RK Mutual Fund a complete PPT on MF

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  • A regular mutual fund invests in stocks, bonds and fixed income securities depending on its objective. Hence the investor gets an opportunity to participate in these market-linked instruments while utilizing the fund manager's expertise. Fund of funds further extends this concept wherein a mutual fund invests in units of other mutual fund schemes. So what is motive behind having a FoF? The answer is - ?Diversification?. Fund of funds takes diversification to a new level.
  • Contra with Contra… and not contra with SEBI -mandatory for funds to have a benchmark– lets say Sensex… fund should beat Sensexif the Sensex drops by 10% over a period of two months and during that time, the fund's NAV drops by only 6%, then the fund is said to have outperformed the benchmark. Report submitted to SEBI every 6 months
  • RK Mutual Fund a complete PPT on MF

    1. 1. Presentation on:<br />Mutual Funds<br />Presented By:<br />Ravikumar.V<br />EWIT<br />
    2. 2. Investment<br />NAV<br />Retail Investors<br />Dividend<br />Portfolio<br />Exit Load<br />Risk Management<br />Factsheets<br />Fund Manager<br />Repurchase Price<br />Return<br />Open Ended<br />AUMs<br />Close Ended<br />Portfolio<br />Growth<br />Professional Management<br />Sale Price<br />Tax Saving<br />Redemption<br />Asset Allocation<br />Entry Load<br />Investment Objective<br />
    3. 3. Investor Perspective<br />Basics of Investments:<br />Risk Aversion<br />Risk Management<br />Mutual Funds<br />Bank Deposits, PPF, <br />NSC, Insurance,<br />Kisan Vikas Patra etc.<br />Low Risk/Low Return<br />Managed Risk/High Return<br />
    4. 4. Myths about Mutual Funds<br />1. Mutual Funds invest only in shares.<br />2. Mutual Funds are prone to very high risks/actively traded.<br />3. Mutual Funds are very new in the financial market. <br />4. Mutual Funds are not reliable and people rarely invest in them.<br />5. The good thing about Mutual Funds is that you don’t have to pay attention to them.<br />6.MFs are not‘a universal solution to all investment needs<br />
    5. 5. Facts about Mutual Funds<br />1. Equity Instruments like shares form only a part of the securities held by mutual funds. Mutual funds also invest in debt securities which are relatively much safer.<br />2. The biggest advantage of Mutual Funds is their ability to diversify the risk.<br />3. Mutual Funds are their in India since 1964. Mutual Funds market is very evolved in U.S.A and is there for the last 60 years.<br />4. Mutual Funds are the best solution for people who want to manage risks and get good returns.<br />5. The truth is as an investor you should always pay attention to your mutual funds and continuously monitor them. There are various funds to suit investor needs, both as a long term investment vehicle or as a very short term cash management vehicle.<br />
    6. 6. Facts about Mutual Funds<br />5. The truth is as an investor you should always pay attention to your mutual funds and continuously monitor them. There are various funds to suit investor needs, both as a long term investment vehicle or as a very short term cash management vehicle.<br />6. It gives the market returns and not assured returns.<br />7. Mutual Fund is the most cost efficient distributors of financial products<br />
    7. 7. Advantages of Mutual Funds<br /><ul><li>Portfolio diversification: It enables him to hold a diversified investment portfolio even with a small amount of investment like Rs. 2000/-.
    8. 8. Professional management: The investment management skills, along with the needed research into available investment options, ensure a much better return as compared to what an investor can manage on his own.
    9. 9. Reduction/Diversification of Risks: The potential losses are also shared with other investors.
    10. 10. Reduction of transaction costs: The investor has the benefit of economies of scale; the funds pay lesser costs because of larger volumes and it is passed on to the investors.
    11. 11. Wide Choice to suit risk-return profile: Investors can chose the fund based on their risk tolerance and expected returns.</li></li></ul><li>Advantages of Mutual Funds<br /><ul><li>Liquidity: Investors may be unable to sell shares directly, easily and quickly. When they invest in mutual funds, they can cash their investment any time by selling the units to the fund if it is open-ended and get the intrinsic value. Investors can sell the units in the market if it is closed-ended fund.
    12. 12. Convenience and Flexibility: Investors can easily transfer their holdings from one scheme to other, get updated market information and so on. Funds also offer additional benefits like regular investment and regular withdrawal options.
