Ikbal ,- 30, Mutual Funds

7/31/2019 Ikbal ,- 30, Mutual Funds

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MUTUAL FUNDS

PRESENTATION

ON

PRESENTED BY:-

IKBAL AHMED MAZARBHUIYA

ROLL NO. 30

PRESENTED TO

Asst. Prof. H.R. LASKAR


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INTRODUCTION

Mutul Fund is a mechanism for pooling resource by issuing units to theinvestors & investing funds in securities in accordance with objectives as

disclosed in offer document.

A mutual fund company pools the money ofmany investors and invests it for them in a collection of securities by

purchasing stocks, bonds, money markets and/or other

securities. These securities are often referred to as holdings and all of

the fund's holdings combined make up the portfolio. The assets in a

mutual fund's portfolio are managed by a professional money

manager(s) who decides which securities to buy and sell based on the

fund's investment objective, detailed in the fund's prospectus.


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TYPES OF MUTUAL FUNDS

The 1990s witnessed emergence of a variety offunds. There are funds which invest in growthstocks, funds which specialise in stocks of aparticular sector, funds which assure returns to

the investors, funds which invest in debtinstruments and fund which invest aggressively.Thus, we have income funds, balanced funds,liquid funds, gilt funds, index funds, exchange

traded funds, sectoral funds and there are open-ended funds, closed-ended funds and assuredreturn funds-there is a fund for everyrequirement.


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TYPES OF MUTUAL FUNDS

1. Scheme according to muturity period:

Open-ended fund scheme.

Closed-ended fund scheme.

2. Scheme according to investment Objectives:

Growth/ Equity Oriented Scheme Income/ Debt Oriented Scheme.

Balanced Fund.

3. Money Market or Liquidity Fund:

4. Gilt Fund.

5. Index Fund.


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MF Types According to Maturity

Period:1. open-ended fund gives the investors an option to

redeem and buy unitsat any time from the fund. Theseschemes do not have a fixed maturity period. They can convenientlybuy and sell units at NAV related prices which are declared on adaily basis. The key feature of open-end schemes is liquidity.

2. close-ended fund or scheme on the other hand has astipulated maturityperiod e.g. 5-7 years. In closed-endedfunds, the investors have to wait till given maturity date to redeemtheir units to the fund. However, to provide liquidity, it ismandatory for closed-ended funds to get themselves listed on a

stock exchange within six months from the closure of thesubscription. The units of a close ended scheme may be convertedto open ended scheme, if the offer document of such schemediscloses the option and the period of such conversion or the unit-holders are provided with an option to redeem their units in full.


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MF Types According to Investment

Objective:

3. Growth/Equity Oriented Schemes provide capitalappreciation over the medium to long- term. Theseschemes normally invest a major part of their corpus inequities and are good for investors having a long-term

outlook seeking appreciation over a period of time.4.Income/Debt Oriented Schemes provide regular and

steady income to investors. Such schemes generallyinvest in fixed income securities such as bonds,

corporate debentures, government securities andmoney market instruments. Such funds are less riskycompared to equity schemes.


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Contd.

5.Balanced Funds provide both growth and regular income as such schemes investboth in equities and fixed income securities in the proportion indicated in theiroffer documents. These are appropriate for investors looking for moderate growth.

6.Money Market or Liquid Funds provide easy liquidity, preservation ofcapital andmoderate income. These schemes invest exclusively in safer short-terminstruments such as treasury bills, certificates of deposit, commercial paper andinter-bank call money, government securities, etc. These funds are appropriate forcorporate and individual investors as a means to park their surplus funds for shortperiods.

7.Gilt Funds invest exclusively in government securities which have no default risk.

8. Index Funds try to mirror a market index, like Nifty or Sensex, as closely aspossible by investing in all the stocks that comprise that index in proportions equalto the weightage of those stocks in the index. Thus, index funds aredesigned to

replicate the performance of a well-established stock market index or a particularsegment of the stock market.


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Advantages

Diversification

Professional Management:

Convenience: Liquidity:

Minimum Initial Investment:

Di ifi ti


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Diversification

Using mutual funds can help an investor diversify their

portfolio with a minimum investment. When investing in asingle fund, an investor is actually investing in numeroussecurities. Spreading your investment across a range ofsecurities can help to reduce risk. A stock mutual fund, forexample, invests in many stocks - hundreds or eventhousands. This minimizes the risk attributed to a

concentrated position. If a few securities in the mutualfund lose value or become worthless, the loss maybe offsetby other securities that appreciate in value. Furtherdiversification can be achieved by investing in multiplefunds which invest in different sectors or categories. This

helps to reduce the risk associated with a specific industryor category. Diversification may help to reduce risk but willnever completely eliminate it. It is possible to lose all orpart of your investment.


