INDUSTRY OVERVIEW

Mutual funds An Overview A mutual fund is a pool of money collected from investors and is invested according to stated investment objectives. Mutual fund investors are like shareholders and they own the fund. A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. Mutual fund investors are not lenders or deposit holders in a mutual fund. Everybody else associated with a mutual fund is a service provider, who earns a fee. The money in the mutual fund belongs to the investors and nobody else. Mutual funds invest in marketable securities according to the investment objective. The value of the investments can go up or down, changing the value of the investors holdings. The net

asset value (NAV) of a mutual fund fluctuates with market price movements. The market value of the investors funds is also called as net assets. Investors hold a proportionate share of the fund in the mutual fund. New investors come in and old investors can exit at prices related to net asset value per unit.

Organization of Mutual fund: - There are many entities involved and the diagram below illustrates the organizational set up of a Mutual Fund:

Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very important risk involved in Mutual Fund investments is the market risk. However, the company specific risks are largely eliminated due to professional fund management.

Characteristics of Mutual Funds 1. A Mutual Fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hands of the Investors. 2. A Mutual Fund is managed by investment professional and other Service providers, who earns a fee for their services, from the funds. 3. The pool of Funds is invested in a portfolio of marketable investments. 4. The value of the portfolio is updated every day.

5. The investors share in the fund is denominated by units. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV). 6. The investment portfolio of the mutual fund is created according to the stated Investment objectives of the Fund.

Objectives of Mutual fund 1. To Provide an opportunity for lower income groups to acquire without much difficulty, property in the form of shares. 2. To Cater mainly of the need of individual investors, whose means are small. 3. To Manage investors portfolio that provides regular income, growth, Safety, liquidity, tax advantage, professional management and diversification.

Structure of Mutual Fund

Sponsor: Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the

Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee: Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manners.

Regulatory of Mutual Fund in India Role of SEBI: The capital market regulates the mutual funds in India. SEBI requires all mutual funds to be registered with them. SEBI issues guidelines for all mutual funds operations-investment, accounts, expenses etc. Recently, it has been decided that Money Market Mutual Funds of registered mutual funds will be regulated by SEBI through (Mutual Fund) Regulations 1996. y Role of RBI : A supervisor of the Banks owned Mutual Funds-As banks in India come under the regulatory Jurisdiction of RBI, banks owned funds to be under supervision of RBI and SEBI. RBI has supervisory responsibility over all entities that operate in the money markets. y Role of Ministry of Finanace(MOF) :Ministry of Finance ultimately supervises both the RBI and the SEBI and plays the role of apex authority for any major disputes over SEBI guidelines. y Role of Company Law Board : Registrar of companies is called Company Low Board. AMCs of Mutual Funds are companies registered under the companies Act 1956 .

Role of Stock Exchange Stock Exchanges are Self-regulatory organizations supervised by SEBI. Many closed ended funds of AMCs are listed as stock exchanges and are traded like shares.

Role of office of the public trustee: Mutual Fund being public trust is governed by the Indian Trust Act 1882. The Board of trustee or the Trustees Company is accountable to the office of public trustee, which in turn reports to the Charity commissioner. transaction, online RTGS, clearing system helps the industry a lot.

Evolution of Mutual Funds in India The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: y Phase I. Establishment and Growth of Unit Trust of India (1963-1987) Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. By the end of 1987, UTI's assets under management (AUM) grew ten times to Rs.6700crores. y Phase II. Entry of Public Sector Funds (1987-1993) The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased

seven times to Rs.47, 004 crores. However, UTI remained to be the leader with about 80% market share. y Phase III. Emergence of Private Sector Funds (1993-1996) The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. y Phase IV. Growth and SEBI Regulation (1996-2004) The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by Securities and Exchange Board of India (SEBI) and Association of Mutual Funds of India (AMFI), with an objective to educate investors and make them informed about the mutual fund industry. In 1999, there was a significant growth in mobilization of funds from investors and assets under management which is supported by the following data: TABLE 1 Gross Fund Mobilization (Rs. In crores) FROM TO UTI PUBLIC SECTOR 01-Apr-98 01-Apr-99 31-Mar-99 31-Mar-00 31-Mar-01 01-Apr-00 01-Apr-01 31-Mar-02 4,643 13,613 1,46,267 1,64,523 11,679 13,536 12,413 1,732 4,039 6,192 PRIVATE SECTOR 7,966 42,173 74,352 21,377 59,748 92,957 TOTAL

01-Apr-02 01-Feb-03 01-Apr-03 01-Apr-04 01-Apr-05

31-Jan-03 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06

5,505 -

22,923 7,259 68,558 1,03,246 1,83,446

2,20,551 8,435 5,21,632 7,36,416 9,14,712

2,48,979 65,694 5,90,190

10,98,158

Source: www.appuonline.com

Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

Mutual Fund Industry in India Though the evolution of Mutual Fund industry was marked by the formation of UTI in 1963, the UTI Act was repealed in February 2003 and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. The continuing phase of growth of the Mutual Fund industry through the consolidation and entry of new international and private sector players can best be illustrated as follows:

Source: www.appuonline.com Players in the Mutual Fund Industry With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI is the apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The Mutual fund performance can be known by its Net Asset Value (NAV). It is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. It is necessary for all top mutual funds in to put their NAVs on the web site of Association of Mutual Funds in India (AMFI). Thus the investors can access NAVs of all mutual funds at one place. Some of the major players on the Indian mutual fund scene are

y y y y y y y y y y y y y y

ABN AMRO Mutual Fund Benchmark Mutual Fund Birla Mutual Fund BOB Mutual Fund Canbank Mutual Fund Chola Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Investments HDFC Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund Factors impacting the industry

Kotak Mahindra MutualFund LIC Mutual Fund Morgan Stanley Mutual Fund PRINCIPAL Mutual Fund Prudential ICICI Mutual Fund Reliance Mutual Fund Sahara Mutual Fund SBI Mutual Fund Standard Chartered Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund JM Financial Mutual Fund

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

Economic factors y Market performance: The last five years witnessed a sharp rise in the markets. The mutual fund industry basically works parallel with the markets. Suppose, if the markets always be on downside, then the investors will not be so comfortable to invest. This will reduce the market size drastically. y Global Standards: As the industry will grow better, India being a global economy, the MF industry has to match to the global mature MF markets. They have to give due emphasis on product innovation, cost reduction and penetration. y Inflation: price rise affects interest rate and reduces the chances of investment.

