MF as an Investment Option
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Transcript of MF as an Investment Option
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7/31/2019 MF as an Investment Option
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Presented By:
Amit Raval
PGDFM
Roll No. 82
Presentation on:
Mutual Funds as an investment option
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Post Office
Direct investment
into stocks
Insurance
Real estate
ULIPs
Gold
Mutual Funds
PPF
Fixed DepositsExit Load
Repurchase Price
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Mutual Fund
Snapshot.
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An old Axiom :
It is not wise to put all eggs into
one basket
was probably in the minds of
those who formed the first mutual fund.
Why did Mutual Funds come into existence?
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Flow Cycle of aMutual Fund
OrganizationalStructure of a
Mutual Fund
Balance sheetof a Bank and
Mutual Fund
Diff. b/w MFand Direct
Investment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual Funds
Warning
Signals
Penetration ofMutual Funds
What MutualFunds are not?
Flow Cycle of a Mutual Fund
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Investors
Fund
ManagerSecurities
Returns
Flow Cycle of a Mutual Fund
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Mutual Funds defined.a flow cycle
Flow Cycle of a Mutual Fund
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A Mutual Fund is a trust that pools the savings of a number ofinvestors who share a common financial goal.
The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities.
The income earned through these investments and the capitalappreciation realized are shared by its unit holders inproportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in adiversified, professionally managed basket of securities at arelatively low cost.
Flow Cycle explained
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Flow Cycle of aMutual Fund
OrganizationalStructure of a
Mutual Fund
Balance sheetof a Bank and
Mutual Fund
Diff. b/w MFand Direct
Investment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual Funds
Warning
Signals
Penetration ofMutual Funds
What MutualFunds are not?
Organizational Structure of Mutual Fund
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Organizational Structure of Mutual Fund
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Sponsor
Akin to the Promoter of the company,
Contribution of minimum 40% of net worth of AMC,
Posses sound financial record over five years period,
Establishes the Fund,
Gets it registered with the SEBI,
Forms a trust, & appoints Board of trustee.
Trustees
Holds assets on behalf of unit holders in trust,
Trustees are caretaker of unit holders money,
Two third of the trustees shall be independent persons (not associated with the
sponsor),
Trustees ensure that the system, processes & personnel are in place,
Resolves unit holders GRIEVANCES,
Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI
regulation.
Organizational Structure of Mutual Fund
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Custodian
Holds the funds securities in safekeeping,
Settles securities transaction for the fund,
Collects interest & dividends paid on securities,
Records information on corporate actions.
Asset Management Company
Floats schemes & manages according to SEBI,
Can not undertake any other business activity, other than portfolio mgmt services,
75% of unit holders can jointly terminate appointment of AMC,
At least 50% of independent directors,
Chairman of AMC can not be a trustee of any MF.
Distributor / Agents
Sell units on the behalf of the fund,
It can be bank, NBFCs, individuals.
Organizational Structure of Mutual Fund
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Flow Cycle of aMutual Fund
OrganizationalStructure of a
Mutual Fund
Balance sheetof a Bank and
Mutual Fund
Diff. b/w MFand Direct
Investment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual Funds
Warning
Signals
Penetration ofMutual Funds
What MutualFunds are not?
Classification of Mutual Fund Schemes
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Each category is classified into more sub-categories.
AMFI Classification of MF SchemesFund schemes Portfolio objectives
Growth & Income High Risk & High Return
Balanced Moderate Risk & Return
Liquid & Money Market Fixed Return
Gilt Zero RiskELSS Tax Saving
Fund of funds Additional diversification
ETFs Market Driven
Classification of Mutual Fund Schemes
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By Structure
Open-Ended anytime enter/exit
Close-Ended Schemes listed on exchange, redemption after period ofscheme is over.
By Investment Objective
Equity (Growth) only in Stocks Long Term (3 years or more)
Debt (Income) only in Fixed Income Securities
Liquid/Money Market Short-term Money Market (CPs, CDs, Treasury Bills)
Balanced/Hybrid Stocks + Fixed Income Securities (1-3 years)
Gilt Funds primarily in G-Sec
Other Schemes
Tax Saving Schemes such as ELSS
Special Schemes (ETFs, foreign funds)
Other classification of MF schemes
Classification of Mutual Fund Schemes
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Flow Cycle of aMutual Fund
OrganizationalStructure of a
Mutual Fund
Balance sheetof a Bank and
Mutual Fund
Diff. b/w MFand Direct
Investment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
Risk-return structure of schemes
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RiskReturn of different schemes
Risk-return structure of schemes
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Flow Cycle of aMutual Fund
OrganizationalStructure of a
Mutual Fund
Balance sheetof a Bank and
Mutual Fund
Diff. b/w MFand Direct
Investment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
History of Mutual Funds in India
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Formation ofUTI
Entry of PublicSector Funds
Entry of PrivateSector Funds
A phase dedicatedto Retail Investors
1964
1987
1993
2009 ?
