Chapter 4. HDFC Mutual Fund: A Case Study

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Chapter 4 HDFC Mutual Fund: A Case Study

4.1 Introduction

4.2 An Overview of Sponsor and Trustee of

Company

4.3 HDFC Balanced Fund

4.4 HDFC Equity Fund

4.5 HDFC Growth Fund

4.6 HDFC Tax Saver Fund

4.7 HDFC Top 200 Fund

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4.1 Introduction

The previous chapter dealt with the impact of liberalization on the Indian mutual funds industry. The chapter also dealt with the various issues and challenges of the industry, regulatory frame work for the industry, and the role of mutual funds in the mobilization of the house hold sector savings. The present chapter is devoted to the study of HDFC Asset Management Company Ltd (AMC), sponsors and trustee. The researcher has selected five schemes namely HDFC Balanced Funds(HBF), HDFC growth Funds(HGF), HDFC Equity Funds(HEF), HDFC Tax Saver(HTS) and HDFC TOP –200(HT200) to find out the performance of these funds in comparison to the market, their diversification and the relationships between these funds objectives and their risk characteristics.

4 .1.2 HDFC Asset Management Company Limited (AMC): An Overview

HDFC Asset Management Company Ltd (AMC) was established 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 400 020.

For investment management the trustee has appointed the HDFC Asset Management Company Limited. It manages the Mutual Funds. The paid up capital of the AMC is Rs. 25.161 crore 1_{.The present equity}

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Table 4.1

Equity Shareholding Pattern of HDFC Mutual Fund

Particulars % of the paid up equity capital

Housing Development Finance Corporation Limited 60 Standard Life Investments Limited 40 Source: Annual Reports of HDFC mutual funds

It can be observed from the table that HDFC is the bigger partner of the AMC having a share of 60percent while Standard Life Investment limited has share of 40percent2_{. To consolidate its business HDFC Asset}

Management Company took over Zurich Insurance Company (ZIC), the sponsor of Zurich India MF. The AMC entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. After getting necessary clearance, the following schemes as shown in table 4.2 were acquired by HDFC mutual funds on June 19, 2003. The schemes were than rechristened as can be observed from table 4.2. It is evident from the table that in total 8 schemes were acquired by HDFC Mutual Fund.

Table 4.2

New name of Zurich Mutual Funds

Former Name New Name

Zurich India Equity Fund HDFC Equity Fund Zurich India Prudence Fund HDFC Prudence Fund Zurich India Capital Builder Fund HDFC Capital Builder Fund

Zurich India TaxSaver Fund HDFC TaxSaver Zurich India Top 200 Fund HDFC Top 200 Fund Zurich India High Interest Fund HDFC High Interest Fund

Zurich India Liquidity Fund HDFC Cash Management Fund Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund* Source: Annual Reports of HDFC Mutual Funds

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The AMC at present managing 24 open-ended schemes and 13 closed ended Schemes of the HDFC Mutual Fund. Besides managing schemes the AMC is also providing portfolio management / advisory services and such activities which are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 8, 2006 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2007 to December 31, 2009.

4.2 An Overview of Sponsor and Trustee of Company

The HDFC Mutual Fund is being constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882, as per the terms of the trust deed dated June 8, 2000 with Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited as the Sponsors and HDFC Trustee Company Limited, as the Trustee. The Trust Deed has been registered under the Indian Registration Act, 1908. It is registered with SEBI, under registration code MF / 044 / 00 / 6 on June 30, 2000 3_.

4.2.1. Sponsors

The sponsors of HDFC Mutual Fund are Housing Development Finance Corporation Limited and Standard Life Investments Limited. Both have contributed sum of Rs. one lakh each to the trustee in the corpus of the Fund.

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4.2.2. Housing Development Finance Corporation Limited (HDFC)

HDFC was incorporated in 1977 as the first specialized Mortgage Company in India. It is a premier housing finance company in India. It provides financial assistance to corporate, individuals, and developers for the purchase or setting of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance is the prime activity of HDFC. It has a client base of around 10 lakh borrowers, around 10 lakh depositors, over 1, 23,000 shareholders and 50,000 deposit agents, as at March 31, 2009. The Company has a total asset size of Rs. 96,993 crore as at March 31, 2009 and cumulative approvals and disbursements of housing loans of Rs. 237,450 crore and Rs. 191,806 crore respectively as at March 31, 20094_{. It has raised funds from international agencies such as the}

World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated loans, domestic term loans from banks and insurance companies, bonds and deposits. It has received the highest rating for its deposits program for the fourteenth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. Beside housing business it has launched HDFC standard life insurance company, which was first insurance company to be granted certificate in 2000.

4.2.3. Standard Life Investments Limited

Standard Life Investments Limited is wholly owned subsidiary of Standard Life Investments (Holdings) Limited, which in turn is a wholly

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owned subsidiary of Standard Life plc. It is the investment management company of standard life. It has global assets under management of approximately US$ 169 billion as at March 31, 2009 and is one of the world's largest investment company5_{. It invests money on behalf of five}

million institutional and retail clients throughout the world. The company has its operation in USA, UK, Canada, Korea, Ireland and Australia making it a truly global investment company.

4.2.4 The Trustee

The function of the trustee is performed by the HDFC Trustee Company Limited (the "Trustee"). Its prime function is to ensure that the working of the AMC is being carried out in accordance with the "SEBI (MF) Regulations". It also reviews the activities carried on by the AMC.

After having a comprehensive discussion about the establishment of HDFC mutual funds, its organizational structure we will have a look at the sample funds chosen for the purpose of study. The following sample funds were chosen taking consideration about their duration of operation and their investment objectives. Attempts has been made that equal number of observation is taken to find out the result of empirical analysis.

4.3 HDFC Balanced Fund

This scheme was launched in August 2000. The primary objective of the Scheme is to generate capital appreciation. It also aims at to generating income by investing in portfolio consisting of equity, debt and money market instruments. The share of equity in portfolio is 60 percent whereas the share of debt is 40 percent. The entry load for the fund is 1.5 percent6_.

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Table 4.3 Basic Scheme Information Nature of Scheme Open Ended Balanced Scheme

Inception Date 9/11/2000

Option/Plan Dividend Option,Growth Option. The Dividend Option

offers Dividend Payout and Reinvestment Facility.

