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Investing In Mutual Funds

Sanjeev Kumar G
Sanjeev Kumar G

Presentation to make viewers understand the benfits of investing in mutual funds and the the strategies they could adapt.

1 of 26
油
A Reality Check 酷庄姻壊岳
16.22% The Inflation. Point to Point Inflation figure for January 2010 Source: http://labourbureau.nic.in/indtab.html
and The Interest 7.75% Best Bank Fixed Deposit Interest Rate for 3 year period NEGATIVE GROWTH Source: http://www.rupeetimes.com
Our Goals Send our Children to Higher Education Buying a dream home Marriage of our Children Our Retirement
We need to invest in avenues where we can get higher returns so that we can achieve our Goals Mutual Funds
Glimpses of Equity MF Performance
How Mutual Funds Work? Passed back to Generates Invest in Pool their money with
Mutual Fund History First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 AUM at end of 1988 was Rs.6,700 crores Second Phase 1987-1993 (Entry of Public Sector Funds) SBI MF(1987), Canbank MF 1987), PNB MF(1989), Indian Bank MF (1989), LIC MF (1989), BoI MF (1990), GIC MF (1990), BoB MF (1992) AUM at end of 1993 was Rs.47,004 crores Third Phase 1993-2003 (Entry of Private Sector Funds) End of 2003, 33 mutual funds with total assets of Rs. 1,21,805 crores UTI with Rs.44,541 crores of AUM was the leader Fourth Phase since February 2003 UTI was bifurcated into two separate entities
Types of Mutual Funds By Structure Open ended, Close ended & Interval schemes By Investment Objective Growth, Income, Balanced, Money Market schemes Others Sector, Thematic, Structured, ELSS, Index schemes
Why Invest in Mutual Funds? Mutual Funds are managed by professionals They diversify investments to reduce risk They are mostly liquid Equity Mutual Funds have high return potential They are well regulated Long term wealth creation
Selecting a Mutual Fund Investment Objectives Check if the fund sticks to investment objectives Fund Size More the AUM lower the costs and higher the stability More than Rs.100 crs AUM Return based ranking should be in top 5 in last 6 months, 1 year and 3 year return ranking Sharpe Ratio excess return over unit risk should be more than 60% Expense Ratio Operating cost as % of average net asset should be the lowest NFO Proven Track Record
Points to Note Cut off time Liquid funds application received before12PM if fund are available for utilisation same day closing NAV of preceding day else day preceding to next business day Other Schemes application received before 3PM with local cheques closing NAV of same day Net Asset Value Net Asset Value is the market value of the assets of the scheme minus its liabilities divided by total number of units Dividends Issued out of realised gains Exit Load Fees charged at the time of exiting the scheme
Modes of Investing Physical forms Fill up the MF application form and submit with the distributor. Online Open a Mutual Fund online account with online broker and transact online. Enter redemption order online. Stock Exchange Open an account with the stock broker and buy ETFs. Sell the units during market hours.
MF Industry now 40 AMCs More than 1000 schemes More than 4.7crore Folios More than 7.6 lac crore AUM Around 30% AUM in Equity funds Around 98% Equity Folios owned by Retail Investors Source: www.amfiindia.com
Investment Strategies Asset Allocation Core & Satellite SIP STP
Asset Allocation Brinson Singer & Beebower in the year 1991 in their famous study Long term determinants of Portfolio Performance concluded that more than 90% of success can be attributed to proper asset allocation , 5% market timing and 5% to scheme selection
油
Sample Asset Allocation Rule of Thumb Equity should not be more than 100 minus age Time Horizon Invest in Equity funds with a time horizon of 3 or more years
Benefits of Asset Allocation Risk Diversification Opportunity to Earn Returns from all asset classes Ride out Downturns in markets Regular Rebalancing of Portfolio is a key to Long-Term Portfolio Growth and Consistent returns
Core & Satellite Core denotes long term stable investments, forming the core of your portfolio Satellite denotes medium to short term investments which are more tactical in nature
Systematic Investment Plan - SIP Rupee Cost Averaging The number of units purchased vary based on market trends Month SIP Amt NAV Units January 1000 10.15 98.522 February 1000 10.2 98.039 March 1000 10.35 96.618 April 1000 10.45 95.694 May 1000 10.5 95.238 June 1000 10.6 94.34 July 1000 10.4 96.154 August 1000 10.3 97.087 September 1000 10.4 96.154 October 1000 10.6 94.34 November 1000 10.65 93.897 December 1000 10.75 93.023 Total 12000 10.44583 1149.106
Systematic Investment Plan - SIP Power of Compounding Exponential Growth Long term Wealth creation Assuming rate of return @ 15% compounded annually Year Beginning Amt Investment Growth Ending Amt x time investment 2010 - 12,000 1,800 13,800 1.2 2011 13,800 12,000 3,870 29,670 1.2 2012 29,670 12,000 6,251 47,921 1.3 2013 47,921 12,000 8,988 68,909 1.4 2014 68,909 12,000 12,136 93,045 1.6 2015 93,045 12,000 15,757 120,802 1.7 2016 120,802 12,000 19,920 152,722 1.8 2017 152,722 12,000 24,708 189,430 2.0 2018 189,430 12,000 30,215 231,645 2.1 2019 231,645 12,000 36,547 280,191 2.3 2020 280,191 12,000 43,829 336,020 2.5 2021 336,020 12,000 52,203 400,223 2.8 2022 400,223 12,000 61,833 474,056 3.0 2023 474,056 12,000 72,908 558,965 3.3 2024 558,965 12,000 85,645 656,610 3.6 2025 656,610 12,000 100,291 768,901 4.0 2026 768,901 12,000 117,135 898,036 4.4 2027 898,036 12,000 136,505 1,046,542 4.8 2028 1,046,542 12,000 158,781 1,217,323 5.3 2029 1,217,323 12,000 184,398 1,413,721 5.9
Systematic Transfer Plan - STP Invest Lump sum in Liquid and short tem funds Transfer to equity schemes on regular intervals Will help in reducing the risk No switch costs
To conclude.. Mutual funds provide opportunity to participate and benefits from market movements with out getting fully involved in market activities Systematic investment in mutual funds creates wealth in the long term and help to achieve goals Various strategies give the flexibility to invest according to the need of the investor
Thank You ! Sanjeev Kumar G CFP CM Head Financial Planning JRG Securities Ltd

