Anmol Karnani, Interim Report

Study Of Two Asset Classes Equity and Gold in context of Mutual Fund Schemes

Study Of Two Asset Classes Equity and Gold in context of Mutual Fund Schemes2013IBS Business School, HyderabadHDFC Asset Management Company3/5/2013

AN INTERIM REPORT ONStudy Of Two Asset Classes Equity and Gold in the context of Mutual Fund SchemesAt HDFC AMC

BYANMOL KARNANI12BSPHH010161

Interim report is submitted in partial fulfillment of the requirements of MBAProgram of IBS, Hyderabad.

SUBMITTED TO:FACULTY GUIDE COMPANY GUIDE Dr. Amlan Ghosh Mr. Loknath Agarwalla

DATE OF SUBMISSION03/05/2013Abstract of work done

India is a developing country and the growth of the economy is only possible through large scale investment into manufacturing and production sector which will ensure not only self dependency but will also reduce the amounts of our imports and Current and Capital Account Deficits. Large investment into these sectors would mean large number of people investing money in setting up plants and industry and development of stock markets and listings of the shares of the companies on the stock exchanges. With a desire to see ones own money making more money, people invest into shares of companies, and for that is required help; which is basically the prime feature of the Mutual Fund Industry wherein people from diverse backgrounds having little or no knowledge about share prices or stocks but having money to invest come together for a common goal and pool in their funds to form what is known as Mutual Funds. The stock vs. mutual funds has always been a tough choice for the investors. The question of whether the money should be left alone to wherever it goes or to let a professional manage it wisely today is even more critical today, because of this uncertain economy and volatile market make the rewards for success and cost of failure very high. The choice and answer of persons vary because of a number of reasons citing from the amount to be invested, knowledge of financial markets and the amount of time and effort required to be put in.It is also evident that each approach has both advantages and disadvantages, On one hand there is a diversified portfolio and the security of having a experienced stock picker working full time to manage the funds and on the other hand having less control over the stock chosen and also on the gains realized from it when comes to taxation. Also extra care has to be taken when managing stocks as one has to be alert to the changing market conditions.The existing Behavioral Finance studies undertaken are very few in number and very little information is available about investor perception, attitudes and preferences apart from it being fragmented.In India, one of the early attempts was made by NCAER when a survey of households was done to understand the motivation and attitude of savings of individuals. Another NCAER study analyzed the structure of the Indian capital markets and presented the attitudes and views ofindividual shareholders. SEBI NCAER Survey (2000) was carried out to estimate the number of households and investment preference for equity as well as other Savings Instruments.Households preference for savings instruments match their risk perception which is clearly visible by the data that over 30% of households apparently lack awareness about markets; and compared with low income groups, the higher income groups have higher share of investments in Mutual Funds, signifying that MFs have still not become truly the investment vehicle for smaller investors.But, with the development of markets, rising awareness about investment avenues, higher savings and increasing risk appetite, Mutual Funds in India are becoming a more favored choice today.Mutual funds at first drew the public's attention in the years of 1980s and '90s when the Mutual Fund investments hit all time record highs and the investors saw incredible or almost unimaginable returns on the amounts invested by them. However, the idea of pooling money/assets for the purpose of investment has been around for a very long time. The Mutual Fund Industry is a very attractive avenue for investment because not only does one get returns on the amount invested over time to time. But one also achieves the investment purpose which may be anything from capital building to income generation.

When we look at the early start or evolution of this investment vehicle, from its roots in the Netherlands long back ago in the 18th century to its present status as a steadily growing, international industry having over thousands of Fund Schemes with fund holdings accounting for trillions of dollars in the United States alone, we see that there lies a greater growth of this industry in the times to come and the Silver Lining is yet to be achieved.

Despite the shocks in the year of 2003 on the mutual fund scandals and the global financial crisis of 2008-2009,the story of Mutual Funds is far from being over. On the contrary, the industry is still growing. In the U.S. alone, there are more than 10,000 mutual funds, whereas there are over 1200 Mutual Fund Schemes floated by 44 Mutual Fund houses in India, and if one accounts for all share classes of similar type of funds, then the fund holdings are measured in trillions of dollars. Despite the launch ofseparate accounts,exchange-traded funds (ETFs) and other competing products, the mutual fund industry remains healthy and fund ownership (Asset under Management) continues to grow.In this project, the study is undertaken to analyze Two Asset Classes Equity and Gold based on Mutual Fund Schemes. The Equity based Funds belong to the large cap sector and have been chosen while considering the following criterias: The funds compared for Equity Asset Class have been present for over a period of at least 5 (five) years each. Each of the funds selected falls under the category of Large Cap Funds and has an AUM (Asset under Management) of over Rs. 2000 crores each. Each of them is either a 4 star or 5 stars Fund which means they fall under the Low or Below average risk category and above average or high returns category.

