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					Presentation on Mutual Fund

Presented by-

          Sudarshan Kedia
          Sudip Day
          Mahesh Jakotia
          Samaresh Nandi
            What is a Mutual Fund ?


A mutual fund is a collective investment that allows
many investors, with a common objective, to pool
individual investments and give to a professional
manager who in turn would invest these monies in
line
     History of Indian Mutual Funds



 Phase I (1964-87)
   Set up by RBI, de- linked later.
   Act of parliament
   First scheme US 64, still outside SEBI purview
 Phase II (1987-93) entry of PSU Banks/ FIs
   SBI in 87, LIC in 89, Indian Bank in 90
 Phase III (1993-95) Entry of Private players
 Phase IV (1993 onwards) SEBI regulation of Mutual
  Funds
        What is the Structure Here?
  Foreign
              Sponsor              Trustee
  Partner


  Asset Management                     Other Service
      Company
                         Trust         Providers


        Scheme 1        Scheme 2        Scheme 3

HDFC Mutual Fund                     Standard Life Investments
HDFC Ltd.                            Computer Age Management
HDFC Trustee Co Ltd.                 HDFC Bank
HDFC Asset Management Co. Ltd.       MFund
MUTUAL FUND - FRAMEWORK- India

                              Sponsor




        Trustee Company              Asset Management Company




      Fiduciary           Fund             Operations     Marketing
   responsibility to   Management
         the                                              Distribution
                          Brokers   Registrar   Custody
   Investors
                          Markets       Bank
  How does a Mutual Fund
        work?

                    Pool their money with

   Investors                                AMC


Passed                      SEBI
 back
                                                  Invest in
                                                  Securities



 Generate returns                            Market
            Terms used in MFs
Par Value or face value
Coupon
Maturity
Call or put option
Current Yield
Yield Spread
Duration - % change in bonds’ price with
 change in the yields by 1%.
TYPES OF MUTUAL FUNDS


 Classification by structure

 Classification by investment motive
 By Constitution
         Classification by Structure

              Free entry and free exit at NAV linked prices (no fixed
              maturity / lock-in)
Open-ended    Units are bought from and sold to the MF directly
              NAV can fluctuate on a daily basis



              Sale during IPO only
Close-ended   Fixed maturity
              Can be traded in the market before maturity
Classification by Investment motive
                     MU TUAL FUNDS

  DEBT F UNDS        BALANCED FUNDS       EQ UITY FUNDS


     INCOME                                     EQUITY
    Corp bonds                                 Diversified
    Debentures                                  portfolio

        GILT                                    INDEX
    Treasury bills                             BSE , NSE
   Govt securities                              S&P etc

     LIQUID                                     SECTOR
    Call money                                 FMCG,Tech
    CD,CP etc


         RISK / INVESTMENT HORIZON / RETURNS
              By Constitution

Load or non load funds

Tax exempt or non tax exempt

Nature of Investments
 Financial Assets (Equity/Debt/Money Market)
 Physical Assets (Metal/ Real Estate)
       Mutual Fund Profile

                                      Equity Fund


                           Balanced Fund
RISK
                     Income fund

             Gilt Fund

       Liquid Fund

                      RETURNS
Advantages of
Mutual Funds
             Why Mutual funds…?

Stock markets are very sophisticated


Free pricing and integration with world markets

Time , knowledge and luck

Substantial capital for diversification
              Mutual Funds:
           A Packaged Product

Professional
Management                     Diversification




Convenience &
Flexibility.                   Liquidity
                Tax Benefits
              Convenience



Easy Way to Invest

Reduces excessive paperwork


Outsourcing of expertise
                Diversification



Portfolio of investments spreads out Risk

 Attempts Minimizes value erosion

Potential losses are shared with other
 investors
                 Liquidity

Open-ended:
Assures liquidity
As liquid as the banks.

