Comparative Analysis of Mutual Funds And Market Research

SIP project report submitted in partial fulfillment of the requirements for the PGDM program

By Aditi Atre

Supervisors: 1. Company Guide: Mr. Vikas Kabra 2. Faculty Guide: Mr .J Mohanty

Institute of Management Technology, Nagpur. 2010-2012

Acknowledgement
I wish to express my deep gratitude to Institute of management studies, Nagpur for providing me with an opportunity and encouragement to undergo project training at HDFC AMC.I owe my sincere thanks to Dr. R. Nargundkar (director, IMT),Mr. H. Halve, (chairperson, placecom committee) and all my faculty members specially my faculty guide Mr.Mohanty. I find it a great privilege to render my sincere thanks to Mr. Parag Pimple(manager,HR) and Mr. Sapan Sharma,(Branch manager ,HDFC AMC , Jaipur ) for providing me a golden opportunity to pursue my summer training from this esteemed organization. I am very thankful and obliged to Mr. Vikas Kabra (Project guide) for his invaluable guidance and constant support in carrying out this project and helping me complete the same within the stipulated time period without any difficulty. I offer my special thanks to the entire HDFC AMC staff for sparing their precious time and for being supportive and helping me throughout the project. I also wish to thank Almighty god, my family and friends without whom this project would not have been possible.

Contents Contents
Executive summary ...................................................................................................5 Introduction .............................................................................................................7 Objectives of the study .............................................................................................14 Concepts and Models used:- .....................................................................................15 Company profile .....................................................................................................21 Investment Philosophy .......................................................................................................... 21 Vision Statement ................................................................................................................... 21 Industry Introduction:- ............................................................................................25 PEST Analysis: ..................................................................................................................... 25 Methodology:-.........................................................................................................31 Returns (CAGR) ................................................................................................................ 31 NAV .................................................................................................................................. 31 Investment Objective ......................................................................................................... 31 Fund Size ........................................................................................................................... 31 Top 10 Portfolio Holdings ................................................................................................. 31 Expense Ratios .................................................................................................................. 31 Entry/Exit Loads ................................................................................................................ 31 Portfolio Turnover ............................................................................................................. 31 Change in NAV:-.....................................................................................................32 Total Returns (CAGR) .......................................................................................................... 32 Portfolio size and Turnover:- ................................................................................................. 33 Comparative analysis ...............................................................................................34 Market research:- ...................................................................................................47 Primary research objective: ................................................................................................... 47 Secondary research objective ................................................................................................. 47 Research Approach ............................................................................................................... 48 Data collection methods ........................................................................................................ 48 a) Exploratory Research:- ............................................................................................... 48
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b)

Survey Research:- ....................................................................................................... 48

Interpretations and conclusions:- ..............................................................................57 Comparative Analysis :- ........................................................................................................ 57 Telephonic survey :- .............................................................................................................. 60 Online survey conducted :- .................................................................................................... 61 Suggestions to HDFC mutual fund :- .........................................................................62 Limitations of the study :- ........................................................................................64 Limitations of the Survey:- .................................................................................................... 64 Future growth drivers :-...........................................................................................66 Project Profile .........................................................................................................68 Annexures :- ...........................................................................................................73 Bibliography:-.........................................................................................................76

Executive summary
The Indian growth has not been better depicted by any other asset class than equities. Equities have given returns at 12% CAGR (compounded annual growth rate) in the last 15 years. Whereas Indias GDP has grown to $1.3 trillion in 2010 from $480 billion in 1991; with a CAGR of 5.69%. Hence, Mutual funds have a large role to play in getting the secondary markets up and running. Currently, less than 5% of household income is invested in the secondary market. In the U.S., this figure goes up to 70%; with 60% of that investment going into ETFs. A major reason for this low figure is that people are not aware of the benefits and the features that these funds offer to them . There are many decisions which are to be made and analysis to be undertaken.Some of these are selecting which fund to invest in, how to measure the profitability of an investment already made and to study the basic features of different products. With a target market size of 42 million households, and the number of potential investors growing every day, there is a huge untapped market for Mutual funds and other investment avenues. This provides for a wonderful opportunity as well as a challenge for every investment manager; right from structuring a product to after-sales so as to attract the customer by creating differentiation. Due to availability of large number of investment avenues and increasing competition in the markets, it is very essential to attract and retain the attention of customers by providing efficient services and focusing on better performance of security. In this project, I have used various financial measures used by credit rating agencies, based on which mutual funds can be differentiated from each other, and have tried to give results based on these parameters. In the second part of the project, I have carried out a market research which aims at identifying the major factors which are important from the viewpoints of the investors; with regard to asset classes, priority of investment and factors which they find appealing in a fund scheme. A telephonic survey was also conducted to evaluate the efficiency of services with the brokers using various parameters.

Relationship management (RM) seems to be the survival technique in todays competition.. Companies across most industries are implementing RM programs. The face of business relationships is changing due to expectations shaped by the interactive nature of the internet. RM is the process of interacting with intermediary and end-user customers, and developing personalized relationships based on their needs. To implement RM, you must give your customers choices, make it easy for them to conduct business, store all collected information in the customer database, and treat customers differently based on their values. In short, develop a customer focus. Gaining clients' confidence and trust in you and your company is key for developing good business relationships. Too often, consultants, sales people or other company representatives go into meetings like 'gangbusters' which involves collecting information about customers and developing databases. Business Relationship Building is all about the fact that it's 'you they buy' . Clearly, they are interested in what your company has to offer or you wouldn't be having meetings with them in the first place, but for the duration of those meetings you are the company. This means that it's less about your product and a whole lot more about how you connect and engage with your client. Sometimes clients can be a bit vague and only have a general idea of what they want, so part of business relationship building is to tease out needed information without giving them the third degree. . Whether it's a a tender presentation, an informal meeting or a straightforward pitch for business, the better your Business Relationship Building Skills, the better your chances are of convincing them to 'buy you'.

Introduction
The economic reforms which took place in the country in 1991 have lead to increase in circulation of money and the freedom of investments in the public and private sectors. In order to reap maximum benefits, the mutual funds industry in India has been promoted. The major players in the Indian markets are HDFC mutual funds, ICICI prudential, Birla sun life, Reliance capital, SBI and UTI. Couple of MNCs has joined these giants as the mutual fund avenues in India are impressive. HDFC MF is one of the largest market players in Indias mutual fund industry. Launched in the year 1996 it has been successfully rendering its services to investors with diversified needs. The plethora of policies introduced by HDFC MF with diversified objectives has been able to meet the expectations of investors. However, as more and more companies are becoming a part of the MF market and competition is increasing, it has become important for every company to gain competitive advantage and attract more clients. It is possible only when the companys objectives are in synchronization with the clients objectives. The need to meet the demands of the customer in the most suitable manner and gain advantage calls for a comparative analysis with competitors in order to achieve organizational goals. Mutual Funds: At a glance Mutual funds are a vehicle to mobilize money from investors, to invest in different markets and securities, in line with the investment objectives agreed upon, between the mutual funds and investors.-NISM (National institute of securities market). In common terms, mutual fund pools the savings of a number of investors who share the common financial goal. The money collected is further invested in diversified capital market instruments such as shares, debentures and other securities. The profits and income earned on these investments along with capital appreciation are shared by the unit holders in proportion to the number of units held by them. The investors pool their money with the fund manager, who uses his financial acumen to invest in securities generating considerable returns and passing it back to the investors.

Life Cycle of the Mutual Fund Industry The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the AUM to Rs. 470 billion in March 1993 and till April 2004; it reached Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous pace. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December

1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores. Third Phase 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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Advantages of mutual funds to investors :1. Professional management: Mutual funds offer investors the opportunity to earn an income or build their wealth through professional management of investible funds. The professional management helps in management of funds in a better manner by using the knowledge, research and ensuring that prudent investment processes are followed. 2. Portfolio diversification: Mutual funds give investors exposure to range of securities held in the investment portfolio of the scheme. Thus, even a small investment of up to 5000 can give a diversified portfolio. 3. Economies of scale: Large investment corpus leads to various economies of scale such as research cost is spread amongst a large number of investors, better terms are negotiated with brokers, bankers and other service providers. 4. Liquidity: It offers certain schemes which are highly liquid for example open ended schemes hence, illiquidity is not a limitation. 5. Tax deferral: If the investors select a policy of dividend reinvestment they can defer the tax liability and can increase their capital appreciation. 6. Convenient options: The convenience of Mutual funds investments is based on the fact that it allows investors to structure their investments in line with their liquidity preference and tax position. 7. Investment comfort: Once an initial investment is made with a mutual fund, they can make it convenient for the investor to make further purchases with very little documentation. 8. Regulatory comfort : SEBI regulates Mutual Funds. It has mandated strict checks and balances in the structure of mutual funds and its activities. 9. Systematic approach to investments: Mutual funds offer various facilities that help investor invest amounts regularly through SIP (systematic investment plan) or move money from one scheme to another using STP or systematic transfer plan.

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Limitations of mutual funds to investors :1. Lack of portfolio customization : Once the unit holder has purchased a scheme,investment management is left to the fund manager. Thus, the unit holder cannot influence what securities or investments the scheme will buy. Also, large section of investors lack time and knowledge to be able to make portfolio choices. 2. Choice overload: in the current scenario, over 800 mutual fund schemes offered by 38 mutual funds and multiple options within those schemes make it difficult for investors to choose between them. It is necessary that investors are aware of the mutual fund schemes offered by various companies before making the most suitable choice.

