Mutual Funds and Exchange Traded funds in Turkey

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  • 1. Prof: Dr : Semih Büker Prepared by: Abdulkadir Tifow Dept: Finansman
  • 2. Mutual Funds (Yatırım Fonları) Definition of MF: A mutual fund is an investment company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the income those holdings generate.
  • 3. Cycle of Mutual Fund
  • 4. Advantages of Mutual Funds (Yatırım Fonların Avantajları)  Professional Management (Profesyonel Yönetim) Picking your own stocks and bonds to put in your portfolio and beating your benchmarks is difficult and time consuming. Hiring a mutual fund to make those decisions for you can be beneficial and save time.  Diversification (Çeşitlilik) Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.  Liquidity (Nakde Çevirebilme) Money invested in mutual funds is generally liquid. You can usually sell your shares and collect money from open-ended funds (funds that can create and redeem shares on demand), usually within two business days.
  • 5. Continue  Flexibility: (fleksibilite) Owning individual stocks and bonds does not allow for much flexibility in terms of liquidity, or the ability to access your money. You cannot write checks on individual stocks and bonds. However, many mutual funds allow for more flexibility by allowing you to write checks on your account.  Economies of Scale (Büyük Ölçekli Yatırım Avantajı) Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions.  Simplicity: You can begin buying units or shares with a relatively small amount of money (e.g., $500 for the initial purchase). Some mutual funds also permits you to buy more units on a regular basis with even smaller installments (e.g., $50 per month).  Service Mutual funds generally offer service to answer questions, help you open accounts, purchase and sell funds, and to transfer funds as well.
  • 6. Types of Mutual Funds
  • 7. Types of mutual funds By structure  1) Open-Ended funds: is a collective investment schemes which can issue and redeem shares at any time. In simple terms, an open-end mutual fund is when a company aggregates money from many investors and invests the money in stocks, bonds, short-term moneymarket instruments or other securities. Investors purchase mutual fund shares directly from the fund itself at a price that is determined by the fund's per-share net asset value (NAV) plus any shareholder fees that the fund imposes at purchase (such as sales loads). (For NAV see the Next Slide) Mutual fund shares are "redeemable": when the holder of the mutual fund shares wants to sell those shares, he or she sells them back to the fund (or to a broker acting for the fund) at their approximate NAV minus any fees the fund imposes at that time (such as deferred sales loads or redemption fees). Open-end fund shares cannot be bought or sold in secondary markets, such as the New York Stock Exchange or the Nasdaq.
  • 8. Continue….  Net Asset Value (NAV) Net Aktif Değer A mutual fund's price per share in both cases (. It is a price at which investors buy fund shares from a fund company and sell them to a fund company).  NAV = Market value of assets of scheme minus its liabilities.  Price Per unit NAV = Net Asset Value No. of Units Outstanding on Valuation date For example, if a fund has assets of $50 million and liabilities of $10 million, it would have a NAV of $40 million. This number is important to investors, because it is from NAV that the price per unit of a fund is calculated. By dividing the NAV of a fund by the number of outstanding units, you are left with the price per unit. In our example, if the fund had 4 million shares outstanding, the price-per-share value would be $40 million divided by 4 million, which equals $10. 
  • 9. Continue….  2) Closed-Ended Funds: A "closed-end fund" is also legally known as a "closed-end company". It is an investment company that sells a fixed number of shares at a one-time initial public offering. Shares are not continuously offered for sale; after the public offering, the shares typically can be bought and sold only on a formal exchange such as the New York Stock Exchange or the Nasdaq.  Once closed-end fund shares begin to trade, their prices are determined by supply and demand and not by net-asset value (NAV); therefore, the market price may be greater or less than the shares' NAV.  Generally, a closed-end fund is not required to buy its shares back from investors upon request. However, some closed-end funds, commonly referred to as interval funds, offer to repurchase their shares at specified intervals.
  • 10. Continue……  3) Interval schemes: combine the benefits of open end and closed end schemes. These essentially are closed end funds , but become open ended at pre specified intervals by opening for sale and repurchase on a regular basis at intervals on pre-specified dates. Investors can buy or sell the units of these schemes at an interval which is specified in the schemes document. For example, in case of a Monthly Interval Fund, investors can buy or sell the units every month on the specified dates. The units can not be bought or sold on other dates. This means the scheme is open end only on the specified transaction date and is like a closed end fund on other dates.
