Mutual Funds                     Prepared By:                           Prof.Chhaya PatelSMT.K.K.PATEL MBA/MCA COLLEGE, ME...
Emergence Because financial market become sophisticated and  complex In USA Mutual fund industry has overtaken banking  ...
Advantages Expert & Professional Mgmt. Diversification of Portfolio. Reduction of Transaction Cost. Liquidity. Conven...
HistoryI First phase (1964-87) UTI MF created under the UTI Act, 1963. UTI had Monopoly from 1963-1987.II Second phase (...
III Third phase (1993-2003) SEBI got regulatory powers in 1993. In 1993, Private Sector was opened. SEBI (MF) Regulatio...
Types of Funds     Asset-allocation fund -- Balanced fund in which changes are made in the stock      and bond percentage...
Types of Funds     Capital appreciation funds -- Mutual funds that strive for maximum growth.      Although these funds c...
Types of Funds     Equity income funds -- Mutual funds that favor investments in stocks      that generate income over gr...
Types of Funds General purpose money funds -- Mutual funds that invest largely in bank CDs     and short-term corporation...
Types of Funds      Growth funds -- Mutual funds that invest in the stocks of well-established firms       that are expec...
Types of Funds      High-quality corporate bond funds -- Mutual funds that buy bonds issued       by the nations financia...
Types of Funds Income funds -- Mutual funds that invest in higher-yielding stocks, but may own some    bonds.You get inco...
Types of Funds      Intermediate-term bond funds -- Mutual funds that invest in bonds       that mature in about 5 to 10 ...
Types of Funds  Long-term bond funds -- Mutual funds that invest in bonds that mature in more     than 10 years  Money m...
Types of Funds No-load mutual fund -- Mutual fund that is sold without sales commission Open-end funds -- Funds that per...
Types of Funds      Single-country funds -- Mutual funds or closed-end funds that invest in       one country.      Sing...
Types of Funds      Socially responsible funds -- Mutual funds that invest in companies that       dont pollute the envir...
Types of Funds Tax-deferred investment -- An investment that is not taxed until money is     withdrawn, usually at retire...
Types of Funds      Uninsured high-yield municipal bond funds -- Mutual funds that       pay the highest tax-free yields ...
Types of Funds      U.S. Treasury-only money funds -- Funds that invest in Treasury bills,       or T-bills, which are sh...
Types of Mutual Fund Schemes Functional Classification   Open-ended schemes   Closed-ended schemes   Interval scheme ...
Types of Mutual Fund Schemes… Geographical Classification    Domestic funds    Offshore funds Others    Sectoral    ...
Mutual Fund Investors Residents including    Resident Indian Individuals    Indian Companies    Indian Trusts/ Charita...
Organization and Procedures      Organization        Sponsor        Trust        Asset Management Company        Cust...
Organization and Procedures  Procedures (Contd…)      Appointing Asset Management Company      Registration of Scheme w...
Asset Management Company      AMC is formed to manage the fund      Responsible to file documents with SEBI      Should...
US-64 1st scheme of UTI Unit Scheme 1964. LIC, SBI, other Scheduled banks, Foreign as well Around 2 cr. investors. Ret...
US-64….. New Chairman P. S. Subramanyam appointed Huge investments in K-10 scrips UTI continued to buy shares even when...
US-64….. Also invested in junk bonds like Pritish Nandy  Communications (Rs. 1.5 crores), Jain Studios (Rs. 5 crore),  Sa...
US-64….. Thus, small investors further lost Rs. 1300 crores July 4, 2001, sales and purchase freezed for 6 months BSE S...
US-64….. Finance ministry rolls out Rs 300 crore rescue package Investors can offer upto 3, 000 units for repurchase bet...
US-64….. Revamp the portfolio of various UTI schemes with three-  pronged strategy-avoid further losses, prevent market f...
US-64….. Three-tier structure Malegam committee recommends strategic partner for UTI,  disposing off equity investments ...
US-64….. Government decides to provide cash assstance upto Rs. 5 billion    to UTI   Restructure equity-debt composition...
