Description
The PPT explaining topics that the basics and details about Mutual Funds, growth schemes, closed ended, open ended etc. It analyses various schemes.
Mutual Fund Investing
1
Regulator
? SEBI
? RBI
? AMFI SRO ???????
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Association Of Mutual Funds Of India AMFI
? AMFI is the umbrella body of all the Mutual Funds including Unit
?
? ? ?
Trust of India. Incorporated in August 1995, it is a non-profit organisation committed to develop the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unitholders. Mutual Fund both conceptually and operationally is different from other savings instruments. Mutual Funds invest in instruments of capital markets which have different risk return profile. It is very necessary that the investors understand properly the conceptual framework of mutual fund and its operational features.
3
MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE
? Worldwide, Mutual Fund or Unit Trust as it is referred to in some
?
?
? ? ?
parts of the world, has a long and. successful history. The popularity of Mutual Funds has increased manifold in developed financial markets, like the United States. As at the end of March 2006, in the US alone there were 8,002 mutual funds with total assets of over US$ 9.36 trillion (Rs.427Iakh crores). In India, the mutual fund industry started with the setting up of the Unit Trust of India in 1964. Public sector banks and financial institutions were allowed to establish mutual funds in 1987. Since 1993, private sector and foreign institutions were permitted to set up mutual funds.
4
MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE
? In February 2003, following the repeal of the Unit
Trust of India Act 1963 the erstwhile UTI was bifurcated into two separate entities viz. ? The Specified Undertaking of the Unit Trust of India, representing broadly, the assets of US 64 scheme, assured returns and certain other schemes and UTI Mutual Fund conforming to SEBI Mutual Fund Regulations. ? As at the end of March 2006, there were 29 mutual funds, which managed assets of Rs. 2,31,862 crores ( US $ 52 Billion) under 592 schemes.
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WHAT IS A MUTUAL FUND?
? The money thus collected is then invested by the fund
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manager in different types of securities. ? These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. ? The income earned through these investments and the capital appreciation realised by the scheme 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.
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Few frequently used terms
1. Net Asset Value ("NAV") ? ?
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
Net Asset NAV per unit ? - - - - - - - - - - - - - - - - - - - - - - - - - No. of o/s units at NAV date Net Asset ? Mkt price of securities ? Receivables ? Other accruedincome ? other assets - AccruedExpenses - Other payable - Other Liabilitie s
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Few frequently used terms
2. Sale Price
Is the price you pay when you invest in a scheme. ? Also called Offer Price. It may include a sales load.
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3. Redemption Price ? Is the price at which open-ended schemes repurchase their units and closeended schemes redeem their units on maturity. ? Such prices are NAV related. 4. Sales Load ? Is a charge collected by a scheme when it sells the units. ? Also called, 'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes. 5. Repurchase or 'Back-end' Load ? Is a charge collected by a scheme when it buys back the units from the unitholders.
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TYPES OF MUTUAL FUND SCHEMES
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There are a wide variety of Mutual Fund schemes that cater to investors needs, whatever his age, financial position, risk tolerance and return expectations. By Structure
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Open Ended Schemes Close Ended Schemes Interval Schemes Growth Schemes Income Schemes Balance Schemes Money Market Schemes Tax Saving Schemes
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By Investment Objectives
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Other Schemes
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Special Schemes
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Index Schemes
Sector Specific Schemes
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(A) By Structure
1.Open-Ended Schemes
? These do not have a fixed maturity. ? You deal directly with the Mutual Fund for your investments and ? ? ? ? ?
redemptions. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value ("NAV") related prices. The number of outstanding units goes up and down The unit capital is not fixed but variable. The corpus of an Open-ended scheme changes everyday
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(A) By Structure
2.Close-Ended Schemes
? Schemes that have a stipulated maturity period (ranging from 2 to 15 years)
are called close-ended schemes. ? You can invest directly in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. ? The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unitholders' expectations and other market factors. ? The number of units of closed ended funds remains unchanged.
? The unit capital is fixed because of one time sale.
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(A) By Structure
? One of the characteristics of the close-ended schemes
is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows. ? Some close-ended schemes give you an additional option of selling your units directly to the Mutual Fund through periodic repurchase at NAV related prices. ? SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.
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(A) By Structure
3.Interval Schemes ? These combine the features of open-ended and close-ended schemes. ? They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.
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(B) By Investment Objective
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Types of Funds - By Investment Objective
Equity Debt
Money Market
Equity Funds Index Funds Sector Funds
Fixed Income Funds GILT Funds
Money Market Mutual Funds
Balanced Funds
Liquid Funds
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Growth Schemes
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1.
2.
Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short-term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short term. Ideal for investors: In their prime earning years. Investors seeking growth over the long-term.
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Income Schemes
? ? ? ? 1. 2.
Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Ideal for: . Retired people and others with a need for capital stability and regular income. Investors who need some income to supplement their earnings.
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Balanced Schemes
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? 1.
Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market. the NAV of these schemes may not normally keep pace, or fall equally when the market falls. Ideal for: Investors looking for a combination of income and moderate growth
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Money Market/Liquid Schemes
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Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, shortterm instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: . Corporates and individual investors as a means to park their surplus funds for short periods or awaiting a more favourable investment alternative.
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Other Schemes
1.Tax Saving Schemes
? ? ? ? ? ? ? 1.
These schemes offer tax rebates to the investors under tax laws as prescribed from time to time. (u/s 80 C ) This is made possible because the Government offers tax incentives for investment in specified avenues. For example, Equity Linked Savings Schemes (ELSS) and Pension Schemes. The details of such tax saving schemes are provided in the relevant offer documents. Dividends are tax free. Benefit of Long term Capital gain taxation. Ideal for: Investors seeking tax rebates.
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Other Schemes
Special Schemes -This category includes 1. index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50, or ? Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. 2. sectoral schemes (which invest exclusively in segments such as „A? Group shares ,Power Sector , Infrastructure sector or initial public offerings).
