Form of trust that pools the funds of a whole lot of

investors to make more money by investing in an

array of financial instruments.

Advantages of a MF
Professional Management
Diversification
Flexibility in choice - selection, redemption
Low costs
Transparency

1964-UTI

1987- Public Sector banks, Insurance Companies

SBI, Canbank, PNB LIC, GIC

1993- Private Sector

Kothari Pioneer ( later merged with Franklin Templeton),

J P Morgan, Morgan Stanley, George Soros and Capital
International

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

Money in savings account

100000

Interest earned in 1 year (@3.5 per

annum)

3500
103500

Tax on Interest (@30.9%)

1081

Impact of Inflation (@5% per annum)

5000

Value at the end of year 1

Your investment ought to beat the inflation !!!

97418

Asset Allocation

Fund Manager

Diversifying investments in different assets such as stocks, bonds, real estate,

cash in order to optimize risk.

The individual responsible for making portfolio decision for a mutual fund, in
line with funds objective.

Fund Offer Document

Document with investment objectives, risk factors, expenses summary, how to

invest etc.

Dividend
Profits given to the investor from time to time.

Growth
Profits ploughed back into scheme. This causes the NAV to rise.

NAV
Market value of assets of scheme minus its liabilities.

Per unit NAV

Entry Load/Front-End Load

The commission charged at the time of buying the fund.
To cover costs for selling, processing (abolished from 2009)

Exit Load/Back- End Load (0.25-2.25%)

The commission or charge paid when an investor exits from a mutual fund. Imposed to
discourage withdrawals
May reduce to zero as holding period increases.

Sale Price/ Offer Price

Price you pay to invest in a scheme. May include a sales load.

Re-Purchase Price/ Bid Price

Price at which close-ended scheme repurchases its units

Net Asset Value

No. of Units Outstanding on Valuation date

By Structure

By Investment Objective

Open-Ended anytime enter/exit

Close-Ended Schemes listed on exchange, redemption after period
of scheme is over.

Equity (Growth) only in Stocks Long Term (3 years or more)

Debt (Income) only in Fixed Income Securities (3-10 months)
Liquid/Money Market (including gilt) Short-term Money Market
(Govt.)
Balanced/Hybrid Stocks + Fixed Income Securities (1-3 years)

Other Schemes

Tax Saving Schemes

Special Schemes
ULIP

Historical analysis

Return is remembered, Risk forgotten

Risk = Potential for Harm

Systematic risk: also known as market risk or undiversifiable

risk..popularly known as beta
Example : day to day fluctuations in the market, int rate changes
Unsystematic risk: specific risk or diversifiable risk, it can be
reduced through diversification
Example: sudden strike of employees in company

How is it calculated ?
The total assets of a mutual fund usually falls into two
categories cash and securities.
Securities include stocks and bonds.
So the total asset will include the market value of all its
cash, stocks, bonds. Liquid assets, dividends to be
received, interest accrued also need to be included in the
total assets.
At the same time, the mutual fund will have some money
that it will owe to some creditors.
That is its liabilities.
There will be some expenses that has accrued over time
and yet to be paid, this also needs to be included.

Let us see that in a formula.

Net Asset Value (NAV) = (Assets
Debts) / (Number of Outstanding units)
where
Assets = Market value of the funds
investments + Receivables + Accrued
Income
Debts = Liabilities + Accrued Expenses

The market value of stocks and

debentures is taken as the closing price
on the major stock exchange where it is
listed.

As an example, assume there are two investors X and Y

who have invested in a mutual fund which decided to
issue out units at Rs 1/-.
X invests Rs 100/- and Y invests Rs 200/-.
The total corpus of the mutual fund will be Rs 100 + Rs
200 = Rs 300/- and X will get 100 units and Y will get 200
units.
Now suppose the mutual fund manager invests smartly
over a year and makes the investment grow and the
corpus becomes Rs 800/-.

