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AMFI Certification Program for Mutual Fund Intermediaries

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Title: AMFI Certification Program for Mutual Fund Intermediaries Author: Sushil Sharma Last modified by: dell Created Date: 9/21/2003 6:02:35 AM Document presentation ... – PowerPoint PPT presentation

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Title: AMFI Certification Program for Mutual Fund Intermediaries


1
Presented By
CA Swatantra Singh,
B.Com , FCA, MBA

Email ID singh.swatantra_at_gmail.com
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
2
Behavioral Trends in Mutual
Funds  
3
Mutual Fund An Investors Best Friend In the
World of Risk A wise man should have money in
his head, not in his hand. -Jonathan Swift
(1667-1745)
4
Mutual Fund
  • Vehicle for collective investments
  • to pool their marginal resources
  • invest in Securities distribute
  • the returns.

5
Advantages of Mutual Funds
  • Portfolio diversification
  • Professional management
  • Reduction / diversification of risk
  • Reduction of transaction cost
  • Liquidity
  • Convenience and flexibility
  • Tax Benefits

6
Disadvantages of Mutual Funds
  • No control over costs
  • No tailor-made portfolio
  • Managing a portfolio of funds

7
Fund distribution and sales practices
8
Who can invest
  • Who can invest in mutual funds
  • Resident individuals
  • Indian companies
  • Indian trusts / Charitable institutions
  • Banks
  • Non-banking finance companies
  • Insurance companies
  • Provident funds
  • Non-resident Indians (Repatriable and non-
    repatriable)
  • Foreign Institutional Investors

9
Distribution Channels
  • Types of distribution channels
  • All distributors and employees of distribution
    companies to be AMFI certified
  • Individual agents
  • Distribution Companies
  • Banks and non-banking finance companies
  • Largest mobilizers form mutual funds
  • Direct marketing by mutual funds

10
Agent commissions..
  • Agents are paid commission for distribution of
    mutual funds
  • 1.50pct to 3.00pct for equity funds
  • 0.40pct to 1.25pct for debt funds
  • Maximum agency commission restricted to 6pct
    initial issue expenses
  • Agency commission may be paid out of entry / exit
    load subject to overall expense limits

11
Services by Agents..
  • Understand all aspects of the schemes
  • Understand client profile in terms of
  • Age profile
  • Risk appetite
  • Income and liquidity requirements
  • Offer clients investments suitable to investors
    profile
  • Continuous monitoring of clients investments
  • Personalised after sales service

12
Investor services by Mutual Funds..
  • Phone transactions - Interactive voice
    recognition system
  • Cheque writing facility
  • Sweep facility to bank accounts
  • Periodic statements and tax information
  • Loan against units
  • Nomination facility
  • Transfer of units through listing of close ended
    funds

13
Measuring mutual fund performance..
  • One of the Method
  • End NAV - Start NAV 12or365 100
  • Start NAV No. of months or days
  • This method gives the annualised returns in
    percentage
  • If annualised returns are not required, the month
    / day calculation is deleted. You then get
    absolute returns in percentage
  • If annualised, suitable for investments only in
    growth option of all types of funds as dividend
    is not considered

14
Useful tips for making Investments in mutual
Funds..
  • Consider the effect of loads
  • Compare similar time periods
  • For less than one year period calculate returns
    on absolute basis except for money market funds
  • For a period of one year and more calculate
    returns on annualised basis
  • Watch the total Returns since inception

15
When should one invest through a Mutual Fund ?
  • have a small amount to invest
  • hold fewer than five stock
  • one need better advice on investing
  • have difficulty in deciding when to sell
  • find the paper work relating to investments
    cumbersome

16
Types of mutual fund
On the basis of objective
On the basis of payout
On the basis of structure
Open ended
Dividend
Growth
Close ended
Dividend payout
Dividend Re-invest
Equity
Debt
Liquid
Gilt
Balanced
Diversified
Sectoral
Index
17
Constitution of Mutual Fund
Fund Sponsor (Promoter of the Fund)
Fund Sponsor (Promoter of the Fund)
Fund Sponsor (Promoter of the Fund)
Custodian
Transfer Agents
Distributors
Brokers
18
INVESTMENT IN MUTUAL FUND
  • IDEAL INSTRUMENT TO INVEST FOR THOSE WHO DONT
    HAVE TIME TO DO THE RESEARCH FOR INVESTMENT
    IN EQUITY
  • ALSO FOR THOSE WHO DOES NOT HAVE LARGE SUM TO
    INVEST IN EQUITY SHARES OF LARGE CAP OR MIDCAP
    PROMINENT COMPANIES WANTS TO PARTICIPATE IN
    GROWTH STORIES OF THESE KIND OF COMPANIES.

