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WHAT IS A MUTUAL FUND? PowerPoint PPT Presentation

WHAT IS A MUTUAL FUND? A Mutual Fund is a trust that pools the savings of a number of investors who share a common investment objective IN turn buy assets LEGAL STRUCTURE FUND SPONSPOR/SETTLOR KOTAK MAHINDRA FINANCE LTD. TRUST KOTAK MAHINDRA MUTUAL FUND INVESTMENT MANAGER & ADVISOR

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WHAT IS A MUTUAL FUND?

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What is a mutual fund l.jpg

WHAT IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common investment objective

IN turn buy assets


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LEGAL STRUCTURE

FUND SPONSPOR/SETTLOR

KOTAK MAHINDRA FINANCE LTD.

TRUST

KOTAK MAHINDRA MUTUAL FUND

INVESTMENT

MANAGER &

ADVISOR

KOTAK MAHINDRA ASSET

MANAGEMENT CO. LTD.

TRUSTEE

KOTAK MAHINDRA TRUSTEE CO. LTD.

UNIT

HOLDERS

Contd…


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LEGAL STRUCTURE

INVESTMENT MANAGER & ADVISOR

KOTAK MAHINDRA ASSET

MANAGEMENT CO. LTD.

  • APPOINTS

  • CUSTODIANS

  • REGISTRARS

  • BANKS

  • DISTRIBUTORS


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Working of a Mutual Fund

INVESTORS

Pool their money with

Passed back to

INVESTORS GET A BLEND OF LIQUIDITY

RETURNS & SAFETY

FUND MANAGEMENT

RETURNS

  • MUTUAL FUND

  • LARGE CORPORATE

  • SPECIALISTS MANAGE

Generate

Invest in

PORTFOLIO

YIELDS HIGH

RETURN TO MFs

INVEST IN

BALANCED

PORTFOLIO

SECURITIES


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TYPES OF MUTUAL FUNDS


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OPEN ENDED

OPEN FOR ALL THE YEAR

MIN SUBS AMT 50CR

NO DURATION

REFUNDED IF MIN SUBS NOT ACHIEVED

REPURCHASED ANY TIME

REDEEMED AT NAV & LOAD FACTOR RANGES (4% TO 6%)

AS REPURCHSED SO NOT LISTED AT STOCK EX

TRADED AS PERMITTED LOT

DIVID MAY /MAY NOT

SWITCHOVER ALLOWED

CLOSE ENDED

OPEN FOR FIXED PERIOD

MIN SUBS AMT 20CR

DURATION (5TO7 YEARS)

REFUNDED IF MIN AMT NOT ACHIEVED

MAY BE REPURCHASED (AFTER 2 TO 3 YRS)

REDEMPTION SPECIFIED & DONE AT NAV - SERVICE CHARGE

LISTED AT STOCK EX

DIVID MAY/MAY NOT BE

SWITCHOVER ALLOWED

MUTUAL FUNDS


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WHY INVEST IN MUTUAL FUNDS?

  • SAVE THROUGH MUTUAL FUNDS INVEST THROUGH MUTUAL FUNDS

  • Park surpluses

  • Short term investment

  • Easy liquidity

  • Tax benefits

  • Have a long term objective

  • Profile your risk

  • Select appropriate MF scheme,

  • based on risk return requirement

  • Mix of equity and debt

  • Invest regularly/with flexibility


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BENEFITS OF MUTUAL FUNDS

Professional Management & Analysis

Diversification & Divisibility

Across Companies & Sectors

Liquidity

Entry & Exit at NAV

Transparency

Regular disclosures

Convenient Administration (Record Keeping)

Low Costs of operations (Lower transaction cost)

Choice of schemes.

Well Regulated. (By SEBI)


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Instrument

Tenure

Pre-Tax

Returns

Risk

Liquidity

Bank Deposits

7 days to 1 yr.

6% - 12%

Low

Possible by breaking FD at cost

ICD’s

<180 days

9% - 11%

Medium

No secondary mkt.

