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S.K SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE
VIDYAVIHAR (EAST), MUMBAI - 400077
PROJECT ON:
“STUDY OF MUTUAL FUND IN INDIA WITH REFERNCE TO HDFC MUTUAL FUND”
MASTERS OF COMMERCE
(BANKING & FINANCE)
PART 1 (SEM)
(2015-2016)
Submitted:
In Partial Fulfillment of the requirements
For the Award of the Degree of
MASTERS OF COMMERCE
(BANKING & FINANCE)
BY
KHUSHBU V PESHAVARIA
ROLL NO : 46
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DECLARATION
I KHUSHBU V PESHAVARIA student of class Mcom (BANKING &
FINANCE) PART 1 (SEM-1), ROLL NO 46, academic year 2015-2016
Studying at S.K. SOMAIYA COLLEGE OF ARTS, SCIENCE AND
COMMERCE, hereby declare that the work done on the project Entitle “ STUDY
OF MUTUAL FUND IN INDIA WITH REFERANCE TO HDFC LTD” is
true and original and any Reference used in this project is duly acknowledged.
DATE:
PLACE: MUMBAI
SIGNATURE OF STUDENT
(KHUSHBU V PESHAVARIA)
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CERTIFICATE
This is to certify that MISS KHUSHBU V PESHAVARIA, studying in Mcom (BANKING &
FINANCE) PART 1 (SEM-1), ROLL NO. 46, academic year 2015-2016 at S.K.SOMAIYA
COLLEGE OF ARTS, SCIENCE & COMMERCE has completed the project on ‘STUDY
OF MUTUAL FUND IN INDIA WITH REFERANCE TO HDFC LTD’ under the guidance
of Proff. BOSCO PETER
The information submitted herein is true and original to the best of my
knowledge.
____________________ ___________________
Proff. BOSCO PETER DR SANGEETA KOHLI
[PROJECT GUIDE] [PRINCIPAL]
____________________ ___________________
EXTERNAL EXAMINER MR RAVIKANT
[CO-ORDINATOR]
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DECLARATION BY GUIDE
I, the undersigned Prof. __________________________________ has guided
KHUSHBU V PESHAVRIA , ROLL NO : 46 for her project. She has
completed the project on “ STUDY OF MUTUAL FUND IN INDIA WITH
REFERANCE TO HDFC LTD ” successfully.
I, hereby declare that information provided in this project is true as per the
best of my knowledge.
(Prof. ___________________)
Project Guide
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ACKNOWLEDGEMENT
It gives me immense pleasure to present a project on ‘Study of mutual fund with reference to HDFC LTD’ As a M.com student it is a great honor to undergo a project work at an post graduate level and I would like to thank the University of Mumbai for giving me such a golden opportunity.
I am eternally grateful to almighty god for giving me the spirit to put in my best effort towards my project. I owe my sincere gratitude to DR. SANGEETA KOHLI, the principal of our college. I am also thankful to my project guide MR BOSCO PETER for his valuable guidance and for providing an insight to the subject.
I am also obliged to the library staff of S.K.Somaiya College for the numerous books made me available for the handy reference.
Although, I have taken every care to check mistake and misprint yet it is difficult to claim perfection. Any error, omission and suggestion brought to my notice, will be thankfully acknowledged by me.
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IndexSR NO. CHAPTER NAME PAGE NO
1 MUTUAL FUND OVER VIEW 7 1.1 INTRODUCTION 8 1.2 MF AS INVESTMENT PLATFORM 9 1.3 ADVANTAGE OF MF 11 1.4 DISADVANTAGES OF MF 12
2 CATEGORIES OF MUTUAL FUND 13 2.1 CATEGORIES OF MF 14 2.2 INVESTMENT STRATEGY 18 2.3 DISTRIBUTION CHANNEL 18
3ORGANIZATION STRUCTURE & REGULATORY AUTHORITY OF MF 19
3.1 ORGANIZATION STRUCTURE OF MF 20 3.2 REGULATORY AUTHORITY OF MF 22
4 HDFC AMC COMPANY OVERVIEW 28 4.1 HDFC COMPANY PROFILE 29 4.2 HDFC COMPANY OVERVIEW 30
5 HDFC MF PRODUCTS 34 5.1 PRODUCTS OF HDFC MUTUAL FUND 35 5.2 AUM OF HDFC VS OTHER COMPANIES 37
5.3 HDFC GROWTH FUND PORTFOLIO ANAYLSIS 41
5.4 TYPES OF RISK ASSOCIATED WITH MF CONCLUSION 45 BIBLOGRAPHY 46
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Chapter no:1
MUTUAL FUND OVERVIEW
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1.1 INTRODUCTION TO MUTUAL FUND
An investment vehicle that is made up of a pool of funds collected from many investors for
the purpose of investing in securities such as stocks, bonds, money market instruments and
similar assets. Mutual funds are operated by money managers, who invest the fund's capital
and attempt to produce capital gains and income for the fund's investors. A mutual fund's
portfolio is structured and maintained to match the investment objectives stated in its
prospectus.
A mutual fund is a common pool of money into which investors place their contributions
that are to be invested in accordance with a stated objective. The benefits to investors in
buying units of mutual funds come primarily from diversification, professional money
management, and tax benefits.
Schemes in a mutual fund are managed by a professional investment manager (called a Fund
Manager) who has many years of relevant experience and is hence likely to manage the
investments better than an individual investor. Normally, different Fund Managers manage
schemes investing in different asset classes, i.e. equity schemes and debt schemes (bonds,
debentures) are usually managed by separate Fund Managers.
