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Mutual Funds &
ULIP
* Association Of Mutual Funds In India ( AMFI ) & SEBI
* Everything to know about Mutual Funds.
* Systematic Investment Plan or SIP
* Net Asset Value ( NAV ) Calculations.
What is a Mutual Fund?
Mutual fund is a mechanism for pooling money by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer
document.
Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is diversified because all stocks may not move in the same
direction in the same proportion at the same time.
Mutual funds issue units to the investors in accordance with quantum of money
invested by them. Investors of mutual funds are known as unitholders.
The profits or losses are shared by investors in proportion to their investments.
What is the history of Mutual Funds in
India and role of SEBI in mutual funds
industry?
Unit Trust of India was the first mutual fund set up in India in the year 1963. In late
1980s, Government allowed public sector banks and institutions to set up mutual
funds. In the year 1992, Securities and Exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are – to protect the interest of investors in securities
and to promote the development of and to regulate the securities market.
Association of Mutual Funds
Of India
The Association of Mutual Funds in India (AMFI) is an industry standards
organisation in India in the mutual funds sector. It was formed in 1995. Most
mutual funds firms in India are its members. The organisation aims to develop
the mutual funds market in India, by improving ethical and professional
standards.AMFI was incorporated on 22 August 1995. As of April 2015, there are
44 members.
What is Systematic Investment Plan ?
A Systematic Investment Plan or SIP is a way to invest in mutual fund schemes
at regular intervals. The money can be invested weekly, monthly, quarterly, or
even daily. Most people choose the 'monthly' option. A SIP helps you inculcate
the habit of saving and regular investing.
What is Net Asset Value (NAV) ?
Net Asset Value (NAV) is the total asset value (net of expenses) per unit of the fund
and is calculated by the AMC at the end of every business day. In order to
calculate the NAV of a mutual fund, you need to take the current market value of
the fund's assets minus the liabilities, if any and divide it by the number of shares
outstanding. NAV is calculated as follows:
For example, if the market value of securities of a Mutual Fund scheme is 500 lakh and the
Mutual Fund has issued 10 lakh units of 10 each to investors, then the NAV per unit of the
fund is 50.
What are the different types of mutual
fund schemes?
Based on the maturity period :-
Open-ended Fund
An open-ended fund is a fund that is available for subscription and can be redeemed on a
continuous basis. It is available for subscription throughout the year and investors can buy
and sell units at NAV related prices. These funds do not have a fixed maturity date. The key
feature of an open-ended fund is liquidity.
Close-ended Fund
A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds
are open for subscription for a specified period at the time of initial launch. These funds are
listed on a recognized stock exchange.
Interval Funds
Interval funds combine the features of open-ended and close-ended funds. These funds may
trade on stock exchanges and are open for sale or redemption at predetermined intervals on
the prevailing NAV.
Based on investment objectives:-
Equity/Growth Funds
Equity/Growth funds invest a major part of its corpus in stocks and the investment objective
of these funds is long-term capital growth. When you buy shares of an equity mutual fund,
you effectively become a part owner of each of the securities in your fund’s portfolio. Equity
funds invest minimum 65% of its corpus in equity and equity related securities. These funds
may invest in a wide range of industries or focus on one or more industry sectors. These
types of funds are suitable for investors with a long-term outlook and higher risk appetite.
Debt/Income Funds
Debt/ Income funds generally invest in securities such as bonds, corporate debentures,
government securities (gilts) and money market instruments. These funds invest minimum
65% of its corpus in fixed income securities. By investing in debt instruments, these funds
provide low risk and stable income to investors with preservation of capital. These funds tend
to be less volatile than equity funds and produce regular income. These funds are suitable for
investors whose main objective is safety of capital with moderate growth.
Balanced Funds
Balanced funds invest in both equities and fixed income instruments in line with the pre-
determined investment objective of the scheme. These funds provide both stability of returns
and capital appreciation to investors. These funds with equal allocation to equities and fixed
income securities are ideal for investors looking for a combination of income and moderate
growth. They generally have an investment pattern of investing around 60% in Equity and 40%
in Debt instruments.
