Here I am Sharing Presentation about Mutual Fund Which is beneficial for Finance Student. Who one want to know details of mutual fund can see this slide this will be helpful to the student of finance.
All The Best
deals with conceptual and operational details of mutual funds as dealt with by Vinayak Pai, II B.Com., SVS College, Bantwal, Karnataka, India as a seminar paper
Here I am Sharing Presentation about Mutual Fund Which is beneficial for Finance Student. Who one want to know details of mutual fund can see this slide this will be helpful to the student of finance.
All The Best
deals with conceptual and operational details of mutual funds as dealt with by Vinayak Pai, II B.Com., SVS College, Bantwal, Karnataka, India as a seminar paper
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Just a game Assignment 3
1. What has made Louis Vuitton's business model successful in the Japanese luxury market?
2. What are the opportunities and challenges for Louis Vuitton in Japan?
3. What are the specifics of the Japanese fashion luxury market?
4. How did Louis Vuitton enter into the Japanese market originally? What were the other entry strategies it adopted later to strengthen its presence?
5. Will Louis Vuitton have any new challenges arise due to the global financial crisis? How does it overcome the new challenges?Assignment 3
1. What has made Louis Vuitton's business model successful in the Japanese luxury market?
2. What are the opportunities and challenges for Louis Vuitton in Japan?
3. What are the specifics of the Japanese fashion luxury market?
4. How did Louis Vuitton enter into the Japanese market originally? What were the other entry strategies it adopted later to strengthen its presence?
5. Will Louis Vuitton have any new challenges arise due to the global financial crisis? How does it overcome the new challenges?Assignment 3
1. What has made Louis Vuitton's business model successful in the Japanese luxury market?
2. What are the opportunities and challenges for Louis Vuitton in Japan?
3. What are the specifics of the Japanese fashion luxury market?
4. How did Louis Vuitton enter into the Japanese market originally? What were the other entry strategies it adopted later to strengthen its presence?
5. Will Louis Vuitton have any new challenges arise due to the global financial crisis? How does it overcome the new challenges?
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1. NISM – Mutual Fund
Distribution Certification
Examination
2. Assessment Structure
The examination consists of 100 questions of 1 mark
each and should be completed in 2 hours. The
passing score 50%. There shall be negative marking
of 25% of the marks assigned to a question.
3. Session Objectives
By the end of the session you will be able to :
Explain the Concept & Role of a Mutual Fund
Explain the Mutual Fund Structure & Constituents
Explain the Legal & Regulatory Environment
Define and describe the Offer Document
Explain Fund Distribution & Channel Management Practices
Define & describe the Accounting, Valuation & Taxation
Explain the various Investor Services
Explain the various ways to calculate Return, Risk &
Performance of Funds
4. Session Objectives
Explain the steps of Scheme Selection
Explain the Selection of Right Investment Products for
Investors
Define and describe the term Financial Planning
Explain the Model Portfolios & Financial Plans
11. Concept of Mutual Fund
Pool of Money:
A Mutual Fund is a collective investment vehicle. It is a pool of
investor’s money invested according to pre-specified
investment objectives. The benefits from the investment of
the pooled money accrue to those that contribute to the
pool. There is thus mutuality in the contribution and the
benefit. Hence the name ‘mutual fund’
12.
13. Investment Objective
• A mutual fund is a pool of investor’s money, invested in a
portfolio of securities as per the stated objective
Capital
Appreciation
Real Estate
Equity Market
Equity Mutual
Fund
Capital
Preservation
Savings A/c
Liquid Mutual
Fund
Regular Income
Post Office MIS
Debt Mutual
Fund
14. Important Terms
Mutual Fund Units
New Fund Offer (NFO)
Unit Capital
Investment Portfolio
Assets Under
Management
Net Assets
Net Asset Value (NAV)
15. Profitability metric
(A) Interest income
(B) + Dividend income
(C) + Realized capital gains
(D) + Valuation gains
(E) – Realized capital losses
(F) – Valuation losses
(G) – Scheme expenses
The true worth of a unit of the scheme is otherwise called
Net Asset Value (NAV) of the scheme
16. Advantages of Mutual Funds
Professional Management
Portfolio Diversification
Economies of Scale
Liquidity
Tax Deferral
Tax benefits
Convenient Options
Investment Comfort
Regulatory Comfort
Systematic approach to investments
17. Limitations of a Mutual Fund
Lack of portfolio customization
Choice overload
No control over costs
18. Types of Funds
Open-ended funds are open for investors to enter or exit at
anytime, even after the NFO
Close-ended funds have a fixed maturity. Investors can buy
units of a close-ended scheme, from the fund, only during its
NFO
Interval funds combine features of both open-ended and
close-ended schemes. They are largely close-ended, but
become open-ended at pre-specified intervals
Actively Managed Funds and Passive Funds
Debt, Equity and Hybrid Funds
19. Types of Debt Funds
Gilt funds
Diversified debt funds
Junk bond schemes
Fixed maturity plans
Floating rate funds
Liquid schemes
21. Types of Hybrid Funds
Monthly Income Plan
Capital Protected Schemes
22. Other Funds
Gold Funds
Gold Exchange Traded Fund
Gold Sector Funds
Real Estate Funds
Commodity Funds - Commodity ETF or Commodity Sector
Funds
International Funds
Fund of Funds
Exchange Traded Funds
23. Role Of Mutual Fund
For investors, Mutual Fund offers an investment opportunity
and for issuers it acts as an institutional investors
The balance represents the mutual fund, its an important
financial intermediary in the system
Issuers Investors
Corporate
Investor
Retail
Investors
Corporate
Government
24. Key Developments over the Years
AUM of the industry, as of February 2010 has touched
Rs766,869crore from 832 schemes offered by 38 mutual funds
26. Legal Structure of Mutual Funds in
India
Key Constituents are :
Sponsor
Trust
Trustees
AMC
Custodian
Transfer Agent
27. Sponsor
The application to SEBI for registration of a mutual fund is