A mutual fund is normally formed as a Trust and is governed by a Board of Trustees – see
diagram below. The Trustees in turn appoint an investment advisor to manage the various
schemes launched by the mutual fund. This investment advisor is called an Asset
Management Company (AMC). The AMC is responsible for marketing and selling the
schemes, investing the funds collected by it and servicing the investors. The AMC is
responsible to the Trustees and has to take their approval for all major actions taken in
connection with the mutual fund. To help the AMC in its daily activities, it appoints
specialists in different areas - a Registrar & Transfer (R&T) Agent , a Custodian and one or
more Banks.
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1.2 MUTUAL FUND AN INVESTMENT PLATFORM
Mutual fund is an investment company that pools money from small investors and invests
in a variety of securities, such as stocks, bonds and money market instruments. Most open-end
Mutual funds stand ready to buy back (redeem) its shares at their current net asset value, which
depends on the total market value of the fund's investment portfolio at the time of
redemption. Most open-end Mutual funds continuously offer new shares to investors. It is also
known as an open-end investment company, to differentiate it from a closed-end investment
company.
Mutual funds invest pooled cash of many investors to meet the fund's stated investment
objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund’s
current net asset value: total fund assets divided by shares outstanding.
In Simple Words, 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.
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INVE
STO
R
INVEST THEIR MONEY
INVEST IN VARIETY OF STOCKS/BONDS
MU
TUAL
FU
ND
SH
EMES
M
ARKE
T (F
LUCT
UAT
ION
S)
PROFIT/LOSS FORM PORTFOLIO OF INVESTMENT
PROFIT/LOSS FROM INDIVIDUAL
Investments in securities are spread across a wide cross-section of industries and sectors
and thus the risk is reduced. Diversification reduces the risk because not all stocks may move
in the same direction in the same proportion at the same time. Mutual fund issues units t o the
investors in accordance with quantum of money invested by them. Investors of Mutual fund
are known as unit holders. The profits or losses are shared by the investors in proportion to their
investments. The Mutual funds normally come out with a number of schemes with different
investment objectives which are launched from time to time.
In India, A Mutual fund is required to be registered with Securities and Exchange Boa rd
of India (SEBI) which regulates securities markets before it can collect funds from the public.
In Short , a Mutual fund is a common pool of money in to which investors with
common investment objective place their contributions that are to be invested in accordance
with the state d investment objective of the scheme. The investment manager would invest the
money collected from the investor in to assets that are defined/ permitted by the stated
objective of the scheme. For example, a n equity fund would invest equity and equity
related instruments and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is
a suitable investment for the common ma n a s it offers an Oporto unity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.
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1.3 ADVANTAGES OF MUTUAL FUND
S. No.
Advantage Particulars
1.Portfolio Diversification
Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).
2.Professional Management
Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.
3. Less RiskInvestors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.
4.Low Transaction Costs
Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors.
5. LiquidityAn investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid.
6.Choice of Schemes
Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options
7. TransparencyFunds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.
8. Flexibility
Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.
9. Safety
Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.
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1.4 DISADVANTAGE OF INVESTING IN MUTUAL FUNDS
S. No.
Disadvantage Particulars
1.
Costs Control Not in the Hands of an Investor
Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund.
2.No Customized Portfolios
The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.
3.
Difficulty in Selecting a Suitable Fund Scheme
Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.
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CHAPTER : 2
CATEGORIES OF MUTUAL FUND
2.1 CATEGORIES OF MUTUAL FUND
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Figure:1.2
Mutual funds can be classified as follow:
Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of
time.
Close-ended funds: These funds raise money from investors only once. Therefore, after
the offer period, fresh investments cannot be made into the fund. If the fund is listed on a
stocks exchange, the units can be traded like stocks (E.g., Morgan Stanley Growth Fund).
Recently, most of the New Fund Offers of close-ended funds provided liquidity window
on a periodic basis such as monthly or weekly. Redemption of units can be made during
specified intervals. Therefore, such funds have relatively low liquidity.
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BASED ON THEIR STURCTURE
2. BASED ON INVESTMENT OBJECTIVE
Mutual funds can be classified as follow:
Based on their investment objective:
Equity funds : These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses. However,
short term fluctuations in the market, generally smoothens out in the long term, thereby
offering higher returns at relatively lower volatility. At the same time, such funds can
yield great capital appreciation as, historically, equities have outperformed all asset
classes in the long term. Hence, investment in equity funds should be considered for a
period of at least 3-5 years. It can be further classified as:
1. Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked.
Their portfolio mirrors the benchmark index in terms of both composition and individual stock
weightages.
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EQUITY FUNDS BALANCED FUNDS
DEBT FUNDS
DEVIDEND YEILD
EQUITY
THEMANTIC FUND
SECTOR FUND
EQUITY
DEBT ORIENTED
ARBITAGE
FLOATING RATE
FMPS FUNDS
INCOME FUNDS
GUILT FUNDS
LIQUID FUNDS
ELSS
INDEX FUNDS
2. Equity diversified funds- 100% of the capital is invested in equities spreading across
different sectors and stocks.
3. Dividend yield funds- it is similar to the equity-diversified funds except that they invest in
companies offering high dividend yields.
4. Thematic funds- Invest 100% of the assets in sectors which are related through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.
5. Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will
invest in banking stocks.