Money Market/ Liquid Funds
Money market/ Liquid funds invest in safer short-term instruments such as Treasury Bills,
Certificates of Deposit and Commercial Paper for a period of less than 91 days. The aim of
Money Market /Liquid Funds is to provide easy liquidity, preservation of capital and moderate
income. These funds are ideal for corporate and individual investors looking for moderate
returns on their surplus funds.
What are the Benefits of investing in mutual funds?
Professional Management
When you invest in a mutual fund, your money is managed by finance professionals.
Investors who do not have the time or skill to manage their own portfolio can invest in mutual
funds. By investing in mutual funds, you can gain the services of professional fund managers,
which would otherwise be costly for an individual investor.
Diversification
Mutual funds provide the benefit of diversification across different sectors and companies.
Mutual funds widen investments across various industries and asset classes. Thus, by
investing in a mutual fund, you can gain from the benefits of diversification and asset
allocation, without investing a large amount of money that would be required to build an
individual portfolio.
Liquidity
Mutual funds are usually very liquid investments. Unless they have a pre-specified lock-in
period, your money is available to you anytime you want subject to exit load, if any. Normally
funds take a couple of days for returning your money to you. Since they are well integrated
with the banking system, most funds can transfer the money directly to your bank account.
Flexibility
Investors can benefit from the convenience and flexibility offered by mutual funds to invest in
a wide range of schemes. The option of systematic (at regular intervals) investment and
withdrawal is also offered to investors in most open-ended schemes. Depending on one’s
inclinations and convenience one can invest or withdraw funds.
Low transaction cost
Due to economies of scale, mutual funds pay lower transaction costs. The benefits are passed
on to mutual fund investors, which may not be enjoyed by an individual who enters the
market directly.
Transparency
Funds provide investors with updated information pertaining to the markets and schemes
through factsheets, offer documents, annual reports etc.
Well regulated
Mutual funds in India are regulated and monitored by the Securities and Exchange Board of
India (SEBI), which endeavors to protect the interests of investors. All funds are registered
with SEBI and complete transparency is enforced. Mutual funds are required to provide
investors with standard information about their investments, in addition to other disclosures
like specific investments made by the scheme and the quantity of investment in each asset
class.
What are the risk involved in investing in
mutual funds?
Mutual funds invest in different securities like stocks or fixed income securities, depending
upon the fund’s objectives. As a result, different schemes have different risks depending on the
underlying portfolio. The value of an investment may decline over a period of time because of
economic alterations or other events that affect the overall market. Also, the government may
come up with new regulations, which may affect a particular industry or class of industries. All
these factors influence the performance of Mutual Funds.
Risk and Reward: The diversification that mutual funds provide can help ease risk by offsetting
losses from some securities with gains in other securities. On the other hand, this could limit the
upside potential that is provided by holding a single security.
Lack of Control: Investors cannot determine the exact composition of a fund’s portfolio at any
given time, nor can they directly influence which securities the fund manager buys.
What is ULIP?
ULIP stands for unit linked insurance plans. ULIP is a combination of insurance and
investment. Here policyholder can pay a premium monthly or annually. A small amount
of the premium goes to secure life insurance and rest of the money is invested just like a
mutual fund does. Policyholder goes on investing through the term of the policy – 5,10 or
15 years and accumulates the units. ULIP offers investors options that invest in equity and
debt.
ULIP offers a combination of the insurance and investment to the policyholder.
What are the unique features that it offers to customers?
1. Investment and Insurance cover
it’s a two-in-one plan in terms of giving an individual the twin benefits of life
insurance and investment.
1. Multiple investment options
You can invest in multiple fund options based on your life stage needs and risk
profile.
1. Transparency and tax benefits
You know what is the amount you are paying for the various benefits and you will
also get tax benefits under section 80 C & 10(10D) as per prevailing tax laws.
Is there any difference between investing in a
mutual fund and in an initial public offering
(IPO) of a company?
Yes, there is a difference. Initial Public Offering (IPO) is offered by a company to
directly raise money for the company as per the stated objective. In the case of
mutual funds, the money garnered is used for investing in eligible securities such as
equity and debt instruments of companies, money market instruments, gold, etc.
Thus, a mutual fund acts as an intermediary between investors and companies.