Call (thro’ PD’s)

Overnight

6.5% - 9%

Low

Routed thro’ PD’s

T-Bills

<12 months

7% - 9%

Price Risk

High

Mutual Funds

Liquid

Overnight to 1 month

8% to 9.5%

No

High

Bond

1 month – 12 months

9% - 10.5%

Low Credit

High

Serial

Over 1 year

9% - 10%

No price risk

High

INVESTMENT OPTIONS


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RIGHTS AS A MUTUAL FUND UNITHOLDER

  • Receive statement of accounts within 6 weeks from the date your request is received by the Mutual Fund

  • Receive information about the investment policies, objectives, financial position and general affairs of the scheme

  • Receive dividend within 30 days of their declaration, receive redemption proceeds within 10 days from the date of the valid redemption

  • Vote in accordance with the Regulations to:

  • - change the Asset Management Company

  • - wind up the schemes.

  • To receive communication from the Trustee about change in the fundamental attributes of any scheme


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MUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUNDS)

  • MUTUAL FUND (REGISTERED WITH SEBI) MEANS:

  • A FUND ESTABLISHED IN THE FORM OF TRUST


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MUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUNDS)

  • BY A SPONSOR

    • BODY CORPORATE WHO ACTING ALONE OR IN COMBINATION WITH ANOTHER BODY CORPORATE

    • FLOATS THE IDEA OF SETTING UP OF MUTUAL FUND

    • ESTABLISHES MUTUAL FUND IN FORM OF TRUST

    • TRUST DEED EXECUTED WITH BOARD OF TRUSTEES

    • REGISTERS IT WITH SEBI

    • 40% CONTRIBUTION TO AMC


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MUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUNDS)

  • TO RAISE MONIES BY TRUSTEES

    • HOLDG PROPERTY OF MF IN TRUST FOR BENEFIT OF UNIT HOLDERS

  • THROUGH THE SALE OF UNITS

    • REPRESENTING ONE UNDIVIDED SHARE IN THE ASSETS OF A SCHEME

  • FOR INVESTING IN SECURITIES

  • APPLICATION FEES:5000;

  • REGISTRATION FEES:10 LACS;

  • ANNUAL FEES : 1 LAC


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MUTUAL FUNDS

STRUCTURAL ISSUES(MUTUAL FUND TRUST)

  • MF TO BE CONSTITUTED IN FORM OF MF TRUST

  • MANAGED BY A BOARD OF TRUSTES IN WHOSE FAVOUR TRUST DEED IS EXECUTED BY SPONSORS

  • 50% MEMBERS NOT AFFILIATED WITH SPONSORS

  • CONTROLS ALL CAPITAL PROPERTY OF MF SCHEMES/ HOLDS THEM IN TRUST FOR HOLDERS


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MUTUAL FUNDS

STRUCTURAL ISSUES(MUTUAL FUND TRUST)

  • APPOINTS AMCs

  • ENSURES SCHEMES FLOATED & MANAGED BY AMC ARE IN ACCORDANCE WITH TRUST DEED

  • POWER TO OBTAIN REPORT/DISMISS AMC

  • AN AMC NOT TO ACT AS TRUSTEE OF ANY MF

  • APPOINT CUSTODIAN &SUPERVISE ITS ACTIVITIES


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MUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUND TRUST LIST)

  • ALLIANZ CAPITAL & MGT SERVICES LTD

  • ANZ GRINDLAYS BANK

  • TIMES MUTUAL FUNDS

  • UNIT TRUST OF INDIA

  • VLS FINANCE LTD.

  • KOTAK MAHINDRA FINANCE LTD

  • PRUDENTIAL CAPITAL MARKETS LTD.

  • SBI FUNDS MANAGEMENT LTD

  • CEAT MF & ASSET MANAGEMENT COMPANY LTD.


