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Mutual Funds
as an investment vehicle

                                                    July 2010




When it comes to ...
1.    Mutual Fund Concept
2.    Organization of a Mutual Fund
3.    Advantages / Disadvantages of Mutual Funds
4.    Types...
“What is good for the client is
  also good for the firm”

                 T Rowe Price Investment Services
             ...
A Mutual Fund is a trust that pools the savings of a number of investors
who share a common financial goal.

The money thu...
Basics of Investments:
   Risk Aversion                Risk Management




Bank Deposits, PPF,
   NSC, Insurance,         ...
Fund Sponsor




                Trustees




        Asset Management Company




Depository       R&T
                 A...
This is just an illustration
First Phase: 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. At the end of 1987, UTI ha...
Source: AMFI website
Professional Management
Diversification
Potential Higher Return Vs other Avenues
Low Costs
Liquidity
Transparency
Flexibil...
Management fees
Exit Costs
Potential poor performance
Complicated tax reporting issues
Potential market risk with all inve...
In a country with a population of close to 120 crores, we at best
have about 1 crore investors – less than 1% ! (even that...
By Structure
   Open Ended Schemes
   Close Ended Schemes
   Interval Schemes
By Investment Objectives
   Growth Schemes
 ...
For investors, the performance of their investment
depends on what happens to the fund’s per unit value, or
net asset valu...
Choose in funds consistent with your objectives,
constraints, and tax situation
Invest. Don’t speculate. (Stock market is ...
Mutual Funds invest only in shares.
Mutual Funds are prone to very high risks/actively traded.
Mutual Funds are very new i...
Equity Instruments like shares form only a part of the securities held by
mutual funds. Mutual funds also invest in debt s...
Diversification is the key to success in equity investments. A diversified portfolio serves
to minimize risks. An individu...
Worldwide MF Assets in Rs 1,064,00,000 crs (31st Dec’09)
India MF Assets in Rs. 6,75,831 crs (30thJun’10)
0.63% of the wor...
Data as of Sep 2010   Source: Investment Company Institute
Track record / experience of the fund house

Stability of the investment team / adherence to an investment process

Consis...
Systematic Investment Plan (SIP)
  Invest a fixed sum every month. (6 months to 10 years-
  through post-dated cheques or ...
Performance as at July 19,2010
Performance as at July 19,2010
Performance as at July 19,2010
1.   Investing in the NFOs
2.   Investing in the schemes
     which gives high dividends
Its new (Old wine in a new bottle, participate in India’s
growth potential)
Its at Rs 10 i.e its cheaper than a existing f...
The NAV falls to the extent of dividend payout

Expense incurred on advertisement campaigns
for spreading the word goes fr...
Investor Category              Short Term               Long Term               Dividend              Dividend            ...
Investor Category         Short Term           Long Term           Dividend      Dividend              Dividend          T...
Fund's management changes
Performance slips compared to similar funds.
Fund's expense ratios climb
Beta, a technical measu...
Contacting the Asset Management Company directly
    Web Site
    Request for agent

Mutual Fund / Insurance Agents
    Lo...
Filling up an application form and writing out a
cheque = end of the story… NO!

Periodically evaluate performance of your...
My
  retirement
 portfolio at
the end of my
50th Birthday


   Atleast
15 crores


   Monthly
   pension

Rs 12 lakhs
Post Office MIS (8%)                                     SIP of Rs 2,800 in a
  Investment : 6 lakhs                      ...
For any further information, please contact:

Mr. Virendra Kothari, CAIA, CFP
M:+91 98677 42732
E: virendra.kothari @etica...
Mutual funds presentation by gajendra   24th july10 mumbai meet
Mutual funds presentation by gajendra   24th july10 mumbai meet
Mutual funds presentation by gajendra   24th july10 mumbai meet
Mutual funds presentation by gajendra   24th july10 mumbai meet
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Mutual funds presentation by gajendra 24th july10 mumbai meet

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Presentation on Mutual funds by Gajendra during Jago Investor Mumbai meet on 24th July2010

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Transcript of "Mutual funds presentation by gajendra 24th july10 mumbai meet"