Entry Load Application routed through any distributor/agent/broker : (as a % of the Applicable NAV)

(Other than Systematic Investment Plan In respect of each purchase / switch-in of Units / Systematic Transfer Plan (STP)) less than Rs. 5 crore in value, an Entry

Load of 2.25% is payable.

In respect of each purchase / switch-in of Units

equal to or greater than Rs. 5 crore in value,

no Entry Load is payable.

Application not routed through any

distributor/agent/broker : Nil

No Entry Load shall be levied on bonus units and

units allotted on dividend reinvestment.

Exit Load

(as a % of the Applicable NAV)

(Other than Systematic Investment Plan In respect of each purchase / switch-in of Units / Systematic Transfer Plan (STP) less than Rs. 5 crore in value, an Exit

Load of 1.00% is payable. If Units are redeemed/switched

out within 1 year from the date of allotment

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No Exit Load shall be levied on bonus units and

Minimum Application Amount For new investors :Rs.5000 and any amount thereafter. (Other than Systematic Investment Plan For existing investors : Rs. 1000 and any amount thereafter. / Systematic Transfer Plan (STP)

Lock-In-Period Nill

Net Asset Value Periodicity Every Business Day.

Redemption Proceeds Normally despatched within 3 Business days

Source: HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue No.9 2.march,2008,p4

4.3.1. Investment Pattern

The investments under the schemes are made primarily in equity and equity related instruments as well as in debt and in money market instruments. The table 4.4 provides the asset allocation of the Scheme's portfolio.

Table 4.4

Asset allocation under the HDFC Balanced Fund Scheme Sr. No. Type of Instruments Normal

Allocation Normal Deviation

Risk Profile of (% of Net Assets) (% of Normal Allocation) the Instrumen t 1 Equity and Equity Related

Instruments 60 20

Medium to High 2 Debt Securities (including

securitized 40 30

Low to Medium debt) and Money Market

instruments

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However besides the above mentioned allocation of funds under equity and debt instruments, the AMC can invest in short term deposits of scheduled commercial banks as per the investment objectives of the schemes.

4.3.2. Investment Strategy

The investment strategy of HDFC Balanced Fund is aimed at lowering risk and maximizing return. In pursuance of this it allocates its fund in ratio of 6:4 in equity and debt respectively7_{. The Scheme also}

provides the Investment Manager to make investments as per the worthiness of the securities. This means that fund manager can exercise their power and make changes in assets allocation to meet the investment objectives of the schemes. As the allocation of the balanced fund is based on the mix of equity and debt their ratio is critical in determining future returns. A good balance between the two will optimize return and minimize risks.

4.3.3 Investments in Equity

The investment of HDFC balanced fund in equity is to generate incomes by investing in select category of assets class. For this, five principles are followed by the fund manager. They are as follows:

 To focus on the long term investment

 To view investments as conferring a proportionate ownership of the business.

 To maintain a margin of safety (i.e. the price of purchase represents a discount to the intrinsic value of that business)

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 To maintain a balanced outlook on the market by regularly monitoring economic trends and investor sentiment.

Thus any decision for investment taken is purely on the basis of reasons rather than any other parochial considerations. The decision to sell a holding would be based on one of three reasons:

 When the rise in value of equity has reached its optimum level and further improvement in the present level is not possible.

 When other avenues of investments offers better return, or

 A fundamental change has taken place in the company or the market in which it operates.

All these are however subject to elaborative research based on data and reasoning.

4.3.4 Debt Investments

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 / Securities issued by the Government of India, State and local Governments, Government Agencies and statutory bodies (which may or may not carry a state / central government guarantee).

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 Securities that have been guaranteed by Government of India and State Governments.

 Securities issued by Corporate Entities (Public / Private sector undertakings)

 Securities issued by Public / Private sector banks and development financial institutions.

4.3.5. Money Market Instruments

The investment in money market instruments includes the following:

 Commercial papers

 Commercial bills

 Treasury bills

 Government securities having an unexpired maturity upto one year

 Call or notice money

 Certificate of deposit

 Permitted securities under a repo / reverse repo agreement

 Any other like instruments as may be permitted by RBI / SEBI from time to time

The investment of HDFC balanced fund are made through Initial Public Offers, secondary market purchases, placement and right offers. The AMC has the liberty to invest in all types of securities, debt and money market instruments. The investments in debt are usually made in instruments ranked high investment grade by authorized rating agency. However if investment is to be made in unrated security than prior approval of the committee constituted for the purpose is required. This is in strict adherence to SEBI circular No. MFD/ CIR/9/120/20008_{. Further}

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approval of such investment by the AMC board and the trustee is required. The AMC also required to communicate details of such investments in their periodical reports to the trustee outlining the parameters adopted to compile the reports. The investment made in debt are less riskier than those in equity, money market instruments are even less riskier than debt instruments. The maturity profile of debt instruments is selected in accordance with the Fund Managers view regarding current market conditions, interest rate outlook and the stability of ratings.

4.3.6. Controlling Risk

The portfolio construction of HDFC balanced fund is done in a way by the fund manager to maintain the risk at moderate level. The Fund Manager avoids adopting either a very defensive or aggressive posture at any point of time. To control risk, portfolio is diversified and adequate level of liquidity is maintained to mitigate unforeseen circumstances. At the macro level, continuous review of business and economic environment is carried out to find out ongoing trend and take corrective measures likewise to minimize the risk. To earn higher rate of return the fund manager can make investments in securities and other instruments not mentioned earlier provided that such investment are in accordance with SEBI regulations.

The table 4.5 gives details of the portfolio of the HDFC balanced fund as on 31st_{March 2008. From the table it is evident that the total share}

of equity is 68.59. The reliance industries limited has maximum of 6.99 percent followed by Coramandal Fertilizers Ltd. ICICI Bank Ltd. has the least share of 3.45 percent. The debt and money market instruments

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together constitute a share of 28 percent. The total net asset of HDFC balanced fund as on 31st_{March, 2008 was 10047.03 lakh.}

Table 4.5

Portfolio – Top 10 Holdings (as at March 31, 2008)

Company/ issuer Industry / Rating %to NAV EQUITY & EQUITY RELATED

Reliance Industries Ltd. Petroleum products 6.99 Coramandal Fertilizers Ltd. Fertilizers 6.33 Balkrishna Industries Ltd. Auto Ancillaries 5.17 Sun Pharmaceuticals Industries Ltd. Pharmaceuticals 4.89 The Federal bank Ltd. Banks 4.31 KBC International Ltd. Power 3.94 Larsen & Turbo Ltd. Industrial Capital Goods 3.9

