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RISK RETURN ANALYSIS AND COMPARATIVESTUDY OF MUTUAL FUNDS

EXECUTIVE SUMMARY

The performance evaluation of mutual fund is a vital matter of concern to the fund

managers,investors, and researchers alike. The core competence of the company is to meet

objectivesand the needs of the investors and to provide optimum return for their risk. This study

tries tofind out the risk and return allied with the mutual funds.This project paper is segmented

into three sections to explore the link between conventionalsubjective and stat is tical

approach of Mutual Fund analysis. To start with, the first sectiondeals with the

i n t r oduc t o r y pa r t o f t he pape r by g i v i ng an ove r v i ew o f t he M ut ua l

f und industry and company profile.This section also talks about the theory of portfolio analysis

and the different measures of risk and return used for the comparison.The second sec tion

details on the need, objective, and the limitations o f the study. It also discusses about

the sources and the period for the data collection. It also deals with the datainterpre ta tion and

analysis part wherein all the key measures related to risk and return are done with the

interpretation of the results.In the third section, an attempt is made to analyse and compare the

performance of the equitymutual fund . For this purpose -value, standard deviation,

and risk adjusted pe rfo rmance measures such as Sharpe ratio, Treynor measure, Jenson

Alpha, and Fema measure have beenused.The portfolio analysis of the selected

fun d has bee n don e b y t he mea sur e r etu rn for th eholding period.At the end , i t

i l l u s t r a t e s t he sugges t i ons and f i nd i ngs based on t he ana l ys i s done i n

t h e previous sections and finally it deals with conclusion part.


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PART-I

MUTUAL FUND OVERVIEW

CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investors who share a common

financial goal. The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these investments and the

capital appreciation realised are shared by its unit holders in proportion to the number of units

owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket of securities at a

relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart
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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a

mutual fund:

Organisation of a Mutal Fund

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

Management
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TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk

tolerance and return expectations etc. The table below gives an overview into the existing types

of schemes in the Industry.
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FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unitNAV is the net asset value of the scheme divided by the number of units outstanding on the

Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales

load.

Repurchase Price

Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such

prices are NAV related.

Redemption Price

Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV

related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes

that do not charge a load are called No Load schemes.

Repurchase or Back-endLoad

Is a charge collected by a scheme when it buys back the units from the unitholders.


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History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of

India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases

First Phase1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and

functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the

RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.

The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under

management.


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Second Phase1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of

India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established

in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual

Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989

while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a

wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which

all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin

Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in

1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the

industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total

assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other

mutual funds.

Fourth Phasesince February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is

the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January

2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of

Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come

under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the

Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of

assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and

with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of

consolidation and growth.

The graph indicates the growth of assets over the years.


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The Advantages Of Mutual Funds

Since their creation,mutual fundshave been a popular investment vehicle for investors. Their simplicity along with other

attributes provide great benefit to investors with limited knowledge, time or money. To help you decide whether mutual funds are

best for you and your situation, we are going to look at some reasons why you might want to consider investing in mutual funds

Diversification

One rule of investing, for both large and small investors, is assetdiversification. Diversification involves the mixing of

investments within a portfolio and is used to manage risk. For example, by choosing to buy stocks in the retail sector and

offsetting them with stocks in the industrial sector, you can reduce the impact of the performance of any one security on your

entire portfolio. To achieve a truly diversified portfolio, you may have to buy stocks with differentcapitalizationsfrom different

industries andbondswith varyingmaturitiesfrom different issuers. For the individual investor, this can be quite costly.

By purchasing mutual funds, you are provided with the immediate benefit of instant diversification and asset allocation without

the large amounts of cash needed to create individual portfolios. One caveat, however, is that simply purchasing one mutual fund

might not give you adequate diversification - check to see if the fund issectororindustryspecific. For example, investing in an

oil and energy mutual fund might spread your money over fifty companies, butif energy prices fall, your portfolio will likely

suffer.

