CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE

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A bank is a financial institution that accepts deposits and channels those deposits into
lending activities. Banks primarily provide financial services to customers while enriching
investors. Government restrictions on financial activities by banks vary over time and
location. Banks are important players in financial markets and offer services such as
investment funds and loans. In some countries such as Germany, banks have historically
owned major stakes in industrial corporations while in other countries such as the United
States banks are prohibited from owning non-financial companies. In Japan, banks are
usually the nexus of a cross-share holding entity known as the keiretsu. In France,
bancassurance is prevalent, as most banks offer insurance services (and now real estate
services) to their clients.

Introduction
India’s banking sector is constantly growing. Since the turn of the century, there has been a
noticeable upsurge in transactions through ATMs, and also internet and mobile banking.
Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in
2012, the landscape of the banking industry began to change. The bill allows the Reserve
Bank of India (RBI) to make final guidelines on issuing new licenses, which could lead to a
bigger number of banks in the country. Some banks have already received licenses from the
government, and the RBI's new norms will provide incentives to banks to spot bad loans and
take requisite action to keep rogue borrowers in check.
Over the next decade, the banking sector is projected to create up to two million new jobs,
driven by the efforts of the RBI and the Government of India to integrate financial services
into rural areas. Also, the traditional way of operations will slowly give way to modern
technology.

Market size
Total banking assets in India touched US$ 1.8 trillion in FY13 and are anticipated to cross
US$ 28.5 trillion in FY25.
Bank deposits have grown at a compound annual growth rate (CAGR) of 21.2 per cent over
FY06–13. Total deposits in FY13 were US$ 1,274.3 billion.
Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent (in terms of
INR) to reach US$ 2.4 trillion by 2018.
In FY14, private sector lenders witnessed discernable growth in credit cards and personal
loan businesses. HDFC Bank witnessed 141.6 per cent growth in personal loan disbursement

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in FY14, as per a report by Emkay Global Financial Services. Axis Bank's personal loan
business also rose 49.8 per cent and its credit card business expanded by 31.1 per cent.
Investments
Bengaluru-based software services exporter Mphasis Ltd has bagged a five-year contract
from Punjab National Bank (PNB) to set up the bank’s contact centers in Mangalore and
Noida (UP). Mphasis will provide support for all banking products and services, including
deposits operations, lending services, banking processes, internet banking, and account and
card-related services. The company will also offer services in multiple languages.
Microfinance companies have committed to setting up at least 30 million bank accounts
within a year through tie-ups with banks, as part of the Indian government’s financial
inclusion plan. The commitment was made at a meeting of representatives of 25 large
microfinance companies and banks and government representatives, which included financial
services secretary Mr. GS Sandhu.
Export-Import Bank of India (Exim Bank) will increase its focus on supporting project
exports from India to South Asia, Africa and Latin America, as per Mr.YaduvendraMathur,
Chairman and MD, Exim Bank. The bank has moved up the value chain by supporting
project exports so that India earns foreign exchange. In 2012–13, Exim Bank lent support to
85 project export contracts worth Rs 24,255 crore (US$ 3.96 billion) secured by 47
companies in 23 countries.

Government Initiatives
The RBI has given banks greater flexibility to refinance current long-gestation project loans
worth Rs 1,000 crore (US$ 163.42 million) and more, and has allowed partial buyout of such
loans by other financial institutions as standard practice. The earlier stipulation was that
buyers should purchase at least 50 per cent of the loan from the existing banks. Now, they get
as low as 25 per cent of the loan value and the loan will still be treated as ‘standard’.
The RBI has also relaxed norms for mortgage guarantee companies (MGC) enabling these
firms to use contingency reserves to cover for the losses suffered by the mortgage guarantee
holders, without the approval of the apex bank. However, such a measure can only be
initiated if there is no single option left to recoup the losses.
SBI is planning to launch a contact-less or tap-and-go card facility to make payments in
India. Contact-less payment is a technology that has been adopted in several countries,
including Australia, Canada and the UK, where customers can simply tap or wave their card
over a reader at a point-of-sale terminal, which reads the card and allows transactions.
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SBI and its five associate banks also plan to empower account holders at the bottom of the
social pyramid with a customer call facility. The proposed facility will help customers get an
update on available balance, last five transactions and cheque book request on their mobile
phones.

Road Ahead
India is yet to tap into the potential of mobile banking and digital financial services. Forty-
seven per cent of the populace have bank accounts, of which half lie dormant due to reliance
on cash transactions, as per a report. Still, the industry holds a lot of promise.
India's banking sector could become the fifth largest banking sector in the world by 2020 and
the third largest by 2025. These days, Indian banks are turning their focus to servicing clients
and enhancing their technology infrastructure, which can help improve customer experience
as well as give banks a competitive edge.
Exchange Rate Used: INR 1 = US$ 0.0163 as on October 28, 2014

The level of governmentregulation of the banking industry varies widely, with countries such
as Iceland, having relatively light regulation of the banking sector, and countries such as
China having a wide variety of regulations but no systematic process that can be followed
typical of a communist system.

The oldest bank still

in existence is Monte deiPaschi di Siena, headquartered in Siena, Italy, which has been
operating continuously since 1472.

History

Origin of the word

The name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Jewish Florentine bankers, who used to make their transactions above a desk
covered by a green tablecloth. However, there are traces of banking activity even in ancient
times, which indicates that the word 'bank' might not necessarily come from the word 'banco'.

In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders
would set up their stalls in the middle of enclosed courtyards called macella on a long bench

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called a bancu, from which the words banco and bank are derived. As a moneychanger, the
merchant at the bancu did not so much invest money as merely convert the foreign currency
into the only legal tender in Rome—that of the Imperial Mint.

The earliest evidence of money-changing activity is depicted on a silver drachm coin from
ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325 BC,
presented in the British Museum in London. The coin shows a banker's table (trapeza) laden
with coins, a pun on the name of the city.

In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a
bank.

Traditional banking activities

Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers' current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current accounts, by accepting term
deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by
making advances to customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable
by most businesses, individuals and governments. Non-banks that provide payment services
such as remittance companies are not normally considered an adequate substitute for having a
bank account.

Banks borrow most funds from households and non-financial businesses, and lend most funds
to households and non-financial businesses, but non-bank lenders provide a significant and in
many cases adequate substitute for bank loans, and money market funds, cash management
trusts and other non-bank financial institutions in many cases provide an adequate substitute
to banks for lending savings to.

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Entry regulation

Currently in most jurisdictions commercial banks are regulated by government entities and
require a special bank licence to operate.

Usually the definition of the business of banking for the purposes of regulation is extended to
include acceptance of deposits, even if they are not repayable to the customer's order—
although money lending, by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the
market, i.e. a government-owned (central) bank. Central banks also typically have a
monopoly on the business of issuing banknotes. However, in some countries this is not the
case. In the UK, for example, the Financial Services Authoritylicences banks, and some
commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to
those issued by the Bank of England, the UK government's central bank.

Accounting for bank accounts

Bank statements are accounting records produced by banks under the various accounting
standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and
credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and
Expenses. This means you credit a credit account to increase its balance, and you debit a
debit account to decrease its balance.

This also means you debit your savings account every time you deposit money into it (and the
account is normally in deficit), while you credit your credit card account every time you
spend money from it (and the account is normally in credit).

However, if you read your bank statement, it will say the opposite—that you credit your
account when you deposit money, and you debit it when you withdraw funds. If you have
cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have
a negative (or deficit) balance.

The reason for this is that the bank, and not you, has produced the bank statement. Your
savings might be your assets, but the bank's liability, so they are credit accounts (which

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should have a positive balance). Conversely, your loans are your liabilities but the bank's
assets, so they are debit accounts (which should also have a positive balance).

Where bank transactions, balances, credits and debits are discussed below, they are done so
from the viewpoint of the account holder—which is traditionally what most people are used
to seeing.

Economic functions

1. issue of money, in the form of banknotes and current accounts subject to cheque or
payment at the customer's order. These claims on banks can act as money because
they are negotiable and/or repayable on demand, and hence valued at par. They are
effectively transferable by mere delivery, in the case of banknotes, or by drawing a
cheque that the payee may bank or cash.
2. netting and settlement of payments – banks act as both collection and paying agents
for customers, participating in interbank clearing and settlement systems to collect,
present, be presented with, and pay payment instruments. This enables banks to
economise on reserves held for settlement of payments, since inward and outward
payments offset each other. It also enables the offsetting of payment flows between
geographical areas, reducing the cost of settlement between them.
3. credit intermediation – banks borrow and lend back-to-back on their own account as
middle men.
4. credit quality improvement – banks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement
comes from diversification of the bank's assets and capital which provides a buffer to
absorb losses without defaulting on its obligations. However, banknotes and deposits
are generally unsecured; if the bank gets into difficulty and pledges assets as security,
to raise the funding it needs to continue to operate, this puts the note holders and
depositors in an economically subordinated position.
5. maturity transformation – banks borrow more on demand debt and short term debt,
but provide more long term loans. In other words, they borrow short and lend long.
With a stronger credit quality than most other borrowers, banks can do this by
aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions
(e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash,
investing in marketable securities that can be readily converted to cash if needed, and
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 raising replacement funding as needed from various sources (e.g. wholesale cash
markets and securities markets).

Law of banking

Banking law is based on a contractual analysis of the relationship between the bank (defined
above) and the customer—defined as any entity for which the bank agrees to conduct an
account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the
customer: when the account is in credit, the bank owes the balance to the customer;
when the account is overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit
of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the
customer, e.g. a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account
as the customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that
the customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—
unless the customer consents, there is a public duty to disclose, the bank's interests
require it, or the law demands it.
8. The bank must not close a customer's account without reasonable notice, since
cheques are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the
customer and the bank. The statutes and regulations in force within a particular jurisdiction
may also modify the above terms and/or create new rights, obligations or limitations relevant
to the bank-customer relationship.

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Some types of financial institution, such as building societies and credit unions, may be partly
or wholly exempt from bank licence requirements, and therefore regulated under separate
rules.

The requirements for the issue of a bank licence vary between jurisdictions but typically
include:

1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or
senior officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.

Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and
small businesses; business banking, providing services to mid-market business; corporate
banking, directed at large business entities; private banking, providing wealth management
services to high net worth individuals and families; and investment banking, relating to
activities on the financial markets. Most banks are profit-making, private enterprises.
However, some are owned by government, or are non-profit organizations.

Central banks are normally government-owned and charged with quasi-regulatory

responsibilities, such as supervising commercial banks, or controlling the cash interest rate.
They generally provide liquidity to the banking system and act as the lender of last resort in
event of a crisis.

Types of retail banks

 Commercial bank: the term used for a normal bank to distinguish it from an
investment bank. After the Great Depression, the U.S. Congress required that banks
only engage in banking activities, whereas investment banks were limited to capital
market activities. Since the two no longer have to be under separate ownership, some
use the term "commercial bank" to refer to a bank or a division of a bank that mostly
deals with deposits and loans from corporations or large businesses.

