MUTUALFUNDSas an INVESTMENT vehicle<br />K K JINDAL<br />
What is a mutual fund?<br />A mutual fund is a common pool of money into which investors place their contributions that ar...
Operations Flow Chart<br />Operations Flow Chart<br />(Reference: amfiindia.com)<br />         Mutual Funds<br />
Fund Sponsor<br />Trustees<br />Asset Management Company<br />Depository<br />Agent<br />Custodian<br />Fund Structure<br />
Advantages of Mutual Funds<br />Diversification<br />Professional Management<br />Ease of buying and selling<br />Small am...
Disadvantages of Mutual Funds<br />Purchase and withdrawal costs<br />Management fees<br />Potential poor performance<br /...
Computing Net Asset Value<br />For investors, the performance of their investment depends on what happens to the fund’s pe...
Mutual Fund Returns<br />Three sources of return:<br />Income distributions (ID)<br />Bond interest, stock dividends<br />...
Closed-end and Open-end Funds<br />13-6<br />Closed-end funds <br />Shares are issued by an investment company only when t...
Load Vs. No-load Funds<br />Marketing a new mutual fund scheme involves initial expenses. These expenses are charged to th...
Types of Mutual Funds<br />Funds classified according to the type of security in which they invest<br />Examples:<br />Sto...
Common Stock Funds<br />Most popular type of fund<br />Wide variety with different objectives and levels of risk<br />Grow...
Bond Funds<br />Generally seek to generate current income with limited risk<br />Can vary by maturity<br />Short-term, Int...
Stock and Bond Funds<br />Seek to provide a combination of income and value appreciation<br />Different names<br />Balance...
Money Market Funds<br />Provide safe, current income with high liquidity<br />Invest in money market securities<br />T-bil...
Risk-Return Tradeoff<br />
Total<br />Assured Return<br />Close End<br />Open End<br />Structure<br />Nature<br /> <br /> <br /> <br /> <br />4323<br...
Mutual Fund Prospectus<br />Must be available to and should be reviewed by investors<br />Contains:<br />Fund’s investment...
Mutual Fund Investment Strategies<br />Choose in funds consistent with your objectives, constraints, and tax situation<br ...
When should you sell?<br />Personal considerations<br />Portfolio rebalancing<br />Be aware of capital gains with selling ...
references<br /> Investments, Fifth Edition, William F.  Sharpe<br /> ICRA Money and Finance <br /> www.mutualfundsindia.c...
Thank you<br />
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Mutual funds