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Other Schemes
? Sectoral fund schemes are ideal for investors who have
already decided to invest in a particular sector or segment. ? Keep in mind that anyone scheme may not meet all of the investors requirements for all time. ? One need to place his money judiciously in different schemes to be able to get the combination of growth, income and stability that is right for him. ? Remember, as always, higher the return you seek higher the risk you should be prepared to take.
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Fixed Term Plan Series
? FTPs are closed ended in nature. ? AMC issues a fixed number of units for each series only
once, and closes the issue after an initial offering period.
? Fixed Term plan are usually for shorter term – less than a
year.
? They are not listed on a stock exchange. ? FTP series are likely to be an Income scheme. ? Good alternate of Bank deposits/ corporate deposits.
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Commodity Funds
? It will invest directly in commodities or through
shares of the commodity companies or through commodity futures contract.
? Most common example of such fund is precious-
metal fund.
? Gold funds invest in Gold, Gold futures or shares
of gold mines.
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Exchange Traded Funds ( ETF?s)
? ETFs are just what their name implies: baskets of securities that
are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.
? Most ETFs charge lower annual expenses than index mutual
funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.
? Their passive nature is a necessity: the funds rely on an
arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund's holdings.
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Creation and Redemption
? ETFs are different from Mutual funds in the sense that ETF units
are not sold to the public for cash. Instead, the Asset Management Company that sponsors the ETF (Fund) takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. ? In turn, it issues them a large block of ETF units. Since dividend may have accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. ? In other words, a large block of ETF units called a "Creation Unit" is exchanged for a "Portfolio Deposit" of stocks and "Cash Component".
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Creation and Redemption
? The number of outstanding ETF units is not limited, as with traditional ?
? ?
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mutual funds. It may increase if investors deposit shares to create ETF units; or it may reduce on a day if some ETF holders redeem their ETF units for the underlying shares. These transactions are conducted by sending creation / redemption instructions to the Fund. The Portfolio Deposit closely approximates the proportion of the stocks in the index together with a specified amount of Cash Component. This “inkind” creation / redemption facility ensures that ETFs trade close to their fair value at any given time. Some investors may prefer to hold the creation units in their portfolios. While others may break-up the creation units and sell on the exchanges, where individual investors may purchase them just like any other shares.
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Creation and Redemption
? ? ? ? ?
? ?
ETF units are continuously created and redeemed based on investor demand. Investors may use ETFs for investment, trading or arbitrage. The price of the ETF tracks the value of the underlying index. This provides an opportunity to investors to compare the value of underlying index against the price of the ETF units prevailing on the Exchange. If the value of the underlying index is higher than the price of the ETF, the investors may redeem the units to the Sponsor in exchange for the higher priced securities. Conversely, if the price of the underlying securities is lower than the ETF, the investors may create ETF units by depositing the lower-priced securities. This arbitrage mechanism eliminates the problem associated with closed-end mutual funds viz. the premium or discount to the NAV.
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Advantages of ETF?s over traditional MF?s
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While redemptions of Index fund units takes place at a fixed NAV price (usually end of day), ETFs offer the convenience of intra-day purchase and sale on the Exchange, to take advantage of the prevailing price, which is close to the actual NAV of the scheme at any point in time. They provide investors a fund that closely tracks the performance of an index throughout the day with the ability to buy/sell at any time, whereby trading opportunities that arise during a day may be better utilized. They are low cost. Unlike listed closed-ended funds, which trade at substantial premia or more frequently at discounts to NAV, ETFs are structured in a manner which allows Authorized Participants and Large Institutions to create new units and redeem outstanding units directly with the fund, thereby ensuring that ETFs trade close to their actual NAVs.
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ETFs are like any other index fund, wherein, subscription / redemption of units work on the concept of exchange with underlying securities instead of cash (for large deals).
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Advantages of ETF?s over traditional MF?s
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Since an ETF is listed on an Exchange, costs of distribution are much lower and the reach is wider. These savings in cost are passed on to the investors in the form of lower costs. Further, the structure helps reduce collection, disbursement and other processing charges. ETFs protect long-term investors from inflows and outflows of short-term investors. This is because the fund does not incur extra transaction cost for buying/selling the index shares due to frequent subscriptions and redemptions. Tracking error, which is divergence between the NAV of the ETF and the underlying Index, is generally observed to be low as compared to a normal index fund due to lower expenses and the unique in-kind creation / redemption process.
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ETFs are highly flexible and can be used as a tool for gaining instant exposure to the equity markets, equitising cash or for arbitraging between the cash and futures market.
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Applications of ETF?s
? Efficient Trading : ETFs provide investors a convenient way to gain market
exposure viz. an index that trades like a stock. In comparison to a stock, an investment in an ETF index product provides a diversified exposure to the market. Depending on the index, investors may obtain exposure to countries/ markets or sectors.
? Equitising Cash : Investors with idle cash in their portfolios may want to
invest in a product tied to a market benchmark like an index as a temporary investment before deciding which stocks to buy or waiting for the right price.
? Managing Cash Flows : Investment managers who see regular inflows and
outflows may use ETFs because of their liquidity and their ability to represent the market.
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Applications of ETF?s
? Diversifying Exposure : If an investor is not sure about which
particular stock to buy but likes the overall sector, investing in shares tied to an index or basket of stocks provides diversified exposure and reduces stock specific risk.
? Filling Gaps : ETFs tied to a sector or industry may be used to gain
exposure to new and important sectors. Such strategies may also be used to reduce an overweight or increase an underweight sector.
? Shorting or Hedging : Investors who have a negative view on a market
segment or specific sector may want to establish a short position to capitalize on that view. ETFs may be sold short against long stock holdings as a hedge against a decline in the market or specific sector.