The NAV will be calculated as :

NAV per share = (Assets Debts) / ( Number of
Outstanding Units)
= (Rs 800- 0) / (300)
= 2.67
The NAV is 2.67.
So Xs value of investments will be 100 units * 2.67 = Rs
267/- and
Ys value of investments will be 200 units * 2.67 = Rs
534/-.
In reality of course, there are liabilities and expense ratios
to be taken care of, this is an example just for simplicity.

Consider this example: you are considering investing in a

diversified equity fund.
The NAV of a unit of ABC mutual funds scheme is Rs 10 and XYZ
is Rs 12. What does that mean? It means that ABC funds corpus
is Rs 50,000 and total number of units is 5,000. Hence, it has an
NAV of Rs 10 (Rs 50,000/5000). On the other, NAV if XYZ funds
scheme is Rs 12 because it has a corpus of Rs 60,000 and units
of 5,000.

Systematic Investment Plan (SIP)

Invest a fixed sum every month. (6 months to 10 yearsthrough 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)

Diversified equity funds

Index funds
Opportunity funds
Mid-cap funds
Equity-linked savings schemes
Sector funds like Auto, Health Care, FMCG etc
Dividend Yield Funds

Draw up your asset allocation

Financial goals & Time frame (Are you investing for retirement? A
childs education? Or for current income? )
Risk Taking Capacity

Identify funds that fall into your Buy List

Obtain and read the offer documents

Match your objectives

In terms of equity share and bond weightings, downside risk

protection, tax benefits offered, dividend payout policy, sector focus

Check out past performance

Performance of various funds with similar objectives for at least 3-5

years (managed well and provides consistent returns)

Think hard about investing in sector funds

For relatively aggressive investors

Close touch with developments in sector, review portfolio regularly

Look for `load' costs

Management fees, annual expenses of the fund and sales loads

Does the fund change fund managers often?

Look for size and credentials

Asset size less than Rs. 25 Crores

Diversify, but not too much

Invest regularly, choose the S-I-P

MF- an integral part of your savings and wealth-building plan.

Contacting the Asset Management Company directly

Agents/Brokers

Locate one on AMFI site

Financial planners

Web Site
Request for agent

Bajaj Capital etc.

Insurance agents
Banks
Net-Banking
Phone-Banking

ATMs

Online Trading Account

ICICI Direct
Motilal Oswal, Indiabulls- Send agents

Filling up an application form and writing out a

cheque= end of the story NO!

Periodically evaluate performance of your funds

Fact sheets and Newsletters
Websites
Newspapers
Professional advisor

Fund's management changes

Performance slips compared to similar funds.
Fund's expense ratios climb
Beta, a technical measure of risk, also climbs.
Independent rating services reduce their ratings of
the fund.
It merges into another fund.
Change in management style or a change in the
objective of the fund.

http://www.moneycontrol.com/news/mfnews/mutual-funds-advanced-asmarkets-surgeipo-filings_1758061.html

http://news.moneycontrol.com/mf/glossary.php

http://www.investopedia.com/university/mutualfunds/default.asp

http://www.valueresearchonline.com

http://www.amfiindia.com/

http://www.sbimf.com/portal/static/calculator/RiskAssess/RiskAssessCal1.as
p

http://www.mutualfundsindia.com/resourcecentre.asp

Whats good?

1) 80 C investment limit hiked to from Rs. 1 lakh to

Rs. 1.50 lakh.
Impact: This can boost investments in ELSS(Equity
linked saving scheme) category
2) Uniform KYC for investing in all financial
instruments and single operating demat account will
be introduced, which will allow transactions of all
financial assets.
Impact: This will do away with the requirement to
perform multiple KYC for investing in products
regulated by different regulators. This will help
investors and intermediaries to seamlessly transact
across all financial instruments.

1) 80 C investment limit hiked to from Rs. 1 lakh to Rs. 1.50

lakh.
Impact: Other investment avenues like PPF, insurance
schemes, KVP, fixed deposits are eligible for tax exemption
under Income Tax Act 80 C. This can increase investments in
such instruments at the cost of mutual funds.
2) Long term capital gains tax on debt funds has been
increased from 10 % to 20. Long term for debt funds would
be 36 months, instead of 12 months.
Impact: This can make debt funds less attractive as the tax
rate has been hiked.