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MUTUAL FUND AND ITS VARIOUS ASPECTS

Mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. This pool of money is invested in accordance with a stated objective. The joint
ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus
collected is then invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital appreciations realized
are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an opportunity to invest in
a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund
is an investment tool that allows small investors access to a well-diversified portfolio of equities,
bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are
issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each
day.
Investments in securities are spread across a wide cross-section of industries and sectors and
thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the
same direction in the same proportion at the same time. Mutual fund issues units to the investors
in accordance with quantum of money invested by them. Investors of mutual funds are known as
unit holders.
When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets
of the fund in the same proportion as his contribution amount put up with the corpus (the total
amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit
holder.
Any change in the value of the investments made into capital market instruments (such as shares,
debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the
market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is
calculated by dividing the market value of scheme's assets by the total number of units issued to
the investors

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OVERVIEW OF EXISTING SCHEMES EXISTED IN MUTUAL FUND


CATEGORY
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk
tolerance and return expectations etc. The table below gives an overview into the existing types
of schemes in the Industry.
BY NATURE
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund managers outlook on different
stocks. The Equity Funds are sub-classified depending upon their investment objective, as
follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)


Equity investments are meant for a longer time horizon, thus Equity funds rank high on the riskreturn matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private
companies, banks and financial institutions are some of the major issuers of debt papers. By
investing in debt instruments, these funds ensure low risk and provide stable income to the
investors. Debt funds are further classified as:

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Gilt Funds: Invest their corpus in securities issued by Government, popularly known as

Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.


MIPs: Invests maximum of their total corpus in debt instruments while they take

minimum exposure in equities. It gets benefit of both equity and debt market. These scheme
ranks slightly high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These

funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial
Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy

liquidity and preservation of capital. These schemes invest in short-term instruments like
Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for shortterm cash management of corporate houses and are meant for an investment horizon of 1day to 3
months. These schemes rank low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.
3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They
invest in both equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of both the
worlds. Equity part provide growth and the debt part provides stability in returns.
Hybrid Funds
Equity oriented - Have an equity exposure of more than 60% rest in debt investments.
Debt

oriented

Have

debt

exposure

of

more

than

50%

rest

in

equities.

Monthly income plans - Have equity exposure ranging from 10- 25% and rest in bonds
Further the mutual funds can be broadly classified on the basis of investment parameter viz,
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Each category of funds is backed by an investment philosophy, which is pre-defined in the


objectives of the fund. The investor can align his own investment needs with the funds objective
and invest accordingly.

BENEFITS OF INVESTING IN MUTUAL FUNDS

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. Professional Management
The investor avails of the services of experienced and skilled professionals who are backed
by a dedicated investment research team which analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.
2. Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries
and sectors. This diversification reduces the risk because seldom do all stocks decline at the
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same time and in the same proportion. You achieve this diversification through a Mutual
Fund with far less money than you can do on your own.
3.

Convenient Administration
Investing n in a Mutual Fund reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payments and unnecessary follow up with brokers and
companies. Mutual Funds save your time and make investing easy and convenient.
4. 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.
5. Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and other fees
translate into lower costs for investors.
6. Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related
prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a
stock exchange at the prevailing market price or avail of the facility of direct repurchase at
NAV related prices which some close-ended and interval schemes offer you periodically.
7. Transparency
You get regular information on the value of your investment in addition to disclosure on the
specific investments made by your scheme, the proportion invested in each class of assets
and the fund manager's investment strategy and outlook.
8. Flexibility

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Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your
needs and convenience.
9. Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
10. Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds
are regularly monitored by SEBI.
11. Understanding and Managing Risk
All investments whether in shares, debentures or deposits involve risk: share value may go
down depending upon the performance of the company, the industry, state of capital market
and the economy; generally, however longer the term, lesser the risk; companies may
default in payment of interest/principal on their deposits/bonds debentures; the rate of
interest on investment may fall short of the rate of inflation reducing the purchasing power.
While risk cannot be eliminated, skillful management can minimize risk. Mutual fund helps
to reduce risk through diversification and professional management. The experience and
expertise of Mutual Fund managers in selecting fundamentally sound securities and timing
their purchases and sales help them to build a diversified portfolio that minimize risk and
maximizes returns.
12. Tax Benefits
The incomes under Mutual Funds are much more Tax efficient than any fixed income
security due to the following benefits:-

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Section 80L of the income Tax Act ,1961 enables tax free income up to rs 15000
and dividends from MF s are eligible for this benefit.

When you invest for over a year, the tax payable on encashment is Long term
Capitals gains tax at 20%. Once also get an indexation benefit which has been
approximately 8% per year. This reduces the taxable income and thus decreases
the tax liability.

There is also an opportunity to set off capital losses against gains from income
schemes.

Full exemption from capital gains tax as it comes under Section 54EA/EB of the
income tax Act.

One has to pay tax only when he encash units, but have to pay tax on the interest
earned on other debt instruments every year on an accrual basis, even though he
receives the interest later. This generates higher post tax returns compared to other
debt instruments.

Tax is just like a monster that frightens a number of individuals through out the nation. There are
just tow way to fight with this monater:
. Conceal/Depress Income
. Make tax efficient investments.
Perhaps the second option is far better than the first as it gives the peace of mind together with a
feeling that one is a responsible citizen of the nation. With increasing amount of awareness that
is taking birth in the minds of investors, mutual fund has become cynosure of the eye of the
several investors.
The taxes available are tow kinds:
. To the mutual fund- as explained below in No 1
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. To the Investor- as explained below in No 2

