Mutual Fund (Debt Mkt)

8/8/2019 Mutual Fund (Debt Mkt)

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Investing in MutualInvesting in Mutual

FundFund


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UNDERSTANDINGUNDERSTANDING

MUTUAL FUNDMUTUAL FUND

Defining mutual fundDefining mutual fund ::Mutual fund is an entity that pools the money ofMutual fund is an entity that pools the money of

many investors or unit holders invest in differentmany investors or unit holders invest in different

securities like shares debt securities, money marketsecurities like shares debt securities, money marketsecurities or combination of these. These securitiessecurities or combination of these. These securities

are professionally managed by behalf of the unitare professionally managed by behalf of the unit--

holders, and each investor is entitled to any profitsholders, and each investor is entitled to any profits

when the securities are sold, but subject to anywhen the securities are sold, but subject to any

losses in value as well.losses in value as well.


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Mutual Fund Operation

Flow Chart


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History of mutual fundHistory of mutual fund

The mutual fund industry in IndiaThe mutual fund industry in India

started in 1963 with the formationstarted in 1963 with the formation

of Unit Trust of India at the initiativeof Unit Trust of India at the initiative

of the Government of India and theof the Government of India and theReserve Bank of India. It can beReserve Bank of India. It can be

broadly divided into four broadbroadly divided into four broad

phases which arephases which are


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1.1. FirstFirst PhasePhase 19641964--8787

2.2. Second PhaseSecond Phase 19871987--93:93:(entry of public sector funds)(entry of public sector funds)

3.3. Third PhaseThird Phase 19931993--2003:2003:

(entry of private sector(entry of private sectorfunds)funds)

4.4. Fourth PhaseFourth Phase sincesinceFebruary 2003February 2003


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Structure of MutualStructure of Mutual

FundFund

The structure of mutual funds in India isThe structure of mutual funds in India is

governed by the SEBI regulations 1996.governed by the SEBI regulations 1996.

The structure of mutual fund in IndiaThe structure of mutual fund in India

constitutes the followingconstitutes the following::

1. Sponsor2. Trustee3. Asset Management Company4. Custodians5. Registrars and TransferAgents6. Distributors and Selling Agents7. Legal Advisors


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SPONSOR:SPONSOR:

The sponsor is the promoter ofThe sponsor is the promoter of

mutual fund. It establishes themutual fund. It establishes the

fund and registers it with SEBI.fund and registers it with SEBI.

The sponsor appoints theThe sponsor appoints the

trustees, custodians and thetrustees, custodians and the

AMC with approval of SEBI, andAMC with approval of SEBI, and

in accordance with SEBIin accordance with SEBIregulations.regulations.


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TRUSTEE:TRUSTEE:

It is the responsibility of the trusteeIt is the responsibility of the trusteeto protect the right of the investors,to protect the right of the investors,whose fund is managed by the AMC.whose fund is managed by the AMC.

There must be at least 4 membersThere must be at least 4 membersin the board of trustees and at leastin the board of trustees and at least2/3rd of the members of the board of2/3rd of the members of the board oftrustees must be independent.trustees must be independent.

Trustees must furnish to SEBI, onTrustees must furnish to SEBI, onhalf yearly basis, a report on thehalf yearly basis, a report on theactivities of the AMC.activities of the AMC.


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ASSET MANAGEMENTASSET MANAGEMENTCOMPANY (AMC):COMPANY (AMC):

Trustees, on the advice of theTrustees, on the advice of thesponsors appoint the AMC.sponsors appoint the AMC.

The trust is the mutual fund; theThe trust is the mutual fund; the

AMC is its operational face.AMC is its operational face. The AMC is usually a private limitedThe AMC is usually a private limited

companycompany ..

The AMC structures the mutual fundThe AMC structures the mutual fund

products, markets them andproducts, markets them andmobilizes the funds, manages themobilizes the funds, manages thefunds and services the investors.funds and services the investors.


