Professional Documents
Culture Documents
An introduction to the
concept
42 Rakesh Kumar
43 Rane Sandesh
44 Rao Sanjith
Mutual fund Myths and Performance 5
evaluation
Selection of mutual funds, Mutual fund 4
analysis
3
Loads & fees, Mutual Funds Pricing
Structure in India, Key Terms, Types of 2
Funds
Introduction MF, Benefts of Mutual 1
Funds
Contents
History
Unit Trust of India was the frst mutual
fund set up in India in the year 1963.
In early 1990s, Government allowed
public sector banks and institutions to
set up mutual funds.
The regulations were fully revised in
1996 and have been amended
thereafter from time to time.
SEBI has also issued guidelines to the
mutual funds from time to time to
protect the interests of investors.
Phases in Mutual Funds -
India
First Phase - 1964- -1987
Second Phase - 1987-1993
Entry of Public Sector Funds
Third Phase - 1993-2003
Entry of Private Sector Funds
Fourth Phase - since February 2003
WHAT IS A MUTUAL FUND?
A Mutual Fund is a trust that pools the savings
of a number of investors who share a common
investment objective, in turn buy assets
Mutual Fund is the most suitable investment for
common man as it offers an opportunity to
invest in a diversifed, professionally managed
basket of securities at a relatively low cost
The wide investible universe includes stocks,
bonds, money market instruments and other
types of securities which aids diversifcation
Owner of a mutual fund unit gets a proportional
share of the funds gains, losses, income and
expenses
Collective pooled
investment
Sandes Sanjit
h h
Mone
Where? y to
Inves
t Returns
Market
Fee
s
Smart Market
Person Invests
Rakesh
Working of a Mutual Fund
Investo
Passed rs Pools
their
Back to
money
Fund
Returns Manage
r
Generat Invests
es Securiti in
es
Mutual Funds
X
Fund
Manager
Bond
Mutual Stock Deriv s/
Y
Fund s atives
Debt
Z
Benefits of Mutual Funds
Benefits of Mutual Funds
Diversification:
Investments in broad
cross- section of industries
and sectors
Lowers the Risk Quotient
in the portfolio as seldom
do all securities fall at the
same time in the same
proportion
Mutual Funds are a cost
effective way of investing
in various asset classes in
the lowest cost
Different category of
schemes offer varied
choices for diversifcation
for all investors
Benefits of Mutual Funds
Well Regulated:
All Mutual Funds are
registered with SEBI
Custodian
Responsible for the safe keeping of investments
of the funds and receipt of all benefts due to
the fund. Participates in Clearing System on
behalf of the Fund
Registered with SEBI
Purchase
Lump
Sum Redeem
Switch
Mutual Fund
Investing Systematic
Investment Plan
(SIP)
Systematic
Periodic Withdrawal Plan
(SWP)
Systematic Transfer
Plan (STP)
Loads & Fees
Used to have entry loads (now banned)
i.e. 2% entry load
For 1,00,000 investment only 98,000
invested
Exit loads prevalent to prevent churning
Might vanish after a period
30 days, 1-2 years
Commissions paid to distributors who
intermediates your transactions
From management fees
Or Exit load
Loads & Fees
AMC charges a fee for Managing Money
Limited to 2.5% of Asset Under Management
Use Daily Average AUM
Deducted from NAV everyday
No proft sharing fee allowed
Higher the AUM lower the fees
Debt Mutual Funds have lower fees
Mutual Fund - Pricing
Initial investors pay money
Receive units Usually Rs. 10/unit
Rs. 10 is called Par Value or Face Value
Process called New Fund Offer (NFO)
Fund invests in whatever it is supposed
to
Stocks, Bonds, Derivatives
Everyday market price of each
investment will change
Stock prices go Up or Down
Mutual Fund - Pricing
Every Day, Funds portfolio is Market
to Market
Assume 2 investors in one fund
Sanjit Rs. 1,000
10,000 Units
h
Rupe Rs. 9,000
90,000 Units
sh
Rs.
10,000
Total 1,00,0
Units
00
Asset Allocation
Knowledge of asset classes before investment
Need Assessment helps in dictating the combination of
asset classes for investment
Performance Analysis
Track Record of Schemes to be one of the parameters
Consistency and stability in returns to be given higher
weightage
Selection of Mutual Funds
AMC Experience
Fund House vintage should be understood. Expertise in
understanding assets a key parameter
Product & Service capabilities to be reviewed thoroughly
Asset size
Too large and too small corpus size have both pros and cons
Fund Selection should be preceded by peer comparison to
arrive at ideal corpus size of the funds
Investment Objective
Synchronization of investment objectives helps in setting the
expectations right for the investments
Risk-Return payoff of the fund should be understood
Analyzing Mutual Funds
Assessment of your risk tolerance
Importance of diversifcation