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PRUDENTIALICICI MUTUAL
FUND
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Definition:
A MF is a pool of money, collected from investors ,& is investedaccording to certain Investment Options
Characteristics of a MF :
1) Ownership of MF belongs to investors
2) MF is managed by investment professionals who earn a feefor their services from the fund
3) Pool of funds is invested in a portfolio of marketable
investments. Value of portfolio is updated every day
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Why Mutual Funds
To address problems faced by retail investors;
Lack of moneyto obtain spread
Lack of personal expertise
Lack oftimeto manage investments
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Structure of MFs
Governed by SEBI (Mutual Fund) Regulations, 1996 Mandatory for MFs to have a three tier structure
Sponsor: Promoter of the MF, appoints the Trustees
Trustees:Responsible to the Investors in the MF,appoints AMC
AMC : Business face of MF, manages affairs of MF
Sponsor TrusteeAsset Management
Company
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How Mutual Funds Work
Money Pooled from Investors
Unit Trust Fund/ Mutual Fund
Trustee*A
Portfolio of Authorised Investments
Shares Government Securities Bonds Property Liquid Assets Derivatives
Professional FundManager
Trust Deed
A: Custodian/Depository
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Mutual Funds: Advantages
Lower transaction costs due to economies of scale
Tax benefit compared to most other investment options in India
Professional fund management
Diversification
Systematic Investment Plans
Regular Savings Plans
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Mutual Funds - Types
Open-ended:
Investors can buy /sell units of fund,at NAV related prices,atany time directly from the fund.
These funds are offered for sale at a pre-specified price,sayRs. 10 ,in the initial offer period. After a pre-specified period,
say 30 days,the fund is declared opened for further sales &repurchases
Pool of funds & units vary everyday
Close-ended:
Open for sale to investors for a specified period ,after whichfurther sales are closed. Any further transaction happens inthe secondary market where closed end funds are listed
Pool of Funds technicallyconstant
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Advantages of Mutual Funds
Suit small or large investors.
Flexibility - option to have Income Reinvested.
Professional Fund Management.
Cheaper dealing than for individual.
Liquidity ease of purchase and sale of holdings
Diversification spread of risk.
Access to international markets
Tax benefits in some jurisdictions.
Regulated - investor protection.
Wide spectrum of fund choice 50,000 funds worldwide.
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Investment Pyramid: India
Liquid Funds
Short term funds
Income Funds
Equity FundsReward
Risk
Floating rate Funds
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Investment objective
Each fund :
Stated Investment Objective
Income / Growth
Markets(s)
Government SecuritiesMoney Markets
Europe / USABlue ChipsGlobal
Europe / USASmaller Cos.
Emerging MarketsDerivatives
Reward
Risk
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Applications of Mutual Funds
Any mediumto long-terminvestment i.e. >3 years
Investment Abroad
exposure to overseasmarkets - appeals to bothsophisticated and unsophisticated investors
Retirement Income Invest whileemployed- take income in retirement/ use
capital as safety net.
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Applications of Mutual Funds
Achievement of long-term goals
Housing
Education
Investment for children
Parents / Grandparents set up investment account on
behalfof children / grandchildren.
Unit-Linked Life AssuranceProducts.
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Regulatory Authority
Securities Exchange Board of India
Authorisation process
Submit :
Trust deed (Unit Trust)
Instrument of Incorporation (Investment Company)
Prospectus (or equivalent) Marketing Plan
Evidence of financial standing
Submission Fee
Formal request
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Offer Document
Details of launche.g.
length of initial offer period
what will happen if launch targetsnotreached.
Legal Document in language of country
Purpose
Provide Investors with key informationneeded to make informed decisions
MFs are required to file with a SEBI the Offer Document/Prospectus,in a prescribed format that provides all information about the fund &
the scheme
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Offer Document / Prospectus
Constitution of the fund,details of sponsor, trustee & AMC
Standard & Specific risk factors
Scheme attributes -Investment objective,pattern,terms withregards to liquidity
Details of the scheme being offered
Loads, fee structures & expenses
Unit holder rights
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Key Information Memorandum
As the Offer document is very detailed, SEBI allowsMFs to summarize the key points in a summarydocument called as the Key Information Memorandum
(KIM) It is mandatory that the KIM is made available to all
investors alongwith the application forms
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Initial offer at fixedprice
Pressannouncements /Mailingsto potential investors- must conform to regulatory standards of jurisdiction.
Launchbriefingsto advisers/agents.
Some jurisdictions allow direct selling
off the page
.
Usually, fundholdssubscriptions to see how muchraised before investing.
Launching a Mutual fund
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