MUTUAL FUNDS

Presentation By: Abhinav Lal, 3 Arun Pundir, 13 Divya Madar, 23 Mandhir Grewal, 33 Pushpinder Singh, 43
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Topics Covered

History of Mutual Funds. What are Mutual Funds. Organization of a Mutual Funds. Terminologies. Types of Mutual Fund Schemes. Regulations. Advantages and Drawbacks of Mutual Funds. Picking of fund. Performance of Mutual Funds in India. Summary.
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HISTORY
Historians date the first mutual funds to Netherlands in 1822. The idea soon spread to other parts of Europe - UK & France. Arrival of modern fund Alexander Fund in Philadelphia, 1907. 1924 Creation of Massachusetts Investors Trust Fund Made public in 1928

Mutual Fund History - India

UTI commenced operations in July 1964. Impetus for establishing formal institution to increase the propensity of the middle & lower groups to save & invest. Already existing companies founded difficult to raise fresh capital. Investors didnt respond adequately to new issues.

First Phase (1964-1987) Growth of UTI

UTI constituted in 1963 by a special act of Parliament

Set up by Reserve Bank of India

In 1978, De-linked from RBI And IDBI

Unit Scheme 64 as First Scheme At the end 1988, Rs.6700 Crores of Asset Under Management.
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Second Phase (1987-1993) Entry of Public Sector Funds

First Non-UTI MF In June 1987 was SBI Mutual Fund

In 1993, Mutual Fund Industry was open to private players.

LIC established its Mutual Fund in December 1990 At the End of 1993, the Mutual Fund Industry had Assets Under Management of Rs. 47,004 Crores.
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Third Phase (1993-1996) Emergence of Private Funds

Entry of Private Sector Funds.

First Private Sector MF in July 1993 was Kothari Pioneer.(Now Merged with Franklin Templeton) Function Under the SEBI (Mutual Fund) Regulations 1996. Entry of Foreign Mutual Funds. At the End of 2003, the Mutual Fund Industry had Assets Under Management of Rs. 1,21,805 Crores.
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Fourth Phase ( 1996-1999) Growth and SEBI Regulation

Implementation of new SEBI regulations led to rapid growth.

Bank mutual funds were recast as per SEBI guidelines. UTI came under voluntary SEBI supervision. Dividends made tax free in 1999. At the End of September 2004, there are 29 Funds,which manage assets of Rs.1,53,108 crores under 421 schemes.
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Phase 5 (1999-2004) Emergence of a large and uniform industry

UTI mutual fund came under SEBIs regulations 1996.

Rapid growth, significant increase in corpus of private players. Tax break offered created arbitrage opportunities. Bond funds and liquid funds registered highest growth

Phase 6 From 2004 onwards : Consolidation and Growth

Mergers and Acquisitions witnessed. Steps taken by SEBI in 2005 06 Allowed MFs to invest in foreign securities like ADRs ( American depository receipts) and GDRs ( Global Depository Receipts ).

Introduction of Gold Exchange Traded Funds (GETFs) and capital protection schemes

Real Estate Mutual Funds (REMF) : An entry into semi-urban and rural market. E-commerce has facilitated easy access, lower intermediation cost and better services for all .

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Growth Of Mutual Funds Over the Years

GETTING STARTED

Basic understanding of Stocks & Bonds. Stocks represent shares of ownership in a public company. Bonds are basically a chance for you to lend your money to the government or a company. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What Are Mutual Funds?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.
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Mutual Fund Operation Flow Chart

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MAKING MONEY
Income is earned from dividends on stocks and interest on bonds. If the fund sells securities that have increased in price, the fund has a capital gain. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit.

Organisation of a Mutual Fund

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Terminologies

ASSET ALLOCATION - Diversifying investments in different areas such as bonds stocks real estate, cash in order to optimize risk. FUND MANAGER - The individual responsible for making portfolio decision for a mutual fund, in line with fund objective. FUND OFFERED 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 plowed back into scheme. This causes NAV.

NAV - Net Asset Value is the market value of the assets of the scheme minus its liabilities.
How is NAV calculated? The value of all the securities in the portfolio is calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the funds NAV. LOAD - Some AMCs have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds.

Entry Load/Front-End Load (0-2.25%) - The commission charged at the time of buying the fund. To cover costs for selling, processing. 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. (In this case, sale price is higher than NAV)
Re-Purchase Price/ Bid Price - Price at which close-ended scheme repurchases its units. Redemption Price - Is the price at which openended schemes repurchase their units and close-ended schemes redeem their units on maturity.