made by the sponsor/s
Invest in the capital of AMC
Eligibility criteria for Sponsor/s:
Should be carrying on business in financial services for 5
years
Should have positive net worth for each of those 5 Yrs
Latest net worth should be more than the capital of the AMC
28. Sponsor
Should have earned profits, after providing for depreciation
and interest, in 3 of the previous 5yrs
Needs to have a minimum 40% share holding in the capital
of the AMC
29. Mutual Fund As a TRUST
Is a public trust registered under the `Indian Trust Act of
1882`
Mutual fund is a pass through vehicle
It has no independent legal capacity
It is the trustees who have the legal capacity & therefore all
acts in relation to the trust are taken on its behalf by the
trustees
The trustees hold the unit holders money in fiduciary
capacity
Investors or unit holders are beneficial owners of the
investments held by the trust
30. Trustee
SEBI expects Trustees to perform a key role in ensuring legal
compliances and protecting the interest of investors
Accordingly, various General Due Diligence and Special Due
Diligence responsibilities have been assigned to them
Sponsor will have to appoint at least 4 trustees
If a trustee company has been appointed, then that company
would need to have at least 4 directors on the Board
At least 2/3rd of the trustees / directors on the Board of the
trustee company, would need to be independent trustees
31. AMC
Day to day operations of asset management are handled by
the AMC
It has to exercise due diligence and care in all its investment
decisions as per SEBI regulations and trust deed
As per SEBI regulations :
Directors of the AMC should have adequate professional
experience
Directors and key personnel of the AMC should not have
been found guilty of moral turpitude or convicted of an
economic offence or violation of any securities laws
32. AMC
At least 50% of the directors should be independent
directors
AMC needs to have a minimum net worth of Rs10 Crs
AMC cannot invest in its own schemes, unless its disclosed in
the Offer Document
Appointment of an AMC can be terminated by a majority of
the trustees, or by 75% of the Unit-holders
Operations of AMCs are headed by a Managing Director,
Executive Director or Chief Executive Officer
34. Custodian
The custodian has custody of the assets of the fund, SEBI
regulations stipulates that:
If the sponsor control 50% or more of the shares of a
custodian, or if 50% or more of the directors of a custodian
represent the interest of the sponsor, then that custodian
cannot appointed for the mutual fund operation of the
sponsor
All custodians need to register with SEBI
35. RTA
The RTA maintains investor records. Their Investor Service
Centers (ISCs), perform a useful role in handling the
documentation of investors.
Appointment of RTA is done by the AMC
AMC can choose to handle this activity in-house
All RTAs need to register with SEBI
36. Other Service Providers
Auditors - They are responsible for the audit of accounts
Accounts of the schemes need to be maintained independent
from the accounts of the AMC
While the scheme auditor is appointed by the Trustees, the
AM auditor is appointed by the AMC
Fund Accountant - They perform the role of calculating the
NAV, by collecting information about the assets and liabilities
of each scheme
AMC can either handle this activity in-house or it can be
outsourced
37. Other Service Providers
Distributors - They have a key role in selling suitable types of
units to their Clients
Collecting Bankers - The investors’ moneys go into the bank
account of the scheme maintained with collection bankers
appointed by the AMC
39. Role of Regulators in India
SEBI – Securities Exchange Board Of India
SEBI regulates mutual funds, depositories, custodians and
registrars & transfer agents in the country
The applicable guidelines for mutual funds are set out in SEBI
(Mutual Funds) Regulations, 1996
Stock Exchanges are regulated by SEBI
RBI – Reserve Bank Of India
RBI regulates the money market and foreign exchange market
SRO – Self Regulatory Organizations
Eg - Institute of Chartered Accountants of India (ICAI)
Eg – NSE & BSE
40. Role of Regulators in India
AMFI – Association of Mutual Funds Of India
AMCs in India are members of AMFI, an industry body that has
been created to promote the interests of the mutual funds
industry
41. AMFI
Objectives of AMFI:
Recommends and promotes best business practices and code
of conduct
Represent the industry to the regulators, and policy makers
in SEBI, RBI and the Government on matters concerning the
mutual fund industry
To develop a cadre of well trained Agent distributors and to
implement a programs of training and certification
To undertake nationwide investor awareness programs
To disseminate information on Mutual Fund Industry
42. AMFI Code Of Ethics
The AMFI Code of Ethics sets out the standards of good
practices to be followed by the AMC’s in their operations and
in their dealings with investors, intermediaries and the public
SEBI (Mutual Funds) Regulation, 1996 requires all Asset
Management Companies and Trustees to abide by the Code
of Conduct as specified in the Fifth Schedule to the Regulation
43. AGNI
AMFI Guidelines & Norms for Intermediaries (AGNI)
AMFI has also framed a set of guidelines and code of conduct
for intermediaries, consisting of individual agents, brokers,
distribution houses and banks engaged in selling of mutual
fund products
44. Investor Rights and Service Standards
Rights with respect to receiving “Information”
Right to receive “Timely Service”
Rights with respect to “Management of the mutual
fund”
47. Transaction Turnaround Time
Allotment of Units in a NFO (Other
Than ELSS)
5 days from NFO Closing date
Allotment of Units in a ELSS NFO 30 days from NFO closing date
Dispatch of Statement of account (on
going)
10 working days from transaction
request
Dispatch of Statement of account
(Systematic transactions)
10 days from end of calendar quarter
Dispatch of dividend warrants 30 days from the date of dividend
Dispatch of redemption proceeds 10 working days from transaction
request
Routine Transactions
48. Service Standards
Interest @ 15% p.a. to be paid by AMC in case of delay in
dispatching dividend warrants or redemption proceeds
In case of systematic transaction, on specific request by
