My presentation today 23rd April to SBI Offcier's as a part of their MDP at NISM Patal Ganga

1. Mutual Funds – An overview
Equity & Debt Overview
23rd
April 2018
Nanda Mohan Shenoy D
CAIIB,DBM-Part I,, NSE Certified Market Professional Level-1 ,
P G Diploma in IRPM, PG Diploma in EDP and Computer Management, DIM,
LA ISO 9001,LA ISO 27001 NISM empanelled CPE Trainer
1
Director

2. Disclaimer
• The views expressed herein are the
personal views of the speaker.
• It neither represents the views of NISM or
Bestfit
• The example given are for illustrative
purpsoe only

3. Agenda
• Mutual Fund Overview
–What is a Mutual Fund?
–MF Structure
–Asset Classes in Investing
–Indian History & journey
–Bank Fixed Deposits Vs MF
–MF Flavours
–Transactions
3

4. What is a MF?
A mutual fund is a trust that pools the savings of a number
of investors who share a common financial goal.
• The money is invested in a portfolio of securities ref
lect the common investment objective of the fund the
investors
• Investors’ contribution in a mutual fund is denoted in
units
• The income earned through the investments and
capital appreciation are shared by the investors
• The value of the units (NAV) reflects the current
value of the portfolio and income earned on it
• Unit holders participate in the benefits from the mutual
fund in proportion to the number of units owned by them.
4

5. Structure of MF-1
5

6. Identify the role of each entity
• SBI Funds Management Private Limited
• SBI Mutual Fund Trustee Company
Private Limited
• State Bank of India
• CAMS
• SHCIL
6

7. Asset Class
• Direct Equity
• Derivatives
• Commodities
• Mutual Funds
• Gold
–Physical
–ETF
• Real Estate
• Bitcoin
7
MF Vs Direct
Equity

8. History & Journey-1
• First Phase - 1964-1987
• Second Phase - 1987-1993
– SBI Mutual Fund was the first non-UTI Mutual Fund
June 1987
– 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 -June 1989
– GIC - December 1990.
8

9. History & Journey-2
• Third Phase - 1993-2003 (Entry of
Private Sector Funds)
• Fourth Phase - since February 2003
• In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of Rs.
29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes.
9

10. Growth Trajectory
10

11. Banks Fixed Deposit
• Why people invest in Bank FD
–Grandfather Syndrome
–Safety
–Liquidity
–Stable Returns
• Second thoughts
–Interest Rates are going southward
11

12. Deposit VS MF
12

13. FD vs MF
• Safety is a myth in banking - Only 1 Lac is
maximum insured per investor in a bank
• Market Risk is a myth in MF Industry- It
depends upon the type of scheme one
invests in
• Liquidity- even MF has the same amount
of liquidity compared to Fixed Deposits.
–Reliance Mutual Fund Card
–Insta redemption upto Rs 2 Lacs by Axis
Mutual Fund
13

14. FD Vs Mutual Funds
• Stable Returns is a myth
–The real rate of return on a FD does not
even beat the inflation
–In fact the return is negative
• RD Vs SIP
14

15. SIP Statistics
15

16. MF Flavours
• Equity
• Debt
• Hybrid
• Solution
Oriented
• Other
Schemes
16

17. Hybrid Schemes
• Conservative Hybrid
Fund
• Balanced Hybrid
Fund*
• Aggressive Hybrid
Fund*
• Dynamic Asset
Allocation or
Balanced Advantage
• Multi Asset Allocation
• Arbitrage Fund
• Equity Savings
17

18. Solution Oriented & Others
• Solution Oriented
–Retirement Fund
–Children’s Fund
• Other
–Index
Funds/ETFs
–FoFs(Overseas/
Domestic)
18

19. Variants
• Active Funds
• Passive Funds
–Tracking Error
• Fixed Maturity
Plans
–Surrogate of
Bank FD
–Without Tax
burden
19
– Direct Plans
– Regular Plans
Taxation
– ELSS
– Equity Oriented Fund
– Non Equity Fund
– Shariah Funds
– Non Shariah Funds

20. Transactions
• Based on Type
–Close ended
• Growth
• Income
–Open ended
–Interval Funds
20
• Transaction nature
–Purchase
–Redemption
–Switch (SIP/SWP/STP)
–Sell
–Financial (FT)
–Non Financial
(NFT)
–Dividend Payout
–Growth
–Dividend
Reinvestment

21. Distribution Channels
• Offline
• Online of AMC
• Online of
Brokers/Distributor
s
• MF Utilities
–Common
Account Number
• Through
Exchange
–Close ended
–Open ended
21

22. Part-2 Equity & Debt overview
22

23. Equity & Debt Fund Overview
• Types of Equity Fund
• Types of Debt Fund
• Returns expectation from both the fund
types
• Returns calculation
• Portfolio disclosure
23