Mutual Fund schemes

By Structure

By Investment Objective

Other Scheme

By Portfolio

By Expenses

Open-Ended Scheme

Growth Schemes

Tax Saving Schemes

Equity

Load Fund

Close-Ended Scheme

Income Schemes

Special Scheme

Debt

No Load Fund

Interval Scheme

Balanced Schemes

Money Market Schemes

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Type of Funds, as per Structure

1. 2. 3. Free to Sale/Purchase on a Daily basis. No fixed maturity. Schemes not Listed on a Stock Exchange.

Open-ended

Closed-ended

1. 2. 3.

Sale during IPO. Fixed Maturity. Schemes Listed on a Stock Exchange.

Type of Funds, as per Investment Objective

Growth Funds
1. 2. 3. Capital appreciation of Equity Shares . Companies with high growth potential . For e.g. Morgan Stanley Growth Fund .

1.

Income/Debt Funds

2. 3.

Providing safety of investments and regular income. High dividend payouts. For e.g. Templeton Income Fund.

1.

Balanced Funds

2. 3.

Modest risk of investment and reasonable rate of return . Regular Income and Capital appreciation. For e.g. GIC Balanced Fund.

Type of Funds, as per Investment Type

1. 2. 3. Invest in Short Term Securities. Less Than One year Securities. Include Treasury Bills, Commercial Papers etc.

Money Market/ Liquid fund

RISK V/S RETURNS

REGULATIONS

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.

Advantages of Mutual Funds

Portfolio Diversification Professional Management

Reduction of Risk

Reduction of Transaction Costs

Convenience & Flexibility

Liquidity Tax Benefits

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DIVERSIFICATION

One Stock- No Diversification

Many Stocks (Mutual Fund)- Diversification

Drawbacks
1. No Guarantee 2. Costs. 3. Management Risk. 4. No tailor made portfolios. 5. Dilution. 6. Taxes.
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Picking Of Fund

Buying - by contacting the fund companies directly. Other funds are sold through brokers, banks, financial planners, or insurance agents. Selling a fund is as easy as purchasing one. All mutual funds will redeem (buy back) your shares on any business day. The Value of Your Fund - You can basically just think of NAV per share as the price of a mutual fund.

Investment Strategies

Systematic Investment Plan (SIP) - Invest a fixed sum every month. (6 months to 10 yearsthrough post-dated cheques or Direct Debit facilities) 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.

Performance of Funds in India

100% growth in the last 6 years. Number of foreign AMC's are in the queue to enter the Indian markets. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800.

BEST
RANK
1. 2. 3. 4.

FUND NAME
Reliance Diversified Power Sector Retail Taurus Libra Taxshield DWS Investment Opportunity Standard Chartered Premier Equity

RETURNS (%)
49.82 42.52 40.34 34.42

NAV (Rs.)
62.73 27.42 35.17 20.84

5.
6.

Reliance Regular Savings Equity

ICICI Prudential Infrastructure Inst I

32.59
32.13

22.08
14.31

7.
8. 9.

ICICI Prudential Infrastructure

DBS Chola Oppurtunities Magnum COMMA

31.05
30.91 28.79

26.97
39.05 21.74

10.

BoB Growth

27.96

41.88

WORST
RANK
1.

FUND NAME
UTI Growth Sector Fund Software - G

RETURNS (%)
-22.43

NAV (Rs.)
21.2

2.
3. 4. 5. 6. 7. 8.

Kotak Tech. Fund

SBI Magnum Sector Umbrella Infotech Fund UTI Thematic Auto Sector Fund G JM Short Term Fund Institutional Plan G ICICI Prudential Technology Fund - G LIC MF Unit Linked Insurance Scheme Franklin Infotech Fund G

-22.15
-18.94 -17.05 -17.03 -15.92 -14.96 -13.2

8.17
20.28 14.59 10.63 13.74 9.62 44.87

WORST
RANK
9. 10.

FUND NAME
JM Auto Sector Fund - G Kotak Lifestyle Fund G

RETURNS (%)
-12.61 -11.78

NAV (Rs.)
18.64 11.62

Summary

A mutual fund brings together a group of people and invests their money in stocks, bonds, and other securities. The advantages of mutual funds are professional management, diversification, economies of scale, simplicity and liquidity. The disadvantages of mutual funds are high costs, overdiversification, possible tax consequences, and the inability of management to guarantee a superior return. There are many, many types of mutual funds. You can classify funds based on asset class, investing strategy, region, etc.

Costs can be broken down into ongoing fees (represented by the expense ratio) and transaction fees (loads). The biggest problems with mutual funds are their costs and fees. Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party. Mutual fund ads can be very deceiving.

Websites

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/RiskAssessCal 1.asp http://www.mutualfundsindia.com/resourcecentre.asp

THANK YOU

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