ITC Ltd. Consumer Non Durables 3.8 Crompton Greaves Ltd. Industrial Capital Goods 3.58

ICICI Bank Ltd. Banks 3.45 Total of Top Equity Holdings 46.36 Total Equity & Equity Related Holdings 68.59 Debt/Money Market Instruments Loan securitization trust- Grasim Industries Ltd. AAA(SO) 5.84

housing development Finance Co. Ltd AAA 4.76 Indian Oil Co. Ltd. LAAA 4.67 Loan securitization trust- Bajaj auto Ltd. AAA(SO) 4.46 CREDIT ASSET TR XVII ( SHRI TRARIN) AA(SO) 3.93 State bank of India AAA 2.59 Loan securitization trust- Reliance Industries Ltd. AAA(SO) 1.75 Total Debt/Money Market Instruments

(aggregated holding in a single issuer) 28 Other current assets (including reverse repos/CBLO 3.31

Grand Total 100

Net asset (Rs. In Lakh) 10047.03

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4.3.7 Performance Evaluation of HDFC Balanced Scheme

The grapph below shows the perfomance of HDFC Balanced schemes in comparison to the S&P CNX Nifty index chosen as bench mark for the study. It can been observed from the graph below that the performance of bench mark index is superior to that of the balanced schemes. The average return of the fund is 0.015146 whereas the average return of the market is 0.01814. However the funds return is more than that of risk free rate of return which is 0.001551.

Figure: 4.1

Comparison of HDFC Balanced Scheme and Market Return

Source:Compiled from appendix II- C and II – F

4.4 HDFC Equity Fund

The scheme was launched in January 1995. Its objective is to achieve capital appreciation. It can be observed from table 4.6 that it is an open ended scheme with no lock in period. Further it is also evident from table that NAV of the scheme is calculated on daily basis.

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Table 4.6

Basic Scheme Information of HDFC Equity Fund

Nature of Scheme Open Ended Balanced Scheme

Entry Load (as a % of the Applicable NAV) Application routed through any distributor/agent/broker : (Other than Systematic Investment Plan In respect of each purchase / switch-in of Units

/ Systematic Transfer Plan (STP)) less than Rs. 5 crore in value, an Entry Load of 2.25% is payable.

In respect of each purchase / switch-in of Units equal to or greater than Rs. 5 crore in value, no Entry Load is payable.

Application not routed through any distributor/agent/broker : Nil

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

Exit Load In respect of each purchase / switch-in of Units

(as a % of the Applicable NAV) less than Rs. 5 crore in value, an Exit

(Other than Systematic Investment Plan Load of 1.00% is payable. If Units are redeemed/switched / Systematic Transfer Plan (STP) out within 1 year from the date of allotment

In respect of each purchase / switch-in of Units equal to or greater than Rs. 5 crore in value, no Exit Load is payable.

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

Minimum Application Amount For new investors :Rs.5000 and any amount thereafter. (Other than Systematic Investment Plan For existing investors : Rs. 1000 and any amount thereafter. / Systematic Transfer Plan (STP)

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Source: HDFC Fact Sheet “In Touch Mutually”Vol.5, Issue No.9, March, 2008, p.3 4.4.1 Investment Pattern

The investment under the scheme is made primarily in equity and debt money market instruments. The table 4.7 provides the assets allocation of the schemes portfolio. The asset allocations under the Scheme are as follows:

Table 4.7

HDFC Equity Scheme

Sr.

No. Asset Type

(% of

portfolio) Risk Profile

1

Equity and Equity Related

Instruments 80-100 Medium to High

2

Debt % Money Market

Instruments 0-20 Low to Medium

Source: Compiled from Annual Reports of HDFC mutual funds

The Investment of the scheme in Securitised debt should not exceed 20% of the net assets of the schemes. It can also invest upto 25% of the net assets in derivatives such as futures and options or any such derivatives instruments launched during the period in order to hedge the fund and maximize return on investment9_{. All these are however subject to SEBI}

Mutual Funds Regulation.

The Scheme also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs),

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American Depositary Receipt (ADRs), overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time.

The HDFC equity scheme may engage in stock lending activities as per the SEBI MF Regulations. If the investment in equities and related instruments falls below 70% of the portfolio of the Scheme at any point of time, it would be endeavored to review and rebalance the composition. However the asset allocation pattern may change from time to time as per the prevailing market conditions, market opportunities and other macro economic factors. This is due to the reason that prime objective of the scheme is capital appreciation. This can not be sacrificed at any cost by the fund manager. Therefore in order to protect depreciation in NAV of the schemes the allocation of fund in equity, debt or other instruments can vary time to time. This change impacting basic attributes of the scheme shall be implemented only if it is in accordance with sub- regulation (15A) of regulation 18 of SEBI regulations.

4.4.2 Investment Strategy

To achieve long term capital appreciation the scheme invests in growth companies. The companies selected for investment are either medium or large sized company which:

 are likely achieve above average growth than the industry

 enjoy distinct competitive advantages, and

 have superior financial strength

This is done to construct a portfolio representing a cross – section of strong growth companies in the market. To reduce risk of volatility, the

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Scheme will diversify across major industries and economic sectors. Table- 4.8 represents the portfolio composition of the HDFC Equity Mutual Funds. It can be observed from table that the maximum investment of 8.97% of the HDFC equity scheme is in ICICI Bank Ltd. The total share of equity and equity related holdings is 99.3 percent while investments in other assets are 0.69 percent. The total net asset under the scheme is Rs. 394439.11 lakh.

Table 4.8

Portfolio – Top 10 Holdings of HDFC Equity Scheme (as at March 31, 2008)

Company Industry / Rating % to NAV

EQUITY & EQUITY RELATED

ICICI Bank Ltd. Banks 8.97

State bank of India Banks 5.52

Zee Entertainment Enterprise Ltd. Media & Entertainment 4.54

Oil & Natural Gas Co. Ltd Oil 4.4

Dr. Reddy Laborateries Ltd. Pharmaceuticals 4.31

Crompton Greaves Ltd. Industrial Capital Goods 4.24

Divi's Laboratories Ltd. Pharmaceuticals 3.75

Larsen & Turbo Ltd. Industrial Capital Goods 3.46

Sun Pharmaceuticals Industries Ltd. Pharmaceuticals 3.26

Tata Iron & Steel Co. Ltd. Famous Metals 3.17

Total of Top Ten Equity Holdings 45.62

Total Equity & Equity Related Holdings 99.31

Other current assets (including reverse repos/CBLO 0.69

Grand Total 100

Net asset (Rs. In Lakh) 394439.11

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4.4.3 Performance Evaluation of HDFC Equity Scheme:

The performance of HDFC Equity fund has been superior to the market for most of the period as it can be observed from the figure below, with the exception of few years when it return was lower than that of the bench mark index. Its average return during eight years period of study was superior to that of the market. The average return of the equity fund was 0.027109 whereas the average returns of the market 0.01814. Beside this the average fund return was superior to that of the risk free assets taken for the study.