1. Mutual Fund Taxation


Mutual fund is fully exempted from the tax under Section10 (23D) of the Income Tax
Act1961.
It receives all income without deduction at source.
Mutual funds do not have to pay tax on trading profit, short term capital gain, dividend
income, underwriting commission, placement fees, long term capital gains, other
income, etc.
2. Benefits to the Investors
There are number of benefits that the investor of a mutual fund avail.
These are discussed as follows:
Resident Unit Holders- In case of an individual or Hindu Undivided Families
(HUFs), income by way of dividends, if any from unit of schemes of the fund
together with other income on specified investment/deposit are except from tax within
the overall limit of Rs.15000/- specified under Section80L of the I.T. Act,1961. Since
dividends from shares no longer invite dividend tax and hence the whole limit is
available for mutual fund dividends.
Tax deduction at source- as per Section196A of the Income Tax Act, 1961, no
deduction of tax at source is made from any income payable to the unit holders. This
implies that there is no tax deduction at source for redemption up to any limit.
As per Section194k of the I.T.Act 1961, deduction of tax at source is not made if the
dividend income from a mutual fund does not exceed Rs10000 per annum.
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INVESTMENT CRITERIA
Lower cost
It is a lower cost of investment as compare to other mode of investment option in the market.
Here the investor can invest a minimum of Rs500 in the scheme of ELSS (Equity Link Saving
Scheme).
Less paper work
Here less paper work is require than other. The investor give his detail information like his/her
name,age,address,phone no., pan card no, nominee name and address(in case of minor) and three
full signature of the candided.
No cash Transactions
Investor need not require paying cash, instead of cash investor has to pay cheque or demand
draft. Which help to prevent misappropriation and also save the tax. Here the investor just writes
the product name of mutual fund and sign on it. It also saves the time.
No Age Bar
There is no age bar of investor here any age group can invest in mutual fund. In case of
minor(below 18 year) there is a nominee, so a child can invest through his guardian and a person
having age of 70 also invest in mutual fund ,which is not possible in other investments.
Service or any kind of income group

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A service holder or any kind of income group or a student or unemployed people can invest in
mutual fund but the person is a rational human being having sound knowledge of investment
company.

WHAT ARE THE DIFFERENT PLANS THAT MUTUAL FUNDS OFFER?


The different plans available for the investors are:
Growth: Distribution of profits (dividend) are not given out. Only way an investor can realize
profits is through capital gain by selling the units.
Dividend - There are two sub types in this plan:

Dividend Payout - Dividend would be paid to the investor periodically depending on


available surplus to distribute, either by direct credit or through a cheque.
For example: If a fund declared Rs 2 / unit (20% dividend) and the investor has 100 units
he gets Rs 2 * 100 or Rs 200 as dividend.

Dividend Reinvestment: Dividend amount declared is used to buy more units of the
fund.
For example: A fund declared Rs 2 / unit and the NAV is Rs 12. If the investor has 100
original units and has opted for dividend reinvestment he will have: Rs 200/12 = 16.67
units. Total units after the dividend is reinvested = 100 original + 16.67 Units reinvested
= Total 116.67 Units.

HOW TO SELECT MUTUAL FUNDS


Selecting a mutual fund for investing is a very important step indeed. It is not just important it is
crucial. However it is the second step, not the first.

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It is surprising at the number of people I meet or hear from - they


all have same questions. So when they ask me 'How do we select
a mutual fund?' for me it is an amusing question. So like all self
respecting advisors I start with the dreaded line - "Well, it
depends..."
Then I ask them - "What are your financial goals, if any?". Now
only if you have big long term goals does the choice of a mutual fund really matter. If you are
investing for a short period of time - you are investing in say a liquid fund. It hardly matters in
which liquid fund you invest - the performance gap between two liquid funds is not so high.
Choose the liquid fund with a high AUM (assets under management} - and one which gives good
service in terms of redemption on the phone or net, or such considerations.
However if you are looking for a longer term investment - which means you are looking to be
invested for at least 8 to 10 years, you are looking to invest in equity mutual funds. This article
is aimed at selecting a good equity mutual fund for a long term.
1. The most important first step is to have an investment goal. A fantastic fund selection
done without having an investment goal is completely useless. You should know the
reason for your investment, how long you can be in the investment, at what stage you will
re-allocate, etc. before you make your first investment.
2. Your focus will lead to the correct asset allocation - the very important factor which will
decide how much money you will put into an equity fund.
3. Do your homework: Buy large cap well diversified good quality funds. Do not buy
opportunities funds, international funds, contra funds as a staple part of your portfolio.
4. All funds in India are no load funds - which means there is no sales cost. This is good and
it means all your money gets invested. For a large cap equity fund, it may not make too
much sense to pay somebody to pick the fund for you, try doing it yourself.

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5. Have a demonic watch on the asset management charges. As a fund starts to do well, it
should attract a lot of investors, and as its assets increase it should keep dropping its asset
management charges. Look at well managed funds with charges below 1.9% p.a. - there
are many.
6. Look at the portfolio turnover ratio - the greater the ratio, the more is your total cost. One
cost which is not visible to the investor is the brokerage that the fund scheme pays. This
is a function of the turnover of the portfolio. So a fund with a lower turnover would be
incurring lesser costs.
7. The asset management company's team is important too! Look for experienced teams
where the managers have gone through a few business cycles. Managers who have not
seen a down market can be very myopic, and those managers who have been through a
prolonged slow down very pessimistic. You need a nice blend in the team.
8. True to label: When you buy a large cap fund, you are buying a large cap fund, simple. If
a fund says it is a large cap fund it should not be buying mid cap, small cap etc. just
because large caps are currently out of favor. It is your choice to be in a large cap fund
and your fund manager should respect it.
9. Philosophy matching: Some fund houses are cooler and calmer compared to the others.
See which philosophy suits you. For example Templeton says Franklin India blue chip is
a 'growth' oriented, large cap fund, whereas Templeton India Growth fund is a 'value'
oriented fund - see what suits you. Hdfc mutual fund on the other hand does not classify
itself into 'growth' or 'value' labels.
10. Fund management is by a team or a star fund manager: Fund management is a part
science and part art. The fund manager will surely leave a stamp, however, some fund
houses have been able to create teams and systems to handle the departure of fund
managers - this gives you greater peace of mind. A star fund manager could leave or even
worse just drop dead - and you keep wondering 'now what'! Internationally and in the
Indian context well performing funds (over say 10 years) have seen very stable
management teams and CIOs.
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11. Over extremely large periods of time it is really difficult to beat a well managed index
fund. Currently all fund houses show schemes beating the index, but beware of
mathematics! All fund houses put a small * and say calculation does not include loads.
Do a small calculation if loads are included just too many schemes would have under
performed the indices. So if you are not looking for too much excitement look for a index
fund with fund charges south of 1% per annum.
12. Index funds with the Sensex as a benchmark are at least theoretically supposed to be
more aggressive than an index fund with nifty as the benchmark. Frankly it does not
matter - if in doubt split your investment amount. The co-relation between nifty and
Sensex is quite high.
13. When selecting a large cap equity fund choose ones with as broad a benchmark as
possible. It is better to choose a fund with CNX 500 as a benchmark rather than say the
Sensex. Fund managers may have a greater flexibility between large caps, small caps, etc.
14. Do not chase performance. The fund which has performed well in one quarter may not
perform well in the next quarter. Funds with a good long term top quartile performance is
far superior than to a fund scheme which has one top position and one bottom position.
Remember long term investing is like running a marathon - stamina is more important
than speed.
15. At the top in the well run large cap funds are Hdfc top 200, Dsp top 100, Principal Large
cap fund, Franklin India blue chip, and Hdfc Equity fund come to attention. This list is
not exhaustive and many fund distributors and banks have their own favorites. This list
passes the test prescribed above - of good consistent returns, good long term
performance, team going through a bull phase and a bear phase, true to label, etc.
Importantly as the fund size has increased these schemes have reduced the asset
management charges and thus improved the total return to the investor.