investors, their statement of accounts should be dispatched
within 10 days of each transaction
Dormant investors will receive statement of accounts every
year
Investors can request for soft copy of their holdings
53. Role Of Offer Documents
A legal document that helps investors take a balanced view
on the investment
Most important sources of information on the scheme as it
contains the fundamental attributes
Investors get to know the details of any NFO through the
Offer Document
54. New Fund Offer (NFO)
Decide the
Scheme
Prepares offer
Document
Files documents
with SEBI for
Approval
Decides Time
Table
Promotional
Campaigns Starts
Holds events with
Intermediaries
Distribution of
Forms
55. NFO
NFO Open Date
NFO Close Date
Scheme Re-Opening Date
SEBI Stipulates:
NFOs other than ELSS can remain open for a maximum of 15
days
Allotment of units or refund of moneys should be done within
5 business days of closure of the scheme
57. Content of SID
Highlights
Introduction
Risk Factors
Standard
Scheme-specific
• Provisions regarding minimum no. of investors in the scheme
• Any other special considerations
• Definitions
• Due Diligence Certificate (issued by the AMC)
58. Content of SID
Information about the scheme
Units and Offer
Fees & Expenses
Rights of Unit-holders
Penalties, Litigation etc.
Note - SID is to be updated every year
59. Content of SAI
Information about Sponsors, AMC and Trustee Company
It includes contact information, shareholding pattern,
responsibilities, names of directors and their contact
information, profiles of key personnel, and contact
information of service providers {Custodian, Registrar &
Transfer Agent, Statutory Auditor, Fund Accountant (if
outsourced) and Collecting Bankers}
Condensed financial information (for schemes launched in
last 3 financial years)
How to apply
Rights of Unit-holders
60. Content of SAI
Investment Valuation Norms
Tax, Legal & General Information
Update of SAI
Regular update is to be done by the end of 3 months of every
financial year
Material changes have to be updated on an ongoing basis and
uploaded on the websites of the mutual fund and AMFI
61. Key Information Memorandum
Role of KIM
KIM is essentially a summary of the SID and SAI. It is more
easily and widely distributed in the market
As per SEBI regulations, every application form is to be
accompanied by the KIM
62. Key Items of KIM
Name of the AMC, mutual fund, Trustee, Fund Manager and
scheme
Dates of Issue Opening, Issue Closing & Re-opening for Sale
and Re-purchase
Plans and Options under the scheme
Risk Profile of Scheme
Price at which Units are being issued and minimum amount /
units for initial purchase, additional purchase and re-purchase
Bench Mark
Dividend Policy
63. Key Items of KIM
Performance of scheme and benchmark over last 1 year, 3
years, 5 years and since inception
Loads and expenses
Contact information of Registrar for taking up investor
grievances
Update of KIM
KIM is to be updated at least once a year
As in the case of SID, KIM is to be revised in the case of
change in fundamental attributes. Other changes can be
disclosed through addenda attached to the KIM
65. Distribution Channels
Traditional Distribution Channels
Individual – IFA’s
Institutional Channels – Banks and Distribution Companies
Newer Distribution Channels
Internet
Stock Exchanges
66. Pre-requisites to become Distributor
of a Mutual Fund
The individual needs to pass the NISM Mutual Fund
Distribution Certification Examination
Distributors / employees who were above the age of 50 years,
and had at least 5 years of experience as on September 30,
2003 were exempted. But they need to attend a prescribed
refresher course
After passing the examination, the next stage is to register
with AMFI and obtain AMFI Registration Number (ARN)
67. Pre-requisites to become Distributor
of a Mutual Fund
Armed with the ARN No., the IFA / distributor / stock
exchange broker can get empanelled with any number of
AMCs
Alternatively, they can become agents of a distributor who is
already empanelled with AMCs. Empanelment with the AMC,
or enrolment as an agent of an empanelled distributor is
compulsory to be able to sell mutual fund schemes and earn
the commissions
Institutions that are into distribution of mutual funds need to
register with AMFI. Besides, all their employees who are into
selling mutual funds need to have an ARN
68. Channel Management Practices
Commission Structures
Initial or Upfront Commission
Trail commission
ACE and AGNI
Every person who is into selling of mutual funds should be
familiar with the AMFI Code of Ethics (ACE) and AMFI’s
Guidelines & Norms for Intermediaries (AGNI)
69. Channel Management Practices
SEBI Regulations related to Sales Practices
No commission is payable on their own investments
Distributors has to disclose commission received by them for
whole year
Practice of rebating with the investors is banned
71. Accounting and Expenses
Net Assets of Scheme
Case: Investors have bought 20crore units of a mutual fund
scheme at Rs 10 each. The scheme has thus mobilized 20Crs
units X Rs 10 per unit i.e. Rs 200Crs
An amount of Rs 140Crs, invested in equities, has appreciated
by 10%
The balance amount of Rs 60Crs, mobilized from investors,
was placed in bank deposits. Interest and dividend received
by the scheme is Rs 8Crs, scheme expenses paid is Rs 4Crs,
while a further expense of Rs 1Crs is payable
72. Net Assets of Scheme
If the above details are to be captured in a listing of assets
and liabilities of the scheme, it would read as follows:
73. Net Assets of Scheme
The unit-holders’ funds in the scheme is commonly referred to as “net
assets”
As is evident from the table:
Net assets includes the amounts originally invested, the profits booked in
the scheme, as well as appreciation in the investment portfolio
Net assets go up when the market prices of securities held in the portfolio
go up, even if the investments have not been sold
A scheme cannot show better profits by delaying payments
Similarly, any income that relates to the period will boost profits,
irrespective of whether or not it has been actually received in the bank
account
74. Mark to Market
The process of valuing each security in the investment
portfolio of the scheme at its market value is called ‘mark to
market’ i.e. marking the securities to their market value
Why is this done?