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  Community Banks: locally operated financial institutions that empower employees to
make local decisions to serve their customers and the partners.
 Community development banks: regulated banks that provide financial services and
credit to under-served markets or populations.
 Postal savings banks: savings banks associated with national postal systems.
 Private banks: banks that manage the assets of high net worth individuals.
 Offshore banks: banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.
 Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even
18th century. Their original objective was to provide easily accessible savings
products to all strata of the population. In some countries, savings banks were created
on public initiative; in others, socially committed individuals created foundations to
put in place the necessary infrastructure. Nowadays, European savings banks have
kept their focus on retail banking: payments, savings products, credits and insurances
for individuals or small and medium-sized enterprises. Apart from this retail focus,
they also differ from commercial banks by their broadly decentralised distribution
network, providing local and regional outreach—and by their socially responsible
approach to business and society.
 Building societies and Landesbanks: institutions that conduct retail banking.
 Ethical banks: banks that prioritize the transparency of all operations and make only
what they consider to be socially-responsible investments.
 Islamic banks: Banks that transact according to Islamic principles.

Types of investment banks

 Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for
their own accounts, make markets, and advise corporations on capital market
activities such as mergers and acquisitions.
 Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of
shares rather than loans. Unlike venture capital firms, they tend not to invest in new
companies.

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Both combined

 Universal banks, more commonly known as financial services companies, engage in

several of these activities. These big banks are very diversified groups that, among
other services, also distribute insurance— hence the term bancassurance, a
portmanteau word combining "banque or bank" and "assurance", signifying that both
banking and insurance are provided by the same corporate entity.

Other types of banks

 Islamic banks adhere to the concepts of Islamic law. This form of banking revolves
around several well-established principles based on Islamic canons. All banking
activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank
earns profit (markup) and fees on the financing facilities that it extends to customers.

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COMPANY PROFILE

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HDFC Bank is India's largest private sector bank with total assets of Rs. 1,018,170 crore
(US$ 140 billion) at March 31, 2018 and profit after tax Rs. 13 billion (US$ 13,000 million)
for the year ended March 31, 2018.HDFC Bank currently has a network of 4,787 Branches
and 11,943 ATM's across India.
History
1955
The Industrial Credit and Investment Corporation of India Limited (HDFC) incorporated at
the initiative of the World Bank, the Government of India and representatives of Indian
industry, with the objective of creating a development financial institution for providing
medium-term and long-term project financing to Indian businesses.
Mr.A.RamaswamiMudaliar elected as the first Chairman of HDFC Limited.
HDFC emerges as the major source of foreign currency loans to Indian industry. Besides
funding from the World Bank and other multi-lateral agencies, HDFC was also among the
first Indian companies to raise funds from international markets.

HDFC Bank was originally promoted in 1994 by HDFC Limited, an Indian financial
institution, and was its wholly-owned subsidiary. HDFC's shareholding in HDFC Bank was
reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering
in the form of ADRs listed on the NYSE in fiscal 2000, HDFC Bank's acquisition of Bank of
Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by
HDFC to institutional investors in fiscal 2001 and fiscal 2002. HDFC was formed in 1955 at
the initiative of the World Bank, the Government of India and representatives of Indian
industry. The principal objective was to create a development financial institution for
providing medium-term and long-term project financing to Indian businesses.

In the 1990s, HDFC transformed its business from a development financial institution
offering only project finance to a diversified financial services group offering a wide variety
of products and services, both directly and through a number of subsidiaries and affiliates like
HDFC Bank. In 1999, HDFC become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the
emerging competitive scenario in the Indian banking industry, and the move towards
universal banking, the managements of HDFC and HDFC Bank formed the view that the
merger of HDFC with HDFC Bank would be the optimal strategic alternative for both
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entities, and would create the optimal legal structure for the HDFC group's universal banking
strategy. The merger would enhance value for HDFC shareholders through the merged
entity's access to low-cost deposits, greater opportunities for earning fee-based income and
the ability to participate in the payments system and provide transaction-banking services.
The merger would enhance value for HDFC Bank shareholders through a large capital base
and scale of operations, seamless access to HDFC's strong corporate relationships built up
over five decades, entry into new business segments, higher market share in various business
segments, particularly fee-based services, and access to the vast talent pool of HDFC and its
subsidiaries.

In October 2001, the Boards of Directors of HDFC and HDFC Bank approved the merger of
HDFC and two of its wholly-owned retail finance subsidiaries, HDFC Personal Financial
Services Limited and HDFC Capital Services Limited, with HDFC Bank. The merger was
approved by shareholders of HDFC and HDFC Bank in January 2002, by the High Court of
Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and
the Reserve Bank of India in April 2002. Consequent to the merger, the HDFC group's
financing and banking operations, both wholesale and retail, have been integrated in a single
entity.

HDFC Group Companies

HDFC Group
http://www.HDFCgroupcompanies.com
HDFC Prudential AMC & Trust
HDFC Prudential Life Insurance Company http://www.HDFCpruamc.com
http://www.HDFCprulife.com/public/defa
ult.htm HDFC Venture
http://www.HDFCventure.com
HDFC Securities
http://www.HDFCsecurities.com HDFC Direct
http://www.HDFCdirect.com
HDFC Lombard General Insurance
Company HDFC Foundation
http://www.HDFClombard.com http://www.HDFCfoundation.org
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 Disha Financial Counselling
http://www.HDFCfoundation.org

Board of Directors

Name Designation

ShyamalaGopinath Chairperson

Deputy Managing
Paresh Sukthankar
Director

A N Roy Director

Keki Mistry Director

RenuKarnad Director

Umesh Chandra
Additional Director
Sarangi
Name Designation

Aditya Puri Managing Director

KaizadBharucha Executive Director

Bobby Parikh Director

ParthoDatta Director

Malay Patel Director

Srikanth Nadhamuni Additional Director

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 HDFC Bank
Awards - 2018

 Ms. Chanda Kochhar received an honorary Doctor of Laws from Carleton University,
Canada. The university conferred this award on Ms. Kochhar in recognition of her pioneering
work in the financial sector, effective leadership in a time of economic crisis and support for
engaged business practices.
 Ms. Chanda Kochhar featured in The Telegraph (UK) list of '11 most important women in
finance'.
 HDFC Bank has been recognized as one of the 'Top Companies for Leaders' in India in a
study conducted by Aon Hewitt.
 IDRBT has given awards to HDFC Bank in the categories of 'Social Media and Mobile
Banking' and' Business Intelligence Initiatives'.
 HDFC Bank won the award for the Best Bank - Global Business Development (Private
Sector) in the Dun & Bradstreet - Polaris Financial Technology Banking Awards 2014.
 HDFC Bank was awarded the Certificate of Recognition as one of the Top 5 Companies in
Corporate Governance in the 14th ICSI (The Institute of Company Secretaries of India)
National Awards for Corporate Governance.
 HDFC Bank has been honoured as The Best Service Provider - Risk Management, India at
The Asset Triple A Transaction Banking, Treasury, Trade and Risk Management Awards
2014.
 Mr Rakesh Jha has been ranked as the Best CFO in India at the 14th Annual Finance Asia's
Best Managed Companies Poll.
 HDFC Bank has won The Corporate Treasurer Awards 2013 in the categories of 'Best Cash
Management Bank in India' & 'Best Trade Finance Bank in India'.
 HDFC Bank has been awarded the 'Best Retail Bank in India', 'Best Microfinance Business'
and Best Retail Banking Branch Innovation' under the 'Excellence in Retail Financial
Services awards 2014' by The Asian Banker.
 Ms Chanda Kochhar, MD & CEO, HDFC Bank, has been named among Fortune's 50 most
powerful women in business for the fourth consecutive year.
 Ms. Chanda Kochhar, MD and CEO received the 'Mumbai Women Of The Decade' award by
ASSOCHAM.

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HDFC Bank, India’s largest private sector bank, today announced the launch of India’s only
credit card with a unique transparent design and a distinctive look. The ‘HDFC Bank Coral
American Express Credit Card’ is the latest addition to the Bank’s exclusive ‘Gemstone
Collection’ of credit cards.

Speaking at the launch, Mr. Rajiv Sabharwal, Executive Director, HDFC Bank
said, "At HDFC Bank, it is our constant endeavour to deliver innovative, powerful and
distinctive value propositions to our discerning customers. We are delighted to launch the
‘HDFC Bank Coral American Express Credit Card’, the only card in the country with a
youthful, transparent design. Aimed at providing significant lifestyle benefits, this card re-
affirms our commitment to bring forth innovative services to our customers. We are also
introducing a host of exciting privileges including an introductory extended credit period
offer and bonus reward points on online transactions. We believe this card will be yet another
compelling addition to our Gemstone collection of credit cards."

Ms. Siew Choo Ng, Senior Vice President, Head of Global Network Partnerships, Asia,
American Express International, Inc. said, "We are delighted to have further strengthened
our long and cherished relationship with HDFC Bank with the launch of the new HDFC Bank
Coral American Express Credit Card. Designed to appeal to value seeking customers, the
Card reinforces our consistent endeavor to provide differentiated products and services to our
customers. The Card offers a wide array of exclusive privileges and features including
additional PAYBACK points on online spend and an innovative transparent design. At
American Express, we always strive to work closely with our partners to develop the most
relevant and compelling products for our valued card members."

Mr. Sanjay Rishi, President, South Asia, American Express, said, “This launch marks a
further strengthening of the relationship between HDFC Bank and American Express. We
already partner with HDFC Bank on customer loyalty programs, insurance services, retail
banking services as well as initiatives to expand card accepting merchants. The launch of the
HDFC Bank Coral American Express Card combines the strengths and capabilities of both
organizations to offer an exciting new payment choice to customers.

The HDFC Bank Coral American Express® Credit Card offers a wide range of attractive
benefits to its card members:
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 Extended Credit Period; a unique proposition offering card members ability to carry over the
retail purchase balances in first two billing statements by simply paying the minimum amount
due. No interest shall be charged in such cases and the total amount due shall be payable as
per the third billing statement. TnC apply, for complete details please
visit www.HDFCbank.com.
 4 PAYBACK points per Rs.100 spent on dining, groceries and at supermarkets, 3
PAYBACK points per Rs.100 of online spends and 2 PAYBACK points per Rs.100 on other
spends
 Complimentary movie tickets with 'buy one get one free' offer on www.bookmyshow.com
 Complimentary visits to Altitude lounges at Mumbai and Delhi airports
 Minimum 15% discount on dining bills at leading restaurants across India with the HDFC
Bank ‘Culinary Treats’ programme
 No fuel surcharge on fuel transactions at HPCL fuel stations

OVERVIEW HDFC Group

HDFC Group offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and through its specialised group
companies and subsidiaries in the areas of personal banking, investment banking, life and
general insurance, venture capital and asset management. With a strong customer focus, the
HDFC Group Companies have maintained and enhanced their leadership positions in their
respective sectors.