6. ELSS- Equity Linked Saving Scheme provides tax benefit to the investors
.
Balanced fund : Their investment portfolio includes both debt and equity. As a result, on
the risk-return ladder, they fall between equity and debt funds. Balanced funds are the
ideal mutual funds vehicle for investors who prefer spreading their risk across various
instruments. Following are balanced funds classes:
1 Debt-oriented funds -Investment below 65% in equities.
2 Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
Debt fund : They invest only in debt instruments, and are a good option for investors
averse to idea of taking risk associated with equities. Therefore, they invest exclusively in
fixed-income instruments like bonds, debentures, Government of India securities; and
money market instruments such as certificates of deposit (CD), commercial paper (CP)
and call money. Put your money into any of these debt funds depending on your
investment horizon and needs.
1. Liquid funds- These funds invest 100% in money market instruments, a large portion
being invested in call money market.
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2. Gilt funds ST- They invest 100% of their portfolio in government securities of and T-
bills.
3. Floating rate funds - Invest in short-term debt papers. Floaters invest in debt
instruments, which have variable coupon rate.
4. Arbitrage fund- They generate income through arbitrage opportunities due to miss-
pricing between cash market and derivatives market. Funds are allocated to equities,
derivatives and money markets. Higher proportion (around 75%) is put in money
markets, in the absence of arbitrage opportunities.
5. Gilt funds LT- They invest 100% of their portfolio in long-term government securities.
6. Income funds LT- Typically, such funds invest a major portion of the portfolio in long-
term debt papers.
7. MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of
10%-30% to equities.
8. FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of
the fund.
How are funds different in terms of their risk profile:
Equity Funds High level of return, but has a high level of risk too
Debt funds Returns comparatively less risky than equity funds
Liquid and Money
Market funds
Provide stable but low level of return
1.2 INVESTMENT STRATEGIES
1. Systematic Investment Plan: Under this, a fixed sum is invested each month on a fixed date
of a month. Payment is made through post-dated cheques or direct debit facilities. The investor
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gets fewer units when the NAV is high and more units when the NAV is low. This is called as
the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan: Under this, an investor invest in debt-oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual
fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he
can withdraw a fixed amount each month.
2.3 DISTRIBUTION CHANNELS:
Mutual funds posses a very strong distribution channel so that the ultimate customers doesn’t
face any difficulty in the final procurement. The various parties involved in distribution of
mutual funds are:
1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The
investors can approach to the AMCs for the forms. some of the top AMCs of India are;
Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae
Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard
Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.
2. Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-broker
to popularize their funds. AMCs can enjoy the advantage of large network of these brokers and
sub brokers.
3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents,
independent brokers, banks and several non- banking financial corporations too, whichever he
finds convenient for him.
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CHAPTER NO:3
ORGANIZATION STRUCTURE &
REGULATORY
AUTHORITY OF MUTUAL FUND
3.1 ORGANISATION STRUCTURE OF MUTUAL FUND:
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THE STRUCTURE CONSISTS OF:
SPONSOR
Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the
Investment managed and meet the eligibility criteria prescribed under the Securities and
Exchange Board of India (Mutual Fund) Regulations, 1996. The sponsor is not responsible or
liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial
contribution made by it towards setting up of the Mutual Fund.
TRUST
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts
Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.
TRUSTEE
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Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The
main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that
the AMC functions in the interest of investors and in accordance with the Securities and
Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed
and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are
independent directors who are not associated with the Sponsor in any manner.
ASSET MANAGEMENT COMPANY (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC
is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an
asset management company of the Mutual Fund. At least 50% of the directors of the AMC are
independent directors who are not associated with the Sponsor in any manner. The AMC must
have a net worth of at least 10 cores at all times.
REGISTRAR AND TRANSFER AGENT
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the
Mutual Fund. The Registrar processes the application form, redemption requests and dispatches
account statements to the unit holders. The Registrar and Transfer agent also handles
communications with investors and updates investor records.
3.2 REGULATORY AUTHORITY OF MUTUAL FUND
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3.2.1 Role of SEBI (securities exchange board of India)
There was no uniform regulation of the mutual funds industry till a few years ago. The UTI was
regulated by a special Act of Parliament while funds promoted by public sector banks were
subject to RBI Guidelines of July 1989. The Securities & Exchange Board of India (SEBI) was
formed in 1993 as a capital market regulator. One of its responsibilities was to regulate the
mutual fund industry and it came up with comprehensive regulations for the industry in 1993.
The rules for the formation, administration and management of mutual funds in India were
clearly laid down. Regulations also prescribed disclosure requirements.
The regulations were thoroughly reviewed and re-notified in December 1996. The revised
guidelines tighten the accounting and disclosure requirements in line with recommendations of
The Expert Committee on Accounting Policies, Net Asset Values and Pricing of Mutual Funds.
The SEBI (Mutual Funds) Regulations, 1996 have been further amended in 1997, 1998 and
1999. Today, all mutual funds are regulated by SEBI. Efforts have been made to bring UTI
schemes under SEBI's ambit with the result that all schemes, with the exception of Unit 64, are
now regulated by the capital market regulator.
3.2.2 SEBI Guideline of Mutual Fund SEBI Regulation Act 1996
Establishment of a Mutual Fund:
In India mutual fund play the role as investment with trust, some of the formalities laid down by
the SEBI to be establishment for setting up a mutual fund. As the part of trustee sponsor the
mutual fund, under the Indian Trust Act, 1882, under the trustee company are represented by a
board of directors. Board of Directors is appoints the AMC and custodians. The board of trustees
made relevant agreement with AMC and custodian. The launch of each scheme involves inviting
the public to invest in it, through an offer documents.