The funds chosen for this project are: HDFC Top 200 Fund with an AUM of Rs. 12016.83 crores. Franklin India Bluechip with an AUM of Rs. 5150.18 crores. Birla SL Frontline Equity with an AUM of Rs. 3043.64 crores DSP Blackrock Top 100-Equity Fund with an AUM of Rs. 3529.71 crores L & T Equity Fund with an AUM of Rs. 2398.60 crores UTI Mastershare with an AUM of Rs. 2321.94 crores

A comparison of the above mentioned funds will be done amongst each other. Apart from it, Equity as an Asset Class in respect of Mutual Funds and Gold as an Asset Class in respect of Mutual Funds will be studied which includes:

Gold exchange Traded Fund Gold-Fund of Fund

After this, a comparison would be made among a better investment option between Equity and Gold as an Asset Class of Mutual Fund Schemes and hence a conclusion would be drawn.This report seeks to describe the current state of the industry, from the perspective of a basket of selected Mutual Fund schemes and Gold as an investment avenue. It also seeks to draw a comparison of the scheme with their corresponding benchmarks to evaluate their performance and generalize a report of performance of their corresponding houses based on these schemes.

Introduction

A Mutual Fund is a pool of funds formed by various people coming together and joining for a common purpose of an investment avenue to generate returns in the long run. The Mutual Fund is offered by an Asset Management Company (AMC) which is managed by a Fund Manager who is a technical person having expertise and skill required to make investment decisions of various companies. To hedge or protect the money of the investors, the investment is not made into one stock only; instead the amount to be invested is divided among the shares of various companies in various sectors so that in case of some industry not performing well, the investors money is safe as some other company may give great returns.The money so collected is then invested into the capital market instruments such as various kinds of shares, debentures, gold and other securities. The income thus earned from such investments and the appreciation of capital realized is shared by its unit holders in the proportion of the units held by them. Thus it is the most suitable investment option for the common man as it provides an opportunity to invest into a well-diversified, professionally managed basket of securities at a relatively low cost. Mutual Funds thrive at minimizing the risk and maximization of returns through diversification.

Mutual Funds can be classified into various categories and based on various parameters.

The broad classifications are:

On the basis of structure:

Open Ended Schemes

Open Ended Funds have been in the market from long time back. Such schemes do not have any particular maturity date and investment date. Usually investors can enter and exit from these schemes at any particular time which is one of the most beneficial feature of such schemes.

Close Ended SchemesClose-ended mutual fund Schemes have a fixed or stipulated maturity period wherein the investor can invest directly in the scheme which is at the time of the initial issue and thereafter units of the scheme can be traded (bought/ sold) on the stock exchanges where the scheme is listed. The market prices at the stock exchange could vary from the schemes NAV on account of demand and supply in the market, expectations from unit holders and also other market factors. Usually a characteristic feature of close-ended schemes is that they are generally traded at a discount to NAV (Net Asset Value); but closer to maturity date, the discount narrows. Interval SchemesInterval Schemes are those schemes that combine the features of both open-ended and close-ended schemes. The units of such scheme may be traded on the stock exchange or they may be open for sale or even for redemption during pre-determined intervals at NAV (Net Asset Value) related prices. On the basis of Investment Objective:

Income Schemes Growth Schemes Money Market Schemes Tax Saving Schemes Offshore Funds Special Schemes like Index Schemes

Some popular objectives of a mutual fund are:

Fund Objective:Fund Investment in:

Equity (Growth)Only in stocks

Debt (Income)Only in fixed-income securities

Money Market (including Gilt)In short-term money market instruments (including government securities)

BalancedPartly in stocks and partly in fixed-income securities, in order to maintain a 'balance' in returns and risk

On the basis of nature of funds: Equity based Funds Debt based Funds Hybrid/Balanced Funds

TYPES OF MUTUAL FUNDS SCHEMES SchemesBy Investment ObjectiveBy StructureOther SchemesOpen Ended SchemesClose Ended SchemesInterval SchemesBalanced SchemesIncome SchemesMoney Market SchemesTax Saving SchemesSpecial SchemesIndex SchemesSector Specific SchemesGrowth Schemes

