MUTUAL FUNDS

BY- GROUP 4
Mathew Abraham A002
Nivedita Gautam A016
Swastika Mishra A035
Megha Raveendran A042
Smriti Sahay A043
Akshita Shrama A044
Ishan Sharma A045
Rhea Wagh A056

Evolution of Mutual Funds
In 1774, Worlds first Mutual Fund named Eendragt
Maakt Magt (unity creates strength) was formed
by Dutch merchant named, Adriaan Van Ketwich
Two subsequent funds set up in Netherlands.
The early mutual funds spread were of the closed-
end variety, issuing a fixed number of shares. They
spread from the Netherlands to England and
France before heading to the U.S. in the 1890s.
The first modern-day mutual fund, Massachusetts
Investors Trust, was created on March 21, 1924.
Today known as MFS Investment Management, with
assets under management standing at US$ 397.5
billion


History of Mutual Funds in
India
In 1963, formation of the Unit Trust of India (UTI) as an
initiative of the Government of India and RBI
In 1987, SBI Mutual Fund became the first non- UTI mutual
fund in India.
In 1993, the SEBI Mutual Fund Regulations were laid down
which heralded a new era in MF industry
In 1993, entry of private companies in the sector.
In 1995, Association of Mutual Funds in India (AMFI) was
established
SEBI made AMFI certification mandatory for all those
engaged in selling or marketing mutual fund products.
GENESIS
Definition- A mutual fund is a type of professionally managed collective
investment scheme that pools money from investors to purchase securities.
The key constituents of Indian mutual funds are:
o Sponsor: The sponsor is defined under SEBI regulations as a person who, acting alone or
in combination with another body corporate, establishes a mutual fund.
o Trustees: The mutual fund can be managed by a board of trustees or a trust company.
The trustees act as a protector of unit holders' interests.
o Asset Management Company: An AMC functions under the supervision of its own
board of directors and also under the directions of trustees and SEBI. Major obligations
include:
Ensuring investments in accordance with trust deed
Providing information to unit holders
Adhering to risk management guidelines by AMFI and SEBI
Timely disclosures to unit holders on sale and repurchase
NAV and portfolio details
o Custodian and Depositories: The custodian is appointed by trustees for safekeeping of
physical securities while dematerialised securities holdings are held in a depository
through a depository participant.
o Registrar and Transfer agents: These are responsible for issuing and redeeming units of
the mutual fund as well as providing other related services, such as preparation of
transfer documents and updating investor records.


Operation of Mutual Funds
Some Important Terms
1. Unit: Just as shares represent the extent of equity ownership in a
company, units represent your extent of ownership in a mutual fund.
2. Load: It is the charge collected by a mutual fund from an investor
for selling the units or investing in it.
Entry load or Front-end load or Sales load
An Exit load or Back-end load or Repurchase load
3. Sales Price: It is the price paid by an investor when investing in a
scheme of a Mutual Fund. This price may include the sales or entry
load.
4. Redemption or Repurchase Price: is the price at which an investor
sells back the units to the Mutual Fund. This price is NAV related and
may include the exit load.
5. Switching Facility: Investors have an option of transferring the funds
amongst different types of schemes or plans with a switching facility.

Net Asset Value
Definition: : Net asset value(NAV) is the value of a
fund's asset less the value of its liabilities per unit
NAV = (Value of Assets- Value of Liabilities)/No of
units outstanding
Helps an investor to determine if the fund is
undervalued or overvalued
For open-end funds, NAV gives the fund's value
that an investor will be entitled to at the time of
withdrawal of investment.
Myth Bust
An investor has a misconception that a fund with
higher NAV will give fewer units. Though this is
true, it is not the correct criteria to select a fund.


Fund A Fund B
NAV 100 20
Investment 1,00,000 1,00,000
Units 1000 5000
Return 20% 20%
NAV after
a Year
120 24
Value
after a
Year
1,20,000 1,20,000
Advantages
For an Investor:
Professional Management
Convenience
Low cost
Diversification
Liquidity
Higher return potential
Safety & Transparency
For Economy:
Channeling the savings of the public
Strengthen and develop a strong capital market
Capital formation and growth of an economy
Classification
On the basis of Scheme:
Open Ended Schemes
Close Ended Schemes
Interval Schemes
On the basis of Geography:
Domestic Mutual Fund Schemes
Off Shore Schemes
On the basis of Investment Objective:
Income
Growth
Balanced
Tax Saving
Sector
Index
Money Market
Gilt

Debt Mutual Funds
Debt Mutual Funds mainly invest in a mix of debt or
fixed income securities such as Treasury Bills,
Government Securities, Corporate Bonds, Money
Market instruments and other debt securities of
different time horizons. Generally, debt securities have
a fixed maturity date & pay a fixed rate of interest.
The returns of a debt mutual fund comprises of
1. Interest income
2. Capital appreciation / depreciation in the value of
the security due to changes in market dynamics



