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INDIANMUTUAL
FUND
INDUSTRY
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Objective,players
Fundmanagement
Investorservices
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InvestmentCompanieswheremoneyispooledandinvestedbyprofessionals.
Manyplayers
Varietyofproductstomeeteveryinvestorsrequirementandriskappetite.Features
Safety&Security
Diversifiedinvestment
ProfessionalManagement
ax ene s
Liquidity
CapitalandIncomegeneratingreturns
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moniesfrom
the
investors
for
specific
duration
of
time
andattheendofthedurationtheinvestedmoniesisqu a e an e nves orsamoun sre urne w
returnsearned.
TheInvestmentCompaniesinUKarecalledTrustsandinUSAtheyarecalledMutualFunds.
IndiareplicatedtheUKmodelwhenitsetuptheUnitrus o n a.
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e rs nves men rus was e co s American
Investment
Co.
set
up
at
Netherland
in
1873.
ThiscompanycollectedmoniesunderclosedendedschemesandinvestedthemoneyinStockMarket.
stockmarketfluctuations.
Morethan50suchcompanies.
es oc
mar e
cr s s
n
ma e
a
ese
InvestmentCompaniesgobust.contd.
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ThefirstinUSNewYorkStockTrustin1889.
Thiswas
open
ended
fund
ThefundinvestedinStockMarket
StockMarketcrashof1929wasastumblingblock
RevivedagainpostWorldWarII
SteadyGrowth
as
Markets
revived.
Theinvestorswantedshareofthestockmarketgrowth.
MoneymarketinstrumentsduringslackstockmarketconditionsandMutualFundsstartedofferin thesimilarreturns.
Varietyofproductsincreased
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MutualFundindustr startedinIndiaasan
initiative
of
the
Government
to
tap
the
savings
of
thepublicandchannelisethesameintheCapital.
UnitTrustofIndiawassetupbyanActofParliament
in
1963
Itstarteditsoperationsin1964withthelaunchofUS64.
twas
not
on y
a
utua
un
ut
a so
acte
as
a
FinancialInstitution
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PhaseI(19641987)
ThesettingupofUnitTrustofIndia.
Startedoperationsin1964.
Witnessedaslow andsteadygrowth.
Launchedvariousschemestosuitinvestorsneeds
Mastershare firstschemelistedontheSEs
MonthlyIncome
Schemes
Very
popular
Assuredreturnsscheme
Functionedasamono ol till1987
Had6700
Crores
of
AUM
in
1988
contd.
8/3/2019 Session 7 MF
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ase
PublicSectorinstitutionswerepermittedto.
Banks,LICandGICenteredasMutualfundplayers
By1993
there
were
8
players
with
UTI.
.
UTIcontinuedtobetheleaderwithmaximumAUM
Thetotal
savings
in
Mutual
fund
grew
to
AUM
Rs.
47004
Crores
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PhaseIII(1993 2003)
Privateplayers,bothDomesticandforeignenteredthemarket
KothariPioneerfirstsetupin1993
MorganStanley,JardineFleming,JPMorganetc
Periodoftremendousgrowth
ProfessionalismandTechnology
Highcompetitiveness
SEBI(MFRegulations)regulatedalltheMFsinIndiafrom1996
ThetotalAUMrosetoRs121,805Crores
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ase onwar s
Restructuringof
UTI
TheUTIActrepealed
UTI urcate nto pec e Un erta ngo Un tTrustofIndia(SUUTI)andUTIMF
AllMutual
Funds
now
under
SEBI
Regulator
Periodofconsolidation&growth
o a
ason
arc ,
s
croresTotalAUMason28th,February,2007stoodatRs
353319crores
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Organizationalstructure FourTiered
structure
Regulations(1996)
SponsortosetupaMutualFundundertheIndianTrustAct
1882
SponsorappointstheBoardofTrusteesorTrusteecompany
TheTrusteecompanyortheBoardofTrusteesenterintoan
setupanAssetManagementCompany
TheTrusteeCompanyalsoappointsCustodian
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Sponsor sets up the Mutual Fund under the Indian Trust Act 1882
Who is eligible to be a Sponsor?o y orpora e e er s ng y or n par ners p
Sound track record of fairness & integrity
Being in financial business for at least 5 yearsPositive net worth for at least 5 years preceding the registration
Net worth > than the AMC initial contribution PAT is positive for 3 years
The sponsor should hold at least 40% of the net worth of the AMC
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TheSponsorappointstheTrusteeCompanyorDirectorsofthe
TrustDeed
&
appointment
of
Directors/Trustees
approved
bySEBI
o e rec ors n epen en o e ponsors
Cannotbe Directors/TrusteesofanyotherMutualFund
Directors/Trusteeto
maintain
arm
length
relationship
TrusteesofaFundcanformaTrusteeCompanyunderSEBI
TrusteescanberemovedwithSEBIapproval
MonitoringtheAMCsfunctionsandactivities.