Economies of Scale

The easiest way to understandeconomies of scaleis by thinking about volume discounts; in many stores, the more of one product

you buy, the cheaper that product becomes. For example, when you buy a dozen donuts, the price per donut is usually cheaper

than buying a single one. This also occurs in the purchase and sale of securities. If you buy only one security at a time, the

transaction fees will be relatively large.

Mutual funds are able to take advantage of their buying and selling size and thereby reducetransaction costsfor investors. When

you buy a mutual fund, you are able to diversify without the numerouscommissioncharges. Imagine if you had to buy the 10-20

stocks needed for diversification. The commission charges alone would eat up a good chunk of your savings. Add to this the fact

that you would have to pay more transaction fees every time you wanted to modify your portfolio - as you can see the costs begin

to add up. With mutual funds,you can make transactions on a much larger scale for less money.

Divisibility

Many investors don't have the exact sums of money to buy round lots of securities. One to two hundred dollars is usually not

enough to buy a round lot of a stock, especially after deducting commissions. Investors can purchase mutual funds in

smallerdenominations, ranging from $100 to $1,000 minimums. Smaller denominations of mutual funds provide mutual fund

investors the ability to make periodic investments through monthly purchase plans while taking advantage ofdollar-cost
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averaging. So, rather than having to wait until you have enough money to buy higher-cost investments, you can get in right away

with mutual funds. This provides an additional advantage - liquidity.

Liquidity

Another advantage of mutual funds is the ability to get in and out with relative ease. In general, you are able to sell your mutual

funds in a short period of time without there being much difference between the sale price and the most current market value.However, it is important to watch out for any fees associated with selling, includingback-end loadfees. Also, unlike stocks

andexchange-traded funds(ETFs), which trade any time during market hours, mutual funds transact only once per day after the

fund'snet asset value(NAV) is calculated.

Professional Management

When you buy a mutual fund, you are also choosing aprofessional money manager. This manager will use the money that you

invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to thoroughly research every

investment before you decide to buy or sell,you have a mutual fund's money manager to handle it for you.

The Bottom Line

As with any investment, there are risks involved in buying mutual funds. These investment vehicles can experience market

fluctuations and sometimes provide returns below the overall market. Also, the advantages gained from mutual funds are not free:

many of them carryloads, annualexpense feesand penalties for early withdrawal.

Disadvantages

There are certainly some benefits to mutual fund investing, but you should also be aware of the drawbacks associated with

mutual funds.

No Insurance: Mutual funds, although regulated by the government, are not insured against losses. The FederalDeposit Insurance Corporation (FDIC) only insures against certain losses at banks, credit unions, and savings and

loans, not mutual funds. That means that despite the risk-reducing diversification benefits provided by mutual funds,

losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment.

Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be adisadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund

itself would not double in value because that security is only one small part of the fund's holdings. By holding a large

number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.

Fees and Expenses: Most mutual funds charge management and operating fees that pay for the fund's managementexpenses (usually around 1.0% to 1.5% per year). In addition, some mutual funds charge high sales commissions, 12b-

1 fees, and redemption fees. And some funds buy and trade shares so often that the transaction costs add up

significantly. Some of these expenses are charged on an ongoing basis, unlike stock investments, for which a

commission is paid only when you buy and sell .
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Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of allmutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of critics now question

whether or not professional money managers have better stock-picking capabilities than the average investor.

Loss of Control: The managers of mutual funds make all of the decisions about which securities to buy and sell andwhen to do so. This can make it difficult for you when trying to manage your portfolio. For example, the tax

consequences of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You

also should remember that you are trusting someone else with your money when you invest in a mutual fund.

Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds (called open-endedfunds) cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day,

after they've calculated the current value of their holdings.

