for last year being 40.15%. It is a very safe fund for investment enjoying low risk & fairly good returns. In this segment only DSPML balanced fund and ICICI prudential fund are present at this moment. Reliance and HSBC have yet to launch their balance fund in India.

DSPML BALANCE FUND

This fund was launched on 14th may 1999 and has shown since inception a CAGR of 20.05%. The last year absolute returns were 39.51%. From the data it can be concluded that the fund manager has been careful in taking the calls for and equities as well. This fund also exhibit stability and offer no risk.

ICICI PRUDENTIAL BALANCED FUND

The captioned fund was launched on 7th October 1999 and has registered a CAGR of 18.55% since inception. Last year absolute return was 28.42%. On making a comparative study it is observed that performance of this fund has not been satisfactory as compared to their competitors undoubtedly HDFC prudence fund has outperformed all other funds in the balanced fund segment.

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MONTHLY INCOME FUNDS MONTHLY INCOME PLAN (MIPS)

When they entered in mid nineties MIPS were pure debt funds that assured monthly returns, of a decent 12-14 percent, through their tenure with interest rates high they managed to keep their promise in their early years. But as interest rates tumbled MIPS struggled. Its difficult to generate an annual return of 10-12% by investing in instruments that yield 7-9%. At the same time fund houses couldnt abandon MIPS as there was and still is a good demand for regular income scheme and MIPS were the only mutual fund product that serviced this need. So fund houses started ringing in the changes. First they stopped assuring returns. Then they shed their debt only tag and started tasking on a small equity exposure, up to 10%.

THE OBJECTIVE: Generate marginally higher returns than debts over a period of time, while as far as possible declare dividends every month. Its an investment profile a majority in debt, with a sprinkling of equity they have stuck with. MIPS are positioned as debt fund that gives a monthly income stripped of such makeovers, though MIPS can be seen as conservative balanced funds, to further stretch the definition. Nearly all MIPS have now given themselves the option to invest 10-30 percent in equity. Much as this equity exposure boosts returns in reduces dividend surety. In some months, especially when the market is weak, an MIP might lower, even skip dividends. But when share prices are on the ascent, its likely that the same MIP will more than make up for the earlier shortfalls. When investing in such MIPS, be prepared for some absentee periods and some shortfalls.

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HDFC MIP- LTP FUND (HYBRID FUND)

As the name suggests the investors generally retire person invest a huge amount in single stroke in any of MIP fund & in turn get monthly income by way of cheque or by direct credit to their specified banks account, the returns being better than post office MIS or banks FDI. HDFC MIP LTP WAS LAUNCHED ON 8TH DECEMBER 2003 and has registered a CAGR of 13.28% which is quite impressive. Last year absolute returns were 15.13%. Under MIP segment HDFC MTP LTP fund is investors favorable fund. As the name suggests the fund manager makes long term calls and the matrix of the fund is so devised by blending equities that the returns are pretty good while the risk is minimal.

DSPML SAVING PLUS AGGRESSIVE FUND

It was launched on 20th may 2004 and shown a CAGR of 13.02% while absolute returns for 1 year being 15.02%. In MIP fund category this fund enjoys a good reputation amongst the investors seeking monthly income on a regular and stable basis.

HSBC MIP SAVINGS PLAN

This fund was launched on 10 September 2004 and could register a CAGR of 10.75% only and absolute return of 15.78% for one year. Its on a long way to prove the acumen of fund management.

ICICI PRUDENTIAL MIP FUND

Launched on 10th October 2004 and since inception its CAGR was 10.56% while last year absolute return is 10.26%.

RELIANCE MIP
Launched on 29th December 2003 with CAGR being 9.66 since inception while absolute returns being 9%. 83

On making comparison it is evident that HDFC MIP long term plan has outperformed all the other 4 companies MIPS in since inception CAGR being 13.28%. Secondly the absolute returns of last one year are also pretty high. It proves the wisdom of the fund management and their concern for the retired persons to give a constant better monthly income.