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Depending on the particular objective of scheme, it may open for further sale and repurchase of
units, again in accordance with the particular of the scheme, the scheme may be wound up after
the particular time period.
1. The sponsor has to register the mutual fund with SEBI
2. To be eligible to be a sponsor, the body corporate should have a sound track record and a
general reputation of fairness and integrity in all his business transactions.
3.2.3 Role of AMFI (Association Mutual Fund in India)
AMFI, the apex body of all the registered asset management companies was incorporated on
August 22, 1995 as a nonprofit organization. All the asset management companies that have
launched mutual fund schemes are its members. One of the objectives of AMFI is to promote
investors' interest by defining and maintaining high ethical and professional standards in the
mutual fund industry. The AMFI code of ethics sets out the standards of good practices to be
followed by the asset management companies in their operations and in their dealings with
investors, intermediaries and public. AMFI code has been drawn up to encourage adherence
to standards higher than those prescribed by the regulations for the benefits of investors in
the mutual fund industry.
The members of Asset Management Companies (AMC) have always carried out the
responsibility of introducing new mutual fund schemes under the governance and guidelines
of its Board of Directors. Association of Mutual Funds in India has played a significant role
in creating a healthy and professional market for mutual funds. It has elevated the standard of
the mutual fund investment patterns by introducing more beneficiary schemes to attract more
investors. The Association of Mutual Funds is also the main governing body of all Asset
Management Companies (AMC). The Association of Mutual Funds in India (AMFI) has
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been registered with the Securities and Exchange Board of India (SEBI). The main principle
religiously followed by AMFI is to protect and promote the mutual funds along with the
investors or shareholders.
The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian
Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain
standards in all areas with a view to protecting and promoting the interests of mutual funds and
their unit holders.
AMFI working group on Best Practices for sales and marketing of Mutual Funds under the
Chairmanship of Shri B. G. Daga, Former Executive Director of Unit Trust of India with Shri
Vivek Reddy of Pioneer ITI, Shri Alok Vajpeyi of DSP Merrill Lynch, Shri Nikhil Khattau of
Sun F & C and Shri Chandrashekhar Sathe, Formerly of Kotak Mahindra Mutual Fund has
suggested formulation of guidelines and code of conduct for intermediaries and this work has
been ably done by a sub-group consisting of Shri B. G. Daga and Shri Vivek Reddy.
3.2.4 Objectives of AMFI:
To define and maintain high professional and ethical standards in all areas of operation of mutual
fund industry.
To recommend and promote best business practices and code of conduct to be followed by
members and others engaged in the activities of mutual fund and asset management including
agencies connected or involved in the field of capital markets and financial services.
To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on
all matters concerning the mutual fund industry.
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To represent to the Government, Reserve Bank of India and other bodies on all matters relating
to the Mutual Fund Industry.
To develop a cadre of well trained Agent distributors and to implement a programme of training
and certification for all intermediaries and others engaged in the industry.
To undertake nation wide investor awareness programme so as to promote proper understanding
of the concept and working of mutual funds.
To disseminate information on Mutual Fund Industry and to undertake studies and research
directly and/or in association with other bodies.
To take regulate conduct of distributors including disciplinary actions (cancellation of ARN) for
violations of Code of Conduct.
To protect the interest of investors/unit holders.
3.2.5 Code of conduct of AMFI for Mutual Fund:
With an aim to check the flow of illicit money into mutual funds and safeguard the interest of
investors, industry body AMFI has revised its code of conduct guidelines for the fund houses and
distributors.
In a 27-point revised code of conduct document for MF intermediaries, the Association of
Mutual Funds in India (AMFI) has added fresh directives to protect investors from potential
frauds, insisted on Know Your Distributor norms.
It has asked intermediaries to provide all documents of its investors in terms of the Anti Money
Laundering/ Combating Financing of Terrorism requirements.
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The AMFI has also asked the intermediaries to ensure that the investor’s address and contact
details filled in the mutual fund application form are their own, and not of any third party, so that
the investors are protected from any potential fraudulent activities.
Wherever the required information is not available in the application form, intermediary have
been asked to make reasonable efforts to obtain accurate and updated information from the
investor.
“Intermediaries should abstain from filling wrong/ incorrect information or information of their
own or of their employees, officials or agents as the investor’s address and contact details in the
application form, even if requested by the investor to do so,” the revised code says.
The industry body, which also acts as a self-regulatory organisation, has also asked
intermediaries to abstain from tampering with the application forms submitted by investors,
including by inserting, deleting or modifying any information in the form provided by the
investor.
AMFI had last revised the code of conduct for MF intermediaries in September 2009. Mutual
fund intermediaries were governed by AMFI Guidelines and Norms for Intermediaries, drafted
in 2002.
The entities working in mutual fund segment have also been asked to provide their cooperation
and support to AMCs (Asset Management Companies), AMFI, regulatory authorities and
applicable due diligence agencies in relation to the activities of the intermediary or any
regulatory requirement.
AMFI has directed intermediaries to maintain the requisite documentation in respect of the
‘Advisory’ or ’Execution Only’ services provided by them to the investors.
“Do not indulge in fraudulent or unfair trade practices of any kind while selling units of Schemes
of any mutual fund,” AMFI has told the intermediaries.
