Professional Documents
Culture Documents
INDUSTRY OVERVIEW
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INTRODUCTION
The flow chart below describes broadly the working of a Mutual Fund.
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A Mutual Fund is a body corporate registered with the
Securities and Exchange Board of India (SEBI) that pools up the money
from individual/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. In the other
words, a Mutual Fund allows investors to indirectly take a position in a
basket of assets.
Mutual Fund is a mechanism for pooling the resources by issuing
units to the investors and investing funds in securities in accordance
with objectives as disclosed in offer document. Investments in
securities are spread among a wide cross-section of industries and
sectors thus the risk is reduced. Diversification reduces the risk because
all stocks may not move in the same direction in the same proportion
at same time. Investors of mutual funds are known as unit holders.
The investors in proportion to their investments share the profits
or losses. The mutual funds normally come out with a number of
schemes with different investment objectives which are launched from
time to time. A Mutual Fund is required to be registered with Securities
Exchange Board of India (SEBI) which regulates securities markets
before it can collect funds from the public.
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ORGANISATION OF A MUTUAL FUND:-
There are many entities involved and the diagram below illustrates the
organizational set up of a Mutual Fund:
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CHARACTERISTICS OF A MUTUAL FUND:-
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OBJECTIVES OF A MUTUAL FUND:-
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SPONSOR :
Sponsor is the person who acting alone or in combination with another
body corporate establishes a mutual fund. Sponsor must contribute at
least 40% of the net worth of the Investment managed and meet the
eligibility criteria prescribed under the Securities and Exchange Board of
India (Mutual Fund) Regulations, 1996. The sponsor is not responsible or
liable for any loss or shortfall resulting from the operation of the
Schemes beyond the initial contribution made by it towards setting up of
the Mutual Fund.
TRUST:
The Mutual Fund is constituted as a trust in accordance with the
provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed
is registered under the Indian Registration Act, 1908.
TRUSTEE:
Trustee is usually a company (corporate body) or a Board of Trustees
(body of individuals). The main responsibility of the Trustee is to
safeguard the interest of the unit holders and ensure that the AMC
functions in the interest of investors and in accordance with the
Securities and Exchange Board of India (Mutual Funds) Regulations,
1996, the provisions of the Trust Deed and the Offer Documents of the
respective Schemes. At least 2/3rd directors of the Trustee are
independent directors who are not associated with the Sponsor in any
manner.
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ASSET MANAGEMENT COMPANY (AMC):
The AMC if so authorized by the Trust Deed appoints the Registrar and
Transfer Agent to the Mutual Fund. The Registrar processes the
application form, redemption requests and dispatches account
statements to the unit holders. The Registrar and Transfer agent also
handles communications with investors and updates investor records.
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INVESTORS PROFILE:
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Next comes the risk takers, risk takers by their nature, would
not be averse to investing in high-risk avenues. Capital markets find
their fancy more often than not, because they have historically
generated better returns than any other avenue, provided, the money
was judiciously invested. Though the risk associated is generally on the
higher side of the spectrum, the return-potential compensates for the
risk attached.
PEST Analysis:
Political Factors:
a) Government Regulation: SEBI regulates the industry and every
decision taken by them impact the industry very quickly.
b) Stable constituency: The mutual fund industry can take long term
decision if the government is stable.
c) Fiscal policy: tax structure plays a very important role in the
growth of the industry .If the tax structure will be high than there
will be less savings and investment. We have seen the interest
rate reducing continuously which boost the industry to sell
products which are better than the FDs, PF, NSC and KVPs.
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Economic factors:
d) Market performance: The last five years witnessed a sharp rise in
the markets. The mutual fund industry basically works parallel
with the markets. Suppose, if the markets always be on downside,
then the investors will not be so comfortable to invest. This will
reduce the market size drastically.
e) Global Standards: As the industry will grow better, India being a
global economy, the MF industry has to match to the global
mature MF markets. They have to give due emphasis on product
innovation, cost reduction and penetration.
f) Inflation: price rise affects interest rate and reduces the chances
of investment.
