Presentation on Mutual Fund, Structure, Types, Advantages, Other investment tools and comparison with Mutual Fund at NJ India Invest pvt. ltd.

1. About Mutual Fund, Structure,
Types, Advantages, Other
investment tools and comparison
with Mutual Fund

2. Presented by:
Biswajit Bhattacharjee
BikramJit Dutta
Kunal SenGupta

3. What is a
Mutual Fund?
 Mutual funds are investment avenues that pool
the money of several investors to invest in
financial instruments such as stocks, debentures
etc.
 The appreciation made on the investments is
distributed among the investors on the basis of the
units held by each of them.
 Mutual fund companies have fund managers who
invest the unit holders money in the above
mentioned avenues to take in maximum returns.
 Due to a large pool of investors, the individual risk
is spread. So individually you take on low risk.
 The mutual funds in India are governed by
Association of Mutual Funds in India, the umbrella
body for mutual funds, which is in turn governed
by the Securities and Exchange Board of India.

4. Mutual Fund Operation
Flow Chart

5. • 1964-UTI
• 1987- Public Sector banks,
Insurance Companies
– SBI, PNB LIC, GIC
• 1993- Private Sector
– Kothari Pioneer ( later merged
with Franklin
Templeton),Morgan Stanley
Mutual
Fund
History

6. Structure of Mutual
Fund
Custodian
keeps
safe
custody
of
the
investments (related
documents of securities
invested).

7. Structure of Mutual Fund
• A mutual fund represents a vehicle for collective investment. In
India, the following entities are involved in a mutual fund
operation.
• Sponsor The sponsor of a mutual fund is like the promoter of a
company.
• Mutual Fund The mutual fund is typically constituted as a trust
under the Indian Trust Act.
• Trustees Trustees are the internal regulators of the mutual fund
entrusted with the job of protecting the interest of unit holders.
Appointed by the sponsor, the trustees are typically a corporate
body (a trustee company)

8. Structure of Mutual Fund
 Asset Management Company (AMC) Flotation of various
mutual fund schemes matching the requirements of investing
public. Management of mutual funds in accordance with SEBI
regulations. For carrying out asset management activities.
 Custodian The custodian handles the investment back office
operation of a mutual fund. Holds the fund’s securities in
safekeeping. Settles securities transaction of fund
 Registrars and Transfer Agents The registrars and transfer
agents handle investor-related services. Maintains records of
unit holder’s accounts and transactions. Receives funds from
the investing public and allot units. Disburses the fund to the
unit holders. Handles communication with the unit holders.

9. Types of Mutual Funds
Types of
Mutual Funds
By
Constitution
Close Ended Open Ended Interval
By
Investment
Objective
Equity Funds Debt Funds Cash Fund

10. Mutual fund Types
•By Constitution :
 Open Ended Funds
These do not have a fixed maturity. You deal with the
Mutual Fund for your investments an redemptions. The key
feature is liquidity. You can conveniently buy and sell your
units at Net Asset Value (NAV) related prices, at any point
of time.
 Closed Ended Funds
These are funds that are open only for a specific period
after which you'd have to buy them from the secondary
market.
 Interval Funds
These combine the features of open-ended and close-ended
schemes. They may be traded on the stock
exchange or may be open for sale or redemption during
predetermined intervals at NAV related prices.

11. M
U
T
U
A
L
F
U
N
D
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
• 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 -
SERVICE CHARGE
• LISTED AT STOCK EX
• DIVID MAY/MAY NOT BE
• SWITCHOVER ALLOWED

12. Mutual fund Types
• By Nature of Investments:
 Equity Funds
 Debt Funds
 Money Market Funds
 Hybrid Funds
By Investments Objective:
Growth Funds – For medium to long term capital appreciation.
Income Funds - For generating regular income and preserving capital
with lesser emphasis on capital appreciation.
Value Funds – for investing in undervalued equities

13. Types of Equity Funds
Diversified Funds
Invests across sectors and stocks
Diversifies stock or sector specific risks
E.g- Kotak 30, Kotak Lifestyle
Speciality Funds
Funds that have an investment theme
Are diversified but riskier than normal diversified funds
E.g- Kotak MNC, Kotak Global India, Kotak Lifestyle
Aggressive Funds
Target maximum capital appreciation
Are diversified but riskier than normal diversified funds
May trade or invest in mid & small stocks
E.g- Kotak Mid-cap, Kotak Opportunities