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Commonly recommended portfolio :Investors Young, unmarried professional Recommended model portfolios by experts 50% in aggressive equity funds 25%in high yield bond fund, growth and income fund 25% in conservative money market funds 10% in money market 30% in aggressive equity funds 25% in high yield bond funds, and long term growth funds 35% in municipal bond funds 30% in short term municipal funds 35% in long term municipal funds 25% in moderately aggressively equity 10% in emerging growth equity 35% in conservative equity funds for capital preservation/income 25% in moderately aggressive equity 40% in money market funds.

Young working couple with children

Older couple, single income

Recently retired couple

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Objectives of the study

y To make a comparative analysis of various companies dealing in mutual funds by using various financial tools used such as alpha, beta, standard deviation, expense ratio and others. On the basis of tabulations and calculations comparisons can be made between funds offered by various top companies in the same category in terms of NAV, returns generated over long and short tenure and expense ratios. y To conduct a telephonic survey for service management, and to know the satisfaction level of brokers in dealing with the company. It was conducted to gather data regarding whether the companys relationship management, information dissemination and client service quality are up to the mark with the brokers. y To conduct a market research to determine which factors are considered by the investors before making investments in mutual funds.

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Concepts and Models used:Comparative analysis :As the mutual fund market in India is growing at a tremendous rate, it has become difficult for the investor to make a choice regarding his investment. Hence, certain techniques are used to make a comparison in order to determine the performance of various mutual fund companies and their respective policies Vis a vis their peers. Some commonly used techniques are:1. Standard deviation :- It is the core of the fund analysis activity. It is a measure which studies risk and returns. In common terms, it is a technique used to determine funds average performance over a period of time. We use an average because it gives a single value that represents the number in its calculated form and hence it is easier for comparisons and judgments. However averages are to be used in a cautious manner else they can cause significant blunders in judgments. For example, if the returns on a particular stock have been (+50%),(+40%),(-20%),(-10%)in the preceding four years, the stock has been highly volatile and is not safe to invest in. However, the average will depict the returns as (+15%).Hence, standard deviation serves as a measure which gives us a quality rating of the average. The standard deviation of an average is the amount by which the numbers that go into the average are deviate from the average .It basically tells us how closely the average represents an underlying number. Standard deviation simplifies the measurement of risk by representing it in numerical terms by the following method:1. Calculate a funds monthly performance over a long period of time. 2. Calculate an average of all these monthly performances. 3. If the monthly performances are very different from the average, than the fund is risky, delivering high returns in some months and low returns in other months. If they are almost similar, the fund is stable and less risky. In simple terms, a higher standard deviation may be measure of volatility of the fund, but it does not necessarily mean that such a fund is worse than one with low standard deviation. This simply means that returns are more stable on a mutual fund which has lower standard deviation and

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fluctuating on those mutual funds which has higher standard deviation. If the latter performs better than the former, the deviation will not matter much. 2. Beta of the portfolio:-This is a statistical tool which shows how sensitive a fund is to market moves. If the market moves by 35%, the value of beta will determine whether the funds return will be more or less than that. The beta value for an index is itself taken as one. By multiplying the beta value of a fund with the expected percentage movement of an index, the expected movement in the fund can be determined. Thus, if a fund has beta measure of 1.2 and the market moves up by 10 percent, the fund will move up by 12 percent. And similarly, when the market comes down by 10 percent, the fund will fall by 12 percent. It helps in determining whether an investor should invest in a portfolio with low beta fund or high beta fund. If an investor invests in beta which has a value of more than one, chances are high that if the market performs well, the returns on portfolio will go up. However, if market loses, the returns on such portfolio will fall sharply. Hence, over an entire cycle of rise and fall, the returns may not be much higher than the market but the risks are very high. On the other hand, a low beta fund will rise less than the market when it is positive and lose less when the markets are falling. When the investor has to consider safety of investment, a fund with a beta of less than one is usually preferable. The funds returns are more stable and it falls less during times of market downturns. Usually, beta serves to be an adequate measure of calculating risk and return. But it is prone to some limitations. The major limitation faced by beta is that betas value depends upon the index used to calculate it. If the index which is used to calculate beta for a fund bears no co relation with the movements of the fund, the predictions which are made would be absolutely wrong. For example, if beta of large cap fund is calculated against mid cap index, then it will have no significance as the fund will not move in synchronization with the index. However, in order to avoid this limitation, we use a -determining the adequate value of the fund. These two measures for determining risk and return are used together while examining a fund.s risk profile.

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3. Portfolio turnover:-The term portfolio turnover is used to determine how often the fund manager trades stocks and securities constituting a mutual fund. Each buy and sell transaction in a stock market involves a brokerage cost. The brokerage cost is borne by the mutual fund which in turn is passed on to its investors. Hence, higher trading by a fund manager also termed as active management, leads to higher expense ratio and can surely eat on to the returns. The turnover ratio is hence represented by the percentage of a funds holdings that change every year. In other words, a turnover rate of 50 percent implies that the fund manger has replaced 50 percent of securities constituting the portfolio. Technically. turnover is determined by dividing the total sales or total purchases by average of net assets. Higher the turnover ratio, higher will be the expense charges. However, if the turnover ratio is able to generate adequate returns it is justified. The problem arises when turnover is very high and it is not generating adequate returns. The turnover ratio is very significant for equity and balanced funds where trading costs of equity is substantial. It is wise not to consider the portfolio turnover of new schemes which are not fully invested in, as when investments are increasing and when it gets converted from partially to fully invested funds , it will quickly change its portfolio. Hence, it is always advisable to focus in fully invested fund schemes. Actively managed funds are the funds where investors usually focus on the expense ratio and the turnover portfolio. However, if the funds are constantly beating the benchmark index,high turnover ratio is justified. In broad conclusion, where a fun is been able to generate returns which are adequate and sufficient, higher expense ratio is justified. 4.Expense ratio : As management of mutual funds is a vigorous exercise, it charges expenses for management of portfolio. This involves the fund management fees, agent commissions, registrar fees, and selling and promotion expenses. All this falls under a single measure termed as the expense ratio of the portfolio. It is usually in synchronization with the turnover ratio of the fund policy. If the turnover ratio is high and the component securities are changed quickly, the expense ratio is usually high.

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Expense ratio defines how much you pay to a fund in percentage term every year to manage the money. In order to understand it in numerical terms, if a fund is earning 11 % and has an expense ratio of 2%,it would mean a 9% return for the investor. The NAV or net asset value of the firm are reported net of fees and expenses, therefore, it is necessary to know how much the fund is deducting. If we consider the effect of power of compounding of money ,a high expense ratio can eat returns massively. Expense ratio basically comprises of management and advisory fees, it is the basic source of profit of the AMC(asset management company of the mutual funds).The second component is marketing and distribution expenses. There are many parties involved in management of mutual funds, which are custosian, auditors and others. They are also the receivers of benefit. The fact necessary to be known is brokerage cost paid by a fund on purchase and sale of securities is not reflected in the expense ratio but at the time of determining the NAV of the portfolio. 5. Sharpe ratio:-It is a technique used for performance evaluation of a fund during comparative analysis made. It takes into consideration standard deviation of a portfolio A as a measure of risk. The ratio is calculated by computing the difference of average return of a portfolio and the risk free rate which is dividend by the standard deviation of portfolio A. It basically tells us about the portfolio return over the risk free return per unit of standard deviation. A higher Sharpe ratio is considered to be better as it represents a higher return generated per unit of risk.
Sharpe ratio= Average rate of return on portfolio A average rate of return on risk free investments/ Standard deviation of return of portfolio A

However, there are some observations which should be made at the time of using sharpe ratio as a funds performance evaluator. 1. Sharpe ratio, is just a pure number. It can be used only as a comparative tool and not in isolation. It can be used to compare a fund either against a peer fund or against the benchmark index it tracks.

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2.Sharpe ratio uses standard deviation as its risk component ,a low standard deviation can unduly influence results. Funds with low but stable returns with lesser standard deviation will show higher sharpe ratio. For an investor who puts in all his money in a single fund, Sharpe ratio is useful as it considers total risk. However, for additional funds in a portfolio, other measures are to be used which focus more on market risk or beta rather than total risk. These are the quantitative methods which are used for making a comparative analysis. However, they do not consider for any risks inherent in a funds portfolio. The Sharpe ratio is one of the most widely used measures of comparative analysis used in the industry. It employs a linear relationship between risk and return. 6. Alpha : As discussed earlier, the beta of market is one. An index scheme, which mirrors the index and is passively managed, is expected to generate the same return as the market in ideal situations. The difference between an index funds return and market return is usually termed as tracking error. Non index schemes would have a benchmark beta .This is called as schemes optimal return. The difference between a schemes actual return and its optimal return is its alpha, usually taken to be a measure of fund managers performance. Positive alpha indicates out performance and negative alpha indicates under performance. Alpha is ideally collected for diversified equity schemes as the concept of beta is more relevant in these funds. It is basically used to determine whether the returns from a high beta fund are enough to justify the higher risk that it entails. Indicating one numerical example, if a fund is expected to earn a return of 17% as predicted by the beta but it fetches only 15%, then the alpha of the fund is 17-15=2. Usually, higher levels of alpha indicates higher returns as it increases risk.

Standard Deviation Expense Ratio

Beta of the portfolio Sharpe Ratio

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Portfolio turnover ratio Alpha of the fund

P/E ratio:- ( Price earnings ratio):-

It is a financial indicator which determines how much the investors are willing to pay in relation to the companys earnings. P/E ratio= Market price/ EPS Higher P/E ratio depicts that the prospects of the company are good, but the shares are little expensive. On the other hand, lower P/E ratio indicates the prices are low but the share is not able to replicate its past performance.

P/B ratio:-( Price to book value ):-

A financial indicator of how much the share market is prepared to pay for each share of the company as compared to its book value. Both P/E ratio and P/B ratio are of vital importance and are compared across companies, normally within a sector. Accordingly, commendations are made to buy, hold, sell the shares of the company.

