Summer Internship Project Report

On
ANALYSIS OF PERFORMANCE OF HDFC
MUTUAL FUND SCHEMES
By
VIBHOR GOEL
BMS 3FD Class of 2016
(13315)
In Partial Fulfilment of the
Requirements
For the Award of the Degree in
Bachelor of Management Studies

(2015)
SHAHEED SUKHDEV COLLEGE OF
BUSINESS STUDIES
(University of Delhi, Vivek Vihar)

DECLARATION

Title of the Project Report: Analysis of Performance of HDFC Mutual Fund

Schemes.

I declare

That the work presented for assessment in this Summer Internship Report is my
own and original in nature that it has not previously been presented for another
assessment and that my debts (for words, data, arguments and ideas) have been
appropriately acknowledged.

Date: 4th August, 2015

Vibhor Goel

Roll No. 13315

BMS - Class of 2016

ii

AKNOWLEDGEMENT

I would like to thank the whole staff of Robinhood Capital without whose support
this project could not have been completed. I would like to specially thank Mr.
Pawan Sharma, who guided me all through the project and helped me complete it.
I would also like to thank Mr. Ajay Bansal without whose support I would not
have been able to complete my internship. They all guided me through the project
and helped me at each and every point of it. This project gave me an insight of the
actual corporate world and the people within it.
I would also like to express my gratefulness to the college which gave me the
wonderful opportunity to conduct this project during my summer break. I would
like to thank the placement officer and my subject teachers who have taught me
because it was because of the knowledge imparted by them to me that I applied in
the project. It gave me a practical exposure of the theoretical knowledge and helped
me learn the implication of what I had learnt in class. Without that initial learning
it would have been very difficult to complete this project successfully.
I would also like to thank Ms. Manika Kaushik, Placement Officer, and SSCBS
for her approval and support for pursuing these projects.

Vibhor Goel

iii

INTERNSHIP CERTIFICATE

iv

TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION ........................................................................ 1
NEED OF THE STUDY ..................................................................................... 1
SCOPE OF THE STUDY ................................................................................... 1
OBJECTIVES OF THE STUDY ........................................................................ 1
CONCEPTUAL FRAMEWORK ....................................................................... 2
CHAPTER 2: REVIEW OF THE LITERATURE.......................................... 18
HDFC MUTUAL FUNDS ................................................................................ 20
ABOUT HDFC FUNDS ................................................................................... 21
CHAPTER 3-RESEARCH METHODLOGY ................................................. 25
RESEARCH DESIGN ...................................................................................... 25
RESEARCH QBJECTIVES ............................................................................. 25
DATA COLLECTION ...................................................................................... 25
INSTRUMENTS USED ................................................................................... 25
PROCEDURE ................................................................................................... 25
LIMITATIONS ................................................................................................. 26
CHAPTER 4: DATA ANALYSIS AND FINDINGS ....................................... 27
HDFC EQUITY FUND ...................................................................................... 27
HDFC MID-CAP FUND .................................................................................... 28
AUM LEVEL ANALYSIS ............................................................................... 30
CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ................... 33
REFERENCES .................................................................................................... 34

LIST OF FIGURES

Figure 1.1 Concept of mutual funds .................................................................... 2

Figure 2.2- Types of Mutual Funds ........................................................................ 3
Figure 4.1- Holdings graph-HDFC Equity ........................................................... 27
Figure 4.2- Holdings Graph- Midcap.................................................................... 29
Figure 4.3- Relationship between Net Flows in Equity and Nifty ........................ 30
Figure 4.4- HDFC QUAAM ................................................................................. 31
Figure 4.5- Trend in Mutual Funds Portfolios ...................................................... 31
Figure 4.6- Average Quarter end AUM ................................................................ 32

vi

LIST OF TABLES

Table 1.1- Entry of Public Sector Funds - 1987-1993 .......................................... 14

Table 1.2- Growth and SEBI Regulation - 1996-2004 ......................................... 17
Table 1.3- Assets under Management ................................................................... 17
Table 4.1- HDFC Equity fund Summary .............................................................. 27
Table 4.2-HDFC Mid cap Fund Summary ........................................................... 28

vii

ANALYSIS OF PERFORMANCE OF HDFC MUTUAL FUND SCHEMES

ABSTRACT
The following report has been made to analyse the performance of various
HDFC mutual funds schemes and to understand the types and modelling of
mutual funds in real scenarios.A number of studies on evaluating the performance
of Indian Mutual Fund Schemes have been conducted in India and foreign
countries.
HDFC Mutual Fund has been constituted as a trust in accordance with the
provisions of the Indian Trusts Act, 1882, as per the terms of the trust deed dated
June 8, 2000 with Housing Development Finance Corporation Limited (HDFC) and
Standard Life Investments Limited as the Sponsors / Settlors and HDFC Trustee
Company Limited, as the Trustee. The Trust Deed has been registered under the
Indian Registration Act, 1908. The Mutual Fund has been registered with SEBI,
under registration code MF/044/00/6 on June 30, 2000. The fund management team
has been exceptionally stable with only three changes since 1994. HDFC Equity
has stood the test of time across four market cycles. Such is the popularity of this
multicap fund that even a small drop in its ratings causes great anxiety.

Although the fund has just stayed ahead of its benchmark in the past six
months, in the long run, the funds good risk containment and participation in rallies
has added up to a sizeable outperformance. A top choice in the category.

viii

CHAPTER 1: INTRODUCTION

NEED OF THE STUDY

1. The need of study arises for learning the variables available that distinguish the
mutual fund schemes.
2. To know the risk & return associated with mutual fund.
3. To project mutual fund as the productive avenue for investing activities.

