AMFI Certification Program
Mutual FundsConceptual Framework
What is a Mutual Fund ?A mutual fund is a collective investment thatallows many investors, with a commonobjective, to pool...
Operation flow chart            INVESTORSRETURNS                    FUND MANAGER            SECURITIES
History of Indian Mutual FundsPhase I (1964-87)  Set up by RBI, de- linked later.  Act of parliament  First scheme US 64, ...
Types of   Mutual Funds -Wide Range of Choice
Types of Mutual Funds Schemes       By Constitution  By Investment Objective  By Nature of Investments
By ConstitutionOPEN-END                CLOSE-END No fixed maturity       Fixed Maturity Variable Corpus         Fixed Corp...
By ConstitutionLoad or non load fundsTax exempt or non tax exemptNature of Investments  Financial Assets (Equity/Debt/Mone...
Investment objective / patternsGrowth - EquityIncome - DebtBalanced - Equity and DebtMoney Market - Liquid DebtTax Saving ...
Aggressive Growth FundsObjective - Aggressive Capital GrowthInvestment Pattern   EQUITY OF   Less researched Companies   S...
Diversified Growth FundsObjective - Capital GrowthInvestment Pattern - Weightage   EQUITY of   Well researched and high ma...
Other variety of equity fundsSpecialised Funds   Sector Funds   Offshore Funds   Small Cap Equity Funds   Option Income fu...
Other equity oriented funds ...Hybrid Funds  Balanced Funds  Growth & Income Funds  Assets Allocation FundsCommodity Funds...
Debt FundsDiversified Debt FundsFocussed Debt Funds   Sector / Specialised / Offshore   Municipal bonds / infrastructure c...
Advantages ofMutual Funds
Why Mutual funds…?Stock markets are very sophisticatedFree pricing and integration with worldmarketsTime , knowledge and l...
Mutual Funds:           A Packaged ProductProfessionalManagement                    DiversificationConvenience            ...
ConvenienceEasy Way to InvestReduces excessive paperworkOutsourcing of expertise
DiversificationPortfolio of investments spreads out RiskAttempts Minimises value erosionPotential losses are shared with o...
LiquidityOpen-ended: Assures liquidity As liquid as the banks.Close-ended:  Buying and selling can be done throughthe stoc...
Affordability Provides an opportunity for a small investor Invest as less as an amount ofRs.3000/Rs.500 and in multiples o...
Wide ChoiceOffers a VARIETYOF SCHEMESMeet the investment needs of all Investors
Your needsShort Term          Banks / Liquid FundsMedium Term         Debt or Debt Related                    Funds  ( 1 t...
MF’s and Tax BenefitsCapital Gain Benefits - Section 112 (1)  Long term capital gain tax of 10% without  indexation,or  Lo...
Well regulatedGoverned by Multiple agencies MOF/ CLB/ ROC SEBI RBI Trustees Auditors Board of Directors
SEBIAll Mutual Funds / AMC/ Trustee Companies tobe registered with SEBIResponsible for protecting investors interest andpr...
Reserve Bank of India & SERBI  Dual supervision for bank sponsored AMCs  Issue concerning ownership bank  promoted AMC fal...
Office of public TrusteeMF being public trustee - governed by IndianTrust Act , 1882Trustee Co or Board of Trustee account...
Trustee and AMC to comply with Cos Act 1956         R e g is t r a r s o f C o m p a n ie s ( R O C )         D e p a r t ...
Ministry of FinanceSupervises both SEBI and RBIUltimate policy making & supervising bodyAppellate Authority for any disput...
Investor’s rightsProportionate ownership in scheme’s assetsRights of information from TrusteeTo received dividend warrants...
Investor’s rights & ObligationsRights - Legal Limitations  Unit holder’s are not distinct from trust,  they cannot sue tru...
Investor’s complaint redressal mechanism  Client Servicing  Compliance Officer  Investors cannot be protected by companies...
