PRUDENTIAL ICICI MUTUAL FUND
Definition:
A MF is a pool of money, collected from investors ,& is invested according to certain Investment Options Characteristics of a MF :
1) Ownership of MF belongs to investors 2) MF is managed by investment professionals who earn a fee for their services from the fund 3) Pool of funds is invested in a portfolio of marketable investments. Value of portfolio is updated every day
Why Mutual Funds ◆
To address problems faced by retail investors; ◆
Lack of money to obtain spread
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Lack of personal expertise
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Lack of time to manage investments
Structure of MFs Governed by SEBI (Mutual Fund) Regulations, 1996 Mandatory for MFs to have a three tier structure
Sponsor
Trustee
Asset Management Company
Sponsor: Promoter of the MF, appoints the Trustees Trustees:Responsible to the Investors in the MF,appoints AMC AMC : Business face of MF, manages affairs of MF
How Mutual Funds Work Money Pooled from Investors Unit Trust Fund/ Mutual Fund Trust Deed
Trustee*A Professional Fund Manager
Portfolio of Authorised Investments − − − − − −
A: Custodian/Depository
Shares Government Securities Bonds Property Liquid Assets Derivatives
Mutual Funds: Advantages Lower transaction costs due to economies of scale Tax benefit compared to most other investment options in India Professional fund management Diversification Systematic Investment Plans Regular Savings Plans
Mutual Funds Types Openended: Investors can buy /sell units of fund,at NAV related prices,at
any time directly from the fund.
These funds are offered for sale at a prespecified price,say
Rs. 10 ,in the initial offer period. After a prespecified period, say 30 days,the fund is declared opened for further sales & repurchases
Pool of funds & units vary everyday Closeended:
Open for sale to investors for a specified period ,after which
further sales are closed. Any further transaction happens in the secondary market where closed end funds are listed
Pool of Funds technically constant
Advantages of Mutual Funds Suit small or large investors. Flexibility option to have Income Reinvested. Professional Fund Management. Cheaper dealing than for individual. Liquidity – ease of purchase and sale of holdings Diversification – spread of risk. Access to international markets Tax benefits in some jurisdictions. Regulated investor protection. Wide spectrum of fund choice – 50,000 funds worldwide.
Investment Pyramid: India
Reward
Equity Funds
Income Funds Short term funds Floating rate Funds ◆
Liquid Funds Risk
Investment objective Reward
Each fund : Stated Investment Objective − Income / Growth − Markets(s)
Emerging Markets ◆ Derivatives ◆
Europe / USA ◆ Smaller Cos.
Europe / USA ◆ Blue Chips ◆ Global Government Securities ◆ Money Markets ◆
Risk
Applications of Mutual Funds ◆
Any medium to long-term investment i.e. >3 years
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Investment Abroad ➘ exposure to overseas markets - appeals to both sophisticated and unsophisticated investors
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Retirement Income ➘ Invest while employed - take income in retirement / use capital as safety net.
Applications of Mutual Funds ◆
Achievement of long-term goals ➘ Housing ➘ Education
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Investment for children ➘ Parents / Grandparents set up investment account on behalf of children / grandchildren.
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Unit-Linked Life Assurance Products.
Authorisation process
Submit : Trust deed (Unit Trust) Instrument of Incorporation (Investment Company) Prospectus (or equivalent) Marketing Plan Evidence of financial standing Submission Fee Formal request
Regulatory Authority Securities Exchange Board of India
Offer Document MFs are required to file with a SEBI the Offer Document/Prospectus, in a prescribed format that provides all information about the fund & the scheme Legal Document in language of country Purpose Provide Investors with key information needed to make informed decisions Details of launch e.g.
− −
length of initial offer period what will happen if launch targets not reached.
Offer Document / Prospectus Constitution of the fund,details of sponsor, trustee & AMC Standard & Specific risk factors
Scheme attributes Investment objective,pattern,terms with
regards to liquidity Details of the scheme being offered Loads, fee structures & expenses Unit holder rights
Key Information Memorandum As the Offer document is very detailed, SEBI allows
MFs to summarize the key points in a summary document called as the Key Information Memorandum (KIM) It is mandatory that the KIM is made available to all investors alongwith the application forms
Launching a Mutual fund Initial offer at fixed price Press announcements / Mailings to potential investors
must conform to regulatory standards of jurisdiction.
Launch briefings to advisers / agents. Some jurisdictions allow direct selling “off the page”. Usually, fund holds subscriptions to see how much
raised before investing.