In the era of specialisation, uncertainty which is the only certainty, Mutual Funds are the way ahead.

Mutual Funds-Huge Scope ahead…
IndiaAllocation of Household income
Non-bkg.fin.-4%

Non-Banking deposit s 4.0%

Life LIC-10.9% Insur ance Fund Capital markets-2% 10.9% Capit al Mar ket 2.0%
Small savings-11.9% Sm all Savings

11.9%
P.F.-17.9%

Bank Deposit s 45.8%

Pr ovident Fund 17.9% Unit Tr0.5% ust of India UTI0.5%

Banks-45.8%

Ot her s others=-7% 7.0%

MUTUAL FUNDS
A Mutual fund represents a pool of money collected from investors and is invested according to certain investment objectives to maximize the yield. Features 1. The ownership of the fund belong to the investors. 2. Fund managed by professionals who earn a fee for the services. 3. The pool of funds is invested in a mixed portfolio of marketable securities. Their values are updated every day.

c. No tailor-made portfolios. f. b. . d. g. No control over cost 2. e. Portfolio Diversification Professional management Risk reduction Reduction in transaction costs Liquidity Convenience & flexibility Promotes regular periodic savings Reporting information Disadvantages: 1.Advantages: a. h.

750 Crore !! AUM stands at Rs. SEBI-1993. servicing etc. Sector/foreign Product design. Entry of Public sector banks and FIs Growth oriented close ended funds.open to pvt.ROAD MAP OF MUTUAL FUNDS IN INDIA • 1963-87• 1987-93• 1993-96UTI the sole monarch. 4.39. 100000 crore mark. 6. • 1996-99• 1999-2002• May-2007 • May-2009 SEBI regulations stringent (UTI/Banks) Rapid growth – MF assets cross the Rs.847 Crore !!! .07. Tax breaks to MF – UTI share drops to 50% AUM crosses Rs.

Mutual Fund. 868000 cr. • 41 Mutual Funds are operating in India.profile • AUM Crossed Rs. as on 31st May-2013. • Mutual Fund Assets constitute 9% of India’s GDP. • 18 applications lying with SEBI for licence .

1 Fund name Reliance Mutual Fund AUM ( Rs crores) 101259 2 3 4 5 6 7 8 9 10 HDFC Mutual Fund ICICI Prudential Mutual Fund UTI Mutual Fund Birla Sun Life Mutual Fund SBI Mutual Fund Franklin Templeton Mutual Fund Kotak mahindra Mutual Fund DSP Blackrock Mutual Fund IDFC Mutual Fund 92033 79759 69105 67475 47874 34729 33993 30021 27849 .TOP TEN FUND HOUSES BY AUM AS ON 30-6-11 No.

TRUSTEES:.Responsible for the management. AMC WITH SEBI APPROVAL. .Maintain investors records. Should have at least 5 years track record. CUSTODIAN. Profit making in 3 out of the 5 years.MUTUAL FUND STRUCTURE SPONSOR:.PROMOTER-APPOINTS TRUSTEES. RTA:. Should contribute at least 40% of capital of AMC. AMCs:.They appoint AMC. Link with investors.

BANKERS LEGAL ADVISORS AUDITORS. Depository Participants. Custodians. .Brokers:Selling Agents & Distributors.

(Rs.Requirements regarding AMCs:a) b) c) d) e) Minimum Net worth Rs. . b) and unit holders. At least half of the members must be independent. Not indulge in any other business. Debated?) Cannot be an AMC or trustee of another mutual fund. commercial and professional standards in the industry. AMFI – Association of Mutual funds in India – 1995 a) To promote the interests of mutual funds Must be registered with SEBI. SEBI regulations set out rights & obligations. 10 crore. c) To set ethical. d) To increase public awareness of the industry. 50 cr.

Details of scheme offered. Associate transactions. (key information memorandum) . 7. Unit holder rights.CONTENTS OF AN OFFER DOCUMENT 1. Fund-specific information. 3. 5. 6. 2. Preliminary information. 4. Load. Scheme attributes. fee structure.