Figure: 4.2

Comparison of HDFC Equity Scheme and Market Return

Source: Compiled from appendix II- A and II – F

4.5 HDFC Growth Fund

The HDFC Growth Fund was launched in 2000. It is open ended balanced scheme. Its aims to generate long term capital appreciation from investments in equity and equity related instruments. It can be observed from table 4.9 that both entry and exit load is charged in the scheme. There is no lock in period for the fund and the NAV is calculated on daily basis.

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Table 4.9

Basic Scheme Information of HDFC Growth Fund Nature of Scheme Open Ended Balanced Scheme

Option/Plan Dividend Option, Growth Option. The Dividend Option

Offers Dividend Payout and Reinvestment Facility.

No Entry Load is payable.

Units allotted on dividend reinvestment. Exit Load

no Exit Load is payable.

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Minimum Application Amount For new investors: Rs.5000 and any amount thereafter. (Other than Systematic Investment Plan For existing investors: Rs. 1000 and any amount thereafter. / Systematic Transfer Plan (STP)

Source: HDFC Fact Sheet “In Touch Mutually”Vol.5, Issue No.9, March, 2008, p.3 4.5.1 Investment Pattern

The corpus of the Scheme is invested primarily in equity and equity related instruments. The Scheme may however have a fraction of its funds invested in debt and money market instruments, in order to manage its liquidity requirements from time to time, and under certain circumstances, to protect the interests of the Unit holders. The fund has invested in as many as 52 stocks across 18 different sectors making it a fairly diversified portfolio. In the September 2007 to February 2008 period, the fund‟s corpus has increased by 48.2 per cent to Rs 924.5 crore, while the NAV per unit has increased only 16.6 per cent10_{. It can be observed from table 4.10 that}

80-100 percent of the corpus has been invested in equity and equity related instruments while the remaining is invested in debt and money market instruments.

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Table 4.10

Asset allocation under the HDFC Growth Scheme

Sr.

No. Type of Instruments

Normal Allocation Normal Deviation Risk Profile (% of Net Assets) (%of Normal Allocation) 1

Equity and Equity

Related Instruments 80-100 0

Medium to High

2

Debt Securities, Money

Market instruments 0-20 0

Low to Medium & Cash (Including

money at call)

Source: Compiled from Annual Reports of HDFC mutual funds

The investment of HDFC Growth scheme is based on the concept of sustainable earnings and cash return on investments. To fulfill the objectives of investment the scheme follows long term investment principle. To get better returns from investments made in equity the scheme follows the long term approach. As in long period of time the return from investment will be more stable. The fund manager before making investment in any stock ascertains the working strategy of the company, its growth, industry structure and quality of management. The strategy is not only limited to investment but also in selling the scrips either to generate profit or to avoid loss.

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As the investment of HDFC growth schemes are made through Initial Public Offers, secondary market purchases, placement and right offers. The AMC has the liberty to invest in all types of securities, debt and money market instruments. The investments in debt are usually made in instruments ranked high investment grade by authorized rating agency. However if investment is to be made in unrated security than prior approval of the committee constituted for the purpose is required. This is in strict adherence to SEBI circular No. MFD/ CIR/9/120/2000. Further approval of such investment by the AMC board and the trustee is required. The AMC also required to communicate details of such investments in their periodical reports to the trustee outlining the parameters adopted to compile the reports. The investment made in debt are less risky than those in equity, money market instruments are even less risky than debt instruments. The maturity profile of debt instruments is selected in accordance with the Fund Managers view regarding current market conditions, interest rate outlook and the stability of ratings.

From the table 4.11 it is evident that the maximum investment is made in ITC Ltd. (6.88%). This is followed by SBI (6.43%). It can also observed from the table that total equity and equity related holdings is 90.13 percent while the remaining share is 9.97 percent is invested in other assets. The net asset under management of growth scheme was Rs. 87867.92 Lakh as on March 31, 2008.

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Table 4.11

Portfolio – Top 10 Holdings of HDFC Growth Scheme (as at March 31, 2008)

Company Industry / Rating % to NAV ITC Ltd. Consumer Non Durables 6.88 State bank of India Banks 6.43 Reliance Industroes Ltd. Petroleum products 5.72 Divi's Laboratories Ltd. Pharmaceuticals 4.6 Bharat Heavy Electrical Ltd. Industrial Capital Goods 4.46 ICICI Bank Ltd. Banks 4.42 Bharti Airtel Ltd. Telecom- Services 4.23

HDFC Ltd. Finance 3.99

Crompton Greaves Ltd. Industrial Capital Goods 3.39 Suzlon energy Ltd. Industrial Capital Goods 3.3 Total of Top Ten Equity Holdings 47.42 Total Equity & Equity Related Holdings 90.13 Other current assets (including reverse repos/CBLO 9.97

Grand Total 100

Net asset (Rs. In Lakh) 87867.92 Source: HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue No.9 2.march,2008,p.10

4.5.3 Performance Evaluation of HDFC Growth Scheme:

It can be observed from the figure below that the return of the funds is superior that of the bench mark chosen for the study. The average fund return is 0.028283 which is more than that of the bench mark index 0.01814 and the risk free assets. This means that fund has done well during the period of study.

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Figure: 4.3

Comparison of HDFC Growth Scheme and Market Return

Source: Compiled from appendix II- B and II – F

4.6 HDFC Tax Saver Fund

HDFC tax saver is open-ended balanced linked savings scheme with three-year lock in period. It was launched in 1995. It aims to achieve long-term capital appreciation. It can be observed from table 4.12 that both entry and exit are charged on the scheme and net asset value periodicity is on daily basis.