  1. 1. Mutual Funds as an investment vehicle July 2010 When it comes to money, knowledge is your greatest asset
  2. 2. 1. Mutual Fund Concept 2. Organization of a Mutual Fund 3. Advantages / Disadvantages of Mutual Funds 4. Types of Mutual Fund Schemes 5. Computing Net Asset Value 6. Mutual Fund Investment Strategies 7. Myths / Facts about Mutual Funds 8. Mutual Funds Vs. Direct Equity Investments 9. Factors to consider before choosing a fund 10. Worldwide MF Industry 11. Mutual Funds – Performance 12. Mutual Fund Investment Blunders 13. Mutual Funds Taxation
  3. 3. “What is good for the client is also good for the firm” T Rowe Price Investment Services 6th largest fund house in the USA
  4. 4. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion 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 a diversified, professionally managed basket of securities at a relatively low cost.
  5. 5. Basics of Investments: Risk Aversion Risk Management Bank Deposits, PPF, NSC, Insurance, Mutual Funds Kisan Vikas Patra etc. Low Risk/Low Return Managed Risk/High Return
  6. 6. Fund Sponsor Trustees Asset Management Company Depository R&T Agent Custodian
  7. 7. This is just an illustration
  8. 8. First Phase: 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. At the end of 1987, 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 Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 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 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI Mutual Fund Ltd was formed and sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the SEBI Mutual Fund Regulations. The AUM of 38 fund houses as at June 30, 2010 stands at Rs 6,75,831 crores
  9. 9. Source: AMFI website
  10. 10. Professional Management Diversification Potential Higher Return Vs other Avenues Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated
  11. 11. Management fees Exit Costs Potential poor performance Complicated tax reporting issues Potential market risk with all investments Aggressive or unethical sales personnel / practices
  12. 12. In a country with a population of close to 120 crores, we at best have about 1 crore investors – less than 1% ! (even that is suspect) 4-5 crore mutual funds investors a myth; these are folios that belong to about 60-70 lakh active unique investors Households’ investments in capital market have fallen from a high 23.3% of gross financial savings in 1991-92 to a meagre 2.6% in 2008-09!
  13. 13. By Structure Open Ended Schemes Close Ended Schemes Interval Schemes By Investment Objectives Growth Schemes Income Schemes Balance Schemes Money Market Schemes Other Schemes Tax Saving Schemes Special Schemes Index Schemes Sector Specific Schemes ETFs (including gold ETFs) Fund of Funds ULIPs
  14. 14. For investors, the performance of their investment depends on what happens to the fund’s per unit value, or net asset value (NAV) NAV = Market Value of Assets – Liabilities Number of Shares Outstanding
  15. 15. Choose in funds consistent with your objectives, constraints, and tax situation Invest. Don’t speculate. (Stock market is not a casino) Be regular Own funds in different asset classes Do your homework or hire wise experts to help you. Monitor your investments at a regular interval. Remember, no investment is forever. Don’t panic.
  16. 16. Mutual Funds invest only in shares. Mutual Funds are prone to very high risks/actively traded. Mutual Funds are very new in the financial market. Mutual Funds are not reliable and people rarely invest in them. The good thing about Mutual Funds is that you don’t have to pay attention to them.
  17. 17. Equity Instruments like shares form only a part of the securities held by mutual funds. Mutual funds also invest in debt securities which are relatively much safer. The biggest advantage of Mutual Funds is their ability to diversify the risk. Mutual Funds are their in India since 1964. Mutual Funds market is very evolved in U.S.A and is there for the last 60 years. Mutual Funds are the best solution for people who want to manage risks and get good returns. The truth is as an investor you should always pay attention to your mutual funds and continuously monitor them. There are various funds to suit investor needs, both as a long term investment vehicle or as a very short term cash management vehicle.
  18. 18. Diversification is the key to success in equity investments. A diversified portfolio serves to minimize risks. An individual investor may not have the capital to build a diversified portfolio. Professional Management by mutual funds ensure that the best avenues are tapped with the aid of comprehensive information and detailed research. Liquidity of mutual funds is high as you have daily repurchase options for open-end funds. Transaction costs are lower in mutual funds as compared to direct investment due to economies of scale. Convenience is high for mutual funds as they sell through service networks, banks and other distributors. Many funds allow investors the flexibility to switch between schemes within a family of funds. Blue Chip portfolio available to investors for as low as Rs. 500/-. High Service Standards maintained by mutual funds. Transparency – High degree of transparency is maintained by the funds.
