Mutual Funds

by

Kiran Nadkarni
Contact : 98812-67057
Mail : nadkarni_kiran@yahoo.com

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 Where can one invest ??
• Postal Savings
• RBI bonds / GOI bonds ( G secs )
• PSU/ F I bonds - NHAI/ REC/ NABARD/ IDBI /
ICICI etc
• Fixed Deposit - Bank / Co
• Shares & Stocks , Derivatives
• Commodities
• Real Estate
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Key Investment Considerations
Liquidity
Safety You get your money back when you want it

Your money is managed by

experts
Plus Convenience
How easy is it to invest, disinvest
and adjust to your needs?

Post-tax Returns
How much is really left for you post tax?

• For the same liquidity - higher the safety, lower the returns
• For the same safety - higher the liquidity, lower the returns

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Mutual Fund investments are subject to market risks Please read the offer documents carefully before investing.
MFs offer all of above
Liqu idity

Conv eni enc e Ta x

Ri sk Diversi ficat ion Mostben ef its
Funds
Disclosure
Most ofopen
allowing
Mutual
ended funds
switching
Diversified
Easy
Portfolioto
Funds
Flexi bili ty Capital
redeem
between
invest
portfolio
areand
Ga insto
within
easy
funds.
leads
NAV
regulated
Tr an sp are nc y 1declared
working
redeem
to risk
by SEBI.
Re gulat ed Ta
From x- free
day.
debt
control
daily
Dividen
to equity ds
Plus etc.
Ta x bene fits

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 Financial Planning for the future……...

Income Phase I Phase II Phase III

Children’s Marriage
Child Education

Housing

Children
Marriage

22 yrs 38 yrs Over 25 - 30 yrs

Birth & Education Earning Years Retirement Age

22 yrs 60 yrs

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 Cost of Living
Items 1987 1997
( Rs ) ( Rs. )
Colgate toothpaste 8.05 18.90
( 100 gm tube ) ( 8.91 % )

Hamam Soap 3.05 7.85

( 9.92 % )

Masala Dosa 3.50 14.00

( 14.87 % )

Petrol 7.99 25.48

( per litre ) ( 12.30 % )

L P G Cylinder 56.15 137.85

( 9.40 % )

Zodiac men’s shirt 225.00 510.00

( 8.53 % )

Source : Readers Digest – Nov 1997 6

 Cost of Living
Items 1997 2017
( Rs ) ( Rs. )
Colgate toothpaste 18.90 104.00
( 100 gm tube )

Hamam Soap 7.85 52.00

Masala Dosa 14.00 224.00

Petrol 25.48 259.12

( per litre )

L P G Cylinder 137.85 830.85

Zodiac men’s shirt 510.00 2620.27

Assuming inflation to grow at the same rate during 1987-97

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INFLATION ROBS YOUR PURCHASING POWER
(Assuming inflation @ 8% p.a.)

Rs. 10,000 today 217,200

100,600

46,600
21,500

10 years 20 years 30 years 40 years 8

 Why equities are the best bet for long term. ….
25%
20.16%
20%
real growth = growth - inflation
14.47%
15%
10.97%
9.19% 9.74%
10% 7.62%
5.28%
5%
0.55%
-1.57%
0%
Inflation Gold Bank FD Company FD Equities
-5%

Source : RBI Report(1997-98)

Analyzed on 15 Year Data
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EQUITIES ARE THE BEST LONG TERM BET
% OF STUDIED PERIOD IN WHICH

Other investment 14%

outperformed 44% 37%

Stocks
outperformed
56% 63% 86%

1 year 3 year 5 year

Source : RBI Report on Currency and Finance (1997-98)
BSE Sensitive Index of Equity Prices - BSE 10
 EQUITY = LOSS ?

SENSEX 1991-2006

IT IS UP 90 TIMES IN 26 YEARS ^

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Source : Bloomberg ^ Since BSE Sensex Inception to June 13,2006
EQUITY = WEALTH

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 EARNINGS DRIVE RETURNS
COMPANY CAGR PAT PRICE INVESTING IS SIMPLE
10 YRS 10 YRS
Reliance 22% 26%
ASK TWO QUESTIONS?
SBI 20% 18%
Bharti 333% 62%
Infosys 65% 73% WILL THESE COMPANIES BE
Ranbaxy 16% 23%
THERE TEN YEARS FROM NOW
HLL 20% 12%
ITC 27% 24%
Tisco 22% 10% IF YES,WILL PROFITS THEN
Hero Honda 46% 45%
BE HIGHER THAN TODAY?
HDFC 20% 25%

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 MUTUAL FUND = LOSS ?