  • 11. Types of Funds By Investment Objectivities  1) Money Market Mutual Funds:  MMMF are funds which invest the majority of their assets in short-term liquid financial instruments such as commercial paper and government treasury bills  Their goal is to obtain a higher return, after fees and expenses, than traditional bank savings or checking accounts.
  • 12. Continue…..  2) Bond fund or debt fund is a fund that invests in bonds, or other debt securities. Bond funds can be contrasted with stock funds and money funds. Bond funds typically pay periodic dividends that include interest payments on the fund's underlying securities plus periodic realized capital appreciation. Bond funds typically pay higher dividends than CDs and money market accounts. Most bond funds pay out dividends more frequently than individual bonds.  Bond Fund Types:  Government: Primarily invest in bonds issued by the U.S. Department of Treasury as well as various federal agencies. Government bonds are generally taxable.  Municipal: Primarily invest in municipal bonds issued by state and local governments and their agencies to fund projects such as schools, streets, highways, hospitals, bridges, and airports. Municipal bonds can be insured or non-insured securities. Income generated from municipal bonds may be tax free at both the federal and state level (consult the funds prospectus).  Corporate: Primarily invest in bonds issued by corporations to help fund business activities. Income from corporate bonds is taxable. Bond fund shares are not guaranteed and will fluctuate with market conditions and interest rates and include a greater risk to principal than Certificates of Deposit. Shares, when redeemed, may be worth more or less than their original cost.
  • 13. Continue…………  3) Stock Funds:  Stock mutual funds are funds which invest a majority of their assets in common stocks of listed companies These funds aim to grow faster than money market or fixed income funds, so there is usually a higher risk that you could lose money.  Stock Fund Types A) Large Cap: Primarily invests in "Blue-chip" companies - large, wellknown industrials, utilities, technology, and financial services companies with large market capitalization. Large cap stocks are perceived to be less risky than smaller capitalized companies.  B) Mid Cap: Primarily invests in companies whose market capitalization is smaller than large caps but larger than small caps. Mid caps are generally considered more risky than large cap stocks but have a higher return expectation.
  • 14. Continue……….  C) Small Cap: Primarily invests in emerging companies, thought to have potential for future growth and profit. Small caps are generally considered the riskiest stocks compared to larger capitalized firms but carry the expectation of higher returns. Small cap funds are subject to greater volatility than those in other asset categories.  D) International: Primarily invests in stocks traded on foreign exchanges. International funds are subject to additional risks such as currency fluctuation, political instability and the potential for illiquid markets.
  • 15. Continue…..  4)Balanced Funds (Hybrid Funds): A mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessive risk.  The purpose of balanced funds (hybrid funds) is to provide investors with a single mutual fund that combines both growth and income objectives, by investing in both stocks (for growth) and bonds (for income). A well-managed balanced fund has the best chance at achieving that because when the stock market falls, the bonds tend to hold their value better, and when the stock market rises, bonds yields are typically lower.
  • 16. Special Funds  1) Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known in technical terms as a "tracking error". Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.  2) Sector: Primarily invests in specific industry sectors such as technology, financials, health, or energy. Since sector funds focus their investments on companies involved in a specific industry sector, the funds may involve a greater degree of risk that an investment in other mutual funds with greater diversification.
  • 17. Factors to consider while choosing a Mutual Fund  Expense Ratio  Risk  Past Performance
  • 18. How Funds Can Earn Money for You  You can earn money from your investment in three ways:  Dividend Payments — A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.  Capital Gains Distributions — The price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors.  Increased NAV — If the market value of a fund's portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment.  With respect to dividend payments and capital gains distributions, funds usually will give you a choice: the fund can send you a check or other form of payment, or you can have your dividends or distributions reinvested in the fund to buy more shares (often without paying an additional sales load)
  • 19. Summery of the conceptMutual funds
  • 20. Exchanged-Traded-Funds (ETFs) Borsa Yatırım Fonları  An ETF is a security that tracks an index and represents a basket of stocks like an index fund, but trades like a stock on an exchange, with daily price fluctuations. The most widely known ETFs are SPDR (Spider), which tracks the S&P 500 index, and QQQ, which tracks the Nasdaq-100 Index .
  • 21. Continue……………..  The Exchange Traded Fund (ETF) project was initiated by Finansportfoy in 2003 in response to a number of factors:  Turkey required new investment tools to increase diversity for its investors.  Extensive market analysis undertaken by Finansportfoy indicated that ETFs would meet many of the markets needs.  Finansportfoy partnered with other globally recognized institutions to deliver a world class product.  In 2005 Finansportfoy launched Turkey’s first ETF Dow Jones Istanbul 20 Type A Exchange Traded Fund (DJIST).
