INDUSTRIAL PROFILE

MUTUAL FUNDS
A mutual fund is a professionally-managed firm of collective investments that pools money from
many investors and invests it in stocks, bonds, short-term money market instruments and other
securities. It is a trust registered with the Securities and Exchange Board of India (SEBI), which
pools up the money from individual or corporate investors and invests the same on behalf of the
investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc.,
and distributes the profits.

The value of each unit of the mutual fund is known as net asset value (NAV) and it is calculated
daily. NAV is the total value of the fund divided by the number of shares currently issued and
outstanding. The value of all the securities in the portfolio is calculated daily. From this, all
expenses are deducted and the resultant value divided by the number of units in the fund is the
fund’s NAV.

HISTORY OF INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank. The history of mutual funds in India can
be divided into four distinct phases.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank
of India and functioned under control of the Reserve Bank of India. In 1978 Industrial
Development Bank of India (IDBI) took over the regulatory control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of
assets under management(AUM).
Second Phase – 1987-1993 (Entry of Public Sector Funds)

The second phase marked the entry of public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed
by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in December
1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004
crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

1993 was the year in which the first Mutual Fund Regulations came into existence, under which
all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector mutual fund registered in July
1993. The industry now functions under the SEBI Regulations 1996. As at the end of January
2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores.

Fourth Phase – since February 2003

In February 2003, UTI was divided into two separate entities. One is the Specified Undertaking
of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of
January 2003 The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. As at the end of
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.

CURRENT SCENARIO

The assets under management (AUM) have rised to Rs 4,173 bn in Mar-09 from just Rs 250 mn
in Mar-65. In a span of 10 years (from 1999 to 2009), the industry has registered a CAGR of
22.3%.The impressive growth in the Indian Mutual fund industry in recent years is due to
various factors such as rising household savings, regulatory framework, tax policies,
introduction of several new products and role of distributors.

Household financial savings registered growth rate of around 17.4% on an average during the
period FY04-FY08 as against 11.8% on an average during the period FY99-FY03. SEBI has
introduced various regulatory measures in order to protect the interest of small investors. The
Indian Mutual fund industry that started with traditional products like equity fund, debt fund and
balanced fund has expanded its product portfolio. Today, the industry has introduced number of
products such as liquid/money market funds, sector-specific funds, index funds, gilt funds,
capital protection oriented schemes, special category funds, insurance linked funds, exchange
traded funds, etc. The wide variety of schemes offered by the Indian Mutual fund industry
provides many options of investment to common man.

INDUSTRY STRUCTURE:
The Indian mutual fund industry currently consists of 38 players that have been given
regulatory approval by SEBI. The industry has witnessed a drastic change where the number of
public sector players reduced from 11 in 2001 to 5 in 2009. Public sector mutual funds
comprised 21 percent of the AUM in 2009 as against 72 percent AUM share in
2001.

MAJOR PLAYERS:
o Reliance Mutual Fund (RMF)
o HDFC Mutual Fund
o Tata Mutual Fund
o SBI Mutual Fund
o DSP’s Black Rock Mutual Fund
o Kotak Mutual Fund
o Principal Mutual Fund
o Sundaram’s BNP Paribas Mutual Fund
o Templeton Mutual Fund
o Birla Sun’s Life Mutual Fund
 MARKET SHARES OF MAJOR PLAYERS :

Frankli
ICICI Birla n Kotak DSP
Relian Prude Sun Templ Mahin BlackR
ce HDFC ntial UTI Life SBI eton dra ock Tata
OTHER Mutua Mutua Mutua Mutua Mutua Mutua Mutua Mutua Mutua Mutua
FUND S l Fund l Fund l Fund l Fund l Fund l Fund l Fund l Fund l Fund l Fund

AMOU 14327 10157 86282 73466 67188 63696 41671 37882 32202 30600 22681
NT 797 660 24 10 82 19 80 71 47 71 10

AMOUNT
3%
4%
5% 20% OTHERS
5% Reliance Mutual Fund
HDFC Mutual Fund
ICICI Prudential Mutual Fund
6% UTI Mutual Fund
Birla Sun Life Mutual Fund
SBI Mutual Fund
Franklin Templeton Mutual Fund
9% 15%
Kotak Mahindra Mutual Fund
DSP BlackRock Mutual Fund
Tata Mutual Fund

10%
12%
10%
Regulatory Framework: The regulator, Securities and Exchange Board of India(SEBI),
has consistently introduced several regulatory measures that aimed at protecting the interests of
the small investor. The implementation of Prevention of Money Laundering (PMLA) Rules
issued in December 2008 as part of the risk management practices and procedures is expected
to gain further momentum. The current Anti Money Laundering(AML) and Combating
Financing of Terrorism (CFT) measures cover two main aspects Know Your Customer (KYC)
and Know Your Distributor (KYD).