ProtecttheinterestoftheInvestors
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AssetManagementCompany
AMChastobeapprovedbySEBIunder
SEBI(MF
Regulations)
1996AMCshouldhave: NetWorthof Rs.10Crores
SoundTrackrecord
50%of
Directors
independent
of
Sponsors
&
Trustee
AMClaunchesFunds,managesthefundthroughinvestments,
AMCreceivesannualManagementfeefromtheFund itservices.
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AssetManagementCompany
Obligations&
Functions
Managementof
the
scheme
as
per
the
scheme
provisions
otmento t eun tstot e nvestorst roug o etc
Submissionof
Compliance
reports
to
the
Trustees
Properdisclosurestoinvestors
ProperNAVcalculationby8pmeveryday
Handlin theInvestorServicethrou hinhouseor
R&TAgents
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Custodians
Safekeepers
of
the
shares
&
securities
purchasedbytheMutualFund
Participatingintheapprovedclearing
systemon
behalf
of
the
Mutual
Fund
IndependentofSponsors&AMCandregisteredwithSEBI
Thedematerialized
shares
of
the
Fund
keptwiththeDepositories.
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Other Entities
Bankers
Buying&selling
of
units,
receipt
of
monies
from
the
investors,
issue
of
income/dividends/interests,
redemptions,maturitypayment.
viz.distributors,publicity,R7Tetcinc/woperationsofthescheme
Bankingtransactionsforpurchase&saleofshares,
securitiesand
other
assets
payments Issueofcheques,Drafts,ECSpaymentsonbehalfofthe
AMCAlsohandledistributorsfunctions
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OtherEntities
contd.
TransferAgents
In
house
or
external
agencies
registered
with
SEBIIssueofunitsandredemption
Han inga investorservices
Specialpayoutslikedividends,bonusissuesetc
Interface of the Fund with the Investors
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OtherEntities
contd. Distributors
Networkofdistributorstocanvassforthesaleofthefunds
floatedby
a
Mutual
Fund
Individual Brokers Cor orate Banks
Brokerage/commissionfortheunitssoldthroughthem
Canbedistributorsformorethan1MF
investmentavenues
MandatorytobeAMFICertifiedw.e.fNovember,2001
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AsnapshotofMutualFund
rgan za ona
ruc ure
Fund Sponsor Trustees AMC
an s us o an
Agents/
DistributorsR &T Depositories
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ParticipantsOfMutualFund
InIndia
Industry1. BankSponsored
2. Institutions
3. PrivateSector
a. Indian:b. Predominantly
Indian
Joint
Ventures
c. PredominantlyForeignJointVentures
B.NewPlayersenteringtheMFIndustry
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RecentDevelopmentsInThe
u ua
un
n us ry
LaunchofNewInnovativeProducts
Feeslinked
to
performance
Em lo ee&Broker A entCertification AdditionalDisclosures&ImprovedService
Standards StricterComplianceStandards ShiftfromGuaranteedProductstoNon
Guarantee
Pro ucts ConsolidationintheMutualFundIndustry
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Bynature
of
Investments
ByInvestmentO jective
Byrisk
profile
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Openend
ByInvestmentobjective
Income(debt),
OthersIndexschemes Sectors ecific Exchan eTradedFunds Floatin rateschemes
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improvingwith
Paperlesssystems:Nocertificatehandling
ECSfollowedbyElectronicFundsTransfer
Increasingtechnology
linkages
across
offices,
banks,registrars,etc.
