Embed Size (px)
Citation preview
Investment Awareness for you
What do you do with your money?
Inflation eats up your savings over time !!!
What's wrong with just saving?
What does inflation do to your expenses?
₹ 3
0,0
00
₹ 4
0,0
00 ₹
60
,00
0 ₹ 8
0,0
00
Today 5 Years 15 Years 20 Years
Impact of Inflation
Impact of 5% yearly inflation on expenses
₹ 1
00
,00
0
₹ 8
0,0
00
₹ 5
0,0
00
₹ 3
5,0
00
Today 5 Years 15 Years 20 Years
Impact of 5% yearly inflation on Savings
What does inflation do to your savings?
• Start Saving … earlier you start the better
• Progress from a Saving to Investing
• Put money to work rather than accumulating or keeping it idle
• You work hard to earn money …
So, make the money work hard for you
• Benefit from the Power of Compounding
Solution? Investing - the safeguard against inflation
DETERMINE WHAT ARE YOU INVESTING FOR?Goal based investing
PROPERTYGOLD
STOCKSINSURANCE
BONDS
MUTUAL FUNDS
BANK DEPOSITS
What are the various options?
Fight INFLATION for you
Provide INCOME when you need it
Be ACCESSIBLE and USABLE in parts and portions
GROW in value and appreciate over time
Be REALISABLE at fair value and low cost
Proper Asset Allocation is the answer
Make your investments work for you
Asset Allocation is like a balanced thali …
What is Asset Allocation ?
Investments thatGrow in Value
Investments thatGenerate Income
Property Bonds
Gold NSC/KVP
Art Collection PPF
Equity Shares Bank / Company Deposits
Mutual Funds Mutual Funds
Are you investing in the right assets?
Asset Allocation should match your needs
Mutual Funds
• A mutual fund is the trust that pools the savings of a number of investors who share acommon financial goal.
• Anybody with an investible surplus of as little as a few hundred rupees can invest inMutual Funds.
• Money collected is invested by a professional fund manager in different types ofsecurities.
• Securities could range from shares to debenture, from Government Bond to money marketinstruments, depending upon the scheme’s stated objective.
• Mutual Fund investment gives the market returns and not assured returns.
• In the long term market returns have the potential to perform better than other assuredreturn products.
• Investment in Mutual Fund is the most cost efficient as it offers the lowest charge to theinvestor
What is a Mutual Fund?
RETURNS
INVESTORS
STOCKS / SECURITIES
FUND MANAGER
Invest inHelps generate
Delivered to
Pool their money
How does a Mutual Fund work?
RISK
DIVERSIFICATION
Professional Management
Transparency
Liquidity
Well-Regulated by
SEBI
Convenient (Invest Small
Amounts)
Low Cost
Why invest in Mutual Funds?
Mutual Fund Structure & Scheme Categories
Asset Management
Company
Mutual Fund
TrusteesSponsors
Custodian
Registrar & Transfer Agency
Mutual Fund is established as a Trust under Indian Trust Act, 1882
Execute a Trust Deedto form a trust
Fund Accountants
Agents/Distributors Bankers
Investment Management & Day-to-day
Operations
Investors
Structure of Mutual Fund at a glance …
Organisational Structure
Management of Portfolio
Investment Objective
Investment Portfolio
Other Fund Types
Active
Funds
Close
Ended
Funds
Interval
Funds
Open
Ended
Funds
Passive
Funds
Income
Funds
HybridFunds
Growth
Funds
Equity Funds
Debt Funds
Hybrid Funds
Liquid Funds
Exchange Traded Funds (ETF)
Gold ETF
ELSS
Retirement / Pension Scheme
Overseas Funds
Fund of Funds
Types of Mutual Funds
Organisational Structure
Active Funds
Close Ended Funds
IntervalFunds
Open Ended Funds
Passive Funds
IncomeFunds
Growth Funds
As per SEBI guidelines on Categorization and Rationalization of schemes issued in October2017, mutual fund schemes are classified as –
1. Equity Schemes
2. Debt Schemes
3. Hybrid Schemes
4. Solution Oriented Schemes – For Retirement and Children
5. Other Schemes – Index Funds & ETFs and Fund of Funds
• Under Equity category, Large, Mid and Small cap stocks have now been defined.