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SYSTEMATIC INVESTMENT PLAN (SIP)

A systematic Investment Plan (SIP) is a simple method of investing, used across the world as a means to invest savings and accumulate wealth. It works much the same way as a recurring deposit account. Periodically, you invest a fixed sum of money into a specific investment vehicle, for a pre-determined number of periods.

Small-Small Drops makes an Ocean

Procrastination is human nature. But waiting to start investing can be costly. Starting early is an important element for successful investing. Another key element is investing at regular intervals. Investing the same amount at regular intervals (e.g., every month) is known as Systematic Investing.

Systematic Investing is perhaps the simplest and most disciplined way to create wealth over the long term. By investing modest amounts regularly, you will find that in a while you will be on your way to creating great wealth.

SIP (SYSTEMATIC INVESTMENT PLAN) is a scientific and superior way of investing small amounts every month, in order to get a substantial amount after a certain period.

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Benefits of SYSTEMATIC INVESTMENT PLANS are:

SAFETY The SIP schemes are floated inter-alia by various

Mutual Funds like SBI Mutual Fund, Sundaram Mutual Fund, Birla Mutual Fund, TATA Mutual Fund, Reliance Mutual Fund, all have a very large fund base and a reputation in the market.

LIQUIDITY During the period of investment, one can withdraw the amount anytime in part or in whole.

TRANSPARENCY- The amount invested by you in Mutual Fund

Schemes is, in turn, invested by them in shares of blue-chip companies like ONGC, Indian Oil, Maruti Ltd, The TATA Group, The Birla Group, The Reliance Group Companies, etc. The fact-sheet of these is declared every month, so that you are aware where your money is parked.

PROFESSIONALS MANAGE YOUR INVESTMENTS- Your

investments are supervised by high profile investment experts, who thoroughly analyze the health of companies, before they buy shares or bonds.

of diversification.

DIVERSIFIED INVESTMENTS- The investment made by you

is spread over 20 or more different companies, and thus, inherently follows the principle

GOVERNMENT CONTROL- Mutual funds are subject to SEBI

rules and regulations who keep a close watch on their working.

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DISCIPLINED INVESTMENT - Investment in SIP is not

affected by booms and depressions in the share market and gives you good returns by the laws of average. Investments in SIP of various Mutual Fund Companies inculcate a disciplined habit of investing in a regular way.

SAVING WAS NEVER SO EASY - A SIP scheme can be started

with convenient monthly installments of as little as Rs. 250/- per month and as many accounts can be opened in the name of husband, wife and children.

HELP YOU SHAPE YOUR FUTURE - Most of us have needs

that involve significant amounts of money, like a childs education, a daughters marriage, buying a house or a car. Money for such milestones can be easily accumulated through SIP as a regular amount is being set aside for such goals.

LOWERS THE AVERAGE COST- SIPs work better as opposed

to one-time investing. This is because of rupee cost averaging. Under rupee-cost averaging, an investor typically buys more of a Mutual Fund unit when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high. This is a good discipline, since it forces the investors around him are wary and exiting the market. Investors may even be pleased when prices fall because the fixed rupee investment would now fetch more units. investor. TAX FREE RETURNS- After 365 days from the date of last

transaction, if the entire amount is withdrawn then it becomes tax free in the hands of the

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Hence, invest early, Regular as small-small drops, Make a mighty ocean.

THE DISCIPLINED APPROACH

Helps you to invest disposable funds each month. Gives you the benefits of rupee cost averaging. Relieves you of trying to time the market. Helps you to reach your financial goals.

Here is how you start:

Fill up a single SIP form, and a single application form. Draw post-dated cheques (minimum 5 cheques). Per cheque minimum SIP amount, can be as low as Rs. 500/-

How is SIP Better?

Your periodic investments can be as small as you want, providing your overall investment is at least Rs. 5000/The day/date option ensures that you get to pick the time of month/quarter that best suits you, given your cash flow patterns. Minimum paperwork start an SIP by filling a single form.