Size: Some mutual funds are too big to find enough good investments. This is especially true of funds that focus on smallcompanies, given that there are strict rules about how much of a single company a fund may own. If a mutual fund has $5 billion

to invest and is only able to invest an average of $50 million in each, then it needs to find at least 100 such companies to invest

in; as a result, the fund might be forced to lower its standards when selecting companies to invest in.

Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number ofsimultaneous withdrawals. Although this provides investors with liquidity, it means that some of the fund's money is invested in

cash instead of assets, which tends to lower the investor's potential return.

Different Types: The advantages and disadvantages listed above apply to mutual funds in general. However, there are over10,000 mutual funds in operation, and these funds vary greatly according to investment objective, size, strategy, and style.

Mutual funds are available for virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and

every country or region of the world. So even the process of selecting a fund can be tedious.


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Mutual Funds: Different Types Of Funds

No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there

are more than 10,000 mutual funds in North America! That means there are more mutual funds than stocks.

It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the

higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk - it's never possible

todiversifyaway all risk. This is a fact for all investments.

Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments and investment

strategies. At the fundamental level, there are three varieties of mutual funds:

1)Equityfunds (stocks)

2)Fixed-incomefunds (bonds)

3)Money marketfunds

All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing

companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as

specialty funds.

Let's go over the many different flavors of funds. We'll start with the safest and then work through to the more risky.

Money Market Funds

The money market consists of short-term debt instruments, mostlyTreasury bills. This is a safe place to park your money. You

won't get great returns, but you won't have to worry about losing yourprincipal. A typical return is twice the amount you would

earn in a regular checking/savings account and a little less than the averagecertificate of deposit(CD).

Bond/Income Funds

Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual

funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in

government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a

steady cashflow to investors. As such, the audience for these funds consists of conservative investors and retirees. (Learn more

inIncome Funds 101.)

Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't

without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they inves t.

For example, a fund specializing in high-yieldjunk bondsis much more risky than a fund that invests in government securities.

Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes

down.

Balanced Funds

The objective of these funds is to provide a balanced mixture of safety, income andcapital appreciation. The strategy of balanced
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funds is to invest in a combination of fixed income and equities. A typical balanced fund might have a weighting of 60% equity

and 40% fixed income. The weighting might also be restricted to a specified maximum or minimum for each asset class.

A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced fund, but these kinds of

funds typically do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to

switch the ratio of asset classes as the economy moves through thebusiness cycle.

Equity Funds

Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of

funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are

many different types of equities. A great way to understand the universe of equity funds is to use astyle box, an example of

which is below.

The idea is to classify funds based on both the size of the companies invested in and the investment style of the manager. The

term value refers to a style of investing that looks for high quality companies that are out of favor with the market. These

companies are characterized by lowP/Eandprice-to-book ratiosandhigh dividend yields. The opposite of value is growth,

which refers to companies that have had (and are expected to continue to have) strong growth in earnings, sales and cash flow. A

compromise between value and growth is blend, which simply refers to companies that are neither value nor growth stocks and

are classified as being somewhere in the middle.

For example, a mutual fund that invests inlarge-capcompanies that are in strong financial shape but have recently seen their

share prices fall would be placed in the upper left quadrant of the style box (large and value). The opposite of this would be a

fund that invests in startup technology companies with excellent growth prospects. Such a mutual fund would reside in the

bottom right quadrant (small and growth). (For further reading, check outUnderstanding The Mutual Fund Style Box.)

Global/International Funds

Aninternational fund(or foreign fund) invests only outside your home country. Global funds invest anywhere around the world,

including your home country.

It's tough to classify these funds as either riskier or safer than domestic investments. They do tend to be more volatile and have

uniquecountryand/orpolitical risks. But, on the flip side, they can, as part of a well-balanced portfolio, actually reduce risk by

increasing diversification. Although the world's economies are becoming more inter-related, it is likely that another economy

somewhere is outperforming the economy of your home country.
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Specialty Funds

This classification of mutual funds is more of an all-encompassing category that consists of funds that have proved to be popular

but don't necessarily belong to the categories we've described so far. This type of mutual fund forgoes broad diversification to

concentrate on a certain segment of the economy.