HDFC Bank is India's second-largest private sector bank with total assets of Rs. 1,018,170
crore (US$ 140 billion) at March 31, 2018 and profit after tax Rs. 13 billion (US$ 13,000
million) for the year ended March 31, 2018.HDFC Bank currently has a network of 4,787
Branches and 11,943 ATM's across India

HDFC Prudential Life Insurance is a joint venture between HDFC Bank, a premier financial
powerhouse, and Prudential plc, a leading international financial services group
headquartered in the United Kingdom. HDFC Prudential Life was amongst the first private
sector insurance companies to begin operations in December 2000 after receiving approval
from Insurance Regulatory Development Authority (IRDA). HDFC Prudential Life's capital
stands at Rs. 47.91 billion (as of March 31, 2012) with HDFC Bank and Prudential plc
holding 74% and 26% stake respectively. For FY 2012, the company garnered Rs.140.22

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billion of total premiums and has underwritten over 13 million policies since inception. The
company has assets held over Rs. 707.71 billion as on March 31, 2012.

HDFC Lombard General Insurance Company, is a joint venture between HDFC Bank
Limited, India's second largest bank with consolidated total assets of over USD 91 billion at
March 31, 2012 and Fairfax Financial Holdings Limited, a Canada based USD 30 billion
diversified financial services company engaged in general insurance, reinsurance, insurance
claims management and investment management. HDFC Lombard GIC Ltd. is the largest
private sector general insurance company in India with a Gross Written Premium (GWP) of
Rs. 5,358 crore for the year ended March 31, 2012. The company issued over 76 lakh policies
and settled over 44 lakhs claims and has a claim disposal ratio of 99% (percentage of claims
settled against claims reported) as on March 31, 2012.

HDFC Securities Ltd is the largest integrated securities firm covering the needs of corporate
and retail customers through investment banking, institutional broking, retail broking and
financial product distribution businesses. Among the many awards that HDFC Securities has
won, the noteworthy awards for 2012 were: Asiamoney `Best Domestic Equity House for
2012; 'BSE IPF D&B Equity Broking Awards 2012' under two categories: - Best Equity
Broking House - Cash Segment and Largest E-Broking House; the Chief Learning Officer
Award from World HRD Congress for Innovation in Learning category. IDG India's CIO
magazine has recognized HDFC Securities as a recipient of CIO 100 award in 2009, 2010,
2011 and 2012. I-Sec won this awards 4 times in a row for which the CIO Hall of Fame
award was additionally conferred in 2012.

HDFC Securities Primary Dealership Limited (‘I-Sec PD’) is the largest primary dealer in
Government Securities. It is an acknowledged leader in the Indian fixed income and money
markets, with a strong franchise across the spectrum of interest rate products and services -
institutional sales and trading, resource mobilisation, portfolio management services and
research. One of the first entities to be granted primary dealership license by RBI, I-Sec PD
has made pioneering contributions since inception to debt market development in India. I-Sec
PD is also credited with pioneering debt market research in India. It is one of the largest
portfolio managers in the country and amongst PDs, managing the largest AUM under
discretionary portfolio management.

4
I-Sec PD’s leadership position and research expertise have been consistently recognised by
domestic and international agencies. In recognition of our performance in the Fixed Income
market, we have received the following awards:

 “Best Domestic Bond House” in India - 2007, 2005, 2004, 2002 by Asia Money
 “Best Bond House” - 2009, 2007, 2006, 2005, 2004, 2001 by Finance Asia
 “Best Domestic Bond House” – 2009 by The Asset Magazine’s annual Triple A
Country Awards
 Ranked volume leader - by Greenwich Associates in 2010 Asian Fixed-Income
Investors Study. Ranked 5th in ‘Domestic Currency Asian Credit’ with market share
of 4.5%, Only Domestic entity to be ranked.
 “Best Debt House in India” – 2012 by EUROMONEY

HDFC Prudential Asset Management is the third largest mutual fund with average asset
under management of Rs. 688.16 billion and a market share ( mutual fund ) of 10.34% as on
March 31, 2012. The Company manages a comprehensive range of mutual fund schemes and
portfolio management services to meet the varying investment needs of its investors
through118 branches and 196 CAMS official point of transaction acceptance spread across
the country.

HDFC Venture is one of the largest and most successful alternative asset managers in India
with funds under management of over US$ 2 billion. It has been a pioneer in the Indian
alternative asset industry since its establishment in 1988, having managed several funds
across various asset classes over multiple economic cycles. HDFC Venture is a wholly owned
subsidiary of HDFC Bank

5
GROUP PHILOSOPHY

As India transforms into a key player in the global economic arena, multiple opportunities for
the financial services sector have emerged. We, at HDFC Group, seek to partner the country's
growth and globalization through the delivery of world-class financial services across all
cross-sections of society.

From providing project and working capital finance to the buoyant manufacturing and
infrastructure sectors, meeting the foreign investment and treasury requirements of the Indian
corporate with increasing levels of international engagement, servicing the India linked needs
of the growing Indian diaspora, being a catalyst to the consumer finance story to serving the
financially under-served segments of the society, our technology empowered solutions and
distribution network have helped us touch millions of lives.

Vision:
To be the leading provider of financial services in India and a major global bank.

Mission:
We will leverage our people, technology, speed and financial capital to:

 be the banker of first choice for our customers by delivering high quality, world-class
products and services.
 expand the frontiers of our business globally.
 play a proactive role in the full realisation of India’s potential.
 maintain a healthy financial profile and diversify our earnings across businesses and
geographies.
 maintain high standards of governance and ethics.
 contribute positively to the various countries and markets in which we operate.
 create value for our stakeholders.

Towards Sustainable Development

As India's fastest growing financial services conglomerate, with deep moorings in the Indian
economy for over five decades, HDFC Group of companies have endeavored to contribute to
address the challenges posed to the community in multiple ways.

6
1) HDFC Foundation for Inclusive Growth: HDFC Foundation for Inclusive Growth
(HDFC Foundation) was founded by the HDFC Group in early 2008 to carry forward and
build upon its legacy of promoting inclusive growth. HDFC Foundation works within public
systems and specialised grassroots organisations to support developmental work in four
identified focus areas. We are committed to investing in long-term efforts to support inclusive
growth through effective interventions.

2) Disha Counselling: Disha Financial Counselling services are free to all in areas like
financial education, credit counselling and debt management.

3) Technology Finance Group: TFG's programmes are designed to assist industry and
institutions to undertake collaborative R&D and technology development projects.

4) Read to Lead campaign: HDFC Bank has pledged to educate 1,00,000 children through
the 'Read to Lead initiative. Because education today means a better life tomorrow.

5) Go Green. Each one for a better earth: HDFC Bank, is a responsible corporate citizen
and believes that every small 'green' step today would go a long way in building a greener
future and that each one of us can work towards a better earth.

Go Green' is an organisation wide initiative that moves beyond moving ourselves, our
processes and our customers to cost efficient automated channels to building awareness and
consciousness of our environment, our nation and our society.

7
PERSONAL BANKING
Deposits
HDFC Bank offers wide variety of Deposit Products to suit your requirements. Convenience
of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking,
select any of our deposit products and provide your details online and our representative will
contact you.
Loans
HDFC Bank offers wide variety of Loans Products to suit your requirements. Coupled with
convenience of networked branches/ ATMs and facility of E-channels like Internet and
Mobile Banking, HDFC Bank brings banking at your doorstep. Select any of our loan product
and provide your details online and our representative will contact you for getting loans.
Cards
HDFC Bank offers a variety of cards to suit your different transactional needs. Our range
includes Credit Cards, Debit Cards and Prepaid cards. These cards offer you convenience for
your financial transactions like cash withdrawal, shopping and travel. These cards are widely
accepted both in India and abroad. Read on for details and features of each.
Wealth Management
Wealth is the result of a recognized opportunity. We understand this and we work with you to
plan and manage your financial opportunities prudently. Not just that, we also extend a host
of services so you can remain focused on immediate objectives while we take care of all your
wealth management requirements.

8
 CHAPTER-III

LITERATURE REVIEW

9
CONCEPT OF MUTUAL FUNDS

Like most developed and developing countries the mutual fund culture has been
catching on in India. There are various reasons for this. Mutual funds make it easy and less
costly for investors to satisfy their need for capital growth, income and/or income
preservation. And in addition to this a mutual fund brings the benefits of diversification and
money management to the individual investor, providing an opportunity for financial success
that was once available only to a select few.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such
as shares, debentures and other securities. The income earned through these investments and
the capital 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 a diversified, -professionally managed basket of
securities at a relatively low cost. The flow chart below describes broadly the working of a
mutual fund:

Mutual Fund Operation Flow Chart

10
Organization of a Mutual

BENEFITS OF MUTUAL FUNDS

Investing in mutual has various benefits which makes it an ideal investment avenue.
Following are some of the primary benefits.

Professional investment management

One of the primary benefits of mutual funds is that an investor has access to professional
management. A good investment manager is certainly worth the fees you will pay. Good
mutual fund managers with an excellent research team can do a better job of monitoring the
companies they have chosen to invest in than you can, unless you have time to spend on
researching the companies you select for your portfolio. That is because Mutual funds hire
full-time, high-level investment professionals. Funds can afford to do so as they manage large
pools of money. The managers have real-time access to crucial market information and are
able to execute trades on the largest and most cost-effective scale. When you buy a mutual
fund, the primary asset you are buying is the manager, who will be controlling which assets
are chosen to meet the funds' stated investment objectives.

Diversification
A crucial element in investing is asset allocation. It plays a very big part in the success of any
portfolio. However, small investors do not have enough money to properly allocate their
assets. By pooling your funds with others, you can quickly benefit from greater
diversification. Mutual funds invest in a broad range of securities. This limits investment risk
by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-
holders can benefit from diversification techniques usually available only to investors
wealthy enough to buy significant positions in a wide variety of securities.

Low Cost
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000, and
sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

11
Convenience and Flexibility
Investing in mutual funds has its own convenience. While you own just one security rather
than many, you still enjoy the benefits of a diversified portfolio and a wide range of services.
Fund managers decide what securities to trade, collect the interest payments and see that your
dividends on portfolio securities are received and your rights exercised. It also uses the
services of a high quality custodian and registrar. Another big advantage is that you can move
your funds easily from one fund to another within a mutual fund family. This allows you to
easily rebalance your portfolio to respond to significant fund management or economic
changes.

Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related
prices from the mutual fund itself.

Transparency
Regulations for mutual funds have made the industry very transparent. You can track the
investments that have been made on you behalf and the specific investments made by the
mutual fund scheme to see where your money is going. In addition to this, you get regular
information on the value of your investment.

Variety
There is no shortage of variety when investing in mutual funds. You can find a mutual fund
that matches just about any investing strategy you select. There are funds that focus on blue-
chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge
can be sorting through the variety and picking the best for you.