SCOPE OF THE STUDY

1. To make people aware about concept of mutual fund.
2. To provide information regarding advantages and demerits of mutual fund.
3. To advice where to invest or not to invest.
4. To provide information regarding types of mutual fund which is beneficial for
whom.

OBJECTIVES OF THE STUDY

The present study is concerned with the following objectives:

1. To examine the performance of selected HDFC Mutual Funds schemes on

the basis of risk and return and compare the performance of selected
schemes with benchmark index to see whether the scheme is outperforming
or underperforming the benchmark.

2. To examine the performance of selected schemes by using the portfolio

performance evaluation models.

CONCEPTUAL FRAMEWORK
A Mutual Fund is a trust that pools the savings of a number of investors
who share a common financial goal. Anybody with an investible surplus of as
little as a few hundred rupees can invest in Mutual Funds. These investors
buy units of a particular Mutual Fund scheme that has a defined investment
objective and strategy.

Figure 1.1 Concept of mutual funds

The money thus collected is then invested by the fund manager in different
types of securities. These could range from shares to debentures to money
market instruments, depending upon the schemes stated objectives. The
income earned through these investments and the capital appreciation realized by
the scheme is shared by its unit 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.

TYPES OF MUTUALFUND SCHEMES

Figure2.2- Types of Mutual Funds

(A) By Structure

Open-Ended Schemes do not have a fixed maturity. You deal with the Mutual
Fund for your investments & Redemptions. The key feature is liquidity. You can
conveniently buy and sell your units at Net Asset Value (NAV) related prices, at
any point of time. Investors can sell their units to the scheme through a re-purchase
transaction at re-purchase price, which is linked to NAV.

Close-Ended Schemes have a stipulated maturity period are called close ended
schemes. You can invest in the scheme at the time of the initial issue and thereafter
you can buy or sell the units of the scheme on the stock exchanges where they are
listed.

Interval Schemes combine the features of open-ended and close-ended schemes.

However, between these intervals, the Units have to be compulsorily listed on stock
exchanges to allow investors an exit route. They will be open for sale or redemption
during predetermined intervals at
NAV related prices.

(B) By Investment Objective

Growth Schemes - Aim to provide capital appreciation over the medium to long
term. These schemes normally invest a majority of their funds in equities and are
willing to bear short term decline in value for possible future appreciation. These
schemes are not for investors seeking regular income or needing their money back
in the short term. Ideal for Investors in their prime earning years.

Income Schemes - Aim to provide regular and steady income to investors. These
schemes generally invest in fixed income securities such as bonds and corporate
debentures. Capital appreciation in such schemes may be limited. Ideal for: Retired
4

people and others with a need for capital stability and regular income. Ideal for
Investors who need some income to supplement their earnings.

Balanced Schemes - Aim to provide both growth and income by periodically

distributing a part of the income and capital gains they earn. They invest in both
shares 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. Ideal for Investors looking for a
combination of income and moderate growth.

Money Market / Liquid Schemes - Aim 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 interbank call money. Ideal for: Corporates and individual investors as a
means to park their surplus funds for short periods.

Many of the financial instruments mutual fund is one of the most attractive
financial investment instrument that plays a vital role in the economy of a country.
Mutual fund schemes provides new opportunities for investors. Mutual fund
Industry was introduced in India 1963 with the formation of Unit Trust of India.
During the last few years many extraordinary and rapid changes have been seen in
the Mutual fund industry. Therefore, due to the changed environment it becomes
important to investigate the mutual fund performance. The need for evaluating the
performance of mutual fund schemes in India to see whether the mutual fund
schemes are outperforming or underperforming than the benchmark and to see the
competency of schemes to make out a strong case for investment. The present paper
investigates the performance of open ended, growth-oriented equity schemes.
Open-ended mutual fund schemes are those which dont have a fixed maturity, not
listed in the stock exchange and these schemes offer new unit for sale and ready to

buy any time. The success of any scheme depends upon the competence of the
management and its soundness.

The reason may be of decreasing open-ended schemes are the global

financial crisis. According to AMFI, there were about 1095 schemes in India, out
of which 727 (66.39%) were open-ended.
YOUR RIGHTS AS A MUTUAL FUND UNITHOLDER

1. Receive information about the investment policies, investment objectives,

financial position and general affairs of the scheme.

2. Receive dividend within 30 days of their declaration and receive the

redemption or repurchase proceeds within 10 working days from the date
of redemption or repurchase. Failing which AMC has to pay a penalty of
15% per annum basis.

3. Receive communication from the Trustees about change in the fundamental

attributes of any scheme or any other changes which would modify the
scheme and affect the interest of the unit holders & to have option to exit at
prevailing Net Asset Value without any exit load.

4. To publish their NAV, in accordance with the regulations: daily by 9 Pm in

AMFI Site, in case of open-ended schemes and every Wednesday in case of
close ended schemes. In case of Fund of Funds, NAV published at AMFI
site by next day morning 10 AM. NAV has to be published daily, in at least
2 newspapers
5. To disclose your schemes entire portfolio twice a year, unaudited financial
results half yearly and audited annual accounts once a year.

6. To see to it that investment decisions are taken in the best interest of the
unit holders.

7. Investors can choose to change their distributor or go direct. In such cases,

AMCs will need to comply, without insisting on any kind of No Objection
Certificate from the existing distributor.