Modified duration :-

Debt analysts work on a concept called modified duration. It works on the concept of how much a debt security is likely to fluctuate in response to change in interest rates. In debt market, there are instruments available called as floaters. In a floater, when yields in the market go up, the issuer pays higher interest, while when the market goes down, lower interest in paid. Since the interest rates itself keeps adjusting in line with the market, these debt instruments are stable. If a portfolio manager expects the interest rates to rise, then higher proportion of floating instruments constitute the debt portfolio. On the other hand, if the interest rate is expected to fall, long term fix rate debt securities constitute the portfolio. Hence, modified duration of a security plays a major role in determining the portfolio and its performance.

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Company profile
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. Vision Statement To be a dominant player in the Indian mutual find space, recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests. HDFC Asset Management Company Limited (AMC) HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore.

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The present equity shareholding pattern of the AMC is as follows:Particulars Housing Development Finance Corporation Limited Standard Life Investments Limited Trustees:HDFC Trustee Company Limited, a company incorporated under the Companies Act, 1956 is the Trustee to HDFC Mutual Fund via the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary of HDFC. % of the paid up equity capital 60 40

The Board of Directors of HDFC Trustee Company Limited consists of the following eminent persons:

Mr. Anil Kumar Hirjee Mr. Vincent Joseph OBrien Mr. Shishir K. Diwanji Mr. Ranjan Sanghi Mr. V. Srinivasa Rangan

Sponsors

Trust Asset Management Company

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Achievements and awards:awarded the Gold Award for Best Performance in the category of Open Ended Balanced Scheme for one year Period Ending Dec 31,2005. HDFC Tax saver fund has been ranked ICRA-MFR 1, and Has Been Silver award for Second Best Performance in the category of Open Ended Equity Linked Saving Scheme(ELSS) for Three year Period Ending Dec 31, 2005. HDFC MIP LTP has been ranked ICRA-MFR 1, and Has been awarded the Gold Award For Best Performance in the category of Open Ended Marginal Equity Scheme for one year Period Ending Dec 31, 2005. Differentiation strategies:y Personalized Service We believe in providing a personalized service enabling individual attention to achieve your investment goal. y Professional Advice We provide professional advice on equity and debt portfolio with an objective to provide consistent long-term return while taking calculated market risk. Our approach helps you to build a proper mix of portfolio ,not just to promote one individual product. Hence your long term objectives are best served. y Long-term Relationship We believe steady wealth creation requires long-term vision, it cant be achieved in a short span of time. To achieve this one needs to take advantage of short-term market opportunity while not loosing sight of long term objective. Hence we partner all our clients in their objective of achieving their long-term Vision. y Access to Research Reports Through us, you will have access to certain research work of CRISIL, so that you will benefit from the expert knowledge of economists and analysts of one of the leading financial research and rating company of India. This third party research gives you a comfort of getting unbiased advice to make a proper decision for your investment.
HDFC Prudence fund has been ranked ICRA-MFR 1, and Has Been

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Industry Introduction:PEST Analysis: Political Factors:a) Government Regulation: SEBI regulates the industry and every decision taken by them impact the industry very quickly as all the rules regulated by mutual fund industry are laid by them. b) Stable constituency: The mutual fund industry can take long term decision if the government is stable and political support is being provided. c) Fiscal policy: tax structure plays a very important role in the growth of the industry .If the tax structure will be high than there will be less savings and investment. We have seen the interest rate reducing continuously which boost the industry to sell products which are better than the FDs, PF, NSC and KVPs.

Economic factors:d) Market performance: The last five years witnessed a sharp rise in the markets. The mutual fund industry basically works parallel with the markets. Suppose, if the markets always be on downside, then the investors will not be so comfortable to invest. This will reduce the market size drastically. e) Global Standards: As the industry will grow better, India being a global economy, the MF industry has to match to the global mature MF markets. They have to give due emphasis on product innovation, cost reduction and penetration. f) Inflation: Price rise affects interest rate and reduces the chances of investment. g)Real Estate sector boom: The Real estate has always been one of the preferred investment avenues for the Indian investor. And what better way for the smaller investors to participate in this boom than to have a real estate mutual fund. AMC has to come up with the structured products in this segment and should take competitive advantage. The idea conceived has been been implemented by mutual funds to some extent through sector funds. h) Penetration to Rural markets: The industry has to take themselves to the local and rural markets to increase the market size. Also, the cost of setting up business in bigger cities is huge compare to smaller cities. This will reduce the AMC business cost.

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Social factors: i) Consumer behavior: This is very unpredictable and based on sentiments gets changed very frequently, which sometimes makes selling of products difficult. j) Income: Wealth creation is more in Tier A and Tier B companies. New strategies have been undertaken to capture Tier C and rural areas as well.

Analysis:y This is the era of information technology and due to net banking, online transaction, clearing system helps the industry a lot. The efficiency of online banking and systematic transfer of money leads to reduction in time for transactions to take place and hence, provides a sound infrastructure to the investment agencies. y Retail investors lose out in the sense that they continue to pay higher expenses. Hence, corporate investors still outnumber retail investors. y Higher Returns of Alternative Debt Instruments: Government guaranteed schemes provide risk free returns at competitive rates of returns. This is why mutual funds have difficulty competing retail business. y Huge scope for expansion: However, There are only 33 AMC which is very small figure compared to the mature markets. One of the major factors impacting the growth of mutual fund industry is the absence of any regulation in distribution of mutual funds. Mutual fund investors need distributors who are able to inform them about the efficacy of distribution product for a particular risk profile and stage in lifecycle. Lack of distributor awareness and the absence of any disclosures from distributors make misselling of MF products commonplace.

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TYPES OF FUNDS OR SCHEMES OFFERED BASIS

TENOR

OPEN ENDED

CLOSE ENDED

ASSET CLASS

EQUITY

DEBT/ INCOME

HYBRID

REAL ASSETS

INVESTMENT PHILOSOPHY

DIVERSIFIED EQUITY

SECTOR

INDEX FUNDS

ETFEXCHANGE TRADED FUNDS

FOFFUND OF FUNDS

FMPFIXED MATURITY PLANS

GEOGRAPHIC REASONS

COUNTRY/ REGIONS

OFFSHORE

Return Hybrid

Equity

Balanced Debt

Risk
Source: AMFI booklet for Mutual Funds

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1. Tenor: Mutual funds which are categorized on the basis of time period are:a. Open ended funds:-These are the funds which are available for subscription throughout the year. These funds do not have a fixed maturity. Investors have the flexibility to buy or sell any part of their investment at any time, at the prevailing price (NAV) at that time. b. Close Ended funds:-These funds begin with a fixed corpus and operate for a fixed duration. These funds are open for subscription only during a specified period. When the period terminates, investors can redeem their units at the prevailing NAV. 2. Asset classes: - The funds classified on the basis of securities and stocks it invests which form a part of the portfolio. 1. Equity funds:-These funds invest largely in shares. These funds usually invest money in growth stocks, momentum stocks, value stocks or income stocks depending on the investment objective of the fund. 2. Debt funds or Income funds:-These funds invest money in bonds and money market instruments. These funds may invest into long-term and/or short-term maturity bonds. 3. Hybrid funds:-These funds invest in a mix of both equity and debt. In order to retain their equity status for tax purposes, they generally invest at least 65% of their assets in equities and roughly 35% in debt instruments, failing which they will be classified as debt oriented schemes and be taxed accordingly. Monthly Income Plans (MIPs) fall within the category of hybrid funds. MIPs invest up to 25% into equities and the balance into debt. It is usually done in order to reap the benefits of equity investments. 4. Real asset funds:-These funds invest in physical assets such as gold, platinum, silver, oil, commodities and real estate. Gold Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs) fall within the category of real asset funds. 3. Investment Philosophy 1. Diversified Equity Funds:-These funds diversify the equity component of their Asset Under Management (AUM), across various sectors. Such funds avoid taking sectoral bets i.e. investing more of their assets towards a particular sector such as oil & gas, construction, metals etc. Thus, they use the diversification strategy to reduce their overall portfolio risk. 2. Sector Funds:-These funds are expected to invest predominantly in a specific sector. For instance, a banking fund will invest only in banking stocks. Generally, such funds invest 65% of their total assets in a respective sector. 3. Index Funds:-These funds seek to have a position which replicates the index, say BSE Sensex or NSE Nifty. They maintain an investment portfolio that replicates the composition of the chosen index, thus following a passive style of investing.
28

4. Exchange Traded Funds (ETFs):These funds are open-ended funds which are traded on the exchange (BSE / NSE). These funds are benchmarked against the stock exchange index. For example, funds traded on the NSE are benchmarked against the Nifty. The Benchmark Nifty is an example of an ETF which links to the stocks in the Nifty. Unlike an index fund where the units are traded at the days NAV, in ETFs (since they are traded on the exchange) the price keeps on changing during the trading hours of the exchange. If you as an investor want to buy or sell ETF units, you can do so by placing orders with your broker, who will in-turn offer a two-way real time quote at all times. The AMC does not offer sale and re-purchase for the units. Today, ETFs are available for prespecified indices. We also have Gold ETFs. Silver ETFs are not yet available. 5. Fund of Funds (FOF):These funds invest their money in other funds of the same mutual fund house or other mutual fund houses. They are not allowed to invest in any other FOF and they are not entitled to invest their assets other than in mutual fund schemes/funds, except to such an extent where the fund requires liquidity to meet its redemption requirements, as disclosed in the offer document of the FOF scheme. 6. Fixed Maturity Plan (FMP):These funds are basically income/debt schemes like Bonds, Debentures and Money market instruments. They give a fixed return over a period of time. FMPs are similar to close ended schemes which are open only for a fixed period of time during the initial offer. However, unlike closed ended schemes where your money is locked for a particular period, FMPs give you an option to exit. Remember though, that this is subject to an exit load as per the funds regulations. FMPs, if listed on the exchange, provide you with an opportunity to liquidate by selling your units at the prevailing price on the exchange. FMPs are launched in the form of series, having different maturity profiles. The maturity period varies from 3 months to one year. 4. Geographic Regions:1. Country or Region Funds:-These funds invest in securities (equity and/or debt) of a specific country or region with an underlying belief that the chosen country or region is expected to deliver superior performance, which in turn will be favorable for the securities of that country. The returns on country fund are affected not only by the performance of the market where they are invested, but also by changes in the currency exchange rates. 2. Offshore Funds:-These funds mobilize money from investors for the purpose of investment within as well as outside their home country.