88

 schemes)

If you invest through SIP, you do not pay entry load (in most of the

If you exit in less than the specified period (usually, 6 months for debt schemes, 1 year for equity schemes), you pay exit load as applicable.

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BENEFITS FROM SYSTEMATIC INVESTMENT PLANS

SIP in Tax saving schemes (ELSS)
People having time horizon of more than 3-4 years may choose Tax saving schemes (ELSS) over pure diversified or focused equity fund schemes.

IT PROVIDES Relief from one lump sum investment at the year end (e.g., Rs. 1000 every month, rather than Rs. 10,000 lump sum) Tax relief u/s 80 c Accumulating Insurance Premium through SIP. Open two SIPs of 6 month each and repeat the same after 6 months.

IT PROVIDES: Ready premium at the end of six months every one year. Relief from one lump sum investment at one go (e.g., Rs. 1000 every month, rather than Rs. 10,000 lumpsom at the time of premium payment date).

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COMPARISION BASED ON RETURNS FOR ALL FUNDS TAKEN UNDER GROWTH OPTION WITH NAV AS ON 6TH JULY 2007

DIVERSIFIE D EQUITY FUNDS

HDFC EQUITY FUND GROWTH DSPML TOP 100 EQITY FUND GROWTH HSBC EQUITY FUND GROWTH ICICI PRUDENTIAL DISCOVERY FUND RELIANCE EQUITY FUNDGROWTH

NAV (as on 6th July, 07)

167.91

COMPOUNDED ANNUALIZED 1st Year 45.45 3rd Year 53.61

INCEPTION DATE

SINCE INCEPTION IN CAGR

24th December, 94 10th February, 03

25.13%

66.40

50.35

49.28

54.90%

78.15

41.41

44.54

14th November, 02 18th August, 04

56.78%

28.97

31.56

44.43%

12.97

34.96

7th March, 06

22.75%

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MIDCAP EQUITY FUNDS

NAV (as on 6th July, 07)

COMPOUNDED ANNUALIZED 1st Year 46.65 3rd Year 48.25

INCEPTION DATE

SINCE INCEPTION IN CAGR

HDFC CAPITAL BUILDER FUND GROWTH DSPML SMALL & MIDCAP FUND IPGROWTH HSBC MID CAP EQUITY FUNDGROWTH ICICI PRUDENTIAL EMERGING STAR FUND GROWTH RELIANCE GROWTH

74.27

30th October, 98

25.92%

11.81

16th October, 06 12th April, 05

18.09%

22.04

51.05

44.87 %

32.99

58.53

1st November, 05

55.91%

314.03

56.66

64.18

25th September, 95

34.09%

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EQUITY LINKED SAVING SCHEMES (ELSS)

HDFC TAX SAVER GROWTH ICICI PRUDENTIAL TAX PLAN GROWTH RELIANCE TAX SAVER FUND GROWTH

NAV (as on 6th July, 07)

COMPOUNDED ANNUALIZED 1st Year 3rd Year

INCEPTION DATE

SINCE INCEPTION IN CAGR

159.36

37.21

60.40

31st March, 96

38.92%

94.18

27.25

54.39

19th August, 99

32.90%

15.80

46.16

23rd August, 05

29.55%

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MONTHLY INCOME PLAN (MIP)

HDFC MIP LONG TERM PLAN DSPML SAVING PLUS AGGRESSIVE FUND ICICI PRUDENTIAL MIP CUMULATIVE HSBC MIP SAVING PLUS RELIANCE MIP

ABSOLUTE RETURN FOR LAST YEAR 15.13%

INCEPTION DATE

SINCE INCEPTION IN CAGR 13.28%

8th December, 03 20th May, 04

15.02%

13.02%

10.26 %

10th October, 04 10th September, 04 29th December, 03

10.56%

15.78% 9%

10.75% 9.66%

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BALANCE FUND
HDFC PRUDENCE FUND DSPML BALANCE FUND ICICI PRUDENTIAL BALANCE FUND

