Mutual Funds 2 Ppt

8/10/2019 Mutual Funds 2 Ppt

http://slidepdf.com/reader/full/mutual-funds-2-ppt 1/41

MBA 219 17-Jun-13 1



Worldwide, Mutual Fund or UnitTrust

as it is

referred to in some parts of the world, has a

long and successful history.The

popularity of

Mutual Funds has increased manifold in

developed financial markets, like the United

States. As at the end of March 2008, in the US

alone there were 8,064 mutual funds with

total assets of about US 11.734 trillion

(Rs.470 lakh

crores)*.

MBA 219 17-Jun-13 2



The mutual fund industry in India started in

1963 with the formation of Unit Trust of

India, at the initiative of the Government of

India and Reserve Bank of India. The history

of mutual funds in India can be broadly

divided into four distinct phases

MBA 21917-Jun-13 3



First Phase –

1964-87 Unit Trust of India (UTI)

was established on 1963 by an Act of Parliament.

It was set up by the Reserve Bank of India andfunctioned under the Regulatory and

administrative control of the Reserve Bank of

India.

In 1978 UTI was de-linked from the RBI and the

Industrial Development Bank of India (IDBI) took

over the regulatory and administrative control in

place of RBI. The first scheme launched by UTI

was Unit Scheme 1964. At the end of 1988 UTI

had Rs.6,700 crores

of assets under

management.

MBA 219 17-Jun-13 4



Second Phase –

1987-1993 (Entry of Public Sector

Funds) 1987 marked the entry of non-

UTI, public

sector mutual funds set up by public sector banks

and Life Insurance Corporation of India (LIC) and

General Insurance Corporation of India (GIC).

SBI Mutual Fund was the first non-

UTI Mutual Fund

established in June 1987 followed by Canbank

Mutual

Fund (Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of

India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).

LIC established its mutual fund in June 1989 while

GIC had set up its mutual fund in December 1990. At

the end of 1993, the mutual fund industry had assets

under management of Rs.47,004 crores

MBA 219 17-Jun-13 5



Third Phase –

1993-2003 (Entry of Private Sector

Funds) With the entry of private sector funds in

1993, a new era started in the Indian mutualfund industry, giving the Indian investors a wider

choice of fund families.

Also, 1993 was the year in which the first Mutual

Fund Regulations came into being, under which

all mutual funds, except UTI were to be

registered and governed. The erstwhile Kothari

Pioneer (now merged with Franklin Templeton)

was the first private sector mutual fund

registered in July 1993.

MBA 219 17-Jun-13 6



Fourth Phase –

since February 2003 In February

2003, following the repeal of the Unit Trust of

India Act 1963 UTI was bifurcated into twoseparate entities.

One is the Specified Undertaking of the Unit

Trust of India with assets under management of

Rs.29,835 crores

as at the end of January 2003,

representing broadly, the assets of US 64

scheme, assured return and certain other

schemes. The Specified Undertaking of Unit Trust

of India, functioning under an administrator and

under the rules framed by Government of India

and does not come under the purview of the

Mutual Fund Regulations.

MBA 219 17-Jun-13 7



The second is the UTI Mutual Fund, sponsored

by SBI, PNB, BOB and LIC. It is registered with SEBI

and functions under the Mutual Fund

Regulations. With the bifurcation of the erstwhile

UTI which had in March 2000 more than

Rs.76,000 crores

of assets under management

and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations,

and with recent mergers taking place among

different private sector funds, the mutual fund

industry has entered its current phase of

consolidation and growth

MBA 219 17-Jun-13 8



The 1993 SEBI (Mutual Fund) Regulations were

substituted by a more comprehensive and

revised Mutual Fund Regulations in 1996. Theindustry now functions under the SEBI (Mutual

Fund) Regulations 1996. The number of mutual

fund houses went on increasing, with many

foreign mutual funds setting up funds in India

and also the industry has witnessed several

mergers and acquisitions. As at the end of

January 2003, there were 33 mutual funds with

total assets of Rs. 1,21,805 crores. The Unit

Trust of India with Rs.44,541 crores

of assets

under management was way ahead of other

mutual funds.