Mutual Fund - The Top Scorer                FDs         FI Bonds        MutualFundsAccessibility   Low             Low    ...
The Offer Document
What is offer documentsContains the details of scheme.Filed with SEBILike Prospectus of an IPOClose ended scheme - One Tim...
SignificanceLegal document that protects and governs theright of the investor to informationIs the primary vehicle for the...
Mandatory Information• Details of the Sponsor• Description of the scheme and investment  objective/strategy• Terms of issu...
Investment Options & Features• Options   •Growth   •Dividend and Dividend Reinvestment•Plans   •Systematic Investment Plan...
Who can invest ?• Resident Indian Individuals• Indian Companies• Trusts / charitable institutions / PFs• Banks/ FIs / NBFC...
NAV - COMPUTATIONNAV = Net assets of scheme / No of units Outstandingi.e. Market value of investments+ Receivables+    Oth...
HOW NAV IS COMPUTED•   Market value of Equities         - Rs.100 crore - Asset•   Market value of Debentures       - Rs.50...
NAV - Other information•Open end funds to declare NAV daily•NAV to be published at least weekly•Close end Schemes (which a...
NAV• Nav is influenced by  –   Purchase and sale of Investment  –   Valuation of Investment  –   Other assets and Liabilit...
CHANGE IN NAVFORMULA :For NAV change in absolute terms =(NAV at end of period - NAV at beginning of period) * 100 NAV at b...
Loads• Entry Load or front ended load      Paid at the time of purchase      Sale Price = NAV / (1- Sales Load, if any)• E...
PRICING OF UNITS•Sale price not greater than 107% of the NAV•Re-purchase price to be not lower than 93% (95% forclose-end ...
Sale Price• Sale Price is the price at which units are sold to  investors.• Sale Price = NAV + Entry load• Formula for com...
MUTUAL FUND ACCOUNTING &     MATHEMATICS
FEES & EXPENSES                                           Initial Issue  Transaction       Annual Recurring        Expense...
Fees & Expenses• Initial Issue expenses  – For launching of the scheme  – Can charge up to 6%• Recurring Expenses  –   Mkt...
Fees & Expenses• Amc can charge Investment management fee to  the fund on weekly avg. net assets.• The limits are: (Subjec...
Fees & Expenses• Total Expenses that can be charged to the  Fund ( excluding entry and exit loads):                       ...
MUTUAL FUNDS - FEES• Initial issue expenses  Charge to the scheme capped at 6% of the initial resources   raised under tha...
AMORTISATION    Initial Expenses amortisation for load schemes -•   for close-ended schemes - on a weekly basis over the  ...
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Basic Of Mutual Fund

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Basic Of Mutual Fund

  1. 1. AMFI Certification Program
  2. 2. Mutual FundsConceptual Framework
  3. 3. What is a Mutual Fund ?A mutual fund is a collective investment thatallows many investors, with a commonobjective, to pool individual investments andgive to a professional manager who in turnwould invest these monies in line with thecommon objective.
  4. 4. Operation flow chart INVESTORSRETURNS FUND MANAGER SECURITIES
  5. 5. History of Indian Mutual FundsPhase I (1964-87) Set up by RBI, de- linked later. Act of parliament First scheme US 64, still outside SEBI purviewPhase II (1987-93) entry of PSU Banks/ FIs SBI in 87, LIC in 89, Indian Bank in 90Phase III (1993-95) Entry of Private playersPhase IV (1993 onwards) SEBI regulation ofMutual Funds
  6. 6. Types of Mutual Funds -Wide Range of Choice
  7. 7. Types of Mutual Funds Schemes By Constitution By Investment Objective By Nature of Investments
  8. 8. By ConstitutionOPEN-END CLOSE-END No fixed maturity Fixed Maturity Variable Corpus Fixed Corpus Not Listed Generally Listed Buy from and sell to Buy and sell in the the Fund Stock Exchanges Entry/Exit at NAV Entry/Exit at the related prices market prices
  9. 9. By ConstitutionLoad or non load fundsTax exempt or non tax exemptNature of Investments Financial Assets (Equity/Debt/Money Market) Physical Assets (Metal/ Real Estate)
  10. 10. Investment objective / patternsGrowth - EquityIncome - DebtBalanced - Equity and DebtMoney Market - Liquid DebtTax Saving - EquitySpecialised - EquityAssured Return - Equity and Debt
  11. 11. Aggressive Growth FundsObjective - Aggressive Capital GrowthInvestment Pattern EQUITY OF Less researched Companies Speculative and momentum stocks Suitable for investors who are comfortable in taking high risk.