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Various types ofAMCS in India areVarious types ofAMCS in India areas follows:as follows:

AMCS owned by banksAMCS owned by banks

AMCS owned by financial institutionsAMCS owned by financial institutions

AMCS owned by the Indian privateAMCS owned by the Indian private

sector companiessector companies AMCS owned by foreign institutionalAMCS owned by foreign institutional

investorsinvestors

AMCS owned jointly by Indian andAMCS owned jointly by Indian and

foreign sponsorsforeign sponsors


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CUSTODIANS:CUSTODIANS:

A custodian provides the following services to theA custodian provides the following services to themutual fund:mutual fund:

PostPost--trading and custodial services to the Mutualtrading and custodial services to the MutualFund.Fund.

Ensure that the benefits due on the holdings areEnsure that the benefits due on the holdings arereceived on time.received on time.

Detailed management information and other reportsDetailed management information and other reportsas required by the AMC.as required by the AMC.

Maintain confidentiality of the transactions.Maintain confidentiality of the transactions.

Be responsible for the loss or damage to the assetsBe responsible for the loss or damage to the assets

belonging to the Scheme due to negligence on itsbelonging to the Scheme due to negligence on itspart or on the part of its approved agents andpart or on the part of its approved agents andsegregate assets of each Scheme.segregate assets of each Scheme.


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REGISTRARS and TRANSFERREGISTRARS and TRANSFERAGENTS(R&TAgent):AGENTS(R&TAgent):

The R&T agents are responsible forThe R&T agents are responsible forthe investor servicing functions, asthe investor servicing functions, asthey maintain the records of investorthey maintain the records of investor

in mutual funds.in mutual funds. R&T agents handle theR&T agents handle the

communications with investors,communications with investors,perform data entry services, andperform data entry services, and

maintain investor data andmaintain investor data anddispatches Account Statementsdispatches Account Statementsreflecting the holding andreflecting the holding andtransactions of the investors.transactions of the investors.


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DISTRIBUTORS andDISTRIBUTORS andSELLINGAGENTS:SELLINGAGENTS:

Mutual fund products are reached toMutual fund products are reached to

investors across the country throughinvestors across the country through

distributors and selling agents.distributors and selling agents.

Agents are individuals who bring inAgents are individuals who bring ininvestors funds for a commissioninvestors funds for a commission

Most agents and distributors are paidMost agents and distributors are paid

commissions on the funds theycommissions on the funds they

mobilize from investors.mobilize from investors.


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LEGALADVISORS:LEGALADVISORS:

Legal advisors advise mutualLegal advisors advise mutual

funds on regulatory and taxationfunds on regulatory and taxation

issues.issues.

Every mutual fund has anEvery mutual fund has an

employee designated asemployee designated as

compliance officer, who workscompliance officer, who works

under the advice of legalunder the advice of legaladvisors.advisors.


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RISKRISK

Risk in mutual funds is closelyRisk in mutual funds is closely

associated with the factors thatassociated with the factors that

influence the source of income, thusinfluence the source of income, thus

impacting the ability of the investor toimpacting the ability of the investor toearn the expected returns on theearn the expected returns on the

security.security.


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The following are theThe following are thetypes of risk to whichtypes of risk to whichan investor is exposed:an investor is exposed:

1.1. Return tradeReturn trade -- off riskoff risk

2.2. Market riskMarket risk3.3. Credit riskCredit risk

4.4. Inflation riskInflation risk

5.5. Interest rate riskInterest rate risk

6.6. Political/government riskPolitical/government risk

7.7. Liquidity riskLiquidity risk


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MEASURINGand EVALUATINGMEASURINGand EVALUATING

FUNDPERFORMANCEFUNDPERFORMANCE ::

Why Measure FundWhy Measure FundPerformancePerformance??

1.1. The investors perspectiveThe investors perspective

2.2. The advisors perspectiveThe advisors perspective

3.3. The rate of return to anThe rate of return to aninvestorinvestor


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Percentage change in NAV:Percentage change in NAV:It is an absolute measure of return, whichIt is an absolute measure of return, whichfinds the NAV appreciation between twofinds the NAV appreciation between two

points of time, as a percentage.points of time, as a percentage.(Absolute change in NAV / NAV at the(Absolute change in NAV / NAV at thebeginning)*100*12/nbeginning)*100*12/nWhere n being the number of monthsWhere n being the number of monthsbetween the beginning and end NAVs.between the beginning and end NAVs.