Sector fundsare targeted at specific sectors of the economy such as financial, technology, health, etc. Sector funds are

extremelyvolatile. There is a greater possibility of big gains, but you have to accept that your sector may tank.

Regional fundsmake it easier to focus on a specific area of the world. This may mean focusing on a region (say Latin America)

or an individual country (for example, only Brazil). An advantage of these funds is that they make it easier to buy stock in foreign

countries, which is otherwise difficult and expensive. Just like for sector funds, you have to accept the high risk of loss, which

occurs if the region goes into a badrecession.

Socially-responsiblefunds (or ethical funds) invest only in companies that meet the criteria of certain guidelines or beliefs. Most

socially responsible funds don't invest in industries such as tobacco, alcoholic beverages, weapons or nuclear power. The idea is

to get a competitive performance while still maintaining a healthy conscience.

Index Funds

The last but certainly not the least important areindex funds. This type of mutual fund replicates the performance of a broad

market index such as theS&P 500orDow Jones Industrial Average (DJIA). An investor in an index fund figures that most

managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees.
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How A Mutual Fund Works

A fund sponsor - generally a financial intermediary like Fidelity Investments or Vanguard - organizes a mutual fund as a

corporation; however, it is not an operating company with employees and a physical place of business in the traditional sense. A

fund is a "virtual" company, which is typically externally managed. It relies on third parties or service providers, either fund

sponsor affiliates or independent contractors, to manage the fund's portfolio and carry out other operational and administrative

activities.

Figure 1, below, has been sourced from theInvestment Company Institute's (ICI) 2005 ICI Fact Bookto illustrate the

organizational structure of a mutual fund.

The fund sponsor raises money from the investing public, who become fund shareholders. It then invests the proceeds in

securities (stocks, bonds and money market instruments) related to the fund's investment objective. The fund provides

shareholders with professional investment management, diversification, liquidity and investing convenience. For these services,

the fund sponsor charges fees and incurs expenses for operating the fund, all of which are charged proportionately against a

shareholder's assets in the fund.

The most prevalent and well-known type of mutual fund operates on anopen-endedbasis. This means that it continually issues

(sells) shares on demand to new investors and existing shareholders who are buying. It redeems (buys back) shares from

shareholders who are selling.

Mutual fund shares are bought and sold on the basis of a fund'snet asset value(NAV). Unlike a stock price, which changes

constantly according to the forces of supply and demand, NAV is determined by the daily closing value of the underlying

securities in a fund's portfolio (total net assets) on a per share basis. (For more insight, readWhat is a mutual fund's NAV?)

In some instances, investors can purchase shares directly from the fund, but most funds are sold through an investment

intermediary: a broker, investment advisor, financial planner, bank or insurance company. These intermediaries are compensated

for their services through a variety of sales charge options (loads) or deferred/ongoing12b-1 fees. The former come directly out

of the investor's pocket (deducted from the amount to be invested) and the latter as a proportionate deduction of the shareholder's

fund assets.
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Investment

Advisor

Principal

Underwriter

Administrator Transfer Agent Custodian Independent

Public

Accountant

Manages the

fund's portfolio

according to the

objectives and

policies described

in the fund's

prospectus.

Sells fund shares,

either directly to

the public or

through other

firms (such as

broker dealers).

Oversees the

performance of

other companies

that provide

services to the

fund and ensures

that the fund's

operations comply

with the applicable

federal

requirements.

Executes

shareholder

transactions,

maintains records

of transactions and

other shareholders'

account activities,

and sends account

statements and

other documents to

shareholders.

Holds the fund's

assets, maintaining

them separately to

protect

shareholder

interests.

Certifies the fund's

financial

statements.

