Saptarshi banerjee strategies of uti and hdfc mutual funds

RESEARCH PROJECT ON

DETERMINATION AND EVALUATION OF STRATEGIES OF UTI
AND HDFC MUTUAL FUNDS
BY
SAPTARSHI BANERJEE
MBA FOURTH SEMESTER

(This research topic has been conceptualized by me under the guidance of Prof.
S.Ramgopal, Senior Professor, MPBIM, Bangalore)

M P BIRLA INSTITUTE OF MANAGEMENT
(Associate Bharatiya Vidya Bhavan)
43, Race Course Road, Bangalore-560001
MARCH 2007

M P Birla Institute of Management 1

PRINCIPAL’S CERTIFICATE

This is to certify that this report titled “DETERMINATION AND EVALUATION OF
STRATEGIES OF UTI AND HDFC MUTUAL FUNDS” has been prepared by Saptarshi
Banerjee of M. P. Birla Institute of Management in partial fulfillment of the award of the
degree, Master of Business Administration at Bangalore University, under the guidance
and supervision of Prof. S.Ramgopal, MPBIM, Bangalore.

Place: Bangalore
(Dr. Nagesh. S Malavalli)
Date: May 2007 Principal

MPBIM,Bangalore


GUIDE’S CERTIFICATE

This is to certify that Saptarshi Banerjee, bearing registration no.05XQCM6079
has undertaken a research project and has prepared a report titled “DETERMINATION
AND EVALUATION OF STRATEGIES OF UTI AND HDFC MUTUAL FUNDS”
under my guidance. This has not formed a basis for the award of any degree/diploma for any
other university.

Place: Bangalore

Date:

Prof S.Ramgopal
(Professor)


DECLARATAION

I hereby declare that the project report titled “DETERMINATION AND EVALUATION OF
MARKETING OF UTI AND HDFC MUTUAL FUNDS” is a record of independent work
carried out by me towards the partial fulfillment of the requirements for the Masters Degree
in Business Administration course of Bangalore University, at M.P. Birla Institute of
Management, Associate Bharatiya Vidya Bhavan, Bangalore.

Place: Bangalore

(Saptarshi Banerjee)
Date: 05XQCM6079


ACKNOWLEDGEMENTS

The immense gratification this project work has given me does not lead to a
sense of fulfillment unless I express my boundless gratitude to all those who
made this work successful. I do recognize that mere thanksgiving does not
redeem me of my indebtedness for all the timely help, support and guidance
I received.

I script on this page my sincere thanks to each one of them:
Dr. Nagesh. S. Malavalli – Principal, M. P. Birla Institute of Management
for his constant and dedicated service to brighten our careers.

Prof S. Ramgopal., my professor and internal guide for this project to
whom I am deeply grateful for his constant support and guidance.

My family and friends for always having stood by my convictions and
encouraging me to perform better.

Finally, all the people who helped me complete this project by filling the
questionnaires.

Thank You.

Saptarshi Banerjee


CONTENTS

1. EXECUTIVE SUMMARY

2. DESIGN OF THE STUDY
• Research Gap

• Problem Statement

• Research Objectives

RESEARCH DESIGN ADOPTED
• Type Of Research

• Sampling Design

SOURCES OF DATA COLLECTION
• Primary Data

• Secondary Data

LIMITATIONS

3. INDUSTRY PROFILE

4. COMPANY PROFILE

6. DATA ANALYSIS AND INFERENCES

7. SUMMARY OF FINDINGS

8. RECOMMENDATIONS AND CONCLUSIONS

9. BIBLIOGRAPHY

10. APPENDIX


EXECUTIVE
SUMMARY


The Indian Mutual Fund industry is likely to be one of the largest and most dynamic parts
of the Indian financial service sectors in the past years. Mutual Fund plays important in
the development of the financial market. Mutual fund in India have emerged as strong
financial intermediaries and are playing very important role in bringing stability in
financial system and it also helps the corporate in raising their funds to meet their
financial needs, which ultimately lead to the growth in the Economy.
The research conducted was Descriptive and Analytical in nature. The survey was
conducted to determine and evaluate the marketing strategies of UTI and ICICI Prudential
mutual funds: the top two mutual funds in India. Questionnaire method was adopted along
with some interview to obtain the desired information. Judgment sampling method was
the mode of conducting the survey. A sample of 200 respondents was taken and this
sample mainly covers owners of mutual funds (mainly UTI and ICICI Prudential mutual
funds).

Awareness level of Mutual fund was very high among the people but their attitude
towards mutual fund is that people consider mutual fund as risky mode so their
investment in mutual fund is very low. Mutual fund industry is waiting for the
introduction of derivatives in India as this would enable it to hedge its risk and this in
turn would be reflected in its Net Asset Value.


INTRODUCTION


There is competition in every field and investment is no exception. With rising
competition, end customers are being showered with numerous investment options with
varied degree of risk and different investment avenues are available to investors. Mutual
funds also offer good investment opportunities to the investors. Like all investments,
Mutual Funds also carry certain risks. Investment pattern and criteria depends on
individuals risk taking limit and return wants. For instance, Stock market can give an
individual a quick and good return with some risk involved and Bank can provide lower
return as compared to Stock market but in safe mode, whereas Mutual Fund can provide a
good return with minimum risk involved. The investors should compare the risks and
expected yields after adjustment of tax on various instruments while taking Mutual Fund
investment decisions.

Over the last two years, the world of money has changed for Indians. Interest rates have
come down dramatically. Borrowers have become more powerful than ever before, with
plenty of lenders slugging it out for their attention.

Mutual funds provide a form of investment that is both relatively safe and lucrative.
Mutual funds offer investors the advantages of professional management of invested
money and diversification of that investment. Mutual fund managers assume the
responsibility of investigating and researching financial markets and selecting the
combination of stocks, bonds, and other investment vehicles to be bought and sold. Thus,
consumers purchase shares in a mutual fund and rely on the expertise of the mutual fund
manager, whose job is to provide them with the highest possible return on their
investments.

Investment options such as the 8% Reserve Bank of India (RBI) bond have died. Bank
fixed deposits, the most preferred investment for decades, have lost their sheen. Stock
market has boomed all right, but the risks have increased too .Most mutual funds pay
higher returns than competing banks and offer check-writing services that have grown to
compete in quality and quantity with those provided by banks and thrifts. And also


Mutual funds offer several advantages over stock investments, including diversification
and professional management.

So, Mutual fund is like a middle way of investing money which is safer than investing in
Stock market and which can give someone good return than bank.

.


DESIGN OF
THE STUDY


Problem statement

Comparative study and analysis of the marketing strategies of top 2 mutual funds in India
i.e. UTI and ICICI prudential mutual funds..

Scope of the study

The scope of the study is restricted to analyze the marketing strategies of top two brands i.e.
UTI and ICICI Prudential mutual funds. The study intends to throw light on the success of
these two brands in the mutual funds market.

Research objectives

• Level of Awareness
• Perception about Mutual Fund
• Target Age Group
• Investment pattern of different professional group and different income group
people.
• How an individual can invest their money as per his/her requirement (such as
mutual funds which offer Tax Rebate) in different Mutual funds.
• Analysis of marketing strategies on UTI and ICICI Prudential mutual funds.

Research design adopted

Research Design:

A research design is the specification of methods and procedures for acquiring the
information needed. It is overall operational pattern or framework of the project that
stipulates what information is to be collected from which source by what procedures.


