Understanding Mutual Funds


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Understanding Mutual Funds

  1. 1. Understanding Mutual Funds Godmind Mutual Fund Advisory services www.godmind.co.in
  2. 2. What is a Mutual Fund? www.godmind.co.in
  3. 3. A vehicle for investing in stocks and bonds <ul><li>A vehicle for investing in stocks and bonds . </li></ul><ul><li>Not an alternative investment option to stocks and bonds. </li></ul><ul><li>It pools the money of several investors and invests this in stocks, bonds, money market instruments and other types of securities. </li></ul><ul><li>owner of a mutual fund unit gets a proportional share of the fund’s gains, losses, income and expenses. </li></ul>www.godmind.co.in
  4. 4. Each mutual fund has a specific stated objective <ul><li>Fund’s objective is laid out in the fund's prospectus, which is the legal document that contains information about the fund </li></ul><ul><li>Its history, its officers and its performance. </li></ul>www.godmind.co.in
  5. 5. Some popular objectives of a mutual fund are - Fund Objective What the fund will invest in Equity (Growth) - Only in stocks Debt (Income) - Only in fixed-income securities MoneyMarket - In short-term money market instruments (including government securities) Balanced - Partly in stocks and partly in fixed- income securities, ('balance' in returns and risk) www.godmind.co.in
  6. 6. Managed by an Asset Management Company (AMC) <ul><li>The company that puts together a mutual fund is called an AMC . </li></ul><ul><li>AMC may have several mutual fund schemes . </li></ul><ul><li>AMC hires a professional money manager, who buys and sells securities in line with the fund's stated objective. </li></ul>www.godmind.co.in
  7. 7. All AMCs Regulated by SEBI, Funds governed by Board of Directors <ul><li>Mutual fund regulations require that the fund’s objectives are clearly spelt out in the prospectus. </li></ul><ul><li>Every mutual fund has a board of directors that is supposed to represent the shareholders' interests, rather than the AMC’s . </li></ul>www.godmind.co.in
  8. 8. The Basics of Mutual Funds. www.godmind.co.in
  9. 9. Net Asset Value or NAV <ul><li>NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of every business day. </li></ul>www.godmind.co.in
  10. 10. How is NAV calculated? <ul><li>The value of all the securities in the portfolio in calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV. </li></ul>www.godmind.co.in
  11. 11. Expense Ratio <ul><li>AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. </li></ul><ul><li>Fund's expense ratio is typically to the size of the funds under management and not to the returns earned. </li></ul>www.godmind.co.in
  12. 12. Load <ul><li>Some AMCs have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. </li></ul><ul><li>Funds without a sales charge are called no-load funds. </li></ul>www.godmind.co.in
  13. 13. Open- and Close-Ended Funds <ul><li>Open-ended Funds : can enter and exit the fund scheme at its NAV. </li></ul><ul><li>Close-Ended Funds : Redemption can take place only after the period of the scheme is over. Close-ended funds are listed on the stock exchanges </li></ul>www.godmind.co.in
  14. 14. Important documents <ul><li>Two key documents that highlight the fund's strategy and performance are 1) the prospectus (legal document) and the shareholder reports (normally quarterly). </li></ul>www.godmind.co.in
  15. 15. Benefits of Investing Through Mutual Funds www.godmind.co.in
  16. 16. Professional Money Management <ul><li>Fund managers are responsible for implementing a consistent investment strategy . </li></ul><ul><li>Fund managers monitor market and economic trends and analyze securities </li></ul>www.godmind.co.in
  17. 17. Diversification <ul><li>Diversification is one of the best ways to reduce risk. </li></ul><ul><li>Mutual funds offer investors an opportunity to diversify across assets. </li></ul>www.godmind.co.in
  18. 18. Liquidity <ul><li>Investors can sell their mutual fund units on any business day. </li></ul><ul><li>Receive the current market value on their investments within a short time period (normally three- to five-days). </li></ul>www.godmind.co.in
  19. 19.   Affordability <ul><li>The minimum initial investment for a mutual fund is fairly low for most funds (as low as Rs500 for some schemes. </li></ul>www.godmind.co.in
  20. 20.   Convenience <ul><li>Convenience of periodic purchase plans, automatic withdrawal plans and the automatic reinvestment of interest and dividends. </li></ul><ul><li>Reports and statements . </li></ul>www.godmind.co.in
  21. 21. Flexibility and variety <ul><li>Pick from conservative, blue-chip stock funds, Sectoral funds, </li></ul><ul><li>Funds that aim to provide income with modest growth </li></ul><ul><li>Those that take big risks in the search for returns. </li></ul><ul><li>You can even buy balanced funds, or those that combine stocks and bonds in the same fund. </li></ul>www.godmind.co.in
  22. 22. Tax benefits on Investment in Mutual Funds <ul><li>100% Income Tax exemption on all Mutual Fund dividends . </li></ul><ul><li>Deduction upto 1 lakh available u/s 80(c) under investment in ELSS funds as of FY2005-2006. </li></ul>www.godmind.co.in
  23. 23. INVEST EARLY INVEST REGULARLY www.godmind.co.in Happy Investing