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Presented By CA Swatantra Singh,

Presented By CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.com New Delhi , 9811322785 , www.caindelhiindia.com,

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Presented By CA Swatantra Singh,

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  1. Presented By CA Swatantra Singh, B.Com , FCA, MBA Email ID: singh.swatantra@gmail.com New Delhi , 9811322785, www.caindelhiindia.com, www.carajput.com

  2. “Behavioral Trends in Mutual Funds”

  3. Mutual Fund An Investor’s Best Friend In the World of Risk” A wise man should have money in his head, not in his hand. -Jonathan Swift (1667-1745)

  4. Mutual Fund Vehicle for collective investments to pool their marginal resources & invest in Securities & distribute the returns.

  5. Advantages of Mutual Funds • Portfolio diversification • Professional management • Reduction / diversification of risk • Reduction of transaction cost • Liquidity • Convenience and flexibility • Tax Benefits

  6. Disadvantages of Mutual Funds • No control over costs • No tailor-made portfolio • Managing a portfolio of funds

  7. Fund distribution and sales practices

  8. Who can invest • Who can invest in mutual funds • Resident individuals • Indian companies • Indian trusts / Charitable institutions • Banks • Non-banking finance companies • Insurance companies • Provident funds • Non-resident Indians (Repatriable and non- repatriable) • Foreign Institutional Investors

  9. Distribution Channels • Types of distribution channels • All distributors and employees of distribution companies to be AMFI certified • Individual agents • Distribution Companies • Banks and non-banking finance companies • Largest mobilizers form mutual funds • Direct marketing by mutual funds

  10. Agent commissions.. • Agents are paid commission for distribution of mutual funds • 1.50pct to 3.00pct for equity funds • 0.40pct to 1.25pct for debt funds • Maximum agency commission restricted to 6pct initial issue expenses • Agency commission may be paid out of entry / exit load subject to overall expense limits

  11. Services by Agents.. • Understand all aspects of the schemes • Understand client profile in terms of • Age profile • Risk appetite • Income and liquidity requirements • Offer clients investments suitable to investors profile • Continuous monitoring of client’s investments • Personalised after sales service

  12. Investor services by Mutual Funds.. • Phone transactions - Interactive voice recognition system • Cheque writing facility • Sweep facility to bank accounts • Periodic statements and tax information • Loan against units • Nomination facility • Transfer of units through listing of close ended funds

  13. Measuring mutual fund performance.. • One of the Method End NAV - Start NAV 12or365 100 Start NAV No. of months or days • This method gives the annualised returns in percentage • If annualised returns are not required, the month / day calculation is deleted. You then get absolute returns in percentage • If annualised, suitable for investments only in growth option of all types of funds as dividend is not considered

  14. Useful tips for making Investments in mutual Funds.. • Consider the effect of loads • Compare similar time periods • For less than one year period calculate returns on absolute basis except for money market funds • For a period of one year and more calculate returns on annualised basis • Watch the total Returns since inception

  15. When should one invest through a Mutual Fund ? • have a small amount to invest • hold fewer than five stock • one need better advice on investing • have difficulty in deciding when to sell • find the paper work relating to investments cumbersome

  16. Types of mutual fund On the basis of objective On the basis of payout On the basis of structure Open ended Dividend Growth Close ended Dividend payout Dividend Re-invest Equity Debt Balanced Liquid Gilt Diversified Sectoral Index

  17. Constitution of Mutual Fund Fund Sponsor (Promoter of the Fund) Fund Sponsor (Promoter of the Fund) Fund Sponsor (Promoter of the Fund) Custodian Transfer Agents Distributors Brokers

  18. INVESTMENT IN MUTUAL FUND • IDEAL INSTRUMENT TO INVEST FOR THOSE WHO DON’T HAVE TIME TO DO THE RESEARCH FOR INVESTMENT IN EQUITY • ALSO FOR THOSE WHO DOES NOT HAVE LARGE SUM TO INVEST IN EQUITY SHARES OF LARGE CAP OR MIDCAP PROMINENT COMPANIES & WANTS TO PARTICIPATE IN GROWTH STORIES OF THESE KIND OF COMPANIES.