Name of the scheme does not indicate quality of the prospects. NAV can go up or down based on capital market. Past performance of the sponsor/MF no guarantee. b.Standard Risk Factor:a. d. Mutual funds and securities investments are subjected to market risk and so there is no assurance that the objectives of the MF will be achieved. c. .

SCHEME SPECIFIC RISK FACTORS a) b) c) d) Investment strategy. Previous experience. Non-diversification.to be indicated . Assured returns without guarantee from sponsor.

Claim div/redemption proceeds within 3 years.Investor Rights: 1. MF to publish half-yearly results and entire portfolio once in 6 months. Any matter of material interest to be made public. 5. 2. Entitled to receive dividends within 30 days. . 4. MF to allot the units within 30 days of IPO. Right of inspection of documents. 6. Redemption proceeds within 10 days of receipt (penalty 15%) 3. 8. Scheme can be wound up if 75% of the unit holders decide. 7.

8125%) b) Div.000 . c) ELSS.deductions under S-80C-Max-Rs.Tax aspects: a) Open ended fund-with more than 50 % equity.5% to be paid by the MF. dividend is not taxable but on other funds div.(12. paid by them. received by corporates can be set off against div.5% +surcharge of 2. distribution tax of 12. 100.

.A mutual fund registered under the SEBI (Mutual Fund) Regulations.10 (23 D) of IT Act. 1996 is fully exempt from paying tax on its income under S.

Investments in unlisted shares not to exceed 5% of net assets for an open-ended fund and 10% for a close ended fund. All investments on actual delivery basis only. Can invest in ADR/GDR upto $50 ml. Cannot hold more than 10% of PUC of a company in all its schemes. h) . (except for sectoral and index funds) Investments in rated investment grade issues cannot exceed 15 % of net assets (20%-trustees) Investments in unrated securities not exceed 10%. Or 10% of net assets whichever is lower. Cannot invest more than 10% of its NAV in a single co.Regulations regarding Investments by MF a) b) c) d) e) f) g) Can invest only in marketable securities.

Current Liabilities & Other liabilities.= Market Value of Investments + Current and other assets plus accrued income. Less. Less.Accrued expenses .Net Asset: Represent the market value of assets of investors on a given date.

At a time the NAV of the US-64 was going down. 4. UTI kept increasing the sale and re-purchase price of the units. Persistent fall in basic commodity industry shares and PSU shares compounded the crisis.THE TALE (TOLL) OF US-64 1. For liquidity. which resulted in erosion of the scheme’s book reserves and a wide difference between actual NAV and sale/repurchase price. many Corporates and Banks started redeeming their holdings in mutual funds and UTI The market crashed. 7. After Pokhran II the stock market collapsed. Reduction in the value of residual investments in the scheme. Money supply reduced. Now the UTI is bent on building the confidence of the unit holders. 3. 2. 6. . For 2/3 years in succession the return distributed to the unit holders was more than returns earned from investments. High interest rates ruled in the market. 5.

Lesson: The sale/repurchase price to be marked to market/NAV based. Investor confidence should be built on strong financials and not on temporary better yields. .

. Artificial grey market premium added to the scene. IPO was a roaring success-a dream of One million Indians.) The hype.internationally acclaimed AMC! Fund investors expected-superior returns. No one realized that MS was only a service provider-giving investment advice and management of funds. The funds were raised when the stock market was in boom.Morgan Stanley raises huge corpus by way of IPO (more than 10 bl.THE MORGAN MUDDLE Early 1994.