Types of Research
1. Exploratory Research
2. Descriptive Research
3. Analytical Research

Exploratory Research: It is done to generate new ideas; respondents should be given
sufficient freedom to express themselves. Sometimes a group of respondents is bought
together and a focus group interview is held.
An exploratory study is generally based on the secondary data that are readily available.

Descriptive Research: It includes surveys and fact-finding enquires of different kinds. It
is undertaken in many circumstances, when the researcher is interested in knowing the
certain characteristics of different group; interested in knowing the proportion of in a
given population who have behaved in a particular manner or determining the
relationship between two or more variables.

The research adopted in this study is Descriptive and Analytical Research in order to
produce information so as to compare and contrast the marketing strategies adopted by
UTI and ICICI Prudential mutual funds and consumer investment pattern and their
attitude towards these two mutual funds.

SOURCES OF DATA COLLECTION:

Collection of data is the first step in statistics the goal of conclusion. The data collection
process follows the formulation of research design including the sample plan. Data,
which can be secondary or primary, can be collected using variety of tools.

Collection of Primary data can be done with the help of
• Observation Method
• Interview Method


• Through Questionnaire
• Through Schedule
• Warranty Cards
• Distributor Audits
• Pantry Audits
• Consumer Panels
• Depth Interview
• Using Mechanical Devices

Collection of Secondary data can be done with the help of

• Various publications of central, state and local government
• Various publications of international bodies.
• Technical and trade journals.
• Books, magazine, newspapers and reports.

The data collected during the research is primary in nature and in that Questionnaire
method has been taken because it is cost effective, free from the biasness of the
interviewer and respondents can give sufficient time to give well thought out answers.

SAMPLING

An integral component of a research design is the sampling plan. Specially, it address
three questions: whom to survey (the sample unit), how many to survey (the sample size),
and how to select them (the sampling procedure). Making the census study of the entire
universe will be impossible on the account of limitations of time and money. Hence
sampling becomes inevitable. A sample is only the portion of the population. Properly
done, sampling produces representative data of the entire population.

Method of Sampling:
1. Probability Sampling


2. Non-Probability Sampling

Probability Sampling is also known as ‘random sampling’ or ‘chance sampling’. Under
this sampling design every items of the universe has an equal chance or probability, of
being chosen for samples. Probability samples may take the form of:
• Sample Random Sampling
• Systematic Sampling
• Stratified Sampling
• Cluster and Area Sampling
• Sequential Sampling
• Multi stage Sampling

Non Probability Sampling is also known as deliberate sampling, purposive and
judgmental sampling. Non-probability samplings are those that do not provide every item
in the universe with a known chance of being included in the sample.

Non-probability samplings are of following type:
• Convenience Sampling
• Quota Sampling
• Judgement Sampling
• Panel Sampling

The Sampling method used here is Non-Probability Sampling in which Judgement
Sampling has been used. Judgement Sampling method has been adopted in which the
target group includes Doctors, Engineers and people belonging to financial institutes
because they are the possible investors for the company also they are the highly qualified
persons in our society.

LIMITATIONS

1. Judgement Sampling was used as the mode of conducting the research.


2. Respondents may not have been true in answering various questions and may be
biased to certain other questions. Some respondents however were not willing to
share their views and did not give any information.
3. The Questionnaire mostly contained multiple-choice questions, therefore many
respondents did not give a proper thought before up the questions, and some even
ticked things, which were not applicable. Therefore all this increases the biasness.
4. Respondents were reluctant to answer some questions, as they took them as
personal, therefore increasing the possibility of error.


INDUSTRY
PROFILE


Mutual Fund-Concept

A Mutual Fund is a trust that pools the saving 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 appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a mutual fund is the most suitable
investment for the common man as it offers an opportunity to invest in diversified,
professionally managed basket of securities at a relatively low cost. The flow chart below
describes broadly the working of mutual fund:

Mutual Fund Operation Flow Chart

The mutual funds normally come out with a number of schemes with different investment
objectives which are launched from time to time. A mutual fund is required to be
registered with Securities and Exchange Board of India (SEBI) which regulates securities
markets before it can collect funds from the public.


The first open-end mutual fund, Massachusetts Investors Trust was founded on March 21,
1924 and after one year had 200 shareholders and $392,000 in assets. The entire industry,
which included a few closed-end funds, represented less than $10 million in 1924.

The origin of mutual fund industry in India is with the introduction of the concept of
mutual fund by UTI in the year 1963. 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 dramatic improvements, both
quality wise as well as quantity wise. Before, the monopoly of the market had seen an
ending phase; the Assets under Management (AUM) were Rs. 67bn. The private sector
entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004;
it reached the height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is
less than the deposits of SBI alone, constitute less than 11% of the total deposits held by
the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the
country. Large sections of Indian investors are yet to be intellectuated with the concept.
Hence, it is the prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling.

The Indian Timeline
1963-- UTI is India’s first mutual fund
1964-- UTI launches US-64
1971-- UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be
launched
1986-- UTI Mastershare, India’s first true mutual fund’ scheme launched
1987-- PSU banks and insurers allowed to float mutual funds; State Bank of India
(SBI) first off the blocks
1992-- The Harshad Mehta- fuelled bull market arouses middle-class interest in
shares and mutual funds.


1993--Private sector and foreign players allowed; Kothari Pioneer first fund
house to start operations; Sebi set up to regulate industry.
1994--Morgan Stanley is the first foreign player
1996--Sebi’s mutual fund rules and regulations, which form the basis of most
current laws, come into force.
1998--UTI Master Index fund is the country’s first index fund.
1999--The takeover of 20th Century AMC by Zurich mutual fund is the first
acquisition in the mutual fund industry.
2000--The industry assets under management crosses Rs.1, 00,000 crore.
2002--UTI bifurcated, comes under Sebi purview mutual fund distributors banned
from giving commission to investors; floating rate funds and foreign debt
funds debut.
2003--AMFI certification made compulsory for new agents, fund of funds
launched.

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. 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. 6700 crores of Assets under Management.

Second Phase – 1987-93 (Entry of Public Sector Funds)

Entry of Non-UTI mutual funds, SBI Mutual Fund was the first 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 in 1989 and GIC in 1990. The end of 1993 marked Rs 47,004 as assets under
management.

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

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One
is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as
on January 2003). 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 Ltd, 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
AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers 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. As at the end of September, 2004, there were 29 funds, which manage assets of
Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

Some facts for the growth of mutual funds in India

• 100% growth in the last 6 years.
• Numbers of foreign AMC’s are in the queue to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.
• We have approximately 33 mutual funds which is much less than US having more
than 800. There is a big scope for expansion.


• Mutual fund can penetrate rural like the Indian insurance industry with simple and
limited products.
• SEBI allowing the MF's to launch commodity mutual funds.
• Emphasis on better corporate governance.
• Trying to curb the late trading practices.
• Introduction of Financial Planners who can provide need based advice.

Types of Mutual Funds

Mutual Fund schemes may be classified on the basis of its Structure and its Investment
objective.
• By Structure
1. Open - Ended Schemes
2. Close - Ended Schemes
3. Interval Schemes

• By Investment Objective
1. Growth Schemes
2. Income Schemes
3. Balanced Schemes
4. Money Market Schemes

Structure
Open-Ended Funds:
An open-ended fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset
Value (NAV) related prices. The key feature of open-ended schemes is liquidity.

