Mutual Fund Basics

A common pool of money into which

investors place their contribution
This money is to be invested
according to the pre-stated objectives of the fund
Ownership of the fund is joint or mutual amongst all
investors - equivalent to the contribution made as a
proportion of the overall fund
Ownership through holding of units at NAV
Mutual Fund (MF) Concept
MF Working
SEBI
AMC
Unit holders
Savings
Units
Trust Investments
Returns
Trust
AMC Custodian
Registrar
MF Advantages

Portfolio Diversification
Reduction of Risk
Access to Information
Convenience & Flexibility
Liquidity
Professional Management
Reduction of Transaction Costs
Risk Profile
Investment horizon
Days 1 year 3 years
Income Funds
Money Market
Floating Rate Funds
Short Term Plans
Gilt Funds
MIPs
Balanced Funds
Diversified Equity Funds
Sectoral Funds
Risk
Liquid Funds
Investment Objective: Objective is to provide investors with a high level
of income from short term investments

Liquidity: Very high within 24 hrs, Direct Credit Facility available with
select banks.

Risk: Zero Risk

Range of Returns: Somewhere between the call rates & 1yr T-Bills rates
in the current scenario returns ranges between (4.5% - 5.5%)

Applicable Loads : Normally Both Entry /Exit - NIL

Floating Rate Funds
Investment Objective: To provide income consistent with
the prudent risk from a portfolio comprising primarily. There are
two variants Long Term & Short Term. Long Term FRF invests in
long duration floating rates papers while the Short Term FRF
generally invests in shorter duration FR papers( MIBOR Linked)

Liquidity : Very high. Within 24 hours. Direct credit to Bank A/c

Risk : Minimal Risk

Applicable Loads: Entry/Exit Loads: NIL for ST FRF
Exit Loads: 0.25% - 0.5% for LTF (For investments up to 3-6
months)

Short Term Funds
Investment Objective: To generate both income & capital
appreciation by investing in corporate debentures, call money,
bank deposits etc

Liquidity: Very High within 24 hrs. Direct Credit facility available
in select banks.

Risk: Credit Risk
Interest Rate Risk

Applicable Loads: Entry Load NIL
Exit Load 0.25% (15 days - 6 months)

Income Funds
Investment Objective : To generate both income & capital
appreciation by investing in government securities corporate
debentures , call money , bank deposits etc. It invests into long
duration papers then the Short Term Income Fund.

Liquidity : 3 business days

Risk : Credit Risk
Interest Rate Risk

Applicable Loads : Entry Load NIL
Exit Load 0.5% (15 days - 6 months)

Monthly Income Plan
Investment Objective : To generate regular income by investing into
short duration fixed income paper & capital appreciation by investing a
small portion into equity funds

Liquidity : 3 business Days

Asset Allocation : Debt 80% -100%
Equity 0% -20%

Risk : The exposure in equity can make the returns volatile. Generally
there is a moderate risk on the debt component as are of short duration
nature.

Recommended investment Horizon: Minimum 1 year

Applicable Loads : Entry Load NIL
Exit Load 0.5% for six months

Balance Funds
Investment Objective : To generate long term capital
appreciation by investing in equities, maintain an optimum
balance between the debt component & equity component and
generate periodic income by managing the debt component

Liquidity : 3 business Days

Asset Allocation : Debt 0% - 50%
Equity 50%-80%

Risk : The exposure in equity can make the returns volatile.
Generally there is a moderate risk on the debt component as are
of short duration nature.

Recommended investment Horizon: Minimum 3 years


Applicable Loads : Entry Load NIL
Exit Load 0.5% for six months

Equity Funds
Investment Objective: To generate long term capital appreciation
by investing in equities.

Liquidity: 3 business Days

Risk: High

Recommended investment Horizon: Minimum 5 years

Applicable Loads : Entry Load NIL
Exit Load 0.5% for six months
Equity Funds Types
Classification based on Market Capitalisation
Large Cap Funds Invest in Large Cap Stocks
Mid Cap Fund Invests primarily in Mid Cap Stocks
Small Cap Funds Invests in Small Cap Stocks

Classification based on Style

Growth Funds Invests in high/fast growing companies
Value Funds Invests in out of favor stocks where the market price has
fallen below its intrinsic value
Prudential ICICI Discovery Funds
Templeton India Growth Funds
Blend Funds No restriction based on style
UTI Growth & Value Fund
Equity Funds Types
Other Classification
Index Funds Mirrors an index/benchmark returns inline of the index
Sector Funds Invests in stocks of a particular sector. E.g.: Pru
Technology Fund, Franklin Pharma Fund
Select Sector Funds Invests in Multiple Sectors. E.g.: Tata Select
Sector Fund, Principal Focused Advantage Fund
Theme Funds - Invests in stocks /companies which have a common
underlying theme. E.g. Chola Global Advatage Funds, Alliance buy India
Dividend Yield Funds Invests in High Dividend Yield companies. E.g.:
Tata Dividend Yield, Principal Dividend Yield
International Equity Funds- Invests in companies registered in other
countries. E.g. Principal Global Opportunities Fund

Risk Matrix for Equity Funds
Based on Market Cap & Style


Large Cap
Value
Mid Cap
Blend
Small Cap
Growth
STYLE
Market
Cap
Lowest
Risk
Highest
Risk
Type Of Fund Element Short Term Long Term
Equity Oriented Schemes

Equity > 65%
Dividend NIL NIL
Capital Gains
10%*1.1*1.03
= 11.33%
NIL
Debt Oriented Schemes

Equity < 65% & MMFs
Dividend
12.5*1.1*1.03
= 14.1625%
12.5*1.1*1.03
= 14.1625%
Capital Gains As per Slab 10% or 20%
Liquid Funds
Dividend
25*1.1*1.03%
= 28.325%
25*1.1*1.03%
= 28.325%
Capital Gains As per Slab 10% or 20%
* For Individuals
Dividend Tax Liquid
Revised DDT 25%
Surcharge 10%
Education Cess 2%
Higher Education Cess 1%
Effective Tax Rate 28.3250%
MF Tax Rates
MF Tax Benefits
Interest on all investment avenues(except PPF) would be taxable as
section 80L (up to Rs.12,000 of interest income exempted up to FY 2004-
05) scraped.
Investment with Bank
MF-Debt
Scheme*
Bank
MF-Debt
Scheme
Bank
MF-Debt
Scheme
Interest Rate \ Return 5.25 5.25 5.50 5.50 6.25 6.25
Applicable Tax 1.77 0.74 1.85 0.55 2.10 0.63
Net Interest Income\Return 3.48 4.51 3.65 4.95 4.15 5.63
1 year investment 6-month investment 3 year investment
Interest is taxable @33.66%; Capital gain tax @10%; DDT @14.025%
for Individual taxpayers(FY2005-06)
* Indicates Dividend Option
MF Tax Benefits
Capital Gain Tax

For Equity / Balanced Funds
LT Capital Gain Tax Nil
ST Capital Gain Tax @ 10%

For Debt Funds
LT Capital Gain Tax @ 10%
ST Capital Gain Tax Tax bracket of Investors

Deduction upto Rs. 1 lakh available u/s 80C for investment in ELSS
from FY 2005 - 06
Thanks