Mutual Funds

and Equity Overview

 Agenda

• What is Mutual Fund - Overview

• Types of Mutual Fund – Structure Wise and Objective Wise
• Regular Terms used in Mutual Funds
• Conviction on Equity Mutual Funds for Long Term Wealth Creation
• NJ’s Unique Offering for Wealth Creation – GAP
 Concept of a mutual fund
N A common pool of money into which
investors place their contribution
N This money is to be invested
according to the pre-stated objectives of the fund
N Ownership of the fund is joint or mutual amongst all investors - equivalent to
the contribution made as a proportion of the overall fund
N Ownership through holding of units at NAV
 How does a Mutual Fund
work?

AMC
Savings
Trust Investments
Units
Unit holders Returns

Registrar

Trust
SEBI
Custodian AMC
Advantages of Mutual Funds

Portfolio Diversification

Professional Management

Reduction of Risk

Reduction of Transaction Costs

Convenience & Flexibility

Liquidity

Access to Information
Type of Funds, as per structure …

Daily sale/purchase
No fixed maturity
Open-ended
Fund is “secondary market”

Sale during NFO

Closed-ended Fixed Maturity
SE is secondary market

Periodic sale / purchase

Interval No fixed maturity
SE is also secondary market
Type of Funds, as per investment
objective…

Equity Debt Money Market

Equity Funds Fixed Income Money Market

Index Funds Funds Mutual Funds
Sector Funds

Balanced Funds Liquid Funds

Risk Profile…
Sectoral Funds

Diversified Equity Funds

Risk
Balanced Funds

MIPs
Gilt Funds

Income Funds

Short Term Plans

Floating Rate Funds

Money Market Investment horizon
Days 1 year 3 years

Returns
BROAD
CLASSIFICATION
 Instruments in Indian Debt Market
• Certificate of Deposit – Issued by Commercial banks and maturity of 91
days to 1 year.
• Commercial Paper – Issued by corporate bodies and maturity varies
between 3 months and 1 year
• Corporate Debentures
• Floating Rate Bonds
• Govt. Securities.
• Treasury Bills – Issued through RBI by GOI. Tenure is 91 days and 364
days.
• Bonds
 Investment Options – Equity Funds

• Investment Objective : To generate long term capital appreciation

by investing in equities.

• Liquidity : 3 business Days

• Risk :High

• Recommended investment Horizon: Minimum 5 years

• Applicable Loads : Entry Load – 2.25%

Exit Load – It varies from Nil to 1%
depending on scheme and investment
horizon.
 Different types of Equity Funds

Classification based on Market Capitalisation

• Large Cap Funds - Invest in Large Cap Stocks

• Mid Cap Fund - Invests primarily in Mid Cap Stocks
• Small Cap Funds – Invests in Small Cap Stocks

Classification based on Style

• Growth Funds – Invests in high/fast growing companies

• Value Funds – Invests in out of favor stocks where the market price has
fallen below its intrinsic value
- Prudential ICICI Discovery Funds
 - Templeton India Growth Funds
 Blend Funds – No restriction based on style
- Kotak Opportunities Fund
 Different Type of Equity Funds

Other Classification

• Index Funds – Mirrors an index/benchmark returns inline of the index

• Sector Funds – Invests in stocks of a particular sector
Eg DSPML Technology.com, Reliance Diversified Power Sector Fund.
• Select Sector Funds – Invests in Multiple Sectors
• Eg Tata Select Sector Fund, Principal Focussed Advantage Fund
Theme Funds - Invests in stocks /companies which have a common
underlying theme.
• Eg. ICICI Pru Infrastructure Fund, JM Contra Fund
 Dividend Yield Funds – Invests in High Dividend Yield companies
 Eg: Tata Dividend Yield, Principal Dividend Yield
 International Equity Funds- Invests in companies registered in other
countries
Eg: Principal Global Opportunities Fund, HSBC Emerging Market Fund.
ELSS ( Equity linked saving scheme )
• 3 year lock in period
• Minimum investment of 65% in equity markets at all times
• So ELSS investment automatically leads to investment in equity shares.
• Open or closed ended.
• Eligible under Section 80 C upto Rs.1 lakh allowed
• Dividends are tax free.
• Benefit of Long term Capital gain taxation.
 Tax Benefits in Mutual Funds

• Dividends Tax Free in the hands of investors for all type of MF schemes

• There will be Dividend Distribution Tax (FY 2008-09)

Liquid & Other than
Money mkt Schemes liquid & money mkt schemes
Individuals/HUF 25% 12.5%
Partnership Firms 25% 20%
Companies 25% 20%
Surcharge/Education Cess 10% & 3% 10% & 3%