8. Unit-holders have the right to inspect key documents such as the Trust
Deed, Investment Management Agreement, Custodial Services Agreement,
R&T agent agreement and Memorandum & Articles of Association of the
AMC.

9. Scheme-wise Annual Report or an abridged summary has to be mailed to

all unit-holders within 6 months of the close of the financial year.

10. PAN based Consolidated Account Statement (CAS) for each calendar
month will be sent by post/email on or before 10th of the succeeding month.

FREQUENTLY USED TERMS IN MUTUAL FUNDS:-

NET ASSETS VALUE:The net asset value, or NAV, is the current market value of a fund's
holdings, less the fund's liabilities, usually expressed as a per-share amount. For
most funds, the NAV is determined daily, after the close of trading on some
specified financial exchange, but some funds update their NAV multiple times
during the trading day. The public offering price, or POP, is the NAV plus a sales
charge. Open-end funds sell shares at the POP and redeem shares at the NAV, and
so process orders only after the NAV is determined. Closed-end funds (the shares
of which are traded by investors) may trade at a higher or lower price than their
NAV; this is known as a premium or discount, respectively. If a fund is divided

into multiple classes of shares, each class will typically have its own NAV,
reflecting differences in fees and expenses paid by the different classes.

Some mutual funds own securities which are not regularly traded on any
formal exchange. These may be shares in very small or bankrupt companies; they
may be derivatives; or they may be private investments in unregistered financial
instruments (such as stock in a non-public company).

In the absence of a public market for these securities, it is the responsibility

of the fund manager to form an estimate of their value when computing the NAV.
How much of a fund's assets may be invested in such securities is stated in the
fund's prospectus.

SALE PRICE:Is the price you pay when you invest in a scheme? Also called Offer Price.
It may include a sales load.

REPURCHASE PRICE:Is the price at which a close-ended scheme repurchases its units and it may
include a back-end load? This is also called bid Price.

REDEMPTION PRICE:Is the price at which open-ended schemes repurchase their units and closeended schemes redeem their units on maturity? Such prices are NAV related.

TURNOVER:Turnover is a measure of the fund's securities transactions, usually

calculated over a year's time, and usually expressed as a percentage of net asset
value.
This value is usually calculated as the value of all transactions (buying,
selling) divided by 2 divided by the fund's total holdings; Le. The fund counts one
8

security sold and another one bought as one "turnover". Thus turnover measures
the replacement of holdings.

EXPENSES:Mutual funds bear expenses similar to other companies. The fee structure
of a mutual fund can be divided into two or three main components: management
fee, non-management expense, and 12b-l/non12b-1 fees. All expenses are
expressed as a percentage of the average daily net assets of the fund.
MANAGEMENT FEES:The management fee for the fund is usually synonymous with the
contractual investment advisory fee charged for the management of a fund's
investments. However, as many fund companies include administrative fees in the
advisory fee component, when attempting to compare the total management
expenses of different funds, it is helpful to define management fee as equal to the
contractual advisory fee + the contractual administrator fee. This "levels the playing
field" when comparing management fee components across multiple funds.

NON-MANAGEMENT EXPENSES:Apart from the management fee, there are certain non-management
expenses which most funds must pay. Some of the more significant (in terms of
amount) non-management expenses are: transfer agent expenses (this is usually the
person you get on the other end of the phone line when you want to purchase/sell
shares of a fund), custodian expense (the fund's assets are kept in custody by a bank
which charges a custody fee), legal/audit expense, fund accounting expense,
registration expense (the SEC charges a registration fee when funds file registration
statements with it), board of directors/trustees expense (the disinterested members
of the board who oversee the fund are usually paid a fee for their time spent at
meetings), and printing and postage expense (incurred when printing and delivering
shareholder reports).

BROKERAGE/COMMISSIONS:An additional expense which does not pass through the statement of
operations and cannot be controlled by the investor is brokerage commissions.
Brokerage commissions are incorporated into the price of the fund and are reported
usually 3 months after the fund's annual report in the statement of additional
information. Brokerage commissions are directly related to portfolio turnover
(portfolio turnover refers to the number of times the fund's assets are bought and
sold over the course of a year).
Usually the higher the rate of the portfolio turnover, the higher the
brokerage commissions. The advisors of mutual fund companies are required to
achieve "best execution" through brokerage arrangements so that the commissions
charged to the fund will not be excessive. And buys back shares from investors
wishing to leave the fund.

EXCHANGE-TRADED FUNDS:A relatively recent innovation, the exchange-traded fund or ETF, is often
structured as an open-end investment company. ETFs combine characteristics of
both mutual funds and closed-end funds. ETFs are traded throughout the day on a
stock exchange, just like closed-end funds, but at prices generally approximating
the ETF's net asset value. Most ETFs are index funds and track stock market
indexes. Shares are issued or redeemed by institutional investors in large blocks
(typically of 50,000). Most investors purchase and sell shares through brokers in
market transactions. Because the institutional investors normally purchase and
redeem in in kind transactions, ETFs are more efficient than traditional mutual
funds (which are continuously issuing and redeeming securities and, to effect such
transactions, continually buying and selling securities and maintaining liquidity
positions) and therefore tend to have lower expenses.

