Mutual Funds

Presented By:

Ankit Gupta
Ajit Chaurasia
Deepti Singh

OVERVIEW OF
A Mutual Fund is a trust that pools the savings of a number of
MUTUAL
FUND
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 realized is 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.

HISTORY OF MUTUAL FUND

First Phase 1964-87 -Unit Trust of India (UTI) was established on 1963 by
an Act of Parliament. . 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.
Second Phase 1987-1993 (Entry of Public Sector Funds) -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

Cont.
Third Phase 1993-2003 (Entry of Private
Sector Funds) Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund
registered in July 1993. As at the end of January 2003, there
were 33 mutual funds with total assets of Rs. 1, 21,805 crores.
Fourth Phase since February 2003 -In February 2003,
following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities.

Cont
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 Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations

Types Of Mutual Fund Schemes:

Mutual funds Schemes can be segregated
into three heads
1. Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity
period.
Open-ended Fund/ Scheme
Open-ended schemes are those schemes where investors can
redeem and buy new units all throughout the year as per their
convenience at NAV related prices.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period
e.g. 5-7 years. The fund is open for subscription only during a
specified period at the time of launch of the scheme. Investors
can invest in the scheme at the time of the initial public issue

2. Schemes according to Investment Objective:

Growth / Equity Oriented Scheme
Income / Debt Oriented Scheme
Balanced Fund
Money Market or Liquid Fund
Gilt Fund
Index Funds
Sector specific funds/schemes
Tax Saving Schemes

3. Load or no-load Fund:

Mutual funds incur certain expenses such as brokerage, marketing
expenses, and communication expenses. These expenses are known as
load.

A Load Fund is one that charges a percentage of NAV for entry or

exit. That is, each time one buys or sells units in the fund, a charge
will be payable. This charge is used by the mutual fund for
marketing and distribution expenses. Suppose the NAV per unit is
Rs.10. If the entry as well as exit load charged is 1%, then the
investors who buy would be required to pay Rs.10.10 The
investors should take the loads into consideration while making
investment as these affect their yields/returns. A no-load fund is
one that does not charge for entry or exit. It means the investors
can enter the fund/scheme at NAV and no additional charges are
payable on purchase or sale of units.

The table below summarizes the funds according to their

nature of risk
Nature of risk
Low risk

Categories of funds
Money market funds
G-Sec funds

Moderate risk

Income funds
Short term plans
Balanced funds

High risk

Index funds
Growth funds
Sector funds

ASSOCIATION OF MUTUAL FUNDS IN

INDIA
Association of Mutual
Funds in India (AMFI) was
incorporated on 22nd August, 1995.
(AMFI) modeled on the lines of a Self Regulating
Organization (SRO) with a view to 'promoting
and protecting the interest of mutual funds and
their unit-holders, increasing public awareness
of mutual funds, and serving the investors
interest by defining and maintaining high ethical
and professional standards in the mutual funds
industry'
Association of Mutual Funds India has brought
down the Indianmutual fund industryto a
professional and healthy market with ethical
lines enhancing and maintaining standards.
It follows the principle of both protecting and
promoting the interests of mutual funds as well

OBJECTIVES OF AMFI
AMFI interacts with SEBI and works according to
SEBIs guidelines in the mutual fund industry.
To recommend and promote best business
practices and code of conduct to be followed by
members and others engaged in the activities of
mutual fund and asset management including
agencies connected or involved in the field of
capital markets and financial services.
Association of Mutual Fund of India do represent
the Government of India, the Reserve Bank of
India and other related bodies on matters
relating to the Mutual Fund Industry.
It develops a team of well qualified and trained
Agent distributors. It implements a programme
of training and certification for all intermediaries

Cont.
AMFI undertakes all India awareness programme
forinvestors in order to promote proper
understanding of the concept and working of
mutual funds.
Association of mutual fund of India also
disseminate information on Mutual Fund Industry
and undertakes studies and research either
directly or in association with other bodies.

Advantages of investing in a
Mutual Fund
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares,
etc. depending upon the investment objective of the scheme. An
investor can buy in to a portfolio of equities, which would otherwise
be extremely expensive. Each unit holder thus gets an exposure to
such portfolios with an investment as modest as Rs.5000/-.

Diversification
We must spread our investment across different securities (stocks,
bonds, money market instruments, real estate, fixed deposits etc.)
and different sectors (auto, textile, information technology etc.).

Variety
Mutual funds offer a tremendous variety of schemes.

Professional Management
Qualified investment professionals who seek to maximize returns
and minimize risk monitor investor's money.

 Transparency
Being under a regulatory framework, mutual funds
have to disclose their holdings, investment pattern and
all the information that can be considered as material,
before all investors. SEBI acts as a watchdog and
safeguards investors interests
Liquidity
A distinct advantage of a mutual fund over other
investments is that there is always a market for its unit/
shares. It's easy to get ones money out of a mutual
fund. Redemptions can be made by filling a form
attached with the account statement of an investor.

Risks Associated with Mutual Funds

Professional Management-

Some funds dont perform

in the market, as their management is not dynamic enough to
explore the available opportunity in the market.

Costs The biggest source of AMC income is generally from the

entry & exit load which they charge from investors, at the time of
purchase. The mutual fund industries are thus charging extra cost
under layers of jargon.

