Presentation on:

Mutual Funds as an investment option

Presented By: Amit Raval PGDFM Roll No. 82

PPF Post Office

Insurance Exit Load ULIPs Fixed Deposits

Direct investment into stocks

Real estate

Gold Repurchase Price

Mutual Funds

Snapshot.

Mutual Fund

Why did Mutual Funds come into existence?

An old Axiom :

It is not wise to put all eggs into one basket

was probably in the minds of those who formed the first mutual fund.

Flow Cycle of a Mutual Fund

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Flow Cycle of a Mutual Fund

Returns

Investors

Securities

Fund Manager

Flow Cycle of a Mutual Fund

Mutual Funds defined.a flow cycle

Flow Cycle explained

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.

Organizational Structure of Mutual Fund

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Organizational Structure of Mutual Fund

Organizational Structure of Mutual Fund

Sponsor
Akin to the Promoter of the company, Contribution of minimum 40% of net worth of AMC, Posses sound financial record over five years period, Establishes the Fund, Gets it registered with the SEBI, Forms a trust, & appoints Board of trustee.

Trustees

Holds assets on behalf of unit holders in trust, Trustees are caretaker of unit holders money, Two third of the trustees shall be independent persons (not associated with the sponsor), Trustees ensure that the system, processes & personnel are in place, Resolves unit holders GRIEVANCES, Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI regulation.

Organizational Structure of Mutual Fund

Custodian
Holds the funds securities in safekeeping, Settles securities transaction for the fund, Collects interest & dividends paid on securities, Records information on corporate actions.

Asset Management Company

Floats schemes & manages according to SEBI, Can not undertake any other business activity, other than portfolio mgmt services, 75% of unit holders can jointly terminate appointment of AMC, At least 50% of independent directors, Chairman of AMC can not be a trustee of any MF.

Distributor / Agents
Sell units on the behalf of the fund, It can be bank, NBFCs, individuals.

Classification of Mutual Fund Schemes

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Classification of Mutual Fund Schemes

AMFI Classification of MF Schemes

Fund schemes
Growth & Income Balanced Liquid & Money Market Gilt ELSS Fund of funds ETFs

Portfolio objectives
High Risk & High Return Moderate Risk & Return Fixed Return Zero Risk Tax Saving Additional diversification Market Driven

Each category is classified into more sub-categories.

Classification of Mutual Fund Schemes Other classification of MF 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

Liquid/Money Market Short-term Money Market (CPs, CDs, Treasury Bills) Balanced/Hybrid Stocks + Fixed Income Securities (1-3 years) Gilt Funds primarily in G-Sec

Other Schemes
Tax Saving Schemes such as ELSS Special Schemes (ETFs, foreign funds)

Risk-return structure of schemes

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Risk-return structure of schemes Risk Return of different schemes

History of Mutual Funds in India

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

History of Mutual Funds in India

Phases of Mutual Fund Industry in India

Formation of UTI Entry of Public Sector Funds Entry of Private Sector Funds 1964 1987 1993 A phase dedicated to Retail Investors

2009 ?

Regulatory Aspects
Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Regulatory Aspects Regulations

Governed by SEBI (Mutual Fund) Regulation 1996 All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882) Bank operated MFs supervised by RBI too AMC registered as Companies registered under Companies Act, 1956 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

Investment Checklists
Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Investment Checklists 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 Check out past performance Performance of various funds with similar objectives for at least 3-5 years (managed well and provides consistent returns)

Investment Checklists Checklist continued..

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?

Look for size and credentials

Asset size less than Rs. 25 Crores Diversify, but not too much Invest regularly, choose the S-I-P MF- an integral part of your savings and wealth-building plan.

Expenses
Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Expenses Expenses of Mutual Fund

Accounted for in FUND RETURN
Management fee* Group fee* Performance fee* Administrative fee* Brokerage costs Interest costs

Not included in FUND RETURN

Front end sales load Back end sales load Transaction fee Redemption fee Account maintenance fee Bid ask spreads

An asterisk * indicates fee which is included in a funds expense ratio. As per SEBI Rule, expense ratio should be 2.5% for equity & 2.25% for debt fund of fund value.

Tracking Mutual Funds

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Tracking Mutual Funds

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 such as www.valueresearchonline.com, www.mutualfundsindia.com, www.morningstar.in, www.lipperweb.com et al. Newspapers Professional advisor

Warning Signals
Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

Warning Signals

Warning Signals
Fund's management changes; Performance slips compared to similar funds; Fund's expense ratios climb; Beta, a technical measure of risk, also climbs; Independent rating services reduce their ratings of the fund; It merges into another fund; Change in management style or a change in the objective of the fund.

What Mutual Funds are not?

Flow Cycle of a Mutual Fund Diff. b/w MF and Direct Investment History of Mutual Funds in India Balance sheet of a Bank and Mutual Fund Risk-return structure of schemes Organizational Structure of a Mutual Fund Classification of Mutual Fund Schemes

Regulatory Aspects

Portfolio Management Process AUM movements in India

Risk Management

Investments Checklists

Mutual Fund Comparison

Warning Signals

Tracking Mutual Funds

Expenses

Penetration of Mutual Funds

What Mutual Funds are not?

What Mutual Funds are not? MFs are not MFs are not MFs are not MFs are not get rich quick investments risk free investment assured return investment a universal solution to all investment needs

Thank You