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Table 4.12

Basic Scheme Information of HDFC Tax Saver Fund Nature of Scheme Open Ended Balanced linked savings scheme with a

lock-in-period of 3 years

(Other than Systematic Investment

Plan In respect of each purchase / switch-in of Units

/ Systematic Transfer Plan (STP)) less than Rs. 5 crore in value, an Entry

Exit Load

(as a % of the Applicable NAV) (Other than Systematic Investment

Plan No Exit Load shall be levied on bonus units and

/ Systematic Transfer Plan (STP) units allotted on dividend reinvestment.

Minimum Application Amount For new & existing investors :Rs.5000 and in multiples (Other than Systematic Investment

Plan thereafter

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Lock-In-Period 3 years from the date of allotment of the respective Units

Redemption Proceeds

Normally despatched within 3 Business days ( sub. To completion

of Lock -in - period)

Source: HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue No.9 2.march,2008,p.5

4.6.1 Investment Pattern

The investment of funds of HDFC TAX SAVER schemes is made predominantly in equity and equity related instruments. The table 4.13 presents the asset allocation pattern of funds of the schemes.

Table 4.13

Asset allocation pattern of HDFC Tax Saver Scheme

Sr. No. Asset Type (% of portfolio) Risk Profile

1

Equity and Equity Related

Instruments Minimum 80%

Medium to

High

2

Debt & Money Market Instruments ( Including

cash/ call money) Maximum 20%

Low to

Medium Source: Compiled from Annual reports of HDFC Mutual Funds It can be observed from the table that investment of HDFC Tax Saver scheme in equity and equity related instruments is 80 percent while in debt and money market instruments it is 20% at the maximum of the net assets of the scheme. Beside this the scheme may invest up to 25% of net assets in derivatives11_{. This investment is undertaken for hedging and}

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portfolio balancing. The adherence of SEBI regulations is mandatory before making any such investment.

The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), American Depositary Receipt (ADRs), overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time12_{. The scheme may also get engaged in stock}

lending activities as per the regulatory framework. The management of HDFC tax saver scheme would follow ELSS guidelines. In any case if the investment in equity and equity related instrument is below 80% than necessary measures would be undertaken for rebalancing the portfolio composition.

However the asset allocation pattern may change from time subject to various macroeconomic political and other factors. The pattern of asset allocation is flexible and can vary substantially depending upon the perception of the AMC. The sole focus is to protect the NAV of scheme. The alteration in investment pattern is a defensive mechanism adopted to ward of risk and maximize return. It is a short term measure to protect investor interest.

Provided further and subject to the above, any change in the asset allocation affecting the investment profile of the Scheme and amounting to a change in the Fundamental Attributes of the Scheme shall be effected in accordance with sub-regulation (15A) of regulation 18 of SEBI regulations.

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The investment of HDFC Tax Saver will be made in 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),

 Securities that have been guaranteed by Government of India and State Governments ,

 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

 Government securities having an unexpired maturity upto one year

 Call or notice money

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 Permitted securities under a repo / reverse repo agreement

 Any other like instruments as may be permitted by RBI / SEBI from time to time

Investments are made through secondary market purchases, initial public offers, other public offers, placements and right offers (including renunciation). The securities could be listed, unlisted, privately placed, secured / unsecured, rated / unrated of any maturity. The AMC retains the flexibility to invest across all the securities / instruments in debt and money market. Investments made from the net assets of the Scheme is in accordance with the features of the Scheme and the provisions of the SEBI regulations. To earn good return and ensure the safety of investment the AMC carries out measures to asses the risk in terms of credit risk, interest rate risk and liquidity risk. The credit risk analysis involves an assessment of the past track record and prospects for the company, the industry it operates in, the future cash flows from operations and the requirement for additional capital expenditure. An interest rate scenario analysis would be performed on an ongoing basis, considering the impact of the developments on the macro-economic front and the demand and supply of funds.

On the basis of the analysis the AMC makes investments in various avenues to earn good return. The inputs from various ratings are also utilized in the decision making process to arrive at good decision. Investment in bonds and debentures is usually in instruments that have been assigned high investment grade ratings by a rating agency registered with SEBI. For investment in unrated security the AMC may constitute a committee as required in SEBI Circular No. MFD/CIR/9/120/2000 dated

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November 24, 2000.The detailed parameters of such investment will be approved by the AMC and the Trustee. The AMC is also required to communicate the details of such investments in their periodicals to the trustee mentioning the details of the parameters used to compile the reports. However in case any unrated debt security does not fall under the parameters, the prior approval of Board of AMC and Trustee is required. The AMC will attempt to reduce liquidity risk by investing in securities that would result in a staggered maturity profile of the portfolio, investment in structured securities that provide easy liquidity and securities that have reasonable secondary market activity.

4.6.3 Investment Policies

Thus in pursuance of the investment objective of the scheme, investments are made primarily in security which offers better return and liquidity. It can be observed from table 4.14 that the maximum investment is in ITC Ltd. Followed by Larsen and Turbo Ltd. with a share of 6.46 and 5.43 percent respectively. The total equity and equity related holding is 94.64 percent while 5.36 percent is invested in other class of assets. The net asset under management is Rs. 134134.74 Lakh. The Scheme may also invest in suitable investment avenues in overseas financial markets for the purpose of diversification, commensurate with the Scheme objectives and subject to necessary stipulations by SEBI / RBI. Towards this, the Mutual Fund may also appoint overseas investment advisors and other service providers, as and when permissible under the regulations.

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Table 4.14

Portfolio – Top 10 Holdings of HDFC Tax Saver Scheme (as at March 31, 2008)

Company Industry / Rating % to NAV

ITC Ltd.

Consumer Non Durables 6.46 Larsen & Turbo Ltd. Industrial Capital Goods 5.43 ICICI Bank Ltd. Banks 5.36 Reliance Industroes Ltd. Petrolium products 5.07 Crompton Greaves Ltd. Industrial Capital Goods 4.96 Thermax Ltd. Industrial Capital Goods 4.23 Bharat Heavy Electricals Ltd. Industrial Capital Goods 4 State bank of India Banks 3.72 Suzlon energy Ltd. Industrial Capital Goods 3.44 Oil & Natural Gas Co. Ltd Oil 3.42 Total of Top Ten Equity Holdings 46.09 Total Equity & Equity Related Holdings 94.64 Other current assets (including reverse repos/CBLO 5.36

Grand Total 100

Net asset (Rs. In Lakh) 134134.74 Source:HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue No.9 ,p.17

4.6.4 Performance Evaluation of HDFC Tax Saver Schemes

The performance of HDFC Tax Saver is better than the market index till January 2004, however it turn negative in June 2004 as it can be observed from figure. Taking consideration for the whole period of study the performance of the fund was superior to that of the market. The average return earned by the fun was 0.027389 which was more than that

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of average market return 0.01814. The fund also earned more than that of the risk free assets.

