Strictly Private and Confidential

Mutual Funds

May 25,2011

Points to Cover
What is Mutual Fund Investing? Basic of Mutual Fund Benefits of Investment in Mutual Fund

What to look for in a fund

Edelweiss Research Offerings How to place order in Mutual Fund (MFSS) Website or Sub-Dealer Module Trading Terminal Points to Remember

What is Mutual Fund Investing

Mutual Funds are increasingly being touted as the retail investors' investment vehicle. But the key challenge is to choose the right fund. Following are some rules to help invest better and attain your financial goals. Know Yourself Reality Check Know what you are buying Examine Sector Weightings

Check Out the funds concentration

Assess Performance Appropriately Know Your Portfolio Be A Disciplined Investor

Strictly Private and Confidential

Basics of Mutual Funds

May 07, 2010

Table of Contents
Index:
What is a Mutual Fund Structure of Mutual Funds Benefits of Mutual Funds Structure of Mutual Funds Open Ended & Close Ended Categories of Funds Equity, Debt & Money Market Risk & Return Chart Concepts in Mutual Funds

Risks involved in investing in Mutual Funds

What is a Mutual Fund?

MF is a trust that pools the savings of a no. of investors who share a common financial goal MF 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 A vehicle for investing in stocks and bonds / money market instruments It pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities Owner of a mutual fund unit gets a proportional share of the funds gains, losses, income and expenses

Structure of Mutual Funds (1 of 3)

Savings Trust Units Unit holders

AMC Investments

SEBI Sponsor Management Company Trustee Company Asset Management Company Custodian

Registrar Trust Custodian AMC

SEBI

Transfer Agent

Structure of Mutual Funds (2 of 3)

Securities & Exchange Board of India (SEBI) Statutory board for investor protection Frames regulations and promotes orderly growth of mutual funds

Sponsor A party which wants to establish a mutual fund

Management Company Establishes a trustee company or a board of trustees

Trustee Company Safeguards the interest of the Unit holders Ensures that the AMC functions in accordance to the regulations laid down by SEBI

Structure of Mutual Funds (3 of 3)

Asset Management Company Launches schemes, mobilizes funds & invests in line with scheme objectives

Custodian Responsible for the safe keeping of investments of the funds and receipt of all benefits due to the fund

Transfer Agent Responsible for unit holders record maintenance and servicing including purchase, repurchase and transfer of units

Benefits of Mutual Funds

Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of Schemes Tax Benefits Well Regulated Affordability

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Types of Mutual Funds

Equity Related Schemes

Open Ended Schemes

Debt Related Schemes

Close Ended Schemes

Mutual Funds

Money Market Related Schemes

Open Ended Can enter and exit the fund scheme at its NAV These funds charge an exit load Continuously selling and buying back fund shares, these funds provide investors with a very useful and convenient investing vehicle

Close Ended Applications to funds restricted to only NFO period These funds charge heavy exit load during the

entire tenor of fund

Redemption can take place intermittently as per dates mentioned or by way of exchange

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Categories of Mutual Funds

Equity Based Mutual Fund Schemes

Money Market Mutual Fund Schemes

Monthly Income Plans Gilt Funds

Large Cap Funds Mid Cap Funds Opportunity Funds Thematic Funds Value Funds Sector Funds Tax Planning Funds Index Funds Fund of Funds International Funds Arbitrage Funds Balanced Funds
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Liquid Funds Floating Rate Funds ST

Income Funds
Income Funds STP Floating Rate Funds LT Liquid Plus Funds Fixed Maturity Plans

Categories of MFs Equity (1 of 2)

Large Cap Funds Invests majority of its portfolio in Large Cap / Blue Chip Stocks Mid Cap Funds Invests majority of its portfolio in Mid Cap upcoming Stocks Opportunity Funds Flexible allocation to Mid Cap and Large Cap Stocks based on opportunities available in the market Thematic Funds Identifies themes for investment viz., Infrastructure, Special Situations, etc. & thus carries lower risk as compared to Sector Funds Value Funds Invests in undervalued stocks as defined by Fund Manager. The contra play in Mutual Funds Tax Planning Funds Provides 80(c) benefits to investors of tax exemption up to an investment amount of 1 lakh

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Categories of MFs Equity (2 of 2)

