An Introduction to Mutual Funds

PowerPoint Notes
Mutual Fund
Mutual fund is a vehicle to mobilize moneys
from investors, to invest in different
markets and securities, in line with the
investment objectives agreed upon,
between the mutual fund and the
investors.
Role of Mutual Funds
Their primary role is to assist investors in earning an income or
building their wealth, by participating in the opportunities available
in various securities and markets.
It is possible for mutual funds to structure a scheme for any kind of
investment objective. Thus, the mutual fund structure, through its
various schemes, makes it possible to tap a large corpus of money
from diverse investors.
The money that is raised from investors, ultimately benefits
governments, companies or other entities, directly or indirectly, to
raise moneys to invest in various projects or pay for various
expenses.
How do Mutual Fund Schemes Operate?
Mutual fund schemes announce their investment objective and seek
investments from the public.
Depending on how the scheme is structured, it may be open to accept money
from investors, either during a limited period only, or at any time.
The investment that an investor makes in a scheme is translated into a
certain number of Units in the scheme. Thus, an investor in a scheme is
issued units of the scheme.
Under the law, every unit has a face value of Rs. 10. (However, older
schemes in the market may have a different face value).
Advantages of Mutual Funds for Investors
Professional Management
Affordable Portfolio Diversification
Economies of Scale
Liquidity
Tax Deferral
Tax benefits
Convenient Options
Investment Comfort
Regulatory Comfort
Systematic Approach to Investments
Types of Mutual Funds
By Structure
Open Ended
Schemes
Close Ended
Schemes
Interval Schemes
By Investment
Objectives
Growth Schemes
Income Schemes
Balance
Schemes
Money Market
Schemes
Tax Saving
Schemes
Tax Saving
Schemes
Other Schemes
Index Schemes
Sector Specific
Schemes
Steps In Investment
Step 1 Identify your investment
needs
1. What are my investment objectives
and needs?
2. How much risk am I willing to take?
3. What are my cash flow
requirements?
Step 2 Choose the right mutual
fund.
1. The track record of performance
over the last few years in relation to
the appropriate Benchmark and similar
funds in the same category
2. How well the mutual fund is
organized to provide efficient, prompt
and personalized service.
3. Degree of transparency as reflected
in frequency and quality of their
communications.
Step 3 Select the ideal mix of
schemes

Investing in just 1 scheme may not
meet all your investment needs. You
may consider investing in a
combination of schemes to achieve
your specific goals.
Frequently Used Terms
Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is
the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Sale Price for investors

Is the price you pay when you invest in a scheme. Also called Offer
Price. It may include a sales load.

Repurchase Price for Mutual funds

Is the price at which a close-ended scheme repurchases its units and it may include a back-end load.
This is also called Bid Price.

Funds where people can invest
Liquidity Underlying
Investment
Risk Valuation Ideal
investment
horizon
Alternative
investment
Advantages
Liquid Funds Liquidity at call Money Market
instruments
Low Every Business
Day
Less than 1
month
Savings
Account
Better returns,
Tax efficient
Short Term
bond funds
With in 4
working days
Money Market
instruments,
CPs, CDs
Low Every Business
Day
1 month to 6
Months
Short term
deposits
Better returns,
Tax efficient
Bond Funds With in 4
working days
CP, CD, Bonds Low to
Medium
Every Business
Day
More than 6
months

Fixed Deposits Diversification,
professional
management,
potential of
better returns
Diversified
Equity Funds
With in 4
working days
Stocks of
companies
listed on stock
exchange
Medium to
high
Every Business
Day
More than 3
years
Direct equity
investment
Diversification,
professional
management,
potential of
better returns
Gold Etf With in 4
working days
Gold Medium to
High
Every Business
Day
More than 1
year
Gold Cost Effective,
No storage &
Security
concerns
Systematic Investment Plan (SIP)
Why SIP?

Disciplined approach to investments
No need to time the market
Harness the power of two powerful Investment strategies:
Rupee Cost Averaging - Benefit from Volatility
Power of Compounding - Small investments create Big Kitty over time
Lighter on the wallet
Reap benefits of starting early

Fixed Maturity Plan (FMP)
Advantages of FMP:

FMP Mutual funds can even offer additional taxation benefits in terms of
post tax returns if held over 2 calendar
It is quite clear that FMP returns definitely have taxation advantages
over many other fixed income plan
FMP Taxation benefits are a key reason why FMPs are often preferred
by HNIs