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Transparencytoboost
Monthl Portfolio Disclosures
Investor Communication through Monthly Bulletins
Quarterly Accounts
Inter-Fund comparison of Returns
Benchmarks, Peers
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InvestorAwareness
level
r s ng rom ncrease compe on ea ng oincreasedadvertisementsandpublicity
un anagemen cos s
FundManagersabilitytomanagerisk
Regulationand
Best
Practices
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AssetsUnderMana ement
Computationof
Net
Asset
Value
Valuationofinvestmentportfolio
Dailydisclosures
Loadstructure
entry
and
exit
loads
PerformancereturnsofvariousfundsAbsolutereturns RiskadjustedreturnsPeergroupcomparisons
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ofequity
shares
and
debt
instruments
debtportfoliodailymarketvalueiscomputed
NAV=MVAt LIABt NSOt MVAisthemarketvalueofassets
LIABisliabilities
NSOnumber
of
shares
/units
outstanding
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Debtresearch
Trac ingmacroeconomic ata
Policyimpacts
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Aggressive
Port o ioStrategies
Equityfund
management
Debtfundmanagement
ULIPSandsectorfundsmanagement
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Different erformancemeasures
Changein
NAV
o a e urn
Return
on
Investment
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Absolutereturns
Simple
returnsIfaschemeNAVhasgoneupfromRs10to12and
10/10)
Usefor
schemes
which
are
in
existence
for
less
than
a
year
MorethanoneyearusecompoundedreturnsAnnualisation returnforthe eriodwhichisnot
equalto
one
year
a
scheme
gives
4
months
return
as
5%theannualreturnbe5%*12/4=15%
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Whendividend
is
paid
NAV
goes
down
as
Ex
dividend
NAV Iftheschemehasagrowthoptionwhereno
dividendsaredeclared,thenearningswillbe
fullyreflected
in
the
NAV
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Similarto
simple
return
but
if
there
is
dividend
,
returns
uppose asgrown rom s o an eisdeclaredasdividend
=
Totalreturnis(12+110)/10=30%
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Compoundedreturn
ssumeany v en ec are sre nveste nt esc eme.
Thennumber
of
units
will
increase
to
the
extent
of
no.of
dividendsdeclared unitholdingwillincrease
pen ngun s open ng
Closingunits*closingNAV
CAGR
(A/P)(1/t)
1=c os ngwea
P=openingwealth
T=timeperiod
SEBI sc eme smoret anoneyearuseCAGR
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Rollin return
Returnsduring
last
7
days,
last
one
month,
three
months
Debtinvestmentearnsdailyinterestincome
Volatilityindailyinterestratesleadtovolatilereturns
ayro ngre urns s ow eex en o vo a y
Loadadjustedreturns
Relativereturns
Withreferencetobenchmarkindex
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NAVduring
the
given
period
,
Returnisusuallycalculatedonanaverage
asist anpointtopoint asis
NAVseriesshouldbeatleastbeof30periods
(samplesize
30) (1/3)
8/3/2019 Session 7 MF
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evaluationis
to
compare
it
with
the
returns
obtainedrelativetootherreturnanactiveinvestmentmanagerprovides
Inother
words,
use
of
a
benchmark
that
is
comparableinrelativesense
Eg.,compareasectorfundwithsectoralindex
orreturn
with
a
popular
index
in
the
country
likeBSESensex,etc (2/3)
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performance,we
must
also
account
for
the
Benchmarkportfoliosneedtohaveasimilar
meaningful
easuret e
per o c
returns
mont y,
quarterly) (3/3)
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AMFIand
SEBI
regulations
Se ingpractices
Investmentrestrictions
KeyInformationMemorandum
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investorsinterest
Regulators
SecuritiesExchangeBoardofIndia(SEBI)
AssociationofMutualFundsinIndia(AMFI)
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SEBIAct
SEBI sapprova isrequire tostartamutuafundoperations
SEBIalsoensuresthattrustees,boardofdirectorsandassetmanagementcompanies
arepersons
of
integrity
and
reputation
with
fairdealingstotheircredit.
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Setupin1995torepresentMutualFundcollectively
Research&creatingstandardsforMFsinIndia
Bestprofessional
&
ethical
standards
InteractswithSEBIonvariousissuesrelatedtothe
industry.
SEBIdiscussesmajorpolicyrelatedissueswithAMFI
,
Quarterlyupdatesetc
Mandatorycertificationprogramconductedfor
Certificationfor
the
Mutual
Fund
employees
8/3/2019 Session 7 MF
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InformationMemorandum,
which
is
essentially
a
summar oftheOfferDocument.
Asofferdocumentismostcomprehensivesource
of information for a ros ective investor it is not
distributedwidelyandisonlyavailableon
request.Thisisbecauseoftheexpenseinvolved
andbecause
most
individual
investors
find
it
cumbersometostudysuchadetaileddocument.
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SEBIhasprescribedtheformatfortheKIMthatincludesthefollowin critical areas:
InvestmentObjectives. Asset
allocation
pattern
of
the
scheme.
Benchmarkindexanddividendpolicy SourceoftheobtainingdailyNAV
accountsstatements,annualfinancialresultsandhalfyearly portfoliodisclosure.
Nameoffundmana erandTrusteeCom an .
Investorgrievance
contract
,etc
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Multimanager
funds
(Optimix)
He geFun s
Realty
funds GoldExchangeTradedFunds
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Constituentsand
organizational
structure
Typeso sc emes
Valuation,Netassetvalueandperformance
measures
Regulations
Newchallenges
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Thank You
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