Close-ended:
Buying and selling can be done through
the stock exchange
                Affordability


Provides an opportunity for a small investor
Invest as less as an amount of

Rs.3000/Rs.500 and in multiples of
Rs.1000/100 depending on the Scheme
                Wide Choice



Offers a VARIETYOF SCHEMES

 Meet the investment needs of all Investors
                 Your needs
 Short Term         Banks / Liquid Funds

 Medium Term
  ( 1 to 3 years)
                     Debt or Debt Related
  (3 to 5 years)     Funds
                     Mix of Debt/Equity or
                      funds with an appropriate
                      mix (Balance)


 Long Term
                     Equity or Equity Related
                      Funds
           MF’s and Tax Benefits

 Income Tax Benefits
  Equity funds - 10% TDS
  Debt Funds - Dividends are taxable
  Benefit up 20%/15% (depending on your Income
   Slab) of investments up to Rs. 10,000/- invested
   under ELSS (section 88)
 Capital Gain Benefits - Section 112 (1)
  Long term capital gain tax of 10% without
   indexation,or
  Long term capital tax of 20% with indexation
            Well regulated
Governed by Multiple agencies

MOF/ CLB/ ROC
SEBI
RBI
Trustees
Auditors

Board of Directors
        Disadvantages of MF
• No Control over cost

• No Tailor made portfolio

• Managing a portfolio of fund
                   Investor’s rights
 Proportionate ownership in scheme’s assets
 Rights of information from Trustee
 To received dividend warrants, inspect major docs (Trust
  deed, investment management agreement, R&T A
  Agreement, custodian services agreement
 with 75% voting rights and approval of SEBI can close the
  scheme, change the AMC.
 Rights of info for fundamental change in the scheme
  features and also an opportunity to redeem units without
  any load.
 Receive annual report and a/c statement
      Investor’s rights & Obligations
Rights - Legal Limitations
 Unit holder’s are not distinct from trust,
   they cannot sue trust.
 Sponsor do not have any legal obligations
   (Limited to initial contribution)
 No rights to prospective investors
Obligations
 Must read offer doc & AOD
 Beware of risk factors
 Must monitor investments regularly
               Mutual Fund - The Top Scorer

                  FDs              FI Bonds         MutualFunds


Accessibility     Low                Low              High
Tenor             Fixed (Medium)     Fixed (Long)   No Lock-in
Min. Invest.       Rs. 10000         Rs. 5000       Rs. 500
Tax Benefits       None              80L,88 None

Liquidity          Low               Very Low       Very High
Convenience         Medium           TediousVery    High
Transparency        None             None           Very High
       The Offer Document

Contains the details of scheme.
Filed with SEBI
Like Prospectus of an IPO
Close ended scheme - One Time
 Open ended Scheme - Perpetual - kept
 updated from time to time.
                       Significance

 Legal document that protects and governs the right of the
  investor to information
 Is the primary vehicle for the investment decision
 Is the operating document and describes the fundamental
  attributes of schemes.
 One of the most important sources of information for the
  prospective investor
 Is a reference document for the investor to look for relevant
  information at any time.
             Mandatory Information
• Details of the Sponsor
• Description of the scheme and investment
  objective/strategy
• Terms of issue
• Historical statistics
• Investors’ Rights and Services

Key Information Memorandum that is distributed with the
  application form is an abridged version of the offer
  document.
  Investment Options & Features
• Options
   •Growth
   •Dividend and Dividend Reinvestment
•Plans
   •Systematic Investment Plan - SIP
   •Systematic Withdrawal Plan - SWP
   •Systematic Transfer Plan - STP
• Other
   • Nomination facility
                Who can invest ?
• Resident Indian Individuals
• Indian Companies
• Trusts / charitable institutions / PFs
• Banks/ FIs / NBFCs
• Insurance Companies
• NRIs/ OCBs/ FIIs
• Partnership firms etc.
          NAV - COMPUTATION

NAV = Net assets of scheme / No of units Outstanding

i.e. Market value of investments+ Receivables+
    Other accrued income+ Other assets- accrued
    expenses- Other Payables- Other liabilities
    No. of units outstanding as at the NAV date
Imp :
Day of NAV Calculation is known as valuation day
            HOW NAV IS COMPUTED

