Mutual funds basic

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Mutual funds basic

  1. 1. Mutual Funds Basics<br />
  2. 2. Concept of pooling…<br />Many people come together<br />Contribute to a common fund<br />With a common goal / objective<br />
  3. 3. Examples of pooling<br />Pooling for buying a gift (Contribution)<br />Pooling for a party<br />Pooling for the Gujrat earthquake relief fund<br />Pooling for investments<br />
  4. 4. Concept of units<br />A tin of rasogulla costs Rs.40. <br />Each tin consists of 12 rasogullas <br />4 friends pool in Rs.10 each for buying one dozen of rasogulla<br />Cost of each rasogulla is Rs.3.33<br />
  5. 5. What is a mutual fund ?<br />A Mutual fund is a collective<br />investment that allows many<br />investors, with a common objective,<br />to pool individual investments that<br />are given to a professional manager<br />who in turn would invest this<br />money in line with the common<br />objective.<br />
  6. 6. INVESTORS<br />Pool their money<br />Passed back to<br />RETURNS<br />FUND MANAGER<br />Invest in<br />Generate<br />SECURITIES<br />Mutual fund operation flow chart<br />
  7. 7. Mutual fund structure<br />Unit holders<br />Sponsor<br />Trustee<br />AMC<br />The mutual fund <br />Transfer agent<br />Custodian <br />SEBI<br />
  8. 8. Mutualfunds: A packaged product<br />Professional <br />management<br />Liquidity<br />Convenience<br />Diversification<br />Tax benefits<br />
  9. 9. Liquidity<br />Direct withdrawal from the mutual fund<br />Buying and selling can also be done through the stock exchange<br />
  10. 10. Diversification<br />Minimizes value erosion <br />Potential losses are shared with other investors<br />Portfolio of investments spreads out risk <br />
  11. 11. Tax benefits<br />Exemption up to Rs.100000 under section 80C<br />Dividends are tax free in the hands of the investors<br />No long term capital gains tax in equity mutual funds<br />
  12. 12. Convenience<br />Easy way to invest and withdraw<br />Reduces excessive paperwork<br />Online buying and selling of mutual funds<br />
  13. 13. Professional management<br />Highly qualified fund managers<br />More focused approach<br />Strong and dedicated research team<br />
  14. 14. Fund manager<br />A highly trained investment professional<br />With a vast investment experience <br />Functions of a fund manager:<br />Investing the assets of a mutual funds <br />Implementing investment strategy <br />Managing the day-to-day portfolio trades <br />
  15. 15. New Fund Offer (NFO)<br />Whenever a new scheme is launched by a fund house, the offer made during that initial period is known as New Fund Offer<br />Units are offered at fixed price<br />
  16. 16. Net Asset Value (NAV)<br />NAV is the total value of the fund's portfolio less liabilities. <br />NAV = Asset value<br /> Number of outstanding units<br />The NAV or Net Asset Value is usually calculated on a daily basis<br />
  17. 17. Load <br />Entry load <br />Exit load<br />Load is a charge on the NAV <br />Entry load is charged on NAV and increases the sale price<br />Exit load is charged on NAV and reduces the repurchase price<br />Load is defined as a percentage of NAV<br />Loads are subject to SEBI Regulation and vary depending on industry practice<br />
  18. 18. Entry load : Example<br />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 …<br />= 10 + (10*2.25/100) <br />= 10 + 0.225<br />= 10.225<br />With effect from …. Entry Load on MF Schemes have been removed.<br />
  19. 19. Exit load : Example<br />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)<br /> = 10 – (10*2.25/100)<br /> = 10 – 0.225<br /> = Rs. 9.775<br />
  20. 20. Thank You<br />

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