Dilution - Because funds have small holdings across different

companies, high returns from a few investments often don't make
much difference on the overall return.

Taxes - when making decisions about your money, fund

managers don't consider your personal tax situation. For example,
when a fund manager sells a security, a capital-gain tax is
triggered, which affects how profitable the individual is from the
sale.

Taxing in mutual fund

Since, April 1, 2003, all dividends, declared
by debt-oriented mutual funds (i.e. mutual
funds with less than 50% of assets in
equities), are tax-free in the hands of the
investor. A dividend distribution tax of 12.5%
(including surcharge) is to be paid by the
mutual fund on the dividends declared by the
fund. Long-term debt funds, government
securities funds (G-sec/gilt funds), monthly
income plans (MIPs) are examples of debtoriented funds.

 Section 2(42A):
Under Section 2(42A) of the Act, a unit of a mutual
fund is treated as short-term capital asset if the same is
held for less than 12 months.
Section 10(38):
Under Section 10(38) of the Act, long term capital gains
arising from transfer of a unit of mutual fund is exempt
from tax if the said transaction is undertaken after October
1, 2004 and the securities transaction tax is paid to the
appropriate authority. Short-term capital gains on equityoriented funds are chargeable to tax @10%, Long-term
capital gains on debt-oriented funds are subject to tax
@20% of capital gain after allowing indexation benefit or at
10% flat without indexation benefit, whichever is less.

 Section 112: Under Section 112 of the Act,

capital gains, not covered by the exemption
under Section 10(38), chargeable on transfer of
long-term capital assets are subject to
following rates of tax:
Resident Individual & HUF -- 20% plus
surcharge, education cess.
Partnership firms & Indian companies -- 20%
plus surcharge.
Foreign companies -- 20% (no surcharge).
Capital gains will be computed after taking
into account the cost of acquisition as adjusted
by Cost Inflation Index, notified by the central
government.

MARKETING
OF
MUTUAL
FUNDS

Product Focus
The performance of the fund in giving
returns to its investors.
The way in which that particular fund was
marketed.
Customer Ownership Focus
Specialized Product & Service Focus

Marketing Strategies:
Direct marketing
Personal Selling
Telemarketing
Direct mail
Advertisements in newspapers and magazines
Hoardings and Banners
Internet
Selling through intermediaries
Joint Calls

CHALLENGES AND
OPPORTUNITIES:

Assessing the needs of the investors;

Expanding the customer base;
Responding to investors needs;
Studying the macro environment;
Choosing the distribution network;
Finalizingstrategies for publicity and
advertisement;
Preparing offer documents and other
literature;

 Getting feedback about sales;

Studying performance indicators about fund
performance like NAV;
Sending certificates in time and other after
sales activities;
Honoring the commitments made for
redemptions and repurchase;
Paying dividends and other entitlements;
Creating positive image about the fund;
Spreading awareness about mutual funds;
Creating new markets for mutual funds.

LATEST TRENDS OF MUTUAL

FUNDS IN INDIA
The recent trends since last year clearly suggest that the
average investors have lost money in equity. People have
now started opting for portfolio managers.
Entrance of multinational companies.
Professional expertise to manage funds worldwide.
Mutual funds in India now offer a wide range of schemes
to choose.
Mutual funds are turned to be the most preferred choice
worldwide for both small and big investors due to their
numerous advantages which include diversification,
professional management, potential of returns, efficiency
and easy to use.

Assets Under Management (AUM)

AUM is a term used by financial services
companies in the mutual fund, hedge fund, and
money management, investment management,
wealth management, and private banking
businesses to gauge how much money they are
managing. Many financial services companies
use this as a measure of success and
comparison against their competitors.

Benefits Of Investing In Mutual

Funds
Easy to buy and sell.
Investments can be made in lump sum or
periodic payments (easy on the pocket).
Mutual fund industry in India is very well
regulated and transparent.
Professional management - saves time, costs
and reduces risk.
Diversification - to protect from downside
risk.

How to choose a fund for investing?

Expense Ratio: Denotes the annual expenses of the funds,
including the management fee and administrative cost. Lower
expense ratio is better.
Sharpe Ratio: An indicator of whether an investment's return
is due to smart investing decisions or a result of excess risk.
Higher Sharpe Ratio is better
Alpha Ratio: Measures risk relative to the market or
benchmark index. For investors, the more positive an alpha is,
the better it is.
R-squared: Measures the percentage of an investment's
movement that are attributable to movements in its benchmark
index. A mutual fund should have a balance in R-square

and ideally it should not be more than 90 and less

than 80.

ASSOCIATION OF MUTUAL
FUNDS IN INDIA
Association of Mutual Funds in India (AMFI) was
incorporated on 22nd August, 1995.
(AMFI) modeled on the lines of a Self Regulating
Organization (SRO) with a view to 'promoting and
protecting the interest of mutual funds and their
unit-holders, increasing public awareness of
mutual funds, and serving the investors interest
by defining and maintaining high ethical and
professional standards in the mutual funds
industry'
Association of Mutual Funds India has brought
down the Indianmutual fund industryto a
professional and healthy market with ethical lines
enhancing and maintaining standards.
It follows the principle of both protecting and
promoting the interests of mutual funds as well as