clients - mutual fund basics

8/12/2019 Clients - Mutual Fund Basics

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Mutual Fund Basics


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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


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MF Advantages

Portfolio Diversification

Reduction of Risk

Access to Information

Convenience & Flexibility

Liquidity

Professional Management

Reduction of Transaction Costs


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Risk Profile

Investment horizon

Days 1 year 3 years

Income Funds

Money MarketFloating Rate Funds

Short Term Plans

Gilt Funds

MIPs

Balanced Funds

Diversified Equity Funds

Sectoral FundsRisk


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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 withselect banks.

Risk : Zero Risk

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

Applicable Loads : Normally Both Entry /Exit - NIL


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Floating Rate Funds Investment Objective : To provide income consistent with

the prudent risk from a portfolio comprising primarily. There aretwo variants Long Term & Short Term. Long Term FRF invests inlong duration floating rates papers while the Short Term FRFgenerally 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 3-6months)


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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 availablein select banks.

Risk : Credit RiskInterest Rate Risk

Applicable Loads : Entry Load NIL

Exit Load 0.25% (15 days - 6 months)


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Income Funds

Investment Objective : To generate both income & capital

appreciation by investing in government securities corporatedebentures , call money , bank deposits etc. It invests into longduration papers then the Short Term Income Fund.

Liquidity : 3 business days

Risk : Credit RiskInterest Rate Risk


Exit Load 0.5% (15 days - 6 months)


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Monthly Income Plan Investment Objective : To generate regular income by investing into

short duration fixed income paper & capital appreciation by investing asmall 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. Generallythere is a moderate risk on the debt component as are of short durationnature.

Recommended investment Horizon: Minimum 1 year

Applicable Loads : Entry Load NILExit Load 0.5% for six months


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Balance Funds Investment Objective : To generate long term capital

appreciati on by investing in equities, maintain an optimumbalance between the debt component & equity component andgenerate periodic income by managing the debt component


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 areof short duration nature.

Recommended investment Horizon: Minimum 3 years

Applicable Loads : Entry Load NILExit Load 0.5% for six months


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Equity Funds

Investment Objective: To generate long term capital appreciationby investing in equities.


Risk : High

Recommended investment Horizon: Minimum 5 years


Exit Load 0.5% for six months


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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


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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.: PruTechnology Fund, Franklin Pharma Fund

Select Sector Funds Invests in Multiple Sectors. E.g.: Tata SelectSector Fund, Principal Focused Advantage Fund

Theme Funds - Invests in stocks /companies which have a commonunderlying 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 othercountries. E.g. Principal Global Opportunities Fund


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Risk Matrix for Equity Funds

Based on Market Cap & Style

Large CapValue

Mid CapBlend

Small CapGrowth

STYLE

MarketCap

LowestRisk

HighestRisk


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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


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MF Tax Benefits

Interest on all investment avenues(except PPF) would be taxable assection 80L (up to Rs.12,000 of interest income exempted up to FY 2004-05) scraped.

Investment with BankMF-Debt

Scheme*Bank

MF-Debt

SchemeBank

MF-Debt

SchemeInterest 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 investment6-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


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clients - mutual fund basics

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