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Mutual Fund Basics
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A common pool of money into which
investors place their contribution
This money is to be invested
according to the pre-stated objectives of the fund
Ownership of the fund is joint or mutual amongst all
investors - equivalent to the contribution made as a
proportion of the overall fund
Ownership through holding of units at NAV
Mutual Fund (MF) Concept
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MF Advantages
Portfolio Diversification
Reduction of Risk
Access to Information
Convenience & Flexibility
Liquidity
Professional Management
Reduction of Transaction Costs
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Risk Profile
Investment horizon
Days 1 year 3 years
Income Funds
Money MarketFloating Rate Funds
Short Term Plans
Gilt Funds
MIPs
Balanced Funds
Diversified Equity Funds
Sectoral FundsRisk
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Liquid Funds Investment Objective : Objective is to provide investors with a high level
of income from short term investments
Liquidity: Very high within 24 hrs, Direct Credit Facility available withselect banks.
Risk : Zero Risk
Range of Returns : Somewhere between the call rates & 1yr T-Bills ratesin the current scenario returns ranges between (4.5% - 5.5%)
Applicable Loads : Normally Both Entry /Exit - NIL
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Floating Rate Funds Investment Objective : To provide income consistent with
the prudent risk from a portfolio comprising primarily. There aretwo variants Long Term & Short Term. Long Term FRF invests inlong duration floating rates papers while the Short Term FRFgenerally invests in shorter duration FR papers( MIBOR Linked)
Liquidity : Very high. Within 24 hours. Direct credit to Bank A/c
Risk : Minimal Risk
Applicable Loads: Entry/Exit Loads: NIL for ST FRF Exit Loads: 0.25% - 0.5% for LTF (For investments up to 3-6months)
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Short Term Funds Investment Objective: To generate both income & capital
appreciation by investing in corporate debentures, call money,bank deposits etc
Liquidity : Very High within 24 hrs. Direct Credit facility availablein select banks.
Risk : Credit RiskInterest Rate Risk
Applicable Loads : Entry Load NIL
Exit Load 0.25% (15 days - 6 months)
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Income Funds
Investment Objective : To generate both income & capital
appreciation by investing in government securities corporatedebentures , call money , bank deposits etc. It invests into longduration papers then the Short Term Income Fund.
Liquidity : 3 business days
Risk : Credit RiskInterest Rate Risk
Applicable Loads : Entry Load NIL
Exit Load 0.5% (15 days - 6 months)
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Monthly Income Plan Investment Objective : To generate regular income by investing into
short duration fixed income paper & capital appreciation by investing asmall portion into equity funds
Liquidity : 3 business Days
Asset Allocation : Debt 80% -100%
Equity 0% -20%
Risk : The exposure in equity can make the returns volatile. Generallythere is a moderate risk on the debt component as are of short durationnature.
Recommended investment Horizon: Minimum 1 year
Applicable Loads : Entry Load NILExit Load 0.5% for six months
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Balance Funds Investment Objective : To generate long term capital
appreciati on by investing in equities, maintain an optimumbalance between the debt component & equity component andgenerate periodic income by managing the debt component
Liquidity : 3 business Days
Asset Allocation : Debt 0% - 50%
Equity
50%-80% Risk : The exposure in equity can make the returns volatile.
Generally there is a moderate risk on the debt component as areof short duration nature.
Recommended investment Horizon: Minimum 3 years
Applicable Loads : Entry Load NILExit Load 0.5% for six months
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Equity Funds
Investment Objective: To generate long term capital appreciationby investing in equities.
Liquidity : 3 business Days
Risk : High
Recommended investment Horizon: Minimum 5 years
Applicable Loads : Entry Load NIL
Exit Load 0.5% for six months
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Equity Funds Types
Classification based on Market Capitalisation Large Cap Funds Invest in Large Cap Stocks Mid Cap Fund Invests primarily in Mid Cap Stocks Small Cap Funds Invests in Small Cap Stocks
Classification based on Style
Growth Funds Invests in high/fast growing companies Value Funds Invests in out of favor stocks where the market price has
fallen below its intrinsic value
Prudential ICICI Discovery Funds Templeton India Growth Funds
Blend Funds No restriction based on style UTI Growth & Value Fund
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Equity Funds Types
Other Classification
Index Funds Mirrors an index/benchmark returns inline of the index
Sector Funds Invests in stocks of a particular sector. E.g.: PruTechnology Fund, Franklin Pharma Fund
Select Sector Funds Invests in Multiple Sectors. E.g.: Tata SelectSector Fund, Principal Focused Advantage Fund
Theme Funds - Invests in stocks /companies which have a commonunderlying theme. E.g. Chola Global Advatage Funds, Alliance buy India
Dividend Yield Funds Invests in High Dividend Yield companies. E.g.:Tata Dividend Yield, Principal Dividend Yield
International Equity Funds - Invests in companies registered in othercountries. E.g. Principal Global Opportunities Fund
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Risk Matrix for Equity Funds
Based on Market Cap & Style
Large CapValue
Mid CapBlend
Small CapGrowth
STYLE
MarketCap
LowestRisk
HighestRisk
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Type Of Fund Element Short Term Long Term
Equity Oriented Schemes
Equity > 65%
Dividend NIL NIL
Capital Gains 10%*1.1*1.03= 11.33% NIL
Debt Oriented Schemes
Equity < 65% & MMFs
Dividend 12.5*1.1*1.03= 14.1625%
12.5*1.1*1.03= 14.1625%
Capital Gains As per Slab 10% or 20%
Liquid Funds Dividend 25*1.1*1.03%
= 28.325%25*1.1*1.03%
= 28.325%
Capital Gains As per Slab 10% or 20%
* For Individuals Dividend Tax Liquid Revised DDT 25%
Surcharge 10%
Education Cess 2%
Higher Education Cess 1%
Effective Tax Rate 28.3250%
MF Tax Rates
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MF Tax Benefits
Interest on all investment avenues(except PPF) would be taxable assection 80L (up to Rs.12,000 of interest income exempted up to FY 2004-05) scraped.
Investment with BankMF-Debt
Scheme*Bank
MF-Debt
SchemeBank
MF-Debt
SchemeInterest Rate \ Return 5.25 5.25 5.50 5.50 6.25 6.25
Applicable Tax 1.77 0.74 1.85 0.55 2.10 0.63
Net Interest Income\Return 3.48 4.51 3.65 4.95 4.15 5.63
1 year investment6-month investment 3 year investment
Interest is taxable @33.66%; Capital gain tax @10%; DDT @14.025%for Individual taxpayers(FY2005-06)
* Indicates Dividend Option
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