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HOW TO DESIGN MUTUAL FUND


At FundsIndia.com, we provide an online investment
platform, and we offer free advisory services. One of the
most frequent advisory questions that we get from our
investors is typically this - "I can save x thousand dollars
every month. I would like to invest in mutual funds
through SIP. Please suggest some funds for me". We are
delighted

to

get

such

mails

because

systematic

investments in mutual funds are the best way to turn savings into efficient investment vehicles.
In this article, let me talk about a simple method to construct a good SIP portfolio.
1. First, decide upon the asset allocation - By asset allocation what I mean is how much money
goes every month into what kind of mutual fund. It is possible to get very complicated with this,
but to keep it simple you can focus on just three types of funds - large-cap oriented funds,
small/mid-cap funds and debt funds. A typical allocation would be 50% in large-cap oriented
funds, 20-30% in small-mid/cap oriented funds, and the rest in debt funds. To ensure stable and
optimal returns, every SIP portfolio should have some debt fund component in it. It can just be a
small portion - 20-25% of the monthly investment, if your portfolio is an aggressive portfolio for
the long term.
2. Second, decide upon the number of schemes in your portfolio - Given the fact that we have
three prime asset classes as above, your portfolio should have at least three schemes in it. On the
upper side, it should not have more than seven-eight schemes. More than that, and your portfolio
becomes difficult to track and manage. Ideally, a portfolio would have five schemes - four equity
schemes, and one debt scheme.
3. Third, decide on the schemes - this is the last thing to do while designing the portfolio, not the
first. Once you know what kind of schemes you are looking for and how many of each kind
(from steps 1 and 2 above), this step becomes a simple choice. You can go to research websites
like valueresearchonline.com or Mint 50 and look at their top rated funds. You can simply pick
one or two in each class that you are interested in and you'll have your portfolio ready!
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Let us take a simple example and walk through the process to illustrate. Suppose you want to
invest Rs. 10,000 a month in a moderately risky portfolio of mutual fund schemes for the next 35 years. We can decide to go with a 70% equity, 30% debt portfolio. In equity, we can decide to
have 50% large-cap oriented allocation and 20% small-mid-cap oriented allocation. We will need
two large-cap oriented schemes (Rs. 2,500 each), one small/mid-cap scheme (Rs. 2000) and one
debt scheme (Rs. 3000) to invest in.

Asset class

Number of

Total SIP

schemes

amount

Large-cap equity 2

Scheme choices

Rs. 5,000

HDFC Top 200


DSP Blackrock Top 100
Birla Sunlife Frontline Equity
Reliance Regular Savings - Equity

Small/Mid-cap

Rs. 2,000

ICICI Discovery

equity

Debt

DSP Blackrock small and midcap fund

Rs. 3,000

Templeton India Short term Income fund

Sample SIP portfolio


We see that we can choose two funds from the top rated funds in each of these categories. For
large-cap oriented funds, from DSP Blackrock Top 100, HDFC Top 200, Birla Sunlife frontline
equity and Reliance regular savings fund - equity; for small/mid-cap funds, from ICICI
Discovery and DSP Blackrock Small Midcap fund; for debt funds, Templeton India Short term
income fund.

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As we can see, putting together a well-diversified, balanced portfolio such as this is very easy. A
regular, systematic investment done for the long run in such a portfolio would be a great way for
investors to convert their monthly savings into a great investment portfolio.

RISKS OF MUTUAL FUND INVESTING


Could you lose money if you invest in mutual funds?
Yes, most mutual fund products (except capital guaranteed
funds) have underlying assets (Equities, Bonds etc.) that
fluctuate on a daily basis. Hence capital loss due to lower
prices of the underlying assets or default on bonds is
possible. Investing according to an asset allocation plan,
having enough exposure to other capital guaranteed
investment such as FDs, Government Guaranteed bonds etc., can to a large extent mitigate these.

Are there any risks involved in investing in mutual funds?


You may have seen commercials of mutual fund schemes that end with a disclaimer: "Mutual
fund investments are subject to market risks ... ". This is true. Like any non- guaranteed financial
instrument there are various risks involved in investing in mutual funds such as:
Price Risks: Fall in the prices of the underlying shares/bonds lead to a lower NAV.
Liquidity Risks: Markets being shut for a long period could lead to the suspension of repurchase
/ redemption of investments.
Default Risk: Bonds of a particular company defaulting on repayment affecting
income/debt/hybrid funds.

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Credit Risk: Bonds of a particular company being downgraded by the rating agencies cause
lower prices.
The best thing about mutual fund is that in reality most if not all financial instruments carry these
risks but public is ignorant about it. For example, bank deposits are guaranteed only up to one
lakh rupees. Company FDs carry default risks. Price risk is the only additional risk of investing
in a MF. This is true for any investment that has a market price (Real estate, Shares, Gold, etc.,).
If there are risks with mutual funds, can only people with high-risk tolerance invest in it?
No. The biggest risk is not investing at all, as inflation erodes the value of money and the future
looks far from certain. Hence proper risk taking and planning are essential.
There are ways and means to mitigate the risks:

Have equity MF exposure within your risk tolerance.

Ensure debt MF exposure is well spread out.