If investments are not marked to market, then the investment
portfolio will end up being valued at the cost at which each
security was bought
Investors buy or sell units on the basis of the information
contained in the NAV
Helps in assessing the performance of the scheme / fund
manager
75. Sale Price, Re-purchase Price and
Loads
A distinctive feature of open-ended schemes is the ongoing
facility to acquire new units from the scheme (“sale
transaction”) or sell units back to the scheme (“re-purchase
transaction”)
The difference between the Sale Price and NAV is called the
“entry load”
The difference between the NAV and Re-purchase Price is
called the “exit load”
Reducing load during unit holding period is “Contingent
Deferred Sales Charge (CDSC)”
76. Position since August 1, 2009
SEBI has banned entry loads
Exit loads / CDSC in excess of 1% of the redemption proceeds
have to be credited back to the scheme immediately
Exit load structure needs to be the same for all unit-holders
representing a portfolio
77. Expenses
Initial Issue Expenses - one-time expenses that come up
when the scheme is offered for the first time (NFO)
Initial Issue Expenses were treated as immediate expenses or
written off gradually as deferred load
AMCs need to bear the initial issue expenses now
Recurring Expenses
Fees of various service providers, such as Trustees, AMC,
Registrar & Transfer Agents, Custodian, & Auditor
78. Recurring Expenses
Expenses on investor communication, account statements,
dividend / redemption cheques / warrants
Listing fees and Depository fees
Service tax
The following expenses cannot be charged to the scheme:
Penalties and fines for infraction of laws
Interest on delayed payment to the unit holders
Legal, marketing, publication and other general expense
Fund Accounting Fees
Expenses on general management
79. Contd.
Expenses on general administration, corporate advertising
and infrastructure costs
Depreciation on fixed assets and software development
expenses
81. Management Fees Limits
Management Fees Limits
1.25% on the first Rs 100Crs of net assets of a scheme
1.00% on the balance net assets
Management fees cannot be charged by liquid schemes and
other debt schemes on funds parked in short term deposits of
commercial banks
82. Expense Limit of other funds
Expense limits for index schemes (including Exchange Traded
Funds) is as follows:
Recurring expense limit (including management 1.50% fees)
Management fees 0.75%
Expense Limits for Fund of Funds, the recurring expense limit
(including management fees) is 0.75%
83. Dividends & Distributable Reserves
SEBI guidelines stipulate that dividends can be paid out of
distributable reserves
All the profits earned are treated as available for distribution
Valuation gains are ignored. But valuation losses need to be
adjusted against the profits
That portion of sale price on new units, which is attributable
to valuation gains, is not available as a distributable reserve
84. Key Accounting and Reporting
Requirements
The accounts of the schemes need to be maintained distinct
from the accounts of the AMC. The auditor for the AMC has
to be different from that of the schemes
Norms are prescribed on when interest, dividend, bonus
issues, rights issues etc. should be reflected for in the
accounts
NAV is to be calculated upto 4 decimal places in the case of
index funds, liquid funds and other debt funds
NAV for equity and balanced funds is to be calculated upto at
least 2 decimal places
85. Key Accounting and Reporting
Requirements
Investors can hold their units even in a fraction of 1 unit.
