Impact of inflation on monthly expenses of Rs.
30,000 today
Value of Rs. 100,000 over time
100,000 79,599 62,368 48,102 38,288 30,000 37,689 78,353
Today
5 years
15 years
20 years
Today
5 years
15 years
20 years
At inflation of 5%
Investors needs to beat inflation
Deposit in Bank SB, RD, FDs, Locker ;)
Loan a Friend/Relative on Interest
Property Investments Invest in Bullion - Gold, Silver..
Investment in Capital Markets -
Direct - Equity Share Markets, Debt & Bonds Market Indirect - Mutual Funds
INTRODUCTION
A mutual fund is a trust that pools the savings of a number of investors with common financial goals. The collected money is invested in various instruments like debentures, shares, etc. The income generated from these instruments and the capital appreciation is shared by the investors in proportion to the number of units owned by them
HISTORY
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank.
Phases of Mutual Fund Industry in India
Formation of UTI Entry of Public Sector Funds Entry of Private Sector Funds
1964 1987 1993
A phase dedicated to Retail Investors
2009 ?
Mutual Fund Regulations
Governed by SEBI (Mutual Fund) Regulation 1996 All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882) Bank operated MFs supervised by RBI too AMC registered as Companies registered under Companies Act, 1956 SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc.
FLOW CHART
INVESTORS
FUND MANAGERS
SECURITIES
RETURNS
TYPES OF MUTUAL FUNDs
Mutual Funds
By Maturity Period By Investment Objective
Open ended
Close ended
Equity
Balance fund Money market
Gilt fund
Income
Index fund
Schemes according to Maturity Period
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund
An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period.
Close-ended Fund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme.
Fund according to Investment Objective
A scheme can also be classified as growth fund, income fund, or balanced fund considering its investment objective. Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term.
Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth.
Money Market
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income.
These schemes invest exclusively in safer shortterm instruments such as treasury bills, commercial paper and government securities, etc.
These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
Gilt Funds
These funds invest exclusively in govt. securities.
Government securities have no default risk.
Index Funds
This schemes invest in the securities in the same weightage comprising of an index. This schemes would rise or fall in accordance with the rise or fall in the index
An investment plan to invest a fixed amount regularly at a specified frequency say, monthly or quarterly.
SIP is a simple method of investing used across the world as a means to creating wealth
Asset Allocation Diversifying investments in different assets such as stocks,
bonds, real estate, cash in order to optimize risk.
Fund Manager The individual responsible for making portfolio decision
for a mutual fund, in line with funds objective.
Fund Offer Document Document with investment
objectives, risk factors, expenses summary, how to invest etc.
Dividend Profits given to the investor from time to time. Growth Profits ploughed back into scheme. This causes the NAV to
rise.
NAV Market value of assets of scheme minus its liabilities. Per unit NAV
Net Asset Value No. of Units Outstanding on
Valuation date
Entry Load/Front-End Load (0-2.25%) The commission charged at the time of buying the fund. To cover costs for selling, processing Exit Load/Back- End Load (0.25-2.25%) The commission or charge paid when an investor exits from
a mutual fund. Imposed to discourage withdrawals May reduce to zero as holding period increases.
Sale Price/ Offer Price
Price you pay to invest in a scheme. May include a sales load. (In this case, sale price is higher than NAV)
Re-Purchase Price/ Bid Price
Price at which close-ended scheme repurchases its units
ADVANTAGES OF MUTUAL FUNDS
Professional management Diversification Economy of Scale Liquidity simplicity
Drawbacks of Mutual Funds
No Guarantees
Fees and commissions Taxes
Management risk
Various Types Of Mutual Funds In India
State Bank of India mutual fund ICICI prudential mutual fund TATA mutual fund HDFC mutual fund Birla sun life mutual fund Reliance mutual fund Kotak Mahindra mutual fund etc.
MYTHS OF MUTUAL FUND
MFs are not get rich quick investments MFs are not risk free investment MFs are not assured return investment MFs are not a universal solution to all investment needs
REASONS TO INVEST IN MUTUAL FUNDS
Expert on your side Limited risk Easy investing Convenience Investor protection Quick access to your money Transparency Tax benefits
Contacting the Asset Management Company directly Web Site Request for agent Agents/Brokers Locate one on AMFI site Financial planners Bajaj Capital etc.
Insurance agents Banks Net-Banking Phone-Banking ATMs
Online Trading Account ICICI Direct Motilal Oswal, Indiabulls- Send agents
SUMMARY
Mutual funds offer investors an affordable way to diversify their investment portfolios. These investments include: stocks, bonds, money markets, real estate, commodities, etc Individually, an investor may be able to own stock in a few companies, a few bonds, and have money in a money market account. Participation in a mutual fund, however, allows the investor to have much greater exposure to each of these asset classes.
