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PROJECT REPORT
ON
“COMPARATIVE ANALYSIS OF
SELECTED EQUITY SCHEMES IN
MUTUAL FUNDS”
Conducted at HDFC Ltd. Chandigarh
SUBMITTED BY
DALJEET SINGH SAINI
ROLL NO 7081222669
CERTIFICATE OF COMPLETION
This is to certify that Mr. DALJEET SINGH SAINI of MBA (4TH semester) has
Pathak (Faculty IGCE). The project is in the partial fulfillment of his MBA
curriculum (2007-2009).
(Project Guide)
DECLARATION
To
The Director
Phase - 2, Mohali
Respected Sir,
I, the undersigned, hereby declare that the Summer Training Report entitled
co-operation of my Project Guide, Mrs. Harpinder Kaur. I have not submitted this
training report to any other university for the award of any degree.
SIMRAN ARORA
ACKNOWLEDGEMENT
“Appreciation can make a day, even change a life. Your willingness to put it into
Two months of training at HDFC Ltd. has been a great learning experience for
me. I express my gratitude to the company for extending this opportunity to me.
and project incharge for her able guidance, continuous support and cooperation
me to deliver more.
And I sincerely thank my family and friends for the constant support and help in
SIMRAN ARORA
TABLE OF CONTENTS
1 INTRODUCTION
2 RESEARCH METHODOLOGY
3 FUND COMPARISON
4 COMPARATIVE ANALYSIS
5 CONCLUSION
6 SUGESSIONS
7 BIBLIOGRAPHY
EXECUTIVE SUMMARY
Mutual funds are a topic, which is of interest to both investors and academicians
all over the world. Mutual Funds as a medium-to-long term investment option are
measures used in the study only depict the quantitative result based on the past
return and risk associated with it. And the other factors such as fund manager’s
background, experience and his style etc have not been taken in to
consideration.
This report starts with the basics on Mutual Funds and its present industry
scenario. Then, an overview of HDFC Ltd and HDFC Mutual Funds has been
INTRODUCTION
INTRODUCTION
A Smart investor is the one who is able to correctly plan and decide in which
One has to look into various factors before deciding on the instruments in
which to invest. To save is not enough. One must invest wisely and get
reasonable returns after deducting outgo of tax as well as the invisible tax of
inflation.
money from many investors and invests their money in stocks, bonds, short-
term money market instruments, and/or other securities. Mutual funds are
companies.
In a mutual fund, the fund manager trades the fund's underlying securities,
realizing capital gains or losses, and collects the dividend or interest income.
The investment proceeds are then passed along to the individual investors. The
value of a share of the mutual fund, known as the net asset value per share
(NAV), is calculated daily based on the total value of the fund divided by the
very cost effective and very easy to invest in. By pooling money together in a
mutual fund, investors can purchase stocks or bonds with much lower trading
costs than if they tried to do it on their own. A mutual fund is the ideal
schemes and serves broadly all type of investors. The range of products
includes equity funds, debt, liquid, gilt and balanced funds. There are also
funds meant exclusively for young and old, small and large investors.
Moreover, the setup of a legal structure, which has enough teeth to safeguard
investors’ interest, ensures that the investors are not cheated out of their hard-
earned money. All in all, benefits provided by them cut across the boundaries
options but opt for mutual funds for the sole reason that all benefits come in a
package.
CHAPTER-1.1
INDUSTRY
PROFILE
1.1.1 CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
The income earned through these investments and the capital appreciation
realized is shared by its unit holders in proportion to the number of units owned
by them.
For the individual investor, mutual funds provide the benefit of having someone
else manage your investments and diversify your money over many different
minimum investment requirements on many funds are low enough that even
Thus, a Mutual Fund is the most suitable investment for the common man as it
A mutual fund, by its very nature, is diversified—its assets are invested in many
different securities. Beyond that, there are many different types of mutual funds
with different objectives and levels of growth potential, furthering your chances
to diversify.
1.1.2 WORKING OF A MUTUAL FUND
Investors pool their money with the fund manager and then the fund manager
invests the money in securities. These securities further generate returns. These
There are many entities involved and the diagram below illustrates the
SPONSOR
In order to run a mutual fund in India, the sponsor has to obtain a license from
SEBI. For this, a sponsor has to satisfy certain conditions, such as on capital
Trustees are like internal regulators in a mutual fund, and their job is to protect
the interest of the unit holders. Trustees are appointed by sponsors, and can
and fair, SEBI rules mandate that at least two third of the trustees be
Trustees float and market schemes and secure necessary approvals. They
check if the asset management company’s investments are within defined limits
and whether the fund’s assets are protected. Trustees can be held accountable
mutual fund. It’s the AMC that employs fund managers and analysts, and other
personnel. It’s the AMC that handles all operational matters of a mutual fund-
trustees. The people in the AMC who should matter the most to you are those
who take investment decisions. There is the head of the fund house, generally
referred to as Chief Executive Officer (CEO). Under him comes the Chief
Investment Officer (CIO), who shapes the fund’s investment philosophy, and
fund managers, who manages its schemes. A team of analysts, who track
The sponsor of a mutual fund cannot act as a custodian to the mutual fund.