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ETFs Vs. Open Ended Funds Vs. Close Ended Funds
Parameter Fund Size NAV Open Ended Fund Flexible Daily Fund itself Closed Ended Fund Fixed Daily Stock Market Exchange Traded Fund Flexible Real Time Stock Market / Fund itself
Liquidity Provider
Sale Price
At NAV plus load, if any
Significant Premium / Discount to NAV
Very close to actual NAV of Scheme
Availability
Fund itself Monthly Equitising cash Not possible
Through Exchange where listed Monthly Expensive
Through Exchange where listed / Fund itself. Daily/Real-time Equitising Cash, Hedging, Arbitrage Possible at low cost
Portfolio Disclosure
Uses
Intra-Day Trading
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WHY SHOULD ONE INVEST IN MUTUAL FUNDS?
1. Professional Management 2. Diversification 3. Convenient Administration 4. Return Potential 5. Low Costs 6. Liquidity 7. Transparency 8. Flexibility 9. Choice of schemes 10. Tax benefits 11. Well regulated
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What are the disadvantages of investing through Mutual Funds?
• No control over the costs. Regulators limit the expenses of
Mutual Funds. Fees are paid as percentage of the value of investment. • No tailor made portfolios. • Managing a portfolio of funds. ( Investor has to hold a portfolio for funds for different objectives ). •One fund can have schemes of similar objectives so, selection becomes difficult.
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HOW TO INVEST IN MUTUAL FUNDS
? Step One - Identify your investment needs. ? Step Two - Choose the right Mutual Fund. 1. Your objective v/s Fund objective 2. History ( Both Risk and Return ) 3. Fund Manager 4. Fund House 5. Responsiveness ? Step Three - Select the ideal mix of Schemes. ? ? ? ?
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XL Step Four- Invest regularly Step Five - Keep your taxes in mind Step Six- Start early Step Seven -The final step - Implement
RIGHTS OF A MUTUAL FUND UNITHOLDER
? As a unitholder in a Mutual Fund scheme coming
under the SEBI (Mutual Funds) Regulations, investore are entitled to: 1.Receive unit certificates or statements of accounts confirming your title within ? 30 days from the date of closure of the subscription under open-end schemes ? or within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund;
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RIGHTS OF A MUTUAL FUND UNITHOLDER
2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme; 3. Receive dividend within 30 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase;
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RIGHTS OF A MUTUAL FUND UNITHOLDER
4.Vote in accordance with the Regulations to: ? a. change the Asset Management Company; ? b. wind up the schemes. 5. To receive communication from the Trustee about change in the fundamental attributes of any scheme or any other changes which would modify the scheme and affect the interest of the unitholders and to have option to exit at prevailing Net Asset Value without any exit load in such cases. 6. Inspect the documents of the Mutual Funds specified in the scheme's offer document.
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In addition to the above rights, investor can expect the following from Mutual Funds:
? To publish their NAV, in accordance with thecregulations: daily
in case of open-ended schemescand once a week, in case of close-ended schemes; ? To disclose your schemes' entire portfolio twice a year, unaudited financial results half yearly and audited annual accounts once a year. ? In addition many mutual funds send out newsletters periodically. ? To adhere to a Code of Ethics which require that investment decisions are taken in the best interests of the unitholders.
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Structural Framework of Mutual Funds Sponsor (Reliance capital Limited)??? Contributes at least 40% in the capital
Trustee
Rel. Cap. Trustee Co. Ltd.
Appoints
AMC
Rel. Cap. Asset. Mgmt. Ltd
Responsible for investors money (Primary Guardian)??? Fund Management Marketing & Distribution
Banks
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Registrar & Custodian*
Karvy & Deutche bank
*Custodians are appointed by Trustees
Various Forms of Fund Mergers and Takeovers
• Merger of AMC to become a single entity Example : HB Mutual and Taurus Mutual • AMC takeover by sponsors ( Example : ITC Threadneedle and 20th century taken over by Zurich) ( ITI by Franklin Templeton) (Alliance by Birla)??? • Scheme takeover (Apple?s scheme taken over by Birla AMC ) and ( Zurich?s Scheme Takeover by HDFC Mutual Fund)???
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Approval required for Various Mergers and Acquisition
Trustee Mergers of two AMCs Takeover of AMCs Takeover of Schemes
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SEBI YES YES YES
YES YES YES
Exit option without High Court Unit Holders Load 75% in case YES of CES YES NO NO Informed Informed NO YES
Investor Plans and Services
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SIP and VAP
? SIP is investing a fixed sum periodically in a disciplined manner for long
term. It gives benefit of Rupee Cost averaging ( Discussed in later half of presentation).
? VAP is modified version of SIP. It is Voluntary Accumulation Plan. It allows
the investor flexibility with respect to the amount and frequency of investment.
? In VAP, investor has to impose voluntary self discipline
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Other Investment Services
? ? ? ? ? ? ?
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Telephone / Internet Transactions. Cheque writing – usually for liquid funds. Periodic statements and Tax Information Loans against units – MF DOES NOT GIVES LOANS but banks can give against units held by unit holder. Nomination and Transfer by unit holders. NRI investors have to make payments from their FCNR bank account or their NRE Account. FIIs can make payments from their Non-Resident Rupee Account
Investment Plans
? Broadly 2 options- Growth option and Dividend Option
? Automatic Reinvestment Plans (ARP) – Reinvestment of amount of
dividend made by fund in the same fund and receive additional units. It gives Benefit of Power of Compounding.
? Systematic Investment Plans(SIP) – For regular investment ? Systematic Withdrawal Plan (SWP) – For regular income (SWP is
not similar to MIP as SWP allow investor to get back the principal amount)???
? Systematic Transfer Plan (STP) – Transfer on a periodic basis a
specified amount from one scheme to another within the same fund family.
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Measuring And Evaluating Mutual Fund Performance
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Performance Measurement
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Change in NAV= ( NAV at end – NAV at beg.)*100 NAV at the beginning
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Total Return = ( Change in NAV+ Dividend) *100 NAV at beg.