Effective tax rate is much lower than on interest of bank FD for higher tax
bracket Individuals and Corporate investors
Tax Benefits in Mutual Funds

• Capital Gain Tax

- For Equity / Balanced Funds

LT Capital Gain Tax Nil
ST Capital Gain Tax @ 15%

- For Debt Funds

LT Capital Gain Tax @ 10% (20% with indexation)
ST Capital Gain Tax Tax bracket of Investors

• Deduction upto Rs. 1 lakh available u/s 80C for investment in ELSS.
Why Equity Mutual Funds ??
PERFORMANCE OF BSE SENSEX - Equities not risky in long run

Yrs YEAR END SENSEX level 1 year 3 years 5 years 7 years 10 years 12 years 15 years 20 years
0 31-Mar-79 100.00
1 31-Mar-80 128.57 28.57%
2 31-Mar-81 173.44 34.90%
3 31-Mar-82 217.71 25.52% 29.61%
4 31-Mar-83 211.51 -2.85% 18.05%
5 31-Mar-84 245.33 15.99% 12.25% 19.66%
6 31-Mar-85 353.86 44.24% 17.58% 22.44%
7 31-Mar-86 574.11 62.24% 39.49% 27.05% 28.36%
8 31-Mar-87 510.36 -11.10% 27.66% 18.58% 21.77%
9 31-Mar-88 398.37 -21.94% 4.03% 13.50% 12.61%
10 31-Mar-89 713.60 79.13% 7.52% 23.81% 18.48% 21.72%
11 31-Mar-90 781.05 9.45% 15.24% 17.16% 20.52% 19.77%
12 31-Mar-91 1167.97 49.54% 43.12% 15.26% 24.97% 21.01% 22.73%
13 31-Mar-92 4285.00 266.88% 81.76% 53.04% 42.80% 34.71% 33.94%
14 31-Mar-93 2280.52 -46.78% 42.93% 41.76% 21.78% 26.84% 23.95%
15 31-Mar-94 3778.99 65.71% 47.90% 39.57% 33.11% 31.45% 26.85% 27.40%
16 31-Mar-95 3260.96 -13.71% -8.70% 33.09% 35.03% 24.87% 25.60% 24.05%
17 31-Mar-96 3366.61 3.24% 13.86% 23.58% 24.81% 19.35% 24.39% 21.86%
18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.18% 20.74% 20.63% 20.02%
19 31-Mar-98 3892.75 15.82% 6.08% 11.29% 18.77% 25.60% 17.29% 21.43%
20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.02% 18.05% 19.92% 19.85%
21 31-Mar-00 5001.28 33.73% 14.17% 8.93% 11.87% 20.40% 23.47% 19.31% 20.09%
22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.93% 14.45% 13.03% 16.38%
23 31-Mar-02 3469.35 -3.75% -2.47% 0.64% 0.89% -2.09% 13.23% 13.63% 14.85%
24 31-Mar-03 3048.72 -12.12% -15.21% -4.77% -1.41% 2.95% 8.32% 14.53% 14.27%
25 31-Mar-04 5590.60 83.38% 15.76% 8.37% 7.54% 3.99% 2.24% 14.71% 16.92%
26 31-Mar-05 6492.82 16.14% 23.23% 5.36% 7.58% 7.13% 9.11% 15.16% 15.66%
27 31-Mar-06 11279.96 73.73% 54.67% 25.63% 17.08% 12.85% 9.54% 16.32% 16.06%
28 31-Mar-07 13072.10 15.89% 32.73% 30.38% 14.71% 14.55% 12.27% 7.72% 17.60%
29 31-Mar-08 15644.44 19.68% 34.06% 38.69% 23.33% 14.92% 13.66% 13.70% 20.14%
Probability of Loss 10/29 5/27 3/25 3/23 1/20 0/18 0/15 0/10
Probability of Loss (%) 34.48% 18.52% 12.00% 13.04% 5.00% 0.00% 0.00% 0.00%
 Sensex Growth from 1980 - 2008

After all, in the last 27 years, we’ve seen ….