“Selling of units of schemes of any mutual fund by any intermediary directly or indirectly by
making false or misleading statement, concealing or omitting material facts of the scheme,
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concealing the associated risk factors of the schemes or not taking reasonable care to ensure
suitability of the scheme to the investor will be construed as fraudulent/ unfair trade practice,” it
said.
3.2.6 Important aspects of AMFI:
AMFI provides professionalism and a proper balance in the mutual fund industry.
It promotes the highly-efficient business practices as well as the code of conduct in the
mutual fund industry among its members and those who are involved in mutualfund
investments.
AMFI is registered with SEBI and follows its suggestions while executing its activities.
AMFI also represents the Government of India, the Reserve Bank of India and other
related higher authority bodies in the mutual fund operations.
It also provides training programs to hone the skills of those who are involved in mutual
fund investments and also develops a team of efficient and skilled agents.
AMFI also carries out various campaigns and awareness programs to inform the
individuals about the basic concept of mutual fund investments.
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CHAPTER NO: 4
HDFC AMC COMPANY OVERVIEW
4.1 HDFC COMPANY PROFILE
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HDFC Mutual FundKey Information
Mutual Fund HDFC Mutual Fund
Setup Date Jun-30-2000
Incorporation Date Dec-10-1999
Sponsor Housing Development Finance Corporation Limited, Standard Life Investments Limited
Trustee HDFC Trustee Company Limited
Chairman N.A
CEO / MD Mr. Milind Barve
CIO Mr. Prashant Jain
Compliance Officer Mr. Yezdi Khariwala
Investor Service Officer Mr. John Mathews
Assets Managed Rs. 170837.65 crore (Sep-30-2015)
Other Details
Auditors M/s. Deloitte Haskins & Sells (HDFC Mutual Fund) / M/s Haribhakti & Co. (HDFC AMC)
Custodians HDFC Bank Limited & Citibank N.A
Registrars Computer Age Management Services Ltd.
Address “HUL House”, 2nd Floor, H.T. Parekh Marg, 165-166, Backbay Reclamation, Churchgate, Mumbai 400020
Telephone Nos. 6631 6333
Fax Nos. 2282 1144
E-mail [email protected]
4.2 HDFC COMPANY OVERVIEW
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies
Act,1956, on December 10, 1999, and was approved to act as an Asset Management Company
for the HDFC Mutual Fund by Securities and Exchange Board of India (SEBI) vide its letter
dated July 3, 2000.
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The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169,
Back bay Reclamation, Church gate, Mumbai - 400 020.
In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset
Management Company Limited to manage the Mutual Fund
As per the terms of the Investment Management Agreement, the AMC will conduct the
operations of the Mutual Fund and manage assets of the schemes, including the schemes
launched from time to time.
The present share holding pattern of the AMC is as follows:
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review
of its overall strategy, had decided to divest its Asset Management business in India. The AMC
had entered into an agreement with ZIC to acquire the said business, subject to necessary
regulatory approvals.
On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now
migrated to HDFC Mutual Fund on June 19, 2003.
The AMC is also providing portfolio management / advisory services and such activities are not
in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from
SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio
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Particulars % of the paid up capital
Housing Development Finance Corporation Limited 50.10
Standard Life Investments Limited 49.90
Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration
is valid from January 1, 2004 to December 31, 2006.
Board of Directors
The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists of
the following eminent persons.
Mr. Deepak S. Parekh Chairman of the board
Mr. N. Keith Skeoch CEO of Standard Life Investments Ltd.
Mr. Keki M. Mistry Associate director
Mr. James Aird Investment director
Mr. P. M. Thampi Independent director
Mr. Humayun Dhanrajgir Independent director
Dr. Deepak B. Phatak Independent director
Mr. Hoshang S. Billimoria Independent director
Mr. Rajeshwar Raj Bajaaj Independent director
Mr. Vijay Merchant Independent director
Ms. Renu S. Karnad Joint managing director
Mr. Milind Barve Managing director
Mr. Deepak Parekh, the Chairman of the Board, is associated with HDFC Ltd. in his
capacity as its Executive Chairman.
Mr. Parekh joined HDFC Ltd. in a senior management position in 1978. He was inducted as
Wholetime Director of HDFC Ltd. in 1985 and was appointed as the Executive Chairman in
1993.
Mr. N. Keith Skeoch is associated with Standard Life Investments Limited as its Chief
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Executive and is responsible for all company business and investment operations within
Standard Life Investments Limited.
Mr. Keki M. Mistry is an associate director on the Board. He is the Vice-Chairman &
Managing Director of Housing Development Finance Corporation Limited (HDFC Ltd.) He is
with HDFC Ltd. since 1981 and was appointed as the Executive Director of HDFC Ltd. in
1993. He was appointed as the Deputy Managing Director in 1999, Managing Director in 2000
and Vice Chairman & Managing Director in 2007.
SPONSORS
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 the purchase or
construction of residential housing. It also provides property related services (e.g. property
identification, sales services and valuation), training and consultancy. Of these activities, housing
finance remains the dominant activity.
HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000 depositors, 92,000
shareholders and 50,000 deposit agents. HDFC raises funds from international agencies such as
the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from
banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its
bonds and deposits program for the ninth year in succession. HDFC Standard Life Insurance
Company Limited, promoted by HDFC was the first life insurance company in the private sector
to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and
Development Authority to transact life insurance business in India.