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Return on investment or Total Return with dividend reinvested at NAV.
Portfolio Turnover Rate – It measures the amount of buying and selling of securities done by the fund. It is lesser of assets purchased or sold divided by the fund?s net assets. A 100% turnover implies that the manager replaced his entire portfolio during the period in question 200% means portfolio changed in 6 months A liquid fund has the highest portfolio turnover. Rule of 72 is a thumb rule used in finding doubling period. If Rate = 12%, then money will double in 72/12 = 6 years.
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Numerical
? ? ? ? ?
Purchase price Rs. 22 per Unit NAV at year end Interim Div. Rs. 3 Ex.-Div. NAV Rs. 21 Rs. 23 per Unit
Total Return=?
Assume investment of Rs. 10000 Step 1: Initial Units allotted =10000/22=454.55 Step 2:Total Div.=454.55*3=1363.65
? ? ?
?
? ? ? ? ? ?
Step 3: Additional Units=1363.65/21=64.94
Step 4:Total Units=454.55+64.94=519.49 Step 5:Withdral Amt. =519.49*23=11947.17 Gain =11947.17-10000=1947.17 Gain of 1947.17 on the investment of Rs. 10000 So that on the investment of Rs. 100 gain is 19.47 Ans:19.47%
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Other performance measures
? The expense ratio ( Ratio of total expenses to average net assets of the
fund)- Funds with small corpus size will have a higher expense ratio affecting investor returns. It is indicator of the Fund?s Efficiency and Cost Effectiveness.
? The income ratio ( It is the net investment income divided by its net
assets for the period) – useful for debt fund
? Fund size – Small funds are easy to manage and can achieve their
objectives in a focused manner with limited holdings.
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Large funds benefit from economies of scale with lower expense ratios and superior fund management skills.
? Cash holdings
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Important Points
? The returns should be computed on an annualized average compound rate
of return from cumulative figure.
? If the fund performance data relates to a period of less than one year, it
should not be annualized, except for liquid mutual funds which have a short investment horizon
.
Borrowings by Mutual Fund
? ? ?
A mutual fund can borrow for a maximum of 20% of net assets. For Maximum period of 6 months. Purpose should be to meet liquidity requirements for paying dividend or meeting redemptions. It is not a permanent source of funds for the scheme.
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Benchmarking
? Benchmarking should be selected by reference to – The asset class it
invests in and the fund?s stated investment objective.
? 3 kinds of benchmarks are used – Relative to market as a whole,
relative to other mutual funds, and relative to other comparable financial products.
? For debt funds, the benchmark should have the same portfolio composition
and the same maturity profile
? Main benchmark for debt funds is I-sec ? Tracking Error – Applicable for Index Fund ? SEBI requires MF to specify Benchmark for each scheme in OD & KIM
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Criteria for peer group comparisons
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The investment objective and risk profiles of the two funds should be the same.( Debt with debt and equity with equity)??? Portfolio composition of two funds is similar. ( Gilt cannot be compared with riskier corporate debt)???
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? Fund size should be comparable.( same size)???
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Expense Ratios is also important factor Funds should be compared over the same periods only
? ? ? ?
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Benchmarking Debt and MM Funds I-SEC: Its I-bex index is often used to track Govt. securities performance. CRISIL: Has 8 debt indices NSE: Has designed Govt. security index and T-bill index. Besides NSE, JP Morgan has also developed a T-bill index.
Performance Measure
Treynor Measure = Avg.Rp – Avg.RFR -----------------------Beta p ? It assumes that the portfolio is well diversified
1.
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Performance Measure
2. Sharpe Measure = Avg.Rp – Avg.RFR -----------------------SD p
? Return per unit of Total Risk
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Performance Measure
3.Jensen?s Alpha = Rp – { RFR + Beta p ( Rm – RFR) }
? The difference between the return actually earned
on a portfolio and the return it was supposed to earn , given its beta as per CAPM .
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Tax provision for Equity Mutual Fund Equity >65%
Dividends
Capital Gains
Within 12 m
After 12 m
Investors
DDT
Short Terms
Long Terms
Tax Free
0%
15%
Tax Free
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Tax provision for Debt Mutual Funds
Debt Mutual Fund
Dividend
Capital Gain
Within 12 m
After 12 m
Investor
DDT
Short term Long term
Tax free
Paid by the Fund
As per slab
Two options
10%
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20% after indexation
Concept of Loads and Pricing
? Cut off time
1.All funds except liquid funds a.Purchases ? Upto 3 p.m - NAV of that day ? After 3 p.m – NAV of the next business day b.Redemption ? Upto 3 p.m - NAV of that day ? After 3 p.m – NAV of the next business day
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Concept of Loads and Pricing
? Cut off time
2.liquid funds a.Purchases ? Upto 1 p.m - NAV of the business day before that day ? After 1 p.m – NAV of the same business day b.Redemption ? Upto 10 p.m - NAV of previous day ? After 10 p.m – NAV of the next business day
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Concept of Loads and Pricing
? Entry Load –
Abolished
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Concept of Loads and Pricing
? Exit Load –
e.g NAV is 12 .Entry Load is 1%.What will be the price at which the investor will be able to sell the units? Re-purchase Price = NAV - Exit Load = 12 - (12*1%) = Rs.11.88
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doc_313093273.pptx
The PPT explaining topics that the basics and details about Mutual Funds, growth schemes, closed ended, open ended etc. It analyses various schemes.
Mutual Fund Investing
1
Regulator
? SEBI
? RBI
? AMFI SRO ???????
2
Association Of Mutual Funds Of India AMFI
? AMFI is the umbrella body of all the Mutual Funds including Unit
?
? ? ?