US-64….. As cost-cutting exercise, delist all schemes and sale and repurchase    through repurchase window   In June 200...
US-64….. UTI-I: US-64 & assured return schemes with asset base of Rs 25, 000    cr (UTI Trustee Co.)   UTI-II: NAV-based...
Major Fund Houses   Fortis   Birla Sunlife   Bank of Baroda   HDFC   ING Vysya   ICICI Prudential   SBI Mutual Fund...
Portfolio Management Services (PMS) It is a hybrid service provided by portfolio managers, which  includes personalized s...
Difference Between PMS & Mutual Fund Degree of Customisation Minimum Investment Concept of Profit Sharing
Benefits of PMS Professional Management Risk Control Convenience Constant Portfolio Tracking Transparency The follow...
Choosing a PMS Investment Philosophy: HSBC Strategic, Angel Bluechip Scheme Benchmarks Minimum Investment: Asia BNP Par...
Real Estate Investment Trusts (REITs)/Real Estate Mutual Funds(REMF) A trust that uses investors’ money to purchase and m...
Characteristics of mutual fund structure for realEstate Investment: A highly desirable structured form to introduce real ...
Major Players ICICI HDFC Kotak Mahindra Kshitij Tishman Speyer Properties, a US real estate company in  association w...
Mutual funds
Mutual funds
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Mutual funds

  1. 1. Mutual Funds Prepared By: Prof.Chhaya PatelSMT.K.K.PATEL MBA/MCA COLLEGE, MEHSANA(818)
  2. 2. Emergence Because financial market become sophisticated and complex In USA Mutual fund industry has overtaken banking industryConcept of MF Common pool of money Joint or “mutual” ownership Units are the representation of ownership
  3. 3. Advantages Expert & Professional Mgmt. Diversification of Portfolio. Reduction of Transaction Cost. Liquidity. Convenience & Flexibility. Tax Benefits.
  4. 4. HistoryI First phase (1964-87) UTI MF created under the UTI Act, 1963. UTI had Monopoly from 1963-1987.II Second phase (1987-93) In 1987, Public Sector was opened. SBI MF – The 1st bank sponsored MF, Nov.1987. Canbank MF, LIC, GIC, Indian Bank, Bank of India, PNB
  5. 5. III Third phase (1993-2003) SEBI got regulatory powers in 1993. In 1993, Private Sector was opened. SEBI (MF) Regulations, 1996.IV Fourth phase (since 2003) UTI bifurcated in two separate entities:  Specified Undertaking of UTI – assured return schemes.  UTI Mutual Fund Ltd.
  6. 6. Types of Funds  Asset-allocation fund -- Balanced fund in which changes are made in the stock and bond percentage mix, based on the outlook for each market  Balanced funds -- Mutual funds that invest in both stocks and bonds, typically in relatively equal proportions7
  7. 7. Types of Funds  Capital appreciation funds -- Mutual funds that strive for maximum growth. Although these funds can earn the greatest gains, they also can rack up the heaviest losses. Also known as aggressive growth funds.  Closed-end funds -- Funds whose shares are traded on an exchange, similar to stocks. The price per share doesnt typically equal the net asset value of a share.8
  8. 8. Types of Funds  Equity income funds -- Mutual funds that favor investments in stocks that generate income over growth. As a result, they can be less risky than other types of stock funds. •Fixed-income fund -- Another term for a mutual bond fund. ... •Front-end loads -- Sales commission paid to purchase shares of mutual funds.9
  9. 9. Types of Funds General purpose money funds -- Mutual funds that invest largely in bank CDs and short-term corporation called commercial paper. Global funds -- Mutual funds that invest in both the U.S. and foreign countries. Also known as world funds. Government-only money funds -- Mutual funds that invest in treasury bills and short-term loans to the U.S. government. These are the least risky money funds because their investments are backed by Uncle Sam.10
  10. 10. Types of Funds  Growth funds -- Mutual funds that invest in the stocks of well-established firms that are expected to be profitable and grow for years to come.  Growth and income funds -- Mutual funds that own primarily blue-chip stocks of well-established companies that pay out a lot of dividends to their shareholders. These funds generally develop stock portfolios that balance the potential for appreciation with the potential for dividend income.11