19
INVESTMENT IN MUTUAL FUND
  • TODAY MUTUAL FUNDS ASSETS UNDER MANAGEMENT
    IS ALMOST 781000 CRORE.
  • INVEST IN STOCK MARKET AFTER EXTENSIVE
    RESEARCH.
  • PROFESSIONAL MANAGEMENT
  • DIVERSIFICATION
  • EXCELLENT RETURN POTENTIAL IN LONG RUN
  • LIQUIDITY

20
  • Investment
  • Management

21
Equity portfolio management..
  • Fund management organisation structure
  • Fund manager
  • Performs asset allocation
  • Security analyst
  • Supports the fund managers through analytical
    reports (Fundamental, technical and quantitative)
  • Security dealers
  • Executes actual buying and selling through
    brokers

22
Equity portfolio management..
  • Equity Research
  • Fundamental analysis
  • The study of the Financial health of a
    particular company, by studying the past 3 to 5
    years Balance sheets Profit Loss accounts
  • Technical analysis
  • The study of the market movements of share price
    of a company or industry / sector to predict the
    future trend
  • Quantitative analysis
  • The use of mathematical models for equity
    valuation

23
Equity portfolio management..
  • Types of equity instruments
  • Ordinary shares
  • Preference shares
  • Equity warrants
  • Convertible debentures
  • Derivatives
  • Futures
  • Options

24
Equity portfolio management..
  • Portfolio management process
  • Set Investment policy
  • Perform security analysis and research
  • Construct a portfolio
  • Revise the portfolio
  • Evaluate the performance of the portfolio

25
Debt portfolio management..
  • Fund management organisation structure
  • Fund manager
  • Performs asset allocation
  • Security dealers
  • Executes actual buying and selling through
    brokers
  • Interest rate forecasting unit
  • Economists who do research on interest rates
  • Risk Managers
  • Oversee risk levels attained by fund managers

26
Debt portfolio management..
  • Types of debt instruments
  • Certificate of deposit
  • Commercial paper
  • Corporate debentures
  • Floating rate bonds
  • Government securities
  • Treasury bills
  • Bank / Financial Institution bonds
  • Public sector undertaking bonds

27
Debt portfolio management..
  • Risks in investing in bonds
  • Interest rate risk
  • Price of bonds are inversely proportional to
    interest rates
  • Reinvestment risk
  • Coupon received may not get invested at the
    coupon rate itself
  • Call risk
  • If bond provides a call option, the bond may get
    called if interest rates drop. Reinvestment will
    then happen at lower rates

28
Debt portfolio management..
  • Risks of investing in bonds
  • Default risk
  • Credit risk of default on repayment of interest /
    principal by the issuer
  • Inflation risk
  • Rise in inflation results in lower purchasing
    power on coupon received, making the bond lose
    value
  • Liquidity risk
  • Illiquidity leads to incorrect pricing and
    desperate sales

29
Debt portfolio management..
  • Risks of investing in bonds
  • Default risk
  • Credit risk of default on repayment of interest /
    principal by the issuer
  • Inflation risk
  • Rise in inflation results in lower purchasing
    power on coupon received, making the bond lose
    value
  • Liquidity risk
  • Illiquidity leads to incorrect pricing and
    desperate sales

30
WEALTH CREATION - EQUITY INVESTMENT
ROUTE
31
STOCK MARKET FROM THE LOW OF 8000 LAST YEAR NOW
CLIMBING HIGHER - CELEBRATION ALL AROUND
  • SENSEX AT 17000

32
SENSEX AT 17000NIFTY AT 5089
  • BUT IS IT TRUE THAT EVERYBODY MADE MONEY?
  • ONLY HANDFUL PEOPLE CREATED WEALTH, SOME MADE
    LITTLE BIT OF MONEY BUT MOST OF COMMON PEOPLE
    HAVE LOST MONEY.
  • WHY?
  • BECAUSE MAJORITY OF PEOPLE ARE NOT INVESTORS
    BUT ARE PUNTERS, DAY TRADERS.