However, current stock exchange trading systems may restrict
transacting on the exchange to whole units
86. Valuation
Closing price of a security is taken as the value of the security
in the portfolio on the valuation date
Where equity shares of a company are not traded in the
market on a day, or they are thinly traded, a formula is used
for the valuation. The valuation formula is based on the
Earnings per Share of the company, its Book Value, and the
valuation of similar shares in the market (peer group)
Where an individual security that is not traded or thinly
traded, represents more than 5% of the net assets of a
scheme, an independent valuer has to be appointed
87. Valuation
Debt securities that are not traded on the valuation date are
valued on the basis of the yield matrix prepared by an
authorized valuation agency. The yield matrix estimates the
yield for different debt securities based on the credit rating of
the security and its maturity profile
89. Short Term Capital Gains (Units held for 36
months or less)
Investors
Individual
Corporate
NRI
Equity Funds
Individual -
Debt Funds
Individual –
15.45%
Corporate –
30.90%
Corporate –
16.2225% 32.445%
NRI – 15.45% 30.90%
90. Long Term Capital Gains (Units held for
more than 36 months)
Investors
Individual
Corporate
NRI
Equity Funds
Nil
Nil
Nil
Debt Funds
20%+Surcharge with indexation
20%+Surcharge with indexation
20%+Surcharge with indexation
92. Securities Transaction Tax (STT)
Note - STT is not payable on transactions in debt or debt-
oriented mutual fund units
93. Setting off Gains and Losses under
Income Tax Act
Few key provisions here are:
Capital loss, short term or long term, cannot be set off against
any other head of income (e.g. salaries)
Short term capital loss is to be set off against short term
capital gain or long term capital gain
Long term capital loss can only be set off against long term
capital gain
Since long term capital gains arising out of equity-oriented
mutual fund units is exempt from tax, long term capital loss
arising out of such transactions is not available for set off
94. Limitations on Set-off in case of
Mutual Fund Dividends
In order to avoid Dividend Stripping, it is now provided that:
If an investor buys units within 3 months prior to the record
date for a dividend, and
Sells those units within 9 months after the record date, any
capital loss from the transaction would not be allowed to be
set off against other capital gains of the investor, up to the
value of the dividend income exempted
Lets Take an Example !!!
95. Limitations on Set-off in case of Bonus
Units
What is Bonus Issue?
Such capital loss is not available for setting off against capital
gains, if the original units were bought within a period of 3
months prior to the record date for the bonus issue and sold
off within a period of 9 months after the record date
97. Mutual Fund Investors
Eligibility to Invest
Individual Investors:
Resident Indian adult individuals, above the age of 18
Minors can invest through Parents/ Lawful guardians
Hindu Undivided Families (HUFs)
Non-Resident Indians (NRIs) / Persons of Indian origin (PIO)
Non-individual Investors:
Companies / corporate bodies, registered in India
Registered Societies and Co-operative Societies
Religious and Charitable Trusts
98. Non-individual Investors
Trustees of private trusts
Partner(s) of Partnership Firms
Association of Persons or Body of Individuals, whether incorporated or not
Banks , Financial Institutions and Investment Institutions
Other Mutual Funds registered with SEBI
Foreign Institutional Investors (FIIs) registered with SEBI
International Multilateral Agencies approved by the Government of India
Army/Navy/Air Force, Para-Military Units and other eligible institutions
Scientific and Industrial Research Organizations
Universities and Educational Institutions
99. Not permitted Investors
An individual who is a foreign national
Any entity that is not an Indian resident, as per FEMA (except
when the entity is registered as FII with SEBI, or has a sub-
account with a SEBI-registered FII)
Overseas Corporate Bodies (OCBs)
100. KYC Requirements
It is compulsory for all investments of Rs 50,000 and above to
be compliant with the regulatory requirements prescribed
under the Anti-Money Laundering Act, 1992 and SEBI circulars
in this regard
In case of minor, KYC requirements have to be complied with
by the Guardian
In case of investments by a Power of Attorney holder on
behalf of an investor, KYC requirements have to be complied
with, by both, investor and PoA holder
101. PAN Requirements for Micro-SIPs
PAN Card is compulsory for all mutual fund investments
Exception has been made for Micro-SIPs i.e. SIPs where
annual investment (12 month rolling or April-March financial
year) does not exceed Rs 50,000
Instead, the investors can submit PHOTO IDENTIFICATION
documents along with Micro SIP applications:
Voter Identity Card
Driving License
Government / Defense identification card
Passport
Photo Ration Card
102. PAN Requirements for Micro-SIPs
Employee ID cards issued by companies registered with
Registrar of Companies
Photo Identification issued by Bank Managers of Scheduled
Commercial Banks / Gazetted Officer / Elected
Representatives to the Legislative Assembly / Parliament
Note - Relaxation in documentation requirements for micro-
SIPs is not available for HUFs and non-individuals. It is
available for NRIs, but not PIOs
103. Additional Documentation for
Institutional Investors
Additional documents for institutional investors are:
For a company / trust is eligible to invest under the laws of