Close-Ended Funds:


A close-ended has a stipulated maturity period which generally ranges from
3-15 years. The fund is open for subscription only during a specified period. Investors
can invest in the scheme at the time of the Initial Public Issue and thereafter they can buy
or sell the units of the scheme on the stock exchanges where they are listed. In order to
provide an exit route to the investors, some close-ended funds give an option of selling
back the units of the mutual fund through periodic repurchase at NAV related prices.
SEBI regulations stipulate that at least one of the two exit routes is provided to the
investor.

Interval Funds:
Interval Funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.

Investment Objective
Growth Funds:
The aim of growth fund is to provide capital appreciation over the medium to long-term.
Such schemes normally invest a majority of their corpus in equities. It has been proven
that return from the stock have outperformed most other kinds of investment held over
the long-term. Growth schemes are ideal for investors having a long term outlook seeking
growth over a period of time.

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

Balanced Funds:


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

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

The Basic Functions of ISC

Undergoing summer training at the Investor Service Center (ISC), was a great learning
experience for us. During our stay at the ISC in the capacity of summer trainees we tried
to observe the functioning of a Mutual Fund from within and thus gain an inside
perceptive of the same.
For the purpose of explaining the detail of what we learnt during our stint with
HDFC MF, we would first like to explain the basic functions, which are carried out at a
mutual fund office on a day to day basis.


The work flowchart of a Mutual Fund ISC is of following nature:

Investor

Selling & distribution agent Sales & marketing team of ISC

Operation dept at ISC

Registrar Head office
(CAMS)

The flowchart indicates that the new investors investing in varied mutual fund schemes
route their investment through two channels:
(1) Selling agents and Distribution houses
(2) Direct marketing team at the ISC

Subsequently the applications are forwarded to the operations department at the ISC
which is in direct contact with the registrar, which in case of HDFC MF is cams,
Chennai.
The application are processed at the ISC, either manually or scanned to the
registrar, where records of the same are maintained. The investors are allotted folio
numbers and subsequently allotted the units as per the amount invested by them.
All further subsequent transaction initiated by investor like redemption and
switching using a transaction slip are routed through the ISC to the registrar who finally
execute the same.


Apart from the above mentioned functions, an ISC performs the following as well-
1. Tapping the potential investors which are done by the sales team at
the ISC.
2. Mobilizing the investments through the selling agents and
distribution houses like banks and other private distribution
channels.
3. Client service which involves-
• Addressing investor’s valuation enquiries
• Issuing account statements to the investor every time a
fresh transaction is initiated by the investor.
• Reconciling issues related to dividend payable to investors.
• Verifying investor’s signature before executing a switch or
redemption request.
4. Carrying out non functional transaction like-
• Changing of correspondence addresses of investors.
• Changing investor’s Bank mandates.


Basic Mutual Fund Structure


Benefits of Mutual Fund

• Diversification: The best mutual funds design their portfolios so individual
investments will react differently to the same economic conditions. For example,
economic conditions like a rise in interest rates may cause certain securities in a
diversified portfolio to decrease in value. Other securities in the portfolio will
respond to the same economic conditions by increasing in value. When a portfolio
is balanced in this way, the value of the overall portfolio should gradually
increase over time, even if some securities lose value.
• Professional Management: Most mutual funds pay topflight professional to
manage their investments. These managers will decide what securities fund will
buy or sell.
• Regulatory oversight: Mutual funds are subject to many government regulations
that protect investors from fraud.

• Liquidity: It’s easy to get your money out of a mutual fund. Write a check, make
a call, and you have got the cash.
• Convenience: You can usually buy mutual fund shares by mail, phone or over the
Internet.
• Low cost: Mutual fund expenses are often no more than 1.5 percent of your
investment. Expenses for Index Funds are less than that, because index funds are
not actively managed. Instead, they automatically buy stock in companies that are
listed on a specific index.
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Well regulated


Draw Backs of Mutual Fund

Mutual funds have their drawbacks and may not be for everyone:

• No Guarantees: No investment is risk free. If the entire stock market declines in
value, the value of mutual fund shares will go down as well, no matter how
balanced the portfolio. Investors encounter fewer risks when they invest in mutual
funds than when they buy and sell stocks on their own. However, anyone who
invests through a mutual fund runs the risk of losing money.
• Fees and commissions: All funds charge administrative fees to cover their day-to-
day expenses. Some funds also charge sales commissions or "loads" to
compensate brokers, financial consultants, or financial planners. Even if you don't
use a broker or other financial adviser, you will pay a sales commission if you buy
shares in a Load Fund.
• Taxes: During a typical year, most actively managed mutual funds sell anywhere
from 20 to 70 percent of the securities in their portfolios. If your fund makes a
profit on its sales, you will pay taxes on the income you receive, even if you
reinvest the money you made.
• Management risk: When you invest in a mutual fund, you depend on the fund's
manager to make the right decisions regarding the fund's portfolio. If the manager
does not perform as well as you had hoped, you might not make as much money
on your investment as you expected. Of course, if you invest in Index Funds, you
forego management risk, because these funds do not employ managers.


Fund Structure and Constituents

Mutual Funds have a unique structure not shared with other entities such as companies or
firms. It is important here to discuss the special nature of this structure because it
determines the rights and responsibilities of the fund’s constituent’s viz. Sponsors
Trustees, custodian, transfer agent and of course, the fund and the asset management
company (AMC). The legal structure also drives the inter-relationship between these
constituents.

The Fund Sponsor:
“Sponsor” is defined under SEBI regulations as any person who, acting alone in a
combination with another body corporate, establishes a mutual fund. The sponsor of the
fund is akin to the promoters of a company as he gets the fund registered SEBI. Sponsors
will form a trust and a point a board of trustees. The sponsors, either directly or acting
through the Trustees, will also appoint an AMC as Fund Manager. All these
appointments are made in accordance with SEBI regulations. As per the existing SEBI
regulations, for a person to qualify as a sponsor, he must contribute at least 40% of the
net worth of the AMC and possess a sound financial track record over 5 years prior to
registration.
Trustee:
The trust- the mutual fund – may be managed by board of Trustees – body of individuals,
or trust company – corporate body. Most of the funds in India are managed by board of
Trustees. While the board of trustees will be governed by the provision of the Indian
Trust Act, where the trustee is a corporate body, it would also be required to comply with
the provisions of independent body acts as a protector of the unit – holder’s interest. The
Trustees being the primary guardian of the unit – holder’s funds and assets, a Trustee has
to be a person of high repute and integrity. SEBI has laid down a set of conditions to be
fulfilled by the individuals being proposed as trustees of mutual fund – both dependent
and independent.


Risk associated with Mutual Fund

Risk arises out of the fact that returns do not remain constant or unchanged.

Credit Risk:
Mutual funds face a credit risk when the counter party fails to meet the
contractual obligation or when there is a reduction in a portfolio value due to
deterioration in credit quality.

Market Risk:
Mutual funds face market risk when there are adverse changes in the market
variable like interest rates, prices of securities, equities and commodities.

Operational Risk:
Mutual funds face operational risk due to failure or inadequacy of internal
processes, people systems or due to external events.

Liquidity Risk:
It pertains to how saleable a security is in the market. If a particular doesn’t have
a market at the time of sale, and then the schemes may have to bear an impact depending
on its exposure to that particular security.

