Mutual Funds

A PRESENTATION BY
MUNISH SHARMA
 Disclaimer

Me - no expert

Not Comprehensive

Majority from websites and some practical

experience
 Contents
Mutual
MutualFund
FundDefined
Defined

Brief Regulations
BriefHistory
History Regulations

Organization Terminologies
TerminologiesDemystified
OrganizationofofMutual
MutualFund
Fund Demystified

Types Risk
RiskBehavior
TypesofofSchemes
Schemes Behavior

Investment Equity
EquityFunds
InvestmentStrategies
Strategies Funds

Buying
BuyingaaMutual
MutualFund
Fund Selecting
SelectingaaMutual
MutualFunds
Funds

Mutual Keeping
KeepingTrack
MutualFunds
FundsComparision
Comparision Track

Warning Reference
ReferenceWebsites
WarningSignals
Signals Websites
 Mutual Fund ??
Form of trust that pools the funds of a whole
lot of investors to make more money by
investing in an array of financial instruments.

Advantages of a MF
Professional Management
Diversification
Flexibility in choice - selection, redemption
Low costs
Transparency
 Brief History

1964-UTI

1987- Public Sector banks, Insurance Companies

SBI, Canbank, PNB LIC, GIC

1993- Private Sector

Kothari Pioneer ( later merged with Franklin
Templeton), J P Morgan, Morgan Stanley, George
Soros and Capital International
Organization of a Mutual Fund

Adobe Acrobat 7.0

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 Regulations
Governed by SEBI (Mutual Fund) Regulation 1996
All MFs registered with it, constituted as trusts ( under
Indian Trusts Act, 1882)

Bank operated MFs supervised by RBI too

AMC registered as Companies registered under Companies

Act, 1956

SEBI- Very detailed guidelines for disclosures in offer

document, offer period, investment guidelines etc.
NAV to be declared everyday for open-ended, every week
for closed ended
Disclose on website, AMFI, newspapers
Half-yearly results, annual reports
Select Benchmark depending on scheme and compare
 Terminologies Demystified

Asset Allocation
Diversifying investments in different assets such as stocks, bonds, real estate,
cash in order to optimize risk.

Fund Manager
The individual responsible for making portfolio decision for a mutual fund, in
line with funds objective.

Fund Offer Document

Document with investment objectives, risk factors, expenses summary, how to
invest etc.

Dividend Adobe Acrobat 7.0

Document
Profits given to the investor from time to time.

Growth
Profits ploughed back into scheme. This causes the NAV to rise.
 Terminologies Contd
NAV
Market value of assets of scheme minus its liabilities.

Per unit NAV = Net Asset Value

No. of Units Outstanding on Valuation date

Entry Load/Front-End Load (0-2.25%)

The commission charged at the time of buying the fund.
To cover costs for selling, processing

Exit Load/Back- End Load (0.25-2.25%)

The commission or charge paid when an investor exits from a mutual fund. Imposed to discourage
withdrawals
May reduce to zero as holding period increases.

Sale Price/ Offer Price

Price you pay to invest in a scheme. May include a sales load. (In this case, sale price is higher than
NAV)

Re-Purchase Price/ Bid Price

Price at which close-ended scheme repurchases its units

Redemption Price
Price at which open-ended scheme
 Types of Mutual Fund Schemes
By Structure
Open-Ended anytime enter/exit
Close-Ended Schemes listed on exchange, redemption after period of
scheme is over.

By Investment Objective
Equity (Growth) only in Stocks Long Term (3 years or more)
Debt (Income) only in Fixed Income Securities (3-10 months)
Liquid/Money Market (including gilt) Short-term Money Market
(Govt.)
Balanced/Hybrid Stocks + Fixed Income Securities (1-3 years)

Other Schemes
Tax Saving Schemes
Special Schemes Adobe Acrobat 7.0
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ULIP
 Risks
Historical analysis
Return is remembered, Risk forgotten

Risk = Potential for Harm

Market Risk

Non-Market Risk

Credit Rate Risk

MF Risk = Volatility (fluctuation of NAV)

Standard Deviation
Websites give star rating ( basis = risk-adjusted return)
 Investment strategies
Systematic Investment Plan (SIP)
Invest a fixed sum every month. (6 months to 10 years-
through post-dated cheques or Direct Debit facilities)
Fewer units when the share prices are high, and more units
when the share prices are low. Average cost price tends to
fall below the average NAV.

