Prepared by ashish siddiqui,Assistant professor Sanskriti School of business for MBA Students

1. MUTUAL FUND – A GLOBALLY PROVENINVESTMENT AVENUE Presentation by; ASHISH SIDDIQUI, ASSISTANT PROFESSOR, SANSKRITI SCHOOL OF BUSINESS COMPILED BY ASHISH SIDDIQUI 2010

2. Worldwide, Mutual Fund or UnitTrust as it is referred to in some parts of the world, has a long and successful history.The popularity of Mutual Funds has increased manifold in developed financial markets, like the United States. As at the end of March 2008, in the US alone there were 8,064 mutual funds with total assets of about US$ 11.734 trillion (Rs.470 lakh crores)*. COMPILED BY ASHISH SIDDIQUI 2010 MUTUAL FUND – A GLOBALLY PROVEN INVESTMENTAVENUE

3. The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases COMPILED BY ASHISH SIDDIQUI 2010 History of the Indian Mutual Fund Industry

4. First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. COMPILED BY ASHISH SIDDIQUI 2010 History of the Indian Mutual Fund Industry

5. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores COMPILED BY ASHISH SIDDIQUI 2010 History of the Indian Mutual Fund Industry

6. Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. COMPILED BY ASHISH SIDDIQUI 2010 History of the Indian Mutual Fund Industry

7. Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. COMPILED BY ASHISH SIDDIQUI 2010 History of the Indian Mutual Fund Industry

8. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth COMPILED BY ASHISH SIDDIQUI 2010 Fourth Phase cont….

9. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. COMPILED BY ASHISH SIDDIQUI 2010 History of the Indian Mutual Fund Industry

10. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. COMPILED BY ASHISH SIDDIQUI 2010 CONCEPT

11. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. COMPILED BY ASHISH SIDDIQUI 2010 Concept….

12. COMPILED BY ASHISH SIDDIQUI 2010 The flow chart

13. COMPILED BY ASHISH SIDDIQUI 2010 ORGANISATION OF A MUTUAL FUND

14. Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated COMPILED BY ASHISH SIDDIQUI 2010 ADVANTAGESOF MUTUAL FUNDS

15. NAV Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the valuation date COMPILED BY ASHISH SIDDIQUI 2010 Frequently used terms

16. Sale PriceIs the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption PriceIs the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes. Repurchase or ‘Back-end’LoadIs a charge collected by a scheme when it buys back the units from the unitholders. COMPILED BY ASHISH SIDDIQUI 2010 Frequently used terms

17. COMPILED BY ASHISH SIDDIQUI 2010 TYPES OF MUTUAL FUND SCHEMES

18. These do not have a fixed maturity. You deal with the Mutual Fund for your investments and redemptions.The key feature is liquidity. You can conveniently buy and sell your units at Net Asset Value(NAV) related prices, at any point of time. COMPILED BY ASHISH SIDDIQUI 2010 Open ended schemes

19. Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close ended schemes.Youcan invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary from the scheme’s NAV on account of demand and supply situation, unitholders’ expectations and other market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows COMPILED BY ASHISH SIDDIQUI 2010 Close Ended schemes

20. Some close-ended schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close ended schemes COMPILED BY ASHISH SIDDIQUI 2010 Close Ended schemes( cont..)

21. These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices. COMPILED BY ASHISH SIDDIQUI 2010 Interval schemes

23. Investors seeking growth over the long term.COMPILED BY ASHISH SIDDIQUI 2010 Growth schemes

25. Investors who need some income to supplement their earnings.COMPILED BY ASHISH SIDDIQUI 2010 Income Scheme

27. Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: Corporates and individual investors as a means to park their surplus funds for short periods or awaiting a more favourable investment alternative. COMPILED BY ASHISH SIDDIQUI 2010 Money Market / Liquid Scheme