24. Dilemma
• Which is better?
–Equity
–Debt
• Depends upon the risk appetite
• Depends on your liquidity requirement
• Need to do asset allocation
24

25. Equity
• Multicap
• Largecap
• Large & Midcap
• Midcap
• Small Cap
• Dividend Yield
• Value Fund*
• Contra Fund*
• Focused Fund
• Sectoral/Thematic
• ELSS
25

26. Definition
a. Large Cap: 1st -100th company in terms of full market capitalization
b. Mid Cap: 101st -250th company in terms of full market capitalization
c. Small Cap: 251st company onwards in terms of full market capitalization
8. Mutual Funds would be required to adopt the list of stocks prepared by
AMFI in this regard and AMFI would adhere to the following points while
preparing the list:
a. If a stock is listed on more than one recognized stock exchange, an
average of full market capitalization of the stock on all such stock
exchanges, will be computed;
b. In case a stock is listed on only one of the recognized stock exchanges,
the full market capitalization of that stock on such an exchange will be
considered.
c. This list would be uploaded on the AMFI website and the same would be
updated every six months based on the data as on the end of June and
December of each year. The data shall be available on the AMFI
website within 5 calendar days from the end of the 6 months period.
26

27. Multicap
• Minimum investment in equity & equity
related instruments- 65% of total assets
• Multi Cap Fund- An open ended equity
scheme investing across large cap, mid
cap, small cap stocks
• Who decides which is large, mid and
small cap?
27

28. Multicap
28

29. Large, Mid and Small
29
Sr. No. Company name ISIN BSE Symbol
BSE 6
month Avg
Total
Market Cap
in (Rs. Crs.)
NSE Symbol
NSE 6
month Avg
Total
Market Cap
(Rs. Crs.)
Average of
All
Exchanges
(Rs. Cr.)
Categorizatio
n as per SEBI
Circular
dated Oct 6,
2017
1Reliance Industries Ltd INE002A01018 RELIANCE 544406.3RELIANCE 552996.80 548702 Large Cap
2Tata Consultancy Services Ltd. INE467B01029 TCS 487316.7TCS 493908.47 490613 Large Cap
3HDFC Bank Ltd. INE040A01026 HDFCBANK 463916.9HDFCBANK 462402.76 463160 Large Cap
4ITC Ltd INE154A01025 ITC 335089.2ITC 334777.37 334933 Large Cap
5Housing Development Finance Corp.Lt INE001A01036 HDFC 274041.8HDFC 273616.71 273829 Large Cap
101Colgate-Palmolive (India) Ltd., INE259A01022 COLPAL 29244.98COLPAL 29265.95 29255 Mid Cap
102M.R.F. Ltd., INE883A01011 MRF 28253.27MRF 28257.84 28256 Mid Cap
103Steel Authority of India Ltd., INE114A01011 SAIL 28077.08SAIL 28082.62 28080 Mid Cap
104Procter & Gamble Hygiene & Health Care Ltd. INE179A01014 PGHH 27931.51PGHH 27950.27 27941 Mid Cap
105Emami Ltd INE548C01032 EMAMILTD 26521.45EMAMILTD 26547.39 26534 Mid Cap
251V-Guard Industries Ltd. INE951I01027 VGUARD 8579.16VGUARD 8579.91 8580Small Cap
252L&T Technology Services Limited INE010V01017 LTTS 8515.29LTTS 8520.90 8518Small Cap
253Hexaware Technologies Ltd. INE093A01033 HEXAWARE 8508.33HEXAWARE 8512.07 8510Small Cap
254SUZLON ENERGY LTD. INE040H01021 SUZLON 8541.43SUZLON 8415.88 8479Small Cap
255Asahi India Glass Ltd. INE439A01020 ASAHIINDIA 8449.42ASAHIINDIA 8449.01 8449Small Cap

30. Large Cap
• Minimum investment in equity & equity
related instruments of large cap
companies- 80% of total assets
• Large Cap Fund- An open ended equity
scheme predominantly investing in large
cap stocks
30

31. Large Cap
31

32. Small Cap
• Minimum investment in equity & equity
related instruments of small cap
companies- 65% of total assets
• Small Cap Fund- An open ended equity
scheme predominantly investing in small
cap stocks
•
32

33. Small Cap
33

34. Dividend Yield Fund
• Scheme should predominantly invest in
dividend yielding stocks.
• Minimum investment in equity- 65% of
total assets
• An open ended equity scheme
predominantly investing in dividend
yielding stocks
34