29

Common terminologies used:

1. Mutual fund scheme:-Each pool of money collected from investors towards a common objective is termed a mutual fund scheme. Every scheme has a pre announced investment objective. 2. Investment units:-The investment which an investor makes in a scheme is translated into a certain number of units in the scheme. Thus every investor is issued units of a scheme. 3. Unit capital : The number of units multiplied by its face value is the capital of the scheme gives us its unit capital. 4. NAV: The true worth of a unit in the scheme is called the net asset value (NAV).It is calculated by market value of assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date. CALCULATION OF NAV TOTAL ASSETS OF A SCHEME TOTAL LIABILITIES NUMBER OF UNITS NAV OF EACH UNIT 82000 2000 5000 16

5.NFO-New fund offer-When a scheme is made available for the first time for investment it is called new fund offer(NFO).During the NFO.s the investors have a chance to purchase units at their face value which later they have to purchase on NAV. 6. Sale price: The price which is determined when a fund is listed on secondary market for trading. The primary forces coming into play are demand and supply of the fund. 7. Repurchase price: It is the price at which a close ended scheme repurchases its units and it may include a back end load. This is also called a bid price. 8. Redemption price: It is the price at which open ended schemes repurchase their units and close ended schemes redeem their units on maturity. 9. Load:- The charges collected by schemes when it sells or buys back the units. The former are termed as entry load or front end load while the latter is termed as exit load or back end load. Entry load has been abolished by SEBI in 2009 hence, only exit load constitutes the charge to be paid by the investor.

30

Methodology:The various parameters for comparing the different schemes are as under: Returns (CAGR) These are the compounded annualized returns at various intervals, compared to the benchmark. NAV The value of fund's portfolio at market value less current liabilities divided by the number of units outstanding. Net asset value is normally computed daily or weekly and can be found in the financial section of the daily newspaper. Investment Objective The declared purpose of investment of a mutual fund scheme. Fund Size The market value of the assets that the fund holds. Top 10 Portfolio Holdings The 10 holdings which contribute to the maximum percentage of allocation of that particular fund scheme. Expense Ratios The Expenses of a mutual fund include management fees and all the fees associated with the fund's daily operations. Expense Ratio refers to the annual percentage of fund's assets that is paid out in expenses. Entry/Exit Loads Entry Load is the load charged by the fund when one invests into the fund. It increases the price of the units to more than the NAV and is expressed as a percentage of NAV. Exit Load is the load charged by the fund when one redeems the units from the fund. It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV. Portfolio Turnover A measure of the fund's trading activity calculated by dividing total purchases or sales of portfolio securities (whichever is lower) by the fund's net assets over a period of time.

31

Change in NAV:Purpose: If an investor wants to compute the return on investment between two dates, he/she can simply use per unit Net Asset Value at the beginning and the end periods and calculate the change in the value of the NAV between the two dates in absolute and percentage terms. Formula: (Absolute change in NAV / NAV at the beginning of the period) * 100 Sustainability: NAV change is most commonly used by investors to evaluate fund performance and so is also most commonly published by the mutual fund managers. The advantage of this measure is that it is easily understood and applies to virtually any types of fund. Interpretation: Whether the returns in terms of NAV Growth are sufficient or not should be interpreted in light of the investment objective of the fund, current market conditions and alternative investment returns. Thus, a long-term growth fund or infrastructure fund will give low returns in the initial years. All equity funds may give lower returns when the markets are in a bearish phase. Debt funds may give lower returns when interest rates are rising. Limitations: However, this measure does not always give the correct picture, in cases where the fund has distributed to investors a significant amount of dividend in the interim period. Therefore, it is suitable for evaluating growth funds and accumulation plans of debts and equity funds, but should be avoided for income funds and funds with withdrawal plans. For this reason, this measure is not considered as comprehensive as some other measures may be.

Total Returns (CAGR)

Definition: The difference between the price paid for a security and the security's sale price including any cash distribution expressed as a percentage. Purpose: This measure corrects the shortcomings of the NAV Change measure, by taking into account of the dividends distributed by the fund between the two NAV dates and adding them to the NAV change to arrive at the total return. Formula: [(Distributions + Change in NAV)] / NAV at the beginning of the period * 100 Sustainability: Total Return is a measure suitable for all types of funds. Performance of difference types of funds. Performance of different types of funds can be compared on the basis of total returns. Thus, during a year, it can be found out whether a debt fund gave better returns than an equity fund. It is also more accurate than simple NAV Change, because it takes into account distributions during the period. While using total returns, performance must be
32

interpreted in the light of market conditions and investment objective of the fund. Limitations: Although more accurate than NAV Change, simple Total Return as calculated here is still inadequate as a performance measure, because it ignores the fact that distributed dividends also get reinvested if received during the year. The investors total return should take account of reinvestment of interim dividends.

Portfolio size and Turnover:Fund size can affect performance. Small funds are easier to maneuver and can achieve their objectives in a focused manner with limited holdings. Large funds benefit from economies of scale with lower expense ratios and superior fund management skills. They also gain through greater risk bearing and management capacity. There can be no of what a small fund is and what is a big fund as small and big are relative terms. But, simple comparing the corpus of two or more funds helps get a good fix on size.

33

Comparative analysis
Funds snapshot: A brief introduction Equity funds
Fund name Launch Date Category Risk grade Return grade Expense ratio

1.Hdfc Equity fund

Dec 94

Equity multi cap

Below average

High

1.79

2.ICICI Prudential dynamic 3.Birla sun life equity

Oct 2002

Equity multi cap

Average

High

1.50

August 1998

Equity multi cap

Above average

average

2.04

4.Franklin India High growth companies

Nov 93

Equity multi cap

Average

Average

2.15

Balanced Funds
Fund name Launch Date Category Risk grade Return grade Expense ratio

Hdfc balanced fund ICICI balanced fund Birla sun life

Aug-2000

Hybrid-equity oriented

Below Avg.

Above Avg.

2.15

Oct-1999

Hybrid-equity oriented

Avg.

Below Avg.

2.29

Feb-1995

Hybrid-equity oriented

Avg.

High

2.31

34

Franklin FT India balanced

Dec-1999

Hybrid-equity oriented

Below Avg.

Avg.

2.34

Tax saver funds

Fund name Launch Date Category Risk grade Return grade Expense ratio

HDFC Tax saver

March 1996

Equity-tax planning

Below Avg.

Above Avg.

1.86

ICICI prudential tax plan Birla Sun life tax relief

Aug-1999

Equity-tax planning

Avg.

Above Avg.

1.98

Mar-1996

Equity-tax planning

High

Avg.

1.94

Franklin India tax shield

Apr-1999

Equity-tax planning

Low

Above Avg.

2.11

Equity-large cap
Fund name Launch Date Category Risk grade Return grade Expense ratio

1.HDFC

Sept 1996

Large cap Equity fund Large cap equity fund

Below average

High

1.78

2.ICICI PRUDENTIAL TOP 100

NOV-1993

Below Avg.

High

1.84

35

3.BNP PARIBUS EQUITY 4.FRANKLIN INDIA BLUE CHIP

Sep-2004

Large cap equity fund Large cap equity fund

Avg.

Low

2.50

Jun-1998

Below Avg.

Above Avg.

2.28

Debt funds
Fund Name Launch Date Category Risk grade Return Grade Expense ratio

1.HDFC INCOME

August 2000

Open ended income fund

High

Average

1.62

2.ICICI PRUDENTIAL INCOME 3.BIRLA SUN LIFE INCOME RELIANCE INCOME

June 1998

Open ended income fund

Above average

Below average

2.11

March 1997

Open ended income fund

Above average

Average

0.86

December 1997

Open ended income fund

Above average

Average

1.42

TATA INCOME

April 1997

Open ended income fund

Above average

Below average

2.25

36

Performance details Equity funds

Fund Name

1 month return

3 month return

1 year return

3 year return

5 year return

1.Hdfc Equity fund 2.ICICI Prudential dynamic 3.Birla sun life equity 4.Franklin India High growth companies

2.88

5.07

18.07

17.18

17.00

2.27

4.10

12.40

11.43

14.76

1.89

1.72

5.76

13.22

13.56

3.53

6.56

4.59

7.23

12.39

Balanced funds
Fund Name 1 month return 3 month return 1 year return 3 year return 5 year return

Hdfc balanced fund ICICI balanced fund Birla sun life

4.11

7.07

16.79

15.75

13.84

1.94

5.06

12.76

6.05

7.76

1.71

4.18

11.21

13.13

14.50

Franklin FT India balanced

0.75

4.13

7.99

6.65

10.66

37

Tax saver funds

Fund Name 1 month return 3 month return 1 year return 3 year return 5 year return

HDFC Tax saver ICICI prudential tax plan Birla Sun life tax relief Franklin India tax shield

2.46

3.49

13.21

13.97

10.68

3.88

4.70

10.86

11.14

8.01

1.48

1.59

0.19

2.83

8.81

0.19

4.10

12.66

9.89

11.51

Equity-Large cap
FUND NAME 1.Hdfc top 200 2.Icici Prudential Top 100 3.Bnp Paribus Equity 4.Franklin India Blue Chip 1 MONTH RETURN -0.94 -0.86 -0.72 -1.14 3 MONTH RETURN 1.99 5.69 5.79 4.97 1 YEAR RETURN 10.01 10.46 8.29 10.91 3 YEAR RETURN 17.17 7.05 1.02 10.47 5 YEAR RETURN 23.07 9.29 5.95 12.35

38

Debt funds
Fund Name 1 month return 3 month return 1 year return 3 year return 5 year return

1.Hdfc Income

-0.15

1.68

5.36

7.82

6.97

2.Icici Prudential Income 3.Birla Sun Life Income Reliance Income Tata Income

0.16

1.81

3.21

9.80

8.77

0.93

2.56

5.34

6.75

8.38

O.25

1.98

3.96

8.09

7.89

0.48

2.18

3.38

3.11

4.61

39

Risk Details Equity funds

Fund Name 1.Hdfc Equity fund 2.ICICI Prudential dynamic 3.Birla sun life equity 4.Franklin India High growth companies

Fund risk grade Below average Average Above Avg. Above Avg.

