Indian Mutual fund Industry

UTI Financial Centre, Bellary 2nd May, 2013

Agenda

Mutual Fund Brief Points we can discuss Indian MF Industry Snapshot Mutual fund key trends SEBI key initiatives Mutual Fund the way forward Indian Mutual Fund Industry Careers for Management students

Mutual Funds Brief Points we can discuss

Mutual Funds

Advantages & Disadvantages of Mutual Fund

Advantages of Mutual Funds Portfolio diversification Professional management Reduction in risk Reduction in transaction cost Liquidity Convenience and flexibility Regulatory Comfort No control over costs

Disadvantages of Mutual Funds

No tailor-made portfolios
Issues relating to management of a portfolio of mutual funds

Mutual Fund Structure

Offer Document & Key Information Memorandum

Statement of Additional Information (SAI) & Scheme Information Documents (SID) are two parts of Offer Document SAI has statutory information about the Mutual Fund that is offering the scheme. SID has complete details of the scheme including a Due Diligence Certificate signed by the Compliance Officer KIM is a summary(abridged version) of the SID and SAI. KIM is more easily and widely distributed in the market. As per SEBI regulations, every application form is to be accompanied by the KIM.

Types of Mutual Fund Schemes By Structure

Open Ended Schemes Close Ended Schemes Interval Schemes

By Investment Objective
Growth Schemes Income / Debt Schemes Balanced / Hybrid Schemes Actively Managed Passively Managed

Type of Managing Funds

Other Funds viz., Fund of Funds, Ex Traded Funds etc

Risk Vs Return Financial Products

High Equity Real Estate Return potential Gold

Debt Funds
PPF, NSC, KVP, PO Deposits, RBI Bonds Liquid Funds

Low

Savings Bank/ FD
Low Risk High

Note:The above chart is for illustrative purpose only and is not marked to scale. The chart is based on our perception of the risk and return potential of various investment avenues

Risk Vs Return Mutual Funds

Aggressive Growth Funds

Risk High Sector Funds Diversified Equity Funds Index Funds Balanced Funds Debt Funds Gilt Funds MMMF, Liquid Funds Risk Low Low return High return

Few common Mutual Fund terminologies

Face Value, Units, Unit Capital & NAV New Fund Offer - NFO AUM & AAUM Interest / Dividend Income Realized capital gains / losses

Benchmark
Scheme expenses Entry / Exit Load

Securities Analysis (Equities)

Fundamental Analysis review of the companys fundamentals viz.

financial statements, quality of management, competitive position in its product / service market etc.

Technical Analysis -

study of price-volume charts of the companys

shares to decide support levels, resistance levels, break outs etc.

Investment Styles

Growth investment style - Investing in high growth stocks i.e., stocks of companies that are likely to grow much faster than the economy.

Value investment style - Approach of picking up stocks which are valued lower, based on fundamental analysis.

Portfolio building approach EIC Analysis

Top-Down approach - Sector allocation is a key decision

Bottom-up approach - Stock selection is the key decision

Debt Terminologies
The return that an investor earns or is likely to earn on a debt security is called its yield
Debt securities that are to mature within a year are called money market securities viz., Treasury Bills, CDs, CPs etc Treasury Bills are short term debt instruments issued by the Reserve Bank of India on behalf of the Government of India. Certificates of Deposit are issued by Banks (for 91 days to 1 year) Commercial Papers are short term securities (upto 1 year) issued by companies.

Debt Terminologies . Contd

Securities issued by the Government are called Government Securities or G-Sec or Gilt.

There exists an inverse relationship between yields and value of debt securities which offer a fixed rate of interest.
Bonds / Debentures are generally issued for tenors beyond a year. Governments and public sector companies tend to issue bonds, while private sector companies issue debentures.

Measures of Risk & Performance

Standard Deviation measures the fluctuation in periodic returns of a scheme in relation to its own average return Beta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in periodic returns of a diversified stock index over the same period

Alpha is the difference between a schemes actual return and its optimal return (for its Beta)

Asset Allocation

Strategic Asset Allocation - Thumb rule is to have as much debt in the

portfolio, as the number of years of age. As the person grows older, the debt component of the portfolio keeps increasing.

Tactical Asset Allocation is the decision that comes out of calls on the likely behavior of the market.

