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MUTUAL FUNDSBY- GROUP 4Mathew Abraham A002Nivedita Gautam A016Swastika Mishra A035Megha Raveendran A042Smriti Sahay A043Akshita Shrama A044Ishan Sharma A045Rhea Wagh A056

Evolution of Mutual FundsIn 1774, Worlds first Mutual Fund named Eendragt Maakt Magt (unity creates strength) was formed by Dutch merchant named, Adriaan Van KetwichTwo subsequent funds set up in Netherlands.The early mutual funds spread were of the closed-end variety, issuing a fixed number of shares. They spread from the Netherlands to England and France before heading to the U.S. in the 1890s.The first modern-day mutual fund, Massachusetts Investors Trust, was created on March 21, 1924. Today known as MFS Investment Management, with assets under management standing at US$ 397.5 billion

History of Mutual Funds in IndiaIn 1963, formation of the Unit Trust of India (UTI) as an initiative of the Government of India and RBIIn 1987, SBI Mutual Fund became the first non- UTI mutual fund in India.In 1993, the SEBI Mutual Fund Regulations were laid down which heralded a new era in MF industryIn 1993, entry of private companies in the sector.In 1995, Association of Mutual Funds in India (AMFI) was establishedSEBI made AMFI certification mandatory for all those engaged in selling or marketing mutual fund products.

GENESISDefinition- A mutual fund is a type of professionally managed collective investment scheme that pools money from investors to purchase securities.The key constituents of Indian mutual funds are:Sponsor: The sponsor is defined under SEBI regulations as a person who, acting alone or in combination with another body corporate, establishes a mutual fund.Trustees: The mutual fund can be managed by a board of trustees or a trust company. The trustees act as a protector of unit holders' interests.Asset Management Company: An AMC functions under the supervision of its own board of directors and also under the directions of trustees and SEBI. Major obligations include:Ensuring investments in accordance with trust deedProviding information to unit holdersAdhering to risk management guidelines by AMFI and SEBITimely disclosures to unit holders on sale and repurchaseNAV and portfolio detailsCustodian and Depositories: The custodian is appointed by trustees for safekeeping of physical securities while dematerialised securities holdings are held in a depository through a depository participant.Registrar and Transfer agents: These are responsible for issuing and redeeming units of the mutual fund as well as providing other related services, such as preparation of transfer documents and updating investor records.

Operation of Mutual Funds

Some Important TermsUnit: Just as shares represent the extent of equity ownership in a company, units represent your extent of ownership in a mutual fund.Load: It is the charge collected by a mutual fund from an investor for selling the units or investing in it. Entry load or Front-end load or Sales loadAn Exit load or Back-end load or Repurchase loadSales Price: It is the price paid by an investor when investing in a scheme of a Mutual Fund. This price may include the sales or entry load.Redemption or Repurchase Price: is the price at which an investor sells back the units to the Mutual Fund. This price is NAV related and may include the exit load.Switching Facility: Investors have an option of transferring the funds amongst different types of schemes or plans with a switching facility.

Net Asset ValueDefinition: : Net asset value(NAV) is the value of a fund's asset less the value of its liabilities per unit NAV = (Value of Assets- Value of Liabilities)/No of units outstandingHelps an investor to determine if the fund is undervalued or overvaluedFor open-end funds, NAV gives the fund's value that an investor will be entitled to at the time of withdrawal of investment.

Myth BustAn investor has a misconception that a fund with higher NAV will give fewer units. Though this is true, it is not the correct criteria to select a fund.

Fund AFund BNAV10020Investment1,00,0001,00,000Units10005000Return20%20%NAV after a Year12024Value after a Year1,20,0001,20,000Conclusion: It is clearly evident that it is not the NAV but the expected return generated in future should be a determining factor to choose the fund.8AdvantagesFor an Investor:Professional ManagementConvenienceLow costDiversificationLiquidityHigher return potentialSafety & TransparencyFor Economy:Channeling the savings of the publicStrengthen and develop a strong capital marketCapital formation and growth of an economy

ClassificationOn the basis of Scheme:Open Ended SchemesClose Ended SchemesInterval SchemesOn the basis of Geography:Domestic Mutual Fund SchemesOff Shore SchemesOn the basis of Investment Objective:IncomeGrowthBalancedTax SavingSectorIndexMoney MarketGilt

