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Title: Basics of Mutual Funds


1
Basics of Mutual Fund
2
I am an investor and where to invest my money???
Currencies
Bonds and Fixed Deposits
Real Estate
Equity
Commodities (Gold/Silver
3
One stop shop for investment products.
4
What is Mutual Fund?
  • It is a pool of money, invested by number of
    investors, who share a common financial goal.
  • There are few key pointers
  • Pool of money, invested by number of investors
  • It means, this is a product, wherein various
    investor invest their money in one basket and
    then the manager of the fund invest in different
    investment products.

5
What is Mutual Fund?
  • To share a common financial goal
  • The main agenda of investment for any one is to
    earn profit/returns. As a renowned statement once
    said, higher the risk higher the profit
  • Equity High risk, high return
  • Bonds Lower risk, lower return
  • Saving Bank A/C Lowest risk, lowest return.
  • So, there are various investors and has various
    definition of profits.
  • Mutual Fund has all kind of products to cater
    every kind of investors needs.

6
(No Transcript)
7
Advantages of Mutual Fund
  • Diversification (dont put all eggs in one
    basket)
  • Mutual Fund, is a pool of investment, wherein
    many investor invest their money, and this money
    is invested in various number of shares, bonds
    etc. which reduces the risk of capital for an
    investor.

This is a beauty of a mutual fund, with a small
amount of an investor get invested various
sectors.
8
Continued
  • If one investor invested Rs. 10,000 in Kingfisher
    in 2012, his current market value is in negative.
  • On another side, if an investor invests Rs. 5,000
    in Kingfisher and another one is in ITC, his
    current market value is in profit. This will make
    his entire investment amount is in profit.
  • Liquidity (Invest any time, redeem any time)
  • In mutual fund, you can withdraw (redeem) your
    investment at any period of time. Unlike, Real
    estate wherein selling as asset is very time
    consuming.

9
Advantages
  • Tax Benefits (tax is an important concern in
    investment)
  • In equity fund, returns are tax free after one
    year.
  • Invested in equity linked saving scheme (ELSS)
    upto Rs. 1 lacs u/s 80C
  • Invested in Rajiv Gandhi Saving Scheme (RGSS)
    upto Rs. 25,000 u/s 80CCG.
  • Professional Management (Managed by Fund
    Manager)
  • Mutual Fund is like a doctor of investors fund,
    it manage it with complete professionally. The
    team of research investment has a sound
    knowledge and experience in their respective
    field. And, every fund has a designated Fund
    Manager.

10
Systematic Transaction Facility
  • In Mutual Fund, investor has an option to do the
    transaction on a regular basis i.e.
    Monthly/weekly/quarterly etc.
  • Systematic Investment Plan (SIP) In this an
    investor can invest regularly in systematic
    manner. This is best for a young investor and who
    like to save some money regularly.
  • Systematic Withdrawal Plan (SWP) In this
    investor can withdraw (redeem) his investment in
    instalment. This is best for the investor who
    wants regular income.
  • Systematic Transfer Plan (STP) In this investor
    can transfer his fun from scheme A to scheme B
    regularly. It is a good strategy, if someone
    wants to book profit, and the same time want to
    invest in a safe fund where he can earn some risk
    free returns.
  • For example STP from a equity scheme to debt
    scheme

11
Structure of Mutual Fund
12
Example
13
What is the role of an AMC?
  • This is an important part of a mutual fund
    structure, so we are discussing it in detail
  • Role of an AMC
  • To manage investors fund on day-to-day basis.
  • Working for smooth process of managing investors
    fund and appointing proper departments to handle
    the process effectively.
  • Improve the sales of mutual funds schemes. Via
  • Appointing its own sales team
  • Empanelling (connecting) with maximum number of
    distributors.
  • Engage marketing activities for investors.
  • To adhere all the rules of regulations of
    industry.
  • On behalf of all these activities AMC charges
    fees.

