SUMMER TRAINING PROJECT REPORT

ON Comparative Analysis of Distribution Channel,Sales Practises & SIP Of Mutual Fund In HDFC Securities
Under the partial fulfillment of the requirements of MBA curriculum Gautam Budha Technical University

Under the guidance of

(Mr.Aman Verma)
&

Summer Training Faculty Guide

(Ms.Pallavi)

Submitted To: Dr.M.K. Rastogi

(H.O.D)

Submitted By:

Renu Chaudhary
MBA Sem(2012-13)

Department of Management Studies

Babu Banarsi Das Northern Indian Institute of Technology

Lucknow
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PREFACE
In todays era of cut-throat competition, Master of BUSSINES Administration (MBA) is sure to have an edge over their counter parts. MBA education brings its students in direct contact with the real corporate world through industrial training. The MBA program provides its students with an in depth study of various managerial activities that are performed in any organization. A detailed analysis of managerial activities conducted in various departments like production, marketing, finance, human resources, export-imports, credit dept, etc. gives the student a conceptual idea of what they are expected to manage , how to manage and how to obtain the maximum output through minimum inputs and how to minimize the wastage of resources. I have undergone my summer training at HDFC SECURITIES. It is one of the leading mutual fund companies in the country. I feel great pleasure to present this report work after my training at HDFC SECURITIES that produced to be golden opportunity for me by enriching my knowledge by comparing my theoretical knowledge with the managerial skill and application. Simple language has been used throughout the report. Report is illustrated with figure, charts and diagrams as and when required.

ACKNOWLEDGEMENT

There is always a sense of gratitude one expresses to others for the help and guidance they render during all phases of life. I have completed this Project with the help of experts drawn from diverse fields of Corporate as well as Academia. I wish to express my gratitude towards all of them. I am highly indebted to MR.AMAN VERMA for providing me an opportunity to work for the Project on wonderful topic Comparative analysis of Distribution channel, Sales Practices & SIP of Mutual fund in HDFC SECURITIES I would also like to thank my Faculty guide MS.PALLAVI for her timely response via e-mail, which immensely helped in giving final shape to the project. Thanks are also due to my parents and friends for their constant support during the duration of my Summer Training Project.

RENU CHAUDHARY

EXECUTIVE SUMMARY

Distribution Channel, Sales Practice are the core functioning of any mutual fund. If the AMC doesnt synchronize these two, there is the probability of debacle of the fund. So, proper balance is required between distribution channel and sales practices to maintain proper functioning of the AMC. AND there is the SIP (Systematic Investment Plan) which is a simple and time honored investment strategy for accumulation of wealth in a disciplined manner over long term period to help the investor to grow their funds. In few years Mutual Fund has emerged as a tool for ensuring ones financial well-being. Mutual Funds have not only contributed to the India growth story but have also helped families tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that 56% of the people with incomes in India do not invest in mutual fund and 21% of the people do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as many as one in five people. The trick for converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. This Project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this Project Report is based on market research on the saving and investment practices of the investors This Project as a whole can be divided into three parts. The first part gives an insight about the Company Profile and various strategies adopted, Objectives of the study, Research Methodology. The second part of the Project consists of data and its analysis collected through survey done on 100 people. For the collection of Primary data I made a questionnaire and surveyed of 100 people. I also taken interview of many People those whom we visit at their corporate and tried to cross sell our products i.e. Mutual Fund. The third part gives a brief overview of what are mutual fund and its various features. One can have a brief knowledge about Mutual Fund and its basics through the Project.

I studied about the products and strategies of other AMCs in Lucknow to know why people prefer to invest in those AMCs. This Project covers the topic

Distribution channel, Sales Practices & SIP of Mutual fund

COMPARATIVE ANALYSIS OF The data collected has been well organized and presented. I hope the research findings and conclusion will be of use.

COMPANY PROFILE

Name of Unit Address

: :

HDFC SECURITIES 2nd Floor, Shalimar Tower Gomtinagar Lucknow.

Form of Organization Contact Number Establishment year Sponsors

: : : :

Private Sector (0281)-5524881/82 2000 Housing Development Finance Corporation Limited (HDFC), Standard Life Investments Limited.

Management

Trustee. HDFC Asset Management Company

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Limited (AMC). Working Hours : 9.30 am to 9.00 p.m

Web site

www.hdfcfund.com

PART A INDUSTRY OVERVIEW

Concept of Mutual Funds

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 capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI), which 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.

The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. This pooled income is professionally managed on behalf of the unit-holders, and each investor holds a proportion of the portfolio i.e. entitled not only to profits when the securities are sold, but also subject to any losses in value as well. WHY INVESTORS NEED MUTUAL FUNDS? Mutual Funds offer benefits, which are too significant to miss out. Any investment has to be judged on the yardsticks of return, liquidity and safety. Convenience and Tax efficiency are the other benchmark relevant in Mutual Fund investments. In the wonderful game of finance safety and return are two opposite goals and investor cannot be nearer to both at the same time. Mutual Funds are pooled resources that get invested in a diversified portfolio. The crux of Mutual Fund investing is averaging the risk. When risk is equalized so are the returns.

When investor are confronted with a mind-boggling range of products, from traditional bank deposits to downright shady money-multiplier schemes-let alone the physical assets and non-conventional investments. the table below: Investor choice perhaps normally falls somewhere amongst the products shown in

COMPARISON OF INVESTMENT PRODUCTS

Returns Equity FI Bonds Corporate Debentures Company FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Fund High Moderate Moderate Moderate Low Moderate Low Moderate High High

Safety Low High Moderate Low High High High High Moderate High

Volatility High

Liquidity High/Low Moderate

Convenience Moderate High Low Moderate High High Moderate Low Low High

Moderate Low Low Low Low Moderate High Moderate

Low Low High Moderate Low Moderate Low High

Many investors possibly dont know that considering returns alone, many Mutual Funds have outperformed a host of other investment products. Mutual Funds have historically delivered yields averaging between 9% to 25% over a medium to long time frame (source: www.moneycontrol.com). The duration is important because like wise, Mutual Fund returns taste better with the passage of time. Investor should be prepared to lock in your investments preferably for 3 years in an income fund and 5 years in an equity fund. Liquid Funds of course, generate returns even in a very short term. Performance analysis of several funds shows that depending on the scheme and the duration returns from funds average between 9% to 25%. Such average may be misleading, as some would have fared poorly while others would have posted phenomenally high returns. The burden of intelligent choice therefore rests on investor. As the market matures and funds develop equal capabilities returns may however level out. Besides, unlike in a bank deposit or an investment in bonds, returns in Mutual Funds may fluctuate according to market volatility. A sufficiently longer time span will help Mutual Funds yield their best returns. A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI), which 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. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. This pooled income is professionally managed on behalf of the unit-holders, and each investor holds a proportion of the portfolio i.e. entitled not only to profits when the securities are sold, but also subject to any losses in value as well.

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THE INVESTOR PERSPECTIVE: FUNDS VS OTHERS

Investment Objective Equity Capital Appreciation Income Income

Risk Tolerance

Investment Horizon Long Term

High

FI Bonds Corporate Debentures Company FDs

Low H-M-Low

Medium Medium

Income

Generally low

Medium

Bank Deposits PPF Life Insurance Gold

Income Income Risk Cover Inflation Hedge

Low Low Low Low

All Terms Long Term Long Term Long Term

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Real Estate Mutual Fund

Inflation Hedge Capital Growth Income

Low H-M-Low

Long Term All Terms

How Mutual Fund operates

The following chart gives us operational flow of a Mutual Fund.