Interest Rate Risk:
It is associated with movements in interest rates which depend on various factors
such as government borrowing, inflation, economic performance etc. The values of
investments will appreciate/ depreciates if the interest rates fall/ rise.


Derivative Risk:
The derivatives will entail a counter party risk to the extent of amount that can
become due from the party. The cost hedged can be higher than adverse impact of the
market movements. An exposure to derivatives can also limit the profits from a genuine
investment transaction.

Reinvestment Risk:

This risk arises from the uncertainty in the rate at which cash flows from an investment
may be reinvested. This is because the bonds will pay coupons, which will have to be
reinvested. The rate at which the coupons will be reinvested will depend upon prevailing
market rates at the time the coupons are received.

Mutual Fund Companies in India

Some of the major companies are given below

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

Bank of Baroda Mutual Fund (BOB Mutual Fund)

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund


Prudential ICICI Mutual Fund

Unit Trust of India Mutual Fund

State Bank of India Mutual Fund

Tata Mutual Fund

Kotak Mahindra Mutual Fund

Unit Trust of India Mutual Fund

Reliance Mutual Fund

Standard Chartered Mutual Fund

Franklin Templeton India Mutual Fund

Morgan Stanley Mutual Fund India

Sahara Mutual Fund

Alliance Capital Mutual Fund

BenchmarkMutual Fund

.


LIC Mutual Fund

GIC Mutual Fund

Chola Mutual Fund

Asset Management Company

The role of an Asset Management Company (AMC) is to act as the investment manager
of the trust under the board of supervision and direction of the Trustees. The AMC is
required to be approved and registered with SEBI as an AMC.

The AMC of a Mutual Fund must have a net worth of at least Rs. 10 crores at all
times. Directors of the AMC, both independent and non-independent, should have
adequate professional experience in financial services and should be individuals of high
moral standing, a condition applicable to other key personnel of the AMC. The AMC
cannot act as a trustee of other Mutual Fund. Besides its role as fund manager, it may
undertake specified activities such as advisory services and financial consulting ,provided
these activities are run independently of one another and the AMC’s resources (such as
personnel, systems, etc.) are properly segregated by activity.

Custodian and Depositories:
Mutual Funds are in the business of buying and selling of securities in large
volumes, handling these securities in terms of physical delivery and eventually
safekeeping is therefore a specialized activity. The custodian appointed by the board of


Trustees for safekeeping of securities or participating in a clearing system through
approved depository companies on behalf of the mutual fund. The custodian should be an
entity independent of the sponsors and is requires to be registered with SEBI. A Mutual
Fund’s dematerialized securities holdings will be a depository through depository
participant.

Bankers:
A fund’s activities involve dealing with money on a continuous basis primarily with
respect to buying and selling units, paying for investments made, receiving the proceeds
on sales of investments and discharging its obligation towards operating expenses. A
fund’s bankers therefore play crucial role with respect to its financial dealings by holding
its bank accounts and providing it with respect to its financial dealings by holding its
bank accounts and providing it with remittances services.

Transfer Agents:
Transfer agents are responsible for receiving and redeeming units of the Mutual fund and
provide other related services such as preparation of transfer documents and updating
investor’s records. A fund may choose to carry out this activity in – house and charge the
scheme for the service at a competitive market rate. where an outside transfer agent is
used, the fund investor will find the agent to be an important interface to deal with, since
all of the investor services that a fund provides ( besides the investment management) are
going to be dependent on the transfer agents.

Distributors:
Mutual Funds operate as collective vehicles on the principle of accumulating fund from a
large number of investors and then investing on a big scale. For a fund to sell units across
a wide retail base of individual investors and established network of distribution agents is
essential.


Distribution Channels of Mutual Fund

Role of Distribution Channels:
Mutual Funds device investment plans for the institutional and the individual investors.
Some funds target and contact the institutional investors directly, without using any
external distribution channels. For example, UTI and some private funds have some
schemes targeted at provident fund, which are contacted directly by their own sales
officers. Other funds work through distributors for institutional clients as well as
individual ones. But, it is important to note that Mutual Funds are primarily vehicles for
large collective investments, working on the principal of pooling the funds of large
number of investors. That is why a large majority of schemes are targeted at individual
investors. A substantial portion of investment in mutual funds takes place at their retail
level. Retail distribution channels are therefore a critical element in the distribution at
mutual funds. This is particularly relevant in the Indian context, in view of the diverse
nature of the investor community and the vast geographic spread of the country. The
agents or distributors are vital link between the mutual funds and investors.

Traditionally in India, financial products such as insurance or bank and corporate
deposits have been distributed through individual who serve as independent
brokers/agents. The increasing number of players in the mutual fund industry has resulted
in opening up new channels of distribution. We review the role of different kinds of funds
distributors below.

Types of Distribution Channels

Individual Agents:
Uses of agents have been the most widely prevalent practice for distribution of funds over
the years. By definition, an agent acts on behalf of a principal – in this case, the mutual
fund. An agent is essentially a broker between a fund and the investor. In India, we also
have the unique system whereby a broker has a number of sub-brokers working under


him. The vast sub- broker network ensures a larger geographic coverage than otherwise.
According to AMFI, there are nearly 100,000 agents selling mutual funds and other
financial products. Of this number, 80-85 thousand are UTI agents.

Mutual fund agents are not exclusive but usually sell other financial products as well. The
system has the advantage that the distributor has a broader knowledge of financial
services available, and is therefore potentially in a position to act as investment advisors.
Investors expect the right kind of recommendations from the agents. From the
perspective of the mutual funds themselves, such multi product distributors mean loss of
exclusivity in the marketing of their particular products. However a drawback can be
converted into a benefit for the funds, if the agents are properly trained in their role and
responsibility as financial advisors to the investors.

In India, any investor who signs an assignment with a fund on non judicial stamp paper
can act as its agent. In India, too from November 1, 2001 SEBI has made it mandatory
for newly recruited distributors pass the AMFI Certification test and has recommended
the test for the existing distributors .As financial markets, investment options and the
variety of Mutual Funds get more and more sophisticated, distributors need more and
more information knowledge and skills. This is why distributors in India will find that
many mutual funds now will prescribe minimum qualification that a person must possess
to be its agent. These qualifications may be in terms of education, experience or even
registration on an exchange. For example U.T.I requires its agents to have at least passed
the level of matriculation and also to provide two references. Some private sector funds
like to deal with only stock brokers. Eventually some funds may even require their
distributors to pass the AMFI Testing programmed.

In case of U.T.I agents are provided with in-hose training and refresher courses. Agents
performance is monitored and they receive commission at a basic rate plus incentive
depending on the volume of business of generated by them U.T.I has evolved the concept
of a chief representative for each district, who is assigned a target and has several agents


reporting to him. U.T.I also has franchisee offices that function as small decentralized
distribution centers. In addition, agents are allowed privileges such as membership to the
chairman’s club, based on performance.

Private Mutual Fund also rely on agents for distributing their schemes. However, many of
the relatively small funds, interaction with the large agent force is both costly and
difficult to administer. For this reason the recent trend has been, to shift to distribution
companies as opposed to individual agent.