MBA 219 17-Jun-13 9



A Mutual Fund is a trust that pools the

savings of a number of investors whoshare a common financial goal. The

money thus collected is then invested incapital market instruments such as

shares, debentures and other securities.

MBA 219 17-Jun-13 10



The income earned through theseinvestments and the capital appreciation

realised

are shared by its unit holders inproportion to the number of units owned bythem. Thus a Mutual Fund is the most

suitable investment for the common man as itoffers an opportunity to invest in adiversified, professionally managed basket ofsecurities at a relatively low cost.

MBA 219 17-Jun-13 11



MBA 219 17-Jun-13 12



MBA 219 17-Jun-13 13



Professional Management

Diversification

Convenient Administration

Return Potential

Low Costs

Liquidity

Transparency

Flexibility

Choice of schemes

Tax benefits

Well regulated

MBA 219 17-Jun-13 14



NAV

Net Asset Value is the market

value of the assets of the scheme

minus its liabilities. The per unit

NAV is the net asset value of the

scheme divided by the number of

units outstanding on the

valuation date

MBA 219 17-Jun-13 15



Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. Itmay include a sales load.

Repurchase Price

Is the price at which units under open-ended schemes are repurchased bythe Mutual Fund. Such prices are NAV related.

Redemption Price

Is the price at which close-ended schemes redeem their units on maturity.Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‘Front-

end’

load. Schemes that do not charge a load are called ‘No Load’

schemes.

Repurchase or ‘Back-end’Load

Is a charge collected by a scheme when it buys back the units from theunitholders.

MBA 219 17-Jun-13 16



MBA 219 17-Jun-13 17



These do not have a fixed maturity. You dealwith the Mutual Fund for your investments

and redemptions.The

key feature is liquidity.You can conveniently buy and sell your unitsat Net Asset Value(NAV) related prices, at any

point of time.

MBA 219 17-Jun-13 18



Schemes that have a stipulated maturity period (rangingfrom 2 to 15 years) are called close ended schemes.You

can invest in the scheme at the time of the initial issueand thereafter you can buy or sell the units of thescheme on the stock exchanges where they are listed.

The market price at the stock exchange could vary fromthe scheme’s NAV on account of demand and supplysituation, unitholders’ expectations and other marketfactors. One of the characteristics of the close-endedschemes is that they are generally traded at a discountto NAV; but closer to maturity, the discount narrows

MBA 219 17-Jun-13 19



Some close-ended schemes give you an

additional option of selling your units to the

Mutual Fund through periodic repurchase at

NAV related prices. SEBI Regulations ensure

that at least one of the two exit routes areprovided to the investor under the close ended

schemes

MBA 219 17-Jun-13 20



These combine the features of

open-ended and close-endedschemes. They may be traded on

the stock exchange or may beopen for sale or redemptionduring predetermined intervals atNAV related prices.

MBA 219 17-Jun-13 21



Aim to provide capital appreciation over themedium to long term. These schemes

normally invest a majority of their funds inequities and are willing to bear short termdecline in value for possible future

appreciation. These schemes are not forinvestors seeking regular income or needingtheir money back in the short term.

Ideal for:

Investors in their prime earning years.

Investors seeking growth over the long term.

MBA 219 17-Jun-13 22



Aim to provide regular and steady income to

investors. These schemes generally invest in

fixed income securities such as bonds andcorporate debentures.

Capital appreciation in such schemes may be

limited.Ideal for:

Retired people and others with a need for capital

stability and regular income.

Investors who need some income to supplement

their earnings.

MBA 219 17-Jun-13 23



Aim to provide both growth and income byperiodically distributing a part of the income and

capital gains they earn. They invest in bothshares and fixed income securities in theproportion indicated in their offer documents. In

a rising stock market, the NAV of these schemesmay not normally keep pace or fall equally whenthe market falls.

Ideal for:

Investors looking for a combination of income

and moderate growth.

MBA 219 17-Jun-13 24



Aim to provide easy liquidity, preservation of capital and moderate income. These schemes

generally invest in safer, short term instrumentssuch as treasury bills, certificates of deposit,commercial paper and interbank call money.Returns on these schemes may fluctuate,

depending upon the interest rates prevailing inthe market.Ideal for:

Corporates

and individual investors as a

means to park their surplus funds for short

periods or awaiting a more favourable

investment alternative.