  19. 19. Worldwide MF Assets in Rs 1,064,00,000 crs (31st Dec’09) India MF Assets in Rs. 6,75,831 crs (30thJun’10) 0.63% of the worldwide MF assets 1 USD = Rs 46.53 as at Dec 31, 2009 (trillions of U.S. dollars, end of Dec 2009) Source: Investment Company Institute
  20. 20. Data as of Sep 2010 Source: Investment Company Institute
  21. 21. Track record / experience of the fund house Stability of the investment team / adherence to an investment process Consistent performance of the fund across market cycles Disclosure and service levels offered by the fund house Relative performance among its peer group (across time periods) Investment style (whether it suits your risk profile) Look for Expense Ratio, Exit load etc
  22. 22. 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 to fall below the average NAV. Systematic Transfer Plan (STP) Invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. Systematic Withdrawal Plan (SWP)
  23. 23. Performance as at July 19,2010
  24. 24. Performance as at July 19,2010
  25. 25. Performance as at July 19,2010
  26. 26. 1. Investing in the NFOs 2. Investing in the schemes which gives high dividends
  27. 27. Its new (Old wine in a new bottle, participate in India’s growth potential) Its at Rs 10 i.e its cheaper than a existing fund whose NAV is Rs.110 My neighbour is buying it My distributor / agent has strongly recommended it. I can make good profit in the short term
  28. 28. The NAV falls to the extent of dividend payout Expense incurred on advertisement campaigns for spreading the word goes from your fund It might be a sign of the fact that the fund manager doesn't see any attractive investment opportunities. If the basis of investing in a scheme is flawed, so is the investment
  29. 29. Investor Category Short Term Long Term Dividend Dividend TDS Capital Gain Tax Capital Gain Tax Income Distribution (holding period (holding period Tax < 12 months) > 12months) Residential 15%* Nil Tax Free Nil Nil Individual/ HUF Partnership 15%* Nil Tax Free Nil Nil Firms/AOP/BOI Domestic Companies 15% *$ Nil Tax Free Nil Nil NRIs 15%* Nil Tax Free Nil STCG- 15%* LTCG – Nil TDS – Tax deducted at Source HUF – Hindu Undivided Family AOP- Association of Persons BOI- Body of Individual *Additional education cess of 3% on the amount of tax $ Additional surcharge of 7.5% and an education cess of 3% on the amount of tax
  30. 30. Investor Category Short Term Long Term Dividend Dividend Dividend TDS Capital Gain Capital Gain Income Distribution Distribution Tax Tax Tax – Other Tax - Liquid (holding (holding than Liquid & & Money period period >12 Money Market Market <12months) months) Schemes Schemes Residential As Per Tax 10%(20% with Tax Free 13.841% # 27.681%# Nil Individual/ HUF Slab indexation)* Partnership 30%* 10%(20% with Tax Free 22.145% # 27.681% # Nil Firms/AOP/BOI indexation)* Domestic 30%*$ 10%(20% with Tax Free 22.145% # 27.681%# Nil Companies indexation)$^ NRIs As Per Tax 10%(20% with Tax Free 13.841% # 27.681%# STCG- 30%* Slab indexation)* LTCG- 20%* (After providing for indexation) TDS – Tax deducted at Source HUF – Hindu Undivided Family AOP- Association of Persons BOI- Body of Individual *Additional education cess of 3% on the amount of tax $ Additional surcharge of 7.5% and an education cess of 3% on the amount of tax #DDT includes 7.5% surcharge and 3% education cess
  31. 31. 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.
  32. 32. Contacting the Asset Management Company directly Web Site Request for agent Mutual Fund / Insurance Agents Locate one on AMFI site Financial Planners ASK Wealth Sykes & Ray FP National Distributors Birla Sunlife, Bajaj Capital Banks Net-Banking Phone-Banking ATMs Online Trading Account ICICI Direct, Motilal Oswal, Indiabulls
  33. 33. 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
  34. 34. My retirement portfolio at the end of my 50th Birthday Atleast 15 crores Monthly pension Rs 12 lakhs
  35. 35. Post Office MIS (8%) SIP of Rs 2,800 in a Investment : 6 lakhs good diversified Equity Monthly income: Rs 4,000 fund for 6 years After 30% tax : Rs 2,800 5 yr category average per month return – 19.77% At the end of 6 years you Value of SIP at the end get = Rs 6 lakhs of 6 years : Rs 3.93 lakhs Total Tax-free return = Rs 6 lakhs + Rs 3.93 lakhs = ~ Rs 10.00 lakhs (Source valueresearchonline.com , As at July 19, 2010)
  36. 36. For any further information, please contact: Mr. Virendra Kothari, CAIA, CFP M:+91 98677 42732 E: virendra.kothari @eticawealth.com Ética Wealth Management Private Limited 501, T-39 Sunshine Building, Shastri Nagar, Lokhandwala Complex Road, Andheri West, Mumbai – 400 053 Landmark: Suburban Diagnostics, Near Lokhandwala Circle T: +91 22 2632 9644 +91 22 4264 8740 E: info@eticawealth.com
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