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ORGANISATION OF MUTUAL FUND

THE STRUCTURE CONSISTS OF: 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.

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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. Asset Management Company(AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 cores at all times.

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Registrar And Transfer Agent 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. Distributors Mutual funds operates as collective vehicles, on the principal of

accumulating fund from a large number of investors and then investing on a big scale. For a fund to sell units across a wide retail base of individual investors, an established network of distribution agents is essential Bankers A funds activities involve dealing with money on a continuous basis primarily with respect to buying and selling units, paying for investments made, receiving the proceeds on sale of investments and discharging its obligation towards operating expenses. A funds bankers therefore play crucial role with respect to its financial dealings by holding its bank accounts and providing it with remittance services

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TYPES OF MUTUAL FUNDS

Mutual funds can be classified on the basis of structure, investment objective, and other schemes. Structure wise, there are three basic types of mutual funds: open ended, close ended and interval funds.

BY STRUCTURE

Open-ended Fund
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An open-ended fund is available for subscription and repurchase on a continuous basis. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared on a daily basis. Openended schemes do not have a fixed duration. The key feature of open-end schemes is liquidity.

Close-ended Fund A close-ended fund does not provide the facility of subscription throughout the year; it is open for a subscription for a fixed duration as specified in the prospectus of the fund. The investor can apply for the units of the fund only during the initial offer period following which units can be bought and sold only at the stock exchange, where the fund is listed, at the market price.

Interval funds Interval funds combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV linked prices.

By Investment Objective:

Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

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 Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. OTHER SCHEMES:

Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked
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Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.

Index funds: They replicate the portfolio of an index such as the BSE Sensitive Index, S&P NSE 50 index (Nifty), etc These schemes invest in securities in the same weightage as comprising in their chosen index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to "tracking error".

Special Schemes Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, Pharmaceuticals etc.

Sectoral Scheme Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

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Finance

Accounts ATM - Automatic Teller Machine Banks of India Company Shares / Debentures Credit card - Costs Credit Card - Glossary Credit Card - Hard Facts Credit Cards - Eligibility Criteria Credit Cards Direct Investment with Repatriation Benefits Electronic Banking Euro Issues by Indian Companies Financial sector and Banking Financial Sector Reforms in India Credit Card - Find the one that suits your needs Fixed Deposits FIPB - Foreign Investment Promotion Board

Investment in India - Functions Investment in Government Securities Investments by Non-Residents Mutual Funds - Frequently Asked Questions Regulatory Aspects Of Mutual Fund Benefits Of Investing In Mutual Funds Mutual Funds - Glossary Mutual Funds - History Types of Mutual Fund Mutual Funds Mutual fund - Market Trends Mutual funds - Global Scenario Mutual Funds - Net Asset Value (NAV) NRI - FAQ NRI Investments - Company Deposits NRI Investments - Government Securities/Units

IDBI - Industrial Development Bank of India

Overdraft

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THE WAY & TYPE TO INVEST IN MUTUAL FUND

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in. distribution of mutual funds schemes to the investors. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decision. ONE TIME INVESTMENT The amount that has to be invested in onetime is known as Onetime Investment. The investor has to pay the whole amount at once. The minimum amount is Rs. 5000 and maximum is as per the investors Choice. This investment is generally preferred for the business man who Are able to pay at one time.

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SYSTEMATIC INVESTMENT PLAN (SIP) The amount that has to be invested through same monthly installment is known as Systematic Investment Plan. The investor has to pay the minimum amount Rs.1000 monthly for all equity and balanced schemes like that for 6months. And Rs.500 monthly for Tax Saver scheme like that for 12 months. The minimum amount that the investor has to invest is Rs6000 and maximum as per their choice. This type of investment is generally preferred for the salaried people.

ADVANTAGES OF MUTUAL FUND 1. Portfolio Diversification Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small). 2. Professional Management Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. 3. Less Risk Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities 4. Low Transaction Costs
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Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. 5. Liquidity An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid. 6. Choice of Schemes Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options 7. Transparency Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator 8. Flexibility Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. 9. Safety Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced. 10. Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.
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PART B COMPANY DETAIL

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ABOUT COMPANY HDFC

VISION To be a dominant player in the Indian mutual fund space, recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests. ORGANIZATION AND MANAGEMENT HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance, taxation, construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to deliver increasing value to shareholders. Mr. Deepak S. Parekh is the executive Chairman of the Corporation. He is fellow of the Institute of Chartered Accountants (England & Wales).Mr. Parekh joined the Corporation in a senior management position in 1978.He was inducted as a whole time director of the Corporation in 1985 and was appointed as the Chairman in 1993. He is the chief executive officer of the Corporation Mumbai. Mr. K. M. Mistry the Managing Director of the Corporation. Is a Fellow of the Institute of Chartered Accountants of India? He has been employed with
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the Corporation since 1981 and was the executive director of the Corporation since 1993. He was appointed as the deputy managing director in 1999 and the Managing Director in 2000. He is also a member of the Investors Grievance Committee of Directors. Ms. Renu S. Karnad the Executive Director of the Corporation. Is a graduate in law and holds a Masters degree in economics from Delhi University. She has been employed with the Corporation since 1978 and was appointed as the Executive Director of the Corporation in 2000. She is responsible for overseeing all aspects of lending operations of HDFC.New Delhi. BOARD OF DIRECTORS Mr. D S Parekh - Chairman Mr. Keshub Mahindra - Vice Chairman Ms. Renu S. Karnad - Executive Director Mr. K M Mistry - Managing Director Mr. Shirish B Patel Mr. B S Mehta Mr. D N Ghosh Dr. S A Dave Mr. S Venkitaramanan Dr. Ram S Tarneja Mr. N M Munjee Mr. D M Satwalekar

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC) AMC was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an AMC for the Mutual Fund by SEBI on July 30, 2000.

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The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Back bay Reclamation, Church gate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset Management Company Limited to manage the Mutual Fund As per the terms of the Investment Management Agreement, the AMC will conduct the operations of the Mutual Fund and manage assets of the schemes, including the schemes launched from time to time. The present share holding pattern of the AMC is as follows: Particulars Standard Life Investments Limited % of the paid up capital 49.90

Housing Development Finance Corporation Limited 50.10

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now migrated to HDFC Mutual Fund on June 19, 2003. These schemes have been renamed as follows:

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FORMER NAME Zurich India Equity Fund Zurich India Prudence Fund Zurich India Capital Builder Fund Zurich India Tax Saver Fund Zurich India Top 200 Fund Zurich India High Interest Fund Zurich India Liquidity Fund Zurich India Sovereign Gilt Fund

NEW NAME HDFC Equity Fund HDFC Prudence Fund HDFC Capital Builder Fund HDFC Tax Saver Fund HDFC Top 200 Fund HDFC High Interest Fund HDFC Liquidity Fund HDFC Sovereign Gilt Fund

SPONSORS HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC): HDFC was incorporated in 1977 as the first specialised housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity. HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000 depositors, 92,000 shareholders and 50,000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received
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the highest rating for its bonds and deposits program for the ninth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. STANDARD LIFE INVESTMENTS LIMITED The Standard Life Assurance Company was established in 1825 and 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$186.45 billion as at March 31, 2005, Standard Life Investments Limited is one of the world's major investment companies and is responsible for investing money
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on behalf of five million retail and institutional clients worldwide. With its headquarters in Edinburgh, Standard Life Investments Limited has an extensive and developing global presence with operations in the United

Kingdom, Ireland, Canada, USA, China, Korea and Hong Kong. In order to meet the different needs and risk profiles of its clients.