Debt Mutual FundsDebt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest.The returns of a debt mutual fund comprises of Interest income Capital appreciation / depreciation in the value of the security due to changes in market dynamics

Types of Debt MFUltra Short Term FundsFloating Rate FundsShort Term & Medium Term Income FundsIncome Funds, Gilt Funds and other dynamically managed debt funds

Corporate Bond FundsFixed Maturity Plans (FMPs)

Income FundsGilt FundsDynamic Bond FundsEvaluation of a Debt FundIt is important to consider the following while choosing an appropriate debt mutual fund:Stated investment horizonMaturity profileCredit rating profileAsset allocation in Fund PortfolioOther quantitative indicatorsUltra Short Term FundsAxis Treasury Advantage Fund (G)Kotak Banking & PSU Debt Fund (G)Escorts Short Term Debt FundBirla Sun Life Saving Fund

Tata Dynamic Bond FundThis scheme is classified as low riskNature of Scheme- Open EndedDate of Allotment- 01/01/2013Latest NAV- 13.1267Entry Load- NILExit Load- 0.50% of NAV if redeemed on or before expiry of 180 days from the date of allotment.Min.Purchase Amount- Rs. 5,000/-Min. Redemption Units- 50Benefits of Debt FundsYour investments are not affected by equity market volatilityAdd stability to your investment portfolioFreedom to withdraw your money when requiredYou can aim for better post tax returnsOn dividend/ Income returnsOn capital gainsMoney Market Mutual FundsThese funds invest in highly liquid money market instruments and provide easy liquidity. The period of investment in these funds could be as short as a day. They aim to earn money market rates and could serve as an alternative to corporate and individual investors, for parking their surplus cash for short periods. Returns on these funds tend to fluctuate less when compared with other funds.Types of Money Market MFMoney market mutual funds can invest in below securities:Treasury Bills (T-Bills)Repurchase Agreements (Repos)Commercial PapersCertificate of Deposits

Benefits of Money MFMoney market mutual funds are good investment options for investors in falling markets. It has following advantages:Safety of the money investedReturnsLiquidity

Impact of Budget on Open-Ended MFIncrease in tenure for availing longterm capital gains benefit on debtoriented mutual funds Rise in longterm capital gains tax rate on debtoriented mutual funds

A type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.John C Bogle"if you can't beat 'em, join 'em" He created the first low-cost mutual fund that mirrored the S&P 500 index

Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor

Why do people invest in index funds?Most indexes provide an annual return of 10% to 11%.Majority of mutual funds fail to outperform the S&P 500. On average, anywhere from 50%-80% of funds get beat by the market. The main reason for this is the costs that mutual funds charge. A fund's return is the total return of the portfolio minus the fees an investor pays for management and fund expenses. If a fund charges 2%, then you have to outperform the market by that amount just to be even.Why is it low cost?

index funds have an expense ratio of around 0.2%!Because of passive managementFund managers only need to maintain the appropriate weightings to match the index performance

INCOME FUND

A type of mutual fund that emphasizes current income, either on a monthly or quarterly basis, as opposed to capital appreciation. Such funds hold a variety of government, municipal and corporate debt obligations, preferred stock, money market instruments, and dividend-paying stocks

The point in any case is that the investor is more interested in income than capital gains, perhaps with the intention the fund will never be sold.

Share prices of income funds are not fixed; they tend to fall when interest rates are rising and to increase when interest rates are falling. Generally, the bonds included in the portfolios of these funds are of investment grade. The other securities are of sufficient credit quality to assure a preservation of capital.

GILT FUNDS

Gilt Funds are mutual funds that invest only in government securities. They are preferred by risk averse and conservative investors who wish to invest in the shadow of secure government bonds.

Since gilt funds invest only in government bonds, investors are protected from credit risk. The instruments where these funds invest have sovereign guarantee. Hence no default risk is associated with these instruments.

These funds can have different maturity profiles. Some may be short term while others are medium term or long term. Like any other bond funds, these funds too have interest rate risk ingrained in them.