Sector Funds Invests in sectors like Telecom, Banking, etc. and is considered the riskiest of all equity funds Index Funds These funds invest in the underlying benchmark indices and deliver returns in line with its broad market index International Funds These funds provide international diversification in Indian rupee investments Arbitrage Funds These funds employ arbitrage strategies for investors through the mutual fund route ETFs These funds are listed on the exchange & provide high liquidity to investors

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Categories of MFs Debt (1 of 2)

MIPs These funds are the riskiest among the debt funds and run a portfolio blend of Equity (25%) & Debt (75%) Gilt Funds These funds have maximum allocation in the portfolio to Gilt Securities. Given the nature of the type of instruments in the portfolio, investment horizon of longer tenor becomes a necessity Income Funds These funds are meant for long term (average 4-5 Years) parking of

investments on the debt side. These funds tend to be risky from a short term perspective Income Funds STP This variant of income funds belong to shorter period of investments (approx. 6-9 Mths)

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Categories of MFs Debt (2 of 2)

Floating Rate Funds LT These funds also are suited for long term investments in debt and are highly vulnerable to rate changes Liquid Plus Funds These funds invest in short term debt instruments and almost are considered equivalent to Liquid Funds. They have a little higher maturity as compared to Liquid Funds. These funds may charge an exit load for a very short duration from time of investment. They score higher than Liquid Funds because of taxation Fixed Maturity Plans These funds are similar to Fixed Deposits (FDs) & are schemes launched for a particular tenure. Generally these are close-ended schemes which provide tax efficient returns compared to FDs

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Categories of MFs Money Market

Liquid Funds The investments in very short term duration papers provide them with high liquidity. These funds operate under no entry / exit load and provide an option of previous NAV for investments Floating Rate Funds ST These funds also suit short term parking of funds. The investments in floating rate instruments makes them highly vulnerable to rate changes

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Risk & Returns

R E T U R N S

RISK

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Concepts in MFs (1 of 3)
NAV or Net Asset Value of the fund is the cumulative market value of the assets of the
fund net of its liabilities The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the funds NAV The Formula for NAV is as follows,

Market value of the Funds Investments + Receivables + Accrued Income - Liabilities - Accrued Expenses Number of Outstanding units

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Concepts in MFs (2 of 3)
Load is a charge, which the AMC may collect on entry/exit from a fund. A load is charged to
cover the up front cost incurred by the AMC for selling the fund Load is the adjustment to the NAV, to arrive at price Load that is charged when investor buys units is the entry load or sale load. Entry load increases the price of the units for the investor

Load that is charged when investor redeems units is the exit load or repurchase load. Exit load
reduces the proceeds to the investor

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Concepts in MFs (3 of 3)
Investment Options Mutual Fund Schemes offer two options to investors viz., Dividend & Growth Dividend - provides inflow of income at intervals as declared by the Fund Manager. provide additional options like Dividend Reinvestment & Dividend Payout Growth provides growth of capital to investors who want to earn returns at the end of period of investments Type of Transactions SIP, STP, SWP, Redemption, Switch, Additional Purchase Systematic Investment plan (SIP) - Regular Investment of fixed amount periodically (Rupee Cost Averaging Advantage) Switch Shift of units from One scheme to another within a fund house Systematic Withdrawal plans (SWP) - Systematic withdrawals on periodic basis Systematic Transfer Plans (STP) - Transferring a specific amount on periodic basis from one scheme to another of the same fund family by Selling units of one scheme & buying units of another scheme
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They

Tax Implication

Time Period

Equity Funds

Debt Funds Individuals - 14.16% (DDT) Corporate - 22.66% (DDT) Individuals - 14.16% (DDT)

Money Market Funds Individuals - 28.33% (DDT) Corporate - 28.33% (DDT) Individuals - 28.33% (DDT) Corporate - 28.33% (DDT) DIVIDEND OPTION GROWTH OPTION

Less than one year

Nil

More than one year

Nil

Corporate - 22.66% (DDT)

Time Period

Equity Funds

Debt Funds

Money Market Funds

Less than one year

15% (STCG)

As per Tax Slab

10% without Indexation 20% with indexation

As per Tax Slab

10% without Indexation 20% with indexation

More than one year

Nil

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Risks associated with Mutual Funds (1 of 2)

Market Risk At the time of broad market changes, the stock prices of an outstanding, highly profitable company may be affected. This change in price is due to "market risk". Also known as Systematic risk Inflation Risk - Also known as "loss of purchasing power" Whenever inflation rises faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns Credit Risk - In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures Interest Rate Risk - Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful

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Risks associated with Mutual Funds (2 of 2)

Exchange risk Risk associated with changes in exchange rates may have a positive or

negative impact on companies which in turn would have an effect on the investment of the fund Investment Risks - The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities Changes in the Government Policy - Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund

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What to look for in a Fund?

