493 Mutual Funds

8/3/2019 493 Mutual Funds

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WHAT IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the

savings of a number of investors who share a

common investment objective

IN turn buy assets


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21-2 Copyright 2002 by Prof. A.K. .Mishra All rights reserved

LEGAL STRUCTUREFUND SPONSPOR/SETTLOR

KOTAK MAHINDRA FINANCE LTD.

TRUST

KOTAK MAHINDRA MUTUAL FUND

TRUSTEEKOTAK MAHINDRA

TRUSTEE CO. LTD.

INVESTMENTMANAGER &ADVISOR

KOTAK MAHINDRA ASSET

MANAGEMENT CO. LTD.UNITHOLDERS

Contd


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LEGAL STRUCTURE

APPOINTS

CUSTODIANS

REGISTRARS

BANKS

DISTRIBUTORS

INVESTMENT MANAGER & ADVISORKOTAK MAHINDRA ASSET

MANAGEMENT CO. LTD.


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Working of a Mutual Fund

FUND

MANAGEMENT

SECURITIES

RETURNS

INVESTORS Pool their money with

Invest inGenerate

Passed back toINVESTORS GET A

BLEND OF LIQUIDITY

RETURNS & SAFETY

INVEST IN

BALANCED

PORTFOLIO

PORTFOLIO

YIELDS HIGH

RETURN TO MFs

MUTUAL FUND

LARGE CORPORATE

SPECIALISTS MANAGE


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Type of

Mutual FundSchemes

StructureInvestmentObjective

SpecialSchemes

Open EndedFunds

Close EndedFunds

Interval Funds

Growth Funds

Income Funds

Balanced Funds

Money MarketFunds

Industry SpecificSchemes

IndexSchemes

SectoralSchemes

TYPES OF MUTUAL FUNDS


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MUTUAL FUNDS

OPEN ENDED

OPEN FOR ALL THE YEAR MIN SUBS AMT 50CR

NO DURATION

REFUNDED IF MIN SUBS NOT

ACHIEVED

REPURCHASED ANY TIME

REDEEMED AT NAV & LOAD

FACTOR RANGES (4% TO 6%)

AS REPURCHSED SO NOT

LISTED AT STOCK EX

TRADED AS PERMITTED LOT

DIVID MAY /MAY NOT

SWITCHOVER ALLOWED

CLOSE ENDED

OPEN FOR FIXED PERIOD

MIN SUBS AMT 20CR

DURATION (5TO7 YEARS)

REFUNDED IF MIN AMT

NOT ACHIEVED MAY BE REPURCHASED

(AFTER 2 TO 3 YRS)

REDEMPTION SPECIFIED &

DONE AT NAV - SERVICECHARGE

LISTED AT STOCK EX

DIVID MAY/MAY NOT BE

SWITCHOVER ALLOWED


7/4421-7 Copyright 2002 by Prof. A.K. .Mishra All rights reserved

WHY INVEST IN MUTUAL FUNDS?SAVE THROUGH MUTUAL FUNDS INVEST THROUGH MUTUAL FUNDS

Park surpluses

Short term investment

Easy liquidity

Tax benefits

Have a long term objective

Profile your risk

Select appropriate MF scheme,

based on risk return requirement

Mix of equity and debt

Invest regularly/with flexibility


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BENEFITS OF MUTUAL FUNDS

Professional Management & Analysis

Diversification & Divisibility

Across Companies & Sectors

Liquidity

Entry & Exit at NAVTransparency

Regular disclosures

Convenient Administration (Record Keeping)Low Costs of operations (Lower transaction cost)

Choice of schemes.

Well Regulated. (By SEBI)



HighNopricerisk

9% - 10%Over 1 yearSerial

HighLowCredit

9% -10.5%

1 month 12months

Bond

HighNo8% to9.5%

Overnight to 1month

Liquid

Mutual Funds

HighPriceRisk

7% - 9%



RIGHTS AS A MUTUAL FUNDUNITHOLDER

Receive statement of accounts within 6 weeks from the date yourrequest is received by the Mutual Fund

Receive information about the investment policies, objectives,financial position and general affairs of the scheme

Receive dividend within 30 days of their declaration, receiveredemption proceeds within 10 days from the date of the validredemption

Vote in accordance with the Regulations to:- change the Asset Management Company

- wind up the schemes.

