Mutual Fund

INVESTMENT Partial saving out of total income earned to meet future need by earning more returns

WHY TO INVEST To generate specific money for specific goal in life To make provisions for uncertain future

WHEN TO START Invest early (Give time to grow) Invest regularly Invest for long term not short term

DECIDING INVESTMENT OPTION Liquidity Need Goals & Objectives Time Horizon Risk Profile

INVESTMENT OPTIONS PHYSICAL ASSETS - Like Real estate, Gold Jewellery, Commodities etc. FINANCIAL ASSETS – are Short Term & Long Term financial assets. Examples of short term assets are SB Accounts,Monet Market funds,Fixed Deposit.

LONG TERM FINANCIAL OPTIONS Post office Saving Scheme (1000-300000) @ 8% p.a. interest (Maturity period 6 years, 10% Bonus at end, 5% deduction on pre matured payment & 10% Bonus denied) PPF:- Long Term Saving Plan (15 years) with 8% interest p.a. Tax Exemption available, no withdrawal upto six financial years (DOO). Company Fixed Deposits:- Short term to medium term, Interest between 6% to 9 %. Bonds & Debentures :- Fixed income Debt Mutual Fund: discussed in detail in the presentation

CONCEPT AND ROLE OF MUTUAL FUND

WHAT IS MUTUAL FUND? Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide crosssection of industries and sectors. The income earned through these investments and the capital appreciation realised 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.

Organization of a Mutual Fund

Mutual Fund Operation Flow Chart

ADVANTAGES OF MUTUAL FUNDS Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated

DISADVANTAGES OF INVESTING THROUGH MF NO CONTROL OVER COST NO TAILOR-MADE PORTFOLIO

HISTORY OF MF IN INDIA MF INDUSTRY STARTED IN INDIA IN 1963 WITH FORMATION OF UTI DIFFERENT PAHSES : PHASE -1(UTI) PHASE-2 (ENTRY OF PUBLIC SECTOR MFs) PAHSE-3 (ENTRY OF PRIVATE MFs) PHASE-4 (UNDER SEBI REGULATION)

PHASE-1 ESTABLISHMENT OF UTI IN 1963 LAUNCH OF FIRST SCHEME US-64 FOLLOWED BY ULIP IN 1971,CGGF(1986), MASTERSHARE(1987) UTI THE ONLY PLAYER IN THE MARKET WITH MONOPOLY POWER HUGE MOBILIZATION OF FUNDS

PHASE-2 ESTABLISHMENT OF SBI-MF---THE FIRST NON-UTI MF FOLLOWED BY CANBANK-MF, LIC-MF,BOI-MF CHANGE IN THE MIND SET OF THE INVESTORS UTI STILL THE UNDISPUTED LEADER OF THE MARKET

PHASE-3 ENTRY OF THE PRIVATE SECTOR FUND IN 1993 JV OF FOREIGN FUND MANANGEMENT COMPANIES WITH INDIAN PROMOTERS MORE COMPETITIVE PRODUCT INNOVATION, INVESTMENT MANAGEMENT TECHNIQUES, INVESTORS SERVICING TECHNIQUES INVESTORS STARTED BECOME SELECTIVE

PHASE-4 SEBI- THE REGULATORY AUTHORITY SEBI MF REGULATION 1996 UTI CAME UNDER SEBI REGULATION VOLUNTARILY GOVT.’S STEPS FOR INVESTORS’ PROTECTION

TYPES OF FUNDS CLOSE END/ OPEN END LOAD / NO-LOAD TAX EXEMPT/NON-TAX EXEMPT

OPEN END FUND: Units available for Subscription & Repurchase at all times. Investors can Buy Or Redeem units on NAV. Unit Capital - Variable

CLOSE END FUND: Stipulated maturity period. Open for subscription only during specified period of launch. Get listed on stock exchange to provide liquidity. or Option of Periodic repurchase at NAV is given.

LOAD FUND: LOAD CHARGE TO COVER THE EXPENSES ENTRY/FRONT LOAD AND EXIT/ BACK LOAD DEFFERED LOAD - CHARGED OVER A PERIOD OF TIME EXIT LOAD PREFFERED OVER ENTRY LOAD FOR BENEFIT OF COMPOUNDING CONTINGENT DEFFERED SALES CHARGE- EXIT LOAD CHARGED DEPENDING ON THE PERIOD EVEN CLOSE END FUNDS MAY HAVE LOADS

NO LOAD FUND: THERE IS NO LOAD- NO SALES EXPENSE CHARGE NAV CALCULATED AFTER ACCOUNTING FOR OTHER EXPENSES

MUTUAL FUND TYPES BY NATURE OF INVESTMENTS EQUITY, BOND, MONEY MARKET FUNDS

BY INVESTMENT OBJECTIVE INCOME, GROWTH, VALUE FUNDS

BY RISK PROFILE HIGH, LOW, MODERATE RISK FUNDS

DEBT/INCOME FUND RISK HIGHER THAN G-SEC FUND MORE EMPHASIS ON INCOME DISTRIBUTION THAN CAPITAL APPRECIATION TYPES DIVERSIFIED FOCUSED HIGH YEILD (Investment in lower rate) ASSURED RETURN