INVESTOR FEES AND EXPENSES:Fees and expenses borne by the investor vary based on the arrangement
made with the investor's broker. Sales loads (or contingent deferred sales loads
10

(CDSL) are not included in the fund's total expense ratio (TER) because they do
not pass through the statement of operations for the fund. Additionally, funds may
charge early redemption fees to discourage investors from swapping money into
and out of the fund. Quickly, which may force the fund to make bad trades to obtain
the necessary liquidity. For example, Fidelity Diversified International Fund
(FDIVX) charges a 1 percent fee on money removed from the fund in less than 30
days.

Most FOFs of invest in affiliated funds (Le. mutual funds managed by the
same advisor), although some invest in funds managed by other (unaffiliated)
advisors. The cost associated with investing in an unaffiliated underlying fund is
most often higher than investing in an affiliated underlying because of the
investment management research involved in investing in fund advised by a
different advisor. Recently, FoFs have been classified into those that are actively
managed (in which the investment advisor reallocates frequently among the
underlying funds in order to adjust to changing market conditions) and those that
are passively managed (the investment advisor allocates assets on the basis of on
an allocation model which is rebalanced on a regular basis).

The design of FoFs is structured in such a way as to provide a ready mix of

mutual funds for investors who are unable to or unwilling to determine their own
asset allocation model. Fund companies such as TIAA-CREF, American Century
Investments, Vanguard, and Fidelity have also entered this market to provide
investors with these options and take the "guess work" out of selecting funds. The
allocation mixes usually vary by the time the investor would like to retire: 2020,
2030, 2050, etc. The more distant the target retirement date, the more aggressive
the asset mix.

HEDGE FUNDS:Hedge funds in the United States are pooled investment funds with loose
regulation and should not be confused with mutual funds. Some hedge fund
11

managers are required to register with SEC as investment advisers under the
Investment Advisers Act. The Act does not require an adviser to follow or avoid
any particular investment strategies, nor does it require or prohibit specific
investments.

Hedge funds typically charge a management fee of 1% or more, plus a

"performance fee" of 20% of the hedge fund's profits. There may be a "lock-up"
period, during which an investor cannot cash in shares. A variation of the hedge
strategy is the 130-30 fund for individual investors.

HISTORY OF MUTUAL FUNDS

In 1774, a Dutch merchant invited subscriptions from investors to set up an

investment trust by the name of Eendragt Maakt Magt (translated into English, it
means, Unity Creates Strength), with the objective of providing diversification at
low cost to small investors. Its success caught on, and more investment trust were
launched, with verbose and quirky names that when translated read profitable and
prudent or small maters grow by consent. The foreign and colonial Govt. trust,
formed in London in 1868, promised start the investor of modest means the same
advantages as the large capitalist by spreading the investment over a number of
stock.
When three Boston securities executives pooled their money together in
1924 to create the first mutual fund, they had no idea how popular mutual funds
would become. The idea of pooling money together for investing purposes started
in Europe in the mid-1800s. The first pooled fund in the U.S. was created in 1893
for the faculty and staff of Harvard University. On March 21st, 1924 the first
official mutual fund was born. It was called the Massachusetts Investors Trust.

12

After one year, the Massachusetts Investors Trust grew from $50,000 in
assets in 1924 to $392,000 in assets (with around 200 shareholders). In contrast,
there are over 10,000 mutual funds in the U.S. today totalling around $7 trillion
(with approximately 83 million individual investors) according to the Investment
Company Institute.
HISTORY OF MUTUAL FUNDS IN INDIA
The Evolution
The formation of Unit Trust of India marked the evolution of the Indian
mutual fund industry in the year 1963. The primary objective at that time was to
attract the small investors and it was made possible through the collective efforts
of the Government of India and the Reserve Bank of India. The history of mutual
fund industry in India can be better understood divided into following phases:

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

Unit Trust of India enjoyed complete monopoly when it was established in

the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India
and it continued to operate under the regulatory control of the RBI until the two
were de-linked in 1978 and the entire control was transferred in the hands of
Industrial Development Bank of India (IDBI). UTI launched its first scheme in
1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of
investors in any single investment scheme over the years.
UTI launched more innovative schemes in 1970s and 80s to suit the needs
of different investors. Growth Fund and India Fund (India's first offshore fund) in
1986, Master share (Indias first equity diversified scheme) in 1987 and Monthly
Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's
assets under management grew ten times to Rs 6700 crores.

13

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

The Indian mutual fund industry witnessed a number of public sector
players entering the market in the year 1987. In November 1987, SBI Mutual Fund
from the State Bank of India became the first non-UTI mutual fund in India. SBI
Mutual Fund was later followed by Canara bank Mutual fund, LIC Mutual Fund,
Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB
Mutual Fund. By 1993, the assets under management of the industry increased
seven times to Rs. 47,004 crores. However, UTI remained to be the leader with
about 80% market share.

