Post on 30-May-2018
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Objective of the Session
To give an overview of various
products in Financial Serviceswith a focus on Mutual Funds
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Various Entities in Financial Services -Before Liberalisation
PSU Banks PSU Insurance
Cos.
UTI
Car Loans etc.Mutual FundsTax Benefits
Fixed Deposits. Investment driven Assured Returns Fixed Deposits
GOI u/t
Lending
NBFC’s
Corporate
LoansStock Brokers
Buying &
Selling of Shares.
Agents
Marketing IPO’s,
Deposits, UTI &
Insurance
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Post Liberalisation…..
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Various New Entities in FinancialServices - Post Liberalisation
Private Sector
Banks
Private Sector
Insurance Cos.
Mutual
Funds
Wealth
Managers
New ProductsIncreased
Awareness
Consumer Loans. Risk Coverage Transparency Client’s view point
No assured returns
Wealth Management
Financial
Planners
Stock Brokers
Buying &
Selling of Shares.
Agents
Marketing IPO’s,
Deposits, UTI &
Insurance
Focus on Service
Customer Service
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Mutual Funds
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What Is a Mutual Fund?
A mutual fund is a pool of money collected from investorsand is invested according to stated investment objectives
Terms to know
– Mutual
– Pool
– Investment objectives
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Mutual Funds - Key Words
• Units – Instruments issued to evidence the contribution by the investor
• Net Asset Value – The Value Realizable at any point in time
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The Mutual FundIndustry
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Total Net Assets(millions of US $)
2004:Q2
World 11,391,138 11,871,06111,654,90411,324,13014,052,36814,405,621
Americas7,264,471 7,424,146 7,433,144 6,776,291 7,969,224 8,165,754
Asia &Pacific 905,030 1,133,979 1,039,236 1,063,859 1,361,473 1,443,643
India 13065 13,507 15284 20364 29,800 32,837
% of
World 0.11 0.11 0.13 0.18 0.21 0.23
% of
Americas0.18 0.18 0.21 0.30 0.37 0.40
% of Asia1.44 1.19 1.47 1.91 2.19 2.27
2003:Q41999 2000 2001 2002
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Worldwide Mutual Fund Assets (trillions of U.S. dollars)
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Asset Distribution
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Total Net Assets – Scheme wise(billions of U.S.$)
2004:
Q2
14,406
Equity 5 ,8 7 8 5 ,9 6 2 5 ,1 3 4 4 ,2 0 4 5 ,9 2 6 6 ,3 0 7B o n d 2 ,1 0 4 2 ,0 7 7 2 ,2 1 2 2 ,5 2 9 3 ,0 4 0 2 ,8 7 6
M one y
Market 2 ,2 8 7 2 ,4 8 3 2 ,9 8 6 3 ,1 9 0 3 ,2 0 8 3 ,2 7 4
Balance
Mixed 9 7 1 1 ,0 2 2 9 4 2 9 2 3 1 ,2 0 5 1 ,2 3 3
Other 5 5 1 9 0 1 9 0 2 2 9 3 1 1 3 2 1
2000 2001 2002
2003:
Q4
11,391 11,871 11,655 11,324 14,052
1999
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Types of Schemes
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India’s share scheme wise assets2004 Q2
(millions in US $)O t h er s
W o r l d 1 4 ,4 0 5 , 6 2 1 6 ,3 0 7 , 0 9 02 , 8 7 5 , 9 8 23 , 2 7 3 , 5 2 01 , 2 3 2 , 9 4 13 2 0 , 6 8 6
A m e r i c a s8 , 1 6 5 , 7 5 4 4 , 1 4 4 , 4 7 31 , 3 9 5 , 7 5 62 , 0 0 3 , 3 3 85 8 2 , 6 2 9 3 9 ,5 6 0
A s i a &
Paci f ic 1 ,4 4 3 ,6 4 3 6 2 9 ,4 5 7 3 1 0 ,3 6 6 2 5 3 ,7 9 8 6 2 ,5 8 8 1 8 6 ,4 3 4
Ind ia 3 2 ,8 3 7 4 ,4 9 2 1 2 5 3 0 1 3 6 8 1 7 9 1 1 ,3 4 3
% o f
W o r l d 0 .2 3 0 .0 7 0 .4 4 0 .4 2 0 .0 6 0 .4 2
% o f