• Two wars
• At least three major financial scandals
• Assassination of 2 prime ministers
• At least 3 recessionary periods
• 10 different governments and
• An unfair share of natural disasters, yet

However had one invested in the Sensex Rs 1 lacs in 1980 it has

grown to 2 crs earning a return of 21% compounded annualized
return.
Give Time rather than Timing the Equity market

Investing in the BSE Sensex – 25 years

16.90% 16.02%02%
15.07%

Fixed investment at Fixed investment at

Fixed investment on
highest sensex value lowest sensex value
1st day of every month
every year every year

Market timing does not matter over the long term

Data source: ICRA MFIE

MF Equity Schemes performed better than Index
Pe rf o rm a n c e o f S e le c t e d Eq u it y S c h e m e s - Eq u it ie s n o t ris ky in lo n g ru n

NAV Ro llin g Re t u rn s - Gro wt h

Yea rs YEAR END 1 yea r 3 yea rs 5 yea rs 7 yea rs 10 yea rs 12 yea rs
0 3 1-Ma r-94 13 .66

1 3 1-Ma r-95 19.91 3 5.04%

2 3 1-Ma r-96 15.11 -23 .17%
3 3 1-Ma r-97 10.21 -16.22% -9.8 5%

4 3 1-Ma r-98 16.04 24.18 % -12.69%

5 3 1-Ma r-99 27.62 54.29% 15.72% 9.71%
6 3 1-Ma r-00 27.47 91.8 7% 53 .3 1% 17.19%

7 3 1-Ma r-01 20.25 -3 8 .95% 21.19% 12.49% 10.17%

8 3 1-Ma r-02 22.8 4 3 1.14% 14.91% 23 .21% 9.19%
9 3 1-Ma r-03 22.42 11.74% -4.21% 20.58 % 14.57%

10 3 1-Ma r-04 52.52 146.24% 53 .02% 3 2.79% 3 3 .8 1% 20.15%

11 3 1-Ma r-05 62.78 40.3 6% 56.56% 24.69% 3 6.3 1% 20.3 4%
12 3 1-Ma r-06 111.8 8 8 2.73 % 8 4.63 % 55.68 % 3 9.97% 3 2.13 % 25.3 6%

13 3 1-Ma r-07 122.93 7.73 % 40.04% 49.66% 28 .8 9% 3 3 .98 % 19.04%

14 3 1-Ma r-08 147.11 17.15% 3 0.97% 48 .8 2% 40.12% 57.77% 23 .13 %
Pro ba bilit y o f Lo s s 3 /14 3 /12 0/10 0/8 0/5 0/3
Pro ba bilit y o f Lo s s ( %) 21.43 % 25.00% 0.00% 0.00% 0.00% 0.00%

Probability of Loss is Nil in 5 & more years

Let us first look at the important goals
in our lives
 What is the Average Age
when a child needs Higher Education?

20 Years
 What is the Average Cost of
Higher Education Today?

Engineer : Rs.10 Lacs

Medical : Rs.15 Lacs
Foreign Study : Rs.25 Lacs
 How much would the Higher Education
cost you at the maturity?

Assuming Current Age is 3 years: (17 yrs remaining)

Engineer : Rs.27 Lacs
Medical : Rs.41 Lacs
Foreign Study : Rs.67 Lacs

Assuming inflation @ 6%
 Are you on the right path to provide
good education for your child?

Assuming Current Age is 3 years: (17 yrs remaining)

Engineer : Rs.27 Lacs
Medical : Rs.41 Lacs
Foreign Study : Rs.67 Lacs

Assuming inflation @ 6%
 What is the Average Age
when a child gets married?

24 Years
What is the Average Expenses of
Marriage Today?

Rs.10 Lacs
 How much would your child’s Marriage
cost you at maturity?

Rs.34 Lacs

Assuming inflation @ 6%. Current Age is 3 yrs & Marriage Age is 24 yrs.
 Are you on the right path to arrange
a decent marriage for your child?

Rs.34 Lacs

Assuming inflation @ 6%. Current Age is 3 yrs & Marriage Age is 24 yrs.
What is the Average Retirement Age?

60 Years
What is an Average Monthly Expense of a
Middle-class House Hold?

Rs.10,000/- p.m.
 How much Retirement Kitty
would you need at Retirement?

Rs.2.20 Crores
Monthly Expenses would grow from Rs.10,000/- now to over
Rs.64,500/- at Retirement & would continue to growth thereafter…

Current Age: 28 years. Retirement Age - 60 yrs. Life Expectancy - 90 yrs.

Assuming inflation @ 6%. Returns on Retirement Kitty – 6%
 Are you on path to a
Peaceful Retirement?

Rs.2.20 Crores

Current Age: 28 years. Retirement Age - 60 yrs. Life Expectancy - 90 yrs.