Tax-Saving Mutual FundsOne of the main purposes of investing for most investors is tax savingSeveral type of investments qualify for tax exemptionEquity Linked Saving Scheme (ELSS), the tax saving mutual fund, is one of the favorite investments amongst investors seeking tax exemption ELSS FundELSS are open ended, diversified equity schemes offered by mutual funds in India.ELSS is a dedicated mutual fund scheme that invests in shares/equity and offers twin advantage of capital appreciation and tax benefitsThey offer tax benefits under Section 80C of Income Tax Act 1961.It comes with a lock-in period of 3 years34Section 80C and DeductionsSec 80C of the I T Act, 1961 deals with the tax deductions and tax breaks. It allows certain investments and expenditure to be tax-exemptThe new Section 80C has become effective from 1st April, 2006The maximum deduction limit under 80C is Rs. 1.5 lakh (raised from 1 lakh in Union Budget 2014-15)

Section 80CQualifying Investments/Expenditure under 80C:PF & VPF, PPFLife Insurance PremiumsELSSNational Saving Certificates (NSC)SCSS , 5 year FDs and POTD schemesHome Loan Principal Repayments ,Stamp Duty & Registration ChargesInfra Bonds, NABARD Rural Bonds

ELSS advantages apart from tax benefitsCompared to traditional instruments like PPF, NSC and FDs, the lock-in period of ELSS fund is much lower (3 years)As ELSS is an investment in equity markets and investing in this for a long term can give you better returns compared to other asset classes i.e. earning potential is highOne can also opt for Systematic Investment Plan (SIP), which brings about discipline in regular investing.Investor can also opt for dividend option and get some gains during the lock-in period

Best performing ELSS FundReliance Tax SaverSBI Tax AdvantageICICI Prudential Tax PlanHDFC Tax SaverPrincipal Tax SavingsAxis Long Term EquityReliance Tax Saver PlanLaunched on August 23,2005Asset Size- Rs. 2413.63 crNAV as on Aug 28, 2013- 19.04NAV as on Jul 04, 2014- 39.38Return % - 1 year = 100.8%, 3 year = 23.7%Ranked 1 by Crisil in ELSS category

Peer ComparisonELSSCrisil RankAssets (Rs cr)6 mnth (%)1 year (%)3 year (%)5 year (%)Reliance Tax Saver12413.6360.4100.823.720.2SBI Magnum Tax34327.6837.558.119.614.3HDFC Tax saver34036.3645.570.916.917.2UTI MasterNot Ranked1428.5531.444.515.612.5Axis Long Term11310.9942.167.125.2_SIPSector Specific FundsSIPVehicle offered by MFs to help investors save regularly A recurring investment where the investor commits to investing a fixed amount at regular intervalsThe funds are auto-debited from the investors bank account and certain number of units are allocated as per the ongoing market rate(NAV)

How does it benefit the Investor? 1. Rupee cost averaging:

The investors money fetches more units when price falls and less units when the price is high

Helps the investor achieve lower average cost per unit

How does it benefit the Investor?2. Power of compounding The earlier the investor commits to the scheme, the higher compounded returns3. FlexibilityInvestor can increase/decrease/ discontinue the plan at any time4. Long term gains5. Convenience

Convenience- standing instruction to your bank to facilitate auto-debits from your account44SECTORAL FUNDSWhat is a Sector MF?MF that invests in a specific sector of the economy as stated in the offer document, eg: Energy, utilities etc

Sector funds vary in substantially in Market capitalization, investment objective (growth/income), class of securities (debt/equity) within the portfolio etc

Why invest in Sector Funds?For investors whose portfolios lack exposure in a specific sectorServe to hedge portfolios , as some sectors tend to move opposite the general economy as a wholeEg: high energy prices can be drain on the rest of the economy but boost the energy fundsReduce portfolio risk by investing in a sector having low correlation with the other equity fundsRisks Involved..Usually lag behind their diversified peersGreater risk and volatility than broad based funds eg: when the economy slows down, banking sector funds suffer due to degradation in asset quality (rise in NPAs)

The Indian ContextSectorTop Market PlayersSector average Returns (1 year as on Aug 05, 2014)Banking and financial services Funds-

Reliance Banking Fund

52.2%FMCGICICI Pru FMCG, SBI FMCG funds

18.7%TechnologyICICI Tech fund

39.7%Pharmaceuticals UTI Pharma, SBI Pharma funds

45.3%Infrastructure HDFC Infra , Religare Infra

77.2%

During periods of high economic growth, capital goods, engineering sectors outperform the steady pharma sector

