Summer Traning Project ReportHDFC

SUMMER TRAINNING PROJECT REPORT

ON

“GENERAL STUDY OF HDFC MUTUAL FUND”

SUBMITTED BY

VISHAL N. NASIT

MBA Sem-III

ACADEMIC YEAR 2006 – 2008

PROJECT GUIDE

(DR). MITA VORA (assistant professor)

SUBMITTED TO

SAURASHTRA UNIVERSITY, RAJKOT

COLLEGE NAME

R. K. COLLEGE OF BUSINESS MANAGEMENT (RKCBM)

R. K. COLLEGE OF BUSINESS MANAGEMENT (RKCBM) 1

PREFACE

In today’s era of cut-throat competition, Masters of Business Administration (MBA)

is sure to have an edge over their counterparts.

MBA education brings its students in direct contact with the real corporate world

through industrial training. The MBA program provides its students with an in depth

study of various managerial activities that are performed in any organization.

A detailed analysis of managerial activities conducted in various departments like

production, marketing, finance, human resources, export-imports, credit dept, etc.

gives the student a conceptual idea of what they are expected to manage , how to

manage and how to obtain the maximum output through minimum inputs and how to

minimize the wastage of resources.

I have undergone my summer training at HDFC MUTUAL FUND. It is one of the

leading mutual fund companies in the country. I feel great pleasure to present this

report work after my training at HDFC MUTUAL FUND that produced to be golden

opportunity for me by enriching my knowledge by comparing my theoretical

knowledge with the managerial skill and application.

Simple language has been used throughout the report. Report is illustrated with figure,

charts and diagrams as and when required.


DECLARATION

I NASIT VISHAL, student of MBA Semester III of R.K. COLLEGE OF BUSINESS

MANAGEMENT hereby declare that the project work presented in this report is my

own work and has been carried out under the supervisor of Mr.Amit Doshi (Assistant

Manager of HDFC Mutual Fund, Rajkot).

My report is submitted as a part of study curriculum and as a partial fulfilment of the

degree of M.B.A. (Masters of Business Administration). I am also declaring that I am

submitting this report on the training undertaken at HDFC Mutual Fund regarding the

General Study of Mutual Fund at Rajkot Branch and studying the people’s perception

regarding the investment in mutual fund.

I guarantee that this project report has not been submitted for the awards to any other

university for degree, diploma or any other such prizes.

Date:

Place: RAJKOT

(NASIT VISHAL N.)


ACKNOWLEDGEMENT

With great zeal, I present my individual summer training Report in MBA

(SEMESTER III) on HDFC MUTUAL FUND.

I convey my deepest gratitude to Mr. Amit Doshi, Mr. Kilol Karia, and Mr. Sandip

Kalola. and all other staff members of HDFC MUTUAL FUND (AMC) and HDFC

BANK who have been very co-operative and helpful in providing vital information

for my project.

This Summer Training has imparted me a professional exposure to the real corporate

world and its general management orientation. By working at HDFC MUTUAL

FUND (AMC), studying different schemes of MUTUAL FUND, knowing the criteria

of making investment, interacting with professional departmental heads and by

preparing this report, it has added a practical touch to my theoretical knowledge.

I avail this opportunity to convey my sincere thanks to Mr. T.D.TIWARI, the director

of R.K. College of Business Management. I am thankful to DR. MITA VORA, my

project guide for recommending me the necessary information for the report. His

instilling support and enthusiasm, expert guidance and insight have lent my project a

unique touch. I also express my sincere gratitude to Mr. Prof (Dr.) T. D. TIWARI,

Director of R.K.C.B.M., for providing us an opportunity to interact with professional

people in the real corporate world. I forward my gratitude for the compulsion of this

most wonderful aspect of our MBA curriculum without which knowledge of

management is incomplete and futile.

At last I am also thankful to my family member and friends who had given me their

constructive advice, educative suggestions, encouragement and co-operation to

prepare this report.


CONTENTSParticulars Page EXECUTIVE SUMMARY 06PART A :- INDUSTRY OVERVIEW 08

Short history of Mutual Fund 09 Concept of Mutual Fund in Detail 10 Types of Mutual Fund 14 Organization of Mutual Fund 15 Phases of Mutual Fund Industry 21 Type & Way to Invest 25 Legal Framework of SEBI & AMFI 26 Benefits of Mutual Fund 28 Mutual Fund Players In India 31

PART B : - COMPANY DETAIL 34 History of HDFC 35 About HDFC Mutual Fund 36 Mutual Products at Glance 41 Achievement & Awards 44

PART C : - DEPARTMENT DETAILS 45 Operation Department Details 46 Marketing Department Details 48 Human Resource Department Detail 53 Finance Department Details 59

PART D :- DIFFERENT SCHEMES OF HDFC 74 Equity Schemes 75 Balanced Schemes 83

SWOT ANALYSIS 87CONCLUSION 88GLOSSARY 89BIBLIOGRAPHY 90SUGGESTIONS 92

EXECUTIVE SUMMARY

The economy is highly influenced by the Financial System of the country. The Indian

Financial System has been broadly divided into two segments: the organized and

unorganized. An investor has a wide array of investment avenues available. Economic

well being in the long run depends significantly on how wise he invests.

In present financial scenario where the economy is poised to grow at 9% ,as stated by

our finance minister P Chidambaram, and the present bulls run in the capital market


,where lot of money is being pumped into the economy by FII, and increasing

disposable income with the generation next has created a problem of investment

because there is lot money on hand but they don’t know where to invest as there is no

attractive return in the bank FD, PPF, KVP, NSC, MIS, and other Post saving scheme.

Due to uncertainty in share market and low returns due to low interest a rate has left

investor are puzzled, i.e. to spend the money or save the money. If to save the money

then where to save it, so that they can get better return with flexibility, tax benefit and

as well as capital appreciation. So it is necessary for investor to find the answer and

way of capital growth with better return rather than uncertain share market and other

low yield investment avenues.

All investments involve risk in varying degrees, and hence it is necessary to

understand risk profile of each investment avenues and know how it can affect your

investments. There should be trade off between risk and return. There are also risks

that are not in our control like inflation risk, credit risk, risk of sudden rise in oil

prices, risk pertaining to political environment for instance. In present financial

system, investment has lost their potential to earn additional income, which can help

for growth of their capital because the interest return which varies from approx 4% to

8% and the inflation rate hovering in and around 5%-6% so the real return is varying

between (-)2% to 2% so this is the real return what a investor gets by investing in

FIXED DEPOSIT, GOVERNMENT SECURITY ,KVP,NSC,PPF,MIS and also

blocking there money for min of 2-5 years ,in these instruments ,which is not very

encouraging for an investor to invest in these instruments .So the investor is likely to

spend his earnings than invest(save), which what is happening in our country.

Mutual fund is indeed of great benefit in this respect. They provide the services of

experienced and skilled professionals who determine this risk and monitor them on

going basis they are also backed up by research, done by individual asset

Management Company based on the fund objectives.

When investors are confronted with an outstanding range of products, form traditional

bank deposits to downright shady money-multiples schemes, it has to be judged on

the yardsticks of returns, liquidity, safety, convenience and tax efficiency. An

important question facing many investors across the country today is whether one

should invest in a bank fixed deposit or in a debt-oriented Mutual Fund. Mutual fund


gives an opportunity to the IFA’s to select from different investment options ranging

from liquid funds to diversified equity ,based on there clients appetite for risk and and

the return they want .

The data is contained from insurance advisors, income tax consultant, and post office

agent. So the basic objective of the study was to test the potentiality and develop the

business of mutual funds by obtaining the data form Independent financial advisors.

During the training period and interaction with people it was found that awareness of

Mutual Fund among IFA’s was there to a limited extent but there was lot of

misconceptions among them about mutual fund as I had meet few who had lost there

money in UTI scam and others though where aware of mutual fund where not

suggesting this to there clients as they thought it as to be to risky for there clients and

those who where aware where really aggressive to take the opportunity offered by

mutual fund to earn a high return. On the whole if I have to conclude my survey I

would like to say that if we have to create awareness about diversified portfolio,

professional management and SEBI Regulations and benefits it offers to IFA’s and

there clients and also we have to clear few misconception which IFA’s have, to tap the

huge potential which mutual fund market has to offer


PART A

INDUSTRY OVERVIEW

SHORT HISTORY OF MUTUAL FUNDS

WHERE DID THEY COME FROM?

Mutual funds are not an American invention. The first was started in the Netherlands

in 1822, and the second in Scotland in the 1880's. Originally called investment trusts,

the first American one was the New York Stock Trust, established in 1889. Most that

followed were begun in Boston in the early 1920's, including the State Street Fund,

Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder, Pioneer, and the

Putnam Fund. The Wellington Fund, the first balanced fund that included both stocks

and bonds, was founded in 1928, and today is part of the giant Vanguard Funds


Group. In the 1960's there was a phenomenal rise in aggressive growth funds (with

very high risk). Sometimes called "go-go" or "hot-shot" funds, they received the

majority of the billions of dollars flowing into mutual funds at that time. In 1968 and

1969, over 100 of these new aggressive growth funds were established.

A severe bear market began in the autumn of 1969. People became disillusioned with

stocks and mutual funds. "The market's toast. It’ll never get back to where it was!"

was echoed by panicked investors. Unemployment grew; inflation went crazy, and

investors pulled billions back out of the funds. They should have hung in there! Many

funds have risen 9,000% since then.

The 1970's saw a new kind of fund innovation: funds with no sales commission called

"no load" funds. The largest and most successful no load family of funds is the

Vanguard Funds, created by John Boggle in 1977.

At the end of the 1920's there were only 10 mutual funds. At the end of the 1960's

there were 244. Today there are more than 6,500 unique funds and even thousands

more that differ only by their share class (how they are sold, and how their expenses

are charged).

Before we continue with all you need to know about mutual funds, here is something

that merits your attention. Since 1940, no mutual fund has gone bankrupt. You sure

can't say that about banks and savings and loans!

THE CONCEPT OF MUTUAL FUND IN DETAIL


“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

ownership of the fund is thus joint or “mutual”, fund belongs to all investors. The

work ‘Mutual’ means a vehicle wherein the benefits of a certain investment are reaped

by investors in proportion to their investment.”

A mutual fund uses the money collected from investors to buy those assets which are

specifically permitted by its stated investment objective. Thus, an equity fund would

buy equity assets – ordinary shares, preference shares, warrants etc. A bond fund

would buy debt instruments such as debentures, bonds or government securities. It is

these assets which are owned by the investors in the same proportion as their

contribution bears to the total contributions of all investors put together.

