RISK RETURN ANALYSIS AND COMPARATIVESTUDY OF MUTUAL FUNDS

EXECUTIVE SUMMARY The performance evaluation of mutual fund is a vital matter of concern to the fund managers,investors, and researchers alike. The core competence of the company is to meet objectivesand the needs of the investors and to provide optimum return for their risk. This study tries tofind out the risk and return allied with the mutual funds.This project paper is segmented into three sections to explore the link between conventionalsubjective and statistical approach of Mutual Fund analysis. To start with, the first section d e a l s w i t h t h e introductory part of the paper by giving an overview of the Mutual f u n d industry and company profile.This section also talks about the theory of portfolio analysis and the different measures of risk and return used for the comparison.The second section details on the need, objective, and the limitations of the study. It also discusses about the sources and the period for the data collection. It also deals with the datainterpretation and analysis part wherein all the key measures related to risk and return are done with the interpretation of the results.In the third section, an attempt is made to analyse and compare the performance of the equitymutual fund. For this purpose -value, standard deviation, and risk adjusted performancemeasures such as Sharpe ratio, Treynor measure, Jenson Alpha, and Fema measure have beenused.T h e p o r t f o l i o a n a l ys i s o f t h e s e l e c t e d f u n d h a s b e e n d o n e b y t h e m e a s u r e r e t u r n f o r t h e holding period.A t t h e e n d , i t illustrates the suggestions and findings based on the analysis done in t h e previous sections and finally it deals with conclusion part.

PART-I MUTUAL FUND OVERVIEW

CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:

Organisation of a Mutal Fund

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are: Management

TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

FREQUENTLY USED TERMS

Net Asset Value (NAV) Net Asset Value is the market value of the 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. Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-endLoad Is a charge collected by a scheme when it buys back the units from the unitholders.

History of the Indian 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 of India. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up 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)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

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.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.

The graph indicates the growth of assets over the years.

The Advantages Of Mutual Funds

Since their creation, mutual funds have been a popular investment vehicle for investors. Their simplicity along with other attributes provide great benefit to investors with limited knowledge, time or money. To help you decide whether mutual funds are best for you and your situation, we are going to look at some reasons why you might want to consider investing in mutual funds

Diversification One rule of investing, for both large and small investors, is asset diversification. Diversification involves the mixing of investments within a portfolio and is used to manage risk. For example, by choosing to buy stocks in the retail sector and offsetting them with stocks in the industrial sector, you can reduce the impact of the performance of any one security on your entire portfolio. To achieve a truly diversified portfolio, you may have to buy stocks with different capitalizations from different industries and bonds with varying maturities from different issuers. For the individual investor, this can be quite costly.

By purchasing mutual funds, you are provided with the immediate benefit of instant diversification and asset allocation without the large amounts of cash needed to create individual portfolios. One caveat, however, is that simply purchasing one mutual fund might not give you adequate diversification - check to see if the fund is sector or industry specific. For example, investing in an oil and energy mutual fund might spread your money over fifty companies, but if energy prices fall, your portfolio will likely suffer.

Economies of Scale The easiest way to understand economies of scale is by thinking about volume discounts; in many stores, the more of one product you buy, the cheaper that product becomes. For example, when you buy a dozen donuts, the price per donut is usually cheaper than buying a single one. This also occurs in the purchase and sale of securities. If you buy only one security at a time, the transaction fees will be relatively large.

Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors. When you buy a mutual fund, you are able to diversify without the numerous commission charges. Imagine if you had to buy the 10-20 stocks needed for diversification. The commission charges alone would eat up a good chunk of your savings. Add to this the fact that you would have to pay more transaction fees every time you wanted to modify your portfolio - as you can see the costs begin to add up. With mutual funds, you can make transactions on a much larger scale for less money.

Divisibility Many investors don't have the exact sums of money to buy round lots of securities. One to two hundred dollars is usually not enough to buy a round lot of a stock, especially after deducting commissions. Investors can purchase mutual funds in smaller denominations, ranging from $100 to $1,000 minimums. Smaller denominations of mutual funds provide mutual fund investors the ability to make periodic investments through monthly purchase plans while taking advantage of dollar-cost

averaging. So, rather than having to wait until you have enough money to buy higher-cost investments, you can get in right away with mutual funds. This provides an additional advantage - liquidity. Liquidity Another advantage of mutual funds is the ability to get in and out with relative ease. In general, you are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most current market value. However, it is important to watch out for any fees associated with selling, including back-end load fees. Also, unlike stocks and exchange-traded funds (ETFs), which trade any time during market hours, mutual funds transact only once per day after the fund's net asset value (NAV) is calculated.

