Mutual Funds

Introduction to Mutual Funds

What is a Mutual Fund ?What is a Mutual Fund ?

• It is a trust that pools the savings of a number of

investors who share a common financial goal

• Professional fund managers then invest these funds in a

way that helps investors achieve their goal

Mutual Funds

Pool their money with

INVESTORS

FUND MANAGERS

Passed back to

Generate

RETURNS

SECURITIES

Invest in

Mutual fund industry - International perspectiveMutual fund industry - International perspective

• In the U.S., mutual fund assets are greater than banking

sector assets

• Tremendous growth in the last two decades, especially

from retail investors

• Mutual funds becoming popular in Japan, Europe and

Asia

Mutual Fund industry - Domestic perspectiveMutual Fund industry - Domestic perspective

• UTI is the largest fund manager

• Private sector experiencing good growth

• Emphasis on investment performance, service standards

and transparency

Types of mutual funds - StructureTypes of mutual funds - Structure

• Open ended

• Close ended

Types of Mutual Funds - Investment ObjectiveTypes of Mutual Funds - Investment Objective

• Equity

• Balanced

• Debt

Investment Options

InvestmentAvenues

Direct Equity

Bank Deposits

Gold / Real Estate

Corporate Bonds /Deposits

MutualFunds

Government Securities

Growth Across All Asset ClassesCumulative Annualized Returns (1980-98)

Source: RBI report on Currency and Finance (1997-98)

BSE Sensitive Index of Equity Prices-BSE

Equities are the best long term bet

Where do Mutual Funds come in?

DIRECTLY THROUGH MUTUAL FUNDS

Stocks

Bonds/DebenturesCorporate FD’s

Short Term DepositsGovt.. Paper, C.P and C.D

EquityFunds

Debt Funds

Money Market Funds

How to Invest

25 28 30 35 40 50 60

StartCareer

Marriage

BuyAutomobile

BuyHouse

Children’sEducation

Daughter’sMarriage

Retirement

AGE

Why Invest?

Key Portfolio Building Components

Start Investing

Early

Asset Allocation

Invest Regularly

Key Portfolio Building Components

Start Investing

Early

Asset Allocation

Invest Regularly

1. Start Investing Early

Mr. A

Age 25 years

Begins investing at 25

Invests Rs. 20,000 p.a.

for 5 years then stops

Redeems on his

retirement at 60

Mr. B

Age 25 years

Begins investing at 35

Invests Rs. 20,000 p.a.

till he is 60

Redeems on his

retirement at 60

Who has more?

Is it Mr. A, who invested Rs. 1 lakh over 5 years

or

Is it Mr. B, who invested Rs. 5 lakhs over 25 years?

23.4321.63

0

4

8

12

16

20

24

28

Value of Mr. A's investment

Value ofMr. B's investment

Rs.

La

kh

Key Portfolio Building Components

Start Investing

Early

Asset Allocation

Invest Regularly

2. Invest Regularly & Systematically

• Small investments

• The Power of compounding

• Rupee cost averaging

• Don’t let money lie idle

Key Portfolio Building Components

Start Investing

Early

Asset Allocation

Invest Regularly

Portfolio 1 - A Low Risk Portfolio

Average Annual Return: Approx. 10%

Portfolio 2 - A Medium Risk Portfolio

Average Annual Return: Approx 13%

Portfolio 3 - A High Risk Portfolio

Average Annual Return: Approx. 16%

Investing Through Mutual Funds

The Advantages

• Risk reduction

– Professional investment management

– Diversification

• Liquidity

• Tax Efficiency

• Flexibility

– Systematic Investment Plan (SIP)

– Systematic Withdrawal Plan (SWP)

• In most instances, returns are not guaranteed

• Mutual funds carry market risk

The RisksThe Risks

Summary

• The Mutual Fund Industry is a growth industry

• Mutual Funds cover a spectrum of Investment Options

• Start Investing Early & Systematically

• You could invest directly or through a Professional

Money Manager