Mutual Funds PDF

Introduction to Mutual Funds Neha Shah What is a Mutual Fund? ❖ Pool of investors money. ❖ Invested according to pre- specified investment objectives. ❖ Benefits accrue to those that contribute to this pool. ❖ There is thus mutuality in the contribution and the benefit. ❖ Hence the na...

Introduction to Mutual Funds Neha Shah What is a Mutual Fund? ❖ Pool of investors money. ❖ Invested according to pre- specified investment objectives. ❖ Benefits accrue to those that contribute to this pool. ❖ There is thus mutuality in the contribution and the benefit. ❖ Hence the name ‘mutual’ fund. Why Mutual Fund? Professional Management Risk Diversification Affordability and Convenience Return Potential Flexibility & Liquidity Tax Advantages Transparency Disadvantages Classification Based on Structure No fixed maturity date. Open Ended Accept continuous sale and re purchase requests. Funds Transactions are NAV based. Unit capital is not fixed Closed Run for a specific period Offered in an NFO but are closed for further purchases Ended Funds after NFO Unit capital is kept constant Interval Variant of closed ended funds Becomes open ended at specific intervals Funds Have to be mandatorily listed  Classification Based on Asset Class Invest in short and long term debt instruments. Debt Funds Aim to provide regular income. Invest in equity securities. Equity Funds Aim to provide growth and capital appreciation over long term Invest in a combination of equity debt securities Hybrid Funds Proportion of equity and debt may vary Aim to provide for both income and capital appreciation Safe and risk-free. They invest in short-term debt Money Market instruments, mostly T-bills. Fund Main objective is to hold investment instruments that are liquid and secure. The returns for this are generally low  Difference between Small Cap, Mid Cap and Large Cap Funds Category Large Cap Mid Cap Small Cap Top 100 companies by 101-250 by 251 onwards by Capitalization capitalization capitalization capitalization Capitalization range ~Rs.20,000 crores and more ~5,000 – 20,000 crores Inder 5,000 crores Market presence Strong market presence Good market presence Start-up or a company that is under development Risk Profile of fund Low Medium High Liquidity and Volatility Less, more or less stable with Moderate volatility and More volatile and less liquid good liquidity and returns moderate liquidity Returns of funds Average 7% in last 5 years Average 10.28% Average 14.74% Growth Higher chances of generating Moderate potential for Highest potential for growth stable returns growth Classification Based on Investment Style Replicate a market index Passive Invest in same securities and in same proportion as that of index No active selection of any stock sector. Funds Expenses are lower. Portfolio is modified every time index composition changes. Active Invests in securities and sectors that may offer a better return than the index Actively manage the allocation to market securities and Funds cash. May perform better or worse than the market index. Incur a higher cost than passive funds  Categorization of Mutual Fund Schemes Categorization of open-end mutual funds: -To ensure uniformity in characteristics of similar type of schemes launched by different mutual funds. -Helps investors to evaluate different options available before making informed decision to invest. Other Types of What Amount should Funds One Invest in Debt Funds or Equity Funds? Tax Saving Funds (ELSS) Asset allocation will depend on age, income and risk appetite, and Sector funds time horizon of investments. Hedge Funds As a rule of thumb, percentage in debt instruments should be equal Arbitrage funds to one’s age. Fund of funds This percentage can be adjusted as per the time horizon and risk Load Fund and No-load Fund appetite Assured Return Scheme Buying a Mutual Fund Step 1: Determining Your Goals Step 2: Identify funds meeting Your Objectives Step 3: Evaluating the Fund Step 4: Making the Purchase Step 5: Monitor your investments  Mutual Funds Terms to Know AMC EXPENSE RATIO LOAD Asset Management Companies Annual fee charged by a mutual Sales charge or commission paid are financial Institutions that fund, expressed as a percentage when buying or selling mutual manage multiple funds. of the fund's assets. fund shares. Registered and regulated by SEBI 01 Lorem Ipsum AMC Lorem Ipsum AUM EXPENSE RATIO Lorem Ipsum NAV LOAD 02 AUM NAV Assets under Management is the Stands for Net Asset Value. It is total sum of investors and the the unit price of the fund, size of the assets controlled by reflecting the total assets minus the AMC. liabilities divided by shares.  Mutual Funds Terms to Know SIP SWP DIVIDEND OPTION Investing a fixed amount at Withdrawal of a fixed amount Distributes profits as dividends regular intervals to average the from an investment at regular to investors, either as cash or investment cost over time. intervals, providing a steady reinvested into the fund. income. 01 Lorem Ipsum SIP Lorem Ipsum STP SWP Lorem Ipsum GROWTH OPTION DIVIDEND OPTION 02 STP STP stands for Systematic GROWTH OPTION Transfer Plan. It is the transfer of Reinvests profits into the fund, a fixed amount or units from one leading to capital appreciation mutual fund to another at instead of immediate payouts. regular intervals. Income Tax Benefits