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CHAPTER I
INDUSTRY PROFILE
Figure: 1.1
Introduction
A Non banking
financial
company (NBFC)
is a company
registered under
the companies act, 1956 of India, engaged in the business of loans and advances,
acquisition of shares, stock, bonds hire-purchase insurance business or chit business but
does not include any institution whose principal business includes agriculture, industrial
activity or the sale, purchase or construction of immovable property.
The working and operations of NBFC’s are regulated by the reserve bank of India (RBI)
within the framework of the [Reserve Bank of India act, 1934] (chapter iii-b) and the
directions issued by it. On November 9, 2017, reserve bank of India (RBI) issued a
notification outlining norms for outsourcing of functions/services by non-bank financial
institution (NBFCS) as per the new norms, NBFCS cannot outsource core management
functions like internal audit, and management of investment portfolio, strategic and
compliance functions for know your customer (KYC) norms and sanction of loans. Staff
of service providers should have access to customer information only up to an extent
which is required to perform the outsourced function. Boards of NBFCS should approve
a code of conduct for direct sales and recovery agents. For debt collection, NBFCS and
their outsourced agents should not resort to intimidation or harassment of any kind. All
NBFC’s have been directed to set up grievance redressal machinery, which will also deal
with the issues relating to services provided by the outsourced agency.
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Non-banking financial companies play an important and crucial role in broadening access
to financial services, enhancing competition and diversification of the financial sector.
There are different types of institutions involved in financial services in India. These
include commercial banks, financial institutions (FIS) and Non-Banking finance
companies (NBFC) Due to the financial sector reforms, NBFC’s have been emerged as an
integral part of the Indian financial system. Non-banking finance companies frequently
act as suppliers of loans & credit facilities and accept deposits, operating mutual funds
and similar other functions. They are competitive and complimentary to banks and
financial institutions. Many steps were taken in 1995-96 to reduce controls and remove
operational constraints in the banking system. These include interest rate decontrol,
liberalization and selective removal of cash reserve ratio (CRR) stipulation, enhanced
refinance facilities against government and other approved securities.
Types of NBFC
A) In terms of the type of liabilities into deposit and non-deposit accepting nbfcs,
B) Non deposit taking NBFC’s by their size into systemically important and other non-
deposit holding companies (NBFC-NDSI and NBFC-ND) and
Within this broad categorization the different types of NBFC’s are as follows:
b) Investment company
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c) Loan company
IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into
infrastructure projects. IDF-NBFC raise resources through multiple-currency bonds of
minimum 5-year maturity. Only infrastructure finance companies (IFC) can sponsor IDF-
NBFC’s.
NBFC-MFI is a non-deposit taking NBFC having not less than 85%of its assets in the
nature of qualifying assets which satisfy the following criteria:
B. Tenure of the loan not to be less than 24 months for loan amount in excess of rs.
15,000 with prepayment without penalty;
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percent of its total assets and its income derived from factoring business should not be
less than 75 percent of its gross income.
A company incorporated under the companies act, 1956 and desirous of commencing
business of non-banking financial institution as defined under section 45 i(a) of the RBI
act, 1934 should comply with the following:
Reserve bank of India announced a set of measures to protect the interest of depositors
and provide more effective supervision over NBFC on January 2, 1998. The regulations
stipulate on the NBFC, an upper limit both on public deposits to be accepted, on the rate
of interest to deposits, in order to restrain then from offering incentives and mobilize
excessive deposits.
The disclosure requirements have been strengthened and responsibilities cast on the
board of directors and auditors of the companies to ensure proper conformation deposit
regulations and prudential norms prescribed by RBI.
The company once it gets it license has to adhere to the following guidelines:
The public deposits which the company can take should be for a minimum time period of
12 months and a maximum time period of 60 months.
The interest charged by the company cannot be more than the ceiling prescribed by the
reserve bank of India
The repayment of any amount so taken by the company will not be guaranteed by the
reserve bank of India.
All the information about the company as well as any change in the composition of the
company has to be furnished to the reserve bank of India.
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The company has to submit its audited balance sheet every year.
A statutory return on the deposits taken by the company has to be furnished in the form
NBS – 1 every year.
A Certificate from the auditors had to be taken stating that the company is in a position to
pay back all the deposits or money taken from the public.
A half-yearly alma return has to be given by the company which has a public deposit of
rs. 20 crore and above or has assets worth Rs. 100 crore and above.
The credit rating has to be taken every 6 months and submitted to the RBI.
A minimum level of 15% of the public deposits has to be maintained by the company in
liquid assets.
If the NBFS defaults in the payment of any amount taken, the consumer can go to the
national company law tribunal or the consumer forum to file a suit against the company.