A m e r i c a 0 .4 0 0 .1 1 0 .9 0 0 .6 8 0 .1 4 3 .3 9
% o f A s ia2 .2 7 0 .7 1 4 .0 4 5 .3 9 1 .2 6 0 .7 2
T o ta l E q u ity B o n d
M o n e y
M ark e t B a la n ce
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Number of Funds1999-2004:Q2
2 0 0 4 :
Q 2
W o r ld5 2 ,7 4 65 1 ,6 9 25 2 ,8 4 95 4 ,1 1 05 4 ,6 5 05 4 ,1 2
A m e r
a s 1 1 ,4 9 91 2 ,6 7 61 3 ,4 4 91 3 ,8 8 41 3 ,9 2 11 4 ,0 7
A s i a
P a c i f i 1 8 ,8 9 21 3 ,1 5 81 2 ,1 5 31 0 ,7 9 41 1 ,6 4 11 1 ,4 2I n d i a 1 5 5 2 3 4 2 9 7 3 1 2 3 5 0 3 7 0
1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2
2 0 0 3 :
Q 4
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Milestones for the Mutual Fund
Industry• 1964 - Unit Trust of India
• 1987 - Public Sector MFs
• 1993 - Pvt Sector MFs
• 1996 - SEBI MF regulation
• 1999 - Tax Benefits for the industry
• 2002 - withdrawal of tax benefits
• 2002 - Code of conduct for distributors
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Market Scenario
• 36 fund houses with close to 400 schemes
• Net Assets about 11% of Bank Deposits
• MF industry accounts for
– 10% of Equity M-Cap
– 25% of Debt M-Cap
• High growth industry – CAGR 20% from ’91-’01
• Low investor awareness
– Complex product compared to other investment
alternatives – No assured returns
– Investors have burned their hands in the past
Source: ICRA
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Why Mutual Funds ??
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Liquidity
Convenience
Risk Diversification
Flexibility
Transparency
Regulated
Tax benefits
Plus
Most openended funds
redeemwithin
1 workingday.
Easy toinvest and
easy toredeem
Diversifiedportfolio
leadsto risk control
Most Fundsallowingswitchingbetweenfunds.
From debt
to equityetc.
Disclosure
of Portfolio
NAVdeclared
daily
MutualFunds
areregulatedby SEBI.
Taxbenefits
CapitalGains
Tax-free
Dividends
Why Mutual Funds of all the products?
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Types of Mutual Funds
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FloaterFloater
Liquid/Short Term Plan Liquid/Short Term Plan
DEBT FUNDS
Sectoral FundsSectoral Funds
Diversified Equity FundDiversified Equity Fund
EQUITY FUNDS
Gilt Fund Gilt Fund Tax PlanTax Plan
Balanced FundMIPMIP
Investment Needs and Solutions
Income Plan Income Plan
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R i s k
Expected Returns
Liquid
Short Term Plan
Income Plan
Less then 3 Months
3 Months - 6Months
Investment horizon and debt products
More then 6 Months
Monthly Income PlanMore then 12Months
10 - 15% Equity
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R i s k
Expected Returns
Balanced Fund
Diversified Equity Fund
Sector Funds
Relative positioning of Equity products
DebtDebt
ProductsProducts
EquityEquityProductsProducts
2 - 3 Years and more
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Fund Structure and itsConstituents
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Fund Structure
Fund Sponsor
Trustees
Asset Management
Company
RegistrarsCustodianDistributors
Fund Mgmt. Sales & Marketing Operations Client Service Compliance
Bankers
Brokers
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SPONSOR
Main Promoter
Approval by SEBI
Sound track record Experience in Financial Services
Professional Competence, Financial Soundness, Reputation, etc.
Contribution to AMC Capital 40% minimum
Minimum AMC capital of Rs. 10 Cr
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TRUSTEE
Fiduciary responsibility to the Investors.