Social factors:
g) Consumer behaviour: this is very unpredictable and based on
sentiments gets changed very frequently, which sometimes makes
selling of products difficult.
h) Income: The rich people are in bigger cities, so the mutual fund
industry is much more concentrated there.
Technological factors:
This is the era of information technology and due to net banking,
online transaction, online RTGS, clearing system helps the industry a lot.
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OPPORTUNITIES AND THREATS:-
a) Real Estate sector boom: The Real estate has always been one of
the preferred investment avenues for the Indian investor. And
what better way for the smaller investors to participate in this
boom than to have a real estate mutual fund. AMC has to come
up with the structured products in this segment and should take
competitive advantage.
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d) Retail investors lose out in the sense that they continue to pay
higher expenses.
f) Huge scope for expansion: There are only 33 AMC which is very
small figure compared to the mature markets.
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BENEFITS OF MUTUAL FUND
There are numerous benefits of investing in mutual funds and one of the
key reasons for its phenomenal success in the developed markets like US
and UK is the range of benefits they offer, which are unmatched by most
other investment avenues. We have explained the key benefits in this
section. The benefits have been broadly split into universal benefits,
applicable to all schemes and benefits applicable specifically to open-
ended schemes.
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1. AFFORDABILITY
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investor
can buy in to a portfolio of equities, which would otherwise be
extremely expensive. Each unit holder thus gets an exposure to such
portfolios with an investment as modest as Rs.500/-. This amount today
would get you less than quarter of an Infosys share! Thus it would be
affordable for an investor to build a portfolio of investments through a
mutual fund rather than investing directly in the stock market.
2. DIVERSIFICATION
The nuclear weapon in your arsenal for your fight against Risk. It simply
means that you must spread your investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits
etc.) and different sectors (auto, textile, information technology etc.).
This kind of a diversification may add to the stability of your returns, for
example during one period of time equities might under perform but
bonds and money market instruments might do well enough to offset
the effect of a slump in the equity markets. Similarly the information
technology sector might be faring poorly but the auto and textile sectors
might do well and may protect your principal investment as well as help
you meet your return objectives.
3. VARIETY
Mutual funds offer a tremendous variety of schemes. This variety is
beneficial in two ways: first, it offers different types of schemes to
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investors with different needs and risk appetites; Secondly, it offers an
opportunity to an investor to invest sums across a variety of schemes,
both debt and equity. For example, an investor can invest his money in a
Growth Fund (equity scheme) and Income Fund (debt scheme)
depending on his risk appetite and thus create a balanced portfolio
easily or simply just buy a Balanced Scheme.
4. PROFESSIONAL MANAGEMENT
Qualified investment professionals who seek to maximize returns and
minimize risk monitor investor's money. When you buy in to a mutual
fund, you are handing your money to an investment professional that
has experience in making investment decisions. It is the Fund Manager's
job to (a) find the best securities for the fund, given the fund's stated
investment objectives; and (b) keep track of investments and changes in
market conditions and adjust the mix of the portfolio, as and when
required.
5. TAX BENEFITS
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to
Unit holders of open-ended equity-oriented funds, income distributions
for the year ending March 31, 2003, will be taxed at a confessional rate
of 10.5%. In case of Individuals and Hindu Undivided Families a
deduction unto Rs. 9,000 from the Total Income will be admissible in
respect of income from investments specified in Section 80L, including
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income from Units of the Mutual Fund. Units of the schemes are not
subject to Wealth-Tax and Gift-Tax.
6. REGULATIONS
Securities Exchange Board of India (“SEBI”), the mutual funds regulator
has clearly defined rules, which govern mutual funds. These rules relate
to the formation, administration and management of mutual funds and
also prescribe disclosure and accounting requirements. Such a high level
of regulation seeks to protect the interest of investors.