TYPES OF MUTUAL FUNDS

Getting a handle on what's under the hood helps you become a better investor and put
together a more successful portfolio. To do this one must know the different types of funds
that cater to investor needs, whatever the age, financial position, risk tolerance and return
expectations. The mutual fund schemes can be classified according to both their investment
objective (like income, growth, tax saving) as well as the number of units (if these are

12
unlimited then the fund is an open-ended one while if there are limited units then the fund is
close-ended).
This section provides descriptions of the characteristics -- such as investment objective and
potential for volatility of your investment -- of various categories of funds. The type of
securities purchased by each fund organizes these descriptions: equities, fixed-income,
money market instruments, or some combination of these.

Open-Ended Schemes
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at
NAV-related prices from and to the mutual fund on any business day. These schemes have
unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on
the amount you can buy from the fund and the unit capital can keep growing. These funds are
not generally listed on any exchange.
Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units
any time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on
a daily basis. The advantages of open-ended funds over close-ended are as follows:
Any time exit option. The issuing company directly takes the responsibility of providing an
entry and an exit. This provides ready liquidity to the investors and avoids reliance on
transfer deeds, signature verifications and bad deliveries. Any time entry option, an open-
ended fund allows one to enter the fund at any time and even to invest at regular intervals.

Close-Ended Schemes
Close-ended schemes have fixed maturity periods. Investors can buy into these funds during
the period when these funds are open in the initial issue. After that such schemes can not
issue new units except in case of bonus or rights issue. However, after the initial issue, you
can buy or sell units of the scheme on the stock exchanges where they are listed. The market
price of the units could vary from the NAV of the scheme due to demand and supply factors,
investors’ expectations and other market factors

Classification According To Investment Objectives

Mutual funds can be further classified based on their specific investment objective such as
growth of capital, safety of principal, current income or tax-exempt income.

13
In general mutual funds fall into three general categories:
1] Equity Funds are those that invest in shares or equity of companies.
2] Fixed-Income Funds invest in government or corporate securities that offer fixed rates of
return are
3] While funds that invest in a combination of both stocks and bonds are called Balanced
Funds.

Growth Funds
Growth funds primarily look for growth of capital with secondary emphasis on dividend.
Such funds invest in shares with a potential for growth and capital appreciation. They invest
in well-established companies where the company itself and the industry in which it operates
are thought to have good long-term growth potential, and hence growth funds provide low
current income. Growth funds generally incur higher risks than income funds in an effort to
secure more pronounced growth.
Some growth funds concentrate on one or more industry sectors and also invest in a broad
range of industries. Growth funds are suitable for investors who can afford to assume the risk
of potential loss in value of their investment in the hope of achieving substantial and rapid
gains. They are not suitable for investors who must conserve their principal or who must
maximize current income.

Growth and Income Funds

Growth and income funds seek long-term growth of capital as well as current income. The
investment strategies used to reach these goals vary among funds. Some invest in a dual
portfolio consisting of growth stocks and income stocks, or a combination of growth stocks,
stocks paying high dividends, preferred stocks, convertible securities or fixed-income
securities such as corporate bonds and money market instruments. Others may invest in
growth stocks and earn current income by selling covered call options on their portfolio
stocks.
Growth and income funds have low to moderate stability of principal and moderate potential
for current income and growth. They are suitable for investors who can assume some risk to
achieve growth of capital but who also want to maintain a moderate level of current income.

14
Fixed-Income Funds
Fixed income funds primarily look to provide current income consistent with the preservation
of capital. These funds invest in corporate bonds or government-backed mortgage securities
that have a fixed rate of return. Within the fixed-income category, funds vary greatly in their
stability of principal and in their dividend yields. High-yield funds, which seek to maximize
yield by investing in lower-rated bonds of longer maturities, entail less stability of principal
than fixed-income funds that invest in higher-rated but lower-yielding securities.
Some fixed-income funds seek to minimize risk by investing exclusively in securities whose
timely payment of interest and principal is backed by the full faith and credit of the Indian
Government. Fixed-income funds are suitable for investors who want to maximize current
income and who can assume a degree of capital risk in order to do so.
Balanced
The Balanced fund aims to provide both growth and income. These funds invest in both
shares and fixed income securities in the proportion indicated in their offer documents. Ideal
for investors who are looking for a combination of income and moderate growth.

Money Market Funds/Liquid Funds

For the cautious investor, these funds provide a very high stability of principal while seeking
a moderate to high current income. They invest in highly liquid, virtually risk-free, short-term
debt securities of agencies of the Indian Government, banks and corporations and Treasury
Bills. Because of their short-term investments, money market mutual funds are able to keep a
virtually constant unit price; only the yield fluctuates.
Therefore, they are an attractive alternative to bank accounts. With yields that are generally
competitive with - and usually higher than -- yields on bank savings account, they offer
several advantages. Money can be withdrawn any time without penalty. Although not
insured, money market funds invest only in highly liquid, short-term, top-rated money market
instruments. Money market funds are suitable for investors who want high stability of
principal and current income with immediate liquidity.

Specialty/Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as health
care, technology, leisure, utilities or precious metals. The funds enable investors to diversify

15
holdings among many companies within an industry, a more conservative approach than
investing directly in one particular company.
Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is
"in favor" but also entail the risk of capital losses when the industry is out of favor. While
sector funds restrict holdings to a particular industry, other specialty funds such as index
funds give investors a broadly diversified portfolio and attempt to mirror the performance of
various market averages.
Index funds generally buy shares in all the companies composing the BSE Sensex or NSE
Nifty or other broad stock market indices. They are not suitable for investors who must
conserve their principal or maximize current income.

RISK Vs. REWARD

Having understood the basics of mutual funds the next step is to build a
successful investment portfolio. Before you can begin to build a portfolio, one should
understand some other elements of mutual fund investing and how they can affect the
potential value of your investments over the years. The first thing that has to be kept in mind
is that when you invest in mutual funds, there is no guarantee that you will end up with more
money when you withdraw your investment than what you started out with. That is the
potential of loss is always there. The loss of value in your investment is what is considered
risk in investing. Even so, the opportunity for investment growth that is possible through
investments in mutual funds far exceeds that concern for most investors. Here’s why At the
cornerstone of investing is the basic principal that the greater the risk you take, the greater the
potential reward. Or stated in another way, you get what you pay for and you get paid a
higher return only when you're willing to accept more volatility.
Risk then, refers to the volatility -- the up and down activity in the markets and individual
issues that occurs constantly over time. This volatility can be caused by a number of factors --
interest rate changes, inflation or general economic conditions. It is this variability,
uncertainty and potential for loss, that causes investors to worry. We all fear the possibility
that a stock we invest in will fall substantially. But it is this very volatility that is the exact
reason that you can expect to earn a higher long-term return from these investments than
from a savings account.
Different types of mutual funds have different levels of volatility or potential price change,
and those with the greater chance of losing value are also the funds that can produce the

16
greater returns for you over time. So risk has two sides: it causes the value of your
investments to fluctuate, but it is precisely the reason you can expect to earn higher returns.
You might find it helpful to remember that all financial investments will fluctuate. There are
very few perfectly safe havens and those simply don't pay enough to beat inflation over the
long run.

TYPES OF RISKS

All investments involve some form of risk. Consider these common types of risk and evaluate
them against potential rewards when you select an investment.

Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad
outside influences. When this happens, the stock prices of both an outstanding, highly
profitable company and a fledgling corporation may be affected. This change in price is due
to "market risk". Also known as systematic risk.

Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation rises forward faster
than the earnings on your investment, you run the risk that you'll actually be able to buy less,
not more. Inflation risk also occurs when prices rise faster than your returns.

17
Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest?
How certain are you that it will be able to pay the interest you are promised, or repay your
principal when the investment matures?

Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Investors are reminded
that "predicting" which way rates will go is rarely successful. A diversified portfolio can help
in offsetting these changes.

Exchange risk
A number of companies generate revenues in foreign currencies and may have investments or
expenses also denominated in foreign currencies. Changes in exchange rates may, therefore,
have a positive or negative impact on companies which in turn would have an effect on the
investment of the fund.

Investment Risks
The sectoral fund schemes, investments will be predominantly in equities of select companies
in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity
performance of such companies and may be more volatile than a more diversified portfolio of
equities.

Call Risks
Call risk is associated with bonds have and embedded call option in them. This option gives
the issuer the right to call back the bonds prior to maturity. Then investor how ever is
exposed to some risks here. The price of the callable bond many not rise much above the
price at which the issuer may call the bond.

18
Changes in the Government Policy
Changes in Government policy especially in regard to the tax benefits may impact the
business prospects of the companies leading to an impact on the investments made by the
fund. Effect of loss of key professionals and inability to adapt business to the rapid
technological change.

An industries' key asset is often the personnel who run the business i.e. intellectual
properties of the key employees of the respective companies. Given the ever-changing
complexion of few industries and the high obsolescence levels, availability of qualified,
trained and motivated personnel is very critical for the success of industries in few sectors. It
is, therefore, necessary to attract key personnel and also to retain them to meet the changing
environment and challenges the sector offers. Failure or inability to attract/retain such
qualified key personnel may impact the prospects of the companies in the particular sec

Investment cycle in Mutual Funds

19
Types of mutual funds

History of the Indian Mutual Fund Industry:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank the. The history of mutual funds
in India can be broadly divided into four distinct phases

20
First Phase – 1964-87(UTI MONOPOLY)

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6, 700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004
cores.

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 I am
dearmutual funds setting up funds in India and also the industry has witnessed several

21
mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with
total assets of Rs. 1, 21,805 crores.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29, 835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The 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 assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of June 30, 2003, there were 31 funds, which manage assets of Rs.104762 crores under
376 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of
an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not
even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate
that in the first quarter of the current fiscal year.

The formation and operations of mutual funds in India is solely guided by SEBI (Mutual
Fund) Regulations, 1993, which came into force on 20 January 1993. The regulations have
since been replaced by the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996, through a notification on 9 December 1996.
A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and
custodian. They are of course assisted by other independent administrative entities like

22
banks, registrars and transfer agents. We may discuss in brief the formation of different
entities, their functions and obligations.

The sponsor for a mutual fund can by any person who, acting alone or in combination with
another body corporate establishes the mutual fund and gets it registered with SEBI. The
sponsor is required to contribute at least 40 per cent of the minimum net worth (Rs 10 crore)
of the asset management company. The sponsor must have a sound track record and general
reputation of fairness and integrity in all his business transactions.

As per SEBI Regulation, 1996, a mutual fund is to be formed by the sponsor and registered
with SEBI. A mutual fund shall be constituted in the form of a trust and the instrument of
trust shall be in the form of a deed, duly registered under the provisions of the Indian
Registration Act, 1908, executed by the sponsor in favor of trustees named in such an
instrument.

