Mutual Funds

By Dr.V.Aditya Srinivas
2010 BSE Institute Limited

Mutual Funds
Indirect way to participate in capital markets. Mutual Funds is collective pool of money of investors.

2010 BSE Institute Limited

History of Mutual Funds

1963 First Mutual fund launch UTI 1964 - US 64 scheme of UTI was started 1987 SBI mutual fund started (Public sector banks were allowed to start mutual fund ) 1991 Private mutual fund were started Kothari Pioneer first private mutual fund

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Constituents of MF
Sponsor (Entrepreneur) Trustees AMC (Asset Management Companies)

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Growth of Mutual Funds

Currently 40 mutual funds More than 1000 schemes AUM (Assets Under Management ) increased from Rs. 1,50,000 crores in 2004 to Rs. 8,00,000 crores in 2010 In 2012 the AUM is Rs.5,87,000 crores which is at 3 years low

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Types of Mutual Funds

Open Ended Close Ended Growth Funds Balanced Funds Debt Funds Sector Funds Index Funds ETF Funds FOF Funds

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Cont.
1. Open ended fund : It is a fund which can issue and redeem units at any time. 2. Close ended fund :It is a fund which has a lock in period during which the units cannot be redeemed.

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Cont.
Growth Fund : 100 % Investment done in equity market. These funds are more volatile, rising more than other funds in bull market & falling more in bear market. Balanced Fund :65 % of the investment done in Equity & 35 % in Debt instruments. Such diversify holdings ensure that these funds will manage downturn in the stock market without too much of a loss.

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Cont.
Debt Fund : 100 % investment done in debt instruments which includes short term bonds , long term bond, money market funds. Sector Fund : Investment done entirely or predominately in single sector. It tend to be more riskier, more volatile & less diversified.

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Cont.
Index Fund : 100 % investment done in Index shares. Such as Reliance Ind., Tatasteel, TCS , Bhartiairtel , BHEL , Infosys, HDFC Bank , ICICI Bank etc.. ETF : Exchange Traded Fund are traded on the stock exchange. They can be bought and sold any time in the day ( unlike most mutual funds.)

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Cont..
FOF : Fund of Funds refers to the mutual fund which invests in other mutual funds. For e.g. HDFC Mutual Fund invests in Reliance Mutual Fund.

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Advantages of Mutual Funds

Diversification Decent Returns Professional Management Liquidity Tax efficiency

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How does Mutual fund work ?

The money collected from the investors forms the pool The pool amount is invested by the AMC in the stock market in equity shares Different schemes have different asset allocations

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Asset Allocation of Mutual funds

Equity Diversified 100 % Equity shares Balanced 65 % Equity & 35 % Debt Debt Funds 100 % debt instruments Index Funds 100 % in index shares Sector funds 100 % in Sectoral shares

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How to select Mutual Fund ?

AMC History Past Performance Consistency of Performance Investment Style Aggressive or Defensive

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What is SIP ?
SIP stands for Systematic Investment Plan It is based on Rupee Cost Averaging Automatically times the market It is tool for Wealth Creation in the long run

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How does SIP work ?

It is based on Rupee Cost Averaging Every month Rs. 1000 is deducted from bank account and buying is done Every month buying brings down the average cost Rs. 1000 invested for 30 years at 15 % Invested Amount Rs. 3,60,000 Return Amount Rs. 70,00,000

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Mutual Sitting on Cash % of AUM (15/7/11)

ICICI Prudential Advisor ING Optimix Global Commo Sahara Super 20 Axis Midcap HSBC Midcap Equity IDFC Premier Equity 28.8 18.6 17.9 15.4 13.2 12.9

Funds need to keep 5 % of AUM as cash to meet day to day redemptions units

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Mutual funds deals (20/1/12)

Natrix Global Asset Mgmt bought 25 % in IDFC MF for 5.5% of its AUM in Dec 2010 Japan Normura bought a stake in LIC MF for about 2.5 % T Row acquired 26% strategic stake in UTI AMC for 3.6%of AUM in 2010 IDFC bough Stancharts for 5.7 % of AUM in 2009

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Mutual funds deals (20/1/12)

Eton Park capital paid 13 % of AUM for 5 % stake in Reliance Mutual fund in 2007 Nippon life Buys 26 % in Reliance capital for Rs. 1450 crore valuing 6.8% of AUM largest ever MF deal by foreign firm

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AUM of top 5 MF (20/1/12)(Rs.Crores)

Mutual Funds HDFC mutual fund Reliance mutual fund ICICI Prudential Birla Sun Life UTI Mutual Fund AUM 88628 82305 69367 60377 57817

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Kuwait Investment Authority (KIA) gives $ 1 billion to 5 fund houses (23/1/12)

KIA has given $ 1 billion to 5 local Mutual funds in India Birla Sun Life Mutual Fund DSP Black Rock ICICI Prudential Canara Robeco Mutual Fund Franklin Templeton Each MF has been allocated $ 200 million

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Best 10 year SIP returns (13/2/2012)

Mutual Fund SIP Reliance Growth DSPBR Equity HDFC top 200 Magnum Global HDFC Equity Magnum Contra HDFC Growth 10 year return(%) 26.86 25.48 25.18 24.92 24.89 24.38 23.11

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Best 10 year SIP returns (13/2/2012)

Mutual Fund SIP 10 year return(%) Magnum Multiplier plus 22.91 Franklin India Bluechip 22.10 Franklin India Prima Plus 21.97

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ELSS outperforms traditional tax savers (28/3/2012)

ELSS has given 26 % return in last 10 years and 22 % return in last 3 years Average inflation in last 10 years is 6.05% PPF has given 8.10 % in last 10 years NSC has given 9.10 % in last 10 years

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Entry load in MF needed (25/4/2012)

Only 200 distributors have gross revenue of Rs. 1 crore Out of this 200, 20 are banks and institutions 16000 odd active distributors only 185 IFA are earning Rs. 1 crore gross revenue In Singapore front load is 3% and expense ratio is 2.5 % Investors there pay in excess of 5 % to fund managers

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Mutual funds lose 8 lakh Equity folios (2/4/2012)

From Arpil 2011 to march 2012 over 8 lakh mutual fund equity folios have closed AUM bifurcation (Rs. 5,87,000 crores) Banks/ FI 2.3 % Corporates 43.1% FII 0.7% HNI 26.6% Retail 27.4 %

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Thank You
Question and answers

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