33
ALL EYES ON INDIA - INTERESTING INDIA GROWTH
STORY
  • STILL LONG LONG WAY
  • TO GO - JOIN THE
  • BAND WAGON

34
INDIA GROWTH STORY
  • INDIA IS DOMESTIC CONSUMPTION STORY
  • CHANGING DEMOGRAPHIC PATTERN WITH HIGH PERCENTAGE
    OF YOUTH EARNING IN THE COUNTRY WITH HIGHER
    DISPOSABLE INCOME CREATED CONSUMPTION BOOM.

35
INDIA GROWTH STORY
  • IT ALL STARTED WITH LOWER INTEREST RATE
  • LOW INTEREST RATE HELPED HIGH DEMAND FOR
    HOUSING, CAR, TWO WHEELER.
  • IN TURN ALL THESE BOOSTED THE DEMAND FOR
    CEMENT, STEEL, AUTO ANCILIARIES,
    INFRASTRUCTURE, BANKING FINANCE FACILITIES,
    TECHNOLOGY ETC.

36
WHY INVESTMENT
  • BECAUSE MONEY
  • DOES NT GROW ON TREE, SO TILL IT HAPPENS WE
    HAVE TO PARK OUR SAVINGS SMARTLY TO GET GOOD
    RETURN ABOVE BANK INTEREST.

37
WHY INVESTMENT
  • TO FULFILL OUR DREAMS LIKE
  • WELL FURNISHED APARTMENT
  • CAR, WORLD TOUR, FARM HOUSE,
  • CHILDRENS EDUCATION ETC.
  • IS IT POSSIBLE WITH YOUR ROUTINE BUSINESS
    INCOME OR FROM SALARY?

38
WHY INVESTMENT
  • NO SOCIAL SECURITY IN INDIA, SO FOR THE FUTURE,
    FOR THE RETIREMENT, FOR THE RAINY DAY ONE OUGHT
    TO HAVE ENOUGH.

39
WHY INVESTMENT
  • ACTIVE INCOME -
  • INCOME FROM OUR BUSINESS, PROFESSION, JOB,
  • WHAT WE DO ACTIVELY TO EARN MONEY.

40
WHY INVESTMENT
  • PASSIVE INCOME
  • EARNED FROM INVESTMENT IN VARIOUS OPTIONS.
  • I.E. DIVIDEND, INTEREST, RENT, CAPITAL
    APPRECIATION ON SHARES, M.FUND.

41
WHY INVESTMENT
  • ACTIVE INCOME
  • Needs constant devotion of time action,
    Physical work
  • To earn more, more work
  • Requires Physical Presence
  • PASSIVE INCOME
  • Needs assets ideas to generate income
  • Can be earned more by working smarter not
    harder
  • Requires more of mental presence

42
WHY INVESTMENT
  • Suffers high rate of taxation
  • There is limited ( business
  • profession ) or no
  • resale value ( Job )
  • - Has limited or no leverage potential to earn
    active income
  • Attracts lower or no taxation
  • Normally asset has resale value
  • Assets and Income can be leveraged to earn
    passive income.

43
WHY INVESTMENT
  • Those who focus only on earning active income get
    left behind to those who concentrate on
    complementing their active income with passive
    income.
  • So, to retire rich and early one must have more
    passive income which could take care of your
    expenses in later part of your life.

44
INVESTMENT DECISION - MAKING
  • CHOOSING THE MOST PROFITABLE SUITABLE
    ALTERNATIVE FROM PLENTY OF OPTIONS.
  • PORTFOLIO HAS TO BE DESIGNED AS PER OBJECTIVE
    OF INVESTOR, HIS AGE, HIS INCOME, TIME
    HORIZON, RISK RETURN PROFILE, FAMILY NEEDS,
    TAX STRUCTURE GOVT. POLICIES.

45
THE TRIO OF INVESTMENT RETURN , RISK
TAXATION
  • Returns- What are the return on the investment -
    in value and percentage terms on an annualized
    basis? Return may be in form of Interest,
    Dividend, Rent and / or Capital Appreciation.

46
Risk
  • What are the risks involved in making the
    investment? Normally, higher the return, higher
    the risk and lower the risk then lower would be
    the return. The different types of risk
    includes, price fluctuations, liquidity, default,
    Inflation, interest rate and currency risk.

47
Taxation
  • In order to maximize ones real return on
    investment after taxes, taxation needs to be
    considered and planned to minimize its
    impact.

