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Why Invest ?To protect your purchasing powerTo generate
sustained income post retirement.To meet key financial needs like
housing, higher education and marriage of childrenTo generate
alternate income for the family in case of any unforeseen
event.
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Where can you invest?
Equities
Bank Deposits, Debt, Bonds, Company Deposits
Gold, Real Estate
PPF, RBI Bonds, Postal Savings
Insurance Companies Insurance Policies
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Product characteristics Matrix
ProductsReturnRiskLiquidityTax SavingsConven-ienceBank
DepositModerateLowHighYesHigh
Equity InstrumentsHighHighDepends on the
instrumentNoModerateDebenturesModerateModerateLowNoLowFixed
Deposits by CompaniesModerate
ModerateLowNoModerate
BondsModerateModerateModerateYesModerate
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Product characteristics Matrix
ProductReturnRiskLiquidityTax SavingsConven-ienceRBI Relief
Bonds ModerateLowLowYesModerate
PPFModerateLowLowYesModerateNational Saving
CertificateModerate
LowLowYesModerate
Life InsuranceModerateLowLowYesModerateMonthly Income
SchemeModerateLowLowYesModerate
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Income v/s Real IncomeReal Return = Returns Tax - InflationFocus
on Real Income is important for wealth creation
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What is Mutual Fund ? Mutual funds are investment companies that
pool money from investors at large and offer to sell and buy back
its shares on a continuous basis and use the capital thus raised to
invest in securities of different companies.
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Mutual Fund History1964-UTI
1987- Public Sector banks, Insurance CompaniesSBI, Canbank, PNB
LIC, GIC
1993- Private SectorKothari Pioneer ( later merged with Franklin
Templeton),Morgan Stanley
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SPONSORTRUSTCUSTODIANREGISTRARAMCMutual Fund- StructureFUND
MANAGERSOPERATIONSCOMPLIANCEMARKETINGINVESTORRELATIONSDISTRIBUTOR
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Mutual Fund ProcessInvestorsMutual FundSECURITIESReturnsSEBI
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Mutual fund TypesBy Liquidity or Structure : Open Ended Funds
Closed Ended Funds Interval Funds
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By Nature of Investments: Equity Funds Debt Funds Money Market
Funds Hybrid Funds
By Investments Objective: Growth Funds For medium to long term
capital appreciation.Income Funds - For generating regular income
and preserving capital with lesser emphasis on capital
appreciation.Value Funds for investing in undervalued equities
Mutual fund Types
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Types of Equity Funds Diversified FundsTarget maximum capital
appreciationMay trade or invest in mid & small stocksSpeciality
FundsAggressive FundsE.g- Kotak Mid-cap, Kotak Opportunities
Invests across sectors and stocks E.g- Kotak 30, Kotak
LifestyleFunds that have an investment themeE.g- Kotak MNC, Kotak
Global India, Kotak Lifestyle Diversifies stock or sector specific
risksAre diversified but riskier than normal diversified funds Are
diversified but riskier than normal diversified funds
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Types of Equity fundsTax Saving FundsIndex Funds Invests exactly
as per the benchmark index Risk and return are in line with the
indexLock-in period of 3 YearsInvestments are eligible for tax
deductionE.g- Kotak Tax SaverValue FundsInvests in currently under
valued stocksHave low risk compared to growth fundsE.g- Kotak
ContraSector FundsInvest only in one industryOffer no sector
diversification hence riskyE.g- Kotak Tech
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Types of Debt FundsMoney Market / Liquid FundsGilt FundsDebt /
Income FundsFloating Rate FundsInvest in short term debt
securities.Ideal for short term investments.Lowest in the order of
risk level.Invests in govt. securities with medium tolong term
maturities.Have a very low credit risk.Invests in debt securities
issued by various players including govt. and private
companies.Invest across various maturities.May be diversified,
focused or have fixed maturities.Invest in securities with variable
int. rates.Ideal in a rising rate scenario.