Standard Deviation 33.62 34.62 33.94 34.51

Sharpe Ratio 0.57 0.59 0.23 0.29

Beta 0.98 1.00 1.00 1.01

Alpha 11.16 1.15 -0.25 2.03

R-squared 0.93 0.73 0.93 0.92

Balanced Funds
Fund Name Hdfc balanced fund ICICI balanced fund Birla sun life Franklin FT India balanced Fund risk grade Below Avg. Standard Deviation 23.27 Sharpe Ratio 0.60 Beta 0.95 Alpha 9.27 R-squared 0.91

Avg.

21.87

0.25

0.91

0.87

0.95

Avg. Below Avg.

25.25 21.37

0.53 0.31

1.04 0.89

8.24 2.30

0.93 0.95

Tax saver
Fund Name HDFC Tax saver ICICI prudential tax plan Birla Sunlife tax relief Franklin India tax shield Fund risk grade Below Avg. Avg. High Low Standard Deviation 31.56 34.27 38.08 29.06 Sharpe Ratio 0.47 0.45 0.19 0.43 Beta 0.93 0.99 1.12 0.86 Alpha 7.40 7.46 -1.84 5.55 R-squared 0.94 0.91 0.95 0.95

40

Equity fund- large cap

Fund Name 1.HDFC top 200 2.ICICI PRUDENTIAL TOP 100 3.BNP PARIBUS EQUITY 4.FRANKLIN INDIA BLUE CHIP Fund risk grade Below average Below Avg. Standard Deviation 30.84 Sharpe Ratio 0.46 Beta 0.93 Alpha 9.35 R-squared 0.96

27.21

0.34

0.82

2.83

0.99

Avg.

27.97

0.13

0.84

-3.06

0.98

Below Avg.

29.09

0.45

0.87

6.22

0.96

Debt fund :
Fund Name Fund risk grade High Standard Deviation 2.29 1.88 Sharpe Ratio 0.71 -0.34 Beta 0.03 0.06 Alpha 1.63 -0.63

1.HDFC INCOME 2.ICICI Above Avg. PRUDENTIAL INCOME 3.BIRLA SUN Above Avg. LIFE INCOME Below Avg. 4.RELIANCE INCOME 5.TATA Above Avg. INCOME

1.53

0.43

0.05

0.67

1.61

0.45

-0.02

0.72

1.73

-0.61

0.01

-1.05

41

Portfolio details Equity funds

Fund Name 1.Hdfc Equity fund 2.ICICI Prudential dynamic 3.Birla sun life equity 4.Franklin India High growth companies

P/E ratio 23.36 27.28 28.67 18.80

P/B ratio 4.92 4.38 3.85 3.18

Market cap. 30136.70 26,250.65 24,592.28 10,320.17

Turnover (%) 48.39 67.00 69.00 42.87

Assets (in crores) 8404.84 7314.3 951.31 742.79

Top 5 Holdings 28.38 19.65 21.55 35.89

Balanced Funds
Fund Name Hdfc balanced fund ICICI balanced fund Birla sun life Franklin FT India balanced P/E ratio 21.28 P/B ratio 4.90 Market cap. 12,426.29 Turnover (%) 19.13 Assets (in crores) 238.78 Top 5 Holdings 22.98

17.79

3.91

21,063.68

34.00

263.95

18.96

22.18 23.93

4.52 4.62

21,271.11 49,162.44

63.00 57.83

391.65 265.83

22.62 25.94

Tax saver
Fund Name HDFC Tax saver ICICI prudential tax plan Birla Sunlife tax relief Franklin India tax shield P/E ratio 23.98 19.00 22.25 23.09 P/B ratio 4.81 3.26 4.60 4.54 Market cap. 28,911.50 18,757.72 41,209.32 38,454.13 Turnover (%) 26.01 153.00 89.00 42.19 Assets (in crores) 2,823.02 1,251.55 142.99 796.63 Top 5 Holdings 23.10 21.05 21.23 30.38

42

Equity fund-large cap

Fund Name 1.Hdfc top 200 2.Icici Prudential Top 100 3.Bnp Paribus Equity 4.Franklin India Blue Chip P/E ratio 24.37 P/B ratio 5.47 Market cap. 47373.39 Turnover (%) 27 Assets (in crores) 9591.25 Top 5 Holdings 26.80

22.98

4.20

100,598.35

132.00

380.88

33.70

25.45

5.43

111,321.60

61.00

58.51

38.79

23.14

4.69

62,603.75

33.45

3,396.48

28.46

Fund Name

P/E ratio

P/B ratio

Market cap.

Assets (in crores)

Avrg.Maturity

1.HDFC ---INCOME 2.ICICI ---PRUDENTIAL INCOME 3.BIRLA SUN ---LIFE INCOME ---4.RELIANCE INCOME 5.TATA --INCOME

-------

-----

526.12 262.35

4.59 3.42

----

---

282.45

0.19

----

---

211.27

2.73

----

---

29.5

1.32

43

Investment details:Equity funds

Fund Name

Front end load

Back end load

1.Hdfc Equity fund 2.ICICI Prudential dynamic 3.Birla sun life equity 4.Franklin India High growth companies

Nil Nil Nil Nil

1% of the redemption value if within 365 days nil nil nil

Minimum Initial Investment 5000 5000 5,000 5000

Portfolio Manager Prashant Jain, Miten Lathia Sankaran Naren Satyabrata Mohanty Mahesh Patil

Tenure (years) 8, 1 1 6 6

Balanced Funds
Fund Name Front end load Back end load Minimum Initial Investment 5,000 5,000 Portfolio Manager Chirag Setalvad, Miten Lathia Prashant Kothari, Avnish Jain, Rajat Chandak Satyabrata Mohanty, Nishit Dholakia Anand Radhakrishnan, Anil Prabhudas, Sachin PadwalDesai, Umesh Sharma Tenure (years) 4, 1 2, 0, 2

Hdfc balanced fund ICICI balanced fund

O.OO O.OO

O.OO O.OO

Birla sun life

O.OO

O.OO

5,000

2, 2

Franklin FT India balanced

O.OO

O.OO

5,000

5, 0, 5, 1

44

Tax Saver
Fund Name Front end load Back end load Minimum Initial Investment 500 500 500 500 Portfolio Manager Ajay Garg Munzal Shah, Rajat Chandak Ajay Garg Anand Radhakrishnan, Anil Prabhudas Tenure (years) 5 0, 2 5 4

HDFC Tax saver ICICI prudential tax plan Birla Sunlife tax relief Franklin India tax shield

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

Equity fund: large cap

Fund Name Front end load Back end load Minimum Initial Investment 5,000 Portfolio Manager Prashant Jain, Miten lathiya Sanjay Parekh, Rajat Chandak Amit Nigam Tenure (years) 5,1

1.HDFC top 200 2.ICICI PRUDENTIAL TOP 100 3.BNP PARIBUS EQUITY 4.FRANKLIN INDIA BLUE CHIP

NIL

NIL

NIL

NIL

5,000

0, 2

NIL

NIL

5,000

NIL

NIL

5,000

Anand Radhakrishnan, Anand Vasudevan

4, 0

45

Debt funds
Fund Name Front end load Back end load Minimum Initial Investment 5,000 5,000 5,000 5,000 5,000 Portfolio Manager Shobhit Mehrotra Avnish Jain Shaktie Prakash Prashant R Pimple Kinshuk Sharma Tenure (years) 4 0 1 3 3

1.HDFC INCOME 2.ICICI PRUDENTIAL INCOME 3.BIRLA SUN LIFE INCOME 4.RELIANCE INCOME 5.TATA INCOME

NIL NIL NIL NIL NIL

NIL NIL NIL NIL NIL

46

Market research:Primary research objective: To determine the attitude and preferences of investors in the age group of 21-30 years towards investing in Mutual Funds, by aiming to know the product attributes influencing the decision of investors Secondary research objective  To determine the priority of people when they make an investment decision  To determine the basis of the investment decisions that people take  To determine the most preferred investment asset class Sample size : 45 respondents in online survey and 632 in telephonic survey Data which research plans to generate  Factors influencing the choice of Mutual Funds over other investment options  Factors influencing choice of a particular Mutual Fund brand Value of Information to Management The Indian Mutual Fund market is a Rs. 614545.98 crores (AUM) market and witnessing a double digit growth in the AUM year on year. Over the past 5-10 years, the market has seen several domestic as well as international players, both small and big, making a beeline to tap the Indian investor base, which is still very naive with less than 5% of household savings finding a way to the equity market. As a result it becomes imperative for the companies to understand their customers and their requirements to stay ahead. Attitudes of investors towards various products vary greatly. With regards to the product mix and packaging, investors have certain preferences that need to be identified in order to generate an optimum product that is both acceptable and preferable. This study aims to achieve exactly that. Using a keenly designed questionnaire, the study aims to extract information from the investor that may aid the management in taking an informed and effective business decision, thereby maximizing sales and profits. The investor preferences have been highlighted after considerable secondary research and these have then been subjected to extensive analysis based on responses generated in the survey. Using advanced statistical tools, we have tried to arrive at statistical
47

conclusions that can aid business decisions. One of the key components of business is the product mix and this survey aims to empower the organizations to take informed and fruitful measures in designing an optimal product. Research Approach Data collection methods a) Exploratory Research:Questions were asked to people, with a fair knowledge about Mutual Funds, which brought out various features; pros, cons, past experiences and other attributes which were instrumental in making people think about investing in Mutual Funds. The list of attributes has been attached in the annexure. These attributes helped in preparing the main questionnaire. b) Survey Research:Primary data was generated using questionnaires administered to a target segment of respondents. The number of respondents was 36 in total. These responses have been attached in the annexure.