35. Top Dividend Paying Stocks
35

36. Don’t Confuse
36

37. Value Fund & Contra Fund
• AMC can offer any one of the two
• Scheme should follow a value investment
strategy or Contra Fund
• Minimum investment in equity & equity related
instruments - 65% of total assets
• An open ended equity scheme following a value
investment strategy or Contrarian strategy.
• Currently realignment has not happened
• L & T Value Fund
• SBI Contra Fund
37

38. Focused Fund
• A scheme focused on the number of
stocks (maximum 30)
• Minimum investment in equity & equity
related instruments - 65% of total assets
• An open ended equity scheme investing in
maximum 30 stocks (mention where the
scheme intends to focus, viz., multi cap,
large cap, mid cap, small cap)
• IDFC Focused Equity Fund
• Axis Focused 25 Fund
• 38

39. Sectoral /Thematic Fund
• Minimum investment in equity & equity
related instruments of a particular sector/
particular theme- 80% of total assets
• An open ended equity scheme investing in
__ sector (mention the sector)/
• An open ended equity scheme following
__ theme (mention the theme)
• Sundaram Rural India Fund
• SBI Pharma Fund
• Tata Ethical Fund
39

40. ELSS
• Minimum investment in equity & equity
related instruments - 80% of total assets
(in accordance with Equity Linked Saving
Scheme, 2005 notified by Ministry of
Finance)
• An open ended equity linked saving
scheme with a statutory lock in of 3 years
and tax benefit
• Axis Long Term Advantage Fund
40

41. Debt Fund Strategies
• Duration Strategy
– Fund aims to make money out of predicting interest rate
movements. Accordingly, it will buy and sell securities to have a
particular maturity date of the portfolio
• Accrual Strategy
– Fund aims to invest in companies that have a lower credit rating
but are well-managed.
– Buy those companies where the fund manager expects credit
ratings to improve, which will hopefully lead its price to go up
and benefit the fund
• Sector
– Debt of certain sectors like Banking and PSU Fund
41

42. Debt Fund
• Duration Strategy
– Overnight Fund
– Liquid Fund
– Ultra Short Duration Fund
– Low Duration Fund
– Money Market Fund
– Short Duration Fund
– Medium Duration Fund
– Medium to Long Duration Fund
– Long Duration Fund
– Dynamic Bond Fund
– Gilt Fund with 10 Year Constant
Duration
– Gilt Fund
• Accrual Strategy
– Corporate Bond Fund
– Credit Risk Fund
– Banking and PSU
Fund
– Floater Fund
42

43. Overnight Fund
• Investment in overnight securities having
maturity of 1 day
• An open ended debt scheme investing in
overnight securities
• They invest in Call Money Market
instruments
• Currently under Debt- Ultra short term
43

44. Liquid Fund
• Investment in Debt and money market
securities with maturity of upto 91 days
only
• An open ended liquid scheme
44

45. Duration Fund
• The Macaulay duration is the weighted
average term to maturity of the cash flows
from a bond. The weight of each cash flow
is determined by dividing the present
value of the cash flow by the price.
Macaulay duration is frequently used by
portfolio managers who use an
immunization strategy.
45

46. Formula
46

47. Funds & Duration
All of them invest in Debt & Money Market Instruments
• Ultra Short Term
–3 months - 6 months
• Low Duration Fund
–6 months- 12 months
• Money Market Fund
– Money Market instruments having
maturity upto 1 year
• Short Duration Fund
–1 year – 3 years
47

48. Funds & Duration
• Medium Duration Fund
–3 years – 4 years
• Medium to Long Duration Fund
–4 – 7 years
• Long Duration Fund
–Greater than 7 years
• Dynamic Bond
– Investment across duration
48

49. Accrual Strategy
• Corporate Bond Fund
– Minimum investment in corporate bonds- 80% of total assets (only in
highest rated instruments)
– An open ended debt scheme predominantly investing in highest rated
corporate bonds
• Credit Risk Fund^
– Minimum investment in corporate bonds- 65% of total assets
(investment in below highest rated instruments)
– An open ended debt scheme investing in below highest rated corporate
bonds
– ^ Words/ phrases that highlight/ emphasize only the return aspect of
the scheme shall not be used in the name of the scheme (for instance
Credit Opportunities Fund, High Yield Fund, Credit Advantage etc.)
49

50. Sector Debt
• Banking and PSU Fund
–Minimum investment in Debt
instruments of banks, Public Sector
Undertakings, Public Financial
Institutions- 80% of total assets
–An open ended debt scheme
predominantly investing in Debt
instruments of banks, Public Sector
Undertakings, Public Financial
Institutions
–
50

51. Floater Fund
• Minimum investment in floating rate
instruments- 65% of total assets
• An open ended debt scheme
predominantly investing in floating rate
instruments
• JM Floater Fund
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52. nmds@bestfitsolutions.in, 09820409261
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