Professional Management When you buy a mutual fund, you are also choosing a professional money manager. This manager will use the money that you invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to thoroughly research every investment before you decide to buy or sell, you have a mutual fund's money manager to handle it for you.

The Bottom Line As with any investment, there are risks involved in buying mutual funds. These investment vehicles can experience market fluctuations and sometimes provide returns below the overall market. Also, the advantages gained from mutual funds are not free: many of them carry loads, annual expense fees and penalties for early withdrawal.

Disadvantages

There are certainly some benefits to mutual fund investing, but you should also be aware of the drawbacks associated with mutual funds.

No Insurance: Mutual funds, although regulated by the government, are not insured against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment.

Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the fund's holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.

Fees and Expenses: Most mutual funds charge management and operating fees that pay for the fund's management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high sales commissions, 12b1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up significantly. Some of these expenses are charged on an ongoing basis, unlike stock investments, for which a commission is paid only when you buy and sell .

Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of critics now question whether or not professional money managers have better stock-picking capabilities than the average investor.

Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do so. This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You also should remember that you are trusting someone else with your money when you invest in a mutual fund.

Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after they've calculated the current value of their holdings.

Size: Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on small companies, given that there are strict rules about how much of a single company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a result, the fund might be forced to lower its standards when selecting companies to invest in.

Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the fund's money is invested in cash instead of assets, which tends to lower the investor's potential return.

Different Types: The advantages and disadvantages listed above apply to mutual funds in general. However, there are over 10,000 mutual funds in operation, and these funds vary greatly according to investment objective, size, strategy, and style. Mutual funds are available for virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and every country or region of the world. So even the process of selecting a fund can be tedious.

Mutual Funds: Different Types Of Funds

No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there are more than 10,000 mutual funds in North America! That means there are more mutual funds than stocks. It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk - it's never possible to diversify away all risk. This is a fact for all investments.

Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds: 1) Equity funds (stocks) 2) Fixed-income funds (bonds) 3) Money market funds

All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds. Let's go over the many different flavors of funds. We'll start with the safest and then work through to the more risky.

Money Market Funds The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD).

Bond/Income Funds Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cashflow to investors. As such, the audience for these funds consists of conservative investors and retirees. (Learn more inIncome Funds 101.)

Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much more risky than a fund that invests in government securities. Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down. Balanced Funds The objective of these funds is to provide a balanced mixture of safety, income and capital appreciation. The strategy of balanced

funds is to invest in a combination of fixed income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income. The weighting might also be restricted to a specified maximum or minimum for each asset class.

A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced fund, but these kinds of funds typically do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as the economy moves through the business cycle.

Equity Funds Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to understand the universe of equity funds is to use a style box, an example of which is below.

The idea is to classify funds based on both the size of the companies invested in and the investment style of the manager. The term value refers to a style of investing that looks for high quality companies that are out of favor with the market. These companies are characterized by low P/E and price-to-book ratios and high dividend yields. The opposite of value is growth, which refers to companies that have had (and are expected to continue to have) strong growth in earnings, sales and cash flow. A compromise between value and growth is blend, which simply refers to companies that are neither value nor growth stocks and are classified as being somewhere in the middle.

For example, a mutual fund that invests in large-cap companies that are in strong financial shape but have recently seen their share prices fall would be placed in the upper left quadrant of the style box (large and value). The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects. Such a mutual fund would reside in the bottom right quadrant (small and growth). (For further reading, check out Understanding The Mutual Fund Style Box.)

Global/International Funds An international fund (or foreign fund) invests only outside your home country. Global funds invest anywhere around the world, including your home country.

It's tough to classify these funds as either riskier or safer than domestic investments. They do tend to be more volatile and have unique country and/or political risks. But, on the flip side, they can, as part of a well-balanced portfolio, actually reduce risk by increasing diversification. Although the world's economies are becoming more inter-related, it is likely that another economy somewhere is outperforming the economy of your home country.

Specialty Funds This classification of mutual funds is more of an all-encompassing category that consists of funds that have proved to be popular but don't necessarily belong to the categories we've described so far. This type of mutual fund forgoes broad diversification to concentrate on a certain segment of the economy.

Sector funds are targeted at specific sectors of the economy such as financial, technology, health, etc. Sector funds are extremely volatile. There is a greater possibility of big gains, but you have to accept that your sector may tank.

Regional funds make it easier to focus on a specific area of the world. This may mean focusing on a region (say Latin America) or an individual country (for example, only Brazil). An advantage of these funds is that they make it easier to buy stock in foreign countries, which is otherwise difficult and expensive. Just like for sector funds, you have to accept the high risk of loss, which occurs if the region goes into a bad recession.