Why to choose HDFC Mutual Fund

HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. Investment Philosophy 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. Offers by HDFC Mutual Fund HDFC believe, that, by giving the investor long-term benefits, we have to constantly review the markets for new trends, to identify new growth sectors and share this knowledge with our investors in the form of product offerings. We have come up with various products across asset and risk categories to enable investors to invest in line with their investment objectives and risk taking capacity. Besides, we also offer Portfolio Management Services. Achievements
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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

PART C DISTRIBUTION CHANNEL

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Distribution Channel of Mutual Fund

Mutual funds are sold through five principal distribution channels: (1) the direct channel, (2) the advice channel, (3) the retirement plan channel, (4) the supermarket channel, and (5) the institutional channel. The first four channels primarily serve individual investors. In the direct channel, investors carry out transactions directly with mutual funds. In the advice, retirement plan, and supermarket channels, individual investors use third parties or intermediaries that conduct transactions with mutual funds on their behalf. Third parties also provide services to fund investors on behalf of mutual funds. The most important feature of the advice channel is the provision of investment advice and ongoing assistance to fund investors by financial advisers at full-service securities firms, banks, insurance agencies, and financial planning firms. Advisers are compensated through sales loads or from asset-based fees. The retirement plan channel primarily consists of employer-sponsored defined contribution plans in which employers provide mutual funds and other investments for purchase by plan participants through payroll deductions. The supermarket channel is made up of discount brokers that offer
33

mutual funds from a large number of fund sponsors. Many of the fund offerings are subject to no transaction charges or sales loads. Businesses, financial institutions, endowments, foundations, and other institutional investors use the institutional channel to conduct transactions either directly with mutual funds or through third parties.

Principal Features of Mutual Fund Distribution Channels

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Channel

Principal Investors Using the Channel Individual investors

Companies or Organizations Providing Transaction Services Mutual fund companies

Method of Conducting Share Transactions

Mutual Funds Offered in the Channel

Investor Services

Direct

Advice

Individual investors

Retireme nt Plan

Participants in defined contribution plans

Transaction orders placed directly with mutual fund companies by mail, telephone, or Internet, or at customer-service centers Full-service Transaction securities orders placed firms, registered with investment representatives adviser firms, and of insurance agencies firms providing transaction services who transmit orders to fund companies Plan sponsor or Transaction employer orders placed with plan administrators who transmit orders to fund companies Discount brokers Transaction orders placed with discount brokers who transmit orders to fund companies

Mutual funds Investment of the fund information company offering direct transactions

Mutual funds from a large number of fund companies

Limited number of mutual funds selected by plan sponsor Mutual funds from a large number of fund companies

Investment information, advice, and ongoing assistance; access to funds from different companies within one account Investment information

Supermar Individual ket investors and registered investment advisers acting on behalf of individual investors Trusts, Institutio businesses, nal financial institutions, endowments, and other

Investment information; access to funds from different fund companies within one account

Mutual fund companies

Direct contact with mutual fund companies or with agents of the fund

Mutual funds Investment of the fund information 35 companies offering direct

Supermar Individual ket investors and registered investment advisers acting on behalf of individual investors Trusts, Institutio businesses, nal financial institutions, endowments, and other institutional investors

Discount brokers

Transaction orders placed with discount brokers who transmit orders to fund companies

Mutual funds from a large number of fund companies

Investment information; access to funds from different fund companies within one account

Mutual fund companies

Direct contact with mutual fund companies or with agents of the fund companies

Mutual funds Investment of the fund information companies offering direct transactions

Direct ChannelIn the direct channel, investors buy and redeem shares directly from the fund or, more precisely, through the funds transfer agent. The fund company sponsoring the fund does not provide investment advice, so investors must undertake their own research to choose funds. Fund companies selling directly to investors provide a variety of products and tools to assist in decision making. When investors purchase fund shares directly, the fund company provides ongoing services to the fund shareholder such as quarterly statements, recordkeeping, and transaction processing. These firms typically maintain websites and telephone servicing centres that their direct customers may use. Because of the relatively fixed cost of providing these services, funds selling directly to investors often require higher minimum balances than funds offering shares through third parties, and they frequently assess fees to those investors who do not maintain the minimum balance levels in their accounts.

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Advice ChannelThe principal feature of the advice channel is the provision of investment guidance, assistance, and advice by financial professionals. These include full-service brokers at national wire houses, independent financial planners and advisers, registered sales representatives at banks and savings institutions, and insurance agents. Such advisers help fund shareholders identify financial goals such as retirement, tax management, education savings, and estate planning. They assess the risk tolerance of their clients and select mutual funds and other investments to meet these goals.

Retirement Plan Channel-

In the 1990s, defined contribution retirement plans, such as 401(k) plans, became one of the primary sources through which investors buy mutual funds. In 2002, $1 trillion was invested in mutual funds through defined contribution plans, up from $67 billion in 1990. Furthermore, 62 percent of all household owners of mutual funds held shares in defined contribution plans. Employers sponsoring defined contribution plans rely upon third parties to administer the plans and provide plan investments to employees. The third-party administrator (TPA) typically handles the recordkeeping and other administrative services and assists the employer in the selection of the investment options offered to employees. Investment options typically include mutual funds, guaranteed investment contracts, stable value funds, and company stock.6 Among the services provided by these third parties are educational materials and seminars for employees that explain the retirement plan, investment options, and investment principles. TPAs are involved in the provision of other services to employees participating in defined contribution retirement plans, including staffing telephone call centers to answer questions, developing and maintaining automated telephone voice-response systems, building and maintaining websites with information specific to the employees particular retirement plan, and producing participant account statements, daily transaction recordkeeping, and annual tax reporting. Some employers assume the cost of TPA services. In these cases, employees receive all of the education and service associated with the retirement plan as an employee benefit. Other employers do not subsidize the full cost of the plan. In these cases, third-party services are paid by employer subsidies, direct charges to employees, or fees included in
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mutual fund expenses. These expenses that pay for third-party services, such as 12b-1 fees and service fees, are included in the expense ratio of the share class along with the annual fees and expenses that shareholders pay for the management of the fund.

Supermarket ChannelThe introduction of the first mutual fund supermarket by a discount broker in 1992 represented a significant innovation in the distribution of mutual funds. Many other discount brokers, some affiliated with mutual fund companies, have since organized fund supermarkets. The most important feature of a fund supermarket is its non transaction- fee (NTF) program, whereby an investor may purchase mutual funds with no transaction fees from a large number of fund companies. The NTF offerings at a discount broker often number in the thousands, providing an investor the convenience of purchasing no load funds from different families at a single location. Supermarkets generally do not provide investment advice, and investors must undertake their own research when choosing funds. However, supermarkets provide a variety of products and tools to assist shareholders decision making . In addition, the supermarkets provide a convenient platform through which investors can research funds, obtain fund literature, and purchase fund shares. The supermarket platform not only provides fund sponsors with access to a national retail distribution channel, but it also promotes competition among funds because investors can readily compare fund fees, expenses, and returns. The fund supermarket holds a single account with each fund and maintains shareholder transaction records for the mutual fund. The supermarket also provides consolidated reports to fund shareholders, distributes mutual fund proxy statements, financial reports, prospectuses, and tax reports. In addition, because the supermarket maintains the relationship with the investor rather than the fund itself, fund shareholders rely on the supermarkets telephone representatives and website for account information, reducing the funds direct cost for providing these services.