Simple total return:Simple total return:The simple total return method takes intoThe simple total return method takes intoaccount the dividends distributed by theaccount the dividends distributed by themutual fund, and adds it to the NAVmutual fund, and adds it to the NAVappreciation, to arrive at returns. Theappreciation, to arrive at returns. The

general formula is:general formula is:{(difference in NAV +{(difference in NAV +dividend)/beginning NAV}*365/n*100dividend)/beginning NAV}*365/n*100Where n is the holding period for whichWhere n is the holding period for whichthe capital gains and dividend arethe capital gains and dividend are earned.earned.


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SEBI regulationsSEBI regulations

regarding reporting ofregarding reporting of

returns by mutual funds:returns by mutual funds:In order to ensure uniformity and comparability acrossIn order to ensure uniformity and comparability acrossfunds, SEBI has stipulated some norms for return datafunds, SEBI has stipulated some norms for return datathat is published by mutual funds. These are:that is published by mutual funds. These are:

Mutual funds can only use standard returnMutual funds can only use standard returncomputations such as annual dividend on facecomputations such as annual dividend on face

value, annual yield on purchase price and annualvalue, annual yield on purchase price and annualcomputed rate of return.computed rate of return.

If the scheme has been in existence for over a year,If the scheme has been in existence for over a year,compounded annual yield is the accepted method ofcompounded annual yield is the accepted method ofcalculating return.calculating return.

Return calculations for funds with payouts shouldReturn calculations for funds with payouts shouldassume that dividends are reassume that dividends are re--invested at the exinvested at the ex--

dividend NAV.dividend NAV. Returns should be shown for the past 1, 3 and 5Returns should be shown for the past 1, 3 and 5

years of the scheme, since inception, whichever isyears of the scheme, since inception, whichever islower.lower.

For funds in existence for less than a year, totalFor funds in existence for less than a year, totalreturns should be shown, and such returns shouldreturns should be shown, and such returns shouldnot be annualized or compounded.not be annualized or compounded.


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Mutual FundRanking:Mutual FundRanking:

Mutual fund ranking involves theMutual fund ranking involves the

comparison of mutual fund performancecomparison of mutual fund performance

over a period of time, using several criteriaover a period of time, using several criteria

to judge for consistency in performance. Allto judge for consistency in performance. All

the rating agencies follow differentthe rating agencies follow different

methodology for rating and ranking themethodology for rating and ranking the

mutual fundsmutual funds..


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Important criteria for peerImportant criteria for peergroup comparisons are:group comparisons are:

Mutual fund ranking services usually do peerMutual fund ranking services usually do peergroup comparisons and provide performancegroup comparisons and provide performanceranking of funds. In many cases, the criteria forranking of funds. In many cases, the criteria forranking extend beyond risk and return. In orderranking extend beyond risk and return. In orderto meaningfully compare funds some level ofto meaningfully compare funds some level ofsimilarity in the following factors has to besimilarity in the following factors has to be

ensuredensured

1.1. To understand this methodology better weTo understand this methodology better weconsider an example i.e. we compare twoconsider an example i.e. we compare twomutual fund houses.We compare Reliancemutual fund houses.We compare RelianceMutual Fund and SBI Mutual Fund.Size of theMutual Fund and SBI Mutual Fund.Size of the

funds.funds.2.2. Investment objective.Investment objective.3.3. Risk profile.Risk profile.4.4. Portfolio composition.Portfolio composition.5.5. Credit profile and average maturity.Credit profile and average maturity.6.6. Expense ratios.Expense ratios.


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RELIANCE MUTUALFUNDRELIANCE MUTUALFUND RELIANCE MUTUALFUNDRELIANCE MUTUALFUND

INCORPORATEDINCORPORATED 30/6/199530/6/1995

OWNERSHIPOWNERSHIP PrivatePrivate

OWNERSHIPOWNERSHIP

PATTERNPATTERN

ForeignForeign--0%0%

DomesticDomestic--100%100%

SPONSORSPONSOR Reliance capitalReliance capital

ltdltd

TOTALTOTAL

ASSESTS(RS CR)ASSESTS(RS CR)

59,143,48 as59,143,48 as

on 31/5/2007on 31/5/2007

EQUITY FUNDSEQUITY FUNDS

(OPEN END)(OPEN END)