48
INVESTMENT OPTIONS
  • PLENTY OF OPTIONS, SUCH AS
  • ( a ) Fixed Income Deposits Securities
  • ( b ) Tax Savings Schemes
  • ( c ) Equity Shares
  • ( d ) Mutual Funds
  • ( e ) Insurance
  • ( f ) Real Estate
  • ( g ) Precious Metals like Gold, Silver
  • ( h ) Derivatives

49
INVESTMENT MODEL
  • Age Scenario Strategy
    Assets Allocation
  • 20's Acquiring vocational skills  No
    dependants    Equity
    70
  • and education (degree)     No
    self-generated assets Debt
    10
  • Taking a job or setting up Invest
    the surplus income Sml. Saving 15
  • Business / profession in
    growth assets like Insurance
    5
  • Shares,
    mutual funds,
  • Maximize the tax savings
  • Start buying life, medical

  • and accident insurance
  •   30's Marriage starting a family Continue
    to invest a major      Equity 60
  • Getting settled in a job,
    portion of income into growth Debt
    10
  • business or profession assets
    , Accumulate fund Sml.Saving 20
  •   Spouse may or may not to buy a
    residence in the future, Insurance 10
  • be an earning member Increase
    insurance coverage
  •   Need for larger house for entire
    family
  •  

50
INVESTMENT MODEL
  • Age Scenario Strategy
    Assets Allocation
  • 40's Planning for the future needs Acquire a
    house with or Equity 40
  •      Buying a residential house
    without housing loan Debt
    15
  •          High surplus income
    Reduce exposure to risky Small Saving 25
  • investment
         Insurance 20
  •      Increase life cover
  • Plan for retirement and

  • needs of the family,

  • especially children
  •     
    Create a contingency fund
  • 50s Planning for Retirement       Repay
    housing loan, if taken Equity 20
  •     Children have grown up Payoff
    all debts Debt
    45
  • and are towards becoming Think of
    retirement needs, Small Saving 20
  • independent Surplus for plan
    and take appropriate action Insurance 15
  • investment is at peak
    Ensure that passive income is
  •             
    much higher than active income
  •     

51
INVESTMENT MODEL
  • Age Scenario
    Strategy Assets
    Allocation
  • 60 Retirement
  •    Retire from work, not life Assets
    generate regular Equity 15
  •     Continue work only if cash
    flow for maintenance Debt 50
  • you want to or work and
    expenses Sml.Saving
    25
  • part-time
    Ensure that the earning Insurance
    10
  •     Children are independent from
    passive income
  • and earning on their own   are higher
    than the

  • rate of inflation

  • No need for life insurance,

  • but ensure that maximum

  • medical insurance is obtained

  • for oneself and spouse
  •    

52
INVESTMENT IN EQUITY SHARES
  • COMPELLING REASON TO INVEST IN EQUITY
    SHARES
  • BSE Sensex 1978 79 100
  • 2009 10 17000

53
INVESTMENT IN EQUITY SHARES
  • When inflation is almost 8 to 9, our savings
    should generate higher return than that. At
    present interest on Bank Deposit, PPF is around 7
    to 8, So, no incentive for general investor to
    park money there.
  • Previous slide shows Indian Stock Market has
    given most handsome return, Equity gave
    compounded annual return of almost 18
  • So, make share investment your sleeping partner.
    Let us see some example of wealth creationCopy of
    WEALTH CREATION FACTS FIGURES.xls

54
FUNDAMENTAL PRINCIPLES OF INVESTMENT IN EQUITY
  • Research before you invest and not
  • after
  • Always invest for long term, Wealth can be
    created only in long term, in short term some
    quick buck can be made by chance only.
  • Warren Buffet says only buy something that you
    would be perfectly happy to hold if market shut
    down for 10 years.
  • Dont buy on some ones tip. So, dont indulge
    in speculation, it could burn your fingers.

55
FUNDAMENTAL PRINCIPLES OF INVESTMENT IN EQUITY
  • Good Investment Decisions depends on how you
    invest, I.e.
  • - Which stock you invest in
  • - When you buy the stock
  • - When you sell the stock
  • So, trick to create wealth in stock market is
    buying the right stock at the right time and
    selling the same at right time.

56
RESEARCH PROCESS
  • ANALYSE THE OVERALL PICTURE OF VARIOUS
    SECTORS OF ECONOMY I.e
  • CEMENT - STEEL - AUTOMOBILES -
    CONSTRUCTION, REAL ESTATE INFRASTRUCTURE -
    ENGG. CAPITAL GOODS - MEDIA ENTERTAINMENT
    - TELECOM - TECHNOLOGY - TEXTILE RETAIL -
    FINANCIAL - FMCG - PHARMA CONSUMER DURABLES - OIL
    GAS ETC.