Social factors y Consumer behaviour: this is very unpredictable and based on sentiments gets changed very frequently, which sometimes makes selling of products difficult. y Income: The rich people are in bigger cities, so the mutual fund industry is much more concentrated there. y Technological factors: This is the era of information technology and due to net banking, online transaction, clearing system helps the industry a lot. Types of Mutual Funds

Mutual Funds are of various categories according to their stated objectives. Mainly their classifications are as follows: 1. Based on term or structure of fund: y Open ended and closed ended fund

2. Based on investment objective: y Equity, Balanced and Debt fund

These funds are further sub-divided as follows:

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y y y y y y y

Equity funds consist of the following; Index fund Dividend yield fund Equity diversified fund Thematic fund Sector fund ELSS fund

Balanced fund further consists of the following: y y Debt-oriented fund and Equity-oriented fund

Debt funds are further subdivided into the following: y y y y y y y Liquid fund Gilt fund Income fund FMPs(fixed maturity plan) Floating rate fund Arbitrage funds MIPs (monthly income plan)

Mutual funds can also be categorized based on the following objectives: 1. Based on load charged: y Load and no-load fund

2. Based on market capitalization:

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Small-cap, Mid-cap and Large-cap funds

3. Type of investors: y Offshore and pension funds

4. Management style: y Managed and index funds

The classifications stated earlier can better be illustrated using the following chart:

Classification of Mutual Fund Schemes Classification of Mutual Fund schemes: Schemes are classified as Close-ended or Open-ended depending upon whether they give the investor the option to redeem at any time (open-ended) or whether the investor has to wait till maturity of the scheme.

Open ended funds: The units offered by these schemes are available for sale and repurchase on any business day at NAV based prices. Hence, the unit capital of the

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schemes keeps changing each day. Such schemes thus offer very high liquidity to investors. An open-ended fund is not obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stock exchange the units can be traded like stocks. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. Equity Schemes These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short-term. They are ideal for investors who have a long-term investment horizon . Balanced fund It is a mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessive risk. The purpose of balanced funds (also sometimes called hybrid funds) is to provide investors with a single mutual fund that combines both growth and income objectives, by investing in both stocks (for growth) and bonds (for income). Such diversified holdings ensure that these funds will manage downturns in the stock market without too much of a loss. The flip side, of course, is that balanced funds will usually increase less than an all-stock fund during a bull market.

Debt Schemes These schemes, also commonly known as Income Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital

appreciation. These schemes are ideal for conservative investors or those who are not in a position to take higher equity risks.

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Sector Specific Equity Schemes These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. In order to succeed, the sector of the sectoral fund must be big enough, with enough stock and must have long term potential. An investment in a Sectoral fund can have an impact only when it is held on for a long term.

Tax Saving Schemes Investors are being encouraged to invest in equity markets through Equity Linked Savings Scheme (ELSS) by offering them a tax rebate. Here, the units purchased cannot be assigned / transferred/ pledged / redeemed / switched - out until the completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to SEBI (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. Investors can also avail a tax benefit of Rs.1 lakh under the section 80C of Income Tax Act, 1961.

Dividend yield funds These are the diversified equity funds, which invest predominantly in stocks with a high dividend yield. Dividend yield is defined as the dividend per share divided by the stock's market price at the time of investment. The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies' share prices). Traditionally, stocks with a high dividend yield are considered to be attractive investments, as they tend to be stable performers over longer time frames and are generally exposed to the lowest risk level as compared to other equity funds.

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Diversified equity fund Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.

Thematic fund Thematic funds were meant to be the solution to that malaise. Thematic funds invest in a theme rather than in a single sector. So while the fund managers investment options remained restricted to the theme, there are still several sectors to choose from within that theme. A theme like infrastructure for instance, has several related sectors like cement, steel, capital goods/engineering as also unrelated sectors like banking and finance. Hence during stock-picking, the fund manager of a thematic fund has more flexibility compared to a fund manager of a sectoral fund.

Income Schemes These schemes invest in money markets, bonds and debentures of corporate companies with medium and long-term maturities. These schemes primarily target current income instead of capital appreciation. Hence, a substantial part of the distributable surplus is given back to the investor by way of dividend distribution. These schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to long term investment horizon and are looking for regular income through dividend or steady capital appreciation.

Gilt Funds These mutual funds are the safest type of debt funds available since they invest in bonds backed by the full faith of the government. These funds invest in Government of

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India and state government securities and bonds that are guaranteed by the central and state governments. Hence, the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free.

Liquid funds Liquid funds are used primarily as an alternative to short-term fixed deposits. They invest in short-term debt instruments with maturities of less than one year. Therefore, they invest in money market instruments, short-term corporate deposits and treasury. The maturity of instruments held is between three and six months. A liquid fund provides good liquidity, low interest rate risk and the prevailing yield in the market. Returns from deposits are taxable depending on the tax bracket of the investor, which considerably pulls down the actual return. Dividends from liquid funds are tax-free in the hands of investor, which is why they are more attractive than deposits. But a Dividend Distribution Tax of 14.16% for individual and 28.32 for corporate is deducted if dividend option is chosen while investing.

Arbitrage funds Arbitrage funds are often promoted by fund houses as risk-free investments. As a strategy, arbitrage involves simultaneous purchase and sale of identical or equivalent instruments from two or more markets in order to benefit from a discrepancy in their prices. The profit in arbitrage strategy is the difference between the prices of the instrument in different markets (like cash and derivative markets for instance).

