This action might not be possible to undo. Are you sure you want to continue?
Parshva Doshi- 926 Chhavi Saraogi- 910 Apurva Gupta- 907
Meaning and Introduction:Definition:-
According to SEBI (mutual funds) Regulations Act 1993 defines mutual fund as, “ a fund established in the form of a trust by a sponsor to raise monies by the trustees through the sale of units to the public under one or more schemes for investing in securities.”
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. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. 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.
▪ Origin in 19th Century
▪ MF emerged in U.K. and in U.S as investment management institutions in early 20th Century.
▪ In 1822 an investment trust called “Societe General de Belgigue” was formed in Belgium. ▪ In 1868 Foreign and Colonial Government Trust was established in U.K. ▪ Currently, the worldwide value of all mutual funds totals more than $US 26 trillion.
▪ The United States leads with the number of mutual fund schemes. There are more than 8000 mutual fund schemes in the U.S.A.
▪ Comparatively, India has around 1000 mutual fund schemes, but this number has grown exponentially in the last few years.
The mutual fund industry in India started in 1963 with the formation of
Unit Trust of India.
The history of mutual funds in India can be broadly divided into four
distinct phases :-
First phase (1963-87) Second phase (1987-93) Third phase (1993-2003) Fourth phase (since FEB 2003)
Established in 1963.
It was set up by RBI and functioned under the regulatory authority
In 1978 UTI was de-linked from the RBI and IDBI took over the
regulatory and administrative control.
The first scheme launched by UTI was Unit Scheme 1964 (US 64).
Entry of Public Sector Funds.
Public sector banks like LIC and GIC entered in the industry.
SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987.
Entry of Private Sector Funds.
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector fund to be registered.
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. 1. 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. It functions under the
rules framed by GOI and does not come under the purview of the Mutual Fund Regulations. 2. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and Mutual Fund
LIC - registered with SEBI and functions under the Regulations
A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of the mutual fund is in the hands of the Investors.
A Mutual Fund is managed by investment professional and other Service providers, who earns a fee for their services, from the funds.
The pool of Funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. The investor’s share in the fund is denominated by “units”. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV). The investment portfolio of the mutual fund is created according to the stated investment objectives of the Fund.
To provide an opportunity for lower income groups to acquire without much difficulty, property in the form of shares. To cater mainly of the need of individual investors who have limited means. To manage investors portfolio that provides regular income, growth, safety, liquidity, tax advantage, professional management and diversification.
Diversification of portfolio Convenient Administration
Low Costs Liquidity for some schemes
Flexibility Choice of schemes Tax benefits Well regulated
MFs are subject to market fluctuation
No fixed return Entry and exit load (abolish right now) No Guarantees Management Risk
The Fund Sponsor
Any person or corporate body that establishes the Fund and registers it with SEBI.
Forms a Trust and appoints a Board of Trustees.
Appoints a Custodian and Asset Management Company either directly or through Trust, in accordance with SEBI regulations.
SEBI regulations also define that a sponsor must contribute at least 40% to the net worth of the asset management company.
Created through a document called the Trust Deed that is executed by the Fund Sponsor and registered with SEBI.
The Trust i.e. the mutual fund may be managed by a Board of Trustees i.e. a body of individuals or a Trust Company i.e. a corporate body.
Protector of unit holders interests. 2/3 of the trustees shall be independent persons and shall not be associated with the sponsors.
Rights and Roles of Trustees:
Approve each of the schemes floated by the AMC. The right to request any necessary information from the AMC.
May take corrective action if they believe that the conduct of the fund's business is not in accordance with SEBI Regulations.
Have the right to dismiss the AMC Ensure that, any shortfall in net worth of the AMC is made up.
FUND MANAGERS (OR) THE ASSET MANAGEMENT COMPANY (AMC)
AMC has to discharge mainly three functions as under:
1) Taking investment decisions and making investments of the funds through market dealer/brokers in the secondary market securities or directly in the primary capital market or money market instruments. 2) Realize fund position by taking account of all receivables and realizations, moving corporate actions involving declaration of dividends, etc to compensate investors for their investments in units. 3) Maintaining proper accounting and information for pricing the units and arriving at net asset value (NAV), the information about the listed schemes and the transactions of units in the secondary market. An AMC has to give feedback to the trustees about its fund management operations and has to maintain a perfect information system.