    13. 13. Transparency: Fund gives regular information to its investors on the value of the investments in addition to disclosure of portfolio held by their scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook</li></li></ul><li>Disadvantages of Mutual Funds<br /><ul><li> No control over costs: The investor pays investment management fees as long as he remains with the fund, even while the value of his investments are declining. He also pays for funds distribution charges which he would not incur in direct investments.
    14. 14. No tailor-made portfolios: The very high net-worth individuals or large corporate investors may find this to be a constraint as they will not be able to build their own portfolio of shares, bonds and other securities.
    15. 15. Managing a portfolio of funds: Availability of a large number of funds can actually mean too much choice for the investor. So, he may again need advice on how to select a fund to achieve his objectives.
    16. 16. Delay in redemption: It takes 3-6 days for redemption of the units and the money to flow back into the investor’s account.</li></li></ul><li>Your Investment Menu Card<br />
    17. 17. History of Mutual Fund<br />The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry.<br />The mutual fund industry can be broadly put into four phases according to the development of the sector. <br />
    18. 18. First Phase - 1964-87<br />Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India.<br />Second Phase - 1987-1993 (Entry of Public Sector Funds)<br />Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management<br />
    19. 19. Third Phase - 1993-2003 (Entry of Private Sector Funds)<br />With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed.<br />The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.<br />
    20. 20. Fourth Phase - since February 2003<br />This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January 2003)<br />The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.<br />As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes. <br />
    21. 21. 4.3 MUTUAL FUNDS<br />Open-end investment companies<br />Account for >90% of investment company assets<br />$21.8 trillion assets under management worldwide<br />$10.4 trillion in the US market<br />Over 8,000 mutual funds<br />
    22. 22.
    23. 23. Why did Mutual Funds come into existence?<br />An old Axiom :<br />“It is not wise to put all eggs into one basket”<br /> ……… was probably in the minds of those who formed the first mutual fund.<br />
    24. 24. Contents<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    25. 25. Flow Cycle of a Mutual Fund<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    26. 26. Flow Cycle of a Mutual Fund<br />
    27. 27. Flow Cycle of a Mutual Fund<br />Mutual Funds defined….a flow cycle<br />
    28. 28. Flow Cycle explained…<br />A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.<br />As per SEBI Regulations,1996,Mutual Funds can be defined as “a fund established in form of a trust to raise money through the sale of units to public or a section of public under one or more schemes for investing in securities, including money market instruments.”<br />The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. <br />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. <br />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.<br />
    29. 29. Diff. b/w MF and Direct Investment<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    30. 30. Diff. b/w MF and Direct InvestmentinCapital Market<br />Mutual fund investing vs. Direct investing<br />Professional investment management<br />Risk reduction through diversification<br />Convenience<br />Availability of alternative portfolio objectives<br />Unit holders’ account administration and services <br /><ul><li>Time
    31. 31. Expertise
    32. 32. Lack of Information
    33. 33. Portfolio
    34. 34. Volatility</li></li></ul><li>Balance sheet of a Bank and Mutual Fund<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    35. 35. Difference b/w Balance Sheets of MF and Bank<br />Difference between Bank and Mutual Fund<br />Mutual Fund Balance Sheet<br />Bank Balance Sheet<br />Liabilities<br />Assets<br />Liabilities<br />Assets<br />
    36. 36. Difference b/w Balance Sheets of MF and Bank<br />Difference between Bank and Mutual Fund<br />Mutual Fund Balance Sheet<br />Bank Balance Sheet<br />Liabilities<br />Assets<br />Liabilities<br />Assets<br />Unit Capital<br />Investment in Financial Securities<br /><ul><li>Share Capital
    37. 37. Deposits</li></ul>Loans and Advances<br />
    38. 38. Organizational Structure of Mutual Fund<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    39. 39. Organizational Structure of Mutual Fund<br />