Fixed maturity plan (FMP) A FMP is a type of a mutual fund that invests in financial instruments whose maturity date coincides with a specific time period indicated in advance by the fund. FMPs primarily invest in debt instruments and money market instruments. The instruments are held till maturity and give less volatile returns to the investor in comparison to equity funds. These plans suit investors who have a time horizon of 15 days, 1 month, 3 months, 6 months and 1 year. Few schemes are also available with a maturity of 3 years and 5 years. FMPs are also less risky than equity funds because of the kind assets they invest in. FMPs help in the mitigation of interest rate risk, credit risk and liquidity risk.

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Monthly income plan (MIP) MIPs are debt-oriented funds with a mandate to invest a portion (generally upto 20 per cent) of their assets in equities. They operate on the proposition of combining the power of equities with the stability of debt. Though MIPs are intended to offer monthly income, like other market-linked investment avenues, this income is not assured. The distribution of income (in form of dividends) is a factor of availability of distributable surplus. MIPs are typically suited for investors with a low to modest risk appetite. Investors who would have typically invested in debt funds or assured return instruments like fixed deposits can consider investing in MIPs if they are willing to take on a higher degree of risk for generating higher returns. Load fund A mutual fund that comes with a sales charge or commission is basically referred to as a load fund. The fund investor pays the load, which goes to compensate a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund for the investor. The load is paid up front at the time of purchase (entry load), when the shares are sold (exit load), or as long as the fund is held by the investor (level-load). No-load fund Mutual funds in which shares are sold without a commission or sales charge are referred to as a no-load fund. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. Because there is no transaction cost to purchase a no-load fund, all of the money invested is working for the investor. Large cap funds Large cap funds are those which seek capital appreciation by investing primarily in stocks of large blue chip companies with above-average prospects for earnings growth. Different mutual funds have different criteria for classifying companies as large cap. Generally, companies with market capitalization in excess of Rs.1000crore are known large cap companies. Investing in large caps is a lower risk-lower return proposition, as such companies are usually widely researched and information is widely available

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Mid cap funds Mid cap funds are those mutual funds, which invest in medium sized companies. i.e.: these companies have a market capitalization between Rs.500crore and Rs.1,000crore. Big investors like mutual funds and Foreign Institutional Investors are increasingly investing in mid caps nowadays because the price of large caps has increased substantially. Such companies offer higher growth potential and therefore an opportunity to benefit from higher than average valuations. Small cap funds Small cap funds are those mutual funds, which invest in small sized companies, i.e.: companies that have market capitalization of just upto Rs.500crore. Just like mid-cap funds, investors prefer small cap funds too due to the price rise of large cap funds. Since the small sized companies tend to be under researched, thus they present an opportunity to invest in a company that is yet to be identified by the market. Such companies offer higher growth potential going forward and therefore an opportunity to benefit from higher than average valuations. Offshore fund Offshore funds are those that invest in securities of foreign companies, after requisite permission from RBI. The objective behind launching offshore funds is to attract foreign capital for investment in the country of the issuing company. These funds facilitate cross border fund flow, which is a direct route for getting foreign currency. From the investment point of view, offshore funds open up domestic capital markets to the international investors and global portfolio investments. Pension fund Pension Plan helps an investor to accumulate wealth over a period in order to meet his/her expenses after retirement. Usually it is the insurance companies that draw customers with an array of pension plans. Lesser known is the fact that Mutual Fund also manages pension products. Currently the only mutual fund which caters to the investors pension need is the Templeton India Pension Plan (TPP), countrys first and only central government approved private sector pension scheme under Section 88. Investing in this pension plan provides tax saving benefits similar to tax saving Mutual

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Funds (ELSS) and other investing instruments such as National Saving Certificate (NSC) and Public Provident Fund (PPF). Though both tax saving mutual funds and pension plans are in the same investment genre as they offer tax-deduction benefits, both have varying rates. The investment amount on which tax benefits can be claimed by investing in tax-saving funds is restricted to a maximum permissible limit of Rs 10,000 (approximately). Index schemes An Index is used as a measure of the performance of the market as a whole, or a specific sector of the market. It also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Hence an index fund builds its portfolio by buying stock in all the companies of a particular index. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors. Managed funds Managed funds - also known as unit trusts - are vehicles that allow the investor to pool their money with a number of other investors into a single fund that then is able to invest in assets that might otherwise be out of reach. Managed funds are basically funds managed for you by others - namely, investment professionals such as fund managers. Managed funds can invest in a variety of assets including shares, property and fixed interest or a combination of these. All managed funds have a prospectus which allows one to know where the funds are being invested. Some of the other innovative funds that have been launched by the mutual fund players are as follows: Money Market Schemes Money market funds are generally the safest and most secure of mutual fund investments. The goal of a money-market fund is to preserve principal while yielding a modest return. These schemes invest in short term instruments such as commercial paper ("CP"), certificates of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call"). The schemes are the least volatile of all the types of schemes because

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of their investments in money market instrument with short-term maturities. These schemes have become popular with institutional investors and high net-worth individuals having short-term surplus funds. When investing in a money-market fund, attention should be paid to the interest rate that is being offered.

Fund of funds A fund of funds is a mutual fund scheme that invests primarily in other schemes of the same mutual fund or other mutual funds. Hence, it is a step ahead of mutual fund in the sense that while a mutual fund keeps a track of the stocks it invests, a fund of fund keeps track of the mutual funds it invests and hence manages the portfolio on behalf of investors. Such funds are treated as a debt-oriented fund for tax purposes. Fund of funds are designed to achieve greater diversification than traditional mutual funds. But on the flipside, expense fees on fund of funds are typically higher than those on regular funds because they include part of the expense fees charged by the underlying funds. Derivative funds They invest in the derivative market which limit the downside risk by selecting hedging approach and also offer additional return through shorting procedure.

Exchange Traded Fund (ETF) An ETF is one whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in the selected market index. An ETF invests in a basket of stocks which blindly mimics a chosen market index. And unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock. The investment objective of an ETF is to achieve the same return as a particular market index.