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Professional Management:

Mutual funds are managed and supervised by investmentprofessionals. As per the stated objectives set forth in theprospectus, along with prevailing market conditions andother factors, the mutual fund manager will decide when tobuy or sell securities. This eliminates the investor of the

difficult task of trying to time the market. Furthermore,mutual funds can eliminate the cost an investor wouldincur when proper due diligence is given to researchingsecurities. This cost of managing numerous securities isdispersed among all the investors according to the amount

of shares they own with a fraction of each dollar investedused to cover the expenses of the fund. What does thismean? Fund managers have more money to research moresecurities more in depth than the average investor.


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Convenience:

With most mutual funds, buying and sellingshares, changing distribution options, andobtaining information can be accomplishedconveniently by telephone, by mail, or online.

Although a fund's shareholder is relieved of theday-to-day tasks involved in researching, buying,and selling securities, an investor will still need toevaluate a mutual fund based on investment

goals and risk tolerance before making apurchase decision. Investors should always readthe prospectus carefully before investing in anymutual fund.


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Liquidity:

Mutual fund shares are liquid and orders to

buy or sell are placed during market

hours. However, orders are not executed until

the close of business when the NAV (NetAverage Value) of the fund can be

determined. Fees or commissions may or may

not be applicable. Fees and commissions aredetermined by the specific fund and the

institution that executes the order.


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Minimum Initial Investment:

Most funds have a minimum initial purchase of

$2,500 but some are as low as $1,000. If you

purchase a mutual fund in an IRA, the

minimum initial purchase requirement tendsto be lower. You can buy some funds for as

little as $50 per month if you agree to dollar-

cost average, or invest a certain dollar amounteach month or quarter.


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Disadvantages

1) Risks and Costs:

a. No Guarantees.

b. The Diversification "Penalty."c. Costs.

2)Expenses

management fees and operating expenses associatedwith investing in a fund. These fees and expenses

charged by the fund are passed onto shareholders and

deducted from the fund's return.


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Disadvantages

Risks and Costs:

Changing market conditions can createfluctuations in the value of a mutual fund

investment. There are fees and expensesassociated with investing in mutual funds thatdo not usually occur when purchasingindividual securities directly. As with any typeof investment, there are drawbacks associatedwith mutual funds.


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Expenses

Because mutual funds are professionally managedinvestments, there are management fees and operatingexpenses associated with investing in a fund. These feesand expenses charged by the fund are passed ontoshareholders and deducted from the fund's return. These

expenses are typically expressed as the expense ratio - thepercent of fund assets spent (annually) on day-to-dayoperations. Expense ratios can vary widely amongfunds. Expense ratios for mutual funds commonly rangefrom 0.2% to 2.0%, depending on the fund. Consult the

fund's prospectus to determine the expense ratio for aspecific fund. Make yourself aware of all fees and expensesthat impact the fund's return by reducing gains andincreasing losses.


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Ongoing Annual Expenses

Management Fees

Distribution and Service Fees

Other Expenses Underlying Fund Expenses


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Other fees

In addition to sales loads, fund companies and brokerages maycharge other fees when you buy or sell fund shares. A transactionfee is charged by some brokerage firms for purchasing or sellingshares. Transaction fees are sometimes referred to as commissionsbut are extra costs not normally paid if you were to purchase yourfund directly with the fund family. Some fund companies andbrokerages may charge a redemption fee if the fund is held for lessthan a certain period of time, generally between 90 and 180days. These charges are intended to discourage short-term tradingthat can raise a fund's administrative costs. To find out more aboutfees read the fund's prospectus and consult your broker. Not allfunds assess these "extra" fees. In fact, funds and brokerages maynot charge a sales load, transaction fees or redemption fees. Whenbuying mutual funds, find out about all of the fees that might beinvolved and when they are charged.


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Taxes and Fund Ownership

Since your goal as an investor is to keep as much aspossible of what you earn from your mutual fundinvestments, you can't overlook the inescapable realitythat taxes take a big bite out of bottom-line

returns. One way to shelter yourself from taxes is topurchase your funds in a retirement account.

As a fund shareholder, you can be taxed on:

Distributions (dividends & capital gains) maid by thefund while you own its shares.

Profits you make when you sell fund shares.


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Taxes on Fund Distributions

A fund passes on to shareholders all the income orprofits it earns from its investments. Shareholders, inturn, are liable for any taxes due. The distributionsmade by a fund to shareholders take two forms:

Income Dividends. The interest and dividendsgenerated by a fund's investments.

Capital Gains. The profit a fund makes when it sellssecurities at a higher price than it paid for them. The

fund subtracts its capital losses from its capital gains todetermine its net capital gains, which it distributes toshareholders.


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CONCLUSION

Every mutual fund has a goal - either growing

its assets (capital gains) and/or generating

income (dividends) for its investors.

Distributions in the form of capital gains(short-term and long-term) and dividends may

be passed on (paid) to shareholders as income

or reinvested to purchase more shares. Fortax purposes, keep track of your distributions

and cost basis of purchased/reinvested shares.


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Documents

Ikbal ,- 30, Mutual Funds