Types of Schemes:Equity Schemes Equity schemes invest the amounts that they collect from investors into stocks of various companies listed on the stock exchanges as well as those that are unlisted. These schemes are also called Growth Schemes because the idea behind such investments is to earn a high return through the rise in the value of the investment. There is a general saying in the Indian Mutual Fund Industry that a person should invest (100- current age) % of his investments/savings into equity based funds as the person has a longer time horizon for the investment.Sectoral Schemes These are a variant of equity oriented schemes where the risk for the investor is higher than the diversified equity schemes. The funds of such schemes are invested into the shares of a particular sector only or it could be in companies that comply with a particular theme only. The amounts collected by the Fund houses are deposited into one particular sector on which the fund is based. Thus, there lies a significant risk of the investor if that particular sector does not perform well. But as is a saying Profit is the reward for risk taking, therefore there is also greater chance that the particular sector might do exceptionally well and the returns are more than expected.Equity linked savings scheme (ELSS)Equity linked savings schemes are also known as tax savings schemes. These are like diversified equity schemes in terms of their portfolio composition but they give investors a tax benefit that other schemes do not. Investors looking at earning a higher return on their investments and save on the tax at the same time opt for such schemes. Unlike normal equity schemes, ELSS carry a three year lock in period. If any withdrawal is made before the lock-in period, then exit loads are charged to the amount of funds.Index Funds Index funds are known as passive schemes because here the fund manager does not have to take active investment decisions regarding selection of companies for investment. The corpus of these schemes is invested in such a manner that it mimics an index that is being tracked by the fund. The movement of the fund is almost as similar to the movement of the index. For example, if the index goes up, then the NAV of the scheme goes up and vice versaIncome SchemesIncome schemes invest their assets into debt instruments that are either of medium to long term in duration. They main distinguishing factor of these schemes is that they are different in terms of their investment objective. They only seek to generate some income rather than building up capital. For e.g. bonds, debentures, government securities and other debt instruments. Liquid Schemes Liquid schemes are meant for very short term investors where the investor horizon ranges from a couple of days to around a week or slightly more. The liquid schemes invest the money into overnight call money market and extremely short term options. Such schemes are majorly used by corporate when they have huge sums of money lying idle for a shorter period of time.Gilt Schemes Gilt schemes invest their assets only in government securities. There can be short term or long term schemes. These schemes have no credit risk which means that there is no possibility of the investments of the scheme turning out to be worthless because the issuing authority is the government itself. They are most recommended for people in the higher age groups as they are mostly interested in getting some fixed returns rather than taking risk by investing a major chunk in equity schemes.Balanced Schemes Balanced schemes are a mixture of equity and income schemes whereby they hold both equities and debt in their portfolio. Balanced schemes need to hold an average 65% of assets as equity. These schemes are meant for those who want to earn some returns on their investment but would like a small element of stability built into the scheme. The major advantage is that a portion of the savings will yield almost fixed and guaranteed returns, thus the investor prefers such type of schemes.Fixed Maturity Plans (FMP)FMPs are plans that are in operation for a short period of time but they act like a quasi fixed deposit for the investors. This is because the fund manager selects the securities in the portfolio in such a manner that it matures on the same date as that of the scheme. This results in the situation where the investor will get a return near the yield of the investments when they were purchased because of reduced risk in the investment. Unlike open ended schemes, wherein the investor can invest and exist at almost any time during the investment period, here such option is not available. These funds mature after a particular time period. Fund of Funds This scheme invests its funds into another mutual fund scheme and is hence known as fund of funds. Several funds invest their corpus into schemes of their own fund house while another variety of fund of fund schemes invest the amount into schemes from other fund houses too. Fund of Funds is basically a feeder fund for the main funds. The underlying asset is the same for both the main fund scheme and Fund of Fund scheme.Offshore FundsOffshore funds are specializing in investing in foreign companies or corporations. These funds basically have non-residential investors and are regulated and guided by the provisions of the foreign countries in which they are registered. These funds are regulated by RBI directives and certain changes are introduced from time to time as and when necessary.Tax-Saving SchemesTax-saving schemes offer attractive tax rebates to the investors under tax laws prescribed from time to time to promote investments into such schemes. Under Sec.88 of the Income Tax Act, any contributions made to any Equity Linked Savings Scheme (ELSS) is eligible for rebate @ 20% for a maximum investment on Rs10,000 per financial year which lures the investors to invest in such schemes.Money Market SchemesMoney Market Schemes aim to provide easy liquidity, preservation of capital invested and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. They are invested for shorter durations.

