PROJECT REPORT

ON
COMPARATIVE STUDY OF MUTUAL FUNDS
WITH SPECIAL REFERENCE TO HDFC MUTUAL FUNDS AT INDIA
INFOLINE LIMITED, HYDERABAD, PRAKASH NAGAR,
BEGUMPET, HYDERABAD

Submitted in partial fulfilment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

To the
SCHOOL OF MANAGEMENT STUDIES
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY KUKATPALLY, HYDERABAD.
By
S. MOUNIKA
H.T.NO:At

VAAGDEVI ENGINEERING COLLEGE

BOLLIKUNTA, WARANGAL-506005.
(Affiliated to Jawaharlal Nehru Technological University Kukatpally, Hyderabad)
(2011 -2013)

TABLE OF CONTENTS

Page No.

Part-I

1-37

A. Mutual Fund Overview

1-19

1.1 Mutual Fund an Investment Platform

1-2

1.2 Advantages of Mutual Fund

1.3 Disadvantage of Investing Through Mutual Funds

1.4 Categories of Mutual Fund

4-8

1.5 Investment Strategies

1.6 Organisation of Mutual Fund

9-11

1.7 Distribution Channels

12

1.8 HDFC AMC Company Overview

12-19

B. Measuring and Evaluating Mutual Funds Performance

20-37

1.2.1

Purpose of Measuring and Evaluating

20-21

1.2.2

Financial Planning for Investors referring to Mutual Funds

22

1.2.3

Why Has It Become One Of The Largest Financial Instruments?

22-25

1.2.4 Evaluating Portfolio Performance

26

1.2.5 How to Reduce Risk While Investing

26-28

1.2.6

A Study of Portfolio Analysis from The Point Of Fund Manager

28-29

1.2.7

Measures of Risk and Return

29-37

Part-II

38-40

Research Methodology
2.1 Need For the Study

38-39

2.2 Objective of the Study

39

2.3 Limitations of the Study

40

2.4 Data Collection

40

Part-III

41-102

Case Analysis
3.1 Data Interpretation

41-87

3.2 Analysis of the observation

87-97

3.3 Findings

98

3.4 Recommendations

99-100

3.5 Conclusion

101

References

102

MUTUAL FUND OVERVIEW

Mutual fund is an investment company that pools money from small investors and
invests in a variety of securities, such as stocks, bonds and money market instruments. Most
open-end Mutual funds stand ready to buy back (redeem) its shares at their current net asset
value, which depends on the total market value of the fund's investment portfolio at the
time

of redemption.

Most open-end Mutual funds continuously offer new shares to

investors. It is also known as an open-end investment company, to differentiate it from a

closed-end investment company.
Mutual funds invest pooled cash of many investors to meet the fund's stated investment
objective. Mutual funds stand ready to sell and redeem their shares at any time at the funds

INVEST IN
VARIETY OF
STOCKS/BONDS

MARKET (FLUCTUATIONS)

INVEST
THEIR
MONEY

MUTUAL FUND SHEMES

INVESTOR

current net asset value: total fund assets divided by shares outstanding.

PROFIT/LOSS FORM
PORTFOLIO OF
INVESTMENT

PROFIT/LOSS FROM
INDIVIDUAL

Figure: 1.1

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units
to the investors and investing funds in securities in accordance with objectives as
disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because not all stocks
may move in the same direction in the same proportion at the same time. Mutual fund issues
units t o the investors in accordance with quantum of money invested by them.
Investors of Mutual fund are known as unit holders. The profits or losses are shared by the
investors in proportion to their investments. The Mutual funds normally come out with a
number of schemes with different investment objectives which are launched from time to
time.
In India, A Mutual fund is required to be registered with Securities and Exchange Boa
rd of India (SEBI) which regulates securities markets before it can collect funds from the
public.
In Short , a Mutual fund is a common pool of money in to which investors with
common investment objective place their contributions that are to be invested in
accordance with the state d investment objective of the scheme. The investment manager
would invest the money collected from the investor in to assets that are defined/ permitted
by the stated objective

of the scheme. For example, a n equity fund would invest

equity and equity related instruments and a debt fund would invest in bonds, debentures,
gilts etc. Mutual fund is a suitable investment for the common ma n a s it offers an Oporto
unity to invest in a diversified, professionally managed basket of securities at a
relatively low cost.

1.2 ADVANTAGES OF MUTUAL FUND

Table:1.1
S.
No.

Advant
age

Particulars

1.

Portfoli
o
Diversif
ication

Mutual Funds invest in a well-diversified portfolio of securities

which enables investor to hold a diversified investment portfolio
(whether the amount of investment is big or small).

2.

Professi
onal
Manage
ment

Fund manager undergoes through various research works and has

better investment management skills which ensure higher returns
to the investor than what he can manage on his own.

3.

Less
Risk

Investors acquire a diversified portfolio of securities even with a

small investment in a Mutual Fund. The risk in a diversified
portfolio is lesser than investing in merely 2 or 3 securities.

4.

Low
Transac
tion
Costs

Due to the economies of scale (benefits of larger volumes),

mutual funds pay lesser transaction costs. These benefits are
passed on to the investors.

5.

Liquidit
y

An investor may not be able to sell some of the shares held by

him very easily and quickly, whereas units of a mutual fund are
far more liquid.

6.

Choice
of
Scheme
s

Mutual funds provide investors with various schemes with

different investment objectives. Investors have the option of
investing in a scheme having a correlation between its investment
objectives and their own financial goals. These schemes further
have different plans/options

7.

Transpa
rency

Funds provide investors with updated information pertaining to

the markets and the schemes. All material facts are disclosed to
investors as required by the regulator.

Flexibili
ty

Investors also benefit from the convenience and flexibility offered

by Mutual Funds. Investors can switch their holdings from a debt
scheme to an equity scheme and vice-versa. Option of systematic
(at regular intervals) investment and withdrawal is also offered to
the investors in most open-end schemes.

Safety

Mutual Fund industry is part of a well-regulated investment

environment where the interests of the investors are protected by
the regulator. All funds are registered with SEBI and complete
transparency is forced.

8.

9.

1.3 DISADVANTAGE OF INVESTING THROUGH MUTUAL FUNDS

Table:1.2
S.
No.

Disadva
ntage

Particulars

1.

Costs
Control
Not in
the
Hands
of
an
Investor

Investor has to pay investment management fees and fund

distribution costs as a percentage of the value of his
investments (as long as he holds the units), irrespective of the
performance of the fund.

2.

No
Custom
ized
Portfoli
os

The portfolio of securities in which a fund invests is a decision

taken by the fund manager. Investors have no right to interfere
in the decision making process of a fund manager, which some
investors find as a constraint in achieving their financial
objectives.

3.

Difficult
y
in
Selectin
g
a
Suitable
Fund
Scheme

Many investors find it difficult to select one option from the

plethora of funds/schemes/plans available. For this, they may
have to take advice from financial planners in order to invest in
the right fund to achieve their objectives.

1.4 CATEGORIES OF MUTUAL FUND

Figure:1.2

2. BASED ON INVESTMENT OBJECTIVE

EQUITY FUNDS

BALANCED
FUNDS

DEBT FUNDS

INDEX FUNDS
DEVIDEND YEILD
EQUITY
DIVERSIFIED

LEQUID FUNDS
DEBT
ORIENTED

GUILT FUNDS

EQUITY
ORIENTED

INCOME FUNDS

THEMANTIC FUND

FMPS FUNDS

SECTOR FUND

FLOATING RATE

ELSS

ARBITAGE
FUNDS

Mutual funds can be classified as follow:

Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of
time.
Close-ended funds: These funds raise money from investors only once. Therefore,
after the offer period, fresh investments cannot be made into the fund. If the fund is
listed on a stocks exchange, the units can be traded like stocks (E.g., Morgan Stanley
Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided
liquidity window on a periodic basis such as monthly or weekly. Redemption of units
can be made during specified intervals. Therefore, such funds have relatively low
liquidity.
Based on their investment objective:
Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance, even losses. However,
short term fluctuations in the market, generally smoothens out in the long term,
thereby offering higher returns at relatively lower volatility. At the same time, such

funds can yield great capital appreciation as, historically, equities have outperformed
all asset classes in the long term. Hence, investment in equity funds should be
considered for a period of at least 3-5 years. It can be further classified as:
1. Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked.
Their

portfolio mirrors the benchmark index in terms of both composition and individual

stock weightages.
2. Equity diversified funds- 100% of the capital is invested in equities spreading across
different sectors and stocks.
3. Dividend yield funds- it is similar to the equity-diversified funds except that they invest in
companies offering high dividend yields.
4. Thematic funds- Invest 100% of the assets in sectors which are related through some
theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.
5. Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund
will invest in banking stocks.
6. ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
Balanced fund: Their investment portfolio includes both debt and equity. As a result,
on the risk-return ladder, they fall between equity and debt funds. Balanced funds are
the ideal mutual funds vehicle for investors who prefer spreading their risk across
various instruments. Following are balanced funds classes:
2

Debt-oriented funds -Investment below 65% in equities.

Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors
averse to idea of taking risk associated with equities. Therefore, they invest
exclusively in fixed-income instruments like bonds, debentures, Government of India
securities; and money market instruments such as certificates of deposit (CD),

commercial paper (CP) and call money. Put your money into any of these debt funds
depending on your investment horizon and needs.
1.

Liquid funds- These funds invest 100% in money market instruments, a large
portion being invested in call money market.

2. Gilt funds ST- They invest 100% of their portfolio in government securities of and Tbills.
3.

Floating rate funds - Invest in short-term debt papers. Floaters invest in debt
instruments, which have variable coupon rate.

4.

Arbitrage fund- They generate income through arbitrage opportunities due to misspricing between cash market and derivatives market. Funds are allocated to equities,
derivatives and money markets. Higher proportion (around 75%) is put in money
markets, in the absence of arbitrage opportunities.

5. Gilt funds LT- They invest 100% of their portfolio in long-term government
securities.
6.

Income funds LT- Typically, such funds invest a major portion of the portfolio in
long-term debt papers.

7.

MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure
of 10%-30% to equities.

8.

FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that
of the fund.

How are funds different in terms of their risk profile:

Table:1.3

Equity Funds

High level of return, but has a high level of risk too

Debt funds

Returns comparatively less risky than equity funds

Liquid

and

Market funds

Money Provide stable but low level of return

1.5 INVESTMENT STRATEGIES

1. Systematic Investment Plan: Under this, a fixed sum is invested each month on a fixed
date of a month. Payment is made through post-dated cheques or direct debit facilities. The
investor gets fewer units when the NAV is high and more units when the NAV is low. This is
called as the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan: Under this, an investor invest in debt-oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same
mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he
can withdraw a fixed amount each month.

1.6. ORGANISATION OF MUTUAL FUND:

Figure:1.4

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.

ASSET UNDER MANAGEMENT:

Table1.4
ASSET UNDER MANAGEMENT OF TOP AMC,S as on Jun 30,
2009
Mutual Fund Name

No.

of

Corpus (Rs.Crores)

schemes
Reliance Mutual Fund

263

108,332.36

HDFC Mutual Fund

202

78,197.90

ICICI Prudential Mutual Fund

325

70,169.46

UTI Mutual Fund

207

67,978.19

Birla Sun Life Mutual Fund

283

56,282.87

SBI Mutual Fund

130

34,061.04

LIC Mutual Fund

70

32,414.92

Kotak Mahindra Mutual Fund

124

30,833.02

Franklin Templeton Mutual Fund

191

25,472.85

IDFC Mutual Fund

164

21,676.29

Tata Mutual Fund

175

21,222.81

The graph indicates the growth of assets over the years.

Figure:1.5

1.7 DISTRIBUTION CHANNELS:

Mutual funds posses a very strong distribution channel so that the ultimate customers doesnt
face any difficulty in the final procurement. The various parties involved in distribution of
mutual funds are:

1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly.
The investors can approach to the AMCs for the forms. some of the top AMCs of India are;
Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI,
Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include:
Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.
2. Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/subbroker to popularize their funds. AMCs can enjoy the advantage of large network of these
brokers and sub brokers.

3. Individual agents, Banks, NBFC: investors can procure the funds through individual
agents, independent brokers, banks and several non- banking financial corporations too,
whichever he finds convenient for him.

1.8 HDFC AMC COMPANY OVERVIEW

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:

Table:1.5

Particulars

% of the paid up capital

Housing Development Finance Corporation Limited 50.10

Standard Life Investments Limited

49.90

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a
review of its overall strategy, had decided to divest its Asset Management business in India.
The AMC had entered into an agreement with ZIC to acquire the said business, subject to
necessary regulatory approvals.

On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now
migrated to HDFC Mutual Fund on June 19, 2003.

The AMC is also providing portfolio management / advisory services and such activities are
not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration
from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a
Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of
Registration is valid from January 1, 2004 to December 31, 2006.

Board of Directors
The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists
of the following eminent persons.
Table:1.6

Mr. Deepak S. Parekh

Mr. N. Keith Skeoch
Mr. Keki M. Mistry
Mr. James Aird
Mr. P. M. Thampi
Mr. Humayun Dhanrajgir
Dr. Deepak B. Phatak
Mr. Hoshang S. Billimoria
Mr. Rajeshwar Raj Bajaaj
Mr. Vijay Merchant
Ms. Renu S. Karnad
Mr. Milind Barve

Chairman of the board

CEO of Standard Life Investments Ltd.
Associate director
Investment director
Independent director
Independent director
Independent director
Independent director
Independent director
Independent director
Joint managing director
Managing director

Mr. Deepak Parekh, the Chairman of the Board, is associated with HDFC Ltd. in his
capacity as its Executive Chairman.
Mr. Parekh joined HDFC Ltd. in a senior management position in 1978. He was inducted as
Wholetime Director of HDFC Ltd. in 1985 and was appointed as the Executive Chairman in
1993.

Mr. N. Keith Skeoch is associated with Standard Life Investments Limited as its Chief
Executive and is responsible for all company business and investment operations within
Standard Life Investments Limited.