Distribution companies:
Availing of the services of the established distribution companies is a practice accepted
by mutual fund internationally. This practice evolved with a view to support a large agent
force. Instead of having to deal with several agents a fund can interact with a distribution
company which has several employees or sub-broker under it. A distribution usually
manages distribution for several funds simultaneously and receives commissions for its
services. Many private funds have preferred to adopt this practice because of its
sophisticated nature and because they benefit from the specialist knowledge and
established client contacts of these marketing firms. In India, there are about 10 major
distribution companies in addition to a few hundred small ones.
Banks and NBFC’s:
In developed countries, banks are an important marketing vehicle for mutual funds, given
that banks themselves have a large depositor/client base of their own. We can see the
opening up of this new channel in India now. Several banks particularly private and
foreign banks are involved in the fund distribution by providing services similar to those
of distribution companies, on the commission basis. Some NBFC’s are also providing
such services. All funds do not yet use this channel, nor all banks have yet taken up the
fund distributor role, but increasing use of bank networks for mutual fund distribution is
almost a certain development.


Direct Marketing:
Direct marketing means that the mutual funds sell their own products without the use of
any intermediaries. Usually, this takes the form of the sales officer and employees of the
AMC who approach the investors and accept their contributions directly. However, in
India independent agents may really be treated as a direct marketing channel, in the sense
that they do not form a well-knit independent and organized single entity and act more
like fund employees. Other channels like the distribution companies or banks or even
stockbrokers are clearly distinct and independent intermediaries.

Direct marketing by the funds themselves accounts for a very small percentage of mutual
fund sales. Many private sector funds require that investments into any of their schemes
be routed only through registered brokers and they do not accept direct subscription from
investors.

Mutual funds often use their employees to mobilize funds high net worth individuals and
institutional investors. In case of short /medium term investment in liquid and/or income
funds, targeted at companies funds often resort to direct marketing.

AMFI Code of Ethics

AMFI has published a code of ethics which lays down suggested practices for funds with
respect to overall fund operations including distribution and selling practices. At present,
the code is not mandatory and is in the form of recommended practices. The code
primarily covers the following broad prescriptions:

• Management of the fund ought to be in the interest of the unit – holders

• High standards of service ate expected from the funds

• Adequate disclosures by the funds ought to be made to unit – holders and
trustees


• Funds are urged to adopt the use of professional selling practices

• Management of funds collected has to be in accordance with stated
investment objectives

• Funds should avoid conflicts of interest in dealings by directors, officers or
employees

• Funds have to refrain from unethical market practices

SEBI Regulations

Although SEBI does not prescribe the minimum amount of commissions payable by a
fund to agents, under SEBI (M.F) Regulations, 1996 all initial issue expenses including
brokerage paid to agents are limited to 6% of resources raised under the scheme. In
addition, SEBI regulated open-end funds are authorized to charge the investors “entry
and exit” loads to cover the fund distribution expenses. These loads should not exceed the
percentage specified in the scheme’s offer document. In case the agent’s commission
paid by the fund result in over all distribution expenses exceeding the rate specified in the
offer document, excess distribution expenses are to be born by the AMC i.e. the excess
cannot be passed on to the unit holders.

A no-load fund charging no entry or exit load, is authorized to charge the schemes
with the commissions paid to the agents as a part of the regular management and
marketing expenses allowed by SEBI, SEBI puts a cap on the total expenses( including
commissions) that can be charged to a scheme each year. Any excess over allowable
expenses is required to be borne by the AMC.


Future Scenario

The asset base will continue to grow at an annual rate of about 30% to 35% over the next
few years as investor’s shift their assets from banks and other traditional avenues. Some
of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with
stronger players in three to four years. In the private sector this trend has already started
with two mergers and one takeover. Here too some of them will down their shutters in the
near future to come.

But this does not mean there is no room for other players. The market will witness
a flurry of new players entering the arena. There will be a large number of offers from
various asset management companies in the time to come. Some big names like Fidelity,
Principal, Old Mutual etc. are looking at Indian market seriously. One important reason
for it is that most major players already have presence here and hence these big names
would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as
this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset
Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to
trade in derivatives. Importantly, many market players have called on the Regulator to
initiate the process immediately, so that the mutual funds can implement the changes that
are required to trade in Derivatives.


COMPANY
PROFILE


UTI MUTUAL FUNDS

INTRODUCTION

UTI Mutual Fund is managed by UTI Asset Management Company Private Limited
(Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private
Limited for managing the schemes of UTI Mutual Fund and the schemes transferred /
migrated from UTI Mutual Fund.

The UTI Asset Management Company has its registered office at : UTI Tower, Gn Block,
Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide professionally
managed back office support for all business services of UTI Mutual Fund (excluding
fund management) in accordance with the provisions of the Investment Management
Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of
the schemes. State-of-the-art systems and communications are in place to ensure a
seamless flow across the various activities undertaken by UTI AMC.

UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers)
Regulations, 1993 on February 3 2004, for undertaking portfolio management services
and also acts as the manager and marketer to offshore funds through its 100 % subsidiary,
UTI International Limited, registered in Guernsey, Channel Islands.

UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset
Management Company presently manages a corpus of over Rs. 34500 Crore.

UTI Mutual Fund has a track record of managing a variety of schemes catering to the
needs of every class of citizenry. It has a nationwide network consisting 70 UTI Financial
Centers (UFCs) and UTI International offices in London, Dubai and Bahrain. With a
view to reach to common investors at district level, 4 satellite offices have also been
opened in select towns and districts. It has a well-qualified, professional fund


management team, who have been highly empowered to manage funds with greater
efficiency and accountability in the sole interest of unit holders. The fund managers are
also ably supported with a strong in-house equity research department. To ensure better
management of funds, a risk management department is also in operation.

It has reset and upgraded transparency standards for the mutual funds industry. All the
branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-
effective quick and efficient service. All these have evolved UTI Mutual Fund to position
as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant
entity.

SPONSORS

Three leading public sector banks – Bank of Baroda (BOB), Punjab National Bank (PNB)
and State Bank of India (SBI) and Life Insurance Corporation of India (LIC), the largest
public financial investment institution and life insurer in India have entered into an
agreement with the Government of India as Sponsors of the UTI Mutual Fund.

Bank of Baroda

Bank of Baroda was established in July 1908 by Maharaja - Sir Sayajirao Gaikwad III.
During the period since inception, it has always maintained its practice of sound value
based banking to emerge as one of the premier public sector Banks of the country today.
It has a track record of uninterrupted profits since inception in 1908. The financial
strength of the Bank and its long tradition of efficient customer service are drawn
substantially from the extensive reach of its 2,715 strong branch network (as of
31.03.2003) covering almost every State and Union Territory in the Country. The Bank is
also one of the few Indian Banks with a formidable presence overseas with 38 branches.
Thus, the total branch network is 2,753 as at 31.03.2003.


Life Insurance Corporation of India

Life Insurance Corporation of India (LIC) is amongst the largest insurance companies in
the world, serving over 10 crore policy holders and managing a Fund of over Rs.-186000
crores.

Punjab National Bank

PNB is a statutory body performing banking activities in terms of Banking Companies
(Acquisition and Transfer of undertaking) Act 1970 under which the Undertaking of the
Bank was taken over by the Central Government. The main object of the bank under the
said Act is as below:-

An act to provide for the acquisition and transfer of the undertaking of certain banking
companies, having regard to their size, resources coverage and organisation, in order to
further to control the heights of the economy, to meet progressively and serve better, the
needs of the development of the economy and to promote the welfare of the people, in
conformity with the policy of the State towards securing the principles laid down in
clause (b) and (c) of Article 39 of the Constitution of India and for matter connected
therewith or incidental therein.