48

Online survey conducted for general investor perception and the results:Online survey was conducted to understand the perception of general potential or current investors towards the industry of mutual funds. The respondents range between the age group of 22-28 years. These target customers are unmarried ,dynamic professionals or students. A group of general questions were asked to understand their perception and know their requirements better. Following observations were being made :y 1.Instruments in which investors prefer to invest:-

Instruments of investments
debt (2) equity (13) mutual funds (18) others (3)

8% 6%

36% 50%

2.How did investors learn about mutual funds:-

media of learning
others peer groups/relatives newspaper internet television 0 2 4 media of learning 6 8 10

49

Investor s preferences in terms of risk :-

investment on the basis of risk

high risk (6) medium risk (26) low risk (4)

11%

17%

72%

Basic concept of mutual funds whether understood or not:-

MF concept understood or not

yes no

17%

83%

50

If given a chance will you like to understand the basic concept of MF :-

willing to understand or not

yes no

11%

89%

CHANNELS OF COMMUNICATION PREFERRED TO EXPLORE MUTUAL FUNDS:-

media preferences
TELEPHONIC FACE TO FACE ONLINE NONE

8% 22%

6%

64%

51

Factors considered before making an investment in the Mutual fund company :-

Factors observed before investment

brand name financial indicators quality of service feasibility and approachibility

14% 28%

25%

33%

Other suggestions and recommendations from the respondents:-

1. The basic deterrent in any mutual fund at times comes out to be the processing fees, which in certain cases is also a recurring expense. 2. The information which is to be provided to invest in mutual funds should be presented in a clear and authentic manner. 3.The awareness of mutual fund is less in our country, the investors are usually willing to invest in equity due to its volatile nature and dynamic returns. Hence ,the potential investors can be easily attracted by creating awareness and proper strategies.

52

Cross Tabulations:- (the number of respondents was 51)

A cross tabulation displays the joint distribution of two or more variables. They are usually presented as a contingency table in a matrix format. Whereas a frequency distribution provides the distribution of one variable, a contingency table describes the distribution of two or more variables simultaneously. What an Investor looks for while making an Investment Decision. Trait Long Term Growth Beating Inflation Regular Income Liquidity Frequency of 1st Preference 20 11 7 7

What Investors Look for

Liquidity 16% Beating Inflation 24% Regular Income 16%

Long Term Growth 44%

What Investors have chosen as the Asset Class with perceived Highest Returns
53

Asset Class Land Gold Mutual Funds Govt. Bonds Fixed Deposits

Frequency of 1st Preference 30 8 6 4 3

Asset Class with Highest Returns

Mutual Funds 12% Gold 15%

Land 59% Govt. onds Fixed 8% Deposits 6%

Factors in order of Importance while Selecting a Mutual Fund, as chosen by Investors

54

Trait Past Returns Brand Image Fund Rating Target Sector AUM

Frequency of 1st Preference 17 11 10 9 3

Basis of Selection of Mutual Fund

AUM 6%

Target Sector 18%

Past Returns 34%

Fund Rating 20% Brand Image 22%

55

From the Cross Tabulation analysis, we conclude that : 44% of the investors want Long Term Growth from their investments as their 1st priority  59% investors think Land gives the best returns, among the given asset classes.  While selecting a Mutual Fund, 34% investors looks at Past Returns, 22% look at Brand Image, 20% at Fund Rating and 18% at the Target Sector as their 1st priority.

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Interpretations and conclusions:-

Comparative Analysis :HDFC equity fund is the only fund which offers below average risk and yet delivers high returns. y Throwing light on short term and long term performance, all the equity funds have been performing consistently in short term but in long term the highest returns are recorded by HDFC equity funds. The reasons of recording a high growth are adequate market research by the fund managers before selection of portfolio y If we observe the risk details, the standard deviation is more or less same in all the funds ranging fom 33 to 35 % which shows moderately high volatility of funds. The beta of HDFC is 0.98 which indicates that it is less risky and retuns are also slightly low. On the other hand Franklin is more risky and generates higher returns with beta equal to 1.1.HDFC equity fund is highly well managed as it has an alpha of nearly 11%.The Sharpe ratio is also high for HDFC and ICICI prudential which indicates more return generated per unit of risk taken. The r squared is more or less same for all the funds. y If we observe the portfolio details , the P/E ratio is lowest for Franklin India high growth and quite similar for all other funds, highest for Birla sun life which indicates that the propects of the company are high as earnings per share are increasing. The highest P/B ratio is recorded by HDFC indicating its high demand and worth.The portfolio turnover is highest in case of Birla sun life recording 67% turnover which indicates rapid changes in portfolio. The assets under management is large in case of HDFC and ICICI indicating huge corpus invested in the funds. 2.Balanced funds:-HDFC balanced fund is the newest fund in this category. All the balanced funds are hybrid and equity oriented where investments are made in multiple securities. HDFC balanced funds offers a minimum expense ratio of 2.15. The performance of HDFC balanced fund is fairly good even in this category as it is the only fund which offers below the average risk and above average returns.

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The performance of balanced funds remains to be dependent on the performance of both debt and equity. The balanced funds of Franklin and ICICI prudential are consistently under performing while the best performance in terms of returns are given by Birla sun life by outperforming all the funds in the duration of 3 years and 5 years providing high returns of 13.13 and 14.50 respectively closely followed by HDFC mutual funds.

The balanced funds observe lesser standard deviation as compared to equity funds due to presence of debt component in them. The Highest Sharpe ratio is observed by HDFC balanced funds along with a beta of 0.95 which indicates lesser risks and higher returns. It also records the highest alpha which is 9%.It indicates effective performance by the fund manager, closely followed by Birla sunlife. The R squared is highly effective in all the funds.

Franklin India balanced funds record the highest P/E ratio indicating effective performance and highest P/B ratio is recorded by HDFC balanced funds. It also records the lowest portfolio turnover ratio but the corpus is lesser as compared to other funds as assets under management are less.

3. Tax saver funds: The equity tax oriented funds were launched during late 1990s in order to minimize the tax is to be levied on holding of equity. These funds rapidly became popular and as it can be observed the expense ratio is nearly the same ranging between 1.5 to 2.5, lowest among the top four is of HDFC at 1.86 and yet HDFC manages to deliver highest returns and offers lower risk than other funds as can be observed from the table. y ICICI prudential begins with high impressive short term returns but the long term returns are less along with Birla sun life equity. The fund which has been consistently performing well is HDFC and the highest long term returns are generated by Franklin. In case of tax saver funds, the poor performance is given by Birla sun life tax relief as it records highest risk grade, maximum standard deviation, lowest Sharpe ratio, highest beta and a negative alpha. This clearly indicates that the fund is not managed in an effective manner and is not generating adequate returns. The highest P/E ratio as well as P/B ratio is recorded by HDFC tax saver fund as it is consistently performing well. It indicates that there is high demand for HDFC fund in the market because its earnings per share are increasing. It also records the lowest portfolio turnover because the fund managers
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maintain its stability. The assets under management are maximum in case of HDFC again hinting at its huge corpus available.

4. Debt funds :- Debt markets are usually difficult to be understood, dealt with and managed. Hence, lesser number of investors prefer to invest in debt markets. However, they are more stable and safe as compared to equity. If investor is ready to invest in long term, debt funds are the best alternative available. The comparative analysis here is made between the income debt funds i.e. Their primary objective is to ensure fixed returns to the investor. These are termed as MIPS or monthly income plans which are gaining lot of popularity these days. The risk and returns are nearly similar and the lowest expense ratio is given by BIRLA SUN LIFE. The performance of Birla sun life has been consistent both in short term and long term. HDFC debt fund is not performing as well as the equity fund as it is newly launched in the market and the experience of dealing in debt markets is less. y As we observe , the standard deviation is very less in debt funds as compared to equity funds and ranges between 1 to 3 percent as the markets of debt are usually less volatile. HDFC records a high risk grade with maximum standard deviation. All the other funds observe a standard deviation less than 2. y However, it also records the highest Sharpe ratio and alpha which indicates that higher returns are generated on increasing risk. The beta is also moderate and the returns of the fund are stable. y The funds do not record measures such as P/E ratio and P/B ratio as the funds deal in debt instead of shares. The assets under management are largest in HDFC reflecting its huge corpus. The maturity period is also longest for HDFC mutual funds.