Mr. Keki M. Mistry is an associate director on the Board. He is the Vice-Chairman &
Managing Director of Housing Development Finance Corporation Limited (HDFC Ltd.) He is
with HDFC Ltd. since 1981 and was appointed as the Executive Director of HDFC Ltd. in
1993. He was appointed as the Deputy Managing Director in 1999, Managing Director in
2000 and Vice Chairman & Managing Director in 2007.
SPONSORS
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC):
HDFC was incorporated in 1977 as the first 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

ACHIEVEMENT AND AWARDS

CNBC - TV 18 - CRISIL Mutual Fund of the Year Awards 2008 :
HDFC Prudence Fund was the only scheme that won the CNBC - TV 18 - CRISIL Mutual
Fund of the Year Award 2008 in the Most Consistent Balanced Fund under CRISIL ~
CPR for the calendar year 2007 (from amongst 3 schemes).
HDFC Cash Management Fund - Savings Plan was the only scheme that won the CNBC TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Most Consistent Liquid Fund
under CRISIL ~ CPR for the calendar year 2007 (from amongst 5 schemes).
HDFC Cash Management Fund - Savings Plan was the only scheme that won the CNBC TV 18 - CRISIL Mutual Fund of the Year Award 2008 in the Liquid Scheme Retail
Category for the calendar year 2007 (from amongst 19 schemes).

Lipper Fund Awards 2008:

HDFC Equity Fund - Growth has been awarded the 'Best Fund over Ten Years' in
the 'Equity India Category' at the Lipper Fund Awards 2008 (form amongst 23 schemes).
It was awarded the Best Fund over ten years in 2006 and 2007 as well. 2008 makes it three in
a row.
Lipper Fund Awards 2009 :
HDFC Equity Fund - Growth has been awarded the 'Best Fund over Ten Years' in the 'Equity
India Category' (form amongst 34 schemes) and HDFC Prudence Fund Growth Plan in
the Mixed Asset INR Aggressive Category (from amongst 6 schemes), have been awarded
the Best Fund over 10 Years by Lipper Fund Awards India 2009.
ICRA Mutual Fund Awards 2008 :
HDFC MF Monthly Income Plan - Long Term Plan - Ranked a Seven Star Fund and has
been awarded the Gold Award for "Best Performance" in the category of "Open Ended
Marginal Equity" for the three year period ending December 31, 2007 (from amongst 27
schemes)
HDFC High Interest Fund - Short Term Plan - Ranked a Five Star Fund indicating
performance among the top 10% in the category of "Open Ended Debt - Short Term" for
one year period ending December 31, 2007 (from amongst 20 schemes).
HDFC Prudence Fund - Ranked a Five Star Fund indicating performance among the top
10% in the category of "Open Ended Balanced" for the three year period ending December
31, 2007 (from amongst 16 schemes)

B. MEASURING AND EVALUATING MUTUAL FUNDS

PERFORMANCE:

1.2.1 PURPOSE OF MEASURING AND EVALUATING

Every investor investing in the mutual funds is driven by the motto of either wealth creation
or wealth increment or both. Therefore its very necessary to continuously evaluate the funds
performance with the help of factsheets and newsletters, websites, newspapers and
professional advisors like HDFC AMC. If the investors ignore the evaluation of funds
performance then he can lose hold of it any time. In this ever-changing industry, he can face
any of the following problems:

1. Variation in the funds performance due to change in its management/ objective.

2. The funds performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund.
4 .Beta, a technical measure of the risk associated may also surge.
5. The funds ratings may go down in the various lists published by independent rating

agencies.
6. It can merge into another fund or could be acquired by another fund house.

Performance measures:

Equity funds: the performance of equity funds can be measured on the basis of: NAV
Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and
Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital
Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund
Size, Transaction Costs, Cash Flow, Leverage.

Debt fund: Likewise, the performance of debt funds can be measured on the basis of: Peer
Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs,
besides NAV Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the
basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
Concept of benchmarking for performance evaluation:
Every fund sets its benchmark according to its investment objective. The funds performance
is measured in comparison with the benchmark. If the fund generates a greater return than the
benchmark then it is said that the fund has outperformed benchmark , if it is equal to
benchmark then the correlation between them is exactly 1. And if in case the return is lower
than the benchmark then the fund is said to be underperformed.
Some of the benchmarks are:
1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE
500 index, BSE bankex, and other sectoral indices.
2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return

Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. Liquid funds: Short Term Government Instruments Interest Rates as Benchmarks, JPM TBill Index.
To measure the funds performance, the comparisons are usually done with:
I) with a market index.
ii) Funds from the same peer group.
iii) Other similar products in which investors invest their funds.

1.2.2 FINANCIAL PLANNING FOR INVESTORS REFERRING TO

MUTUAL FUNDS:

Investors are required to go for financial planning before making investments in any mutual
fund. The objective of financial planning is to ensure that the right amount of money is
available at the right time to the investor to be able to meet his financial goals. It is more than
mere tax planning. Steps in financial planning are:

Asset allocation.
Selection of fund.
Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset allocation,
leaving the actual allocation of securities and their management to fund managers. A fund
manager has to closely follow the objectives stated in the offer document, because financial
plans of users are chosen using these objectives.

1.2.3 WHY HAS IT BECOME ONE OF THE LARGEST FINANCIAL INSTRUMENTS?

If we take a look at the recent scenario in the Indian financial market then we can find the
market flooded with a variety of investment options which includes mutual funds, equities,
fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life
insurance, gold, real estate etc. all these investment options could be judged on the basis of
various parameters such as- return, safety convenience, volatility and liquidity. Measuring
these

investment options on the basis of the mentioned parameters, we get this in a tabular

form

Table:1.7

Return

Safety

Volatility

Liquidity

Convenienc
e

Equity

High

Low

High

High

Moderate

Bonds

Moderate

High

Moderate

Moderate

High

Co.
Moderate
Debent
ures

Moderate

Moderate

Low

Low

Co.
FDs

Moderate

Low

Low

Low

Moderate

Bank
Deposi
ts

Low

High

Low

High

High

PPF

Moderate

High

Low

Moderate

High

Life
Insura
nce

Low

High

Low

Low

Moderate

Gold

Moderate

High

Moderate

Moderate

Gold

Real
Estate

High

Moderate

High

Low

Low

Mutual
Funds

High

High

Moderate

High

High

We can very well see that mutual funds outperform every other investment option. On three
parameters, it scores high whereas its moderate at one. comparing it with the other options,
we find that equities gives us high returns with high liquidity but its volatility too is high with
low safety which doesnt makes it favourite among persons who have low risk- appetite.
Even the convenience involved with investing in equities is just moderate.
Now looking at bank deposits, it scores better than equities at all
fronts but lags badly in the parameter of utmost important ie; it scores low on return , so its
not an happening option for person who can afford to take risks for higher return. The other
option offering high return is real estate but that even comes with high volatility and
moderate safety level, even the liquidity and convenience involved are too low. Gold have
always been a favourite among Indians but when we look at it as an investment option then it
definitely doesnt gives a very bright picture. Although it ensures high safety but the returns
generated and liquidity are moderate. Similarly, the other investment options are not at par
with mutual funds and serve the needs of only a specific customer group. Straightforward,
we can say that mutual fund emerges as a clear winner among all the options available.

The reasons for this being:

I)Mutual funds combine the advantage of each of the investment products: mutual fund
is one such option which can invest in all other investment options. Its principle of
diversification allows the investors to taste all the fruits in one plate. just by investing in it,
the investor can enjoy the best investment option as per the investment objective.
II) Dispense the shortcomings of the other options: every other investment option has
more or less some shortcomings. Such as if some are good at return then they are not safe, if
some are safe then either they have low liquidity or low safety or both.likewise, there

exists no single option which can fit to the need of everybody. But mutual funds have
definitely sorted out this problem. Now everybody can choose their fund according to their
investment objectives.

III) Returns get adjusted for the market movements: as the mutual funds are managed by
experts so they are ready to switch to the profitable option along with the market movement.
Suppose they predict that market is going to fall then they can sell some of their shares and
book profit and can reinvest the amount again in money market instruments.
IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists
one more reason which has established mutual funds as one of the largest financial
intermediary and that is the flexibility that mutual funds offer regarding the investment
amount. One can start investing in mutual funds with amount as low as Rs. 500 through SIPs
and even Rs. 100 in some cases.

Not all award-winning funds may be suitable for everyone

Many investors feel that a simple way to invest in Mutual funds is to just keep investing in
award winning funds. First of all, it is important to understand that more than the
awards; it is the methodology to choose winners t at is more relevant.
A rating firm generally elaborates on the criteria for deciding the winners i.e.
consistent performance, risk adjusted returns, total returns and protection of capital. Each
of these factors is very important and ha s its significance for different categories of
funds.
Besides, each of these

factors has varying degree of significance for different kinds of

investors. For example, consistent return re ally focuses on risk. If someone is afraid of
negative returns, consistency will be a more import ant measure than tot al ret urn i.e.
Growth in NAV as well as dividend received.
A fund can have very impressive total ret urns overtime, but can be very volatile and tough
for a

risk adverse

investor. Therefore, all the ward winning funds in different

categories may not be suitable for everyone. Typically, when one has to select funds, the
first step should be to consider personal goals and objectives. Invest ors need to decide which
element they value the most and the n prioritize the other criteria
Once one knows what one is looking for, one should go about selecting the funds according
to the asset allocation. Most investors need just a few funds, carefully picked, watched and
managed over period of time.

1.2.4 EVALUATING PORTFOLIO PERFORMANCE

It is important to evaluate the performance of the portfolio on an on-going basis. The
following factors are important in this process:
Consider long-term record of accomplishment rather than short -term performance. It is
important because long-term track record moderates the effects which unusually good
or bad short -term performance can have on a fund's track record. Besides, longer-term
track record compensates for the effects of a fund manager's particular investment style.
Evaluate the record of accomplishment against similar funds. Success in managing a small
or in a fund focusing on a particular segment of the market cannot be re lied upon as an
evidence of anticipated performance in managing a large or a broad based fund.
Discipline in investment approach is an important factor as the pressure to perform can make
a fund manager susceptible to have a n urge to change tracks in terms of stock selection as
well a s investment strategy.
The objective should be to differentiate investment skill of the fund manager from luck
and to identify those funds with the greatest potential of future success.

1.2.5 HOW TO REDUCE RISK WHILE INVESTING:

Any kind of investment we make

is subject to risk. In fact we get return on our

investment purely and solely because at the very beginning we take the risk of parting
with our funds, for getting higher value back at a later date. Partition it self is a risk.

Well

known economist and Nobel Prize recipient William Sharpe tried to segregate the total

risk faced in any kind of investment into two parts - systematic (Systemic) risk and
unsystematic (Unsystematic) risk.
Systematic risk is that risk which exists in the system. Some of the biggest examples of
systematic risk are inflation, recession, war, political situation etc.
Inflation erodes returns generated from all investments e .g. If return from fixed deposit is 8
percent and if inflation is 6 per cent then real rate of return from fixed deposit is reduced by 6
percent. Similarly if returns generated from equity market is 18 percent and inflation is still 6
per cent then equity returns will be lesser by the rate of inflation. Since inflation exists in the
system there is no way one can stay away from the risk of inflation.
Economic cycles, war and political situations have effects on all forms of investments. Also
these exist in the system and there is no way to stay away from them. It is like learning
to walk.

Anyone who wants to learn to walk has to first fall; you cannot learn to walk

without falling. Similarly, anyone who wants to invest has to first face

systematic risk.

Therefore, one can never make any kind of investment without systematic risk.
Another form of risk is unsystematic risk. This risk does not exist in the system and
hence is not applicable to all forms of investment.
Unsystematic risk is associated with particular form of investment.

Suppose we invest in

stock market and the market falls, then only our investment in equity gets affected OR if we
have placed a fixed deposit in particular bank and bank goes bankrupt, than we only
lose money placed in that bank. While there is no way to keep away from risk, we can
always reduce the

impact of risk.

Diversification helps in reducing the impact of

unsystematic risk. If our investment is distributed across various asset classes, the impact of
unsystematic risk is reduced.
If we have placed fixed deposit in several banks, then even if one of the banks goes
bankrupt our entire fixed de posit investment is not lost.

Similarly if our equity

investment is in Tata Motors, HLL, Infosys, adverse news about Infosys will only
impact investment in Infosys, all other stocks will not have any impact .

To reduce the

impact of systematic risk, we should invest regularly. By investing regularly, we average out
the impact of risk.

Mutual fund, as an investment vehicle gives us benefit

diversification and averaging.

of both

Portfolio of mutual funds consists of multiple securities

and hence adverse news about single security will have nominal impact on overall portfolio.

By systematically investing in mutual fund, we get benefit of rupee cost averaging.

Mutual

fund as an investment vehicle helps reduce, both, systematic as well a s unsystematic risk

1.2.6 A STUDY OF PORTFOLIO ANALYSIS FROM THE POINT OF

FUND MANAGER:

Effective use of portfolio management disciplines improves customer satisfaction, reduces

the number of risks problems, and increases success. The goal of portfolio analysis is to
realize these same benefits at the portfolio level by applying a consistent structured
management approach.
The considerations underlying the portfolio analysis is a matter of concern to the fund
managers, investors, and researchers alike. This study attempts to answer two questions
relating to the portfolio analysis:

Make an average (or fair) return for the level of risk in the portfolio

To find out the portfolio which best meets the purpose of the investor.

At a minimum, any comprehensive mutual fund selection and analysis approach should
include the following generalized processes:

Fund selection

Fund prioritize/ reprioritize

Selection of the acceptable and required fund

Fund analysing and monitoring

Corrective action management

The fund portfolio analysis gives the ability to select funds that are aligned with the investors
strategies and objectives. It helps the fund manager to make the best use of available

opportunities by applying to the highest priority of the investor. A fund manager can regularly
assess how securities and stocks are contributing to portfolio health and can make the
corrective action to keep the portfolio in compliance with the investors interest and
objectives.
Mutual funds do not determine risk preference. However, once investor determines his/her
return preferences, he/she can choose a mutual fund a large and growing variety of alternative
funds designed to meet almost any investment goal. Studies have showed that the funds
generally were consistent in meeting investors stated goals for investment strategies, risk, and
return. The major benefit of the mutual fund is to diversify the portfolio to eliminate
unsystematic risk. The instant diversification of the funds is especially beneficial to the small
investors who do not have the resources to acquire 100 shares of 12 or 15 different issues
required to reduce unsystematic risk.
Mutual funds have generally maintained the stability of their correlation with the market
because of reasonably well diversified portfolios. There are some measures for the analysis
and each of them provides unique perspectives. These measures evaluate the different
components of performance.