    40. 40. Organizational Structure of Mutual Fund<br />Sponsor<br />Akin to the Promoter of the company,<br />Contribution of minimum 40% of net worth of AMC,<br />Posses sound financial record over five years period,<br />Establishes the Fund,<br />Gets it registered with the SEBI,<br />Forms a trust, & appoints Board of trustee.<br />Trustees<br />Holds assets on behalf of unit holders in trust,<br />Trustees are caretaker of unit holders money,<br />Two third of the trustees shall be independent persons (not associated with the sponsor),<br />Trustees ensure that the system, processes & personnel are in place,<br />Resolves unit holders GRIEVANCES,<br />Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI regulation.<br />AMC should obtain the permission of Board of Trustees before Launching any new Scheme<br />
    41. 41. Organizational Structure of Mutual Fund<br />Custodian <br />Holds the fund’s securities in safekeeping,<br />Settles securities transaction for the fund,<br />Collects interest & dividends paid on securities,<br />Records information on corporate actions.<br />Asset Management Company<br />Floats schemes & manages according to SEBI,<br />Can not undertake any other business activity, other than portfolio mgmt services,<br />75% of unit holders can jointly terminate appointment of AMC,<br />At least 50% of independent directors,<br />Chairman of AMC can not be a trustee of any MF.<br />
    42. 42. Obligation of Asset Management Company<br />Float investment schemes only after receiving prior approval from the Trustees and SEBI.<br />Send quarterly reports to Trustees.<br />Make the required disclosures to the investors in areas such as calculation of NAV and repurchase price.<br />Must maintain a net worth of at least Rs. 10 crores at all times.<br />Will not purchase or sell securities through any broker, which is average of 5% or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes. <br />AMC cannot act as a trustee of any other mutual fund. <br />Do not undertake any other activity conflicting with managing the fund.<br />Distributor / Agents<br />Sell units on the behalf of the fund,<br />It can be bank, NBFCs, individuals.<br />
    43. 43. Organizational Structure of Mutual Fund<br />Banker<br />Facilitates financial transactions,<br />Provides remittance facilities.<br />Registrar & Transfer Agent<br />Maintains records of unit holders’ accounts & transactions<br />Disburses & receives funds from unit holder transactions,<br />Prepares & distributes a/c settlements,<br />Tax information, handles unit holder communication,<br />Provides unit holder transaction services.<br />Custodian<br />Maintaining Securities in the Physical Form.<br />Operate the Demat Account for the shares received in the Electronic Form.<br />Ensuring that the securities bought by AMC are credited to the Demat Account.<br />Issue the Delivery Order for the securities sold<br />Receive Dividend and interest on the Investment<br />Responding to Corporate Action as per the instruction of the AMC<br />
    44. 44. Classification of Mutual Fund Schemes<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    45. 45. TYPES OF MUTUAL FUNDs<br />Mutual Funds<br />By Maturity Period<br />By Investment Objective<br />by: Gurmeet Singh<br />Growth<br />Fund <br />Balance fund<br />Gilt fund<br />Open ended <br />Close ended <br />Close ended <br />Index fund<br />Money market<br />
    46. 46. OPEN ENDED SCHEMES<br /><ul><li>Continuous sale and purchase of units at NAV or NAV related values.
    47. 47. No need of listing of these funds on stock exchange.
    48. 48. Investor can enter and exit the scheme any time during the life of the fund.
    49. 49. Eg. UTI’s US 64</li></li></ul><li>CLOSE ENDED SCHEMES<br />Open for subscription only for specified period and have a fixed corpus.<br />It remains open for investment only for a period not exceeding 45 days.<br />Units need to be listed on stock exchange after the initial subscription.<br />Can be converted to open ended scheme by passing a resolution by a majority of unit holders.<br />
    50. 50. INTERVAL SCHEMES<br />Combines the features of Open and close ended schemes.<br />Open for sale or redemption during pre-determined interval.<br />
    51. 51. Equity/Growth Funds<br />Growth funds seek long-term appreciation by investing in the stocks of established companies that may be poised for growth. These companies typically pay low dividends yet offer the potential for long-term capital appreciation. Some growth funds limit their investments to specific sectors of the economy. Growth funds are generally less risky than aggressive growth funds.<br />
    52. 52. A High Risk Portfolio<br />This plan may suit:<br /><ul><li>Investors in their prime earning years and willing to take more risk
    53. 53. Investors seeking growth over a long term</li></ul>Average Annual Return: Approx. 16%<br />
    54. 54. Income / Debt Oriented Fund <br /><ul><li>The aim of income funds is to provide regular and steady income to investors.