To receive communication from the Trustee about change in the fundamental

attributes of any scheme



MUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUNDS)

MUTUAL FUND (REGISTERED WITH SEBI) MEANS:

A FUND ESTABLISHED IN THE FORM OF TRUST



MUTUAL FUNDSSTRUCTURAL ISSUES (MUTUAL FUNDS)

BY A SPONSOR

BODY CORPORATE WHO ACTING ALONE OR IN

COMBINATION WITH ANOTHER BODY CORPORATE

FLOATS THE IDEA OF SETTING UP OF MUTUAL FUND ESTABLISHES MUTUAL FUND IN FORM OF TRUST

TRUST DEED EXECUTED WITH BOARD OF TRUSTEES

REGISTERS IT WITH SEBI

40% CONTRIBUTION TO AMC



MUTUAL FUNDSSTRUCTURAL ISSUES (MUTUAL FUNDS)

TO RAISE MONIES BY TRUSTEES HOLDG PROPERTY OF MF IN TRUST FOR BENEFIT OF UNIT

HOLDERS

THROUGH THE SALE OF UNITS REPRESENTING ONE UNDIVIDED SHARE IN THE ASSETS OF A

SCHEME

FOR INVESTING IN SECURITIES

APPLICATION FEES:5000;

REGISTRATION FEES:10 LACS;

ANNUAL FEES : 1 LAC



MUTUAL FUNDSSTRUCTURAL ISSUES(MUTUAL FUND TRUST)

MF TO BE CONSTITUTED IN FORM OF MF TRUST

MANAGED BY A BOARD OF TRUSTES IN WHOSEFAVOUR TRUST DEED IS EXECUTED BY SPONSORS

50% MEMBERS NOT AFFILIATED WITH SPONSORS

CONTROLS ALL CAPITAL PROPERTY OF MF

SCHEMES/ HOLDS THEM IN TRUST FOR HOLDERS



MUTUAL FUNDSSTRUCTURAL ISSUES(MUTUAL FUND TRUST)

APPOINTS AMCs

ENSURES SCHEMES FLOATED & MANAGED BY

AMC ARE IN ACCORDANCE WITH TRUST DEED

POWER TO OBTAIN REPORT/DISMISS AMC

AN AMC NOT TO ACT AS TRUSTEE OF ANY MF

APPOINT CUSTODIAN &SUPERVISE ITS ACTIVITIES



MUTUAL FUNDSSTRUCTURAL ISSUES (MUTUAL FUND TRUST LIST)

ALLIANZ CAPITAL & MGT SERVICES LTD

ANZ GRINDLAYS BANK

TIMES MUTUAL FUNDS

UNIT TRUST OF INDIA

VLS FINANCE LTD.

KOTAK MAHINDRA FINANCE LTD

PRUDENTIAL CAPITAL MARKETS LTD. SBI FUNDS MANAGEMENT LTD

CEAT MF & ASSET MANAGEMENT COMPANY LTD.



MUTUAL FUNDS

STRUCTURAL ISSUES (AMC)

MFs OPERATED BY AMCs -APPTD BY TRUSTEES

AMCs & TRUSTEES TWO SEPARATE LEGAL

ENTITIES & ARMS LENGTH RELATIONSHIP MNTD

AMCs TO APPROVE MOA & AOA FROM SEBI



MUTUAL FUNDS

STRUCTURAL ISSUES (AMC)

AMCs MIN NW 5 CR (40% CONTRIB BY SPOSORS)

50% MEMBERS FROM OUTSIDE

CANT ACQUIRE OUTSIDE THE SCHEME PROPERTY

DISCLOSE REPURCHASE PRICE/NAV OF SCHEMES



MUTUAL FUNDSSTRUCTURAL ISSUES (AMC LIST)

20TH CENTURY AMC LTD

APPLE ASSET MGT LTD.

