presentation on mutual fund
DESCRIPTION
Covering brief details of Mutual Fund and its functioning...TRANSCRIPT
Indian Institute of Capital Markets
Presented By:Amar Ranu
Presentation on:Mutual Funds
Indian Institute of Capital Markets
Retail Investors
Investment Objective
Risk Management
NAV
Factsheets
ReturnAUMs
Portfolio
Portfolio
Professional Management
Asset Allocation
Tax Saving
Growth
Fund Manager
Redemption
Open Ended
Investment
Dividend
Close Ended
Exit Load
Entry Load
Sale Price
Repurchase Price
Indian Institute of Capital Markets
Mutual Fund
Snapshot….
Indian Institute of Capital Markets
Indian Institute of Capital Markets
An old Axiom :
“It is not wise to put all eggs into one basket”
……… was probably in the minds of those who formed the first mutual fund.
Why did Mutual Funds come into existence?
Indian Institute of Capital Markets
Contents
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Flow Cycle of a Mutual Fund
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Indian Institute of Capital Markets
Mutual Funds defined….a flow cycle
Flow Cycle of a Mutual Fund
Indian Institute of Capital Markets
• 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 realized are shared by its unit holders in proportion to the number of units owned by them.
• Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Flow Cycle explained…
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Diff. b/w MF and Direct Investment
Indian Institute of Capital Markets
• Professional investment management
• Risk reduction through diversification
• Convenience
• Availability of alternative portfolio objectives
• Unit holders’ account administration and services
Mutual fund investing vs. Direct investing
Diff. b/w MF and Direct Investment
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Balance sheet of a Bank and Mutual Fund
Indian Institute of Capital Markets
Difference between Bank and Mutual FundMutual Fund Balance Sheet
Liabilities Assets
Bank Balance Sheet
Liabilities Assets
Difference b/w Balance Sheets of MF and Bank
Indian Institute of Capital Markets
Difference between Bank and Mutual FundMutual Fund Balance Sheet
Liabilities Assets
Unit Capital Investment in Financial Securities
Bank Balance Sheet
Liabilities AssetsShare Capital Deposits
Loans and Advances
Difference b/w Balance Sheets of MF and Bank
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Organizational Structure of Mutual Fund
Indian Institute of Capital Markets
Organizational Structure of Mutual Fund
Indian Institute of Capital Markets
Sponsor• Akin to the Promoter of the company,• Contribution of minimum 40% of net worth of AMC,• Posses sound financial record over five years period,• Establishes the Fund,• Gets it registered with the SEBI,• Forms a trust, & appoints Board of trustee.
Trustees• Holds assets on behalf of unit holders in trust,• Trustees are caretaker of unit holders money,• Two third of the trustees shall be independent persons (not associated with the
sponsor),• Trustees ensure that the system, processes & personnel are in place,• Resolves unit holders GRIEVANCES,• Appoint AMC & Custodian, & ensure that all activities are accordance with the SEBI
regulation.
Organizational Structure of Mutual Fund
Indian Institute of Capital Markets
Custodian • Holds the fund’s securities in safekeeping,• Settles securities transaction for the fund,• Collects interest & dividends paid on securities,• Records information on corporate actions.
Asset Management Company• Floats schemes & manages according to SEBI,• Can not undertake any other business activity, other than portfolio mgmt services,• 75% of unit holders can jointly terminate appointment of AMC,• At least 50% of independent directors,• Chairman of AMC can not be a trustee of any MF.
Distributor / Agents• Sell units on the behalf of the fund,• It can be bank, NBFCs, individuals.
Organizational Structure of Mutual Fund
Indian Institute of Capital Markets
Banker• Facilitates financial transactions,• Provides remittance facilities.
Registrar & Transfer Agent• Maintains records of unit holders’ accounts & transactions• Disburses & receives funds from unit holder transactions,• Prepares & distributes a/c settlements,• Tax information, handles unit holder communication,• Provides unit holder transaction services.
Organizational Structure of Mutual Fund
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Classification of Mutual Fund Schemes
Indian Institute of Capital Markets
Each category is classified into more sub-categories.
AMFI Classification of MF SchemesFund schemes
Portfolio objectives Growth & Income High Risk & High Return
Balanced Moderate Risk & Return Liquid & Money Market Fixed Return
Gilt Zero Risk ELSS Tax Saving
Fund of funds Additional diversification ETFs Market Driven
Classification of Mutual Fund Schemes
Indian Institute of Capital Markets
• By Structure– Open-Ended – anytime enter/exit
– Close-Ended Schemes – listed on exchange, redemption after period of scheme is over.
