Upload
swatisingh01
View
213
Download
0
Tags:
Embed Size (px)
DESCRIPTION
Citation preview
Mutual FundsWhat, Why and How
What is a Mutual Fund?
Mutual Fund- Know now
Mutual Funds pool money from many small investors with similar (one could say mutual)objectives, to achieve Economies of Scale and Diversification in the investment of these funds.
This can result in higher returns at lower risk
Graphically speaking...
MFStep 1 : Make investments
Investor community
Step 5: Returns provided to investors
Earnings to the Fund House/ Distributor
Step 4: Expenses deducted
from the returns
Various Assets
Mutual Fund- Know now
Where is the money invested
Your money is invested in various securities depending on the objectives of the scheme you choose.
STOCKS BONDS MONEY MARLKET
Mutual Fund- Investment
What are the types of mutual funds ..(1)
Open end schemes: You can invest or redeem in these schemes at any time Closed end schemes: You can invest during the initial issue period and your money is locked in for a stipulated period (ranging from 2 to 15 years)
What are the types of mutual funds ..(2)
Based on the investment objective
Growth schemes: Invest in shares of companies. Have the potential to deliver better returns over the long term as compared to other mutual fund schemes
Mutual Fund- Types
What are the types of mutual funds ..(3)
Types of growth funds
Diversified Funds Sector Funds Index Funds
What are the types of mutual funds ..(4)
Income schemes: Invest in fixed income securities such as bonds issued by corporate and other government agenciesGilt Funds invest exclusively in government securities for added safety
Mutual Fund- Types
What are the types of mutual funds ..(5)
Balanced schemes: Invest in both shares and bonds, thereby receiving income that can moderate the effects of price fluctuations due to stocks
Money market schemes: Invest in short term instruments such as certificates of deposits and short term bonds
Mutual Fund- Types
Other types of schemes
Need based schemes
Tax-Saving schemes Equity Linked Savings Schemes Pension Schemes
Future needs schemes Childrens Savings Plans Retirement benefit schemes
Mutual Fund- Other Schemes
The risk return trade-off..
Risk
Investment horizon
Liquid Fund
Debt Funds
Balanced FundsRatio of Debt : Equity
Growth FundsIndex, Active diversified
Sector funds
Risk and Investment
Investment Pyramid
Capital PreservationRisk: Low to MediumPeriod: Less than 1 year
IncomeRisk: Medium to LowPeriod: 1 to 3 years
Capital GrowthRisk: Medium to HighPeriod: 3 to 5 years
Investor Portfolio Composition
GrowthFunds
Stocks
Income/Bond FundsCompany Fixed Deposits
BondsDebentures
Money Market FundsShort-term Deposits /Government Paper
Risk and Investment
Why invest in a mutual fund?..(1)
Professional Management: Experience and resources to thoroughly analyze the economy/markets to spot good investment opportunities
Why invest in a mutual fund?..(2)
Diversification:Reduces the risk to which you would've been exposed by investing in a single stock/bond Invests in a broad cross section of industries or companies - negative performance of one security will not have as much of an impact on the fund
Why Mutual fund?
Why invest in a mutual fund?..(3)
Liquidity & Convenience:
You will be able to get your money back within a short period as compared to other securities
Very little paperwork Helps avoid problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies
Why Mutual fund?
Why invest in a mutual fund?..(4)
Tax Efficiency:
Some mutual fund schemes offer tax benefits under Section 80(C ) .Dividends declared under mutual fund schemes are tax free in the hands of the investor*Mutual funds offer favorable post tax returns
Subject to Dividend Distribution tax in Non Equity Funds
Why Mutual fund?
How do I make money from a mutual fund?..(1)
Capital appreciation: As the value of securities in the fund increases, the fund's unit price will also increase. You can make a profit by selling the units at a price higher than at which you bought
Income Distribution: The fund passes on the profits it has earned in the form of dividends
How you make money in Mutual fund?