When an investor subscribes to a mutual fund, he or she buys a part of the assets or

the pool of funds that are outstanding at that time. It is no different from buying

“shares” of joint stock Company, in which case the purchase makes the investor a part

owner of the company and its assets. In fact, in the USA, a mutual fund is constituted

as an investment company and an investor “buys in to the fund”, meaning he buys the

shares of the fund. In India, a mutual fund is constituted as a Trust and the investor

subscribes to the “units” issued by the fund, which is where the term Unit Trust comes

from. However, whether the investor gets fund shares or units is only a matter of legal

distinction. In any case, a mutual fund shareholder or unit-holder is a part owner of


the fund’s assets. The term unit-holder includes the mutual fund account-holder or

close-end fund shareholder.

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

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned

through these investments and the capital appreciation realized is shared by its unit

holders in proportion to the number of units owned by them. Thus Mutual fund is

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.

WHY INVESTORS NEED MUTUAL FUNDS?

Mutual Funds offer benefits, which are too significant to miss out. Any investment

has to be judged on the yardsticks of return, liquidity and safety. Convenience and

Tax efficiency are the other benchmark relevant in Mutual Fund investments. In the

wonderful game of finance safety and return are two opposite goals and investor

cannot be nearer to both at the same time. Mutual Funds are pooled resources that get

invested in a diversified portfolio. The crux of Mutual Fund investing is averaging

the risk. When risk is equalized so are the returns.

When investor are confronted with a mind-boggling range of products, from

traditional bank deposits to downright shady money-multiplier schemes-let alone the

physical assets and non-conventional investments. Investor choice perhaps normally

falls somewhere amongst the products shown in the table below:

(Source: Mutual Fund Review, Dec. 2003)


Option Current

Yield

Capital

Appreciati

on

Risk Marketability

or Liquidity

Convenie

nce

Equity

Shares

Low High High Variable High

Non

Convertible

Debentures

High Negligible Low Average High

Growth

Schemes

Low High High High Very High

Income

Schemes

High Low Low High Very High

Bank

Deposits

Moderate Nil Negligible High Very High

PPF Nil High Nil Average Very HighLife

Insurance

Nil Moderate Nil Average Very High

Residential

House

Low High Negligible Low Fair

Gold and

Silver

Nil Moderate Average Average Average

Many investors possibly don’t know that considering returns alone, many Mutual

Funds have outperformed a host of other investment products. Mutual Funds have

historically delivered yields averaging between 9% to 25% over a medium to long

time frame (source: www.moneycontrol.com). The duration is important because like

wise, Mutual Fund returns taste better with the passage of time. Investor should be

prepared to lock in your investments preferably for 3 years in an income fund and 5

years in an equity fund. Liquid Funds of course, generate returns even in a very short

term.

Performance analysis of several funds shows that depending on the scheme and the

duration returns from funds average between 9% to 25%. Such average may be

misleading, as some would have fared poorly while others would have posted

phenomenally high returns. The burden of intelligent choice therefore rests on

investor. As the market matures and funds develop equal capabilities – returns may

however level out.


Besides, unlike in a bank deposit or an investment in bonds, returns in Mutual Funds

may fluctuate according to market volatility. A sufficiently longer time span will help

Mutual Funds yield their best returns.

Another critical benchmark for comparing investment options is liquidity. Liquidity

refers to the case with which investor can quickly convert investments back into cash

at least cost. Mutual Fund score high on this benchmark too. And depending on the

schemes investor chooses, Mutual Funds have diverse risk profiles high, medium and

even low. Investor can choose the scheme that best matches his risk appetite.

But the decisive charm of Mutual Funds lies not so much in their returns. It is the

convenience and tax efficiency that till the balance in favour of Mutual Funds.

Convenience of open-end funds is evident in their free entry and exits, systematic

investment and withdrawal plans.

Mutual Fund Operation Flow Chart

TYPES OF MUTUAL FUNDS


There are two BASIC TYPES of mutual funds. "Open-ended" or "Open" mutual

funds are the most common type of mutual funds. Investors may purchase units from

the fund sponsor or redeem units at the valuation promised in the fund documents,

usually on a daily basis. "Closed-ended" or "Closed" mutual funds are traded as

financial securities, once they are issued, and holders must sell their units on the stock

market to receive their funds back.

1. AS PER INVESTMENT OBJECTIVE

Schemes can be classified by the way of their stated investment objective such as

Growth Fund, Balanced Fund and Income Fund etc

1) EQUITY ORIENTED SCHEMES

These schemes, also commonly called Growth Schemes, seek to invest a majority of

their funds in equities and a small portion in money market instruments. Such

schemes have the potential to deliver superior returns over the long term. However,

because they invest in equities, these schemes are exposed to fluctuations in value

especially in the short term. Equity schemes are hence not suitable for investors

seeking regular income or needing to use their investments in the short term. They are

ideal for investors who have a long term investment horizon.


General Purpose

The investment objectives of general-purpose equity schemes do not restrict them to

invest in specific industries or sectors. They thus have a diversified portfolio of

companies across a large spectrum of industries. While they are exposed to equity

price risks, diversified general purpose equity funds seek to reduce the sector or stock

specific risks through diversification. They mainly have market risk exposure. HDFC

Growth Fund is a general purpose equity scheme.

Sector Specific

The schemes restrict their investing to one or more pre-defined sectors, e.g.

technology sector. Since they depend upon the performance of select sectors only,

these schemes are inherently more risky than general purpose schemes. They are

suited for informed investors who wish to take a view and risk on the concerned

sector.

Special Schemes

I. Index Schemes

The primary purpose of an Index is to serve as a measure of the performance of the

market as a whole, or a specific sector of the market. An Index also serves as a

relevant benchmark to evaluate the performance of mutual funds. Some investors are

interested in investing in the market in general rather than investing in any specific

fund. Such investors are happy to receive the returns posted by the markets. As it is

not practical to invest in each and every stock in the market in proportion to its size,

these investors are comfortable investing in a fund that they believe is a good

representative of the entire market. Index Funds are launched and managed for such

investors.

II. Tax Saving Schemes

Investors (individuals and Hindu Undivided Families (“HUFs”)) are being

encouraged to invest in equity market through Equity Linked Savings Scheme

(“ELSS”) by offering them a tax rebate. Units purchased cannot be assigned/

transferred/ pledged/ redeemed/ switched – out until completion of 3years from the

date of allotment of the respective Units.


The Scheme is subject to Securities & Exchange Board of India (Mutual Funds)

Regulations, 1996 and the notifications issued by the Ministry of Finance

(Department of Economic Affairs), Government of India regarding ELSS.

III. Real Estate funds

Specialized real estate funds would invest in real estates directly, or may fund real

estate developers or lend to them directly or buy shares of housing of finance

companies or may even buy their securitized assets.

2) DEBT BASED SCHEME

These schemes are commonly called Income Schemes; invest in debt securities such

as corporate bonds, debentures and government securities. The prices of these

schemes tend to be more stable compared with the equity schemes and most of the

returns to the investors are generated through dividends or steady capital appreciation.

These schemes are ideal for conservative investors or those not in a position to take

higher equity risks, such as retired individuals. However, as compared to the money

market schemes they do have a higher price fluctuation risk and compared to a Gilt

fund they have a higher credit risk.

I. Income Schemes

These schemes invest in money markets, bonds and debentures of corporate with

medium and long term maturities. These schemes primarily target current income

instead of capital appreciation. They therefore distribute a substantial part of their

distributable surplus to the investor by way of dividend distribution. Such schemes

usually declare quarterly dividends and are suitable for conservative investors who

have medium to long term investment horizon and are looking for regular income

through dividend or steady capital appreciation.

Liquid Income Schemes

Similar to the Income scheme but with a shorter maturity than Income schemes.

II. Money Market Schemes

These schemes invest in short term instruments such as commercial paper (“CP”),

certificates of deposit (“CD”), treasury bills (“T-Bill”) and overnight money (“Call”).


The schemes are the least volatile of all the types of schemes because of their

investments in money market instrument with short term maturities. These schemes

have become popular with institutional investors and high net worth individuals

having short term surplus funds.

III. Gilt fund

This scheme primarily invests in Government Debt. Hence the investor usually does

not have to worry about the credit risk since Government Debt is generally credit risk

free.

3) HYBRID SCHEMES

These schemes are commonly known as balanced schemes. These schemes invest in

both Equity as well as Debt. By investing in a mix of this nature, balanced schemes

seek to attain the objective of income and moderate capital appreciation and are ideal

for investors with a conservative, long term orientation.

2. AS PER CONSTITUTION

1) OPEN –ENDED MUTUAL FUNDS

Open-ended schemes do not have a fixed maturity period. Investors can buy or sell

units at NAV-related prices from and to the mutual fund on any business day. These

schemes have unlimited capitalization, open-ended schemes do not have a fixed

maturity, there is no cap on the amount you can buy from the fund and the unit capital

can keep growing. These funds are not generally listed on any exchange.

2) CLOSE-ENDED MUTUAL FUNDS

Close-ended schemes have fixed maturity periods. Investors can buy into these funds

during the period when these funds are open in the initial issue. After that such

schemes can not issue new units except in case of bonus or rights issue. However,

after the initial issue, you can buy or sell units of the scheme on the stock exchanges

where they are listed. The market price of the units could vary from the NAV of the


scheme due to demand and supply factors, investors’ expectations and other market

factors

3) INTERVAL SCHEME

These schemes combine the features of open-ended and close-ended schemes. They

may be traded on the stock exchange or may be open for sale or redemption during

pre-determined intervals at NAV based prices.


ORGANISATION OF MUTUAL FUND

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

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.


PHASES OF 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 fund in India can be broadly divided into four distinct phases.

FIRST PHASE – 1964-1987

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 in 1964. At the end of 1988 UTI had Rs.6, 700 cores of assets

under management.


Phases of Mutual Fund Industry in

India

Phase-IIIPhas

e-IV

Phase-I

Phase-II

21

SECOND PHASE – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non-UTI, public sector mutual funds set up by the 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

Name of the Mutual Fund Company Time of establishment

SBI Mutual Fund June - 1987

Can bank Mutual Fund December - 1987

Punjab National bank Mutual Fund August - 1989

Indian bank Mutual Fund November - 1989

Bank of India Mutual Fund June - 1990

Bank of Baroda Mutual Fund October - 1992

LIC Mutual Fund June - 1989

GIC Mutual Fund December - 1990

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

004 cores.

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 the mutual funds except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private’s 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 the

total assets of Rs. 1, 12,805 cores. The Unit Trust of India with Rs. 44,541 cores of

assets under management was way ahead of other mutual funds.

FOURTH PHASE – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was

bifurcated into two separate entities. One is the specified undertaking of the Unit Trust

of India with assets under management of Rs.29, 835 cores as at the end of January

2003, representing broadly, the assets of US 64 scheme, assured return and certain

other schemes. The specified undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does not come

under the purview of the Mutual Fund Regulations.