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Types of Hybrid FundsGrowth & Income FundsLess risky than
growth funds but more risky than Income fundsInvests in Equity and
Debt markets Balance funds & MIPs E.g- Kotak Balance, Kotak
Income PlusAsset Allocation FundsInvests in debt and equity based
on an asset allocation policyMay follow variable asset allocation
and move in and out of asset classesE.g- Kotak Dynamic FOF, Kotak
Flexi FOF
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Risk-return matrixThere is no such thing as a free lunchRisk
shares a direct relationship with returns
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Benefits of Mutual FundsDIVERSIFICATION Available even in small
amountsPROFESSIONALMANAGEMENTBest Brains in the Country Manage your
MoneyDIFFERENT SCHEMESProviding Solutions For All
NeedsWELLREGULATEDGoverned By SEBI RegulationsTRANSPARENCYDaily
NAV, Monthly PortfolioCONVENIENCEEasy to buy,hold & sell
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Benefits of Mutual Funds Dividend from equity funds are entirely
tax free
Dividend from debt funds - tax free for investors
Capital gain tax for equity funds : If kept > 1 year then
zero tax
Capital gain tax for Debt Funds : Benefit of lesser tax by two
options :1. 10 % without indexation2. 20 % with indexation
Benefit of set off for capital gains or loss upto 8 years
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Equity - ConceptsPrice/Earning Ratio price of the share divided
by earnings per share. indicates what the investors are willing to
pay for the companys earning potential. Young or fast growing
companies have high P/E ratio. Established companies in mature
industries have lower P/E ratio.
Dividend Yield ratio of dividend paid per share to current
market price. low P/E stocks usually have high dividend yields.
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Equity - ConceptsCyclical stocks Earnings are related to the
state of the economy Have relatively low P/E and high dividend pay
outs
Growth Stocks Earnings are expected to grow at a higher than
expected market rate Tend to reinvest earning and have a high P/E
ratios
Value Stocks Stocks that are currently undervalued i.e. have a
relatively low P/E Give returns in the long term when market
realises their potential
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Debt - ConceptsPar Value is the principal amount the investors
will be paid upon maturity of the bond and is also known as the
face value.
Coupon is the annual rate of interest paid on the par value of
the bond to the investor.
Maturity refers to the term of the bond I.e. the date on which
the issuer has to repay the principal amount to the bond.Current
Yield Relates interest on a bond to its current market price by
dividing annual coupon interest rate by the coupon market
price.Yield to Maturity is the annual rate of return an investor
would realize if he bought a bond at a particular price, received
all the coupon payments, reinvested the coupons at the same YTM
rate and received principal at maturity.
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Debt - ConceptsInterest rates and debt prices share an inverse
relationshipInterest Rates Bond pricesInterest Rates Bond
pricesWhen interest rates go up the value of existing debt papers
go down as another paper with a higher rate is available in the
market. So the existing paper would have to be sold at a discount
and vice-versa.
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Investment Process or Financial Planning ProcessInvestor
ProfilingProduct SelectionExecution & ServicingPortfolio
Tracking & RebalancingAsset AllocationPortfolio
Construction
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Model Asset AllocationThe above asset allocation is for
illustration purpose onlyAggressive PortfolioModerate
PortfolioConservative PortfolioAge- 25-35YRSAge- 35-55YRSAge- 55YRS
+
Chart3
751510
503515
354520
Equity Funds
Fixed Income funds/ Banks FD's
Cash/ Liquid Funds/ Savings A/c
Sheet1
Aggressive PortfolioEquity Funds755035
Moderate PortfolioFixed Income funds/ Banks FD's153545
Conservative PortfolioCash/ Liquid Funds/ Savings A/c101520
Sheet1
751510
503515
354520
Equity Funds
Fixed Income funds/ Banks FD's
Cash/ Liquid Funds/ Savings A/c
Sheet2
Sheet3
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InvestorsHigh ReturnsLow ReturnsHigh RiskLow Risk Aggressive
Investor( Kotak Opportunities, Kotak Midcap)
Conservative InvestorIrrational Investor Savvy Investor (Kotak
30)(Kotak MIP, Kotak Debt Funds )
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Securities Transaction Tax : 0.25% on redemption value. Wealth
Tax : Mutual Fund Units are exempt from wealth tax.
TAX RECKONER FOR MUTUAL FUND
Sheet1
Equity SchemeOther SchemesDividend IncomeDivident Distribution
Tax
STCGLTGCTDSSTCGLTGCTDSEquity SchemesLiquidOthers
Resident Individual / HUF15%NilNilAs per tax slab10% without
indexation or 20% with indexationNilTax FreeNil28.33%14.16%
Partnership Firm15%NilNil30%10% without indexation or 20% with
indexationNilTax FreeNil28.33%22.66%
Domestic Company15%NilNil30%10% without indexation or 20% with
indexationNilTax FreeNil28.33%22.66%
NRI15%Nil16.99%As per tax slab10% without indexation or 20% with
indexationSTCG - 30% & LTCG - 20% after indexationTax
FreeNil28.33%14.16%
Sheet2
Sheet3
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Think Investments. Think JM Securities