    55. 55. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
    56. 56. Such funds are less risky compared to equity schemes</li></li></ul><li>Portfolio 2 - A Medium Risk Portfolio<br />This plan may suit:<br /><ul><li>Investors seeking income and moderate growth
    57. 57. Investors looking for growth and stability with moderate risk</li></li></ul><li>Balanced Fund <br />The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. <br />These are appropriate for investors looking for moderate growth. <br />
    58. 58. A Low Risk Portfolio<br />This plan may suit:<br /><ul><li>Retired and other investors who need to preserve capital and earn regular income</li></li></ul><li>Money Market<br />These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. <br />These schemes invest exclusively in safer short-term instruments such as treasury bills, commercial paper and government securities, etc. <br />These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. <br />
    59. 59. Gilt Funds <br />These funds invest exclusively in government securities. <br />Government securities have no default risk.<br />Index Funds <br />This schemes invest in the securities in the same weightage comprising of an index. <br />This schemes would rise or fall in accordance with the rise or fall in the index<br />
    60. 60. Sector Funds<br />Sector funds invest in specific industries or sectors of the economy, such as communications, aerospace and defense, or health care. While they may be diversified within a particular sector, they lack broad diversification. This increases their investment risk. These funds typically seek long-term capital appreciation.<br />International Bond Funds<br />International fixed-income funds invest in debt securities of foreign governments and corporations, and seek to provide current income. Global bond funds may include U.S. government and corporate bonds. The risks associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different than those in the U.S.<br />
    61. 61. <ul><li>TAX SAVING SCHEMES</li></ul>These are close ended schemes with investments made for 10 years although investors can avail encashment facilities after 3 years.<br />DOMESTIC FUNDS<br />These funds mobilize resources from particular geographical locality.<br />Market is limited and confined to boundaries of the nation in which fund operates.<br />OFFSHORE FUNDS<br />They open domestic capital market for foreign investment.<br />Eg :India fund was launched in July 1986 by UTI in collaboration with US’ Merrill Lynch.<br />
    62. 62. Mutual Funds Vs. Other Investments<br />
    63. 63. Mutual Funds Vs. Other Investments<br />
    64. 64. Mutual Funds Vs. Other Investments<br />
    65. 65. Equity Linked Saving Schemes (ELSS) advantage: all about 80C investments<br />ELSS Advantage over other tax saving instruments<br />Low Lock in period<br />Earn market linked return<br />Tax free returns <br />
    66. 66. Classification of Mutual Fund Schemes<br />Each category is classified into more sub-categories.<br />
    67. 67.
    68. 68.
    69. 69. Classification of Mutual Fund Schemes<br />Other classification of MF schemes <br />By Structure<br />Open-Ended – anytime enter/exit<br />Close-Ended Schemes – listed on exchange, redemption after period of scheme is over.<br />By Investment Objective<br />Equity (Growth) – only in Stocks – Long Term (3 years or more)<br />Debt (Income) – only in Fixed Income Securities <br />Liquid/Money Market – Short-term Money Market (CPs, CDs, Treasury Bills)<br />Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)<br />Gilt Funds – primarily in G-Sec<br />Other Schemes<br />Tax Saving Schemes such as ELSS<br />Special Schemes (ETFs, foreign funds)<br />
    70. 70. Risk-return structure of schemes<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    71. 71. Risk-return structure of schemes<br />Risk –Return of different schemes <br />
    72. 72. History of Mutual Funds in India<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    73. 73. History of Mutual Funds in India<br />Phases of Mutual Fund Industry in India<br />1964<br />1987<br />1993<br />2009  ?<br />
    74. 74. Regulatory Aspects<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    75. 75. Regulatory Aspects<br />Regulations<br /><ul><li>Governed by SEBI (Mutual Fund) Regulation 1996
    76. 76. All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882)
    77. 77. Bank operated MFs supervised by RBI too
    78. 78. AMC registered as Companies registered under Companies Act, 1956
    79. 79. SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc.
    80. 80. NAV to be declared everyday for open-ended, every week for closed ended
    81. 81. Disclose on website, AMFI, newspapers
    82. 82. Half-yearly results, annual reports
    83. 83. Select Benchmark depending on scheme and compare</li></li></ul><li>Portfolio Management Process<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    84. 84. Portfolio Management Process<br />Portfolio Management Process <br />
    85. 85. Risk Management<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    86. 86. Risk Management<br />Risk Management Function<br /><ul><li>Disaster recovery & business contingency plans.
