Professional Management: strong research Low Costs: relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Even 500 rupees in SIP start with. Transparency: investor gets regular information on the value of his investment in addition to disclosure on the specific investments made by the fund, the proportion invested in each class of assets and the fund manager's investment strategy and outlook
Sponsor: Establishes a MF, obtains Certificate of Registration from SEBI, forms a trust, appoints board of trustees & AMC, appoints Custodian Trustees: MF managed by body of individuals or a trust company (corporate body). Guardians of assets of Unitholders. Responsible. AMC: Investment Manager of Trust. Under the supervision of Board of Directors, Trustees, SEBI. Floates & manages different schemes. Mutual Fund: Formed under Indian Trusts Act, 1982. Invites subscriptions to units. Transfer agents: Issue and Redemption of units Custodian: For safekeeping of securities, participating in clearing system
AMFI: a forum where mutual funds have been able to present their views, debate and participate in creating their own regulatory framework. the body that is consulted on matters long before regulations are framed, and it often initiates many regulatory changes that prevent malpractices that emerge from time to time. Receive Unit certificates within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund. Receive dividend within 42 days of their declaration Receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase.
Ultra Short term (180 days) debt funds called liquid funds or floating rate fund or cash funds, Bond funds– fixed return instruments, term papers, G-Secs, Corporate bonds, interest rate floating – depending on interest rate in economy – return of 5.5% per annum last year– aim: preserve the principal and earn a modest return. Savings bank rate= 3.5% p.a. Balanced funds for those who are not comfortable with 100% exposure to equity. B est of both worlds-Power of equities & stability of debt market instruments- 60:40 equity debt ratio. Performance ≈ average 30% return, Volatility (Risk) = Moderate Income: fixed income securities such as bonds, corporate debentures and Government securities. capital stability and regular income. Money Market: safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. easy liquidity, preservation of capital and moderate income. Unit Linked Insurance Plan - life insurance as well as an investment like a mutual fund. Part of the premium towards the sum assured (amount you get in a life insurance policy) and the balance invested whichever investments you desire - equity, fixed-return or a mixture of both. benefit under Section 80C. Gilt funds are those that only invest in government securities and are hence zero credit risk, very safe MIP - 5-25% in stocks, rest in fixed income instruments
Mutual Funds (2)
PRESENTED BY: PUJIL KHANNA AVINASH JESWANI ROBIN CHOUDHARY
<ul><li>We always think , where should we invest our money in financial market </li></ul>
<ul><li>A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. </li></ul><ul><li>The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. </li></ul><ul><li>The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. </li></ul><ul><li>Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. </li></ul>
How MF help the financial planning objectives of investors? <ul><li>Mutual fund comprises of 29 funds, offering nearly 500 products with total AUM of over Rs.1,58,000 Cr as of April 2005 </li></ul><ul><li>Competition in industry has led to innovative alterations to standard products </li></ul><ul><li>Investors can choose the manner in which their returns would be distributed </li></ul><ul><li>Investors can choose options that suit their return requirements and risk profile </li></ul>
What are the important phases in history of mutual funds in India?
<ul><li>Governed by SEBI (Mutual Fund) Regulation 1996 </li></ul><ul><ul><li>All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882) </li></ul></ul><ul><li>Bank operated MFs supervised by RBI too </li></ul><ul><li>AMC registered as Companies registered under Companies Act, 1956 </li></ul><ul><li>SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc. </li></ul><ul><ul><li>NAV to be declared everyday for open-ended, every week for closed ended </li></ul></ul><ul><ul><li>Disclose on website, AMFI, newspapers </li></ul></ul><ul><ul><li>Half-yearly results, annual reports </li></ul></ul><ul><ul><li>Select Benchmark depending on scheme and compare </li></ul></ul>