Directors to be approved by SEBI.
Execution of trust deed by sponsor in favour of trustee.
Trust deed is stamped and registered with SEBI Legally responsible for administering the Trust and Compliance
with Regulations.
Norms for Trustees
- Experience in Financial Services
- Minimum 4 members on the board and 2/3rd of the members
not to be connected with the sponsor
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TRUSTEE
Rights of Trustees:
• Approve each of the schemes floated by the AMC.
• The right to request any necessary information from the AMC.
• May take corrective action if they believe that the conduct of the
fund's business is not in accordance with SEBI Regulations.
• Have the right to dismiss the AMC,
• Ensure that, any shortfall in net worth of the AMC is made up.
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ASSET MANAGEMENT COMPANY
• Responsible for :
– Launching Schemes
– Managing Funds for Schemes
– Performing Accounting Functions – All day to day affairs of the Mutual Fund
• Income of an AMC /Asset Management Fee
– 1.25% of weekly average NAV of each Scheme up to
Rs.100 cr of assets managed
– 1.00% greater than Rs.100 cr
• Minimum 4 directors with 1/2 independent
• AMC cannot act as trustee for other MF
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Registrars
• Issue of Account Statements to Investors
• Arranges payment to Investors when they redeem
• Takes care of Non commercial transactions like change of address,loss of account statement etc.
• Should be registered with SEBI
• Appointed by Board of Trustee
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CUSTODIAN
• Safe keeping of the assets held by the Fund
• Receives and Delivers Securities for payment
• Follow up on Corporate benefits• Provide an independent means of control
• Independent of Sponsors
• Should be registered with SEBI
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Sales & Distribution Channels
Agents
- Is a broker between the fund and the investor and acts on behalf of the
principal.
- He is not exclusive to the fund and also sells other financial services.
This in a way helps him to act as a financial advisor.
Distribution Companies
- Is a company which sells mutual funds on behalf of the fund.
- It has several employees or sub-broker under it.- It manages distribution for several funds and receives commission for its
services.
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Legal and Regulatory Environment
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Role of Regulators in India
SEBI – the Capital Markets regulator
• All mutual funds must be registered with SEBI.• Issues guidelines for operations, including where they can invest,
investment limits and restrictions, account for income and expenses,
disclosure of information to the investors.
• Acts in the interest of investor protection.
RBI – the Money Market Regulator
a) RBI as Supervisor of Bank-Owned Mutual Funds
• Bank-Owned Mutual Funds are under the supervision of both RBI &
SEBI.
• Market related and investor related activities are under SEBI.• Issues concerning ownership of the AMCs are under RBI.
• If bank sponsored funds have offered assured return schemes, RBI
would review the capital adequacy and financial implications of the
guaranteed bank.
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Role of Regulators in India
Ministry of Finance
• Supervises both RBI and SEBI.
• Ultimate policy making and supervising entity.
Company Law Board
• Primary legal interface for all companies is Registrar of Companies.
• All AMC accounts and records are filed with RoC that takes the role of
a watchdog for compliance by companies.
Stock Exchanges
• Self-regulatory organizations supervised by SEBI.• Most Closed-ended mutual funds are listed on stock exchange.
• These schemes are subject to regulations of the concerned stock
exchange.
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Association of Mutual Funds
in India ( AMFI )
It plays the role of an industry association for the mutual fund industry. It
is not a SRO, though it may choose to apply for that status and become
one in near future.The principal objectives of AMFI are:
• To promote the interests of mutual funds and unit-holders.
• To set ethical, commercial and professional standards in the industry.
• To increase public awareness of mutual funds in the country.
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Investor’s Rights & Obligations
Investor’s Rights
• Rights to Scheme assets.
• Right to information on changes in scheme attributes; option to quit at
NAV• Right to abridged accounts – six monthly discolosure of entire portfolio
• Entitled to receive dividend warrants within 30 days of the date of
dividend declaration.
• Entitled to penal interest of 15% if redemption proceeds are not received
within 10 days.• Can terminate AMC by majority of trustees or by 75% of the unit-holders of the scheme.
