Presentation on Mutual Funds

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MUTUAL FUNDS

Tolani Institute of Management Studies

INTRODUCTION Mutual Fund is an investment vehicle that is made up of a

pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.


Flow / Process of Mutual Funds


Organization of a Mutual Fund


SEBI Regulations

The mutual funds are registered and regulated under the SEBI (MF) regulation, 1996

These regulations deal with

Launching of schemes

Disclosures in the offer documents

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Investment objectives

Pricing of units


The SEBI (Mutual Fund) Regulation 1996, contains 11 schedules.

No. Of schedule ParticularFirst schedule Proforma of various forms to be usedSecond schedule Various fees payable by mutual fundsThird schedule Content of the trust deedFourth schedule Content of investment management agreementFifth schedule Code of conductSixth schedule Advertisement codeSeventh schedule Restriction on investmentEighth schedule Investment valuation normsNinth schedule Accounting policies and standardsTenth schedule Initial issue expensesEleventh schedule Annual report


Registration of Mutual Fund

Every mutual fund shall be registered with SEBI through an application to be made by the sponsor in the prescribed profoma, accompanied by a non refundable application fee of Rs.2500.

Every mutual fund shall pay Rs.25 lakh towards registration fee and Rs.2,50,000 p.a. as service fees

Registration will be granted by the Board on fulfilment of conditions such as

Sponsor having a sound track-record of five years The net worth of the immediately preceding year being more than the capital contribution of the sponsor in AMC and the sponsor showing profits after providing for depreciation


A mutual fund shall be constituted in the form of a trust under the provision.....

Indian Registration Act, 1908(U/S 16 of 1908) and trust deed containing the provisions laid down by SEBI.

What percent of the trustees shall be independent trustees

At least two-third of the trustees shall be independent trustees(who are not associated with an associate, subsidiary or sponsor in any manner).

Regulations as to the Trust


The AMC shall have a minimum net worth of....

Rs.10 crore

What percent of the directors of the Board of Management of the AMC should not be associated with the sponsor or its subsidiaries or the trustees

At least 50 percent

Regulations as to AMC


BorrowingsIt shall not borrow more than 20% of the NAV of the scheme and for a maximum period of 6 month Income distributionAll Mutual Funds must distribute a minimum of 90% of their profits in a given year.

Underwriting of securitiesMutual Funds are permitted to enter into an underwriting agreement after obtaining a Certificate of Registration from SEBI. The underwriting obligation of a Mutual Fund shall not exceed the total NAV of the scheme.


Pricing of units


Particular Open end scheme Close end scheme

Repurchase price

Not less than 93% of NAV

Not higher than 107% of NAV

Sale price Not less than 95% of NAV

The difference between repurchase and sales price should not exceed 7%

Mutual Fund Concepts

Net Asset value

Net Asset Value is the market value of the assets of the scheme minus its liabilities on day of valuation. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date.


Expense RatioIt is ratio of expenses incurred by a mutual

fund for managing a fund to net assets of the fund. The expense represent the proportion of the fund’s assets that means the expense of the running fund. Expense ratio is charged as a percentage of net assets & subtracted from the investor’s investment every year.

Entry and Exit LoadMutual fund incur certain expenses such as brokerage, marketing expenses, communication expenses.These expenses are known as “Load” and are recovered by fund when it sells the unit to the investors or repurchases units from with holders.

• When investors enter into scheme

Front End Load

• When investor get out of the scheme

Back End Load


Total market value of the assets managed by the investment company on behalf of the investors is known as Assets Under Management.

AUM of a scheme is calculated by multiplying the net assets value of scheme by the number of units issued by the scheme.

Assets Under Management (AUM)


Mutual Fund Classification

By Structure

Open-Ended schemes Closed-Ended schemes Interval schemes

By Investment Objective

Growth / Equity Oriented Schemes

Income / Debt Oriented Schemes

Balanced Funds Money Market / Liquid

Schemes


Special Schemes

Index Fund Schemes Sector Specific Fund Schemes Tax saving Schemes, for ex: ELSS

Other Schemes Fixed Maturity Plans (FMP) Exchange Traded Funds (ETF) Capital Protection Oriented Schemes Gold Exchange Traded Funds (GETF) Quantitative funds Fund of Funds (FOF) Funds Investing Abroad Real Estate Mutual Funds


Return & Risk in different type of Mutual Funds


ADVANTAGES

Professional ManagementDiversificationConvenient AdministrationPotential of giving handsome returnsLiquidityFlexibilityWell Regulated


Low CostsVariety of SchemesTransparency

Cont…


DISADVANTAGES

Management RiskToo Much DiversificationTaxesFees & Commissions


Distribution Channel

Customer

Banks

Organised Distributors

Financial Advisors

Direct Selling


Association of Mutual Funds in India (AMFI)

AMFI was established in 1993, realising the demand for a common forum for Mutual Fund Industry.

It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

AMFI interacts with SEBI and works according to SEBIs guidelines in MF industry.

AMFI represent the Government of India, the RBI and other related bodies on matters relating to the Mutual Fund Industry.

AMFI undertakes investor awareness programme to promote proper understanding and working of MFs.


Investment Strategies

Systematic Investment Plan (SIP): Under this a fixed sum is invested each month on a fixed date of a month.

Systematic Transfer Plan (STP): Under this plan an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

Systematic Withdrawal Plan (SWP): As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount / units from his fund at a pre-determined interval.


Advantages of SIP

Habit of investing regularlyPower of CompoundingRupee Cost Averaging (RCA)Convenience


Power of Compounding in SIP

Started Investing

At the age of

Investment Period

Total AmountInvested

Corpus at the age of

60

Person A 1000/month 30 30 3,60,000 14,17,613

Person B 1000/month 35 25 3,00,000 9,14,839

Note: Rate of return of 8% compounded has been assumed.


HDFC Growth Fund Investment Objective: To provide long term capital

appreciation Investment Pattern:

80-100% in Equity 0-20% in Debt & Money Market

Benchmark Index: SENSEX Past performance:

PERIOD Returns (%) Benchmark returns (%)

Last 1 Year 18.04 10.94

Last 5 Years 16.35 11.50

Since Inception 22.87 14.41


HDFC Arbitrage Fund

Investment Objective: To generate income through arbitrage opportunities between cash and derivative market

Investment Pattern:

Benchmark Index: CRISIL Liquid Fund Index

Type of instruments Asset allocation(Arbitrage available)

Asset allocation(Arbitrage not available)

Equity 65-90 0-65

Derivatives (Futures & Options)

65-90 0-65

Debt Securities & Money market instruments

10-35 35-100


Cont…

Benchmark Index: SENSEXPast performance:


Last 1 Year 7.80 6.21

Last 3 Years 6.48 6.22



HDFC Monthly Income Plan Investment Objective: To generate regular returns

through investing in Debt & money market instruments Investment Pattern:

25% in Equity 75% in Debt & Money Market Instruments

Benchmark Index: CRISIL MIP Blended Index Past performance:


Last 1 Year 9.11 6.17

Last 5 Years 11.06 7.41




THANK YOU

Presentation on Mutual Funds

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Transcript of Presentation on Mutual Funds