7. CONVENTIONAL ADMINISTRATION
Investing in a Mutual Fund reduces paperwork and helps you avoid
many problems such as bad deliveries, delayed payments and follow up
with brokers and companies. Mutual Funds save your time and make
investing easy and convenient. Return Potential Over a medium to long-
term; Mutual Funds have the potential to provide a higher return as they
invest in a diversified basket of selected securities.
8. LIQUIDITY
In open-ended mutual funds, you can redeem all or part of your units
any time you wish. Some schemes do have a lock-in period where an
investor cannot return the units until the completion of such a lock-in
period.
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9. CONVENIENCE
An investor can purchase or sell fund units directly from a fund, through
a broker or a financial planner. The investor may opt for a Systematic
Investment Plan (“SIP”) or a Systematic Withdrawal Advantage Plan
(“SWAP”). In addition to this an investor receives account statements
and portfolios of the schemes.
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Mutual Fund can be classified as follows:-
Based on the Structure:-
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The asset management company (AMC) however, can buy out the
units from the investors, in the secondary markets, thus reducing
the amount of funds held by outside investors. The price at which
units can be sold or redeemed Depends on the market prices, which
are fundamentally linked to the NAV. Investors in closed end Funds
receive either certificates or Depository receipts, for their holdings
in a closed end mutual Fund.
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iii) Dividend Yield funds- It is similar to the equity diversified funds
except that they invest in companies offering high yield dividends.
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.
3. 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)
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and call money. Put your money into any of these debt funds depending
on your investment horizon and needs.
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 of 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.
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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THE WAY TO INVEST IN MUTUAL FUND
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SYSTEMATIC INVESTMENT PLAN (SIP)
In the year 1992, Securities and exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are – to protect the interest of investors
in securities and to promote the development of and to regulate the
securities market.
SEBI formulates policies and regulates the mutual funds to protect
the interest of the investors.
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GUIDELINES OF SEBI & AMFI
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REGULATORY OF MUTUAL FUND IN INDIA
SEBI
The capital market regulates the mutual funds in India. SEBI requires all
mutual funds to be registered with them. SEBI issues guidelines for all
mutual funds operations-investment, accounts, expenses etc. Recently,
it has been decided that Money Market Mutual Funds of registered
mutual funds will be regulated by SEBI through (Mutual Fund)
Regulations 1996.
RBI
RBI, a supervisor of the Banks owned Mutual Funds-As banks in India
come under the regulatory Jurisdiction of RBI, banks owned funds to be
under supervision of RBI and SEBI. RBI has supervisory responsibility
over all entities that operate in the money markets.
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COMPANY LOW BOARD
Registrar of companies is called Company Low Board. AMCs of Mutual
Funds are companies registered under the companies Act 1956 and
therefore answerable to regulatory authorities empowered by the
Companies Act.
STOCK EXCHANGE
Stock Exchanges are Self-regulatory organizations supervised by SEBI.
Many closed ended funds of AMCs are listed as stock exchanges and are
traded like shares.
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RISK V/S. RETURN:
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MUTUAL FUNDS IN INDIA AT A GLANCE
Phase-I Phase-II
Phases of Mutual
Fund Industry in India
Phase-IV Phase-III
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First Phase – 1964-87
1987 marked the entry of non- UTI, 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
Canbank 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.
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Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the
Indian mutual fund industry, giving the Indian investors a wider choice of
fund families. Also, 1993 was the year in which the first Mutual Fund
Regulations came into being, 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.
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Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated 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, representing broadly,
the assets of US 64 scheme, assured return and certain other schemes.
The Specified Undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by Government of
India and does not come under the purview of the Mutual Fund
Regulations.
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. With the bifurcation of the erstwhile UTI
which had in March 2000 more than Rs.76,000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming
to the SEBI Mutual Fund Regulations, and with recent mergers taking
place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of
Rs.153108 crores under 421 schemes.