  • 22. Creation and Redemption of ETF
  • 23. Continue………………..  While ETF trading occurs on an exchange like stocks, the process by which their shares are created is significantly different. Unless a company decides to issue more shares, the supply of shares of an individual stock trading in the marketplace is finite. When demand increases for shares of an ETF, however, Authorized Participants (APs) have the ability to create additional shares on demand.  Through an "in kind" transfer mechanism, APs create ETF units in the primary market by delivering a basket of securities to the fund equal to the current holdings of the ETF. In return, they receive a large block of ETF shares (typically 50,000), which are then available for trading in the secondary market. This ETF creation and redemption process helps keep ETF supply and demand in continual balance and provides a "hidden" layer of liquidity not evident by looking at trading volumes alone.  This process also works in reverse. If an investor wants to sell a large block of shares of an ETF, even if there seems to be limited liquidity in the secondary market, APs can readily redeem a block of ETF shares by gathering enough shares of the ETF to form a creation unit and then exchanging the creation unit for the underlying securities.
  • 24. Benefits Of ETFs  Buy & Sell With Ease: ETFs can be traded through any broker with access to the Borsa Istanbul. Retail investors can buy and sell ETFs via internet banking, telephone banking etc.  Operational Efficiency : Investors can trade ETFs with a single transaction through any brokerage house.  Diversification : ETFs are also investment instruments which can provide instant exposure to a wide range of securities. Investors can diversify by choosing an index ETF, rather than taking concentrated risks by purchasing individual securities.  Cost Efficient: Management fees are lower for exchange traded funds.  Continuous Monitoring: ETFs are priced based on their Net Asset Value; investors can follow price movements continuously during trading hours.  Transparency ETFs’ holdings are published on a daily basis. It is easy for investors to see what they own.
  • 25. Types of ETF  DJIST Exchange Traded Fund: Dow Jones Istanbul 20 is the first Exchange Traded Fund (ETF) in Turkey. DJIST tracks Dow Jones Turkey Titans 20 Index. Dow Jones Istanbul 20 ETF (DJIST) allows investors to gain direct exposure to largest and most liquid 20 blue-chips listed on the Borsa Istanbul (BIST). DJIST exchange traded fund can be traded on the BIST just like a stock and it can be bought and sold through any licensed bank or brokerage house.  Ease of Transaction: DJIST shares can easily be acquired through the BIST . Institutional investors can also create or redeem through the Takasbank system. It is an ETF that is based on a liquid index that can facilitate good executions even if the ETF itself trades infrequently.
  • 26. DJIST Exchange Traded Fund Facts Fund Name Dow Jones Istanbul 20 Type A Exchange Traded Fund Underlying Index Dow Jones Turkey Titans 20 Index Inception Date January 14, 2005 INAV* Ticker (a telegraphic instrument that automatically prints stock prices, market reports, etc., on a paper tape) Bloomberg: DJIST TI Euroline: DJISTI Foreks: DJISTI IBS: DJISTI Matrix: DJISTI Reuters: DJIST INAV* Dissemination 15 Seconds Management Fee 0.73% annual Shares available for sale 120,000,000 Total size available for sale (TL) 2,504,116,332.5 Total size available for sale (US$) 1,196,996,334.8 Minimum creation unit 50,000 ISIN (International Securities Identification Numbe) TRMCU1WWWWW3 Takasbank Ticker DJA * INAV: Intraday Net Asset Value
  • 27. Istanbul Gold Exchange Traded Fund (GOLDIST)  GOLDIST is the first gold Exchange Traded Fund in Turkey. The fund provides exposure to gold with a single transaction. As it is listed on the BIST and traded like a stock through any banks and brokerage houses, Goldist provides ease of transactions to investors. The fund also eliminates the storage problem of gold.  The aim of the Gold ETF is to track and reflect the price of gold  How to Buy & Sell GOLDIST is listed on the Istanbul Stock Exchange. GOLDIST can be traded through any broker with access to the BIST. Retail investors can buy & sell GOLDIST through internet banking, telephone banking etc
  • 28. GOLDIST Exchange Traded Fund Facts Fund Facts Fund Name Underlying Index Inception Date ISE Ticker INAV* Ticker INAV* Dissemination Management Fee Shares available for sale Total size available for sale (TRY) Minimum creation unit ISIN * INAV : Intraday Net Asset Value Istanbul GOLD B Type Gold ETF Istanbul GOLD ETF Index September 28, 2006 GLDTR Bloomberg : GLDTR TI Reuters INAV : GLDTR Reuters PCF : GLDTS Matriks : GLDTRI Foreks : GLDTR 15 Seconds 0.47% (annualy) 75,000,000 519,649,368.64 1,000,000 TRYFNBK00055
  • 29. FBIST Exchange Traded Fund  FTSE Istanbul Bond ETF (FBIST) tracks the FTSE Turkish Lira Government Bond Index. Provides exposure to a basket of Turkish fixed income securities with a single transaction. FBIST exchange traded fund (ETF) can be traded on the Borsa Istanbul (BIST) just like a stock and can be bought and sold through any licensed bank or brokerage house.  Ease of Transaction: FBIST shares can easily be acquired through the BIST. Institutional investors can also create or redeem through the Takasbank system.  FBIST offers liquidity for institutional investors through a creation- redemption process. It is an ETF that is based on a liquid index which can facilitate good executions even if the ETF itself trades infrequently.