• By Investment Objective– Equity (Growth) – only in Stocks – Long Term (3 years or more)
– Debt (Income) – only in Fixed Income Securities
– Liquid/Money Market – Short-term Money Market (CPs, CDs, Treasury Bills)
– Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)
– Gilt Funds – primarily in G-Sec
• Other Schemes– Tax Saving Schemes such as ELSS
– Special Schemes (ETFs, foreign funds)
Other classification of MF schemes
Classification of Mutual Fund Schemes
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Risk-return structure of schemes
Indian Institute of Capital Markets
Risk –Return of different schemes
Risk-return structure of schemes
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
History of Mutual Funds in India
Indian Institute of Capital Markets
1964
1987
1993
2009 ?
Phases of Mutual Fund Industry in India
History of Mutual Funds in India
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Regulatory Aspects
Indian Institute of Capital Markets
• 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
Regulations
Regulatory Aspects
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Portfolio Management Process
Indian Institute of Capital Markets
Portfolio Management Process
Portfolio Management Process
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Risk Management
Indian Institute of Capital Markets
Risk Management FunctionRisk category Risk factors
Fund management Volatility in performance, portfolio concentration,
Interest rate movement, liquidity risk & credit risk.
Operations Deal error, settlement problem, NAV & fund pricing error, inaccurate financial reporting, fraud.
Customer Error in deal processing, fraud . Marketing & distribution
New product development, selling & distribution
Other business risk Critical knowledge loss, skills shortage, third party risk •Disaster recovery & business contingency plans.
•Insurance against third party loss (R&TA), arising from error & omission.
Risk Management
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Investment Checklists
Indian Institute of Capital Markets
• Draw up your asset allocation– Financial goals & Time frame (Are you investing for retirement?
A child’s 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)
Investing Checklist
Investment Checklists
Indian Institute of Capital Markets
Checklist continued…..• 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.
Investment Checklists
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Mutual Fund Comparison
Indian Institute of Capital Markets
Mutual Fund Comparison • Absolute returns
– % difference of NAV
– Diversified Equity with Sector Funds– No
• Benchmark returns – SEBI directs
– Fund's returns compared to its benchmark
• Time period– Equal to time for which you plan to invest
– Equity- compare for 5 years, Debt- for 6 months
• Market conditions – Proved its mettle in bear market
Mutual Fund Comparison
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Expenses
Indian Institute of Capital Markets
Expenses of Mutual FundAccounted for in FUND RETURN Not included in FUND RETURN
Management fee* Front end sales load Group fee* Back end sales load
Performance fee* Transaction fee Administrative fee* Redemption fee
Brokerage costs Account maintenance fee Interest costs Bid ask spreads
• An asterisk * indicates fee which is included in a fund’s expense ratio.• As per SEBI Rule, expense ratio should be 2.5% for equity & 2.25% for
debt fund of fund value.
Expenses
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Tracking Mutual Funds
Indian Institute of Capital Markets
• 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 such as www.valueresearchonline.com,
www.mutualfundsindia.com, www.morningstar.in, www.lipperweb.com et al.
– Newspapers– Professional advisor
Keeping Track…
Tracking Mutual Funds
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Warning Signals
Indian Institute of Capital Markets
• 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.
Warning Signals
Warning Signals
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
AUM movements in India
Indian Institute of Capital Markets
Movement of AUMs in different categories over a period of time
Stock Funds have become a mainstream product. Liquid Plus Funds and FMPs have seen aggressive inflows due to regulatory changes. New asset classes like ETFs and FoFs have emerged.
AUM movements in India
Indian Institute of Capital Markets
Indian Asset Management Industry - Growth in Assets
Total Assets Under Management as on March 2009 – Rs 493286 croresTotal No. of players - 36
AUM movements in India
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
Penetration of Mutual Funds
Indian Institute of Capital Markets
Penetration vis-à-vis Other Financial Products
Note: Penetration of Mutual Funds is still low as compared to Banks and Insurance Companies.
Penetration of Mutual Funds
Indian Institute of Capital Markets
Flow Cycle of a Mutual Fund
Organizational Structure of a Mutual Fund
Balance sheet of a Bank and Mutual Fund
Diff. b/w MF and Direct Investment
Portfolio Management
ProcessMutual Fund Comparison
Investments Checklists
Risk Management
Regulatory Aspects
Classification of Mutual
Fund Schemes
Risk-return structure of
schemes
History of Mutual Funds
in India
AUM movements in
IndiaExpensesTracking
Mutual FundsWarning Signals
Penetration of Mutual Funds
What Mutual Funds are not?
What Mutual Funds are not?
Indian Institute of Capital Markets
• MFs are not ‘get rich quick investments’• MFs are not ‘risk free investment’• MFs are not ‘assured return investment’• MFs are not ‘a universal solution to all investment needs’
What Mutual Funds are not?
Indian Institute of Capital Markets
Thank You