• Naming convention of the schemes, especially debt schemes, as per the risk level of underlying portfolio (e.g., Credit Opportunity Fund is now called Credit Risk Fund)
• Balanced / Hybrid funds are further categorised into conservative hybrid fund, balanced hybrid fund and aggressive hybrid fund etc.
Categorization of Mutual Fund Schemes
Equity schemes
Invests in equities and equity relatedinstruments of companies
Seeking long term growth, but volatilein the short term
Suitable for investors with higher riskappetite and longer investmenthorizon
Equity Funds
Multi Cap Fund*
• At least 75% investment in equity & equity related instruments
:) 25% in Large Cap Companies
:) 25% in Mid Cap Companies
:) 25% in Small Cap Companies
Large Cap Fund • At least 80% investment in large cap stocks
Large & Mid Cap Fund • At least 35% investment in large cap stocks and 35% in mid cap stocks
Flexi Cap Fund• At least 65% investment in equity & equity related instruments. A
scheme investing dynamically across large cap, mid cap, small cap stocks
Mid Cap Fund • At least 65% investment in mid cap stocks
Small cap Fund • At least 65% investment in small cap stocks
* Also referred to as Diversified Equity Funds
Equity Funds Categories
Dividend Yield
FundPredominantly invest in dividend yielding stocks, with at least 65% in stocks
Value Fund Value investment strategy, with at least 65% in stocks
Contra FundScheme follows contrarian investment strategy with at least 65% in stocks
Focused FundFocused on the number of stocks (maximum 30) with at least 65% in equity & equity related instruments
Sectoral/ Thematic Fund
At least 80% investment in stocks of a particular sector/ theme
ELSSAt least 80% in stocks in accordance with Equity Linked Saving Scheme, 2005, notified by Ministry of Finance
Equity Funds
Deduction from taxable income of uptoRs. 1,50,000 under Sec 80C
Invests predominantly in equity
Shortest lock-in period of 3 years ascompared to other tax saving options
Equity Linked Savings Scheme (ELSS)
Debt schemes
Invest in different types of fixed incomesecurities
Aims to earn interest income andcapital appreciation
Suitable for investors seeking income atmoderate risk
Debt Funds
Overnight Fund • Overnight securities having maturity of 1 day
Liquid Fund• Debt and money market securities with maturity of u
pto 91 days only
Ultra Short Duration Fund• Debt & Money Market instruments with Macaulay
duration of the portfolio between 3 months - 6 months
Low Duration Fund• Investment in Debt & Money Market instruments with
Macaulay duration portfolio between 6 months- 12 months
Money Market Fund• Investment in Money Market instruments having
maturity upto 1 Year
Short Duration Fund
• Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 1 year - 3 years
Debt Funds Categories
Medium Duration Fund
• Investment in Debt & Money Market instruments with Macaulayduration of portfolio between 3 years - 4 years
Medium to Long Duration Fund
• Investment in Debt & Money Market instruments with Macaulayduration of the portfolio between 4 - 7 years
Long DurationFund
• Investment in Debt & Money Market Instruments with Macaulayduration of the portfolio greater than 7 years
Dynamic Bond • Investment across duration
Corporate BondFund
• Minimum 80% investment in corporate bonds only in AA+ and aboverated corporate bonds
Credit Risk Fund • Minimum 65% investment in corporate bonds, only in AA and belowrated corporate bonds
Debt Funds
Banking and PSU Fund
• Minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds
Gilt Fund • Minimum 80% in G-secs, across maturity
Gilt Fund with 10 year constant Duration
• Minimum 80% in G-secs, such that the Macaulay duration of the portfolio is equal to 10 years
Floater Fund
• Minimum 65% in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives)
Debt Funds
Hybrid schemes
Invest in a mix of equities and debt
Gain from a healthy dose of equitiesbut the debt portion fortifies themagainst any downturn
Ideal for investors who are looking for amixture of safety, income and modestcapital appreciation
Hybrid Funds
SEBI has classified Hybrid funds into 7 sub-categories as follows: Conservative Hybrid
Fund
• 10% to 25% investment in equity & equity related instruments; and
• 75% to 90% in Debt instruments
Balanced Hybrid Fund • 40% to 60% investment in equity & equity related instruments; and
• 40% to 60% in Debt instruments
Aggressive Hybrid Fund • 65% to 80% investment in equity & equity related instruments; and
• 20% to 35% in Debt instruments
Dynamic Asset Allocation or
Balanced Advantage
• Investment in equity/ debt that is managed dynamically (0% to 100% in equity
& equity related instruments; and
• 0% to 100% in Debt instruments)
Multi Asset Allocation • Investment in at least 3 asset classes with a minimum allocation of at least