1515

DEBTFUNDS(OPEDEBTFUNDS(OPE

N END)N END)

1919

SHORTSHORT--TERMTERM

DEBT(OPEN END)DEBT(OPEN END)

99

HYBRIDHYBRID

FUNDS(OPENFUNDS(OPEN

END)END)

11

CLOSECLOSE--ENDEND

FUNDSFUNDS

4343

INCORPORATEDINCORPORATED 29/6/198729/6/1987

OWNERSHIPOWNERSHIP PublicPublic

OWNERSHIPOWNERSHIP

PATTERNPATTERN

ForeignForeign -- 37%,37%,

DomesticDomestic--63%63%

SPONSORSPONSOR State Bank of State Bank of

India, SGAMIndia, SGAM

TOTALTOTAL

ASSESTS(RS CR)ASSESTS(RS CR)

19,649,25 as19,649,25 as

on 31/5/2007on 31/5/2007EQUITY FUNDSEQUITY FUNDS

(OPEN END)(OPEN END)

1414

DEBTFUNDS(OPEDEBTFUNDS(OPE

N END)N END)

1212

SHORTSHORT--TERMTERM

DEBT(OPEN END)DEBT(OPEN END)

99

HYBRIDHYBRID

FUNDS(OPENFUNDS(OPEN

END)END)

33

CLOSECLOSE--ENDEND

FUNDSFUNDS

1818

SBI MUTUALFUNDSBI MUTUALFUND SBI MUTUALFUNDSBI MUTUALFUND


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We compareReliance LiquidWe compareReliance Liquid

plus Fundplus Fund -- InstInst Growth andGrowth and

SBIPremier Liquid FundSBIPremier Liquid Fund --

InstitutionalInstitutional Growth.Growth.

RelianceLiquidplus Fund- Inst

Growth

SBI PremierLiquidFund -Institution

al Growth.

Type ofScheme

Open Ended Open Ended

Nature ofScheme

Short TermDebt

Short TermDebt

Inception Date Mar 20, 2007 Nov 21, 2003

Fund Size (Rs.in crores)

4781.08 on Jun 30,

2007

779.69 on Jun 30, 2007


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Schemes Performance (%) as onSchemes Performance (%) as on

Jul 5, 2007:Jul 5, 2007:

Reliance Liquid plus FundReliance Liquid plus Fund -- InstInst GrowthGrowth

14

days1

month3months

1

year3yrs*

Inception*

0.32 0.65 2.22 NA NA 10.23

SBI PremierLiquid Fund - Institutional Growth

14

days1

month3months

1

year3yrs*

Inception*

0.260.26 0.530.53 1.741.74 7.267.26 6.096.09 5.835.83


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Analyzing the Market forAnalyzing the Market for

Mutual Funds in India:Mutual Funds in India:

As of now the Indian mutual fund industryAs of now the Indian mutual fund industrycontributes 6% to the GDP of India whichcontributes 6% to the GDP of India whichdepicts that there is lots of scope for thedepicts that there is lots of scope for theexpansion of mutual fund industry in India.Toexpansion of mutual fund industry in India.Tostart with we see the share of Indian mutualstart with we see the share of Indian mutual

fund industry globally.fund industry globally. Global scenarioGlobal scenario::

With $88 billion assets, Indian mutual fundWith $88 billion assets, Indian mutual fundindustry ranks 24th whereas the assets underindustry ranks 24th whereas the assets undermanagement globally stands at $21,765 billion.management globally stands at $21,765 billion.T

hus these figures show that the Indian mutualT

hus these figures show that the Indian mutualfund industry has a lot of scope to grow.Therefund industry has a lot of scope to grow.Thereare many other reasons which promote theare many other reasons which promote thegrowth of mutual fund industry in India.growth of mutual fund industry in India.