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The table below depicts the risk profile of certain popular types of mutual fund schemes: Table 2

Investment Pattern Risk Profile of Various Types of Schemes Scheme Type Ope Objective n ende d Money market Income Growth Balanced Yes No Short Term Med-Long Term Long Term Long Term Low LowMedium High MediumHigh High 0 0-20 80100 0-20 0-40 80100 80-100 Close ended Equity % Debt % Money Mkt. / others % Time Horizon Risk Profile Typical Investment Pattern

Yes Yes Yes

Yes Yes Yes

0 80-100 0-60

0-20 0-20 0-20

Tax Saving

Yes

Yes

Long Term

80-100

0-20

Valuation of Investment A mutual fund manages the investors money on their behalf. Hence, the investors hold the right to be informed of the value of their investments on a regular basis. The value of a mutual funds investment is reflected in the net asset value. In simple words, Net Asset Value (NAV) is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.

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NAV= (Receivables + accrued Income - liability - accrued liability) / no. of shares per unit outstanding Regulations require the NAV of a scheme to be calculated and published in atleast two newspapers on a weekly basis. However close-ended schemes which do not necessarily have to be listed on stock exchanges, may do so on a monthly or quarterly basis, subject to permission by SEBI. But now-a-days, mutual funds have recently started updating the NAV and sale/repurchase prices of their schemes on the website www.amfiindia.com. Hence SEBI has decided in consultation with AMFI that all mutual funds should update their NAVs and sale/repurchase prices on AMFI website by 8.p.m. everyday. This will help the investors and the newspapers to access the NAVs of all the mutual funds at one place.

Ways of Investing in Mutual Funds

One-time outright payment

Here, in order to invest directly in the fund, one just needs to hand over the cheque and the fund units will be received depending on the value of the units on that particular day. E.g.: to invest Rs.10,000, all that has to be done is to approach the fund and buy units worth Rs.10,000. The two factors that will determine the number of units that will be received are entry load and the net asset value. Systematic Investment Plan (SIP)

This plan, which is based on rupee cost averaging, allows investors to invest a fixed amount at regular intervals. This gives the investor a way to save and invest in a disciplined and phased manner.

Automatic Reinvestment Plan (ARP)

The reinvestment plan, as the name suggests, can be either in the same scheme or in another scheme of the same fund. The scheme has two options, dividend option and growth option. The reinvestment happens at ex-dividend NAV. Investor is allotted extra units equivalent to dividend due less dividend tax, if any.

Systematic Transfer Plan (STP)

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STP provides a facility to transfer on a periodic basis a specific amount from one scheme to another scheme of the same mutual fund. The redemption from the old scheme and investment in new scheme happen at the applicable NAVs.

Advantages of Mutual Fund Investment Small investors usually do not have the necessary expertise and the time to undertake any study that can facilitate informed decisions on stock market investments. While this is the predominant reason for the popularity of mutual fund, there are many other benefits that can accrue to small investors. Some of the advantages are listed below: y Diversification benefits: Diversified investment improves the risk-return profile of the portfolio. Diversification becomes possible as the corpus of a mutual fund is bigger compared to individual investment. y Low transaction cost: Large volume of investments attract lower brokerage commissions as compared to the smaller volumes of transactions entered into by individual investors. Brokers quote a lower rate of commission due to two reasons. First is competition for institutional investors business. Second reason is that the overhead costs for executing a trade do not differ much for large and small orders. Hence, for large order, these costs spread over a larger volume, enabling the broker to quote a lower commission rate. y Availability of various schemes: Investors can chose between regular income schemes and growth schemes, between schemes that invest in the money market and those that invest in stock market, etc. some schemes provide added advantage. For example, automatic reinvestment schemes reinvest the distributed income automatically, thus making the management of funds easier. y Professional management: Mutual funds are generally managed by

knowledgeable, experienced professionals who are solely devoted to tracking and updating the portfolios. Hence apart from saving time, mutual funds also provides better results for the investor y Liquidity: A mutual fund generally stands ready to buy and sell its units on a regular basis. Thus, it is easier to liquidate holdings in a mutual fund as compared to direct investment in securities. y Tax benefits: In India, the dividend received by the investor is tax free. This enhances the yield on mutual fund marginally as compared to income from other investment options. Also, in the case of long-term (more than one year) capital gains, the investor need not pay for all equity purchases after March1, 2003.

23

Flexibility: Mutual fund possess features such as regular investment plan(SIP), regular withdrawal plan and dividend reinvestment plan. Because of these features, one can systematically invest or withdraw according to ones needs and convenience.

Well regulated: All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interest of investors. The operations of mutual funds are regulated by SEBI

Disadvantages of Mutual Fund Investment in mutual fund has its disadvantages as well, which are: y Investors cannot choose the securities they want to invest in, or the securities they want to sell. y y The investors also face the risk of fund managers not performing well. If the fund managers performance is linked to the fund performance, then hed be tempted to show god results for short-term without paying attention to long-term performance of the fund. y The management fees charged by the fund can also reduce the returns available to the investors. y Lastly, while investors in securities can decide the amount of earnings they want to withdraw in a particular period, investors in a mutual fund have no such discretion as the amount of earnings that are to be paid out to the investors in a particular year is decided by the mutual fund. ASSET MANAGEMENT COMPANY In order to understand the role and position of an Asset Management Company in the mutual fund concept, it is important to understand the structure of the flow of operations of a mutual fund.

24

Structure of an Asset Management Company

Sponsors

Investors

Mutual Fund (Trust)

Trustees

AMC

Make the right investment

The role of an Asset Management Company is highly significant in the mutual fund operations. They are the fund managers i.e., they invest the investors money in various securities (equity, debt and money market instruments) after proper research and analysis. They also look after the administrative functions of a mutual fund for which they charge management fee (subject to the ceiling prescribed by SEBI). It is the sponsor who appoints the asset management company (AMC) for the investment and administrative functions. The AMC does the research, and manages the corpus of the fund. It launches the various schemes of the fund, manages them and then liquidates them at the end of their term. It also takes care of the other administrative work of the fund. It receives an annual management fee from the fund for its services. There is also an Asset Management Agreement between the AMC and the Trustee.