10% in each asset class
Arbitrage Fund • Scheme following arbitrage strategy, with minimum 65% investment in equity &
equity related instruments
Equity Savings • Equity and equity related instruments (min.65%);
• debt instruments (min.10%) and
• derivatives (min. for hedging to be specified in the SID)
Hybrid Funds
Solution-oriented & Other schemes
Retirement Funds• Lock-in for at least 5 years or till retirement
age whichever is earlier
Children’s Funds• Lock-in for at least 5 years or till the child attains age
of majority whichever is earlier
Index Funds/ ETFs • Minimum 95% investment in securities of a particular index
Fund of Funds (Overseas/ Domestic) • Minimum 95% investment in the underlying
fund
Solution Oriented & Other Schemes
Portfolio replicates the index
Aims to provide returns in line withindex
Suitable for investors seeking returnssimilar to index
Index Funds
• Index funds create a portfolio that mirrors a market index
• The securities included in the portfolio and their weights are the same as that in the index
• The fund manager does not rebalance the portfolio based on their view of the market or sector
• The fund offers the same return and risk represented by the index it tracks
• The fees that an index fund can charge is capped at 1.5%
• Investors have the comfort of knowing the stocks that will form part of the portfolio, since the composition of the index is known.
Index Funds
• An ETF is a marketable security that tracks an index, a commodity, bonds, ora basket of assets like an index fund.
• Unlike regular mutual funds, an ETF trades like a common stock on a stockexchange. The traded price of an ETF changes throughout the day like anyother stock, as it is bought and sold on the stock exchange.
• ETFs are passively managed, which means that the fund manager makes onlyminor, periodic adjustments to keep the fund in line with its index.
• Rather than investing in an ‘active’ fund managed by a fund manager, whenyou buy units of an ETF you're harnessing the power of the market itself.
• Because an ETF tracks an index without trying to outperform it, it incurslower administrative costs than actively managed portfolios.
Exchange Traded Funds (ETFs)
• Gold ETF is a open ended scheme which invest pure physical gold bullion of 99.5 per cent purity. The scheme may also invest gold related instruments approved by SEBI and Gold Deposit Scheme of banks up to 20% of net assets
• Gold ETFs issue units against gold held in the portfolio. Each unit represents a defined weight in gold, typically one gram.
• The price of Gold ETF unit moves in line with the domestic price of gold.
• Gold ETF are benchmarked against the price of gold.
• Gold ETFs are considered as non-equity mutual funds for the purpose of taxation.⁻ Eligible for long-term capital gains benefits if held for 3 years ⁻ No wealth tax is applicable on Units of Gold ETFs
Gold Exchange Traded Funds
• International funds enable investments in markets outside India, by holding in their portfolio one or more of the following:
• Equity of companies listed abroad.
• ADRs and GDRs of Indian companies.
• Debt of companies listed abroad.
• ETFs of other countries.
• Units of passive index funds in other countries.
• Units of actively managed mutual funds in other countries.
• International equity funds may also hold some of their portfolios in Indian equity or debt.
• They can hold some portion of the portfolio in money market instruments to manage liquidity.
International Funds
• Fund of funds are mutual fund schemes that invest in the units of other schemes of the same mutual fund or other mutual funds (Hence FoF is also known as multi-manager fund).
• Its portfolio contains Units of different underlying mutual fund scheme in which the FoF has invested.
• The FoF will have two levels of expenses –
a) that of the scheme whose units the FoF invests in and
b) the expense of the FoF itself
• SEBI Mutual Funds Regulations have capped the total expenses that can be charged across both levels
• FoF provide benefit of risk diversification and portfolio diversification with small amounts of investment.
Fund of Funds (FoF)
• “Arbitrage” is the simultaneous purchase and sale of an asset to take advantage of the price differential in the two markets and profit from price difference of the asset on different markets or in different forms.
• Arbitrage fund buys a stock in the cash market and simultaneously sells it in the Futures market at a higher price to generate returns from the difference in the price of the security in the two markets. The fund takes equal but opposite positions in both the markets, thereby locking in the difference.
The positions have to be held until expiry of the derivative cycle and both positions need to be closed at the same price to realize the difference.
