Mutual Funds

by

Kiran Nadkarni
Contact : 98812-67057 Mail : nadkarni_kiran@yahoo.com

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Where can one invest ??
• Postal Savings • RBI bonds / GOI bonds ( G secs ) • PSU/ F I bonds - NHAI/ REC/ NABARD/ IDBI / ICICI etc • Fixed Deposit - Bank / Co • Shares & Stocks , Derivatives • Commodities • Real Estate
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Key Investment Considerations
Liquidity Safety
Your money is managed by experts You get your money back when you want it

Plus Convenience
How easy is it to invest, disinvest and adjust to your needs?

Post-tax Returns
How much is really left for you post tax?

• •

For the same liquidity - higher the safety, lower the returns For the same safety - higher the liquidity, lower the returns
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Mutual Fund investments are subject to market risks Please read the offer documents carefully before investing.

MFs offer all of above
Liqu idity Conv eni enc e Ri sk Diversi ficat ion

Flexi bili ty Tr an sp are nc y Re gulat ed

Plus
Ta x bene fits

Ta x Most ef its ben Funds Disclosure Most open allowing of Mutual ended funds switching Diversified Easy to Portfolio Funds redeem between Capital invest and portfolio are within easy to funds. leads Ga ins NAV regulated 1redeem working to risk declared by SEBI. From free Taday. x- debt control daily to equity Dividen ds etc.

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Financial Planning for the future……...
Income Phase I Phase II
Children’s Marriage Child Education Housing

Phase III

Children Marriage 22 yrs 38 yrs Over 25 - 30 yrs

Birth & Education
22 yrs

Earning Years
60 yrs

Retirement Age

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Cost of Living
Items Colgate toothpaste
( 100 gm tube )

1987 ( Rs ) 8.05 3.05 3.50 7.99 56.15 225.00

1997 ( Rs. ) 18.90
( 8.91 % )

Hamam Soap Masala Dosa Petrol
( per litre )

7.85
( 9.92 % )

14.00
( 14.87 % )

25.48
( 12.30 % )

L P G Cylinder Zodiac men’s shirt

137.85
( 9.40 % )

510.00
( 8.53 % )

Source : Readers Digest – Nov 1997

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Cost of Living
Items
Colgate toothpaste Hamam Soap Masala Dosa Petrol L P G Cylinder Zodiac men’s shirt
( per litre ) ( 100 gm tube )

1997 ( Rs )
18.90 7.85 14.00 25.48 137.85 510.00

2017 ( Rs. )
104.00 52.00 224.00 259.12 830.85 2620.27

Assuming inflation to grow at the same rate during 1987-97

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INFLATION ROBS YOUR PURCHASING POWER (Assuming inflation @ 8% p.a.)
Rs. 10,000 today

217,200

100,600 46,600 21,500

10 years

20 years

30 years

40 years

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Why equities are the best bet for long term. ….
25% 20% 15% 10% 5% 0% Inflation -5% -1.57% Gold 0.55% Bank FD Company FD Equities 9.19% 7.62% 9.74% 5.28%

real growth = growth - inflation
14.47%

20.16%

10.97%

Source : RBI Report(1997-98) Analyzed on 15 Year Data 9

EQUITIES ARE THE BEST LONG TERM BET % OF STUDIED PERIOD IN WHICH Other investment outperformed
14%

44%

37%

Stocks outperformed
56% 63% 86%

1 year

3 year

5 year

Source : RBI Report on Currency and Finance (1997-98) BSE Sensitive Index of Equity Prices - BSE

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EQUITY = LOSS ?
SENSEX 1991-2006 IT IS UP 90 TIMES IN 26 YEARS ^

Source : Bloomberg

^ Since BSE Sensex Inception to June 13,2006

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EQUITY = WEALTH

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EARNINGS DRIVE RETURNS
COMPANY CAGR PAT PRICE 10 YRS Reliance SBI Bharti Infosys Ranbaxy HLL ITC Tisco 22% 20% 333% 65% 16% 20% 27% 22% 10 YRS 26% 18% 62% 73% 23% 12% 24% 10% 45% 25%
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INVESTING

IS SIMPLE

ASK

TWO QUESTIONS?

WILL

THESE COMPANIES BE

THERE TEN YEARS FROM NOW

IF

YES,WILL PROFITS THEN

Hero Honda 46% HDFC 20%

BE HIGHER THAN TODAY?

MUTUAL FUND = LOSS ?