25

Intermediary The role of intermediary is very important in the mutual fund industry. They act as link between the mutual fund companies and the investors. The intermediaries that include brokers, sub-brokers, investment houses like Bajaj Capital, not only help in the subscription of units but also provide guidance to the investors regarding investment in various mutual fund schemes.

Registrar as an Intermediary Other intermediaries like registrars and transfer agents performs activities which are associated with maintaining records concerning units already issued or to be issued by a company. On a broad reckoning, a registrar renders services in processing applications received by a company for the issue of its units and in the allotment of these units to the investors. As a transfer agent, he handles the work related to the transfer of units issued by a company. Other activities relating to dividend payment, investor grievance, etc, are also performed by the registrar. The Asset Management Company (AMC) is required to fulfil the following conditions: y It is required to be formed and registered under Companies Act, 1956. It is also required to be approved as an AMC by SEBI y y y It should hold the approval of the board of trustees It shall have a minimum net worth of Rs.100 million In an AMC, any of its directors, officers or employees shall not act as a trustee of any mutual fund or act as director in any other AMC y The board of directors of the AMC will consist of atleast 50% directors who are not associates of, or associated in any manner with the sponsor or any of its subsidiaries or the trustees. i.e. they should be independent y The minimum contribution of the sponsor should be atleast 40% of share capital of AMC y The appointment of the AMC can be terminated by the consent of majority of the trustees or by 75% of the unit holders of the scheme.

Channels of an Asset Management Company The various ways through which an Asset Management Company can distribute its mutual fund products to the customers are:

26

1. Direct selling y y y 2. Banks Public bank Private bank

3. Distributors y y Regional distributors National distributors

4. Individual financial Advisor

An AMC has the Following Obligations:

An AMC is responsible for floating schemes for the mutual fund and managing the funds mobilized under various schemes in accordance with the trust deed, SEBI regulations and the investment objectives stated in the offer document.

The details of transactions in securities by the key personnel of the AMC, whether in their own name, or on behalf of the AMC, have to be reported by the AMC to the trustees on a half-yearly basis. This is to help the trustees ensure that there is no front running or self dealing by either the AMC, or its key personnel.

The AMC is required to report to the trustees any securities transaction taken place with any of its associates. This requirement helps ensure that such transactions are not against the unit holders interest.

The AMC should inform the trustees and SEBI about the interest of its directors in other companies. This information should be updated every six months. It also has to report about the transaction of dealing in securities on a quarterly basis. This is to ensure that the funds corpus is not being utilized for the benefit of the sponsor, the AMC or its director, in a way that is detrimental to the unit holders interest.

It is the AMCs responsibility to appoint registrars and share transfer agents for the fund. It has to ensure that these parties are registered with SEBI.

It has to submit a report on the functioning of the schemes of the mutual fund to the trustees on a quarterly basis, or as at such intervals as required by the trustees

They should limit 5% of aggregate purchase and sales of Securities under all its scheme per broker per quarter

27

y y y

As far as possible, AMC should avoid services of its sponsor All security transactions with a Sponsor and his associates must be disclosed An AMC should also ensure disclosure of transactions with a company which has invested more than 5% on NAV in any scheme.

An AMC can do only the following businesses: y y y y Asset Management Services Portfolio Management Services Portfolio Advisory services In granting the approval for the AMC, SEBI takes into account the sound track record, general reputation, fairness in transactions and SEBIs explanation for sound track record is net worth, divided paying capacity and profitability of the AMC. Asset under Management (AUM) Asset under Management (AUM) denotes the market value of the assets that an investment company manages on behalf of investors. AUM is looked at as a measure of success against competition and consists of growth/decline due to both capital appreciation/losses and new money inflow/outflow. Factors that affect AUMs are foreign exchange movements, structural effects of the company, market performance i.e.:gains/losses and Net New Asset (NNAs). NNA refers to the amount of money that has come by way of any new investment from a client.

28

Table 3 Current AUMs of various fund houses (in alphabetical order)

Mutual fund

No

of

As on corpus

AUM

schemes AIG Global Investment Group Mutual Fund Axis Mutual Fund Baroda Pioneer Mutual Fund Benchmark Mutual Fund Bharti AXA Mutual Fund Birla Sun Life Mutual Fund Canara Robeco Mutual Fund Deutsche Mutual Fund DSP Blackrock Mutual Fund Edelweiss Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Fortis Mutual Fund Franklin Templeton Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund IDFC Mutual Fund ING Mutual Fund JM Financial MutualFund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund L&T Mutual Fund LIC Mutual Fund Mirae Asset Mutual Fund Morgan Stanley Mutual Fund Peerless Mutual Fund PRINCIPAL Mutual Fund 162 89 316 168 92 90 32 119 63 62 39 10 20 85 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 94,702.79 6,005.03 83,035.51 25,177.28 1,652.84 8,568.80 4,114.75 33,743.49 4,125.69 40,507.21 245.06 2,305.89 496.26 7,470.15 42 29 14 45 223 87 108 92 41 30 53 467 173 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 3,477.98 4,362.69 1,930.53 595.35 69,508.69 10,050.84 10,111.61 21,948.76 216.16 205.46 7,684.70 6,902.15 34,107.00 44 Apr 30, 2010 1,093.24

29

Quantum Mutual Fund Reliance Mutual Fund Religare Mutual Fund Sahara Mutual Fund SBI Mutual Fund Shinsei Mutual Fund Sundaram BNP Paribas Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund

11 186 86 44 116 11 147

Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010 Apr 30, 2010

101.34 111,819.33 13,829.25 804.57 39,826.35 222.28 14,361.18

169 47 200

Apr 30, 2010 Apr 30, 2010 Apr 30, 2010

22,051.27 2,347.23 79,456.70

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC) Internal Structure and Processes :

Management Team: HDFC Trustee company Limited: a company incorporated under the Companies Act, 1956 is the Trustee to the Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited. HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai-400020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 45.161crore. The present equity shareholding pattern of the AMC is as follows :

Particulars HDFC Limited Standard Life Investments Limited

% of the paid up equity capital 60 40

30

HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the CRISIL Fund House Level 1 rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at HDFC AMC It is the only fund house to have been assigned this rating for two years in succession. Over the past, we have won a number of awards and accolades for our Performance. HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999.

