MF as an Investment Option

7/31/2019 MF as an Investment Option

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Presented By:

Amit Raval

PGDFM

Roll No. 82

Presentation on:

Mutual Funds as an investment option


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Post Office

Direct investment

into stocks

Insurance

Real estate

ULIPs

Gold

Mutual Funds

PPF

Fixed DepositsExit Load

Repurchase Price


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Mutual Fund

Snapshot.


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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.

Why did Mutual Funds come into existence?


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Flow Cycle of aMutual Fund

OrganizationalStructure of a

Mutual Fund

Balance sheetof a Bank and

Mutual Fund

Diff. b/w MFand Direct

Investment

PortfolioManagement

Process

Mutual FundComparison

InvestmentsChecklists

RiskManagement

RegulatoryAspects

Classificationof Mutual

Fund Schemes

Risk-returnstructure of

schemes

History ofMutual Funds

in India

AUMmovements in

India

ExpensesTracking

Mutual Funds

Warning

Signals

Penetration ofMutual Funds

What MutualFunds are not?

Flow Cycle of a Mutual Fund


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Investors

Fund

ManagerSecurities

Returns



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Mutual Funds defined.a flow cycle



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A Mutual Fund is a trust that pools the savings of a number ofinvestors who share a common financial goal.

The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities.

The income earned through these investments and the capitalappreciation realized are shared by its unit holders inproportion 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 adiversified, professionally managed basket of securities at arelatively low cost.

Flow Cycle explained


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Mutual Fund


Mutual Fund


Investment

PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking

Mutual Funds

Warning

Signals



Organizational Structure of Mutual Fund


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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.



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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.



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Mutual Fund


Mutual Fund


Investment

PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking

Mutual Funds

Warning

Signals



Classification of Mutual Fund Schemes


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Each category is classified into more sub-categories.

AMFI Classification of MF SchemesFund schemes Portfolio objectives

Growth & Income High Risk & High Return

Balanced Moderate Risk & Return

Liquid & Money Market Fixed Return

Gilt Zero RiskELSS Tax Saving

Fund of funds Additional diversification

ETFs Market Driven



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By Structure

Open-Ended anytime enter/exit

Close-Ended Schemes listed on exchange, redemption after period ofscheme 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)

Other classification of MF schemes



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Mutual Fund


Mutual Fund


Investment

PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking

Mutual FundsWarningSignals



Risk-return structure of schemes


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RiskReturn of different schemes

Risk-return structure of schemes


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Mutual Fund


Mutual Fund


Investment

PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




History of Mutual Funds in India


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Formation ofUTI

Entry of PublicSector Funds

Entry of PrivateSector Funds

A phase dedicatedto Retail Investors

1964

1987

1993

2009 ?

Phases of Mutual Fund Industry in India

History of Mutual Funds in India


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Mutual Fund


Mutual Fund


Investment

PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




Regulatory Aspects


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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, offerperiod, investment guidelines etc.

NAV to be declared everyday for open-ended, every week for closedended

Disclose on website, AMFI, newspapers

Half-yearly results, annual reports

Select Benchmark depending on scheme and compare

Regulations

Regulatory Aspects


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OrganizationalStructure of aMutual Fund

Balance sheetof a Bank andMutual Fund

Diff. b/w MFand DirectInvestment

PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




Investment Checklists


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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 riskprotection, 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)

Investing Checklist



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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.



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PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




Expenses


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Expenses of Mutual Fund

Accounted for in FUND RETURN Not included in FUND RETURNManagement fee* Front end sales load

Group fee* Back end sales load

Performance fee* Transaction fee

Administrative fee* Redemption fee

Brokerage costs Account maintenance fee

Interest costs 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.

Expenses


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PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




Tracking Mutual Funds


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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

Keeping Track

Tracking Mutual Funds
http://www.valueresearchonline.com/http://www.mutualfundsindia.com/http://www.morningstar.in/http://www.lipperweb.com/http://www.lipperweb.com/http://www.morningstar.in/http://www.mutualfundsindia.com/http://www.valueresearchonline.com/


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PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




Warning Signals


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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.

Warning Signals

Warning Signals

h l d ?


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PortfolioManagement

Process



RiskManagement

RegulatoryAspects


Fund Schemes


schemes


in India

AUMmovements in

India

ExpensesTracking




What Mutual Funds are not?

h l d ?


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MFs are not get rich quick investments

MFs are not risk free investment MFs are not assured return investment

MFs are not a universal solution to all investment needs

What Mutual Funds are not?


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Thank You

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MF as an Investment Option

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