mutual funds basic
TRANSCRIPT
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Mutual Funds Basics
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Concept of pooling…
Many people come together
Contribute to a common fund
With a common goal / objective
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Examples of pooling
Pooling for buying a gift (Contribution)
Pooling for a party
Pooling for the Gujrat earthquake relief fund
Pooling for investments
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Concept of units
A tin of rasogulla costs Rs.40.
Each tin consists of 12 rasogullas
4 friends pool in Rs.10 each for buying one dozen of rasogulla
Cost of each rasogulla is Rs.3.33
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What is a mutual fund ?
A Mutual fund is a collectiveinvestment that allows manyinvestors, with a common
objective,to pool individual investments
thatare given to a professional
managerwho in turn would invest thismoney in line with the commonobjective.
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INVESTORS Pool their money
FUND MANAGER
SECURITIES
Invest in
Generate
RETURNS
Passed back to
Mutual fund operation flow chart
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Mutual fund structure
Sponsor
Trustee AMC
The mutual fund Transfer agent
Custodian
Unit holders
SEBI
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Professional
management
Convenience
Tax benefits
Diversification
Liquidity
Mutual funds: A packaged product
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Liquidity
Direct withdrawal from the mutual fund
Buying and selling can also be done through the stock exchange
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Diversification
Minimizes value erosion
Potential losses are shared with other investors
Portfolio of investments spreads out risk
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Tax benefits
Exemption up to Rs.100000 under section 80C
Dividends are tax free in the hands of the investors
No long term capital gains tax in equity mutual funds
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Convenience
Easy way to invest and withdraw
Reduces excessive paperwork
Online buying and selling of mutual funds
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Professional management
Highly qualified fund managers
More focused approach
Strong and dedicated research team
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Fund manager
A highly trained investment professional
With a vast investment experience
Functions of a fund manager:– Investing the assets of a
mutual funds – Implementing investment
strategy – Managing the day-to-day
portfolio trades
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New Fund Offer (NFO)
Whenever a new scheme is launched by a fund house, the offer made during that initial period is known as New Fund Offer
Units are offered at fixed price
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Net Asset Value (NAV)
NAV is the total value of the fund's portfolio less liabilities.
NAV = Asset valueNumber of outstanding units
The NAV or Net Asset Value is usually calculated on a daily basis
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Load Entry load
Exit load
Load is a charge on the NAV
– Entry load is charged on NAV and increases the sale price
– Exit load is charged on NAV and reduces the repurchase price
Load is defined as a percentage of NAV
Loads are subject to SEBI Regulation and vary depending on industry practice
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Entry load : Example The entry load (sales load) for a scheme was 2.25% and
the NAV of the scheme is Rs. 10. An investor who wanted to buy the units would not be able to buy at Rs. 10. He would have paid …
= 10 + (10*2.25/100)
= 10 + 0.225
= 10.225With effect from …. Entry Load on MF
Schemes have been removed.
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Exit load : Example If a fund imposes an exit load of 2.25%, the investor
who sells his units, will get a price that is: ( assuming the current NAV Rs.10)
= 10 – (10*2.25/100)
= 10 – 0.225
= Rs. 9.775
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Thank You