  12. 12. Diversified Growth FundsObjective - Capital GrowthInvestment Pattern - Weightage EQUITY of Well researched and high market cap companies Debt Money market securities Minimum time recommended for investment to deliver expected returns - 5 years + Suitable for investors looking at capital growth over a longer period of time
  13. 13. Other variety of equity fundsSpecialised Funds Sector Funds Offshore Funds Small Cap Equity Funds Option Income funds - writes optionsELSS - Indian VarietyEquity Index FundsValue FundsEquity Income Funds - invest in co. withhigher dividend yields i.e. power/utilities
  14. 14. Other equity oriented funds ...Hybrid Funds Balanced Funds Growth & Income Funds Assets Allocation FundsCommodity FundsReal Estate Funds
  15. 15. Debt FundsDiversified Debt FundsFocussed Debt Funds Sector / Specialised / Offshore Municipal bonds / infrastructure cos bond funds Mortgaged backedHigh yield debt fundsAssured Return Funds - Indian varietyLiquid Funds
  16. 16. Advantages ofMutual Funds
  17. 17. Why Mutual funds…?Stock markets are very sophisticatedFree pricing and integration with worldmarketsTime , knowledge and luckSubstantial capital for diversification
  18. 18. Mutual Funds: A Packaged ProductProfessionalManagement DiversificationConvenience Liquidity Tax Benefits
  19. 19. ConvenienceEasy Way to InvestReduces excessive paperworkOutsourcing of expertise
  20. 20. DiversificationPortfolio of investments spreads out RiskAttempts Minimises value erosionPotential losses are shared with other investors
  21. 21. LiquidityOpen-ended: Assures liquidity As liquid as the banks.Close-ended: Buying and selling can be done throughthe stock exchange
  22. 22. Affordability Provides an opportunity for a small investor Invest as less as an amount ofRs.3000/Rs.500 and in multiples ofRs.1000/100 depending on the Scheme
  23. 23. Wide ChoiceOffers a VARIETYOF SCHEMESMeet the investment needs of all Investors
  24. 24. Your needsShort Term Banks / Liquid FundsMedium Term Debt or Debt Related Funds ( 1 to 3 years) Mix of Debt/Equity or (3 to 5 years) funds with an appropriate mix (Balance)Long Term Equity or Equity Related Funds
  25. 25. MF’s and Tax BenefitsCapital Gain Benefits - Section 112 (1) Long term capital gain tax of 10% without indexation,or Long term capital tax of 20% with indexation
  26. 26. Well regulatedGoverned by Multiple agencies MOF/ CLB/ ROC SEBI RBI Trustees Auditors Board of Directors
  27. 27. SEBIAll Mutual Funds / AMC/ Trustee Companies tobe registered with SEBIResponsible for protecting investors interest andpromote orderly growth of Mutual Fund IndustryFormulates regulations,monitors performanceand conduct of Mutual funds and enforcescompliance to regulations through reviewingreports and regular inspections
  28. 28. Reserve Bank of India & SERBI Dual supervision for bank sponsored AMCs Issue concerning ownership bank promoted AMC falls with RBIStock Exchange (SE) Close ended MF listed of SE. Needs to comply with listing guidelines.
