Title: Basics of Mutual Funds
1Basics of Mutual Fund
2I am an investor and where to invest my money???
Currencies
Bonds and Fixed Deposits
Real Estate
Equity
Commodities (Gold/Silver
3One stop shop for investment products.
4What 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.
5What 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.
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7Advantages 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.
8Continued
- 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.
9Advantages
- 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.
10Systematic 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
11Structure of Mutual Fund
12Example
13What 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.
14Regulators
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
15What 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.
16What 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
17Net 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
18Why 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.
19Why 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
21What 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
22What 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.
23What 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.
27What 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.
28What 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.
29Pariksha 3
- Who can invest in Mutual Fund?
- Individual
- Insurance, Banks etc.
- NRI
- 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
51DISCLOSURE
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