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

registered with SEBI and functions under the Mutual fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 cores

of assets under management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations and with the recent mergers taking

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

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

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


The graph indicates the growth of assets over the years.

Note

Erstwhile UTI was bifurcated into UTI Mutual fund and the Specified Undertaking of

the Unit Trust of India effective from February 2003. The Assets under management

of the Specified Undertaking of the Unit Trust of India has thereof been executed

from the total assets of the industry as a whole from February 2003 onwards.


THE WAY & TYPE TO INVEST IN MUTUAL FUND

Mutual funds normally come out with an advertisement in newspapers publishing the

date of launch of the new schemes. Investors can also contact the agents and

distributors of mutual funds who are spread all over the country for necessary

information and application forms. Forms can be deposited with mutual funds through

the agents and distributors who provide such services. Now days, the post offices and

banks also distribute the units of mutual funds. However, the investors may please

note that the mutual funds schemes being marketed by banks and post offices should

not be taken as their own schemes and no assurance of returns is given by them. The

only role of banks and post offices is to help in. distribution of mutual funds schemes

to the investors. Investors should not be carried away by commission/gifts given by

agents/distributors for investing in a particular scheme. On the other hand they must

consider the track record of the mutual fund and should take objective decision.

ONE TIME INVESTMENT

The amount that has to be invested in onetime is known as Onetime Investment. The

investor has to pay the whole amount at once. The minimum amount is Rs. 5000 and

maximum is as per the investor’s

Choice. This investment is generally preferred for the business man who

Are able to pay at one time.

SYSTEMATIC INVESTMENT PLAN (SIP)

The amount that has to be invested through same monthly installment is known as

Systematic Investment Plan. The investor has to pay the minimum amount Rs.1000

monthly for all equity and balanced schemes like that for 6months. And Rs.500

monthly for Tax Saver scheme like that for 12 months. The minimum amount that the

investor has to invest is Rs6000 and maximum as per their choice. This type of

investment is generally preferred for the salaried people.


LEGAL FRAME WORK OF SEBI & AMFI

REGULATORY ASPECTS OF MUTUAL FUNDS:

In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The

objectives of SEBI are – to protect the interest of investors in securities and to

promote the development of and to regulate the securities market.

SEBI formulates policies and regulates the mutual funds to protect the interest of the

investors.

GUIDELINES OF SEBI & AMFI

Mutual funds are regulated by the SEBI (mutual Fund) Regulations, 1996.

SEBI is the regulator of all funds, except offshore funds.

Bank-sponsored mutual funds are jointly regulated by SEBI and RBI.

The bank-sponsored fund cannot provide a guarantee without RBI Permission.

RBI regulates money and government securities markets, in which mutual Funds

are invested.

Listed mutual funds are subject to the listing regulations of stock exchange.

Since the AMC and Trustee Company are companies, the Department of Company

affairs regulate them. They have to send periodic reports to the ROC (Register of

Companies) and the CLB (Company Law Board) is the appellate authority.

Investors cannot sue the trust, as they are the same as the trust and can’t sue

themselves.

UTI does not have a separate sponsor and AMC.

UTI is governed by the UTI Act, 1963 and is voluntarily under SEBI Regulations.

UTI can borrow as well as lend also engage in other financial services activities.

Only AMFI certified agents can sell Mutual Fund units.

Mutual Funds Company is required to update the NAV of the scheme on the

AMFI website on a daily basis in case of open-ended scheme.

REGULATORY OF MUTUAL FUND IN INDIA


SEBI

The capital market regulates the mutual funds in India. SEBI requires all mutual funds

to be registered with them. SEBI issues guidelines for all mutual funds operations-

investment, accounts, expenses etc. Recently, it has been decided that Money Market

Mutual Funds of registered mutual funds will be regulated by SEBI through (Mutual

Fund) Regulations 1996.

RBI

RBI, a supervisor of the Banks owned Mutual Funds-As banks in India come under

the regulatory Jurisdiction of RBI, banks owned funds to be under supervision of RBI

and SEBI. RBI has supervisory responsibility over all entities that operate in the

money markets.

MINISTRY OF FINANCE (MOF)

Ministry of Finance ultimately supervises both the RBI and the SEBI and plays the

role of apex authority for any major disputes over SEBI guidelines.

COMPANY LOW BOARD

Registrar of companies is called Company Low Board. AMCs of Mutual Funds are

companies registered under the companies Act 1956 and therefore answerable to

regulatory authorities empowered by the Companies Act.

STOCK EXCHANGE

Stock Exchanges are Self-regulatory organizations supervised by SEBI. Many closed

ended funds of AMCs are listed as stock exchanges and are traded like shares.

OFFICE OF THE PUBLIC TRUSTEE

Mutual Fund being public trust is governed y the Indian Trust Act 1882. The Board of

trustee or the Trustees Company is accountable to the office of public trustee, which

in turn reports to the Charity commissioner.

BENEFITS OF MUTUAL FUND


There are numerous benefits of investing in mutual funds and one of the key reasons

for its phenomenal success in the developed markets like US and UK is the range of

benefits they offer, which are unmatched by most other investment avenues. We have

explained the key benefits in this section. The benefits have been broadly split into

universal benefits, applicable to all schemes and benefits applicable specifically to

open-ended schemes.

1. AFFORDABILITY

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon

the investment objective of the scheme. An investor can buy in to a portfolio of

equities, which would otherwise be extremely expensive. Each unit holder thus gets

an exposure to such portfolios with an investment as modest as Rs.500/-. This amount

today would get you less than quarter of an Infosys share! Thus it would be affordable

for an investor to build a portfolio of investments through a mutual fund rather than

investing directly in the stock market.


2. DIVERSIFICATION

The nuclear weapon in your arsenal for your fight against Risk. It simply means that

you must spread your investment across different securities (stocks, bonds, money

market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile,

information technology etc.). This kind of a diversification may add to the stability of

your returns, for example during one period of time equities might under perform but

bonds and money market instruments might do well enough to offset the effect of a

slump in the equity markets. Similarly the information technology sector might be

faring poorly but the auto and textile sectors might do well and may protect your

principal investment as well as help you meet your return objectives.

3. VARIETY

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

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

risk appetites; secondly, it offers an opportunity to an investor to invest sums across a

variety of schemes, both debt and equity. For example, an investor can invest his

money in a Growth Fund (equity scheme) and Income Fund (debt scheme) depending

on his risk appetite and thus create a balanced portfolio easily or simply just buy a

Balanced Scheme.

4. PROFESSIONAL MANAGEMENT

Qualified investment professionals who seek to maximize returns and minimize risk

monitor investor's money. When you buy in to a mutual fund, you are handing your

money to an investment professional that has experience in making investment

decisions. It is the Fund Manager's job to (a) find the best securities for the fund,

given the fund's stated investment objectives; and (b) keep track of investments and

changes in market conditions and adjust the mix of the portfolio, as and when

required.

5. TAX BENEFITS


Any income distributed after March 31, 2002 will be subject to tax in the assessment

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

ended equity-oriented funds, income distributions for the year ending March 31, 2003,

will be taxed at a confessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction unto Rs. 9,000 from

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

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

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

6. REGULATIONS

Securities Exchange Board of India (“SEBI”), the mutual funds regulator has clearly

defined rules, which govern mutual funds. These rules relate to the formation,

administration and management of mutual funds and also prescribe disclosure and

accounting requirements. Such a high level of regulation seeks to protect the interest

of investors.

7. CONVENTIONAL ADMINISTRATION

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems

such as bad deliveries, delayed payments and follow up with brokers and companies.

Mutual Funds save your time and make investing easy and convenient. Return

Potential Over a medium to long-term; Mutual Funds have the potential to provide a

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

8. LIQUIDITY

In open-ended mutual funds, you can redeem all or part of your units any time you

wish. Some schemes do have a lock-in period where an investor cannot return the

units until the completion of such a lock-in period.

9. CONVENIENCE

An investor can purchase or sell fund units directly from a fund, through a broker or a

financial planner. The investor may opt for a Systematic Investment Plan (“SIP”) or a

Systematic Withdrawal Advantage Plan (“SWAP”). In addition to this an investor

receives account statements and portfolios of the schemes.


MUTUAL FUND PLAYER IN INDIA

A) Bank Sponsored 1. Joint Ventures - Predominantly Indian a. SBI Funds Management Private Ltd. 2. Others a. BOB Asset Management Co. Ltd. b. Can bank Investment Management Services Ltd. c. UTI Asset Management Co. Private Ltd. B) Institutions a. Jeevan Bima Sahayog Asset Management Co. Ltd. C) Private Sector 1. Indian a. Benchmark Asset Management Co. Private Ltd. b. Cholamandalam Asset Management Co. Ltd. c. Credit Capital Asset Management Co. Ltd. d. Escorts Asset Management Ltd. e. J. M. Financial Asset Management Private Ltd. f. Kotak Mahindra Asset Management Co. Ltd. g. Reliance Capital Asset Management Ltd. h. Sahara Asset Management Co. Private Ltd i. Sundaram Asset Management Co. Ltd. j. Tata Asset Management Ltd. 2. Joint Ventures - Predominantly Indian a. Birla Sun Life Asset Management Co. Ltd. b. DSP Merrill Lynch Fund Managers Ltd. c. HDFC Asset Management Co. Ltd. d. Prudential ICICI Asset Management Co. Ltd. 3. Joint Ventures - Predominantly Foreign a. ABN AMRO Asset Management (India) Ltd. b. Deutsche Asset Management (India) Private Ltd. c. Fidelity Fund Management Private Ltd. d. Franklin Templeton Asset Management (India) Private Ltd. e. HSBC Asset Management (India) Private Ltd. f. ING Investment Management (India) Private Ltd. g. Morgan Stanley Investment Management Private Ltd. h. Principal Pnb Asset Management Co. Private Ltd. i. Standard Chartered Asset Management Co. Private Ltd.