CUSTODIANS OF MUTUAL FUNDS:A custodian’s role is safe keeping of physical securities and also keeping a tab on the corporate actions like rights, bonus and dividends declared by the companies in which the fund has invested. The Custodian is appointed by the Board of Trustees. Mutual funds run by the subsidiaries of the nationalized banks have their respective sponsor banks as custodians like Canara bank, SBI, PNB, etc. Foreign banks with higher degree of automation in handling the securities have assumed the role of custodians for mutual funds.
RESPONSIBILITY OF CUSTODIANS:Receipt and delivery of securities Holding of securities. Collecting income Holding and processing cost Corporate actions etc
Association of Mutual Funds in India (AMFI) was incorporated on 22nd August 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. AMFI has brought down the Indian Mutual Fund Industry to 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 their unit holders.
Promote the interests of the mutual funds and unit holders and interact with regulators- SEBI/RBI/Govt./Regulators.
To set and maintain ethical, commercial and professional standards in the industry and to recommend and promote best business practices and code of conduct to be followed To increase public awareness and understanding of the concept and working of mutual funds in the country To undertake investor awareness programmes and to disseminate information on the mutual fund industry. To develop a cadre of well trained distributors and to implement a programme of training and certification for all intermediaries and others engaged in the industry.
All mutual funds are regulated by the Securities and Exchanges Board of India (SEBI). It issued detailed guidelines for their setting up and operation on 20th January, 1993.
The following are the highlights of SEBI regulations:
Mutual funds are to be established in the form of a trust under the Indian Trusts Act, 1882 and operated by separate asset management companies (AMC) They have to set up a Board of Trustees and Trustee Companies and constitute their Board of Directors. The minimum net worth of AMC’s is stipulated at Rs. 5 crore(later increased to Rs. 10 crore). The AMC’s and trustees are to be two separate legal entities and an arm’s length relationship must be maintained between the two.
An AMC or its affiliate cannot act as a manager in any other fund.
The AMC’s are required to furnish SEBI their respective Memorandum and Articles of Association for approval. Mutual funds dealing exclusively with money market instruments (Such as CDs, CPs and bill discounting) are to be regulated by the Reserve Bank of India. All schemes floated by mutual funds are to be registered with SEBI. There are some very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc. NAV to be declared everyday Disclose on website, AMFI, newspapers Quarterly, Half-yearly results, annual reports 23 Select Benchmark depending on scheme and compare
Open-Ended – anytime enter/exit Close-Ended Schemes – redemption after period of scheme is
Equity Diversified Schemes- Invest in equity Sectors Schemes– Focus on particular sectors
Index Schemes– Invest in all Stocks comprising the index
Equity Tax saving Scheme – Demand a lock in period of 3 years Dynamic Funds– Alter the exposure to different assets classes based on market scenario
Debt Schemes – Invest in medium and short term debts Floating Rate Funds – Invest in debt securities with floating interest rates
Growth Plan – Dividend is neither declared nor paid out Income Plan – Dividend are paid out Dividend Re-Investment plan – Dividend is declared but not paid out
Systematic Investment Plans. – Entails an investor to invest fixed sum of money at regular intervals Systematic withdrawals plans. – Allowed to withdraw a fix sum of money at regular intervals
Systematic transfers plans. – Allowed to transfer a specified amount from one scheme to another on periodic basis
Investors have to bear expenses for availing of the services of the mutual fund.
The first expense that an investor has to incur is by way of Entry Load. This is charged to meet the selling and distribution expenses of the scheme.
A major portion of the Entry Load is used for paying commissions to the distributor
Offer Document:- It contains all details of the scheme Key Information Memorandum:- The important information the investor must know in case he does not want to read the entire offer document Fund Fact Sheet:- This gives the yearly details of the performance of the mutual fund
Expense Ratio:- is defined as the ratio of expenses incurred by a scheme to its Average Weekly Net Assets. It means how much of investors money is going for expenses and how much is getting invested. This ratio should be as low as possible. Portfolio Turnover:Fund managers keep churning their portfolio depending upon their outlook for the market, sector or company.
Exit Loads:As there are Entry Loads, there exist Exit Loads as well. If the investor exits early, he will have to bear more Exit Load and if he remains invested for a longer period of time, his Exit Load will reduce.