    87. 87. Insurance against third party loss (R&TA), arising from error & omission.</li></li></ul><li>Investment Checklists<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    88. 88. Investment Checklists<br />Investing Checklist <br /><ul><li>Draw up your asset allocation
    89. 89. Financial goals & Time frame (Are you investing for retirement? </li></ul> A child’s education? Or for current income? )<br /><ul><li>Risk Taking Capacity
    90. 90. Identify funds that fall into your Buy List
    91. 91. Obtain and read the offer documents
    92. 92. Match your objectives
    93. 93. In terms of equity share and bond weightings, downside risk protection, tax benefits offered, dividend payout policy, sector focus
    94. 94. Check out past performance
    95. 95. Performance of various funds with similar objectives for at least 3-5 years (managed well and provides consistent returns)</li></li></ul><li>Investment Checklists<br />Checklist continued…..<br /><ul><li>Think hard about investing in sector funds
    96. 96. For relatively aggressive investors
    97. 97. Close touch with developments in sector, review portfolio regularly
    98. 98. Look for `load' costs
    99. 99. Management fees, annual expenses of the fund and sales loads
    100. 100. Does the fund change fund managers often?
    101. 101. Look for size and credentials
    102. 102. Asset size less than Rs. 25 Crores
    103. 103. Diversify, but not too much
    104. 104. Invest regularly, choose the S-I-P
    105. 105. MF- an integral part of your savings and wealth-building plan. </li></li></ul><li>Mutual Fund Comparison<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    106. 106. Mutual Fund Comparison<br />Mutual Fund Comparison <br /><ul><li>Absolute returns
    107. 107. % difference of NAV
    108. 108. Diversified Equity with Sector Funds– No
    109. 109. Benchmark returns
    110. 110. SEBI directs
    111. 111. Fund's returns compared to its benchmark
    112. 112. Time period
    113. 113. Equal to time for which you plan to invest
    114. 114. Equity- compare for 5 years, Debt- for 6 months
    115. 115. Market conditions
    116. 116. Proved its mettle in bear market</li></li></ul><li>Expenses<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    117. 117. Expenses<br /><ul><li>An asterisk * indicates fee which is included in a fund’s expense ratio.
    118. 118. As per SEBI Rule, expense ratio should be 2.5% for equity & 2.25% for debt fund of fund value. </li></li></ul><li>The Expense Ratio<br /><ul><li>Indicator of fund’s efficiency and cost effectiveness.
    119. 119. It is defined as the ratio of total expenses to average net assets of the fund.
    120. 120. Past and estimated expense figures and ratios are disclosed in the Offer Document.
    121. 121. Fluctuations in the ratio across periods require that an average over three to five years be used to judge a fund’s performance. Also it should be evaluated in the light of the fund size, average account size and portfolio composition.
    122. 122. Funds with small corpus size will have higher expense ratio.
    123. 123. If a fund’s income levels or returns are small say a debt fund with 10% return, expense ratio becomes important and difference of even 0.5% between two funds can make lot of difference.</li></li></ul><li>Tracking Mutual Funds<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    124. 124. Tracking Mutual Funds<br />Keeping Track…<br /><ul><li>Filling up an application form and writing out a cheque = end of the story… No!
    125. 125. Periodically evaluate performance of your funds
    126. 126. Fact sheets and Newsletters
    127. 127. Websites such as www.valueresearchonline.com, www.mutualfundsindia.com, www.morningstar.in, www.lipperweb.com et al.
    128. 128. Newspapers
    129. 129. Professional advisor</li></li></ul><li>Warning Signals<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    130. 130. Warning Signals<br />Warning Signals<br /><ul><li>Fund's management changes;
    131. 131. Performance slips compared to similar funds;
    132. 132. Fund's expense ratios climb;
    133. 133. Beta, a technical measure of risk, also climbs;
    134. 134. Independent rating services reduce their ratings of the fund;
    135. 135. It merges into another fund;
    136. 136. Change in management style or a change in the objective of the fund. </li></li></ul><li>AUM movements in India<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    137. 137. AUM movements in India<br />Movement of AUMs in different categories over a period of time<br /><ul><li> Stock Funds have become a mainstream product.
    138. 138. Liquid Plus Funds and FMPs have seen aggressive inflows due to regulatory changes.