This condition, formulated in the interest of the investors, ensure that the assets
♦ REGISTRAR
Registrar also known as Transfer Agents handles all investor related services.
This includes issuing and redeeming units, sending fact sheets and annual
reports. Some fund houses handle such functions in house, others outsource it
ORIGIN
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. The
history of mutual funds in India can be broadly divided into four distinct phases:
RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of
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
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). At the end of 1993, the mutual fund industry had
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.
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual
fund houses went on increasing, with many foreign mutual funds setting up funds
in India and also the industry has witnessed several mergers and acquisitions, as
at the end of January 2003, there were 33 mutual funds with total assets of Rs.
1,21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under
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
under the rules framed by Government of India and does not come under the
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. The
The Indian Mutual fund industry has witnessed a sea change in the way it
operates, in the regulatory and investor attitude towards Mutual fund products.
From a single player the number of players has increased to 30 and the
number of schemes has swelled to 640. The total assets under management
Reliance claimed to be the leader with the largest AUM of Rs 46307 Crores as
of March 2007. Following was ICICI Prudential and UTI Mutual Fund with AUM
Fixed maturity plans (FMP s) have been a popular in the past six months, may
be due to the rising interest rate scenario. The percentage of FMP of the total
the mutual fund industry as it is witnessing entry of big names like JP Morgan,
UBS, Aegon and AIG augurs well for the industry as not only these global
performances and investor services which will benefit the industry in catching
estimated that by 2010 March-end, the total assets of all scheduled commercial
expected 13.4% during the rest of the decade. In the last 5 years we have seen
annual growth rate of 9%. According to the current growth rate, by year 2010,
♦ Numbers of foreign AMC’s are in the queue to enter the Indian markets like
management worldwide.
♦ Our saving rate is over 23%, highest in the world. Only channelizing these
♦ We have approximately 29 mutual funds which are much less than US having
♦ 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds
are concentrating on the 'A' class cities. Soon they will find scope in the
growing cities.
♦ Professional Management
♦ Diversification
industries and sectors. This diversification reduces the risk because seldom do
all stocks decline at the same time and in the same proportion. You achieve this
diversification through a Mutual Fund with far less money than you can do on
your own.
♦ Convenient 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
Mutual Funds are a relatively less expensive way to invest compared to directly
custodial and other fees translate into lower costs for investors.
♦ Liquidity
In open-end schemes, the investor gets the money back promptly at net asset
value related prices from the Mutual Fund. In closed-end schemes, the units can
be sold on a stock exchange at the prevailing market price or the investor can
avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.
♦ Transparency
invested in each class of assets and the fund manager's investment strategy and
outlook.
♦ Flexibility
Through features such as regular investment plans, regular withdrawal plans and
♦ Well regulated
All Mutual Funds are registered with SEBI and they function within the provisions
♦ No Guarantees
There is no guarantee that the mutual fund will always do well and provide good
All funds charge administrative fees to cover their operational expenses. Some
♦ Taxes
Most actively managed funds sell anywhere from 20% to 70% of the securities in
their portfolio during a typical year. If the fund makes a profit on its sales, the
investor has to pay tax on the income he receives even if he reinvests the money
he made.
♦ Management risk
The risk that an investor is taking here is that someone else is managing his
money. He depends on the fund manager to make the right decision regarding
the portfolio. If the manager does not perform as one had hoped then the
investor may not make as much money as he had expected. Given these
drawbacks, if the fund is managed well by taking timely decisions whether to hold
or buy/sell stocks, the mutual fund is sure to build a reputation in the market.
ADMINISTRATIVE
High Low
EXP.
INVESTMENT
Less More
OPTIONS
Wide variety of Mutual Fund Schemes exists to cater to the needs such as
financial position, risk tolerance and return expectations etc. The table below
Mutual Funds
(Types of Schemes)
By
By Load Other
Investment By Nature
Structure Schemes
Objective
Schemes
♦ Income Schemes ♦ Close-Ended Schemes ♦ Exit ♦Fixed Maturity Plans
Load
♦Balanced Schemes ♦CDSC ♦ Index Schemes
♦ Physical Assets ♦ Hedge Funds
On the basis of Investment, mutual funds are classified as:
♦Equity/growth fund:
This is a scheme that invests only in equity. When investing in stocks, an investor
stock is held, the higher the gains. An investor stands a better chance of a
It has been proven that returns from stocks ,have outperformed most other kind
of investment held over the long term. Growth funds concentrate on value
appreciation of securities and not on the regularity of income. However, the risk
Instead of putting all your money in one sector or company it's better to invest in
various good performing sectors as you reduces the risk of getting involved in a
category for those who want to participate in the stock market but have little
Sector fund
industries is called a sector fund. For instance, a pharma fund would invest only
cyclical influences - it is unlikely that the market will favour a particular sector for
too long. These are schemes whose objective is to invest only in equity of those
companies which are existing in specific sector like FMCG, Banking, Telecom,
Oil etc. Sectoral Funds tend to have a very high risk reward ratio and investors
The major portion of investment in ELSS schemes is in equity and offers 20 per
can earn substantially more than other Section 88 schemes, which offer fixed
This fund invests in fixed income instruments such as debentures (bonds) and
various money market instruments. The aim of income funds is to provide regular
and steady income to investors. The investments are made in stocks yielding
ICRA, which verify the company’s ability to honor its interest commitments.