In India all MF’s registered with SEBI are eligible for benefits under section 10 (23D) of the Income ax Act, 1961. They get their entire income exempt from income-tax
MF’s have to pay an income distribution tax of 12.8125 % except for open ended equity schemes. As per Finance Act , 2005 income received by investors under the schemes of mutual funds is totally free from tax under section 10 (35) of the act. There is no wealth tax applicable on any mutual fund schemes Gift Tax as applicable to any other asset will be applicable to units.
Under section 2 ( 29A) any unit of the scheme is treated as long term capital assets if it is held for a period of more than 12 months preceding the date of transfer. The capital gains arising from the transfer of long term capital asset will be taxable at the rate of 10 percent without indexation or 20 percent with indexation, whichever is lower. However there is no long term capital gain tax on equity oriented mutual fund schemes
Any unit of the scheme is treated as short term capital assets if it is held for a period of not more than 12 months preceding the date of transfer. The capital gains arising from the transfer of short term capital asset will be taxable at normal rates to the assessee in case of non-equity oriented schemes. In case of equity oriented schemes it is 10 percent where securities transaction tax has been paid.
NAV is the current market value of all the scheme’s assets minus liabilities divided by the total number of units outstanding.
Calculation of NAV is an intensive process that takes place in a short time frame at the end of each business day. The funds pricing process begins at the close of the stock exchange NAV of a mutual fund is expressed as:Market value of investments + Receivables + Other accrued income + Other assets -Accrued expenses - Other payables- Other liabilities No. of units outstanding as on NAV date
Computation of NAV of a Mutual fund scheme
Cash and equivalent holding stocks held and market price: 10,000 shares of A co. @ Rs 50 = 500,000 20,000 shares of B co. @ Rs. 30 = 600,000 50,000 shares of C co. @ Rs. 8 = 400,000 Total Assets Less: Liabilities Total Net Assets Scheme units outstanding NAV per unit
Rs. 1600,000 100,000 Rs. 16.00
The Sharpe ratio is one of the most useful tools for determining a fund's performance. This measure is used the world over and there is no reason why you as an in investor should not use it.
The Sharpe ratio represents this trade off between risk and returns. At the same time it also factors in the desire to generate returns, which are higher than those from risk free returns. S= (Rp - Rf )
σp σp = annualized standard deviation
Rp= annualized return Rf= average yield on say treasury paper (taken as risk free)
The Sharpe ratio is a measure of relative performance, in a sense that it enables an investor to invest in two or more opportunities.
If S = 0.8604 it means that the fund has generated 0.86 percentage point of return above risk free return for each percentage point of standard deviation. A fund with higher sharp ratio is preferable as it indicates that the fund has higher risk premium for every unit of standard deviation risk.
Arbitrage is a strategy, which involves simultaneous purchase and sale of identical or equivalent instruments in two or more markets in order to benefit from a discrepancy in pricing.
This strategy normally acts as a shield against market volatility as the buying and selling transactions offset each other.
In an arbitrage transaction, returns are calculated as the difference between the futures price and cash price at the time of the transaction.
Ideally the positions are held till the expiry of the futures contract when the offsetting positions cancel each other and initial price difference is realized.
This arbitrage strategy makes the fund immune to market volatility i.e. the fund will not be affected by market fluctuations. Despite the fact that arbitrage funds offer investors the opportunity to benefit from investments in equities by making use of derivatives, the fund cannot be compared to conventional diversified equity funds, especially on the returns parameter. The returns from arbitrage funds would typically be much lower than those of equity funds.
What is an ETF?
• Open-End Mutual Fund. • Exchange traded fund tracking an index, commodity, or
set of bonds – virtually every asset class now.
• Not actively managed.
The first ETF created was by Standard and Poor's Deposit Receipt(SPDR), pronounced "Spider") in 1993.
SPDRs gave investors an easy way to track the S&P 500 without buying an index fund, and they soon become quite popular. Designed to compete with futures
Listed on American Stock exchange
Behave in the market just like a stock
Can be shorted, bought on margin, have options traded
on, and you can buy just a single share. Low cost, diversification, tax efficiency. (Low turnover doesn't typically lead to big capital-gains hits.)
▪ Capital Gains generated from fund transactions generally not taxable to the ETF investor.