Mutual Fund IndustryThe Mutual Fund Industry has a worldwide penetration of about 70% of GDP in US, 60% of GDP in France and over 35% in Brazil and less than even 5% of the GDP of India. Mutual funds as an investment tool has gained great popularity in the current times, this is clearly reflected in the robust growth levels of Assets under Management (AUM). Despite this growth, the level of penetration of Mutual Funds in India is very low as compared to other global economies. The mutual fund industry started in India in the year of 1963 with the establishment of Unit Trust of India (UTI), which was a combined initiative of the Indian Government and Reserve Bank of India.A new trend or new era started in the Indian industry with the entry of private sector funds in Mutual Funds in 1993, allowing the Indian investors a wider choice of fund schemes. The first private sector mutual fund company was registered in July 1993, the erstwhile Kothari Pioneer (now merged with Franklin Templeton). The industry now functions under the SEBI (Mutual Fund) Regulations 1996.In the last few years, households income levels have grown significantly, leading to commensurate increase in households savings. Household financial savings (at current prices) registered growth rate of around 17.4% on an average during the period FY04-FY08 as against 11.8% on an average during the period FY99-FY03. The considerable rise in households financial savings, point towards the huge market potential of the Mutual fund industry in India.Besides, SEBI has introduced various regulatory measures in order to protect the interest of small investors that augurs well for the long term growth of the industry. The tax benefits allowed on mutual fund schemes (for example investment made in Equity Linked Saving Scheme (ELSS) is qualified for tax deductions under section 80C of the Income Tax Act) also have helped mutual funds to evolve as the preferred form of investment among the salaried income earners.Besides, the Indian Mutual fund industry that started with traditional products like equity fund, debt fund and balanced fund has significantly expanded its product portfolio. Today, the industry has introduced an array of products such as liquid/money market funds, sector-specific funds, index funds, gilt funds, capital protection oriented schemes, special category funds, insurance linked funds, exchange traded funds, etc. It also has introduced Gold ETF fund in 2007 with an aim to allow mutual funds to invest in gold or gold related instruments. Further, the industry has launched special schemes to invest in foreign securities. The wide variety of schemes offered by the Indian Mutual fund industry provides multiple options of investment to common man.The Mutual Fund Industry has another regulator in India, namely Association of Mutual Funds in India (AMFI) which is the body under which the distributors of Mutual Funds have to get themselves registered to carry out distribution of Mutual Fund Schemes.

The Mutual Fund Industry is currently going through a transformation stage. On side we see rigid and stringent norms of the governing bodies and on the other side we see the economy as whole still jostling out to recover from the world wide economic and financial crisis of 2008-2009.

The Indian Economy has a 7.4% growth rate of Gross Domestic Product (GDP) and has great potential to reach into double digits backed by a strong support.

Mutual Fund From the Beginning

The historians are uncertain of the actual origins of the investment funds; some of them cite theclose-ended investment schemes by a couple of companieslaunched inNetherlands in the year of 1822 by the then King, King William. Some others are of the opinion that the first mutual funds refer to a Dutch Merchant named Adriaan van Ketwich whose Investment Trust started in the year of 1774 may have given the idea to the king. Ketwich probably made people realize that by diversification, the Investment Trust would increase the appeal of investments to small investors with minimal capital. Ketwich's fund named, Eendragt Maakt Magt, essentially means that "Unity creates Strength". The next major wave of investment avenues close to mutual funds included an Investment Trust launched inSwitzerlandin the year of 1849, which was then followed by similar such vehicles established in Scotlandin the year of 1880s.

This idea of pooling resources and risk diversification using closed-ended investments soon took form inGreat Britainandalso to France, ultimately making its way to United Statesin the years of 1890s. Boston Personal Property Trust was the first closed-ended fund formed in 1893 in theU.S.Thereafter, the creation of Alexander Fund in Philadelphia in the early 20th century (1907) was an important step in the evolution towards what we today know as the modern Mutual Fund. The Alexander Fund contained features of semi-annual issues and also allowed investors to make withdrawals on demand as and when required.

The creation of Massachusetts Investors' Trust inBoston,Massachusetts, heralded the arrival of the modern mutual fund in the year of 1924. The fund went public in 1928, eventually spawning the Mutual Fund firm known today as the MFS Investment Management. State Street Investors' Trust was then the custodian of the Massachusetts Investors' Trust. Later, State Street Investors started its own Mutual Fund in 1924 with Richard Paine, Richard Saltonstall and Paul Cabot. Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that would launch the Worlds firstno-load fundin the year of 1928. A momentous year in the history of the mutual fund, 1928 also saw the launch of the Wellington Fund, which was the first mutual fund to include not only the stocks but also the bonds, as opposed to direct merchant bank style of Investments in trade and business.

By 1929, there were 19open-ended mutual fundscompeting with nearly 700 closed-end funds. With the stock market crash of 1929, there was an era of change as highly-leveraged closed-end funds were wiped out and small open-end funds managed to survive.

Government regulators also began to take due notice of the fledging mutual fund industry. The creation of Securities and Exchange Commission (SEC), passage of theSecurities Act of 1933and the enactment of Securities Exchange Act of 1934put in place safeguards to protect investors: mutual funds were required to register with the SEC and to provide disclosure in the form of a prospectus.

In 1971, William Fouse and John McQuown of Wells Fargo Bank established the very firstindex fund, a concept that John Bogle would use as a foundation on which to have build The Vanguard Group, a Mutual Fund powerhouse renowned for low-cost index funds. The 1970s also saw the rise of theno-load fund. This new way of doing business had a major impact on the way mutual funds were sold and would make an enormous contribution to the industry's success.