They invested in small-cap companies which were doing well in the recent past. The fund managers of Morgan Stanley could not wait to lose the opportunity. The corporates were flush with funds from public issues at high prices and massive private placements in equity and GDR at huge premium.• Plenty of money was flowing in from FII into the stock market. • RBI intervened to tighten the money supply to control the inflation. the market changed. . • In late 1994. But Indian stock market lacks depth and is quite illiquid.

it had to restructure its fund portfolio at big loss. NAV went below par and investors confidence in the foreign company. But its shear corpus size would not help in rectifying the position with any amount of buy-back.Small cap companies were worst hit by the redemptions. In a last minute attempt to regain investors. MS started repurchase of its unit in order to reduce the discount and boost the NAV. Morgan’s investment being in small-cap companies. Being close-ended and listed on the Stock exchange-the price in the stock market went crashing quoting at a steep discount to its NAV. These stocks lost more than 90% of their peak prices. Was shattered. .

Consequently NAV mirrored the gory saga of Morgan Stanley Growth Fund • In the last one and a half years the fund has regained its position substantially by large investments in FMCG. pharma and software companies and the NAV has improved since 1998 onwards. .

2. Open-ended. Further buy/sell only through SE if listed.Open for sale during a specific period. Buy/sell linked to the NAV. (74% share) Close-ended.Fund open for additional sales/repurchase. Certificate or Dep. Receipts.MUTUAL FUND PRODUCTS BASED ON NATURE OF PARTICIPATION 1. . Statement of account for holding.

BASED ON NATURE OF INCOME DISTRIBUTION Dividend option (warrants) Growth option (value of portfolio grows) Reinvestment of dividends option (holdings grow) .

c) Top 200 funds. . .Other equity funds.Index funds (eg. b) PSU funds. .Equity linked savings schemes. a) Small stock funds. .Sectoral funds (volatile returns). . .TYPES OF PRODUCTS OFFERED Based on Investment portfolio:.Primary market funds. CNX-Nifty).Simple equity funds (80-90%). .Equity Funds.

Income Funds (periodic payments). Serial/fixed term plans. Balanced Funds (based on risk-return profile). Sectoral debt (rating wise) Liquid fund/MMMF.- Debt Funds:. . Simple debt. (Long term bonds or short term).

. every fund manager follows a particular style of Investment. Hence style Analysis of the funds is important. A healthy investment portfolio can be achieved only when the right kind of asset in the right proportion and at the right time is acquired.MUTUAL FUNDSSTYLE OF INVESTMENTS To achieve the desired returns out of the portfolio .

This style is generally the riskiest style of investment but views high returns. leveraging. and small cap equities. Do not believe in interest income or dividend and they redeploy the earnings in the company.MUTUAL FUNDSSTYLE OF INVESTMENTS STOCK/EQUITY FUNDS: – AGGRESSIVE GROWTH FUNDS: They seek capital appreciation and employ techniques such as short selling. frequent trading. . The focus is on growth .

Then investment ( about 50%) is made in stocks with above average yield.basically for those who seek current income /dividends. . Not very aggressive and offer current income as second objective.MUTUAL FUNDSSTYLE OF INVESTMENTS STOCK/EQUITY FUNDS – EQUITY INCOME FUNDS:. . These funds sek capital appreciation.GROWTH FUNDS: invest in stocks of companies with earnings that are expected to grow at an above average industry-rate.

Basically for risk-averse investors seeking steady return on regular basis. GILT FUNDS: invests in Government Bonds.MUTUAL FUNDSSTYLE OF INVESTMENTS DEBT FUNDS LIQUID FUNDS: invests predominantly in money market instruments. .

MUTUAL FUNDSSTYLE OF INVESTMENTS INTERNATIONAL FUNDS International Equity: invest heavily in foreign stocks International Bonds: Invest in non-indian currency denominated debts ( often an obligation of foreign governments or agencies.) .

o They invest in both stocks and bonds. o They are structured to meet special objectives such as rapid growth. E.MUTUAL FUNDSSTYLE OF INVESTMENTS HYBRID FUNDS o They do not specialize in any particular security.g. matching a market index. or sector funds. Balanced Funds and Income Funds .