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The graph indicates the growth of assets over the years.
Note
Erstwhile UTI was bifurcated into UTI Mutual fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. The
Assets under management of the Specified Undertaking of the Unit Trust
of India has thereof been executed from the total assets of the industry
as a whole from February 2003 onwards.
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PART B
COMPANY DETAIL
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MAN WITH A MISSION
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In 1992, the Government of India honoured 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 it’s Chairman till
1993.
He took active interest in the Bombay
Community Public Trust, designed
specifically to serve the needs of the
Mr. H.T. PAREKH is conferred the
city’s underprivileged citizens.
PadmaBhushan by the Government
When Mr. Deepak Parekh took over as
of India in the year 1992.
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 crores as of March 31, 2006 and an
asset base of over Rs. 22,000 crores. We also aim to increase the flow of
resources to the housing 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 crores.
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ABOUT COMPANY HDFC :-
VISION STATEMENT :-
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ORGANISATION STRUCTURE:-
The HDFC AMC has the below given organisational structure and the
different functional department are headed by different people.
Managing Director
Mr. Milind Barve
CIO-ED CFO
Mr. Prashant Jain Mr. Rahul Bhandari
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LINE OF BUSINESS :
PMS
HDFC AMC
Mutual
Fund
Retail Corporate
Business
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HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)
Management Team:
HDFC Trustee company Limited: a company incorporated under the
Companies Act, 1956 is the Trustee to the Mutual Fund vide the Trust
deed dated June 8, 2000, as amended from time to time. HDFC Trustee
Company Limited is a wholly owned subsidiary of HDFC Limited.
HDFC Limited 60
Standard Life Investments 40
Limited
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HDFC
Asset
Management
HDFC Ltd. Company Ltd. Standard Life
60.0% Investments
40.0%
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While our past experience does make us a veteran, but when it comes to
investments, we have never believed that the experience is enough. The
single most important factor that drives HDFC Mutual Fund is its belief
to give the investor the chance to profitably invest in the financial
market, without constantly worrying about the market swings. To realize
this belief, HDFC Mutual Fund has set up the infrastructure required to
conduct all the fundamental research and back it up with effective
analysis. Our strong emphasis on managing and controlling portfolio risk
avoids chasing the latest “fads” and trends.
Growth
AUM Rate
March.
2003 6482 -------
March.
2004 14985 131.18
March.
2005 15010 0.17
March.
2006 21550 43.57
March.
2007 28358 31.59
March.
2008 46291 63.24
March.
2009 57956 25.19
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DFC AMC has 4% market of the total asset management business.
The pie-chart shows the market share of the other AMCs and of HDFC.
28%
50%
5%
4%
5%
8%
OTHERS (29)
UTI
HDFC Mutual Fund
Prudential ICICI Mutual Fund
Reliance Mutual Fund
Grand Total
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STRENGTHS AND WEAKNESSES :
STRENGTHS:
WEAKNESSES:
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HDFC MUTUAL FUND AT A GLANCE
Management :Trustee.
HDFC Asset Management Company Limited
(AMC).
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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.
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HDFC PROVIDES:-
Personalized Service
We believe in providing a personalized service enabling individual
attention to achieve your investment goal.
Professional Advice
We provide professional advice on equity and debt portfolio with an
objective to provide consistent long-term return while taking calculated
market risk. Our approach helps you to build a proper mix of portfolio,
not just to promote one individual product. Hence your long term
objectives are best served.
Long-term Relationship
We believe steady wealth creation requires long-term vision, it can’t be
achieved in a short span of time. To achieve this one needs to take
advantage of short-term market opportunity while not loosing sight of
long term objective. Hence we partner all our clients in their objective of
achieving their long-term Vision.
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Transparency & Confidentiality
Through email you will get a regular portfolio statement from us. You
will also be given a web access to view at your convenience the details of
your investments and its performance. Access to your portfolio is
restricted to you and our monitoring system enables us to detect any
unauthorized access to your investments.