14
Regulators
Securities Exchange Board of India (SEBI) SEBI
is a regulator of Indian Mutual Fund, so all the
fund houses in India has to adhere the rules
regulations of SEBI. These regulations has been
mentioned in SEBI Mutual Fund Regulation Act,
1996 Apart from this, as Mutual Fund is a trust,
so it have to adhere the rules of Indian
Companies Act, 1956 Indian Trust Act,
1882. Association of Mutual Fund In India It is
an association created to enhance the mutual fund
industry, to adhere the best sales practice and
educate investors about mutual fund. One key
member of every AMC is a part of AMFI. U.K. Sinha
is Chairman of SEBI Milind Barve is chairman of
AMFI
15
What is New Fund Offer (NFO)
  • Whenever an AMC launches a new scheme, it is
    known as NEW FUND OFFER (NFO)
  • This is for the period of 15 days (except ELSS)
  • NFO of ELSS fund has a period of 20 days.
  • In NFO, the units are allotted at Rs. 10 which
    is as same as a cost price of a new scheme, which
    is also known as Face Value.
  • This face value is also use at the time of
    declaration of dividend as same as it function
    in equities.
  • For Example Motilal Oswal AMC, has launched its
    new scheme called MOSt Focus Mid Cap 30, which
    has NFO period of 15 days dated 3rd Feb, 2013 to
    17th Feb 2013. At this time units were allotted
    at Rs. 10.

16
What is NAV Why it is important?
Net Asset Value In laymen terms, it is a price
of a scheme, like any other product which has its
own price. If anyone wants to invest in a
particular scheme, it invests as per its current
NAV anyone wants to redeem his investment,
redeem at current NAV. How it calculated?
NET ASSET VALUE (NAV) ASSETS - LIABILITIES
NET ASSET VALUE (NAV) NO.OF UNITS ISSUED
17
Net Asset Value (NAV)
If an AMC invested Rs. 10,000 in equity market
current value is Rs. 12,000. The expenses
incurred in handling funds is Rs. 500. No. of
units allotted to its all investors is 1,000. So
NAV if scheme is Assets Rs. 12,000 Liabilities
Rs. 500. No. of units 1,000. NAV
(12,000-500)/1,000 11,500/1,000 NAV Rs. 11.5
18
Why NAV is important?
  • It is important for a various reason
  • It is a price of a scheme.
  • Current NAV of any scheme, describes the
    performance of the fund.
  • For example
  • If a scheme launched in Feb, 2012 allotted
    units _at_ Rs. 10. after 6 months, NAV of a fund is
    Rs. 12, (scheme has given 20 returns), after an
    year if NAV is Rs. 8, scheme is in negative 20
    from the date of NFO.

19
Why NAV fluctuates??
  • There are four reason of which NAV fluctuates
  • Performance of investment Fund manager invests
    the money into various securities, the
    performance of these securities impact NAV. (if
    price of invested securities increases, NAV
    increases vice versa).
  • Investment redemption If investor invest in
    Mutual Fund, he becomes the member of fund house,
    his entry and exit impact on the NAV. Like if an
    investor invested in a particular scheme, it will
    increase the asset of a fund, so NAV will
    increase, and if someone redeems, it take out the
    money from fund, so asset side reduces, so NAV
    reduces.

20
  • Expenses of scheme If a scheme has huge expenses
    due to portfolio restructuring, marketing
    expense, distribution expenses etc. It impacts
    inversely with NAV. Higher the expenses, lower
    the NAV. So, always check the expense ratio of a
    fund, before investing. Note SEBI, tracks the
    expense incurred by an AMC in a particular
    scheme, if any excess amount that has be borne by
    AMC.)
  • Declaration of Dividend If a scheme declares
    dividend, and after the payment of dividend, NAV
    of a fund. Reduces, because bank balance has been
    reduces because of payment has made by an AMC.
  • If a scheme declares dividend of Re.1, then NAV
    of next day (ex-dividend NAV) reduces by Re.1

21
What is Units?
It is like share in equity, wherein mutual fund
allots units in against of investment made by an
investor. Allotment of units is based on face
value in the time of NFO , and post-NFO is based
on NAV. For example If an investor invested Rs.
1 lacs in a Scheme A in NFO, he will get Rs. 1
lacs/ Rs. 10 10,000 units. If invested
post-NFO, and NAV of scheme is Rs, 20, at the
time of investment, he will get, Rs. 1 lacs / Rs.
20 5,000 units allotted
22
What are the expenses in Mutual Fund?
  • There are only two direct expenses in mutual fund
    for an investor
  • Entry Load When an investor invests in a mutual
    fun, it gets a charge of small amount lets say
    0.5 0f NAV, which is known as entry load. Hence
    now entry load is NIL.
  • Exit Load When an investor wants to redeem
    (withdraw) his investment, AMC charges a small
    amount lets say 1 of NAV, which is known as
    exit load.
  • Expense Ratio It is not directly charged to
    investors, however this expenses is adjusted in
    NAV and it is charged on the total funds
    collected in a scheme. This has a beauty that
    this charge is get distributed among all the
    investor.