    139. 139. New asset classes like ETFs and FoFs have emerged.</li></li></ul><li>AUM movements in India<br />Indian Asset Management Industry - Growth in Assets<br />Total Assets Under Management as on March 2009 – Rs 493286 crores<br />Total No. of players - 36<br />
    140. 140. Penetration of Mutual Funds<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    141. 141. Penetration of Mutual Funds<br />Penetration vis-à-vis Other Financial Products<br />Note: Penetration of Mutual Funds is still low as compared to Banks and Insurance Companies.<br />
    142. 142. What Mutual Funds are not?<br />Flow Cycle of a Mutual Fund<br />Organizational Structure of a Mutual Fund<br />Balance sheet of a Bank and Mutual Fund<br />Diff. b/w MF and Direct Investment<br />Regulatory Aspects<br />Classification of Mutual Fund Schemes<br />Risk-return structure of schemes<br />History of Mutual Funds in India<br />Portfolio Management Process<br />Mutual Fund Comparison<br />Investments Checklists<br />Risk Management<br />AUM movements in India<br />Expenses<br />Tracking Mutual Funds<br />Warning Signals<br />Penetration of Mutual Funds<br />What Mutual Funds are not?<br />
    143. 143. What Mutual Funds are not?<br />MFs are not ‘get rich quick investments’<br />MFs are not ‘risk free investment’<br />MFs are not ‘assured return investment’<br />MFs are not ‘a universal solution to all investment needs’ <br />
    144. 144. Various Mutual Funds in India<br />Reliance Mutual Funds <br />HDFC<br />ABN Amro<br />AIG<br />Bank of Baroda<br />Canara Bank<br />Birla Sun Life<br />DSP Merrill Lynch<br />DBS Chola Mandalam AMC<br />Escorts Mutual<br />Deutsche Bank<br />ING<br />HSBC<br />ICICI Prudential<br />LIC<br />JP Morgan<br />Kotak Mahindra<br />Lotus India<br />JM Financial<br />Morgan Stanley<br />State Bank of India (SBI)<br />Sahara Mutual Funds<br />Sundaram BNP Paribas<br />Taurus Mutual Funds<br />Tata<br />UTI<br />Standard Cha<br />
    145. 145. NET ASSET VALUE<br />Net Asset value of a scheme reflects the performance of the scheme on a day to day basis.<br />It is the amount which the shareholders will collectively get if the fund is dissolved or liquidated.<br />NAV of a unit is the NAV of a fund divided by the number of outstanding units.<br />
    146. 146. Don’t underestimate Risk! While looking for your fund, take a look at its “Sharpe Ratio” & “Volatility”<br />Sale and repurchase price are NAV-based<br />Cut-off time for NAV<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<br />CDSC is variable exit load, charged depending on duration of stay in the fund<br />Loads are subject to SEBI Regulation and vary depending on industry practice<br />
    147. 147. SEBI GUIDELINES FOR NAV<br />Net Asset Value is the market value of the assets of the scheme minus its liabilities.<br />According to SEBI (mutual funds, second amendment) Regulations, 2000, a mutual fund can invest up to 5% of its NAV in the unlisted equity shares or equity related instruments in case of open ended schemes; while in case of close ended schemes, mutual funds can now invest up to 10% of its NAV.<br />Mutual funds are required to declare their NAV and sale repurchase prices of all schemes updated daily on a regular basis on the AMFI website by 8:00 pm and declare NAVs of their close ended schemes every Wednesday.<br />
    148. 148. Key Portfolio Building Components<br />Start Investing Early<br />Asset Allocation<br />Invest Regularly<br />
    149. 149. Investment in Mutual Fund through SIP<br />SIP – Systematic Investment Planning<br />…it is a method of investing a fixed sum, at a regular interval, in a mutual fund. <br />It is very similar to monthly saving schemes like a recurring monthly deposit / post office deposit<br />Advantages of Systematic Investment Planning<br /><ul><li>Encourages Regular Investments (just like recurring deposit schemes)
    150. 150. A Convenient way to invest regularly
    151. 151. Lower initial investment without cutting into regular expense
    152. 152. Long term perspective
    153. 153. Rupee Cost Averaging Benefit to counter volatility - it brings down the average cost of your Investments
    154. 154. No timing the market!!!