1.7 DISTRIBUTION CHANNELS:

Mutual funds posses a very strong distribution channel so that the ultimate customers

doesntface any difficulty in the final procurement. The various parties involved in

dis tribution of mutual funds are:

SHARE HOLDER

Board of Directors

Oversees the fund's activities, including approval of

the contract with the management company and

certain other services providers.

Mutual Fund


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1.Direct marketing by the AMCs:

the forms could be obtained from the AMCs directly.The investors can approach to the

AMCs for the forms. some of the top AMCs of India are;Reliance ,Bir la Sunlife, Tata, SBI

magnum, Kotak Mahindra, HDFC, Sundaram, ICICI,Mirae Assets, Canara Robeco,

Lotus India, LIC, UTI etc. whereas foreign AMCs include:Standard Chartered,

Franklin Templeto n, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.

2. Broker/ sub broker arrangements

: the AMCs can simultaneously go for broker/sub- broker to popularize their funds.

AMCs can enjoy the advantage of la rge network of the se brokers and sub brokers.

3Individual agents, Banks, NBFC:

investors can procure the funds through individualagents, independent brokers,

banks and several non- banking financial corporations too,whichever he finds

convenient for him


18/30

HDFC Mutual FundAn Overview

Our Vision:

To be a dominant player in the Indian Mutual Fund space,recognized for its high levels of ethical and professional conductand a

commitment towards enhancing investor interests.

Framework of HDFC Mutual Fund:

Asset Management Company

HDFC AMC Ltd.

Custodian

HDFC Bank Ltd.

Citibank N.A.

The Bank of Nova Scotia

HDFC Mutual Fund

Other Agencies

Stock Exchanges: BSE &

NSE.

SEBI, RBI, MCA, AMFI

Depositories: NDSL, CDSL

Auditor

Bankers

Distributors

National Distributors

Registrar and

Transfer Agent

CAMS

Sponsors

HDFC

SLI


19/30

HDFC: Housing Development Finance Corporation Limited

SLI: Standard Life Investments Limited

AMFI: The Association of Mutual Funds in India , CAMS: Computer Age Management Services Private Limited

CDSL: Central Depository Securities ( India) Limited), NSDL: National Securities Depositories Limited

MCA: Ministry of Corporate Affairs.

NSE: National Stock Exchange of India Ltd, BSE: BSE Limited.

SEBI: Securities and Exchange Board of India, RBI: Reserve Bank of India

IFA: Individual Financial Advisor.

Our Background

HDFC Asset Management Company Limited (AMC) was incorporated under theCompanies

Act, 1956, on December 10, 1999 and was approved to act as anAsset Management Company for

the Mutual Fund by SEBI vide its letter datedJuly 3, 2000

Following the decision by Zurich Insurance Company (ZIC), the sponsor ofZurich India Mutual

Fund, to divest its Asset Management Business in India,HDFC HDFC AMC AMC acquired

acquired the the schemes schemes of of Zurich Zurich India India Mutual Mutual Fund Fund

effective effective June June 1919,,2003

Strong ParentageCo-Sponsored by Housing Development Finance CorporationLimited

(HDFC) and Standard Life Investments Limited (SLI), the investmentarm of The Standard Life

Group, UK


20/30

Our Reach

(As on March 31, 2012)

Total Live Accounts: over 5 million

Total Number of Distributors: 43,100

Total Number of Schemes: 37 (excluding 1 Fund of Fund scheme)

Number Number of of Investor Investor Service Service Centers Centers (HDFC (HDFC AMC)

AMC):: 116 116 (Including (Including Dubai) Dubai)

Number of Transaction Points (CAMS): 212


21/30

Sponsors and

Shareholding Pattern

Housing Development Finance

Corporation Limited (HDFC)

Standard Life Investments Limited (SLI)