• The cash market price converges with the futures market price at the end of the contract period. Thus it delivers risk-free profit for the investor/trader.
• Price movements do not affect initial price differential because the profit in one market is set-off by the loss in the other market.
• Hence, Arbitrage funds are a good choice for cautious investors who want to benefit from a volatile market without taking on too much risk.
Arbitrage Funds
Risk Return Type of Scheme
Higher Risk Higher Returns Equity Schemes
Moderate Risk Moderate Returns Hybrid Schemes
Low - Moderate Risk Low - Moderate Returns Debt Schemes
Very Low Risk Lower Returns Liquids Schemes
…. a matter of Risk Return Trade-Off
Mutual Fund Scheme - Which one to buy?
Overnight Funds
Liquid Funds
Ultra Short Term Funds
Short Term Funds
Gilt & Bond Funds
Debt-oriented Hybrid
Equity-oriented Hybrid
Equity Savings Funds
Large Cap Funds
Diversified Funds
Mid Cap Funds
Sectoral FundsDebt Equity>
>R
etu
rn<
<
>>
Retu
rn<
<
>>Risk<<
Low Med High Low Med High
>>Risk<<
Risk / Return Hierarchy
Scheme Related Documents
• Scheme information document (SID)• SID contains information that is specific to a each MF scheme.• Concise & detailed information that a prospective investor should know so as to take an informed
decision to invest
• Statement of Additional Information(SAI)• SAI contains information with regards to each mutual fund and is common across all schemes of a
mutual fund.
• Key Information Memorandum (KIM)• Abridged version of SID• Simple to understand and contains key / essential information that investors need to be aware about
before they invest
One must read & understand scheme related documents before investing in a mutual fund scheme.
Scheme Related Documents
• Fact sheets help you assess a scheme andkeep track of its performance
• Issued every month
• Easy to understand and provides asnapshot of the scheme
• Show following key information at aglance:• NAV• Returns• Fund Managers managing the
portfolio• Riskometer• Other statistics allowing investors to
compare mutual funds and decidewhich ones to invest in.
Fact sheet is like a score card
Factsheet
Plans & Options
• All MF schemes offer a Direct Plan and Regular Plan forinvestments
• You can invest –• DIRECTLY i.e., without involving or routing the investment through any
distributor/agent in a ‘Direct Plan’ OR• Through / with the help of a Mutual Fund agent/distributor in a
Regular Plan
• Direct Plan has a separate NAV, which is higher than thenormal “Regular” Plan’s NAV.
• Direct Plan has lower expense ratio as there is nodistributor/agent involved
Direct Plans & Regular Plans
• Growth Option• Capital appreciation in the investment are ploughed back in the
scheme and are reflected in increase in the NAV. • Investors do not receive any periodic payments. • Suitable for investors who do not require regular income.• Tax efficient
• Dividend Option• Capital appreciation in the investment are paid / distributed to the
investors by way of dividend, periodically.• Dividend payment is subject to availability of distributable surplus in
the MF scheme. • On dividend payment NAV of the scheme drops.• Dividends are tax-free in the hands of investors but are subject to levy
of Dividend Distribution Tax (DDT).• Suitable for investors who require income cash flow.• Under Dividend Reinvestment sub-option, the dividend proceeds are
reinvested in the same scheme and additional units are allotted.
Growth Option & Dividend Option
Lumpsum Investment – Initial + Additional
Systematic Investment Plan (SIP)
Systematic Transfer Plan (STP)
Inter Scheme Switches
Mode of Investing
SIP STP SWP
Tools for smart
investing
What’s Inside-
Systematic Investment Plan (SIP) - It is not necessary that one has to “Start big” to “Endbig”
SIP/SWP/STP – Tax aspect
SIP/SWP/STP – Effective retirement planning
Systematic Withdrawal Plan (SWP) – It can be used as a source ofregular cash flow
Systematic Transfer Plan (STP) - It is not difficult to invest a large sum even “in volatile market”
Systematic Investment Plan (SIP): What is the basic mantra
It is not necessary that one has to “Start big” to “End big”
SIP: Your friend in need
A disciplined way of investing inmutual funds and works on thebasic principle of regularinvestment
What is it
It is not necessary to start the SIPwith a large amount. It can bestarted with as low as ₹ 1000
What is the minimumInvestment amount
It allows a person to invest a predeterminedamount for a fixed interval in mutual funds.The amount will be automatically deductedfrom the bank account on a chosen date
How does it work
SIP can be done on daily, weekly,monthly, and even quarterlybasis
What are the frequenciescovered
SIP: Advantages
It allows you to invest a fixed amount at regular intervals for a
specified period which helps in building a portfolio
Discipline
The average investment cost comes down because investor
passes through all phases of the market
Rupee cost averaging
Transaction cost for investment via SIP is far lower compared with
investing directly in equities
Lower transaction cost
The longer one remains invested higher would be the returns
Power of compounding
Hassle-free mode of investment as amount gets debited automatically with NACH/ Auto Debit instructions
Convenience
SIP: Inflation reduces value of money
Assumption: Rate of return is 15% p.a. and inflation rate is @ 7%.