Figure: 4.4

Comparison of HDFC Tax Saver Scheme and Market Return

Source :Compiled from appendix II- D and II – F

4.7 HDFC Top 200 Fund

HDFC Top 200 is open ended balanced scheme launched in 1996. It aims to generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. It can be observed from table 4.15 that both entry and exit load is charged in the scheme. It has no lock in period and the net asset value is calculated on daily basis.

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Table 4.15

Basic Scheme Information of HDFC Top 200 Fund Nature of Scheme Open Ended Balanced Scheme

Entry Load Application routed through any distributor/agent/broker

:

(as a % of the Applicable NAV)

Exit Load

no Exit Load is payable.

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Minimum Application Amount For new investors :Rs.5000 and any amount thereafter.

(Other than Systematic Investment Plan

For existing investors : Rs. 1000 and any amount thereafter.

/ Systematic Transfer Plan (STP)

Source: HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue No.9, p.3 4.7.1 Investment Pattern

Table 4.16

Asset allocation pattern of HDFC Top – 200 Scheme

Sr. No. Asset Type (% of portfolio)

Risk Profile

1

Equity and Equity Related Instruments

Upto 100% ( Including use of derivatives for hedging and other uses as permitted

by prevailing SEBI

Regulations

Medium to High

2

Debt & Money Market Instruments

Balance in Debt & Money Market Instruments

Low to

Medium Source: Compiled from Annual Reports of HDFC mutual funds

It can be observed from the table 4.16 that up to 100% of the investment can be made in equity and equity related instruments. Further

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investment in Securitized debt, if undertaken, would not exceed 20% of the net assets of the scheme in derivatives as a tool for hedging and portfolio balancing.

The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time13_.

The Trustee is invested with the power to modify the portfolio, provided such modification is subject to the mutual funds regulation. He can also carry out the exercise in case of change in portfolio structure pertaining to BSE 200 Index. In addition to the above changes in asset allocation any further change which will have a negative impact on the basic attribute of scheme will be introduced only if it is in accordance with the sub-regulation (15A) of sub-regulation 18 of SEBI sub-regulations.

The investment strategy is focused on equity investments. Under this category of investment risk has to be minimized and at the same time yield has to be maintained. The table 4.17 shows that Top- 200 holding of HDFC Top 200 schemes. It is evident from the table maximum percentage of investment is made in ICICI bank Ltd. with 7.6% and 6.47% of NAV of the scheme. Further total investment in equity and equity related holdings is 95.95% while the remaining 4.05% is in other current assets. The net assets on March 31, 2008 is Rs. 210243.97 Lakh.

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Portfolio – Top 10 Holdings of HDFC Top – 200 Scheme (as at March 31, 2008)

Company/ issuer Industry / Rating % to NAV ICICI Bank Ltd. Banks 7.6 Reliance Industries Ltd. Petroleum products 6.47 Larsen & Turbo Ltd. Industrial Capital Goods 4.48 ITC Ltd. Consumer Non Durables 3.83 State bank of India Banks 3.49 Dr. Reddy Laboratories Ltd. Pharmaceuticals 3.39 Oil & Natural Gas Co. Ltd Oil 3.17 Infosys Technologies Ltd. Software 3.08 Tata Iron & Steel Co. Ltd. Famous Metals 2.97 Crompton Greaves Ltd. Industrial Capital Goods 2.93 Total of Top Ten Equity Holdings 41.41 Total Equity & Equity Related Holdings 95.95 Other current assets (including reverse repos/CBLO 4.05

Grand Total 100

Net asset (Rs. In Lakh) 210243.97 Source: HDFC Fact Sheet “In Touch Mutually”Vol.5, Issue No.9, p11.

4.7.3 Performance Evaluation of HDFC Top 200 Funds

The fund earned a maximum monthly return of 0.2 percent and lowest return was below -0.15 as it can be observed from the figure below. However the fund earned more than the bench mark index during the period of the study. The average monthly return earned by the fund was 0.025167 whereas the averages monthly return earned by the market was

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0.01814.Further the return earned by the fund was superior to the risk free assets taken for the study.

Figure: 4.5

Comparison of HDFC Top 200 Scheme and Market Return

Source :Compiled from appendix II- E and II – F

4.8 Empirical Analysis

The present section is devoted to the empirical analysis of HDFC Mutual funds in order to find out their performance of selected schemes in comparison to bench mark , their diversification and investment objectives of the schemes and their risk characteristics. The choice of the samples schemes is largely based on the availability of the data and their duration of operation. Attempt is made that same period and same number of observation is selected to test the hypotheses. The table 4.18 presents the sample schemes chosen for the study.

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Table –4.18

Selected Mutual Fund Schemes of HDFC

S.No. Name of HDFC Mutual Funds Aim

1 HDFC Balanced Funds Equity 2 HDFC Equity Equity 3 HDFC Growth Equity 4 HDFC Tax Saver Tax Planning 5 HDFC TOP 200 Equity

Source: Researcher‟s own compilation

4.8.1 Risk and Return Analysis

The tables 4.19 present the risk and return statistics for the sample funds and for the market portfolio. Of the five funds except balanced funds all other funds namely equity, growth, tax saver and top 200 earned higher than the market return. This implies that 80 percent of the selected funds have superior performance than the market. The balanced fund (20%) however generated lower return than the market. It can be observed from the table4.19 that the average return earned by the sample funds is 2.5 percent per month whereas the average return of the market is 1.8percent. This implies that the sample funds on an average performed better than the market as well as the risk-free assets, 91 days Treasury bill is used here as risk free assets. On the other hand it is also evident from the table 4.19 the average risk of the funds is 7.5percent per month, whereas for the market it is 7percent per month. This implies that fund has taken slightly higher risk than the market. It is exhibits by the table – 4.19 that HDFC mutual funds are not adequately diversified as reflected by their coefficient of determination values, R2_{, the average diversification is only}