14. Types of Equity funds
Tax Saving Funds Index Funds
Invests exactly as per the benchmark index
Investments are eligible for tax deduction
Lock-in period of 3 Years Risk and return are in line with the index
E.g- Kotak Tax Saver
Value Funds
Invests in currently under valued stocks
Have low risk compared to growth funds
E.g- Kotak Contra
Sector Funds
Invest only in one industry
Offer no sector diversification hence risky
E.g- Kotak Tech

15. Types of Debt Funds
Money Market / Liquid Funds Gilt Funds
Invest in short term debt securities.
Ideal for short term investments.
Lowest in the order of risk level.
Invests in govt. securities with medium to
long term maturities.
Have a very low credit risk.
Debt / Income Funds Floating Rate Funds
Invests in debt securities issued by
various players including govt. and
private companies.
Invest across various maturities.
May be diversified, focused or have
fixed maturities.
Invest in securities with variable int. rates.
Ideal in a rising rate scenario.

16. Types of Hybrid Funds
Growth & Income Funds
Invests in Equity and Debt markets – Balance funds & MIP’s
Less risky than growth funds but more risky than Income funds
E.g- Kotak Balance, Kotak Income Plus
Asset Allocation Funds
Invests in debt and equity based on an asset allocation policy
May follow variable asset allocation and move in and out of asset classes
E.g- Kotak Dynamic FOF, Kotak Flexi FOF

17. Benefits of Mutual Funds
DIVERSIFICATION
Available even in small amounts
PROFESSIONAL
MANAGEMENT
Best Brains in the Country Manage your Money
DIFFERENT
SCHEMES
Providing Solutions For All Needs
TRANSPARENCY
Daily NAV, Monthly Portfolio
CONVENIENCE
Easy to buy, hold & sell
WELL
REGULATED
Governed By SEBI Regulations

18. Benefits of
Mutual Funds
 Dividend from equity funds are entirely
tax free
 Dividend from debt funds - tax free for
investors
 Capital gain tax for equity funds :
• If kept > 1 year then zero tax
 Capital gain tax for Debt Funds :
• Benefit of lesser tax by two options :
• 1. 10 % without indexation
• 2. 20 % with indexation
 Benefit of set off for capital gains or loss
upto 8 years
Benefits
of
Mutual
Funds

19. What are various options available for
investment?
One may invest in:
• ß Physical assets like real estate, gold/ jewellery, commodities etc.
and/or
• ß Financial assets such as fixed deposits with banks, small saving
instruments with post offices, insurance/provident/pension fund etc.
or securities market related instruments like shares, bonds, debentures etc.

20. What are various Short-term financial options available for
investment?
Broadly speaking, savings bank account, money market/liquid funds and fixed
deposits with banks may be considered as short-term financial investment options:
Savings Bank Account is often the first banking product people use, which offers
low interest (4%-5% p.a.), making them only marginally better than fixed deposits.
Money Market or Liquid Funds are a specialized form of mutual funds that invest
in extremely short-term fixed income instruments and thereby provide easy
liquidity. Unlike most mutual funds, money
market funds are primarily oriented towards protecting your capital and then, aim
to maximise returns. Money market funds usually yield better returns than savings
accounts, but lower than bank fixed
deposits.

21. What are various Short-term financial options available for
investment? (cont…)
Fixed Deposits with Banks are also referred to as term deposits and
minimum investment period for bank FDs is 30 days. Fixed Deposits
with banks are for investors with low risk appetite, and may be
considered for 6-12 months investment period as normally interest on
less than 6 months bank FDs is likely to be lower than money market
fund returns.

22. What are various Long-term financial options available for
investment?
Post Office Savings Schemes, Public Provident Fund, Company Fixed
Deposits, Bonds and Debentures, Mutual Funds etc.
Post Office Savings: Post Office Monthly Income Scheme is a low risk saving
instrument, which can be availed through any post office. It provides an interest rate
of around 8% per annum, which is paid monthly. Minimum amount, which can be
invested, is Rs. 1,000/- and additional investment in multiples of 1,000/-. Maximum
amount is Rs. 3,00,000/- (if Single) or Rs. 6,00,000/- (if held Jointly) during a year.
It has a maturity period of 6 years. Premature withdrawal is permitted if deposit is
more than one year old. A deduction of 5% is levied from the principal amount if
withdrawn prematurely.

