Presented by:

Rohit Kumbhare007

Vivek Kushwaha016

Sanjay Das 023

MUTUAL FUNDS IN INDIA MUTUAL FUNDS IN INDIA

An old Axiom :

“It is not wise to put all eggs into one basket”

……… was probably in the minds of those who formed the first mutual fund.

Mutual Funds Prove Best!

While instruments like shares give high returns at the cost of high risk, instruments like NSC and bank deposits give lower returns and higher safety to the investor.

Mutual Funds aim to strike a balance between risk and return and give the best of both to the investor.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.

The money thus collected is then invested in capital market instruments such as shares, debentures and other securities.

The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Concept Concept

SEBI (mutual fund) Regulation,1996

Structure of MF in India

Organizational Structure of MF Organizational Structure of MF

Sponsor Akin to the Promoter of the company, Contribute min 40% of net worth of AMC, Posses sound financial record over five years period, Establishes the Fund, Gets it registered with the SEBI, Forms a trust, & appoints Board of trustee.

Trustees Holds assets on behalf of unit holders in trust. Trustees are caretaker of unit holders money.

Two third of the trustees shall be independent persons (not associated with the sponsor).

Trustees ensure that the system, processes & personnel are in place.

Resolves unit holders GRIEVANCES.

Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI regulation.

Custodian Holds the fund’s securities in safekeeping, Settles securities transaction for the fund, Collects interest & dividends paid on securities, Records information on corporate actions.

Examples of custodian

HDFC CITY BANK

ABN AMRO IIT CORPORATE SERVICES

SBI INDIA STANDARD CHARTRED

SHCIL DEUTSCHE BANK

Asset Management Company Floats schemes & manages according to SEBI. Can not undertake any other business activity, other

than portfolio mgmt services. 75% of unit holders can jointly terminate appointment of

AMC. At least 50% of independent directors. Chairman of AMC can not be a trustee of any MF.

Examples of AMC

UTI ICICI Prudential Reliance

SBI Canbank ING Vysya

Stanchart Taurus HSBC

Distributor / Agents Sell units on the behalf of the fund. It can be bank, NBFCs, individuals.

Banker Facilitates financial transactions, Provides remittance facilities.

Registrar & Transfer Agent Maintains records of unit holders’ accounts & transactions Disburses & receives funds from unit holder transactions,

Prepares & distributes a/c settlements, Tax information, handles unit holder communication, Provides unit holder transaction services.

Examples of R & T Agents

CAMS KARVY

MCS Ltd Datamatics

MN Dastoor & Co IIT Corporate Services

Computeronics TCS

ICICI Infotec UTI ISL

Incorporated on 22 August, 1995. Apex body of all the registered AMCs. All AMCs are its member. Objective to maintain high ethical & professional

standard. Provide certificate to Agents to sell MF Best practice guidelines. Code of ethics.

Role of AMFI Role of AMFI

Broad Types of Mutual Funds

Open-end Vs. Closed-end Funds

Open-end Fund • Available for sale and repurchase at all times based on the net asset value (NAV) per unit.• Unit capital of the fund is not fixed but variable.• Fund size and its total investment go up if more new subscriptions come in than redemptions and vice-versa.

Closed-end Fund• One time sale of fixed number of units.• Investors are not allowed to buy or redeem the units directly from the funds. Some funds offer repurchase after a fixed period. For example, UTI MIP offers a repurchase after 3 years.• Listed on stock exchange and investors can buy or sell units through the exchange.• Units maybe traded at a discount or premium to NAV based on investor’s perception about the funds future performance and other market factors.

Load Vs. No-load FundsMarketing a new mutual fund scheme involves initial expenses. These expenses are charged to the investors through loads and are recovered from the investors in different ways:• Front-end or entry load is charged to the investor at the time of his entry into the scheme.• Back-end or exit load is charged to the investor at the time of his exit from the scheme.

Very often, AMC’s do not charge any initial expenses to the investor in the IPO. These are hence are no-load funds. In no-load funds, the investors get units for the complete amount invested.

Money Market Funds/Cash Funds• Invest in securities of short term nature I.e. less than one year maturity.• Invest in Treasury bills issued by government, Certificates of deposit issued by banks, Commercial Paper issued companies and inter-bank call money.• Aim to provide easy liquidity, preservation of capital and moderate income.

Gilt Funds• Invest in Gilts which are government securities with medium to long term maturities, typically over one year. • Gilt funds invest in government paper called dated securities.• Virtually zero risk of default as it is backed by the Government.• It is most sensitive to market interest rates. The price falls when the interest rates goes up and vice-versa.