Assuming inflation @ 6%. Returns on Retirement Kitty – 6%
 Brief Look at Our Life Goals

Assuming: Current Age

Self : 28 yrs Child: 3 yrs

Child Education : 20 yrs

Engineer : Rs.27 Lacs
Medical : Rs.41 Lacs
Foreign Study : Rs.67 Lacs

Child Marriage : 24 yrs

Marriage : Rs.34 Lacs

Retirement: : 60 yrs (Self)

Retirement Kitty : Rs.2.20 Crores
Are we on Track to Achieve the
Critical Life Goals in our Lives?
 Creating wealth successfully in
Over time can help us fulfill all our goals!!
 Creating Wealth

How much can a person

save on a regular basis?

Rs.5,000/- p.m.
 Creating Wealth

If a person can save Rs.5,000/- per month

What will be his wealth when he retires?

Assuming:
Current Age: 28 yrs. Retirement Age: 60 yrs.
Invests in an Asset class than gave returns of 8%
 At Age 60 his wealth would have been

Rs.84 Lacs

Amount Invested: Rs. 19.20 Lacs. Times amount gets rolled over: 4.37.

Note: The above figures are for illustrative purpose only. There is no guarantee that the projection given would
materialize.
 The Truth

We Need to Create Wealth

Creating Wealth is Easy
We can all Become Wealthy
 How can we create wealth?

Start Saving Early

The longer you save, the more you make

Save in the Right Asset Class

This will dictate how much wealth you create …

Save Regularly
Even a small amount saved regularly, is good
 Starting Early

Ram Shyam 5.71

Crores*
Investment Starting Age 25 40

Investment - Monthly SIP Rs.5,000/- Rs.10,000/-

Saving Years till age 60 35 years 20 years

Total Investment Made Rs.21 lacs Rs.24 lacs

1.33
Crores*

Give time to your investments

rather than timing
* Constant Savings

25 years 40 years 60 years

Note: The above figures are for illustrative purpose only. There is no guarantee that the projection given would
materialize.
 Selecting Right Asset Class

Equity market (represented by BSE Sensex) has outperformed all other investment
avenues
 Save Regularly
Disciplined Investing through Systematic Investment Plans
(SIPs) is the ideal way to reduce risk

Twin Benefits of Investing Regularly

Average Purchase cost

Rupee Cost Averaging
will be less
At higher prices - less units
Automatic Timing
At lower prices – more units

Rising Market Falling Market

Market Units Purchased Units Purchased Market

 Creating Wealth

If a person can save Rs.5,000/- per month

What will be his wealth when he retires?

Assuming:
Current Age: 28 yrs. Retirement Age: 60 yrs.
Invests in an Asset class than gave returns of 20%
 At Age 60 his wealth can be

Rs.11.30 Crores

Amount Invested: Rs. 19.20 Lacs. Times amount gets rolled over: 58.86.

Note: The above figures are for illustrative purpose only. There is no guarantee that the projection given would
materialize.
 Past Performance

Year Sensex Investment Rs.

1979 100 10 Lacs

2007 19,550* 19.55 Crores

In past 27 years BSE Sensex has given approx. 20% returns

*As on 31st Oct, 2007
This is in spite of …

• Two wars • At least 3 recessionary periods

• At least three major financial • 10 different governments and
scandals • An unfair share of natural
• Assassination of 2 prime ministers disasters
Risk factors: Mutual Fund investments are subject to market risks. Past performance
may or may not be repeated in future. Please read the offer document carefully before
investing.
 Past Performance

Performance of Systematic Investment Plans (SIPs)

in Mutual Fund Equity Oriented Schemes

Mutual Fund Equity

You do an SIP of Total BSE Sensex
Schemes
Rs.10,000 per Amount
month Invested Investment % Ann. Investment % Ann.
Value (Rs.) Returns Value (Rs.) Returns

During last 5 years Rs. 6 lacs 38.86 lacs 49.82 14.98 lacs 38.03

During last 10 years Rs.12 lacs 77.63 lacs 34.52 38.99 lacs 22.41

Also Equity Mutual Funds have outperformed Sensex, as shown above

Performance in month of August, 2007. Number of major equity schemes covered; for 5 year
performance – 35 & for 10 year performance -15.