Evolution of the Mutual Fund Industry in IndiaThe Unit Trust of India was formed which marked the evolution of the Mutual fund industry in India in the year of 1963. The main objective at that time was to attract the smaller investor and this was made possible through the combined efforts of the Government of India and the Reserve Bank of India. The history of this Industry in India can be well understood by dividing it into following phases:

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

The Unit Trust of India was set up by an act of Parliament in the year 1963 and it enjoyed complete monopoly when it was first established. It was set up by the Reserve Bank of India and it continued to function under the regulatory control of the Reserve Bank of India until the two were de-linked in 1978 and the entire control and functioning was transferred to the Industrial Development Bank of India (IDBI). UTI had launched its first scheme way back in 1964, named as Unit Scheme 1964 (US-64), which attracted the highest number of individual investors in any single investment scheme over the years.

More and more innovative schemes were launched by UTI in 1970s and 80s to suit the needs of different investors. ULIP was launched in 1971, and between 1981-84, six more schemes were launched, Children's Gift Growth Fund and India Fund (India's first offshore fund) was launched in 1986, Mastershare (first equity diversified scheme in India) was launched in 1987 and Monthly Income Schemes (offering assured returns) were launched during 1990s. UTI's assets under management grew ten times to Rs 6700 crores by the end of 1988.

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

Public Sector Mutual Funds grew enormously during the year of 1987. The first non UTI Mutual Fund came from the State Bank of India in November 1987. The Mutual fund of SBI was later followed by LIC Mutual Fund, Canbank Mutual Fund, GIC Mutual Fund, Bank of India Mutual Fund, Indian Bank Mutual Fund and PNB Mutual Fund. The assets under management of the industry increased seven times to Rs. 47,004 crores by 1993. UTI was still the market leader with over 80% of the market share.

1992-93Amount MobilizedAssets Under ManagementMobilization as % of gross Domestic Savings

UTI11,05738,2475.2%

Public Sector1,9648,7570.9%

Total13,02147,0046.1%

Phase III. Private Sector Funds emerged - 1993-96

Post the era of liberalization, privatization and globalization, permission was granted to private sector funds which also included foreign fund management companies (majority of them entering with Indian promoters as joint ventures) to enter the Indian mutual fund industry in 1993, which provided a wide range of choice to the investors and which further increased competition in the industry. Private funds helped in introducing innovative products, investment techniques and investor-servicing technology. About 11 private sector funds had launched their Mutual Fund schemes by 1994-95.

Phase IV. Growth and SEBI Regulation - 1996-2004

The SEBI exercised greater control and regulated the Mutual Fund Industry from the year 1996. Also, the industry witnessed robust growth during that time period. More and more guidelines were introduced and one had to provide extra details in order to invest. More people began to show interest in mutual funds and the Industry witnessed higher amounts of mobilization of funds, and the number of players operating in the industry reached new heights. Mutual Fund started getting greater acceptance in the Indian sub-continent.

SEBI took appropriate measures and stringent rules were introduced and utmost care was undertaken to ensure that investors' interests were safeguarded and the Government offered tax benefits to the investors in order to encourage them in investing or saving through Mutual Funds.

SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI which aimed to set uniform standards for all the mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of the investors from income tax. Innumerable Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to create awareness and educate investors and make them better informed about the mutual fund industry.

February 2003 saw the UTI Act being repealed and UTI was finally stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective to do this was to make the mutual fund industry as a same level field and to bring all mutual fund players on the same level. UTI was then re-organized into two parts:

1. The Specified Undertaking, 2. The UTI Mutual Fund

Presently, the Unit Trust of India undertakes its operations under the name of UTI Mutual Fund and is winding up its past schemes (like US-64, Assured Return Schemes). However, UTI Mutual Fund is still the largest player in the Mutual Fund industry.

In the year of 1999, there was a significant rise in the mobilization of funds from investors and assets under management which is presented in the following table:

GROSS FUND MOBILISATION (RS. CRORES)

FROMTOUTIPUBLIC SECTORPRIVATE SECTORTOTAL

01-April-9831-March-9911,6791,7327,96621,377

01-April-9931-March-0013,5364,03942,17359,748

01-April-0031-March-0112,4136,19274,35292,957

01-April-0131-March-024,64313,6131,46,2671,64,523

01-April-0231-Jan-035,50522,9232,20,5512,48,979

01-Feb.-0331-March-03*7,259*58,43565,694

01-April-0331-March-04-68,5585,21,6325,90,190

01-April-0431-March-05-1,03,2467,36,4168,39,662

01-April-0531-March-06-1,83,4469,14,71210,98,158

Phase V. Growth & Consolidation - 2004 Onwards

The Mutual Fund Industry is changing rapidly, and there are a large number of mergers and acquisitions in the Industry, for example Birla Sun Life took over Alliance Mutual Fund. Many international Mutual Fund players have made way through to the Indian market like Fidelity, Franklin Templeton Mutual Fund. There were 29 funds as at the end of March 2006. This is a phase of growth of the Mutual Fund Industry through consolidation and entry of new international and private sector players.

HDFC ASSET MANAGEMENT COMPANY

Vision Statement

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, Back bay Reclamation, Church gate, 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. 25.169 crore.

