MUTUAL FUNDS

BY: Adneya Audhi Roll: 12304

Human `Life Cycle

Phase I Phase II
Childs Marriage
Childs Education Housing Child birth Marriage 22 yrs 38 yrs 10- 20 yrs

Phase III

Education

Earning Years Age- 22 yrs

Post Retirement Years

Age- 60 yrs

`
Impact of inflation on monthly expenses of Rs. 30,000 today Value of Rs. 100,000 over time
100,000 79,599 62,368 48,102 38,288 30,000 37,689 78,353

Today

5 years

15 years

20 years

Today

5 years

15 years

20 years

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

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)

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. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy. The money collected is invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the schemes stated objectives. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them.

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 nonUTI, 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

Terminologies Demystified
Asset Allocation
Diversifying investments in different assets such as stocks, bonds, real estate, cash in order to optimize risk. The individual responsible for making portfolio decision for a mutual fund, in line with funds objective. Document with investment objectives, risk factors, expenses summary, how to invest etc.

Fund Manager

Fund Offer Document

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

Terminologies Contd
NAV
Market value of assets of scheme minus its liabilities.

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

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

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.)

Other Schemes
Tax Saving Schemes Special Schemes

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 cost-effective brokerage transactions. Tax benefits: Over the years, tax policies on mutual funds have been favourable to investors and continue to be so.

TAXATION
All dividends declared by debt / equity oriented schemes are tax free in the hands of the investor Dividend distribution tax @ 14.1625% for individuals and 22.66% for corporates under debt oriented schemes No DDT under equity schemes Long term capital gain in equity schemes exempt from tax Deduction of Rs. 1 lac under section 80C

Investment strategies
Systematic Investment Plan (SIP)
Invest a fixed sum every month. (6 months to 10 yearsthrough post-dated cheques or Direct Debit facilities) Fewer units when the share prices are high, and more units when the share prices are low.

Systematic Transfer Plan (STP)

Invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

Benefits of SIP
Regular

Investments happen every month unfailingly

Power Of Compounding Rupee Cost Averaging Forced saving

Helps you overpower the temptation to spend fully Helps you build for the future
Automated

Completely automated process No hassles of writing cheque every month

Light on the wallet

Investment amount can be so small that you do not even feel the pinch of it being directly deducted, yet the small amount is powerfully working towards your financial security

Investing Checklist
Draw up your asset allocation
Financial goals & Time frame (Are you investing for retirement? A childs education? Or for current income? ) Risk Taking Capacity

Identify funds that fall into your Buy List

Obtain and read the offer documents

Match your objectives
In terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus Performance of various funds with similar objectives for at least 3-5 years (managed well and provides consistent returns)

Check out past performance

Checklist Contd
Think hard about investing in sector funds
For relatively aggressive investors Close touch with developments in sector, review portfolio regularly

Look for `load' costs

Management fees, annual expenses of the fund and sales loads

Does the fund change fund managers often? Invest regularly, choose the S-I-P
MF- an integral part of your savings and wealth-building plan.

Buying Mutual Funds

Contacting the Asset Management Company directly

Web Site Request for agent

Agents/Brokers Financial planners

Bajaj Capital etc.

Insurance agents

Online Trading Account

ICICI Direct Motilal Oswal, Indiabulls

THANK YOU