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A PROJECT REPORT

ON

MUTUAL FUNDS IS THE BETTER

INVESTMENTS PLAN

Submitted in partial fulfillment for

BACHELOR OF BUSINESS ADMIMISTRATION

Programme of

MODERN GIRLS COLLEGE OF

PROFESSIONAL STUDIES

LUCKNOW

Batch2007-10

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EXECUTIVE SUMMARY

In few years Mutual Fund has emerged as a tool for ensuring

ones financial well being. Mutual Funds have not only

contributed to the India growth story but have also helped families

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tap into the success of Indian Industry. As information and

awareness is rising more and more people are enjoying the

benefits of investing in mutual funds. The main reason the number

of retail mutual fund investors remains small is that nine in ten

people with incomes in India do not know that mutual funds exist.

But once people are aware of mutual fund investment

opportunities, the number who decide to invest in mutual funds

increases to as many as one in five people. The trick for

converting a person with no knowledge of mutual funds to a new

Mutual Fund customer is to understand which of the potential

investors are more likely to buy mutual funds and to use the right

arguments in the sales process that customers will accept as

important and relevant to their decision.

This Project gave me a great learning experience and at the same

time it gave me enough scope to implement my analytical ability.

The analysis and advice presented in this Project Report is based

on market research on the saving and investment practices of the

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investors and preferences of the investors for investment in

Mutual Funds. This Report will help to know about the investors

Preferences in Mutual Fund means Are they prefer any particular

Asset Management Company (AMC), Which type of Product they

prefer, Which Option (Growth or Dividend) they prefer or Which

Investment Strategy they follow (Systematic Investment Plan or

One time Plan). This Project as a whole can be divided into two

parts.

The first part gives an insight about Mutual Fund and its various

aspects, the Company Profile, Objectives of the study, Research

Methodology. One can have a brief knowledge about Mutual Fund

and its basics through the Project.

The second part of the Project consists of data and its analysis

collected through survey done on 200 people. For the collection of

Primary data I made a questionnaire and surveyed of 200 people. I

also taken interview of many People those who were coming at

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the HDFC and BANK OF INDIA Branch where I done my

Project. I visited other AMCs in Lucknow to get some knowledge

related to my topic. I studied about the products and strategies of

other AMCs in; Lucknow to know why people prefer to invest in

those AMCs. This Project covers the topic THE MUTUAL

FUND IS BETTER INVESTMENT PLAN. The data collected

has been well organized and presented. I hope the research

findings and conclusion will be of use.

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CONTENTS

Acknowledgement

Declaration

Executive Summary

.

CHAPTER TOPICS PG. NO.Chapter - 1 INTRODUCTION 12- 34

Chapter - 2 SYSTAMATICINVESTMENT PLAN

35- 49

Chapter - 3 COMPANY PROFILE 50- 63

Chapter- 4 OBJECTIVES ANDSCOPE

64- 66

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Chapter-5 QUESTIONAIRE ANDANALYSIS

67- 71

Chapter- 6 ANALYSIS OF DATA 72- 95

Chapter - 7 RESEARCH REPORT 96- 102

Chapter - 8 FINDINGS ANDCONCLUSIONS

1103- 108

Chapter - 9 SUGGESTIONS &RECOMMENDATIONS

109- 111

BIBLIOGRAPHY 112

THANK YOU 113

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MUTUAL FUNDS

ALL ABOUT MUTUAL FUNDS

WHAT IS MUTUAL FUND

BY STRUCTURE

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BY NATURE

EQUITY FUND

DEBT FUNDS

BY INVESTMENT OBJECTIVE

OTHER SCHEMES

PROS & CONS OF INVESTING IN MUTUAL

FUNDS

ADVANTAGES OF INVESTING MUTUAL

FUNDS

DISADVANTAGES OF INVESTING MUTUAL

FUNDS

MUTUAL FUNDS INDUSTRY IN INDIA

MAJOR PLAYERS OF MUTUAL FUNDS IN

INDIA

HISTORY OF THE INDIAN MUTUAL FUND

INDUSTRY

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CATEGORIES OF MUTUAL FUNDS

INVESTMENT STRATEGIES

WORKING OF A MUTUAL FUND

GUIDELINES OF THE SEBI FOR MUTUAL

FUND

COMPANIES DISTRIBUTION CHANNELS

DOES FUND PERFORMANCE AND RANKING

PERSIST?

PORTFOLIO ANALYSIS TOOLS

RESEARCH REPORT

OBJECTIVE OF RESEARCH

SCOPE OF THE STUDY

DATA SOURCES

SAMPLING

DATA ANALYSIS

QUESTIONNAIRE

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Chapter - 1

Introduction

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INTRODUCTION TO MUTUAL FUND AND ITS

VARIOUS ASPECTS.

Mutual fund is a trust that pools the savings of a number of

investors who share a common financial goal. This pool of money

is invested in accordance with a stated objective. The joint

ownership of the fund is thus Mutual, i.e. the fund belongs to all

investors. The money thus collected is then invested in capital

market instruments such as shares, debentures and other securities.

The income earned through these investments and the capital

appreciations realized are shared by its unit holders in proportion

the number of units owned by them. Thus a Mutual Fund is the

most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed

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basket of securities at a relatively low cost. A Mutual Fund is an

investment tool that allows small investors access to a well-

diversified portfolio of equities, bonds and other securities. Each

shareholder participates in the gain or loss of the fund. Units are

issued and can be redeemed as needed. The funds Net Asset value

(NAV) is determined each day.

Investments in securities are spread across a wide cross-section

of industries and sectors and thus the risk is reduced.

Diversification reduces the risk because all stocks may not move

in the same direction in the same proportion at the same time.

Mutual fund issues units to the investors in accordance with

quantum of money invested by them. Investors of mutual funds

are known as unit holders.

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When an investor subscribes for the units of a mutual fund, he becomes

part owner of the assets of the fund in the same proportion as his

contribution amount put up with the corpus (the total amount of the fund).

Mutual Fund investor is also known as a mutual fund shareholder or a unit

holder.

Any change in the value of the investments made into capital market

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instruments (such as shares, debentures etc) is reflected in the Net Asset

Value (NAV) of the scheme. NAV is defined as the market value of the

Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is

calculated by dividing the market value of scheme's assets by the total

number of units issued to the investors.

ADVANTAGES OF MUTUAL FUND

Professional Management

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The idea behind a mutual fund is that individual investors generally lack thetime, the inclination or the skills to manage their own investment. Thus mutualfunds hire professional managers to manage the investments for the benefit oftheir investors in return for a management fee.

The organization that manages the investment is the Asset Management

Company (AMC). Employees of the AMC who perform this role of managinginvestments are the fund managers.

Diversification

The best mutual funds design their portfolios so individual investments willreact differently to the same economic conditions. For example, economicconditions like a rise in interest rates may cause certain securities in adiversified portfolio to decrease in value. Other securities in the portfolio willrespond to the same economic conditions by increasing in value. When a

portfolio is balanced in this way, the value of the overall portfolio shouldgradually increase over time, even if some securities lose value.

Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid manyproblems such as bad deliveries, delayed payments and follow up with brokersand companies. Mutual Funds save your time and make investing easy andconvenient.

