Presentation s.r.singh
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This document provides an overview of mutual fund investments in India. It discusses how mutual funds pool money from investors and invest in stocks, bonds, and other securities. Investors benefit from diversification, professional management, and liquidity. The document outlines the history of mutual funds in India and their regulation by SEBI. It also describes the various types of mutual fund schemes, their benefits, and how to invest in and redeem mutual funds. The tax treatment of mutual fund returns is also summarized.
Presentation s.r.singh
- 1. “Opportunities & Trends of Investment in Mutual Fund and Capital Market”
- 2. MUTUAL FUND INVESTMENTS Lets Starts with a small story! * This is about Ramesh, a person who was living in New Delhi from his childhood and also working there with a big company…………
- 3. Like the story of Ramesh I am sure many of us have ventured into the financial market with our limited knowledge and have burnt our fingers…. So in this session, my tribute to those persons who have a very bad experience with respect to the financial market due to the venture in which they have failed. ……… So now come and join….. Lets have the understanding of our own profiles… All of us professional accountants having own profession/service, very limited knowledge regarding financial market, more or less like Mr. Ramesh in farming. I can say Mr.Ramesh could have been successful if he would follow the following path. Really this is the truth we should confess….. 1) He should have associate with more numbers of persons with similar interest. 2) Pooling the money collectively from his associates with himself. 3) He should have hired professionals having track record of successfully managing the Apple farming.
- 4. The same concept is applied to Mutual Fund :- 1) Investors with common financial objectives pool their money 2) Investors with proportionate basis, gets mutual fund units for the money contributed to the pool. 3) The money pooled is invested in shares, bonds and securities by the fund manager. 4) The fund manager gets dividend ,interest and makes gains or losses 5) Any gains or losses of such funds are passed on to the investors in proportion to the number of units held. History of Mutual Fund In India:- Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.
- 5. How is a mutual fund set up? A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
- 6. Benefits of Mutual fund investments:- 1) Portfolio diversification 2) Liquidity 3) Less Risk 4) Low transaction cost 5) Professional management 6) Choice of Schemes 7) Transparency and Safety 8) Flexibility Let us discuss about the various types of mutual fund schemes/funds:- a) Open ended funds/schemes b) Closed ended funds/ schemes c) Balanced fund/Hybrid Fund d) Gilt fund e) Growth funds
- 7. f)Income scheme g) Index funds h)Interval scheme i)Money market scheme j) Tax saving scheme j) Offshore funds k)Sector specific funds l) Exchange traded funds m) Fund Of Funds(FoF) scheme Lets understand certain terms and its meanings with respect to the mutual fund industry:- 1) Net Asset Value(NAV) and how its calculated 2) Entry Load and Exit Load 3) Expenses Ratio 4) Portfolio Turnover
- 8. 5)Standard Deviation 6)Sharpe Ratio 7)BETA 8)Record Date 9)Systematic Withdrawal Plan(SWP) 12)New fund Offer(NFO) 13)Systematic Investment Plan(SIP) 14) Offer Document 14)Scheme Information Document(SID) 15)Key Information Memorandum(KIM) 16)Statement of Additional Information(SAI) 17)Application Supported by Block Amount(ASBA) 18)Association of Mutual Funds In India(AMFI)
- 9. What is the investment pattern of Indian Investors? •Average Indian Investors keep their money in Savings bank for short term requirements. Here the objective is preservation of capital. • Some invests in Fixed deposits or post office schemes for generation of incomes. • Some invests in real estate and gold for capital appreciation. Whenever we invest, the purpose is either of three or combined effect as under. 1) Capital preservation 2) Generation of income 3) Capital Appreciation The best part of mutual fund investment is that it fits to all. Lets see how it is possible from the table in the next.
- 10. Capital Preservation Savings Bank A/C PPF Liquid Funds Generate Income Fixed Deposit PO-MIS Debt Funds Capital Appreciation Real Estate Gold Equity funds INVESTMENT GOALS So it is very clear that Mutual Fund fits in every types of investment objective. The next is How to invest in Mutual Fund. * Every person has got different financial Goals and responsibility again the amount of investment capacity is different from person to person *For example ,a couple with 2 kids would have different financial goal when it is compared to a retired couple. *Therefore first of all financial goal has to be decided along with time horizon and risk appetite. * Finally decision has to be taken whether to buy offline or online.
- 11. •Online investment could be directly through the website of the AMC or through any distributor partner who provide online platform for investing(banks or brokers etc.). • For offline one has to fill up the form with relevant documents and submit the same with the mutual fund distributor’s office.