Have adequate exposure to debt assets outside of MFs such as FDs, Govt bond such as
PPF, POMIS, NSC, RBI Bonds etc.,

BY INVESTMENT OBJECTIVE

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value for
possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation in such
schemes may be limited.
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Balanced Schemes: Balanced Schemes aim to provide both growth and income by

periodically distributing a part of the income and capital gains they earn. These schemes invest in
both shares and fixed income securities, in the proportion indicated in their offer documents
(normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity,

preservation of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call
money.
OTHER SCHEMES

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax
laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to
any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index
such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those
stocks that constitute the index. The percentage of each stock to the total holding will be identical
to the stocks index weightage. And hence, the returns from such schemes would be more or less
equivalent to those of the Index.
Sector Specific Schemes: These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a watch
on the performance of those sectors/industries and must exit at an appropriate time

ADVANTAGES OF INVESTING MUTUAL FUNDS:


1. Professional Management - The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have the

67

time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively
less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or
bonds, the investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any particular investment
is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help
to reducing transaction costs, and help to bring down the average cost of the unit for their
investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available
instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

DISADVANTAGES OF INVESTING MUTUAL FUNDS:


1. Professional Management- Some funds doesnt perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus
many investors debate over whether or not the so-called professionals are any better than mutual
fund or investor himself, for picking up stocks.
2. Costs The biggest source of AMC income, is generally from the entry & exit load which
they charge from an investors, at the time of purchase. The mutual fund industries are thus
charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a
few investments often don't make much difference on the overall return. Dilution is also the
result of a successful fund getting too big. When money pours into funds that have had strong
success, the manager often has trouble finding a good investment for all the new money.
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4. Taxes - when making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is
triggered, which affects how profitable the individual is from the sale. It might have been more
advantageous for the individual to defer the capital gains liability.

HOW DOES MUTUAL FUND WORK

69

A mutual fund is a company that pools investors' money to make multiple types of investments,
known as the portfolio. Stocks, bonds, and money market funds are all examples of the types of
investments that may make up a mutual fund.
The mutual fund is managed by a professional investment manager who buys and sells
securities for the most effective growth of the fund. As a mutual fund investor, you become a
"shareholder" of the mutual fund company. When there are profits you will earn dividends. When
there are losses, your shares will decrease in value.
Mutual funds are, by definition, diversified, meaning they are made up a lot of different
investments. That tends to lower your risk (avoiding the old "all of your eggs in one basket"
problem).
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Because someone else manages them, you don't have to worry about diversifying individual
investments yourself or doing your own record keeping. That makes it easier to just buy them
and forget about them. That's not always the best strategy, however -- your money is in someone
else's hands, after all.
Since the fund manager's compensation is based on how well the fund performs, you can be
assured they will work diligently to make sure the fund performs well. Managing their fund is
their full-time job!
Mutual funds can be open-ended or closed-ended. But many people consider all mutual funds to
be open-ended, while putting closed-ended funds in another category.
"Open-ended" means that shares are issued in the fund (or sold back to the fund) whenever
anyone wants them. With closed-ended funds, only a certain number of shares can be issued for a
particular fund, and they can only be sold back to the fund when the fund itself terminates. (You
can sell closed-ended funds to other investors on the secondary market, though.)
Load refers to the sales charges added to a mutual fund when you purchase it. The load charge
goes to the fund salesperson as a commission and payment for their research services. Load
charges can be up to 8.5 percent of the selling price and can be figured in as a front-end load
(meaning you pay it when you buy the mutual fund) or a back-end load (meaning you pay when
you sell the mutual fund).
Many mutual funds are no-load funds. Yes, that means there is no sales fee charged and the fund
is direct-marketed so you can buy it without the help of a salesperson. With the wealth of
information on the Internet today, it is certainly easier to make smart choices yourself to save
money.
In addition to no-load funds, there are also funds that charge up to 3.5 percent as a sales fee.
These are called low-load funds and can still be a good deal.
Mutual funds fall into three categories:

Equity funds are made up of investments of only common stock. These can be riskier
(and earn more money) than other types.

Fixed-income funds are made up of government and corporate securities that provide a
fixed return and are usually low risk.

71

Balanced funds combine both stocks and bonds in the investment pool and offer a
moderate to low risk. While low risk may sound good, it is also accompanied by lower
rates of return-meaning you risk less, but your investment won't earn as much. You have
to decide how much risk you're willing to take on before you invest your money.

If you have invested in a college savings fund or a 401k account, chances are good that already
own a few mutual funds. Mutual funds are great for long-term investments like these. You can
also buy mutual funds directly from a mutual fund company.
Most of these offer no-load funds (or sometimes low-load funds). You can find lists of mutual
fund companies on the Internet and purchase shares by simply filling out an application and
mailing a check. Once you are a shareholder, you will receive statements telling you how the
fund is doing as well as how much your own investment is growing. You can also set up monthly
bank transfers to automatically buy more shares every month.
Remember to do your research and select a mutual fund that fits the level of risk you are willing
to take with your hard-earned cash. Then just sit back and hope for the best!

CHARACTERISTICS OF MUTUAL FUNDS


1. Shares of a mutual fund are bought from the fund itself (or through a broker for the
fund); they cant be bought on a secondary market like NYSE or Nasdaq.
2. On purchase, investors pay an amount equal to the fund's per share net asset value
(NAV) plus any shareholder fees that the fund imposes at the time of purchase (such
as sales loads).
3. Redemption is a feature which allows shares of a mutual fund to be sold back by the
investor to the fund at their approximate per share NAV, minus any fees the fund imposes
at that time (such as deferred sales loads or redemption fees).
4. Being open-ended allows mutual funds to create and sell new shares to
accommodate new investors. In other words, they sell their shares on a continuous basis,
although some funds stop selling when, for example, they become too large.
5. The investment portfolios of mutual funds typically are managed by separate entities
72

known as "investment advisers" that are registered with the SEC.


Why Invest in a Mutual Fund?
Mutual funds make saving and investing simple, accessible, and affordable. Mutual fund
offers certain advantages to individual, amateur investors who trade in small denominations.
Professional management: Theoretically, professional money managers research, select and
monitor the performance of the securities the fund purchases. The mutual fund will have a
fund manager that trades the pooled money on a regular basis. Thus investors who dont have
the time or expertise to manage their portfolios find MFs convenient as it is a relatively
inexpensive way of getting a full-time manager to make and monitor investments for them.
Diversification: Mutual funds typically own several different stocks in many different
industries, sometimes going up to a hundred different stocks in large sized mutual funds. It
enables

diversification and

a portfolio of
income

securities

spreading

of

belonging

risk by investing

to industries having

inversely

in
correlated

streams.