Low cost

Mutual fund expenses are often no more than 1.5 percent of your investment.Expenses for Index Funds are less than that, because index funds are notactively managed. Instead, they automatically buy stock in companies that arelisted on a specific index.

Choice of Schemes

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A mutual fund can, and typically does have several schemes to cater todifferent investors preferences. The individual could choose to hire a

professional manager to manage his money as per his investment and riskpreferences. Such personal treatment often referred to as Portfolio ManagementScheme (PMS).

Legal Framework

Since the investors are often not so well qualified to invest, the mutual fundbusiness is highly regulated. Broadly the existing regulations are:

1. Pre-requisitions to start a mutual fund;2. Permissible schemes and investments;3. Control over marketing process;4. Checks and balances in the legal structure;5. Valuation of securities;6. Level of operational flexibility to the professional investors.

Tax Benefits

Dividend income from mutual fund units will be exempt from income tax witheffect from July 1, 1999. Further, investors can get rebate from tax undersection 88 of Income Tax Act, 1961 by investing in Equity Linked SavingSchemes of mutual funds. Further benefits are also available under section54EA and 54EB with regard to relief from long term capital gains tax in certainspecified schemes.

Return Potential

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Mutual funds allow you to allocate investments assets across different fundcategories to achieve a variety of risk/reward objectives thereby reducingoverall portfolio risk. In other words, the right way to benefit from Mutualfunds is to balance the risk as well as the potential to earn.

Liquidity

Open-end schemes offer liquidity through on-going sale and re-purchasefacility. Thus, the investor does not have to worry about finding a buyer for hisinvestment a risk normally associated with direct investment in the securitiesmarket.

Transparency

You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportioninvested in each class of assets and the fund manager's investment strategy andoutlook.

Flexibility

Through features such as regular investment plans, regular withdrawal plansand dividend reinvestment plans, you can systematically invest or withdrawfunds according to your needs and convenience.

Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks.A mutual fund because of its large corpus allows even a small investor to takethe benefit of its investment strategy.

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LIMITATIONS OF MUTUAL FUNDS

No Guarantees

No investment is risk free. If the entire stock market declines in value, the valueof mutual fund shares will go down as well, no matter how balanced the

portfolio. Investors encounter fewer risks when they invest in mutual fundsthan when they buy and sell stocks on their own. However, anyone who investsthrough a mutual fund runs the risk of losing money.

Fees and commissions

All funds charge administrative fees to cover their day-to-day expenses. Somefunds also charge sales commissions or "loads" to compensate brokers,financial consultants, or financial planners. Even if you don't use a broker orother financial adviser, you will pay a sales commission if you buy shares in aLoad Fund.

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Taxes

During a typical year, most actively managed mutual funds sell anywhere from20 to 70 percent of the securities in their portfolios. If your fund makes a profiton its sales, you will pay taxes on the income you receive, even if you reinvestthe money you made.

Management risk

When you invest in a mutual fund, you depend on the fund's manager to makethe right decisions regarding the fund's portfolio. If the manager does not

perform as well as you had hoped, you might not make as much money on yourinvestment as you expected. Of course, if you invest in Index Funds, youforego management risk, because these funds do not employ managers.

Dilution

It's possible to have too much diversification. Because funds have smallholdings in so many different companies, high returns from a few investmentsoften don't make much difference on the overall return. Dilution is also theresult of a successful fund getting too big. When money pours into funds thathave had strong success, the manager often has trouble finding a goodinvestment for all the new money.

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HISTORY OF THE INDIAN

MUTUAL FUND INDUSTRY

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A little history

The mutual fund industry started in India in a small way with the UTI Actcreating what was effectively a small savings division within the RBI. Over

period of 25 years this grew fairly successfully and gave investors a goodreturn, and therefore in 1989, as the next logical step, public sector banks andfinancial institutions were allowed to float mutual funds and their successemboldened the government to allow the private sector to foray into this area.The initial years of the industry also saw the emerging years of the Indianequity market, when a number of mistakes were made and hence the mutualfund schemes, which invested in lesser-known stocks and at very high levels,

became loss leaders for retail investors. From those days to today the retailinvestor, for whom the mutual fund is actually intended, has not yet returned tothe industry in a big way. But to be fair, the industry too has focused on briningin the large investor, so that it can create a significant base corpus, which canmake the retail investor feel more secure.

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HISTORY OF MUTUAL FUND

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutualfund industry in the year 1963. The primary objective at that time was to attractthe small investors and it was made possible through the collective efforts ofthe Government of India and the Reserve Bank of India. The history of mutualfund industry in India can be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust ofIndia - 1964-87:

Unit Trust of India enjoyed complete monopoly when it was established in theyear 1963 by an act of Parliament. UTI was set up by the Reserve Bank ofIndia and it continued to operate under the regulatory control of the RBI untilthe two were de-linked in 1978 and the entire control was transferred in thehands of Industrial Development Bank of India (IDBI). UTI launched its firstscheme in 1964, named as Unit Scheme 1964 (US-64), which attracted thelargest number of investors in any single scheme over the years.UTI launched more innovative schemes in 1970s and 80s to suit the needs ofdifferent investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in1986, Master share (Indias first equity diversified scheme) in 1987 andMonthly Income Schemes (offering assured returns) during 1990s. By the endof 1987, UTI's assets under management grew ten times to Rs 6700 crores.

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Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players

entering the market in the year 1987. In November 1987, SBI Mutual FundFrom the State Bank of India became the first non-UTI mutual fund in India.SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC MutualFund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC MutualFund and PNB Mutual Fund. By 1993, the assets under management of theindustry increased seven times to Rs. 47,004 crores. However, UTI remained to

be the leader with about 80% market share.

.

Phase III. Emergence of Private Sector Funds - 1993-96

The permission given to private sector funds including foreign fundmanagement companies (most of them entering through joint ventures withIndian promoters) to enter the mutual fund industry in 1993, provided a widerange of choice to investors and more competition in the industry. Private fundsintroduced innovative products, investment techniques and investor-servicing

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technology. By 1994-95, about 11 private sector funds had launched theirschemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation fromthe SEBI after the year 1996. The mobilization of funds and the number of

players operating in the industry reached new heights as investors startedshowing more interest in mutual funds.