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Deposits in NBFC:
A) Presently, the maximum rate of interest an nbfc can offer is 12.5%. The interest may
be paid or compounded at rests not shorter than monthly rests.
B) the NBFCS are allowed to accept/renew public deposits for a minimum period of 12
months and maximum period of 60 months. They cannot accept deposits repayable on
demand.
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deposited in lump sum or at monthly or longer intervals; and at the rate of 3.5% (to be
compounded annually) on the amount deposited under daily deposit scheme.
D) Further, a RNBC can accept deposits for a minimum period of 12 months and
maximum period of 84 months from the date of receipt of such deposit. They cannot
accept deposits repayable on demand.
NBFC-Factors
NBFC Factors has principle business of factoring. Factoring is a financial transaction and
a type of debtor finance
Over the years, gold loan NBFCS witnessed an upsurge in Indian financial market, owing
mainly to the recent period of appreciation in gold price and consequent increase in the
demand for gold loan by all sections of society, especially the poor and middle class to
make ends meet. Though there are many NBFC’s offering gold loans in India, about 95
per cent of the gold loan business is handled by three Kerala based companies, viz.,
Muthoot finance, Manapuram finance and Muthoot Fincorp. Growth of gold loan
NBFC’s eventuating from various factors including asset under management (AUM),
number of branches, and also the number of customers etc. Growth of gold loan NBFC’s
occurred both in terms of the size of their balance sheet and their physical presence that
compelled to increase their dependence on public funds including bank finance and non-
convertible debentures. Aggressive structuring of gold loans resulting from the
uncomplicated, undemanding and fast process of documentation along with the higher
loan to value (ltv) ratio include some of the major factors that augment the growth of
gold loan NBFC’s.
Residuary Non-Banking company is a class of NBFC which is a company and has as its
principal business the receiving of deposits, under any scheme or arrangement or in any
other manner and not being investment, asset financing, loan company. These companies
are required to maintain investments as per directions of RBI, in addition to liquid assets.
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NBFC’s perform functions similar to that of banks but there are a few differences-
Provides banking services to people without holding a bank license,
An NBFC cannot accept demand deposits,
An NBFC is not a part of the payment and settlement system and as such,
An NBFC cannot issue Cheques drawn on itself, and
Deposit insurance facility of the deposit insurance and credit guarantee corporation
is not available for NBFC depositors, unlike banks,
An NBFC is not required to maintain reserve ratios (CRR,SLR etc.)
An NBFC cannot indulge primarily in agricultural, industrial activity, sale-
purchase, construction of immovable property
Foreign investment allowed up to 100%.
In early 1970s government of India asked banking commission to study the functioning
of chit funds and examining activities of non-banking financial intermediaries. In 1972,
banking commission recommended uniform chit fund legislation to whole country.
Reserve bank of India prepared model bill to regulate the conduct of chit funds and
referred to study group under the chairmanship of James s. Raj.
In June 1974, study group recommended ban on prize chit and other schemes. Directed
the parliament to enact a bill which ensures uniformity in the provisions applicable to
chit funds throughout the country.
Parliament enacted two acts. Prize chits and money circulation schemes (banning) act,
1978 and chit funds act, 1982
Chakravarthy committee
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During planning era, reserve bank of india tried best to 'manage money' and evolve
'sound monetary' system but no much appreciable success in realising social objectives of
monetary policy of the country.
In december 1982, dr manmohan singh, governor of rbi appointed committee under the
chairmanship of 'prof. Sukhamoy chakravarty' to review functioning of monetary system
in india.
Committee recommended assessment of links among the banking sector, the non-banking
financial institutions and the un-organised sector to evaluate various instruments of
monetary and credit policy in terms of their impact on the credit system and the
economy.
As a follow-up to the chakravarty committee, the rbi set up a working group on money
market under the chairmanship of shri n. Vaghul, which submitted its report in 1987
containing number of measures to widen and deepen the money market.
This committee was formed to examine all aspects relating to the structure, organization
& functioning of the financial system. It also recommended that the supervision of these
institutions should be brought within the purview of the agency to be set up for the
purpose under the aegis of the rbi. This led to the amendment of the rbi act in 1997.the
RBI amendment act 1997 introduced compulsory registration with the rbi of allexisting
and newly incorporated nbfcs and prescribed certain minimum capital requirements as
basic entry norms for a company to be able to operate as an nbfc.
The working group on financial companies constituted in april 1992 i.e the shah
committee set out the agenda for reforms in the nbfc sector. This committee made wide
ranging recommendations covering, inter-alia entry point norms, compulsory registration
of large sized NBFC’s, prescription of prudential norms for NBFC’s on the lines of
banks, stipulation of credit rating for acceptance of public deposits and more statutory
powers to reserve bank for better regulation of NBFC’S.
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This group was set up with the objective of designing a comprehensive and effective
supervisory framework for the non-banking companies segment of the financial system.