To achieve the
required corpus
through SIP
mode
To achieve the
required corpus
by one time
investment
To achieve the
required corpus
through SIP
mode
To achieve the
required corpus
by one time
investment
SIP: Rupee cost averaging
SIP eliminates the need for timing the investment
It smoothens the impact of market volatility
It allows the investor to buy more units at lower price
The investor need not worry about how much to invest and when to invest
SIP Investor Lump-Sum Investor
Month Unit Price InvestmentUnits
PurchasedInvestment
Units
Purchased
1 106 1,000 9.43 12,000 113.21
2 95 1,000 10.53
3 94 1,000 10.64
4 104 1,000 9.62
5 104 1,000 9.62
6 90 1,000 11.11
7 99 1,000 10.10
8 101 1,000 9.90
9 92 1,000 10.87
10 90 1,000 11.11
11 108 1,000 9.26
12 108 1,000 9.26
SIP Investor Lump-Sum Investor
Total Investment 12,000 12,000
Total units purchased 121.44 113.21
Average unit price 98.81 106
Value after 9 months 13,115.70 12,226.42
Difference 889.28
At the end of 12 months, total units purchased under SIP mode will be121.44 & cost per unit will be ₹ 98.81. Thus, the profit for an SIP investorfrom the above investment will amount to ₹ 889.28 (₹ 13,115.70 – ₹12,226.42)
Assumption: In first case, ₹ 1000 is invested every month for 12 monthsthrough SIP mode while in other ₹ 12,000 is invested as a lumpsum.
SIP: Power of compoundingAlbert Einstein regarded Compound interest as the 8th wonder of the world
He famously advised that those who understand its power, earn through it and those who do not, end up paying it
Amount Invested (per month) – ₹ 1,000 Amount Invested (per month) – ₹ 1,000
Time period – 30 years Time period – 35 years
Return – 12% pa Return – 12% pa
Total amount invested – ₹ 3,60,000 Total amount invested – ₹ 4,20,000
Maturity Value – ₹ 35.29 lakh Maturity Value – ₹ 64.95 lakh
Compounding is a true companion of an investor who is disciplined. It is superior to simple interest as it earns interest on interest
Assumption: Rate or return in either case is 12%. ₹1000 is invested every month. In the first caseinvestment period if 30 years while in second it is35 years
SIP: Start early to create a larger corpus
The table above shows the maturity values for the monthly SIP of ₹ 1,000 at 12% for different time periods.
The more time one spends in the
market, the maturity value of the
investment increases
proportionately. As the graph
suggests, for a 5-year SIP, the final
value is 1.4 times of the principal
invested. Whereas it is 6.3 times
for a period of 25 years
SIPs have been one of the best investment strategies to reap long-term equity investment gains
Assumption: Rate of return in this case is assumed to be 12%
60,0
00
120,0
00
180,0
00
240,0
00
300,0
00
82,4
86
232,3
39
504,5
76 9
99,1
48
1,8
97,6
35
0
500,000
1,000,000
1,500,000
2,000,000
5 10 15 20 25
IN R
S.
Amount invested (in Rs.) Maturity value (in Rs.)