Inventors' interests were safeguarded by SEBI and the Government offered taxbenefits to the investors in order to encourage them. SEBI (Mutual Funds)Regulations, 1996 was introduced by SEBI that set uniform standards for allmutual funds in India. The Union Budget in 1999 exempted all dividend

incomes in the hands of investors from income tax. Various InvestorAwareness Programmes were launched during this phase, both by SEBI andAMFI, with an objective to educate investors and make them informed aboutthe mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of itsSpecial legal status as a trust formed by an Act of Parliament. The primaryobjective behind this was to bring all mutual fund players on the same level.UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTIMutual Fund

Presently Unit Trust of India operates under the name of UTI Mutual Fund andits past schemes (like US-64, Assured Return Schemes) are being graduallywound up. However, UTI Mutual Fund is still the largest player in the industry.In 1999, there was a significant growth in mobilization of funds from investorsand assets under management which is supported by the following data:

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ASSETS UNDER MANAGEMENT (RS. CRORES)

AS ON UTI PUBLIC SECTOR PRIVATE SECTOR TOT

AL

31-March-99 53,320 8,292 6,860 68,4

72

GROSS FUND MOBILISATION (RS. CRORES)

FROM TO UTIPUBLIC

SECTOR

PRIVATE

SECTORTOTAL

01-April-98

31-

March-

99

11,679 1,732 7,966 21,377

01-April-99

31-

March-

00

13,536 4,039 42,173 59,748

01-April-00

31-

March-

01

12,413 6,192 74,352 92,957

01-April-0131-

March-

02

4,643 13,613 1,46,267 1,64,523

01-April-0231-Jan-

035,505 22,923 2,20,551 2,48,979

01-Feb.-03

31-

March-

03

* 7,259* 58,435 65,694

01-April-03

31-

March-

04

- 68,558 5,21,632 5,90,190

01-April-04

31-

March-

05

- 1,03,246 7,36,416 8,39,662

01-April-05

31-

March-

06

- 1,83,446 9,14,712 10,98,158

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Phase V. Growth and Consolidation - 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently,examples of which are acquisition of schemes of Alliance Mutual Fund byBirla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by PrincipalMutual Fund. Simultaneously, more international mutual fund players haveentered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29funds as at the end of March 2006. This is a continuing phase of growth of theindustry through consolidation and entry of new international and private sector

players.

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CATEGORIES OF MUTUAL FUND:

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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 can not 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:

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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:

i) Index funds-In this case a key stock market index, like BSE

Sensex or Nifty is tracked. Their portfolio mirrors the

benchmark index both in terms of composition and individual

stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in

equities spreading across different sectors and stocks.

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iii|) Dividend yield funds- it is similar to the equity diversified

funds except that they invest in companies offering high dividend

yields.

iv) 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.

v) Sector funds- Invest 100% of the capital in a specific sector.

e.g. - A banking sector fund will invest in banking stocks.

vi) 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

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vehicle for investors who prefer spreading their risk across various

instruments. Following are balanced funds classes:

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

ii) 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.

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i) Liquid funds- These funds invest 100% in money market

instruments, a large portion being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in

government securities and T-bills.

iii) Floating rate funds - Invest in short-term debt papers.

Floaters invest in debt instruments which have variable coupon

rate.

iv) Arbitrage fund- They generate income through arbitrage

opportunities due to mis-pricing between cash market and

derivatives market. Funds are allocated to equities, derivatives and

money markets. Higher proportion (around 75%) is put in money

markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-

term government securities.

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vi) Income funds LT- Typically, such funds invest a major

portion of the portfolio in long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90%

to debt and an exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose

maturity is in line with that of the fund.

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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 indebt 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.

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RISK V/S. RETURN:

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Chapter 2

SYSTAMATIC

INVESTMENT

PLAN

(SIP)

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Most of us have the same idea when it comes to money. All we want to do isspend it. With a fantastic range of consumer products out there, investmentsseem like the most boring things that you can consider. In fact, if it werent fortax saving purpose, most of us would not end up investing anything at all. Weneed to realize, however, that someday, our hard-earned money isnt going to

be able to buy the same things as it used to. This is because of inflation, thephenomenon that slowly eats up our purchasing powers without us evenrealizing it.

Beating Inflation with Investment

Beating inflation has a very important role to play in protecting the value ofmoney. Most of us are so busy that we realize only later that our hard earned

money is not able to buy the same things that it used to. As the chart along sideexplains, an inflation rate of only 5% per annum can erode your purchasingpower significantly over longer periods of time. To go one up on inflation, youneed to make your money grow fast enough to so that it can still buy what itused to and more. All of us have some dreams to fulfill and some needs to takecare of. Whether its your childrens education, a marriage, a car, a house, aforeign vacation or your retirement plan, the only way you can make thesethings possible is by planning your savings and investments wisely.

What is a Systematic Investment Plan (SIP)?

SIP is an investment option that is presently available only with mutual funds.The other investment option comparable to SIPs is the recurring depositschemes from Post office and banks. Basically, under an SIP option an investor

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commits making a regular (monthly) investment in a particular mutualfund/deposit.

SIP is a method of investing a fixed sum, regularly, in a mutual fund. It is verysimilar to regular saving schemes like a recurring deposit.

An SIP allows you to buy units on a given date each month, so that you canimplement an investment / saving plan for yourself. Once you have decided onthe amount you want to invest every month and the mutual fund scheme inwhich you want to invest, you can either give post-dated cheques or ECSinstruction, and the investment will be made regularly. SIPs generally start atminimum amounts of Rs 1,000 per month and the upper limit for using an ECSis Rs 25000 per instruction. Therefore, if you wish to invest Rs 100,000 permonth, you may need to do it on 4 different dates.

A specific amount should be invested for a continuous period atregular intervals under this plan.

SIP is similar to a regular saving scheme like a recurring deposit.It is a method of investing a fixed sum regularly in a mutual fund.

SIP allows the investor to buy units on a given date every month.The investor decides the amount and also the mutual fund scheme.

While the investor's investment remains the same, more numberof units can be bought in a declining market and less number of units ina rising market.

The investor automatically participates in the market swings oncethe option for SIP is made.

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Lets take an example:

An investor, Rahul wants to invest in fund X which can be an equity,income or gilt fund.

The policy of fund X for entering in an SIP is that the investor willhave to issue 6 post-dated cheques of Rs 500/- in case of monthly optionor 4 cheques in a quarterly option. The minimum investment for all itsschemes is Rs 5,000. Rahul issues 6 post-dated cheques of Rs 500/-each in the name of fund X, with the first cheque being dated as on 7thMay 2001.

Now in the month of August 2001 Rahul wants to change his SIP

structure from Rs 500/- to Rs 1,000/-. In this case he will have tointimate the fund and will have to fill a new SIP form issuing news post-dated cheques of Rs 1,000/- each.

Rahul is investing in three different schemes of fund X. In two of theschemes Rahul is the first holder and in the third scheme his wife is thefirst holder. In this case he can fill a common SIP form where he is thefirst holder and where his wife is the first holder he will have to fill in anew SIP form.

In the month of September 2001 Rahul wants to exit from the fund. Hewill have to just give a redemption request to the fund wherein his unitswill be redeemed and his remaining post-dated cheques will be returned

back to him irrespective of whether he has completed his minimuminvestment in the fund.

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Investing in SIPs is also known as Rupee cost averaging. The advantage ofrupee cost averaging is that the Net asset value (NAV) is averaged out, as theinvestor will be entering the fund at different NAVs, which may be higher orlower depending on the market condition.

Lets take the example of Rahul wherein he has started investing in units everymonth since he issued the first cheque on 7th May 2001. In this example weassume that he does not change his SIP structure and also does not redeem theunits.