The important recommendations of this committee are as follows:
Introduction of a supervisory rating system for the registered NBFCS. The ratings
assigned to NBFC’s would primarily be the tool for triggering onsite inspections
at various intervals.
Supervisory attention and focus of the reserve bank to be directed in a
comprehensive manner only to those NBFC’s having net owned funds of rs.100
lakhs and above.
Supervision over unregistered NBFC’s to be exercised through the off-site
surveillance mechanism and their on-site inspection to be conducted selectively as
deemed necessary depending on circumstances.
Need to devise a suitable system for co-ordinating the on-site inspection of the
nbfcs by the reserve bank in tandem with other regulatory authorities so that they
were subjected to one-shot examination by different regulatory authorities.
Some of the non-banking non-financial companies like industrial/manufacturing
units were also undertaking financial activities including acceptance of deposits,
investment operations, leasing etc to a great extent. The committee stressed the
need for identifying an appropriate authority to regulate the activities of these
companies, including plantation and animal husbandry companies not falling
under the regulatory control of either department of company affairs or the reserve
bank, as far as their mobilisation of public deposit was concerned.
Introduction of a system whereby the names of the nbfcs which had not complied
with the regulatory framework / directions of the bank or had failed to submit the
prescribed returns consecutively for two years could be published in regional
newspapers. Most of the recommendations of the committee were accepted by the
reserve bank after an in depth analysis and the revised framework for effective
supervision of the nbfcs including off-site monitoring of nbfcs is being put in
place.
7. Vasudev committee (1998) this committee emphasised the need for strengthening of
the nbfc sector including entry norms and prudential norms, and dealt with framework for
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Chat No:2.2
CHAPTER II
A. ORGANISATION STUDY
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Company profile
mahindra FINANCE
Type Public
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Introduction
Mahindra & mahindra financial services limited (mmfsl) is one of india’s leading rural
nbfc headquartered in mumbai, india. It is amongst the top tractor financer in india and
offers a wide range of financial products to address varied customer requirements.[3]the
nbfc has 1000+ offices spread across 1 in every 3 villages across india with a total of
more than 4.7 million customers till date. Mmfsl (mcap: rs 180 billion), one of india‟s
leading non-banking finance companies focused in the rural and semi-urban sector is the
largest indian tractor financier
Mahindra & mohammed was incorporated in 1945 by the brothers j.c.mahindra and
k.c.mahindra & malikghulam mohammad, in ludhiana, punjab to trade steel. Following
the partition of india in 1947, malikghulam muhammad left the company and emigrated
to pakistan where he became the first finance minister of the new state (and later the third
governor general in 1951).in 1948, k.c. Mahindra changed the company's name to
mahindra & mahindra.
Building on their expertise in the steel industry, the mahindra brothers began trading steel
with uk suppliers. They also won a contract to manufacture willys jeeps in india and
began producing them in 1947. By 1956, the company was listed on the bombay stock
exchange, and by 1969 the company had entered the world market as an exporter of
utility vehicles and spare parts. Like many indian companies, mahindra responded to the
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restrictions of the license raj by expanding into other industries. Mahindra & Mahindra
created a tractor division in 1982 and a tech division (now tech mahindra) in 1986. It has
continued to diversify its operations ever since through both joint ventures and greenfield
investments. By 1994, the group had become so diverse that it undertook a fundamental
reorganization, dividing into 6 strategic business units:
In january 2011, the mahindra group launched a new corporate brand, mahindra rise, to
unify mahindra's image across industries and geographies. The brand positions mahindra
products and services as inspirational, supporting customers' ambitions to 'rise.'
In april 2012, the mahindra group showed interest in purchasing the bankrupt automobile
company saab, and actually placed several bids for saab, though was outbid by saab's
new owner national electric vehicle sweden.
Milestones
The mahindra finance journey started on january 1, 1991, as maxi motors financial
services limited. They received the certificate of commencement of business on february
19, 1991. On november 3, 1992, mahindra finance changed their name to mahindra &
mahindra financial services limited. Mahindra finance is registered with the reserve bank
of india as asset finance, deposit taking nbfc.
In 1993 it commenced financing m & m utility vehicles and in 1995 started its first
branch outside mumbai, in jaipur. Itbegan financing non m & m vehicles in 2002 and got
into the business of financing of commercial vehicles and construction equipment’s in
2009. 2011 was the year in which they had a joint venture with rabobanksubsidiary for
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tractor financing in usa and consolidated the product portfolio by introducing small and
medium enterprises (sme) financing. Mahindra finance first securitisation transaction of
rs. 434.8 million,in 2004 longterm credit rating is given as aa+ and also it is also opened
its new branch in port blair and it is listed as convertible debentures on bse on the
wholesale debt market segment securitization of tractor assets of rs. 256.6 million.