BOI AMC LTD. CREDIT CAPITAL AMC LTD.

GIC AMC LTD.

ICICI AMC LTD. ITC PIONEER AMC LTD.

MORGAN STANLY AM INDIA LTD.

PNB AMC LTD.


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MUTUAL FUNDSSTRUCTURAL ISSUES (INVESTMENT MIX)

EQUITY SHARES/EQUITY RELATED INSTRTS (CDs)/

DEBT INSTRUMENTS (NCDs, PSBONDS,GOVT

SECT)/MONEY MARKET INSTRTS(TBs, CPs & BILLS)

5% CAP FROM ONE SCHEME IN ONE COS SHARE

10% CAP FROM ALL SCHEMES IN ONE COS SHARE

15%CAP FROM ALL SCHEMES IN ONE INDUSTRY TYPICAL ASSET MIXSCHEME EQUITY DEBT MONEY MKTGROWTH 70-90% 5-20% 0-10%INCOME 20-30% 60-70% 0-15%BALANCED 40-60% 40-50% 0-10%


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MUTUAL FUND INDUSTRYKEY FINANCIALS

NAV= M.V OF FUNDS INVESTS+REC+ACCRUED INCOME-LIABILITIES-ACCRUED EXP

NO. OF SHARES OR UNITS OUTSTANDING

MARKET PRICE: IN CASE OF CLOSE ENDED

REPURCHASE/REISSUE PRICE: OPEN ENDED DISCOUNT

RATE OF RETURN= NAV AT END-NAV AT BEGINNING +DIVIDEND PAID

NAV AT BEGINNING

INITIAL EXPENSES: CEILING OF 6%

RECURRING EXPENSES: MAX 3% OF AVNET ASSETS IN A YEAR


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LOADS(CHARGED TO MF SCHEME) THREE TYPES

INITIAL ISSUE EXP (6% OF FUND RAISED)HIDDEN

RECURRING EXP (3% MAX OF NET ASSETS)

OTHER THAN INITIAL ISSUE EXP/ INCLUDES

TRUSTEESHIP FEES /INCLUDES INVST MGT &

ADVISORY FEE OF AMC (1.25% UPTO RS 100 CR

& 1% OVER 100 CR)


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LOADS(CHARGED TO MF SCHEME) THREE TYPES

AMC CHARGE FOR ISSUE/RECURRING COST(6%)

IN OPEN END SCHEME DIFF BETWEEN PURCHASE

& SALE PRICE NOT TO EXCEED 7% OF SALE PRICE

BACK END (DISCOUNT TO NAV) DEDUCTED

DURING REPURCHASE/REDEMPTION


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NAV OF A NO-LOAD FUND (20 LACS UNITS ISSUED)VALUE OF SECURITIES HELD IN PORTFOLIO 500 LACSCASH IN HAND OF MUTUAL FUND 10 LACS

TOTAL ASSETS 510 LACS

LESS : OUTSTANDING LIABILITIES 110 LACS

TOTAL NET ASSETS 400 LACS

THUS NAV = Rs 400 LACS =RS 20 PER UNIT

UNITS 20 LACS

IF 10,000 NEW UNITS ISSUED AT NAV OF RS 20 PER UNIT

THUS NAV = ^TOTAL ASSETS =RS 4,02,00,000= RS 20 PER UNIT^UNITS UNITS 20,10,000

THUS NAV DOES NOT VARY DUE TO SELING OR BUYING

NAV VARIES ON ANY VARIATION OF MARKET PRICES OFSECURITIES HELD IN THE PORTFOLIO OF MF


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NAV OF A NO-LOAD FUNDNAV VARIES ON ANY VARIATION OF MARKET PRICES OF

SECURITIES HELD IN THE PORTFOLIO OF MF

NAV=(RS 6 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.516 MILL UNITS IN TRUST