The board of trustees manages the mutual fund and the sponsor executes the trust deeds in
favor of the trustees. The mutual fund raises money through sale of units under one or more
schemes for investing in securities in accordance with SEBI guidelines. It is the job of the
mutual fund trustees to see that the schemes floated and managed by the AMC appointed by
the trustees, are in accordance with the trust deeds and SEBI guidelines. It is also the
responsibilities of the trustees to control the capital property of mutual funds schemes.
The trustees have the right to obtain relevant information from the AMC, as well as a
quarterly report on its activities. They can also dismiss the AMC under specific condition as
per SEBI regulations.

At least half the trustees should be independent persons. The AMC or its employees
cannot act as a trustee. No person who is appointed as a trustee of a mutual fund can be
appointed as a trustee of any other mutual fund unless he is an independent trustee and prior
permission is obtained from the mutual fund in which he is a trustee.

The trustees are required to submit half-yearly reports to SEBI on the activities of the
mutual fund. The trustees appoint a custodian and supervise their activities. The trustees can
be removed only with prior approval of SEBI.

23
 As per SEBI guidelines, an asset management company is appointed by the trustees
to float the schemes for the mutual fund and manage the funds raised by selling units under a
scheme. The AMC must act as per SEBI guidelines, trust deeds and management agreement
between trustee & the AMC.

The Importance of Accounting Knowledge

Mutual funds in India are required to follow the accounting policies laid down in SEBI
(Mutual Fund) Regulations, 1996 and the amendments in 1998. This section of the workbook
summarizes the important Regulations, and periodical budgets.

Net Asset Value (NAV)

A mutual fund is a common investment vehicle where the assets of the fund belong directly to
the investors. The fund does not account for investors' subscriptions as liabilities or deposits
but as Unit Capital. On the other hand, the investments made on behalf of the investors are
reflected on the assets side and are the main constituents of the balance sheet. There are,
however, liabilities of a strictly short-term nature that may be part of the balance sheet. The
fund's Net Assets are therefore defined as the assets minus the liabilities. As there are many
investors in a fund, it is common practice for mutual funds to compute the share of each
investor on the basis of the value of Net Assets Per Share/Unit, commonly known as the Net
Asset Value (NAV).

The following are the regulatory requirements and accounting definitions lay down by SEBI.
NAV = Net Assets of the scheme / Number of Units Outstanding, i.e. Market value of
investments + Receivables + Other Accrued Income + Other Assets
Accrued Expenses-Other Payables-Other Liabilities
=
No. Of Units Outstanding as at the NAV date

A fund's NAV is affected by four sets of factors:

-- Purchase and sale of investment securities
-- Valuation of all investment securities held
-- Other assets and liabilities, and
-- Units sold or redeemed

24
Pricing of Units:

Although NAV per share defines the value of the investor's holding in the fund, the
fund may not repurchase the investor's units at the same price as NAV. However, SEBI
requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95%
in the case of a closed end fund). On the other side, a fund may sell new units at a price that is
different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the
difference the repurchase price and the sale price of the unit is not permitted to exceed 7% of
the sale price.

Fees and Expenses:

An AMC may incur many expenses specifically for given schemes, and other
common expenses. In any case, all expenses should be clearly Unidentified and allocated to
the individual schemes. The AMC may charge the scheme with investment management and
advisory fees that are fully disclosed in the offer document subject to the following limits:

@ 1.25% of the first Rs. 100 crore of weekly average net assets outstanding in the
accounting year, and @ 1% of weekly average net assets in excess of Rs. 100 crore.

For no load schemes, the AMC may charge an additional management fee up to 1% of
weekly average net assets outstanding in the accounting year.

Investment management and advisory fees are subject to the overall ceiling for expenses.
A. Initial expenses of launching schemes (not to exceed 6% of initial resources raised under
the scheme); and

B. Recurring expenses including:

i. Marketing and selling expenses including agents' commission
ii. Brokerage and transaction costs
iii. Registrar services for transfer of units sold or redeemed
v. Fees and expenses of trustees
v. Audit fees

25
 vi. Custodian fees
vii. Costs related to investor communication
viii. Costs of fund transfers from location to location
ix. Costs of providing account statements and dividend / redemption
cheques and warrants
x. Insurance premium paid by the fund
xi. Winding up costs for terminating a fund or a scheme
xii. Other costs as approved by SEBI

The total expenses charged by the AMC to a scheme, excluding issue or redemption expenses
but including investment management and advisory fees are subject to the following limits:
 On the first Rs. 100 Crores of average weekly net assets-2.5%
 On the next Rs. 300 Crores of average weekly net assets -2.0%
 On the balance of average weekly net assets-1.75%
 For bond funds, the above percentages are required to be lower by 0.25%

Initial Issue Expenses:

When a scheme is first launched, the AMC will incur significant expenses, whose
benefit will accrue over many years. All expenses cannot, therefore, be charged to a scheme
in the first year itself. SEBI permits "amortization" of initial expenses as follows:

For a closed-end scheme floated on a 'load' basis, the initial issue expenses shall be
amortized on a weekly basis over the period of scheme. For example, a 5-year (i.e. 260 week)
closed-end scheme with initial issue expenses of Rs. 5 lakhs must charge Rs.1923 (5 lakhs /
260 weeks) every week to the fund. It cannot charge the entire amount of Rs. 5 lakhs at the
time of issue.

For an open-end scheme floated on a 'load' basis, initial issue expenses may be amortized
over a period not exceeding five years. For example, if an open-end scheme has initial issue
expenses of Rs. 10 lakhs, it need not charge this entire amount to the fund in the year of issue.
Instead, it may charge Rs. 2 lakhs (10 lakhs / 5 years) per year to the fund, thereby spreading

26
the charge of initial issue expenses over a maximum of 5 years. Issue expenses incurred
during the life of an open-end scheme cannot be amortized.

Un amortized portion of initial issue expenses shall be included for NAV calculation,
considered as "other asset". The investment advisory fee cannot be claimed on this asset.
Hence, they have to be excluded while determining the chargeable investment management /
advisory fees. While calculating the maximum amount of chargeable expenses, the un
amortized portion of the initial issue expenses will not be included as part of the average
weekly net assets figure.

Accounting Policies:
Investments are required to be marked to market using market prices. Any unrealized
appreciation cannot be distributed, and provision must be made for the same.
Dividend received by the fund on a share should be recognized, not on the date of
declaration, but on the date the share is quoted on ex-dividend basis. For example, if a fund
owns shares on which dividend is declared on April 5, and the shares are quoted on ex-
dividend basis on April 20, the dividend income will be included by the fund for
distribution/NAV computation only April 20.

In determining gain or loss on sale of investments, the average cost method must be
followed to determine the cost of purchase. This will be applied by security.
Purchase / sale of investments should be recognized on the trade date and not settlement
date
Bonus / rights shares should be recognized only when the original shares are traded on the
stock exchange on an ex-bonus /ex-rights basis
Income receivable on investments, which is accrued, but not received for 12 months beyond
due date, should be provided for, and no further accrual should be made for such investment
An investment shall be regarded as non-performing if it has provided no returns through
dividend/interest for more than 2years at the end of the accounting year
Investments owned by mutual funds are marked to market. Therefore, the value of
investments appreciates or depreciates based on market fluctuations, which is reflected in the
balance sheet. However, this change in value constitutes unrealized gain/loss. When any
investments are actually sold, the proportion of the unrealized gain / loss that pertains to such

27
investments becomes realized gain/loss. Therefore, at any given time, the NAV includes
realized and unrealized gain/loss on investments. While SEBI prohibits the distribution of
unrealized appreciation on investments, realized gain in available for distribution.

An open-end scheme sells and repurchases units on the basis of NAV. SEBI therefore
prescribes the use of an equalization account, to ensure that creation / redemption of units
does not change the percentage of income distributed. This involves the following steps:
- Computation of distributable reserves:
- Income + Realized Gain on Investments- Expenses-Unrealized Losses (unrealized gains
are excluded)

- If distributable reserves are positive, the following percentage is computed:

Distributable Reserve / Units Outstanding

- The above percentage is multiplied with the number of new units sold, and the
equalization account is credited by this amount, if units are sold above par; if the units are
sold below par, the equalization account is debited by this amount. The same percentage is
multiplies with the number of units repurchased, and the equalization account is debited by
this amount if the units are repurchased above par; if the units are repurchased below par, the
equalization account is credited.
- The net balance in the equalization account is transferred to the profit and loss account. It
is only an adjustment to the distributable surplus and does not affect the net income for the
period.

VALUATION
Mutual funds value their investments on a 'mark-to-market' basis with reference to the date
on which they are valued i.e., the valuation date.
Valuation of Traded Securities:

Where a security is traded on a stock exchange, it is valued at the last quoted closing price
on the stock exchange where it is "principally traded".
If a security is not traded on any stock exchange on a particular valuation day, the value at
which it was traded on the selected/other stock exchange on the

28
Earliest previous day may be used, provided such date is not more than 60 days prior to the
valuation date.
Valuation of traded securities, once the market price is obtained as above, is quite simple.
The fund will multiply its current holding in number of shares or bonds by the applicable
market price to get the "mark to market" value.

valuation of Non-traded Securities:

When a security is not traded on any stock exchange for 60 days prior to the valuation date,
it must be treated as non-traded' scrip.
Non-traded securities shall be valued 'in good faith' by the AMC on the basis of appropriate
valuation methods, which shall be periodically reviewed by the trustees and reported by the
auditors as fair and reasonable. The following principles are to be applied for the valuation of
non-traded securities:
Equity instruments: are to be valued on the basis of capitalization of earnings solely or in
combination with its balance sheet Net Asset Value. For this purpose, capitalization rate will
be determined by reference to the price or earning rations of comparable traded securities
with an appropriate discount for lower liquidity to be used.

Debit instruments: are to be valued on a yield to maturity basis, the capitalization factor
being determined for comparable traded securities with an appropriate discount for lower
liquidity.

Call money, bills purchased: under rediscounting and short term deposits with banks are to
be valued at cost + accrual: other money market instruments at yield at which they are
currently traded; non-traded instruments (not traded for 7 days) will be valued at cost plus
interest accrued till the beginning of the valuation day plus the difference between
redemption value and cost, spread uniformly over the remaining maturity of the instruments

Government Securities: are to be valued at yield to maturity based on prevailing

market rate

29
Convertible debentures and bonds: non-convertible component is to be valued as a
debt instrument, and convertible as any equity instrument. If after Conversion, the resultant
equity instrument would be traded pari passu with an existing instrument, which is traded, the
value of the latter instrument can be adopted after an appropriate discount for the non-
tradability of the instrument.

RISK INVOLVED IN MUTUAL FUNDS INDUSTRY:

Mutual funds are not free from risk. It is so because basically the mutual funds also invest
their funds in stock markets on shares, which are volatile in nature and are not risk free, the
following risk are inherent in their dealing.
INHERENT RISK FACTORS:
1) Market Risks:
In general there are certain risks associated with the every kind of investment on shares. They
are called market risks. These market risks can be reduced, but cannot be completely
eliminated even by a good investment.