How to choose the right scheme
Determine your financial goals and your time horizon
Determine your tolerance for risk Study the objectives of the funds available and match them with your need
The right scheme
How to choose the right fund house
Look for:
Professional management Performance track record Quality of service Choice of schemes
The right Fund house
How to make the winning mutual fund investment(1)Start EarlySave regularlyUse a portfolio approach spread your investments across sectors
and asset classesSee that your portfolio contains both short term and long term investments
The winning combination
How to make the winning mutual fund investment(2)
Monitor your investment portfolio periodically in light of market changes and changes in your life
Stay calm, steady and disciplined keep your goals firmly in sight do not get carried away by emotions or temporary market fluctuations
Basics of Systematic Investing & Asset Allocation
Systematic Investing
What is Systematic Investing?
The term systematic investing, applies to the process of investing regularly i.e. at fixed intervals, say, monthly or quarterly.
Systematic Investing
Why should one systematically invest? When chasing a financial goal, the simplest form of planning is to invest regularly
Most of us calculate our earnings, expenses and savings monthly. The easiest way to plan our investments, therefore, is on a monthly basis
Why don't most people save regularly?
1. Lack of awareness/ concern/ planning for financial goals2. No money left after monthly expenses3. Hassle of keeping track of investments4. Unaware of power of compounding
Systematic Investing- Basic Issues
FV = PV (1 + r)n
FV = Future ValuePV = Present Valuer = Rate of Return/ Coupon Raten = No. of compounding periods
The mother of all equations
Systematic Investing
FV = PV (1 + r)nEnhancing Future Value
The more you save, makes a
difference
The sooner you start, makes a
difference
PV nr
The more you earn, makes a
difference
Systematic Investing
The more you save, makes a differenceThe Power of Compounding
The above example is just for the explanation purpose.
The power of compounding
Growth rate of 7% p.a.Total Amount
SavedValue after 25
yearsAmount saved per month
5,000 1,500,000 4,073,986
3,000 900,000 2,444,391
1,500 450,000 1,222,196
1,000 300,000 814,797
The sooner you start, makes a difference
The Power of CompoundingThe power of compounding
Rs. 1000 invested p.m. @8% CAGR Total Amount
SavedValue at the
age of 60Starting Age
25 420,000 2,309,175
30 360,000 1,500,295
35 300,000 957,367
40 240,000 592,947
The Power of Compounding
The above example is just for the explanation purpose.
The more you earn, makes a difference
The power of compounding
Rs. 1000 invested pm Value after 10 years
Value after 25 yearsGrowth Rate
8% 184,166 957,36710% 206,552 1,337,89015% 278,657 3,284,07420% 382,364 8,626,708
The Power of Compounding
The above example is just for the explanation purpose.
Savings is for Future Goals
Save for future
The Arithmetic of Financing Life
Objective Years to go Current Cost Future Cost
Build a house 5 25 lacs 32 lacs
Sons MBA 10 5 lacs 7.5 lacs
Daughters marriage
15 5 lacs 12 lacs
Retirement Fund 25 40 lacs 100 lacs
Life objective- cost structure
Making Volatility Work for you
Rupee Cost Averaging
Average Sales Price of Units : Rs. 12 ( i.e. Rs. 48/4 months)Average Purchase Cost of Units : Rs 11.61 ( i.e. Rs. 4000/344.444 units)
Volatility- Cost averaging
Month Amount Invested (Rs.)