Investment in fund 'X' of Mr. Rahul

Period Investment(Rs) NAV(Rs per unit) Units allocated

7th May'01 500.0 10.0 50.0

7th June,01 500.0 13.0 38.57th July'01 500.0 10.5 47.6

7th Aug'01 500.0 9.5 52.6

7th Sep'01 500.0 8.0 62.5

Total a=2,500 b=251.2

Actual average NAV (Rs.) = Rs 10.2 per unitNAV for Rahul= Rs 9.95 per unit (a/b)

The above table shows clearly how rupee cost averaging works and how it wasbeneficial to Rahul. The actual average NAV of a fund is Rs 10.2/- per unit,but the average NAV for Rahul is Rs 9.95/- per unit, which is lower than thecurrent NAV.

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An investor who is not having a lump-sum amount to invest and also does notwant to take much risk on his investment should always select a SystematicInvestment Plan option. This will enable him to invest regularly i.e. improveinvesting discipline. Also, the investor stands to benefit from rupee costaveraging.

How to invest in SIPs?

The SIP option is available with all types of funds like equity, income orgilt.

An investor can avail the SIP option by giving post-dated cheques of Rs500 or Rs 1,000 according to the funds policy.

If an investor wants to put more than Rs 500 or Rs 1,000 in any givenmonth he will have to fill in a new a form for SIP intimating the fundthat he is changing his SIP structure. Also he will be allowed to changethe SIP structure only in the multiples of the SIP amount.

If an investor is investing in two different schemes of the same fund hecan fill in a common SIP form for all the schemes. However if the firstholders in those schemes are different than they will have to fill differentSIP forms, as the first holder has to sign on the form.

The investor can get out of the fund i.e. redeem his units any timeirrespective of whether he has completed his minimum investment inthat scheme. In such a case his post-dated cheques will be returned backto him.

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5 reasons for investing Systematically

Over the last 12 months investors in equity markets have seen it all. From all

time high of 6200 levels to dismal low of 4200. A lot of investors who enteredat 6,200 expecting the market to go even higher are very upset. Most investorscannot really stomach the kind of volatility that is inherent in equity markets.At the end of the day, investors who can take some risk are actually shunningequities only because they entered equity markets at the wrong time.Systematic investment plans (SIPs) take care of this problem. But markettiming is not the only reason for you to plump for SIPs, there are otheradvantages.

1. Light on the walletGiven that average per capital income of an Indian is approximately only Rs25,000 (i.e. monthly income of Rs 2,083), a Rs 5,000 one-time entry in amutual fund is still asking for a lot (2.4 times the monthly income!). Andmutual funds were never meant to be elitist; far from it, the retail investor is asmuch a part of the mutual fund target audience as the next high networthinvestor (HNI). So if you cannot shell out Rs 5,000, thats not a huge stumbling

block, take the SIP route and trigger your mutual fund investment with as lowas Rs 500 (in most cases).

2. Makes market timing irrelevant

If market lows give you the jitters and make you wish you had never investedin equity markets, then SIPs can help you blunt that depression. Most retailinvestors are not experts on stocks and are even more out-of-sorts with stockmarket oscillations. But that does not necessarily make stocks a loss-makinginvestment proposition. Studies have repeatedly highlighted the ability of

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stocks to outperform other asset classes (debt, gold, property) over the long-term (at least 5 years) as also to effectively counter inflation. So if stocks aresuch a great thing, why are so many investors complaining? Its because theyeither got the stock wrong or the timing wrong. Both these problems can besolved through an SIP in a mutual fund with a steady track record.

3. Helps you build for the future

Most of us have needs that involve significant amounts of money, like childseducation, daughters marriage, buying a house or a car. If you had to save forthese milestones overnight or even a couple of years in advance, you areunlikely to meet your objective (wedding, education, house, etc). But if youstart saving a small amount every month/quarter through SIPs that is treated assacred and that is set aside for some purpose, you have a far better chance ofmaking that down payment on your house or getting your daughter marriedwithout drawing on your PF (provident fund).

4. Compounds returns

The early bird gets the worm is not just a part of the jungle folklore. Even theearly investor gets a lions share of the investment booty vis--vis the investorwho comes in later. This is mainly due to a thumb rule of finance calledcompounding. According to a study by Principal Mutual Fund if InvestorEarly and Investor Late begin investing Rs 1,000 monthly in a balanced fund(50:50 equity:debt) at 25 years and 30 years of age respectively, InvestorEarly will build a corpus of Rs 8 m (Rs 80 lakhs) at 60 years, which is twice thecorpus of Rs 4 m that Investor Late will accumulate. A gap of 5 only years

results in a doubling of the investment corpus! That is why SIPs should becomean investment habit. SIPs run over a period of time (decided by you) and helpyou avail of compounding.

5. Lowers the average cost

SIPs work better as opposed to one-time investing. This is because of rupee-cost averaging. Under rupee-cost averaging an investor typically buys more of

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a mutual fund unit when prices are low. On the other hand, he will buy fewermutual fund units when prices are high. This is a good discipline since it forcesthe investor to commit cash at market lows, when other investors around himare wary and exiting the market. Investors may even be pleased when pricesfall because the fixed rupee investment would now fetch more units.

Let us break some myths on SIP now.

Investment in equity mutual funds or unit linked insurance should always

be done in SIP mode:

In 1999 when Templeton Mutual fund would talk about SIP the marketlooked at it skeptically. And it took a lot of convincing for customers to acceptit. Now, life has come a full circle. Everybody wants to (always) invest usingan SIP. If you have the maturity and calmness to realize that equities are for thelong term and are willing to give your funds about 10 years, and you have alump sum, you can afford to give the SIP route a pass. However, if yourhorizon is less than five years, you must do an SIP.

I do rupee cost averaging in a single equity that is a kind of SIP is it not?

This is a question I face every day. No, a rupee cost averaging in a single scripcannot be equated to an SIP. When the market brings down the price of a singlescrip, it is giving you information. You need to react to that.

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Let us take 2 examples Lupin Laboratories has moved from a high of Rs700 to Rs 100 and back to Rs 700. The question to ask here is not whether anSIP would have worked. The question to ask is whether you would have hadthe stomach to continue the SIP through this period. Silverline Technologiesmoved from Rs 30 to Rs 1300 to Rs 14! In this case, if you had started an SIPat a price of Rs 1300, today you would be licking your wounds. SIP works in a

portfolio, not in a single scrip.

You cannot invest a lump sum in the same account in which you are doing

an SIP:

Many people assume that if they are doing an SIP in a particular fund, andsuddenly they have a surplus, they cannot put that lump sum in thataccount. Fact is, in case you are doing an SIP of Rs 10,000 per month in anequity fund, and suddenly you have a surplus of Rs 100,000 and clearly you

have a 10-year view on the same, then you can just push it into your SIPaccount. SIP is just a payment mode, not a scheme!

If I miss investing for a particular month, will they prosecute me?

Now, this is the fear of EMI that people have. In an SIP you are buying aninvestment every month (or quarter), there is no question of prosecuting youfor missing one investment. As a matter of discipline, you should not miss any

month; however, missing one months investment is not a crime!

When you have a surplus (accumulation stage of your life) you should do

an SIP and during retirement you should do a Systematic Withdrawal

Plan (SWP):

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No. You should ideally keep your withdrawals only from an income fund or abank fixed deposit. You should sell an equity fund on some other basis, saydeciding to sell 20% of your portfolio in a year so that the return is 4 times the30 year historic return. SWP, by definition cannot work in an equity fund!