1.2.7 MEASURES OF RISK AND RETURN:

Risk is variability in future cash flows. It is also known as uncertainty in the distribution of
possible outcomes. A risky situation is one, which has some probability of loss or unexpected
results. The higher the probability of loss or unexpected results is, the greater the risk.
It is the uncertainty that an investment will earn its expected rate of return. For an investor,
evaluating a future investment alternative expects or anticipates a certain rate of return is very
important.
Portfolio risk management includes processes that identify, analyse, respond to, track, and
control any risk that would prevent the portfolio from achieving its business objectives. These
processes should include reviews of project level risks with negative implications for the
portfolio, ensuring that the project manager has a responsible risk mitigation plan.

Additionally, it is important to do a consolidated risk assessment for the portfolio overall to

determine whether it is within the already specified limits. Since portfolio and their
environments are dynamic, managers should review and update their portfolio risk
management plans on a regular basis through the fund life cycle.
Simple measure of returns:
The return on mutual fund investment includes both income (in the form of dividends or
investment payments) and capital gains or losses (increase or decrease in the value of a
security). The return is calculated by taking the change in a funds Net Asset Value, which is
the market value of securities the fund holds divided by the number of the funds shares
during a given time period, assuming the reinvestment all income and capital gains
distributions, and dividing it by the original net asset value. The return is calculated net of
management fees and other expenses charged to the fund. Thus, a funds monthly return can
be expressed as follows:

Rt= (NAVt- NAVt-1)/NAVt-1

Where,
Rt is the return in month t
NAVt is the closing net asset value of the fund on the last trading day of the month
NAVt-1 is the closing net asset value of the fund on the last day of the previous month

Measure of risk
Investors are interested not only in funds return but also in risk taken to achieve those
returns. So risk can be thought as the uncertainty of the expected return, and uncertainty is
generally equated with variability. Variability and the risk are correlated; hence high returns
will tend to high variability.

Standard deviation:
in simple terms standard deviation is one of the commonly used statistical parameter to
measure risk, which determines the volatility of a fund. Deviation is defined as any variation
from a mean value (upward & downward). Since the markets are volatile, the returns

fluctuate every day. High standard deviation of a fund implies high volatility and a low
standard deviation implies low volatility.

S.D. =1/T (Rt-AR)

Where,
S.D. is the periodic standard deviation,
AR is the average periodic return,
T is the number of observations in the period for which the standard deviation is being
calculated.
Rt is the return in month t

Beta analysis: ) (Beta) Co-efficient:

Systematic risk is measured in terms of Beta, which represents fluctuations in the NAV of the
fund vis--vis market. The more responsive the NAV of a Mutual Fund is to the changes in
the market; higher will be its beta. Beta is calculated by relating the returns on a Mutual Fund
with the returns in the market. While unsystematic risk can be diversified through
investments in a number of instruments, systematic risk cannot. By using the risk return
relationship, we try to assess the competitive strength of the Mutual Funds vis--vis one
another in a better way.

(Beta) is calculated as = [N (XY) XY]/ [N (X2) (X) 2 ]

Beta is used to measure the risk. It basically indicates the level of volatility associated with
the fund as compared to the market. In case of funds, as compared to the market. In case of
funds, beta would indicate the volatility against the benchmark index. It is used as a short
term decision making tool. A beta that is greater than 1 means that the fund is more volatile
than the benchmark index, while a beta of less than 1 means that the fund is more volatile
than the benchmark index. A fund with a beta very close to 1 means the funds performance
closely matches the index or benchmark.

The success of beta is heavily dependent on the correlation between a fund and its
benchmark. Thus, if the funds portfolio doesnt have a relevant benchmark index then a beta
would be grossly inappropriate. For example if we are considering a banking fund, we should
look at the beta against a bank index.
R-Squared (R2):
R squared is the square of R (i.e.; coefficient of correlation). It describes the level of
association between the funs market volatility and market risk. The value of R- squared
ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a
reliable measure to analyze the performance of a fund. Beta should be ignored when the rsquared is low as it indicates that the fund performance is affected by factors other than the
markets.
For example:
Case 1

Case 2

R2

0.65

0.88

1.2

0.9

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention
that the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85
and beta value is 0.9. it means that this fund is less aggressive than the market.
Portfolio turnover ratio:
Portfolio turnover is a measure of a fund's trading activity and is calculated by dividing the
lesser of purchases or sales (excluding securities with maturities of less than one year) by the
average monthly net assets of the fund. Turnover is simply a measure of the percentage of
portfolio value that has been transacted, not an indication of the percentage of a fund's
holdings that have been changed. Portfolio turnover is the purchase and sale of securities in a
fund's portfolio. A ratio of 100%, then, means the fund has bought and sold all its positions
within the last year. Turnover is important when investing in any mutual fund, since the
amount of turnover affects the fees and costs within the mutual fund.
Total expenses ratio:

A measure of the total costs associated with managing and operating an investment fund such
as a mutual fund. These costs consist primarily of management fees and additional expenses
such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of
the

fund is

divided

by

the fund's

total

assets

to

arrive

at a

percentage

amount, which represents the TER:

Total expense ratio = (Total fund Costs/ Total fund Assets)

The most important and widely used measures of performance are:

The Sharpe Measure
The TreynorMeasure
Jenson Model
Fama Model

The Sharpe Measure :In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a
ratio of returns generated by the fund over and above risk free rate of return and the total risk
associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned about. So,
the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be
written as:

Sharpe Ratio (Si) = (Ri - Rf)/Si

Where,
Si is standard deviation of the fund,

Ri represents return on fund, and

Rf is risk free rate of return.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund,
a low and negative Sharpe Ratio is an indication of unfavourable performance.

The Treynor Measure:

Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index.
This Index is a ratio of return generated by the fund over and above risk free rate of return
(generally taken to be the return on securities backed by the government, as there is no credit
risk associated), during a given period and systematic risk associated with it (beta).
Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where,
Ri represents return on fund,
Rf is risk free rate of return, and
Bi is beta of the fund.

All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavorable performance.
Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by
a numerical risk measure. The total risk is appropriate when we are evaluating the risk return
relationship for well-diversified portfolios. On the other hand, the systematic risk is the
relevant measure of risk when we are evaluating less than fully diversified portfolios or
individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk.
Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should
be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk.
Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with
another fund that is highly diversified, will rank lower on Sharpe Measure.

Jenson Model:
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the differential Return Method.
This measure involves evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund1 given the level of its systematic risk. The surplus between
the two returns is called Alpha, which measures the performance of a fund compared with the
actual returns over the period. Required return of a fund at a given level of risk (Bi) can be
calculated as:

E(Ri) = Rf + Bi (Rm - Rf)

Where,
E(Ri) represents expected return on fund, and
Rm is average market return during the given period,
Rf is risk free rate of return, and
Bi is Beta deviation of the fund.

After calculating it, Alpha can be obtained by subtracting required return from the actual
return of the fund.

p= Ri [ Rf + Bi (Rm - Rf) ]

Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund and
an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is
primitive.

Fama Model:
The Eugene Fama model is an extension of Jenson model. This model compares the
performance, measured in terms of returns, of a fund with the required return commensurate
with the total risk associated with it. The difference between these two is taken as a measure
of the performance of the fund and is called Net Selectivity.
The Net Selectivity represents the stock selection skill of the fund manager, as it is the excess
returns over and above the return required to compensate for the total risk taken by the fund
manager. Higher value of which indicates that fund manager has earned returns well above
the return commensurate with the level of risk taken by him.
Selectivity: measures the ability of the portfolio manager to earn a return that is consistent
with the portfolios market (systematic) risk. The selectivity measure is:

Ri [ Rf + Bi (Rm - Rf) ]
Diversification: measures the extent to which the portfolio may not have been completely
diversified. Diversification is measured as:

[Rf +(Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)]

If the portfolio is completely diversified, contains no unsystematic risk, then diversification
measure would be zero. A positive diversification measure indicates that the portfolio is not
completely diversified; it would contain unsystematic risk and it represents the extra return
that the portfolio should earn for not being completely diversified. The performance of the
portfolio can be measured as:

Net selectivity = selectivity diversification

Net selectivity measures, how well the portfolio mangers did manager did at earning a fair
return for the portfolio systematic risk and diversifying away unsystematic risk. Positive net
selectivity indicates that the fund earned a better return.
The comparison, done based on sharpe ratio, Treynor measure, Jensen alpha, and Fema
measure notifies that the portfolio performance can be evaluated on the following basis:
Sahrpe ratio: measures the reward to total risk trade off
Treynor: measures the reward to systematic risk trade off
Jensens alpha: measures the average return over and above that predicted.
Fema measure: measures return of portfolio for its systematic risk and diversifying away
unsystematic risk.
Among the above performance measures, two models namely, Treynor measure and Jenson
model use Systematic risk is based on the premise that the Unsystematic risk is diversifiable.
These models are suitable for large investors like institutional investors with high risk taking
capacities as they do not face paucity of funds and can invest in a number of options to dilute
some risks. For them, a portfolio can be spread across a number of stocks and sectors.
However, Sharpe measure and Fama model that consider the entire risk associated with fund
are suitable for small investors, as the ordinary investor lacks the necessary skill and
resources to diversify. Moreover, the selection of the fund on the basis of superior stock
selection ability of the fund manager will also help in safeguarding the money invested to a
great extent. The investment in funds that have generated big returns at higher levels of risks
leaves the money all the more prone to risks of all kinds that may exceed the individual
investors' risk appetite.

PART-II

RESEARCH METHODOLOGY
2.1 NEED FOR THE STUDY
The Mutual Fund Companies periodically build up a study, which can prioritize and analyse
the portfolio of the mutual funds. This study is helpful in having a comparison among the
mutual funds based on the risk bearing capacity and expected return of the investor and will
also carry out an analysis of the portfolio of the selected mutual fund.
The mutual fund industry is growing globally and new products are emerging in the market
with all captivating promises of providing high return. It has become difficult for the
investors to choose the best fund for their needs or in other words to find out a fund which
will give maximum return for minimum risk. Therefore, they turn to their financial adviser to
get precise direct investment. Hence, the company asked me to prepare a model, which will
facilitate them to analyse the fund and to have reasonable estimation for the fund
performance.
The driving force of Mutual Funds is the safety of the principal guaranteed, plus the added
advantage of capital appreciation together with the income earned in the form of interest or
dividend. The various schemes of Mutual Funds provide the investor with a wide range of
investment options according to his risk bearing capacities and interest besides; they also give
handy return to the investor. Mutual Funds offers an investor to invest even a small amount of
money, each Mutual Fund has a defined investment objective and strategy. Mutual Funds
schemes are managed by respective asset managed companies, sponsored by financial
institutions, banks, private companies or international firms. A Mutual Fund is the ideal
investment vehicle for todays complex and modern financial scenario.

The study is basically made to analyze the various open-ended equity schemes of HDFC
Asset Management Company to highlight the diversity of investment that Mutual Fund offer.
Thus, through the study one would understand how a common person could fruitfully convert

a meagre amount into great penny by wisely investing into the right scheme according to his
risk taking abilities.

Sharpe ratio is a performance measure, which reflects the excess return earned on a portfolio
per unit of its total risk (standard deviation). Treynor measure indicates the risk premium
return per unit risk of the portfolio. While Jensen alpha talks about the deviation of the actual
return from its expected one. Fema measure decomposes the portfolio total return into two
main components: systematic return and the unsystematic return. It determines whether the
portfolio is perfectly diversified or not. Hence, it is a significant measure to evaluate the
performance of the fund manager.
The analysis of the fund portfolio has been done to find out the influence of the top holdings
on the performance of the fund. All these measures give fair implication and results about the
portfolio performance and can show the ground reality to a rational investor.

2.2 OBJECTIVE OF THE STUDY

Whether the growth oriented Mutual Fund are earning higher returns than the
benchmark returns (or market Portfolio/Index returns) in terms of risk.

Whether the growth oriented mutual funds are offering the advantages of
Diversification, Market timing and Selectivity of Securities to their investors

This study provides a proper investigation for logical and reasonable comparison and
selection of the funds.
It also assists in analysing the portfolio of the selected funds.

2.3 LIMITATIONS OF THE STUDY

The study is limited only to the analysis of different schemes and its suitability to
different investors according to their risk-taking ability.

 The study is based on secondary data available from monthly fact sheets, websites and
other books, as primary data was not accessible.
The study is limited by the detailed study of six schemes of HDFC.
Many investors are all price takers.
The assumption that all investors have the same information and beliefs about the
distribution of returns.
Banks are free to accept deposits at any interest rate within the ceilings fixed by the
Reserve Bank of India and interest rate can vary from client to client. Hence, there
can be inaccuracy in the risk free rates.
The study excludes the entry and the exit loads of the mutual funds.

2.4 DATA COLLECTION

The Methodology involves the selected Open-Ended equity schemes of HDFC mutual fund
for the purpose of risk return and comparative analysis the competitive funds. The data
collected for this project is basically from secondary sources, they are;
The monthly fact sheets of HDFC AMC fund house and research reports from banks.
The NAVs of the funds have been taken from AMFI websites for the period starting from 31 st
jan 2007 to 31st May, 2009.
For the Benchmark prices, data has been taken from BSE and NSE sites.

Part-III

CASE ANALYSIS
3.1 DATA INTERPRETATION
Risk returns analysis and comparative study of funds
In this section, a sample of HDFC equity related funds have been studied, evaluated and
analysed. This study could facilitate to get a fair comparison.
The expectations of the study are to give value to the funds by keeping the risk in the view.
Here equity funds are taken as they bear high return with high risk.

Following are the products of HDFC Mutual Fund, which have been taken the evaluation
purpose.
HDFC Equity Fund Growth option
HDFC Capital Builder
HDFC Growth Fund
HDFC Long Term Advantage Fund
HDFC Top 200 Fund

HDFC EQUITY FUND

Investment Objective
The investment objective of the Scheme is to achieve capital appreciation.
Basic Scheme Information
Table:3.1

Nature of Scheme

Open Ended Growth Scheme

Inception Date

Jan 01, 1995

Option/Plan

Dividend Option, Growth Option,

Entry Load

NIL

(purchase / additional purchase / switch-

(With effect from August 1, 2009)

in)

Exit Load.