1992-93

Amount

Assets Under

Mobilisation as %

Mobilised

Management

of gross Domestic
Savings

UTI
Public

11,057

38,247

5.2%

1,964

8,757

0.9%

13,021

47,004

6.1%

Sector
Total

Table 1.1- Entry of Public Sector Funds - 1987-1993

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

The permission given to private sector funds including foreign fund

management companies (most of them entering through joint ventures with Indian
promoters) to enter the mutual fund industry in 1993, provided a wide range of
choice to investors and more competition in the industry. Private funds introduced

14

innovative products, investment techniques and investor-servicing technology. By

1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation
from the SEBI after the year 1996.
The mobilisation of funds and the number of players operating in the
industry reached new heights as investors started showing more interest in mutual
funds.
Investors' interests were safeguarded by SEBI and the Government offered
tax benefits to the investors in order to encourage them. SEBI (Mutual Funds)
Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual
funds in India. The Union Budget in 1999 exempted all dividend incomes in the
hands of investors from income tax. Various Investor Awareness Programmes were
launched during this phase, both by SEBI and AMFI, with an objective to educate
investors and make them informed about the mutual fund industry.
In February 2003, the UTI Act was repealed and UTI was stripped of its Special
legal status as a trust formed by an Act of Parliament. The primary objective behind
this was to bring all mutual fund players on the same level.
UTI was re-organised into two parts:
1. The Specified Undertaking,
2. The UTI Mutual Fund
Presently Unit Trust of India operates under the name of UTI Mutual Fund
and its past schemes (like US-64, Assured Return Schemes) are being gradually
wound up. However, UTI Mutual Fund is still the largest player in the industry. In
1999, there was a significant growth in mobilisation of funds from investors and
assets under management which is supported by the following data:

15

GROSS FUND MOBILISATION (RS. CRORES)

FROM

TO

01-

31-

April-98

March-

UTI

PUBLIC

PRIVATE

SECTOR

SECTOR

TOTAL

11,679

1,732

7,966

21,377

13,536

4,039

42,173

59,748

12,413

6,192

74,352

92,957

4,643

13,613

1,46,267

1,64,523

5,505

22,923

2,20,551

2,48,979

7,259*

58,435

65,694

68,558

5,21,632

5,90,190

1,03,246

7,36,416

8,39,662

99
01-

31-

April-99

March00

01-

31-

April-00

March01

01-

31-

April-01

March02

01-

31-Jan-

April-02

03

01-Feb.-

31-

03

March03

01-

31-

April-03

March04

01-

31-

April-04

March05

16

01-

31-

April-05

March-

1,83,446

9,14,712

10,98,158

06
Table 1.2- Growth and SEBI Regulation - 1996-2004

ASSETS UNDER MANAGEMENT (RS. CRORES)

AS ON

UTI

PUBLIC SECTOR

31-03

53,320

PRIVATE SECTOR

8,292

6,860

TOTAL

68,472

March-99
Table 1.3- Assets under Management
Phase V. Growth and Consolidation - 2004 Onwards
The industry has also witnessed several mergers and acquisitions recently,
examples of which are acquisition of schemes of Alliance Mutual Fund by Birla
Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund.
Simultaneously, more international mutual fund players have entered India like
Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end
of March 2006. This is a continuing phase of growth of the industry through
consolidation and entry of new international and private sector players.

17

CHAPTER 2: REVIEW OF THE LITERATURE

The present study deals with the review of literature on Analysis of
Performance of Indian Mutual Fund Schemes. A number of studies on evaluating
the performance of Indian Mutual Fund Schemes have been conducted in India and
foreign countries. Review of some of the studies is presented in the following
discussion: -

Jayadev (1996) evaluated the performance of two growth-oriented mutual

funds namely Mastergain and Magnum express by using monthly returns. Jensen,
Sharpe and Treynor measures have been applied in the study and the pointed out
that according to Jensen and Treynor measure Mastergain have performed better
and the performance of Magnum was poor according to all three measures. Afza
and Rauf (2009) in their study of open-ended Pakistani mutual funds performance
using the quarterly data for the period of 1996-2006. The study measure the fund
performance by using Sharpe ratio with the help of pooled time-series and cross
sectional data and also focused on different attributes such as fund size, expenses,
age, turnover and liquidity. The results found significant impact on fund
performance. Debasish (2009) studied the performance of selected schemes of
mutual funds based on risk and return models and measures. The study covered the
period from April 1996 to March 2005 (nine years).

The study revealed that Franklin Templeton and UTI were the best
performers and Birla Sun life, HDFC and LIC mutual funds showed poor
performance. Ali, Naseem and Rehman (2010) in their study examined the
performance of 10 mutual funds in which 5 were conventional and 5 were Islamic
for the period from 2006 to 2008 by using Sharpe and Treynor measures. The
results found that the funds of Pakistan were able to add more value either
conventional or Islamic.

18

The study also found that some of the funds were underperformed, so these
funds were facing diversification problems during the study period. Garg (2011)
examined the performance of top ten mutual funds that was selected on the basis of
previous years return. The study analyzed the performance on the basis of return,
standard deviation, beta as well as Treynor, Jensen and Sharpe indexes. The study
also used Carharts four-factor model for analyze the performance of mutual funds.

The results revealed that Reliance Regular Saving Scheme Fund had
achieved the highest final score and Canara Robeco Infra had achieved the lowest
final score in the one year category. Sondhi and Jain (2010) examined the market
risk and investment performance of equity mutual funds in India. The study used a
sample of 36 equity fund for a period of 3 years. The study examined whether high
beta of funds have actually produced high returns over the study period. The study
also examined that open-ended or close ended categories, size of fund and the
ownership pattern significantly affect risk-adjusted investment performance of
equity fund.