ABSOLUTE RETURN FOR LAST YEAR 40.15%

INCEPTION DATE

SINCE INCEPTION CAGR 22.87%

31st January, 94 14th May, 99

39.51%

20.05%

28.42%

7th October, 99

18.55%

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96

RESEARCH METHODOLOGY:
OBJECTIVE
When we talk of Research Methodology, we not only talk of the research methods but also consider the logic behind the methods we use in the context of our research study and explain why we are using a particular method or technique and why we are not using so that research results are capable of being evaluated either by research himself or by others. As the project is about the comparative study of HDFCs mutual funds with other respective companies, so my objective is to compare the few products of HDFCs mutual fund with other companies.

SAMPLE SIZE
The sample size refers to the number of employees selected from the heterogeneous group which constitutes of doctors, engineers, working employees, housewives etc. It consists of 50 individuals.

SAMPLING
The sampling used is judgmental sampling. Judgmental sampling is a form of convince samplings in which the population elements are selected based on the judgment of the researcher.

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METHOD OF SAMPLING

Sampling Procedure: The samples were taken from the heterogeneous people,
asking about their financial goal and the kind of financial planning they want to have in order to achieve their financial goal. On the representation basis, the sample may be probability sampling or it may be nonprobability sampling.

Probability sampling: Probability sampling is also known as Random sampling or

Chance sampling. Under this sampling design, every item of the universe has an equal chance of inclusion in the sample. (i.e., once an item is selected for the sample, it cannot appear in the sample again)

Non Probability sampling: Non Probability sampling is also known by different

names such as deliberate sample, purposive sampling and judgment sampling. In this type of sampling, items remain supreme.

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Type of research:
(1) (2) EXPLORATORY RESEARCH DESCREPTIVE RESEARCH

Various different research methodologies was used in the study

Exploratory Research: Exploratory research was used in corporate and individual

investors .It seeks to discover new relationships. Exploratory research is a natural step. It is useful to find the most likely alternatives, which are then turned into hypothesis. Exploratory research may also be involved when the perceived problem is much less general .it is useful to develop the most promising hypotheses. They define hypotheses, which are then tested by conclusive research

99

DATA COLLECTION
In dealing with any real life problem it is often found that data at hand are inadequate and hence, it becomes necessary to collect data that are appropriate. There are several ways of collecting the appropriate data which differ considerably in context of money costs, time and other resources at the disposal of the researcher.

The collection of data was done both from primary and secondary sources.

Primary Data
Primary data can be collected either through experiment or through survey. If the researcher conducts an experiment, he observes some quantitative measurements, or the data, with the help of which he examines the truth contained in his hypothesis, but in the case of survey, data can be collected by any one or more of following ways. By Demonstration. Through personal interview. Through telephone interview. By questionnaires.

It was collected through the survey in which the questionnaire was prepared and was asked to answer by the heterogeneous people. They were also personally interviewed. The data collected was totally original and did not exist before. The data was flexible and reliable too.

Secondary Data
The data, which already exist in the nature, is called secondary data. It provides a slating point for research and offers the advantage of low costs and ready availability. The

100

historic literature and other information regarding the company profile and strategic planning were taken from the secondary sources like Economic Times, Business Today; investor India and through websites.

Sample size: The sample size chosen was 50 keeping in view the availability of time
and the convenience of the other people with whom the contacts were to be made.

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TOOLS
The tool used in the research is QUESTIONNAIRE.

What is a questionnaire?
A questionnaire a list of question to be asked from the respondents. It also contains a suitable space where the answer can be offered a better questionnaire form, which has completed, by an interviewer

Why questionnaire?
Now a days questionnaire are commonly used to collect data that is specific are crucial to the success of business venture. Without doubt questionnaire allows gathering information that cannot be found any where, like from other secondary data such as Manuals, Books and internet resources. That is why information collected is fresh and unique. Here I have used close ended questionnaire in which the person has to only select the options which he/she thinks is most suitable.