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The Indian picture globally: scope ofThe Indian picture globally: scope ofmutual fund industry in Indiamutual fund industry in India

There are some facts below about India which give a goodThere are some facts below about India which give a good

reason for the expansion of mutual fund industry in India.reason for the expansion of mutual fund industry in India.The reasons are as below:The reasons are as below:1.1. Progressive movement towards deli censing andProgressive movement towards deli censing and

deregulation.deregulation.2.2. India is the world's largest democracy.India is the world's largest democracy.3.3. The gross domestic product grew by 8.9 percent in the firstThe gross domestic product grew by 8.9 percent in the first

quarter of2006quarter of2006--07074.4. Large pool of young skilled labor force, cost effectiveLarge pool of young skilled labor force, cost effective

production facilities, large domestic market.production facilities, large domestic market.5.5. Capacity up gradation in infrastructure, industrial base andCapacity up gradation in infrastructure, industrial base and

intellectual capital.intellectual capital.6.6. Progressive tax reforms.Progressive tax reforms.7.7. Progressive opening of the economy to FDI.Progressive opening of the economy to FDI.8.8. Portfolio investment regime liberalized.Portfolio investment regime liberalized.9.9. Liberal policy on technology collaboration.Liberal policy on technology collaboration.

10.10. Investor friendly policies.Investor friendly policies.11.11. Acceleration of the privatization process and restructuringAcceleration of the privatization process and restructuring

of public enterprises.of public enterprises.12.12. Good network of research and development.Good network of research and development.13.13. Economic and political stability.Economic and political stability.


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MARKETINGMUTUALMARKETINGMUTUAL

FUNDPRODUCTFUNDPRODUCT

The intermediaries involved inThe intermediaries involved in

the marketing of mutual fund inthe marketing of mutual fund in

India are:India are:

1.1. Individual agentsIndividual agents

2.2. Distribution companiesDistribution companies

3.3.

Banks and NBFCsBanks and NBFCs4.4. Direct marketing channelsDirect marketing channels


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Segmenting the CustomersSegmenting the Customers:: The customers are segmented based on theThe customers are segmented based on the

following segmentation variables:following segmentation variables:

1.1. GeographicGeographic

2.2. DemographicDemographic

Geographic:Geographic:

The mutual fund industry in India has still left theThe mutual fund industry in India has still left therural customers untapped which gives a largerural customers untapped which gives a large

opportunity to the Indian mutual fund industry toopportunity to the Indian mutual fund industry to

grow at a much faster pace. The data belowgrow at a much faster pace. The data below

shows the opportunities available for Indianshows the opportunities available for Indian

mutual fund houses. Only 20% of the totalmutual fund houses. Only 20% of the total

population of India invests in mutual funds. Thepopulation of India invests in mutual funds. The

pie chart below shows the percentage of retailpie chart below shows the percentage of retail

investors with the mutual fund industry.investors with the mutual fund industry.


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Demographic:Demographic:

The demographic features give the information about theThe demographic features give the information about the

nature of investment vehicle selected by customers tonature of investment vehicle selected by customers to

invest in India. The need of money and the appetite forinvest in India. The need of money and the appetite for

risk varies for various stages of life of a customer andrisk varies for various stages of life of a customer and

even for various customers as well. The figure beloweven for various customers as well. The figure below

depicts various life cycle stages:depicts various life cycle stages:


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Targeting the Mutual FundTargeting the Mutual FundProductProduct::

The demographic segmentation variable shows theThe demographic segmentation variable shows the

tendency of the customers to invest according to theirtendency of the customers to invest according to theirlife cycle stages. The mutual fund houses in India arelife cycle stages. The mutual fund houses in India arecoming up with various new schemes and innovationscoming up with various new schemes and innovationswhich are specifically for the given life cycle stage.which are specifically for the given life cycle stage.

Life cycle stage Type of mutual fundscheme

Childhood stage Long term schemes

Young unmarried Money market /liquidschemes

Young married Fixed maturity plans

Young married withchildren Balanced schemes

Married with olderchildren

Systematic investmentplans

Post family/pre-retirement stage

Pension plans

Retirement stage Debt schemes


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Why to Invest in MutualWhy to Invest in Mutual

FundsFunds

1.1. Professional investmentProfessional investmentmanagementmanagement

2.2. DiversificationDiversification

3.3.Low CostLow Cost

4.4. Convenience and FlexibilityConvenience and Flexibility

5.5. Personal ServicePersonal Service

6.6. LiquidityLiquidity

7.7. TransparencyTransparency


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THANKTHANKY

OUY

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Mutual Fund (Debt Mkt)