Sale Price (Rs.) No. of Units Purchased
1 1000 12 83.333
2 1000 15 66.667
3 1000 9 111.111
4 1000 12 83.333
TOTAL 4000 48 344.444
SENSEX - and Sensibilities
Scheme Date NAV Date NAV CAGR(In%)
Franklin India Bluechip 5/31/1996 15.65 7/30/2003 30.39 10.12
Franklin India Prima Fund 5/31/1996 13.21 7/30/2003 45.75 19.47
HDFC Equity Fund 5/31/1996 7.19 7/30/2003 32.214 23.9
Reliance Growth 5/31/1996 11.14 7/31/2003 43.75 22.1
Reliacne Vision 5/31/1996 11.23 7/31/2003 37.58 19.03
HDFC Top 200 5/31/1996 7/30/2003 24.433
Sensex 5/31/1996 3724 7/30/2003 3780 0.01
S & P Nifty 5/31/1996 1089 7/30/2003 1183 0.02
CNX Midcap 5/31/1996 N.A. 7/30/2003 1402
Time Matters not Timing
No. ParticularsInvestment on 14-Feb-2000
Value as on
21-Sep-2001
Value as on
23-Nov-2004
Absolute Growth
SENSEX 5924.32 2600.12 6009.86 1.44%
1 HDFC Equity Fund 1,00,000 51,179 2,12,360 112 %
2 Franklin Blue Chip 1,00,000 66,222 2,02,540 102 %
3 Reliance Vision Fund 1,00,000 41,240 2,55,610 155 %
4 HDFC Prudence Fund 1,00,000 71,651 2,35,370 135 %
5 Tata Pure Equity 1,00,000 43,927 1,82,630 82 %
6 Franklin India Prima 1,00,000 45,550 2,56,670 156 %
7 HDFC Top 200 1,00,000 46,002 1,69,780 69 %
8 Pru ICICI Power 1,00,000 45,433 2,21,220 121 %
9 Reliance Growth 1,00,000 26,818 2,21,750 121 %
Time Matters not Timing
Unmatched ConvenienceMinimum investment of Rs.500 on a monthly or quarterly basis Choice of post-dated cheques or direct debit with selected banks Cheques payable anywhere in India accepted Statement of account provided with each transaction
Its easy- convenient
Note: Some of the above facilities are available with investments in select funds and/ or at select centres. Please refer to offer document for specific details.
What is Asset Allocation?
Its about diversifying ones portfolio among asset classes such as bonds, stocks, real estate, or cash.
Its referred to in terms of the target percentages for each asset class. For example, a portfolio could have a mix of 60 percent stocks, 30 percent bonds and 10 percent cash.
Its the financial representation of an investors personality: the ideal asset allocation is one that best balances an investors profile and objectives
Asset allocation- find the right combination
Brinson, Hood and Beebower : Determinants of Portfolio Performance, 1986, 1991: Asset Allocation helps explain over 93% of a portfolios performance.
Significance Relative to ReturnSignificance of Asset Allocation
Asset allocation- find the right combination
Suggesting the Right Allocation
Profile the client for ability and willingness to take riskMatch with clients objectivesIron out mismatches, if any
Asset allocation- find the right combination
Periodic Review
Making Asset Allocation WorkReview of objective - EXAMPLE
Years to goal Equity Allocation %
TODAY 10 70%
After 5 yrs 5 60%
After 7 yrs 3 40%
After 9 yrs 1 10%
A periodic review of objectives can ensure an investor is not left at the mercy of the equity markets when he needs his money
Asset allocation- find the right combination
THANK YOU
www.prudentcorporate.com
Mutual FundsWhat is a Mutual Fund? Graphically speaking...Where is the money investedWhat are the types of mutual funds ..(1)What are the types of mutual funds ..(3)What are the types of mutual funds ..(5)Other types of schemes The risk return trade-off..Investment PyramidWhy invest in a mutual fund?..(1) Why invest in a mutual fund?..(3) Why invest in a mutual fund?..(4) How do I make money from a mutual fund?..(1) How to choose the right scheme How to choose the right fund house How to make the winning mutual fund investment(1)Basics of Systematic Investing & Asset AllocationSystematic InvestingWhat is Systematic Investing?Why don't most people save regularly? The mother of all equationsEnhancing Future ValueThe more you save, makes a differenceThe sooner you start, makes a differenceThe more you earn, makes a differenceSavings is for Future GoalsThe Arithmetic of Financing LifeMaking Volatility Work for youSlide Number 29Slide Number 30Slide Number 31Unmatched ConvenienceWhat is Asset Allocation?Significance Relative to ReturnSuggesting the Right AllocationPeriodic ReviewSlide Number 37