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Mutual Funds

Mutual Funds

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Published by Mohit Kapoor
mutual funds
mutual funds

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Published by: Mohit Kapoor on Mar 26, 2013
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Mutual Funds

Presented By: Group 3 Arnab Moitra Manish Banga Mohit Kapoor Shersingh Bagel Stuti Sethi Sumit Dua
Group 3

Human Life Cycle
Phase I Phase II
Child’s Marriage Child’s Education Housing Birth of Children Marriage 22 yrs 38 yrs 10- 20 yrs

Phase III

Education Age 0- 22 yrs

Earning Years
Age 22- 60 yrs
Group 3

Post Retirement Years Age >60 yrs

Individual Investor: Life Stages
Young Independent-22yrs Young Married- 27 yrs

Consumption Savings

Consumption Savings

Middle Age-40 yrs


Consumption Savings

Consumption Savings

Group 3

Value of Money over time Impact of inflation on monthly expenses of Rs.689 78.000 79. 100.102 38.353 Today 5 years 15 years 20 years Today 5 years 15 years 20 years At inflation of 5% Group 3 . 30.288 30.000 37.368 48.599 62.000 today Value of Rs.000 over time 100.

Investment Options Deposit in Bank: SB. Silver etc. Locker Investment in Money Market instruments Loan a Friend/Relative on Interest Investment in Capital Markets: Direct or Indirect via Mutual Funds Invest in Bullion .Gold. Group 3 Property Investments . FD. RD.

95% 0.00% Bank FD Inflation Company FD Tax @ 30% RBI Bond Co Bonds Net Returns Group 3 .10% 2.00% 2.00% 4.54% 4.00% 5.25% Rates of Return? Returns – Net of tax? 3.36% 2.00% 7.40% 0.71% – – – – • • • Bank Deposits Corporate Deposits RBI Bonds Corporate Bonds 2.00% 6.So what are the alternatives? • Fixed Interest Products – 8.54% 4.54% 4.01% 1.00% 4.54% Won’t Inflation eat into the return? 0.00% 1.00% 1.06% 0.

Equities as Investment Option Group 3 .

high return category.How to Invest in Equities? Direct Equity •High risk. •Substantial initial capital required Mutual Funds •One-Time Investment •Systematic Investment Plan (SIP) Group 3 . •Needs a lot of time & expertise.

debentures. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Income earned through investments and capital appreciation realized by the scheme are shared by unit holders in proportion to the number of units owned Group 3 . These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy.What is a Mutual Fund? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. money market instrumentsdepending upon the scheme’s stated objectives. Money collected is invested by the fund manager in different types of securities – shares.

How Mutual Fund works? .


UTI. sponsored by SBI. following the repeal of the Unit Trust of India Act 1963.21. • Third Phase-1993-2003(Entry of Private Sector Funds) • Fourth Phase – since February 2003 . At the end of 1993. 1993 was the year in which the first Mutual Fund Regulations came into being. there were 33 mutual funds with total assets of Rs. 1. As at the end of January 2003. It is registered with SEBI and functions under the SEBI Mutual Fund Regulations Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. BOB and LIC.Brief History of mutual funds • First Phase – 1964-87 • Second Phase-1987-1993 (Entry of Public Sector Funds) marked the entry of non.004 crores. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.6. PNB.805 crores. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). except UTI were to be registered and governed. In February 2003. At the end of 1988 UTI had Rs.UTI Mutual Fund established in June 1987.47. UTI Mutual Fund Ltd. SBI Mutual Fund was the first non. under which all mutual funds.700 crores of assets under management. the mutual fund industry had assets under management of Rs.

Mutual funds growth over the years .

8 14.A (G) SBI Emerging Busi (G) Birla SL India GenNext (G) Diversified Equity Reliance Equity Oppor .2 IDFC Mutual Fund 3000186.1 UTI Opportunities Fund (G) 1 0 2.1 Birla Sun Life Mutual Fund 7688977.6 1.6 2.8 9063582.1 Kotak Mahindra Mutual Fund 3177282.5 UTI Mutual Fund SBI Mutual Fund Franklin Templeton Mutual Fund 4086857.8 DSP BlackRock Mutual Fund 3083760.5 3.4 Assets under management 10139253. 2012 Name HDFC Mutual Fund Reliance Mutual Fund ICICI Prudential Mutual Fund 8139421.7 4.6 18.5 6 3.4 10.2 7063814.8 20.2 9.MUTUAL FUND DATA.9 10.8 ICICI Pru Focused Bluechip Eqty (G) 4.RP (G) UTI Equity Fund (G) UTI India Lifestyle Fund(G) UTI MNC Fund (G) Mirae (I) Opportunities-RP (G) 5331126.5 13 17.2 15.1 2.8 31.4 13.2 Birla Sun Life MNC Fund (G) Small & Mid Cap HDFC MidCap Opportunities (G) IDFC Premier Equity .3 5.4 Large Cap Birla SL Frontline Equity -A (G) Birla Sun Life Top 100 (G) Franklin India Bluechip (G) 3 month(%) 1 year(%) 5.4 13.2 .3 15.6 10.8 3.5 27.8 -0.