MUTUAL FUNDSSTYLE OF INVESTMENTS • SECURITY SPECIFIC: TOP DOWN APPROACH BOTTOM UP APPROACH • FUND SPECIFIC: ACTIVE STYLE PASSIVE STYLE • MARKET RISK SPECIFIC: CONTRARIAN STYLE CONSERVATIVE STYLE .

SMALL MID-CAP LARGE Market capitalisation . 1500 crore GROWTH Small cap: market Cap of less than Rs. 500 to Rs. 500 crore. 1500 cr MIXED Mid-Cap: market Cap of Rs.MUTUAL FUNDSSTYLE BOX VALUE Large Cap: Companies with Market cap of Over Rs.

Ajay Srinivasan-Prudential ICICI:- Management quality of the company should be good and the business should be enduring.INVESTMENT PHILOSOPHIES OF MUTUAL FUNDS J. Mark Mobius-Templeton:Believes in Value investing and not momentum investingeconomic recovery is quite common. Consistent track record of ROCE/RONW. .

Sundaram Newton MF:We take a long term perspective-monitor liquidity and go for diversification.SBI Mutual Funs:Bottom-up approach in investment policy. Niamatullah:.Shreekant Pandey:. Past performance is not of much significance. People running the business is more important. . Focus of the company on creation of shareholder’s wealth is important.Sun F & C Mutual Funds:Bottom up approach. Gul Teckchandani:. Company’s potential and not the Sector’s potential is seen.

Prakash Dalal:. Sresankar:. Look out for stocks that offer growth with value. Reputed management and good growth-bottom up approach is the philosophy. Maximum exposure in particular sector is 40% and maximum investment in a particular stock is 15%. .Kotak Mahindra MF:We look for even investment mix in a balanced fund-KBalance.R. THUS THE MUTUAL FUNDS AR HERE TO STAY FOR INVESTOR PROTECTION PARTICULARLY IN A VOLATILE MARKET.DSP Merrill Lynch MF:Bottom up approach is performed.

00 88.50) 9357.43 74.89 93.25 506.78 10716.36 1000.85 Number of units bought ( c ) 80.5 69.89 261.25 10.20 72.84 (13.35 13.32 9968.75 11 12.00 2815.85 13.86 Helps:.00 1900.20 74.5 11.16 578.07 Average cost 647.47 6757.82 431.30 1000 1000 1000 14.91 78.77 793.45 13.20 Cumulative number Value of of units (d) holding (e) 80 168.22 8010.RUPEE COST AVERAGING Amount NAV Per Invested (a) Unit (b) 1000 1000 1000 1000 1000 1000 1000 12.02 90.75 13.57 719.56 3881.91 72.SIP (d) X (b) = (e) (b) = (e) / (d) (a) / (b) = ( c ) .03 5498.91 352.

(simple-CAGR) 3) Statistical Testing-using regression .MUTUAL FUNDPERFORMANCE EVALUATION EVALUATION CRITERIA ARE MANY:1) Average NAV of similar funds for past years. 4) Comparing NAV on select parameters. . 2) Growth rate of NAV. Variance and standard deviation .

9) Portfolio Turnover. 10)Fund Size.MUTUAL FUNDPERFORMANCE EVALUATION 5) Comparing load adjusted returns. 6) Relative returns with benchmark indices 7) Risk adjusted returns-comparison 8) Expenses Ratio. .Depth of the Market. 11)Investor concentration 12)Investor servicing.

• Lower cost structure than open-ended index fund.INDEX FUNDS • Passively –managed funds that track a particular Index. • Churning of Portfolio minimised/avoided. . • Less cash required for servicing redemptions. • Listed and traded on the Exchanges like any other stock.

Stable and good returns-index performance Low cost diversified exposure So appeals to long-term Investors/institutional Investors/retail investors.EXCHANGE TRADED FUNDS (ETF) • • • • • • • No requirement of minimum contract size. Intra-day movements in price captured. (so substitute for trading In Index futures) Open ended and also listed. .

EXCHANGE TRADED FUNDS (ETF) • Concept of ‘Authorised Participants’ • Creation units. • Perpetual on line trade through Exchange .