1.4 times
1.9 times
2.8 times
4.2 times
6.3 times
Systematic Transfer Plan (STP): What is the basic mantra
It is not that difficult to invest a large corpus even “in a volatile market”
STP: Understanding the basics
What is it
STP refers to Systematic Transfer Plan whereby an investor is able to invest lump sum amount in a scheme and regularly transfer a fixed or variable amount into another scheme
When does it make sense
When markets are volatile it makes sense to start an STP from debt to equity fund instead of doing an one time investment in an equity oriented fund
How does it work
An investor invests a lump sum amount in one scheme, usually a
low-risk fund, and regularly transfers a pre-defined amount
into another scheme for long-term wealth creation
What should be kept in mindIt is a risk mitigation strategy and
thus the objective is not to maximize profit but to optimize
returns
STP: Typical approach
Transfer n
Transfer 1
Value of Fund A decreasing over time
Value of Fund B increasing over time
Fund A Fund B
STP: Types and when it can be used
Fixed STP
Capital appreciation STP
Both the strategies can be used by the investor depending upon the requirement
▪ In fixed mode, the systematictransfer amount remains consistent
▪ Irrespective of the overall marketconditions, a fixed amount isinvested in the second fund
▪ This mode is normally used wheninvestment is transferred from low-risk debt to equity funds
▪ In capital appreciation mode, theinitial lump sum amount that isinvested say in a debt fund remainsconsistent
▪ The capital appreciation part istransferred to the second fund sayan equity fund
▪ This strategy works for theconservative investor who wants toprotect the capital and take somerisk with the returns
STP: Final thoughts
Understanding the asset classes and overall markets
Disciplined investing
Risk mitigation strategy
Systematic transfer plan is a risk mitigation strategy which will protectthe investor from any adverse loss but also cap the returns to someextent
STP like SIP will only yield the desired result if the investorremains committed to the objective and does not break theinvestment based on short-term market movement
The investor should also understand the asset classes to some extent andwhere they currently stand. When the equity market is at its peak, itwould be unwise to transfer the fund from debt to equity, similarly whenthe markets are close to their multi-year lows, it would be counterproductive to transfer the funds from equity to debt03
01
02
Systematic Withdrawal Plan (SWP): What is the basic mantra
It can be used as a source ofregular cash flow
SWP: Understanding the basics
What is it
It is technically the reverse of SIPwherein one invests a lump sum at thebeginning and withdraws a fixedamount at regular intervals to generateregular cash flow. It can be started inequity, debt or hybrid funds
How does it work
The mechanism is just like SIP. An investorneeds to instruct the asset managementcompany (AMC) to redeem units on apredetermined date and credit a fixed suminto the bank account. The fund’s valueand number of units will reduce to theextent of each withdrawal
What is the frequency of payouts
The frequency is generally monthly orquarterly. It can also be semi-annual orannual depending upon the need of theinvestor
What should one keep in mind
The investor should try to Increase thewithdrawal amount every year to beatinflation
SWP: Advantages
Taxation
Partial redemption
Averages out the market
Regular Cash Flow
It provides regular cash flow to the investor. It isvery effective financial tool for those looking forfixed source of income every month, like elderlycitizens
Rupee cost averaging helps the investor in SWPplan as well. In a rising market, the investor takesadvantage of the averaging out with eachredemption
Withdrawal through SWP route is taxable @ 15%incase of short term capital gain and Nil incase oflong term capital gain if the capital gain amount isless than Rs. 1 lakh per financial year.
SWP does not require redemption of entireinvestment and investor can take care of his/herfinancial need by partial redemption every monthsystematically without doing any paperwork
SWP: Types and when it can be used
Fixed SWP
Capital appreciation SWP
Both the strategies can be used by the investor depending upon requirement
▪ In fixed mode, the systematicwithdrawal amount remainsconsistent
▪ Irrespective of the overall marketconditions, a fixed amount iscredited in the bank account
▪ This mode is important whensteady flow of income is therequirement
▪ In capital appreciation mode, theinitial lump sum amount remainsconsistent
▪ The payout is the capitalappreciation that is made due tothe performance of the fund
▪ Since the payout depends uponthe market, this mode isimportant when the initial corpusis more important then themonthly flow of income
SWP: Effective usage in different scenario
Retirement Planning
▪ Investment in a debt orientedmutual fund along with otherinstruments like bank FD
▪ Regular payouts to supplementregular income
Investment Strategy
▪ Bonus or one time payout canbe invested in a liquid or ultrashort term mutual fund
▪ This amount can then be usedfor the next six or 12 months
Start-up
▪ Everyone wants to be anentrepreneur. But beforequitting job, regular source ofincome is very important
▪ SWP is idle for this and one caninvest in debt mutual fund
SIP SWP STP: Taxation
Investment Type Comment Description
SIP Every installment considered as fresh investment▪ Each investment has to be held for at least 12 months to be
eligible for LTCG benefits
SWP Investment is actually redeemed at particular interval
▪ If the amount is withdrawn from Debt mutual fund -▪ Investment is held for <3 year, tax as per the investor's
tax slab▪ Investment is held for > 3 year, 10% without indexation
and 20% with indexation▪ If the amount is withdrawn from Equity mutual fund -
▪ LTCG is NIL* if investment is held for > 1 year
STPInvestment moving from debt mutual fund to equity
mutual fund
▪ If the source fund is Debt mutual fund -▪ Investment is held for <3 year, tax as per the investor's
tax slab▪ Investment is held for > 3 year, 10% without indexation
and 20% with indexation▪ If the source fund is Equity mutual fund -
▪ LTCG is NIL* if investment is held for > 1 year
* Income-tax at the rate of 10% (without indexation benefit) to be levied on long-term capital gains exceeding Rs. 1 lakh provided transfer of such units is subject to STT plus applicable charges.