Institutional ChannelThe institutional channel comprises a variety of institutions purchasing fund shares for their own accounts. These institutions include businesses,
38

financial institutions, endowments, foundations, and state and local governments. Fund sponsors often create special share classes or funds for institutional investors. Because these investors have large average account balances, the cost of managing a fund or share class with institutional accounts is lower than that for funds with a large number of small accounts. Consequently, the expense ratios for institutional funds and share classes tend to be lower than for comparable funds sold to individual investors. Institutional investors can purchase shares directly from fund companies, but they also rely on third parties to purchase their fund shares. For example, banks and other third parties that help institutions manage their cash holdings have created platforms that offer a variety of money market funds. These platforms permit institutional investors to place money in multiple money market funds and to move money between the funds on this platform. These arrangements allow institutional investors, which are often restricted as to the portion of their cash holdings that can be held in any particular mutual fund, to easily diversify their holdings across funds.

OTHER CHANNELS ARE: The banking channel:

The large customer base of banks, in developed countries, have played an important role in the selling MFs. In the recent years, this channel has also opened up in India. Banks operating in India , including public sector, private and foreign banks have established tie-up with various fund companies for providing distribution and servicing. The banking channel is likely to develop as the most vital distribution channel for fund companies there are several reasons for the same. Customers remain invested in banks for long periods of time and therefore banks maintain a relationship of trust with their customers. Customers are rely on advice provided to them by bankers as they are always on the look out for better investment avenues. Managers are guiding to customers about various funds.
39

An additional advantage that banks provide is that the concerned customer becomes a permanent contact of the banks and therefore can be reached during launch of (new fund offer) NFO or new schemes any time in the future.

The retail channel:

A customer can deal with directly with a sub broker belonging to a distribution company, instead of taking trouble of dealing with several agents. Distribution companies sell the schemes of several fund houses simultaneously and brokerage is paid by the AMC whose funds they sell. The retail channel offer the benefits of prefer this specialist knowledge and established client contact and, therefore private fund houses are generally

channel. Some of the major players in India in this in this channel are national players like Karvey, Birla Sunlife IL&FS and Cholamandalam. The key factor for this channel to sell a companys fund used to be the brokerage paid. The banking and retail channel generally contribute to about 50-70% of the total Asset Under Management(AUM).

The corporate channel:

The corporate channel includes a variety of institutions that invest in shares on the companys name. these are businesses, trust, and even state and local governments. For institutional investors, fund managers prefer to create special funds and share classes. Corporate can either invest directly in
40

mutual funds, or through an intermediary such as a distribution house or a bank. Corporate exhibit varying degrees of awareness of mutual fund products. Most of the established corporate, such as the TVS industries in Hyderabad, are well-versed with the performance and composition of various funds. The smaller companies and start-up firms, however, need to be educating on several aspects of mutual funds. In order to provide information to such clients, fund companies usually organize presentation for these companies or set-up meetings with the finance managers.

PART D
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SALES PRACTICE OF MUTUAL FUND

Sales Practice of Mutual Fund

Relevance of sales practices In India we see that due to global trends, new distribution channels are gradually opening. In India distribution channels are same as elsewhere, but the distribution method Sales Practices differ from other country. The term sales practices usually covers all the ways in which funds and their distributors, market the investment schemes to investors. They cover such area as agent commissions, before after sales services from funds/ brokers to investors, advertising if schemes, ethical code of conduct, desirable marketing practices and agents responsibilities vis--vis the investors.
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Sales practices usually arise from convention, but may also be mandated by regulators. It is therefore important for both fund distributors and employees to understand the sales practices prevalent in the Indian mutual fund market. Sales practice in the Indian Mutual Fund Market Agent Commissions Agents ( whether individuals or distribution companies) are compensated by funds through commissions. Commission Rates In India, there are no rules prescribed for governing the minimum or maximum commissions payable by fund to its agents. Each fund has the discretion to decide the commission structure for its agent. In recent times, funds have been paying commission in the range of 1-1.5% on equityoriented funds and 0.6-0.8% on debt- based funds. Higher commissions are generally paid in case of investments that are made with the purpose of taking tax benefits, since investors are required to lock in their funds for longer periods. SEBI Regulations Although SEBI does not prescribe the minimum amount of commissions payable by a fund to agents, under SEBI (MF) regulations, 1996 all initials issue expenses including brokerage paid to agents are limited to 6% of resources raised under the scheme. In addition, SEBI regulated open end funds are authorized to change the investors entry and exit loads to cover the fund distribution expenses. These loads should not exceed the percentage specified in the schemes offer document. In case the agents commissions paid by the fund result in overall distribution expenses exceeding the rate in the offer document, excess distribution expenses are to be borne by the AMC i.e. the excess cannot be passed on to the unitholders. A no - load, charging no entry or exit loads, is authorized to charge the schemes with the commissions paid to agents as part of the regular management and marketing expenses allowed by SEBI, SEBI puts a cap on
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the total expenses (including commissions) that can be charged to a scheme each year. Any excess over allowable expenses is required to be borne by the AMC. Market Practice Some funds pay the entire commission up- front to the agents (i.e. at the time of sales of units), while others pay a part of Up- front and the balance in phases. The latter practice is known as trail commission. Some funds follow the practice of not paying the balance to the agent if the investors exits the scheme before a specified period, or stop paying the commissions after the investor exits whenever he does. One the issue of commissions, a practice prevalent in India is that of rebating by the agent to the investor, of a part of the commission received from the fund on the sale to that investor. Although agent commissions in the mutual fund industry are not at the same levels as in insurance, investors have come to expect such rebates from agents of all financial products. It is possible that in future such rebates will reduce significantly and might even disappear, as commission amounts paid to agents may decline due to competition. The distributors themselves will tend to realize that they provide useful processing and advisory services to investors, and have to incur costs in the process that need to be covered from their well deserved commissions received from the funds. Agents Obligation It must be remembered that commission/ other arrangements are between the fund and the agent/ broker. Sub brokers serve as agents of the principal agent and the fund is not answerable for their activities. Clearly , given the need for and widespread existence of a sub- broker network in India. Their role cannot be wished away. But distributors need to make their investors aware of who they are dealing with, who the commission rebates is received from, and who they should contact in case of any problems. Agents are well- advised to practice honesty and transparency in explaining the commission structure and timing of any rebate payment to the investors, whose trust will build a long- term relationship. Investor Servicing

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In India, there are as yet, no mandatory guidelines for mutual fund Agents role and services. From an investors perspective, the agents services are limited to the sale of mutual fund units. The agent can only provide the investor with an application form for investing in a scheme. SEBI does, however, require the distribution of a key information memorandum (not the complete offer document) with the application form. The agent is not authorized to accept cheques or other cheques or other documents from investor. The investor should not take any after sales services for granted, either. In recent times, however, agents have been assisting investors to a limited extent with the process of investing in mutual fund units. With increasing competition among funds among funds and therefore more option for the investors, fund agents will have to go beyond just initial help with the investment process. Thus the agents should now prepare themselves to assume the role of financial advisor vis--vis investor. Terms of Appointment of Agents A fund may appoint any resident individual, bank, NBFC or distribution company as its agent subject to the agreement between the two sides. No approval is required from SEBI or any other regulatory authority. These are some of the key terms and conditions in an agreement between a fund and its distributor The agent will provide a copy of the abridged OD to the customer and will make available for inspection a copy of the OD and sell at price currently in effect.