<ul><li>By Structure </li></ul><ul><ul><li>Open-Ended – anytime enter/exit </li></ul></ul><ul><ul><li>Close-Ended Schemes – listed on exchange, redemption after period of scheme is over. </li></ul></ul><ul><li>By Investment Objective </li></ul><ul><ul><li>Equity (Growth) – only in Stocks – Long Term (3 years or more) </li></ul></ul><ul><ul><li>Debt (Income) – only in Fixed Income Securities (3-10 months) </li></ul></ul><ul><ul><li>Liquid/Money Market (including gilt) – Short-term Money Market (Govt.) </li></ul></ul><ul><ul><li>Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years) </li></ul></ul><ul><li>Other Schemes </li></ul><ul><ul><li>Tax Saving Schemes </li></ul></ul><ul><ul><li>Special Schemes </li></ul></ul><ul><ul><ul><li>ULIP </li></ul></ul></ul>
<ul><li>Draw up your asset allocation </li></ul><ul><ul><li>Financial goals & Time frame (Are you investing for retirement? A child’s education? Or for current income? ) </li></ul></ul><ul><ul><li>Risk Taking Capacity </li></ul></ul><ul><li>Identify funds that fall into your Buy List </li></ul><ul><li>Obtain and read the offer documents </li></ul><ul><li>Match your objectives </li></ul><ul><ul><li>In terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus </li></ul></ul><ul><li>Check out past performance </li></ul><ul><ul><li>Performance of various funds with similar objectives for at least 3-5 years (managed well and provides consistent returns) </li></ul></ul>
<ul><li>Think hard about investing in sector funds </li></ul><ul><ul><li>For relatively aggressive investors </li></ul></ul><ul><ul><li>Close touch with developments in sector, review portfolio regularly </li></ul></ul><ul><li>Look for `load' costs </li></ul><ul><ul><li>Management fees, annual expenses of the fund and sales loads </li></ul></ul><ul><li>Does the fund change fund managers often? </li></ul><ul><li>Look for size and credentials </li></ul><ul><ul><li>Asset size less than Rs. 25 Crores </li></ul></ul><ul><li>Diversify, but not too much </li></ul><ul><li>Invest regularly, choose the S-I-P </li></ul><ul><ul><li>MF- an integral part of your savings and wealth-building plan. </li></ul></ul>
<ul><li>1.Mutual Funds Offer Diversification The beauty of a mutual fund is that you can buy a mutual fund and obtain instant access to a hundreds of individual stocks or bonds. </li></ul><ul><li>2. Mutual Funds are Professionally Managed Many investors don’t have the resources or the time to buy individual stocks. Investing in individual securities, such as stocks, not only takes resources, but a considerable amount of time. By contrast, mutual fund managers and analysts wake up each morning dedicating their professional lives to researching and analyzing current and potential holdings for their mutual fund. </li></ul><ul><li>3. Mutual Funds Offer Automatic Reinvestment An investor can easily and automatically have capital gains and dividends reinvested into their mutual fund without a sales load or extra fees. </li></ul>
4. Mutual Funds Offer Transparency Mutual fund holdings are publicly available (with some delays in reporting), which ensures that investors are getting what they pay for. 5. Mutual Funds Are Liquid If you want to sell your mutual fund, the proceeds from the sale are available the day after you sell the mutual fund. 6. Mutual Funds Have Audited Track Records A mutual fund company must maintain performance track records for each mutual fund and have them audited for accuracy, which ensures that investors can trust the mutual fund’s stated returns. 7. Safety of Investing in Mutual Funds If a mutual fund company goes out of business, mutual fund shareholders receive an amount of cash that equals their portion of ownership in the mutual fund. Alternatively, the mutual fund’s Board of Directors might elect a new investment advisor to manage the mutual fund.
<ul><li>Mutual Funds and Poor Trade Execution </li></ul><ul><li>No Tailor-made-Portfolios </li></ul><ul><li>Managing a Portfolio of Funds </li></ul><ul><li>No control over costs </li></ul>
Domestic Mutual Funds (MF) Industry will grow at CAGR of 30% in next 3 years to touch its level at Rs. 9.50 lakh crore from Rs.4.67 lakh crores in July 2007 with contributions of private, public and joint sector mutual funds players, staying around respectively 70%, 20% and 10%, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM). Indian mutual funds’ assets under management (AUM) grew by Rs.860 billion in the month of July, to a corpus of Rs.4.89 trillion, according to crisil. Growth of this magnitude in a single month has rarely been seen in the Indian mutual fund industry. According to CRISIL, “The large number of new fund offerings, the sharp rally in the equity markets, and liquid fund inflows, drove these levels of AUM growth.”
Reliance Mutual Fund continued to top the AUM chart with AUM in excess of Rs.660 billion, while ICICI Prudential Mutual Fund took the second spot with AUM of Rs.487 billion. UTI Mutual Fund was third with AUM of Rs.425 billion. In the secondary market, mutual funds were net sellers to the extent of Rs.9 billion in July, after being net buyers of Rs.7 billion in June.
12/06/09 IILM Risk Hierarchy of Mutual Funds Type of Fund Risk Level Money Market Funds Gilt Funds Diversified Debt Funds Balanced Funds Equity Funds