Socially-responsible funds (or ethical funds) invest only in companies that meet the criteria of certain guidelines or beliefs. Most socially responsible funds don't invest in industries such as tobacco, alcoholic beverages, weapons or nuclear power. The idea is to get a competitive performance while still maintaining a healthy conscience.

Index Funds The last but certainly not the least important are index funds. This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or Dow Jones Industrial Average (DJIA). An investor in an index fund figures that most managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees.

How A Mutual Fund Works

A fund sponsor - generally a financial intermediary like Fidelity Investments or Vanguard - organizes a mutual fund as a corporation; however, it is not an operating company with employees and a physical place of business in the traditional sense. A fund is a "virtual" company, which is typically externally managed. It relies on third parties or service providers, either fund sponsor affiliates or independent contractors, to manage the fund's portfolio and carry out other operational and administrative activities.

Figure 1, below, has been sourced from the Investment Company Institute's (ICI) 2005 ICI Fact Book to illustrate the organizational structure of a mutual fund.

The fund sponsor raises money from the investing public, who become fund shareholders. It then invests the proceeds in securities (stocks, bonds and money market instruments) related to the fund's investment objective. The fund provides shareholders with professional investment management, diversification, liquidity and investing convenience. For these services, the fund sponsor charges fees and incurs expenses for operating the fund, all of which are charged proportionately against a shareholder's assets in the fund. The most prevalent and well-known type of mutual fund operates on an open-ended basis. This means that it continually issues (sells) shares on demand to new investors and existing shareholders who are buying. It redeems (buys back) shares from shareholders who are selling.

Mutual fund shares are bought and sold on the basis of a fund's net asset value (NAV). Unlike a stock price, which changes constantly according to the forces of supply and demand, NAV is determined by the daily closing value of the underlying securities in a fund's portfolio (total net assets) on a per share basis. (For more insight, read What is a mutual fund's NAV?)

In some instances, investors can purchase shares directly from the fund, but most funds are sold through an investment intermediary: a broker, investment advisor, financial planner, bank or insurance company. These intermediaries are compensated for their services through a variety of sales charge options (loads) or deferred/ongoing 12b-1 fees. The former come directly out of the investor's pocket (deducted from the amount to be invested) and the latter as a proportionate deduction of the shareholder's fund assets.

SHARE HOLDER

Board of Directors Oversees the fund's activities, including approval of the contract with the management company and certain other services providers.

Mutual Fund

Investment Advisor

Principal Underwriter

Administrator

Transfer Agent

Custodian

Independent Public Accountant

Manages the fund's portfolio according to the objectives and policies described in the fund's prospectus.

Sells fund shares, either directly to the public or through other firms (such as broker dealers).

Oversees the performance of other companies that provide services to the fund and ensures that the fund's operations comply with the applicable federal requirements.

Executes shareholder transactions, maintains records of transactions and other shareholders' account activities, and sends account statements and other documents to shareholders.

Holds the fund's assets, maintaining them separately to protect shareholder interests.

Certifies the fund's financial statements.

1.7 DISTRIBUTION CHANNELS: Mutual funds posses a very strong distribution channel so that the ultimate customers doesntface any difficulty in the final procurement. The various parties involved in distribution of mutual funds are:

1.Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The investors can approach to the AMCs for the forms. some of the top AMCs of India are;Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI,Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include:Stand ard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.

2. Broker/ sub broker arrangements : the AMCs can simultaneously go for broker/sub - broker to popularize their funds. AMCs can enjoy the advantage of large network of the se brokers and sub brokers.

3Individual agents, Banks, NBFC: investors can procure the funds through individualagents, independent brokers, banks and several non- banking financial corporations too,whichever he finds convenient for him

HDFC Mutual FundAn Overview

Our Vision:
To be a dominant player in the Indian Mutual Fund space,recognized for its high levels of ethical and professional conductand a commitment towards enhancing investor interests.

Framework of HDFC Mutual Fund:

Custodian
Sponsors HDFC SLI

Asset Management Company HDFC Bank Ltd. HDFC AMC Ltd. Citibank N.A. The Bank of Nova Scotia

HDFC Mutual Fund

Other Agencies Stock Exchanges: BSE & NSE. SEBI, RBI, MCA, AMFI Depositories: NDSL, CDSL Auditor Bankers

Distributors National Distributors IFAs Banks

Registrar and Transfer Agent CAMS

HDFC: Housing Development Finance Corporation Limited SLI: Standard Life Investments Limited AMFI: The Association of Mutual Funds in India , CAMS: Computer Age Management Services Private Limited CDSL: Central Depository Securities ( India) Limited), NSDL: National Securities Depositories Limited MCA: Ministry of Corporate Affairs. NSE: National Stock Exchange of India Ltd, BSE: BSE Limited. SEBI: Securities and Exchange Board of India, RBI: Reserve Bank of India IFA: Individual Financial Advisor.