The agent will execute all the transactions on behalf of the customer who will not have any recourse to the agent in case of an errors/problems/quality of investment.

The agent must make the customer know that the funds units are not endorsed by him and do not constitute his obligation.

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 Agent responsible at his expense to ensure compliance with applicable regulation in each jurisdiction.

Fund not responsible for any losses claims or damages.

The agent will offer/sell/purchase unit at the current public offering price.

All orders become effective only upon acceptance and confirmation by the fund.

The agent is responsible to ensure compliance with the applicable regulations in each transaction he deals in and the fund is not responsible for any breach by agent in this regard.

AMFI Code of Ethics

AMFI has published a code of ethics which lays down suggested practices for funds with respect to overall fund operations including distribution and selling practices. At present, the code I not mandatory and is in the form of

recommended practices. The code primarily covers the following broad prospective. AMFI has recommended a code of practices with respect selling.

Management of fund should be in the interest of unit holders.

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 High standards of service are expected from funds.

Adequate disclosure standards Professional Selling practices.

Fund Management in accordance to stated investment objective.

Avoid conflict of interest i its dealing with its employees.

Refrain from unethical market n Practices.

RECOMMENDING MODELPORTFOLIO AND SELECTION THE RIGHT FUNDS DEVELOPING A MODEL PORTFOLIO

Avoid ad-hoc investment advice or decision

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There was a time when Indian investors did not have many investment schemes to choose from. It was easy then for the agents to simply point out the benefits of any currently available scheme to prospective investor. The investor then decided whether the scheme was suited to his needs or not. Now, the Indian fund industry offers a wide choice of investment schemes, unlike ever is before. Different schemes are suited to different investor needs. In the scenario, an investor not only needs advice on how to choose from this variety of investment options available, but also a proper investment strategy that is suitable to his situation and needs. The role of the agents in this scenario is to help the investor develop the right approach to investing, not just offer ad- hoc advice or simply point out the features and benefits of different options. Recommending unsuitable investment to an investor can mean loss of the customer for the agent or the distributor. For the above reasons, it is in the interest of the investors and the agents that both of them avoid ad-hoc investment decisions, and instead follow a wellthough- out plan suited to the investor needs. Most experts now agree that of the most effective ways to invest through mutual funds is to develop a model portfolio for each investor. Jacobs four- step program: developing a model portfolio Work with investors to develop long term goals As Jacobs puts it, mutual fund investing is not a get-rich-quick scheme. Investors must have an instrument programme and ought to set their sights on long- term objectives. In other words, investment decisions ought to be taken in terms of clear, long term goals, not on an ad-hoc basis. Each investor should be advised to expect only realistic wealth accumulation goals, no dramatic result overnight. For example, in the current Indian market conditions, investors can expect 18-20% plus long-term results in equity investments, 10-12% returns in debt investments and 7-8% in money market investments. These expectations can change over time. Specific investments or funds can give greater returns or less returns , but higher returns will be in most cases achieved by investors or their fund managers taking greater risks. Determine the asset allocation of the investment portfolio
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So how can investors decide what level of risk to assume? One practical answer to that question is risks depend upon the nature of investments: equity, debt or money market securities, and the proportion of these three types of securities in any portfolio. This is called asset allocation. Each investor ought to be advised to allocate his total investment funds to the three asset classes in proportion that suit personal and financial conditions. There is no such thing as an ideal asset allocation valid for all investors. That is why, the mutual fund agents need to act as investment advisors.

Determine the sector distribution Once the liquidity, income and growth asset distribution is determined, the advisor can determine how much allocation to make to which sector of the mutual funds. Liquidity needs are generally satisfied with money market mutual funds. Income needs are to be satisfied with debt funds or equity income funds. And growth assets can be build up with equity funds, either conservative or aggressive growth. Select specific fund managers and their schemes This step is required to translate the amounts to be invested in each mf sector into actual decisions on which scheme of which fund manager to select for investments, as the investor would have a choice of many debt funds or even balanced funds.

Model portfolio In preparing an investment program, the investor or the advisor would have to deal with investors at different stages of their life- cycle and therefore with different needs. Each type of investor may be advised to have some typically suitable model portfolio. Jacobs give four different portfolios, summarized below: Investor Recommended model portfolios

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Young, unmarried professional

50% in Aggressive Equity Funds 25% in High Yield Bond Funds, and Growth and Income Funds 25% in Conservative Money Market Fund

Young couple with two income and two children

10% in Money Market 30% in Aggressive Equity Funds 25% in High Yield Bond Funds, and Long Term Growth Funds

Older couple, single income

35% in Municipal Bond Funds 30% in short- term Municipal funds 35% in long-term Municipal Funds 25% in moderately Aggressive Equity 10% in Emerging Growth Equity 35% in conservative Equity Funds for capital preservation/income 25% in moderately Aggressive Equity for modest capital growth 40% in Money Market Funds

Recently retired couple

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PART E SYSTEMATIC INVESTMENT PLAN

Systematic Investment Plan (SIP)

The Systematic Investment Plan (SIP) is a simple and time honoured investment strategy for accumulation of wealth in a disciplined manner over long term period. The plan aims at a better future for its investors as an SIP investor gets good rate of returns compared to a one time investor.
51

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

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

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

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

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

SIP ensures averaging of rupee cost as consistent investment ensures that average cost per unit fits in the lower range of average market price. An investor can either give post dated cheques or ECS instruction and the investment will be made regularly in the mutual fund desired for the required amount. SIP generally starts at minimum amounts of Rs.1000/per month and upper limit for using an ECS is Rs.25000/- per instruction. For instance, if one wishes to invest Rs.1, 00,000/- per month, then they need to do it on four different dates. SIP Investor It is easy to become a systematic investor. One needs to plan the saving effectively and set aside some amount of money every month for investment purposes in a fund that is ideally a diversified equity fund or balanced fund. Post dated cheques can be given to the fund house. The investor is at liberty to exit from the scheme depending on the market conditions. How to invest in SIPs?
52

The SIP option is available with all types of funds like equity, income or gilt. An investor can avail the SIP option by giving post-dated cheques of Rs 500 or Rs 1,000 according to the funds policy. If an investor wants to put more than Rs 500 or Rs 1,000 in any given month he will have to fill in a new a form for SIP intimating the fund that he is changing his SIP structure. Also he will be allowed to change the SIP structure only in the multiples of the SIP amount. If an investor is investing in two different schemes of the same fund he can fill in a common SIP form for all the schemes. However if the first holders in those schemes are different than they will have to fill different SIP forms, as the first holder has to sign on the form. The investor can get out of the fund i.e. redeem his units any time irrespective of whether he has completed his minimum investment in that scheme. In such a case his post-dated cheques will be returned back to him.

Benefits of Systematic Investment Plan Power of compounding: The power of compounding underlines the essence of making money work if only invested at an early age. The longer one delays in investing, the greater the financial burden to meet desired goals. Saving a small sum of money regularly at an early age makes money work with greater power of compounding with significant impact on wealth accumulation.

