Professional Documents
Culture Documents
Child’s Marriage
Child’s Education
Housing
Child birth
Marriage
22 27 40 60
Young Independent Young Married Middle Age Retirement
All individuals have a finite period to save for their investment goals
Value of Money over time
Impact of inflation on monthly Value of Rs. 100,000 over time
expenses of Rs. 30,000 today
100,000
79,599
78,353
62,368
48,102
38,288 37,689
30,000
At inflation of 5%
Investors need to beat inflation
OPTIONS FOR INVESTING
• Deposit in Bank – SB, RD, FD’s, 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
So what are my alternatives?
• Fixed Interest Products – 8.00% 1.06%
0.71%
0.36%
7.00% 0.01%
– Bank Deposits
2.10% 2.40% 2.25%
– Corporate Deposits 6.00% 1.95%
10.64% 10.27%
7.47% 7.12%
Source : CLSA
Cumulative annualised returns (1980 - 2004)
EQUITIES-RISKY & VOLATALIE
BSE SENSEX IN LAST TWO YEARS
How To Invest In Equities
• Direct Equity
» High risk, high return category.
» Needs a lot of time & expertise.
» Substantial initial capital required.
• Mutual Funds
– One-Time Investment
– Systematic Investment Plan (SIP)
What is a Mutual Fund?
• A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal.
• Anybody with an investible surplus of as little as a few thousand
rupees can invest in Mutual Funds.
• These investors buy units of a particular Mutual Fund scheme that
has a defined investment objective and strategy.
• The money collected is invested by the fund 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 realized by the scheme are shared by its unit holders in
proportion to the number of units owned by them.
Brief History
• First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. At the end of
1988 UTI had Rs.6,700 crores of assets under management.
• Second Phase-1987-1993 (Entry of Public Sector Funds)
marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987. At the end of
1993, the mutual fund industry had assets under management of Rs.47,004 crores.
Third Phase-1993-2003(Entry of Private Sector Funds)
1993 was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered
in July 1993. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.
1,21,805 crores.
• Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963. UTI Mutual
Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under
the SEBI Mutual Fund Regulations
GROWTH IN ASSETS UNDER
MANAGEMENT
MUTUAL FUND DATA April 30th,
2009
Category Sales Redemption Asset Under Management
Existing Total Total as on Apr as on Mar 31 Inflow/
sche 30 , , 2009 Outflo
mes 2009 w
Grand Total
(B+C+D) 688234 688353 538520 515364 460557 54807
Organization of a Mutual Fund
Regulations
• Governed by SEBI (Mutual Fund) Regulation 1996
– All MFs registered with it, constituted as trusts ( under Indian Trusts
Act, 1882)
• Fund Manager
– The individual responsible for making portfolio decision for a mutual fund, in
line with fund’s objective.
• Dividend
– Profits given to the investor from time to time.
• Growth
– Profits ploughed back into scheme. This causes the NAV to rise.
Terminologies Contd…
• NAV
– Market value of assets of scheme minus its liabilities.
• Redemption Price
– Price at which open-ended scheme
TYPES OF MUTUAL FUNDS
Type of
Mutual Fund
Schemes
Special
Investment
Structure Schemes
Objective
• 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
• ULIP
SPECIAL SCHEMES-EXAMPLE
• Funds based on Size of the Companies
Invested in
• Large cap funds:Funds that invest in
companies whose total market cap is above
Rs40bn
Mid cap funds: Funds that invest in companies
whose market cap is between Rs20-40bn
Small cap funds: Funds that invest in
companies whose market cap is below Rs20bn
10 REASONS TO INVEST IN
MUTUAL FUNDS
• Expert on your side: When you invest in a mutual fund, you buy into the experience and skills
of a fund manager and an army of professional analysts
• Limited risk: Mutual funds are diversification in action and hence do not rely on the performance
of a single entity.
• More for less: For the price of one blue chip stock for instance, you could get yourself a number
of units across a number of companies and industries when you invest in a fund!
• Easy investing: You can invest in a mutual fund with as little as Rs. 5,000. Salaried individuals
also have the option of investing in a monthly savings plan.
• Convenience: You can invest directly with a fund house, or through your bank or financial
adviser, or even over the internet.
• Investor protection: A mutual fund in India is registered with SEBI, which also monitors the
operations of the fund to protect your interests.
• Quick access to your money: It's good to know that should you need your money at short
notice, you can usually get it in four working days.
• Transparency: As an investor, you get updates on the value of your units, information on
specific investments made by the mutual fund and the fund manager's strategy and outlook.
• Low transaction costs: A mutual fund, by sheer scale of its investments is able to carry out
cost-effective brokerage transactions.
• Tax benefits: Over the years, tax policies on mutual funds have been favourable to investors
and continue to be so.
Risks
• Historical analysis
– Return is remembered, Risk forgotten
• Market Risk
• Non-Market Risk
7 6 .4 6
6
5 When the price is highest,
you buy the least number of units
4 106.39
154.75
units
units
Simple plotting of closing price of BSE Sensex for the first of every month. The
time period considered here is from 1/1/1990 to 02/12/2005 Source:
Credence Analytics
Start Early : SIP
Rs. 1000 invested per month @15% p.a. till the age of 60 yrs
160 148.61
140
120
100
80 70.10
60
40 32.84
20 15.16
4.20 3.60 3.00 6.77
2.40 1.80 1.20 2.79
-
25 30 35 40 45 50
Investment Wealth at 60
• Appropriate way
– Right Mix of equity MFs (Top 3-4 funds, may all be mid-cap funds)
– Have variety of funds like diversified funds, mid-cap funds and sector
funds – in right proportion.
– Beginner- it makes sense to begin with a diversified fund
– Gradual exposure to sector and specialty funds.
• TRAPS TO AVOID
– IPO Blur
• Begin with existing schemes (proven track record) and then new schemes
• Benchmark returns
– SEBI directs
– Fund's returns compared to its benchmark
• Time period
– Equal to time for which you plan to invest
– Equity- compare for 5 years, Debt- for 6 months
• Market conditions
– Proved its mettle in bear market
Buying Mutual Funds
• 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
Keeping Track…