Value Added Services - SIP

Financial planning by inculcating a regular savings habit. Benefit of Rupee cost Averaging

Staggered investment at regular intervals

Investment as little as Rs.500/- per month Reduces Risk Wealth creation in long run.

Track Mutual Fund Performance - Sources

Credence Analytics (www.credenceanalytics.com) CRISIL (www.crisil.com) Lipper (www.lipperweb.com) Morning Star (www.morningstar.com) Value Research (www.valueresearchonline.com)

Indian MF Industry - Snapshot

Indian MF Industry - Snapshot

MF Industry Size of Rs 8.16 trillion as on Mar 13 ( 7.86 tr as on Dec 12) Number of AMCs: 44

Largest five AMCs account for about 54% of total, next five about 24%
Number of schemes: > 1000 Varying forms of parentage in the Indian MF industry
Private players Indian: 19 Private Players Foreign: 9 6 8 Joint Ventures predominantly foreign: Joint Ventures predominantly Indian: Others : 2
Source : AMFIINDIA.com

Mutual funds Key trends

MF Industry Key trends

Dominated by short term debt funds and few large players Low penetration in Tier II and Tier III cities Retail investors still prefer small savings, bank deposits and insurance Recent reforms from SEBI in investor interest Greater emphasis on investor education

Industry AUM category breakup

GOLD ETF 1.48% Other ETF Equity - ELSS 0.22% 3.13% Fund of Fund Gilt investing overseas 0.29% 0.62%

Income

382964.83 164054.51 17259.61 177068.36 4845.12 24655.13 11673.68 1706.60 2315.72 786543.56

Equity (other than ELSS)

Balanced Liquid/ Money Market

Liquid/ Money Market 22.51% Equity (other than ELSS) 20.86% Balanced 2.19%

Income 48.69%

Gilt Equity - ELSS GOLD ETF Other ETF Fund of Fund investing overseas

Data as on Dec 2012, Source : AMFIINDIA.com

Industry AUM Geography wise breakup

4.49, 5% 5.33, 5% 13.45, 13%

2.47, 3%

Top 5 Next 10
74.26, 74%

Next 20 Next 75 Rest

Investor type holding

Corporates
23.53%

46.84%

Banks/FIs

25.19%

FIIs
3.80%

High Networth Individuals*

0.65%

Retail

SEBI key initiatives

SEBIs recent initiatives

Regulation of transaction fees Know-your-customer (KYC) norms for all investors Improved disclosure practices AUM figures across geographies Scheme performance against the BSE Sensex/ S&P CNX Nifty or GOI debt paper in addition to the scheme benchmark Performance of the fund manager across all schemes managed by him Growth of Rs. 10000 in addition to point-to-point returns Option to receive allotment of units in demat from October 1, 2011

Indian Mutual Fund Industry The Way Forward

Indian Mutual Fund Industry Way Forward

Rising share of savings and consumption from households Expansion of middle and high income group
Changes in fund houses distribution structure will lead to spread of mutual fund products across Tier 2 and Tier 3 cities. Change in approach by fund houses from sales based model to advisory model Introduction of new products targeted to specific needs of the investors

Use of liquid funds by retail investors as an alternate to SB A/c

Increase in Systematic Investment Plans (SIPs) signals increasing retail participation; SIPs have grown from less than 1 million in 2003 to 6 million in March 2013

Mutual Fund Industry Careers for Management students

Careers
Sales & Marketing Basic Level

Independent Financial Advisors Relationship Manager (at Fund Houses, Distribution Houses, PSU & Private Banks, Broking Houses etc ) Manager Marketing (at Fund Houses & Distribution Houses)
Back Office Operations related Manager Operations, Manager Customer Support etc Finance Analysts - Distribution Houses, Fund Houses etc Basic Level Co-Fund Manager - Higher Qualification viz., CFP, CFA deserved Fund Manager Higher Qualification viz., CFP, CFA with good experience deserved

Careers Suggested courses/programs

Chartered Financial Analyst (CFA) details can be obtained at www.cfainstitute.org Certified Financial Planner (CFP) details can be obtained at www.fpsbindia.org

Shashidhar S, Chief Manager UTI Asset Management Co Ltd., Kappagal Road, Bellary 583101 Ph : 9900092815 Email : shaanidee02@gmail.com