Instant exposure, as opposed to mutual fund delay
Like an index fund.. Constructed to track index Open ended mutual fund Low expense ratio Low turn over Like a stock.. Trading flexibility intraday on exchange Real time price
Cash Brokerage account Investor ETF Authorized Participants
Basket of Securities
ETF Fund Advisor
Nifty BeES : the first ETF in India, is being introduced by BENCHMARK, an Asset Management Company on January 8, 2002. Liquid BeEs: Invests in calls, Treasury Bills and other short-term fixed-income securities. The units can be bought from the NSE. The minimum lot is one with a face value of Rs 1,000. Bank BeES : is designed to provide returns that closely correspond to the total returns of stocks as represented by the CNX Bank Index.
Types of ETF available : Commodities Gold Oil Commodity indices Fixed income Govt. Corporate Currency
Why invest in GOLD…??
Gold improves stability and predictability of portfolio returns. It is not correlated with other assets because the gold price is not necessarily driven by the same factors that drive the performance of other assets. Adding gold to a portfolio adds an entirely different class of asset because it is both a monetary and a commodity asset. Safe haven that attracts investors
India is the world’s largest gold consumer , approx 20-25% (800 tonnes+) of world production is consumed in India. Social consumption of Gold for many Indians. Gold is acquired and stored in form of jewellery, coins, gold deposits,etc.
There is a need for an instrument which is : Small denomination Cost efficiency Convenience for long term holding Transparency Liquidity Tax efficiency GOLD beES can fulfill all this needs
Are intended to offer investors a means of participating in gold bullion market without the necessity of taking the actual delivery of Gold.
A close ended debt fund having fixed maturity period. Invests only in debt and money market securities normally maturing in line with the time profile of each plan. Thus each plan will have - A separate portfolio - A different maturity date.
A product offering better tax efficient returns than Bank/ Postal Fixed. Deposits and other contemporary products. The one indicating predictable returns with its distinctive portfolio maturity profile. A tool to hedge against the interest rate movements.
Investment in the plan are aligned with the duration of the FMP.
For example: • - most of the investments in a 90 days FMP would be in 90 days debt/money market instruments.
- most of the investments in a 180 days FMP would be in 180 days debt/money market instruments. Therefore, it would be almost insulated from Interest Rate Risk.
Risk averse investors seeking a higher return compared to bank/postal deposits without compromising on safety of capital. To achieve asset allocation objectives and portfolio diversification. Conservative Investors/ First time investors
Market Risks – Market value of security in future
Political Risks – Change in tax laws, etc Inflation Risks – Future changes in interest rates Business Risks – Uncertainty concerning future existence Economic Risks – Uncertainty in economy
Birla Mutual Fund BOB Mutual Fund Canara Bank Mutual Fund Chola Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund LIC Mutual Fund Prudential ICICI Mutual Fund Reliance Mutual Fund SBI Mutual Fund Franklin Templeton Investments
HDFC Mutual Fund
HSBC Mutual Fund ING Vysya Mutual Fund Kotak Mahindra Mutual Fund Franklin Templeton Investments HDFC Mutual Fund HSBC Mutual Fund
ING Vysya Mutual Fund
Escorts Mutual Fund
Apoorva Shah- DSP BlackRock Top 100 Equity Fund Prashant Jain:- HDFC Top 200 Omprakash Kuckian- Reliance Regular savings (Equity) Anand Shah:- Canara Robeco Infrastructure Fund Sunanina Da Cunha and Prakash Dhonde- Birla Sun Life Floating Rate Long Term Ramanathan K- ING Dividend Yield
Assets Under Management Of MF’s are down by 1.5 percent.
HDFC Asset Management has been barred from trading in the stock market by Securities and Exchange Board of India (SEBI) because it found the equities dealer involved by leaking key information in advance.
There are a lot of complaints from the customers investing in Mf’s these days. Most of the complaints are with respect to the redemption proceeds and non-receipt of dividends. IDFC MF declares a dividend of 20% SBI MF launches funds for PSUs. The name of the fund will is SBI PSU.
Assess your self.
Try to understand where money is going. Don’t rush in picking funds Invest – don’t speculate. Don’t put all oranges in 1 basket.
Keep track of your investments. Know when to sell your mutual funds.
Mutual Funds Are Subject To Market Risks , Please Read The Offer Document Carefully Before Investing !!!!!
Thank You !!!
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.