49Pharma sector- Top performersMutual Fund SchemeCrisil RankAUM(Rs. cr.)Jun 141mth3mth6mth1yr2yr3yr5yr* Returns over 1 year are AnnualisedSBI Pharma Fund - Direct (G)Not Ranked

21.333.517.324.950.6------SBI Pharma Fund (G)Not Ranked

194.913.417.024.449.434.428.727.7Reliance Pharma Fund - Direct (G)Not Ranked

36.13-0.811.519.446.5------Reliance Pharma Fund (G)Not Ranked

773.24-0.911.319.045.526.921.228.5UTI Pharma & Health - Direct (G)Not Ranked

4.662.314.020.240.5------UTI Pharma & Health (G)Not Ranked

149.442.313.819.739.426.921.025.5CATEGORY AVERAGE1.614.221.345.314.711.813.6Reliance Banking FundInvestment Objective:Seek returns by actively investing in equity and equity related securities of banking companies

1-Week1-Month3-Months6-Months1-Year3-Years5-YearsSINAV Growth0.13%-2.22%21.76%54.26%63.88%15.62%18.47%27.27%NAV Returns*

Benchmark Index 1-Week1-Month3-Months6-Months1-Year3-Years5-YearsSICNX Bank0.53%-1.69%18.73%18.73%51.49%13.88%14.99%12.29%Reliance Banking FundCompany% of InvHDFC Bank17.88ICICI Bank15.56Yes Bank6.38Indiabulls Housing5.85HDFC5.57SBI5.23Bajaj Finance4.40Federal Bank4.07Oriental Bank3.85LIC Housing Finance3.73Top Ten HoldingsInvestment Breakup across Sector Funds(as on June 2014)GROWTH FUNDSA growth fund is a diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. The companies forming the portfolio would mainly have the following characteristics: above average growth in earningsThey reinvest their earnings into expansion, acquisitions, and/or research and development

Why one should invest in a growth fund?Chances of appreciation over timeBetter hedge against inflationGrowth funds have outperformed the other asset class over long termBetter than Gold, real estate: due to better liquidity and low transaction cost

Volatility in Growth FundsGrowth funds offer higher potential capital appreciation but usually at above-average riskThe companies in a growth fund portfolio are in an expansion phase and they are not expected to pay dividendsThe stocks are more volatile in the short term. However, they usually go up in the long term. Thus a holding period with a time horizon of five to 10 yearsTypes of Growth FundsBalanced Funds: Ideal for investors preferring moderate capital appreciation and income regularlyDiversified funds: Ideal for the investors seeking appreciation over medium to long termInvestments in equities across various industries / sectors either large cap or small capIndex funds: Ideal for the investors who wishes to and also satisfied with returns equal to that of indexSector specific fund Ideal for investors who wish to invest in a particular segment or sector

BALANCED FUNDSA fund that combines a stock component (common stock/ preferred stock), a bond component (long-term bond/ short-term bond) and sometimes a money market component in a single portfolioTypically two types of Balanced Funds are there:Moderate: higher equity componentConservative: higher fixed-income componentWhy to invest in Balanced Funds?Provides both capital growth and income objectives Manage downturns in the stock market without too much of a lossHave given moderate to high returns in the last few yearsDebt provides a cushion of safety59KEY CHALLENGES FOR MUTUAL FUND Lack of financial education and awareness Low penetration levelsHigh dependence on corporate sectorIncreasing cost of operations Limited distribution networkCulture bias towards physical assets

KEY IMPERATIVES FOR EXPANSIONA trusted sales agentPartnering with a bankTechnologyAUM last year INR 8,800 billionCAGR 15% FY07-13AUM - 5 to 6% of GDPWAY AHEAD FOR MUTUAL FUNDSImportant vehicle for mobilization of savings particularly from the household sectorRestructuring of business models to provide increased efficiency and investor satisfactionSEBI taking steps towards improving the standards of disclosure for mutual funds.Introducing prudential norms to prevent misuse of funds and protection of investors.Greater degree of freedom to the fund managers to structure their schemes according to the investor preferences.THANK YOU