  19. INVESTMENT IN MUTUAL FUND • TODAY MUTUAL FUNDS ASSETS UNDER MANAGEMENT IS ALMOST 781000 CRORE. • INVEST IN STOCK MARKET AFTER EXTENSIVE RESEARCH. • PROFESSIONAL MANAGEMENT • DIVERSIFICATION • EXCELLENT RETURN POTENTIAL IN LONG RUN • LIQUIDITY

  20. Investment Management

  21. Equity portfolio management.. • Fund management organisation structure • Fund manager Performs asset allocation • Security analyst Supports the fund managers through analytical reports (Fundamental, technical and quantitative) • Security dealers Executes actual buying and selling through brokers

  22. Equity portfolio management.. • Equity Research • Fundamental analysis The study of the Financial health of a particular company, by studying the past 3 to 5 years Balance sheets & Profit & Loss accounts • Technical analysis The study of the market movements of share price of a company or industry / sector to predict the future trend • Quantitative analysis The use of mathematical models for equity valuation

  23. Equity portfolio management.. • Types of equity instruments • Ordinary shares • Preference shares • Equity warrants • Convertible debentures • Derivatives • Futures • Options

  24. Equity portfolio management.. • Portfolio management process • Set Investment policy • Perform security analysis and research • Construct a portfolio • Revise the portfolio • Evaluate the performance of the portfolio

  25. Debt portfolio management.. • Fund management organisation structure • Fund manager Performs asset allocation • Security dealers Executes actual buying and selling through brokers • Interest rate forecasting unit Economists who do research on interest rates • Risk Managers Oversee risk levels attained by fund managers

  26. Debt portfolio management.. • Types of debt instruments • Certificate of deposit • Commercial paper • Corporate debentures • Floating rate bonds • Government securities • Treasury bills • Bank / Financial Institution bonds • Public sector undertaking bonds

  27. Debt portfolio management.. • Risks in investing in bonds • Interest rate risk • Price of bonds are inversely proportional to interest rates • Reinvestment risk • Coupon received may not get invested at the coupon rate itself • Call risk • If bond provides a call option, the bond may get called if interest rates drop. Reinvestment will then happen at lower rates

  28. Debt portfolio management.. • Risks of investing in bonds • Default risk • Credit risk of default on repayment of interest / principal by the issuer • Inflation risk • Rise in inflation results in lower purchasing power on coupon received, making the bond lose value • Liquidity risk • Illiquidity leads to incorrect pricing and desperate sales

  29. Debt portfolio management.. • Risks of investing in bonds • Default risk • Credit risk of default on repayment of interest / principal by the issuer • Inflation risk • Rise in inflation results in lower purchasing power on coupon received, making the bond lose value • Liquidity risk • Illiquidity leads to incorrect pricing and desperate sales

  30. WEALTH CREATION - EQUITY INVESTMENT ROUTE

  31. STOCK MARKET FROM THE LOW OF 8000 LAST YEAR NOW CLIMBING HIGHER - CELEBRATION ALL AROUND • SENSEX AT 17000

  32. SENSEX AT 17000NIFTY AT 5089 • BUT IS IT TRUE THAT EVERYBODY MADE MONEY? • ONLY HANDFUL PEOPLE CREATED WEALTH, SOME MADE LITTLE BIT OF MONEY BUT MOST OF COMMON PEOPLE HAVE LOST MONEY. • WHY? • BECAUSE MAJORITY OF PEOPLE ARE NOT INVESTORS BUT ARE PUNTERS, DAY TRADERS.

  33. ALL EYES ON INDIA - INTERESTING INDIA GROWTH STORY STILL LONG LONG WAY TO GO - JOIN THE BAND WAGON

  34. INDIA GROWTH STORY • INDIA IS DOMESTIC CONSUMPTION STORY • CHANGING DEMOGRAPHIC PATTERN WITH HIGH PERCENTAGE OF YOUTH EARNING IN THE COUNTRY WITH HIGHER DISPOSABLE INCOME CREATED CONSUMPTION BOOM.

  35. INDIA GROWTH STORY • IT ALL STARTED WITH LOWER INTEREST RATE • LOW INTEREST RATE HELPED HIGH DEMAND FOR HOUSING, CAR, TWO WHEELER. • IN TURN ALL THESE BOOSTED THE DEMAND FOR CEMENT, STEEL, AUTO ANCILIARIES, INFRASTRUCTURE, BANKING & FINANCE FACILITIES, TECHNOLOGY ETC.

  36. WHY INVESTMENT • BECAUSE MONEY DOES N’T GROW ON TREE, SO TILL IT HAPPENS WE HAVE TO PARK OUR SAVINGS SMARTLY TO GET GOOD RETURN ABOVE BANK INTEREST.