the Memorandum of Association and Articles of Association
or Trust Deed
Authorization for the investing institution to invest known as
Board Resolution
Authorized Signatory List
These documentation requirements for institutional investors
are in addition to the normal KYC documentation
104. Demat Account
Dematerialization
Benefits from a Demat account are as follows:
Less paperwork in buying or selling the Units
Direct credit of bonus and rights units
Change of address or other details need to be given only to
the Depository Participant
Note - The investor also has the option to convert the demat
units into physical form. This process is called
re-materialization
105. Transactions with Mutual Funds
Fresh Purchase
Additional Purchases
Online Transactions
Payment Mechanism
Cheque / Demand Draft (DD)
Direct Remittance – RTGS or NEFT
Electronic Clearing System or Auto Debit
106. ASBA & M-Banking
Application Supported by Blocked Amount (ASBA)
M-Banking
Benefits of ASBA:
Money goes out of the investor’s bank account only on
allotment
Investor does not have to wait for any refund
107. Allotment of Units
NFO : Sale price = Face Value (Rs.10)
Continuous Offer : Sale Price = NAV
Rights issue
Bonus issue
108. Repurchase of Units
Possible for Open-Ended Scheme
Payment Mechanism:
Cheque
Direct Credit
109. Cut-off Time
Equity Funds
• Sale & Re-Purchase
Transaction
• Cut-Off Time : 3Pm
• Before 3 Pm - Same
Day NAV
• After 3 Pm – Next
Business Day NAV
Debt Funds
• Sale & Re-Purchase
Transaction
• Cut-Off Time : 3Pm
• Transaction < 1 Cr
then Same day NAV
if received before 3
Pm else next Day
NAV
• Transaction > 1 Cr
then the NAV of DAY
when funds realized
Liquid Funds
• Sale Transaction
• Cut-Off Time : 2 Pm
• Previous Day or
Preceding Day NAV
• Re-Purchase
Transaction
• Cut-Off Time : 3
PM
• Before 3 Pm then
same day NAV else
next business day
NAV
110. Transactions through the Stock
Exchange
National Stock Exchange (NSE) - NEAT MFSS
Bombay Stock Exchange (BSE) - BSE’s platform is BSE STAR
Mutual Funds Platform
Timing – 9A.M to 3 P.M
Transactions:
Purchase
Additional Purchase
Re-Purchase
111. Investment Plans and Services
Dividend Payout
Growth
Dividend Re-Investment Options
Systematic Investment Plan (SIP)
Systematic Withdrawal Plan
Systematic Transfer Plan
Triggers
112. Investment Plans and Services
Statement of Account and Investment Certificate
Nomination
Pledge
114. Drivers of Returns in Equity Scheme
Fundamental
Analysis
• Earning Per Share
• Price to Earning
Ratio
• Book Value Per
Share
• Price to Book
Value
Technical
Analysis
• Study of Price -
Volume
relationship
• Tools like Bars,
Charts, Graphs are
used extensively
115. Drivers of Returns in a Scheme
Investment Styles
Growth
Value
Portfolio Building Approach
Top down - sector allocation
Bottom up - stock picking
116. Drivers of Returns in a Scheme
Debt Securities
Money Market Securities
Debt securities may be issued by
Central Government &State Governments,
Banks
Financial Institutions,
Public Sector Undertakings (PSU)
Private Companies
Municipalities etc…
117. Debt Securities
Various Debt Securities:
Government Securities or G-Sec or Gilt
Treasury Bills
Certificates of Deposit
Commercial Papers
Bonds / Debentures
118. Debt Securities
Yield Spread
Fixed Rate & Floating Rate
Credit Risk
Credit Rating Companies - CRISIL, ICRA, CARE and Fitch
Symbols – AAA
Relationship Between Bond Price and Interest Rates
Modified Duration
Strategy in Falling interest rates scenario
Strategy in Rising interest rates scenario
119. Drivers of Returns in a Scheme
Gold
Factors affecting Gold:
Global price of gold
Strength of the Rupee
Real Estate
Factors affecting Real Estate:
Economic scenario
Infrastructure development
Interest Rates
121. Risk in Equity Funds
Generic
Portfolio Specific
Sector funds
Diversified equity funds
Thematic funds
Mid cap funds
Contra funds
Dividend yield funds
Arbitrage funds
122. Risk in Debt Funds
Generic
Portfolio Specific
Liquid schemes
Gilt schemes
Fixed Maturity Plans
Capital guaranteed schemes
High yield bond schemes
123. Risk In Debt Funds
Risk in Balanced Funds
Monthly Income Plan
Flexible asset allocation scheme
Risk in Gold Funds
Risk in Real Estate Funds
Less Transparency
Less Liquidity
High Transaction Cost
High Regulatory Risk
124. Measures Of Risk
Fluctuation in returns is used as a measure of risk
Risk
Measures
Variance
Standard
Deviation
Beta
Modified
Duration
125. Measures of Risk
Variance - It measures the fluctuation in periodic returns of a scheme, as
compared to its own average return
Suppose there were two schemes, with monthly returns as follows:
Scheme 1: 5%, 4%, 5%, 6%. Average=5%
Scheme 2: 5%, -10%, +20%, 5% Average=5%
This can be easily calculated in MS Excel using the following function:
=var(range of cells where the periodic returns are calculated)
Variance as a measure of risk is relevant for both debt and equity schemes
126. Measures of Risk
Standard Deviation
Like Variance, Standard Deviation too measures the
fluctuation in periodic returns of a scheme in relation to its
own average return
This can be calculated in MS Excel using the following
function:
=stdev(range of cells where the periodic returns are
calculated)
Standard deviation as a measure of risk is relevant for both
debt and equity schemes
127. Measures of Risk
Beta - It measures the fluctuation in periodic returns in a
scheme, as compared to fluctuation in periodic returns of a
diversified stock index over the same period
The diversified stock index, by definition, has a Beta of 1
Schemes, whose beta > 1, are seen as more risky than the
market. Beta <1 is indicative of a scheme that is less risky than