Rupee cost averaging: Timing the market consistency is a difficult task. Rupee cost averaging is an automatic market timing mechanism that eliminates the need to time one's investments. Here one need not worry about where share prices or interest are headed as investment of a regular sum is done at regular intervals; with fewer units being bought in a declining market and more units in a rising market. Although SIP does not guarantee profit, it can go a long way in minimizing the effects of investing in volatile markets.
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Convenience: SIP can be operated by simply providing post dated cheques with the completed enrolment form or give ECS instructions. The cheques can be banked on the specified dates and the units credited into the investor's account. The SIP facility is available in the Principal Income Fund, Monthly Income Plan, Child Benefit Fund, Balanced Fund, Index Fund, Growth Fund, Equity fund and Tax Savings Fund.

SIP features Disciplined investing is vital to earning good returns over a longer time frame. Investors are saved the bother of identifying the ideal entry and exit points from volatile markets. SIP options such as equity, debt and balanced schemes offer a range of investment plans. While there is no entry load on SIP, investors face an exit load if the units are redeemed within a stipulated time frame. The success of your SIP hinges on the performance of your selected scheme Difference of SIP in Fluctuating Market and Rising Market Let us suppose that you would like to invest Rs. 1,000 every month, in an equity fund using the SIP. The following table shows how your investments would look in the two scenarios of fluctuating and rising market

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Therefore, the average unit cost is lower than average unit price irrespective of market rising or fluctuating. This happens because you get the advantage of buying more units when the market is low and averaging out the purchase price.

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HDFC SIP
HDFC MF SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is invested in a mutual fund scheme of your choice. The dates currently available for SIPs are the 1st, 5th, 10th, 15th, 20th and the 25th of a month. Benefit Become A Disciplined Invester 1

Being disciplined - Its the key to investing success. With the HDFC MF Systematic Investment Plan you commit an amount of your choice (minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) to be invested every month in one of our schemes Think of each SIP payment as laying a brick. One by one, youll see them transform into a building. Youll see your investments accrue month after month. Its as simple as giving at least 6 post-dated monthly cheques to us for a fixed amount in a scheme of your choice. Its the perfect solution for irregular investors. *Minimum amounts may differ for each Scheme Benefit2 Reach Your Financial Goal Imagine you want to buy a car a year from now, but you dont know where the down-payment will come from. HDFC MF SIP is a perfect tool for people who have a specific, future financial requirement. By investing an amount of your choice every month, you can plan for and meet financial goals, like funds for a childs education, a marriage in the family or a comfortable postretirement life. The table below illustrates how a little every month can go a long way

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

Benefit 3 Take Advantage of Rupee Cost Averaging Most investors want to buy stocks when the prices are low and sell them when prices are high. But timing the market is time consuming and risky. A more successful investment strategy is to adopt the method called Rupee Cost Averaging. To illustrate this well compare investing the identical amounts through a SIP and in one lump sum. Imagine Suresh invests Rs. 1000 every month in an equity mutual fund scheme starting in January. His friend, Rajesh, invests Rs. 12000 in one lump sum in the same scheme. The following table illustrate how their respective investments would have performed from Jan to Dec:

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*NAV as on the 10th every month. These are assumed NAVs in a volatile market As seen in the table, by investing through SIP, you end up buying more units when the price is low and fewer units when the price is high. However, over a period of time these market fluctuations are generally averaged. And the average cost of your investment is often reduced.

At the end of the 12 months, Suresh has more units than Rajesh, even though they invested the same amount. Thats because the average cost of Sureshs units is much lower than that of Rajesh. Rajesh made only one investment and that too when the per-unit price was high. Sureshs average unit price = 12000/1480.6012 = Rs. 8.105 Rajeshs average unit price = Rs. 9.345

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Benefit 4 Grow Your Investment With Compounded Benefits It is far better to invest a small amount of money regularly, rather than save up to make one large investment. This is because while you are saving the lump sum, your savings may not earn much interest. With HDFC MF SIP, each amount you invest grows through compounding benefits as well. That is, the interest earned on your investment also earns interest. The following example illustrates this. Imagine Neha is 20 years old when she starts working. Every month she saves and invests Rs. 5,000 till she is 25 years old. The total investment made by her over 5 years is Rs. 3 lakhs. Arjun also starts working when he is 20 years old. But he doesnt invest monthly. He gets a large bonus of Rs. 3 lakhs at 25 and decides to invest the entire amount. Both of them decide not to withdraw these investments till they turn 50. At 50, Nehas Investments have grown to Rs. 46,68,273* whereas Arjuns investments have grown to Rs. 36,17,084*. Nehas small contributions to a SIP and her decision to start investing earlier than Arjun have made her wealthier by over Rs. 10 lakhs.
*Figures based on 10% p.a. interest compounded monthly.

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Benefit5 Do All This Effortlessly Investing with HDFC MF SIP is easy. Simply give us post-dated cheques or opt for an Auto Debit from your bank account for an amount of your choice (minimum of Rs. 1000 and in multiples of Rs. 100 thereof*) and well invest the money every month in a fund of your choice. The plans are completely flexible. You can invest for a minimum of six months, or for as long as you want. You can also decide to invest quarterly and will need to invest for a minimum of two quarters. How an SIP works An SIP allows you to take part in the stock market without trying to secondguess its movements. An SIP means you commit yourself to investing a fixed amount every month. Let's say it is Rs 1,000. When the NAV is high, you will get fewer units. When it drops, you will get more units.

Within six months, you would have 5,89.45 units by investing just Rs 1,000 every month. Over the long run, you make money
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Let's say you invested in HDFC Mutual Fund Technology Fund during the dotcom and tech boom. Say you began with Rs 1,000 and kept investing Rs 1,000 every month. This would be the result: Investment period

Mar 2000 Mar 2005

Monthly investment

Rs 1,000

Total amount invested

Rs 61,000

Value of investment of Mar 7, 2005

Rs 1,09,315

Return on investment

23.87%

Had you bought the units on March 13, 2000 at Rs 10.88 per unit (that was the NAV then), you would have lost because the NAV was just 7.04 on March 7, 2005. But because you spaced out your investment, you win.

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SCHEMES OF HDFC SIP

Top 200 Fund

Basic Scheme Information Objective : To generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. Structure : Open-Ended Growth Scheme Inception Date : October 11, 1996 Plans and Options under the Plan : Growth & Dividend Option. Face Value (Rs/Unit): Rs. 10 Benchmark Index: S&P CNX 500 Minimum Investment : For new investors: Rs.5000 and in multiples of Rs.100 thereafter. For existing investors: Rs. 1000 and in multiples of Rs. 100 thereafter. Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs. 5 crores and above, Entry Load is Nil Exit Load : If redeemed before 1 year; and Amount less than 5 crore, Exit load is 1%. For Amount greater than 5 crore, Exit load is Nil. Lock-In-Period : Nil Net Asset Value Periodicity : Every Business Day Redemption Proceeds: Normally dispatched within 3 Business days

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Investment Pattern The asset allocation under the Scheme will be as follows :
SR NO. 1 ASSET TYPE Equities & Equities related instruments (% OF PORTFOLIO) Upto 100% (including use of derivatives for hedging and other uses as permitted by prevailing 2 Debt securities, money market instruments & cash SEBI Regulations) Balance in Debt & Money Market Instruments Low to medium RISK PROFILE Medium to high

* Investment in Securitized debt, if undertaken, would not exceed 20% of the net assets of the scheme.