How can investors redress their complaints?
Investors would find the name of contact person in the offer document of the mutual fund
scheme who they may approach in case of any query, complaints or grievances. Trustees
of a mutual fund monitor the activities of the mutual fund. The names of the directors of
AMC and trustees are also given in the offer documents. Investors should approach the
concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their
complaints. If the complaints remain unresolved, the investors may approach SEBI for
facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the
matter with the concerned mutual fund and follows up with it regularly.
Growth of Mutual Funds in Past Years !
Published: Sun, July 26 2015. 14:32 IST
Thank You.
Published By : Sarthak Dhingra
Tue, March 19 2018. 14:32 IST

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Mutual funds & ULIP - Sarthak Dhingra

  • 1. Mutual Funds & ULIP * Association Of Mutual Funds In India ( AMFI ) & SEBI * Everything to know about Mutual Funds. * Systematic Investment Plan or SIP * Net Asset Value ( NAV ) Calculations.
  • 2. What is a Mutual Fund? Mutual fund is a mechanism for pooling money by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is diversified because all stocks may not move in the same direction in the same proportion at the same time. Mutual funds issue units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders. The profits or losses are shared by investors in proportion to their investments.
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  • 4. What is the history of Mutual Funds in India and role of SEBI in mutual funds industry? Unit Trust of India was the first mutual fund set up in India in the year 1963. In late 1980s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and Exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.
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  • 6. Association of Mutual Funds Of India The Association of Mutual Funds in India (AMFI) is an industry standards organisation in India in the mutual funds sector. It was formed in 1995. Most mutual funds firms in India are its members. The organisation aims to develop the mutual funds market in India, by improving ethical and professional standards.AMFI was incorporated on 22 August 1995. As of April 2015, there are 44 members.
  • 7. What is Systematic Investment Plan ? A Systematic Investment Plan or SIP is a way to invest in mutual fund schemes at regular intervals. The money can be invested weekly, monthly, quarterly, or even daily. Most people choose the 'monthly' option. A SIP helps you inculcate the habit of saving and regular investing.
  • 8. What is Net Asset Value (NAV) ? Net Asset Value (NAV) is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of every business day. In order to calculate the NAV of a mutual fund, you need to take the current market value of the fund's assets minus the liabilities, if any and divide it by the number of shares outstanding. NAV is calculated as follows: For example, if the market value of securities of a Mutual Fund scheme is 500 lakh and the Mutual Fund has issued 10 lakh units of 10 each to investors, then the NAV per unit of the fund is 50.
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  • 10. What are the different types of mutual fund schemes? Based on the maturity period :- Open-ended Fund An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is available for subscription throughout the year and investors can buy and sell units at NAV related prices. These funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity. Close-ended Fund A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds are open for subscription for a specified period at the time of initial launch. These funds are listed on a recognized stock exchange. Interval Funds Interval funds combine the features of open-ended and close-ended funds. These funds may trade on stock exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.
  • 11. Based on investment objectives:- Equity/Growth Funds Equity/Growth funds invest a major part of its corpus in stocks and the investment objective of these funds is long-term capital growth. When you buy shares of an equity mutual fund, you effectively become a part owner of each of the securities in your fund’s portfolio. Equity funds invest minimum 65% of its corpus in equity and equity related securities. These funds may invest in a wide range of industries or focus on one or more industry sectors. These types of funds are suitable for investors with a long-term outlook and higher risk appetite. Debt/Income Funds Debt/ Income funds generally invest in securities such as bonds, corporate debentures, government securities (gilts) and money market instruments. These funds invest minimum 65% of its corpus in fixed income securities. By investing in debt instruments, these funds provide low risk and stable income to investors with preservation of capital. These funds tend to be less volatile than equity funds and produce regular income. These funds are suitable for investors whose main objective is safety of capital with moderate growth.
  • 12. Balanced Funds Balanced funds invest in both equities and fixed income instruments in line with the pre- determined investment objective of the scheme. These funds provide both stability of returns and capital appreciation to investors. These funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. They generally have an investment pattern of investing around 60% in Equity and 40% in Debt instruments. Money Market/ Liquid Funds Money market/ Liquid funds invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit and Commercial Paper for a period of less than 91 days. The aim of Money Market /Liquid Funds is to provide easy liquidity, preservation of capital and moderate income. These funds are ideal for corporate and individual investors looking for moderate returns on their surplus funds.