The present equity shareholding pattern of the AMC is as follows:Particulars% of the paid up equity capital

Housing Development Finance Corporation Limited59.98

Standard Life Investments Limited39.99

Other Shareholders (shares issued on exercise of Stock Options)0.03

TrusteesHDFC Trustee Company Limited, a company incorporated under the Companies Act, 1956 is the Trustee to HDFC Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary of HDFC.SponsorsHOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC)STANDARD LIFE INVESTMENTS LIMITEDThe industry is facing a number of issues that could be characterized by lack of investor awareness, high dependence on corporate sector, low penetration levels and spiraling cost of operations along with the non-trust on the expertise of well-known Fund Managers.

Advantages of Mutual Funds

Professional Money Management

Fund managers are primarily responsible for implementing a consistent investment strategy that synchronizes and reflects the goals of the fund. Fund managers constantly monitor the market movements and economic trends and analyze securities in order to make informed and better investment decisions. Professionals are always better than novice people and hence add value to the investments.

Diversification

Diversification is one of the worlds best ways to mitigate risk. Mutual funds offer investors an opportunity to diversify their investments across various cadre of assets depending on their investment needs. Instead of parking funds in any particular stock, it is definitely better to diversify it into various avenues so that even if one sector is not doing well, some other sectors profit will help to keep the investment intact.

Liquidity

Investors can sell off the mutual fund units held by them on any particular business day and also receive the current market value on their sold investments within a very short time period (normally three- to five-days). Non blockage of funds for a long time is a major advantage of mutual funds.

Affordability

The minimum initial investment for a mutual fund is quite low for most funds (as low as Rs 500 for some schemes), so one does not need to wait to save thousands before actually saving through mutual funds.

Convenience

Most of the private sector funds provide the convenience of periodic purchase plans, automatic withdrawal plans and also the automatic reinvestment of interest and dividends

Mutual funds also provide with the detailed reports and statements that make record-keeping simple. One can easily monitor and periodically check the performance of the funds simply by just reviewing the business pages of most newspapers or just by using the onlineMutual Fundssection.

Flexibility and variety

One can pick from a variety of options to invest ranging from conservative, blue-chip stock funds, sectoral funds, funds that aim to provide income with modest growth or even those that take big risks in the search for returns. There is a choice of buying balanced funds, or those which combine stocks and bonds in the same fund.

Tax benefits

Tax benefits on Investment in Mutual Funds

1) 100% Income Tax exemption on all Mutual Fund dividends

2) Equity Funds - Short term capital gains is taxed at 15%. Long term capital gains are not applicable.

Debt Funds - Short term capital gains is taxed as per the slab rates applicable to individual investor. Long term capital gains tax to be lower of either 10% on the capital gains without factoring indexation benefit and 20% on the capital gains after factoring indexation benefit.

3) Open-end funds with equity exposure of more than 65% (Revised from 50% to 65% in Budget 2006) are exempt from the payment of dividend tax for a period of 3 years from 1999-2000.An investor can get a tax benefit in schemes like ELSS (equity linked saving scheme). Some schemes like the Tax Saver Schemes allow people to get tax savings on their investments under various sections of Chapter VI-A of the Income Tax Act.

Note:Equity Funds are those where the investible funds are invested in equity shares in domestic companies to the extent of more than 65% of the total proceeds of such funds.

Main Text

Objective of the Project:

The project aims at comparing the returns and risks of the various Equity funds of the various fund houses in the Large Cap Sector. The project also focuses on Gold as a separate Asset Class in respect of Mutual Fund Schemes and the avenues of investment available to an investor. The project also aims at comparing the returns of both the asset classes of Gold and Equity and suggests the possible investment options. The project also aims at benchmarking the various funds to their respective indices. Value Addition to the company: The Company gets a clear picture of its current market positioning according to the industry in which it operates.

Methodology:

The projects covers Mutual Funds of 6 Fund Houses of the large and midcap sector and a comparison and analysis will be done using financial and statistical tools which include: Sharpe Ratio: To measure the risk-return comparison of the fund. Standard Deviation and Beta: To show the volatility and systematic risk of a Portfolio/ Fund to the market as a whole. Treynor Ratio: Risk adjusted measure of return based on systematic risk. Treynor ratio is similar to Sharpe ratio, only that it uses Beta as the measurement of volatility Returns: The annualized year on year returns of the Mutual Funds.

Since the project also covers details of the investment opportunities in Gold as an Asset Class, hence the various returns or fluctuations in price of Gold over the years on a comparative analysis will be undertaken based on the price of the underlying asset, which in this is Gold.