Punjab National Bank has 4037 branches and 4 subsidiaries. The bank has a deposit size
of Rs.75813.49 crores as on 31.03.2003.

State Bank of India

The State Bank of India is the largest public sector bank in India with 9033 branches in
India and 48 offices in 28 countries worldwide. In addition to this, SBI also has 17
subsidiaries.


The sponsors are not responsible nor liable for any loss resulting from the operation of all
the schemes of UTI Mutual Fund beyond the contribution of an amount of Rs.10,000/-
made by them towards setting up of the UTI Mutual Fund.

SCHEMES

LIQUID FUNDS
INCOME FUNDS
ASSET ALLOCATIONN FUNDS
INDEX FUNDS
EQUITY FUNDS BALANCED FUNDS

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)

Vision:

To be a dominant player in the Indian MF industry recognized for its high levels of
ethical and professional conduct and a commitment towards enhancing investor interests.

Sponsor:

The sponsor of the HDFC MF is the Housing Development Finance Corporation
Limited (HDFC). HDFC was incorporated in 1977 as the first specialized housing
finance institution in India. HDFC provides financial assistance to Individuals, Corporate
and Developers for the purchase or construction of residential housing. As on December
31 2002, HDFC’s cumulative loan disbursement are Rs 40,060 crore financing over 2.1
million units all over India.


Partners:

Standard Life Insurance Company of United Kingdom set up base in 1825. It is today the
largest pension fund in UK and the largest Mutual Life assurance company in Europe.
Standard Life Investment was set up as a dedicated Investment management company.

Management:

HDFC Trustee Company Limited

A company incorporated under Companies Act 1956, is the trustee to the Mutual Fund
vide the trust deed dated June 8, 2000 as amended from time to time. HDFC Trustee
Company Limited is a wholly owned subsidiary of HDFC Limited.
HDFC Asset management Company Limited (AMC) :

It was incorporated under the Companies Act 1956, on December 10, 1999 and was
approved to act as an asset management company for the MF by SEBI on July 3, 2000.
Pursuant to the joint participation agreement dated October 29, 1999, entered between
Housing Development Finance Corporation Limited(HDFC) and Standard Life
Investment Limited, 26% of the paid up share capital of AMC has been transferred by
HDFC to Standard Life Investment company on April 17, 2001.

The present stock holding pattern of AMC is as follows:

Particulars capital The Paid –up Capital

HDFC 50.1%
The Standard Life Insurance Company 49.9%


Investment Philosophy

• Consider above average return.
• Conservative investment decisions.
• Premium service
• Essentially positioned as a “No Surprise Fund”

Product / Schemes of HDFC Mutual Fund

.The investment approach will be based on a set of well established but flexible principles
that emphasize the concept of sustainable economic earnings and cash returns on
investment as the means of valuation of companies.

Five basic principles serve as the foundation for this investment approach. They are as
follows:

• Focus on the long term.
• Investment confers proportionate ownership of the business.
• Maintain a margin of safety.
• Maintain a balanced outlook on the market.
• Disciplined approach to selling.
In order to implement the investment approach effectively, it would be important to
periodically meet the management face to face. This would provide an understanding of
their broad vision and commitment to the long term business objective.
The investment strategy is expected to be a function of extensive research and
based on data and reasoning, rather than current fashion and emotion. The objectives will
be to identify “business with superior growth prospects and good management, at a
reasonable price”.


Equity Investments:
The investment approach would be based on the concept of the economic earning power
and cash return on investments.

Five basic principles would serve as the foundation for this investment approach. They
are as follows:
• Focus on the long term.
• Investment confers proportionate ownership of the business.
• Maintain a margin of safety.
• Maintain a balanced outlook on the market.
• Disciplined approach to selling.

Debt Investments:
Debt securities (in the form of non-convertible debentures, bonds, deep discount bonds,
floating rate bonds, pass through certificates, asset backed securities, mortgage backed
securities etc.) include, but are not limited to-:
• Debt obligations of the government of India, state and local government,
Government agencies and statutory bodies (which may or may not carry a central/
state government guarantee).
• Securities that have been guaranteed by government of India and state
government.
• Securities issued by Public/private sector banks, developed financial institutions.
Money Market Instrument includes:
• Commercial Paper
• Commercial bills
• Treasury Bills
• Government securities having an unexpired maturity up to 1 year
• Call money
• Certificate of Deposit


Investment will be made through secondary market purchases, initial public offer, other
public offer, right offer (including renunciation) and negotiated deals. The securities
could be listed, unlisted, privately placed, secured/unsecured, rated/unrated of any
maturity.

The AMC retains the flexibility to invest across all the securities / instruments in Debt
and Money Market. Pending deployment of funds of the schemes in securities in terms of
the investment objective of the scheme, the AMC may invest the funds of the schemes in
short term deposits of the scheduled commercial banks.

HDFC Growth Fund (HGF):
HGF was launched on July 20, 2000.The initial offer period for the scheme end on
August 10, 2000. HGF has been open for ongoing sales and redemption since September
11, 2000.

HDFC Income Fund:
HIF was launched on July 20, 2000. The initial offer period of the scheme ended on
August 10th 2000. HIF has been open for on going sales and redemption since September
11, 2000. The objective of this scheme is to optimize returns while maintaining a balance
of safety, yield and liquidity. The scheme will retain the flexibility to invest in the entire
range of debt and money market instruments. The flexibility is being retained to ensure
adequate adjustment to the portfolio in response to a change in the risk to return equation
for asset classes under investments, with a view to maintain risks with manageable limits.

HDFC Long term Advantage Plan:
HTP is an open ended equity linked saving scheme (ELSS) was launched on Dec 26,
2000. The initial offer period for the scheme ended on December 27, 2000. HTP has been
open for ongoing sales and redemption since Jan 2, 2001. The particulars of the schemes
have been prepared in accordance with the Equity linked saving scheme, 1992 and Equity


linked savings (amendment) scheme, 1998 notification issued by the department of
economics Affair. Ministry of Finance, Govt. of India.

Five basic principles would serve as the foundation for this investment approach. They
are as follows:

Focus on the long term :
Investment confers proportionate ownership of the business.
Maintain a margin of safety.
Maintain a balanced outlook on the market.
Disciplined approach to selling.

Short Term Plan:
It is proposed to invest the proceeds of the short-term plan in sovereign securities issued
by the central govt. and state govt. with medium to long-term maturities

Long Term Plan:
It is proposed to invest the proceeds of the long –term plan in sovereign securities issued
by the central govt. and the state govt. with medium to long term maturities.

The scheme will purchase securities in the public offering as well as those traded in the
secondary market. On occasion if deemed appropriate, the scheme may also participate in
auction of govt. securities.

HDFC Income Fund:
HDFC Index fund was launched on July3, 2002. he initial offer period of the scheme
ended on July 10, 2002 . HDFC Index fund has been open for ongoing sales and
redemption since July 19, 2002.


The Sensex plan and nifty plan will be managed passively with investments in stock in
proportion that is as close as possible to the weightages of these stocks in the respective
indices. The investment strategy would revolve around reducing the tracking error to the
least possible through regular rebalancing of the portfolio, taking into account the
changes in weights of stocks in the indices as well the incremental collections/
redemption from these plans.