Other observations:In all the funds, there is no back end or front end load as it per the regulations of SEBI. The minimum investment required is 5000 in equity multi cap.large cap, balanced and debt funds and

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500 in tax saver funds. The tenure of fund ranges from 1 to 5 years depending upon the objective of the scheme. Telephonic survey :Telephonic survey was conducted in order to judge the service quality of HDFC AMC with the advisors and brokers. Along with it, a new brokerage scheme introduced termed as summer dhamaka was explained to the advisors in order to judge their reaction towards the scheme. It is necessary that the advisors receive calls from relationship managers as they act as liaison between the company and the advisor. They are the channel of communication available to the outsiders with information about the company. Usually it is very important for customer satisfaction and maintaining and nurturing long term relationships. Nowadays, the companies are also using SMS and e mails for relationship management but the customers are not convinced with the efforts. Many advisors prefer to receive calls from relationship manager instead of SMS and emails as it increases communication and approachability. The information dissemination has to be really proper regarding the investments as it is very critical that the documents are received on time. A common complaint remains to be information overload and lack of timely and required documents. Regarding client service quality , the opinions are mixed. some of the advisors seem highly satisfied and some seem annoyed. The problem which usually arises is that if the respondent is not happy with the services offered such as relationship management and information dissemination he usually does not answer the question regarding client services or is usually biased to answer dissatisfied. This causes reduction in validity and authenticity of information to be analyzed.

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Important observations made during the telephonic survey:1. It is very difficult to hold the attention of the respondents for a long time. Individuals are either not willing to respond due to their busy schedules and lack of knowledge, or they tend to give quick answers. 2. Respondents bias can be observed from the fact that the individuals who are satisfied with the services tend to answer every question in a positive light. 3. The answers given by respondents are usually not bias free. There are some respondents who prefer to finish the call quickly and hence, randomly answer the questions which might cause errors while drawing inferences from the data. 4. Relationship management plays a critical role in determining the customer satisfaction. The factors which are necessary for happy brokers include time to time statement delivery, SIP notifications and rejections from the client. They want themselves to be updated. Online survey conducted :1. Majority of individuals are aware about the basic concept of mutual funds and 86% of the respondents ,who dont understand and are investing only through the brokers if given an opportunity, are willing to understand the concept of mutual funds. 2. Most of the investors prefer to invest in medium risk securities hence the demand for mutual fund constitutes the highest amongst all the other investment avenues closely followed by equity. 3. The response rate has been low despite of requests made to the investors. This brings us to one of the difficulties which is faced by the marketer to collect and interpret the data in proper term. Hence, as the sample size is small, no generalizations can be drawn from it.

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Suggestions to HDFC mutual fund :1. Aggressive advertising campaign should be launched with a proper communication mix for creating awareness and to encourage more people to invest in mutual funds as the size of the target markets are increasing day by day. 2. As most of the people think that mutual fund is a risky investment so the company should depict the advantages of mutual funds to create differentiation and prove how it is better than the other investment avenues. 3. There is a great potential for increasing investments in mutual fund because the people are ready to invest in the mutual fund as it can be observed from the survey .HDFCs funds have been yielding higher returns as compared to other mutual 5-6 years. 4. The people of Jaipur have enough purchasing power which is a fact to be observed and while designing a promotional scheme, this should be kept in mind. The marketing strategies are to be designed in a manner that they appeal to the target market and compel people to invest in mutual funds. 5. HDFC MF is undertaking less marketing efforts in MF industry in comparison to other players. Due to this other players are getting competitive advantage. Thus it should try to increase the marketing and advertising related activities from time to time or at least y y y at the time of new NFOs, at the time when they are declaring dividends or at the peak time (i.e. January- March) last quarter of financial year when people are searching for investing instruments 6. A very small segment of market has been covered by HDFC MF. It can increase the sway of its business in small and rural areas of every state and cities of India where they can find a huge business. Often it has been observed that due to presence of only one or two AMCs in the state the service quality is sacrificed as the number of clients, brokers and investors increase to a very large extent which get difficult to be managed without the presence of RM (relationship managers) centers in the cities. 7. To increase the investment level the company should provide adequate training to brokers and financial agents who approach the investor at front level for investments. And they should be fund schemes consistently over past

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aware of all the benefits, schemes, terminologies and concepts of mutual Funds as they represent the company. 10. The Company should undertake the Campaign, Road shows, and other types of Publicity for the effective awareness of different schemes that are available in the market. 11. The company should arrange seminars and presentations, giving detailed idea about securities and benefits of investment in mutual fund. The financial advisors and brokers are to be confronted with every detail. 12. Various efforts should be undertaken to create brand faith and differentiation. Attractive logos ,beautiful brochures and catchy punch lines such as ONE BUCK IN MUTUAL FUNDS.. IS BETTER THAN TWO BUCKS IN HAND, INVEST TODAY IN INDIA,S TOMORROW, GROW WEALTHIER EACH DAYNOT OLD!THODI SAVING THODI KAMAI are to be developed to make investors realize that mutual funds are a very attractive investment. 13. The magazines which are printed by HDFC mutual funds such as In touch mutually containing details regarding various schemes, the performance of schemes and portfolio details are to be circulated widely to encourage people to invest in Mutual funds.

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Limitations of the study :The findings of the study undertaken for comparative analysis is encountered by rigorous and technical measures followed by rating companies. In such a scenario, the study deals only with some financial measures followed by these companies which are used for drawing comparisons between different mutual funds. It does not undertake:1. To compare Mutual funds with other investment schemes 2. To make people aware of mutual funds as an investment tool. 3. To make an in-depth study of all the financial and technical measures followed by the companies. 4. To analyze the yields associated with mutual funds and their causes as it is dependent on a large number of things such as volatility in the market, policy of fund managers and many other factors. Limitations of the Survey:A sample size of 51 may not be indicative of the population and this may lead to misidentification of factors or some attribute being not being considered. The initial attributes could have been prone to biases; thus extending the same to the questionnaire, resulting in the questions not carrying enough information. Biases present in the responses. Assumptions have been made regarding Statistical Techniques. Limitations of telephonic survey conducted:1. Inaccessibility: - It is very difficult to hold the attention of the respondents for a long time. Individuals are either not willing to respond due to their busy schedules and lack of knowledge, or they tend to give quick answers. 2. Respondents bias :- It can be observed from the fact that the individuals who are satisfied with the services tend to answer every question in a positive light. They are usually happy with

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everything. But on the other hand, if the respondents are not receiving the statements on time or the response rate is low, they seem dissatisfied, disinterested and pessimistic in answering. 3. Quick answers :- The answers given by respondents are usually not bias free. There are some respondents who prefer to finish the call quickly and hence, answer the questions without fully understanding them ,which might cause errors while drawing inferences from the data.

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Future growth drivers :y Higher GDP Growth: The consistent GDP growth of the country is causing increase in level of economic activity of the country hence the potential investors are increasing at a drastic rate. y y India's huge financial spread Investment System. Systematic investment planning ratio which is projected to double by 2009 2010: the SIPs or systematic investment plans are attracting a huge base of clients and investors towards markets as the recurring investment required is very low. y Fast paced urbanization rise from 28 to 40% by 2020: as the rate of urbanization is increasing in the country there is a lot of disposable income increasing in the hands of a common investor. Hence, it is the right time to target potential investors in the country. y Growing working class population and Middle class expanding by 30 40 million every year: in the early stages of career, corporate and other professional individuals are nowadays willing to invest as the benefits are greater in longer term of investments, the job opportunities are increasing and hence the population between the age group of 21-40 forms an attractive target market. y y Upward migration of household income levels. Fast economic Development: the pace at which economy is growing despite of the impact of deep global recession manifests its stability and capability and attracts domestic as well as political investors. y Increasing disposable Income with the service sector: in present day scenario, the tertiary sector has grown very large. This has lead to higher profit margins, and increasing disposable income with the industries operating in this sector. y Cheaper (declining interest rates) & easier finance Schemes:- Due to increasing competition in the markets, the finance schemes are becoming more lucrative, less troublesome and all the efforts are undertaken to attract the investor. y Increasing dispensable income of rural agriculture sector: it is necessary to divert the attention towards rural markets as the dispensable income is rising. The only drawback remains to be the fluctuating nature of income generated as agriculture is dependant contingencies.

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Increasing level of FDI in country: the liberalization and globalization has increased the accessibility of Indian economy to invite investments from across the globe. As more and more number of MNCs are expanding their feet in India, the circulation of money in the market is increasing which leads to

Emergence of India as BPO and IT hub: leading to growth and employment opportunities creating a positive market environment.

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Project Profile
The summer training project with HDFC AMC was about all the marketing activities right from market research, regarding the services provided by the company to various distribution channels to the best possible services that can be provided to deal with the competition. The training also provided an insight into the brokers mind, as what they think, how they perceive new products and concepts. The project started on the 11th april 2011 and the initial week was for induction. An educational training was organized to know more about the company which included its functions, policies, various fund offerings, customer handling, and calls handling. Then calls are surveys were practically conducted. During this course of time a new brokerage scheme named summer dhamaka was being launched so there was some learning about sales and promotion of new brokerage schemes . A regular check was made on the progress of brokers and dealers, and Bankers regarding the sales they had made. Learning was made on the factors to be considered while preparing the questionnaire and who should be the respondent. The respondents were the broker and the potential investors. So the various factors which were covered under relationship management survey were the standard of our services, frequency and quality of our communication, important factor to increase sales, dissemination of information and the like.A s research was carried out to understand the position of the company in the market by conducting a comparative analysis amongst various top mutual fund schemes. The findings of research were that HDFC mutual fund holds top position in terms of every financial parameter and technique.. An online questionnaire was also prepared under the guidance of my project supervisor.. The questionnaire was for potential investors to know their perception about mutual funds. As a major part of the project was to conduct a comparative analysis amongst various top mutual fund companies necessary secondary data was collected using valueresearchonline.com and on the basis of various techniques, interpretations were drawn.