2) Scheme Risks
There are certain risks inherent in the scheme itself. It all depends upon the nature of the
scheme. For instance, in a pure growth scheme, risks are greater.
3) Investment Risks
Whether the mutual fund makes money in shares or loses depends upon the investment
expertise of the Asset Management Company. If the investment advice goes wrong, the fund
has to suffer a lot.
4) Business Risks
The corpus of a mutual fund might have been invested in a company’s shares. If the business
of that company suffers any set back, it cannot declare any dividend. It may even go to the
extent of winding up its business.

5) Political Risks
Successive Governments bring with them fancy new economic ideologies and policies. It is
often said that many economic decisions are politically motivated.

30
PARAMETERS DESCRIPTION

The following parameters were considered for analysis:

 Beta
 Alpha
 Correlation coefficient
 Treynor’s Ratio
 Sharpe’s Ratio
 Jensen’s Ratio

Beta
Beta is a measure of volatility, or systematic risk, of a security or portfolio in comparison to
the market as a whole. Beta measures a stock's volatility, the degree to which a stock price
fluctuates in relation to the overall market. Investment analysts use the Greek letter beta, ß. It
is calculated using regression analysis. A beta of 1 indicates that the security's price will
move with the market. A beta greater than 1 indicates that the security's price will be more
volatile than the market, and a beta less than 1 means that it will be less volatile than the
market.

While standard deviation determines the volatility of a fund according to the disparity of its
returns over a period of time, beta, another useful statistical measure, determines the
volatility, or risk, of a fund in comparison to that of its index.

Investors expecting the market to be bullish may choose funds exhibiting high betas, which
increase investors' chances of beating the market. If an investor expects the market to be
bearish in the near future, the funds that have betas less than 1 are a good choice because they
would be expected to decline less in value than the index. For example, if a fund had a beta of
0.5 and the S&P 500 declined 6%, the fund would be expected to decline only 3%. Be aware
of the fact that beta by itself is limited and can be skewed due to factors of other than the
market risk affecting the fund's volatility.

31
Here is a basic guide to various betas:
 Negative beta - A beta less than 0 is possible but highly unlikely. People used to
think that gold and gold stocks should have negative betas because they tended to do better
when the stock market declined, but this hasn't been true overall.

 Beta = 0 - Basically this is cash (assuming no inflation).

 Beta between 0 and 1 - Low-volatility investments, such as utilities, are usually in

this range

 Beta = 1 - This is the same as an index, such as the S&P 500 or some other index
fund.

 Beta greater than 1 - This denotes anything more volatile than the broad-based
index, like a sector fund.

 Beta greater than 100 - This is impossible because the stock would be expected go
to zero on any decline in the stock market. The beta never gets higher than two to three.

The beta value for an index itself is taken as one. Equity funds can have beta values, which
can be above one, less than one or equal to one. By multiplying the beta value of a fund with
the expected percentage movement of an index, the expected movement in the fund can be
determined. Thus if a fund has a beta of 1.2 and the market is expected to move up by ten per
cent, the fund should move by 12 per cent Similarly if the market loses ten per cent, the fund
should lose 12 per cent.

This shows that a fund with a beta of more than one will rise more than the market and also
fall more than market. Clearly, if you'd like to beat the market on the upside, it is best to
invest in a high-beta fund. But you must keep in mind that such a fund will also fall more
than the market on the way down. So, over an entire cycle, returns may not be much higher
than the market.
Similarly, a low-beta fund will rise less than the market on the way up and lose less on the
way down. When safety of investment is important, a fund with a beta of less than one is a

32
better option. Such a fund may not gain much more than the market on the upside; it will
protect returns better when market falls.

Alpha

A measure of risk, used for mutual funds with regards to their relation and the market. A
positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting
the market return

The formula for alpha is:

Alpha = [ (sum of y) - ((b)(sum of x)) ] / n

n =number of observations (36 mos.)

b = beta of the fund
x = rate of return for the market
y = rate of return for the fund

Alpha measures how much if any of this extra risk helped the fund outperform its
corresponding benchmark. Using beta, alpha's computation compares the fund's performance
to that of the benchmark's risk-adjusted returns and establishes if the fund's returns
outperformed the market's, given the same amount of risk.

For example, if a fund has an alpha of 1, it means that the fund outperformed the benchmark
by 1%. Negative alphas are bad in that they indicate that the fund under performed for the
amount of extra, fund-specific risk that the fund's investors undertook.

33
Standard Deviation

Standard deviation is probably used more than any other

measure to describe the risk of a security (or portfolio of securities). If you read an academic
study on investment performance, chances are that standard deviation will be used to gauge
risk. It's not just a financial tool, though. Standard deviation is one of the most commonly
used statistical tools in the sciences and social sciences. It provides a precise measure of the
amount of variation in any group of numbers--the returns of a mutual fund.

Measure of the dispersion of a set of data from its mean. The more spread apart the data is,
the higher the deviation. Standard deviation is applied to the annual rate of return of an
investment to measure the investment's volatility (risk).

A volatile stock would have a high standard deviation. In mutual funds, the standard
deviation tells us how much the return on the fund is deviating from the expected normal
returns. Standard deviation is a statistical measure of the range of a fund's performance.
When a fund has a high standard deviation, its range of performance has been very wide,
indicating that there is a greater potential for volatility.

Technically speaking, standard deviation provides a quantification of the variance of the

returns of the security, not its risk. After all, a fund with a high standard deviation of returns
is not necessarily "riskier" than one with a low-standard deviation of returns.

Correlation

Correlation is a useful tool for determining if relationships exist between securities. A

correlation coefficient is the result of a mathematical comparison of how closely related two
variables are.
The relationship between two variables is said to be highly correlated if a movement in one
variable results or takes place at the same time as a similar movement in another variable. A
useful feature of correlation analysis is the potential to predict the movement in one security
when another security moves. Sometimes, there are securities that lead other securities. In
other words a change in price in one results in a later change in price of the other. A high
negative correlation means that when a securities price changes, the other security or
indicator or otherwise financial vehicle, will often move in the opposite direction.

34
Correlation analysis is a measure of the degree to which a change in the independent variable
will result in a change in the dependent variable. A low correlation coefficient (e.g., ±0.1)
suggests that the relationship between the two variables is weak or non-existent. A high
correlation coefficient (e.g., ±0.80) indicates that the dependent variable will most likely
change when the Independent variable changes. Correlation can also be used for a study
between an indicator and a stock or index to help determine the predictive abilities of changes
in the indicator. Correlation is not static. In other words, the correlation between two things
in the markets does change over time and so a careful understanding that what has happened
in the past may not predict what will happen in the future should be part of any basis in
trading financial instruments in the market.

PORTFOLIO MEASUREMENT METHODS:

We are interested in discovering if the management of a mutual fund is performing well; that
is, has management done better through its selective buying and selling of securities than
would have been achieved through merely “buying the market” ––picking a large number of
securities randomly and holding them throughout the period?
The most popular ways of measuring management’s performance are
1. Sharpe’s Performance Measure
2. Treynor’s Performance Measure
3. Jensen’s Performance Measure

SHARPE’S RATIO
Sharpes is the summary measure of portfolio performance which properly adjusts
performance for risk. It measures the risk premiums of the portfolio relative to the total
amount of risk in the portfolio.

The Sharpes index is given by:

Sharpe’s Index = (Average return on portfolio – Risk less rate of interest)
(Deviation of returns on portfolio)
Graphifically the index measures the slope of the line emanating from the risk less rate
outward to the portfolio in question. Thus, the Sharpe Index summarizes the risk and return

35
of a portfolio in a single measure that categorizes the performance of the fund on a risk-
adjusted basis. The larger the value of Sharpe Index the better the portfolio has performed.

TREYNOR’S RATIO
Treynor’s ratio measures the risk premium of the portfolio, where risk premium equals the
difference between the return of the portfolio and the risk less rate. The risk premium is
related to the amount of systematic risk assumed in the portfolio. Graphically; the index
measures the slope of the line emanating outward from risk less rate to the portfolio under
consideration.
Treynors ratio is given as
(Average return of portfolio –Risk less rate of interest)
Treynor Index = -------------------------------------------------------
Beta coefficient of portfolio

Jensen’s Performance Measure (Michael)

It refers the actual return earned in portfolio and return expected out of portfolio given its
level of risk.
CAPM – is used to calculate the expected return. The difference between the expected return
and act retain can be said the return earned out of the mandatory of systematic risk.
This excess return refers the manager’s predictive ability and managerial skills.

CAPM
rp = rf + (rm – rf)
Differential return is calculated as follows:
p = rp - rp
p =positive ––> Superior returns
p = Negative ––> Unskilled management (worse portfolio)
p= 0 ––> Neutral performance

Higher alpha represents superior performance of a fund and vice versa.

36
 CHAPTER-IV
DATA ANALYSIS

37
FINANCIALS:
Total Group Networth – Rs. 19,335 Cr
Total Group PAT for FY 15-16 – Rs. 1,454 Cr.
Total Group Capital Expenditure – Rs. 6,200 Cr. (US $ 1.2 bn.) capex in FY 10-
11. Planned capex of Rs. 29,000 Cr (US $ 5.7 bn.) by FY 2015-16.
Focus on Execution and on ground results translating into profits.
• For its ongoing projects HDFC BANK consumes 385 MT of Steel, 550
MT of Cement & 1,700 CUM of RMC on daily basis.
Creating Value for Shareholders – Dividend payout of Rs. 916 Cr. in FY 15-16.
Investors

 Statement of unclaimed and unpaid amounts

 HDFC BANK Presentation
 Code Of Conduct for Board Members and Senior Management
 Shareholding Pattern of HDFC BANK Power Limited. as on 30 th June 2015

QUERIES
Kubeir Khera
HDFC BANK House, HDFC BANK Finance Centre,
Senapati Bapat Marg, Parel West, Mumbai - 400 016
Phone: +91 22 61899400 | Fax: +91 22 61899400
Email: [email protected]
FUND : Performance of mutual fund of different companies in
different sectors

OBJECTIVE : The fund looks for steady returns from debt and growth from
equity by keeping 70:30 (equity: debt) ratio.