SIP SWP STP: Retirement Planning
Using SIP/STP/SWP effectively for retirement planning
✓ Start investment in equities early through SIP✓ Starting early will help in accumulating
retirement corpus with lower monthlyinvestment
✓ SIP gives benefit from market volatility andaccounts for “rupee cost averaging”
SmartInvestor
Pre-Retirement
Post-Retirement
✓ Post retirement, the entire retirement corpusis in debt mutual fund due to the STP option
✓ Instead of redeeming the entire corpus at onego, the retired individual can withdrawamount equivalent to their household needsthrough SWP option
✓ SWP allows regular income during retirementthrough regular withdrawal and also somereturns as the balanced corpus remainsinvested in debt mutual fund
✓ Investments done in equity mutual fundsshould be transferred systematically into debtmutual funds when retirement approaches
✓ It is necessary to reduce risk and can easily bedone through STP
✓ Through STP, predefined amount will betransferred from equity scheme to debtscheme of the same fund house
SIP
STP
SWP
SIP SWP STP: Recap
SIPIn Systematic Investment Plan, a fixed sum of money is debited from one’s bank
account at a predefined frequency (weekly, bi-monthly, monthly etc.) and
invested in a mutual fund
STPIn Systematic Transfer Plan, a fixed sum of money is transferred from source
mutual fund (where the amount is already invested upfront) to target mutual
fund at predefined frequency on a specified date
Mutual FundBank
Target SchemeSource Scheme
SWPIn Systematic Withdrawal Plan, a fixed sum of money is withdrawn from one’s
mutual fund statement at a predefined frequency (normally monthly)
BankMutual Fund
SIP✓ Rupee cost averaging✓ Compounding✓ Allows regular investment
SWP✓ Works well in both rising
and falling marketconditions
✓ Meets short termobjective
STP✓ Rupee cost averaging in
rising market✓ Helps in retirement
planning
Advantages
HOW TO INVEST
IN
MUTUAL FUNDS
Pre-requisites1. KYC (Know Your Customer) Process2. PAN Card 3. Bank Account
Steps to complete KYC Process
Visit any MF Branch Investor Service Centre / Branch with required KYC Documents, namely –
i. Address Proof → Aadhaar Card, Passport, Tel. bill etc.ii. Identity Proof → PAN Card, Aadhaar Card, Passport, Voter’s card etc.
Submit Completed KYC form with photograph with required documents
After completing KYC, you can open a MF Folio with any Mutual Fund and start investing .
Steps for Investing in Mutual Funds
📝Physical Mode✍🏻(Traditional / Paper based )
and
On-line Mode
Modes of Investing
• One can invest in a Mutual Fund scheme Offline or Online
• Offline (physical application) mode• Duly completed scheme application form signed by all applicants
• Cheque or bank draft for the amount to be invested
• Submit the above at the branch office or designated Investor ServiceCentres (ISC) of mutual funds or Registrar & Transfer Agents & MFU
• Online mode• Websites of the respective Mutual Funds• Websites of Mutual Fund Distributors• Buy mutual funds units through NSE – MFSS and BSE - StAR MF just like
a company stock• MF Utilities (MFU) a technology based shared service platform for MF
transactions promoted by the mutual fund industry for participatingmutual funds.
How to invest in a Mutual Fund Scheme?