Trust of India. Incorporated in August 1995, it is a non-profit organisation committed to develop the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unitholders. Mutual Fund both conceptually and operationally is different from other savings instruments. Mutual Funds invest in instruments of capital markets which have different risk return profile. It is very necessary that the investors understand properly the conceptual framework of mutual fund and its operational features.
3
MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE
? Worldwide, Mutual Fund or Unit Trust as it is referred to in some
?
?
? ? ?
parts of the world, has a long and. successful history. The popularity of Mutual Funds has increased manifold in developed financial markets, like the United States. As at the end of March 2006, in the US alone there were 8,002 mutual funds with total assets of over US$ 9.36 trillion (Rs.427Iakh crores). In India, the mutual fund industry started with the setting up of the Unit Trust of India in 1964. Public sector banks and financial institutions were allowed to establish mutual funds in 1987. Since 1993, private sector and foreign institutions were permitted to set up mutual funds.
4
MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE
? In February 2003, following the repeal of the Unit
Trust of India Act 1963 the erstwhile UTI was bifurcated into two separate entities viz. ? The Specified Undertaking of the Unit Trust of India, representing broadly, the assets of US 64 scheme, assured returns and certain other schemes and UTI Mutual Fund conforming to SEBI Mutual Fund Regulations. ? As at the end of March 2006, there were 29 mutual funds, which managed assets of Rs. 2,31,862 crores ( US $ 52 Billion) under 592 schemes.
5
WHAT IS A MUTUAL FUND?
? The money thus collected is then invested by the fund
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manager in different types of securities. ? These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. ? The income earned through these investments and the capital appreciation realised by the scheme 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.
7
Few frequently used terms
1. Net Asset Value ("NAV") ? ?
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
Net Asset NAV per unit ? - - - - - - - - - - - - - - - - - - - - - - - - - No. of o/s units at NAV date Net Asset ? Mkt price of securities ? Receivables ? Other accruedincome ? other assets - AccruedExpenses - Other payable - Other Liabilitie s
8
Few frequently used terms
2. Sale Price
Is the price you pay when you invest in a scheme. ? Also called Offer Price. It may include a sales load.
?
3. Redemption Price ? Is the price at which open-ended schemes repurchase their units and closeended schemes redeem their units on maturity. ? Such prices are NAV related. 4. Sales Load ? Is a charge collected by a scheme when it sells the units. ? Also called, 'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes. 5. Repurchase or 'Back-end' Load ? Is a charge collected by a scheme when it buys back the units from the unitholders.
9
TYPES OF MUTUAL FUND SCHEMES
? ?
There are a wide variety of Mutual Fund schemes that cater to investors needs, whatever his age, financial position, risk tolerance and return expectations. By Structure
? ? ?
Open Ended Schemes Close Ended Schemes Interval Schemes Growth Schemes Income Schemes Balance Schemes Money Market Schemes Tax Saving Schemes
?
By Investment Objectives
? ? ? ?
?
Other Schemes
?
?
Special Schemes
?
?
Index Schemes
Sector Specific Schemes
10
(A) By Structure
1.Open-Ended Schemes
? These do not have a fixed maturity. ? You deal directly with the Mutual Fund for your investments and ? ? ? ? ?
redemptions. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value ("NAV") related prices. The number of outstanding units goes up and down The unit capital is not fixed but variable. The corpus of an Open-ended scheme changes everyday
11
(A) By Structure
2.Close-Ended Schemes
? Schemes that have a stipulated maturity period (ranging from 2 to 15 years)
are called close-ended schemes. ? You can invest directly in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. ? The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unitholders' expectations and other market factors. ? The number of units of closed ended funds remains unchanged.
? The unit capital is fixed because of one time sale.
12
(A) By Structure
? One of the characteristics of the close-ended schemes
is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows. ? Some close-ended schemes give you an additional option of selling your units directly to the Mutual Fund through periodic repurchase at NAV related prices. ? SEBI Regulations ensure that at least one of the two exit routes are provided to the investor.
13
(A) By Structure
3.Interval Schemes ? These combine the features of open-ended and close-ended schemes. ? They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.
14
(B) By Investment Objective
15
Types of Funds - By Investment Objective
Equity Debt
Money Market
Equity Funds Index Funds Sector Funds
Fixed Income Funds GILT Funds
Money Market Mutual Funds
Balanced Funds
Liquid Funds
16
Growth Schemes
?
?
?
?
1.
2.
Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short-term decline in value for possible future appreciation. These schemes are not for investors seeking regular income or needing their money back in the short term. Ideal for investors: In their prime earning years. Investors seeking growth over the long-term.
17
Income Schemes
? ? ? ? 1. 2.
Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Ideal for: . Retired people and others with a need for capital stability and regular income. Investors who need some income to supplement their earnings.
18
Balanced Schemes
? ?
? 1.
Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents. In a rising stock market. the NAV of these schemes may not normally keep pace, or fall equally when the market falls. Ideal for: Investors looking for a combination of income and moderate growth
19
Money Market/Liquid Schemes
?
?
?
? 1.
Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, shortterm instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: . Corporates and individual investors as a means to park their surplus funds for short periods or awaiting a more favourable investment alternative.
20
Other Schemes
1.Tax Saving Schemes
? ? ? ? ? ? ? 1.
These schemes offer tax rebates to the investors under tax laws as prescribed from time to time. (u/s 80 C ) This is made possible because the Government offers tax incentives for investment in specified avenues. For example, Equity Linked Savings Schemes (ELSS) and Pension Schemes. The details of such tax saving schemes are provided in the relevant offer documents. Dividends are tax free. Benefit of Long term Capital gain taxation. Ideal for: Investors seeking tax rebates.
21
Other Schemes
Special Schemes -This category includes 1. index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50, or ? Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. 2. sectoral schemes (which invest exclusively in segments such as „A? Group shares ,Power Sector , Infrastructure sector or initial public offerings).
?