Phases of Mutual Fund Industry in India
History of Mutual Funds in India
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Flow Cycle of aMutual Fund
OrganizationalStructure of a
Mutual Fund
Balance sheetof a Bank and
Mutual Fund
Diff. b/w MFand Direct
Investment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
Regulatory Aspects
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Governed by SEBI (Mutual Fund) Regulation 1996 All MFs registered with it, constituted as trusts ( under Indian Trusts
Act, 1882)
Bank operated MFs supervised by RBI too
AMC registered as Companies registered under Companies Act, 1956
SEBI- Very detailed guidelines for disclosures in offer document, offerperiod, investment guidelines etc.
NAV to be declared everyday for open-ended, every week for closedended
Disclose on website, AMFI, newspapers
Half-yearly results, annual reports
Select Benchmark depending on scheme and compare
Regulations
Regulatory Aspects
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Flow Cycle of aMutual Fund
OrganizationalStructure of aMutual Fund
Balance sheetof a Bank andMutual Fund
Diff. b/w MFand DirectInvestment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
Investment Checklists
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Draw up your asset allocation
Financial goals & Time frame (Are you investing for retirement?
A childs education? Or for current income? )
Risk Taking Capacity
Identify funds that fall into your Buy List
Obtain and read the offer documents
Match your objectives
In terms of equity share and bond weightings, downside riskprotection, tax benefits offered, dividend payout policy, sector focus
Check out past performance Performance of various funds with similar objectives for at least 3-5
years (managed well and provides consistent returns)
Investing Checklist
Investment Checklists
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Checklist continued..
Think hard about investing in sector funds
For relatively aggressive investors
Close touch with developments in sector, review portfolio regularly
Look for `load' costs
Management fees, annual expenses of the fund and sales loads
Does the fund change fund managers often? Look for size and credentials
Asset size less than Rs. 25 Crores
Diversify, but not too much
Invest regularly, choose the S-I-P
MF- an integral part of your savings and wealth-building plan.
Investment Checklists
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Flow Cycle of aMutual Fund
OrganizationalStructure of aMutual Fund
Balance sheetof a Bank andMutual Fund
Diff. b/w MFand DirectInvestment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
Expenses
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Expenses of Mutual Fund
Accounted for in FUND RETURN Not included in FUND RETURNManagement fee* Front end sales load
Group fee* Back end sales load
Performance fee* Transaction fee
Administrative fee* Redemption fee
Brokerage costs Account maintenance fee
Interest costs Bid ask spreads
An asterisk * indicates fee which is included in a funds expense ratio.
As per SEBI Rule, expense ratio should be 2.5% for equity & 2.25% for
debt fund of fund value.
Expenses
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Flow Cycle of aMutual Fund
OrganizationalStructure of aMutual Fund
Balance sheetof a Bank andMutual Fund
Diff. b/w MFand DirectInvestment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
Tracking Mutual Funds
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Filling up an application form and writing out a cheque = end of the story No! Periodically evaluate performance of your funds
Fact sheets and Newsletters
Websites such as www.valueresearchonline.com,
www.mutualfundsindia.com, www.morningstar.in, www.lipperweb.com et al.
Newspapers
Professional advisor
Keeping Track
Tracking Mutual Funds
http://www.valueresearchonline.com/http://www.mutualfundsindia.com/http://www.morningstar.in/http://www.lipperweb.com/http://www.lipperweb.com/http://www.morningstar.in/http://www.mutualfundsindia.com/http://www.valueresearchonline.com/ -
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Flow Cycle of aMutual Fund
OrganizationalStructure of aMutual Fund
Balance sheetof a Bank andMutual Fund
Diff. b/w MFand DirectInvestment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
Warning Signals
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Fund's management changes; Performance slips compared to similar funds;
Fund's expense ratios climb;
Beta, a technical measure of risk, also climbs;
Independent rating services reduce their ratings of the fund;
It merges into another fund;
Change in management style or a change in the objective of the fund.
Warning Signals
Warning Signals
h l d ?
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Flow Cycle of aMutual Fund
OrganizationalStructure of aMutual Fund
Balance sheetof a Bank andMutual Fund
Diff. b/w MFand DirectInvestment
PortfolioManagement
Process
Mutual FundComparison
InvestmentsChecklists
RiskManagement
RegulatoryAspects
Classificationof Mutual
Fund Schemes
Risk-returnstructure of
schemes
History ofMutual Funds
in India
AUMmovements in
India
ExpensesTracking
Mutual FundsWarningSignals
Penetration ofMutual Funds
What MutualFunds are not?
What Mutual Funds are not?
h l d ?
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MFs are not get rich quick investments
MFs are not risk free investment MFs are not assured return investment
MFs are not a universal solution to all investment needs
What Mutual Funds are not?
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Thank You