Statistical and numerical analysis tools will also be used to draw a comparison between the returns of both the Asset Classes with one another (Equity Mutual Funds and Gold)

The Equity based Mutual Fund Schemes taken for the studies are as presented below:

Fund NameLaunch DateCategoryRatingRisk GradeReturn Grade1 YearReturnExpenseRatio

Birla Sun Life Frontline EquityAug-2002Equity: Large & Mid CapAvg.Above Avg.21.451.86

DSPBR Top 100 Equity RegFeb-2003Equity: Large CapBelow Avg.Above Avg.9.771.84

Franklin India BluechipNov-1993Equity: Large CapLowHigh13.211.81

HDFC Top 200Sep-1996Equity: Large CapAvg.High12.591.78

L&T EquityApr-2005Equity: Large & Mid CapBelow Avg.Above Avg.9.891.85

UTI MastershareOct-1986Equity: Large CapBelow Avg.Above Avg.14.571.88

The category as mentioned in the table represents the investments made by these funds fall under which category. Also since they are majorly large cap funds, so they have a high rating of 4 or 5 stars which means that they have been consistently being performing well.

Expense ratio is the amount of expenses per Rs. 100 invested in the scheme. These schemes have a similar kind of expense ratio around 1.75 to 1.90 since they fall under same category.

The following table gives the details about the Price Earnings Ratio (P/E ratio) and Assets under Management (AUM) of the Mutual Fund Schemes. It also says the quantum of the top 5 holdings as a percentage of the total.

Fund NameFund StyleP/E RatioP/B RatioMarket Cap(Rs Cr)Turnover (%)Assets(Rs Cr)Avg. Cred. Qual.Average Maturity (Yrs)Top 5 Holdings (%)

Birla Sun Life Frontline Equity20.113.8143,407.0272.003,043.64----22.94

DSPBR Top 100 Equity Reg20.183.0133,126.97291.003,529.71----33.21

Franklin India Bluechip18.483.6951,379.1824.945,150.18----31.72

HDFC Top 20017.143.4337,975.6421.6312,016.86----32.17

L&T Equity20.094.0360,281.080.002,398.60----29.62

UTI Mastershare23.474.5564,836.1613.482,321.94GOI/Cash--29.89

The following table shows the expense ratio of each of the Mutual Fund Schemes and also the load structure. It also mentions about the details about the Fund Managers of the respective schemes.

Fund NameExpenseRatio %Front-EndLoad %Back-EndLoad %CDSCMim InitialInv. (Rs)Portfolio ManagerTenure (Yrs.)

Birla Sun Life Frontline Equity1.860.000.00Yes5,000Samir Arora, Nishid Shah, Dhawal Mehta, Taher Badshah, Ashit Kothari, Mahesh Patil, Nimesh Chandan11, 8, 10, 9, 9, 8, 8

DSPBR Top 100 Equity Reg1.840.000.00Yes5,000S Naganath, Anup Maheshwari, Rajesh Kothari, Apoorva Shah8, 10, 8, 7

Franklin India Bluechip1.810.000.00Yes5,000K N Sivasubramanian, Anand Radhakrishnan, Anand Vasudevan20, 6, 2

HDFC Top 2001.780.000.00Yes5,000Prashant Jain, Bobby Surendranath, Miten Lathia11, 17, 3

L&T Equity1.850.000.00Yes5,000Arun Mehra, Soumendra Nath Lahiri, Subramanian Balakrishnan, Rajesh Pherwani8, 1, 4, 1

UTI Mastershare1.880.000.00Yes5,000Manish Kumar, Sanjay Sinha, Swati Kulkarni, Chandraprakash Padiyar11, 9, 7, 8

The following table tells about the NAV (Net Asset Value) of the Mutual Fund Schemes and the current NAVs as well as the highs and lows during the past one year.

Fund NameNAVAs onChg. from previous52 Weeks HighAs on52 Weeks LowAs On

BSL Frontline Eqt-G100.39May 2, 20130.86102.33Jan 15, 201376.74May 23, 2012

DSPBR Top 100 Eqt Reg-G108.68May 2, 20131.21113.88Jan 3, 201391.34Jun 1, 2012

Franklin India Bluechip-G235.38May 2, 20131.30244.20Jan 21, 2013193.25May 23, 2012

HDFC Top 200-G223.47May 2, 20132.32234.76Jan 21, 2013182.02May 16, 2012

L&T Equity-G37.00May 2, 20130.3938.58Jan 21, 201331.31Jun 4, 2012

UTI Mastershare-G58.25May 2, 20130.6458.77Jan 21, 201347.69May 23, 2012

These tables provided a basic view of what the various Mutual Fund Schemes have been performing and their history. Based on these the various ratios and tools will be used.

