INTRODUCTION TO MUTUAL FUNDS - PowerPoint Presentation

1. INTRODUCTION TO MUTUAL FUNDS PART IIDR. PAYAL JAINDEPARTMENT OF COMMERCEGARGI COLLEGE

2. TYPES OF MUTUAL FUNDS

3. 1. OPEN-ENDED, CLOSED-ENDED, INTERVAL FUNDSOPEN-ENDED – entry and exit is open at any time; no fixed maturity.CLOSED-ENDED – fixed maturity period; entry only during initial launch period; exit at maturity or by selling units in secondary market or at the time of repurchase.INTERVAL FUNDS - combination funds or hybrid (entry and exit during pre-specified intervals).

4. OPEN-ENDED CLOSED-ENDEDInvestors buy units directly from a fund.These funds do not have a fixed maturity period.Open-ended funds support systematic investment plans and are a suitable investment option for salaried class of investors.At the time of exiting, the units can be sold back to fund directly.Units of closed-ended funds are purchased and sold through brokers.These funds have a fixed maturity period.Closed-ended funds require you to invest a lump sum at the time of their launch, which can be risky.At the time of exiting, the units have to be sold in the secondary market.

5. OPEN-ENDED CLOSED-ENDEDThe capital is unlimited and hence no fixed number of units.E.g. I am a fund manager and I ask 60 students to pool in money and buy one share of MRF. Maybe 60 more students wish to join. So I open the scheme to them as well and buy another share of MRF.These number of units will increase or decrease accordingly. Fund size also accordingly changes.Capital is limited and there is a set number of units that are issued.E.g. I am a fund manager and I ask 60 students to pool in money to buy One share of MRF and I will not allow any more students to enter the scheme.The number of units does not change.Fund size is also fixed.

6. 2. DOMESTIC AND OFF-SHORE FUNDSDOMESTIC – open for investment by domestic investors, i.e. within the country in which fund is registeredOFF-SHORE – open for investment by foreign investors ONLY.3. GROWTH, INCOME, BALANCED FUNDSGROWTH FUND – offers dividend + capital appreciation (invests in equities)INCOME FUND – offers regular income (invests in debt instruments)BALANCED FUND - combination fund/hybrid (invests in both equity and debt)

7. 4.EQUITY, DEBT, GILT, MONEY MARKET FUNDS EQUITY FUNDS – invest in equity sharesDEBT FUNDS – invest in debt securities such as debentures, bonds, government securities, etc.GILT FUNDS – specifically invest in government securitiesMONEY MARKET FUNDS – invest in money market instruments such as treasury bills, commercial paper, certificates of deposit, etc.

8. 5. TAX-SAVING, INDEX, SECTORAL FUNDS TAX-SAVING FUNDS – invest in equities, and are specifically for saving tax liability, are called Equity-Linked Savings Schemes (ELSS)INDEX FUNDS - invest in companies that comprise the benchmark index (say NSE or BSE) and in the same proportion as the index itselfSECTORAL OR THEMATIC FUNDS - invest in a particular sector e.g., there could be a fund investing in only the banking sector. Similarly, there could be thematic funds investing in a particular theme, example, infrastructure

9. 6. OTHER FUNDSEXCHANGE TRADED FUNDS (ETFs) - funds that track an index traded on the stock exchange just like stocks. Can be bought and sold throughout the day, unlike Index funds.ETHICAL FUNDS - invest on the basis of Sharia principlesSOCIALLY-RESPONSIBLE FUNDS – Invest in companies that have social, environmental or moral beliefs and promote the same.FUND OF FUNDS do not invest in any companies – instead they put in their money into other AMC’s mutual funds.LOAD AND NO-LOAD FUNDS – Funds that charge fees at entry and exit are load funds; the opposite is no-load funds.

10. GROWTH VS BALANCED FUNDSA growth fund is a diversified portfolio of equities that has capital appreciation as its primary goal, with little or no dividend payouts. The portfolio mainly consists of companies with above-average growth that reinvest their earnings into the company.Growth funds are suitable for a long-term horizon.Balanced funds are mutual funds that invest money across asset classes, including a mix of low- to medium-risk stocks, bonds, and other securities. Balanced funds invest with the goal of both income and capital appreciation.Balanced funds are suitable for a medium-term horizon and are ideal for investors who are looking for a mixture of safety, income and modest capital appreciation.

11. INCOME VS GROWTH FUNDSAn income fund provides investors with earnings from the dividends of the companies into which the fund manager puts money. To provide a stream of income to investors, fund managers look for mature companies that pay out relatively high dividends and don’t need to put cash back into the business.Income funds are seen as less risky because they invest in mature companies. Majority investments are in debt securities.A growth fund looks to grow the original sum invested as much as possible, or sometimes by a set amount.Growth funds use their cash-flow to invest back into the fund and hence pay less dividends but deliver capital appreciation.Growth funds may be seen as more risky because it might pay less income.Majority investments are in equities.

12. How to choose a fund suited to you? (consult your financial advisor before deciding..)First-time investors are advised to go for balanced (hybrid) funds, i.e. funds that invest in both equity and debt instruments.If your investment horizon is long-term, go for closed-ended fund as it offers greater stability.SIPs are a good option if you can invest small and steady.If you want fixed returns, invest in debt funds.If you want regular income after retirement, invest in pension funds.If tax-saving is the goal, pick an ELSS.If you don’t want to take risks, invest in Gilt funds.