Mutual Funds

OPTIONS FOR INVESTING

Deposit in Bank SB, RD, FDs, Locker ;) Loan a Friend/Relative on Interest Property Investments Invest in Bullion - Gold, Silver.. Investment in Capital Markets - Direct - Equity Share Markets - Debt & Bonds Market - Indirect - Mutual Funds
2

9/26/2012

How To Invest In Equities

Direct Equity High risk, high return category. Needs a lot of time & expertise. Substantial initial capital required. Mutual Funds One-Time Investment Systematic Investment Plan (SIP)

9/26/2012

9/26/2012

What is a Mutual Fund?

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. The income earned through these investments and the capital appreciation realized 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. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds.
9/26/2012 5

Brief History
First Phase 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase-1987-1993 (Entry of Public Sector Funds)

marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase-1993-2003(Entry of Private Sector Funds)

1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile 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 Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the SEBI Mutual Fund Regulations

9/26/2012

Mutual Fund Operation Flow Chart

Investor

Returns

Fund Manager

Securities
9/26/2012 7

Organization of a Mutual Fund

9/26/2012

Regulations
Governed by SEBI (Mutual Fund) Regulation 1996 All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882).

AMC registered as Companies registered under Companies Act, 1956. The Association of Mutual Funds in India (AMFI) is dedicated to dev eloping the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders.
SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc. NAV to be declared everyday for open-ended, every week for closed ended Disclose on website, AMFI, newspapers Half-yearly results, annual reports Select Benchmark depending on scheme and compare
9/26/2012 9

Terminologies Demystified
Asset Allocation
Diversifying investments in different assets such as stocks, bonds, real estate, cash in order to optimize risk.

Fund Manager
The individual responsible for making portfolio decision for a mutual fund, in line with funds objective.

Fund Offer Document

Document with investment objectives, risk factors, expenses summary, how to invest etc.

Dividend Profits given to the investor from time to time. Growth Profits ploughed back into scheme. This causes the NAV to rise.
10

9/26/2012

Terminologies Contd
NAV
It is the market value of assets of scheme minus its liabilities. = Net Asset Value No. of Units Outstanding on Valuation date

Per unit NAV

Entry Load/Front-End Load (0-2.25%)

The commission charged at the time of buying the fund. To cover costs for selling, processing

Exit Load/Back- End Load (0.25-2.25%)

The commission or charge paid when an investor exits from a mutual fund. Imposed to discourage withdrawals May reduce to zero as holding period increases.

Sale Price/ Offer Price

Price you pay to invest in a scheme. May include a sales load. (In this case, sale price is higher than NAV)

Re-Purchase Price/ Bid Price

Price at which close-ended scheme repurchases its units

Redemption Price
Price at which open-ended scheme 9/26/2012 11

TYPES OF MUTUAL FUNDS

Type of Mutual Fund Schemes Investment Objective Special Schemes

Structure Open Ended Funds

Growth Funds Income Funds

Industry Specific Schemes

Close Ended Funds Interval Funds

Index Schemes
Sectoral Schemes

Balanced Funds
Money Market Funds

9/26/2012

12

Types of Mutual Fund Schemes

By Structure
Open-Ended anytime enter/exit Close-Ended Schemes listed on exchange, redemption after period of scheme is over.

By Investment Objective
Equity (Growth) only in Stocks Long Term (3 years or more) Debt (Income) only in Fixed Income Securities (3-10 months) Liquid/Money Market (including gilt) Short-term Money Market (Govt.) Balanced/Hybrid Stocks + Fixed Income Securities (1-3 years)

Other Schemes
Tax Saving Schemes Special Schemes
ULIP
9/26/2012 13

SPECIAL SCHEMES-EXAMPLE
Funds based on Size of the Companies Invested in Large cap funds:Funds that invest in companies whose total market cap is above Rs40bn Mid cap funds: Funds that invest in companies whose market cap is between Rs20-40bn Small cap funds: Funds that invest in companies whose market cap is below Rs20bn
9/26/2012 14

10 REASONS TO INVEST IN MUTUAL FUNDS

Expert on your side: When you invest in a mutual fund, you buy into the experience and skills of a fund manager and an army of professional analysts Limited risk: Mutual funds are diversification in action and hence do not rely on the performance of a single entity. More for less: For the price of one blue chip stock for instance, you could get yourself a number of units across a number of companies and industries when you invest in a fund! Easy investing: You can invest in a mutual fund with as little as Rs. 5,000. Salaried individuals also have the option of investing in a monthly savings plan. Convenience: You can invest directly with a fund house, or through your bank or financial adviser, or even over the internet. Investor protection: A mutual fund in India is registered with SEBI, which also monitors the operations of the fund to protect your interests. Quick access to your money: It's good to know that should you need your money at short notice, you can usually get it in four working days. Transparency: As an investor, you get updates on the value of your units, information on specific investments made by the mutual fund and the fund manager's strategy and outlook. Low transaction costs: A mutual fund, by sheer scale of its investments is able to carry out costeffective brokerage transactions. Tax benefits: Over the years, tax policies on mutual funds have been favourable to investors and continue to be so.

9/26/2012

15

Advantages of Investing Mutual Funds

1. Professional Management: Managed by well qualified professional. 2. Diversification: Idea behind is to invest in a large number of assets and thus minimize loss. 3. Economies of Scale: Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity: Allows investors to liquidate their holdings as and when they want. 5. Simplicity: Investments is easy, minimum investment to start is too small.
9/26/2012 16

Disadvantages of Investing Mutual Funds

1. Costs: MF charged extra cost through entry & exit load. 2. Dilution: Higher returns get diluted. 3. Taxes: Income accrued through MF are tax deductible.

9/26/2012

17

MF Comparison
Absolute returns
% difference of NAV Diversified Equity with Sector Funds NO

Benchmark returns
SEBI directs Fund's returns compared to its benchmark

Time period
Equal to time for which you plan to invest Equity- compare for 5 years, Debt- for 6 months

Market conditions
Proved its mettle in bear market
9/26/2012 18

Buying Mutual Funds

Contacting the Asset Management Company directly

Web Site Request for agent

Agents/Brokers
Locate one on AMFI site

Financial planners
Bajaj Capital etc.

Insurance agents Banks

Net-Banking Phone-Banking

ATMs

Online Trading Account

ICICI Direct Motilal Oswal, Indiabulls- Send agents

9/26/2012

19

Keeping Track
Filling up an application form and writing out a cheque= end of the story NO! Periodically evaluate performance of your funds
Fact sheets and Newsletters Websites Newspapers Professional advisor

9/26/2012

20