22
Other Schemes
? Sectoral fund schemes are ideal for investors who have
already decided to invest in a particular sector or segment. ? Keep in mind that anyone scheme may not meet all of the investors requirements for all time. ? One need to place his money judiciously in different schemes to be able to get the combination of growth, income and stability that is right for him. ? Remember, as always, higher the return you seek higher the risk you should be prepared to take.
23
Fixed Term Plan Series
? FTPs are closed ended in nature. ? AMC issues a fixed number of units for each series only
once, and closes the issue after an initial offering period.
? Fixed Term plan are usually for shorter term – less than a
year.
? They are not listed on a stock exchange. ? FTP series are likely to be an Income scheme. ? Good alternate of Bank deposits/ corporate deposits.
24
Commodity Funds
? It will invest directly in commodities or through
shares of the commodity companies or through commodity futures contract.
? Most common example of such fund is precious-
metal fund.
? Gold funds invest in Gold, Gold futures or shares
of gold mines.
25
Exchange Traded Funds ( ETF?s)
? ETFs are just what their name implies: baskets of securities that
are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock.
? Most ETFs charge lower annual expenses than index mutual
funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.
? Their passive nature is a necessity: the funds rely on an
arbitrage mechanism to keep the prices at which they trade roughly in line with the net asset values of their underlying portfolios. For the mechanism to work, potential arbitragers need to have full, timely knowledge of a fund's holdings.
26
27
Creation and Redemption
? ETFs are different from Mutual funds in the sense that ETF units
are not sold to the public for cash. Instead, the Asset Management Company that sponsors the ETF (Fund) takes the shares of companies comprising the index from various categories of investors like authorized participants, large investors and institutions. ? In turn, it issues them a large block of ETF units. Since dividend may have accumulated for the stocks at any point in time, a cash component to that extent is also taken from such investors. ? In other words, a large block of ETF units called a "Creation Unit" is exchanged for a "Portfolio Deposit" of stocks and "Cash Component".
28
Creation and Redemption
? The number of outstanding ETF units is not limited, as with traditional ?
? ?
?
mutual funds. It may increase if investors deposit shares to create ETF units; or it may reduce on a day if some ETF holders redeem their ETF units for the underlying shares. These transactions are conducted by sending creation / redemption instructions to the Fund. The Portfolio Deposit closely approximates the proportion of the stocks in the index together with a specified amount of Cash Component. This “inkind” creation / redemption facility ensures that ETFs trade close to their fair value at any given time. Some investors may prefer to hold the creation units in their portfolios. While others may break-up the creation units and sell on the exchanges, where individual investors may purchase them just like any other shares.
29
Creation and Redemption
? ? ? ? ?
? ?
ETF units are continuously created and redeemed based on investor demand. Investors may use ETFs for investment, trading or arbitrage. The price of the ETF tracks the value of the underlying index. This provides an opportunity to investors to compare the value of underlying index against the price of the ETF units prevailing on the Exchange. If the value of the underlying index is higher than the price of the ETF, the investors may redeem the units to the Sponsor in exchange for the higher priced securities. Conversely, if the price of the underlying securities is lower than the ETF, the investors may create ETF units by depositing the lower-priced securities. This arbitrage mechanism eliminates the problem associated with closed-end mutual funds viz. the premium or discount to the NAV.
30
Advantages of ETF?s over traditional MF?s
?
While redemptions of Index fund units takes place at a fixed NAV price (usually end of day), ETFs offer the convenience of intra-day purchase and sale on the Exchange, to take advantage of the prevailing price, which is close to the actual NAV of the scheme at any point in time. They provide investors a fund that closely tracks the performance of an index throughout the day with the ability to buy/sell at any time, whereby trading opportunities that arise during a day may be better utilized. They are low cost. Unlike listed closed-ended funds, which trade at substantial premia or more frequently at discounts to NAV, ETFs are structured in a manner which allows Authorized Participants and Large Institutions to create new units and redeem outstanding units directly with the fund, thereby ensuring that ETFs trade close to their actual NAVs.
?
? ?
?
ETFs are like any other index fund, wherein, subscription / redemption of units work on the concept of exchange with underlying securities instead of cash (for large deals).
31
Advantages of ETF?s over traditional MF?s
?
Since an ETF is listed on an Exchange, costs of distribution are much lower and the reach is wider. These savings in cost are passed on to the investors in the form of lower costs. Further, the structure helps reduce collection, disbursement and other processing charges. ETFs protect long-term investors from inflows and outflows of short-term investors. This is because the fund does not incur extra transaction cost for buying/selling the index shares due to frequent subscriptions and redemptions. Tracking error, which is divergence between the NAV of the ETF and the underlying Index, is generally observed to be low as compared to a normal index fund due to lower expenses and the unique in-kind creation / redemption process.
?
?
?
ETFs are highly flexible and can be used as a tool for gaining instant exposure to the equity markets, equitising cash or for arbitraging between the cash and futures market.
32
Applications of ETF?s
? Efficient Trading : ETFs provide investors a convenient way to gain market
exposure viz. an index that trades like a stock. In comparison to a stock, an investment in an ETF index product provides a diversified exposure to the market. Depending on the index, investors may obtain exposure to countries/ markets or sectors.
? Equitising Cash : Investors with idle cash in their portfolios may want to
invest in a product tied to a market benchmark like an index as a temporary investment before deciding which stocks to buy or waiting for the right price.
? Managing Cash Flows : Investment managers who see regular inflows and
outflows may use ETFs because of their liquidity and their ability to represent the market.
33
Applications of ETF?s
? Diversifying Exposure : If an investor is not sure about which
particular stock to buy but likes the overall sector, investing in shares tied to an index or basket of stocks provides diversified exposure and reduces stock specific risk.
? Filling Gaps : ETFs tied to a sector or industry may be used to gain
exposure to new and important sectors. Such strategies may also be used to reduce an overweight or increase an underweight sector.