    155. 155. Meet investment objective with investment needs
    156. 156. Helps to match the risk / return profile</li></li></ul><li>SIP: The Power Of Compounding<br />SIP of Rs. 1000 invested per month @ 8% pa till the age of 60.<br />…the sooner you start, makes a difference!<br />
    157. 157. SIP - How Rupee Cost Averaging helps<br />Put aside an amount regularly Rupee cost averaging<br />Discipline is the key Control volatility<br />This example uses assumed figures and is for illustrative purposes only. <br />
    158. 158. 2. Invest Regularly & Systematically<br />Small investments<br />The Power of compounding<br />Rupee cost averaging<br />Don’t let money lie idle <br />
    159. 159. Types of risks associated with Mutual Fund Investment<br />Risk is an inherent aspect of every form of investment. For Mutual Fund investments, risks would include variability, or period-by-period fluctuations in total return. <br />Market risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. This change in price is due to 'market risk'.<br />Inflation risk: Sometimes referred to as 'loss of purchasing power'. Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll actually be able to buy less, not more.<br />Credit risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?<br />Interest rate risk: Interest rate movements in the Indian debt markets can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV.<br />Other risks associated are:<br />Investment risks Liquidity risk Changes in the government policy<br />
    160. 160. AMFI<br />Association of Mutual Funds in India (AMFI) incorporated in Aug 1995 is the Umbrella body of all the mutual fund registered with SEBI. It is non profit organization committed to developed the Indian mutual fund industry on professional, healthy & ethical lines & to enhance and maintain standards in all areas with a view to protecting & promoting the interests of Mutual Funds and their unit holders. <br />AMFI is an industry association, incorporated in 1995, is not an SRO, so it can just issue guidelines to members. It cannot enforce regulations.<br />
    161. 161. Objectives of AMFI :- <br /> To promote the interests of mutual funds and unit holders. <br />  To set ethical, commercial and professional standards in the<br /> industry.<br /> 3. To increase public awareness of the mutual fund industry.<br /> 4. AMFI is governed by a board of directors elected from<br /> mutual  funds and is headed by a full time chairman. AMFI has therefore prepared guidelines for intermediaries called AMFI Guidelines & Norms for Intermediaries (AGNI).<br />
    162. 162. Evaluating Fund Performance<br />Using ranking tools or portfolio evaluation tools (alpha, Sharp ratio, and Treynor measure) <br />Sharpe Ratio is used to characterise how well the return of a fund compensates you for the risk taken.<br /> Eg: When you buy a lottery ticket, you are taking quite a high risk. You may end up losing all your money or maybe you could make equally high gains. <br /> Say you purchase Rs 100 ticket, and win Rs 300.<br />How well do you think that the gain of Rs 200 compensated you for the risk taken while parting with the Rs 100.<br /> The measure of how well your returns compensates you for the risk you take is referred to as – Sharpe Ratio. <br />For your mutual fund investments, higher the Sharpe Ratio, the better!<br />
    163. 163. Remember: The 4Ps<br />Philosophy:<br /> Does the fund house follow a value philosophy, or do they follow a growth philosophy?  All fund houses cannot be good in following all philosophies. Normally they would tend to be good in one or the other. <br />2. People:<br />How long have they managed money for? Do they have the<br /> experience of seeing the markets during good and the bad cycles? <br /> 3. Process:<br /> Does the fund have a good process to identify investments? Is the<br /> portfolio construction team biased? Or is it based on the whims and<br /> fancies of a star fund manager?  <br /> 4. Performance:<br />If all the above mentioned criteria are satisfactorily addressed then<br /> a good fund performance will automatically follow. It will be<br /> predictable and it will reflect the philosophy being followed. <br />
    164. 164. Rating Agencies<br />Role of Rating Agencies<br />Facilitate informed investment decision making<br />Provide independent and reliable opinion of schemes<br />The quality of the Fund’s management and operations<br />Help meet specific investment objective<br /><ul><li> CRISIL~CPR Rankings and Value Research Star Rating are prominent ones</li></li></ul><li>Hedge Funds<br />Like mutual funds, a means for groups of investors to pool financial resources<br />Typically organized as partnership arrangement available only to the wealthiest investors <br />Flexibility to use speculative investment strategies<br />Subject to only limited oversight. <br />
    165. 165.
    166. 166.
    167. 167. WEBsites<br />•http://news.moneycontrol.com/mf/glossary.php•http://www.investopedia.com/university/mutualfunds/default.asp•http://www.valueresearchonline.com<br />•http://www.amfiindia.com/ <br />•http://www.mutualfundsindia.com/resourcecentre.asp <br />books <br />•Mutual fund industry in India- ICFAI university press.•Mutual fund product & services- Taxman (IIFB).•Security analysis-Taxman (IIFB).<br />

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