STRENGTHS y Wide range of products: The AMC has got good number of differentiated products in the entire asset class. y Consistent performance: The funds have given consistent performance over 10 years. y Experienced team: HDFC has fund managers with rich experience whose consistent performance has made this AMC CRISIL level one fund house. y Strong Compliance: The AMC has very strong compliance of industry set rules to protect the interest of the investors. y Risk management team: AMC has a separate risk management team which constantly monitors the risk exposure related to different fund management.

WEAKNESSES y Restrictive reach: HDFC business is more concentrated on urban areas. HDFC has very limited offices. y Less Aggressive in Marketing and execution: HDFC does match the

aggressiveness required in the industry and are slow in execution.

31

ACHIEVEMENT AND AWARDS

HDFC Prudence fund has been ranked ICRA-MFR 1, and Has Been awarded the Gold Award for Best Performance in the category of Open Ended Balanced Scheme for one year Period Ending Dec 31, 2005.

HDFC Tax saver fund has been ranked ICRA-MFR 1, and Has Been Silver award for Second Best Performance in the category of Open Ended Equity Linked Saving Scheme(ELSS) for Three year Period Ending Dec 31, 2005.

HDFC MIP~LTP has been ranked ICRA-MFR 1, and Has been awarded the Gold Award For Best Performance in the category of Open Ended Marginal Equity Scheme for one year Period Ending Dec 31, 2005.

Description of Hdfc products

1. Hdfc equity fund Investment objective: The investment objective of the Scheme is to achieve capital appreciation. Scheme information Nature of scheme Inception Date Option/Plan Open Ended growth scheme January 01, 1995 Dividend Option, Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. Entry Load (purchase / additional purchase / switchin) NIL (With effect from August 1, 2009)

32

Exit Load (as a % of the Applicable NAV)

In respect of each purchase / switch in of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment.. No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.

NAV details Plan name Dividend option Growth option NAV date 09 Jun 2010 09 Jun 2010 NAV amount 44.3600 241.3660

Investment pattern: Asset type Equities and Equity Related Instruments Debt & Money Market 0 - 20 Low to Medium Portfolio(%) 80 - 100 Risk profile Medium to High

Instruments Investment Strategy: In order to provide long term capital appreciation, the Scheme will invest

predominantly in growth companies. Companies selected under this portfolio would as far as practicable consist of medium to large sized companies which: 1. Are likely to achieve above average growth in the industry 2. Enjoy distinct competitive advantages. 3. Have superior financial strengths

33

Returns

HDFC Equity Fund(NAV as at evaluation date 30 April 2010, Rs. 244.512 Per unit) Fund Date period Nav unit(rs) March 30, 2010 Last 1127 days October 30, 2009 Last Six months (182 days) April 29, 2009 Last 1 Year (366 days) April 30, 2007 Last 3 Years (1096 days) April 29, 2005 Last 5 Years (1827 days) April 28, 2000 Last 10 Years (3654 days) January 1, 1995 Since Inception (5598 days) 10.000 23.17 10.28 21.860 27.28 15.11 65.356 30.16 20.91 151.160 17.37 8.93 127.097 92.04 63.81 209.023 16.98 13.36 142.602 19.08 per Returns(%) Benchmark returns(%) 11.22

S&P CNX 500 is the benchmark index. Absolute returns for funds less than one year and compounded annualized returns for funds more than one year. Fund Manager: Mr.Prashanth Jain

34

2. Hdfc Top 200 fund Investment objective: To generate long term capital appreciation from a portfolio that is invested in equity and equity related instruments primarily drawn from companies in BSE 200 index. Basic Scheme Information Nature of scheme Inception Date Option/Plan Open Ended growth scheme October 11, 1996 Dividend Option, Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. Entry Load (purchase / additional purchase / switchin) NIL (With effect from August 1, 2009)

Exit Load (as a % of the Applicable NAV)

In respect of each purchase / switch in of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment.. No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.

NAV details Plan name Dividend option Growth option NAV date 09 Jun 2010 09 Jun 2010 NAV amount 43.5760 184.3530

35

The investment strategy: It is of primarily restricting the equity portfolio to the BSE 200 Index scrips is intended to reduce risks while maintaining steady growth. Stock specific risk will be minimised by investing only in those companies / industries that have been thoroughly researched by the investment manager's research team. Risk will also be reduced through a diversification of the portfolio. Investment pattern Asset type Equities and Equity Related Instruments Debt & Money Market 0 - 20 Low to Medium Portfolio(%) 80 - 100 Risk profile Medium to High

Instruments Returns

HDFC top 200 Fund(NAV as at evaluation date 30-April-2010, Rs. 187.894Per unit) Fund Date period Nav unit(rs) March 30, 2007 Last 1127 days October 30, 2009 Last Six months (182 days) April 29, 2009 Last 1 Year (366 days) April 30, 2007 Last 3 Years (1096 days) April 29, 2005 Last 5 Years (1827 days) April 28, 2000 Last 10 Years (3654 days) October 11, 1996 Since Inception 10.000 25.98** 15.57** 16.100 27.82** 15.84** 49.931 30.31** 22.1** 111.805 18.87** 10.2** 107.584 74.38**~ 66.28**~ 166.119 13.11* 13.62* 104.504 20.92** per Returns(%) Benchmark returns(%) 12.35**

36

(4949 days)

y y y y

*Absolute Returns **Compounded Annualised Returns Benchmark index BSE 200 Fund Manager: Mr.Prashanth jain

3. Hdfc tax saver Investment objective: To generate long term capital appreciation

Basic Scheme Information Nature of scheme Open Ended Equity Linked Savings

Scheme with a lock-in period of 3 years Inception Date Option/Plan December 18, 1995 Dividend Option, Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. Entry Load (purchase / additional purchase / switchin) NIL (With effect from August 1, 2009)