HDFC is India's premier housing finance company and enjoys an impeccable track record in
India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
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mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has
developed significant expertise in retail mortgage loans to different market segments and also
has a large corporate client base for its housing related credit facilities. With its experience in the
financial markets, a strong market reputation, large shareholder base and unique consumer
franchise, HDFC was ideally positioned to promote a bank in the Indian environment.
STANDARD LIFE INVESTMENTS LIMITED
The Standard Life Assurance Company was established in 1825 and has considerable experience
in global financial markets. In 1998, Standard Life Investments Limited became the dedicated
investment management company of the Standard Life Group and is owned 100% by The
Standard Life Assurance Company.
With global assets under management of approximately US$186.45 billion as at March 31, 2005,
Standard Life Investments Limited is one of the world's major investment companies and is
responsible for investing money on behalf of five million retail and institutional clients
worldwide. With its headquarters in Edinburgh, Standard Life Investments Limited has an
extensive and developing global presence with operations in the United Kingdom, Ireland,
Canada, USA, China, Korea and Hong Kong. In order to meet the different needs and risk
profiles of its clients, Standard Life Investments Limited manages a diverse portfolio covering all
of the major markets world-wide, which includes a range of private and public equities,
government and company bonds, property investments and various derivative instruments. The
company's current holdings in UK equities account for approximately 2% of the market
capitalization of the London Stock Exchange.
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Chapter no:5
HDFC MUTUAL FUND PRODUCTS
5.1 HDFC MUTUAL FUND PRODUCTS
Equity Funds
HDFC Growth Fund
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HDFC Long Term Advantage Fund
HDFC Index Fund
HDFC Equity Fund
HDFC Capital Builder Fund
HDFC Tax saver
HDFC Top 200 Fund
HDFC Core & Satellite Fund
HDFC Premier Multi-Cap Fund
HDFC Long Term Equity Fund
HDFC Mid-Cap Opportunity Fund
Balanced Funds
HDFC Children's Gift Fund Investment Plan
HDFC Children's Gift Fund Savings Plan
HDFC Balanced Fund
HDFC Prudence Fund
Debt Funds
HDFC Income Fund
HDFC Liquid Fund
HDFC Gilt Fund Short Term Plan
HDFC Gilt Fund Long Term Plan
HDFC Short Term Plan
HDFC Floating Rate Income Fund Short Term Plan
HDFC Floating Rate Income Fund Long Term Plan
HDFC Liquid Fund - PREMIUM PLAN
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HDFC Liquid Fund - PREMIUM PLUS PLAN
HDFC Short Term Plan - PREMIUM PLAN
HDFC Short Term Plan - PREMIUM PLUS PLAN
HDFC Income Fund Premium Plan
HDFC Income Fund Premium plus Plan
HDFC High Interest Fund
HDFC High Interest Fund - Short Term Plan
HDFC Sovereign Gilt Fund - Savings Plan
HDFC Sovereign Gilt Fund - Investment Plan
HDFC Sovereign Gilt Fund - Provident Plan
HDFC Cash Management Fund - Savings Plan
HDFC Cash Management Fund - Call Plan
HDFCMF Monthly Income Plan - Short Term Plan
HDFCMF Monthly Income Plan - Long Term Plan
HDFC Cash Management Fund - Savings Plus Plan
HDFC Multiple Yield Fund
HDFC Multiple Yield Fund Plan 2005
5.2 COMPARISION OF AUM OF HDFC WITH OTHER MUTUAL FUND COMAPNY
Assets under management (Rs.Cr)
Mutual Funds June 2015 September 2015 Change % Change
HDFC Mutual Fund 165,013 170,838 5,824 3.53
ICICI Prudential Mutual Fund 155,522 164,629 9,106 5.86
Reliance Mutual Fund 144,693 152,919 8,226 5.69
Birla Sun Life Mutual Fund 125,502 133,404 7,901 6.30
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UTI Mutual Fund 92,730 104,077 11,347 12.24
SBI Mutual Fund 83,693 88,628 4,935 5.90
Franklin Templeton Mutual Fund 74,312 77,328 3,016 4.06
IDFC Mutual Fund 54,498 56,774 2,276 4.18
Kotak Mahindra Mutual Fund 48,077 56,511 8,434 17.54
DSP BlackRock Mutual Fund 36,036 37,339 1,302 3.61
Axis Mutual Fund 28,365 31,789 3,425 12.07
Tata Mutual Fund 28,045 28,857 812 2.90
Deutsche Mutual Fund 20,720 25,329 4,609 22.24
L&T Mutual Fund 22,213 24,280 2,067 9.31
Sundaram Mutual Fund 20,996 22,124 1,128 5.37
Religare Invesco Mutual Fund 19,519 21,594 2,075 10.63
JM Financial Mutual Fund 11,676 15,858 4,182 35.82
JPMorgan Mutual Fund 14,684 12,455 -2,229 -15.18
LIC NOMURA Mutual Fund 11,133 11,157 24 0.21
Baroda Pioneer Mutual Fund 7,225 9,532 2,307 31.93
HSBC Mutual Fund 7,880 7,843 -37 -0.47
Canara Robeco Mutual Fund 7,078 7,213 135 1.90
Goldman Sachs Mutual Fund 7,775 7,132 -643 -8.26
IDBI Mutual Fund 5,556 7,016 1,460 26.27
PRINCIPAL Mutual Fund 6,479 6,624 144 2.23
Indiabulls Mutual Fund 3,691 5,196 1,505 40.77
Taurus Mutual Fund 4,188 4,656 468 11.18
BNP Paribas Mutual Fund 4,138 4,638 499 12.07
Motilal Oswal Mutual Fund 2,744 3,928 1,185 43.18
BOI AXA Mutual Fund 2,332 2,881 549 23.54
Union KBC Mutual Fund 2,675 2,672 -3 -0.12
Mirae Asset Mutual Fund 1,981 2,427 446 22.50
Pramerica Mutual Fund 2,125 2,366 241 11.33
Edelweiss Mutual Fund 1,148 1,573 424 36.95
Peerless Mutual Fund 854 860 7 0.77
Quantum Mutual Fund 594 612 18 3.03
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PPFAS Mutual Fund 592 604 12 2.06
IIFL Mutual Fund 399 412 13 3.21
Escorts Mutual Fund 279 300 21 7.47
Sahara Mutual Fund 134 124 -10 -7.66
Shriram Mutual Fund 33 35 2 4.66
Total 1,227,327 1,314,532 87,204 6.63
HDFC Mutual Fund Advantages
There are many advantages in investing HDFC mutual funds. The following are some of the
advantages,
Affordability – The HDFC mutual funds are available in smaller units which make it more
affordable.