Our Background

HDFC Asset Management Company Limited (AMC) was incorporated under theCompanies Act, 1956, on December 10, 1999 and was approved to act as anAsset Management Company for the Mutual Fund by SEBI vide its letter datedJuly 3, 2000 Following the decision by Zurich Insurance Company (ZIC), the sponsor ofZurich India Mutual Fund, to divest its Asset Management Business in India,HDFC HDFC AMC AMC acquired acquired the the schemes schemes of of Zurich Zurich India India Mutual Mutual Fund Fund effective effective June June 1919,,2003 Strong Parentage Co-Sponsored by Housing Development Finance CorporationLimited (HDFC) and Standard Life Investments Limited (SLI), the investmentarm of The Standard Life Group, UK

Our Reach (As on March 31, 2012)

Total Live Accounts: over 5 million Total Number of Distributors: 43,100 Total Number of Schemes: 37 (excluding 1 Fund of Fund scheme) Number Number of of Investor Investor Service Service Centers Centers (HDFC (HDFC AMC) AMC):: 116 116 (Including (Including Dubai) Dubai) Number of Transaction Points (CAMS): 212

Sponsors and Shareholding Pattern

Housing Development Finance Corporation Limited (HDFC) Registered Office: Ramon House, H. T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai 400 020

Standard Life Investments Limited (SLI)

Registered Office: 1 George Street, Edinburgh, EH2 2LL, United Kingdom

Housing Development Finance Corporation Limited (HDFC)

HDFC was incorporated in 1977 as the first specialised mortgage company inIndia; its activities include housing finance, property related services (propertyidentification, valuation etc), training and consultancy HDFC is a professionally managed organisation with Board of Directorsconsisting of eminent persons representing various fields including finance,taxation, construction, urban policy and development HDFCs client base comprises of over 12 lac borrowers, 9 lac depositors, 2 Lacshareholders and 25,000 deposit agents as at March 31, 2011 HDFC has received the highest ratings for its bonds and deposits program forthe 17thyear in succession and has raised funds from various internationalagencies inter alia The World Bank, ADB, IFC (Washington), etc.

Standard Life Investments Limited (SLI)

Standard Life Investments is a leading asset management company, withapproximately US$ 251.9 billion of assets under management as at March 31,2011. The company operates in the UK, Canada, Hong Kong, China, Korea, Irelandand the USA to ensure it is able to form a truly global investment view

In order to meet the different needs and risk profiles of its clients, SLI managesa diverse portfolio covering all of the major markets world wide, which includesa range of private and public equities, government and company bonds,property investments and various derivative instruments The companys current holdings in UK equities account for approximately 1.8%of the market capitalisation of the London Stock Exchange

Investment Philosophy, Risk Management & Fund Management Team

Investment Philosophy:
The key to wealth creation is not targeting high returns with high risk, butfocusing on consistent returns (with low volatility) and avoiding large mistakes.Therefore we: Are focused on risk control and avoiding big mistakes Target consistent returns Essentially positioned as a No Surprise Fund

Investment Philosophy (Equities):

The key belief is that over time, stock prices reflect their intrinsic values Our investment philosophy and process is primarily based on long termfundamentals, margin of safety and effective diversification To create wealth over time, the key is capital protection and therefore weemphasize emphasize the the price price of of purchase purchase greatly greatly The research process emphasizes both quantitative and qualitative factors We believe that it is possible to achieve higher portfolio returns through activemanagement consistently over the long term

What We Avoid

Taking short term trading positions

Investing in companies with below satisfactory management quality / corporategovernance Making significant cash calls Investing outside the selected investment universe of stocks.

Investment Philosophy (Fixed Income)

Determination of interest rate trends, emphasis on high credit quality, controlling volatility on account of interest rate swings and maintaining necessary portfolio liquidity are the key determinants of our fixed income strategy. Portfolios are built to achieve optimal risk-adjusted total returns.