Prudential ICICI Growth Plan 1999-2006

NAV IS UP 6 TIMES IN 8 YEARS
From Jan 1,1999 to June 9,2006

Past performance is not an indicator of future performance. It may or may not be sustained in the future

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What Is Mutual Fund ?
• Collective vehicle of investment • Its common pool of money into which investor place their contributions that are to be invested in accordance with stated objective. • By Structure it is Trust registered under Indian Trust Act and Sponsored by Promoters • Highly regulated by SEBI

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How does a Mutual Fund work?

Savings Trust Units Unit holders

AMC Investments

Registrar Trust Custodian AMC

SEBI

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WHY Mutual Funds ?
• Professional Management of Funds • Diversification – Reduces Risk • Convenient Administration – Less Paper Works, Bad Delivery,delayed payments etc • Low transaction cost : Enjoys Scale of economy • Highly Liquid – Easy Purchase / Sale
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WHY Mutual Funds? Contd.
• Highly Transparent – Declaration of portfolio on monthly basis • Flexibility – SIP/ SWP / Div / Gr etc • Highly regulated – SEBI / RBI • TAX efficient – div are Tax free • High Level of Service Standards – Prompt account statement / change of add / bank etc
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What are the Types of Mutual Funds ? By structure
Close-ended Interval Funds Open-ended By Portfolio or Asset Class Equity
Equity Funds Index Funds Sector Funds

Debt
Fixed Income Funds

Money Market
Money Market Mutual Funds

Balanced Fund

Liquid Plan
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Mutual Funds in the USA
x

Over 8,000 mutual funds with total assets of over USD 8 trillion

x x

Every second household is a mutual fund investor Mutual funds have overtaken bank deposits

Total FuM break-up - US

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What is an SIP?
• Investing a fixed sum, regularly in a mutual fund • Allows one to buy units in a particular scheme on a given date every month • Similar to regular savings schemes like a recurring deposit

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Benefits of Cost Averaging
90 80 70 60 50 40 30 20 10 0 May-95 J ul-96 May-98 Dec-98 Mar-00 May-01 Mar-03 J un-04 Dec-95 Mar-97 Nov-03 J an-05 J an-02 Aug-99 Aug-02 Aug-05 Nov-06 Oct-97 Apr-06 Oct-94 Oct-00 Avg Cost Avg. Cost vs Nav since inception~ Nav(Rs.)

Past performance may or may not be sustained in future ~Assume a hypothetical investment of Rs.1000 every month in PruICICI Power since inception

An SIP reduces the average cost of investment in fluctuating markets
The above is for illustration purposes only

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Lump sum investment vs. SIP
The direction of the markets is unpredictable.
280000 240000 200000 160000 120000 80000 40000 0 Nov-00 Nov-02 Nov-04 Nov-05 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Nov-06 Nov-01 Nov-03 J ul-01 J ul-03 J ul-00 J ul-02 J ul-04 J ul-05 J ul-06

Rs.80000 invested in lumpsum at inception in Pru ICICI Tech vs. Rs.1000 invested every month (for 82 months) since inception 247329

107172

Performanc e of lump sum investment depends on the price at which they are bought

Lumpsum Invstt

Sip Invstt

Past performance may or may not be sustained in future

An SIP reduces these risks by spreading the investments over a longer period of time, at various levels of the market
The above is for illustration purposes only

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SIP vs Lump Sum Investment
Returns on Lump Sum investment

Returns on SIP

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Mutual Fund investments are subject to market risks Please read the offer documents carefully before investing. Past performance may or may not be sustained in future

ICICI Pru POWER
Inception : 1994 Diversified Equity Scheme 10, 000 Invested @ inception : Today Rs 1,00,590

Rs 1000 invested as SIP since inception : 156 Installment : cost Value Rs 156000 Today’s Value : 10,97,401 = 37.41% retn XIRR
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ICICI Pru Dynamic Plan
Inception : Oct 2002 Diversified Equity Scheme Rs 10,000 Invested @ Inception : Today Rs 79,490 Rs 1000 invested as SIP since Inception : 59 Installments : Cost Value Rs 59,000 Today’s Value : Rs . 1,80,534 = 48.90% XIRR Retn

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ICICI Pru Emerging Star Fund
Inception : Oct 2004 Diversified MID Cap fund Rs 10,000 Invested @ Inception : Today Rs.34,530 Rs 1000 Invested as SIP since Incpetion 36 installments : cost Value Rs 36,000 Today’s Value : Rs 64,418 retn 44.11 % XIRR

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ICICI Pru Infrastructure Fund
Inception : Aug 2005 Infrastructure Theme Fund Rs 10,000 invested @ inception : Today Rs 27,120 Rs 1000 invested as SIP since Inception : 25 installments : cost Value Rs, 25,000 Today’s Value : Rs 38,093 = 48.10% XIRR Retn

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Thank you Happy Investing

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