Debt Funds

Invest in debt instruments issued not only by government, but also by private companies, banks and financial institutions and other entities such as infrastructure companies/utilities.• Target low risk and stable income for the investor.• Have higher price fluctuation as compared to money market funds due to interest rate fluctuation.• Have a higher risk of default by borrowers as compared to Gilt funds.

Equity Funds• Invest a major portion of their corpus in equity shares issued by companies, acquired directly in initial public offering or through secondary market and keep a part in cash to take care of redemptions. • Risk is higher than debt funds but offer very high growth potential for the capital.. • Equity funds must have a long-term objective.

Hybrid FundsBalanced Funds:

• Has a portfolio comprising of debt instruments, convertible securities, preference and equity shares.• Almost equal proportion of debt/money market securities and equities.• Objective is to gain income, moderate capital appreciation and preservation of capital.• Ideal for investors with a conservative and long-term orientation.

Advantages of Mutual Funds

• Portfolio diversification: It enables him to hold a diversified investment portfolio even with a small amount of investment like Rs. 2000/-.

• Professional management: The investment management skills, along with the needed research into available investment options, ensure a much better return as compared to what an investor can manage on his own.

• Reduction/Diversification of Risks: The potential losses are also shared with other investors.

• Reduction of transaction costs: The investor has the benefit of economies of scale; the funds pay lesser costs because of larger volumes and it is passed on to the investors.

• Wide Choice to suit risk-return profile: Investors can chose the fund based on their risk tolerance and expected returns.

Advantages of Mutual Funds

• Liquidity: Investors may be unable to sell shares directly, easily and quickly. When they invest in mutual funds, they can cash their investment any time by selling the units to the fund if it is open-ended and get the intrinsic value. Investors can sell the units in the market if it is closed-ended fund.

• Convenience and Flexibility: Investors can easily transfer their holdings from one scheme to other, get updated market information and so on. Funds also offer additional benefits like regular investment and regular withdrawal options.

•Transparency: Fund gives regular information to its investors on the value of the investments in addition to disclosure of portfolio held by their scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook

Disadvantages of Mutual Funds

• No control over costs: The investor pays investment management fees as long as he remains with the fund, even while the value of his investments are declining. He also pays for funds distribution charges which he would not incur in direct investments.

• No tailor-made portfolios: The very high net-worth individuals or large corporate investors may find this to be a constraint as they will not be able to build their own portfolio of shares, bonds and other securities.

• Managing a portfolio of funds: Availability of a large number of funds can actually mean too much choice for the investor. So, he may again need advice on how to select a fund to achieve his objectives.

• Delay in redemption: It takes 3-6 days for redemption of the units and the money to flow back into the investor’s account.

Each category is classified into more sub-categories.

Fund schemes Portfolio objectives

Growth & Income High Risk & High Return

Balanced Moderate Risk & Return

Liquid & Money Market Fixed Return

Gilt Zero Risk

ELSS Tax Saving

Fund of funds Additional diversification

AMFI Classification of MF schemes AMFI Classification of MF 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 (ETFs, foreign funds)

Other classification of MF schemes Other classification of MF schemes

Exchange traded funds are Mix of stocks & MFs.

Like MF, they comprise a set of specific stocks- e.g. an index like Nifty/ Sensex or commodity like gold, or Real estate .

Like equity they are traded on stock exchange on real time basis.

There have been a couple of ETFs from Prudential ICICI AMC and UTI AMC.

What are ETFs What are ETFs

Risk –Return of different schemes Risk –Return of different schemes

Top 10 Mutual Funds    - Period (Last 12 Months)

Rank Scheme Name NAV (Rs.)1  Principal Emerging Bluechip Fund - Dividend  20.682  Principal Emerging Bluechip Fund - Growth  26.133  JuniorBeES  97.59164  ICICI Prudential Discovery Fund - IP- Growth  16.325  ICICI Prudential Discovery Fund - Growth  37.066  ICICI Prudential Discovery Fund - Dividend  18.297  JM Mid Cap Fund - Growth  24.50718  JM Mid Cap Fund - Dividend  18.75419  Taurus Infrastructure Fund - Dividend  12.4910  Sundaram BNP Paribas SMILE Fund - Dividend  14.5538 (as on 27 nov,2009)

Systematic Investment Plan (SIP) Invest a fixed sum every month. (6 months to 10 years) 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.

Nowadays ,Insurance is free with SIP. 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) Flexi Withdrawal Plan (FWP)

Investment Strategy Investment Strategy

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