The NAV of a debt fund does not fluctuate as much as that of an equity fund. The
conservative investors like to go for capital safety and this scheme is best for
them.
These schemes are intended to give monthly income, but since mutual funds are
subject to market risk, they do not provide assured returns. Those who seek
monthly income should invest into this scheme. In the current scenario where
debt market is very volatile its better to invest in hybrid funds like MIP with
Gilts are securities issued by the central government and are said to carry
from being the most liquid securities in the debt market, government securities
are eligible for liquidity support. Gilt funds invest in government securities and the
investors who want to avail the benefits of capital safety with government security
one year, call or notice money, commercial paper, commercial bills accepted by
banks and certificate of deposits. These funds have a minimum lock-in period of
15 days. Those who are seeking income in short term investments of six-eight
Liquid fund
A liquid fund is the same as a money market fund, but avoids a lock-in period.
Most of them lock funds in for up to three days to protect against banking
liquid fund is ideally suited to investors who want to park their funds for a very
short time -- seven to eight days. The minimum investment in these funds is
Rs.25,000.
Junk Bond Schemes
Junk bond schemes invest in securities that are below investment grade. The
hope is that attractive returns in such poor-quality investments would more than
make up for the higher risk of losing the entire investment in some cases.
“High yield” bonds is a politically correct way of referring to junk bonds. SEBI
guidelines limit investment in unrated securities and securities that are below
currently it is not yet possible to have a full-fledged junk bond scheme in India.
♦ Balanced fund:
Balanced schemes invest in both equity and debt, with 50-65 per cent in equity
and the rest in debt. It is important to know the stocks to bonds ratio in a fund to
understand the risks and rewards structure. The aim of balanced funds is to
provide growth and regular income. The debt investments ensure a basic interest
income, which the fund manager hopes to top up with capital gains on the
investment portfolio. However, losses can eat into the basic interest income and
capital.
♦ Physical assets:
Technically, mutual funds can invest in any asset. This includes real estate,
precious metals (gold, silver), other metals (aluminum, steel), oil and
commodities. The regulatory frame work in India however does not currently
♦ Open-end Schemes:
These are schemes that do not have a fixed maturity. The mutual fund ensures
liquidity by announcing sale and re-purchase prices for the units of such a
scheme can offer their units to the mutual fund for redemption, generally called
re-purchase. These repurchase rates are based upon the net current assets
value of the fund. Thus, open-ended funds provide better liquidity to the
investors. Similarly, the mutual funds can sell new units to investors desirous of
participating in the scheme, generally called sale. Every such transaction results
in a change in the unit capital of the scheme. The unit capital increases, when
additional units are sold; and decreases if existing units are re-purchased.
♦ Close-end Schemes:
These are schemes that have a fixed maturity. Unlike open-ended funds the
corpus of close-ended funds is fixed and an investor can subscribe directly to the
scheme only at the time of initial issue. After the initial issue is closed, a person
can buy or sell the units of the scheme in the secondary market i.e. the stock
scheme as the fund managers can evolve long term investment strategies
Other Schemes-
♦ Tax Saving Schemes:
Mutual funds may be designed to suit the tax payers. These schemes offer tax
rebates to the investors under specific provisions of the Indian Income Tax laws,
1961 as the Government offers tax incentives for investment in specified avenues.
Ex: equity linked saving schemes (ELSS). Pension schemes launched by the
mutual funds also offer tax benefits. These schemes ensure tax benefits to the
Fixed Maturity Plans seek to eliminate risk of capital loss by investing in a pre-
can invest in a fund that will invest in a pre-specified 4-year security. On maturity,
the scheme would redeem the security and pay the investor. The investor however
Index Funds:
Index funds replicate the portfolio of a particular index such as BSE sensitive
index, NSE fifty index. These schemes invest in the securities in the same
accordance with rise or fall in the index, though not exactly in the same percentage
belonging to its investors (unit capital and reserves) and funds from lenders
(borrowed funds). A leveraging of two would mean that for every Re 1 of unit
Borrowed funds have interest and repayment obligations that are independent of
how the market performs. Thus, in bad market conditions, a non-leveraged fund
only needs to bear a loss a leveraged fund would also need to generate additional
Mutual Funds are classed into load and no-load funds. There are three basic types
of loads: front-end (entry), back-end (exit) and contingent deferred sales charge
(CDSC). Funds normally avoid charging loads at both ends. No-load funds do not
♦ Entry load:
Entry loads are charged at the time of buying into the fund. This is the resale price
or the price at which units can be bought after the initial offer period.