MBA 219 17-Jun-13 25



Tax Saving Schemes (Equity Linked Saving

Scheme -

ELSS)

These schemes offer tax incentives to the

investors under tax laws as prescribed fromtime to time and promote long terminvestments in equities through Mutual

Funds.Ideal for: Investors seeking tax incentives

MBA 219 17-Jun-13 26



Fund of Funds are schemes that invest in other mutual fund schemes. The

portfolio of these schemes comprise only of units of other mutual

fund schemes and cash / money market securities/ short term deposits

pending deployment. The first FOF was launched by Franklin Templeton

Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific

e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific

e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc.

Please bear in mind that any one scheme may not meet all your

requirements for all time. You need to place your money judiciously in

different schemes to be able to get the combination of growth, income and

stability that is right for you. Remember, as always, higher the return you

seek higher the risk you should be prepared to take

MBA 219 17-Jun-13 27



Exchange traded funds popularly also known as ETFs, is a type of mutual fundwherein, the corpus is invested in a basket of securities, which is being traded on anexchange.

Further, an Exchange traded fund investments are being made either on all thesecurities or on a sample of the representative securities that are being traded in thesaid index.The exchange traded funds employ the process of arbitration duringtrading, in order to keep its trading value in sync with the values of the underlyingstocks, which makes up the portfolio.

All the Exchange Traded Funds in India are regulated by the Association of MutualFunds of India (AMFI). Further, the Association of Mutual Funds of India (AMFI)operates in accordance with the laid down guidelines of the Securities andExchange Board of India (SEBI). The Chapter III of the Income Tax Act, 1961

provides tax exemption on investment on Exchange Traded Funds. The rise of theIndian capital markets and increasing numbers of exchange has propelled thegrowth in the numbers of Exchange traded funds in India.

MBA 219 17-Jun-13 28



The Sector Funds are those types of mutual funds which accumulate stocks of

particular sector.

In other words sector funds invest in a single type of industry, like Information

Technology, Telecommunication, Pharmaceuticals, Infrastructure, etc.

The Sector Funds are structured in this particular manner in order to take advantage

of growth of particular type of industry. The Sector Funds can offer tremendous

profit to the investor if the funds are carefully chosen. The authorities to the SectorFunds in India are the Association of Mutual Funds of India (AMFI), which operates

in accordance with the laid down guidelines of the Securities and Exchange Board of

India (SEBI). Moreover, investments in Sector Funds offer tax exemptions to the

investors (Chapter III of the Income Tax Act, 1961). With the growth of the Indian

industries the financial markets have undergone tremendous transformation. The rise

of different sectors has necessitated structuring of sector specific funds to attract

substantial amount of money for the growth of a specific sector in India.

MBA 219 17-Jun-13 29



All investments whether in shares, debentures or

deposits involve risk: share value may go down

depending upon the performance of the

company, the industry, state of capital markets

and the economy; generally, however, longer the

term, lesser the risk;

companies may default in

payment of interest/principal on their debentures

/bonds/ deposits; the rate of interest on an

investment may fall short of the rate of inflation

reducing the purchasing power.

MBA 219 17-Jun-13 30



While risk cannot be eliminated, skillful

management can minimize risk. Mutual Funds

UNDERSTANDING AND MANAGING RISK

help to reduce risk through diversification and

professional management. The experience and

expertise of Mutual Fund managers in selecting

fundamentally sound securities and timing their

purchases and sales, help them to build a

diversified portfolio that minimizes risk and

maximizes returns.

MBA 219 17-Jun-13 31



Step1..Identify your investment needs.

Step2..Choose the right Mutual Fund.

Step3..Select the ideal mix of Schemes.

Step4..Invest regularly

Step4..Keep your taxes in mind

Step5..Start early

Step6..The final step

MBA 219 17-Jun-13 32



SYSTEMATICE INVESTMENT PLANS (SIPs)

A Systematic Investment Plan allows an investor to buy units

of a mutual fund scheme on a regular basis by means of

periodic investments into that scheme in a manner similar

to installments paid on purchase of normal goods. The

investor is allotted units on a predetermined date specifiedin the application form of the scheme based on that day’s

NAV. Here the Plan allows the investor to take advantage of

the Rupee Cost Averaging methodology..minimum

investment of Rs

500 every month.