TYPES OF EQUITY FUNDS AGGRESSIVE GROWTH FUNDS:Investment in less researched or speculative/non-blue chip stocks GROWTH FUNDS: Investment in stocks with above average growth prospects over 3-5 years.Ex:Tech Stock SPECIALITY FUNDS: Sector, Offshore, Small-cap equity, Option income funds DIVERSIFIED EQUITY FUNDS: ELSS. Ex: ETSP EQUITY INDEX FUNDS VALUE FUNDS: Invest in fundamentally sound companies with low P/E ratio. EQUITY INCOME FUND:Invest in sectors where low fluctuation in stock price and high dividend is expected.

TYPES OF HYBRID FUNDS BALANCED FUNDS: More or less equal proportion GROWTH -INCOME FUNDS: Mix between good dividend paying records and with potential of capital appreciation. ASSET ALLOCATION FUNDS:Asset allocation between equity,debt or money market and asset allocation policy may be pre-determined or flexible.

OTHER FUNDS COMODITY FUNDS REAL ESTATE FUNDS

LEGAL STRUCTURE IN INDIA ISSUE OF OPEN AND CLOSE END FUNDS IN SAME LEGAL STRUCTURE FOLLOW THE SEBI REGULATION TRUST FORM SPONSOR: ESTABLISHES THE MUTUAL FUND Must contribute 40% of the net worth of the AMC Need to have sound financial track record Appoint trustees

CHOOSING A FUND

Past Performance Though not an indicator of the Future but does throw some light on the style of Fund. Check of Two Year and One Year Returns Consistency Performance in bull and bear phases. Know your Fund Manager Success of a Fund depends on the Fund Manager to a great extent Just ask before investing has the fund manager or strategy changed recently.

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Read the prospectus To learn the investment strategy and the risk that it will expose you to. Think about your long term investment strategies and tolerance for risk. Will the fund affect diversification of your Portfolio Do consider how your interest in that fund affects the overall diversification of your investment portfolio. Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk..

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And Final Mantra……….. Don’t pick a fund simply becoz it has shown spurt in value in the current rally . One thing to remember while investing in equity funds is that it makes no sense to get in and out of a fund with each turn of the market. Like stocks, the right equity mutual fund will pay off big…if you have the patience.

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Build Wealth SIP by SIP {Systematic Investment Plan}

A Systematic Investment Plan (SIP) is an option that allows you to invest a fixed sum at periodic intervals on specific dates.

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A Systematic Investment Plan works for you in three ways:It helps you to save regularly and thus inculcates a sense of discipline It harnesses the power of compounding It is the best possible way you to reign in impulsive buys-and-sells that otherwise one is gripped by in times of market volatility. - Rupee cost averaging You are free to choose any amount (minimum Rs 500 and in multiples of Re 1/-) and any date as per your convenience.

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Legal and Regulatory Environment

Regulators in India SEBI – SEBI regulates MFs – All MFs have to be registered with SEBI RBI – Bank-owned MFs are under RBI and SEBI Ownership of AMC by the bank Guarantees issued by the bank as sponsor Fund mergers of bank-sponsored MFs – Permission to access inter-bank call money market

Regulators in India… Ministry of Finance Company Law Board – Department of Company Affairs Registrar of Companies Stock Exchanges Charity Commissioner – Office of the public trustee Board of trustees of MFs

AMFI Promote the interests of the mutual funds and unit-holders Set ethical, commercial, and professional standards in the industry Increase the public awareness of MF industry

Legal Limitations to Investors Rights Investors cannot Sue the Trust. Investors can initiate legal proceedings against the trustees Sponsors of a MF have no obligation to meet the shortfall in non- assured schemes Only if the OD has specifically provided such guarantee by a named sponsor the investors have a right to sue the sponsors Prospective Investors cannot sue the Trust / the AMC or any other constituent.