  37. WHY INVESTMENT • TO FULFILL OUR DREAMS LIKE: WELL FURNISHED APARTMENT CAR, WORLD TOUR, FARM HOUSE, CHILDREN’S EDUCATION ETC. • IS IT POSSIBLE WITH YOUR ROUTINE BUSINESS INCOME OR FROM SALARY?

  38. WHY INVESTMENT • NO SOCIAL SECURITY IN INDIA, SO FOR THE FUTURE, FOR THE RETIREMENT, FOR THE RAINY DAY ONE OUGHT TO HAVE ENOUGH.

  39. WHY INVESTMENT • ACTIVE INCOME - INCOME FROM OUR BUSINESS, PROFESSION, JOB, WHAT WE DO ACTIVELY TO EARN MONEY.

  40. WHY INVESTMENT • PASSIVE INCOME – EARNED FROM INVESTMENT IN VARIOUS OPTIONS. I.E. DIVIDEND, INTEREST, RENT, CAPITAL APPRECIATION ON SHARES, M.FUND.

  41. ACTIVE INCOME : Needs constant devotion of time & action, Physical work To earn more, more work Requires Physical Presence PASSIVE INCOME : Needs assets & ideas to generate income Can be earned more by working smarter & not harder Requires more of mental presence WHY INVESTMENT

  42. Suffers high rate of taxation There is limited ( business & profession ) or no resale value ( Job ) - Has limited or no leverage potential to earn active income Attracts lower or no taxation Normally asset has resale value Assets and Income can be leveraged to earn passive income. WHY INVESTMENT

  43. WHY INVESTMENT • Those who focus only on earning active income get left behind to those who concentrate on complementing their active income with passive income. • So, to retire rich and early one must have more passive income which could take care of your expenses in later part of your life.

  44. INVESTMENT DECISION - MAKING • CHOOSING THE MOST PROFITABLE & SUITABLE ALTERNATIVE FROM PLENTY OF OPTIONS. • PORTFOLIO HAS TO BE DESIGNED AS PER OBJECTIVE OF INVESTOR, HIS AGE, HIS INCOME, TIME HORIZON, RISK & RETURN PROFILE, FAMILY NEEDS, TAX STRUCTURE & GOVT. POLICIES.

  45. THE TRIO OF INVESTMENT – RETURN , RISK & TAXATION • Returns- What are the return on the investment - in value and percentage terms on an annualized basis? Return may be in form of Interest, Dividend, Rent and / or Capital Appreciation.

  46. Risk : • What are the risks involved in making the investment? Normally, higher the return, higher the risk and lower the risk then lower would be the return. The different types of risk includes, price fluctuations, liquidity, default, Inflation, interest rate and currency risk.

  47. Taxation : • In order to maximize one’s real return on investment after taxes, taxation needs to be considered and planned to minimize its impact.

  48. INVESTMENT OPTIONS • PLENTY OF OPTIONS, SUCH AS : • ( a ) Fixed Income Deposits & Securities • ( b ) Tax Savings Schemes • ( c ) Equity Shares • ( d ) Mutual Funds • ( e ) Insurance • ( f ) Real Estate • ( g ) Precious Metals like Gold, Silver • ( h ) Derivatives

  49. INVESTMENT MODEL : Age Scenario Strategy Assets Allocation 20's Acquiring vocational skills * No dependants    Equity : 70% and education (degree)     No self-generated assets Debt : 10% Taking a job or setting up Invest the surplus income Sml. Saving : 15% Business / profession in growth assets like Insurance : 5% Shares, mutual funds, Maximize the tax savings Start buying life, medical and accident insurance 30's Marriage & starting a family * Continue to invest a major      Equity : 60% Getting settled in a job, portion of income into growth Debt : 10% business or profession assets , Accumulate fund Sml.Saving :20%   Spouse may or may not to buy a residence in the future, Insurance :10% be an earning member Increase insurance coverage •   Need for larger house for entire family

  50. INVESTMENT MODEL : Age Scenario Strategy Assets Allocation 40's Planning for the future needs · Acquire a house with or Equity : 40%      Buying a residential house without housing loan Debt : 15%          High surplus income Reduce exposure to risky Small Saving: 25% investment      Insurance : 20%      Increase life cover Plan for retirement and needs of the family, especially children      Create a contingency fund 50s Planning for Retirement       Repay housing loan, if taken Equity : 20%     Children have grown up Payoff all debts Debt : 45% and are towards becoming Think of retirement needs, Small Saving: 20% independent Surplus for plan and take appropriate action Insurance : 15% investment is at peak Ensure that passive income is •              much higher than active income

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