2006
Mahindra & mahindra financial services limited has informed that mr.narayan shankar
has ceased to be the company secretary of the company with effect from october 26,2006.
Ms. Angarika baviskar would continue to hold the post of deputy company secretary and
compliance officer of the company.
2007
2008
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2009
2010
- more than 2 lakh new customer contracts in a financial year for the
First time.
2011
- maiden qip issue.joint venture with rabobank subsidiary for tractor financing in usa.
2012
- mahindra finance are first runners up at cnbc tv18 best bank &
- ranked 9th in the prestigious dun & bradstreet's india's top 500
2013
-company has splits its face value of shares from rs 10 to rs 2 m&m fin. Services
Woori financials & mahindra finance sign mou for joint venture
Corporate governance.
2014
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-india ratings and brickworks ratings upgraded company's long term debt rating to aaa.
Care ratings also assigned aaa rating to company's long term debt.
2015
2016
2017
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- mahindra finance has been bestowed with the national award for
Product profile
Vehicle financing
Vehicle financing: auto and utility vehicles, tractors, cars, commercial vehicles and
construction equipment pre-owned vehicle financing: loans for pre-owned cars, multi-
utility vehicles, tractors and commercial vehicle
SME financing
Loans for varied purposes like project finance, equipment finance and working capital
finance.
Housing finance
Finances, rural and semi-urban population to build self-sustaining houses, pukka houses
and ensure their uplift meant in society
Insurance broking
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Launched in june 2016, it offers mutual fund products, whose nav is around 1000 inr.
The mamc started with an aum of 1200 million inr.
Advises clients on investing money through amfi certified professionals under the brand
mahindra finance finsmart
Fixed deposits
The MMFSL fixed deposit has a CRISIL rating of 'FAAA', indicating a high level of
safety.
Mahindra mutual fund endeavours. To offer a variety of mutual fund schemes pan india,
with special focus in rural and semi-urban areas.
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private limited, leapfrog invested rs. 80.4 crores for a 15 per cent shareholding in mibl.
Mahindra finance launched online insurance aggregator paybima. Paybima is the online
portal of mahindra insurance brokers ltd.
Mahindra finance’s wholly owned subsidiary, mahindra business & consulting services
private limited (mbcspl), provides staffing services primarily to mahindra finance. It also
serves the subsidiaries (mibl and mrhfl) and parent company (mahindra & mahindra
limited). During the year, mbcspl deputed 8,098 employees to these companies. The
profit after tax increased from rs. 7.1 lacs in 2011-12 to rs. 173.8 lacs in 2012-13. And
also turnover
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Organization structure
Chart No:2.3
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Board of Directors:
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Vision:
Mission:
“to transform rural lives and drive positive change in the communities.”
Values:
Chart No:2.4
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SWOT ANALYSIS:
Strength:
Company has large financial base as its ipo was subscribed 26.88 times
Weakness:
Mahindra finance provides advisory service and they do not have stock broking facility
which the competitor have
Opportunity:
Mahindra finance has entered into a mutual fund distribution which is growing as per
indian market
Threat:
The biggest threat for mahindra finance in the maket is new entry of foreign nbfi’s
In case of vehicle financing has it tough competition from large banks like sbi and icici
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Tata capital
Cholamandalam
Muthoot finance l&t finance ltd
finance
B . THEROTICAL BACKGROUND
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A Mutual Fund is a professionally managed investment fund that pools money from
many investors to purchase securities. These investors may be retail or institutional in
nature.
Primary structures of mutual funds include open-end funds, unit investment trusts,
and closed-end funds. Exchange-traded funds (etfs) are open-end funds or unit
investment trusts that trade on an exchange. Mutual funds are also classified by their
principal investments as money market funds
Bond or fixed income funds, stock or equity funds, hybrid funds or other. Funds may also
be categorized as index funds, which are passively managed funds that match the
performance of an index, or actively managed funds. Hedge funds are not mutual funds;
hedge funds cannot be sold to the general public and are subject to different government
regulations.
Advantages:
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Daily liquidity: shareholders of open-end funds and unit investment trusts may sell their
holdings back to the fund at regular intervals at a price equal to the net asset value of the
fund's holdings. Most funds allow investors to redeem in this way at the close of every
trading day.
Ability to participate in investments that may be available only to larger investors. For
example, individual investors often find it difficult to invest directly in foreign markets.
Service and convenience: funds often provide services such as check writing.
Transparency and ease of comparison: all mutual funds are required to report the same
information to investors, which makes them easier to compare
Disadvantages:
Fees
No opportunity to customize
A mutual fund scheme can be classified into open-ended scheme or close ended scheme
depending on its maturity period.