Flexibility – The HDFC mutual fund offers systematic withdrawal plans, dividend reinvestment,
systematic investment plans which give more flexibility.
Liquidity – The HDFC mutual fund offers open ended schemes in which you can withdraw the
money at any point of time.
Professional Management – Based on extensive research and experience the expert fund
managers analyze the options in HDFC mutual funds.
Diversification – The risk factor is low in HDFC mutual funds as the investment is done across
different stocks and industries.
Low Costs – The custodial fee, brokerage charges are low for HDFC mutual funds.
Potential Return – The HDFC mutual fund managers have access to statistics and information
from leading analysts and economists around the world. Because of this, the investors of HDFC
mutual funds gain potential returns.
Regulated for Investor Protection – The HDFC mutual fund sector is regulated to protect the
interests of investors.
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You can view the performance of the HDFC mutual funds at a glance at the HDFC bank website.
The details of analyzed funds are presented in the form of fact sheets. These fact sheets are
updated on a monthly basis. The HDFC mutual funds can be buy and sell online from the HDFC
bank website. You can also visit your nearest HDFC bank branch to invest in HDFC mutual
funds.
Once you register for HDFC mutual funds, your HDFC bank savings account will be linked to
investment services. You can perform three type of transactions purchase, redeem and switch.
You can view all your holdings online. Once any transaction is performed no cancellation is
encouraged.
The various kinds of mutual funds provided by the bank are:
• HDFC Mid – Cap Opportunities Fund: Closed end fund which invests in small as well as mid
cap stocks.
• HDFC Infrastructure Fund: Closed end equity mutual fund which invests in stocks of the
infrastructure companies.
• HDFC Long Term Equity Fund: Closed end equity mutual fund and has a maturity period of
5 years. This fund has diversified stocks for risk minimization.
• HDCF Index Fund – Nifty Plan: This is an index fund and tracks nifty. The scheme is open
ended and the expense ratio is 1%.
• HDFC Index Fund – Sensex Plus Plan: 80-90% of the asset in this fund is invested in Sensex
stocks and the rest is invested outside Sensex.
• HDFC Index Fund – Sensex Plan: This plan passively tracks the Sensex.
• HDFC Tax Saver (ELSS): Open-ended scheme with a lock-in period of 3 years and provides
benefits of tax saving.
• HDFC Prudence Fund: Open-ended fund where the allocation in equity and debt depends on
the market condition.
• HDFC Arbitrage Fund: An arbitrage fund where arbitrage opportunities are exploited
between the derivatives and spot market.
• HDFC Premier Multi Cap Fund: This is a fund which is growth oriented and investments are
made in the mid cap and large cap blue chip companies.
• HDFC Capital Builder Fund: This is a fund which is actively managed and the assets are
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invested in companies which are strong and are below the fair value.
• HDCF Equity Fund: Open ended fund where the investments are made companies which are
expected to outperform their peers.
• HDFC Long Term Advantage Fund (ELSS): Investments are done in equity and instruments
related to equity. This fund is closed ended with a lock-in period of 3 years.
• HDFC Balanced Fund: It is a balanced open-ended fund where investments are made in
equity and debt.
• HDFC Core and Satellite Fund: Open-ended fund investing in stocks which are performing
below the true value.
• HDFC Top 200 Fund: This fund invests in the equities and instruments linked with equity but
are drawn from the companies listed in the BSE 200 Index.
• HDFC Growth Fund: Open-ended fund and invests primarily in equities and instruments
linked with equity.
5.3 HDFC Growth Fund Portfolio Analysis
Sectoral Allocation of Assets(%)
Banks 16.37
Pharmaceuticals 10.39
Media & Entertainment 8.48
Consumer Non Durables 7.94
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Petroleum Products 7.72
Industrial Capital Goods 6.60
Telecom - Services 5.30
Auto Ancillaries 5.30
Finance 3.42
Software 3.31
Chemicals 2.41
Fertilisers 2.24
Ferrous Metals 1.92
Construction 1.48
Transportation 1.24
Oil 1.12
Construction Project 0.85
Paper Products 0.85
Industrial Products 0.21
Engineering 0.18
Cash,Cash Equivalents and Net Current Assets
12.67
TOTAL 100
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It requires a lot of research and constant watch on the capital market for a fund manager to analyze the portfolio of the particular fund. I took the secondary data from the fund review of the article corner from The Business Line web site. I comprehended the analysis and concluded my view as stated below.