It was very important to understand the company profile so as to decide on match the strengths of the company and overcome the weakness after analyzing the output of the survey. To take corrective decisions it is important to know the mission, vision and goals of an organization. Hence, it was necessary to conduct a SWOT analysis. A regular interaction was being made with various distribution channels so as to know their expectations from the company in terms of various parameters.
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Importance of marketing in mutual funds

Marketing is the process of planning and executing the conception, pricing, promotion, communication and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. Through marketing, individuals and groups create and exchange products and services with others in order to create value or satisfy wants and needs.

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From this definition, it should be clear that successful fund marketing creates value for Fund companies, dealers and unit holders so that each is satisfied. The definition goes much deeper than simply selling something to somebody. Fund marketers must understand both the Needs and Wants side of the equation. Every facet of modern marketing has been effectively employed to dramatically grow the Indian mutual fund industry. The fund industry has established an exceptional sales support infrastructure. Fund specialists and fund companies, bank branch subsidiaries and discount brokers are ready to provide answers telephonically to your fund questions all day long. Telephone etiquette is as good as it gets. Websites have been established with educational material, guides, charting functions, fund profiles, fees and historical returns in abundance. Descriptive brochures, newsletters and tax guides are readily available to help with your purchase decision. Getting information about a fund for the managers is becoming easier. The business press routinely provides loads of information on which to base informative articles. One can often dial in on the conference calls managers hold regularly with sales representatives. It has a multi-channel distribution system which is broad-based and responsive to general queries or orders by mail, phone, in person or e-mail. The sales service infrastructure is an integral part of the marketing initiative. The essence of professional selling today is building and maintaining of high quality relationships, based on establishing a high level of trust and credibility with the customer by continually investing in maintaining the quality of relationships. Apart from the existing players like ICICI Prudential AMC, Reliance Mutual Fund, Franklin Templeton, HDFC Mutual Fund etc. more and more players like Bharti AXA, JP Morgan, AIG etc. are entering the mutual fund industry and this has given rise to increased competition among the players. To sustain this cut throat competition, the fund houses are developing new marketing strategies and revamping the existing strategies to create differentiation in the markets. Thus, the marketing in the mutual funds have assumed an important role like never before. The marketing strategies that can help the fund houses to hold the market shares are: y y y Product Innovation Build brand awareness strong enough to pull the investors towards itself. Advertise
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Product Innovation

The marketers have realized the importance of marketing in mutual funds and have come up with product innovation in the category of mutual funds as well. With the marketing mantra Customer is the king, the mutual fund houses understand the importance of innovating need based products. Different segments have different expectations like long term growth, regular income, tax benefits etc. New products are aimed at satisfying one or more objectives. Indian mutual funds have seen many products launched to cater the ever increasing need of the investors. Product innovation in mutual funds is one of the discernable trends that have the potential to change the face of Indian mutual fund industry. The asset management companies are shifting from old plain vanilla schemes towards differentiating themselves by providing innovative options to the investors. As an example:Apart from the plain vanilla schemes, fund houses are offering SECTOR FUNDS, in order to capitalize on the success of sectors like Banking, Power, Media and Entertainment, Pharmaceuticals, etc. y Brand Awareness in Mutual Funds:-

Brand name in mutual funds highlights the inherent benefits and investment objectives and ensures investor loyalty. Brand name and identity is an important marketing aspect because it facilitates product identification at the market place. However, product identification coupled with BRAND AWARENESS will lead to the true success of the brands and the company. High brand awareness leads to high levels of usage and preference. With keen competition today, mutual fund brands need to work harder on the quality of awareness to drive consideration. Creating media noise is just not enough to secure strong brand equity. Indian investors are more sophisticated than ever and are looking at overall comfort levels with the fund houses. To achieve this, the fund house should be able to carve a niche for itself in the mind of the customers by making them aware about their products and creating a differentiation strategy. A significant amount of brand awareness in the minds of the investors/ customers creates a PULL for the products when the customers walk in and ask for the product by themselves, instead of a third pushing it for the company.
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Advertising: The use of advertising is slick and broad-based. Television, radio, newspapers, magazines, bill-boards and even security gate arms at airport parking locations promote fund investment. Colorful innovative brochures are distributed by mail at bank branches and advisor offices. The message is clear and consistent- buy and Buy more. Fund companies quickly learned the folly of marketing just one or two funds, hence the vast variety of funds available. The danger for the fund companies is that if performance goes in the tank than investors exit the funds pulling out tens of millions of dollars. Better to offer many varied funds so that if a few turn cold the others are still cooking and at least some performing ones can be prominently advertised in newspaper.

Mutual fund industry has seen a high rate of growth due to exceptional marketing. Over 80 mutual fund companies employs 60,000 salespersons and employs thousands more portfolio managers, administrators, analysts and marketing personnel. Brokers gain substantial transaction business from the funds. Auditors trust firms and advertising agencies make a good living off the funds. Guides, books, newsletters, public speakers, fund gurus, specialist software firms, rating companies and advisors also cash in. The marketing departments of fund companies have rightfully earned a growing share of the management fee in some cases marketing budgets are actually greater than the budgets for portfolio management. Hence, the role of marketing and sales is very important for all the functional areas along with the organization as a whole as it helps in bringing customers and clients for investments.

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Annexures :Annexure: 1 Investors have provided with the following reasons for exiting a mutual fund. These are:1. The fund consistently underperforms :The performance of the scheme is usually the best way to evaluate it. Usually when the investor invests in a scheme, he expects a set return. The investors make haste and sell the scheme when it underperforms in one or two quarters. However, as per mutual fund experts, it is not a wise decision. The schemes performance should be observed for a long period before making a decision of selling it. If the scheme consistently underperforms, it might prove to be a good reason to exit. Also, the schemes performance should be observed vis a vis performance of other schemes. Also another caution to be observed during the comparative analysis of schemes performance is that similar category of schemes are to be compared. It will not be feasible compare the performance of index schemes with equity schemes or large cap funds with mid cap funds. 2. The fund deviates from its objective :Investors choose a fund because its objectives are synchronized with needs of the investor. But if the fund deviates from its stated objective, either through a change in the investment mandate or due to any other reason, investors usually consider exiting it. Fund managers sometimes take investment calls that do not match the stated objective of the scheme. If the fund continues to invest in securities contrary to the objective , it can be considered for exiting. To state an example, a mid-cap fund may start investing in large-cap stocks or a value-oriented scheme could start chasing growth stocks. In both cases, the funds will disappoint investors by not delivering the returns they expected due to the unsuitable investment policy of the fund manager.

Monthly income plans (MIPs) are a tool which are meant for investors with a low appetite for risk. These are conservative funds which invest 15-20% of their corpus in stocks to be able to generate returns that can beat the inflation rate. However, if the fund manager exceeds the 15%-

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20% allocation to stocks, he is taking more risk than what the investor is willing to bear. Hence, the investors should keep a keen eye on his portfolio. 3. A star fund manager leaves :-As the fund manager is responsible for making all the crucial decisions regarding management of portfolio, his performance (which can also be faintly indicated by alpha of the fund) plays a very important role in influencing the investor. However, exiting a mutual fund because a star fund manager leaves is not a valid reason. It is always advisable to observe the investment style of a new fund manager. Give him a chance to prove himself before you withdraw from the fund. It is also possible that he is able to perform equally good or better as compared to the previous fund manager. The performance of the fund is also depended upon the style of the fund house. If it does not rely only on the performance of the star managers but has sound robust investment processes, the returns generated on the fund will not be affected. 4. When portfolio rebalancing defeats its objective :Efficient asset allocation is the key to success in investing. It ensures that the portfolio does not deviate from the original path, putting its defined goals at risk. If an individual started off with an allocation of 60% in stocks and 40% in debt and finds that the equity component has surged to 80%, he is carrying more risk than what he is comfortable with. To rebalance the portfolio, he either needs to offload some of the stocks and invest the proceeds in debt. However, he should be mindful of costs such as exit loads and short term capital gains tax. Hence, if portfolio rebalancing is possible, the investor may rebalance it and continue, however if it is not, investor will exit. 5. If the target of the investor has been achieved :- As per the interpretations of the mutual fund specialists, you should always invest with a goal in mind. Once your investment reaches the targeted amount, it should be redeemed. There's no point in continuing the investment even though the investors objective has been achieved. The investments will become prone to the risk of losing its value. Greed usually proves to be expensive in terms of heavy losses incurred due to fluctuations of equity markets. Hence, investors prefer to exit.

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Annexure: 2
Telephonic survey questionnaire: At a glance
Questionnaire at a glance:Q.1 The main stream in which the advisor is dealing. 1. Equity 2. Debt 3. Finance 4. FMP Q.2 Is the advisor satisfied with RM (relationship management/marketing) calling ? 1. Yes 2. No Q.3 When was the last call received by him? Q.4 What is the frequency of RM calls received by him? Q.5 Is the information dissemination proper? (i.e. is he receiving timely information available?) Q.6 By which medium is the information available to him? 1. Letters 2. Sms 3.E-mail Q.7 Is he satisfied with the client service quality? 1. Yes 2. No Q.8 Remarks :-

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Bibliography:y Search Engines :Google Yahoo

Websites :www.mutualfundsindia.com www.amfiindia.com www.valueresearchonline.com www.finance.indiamart.com www.hdfcfund.com

Books :Amfi Booklet Portfolio Management Services book ICFAI Brochures Pamphlets In touch mutually( HDFC funds)

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