The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the regulations and guidelines . The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time.
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Subject to the Regulations and the applicable guidelines, the Scheme may, engage in Stock Lending activities. Also refer to Section on Stock Lending by the Fund. If the investment in equities and related instruments falls below 65% of the portfolio of the Scheme at any point in time, it would be endeavoured to review and rebalance the composition. Not withstanding anything stated above, subject to the regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. It may be clearly understood that the percentages stated above are only indicative and are not absolute and that they can vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the NAV of the scheme. Such changes will be for short term and defensive considerations. The Trustee may from time to time at their absolute discretion review and modify the strategy, provided such modification is in accordance with the Regulations or in the event of a discontinuation of or change in the compilation or the constituents of the BSE 200 Index. Provided further and subject to the above, any change in the asset allocation affecting the investment profile of the Scheme and amounting to a change in the Fundamental Attributes of the Scheme shall be effected in accordance with sub-regulation (15A) of regulation 18 of SEBI regulations. Investment Strategy The investment strategy of primarily restricting the equity portfolio to the BSE 200 Index scrips is intended to reduce risks while maintaining steady growth. Stock specific risk will be minimised by investing only in those companies / industries that have been thoroughly researched by the investment manager's research team. Risk will also be reduced through a diversification of the portfolio .

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Fund Manager Mr. Prashant Jain (since Jun19, 03)* Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities

Equity Fund

Basic Scheme Information Objective : To achieve capital appreciation by investing primarily in equity oriented securities. Structure : Open-ended Growth Scheme Inception Date : January 01, 1995 Plans and Options under the Plan : Growth & Dividend Option Face Value (Rs/Unit): Rs. 10 Benchmark Index: BSE 200 Minimum Investment : For new investors: Rs.5000 and in multiples of Rs.100 thereafter. For existing investors: Rs. 1000 and in multiples of Rs. 100 thereafter. Entry Load : For investments below Rs. 5 crores, Entry load is 2.25%. For Investments of Rs. 5 crores and above, Entry Load is Nil. Exit Load : Nil. Lock-In-Period: Nil
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Net Asset Value Periodicity: Every Business Day Redemption Proceeds: Normally dispatched within 3 business Days

Investment Pattern The asset allocation under the Scheme will be as follows :

Investment in Securitized debt, if undertaken, would not exceed 20% of the net assets of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and other uses as may be permitted under the Regulations. The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time. Also refer to the Section on Policy on off-shore Investments by the Scheme(s). Subject to the Regulations and the applicable guidelines, the Scheme may, engage in Stock Lending activities. Also refer to Section on Stock Lending by the Fund.

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If the investment in equities and related instruments falls below 70% of the portfolio of the Scheme at any point in time, it would be endeavoured to review and rebalance the composition. Notwithstanding anything stated above, subject to the regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. It may be clearly understood that the percentages stated above are only indicative and are not absolute and that they can vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the NAV of the scheme. Such changes will be for short term and defensive considerations. Provided further and subject to the above, any change in the asset allocation affecting the investment profile of the Scheme and amounting to a change in the Fundamental Attributes of the Scheme shall be effected in accordance with sub-regulation (15A) of regulation 18 of SEBI regulations. Investment Strategy In order to provide long term capital appreciation, the Scheme will invest predominantly in growth companies. Companies selected under this portfolio would as far as practicable consist of medium to large sized companies which: are likely achieve above average growth than the industry; enjoy distinct competitive advantages, and have superior financial strengths. The aim will be to build a portfolio, which represents a cross-section of the strong growth companies in the prevailing market. In order to reduce the risk of volatility, the Scheme will diversify across major industries and economic sectors. Fund Manager Mr. Prashant Jain (since Jun 19, Mr. Anand Laddha - Dedicated Fund Manager - Foreign Securities 03)*

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PART F
RESEARCH MTHODOLOGY, FINDINGS AND CONCLUSION

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RESEARCH MYTHODOLOGY
Research Methodology As marketing imply providing goods and services to the target customers for satisfying their needs and wants, so it is very relevant for a marketers to do research for findings it. So, the marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company Sample used: SURVEY sampling

Sample unit: Employees of HDFC Sample size: 300 Universe: HDFC securities Data collection: primary data, SECONDARY DATA

There are generally three methods for research: Survey research: Surveys are best suited for descripitive research , companies undertake surveys to learn about peoples knowledge, beliefs, preferences and satisfaction, and to measure these magnitudes in the general population. Behavioral data In this method the marketers analyses the behavior of the responded. How they react on the stipulated circumstances. Here respondents actual reaction reveals preferences and are often more reliable than statements. Experimental research
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Here the purpose of experimental research is to capture cause and effect relationships by eliminating competing explanations of observed finding. In this summer training project survey research mechanism has been used to get desired findings.

Research instruments: We have to make a choice of two main research instruments in collecting primary data, questionnaires and mechanical devices. Questionnaires: A questionnaire consist of a set of questions presented to respondents for their answers. Because of its flexibility, the questionnaire is by far the most common instrument used to collect primary data. In this project questionnaire have been used to get primary data. Mechanical instruments: This instrument is used occasionally in marketing research. These mechanical devices are used for getting the primary data. Sampling plan: After deciding on the research approach and instruments we have to design a sampling plan. This plan calls for three decisions: 1.Sampling Unit: who is to be surveyed? Here we define the target population that will be sampled. In this project the target population are the distributors of Mutual Funds, distributors encompass the broker/ agents and national brokers. 2. Size: how many people should be surveyed? Generally large samples give more reliable results than small samples. But it has some limitation for example time, money and availability. So taking into consideration of theses limitation the projects sample size has been kept twenty five. 3. Sampling Procedure: how should the respondents be chosen?

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As the topic of the project is : Distribution, Sales Practice & SIP of HDFC Mutual Fund, it was quiet necessary to choose the respondents who deal in distribution and sales practices. As these are, the agents and the national broker, so they were the respondents. After going through these steps, the projects last phase was to analyses the data, plot it into graphs associate it with the conclusion of that particular findings.

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FINDING AS FOLLOWS:

1. Investment Consultant, finding the best investment instruments.

Results Fixed Deposit Bond & Debenture Share Mutual fund 7 11 3 4

Percentage 28% 44% 12% 16%

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Conclusion: As ,most investment consultant has preferred Bond and debenture, the best instrument for investing, because bond and debentures has got 44%, share of preferences. Definitely bond and debenture are good instrument for investments because they are risk free.

2. How do the consultants view the investment in mutual fund?

Results Best Good Bad Worst 10 13 2 0

Percentage 40% 52% 8% 0%

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Conclusion: As the above data indicate that mutual fund as the investment instrument is good, for investing HDFC Ltd., should take great care of HDFC Mutual Fund.

3. The mutual fund scheme that is performing well currently-

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Result Equity Debt Gilt Tax saving 2 14 4 5

Performance 8% 56% 14% 20%

Conclusion As above finding indicate that debt instrument is performing well because its share is 86%, so HDFC Mutual Fund should emphasis its marketing exercise on that fund or scheme which have larger proportions of debt.
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4.

Advices

by

the

consultants

to

the

investor

for

investing-

Result Mostly in equity Mostly in debt Mostly in market instrument Balanced fund 3 12 4 6

Performance 12% 48% 16% 24%

Conclusion: As the above findings show that investment consultant advice mainly in the debt instrument to invest to the investor,(48% share is of debt), HDFC Mutual fund should launch new schemes related to the debt funds.