38
PORTFOLIO OF THE FUND
Equity Sector JAN 2018 Mar 2018
India Bulls Banking/Finance 18.39 16.86
HDFC Bank Banking/Finance 16.86 16.42
HDFC Bank Banking/Finance 16.72 16.20
HCL Tech Technology 15.43 16.21
Strides Arcolab Pharmaceuticals 16.25 15.83
Grasim Conglomerates 16.26 9.23
Tata Motors (D) Automotive 15.88 8.15
ITC Tobacco 10.88 6.65
Sun Pharma Pharmaceuticals 9.71 5.37
Amara Raja Batt Automotive 8.78 4.15

Table 4(a)

Amara Raja Batt

160 Automotive
140 Sun Pharma
Pharmaceuticals
120
ITC Tobacco
100
80 Tata Motors (D)
60 Automotive

40 Grasim Conglomerates

20
Strides Arcolab
0 Pharmaceuticals
Jan-18 Feb-18 Mar-18

Chart Showing Asset Allocation Of Tata Balanced Fund

39
 Equity Debt Money Market Cash / Call

2%
6%
17%

75%

Figure 4.2
INTERPRETATINON
The TATA Balanced Fund Portfolio consists of 75.00% Equity holdings, 18.63% Debt,
6.00% Money Market & Cash/call 2%. It is evident from the data that though the
investors have risk taking ability, they balanced their investments by investing in Debt
also.
FUND : BIRLA OPEN-ENDED BALANCED
GROWTH
OBJECTIVE : The Scheme aims to balance income requirements with
growth of capital through balanced mix of investment in
equity and debt

40
PORTFOLIO OF THE FUND
Sector JAN 2018 Mar 2018

a Birla 16.15 16.86

B Pharmaceuticals 11.95 11.23

C Oil & Gas, Petroleum & 11.04 10.26

Refinery
D Banks 10.29 9.40

E Auto & Auto ancilliaries 7.59 7.43

F Computers - Software & 4.93 5.16

Education
G Securities 2.25 4.97
H Sugar 4.22 4.87
I Tobacco & Pan Masala 4.46 4.81

J Breweries & Distilleries 6.04 4.74

K Debt 18.39 15.88
L Money market 6.70 5.40

Table 4 (b)

35

30

25

20 Mar-18
Jan-18
15
Sector
10

0
a B C D E F G H I J K L

Figure 4.4

41
 5%
15%

EQUITY
DEBT
80% Money Market

INTERPRETATINON
 The BIRLA Balanced Fund Portfolio consists of 79.72%Equity holdings, 15.88% Debt,
5.40% Money Market. It is evident from the data that though the Investors have risk
taking ability, they balanced their investments by investing in Debt also.
FUND : PRU HDFC OPEN-ENDED BALANCED GROWTH
FUND
OBJECTIVE : Aims to invest in equity and debt oriented securities so
as to give investor balanced returns.

42
 PORTFOLIO OF THE FUND

Sector Jan 2018 Mar 2018

A HDFC 11.47 16.18

B Securities 9.75 16.52

C Oil & Gas, Petroleum & 10.90 10.83

Refinery

D Engineering & Industrial 6.74 8.58

Machinery

E Telecom 6.48 6.00

F Miscellaneous 0.00 5.31

G Finance 9.41 4.84

H Electricals & Electrical 3.64 4.36

Equipments

I Cement 6.35 4.09

J Steel 4.97 3.49

k Debt 24.98 22.08

L Money market 5.31 1.73

Table 4 (c)

43
 50
45
40
35
30 Mar-18
25 Jan-18
20
Sector
15
10
5
0
A B C D E F G H I J k L

Figure 4.5

2%

22%

EQUITY
DEBT
76% Money Market

Figure 4.6
INTERPRETATINON

 The Pru HDFC Balanced Fund Portfolio consists of 76.19% Equity holdings, 22.08%
Debt, 1.73% Money market. It is evident from the data that though the Investors have risk
taking ability, they balanced their investments by investing in Debt also.

44
FUND : DSP MERRILL LYNCH OPEN-ENDED BALANCED
GROWTH FUND

OBJECTIVE : Seeks to generate long term capital appreciation and

current income from a portfolio constituted of equity and
equity related securities as well as fixed income securities.
PORTFOLIO OF THE FUND

Sector Jan 2018 Mar 2018

A Dsp merrill lynch 19.10 2.48

B Finance 15.03 15.88

C Oil & Gas, Petroleum & 15.47 15.15

Refinery
D Engineering & Industrial 5.65 4.41
Machinery

E Fertilizers, Pesticides & 6.05 4.38

Agrochemicals

F Power Generation, 3.01 3.60

Transmission & Equip

G Housing & Construction 2.88 3.59

H Computers - Software & 5.87 3.40

Education
I Pharmaceuticals 3.20 2.44

J Entertainment 2.59 2.44

k Debt 20.92 37.84

45
 L Money market 6.23 10.40

Table 4 (d)

Figure 4.7

100%
90%
80%
70%
60% Mar-18
50% Jan-18
40%
Sector
30%
20%
10%
0%
A B C D E F G H I J k L

10%

52% EQUITY
38%
DEBT
Money Market

Figure 4.8

46
INTERPRETATINON
 The DSP Merrill Lynch Balanced Fund Portfolio consists of 51.76%Equity holdings,
37.84%Debt, 10.40% Money Market. It is evident from the data that though the Investors
have risk taking ability, they balanced their investments by investing in Debt also.

FUND : JM FINANCIAL OPEN-ENDED BALANCED

GROWTH
OBJECTIVE : Aims to provide investors with liquidity and current
income along with capital appreciation
PORTFOLIO OF THE FUND
Sector Jan 2018 Mar 2018

A Banks 15.72 19.95

B Housing &Construction 19.15 16.70

C Finance 9.49 11.45

D Steel 11.44 11.41

E Computers – Software & 4.64 7.62

Education
F Cement 2.92 6.65

G Miscellaneous 4.58 4.16

H Tobacco & Panmasala 0.00 3.66

I Edible Oil & Vanaspati 3.99 3.50

J Rubber & Tyres 0.95

K Debt 24.91
L Money market 5.24

Figure 4 (e)

47
INTERPRETATINON
 Balanced Fund Portfolio consists of 51.76%Equity holdings, 37.84%Debt, 10.40%
Money Market. It is evident from the data that though the Investors have risk taking
ability, they balanced their investments by investing in Debt also.

100%
90%
80%
70%
60% Mar-18
50% Jan-18
40%
Sector
30%
20%
10%
0%
A B C D E F G H I J K L

Figure 4.9

2%
12%

EQUITY
DEBT

86% Money Market

Figure 4.10
INTERPRETATINON
 The JM Balanced Fund Portfolio consists of 86.03% Equity holdings, 15.15% Debt, %
1.85% Money Market. It is evident from the data that though the Investors have risk
taking ability, they balanced their investments by investing in Debt also.

48
TATA OPEN-ENDED BALANCED GROWTH FUND

DATE 1st Apr11 29th Jun 31st Aug 26th Oct 27th Dec 28th Feb 31stMar15
11 11 11 11 15
NAV 50.92 48.29 54.42 58.16 61.95 71.61 67.31

Table 4 (f)

 Fund performance and NAV values over a period of 1 year.

NAV
80

70

60

50

40
NAV
30

20

10

0 1st
1st Apr14
Apr13 29thJun14
29thJun1331stAug14
31stAug13 26thOct14 27thDec14
26thOct13 28thFeb15
27thDec13 31stMar15
28thFeb14 31stMar14
1st Apr11 29th Jun 11 31st Aug 11 26th Oct 11 27th Dec 11 28th Feb 12 31stMar12

Figure 4.11
INTERPRETATION:
From the above table we find that Tata Open ended fond Balanced growth fund is very
impressive from last one year. We can see on 28th feb 2018 recorded highest Nav as 71.61.
The found performance is too good to invest for a long term base.

49
BIRLA OPEN-ENDED BALANCED GROWTH FUND

DATE 1st Apr 15 29th Jun 31st Aug 26th Oct 27th Dec 28thFeb 16 31stMar16
15 15 15 15
NAV 28.37 27.18 29.63 31.66 33.18 33.54 32.16

Table 4 (g)

 Fund performance and NAV values over a period of 1 year.

NAV
35

30

25

20 NAV
15

10

0
1st Apr14 29thJun14 31stAug14 26thOct14 27thDec14 28thFeb15 31stMar15

INTERPRETATION:
From the above table we find that Birla Open ended fond Balanced growth fund is modarate
from last one year. We can see on 28th feb 2018 recorded highest Nav as 33.54. The found
performance is good to invest for a long term base.

50
PRU HDFC OPEN-ENDED BALANCED GROWTH FUND

DATE 1st Apr 29th Jun 31st 26th Oct 27th 28th Feb 31stMar16
15 15 Aug 15 15 Dec 15 16

NAV 35.84 33.46 36.39 36.32 39.90 43.53 41.27

Table 4 (h)
 Fund performance and NAV values over a period of 1 year.

NAV
45
40
35
30
25 NAV
20
15
10
5
0
1st Apr14 29thJun14 31stAug14 26thOct14 27thDec14 28thFeb15 31stMar15
Figure 4.16
INTERPRETATION:
From the above table we find that Pru HDFC Open ended fond Balanced growth fund is very
impressive from last one year. We can see on 28th feb 2018 recorded highest Nav as 43.53.
The found performance is too good to invest for a long term base.

51
DSP MERRILL LYNCH OPEN-ENDED BALANCED GROWTH FUND
DATE 1st Apr 29th Jun 31st 26th Oct 27th 28th Feb 31stMar16
15 15 Aug 15 15 Dec 15 16

NAV 39.33 36.97 42.50 44.56 47.46 51.92 50.15

Table 4 (i)
 Fund performance and NAV values over a period of 1 year.

NAV
60

50

40

30
NAV
20

10

0 1st Apr14 29thJun14 31stAug14 26thOct14 27thDec14 28thFeb15 31stMar15

1st Apr 12 29th Jun 1231st Aug 12 26th Oct 1227th Dec 1228th Feb 13 31stMar13

Figure 4.15
INTERPRETATION:
From the above table we find that DSP Merrill Lynch Open ended fond Balanced growth
fund is very impressive from last one year. We can see on 28th feb 2018 recorded highest Nav
as 51.92. The found performance is too good to invest for a short term base.

52
JM FINANCIAL OPEN-ENDED BALANCED GROWTH FUND

DATE 1st Apr 15 29th Jun 31st Aug 26th Oct 27th Dec 28th Feb 31stMar16
15 15 15 15 16
NAV 23.87 21.92 24.73 27.30 29.91 31.61 28.45
Table 4 (j)
 Fund performance and NAV values over a period of 1 year.

NAV
35
30
25
20
15 NAV
10
5
0
1st
1stApr14
Apr 12 29thJun14
29th Jun 31stAug14
31st Aug 26thOct14 27thDec14
26th Oct 27th 28thFeb15
Dec 28th 31stMar15
Feb 31stMar13
12 12 12 12 13

Figure 4.16
INTERPRETATION:
From the above table we find that JM Financial Open ended fond Balanced growth fund is
very impressive from last one year. We can see on 28th feb 2018 recorded highest Nav as
31.61. The found performance is too good to invest for a short term base.

PERFORMANCE EVALUATION

We are interested in discovering if the management of a mutual fund is performing

well; that is, has management done better through its selective buying and selling of
securities than would have been achieved through merely “buying the market” picking a large
number of securities randomly and holding them throughout the period?
One of the most popular ways of measuring management’s performance is by
comparing the yields for the managed portfolio with the market or with a random portfolio.