AUM OF COMPETITORS


Assets Under Management (AUM) as at the end of May-2007 (Rs in Lakes)

Mutual Fund Name AUM Average AUM For The Month

Excluding Fund Of Funds

Fund Of Funds

Excluding Fund Of Funds

Fund Of Funds

1. ABN AMRO Mutual Fund

687443.08 36549.73 626525.88 35964.53

2. AIG Global Investment Group Mutual Fund

N/A N/A N/A N/A

3. Benchmark Mutual Fund

641785.64 0 543258.09 0

4. Birla Sun Life Mutual Fund

2371946.37 1905.17 2177700.58 1890.64

5. BOB Mutual Fund 9759.11 0 10249.22 06. Canbank Mutual Fund

291004.49 0 267091.92 0

7. DBS Chola Mutual Fund

247308.99 0 211747.28 0

8. Deutsche Mutual Fund

728368.45 0 718837.47 0

9. DSP Merrill Lynch Mutual Fund

1185328.84 0 1176345.78 0

10. Escorts Mutual Fund

13247.54 0 11715.44 0

11. Fidelity Mutual Fund

881348.73 4365.86 844375.84 4476.53

12. Franklin Templeton Mutual Fund

2627635.74 30636.2 2536497.59 31101.51

13. HDFC Mutual Fund

3614666.74 0 3388820.86 0

14. HSBC Mutual Fund

1458564.08 0 1350481 0

15. ICICI Prudential Mutual Fund

5070300.11 3907.38 4599486.19 3870.1

16. ING Mutual Fund 554148.05 81847.32 426654.38 83156.4117. JM Financial Mutual Fund

377249.74 0 350488.13 0

18. JPMorgan Mutual Fund

N/A N/A N/A N/A

19. Kotak Mahindra Mutual Fund

1672255.56 54018.22 1454533.63 52628.06

20. LIC Mutual Fund 990442.2 0 969282.55 021. Lotus India Mutual Fund

362314.83 0 280596.17 0

22. Morgan Stanley Mutual Fund

318066.94 0 310005.39 0


PART B

COMPANY DETAIL


MAN WITH A MISSION

If ever there was a man with a mission it was

Hasmukhbhai Parekh, Founder and Chairman-Emeritus,

of HDFC Group who left this earthly abode on November

18, 1994. Born in a traditional banking family in Surat,

Gujarat, Mr. Parekh started his financial career at

Harkisandass Lukhmidass – a leading stock broking firm.

The firm closed down in the late seventies, but, long

before that, he went on to become a towering figure on the

Indian financial scene.

In 1956 he began his lifelong financial affair with the

economic world, as General

Manager of the newly-formed Industrial Credit and Investment Corporation of India

(ICICI). He rose to become Chairman and continued so till his retirement in 1972.

At the ripe age of 60, Hasmukhbhai started his second dynamic life, even more

illustrious than his first. His vision for mortgage finance for housing gave birth to the

Housing Development Finance Corporation –

it was a trend-setter for housing finance in the

whole Asian continent.

He was also a writer in his own right. There

are over 200 published articles by him...

In 1992, the Government of India honoured

him with the Padma Bhushan Award. The


Mr. H.T. PAREKH is conferred the

Padma Bhushan by the Government

of India in the year 1992.34

London School of Economics & Political Science conferred on him an Honorary

Fellowship.

He was one of the Founder Members of the Centre for Advancement of Philanthropy,

and it’s Chairman till 1993.

He took active interest in the Bombay Community Public Trust, designed specifically

to serve the needs of the city’s underprivileged citizens.

When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he said:

“Taking over from H.T. Parekh is a formidable task; his vision… brought about not

only an institution, but an entire concept which has proved itself to be of lasting

importance.”

Today we are the largest residential mortgage finance institution in India, with a net

worth of Rs. 2,703 cores as of March 31, 2006 and an asset base of over Rs. 22,000

cores. We also aim to increase the flow of resources to the housing sector by

integrating the housing finance sector with the overall domestic financial markets.

Over a span of 25 years, HDFC has become the pioneer in housing finance in India

and made it possible for over two million Families to own their homes, through

housing loans worth over Rs. 42,000 cores.

ABOUT COMPANY HDFC

VISION

To be a dominant player in the Indian mutual fund

space, recognized for its high levels of ethical and

professional conduct and a commitment towards

enhancing investor interests.

ORGANIZATION AND MANAGEMENT

HDFC is a professionally managed organization with a board of directors consisting

of eminent persons who represent various fields including finance, taxation,

construction and urban policy & development. The board primarily focuses on


strategy formulation, policy and control, designed to deliver increasing value to

shareholders.

Name and Designation Location Contact Number

Mr. Deepak S. Parekh is the executive Chairman of the

Corporation. He is fellow of the Institute of Chartered

Accountants (England & Wales).Mr. Parekh joined the

Corporation in a senior management position in 1978.He was

inducted as a whole time director of the Corporation in 1985

and was appointed as the Chairman in 1993. He is the chief executive officer of the

Corporation Mumbai.

Mr. K. M. Mistry the Managing Director of the Corporation. Is

a Fellow of the Institute of Chartered Accountants of India? He

has been employed with the Corporation since 1981 and was

the executive director of the Corporation since 1993. He was

appointed as the deputy managing director in 1999 and the

Managing Director in 2000. He is also a member of the

Investors’ Grievance Committee of Directors.

Ms. Renu S. Karnad the Executive Director of the Corporation.

Is a graduate in law and holds a Master’s degree in economics

from Delhi University. She has been employed with the

Corporation since 1978 and was appointed as the Executive

Director of the Corporation in 2000. She is responsible for

overseeing all aspects of lending operations of HDFC.New

Delhi.

BOARD OF DIRECTORS

Mr. D S Parekh - Chairman Mr. D N Ghosh

Mr. Keshub Mahindra - Vice Chairman Dr. S A Dave

Ms. Renu S. Karnad - Executive Director Mr. S Venkitaramanan


Mr. K M Mistry - Managing Director Dr. Ram S Tarneja

Mr. Shirish B Patel Mr. N M Munjee

Mr. B S Mehta Mr. D M Satwalekar

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)

AMC was incorporated under the Companies Act, 1956, on December 10, 1999, and

was approved to act as an AMC for the Mutual Fund by SEBI on July 30, 2000.

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.


Particulars % of the paid up capital

Housing Development Finance Corporation Limited 50.10

Standard Life Investments Limited 49.90

37

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

now migrated to HDFC Mutual Fund on June 19, 2003. These schemes have been

renamed as follows:

FORMER NAME NEW NAME

Zurich India Equity Fund HDFC Equity Fund

Zurich India Prudence Fund HDFC Prudence Fund

Zurich India Capital Builder Fund HDFC Capital Builder Fund

Zurich India Tax Saver Fund HDFC Tax Saver Fund

Zurich India Top 200 Fund HDFC Top 200 Fund

Zurich India High Interest Fund HDFC High Interest Fund

Zurich India Liquidity Fund HDFC Liquidity Fund

Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund

The AMC is managing 2 close ended Income Scheme viz. HDFC Fixed Investment

Plan and HDFC Long Term Equity Fund and 23 open-ended schemes of the Mutual

Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income

Fund (HIF), HDFC Liquid Fund (HLF), HDFC Long Term Advantage Fund, HDFC

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

(HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate

Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund, (HT200),

HDFC Capital Builder Fund (HCBF), HDFC Tax Saver (HTS), HDFC Prudence Fund

(HPF), HDFC High Interest Fund (HHIF), HDFC Sovereign Gilt Fund (HSGF) and

HDFC Cash Management Fund (HCMF), HDFC MF Monthly Income Plan (HMIP),

HDFC Core & Satellite Fund (HSCF), HDFC Multiple Yield Fund (HMYF), HDFC

Premier Multi-Cap Fund (HPM) and HDFC Multiple Yield Fund Plan 2005

(HMY2005).

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 Manager under the SEBI (Portfolio

Managers) Regulations, 1993. The Certificate of Registration is valid from January 1,

2004 to December 31, 2006.


SPONSORS

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC):

HDFC was incorporated in 1977 as the first specialised 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 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.

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 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

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


HDFC MUTUAL FUND AT A GLANCE

Name of Unit : HDFC MUTUAL FUND

Address : 2nd Floor, Shiv Darshan, 5 Jagnath

Plot,Dr.Radhakrishna Road,

Rajkot.

Form of Organization : Private Sector

Contact Number : (0281)-5524881/82

Establishment year : 2000

Sponsors : Housing Development Finance

Corporation Limited (HDFC),

Standard Life Investments Limited.

Management : Trustee.

HDFC Asset Management Company Limited (AMC).


Working Hours : 9.30 am to 9.00 p.m

Web site : www.hdfcfund.com

ACHIEVEMENT AND AWARDS

“HDFC Prudence fund” has been ranked ICRA-MFR 1, and Has Been awarded

the Gold Award for ‘Best Performance’ in the category of “Open Ended Balanced

Scheme” for one year Period Ending Dec 31, 2005.

“HDFC Tax saver fund” has been ranked ICRA-MFR 1, and Has Been Silver

award for “Second Best Performance” in the category of “Open Ended Equity

Linked Saving Scheme(ELSS)” for Three year Period Ending Dec 31, 2005.

“HDFC MIP~LTP” has been ranked ICRA-MFR 1, and Has been awarded the

Gold Award For “Best Performance” in the category of “Open Ended Marginal

Equity Scheme” for one year Period Ending Dec 31, 2005.


PART C

DEPARTMENT

DETAILS


OPERATION DETAILS

PRODUCTION / OPERATION PROCESS

A process is any activity or group of activities that takes one or more inputs,

transforms and add value to them, and provides one or more output for its customers.”

“The term operation management refers to the direction and control of the process

that transform inputs into product and services.”

LOCATION DETAILS

HDFC AMC is located at Yagnik road which is in the heart of the city where service is

easily available for all customer and easy access compare with other place that

available in city. Location has major impact on success or failure of operation.

Advantages of this type of location are that service cost and distribution cost is

minimum comparison with other place.

The major investor service centres of HDFC MUTUAL FUND are as below.


LAYOUT DETAILS

There is a plan of all the act of planning & optimum arrangement of planning

including flow of man & material and customer, operating equipment, storage space,

material handling equipments and all other supporting services along with the design

of best structure to contain all these facilities.

PLANNING AND CONTROL

It is useful for effective utilization of resources, to achieve organization goal and

objectives with respect to quality service, cost control timely service to co-ordinate

with other department to ensure continuous quality service. There is a proper planning

and planning with respect to which type of scheme to be introduced, what are

expenses of R&D for finding out feasibility of that scheme, how many people will

work on that particular job, before introducing new scheme. There is special research

department for carrying out the analysis of market and there is a fund manager who

carries out all planning for investing in various sector and he is also responsible for

controlling the cost of transaction so that it can give return to investors.

MAINTENANCE


HDFC AMC is the service sector industry so all work is carried out with the help of

computer System. There is contract given to service provider and other maintenance

is done by staff itself.

PROCUREMENT

HDFC AMC is the service sector industry so procurement is only for computer

machinery and computer stationary and other stationary include brochures of all the

schemes and monthly fact sheet is used in daily work.

Procurement of computer machinery is done through central contract of main branch

and for procurement of stationary is done through local stationary distributor.

STORE MANAGEMENT

HDFC AMC is the service sector industry so storage is only for files and fact sheet

and other document that published by AMC.

MARKETING DETAILS

Marketing generally refers as the task of creating, promoting and delivering goods

and services to consumers and business. Marketing managers seeks to influence the

level of timing and composition of demand to meet the organisation’s objectives.