♦ Exit load:
An exit load is charged at the time of redeeming units from the scheme This price
preferable to an entry load as he can anticipate and counter the effects of the load.
charge a load of 0.5 per cent for investments of over Rs 50,000 redeemed within
six months. While most equity funds charge either entry or exit loads, most debt
Country funds invest in securities from a specific country or region. The underlying
performance, which in turn would be favorable for the securities (equity or debt) of
that country.
♦ Offshore funds:
Offshore funds mobilize money from investors for investment outside their country.
Commonly written as NAV, Net Asset Value is the current value in rupees of a
single share in a mutual fund. It's the fund's assets minus its liabilities divided by
the number of outstanding shares. A fund's NAV is calculated at the end of each
business day. You can track a fund's NAV like you would the price of an
individual stock. If the NAV goes down over time, it's bad; if it goes up, it's good.
Sale Price:
The price at which Mutual Fund is willing to sell the units to investor is known as
sales price. An investor, who buys or invests, pays the sales price. It is also
Repurchase Price:
The price at which Mutual Fund is willing to buy the units back from the investor
is known is known as repurchase price. That is, the price at which investor can
sell his holdings to Mutual Fund. It is the price at which a close-ended scheme
Redemption Price:
units and close-ended schemes redeem their units on maturity. Such prices are
NAV related.
These are best suited for young people who have started their careers and need
to build their wealth. SIPs entail an investor to invest a fixed sum of money at
regular intervals in the Mutual fund scheme that the investor has chosen. An
investor opting for SIP in xyz Mutual Fund scheme will need to invest a certain
sum on money every month/quarter/half-year in the scheme. It is far better to
invest a small amount of money regularly, rather than save up to make one large
investment.
These plans are best suited for people nearing retirement. In these plans, an
investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum
COMPANY
PROFILE
INTRODUCTION TO HDFC LIMITED
Helping Indians experience the joy of home ownership. The road to success is a
tough and challenging journey in the dark where only obstacles light the path.
However, success on a terrain like this is not without a solution. As we found out
nearly three decades ago, in 1977, the solution for success is customer
satisfaction. All you need is the courage to innovate, the skill to understand your
Today, nearly three million satisfied customers whose dream we helped realize,
Our objective, from the beginning, has been to enhance residential housing stock
and promote home ownership. Now, our offerings range from hassle-free home
loans and deposit products, to property related services and a training facility.
the demand for housing has grown explosively. The importance of the housing
sector in the economy can be illustrated by a few key statistics. According to the
National Building Organization (NBO), the total demand for housing is estimated
at 2 million units per year and the total housing shortfall is estimated to be 19.4
million units, of which 12.76 million units is from rural areas and 6.64 million units
from urban areas. The housing industry is the second largest employment
generator in the country. It is estimated that the budgeted 2 million units would
Having identified housing as a priority area in the Ninth Five Year Plan (1997-
2002), the National Housing Policy has envisaged an investment target of Rs.
In order to achieve this investment target, the Government needs to make low
cost funds easily available and enforce legal and regulatory reforms.
BACKGROUND
HDFC was incorporated in 1977 with the primary objective of meeting a social
households for their housing needs. HDFC was promoted with an initial share
BUSINESS OBJECTIVES
The primary objective of HDFC is to enhance residential housing stock in the
flow of resources to the housing sector by integrating the housing finance sector
ORGANISATIONAL GOALS
♦ To maintain its position as the premier housing finance institution in the country,
base.
amongst the first to receive approval from the Reserve Bank of India to set
up a bank in the private sector. The bank was incorporated in August 1994
in the name of HDFC Bank Limited, with its registered office in Mumbai.
recognized for its high levels of ethical and professional conduct and a
HDFC and Standard Life first came together for a possible joint venture, to
HLSIL
Home Loan Services India Private Limited is a wholly owned subsidiary of HDFC
Ltd. The company has been floated as a distribution arm of HDFC with an
other products Home Loans, Life Insurance, Mutual Funds, Fixed Deposits and
property Solutions.
With over one century of experience in the field of non-life insurance from Chubb
and HDFC's expertise from the financial segment, HDFC Chubb General
Insurance Company Limited has the consumer insight to make its product range
Two leading global investors - HDFC and Barclays - provide the financial backing
headquartered in the United Kingdom, ranking among the Top 10 banks in the
At the same time, their combined financial strength provides Intelenet with the
maintaining corporate growth and achieving the goals and objectives set forth by
our customers.
HDFC REALTY
Realty provides the entire gamut of real estate services, bringing together the
"clicks world" and the "bricks world" in a revolutionary and user-friendly way.
They are making available the best guidance and the most professional,
HDFC Securities Ltd was promoted by the HDFC Bank & HDFC with the
objective of providing the diverse customer base of the HDFC Group and other
to allocate, select and manage your investments wisely, and also support it with
VISION
To be a dominant player in the Indian mutual fund space recognized for its high
investor interests.