  • 13. What are the Benefits of investing in mutual funds? Professional Management When you invest in a mutual fund, your money is managed by finance professionals. Investors who do not have the time or skill to manage their own portfolio can invest in mutual funds. By investing in mutual funds, you can gain the services of professional fund managers, which would otherwise be costly for an individual investor. Diversification Mutual funds provide the benefit of diversification across different sectors and companies. Mutual funds widen investments across various industries and asset classes. Thus, by investing in a mutual fund, you can gain from the benefits of diversification and asset allocation, without investing a large amount of money that would be required to build an individual portfolio. Liquidity Mutual funds are usually very liquid investments. Unless they have a pre-specified lock-in period, your money is available to you anytime you want subject to exit load, if any. Normally funds take a couple of days for returning your money to you. Since they are well integrated with the banking system, most funds can transfer the money directly to your bank account.
  • 14. Flexibility Investors can benefit from the convenience and flexibility offered by mutual funds to invest in a wide range of schemes. The option of systematic (at regular intervals) investment and withdrawal is also offered to investors in most open-ended schemes. Depending on one’s inclinations and convenience one can invest or withdraw funds. Low transaction cost Due to economies of scale, mutual funds pay lower transaction costs. The benefits are passed on to mutual fund investors, which may not be enjoyed by an individual who enters the market directly. Transparency Funds provide investors with updated information pertaining to the markets and schemes through factsheets, offer documents, annual reports etc. Well regulated Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which endeavors to protect the interests of investors. All funds are registered with SEBI and complete transparency is enforced. Mutual funds are required to provide investors with standard information about their investments, in addition to other disclosures like specific investments made by the scheme and the quantity of investment in each asset class.
  • 15. What are the risk involved in investing in mutual funds? Mutual funds invest in different securities like stocks or fixed income securities, depending upon the fund’s objectives. As a result, different schemes have different risks depending on the underlying portfolio. The value of an investment may decline over a period of time because of economic alterations or other events that affect the overall market. Also, the government may come up with new regulations, which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds. Risk and Reward: The diversification that mutual funds provide can help ease risk by offsetting losses from some securities with gains in other securities. On the other hand, this could limit the upside potential that is provided by holding a single security. Lack of Control: Investors cannot determine the exact composition of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys.
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  • 17. What is ULIP? ULIP stands for unit linked insurance plans. ULIP is a combination of insurance and investment. Here policyholder can pay a premium monthly or annually. A small amount of the premium goes to secure life insurance and rest of the money is invested just like a mutual fund does. Policyholder goes on investing through the term of the policy – 5,10 or 15 years and accumulates the units. ULIP offers investors options that invest in equity and debt. ULIP offers a combination of the insurance and investment to the policyholder.
  • 18. What are the unique features that it offers to customers? 1. Investment and Insurance cover it’s a two-in-one plan in terms of giving an individual the twin benefits of life insurance and investment. 1. Multiple investment options You can invest in multiple fund options based on your life stage needs and risk profile. 1. Transparency and tax benefits You know what is the amount you are paying for the various benefits and you will also get tax benefits under section 80 C & 10(10D) as per prevailing tax laws.
  • 19. Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company? Yes, there is a difference. Initial Public Offering (IPO) is offered by a company to directly raise money for the company as per the stated objective. In the case of mutual funds, the money garnered is used for investing in eligible securities such as equity and debt instruments of companies, money market instruments, gold, etc. Thus, a mutual fund acts as an intermediary between investors and companies.
  • 20. How can investors redress their complaints? Investors would find the name of contact person in the offer document of the mutual fund scheme who they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of AMC and trustees are also given in the offer documents. Investors should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their complaints. If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with it regularly.
  • 21. Growth of Mutual Funds in Past Years !
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  • 24. Published: Sun, July 26 2015. 14:32 IST
  • 25. Thank You. Published By : Sarthak Dhingra Tue, March 19 2018. 14:32 IST