Prudential ICICI Growth Plan 1999-2006

NAV IS UP 6 TIMES IN 8 YEARS

From Jan 1,1999 to June 9,2006

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Past performance is not an indicator of future performance. It may or may not be sustained in the future
 What Is Mutual Fund ?
• Collective vehicle of investment
• Its common pool of money into which investor
place their contributions that are to be invested in
accordance with stated objective.
• By Structure it is Trust registered under Indian
Trust Act and Sponsored by Promoters
• Highly regulated by SEBI

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 How does a Mutual Fund work?

AMC
Savings

Trust Investments
Units
Unit holders

Registrar

Trust
SEBI
Custodian AMC

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 WHY Mutual Funds ?
• Professional Management of Funds
• Diversification – Reduces Risk
• Convenient Administration – Less Paper
Works, Bad Delivery,delayed payments etc
• Low transaction cost : Enjoys Scale of
economy
• Highly Liquid – Easy Purchase / Sale
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 WHY Mutual Funds? Contd.
• Highly Transparent – Declaration of
portfolio on monthly basis
• Flexibility – SIP/ SWP / Div / Gr etc
• Highly regulated – SEBI / RBI
• TAX efficient – div are Tax free
• High Level of Service Standards – Prompt
account statement / change of add / bank etc
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What are the Types of Mutual
Funds
By structure ?
Close-ended Interval Funds Open-ended

By Portfolio or Asset Class

Equity Debt Money Market

Equity Funds Fixed Income Money Market Mutual

Index Funds Funds Funds
Sector Funds

Balanced Fund Liquid Plan

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 Mutual Funds in the USA
◆ Over 8,000 mutual funds with total assets of over
USD 8 trillion
◆ Every second household is a mutual fund investor
◆ Mutual funds have overtaken bank deposits

Total FuM break-up - US

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 What is an SIP?
• Investing a fixed sum, regularly in a
mutual fund

• Allows one to buy units in a particular

scheme on a given date every month

• Similar to regular savings schemes like a

recurring deposit

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 Benefits of Cost Averaging Avg. Cost vs Nav since inception~
90

80 Avg Cost Nav(Rs.)

70

60
50

40
30

20

10

0
J ul-96
May-95

May-98

Dec-98

Mar-00

May-01

Mar-03

J un-04

J an-05
Dec-95

Mar-97

J an-02

Nov-03

Nov-06
Oct-97

Aug-99

Aug-02

Aug-05

Apr-06
Oct-94

Oct-00

Past performance may or may not be sustained in future

~Assume a hypothetical investment of Rs.1000 every month in PruICICI Power since inception

An SIP reduces the average cost of

investment in fluctuating markets
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The above is for illustration purposes only
 Lump sum investment vs. SIP
The direction of the markets is unpredictable.
Rs.80000 invested in lumpsum at inception in Pru ICICI
Tech vs. Rs.1000 invested every month
280000 (for 82 months) since inception
247329
Performanc
240000
e of lump
200000
sum
160000
investment
120000 107172
depends on
80000
the price at
40000
which they
0 are bought
Nov-00

Nov-02

Nov-04

Nov-05

Nov-06
Nov-01

Nov-03
Mar-00

Mar-01
J ul-01

Mar-02

Mar-03
J ul-03

Mar-04

Mar-05

Mar-06
J ul-00

J ul-02

J ul-04

J ul-05

J ul-06
Lumpsum Invstt Sip Invstt

Past performance may or may not be sustained in future

An SIP reduces these risks by spreading the

investments over a longer period of time, at
various levels of the market 23
The above is for illustration purposes only
 SIP vs Lump Sum Investment

Returns on
Lump Sum
investment

Returns on
SIP

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Mutual Fund investments are subject to market risks Please read the offer documents carefully before investing. Past performance may or may not be
sustained in future
 ICICI Pru POWER
Inception : 1994
Diversified Equity Scheme

10, 000 Invested @ inception : Today Rs 1,00,590

Rs 1000 invested as SIP since inception :

156 Installment : cost Value Rs 156000

Today’s Value : 10,97,401 = 37.41% retn

XIRR
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ICICI Pru Dynamic Plan
Inception : Oct 2002
Diversified Equity Scheme

Rs 10,000 Invested @ Inception : Today Rs 79,490

Rs 1000 invested as SIP since Inception :

59 Installments : Cost Value Rs 59,000

Today’s Value : Rs . 1,80,534 = 48.90% XIRR Retn

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ICICI Pru Emerging Star Fund
Inception : Oct 2004
Diversified MID Cap fund

Rs 10,000 Invested @ Inception : Today Rs.34,530

Rs 1000 Invested as SIP since Incpetion

36 installments : cost Value Rs 36,000

Today’s Value : Rs 64,418 retn 44.11 % XIRR

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ICICI Pru Infrastructure Fund
Inception : Aug 2005
Infrastructure Theme Fund

Rs 10,000 invested @ inception : Today Rs 27,120

Rs 1000 invested as SIP since Inception :

25 installments : cost Value Rs, 25,000

Today’s Value : Rs 38,093 = 48.10% XIRR Retn

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 Thank you
Happy Investing

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