the market
Beta as a measure of risk is relevant only for equity schemes
128. Measures of Risk
Modified Duration - This measures the sensitivity of value of
a debt security to changes in interest rates
Higher the modified duration, higher the interest sensitive
risk in a debt portfolio
Weighted Average Maturity
Longer the maturity of a debt security, higher would be its
interest rate sensitivity
129. Benchmarks and Performance
Benchmarks
Criteria:
Should be in synch with the investment objective of the
scheme
Benchmark should be calculated by an independent agency in
a transparent manner
130. Benchmarks for Equity schemes
Important Aspects:
Scheme type:
Diversified index, like BSE Sensex or S&P CNX Nifty
Sectoral indices like BSE Bankex, BSE FMCG Index
Choice of Investment Universe:
Large Cap indices - BSE Sensex and S&P CNX Nifty
Mid cap indices - CNX Midcap or Nifty Midcap 50 or BSE Midcap
Choice of Portfolio Concentration:
Narrow indices like BSE Sensex and NSE Nifty
broader indices like BSE 100, BSE 200 & S&P CNX 500
Underlying Exposure
Arbitrage Fund - Money market index
131. Benchmarks for debt schemes
• benchmark for debt should be
developed by research and rating
agencies recommended by AMFI
like CRISIL, ICICI Securities and
NSE
NSE’s benchmarks are:
MIBOR (Mumbai Inter-Bank
Offered Rate)
ICICI Securities’ benchmarks are:
Sovereign Bond Index (I-Bex)
Si-Bex (1 to 3 years),
o Mi-Bex (3 to 7 years) and
o Li-Bex (more than 7 years)
As per SEBI guidelines, the CRISIL Benchmarks are:
CRISIL CompBEX - Composite
Bond Index
CRISIL LiquiFEX - Liquid Fund
Index
CRISIL STBEX - Short-Term Bond
Index
CRISIL Debt Hybrid Index – 60:40
CRISIL Debt Hybrid Index – 75:25
132. Benchmarks for debt schemes
Important Aspects for Choosing Benchmark:
Scheme Type
Liquid schemes - NSE’s MIBOR or CRISIL LiquiFEX is suitable
Choice of Investment Universe
CRISIL’s AAA corporate bond index is one such non -
government securities based index
133. Benchmarks for other schemes
Balanced Funds
synthetic index that is calculated as 65% of BSE Sensex and
35% of I-Bex
CRISIL MIPEX is suitable for Monthly Income Plans
CRISIL BalanCEX can be considered by balanced funds
Gold ETF – Gold Price
International Funds
Hang Seng as a benchmark - CHINA
S&P 500 - US
134. Quantitative Measures of
Fund Manager Performance
Relative return comparisons
Outperformance
Under-performance
Risk-adjusted Returns
Measures of Risk
Adjusted Returns
Sharpe Ratio Treynor Ratio Alpha
135. Sharpe Ratio
Sharpe Ratio
Sharpe Ratio is effectively the risk premium per unit of risk
(Rs minus Rf) ÷ Standard Déviation
Rf – Risk free return & Rs – Returns earned by risk taking
Risk Premium – (Rs – Rf)
Thus, if risk free return is 5%, and a scheme with standard
deviation of 0.5 earned a return of 7%, its Sharpe Ratio would
be (7% - 5%) ÷ 0.5 i.e. 4%
Higher the Sharpe Ratio, better the scheme is considered to
be
136. Treynor Ratio
Treynor Ratio too is a risk premium per unit of risk
Treynor Ratio uses Beta
Formula - (Rf minus Rs) ÷ Beta
Thus, if risk free return is 5%, and a scheme with Beta of 1.2
earned a return of 8%, its Treynor Ratio would be (8% - 5%) ÷
1.2 i.e. 2.5%
Higher the Treynor Ratio, better the scheme is considered to
be
137. Alpha
The Beta of the market, by definition is 1
The difference between an index fund’s return and the
market return, is the tracking error
Non-index schemes too would have a level of return which is
in line with its higher or lower beta as compared to the
market. This is optimal return
The difference between a scheme’s actual return and its
optimal return is its Alpha – a measure of the fund manager’s
performance
Positive alpha is indicative of out-performance by the
fund manager & Vice - versa
139. Scheme Selection
As a structured approach, the sequence of decision making is
as follows:
Step 1 – Deciding on the scheme category
Step 2 – Selecting a scheme within the category
Step 3 – Selecting the right option within the scheme
140. How to choose between Scheme
Categories?
A Pictorial
representation of
the risk hierarchy
of different
schemes
141. Selecting the Scheme Category
While deciding between schemes to invest in, a few principles
to keep in mind:
For Equity Funds:
Markets are more predictable in the long term, than in the
short term
Role of various broad equity scheme categories in an
investor’s portfolio is as follows:
Active or Passive
Open-ended or Close-ended
Diversified, Sector or Thematic
Large-cap v/s Mid-cap / Small Cap Funds
142. Selecting the Scheme Category
Growth or Value funds
Portfolio Turnover
Arbitrage funds
Domestic Equity v/s International Equity funds
143. Selecting the Scheme Category
Debt Funds
Structures that can meet investor needs are:
Regular Debt Funds v/s MIPs
Open-end Funds v/s FMP
Gilt Funds v/s Diversified Debt Funds
Long-Term Debt Fund v/s Short Term Debt Fund
Money Market Funds / Liquid Schemes
Regular Debt Funds v/s Floaters
Balanced Funds
Gold Funds
144. Selecting a Scheme within a Scheme
Category
Parameters for selecting schemes within a category are:
Fund Age
Scheme running expenses
Tracking Error
Regular Income Yield in Portfolio
Rankings & Ratings by Research Agencies
145. Selecting the right option within the
scheme
Scheme
Plans
Growth Plan Dividend Plan
Dividend
Payout
Dividend Re-
investment
147. Financial and Physical Assets
Physical assets have value and can be touched, felt and used
Plant and Machinery
Financial assets have value, but cannot be touched, felt or
used as part of their core value
Shares, debentures, fixed deposits, bank accounts and mutual
fund schemes
The Implication:
Comfort
Unforeseen events
Economic Context
148. Gold – Physical or Financial?
The exposure to gold as a financial asset can be taken in
different forms:
Gold ETF
Gold Sector Fund
Gold futures contracts are traded in commodity exchanges
like the National Commodities Exchange (NCDEX) and Multi-
Commodity Exchange (MCX)
149. Real Estate – Physical or Financial?
Real estate in physical form is prone to few disadvantages:
High Ticket size
Concentration risk
Encroachment
Illiquidity
High Transaction cost
Ownership risk or Credit Risk
Note : It is for these reasons that real estate investors prefer
to invest through Real estate mutual funds
150. Fixed Deposit or Debt Scheme
Features where bank deposits clearly score over mutual
funds:
Deposit insurance scheme
Premature Close
Mutual fund debt schemes are superior to bank deposits in
the following respects:
Possible to earn higher returns
Interest earned in a bank deposit is taxable
Mutual Funds are more Flexible
151. New Pension Scheme
Pension Funds Regulatory and Development Authority
(PFRDA) is the regulator for the New Pension Scheme.
Two kinds of pension accounts are envisaged:
Tier I (Pension account), is non-withdrawable
Tier II (Savings account) is withdrawable
Investors can invest through Points of Presence (POP)
152. New Pension Scheme
They can allocate their investment between 3 kinds of
portfolios:
Asset Class E: Investment in predominantly equity market
Instruments
Asset Class C: Investment in Debt securities other than
Government Securities
Asset Class G: Investments in Government Securities
The 3 asset class options are managed by 6 Pension Fund
Managers (PFMs). The investors’ moneys can thus be
distributed between 3 portfolios X 6 PFMs = 18 alternatives
154. Introduction to Financial Planning
What is Financial Planning?
Financial planning is a planned and systematic approach to
provide for the financial goals that will help people realize
their needs and aspirations, and be happy
155. Introduction to Financial Planning
Assessment of Financial Goals
The costs mentioned, in today’s terms, need to be translated
into the rupee requirement in future. This is done using the
formula
A = P X (1 + i)n, where,
A = Rupee requirement in future
P = Cost in today’s terms
i = inflation
n = Number of years into the future, when the expense will be
incurred
156. Introduction to Financial Planning
Investment Horizon
The year-wise financial goals statement throws up the
investment horizon
Assessing the Fund Requirement
How much is that investment requirement?
This can be calculated using a variation of the formula used
earlier i.e. P = A ÷ (1 + r) n, where:
r represents the return expected out of the investment
portfolio
157. Financial Planning Objectives &
Benefits
Objectives & Benefits:
To ensure that the right amount of money is available at the
right time
To let the investor know in advance, if some financial goal is
not likely to be fulfilled
Financial planning thus helps investors realize their
aspirations and feel happy
It also helps the financial planner, because the process of
financial planning helps in understanding the investor better,
and cementing the relationship with the investor’s family
158. Need for Financial Planners
Most investors are either not organized, or lack the ability to
make the calculations
The knowledge of how and where to invest may be lacking
Financial planner can help the investor to borrow and
structure the loan arrangement with the lender
Taxation is another area that most investors are unclear
about
Financial planners can also help investors in planning for
contingencies through advice on insurance products,
inheritance issues etc
159. Alternate Financial Planning
Approaches
An alternate approach is a “comprehensive financial plan”
where all the financial goals of a person are taken together,
and the investment strategies worked out on that basis.
160. Step 1 - Establish and Define the Client-Planner
Relationship
Step 2 - Gather Client Data, Define Client Goals
Step 3 -Analyze and Evaluate Client’s Financial Status
Step 4 - Developing the financial planning
recommendations
Step 5 - Implement the Financial Planning
Recommendations
Step 6 - Monitor the Financial Planning
Recommendations
Steps in Financial Planning
161. Life Cycle in Financial Planning
Life Cycle
Childhood
Young Unmarried
Young Married
Married with Young Children
Married with Older Children
Pre-Retirement
Retirement
162. Wealth Cycle in Financial Planning
Wealth Cycle:
Accumulation
Transition
Inter-Generational Transfer
Reaping / Distribution
Sudden Wealth
166. Risk Profiling Tools
Asset Allocation - The distribution of an investor’s portfolio
between different asset classes is called asset allocation
Role - With a prudent asset allocation, the investor does not
end up in the unfortunate situation of having all the
investments in an asset class that performs poorly
Asset Allocation Types
Strategic Asset Allocation
Tactical Asset Allocation
167. Model Portfolios
Model portfolios – the asset allocation mix that is most appropriate for
different risk appetite levels
Young call centre / BPO employee with no dependents
50% diversified equity schemes (preferably through SIP); 20% sector
funds; 10% gold ETF, 10% diversified debt fund, 10% liquid schemes
Young married single income family with two school going kids
35% diversified equity schemes; 10% sector funds; 15% gold ETF, 30%
diversified debt fund, 10% liquid schemes
Single income family with grown up children who are yet to settle down
35% diversified equity schemes; 15% gold ETF, 15% gilt fund, 15%
diversified debt fund, 20% liquid schemes
168. Model Portfolios
Couple in their seventies, with no immediate family support
15% diversified equity index scheme; 10% gold ETF, 30% gilt
fund, 30% diversified debt fund, 15% liquid schemes
Couple in their seventies, with no immediate family support
but very sound physically and mentally, and a large
investible corpus
20% diversified equity scheme; 10% diversified equity index
scheme; 10% gold ETF, 25% gilt fund, 25% diversified debt
fund, 10% liquid schemes