SIP works for everybody, but does not work for me:

Another myth. SIP works in a well-diversified equity fund in the long run.When people put forth arguments that it does not work for them, they haveeither not chosen a good fund or are looking at a 12 month horizon.

SIP is only for small investors:

Nothing can be farther from the truth. I have a client who has invested Rs32.66 lakhs using SIP, starting from January 1998 till date. Obviously, he has

invested much more in later years as his income went up and the funds togetherare worth Rs 97 lakhs, substantially higher than his provident fund.

Market is at very high level to start an SIP:

I have heard this when the index was 3000 also. I have no clue where themarket is headed, but I know SIP works!

All fund houses are now charging a full load on the SIP, so now SIP will

not work Why not time the market?

Introducing an entry load was expected to happen and it has happened. Whatactually hurts the retail investor is the asset management charges 2.5% inmost cases is a bigger threat to compounding

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If I do an SIP in a tax plan, can I withdraw all the money on completion of

3 years?

Another regular question almost! Every installment has to be with the fundhouse for 3 years. The lock-in comes from the Income tax rules, which say that

a tax saving scheme should have a 3-year lock-in. You cannot escape that bydoing an SIP!

Benefits of investing in HDFC MF SIP

HDFC MF SIP is similar to a Recurring Deposit. Every month on a specifieddate an amount you choose is invested in a mutual fund scheme of your choice.The dates currently available for SIPs are the 1st, 5th, 10th, 15th, 20th and

the 25th of a month. Youll be amazed to learn about the many benefits ofinvesting through HDFC MF SIP.

Benefit 1Become A Disciplined Invester

Being disciplined - Its the key to investing success. With the HDFC MFSystematic Investment Plan you commit an amount of your choice (minimumof Rs. 1000 and in multiples of Rs. 100 thereof*) to be invested every month inone of our schemes.

Think of each SIP payment as laying a brick. One by one, youll see themtransform into a building. Youll see your investments accrue month aftermonth. Its as simple as giving at least 6 postdated monthly cheques to us for afixed amount in a scheme of your choice. Its the perfect solution for irregularinvestors.

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Benefit 2Reach Your Financial Goal

Imagine you want to buy a car a year from now, but you dont know where thedown-payment will come from. HDFC MF SIP is a perfect tool for people whohave a specific, future financial requirement. By investing an amount of yourchoice every month, you can plan for and meet financial goals, like funds for a

childs education, a marriage in the family or a comfortable postretirement life.The table below illustrates how a little every month can go a long way.

Monthly Savings - What your savings may generate

Savings per month

(for 15 years)

Total amount invested(Rs. in Lacs)

Rate of return

6.0% 8.0% 10.0%

(rupees in lacs, 15 years later)*

5000 9.0 14.6 17.4 20.94000 7.2 11.7 13.9 16.7

3000 5.4 8.8 10.4 12.5

2000 3.6 5.8 7.0 8.3

1000 1.8 2.9 3.5 4.2

*Monthly instalments, compounded monthly, for a 15-year period.

Benefit 3Take Advantage of Rupee Cost Averaging

Most investors want to buy stocks when the prices are low and sell them whenprices are high. But timing the market is time consuming and risky. A more

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successful investment strategy is to adopt the method called Rupee CostAveraging. To illustrate this well compare investing the identical amountsthrough a SIP and in one lump sum.

Imagine Suresh invests Rs. 1000 every month in an equity mutual fund schemestarting in January. His friend, Rajesh, invests Rs. 12000 in one lump sum inthe same scheme. The following table illustrates how their respective

investments would have performed from Jan to Dec:

Sureshs Investment Rajeshs Investment

Month NAV Amount Units Amount Units

Jan-04 9.345 1000 107.0091 12000 1284.1091

Feb-04 9.399 1000 106.3943

Mar-04 8.123 1000 123.1072

Apr-04 8.750 1000 114.2857

May-04 8.012 1000 124.8128

Jun-04 8.925 1000 112.0448

Jul-04 9.102 1000 109.8660

Aug-04 8.310 1000 120.3369

Sep-04 7.568 1000 132.1353

Oct-04 6.462 1000 154.7509

Nov-04 6.931 1000 144.2793Dec-04 7.600 1000 131.5789

*NAV as on the 10th every month. These are assumed NAVs in a volatilemarket

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As seen in the table, by investing through SIP, you end up buying more unitswhen the price is low and fewer units when the price is high. However, over a

period of time these market fluctuations are generally averaged. And theaverage cost of your investment is often reduced.

At the end of the 12 months, Suresh has more units than Rajesh, even thoughthey invested the same amount. Thats because the average cost of Sureshsunits is much lower than that of Rajesh. Rajesh made only one investment andthat too when the per-unit price was high.

Sureshs average unit price = 12000/1480.6012 = Rs. 8.105Rajeshs average unit price = Rs. 9.345

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Benefit 4Grow Your Investment With Compounded Benefits

It is far better to invest a small amount of money regularly, rather than save upto make one large investment. This is because while you are saving the lumpsum, your savings may not earn much interest.

With HDFC MF SIP, each amount you invest grows through compoundingbenefits as well. That is, the interest earned on your investment also earnsinterest. The following example illustrates this.

Imagine Neha is 20 years old when she starts working. Every month she savesand invests Rs. 5,000 till she is 25 years old. The total investment made by herover 5 years is Rs. 3 lakhs.Arjun also starts working when he is 20 years old.But he doesnt invest monthly. He gets a large bonus of Rs. 3 lakhs at 25 anddecides to invest the entire amount.

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Both of them decide not to withdraw these investments till they turn 50. At 50,Nehas Investments have grown to Rs. 46,68,273* whereas Arjunsinvestments have grown to Rs. 36,17,084*. Nehas small contributions to a SIPand her decision to start investing earlier than Arjun have made her wealthier

by over Rs. 10 lakhs.

*Figures based on 10% p.a. interest compounded monthly.

Benefit 5Do All This Effortlessly

Investing with HDFC MF SIP is easy. Simply give us post-dated cheques or optfor an Auto Debit from your bank account for an amount of your choice(minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) and well invest

the money every month in a fund of your choice. The plans are completelyflexible. You can invest for a minimum of six months, or for as long as youwant. You can also decide to invest quarterly and will need to invest for aminimum of two quarters.

HDFC Mutual Fund has proposed to revise the minimum amount perSystematic Investment Plan (SIP) installments with effect from 16 March 2009.

As per the revision, monthly SIP and Group SIP-Monthly Plan have beenseperated. Under Group Systematic Investment plan (GSIP) - Monthly plan, theminimum amount per installment for schemes other than HDFC Tax Saver andHDFC Long Term Advantage Fund will be Rs 500 and in multiples of Rs 100thereafter. And the minimum amount per installment for HDFC Tax Saver andHDFC Long Term Advantage Fund will be Rs 500 and in multiples of Rs 500thereafter.