Systematic Transfer Plan (STP)

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)

Before declaration of dividend / bonus
Growth Dividend Dividend Bonus
payout reinvestment
NAV 20 20 20 20
Units 100 100 100 100
Value (Rs) 2,000 Rs 2,000 Rs 2,000 Rs 2,000
After declaration of dividend / bonus
NAV 20 19 19 18.1818
Units 100 100 105.2631 110
Value (Rs) 2000 1900 2000 2000
Dividend - Rs 100 - -
received in
cash
Additional - - 5.2631 10
units
 Equity Funds

Diversified equity funds

Index funds
Opportunity funds
Mid-cap funds
Equity-linked savings schemes
Sector funds like Auto, Health Care, FMCG etc
Dividend Yield Funds
Others (Exchange traded, Theme, Contra etc)
 Investing in Equity Funds
Errors
Invest in only top performing funds
These cannot go wrong
Replicate past performance in future

Appropriate way
Right Mix of equity MFs (Top 3-4 funds, may all be mid-cap funds)
Have variety of funds like diversified funds, mid-cap funds and sector
funds in right proportion.
Beginner- it makes sense to begin with a diversified fund
Gradual exposure to sector and specialty funds.

Look at performance of various funds with similar objectives for

at least 3-5 years (managed well and provides consistent returns)
 Tired of your savings account?
Extra Cash in savings A/c?? Consider Cash Funds

Liquidity: Savings account wins

b/w a savings account and a fixed deposit, no ATM (Now-
Rel Regular Savings Fund)
Safety: Savings account wins
All mutual funds are subject to market risks
Returns: Cash funds win
Upto about 17.5% return
Performance: Cash funds win
Interest rate fluctuations covered by quick maturation

Invest when surplus money in savings a/c based on

expense ratio
 Investing Checklist
Draw up your asset allocation
Financial goals & Time frame (Are you investing for retirement? A childs
education? Or for current income? )
Risk Taking Capacity

Identify funds that fall into your Buy List

Obtain and read the offer documents

Match your objectives

In terms of equity share and bond weightings, downside risk protection,
tax benefits offered, dividend payout policy, sector focus

Check out past performance

Performance of various funds with similar objectives for at least 3-5 years
(managed well and provides consistent returns)
 Checklist Contd
Think hard about investing in sector funds
For relatively aggressive investors
Close touch with developments in sector, review portfolio regularly

Look for `load' costs

Management fees, annual expenses of the fund and sales loads

Does the fund change fund managers often?

Look for size and credentials

Asset size less than Rs. 25 Crores

Diversify, but not too much

Invest regularly, choose the S-I-P

MF- an integral part of your savings and wealth-building plan.
 Portfolio Decision
The right asset allocation
Age = % in debt instruments
Reality= different financial position, different allocation
Younger= Riskier

Selecting the right fund/s

Based on schemes investment philosophy
Long-term, appetite for risk, beat inflation equity funds best

TRAPS TO AVOID

IPO Blur
Begin with existing schemes (proven track record) and then new schemes

Avoid Market Timing

 MF Comparison
Absolute returns
% difference of NAV
Diversified Equity with Sector Funds NO

Benchmark returns
SEBI directs
Fund's returns compared to its benchmark

Time period
Equal to time for which you plan to invest
Equity- compare for 5 years, Debt- for 6 months

Market conditions
Proved its mettle in bear market
 Buying Mutual Funds
Contacting the Asset Management Company directly
Web Site
Request for agent
Agents/Brokers
Locate one on AMFI site
Financial planners ACDSee JPEG
Image
Bajaj Capital etc.
Insurance agents
Banks
Net-Banking
Phone-Banking
ATMs
Online Trading Account
ICICI Direct
Motilal Oswal, Indiabulls- Send agents
 Keeping Track

Filling up an application form and writing out a

cheque= end of the story NO!

Periodically evaluate performance of your funds

Fact sheets and Newsletters
Websites
Newspapers Adobe Acrobat 7.0
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Professional advisor
Adobe Acrobat 7.0
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 Warning Signals

Fund's management changes

Performance slips compared to similar funds.
Fund's expense ratios climb
Beta, a technical measure of risk, also climbs.
Independent rating services reduce their ratings of the
fund.
It merges into another fund.
Change in management style or a change in the
objective of the fund.
 Websites

http://news.moneycontrol.com/mf/glossary.php

http://www.investopedia.com/university/mutualfunds/default.asp

http://www.valueresearchonline.com

http://www.amfiindia.com/

http://www.sbimf.com/portal/static/calculator/RiskAssess/RiskAssessCal1.asp

http://www.mutualfundsindia.com/resourcecentre.asp
THANK YOU FOR READING

PLEASE GIVE YOUR FEEDBACK ABOUT

THIS PRESENTATION
REGARDS,
MUNISH SHARMA(CA-FINAL STUDENT)