HDFC Equity Fund:
On July 19, 2003, the schemes migrated from Zurich India Mutual Fund to HDFC Mutual
Fund. In order to provide long term capital appreciation, the schemes will invest
predominantly in growth companies. Companies selected under this portfolio would as
far as practicable consist of medium to large sized companies which:
• Are likely to achieve above average growth than the industry;
• Enjoy distinct competitive advantages ; and
• Have superior financial strengths
The aim will be to build a portfolio, which represents a cross-section of the strong growth
companies in the prevailing market. In order to reduce the risk of volatility; the schemes
will diversify across major industries and economic sector.

The scheme may also invest up to 25% of net assets of the scheme in derivatives such as
Futures & Options and such other derivative instruments as may be introduced from time
to time for the purpose of hedging and portfolio balancing and other uses as may be
permitted under the regulations.

The scheme may also invest in the part of its corpus, not exceeding 40% of its net asset,
in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity,
bonds in mutual funds and such other instruments as may be allowed under the
regulations from time to time.


HDFC Top 200 Fund:

On June 19, 2003, the scheme migrated from Zurich India mutual fund. The investment
strategy of primarily restricting the equity portfolio to the BSE 200 Index scripts is
intended to reduce risk while maintaining the steady growth. Stocks specific risk will be
minimized by investing only in those companies/ industries that have been thoroughly
researched by investment manager’s research team.

Risk will also be reduced through the diversification of the portfolio. The scheme may
also invest a part of its net assets, not exceeding 40% of its net assets, in overseas market
GDRs, ADRs, overseas equity, bonds, mutual funds and such other instruments as may
be allowed under the regulations from time to time. If the investment in equities and
related instruments fall below 65% of the portfolio of the scheme at any point of time, it
would be endeavored to review and rebalance the composition

HDFC Capital Builder Fund:
On June 19, 2003 the scheme migrated from Zurich India mutual Fund to HDFC Mutual
Fund. The scheme may also invest up to 25% of net assets of the scheme in derivatives
such as Future Options and such other instruments as may be introduced from time to
time for the purpose of hedging and portfolio balancing and other uses as may be
permitted under the regulations and guidelines. The scheme may also invest a part of its
net asset, in overseas market in GDR, ADR, overseas equity, bonds and Mutual Funds
and such other instruments as may be allowed under the regulations from time to time.
HDFC Tax Saver:
On June 19, 2003 the scheme migrated from Zurich India mutual Fund to HDFC Mutual
Fund. The objective of the scheme is to achieve long term growth of capital. The funds
collected under the schemes shall be invested in equities, cumulative convertible
preference shares and fully convertible debentures and bonds of companies.


The scheme may also invest up to 25% of net assets of the scheme in derivatives such as
Future Options and such other instruments as may be introduced from time to time for the
purpose of hedging and portfolio balancing and other uses as may be permitted under the
regulations and guidelines. The scheme may also invest a part of its net asset , in overseas
market in GDR, ADR, overseas equity, bonds and Mutual Funds and such other
instruments as may be allowed under the regulations from time to time. It shall be
ensured that funds of the scheme shall remain invested to the extent of atleast 80%in
securities.

HDFC Prudence Fund:
The inception date of the scheme is February 1, 1994. The investment in the scheme will
comprise both debt and equities. The scheme would invest in debt instruments such as
government bonds, preference shares, quasi government bonds, preference shares and
equity shares. In the long term, the mix between the debt instruments and equity
instruments is targeted between 60:40 and 40:60 respectively. The exact mix will be a
function of interest rates, equity valuation, reserves position and risk taking capacity of
the portfolio.

The scheme may also invest up to 25% of net assets of the schemes in derivatives from
time to time for the purpose of hedging and portfolio balancing and other uses as may be
permitted under the regulations and guidelines. If the investment in equities and related
instruments fall below 40% of the portfolio or rises above 60% of the portfolio of the
schemes at any point in time, it would be endeavored to review and rebalance the
composition

HDFC Core and Satellite Fund :
The inception date of this scheme is 17th September 2004. it is an open ended growth
scheme and the objective of the scheme is to generate capital appreciation through equity
investments in companies whose shares are quoting at prices below their true value.


Income distributed by the scheme will be exempted from the income tax in the hands of
investors. Distribution tax in the case of the scheme shall be payable by the Mutual Fund
at the rate of 14.025% (including surcharge and education cess) on income distributed to
any other investor.

HDFC Mutual Fund Centers in India


DATA
ANALYSIS
AND
INFERENCES


Mutual Fund Awareness among Different Profession

Aware of Mutual
70
Fund
No
60 Yes
Count
50

40

Cou
nt

30

20

10

0
Engineer Doctor Other Service Class
Profession

Profession * Aware of Mutual Fund Cross tabulation
Aware of Mutual Fund
No Yes Total
Profession Engineer 11 62 73
Doctor 4 43 47
Other Service
14 66 80
Class
Total
29 171 200

Inference:
Out of 200 respondents, 86% of them are aware of mutual finds. Among them it
is found out that Doctors and Engineers are most aware of mutual funds (In percentage
terms, 91% Doctors, 85% Engineers). The awareness level of other Service class people
is relatively low leaving those who are associated with financial Institution (LIC, Bajaj
Allianz, Standard Charted Insurance).


MF Awareness in Various Income Slab

70 Aware of Mutual
Fund
No
60 Yes

Count
50

40

Cou
nt

30

20

10

0
0-1 Lac 1-2 Lac 2-3 Lac Above 3 Lac
Income Slab

Income Slab * Aware of Mutual Fund Cross tabulation
Aware of Mutual Fund Total
No Yes
Income 0-1 Lac
5 14 19
Slab
1-2 Lac 14 49 63
2-3 Lac 7 64 71
Above 3
3 44 47
Lac
Total 29 171 200

Inference:
From the above graph, it can be interpreted that maximum people of various
income slab group are aware of mutual funds. More specifically people belonging to
income slab group of Above 3 Lac are much aware than other income slab group this can
be attributed to the fact that these people to some extent have invested some amount of
money in various fund (74% people of income slab group of 0-1 Lac, 78% people from
income slab group of 1-2 Lac, 90% people from income slab of 2-3 Lac and 94% people
from income slab group of Above 3 Lac are aware). Above 3 Lac income group should
be targeted.


Saving Slab Vs Percentage Investment in MF’s

30
Percentage Invest in
MF's from Saving
1-15
15 -30
25
30-45
45 and Above
20

Count
15

10

5

0
1-15 15-30 30-45 45 and Above

Saving Percentage Slab

Saving Percentage Slab * Percentage Invest in MF's from Saving Cross tabulation
Percentage Invest in MF's from Saving
1-15 15 -30 30-45 45 and Above Total
Saving 1-15 24 2 0 0 26
Percentage 15-30 29 3 0 1 33
Slab
30-45 17 2 3 0 22
45 and Above 3 3 1 0 7
Total 73 10 4 1 88

Inference:
From the above graph, it can be interpreted that only 44% of people are
investing in mutual funds. Further it is found that people belonging to various income
slab group are mainly investing in slab of 1-15 % in mutual fund from their saving and
maximum investment in mutual fund is made by people of income slab group of Above 3
Lac.