  11. 11. Types of Funds  High-quality corporate bond funds -- Mutual funds that buy bonds issued by the nations financially strongest companies.  High-yield bond funds -- Risky bond mutual funds that invest in high-yield bonds of companies with poor credit ratings. The bonds are rated below triple B by Standard ST Poors and Moodys. Also known as junk bond funds.12
  12. 12. Types of Funds Income funds -- Mutual funds that invest in higher-yielding stocks, but may own some bonds.You get income first along with some growth. These funds usually invest in utility, telephone, and blue-chip stocks. Insured municipal bond funds -- Mutual funds that invest in insured bonds issued by cities, towns, states, toll roads, schools, water projects, and hospitals. The interest income is tax-free, and the bonds are insured against default by large private insurance companies, such as American Municipal Pond Assurance Corp. (AMRAC) and Municipal Bond Insurance Association (MBIA). 13
  13. 13. Types of Funds  Intermediate-term bond funds -- Mutual funds that invest in bonds that mature in about 5 to 10 years. International bonds Debt instruments issued by foreign governments or corporations.  International funds -- Mutual funds that invest in stocks or bonds of worldwide companies.  Junk bond funds -- Mutual funds that invest in bonds issued by companies or governments that are rated below BBB by Standard and Poors or Moodys. Also know as high-yield bond funds.14
  14. 14. Types of Funds  Long-term bond funds -- Mutual funds that invest in bonds that mature in more than 10 years  Money market mutual fund -- Mutual fund that invests typically in short-term government and company loans and CDs. These tend to be lower-yielding, but less risky than most other types of funds. Also known as money market funds or money funds.  Municipal bond funds -- Mutual funds that invest in tax-exempt bonds is sued by states and local governments15
  15. 15. Types of Funds No-load mutual fund -- Mutual fund that is sold without sales commission Open-end funds -- Funds that permit ongoing purchase and redemption of fund shares (mutual funds are open-end funds). Regional funds -- of Mutual funds that invest in one specific region the globe Short-term bond funds -- Mutual funds that generally invest in bonds that mature in less than three years.16
  16. 16. Types of Funds  Single-country funds -- Mutual funds or closed-end funds that invest in one country.  Single-estate municipal bond funds -- Mutual funds that invest in the bonds of a single state so that investors avoid paying both state and federal taxes on their interest income.  Small company stock funds -- Volatile mutual funds that invest in younger companies whose stocks are frequently traded on the over-the-counter stock market.17
  17. 17. Types of Funds  Socially responsible funds -- Mutual funds that invest in companies that dont pollute the environment or sell arms. They will not own tobacco or alcohol stocks, nor invest in companies with poor employee relations.  Specialty funds -- Funds that invest in one specific industry or industry sector.  Taxable bond funds -- Bond mutual fund in which interest income is taxed by Uncle Sam18
  18. 18. Types of Funds Tax-deferred investment -- An investment that is not taxed until money is withdrawn, usually at retirement . Tax-free bond funds -- Tax-free mutual funds that invest in municipal bonds issued by states, cities, and towns. Uninsured high-quality municipal bond funds -- Mutual funds that invest in the least risky municipal bonds. These bonds are rated single A to triple A, but they are not insured.19
  19. 19. Types of Funds  Uninsured high-yield municipal bond funds -- Mutual funds that pay the highest tax-free yields but invest in states or municipalities with lower credit ratings.  U.S. government agency bonds -- Debt instruments issued by federally sponsored agencies of the U.S. government.  U.S. Treasury bond funds -- Mutual funds that invest in U.S. Treasury bonds and notes20