23
What is Sales price Repurchase Price?
  • Sales Price This is a price when an investor
    invest. It is calculated by
  • Sales price NAV Entry Load
  • If one investor invested Rs. 10,000 in a fund
    NAV is Rs. 20, entry load is 1, the sales price
    will be
  • Rs. 20 (Rs. 20 X 1
  • Rs. 20 Rs. 0.2
  • Rs. 20.2
  • Note Now entry load is NIL, so sales price is as
    same as NAV

24
  • Repurchase Price This is a price when an
    investor redeems his investment.
  • It is calculated by
  • Repurchase price NAV Exit Load
  • If one investor wants to redeem 1,000 units, in a
    fund NAV is Rs. 20, ext load is 1, the
    repurchase price will be
  • Rs. 20 - (Rs. 20 X 1)
  • Rs. 20 - Rs. 0.2
  • Rs. 19.8
  • Note If an investor hold his investment for a
    long period of time (lets say for more than a
    year) exit load become NIL.

25
  • Asset Classes There are majorly three types of
    classes of an asset.
  • Equity
  • Debt
  • Gold
  • Asset Allocations A major part of assets of a
    scheme is its investment, and it has to allocate
    it carefully among the desired asset classes.
  • Portfolio It is a list of companies wherein a
    fund manager will invests the collected fund.

26
  • Asset Under Management (AUM) This is a fund
    collected by an AMC including all the schemes it
    has launched till date.
  • HDFC Mutual Fund has maximum amount of AUM (Rs.
    104,000 Cr.)
  • Corpus It is a total amount collected under one
    particular scheme.

27
What is an Offer Document??
  • It is a prospectus of a mutual fund, like in our
    college we use to get prospectus of a college at
    the time of joining that college, which includes
    all the information of this college, likewise, in
    OFFER DOCUMENT all the important information of a
    mutual fund and related parties like AMC,
    sponsor, trustees etc. is informed. It is divided
    into two parts
  • Scheme Information Document (SID) In this the
    detailed information of a scheme is mentioned,
    like NFO open date, close date etc. fund
    managers name and his experience, objective of
    the fund, asset allocation etc.
  • Statement of Additional Information (SAI) This
    includes all the information of a mutual fund,
    like detailed information of sponsor, trustee,
    AMC, RTA their rights obligation, investors
    right and obligations. Legal information about
    the fund house.

28
What is KIM?
  • Key information Memorandum (KIM)
  • It is a abridged (short) version of offer
    document. This includes key pointers of a
    particular scheme, and it is mandatory for an AMC
    to distribute to the investor with the
    application form of a scheme.
  • It includes
  • NFO details (NFO Open date, close date etc.)
  • Fund Managers information
  • Investment details and criteria
  • Application forms
  • Asset allocations, etc.

29
Pariksha 3
  1. Who can invest in Mutual Fund?
  2. Individual
  3. Insurance, Banks etc.
  4. NRI
  5. All of the above

30
  • Which of the following is not an advantages of
    Mutual Fund?
  • Diversification
  • Liquidity
  • Tailormade portfolio
  • None of the above

31
  • What is the benefit of diversifications?
  • Gets exposure of more no. Of products/shares
  • Investor gets the right to pick his favourite
    stocks
  • It reduces the risk of loss from one products.
  • Both 1 and 2
  • All 1, 2 3

32
  • 4. Why returns in mutual fund is guaranteed?
  • Because it has the exposure in equity.
  • Because all the asset classes are traded in the
    market it moves according to the sentiments of
    the market
  • Because fund manager doesnt have the knowledge
    of the market.
  • 1 2

33
  • 5. What is a golden rule of investment?
  • Dont put all eggs in one basket
  • Men are from mars and women are from venus
  • Double your money by investing in equity
  • Real estate creates maximum wealth

34
  • 6. AMFI stands for?
  • Association of Most Focused Investors
  • Association of Mutual fund in India
  • Association of Main fund of India
  • Association of Major funds in India

35
  • 7. AMFI is involve in
  • Setting guidelines for mutual funds to follow
    best selling practices.
  • Conducting awareness programme for investors.
  • Regulating distributors of Mutual Funds
  • All of the above