57
RESEARCH PROCESS
  • ALSO CONSIDER CERTAIN MACRO MICRO ECONOMY
    FACTORS SUCH AS INTEREST RATE, INFLATION,
    FOREIGN FUND INFLOW OUT FLOW ITS
    IMPACT ON CURRENCY STRENGTH ETC.
  • EVALUATE OVERALL VALUATION OF MARKET, ITS PE
    RATIO COMPARE THE SAME WITH HISTORICAL VALUATION

58
RESEARCH PROCESS
  • IDENTIFY STRONG
  • BUSINESSES / INDUSTRIES
  • WHICH HAS SUPERIOR RETURN
  • PROSPECTS, GOOD BUSINESS MODEL, PREDICTABLE
    CASH FLOWS AND SUSTAINABLE LONG TERM COMPETITIVE
    ADVANTAGES

59
RESEARCH PROCESS
  • FIND THE VALUE IN EARLY STAGE, WHEN PRICE
    DISCOVERY IS NOT FULL AS IT IS RELATIVELY LESS
    KNOWN BY OTHER MARKET PARTICIPANTS, SO SHARE
    WOULD BE AVAILABLE AT CHEAP PRICE / VALUATION
  • COMPANIES IN ITS GESTATION PERIOD
  • BUILDING ITS INFRASTRUCTURE, MARKETING NETWORK,
    RESEARCH ETC.

60
RESEARCH PROCESS
  • STUDY THE FINANCIALS -
  • BALANCE SHEET, P L A/C., CASH FLOW
    STATEMENT. ANALYSE VARIOUS COMPONENT OF BSHEET
    LIKE CAPITAL STRUCTURE, RESERVES, LIABILITIES
  • COMPARE ITS QTLY. RESULTS SEE THE SEQUENTIAL
    GROWTH IN SALES, PROFIT, CASH FLOW, STUDY VARIOUS
    RATIOS LIKE, EPS, P/E RATIO, DEBT / EQUITY
    RATIO,CURRENT RATIO, PRICE / BOOK VALUE
    DIVIDEND YIELD ETC.

61
RESEARCH PROCESS
62
BUYING SHARES
  • AFTER WEIGHING ALL THE OPTIONS PURCHASE THE
    SHARES OF SELECTED COMPANIES
  • REMEMBER TO DIVERSIFY YOUR PORTFOLIO TO DIFFERENT
    SECTORS WHICH ARE DOING WELL

63
TRACK YOUR PORTFOLIO
  • AFTER BUYING THE SHARES OF GOOD COMPANIES,
    KEEP PATIENCE, GIVE IT TIME TO GROW
  • DONT EXPECT IMMEDIATE GAIN
  • CONSTANTLY MONITOR COMPANYS PERFORMANCE - TRACK
    ITS QUARTERLY RESULTS ANALYSE THE SAME. IF
    FOUND SATISFACTORY ONE MAY ADD EXPOSURE BY BUYING
    MORE SHARES.

64
TRACK YOUR PORTFOLIO
  • ALSO KEEP TRACK OF OVERALL MARKET CONDITION,
    SENTIMENTS, INFLATION, INTEREST RATE, SOME EVENTS
    LIKE FINANCE BILL ITS IMPACT ON MARKET IN
    GENERAL OR ON SOME SPECIFIC SECTORS.
  • KEEP CLOSE WATCH ON GEO POLITICAL ENVIRONMENT

65
BOOKING PROFIT
  • WHEN ONE HAS TO TAKE DECISION TO SELL ?
  • ALWAYS REVISIT YOUR INVESTMENT PERSPECTIVE /
    OBJECTIVE, EXPECTED RETURN, TIME HORIZON, NEED OF
    MONEY AND SO ON WHEN ONE FEELS THAT MY
    INVESTMENT OBJECTIVES HAVE BEEN FULFILLED, ONE
    SHOULD SELL BOOK PROFIT FROM THE INVESTMENT.

66
  • Presented By
  • CA Swatantra Singh, B.Com , FCA, MBA
  • Email ID singh.swatantra_at_gmail.com
  • New Delhi , 9811322785,
  • www.caindelhiindia.com,
  • www.carajput.com

67
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