Flexibility
To facilitate smooth dealing and consistent attention, all our clients will
be serviced by their respective relationship executive. This allows us to
provide tailor made advice to achieve your investment objective.
Mutual funds are all the rage today simply because people have
realized the symbiotic relationship that an investor shares with the asset
management companies as compared to the ever volatile and ruthless
world of SENSEX.
Threats
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FINANCIAL ANALYSIS
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Rationale of choosing these funds-
The above chosen funds have had a market presence of at least three
years. Also the government of India has a large interest in Indian growth
story which is in complete without have a much impetus in
infrastructure sector. Hence, with this fact we can have a fair idea of
their acceptability in the market. The basic rationale of choosing these
funds is to have and present a brief idea of the current mutual funds
market and to understand the latest trends in the market.
Data Collection -
All the data used for the study was secondary data. This data was
collected from the following sources:
Methodology
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Distribution house RMs, Banking staffs and some customers. The data
was collected and the collated to give a brief idea about which AMC is
good in products, sales and services. The questionnaire also shows
some traits like dependability, trust and suitability of the AMCs in
context to the various requirements of the distributors. The
secondary data was collected from the abyss of different websites
and online articles of experts. The raw data was then compiled and
analysed using different tools.
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CONCLUSION:-
HDFC Equity Fund has a ability to spot the sector trends & it has
delivered handsomely. In Current status it emerged as the third best-
performing diversified equity fund.
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SUGGESTIONS TO HDFC MUTUAL FUND:
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8. A very small part market has been cover by HDFC MF. It can
increase the circle of its business in small and rural areas of every
state and cities of India where they an find a huge business.
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GLOSSARY
SHORT FORMS
AMC – Asset Management Company.
AMFI – Association of Mutual Fund of India.
AUM – Asset under Management.
BSE – Bombay Stock Exchange.
FII – Foreign Institute of Investor. FII can invest in Mutual
Funds.They invest through the Non-resident rupeeaccount.
GILT – Government of India Linked Treasury. These Funds are
those that invest only in government securities.
IPO – Initial Public Offer.
IRP – Investor Risk Profile.
MIP – Monthly Investment Plan.
MTM – Market to Market.
NAR – Net Amount at Risk.
NAV – Net Asset Value.
NSE – National Stock Exchange.
OD – Offer Document is the most important source of information
for the investors. Abridged version of the OD is called as
Key Information Memorandum (KIM).
PAR VALUE –It is said as face value.
SAR – Sum at Risk
SIP – Systematic Investment Plan
SWP – Systematic Withdrawal Plan
WDM – Wholesale Debt Market
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EXECUTIVE SUMMARY
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BIBLIOGRAPHY
1. www.investsmartindia.com
2. www.amfiindia.com
3. www.mutualfundsindia.com
4. www.valueresearchonline.com
5. www.investopedia.com
6. www.bcg.com
7. www.tatamutual.com
8. www.google.com
9. www.hdfcfund.com
10.www.wikepedia.org
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QUESTIONAIRE
Q 1) : Among the following which mutual fund house is the better fund house in the
terms of products?
Q. 2) : Out of the following which fund house gives you and your customer better
satisfaction in the terms of sales support?
Q 3): Among the following which mutual fund house gives you premium services and
after sales services ?
Q 4): Which mutual fund is having more effective strategy regarding the distribution
services in terms of brokerage and incentives?
Q 5): Which mutual fund is more aggressive & innovative in terms of marketing and
sales i.e. coming with the NFO and new products ?
Q 6) Which fund house is better in the terms of fund performance in long and short
run?
Q 7) Which fund house’s employee you feel more comfortable discussing your sales
activities?
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Q 8) Which fund house is more reliable to work with:
Q 9): Which of the following fund house gives you quick response to your queries?
Q 10): Which of the following fund house you feel overall good to work with?
Any Suggestions:
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