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Table –4.19

Risk and Return of Sample Funds

S. No. _ReturnFund S D Fund Market _Return Market _Risk Fund _Beta R2

1 0.01515 0.04742 0.01814 0.07084 1.349 0.816 2 0.02711 0.06798 0.01814 0.07084 0.952 0.836 3 0.02828 0.1249 0.01814 0.07084 0.205 0.131 4 0.02739 0.07007 0.01814 0.07084 0.905 0.802 5 0.02791 0.06859 0.01814 0.07084 0.961 0.866 Average 0.02517 0.07579 0.01814 0.07084 0.8744 0.6902

Source: The serial Number represents the names of the funds which are in the same order as given in table4.18.Compiled on the basis of appendix II and III

4.8.2 Results of Sharpe ratio

Table 4.20 gives Sharpe measures14_{of select HDFC mutual funds}

schemes but out of five, four (equity, growth, tax saver, top-200 fund) i.e. 80 percent of the selected schemes have better Sharpe ratio in comparison to relevant benchmark portfolio. The top performer is HDFC Equity fund followed by HDFC top 200, HDFC tax saver, HDFC Balanced and HDFC growth funds.

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Table –4.20

Results of Sharpe Ratio

S. No. Sharpe ratio Bench mark Rank

1 0.28667 0.3498 4

2 0.53893 0.24402 1

3 0.21403 0.13282 5

4 _0.36875 _0.23675 3

5 0.38425 0.24185 2

Source: The serial Number represents the names of the funds which are in the same order as given in table4.18. Compiled on the basis of table 4.19

4.8.3 Treynor Measure

The Treynor measure evaluates the performance with respect to systematic risk 15_{. Table 4.20 presents Treynor measure of HDFC mutual}

funds schemes along with benchmark portfolio. It can be observed from the table 4.20 that four out of five schemes, schemes outperformed their respective benchmarks i.e. 80 percent of the schemes have outperformed their respective benchmarks. These schemes are HDFC growth, equity fund, tax saver and HDFC top 200 funds. On the whole four funds have outperformed in terms of total risks and the same trend is continued in terms of systematic risk .Thus four HDFC schemes selected for study outperformed the relevant bench marks in terms of both total and systematic risks. The results pertaining to Sharpe and Treynor ratio reflect some conflict in performance ranking as it can be observed from table4.20 and table 4.21.this can be attributed to the fact that Sharpe ratio take in to

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account the total risk of the portfolio whereas Treynor ratio considers only systematic risks. Therefore it is possible that a fund outperforms the market in terms of Treynor ratio but in terms of Sharpe ratio it could not because of the presence of large amount of unsystematic or unique risk.

Table – 4.21

Treynor Measure

S. No. Treynor ratios Bench mark Rank

1 0.01008 0.01659 5

2 0.02685 0.01659 4

3 0.1304 0.01659 1

4 0.02855 0.01659 3

5 0.03014 0.01659 2

Source: The serial Number represents the names of the funds which are in the same order as given in table4.18. Compiled on the basis of table 4.19

4.8.4 Results of Jensen Measure

Results of Jensen measure16_{are given in table- 4.22. Out of five}

schemes chosen for study, four schemes (80%) have positive alpha values indicating superior performance, which means that these funds have generated returns in excess of equilibrium returns. The equilibrium returns of a fund is the return that it is expected to earn with the given level of systematic risk. The additional return over equilibrium return earned by the fund manager can be attributed to his ability to select securities. The average alpha of the sample schemes is 0.0093063. It is evident from table 4

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that out of five schemes, one schemes have alpha value less than „0‟ (a< 0) and four schemes are having alpha greater than „0‟ (a> 0 ) . So this indicates that four – fifth of the Fund manager are able to earn superior returns. It is evident from the table that HDFC growth fund has highest return of 2.4% out of ability of the fund manager to identify security.

Table -4.22

Results of Jensen Measure

S.N. Fund Return SML Alpha

1 0.01515 0.01509 -0.00932 2 0.02711 0.017344 0.0098397 3 0.02828 0.004952 0.024564 4 0.02739 0.016564 0.010972 5 0.02791 0.017493 0.010475

Source: The serial Number represents the names of the funds which are in the same order as given in table-4.18. Compiled on the basis of table 4.19

4.8.5 Sharpe Differential Return

Table 4.23 presents information pertaining to Sharpe differential return 17_{for the sample schemes. Out of the five schemes four schemes}

reflect positive differential return thereby indicating superior performance. These schemes are HDFC balanced fund, HDFC equity, HDFC tax saver and HDFC top – 200 schemes. These are the returns earned by the selection of undervalued securities and diversifying the portfolio. Out of the four schemes which have higher return according to Jensen Measure, three also have higher return according to Sharpe differential measure which

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indicate that these portfolio are diversified and the remaining scheme do not have well diversified portfolio. Further negative Sharpe differential returns indicate that HDFC growth scheme could not generate returns commensurate with the risk assumed.

Table 4.23

Sharpe Differential Return

S.No. Fund return Expected return Sharpe differential return Rank

1 0.015146 0.012657 0.002489 1

2 0.027109 0.017471 0.009638 5

3 0.028283 0.030803 -0.00252 2

4 0.027389 0.01796 0.009429 3

5 0.027908 0.017614 0.010294 4

Source: The serial Number represents the names of the funds which are in the same order as given in table-4.18. Compiled on the basis of table 4.19

4.8.6 Results of Fama’s components of performance

Table 4.24 presents Fama‟s components of performance 18_{for the}

HDFC mutual funds. The overall performance is broken down into various components such as risk free return, risk premium, diversification, selectivity and net selectivity.

4.8.7 Performance on Risk

The performance on risk assesses return being generated by fund managers due to their decision to take risk. They assume risk in the hope of generating extra return on their portfolio. Table4.24 shows that all the funds of HDFC mutual funds have positive value, indicating that the HDFC mutual funds gained on account of risk bearing activity of their fund managers. HDFC growth fund has highest positive value.

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4.8.8 Performance on Diversification

Diversification measures the additional returns that compensate the portfolio manager for bearing diversifiable risk. If the portfolio is completely diversified, contains no unsystematic risk, than diversification measure would be zero. A positive diversification measure indicates that portfolio is not completely diversified and contains unsystematic risks. Here too four funds have positive value for diversification except HDFC balanced scheme which has negative value for diversification which means that the return earned by the fund manager is not commensurate with the risk undertaken. Hence it can be said that 80 percent of the fund manager were able to generate additional return because of their ability to bear diversifiable risk.