Marketing people are involved in 10types of entities: goods, services, experiences,

events, persons, places, properties, organization, information and ideas. The

marketing concept rests on four pillars: target market, customer needs, integrated

marketing and profitability.

“Marketing is defined as a societal process by which individuals and groups obtain

what they need and want through creating, offering and freely exchanging products

and services of value with others.

The basic four P’s of marketing are PRODUCT, PRICE, PLACE and PROMOTION.

MARKETINGSCENARIO

The last few years have seen an increased attention to mutual funds across all genres

of investors’ big or small, individuals or corporate. The growing awareness of the


advantages that mutual funds offer over other investments avenues have been better

communicated and more understood.

A mutual fund is the ideal investment vehicle for today’s complex and modern

financial scenario. Markets for equity shares, bonds and other fixed income

instruments, real estate, derivatives and other assets have become mature and

information driven. Price changes in these assets are driven by global events

occurring in faraway places. A typical individual is unlikely to have the knowledge,

skills, inclination and time to keep track of events, understand their implications and

act speedily.

A mutual fund is answer to all these situations. It appoints professionally qualified and

experienced staffs that manages each of these functions on a fulltime basis. Now,

Mutual Fund is new developing market. In fact, the mutual fund vehicle exploits

economies of scale in all three areas –research, investment and transaction processing.

MARKET SEGMENTATION

Market segmentation is an effort to increase a company’s precision marketing. A

market segment consists of large identifiable group within a market with similar

wants, purchasing power, buying attitudes or buying habits. As HDFC mutual fund is

a service sector industry they introduce different schemes for different people. Each

person is different in nature and each have differ criteria for investment like risk

factor, return, liquidity, tax benefits etc.

So that HDFC Asset management company have introduced variety of scheme like

debt scheme, balanced scheme, equity related scheme and each schemes have option

to invest in SIP (Systematic Investment Plan) which help investor to invest a specific

amount for a continuous period, at regular intervals so that investor has the advantage

of rupee cost averaging and also helps him save compulsorily a fixed amount each

amount.

TARGET MARKET

HDFC Asset Management Company is a joint venture of HDFC bank (50.10%) and

Standard Life Investment Limited (49.90%). The joint venture was formed with the


key objective of providing the Indian investor mutual fund products to suit a variety

of investment needs. HDFC Asset Management Company, have variety of scheme

both open ended and close ended scheme. Both have different objective and different

target market. Equity Mutual Fund Scheme has target market of person who wants to

take high risk and also expect high return.

Balanced scheme have target market of person who wants to take moderate risk and

expect average return and Debt scheme have target market of person who wants to

take less risk. Close ended scheme have target market of person who wants long term

equity investment.

CUSTOMERS’ PROFILE

HDFC Asset Management Company, have variety scheme and each scheme have

different customer profile. For Equity related scheme customer profile is young

generation, for liquid scheme customer profile is business man who wants to utilize

their money in effective manner for shorter period, in SIP (Systematic Investment

Plan) customer basically are serviced person who invest regularly and want to earn

more than average return. Thus, HDFC Asset Management Company, have

introduced variety of scheme to suit need of variety of customer.

POSITIONING STRATEGY

“Positioning is the act of designing the company’s offering and image to occupy a

distinctive place in the target market’s mind.”

Positioning starts with a product. A piece of merchandise, a service, a company, an

institution, or even a person. But positioning is not what you do to a product.

Positioning is what you do the mind of the prospect. That is, you position the product

in the mind of prospect. A company’s differentiating and positioning strategy must

change as the product, market, and competitors change over time. Once the company

has developed a clear positioning strategy, it must communicate at the positioning

effectively. There should be no under positioning, over positioning, confused

positioning or doubtful positioning.


HDFC Asset Management Company, have positioning strategy of “Continuing a

Tradition of Trust”. It is accurate positioning strategy because it signifies a trust with

its clients.

Here is special Relationship Manager dedicated towards customer service and

satisfaction and give them guidance about various schemes which helps them to get

right scheme which suit their investment needs. In this way it continues to maintain a

trust with its clients.

DISTRIBUTION COMPANIES

Availing of the services of established distribution companies is practice accepted by

mutual fund internationally. This practice evolve with a view to provide the huge

administrative mechanism require supporting a large agent force. Instead of having to

deal with several agents, a fund can interact with distribution a company which has

several employees or sub brokers under it.

BANK & NBFCS

In developed countries, bank are an important marketing vehicles for mutual funds

given that banks themselves had large depositors/ clients base of their own. We can

see the opening up of this new channel now in India. Several banks, particularly

private and foreign banks are involved in fund distribution by providing services

similar to those of distribution companies, on a commission basis.

DIRECT MARKETING

Direct marketing means that the mutual funds sell their own products without any use

of intermediateries. Usually, this takes the form of the sales officer and employees of

the AMC who approach the investor and accept their contribution directly. However

in India, independent agents may really be created as a direct marketing channel in a

sense that they do not form a well knit independent and organized a single entity and

act more like fund employees. Others channel like distribution companies or banks or

even stock brokers are clearly distinct and independent intermediaries.

PRICING POLICY


HDFC Asset Management Company is service Provider Company so there is Entry

Load and Exit Load for each scheme.

Thus each scheme has different Entry Load and Exit Load.

PROMOTIONAL TOOLS

The objective of advertising of HDFC AMC is to create awareness about services and

scheme of HDFC among investors and sub-brokers and increase sub-brokers of

HDFC AMC.

Company does give advertisement in media like Newspapers, and Magazines etc.

when in introduce new scheme or mutual fund IPO and through direct marketing they

advertise and create awareness about their services and new schemes. HDFC also do

presentation about various schemes so that investors can know more about their

product and services.

Another tool of promotion of HDFC AMC is Public Relation involves a variety of

programs designed to promote or protect a company’s image or its individual

products. HDFC has PR department monitors the attitudes of the organization’s

publics and distributes information and communications to build goodwill. They also

perform following function:

Press relation: Presenting news and information about the HDFC AMC in the most

positive light.

Product publicity: Sponsoring efforts to publicize specific products.

Counselling: Advising management abut public issues and company positions and

image.


NO Scheme name Entry load Exit load1 Equity Funds 2.25% <=5 cr

Nil above 5 cr

Nil

2 SIP 2.25 % 1.25% before 6

months

51

HUMAN RESOURCE DETAILS

HUMAN RESOURCE MANAGEMENT

“Human Resource Management function that helps managers recruits select, train

and develop members for an organization. Obviously, HRM is concerned with the

people’s dimension in organizations

In all business concerns, there is one common element. I.e. HUMAN RESOURCE.

Work force of an Organization is one of the most important inputs of components. It

is said that people are our single most important assets. Because of the unique

importance of HUMAN RESOURCE and its complexity due to ever changing

psychology, behaviour and attitudes of men and women at work, personnel function,

i.e., manpower management function is becoming increasingly specialized. The

personnel function or system can be broadly defined as the management of people at

work- management of managers and management of workers. Personnel function is

particularly interested in personnel relationship and interaction of employees-human

relations.


In a sense, management is personnel administration. Management is the development

of people, and not mere direction of material resources. Human capital is the greatest

asset of a business enterprise. The essential ingredient of management is the

leadership and direction of people. Each manager of people has to be his own

personnel man. Personnel management is not something you really turn over to

personnel department staff.

DEFINITIONS

According to Edward Flippo “ Personnel management organizing, directing and

controlling of the procurement, development, compensation, integration, maintenance

and separation of human resources to the end that individual, organizational and

societal objectives are accomplished.”

“Personnel planning are the process by which an organization ensures that is has the

right number and kind of people, at right places, at the right time, capable of

effectively and efficiently completing those tasks that will help the organization

achieve its overall objectives.”

MANPOWER PLANNING

Human Resource Planning is the process by which an organization ensures that it has

the right number and kind of people, at the right place, at the right time, capable of

effectively and efficiently competing those tasks that will help the organization

achieve its overall objectives. Human Resource Planning translates the organization’s

objectives and plans into the number of workers meet those objectives. Without a

clear-cut planning, estimation of an organization’s human resource need is reduced to

mere guesswork

Manpower planning is needed with respect to persons who can work as sub-broker for

the companies. Companies focus on Advisors of Mutual Fund product and ELSS

schemes of HDFC AMC and focused on Insurance Advisor and post office agent, Tax

consultants and CAs for making sub-broker.

HDFC AMC follows the following process:


The first step is forecasting the need of man power in terms of divisions, department

or functions. Along with the estimate of the number of the people required in different

departments it is also decided that at which level they will be needed.

After estimating the man power requirement, next step is to have a look at the current

human resource. The current human resource is assessed so as to know whether the

requirement can be filled by the existing personnel or not.

At last detailed policies for recruitment, selection, training, promotion, retirement,

replacement etc. of existing and new employees to meet the forecasted needs is made

HDFC is incorporated under the companies Act 1956, December 10, 1999

.

(A) CULTURE

INTEGRITY

Integrity is central flature of HDFC culture and hence HDFC AMC is no exception

and the same is expected of the dealings, behaviour and work conduct.

TRUST

Based on principal of trusteeship and HDFC AMC recognizes the immense trust

placed in it by its shareholders, employees and customers base and strives to live by

the standards it has set for itself, the standards that have made it what it is today.

INFORMAL WORKPLACE RELATIONSHIP

Informality in relationships at the workplace is the core of HDFC AMC culture. Here

at HDFC AMC is believed that Human resource is not the domain of the Human

Resource Department alone but also superior and hence of every superior – juniors

share both a professional and personal relationship. The superior is not only the

person the junior reports into but is also a guide, advisor and mentor.

COMMITTED, DILLEGENT AND ENTHUSIASTIC

HDFC SMC workplace environment is various and infused with enthusiasm and

ambition.

(B) EMPLOYMENT TERMS


EEO

EEO is the policy and practice of the company to provide it to all the persons

regardless of their religion, caste, creed, gender or other factors. All the employees

and applicants receive equal consideration and treatment with respectively to

employment, training, promotion, compensation, transfer, layoff, recall, discipline

termination and other conditions.

MENTORING

HDFC AMC understands the constant need of guidance and direction to employees.

Every superior acts as a mentor for all employees reporting into him. The mentor acts

like a coach provides constructive feedback which helps the subordinates to sheer

their career in the right direction.

EXCLUSIVE EMPLOYMENT

The employee position is that of full time employed with HDFC AMC. The company

strictly prohibits the employees from seeking employment of any nature with any

other entity. The employees have to take prior approval

from the superior and the Human Resource department before engaging in activities

like addressing seminars, teaching etc. and ensure that this official duties do not suffer

on this account and no monetary benefit is derived there from.

The employee or its relatives should also not be empanelled as an authorized /

unauthorized distributor / agent / broker or in any other similar capacity of any entity

(including HDFC Mutual Fund) engaged in distribution and selling of financial

products.