53
The following formula can be used to evaluate Mutual fund performance:-

NAVt + Dt
1
NAVt – 1
Where:
NAV t = per-share net asset value at the end of year t
Dt= Capital appreciation during year.
NAV t-1 = per-share net asset value at the end of the previous year.

54
PERFORMANCE EVALUATION OF SELECTED FUNDS
NAV t-1 = 1st April, 2018

NAV t = 31st March, 2018

1) TATA Open-Ended Balanced growth Fund

NAV t-1 NAV t D t (NAV t NAV t-1)
50.9259 67.3159 16.387

Applying the formula we get-

= 67.3159+16.387- 1
50.9295
= 0.6434 x 100
= 64.34%
2) BIRLA Open-Ended Balanced growth Fund
NAV t-1 NAV t D t (NAV t NAV t-1)
28.37 32.16 3.78

Applying the formula we get-

= 32.16+3.78 - 1
28.37
= 0.2664 x 100
= 26.64%

3) PRU HDFC OPEN-ENDED BALANCED GROWTH FUND

NAV t-1 NAV t D t (NAV t NAV t-1)

35.84 41.27 5.43

Applying the formula we get-

= 41.27+5.43 - 1
35.84
= 0.3030 x 100
= 30.30%

55
4) DSP MERRILL LYNCH Open-Ended Balanced growth Fund
NAV t-1 NAV t D t (NAV t NAV t-1)
39.339 50.156 10.807

Applying the formula we get-

= 50.156+10.807 - 1
39.339
= 0.5494 x 100
= 54.94%

5) JM FINANCIAL Open-Ended Balanced growth Fund

NAV t-1 NAV t D t (NAV t NAV t-1)
23.87 28.4438 4.5738

Applying the formula we get-

= 28.4438+4.5738- 1
23.87
= 0.3832 x 100
= 38.32%

56
FUND PERFORMANCE RANKING

Name of the Fund NAV Rank

Tata open-ended Balanced Growth Fund 64.34% 1

DSP Merrill Lynch open-ended Balanced Growth Fund 2

54.94%

JM Financial open-ended Balanced Growth Fund 3

38.32%

Pru HDFC open-ended Balanced Growth Fund

30.30% 4

Birla open-ended Balanced Growth Fund 26.64% 5

Table 4 (k)

5
5 4
4 3
3 2
2 1
1
0
Tata open- DSP Merrill JM Financial Pru ICICI Birla open-
ended Lynch open- open-ended open-ended ended
Balanced ended Balanced Balanced Balanced
Growth Fund Balanced Growth Fund Growth Fund Growth Fund
Growth Fund

Rank

Figure 4.16

57
SWOT ANALYSIS
Strengths

 Simplified speed and quality of services offered by Mutual Fund Companies.

 As on investment tool for the investors to boost.
 Wide range of investment schemes offered by mutual fund companies to
 meet various requirements of investors.
 Diversification of funds which minimizes the risk.

Weakness

1. NAV range doesn’t seem to fit in with corporate compensation. There is positioning and
pricing problem.
2. Delays in infrastructure development may dampen the growth rate of NAV’s of different
schemes, which in turn affects the investor to invest.
3. Deregulation of interest rates may affect the profitability of companies.
4. Stiff competition from existing mutual fund companies and new Entrants.

Opportunities
1. Perceptive changes in life style.
2. Addition of level of new class of entrepreneurs to the broad base of middle class of the
market.
3. The range of schemes and services offered by mutual fund companies is large enough for
all investors to have a slice of cake.
4. The falling interest rates would make to raise capital at less cost. Hence more opportunities
for companies.
5. Globalization is buying fresh opportunities in terms of foreign tie-ups.
Threats:
1. Risk of scams.
2. Severe increase in the competition among mutual fund companies results in decreasing
the spread.

58
 Comparative Study of the performance of the Selected
AMC’s
Sharp index and Treynor index are calculated
For the month of October 2015

Sharp's Treynor Jenson

Return Risk (std Beta
Name of the Fund Rf (Rm-
(Rm) dev) (β) (Rm- (Rm-
Rf)/β
Rf)/σ Rf)/β

Tata open-ended Balanced -0.42 2.16 0.75 0.06 -0.22 -0.64 -0.44
Growth Fund

DSP Merrill Lynch open-

-0.28 1.69 0.51 0.06 -0.20 -0.67 -0.47
ended Balanced Growth
Fund

JM Financial open-ended
-0.35 2.07 0.75 0.06 -0.20 -0.55 -0.55
Balanced Growth Fund

Pru HDFC open-ended

-0.42 1.86 0.65 0.06 -0.26 -0.73 -0.3
Balanced Growth Fund

59
 500.00%
450.00%
400.00%
350.00%
300.00%
250.00%
200.00%
150.00%
100.00%
50.00%
0.00% NAV

The Graphical Representation Of Sharp Index

Figure.11
Interpretation:
 From the above table and graph we can know that Birla sunlife and Reliance are
giving good returns and they are in first position,
 And the second position is SBI

The Graphical Representation Of Treynor Index:

3
2.5
2 Jenson (Rm-Rf)/β
1.5 Treynor (Rm-Rf)/β
1 Sharp's (Rm-Rf)/σ
0.5 Rf
0 Beta (β)
-0.5 Risk (std dev)
-1
Return (Rm)
-1.5
-2

Figure.15

60
 INTERPRETATION
 From the above table and graph we can know Reliance is performing well and it is
in first position
 And the second position is SBI
 The general trend in the reduction of the market price for various mutual funds
studied is not encouraging the stock market index has also been falling
continuously because of general economic slow down how ever the funds are
ranked considering sharp and trenyors in the order of performances

The Graphical Representation Of Jensen’s Index:

Jensen's Measure
0.00
SBI Magnum Equity
Birla Fund
Sunlife
Growth
TATA
95
Kotak
Growth
Equity
30 Growth
Management Fund Growth
-0.10
-0.20
-0.30
Axis Title

-0.40
Series1
-0.50
-0.60
-0.70
-0.80
Name of the Fund

Figure.16
INTERPRETATION
 From the above table and graph we can know Reliance is performing well and it is in first
position
 The general trend in the reduction of the market price for various mutual funds studied is not
encouraging the stock market index has also been falling continuously because of general
economic slow down how ever the funds are ranked considering sharp and Jensen’s in the
order of performances

61
 CHAPTER-V
 FINDINGS

 SUGGESSIONS

 CONCLUSIONS

 BIBLIOGRAPHY

62
 FINDINGS

SHARPE’S: As per Sharpe performance measure, a high Sharpe ratio is preferable as it

indicates a superior risk adjusted performance of a fund. From the above table LIC Nomura
Balanced -Growth and Axis banking Debt fund-Growth show a better risk-adjusted
performance out of top4 AMC’S.

TREYNOR’s: As per TREYNOR’S ratio the Treynor’s reward to volatility - having high
positive index is favorable. Therefore, as per this ratio also LIC Nomura Balanced -Growth
is preferable.

63
 CONCLUSIONS

 From the study analysis conducted it is clear that in EQUITY FUNDS Axis
banking Debt fund-Growth is performing very well.

 Investing in the LIC Nomura Balanced -Growth will leads to profits.

 By seeing the overall performance Axis banking Debt fund-Growth is

performing very well.

 The prospective investors are needed to be made aware of the investment

in mutual funds.

 The Industry should keep consistency and transparency in its management

and investors objectives.

 There is 100% growth of mutual fund as foreign AMCS are in queue to

enter the Indian markets.

 Mutual funds can also perctrate in to rural areas.

64
 SUGGESTIONS TO INVESTORS:

Investing Checklist

 Financial goals & Time frame

(Are you investing for retirement? A child’s education? Or for current income? )

Risk Taking Capacity

Identify funds that fall into your Buy List

Obtain and read the offer

Documents match your objectives

 In terms of equity share and bond weightings, downside risk

 protection, tax benefits offered, dividend payout policy, sector focus

 Performance of various funds with similar objectives for at least 3-5 years

 Think hard about investing in sector funds For relatively aggressive investors

 Close touch with developments in sector, review portfolio regularly – Look for `load'
costs

 Management fees, annual expenses of the fund and sales loads

 Look for size and credentials

 Asset size less than Rs. 25 Crores

 Diversify, but not too much

 Invest regularly, choose the S-I-P

 MF- an integral part of your savings and wealth building plans.

Portfolio Decision

The right asset allocation

65
 i. Age = % in debt instruments

ii. Reality= different financial position, different allocation

iii. Younger= Riskier

2. Selecting the right fund/s

i. Based on scheme’s investment philosophy

ii. Long-term, appetite for risk, beat inflation– equity funds best

3. TRAPS TO AVOID

4. IPO Blur

5. Begin with existing schemes (proven track record) and then new

6. schemes

i. Avoid Market Timing

7. MF Comparison

8. Absolute returns

9. –% Difference of NAV

i. Diversified Equity with Sector Funds– NO

10. Benchmark returns

i. SEBI directs

ii. Fund's returns compared to its benchmark

11. Time period –Equal to time for which you plan to invest

i. Equity- compare for 5 years, Debt- for 6 months

12. Market conditions

i. Proved its mettle in bear market

66
 RECOMMENDATIONS

1) Brand building:

Brand building is an exercise, which every business enterprise will have. Brand is the
soul of an institution; it survives on it, lives with it and cherishes it. Example: LIC Nomura
Balanced -Growth has a brand, every bank, insurance companies; mutual fund companies
have got their own brands.

2) Strength full Strategies:

Every AMC should try to turn into a more modern, a more vibrant, a more transparent
and regulatory compliance institution. It is with this in mind, every institution should try to
come up with verity of different type of products to fill different investment objectives

3) Marketing tools for total quality achievement:

a) Large Network.

b) Effective Man power

c) Distribution across the Market

d) Customer relations(Building better relationships)

e) Value added service

f) Better transparency level

g) Building brand name as a disciplined player.

67
 4) Innovation:

MF industry can be classified morely into three categories like equity, debt and
balanced. And there is also complexive in nature. Fund managers are not able to reach niche
market. The products are should be innovative that can meet niche market. Here MF should
follow the FMCG industry innovative strategy.

The Ground rules of Mutual Fund Investing

Assess yourself

1) Try to understand where the money is going

2) Don't rush in picking funds, think first

3) Invest. Don’t speculate

4) Don’t put all the eggs in one basket

5) Be regular

6) Do your homework

7) Find the right funds

8) Keep track of your investments

9) Know when to sell your mutual funds

68
 BIBILIOGRAPHY

I. TEXT BOOKS

Donald E Fischer
Security Analysis Portfolio Management
Ronald J Jordan

H.Sadhak Mutual Fund in India

II. WEB SITES

www.amfiindia.com

www.hdfcbank.com

www.icici.com

www.bseindia.com

www.nseinda.com

www.bluechipinda.co.in

III. MAGAZINES

Business India

Business World

IV. NEWS PAPERS

Economic Times

Business Standard.

69