Session 7 MF

8/3/2019 Session 7 MF

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INDIANMUTUAL

FUND

INDUSTRY


2/50

Objective,players

Fundmanagement

Investorservices


3/50

InvestmentCompanieswheremoneyispooledandinvestedbyprofessionals.

Manyplayers

Varietyofproductstomeeteveryinvestorsrequirementandriskappetite.Features

Safety&Security

Diversifiedinvestment

ProfessionalManagement

ax ene s

Liquidity

CapitalandIncomegeneratingreturns


4/50

moniesfrom

the

investors

for

specific

duration

of

time

andattheendofthedurationtheinvestedmoniesisqu a e an e nves orsamoun sre urne w

returnsearned.

TheInvestmentCompaniesinUKarecalledTrustsandinUSAtheyarecalledMutualFunds.

IndiareplicatedtheUKmodelwhenitsetuptheUnitrus o n a.


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e rs nves men rus was e co s American

Investment

Co.

set

up

at

Netherland

in

1873.

ThiscompanycollectedmoniesunderclosedendedschemesandinvestedthemoneyinStockMarket.

stockmarketfluctuations.

Morethan50suchcompanies.

es oc

mar e

cr s s

n

ma e

a

ese

InvestmentCompaniesgobust.contd.


6/50

ThefirstinUSNewYorkStockTrustin1889.

Thiswas

open

ended

fund

ThefundinvestedinStockMarket

StockMarketcrashof1929wasastumblingblock

RevivedagainpostWorldWarII

SteadyGrowth

as

Markets

revived.

Theinvestorswantedshareofthestockmarketgrowth.

MoneymarketinstrumentsduringslackstockmarketconditionsandMutualFundsstartedofferin thesimilarreturns.

Varietyofproductsincreased


7/50

MutualFundindustr startedinIndiaasan

initiative

of

the

Government

to

tap

the

savings

of

thepublicandchannelisethesameintheCapital.

UnitTrustofIndiawassetupbyanActofParliament

in

1963

Itstarteditsoperationsin1964withthelaunchofUS64.

twas

not

on y

a

utua

un

ut

a so

acte

as

a

FinancialInstitution


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PhaseI(19641987)

ThesettingupofUnitTrustofIndia.

Startedoperationsin1964.

Witnessedaslow andsteadygrowth.

Launchedvariousschemestosuitinvestorsneeds

Mastershare firstschemelistedontheSEs

MonthlyIncome

Schemes

Very

popular

Assuredreturnsscheme

Functionedasamono ol till1987

Had6700

Crores

of

AUM

in

1988

contd.


9/50

ase

PublicSectorinstitutionswerepermittedto.

Banks,LICandGICenteredasMutualfundplayers

By1993

there

were

8

players

with

UTI.

.

UTIcontinuedtobetheleaderwithmaximumAUM

Thetotal

savings

in

Mutual

fund

grew

to

AUM

Rs.

47004

Crores


10/50

PhaseIII(1993 2003)

Privateplayers,bothDomesticandforeignenteredthemarket

KothariPioneerfirstsetupin1993

MorganStanley,JardineFleming,JPMorganetc

Periodoftremendousgrowth

ProfessionalismandTechnology

Highcompetitiveness

SEBI(MFRegulations)regulatedalltheMFsinIndiafrom1996

ThetotalAUMrosetoRs121,805Crores


11/50

ase onwar s

Restructuringof

UTI

TheUTIActrepealed

UTI urcate nto pec e Un erta ngo Un tTrustofIndia(SUUTI)andUTIMF

AllMutual

Funds

now

under

SEBI

Regulator

Periodofconsolidation&growth

o a

ason

arc ,

s

croresTotalAUMason28th,February,2007stoodatRs

353319crores


12/50

Organizationalstructure FourTiered

structure

Regulations(1996)

SponsortosetupaMutualFundundertheIndianTrustAct

1882

SponsorappointstheBoardofTrusteesorTrusteecompany

TheTrusteecompanyortheBoardofTrusteesenterintoan

setupanAssetManagementCompany

TheTrusteeCompanyalsoappointsCustodian


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Sponsor sets up the Mutual Fund under the Indian Trust Act 1882

Who is eligible to be a Sponsor?o y orpora e e er s ng y or n par ners p

Sound track record of fairness & integrity

Being in financial business for at least 5 yearsPositive net worth for at least 5 years preceding the registration

Net worth > than the AMC initial contribution PAT is positive for 3 years

The sponsor should hold at least 40% of the net worth of the AMC


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TheSponsorappointstheTrusteeCompanyorDirectorsofthe

TrustDeed

&

appointment

of

Directors/Trustees

approved

bySEBI

o e rec ors n epen en o e ponsors

Cannotbe Directors/TrusteesofanyotherMutualFund

Directors/Trusteeto

maintain

arm

length

relationship

TrusteesofaFundcanformaTrusteeCompanyunderSEBI

TrusteescanberemovedwithSEBIapproval

MonitoringtheAMCsfunctionsandactivities.