An open ended fund or scheme is one that is available for subscription and repurchase on
a continuous basis. These schemes do not have a fixed maturity period. Investors can buy
and sell units at net asset value (nav) related prices which are declared on a daily basis.
The key feature of open-end schemes is liquidity.
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is
open for subscription only during a specified period at the time of launch of the scheme.
Investors can invest in the scheme at time of the initial public issue and thereafter they
can buy or sell the units of the scheme on the stock exchanges where the units are listed.
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0 interval scheme interval funds combine the features of open-ended & closed ended
schemes. They are open for sale or redemption during pre-determined intervals at nav
related prices.
1) Growth/equity schemes:
Under growth schemes the investor realizes only the capital appreciation on the
investment and does not get any income in the of dividend.
2) Gilt funds:
It is a kind of mutual fund that invest your money only in government securities. These
funds are considered to be safe as they bear no default risk. Nav’s of these schemes also
fluctuate due to change interest rates and other as is the case with income or debt oriented
schemes
3) Balanced fund:
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their
offer documents. These are appropriate for investors looking for moderate growth.
The main objective of these funds is to provide high returns from one particular sector
that has potential to grow. Investing money in one particular sector.
5) Liquid funds:
These are the funds that offer high liquidity. This means the units of these funds can be
sold immediately and the invested amount can be redeemed quickly. Preservation of
capital and moderate income. These schemes invest exclusively in safer short-term
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instruments such as treasury bills, certificates of deposit, commercial paper and inter-
bank call money, government securities, etc. Returns on these schemes fluctuate much
less compared to other funds. These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short periods.
These are the mutual funds designed to protect capital. These funds put a major portion
of the investment in bonds; and a small portion in shares over a time and the portion
invested in bonds grows to the size of original investment. So even if the portion invested
in shares does not do well to your capital is still protected.
When a new fund is launched for investors it is known as nfo. A nfo could also be the
launch of additional units of close ended funds.
Fund of funds: - a fund of funds is a kind of mutual fund that invest in variety of mutual
funds.
Equity mutual funds collect money from several investors, and invest this amount in
shares of various companies. The primary objective of equity mutual funds is to invest in
shares of different companies and generate good returns.
Debt mutual funds collect money from several investors and invest this amount in bonds
of reputed companies and government bonds
These funds invest in both shares and bonds. The portion invested in shares helps to grow
wealth, while the portion invested in bonds offers stability to your portfolio.
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These schemes offer tax rebates to the investors under specific provisions of the income
tax act, 1961as the government offers tax incentives for investment in specified avenues.
E.g: equity linked savings schemes (elss). Pension schemes launched by the mutual funds
also offer tax benefits. These schemes are growth oriented and invest predominantly in
equities. Their growth opportunities and risks associated are like any equity-oriented
scheme.
B. Index funds:
Index funds replicate the portfolio of a particular index such as the bse sensitive index ,
s&p nse 50 index (nifty), etc these schemes invest in the securities in the same weight
age comprising of an index. Navs of such schemes would rise or fall in accordance with
rise or fall in the index, through not exactly by the same percentage due to some factor
known as “ tracking error” in technical terms. Necessary disclosures in this regard are
made in the offer document of the mutual fund scheme. There are also exchange traded
index funds launched by the mutual funds which are traded on the stock exchanges.
These are the funds/ schemes which invest in the securities of only those sectors or
industries as specified in the offer documents.
E.g. Pharmaceuticals, software, fast moving consumer goods (fmcg), petroleum stocks,
etc. The returns in these funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on the performance of
those sectors/industries and must exit at an appropriate time. They may also seek advice
of an expert.
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HDFC asset management company limited (amc) hdfc asset management company ltd
(AMC) was incorporated under the companies act, 1956, on december 10, 1999, and was
approved to act as an asset management company for the hdfc mutual fund by sebi vide
its letter dated july 3, 2000. The registered office of the amc is situated at ramon house ,
3rd floor, h.t.parekh marg, 169, back bay reclamation, churchgate, mumbai – 400 020. In
terms of the investment management agreement, the trustee has appointed the hdfc asset
management company limited to manage the mutual fund. The paid up capital of the amc
is rs.25.169 crore.
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Mahindra mutual fund has been constituted as a trust in accordance with the provisions of
the indian trusts act, 1882, as per the terms of the trust deed dated september 29, 2015
between the mahindra and mahindra financial services limited as the sponsor and
mahindra trustee company private limited, as the trustee. The trust deed has been
registered under the indian registration act, 1908. Mahindra mutual fund has been
registered with sebi, under registration code mf/069/16/01.
Mahindra asset management company private limited, a company incorporated under the
companies act, 1956, is the investment manager for mahindra mutual fund. It is a wholly
owned subsidiary of mahindra and mahindra financial services limited (mmfsl).