The results of the study confirmed with the empirical evidence produced by
fama (1992) that high beta funds (market risks) may not necessarily produced high
returns. The study revealed that the category, size and ownership have been
significantly determinant of the performance of mutual funds during the study
period. Prabakaran and Jayabal (2010) evaluated the performance of mutual fund
schemes. The study conducted a sample of 23 schemes were chosen as per the
priority given by the respondents in Dharmapuri district covered a period from
April 2002 to March 2007. The study used the methodology of Sharpe, Jensen and
Fama for the performance evaluation of mutual funds. The results of the study
found that 13 schemes out of 23 schemes selected had superior performance than
the benchmark portfolio in terms of Sharpe ratio, 13 schemes had superior
performance of Treynor ratio and 14 schemes had superior performance according
to Jensen measure. The Famas measure indicated in the study that the returns out

19

of diversification were less. Thus the India Mutual funds were not properly
diversified.
HDFC MUTUAL FUNDS

20

ABOUT HDFC FUNDS

HDFC Mutual Fund has been constituted as a trust in accordance with the
provisions of the Indian Trusts Act, 1882, as per the terms of the trust deed dated
June 8, 2000 with Housing Development Finance Corporation Limited (HDFC) and
Standard Life Investments Limited as the Sponsors / Settlors and HDFC Trustee
Company Limited, as the Trustee. The Trust Deed has been registered under the
Indian Registration Act, 1908. The Mutual Fund has been registered with SEBI,
under registration code MF/044/00/6 on June 30, 2000.

HDFC formed this Mutual fund company with standard Life Investments
and holds approx. 60% of its shares. It manages 44 schemes comprising debt,
equity, exchange traded fund and fund of fund schemes. Average assets under
management (AUM) as at the end of September 2013 were INR 1.07 trillion. It is
ranked first in the industry in India on the basis of Average Assets under
management.
21

HDFC mutual fund was set up on June 30, 2000 with two sponsors namely
Housing Development Finance Corporation ltd. and Standard Life Insurance ltd.
HDFC mutual fund came into existence on 10 Dec. 1999 and got approval from the
SEBI on 3rd July 2000.
Housing Development Finance Corporation Limited, more popularly
known as HDFC Bank Ltd, was established in the year 1994, as a part of the
liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It
was one of the first banks to receive an 'in principle' approval from RBI, for setting
up a bank in the private sector. The bank was incorporated with the name 'HDFC
Bank Limited', with its registered office in Mumbai. The following year, it started
its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many
as 1412 branches and over 3275 ATMs across India.

Products and Schemes of HDFC mutual fund

1. Equity funds.
2. Balanced funds.
3. Debt funds.
4. Liquid funds.

22

READING A FUND REPORT

Top Holdings
A detailed report about the
investment portfolio of a fund.
Equity Holding: The name of
each company, its sector, the
maximum allocation in the last
3-years and the minimum
allocation in the company has
seen in the last 3-years. It also
has the current allocation of the
portfolio as Assets.

Top 5 holdings and Asset

Allocation
Top
5
holdings:
The
percentage of allocation to the
top 5 holdings of the fund.
Asset
Allocation:
The
distribution of its investments
between equity, debt and cash.

Strategy & Review

Investment Strategy: The
structural guideline that the
fund manager will use to
invest in the securities market.
Analysis: A subjective view
on the fund by a Value
Research analyst.
The analysis projects the
funds prospects and takes a
view on the origins and the
attributes of the funds past
performance.

Top Sector Weights

The percentage of the equity
investments of the fund that fall
under each sector of the
economy.
Portfolio Characteristics &
Fund Style
Portfolio
Characteristics:
Total number of stocks and
bonds that are part of the
portfolio. Aggregate measures
regarding
the
funds
investments.
The
market
capitalization, P/B ratio and
P/E ratio are weighted averages
of the latest numbers of the
companies that the fund is
invested in. Three Year
Earnings Growth is the
weighted average of the
compounded average growth in
the net profits of each
company.
Fund Style: A nine-cell matrix
of the overall style of
investment that the fund
follows, based on its latest
portfolio. On the vertical axis,
the three steps denote the
weighted
average
market
capitalization of the funds
investments.
The horizontal axis denotes, on
a weighted average basis,
whether the companies that the
fund has invested in are value
stocks, growth stocks, or a

Quarterly Returns
The funds returns over each
quarter of the last five years,
along with the entire years
returns.

Investment Information
Basic investment information for
the fund.
AMC: The name of the AMC
Website: The name of the AMC
Registrar: The registrar to be
reached for information
Min Inv: Minimum amount to be
invested in the fund
Min SIP Inv (`): Minimum amount
required for SIP
Exchange Availability: Fund
trades on exchanges
Exit Load: Charges on exit from
the fund

23

Best & Worst Returns &

Risk Measures
Best & Worst Returns: The
best and worst one, three and
twelve month periods in the
funds history, along with its
benchmark index during the
period. All possible periods
(rather than just calendar
months, quarters and years) are
evaluated for this.
Risk Measures: A range of
statistical measures that can be
used to evaluate the
performance, risk, and return
of a mutual fund

THINGS TO BE SEEN WHILE INVESTING IN MUTUAL FUNDS:-

1. Don't just look at the NAV, also look at the risk:

Alliance Buy India and Alliance Equity both have 3 stars. That does mean
their NAV is identical. In fact, the NAV of Alliance Equity is 91.66 while that of
Buy India is 16.05.
However, Alliance Buy India took an average risk and delivered an average
return, while Alliance Equity took an above average risk to get the above average
returns. Hence their stars are identical, despite one having a higher NAV.
2. Higher rating does not mean better returns:
A fund with more stars does not indicate a higher return when compared
with the rest. All it means is that you will get a good return without putting your
money at too much risk.
Birla Equity Plan has a 4-star rating while Alliance Tax Relief '96 has a 2star rating. However, the fund with the 2-star rating has a higher NAV (131.96)
than the one with the 4-star rating (39.37).
3. Higher rating does not mean more risk:
Birla Advantage has an NAV of 67.09 while Franklin India Prima has an
NAV of 122.92. This does not necessarily mean that Franklin India Prima is
offering a higher risk since the return is higher. In fact, according to our ratings,
Franklin India Prima is a 5-star fund while (risk is below average) while Birla
Advantage is a 2-star fund (risk is above average).