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There is no change in the Monthly Systematic Investment Plan. Beforerevision, minimum amount per SIP installment provision is same for monthlySIP and group SIP. Presently, the minimum amount per installment forschemes other than HDFC Tax Saver and HDFC Long Term Advantage Fundis Rs 1000 and in multiples of Rs 100 thereafter. And the minimum amount perinstallment for HDFC Tax Saver and HDFC Long Term Advantage Fund is Rs500 and in multiples of Rs 500 thereafter.

Chapter 3

Company Profile

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MAN WITH A MISSION

If ever there was a man with a mission it was Hasmukhbhai Parekh, Founder

and Chairman-Emeritus, of HDFC Group who left this earthly abode on

November 18, 1994. Born in a traditional banking family in Surat, Gujarat, Mr.

Parekh started his financial career at Harkisandass Lukhmidass a leading

stock broking firm. The firm closed down in the late seventies, but, long before

that, he went on to become a towering figure on the Indian financial scene.

In 1956 he began his lifelong financial affair with the economic world, as

General

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

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

in 1972.

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

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

to the Housing Development Finance Corporation it was a trend-setter for

housing finance in the whole Asian continent.

He was also a writer in his own right. There are over 200 published articles by

him...

In 1992, the Government of India honored him with the Padma Bhushan

Award. The London School of Economics & Political Science conferred on

him an Honorary Fellowship.He was one of the Founder Members of the Centre for Advancement of

Philanthropy, and its Chairman till 1993.

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

specifically to serve the needs of the citys underprivileged citizens.

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

Taking over from H.T. Parekh is a formidable task; his vision brought about

not only an institution, but an entire concept which has proved itself to be of

lasting importance.

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

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

Rs. 22,000 cores. We also aim to increase the flow of resources to the housing

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sector by integrating the housing finance sector with the overall domestic

financial markets.

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

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

through housing loans worth over Rs. 42,000 cores.

ABOUT COMPANY HDFC

VISION

To be a dominant player in the Indian mutual

fund space , recognized for its high levels of

ethical and professional conduct and a

commitment towards enhancing investor

interests.

ORGANIZATION AND MANAGEMENT

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HDFC is a professionally managed organization with a board of directors

consisting of eminent persons who represent various fields including finance,

taxation, construction and urban policy & development. The board primarily

focuses on strategy formulation, policy and control, designed to deliver

increasing value to shareholders.

Name and Designation Location Contact Number

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

Corporation. He is fellow of the Institute of Chartered

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

Corporation in a senior management position in

1978.He was inducted as a whole time director of theCorporation in 1985 and was appointed as the Chairman in 1993. He is the

chief executive officer of the Corporation Mumbai.

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

Corporation. Is a Fellow of the Institute of Chartered

Accountants of India? He has been employed with the

Corporation since 1981 and was the executive director of

the Corporation since 1993. He was appointed as the

deputy managing director in 1999 and the Managing

Director in 2000. He is also a member of the Investors Grievance Committee

of Directors.

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Ms. Renu S. Karnad the Executive Director of the Corporation. Is a graduate in

law and holds a Masters degree in economics from Delhi

University. She has been employed with the Corporation

since 1978 and was appointed as the Executive Director

of the Corporation in 2000. She is responsible for

overseeing all aspects of lending operations of

HDFC.New Delhi.

BOARD OF DIRECTORS

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

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

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

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

Mr. Shirish B Patel Mr. N M Munjee

Mr. B S Mehta Mr. D M Satwalekar

HDFC ASSET MANAGEMENT COMPANY LIMITED

(AMC)

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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:

Particulars % of the paid up capital

Housing Development Finance Corporation Limited 50.10

Standard Life Investments Limited 49.90

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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. These

schemes have been renamed as follows:

FORMER NAME NEW NAME

Zurich India Equity Fund HDFC Equity Fund

Zurich India Prudence Fund HDFC Prudence FundZurich India Capital Builder Fund HDFC Capital Builder Fund

Zurich India Tax Saver Fund HDFC Tax Saver Fund

Zurich India Top 200 Fund HDFC Top 200 Fund

Zurich India High Interest Fund HDFC High Interest Fund

Zurich India Liquidity Fund HDFC Liquidity Fund

Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund

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

Investment Plan and HDFC Long Term Equity Fund and 23 open-ended

schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced

Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC

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Long Term Advantage Fund, HDFC Tax Plan 2000 (HTP), HDFC Children's

Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan

(HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF),

HDFC Equity Fund (HEF), HDFC Top 200 Fund, (HT200), HDFC Capital

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

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

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

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

(HMYF), HDFC Premier Multi-Cap Fund (HPM) and HDFC Multiple Yield

Fund Plan 2005 (HMY2005).

The AMC is also providing portfolio management / advisory services and suchactivities are not in conflict with the activities of the Mutual Fund. The AMC

has renewed its registration from SEBI vide Registration No. - PM /

INP000000506 dated December 22, 2000 to act as a Portfolio Manager under

the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of

Registration is valid from January 1, 2004 to December 31, 2006.

SPONSORS

HOUSING DEVELOPMENT FINANCE CORPORATION

LIMITED (HDFC):

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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 insurancecompanies, 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

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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 hasconsiderable 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

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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

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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 FundHDFC 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

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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 PlanHDFC Multiple Yield Fund

HDFC Multiple Yield Fund Plan 2005

HDFC MUTUAL FUND AT A GLANCE

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Name of Unit : HDFC MUTUAL FUND

Address : 2nd Floor, Shiv Darshan, 5 Jagnath

Plot,Dr.Radhakrishna Road,

Form of Organization : Private Sector

Contact Number : (0281)-5524881/82

Establishment year : 2000

Sponsors : Housing Development FinanceCorporation Limited (HDFC),

Standard Life Investments Limited.

Management : Trustee.

HDFC Asset Management Company Limited

(AMC).

Working Hours : 9.30 am to 9.00 p.m

Web site : www.hdfcfund.com

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ACHIEVEMENT AND AWARDS

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

awarded the Gold Award for Best Performance in the category of Open

Ended Balanced Scheme for one year Period Ending Dec 31, 2005.

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

Silver award for Second Best Performance in the category of Open

Ended Equity Linked Saving Scheme(ELSS) for Three year Period Ending

Dec 31, 2005.

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

the Gold Award For Best Performance in the category of Open Ended

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

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Chapter - 3

Objectives and scope

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OBJECTIVES OF THE STUDY

1. To find out the Preferences of the investors for Asset

Management Company.

2. To know the Preferences for the portfolios.

3. To know why one has invested or not invested in HDFC

Mutual fund

4. To find out the most preferred channel.

5. To find out what should do to boost Mutual Fund Industry.

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Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent

times. A large number of new players have entered the market and

trying to gain market share in this rapidly improving market.

The research was carried on at one of the branch of Bank of India

LUCKNOW. I surveyed on my Project Topic THE MUTUAL

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FUND IS BETTER INVESTMENT PLAN on the visiting

customers of the Bank of India.

The study will help to know the preferences of the customers,

which company, portfolio, mode of investment, and option for

getting return and so on they prefer. This project report may help

the company to make further planning and strategy.

Chapter 4

QUESTIONAIRE76


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AND

ANALYSIS

QUESTIONAIRE

A study of preferences of the investors for

investment in mutual funds.