Nil

(as a % of the Applicable NAV)

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 thereof

Lock-In-Period

Nil

Net Asset Value Periodicity

Every Business Day

Redemption Proceeds

Normally despatched within 3 Business

days

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

Table:3.2

SR NO.

TYPE OF INSTRUMENTS

NORMAL
ALLOCATION
(%of net asset)

Equities & Equities related

RISK
PROFILE

80-100

Medium to high

0-100

Low to medium

instruments
2

Debt securities, money market

instruments & cash

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.
Investment Strategy & Risk Control
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

HDFC EQUITY FUND-GROWTH OPTION

Table:3.3
NAV

S&P

Ri

Rm

Ri Rm

CNX

Rm-Rm

sqr(Rm-

av

Rm av)

Rm2

500
2011

151.389

4899.39

FEB

141.228

4504.73

-6.71185

-8.05529

54.06587

-9.0864

82.56268

64.88767

MAR

142.602

4605.89

0.972895

2.24564

2.184771

1.214527

1.475077

5.042897

APL

151.16

4934.46

6.001318

7.133692

42.81156

6.10258

37.24148

50.88956

MAY

161.281

5185.95

6.695554

5.096606

34.1246

4.065494

16.52824

25.9754

JUN

165.313

5223.82

2.499984

0.730242

1.825594

-0.30087

0.090523

0.533254

JULY

172.325

5483.25

4.241651

4.966289

21.06526

3.935177

15.48562

24.66403

AUG

168.827

5411.29

-2.02989

-1.31236

2.663941

-2.34347

5.491863

1.72229

SEP

182.84

6094.11

8.300213

12.61843

104.7357

11.58732

134.266

159.2248

OCT

210.3

7163.3

15.0186

17.54465

263.4959

16.51353

272.6968

307.8146

NOV

206.176

6997.6

-1.96101

-2.31318

4.536164

-3.34429

11.18429

5.3508

DEC

223.324

7461.48

8.317166

6.62913

55.13557

5.598018

31.3378

43.94536

2012

188.42

6245.45

-15.6293

-16.2974

254.7177

-17.3285

300.2786

265.6065

FEB

187.594

6356.92

-0.43838

1.784819

-0.78243

0.753707

0.568075

3.18558

MAR

165.788

5762.88

-11.624

-9.34478

108.6241

-10.3759

107.6591

87.32486

APL

178.191

6289.07

7.481241

9.130678

68.3088

8.099566

65.60296

83.36928

MAY

169.605

5937.81

-4.81843

-5.58525

26.91209

-6.61636

43.77619

31.19497

JUN

143.171

4929.98

-15.5856

-16.9731

264.5363

-18.0042

324.1514

288.0859

JULY

151.715

5297.47

5.967689

7.454188

44.48428

6.423076

41.25591

55.56493

AUG

158.924

5337.28

4.751673

0.751491

3.570838

-0.27962

0.078188

0.564738

SEP

145.721

4807.2

-8.30774

-9.93165

82.50962

-10.9628

120.1822

98.63768

OCT

110.322

3539.57

-24.2923

-26.3694

640.5738

-27.4005

750.7883

695.3455

NOV

101.808

3379.53

-7.71741

-4.52145

34.8939

-5.55257

30.83098

20.44354

DEC

112.377

3635.87

10.38131

7.585078

78.74302

6.553966

42.95447

57.53341

JAN

JAN

2013

103.754

3538.57

-7.67328

-2.67611

20.53456

-3.70723

13.74352

7.161582

FEB

98.163

3403.33

-5.38871

-3.82188

20.59501

-4.85299

23.55156

14.60679

MAR

108.852

3720.51

10.88903

9.319696

101.4825

8.288584

68.70062

86.85673

APL

127.097

4278.54

16.76129

14.99875

251.3984

13.96764

195.0949

224.9625

MAY

169.897

5480.11

33.67507

28.08365

945.7186

27.05253

731.8396

788.6911

Total

29.7767

28.87114

3533.466

3469.417

3499.186

average

1.063454

1.031112

126.1952

123.9077

JAN

Figure:3.1

m= 123.9077
=11.13239
(Beta) =[N (XY) XY ]/[ N (X2) (X) 2 ]
= (98937.047- 859.6872)/( 97977.214- 833.54264)
= 98077.36/ 97143.672
= 1.0096114

Table:3.4
Ri

Rm

Ri-Rm

Dev frm ave

sq of Dev frm av

FEB

-6.71185

-8.05529

1.34344

-1.3111

1.71898

MAR

0.972895

2.24564

-1.27274

1.305086

1.70325

APL

6.001318

7.133692

-1.13237

1.164715

1.356561

MAY

6.695554

5.096606

1.598948

-1.56661

2.454256

JUN

2.499984

0.730242

1.769742

0.75698

0.573018

JULY

4.241651

4.966289

-0.72464

0.75698

0.573018

AUG

-2.02989

-1.31236

-0.71753

0.749866

0.5623

SEP

8.300213

12.61843

-4.31822

4.350562

18.92739

OCT

15.0186

17.54465

-2.52605

2.558392

6.545367

2007
JAN

NOV

-1.96101

-2.31318

0.352172

-0.31983

0.102291

DEC

8.317166

6.62913

1.688036

-1.65569

2.741324

2008

-15.6293

-16.2974

0.668127

-0.63579

0.404223

FEB

-0.43838

1.784819

-2.2232

2.255543

5.087475

MAR

-11.624

-9.34478

-2.27926

2.311604

5.343511

APL

7.481241

9.130678

-1.64944

1.681778

2.828377

MAY

-4.81843

-5.58525

0.76682

-0.73448

0.539459

JUN

-15.5856

-16.9731

1.387467

-1.35513

1.836366

JULY

5.967689

7.454188

-1.4865

1.518841

2.306878

AUG

4.751673

0.751491

4.000182

-3.96784

15.74376

SEP

-8.30774

-9.93165

1.623906

-1.59156

2.533078

OCT

-24.2923

-26.3694

2.077092

-2.04475

4.181006

NOV

-7.71741

-4.52145

-3.19596

3.228297

10.4219

DEC

10.38131

7.585078

2.796228

-2.76389

7.639067

2009

-7.67328

-2.67611

-4.99717

5.029507

25.29594

FEB

-5.38871

-3.82188

-1.56683

1.599166

2.557333

MAR

10.88903

9.319696

1.569336

-1.53699

2.362352

APL

16.76129

14.99875

1.76254

-1.7302

2.993588

MAY

33.67507

28.08365

5.591422

-5.55908

30.90337

Total

29.7767

28.87114

0.90556

160.2354

avrage

1.063454

1.031112

0.032341

5.722694

JAN

JAN

Standard Deviation for the funds excess return (S.D.) i=5.722694

=2.392215

Sharpe Index (Si) = (Ri - Rf)/Si

= (1.063454-5)/ 2.392215
=-1.64557

Treynor's Index (Ti) = (Ri - Rf)/Bi.

=(1.063454-5)/ 1.0096114
=-3.89907
Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ]
= 1.063454 - [ 5+1.0096114 (1.031112-5)]
=0.070488

Expected return E(Ri) = Rf + Bi (Rm - Rf)

=[ 5+1.0096114 (1.031112-5)]
=0.992965
Fema Measures
Selectivity =Ri [ Rf + Bi (Rm - Rf) ]
=

1.063454 - [ 5+1.0096114 (1.031112-5)]

=0.070488

Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf) ]

=[5+(1.031112-5)(2.392215/11.13139)]- [ 5+1.0096114 (1.031112-5)]
=3.154092

Net selectivity= selectivity- diversification

=0.070488-3.15409
=-3.0836
HDFC CAPITAL BUILDER FUND

Investment Objective
The Investment Objective of the Scheme is to achieve capital appreciation in the long term.
Basic Scheme Information

Nature of Scheme

Open Ended Growth Scheme

Inception Date

February 01, 1994

Option/Plan

Dividend Option,Growth Option. The Dividend Option offers

Dividend Payout and Reinvestment Facility.

Entry Load

NIL

(purchase / additional

(With effect from August 1, 2009)

purchase / switch-in)

Exit Load

In respect of each purchase / switch-in of Units less

(as a % of the Applicable

than Rs. 5 crore in value, an Exit Load of 1.00% is

NAV)

payable if Units are

(Other than Systematic

redeemed/switched-out within 1 year from the date of

Investment Plan (SIP)/

allotment.

Systematic Transfer Plan

(STP))

In respect of each purchase / switch-in of Units equal

to or greater than Rs. 5 crore in value, no Exit Load is
payable.
No Exit Load shall be levied on bonus units and
units allotted on dividend reinvestment.

Minimum Application

For new investors :Rs.5000 and any amount thereafter.

Amount

For existing investors : Rs. 1000 and any amount thereafter.

(Other than Systematic

Investment Plan (SIP)/
Systematic Transfer Plan
(STP))
Lock-In-Period

Nil

Net Asset Value Periodicity

Every Business Day.

Redemption Proceeds

Normally despatched within 3 business Days

Current Expense Ratio (#)

On the first 100 crores average weekly net assets 2.50%

(Effective Date 22nd May

On the next 300 crores average weekly net assets 2.25%

2009)

On the next 300 crores average weekly net assets 2.00%

On the balance of the assets 1.75%

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

Asset Type

(% of Portfolio)

Equities and Equity Related Instruments Upto 100%

Debt & Money Market Instruments

Risk Profile
Medium to High

Not more than 20% Low to Medium

Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the
scheme.
Investment Strategy
This Scheme aims to achieve its objectives by investing in strong companies at prices which
are below fair value in the opinion of the fund managers.
The Scheme defines a "strong company" as one that has the following characteristics :

strong management, characterized by competence and integrity

strong position in its business (preferably market leadership)

efficiency of operations, as evidenced by profit margins and asset turnover, compared

to its peers in the industry

working capital efficiency

consistent surplus cash generation

high profitability indicators (returns on funds employed)

In common parlance, such companies are also called 'Blue Chips'.

The Scheme defines "reasonable prices" as :

a market price quote that is around 30% lower than its value, as determined by the
discounted value of its estimated future cash flows

a P/E multiple that is lower than the company's sustainable Return on funds employed

a P/E to growth ratio that is lower than those of the company's competitors

in case of companies in cyclical businesses, a market price quote that is around 50%
lower than its estimated replacement cost

Fund Manager
Mr. Chirag Setalvad (since Apr 2, 07)
Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities

HDFC CAPITAL BUILDER FUND

Table:3.5

NAV

S&P
CNX
500

Ri

Rm

Ri Rm

Rm-Rm
av

sqr(RmRm av)

Rm2

2007
JAN

64.459

4899.39

FEB

61.259

4504.73

-4.9644

-8.05529

39.98964

-9.0864

82.5626
8

64.88
767

MAR

60.3

4605.89

-1.56548

2.24564

-3.51551

1.214527

1.47507
7

5.042
897

APL

65.818

4934.46

9.150912

7.133692

65.27979

6.10258

37.2414
8

50.88
956

MAY

69.818

5185.95

6.077365

5.096606

30.97394

4.065494

16.5282
4

25.97
54

JUN

73.27

5223.82

4.944284

0.730242

3.610525

-0.30087

0.09052
3

0.533
254

JULY

76.914

5483.25

4.973386

4.966289

24.69927

3.935177

15.4856
2

24.66
403

AUG

76.323

5411.29

-0.76839

-1.31236

1.008405

-2.34347

5.49186
3

1.722
29

SEP

83.09

6094.11

8.866266

12.61843

111.8784

11.58732

134.266

159.2
248

OCT

96.061

7163.3

15.61078

17.54465

273.8857

16.51353

272.696
8

307.8
146

NOV

99.034

6997.6

3.094908

-2.31318

-7.15908

-3.34429

11.1842
9

5.350
8

DEC

106.53
8

7461.48

7.577196

6.62913

50.23022

5.598018

31.3378

43.94
536

2008
JAN

88.367

6245.45

-17.0559

-16.2974

277.9672

-17.3285

300.278
6

265.6
065

FEB

87.439

6356.92

-1.05017

1.784819

-1.87436

0.753707

0.56807
5

3.185
58

MAR

75.967

5762.88

-13.12

-9.34478

122.6035

-10.3759

107.659
1

87.32
486

APL

79.418

6289.07

4.542762

9.130678

41.4785

8.099566

65.6029
6

83.36
928

MAY

75.065

5937.81

-5.48113

-5.58525

30.61343

-6.61636

43.7761
9

31.19
497

JUN

64.169

4929.98

-14.5154

-16.9731

246.3716

-18.0042

324.151
4

288.0
859

JULY

67.228

5297.47

4.767099

7.454188

35.53486

6.423076

41.2559
1

55.56
493

AUG

70.149

5337.28

4.344916

0.751491

3.265164

-0.27962

0.07818
8

0.564
738

SEP

63.365

4807.2

-9.67084

-9.93165

96.04744

-10.9628

120.182
2

98.63
768

OCT

47.587

3539.57

-24.9002

-26.3694

656.603

-27.4005

750.788
3

695.3
455

NOV

44.556

3379.53

-6.36939

-4.52145

28.79888

-5.55257

30.8309
8

20.44
354

DEC

48.064

3635.87

7.873238

7.585078

59.71913

6.553966

42.9544
7

57.53
341

2009
JAN

45.564

3538.57

-5.2014

-2.67611

13.91953

-3.70723

13.7435
2

7.161
582

FEB

43.34

3403.33

-4.88105

-3.82188

18.65479

-4.85299

23.5515
6

14.60
679

MAR

46.604

3720.51

7.531149

9.319696

70.18802

8.288584

68.7006
2

86.85
673

APL

53.006

4278.54

13.73702

14.99875

206.0381

13.96764

195.094
9

224.9
625

MAY

67.6

5480.11

27.53273

28.08365

773.2195

27.05253

731.839
6

788.6
911

TOTAL

21.08029

28.87114

3270.029

3469.41
7

3499.
186

AVERA
GE

0.752867

1.031112

116.7868

123.907
7

Figure:3.2

m = 123.9077
=11.13239

(Beta) =[N (XY) XY ]/[ N (X2) (X) 2 ]