Extension or retraction of portfolio maturity / duration is effected only after a careful evaluation of yield curves, spreads between quality issuers and market sectors Our emphasis is on instruments having high credit quality where the financialstrength of the issuer (or guarantor) is well-documented by major ratingservices. In addition, in-house credit analysis is relied upon to arrive at relativepositions within major rating categories This approach translates into the following: An investment style that is developed through an appraisal of the respective schemes investment objectives, expectations and positioning, risk tolerance and unique needs. Emphasis Emphasis onon portfolio portfolio quality quality inin the the implementation implementation of of our our strategy, strategy, while while

using fundamental and technical analysis to seek opportunities for profitable investments. The focus is on detailed and better understanding of the business that we invest in. Primary goal is the development and implementation of respective scheme portfolios such that optimal risk-adjusted returns are achieved while maintaining good quality portfolio and liquidity

Risk Management

Risk management is an integral part of our investment management process The risk manager tracks adherence to investment restrictions, objectives,processes, internal norms, limits, etc. on an ongoing basis Adherence to regulatory and internal investment norms and limits monitoredindependently independently byby the the risk risk management management department department Risk management focuses on alignment of portfolios with the respectiveinvestment objectives, effective diversification, restricting investments to qualityassets etc.

Fund Management Team (Equity) Name and Designation

Mr Prashant Jain Chief Investment Officer

Experience
Collectively over 21 years of experience in fund management and research in mutual fund industry

Funds Managed*
HDFC Equity Fund HDFC Top 200 Fund HDFC Prudence Fund HDFC MF Monthly Income Plan Long Term Plan (Equities) HDFC Infrastructure Fund #

Mr. Vinay Kulkarni Senior Fund Manager

Collectively over 23 years of experience, of which 21 years in fund management and equity research and 2 years in the IT industry

HDFC Core & Satellite Fund HDFC Premier Multi Cap Fund HDFC Index Fund HDFC TaxSaver HDFC MF Monthly Income Plan Short Term Plan (Equities) HDFC Multiple Yield Fund (Equities)

Mr. Chirag Setalvad Senior Fund Manager

Collectively over 15 years of experience, of which 13 years in fund management and equity research and 3 years in investment banking

HDFC Mid-Cap Opportunities Fund HDFC Balanced Fund HDFC HDFC Capital Capital Builder Builder Fund Fund @ HDFC Childrens Gift Fund HDFC Long Term Advantage Fund HDFC Multiple Yield Fund Plan 2005 (Equities)

Mr. Srinivas Rao Ravuri Senior Fund Manager

Collectively over 15 years of experience in Indian Financial markets, primarily in equity research and fund management

HDFC Growth Fund HDFC Long Term Equity Fund HDFC Infrastructure Fund $

Mr. Miten Lathia Fund Manager- Equities & Senior Equity

Collectively over 12 years of experience in Equity Research . H

HDFC Capital Buidler Fund @@

Analyst Mr. Rakesh Vyas Fund Manager - Foreign Securities & Senior Equity Analyst Collectively over 8 years of experience of which 3 years in Application Engineering (Control and Automation) and over 5 years in Equity Research Mr. Shobhit Mehrotra Senior Fund Manager and Head of Credit Collectively over 19 years of experience in Fixed Income markets, credit rating etc. HDFC MF Monthly Income Plan LTP and STP (Debt) HDFC Income Fund HDFC High Interest Fund Short Term Plan HDFC Liquid Fund HDFC Floating Rate Income Fund HDFC Fixed Maturity Plans Series XII & XV HDFC Medium Term Opportunities Fund Mr. Anil Bamboli Senior Fund Manager Collectively over 17 years of experience in Fund Management and Research HDFC Multiple Yield Fund (Debt) HDFC Multiple Yield Fund Plan 2005 (Debt) HDFC High Interest Fund HDFC Short Term Plan HDFC Cash Management Fund Treasury Advantage Plan HDFC Gilt Fund HDFC Arbitrage Fund HDFC Gold Exchange Traded Fund HDFC Debt Fund for Cancer Cure HDFC Short Term Opportunities Fund HDFC Gold Fund, an open ended fund of fund scheme investing in HDFC Gold Exchange Traded Fund Mr. Bharat Pareek Fund Manager Collectively over 11 years of experience of which 7 years in treasury operations and dealing in debt market and 4 years in Fund Management Mr. Rakesh Vyas Fund Manager -Foreign Securities & Senior Equity Analyst Collectively over 8 years of experience of which 3 years in Application Engineering (Control and HDFC Cash Management Fund Call Plan & Savings Plan HDFC Quarterly Interval Fund HDFC Fixed Maturity Plans Series 18 to 22 All eligible schemes of HDFC Mutual Fund investing in foreign securities All eligible schemes of HDFC Mutual Fund investing in foreign securities

Automation) and over 5 years in Equity Research