300 crore corpus. UTI MF launch ETF based on Nifty with Rs.8th January.on BSE-Sensex-SPICE (equivalent to 1/100th of Sensex)-22 Cr. • ETFs will be much sought after instruments in future.EXCHANGE TRADED FUNDS (ETF) • • • • • NIFTY BeES. . (equivalent to 50 shares of NIFTY) Prudential ICICI.2002(corpus7cr).

ETFs in India • • • • • • Nifty BeES Track CNX Nifty Bank BeES CNX Bank Index Gold BeES Domestic Gold price PSU Bank BeES PSU Bank stocks in NSE Junior BeES CNX Nifty Junior Index Liquid BeES Money market Instruments .

FUND OF FUNDS(FOF) • Approved by SEBI in February.(5 in 1 view) • More expensive(cap-0. • Over-cautious retail investor.75% of NAV) . • Over-diversification of risk.2003. • MFs invests in the schemes of its own and also other mutual funds/hedge funds. • Target group-retired people.

• Investment objectives and Investor’s criteria can be matched. • Every rupee well invested as per the need of your life cycle.FUND OF FUNDS(FOF) • Taking exposure on different Investment styles. • All funds do not flounder at the same time. . • One extra level of professional money management expertise-by active allocation of assets.

TOP FUND OF FUNDS
FOF DSPBR WORLD GOLD AUM-28/2/10(Rs. Cr.) 1310.40 1 YEAR RETURN(%) 10.85

FT INDIA DYNAMIC PE RATIO
AIG WORLD GOLD KOTAK GLOBAL EMERGING MARKET FT INDIA LIFE STAGE FLOATING RATE SUNDARAM BNPB GLOBAL ADV ING GLOBAL REAL ESTATE RETAIL PRINCIPAL GLOBAL OPPORTUNITIES HSBC EMERGING MARKETS ING LATIN AMERICA EQUITY

463.75
213.74 210.81 186.00 135.99 125.70 125.51 90.15 61.40

55.61
17.19 54.93 20.85 51.14 46.88 44.69 40.81 63.87

FUND OF FUNDS
• PLAYERS IN FOFS:– – – – HDFC MF PRUDENTIAL ICICI AMC TATA MF KOTAK MAHINDRA AMC SHORTLY RELEASING…… STRUCTURED MUTUAL FUNDS !!!!!!!!!

HEDGE FUND Vs TRADITIONAL FUND
Hedge Fund Invest both long and short Are leveraged Co-investment by fund manager Use futures and other derivatives Broad investment universe Absolute return objective Traditional Fund Invest long only Not leveraged Not encouraged Restricted use Limited area Relative return objective

Can have large cash allocation
Investor access regulated. Product lightly regulated

To remain fully invested
Frequently heavily regulated.

John Templeton.VALUE Vs. Book value) Normal dividends High P/E Multi-baggers in future –above average growth. Generally outperform growth stocks in long run Practiced by Warren Buffet. GROWTH Value Investing Growth Investing Traded at discount to Book value low p/bv) Relatively expensive High dividend yield Low P/E Viewed through margin of safety (I-Value Vs. Joel Green blatt . Martin Whitman.

9% 100% .AMC ACQUISITIONS Year 2005 2008 2009 2010 2011 Acquired by BNP Paribus IDFC L & T Finance Sundaram Finance Goldman Sachs AMC acquired Sundaram AMC Standard Chartered AMC DBS Cholamandalam Sundaram BNP Paribus AMC Benchmark Mutual Fund % stake acquired 49.9% 100% 100% 49.

• Not more than 50% of the corpus should be Institutional. Net worth of AMCs to be raised from 10 cr. • Tax benefits to be available to only retail investors. S S Tarapore-economist• MFs to separate Retail and Institutional schemes. .Points to Ponderfrom Sri. To 50 cr. • Min.