Types of Debt MF
Ultra Short Term Funds
Floating Rate Funds
Short Term & Medium Term Income Funds
Income Funds, Gilt Funds and other dynamically
managed debt funds



Corporate Bond Funds
Fixed Maturity Plans (FMPs)

Income
Funds
Gilt
Funds
Dynamic
Bond Funds
Evaluation of a Debt Fund
It is important to consider the following while choosing
an appropriate debt mutual fund:
Stated investment horizon
Maturity profile
Credit rating profile
Asset allocation in Fund Portfolio
Other quantitative indicators
Ultra Short Term Funds
Axis Treasury Advantage Fund (G)
Kotak Banking & PSU Debt Fund (G)
Escorts Short Term Debt Fund
Birla Sun Life Saving Fund

Tata Dynamic Bond Fund
This scheme is classified as low risk
Nature of Scheme- Open Ended
Date of Allotment- 01/01/2013
Latest NAV- 13.1267
Entry Load- NIL
Exit Load- 0.50% of NAV if redeemed on or before
expiry of 180 days from the date of allotment.
Min.Purchase Amount- Rs. 5,000/-
Min. Redemption Units- 50
Benefits of Debt Funds
Your investments are not affected by equity market
volatility
Add stability to your investment portfolio
Freedom to withdraw your money when required
You can aim for better post tax returns
On dividend/
Income returns
On capital
gains
Money Market Mutual Funds
These funds invest in highly liquid money market
instruments and provide easy liquidity. The period of
investment in these funds could be as short as a day.
They aim to earn money market rates and could serve
as an alternative to corporate and individual investors,
for parking their surplus cash for short periods.
Returns on these funds tend to fluctuate less when
compared with other funds.
Types of Money Market MF
Money market mutual funds can invest in below
securities:
Treasury Bills (T-Bills)
Repurchase Agreements (Repos)
Commercial Papers
Certificate of Deposits

Benefits of Money MF
Money market mutual funds are good investment
options for investors in falling markets. It has following
advantages:
Safety of the money invested
Returns
Liquidity

Impact of Budget on Open-
Ended MF
Increase in tenure for availing longterm capital gains
benefit on debtoriented mutual funds
Rise in longterm capital gains tax rate on
debtoriented mutual funds




A type of mutual fund with a portfolio constructed to match or
track the components of a market index, such as the Standard
& Poor's 500 Index (S&P 500). An index mutual fund is said to
provide broad market exposure, low operating expenses and
low portfolio turnover.
John C Bogle
"if you can't beat 'em,
join 'em"
He created the first low-
cost mutual fund that
mirrored the S&P 500
index

Common Sense on
Mutual Funds: New
Imperatives for the
Intelligent Investor



Why do people invest in index funds?
Most indexes provide an annual return of 10% to 11%.
Majority of mutual funds fail to outperform the S&P 500.
On average, anywhere from 50%-80% of funds get beat by
the market.
The main reason for this is the costs that mutual funds
charge.
A fund's return is the total return of the portfolio minus the
fees an investor pays for management and fund expenses.
If a fund charges 2%, then you have to outperform the
market by that amount just to be even.
Why is it low cost?

index funds have an expense ratio of around 0.2%!
Because of passive management
Fund managers only need to maintain the appropriate
weightings to match the index performance

INCOME FUND




A type of mutual fund that emphasizes current income, either on
a monthly or quarterly basis, as opposed to capital
appreciation. Such funds hold a variety of government,
municipal and corporate debt obligations, preferred stock,
money market instruments, and dividend-paying stocks

The point in any case is that the investor is more interested in
income than capital gains, perhaps with the intention the fund
will never be sold.



Share prices of income funds are not fixed; they tend to fall
when interest rates are rising and to increase when interest
rates are falling. Generally, the bonds included in the portfolios
of these funds are of investment grade. The other securities are
of sufficient credit quality to assure a preservation of capital.
GILT FUNDS



Gilt Funds are mutual funds that invest only in government
securities. They are preferred by risk averse and conservative
investors who wish to invest in the shadow of secure government
bonds.

Since gilt funds invest only in government bonds, investors are
protected from credit risk. The instruments where these funds invest
have sovereign guarantee. Hence no default risk is associated
with these instruments.