INTRODUCTION
HDFC Mutual Fund has been one of the best performing mutual funds in the last
AMC is a joint venture between housing finance giant HDFC and British
the Mutual Fund and manages assets of the schemes, including the schemes
launched from time to time. As of Aug 2006, the fund has assets of Rs.25,892
Sponsor of Zurich India Mutual Fund, to divest its asset management business in
India, AMC had entered into an agreement with ZIC to acquire the asset
India had been transferred to HDFC Mutual Fund and renamed as HDFC
schemes.
LIST OF HDFC MUTUAL FUNDS
HDFC ASSET MANAGEMENT COMPANY LIMITED
(AMC)
HDFC Asset Management Company Ltd (AMC) was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an
Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter
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,
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
♦ HDFC Long Term Advantage Fund (formerly HDFC Tax Plan 2000)(HTP),
♦ HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT),
The AMC is also providing portfolio management / advisory services and such
activities are not in conflict with the activities of the Mutual Fund.
mutual funds to its customers. The following are some of the top mutual fund
objectives-
HDFC Growth fund is an open-ended growth scheme with the primary objective
of the scheme to generate long term capital appreciation from a portfolio that is
Plans / Options: Growth and Dividend. The dividend plan offers payout and re-
investment facility.
Entry Load:
appreciation over a long period of time from a judicious mix of equity and debt
Plans / Options: Growth and Dividend. The dividend plan offers dividend payout
Entry Load:
Exit Load:
HDFC Top 200 fund is an open-ended growth scheme; the primary objective of
the scheme to generate long term capital appreciation from a portfolio of equity
and equity-related instruments primarily drawn from the companies in BSE 200
index.
Features:
Plans / Options: Growth and Dividend. The dividend plan offers dividend re-
investment facility.
Entry Load:
HDFC Long Term advantage fund and Tax Saver; is an open-ended equity linked
Features:
Investment Objective:
growth of capital.
Plans / Options: Growth and Dividend. The dividend plan offers dividend payout
• For new and existing investors: Rs. 500 and in multiples of Rs. 500
thereafter.
Entry Load:
HDFC equity fund is an open-ended growth scheme; the primary objective of the
Features:
Plans / Options: Growth and Dividend. The dividend plan offers dividend payout
Features:
Plans / Options: Growth and Dividend. The dividend plan offers dividend payout
Entry Load:
Features:
Plans / Options: This scheme has three plans; Nifty Plan, Sensex plan and
Sensex Plus Plan. At present, each plan offers growth option only.
Exit Load:
one year from the date of allotment if the purchase / switch in of units are
of the scheme to generate capital appreciation along with current income from
the combine portfolio of equity -equity related instruments and debt – money
market instrument.
Features:
Plans / Options: Growth and Dividend. The dividend plan offers dividend payout
Entry Load:
RESEARCH
METHODOLOGY
RESEARCH METHODOLOGY
RESEARCH PROBLEM
In this project, I have tried to study the performance of certain Mutual Fund
schemes on the basis of their returns, risk and performance. This performance
study of mutual funds utilizes the four quantitative performance measures based
on past records.
♦ To find out the risk and return level of selected equity diversified mutual funds.
♦ To know which one of the selected equity scheme is doing very well and which is
DATA SOURCE
In order to achieve the various stated objectives secondary data available on the
subject was used and other necessary information has been collected from the
HDFC Ltd. Mandi and other Mutual Fund Houses, newspapers, journals,
magazines etc.
TOOLS APPLIED
Data collected from various secondary sources was used for comparing the
Mutual fund schemes using Sharpe ratio, Standard Deviation, Beta and Alpha
STANDARD DEVIATION
Standard Deviation is a measure that allows you to evaluate the volatility of the
funds. Put differently it allows you to measure the consistency of the returns.
Volatility is often a direct indicator of the risk taken by the fund. The Standard
Deviation of a fund measures this risk by measuring the degree to which the fund
SHARPE RATIO
Sharpe ratio is the returns generated by a fund over and above risk free rate of
As standard deviation represents the total risk experienced by a fund, the Sharpe
ratio reflects the returns generated by undertaking all possible risks. A higher
Sharpe ratio is therefore better as it represents a higher return generated per unit
of risk. It is calculated by subtracting the risk free rate from the rate of return for a
portfolio and dividing the result by the standard deviation of the portfolio returns.
This ratio tries to quantify how a fund performs relative to the risk it takes.
BETA
Beta is a statistical measure that shows how sensitive a fund is to market moves.
It compares a fund's volatility against the sensex. The beta value for an index
itself is taken as one. Therefore, if a fund has a beta higher than value 1, it
means it's moving up and down more than the rest of the market.
A fund with a beta greater than 1 is considered more volatile than the market,
Investors dream of stocks that enjoy positive beta whenever the market goes up,
ALPHA
Alpha is a measure of the difference between a fund's expected return and its
real return. While analyzing the performance of a fund, we would like to know
how much was attributable to the market as a whole, and how much due to
manager's performance. This is what the fund has earned over and above what it
was expected to earn. Thus, this is the value added by the fund manager's
investment decisions.
A high alpha (more than 1) is a good thing. A negative alpha means the fund is
under performing.