Exit load (as a % of the Applicable NAV)

No Exit Load shall be levied on bonus units and units allotted on dividend reinvestment

NAV details

Plan name Dividend option Growth option

NAV date 09 Jun 2010 09 Jun 2010

NAV amount 58.3840 207.8220

37

Investment pattern: The asset allocation under the respective Plans will be as follows

Asset type Equities and Equity Related Instruments Debt & Money Market

Portfolio(%) Minimum 80%

Risk profile Medium to High

Maximum 20%

Low to Medium

Instruments

Investmnet strategy Debt securities (in the form of non-convertible debentures, bonds, secured premium notes, zero interest bonds, deep discount bonds, floating rate bond / notes, securitised debt, pass through certificates, asset backed securities, mortgage backed securities and any other domestic fixed income securities including structured obligations etc.) include, but are not limited to : Debt obligations of the Government of India, State and local Governments, Government Agencies and statutory bodies (which may or may not carry a state / central government guarantee), y Securities that have been guaranteed by Government of India and State Governments, y y Securities issued by Corporate Entities (Public / Private sector undertakings), Securities issued by Public / Private sector banks and development financial institutions. Money Market Instruments include : Commercial papers Commercial bills Treasury bills

y y y

38

y y y y y y

Government securities having an unexpired maturity upto one year Collateralised Borrowing & Lending Obligations (CBLO) Certificate of deposit usance bills Permitted securities under a repo / reverse repo agreement Any other like instruments as may be permitted by RBI / SEBI from time to time

Returns

HDFC tax saver fund(NAV as at evaluation date 30-April-2010, Rs. 209.191 unit) Fund Date period Nav unit(rs) March 30, 2007 Last 1127 days Last Six months (182 days) Last 1 Year (366 days) Last 3 Years (1096 days) Last 5 Years (1827 days) Last 10 Years (3654 days) Since March 31, 1996 Inception (5143 days) 10.000 32.51** 13.88* 112.05 86.38**~ 63.81**~ 177.317 17.98* 13.36* 133.882 15.55** per Returns(%) Benchmark returns(%) 11.22**

October 30, 2009

April 29, 2009

April 30, 2007

144.308

13.16**

8.93**

April 29, 2005

68.640

24.94**

20.91**

April 28, 2000

18.820

27.2**

15.11**

y y y

*Absolute Returns **Compounded Annualised Returns Benchmark index S&P CNX 500

39

Fund Manager: Mr. Vinay Kulkarni

4. Hdfc prudence fund Investment objective: To provide periodic returns and capital appreciation over a long period of time from a judicious mix of equity and debt investments with an aim to prevent/minimize any capital erosion. Basic Scheme Information Nature of scheme Inception Date Option/Plan Open Ended Balanced Scheme February 01, 1994 Dividend Option, Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. Entry Load (purchase / additional purchase / switchin) NIL (With effect from August 1, 2009)

Exit load (as a % of the Applicable NAV)

In respect of each purchase / switchin of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment.

No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.

Plan name Dividend option Growth option

NAV date 09 Jun 2010 09 Jun 2010

NAV amount 29.0300 188.9920

40

NAV details

Investment pattern following table provides the asset allocation of the Scheme's portfolio.The asset allocation under the respective Plans will be as follows.

Asset type Equities and Equity Related Instruments Debt & Money Market

Portfolio(%) 40 - 75%

Risk profile Medium to High

25 - 60%

Low to Medium

Instruments

Investment Strategy: As outlined above, the investments in the Scheme will comprise both debt and equities. The Fund would invest in Debt instruments such as Government securities, money market instruments, securitised debts, corporate debentures and bonds, preference shares, quasi Government bonds, and in equity shares. In the long term, the mix between debt instruments and equity instruments is targeted between 60:40 and 40:60 respectively. The exact mix will be a function of interest rates, equity valuations, reserves position, risk taking capacity of the portfolio without

compromising the consistency of dividend pay out (in the case of Dividend Plan), need for capital preservation and the need to generate capital appreciation.

41

HDFC prudence fund (NAV as at evaluation date 30-April-2010, Rs. 188.453 per unit) Fund Date period Nav unit(rs) March 30, 2007 Last 1127 days October 30, 2009 April 29, 2009 Last 182 days Last 1 Year (366 days) 160.038 104.758 17.76* 79.61**~ 9.1* 33.82** 110.132 19** per Returns(%) Benchmark returns(%) 11.29**

Returns

42

April 30, 2007

Last 3 Years (1096 days)

115.438

17.73**

9.9**

April 29, 2005

Last 5 Years (1827 days)

60.743

25.38**

17.01**

April 28, 2000

Last 10 Years (3654 days)

#N/A

N.A.

N.A.

February 1, 1994

Since Inception (5932 days)

10.000

21.71**

N.A.

y y y y

*Absolute Returns **Compounded Annualised Returns Benchmark index CRISIL Balanced Fund Index Fund Manager: Mr. Prashant Jain

5. Hdfc Monthly Income Plan long term: The primary objective of Scheme is to generate regular returns through investment primarily in Debt and Money Market Instruments. The secondary objective of the Scheme is to generate long-term capital appreciation by investing a portion of the Scheme`s assets in equity and equity related instruments. However, there can be no assurance that the investment objective of the Scheme will be achieved. . Basic Scheme Information

Nature of scheme

An open-ended income scheme. Monthly income is not assured and is subject to availability of distributable surplus

Inception Date Option/Plan

December 26, 2003 Dividend Option, Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility.

Entry Load

NIL

43

(purchase / additional purchase / switchin)

(With effect from August 1, 2009)

Exit load (as a % of the Applicable NAV)

In respect of each purchase / switchin of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment.

No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment.