24

CHAPTER 3-RESEARCH METHODLOGY

RESEARCH DESIGN
Research design helps in proper collection and analysis of data. The
research design was descriptive, conclusive in nature.
RESEARCH QBJECTIVES
The objectives of the study were:
o To gain Knowledge of working of an Asset Management Company.
o To gain and enhance Portfolio Management skills.
o To see the applicability and usability of analytical tools and practical knowledge
by analysing and monitoring the stock of HDFC Mutual funds Schemes
o To find out the financial performance of the HDFC MF.
o To find out the future scope and challenges in HDFC MF.
o Analyse the different corpses of borrowings from each MF Schemes.
o To differentiate within different MF Schemes and understanding the types of
MF.
DATA COLLECTION
Data was collected through the following sources:
1.
2.
3.
4.
5.
6.

Robinhood Capital Ready Reckoner.

AMFI Website (Association of mutual funds of India).
Secondary Data available with the Company. (Client Specific).
HDFC Asset Management Company Reports.
HDFC MF Fact Sheets.
Capitaline Database- AMC-wise AUM, Allocation of AUM in various
categories, company holding, sectoral holding, what's in - what's out,
performance (Companys Licence).

INSTRUMENTS USED
The sampling procedure employed for this is convenient sampling
technique in which elements are based on the judgment of researchers software
tools used for the data analysis. The tools used for data analysis are MS Word &
MS Excel.
PROCEDURE
The procedure involved studying the secondary data in order to know about
the Mutual funds Performance and its activities. After understanding the setup and
basic know how of Mutual funds of the company (HDFC) the various process and
25

activities that the each department undertakes was studied, and simultaneously
certain findings based on the analysis were obtained.
The analysis of each department along with certain financial analysis of the
company was carried out.
LIMITATIONS

All individual HDFC Mutual Fund Schemes could not be covered.

Since it is a Stock Market Monitoring Study, hypothesis could not be drawn.
Analysis Process is lengthy and time consuming.
A very hefty data is to be processed so as to get a meaningful analysis out of it.
The drawback is that the mishandling of data can occur very easily.
Maintaining the ready reckoner can be very hefty in nature.

26

CHAPTER 4: DATA ANALYSIS AND FINDINGS

HDFC EQUITY FUND

Table 4.1- HDFC Equity fund Summary

While 65-70 per cent of the portfolio has been in large caps in the last year
or two, a fourth of assets are devoted to mid-caps and 4-5 per cent is parked
in small-caps. This scheme is aggressively managed and remains fully
invested across market cycles. It is high on conviction with its top stocks
making up a third of the portfolio. The fund does not get swayed by market
fancies and usually sticks to stock and sector choices.
The fund management team has been exceptionally stable with only three
changes since 1994. HDFC Equity has stood the test of time across four
market cycles. Such is the popularity of this multicap fund that even a small
drop in its ratings causes great anxiety.
The fund has been through a difficult patch in the years from 2011 to 2013,
lagging the category average in 2013. But the sharp improvement in the

Figure 4.1- Holdings graph-HDFC Equity

27

funds returns in the ongoing rally has helped re-establish it as a bull market
specialist. The funds 5 year and 10-year records remain very strong.
There are very few equity funds out there which have delivered the goods
in every bull market over the last twenty years and have been steered by the
same management team; this is one.
HDFC MID-CAP FUND

Table 4.2-HDFC Mid cap Fund Summary

The biggest fund in the mid-cap category, HDFC Mid-cap Opportunities
has managed not to lose its plot despite its size. Its return in 2014 places it
ahead of many smaller (and more manoeuvrable) peers.
HDFC Mid-cap Opportunities has studiously avoided the temptation to drift
and has actually stayed underweight in large-caps relative to its category
despite its expanding size. It features a 12-16 per cent exposure to bluechips against the categorys 15-20 per cent weights.
It has also stayed cautious on the volatile small-caps. It is the funds stock
selection in the mid-cap category which has paid off well. This fund is
growth oriented, and in HDFC Mutual Funds trademark style, focuses on
identifying companies that can grow at higher-than-industry rates. Size,
however, has forced this fund to own a rather large number of stocks with
small weights in each.
This probably helps control impact cost and liquidity risks. Consistency of
returns and ability to navigate choppy markets well are this funds pluses.
These qualities were displayed to best effect in 2011, when the index fell by
31 per cent but this fund contained losses to 18.3 per cent and in 2013, when
the fund rose by 9.6 per cent while its benchmark was in the red.
Although the fund has just stayed ahead of its benchmark in the past six
months, in the long run, the funds good risk containment and participation
in rallies has added up to a sizeable outperformance. A top choice in the
category.