? Shorting or Hedging : Investors who have a negative view on a market
segment or specific sector may want to establish a short position to capitalize on that view. ETFs may be sold short against long stock holdings as a hedge against a decline in the market or specific sector.
34
ETFs Vs. Open Ended Funds Vs. Close Ended Funds
Parameter Fund Size NAV Open Ended Fund Flexible Daily Fund itself Closed Ended Fund Fixed Daily Stock Market Exchange Traded Fund Flexible Real Time Stock Market / Fund itself
Liquidity Provider
Sale Price
At NAV plus load, if any
Significant Premium / Discount to NAV
Very close to actual NAV of Scheme
Availability
Fund itself Monthly Equitising cash Not possible
Through Exchange where listed Monthly Expensive
Through Exchange where listed / Fund itself. Daily/Real-time Equitising Cash, Hedging, Arbitrage Possible at low cost
Portfolio Disclosure
Uses
Intra-Day Trading
35
WHY SHOULD ONE INVEST IN MUTUAL FUNDS?
1. Professional Management 2. Diversification 3. Convenient Administration 4. Return Potential 5. Low Costs 6. Liquidity 7. Transparency 8. Flexibility 9. Choice of schemes 10. Tax benefits 11. Well regulated
36
What are the disadvantages of investing through Mutual Funds?
• No control over the costs. Regulators limit the expenses of
Mutual Funds. Fees are paid as percentage of the value of investment. • No tailor made portfolios. • Managing a portfolio of funds. ( Investor has to hold a portfolio for funds for different objectives ). •One fund can have schemes of similar objectives so, selection becomes difficult.
3 7
HOW TO INVEST IN MUTUAL FUNDS
? Step One - Identify your investment needs. ? Step Two - Choose the right Mutual Fund. 1. Your objective v/s Fund objective 2. History ( Both Risk and Return ) 3. Fund Manager 4. Fund House 5. Responsiveness ? Step Three - Select the ideal mix of Schemes. ? ? ? ?
3 8
XL Step Four- Invest regularly Step Five - Keep your taxes in mind Step Six- Start early Step Seven -The final step - Implement
RIGHTS OF A MUTUAL FUND UNITHOLDER
? As a unitholder in a Mutual Fund scheme coming
under the SEBI (Mutual Funds) Regulations, investore are entitled to: 1.Receive unit certificates or statements of accounts confirming your title within ? 30 days from the date of closure of the subscription under open-end schemes ? or within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund;
3 9
RIGHTS OF A MUTUAL FUND UNITHOLDER
2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme; 3. Receive dividend within 30 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase;
4 0
RIGHTS OF A MUTUAL FUND UNITHOLDER
4.Vote in accordance with the Regulations to: ? a. change the Asset Management Company; ? b. wind up the schemes. 5. To receive communication from the Trustee about change in the fundamental attributes of any scheme or any other changes which would modify the scheme and affect the interest of the unitholders and to have option to exit at prevailing Net Asset Value without any exit load in such cases. 6. Inspect the documents of the Mutual Funds specified in the scheme's offer document.
4 1
In addition to the above rights, investor can expect the following from Mutual Funds:
? To publish their NAV, in accordance with thecregulations: daily
in case of open-ended schemescand once a week, in case of close-ended schemes; ? To disclose your schemes' entire portfolio twice a year, unaudited financial results half yearly and audited annual accounts once a year. ? In addition many mutual funds send out newsletters periodically. ? To adhere to a Code of Ethics which require that investment decisions are taken in the best interests of the unitholders.
4 2
Structural Framework of Mutual Funds Sponsor (Reliance capital Limited)??? Contributes at least 40% in the capital
Trustee
Rel. Cap. Trustee Co. Ltd.
Appoints
AMC
Rel. Cap. Asset. Mgmt. Ltd
Responsible for investors money (Primary Guardian)??? Fund Management Marketing & Distribution
Banks
4 3
Registrar & Custodian*
Karvy & Deutche bank
*Custodians are appointed by Trustees
Various Forms of Fund Mergers and Takeovers
• Merger of AMC to become a single entity Example : HB Mutual and Taurus Mutual • AMC takeover by sponsors ( Example : ITC Threadneedle and 20th century taken over by Zurich) ( ITI by Franklin Templeton) (Alliance by Birla)??? • Scheme takeover (Apple?s scheme taken over by Birla AMC ) and ( Zurich?s Scheme Takeover by HDFC Mutual Fund)???
4 4
Approval required for Various Mergers and Acquisition
Trustee Mergers of two AMCs Takeover of AMCs Takeover of Schemes
4 5
SEBI YES YES YES
YES YES YES
Exit option without High Court Unit Holders Load 75% in case YES of CES YES NO NO Informed Informed NO YES
Investor Plans and Services
4 6
SIP and VAP
? SIP is investing a fixed sum periodically in a disciplined manner for long
term. It gives benefit of Rupee Cost averaging ( Discussed in later half of presentation).
? VAP is modified version of SIP. It is Voluntary Accumulation Plan. It allows
the investor flexibility with respect to the amount and frequency of investment.
? In VAP, investor has to impose voluntary self discipline
.
Other Investment Services
? ? ? ? ? ? ?
4 7
Telephone / Internet Transactions. Cheque writing – usually for liquid funds. Periodic statements and Tax Information Loans against units – MF DOES NOT GIVES LOANS but banks can give against units held by unit holder. Nomination and Transfer by unit holders. NRI investors have to make payments from their FCNR bank account or their NRE Account. FIIs can make payments from their Non-Resident Rupee Account
Investment Plans
? Broadly 2 options- Growth option and Dividend Option
? Automatic Reinvestment Plans (ARP) – Reinvestment of amount of
dividend made by fund in the same fund and receive additional units. It gives Benefit of Power of Compounding.
? Systematic Investment Plans(SIP) – For regular investment ? Systematic Withdrawal Plan (SWP) – For regular income (SWP is
not similar to MIP as SWP allow investor to get back the principal amount)???
