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									Mutual Funds
     By
     Mrs.Lalitha PPM
        What is Mutual Fund?
• A Mutual Fund is an investment vehicle that
  pools the money of several investors and invests
  it in different securities.
Organisation of Mutual Fund
    Some Concepts Clarified…..
• NAV - Net asset value is the market value of a unit
  of a scheme after accounting for all expenses on any
  given business day.

• Load
                      Load
• Charged directly to the investor
• Includes Agent’s commission, Marketing and
  Selling expenses
• Front end Load and Back end Load
• Entry loads vary between 1.00% and 2.5%.
• Exit loads vary between 0.25% and 3.00%.
• Regulations do not allow either front-end load or
  back-end load in any combination to be higher
  than 6%.
  …….Some Concepts Clarified
• Purchase price is the price paid by a customer to
  purchase a unit of the fund.
• Redemption price is the price received by the
  customer on selling units of an open-ended
  scheme to the fund.
• Repurchase price is different from redemption
  price and refers to the price at which a close-
  ended scheme repurchases its units.
• Expense ratio
                 Expense Ratio
• Operating Expenses paid out of the fund’s earnings
• Includes advisory fees paid to investment managers, audit
  fees, custodial fees, transfer agent fees, trustee fees etc.
• Advisory fees range from 1% to 1.5% of the corpus
• Limits mandated by SEBI
• First Rs. 100 crores 2.50% 2.25%
• Next Rs. 300 crores 2.25% 2.00%
• Next Rs. 300 crores 2.00% 1.75%
• On the balance of assets 1.75% 1.50%
• The annual expense expressed a percentage of the fund's
  average daily net assets.
       Exploding a Myth-A Fund with lower NAV is
            cheaper than that with higher NAV

• A Mutual Fund with lower NAV will give better returns !!!!!!
                                                              Existing
                                             New scheme scheme with
                                            with NAV at par NAV at Rs. 50

                                                 Rs             Rs.
    NAV                                               10         50
    Your investment                                 ,
                                                1,000000       ,
                                                          1,000000
    No. of units allotted to you                    ,
                                                  100000       ,
                                                             20000
    Market Value of Assets after one year        , ,       , ,
                                               120000000 600000000
    Corresponding NAV after one year                  12         60
    Current value of your investment                ,
                                                1,200000       ,
                                                          1,200000
    Return on investment                            20%       20 %
    Classification Of Mutual Fund
•   By Asset Class
•   By Investment Sector
•   By Liquidity
•   By Trading Strategy
•   By Investment Strategy
•   By Security Selection
•   By Load Charged / Cost
•   By Place of origin
    WHY Choose Mutual Funds?
•   Professional Management
•   Lower Risk
•   A better portfolio for less Money
•   Lower Transaction Cost
•   Liquidity
•   Transparency
•   Affordability
•   Choice of Schemes
•   Well Regulated
    Ground Rules of Mutual Fund Investing

  • Define your Investment Objectives
  • Draw up your Asset Allocation

         Equity Balance MIPs Debt Fixed Total Total
         MF      d MF          MF   Inc.  Equity Debt
Below 30    50 %     30%    5%    5% 10  % 70  % 30   %
30- 45      40 %     30% 15  %    5% 10  % 60  % 40   %
45- 55      25 %     25% 25  %    5% 20  % 45  % 55   %
Above 55     5%      10% 40  %    5% 40  % 15  % 85   %
….Ground Rules of Mutual Fund
         Investing
•   Identify Funds with matching Investment objectives.
•   Evaluate Past Performance, look for Consistency
•   Diversify
•   Consider Fund Costs
•   Factor Tax Implications
 Tax Implications – on Dividend
  Mutual          TDS    Dividend
   Fund                 Distribution
  Scheme                    Tax
Debt Oriented     Nil     12.5% +
  Scheme                 Surcharge +
                          Cess ->
                          14.025%
Equity Oriented   Nil        Nil
   Scheme
  Tax Implications – on Capital
             Gains
      TAX    Debt Oriented   Equity Oriented
               Scheme           Scheme
STT         Nil              0.2 %
STCG        Marginal Rate    10 %
            of Taxation
LTCG        Lower of         NIL
            - 10% without
            indexation
            - 20% with
            indexation
       Which Option to Choose?
Mutual Fund Scheme    Dividend Payout       Growth
  Debt Oriented
     Scheme
    -< 1 Year        14.025 % <30%
    - >1 Year                           10%or20%(WI)<
                                        14.025%
 Equity Oriented
    Scheme
   -< 1 Year         0% < 10%
   - > 1 Year        Profit Booking
….Ground Rules of Mutual Fund
         Investing
•   Look for Size and Credentials
•   Customer Service
•   Monitor regularly and Review
•   Invest Regularly
    When To Sell Mutual Funds?
• The Fund Manager leaves
• Below par performance for the last 2 years
• Size of the corpus increases too fast
• The Promoter of Mutual Fund is going through
  financial difficulties
• The scheme changes its investment objectives
• You change your plan
• Enough has been earned
   Systematic Investment Plan(SIP)

Advantages
• Disciplined investing
• Convenience
• Avoiding market prediction
• Rupee Cost Averaging
    Rupee Cost Averaging
•
     Advantages of Early Investing
Investing in a     @ 35 Yrs          @ 40 Yrs
Diversified MF -
SIP
Monthly            IRS 5000          IRS 5000
Investment
Investment         60 Yrs            60 yrs
Stopped @
Total              IRS 15,00,000/=   IRS 12,00,000/=
Contribution
Growth (assume     IRS              IRS
15 % CAGR)         1,37,82,803.88/= 66,35,367.20/=
 Mutual Fund Investing by NRIs
• Power of Active Funds Management
• Online trading simplifies procedure
• Some online trading sites
www.icicidirect.com
www.Indiainfoline.com
www.Myiris.com
       ICICIDirect one up on others.

•   No Application forms to be filled up
•   Automatic debit from and credit to bank account
•   Automatic paperless SIP/SWP
•   Online order confirmations and status tracking
•   Online dividend payout / reinvestment facility
•   Online updation of portfolio of unit holdings at
    latest NAV
   Few Mutual Funds NRIs can consider

For Conservative investors
• HDFC Top 200 Fund
• Sundaram Growth
• HDFC Prudence
• Principal MIP

For Aggressive investors
• HSBC Equity Fund
• Franklin India Bluechip
• FT India Balanced Fund
• FT India MIP
          Product Innovations

• Fund Of Funds is a fund that invests in other
  funds instead of securities.
• Super SIP isn't a fund but a way of buying funds
  that combines long-term SIP with term
  insurance.
• ETF is a hybrid financial product, a cross
  between a stock and a mutual fund .

								
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