RECRUITMENT POLICY

Recruitment & Selection

The upper level members like zonal managers, regional managers, branch managers

and senior executives are recruited by publishing recruitment advertisement in leading


national level newspaper. The qualified applicant are then called for interview and

selected.

The regional manager has authority to select lower level employee like peon,

marketing executives, financial accountant etc. by approval of zonal manager.

RECRUITMENT PROCESS

Step 1: Prospecting

It consists of the following steps:


Identify as many prospective candidates as possible from multiple sources.

Be prepared to talk passionately about the opportunities of this career.

Select quality talents through effective interviewing, evaluation & hiring practices.

Step 1:Prospecting

Step 2:Attracting talent

Step 3:selecting talent

56

Generating leads of potential candidates

Contacting the leads and finding out their prima facie interest

Step 2: Attracting talent

Developing your own recruiting style

Developing a resource pool of talent

Creating interest in the potential advisor

Step 3: Selecting talent

Conducting an initial interview

Administrating the candidate

Final Selection interview is conducted by Managing Director.

TRAINING

Continuous training and upgrading technical, behavioural and managerial skills is a

way of life in HDFC AMC. HDFC AMC encourages agent or sub-broker to hone their

skills regularly to enable them to face the challenges of the changing requirements of

customers that fit market up and down.

Training needs analysis is done on a regular basis and systematic methodologies are

ensured that skills and capabilities of all agents are constantly upgraded to enable

them to perform in the challenging work. There is special training session at regular

time period in local branch to all financial consultant and agents about new scheme

and to improve their effectiveness.

The successful candidates of the AMFI Exam are given the product training. The

primary purpose is to become quite conversant with the product that one sells. In

other words, product knowledge is very important for any advisor. Product knowledge

is not just about knowing the broad terms and conditions of the various schemes of

mutual fund. The advisors are explained about the schemes, the terms related with it,

the benefits it provides to investor. This training is aimed at making the advisors fully

equipped with the companies’ product information. This training is aimed at making

the advisors experts in selling the mutual fund products.


This gives the advisors a systematic framework which they can follow so as to attract

the customers and be effective in their work. Later the agents are trained on products,

need analyses and how to deliver the message to the market.

PERFORMANCE APPRAISAL

Objective of Performance appraisal if for Developmental uses for agents and financial

consultants, for wages, transfer, promotion, for documentation and for organizational

purpose like Human Resource Planning, Job analysis and for training and

development.

For Performance Appraisal modern method is used like MBO (Management by

Objectives) and 360” appraisal. But there is some limitation like Hello effect, Bias,

Perception factor, Spill over etc.

FINANCIAL DETAILS

IMPORTANCE OF FINANCE

Finance is regarded as the life blood of a business enterprise. This is because in the

modern money oriented economy. Finance is the one of the basic foundation of all

kind of electronic activity. It is the master key which provides access to the entire

source for being employed in manufacturing and merchandizing activities. It has

rightly been said the business needs money to make more money. However it is also

true that money begets more money, only when it is properly managed. Hence,

efficient management of every business enterprise is closely linked with efficient

management of its finance.

MEANING OF BUSINESS FINANCE


In general finance may be defined as the provision of money at the time it is wanted.

However, as a management function it has a special meaning. Finance function may

be defined as the procurement of funds and their effective utilization. Some of the

authoritative definitions are as follows:

“Business finance is that business activity which is concerned with the acquisition and

conservation of capital funds in meeting financial needs and overall objectives of far

business enterprise.”

“Business finance can broadly be defined as the activity concerned with planning

rising, controlling and administrating of the funds used in the business.”

MEANING OF FINANCIAL MANAGEMENT

From the various definition of the term business finance given above, it can be

conclude that the term business finance mainly involves, rising of funds and their

effective utilization keeping in view the overall objectives of the firm. This requires

great caution and wisdom on the part of management. The management makes use of

various financial techniques, devices, etc. For administrating the financial affairs of

the firm in the most effective and efficient way. Financial management, therefore,

means the entire gamut of managerial efforts devoted to the management of finance

both its sources and uses of the enterprise.

According to somloman “financial management is concerne4d with the efficient use

of an important economic resource, namely, capital funds.” Phillipppatus has given a

more elaborate definition of the term financial management. According to him

“financial management is concerned with the managerial decisions that result in the

acquisition and financing of long-term and short-term credits for the firm. As such it

seals with the situations that require selection of specific assets (or combination of

assets), the selection of specific liability (or combination of liabilities) as well as the

problem of size and growth of an enterprise. The analysis of these decisions is based

on the executed inflows and outflow of funds and their effects upon managerial

objectives.


Thus, financial management is mainly concerned with proper management of funds.

The finance manager must see that the funds are procured in a manner that the risk,

cost and control consideration are properly balanced in a given situation and there is

optimum utilization of funds.

ACQUISITION OF FUNDS & UTILIZATION OF FUNDS

HDFC Asset Management Company is a service sector industry so acquisition of

funds is done by introducing various schemes and utilization of fund is done by Fund

Manager and fund is invested in market and following is the total AUM (Asset Under

Management) and also given % of utilization in equity and debt.


- GrowthHDFC FMP 17M November 2006 - RP - Quarterly Dividend

271.41 0 269.75 0

HDFC FMP 17M November 2006 - WP - Dividend

102.77 0 102.13 0

HDFC FMP 17M November 2006 - WP - Quarterly Dividend

10998.31 0 10978.88 0

HDFC FMP 181D April 2007 - Retail Plan - Dividend Option

4534.15 0 4513.7 0

HDFC FMP 181D April 2007 - Retail Plan - Growth Option

1049.19 0 1044.46 0

HDFC FMP 181D April 2007 - Wholesale Plan - Dividend Option

11153.38 0 11102.82 0

HDFC FMP 181D April 2007 - Wholesale Plan - Growth Option

708.25 0 705.04 0

HDFC FMP 181D May 2007 - Retail Plan Dividend Option

2542.14 0 2538.69 0

HDFC FMP 181D May 2007 - Retail Plan Growth Option

331 0 329.24 0

HDFC FMP 181D May 2007 - Wholesale Plan Dividend Option

1254.9 0 1252.61 0

HDFC FMP 181D May 2007 - Wholesale Plan Growth Option

100.31 0 100.13 0

HDFC FMP 18M OCTOBER 2006 Retail - Dividend

365.11 0 362.89 0

HDFC FMP 18M OCTOBER 2006 Retail - Growth

8994.49 0 8945.09 0

HDFC FMP 18M OCTOBER 2006 Retail - Quarterly Dividend

3809.71 0 3785.99 0

HDFC FMP 18M OCTOBER 2006 WP - Dividend

381.36 0 379.04 0

HDFC FMP 18M OCTOBER 2006 WP - Growth

21754.56 0 21619.12 0

HDFC FMP 18M OCTOBER 2006 WP - Quarterly Dividend

102.25 0 101.61 0

HDFC FMP 24M May 2007 - Retail Plan Dividend Option

75.68 0 69.69 0

HDFC FMP 24M May 2007 - Retail Plan Growth Option

1742.37 0 1724.68 0

HDFC FMP 24M May 2007 - Retail Plan Quarterly Dividend Option

39.13 0 38.61 0

HDFC FMP 24M May 2007 - Wholesale Plan Growth Option

943.34 0 942.38 0

HDFC FMP 24M May 2007 - Wholesale Plan Quarterly Dividend Option

100.21 0 100.1 0

HDFC FMP 26M AUGUST 2006 IP - Dividend

1348.54 0 1341.74 0

HDFC FMP 26M AUGUST 2006 IP - Growth

19302.06 0 19283.31 0

HDFC FMP 26M AUGUST 2006 2927.62 0 2930.16 0


PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH

31, 2006

Schedule Previous Year Rupees(2006) Rupees (2005)

INCOMEManagement Fee 12 133,69,74,621 96,50,56,908Interest 13 3,19,650 2,71,503Dividend 1,82,62,800 1,65,99,156Other Income 14 84,55,729 2,65,85,358 136,40,12,800 100,85,12,925EXPENDITUREStaff Expenses 15 36,50,46,679 19,12,96,703Administrative and Other Expenses 23,01,25,621 25,73,13,844Depreciation 3 6,83,28,410 6,65,90,054 66,35,00,710 51,52,00,601PROFIT/(LOSS) BEFORE TAX 70,05,12,090 49,33,12,324Provision for Tax (Net of Deferred

tax)

24,22,38,100 17,71,68,866

Provision for Fringe Benefit Tax 35,10,000 — PROFIT/(LOSS) AFTER TAX 45,47,63,990 31,61,43,458Balance brought forward fromPrevious year 5,27,67,278 20,89,58,430Profit Available for Appropriation 50,75,31,268 52,51,01,888Appropriations:Short provision of Income Taxfor earlier years (net) — 21,72,933General Reserve 4,54,76,399 3,16,14,346Capital Redemption Reserve — 25,00,00,000Preference Dividend 2,50,00,000 3,96,57,535Tax on Preference Dividend 35,06,250 51,82,745Education Cass on Equity

Dividend (FY 2003 - 04) —

2,57,900

Interim Equity Dividend Paid 8,80,63,500 —Tax on Interim Equity Dividend Paid 1,23,50,906 —Proposed Equity Dividend 8,80,63,500 12,58,05,000Tax on Proposed Equity Dividend 1,23,50,906 1,76,44,151Balance carried forward to the

Balance Sheet

23,27,19,807 5,27,67,278

Earnings Per Share 16.94 10.78

BALANCE SHEET AS ON MARCH 31, 2006

Schedule March 31, 2005


Rupees Rupees(2006) Rupees(2005)FUNDS EMPLOYEDSHAREHOLDER’S FUNDSShare Capital 1 50,16,10,000 50,16,10,000Reserves and Surplus 2 59,54,32,963 37,00,04,035

109,70,42,963 87,16,14,035APPLICATION OF FUNDSFIXED ASSETS 3Gross Block 81,70,23,962 79,49,92,631Less: Depreciation 19,28,39,455 12,62,51,492Net Block 62,41,84,507 66,87,41,139Capital Advances 3,25,993 11,15,856

63,05,10,500 66,98,56,995INVESTMENTS 4 51,36,82,426 33,26,90,199DEFERRED TAX ASSET 5 4,64,76,435 1,24,04,535

CURRENT ASSETS,

LOANSAND ADVANCESSundry Debtors 6 5,94,48,534 2,42,20,249Cash and Bank Balances 7 1,14,77,426 1,01,93,726Other Current Assets 8 6,027 4,823Loans and Advances 9 67,95,60,821