FEE STRUCTURE :

Mutual fund companies were charging entry load to the investors and were getting good business
out of it. With a view to make the whole process investor friendly, SEBI removed entry load for
investing in mutual funds and asserted that the mutual fund companies can charge the customers
Fund Management fee separately. SEBI’s new guidelines stipulate that investors directly make
payments to distributors instead of MF companies deducting it from the investment made in any
scheme.

ADVANTAGES OF MUTUAL FUND

Diversification of Risk

Diversification reduces risk of loss, as compared to investing directly in one or two shares or
other securities. This risk reduction is one of the most important benefits of a investment vehicle
like mutual fund.

Convenience and Flexibility

Mutual fund management companies offer many investor services that a direct market investor
cannot get. Investors can easily transfer their holdings from one scheme to the other and get
updated market information and so on.
Liquidity

An investor can liquidate the investment by selling the units to the fund if open-end or selling
them in the market if the fund is close-end, and collect funds at the end of each period specified
by the mutual funds.

Choice of Schemes

The Investor gets choice from various Funds according to his Needs and Objectives.

Professional Management

Most mutual funds pay topmost professionals to manage their investments. These managers
decide what securities the fund will buy and sell.

Regulatory Over-sight

Mutual funds are subject to many government regulations that protect investors from fraud.
Securities Exchange Board of India (SEBI), the mutual funds regulator has clearly defined rules,
which govern mutual funds.

DISADVANTAGES OF MUTUAL FUND

No Guarantees

No investment is risk free. If the entire stock market declines then the value of mutual fund
shares also goes down,no matter how balanced the portfolio.

Fees and commissions

All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge
sales commissions or "loads" to compensate brokers, financial consultants, or financial planners .

Management risk

When a investor invest in a mutual fund, he depends on the fund's manager to make the right
decisions regarding the fund's portfolio. If the manager does not perform well then the investor
would not make much money as he had expected.
Dilution

Its possible to have too much diversification. Because funds have small holdings in so many
different companies, high returns from a few investments often don’t make much difference on
the overall return.

RISKS ASSOCIATED WITH MUTUAL FUNDS

Market Risk
Market risk relates to the market value of a security in the future. Market prices fluctuate and
are depended on economic and financial trends, supply and demand, and many other factors
that cannot be predicted or controlled.
Political Risks
Changes in the tax laws, trade regulations, administered prices, etc are some of the many
political factors that create market risk.
Business Risk
Business risk is present in all business ventures. The future financial stability of a company
cannot be predicted or guaranteed.
Economic Risk
Economic risk involves uncertainty in the economy, which, in turn, can have an adverse effect
on a company’s business.
Risk Appetite:

Investors invest in funds depending on their requirements and risk appetite.

The greater the risk they are willing to undertake the greater will be the returns and similarly
the lesser the risk they are willing to undertake the lesser will be the returns. Depending on the
investor’s risk appetite the investor will choose the funds as follows:
LIQUID FUNDS: The investors choose this type of funds when they only wish to save and
look for only less returns .All corporate houses that have much money usually save it in liquid
funds as there is very less risk and high liquidity.
DEBT FUNDS: These are the short term investors who are interested in quick returns with less
risk.
BALANCED FUNDS: Retired people go for this kind of funds where there is moderate risk
and moderate returns.
INDEX FUNDS: These are more riskier then the balanced funds. Investor invests in midcap
and small cap.
EQUITY FUNDS: Investors who seeks higher returns and are willing to take high risk goes for
this funds.
SECTORAL FUNDS: The returns are very high and so is the risk because the whole amount is
invested on a particular sector.

CATEGORIES OF MUTUAL FUNDS

Mutual funds can be classified as follow:

Based on their structure

 Open-ended funds: Investors can buy and sell the units from the fund at any point of
time.

 Close-ended funds: These funds raise money from investors only once. Therefore, after
the offer period, fresh investments cannot be made into the fund. If the fund is listed on a
stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund).
Recently, most of the New Fund Offers of close-ended funds provided liquidity window
on a periodic basis such as monthly or weekly.

Based on their investment objective:

• Equity funds: These funds invest in equities and equity related instruments. With
fluctuating share prices, such funds show volatile performance or even losses. However,
short term fluctuations in the market, generally smoothens out in the long term, thereby
offering higher returns at relatively lower volatility.