ProtecttheinterestoftheInvestors


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AssetManagementCompany

AMChastobeapprovedbySEBIunder

SEBI(MF

Regulations)

1996AMCshouldhave: NetWorthof Rs.10Crores

SoundTrackrecord

50%of

Directors

independent

of

Sponsors

&

Trustee

AMClaunchesFunds,managesthefundthroughinvestments,

AMCreceivesannualManagementfeefromtheFund itservices.


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AssetManagementCompany

Obligations&

Functions

Managementof

the

scheme

as

per

the

scheme

provisions

otmento t eun tstot e nvestorst roug o etc

Submissionof

Compliance

reports

to

the

Trustees

Properdisclosurestoinvestors

ProperNAVcalculationby8pmeveryday

Handlin theInvestorServicethrou hinhouseor

R&TAgents


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Custodians

Safekeepers

of

the

shares

&

securities

purchasedbytheMutualFund

Participatingintheapprovedclearing

systemon

behalf

of

the

Mutual

Fund

IndependentofSponsors&AMCandregisteredwithSEBI

Thedematerialized

shares

of

the

Fund

keptwiththeDepositories.


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Other Entities

Bankers

Buying&selling

of

units,

receipt

of

monies

from

the

investors,

issue

of

income/dividends/interests,

redemptions,maturitypayment.

viz.distributors,publicity,R7Tetcinc/woperationsofthescheme

Bankingtransactionsforpurchase&saleofshares,

securitiesand

other

assets

payments Issueofcheques,Drafts,ECSpaymentsonbehalfofthe

AMCAlsohandledistributorsfunctions


19/50

OtherEntities

contd.

TransferAgents

In

house

or

external

agencies

registered

with

SEBIIssueofunitsandredemption

Han inga investorservices

Specialpayoutslikedividends,bonusissuesetc

Interface of the Fund with the Investors


20/50

OtherEntities

contd. Distributors

Networkofdistributorstocanvassforthesaleofthefunds

floatedby

a

Mutual

Fund

Individual Brokers Cor orate Banks

Brokerage/commissionfortheunitssoldthroughthem

Canbedistributorsformorethan1MF

investmentavenues

MandatorytobeAMFICertifiedw.e.fNovember,2001


21/50

AsnapshotofMutualFund

rgan za ona

ruc ure

Fund Sponsor Trustees AMC

an s us o an

Agents/

DistributorsR &T Depositories


22/50

ParticipantsOfMutualFund

InIndia

Industry1. BankSponsored

2. Institutions

3. PrivateSector

a. Indian:b. Predominantly

Indian

Joint

Ventures

c. PredominantlyForeignJointVentures

B.NewPlayersenteringtheMFIndustry


23/50

RecentDevelopmentsInThe

u ua

un

n us ry

LaunchofNewInnovativeProducts

Feeslinked

to

performance

Em lo ee&Broker A entCertification AdditionalDisclosures&ImprovedService

Standards StricterComplianceStandards ShiftfromGuaranteedProductstoNon

Guarantee

Pro ucts ConsolidationintheMutualFundIndustry


24/50

Bynature

of

Investments

ByInvestmentO jective

Byrisk

profile


25/50

Openend

ByInvestmentobjective

Income(debt),

OthersIndexschemes Sectors ecific Exchan eTradedFunds Floatin rateschemes


26/50

improvingwith

Paperlesssystems:Nocertificatehandling

ECSfollowedbyElectronicFundsTransfer

Increasingtechnology

linkages

across

offices,

banks,registrars,etc.


27/50

Transparencytoboost

Monthl Portfolio Disclosures

Investor Communication through Monthly Bulletins

Quarterly Accounts

Inter-Fund comparison of Returns

Benchmarks, Peers


28/50

InvestorAwareness

level

r s ng rom ncrease compe on ea ng oincreasedadvertisementsandpublicity

un anagemen cos s

FundManagersabilitytomanagerisk

Regulationand

Best

Practices


29/50

AssetsUnderMana ement

Computationof

Net

Asset

Value

Valuationofinvestmentportfolio

Dailydisclosures

Loadstructure

entry

and

exit

loads

PerformancereturnsofvariousfundsAbsolutereturns RiskadjustedreturnsPeergroupcomparisons