• Right to inspect specific documents
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Accounting, Valuation andTaxation
Accounting
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Accounting
Calculating Net Asset Value
Unit Capital is the investor’s subscriptions. In mutual funds itis not treated as a liability.
Investments made on behalf of the investors are reflected on
the assets side of the balance sheet.
There are liabilities of short-term nature.Fund’s Net Asset = Asset – Liabilities
Net Asset Value = Net Assets of the scheme / No. of
Outstanding Units
i.eNAV = (Market value of investments + Receivables + Other
Accrued Income + Other assets – Accrued Expenses – Other
Payables – Other liabilities) / ( No. of Units Outstanding as at
the NAV date)
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Example
An equity fund has 100,000 units outstanding in the market.
It holds the following shares:
a) 10,000 shares of company A @ Rs. 50/-
b) 20,000 shares of company B @ Rs. 30/-c) 50,000 shares of company C @ Rs. 08/-
The fund has Rs. 200,000/- in cash and equivalent holding. It
has short-term liabilities of Rs. 100,000/-.
Calculate the NAV of the fund.
S
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SolutionTotal Assets held by the equity fund
Cash and equivalent holding Rs. 200,000
10,000 shares of company A @ Rs. 50/- Rs. 500,000
20,000 shares of company B @ Rs. 30/- Rs. 600,000
50,000 shares of company C @ Rs. 08/-Rs. 400,000
Total Assets = Rs. (200,000 + 500,000 + 600,000 + 400,000)
= Rs. 1,700,000/-
Liability = Rs. 100,000/-
So, Net Assets of the equity fund = Rs. (1,700,000 – 100,000)= Rs. 1,600,000/-
Outstanding units = 100,000
So, NAV of the fund = (1,600,000/100,000)
= Rs. 16/-
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Measuring and Evaluating MutualFund Performance
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Different Performance Measures
Change in NAV
- most commonly used by investors to evaluate fund performance and
most commonly published by fund managers.
- Easily understood and applied to any type of fund.
- Should be interpreted in light of the investment objective of the fund,
current market conditions and alternative investment returns.- Long term growth fund or infrastructure fund will give low returns in the
initial years.
NAV Change in absolute terms:
(NAV at the end of period) – (NAV at the beginning of period)
NAV Change in percentage terms:
(Absolute change in NAV/NAV at the beginning of period) * 100
Annualised NAV Change:
{[(Absolute Change in NAV/NAV at the beginning)/months
covered]*12}*100
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Examples
1. A fund’s NAV was Rs. 15 at the beginning of the year and Rs. 20 at the
end of the year.
What is the absolute NAV change?
What is the NAV change in percentage?
Answer :
Absolute NAV Change = 20 – 15 = Rs. 5/-
NAV Change in Percentage = 5/15 *100 = 33.3%
2. A fund’s NAV was Rs. 15 at the beginning of the year and Rs. 20 after
18 months.
What is the annualised NAV change?
Answer :
Absolute NAV change = 20 – 15 = 5
Annualized NAV change = [{(5/15)/18}*12] * 100
= 400/18
= 22.3%
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Different Performance Measures
Total Return Method
- It takes into account the dividends paid in the interim period and is
suitable for all types of funds.
- It must be interpreted in the light of market conditions and investment
objective of the fund.
- Its limitation is that it ignores the fact that distributed dividends also get
reinvested if received during the year.
Total Return is:
[(Distributions + Change in NAV)/NAV at the beginning of the period]* 100
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Example
An investor has purchased one unit of an open-end equity
fund at Rs. 20/-. The fund has an interim dividend distribution
of Rs. 4 per unit. The NAV at the end of the year is Rs. 22/-. .
What is the Total Return?
Solution
Change in NAV = 22 – 20 = 2
Dividend distribution = 4
So, total return = [(4 + 2)/20] * 100 = 30%
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Different Performance Measures
Return on Investment or Total Return with Dividends Reinvested atNAV
-The shortcoming of Total return is overcome by computing the Total
Return with reinvestment of dividends in the fund at the NAV on the dateof distribution.