  20. 20. Types of Funds  U.S. Treasury-only money funds -- Funds that invest in Treasury bills, or T-bills, which are short-term I.O.U.s to the U.S. Treasury. These funds typically pay the lowest yields but are considered the least risky money funds  World funds -- Mutual funds that invest in both the U.S. and foreign countries. Also known as global funds.21
  21. 21. Types of Mutual Fund Schemes Functional Classification  Open-ended schemes  Closed-ended schemes  Interval scheme Portfolio Classification  Income funds  Growth funds  Balanced funds  Money market mutual funds
  22. 22. Types of Mutual Fund Schemes… Geographical Classification  Domestic funds  Offshore funds Others  Sectoral  Tax saving schemes  Equity-linked savings scheme (ELSS)  Pension Schemes  Special Schemes  Gilt funds  Load funds  Index funds  P/E ratio fund  Exchange traded funds
  23. 23. Mutual Fund Investors Residents including  Resident Indian Individuals  Indian Companies  Indian Trusts/ Charitable Institutions  Banks  Non-Banking Finance Companies  Insurance Companies  Provident Funds Non-Residents including  Non-Resident Indians  Other Corporate Bodies Foreign entities namely FIIs registered with SEBI Foreign citizens/entities not allowed
  24. 24. Organization and Procedures  Organization  Sponsor  Trust  Asset Management Company  Custodian  Procedures  Sponsoring Organization  Forming Trust26
  25. 25. Organization and Procedures  Procedures (Contd…)  Appointing Asset Management Company  Registration of Scheme with SEBI  Releasing Advertisement  Pooling Funds  Investment in Portfolios  Calculation of NAV  Distribution of Dividend (in the case of income funds)  Repurchase formalities27
  26. 26. Asset Management Company  AMC is formed to manage the fund  Responsible to file documents with SEBI  Should have good track record  Board of Directors consists of representatives of sponsor also  Should prepare annual accounts in respect of each fund and publish  Compliance of SEBI guidelines28
  27. 27. US-64 1st scheme of UTI Unit Scheme 1964. LIC, SBI, other Scheduled banks, Foreign as well Around 2 cr. investors. Returns as high as 18% in 93-94 In 1992, debt based fund to one linked to equity In 1997, Chidambaram pushed liberalisation US-64 does not come under SEBI Regulations In 1998, UTI crashed: new BJP-led government organised Rs. 3500 crore bail-out
  28. 28. US-64….. New Chairman P. S. Subramanyam appointed Huge investments in K-10 scrips UTI continued to buy shares even when prices crashed in mid-2000 Rs. 34 crores investment in Cyberspace Infosys Ltd. at a huge price of Rs. 930 per share
  29. 29. US-64….. Also invested in junk bonds like Pritish Nandy Communications (Rs. 1.5 crores), Jain Studios (Rs. 5 crore), Sanjay Khan’s Numero Uno International (Rs. 7.5 crores), Malavika Spindles (Rs. 188 crores) Chairman organised high profile propaganda campaign promoting UTI at the same time leaking information to large corporates So, two month prior to freezing of dealings, Rs. 4,141 crores was redeemed (97% corporate investments: repurchased at Rs. 14.20 when NAV was not more than Rs. 8)
  30. 30. US-64….. Thus, small investors further lost Rs. 1300 crores July 4, 2001, sales and purchase freezed for 6 months BSE Sensex falls 114 points the next day Declared dividend of 7% M. Damodaran, joint secretary in banking division of finance ministry declared as new UTI chief
  31. 31. US-64….. Finance ministry rolls out Rs 300 crore rescue package Investors can offer upto 3, 000 units for repurchase between August 2001 and May 2003 at Rs. 10 (to be increased by 10 paise every month) Govt. apoints 3 member committee headed by RBI deputy governor S S Tarapore
  32. 32. US-64….. Revamp the portfolio of various UTI schemes with three- pronged strategy-avoid further losses, prevent market from getting hit, make value of holdings go up Exit scrips with marginal holdings and also those with heavy weightage in sectors UTI is not so bullish on Plan to set up more than one asset management companies to handle different schemes