Economies of Scale: Since mutual funds buy and sell a large amount of securities at a time, its
transaction costs are lower than what an individual investor would pay for trading in
securities. Also, because of the pooling of funds, individual investors can make investments in
small denominations in the securities market which is not possible if they invest on their own.
Liquidity: Just like an individual stock, a mutual fund allows its investors to readily redeem
their shares at the current NAV plus any fees and charges assessed on redemption at
any time. The price per share at which the investors can redeem shares is known as the funds
net asset value (NAV). NAV is the current market value of all the funds assets, minus
liabilities, divided by the total number of outstanding shares.
Convenience: An investor can purchase or sell fund shares directly from a fund or through a
broker, financial planner, bank or insurance agent, by mail, over the telephone, and
increasingly by personal computer. He can also arrange for automatic reinvestment or
periodic distribution of the dividends and capital gains paid by the fund. Funds may offer a
73

wide variety of other services, including monthly or quarterly account statements, tax
information, and 24-hour phone and computer access to fund and account information.
Protecting Investors: Not only are mutual funds subject to compliance with their selfimposed restrictions and limitations, they are also highly regulated by the federal government
through the U.S. Securities and Exchange Commission (SEC). As part of this government
regulation, all funds must meet certain operating standards, observe strict antifraud rules, and
disclose complete information to current and potential investors. These laws are strictly
enforced and designed to protect investors from fraud and abuse.
HOW TO READ A MUTUAL FUND TABLE

Columns 1 & 2: 52 Week Hi and Low These show the highest and lowest prices the
mutual fund has experienced over the previous 52-weeks (one year). This typically does not
include the previous day's price.
Column 3: Fund Name This column lists the name of the mutual fund. The company that
manages the fund is written above in bold type.
Column 4: Fund Specifics Different letters and symbols have various meanings. For
example, "N" means no load, "F" is front end load, and "B" means the fund has both front and
back-end fees.

74

Column 5: Dollar Change This states the dollar change in the price of the mutual fund
from the previous day's trading.
Column 6: % Change This states the percentage change in the price of the mutual fund
from the previous day's trading.
Column 7: Week High This is the highest price the fund traded at during the past week.
Column 8: Week Low This is the lowest price the fund traded at during the past week.
Column 9: Close The last price at which the fund was traded is shown in this column.
Column 10: Week's Dollar Change This represents the dollar change in the price of the
mutual fund from the previous week.

75

WHY HDFC MUTUAL FUND?


HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the
country with consistent and above average fund performance across categories since its
incorporation on December 10, 1999. While our past experience does make us a veteran, but
when it comes to investments, we have never believed that the experience is enough.
Our Investment Philosophy
The single most important factor that drives HDFC Mutual Fund is its belief to give the investor
the chance to profitably invest in the financial market, without constantly worrying about the
market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to
conduct all the fundamental research and back it up with effective analysis. Our strong emphasis
on managing and controlling portfolio risk avoids chasing the latest fads and trends.
We Offer
We believe, that, by giving the investor long-term benefits, we have to constantly review the
markets for new trends, to identify new growth sectors and share this knowledge with our
investors in the form of product offerings. We have come up with various products across asset
and risk categories to enable investors to invest in line with their investment objectives and risk
taking capacity. Besides, we also offer Portfolio Management Services.
Our Achievements
HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the
CRISIL Fund House Level 1 rating. This is its highest Fund Governance and Process Quality
Rating which reflects the highest governance levels and fund management practices at HDFC
AMC It is the only fund house to have been assigned this rating for two years in succession.
Over the past, we have won a number of awards and accolades for our performance

76

PRODUCTS OF MUTUAL FUND

EQUITY/ GROWTH FUND

CHILDRENS GIFT FUND

LIQUID FUND

DEBT/ INCOME FUND

SOME POPULAR FUNDS ARE EXPLAIN HERE


HDFC Growth Fund
HDFC Growth fund, an open-ended growth scheme, applies an investment approach based on a
set of well established but flexible principles that emphasize the concept of sustainable economic
earnings cash return on investment. The objective is to identify business with superior growth
prospects nd good management at a reasonable price. The five basic principles that serve the
foundation for this approach are as follows:
Focus on the long term
Investment confers proportionate ownership of the business
Maintain a margin safety
Maintain a balanced outlook on the market
77

Discipline approach to selling.


The investment philosophy rests on a two-pronged approach. 60-80% of the portfolio will aim to
stay invested for most of the time in large cap stocks that satisfy the above investment criteria.
This allocation to large cap stocks also ensures greater liquidity in the portfolio. 20-40% of the
portfolio will be invested in companies of scale that are either large market share holder
Basic Scheme Information,
Nature of Scheme

Open Ended Growth Scheme

Inception Date

September 11, 2000

Option/Plan

Dividend Plan, Growth Plan. The Dividend Plan


offers Dividend Payout and Reinvestment Facility.

The asset allocation under the Scheme will be as follows :


Sr.no

Type of Instruments

Normal

Normal

Allocation

Allocation

(% of Net Asset)

(% of Net Asset)

Equity & Equity related 80-100

Risk Profile

00

Medium to high

00

Low to medium

instruments
Debt Securities, Money
2

Market

instruments

&

Cash

00-20

(including money at call)

Returns
HDFC Growth (NAV as at evaluation date, Rs. 53.472
78

Fund

Per unit)

Date

Period

March 30, 2007


December

NAV

Last 458 days

Returns(%) $ Benchmark

45.461

28, Last Six months (185 79.6670

$^

Returns(%)#

13.81**

2.37**

-32.88*

-33.38*

2007

days)

June 29, 2007

Last 1 Year (367 days) 54.695

-2.22**

-8.07**

June 30, 2005

Last 3 Years (1096 25.499

27.97**

23.21**

37.58**

30.1**

N.A.

15.25**

23.96**

14.44**

days)
June 30, 2003

Last 5 Years (1827 10.829


days)

June 30, 1998

Last 10 Years (3653 N.A


days)

September

11, Since Inception (2849 10.000

2000

days)

Absolute

Due

Returns
to

an

**
over

Compounded
all

sharp

Annualised
rise

in

Returns
the

#
stock

SENSEX
prices

^ Past performance may or may not be sustained in the future


Plan name

NAV Date

NAV value

Dividentd plan

18 Aug 2008

29.0270

Growth plan

18 Aug 2008

58.9370

SIP Returns
SIP Investments

Since Inception

79

5 Year

3 Year

1 Year

Total Amount Invested (Rs.)

94,000.00

60,000.00

36,000.00

12,000.00

Market Value as on June 30, 2008

338,680.64

115,755.39

43,748.58

9,857.36

Returns (Annualised)*%

31.84%

26.64%

13.10%

-31.44%

Benchmark Returns

22.77%

20.64%

6.77%

-36.15%

# SENSEX
Benchmark - BSE Sensex
Disclaimer: The above investment simulation is for illustrative purposes only and should not be
construed as a promise on minimum returns and safeguard of capital. The AMC / Mutual Fund is
not guaranteeing or promising or forecasting any returns. SIP does not assure a profit or
guarantee protection against a loss in a declining market. Please refer SIP Enrolment Form or
contact nearest ISC for SIP Load Structure
HDFC TOP-200 FUND
Investment Objective
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 capitalization on the
BSE even though they may not be listed on the BSE This includes participation in large IPOs
where in the market capitalization 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 capitalization
Basic Scheme Information
Nature of Scheme

Open Ended Growth Scheme

Inception Date

October 11, 1996

80

Option/Plan

Dividend Plan,Growth Plan. The Dividend Plan offers


Dividend Payout and Reinvestment Facility.