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Mutual funds

  1. 1. MUTUALFUNDSas an INVESTMENT vehicle<br />K K JINDAL<br />
  2. 2. What is a mutual fund?<br />A mutual fund is a common pool of money into which investors place their contributions that are to be invested in different types of securities in accordance with the stated objective<br />Each investor has a right to a proportional share of the assets of the fund and any income it earns<br />Company sells shares to the public and invests the proceeds in a pool of securities<br />Jointly owned by the fund’s investors<br />Invested according to the objective of the fund<br />
  3. 3. Operations Flow Chart<br />Operations Flow Chart<br />(Reference: amfiindia.com)<br /> Mutual Funds<br />
  4. 4. Fund Sponsor<br />Trustees<br />Asset Management Company<br />Depository<br />Agent<br />Custodian<br />Fund Structure<br />
  5. 5. Advantages of Mutual Funds<br />Diversification<br />Professional Management<br />Ease of buying and selling<br />Small amount of money required to open an account<br />Multiple withdrawal options<br />Distribution or reinvestment of income and capital gains<br />Switching privileges in fund family<br />Multiple services<br />
  6. 6. Disadvantages of Mutual Funds<br />Purchase and withdrawal costs<br />Management fees<br />Potential poor performance<br />No control over capital gains distribution<br />Complicated tax reporting issues<br />Potential market risk with all investments<br />Aggressive or unethical sales personnel<br />
  7. 7. Computing Net Asset Value<br />For investors, the performance of their investment depends on what happens to the fund’s per share value, or net asset value (NAV)<br />NAV= Market Value of Assets – Liabilities<br /> Number of Shares Outstanding<br />
  8. 8. Mutual Fund Returns<br />Three sources of return:<br />Income distributions (ID)<br />Bond interest, stock dividends<br />Capital gain distributions (CGD)<br />Realized gains/losses from selling assets<br />Changes in NAV (NAV)<br />From unrealized gains/losses from assets<br />
  9. 9. Closed-end and Open-end Funds<br />13-6<br />Closed-end funds <br />Shares are issued by an investment company only when the fund is originally set up<br />After all original shares are sold you can only purchase shares from another investor<br />Open-end funds <br />Shares are issued and redeemed by the investment company at the request of investors.<br />Investors can buy and sell shares at the net asset value.<br />
  10. 10. Load Vs. No-load Funds<br />Marketing a new mutual fund scheme involves initial expenses. These expenses are charged to the investors through loads and are recovered from the investors in different ways:<br /> Front-end or entry load is charged to the investor at the time of his entry into the scheme.SEBI has since disallowed this load<br /> Back-end or exit load is charged to the investor at the time of his exit from the scheme.<br /> Deferred load is charged to the investor over a period of time.<br /> Contingent deferred sales charge: Different amount of loads are charged to the investor depending upon the time period the investor has stayed with the fund. The longer he stays with the fund, lesser the amount of exit fund he is charged.<br />Very often, AMC’s do not charge any initial expenses to the investor in the IPO. These are hence are no-load funds. In no-load funds, the investors get units for the complete amount invested.<br />
  11. 11. Types of Mutual Funds<br />Funds classified according to the type of security in which they invest<br />Examples:<br />Stock Funds<br />Taxable Bond Funds<br />Municipal Bond Funds<br />Stock and Bond Funds<br />Money Market Funds<br />
  12. 12. Common Stock Funds<br />Most popular type of fund<br />Wide variety with different objectives and levels of risk<br />Growth<br />Industry or sector funds<br />Geographic areas<br />International or Global<br />Equity Index funds<br />
  13. 13. Bond Funds<br />Generally seek to generate current income with limited risk<br />Can vary by maturity<br />Short-term, Intermediate-term, Long-term<br />Can vary by type of bond<br />Government<br />Corporate<br />Municipal<br />International/Global<br />Bond Index funds<br />Infrastructure funds<br />Life style fund<br />
  14. 14. Stock and Bond Funds<br />Seek to provide a combination of income and value appreciation<br />Different names<br />Balanced funds<br />Hybrid funds<br />Flexible funds<br />Asset Allocation funds<br />
  15. 15. Money Market Funds<br />Provide safe, current income with high liquidity<br />Invest in money market securities<br />T-bills, Bank CD’s, Commercial paper, etc.<br />Provide an alternative to bank deposits<br />
  16. 16. Risk-Return Tradeoff<br />
  17. 17. Total<br />Assured Return<br />Close End<br />Open End<br />Structure<br />Nature<br /> <br /> <br /> <br /> <br />4323<br />Balanced<br />-<br />790<br />3533<br />539<br />ELSS<br />1761<br />-<br />1222<br />Gilt<br />5955<br />-<br />-<br />5955<br />23022<br />-<br />1498<br />21524<br />Growth<br />64571<br />Income<br />65396<br />-<br />825<br />45200<br />-<br />-<br />45200<br />Liquid/Money Market<br />141322<br />Total<br />145657<br />-<br />4335<br /> Assets Under Management as on February29, 2004<br />Amount in Rs. Crores<br />
  18. 18. Mutual Fund Prospectus<br />Must be available to and should be reviewed by investors<br />Contains:<br />Fund’s investment objective<br />Investment strategy<br />Principal risks faced by investors<br />Recent investment performance<br />Expenses and fees<br />
  19. 19. Mutual Fund Investment Strategies<br />Choose in funds consistent with your objectives, constraints, and tax situation<br />Consider index funds for a large portion of your fund portfolio<br />When possible, invest in no-load funds with below-average expense and turnover ratios<br />Invest. Don’t speculate. <br />Be regular<br />Own funds in different asset classes and consider life-cycle investing<br />
  20. 20. When should you sell?<br />Personal considerations<br />Portfolio rebalancing<br />Be aware of capital gains with selling fund shares<br />Fund considerations<br />Change in portfolio manager<br />Change in investment style<br />Fund is growing “too large” or “too fast”<br />Persistent bad performance<br />
  21. 21. references<br /> Investments, Fifth Edition, William F. Sharpe<br /> ICRA Money and Finance <br /> www.mutualfundsindia.com<br /> www.amfiindia.com<br /> www.nseindia.com<br /> www.moneycontrol.com<br />
  22. 22. Thank you<br />

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