Statistics project
Semester- II
Mutual fund investments
Sowjanya sampathkumar
Introduction to mutual funds
Mutual funds have become extremely popular over the last 20 years. What
was once just another...
Mutual funds- what are
they?
A mutual fund is nothing more than a collection of stocks and/or bonds. You
can think of a mu...
Various types of mutual
funds and schemes
Each fund has a predetermined investment objective that tailors the fund's
asset...
Funds that invest in stocks represent the largest category of mutual funds.
Generally, the investment objective of this cl...
What is a systematic
investment plan?
A Systematic Investment Plan or SIP is a smart and hassle free mode for
investing mo...
What is systematic transfer
plan?
STP is a variant of SIP. STP is essentially transferring investment from one
asset or as...
What is systematic
withdrawal plan?
A Systematic Withdrawal Plan (SWP) is a facility that allows an investor to
withdraw m...
Franklin India blue-chip
Product Label
 Long term capital appreciation.
 A fund that invests in large cap stocks.
Scheme...
 Load Details
Entry Load
N.A.
Exit Load
1.00%
Load Comments
Exit Load 1% if units are redeemed / switched-out within 1 ye...
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STATS PROJ - MUTUAL FUNDS

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STATS PROJ - MUTUAL FUNDS

  1. 1. Statistics project Semester- II Mutual fund investments Sowjanya sampathkumar
  2. 2. Introduction to mutual funds Mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. More than 80 million people, or one half of the households in America, invest in mutual funds. That means that, in the United States alone, trillions of dollars are invested in mutual funds. In fact, to many people, investing means buying mutual funds. After all, it's common knowledge that investing in mutual funds is (or at least should be) better than simply letting your cash waste away in a savings account, but, for most people, that's where the understanding of funds ends. It doesn't help that mutual fund salespeople speak a strange language that is interspersed with jargon that many investors don't understand. Originally, mutual funds were heralded as a way for the little guy to get a piece of the market. Instead of spending all your free time buried in the financial pages of the Wall Street Journal, all you had to do was buy a mutual fund and you'd be set on your way to financial freedom. As you might have guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in reality, they haven't always delivered. Not all mutual funds are created equal, and investing in mutuals isn't as easy as throwing your money at the first salesperson who solicits your business.
  3. 3. Mutual funds- what are they? A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares. They have their respective advantages and disadvantages like professional management, diversification , liquidity, costs dilution, taxes etc.
  4. 4. Various types of mutual funds and schemes Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds: 1) Equity funds (stocks) 2) Fixed-income funds (bonds) 3) Money market funds All mutual funds are variations of these three asset classes. Let's go over the many different flavors of funds. We'll start with the safest and then work through to the more risky. Money Market Funds The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD). Bond/Income Funds Income funds are named appropriately: their purpose is to provide current income on a steady basis. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cashflow to investors. Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Balanced Funds The objective of these funds is to provide a balanced mixture of safety, income and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income. Equity Funds
  5. 5. Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to understand the universe of equity funds is to use a style box, an example of which is below. The idea is to classify funds based on both the size of the companies invested in and the investment style of the manager. The term value refers to a style of investing that looks for high quality companies that are out of favor with the market. Global/International Funds An international fund (or foreign fund) invests only outside your home country. Global funds invest anywhere around the world, including your home country. It's tough to classify these funds as either riskier or safer than domestic investments. They do tend to be more volatile and have unique country and/or political risks. But, on the flip side, they can, as part of a well-balanced portfolio, actually reduce risk by increasing diversification. Although the world's economies are becoming more inter-related, it is likely that another economy somewhere is outperforming the economy of your home country. Index Funds The last but certainly not the least important are index funds. This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or Dow Jones Industrial Average (DJIA). An investor in an index fund figures that most managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees.