28

Figure 4.2- Holdings Graph- Midcap

ANALYSIS 1: The month end Assets Under Management (AUM) of Indian
Mutual Fund industry witnessed a rise during May 2015 by 1.45% or Rs. 17,183
crore M-o-M to Rs. 12,03,547 crore Vs. Rs. 11,86,364 crore seen in the previous
month (Source: AMFI Monthly data). The rise in the value of assets was mainly
due to the considerable inflows into across the categories barring Liquid funds
coupled with MTM gains in equity and debt assets.
ANALYSIS 2: The maximum growth among MF categories during the month was
seen in the AUM of Balanced Funds by 6.42%, while the maximum drop witnessed
in the AUM of Liquid category by -4.81%. The total mutual fund industry saw net
inflows of Rs. 243 crore while the equity categories saw net inflows of Rs. 9,850
crore during last month (for the 14th consecutive month).
EQUITY SIDE MUTUAL FUND SCHEMES: On the equity side, Mutual
funds were net buyers for the tenth consecutive month. They bought net equities
of Rs. 4,176 crore during May 2015. They were the net buyers of Rs. 9,244 crore
in April 2015. The net inflows during last month was a result of gross purchases
Rs 21,701 crore and gross sales Rs 17,524 crore.
DEBT SIDE MUTUAL FUND SCHEMES: On the debt side, mutual funds were
net buyers for the 12th consecutive month in May by buying debt of Rs. 17,362
crore during the month. They were the net buyers also in Apr as they bought the
29

debt securities to the tune of Rs 22,626 crore. The net inflow during the month was
a result of gross purchases of Rs 1, 04,948 crore and gross sales of Rs 87,586 crore.

Figure 4.3- Relationship between Net Flows in Equity and Nifty

AUM LEVEL ANALYSIS
The AUM for equity category rose marginally during May month by 6.1%
MoM to Rs 3, 25,514 crore on the back of considerable inflows as well as
positive equity market in the domestic front during the month.
The Benchmark indices ended on a positive note in the month of May 2015.
BSE Sensex rose by 3.03% and Nifty closed up by 3.08% for the month.
On a month-on-month basis, the Sensex registered its first monthly gain in
May after two months of losses.
Benchmark indices also rose as blue chips advanced on resumption of
buying by foreign investors, while forecast of a timely monsoon continued
to raise hopes the central bank would lower interest rates in June.
The Equity category saw net inflows of Rs. 9,850 crore during the month
(for the 14th consecutive month). The category accounts for 27% of the
overall assets of the Indian MF industry.

30

Figure 4.4- HDFC QUAAM

Figure 4.5- Trend in Mutual Funds Portfolios

The AUM of the income category rose by 1.47% to Rs. 5, 22,178 crore. The
category saw net inflows of Rs.4, 205 crore.

31

Figure 4.6- Average Quarter end AUM

Funds mobilized from 26 newly launched schemes in May stood at Rs.4,
261 crore, out of which Rs 2,640 crore came from 19 FMP NFOs.
Overall MF folios saw an increase for the 12th consecutive month. As of
May 2015, the overall MF folios stood at 4.24 crore while Equity category
folios stood at 3.23 crore. During the month, the overall MF folios saw
increase in numbers by 3.45 lakh while the equity folios saw an increase of
2.9 lakh folios.

32

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS

The largest Indian equity fund is also the top-of-mind recall for most
investors seeking managed equity exposure. The fund has made a strong
comeback in the last one year, with a return of 60 per cent, after a sluggish
show last year.
Strategy: Despite its big asset base of Rs 16,239 crore (Sep 2014), this is
no index hugger.
While 65-70 per cent of the portfolio has been in large-caps in the last
year or two, a fourth of assets are devoted to mid-caps and 4-5 per cent
is parked in small-caps too.
The fund is aggressively managed and remains fully invested across
market cycles. It is high on conviction with its top stocks making up a
third of the portfolio.
The fund does not get swayed by market fancies and usually sticks to
stock and sector choices.
The fund management team has been exceptionally stable with only
three changes since 1994.
Performance: HDFC Equity has stood the test of time across four market
cycles. Such is the popularity of this multicap fund that even a small drop
in its ratings causes great anxiety. The fund has been through a difficult
patch in the years from 2011 to 2013, lagging the category average in 2013.
But the sharp improvement in the fund's returns in the ongoing rally has
helped re-establish it as a bull market specialist. The fund's 5 year and 10year records remain very strong with CAGRs of 14.8 per cent and 22.9 per
cent respectively. Its ten year return surpasses the benchmark by 7.5 per
cent and the category average by 4 per cent.

RECOMMENDATION: BUY

33

REFERENCES
BOOKS:
C.R.Kothari, Research Methodology. New Delhi, Vikas Publishing house
Pvt.Ltd.2007.
FACT SHEETS:
Fact Sheet for the month of June-15
Fact Sheet for the month of May-15
WEBSITES:

http://www.hdfcfund.com/
www.mutualfundindia.com
www.amfiindia.com
www.bseindia.com
www.sebi.org
www.businessstandard.com
www.rbi.org.com

RESEARCH PAPERS:
Debasish, Sathya Swaroop (2009). Investigating Performance of Equitybased Mutual Fund Schemes in Indian Scenario. KCA Journal of Business
Management.
Garg, Sanjay (2011). A Study on Performance Evaluation of Selected
Indian Mutual Funds.International Journal of Innovation Creativity and
Management (IJICM).
Jayadev, M (1996). Mutual Fund Performance: An Analysis of Monthly
Returns. Finance India.
Kundu, Abhijit (2009). Stock Selection Performance of Mutual Funds
Managers in India: An Empirical Study. Journal of Business and Economic
Issues.

34