These funds can have different maturity profiles. Some may be
short term while others are medium term or long term. Like any
other bond funds, these funds too have interest rate risk ingrained
in them.
Tax-Saving Mutual Funds
One of the main purposes of investing for most
investors is tax saving
Several type of investments qualify for tax
exemption
Equity Linked Saving Scheme (ELSS), the tax
saving mutual fund, is one of the favorite
investments amongst investors seeking tax
exemption
ELSS Fund
ELSS are open ended, diversified equity schemes
offered by mutual funds in India.
ELSS is a dedicated mutual fund scheme that
invests in shares/equity and offers twin
advantage of capital appreciation and tax
benefits
They offer tax benefits under Section 80C of
Income Tax Act 1961.
It comes with a lock-in period of 3 years
Section 80C and
Deductions
Sec 80C of the I T Act, 1961 deals with the tax
deductions and tax breaks. It allows certain
investments and expenditure to be tax-exempt
The new Section 80C has become effective from
1
st
April, 2006
The maximum deduction limit under 80C is Rs. 1.5
lakh (raised from 1 lakh in Union Budget 2014-15)

Section 80C
Qualifying Investments/Expenditure under 80C:
PF & VPF, PPF
Life Insurance Premiums
ELSS
National Saving Certificates (NSC)
SCSS , 5 year FDs and POTD schemes
Home Loan Principal Repayments ,Stamp Duty & Registration
Charges
Infra Bonds, NABARD Rural Bonds



ELSS advantages apart from
tax benefits
Compared to traditional instruments like PPF, NSC and FDs,
the lock-in period of ELSS fund is much lower (3 years)
As ELSS is an investment in equity markets and investing in this
for a long term can give you better returns compared to
other asset classes i.e. earning potential is high
One can also opt for Systematic Investment Plan (SIP), which
brings about discipline in regular investing.
Investor can also opt for dividend option and get some gains
during the lock-in period

Best performing ELSS Fund
Reliance Tax Saver
SBI Tax Advantage
ICICI Prudential Tax Plan
HDFC Tax Saver
Principal Tax Savings
Axis Long Term Equity
Reliance Tax Saver Plan
Launched on August 23,2005
Asset Size- Rs. 2413.63 cr
NAV as on Aug 28, 2013- 19.04
NAV as on Jul 04, 2014- 39.38
Return % - 1 year = 100.8%, 3 year = 23.7%
Ranked 1 by Crisil in ELSS category

Peer Comparison
ELSS Crisil
Rank
Assets
(Rs cr)
6 mnth
(%)
1 year
(%)
3 year
(%)
5 year
(%)
Reliance
Tax Saver
1 2413.63 60.4 100.8 23.7 20.2
SBI
Magnum
Tax
3 4327.68 37.5 58.1 19.6 14.3
HDFC Tax
saver
3 4036.36 45.5 70.9 16.9 17.2
UTI Master Not
Ranke
d
1428.55 31.4 44.5 15.6 12.5
Axis Long
Term
1 1310.99 42.1 67.1 25.2 _
SIP
Sector Specific Funds
SIP
Vehicle offered by MFs to help investors save
regularly
A recurring investment where the investor
commits to investing a fixed amount at regular
intervals
The funds are auto-debited from the investors
bank account and certain number of units are
allocated as per the ongoing market rate(NAV)

How does it benefit the
Investor?
1. Rupee cost averaging:

The investors money fetches more units when price
falls and less units when the price is high

Helps the investor achieve lower average cost per
unit

How does it benefit the
Investor?
2. Power of compounding
The earlier the investor commits to the scheme,
the higher compounded returns
3. Flexibility
Investor can increase/decrease/ discontinue the
plan at any time
4. Long term gains
5. Convenience

SECTORAL FUNDS
What is a Sector MF?
MF that invests in a specific sector of the
economy as stated in the offer document, eg:
Energy, utilities etc

Sector funds vary in substantially in Market
capitalization, investment objective
(growth/income), class of securities (debt/equity)
within the portfolio etc

Why invest in Sector Funds?
For investors whose portfolios lack exposure in a
specific sector
Serve to hedge portfolios , as some sectors tend
to move opposite the general economy as a
whole
Eg: high energy prices can be drain on the rest of
the economy but boost the energy funds
Reduce portfolio risk by investing in a sector
having low correlation with the other equity funds
Risks Involved..
Usually lag behind their diversified peers
Greater risk and volatility than broad based funds
eg: when the economy slows down, banking
sector funds suffer due to degradation in asset
quality (rise in NPAs)




The Indian Context










Sector Top Market Players Sector average
Returns (1 year as on
Aug 05, 2014)
Banking and
financial services
Funds-

Reliance Banking
Fund

52.2%
FMCG
ICICI Pru FMCG, SBI
FMCG funds

18.7%
Technology ICICI Tech fund

39.7%
Pharmaceuticals UTI Pharma, SBI
Pharma funds

45.3%
Infrastructure HDFC Infra , Religare
Infra

77.2%

Pharma sector- Top
performers
Mutual Fund Scheme Crisil Rank
AUM
(Rs. cr.)
Jun 14
1mth 3mth 6mth 1yr 2yr 3yr 5yr
* Returns over 1 year are Annualised
SBI Pharma Fund - Direct (G)
Not Ranked

