Introduction to Mutual Funds

Mutual Fund - Introduction

A Mutual Fund is a trust that pools the savings of a number of investors

who share a common financial goal.

Investors

Returns Fund Manager

Capital
Market

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Characteristics of Mutual Fund

1. Investors Own the Mutual Fund

2. Professional Fund Managers manage the fund for a fee
3. The funds are invested in a portfolio of marketable securities,
reflecting the investment objective.
4. Value of the portfolio and investors’ holdings, alters with change in
market value of investments.

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Advantages of Mutual Fund

A Mutual Fund is a complete packaged product with many benefits.

Professional
Diversification Management

Tax Benefits

Liquidity

Convenience

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How does Mutual Funds work?

SPONSOR

TRUSTEES
Safeguards interest of Overseas AMC
the unit holders operations

ASSET MANAGEMENT COMPANY

(AMC)

Unit Holders

R&T AGENT CUSTODIAN

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Types of Mutual Fund

Liquid Debt Hybrid Equity

Funds Funds Funds Funds

Sectoral Funds

Diversified Funds
Index Funds
ELSS
Balanced Funds

MIP

Income Funds
Gilt Funds

Short Term Plans

Money Market
Risk

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Selecting a Mutual Fund Scheme

1. Investment Objective
a) Growth
b) Regular Income
c) Safety of Capital
2. Investment Horizon
3. Risk Tolerance
What is the right product based on Investment need?
 Very short term investment horizon; looking for safety of capital - Liquid Funds
 Short term surplus; looking for capital stability/regular income – Short term plans
 Medium to long term investment horizon; looking for regular income & capital stability
– Income Funds / Gilt Funds
 Medium to long term investment horizon; looking for regular income & capital growth
– Monthly Income Plan
 Long Term Surplus; looking for capital growth – Equity Funds / Balanced Funds

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Investment Options

Investor while investing in Mutual Fund scheme has option to invest in

either:
1. Dividend Pay-Out Option
2. Dividend Reinvestment Option
3. Growth Option

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Systematic Investment Plans

SIP is a method to increase exposure towards equities gradually over a

long period of time by investing small amounts every month.

Advantages of SIP are:

1. Rupee Cost Averaging
2. Risk Reduction
3. Disciplined Investing

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Systematic Investment Plans

Lump-Sum Investor Regular Investor

Amount Units Amount Units
Month Unit Price (Rs.)
Invested (Rs.) bought Invested (Rs.) bought
1 20 60000 3000 10000 500
2 18 - - 10000 556
3 14 - - 10000 714
4 22 - - 10000 455
5 26 - - 10000 385
6 20 - - 10000 500

Total Amount (Rs.) 60000 60000

Avg. Price (Rs.) 20 19.3
Total Units bought 3000 3109
Value after six months (Rs.) 60000 62180

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Tax Benefits

 Dividends - Currently dividends are tax-free in the hands of the

investors.
a) Equity – No Dividend Distribution Tax is payable at source by Fund House
b) Debt - Dividend Distribution Tax of is payable at source by Fund House
i. Individual / HUF / NRI – 14.163%
ii. Corporate - 22.66%
c) Liquid – Dividend Distribution Tax of is payable at source by Fund House
i. Individual / HUF / NRI – 28.325%
ii. Corporate - 28.325%

 Short Term Capital Gain - Mutual Fund investments held for less
than 12 months is treated as short term capital asset and the same
is taxable
a) Equity –
i. Individual / HUF / NRI – 15.45%
ii. Corporate - 16.995%
b) Debt - Short Term Capital Gains are taxed at the income tax bracket applicable
to the investor.

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Tax Benefits

 Long Term Capital Gain - investments held for over 12 months is

treated as long term capital asset
a) Equity – No long term capital tax
b) Debt - long term capital gain is subject to tax @ 20% of capital gain after
allowing indexation benefit or @ 10% flat without indexation benefit, whichever
is less. Surcharge of 10% (only for corporates) and 3% educational cess is
applicable.