? Systematic Transfer Plan (STP) – Transfer on a periodic basis a
specified amount from one scheme to another within the same fund family.
4 8
Measuring And Evaluating Mutual Fund Performance
4 9
Performance Measurement
?
Change in NAV= ( NAV at end – NAV at beg.)*100 NAV at the beginning
?
Total Return = ( Change in NAV+ Dividend) *100 NAV at beg.
?
?
Return on investment or Total Return with dividend reinvested at NAV.
Portfolio Turnover Rate – It measures the amount of buying and selling of securities done by the fund. It is lesser of assets purchased or sold divided by the fund?s net assets. A 100% turnover implies that the manager replaced his entire portfolio during the period in question 200% means portfolio changed in 6 months A liquid fund has the highest portfolio turnover. Rule of 72 is a thumb rule used in finding doubling period. If Rate = 12%, then money will double in 72/12 = 6 years.
? ? ? ?
5 0
Numerical
? ? ? ? ?
Purchase price Rs. 22 per Unit NAV at year end Interim Div. Rs. 3 Ex.-Div. NAV Rs. 21 Rs. 23 per Unit
Total Return=?
Assume investment of Rs. 10000 Step 1: Initial Units allotted =10000/22=454.55 Step 2:Total Div.=454.55*3=1363.65
? ? ?
?
? ? ? ? ? ?
Step 3: Additional Units=1363.65/21=64.94
Step 4:Total Units=454.55+64.94=519.49 Step 5:Withdral Amt. =519.49*23=11947.17 Gain =11947.17-10000=1947.17 Gain of 1947.17 on the investment of Rs. 10000 So that on the investment of Rs. 100 gain is 19.47 Ans:19.47%
5 1
Other performance measures
? The expense ratio ( Ratio of total expenses to average net assets of the
fund)- Funds with small corpus size will have a higher expense ratio affecting investor returns. It is indicator of the Fund?s Efficiency and Cost Effectiveness.
? The income ratio ( It is the net investment income divided by its net
assets for the period) – useful for debt fund
? Fund size – Small funds are easy to manage and can achieve their
objectives in a focused manner with limited holdings.
?
Large funds benefit from economies of scale with lower expense ratios and superior fund management skills.
? Cash holdings
5 2
Important Points
? The returns should be computed on an annualized average compound rate
of return from cumulative figure.
? If the fund performance data relates to a period of less than one year, it
should not be annualized, except for liquid mutual funds which have a short investment horizon
.
Borrowings by Mutual Fund
? ? ?
A mutual fund can borrow for a maximum of 20% of net assets. For Maximum period of 6 months. Purpose should be to meet liquidity requirements for paying dividend or meeting redemptions. It is not a permanent source of funds for the scheme.
?
5 3
Benchmarking
? Benchmarking should be selected by reference to – The asset class it
invests in and the fund?s stated investment objective.
? 3 kinds of benchmarks are used – Relative to market as a whole,
relative to other mutual funds, and relative to other comparable financial products.
? For debt funds, the benchmark should have the same portfolio composition
and the same maturity profile
? Main benchmark for debt funds is I-sec ? Tracking Error – Applicable for Index Fund ? SEBI requires MF to specify Benchmark for each scheme in OD & KIM
5 4
Criteria for peer group comparisons
?
The investment objective and risk profiles of the two funds should be the same.( Debt with debt and equity with equity)??? Portfolio composition of two funds is similar. ( Gilt cannot be compared with riskier corporate debt)???
?
? Fund size should be comparable.( same size)???
? ?
Expense Ratios is also important factor Funds should be compared over the same periods only
? ? ? ?
5 5
Benchmarking Debt and MM Funds I-SEC: Its I-bex index is often used to track Govt. securities performance. CRISIL: Has 8 debt indices NSE: Has designed Govt. security index and T-bill index. Besides NSE, JP Morgan has also developed a T-bill index.
Performance Measure
Treynor Measure = Avg.Rp – Avg.RFR -----------------------Beta p ? It assumes that the portfolio is well diversified
1.
5 6
Performance Measure
2. Sharpe Measure = Avg.Rp – Avg.RFR -----------------------SD p
? Return per unit of Total Risk
5 7
Performance Measure
3.Jensen?s Alpha = Rp – { RFR + Beta p ( Rm – RFR) }
? The difference between the return actually earned
on a portfolio and the return it was supposed to earn , given its beta as per CAPM .
5 8
Tax provision for Equity Mutual Fund Equity >65%
Dividends
Capital Gains
Within 12 m
After 12 m
Investors
DDT
Short Terms
Long Terms
Tax Free
0%
15%
Tax Free
5 9
Tax provision for Debt Mutual Funds
Debt Mutual Fund
Dividend
Capital Gain
Within 12 m
After 12 m
Investor
DDT
Short term Long term
Tax free
Paid by the Fund
As per slab
Two options
10%
6 0
20% after indexation
Concept of Loads and Pricing
? Cut off time
1.All funds except liquid funds a.Purchases ? Upto 3 p.m - NAV of that day ? After 3 p.m – NAV of the next business day b.Redemption ? Upto 3 p.m - NAV of that day ? After 3 p.m – NAV of the next business day
6 1
Concept of Loads and Pricing
? Cut off time
2.liquid funds a.Purchases ? Upto 1 p.m - NAV of the business day before that day ? After 1 p.m – NAV of the same business day b.Redemption ? Upto 10 p.m - NAV of previous day ? After 10 p.m – NAV of the next business day
6 2
Concept of Loads and Pricing
? Entry Load –
Abolished
6 3
Concept of Loads and Pricing
? Exit Load –
e.g NAV is 12 .Entry Load is 1%.What will be the price at which the investor will be able to sell the units? Re-purchase Price = NAV - Exit Load = 12 - (12*1%) = Rs.11.88
6 4
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