In this report, an attempt has been made to compare the various selected equity
diversified schemes. The schemes selected for comparison are open ended
The various mutual fund schemes (equity diversified) which have been
The comparison of the funds has been done on the basis of following
parameters:
♦ PORTFOLIO
Market Capitalization
Portfolio Turnover
♦ RETURNS
NAV
1 year
3 year
Standard Deviation
Sharpe Ratio
Beta
Alpha
FUND
COMPARISON
1. HDFC EQUITY FUND - GROWTH
FUND OBJECTIVE:
The scheme is aimed at generating long-term capital appreciation by
FUND STYLE:
FUND DETAILS:
Asset Allocation
As on 30/06/07 % Net Assets
Equity 98.76
Debt 0.00
Others 1.24
Asset Allocation
98.76
100
80
60
40 % Net Assets
20 1.24
0
0
Debt
Others
Equity
Large 13.41
Mid 45.10
Small 4.91
SECTORAL ALLOCATION:
Com puters
6% 15%
7% Diversified
Pharm aceuticals
8%
13% Electricals
Banks
Entertainm ent
9% Oil & Gas
Finance
9% 12% Autom obiles
9% 12% Electronics
TOP 10 HOLDINGS:
PERFORMANCE:
(20/07/07)
oriented stocks.
FUND STYLE:
FUND DETAILS:
Asset Allocation
As on 30/06/07 % Net Assets
Equity 86.4
Debt 0.00
Others 13.6
Asset Allocation
100 86.4
80
60
40 % Net Assets
13.6
20
0
0
Debt
Others
Equity
Large 22.08
Mid 32.73
Small 7.49
SECTORAL ALLOCATION:
As on 29/07/07 % NET ASSETS
Diversified 14.24
Computers - Software & Education 10.31
Pharmaceuticals 8.48
Auto & Auto ancillaries 6.45
Power Gen., Transmission & Equip 5.89
Banks 5.49
Telecom 4.50
Electronics 4.50
Miscellaneous 3.71
Housing & Construction 3.58
Diversified
6% 5%
20% Com puters
7%
Pharm aceuticals
7% Autom obiles
Pow er
Banks
Telecom
8% 15% Electronics
Miscllaneous
9%
13% Construction
10%
TOP 10 HOLDINGS:
COMPANY % NET ASSETS
Divis Laboratories Ltd 8.48
PERFORMANCE:
(20/07/07)
FUND OBJECTIVE:
The scheme aims to provide growth of capital and regular dividend from a portfolio
of equity, debt and money market instruments and focusing on wealth creating
FUND STYLE:
FUND DETAILS:
Franklin Templeton Asset Management
ASSET MANAGEMENT COMPANY
(India) Pvt. Ltd.
LAUNCH DATE September, 1994
Asset Allocation
As on 30/06/07 % Net Assets
Equity 93.33
Debt 0.01
Others 6.67
Asset Allocation
93.33
100
80
60
40 % Net Assets
20 6.67
0.01
0
Debt
Others
Equity
Large 39.09
Mid 25.31
Small 1.79
SECTORAL ALLOCATION:
As on 29/06/07 % NET ASSETS
Diversified 13.04
Banks 11.06
Entertainment 10.70
Telecom 8.69
Finance 8.40
Computers - Software & Education 7.15
Auto & Auto ancillaries 6.59
Electronics 3.57
Paints 3.48
Housing & Construction 3.36
Diversified
5% 4%
5% 17% Banks
Entertainm ent
9%
Telecom
15% Finance
Com puters
Autom obiles
9%
Electronics
Paints
11% 14% Construction
11%
TOP 10 HOLDINGS:
PERFORMANCE:
(20/07/07)
The scheme aims to provide the investors maximum growth opportunity through
FUND STYLE:
categorized as large.
FUND DETAILS:
PORTFOLIO CHARACTERISTICS:
Asset Allocation
As on 29/06/07 % Net Assets
Equity 90.05
Debt 4.48
Others 5.47
Asset Allocation
100 90.05
80
60
40 % Net Assets
20 4.48 5.47
0
Debt
Others
Equity
Large 26.10
Mid 39.43
Small 6.93
Tiny 1.09
SECTORAL ALLOCATION:
Diversified
6% 16%
8% Construction
Automobile
8%
12% Electricals
Pharmaceuticals
Steel
Banks
9%
Engineering
12% Oil & Gas
9%
9% 11% Cem ent
TOP 10 HOLDINGS:
PERFORMANCE:
(20/07/07)
FUND OBJECTIVE:
The Fund is seeking to generate capital appreciation, from a portfolio that largely
consists of equity and equity related securities of the 100 largest corporates, by
FUND STYLE:
categorized as large.