The detailed description about the Schemes are as follows:Birla SL Frontline Equity Fund

Current Stats & Profile

Latest NAV100.39 (02/05/13)

52-Week High102.33 (15/01/13)

52-Week Low76.74 (23/05/12)

Fund CategoryEquity: Large & Mid Cap

TypeOpen End

Launch DateAugust 2002

Risk GradeAverage

Return GradeAbove Average

Net Assets (Cr) *3,043.64 (31/03/13)

BenchmarkS&P BSE 200

The scheme aims to generate long-term capital growth, income generation and distribution of dividend. It would target the same sectoral weights as BSE 200, subject to flexibility of selecting stocks within a particular sector.Stated Asset Allocation

MinMax

Equity75100

Debt025

Cash & Cash Eq.025

DSP Black Rock Top 100 Equity Fund


Latest NAV108.676 (02/05/13)

52-Week High113.878 (03/01/13)

52-Week Low91.339 (01/06/12)

Fund CategoryEquity: Large Cap

TypeOpen End

Launch DateFebruary 2003

Risk GradeBelow Average


Net Assets (Cr) *3,529.71 (31/03/13)


The scheme seeks to generate capital appreciation from a portfolio that largely consists of equity and equity related securities of the 100 largest corporates, by market capitalization, listed on either BSE or NSE.Stated Asset Allocation

MinMax

Equity90100

Debt010

Cash & Cash Eq.010

Franklin India Bluechip Fund


Latest NAV235.3809 (02/05/13)

52-Week High244.2003 (21/01/13)

52-Week Low193.2501 (23/05/12)


TypeOpen End

Launch DateNovember 1993

Risk GradeLow

Return GradeHigh

Net Assets (Cr) *5,150.18 (31/03/13)

BenchmarkS&P BSE Sensex

The scheme seeks aggressive growth and aims to provide medium to long term capital appreciation through investment in shares of quality companies and by focusing on well established large sized companies.

Stated Asset Allocation

MinMax

Equity85100

Debt010

Cash & Cash Eq.015

HDFC Top 200 Fund


Latest NAV223.472 (02/05/13)

52-Week High234.759 (21/01/13)

52-Week Low182.017 (16/05/12)


TypeOpen End

Launch DateSeptember 1996

Risk GradeAverage

Return GradeHigh

Net Assets (Cr) *12,016.86 (31/03/13)


The scheme seeks capital appreciation and would invest up to 90 per cent in equity and the remaining in debt instruments. Also, the stocks would be drawn from the companies in the BSE 200 Index as well as 200 largest capitalized companies in India.Stated Asset Allocation

MinMax

Equity0100

Debt00

Cash & Cash Eq.05

L & T Equity Fund


Latest NAV37.003 (02/05/13)

52-Week High38.584 (21/01/13)

52-Week Low31.312 (04/06/12)

Fund CategoryEquity: Large & Mid Cap

TypeOpen End

Launch DateApril 2005



Net Assets (Cr) *2,398.60 (31/03/13)


The scheme aims to follow bottom up stock picking, without any bias for sectors or market capitalizations. The scheme will attempt to be fully invested in equities at all times; however, up to 20 per cent of its assets can be invested in cash and cash equivalents.Stated Asset Allocation

MinMax

Equity80100

Debt00

Cash & Cash Eq.020

UTI Mastershare


Latest NAV58.2495 (02/05/13)

52-Week High58.77 (21/01/13)

52-Week Low47.69 (23/05/12)


TypeOpen End

Launch DateOctober 1986



Net Assets (Cr) *2,321.94 (31/03/13)


An open-end equity fund aiming to provide benefit of capital appreciation and income distribution through investment in equity.Stated Asset Allocation

MinMax

Equity70100

Debt030

Cash & Cash Eq.030

Plan for Completion:

The following schedule is being been followed:

Project Component Time ScheduleStatusDate

Understanding about Mutual Funds1 weekComplete12th March 2013 to 18th March 2013

Understanding about the Industry2 weeksComplete18th March 2013 to1st April 2013

Understanding about Various Schemes of HDFC AMC1 weekComplete1st April 2013 to8th April 2013

Data Collection and Comparison of Equity based Mutual Fund Schemes of different Fund Houses and Benchmarking with the respective Indices.2 weekComplete8th April 2013 to22nd April 2013

Data Collection and Investment options in Gold as an Asset Class in respect of Mutual Fund Schemes2 weeksOngoing22nd April 2013 to6th May 2013

Comparison between Equity based and Gold Funds as an Investment Option1 weekPending6th May 2013 to13th May 2013

Discussions & Recommendations1 weeksPending13th May 2013 to20th May 2013

Formatting & Project Completion2 weeksPending20th May 2013 to1st June 2013

References

www.valueresearchonline.com www.moneycontrol.com www.amfiindia.com www.hdfcfund.com www.reliancemutual.com www.sbimf.com www.dspblackrock.com www.franklintempletonindia.com www.icicipruamc.com www.economictimes.indiatimes.com Fact Sheet (named Intouch Mutually) of HDFC AMC

Faculty Guide: Dr. Amlan GhoshCompany Guide: Mr. Loknath AgarwallaDate: 3rd May, 2013Anmol Karnani (Signature of Student)

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