Nagaland University

Labor et Honor

School of

Management Studies

Mutual Funds
(MFM 108 Banking and Indian Financial System)
Presenter Rokov N. Zhasa (NU Reg. No. 111291 of 2011-2012) rnzhasa@gmail.com (+91) 9402716559 May 5, 2013
M M X I I I - M M I V

Note

Where are we? This presentations covers the topic of Mutual Funds covered under: Unit II (part 2) MFM 108 Banking and Indian Financial System (NU MBA old syllabus)

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1.1 Evolution of MF in India

Phase I (1964-87) The Beginning Phase II (1987-1993) Entry of Public Sector Funds Phase III (1993-2003) Entry of Private Sector Funds Phase IV (February 2003)

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1.2 Definition

a fund established in the form of a trust to raise money through the sale of units to the Public or a section of the public under one or more schemes for investing in securities, inclusing money market instruments or gold or gold related instruments or real estate assets. - SEBI (Mutual Funds) Regulations, 1996

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1.2 Definition Demystified

Mutual Fund
Trust that pools the savings of a number of investors Professionally managed investment in capital market instruments The income earned are shared by unit holders in proportion to the number of units owned by them

Most suitable investment for the layperson

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1.2 Definition Demystified

Mutual Fund

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1.3 Types of Mutual Funds

Mutual Fund
Functional Investment Pattern Portfolio Objective Geographical Others

Close Ended

Equity Funds

Income

Domestic

P/E Funds

Open Ended

Debt Funds

Growth

Off Shore

Exchange Traded Funds Real Estate MF

Interval

Balanced

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1.4 Who can Invest in MFs?

Residents of India (High Net worth individuals and retail investor) Indian companies Indian Trust/ Charitable Institutions Banks NBFCs Insurance Companies Provident Funds NRIs Foreign entities (FIIs registered with SEBI) (Note: Foreign citizens are not allowed to invest in MFs in India).
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1.5 Structure of Mutual Funds

Unit Holders

Sponsors Trustees AMC

The Mutual Fund Custodian

Transfer Agent

SEBI
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1.6 Risk

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1.7 Return
Equity-oriented Schemes Holding period less than 12 months short term capital gains tax of 10 per cent. Holding period more than 12 months no long-term capital gains tax but the securities transaction tax. Debt-oriented Schemes Short-term capital gains added to the total income and taxed at the applicable rate of tax for the individual. In case of long-term capital gains, the investor has a choice of selecting the rate of 10 per cent flat without using the benefit of indexation or 20 per cent after using the benefits of indexation
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1.8 Investment Strategies

Systematic Investment Plan (SIP)
Invest a fixed sum every month. (6 months to 10 years- through post-dated cheques or Direct Debit facilities) Fewer units when the share prices are high, and more units when the share prices are low. Average cost price tends to fall below the average NAV.

Systematic Transfer Plan (STP)

Invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

Systematic Withdrawal Plan (SWP)

An investor redeems a fixed sum of specific number of units at regular intervals without getting exposed to timing risk
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1.9 Regulation
Governed by SEBI (Mutual Fund) Regulation 1996
All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882)

Bank operated MFs supervised by RBI too AMC registered as Companies registered under Companies Act, 1956 SEBI
Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc. NAV to be declared everyday for open-ended, every week for closed ended Disclose on website, AMFI, newspapers Half-yearly results, annual reports Select Benchmark depending on scheme and compare

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1.10 Advantages of Mutual Funds

Professional Management Diversification Tax benefits Well regulated

Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes
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1.11 Operational Efficiency of MFs

Net Asset Value (NAV)

Amount of Dividend paid

Portfolio Yield

Where, NAVx= net asset per share per share at the at the end of the year x Dx = Total of all distributions per unit during the year x and NAVx-1= Net asset value per share at the end of the previous year
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1.12 Conclusion
Facilitate the investment process Mobilizing Agent Offer different products/ schemes are offered to meet various needs. NAV is the basic parameter to comment on efficiency of mutual funds. Primarily mutual funds strive for better performance as an institutional investor as compared to performance what one average investor can

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Reference
MS-44 Security Analysis and Portfolio Management, Block-5 Institutional and Managed Portfolio, PGDFM, IGNOU Pathak, Baharati V. The Indian Financial System, Third Edition, Pearson (2011)

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End of Presentation

Thank You
And I am open to queries
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