Objective of the Session to Give An

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Objective of the Session

To give an overview of various

products in Financial Serviceswith a focus on Mutual Funds



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



Post Liberalisation…..



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



Mutual Funds



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



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



The Mutual FundIndustry



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



Worldwide Mutual Fund Assets (trillions of U.S. dollars)



Asset Distribution



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



Types of Schemes



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



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



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



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



Why Mutual Funds ??



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?



Types of Mutual Funds



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



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



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



Fund Structure and itsConstituents



Fund Structure

Fund Sponsor

Trustees

Asset Management

Company

RegistrarsCustodianDistributors

Fund Mgmt. Sales & Marketing Operations Client Service Compliance

Bankers

Brokers



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



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



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.



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



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



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



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.



Legal and Regulatory Environment



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.



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.



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.



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



Accounting, Valuation andTaxation

Accounting



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)



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



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/-



Measuring and Evaluating MutualFund Performance



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



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%




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



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%




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



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.



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.



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 ??



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



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

http://www.timesofmoney.com/

http://www.amfiindia.com/




http://www.valueresearch.com/

http://www.mutualfundsindia.com/

http://www.pruiciciamc.com/



http://www.myiris.com/

http://www.moneycontrol.com/



http://www.moneycontrol.com/

http://www.myiris.com/










http://www.mutualfundsindia.com/
















My email address :

[email protected]

Contact No. 9820348529



Thank You

E iti th b t l t b t!



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



Why invest early ?



• 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



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



• 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



Who do you think is better off ?



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



The choice is yours.Whether U want to be

Sanjay or Ajay……

Thank U

Mutual Funds Vs. Other Investments



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

Objective of the Session to Give An

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