Organization of a Mutual Fund .

annual reports – Select Benchmark depending on scheme and compare . investment guidelines etc.Very detailed guidelines for disclosures in offer document. newspapers – Half-yearly results. 1882) • Bank operated MFs supervised by RBI too • AMC registered as Companies registered under Companies Act. 1956 • SEBI. every week for closed ended – Disclose on website. – NAV to be declared everyday for open-ended. AMFI.Regulations • Governed by SEBI (Mutual Fund) Regulation 1996 – All MFs registered with it. constituted as trusts ( under Indian Trusts Act. offer period.

• Fund Offer Document – Document with investment objectives. in line with fund’s objective. how to invest etc. Growth – Profits ploughed back into scheme. risk factors. cash in order to optimize risk. • • Dividend – Profits given to the investor from time to time. . real estate. bonds. • Fund Manager – The individual responsible for making portfolio decision for a mutual fund. expenses summary. • Asset Allocation – Diversifying investments in different assets such as stocks. This causes the NAV to rise.Some terminologies….

Imposed to discourage withdrawals May reduce to zero as holding period increases.More terminologies • • • NAV – Market value of assets of scheme minus its liabilities. To cover costs for selling. Price you pay to invest in a scheme. May include a sales load. of Units Outstanding on Valuation date Per unit NAV Entry Load/Front-End Load (0-2. processing The commission or charge paid when an investor exits from a mutual fund.End Load (0.25-2. = Net Asset Value No. (In this case. sale price is higher than NAV) Price at which close-ended scheme repurchases its units Price at which open-ended scheme • Exit Load/Back.25%) – – – – The commission charged at the time of buying the fund.25%) • Sale Price/ Offer Price – • • Re-Purchase Price/ Bid Price – – Redemption Price .


Types of Mutual Fund Schemes • By Structure – Open-Ended – anytime enter/exit – Close-Ended Schemes – listed on exchange.) Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years) • Other Schemes – Tax Saving Schemes – Special Schemes • ULIP . redemption after period of scheme is over. • By Investment Objective – – – – Equity (Growth) – only in Stocks – Long Term (3 years or more) Debt (Income) – only in Fixed Income Securities (3-10 months) Liquid/Money Market (including gilt) – Short-term Money Market (Govt.

SPECIAL SCHEMES-EXAMPLE Funds based on Size of the Companies Invested in Large cap funds: Funds that invest in companies whose total market cap is above Rs40bn Mid cap funds: Funds that invest in companies whose market cap is between Rs20-40bn Small cap funds: Funds that invest in companies whose market cap is below Rs20bn .

you could get yourself a number of units across a number of companies and industries when you invest in a fund. Investor protection: A mutual fund in India is registered with SEBI. Convenience: You can invest directly with a fund house. Limited risk: Mutual funds are diversified investments and hence do not rely on the performance of a single entity. Expert on your side: You buy into the experience and skills of a fund manager and an army of professional analysts. which also monitors the operations of the fund to protect your interests. tax policies on mutual funds have been favorable to investors and continue to be so. 7. .Tax benefits: Over the years.000. Easy investing: You can invest in a mutual fund with as little as Rs. 3. Low transaction costs: A mutual fund. 6. or through your bank or financial adviser. More for less: For the price of one blue chip stock for instance. Salaried individuals also have the option of investing in a monthly savings plan. Transparency: Updates on the NAV. 5. you can usually get it in four working days.10 REASONS TO INVEST IN MUTUAL FUNDS 1. 8. 5. by sheer scale of its investments is able to carry out cost-effective brokerage transactions. Quick access to your money: It's good to know that should you need your money at short notice. 4. or even over the internet. 9. 10. information on specific investments made by the mutual fund and the fund manager's strategy and outlook. 2.

plus cess.com Note: The amount invested in tax-saving funds (ELSS) is eligible for deduction under Section 80C. plus cess. totally 3% cess 27.TAXATION Type of Mutual Fund Short term Cap gain Treatment Long term Cap gain Treatment Dividend Distribution Tax (DDT) Equity Mutual Funds 15% taxation NIL NIL Debt Mutual Funds(non Taxed as per individual Liquid schemes) tax slab of the investor Money Market and Liquid Schemes Gold ETFs Taxed as per individual tax slab of the investor Same as Debt Mutual Funds 10% without 12.000 (in a financial year).moneycontrol. However the aggregate amount deductible under the said section cannot exceed Rs 100. totally 3% cess 13.038% Same as Debt Mutual Same as Debt Funds Mutual Funds •Short term: Fund held for less than 365 days •Long Term: Fund held for more than 365 days Source: www. .519% 10% without 25% plus 5% indexation OR 20% surcharge plus 3% with indexation.5% plus 5% indexation OR 20% surcharge plus 3% with indexation.