  • 30. Individual Bonds and ETF Bonds  Fixed Income ETFs usually distribute monthly dividends which can include both interest income on the underlying bonds and capital gains (if any). Most bonds pay interest semi-annually.  Unlike bonds, ETFs have no maturity date. Although bonds in the fund mature eventually, the proceeds are reinvested in new bonds rather than returned to investors.  ETFs trade on stock exchanges, whereas bonds are generally bought and sold through dealer firms.
  • 31. FBIST Exchange Traded Fund Facts Fund Name FTSE Istanbul Bond ETF Underlying Index FTSE Turkish Lira Government Bond Index Inception Date October 24, 2007 BIST Ticker FBIST INAV* Ticker Bloomberg: FBIST TI Euroline: FBISTI Foreks: FBISTI IBS: FBISTI Matrix: FBISTI Reuters: FBIST INAV* Dissemination 15 Seconds Management Fee 0.51% annual Shares available for sale 5,000,000 Total size available for sale (TL) 1,004,131,406.1 Minimum creation unit 10,000 ISIN TRYFNBK00097 Takasbank Ticker * INAV: Intraday Net Asset Value FBS Minimum creation unit 10,000
  • 32. IST30 Exchange Traded Fund  IST30 Exchange Traded Fund is the first financial instrument to provide trading of the BIST 30 index with a single transaction on both the spot and futures markets. IST30 consists of the top 30 publicly listed stocks on the Borsa Istanbul. In contrast with index mutual funds, IST30 can be traded using any brokerage house and has lower transaction costs  IST30 is the first Exchange Traded Fund (ETF) based on BIST30 National Index (BIST30) in Turkey. With IST30 Exchange Traded Fund (IST30) it is easy to buy the stocks in the BIST30, by buying and selling at the market price you can save both time and costs. IST30 can be traded on the BIST just like a stock and can be bought and sold through any licensed bank or brokerage house.
  • 33. BANKA Exchange Traded Fund  BANKA Exchange Traded Fund is intended for investors seeking to profit from the banking industry in Turkey. With a single transaction it enables investment in the stocks of the six publicly traded banks in Turkey with the highest market capitalization.  With BANKA, you can trade 6 bank equities with the highest market capitalizations on the Borsa Istanbul (BIST). Turkey Large-Cap Banks Index is calculated, maintained and disseminated by Dow Jones Indexes, one of the leading index providers in the world.  BANKA Exchange Traded Fund can be traded on the Borsa Istanbul (BIST) just like a stock and can be bought and sold through any licensed bank or brokerage house.
  • 34. GT30 Exchange Traded Fund  GT30 Exchange Traded Fund is based on the GT-30 Index. It includes equities of 15 prominent companies trading on the BIST in Turkey and 15 trading on the ATHEX in Greece and is traded just like a stock. GT30 is created by Finansbank and managed by Finans Asset Management.
  • 35. Istanbul Silver Exchange Traded Fund  Istanbul Silver Exchange Traded Fund offers 100% replication of the international price of silver and is listed on the Borsa Istanbul. The fund’s holdings are physically held at the Borsa Istanbul Precious Metals and Diamond Market. SILVER Exchange Traded Fund can be traded through any broker with access to the Borsa Istanbul. Retail investors can buy and sell the exchange traded fund through internet and telephone banking.
  • 36. Thanks