28. Tax Saving Schemes (Equity Linked Saving Scheme - ELSS) These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through Mutual Funds. Ideal for: Investors seeking tax incentives COMPILED BY ASHISH SIDDIQUI 2010 Other Scheme

29. Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc. Please bear in mind that any one scheme may not meet all your requirements for all time. You need to place your money judiciously in different schemes to be able to get the combination of growth, income and stability that is right for you. Remember, as always, higher the return you seek higher the risk you should be prepared to take COMPILED BY ASHISH SIDDIQUI 2010 FUNDS OF FUNDS (FOFs)

30. Exchange traded funds popularly also known as ETFs, is a type of mutual fund wherein, the corpus is invested in a basket of securities, which is being traded on an exchange. Further, an Exchange traded fund investments are being made either on all the securities or on a sample of the representative securities that are being traded in the said index.The exchange traded funds employ the process of arbitration during trading, in order to keep its trading value in sync with the values of the underlying stocks, which makes up the portfolio.All the Exchange Traded Funds in India are regulated by the Association of Mutual Funds of India (AMFI). Further, the Association of Mutual Funds of India (AMFI) operates in accordance with the laid down guidelines of the Securities and Exchange Board of India (SEBI). The Chapter III of the Income Tax Act, 1961 provides tax exemption on investment on Exchange Traded Funds. The rise of the Indian capital markets and increasing numbers of exchange has propelled the growth in the numbers of Exchange traded funds in India. COMPILED BY ASHISH SIDDIQUI 2010 EXCHANGE TRADED FUNDS(ETF)

31. The Sector Funds are those types of mutual funds which accumulate stocks of particular sector. In other words sector funds invest in a single type of industry, like Information Technology, Telecommunication, Pharmaceuticals, Infrastructure, etc.The Sector Funds are structured in this particular manner in order to take advantage of growth of particular type of industry. The Sector Funds can offer tremendous profit to the investor if the funds are carefully chosen. The authorities to the Sector Funds in India are the Association of Mutual Funds of India (AMFI), which operates in accordance with the laid down guidelines of the Securities and Exchange Board of India (SEBI). Moreover, investments in Sector Funds offer tax exemptions to the investors (Chapter III of the Income Tax Act, 1961). With the growth of the Indian industries the financial markets have undergone tremendous transformation. The rise of different sectors has necessitated structuring of sector specific funds to attract substantial amount of money for the growth of a specific sector in India. COMPILED BY ASHISH SIDDIQUI 2010 SECTOR FUNDS

32. COMPILED BY ASHISH SIDDIQUI 2010 The graph indicates the growth of assets over the years

34. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds UNDERSTANDING AND MANAGING RISK help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales, help them to build a diversified portfolio that minimizes risk and maximizes returns. COMPILED BY ASHISH SIDDIQUI 2010 UNDERSTANDING AND MANAGING RISK

35. Step1..Identify your investment needs. Step2..Choose the right Mutual Fund. Step3..Select the ideal mix of Schemes. Step4..Invest regularly Step4..Keep your taxes in mind Step5..Start early Step6..The final step COMPILED BY ASHISH SIDDIQUI 2010 How to invest in mutual fund??

36. SYSTEMATICE INVESTMENT PLANS (SIPs) A Systematic Investment Plan allows an investor to buy units of a mutual fund scheme on a regular basis by means of periodic investments into that scheme in a manner similar to installments paid on purchase of normal goods. The investor is allotted units on a predetermined date specified in the application form of the scheme based on that day’s NAV. Here the Plan allows the investor to take advantage of the Rupee Cost Averaging methodology..minimum investment of Rs 500 every month. COMPILED BY ASHISH SIDDIQUI 2010 METHODOLOGY OF INVESTMENT

37. Systematic Withdrawal Plan A Systematic Withdrawal Plan permits the investor to receive a pre-determined amount / units from his investment in a mutual fund scheme on a periodic basis. Retirees in need of a regular income often opt for this. COMPILED BY ASHISH SIDDIQUI 2010 METHODOLOGY OF INVESTMENT