  33. 33. US-64….. Three-tier structure Malegam committee recommends strategic partner for UTI, disposing off equity investments in assured return schemes Requirement for UTI of $ 500 mn to $ 1 bn to stay solvent Malegam committee report recommends RBI & LIC to convert their holdings and form a sponsoring company
  34. 34. US-64….. Government decides to provide cash assstance upto Rs. 5 billion to UTI Restructure equity-debt composition UTI raises minimum units from 3, 000 to 5, 000 at repurchase price or NAV, whichever is higher. On 1st January 2002, US-64’s first NAV Rs 5. 81 2nd January, NAV drops to Rs 6
  35. 35. US-64….. As cost-cutting exercise, delist all schemes and sale and repurchase through repurchase window In June 2002, govt. gave guarantee for Rs 1, 000 crore in two tranches. UTI reduce equity exposure by Rs 915 crore Centre announces Rs 500 crore support to meet shortfall In August 2002, another bail-out package of Rs 6, 000 crore for US-64 and Rs 8561 crore for other assured return schemes Tax concessions and 7-7.5% 10 year tax free bonds In Sept. 2002, bifurcation of Trust into UTI-I and UTI-II
  36. 36. US-64….. UTI-I: US-64 & assured return schemes with asset base of Rs 25, 000 cr (UTI Trustee Co.) UTI-II: NAV-based schemes in excess of Rs 17, 000 cr (In Jan 2003, handed to SBI, PNB, BOB & LIC) (UTI Asset Mgmt. Co.) Splitting of US-64: Old US-64 and US-2002 M. Damodaran: CEO of UTI-II and admnistrator of UTI-I US-64 issued on or before 3oth June 01, after trading on 28th January 2003, will be treated as tax-free, tradeable bonds with effect from 1st June 2003 (Bonds maturing in May 2008: interest) Secondary market trading in US 64 commences from 28th January 2003
  37. 37. Major Fund Houses Fortis Birla Sunlife Bank of Baroda HDFC ING Vysya ICICI Prudential SBI Mutual Fund Tata Kotak Mahindra Unit Trust of India Reliance IDFC Franklin Templeton Sundaram Mutual Fund Religare Mutual Fund Principal Mutual Fund
  38. 38. Portfolio Management Services (PMS) It is a hybrid service provided by portfolio managers, which includes personalized stock and mutual fund investing Discretionary & Non-discretionary Portfolio Managers Eligibility Criteria Appointment of Custodian Application fees Registration Restriction as to placement of funds
  39. 39. Difference Between PMS & Mutual Fund Degree of Customisation Minimum Investment Concept of Profit Sharing
  40. 40. Benefits of PMS Professional Management Risk Control Convenience Constant Portfolio Tracking Transparency The following portfolio reports are accessible online :  Performance Statements  Portfolio Holding Reports  Transactions Statements  Capital Gain / Loss Statements Dedicated Relationship Manager
  41. 41. Choosing a PMS Investment Philosophy: HSBC Strategic, Angel Bluechip Scheme Benchmarks Minimum Investment: Asia BNP Paribas-1cr. Cost Structure Frequency of Disclosure Broking House
  42. 42. Real Estate Investment Trusts (REITs)/Real Estate Mutual Funds(REMF) A trust that uses investors’ money to purchase and manage real estate Trusts that are publicly traded companies that own, develop and operate commercial properties. An association of investors formed under trust agreement for the purpose of real estate investment, which derive 90% of income for the trust from real estate.
  43. 43. Characteristics of mutual fund structure for realEstate Investment: A highly desirable structured form to introduce real estate investing in India. Suggestion of a close ended or interval fund. (Can be open ended once liquidity picks up) NAV’s can be calculated on a quarterly basis. Eligible Investments  Directly in real estate properties within India where lease rental revenues are expected  Mortgage (housing lease) backed securities  Equity shares/ bonds/ debentures of listed/ unlisted companies which deal in properties and also undertake property development  Buying & selling of real estate projects
  44. 44. Major Players ICICI HDFC Kotak Mahindra Kshitij Tishman Speyer Properties, a US real estate company in association with ICICI

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