Plan Name

NAV Date

NAV Amount

Dividend Plan

18 Aug 2008

38.29

Growth Plan

18 Aug 2008

129.56

Investment Pattern
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 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.
Returns
HDFC Top 200 (NAV as at evaluation date, Rs. 115.424
Fund

Per unit)

Date

Period

March 30, 2007


December

Last 458 days

NAV

104.504

28, Last Six months (185 167.8880

2007

days)

June 29, 2007

Last 1 Year (367 days)

120.34
81

Returns(%) $ Benchmark
$^

Returns(%)#

8.24**

4.45**

-31.25*

-37.53*

-4.06**

-8.85**

June 30, 2005

Last 3 Years (1096 57.343

26.23**

21.2**

37.6**

29.43**

27.12**

17.55**

25.3**

15.18**

days)
June 30, 2003

Last 5 Years (1827 23.358


days)

June 30, 1998

Last 10 Years (3653 12.749


days)

October 11, 1996

Since Inception (4280 10.000


days)

SIP Returns
SIP Investments

Since

10 Year

5 Year

3 Year

1 Year

120,000.0

60,000.00

36,000.0

12,000.0

0
9,843.01

Inception
Total

Amount

Invested 141,000.00

(Rs.)

Market Value as on June 835,535.45

580,129.0

113,375.0

41,661.2

30, 2008

Returns (Annualised)*%

27.85%

29.65%

25.77%

9.73%

-31.64%

Benchmark Returns

18.32%

20.25%

18.90%

5.82%

-38.40%

Benchmark - BSE 200


Disclaimer: The above investment simulation is for illustrative purposes only and should not be
construed as a promise on minimum returns and safeguard of capital. The AMC / Mutual Fund is
not guaranteeing or promising or forecasting any returns. SIP does not assure a profit or
guarantee protection against a loss in a declining market. Please refer SIP Enrolment Form or
contact nearest ISC for SIP Load Structure
82

HDFC EQUITY FUND


HDFC Equity Fund is an open-ended growth scheme, which aims to generate longterm capital appreciation. The scheme maintains a focused portfolio predominantly
of large cap stocks, through there is controlled exposure to mid caps. The schemes
however always remain diversified across sectors. Moreover, the sectoral allocation
is done keeping in mind to diversify across sectors weakly co-related to each other
to further reduce risk. The underlying theme while managing the scheme is to invest
in businesses that are sustainable and for good quality.

Basic Scheme Information


Nature of Scheme

Open Ended Growth Scheme

Inception Date

January 01, 1995

Option/Plan

Dividend Plan,Growth Plan. The Dividend Plan offers


Dividend Payout and Reinvestment Facility.

Plan Name

NAV Date

NAV Amount

Dividend Plan

18 Aug 2008

36.1630

Growth Plan

18 Aug 2008

156.7660

Investment Strategy:
In order to provide long term capital appreciation, the Scheme will invest predominantly in
83

growth companies. Companies selected under this portfolio would as far as practicable consist of
medium to large sized companies which:

are likely achieve 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

Investment Pattern
The asset allocation under the Scheme will be as follows :
Sr.No.

Asset Type

(% of Portfolio)

Risk Profile

Equities and Equity Related Instruments

80 - 100

Medium

to

High
2

Debt & Money Market Instruments

0 - 20

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.
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
84

and such other instruments as may be allowed under the Regulations from time to time. Also
refer to the Section on Policy on off-shore Investments by the Scheme(s).
If the investment in equities and related instruments falls below 70% of the portfolio of the
Scheme at any point in time, it would be endeavoured to review and rebalance the composition.
Not with standing anything stated above, subject to the regulations, the asset allocation pattern
indicated above may change from time to time, keeping in view market conditions, market
opportunities, applicable regulations and political and economic factors. It may be clearly
understood that the percentages stated above are only indicative and are not absolute and that
they can vary substantially depending upon the perception of the AMC, the intention being at all
times to seek to protect the NAV of the scheme. Such changes will be for short term and
defensive considerations. Provided further and subject to the above, any change in the asset
allocation affecting the investment profile of the Scheme and amounting to a change in the
Fundamental Attributes of the Scheme shall be effected in accordance with sub-regulation (15A)
of regulation 18 of SEBI regulations.
Returns
HDFC

Equity (NAV as at evaluation date, Rs. 143.171

Fund

Per unit)

Date

Period

March 30, 2007


December

Last 458 days

NAV

142.602

28, Last Six months (185 219.8570

2007

days)

June 29, 2007

Last

1 Year

(367 165.313

Returns(%) $ Benchmark
$^

Returns(%)#

0.32**

1.47**

-34.88*

-39.38*

-13.33**

-11.59**

24.71**

18.87**

36.68**

29.03**

days)
June 30, 2005

Last 3 Years (1096 73.768


days)

June 30, 2003

Last 5 Years (1827 29.960

85

days)
June 30, 1998

Last 10 Years (3653 7.280

34.67**

17.75**

21.78**

9.22**

days)
January

1, Since Inception (4929 10.000

1995
*

Absolute

days)
Returns

**

Compounded

Annualised

Returns

S&P

CNX

500

^ Past performance may or may not be sustained in the future

SIP Returns
SIP Investments

Since

10 Year

5 Year

3 Year

1 Year

Total Amount Invested 162,000.00

120,000.0

60,000.00

36,000.0

12,000.0

(Rs.)

Market Value as on June 1,494,753.92

646,490.6

107,904.1

38,998.6

9,408.57

30, 2008

Inception

Returns (Annualised)*%

29.53%

31.66%

23.71%

5.27%

-37.52%

Benchmark Returns

16.18%

19.77%

17.56%

3.25%

-40.27%

Disclaimer:
The above investment simulation is for illustrative purposes only and should not be construed as
a promise on minimum returns and safeguard of capital. The AMC / Mutual Fund is not
guaranteeing or promising or forecasting any returns. SIP does not assure a profit or guarantee
protection against a loss in a declining market. Please refer SIP Enrolment Form or contact
nearest ISC for SIP Load Structure.
HDFC Infrastructure Fund
86

Investment Objective
To seek long-term capital appreciation by investing predominantly in equity and equity related
securities of companies engaged in or expected to benefit from growth and development of
infrastructure.

