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  • The growth in book value per share shows the
    (a) Rise in the share price
    (b) Increase in the physical assets of the form
    (c) Increase in the net worth
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  • A regular mutual fund invests in stocks, bonds and fixed income securities depending on its objective. Hence the investor gets an opportunity to participate in these market-linked instruments while utilizing the fund manager's expertise. Fund of funds further extends this concept wherein a mutual fund invests in units of other mutual fund schemes. So what is motive behind having a FoF? The answer is - ?Diversification?. Fund of funds takes diversification to a new level.
  • Contra with Contra… and not contra with SEBI -mandatory for funds to have a benchmark– lets say Sensex… fund should beat Sensex if the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark. Report submitted to SEBI every 6 months

Mutualfundfinal Mutualfundfinal Presentation Transcript

  • Presented By: Amar Ranu Presentation on: Mutual Funds
  • Retail Investors Investment Objective Risk Management NAV Factsheets Return AUMs Portfolio Portfolio Professional Management Asset Allocation Tax Saving Growth Fund Manager Redemption Open Ended Investment Dividend Close Ended Exit Load Entry Load Sale Price Repurchase Price
  • Mutual Fund Snapshot….
  •  
    • An old Axiom :
    • “ It is not wise to put all eggs into one basket”
    • ……… was probably in the minds of those who formed the first mutual fund.
    Why did Mutual Funds come into existence?
  • Contents Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Flow Cycle of a Mutual Fund Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India
  • Flow Cycle of a Mutual Fund
  • Flow Cycle of a Mutual Fund Mutual Funds defined….a flow cycle
    • 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.
    Flow Cycle explained…
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Diff. b/w MF and Direct Investment Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India
    • Professional investment management
    • Risk reduction through diversification
    • Convenience
    • Availability of alternative portfolio objectives
    • Unit holders’ account administration and services
    Mutual fund investing vs. Direct investing Diff. b/w MF and Direct Investment
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Balance sheet of a Bank and Mutual Fund Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India
  • Difference between Bank and Mutual Fund Difference b/w Balance Sheets of MF and Bank Mutual Fund Balance Sheet Liabilities Assets Bank Balance Sheet Liabilities Assets
  • Difference between Bank and Mutual Fund Difference b/w Balance Sheets of MF and Bank Mutual Fund Balance Sheet Liabilities Assets Unit Capital Investment in Financial Securities Bank Balance Sheet Liabilities Assets
    • Share Capital
    • Deposits
    Loans and Advances
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Organizational Structure of Mutual Fund Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India
  • Organizational Structure of Mutual Fund
    • Sponsor
    • Akin to the Promoter of the company,
    • Contribution of minimum 40% of net worth of AMC,
    • Posses sound financial record over five years period,
    • Establishes the Fund,
    • Gets it registered with the SEBI,
    • Forms a trust, & appoints Board of trustee.
    • Trustees
    • Holds assets on behalf of unit holders in trust,
    • Trustees are caretaker of unit holders money,
    • Two third of the trustees shall be independent persons (not associated with the sponsor),
    • Trustees ensure that the system, processes & personnel are in place,
    • Resolves unit holders GRIEVANCES,
    • Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI regulation.
    Organizational Structure of Mutual Fund
    • Custodian
    • Holds the fund’s securities in safekeeping,
    • Settles securities transaction for the fund,
    • Collects interest & dividends paid on securities,
    • Records information on corporate actions.
    • Asset Management Company
    • Floats schemes & manages according to SEBI,
    • Can not undertake any other business activity, other than portfolio mgmt services,
    • 75% of unit holders can jointly terminate appointment of AMC,
    • At least 50% of independent directors,
    • Chairman of AMC can not be a trustee of any MF.
    • Distributor / Agents
    • Sell units on the behalf of the fund,
    • It can be bank, NBFCs, individuals.
    Organizational Structure of Mutual Fund
    • Banker
    • Facilitates financial transactions,
    • Provides remittance facilities.
    • Registrar & Transfer Agent
    • Maintains records of unit holders’ accounts & transactions
    • Disburses & receives funds from unit holder transactions,
    • Prepares & distributes a/c settlements,
    • Tax information, handles unit holder communication,
    • Provides unit holder transaction services.
    Organizational Structure of Mutual Fund
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Classification of Mutual Fund Schemes
  • Each category is classified into more sub-categories. Classification of Mutual Fund Schemes AMFI Classification of MF Schemes Fund schemes   Portfolio objectives Growth & Income High Risk & High Return Balanced Moderate Risk & Return Liquid & Money Market Fixed Return Gilt Zero Risk ELSS Tax Saving Fund of funds Additional diversification ETFs Market Driven
    • By Structure
      • Open-Ended – anytime enter/exit
      • Close-Ended Schemes – listed on exchange, redemption after period of scheme is over.