- 12. S
- 17. How to redeem the Mutual Fund:-
- 18. Tax component in mutual fund investment:- For equity Fund: If you withdraw from an equity fund before one year, you pay 15% tax on your capital gains. After 1 year of capital gains are exempt from tax Dividends are tax free and no dividend distribution tax (DDT) is charged For debt funds : Withdrawals from debt funds are taxed at income tax rates if you withdraw your debt fund units before 3 years .(Change was brought in on Jul 10 2014. Before that for debt fund it was 1 year) If you withdraw from debt funds after 3 years, you pay 10% tax without indexation or 20% with indexation. . Dividends are tax free but dividend distribution tax (DDT) of 28.84% (Individual /HUF)(including surcharge and cess) of the dividend amount is charged. So in effect it’s you who end up paying the tax. What is the rate of STT in mutual funds? STT is applicable at different rates on the value of taxable transactions. No STT is levied during the NFO. However, if an investor sells it thereafter they have to pay STT at the following rate: On sale of units through stock exchange (close ended mutual funds or ETF units) - 0.001 percent On sale of units through AMC(non ETF and open ended mutual funds) – 0.025 percent
- 19. Tax rates for Indivisual/HUF Tax on Dividend Received Equity Nil Debt Nil Dividend Dist. Tax(DDT) Equity 25%+12% surcharge+3% cess=28.84% Debt 25%+12% surcharge+3% cess=28.84% Long Term Capital Gains (Units of equity oriented funds held for more than 12 months and 36 months in case of other units) Equity oriented Nil Other than equity 20% with indexation+15%surcharge+3% cess=23.69% ( listed) Other than equity 20% with indexation+15%surcharge+3% cess=23.69% ( unlisted) Short Term Capital Gains (Units of equity oriented mutual fund schemes held for less than or equal to 12 months and 36 months in case of other units) Equity oriented 15% +15%surcharge+3% cess=17.768% Other than equity 15% +15%surcharge+3% cess=17.768% No TDS. TDS applicable for NRIs only. Security Transaction Tax(STT) Purchase No tax Sale 0.001%
- 20. This presentation is incomplete without going through the consumer behavior with respect to investment . So let us make an analysis with behavior. The study of this will teach us how to invest cleverly for maximum benefit. * Investing is not only a science, involving numeric analysis, but also an art, involving one's behaviour, emotions and attitude. Benjamin Graham, the father of value investing, rightly said: “the investor's chief problem - even his worst enemy - is likely to be himself.” Investor's decision-making process always starts with logic and reason, but often deviates from it due to behavioural bias, which could lead to mistakes. This article elaborates on the influence of behaviour on investing.
- 21. Common Investment Behavioural Biases:- 1) Disposition Effect Tendency to sell winners early & holding losers for long 2) Herd Mentality Tendency of an investor to mimic the actions of a larger group 3) Anchoring Bias Tendency to take decisions from an initial reference point 4) Availability Bias Tendency to give more importance to the most recent events 5) Confirmation Bias Tendency to favour only that which confirms one's belief
- 22. Disposition Effect:- It highlights the investors' tendency to sell winners An investor invested Rs 1 lakh each in funds A and B in May 2014. One year later (May 2015), the investor decided to book profit in fund A (which returned 60%). For fund B, despite losing 17%, he decided to hold on, expecting that the fund's NAV will rise in future and considered it as only a paper loss. After one more year (May 2016), fund B maintained the downtrend and investor lost 27% of his capital. On the other hand, fund A's NAV rose further. Had he stayed invested in fund A, he would have made an absolute gain of 120%. He would also have reduced his losses if he had not continued holding the underperforming fund. This mistake is a classic example of the disposition effect. Case Study-1 Mutual Fund NAV May-2014 May-2015 May-2016 Fund A 100 160 220 Fund B 150 125 110 Portfolio Value Fund A 100000 100000 220000 Fund B 100000 83333 73333 Profit/Loss Fund A 100 60% 120% Fund B 150 -17% -20% What should be the right step ?
- 23. Hard Mentality:-
- 24. Anchoring Bias:- Case study: An investor is very bullish on the engineering sector and identifies stock A as a potential opportunity given its strong presence in the sector. The stock was trading at Rs 300 and has risen 50% in the last one year. After a few weeks, the company announced its foray into the finance sector. The company's stock plunged 30% to Rs 210 as the market reacted negatively to the company's latest move. The investor decided to buy the stock, considering it a bargain. The investor's decision to buy the stock at a discounted price was irrational. He had anchored Rs 300 as a fair valuation for the company and was positively biased toward it. When the stock fell 30%, he could not resist the temptation of buying the stock at a discount - at Rs 210. However, he failed to factor in that a fall in the stock price could be because of the negative impact of diversification to an unrelated sector on the current business model, and ultimately it may turn out to be value destructive for shareholders. What to do?
- 25. Availability Bias:- Case study: An investor lost most of his savings in the financial carnage of 2008. He decides not to invest in equity going ahead and parks money only in safe bank deposits. Is his decision to avoid equity prudent? No. He is influenced by the availability bias. His decision to quit equity asset class was influenced by fear rather than logic. Because of availability bias at work, a recent bad memory created a perception in his mind that equity is always a loss-making proposition. However, in reality, he failed to understand that market downtrend and uptrend are part of the equity cycle, and in the long term equity asset class has emerged as one of the best wealth creators among asset classes. What to Do? ------------------- Are U confused Now of So many things?----------- The best way is to invest in mutual fund through Systematic Investment Plan(SIP). Benefits, Ways and Means in the next:-
- 29. • Choose Growth Options • Choose the right SIP tenure • Don’t stop SIP in failing market • Choose the right SIP amount ------ Now Good luck for venturing in to the world of Mutual Funds--- For any further quarries please mail me singhsoumya176@gmail.com singhsoumya76@yahoo.com