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Mutual funds basic

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Transcript

  • 1. Mutual Funds Basics
  • 2. Concept of pooling…
    Many people come together
    Contribute to a common fund
    With a common goal / objective
  • 3. Examples of pooling
    Pooling for buying a gift (Contribution)
    Pooling for a party
    Pooling for the Gujrat earthquake relief fund
    Pooling for investments
  • 4. Concept of units
    A tin of rasogulla costs Rs.40.
    Each tin consists of 12 rasogullas
    4 friends pool in Rs.10 each for buying one dozen of rasogulla
    Cost of each rasogulla is Rs.3.33
  • 5. What is a mutual fund ?
    A Mutual fund is a collective
    investment that allows many
    investors, with a common objective,
    to pool individual investments that
    are given to a professional manager
    who in turn would invest this
    money in line with the common
    objective.
  • 6. INVESTORS
    Pool their money
    Passed back to
    RETURNS
    FUND MANAGER
    Invest in
    Generate
    SECURITIES
    Mutual fund operation flow chart
  • 7. Mutual fund structure
    Unit holders
    Sponsor
    Trustee
    AMC
    The mutual fund
    Transfer agent
    Custodian
    SEBI
  • 8. Mutualfunds: A packaged product
    Professional
    management
    Liquidity
    Convenience
    Diversification
    Tax benefits
  • 9. Liquidity
    Direct withdrawal from the mutual fund
    Buying and selling can also be done through the stock exchange
  • 10. Diversification
    Minimizes value erosion
    Potential losses are shared with other investors
    Portfolio of investments spreads out risk
  • 11. Tax benefits
    Exemption up to Rs.100000 under section 80C
    Dividends are tax free in the hands of the investors
    No long term capital gains tax in equity mutual funds
  • 12. Convenience
    Easy way to invest and withdraw
    Reduces excessive paperwork
    Online buying and selling of mutual funds
  • 13. Professional management
    Highly qualified fund managers
    More focused approach
    Strong and dedicated research team
  • 14. Fund manager
    A highly trained investment professional
    With a vast investment experience
    Functions of a fund manager:
    Investing the assets of a mutual funds
    Implementing investment strategy
    Managing the day-to-day portfolio trades
  • 15. New Fund Offer (NFO)
    Whenever a new scheme is launched by a fund house, the offer made during that initial period is known as New Fund Offer
    Units are offered at fixed price
  • 16. Net Asset Value (NAV)
    NAV is the total value of the fund's portfolio less liabilities.
    NAV = Asset value
    Number of outstanding units
    The NAV or Net Asset Value is usually calculated on a daily basis
  • 17. Load
    Entry load
    Exit load
    Load is a charge on the NAV
    Entry load is charged on NAV and increases the sale price
    Exit load is charged on NAV and reduces the repurchase price
    Load is defined as a percentage of NAV
    Loads are subject to SEBI Regulation and vary depending on industry practice
  • 18. Entry load : Example
    The entry load (sales load) for a scheme was 2.25% and the NAV of the scheme is Rs. 10. An investor who wanted to buy the units would not be able to buy at Rs. 10. He would have paid …
    = 10 + (10*2.25/100)
    = 10 + 0.225
    = 10.225
    With effect from …. Entry Load on MF Schemes have been removed.
  • 19. Exit load : Example
    If a fund imposes an exit load of 2.25%, the investor who sells his units, will get a price that is: ( assuming the current NAV Rs.10)
    = 10 – (10*2.25/100)
    = 10 – 0.225
    = Rs. 9.775
  • 20. Thank You