Investors Obligations / Complaint Redressal Investors should: Read Offer Document Understand Risk factors Monitor Investments Ask for information required “Monitoring is entirely his/ her own responsibility”

SEBI intervention For issue of due diligence certificate for new scheme by compliance officer Companies Act cannot protect investors as fund investors are neither shareholders in the AMC nor depositors

OFFER DOCUMENT

Offer Document (OD) A legal document issued by AMC or Sponsor OD describes the product Very important document from the perspective of prospective investor Primary vehicle for investment decision

Offer Document (OD) * All ODs are to be approved by the trustees of a

mutual fund, * ODs are prepared and issued by an asset management company’ * All ODs are filed with SEBI with filing fees (Rs. 25,000) * Modifications, if any, are advised by SEBI within 21 working days from the date of its filing

Offer Document (OD) Close ended fund: the time of issue Open ended fund: revision after every two years

Abridged version of OD which is distributed along with the application form

Contents of the Offer Document Summary information Definitions Risk Factors Legal and Regulatory Compliance Financial Information Constitution of the Mutual Fund Investment objectives and policies Management of the Fund Offer Related information

Equity portfolio Management Stock selection Review of the Indian equity market Types of equity investments Equity classes – based on market cap – Based on anticipated earnings

Approaches to portfolio management Organization structure of equity funds

Investor Community

Institution al Investors

Individual Investors

HNIs

Retail

Who can invest in Mutual Funds in India?  Residents :

 Resident Individuals  Indian Companies  Indian Trusts/ Charitable Institutions  Banks / NBFCs  Insurance Companies  Provident funds

Who can invest in Mutual Funds in India?  Non Residents :  NRIs  OCBs  Foreign Entities:  FIIs registered with SEBI

Role of the Distribution Channels “MFs are primarily vehicles for large collective investments , based on the principle of pooling the funds from a large number of investors” Hence, “Majority of schemes are targeted at the retail level, from where a substantial portion of investment takes place” So, “Distribution network becomes critical in view of the spread of investor community”

Types of Distribution Channels: 1.Individual Agents 2. Distribution Companies 3. Banks / NBFCs 4. Direct Marketing ( By the Sales Officers) 5.Current Distribution patterns - Non UTI funds rely on the 2&3 above.

Sales Practices in MF Market

Agents’ Commission •Commission can be paid upfront or trail commission. • Market Practice: 1-1.5% (Equity funds) 0.6-0.8% (Debt Funds) • Higher commission paid for Tax-benefit schemes as there is a lock-in period.

Agents’ Commission •The initial issue expense cap of 6% includes brokerage as well. •All SEBI regulated open ended funds are authorized to charge exit /entry loads to cover the funds’ distribution expenses. • A no load fund includes these expenses as a part of the regular management & marketing expenses. • SEBI prescribes a cap on all the total expenses that can be charged to a scheme each year. Any additional expense will have to be borne by the AMC

Effective Selling of MF Schemes

• Know the important characteristics of the scheme. • Know your client profile (age, risk tolerance,income levels) • Understand clients’ needs (investment objective,return expectation, cash flow requirement) • Assistance in making the right choice of investment • Encourage regular investment and seek commitment from the client to invest.

Accounting, Valuation and Taxation

Net Asset Value (NAV) – Investors’ subscriptions are not accounted as liabilities or deposits but as Unit Capital – Investments made on behalf of the investors are reflected on the assets side. – Liabilities also form part of the balance sheet – NAV is asset minus liabilities and divided by total number of outstanding units. NAV = Assets - Liabilities NAV = Net assets value of the scheme /Number of units outstanding Market value of investments + receivables + accrued income + other assets -accrued expenses-payables- liabilities No.of units outstanding on NAV date

– Daily NAV for open-end schemes – Weekly NAV for close-end schemes – A fund’s NAV is affected by Purchase and sale of investment securities Valuation of all investment securities held Other assets and liabilities Units sold or redeemed – Valuation of investment securities must be at their market prices.

Tax deduction u/s 80C – Total investment upto Rs.1 Lac qualifies for deduction . – ELSS {Equity Linked Saving Scheme} qualifies for deduction u/s. 80C – Lock In Period of Three Years

Wealth Tax

Ownership of units is not considered as wealth in the Wealth Tax Act, therefore no wealth tax.

Different Performance Measures 1) Change in NAV Change in NAV between the two dates in absolute and percentage terms. – Absolute termsNAV at the end-NAV at the beginning – Percentage terms (Absolute change/NAV at the beginning)*100

Model Portfolios Young, Unmarried Professional – – –

50% aggressive equity funds 25% high yield Bond funds, Growth and Income funds 25% in conservative MMFs

Young Couple with double income and two children – – – –

10% MMF 30% aggressive equity funds (GSFs) 25% high yield bond and long term growth funds 35% Municipal Bond Funds (G Secs)

Older Couple, Single Income – 30% short term Municipal Funds (G - Secs) – 35% long term Municipal Funds – 25% moderately aggressive equity (Index funds) – 10% Emerging Growth Equity (Software)

Recently Retired – 35% conservative equity funds for capital preservation/income (Index, Grandmaster) – 25% moderately aggressive Equity for modest capital growth (Petro) – 40% in Money Market Funds

Fund Selection Selecting an Equity fund Selecting Debt/ Bond/ Income fund Selecting Money Market Fund Selecting a Balanced MF

END OF SESSION

THANK YOU FOR BEING WITH ME HAPPY INVESTING