Ombudsman • Transparency of operations-code of conduct. SEBI ??. • AMC and trustees need to be strictly separate. redemption. • Remuneration of Trustees • Weak service system-declaration of dividend. • Redressal Agency-AMFI.like BCSBI ( banking codes and standards board of India) .Points to Ponderfrom Sri. S S Tarapore-economist• Proliferation of schemes (1000 schemes / 5000 variants) should be consolidated.ceiling to be prescribed-Board to ratify • Excessive churning to be avoided. • Inter-scheme transfers a cause of concern.

• ( if fund earns 15% Unit holder to get 12.Developments in 2009 • • • • • • No early exit in close ended funds.25% for over 10 years.75%) • Proposal to enhance tenure of ULIP from 3 to 5 years. 2. Uniform exit load for individuals and corporates Cap on ULIP charges 3% for contribution upto 10 years. . FMPs considered as quasi-ponzi schemes MFs can invest in IDRs Ban on entry Load.

effective 1-7-2010 • NFO subscription period reduced to 15 days( earlier 30 days) except for ELSS-(Faster processing/ faster refund ) • Ban on distribution of dividend from Unit Premium Reserve-new investor unaffected. • Extension of ASBA to NFO Investors • No business house less than 5 yrs. . can own stake in AMC • Valuation of money market and debt security maturing over 91 days on M to M basis. in financial services experience.Mutual Funds.

THE ULIP DEBATE Who should be the Regulator ? Investor confused with the return Very heavy frontloading of charges .

how resolved  Comes within IRDA ambit  PAC. . Surrender charge. Lock in Period. Miniimum guarantee and covenants revisited.ULIP. Net yield to investor.

– 3% Net yield to Investor Less than 10 yrs.5% ( no partial withdrawal/not a pension scheme) 10 times the annual premium Except pension schemes.3% Over 10 years. 3000/-( Ist year) Not more than 5% ( IVth year) Over Rs. 25000/.3 years period/Minimum No minimum guaranteed guaranteed return Minimum cover on all life ULIP 5 times the annual premium Lock in period – 5 years Min.not more than 20% Max-Rs.2.4.25% Minimum lock in Lock in period.the changes made PAC Surrender charges UPTO 31-8-2010 Frontloading 30-40% of first year premium FROM 1-9-2010 To be distributed over the whole tenure Upto Rs.. Guaranteed return. – 4% Over 5 yrs. . 25000/.twice the above Upto 5 yrs.ULIP.

credit back to corpus fund-upto 0.Investor to bear service tax on TER All schemes under one Plan only-Institutional-Individual Direct Plan route Exit loads.-reveal type of funds 5) 6) 7) .20% can be recovered under TER by AMC Advisors to get only client fee –no commission Cash Transactions upto Rs.SEBI GUIDELINES-OCT-2012 1) 2) 3) 4) Hike in Total Expense Ratio by 0.(if more than 30% of gross inflow). 20000 Product labelling by Regulator.4% of daily NAV if funds are received from other than top 15 cities.

COLOUR CODING SYSTEM FROM 1-7-2013 BLUE LOWEST RISK Average return YELLOW MODERATE RISK Above average return BROWN HIGHEST RISK Potentially High return Liquid fund/ Income funds/gilt fund/short term debt funds/FMPs Balanced Funds/MIPs/Multi asset funds Diversified equity funds/sectoral funds/index funds/ELSS/RGESS .

.MUTUAL FUNDSTHE ROAD AHEAD • FRANKLIN TEMPLETON ACQUIRING PIONEER ITI AND HDFC MF ACQUIRING ZURICH MF POINT TOWARDS MORE M & As -in future. • MORE CONSOLIDATIONS IN THE AIR • FOREIGN BANKS MAY ENTER AS AMCs IN LARGER NUMBERS(SCB) • THE ONE WITH LARGE CORPUS WILL SURVIVE.

TO CONCLUDE… THE MUTUAL FUNDS ARE HERE TO STAY SO LONG AS THE MARKETS ARE VOLATILE AND INVESTOR LACKS TIME AND EXPERTISE TO INVEST. .