Basic Scheme Information


Nature of Scheme

Close Ended Equity Scheme with a maturity period of 3


years from the date of allotment with automatic
conversion into an open-ended scheme upon maturity of
the Scheme.

Inception Date

March 10, 2008

Option/Plan

Dividend Option, Growth Option. Dividend Option


currently offers with payout facility only

Plan Name

NAV Date

NAV Amount

Growth Option

18 Aug 2008

8.3830

Dividend Option

18 Aug 2008

8.3830

Investment Pattern:
The asset allocation under the respective Plans will be as follows:
Type of Instruments

Minimum

Maximum

Risk Profile of the

Allocation (% of Allocation(% of Instrument


87

Net Assets)

Net Assets)

Equity and Equity Related 65%


Instruments

100%

Medium to High

35%

Medium to High

35%

Low to Medium

of

infrastructure

infrastructure

related

companies
Equity and Equity Related 0%
Instruments of companies
other than mentioned above
Debt Securities and Money 0%
Market Instruments* and
Fixed Income Derivative ;

* Investments in securitised debt shall not normally exceed 30% of the net assets of the Scheme.
The Scheme may seek investment opportunity in Foreign Securities (max. 35% of net assets).
The Scheme may take derivatives position for hedging, portfolio balancing or to undertake any
other strategy as permitted under SEBI Regulations from time to time (max. 20% of the net
assets) based on the opportunities available subject to SEBI Regulations.
Returns
HDFC

(NAV as at evaluation date, 7.48

Infrastructure Fund

Rs. Per unit)

Date

Period

NAV

Returns(%) $ Benchmark
$^

Returns(%)#

March 30, 2007

Last 458 days

N.A

N.A.

1.47**

December 28, 2007

Last Six months (185 N.A

N.A.

-39.38*

N.A.

-11.59**

days)
June 29, 2007

Last

1 Year

(367 N.A

88

days)
June 30, 2005

Last 3 Years (1096 N.A

N.A.

18.87**

N.A.

29.03**

N.A.

17.75**

-25.2*

-18.45*

days)
June 30, 2003

Last 5 Years (1827 N.A


days)

June 30, 1998

Last 10 Years (3653 N.A


days)

March 10, 2008

Since Inception (112 10.000


days)

* Absolute Returns
~

Due

to

** Compounded Annualised Returns

an

over

all

sharp

rise

in

the

# S&P CNX 500


stock

prices

^ Past performance may or may not be sustained in the future


HDFC Prudence Fund
Investment Objective
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.
Basic Scheme Information
Nature of Scheme

Open Ended Balanced Scheme

Inception Date

February 01, 1994

Option/Plan

Dividend Plan,Growth Plan. The Dividend Plan offers


Dividend Payout and Reinvestment Facility.

89

Returns
HDFC Prudence (NAV as at evaluation date, Rs. 112.678
Fund

Per unit)

Date

Period

March 30, 2007


December

NAV

Last 458 days

28, Last 185 days

Returns(%) $ Benchmark
$^

Returns(%)#

110.132

1.84**

6.01**

160.6870

-29.88*

-22.7*

124.716

-9.6**

-1.33**

20.3**

15.38**

42.37**

19.31**

26.8**

N.A.

20.41**

N.A.

2007
June 29, 2007

Last 1 Year (367 days)

June 30, 2005

Last 3 Years (1096 64.682


days)

June 30, 2003

Last 5 Years (1827 19.230


days)

June 30, 1998

Last 10 Years (3653 11.480


days)

February 1, 1994

Since Inception (5263 10.000


days)

* Absolute Returns

** Compounded Annualised Returns

# CRISIL Balanced Fund Index ~

Due to an over all sharp rise in the stock prices

^ Past performance may or may not be sustained in the future

90

$$ Adjusted for the dividends declared under the scheme prior to its splitting into the Dividend
and Growth Plan
Investment Strategy
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. In the long term, the mix between debt instruments and
equity instruments is targeted between 60:40 and 40:60 respectively. The exact mix will be a
function of interest rates, equity valuations, reserves position, risk taking capacity of the portfolio
without compromising the consistency of dividend pay out (in the case of Dividend Plan), need
for capital preservation and the need to generate capital appreciation.
Investment Pattern
The

following

table

provides

the

asset

allocation

of

the

Scheme's

portfolio.

The asset allocation under the respective Plans will be as follows :


Sr.No

Type of Instruments

Normal

Risk Profile

Allocation
(% of Net Assets)

Equities & Equity related instruments

40 - 75%

Medium

to

High
2

Debt

Securities,

Money

Market 25 - 60%

instruments(including cash/call money)

Low

to

Medium

(Investment in Securitised debt, if undertaken,would not exceed 10% of the net assets of the
Scheme.)
HDFC Capital Builder Fund
HDFC Capital Builder Fund, an open-ended growth scheme, aims to invest in strong
91

companies at prices that below fair value in the opinion of the fund managers. The investment
approach is based on the philosophy that value may be uncovered only where the crowd has not
discovered it yet. In the opinion of the fund managers such value exists in good quality well
managed neglected stocks. The current neglect in these companies by the broad market
participants can be due to various factors such as difficult recent market conditions, major
restructuring charges, VRS expenses or other such one time effects that may subdue profits in the
near term. This also usually results in the shares of such companies being relatively illiquid.
While assuming such relative risk adjusted liquidity risk the fund managers propose to
capitalize on expected pick up reported earning as result of strong growth prospects in the future.
This eventually translates in to more liquidity depending on the success of this strategy. Such
opportunities are available in large companies as well as small companies. While there is no
criteria for stock selection based on market capitalization the endeavor is to keep a balance of
companies in the portfolio between big and small companies, on one category overwhelming the
other
Basic Scheme Information
Nature of Scheme

Open Ended Growth Scheme

Inception Date

February 01, 1994

Option/Plan

Dividend Plan,Growth Plan. The Dividend Plan offers


Dividend Payout and Reinvestment Facility.

Plan Name

NAV NAV Amount


Date

Dividend Plan

18

22.075

Aug
2008
Growth Plan

18

69.918

Aug
2008

92

Investment Pattern
The asset allocation under the Scheme will be as follows :

Sr.No.