Registered Office: Ramon House,

H. T. Parekh Marg, 169, Backbay

Reclamation,

Churchgate, Mumbai 400 020

Registered Office: 1 George Street,

Edinburgh, EH2 2LL, United Kingdom

Housing Development Finance

Corporation Limited (HDFC)


22/30

HDFC was incorporated in 1977 as the first specialised mortgage company inIndia; its

activities include housing finance, property related services (propertyidentification, valuation

etc), training and consultancy

HDFC is a professionally managed organisation with Board of Directorsconsisting of eminentpersons representing various fields including finance,taxation, construction, urban policy and

development

HDFCs client base comprises of over 12 lac borrowers, 9 lac depositors, 2 Lacshareholders and

25,000 deposit agents as at March 31, 2011

HDFC has received the highest ratings for its bonds and deposits program forthe 17thyear in

succession and has raised funds from various internationalagencies inter alia The World Bank,

ADB, IFC (Washington), etc.

Standard Life Investments Limited

(SLI)

Standard Life Investments is a leading asset management company, withapproximately US$

251.9 billion of assets under management as at March 31,2011.

The company operates in the UK, Canada, Hong Kong, China, Korea, Irelandand the USA to

ensure it is able to form a truly global investment view


23/30

In order to meet the different needs and risk profiles of its clients, SLI managesa diverse

portfolio covering all of the major markets world wide, which includesa range of private and

public equities, government and company bonds,property investments and various derivative

instruments

The companys current holdings in UK equities account for approximately 1.8%of the market

capitalisation of the London Stock Exchange

Investment Philosophy,

Risk Management & Fund

Management Team


24/30

Investment Philosophy:

The key to wealth creation is not targeting high returns with high risk, butfocusing on consistentreturns (with low volatility) and avoiding large mistakes.Therefore we:

Are focused on risk control and avoiding big mistakes

Target consistent returns

Essentially positioned as a No Surprise Fund

Investment Philosophy

(Equities):

The key belief is that over time, stock prices reflect their intrinsic values

Our investment philosophy and process is primarily based on long termfundamentals, margin of

safety and effective diversification

To create wealth over time, the key is capital protection and therefore weemphasize emphasize

the the price price of of purchase purchase greatly greatly

The research process emphasizes both quantitative and qualitative factors

We believe that it is possible to achieve higher portfolio returns through activemanagement

consistently over the long term

What We Avoid

Taking short term trading positions


25/30

Investing in companies with below satisfactory management quality / corporategovernance

Making significant cash calls

Investing outside the selected investment universe of stocks.

Investment Philosophy

(Fixed Income)

Determination of interest rate trends, emphasis on high credit quality,

controlling volatility on account of interest rate swings and maintaining

necessary portfolio liquidity are the key determinants of our fixed income

strategy. Portfolios are built to achieve optimal risk-adjusted total returns.

Extension or retraction of portfolio maturity / duration is effected only after a

careful evaluation of yield curves, spreads between quality issuers and market sectors

Our emphasis is on instruments having high credit quality where the financialstrength of the

issuer (or guarantor) is well-documented by major ratingservices. In addition, in-house credit

analysis is relied upon to arrive at relativepositions within major rating categories

This approach translates into the following:

An investment style that is developed through an appraisal of the respective

schemes investment objectives, expectations and positioning, risk tolerance

and unique needs.

Emphasis Emphasis onon portfolio portfolio quality quality inin the the implementation

implementation of of our our strategy, strategy, while while


26/30

using fundamental and technical analysis to seek opportunities for profitable

investments. The focus is on detailed and better understanding of the

business that we invest in.

Primary goal is the development and implementation of respective scheme

portfolios such that optimal risk-adjusted returns are achieved while

maintaining good quality portfolio and liquidity


27/30

Risk Management

Risk management is an integral part of our investment management process

The risk manager tracks adherence to investment restrictions, objectives,processes, internal

norms, limits, etc. on an ongoing basis

Adherence to regulatory and internal investment norms and limits monitoredindependently

independently byby the the risk risk management management department department

Risk management focuses on alignment of portfolios with the respectiveinvestment objectives,

effective diversification, restricting investments to qualityassets etc.