= (91560.82- 608.6119)/ (97977.21- 833.5426)
= 90952.21/ 97143.67
= 0.936265

Table:3.6
Ri

Rm

Ri-Rm

Dev frm
ave

sq of Dev frm av

FEB

-4.9644

-8.05529

3.090893

-3.36914

11.35109

MAR

-1.56548

2.24564

-3.81112

3.532879

12.48124

APL

9.150912

7.133692 2.01722

-2.29546

5.269159

MAY

6.077365

5.096606 0.980759

-1.259

1.585089

JUN

4.944284

0.730242 4.214041

-4.49229

20.18063

JULY

4.973386

4.966289 0.007097

-0.28534

0.08142

AUG

-0.76839

-1.31236

-0.82221

0.676037

SEP

8.866266

12.61843 -3.75217

3.473923

12.06814

OCT

15.61078

17.54465 -1.93386

1.655617

2.741069

NOV

3.094908

-2.31318

5.408088

-5.68633

32.33438

DEC

7.577196

6.62913

0.948066

-1.22631

1.503837

2008 JAN

-17.0559

-16.2974

-0.75845

0.480204

0.230596

FEB

-1.05017

1.784819 -2.83499

2.55674

6.536922

MAR

-13.12

-9.34478

-3.77523

3.496982

12.22888

APL

4.542762

9.130678 -4.58792

4.309671

18.57326

MAY

-5.48113

-5.58525

0.10412

-0.38237

0.146203

JUN

-14.5154

-16.9731

2.457673

-2.73592

7.485245

JULY

4.767099

7.454188 -2.68709

2.408844

5.802531

AUG

4.344916

0.751491 3.593425

-3.87167

14.98983

SEP

-9.67084

-9.93165

0.260807

-0.53905

0.290577

OCT

-24.9002

-26.3694

1.469223

-1.74747

3.053642

NOV

-6.36939

-4.52145

-1.84793

1.569689

2.463923

DEC

7.873238

7.585078 0.28816

-0.5664

0.320814

2009 JAN

-5.2014

-2.67611

-2.52528

2.24704

5.049189

FEB

-4.88105

-3.82188

-1.05916

0.780919

0.609834

MAR

7.531149

9.319696 -1.78855

1.510302

2.281012

2007 JAN

0.54397

APL

13.73702

14.99875 -1.26173

0.983487

0.967247

MAY

27.53273

28.08365 -0.55091

0.272669

0.074348

TOTAL

21.08029

28.87114

-7.79085

181.3761

1.031112

-0.27824

6.477719

AVERAGE

0.752867

Standard Deviation for the funds excess return (S.D.) i=6.477719

=2.545136
Sharpe Index (Si) = (Ri - Rf)/Si
= (0.752867-5)/ 2.545136
=-1.66872
Treynor's Index (Ti) = (Ri - Rf)/Bi.
=(0.752867-5/ 0.936265
=-4.53625
Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ]

=0.752867- [5+0.936265(1.031112-5)]
=

-0.39357

Expected return E(Ri) = Rf + Bi (Rm - Rf)

=[5+0.936265(1.031112-5)]
=1.284069

Fema Measures
Selectivity =Ri [ Rf + Bi (Rm - Rf) ]

=0.752867- [5+0.936265(1.031112-5)]

-0.39357

Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf) ]

=[5+(1.031112-5)( 2.545136/11.13139)]- [5+0.936265(1.031112-5)]
=2.808464
Net selectivity= selectivity- diversification
=-0.39357-2.808464
=-3.33967

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
Table:3.7

Nature of Scheme

Open Ended Growth Scheme

Inception Date

Sep 11, 2000

Option/Plan

Dividend Option, Growth Option,

Entry Load

NIL

(purchase / additional purchase / switch-

(With effect from August 1, 2009)

in)

Exit Load.

Nil

(as a % of the Applicable NAV)

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 thereof

Lock-In-Period

Nil

Net Asset Value Periodicity

Every Business Day

Redemption 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 :

Table:3.8

SR

TYPE OF INSTRUMENTS

NORMAL

NO.

RISK

ALLOCATION
(%of net asset)

Equities & Equities related

80-100

Medium to

instruments
2

PROFILE

high

Debt securities, money market

0-100

Low to

instruments & cash

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

HDFC GROWTH FUND

Table:3.9
NAV

SENSEX

Ri

Rm

Ri Rm

Rm-Rm
av

sqr(RmRm av)

Rm2

2007
JAN

48.917

14090.92

FEB

45.047

12938.09

-7.91136

-8.18137

64.72575

-8.91997

79.56584

66.93478

MAR

45.461

13072.1

0.91904

1.035779

0.951922

0.297178

0.088315

1.072838

APL

48.581

13872.37

6.863025

6.12197

42.01523

5.383369

28.98066

37.47851

MAY

53.198

14544.46

9.503715

4.84481

46.0437

4.106209

16.86095

23.47219

JUN

54.695

14650.51

2.814016

0.729144

2.051821

-0.00946

8.94E-05

0.53165

JULY

58.716

15550.99

7.351677

6.146407

45.1864

5.407806

29.24437

37.77832

AUG

58.17

15318.6

-0.9299

-1.49437

1.389618

-2.23298

4.986179

2.233155

SEP

63.82

17291.1

9.71291

12.8765

125.0683

12.1379

147.3287

165.8043

OCT

73.682

19837.99

15.45284

14.72949

227.6123

13.99088

195.7448

216.9577

NOV

74.895

19363.19

1.646264

-2.39339

-3.94015

-3.13199

9.809352

5.728304

DEC

80.576

20286.99

7.585286

4.770908

36.1887

4.032307

16.2595

22.76156

2008
JAN

68.432

17648.71

-15.0715

-13.0048

196.0015

-13.7434

188.8807

169.1245

FEB

67.827

17578.72

-0.88409

-0.39657

0.350606

-1.13517

1.28862

0.15727

MAR

62.15

15644.44

-8.36982

-11.0035

92.09761

-11.7421

137.8777

121.0777

APL

66.196

17287.31

6.510056

10.5013

68.36407

9.762702

95.31035

110.2774

MAY

62.813

16415.57

-5.11058

-5.04266

25.77091

-5.78126

33.42296

25.4284

JUN

53.472

13461.6

-14.8711

-17.9949

267.6048

-18.7335

350.9451

323.8174

JULY

56.819

14355.75

6.259351

6.642227

41.57603

5.903626

34.8528

44.11918

AUG

58.871

14564.53

3.611468

1.45433

5.252267

0.715729

0.512268

2.115076

SEP

54.54

12860.43

-7.35676

-11.7003

86.07665

-12.4389

154.7273

136.898

OCT

42.283

9788.06

-22.4734

-23.8901

536.8922

-24.6287

606.5731

570.737

NOV

40.089

9092.72

-5.18885

-7.10396

36.86137

-7.84256

61.50578

50.46627

DEC

41.652

9647.31

3.898825

6.099275

23.78001

5.360674

28.73683

37.20116

2009
JAN

38.443

9424.24

-7.70431

-2.31225

17.8143

-3.05085

9.307696

5.346504

FEB

36.429

8891.61

-5.23893

-5.6517

29.60885

-6.3903

40.83598

31.94174

MAR

38.73

9708.5

6.316396

9.1872

58.03

8.448599

71.37883

84.40465

APL

44.131

11403.25

13.94526

17.45635

243.4334

16.71775

279.4832

304.7242

MAY

56.982

14625.25

29.12012

28.2551

822.792

27.5165

757.1579

798.3508

TOTAL

30.39962

20.68083

3139.6

3381.666

3396.941

AVG

1.085701

0.738601

112.1286

120.7738

Figure:3.3

m= 120.7738
=10.98971
(Beta) =[N (XY) XY ]/[ N (X2) (X) 2 ]
= (87908.8-628.6893)/ (95114.34-427.6966)
= 87280.12/ 94686.64
= 0.921779

Table:3.10
Ri

Rm

Ri-Rm

Dev frm ave

sq of Dev frm
av

Rm2

FEB

-7.91136

-8.18137

0.270008

0.077092104

0.005943

66.93478

MAR

0.91904

1.035779

-0.11674

0.463838642

0.215146

1.072838

2007
JAN

APL

6.863025

6.12197

0.741056

-0.393955855

0.155201

37.47851

MAY

9.503715

4.84481

4.658905

-4.311805316

18.59167

23.47219

JUN

2.814016

0.729144

2.084872

-1.737772055

3.019852

0.53165

JULY

7.351677

6.146407

1.20527

-0.85817039

0.736456

37.77832

AUG

-0.9299

-1.49437

0.564474

-0.217374552

0.047252

2.233155

SEP

9.71291

12.8765

-3.16359

3.510692544

12.32496

165.8043

OCT

15.45284

14.72949

0.723351

-0.376251086

0.141565

216.9577

NOV

1.646264

-2.39339

4.039651

-3.692551406

13.63494

5.728304

DEC

7.585286

4.770908

2.814378

-2.467278063

6.087461

22.76156

2008
JAN

-15.0715

-13.0048

-2.0667

2.413797413

5.826418

169.1245

FEB

-0.88409

-0.39657

-0.48752

0.834616326

0.696584

0.15727

MAR

-8.36982

-11.0035

2.633708

-2.286608411

5.228578

121.0777

APL

6.510056

10.5013

-3.99125

4.338346289

18.82125

110.2774

MAY

-5.11058

-5.04266

-0.06792

0.415022146

0.172243

25.4284

JUN

-14.8711

-17.9949

3.123803

-2.776702677

7.710078

323.8174

JULY

6.259351

6.642227

-0.38288

0.729975995

0.532865

44.11918

AUG

3.611468

1.45433

2.157138

-1.810037944

3.276237

2.115076

SEP

-7.35676

-11.7003

4.34358

-3.996480234

15.97185

136.898

OCT

-22.4734

-23.8901

1.416689

-1.069589295

1.144021

570.737

NOV

-5.18885

-7.10396

1.915115

-1.568014871

2.458671

50.46627

DEC

3.898825

6.099275

-2.20045

2.547549815

6.49001

37.20116

2009
JAN

-7.70431

-2.31225

-5.39206

5.73916105

32.93797

5.346504

FEB

-5.23893

-5.6517

0.412777

-0.065677352

0.004314

31.94174

MAR

6.316396

9.1872

-2.8708

3.217903695

10.3549

84.40465

APL

13.94526

17.45635

-3.51109

3.858190515

14.88563

304.7242

MAY

29.12012

28.2551

0.865017

-0.517917027

0.268238

798.3508

TOTAL

30.39962

20.68083

9.718797

-4.44089E-15

181.7403

3396.941

AVG

1.085701

0.738601

0.3471

-1.58603E-16

6.490725

Standard Deviation for the funds excess return (S.D.) i=6.490725

=2.54769
Sharpe Index (Si) = (Ri - Rf)/Si
= (1.085701-5)/ 2.54769
=-1.53641
Treynor's Index (Ti) = (Ri - Rf)/Bi.
=(1.085701-5)/ 0.921779
=-4.24646
Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ]

=1.085701- [5+0.921779 (0.738601-5)]

=

0.013767

Expected return E(Ri) = Rf + Bi (Rm - Rf)

=[5+0.921779 (0.738601-5)]
=1.071934

Fema Measures
Selectivity =Ri [ Rf + Bi (Rm - Rf) ]
[5+0.921779 (0.738601-5)]

=1.085701=

0.013767

Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)]

=[5+(0.738601-5)( 2.54769/10.98971)]- [5+0.921779 (0.738601-5)]
=2.940167
Net selectivity= selectivity- diversification
=0.013767-2.940167
=-2.9264

HDFC LONG TERM FUND

Investment Objective
To achieve long term capital appreciation.
Basic Scheme Information

Nature of Scheme

Close Ended Equity Scheme with a maturity period of 5 years

with automatic conversion into an open-ended scheme upon
maturity of the Scheme.

Inception Date

10-Feb-06

Closing Date

27-Jan-06

Option/Plan

Dividend Option,Growth Option. Dividend Option currently

offers payout facility only.

Entry Load

NIL

(purchase / additional

(With effect from August 1, 2009)

purchase / switch-in)

Exit Load
(as a % of the Applicable
NAV)
(Other than Systematic
Investment Plan (SIP)/
Systematic Transfer Plan
(STP))

Redemption / Switch-out from the Date of Allotment :

Upto 12 months 4%

After 12 months upto 24 months 3%

After 24 months upto 36 months 2%

After 36 months upto 48 months 1%

After 48 months upto 54 months 0.5%

After 54 months upto Maturity Nil

No Exit Load shall be levied on bonus units and units

allotted on dividend reinvestment.
Specified Redemption Period

A Unit holder can submit redemption/ switch-out request only

during the Specified Redemption Period. Presently, the
Specified Redemption Period is the first five Business Days
immediately after the end of each calendar half year.

Minimum Application

Currently no purchases/ switch-ins are allowed into this

Amount

scheme.

(Other than Systematic

Investment Plan (SIP)/
Systematic Transfer Plan

(STP))
Lock-In-Period

Nil

Net Asset Value Periodicity

Every Business Day.