Is MF's Beneficial

No
Yes
Missing

Cumulative
Frequency Percent Valid Percent Percent
Valid No 45 22.5 24.1 24.1
Yes 142 71.0 75.9 100.0
Total 187 93.5 100.0
Missing System 13 6.5
Total 200 100.0

Inference:
On the basis of survey it is found that in sample of 200 people, 71% people
found that investing in mutual fund is beneficial and approximately 23% said against it
and 7% of people have no idea about this matter. One of the reasons of such a positive
opinion is continuous growth in economy and high returns from mutual funds.


Preferred Investment Pattern

Short Term
Long Term
Missing

Preferred Investment Pattern

Cumulative
Frequency Percent Valid Percent Percent
Valid Short Term 62 31.0 32.6 32.6
Long Term 128 64.0 67.4 100.0
Total 190 95.0 100.0
Missing System 10 5.0
Total 200 100.0

Inference:
In this study, it is found that maximum people in sample prefer to long term
investment because in their opinion in long term (period of more than 1 year) sudden
market fluctuations does not affect their capital. 31% people prefer to invest their money
in short term (period of less than 1 year) because they are the mainly those people who
like to invest in stock market to get quick return.


Tax Rebate Information Vs Profession

Tax Rebate
80
Information
No
Yes

60

40
Coun
t

20

0
Engineer Doctor Other Service Class
Profession

Profession * Tax Rebate Information Cross tabulation

Tax Rebate Information

No Yes Total
Profession Engineer 13 60 73
Doctor 6 41 47
Other Service
3 77 80
Class
Total 22 178 200

Inference:
It is found that maximum people of target group are aware that mutual fund
investment offers tax rebate under section 80C (ELSS). It is found that other service class
peoples are much aware compare to Doctors and Engineers. Nearly 89% person is aware
of this information and is one of the major reasons to opt for mutual funds.


Analysis of Investment pattern of different
Professional Group
Percentage of Different

100
Professional Group

80
Others
60
Engineer
40
Doctor
20
0
FD LIC PO Gold Real Stock
Estate Market
Investment Options

Inference:
The above graph shows the investment pattern of different professional group.
From this can infer that, all groups prefer to invest in LIC’s and FD’s followed by post
office and for remaining options stock market has an edge, that is clearly showing that
people prefer safe options for their investment. People get tax rebate through investment
in LIC’s that’s why it is the most preferable option for them. The risk factor involved
with mutual funds is one of the major reasons for people not opt for mutual funds.


Investment pattern of Doctors
Percen tag e o f D o cto rs

100 89
80 66
60
40 26
17 19
20 9
0
Estate Market

Investment Options

Inference:
From the above graph, it was found that the most preferable investment option
for Doctors is LIC followed by FD and then Post Office. After these options Doctor opts
for stock market as next preferable investment option because they are aware from the
market and they want fast returns. The amount spent on these options depends on amount
of risk involved.


Investment pattern of Engineers

90 82
Percentage of Engineers

80
70
60 47
50
36
40
30
20 12
10 4 3
0
Estate Market
Investment Options

Inference:
From the above graph, it was found that the most preferable investment option
for Engineers is LIC followed by FD and then post office. Stock market is next
preferable investment option for them because they are aware from the market and they
want fast returns. It was found that investment pattern of Engineers is very much similar
to that of Doctors as they are highly educated person in the society.


Investment pattern of Other Service
class

80 75
service class people
Percentage of Other

70
60
50 38
40 31
30 19
20 13 10
10
0
Estate Market
Investment Option

Inference:
Their investment pattern is similar to other professional groups. But in compare
of other two groups they are investing more in gold. Rise in percentage of investor of
Stock market and gold in this group is mainly due to those people who are working in
financial institution.


Awareness of Different Mutual Funds
Percentage of Respondents

100%
90% 51 58 52
80% 69 73
70% 106
60% 147
Unaware
50%
40% Aware
149 142 148
30% 131 127
20% 94
10% 53
0%
F

F

F
F
F
F

F
IM

M

M

M
M

IM
M

FC
on
I

ta
IC

e

UT

SB
nc

Ta
IC

et

HD
ia

pl
l

m
Re

Te
n
kli
an
Fr

Various Mutual Funds

Inference:
From the above graph, it is found that people of sample are much aware of
ICICI MF, followed by HDFC MF; this is mainly due to the good performance of these
two mutual funds in the past. SBI mutual fund is also popular among the people as State
Bank of India has recognized name in India. Since UTI being the oldest mutual fund
launched in India so its awareness is quite common. Reliance, Tata and Franklin
Templeton mutual funds are new in the market but their awareness in market is also
good.


Investors vs Non-Investors of Mutual Funds

01-15%
36%
15-30%
30-45%
56% 45% and Above
5% Not Investing
2%
1%

Inference:
In this study, only 44% people are investing in mutual funds and 56% are not.
It is mainly because people don’t have proper information about mutual funds. Only 36%
of total group i.e. major part of investors are investing in 1-15% slab of their saving in
mutual fund.


SUMMARY


When UTI Mutual Fund first came into being as a separate entity on February 1, 2003,
the sponsors, namely SBI, Punjab National Bank, Bank of Baroda and LIC, had only
contributed the bare legal minimum of Rs 2.5 crore each towards the company's capital.

Now, after paying the full value of the organisation to the Government of India, they are
the complete owners of the UTI Mutual Fund. This has had three implications. With
effect from the date of the deal, UTI Mutual Fund has become a completely privately
owned fund, with no government role.

Second, none of the employees, directors, sponsors will be on our Board, from now on.
This makes them a completely independent professionally-run mutual fund house.

In a summarize way it can be said that, maximum people are aware of various mutual
funds and they also know that they can get quick and high return from mutual funds in
compare of Bank FD’s and LIC’s. As the people don’t have full information about
mutual fund and they also don’t know about portfolio. So they think that it is a risky
mode, thereby they are not opting for mutual funds. One reason of less investment from
Government Employees is that they have already invested their money in PPF and GPF
which is not taken as risky investment, and the other reason for not considering mutual
funds as a investment option is because of past incidence related to mutual funds frauds
(UTI scam).

UTI had been in the limelight for all the wrong reasons. What went wrong with its
investment strategy?

In the wake of the freeze of US-64 scheme and certain developments that followed it, a
perception gained that the entire shortfall was due to something wrong that had happened.

It took about eight months for the company to go to the Government and convince
various layers of it about what the shortfall was about. The economic changes in the last
decade had an impact on the fund's performance.


The major reason was that the company promised more than what anybody could ideally
return. It is difficult to promise high return of up to 12 per cent year after year when the
products are equity-based. Nearly 62 per cent of the shortfall was because of `mis-
pricing'.

Roughly 19 per cent of the shortfall was due to equity's underperformance. In the last
four years, the equity market has been rather flat.

When 20-30 per cent of the portfolio consisted of equities in plans like US-64 and when
that investment does not earn, it impacts the overall return.

Around 7-8 per cent of shortfall was due to the NPAs, which have crept into many of our
funds and high-risk investments accounted for 3-4 per cent.

Today, UTI is a world class organisation in terms of an AMC and have introduced a five-
layer approach in asset management business — advisory, decision making, dealing
rooms, NAV and back office compliance which is headed by an officer from the RBI.
And all the five layers report directly to the Chairman.


RECOMMENDATIONS
AND
CONCLUSIONS


Saptarshi banerjee strategies of uti and hdfc mutual funds

Saptarshi banerjee strategies of uti and hdfc mutual funds

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