• Withdrawing your money from Mutual Fund scheme is called as Redemption or Repurchase
• You can withdraw full or partial amount or even a specific number of units
• Offline mode to redeem your mutual fund investments
• Unit holder needs to submit a duly filled and signed Redemption Requestform to the AMC's or the Registrar’s designated office
• All holders have to sign the Redemption form
• The proceeds from the redemption will be credited to the registered bankaccount of the first named unit holder
• Online mode to redeem your mutual fund investments
• Log-on to the ‘Online Transaction’ page of the desired Mutual Fund
• Select the Scheme and the number of units (or the amount) you wish toredeem and confirm your transaction.
How to withdraw your money?
• A mutual fund provides relative return, with respect to its benchmark.• Returns have to always be seen in comparison with a fund’s benchmark• Appropriate benchmarks should be used to evaluate a fund’s performance
• The return of a fund should be measured over a period of time,representative of recommended holding period and objectives of the fund• Debt funds are held for shorter periods• Equity funds are held for longer periods
• The return of the fund has to be adjusted for the risk it has assumed togenerate the return.• Higher return with higher than proportionate risk, is a case of underperformance,
compared to a fund with higher return at lower risk
Performance Evaluation Principles
• The NAV (net asset value) is the market value of allthe funds investments less liabilities and expenses,divided by outstanding number of units for the firm.
• NAV is important as it is the basis for valuing aninvestor’s holding of units in a mutual fund, and therelative appreciation of the same
• Mutual Fund NAVs are published daily on AMFI’swebsite, Mutual Fund Websites, leading newspapers,etc.
What is NAV?
• Mutual funds are required to ‘Label’ their schemeson the following parameters:
• Nature of scheme in an indicative time horizon(short/medium/long term)
• A brief about the investment objective (in a singleline sentence) followed by kind of product inwhich investor is investing (Equity/Debt).
• Level of risk, depicted by ‘Riskometer’ as under:• Low - principal at low risk• Low to Moderate - principal at low to moderate risk• Moderate - principal at moderate risk• Moderately High -- principal at moderately high risk• High - principal at high risk• Very High – principal at very high risk
• A disclaimer saying: “Investors should consult theirfinancial advisers if they are not clear about thesuitability of the product.”
Product Labelling
• Facility that enables an individual unitholder (including sole proprietor ofsole proprietary concern) to nominate a person, who can claim the Unitsheld by the unitholder or the redemption proceeds thereof in the event ofdeath the unitholder.
• If the Units are held jointly by more than one person, all joint unit holdersare required to together nominate a person in whom all the rights in theunits would vest in the event of death of all the joint unit holders.
• Nomination can be made either at the time of initial application forpurchase of Units or subsequently.
• Nomination once made can be changed subsequently any time and anynumber of times.
Nomination
• In case nomination is not made by a Unitholder, the Units would betransmitted to the account of legal heir(s), depending whether thedeceased person has left behind a Will and as per applicable successionlaw, which involves lengthy (and sometimes expensive & cumbersome)procedure.
• Nomination is a simpler and inexpensive way to make things easy for one’snear and dear ones to claim the money in your mutual fund folio, demataccount or bank account expeditiously, through minimal paper after one’sdeath.
• To claim the Units after the death of a unitholder, the nominee has tocomplete the necessary formalities, such as completion of KYC process,along with proof of death of the unit holder, signature of the nominee dulyattested, furnishing of proof of guardianship in case the nominee is a minor,and such other document as may be required for transmitting the units infavour of the nominee(s).
Why is Nomination important?
Complaint to Mutual Fund
• Contact the Investor Relations Officer of the Mutual Fund
• Name and contact details of the Investor Relations Officer are available in the Scheme Information Document and also on the website of the concerned mutual fund.
Complaints Redressal Mechanism
SEBI has provided a centralized web
based complaints redress system on
its portal, named 'SCORES’.
If you are not satisfied with the
response from a particular Mutual
Fund/company/intermediary, you may
then lodge an online complaint with
SEBI through SCORES to get your
complaint redressed.
SEBI takes up the complaints
registered via SCORES with the
concerned company / mutual fund /
intermediary for timely redressal.
To log on to SCORES System, please visit http://scores.gov.in/
SEBI Complaints Redress System
88
Thank You
“Visit here https://licmf.info/KYCredressal to learn more about KYC requirements, SEBI Registered Mutual Funds and Grievance redressal.”