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5. The driver behind the performance of fundsResult Services Portfolio Past performance Agent network 6 10 4 5 Performance 24% 40% 16% 20%

ConclusionsAs most investment consultant have the opinion that the driver behind the performance of funds are portfolio and services because there share of percentage of preference are 40% & 24%, so the HDFC Mutual fund should
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analyze its portfolio and services and if require it should modify it, because these are main ingredients of the performance of funds.

6. HDFC Mutual funds as an entrant to the marketPreference Out performer 4 Rates II I III IV Percentage 16% 76% 8% 0%

Market performer 19 Under performer Non performer 2 0

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ConclusionAs the above questions finding indicate that the HDFC Mutual fund has been the market performer because it as got higher rating (Ist) and percentage of preference is 76%.

7. Investors awareness about HDFC Mutual fundResult Highly aware Aware Less aware Not aware 10 12 3 0 Performance 40% 48% 12% 0%

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ConclusionAs the above results indicate that most of the investors are aware of about HDFC Mutual fund because its percentage in results is 48%, but only 40% of the investors are highly aware , so the task infront of HDFC AMC is to make the whole investors highly aware about HDFC Mutual fund which means that HDFC AMC should make that kind of marketing strategy through which whole investors come to know about the schemes of HDFC Mutual fund.

8. HDFC Mutual fund is more conservative that other mutual fundsResult YES NO 18 7 Performance 72% 28%

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CONCLUSIONThe philosophy of HDFC Mutual fund that they adopt a conservative mode for investment is certainly true, because 72% of the consultant totally agree with this statement but they suggest that HDFC Mutual fund should adopt that kind of strategy which generates greater returns.

9. The area where HDFC needs to improveResult Promptness Networking Portfolio designing New schemes 5 8 9 3 Performance 20% 32% 36% 12%
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CONCLUSIONThe above data indicates that HDFC mutual fund should increases efforts for designing its portfolio that assures greater returns and it should enhance it networking. That could happen only through the help of agents.

10. Future prospective of HDFC Mutual fundResult Excellent Encouraging 9 6 Performance 36% 24%
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Just good Not good

7 3

28% 12%

CONCLUSIONThe project assured that HDFC Mutual funds future prospective is excellent. Being the late entrant it has performed very well and there is the great probability of performing very well. The only thing HDFC Mutual Fund has to do is to create new portfolios an enhance its marketing strategy.

11. HDFC Mutual fund increases its distribution channel by the means of83

Result Direct marketing Agent marketing National broker 5 11 9

Performance 20% 44% 36%

CONCLUSIONAs the above findings indicate that HDFC Mutual fund should increases its distribution channel through Agent Networking because it has got 44% share of share of results. This can be done by acquiring new energetic agents giving them special trainings elaborating funds detail and motivating them.

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12. HDFC Mutual fund emphasis for assisting of existing agents by the means of

Result Education Fund details Giving customer database Training 2 8 10 5

Performance 8% 32% 40% 20%

CONCLUSION-

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The findings says that HDFC Mutual fund should assist existing agents for operating by the means of giving customer databases and giving technical details of the funds. This may increases the performance of the existing agents.

13. Whether HDFC Mutual fund should believe in aggressive marketing? Result Yes No Cant say 14 8 3 Performance 56% 32% 12%

CONCLUSION86

Many of the distributors have recommended for HDFC Mutual fund to do aggressive marketing. It encompass advertising, random mailing to the investors giving them the details of scheme available in funds etc.

14. Whether there is any scope of launching new schemes for HDFC Mutual Fund? Result Yes No 17 8 Performance 68% 32%

CONCLUSION-

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These findings indicate that there is a scope of launching new schemes for HDFC Mutual Funds. The scheme may be Index Fund, MIPs, Floating Rate Fund, Index Tax Planning, Schemes that invests mostly in foreign debt. HDFC Mutual Fund should analyze the schemes do SWOT ANALYSES while launching these schemes.

Questionnaire

Distributor name ___________

1. As an investment consultant which investment instrument you find the best? a. Fixed Deposit c. Shares b. Bond & Debenture d. Mutual funds

2. How do you view the investment in mutual fund? a. Best c. Bad b. Good d. Worst

3. Which mutual fund scheme is performing well currently? a. Equity c. Gilt b. Debt d. Tax savings
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4. Where do you advice investment? a. Mostly in equity c Mostly in market instrument b. Mostly in debt d Balanced fund

5. Which of these do you find the drive behind the performance of funds? a. Service c. Past performance 6 .How do you rate the HDFC Mutual Fund? a. Out performer c. Under performer b. Market performer d. Non performer b. Portfolio d. Agent network

7. How do you find the investors awareness about HDFC mutual fund? a. Highly aware c. Less aware b. Aware d. Non aware

8. Do you think HDFC mutual fund is more conservative than other funds? a. Yes b. No

9. In which of these do you think HDFC NEEDS to improve? a. Networking c. New scheme b. Portfolio design d. Promptness of services

10. How do you see the future prospective of HDFC Mutual ?

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a. Excellent c. Just good

b. Encouraging d. Not good

11. Where should HDFC mutual fund increases its efforts in distribution channel? a. Direct marketing c. Through national broker 12. Where should HDFC mutual fund emphasis for assisting existing agents? a. Education c. Giving customer database b. Fund details d . Training b. Agent networking

13. Whether HDFC mutual fund should believe in aggressive marketing? a. Yes c. Cant say 14. Whether there is any scope of launching new schemes? Please specify--Yes _ _____ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ No b. No

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Thanks

Signature

SWOT ANALYSIS STRENGTH Good Brand Name of the company in all over India. Flexible products Expertise in the field of mutual fund Sound financial resources of the company as well as sponsors. Strong Communication Network all over the country. WEAKNESS Less awareness regarding mutual fund among investors Yet to build strong distribution network Cannot tap rural market OPPORTUNITIES: Untapped rural market Lack of competitive products to suit clients investment objective
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THREAT: The numbers of players are increasing which further increases the competition. Product Innovation done by other Asset Management companies and is able to collect large amounts. Customer mindsets are still rigid and they mostly prefer traditional pattern of investments.

CONCLUSION

Mutual fund is booming sector now a days and it has lot of scope to generate income and providing return to the investor, the mutual fund is one of the way to development of country and helps to mobilizing dead money in the economy which helps to develop the economic conditions of the country and people. Mutual fund helps the people for studying the market conditions, through effective distribution channel and sales practices, it provides a lot of opportunities to the people for research work and helps the people to know the new things going on around the world. It gave the more knowledge to the person, because it diversifies the risk by investing in different securities.

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LIMITATIONS OF THE STUDY

Equity market continues going up and down Factors show that not a perfect time to invest expecting it to fall further. My visits were in corporate in account opening so the data is of those who are new to the organisation. Some people unwillingly answer

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BIBLIOGRAPHY

1. Mutual Funds In India Marketing Strategies And Practice - H. SADAK

2. Marketing Management - Philip Kotler 3. Personal Finance

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- E. Thomas Garman - Raymond E. Forgue 4. Magazines - Investor - Business Today - Business world

5. Websites www.amfi.com www.hdfcmf.com www.google.com 6. Companys fact sheet

Suggestions and Recommendations

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. Therefore an
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aggressive advertising campaigning should be there to encourage more people to invest Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time. Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.

Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.. Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the
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facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons. The company should arrange seminars and presentations, giving detail idea about securities and benefits of investment in mutual fund.

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