CAPITULO UNICO

It requires a lot of research and constant watch on the capital market for a fund manager to analyze the portfolio of the particular fund. I took the secondary data from the fund review of the article corner from The Business Line web site. I comprehended the analysis and concluded my view as stated below.

HDFC Growth Fund invests in stocks across market capitalisations. Despite a large-cap bias, mid and small cap stocks account for 28 per cent of the portfolio. The fund has managed to consistently beat its benchmark Sensex over one-, three- and five-year periods.

In the latest portfolio, the fund has invested in as many as 52 stocks across 18 different sectors making it a fairly diversified portfolio. This may indicate net inflows into the fund.

Sector Moves: There is a fair bit of stability in terms of top sector holdings in the portfolio.

Banks (16.39 per cent) and pharmaceuticals (10.37 per cent) sectors continue to be the top two sector holdings, although exposures have been a bit reduced.

Banks and consumer non-durables also figure among top holdings in the fund, and have seen increased exposures over the September-February period. While capital goods and banks have done well in the past year, they have been among the worst hit in the recent meltdown.

The respective sector indices were beaten down by over 25 per cent in the last couple of months. Construction and predictably, software exposures have been pared in the six-month period.

Interestingly, media and entertainment (8.48 per cent), which were not part of the portfolio six months ago is now in the top ten sector holdings for the fund. The power sector has been exited, while telecom services and auto ancillaries exposures have been increased substantially.

Stock Moves: Most stocks are those whose prices have fallen during September-February,

include stocks such as Zee Entertainment, HT Media and Dr Reddy's Labs.

The fund has also taken profit booking opportunities, with several stocks whose prices rose between 60-105 per cent have been exited. These include, Axis Bank, Hanung Toys and Tata Power. Other high-profile exits include DLF, HPCL, Ranbaxy Labs, and Punj Lloyd.

Reliance Industries, SBI, ONGC and BHEL are the stocks retained by the fund during the period and are among the fund's top holdings.

3.4 FINDINGS

 As far as analysis is concerned, we found out that the HDFC Growth Fund was among

the best performers fund. Although all the funds are affected by the global meltdown, (recession) still HDFC Growth Fund has better performed comparing to other funds for its systematic and unsystematic risk. It offers advantages of diversification, market timing, and selectivity. In the comparison of sample of funds, HDFC Growth fund is found highly diversified fund and because of high diversification, it has reduced the total risk of portfolio.

 Further, other funds were found very poor in diversification, market timing, and

selectivity. Although HDFC Top 200 Fund and Equity Fund performed better in terms of returns but these suffered by the systematic risk (market volatility) and lack of diversification. For the further clarification, we too studied the portfolio of HDFC Growth fund.

 One of the findings that I came across is that generally, a good model of asset classes is the one that can explain a large portion of the variance of returns on the assets and there were some stocks in the fund portfolio, which were not aligned with strategy of the fund portfolio.

 The optimal situation involves the selection that proceeds from sensible assumptions, is carefully and logically constructed, and is broadly consistent with the data while collecting the stocks for the portfolio. The portfolio was showing constructive outcome in long time horizon and the results can be improved by making the minor changes in fund portfolio.

 Hence, the portfolio theory teaches us that investment choices are made on the basis

of expected risk and returns and these expectations can be satisfied by having right mix of assets.

3.5 RECOMMENDATIONS:

Considering the above analysis, it can be noted that the three growth oriented mutual funds (HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund) have performed better than their benchmark indicators. Other funds such as HDFC Capital Builder Fund, HDFC Long term Advantage Fund did not perform well even some performed negatively. Though HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund have performed better than the benchmark of their systematic risk (volatility) but with respect to total risk the fund have not outperformed the Market Index.

Growth oriented mutual funds are expected to offer the advantages of Diversification, Market timing and Selectivity. In the sample, HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200 fund is found to be diversified fund and because of high diversification, it has reduced total risk of the portfolio. Whereas, others are low diversified and because of low diversification their total risk is found to be very high. Further, the fund managers of these under performing funds are found to be poor in terms of their ability of market timing and selectivity.

 The fund manager of HDFC Equity Fund, HDFC Growth Fund and HDFC Top 200

fund can improve the returns to the investors by increasing the systematic risk of the portfolio, which in turn can be done by identifying highly volatile shares. Alternatively, these can take advantage by diversification, which goes to reduce the risk if the same return is given to the investor at a reduced risk level, the compensation for risk might seem adequate. The fund manager of HDFC Capital Builder Fund, HDFC Long term Advantage Fund can earn better returns by adopting the marketing timing strategy and selecting the under priced securities.

 The fund manager can divide all securities into several asset classes and tries to

construct an efficient portfolio based on expected returns, risk, and correlations of indexes representing these asset classes. The investment should be done in the bench mark indexes to get an “efficient” portfolio in such a way that no other combination of these indexes would result in a portfolio with a higher return for a given level of

risk. It should be emphasized, however, that this is not a fully efficient portfolio because information about correlations among individual securities within an index and across the indexes is lost in the transition from individual securities to the benchmarks that represent them.

 These measures are more useful to investors who are putting their money into one diversified fund and are able to use leverage or invest in the risk-free asset. When the investor is investing in the different funds, the fund’s marginal contribution to the portfolio’s risk and return is more important than its individual security characteristics. To construct an efficient portfolio, an investor must take account of the correlations among the being considered.

It is not advisable to apply just procedure or approach for all situations at least when it comes to investments though the used measures are highly reliable in the studies done on similar veins. Even at this juncture it would still be recommended that instead of going ahead only on the basis of risk and return, other indicators like new projects, sector impact, individual sentiments about companies etc besides ‘common sense and intuition’ may also be looked into.

3.6 CONCLUSIONS:

Mutual fund has become one of the important sources for investing. It is quite likely that a more efficient portfolio can be constructed directly from funds. Thus, the two-step process of choosing an asset allocation based on the information about benchmark indexes and then choosing funds in each category may be one of the best realistically attainable approaches. To use this approach to portfolio selection effectively, investors would benefit from estimates of future asset returns, risks and correlations, as well as from fund management’s disclosure of future asset exposures and appropriate benchmarks.

It has been a great opportunity for me to get a first experience of Mutual Funds. My study is to get the feel of how the work is carried out in relation to fund’s portfolio aspect. I got an opportunity in relation to the documentation and also the portfolio analysis that have been carrying out in facilitating the investor and the fund manager.

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