75,04,92,808

31,47,04,320

34,91,23,118Less: CURRENT

LIABILITIES AND

PROVISIONSCurrent Liabilities

10 19,97,83,840 17,39,08,663

Provisions

11 64,43,35,366

84,41,19,206

31,85,52,149

49,24,60,812

NET CURRENT ASSETS (9,36,26,398) (1433,37,694)109,70,42,963 87,16,14,035

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31,

2006

Rupees(2006) Rupees(2005)

A. CASH FLOW FROM OPERATING

ACTIVITIES


Profit before taxation and extraordinary items 70,05,12,090 49,33,12,324Add / (Less) : Adjustment for Depreciation 6,83,28,410 6,65,90,054Profit on sale of investment (net) (16,81,892) (1,00,75,602)(Profit) / Loss on sale of fixed assets (net) (3,62,004) (10,48,315)Investment Income (dividend) (1,82,62,800) (1,65,99,156)Provision for wealth tax 75,472 62,998Operating Profit before working capital changes 74,86,09,276 53,22,42,303(Increase) / Decrease in Loans and Advances (9,21,49,302) (1,32,43,781)(Increase) / Decrease in Other Current Assets (1,204) 2,349(Increase) / Decrease in Sundry Debtors (3,52,28,285) (83,46,683)Increase / (Decrease) in Current Liabilities 11,83,75,177 71,39,908Cash generated from Operations 73,96,05,662 51,77,94,096Income tax paid (27,62,84,709) (16,24,85,230)Net cash from operating activities 46,33,20,953 35,53,08,866

B. CASH FLOW FROM INVESTING

ACTIVITIESPurchase of fixed assets (2,91,99,454) (4,58,05,383)Proceeds from sale of fixed assets 5,79,543 17,42,848Purchase of investments (48,14,67,068) (118,75,61,739)Proceeds from sale of investments 132,04,19,533 128,67,69,273Net cash used in investing activities (18,96,67,446) 5,51,44,999

C. CASH FLOW FROM FINANCING

ACTIVITIESShare Capital - Preference — (25,00,00,000)Dividend paid (23,88,68,500) (14,03,01,535)Tax paid on Dividend (3,35,01,307) (1,83,35,658)Net cash from financing activities (27,23,69,807) (40,86,37,193)Net Increase / (Decrease) in cash and cash

equivalents 12,83,700 18,16,672Cash and cash equivalents at the beginning

of the yea 1,01,93,726 83,77,054Cash and cash equivalents at the end of the year 1,14,77,426 1,01,93,726

12,83,700 18,16,672


RATIO ANALYSIS

Name Formula 2005 2006

N. P. Ratio Net profit/ Sales * 100 50.24 % 51.38%

Current Ratio Current assets / current Liabilities

0.71: 1 0.70:1

Return on investment Net profit / Total invt * 100 56.59 % 58.70%

Earning per share (EPS) Profit available to equity shareholder / No. Of equity

10.78 16.94

Note: In absence of any information about sales we have calculated N. P. ratio based

on their main income


PART D

DIFFERENT SCHEMES

OF

HDFC MUTUAL FUND

EQUITY SCHEMES


1. HDFC GROWTH FUND

Investment objective

The primary investment objective of the Scheme is to generate long term capital

appreciation from a portfolio that is invested predominantly in equity and equity

related instruments.

Basic Scheme Information

Nature of Scheme Open Ended Growth SchemeInception Date Sep 11, 2000Option/Plan Dividend Option, Growth Option,Entry Load.

(as a % of the Applicable NAV)

-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 great than Rs. 5 crore

in value, no Entry Load is payable.Exit Load.


Nil

Minimum Application Amount Rs.5000 and in multiples of Rs.100

thereof to open an account / folio.

Additional purchases is Rs. 1000 and in

multiples of Rs. 100 thereofLock-In-Period NilNet Asset Value Periodicity Every Business DayRedemption Proceeds Normally despatched within 3 Business

days

Investment pattern

The corpus of the Scheme will be invested primarily in equity and equity related

instruments. The Scheme may invest a part of its corpus in debt and money market

instruments, in order to manage its liquidity requirements from time to time, and

under certain circumstances, to protect the interests of the Unit holders. The asset

allocation under the Scheme will be as follows :

SR

NO.

TYPE OF INSTRUMENTS NORMAL

ALLOCATION

(%of net asset)

RISK

PROFILE


1 Equities & Equities related

instruments

80-100 Medium to

high

2 Debt securities, money market

instruments & cash

0-100 Low to

medium

Investment Strategy & Risk Control

The investment approach will be based on a set of well established but flexible

principles that emphasise the concept of sustainable economic earnings and cash

return on investment as the means of valuation of companies. In summary, the

Investment Strategy is expected to be a function of extensive research and based on

data and reasoning, rather than current fashion and emotion. The objective will be to

identify "businesses with superior growth prospects and good management, at a

reasonable price".

Benchmark Index : SENSEX

Fund Manager : Mr. Shrinivas Rao

2. HDFC EQUITY FUND

Investment Objective

The investment objective of the Scheme is to achieve capital appreciation.


Nature of Scheme Open Ended Growth SchemeInception Date Jan 01, 1995Option/Plan Dividend Option, Growth Option,Entry Load.


In respect of each purchase /

switch-in of Units less than Rs. 5 crore

in value, an Entry Load of 2.25% is

payable.

In respect of each purchase /

switch-in of Units equal to or great than

Rs. 5 crore in value, no Entry Load is

payable.Exit Load.


Nil





multiples of Rs. 100 thereofLock-In-Period NilNet Asset Value Periodicity Every Business DayRedemption Proceeds Normally despatched within 3 Business

days

Investment Pattern

The asset allocation under the Scheme will be as follows:

SR NO. TYPE OF INSTRUMENTS NORMAL

ALLOCATION

(%of net asset)

RISK

PROFILE

1 Equities & Equities related

instruments

80-100 Medium to high


instruments & cash

0-100 Low to medium

Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets

of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in

derivatives such as Futures & Options and such other derivative instruments as may

be introduced from time to time for the purpose of hedging and portfolio balancing

and other uses as may be permitted under the Regulations.


In order to provide long term capital appreciation, the Scheme will invest

predominantly in growth companies. Companies selected under this portfolio would

as far as practicable consist of medium to large sized companies which: are likely

achieved above average growth than the industry; enjoy distinct competitive

advantages, and have superior financial strengths.

The aim will be to build a portfolio, which represents a cross-section of the strong

growth companies in the prevailing market. In order to reduce the risk of volatility,

the Scheme will diversify across major industries and economic sectors.


Benchmark Index : S&P CNX 500. HDFC Equity, which is benchmarked to S&P

CNX 500 Index is not sponsored, endorsed, sold or promoted by Indian Index Service

& Products Limited (IISL).

Fund Manager : Mr. Prashant Jain

3. HDFC TAXSAVER


The investment objective of the Scheme is to achieve long term growth of capital.


Nature of Scheme Open Ended Equity Linked Saving

SchemeInception Date Mar 31, 1996Option/Plan Dividend Option, Growth Option,Entry Load.


In respect of each purchase / switch-

in of Units less than Rs. 5 crore in value,

an Entry Load of 2.25% is payable.


in of Units equal to or great than Rs. 5

crore in value, no Entry Load is payable.Exit Load.


Nil


thereof to open an account / folio.Lock-In-Period 3 yrsNet Asset Value Periodicity Every Business DayRedemption Proceeds Normally despatched within 3 Business

daysInvestment Pattern


SR NO. ASSET TYPE (% OF

PORTFOLIO)

RISK

PROFILE1 Equities & Equities

related instruments

Minimum 80% Medium to high

2 Debt securities, money

market instruments &

cash

Minimum 20% Low to medium


Investment in Securitized debt, if undertaken, would not exceed 20% of the net assets

of the scheme.

The Scheme may also invest up to 25% of net assets of the Scheme in derivatives

such as Futures & Options and such other derivative instruments as may be

introduced from time to time for the purpose of hedging and portfolio balancing and

and other uses as may be permitted under the regulations and guidelines.

The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets,

in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity,

bonds and mutual funds and such other instruments as may be allowed under the

Regulations from time to time. The ELSS (Equity Linked Savings Scheme)

guidelines, as applicable, would be adhered to in the management of this Fund. If the

investment in equities and related instruments falls below 80% of the portfolio of the

Scheme at any point in time, it would be endeavoured to review and rebalance the

composition.

Benchmark Index :

S&P CNX 500. HDFC Tax saver, which is benchmarked to S&P CNX 500 Index is

not sponsored, endorsed, sold or promoted by Indian Index Service & Products

Limited (IISL).

Fund Manager : Dhawal Mehta

4. HDFC TOP 200 FUND


The investment objective is to generate long term capital appreciation from a portfolio

of equity and equity linked instruments. The investment portfolio for equity and

equity linked instruments will be primarily drawn from the companies in the BSE 200

Index. Further, the Scheme may also invest in listed companies that would qualify to

be in the top 200 by market capitalisation on the BSE even though they may not be

listed on the BSE This includes participation in large IPO’s where in the market


capitalisation of the company based on issue price would make the company a part of

the top 200 companies listed on the BSE based on market capitalisation.


Nature of Scheme Open Ended Equity Growth Scheme

Inception Date Oct 11, 1996

Option/Plan Dividend Option, Growth Option,

Entry Load.







crore in value, no Entry Load is payable.

Exit Load. Nil




multiples of Rs. 100 thereof.

Lock-In-Period Nil

Investment Pattern


SR NO. ASSET TYPE (% OF PORTFOLIO) RISK

PROFILE1 Equities & Equities

related instruments

Upto 100% (including use

of derivatives for hedging

and other uses as permitted

by prevailing SEBI

Regulations)

Medium to high

2 Debt securities, money Balance in Debt & Money Low to medium


market instruments &

cash

Market Instruments


of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in

derivatives such as Futures & Options and such other derivative instruments as may

be introduced from time to time for the purpose of hedging and portfolio balancing

and other uses as may be permitted under the regulations and guidelines.


The investment strategy of primarily restricting the equity portfolio to the BSE 200

Index scrips is intended to reduce risks while maintaining steady growth. Stock

specific risk will be minimised by investing only in those companies / industries that

have been thoroughly researched by the investment manager's research team. Risk

will also be reduced through a diversification of the portfolio.

Benchmark Index : BSE 200


5. HDFC MID-CAP OPPORTUNITIES FUND


To generate long-term capital appreciation from a portfolio that is substantially

constituted of equity and equity related securities of Small and Mid-Cap companies.


Nature of Scheme Close Ended Equity Scheme

Inception Date May 07, 2007

Option/Plan Growth Option. Dividend Option (with Payout

Facility only).Entry Load

(as a % of the Applicable

NAV)

Nil

Exit Load

(as a % of the Applicable

NAV

Nil

Minimum Application

Amount

Rs.5000 and in multiples of Re.1000 thereafter

Lock-In-Period Nil

Net Asset Value Periodicity Every Business Day

Redemption Proceeds Within 10 working days.


