Mutual Funds By Mrs.Lalitha PPM

Mutual Funds

By

Mrs.Lalitha PPM

What is Mutual Fund?

• A Mutual Fund is an investment vehicle that pools the money of several investors and invests it in different securities.

Organisation of Mutual Fund

Some Concepts Clarified…..

• NAV - Net asset value is the market value of a unit of a scheme after accounting for all expenses on any given business day.

• Load

Load

• Charged directly to the investor • Includes Agent’s commission, Marketing and

Selling expenses• Front end Load and Back end Load• Entry loads vary between 1.00% and 2.5%.• Exit loads vary between 0.25% and 3.00%.• Regulations do not allow either front-end load or

back-end load in any combination to be higher than 6%.

…….Some Concepts Clarified

• Purchase price is the price paid by a customer to purchase a unit of the fund.

• Redemption price is the price received by the customer on selling units of an open-ended scheme to the fund.

• Repurchase price is different from redemption price and refers to the price at which a close-ended scheme repurchases its units.

• Expense ratio

Expense Ratio

• Operating Expenses paid out of the fund’s earnings • Includes advisory fees paid to investment managers, audit

fees, custodial fees, transfer agent fees, trustee fees etc. • Advisory fees range from 1% to 1.5% of the corpus• Limits mandated by SEBI• First Rs. 100 crores 2.50% 2.25% • Next Rs. 300 crores 2.25% 2.00% • Next Rs. 300 crores 2.00% 1.75% • On the balance of assets 1.75% 1.50% • The annual expense expressed a percentage of the fund's

average daily net assets.

Exploding a Myth-A Fund with lower NAV is cheaper than that with higher NAV

• A Mutual Fund with lower NAV will give better returns !!!!!!

New scheme with NAV at par

Existing scheme with NAV at Rs. 5 0

Rs Rs.NAV 1 0 5 0Your investment 1,0 0 0,0 0 0 1,0 0 0,0 0 0No. of units allotted to you 1 0 0,0 0 0 2 0,0 0 0Market Value of Assets after one year 1 2 0,0 0 0,0 0 0 6 0 0,0 0 0,0 0 0Corresponding NAV after one year 1 2 6 0Current value of your investment 1,2 0 0,0 0 0 1,2 0 0,0 0 0

Return on investment 2 0% 2 0%

Classification Of Mutual Fund

• By Asset Class• By Investment Sector• By Liquidity • By Trading Strategy • By Investment Strategy• By Security Selection • By Load Charged / Cost• By Place of origin

WHY Choose Mutual Funds?

• Professional Management• Lower Risk• A better portfolio for less Money• Lower Transaction Cost • Liquidity• Transparency• Affordability• Choice of Schemes• Well Regulated

Ground Rules of Mutual Fund Investing

• Define your Investment Objectives

• Draw up your Asset Allocation

Equity MF

Balanced MF

MIPs Debt MF

Fixed Inc.

Total Equity

Total Debt

Below 3 0 5 0% 3 0% 5% 5% 1 0% 7 0% 3 0%3 0 - 4 5 4 0% 3 0% 1 5% 5% 1 0% 6 0% 4 0%4 5 - 5 5 2 5% 2 5% 2 5% 5% 2 0% 4 5% 5 5%Above 5 5 5% 1 0% 4 0% 5% 4 0% 1 5% 8 5%

….Ground Rules of Mutual Fund Investing

• Identify Funds with matching Investment objectives.

• Evaluate Past Performance, look for Consistency

• Diversify

• Consider Fund Costs

• Factor Tax Implications

Tax Implications – on Dividend

Mutual Fund

Scheme

TDS Dividend Distribution

TaxDebt Oriented

SchemeNil 12.5% +

Surcharge + Cess -> 14.025%

Equity Oriented Scheme

Nil Nil

Tax Implications – on Capital Gains

TAX Debt Oriented Scheme

Equity Oriented Scheme

STT Nil 0.2 %

STCG Marginal Rate of Taxation

10 %

LTCG Lower of

- 10% without indexation

- 20% with indexation

NIL

Which Option to Choose?Mutual Fund Scheme Dividend Payout Growth

Debt Oriented Scheme

-< 1 Year- >1 Year

14.025 % <30%

10%or20%(WI)<14.025%

Equity Oriented Scheme

-< 1 Year - > 1 Year

0% < 10%

Profit Booking

….Ground Rules of Mutual Fund Investing

• Look for Size and Credentials

• Customer Service

• Monitor regularly and Review

• Invest Regularly

When To Sell Mutual Funds?

• The Fund Manager leaves• Below par performance for the last 2 years • Size of the corpus increases too fast• The Promoter of Mutual Fund is going through

financial difficulties• The scheme changes its investment objectives• You change your plan• Enough has been earned

Systematic Investment Plan(SIP)

Advantages• Disciplined investing• Convenience• Avoiding market prediction • Rupee Cost Averaging

Rupee Cost Averaging

•  

Advantages of Early InvestingInvesting in a Diversified MF - SIP

@ 35 Yrs @ 40 Yrs

Monthly Investment

IRS 5000 IRS 5000

Investment Stopped @

60 Yrs 60 yrs

Total Contribution

IRS 15,00,000/= IRS 12,00,000/=

Growth (assume 15 % CAGR)

IRS 1,37,82,803.88/=

IRS 66,35,367.20/=

Mutual Fund Investing by NRIs

• Power of Active Funds Management

• Online trading simplifies procedure

• Some online trading sites

www.icicidirect.com

www.Indiainfoline.com

www.Myiris.com

ICICIDirect one up on others.

• No Application forms to be filled up• Automatic debit from and credit to bank account• Automatic paperless SIP/SWP• Online order confirmations and status tracking• Online dividend payout / reinvestment facility • Online updation of portfolio of unit holdings at

latest NAV

Few Mutual Funds NRIs can consider

For Conservative investors• HDFC Top 200 Fund• Sundaram Growth• HDFC Prudence• Principal MIP

For Aggressive investors• HSBC Equity Fund• Franklin India Bluechip • FT India Balanced Fund• FT India MIP

Product Innovations

• Fund Of Funds is a fund that invests in other funds instead of securities.

• Super SIP isn't a fund but a way of buying funds that combines long-term SIP with term insurance.

• ETF is a hybrid financial product, a cross between a stock and a mutual fund .