Redemption Proceeds

Normally dispatched within 3 Days

Current Expense Ratio (#)

On the first 100 crores average weekly net assets 2.50%

(Effective Date 22nd May

On the next 300 crores average weekly net assets 2.25%

2009)

On the next 300 crores average weekly net assets 2.00%

On the balance of the assets 1.75%

Investment Pattern
The following table provides the asset allocation of the Schemes portfolio.
Type of Instruments

Minimum Allocation Minimum Allocation Risk Profile of

the Instrument

Equity & Equity related

(% of Net Assets)

(% of Net Assets)

70

100

High

30

Low

instruments
Fixed Income Securities
(including money market
instruments)
Investment Strategy
The investment strategy of the Scheme is to build and maintain a diversified portfolio of
equity stocks that have the potential to appreciate in the long run. Companies identified for
selection in the portfolio will have demonstrated a potential ability to grow at a reasonable
rate for the long term.
The aim will be to build a portfolio that adequately reflects a cross-section of the growth
areas of the economy from time to time. While the portfolio focuses primarily on a buy and

hold strategy at most times, it will balance the same with a rational approach to selling when
the valuations become too demanding even in the face of reasonable growth prospects in the
long run.
Fund Manager
Mr. Srinivas Rao Ravuri (since Apr 3, 06)
Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities

HDFC LONG TERM FUND

Table:3.11
NAV

SENSEX

Ri

Rm

Ri Rm

Rm-Rm
av

sqr(RmRm av)

Rm2

2007
JAN

95.224

14090.92

FEB

87.782

12938.09

-7.81526

-8.18137

63.93949

-8.91997

79.56584

66.93478

MAR

86.337

13072.1

-1.64612

1.035779

-1.70502

0.297178

0.088315

1.072838

APL

91.627

13872.37

6.127153

6.12197

37.51024

5.383369

28.98066

37.47851

MAY

96.561

14544.46

5.384876

4.84481

26.0887

4.106209

16.86095

23.47219

JUN

100.695

14650.51

4.281232

0.729144

3.121633

-0.00946

8.94E-05

0.53165

JULY

102.976

15550.99

2.265256

6.146407

13.92319

5.407806

29.24437

37.77832

AUG

102.627

15318.6

-0.33891

-1.49437

0.506464

-2.23298

4.986179

2.233155

SEP

109.68

17291.1

6.87246

12.8765

88.49326

12.1379

147.3287

165.8043

OCT

118.185

19837.99

7.754376

14.72949

114.218

13.99088

195.7448

216.9577

NOV

119.445

19363.19

1.066125

-2.39339

-2.55165

-3.13199

9.809352

5.728304

DEC

128.983

20286.99

7.985265

4.770908

38.09697

4.032307

16.2595

22.76156

2008
JAN

112.202

17648.71

-13.0102

-13.0048

169.1954

-13.7434

188.8807

169.1245

FEB

110.554

17578.72

-1.46878

-0.39657

0.582478

-1.13517

1.28862

0.15727

MAR

96.105

15644.44

-13.0696

-11.0035

143.8121

-11.7421

137.8777

121.0777

APL

103.44

17287.31

7.632277

10.5013

80.14885

9.762702

95.31035

110.2774

MAY

99.18

16415.57

-4.11833

-5.04266

20.76733

-5.78126

33.42296

25.4284

JUN

85.045

13461.6

-14.2519

-17.9949

256.4613

-18.7335

350.9451

323.8174

JULY

88.972

14355.75

4.617555

6.642227

30.67085

5.903626

34.8528

44.11918

AUG

93.359

14564.53

4.930765

1.45433

7.17096

0.715729

0.512268

2.115076

SEP

82.286

12860.43

-11.8607

-11.7003

138.7739

-12.4389

154.7273

136.898

OCT

63.504

9788.06

-22.8253

-23.8901

545.298

-24.6287

606.5731

570.737

NOV

57.237

9092.72

-9.86867

-7.10396

70.10665

-7.84256

61.50578

50.46627

DEC

61.406

9647.31

7.28375

6.099275

44.42559

5.360674

28.73683

37.20116

2009
JAN

58.709

9424.24

-4.39208

-2.31225

10.15559

-3.05085

9.307696

5.346504

FEB

55.785

8891.61

-4.9805

-5.6517

28.14829

-6.3903

40.83598

31.94174

MAR

59.209

9708.5

6.137851

9.1872

56.38966

8.448599

71.37883

84.40465

APL

68.298

11403.25

15.35071

17.45635

267.9674

16.71775

279.4832

304.7242

MAY

87.958

14625.25

28.78562

28.2551

813.3405

27.5165

757.1579

798.3508

TOTAL

6.828943

20.68083

3065.056

3381.666

3396.941

AVG

0.243891

0.738601

109.4663

120.7738

Figure:3.4

m= 120.7738
=10.98971
(Beta) =[N (XY) XY ]/[ N (X2) (X) 2 ]
= (85821.57- 141.2282)/ (95114.34- 427.6966)
= 85680.34/ 94686.64
= 0.904883

Table:3.12
Ri

Rm

Ri-Rm

Dev frm ave

sq of Dev frm av

FEB

-7.81526

-8.18137

0.366111

-0.860821325

0.741013

MAR

-1.64612

1.035779

-2.6819

2.187192079

4.783809

APL

6.127153

6.12197

0.005183

-0.499893333

0.249893

MAY

5.384876

4.84481

0.540065

-1.034775537

1.07076

JUN

4.281232

0.729144

3.552088

-4.046798071

16.37657

JULY

2.265256

6.146407

-3.88115

3.386440599

11.46798

AUG

-0.33891

-1.49437

1.15546

-1.650170515

2.723063

SEP

6.87246

12.8765

-6.00404

5.509332488

30.35274

OCT

7.754376

14.72949

-6.97511

6.48039862

41.99557

NOV

1.066125

-2.39339

3.459513

-3.954222903

15.63588

DEC

7.985265

4.770908

3.214357

-3.709067209

13.75718

2007
JAN

2008
JAN

-13.0102

-13.0048

-0.00545

-0.489256261

0.239372

FEB

-1.46878

-0.39657

-1.07221

0.577496505

0.333502

MAR

-13.0696

-11.0035

-2.0661

1.571389464

2.469265

APL

7.632277

10.5013

-2.86903

2.374315379

5.637374

MAY

-4.11833

-5.04266

0.924329

-1.419039116

2.013672

JUN

-14.2519

-17.9949

3.743063

-4.237772814

17.95872

JULY

4.617555

6.642227

-2.02467

1.529961243

2.340781

AUG

4.930765

1.45433

3.476435

-3.971144712

15.76999

SEP

-11.8607

-11.7003

-0.16032

-0.334386466

0.111814

OCT

-22.8253

-23.8901

1.064835

-1.559545364

2.432182

NOV

-9.86867

-7.10396

-2.76471

2.26999821

5.152892

DEC

7.28375

6.099275

1.184475

-1.679185121

2.819663

2009
JAN

-4.39208

-2.31225

-2.07983

1.585118054

2.512599

FEB

-4.9805

-5.6517

0.671205

-1.165915514

1.359359

MAR

6.137851

9.1872

-3.04935

2.554639268

6.526182

APL

15.35071

17.45635

-2.10565

1.610935739

2.595114

MAY

28.78562

28.2551

0.530513

-1.025223388

1.051083

TOTAL

6.828943

20.68083

-13.8519

-4.44089E-15

210.478

AVG

0.243891

0.738601

-0.49471

-1.58603E-16

5.538895

Standard Deviation for the funds excess return (S.D.) i=5.538895

=2.353486
Sharpe Index (Si) = (Ri - Rf)/Si
= (0.243891-5)/ 2.353486
=-2.02088
Treynor's Index (Ti) = (Ri - Rf)/Bi.
=(0.243891-5)/ 0.904883

=-5.25605
Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ]
=0.243891- [5+0.904883 (0.738601-5)]
=

-0.90004

Expected return E(Ri) = Rf + Bi (Rm - Rf)

=[5+0.904883 (0.738601-5)]
=1.143932

Fema Measures
Selectivity =Ri [ Rf + Bi (Rm - Rf) ]
=0.243891- [5+0.904883 (0.738601-5)]
=

-0.90004

Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)]

=[5+(0.738601-5)( 2.353486/10.98971)]- [5+0.904883 (0.738601-5)]
=2.943474
Net selectivity= selectivity- diversification
=-0.90004-2.943474
=-3.84352

HDFC TAXSAVER

Investment Objective
The investment objective of the Scheme is to achieve long term growth of capital.
Basic Scheme Information
Table:3.13

Nature of Scheme

Open Ended Equity Linked Saving

Scheme

Inception Date

Mar 31, 1996

Option/Plan

Dividend Option, Growth Option,

Entry Load

NIL

(purchase / additional purchase / switch-

(With effect from August 1, 2009)

in)

Exit Load.

Nil

(as a % of the Applicable NAV)

Minimum Application Amount

Rs.5000 and in multiples of Rs.100

thereof to open an account / folio.

Lock-In-Period

3 yrs

Net Asset Value Periodicity

Every Business Day

Redemption Proceeds

Normally despatched within 3 Business

days

Investment Pattern
The asset allocation under the Scheme will be as follows:
Table:3.14

SR NO.

ASSET TYPE

(% OF
PORTFOLIO)

Equities & Equities

RISK
PROFILE

Minimum 80%

Medium to high

Minimum 20%

Low to medium

related instruments
2

Debt securities, money

market instruments &

cash
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

HDFC TAX SAVER FUND

Table:3.15
NAV

S&P
CNX
500

2007
JAN

146.134

4899.39

FEB

135.133

4504.73

Ri

Rm

Ri Rm

Rm-Rm
av

sqr(RmRm av)
Rm2

-7.52802

-8.05529

60.64039

-9.0864

82.56268

64.88767

MAR

133.882

4605.89

-0.92575

2.24564

-2.07891

1.214527

1.475077

5.042897

APL

144.308

4934.46

7.787455

7.133692

55.5533

6.10258

37.24148

50.88956

MAY

153.765

5185.95

6.553344

5.096606

33.39982

4.065494

16.52824

25.9754

JUN

156.535

5223.82

1.80145

0.730242

1.315495

-0.30087

0.090523

0.533254

JULY

163.61

5483.25

4.519756

4.966289

22.44641

3.935177

15.48562

24.66403

AUG

161.481

5411.29

-1.30127

-1.31236

1.707729

-2.34347

5.491863

1.72229

SEP

173.27

6094.11

7.300549

12.61843

92.12149

11.58732

134.266

159.2248

OCT

198.737

7163.3

14.69787

17.54465

257.8689

16.51353

272.6968

307.8146

NOV

196.735

6997.6

-1.00736

-2.31318

2.330208

-3.34429

11.18429

5.3508

DEC

204.284

7461.48

3.837141

6.62913

25.43691

5.598018

31.3378

43.94536

2008
JAN

173.277

6245.45

-15.1784

-16.2974

247.3687

-17.3285

300.2786

FEB

171.845

6356.92

-0.82642

1.784819

-1.47501

0.753707

0.568075

3.18558

MAR

152.02

5762.88

-11.5366

-9.34478

107.8066

-10.3759

107.6591

87.32486

APL

158.411

6289.07

4.204052

9.130678

38.38584

8.099566

65.60296

83.36928

MAY

148.793

5937.81

-6.07155

-5.58525

33.91109

-6.61636

43.77619

31.19497

JUN

126.45

4929.98

-15.0162

-16.9731

254.8707

-18.0042

324.1514

288.0859

JULY

135.953

5297.47

7.515223

7.454188

56.01989

6.423076

41.25591

55.56493

AUG

142.358

5337.28

4.711187

0.751491

3.540414

-0.27962

0.078188

0.564738

SEP

132.682

4807.2

-6.79695

-9.93165

67.50492

-10.9628

120.1822

98.63768

OCT

99.119

3539.57

-25.2958

-26.3694

667.0357

-27.4005

750.7883

695.3455

NOV

90.957

3379.53

-8.23455

-4.52145

37.23212

-5.55257

30.83098

20.44354

DEC

98.972

3635.87

8.811856

7.585078

66.83862

6.553966

42.95447

57.53341

2009
JAN

93.555

3538.57

-5.47327

-2.67611

14.64708

-3.70723

13.74352

FEB

89.449

3403.33

-4.38886

-3.82188

16.77372

-4.85299

23.55156

14.60679

MAR

97.063

3720.51

8.512113

9.319696

79.3303

8.288584

68.70062

86.85673

APL

112.05

4278.54

15.44049

14.99875

231.588

13.96764

195.0949

224.9625

MAY

144.827

5480.11

29.25212

28.08365

821.5062

27.05253

731.8396

788.6911

265.6065

7.161582

TOTAL

15.36369

28.87114

3293.627

AVG

0.548703

1.031112

117.6295

Figure:3.5

m= 123.9077
=11.13139
(Beta) =[N (XY) XY ]/[ N (X2) (X) 2 ]
= (92221.54- 443.5671)/ (97977.21- 833.5426)
= 91777.98/ 97143.67
= 0.944765
Table:3.16
Ri

Rm

Ri-Rm

Dev frm
ave

sq of
Dev frm
av

3469.417
123.9077

3499.186

2007
JAN
FEB

-7.52802

-8.05529

0.527266

-1.00968

1.019444

MAR

-0.92575

2.24564

-3.17139

2.688985

7.230641

APL

7.787455

7.133692

0.653763

-1.13617

1.290886

MAY

6.553344

5.096606

1.456738

-1.93915

3.760291

JUN

1.80145

0.730242

1.071208

-1.55362

2.413726

JULY

4.519756

4.966289

-0.44653

-0.03588

0.001287

AUG

-1.30127

-1.31236

0.011095

-0.4935

0.243546

SEP

7.300549

12.61843

-5.31788

4.835475

23.38182

OCT

14.69787

17.54465

-2.84678

2.364366

5.590227

NOV

-1.00736

-2.31318

1.305818

-1.78823

3.197757

DEC

3.837141

6.62913

-2.79199

2.30958

5.334158

2008
JAN

-15.1784

-16.2974

1.119058

-1.60147

2.564696

FEB

-0.82642

1.784819

-2.61124

2.128833

4.531929

MAR

-11.5366

-9.34478

-2.19178

1.709373

2.921956

APL

4.204052

9.130678

-4.92663

4.444217

19.75106

MAY

-6.07155

-5.58525

-0.4863

0.003894

1.52E-05

JUN

-15.0162

-16.9731

1.956929

-2.43934

5.950372

JULY

7.515223

7.454188

0.061035

-0.54344

0.295331

AUG

4.711187

0.751491

3.959696

-4.44211

19.7323

SEP

-6.79695

-9.93165

3.134702

-3.61711

13.08349

OCT

-25.2958

-26.3694

1.073584

-1.55599

2.421115

NOV

-8.23455

-4.52145

-3.71309

3.230684

10.43732

DEC

8.811856

7.585078

1.226778

-1.70919

2.921319

2009
JAN

-5.47327

-2.67611

-2.79715

2.314743

5.358035

FEB

-4.38886

-3.82188

-0.56698

0.08457

0.007152

MAR

8.512113

9.319696

-0.80758

0.325174

0.105738

APL

15.44049

14.99875

0.441737

-0.92415

0.854046

MAY

29.25212

28.08365

1.168474

-1.65088

2.725415

TOTAL

15.36369

28.87114

-13.5075

147.1251

AVG

0.548703

1.031112

-0.48241

5.254467

Standard Deviation for the funds excess return (S.D.) i= 5.254467

= 2.292262

Sharpe Index (Si) = (Ri - Rf)/Si

= (0.548703-5)/ 2.292262
=-1.94188
Treynor's Index (Ti) = (Ri - Rf)/Bi.
=(0.548703-5)/ 0.944765
=-4.71154
Jenson alpha (p) = Ri [ Rf + Bi (Rm - Rf) ]
=0.548703- [5+0.944765 (1.031112-5)]
=

-0.70163

Expected return E(Ri) = Rf + Bi (Rm - Rf)

=[5+0.944765 (1.031112-5)]
=1.250332
Fema Measure:
Selectivity =Ri [ Rf + Bi (Rm - Rf) ]
[5+0.944765 (1.031112-5)]

=0.548703=

-0.70163

Diversification = [Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)]

=[5+(1.031112-5)( 2.292262/11.13139)]- [5+0.944765 (1.031112-5)]
=2.932363
Net selectivity= selectivity- diversification
=-0.70163-2.932363
=-3.63399

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
capitalisation on the BSE even though they may not be listed on the BSE This includes
participation in large IPOs 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.
Basic Scheme Information
Table:3.17

Nature of Scheme

Open Ended Equity Growth Scheme

Inception Date

Oct 11, 1996

Option/Plan

Dividend Option, Growth Option,

Entry Load

NIL

(purchase / additional purchase / switch-

(With effect from August 1, 2009)

in)

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 thereof.