Investment Pattern



PORTFOLO)

RISK

PROFILE1 Equities & Equities related

instruments

Upto 100% HIGH


instruments & cash

Not more than

25%

Low to medium

3 Equity and equity related

securities of Small and Mid-Cap

companies of which Small-Cap

companies Mid-Cap companies

100 %

15 %

95 %

HIGH

The Investment in Securitised Debt will not normally exceed 25% of the net assets of

the Scheme.

The Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity

and Debt Securities (max. 25% of net assets). The Scheme may take derivatives

position for hedging and portfolio balancing (max. 20% of the net assets) based on the

opportunities available subject to SEBI Regulations.

Fund Manager

MR. CHIRAG SATELVAD

MR. ANAND LADDHA

BALANCED SCHEMES

1. HDFC BALANCED FUND


The primary objective of the Scheme is to generate capital appreciation along with

current income from a combined portfolio of equity and equity related and debt and

money market instruments. Basic Scheme Information

Nature of Scheme Open Ended balanced SchemeInception Date Sep 11, 2000Option/Plan Dividend Option, Growth Option,Entry Load. In respect of each purchase / switch-


(as a % of the Applicable NAV) in of Units less than Rs. 5 crore in value,




crore in value, no Entry Load is payable.Exit Load. NilMinimum Application Amount Rs.5000 and in multiples of Rs.100



multiples of Rs. 100 thereof.Lock-In-Period NilNet Asset Value Periodicity Every Business Day

Investment Pattern

The Scheme will be invested in equity and equity related instruments as well as in

debt and in money market instruments in normal circumstances. The following table

provides the asset allocation of the Scheme’s portfolio.


SR

NO.

TYPE OF

INSTRUMENT

Normal Allocation (%

of Net Assets)

Normal Deviation

(% of Normal

Allocation)

RISK

PROF

ILE1. Equity & Equity

related

instruments

60 20 Mediu

m to

high2. Debt securities &

Money Market

instruments)

40 20 Low to

mediu

m


The balanced product is positioned as a lower risk alternative to a pure equities

scheme, while retaining some of the upside potential from equities exposure. The

Scheme provides the Investment Manager with the flexibility to shift allocations in

the event of a change in view regarding an asset class. Asset allocation between


equities and debt is a critical function in a balanced fund. It is proposed to

continuously monitor the potential for both debt and equities to arrive at a dynamic

allocation between the asset classes.

The equity and debt portfolios of the Scheme would be managed as per the respective

investment strategies detailed herein. The investment approach would be based on the

concept of economic earning power and cash return on investments

Risk control

The overall portfolio structure would aim to maintain risk at a moderate level. The

Fund Manager would avoid adopting either a very defensive or aggressive posture at

any point in time. Risk will also be controlled through portfolio diversification and a

conscious focus on maintaining adequate levels of liquidity at all points in time.

Macro economic risk will be addressed through a constant review of the business and

economic environment. The AMC may from time to time, review and modify the

Schemes? Investment strategy if such changes are considered to be in the best interest

of Unit holders and appropriate to the existing market situation. Investments in

securities and instruments not specifically mentioned earlier may also be made,

provided they are permitted by SEBI Regulations.

Benchmark Index : CRISIL Balanced Fund Index

Fund Manager : Mr. Tushar Pradhan

2. HDFC PRUDENCE FUND


The investment objective of the Scheme is to provide periodic returns and capital

appreciation over a long period of time, from a judicious mix of equity and debt

investments, with the aim to prevent/ minimise any capital erosion. Under normal

circumstances, it is envisaged that the debt : equity mix would vary between 60:40

and 40:60 respectively. This mix is geared to achieve the investment objective and is

expected to result in regular income, capital appreciation and also prevent capital

erosion.


Nature of Scheme Open Ended balanced SchemeInception Date Feb 01, 1994Option/Plan Dividend Option, Growth Option,


Entry Load.







crore in value, no Entry Load is payable.Exit Load.


In Respect of each purchase/ switch in an

Exit load of 1% is payable if Units are

redeemed / switched out within 1 year

from the date of allotment.Minimum Application Amount Rs.5000 and in multiples of Rs.100



multiples of Rs. 100 thereof.Lock-In-Period NilNet Asset Value Periodicity Every Business DayRedemption Proceeds Normally despatched within 3 Business

daysInvestment Pattern



PORTFOLIO)

RISK

PROFILE1 Equities & Equities related

instruments

Upto 100% Medium to high

2 Debt securities, money

market instruments & cash

Not more than

20%

Low to medium


of the scheme. In such times when the interest rates are high, investment in debt

would be more attractive versus equities and accordingly the Fund is likely to increase

the debt component in the Scheme's portfolio. Similarly in times when the interest

rates are low and the equity valuations are cheap, the Scheme is likely to reduce

exposure to debt and increase exposure to equities. In addition to debt and equities the

scheme will also invest in money market instruments. The exact proportion in money

market instruments will be a function of the liquidity needs and the attractiveness of

the debt/ equity markets. At times when neither the debt market nor equities are


attractive for investment, more resources may be temporarily invested in money

market investments to be invested in debt/ equities at a more appropriate time.


As outlined above, the investments in the Scheme will comprise both debt and

equities. The Fund would invest in Debt instruments such as Government securities,

money market instruments, securitised debts, corporate debentures and bonds,

preference shares, quasi Government bonds, and in equity shares

Benchmark Index : CRISIL Balanced Fund Index


SWOT ANALYSIS

STRENGTH

Good Brand Name of the company in all over India.

Flexible products

Expertise in the field of mutual fund

Sound financial resources of the company as well as sponsors.

Strong Communication Network all over the country.

WEAKNESS

Less awareness regarding mutual fund among investors

Yet to build strong distribution network

Cannot tap rural market

OPPORTUNITIES:

Untapped rural market

Lack of competitive products to suit clients’ investment objective

THREAT

The numbers of players are increasing which further increases the competition.

Product Innovation done by other Asset Management companies and is able to

collect large amounts.

Customer mindsets are still rigid and they mostly prefer traditional pattern of

investments.


CONCLUSION

This report is prepared to get the basic ideas of mutual fund and various schemes of

HDFC. The general concept of the market study will help the different individuals to

invest in different investment tools as per their appetite. Through research study, it is

very much visualized the present market trend opted by the selected number of people

and their perception regarding Mutual Fund.

Hence, from this report I conclude that people are more keen to invest in Mutual Fund

due to the stability and getting more diversified options.


GLOSSARY

SHORT FORMS

AMC – Asset Management Company

AMFI – Association of Mutual Fund of India

AUM – Asset under Management

BSE – Bombay Stock Exchange

FII – Foreign Institute of Investor. FII can invest in Mutual Funds.

They invest through the Non-resident rupee account.

GILT – Government of India Linked Treasury. These

Funds are those that invest only in government securities.

IPO – Initial Public Offer

IRP – Investor Risk Profile

MIP – Monthly Investment Plan

MTM – Market to Market

NAR – Net Amount at Risk

NAV – Net Asset Value

NSE – National Stock Exchange

OD – Offer Document is the most important source of information

for the investors. Abridged version of the OD is called as Key Information

Memorandum (KIM).

PAR VALUE – It is said as face value.

SAR – Sum at Risk

SIP – Systematic Investment Plan


SWP – Systematic Withdrawal Plan

WDM – wholesale Debt Market

BIBLIOGRAPHY

BOOKS

Marketing Management - Philip Kotler

Personnel Management - C.B.Memoria

MAGAZINES

Business Standard Newspaper

Business world

Mutual Fund Insight

WEBSITES

www.google.com

www.hdfcfund.com

www.amphiindia.com

www.moneycontrol.com

www.sebi.gov.in

http://www.amfiindia.com/showhtml.asp?page=mfconcept

http://www.amfiindia.com/showhtml.asp?page=mfindustry

http://www.sebi.gov.in/Index.jsp?contentDisp=Department&dep_id=4


http://shell.windows.com/fileassoc/0409/xml/redir.asp?Ext=pdf

http://www.amfiindia.com/showhtml.asp?page=aum

http://www.hdfcfund.com/products/schemeShow.jsp?schemeId=342&fundID=1


http://www.hdfcfund.com/aboutus/index.jsp

http://www.hdfcfund.com/fundschool/index.jsp

http://www.hdfcfund.com/navcorner/index.jsp

http://www.hdfcfund.com/news/index.jsp

http://www.hdfcfund.com/download/sebiCirculatShow.jsp

http://www.amfiindia.com/pu-showfundwiseaum.asp?admin=yn

http://www.amfiindia.com/accounts_halfyearly.asp

http://www.amfiindia.com/showhtml.asp?page=sitemap

http://www.amfiindia.com/accounts_annual.asp

http://www.moneycontrol.com/mutualfundindia/

http://www.moneycontrol.com/india/mutualfunds/bestmfipo/15/30/bestmutualfundIP

Omf

http://www.moneycontrol.com/planning_desk/understandingmf.php?step1=1

http://www.moneycontrol.com/india/mutualfunds/comparefunds/15/30/mf_compare/

All



http://www.moneycontrol.com/easymf/learn/

http://www.moneycontrol.com/planning_desk/understandingmf.php?step1=1


SUGGESTIONS

1. An aggressive advertising campaigning should be there to encourage more

people to invest.

2. As some of the people think that mutual fund is risky so the company should

show people the advantages of the mutual fund and how it is better than the

other investment avenues.

3. There is a great potential for the mutual fund because the people are ready to

invest in the mutual fund as there is a positive responses.

4. Now a days people are investing in more of an equity fund because it gives high

return as compare to other mutual fund schemes.

5. People are preferred to invest in the long term savings when only they have

enough of surplus. They are least concerned about the other’s advice.

6. The people of Rajkot have enough purchasing power supported by N.R.I.

Mutual Fund Companies should take this fact positively at the time of designing

promotional scheme.

7. HDFC MF is doing comparatively very less marketing in MF industry in

compare to other players. Due to this other player are getting the advantage.

Thus it should try to increase the marketing and advertising related activities

time to time or at least at the time of new NFO’s, at the time when they are

declaring dividends or at the peak time (i.e. January - March) last quarter of

financial year when people are searching for investing instruments.


8. A very small part market has been cover by HDFC MF. It can increase the circle

of its business in small and rural areas of every state and cities of India where

they an find a huge business.

9. To uproot the investment level the company should give training programme to

financial agents who approach the investor for the investments. And they should

be aware of all the benefits of the mutual Funds.

10. Company should undertake the Campaign, Road shows, Advertisement and

other type of Publicity for the effective awareness of different schemes that are

available in the market.

11. The company should arrange seminars and presentations, giving detail idea

about securities and benefits of investment in mutual fund.