MBA 219 17-Jun-13 33



Systematic Withdrawal Plan

A Systematic Withdrawal Plan permits the

investor to receive a pre-determined amount/ units from his investment in a mutual fundscheme on a periodic basis. Retirees in needof a regular income often opt for this.

MBA 219 17-Jun-13 34



Systematic Transfer Plan

An STP allows the investor to transfer a pre-

determined amount from his investment in amutual fund scheme to another mutual fundscheme (of the same company) on a periodicbasis. This Plan is generally used to transfersums from a Money Market / Liquid / Cashscheme to another scheme.

MBA 219 17-Jun-13 35



SEBI (Mutual Funds) Regulations, 1996

ASSOCIATION OF MUTUAL FUNDS OF INDIA

(AMFI)

MBA 219 17-Jun-13 36

http://www.sebi.gov.in/acts/Mfunds.html

http://www.sebi.gov.in/acts/Mfunds.html



An applicant proposing to sponsor a mutual fund in India mustsubmit an application in Form A along with a fee of Rs.25,000.

The application is examined and once the sponsor satisfies

certain conditions such as being in the financial servicesbusiness and possessing positive net worth for the last fiveyears, having net profit in three out of the last five years and

possessing the general reputation of fairness and integrity in allbusiness transactions, it is required to complete the remainingformalities for setting up a mutual fund. These include inter alia,

executing the trust deed and investment managementagreement, setting up a trustee company/board of trustees

comprising two-

thirds independent trustees, incorporating theasset management company (AMC), contributing to at least 40%

of the net worth of the AMC and appointing a custodian. Upon

satisfying these conditions, the registration certificate is issued

subject to the payment of registration fees of Rs.25.00 lacs

For

details, see the SEBI (Mutual Funds) Regulations, 1996.

MBA 219 17-Jun-13 37



Every mutual fund shall compute the Net Asset Value of

each scheme by dividing the net assets of the scheme bythe number of units outstanding on the valuation date.

(2) The Net Asset Value of the scheme shall be calculated

and published at least in two daily newspapers atintervals of not exceeding one week :

[Provided that the Net Asset Value of a close endedscheme, other than that of equity linked savings scheme,shall be calculated on daily basis and published in at leasttwo

daily newspapers having circulation all over India.]

MBA 219 17-Jun-13 38



(1) The price at which the units may be subscribed or sold and the price at which such

units may at any time be repurchased by the mutual fund shall be

made available to the

investors.

(2) The mutual fund, in case of open-ended scheme, shall at least once a week publish in

a daily newspaper of all India circulation, the sale and repurchase price of units.

(3) While determining the prices of the units, the mutual fund shall ensure that the

repurchase price is not lower than 93 per cent of the Net Asset Value and the sale price is

not higher than 107 per cent of the Net Asset Value:

Provided that the repurchase price of the units of close ended scheme launched prior

to the commencement of the Securities and Exchange Board of India (Mutual Funds)

(Amendment) Regulations, 2009 shall not be lower than ninety five per cent of the Net

Asset Value:]

Provided further that the difference between the repurchase price and the sale price of

the unit shall not exceed 7 per cent calculated on the sale price

MBA 219 17-Jun-13 39



Certification SEBI vide its Gazette Notification dated May

31, 2010 has notified that with effect from June 1, 2010 all

the distributors, agents, any persons employed or

engaged or to be employed or to be engaged in the sale

and/ or distribution of Mutual Fund Products shall be

required to have a valid certification from the National

Institute of Securities Market (NISM) by passing their

certification examination 'NISM Series V-A : Mutual Fund

Distributors Certification Examination'. For further details

as well as for study material, which can be downloaded,

please log on to the website of NISM www.nism.ac.in

.

t is further notified that if the said associated person

possesses a valid AMFI Mutual Fund (Advisors) Module

Certificate obtained before June 1, 2010, he shall be

exempted from the requirement of the abovementioned

NISM Certification Examination.

MBA 219 17-Jun-13 40

http://www.nism.ac.in/



Mutual Funds 2 Ppt

Documents

Transcript of Mutual Funds 2 Ppt