  6. 6. What is a systematic investment plan? A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre- determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future. A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank account and invested into a specific mutual fund scheme.You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day. Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.  Example If you started investing Rs. 10000 a month on your 40th birthday, in 20 years time you would have put aside Rs. 24 lakhs. If that investment grew by an average of 7% a year, it would be worth Rs. 52.4 lakhs when you reach 60. However, if you started investing 10 years earlier, your Rs. 10000 each month would add up to Rs. 36 lakh over 30 years. Assuming the same average annual growth of 7%, you would have Rs. 1.22 Cr on your 60th birthday - more than double the amount you would have received if you had started ten years later!
  7. 7. What is systematic transfer plan? STP is a variant of SIP. STP is essentially transferring investment from one asset or asset type into another asset or asset type. The transfer happens gradually over a period. STP and its importance Systematic Transfer Plan is of two types; fixed STP, and capital appreciation STP. A fixed STP is where investors take out a fixed sum from one investment to another. A capital appreciation STP is where investors take the profit part out of one investment and invest in the other. Example of STP Suppose you have invested 5 lakhs in debt funds because you thought market is trading at close to peak. The PE ratio of the market is 25 and hence you think that fall is imminent. Hence you invested your money in debt fund. Now assume that your prophecy was right and the market indeed fell to a level where you can make entry to equities. Important points to keep in mind STP is a possibly the second best investment strategy after SIP. It is one of the best risk mitigation strategies of the market. Investors though should keep the following points in mind.  First, STP is a risk mitigation strategy. It will protect you from any adverse loss to a large extent. Investors should be clear about this. All risk mitigation strategies cap the loss but also reduce returns when market is bullish.  Second, investors need to follow it with discipline. STP, just like SIP, benefits only when followed properly. Breaking STP because of short term market movement or interest rate movement will only harm your investment in long term.  Finally, you need to understand the assets and the stages they are in. For example, it would be unwise to transfer money from debt to equity when the market is closer to peak value. Similarly, it would be counter-productive to transfer money from equity to debt when the market is close to bottom.
  8. 8. What is systematic withdrawal plan? A Systematic Withdrawal Plan (SWP) is a facility that allows an investor to withdraw money from an existing mutual fund at predetermined intervals. The money withdrawn from a systematic withdrawal plan can be reinvested in another portfolio or it can be used as a source of regular income. Systematic withdrawal plans are used by investors to create a regular flow of income from their investments. Investors looking for income at periodical intervals usually invest in these funds. Systematic withdrawal plans is of advantage to investors who require liquidity as it allows account holders to access their money exactly when they need it.  Example say you have 5,000 units in a Mutual Fund scheme. You have given instructions to the fund house that you want to withdraw Rs. 8,000 every month through SWP. Now let's assume that on 1 December, the Net Asset Value (NAV) of the scheme is Rs. 20. Equivalent number of MF units = Rs. 8,000 / Rs. 20 = 400 400 units would be redeemed from your MF holdings, and Rs. 8,000 would be given to you. Your remaining units = 5,000 - 400 = 4600 Now say, on 1 January, the NAV is Rs. 16. Equivalent number of units = Rs. 8,000 / Rs. 16 = 500 500 units would be redeemed from your MF holdings, and Rs. 8,000 would be given to you. Your remaining units = 4600 - 500 = 4100
  9. 9. Franklin India blue-chip Product Label  Long term capital appreciation.  A fund that invests in large cap stocks. Scheme Objectives Is an open end growth scheme with an objective to primarily provide medium to long term capital appreciation. Key Features  An open ended diversified equity fund with primary objective to provide medium to long term capital appreciation  The fund focuses investing in large-cap companies with strong financials, quality management and market leadership  The fund is suitable for Investors that prefer large cap oriented equity fund with an investment horizon of 3-5 years  The fund may be considered more suitable for investors who prefer funds with a long term track record as Franklin India Bluechip Fund has tackled the bull and bear phases by focusing on long term opportunities rather than short term trends.  Scheme details Fund Type Open-Ended Investment Plan Dividend Launch date Nov 30, 1993 Benchmark S&P BSE SENSEX Asset Size (Rs cr) 4,158.46 (Dec-31-2013) Minimum Investment Rs.5000 Last Dividend Rs.5.00 (Jan-10-2014)
  10. 10.  Load Details Entry Load N.A. Exit Load 1.00% Load Comments Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment Top Ten Holdings % of Total

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