21.33 3.5 17.3 24.9 50.6 -- -- --
SBI Pharma Fund (G)
Not Ranked

194.91 3.4 17.0 24.4 49.4 34.4 28.7 27.7
Reliance Pharma Fund - Direct (G)
Not Ranked

36.13 -0.8 11.5 19.4 46.5 -- -- --
Reliance Pharma Fund (G)
Not Ranked

773.24 -0.9 11.3 19.0 45.5 26.9 21.2 28.5
UTI Pharma & Health - Direct (G)
Not Ranked

4.66 2.3 14.0 20.2 40.5 -- -- --
UTI Pharma & Health (G)
Not Ranked

149.44 2.3 13.8 19.7 39.4 26.9 21.0 25.5
CATEGORY AVERAGE 1.6 14.2 21.3 45.3 14.7 11.8 13.6
Reliance Banking Fund
Investment Objective:
Seek returns by actively investing in equity and equity
related securities of banking companies


1-
Week
1-
Month
3-
Month
s
6-
Month
s
1-Year
3-
Years
5-
Years
SI
NAV
Growth
0.13% -2.22% 21.76% 54.26% 63.88% 15.62% 18.47% 27.27%
NAV Returns *

Benchma
rk Index
1-
Week
1-
Month
3-
Month
s
6-
Month
s
1-Year
3-
Years
5-
Years
SI
CNX Bank 0.53% -1.69% 18.73% 18.73% 51.49% 13.88% 14.99% 12.29%


Reliance Banking Fund
Company % of Inv
HDFC Bank 17.88
ICICI Bank 15.56
Yes Bank 6.38
Indiabulls Housing 5.85
HDFC 5.57
SBI 5.23
Bajaj Finance 4.40
Federal Bank 4.07
Oriental Bank 3.85
LIC Housing Finance 3.73
Top Ten Holdings


Investment Breakup across
Sector Funds
(as on June 2014)
24%
11%
10%
7%
7%
6%
6%
6%
5%
3%
2%
13%
Banking
Engineering
Automotive
IT
manufacturing
Pharma
Cement and construction
Oil and gas
Chemicals
telecommunication
Metals and mining
others
GROWTH FUNDS
A growth fund is a diversified portfolio of stocks
that has capital appreciation as its primary goal,
with little or no dividend payouts.
The companies forming the portfolio would
mainly have the following characteristics:
above average growth in earnings
They reinvest their earnings into expansion,
acquisitions, and/or research and development

Why one should invest in a
growth fund?
Chances of appreciation over time
Better hedge against inflation
Growth funds have outperformed the other asset
class over long term
Better than Gold, real estate: due to better
liquidity and low transaction cost

Volatility in Growth Funds
Growth funds offer higher potential capital
appreciation but usually at above-average risk
The companies in a growth fund portfolio are in
an expansion phase and they are not expected
to pay dividends
The stocks are more volatile in the short term.
However, they usually go up in the long term.
Thus a holding period with a time horizon of five
to 10 years
Types of Growth Funds
Balanced Funds: Ideal for investors preferring
moderate capital appreciation and income
regularly
Diversified funds: Ideal for the investors seeking
appreciation over medium to long term
Investments in equities across various industries /
sectors either large cap or small cap
Index funds: Ideal for the investors who wishes to
and also satisfied with returns equal to that of
index
Sector specific fund Ideal for investors who wish
to invest in a particular segment or sector

BALANCED FUNDS
A fund that combines a stock component
(common stock/ preferred stock), a bond
component (long-term bond/ short-term bond)
and sometimes a money market component in a
single portfolio
Typically two types of Balanced Funds are there:
Moderate: higher equity component
Conservative: higher fixed-income component
Why to invest in Balanced
Funds?
Provides both capital growth and income
objectives
Manage downturns in the stock market without
too much of a loss
Have given moderate to high returns in the last
few years
Debt provides a cushion of safety
KEY CHALLENGES FOR
MUTUAL FUND
Lack of financial education and awareness
Low penetration levels
High dependence on corporate sector
Increasing cost of operations
Limited distribution network
Culture bias towards physical assets

KEY IMPERATIVES FOR
EXPANSION
A trusted sales agent
Partnering with a bank
Technology
AUM last year INR 8,800 billion
CAGR 15% FY07-13
AUM - 5 to 6% of GDP
WAY AHEAD FOR MUTUAL
FUNDS
Important vehicle for mobilization of savings particularly
from the household sector
Restructuring of business models to provide increased
efficiency and investor satisfaction
SEBI taking steps towards improving the standards of
disclosure for mutual funds.
Introducing prudential norms to prevent misuse of funds
and protection of investors.
Greater degree of freedom to the fund managers to
structure their schemes according to the investor
preferences.
THANK YOU