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* 10 reasons to invest in mutual funds Expert on your side: When you invest in a mutual fund, you buy into the experience and skills of a fund manager and an army of ... – PowerPoint PPT presentation

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Mutual Funds What Are They?
  • A mutual fund is nothing more than a collection
    of stocks and/or bonds. You can think of a mutual
    fund as a company that brings together a group of
    people and invests their money in stocks, bonds,
    and other securities. Each investor owns shares,
    which represent a portion of the holdings of the
    fund. You can make money from a mutual fund in
    three ways 1) Income is earned from dividends
    on stocks and interest on bonds. A fund pays out
    nearly all of the income it receives over the
    year to fund owners in the form of a
    distribution. 2) If the fund sells securities
    that have increased in price, the fund has a
    capital gain. Most funds also pass on these gains
    to investors in a distribution. 3) If fund
    holdings increase in price but are not sold by
    the fund manager, the fund's shares increase in
    price. You can then sell your mutual fund shares
    for a profit.

  • A Mutual Fund is a trust that pools the savings
    of a number of investors who share a common
    financial goal.
  • The money thus collected is then invested in
    capital market instruments such as shares,
    debentures and other securities.
  • The income earned through these investments and
    the capital appreciation realized are shared by
    its unit holders in proportion to the number of
    units owned by them.
  • Thus a Mutual Fund is the most suitable
    investment for the common man as it offers an
    opportunity to invest in a diversified,
    professionally managed basket of securities at a
    relatively low cost.

Mutual Fund Operation Flow Chart
10 reasons to invest in mutual funds
  • Expert on your side  
  • Limited risk
  • More for less
  • Easy investing
  • Convenience
  • Investor protection
  • Quick access to your money
  • Transparency
  • Low transaction costs
  • Tax benefits

Disadvantages of Mutual Funds
  • Fluctuating Returns
  • Diversification?
  • Cash, Cash and More Cash
  • Costs
  • Misleading Advertisements
  • Evaluating Funds

Organisation of a Mutual Fund
Legal Structure
Structure of mutual funds in India
Trust Deed
40 Capital
Mgmt Agreement
Mutual Fund
Scheme Two
Scheme One
Scheme Three
Types of Mutual Funds
  • Net Asset Value (NAV)Net Asset Value is the
    market value of the assets of the scheme minus
    its liabilities. The per unit NAV is the net
    asset value of the scheme divided by the number
    of units outstanding on the Valuation Date.
  • Sale PriceIs the price you pay when you invest
    in a scheme. Also called Offer Price. It may
    include a sales load.
  • Repurchase Price
  • Is the price at which a close-ended scheme
    repurchases its units and it may include a
    back-end load. This is also called Bid Price.
  • Contd

  • Redemption Price
  • Is the price at which open-ended schemes
    repurchase their units and close-ended schemes
    redeem their units on maturity. Such prices are
    NAV related.  
  • Sales Load
  • Is a charge collected by a scheme when it sells
    the units. Also called, Front-end load. Schemes
    that do not charge a load are called No Load
  • Repurchase or Back-end Load Is a charge
    collected by a scheme when it buys back the units
    from the unit holders.

Growth of Mutual Funds
  • Growth estimated at 35-40 next to Russia and
  • Investors education
  • The mutual fund industry is awaiting the
    introduction of derivatives in the country as it
    would enable to hedge its risk.
  • SEBI is working out the norms for enabling the
    existing mutual fund schemes to trade in
    Derivatives .
  • The size of the mutual funds industry is expected
    to be worth Rs. 4 lakh crores by 2010.

In future mutual funds would be one of the major
instruments of wealth creation and wealth saving
in the years to come. Mutual in India April
2008Total number of funds 33Asset under
management(AUM)More than 5.5 lac crores
Ground Rules of Mutual Fund Investing
  • Define your Investment Objectives
  • Draw up your Asset Allocation

.Ground Rules of Mutual Fund Investing
  • Identify Funds with matching Investment
  • Evaluate Past Performance, look for Consistency
  • Diversify
  • Consider Fund Costs
  • Factor Tax Implications

Advantages of Early Investing
Investing in a Diversified MF - SIP _at_ 35 Yrs _at_ 40 Yrs
Monthly Investment IRS 5000 IRS 5000
Investment Stopped _at_ 60 Yrs 60 yrs
Total Contribution IRS 15,00,000/ IRS 12,00,000/
Growth (assume 15 CAGR) IRS 1,37,82,803.88/ IRS 66,35,367.20/
  • The Treynor Measure
  • The Sharpe Measure
  • Jenson Model
  • Fama Model

Global Scenario
  • The money market mutual fund segment has a total
    corpus of 1.48 trillion in the U.S. against a
    corpus of 100 million in India.
  • Out of the top 10 mutual funds worldwide, eight
    are bank- sponsored. Only Fidelity and Capital
    are non-bank mutual funds in this group.
  • In the U.S. the total number of schemes is higher
    than that of the listed companies while in India
    we have just 277 schemes

Internationally, mutual funds are allowed to go
short. In India fund managers do not have such
leeway.In the U.S. about 9.7 million households
will manage their assets on-line by the year
2003, such a facility is not yet of avail in
India.On- line trading is a great idea to
reduce management expenses from the current 2
of total assets to about 0.75 of the total
assets.72 of the core customer base of mutual
funds in the top 50-broking firms in the U.S. are
expected to trade on-line by 2003.  
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Ankita GuptaDeepshikha GuptaSneha
SinghalAnkur PandeyGurpreet SinghPrateek
DuggalYogesh sehgalkunal
  • Thank you