23. What are various Long-term financial options available for
investment? (cont…)
Public Provident Fund: A long term savings instrument with a maturity of 15 years
and interest payable at 8% per annum compounded annually. A PPF account can be
opened through a nationalized bank at anytime during the year and is open all
through the year for depositing money. Tax benefits can be availed for the amount
invested and interest accrued is tax-free. A withdrawal is permissible every year
from the seventh financial year of the date of opening of the account and the amount
of withdrawal will be limited to 50% of the balance at credit at the end of the 4th
year immediately preceding the year in which the amount is withdrawn or at the end
of the preceding year whichever is lower the amount of loan if any.
Company Fixed Deposits: These are short-term (six months) to medium-term (three
to five years) borrowings by companies at a fixed rate of interest which is payable
monthly, quarterly, semi-annually or annually. They can also be cumulative fixed
deposits where the entire principal alongwith the interest is paid at the end of the
loan period. The rate of interest varies between 6-9% per annum for company FDs.
The interest received is after deduction of taxes.

24. What are various Long-term financial options available for
investment? (cont…)
Bonds: It is a fixed income (debt) instrument issued for a
period of more than one year with the purpose of raising
capital. The central or state government, corporations and
similar institutions sell bonds. A bond is generally a promise
to repay the principal along with a fixed rate of interest on a
specified date, called the Maturity Date.

25. Comparison with Mutual Fund
A. Company Fixed Deposits v/s mutual fund:
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon
the investment objective of the scheme. An investor can buy in to a portfolio of
equities, which would otherwise be extremely expensive. Each unit holder thus gets an
exposure to such portfolios with an investment as modest as Rs.500/-. This amount
today would get you less than quarter of an Infosys share! Thus it would be affordable
for an investor to build a portfolio of investments through a mutual fund rather than
investing directly in the stock market.
B. Bank Fixed deposits v/s mutual fund:
Bank Fixed deposits are similar to company fixed deposits excepting that the Bank
FD’s are more safe and chances of default are very less. Banks operate under stringent
requirements regarding Statutory Liquidity Ration (SLR) and Cash Reserve Ratio
(CRR). Further, Deposit Insurance and Credit Guarantee Corporation (DICGC) protect
bank deposits.

26. Comparison with Mutual Fund (cont…)
C. Bonds and Debentures v/s Mutual fund:
1. Credit rating of a bond is an indication of the inherent default risk in the investment.
However unlike fixed deposits, bonds and debentures are transferable securities.
2. If security does not get traded in the market, then the liquidity remains on paper. In this
respect an open-end mutual fund scheme offering continuous sale / repurchase option is
superior.
3. There could be capital gain / capital loss to investor incase of an early exit, because the
investment is subject to market risk. This is normally less in Mutual fund as the investment
is made in basket of funds and hence your investment gets diversified.
D. Equity v/s Mutual fund:
1. It is not possible for a common man to lay his hands on all that information needed to make
an equity investment. Mutual fund handled by professionals make prudent investment
decisions.
2. Mutual fund investment offers diversification irrespective of the size of investment.
Individual investor investing in equity scheme may not have this advantage especially if he
does not have that sort of investible funds.

27. Comparison with Mutual Fund (cont…)
E. Life insurance v/s Mutual Fund:
1. Life insurance is hedge against risk – and not really an investment option.
2. But occasionally, on account of mis-pricing of products in India, life insurance
products have offered a return that is higher than a comparable “safe” fixed return
security – thus, you are effectively paid for getting insured.

28. 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

29. INVESTMENT OPTIONS
Pre-Tax Risk Liquidity
Returns
Instrument Tenure
ICD’s <180 days 9% - 11% Medium No secondary mkt.
Call (thro’ PD’s) Overnight 6.5% - 9% Low Routed thro’ PD’s
No price High
risk
Mutual Funds
Serial Over 1 year 9% - 10%
Low High
Credit
1 month – 12 9% - 10.5%
months
Bond
Overnight to 1 8% to 9.5% No High
month
Liquid
Price High
Risk
T-Bills <12 months 7% - 9%
Possible by breaking
FD at cost
Bank Deposits 7 days to 1 yr. 6% - 12% Low

30. Thank You