IF VALUE OF EQUITY IS DOUBLED, NAV SHIFTSNAV=(RS 12 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.875

16 MILL UNITS IN TRUST

IF VALUE OF EQUITY IS HALFED THEN THE NEW NAV IS

NAV=(RS 3 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.312516 MILL UNITS IN TRUST

IN ABOVE, FUND SHOULD SWITCH FROM AGGRESSIVE TODEFENSIVE INVEST TO AVOID RAPID EROSION OF NAV

INVEST IN DEBT INSTRTS MAY BE ONE SOLUTION


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NAV OF A LOAD FUND (20 LACS UNITS ISSUED)IF MF IS A 4% FRONT LOAD FUNDTHEN NAV=NAV(OF NO-LOAD FUND) PER UNIT/1-% OF LOAD= RS 20= RS 20 = RS 20 = RS 20.80 AS CALLED OFFERING

1-4% 1-4/100 0.96HERE OFFER PRICE (SALE PRICE) WILL BE 20.80 PER UNIT

BID PRICE (REPURCHASE PRICE) WILL BE RS 20.00 PERUNIT

DIFFRENCE BETWEEN OFFER & BID PRICE IS 4% i.e. 80PAISE IS CALLED SPREAD PAID TO FUND

THERE IS A TWO WAY QUOTE PROVIDED BY IN OPENFUND


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MARS, PVT SECTOR MF LAUNCHED A GROWTH SCHEMEWITH AN INITIAL TARGET OF Rs 100 CR. DEPLOYMENT OFFUNDS IS TO CONFIRM THE FOLLOWING COMPOSITION

EQUITY 70%, DEBT 25% MONEY MARKET 5%

INITIAL EXPENSES 4%

DEBT COMPONENT INVESTED EQUALLY IN AAA & AARATED INSTRUMENTS AT 18% & 20% RESPECTIVELY

EQUITY PORTION INVESTED IN SENSEX SCRIPS

AV. YIELD ON MONEY MARKET COMPONENT WAS 8%

SENSEX WAS AT 3800 & AT TIME OF INVEST IS AT 2900AFTER ONE YEAR

DEBT & MONEY MKT INSTRTS VALUED AT COST

RECURRING EXP MET OUT OF INCOME EARNED ON DEBT& MONEY MKT INSTRTS (assume 3% on size of fund)

COMPUTE NAV & SALE PRICE IF FRONT LOAD FACTOR IS 5%


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MUTUAL FUND INDUSTRY

PASSING THROUGH CRITICAL PHASE

LIVINGDEAD IN STOCK MARKETS

LOST INVESTORS CONFIDENCE

UTTER FAILURE IN INDIA


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MUTUAL FUND INDUSTRYFEW EVIDENCES

SHRIRAM ASSET MGT CO FINED (JUN 96)

MORGAN STANLEY FINED (2/6/97)