Lock-In-Period

Nil

Investment Pattern
The asset allocation under the Scheme will be as follows:
Table:3.18

SR NO.

ASSET TYPE

(% OF PORTFOLIO)

RISK
PROFILE

Equities & Equities

Upto 100% (including use of

related instruments

derivatives for hedging and other

Medium to high

uses as permitted by prevailing

SEBI Regulations)
2

Debt securities, money

Balance in Debt & Money Market

market instruments &

Instruments

cash

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 and guidelines.
Investment Strategy & Risk Control
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
Fund Manager : Mr. Prashant Jain

HDFC TOP 200 FUND

Table:3.19
Ri

Rm

Ri Rm

Rm-AvRm

(RmAvRm)2

Rm2

2007
JAN

112.359

1687.35

FEB

103.269

1545.27

-8.09014

-8.4203

68.12144

-9.34081

87.25075

70.90152

MAR

104.504

1556.72

1.195906

0.740971

0.886131

-0.17954

0.032233

0.549038

APRI
L

111.805

1666.14

6.986335

7.028881

49.10612

6.108374

37.31223

49.40517

MAY

119.096

1766.08

6.521175

5.998295

39.11594

5.077788

25.78393

35.97955

JUNE

120.34

1804.81

1.044536

2.192992

2.290658

1.272485

1.619219

4.809216

JULY

127.614

1894.18

6.04454

4.951768

29.93116

4.031261

16.25106

24.52

AUG

126.201

1857.7

-1.10725

-1.9259

2.132443

-2.84641

8.10203

3.709088

SEPT

140.49

2118.86

11.32241

14.05824

159.1733

13.13774

172.6001

197.6342

OCT

160.215

2439.87

14.04015

15.15013

212.71

14.22962

202.4821

229.5264

NOV

158.356

2454.23

-1.16032

0.588556

-0.68291

-0.33195

0.110192

0.346398

DEC

169.794

2656.52

7.222966

8.242504

59.53532

7.321997

53.61163

67.93887

2008
JAN

147.718

2230.39

-13.0016

-16.0409

208.5581

-16.9614

287.6897

257.3108

FEB

147.689

2217.47

-0.01963

-0.57927

0.011372

-1.49978

2.249334

0.335555

MAR

131.544

1932.41

-10.9318

-12.8552

140.5298

-13.7757

189.7699

165.2559

APRI
L

143.025

2157.52

8.727878

11.64918

101.6727

10.72868

115.1045

135.7035

MAY

137.675

2038.22

-3.7406

-5.5295

20.68366

-6.45

41.60255

30.57534

JUNE

115.424

1644.18

-16.162

-19.3326

312.4523

-20.2531

410.1865

373.7477

JULY

123.902

1749.11

7.345093

6.381905

46.87568

5.461398

29.82686

40.72871

AUG

129.235

1782.08

4.304208

1.884959

8.113254

0.964452

0.930167

3.553069

SEPT

118.754

1555.7

-8.11003

-12.7031

103.0228

-13.6236

185.6036

161.3696

OCT

92.324

1145.68

-22.2561

-26.356

586.5812

-27.2765

744.0068

694.6377

NOV

86.546

1062.35

-6.25839

-7.27341

45.51987

-8.19392

67.14027

52.90249

DEC

92.798

1156.59

7.223904

8.870899

64.08253

7.950392

63.20874

78.69286

2009
JAN

88.074

1107.06

-5.09063

-4.28242

21.80018

-5.20292

27.07041

18.33909

FEB

84.379

1044.94

-4.19534

-5.61126

23.54111

-6.53177

42.66396

31.48622

MAR

92.552

1140.43

9.686059

9.138324

88.51435

8.217817

67.53251

83.50896

APRI
L

107.584

1339.38

16.24168

17.44517

283.3389

16.52467

273.0646

304.3341

MAY

139.341

1772.82

29.51833

32.36124

955.2498

31.44073

988.5198

1047.25

Total

37.30138

25.7742

3632.867

4141.326

4165.051

Avera
ge

1.332192

0.920507

129.7453

147.9045

Figure:3.6

m= 147.9045
=12.1616

(Beta) =[N (XY) XY ]/[ N (X2) (X) 2 ]

= (101720.3- 961.4133)/ (116621.4- 664.3093)
= 100758.9/ 115957.1
= 0.868932

Table:3.20

Ri

Rm

Ri-Rm

dev frm av

sq of dev

Rm2

FEB

-8.09014

-8.4203

0.330164

0.081521

0.006646

70.90152

MAR

1.195906

0.740971

0.454935

-0.04325

0.001871

0.549038

APRIL

6.986335

7.028881

-0.04255

0.454231

0.206326

49.40517

MAY

6.521175

5.998295

0.52288

-0.11119

0.012364

35.97955

JUNE

1.044536

2.192992

-1.14846

1.560142

2.434043

4.809216

JULY

6.04454

4.951768

1.092773

-0.68109

0.46388

24.52

AUG

-1.10725

-1.9259

0.818654

-0.40697

0.165624

3.709088

SEPT

11.32241

14.05824

-2.73583

3.147515

9.906851

197.6342

OCT

14.04015

15.15013

-1.10998

1.521668

2.315473

229.5264

NOV

-1.16032

0.588556

-1.74887

2.160557

4.668006

0.346398

DEC

7.222966

8.242504

-1.01954

1.431223

2.048399

67.93887

2008
JAN

-13.0016

-16.0409

3.039273

-2.62759

6.90422

257.3108

FEB

-0.01963

-0.57927

0.559639

-0.14795

0.02189

0.335555

MAR

-10.9318

-12.8552

1.923436

-1.51175

2.285389

165.2559

APRIL

8.727878

11.64918

-2.92131

3.332991

11.10883

135.7035

MAY

-3.7406

-5.5295

1.788892

-1.37721

1.896699

30.57534

JUNE

-16.162

-19.3326

3.170579

-2.75889

7.611496

373.7477

JULY

7.345093

6.381905

0.963188

-0.5515

0.304156

40.72871

AUG

4.304208

1.884959

2.41925

-2.00756

4.030315

3.553069

SEPT

-8.11003

-12.7031

4.593101

-4.18142

17.48424

161.3696

OCT

-22.2561

-26.356

4.099889

-3.6882

13.60285

694.6377

NOV

-6.25839

-7.27341

1.015015

-0.60333

0.364007

52.90249

DEC

7.223904

8.870899

-1.647

2.058681

4.238165

78.69286

2009
JAN

-5.09063

-4.28242

-0.80821

1.219896

1.488145

18.33909

FEB

-4.19534

-5.61126

1.415923

-1.00424

1.008493

31.48622

MAR

9.686059

9.138324

0.547736

-0.13605

0.01851

83.50896

2007
JAN

APRIL

16.24168

17.44517

-1.20349

1.615179

2.608803

304.3341

MAY

29.51833

32.36124

-2.84291

3.254597

10.5924

1047.25

37.30138

25.7742

11.52718

107.7981

4165.051

1.332192

0.920507

0.411685

3.849932

Standard Deviation for the funds excess return (S.D.) i=3.849932

=1.962124
Sharpe Index (Si) = (Ri - Rf)/Si
= (1.332192-5)/ 1.962124
=-1.8693
Treynor's Index (Ti) = (Ri - Rf)/Bi.
= (4.528901-5)/ 0.868932
=-4.22105
Jenson alpha (p)= Ri [ Rf + Bi (Rm - Rf) ]
=1.332192- [5+0.868932 (0.920507-5)]
=

-0.12301

Expected return E(Ri) = Rf + Bi (Rm - Rf)

=[5+0.868932 (0.920507-5)]
=1.455198

Fema Measure:
Selectivity =Ri [ Rf + Bi (Rm - Rf) ]
=1.332192- [5+0.868932 (0.920507-5)]
=

-0.12301

Diversification =[Rf + (Rm - Rf)(i/ m)]-[Rf + Bi (Rm - Rf)]

=[5+(0.920507-5)( 1.962124/12.1616)]- [5+0.868932 (0.920507-5)]
=2.886626

Net selectivity= selectivity- diversification

=-0.12301-2.886626
=-2.87834

3.2 ANALYSIS OF THE OBSERVATION:

The table given below illustrates the comparison among the analysed funds based on the
different measures of comparison.

Performance of Fund portfolio and Benchmark return for 29 months (jan07-may08)

Table:3.21
FUND
BENCHMARK
RETURNS RETURN
EQUITY
FUND

12.22546

11.8529

Capital
builder

4.872865

11.8529

Growth
fund

16.48711

3.792016

Long term
adv

-7.63043

3.792016

Tax saver

-0.89438

11.8529

Top 200

24.0141

5.065339

Figure:3.7

Performance Evaluation against Benchmarks

The above table presents return and risk of the six funds along with market return and risk.
From the table it is evident that, Top 200, Equity fund and Growth fund have earned greater
return as against the market earning. Capital builder, Long term advantage and Tax saver
funds have not earned higher return than the Market portfolio. Long-term advantage and Tax
saver funds have even negative returns.

Comparison of ratios:
Table:3.22
Fund
name

S.D.
market

S.D. fund

B value

Sharpe
ratio

Treynor
ratio

Jensons
alpha

Fema

Retuns
jan07may08(29
months)

HDFC
Equity

11.13239

2.392215

1.0096114

-1.64557

-3.89907

0.070488

-3.0836

12.22546

HDFC
Capital
Builder

11.13239

2.545136

0.936265

-1.66872

-4.53625

-0.39357

-3.33967

4.872865

HDFC
Growth
Fund

10.98971

2.54769

0.921779

-1.53641

-4.24646

0.013767

-2.9264

16.48711

HDFC
Long
Term
Adv

10.98971

2.353486

0.904883

-2.02088

-5.25605

-0.90004

-3.84352

-7.63043

HDFC
Tax
saver

11.13139

2.292262

0.944765

-1.94188

-4.71154

-0.70163

-3.63399

-0.89438

HDFC
Top 200

12.1616

1.962124

0.868932

-1.8693

-4.22105

-0.12301

-2.87834

24.0141

Standard Deviation of the Market:

High standard deviation of a fund implies high volatility and a low standard deviation implies
low volatility. HDFC equity fund, HDFC capital Builder and HDFC Tax saver take S&P
CNX 500 as their benchmark, HDFC Growth fund and HDFC long term have taken Sensex
as bench mark and HDFC Top 200 has taken BSE 200 as its bench mark. We found out that
BSE 200s S.D. is 12.1616, which is greater than Sensex and S&P CNX 500 having 10.98971
and 11.13139 S.D. respectively. Therefore, BSE 200 is more volatile than Sensex and S&P
CNX 500.

Standard deviation of the Fund:

It has been found that HDFC Top 200s S.D. is lesser than all other funds. Although
benchmark index (BSE 200) is more volatile as it has higher S.D. than other indexes still
HDFC Top 200 is less volatile because of lesser fund S.D. This is might be because of
diversification of unsystematic risk as it compensates the systematic risk.
Value :
As we know in case of funds, beta would indicate the volatility against the benchmark index.
It is used as a short term decision making tool. A beta that is greater than 1 means that the
fund is more volatile than the benchmark index, while a beta of less than 1 means that the
fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the
funds performance closely matches the index or benchmark.
The analysis illustrates that HDFC Equity funds is less volatile and its performance is very
close to its benchmark as its beta value is 1.0096114 compared to other funds which have
beta value lesser than 1 point. HDFC Top 200s beta value is more volatile than the
benchmark as its value is 0.868932, which is very far from point 1.
Sharpe ratio:
A fund with a higher Sharpe ratio means that these returns have been generated taking lesser
risk. In other words, the fund is less volatile and yet generating good return.
The analysis shows that all the funds have negative Sharpe ratio therefore they are more
risky. Comparing all the funds HDFC growth fund has lesser negative marks that means its
return 16.48711 is generated taking lesser risk.
Treynor ratio:
While a high and positive Treynor's Index shows a superior risk-adjusted performance of a
fund, a low and negative Treynor's Index is an indication of unfavourable performance
(systematic risk associated with it (beta)).
All the funds are having negative Treynors ratio which means they are affected by the
volatility of the market (systematic risk)or by the great recession.
Jensons alpha:

Its measure involves evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund given the level of its systematic risk. Higher alpha
represents superior performance of the fund and vice versa.
The analysis points out that all the funds are having negative alpha except HDFC Equity fund
and HDFC Growth fund which have positive points. Jenson alpha ratio justifies that these
two funds are at least able to achieve the expected return given the level of their systematic
risk.
Fema measure:
The Net Selectivity (Fema) represents the stock selection skill of the fund manager, as it is
the excess returns over and above the return required to compensate for the total risk taken by
the fund manager. Higher value of which indicates that fund manager has earned returns well
above the return commensurate with the level of risk taken by him.
It has been that all the funds are having negative net selectivity because of the higher risk
found both in systematic risk (B) and unsystematic risk. This findings point out, that the stock
selection of the fund manager has been failed because of the systematic risk i.e. recession.
Comparing to other funds HDFC Growth fund (-2.9264) has lesser negative points in this
time of great crisis. This indicates that HDFC Growth fund is getting enhanced return by
nullifying systematic risk and unsystematic risk.

