7. Aar ya paar Indian investors have traditionally invested in: Risk High Risk - High Return or Low Risk - Low Return IPO's Plantation Schemes PPF Post office NSS Bank Deposits Co. FDs Bonds/Debentures Assured Schemes
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9. Facts about Mutual Funds 1. 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. 2. The biggest advantage of Mutual Funds is their ability to diversify the risk. 3. Mutual Funds are in India since 1964. Mutual Funds market is very evolved in U.S.A and is there for the last 60 years. 4. Mutual Funds are the best solution for people who want to manage risks and get good returns.
10. Facts about Mutual Funds 5. 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. 6. US-64 is very much a part of the market and is not immune to its vagaries. The crisis has risen due to mismanagement of the fund.
11. History of Mutual Funds Phase I – 1964 – 87: In 1963, UTI was set up by Parliament under UTI act and given a monopoly. The first scheme launched by UTI was Unit Scheme-64. Later in ’70’s and ’80’s, UTI started offering some special purpose schemes like ULIP and Children’s Gift Growth Fund. Master share, the first equity fund was launched in 1986. These were launched to suit the needs of different class of investors. Phase II – 1987 – 93: 1987 marked the entry of non-UTI, Public Sector mutual funds . Some of the mutual funds launched during this period are SBI Mutual Fund, Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. Also marked a spurt in launch of assured funds like
12. History of Mutual Funds Cantriple, Magnum Triple, BOI Double Square Plus. Equity funds with assured returns were launched which later ended in disaster. Phase III – 1993 – 96: Permission was granted for entry of private sector funds . It gave greater choice to the Indian Investors. These private funds have brought in with them the latest product innovations, investment management techniques and investor servicing technology that makes the Indian mutual fund industry vibrant and growing. This phase also marked the launch of an open-end funds. Phase IV – 1996: Investor friendly regulatory measures have been taken both by SEBI to protect the investor, and by the government to enhance investor’s returns through tax benefits.
35. Mutual Funds Vs. Other Investments Product Return Safety Liquidity Tax Benefit Conven- ience Bank Deposit Low High High No High Equity Instruments High Low High or Low No Moderate Debentures Moderate Moderate Low No Low Fixed Deposits by Companies Moderate Low Low No Moderate Bonds Moderate Moderate Moderate Yes Moderate
36. Mutual Funds Vs. Other Investments Product Return Safety Liquidity Tax Benefit Conven- ience RBI Relief Bonds Moderate High Low Yes Moderate PPF Moderate High Low Yes Moderate National Saving Certificate Moderate High Low Yes Moderate National Saving Scheme Moderate High Low Yes Moderate Monthly Income Scheme Moderate High Low Yes Moderate
37. Mutual Funds Vs. Other Investments Product Return Safety Liquidity Tax Benefit Conven- ience Life Insurance Moderate High Low Yes Moderate Mutual Funds (Open-end) Moderate Moderate High No High Mutual Funds (Closed-end) Moderate Moderate High Yes High
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39. Mutual Funds Prove Best! While instruments like shares give high returns at the cost of high risk, instruments like NSC and bank deposits give lower returns and higher safety to the investor. Mutual Funds aim to strike a balance between risk and return and give the best of both to the investor.
53. Accounting Calculating Net Asset Value Unit Capital is the investor’s subscriptions. In mutual funds it is not treated as a liability. Investments made on behalf of the investors are reflected on the assets side of the balance sheet. There are liabilities of short-term nature. Fund’s Net Asset = Asset – Liabilities Net Asset Value = Net Assets of the scheme / No. of Outstanding Units i.e NAV = (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)
81. Rupee Cost Averaging Scenario 24. Mrs. Sudhakar is investing Rs. 1000 every month for 3 months in ABC mutual fund. Following are the details: Check whether rupee cost averaging method will prove beneficial to Mrs. Sudhakar. Date Amount Invested NAV January 1000 R. 10/- February 1000 Rs. 8/- March 1000 Rs. 12.50
82. Rupee Cost Averaging Solution 24. Average cost per unit under the plan = 3000/305 = Rs. 9.84 Average NAV = (10 + 8 + 12.50)/3 = Rs. 10.17 Average of the three NAV’s is higher than the figure achieved through rupee-cost averaging. So, we can say that rupee-cost-averaging is beneficial to Investors. Date Amount Invested NAV Units Purchased January 1000 R. 10/- 100 February 1000 Rs. 8/- 125 March 1000 Rs. 12.50 80
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