FUND DETAILS:
PORTFOLIO CHARACTERISTICS:
Asset Allocation
As on 30/06/07 % Net Assets
Equity 92.28
Debt 2.55
Others 5.17
Asset Allocation
MARKET CAPITALISATION % OF PORTFOLIO
Giant
100 92.28 52.46
80
Large 36.00
60
Mid 11.54
40 % Net Assets
Small N.A
20 2.55 5.17
0
Debt
Others
Equity
SECTORAL ALLOCATION:
TOP 10 HOLDINGS:
PERFORMANCE:
(20/07/07)
COMPARATIVE
ANALYSIS
RATING ON THE BASIS OF RISK ADJUSTED
RETURN:
performance of a mutual fund scheme, it should also include the risk taken by the
fund manager because different funds will have different levels of risk attached to
fluctuations in the returns generated by it. The higher the fluctuations in the returns
of a fund during a given period, higher will be the risk associated with it. Therefore,
the schemes have been rated on the basis of the risk associated with their returns.
♦ STANDARD DEVIATION
returns of the fund. It gives you a 'quality rating' of an average. The Standard
Deviation is the amount by which the numbers that go into an average deviate from
that average. In other words, standard deviation tells us how much the values have
It is a comprehensive risk measure that considers both market return and company
return. A higher value of standard deviation means higher risk. But higher standard
deviation does not mean that fund is a bad fund in comparison to fund having
lesser standard deviation. If the fund is giving more returns with higher standard
deviation than the other fund having low returns, then higher standard deviation
Variation = b = ∑ (return-mean) 2
Standard deviation = σ = √b
STANDARD 5.66
5.34 5.80 5.58 6.31
DEVIATION
6.4 6.31
STANDARD DEVIATION
6.2
STANDARD DEVIATION
6
5.8
5.8 5.66
5.58
5.6
5.34
5.4
5.2
4.8
HDFC Equity Reliance Vision Franklin India SBI Magnum DSPML Top 100
Prim a Plus Contra
FUNDS
ANALYSIS
A higher value of standard deviation means higher risk. A high Standard Deviation
may be a measure of volatility, but it does not necessarily mean that such a fund is
worse than the one with a low Standard Deviation. If the first fund is a much higher
performer than the second one, the deviation will not matter much.
# The highest standard deviation amongst all the equity diversified funds is that of
SBI Magnum Contra. This fund falls in the category of high risk and high returns.
# HDFC Equity Fund is having the least risk associated with it in comparison to all
other schemes and thus, it is considered as one of the most stable returns giving
fund.
♦ SHARPE RATIO
It is a ratio developed by Bill Sharpe to measure risk-adjusted performance. It is
calculated by subtracting the risk free rate from the rate of return for a portfolio and
This ratio tries to quantify how a fund performs relative to the risk it takes. It is a
ratio of returns generated by the fund over and above risk free rate of return and
SI = (Ri - Rf)
σ
Where SI = Sharpe Index
σ = Standard Deviation
0.66
0.64 0.63
0.62
0.6
SHARPE
0.6
SHARPE
0.58 0.57
0.56
0.56
0.54
0.52
0.5
HDFC Equity Reliance Vision Franklin India SBI Magnum DSPML Top 100
Prim a Plus Contra
FUNDS
ANALYSIS
At times high returns are generally associated with a high degree of volatility. We
accept this volatility only because we want higher returns. The Sharpe ratio
represents this trade off between risk and returns. A higher Sharpe ratio is
# SBI Magnum Contra is having the highest Sharpe ratio of 0.67 followed by HDFC
# It implies that SBI Magnum Contra gives highest returns against per unit of risk in
fund is to market moves. It compares a fund's volatility against the sensex. The
beta value for an index itself is taken as one. Therefore, if a fund has a beta higher
than value 1, it means it's moving up and down more than the rest of the market.
A fund with a beta greater than 1 is considered more volatile than the market, and
If, for example, a fund has a beta of 1.03 in relation to the BSE sensex, the fund
has been moving 3% more than the index. Therefore, if the BSE Sensex increased
Investors dream of stocks that enjoy positive beta whenever the market goes up,
and negative beta whenever the market goes down. In other words, Investors
expecting the market to be bullish may choose funds exhibiting high betas, which
increase investors’ chances of beating the market. If the investor expects the
market to be bearish in the near future, the funds that have betas less than 1 are a
good choice because they would be expected to decline less in value than the
index.
HDFC RELIANCE FRANKLIN SBI MAGNUM DSPML
FUND PLUS
0.98
0.96
0.96
0.94 0.93
0.92
0.9
BETA
0.86
0.84
0.82
HDFC Equity Reliance Vision Franklin India SBI Magnum DSPML Top 100
Prim a Plus Contra
FUNDS
ANALYSIS
security with the movement in the market. In this analysis the standard for “Beta” is
taken as ranging from 0.5 to 1.0. The reason being “Beta” above 1 represents the
movement of fund being aggressive with the movement of market. This holds
better to invest in a fund having beta less than one. So that if the market falls then
the betas of nearly all the funds are similar apart from beta of DSPML Top 100,
followed by SBI Magnum Contra. This implies that these funds are very volatile.