From the above analysis there is no fund which has consistency. The funds are being affected
very badly either by the systematic risk or by the unsystematic risk. As we observe closely, it
is the HDFC Growth fund, which has better option for the investment. Its Sharpe ratio is
lesser negative than other funds which illustrates that its return is less affected by overall risk.
Its alpha value is more than 0 which means its less affected by the market risk (systematic
risk) and also its Fema value (selectivity) has lesser negative value which has managed to
nullify systematic risk and unsystematic risk during the time of recession.
An investor who is entering into the capital market for making long-term investment, the
volatility of the market is important to accomplish his or her goal and these expectations are
often formed on the basis of historical record of monthly returns, measured for holding period

and other important ratios. We will take this fund (HDFC Growth fund) for further analysis
of its portfolio.

HDFC Growth Fund Portfolio Analysis

Table:3.23
Portfolio

31-May-09

Name of Instrument

Industry +

Quantity

Market/
Fair
Value(Rs.
In Lakhs)

%
toNAV

Equity & Equity Related

(a) Listed / awaiting listing on Stock Exchanges
State Bank of India

Banks

448,000

8,372.45

7.20

Zee Entertainment Enterprises Ltd.

Media &
Entertainment

4,160,179

7,001.58

6.02

ICICI Bank Ltd.

Banks

932,397

6,901.14

5.93

Bharti Airtel Ltd.

Telecom - Services

750,346

6,159.59

5.30

Crompton Greaves Ltd.

Industrial Capital
Goods

2,099,819

5,513.07

4.74

Bharat Petroleum Corporation Limited

Petroleum Products

926,557

4,305.71

3.70

Housing Development Finance

Corporation Ltd.$

Finance

182,500

3,977.77

3.42

Exide Industries Ltd.

Auto Ancillaries

5,319,910

3,769.16

3.24

Divis Laboratories Ltd.

Pharmaceuticals

318,535

3,666.18

3.15

Sun Pharmaceutical Industries Ltd.

Pharmaceuticals

272,365

3,305.83

2.84

H T Media Ltd.

Media &
Entertainment

2,307,000

2,861.83

2.46

Solar Explosives Ltd.

Chemicals

913,257

2,807.81

2.41

Nestle India Ltd.

Consumer Non
Durables

160,268

2,766.79

2.38

Dr Reddys Laboratories Ltd.

Pharmaceuticals

420,000

2,719.50

2.34

ITC Ltd.

Consumer Non
Durables

1,462,305

2,685.52

2.31

Coromandel Fertilisers Ltd.

Fertilisers

1,433,271

2,608.55

2.24

Biocon Limited

Pharmaceuticals

1,319,006

2,397.95

2.06

Reliance Industries Ltd.

Petroleum Products

104,250

2,368.46

2.04

Hindustan Petroleum Corporation Ltd.

Petroleum Products

633,721

2,300.09

1.98

Dabur India Ltd.

Consumer Non
Durables

2,050,115

2,264.35

1.95

Bank of Baroda

Banks

469,151

2,058.63

1.77

Infosys Technologies Ltd

Software

120,000

1,926.12

1.66

MphasiS Limited

Software

569,000

1,916.96

1.65

Axis Bank Ltd

Banks

220,000

1,713.69

1.47

Apollo Tyres Ltd

Auto Ancillaries

5,367,120

1,682.59

1.45

Tata Steel Limited

Ferrous Metals

400,000

1,621.40

1.39

Hindustan Unilever Ltd.

Consumer Non
Durables

653,355

1,507.94

1.30

Noida Toll Bridge Company Ltd.

Transportation

3,607,000

1,441.00

1.24

Thermax Ltd.

Industrial Capital
Goods

367,366

1,345.29

1.16

Oil & Natural Gas Corporation Ltd.

Oil

111,353

1,301.99

1.12

Nagarjuna Construction Co. Ltd.

Construction Project

711,738

990.03

0.85

Ballarpur Industries Ltd.

Paper Products

3,967,287

987.85

0.85

Eimco Elecon (India) Ltd.

Industrial Capital
Goods

276,428

811.18

0.70

Amara Raja Batteries Ltd.

Auto Ancillaries

836,454

705.97

0.61

C & C Constructions Ltd

Construction

396,496

635.78

0.55

Maytas Infra Ltd

Construction

761,912

552.01

0.47

KNR Construction limited

Construction

710,597

531.53

0.46

ISMT Ltd.

Ferrous Metals

1,175,668

413.25

0.36

Ahmednagar Forgings Ltd.

Industrial Products

424,234

245.21

0.21

Disa India Ltd

Engineering

12,612

207.85

0.18

Technocraft Industries (India) Ltd

Ferrous Metals

538,745

199.07

0.17

Sub total

101,548.67

87.33

Total

101,548.67

87.33

Short Term Deposits as margin for Futures & Options

1,000.00

0.86

Cash margin / Earmarked cash for Futures & Options

5,072.00

4.36

Other Cash,Cash Equivalents and Net Current Assets

8,679.32

7.45

Net Assets

116,299.99

100.00

Table:3.24
Sectoral Allocation of Assets(%)
Banks

16.37

Pharmaceuticals

10.39

Media & Entertainment

8.48

Consumer Non Durables

7.94

Petroleum Products

7.72

Industrial Capital Goods

6.60

Telecom - Services

5.30

Auto Ancillaries

5.30

Finance

3.42

Software

3.31

Chemicals

2.41

Fertilisers

2.24

Ferrous Metals

1.92

Construction

1.48

Transportation

1.24

Oil

1.12

Construction Project

0.85

Paper Products

0.85

Industrial Products

0.21

Engineering

0.18

Cash,Cash Equivalents and Net

12.67

Current Assets
TOTAL

100

Figure:3.8

Table:3.25
HDFC Growth
Fund

(NAV as at evaluation date 30-June-12, Rs. 57.219 Per unit)

Date

Period

NAV Per Unit

(Rs.)

Returns
(%) ^

Benchmark Returns (%)

Sensex

December 30,
2008

Last Six months (182

days)

41.697

37.23

49.17

June 30, 2008

Last 1 Year (365 days)

53.472

7.01

7.67

June 30, 2006

Last 3 Years (1096

days)

36.034

16.65

10.95

June 30, 2004

Last 5 Years (1826

days)

16.439

28.31

24.74

June 30, 1999

Last 10 Years (3653

days)

N.A

N.A.

13.34

September 11,
2000

Since Inception (3214

days)

10

21.91

13.65

Figrure:3.9

HDFC Growth Fund - Analysis

It requires a lot of research and constant watch on the capital market for a fund manager to
analyze the portfolio of the particular fund. I took the secondary data from the fund review of

the article corner from The Business Line web site. I comprehended the analysis and
concluded my view as stated below.
HDFC Growth Fund invests in stocks across market capitalisations. Despite a large-cap bias,
mid and small cap stocks account for 28 per cent of the portfolio. The fund has managed to
consistently beat its benchmark Sensex over one-, three- and five-year periods.
In the latest portfolio, the fund has invested in as many as 52 stocks across 18 different
sectors making it a fairly diversified portfolio. This may indicate net inflows into the fund.
Sector Moves: There is a fair bit of stability in terms of top sector holdings in the portfolio.
Banks (16.39 per cent) and pharmaceuticals (10.37 per cent) sectors continue to be the top
two sector holdings, although exposures have been a bit reduced.
Banks and consumer non-durables also figure among top holdings in the fund, and have seen
increased exposures over the September-February period. While capital goods and banks
have done well in the past year, they have been among the worst hit in the recent meltdown.
The respective sector indices were beaten down by over 25 per cent in the last couple of
months. Construction and predictably, software exposures have been pared in the six-month
period.
Interestingly, media and entertainment (8.48 per cent), which were not part of the portfolio
six months ago is now in the top ten sector holdings for the fund. The power sector has been
exited, while telecom services and auto ancillaries exposures have been increased
substantially.
Stock Moves: Most stocks are those whose prices have fallen during September-February,
include stocks such as Zee Entertainment, HT Media and Dr Reddy's Labs.
The fund has also taken profit booking opportunities, with several stocks whose prices rose
between 60-105 per cent have been exited. These include, Axis Bank, Hanung Toys and Tata
Power. Other high-profile exits include DLF, HPCL, Ranbaxy Labs, and Punj Lloyd.
Reliance Industries, SBI, ONGC and BHEL are the stocks retained by the fund during the
period and are among the fund's top holdings.

3.4 FINDINGS
As far as analysis is concerned, we found out that the HDFC Growth Fund was among
the best performers fund. Although all the funds are affected by the global meltdown,
(recession) still HDFC Growth Fund has better performed comparing to other funds

for its systematic and unsystematic risk. It offers advantages of diversification, market
timing, and selectivity. In the comparison of sample of funds, HDFC Growth fund is
found highly diversified fund and because of high diversification, it has reduced the
total risk of portfolio.
Further, other funds were found very poor in diversification, market timing, and
selectivity. Although HDFC Top 200 Fund and Equity Fund performed better in terms
of returns but these suffered by the systematic risk (market volatility) and lack of
diversification. For the further clarification, we too studied the portfolio of HDFC
Growth fund.
One of the findings that I came across is that generally, a good model of asset classes
is the one that can explain a large portion of the variance of returns on the assets and
there were some stocks in the fund portfolio, which were not aligned with strategy of
the fund portfolio.
The optimal situation involves the selection that proceeds from sensible assumptions,
is carefully and logically constructed, and is broadly consistent with the data while
collecting the stocks for the portfolio. The portfolio was showing constructive
outcome in long time horizon and the results can be improved by making the minor
changes in fund portfolio.
Hence, the portfolio theory teaches us that investment choices are made on the basis
of expected risk and returns and these expectations can be satisfied by having right
mix of assets.

3.5 RECOMMENDATIONS:
Considering the above analysis, it can be noted that the three growth oriented mutual funds
(HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund) have performed better
than their benchmark indicators. Other funds such as HDFC Capital Builder Fund, HDFC
Long term Advantage Fund did not perform well even some performed negatively. Though

HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund have performed better
than the benchmark of their systematic risk (volatility) but with respect to total risk the fund
have not outperformed the Market Index.
Growth oriented mutual funds are expected to offer the advantages of Diversification, Market
timing and Selectivity. In the sample, HDFC Equity Fund, HDFC Growth Fund and HDFC
Top 200 fund is found to be diversified fund and because of high diversification, it has
reduced total risk of the portfolio. Whereas, others are low diversified and because of low
diversification their total risk is found to be very high. Further, the fund managers of these
under performing funds are found to be poor in terms of their ability of market timing and
selectivity.
The fund manager of HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200
fund can improve the returns to the investors by increasing the systematic risk of the
portfolio, which in turn can be done by identifying highly volatile shares.
Alternatively, these can take advantage by diversification, which goes to reduce the
risk if the same return is given to the investor at a reduced risk level, the
compensation for risk might seem adequate. The fund manager of HDFC Capital
Builder Fund, HDFC Long term Advantage Fund can earn better returns by adopting
the marketing timing strategy and selecting the under priced securities.
The fund manager can divide all securities into several asset classes and tries to
construct an efficient portfolio based on expected returns, risk, and correlations of
indexes representing these asset classes. The investment should be done in the bench
mark indexes to get an efficient portfolio in such a way that no other combination
of these indexes would result in a portfolio with a higher return for a given level of
risk. It should be emphasized, however, that this is not a fully efficient portfolio
because information about correlations among individual securities within an index
and across the indexes is lost in the transition from individual securities to the
benchmarks that represent them.
These measures are more useful to investors who are putting their money into one
diversified fund and are able to use leverage or invest in the risk-free asset. When the
investor is investing in the different funds, the funds marginal contribution to the
portfolios risk and return is more important than its individual security
characteristics. To construct an efficient portfolio, an investor must take account of the
correlations among the being considered.

It is not advisable to apply just procedure or approach for all situations at least when it comes
to investments though the used measures are highly reliable in the studies done on similar
veins. Even at this juncture it would still be recommended that instead of going ahead only on
the basis of risk and return, other indicators like new projects, sector impact, individual
sentiments about companies etc besides common sense and intuition may also be looked
into.

3.6 CONCLUSIONS:
Mutual fund has become one of the important sources for investing. It is quite likely that a
more efficient portfolio can be constructed directly from funds. Thus, the two-step process of
choosing an asset allocation based on the information about benchmark indexes and then
choosing funds in each category may be one of the best realistically attainable approaches. To
use this approach to portfolio selection effectively, investors would benefit from estimates of
future asset returns, risks and correlations, as well as from fund managements disclosure of
future asset exposures and appropriate benchmarks.

It has been a great opportunity for me to get a first experience of Mutual Funds. My study is
to get the feel of how the work is carried out in relation to funds portfolio aspect. I got an
opportunity in relation to the documentation and also the portfolio analysis that have been
carrying out in facilitating the investor and the fund manager.

REFERENCES
Books:
1. Security Analysis and Portfolio Management (sixth Edition 1995) by Donald
E. Fisher and Ronald J. Jordan. Publication: Pearson education.
2. The Indian Financial System (second edition) by Bharati V. Pathak. Published
by Dorling Kindersley (India) Pvt. Ltd., licensees of Pearson Education in
South Asia.
3. Security Analysis and Portfolio Management by Khan and Jain.
Magazines:

Money Outlook (May &June 2009)

Business world (May & June 2009)

Websites

www.hdfcfund.com

www.amfiindia.com

www.moneycontrol.com

www.sebi.gov.in

www.bseindia.com

www.nseindia.com

www.mutualfundsindia.com

www.valueresearch.com

www.indiainfoline.com

www.in.finance.yahoo.com

www.investing.businessweek.com

www.businessline.com