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103

STEP-BY-STEP ANALYSIS AND INTERPRETATION OF ALL THE QUESTIONS MENTIONED IN THE QUESTIONNAIRE 1. Annual income
This is the attempt to understand the sample populations financial conditions like under which income slab individual invest the most. a) <Rs.1lac b) Rs.1lac-Rs.3lacs c)>Rs.3lacs

Interpretation:
According to their responses, we analyzed that 85% sample population come under the slab of 1lac to 3 lac only 15% sample population annual income is >3lacs who are interested in investment.

2. Where do you invest your savings?

(a) Savings (b) Real estate (c) Insurance (d) Mutual funds (e) Gold/Arts

Analysis and Interpretation:

INVESTMENTS Gold/Arts, 3%

Mutual funds, 34%

Savings, 36% Real Estate, 10%

Insurance, 17%

The results show that the maximum percentage of the sample has their investments in savings a/c, PPF & FDS. This clearly underlines the fact that most Indians are inclined towards investing in safe investment avenues, which are backed by government and offer suitable returns over a period of time. Thus, Indians are conservative investors by nature.

104

36% of the sample had invested in savings. Only 17% of sample had invested in insurance sector and 34% in mutual funds. Most people who invest in mutual funds are professionals, who have awareness about their benefits and are well versed with these investments.

3. What percentage of the above do you invest in equities?

a) 10%-25% b) 25%-35% c) 35%-45% d) 45%-55% e) 55%&above

Interpretation:
44% sample invest 25%-35% in equities, 24% sample invest 10%-25% in equities, 16% sample invest 35%-45% in equities, 12% sample invest 45%-55% in equities & only 4% sample invest 55% & above in equities. This result shows that the investors are very careful while doing the investment in equities.

4. What is the average time frame you normally envisage your investments?
a) Less than 6 months b) 6 months to 1 year c) 1 year to 3 years d) More than 3 years

Interpretation:
The results clearly highlight that a major proportion of the sample are long term investors and seek the returns to grow over a period of time to give them suitable returns. People who are short-term investors (5%) are basically those investors, who engage in quick returns from the equity markets. Financial planning can be very useful to individuals who are long term investors as planning will not only enhance the returns expected the risks can be diversified as well. Financial planners can help the investors to cope with the various financial needs from time to time, if the investments are kept for a long term

5. What do you measure while investing?

a) Time period b) Return on investment 105

c) Tax benefits

Interpretation:
Most of the individual are interested in the returns from the investment no matter how that happens. Many individual also give importance to the time duration till they have to invest. Very moderate individuals are interested to take tax benefits.

6. How much return are you getting from your investment?

a) 5%-10% b) 10%-20% c) >20% According to the 71% individual, good returns is the first priority for them. The individual (17%) who comes under the income tax slab rate, measure tax benefit while doing the investment. Rest of the investors measure the time period.

Interpretation:
59% sample are getting >20% return which is good in todays low bank investment rates situation, only 41% sample are getting 10%-20% return from their investment.

7. What return are you expecting from your investments?

The purpose was to ask individuals in the sample about the average returns which they expect from their investments. a) 8% b) 8- 15% c) > 15%

Interpretation:
The study shows that more than 22% of the sample expects their returns to be between 8% - 15%. The fact is that the fixed securities give a return of just about 10%. To get better results one has to invest in riskier avenues. These avenues are equity, mutual funds etc. thus, as the expectations are rising, more and more people are heading towards equity markets. The people who expect more than 15% are 78% of sample size, aggressive investors and represent the young professionals in the sample. They are ready to take risks and thus, expect high returns on their investors. The attitude of most of the investors is changing towards the financial markets due to robust growth and norms of SEBI. There is a growing investor trust in the markets.

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8. How much do you agree that systematic financial planning can help you to achieve your financial goals in an efficient manner?
a) Strongly disagree b) Disagree c) Agree d) Strongly Agree

Interpretation:
The results clearly state that 68% of the sample agrees that systematic financial planning can help them to achieve their financial goals in an efficient manner. 18% of the sample strongly believes on this statement. Only 13% of the people disagree to this statement but none of the people strongly disagreed to this statement.