# The movement of DSPML Top 100 which is nearing 1 with a value of 0.96 will be
Alpha is a measure of the difference between a fund's expected return and its real
return. Alpha must be evaluated in the context of a fund's beta (volatility) and R-
a mutual fund investor. While analyzing the performance, we would like to know
how much was attributable to the market as a whole, and how much due to
manager’s ability to select stocks. Value added by the manager indicates (or
alpha) indicates the return that is not attributable to the market, or in other words,
the added value the manager achieved over and above the result of the market.
A high alpha (more than 1) is a good thing. A negative alpha means the fund is
under performing.
1
0.77 ALPHA
0.8
0.55
0.6
0.4
0.2
0
HDFC Equity Reliance Vision Franklin India SBI Magnum DSPML Top 100
Prim a Plus Contra
FUNDS
ANALYSIS
A positive alpha implies that a fund has performed better than expected, given its
level of risk. In other words, it measures the gap between the funds expected
return and its actual return. So higher the alpha, better are the returns.
# SBI Magnum Contra has the highest alpha of 1.67. It indicates that the fund
# Followed by SBI Magnum Contra, is HDFC Equity Fund with an alpha of 1.01.
# The lowest alpha is of DSPML Top 100 being 0.55; while the beta of this fund is
the maximum.
RETURNS
55.74 56.88 63.88 61.72 59.60
(Last 1 year)
RETURNS
53.24 53.04 50.48 67.56 50.77
(Last 3 yrs)
80
1 Year Returns
67.56
70 63.88 3 Year Returns
61.78 59.6
55.74 56.88
60 53.24 53.04
50.48 50.77
50
ALPHA
40
30
20
10
0
HDFC Equity Reliance Vision Franklin India SBI Magnum DSPML Top 100
Prima Plus Contra
FUNDS
ANALYSIS
# While comparing 1 year returns of the five equity schemes, it is found that
FRANKLIN INDIA PRIMA PLUS has the highest return of 63.88%. It means that in
# DSPML TOP 100 has a value of 59.60% and is again a good short term return
giving fund.
# While comparing 3 year returns, it is found that SBI MAGNUM CONTRA has the
highest return of 67.56%. It means that this fund is giving high returns in short term
# FRANKLIN INDIA PRIMA PLUS which is having the highest returns in last one
year, is having the lowest 3 year returns among all the five funds. It means that the
# It is seen that both HDFC EQUITY FUND and RELIANCE VISION FUND are
having somewhat similar 1 year and 3 year returns. It means that both these funds
are giving stable returns in short term as well as long term and are thus providing
SBI MAGNUM
1 6.31 0.67 0.93 1.67 67.56
CONTRA
HDFC EQUITY
2 5.34 0.63 0.87 1.01 53.24
FUND
RELIANCE
3 5.80 0.60 0.90 1.00 53.04
VISION
FRANKLIN
INDIA PRIMA 4 5.58 0.57 0.89 0.77 50.48
PLUS
DSPML TOP
5 5.66 0.56 0.96 0.55 50.77
100
CHAPTER-5
CONCLUSION
CONCLUSION
It can be inferenced from the results above that SBI Magnum Contra has out
concluded that it is the best performing fund during the period of study amongst the
five funds selected for study. Although the fund is having the highest standard
deviation, it is concluded that the fund falls in the category of high risk and high
returns.
Close to SBI Magnum Contra is HDFC Equity Fund. The overall performance of
this fund is favorable as the results of this fund are ranked second amongst the five
DSPML Top 100 is a highly volatile fund having the lowest alpha amongst all the
In all, it can be concluded from the study above that the top three performing funds
according to the study are SBI Magnum Contra, HDFC Equity Fund and Reliance
Vision.
Mutual funds are an uprising trend amongst investors as they ensure high returns.
A good mutual fund company is known by its AMC and its choicest stock selection
indicators discussed above reveal the overall performance of the schemes relative
tap the latent needs of investors, including retail investors, who have begun to look
significantly to the growth of mutual fund industry in India, particularly in the recent
times. However, there still remains a huge scope of improvement to catch up with
SUGGESTIONS
SUGGESTIONS AND RECOMMENDATIONS
♦ In India, less than 3% of household savings are put into mutual funds. There is
great potential for mutual funds in the Indian market. Therefore, more awareness
must be created among people about the good returns which the mutual funds
have generated in the past, which are very high in comparison to other
investment options.
♦ Entry load usually varies from 2 to 2.25%. Therefore, a few no load based funds
should be introduced. Thus, it would attract more and more customers for the
So that the investor feels that it is a fair game and he is not being charged
♦ More and more Capital Guaranteed Funds should be introduced. This would
encourage more and more people and thus would lead to expansion of mutual
funds industry.
♦ All the vital information should be disclosed properly to the investors while
investment so that they can fully understand the policies of mutual funds.
CHAPTER-7
BIBLIOGRAPHY
BIBLIOGRAPHY
www.mutualfundsindia.com
www.valueresearchonline.com
www.amfiindia.com
www.moneycontrol.com
www.myiris.com
www.hdfc.com
www.easyMF.com
www.reliancemutual.com
www.sbimf.com
www.templetonindia.com
AMFI Mutual Fund Testing Programme – Workbook, Third Edition, May 2006