38. Systematic Transfer Plan An STP allows the investor to transfer a pre-determined amount from his investment in a mutual fund scheme to another mutual fund scheme (of the same company) on a periodic basis. This Plan is generally used to transfer sums from a Money Market / Liquid / Cash scheme to another scheme. COMPILED BY ASHISH SIDDIQUI 2010

39. REGULATIONS SEBI (Mutual Funds) Regulations, 1996 ASSOCIATION OF MUTUAL FUNDS OF INDIA (AMFI) COMPILED BY ASHISH SIDDIQUI 2010

40. An applicant proposing to sponsor a mutual fund in India must submit an application in Form A along with a fee of Rs.25,000. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs For details, see the SEBI (Mutual Funds) Regulations, 1996. COMPILED BY ASHISH SIDDIQUI 2010 procedure for registering a mutual fund with SEBI

41. Every mutual fund shall compute the Net Asset Value of each scheme by dividing the net assets of the scheme by the number of units outstanding on the valuation date. (2) The Net Asset Value of the scheme shall be calculated and published at least in two daily newspapers at intervals of not exceeding one week : [Provided that the Net Asset Value of a close ended scheme, other than that of equity linked savings scheme, shall be calculated on daily basis and published in at least two daily newspapers having circulation all over India.] COMPILED BY ASHISH SIDDIQUI 2010 Computation of Net Asset Value

42. (1) The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors. (2) The mutual fund, in case of open-ended scheme, shall at least once a week publish in a daily newspaper of all India circulation, the sale and repurchase price of units. (3) While determining the prices of the units, the mutual fund shall ensure that the repurchase price is not lower than 93 per cent of the Net Asset Value and the sale price is not higher than 107 per cent of the Net Asset Value: Provided that the repurchase price of the units of close ended scheme launched prior to the commencement of the Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2009 shall not be lower than ninety five per cent of the Net Asset Value:] Provided further that the difference between the repurchase price and the sale price of the unit shall not exceed 7 per cent calculated on the sale price COMPILED BY ASHISH SIDDIQUI 2010 PRICING OF UNITS

43. Certification SEBI vide its Gazette Notification dated May 31, 2010 has notified that with effect from June 1, 2010 all the distributors, agents, any persons employed or engaged or to be employed or to be engaged in the sale and/ or distribution of Mutual Fund Products shall be required to have a valid certification from the National Institute of Securities Market (NISM) by passing their certification examination 'NISM Series V-A : Mutual Fund Distributors Certification Examination'. For further details as well as for study material, which can be downloaded, please log on to the website of NISM www.nism.ac.in.It is further notified that if the said associated person possesses a valid AMFI Mutual Fund (Advisors) Module Certificate obtained before June 1, 2010, he shall be exempted from the requirement of the abovementioned NISM Certification Examination. COMPILED BY ASHISH SIDDIQUI 2010 CERTIFICATION

44. Q1.How Do I Invest Mutual Fund? Q2.What Does Risk Means In Mutual Fund? Q3.How Do Mutual Funds Minimize Risk? Q4.How Much Return Can I Expect? Q5. How Can Know Performance Of My M.F On Daily Basis? Q6. How The Returns Distributed? Q7.How Is Investment In M.F Is Different From Investment In F.D? COMPILED BY ASHISH SIDDIQUI 2010 Frequently asked questions

45. Q.8. What Are Tax Exempt And Non Exempt Tax Funds?? Q.9. Can M.F Help In Saving Tax?? Q.10. What Are The Advantages In Investing In Sip ?? Q.11. What Should Investor Look Into Offer Document? COMPILED BY ASHISH SIDDIQUI 2010 Frequently asked questions

46. COMPILED BY ASHISH SIDDIQUI 2010 Money is like manure. You have to spread it around or it smells. ~J. Paul GettyTHANK YOU