- Is a measure of cumulative wealth accumulation and is the same as
ROI.
- Appropriate for measuring performance of accumulation plans,
monthly/quarterly income income schemes debt funds that distributeinterim dividends.
ROI or Total Return with Reinvestment is:
{(Units Held + div/ex-dNAV) * endNAV – begin NAV} /begin NAV * 100
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Example
An investor purchased 1 unit of an open-end equity fund at
Rs. 20/-. The fund had an interim dividend distribution of Rs.
4 per unit, when the NAV was Rs. 21/-. The investor hasreinvested the dividend in the fund.
The fund has declared an NAV of Rs. 22/- at the end of the
year.
Calculate the ROI for the fund.Compare it with Total Return of the fund.
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Solution
Total Return for the fund = (2 + 4)/20 * 100
= 30%
In this, the fact that the dividend has been reinvested has notbeen considered.
Return on Investment for the fund =
[{(1 + 4/21) * 22 – 20}/20] * 100
= 30.95%
As we can see from the figures, ROI gives a correct picture.
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Some of the Large AMC’s
UTI
Prudential ICICI
HDFC Mutual Fund Franklin Templeton
Birla Sunlife Mutual Fund
Standard Chartered Mutual Fund
DSP Mutual Fund
Kotak Mutual Fund
What are job Opport nities ??
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What are job Opportunities ??
Private Sector
Banks
Mutual
Funds
Private Sector
Insurance Cos.
Marketing Underwriters
Personal Banker. Sales & MarketingSales & Distribution Advisors
Analysts & Dealer
Wealth Managers
Financial
Planners
Stock Brokers
Sales
Agents
Marketing IPO’s,
Loans, MF’s &Insurance
Operations
Fund Manager
Managing
Portfolio
Operations
Fund Manager
Training
Important Web sites
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Important Web sites
www.amfiindia.com www.sebi.com
www.rbi.org.in
www.nseindia.com
www.valueresearchonline.com www.mutualfundsindia.com
www.pruicici.com
www.franklintempletonindia.com
www.hdfcindia.com
www.myiris.com
www.moneycontrol.com
www.timesofmoney.com
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My email address :
nathanylokesh@yahoo.co.in
Contact No. 9820348529
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Thank You
E iti th b t l t b t!
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Equities are the best long term bet!Cumulative Annualised Returns (1980-98)
Source : RBI Report on Currency and Finance (1997-98)
BSE Sensitive Index of Equity Prices - BSE
9.19%7.62%
9.74%
14.47%
20.16%
Inflation Gold Bank FD Co. FD Equities
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Why invest early ?
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• Sanjay is 31 and invests Rs.5,000 in a
Mutual Fund.
• He adds Rs.1,000 each year to his
investment until he’s 65.
Example
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31 65
Rs 5,00,000
Sanjay
21
5,33,000
Returns are calculated at 11 % per annum. Before making an investment decision we suggest you
take these factors into consideration and recommend you consult a financial adviser.
The Value of Investing EarlyThe Value of Investing Early
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• Ajay is 21 and also has Rs 5,000.
• He invests his money in the same mutual fund as Sanjay.
• Ajay adds Rs 1,000 a year until he’s 30.
• He does not make any additional investments in the fund after this.
• However, his investment continues to earn for him until age 65.
The Value of Investing Early
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Who do you think is better off ?
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31 65
Rs 5,00,000
Rs 11,00,000
SanjayAjay
21 Returns are calculated at 11 % per annum. Before making an investment decision we suggest you
take these factors into consideration and recommend you consult a financial adviser.
5,33,000
11,54,000
The Value of Investing Early
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The choice is yours.Whether U want to be
Sanjay or Ajay……
Thank U
Mutual Funds Vs. Other Investments
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Product Return Safety Liquidity Tax Benefit Conven-
ience
Bank Deposit Low High High No High
RBI Relief Bonds
Low High Low Yes Moderate
SmallSavings
Moderate High Low Yes in someinstruments
Moderate
Fixed
Deposits byCompanies
Moderate Low Low No Moderate
Debt MutualFunds
Moderate High High Yes High