9. How do you manage your funds?

(a) Take helps of information available/by you. (b) Do whatever my friends and family suggest (c) No, I have a professional financial planner

Interpretation:
The results show that 27% of the sample do whatever their friends or family say or advice them upon. Due, to the strong family values in India, people undertake advice from their family and friends before investing in any asset. These people are usually aged between 40- 56 yrs in the sample. This may be the helpful, but one must park their finances only when they have analyzed the instrument efficiently, after knowing the pros and cons. 27% people in the sample rely on their own knowledge and they are usually professionals who are well versed with the financial markets or are conservative in nature. 21% of the sample takes help from information available on Internet and other literature. These are sound investors mostly investing in equity markets. Websites of various financial services companies and newspapers are the important sources of information. The study shows that 46% of the sample is having a professional financial planner for their help. In this 46%, 80% are servicemen, 10% are housewives, 5% are businessmen and 5% are senior citizens who rely on the service of professional financial planner.

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10. Are you aware of mutual funds?

The reason behind asking this question was that we want to know that how many people have the knowledge about mutual funds besides the other investment tools. a) Yes b) No

Analysis and Interpretation:

Awareness about Mutual funds
No, 10%

Yes, 90%

The result is very positive approximately 90% respondents are aware about the mutual funds.

11. What is your perception about mutual funds?

The purpose behind asking this question was to understand what is an individuals understanding of mutual funds. This will throw insights into the depth of his awareness about the mutual funds. a) An investment vehicle to pool money from investors in a basket of securities, managed by professional fund manger. b) Term associated with UTI

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c) Instrument giving high returns with high risks d) Speculative instrument for investment purposes e) Safe vehicle for investment purposes.

Interpretation:
61% of the respondents think that mutual fund give high returns with moderate risk.

12. Do you own any mutual funds?

a) Yes b) No

Interpretation:
100% sample population own mutual funds of different fund houses. This clearly highlights that the awareness is increasing and many people know about mutual funds. The investments are also increasing simultaneously, as the awareness.

13. If yes then please specify of which company?

a) HDFC OTHERS b) ICICI c) DSPML d) HSBC e) RELIANCE f)

Analysis and Interpretation:

The result clearly shows that most of the individual own the HDFC company mutual funds due to the brand loyalty & good return.

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Investment on various company

10% 2% 3% 15%

5%

65%

HDFC HSBC

ICICI RELIANCE

DSPML OTHERS

14. Are you interested in knowing the investment product of mutual funds?
a) Yes b) No

Interpretation:
The results clearly show that now days the investor becomes very smart they want to know the every single step taken by the financial forest. According to our samples response 95% of the sample are very keen in knowing the investment product of mutual fund.

15. Do you know about mutual funds as an investment/ tax saving option?
(a) Yes (b) No

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Interpretation:
The results clearly state that in present scenario 82% of sample are aware about the mutual funds as an investment /taxes saving option (ELSS). Only 18% of sample is not aware about that. The awareness about mutual funds is increasing due to investor education and efforts of government bodies like SEBI and AMFI.

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FINDINGS
From the above observation it was found that most of the people are of the conservative view and they generally invest their money in government securities like fixed deposit or post office or saving accounts etc. It was not found in the people who are well educated and are working as professionals. These people generally take advice from the financial advisor and invest their money into various schemes of mutual fund and earn profits. Most of the people are aware of mutual fund but the thing that goes behind their mind is the fear of loosing their money. Each individual wants to earn money but it is their risk taking ability that becomes the biggest hindrance during the time of investments. Most of the people relate mutual fund with the UTI scam that happened many years ago. It is the after math affect of that scam that even today small investor and generally income grade people hesitate to invest in mutual fund with the fear of loosing it. With the increase in the awareness about the mutual funds many people such as servicemen, housewives, businessmen etc. are taking more interest in investing in mutual funds. The first and the most favorite question that each individual ask is that what benefits and returns does mutual funds will give to them. The second most favorite question that they ask is about the time duration till they have to invest and how much. There are people that dont take advice from anybody and does their investment on their own. When it was asked that what do they know about the mutual funds then a satisfactorily answer was not found which shows the lack of knowledge amongst the people about mutual fund. Mutual fund is owned by almost all of them but the difference between them is the amount of money they have invested and the time duration till the investment is made. While doing the studies about the mutual funds it was found that most of the people owned HDFC mutual fund comparatively to other companies. This is because of the brand name and the image that the company has created in the minds of the people.