Asset Type

(% of Portfolio)

Risk Profile

Equities and Equity Related Instruments

Upto 100%

Medium to High

Debt & Money Market Instruments

Not

more

than Low to Medium

20%
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 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. Also
refer to the Section on Policy on off-shore Investments by the Scheme(s).
SIP Returns
SIP Investments

Since

10 Year

5 Year

3 Year

1 Year

120,000.0

60,000.00

36,000.0

12,000.0

Inception
Total
(Rs.)

Amount

Invested 173,000.00

93

Market Value as on June 890,131.42

463,752.0

103,349.4

37,539.3

30, 2008

9,242.16

Returns (Annualised)*%

20.51%

25.51%

21.92%

2.74%

-39.73%

Benchmark Returns

15.04%

19.77%

17.56%

3.25%

-40.27%

Past performance may or may not be sustained in the future


* Load is not taken into consideration and the Returns are of Growth Plan / Option. Investors
are advised to refer to the Relative Performance table furnished as above for non-SIP returns
Returns
HDFC

Capital (NAV as at evaluation date, 64.169

Builder Fund

Rs. Per unit)

Date

Period

NAV

March 30, 2007

Last 458 days

December 28, 2007

Last

Six

60.3

months 105.1230

Returns(%) $ Benchmark
$^

Returns(%)#

5.08**

1.47**

-38.96*

-39.38*

-12.36**

-11.59**

19.62**

18.87**

37.32**

29.03**

23.96**

17.75**

13.76**

7.95**

(185 days)
June 29, 2007

Last 1 Year (367 73.27


days)

June 30, 2005

Last 3 Years (1096 37.474


days)

June 30, 2003

Last 5 Years (1827 13.117


days)

June 30, 1998

Last 10 Years (3653 7.480


days)

February 1, 1994

Since

Inception 10.000

(5263 days)
94

*
#

Absolute

Returns
S&P

**

Compounded
CNX

Annualised

Returns

500

^ Past performance may or may not be sustained in the future


Benchmark - S & P CNX 500
The above investment simulation is for illustrative purposes only and should not be construed as
a promise on minimum returns and safeguard of capital. The AMC / Mutual Fund is not
guaranteeing or promising or forecasting any returns. SIP does not assure a profit or guarantee
protection against a loss in a declining market. Please refer SIP Enrolment Form or contact
nearest ISC for SIP Load Structure.

FINDINGS

95

In India Mutual fund Industry has seen Dramatic improvements in Quality as well as quality of
products and services offering over the past decade, but the industry has witnessed growth in the
last 10 years considerably below potential. The Asset under Management have grown from about
Rs. 470 billion in march 1993 to Rs. 1,540 billion in April 2004(CAGR of 11.4 percent) & now it
grown to Rs. 5,620 billion till sep 2008. This has mainly achieved due to collection through
mutual fund IPOs that has been increasing due to the investors feeling that it is cheaper in its
IPO stage on account of its Rs. 10 NAV.
There has been a strong appreciation in equities in comparison to the debt market, which has
shown a downward trend last year. And in turn Mid-cap and diversified funds have delivered the
highest in comparison to other funds. As the Indian economy is showing a growing trend with
GDP more than 6% and expected to show 8% and Indian household saving being 24% of the
entire GDP. There is a strong growth potential of Mutual fund industry in India.
In Orissa i.e. rural area it is still a new concept so it will take some more time to really penetrate
into this market apart from people who are HNIs though these people are given more emphasis
by all the Mutual funds and distribution channels. With the introduction of SIPs the industry has
created some options clear for retail investors to enter this market. My survey says that it the
awareness level that is playing acting as an obstacle in the growth of Mutual fund Industry in
Orissa as a whole.

Some of the Major Findings

96

1. It is found that HDFC is a favorable Mutual Fund.


2. The basis objective behind investments are mainly long-term capital appreciation, current
income & to some extent tax benefits.
3. The performance of HDFC Core & Satellite & HDFC Top 200 Fund is very good.
4. It is seen that the investment in growth fund is very high. Because the scope of income
and capital appreciation in the long term.
5. It is observed that the driving aspects of investments in mutual fund are safety, fund
performance, Service, Liquidity, return & tax benefits.
6. The type of investment plan that most investor s prefer is to get principal safety at all
time with low returns rather than high return with no safety.
7.

HDFC Mutual Fund does not provide monthly income scheme which other mutual
funds have and performance is very appreciable.

8. Fund Managers have suggested HDFC prudence ,HDFC Taxsaver , HDFC Equity for
investment , For the top 5.
9. HDFC Prudence is performing good with comparition to the prudence fund of any other
mutual fund house.
10. At this period of time when market condition is not so good, it is better for investors to
invest through Systamatic Investment plan. Which reduces the market risk.

97

SUGGESTIONS AND RECOMMENDATIONS


HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the
country with consistent and above average fund performance across categories since its
incorporation on December 10,1999.The single most important factor that drives HDFC Mutual
Fund is its belief to give the investor the chance to profitably invest in the financial market,
without constantly worrying about the market swings.
Some major recommendation:
1) Fund managers should continuous Investor awareness Programs to make the
investors aware of technicalities of fund management and the return aspects.
2) Agents, Service personnel must be able to give correct and timely information
about NAV and the return on different schemes.
3) Monthly income scheme should be introduced.
4) Scheme should be offered as per the needs and the requirement of the industries.
5) The regulatory norms provided by the regulatory authorities like SEBI are
required to be known to all including investors.

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CONCLUSION
The global financial market has transformed from Sellers market to Buyers market with
liberalization, Globalizations and privatization. The Indian mutual fund market has also become
global when foreign funds entered, they came up with probably best marketing strategies to beat
Indian giants like BIRLA, HDFC, and ICICI have come up with aggressive strategies to beat the
foreign funds. Now the cutthroat competition goes on and on.
HDFC Mutual funds have rewarded investors with hand some returns. The good news is that this
is poised to become a trend. The mutual funds have strengthened their distribution networks,
become more transparent and investor friendly and are rewarding investors. The mutual fund is
finally, proving itself as a vehicle of safety for investments. But it is still the fund managers
investment philosophy that makes the difference between the winner and the losers.
Careful market analysis, consumer segmentation, identification of investor needs, service
designing are to be carried out for the successful implementation of different schemes by mutual
fund organizations. Regulatory measures by SEBI should be clearly explained to the investors.
Positioning of the schemes and their branding will help a lot for growth of the industry.
Creativity and innovation are the means of marketing in the days to come for Indian mutual fund
market.

99

BIBLIOGRAPHY
www.google.com
WWW.HDFCFUND.COM
http://www.hdfcfund.com/AboutUs/
http://www.hdfcfund.com/Products/

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