  29. 29. Office of public TrusteeMF being public trustee - governed by IndianTrust Act , 1882Trustee Co or Board of Trustee accountableto office of Public TrusteePublic trustees reports to Charity Comm.
  30. 30. Trustee and AMC to comply with Cos Act 1956 R e g is t r a r s o f C o m p a n ie s ( R O C ) D e p a r t m e n t o f C o m p a n y A f f a irs C o m p a n y L a w B o a rd (C L B ) M in is t r y o f L a w & J u s t ic e
  31. 31. Ministry of FinanceSupervises both SEBI and RBIUltimate policy making & supervising bodyAppellate Authority for any disputes overSEBI guidelines
  32. 32. Investor’s rightsProportionate ownership in scheme’s assetsRights of information from TrusteeTo received dividend warrants, inspect major docs(Trust deed, investment management agreement,R&T A Agreement, custodian services agreementwith 75% voting rights and approval of SEBI canclose the scheme, change the AMC.Rights of info for fundamental change in thescheme features and also an opportunity toredeem units without any load.Receive annual report and a/c statement
  33. 33. Investor’s rights & ObligationsRights - Legal Limitations Unit holder’s are not distinct from trust, they cannot sue trust. Sponsor do not have any legal obligations (Limited to initial contribution) No rights to prospective investorsObligations Must read offer doc & AOD Beware of risk factors Must monitor investments regularly
  34. 34. Investor’s complaint redressal mechanism Client Servicing Compliance Officer Investors cannot be protected by companies Act.
  35. 35. Mutual Fund - The Top Scorer FDs FI Bonds MutualFundsAccessibility Low Low HighTenor Fixed (Medium) Fixed (Long) No Lock-inMin. Invest. Rs. 10000 Rs. 5000 Rs. 500Tax Benefits None 80L,88 NoneLiquidity Low Very Low Very HighConvenience Medium Tedious Very HighTransparency None None Very High
  36. 36. The Offer Document
  37. 37. What is offer documentsContains the details of scheme.Filed with SEBILike Prospectus of an IPOClose ended scheme - One Time Open ended Scheme - Perpetual - keptupdated from time to time.
  38. 38. SignificanceLegal document that protects and governs theright of the investor to informationIs the primary vehicle for the investment decisionIs the operating document and describes thefundamental attributes of schemes.One of the most important sources of informationfor the prospective investorIs a reference document for the investor to look forrelevant information at any time.
  39. 39. Mandatory Information• Details of the Sponsor• Description of the scheme and investment objective/strategy• Terms of issue• Historical statistics• Investors’ Rights and ServicesKey Information Memorandum that is distributed with the application form is an abridged version of the offer document.
  40. 40. Investment Options & Features• Options •Growth •Dividend and Dividend Reinvestment•Plans •Systematic Investment Plan - SIP • Value Averaging Plan - VAP • Systematic Withdrawal Plan - SWP •Systematic Transfer Plan - STP• Other • Nomination facility
  41. 41. Who can invest ?• Resident Indian Individuals• Indian Companies• Trusts / charitable institutions / PFs• Banks/ FIs / NBFCs• Insurance Companies• NRIs/ OCBs/ FIIs• Partnership firms etc.
  42. 42. NAV - COMPUTATIONNAV = Net assets of scheme / No of units Outstandingi.e. Market value of investments+ Receivables+ Other accrued income+ Other assets- accrued expenses- Other Payables- Other liabilities No. of units outstanding as at the NAV dateImp :Day of NAV Calculation is known as valuation day
  43. 43. HOW NAV IS COMPUTED• Market value of Equities - Rs.100 crore - Asset• Market value of Debentures - Rs.50 crore - Asset• Dividends Accrued - Rs.1 crore -Income• Interest Accrued - Rs.2 crore - Income• Ongoing Fee payable - Rs.0.5 crore - Liability• Amt..payable on shares purchased -Rs.4.5 crore - Liability• No. of units held in the Fund : 10 crore units• NAV per unit = [(100+50+1+2)-(0.5+4.5)]/10 = [153-5]/10 = Rs. 14.80
  44. 44. NAV - Other information•Open end funds to declare NAV daily•NAV to be published at least weekly•Close end Schemes (which are not listed) may publishNAV monthly/qt with prior approval from SEBI (MIP)•NAV has to consider up to date transactions•Non - recorded transactions not to affect NAV calculation by more than 2%
  45. 45. NAV• Nav is influenced by – Purchase and sale of Investment – Valuation of Investment – Other assets and Liabilities – Units sold or redeemed.