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MF Industry – Asset Under Management
Feb-10
AMC
Equity Debt Liquid Total
Reliance Mutual Fund 35448 69492 10557 115496
HDFC Mutual Fund 25392 57608 12144 95144
ICICI Prudential Mutual Fund 15253 53954 11319 80526
UTI Mutual Fund 22561 50289 6156 79005
Birla Sun Life Mutual Fund 10404 49432 6470 66306
LIC Mutual Fund 3112 37976 5375 46462
Kotak Mahindra Mutual Fund 4718 31815 3647 40180
SBI Mutual Fund 18719 15025 2225 35969
Franklin Templeton Mutual Fund 13568 16807 2923 33299
IDFC Mutual Fund 4054 22384 31 26469
Tata Mutual Fund 7120 12614 2886 22621
DSP BlackRock Mutual Fund 11050 6170 787 18007
Religare Mutual Fund 1091 12242 1509 14841
Deutsche Mutual Fund 1171 9962 1350 12483
Sundaram BNP Paribas Mutual Fund 10123 3176 297 13597
Fortis Mutual Fund 378 8533 197 9108
PRINCIPAL Mutual Fund 2597 4667 883 8148
Fidelity Mutual Fund 6193 1322 135 7649
JM Financial Mutual Fund 2281 136 7090 9507
HSBC Mutual Fund 3078 2821 573 6472
Canara Robeco Mutual Fund 1059 7945 1013 10017
Baroda Pioneer Mutual Fund 67 3671 345 4083
JPMorgan Mutual Fund 872 3565 145 4582
L&T Mutual Fund 235 2194 108 2538
ING Mutual Fund 386 492 390 1268
Morgan Stanley Mutual Fund 2080 96 0 2176
AIG Global Investment Group Mutual Fund 608 585 27 1220
Axis Mutual Fund 865 2691 198 3754
Benchmark Mutual Fund 400 0 0 400
Taurus Mutual Fund 302 2047 79 2429
Bharti AXA Mutual Fund 153 315 69 537
Mirae Asset Mutual Fund 210 7 4 220
Sahara Mutual Fund 75 487 62 624
Escorts Mutual Fund 187 9 7 203
Shinsei Mutual Fund 19 359 80 459
Edelweiss Mutual Fund 44 69 1 114
Quantum Mutual Fund 50 0 21 71
Peerless Mutual Fund 0 103 18 121
GRAND TOTAL 205922 491060 79122 776104

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Distribution Channels

 The various distributors of Mutual Fund are:

 Individual Financial Advisors (IFAs)
 National & Regional Distributors – ABMML, Bajaj Capital, R.R. Financials
 Banks and NBFCs – ICICI Bank, HSBC, Citibank
 Direct Ma

 As per AMFI Guidelines, all employees/IFAs engaged in Mutual

Fund sales and marketing should be AMFI Certified.

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RECENT DEVELOPMENTS

 SEBI Regulation on “No Entry Load”

 Avg. upfront commission on equity schemes reduced from 2.25% to 0.75%
 Emphasis on Fee Based Financial Advisory model
 Earnings impact more on IFAs
 Alignment of small IFAs to National Distributor like ABMML to offer broader
choice, better transaction service and reduce servicing cost
 ABMML launched online B2B multi-product platform for Channel
Partners
 ABMML launched online platform to Buy/Sell Mutual Fund
 Tie up with 13 Banks to avail online debit/credit facility for executing the
transaction
 Wrap product to be launched shortly

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Business Models of Mutual Fund Distribution

1. Direct Sales Models – Mutual Fund schemes are directly sold to the
client. E.g. HDFC Bank, HSBC, Citibank, Bluechip
2. Indirect Sales Models – Mutual Fund schemes are sold indirectly to
the customer through an intermediary (AMFI certified agent). This
model will have both National & Regional level distributors. E.g. NJ
India Invests, R.R Financials, JM Financials
3. Some distributors follow combination of the above two models. E.g.
Aditya Birla Money Mart Ltd., ICICI Bank, Karvy

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Thank You

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