Mahindra mutual fund endeavors to offer a variety of mutual fund schemes pan-india,
with special focus in rural and semi-urban areas
Risk:
The dictionary meaning of risk is the possibility of loss or injury. Any rational investor,
before investing his/her investible wealth in the security, analyzes the risk associated
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with a particular security. The actual return he receives from a security may vary from
his expected return and the risk is expressed in term of variability of return. The down
side of risk may be caused by several factors, either common to all securities or specific
to a particular security. Investor in general would like to analyze the risk factors and a
through knowledge of a risk helps him to plan his portfolio in such a manner so as to
minimize risk associated with the investment.
The systematic risk is caused by the factors external to a particular company and
uncontrollable by the company. The systematic risk affects the market as a whole. In case
of unsystematic risk the factors are specific, unique and related to a particular industry or
company.
Systematic risk:
The systematic risk affects the entire market. The economic conditions, political
situations and the sociological changes affect the security market. These factors are
beyond the control of the corporate and the investor. The investor cannot avoid them.
Market risk
Unsystematic risk:
The unsystematic risk is unique and peculiar to a firm or an industry. Unsystematic risk
stems from managerial inefficiency, technological change in the production process,
availability of raw material, changes in the customer preference, and labour problems.
The nature and magnitude of the above-mentioned factors differ from industry to
industry, and company to company. They have to be analyzed separately for each
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industry and firm. Broadly, unsystematic risk can be classified into: i. Business risk ii.
Financial risk
Risk measurement:
Understanding the nature of risk is not adequate unless the investor or analyst is capable
of expressing it in some quantitative terms. Measurements cannot be assured of cent
percent accuracy because risk is caused by numerous factors such as social, political,
economic and managerial efficiency.
Risk & return calculation using statistical tools are arithmetic mean, standard deviation,
beta, sharpe ratio and treynors ratio.
The statistic familiar to most people is the arithmetic average. The arithmetic mean of a
set of values is obtained by dividing the sum of the values by the number of values in the
set, customarily designated by the symbol x (x-bar), is:
Formula:
X = σx/n
Standard deviation:
The standard deviation is a numerical value used to indicate how widely individuals in a
group vary. If individual observations vary greatly from the group mean, the standard
deviation is big; and vice versa.
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A measure of the dispersion of a set of data from its mean. The more spread apart the
data is, the higher the deviation.
A volatile stock would have a high standard deviation. In mutual funds, the standard
deviation tells us how much the return on the fund is deviating from the expected normal
returns. Standard deviation can also be calculated as the square root of the variance.
Formula:
Σ = [ σ ( xi - x )2 / n ]
Where,
X = population mean.
3. Beta:
Beta describes the relationship between the securities return and the index returns.
A. Beta = + 1.0
One percent change in market index returns causes exactly one percent change in the
security return. It indicates that the security moves in tandem with the market.
B. Beta = + 0.5
One percent change in the market index return causes 0.5 percent change in the security
return. The security is less volatile compared to the market.
C. Beta = + 2.0
One percent change in the market index return causes 2 percent change in the security
return. The security return is more volatile. When there is a decline of 10% in the market
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return, the security with beta of 2 would give a negative return of 20%. The security with
more than 1 beta value is considered to be risky.
D. Negative beta
Negative beta value indicates that the security return moves in the opposite direction to
the market return. A security with a negative beta of -1 would provide a return of 10%, if
the market return declines by 10% and vice-versa.
Formula:
𝜷=
Where,
N= number of items
X= independent variable
Y= dependent variable
Variance:
The variance is a numerical value used to indicate how widely individuals in a group
vary. If individual observations vary greatly from the group mean, the variance is big;
and vice versa. It is important to distinguish between the variance of a population and the
variance of sample. They have different notation, and they are computed differently. The
variance of population is denoted by σ2; and the variance of a sample, by s2. The
variance of a population is defined by the following formula:
Formula:
Σ2 = σ ( xi - x )2 / n-1
Where σ2 is the population variance, x is the population mean, xi is the element from the
population, and n is the number of elements in the population. The variance of a sample
is defined by slightly different formula:
S2 = σ ( xi - x )2 / ( n - 1 )
Covariance:
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“covariance is a measure of the degree to which returns on two risky assets move in
tandem. A positive covariance means that asset returns move together. A negative
covariance means returns moves inversely.”
Formula:
Covariance=
Correlation: “correlation measures the relationship between the changes of two or more
financial variables in time. For example, the prices of equity stocks and fixed interest
bonds often move in opposite directions: when investors sell stocks, they often use the
proceeds to buy bonds and vice versa.”
Co-relation =
4. Sharpe ratio:
Formula:
St =
Note: higher the sharpe index better is the performance of the fund.