More Related Content

Investing In Mutual Funds

  • 1. 油
  • 2. A Reality Check 酷庄姻壊岳
  • 3. 16.22% The Inflation. Point to Point Inflation figure for January 2010 Source: http://labourbureau.nic.in/indtab.html
  • 4. and The Interest 7.75% Best Bank Fixed Deposit Interest Rate for 3 year period NEGATIVE GROWTH Source: http://www.rupeetimes.com
  • 5. Our Goals Send our Children to Higher Education Buying a dream home Marriage of our Children Our Retirement
  • 6. We need to invest in avenues where we can get higher returns so that we can achieve our Goals Mutual Funds
  • 7. Glimpses of Equity MF Performance
  • 8. How Mutual Funds Work? Passed back to Generates Invest in Pool their money with
  • 9. Mutual Fund History First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 AUM at end of 1988 was Rs.6,700 crores Second Phase 1987-1993 (Entry of Public Sector Funds) SBI MF(1987), Canbank MF 1987), PNB MF(1989), Indian Bank MF (1989), LIC MF (1989), BoI MF (1990), GIC MF (1990), BoB MF (1992) AUM at end of 1993 was Rs.47,004 crores Third Phase 1993-2003 (Entry of Private Sector Funds) End of 2003, 33 mutual funds with total assets of Rs. 1,21,805 crores UTI with Rs.44,541 crores of AUM was the leader Fourth Phase since February 2003 UTI was bifurcated into two separate entities
  • 10. Types of Mutual Funds By Structure Open ended, Close ended & Interval schemes By Investment Objective Growth, Income, Balanced, Money Market schemes Others Sector, Thematic, Structured, ELSS, Index schemes
  • 11. Why Invest in Mutual Funds? Mutual Funds are managed by professionals They diversify investments to reduce risk They are mostly liquid Equity Mutual Funds have high return potential They are well regulated Long term wealth creation
  • 12. Selecting a Mutual Fund Investment Objectives Check if the fund sticks to investment objectives Fund Size More the AUM lower the costs and higher the stability More than Rs.100 crs AUM Return based ranking should be in top 5 in last 6 months, 1 year and 3 year return ranking Sharpe Ratio excess return over unit risk should be more than 60% Expense Ratio Operating cost as % of average net asset should be the lowest NFO Proven Track Record
  • 13. Points to Note Cut off time Liquid funds application received before12PM if fund are available for utilisation same day closing NAV of preceding day else day preceding to next business day Other Schemes application received before 3PM with local cheques closing NAV of same day Net Asset Value Net Asset Value is the market value of the assets of the scheme minus its liabilities divided by total number of units Dividends Issued out of realised gains Exit Load Fees charged at the time of exiting the scheme
  • 14. Modes of Investing Physical forms Fill up the MF application form and submit with the distributor. Online Open a Mutual Fund online account with online broker and transact online. Enter redemption order online. Stock Exchange Open an account with the stock broker and buy ETFs. Sell the units during market hours.