    • By Investment Objective
      • Equity (Growth) – only in Stocks – Long Term (3 years or more)
      • Debt (Income) – only in Fixed Income Securities
      • Liquid/Money Market – Short-term Money Market (CPs, CDs, Treasury Bills)
      • Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)
      • Gilt Funds – primarily in G-Sec
    • Other Schemes
      • Tax Saving Schemes such as ELSS
      • Special Schemes (ETFs, foreign funds)
    Other classification of MF schemes Classification of Mutual Fund Schemes
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Risk-return structure of schemes
  • Risk –Return of different schemes Risk-return structure of schemes
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? History of Mutual Funds in India
  • 1964 1987 1993 2009  ? Phases of Mutual Fund Industry in India History of Mutual Funds in India
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Regulatory Aspects
    • Governed by SEBI (Mutual Fund) Regulation 1996
      • All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882)
    • Bank operated MFs supervised by RBI too
    • AMC registered as Companies registered under Companies Act, 1956
    • SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc.
      • NAV to be declared everyday for open-ended, every week for closed ended
      • Disclose on website, AMFI, newspapers
      • Half-yearly results, annual reports
      • Select Benchmark depending on scheme and compare
    Regulations Regulatory Aspects
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Portfolio Management Process
  • Portfolio Management Process Portfolio Management Process
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Risk Management
  • Risk Management Function
    • Disaster recovery & business contingency plans.
    • Insurance against third party loss (R&TA), arising from error & omission.
    Risk Management Risk category   Risk factors Fund management   Volatility in performance, portfolio concentration, Interest rate movement, liquidity risk & credit risk.   Operations   Deal error, settlement problem, NAV & fund pricing error, inaccurate financial reporting, fraud. Customer   Error in deal processing, fraud . Marketing & distribution   New product development, selling & distribution Other business risk   Critical knowledge loss, skills shortage, third party risk
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Investment Checklists
  • Investing Checklist
    • Draw up your asset allocation
      • Financial goals & Time frame (Are you investing for retirement?
      • A child’s education? Or for current income? )
      • Risk Taking Capacity
    • Identify funds that fall into your Buy List
    • Obtain and read the offer documents
    • Match your objectives
      • In terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus
    • Check out past performance
      • Performance of various funds with similar objectives for at least 3-5 years (managed well and provides consistent returns)
    Investment Checklists
    • Checklist continued…..
    • Think hard about investing in sector funds
      • For relatively aggressive investors
      • Close touch with developments in sector, review portfolio regularly
    • Look for `load' costs
      • Management fees, annual expenses of the fund and sales loads
    • Does the fund change fund managers often?
    • Look for size and credentials
      • Asset size less than Rs. 25 Crores
    • Diversify, but not too much
    • Invest regularly, choose the S-I-P
      • MF- an integral part of your savings and wealth-building plan.
    Investment Checklists
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Mutual Fund Comparison
    • Mutual Fund Comparison
    • Absolute returns
      • % difference of NAV
      • Diversified Equity with Sector Funds– No
    • Benchmark returns
      • SEBI directs
      • Fund's returns compared to its benchmark
    • Time period
      • Equal to time for which you plan to invest
      • Equity- compare for 5 years, Debt- for 6 months
    • Market conditions
      • Proved its mettle in bear market
    Mutual Fund Comparison
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Expenses
    • An asterisk * indicates fee which is included in a fund’s expense ratio.
    • As per SEBI Rule, expense ratio should be 2.5% for equity & 2.25% for debt fund of fund value.
    Expenses Expenses of Mutual Fund Accounted for in FUND RETURN   Not included in FUND RETURN Management fee*   Front end sales load Group fee*   Back end sales load Performance fee*   Transaction fee Administrative fee*   Redemption fee Brokerage costs   Account maintenance fee Interest costs   Bid ask spreads
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Tracking Mutual Funds
  • Keeping Track…
    • 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 such as www.valueresearchonline.com , www.mutualfundsindia.com , www.morningstar.in , www.lipperweb.com et al.
      • Newspapers
      • Professional advisor
    Tracking Mutual Funds
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Warning Signals
    • 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.
    Warning Signals Warning Signals
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? AUM movements in India
  • Movement of AUMs in different categories over a period of time
    • Stock Funds have become a mainstream product.
    • Liquid Plus Funds and FMPs have seen aggressive inflows due to regulatory changes.
    • New asset classes like ETFs and FoFs have emerged.
    AUM movements in India
  • Indian Asset Management Industry - Growth in Assets Total Assets Under Management as on March 2009 – Rs 493286 crores Total No. of players - 36 AUM movements in India
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? Penetration of Mutual Funds
  • Penetration vis-à-vis Other Financial Products Note: Penetration of Mutual Funds is still low as compared to Banks and Insurance Companies. Penetration of Mutual Funds
  • Flow Cycle of a Mutual Fund Organizational Structure of a Mutual Fund Balance sheet of a Bank and Mutual Fund Diff. b/w MF and Direct Investment Portfolio Management Process Mutual Fund Comparison Investments Checklists Risk Management Regulatory Aspects Classification of Mutual Fund Schemes Risk-return structure of schemes History of Mutual Funds in India AUM movements in India Expenses Tracking Mutual Funds Warning Signals Penetration of Mutual Funds What Mutual Funds are not? What Mutual Funds are not?
    • MFs are not ‘get rich quick investments’
    • MFs are not ‘risk free investment’
    • MFs are not ‘assured return investment’
    • MFs are not ‘a universal solution to all investment needs’
    What Mutual Funds are not?
  • Thank You