•   Market value of Equities         - Rs.100 crore - Asset
•   Market value of Debentures       - Rs.50 crore - Asset
•   Dividends Accrued                - Rs.1 crore -Income
•   Interest Accrued                  - Rs.2 crore - Income
•   Ongoing Fee payable                - Rs.0.5 crore - Liability
•   Amt..payable on shares purchased -Rs.4.5 crore - Liability
•   No. of units held in the Fund : 10 crore units
•   NAV per unit = [(100+50+1+2)-(0.5+4.5)]/10
                   = [153-5]/10
                   = Rs. 14.80
            NAV - Other information

•Open end funds to declare NAV daily

•NAV to be published at least weekly

•Close end Schemes may publish NAV monthly/qt with
prior approval from SEBI .

•NAV has to consider up to date transactions
                       Loads
• Entry Load or front ended load
       Paid at the time of purchase
       Purchase Price = NAV * (1+Entry Load, if any)
• Exit Load or back ended load
      Paid at the time of exit
      Redemption Price = NAV*(1- Exit Load)

Assuming an entry load of 2% in the earlier
NAV computation example
Sale Price = 14.80*(1+ 0.02)
       = 15.10
               PRICING OF UNITS

•Sale price not greater than 107% of the NAV


•Re-purchase price to be not lower than 93% (95% for close-
end funds) of the NAV


•Difference between the repurchase & sale price can   not be
more than 7% of the sale price
     FEES & EXPENSES


                                           Initial Issue
Transaction Cost    Annual Recurring        Expenses
Entry / Exit load      Expenses
                         AMC Fee
                      Custodian Fee
                       Registry Exp.
                        Trustee Fee
                         Audit Fee
                    Mktg. & Selling Exp.
                      Brokerage Exp.
                          Others
             Fees & Expenses
• Total Expenses that can be charged to the Fund (
  excluding entry and exit loads):
                             Equity         Debt
   –   On the first Rs.100 cr    2.50%     2.25%
   –   On the next Rs.300 cr     2.25%     2.00%
   –   On the next Rs.300 cr     2.00 %    1.75%
   –   On the balance assets    1.75%       1.50%

   Based on average weekly net assets
First, consider your….

Financial goals
Risk-taking ability
Expected Return
Investment Period
               Investors Needs

Protection Need            Investment Need
  To protect living         Financial needs served
  standards, current and    through investments
  survival requirements     and savings
   - Regular Income           - Children education
   - Retirement Income       - Housing
   - Insurance Cover         - Children professional
                                growth
              Recommended Model
                  Portfolios . .

 Affluent Investors:

   - HIGHER RISK APPETITE:
        • Sectorial and Growth Funds             70 – 80%
        • Diversified Equity or Balanced Funds   Balance

   - LOWER RISK APPETITE:
       • Income , Gilt and Liquid Funds     70 – 80%
       • Diversified Equity or Balanced Funds Balance
        Bogle’s Strategic Allocation

Combines investors age, risk profile and
 preference in asset allocation
Older investors in distribution phase
  - 50% Equity, 50% Debt

Younger investors in distribution phase
  - 60% Equity, 40% Debt

Older investors in accumulation phase
  - 70% Equity, 30% Debt
Younger investors in accumulation phase
  - 80% Equity, 20% Debt
Strategy To Smart Investing

 Identify Objective

 Start early


 Focus long-term and stay invested


 Beware of the effects of inflation & taxes
Equities are the best long term bet
Cumulative annualised returns (1980 - 98)
   25.0%
                                                                         20.16%

   20.0%
                                                           14.47%
   15.0%
                   9.2%                       9.74%
                                7.62%
   10.0%


     5.0%


     0.0%
              Inflation       Gold       Bank FD        Co. FD        Equities

                 Inflation      Gold      Bank F D       Co. FD       Equities

 Source: RBI report on Currency & Finance (1997-98); BSE Sensitive index of Equity prices - BSE
Thank You

				
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