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1. Personal Details:

(a). Name:-

(b). Add: - Phone:-

(c). Age:-

(d). Qualification:-

(e). Occupation. Pl tick ()

Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick ().

Up toRs.10,000

Rs. 10,001 to15000

Rs. 15,001 to20,000

Rs. 20,001 to30,000

Rs. 30,001and above

2. What kind of investments you have made so far? Pl tick (). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Funde. Post Office-

NSC, etc

f.

Shares/Debentures

g. Gold/ Silver h. Real Estate

Graduation/PG Under Graduate Others

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3. While investing your money, which factor will you prefer?.

(a) Liquidity (b) Low Risk (c) High

Return

(d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (). YesNo

5. If yes, how did you know about Mutual Fund?

a.Advertisement

b. Peer Group c. Banks d. FinancialAdvisors

6. Have you ever invested in Mutual Fund? Pl tick (). YesNo

7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, inwhich Mutual Fund you have invested? Pl. tick (). Allapplicable.

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a.

SBIMF

b.

UTI

c.

HDFC

d.

Reliance

e. Kotak f. Other. specify

9. If invested in HDFCMF, you do so because (Pl. tick (), all applicable).

a. HDFCMF is associated with HDFC Bank.b. They have a record of giving good returns year after year.c. Agent Advice

10. If NOT invested in HDFCMF, you do so because (Pl. tick () allapplicable).

a. You are not aware of HDFCMF.b. HDFCMF gives less return compared to the others.

c. Agent Advice

11. When you plan to invest your money in asset management co. which AMCwill you prefer?

Assets Management Co.a. SBIMF

b. UTI

c. Relianced. HDFCe. Kotakf. ICICI

12. Which Channel will you prefer while investing in Mutual Fund?

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(a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will youprefer? Pl. tick ().

a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose?

a. Having only debtportfolio

b. Having debt & equityportfolio.

c. Only equity portfolio.

15. How wouldyou like to receive the returns every year? Pl. tick ().

a. Dividend payout b. Dividend re-

investment

c. Growth in NAV

16. Instead of general Mutual Funds, would you like to invest in sectorial

funds?Please tick (). Yes No

Chapter 581


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ANALYSIS

OF

DATA

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ANALYSIS & INTERPRETATION OF THE DATA

1. (a) Age distribution of the Investors of LUCKNOW

Age Group 50

No. of

Investors

12 18 30 24 20 16

Interpretation:

83

12

18

30

2420

16

0

5

10

15

20

25

30

35

50

Age group of the Investors

Inve

storsinvestedinMutualFu

nd


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According to this chart out of 120 Mutual Fund investors of

Lucknow the most are in the age group of 36-40 yrs. i.e. 25%, the

second most investors are in the age group of 41-45yrs i.e. 20%

and the least investors are in the age group of below 30 yrs.

(b). Educational Qualification of investors of Lucknow

Educational Qualification Number of Investors

Graduate/ Post Graduate 88

Under Graduate 25Others 7

Total 120

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71%

23%

6%

Graduate/Post Graduate Under Graduate Others

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71%

23%

6%

Graduate/Post Graduate Under Graduate Others

Interpretation:

Out of 120 Mutual Fund investors 71% of the investors in lucknow are

Graduate/Post Graduate, 23% are Under Graduate and 6% are others (underHSC).

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c). Occupation of the investors of lucknow

Occupation of customer No. of investors

Govt. service 35

Pvt. Service 45

Business 30

Agriculture 04

Others 06

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3545

30

4 60

10

20

30

40

50

Govt.

Service

Pvt.

Service

Business Agriculture Others

Occupation of the customers

No.ofInve

stors

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Interpretation:

In Occupation group out of 120 investors, 38% are Pvt.

Employees, 25% are Businessman, 29% are Govt.

Employees, 3% are in Agriculture and 5% are in others.

(d). Monthly Family Income of the Investors of lucknow.

Income Group No. of Investors30,000 32

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512

28

43

32

0

5

10

1520

25

30

35

40

45

50

30

Income Group of the Investorsn (Rs. in Th.)

No.o

fInvestors

Interpretation:

In the Income Group of the investors of lucknow, out of

120 investors, 36% investors that is the maximum

investors are in the monthly income group Rs. 20,001 to

Rs. 30,000, Second one i.e. 27% investors are in the

monthly income group of more than Rs. 30,000 and the

minimum investors i.e. 4% are in the monthly income

group of below Rs. 10,000

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(2) Investors invested in different kind of investments.

Kind of Investments No. of Respondents

Saving A/C 195Fixed deposits 148Insurance 152Mutual Fund 120Post office (NSC) 75Shares/Debentures 50Gold/Silver 30Real Estate 65

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195

148152

120

75

50

30

65

0 50 100 150 200 250

Saving

A/cIn

suranc

e

Post

Offi

ce(N

SC)

Gold

/Silv

er

Kinds

ofInvestment

No.of Respondents

Interpretation: From the above graph it can be inferred that out

of 200 people, 97.5% people have invested in Saving A/c, 76% in

Insurance, 74% in Fixed Deposits, 60% in Mutual Fund, 37.5% in

Post Office, 25% in Shares or Debentures, 15% in Gold/Silver and

32.5% in Real Estate.

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3. Preference of factors while investing

Factors (a) Liquidity (b) Low

Risk

(c) High

Return

(d) Trust

No. of

Respondents

40 60 64 36

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20%

30%32%

18%

Liquidity Low Risk High Return Trust

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Interpretation:

Out of 200 People, 32% People prefer to invest where there is

High Return, 30% prefer to invest where there is Low Risk, 20%

prefer easy Liquidity and 18% prefer Trust

4. Awareness about Mutual Fund and its Operations

Response Yes NoNo. of Respondents 135 65

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67%

33%

Yes No

Interpretation:

From the above chart it is inferred that 67% People are aware of

Mutual Fund and its operations and 33% are not aware of Mutual

Fund and its operations.

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5. Source of information for customers about Mutual Fund

Source of information No. of Respondents

Advertisement 18Peer Group 25

Bank 30Financial Advisors 62

18 2530

62

010203040506070

No.o

f

Respondents

AdvertisementPeer Group Bank FinancialAdvisors

Source of Information

Interpretation:

From the above chart it can be inferred that the Financial

Advisor is the most important source of information about

Mutual Fund. Out of 135 Respondents, 46% know about Mutual

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fund Through Financial Advisor, 22% through Bank, 19%

through Peer Group and 13% through Advertisement.

6. Investors invested in Mutual Fund

Response No. of Respondents

YES 120

NO 80

Total 200

Yes

60%

No

40%

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Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40%

do not have invested in Mutual Fund.

7.Reason for not invested in Mutual Fund

Reason No. of Respondents

Not Aware 65Higher Risk 5

Not any Specific Reason 10

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81%

13%6%

Not Aware Higher Risk Not Any

Interpretation:

Out of 80 people, who have not invested in Mutual Fund, 81% are

not aware of Mutual Fund, 13% said there is likely to be higher

risk and 6% do not have any specific reason.

