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Concept of a mutual fund

Concept of a mutual fund. A common pool of money into which investors place their contribution This money is to be invested according to the pre-stated objectives of the fund

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Concept of a mutual fund

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  1. Concept of a mutual fund • A common pool of money into which investors place their contribution • This money is to be invested according to the pre-stated objectives of the fund • Ownership of the fund is joint or mutual amongst all investors - equivalent to the contribution made as a proportion of the overall fund • Ownership through holding of units at NAV

  2. AMC Savings Investments Trust Units Unit holders Returns Registrar Trust SEBI Custodian AMC How does a Mutual Fund work?

  3. Portfolio Diversification Professional Management Reduction of Risk Reduction of Transaction Costs Convenience & Flexibility Liquidity Access to Information Advantages of Mutual Funds

  4. Daily sale/purchase • No fixed maturity • Fund is “secondary market” Open-ended • Sale during IPO • Fixed Maturity • SE is secondary market Closed-ended • Periodic sale / purchase • No fixed maturity • SE is also secondary market Interval Type of Funds, as per structure …

  5. Equity Debt Money Market Equity Funds Index Funds Sector Funds Fixed Income Funds Money Market Mutual Funds Balanced Funds Liquid Funds Type of Funds, as per investment objective…

  6. Investment horizon 3 years Days 1 year Risk Profile… Sectoral Funds Diversified Equity Funds Risk Balanced Funds MIPs Gilt Funds Income Funds Short Term Plans Floating Rate Funds Money Market Returns

  7. Tax Benefits in Mutual Funds • Dividends Tax Free in the hands of investors for all type of MF schemes • There will be Dividend Distribution Tax Debt Funds … Individuals 12.50% Corporates 20.00% Surcharge 10.00% from FY2005-06 Effective tax rate is much lower than on interest of bank FD for higher tax bracket Individuals and Corporate investors • Dividend Tax Free for all Equity and Balanced schemes

  8. Tax Benefits in Mutual Funds • Interest on all investment avenues(except PPF) would be taxable as section 80L (up to Rs.12000 of interest income exempted up to FY2004-05) scraped. Interest is taxable @33.66%; Capital gain tax @10%; DDT @14.025% for Individual taxpayers(FY2005-06)

  9. Tax Benefits in Mutual Funds • Capital Gain Tax - For Equity / Balanced Funds LT Capital Gain Tax Nil ST Capital Gain Tax @ 10% - For Debt Funds LT Capital Gain Tax @ 10% ST Capital Gain Tax Tax bracketof Investors • Deduction upto Rs. 1 lakh available u/s 80C for investment in ELSS from FY2005-06

  10. Overview of Systematic Investment Plans

  11. What is Systematic Investment Plan (SIP) • SIP is recurring investment with frequency of weekly, fortnightly, monthly, quarterly • SIP help you to buy more when market falls • SIP help you to buy less when market rises • Thus market fluctuations will get averaged • In most possible case you will get higher return than one time investment

  12. At 7.7% - 1.34 crores Postal Recurring At 12% - 3.08 crores SIP in Balance Funds At 15% - SIP in Equity Funds 5.63 crores Powerof Compounding • Rs. 10,000 invested every month for a period of 30 years

  13. A Snapshot of poor performingschemes

  14. A Snapshot of better performing schemes

  15. Equities not very risky in the long run (Rolling Returns)

  16. Market do not look over valued…

  17. Thankyou…

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