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SUGGESTIONS & RECOMMENDATIONS

The suggestions and recommendations are on the basis of the entire study. This includes knowledge gained through books and websites i.e. the secondary data and the primary data collected through questionnaire and its analysis.

Mutual Funds in Future:

Through survey and analysis of the

questionnaire we came to know that there are people who are aware of mutual funds and want to invest into it, but the fear of the loss of capital also resides within them. No doubt the investors totally comply that the mutual fund gives a higher return than the bank returns on fixed deposit or saving a/c. This being the weak point of most of the banks makes mutual fund very lucrative. In the near future we can vision it out that mutual funds will be the best instruments for the investors to invest. After all what an investor want is high returns with less risk of losing capital and mutual fund is exactly giving them the same. Therefore the future of mutual funds is really very bright.

Maintaining the performance pace:

Mutual Funds need to

maintain its performance record. The findings show that Mutual Funds have been rated well by both investors and distributors/advisors by and large on all the attributes, which implies overall satisfaction. Sustaining the performance in future is a major challenge for the industry. Past few years have been favorable for capital market and money market in the country and Mutual Funds have cashed upon the same and complemented it with generating good returns. The markets are highly volatile in the country and the Mutual Funds have to take care of the same.

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Efficient Management of Founds: Mutual Funds have been able to

retain its customers as the findings showed that investors associated with Mutual Funds for longer duration constitute a major portion of the sample size. The Companies must take the advantage of this favorable fact and should work upon to make the schemes generate good returns i.e. good management of funds. Maximum returns on the investment are the only underlying aim of the investors and this should be taken the utmost care of by the Mutual Fund Companies.

Awareness of Mutual Funds: The survey found that the majority of

the respondents in the survey were associated with Mutual Funds for a longer duration front. Looking upon it the other way, it is revealed that new entrants in Mutual Fund are miserable low. In the investors survey, Novice investors (investor for less than 6 months) formed only 28% of the respondents, which is fairly low. This shows that awareness of people about Mutual Funds is low and the Industry needs to look into it. With highly penetrating distribution channel of the Mutual Funds, it is suggested that the same can be used for creating awareness campaigns where the distributors/advisors can make best use of their clienteles and make the masses aware of this feasible investment option and validating its success story by the performance record. The companies can make a joint effort and can go in for campaigns that aim at educating the masses about the investment option.

Opportunity for New Entrants in Mutual Funds :

The survey

findings shows that 90% respondents in the investor survey belong to Moderate Investor category implying that investors prefer to invest across the various funds offered by the companies. The Investors have invested in same type of schemes across the companies. Also, observations found that investors have diversified across the companies on the basis that some Companies are pioneer in management of funds some specific type of funds. This brings an opportunity for 116

the new entrants as the only benchmark of evaluation is the management of funds and the returns generated and there is no dearth of investors.

Target Age Bracket 30yrs to 45 yrs:

The investors in the age

bracket of 30 yrs to 45 yrs has come out to be the most attractive age bracket for Mutual Funds as the survey reveals that this age bracket is the most diversified and involved investors. This age bracket is investor of all type of schemes. Hence, this age bracket can be a probable target for the Mutual Funds. The fund houses should target this bracket and specific strategies should be made to tap them.