RESORTING TO SHORT SALES

PRICE RIGGING IN BHEL SCRIPS

RENDERING PORTFOLIO MGT SERV TO GROUPS

CANSTAR UNABLE TO PURCHASE AT

PROMISED NAV

LIC MF HAD TO PURCHASE AT PROMISED

NAV & BOOK THE LOSS TO AMC


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MUTUAL FUND MONITOR

Particulars Growth Income Balanced Total

No. of Schemes 98 28 32 158

Schemes giving -ve returnson annualised basis

50 01 02 53

Schemes giving single

digit annualised returns

31 10 12 53

Schemes giving double

digit annualised returns

17 17 18 52

Source: Business Today


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MUTUAL FUND MONITOR

INSTITUTIONS 1994-95 1995-96 1998-99

UTI 8120 2470 860

Private Sector 1216 375 115

Public Sector 949 327 156

TOTAL 10,285 3,172 1,131

Source: Business Today


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MUTUAL FUND OPEARATION

PRODUCT

DESIGN

PRODUCT

MARKETING

FUND

MANAGEMENT

OUT

SOURCING

INVESTORS

SERVICE

THE

CHAIN

OF

OPERATION

FAILED INALL CHAINS

OF OPERATIONS


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MUTUAL FUND OPERATION

PRODUCT DESGIN

INNOVATION

SUPERIOR DESIGN

ADAPATABILITY


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PRODUCT DESIGN

DID LITTLE TO INNOVATE WITH INNOVATION

70% SCHEMES CLOSE END WITH POOR RETURNS

UTI STILL CONTINUES WITH PLAIN VANILLAS

INNOVATION ONLY IN OPEN END SCHEMEDS

TIME TO DESIGN SECTOR, LOCATION BASED MFs


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MUTUAL FUND OPERATIONPRODUCT MARKETING

COST

AGGRESSIVE MARKETING

UPFRONT COST


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PRODUCT MARKETING

COST & ETHICS ARE TWO IMPORATNT FACTORS

UPFRONT COST BORNE BY INVESTOR OR AMC

UTI CANT AGGRESSIVELY MARKET ITS PRODUCT

MORGAN STANLEY MADE MFs AS IPOs & ALL

NUANCES OF IPOs WERE BROUGHT IN


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MUTUAL FUND OPERATIONFUND MANAGEMENT

CAPITAL PROTECTION

MARKET TIMING

ASSET QUALITY


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FUND MANAGEMENT

NON-QUALIFIED, UNPROFESSNL FUND MANAGERS

LOOK MFs AS ANOTHER EQUITY PRODUCT

IGNORE ASSET ALLOCATION, PORTFOLIO,

TURNOVER & COST

NO QICK ASSET REALLOCATION ON TIME

DONT INCLUDE HIGH LIQUID BLUE CHIP STOCKS

NOT BALANCING RISK RETURN EXPECTATION OF

INVESTORS


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MUTUAL FUND OPERATIONFUND MANAGEMENT- SUGGESTED MODEL

PROTECT CAPITAL FROM EROSION

ALTERNATIVELY GUARANTEE CAPITAL SAFETY

POSSESS EXCELLLENT RESEARCH CAPABILITIES

TO ENSURE MARKET TIMING

INVESTMENT STRATEGY FORMULATION

FOLLOW APPROPRIATE ASSET ALLOCATIONMODEL SUITING FUNDS OBJECTIVE

QUICKLY RESTRURE ASSET ALOCATION ON NEED

ENSURE QUALITY OF ASSETS BE IT EQTY OR DEBT

ENSURE ECONOMICAL COST OF OPERATIONS BEIT MANAGEMENT FEES OR OTHER EXPENSES


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MUTUAL FUND OPERATIONOUTSOURCING

COST CONTROL

FLEXIBILITY

CHOICE


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MUTUAL FUND OPERATIONOUTSOURCING

NEW CONCEPT THAN TO DO THINGS IN HOUSE

ENDORSED AS A GREAT COST CUTTING MEASURE

CONVERTS FIXED COSTS TO VARIABLE COSTS

ABROAD OUTSOURCING 100% FROM PRODUCTDESIGN TO INVESTOR SERVICING

YET TO COME IN INDIAN FUND MANAGEMENT

ONE AREA MAY BE DISTRIBUTION NETWORK


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MUTUAL FUND OPERATIONINVESTOR SERVICE

CUSTOMER FOCUS

BETTER CONFIDENCE

EFFICIENT SERVICE


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MUTUAL FUND OPERATIONCUSTOMER FOCUS

SCANT ATTENTION TO INVESTORS SERVICING

IGNORING INVESTORS EDUCATION

NOT INCLINED TOWARDS TRANSPARENCY

NON DISCLOSURE OF PORTFOLIO

LACK LUSTER SHOW ON RETURNS FRONT

UNIT HOLDERS NOT TREATED AS CUSTOMERS

GOOD SERVICE ATTRACTS MULTIPLE CUSTOMERS

MORALE TREAT HIM LIKE CUSTOMER & INVESTIN TECNOLOGY TO REACH HIM FAR & WIDE

LESSONS TO LEARN FROM Pvt SECTOR MFs

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493 Mutual Funds