Four basic areas that you must evaluate in a fund to decide whether it's a good investment Performance Risk Portfolio Management Cost

Edelweiss Research Offerings

Edelweiss Research Team offers Mutual fund research along with various research product across Equity, Debt, Liquid & Balanced category in order to select right Mutual Fund for investor. Research Products Top Picks: A monthly report on our latest mutual fund recommendations across various categories. Along with this also get a short 1 pager report on each fund for quick reference. Each fund selected is based on various quantitative and qualitative parameters. Each of these funds can be purchased from our online trading platform . Fund of the Month: A monthly report where we pick one fund based on various qualitative and quantitative factors. The fund is selected based on investment style of Fund Manager, Fund House pedigree, consistent Asset under Management, relative outperformance of the funds over the benchmark and many more. Debt Outlook: To expand mutual fund investing to another asset class, we bring to you our debt investment outlook. This report contains the current debt environment, our outlook and strategies for investors. The report includes liquid funds and income funds. Each of these funds can be purchased from our online trading platform.
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Edelweiss Research Offerings

Research Products Liquid Schemes: A Liquid Mutual Fund is specifically designed to invest in debt instruments for ultra short term duration. As the name implies these are funds that can be converted into cash easily. These funds invest in short term debt instruments with maturities of less than a year. These funds invest in short term debt instruments with maturities of less than a year. Their rates of return are comparative to prevailing interest rates in the market. They also give better yields than savings account. They also can be used to park surplus funds for short periods of time. . Strategic Pick: A report on a category of funds which we feel is suitable for current market conditions. Also with this an update on latest developments in the mutual fund industry. This report also contains an analysis on the fund from the particular category selected MF Fund Score: A fund score is assigned to each fund from the category. This score is based on relative outperformance of the fund over the benchmark, overall returns and volatility of the fund. This score is used to compare funds within the same category.
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How to place order in Mutual Fund

Mutual Fund Service System (MFSS)- Mutual fund Trading platform by NSE: MFSS is a facility using which clients can subscribe (Buy) or redeem (Sell) mutual funds units in demat form through EBL

Key Features of MFSS

Hassel free as is eliminates documentation/ paper work to a large extent Fungible limits Clients can track Mutual Funds investment in My Edelweiss Section Easy entry and exit as Mutual fund units are in demat form

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How to place order in Mutual Fund

Online or Sub Dealer Module

Login to trading account Click on Mutual Fund Go to Purchase for subscription or Redeem for Redemption Select AMC Select Category

Equity: Equity Mutual Funds Debt : Debt Mutual Funds Balanced: Balanced Mutual Funds Liquid: Liquid Mutual Funds Debt(T+1): Ultra Short Term Debt Funds

NFO Equity: New Fund offer Equity

NFO Debt: New Fund Offer Debt etc Growth (GR) Dividend Payout (DP) Dividend Reinvestment (DR)

Select Series

Select Scheme Name Select Purchase Type

Fresh Additional
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Enter Amount in case of Subscription & Enter Units in case of Redemption Click Buy/Sell

How to place order in Mutual Fund

Online or Sub Dealer Module

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How to place order in Mutual Fund

Online or Sub Dealer Module

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How to place order in Mutual Fund

Online or Sub Dealer Module
Note: Same order can be seen in Order Book. Kindly insure that for a successful order in Mutual fund order status should always be open.

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How to place order in Mutual Fund

Through Terminal

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How to place order in Mutual Fund

Through Terminal

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How to place order in Mutual Fund

Through Terminal

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How to place order in Mutual Fund

Through Terminal

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Points to Remember
Possible reason for order rejection: Exchange not enable for account. This occur of client has not given consent for MFSS (For giving consent, link is available on website) Clients 16 digit DP details do not appear in the subscription/ Redemption box. Insufficient Funds: This occurs when client does not have sufficient due credit. Credit received for unsettled trades will not be considered for MFSS

Other Details
Cut-off time for MF orders is 3:00 PM Currently facility is only in Demat form. Both offline & online option is available for the client. Try clicking on Refresh DP Details in case the DP details of clients is not Reflecting Settlement period in case of redemption

Equity & Debt Scheme: T+2 Day Liquid Scheme: T+1 Day
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Disclaimer

Thank You!!!

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