  • 15. MF Industry now 40 AMCs More than 1000 schemes More than 4.7crore Folios More than 7.6 lac crore AUM Around 30% AUM in Equity funds Around 98% Equity Folios owned by Retail Investors Source: www.amfiindia.com
  • 16. Investment Strategies Asset Allocation Core & Satellite SIP STP
  • 17. Asset Allocation Brinson Singer & Beebower in the year 1991 in their famous study Long term determinants of Portfolio Performance concluded that more than 90% of success can be attributed to proper asset allocation , 5% market timing and 5% to scheme selection
  • 18. 油
  • 19. Sample Asset Allocation Rule of Thumb Equity should not be more than 100 minus age Time Horizon Invest in Equity funds with a time horizon of 3 or more years
  • 20. Benefits of Asset Allocation Risk Diversification Opportunity to Earn Returns from all asset classes Ride out Downturns in markets Regular Rebalancing of Portfolio is a key to Long-Term Portfolio Growth and Consistent returns
  • 21. Core & Satellite Core denotes long term stable investments, forming the core of your portfolio Satellite denotes medium to short term investments which are more tactical in nature
  • 22. Systematic Investment Plan - SIP Rupee Cost Averaging The number of units purchased vary based on market trends Month SIP Amt NAV Units January 1000 10.15 98.522 February 1000 10.2 98.039 March 1000 10.35 96.618 April 1000 10.45 95.694 May 1000 10.5 95.238 June 1000 10.6 94.34 July 1000 10.4 96.154 August 1000 10.3 97.087 September 1000 10.4 96.154 October 1000 10.6 94.34 November 1000 10.65 93.897 December 1000 10.75 93.023 Total 12000 10.44583 1149.106
  • 23. Systematic Investment Plan - SIP Power of Compounding Exponential Growth Long term Wealth creation Assuming rate of return @ 15% compounded annually Year Beginning Amt Investment Growth Ending Amt x time investment 2010 - 12,000 1,800 13,800 1.2 2011 13,800 12,000 3,870 29,670 1.2 2012 29,670 12,000 6,251 47,921 1.3 2013 47,921 12,000 8,988 68,909 1.4 2014 68,909 12,000 12,136 93,045 1.6 2015 93,045 12,000 15,757 120,802 1.7 2016 120,802 12,000 19,920 152,722 1.8 2017 152,722 12,000 24,708 189,430 2.0 2018 189,430 12,000 30,215 231,645 2.1 2019 231,645 12,000 36,547 280,191 2.3 2020 280,191 12,000 43,829 336,020 2.5 2021 336,020 12,000 52,203 400,223 2.8 2022 400,223 12,000 61,833 474,056 3.0 2023 474,056 12,000 72,908 558,965 3.3 2024 558,965 12,000 85,645 656,610 3.6 2025 656,610 12,000 100,291 768,901 4.0 2026 768,901 12,000 117,135 898,036 4.4 2027 898,036 12,000 136,505 1,046,542 4.8 2028 1,046,542 12,000 158,781 1,217,323 5.3 2029 1,217,323 12,000 184,398 1,413,721 5.9
  • 24. Systematic Transfer Plan - STP Invest Lump sum in Liquid and short tem funds Transfer to equity schemes on regular intervals Will help in reducing the risk No switch costs
  • 25. To conclude.. Mutual funds provide opportunity to participate and benefits from market movements with out getting fully involved in market activities Systematic investment in mutual funds creates wealth in the long term and help to achieve goals Various strategies give the flexibility to invest according to the need of the investor
  • 26. Thank You ! Sanjeev Kumar G CFP CM Head Financial Planning JRG Securities Ltd