36
  • 8. AMFI is regulator of Mutual Fund
  • True
  • False

37
  • 9. SEBI is the regulator of Mutual Fund
    under
  • SEBI Mutual Fund Regulation Act, 1956
  • SEBI Mutual Fund Regulation Act, 1992
  • SEBI Mutual Fund Regulation Act, 1996
  • SEBI Mutual Fund Regulation Act, 1881

38
  • 10. SEBI stands for
  • Share exchange board of India
  • Stock exchange board of India
  • Securities exchange Board of India
  • None of the above

39
  • 11. Role of an AMC is
  • To regulate the industry
  • To launch a new scheme
  • To protect the investor from the losses
  • To manage the funds of investors investment

40
  • 12. Registrar transfer Agent (RTA) is
    appointed by AMC for
  • To give best service to the client
  • To issue units dividend, redemption cheques.
  • To solve the query of investors.
  • All of the above

41
  • 13. Sponsor, who initiates to launch a mutual
    fund
  • False
  • True

42
  • 14. NFO is a period when a new scheme launched
    by an AMC
  • False
  • True

43
  • 15. If an investor wants to redeem his
    investment in NFO, at what price he can redeem?
  • Rs. 10
  • Current NAV
  • He cannot redeem
  • NAV exit load

44
  • 16. In NFO units are allotted at
  • Rs. 10
  • Current NAV
  • NAV entry load

45
  • 17. NAV is
  • Total Assets Total Liabilities
  • Total Assets/No. Of units issues
  • (Total Assets- Total Liabilities)/No. Of units
    issued
  • Total Liabilities/ No. Of units issued

46
  • 18. A fund has invested Rs. 20,000 in market and
    its current market value is Rs. 25,000 and fund
    expenses is Rs. 1,000 and no. Of units allotted
    to investor is 2,000. NAV will be?
  • Rs. 12
  • Rs. 9.5
  • Rs. 13
  • Rs. 10

47
  • 19. If current NAV is Rs. 15, and an investor
    wants to invest Rs. 60,000, how many units will
    be allotted?
  • 4,000
  • 6,000
  • 8,000
  • 12,000

48
  • 20. NAV of the fund is Rs. 20 and exit load is
    1, what will be the sales price?
  • Rs. 20
  • Rs. 20.20
  • Rs 19.80
  • Rs. 22

49
  • 21. What is repurchase price?
  • NAV- Entry Load
  • NAV Exit Load
  • NAV Exit Load
  • NAV Entry Load

50
  • 22. Offer Document is
  • Combination of SID SAI
  • In SID, all scheme information about the scheme
    is mentioned
  • In SAI, all detailed information of fund house is
    mentioned.
  • All of the above

51
DISCLOSURE
Motilal Oswal Securities Ltd. (MOSL) Member of
NSE, BSE MSEI - CIN no. U65990MH1994PLC079418 R
egistered Office Address Motilal Oswal Tower,
Rahimtullah Sayani Road, Opposite Parel ST Depot,
Prabhadevi, Mumbai-400025 Tel No. 022-3980
4263 www.motilaloswal.com. Correspondence
Address Palm Spring Centre, 2nd Floor, Palm
Court Complex, New Link Road, Malad (West),
Mumbai- 400 064. Tel No 022 3080 1000.
Registration Nos. NSE (Cash) INB231041238 NSE
(FO) INF231041238 NSE (CD) INE231041238 BSE
(Cash) INB011041257 BSE (FO) INF011041257
BSE (CD) MSEI (Cash) INB261041231 MSEI (FO)
INF261041231 MSEI (CD) INE261041231 CDSL
IN-DP-16-2015 NSDL IN-DP-NSDL-152-2000
Research Analyst INH000000412. AMFI ARN 17397.
Motilal Oswal Asset Management Company Ltd.
(MOAMC) PMS (Registration No. INP000000670)
PMS Mutual Funds are offered through MOAMC
which is group company of MOSL. Motilal Oswal
Wealth Management Ltd. (MOWML) PMS (Registration
No. INP000004409) is offered through MOWML which
is a group company of MOSL. Motilal Oswal
Securities Ltd is a distributor of Mutual Fund
IPOs. Please read the Risk Disclosure Document
prescribed by the Stock Exchanges carefully
before investing. Investment in Securities is
subject to market risk and there is no assurance
or guarantee of the returns. Details of
Compliance Officer Name Neeraj Agarwal, Email
ID na_at_motilaloswal.com , Contact No.022-30801085
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