Mutual Funds

By
Mrs.Lalitha PPM
 What is Mutual Fund?
• A Mutual Fund is an investment vehicle that
pools the money of several investors and invests
it in different securities.
Organisation of Mutual Fund
 Some Concepts Clarified…..
• NAV - Net asset value is the market value of a unit of
a scheme after accounting for all expenses on any
given business day.

• Load
 Load
• Charged directly to the investor
• Includes Agent’s commission, Marketing and
Selling expenses
• Front end Load and Back end Load
• Entry loads vary between 1.00% and 2.5%.
• Exit loads vary between 0.25% and 3.00%.
• Regulations do not allow either front-end load or
back-end load in any combination to be higher
than 6%.
 …….Some Concepts Clarified
• Purchase price is the price paid by a customer to
purchase a unit of the fund.
• Redemption price is the price received by the
customer on selling units of an open-ended scheme to
the fund.
• Repurchase price is different from redemption price
and refers to the price at which a close-ended scheme
repurchases its units.
• Expense ratio
 Expense Ratio
• Operating Expenses paid out of the fund’s earnings
• Includes advisory fees paid to investment managers, audit fees,
custodial fees, transfer agent fees, trustee fees etc.
• Advisory fees range from 1% to 1.5% of the corpus
• Limits mandated by SEBI
• First Rs. 100 crores 2.50% 2.25%
• Next Rs. 300 crores 2.25% 2.00%
• Next Rs. 300 crores 2.00% 1.75%
• On the balance of assets 1.75% 1.50%
• The annual expense expressed a percentage of the fund's average
daily net assets.
 Exploding a Myth-A Fund with lower NAV is
cheaper than that with higher NAV

• A Mutual Fund with lower NAV will give better returns !!!!!!
Existing
New scheme scheme with
with NAV at par NAV at Rs. 5 0

Rs Rs.
NAV 10 50
Your investment 1,0 0 0,0 0 0 1,0 0 0,0 0 0
No. of units allotted to you 1 0 0,0 0 0 2 0,0 0 0
Market Value of Assets after one year 1 2 0,0 0 0,0 0 0 6 0 0,0 0 0,0 0 0
Corresponding NAV after one year 12 60
Current value of your investment 1,2 0 0,0 0 0 1,2 0 0,0 0 0
Return on investment 2 0% 2 0%
 Classification Of Mutual Fund
• By Asset Class
• By Investment Sector
• By Liquidity
• By Trading Strategy
• By Investment Strategy
• By Security Selection
• By Load Charged / Cost
• By Place of origin
 WHY Choose Mutual Funds?
• Professional Management
• Lower Risk
• A better portfolio for less Money
• Lower Transaction Cost
• Liquidity
• Transparency
• Affordability
• Choice of Schemes
• Well Regulated
 Ground Rules of Mutual Fund Investing

• Define your Investment Objectives

• Draw up your Asset Allocation

Equity Balance MIPs Debt Fixed Total Total

MF d MF MF Inc. Equity Debt
Below 3 0 5 0% 3 0% 5% 5% 1 0% 7 0% 3 0%
3 0- 4 5 4 0% 3 0% 1 5% 5% 1 0% 6 0% 4 0%
4 5- 5 5 2 5% 2 5% 2 5% 5% 2 0% 4 5% 5 5%
Above 5 5 5% 1 0% 4 0% 5% 4 0% 1 5% 8 5%
….Ground Rules of Mutual Fund
Investing
• Identify Funds with matching Investment objectives.
• Evaluate Past Performance, look for Consistency
• Diversify
• Consider Fund Costs
• Factor Tax Implications
 Tax Implications – on Dividend
Mutual TDS Dividend
Fund Distribution
Scheme Tax
Debt Oriented Nil 12.5% +
Scheme Surcharge +
Cess ->
14.025%
Equity Oriented Nil Nil
Scheme
 Tax Implications – on Capital
Gains
TAX Debt Oriented Equity Oriented
Scheme Scheme
STT Nil 0.2 %
STCG Marginal Rate 10 %
of Taxation
LTCG Lower of NIL
- 10% without
indexation
- 20% with
indexation
 Which Option to Choose?
Mutual Fund Scheme Dividend Payout Growth
Debt Oriented
Scheme
-< 1 Year 14.025 % <30%
- >1 Year 10%or20%
(WI)<14.025%
Equity Oriented
Scheme
-< 1 Year 0% < 10%
- > 1 Year Profit Booking
….Ground Rules of Mutual Fund
Investing
• Look for Size and Credentials
• Customer Service
• Monitor regularly and Review
• Invest Regularly
 When To Sell Mutual Funds?
• The Fund Manager leaves
• Below par performance for the last 2 years
• Size of the corpus increases too fast
• The Promoter of Mutual Fund is going through
financial difficulties
• The scheme changes its investment objectives
• You change your plan
• Enough has been earned
 Systematic Investment Plan(SIP)

Advantages
• Disciplined investing
• Convenience
• Avoiding market prediction
• Rupee Cost Averaging
 Rupee Cost Averaging
•  
 Advantages of Early Investing
Investing in a @ 35 Yrs @ 40 Yrs
Diversified MF -
SIP
Monthly IRS 5000 IRS 5000
Investment
Investment 60 Yrs 60 yrs
Stopped @
Total IRS 15,00,000/= IRS 12,00,000/=
Contribution
Growth (assume IRS IRS
15 % CAGR) 1,37,82,803.88/= 66,35,367.20/=
 Mutual Fund Investing by NRIs
• Power of Active Funds Management
• Online trading simplifies procedure
• Some online trading sites
www.icicidirect.com
www.Indiainfoline.com
www.Myiris.com
 ICICIDirect one up on others.

• No Application forms to be filled up

• Automatic debit from and credit to bank account
• Automatic paperless SIP/SWP
• Online order confirmations and status tracking
• Online dividend payout / reinvestment facility
• Online updation of portfolio of unit holdings at
latest NAV
 Few Mutual Funds NRIs can consider

For Conservative investors

• HDFC Top 200 Fund
• Sundaram Growth
• HDFC Prudence
• Principal MIP

For Aggressive investors

• HSBC Equity Fund
• Franklin India Bluechip
• FT India Balanced Fund
• FT India MIP
 Product Innovations

• Fund Of Funds is a fund that invests in other

funds instead of securities.
• Super SIP isn't a fund but a way of buying funds
that combines long-term SIP with term
insurance.
• ETF is a hybrid financial product, a cross
between a stock and a mutual fund .