NAV details

Investment pattern following table provides the asset allocation of the Scheme's portfolio.The asset allocation under the respective Plans will be as follows Asset type Equities and Equity Related Instruments Debt & Money Market 25 Medium to High Portfolio(%) 75 Risk profile Low to Medium

Instruments

Plan name Long Term Growth Plan Long Term Monthly

NAV date 09 Jun 2010 09 Jun 2010

NAV amount 21.4471 12.7057

Dividend Option Long Term Quarterly 09 Jun 2010 13.1351

Dividend Option

44

Returns

y y y y

*Absolute Returns **Compounded Annualised Returns Benchmark index CRISIL MIP blended Index Fund Manager: Mr. Shobhit Mehrotra

6. Hdfc Liquid fund Investment objective: The primary objective of the Scheme is to enhance income consistent with a high level of liquidity, through a judicious portfolio mix comprising of money market and debt instruments. Basic Scheme Information Nature of scheme Open Ended High Liquidity Income

Scheme HDFC MIP fund(NAV as at evaluation date 30-April-2010, Rs. 21.4447 per unit) Inception Date Fund Date Option/Plan March 30, 2007 Last 1127 days October 30, 2009 April 29, 2009 Entry Load Last 182 days Last 1 Year October 17, 2000 per Returns(%)

period

Nav

Benchmark

unit(rs) returns(%) Dividend Plan,Growth Plan. The Dividend 14.7446 12.9** Plan offers Daily Dividend option 8.52**

(reinvestment facility only); Weekly and Monthly Dividend option (with payout 20.0979 6.7* 4.73* and Reinvestment facility). 17.2035 24.58** NIL (With effect from August 1, 2009) 14.987 12.67** 9.97**

(366 days) (purchase / additional purchase / switchApril 30, 2007 Last 3 Years in) (1096 days) April 29, 2005 Exit load Last 5 Years

8.2**

(1827 days) (as a % of the Applicable NAV) April 28, 2000 Last 10 Years (3654 days) December 26, 2003 Since Inception (2317 days) Nav details

11.300 NIL #N/A

13.65**

8.84**

N.A.

N.A.

10.000

12.77**

7.28**

45

Plan Name Daily Div Reinvest

NAV Date 09 Jun 2010

NAV Amount 10.1982

HDFC liquidfund(NAV Weekly Dividend Option as at evaluation date 30-April-2010, Rs. 18.305 per 09 Jun 2010 10.3129 Monthly Dividend Option Growth Plan unit) 09 Jun 2010 09 Jun 2010 10.2748 18.3939

Returns

46

Fund Date

period

Nav unit(rs)

per

Returns(%)

Benchmark returns(%)

Last 7 days Apr 23,10 Last 15 days Apr 15,10 Last 1 month Mar 30,10 Last 3 months (1096 Jan 29,10 days) Last 6months (1827 Oct 30,09 days) Last 1 year (3654 Apr 29,09 days) Last 3 years Apr 30,07 Last 5 years Apr 30,05 Since inception(3482 Oct 17,00 days)

18.28

0.08

0.06

18.27

0.18

0.14

18.23

0.37

0.31

18.12

0.99

0.97

17.94

1.98

1.67

17.54

4.33

3.17

14.994

6.87

6.37

13.21

6.73

6.21

10.00

6.54

N.A

y y y y

*Absolute Returns **Compounded Annualised Returns Benchmark index CRISIL liquid fund Index Fund Manager: Mr. Shobhit Mehrotra

Investment pattern: The following table provides the asset allocation of the Scheme's portfolio.The asset allocation under the respective Plans will be as follows.

47

Type of Instruments

Normal Allocation (% of Net Assets)

Normal Deviation (% of Normal Allocation) 50

Risk Profile of the Instrument

Money Market Instruments (including cash/ call money) Debt Instruments(including securitised debt)

50-90

Low

10-50

50

Low to Medium

Investment strategy: The Scheme will retain the flexibility to invest in the entire range of money market and debt instruments.

7. Hdfc cash management savings plan Investment objective The investment objective of the Scheme is to generate optimal returns while maintaining safety and high liquidity. Basic Scheme Information

48

Nature of scheme

Open

Ended

High

Liquidity

Income

Scheme Inception Date Option/Plan November 18, 1999 Growth Option, Daily dividend option (reinvestment facility only) and Weekly dividend option (with payout and Reinvestment facility). Entry Load (purchase / additional purchase / switchin) NIL (With effect from August 1, 2009)

Exit load (as a % of the Applicable NAV)

NIL

NAV details Plan Name Daily Div Reinvest Growth Option NAV date 09 Jun 2010 09 Jun 2010 NAV amount 10.6364 19.42

Investment pattern following table provides the asset allocation of the Scheme's portfolio.The asset allocation under the respective Plans will be as follows

Asset type Equities and Equity Related Instruments Debt & Money Market

Portfolio(%) Upto 100

Risk profile Low to Medium

Upto 100

Very low

Instruments

49

Returns

HDFC Cash management (NAV as at 30-April-2010, Rs. 19.3238 per

unit)

Date

period

NAV unit(Rs.)

per

Returns(%)

Benchmark returns(%0

Last 7 days Apr 23,10 Last 15 days Apr 15,10 Last 1 month Mar 30,10 Last 3 months Jan 29,10 (1096 days) Last 6months Oct 30,09 (1827 days) Last 1 year Apr 29,09 (3654 days) Last 3 years Apr 30,07 Last 5 years Apr 30,05 Apr 28 ,00 Nov 18,99 Last 10 years Since inception

19.30

0.09

0.06

19.28

0.19

0.14

19.24

0.41

0.31

19.11

1.09

0.97

18.91

2.16

1.67

18.46

4.61

3.17

15.75

7.04

6.37

13.84

6.89

6.21

10.07 10.00

6.73 6.54

N.A N.A

y y y y

*Absolute Returns **Compounded Annualised Returns Benchmark index CRISIL liquid fund Index Fund Manager: Mr. Anil Bamboli

50

REFERENCES

BIBLIOGRAPHY

Websites www.valuresearchonline.com Hdfc fund.com www.amfiindia.com www.mutualfundsindia.com www.investopedia.com Brochures and fact sheets of various funds from respective web pages

51