5. Treynor’s ratio: the treynor‟s ratio is a measurement of the returns earned in excess
of that which could have been earned on a riskless investment (i.e. Treasury bill) (per
each unit of market risk assumed).
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The treynor ratio (sometimes called reward-to-volatility ratio) relates excess return over
the risk-free rate to the additional risk taken; however systematic risk instead of total risk
is used. The higher the treynor ratio, the better the performance under analysis.
Formula:
Tn =
Rn = portfolio return
Βn = portfolio beta
Rate of return:
The compounded annual return on a mutual fund scheme represents the return to
investors from a scheme since the date of issue. It is calculated on nav basis or price
basis. On nav basis it reflects the return generated by the fund manager on nav. On price
basis it reflects the return to investors by way of market or repurchase price.
The net asset value of the fund is the cumulative market value of the assets fund of its
liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the
assets in the fund, this is the amount that the shareholders would collectively own. This
gives rise to the concept of net asset value per unit, which is the value, represented by the
ownership of one unit in the fund. It is calculated simply by dividing the net asset value
of the fund by the number of units. However, most people refer loosely to the nav per
unit as nav, ignoring the “per unit”. We also abide by the same convention.
The net asset value (nav) of the units will be determined as of every working day and for
such other days as may be required for the purpose of transaction of units. The nav shall
be calculated in accordance with the following formula, or such other formula as may be
prescribed by sebi from time to time.
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Nav =
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Scheme details:
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Scheme details:
Benchmark: BSE-200
CHAPTER III
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RESEARCH DESIGN
“A Study on comparative analysis of Mahindra Mutual Fund and HDFC Mutual Funds”.
Mutual fund industry today, with about 42 players and more than five hundred schemes,
is one of the most preferred investment avenues in india. However, with a plethora of
schemes to choose from, the retail investor faces problems in selecting funds. Factors
such as investment strategy and management style are qualitative, but the funds record is
an important indicator too. Though past performance alone cannot be indicative of future
performance, it is, frankly, the only quantitative way to judge how good a fund is at
present. Therefore, there is a need to correctly assess the past performance of different
mutual funds.
Methodology of study:
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RESEARCH METHODOLOGY
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Type of research:
Sources of information
Primary data:
These are the data which are obtained by a study specially designed to fulfil the data
needs of problem the data is collected from the bellow sources
Secondary data:
These are the data that are not originally collected but for this purpose, rather obtained
from
The study is limited to Mahindra mutual fund and HDFC Mutual Fund Schemes.
The project has been undertaken only for a period of two months it is very short period to
analysis performance
CHAPTER IV
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0.027
0.027 0.026336
0.026
0.026
0.025
0.025
0.024 0.023845
0.024
0.023
0.023
Mahindra mutual fund HDFC 200
Graph-4.1
Interpretation:
The above graph shows the movements of Mahindra mutual funds and HDFC TOP 200,
The returns of Mahindra Mutual fund is 0.023 and the HDFC top 200 is 0.026 it clearly
shows that HDFC top 200 is higher compare with the Mahindra mutual fund. It indicates
that HDFC TOP 200 is performing better than the Mahindra mutual fund.
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0.9
0.8 0.78009
0.7
0.6208987
0.6
0.5
0.4 #REF!
0.3
0.2
0.1
0
SCHEMES Mahindra Mutual fund HDFC 200
Graph-4.2
Interpretation:
The above Diagram shows that the Standard deviation of Mahindra Mutual Fund is 0.62
Were as HDFC 200 is 0.78 From the above analysis it clearly shows that Risk of HDFC
TOP 200 is Higher than the Mahindra Finance.
3.3 Variance
Variance
0.7
0.6
0.5
Axis Title
0.4
0.3 0.620479
0.2 0.38551
0.1
0
Mahindra Mutual fund HDFC 200
Axis Title
Graph 4.3
Interpretation:
The above analysis shows that the HDFC TOP 200 Showing More Volatility interms of
returns as compare to Mahindra.
3.4 Covariance
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0.5
0.45
0.4
0.35
0.3
0.25
0.441677
0.2
0.334005
0.15
0.1
0.05
0
Mahindra Mutual fund HDFC 200
Graph 4.4
Interpretation:
From the above analysis Covariance of HDFC 200 with CNX Nifty is more as compared
to Mahindra Mutual Funds
3.5 Beta 𝜷
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0.355
0.35
0.35
0.345
0.34
0.338053
0.335
0.33
Mahnindra Mutualfund HDFC 200
Graph 4.5
Interpretation:
The above graph shows that the mahindra mutual fund is 0.33 and hdfc top 200 is 0.35,
so the hdfc top 200 is more Volatile than the mahindra mutual fund & also more volatile
than the mahindra mutual fund.