What is your Risk Appetite Sectoral Funds High Risk High Return Equity Funds Index Funds Balanced Funds Debt Funds Liquid Funds Low Risk Low Return .

looks at both. Corporate defaulting on their interest and principal payment obligations leads to fall in credit ratings.overall stock or bond markets fall. • Non-Market Risk . High SR =Good .Bonds are debt obligations.Volatility (fluctuation of NAV) – Standard Deviation: how much the actual performance of a fund over a period of time deviates from the average performance. returns and risk.returns that a fund delivered were commensurate with the kind of volatility it exhibited.Types of Risk involved • Historical analysis . Low SD = good – Websites give star rating ( basis = risk-adjusted return) •Sharpe Ratio . which can negatively affect fund holdings. Risk forgotten • Market Risk . • MF Risk . • Credit Rate Risk . and delivers a single measure that is proportional to the risk adjusted returns.Bad news about an individual company can pull down its stock price.Return is remembered.

you get your entire earnings by way of capital appreciation. Dividend re-investment: The dividend of Rs 100 is not paid in cash but is used to purchase 5. because of which the NAV falls to Rs 18. the NAV will grow.Mutual Fund: Dividend options Growth option: No change. Over time. Dividend payout: The unit holder will get Rs 100 as dividend while the NAV falls to Rs 19. Bonus option: You get 10 more units.2631 more units.2631 2000 - 18.1818 110 2000 - Dividend received - Additional units - - 5.000 20 100 Rs 2.1818.2631 10 . Before declaration of dividend / bonus Growth Dividend payout Dividend reinvestment Bonus NAV Units Value (Rs) 20 100 2.000 After declaration of dividend / bonus NAV Units Value (Rs) 20 100 2000 19 100 1900 Rs 100 19 105. Whenever you redeem the units.000 20 100 Rs 2.000 20 100 Rs 2.

Systematic Withdrawal Plan (SWP) • Fixed payout amount to the holders at predetermined intervals. semiannually or annually. Average cost price tends to fall below the average NAV. – Capital Appreciation STP .A fixed STP is where investors take out a fixed sum from one investment to another. (6 months to 10 years.Investment Strategies Systematic Investment Plan (SIP) • Invest a fixed sum every month. • Three main reasons for using SWPs are– To meet living requirements (usually when retired) – For tax planning purposes – To comply with mandatory retirement plan withdrawal rules after reaching the age of 70. at a fixed interval. quarterly. . • Systematic Transfer Plan is of two types– fixed STP . and more units when the share prices are low. generally monthly.A capital appreciation STP is where investors take the profit part out of one investment and invest in the other. to an equity scheme of the same mutual fund.through post-dated cheques or Direct Debit facilities) • Fewer units when the share prices are high. Systematic Transfer Plan (STP) • Invest in debt oriented fund and give instructions to transfer a fixed sum.

No hassles of writing cheque every month . • SIP is a simple method of investing used across the world as a means to creating wealth Advantages of Systematic Investment Planning • Encourages Regular Investments (just like recurring deposit schemes) • A Convenient way to invest regularly • Lower initial investment without cutting into regular expense • Long term perspective • Rupee Cost Averaging Benefit to counter volatility it brings down the average cost of your Investments • No timing the market • Meet investment objective with investment needs • Helps to match the risk / return profile • Automated . monthly or quarterly.What is a Systematic Investment Plan? • An investment plan to invest a fixed amount regularly at a specified frequency say.Completely automated process.

Magic of SIP Sensex @ 20000 Jan’2008 You start at 20000 and end at 20000 again after 5 years.000 you get a return of around 11% pa 20000 Dec’10 20000 Jan’13 Sensex 15000 Sensex 15000 Sensex 9000 Mar’09 Buy more units when Sensex is low thereby bringing down the average NAV of your investment Sensex 15000 Nov’11 . Actual gain in index – Nil Sensex Sensex But through monthly SIP of Rs. 1.

92 7.00 10.67 11.50 4643. Purchase NAV (Total of NAVs/No.SIP .04 10.29 7 1428.24 6.33 9 1111.25 7770.09 17 588. cost per unit (Total Investment /No of units held) Put aside an amount regularly Discipline is the key 12.5 869.5 1538.69 Rupee cost averaging Control volatility * .38 12 833.45 65.11 9 1111.83 1 2 3 4 5 6 Total 10000 10000 10000 10000 10000 10000 60000 Avg.11 14 714.23 18 555.46 13 769.75 1025.00 10 1000.72 10.This example uses assumed figures and is for illustrative purposes only.58 8.How Rupee Cost Averaging helps Month Amount Rising Market Falling Market Volatile Market Units NAV Units Units NAV (Rs) Allotted (Rs) Allotted NAV (Rs) Allotted 10 1000.64 10. of investments Avg.79 48.56 6 1666.00 10 1000.38 13.00 5611.57 11 909.38 9.57 81.5 952. .5 952.

• Add Sumit’s slides here Group 3 .

• Add SherSingh’s slides here Group 3 .

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