HDFC Growth Fund invests in stocks across market capitalisations. Despite a large-cap bias, mid and small cap stocks account for 28 per cent of the portfolio. The fund has managed to consistently beat its benchmark Sensex over one-, three- and five-year periods.
In the latest portfolio, the fund has invested in as many as 52 stocks across 18 different sectors making it a fairly diversified portfolio. This may indicate net inflows into the fund.
Sector Moves: There is a fair bit of stability in terms of top sector holdings in the portfolio. Banks (16.39 per cent) and pharmaceuticals (10.37 per cent) sectors continue to be the top two sector holdings, although exposures have been a bit reduced.
Banks and consumer non-durables also figure among top holdings in the fund, and have seen increased exposures over the September-February period. While capital goods and banks have done well in the past year, they have been among the worst hit in the recent meltdown.
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The respective sector indices were beaten down by over 25 per cent in the last couple of months. Construction and predictably, software exposures have been pared in the six-month period.
Interestingly, media and entertainment (8.48 per cent), which were not part of the portfolio six months ago is now in the top ten sector holdings for the fund. The power sector has been exited, while telecom services and auto ancillaries exposures have been increased substantially.
Stock Moves: Most stocks are those whose prices have fallen during September-February, include stocks such as Zee Entertainment, HT Media and Dr Reddy's Labs.
The fund has also taken profit booking opportunities, with several stocks whose prices rose between 60-105 per cent have been exited. These include, Axis Bank, Hanung Toys and Tata Power. Other high-profile exits include DLF, HPCL, Ranbaxy Labs, and Punj Lloyd.
Reliance Industries, SBI, ONGC and BHEL are the stocks retained by the fund during the period and are among the fund's top holdings.
5.4 Types of risks associated with mutual fund investments
As we know that mutual funds offer a variety of schemes, it is also considered to be a diversified
investment vehicle which means that to a large extent because of its feature of diversification it
reduces your risk, but remember it does not eliminate your risk completely which means that if
you decide to invest in equity market or in debt market through mutual funds the risk associated
with those markets still remain with you. Maybe the impact of that through the mutual fund is
much less then as compared to if you were to invest directly in those. If you talk about equity
funds there are certain risks equated with equity markets, for example there are macroeconomic
risks. As we know that stocks prices are always sensitive to what is happening in economies, be
it local economy, be it international economies, how is the currency doing, what is happening to
the interest rate, where is the inflation, how are the companies performing, all these factors have
an impact on the stock prices. So as long as the economy is doing very well that would reflect in
the stock prices and that would reflect in your Net Asset Value ( NAV ). So always remember
that macroeconomic factors will have an impact on your investments there. Second risk is the
liquidity risk. There are always going to be some stocks in the portfolio which may not be that
liquid and also it depends on the nature of fund that you are invested in. For example, if you are
invested in a large cap stock there there is no problem of liquidity because all these large cap
stocks are quite liquid, but if you are invested in a small cap fund the liquidity is going to be an
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issue and there is also a risk of volatility. We know that equity market by nature is volatile. So
whenever you invest in equity funds keep at the back of your mind that you may have to face
volatility from time to time and be prepared for that. If you talk about debt funds, debt funds
again there is a risk of interest rate. There is an inverse relationship between interest rates and the
bond prices which means that every time the interest rate goes down there are certain types of
debt funds which will do very well and there are certain types of funds that will not do very well.
So always keep an eye on emerging interest rate scenario. There is also a risk of credit risk. What
is that credit risk? When you invest in a bond fund the money is ultimately invested in some
securities. Every security is actually rated. Make sure that when you invest in a fund, the fund
has invested in higher grade investment securities because the company can default in terms of
paying interest or principal or both. The third risk as in the equity market there is also a risk of
liquidity. Even though there is a secondary debt market, but it is not having that much of a depth
today so there can always be some securities in the fund which the fund may find difficult to
liquidate.
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CONCLUSIONS:
Mutual fund has become one of the important sources for investing. It is quite likely that a more
efficient portfolio can be constructed directly from funds. Thus, the two-step process of choosing
an asset allocation based on the information about benchmark indexes and then choosing funds
in each category may be one of the best realistically attainable approaches. To use this approach
to portfolio selection effectively, investors would benefit from estimates of future asset returns,
risks and correlations, as well as from fund management’s disclosure of future asset exposures
and appropriate benchmarks.
It has been a great opportunity for me to get a first experience of Mutual Funds. My study is to
get the feel of how the work is carried out in relation to fund’s portfolio aspect. I got an
opportunity in relation to the documentation and also the portfolio analysis that have been
carrying out in facilitating the investor and the fund manager.
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BIBLOGRAPHY
Books:
1. Security Analysis and Portfolio Management (sixth Edition 1995) by Donald E. Fisher and Ronald J. Jordan. Publication: Pearson education.
2. The Indian Financial System (second edition) by Bharati V. Pathak. Published by Dorling Kindersley (India) Pvt. Ltd., licensees of Pearson Education in South Asia.
Websites
www.hdfcfund.com
www.amfiindia.com
www.moneycontrol.com
www.sebi.gov.in
www.bseindia.com
www.nseindia.com
www.mutualfundsindia.com
www.valueresearch.com
www.indiainfoline.com
www.in.finance.yahoo.com
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