Risk factors: Mutual Fund investments are subject to market risks. Past performance
may or may not be repeated in future. Please read the offer document carefully before
investing.
Equities not risky in long-run (Performance of BSE Sensex)
PERFORMANCE OF BSE SENSIT IVIT Y INDEX - Equit ies no t risky in lo ng run

SENSEX
Yrs YEAR END 1 year 3 years 5 years 7 years 10 years 12 years 15 years
level
0 31-Mar-79 100.00
1 31-Mar-80 128.57 28.57% As Time Increases
2 31-Mar-81 173.44 34.90% Volatility & Range
3 31-Mar-82 217.71 25.52% 29.61%
4 31-Mar-83 211.51 -2.85% 18.05% Decreases
5 31-Mar-84 245.33 15.99% 12.25% 19.66%
6 31-Mar-85 353.86 44.24% 17.58% 22.44%
7 31-Mar-86 574.11 62.24% 39.49% 27.05% 28.36%
8 31-Mar-87 510.36 -11.10% 27.66% 18.58% 21.77%
9 31-Mar-88 398.37 -21.94% 4.03% 13.50% 12.61%
10 31-Mar-89 713.60 79.13% 7.52% 23.81% 18.48% 21.72%
11 31-Mar-90 781.05 9.45% 15.24% 17.16% 20.52% 19.77%
12 31-Mar-91 1167.97 49.54% 43.12% 15.26% 24.97% 21.01% 22.73%
13 31-Mar-92 4 285.00 266.88% 81.76% 53.04% 42.80% 34.71% 33.94%
14 31-Mar-93 2280.52 -4 6.78% 42.93% 41.76% 21.78% 26.84% 23.95%
15 31-Mar-94 3778.99 65.71% 47.90% 39.57% 33.11% 31.45% 26.85% 27.4 0%
16 31-Mar-95 3260.96 -13.71% -8.70% 33.09% 35.03% 24.87% 25.60% 24 .05%
17 31-Mar-96 3366.61 3.24% 13.86% 23.58% 24.81% 19.35% 24.39% 21.86%
18 31-Mar-97 3360.89 -0.17% -3.83% -4.74% 23.18% 20.74% 20.63% 20.02%
19 31-Mar-98 3892.75 15.82% 6.08% 11.29% 18.77% 25.60% 17.29% 21.4 3%
20 31-Mar-99 3739.96 -3.92% 3.57% -0.21% -1.92% 18.02% 18.05% 19.92%
21 31-Mar-00 5001.28 33.73% 14.17% 8.93% 11.87% 20.40% 23.47% 19.31%
22 31-Mar-01 3604.38 -27.93% -2.53% 1.37% -0.67% 11.93% 14.45% 13.03%
22 31-Mar-02 3469.35 -3.75% -2.47% 0.64% 0.89% -2.09% 13.23% 13.63%
22 31-Mar-03 304 8.72 -12.12% -15.21% -4 .77% -1.41% 2.95% 8.32% 14 .53%
23 31-Mar-04 5590.60 83.38% 15.76% 8.37% 7.54% 3.99% 2.24 % 14 .71%
24 31-Mar-05 6492.82 16.14% 23.23% 5.36% 7.58% 7.13% 9.11% 15.16%
25 31-Mar-06 11279.96 73.73% 54.67% 25.63% 17.08% 12.85% 9.54% 16.32%
26 31-Mar-07 13072.10 15.89% 32.73% 30.38% 14.71% 14.55% 12.27% 7.72%
27 31-Mar-08 15644.44 19.68% 34.06% 38.69% 23.33% 14.92% 13.66% 13.70%
Pro babilit y o f Lo ss 10/29 5/27 3/25 3/23 1/20 0/18 0/15
 Wisdom
“We do not need to be wealthy to be an investor …
But we can be wealthy if we are investors”

• The Right way to create wealth …

Buying potential big winning stocks
Successfully timing the markets
Following Expert Advisors recommendations
Saving a lot of money

• Wealth can be successfully created if we follow

the three principles ...
Starting early and saving for long
Investing in the right asset class
Investing Regularly – big or small
 Using the Wisdom
• We all have goals and objectives in life to achieve like …
Child Education
Child Marriage
Purchase of House, Car
Retirement, etc
• We can direct our savings to achieve our goals!!

Disciplined Right Asset Sufficient

Savings Class Time

Goal Achievement
Presents
 Presenting

• NJ GAP is a unique goal based investment programme through

a Systematic Investment Plan (SIP)

• Investors in this programme have the flexibility of choosing a

monthly investment amount as well as the investment duration
of their choice
• This should enable the investors to plan for their goals without
needing to review, re-invest or for that matter, time the markets.
Monthly Investment Options Investment Horizons

Rs.2,000/- Rs.5,000/- 5 years 10 years

Rs.10,000/- Rs.15,000/- 15 years

Advantages to the Investors …

• Investments in the right asset class …

In Equities with potential to earn very attractive returns

• Investment at lower risk…

By Diversification, professional management, and investing by way
of SIP

• Hassle-free process of wealth creation

You only have to fill the GAP Application form and the Auto Debit
(ECS) form and submit it with one cheque*
Achieve your goals in life with NJ
GAP