30/50

ofequity

shares

and

debt

instruments

debtportfoliodailymarketvalueiscomputed

NAV=MVAt LIABt NSOt MVAisthemarketvalueofassets

LIABisliabilities

NSOnumber

of

shares

/units

outstanding


31/50

Debtresearch

Trac ingmacroeconomic ata

Policyimpacts


32/50

Aggressive

Port o ioStrategies

Equityfund

management

Debtfundmanagement

ULIPSandsectorfundsmanagement


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Different erformancemeasures

Changein

NAV

o a e urn

Return

on

Investment


34/50

Absolutereturns

Simple

returnsIfaschemeNAVhasgoneupfromRs10to12and

10/10)

Usefor

schemes

which

are

in

existence

for

less

than

a

year

MorethanoneyearusecompoundedreturnsAnnualisation returnforthe eriodwhichisnot

equalto

one

year

a

scheme

gives

4

months

return

as

5%theannualreturnbe5%*12/4=15%


35/50

Whendividend

is

paid

NAV

goes

down

as

Ex

dividend

NAV Iftheschemehasagrowthoptionwhereno

dividendsaredeclared,thenearningswillbe

fullyreflected

in

the

NAV


36/50

Similarto

simple

return

but

if

there

is

dividend

,

returns

uppose asgrown rom s o an eisdeclaredasdividend

=

Totalreturnis(12+110)/10=30%


37/50

Compoundedreturn

ssumeany v en ec are sre nveste nt esc eme.

Thennumber

of

units

will

increase

to

the

extent

of

no.of

dividendsdeclared unitholdingwillincrease

pen ngun s open ng

Closingunits*closingNAV

CAGR

(A/P)(1/t)

1=c os ngwea

P=openingwealth

T=timeperiod

SEBI sc eme smoret anoneyearuseCAGR


38/50

Rollin return

Returnsduring

last

7

days,

last

one

month,

three

months

Debtinvestmentearnsdailyinterestincome

Volatilityindailyinterestratesleadtovolatilereturns

ayro ngre urns s ow eex en o vo a y

Loadadjustedreturns

Relativereturns

Withreferencetobenchmarkindex


39/50

NAVduring

the

given

period

,

Returnisusuallycalculatedonanaverage

asist anpointtopoint asis

NAVseriesshouldbeatleastbeof30periods

(samplesize

30) (1/3)


40/50

evaluationis

to

compare

it

with

the

returns

obtainedrelativetootherreturnanactiveinvestmentmanagerprovides

Inother

words,

use

of

a

benchmark

that

is

comparableinrelativesense

Eg.,compareasectorfundwithsectoralindex

orreturn

with

a

popular

index

in

the

country

likeBSESensex,etc (2/3)


41/50

performance,we

must

also

account

for

the

Benchmarkportfoliosneedtohaveasimilar

meaningful

easuret e

per o c

returns

mont y,

quarterly) (3/3)


42/50

AMFIand

SEBI

regulations

Se ingpractices

Investmentrestrictions

KeyInformationMemorandum


43/50

investorsinterest

Regulators

SecuritiesExchangeBoardofIndia(SEBI)

AssociationofMutualFundsinIndia(AMFI)


44/50

SEBIAct

SEBI sapprova isrequire tostartamutuafundoperations

SEBIalsoensuresthattrustees,boardofdirectorsandassetmanagementcompanies

arepersons

of

integrity

and

reputation

with

fairdealingstotheircredit.


45/50

Setupin1995torepresentMutualFundcollectively

Research&creatingstandardsforMFsinIndia

Bestprofessional

&

ethical

standards

InteractswithSEBIonvariousissuesrelatedtothe

industry.

SEBIdiscussesmajorpolicyrelatedissueswithAMFI

,

Quarterlyupdatesetc

Mandatorycertificationprogramconductedfor

Certificationfor

the

Mutual

Fund

employees


46/50

InformationMemorandum,

which

is

essentially

a

summar oftheOfferDocument.

Asofferdocumentismostcomprehensivesource

of information for a ros ective investor it is not

distributedwidelyandisonlyavailableon

request.Thisisbecauseoftheexpenseinvolved

andbecause

most

individual

investors

find

it

cumbersometostudysuchadetaileddocument.


47/50

SEBIhasprescribedtheformatfortheKIMthatincludesthefollowin critical areas:

InvestmentObjectives. Asset

allocation

pattern

of

the

scheme.

Benchmarkindexanddividendpolicy SourceoftheobtainingdailyNAV

accountsstatements,annualfinancialresultsandhalfyearly portfoliodisclosure.

Nameoffundmana erandTrusteeCom an .

Investorgrievance

contract

,etc


48/50

Multimanager

funds

(Optimix)

He geFun s

Realty

funds GoldExchangeTradedFunds


49/50

Constituentsand

organizational

structure

Typeso sc emes

Valuation,Netassetvalueandperformance

measures

Regulations

Newchallenges


50/50

Thank You

Session 7 MF

Documents