28/30

Fund Management Team

(Equity)

Name and Designation Experience Funds Managed*

Mr Prashant Jain

Chief Investment Officer

Collectively over 21 years of experience

in fund management

and research in mutual fund industry

HDFC Equity Fund

HDFC Top 200 Fund

HDFC Prudence Fund

HDFC MF Monthly Income PlanLong

Term Plan (Equities)

HDFC Infrastructure Fund #

Mr. Vinay Kulkarni

Senior Fund Manager

Collectively over 23 years of experience,

of which 21 years in

fund management and equity research

and 2 years in the IT

industry

HDFC Core & Satellite Fund

HDFC Premier MultiCap Fund

HDFC Index Fund

HDFC TaxSaver

HDFC MF Monthly Income PlanShort

Term Plan (Equities)

HDFC Multiple Yield Fund (Equities)

Mr. Chirag Setalvad

Senior Fund Manager

Collectively over 15 years of experience,

of which 13 years in

fund management and equity research

and 3 years in

investment banking

HDFC Mid-Cap Opportunities Fund

HDFC Balanced Fund

HDFC HDFC Capital Capital Builder

Builder Fund Fund @

HDFC Childrens Gift Fund

HDFC Long Term Advantage Fund

HDFC Multiple Yield FundPlan 2005

(Equities)

Mr. Srinivas Rao Ravuri

Senior Fund Manager


in Indian Financial

markets, primarily in equity research and

fund management

HDFC Growth Fund

HDFC Long Term Equity Fund

HDFC Infrastructure Fund $

Mr. Miten Lathia

Fund Manager- Equities & Senior Equity


in Equity Research . H

HDFC Capital Buidler Fund @@


29/30

Analyst

Mr. Rakesh Vyas

Fund Manager - Foreign Securities &

Senior

Equity Analyst


of which 3 years in

Application Engineering (Control and

Automation) and over 5

years in Equity Research

All eligible schemes of HDFC Mutual

Fund investing in foreign

securities

Mr. Shobhit Mehrotra

Senior Fund Manager and Head of

Credit


in Fixed Income

markets, credit rating etc.

HDFC MF Monthly Income PlanLTP

and STP (Debt)

HDFC Income Fund

HDFC High Interest FundShort Term

Plan

HDFC Liquid Fund

HDFC Floating Rate Income Fund

HDFC Fixed Maturity Plans Series XII

& XV

HDFC Medium Term Opportunities

Fund

Mr. Anil Bamboli

Senior Fund Manager


in Fund Management

and Research

HDFC Multiple Yield Fund (Debt)

HDFC Multiple Yield FundPlan 2005

(Debt)

HDFC High Interest Fund

HDFC Short Term Plan

HDFC Cash Management Fund

Treasury Advantage Plan

HDFC Gilt Fund

HDFC Arbitrage Fund

HDFC Gold Exchange Traded Fund

HDFC Debt Fund for Cancer Cure

HDFC Short Term Opportunities Fund

HDFC Gold Fund, an open ended fund

of fund scheme

investing in HDFC Gold Exchange

Traded Fund

Mr. Bharat Pareek

Fund Manager


of which 7 years intreasury operations and dealing in debt

market and 4 years in

Fund Management

HDFC Cash Management FundCall

Plan & Savings PlanHDFC Quarterly Interval Fund

HDFC Fixed Maturity Plans Series 18 to

22

Mr. Rakesh Vyas

Fund Manager -Foreign Securities &

Senior Equity Analyst


of which 3 years in

Application Engineering (Control and

All eligible schemes of HDFC Mutual

Fund investing in

foreign securities


30/30

Automation) and over 5

years in Equity Research

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