• Balanced fund: Their investment portfolio includes both debt and equity. As a result, on
the risk-return ladder, they fall between equity and debt funds. Balanced funds are the
ideal mutual funds vehicle for investors who prefer spreading their risk across various
instruments. Following are balanced funds classes:

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

o 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.
 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 the money into any of these debt funds
depending on the investment needs.
 Liquid funds
 Gilt funds ST
 Floating rate funds
 Gilt funds LT
 Income funds LT
 MIPs
 FMPs

MUTUAL FUNDS: A MONOPOLISTIC COMPETITION

 Many firms enter into this industry because of its huge profit potential.
 The products they offer are mostly similar but slightly differentiated.
 Their is high level of competition in the industry.
 Free entry and free exit.

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.
2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual
fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can
withdraw a fixed amount each month.

Future of Mutual Funds in India 

Financial experts believe that the future of Mutual Funds in India will be very good. It has been
predictable that by March-end of 2012, the mutual fund industry will reach Rs 99, 90,000 crore,
taking into account the total assets of the Indian commercial banks. The assessment was based on
the December-04 asset value of Rs 1, 50,537 crore. In the coming 10 years the annual multiple
growth rate is expected to go up by 14.5%. Since the last 5 years, the growth rate was recorded
as 9.3% annually. Based on the current rate of growth, it can be forecasted that the mutual fund
assets will be double by 2012.

COMPANY PROFILE
HDFC MUTUAL FUNDS

VISION

“To be a dominant Player in the Mutual Fund space recognized for its higher levels of ethical
and professional conduct and a commitment towards enhancing Investor Interests”.

HDFC Asset Management Company Ltd. has a vision of being a leading player in the
Mutual Fund business and has achieved significant success in the market.

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.
The Standard Life Assurance Company was established in 1825 and has considerable experience
in global financial markets. In 1998, Standard Life Investments Limited became the dedicated
investment management company of the Standard Life Group and is owned 100% by The
Standard Life Assurance Company. With global assets under management of approximately
US$126 billion as at May 15, 2003, 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.

PRODUCTS

Equity/ Growth Fund

 – HDFC mid Cap Opportunities Fund.
– HDFC Prudence Fund.
– HDFC Index Fund- Nifty Plan.
– HDFC Capital builder Fund.
– HDFC Infrastructure Fund.
– HDFC Long term advantage Fund.
– HDFC Index Fund- Sensex plus Plan.
– HDFC Core and Satellite Fund.
– HDFC Growth Fund.
– HDFC top 200 Fund.
– HDFC Index Fund- Sensex plan.
– HDFC Balanced Fund.
– HDFC Long term Equity Fund.
– HDFC Equity Fund.
– HDFC Premiere Multi-cap Fund.
– HDFC Arbitrage Fund.
– HDFC Tax saver (ELSS).
–
Children’s Gift Fund

– HDFC Children’s Gift Fund Savings Plan.

– HDFC Children’s Gift Fund Investment Plan.
HDFC Liquid Fund

– HDFC Cash Management Fund- Savings Plan.

– HDFC Liquid Fund Premier Plus Plan.
– HDFC Liquid Plan.
– HDFC Cash Management Fund- Call Plan.
– HDFC Liquid Fund Premier Plan.
Debt/Income Funds

– HDFC Floating rate Income Fund- Long term Plan.

– HDFC High Interest Fund- Short term Plan.
 – HDFC Multiple Yield Fund- Plan 2005.
– HDFC Cash Management Fund- Treasury Advantage Fund.
– HDFC Gilt Fund- Short term Plan.
– HDFC Income Fund.
– HDFC Multiple Yield Fund.
– HDFC Short term Plan.
– HDFC Floating rate Income Plan- Short term Plan.
– HDFC MF Monthly Income Plan- Long term Plan.
– HDFC High Interest Fund.
– HDFC Gilt Fund- Long term Plan.

HDFC Quarterly Income Fund

HDFC Fixed Maturity Fund

DISTRIBUTION CHANNELS

Mutual funds posses a very strong distribution channel so that the customers doesn’t face any
difficulty. The various parties involved in distribution of mutual funds are:

Direct marketing by the AMCs: The forms could be obtained from the AMCs directly. The
investors can approach to the AMCs for the forms.

Broker/ sub broker arrangements: The AMCs can simultaneously go for broker/sub-broker to
popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub
brokers.

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

ACHIEVEMENTS
HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the
‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance and Process Quality
Rating which reflects the highest governance levels and fund management practices at HDFC
AMC. It is the only fund house to have been assigned this rating for third year in succession.
Over the past, HDFC has won a number of awards and accolades for their performance.

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

ICRA Mutual Fund Awards – 2008 : HDFC MF Monthly Income Plan - Long Term Plan -
Ranked a Seven Star Fund and has been awarded the Gold Award for "Best Performance" in the
category of "Open Ended Marginal Equity" for the three year period ending December 31, 2007.