4.8.9Performance on net selectivity

After accounting for diversification, the residual performance on selectivity is attributed to net selectivity and it will be equal to (or less than) that on selectivity. A positive net selectivity indicates superior performance. It means that portfolio manager did a good job. However, in case net selectivity is negative, than it means that fund manager have taken diversifiable risk, that has not been compensated by the extra return. It can be observed from the table 4.24 that in case of four schemes the selectivity measure is positive. Thus these four funds reflect the superior stock selection ability on the part of their fund managers. This is true also for net selectivity measures where four funds have positive value which means that these funds have performed on count of the stock selection ability of the fund managers. Hence it can be concluded that 80 percent of

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the fund managers were able to generate extra return on count of their diversifiable risks undertaken.

Table -4.24

Performance on net selectivity

S.No. _returnFund Risk _free _premiumRisk Diversification _selectivityNet Selectivity

1 0.015146 0.001551 0.022379 -0.01127 0.002489 -0.00878 2 0.027109 0.001551 0.015793 0.000127 0.009638 0.009765 3 0.028283 0.001551 0.003401 0.025848 -0.00252 0.023328 4 0.027389 0.001551 0.015013 0.001396 0.009429 0.010825 5 0.027908 0.001551 0.015942 0.000121 0.010294 0.010415

Note: The serial Number represents the names of the funds which are in the same order as given in table- 4.18. Compiled on the basis of table 4.19

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Table 4.25 Summary of Results

Risk and Return Characteristics Panel A

1 Av. Return of fund (per month) 2.51%

2 Av. Return of the market (per month) 1.80%

3 Av. Risk of funds (per month) 7.50%

4 Av. Market risk (per month) 7%

5 Av. Risk free rate (per month) 0.15%

6 Av. Diversification 69%

7 Av. Beta of the fund 87%

Performance measure Panel B

Funds Outperforming

1 Sharpe ratio 4(80%)

2 Treynor Ratio 4(80%)

3 Jensen Differential Measure 4(80%)

4 Sharpe differential measures 4(80%)

5 Fama's Components of Investment _Performance

a Performance on risk 5 (100%)

b Performance on diversification 4(80%)

c Performance on net selectivity 4(80%)

Source: Compiled on the basis of table : 4.19, 4.20, 4.21, 4.22, 4.23& 4.24. 4.8.10 Inference

The present study is aimed at testing the investment performance of HDFC mutual funds during eight year period from 31, October 2000 to March 31, 2008, using monthly returns, based on NAVs for five funds. The summary of results reported in table 4.25 indicates that fund manager have been successful in outperforming the relevant benchmark during the study period. A snapshot of the results is given in table 4.25. The funds

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earned an average return of 2.51 percent per month against the average market return of 1.8 percent. The average risk free rate was 0.155 percent per month indicating that the sample funds have earned more than both the market and the risk free rate. Therefore the alternate hypothesis second, the investment performance of HDFC mutual fund is superior to the relevant benchmark portfolio is accepted. The sample funds are too not adequately diversified with diversification of about 69 percent. Due to inadequate diversification a substantial part of the variation in fund return is not explained by the market. The funds are also exposed to large diversifiable risk. Thus on the basis of empirical results the third null hypothesis, the schemes of HDFC mutual fund are not well diversified is accepted, as the average diversification is only 69percent.

In terms of Sharpe ratio four funds outperformed the relevant benchmark, while only four funds outperformed the relevant benchmark in case of Treynor ratio. In terms of Jensen differential measures, four funds reflected superior performance. For Sharpe differential measures four of the fund showed superior performance. In terms of Fama‟s component of investment performance all the funds have positive value thereby indicating that all the funds gained on account of risk taken by the fund manager. Four out of five funds showed positive value for diversification indicating gain due to diversification. In term of performance on selectivity four funds showed positive value as it can be observed form the table thereby indicating superior stock selection of the fund managers. When seen in conjunction with Jensen measure it appears that the 4/5th_{of fund manger of HDFC mutual fund schemes appear to}

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panel B it can be concluded that there is a relationship between the HDFC mutual funds schemes investment objectives and their risk characteristics. Thus the fourth alternate hypothesis is accepted.

Conclusion

HDFC mutual fund is one of the most successful private sector asset management companies of India. It has made enormous progress since its establishment. It is at present second largest fund house in terms of asset under management .The researcher has carried out an exhaustive study to find out the impact of liberalization on net resource mobilization. On the basis of the empirical work, the first alternate hypothesis that there is significant impact of policy reforms on net resource mobilized by the mutual funds since 1993-94 is accepted. Similarly the second alternative hypothesis , the investment performance of HDFC mutual funds scheme is superior to the relevant bench mark portfolio is accepted as the average monthly fund return is 2.5 percent, is significantly higher than the monthly average market return of 1.8 percent. The third null hypothesis of the study is accepted on the ground that the average diversification of the fund is 69 percent. Finally the fourth alternate hypothesis that there is a relationship between HDFC mutual fund schemes investment objectives and their risk characteristic is accepted on the basis of summary table no 4.25 result. The next chapter is related to the findings, suggestions and scope for further research.

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References

1. Annual Reports of HDFC Mutual Fund 2. Ibid

3. Statement of Additional Information.(2009,June). HDFC Mutual Fund,

4.

4. Ibid

5. Ibid

6. In Touch Mutually. (2008,March). 5(9), 4.

7. www.hdfcfund.com/Products/SchemeDetails 8. Ibid

9. Ibid

10. Venkatasubramanian, K.(2008,March).HDFC Growth Fund: Stability in holding.The Hindu Business Line.

11. www.hdfcfund.com/Products/SchemeDetails 12. Ibid

13. Ibid

14. Noronha, M.R.(2007).Performance Evaluation of Equity based Mutual Funds: A case study of Three Assets Management Companies in India. Management Accountant, 42(7), 527- 537.

15. Ibid

16. Singh, J., and Chander, S.(2004,June). Performance of Mutual Funds in India an Empirical Evidence. The ICFAI Journal of Applied Finance, 45-62.

17. Gupta. O.P., and Gupta, A.(2004,December). Performance Evaluation of Select Indian Mutual Funds Schemes: An Empirical Study. The ICFAI Journal of Applied Finance, 81-96.

18. Tripathy, N.P.(2007). Mutual Funds Emerging Issues in India. New Delhi: Excel books, 153.