  46. 46. CHANGE IN NAVFORMULA :For NAV change in absolute terms =(NAV at end of period - NAV at beginning of period) * 100 NAV at beginning of periodFor NAV change in annualised terms =( NAV change in % in absolute terms) * (365 / No. of days )
  47. 47. Loads• Entry Load or front ended load Paid at the time of purchase Sale Price = NAV / (1- Sales Load, if any)• Exit Load or back ended load Paid at the time of exit Redemption Price = NAV/(1+ Exit Load)• Contingent Deferred Sales Load (CDSL) – Deferred exit load depending on the period – Also known as deferred load
  48. 48. PRICING OF UNITS•Sale price not greater than 107% of the NAV•Re-purchase price to be not lower than 93% (95% forclose-end funds) of the NAV•Difference between the repurchase & sale price cannot be more than 7% of the sale price
  49. 49. Sale Price• Sale Price is the price at which units are sold to investors.• Sale Price = NAV + Entry load• Formula for computation of Sale Price = NAV/(1-Load)Assuming an entry load of 2% in the earlierNAV computation exampleSale Price = 14.80/(1- 0.02) = 15.10
  50. 50. MUTUAL FUND ACCOUNTING & MATHEMATICS
  51. 51. FEES & EXPENSES Initial Issue Transaction Annual Recurring Expenses Cost ExpensesEntry / Exit load AMC Fee Custodian FeeCDSC for no-load Registry Exp. schemes Trustee Fee Audit Fee Mktg. & Selling Exp. Brokerage Exp. Others
  52. 52. Fees & Expenses• Initial Issue expenses – For launching of the scheme – Can charge up to 6%• Recurring Expenses – Mkt & selling exp including brokerage – Transaction cost – R&T cost – Custodian Fees – Audit fees etc – Investor Communication’s cost
  53. 53. Fees & Expenses• Amc can charge Investment management fee to the fund on weekly avg. net assets.• The limits are: (Subject to overall limit of 6%) – 1.25% for up to Rs.100 cr Of weekly avg net assets – 1% in excess of Rs.100 cr. – No Load schemes can charge an additional fee of 1%
  54. 54. Fees & Expenses• Total Expenses that can be charged to the Fund ( excluding entry and exit loads): Equity Debt – On the first Rs.100 cr 2.50% 2.25% – On the next Rs.300 cr 2.25% 2.00% – On the next Rs.300 cr 2.00 % 1.75% – On the balance assets 1.75% 1.50% Based on average weekly net assets
  55. 55. MUTUAL FUNDS - FEES• Initial issue expenses Charge to the scheme capped at 6% of the initial resources raised under that scheme• Entry/Exit Loads - Transaction costs Sale price not greater than 107% / Re-purchase price not lower than 93% (95% for close-ended schemes) of the NAV• Contingent Deferred Sales Charge ( For No-Load Schemes) Ceiling For redemption within 1year 4% For redemption within 2years 3% For redemption within 3years 2% For redemption within 4years 1%
  56. 56. AMORTISATION Initial Expenses amortisation for load schemes -• for close-ended schemes - on a weekly basis over the period of the scheme• for open-ended schemes - annually over a period not greater than 5 years• Un-amortised portion to be added to other assets for computation of NAV• Amortisation not part of normal recurring expenses

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