3.6 Alpha ∝
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0.013
0.013
0.012
0.012
0.011 0.012559
0.01
0.01 0.010627
0.01
Mahnindra Mutualfund HDFC 200
Graph 4.6
Interpretation:
The above Charts reveals that Alpha HDFC 200 is Higher than the Mahindra Mutual
Funds in terms of Productivity HDFC 200 is Performing Better.
3.7 Correlation
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0.9
0.892255
0.89
0.88
0.87
0.86 0.856013
0.85
0.84
0.83
Mahindra Mutual fund HDFC 200
Graph 4.7
Interpretation:
The above Diagram shows that HDFC 200 Showing High Degree Positive Correlation
with CNX Nifty Index, were as Mahindra Mutual Fund Also having Good relation with
CNX Nifty.
Findings
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Mahindra finance kar bachat yojana’s mutual fund scheme is entering newly to the
mutual fund market. It is launched in oct 07th ,2016 so it’s growth is slow at initial stage
it might be increase it’s efficiency day by day and in future.
The growth and return of a Mahindra finance kar Bachat yojana”s mutual fund
scheme is not perfoming well when compared to HDFC TOP 200 mutual fund scheme.
Standard deviation of deviation in the returns of the mutual funds schemes one can
identify that higher the deviations higher the in investment. Here HDFC TOP 200
Scheme is more Riskier As compare to Mahindra Finance Kar Bachat Yojana
In the Variance of Funds Analysis we Found that comparing of both the schemes
Mahindra Kar Bachat Yojana Showing less Variability i.e More Consistancy in terms of
Returns as Compare to HDFC TOP 200.
The Covariance of HDFC TOP 200 is High as Compared to Mahindra Mutual Fund
In mahindra finance kar bachat yojana’s scheme risk is less risky and it is low
volatile compared to hdfc top 200 mutual fund scheme but when the risk is less the
return also will be less.
The alpha of HDFC 200 is high it indicates that HDFC TOP200is more
Productivity in terms of Return.
we came to know that the Correlation indicates that Movement of Mutual Fund
With CNX NIFTY both Mutual Funds moving together with same Direction i.e(High
Degree) With CNX Nifty Index.
CHAPTER V
SUGGETION
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By understanding the above data we should suggest that the Mahindra Finance
should promote their various mutual fund schemes by the way of an advertisemnts
because kar bachat yojana is very new schema to the market the market for this we could
drag the various investors concentration towards mahindra finance mutual fund schemes.
By knowing the fact of positive correlation of two mutual fund schemes we should
suggest to the investor that he should have to invest in various funds for this he could
earn an return by diversifying the funds.
By knowing the facts in the varinace of both the mutual funds hdfc variance is very
high compared to mahindra mutual funds a investor could think while he is investing in
hdfc fund for long term investment it is not suitable
In standard deviation the data shows that the hdfc fund is having more risk and
greater investment than the mahindra mutual fund as investor he should be aware while
he is investing in hdfc top 200 mutual fund but he could be safe in investing in mahindra
kar bachat yojana.
CHAPTER VI
CONCLUSION
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“A Study on Comparative Analysis of HDFC Mutual Funds and Mahindra Mutual Funds”
conducted at Mahindra and Mahindra Financial Services Company Limited, Mahindra Mutual
Fund is a growing company in the market of mutual fund. This study helped me to understand
the growth performance of mutual funds in relation to CNX nifty and also understand the
Mutual Fund Activities in the Market, And also Risk-return associated with the mutual fund.
The investors should study the performance of various Funds schemes of different mutual
funds and based on the performance the investor should decide in which scheme to invest
with the quantum of investment. In order to have better investments and also to yield better
returns with moderate risk the investor should choose a scheme based on its merit considering
Performance, Track record, and Productivity of the mutual funds, service standards,
professional management and so on. From the study of two different mutual funds we can
conclude as follows:
The Mahindra fund has performed Not well in terms of return, because it is New Player
in the Mutual Fund Market when compared to the HDFC fund returns. HDFC returns are very
high and also comparative study of performance of both mutual funds is being done in
relation to CNX nifty.
The study reveal that the Mahindra fund having a good relation with CNX Nifty and
both the HDFC and Mahindra fund having Positive correlation so the investor have to
diversify their investment in to various funds not in only one basket according to the Marco
witz theory of Portfolio Construction “Do not Put All Eggs in one Basket “ By understanding
this concept a Investor should move in to the better and Safety Investment.
Overall to conclude, Where the market condition are adverse to the investors due to
economic fluctuation. According to this report the volatility factor is more during the 2017-
18. By the study it is found that an HDFC TOP 200 scheme is ranked to be the best scheme.
And also Company have to Concentrate on by Promoting It’s various Scheme it will helps to
growth of the company as well as it will helps to Investors to investing invest more in the
Mutual Fund.
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