8. Investors invested in different Assets Management Co.

(AMC)

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Name of AMC No. of InvestorsSBIMF 55

UTI 75HDFC 30

Reliance 75ICICI Prudential 56

Kotak 45Others 70

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75

75

56

55

45

30

70

0 20 40 60 80

UTI

Reliance

ICICI

SBIMF

Kotak

HDFC

Others

NameofAMC

No. of Investors

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Interpretation:

In lucknow most of the Investors preferred UTI and Reliance

Mutual Fund. Out of 120 Investors 62.5% have invested in each of

them, only 46% have invested in SBIMF, 47% in ICICI

Prudential, 37.5% in Kotak and 25% in HDFC.

9. Reason for invested in HDFCMF

Reason No. of RespondentsAssociated with SBI 35

Better Return 5Agents Advice 15

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64%9%

27%

Associated with SBI Better Return Agents Advice

Interpretation:

Out of 55 investors of HDFCMF 64% have invested because of its

association with Brand HDFC, 27% invested on Agents Advice,

9% invested because of better return.

10. Reason for not invested in HDFCMF

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Reason No. of RespondentsNot Aware 25Less Return 18

Agents Advice 22

38%

28%

34%

Not Aware Less Return Agent's Advice

Interpretation:

Out of 65 people who have not invested in HDFCMF, 38% were

not aware with HDFCMF, 28% do not have invested due to less

return and 34% due to Agents Advice.

11. Preference of Investors for future investment in Mutual

Fund

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Name of AMC No. of InvestorsSBIMF 76

UTI 45HDFC 35

Reliance 82ICICI Prudential 80

Kotak 60Others 75

76

45

35

82

80

60

75

0 20 40 60 80 100

No. of Investors

SBIMF

UTI

HDFC

Reliance

ICICI Prudential

Kotak

Others

NameofAMC

Interpretation:

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Out of 120 investors, 68% prefer to invest in Reliance, 67% in

ICICI Prudential, 63% in SBIMF, 62.5% in Others, 50% in Kotak,

37.5% in UTI and 29% in HDFC Mutual Fund.

12. Channel Preferred by the Investors for Mutual Fund

Investment

Channel Financial Advisor Bank AMCNo. of Respondents 72 18 30

6015

25

Financial Advisor Bank AMC

Interpretation:

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Out of 120 Investors 60% preferred to invest through Financial

Advisors, 25% through AMC and 15% through Bank.

13. Mode of Investment Preferred by the Investors

Mode of Investment One time Investment Systematic Investment Plan (SIP)

No. of Respondents 78 42

65%

35%

One time Investment SIP

Interpretation:

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Out of 120 Investors 65% preferred One time Investment and 35

% Preferred through Systematic Investment Plan.

14. Preferred Portfolios by the Investors

Portfolio No. of InvestorsEquity 56Debt 20

Balanced 44

46%

17%

37%

Equity Debt Balance

Interpretation:

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From the above graph 46% preferred Equity Portfolio, 37%

preferred Balance and 17% preferred Debt portfolio

15. Option for getting Return Preferred by the Investors

Option Dividend Payout Dividend

Reinvestment

Growth

No. of Respondents 25 10 85

21%

8%

71%

Dividend Payout Dividend Reinvestment Growth

Interpretation:

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From the above graph 71% preferred Growth Option, 21%

preferred Dividend Payout and 8% preferred Dividend

Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral Funds

Response No. of Respondents

Yes 25

No 95

21

79%Yes No

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Interpretation:

Out of 120 investors, 79% investors do not prefer to invest in

Sectoral Fund because there is maximum risk and 21% prefer to

invest in Sectoral Fund.

CHAPTER -7

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Research report

Objective of research;

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The main objective of this project is concerned with getting the opinion

of people regarding mutual funds and what they feel about availing the

services of financial advisors.

I have tried to explore the general opinion about mutual funds. It also

covers why/ why not investors are availing the services of financial

advisors.

Along with it a brief introduction to Indias largest financial

intermediary, HDFC has been given and it is shown that how they

operate in mutual fund depts.

Scope of the study:

The research was carried on in the Northern Region of India. It is restricted toLUCKNOW. I have visited people randomly nearby my locality, different

shopping malls, small retailers etc.

Data sources:

Research is totally based on primary data. Secondary data can be used only for

the reference. Research has been done by primary data collection, and primary

data has been collected by interacting with various people. The secondary data

has been collected through various journals and websites and some special

publications of HDFC.

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Sampling:

Sampling procedure:

The sample is selected in a random way, irrespective of them being

investor or not or availing the services or not. It was collected through

mails and personal visits to the known persons, by formal and informal

talks and through filling up the questionnaire prepared. The data has

been analyzed by using the measures of central tendencies like mean,

median, mode. The group has been selected and the analysis has been

done on the basis statistical tools available.

Sample size:

The sample size of my project is limited to 200 only. Out of which only

135 people attempted all the questions. Other 65 not investing in MFs

attempted only 2 questions.

Sample design:

Data has been presented with the help of bar graph, pie charts, line

graphs etc.

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Limitation:

Time limitation.

Research has been done only at LUCKNOW.

Some of the persons were not so responsive.

Possibility of error in data collection.

Possibility of error in analysis of data due to small sample size.

Data analysis:

Have you ever invested/ interested to invest in mutual funds?

YES 135

NO 65

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.what is the most important reason for not investing in mutual

funds? (only for above 65 participants)

Lack of knowledge about mutual

funds

25

Enjoys investing in other options 10Its benefits are not enough to drive

you for investment

18

No trust over the fund managers 12

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.where do you find yourself as a mutual fund investor?

Totally ignorant 28

Partial knowledge of MFs 37

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Aware of only scheme in which

invested

46

Good knowledge of MFs 24

.where from you purchases mutual funds?

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Directly from the AMCs 33

Brokers only ( large intermediaries) 28Broker/ sub-brokers 59Other sources 15

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Chapter 8

Findings and

Conclusion

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Findings

In LUCKNOW in the Age Group of 36-40 years were more in

numbers. The second most Investors were in the age group of 41-45 years

and the least were in the age group of below 30 years.

In LUCKNOW most of the Investors were Graduate or Post

Graduate and below HSC there were very few in numbers.

In Occupation group most of the Investors were Govt. employees,

the second most Investors were Private employees and the least were

associated with Agriculture.

In family Income group, between Rs. 20,001- 30,000 were more in

numbers, the second most were in the Income group of more than

Rs.30,000 and the least were in the group of below Rs. 10,000.

About all the Respondents had a Saving A/c in Bank, 76% Invested

in Fixed Deposits, Only 60% Respondents invested in Mutual fund.

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Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least preferred

Trust.

Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not.

Among 200 Respondents only 60% had invested in Mutual Fund

and 40% did not have invested in Mutual fund.

Out of 80 Respondents 81% were not aware of Mutual Fund, 13%

told there is not any specific reason for not invested in Mutual Fund and

6% told there is likely to be higher risk in Mutual Fund.

Most of the Investors had invested in Reliance or UTI Mutual

Fund, ICICI Prudential has also good Brand Position among investors,

HDFCMF places after ICICI Prudential according to the Respondents.

Out of 55 investors of HDFCMF 64% have invested due to itsassociation with the Brand HDFC, 27% Invested because of Advisors

Advice and 9% due to better return.

123

Documents

HDFC MF Werrry