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8/12/2019 MutualFunds PPT Anurag
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BY: Anurag Tripathi
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Impact of inflation on monthly
expenses of Rs. 30,000 today
Value of Rs. 100,000 over time
At inflation of 7.55%(may 2012)
Investors need to beat inflation
30,000
43169
89387
89787
Today 5 years 15 years 20 years
100,000
67536
30804
20803
Today 5 years 15 years 20 years
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• A Mutual Fund is a trust that pools the savings of a
number of investors who share a common financial goal.
It is not an alternative investment option to stocks
and bonds, rather it pools the money of several
investors and invests this in stocks, bonds, money
market instruments and other types of securities.
• Anybody with an investible surplus can invest in Mutual
Funds.
• These investors buy units of a particular Mutual Fundscheme that has a defined investment objective andstrategy.
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• First Phase – 1964-87Unit 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 non- UTI, 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 KothariPioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered inJuly 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 2003In 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 theSEBI Mutual Fund Regulations
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• Asset Allocation• Diversifying investments in different assets such as stocks, bonds, real estate,
cash in order to optimize risk.
• Fund Manager• The individual responsible for making portfolio decision for a mutual fund, in
line with fund’s objective.
• Fund Offer Document• Document with investment objectives, risk factors, expenses summary, how to
invest etc.
• Dividend• Profits given to the investor from time to time.
• Growth
• Profits ploughed back into scheme. This causes the NAV to rise.
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• NAV • Market value of assets of scheme minus its liabilities.
• Per unit NAV = Net Asset Value
No. of Units Outstanding on Valuation date
• 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
• Redemption Price• Price at which open-ended scheme
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Type of
Mutual FundSchemes
StructureInvestment
Objective
Special
Schemes
Open Ended
Funds
Close Ended
Funds
Interval Funds
Growth Funds
Income Funds
Balanced Funds
Money Market
Funds
Industry Specific
Schemes
Index
Schemes
Sectoral
Schemes
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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 (3-10 months)
• Liquid/Money Market (including gilt) – Short-term Money Market(Govt.)
• Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)
• Other Schemes• Tax Saving Schemes
• Special Schemes
• ULIP
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•
Expert on your side: When you invest in a mutual fund,you buy into the experience and skills of a fund managerand an army of professional analysts.
• Limited risk: Mutual funds are diversification in actionand 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 acrossa number of companies and industries when you invest ina fund!
•
Convenience: You can invest directly with a fund house,or through your bank or financial adviser, or even overthe internet.
• Transparency: As an investor, you get updates on thevalue of your units, information on specific investmentsmade by the mutual fund and the fund manager'sstrategy and outlook.
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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
• Indexation benefit available for long term non equity schemes
• Equity short term capital gain @10%
• STCG in Debt funds – Rates applicable for the investor
• Deduction of Rs. 1 lac under section 80C
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• Systematic Investment Plan (SIP) • Invest a fixed sum every month. (6 months to 10 years-
through post-dated cheques or Direct Debit facilities)
• Fewer units when the share prices are high, and more units
when the share prices are low. Average cost price tends tofall below the average NAV.
• Systematic Transfer Plan (STP)
•
Invest in debt oriented fund and give instructions to transfera fixed sum, at a fixed interval, to an equity scheme of thesame mutual fund.
• Systematic Withdrawal Plan (SWP)
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An investment plan to invest a
fixed amount regularly at a
specified frequency say,
monthly or quarterly.
SIP is a simp le method of invest ing used
across the wo r ld as a means to c reat ing wealth
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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 pinchof it being directly deducted, yet the small amount is powerfully workingtowards your financial security
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Investing at Peak – SIP is the way
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• Diversified equity funds
• Index funds
• Opportunity funds
•
Mid-cap funds• Equity-linked savings schemes
• Sector funds like Auto, Health Care, FMCG etc
• Dividend Yield Funds
• Others (Exchange traded, Theme, Contra etc)
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• Errors
• Invest in only top performing funds
• These cannot go wrong
• Replicate past performance in future
•
Appropriate way• Right Mix of equity MFs (Top 3-4 funds, may all be mid-cap funds)
• Have variety of funds like diversified funds, mid-cap funds and sector funds – in right proportion.
• Beginner- it makes sense to begin with a diversified fund
•
Gradual exposure to sector and specialty funds.
• Look at performance of various funds with similar objectives forat least 3-5 years (managed well and provides consistent returns)
Investing in Equity Funds
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•
Extra Cash in savings A/c?? Consider Cash Funds
• Liquidity: Savings account wins• b/w a savings account and a fixed deposit, no ATM (Now-
Rel Regular Savings Fund)
• Safety: Savings account wins• All mutual funds are subject to market risks
• Returns: Cash funds win • Upto about 17.5% return
• Performance: Cash funds win• Interest rate fluctuations covered by quick maturation
• Invest when surplus money in savings a/c based on
expense ratio
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• Contacting the Asset Management Company directly
• Web Site• Request for agent
• Agents/Brokers• Locate one on AMFI site
• Financial planners• Bajaj Capital etc.
•
Insurance agents• Banks
• Net-Banking
• Phone-Banking
• ATMs
• Online Trading Account•
ICICI Direct• Motilal Oswal, Indiabulls- Send agents
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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
• Newspapers
• Professional advisor
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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.