Scope for Equity based funds:

Equity funds have been the choice of

almost all the investors belonging to all age brackets, all occupation and all income brackets. This suggests that with variations in equity schemes, it can be a feasible preposition to make an extra effort on the distribution of these schemes. The variations in equity in equity schemes can be schemes with aggressive stocks portfolio, mixture of aggressive & passive stocks portfolio, value stocks portfolio, portfolio with large number of stocks (to diversify the risk) etc.

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CONCLUSION
After doing my study and research on the project I found that HDFCs mutual funds are most popular amongst the people due to their brand name and loyalty. With the increase in the awareness about mutual funds, people are now a days showing interest towards it and are willing to invest in the instruments of mutual funds. What is necessary is to provide proper knowledge and guidance to them as people in India are conservative in nature. In the research I found that the people who are well educated like doctors, retired engineers and IAS etc. show more interest towards mutual funds because they have knowledge about it. On the other hand people who are conservative like employees of some companies, housewives etc. spend their money more in the government FDs and PPF (public provident fund). They are more cautious about their money and dont know that they can earn more money just by investing in the mutual fund instruments. But yes! When we provide the knowledge to them the same thing (mutual fund) become very lucrative and fascinating to them too. Mutual fund industry is growing on very fast as more and more people are becoming aware of it with the passage of time. In the near future to come we can conclude that, most of the families will invest their money in mutual funds.

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QUESTIONNAIRE
NAME: GENDER: Male ( ) Female ( ) ADDRESS: OCCUPATION: CONTACT NO.: 1. Annual Income a) < Rs. 1 lac

b) Rs. 1 lac Rs. 3 lacs c) Insurance

c) > Rs. 3 lacs d) Gold/ Arts

2. Where do you invest your savings? a) Saving a/c b) Real Estate e) Mutual Funds

3. What percentage of the above do you invest in equities? a) 10% 25% b) 25% - 35% c) 35% - 45% e) 55% & above

d) 45% - 55%

4. What is the average time frame you normally envisage your investment? a) < 6 months b) 6 months 1 year c) 1 year 3 years d) > 3 years 5. What do you measure while investing? a) Time period b) Return on investment c) Tax benefits

6. How much return are you getting from your investments? a) 5% - 10% b) 10% - 20% c) > 20% 7. What returns are you expecting from your investments? a) < 8% b) 8% - 15% c) > 15% 8. How much do you agree that systematic financial planning can help you to achieve your financial goals? a) Strongly Disagree b) Disagree c) Agree d) Strongly Agree 9. How do you manage your funds? a) Take help of information available/ by yourself b) Do whatever my friends or family suggest c) No, I have a professional financial planner 121

10. Are you aware of Mutual Funds? a) Yes b) No 11. What is your perception about mutual funds? a) A Vehicle to pool money from investors in a basket of securities by professional manager. b) Invest the money by mutually co-operative group c) Term associated with UTI scam d) High returns with moderate risks e) Safe vehicle for investment purposes. 12. Do you own any mutual fund? a) Yes b) No 13. If YES then please specify of which company? a) HDFC b) ICICI c) DSPML e) RELIANCE f) OTHERS d) HSBC

14. Are you interested in knowing the investment product of mutual funds? a) Yes b) No 15. Do you know about mutual funds as an investment tax saving option? a) Yes b) No

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BIBLIOGRAPHY
1) Kar Pratip; Natrajan, I and Singh, J.P. (2000) Survey of Indian Investors, SEBI and NCAER 2) 3) Financial management by I.M. PANDEY Reid Brian K and Rea John D, (2003 July), Perspective, Mutual Fund Distribution Channel and Distribution Costs, Investment Company Institute 4) Bevis Charles, W, (2002 November), The Future of Mutual Fund Industry, Financial Research Corporation 5) 6) 7) 8) 9) <http://www.researchandmarkets.com> <http://www.bimaonline.com Marketing research / Dr. Berry /ajayshah/MEDIA/1997/eqprem.html> <http://www.valueresearchonline.com>

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10) <http://www.amfiindia.com> 11) http://www.moneycontrol.com <http://moneycontrol.com> 12) <http://www.bseindia.com> 13) Primary Data from Questionnaires

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