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MUTUAL FUNDS

STRUCTURAL ISSUES (AMC)

  • MFs OPERATED BY AMCs -APPTD BY TRUSTEES

  • AMCs & TRUSTEES TWO SEPARATE LEGAL ENTITIES & ARM’S LENGTH RELATIONSHIP MNTD

  • AMCs TO APPROVE MOA & AOA FROM SEBI


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MUTUAL FUNDS

STRUCTURAL ISSUES (AMC)

  • AMCs MIN NW 5 CR (40% CONTRIB BY SPOSORS)

  • 50% MEMBERS FROM OUTSIDE

  • CAN’T ACQUIRE OUTSIDE THE SCHEME PROPERTY

  • DISCLOSE REPURCHASE PRICE/NAV OF SCHEMES


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MUTUAL FUNDS

STRUCTURAL ISSUES (AMC LIST)

  • 20TH CENTURY AMC LTD

  • APPLE ASSET MGT LTD.

  • BOI AMC LTD.

  • CREDIT CAPITAL AMC LTD.

  • GIC AMC LTD.

  • ICICI AMC LTD.

  • ITC PIONEER AMC LTD.

  • MORGAN STANLY AM INDIA LTD.

  • PNB AMC LTD.


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MUTUAL FUNDS

STRUCTURAL ISSUES (INVESTMENT MIX)

  • EQUITY SHARES/EQUITY RELATED INSTRTS (CDs)/ DEBT INSTRUMENTS (NCDs, PSBONDS,GOVT SECT)/MONEY MARKET INSTRTS(TBs, CPs & BILLS)

  • 5% CAP FROM ONE SCHEME IN ONE CO’S SHARE

  • 10% CAP FROM ALL SCHEMES IN ONE CO’S SHARE

  • 15%CAP FROM ALL SCHEMES IN ONE INDUSTRY

  • TYPICAL ASSET MIX

    SCHEME EQUITY DEBT MONEY MKT

    GROWTH 70-90% 5-20% 0-10%

    INCOME 20-30% 60-70% 0-15%

    BALANCED 40-60% 40-50% 0-10%


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

  • NAV=M.V OF FUND’S INVESTS+REC+ACCRUED INCOME- LIABILITIES-ACCRUED EXP

    NO. OF SHARES OR UNITS OUTSTANDING

  • MARKET PRICE: IN CASE OF CLOSE ENDED

  • REPURCHASE/REISSUE PRICE: OPEN ENDED

  • DISCOUNT

  • RATE OF RETURN= NAV AT END-NAV AT BEGINNING + DIVIDEND PAID

    NAV AT BEGINNING

  • INITIAL EXPENSES: CEILING OF 6%

  • RECURRING EXPENSES: MAX 3% OF AV NET ASSETS IN A YEAR


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

LOADS(CHARGED TO MF SCHEME) THREE TYPES

  • INITIAL ISSUE EXP (6% OF FUND RAISED)HIDDEN

  • RECURRING EXP (3% MAX OF NET ASSETS)

    • OTHER THAN INITIAL ISSUE EXP/ INCLUDES TRUSTEESHIP FEES /INCLUDES INVST MGT & ADVISORY FEE OF AMC (1.25% UPTO RS 100 CR & 1% OVER 100 CR)


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

LOADS(CHARGED TO MF SCHEME) THREE TYPES

  • AMC CHARGE FOR ISSUE/RECURRING COST(6%)

  • IN OPEN END SCHEME DIFF BETWEEN PURCHASE & SALE PRICE NOT TO EXCEED 7% OF SALE PRICE

  • BACK END (DISCOUNT TO NAV) DEDUCTED DURING REPURCHASE/REDEMPTION


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

NAV OF A NO-LOAD FUND (20 LACS UNITS ISSUED)

VALUE OF SECURITIES HELD IN PORTFOLIO 500 LACS

CASH IN HAND OF MUTUAL FUND 10 LACS

TOTAL ASSETS 510 LACS

LESS : OUTSTANDING LIABILITIES 110 LACS

TOTAL NET ASSETS 400 LACS

THUS NAV = Rs 400 LACS =RS 20 PER UNIT

UNITS 20 LACS

IF 10,000 NEW UNITS ISSUED AT NAV OF RS 20 PER UNIT

THUS NAV = ^TOTAL ASSETS =RS 4,02,00,000= RS 20 PER UNIT

^UNITS UNITS 20,10,000

THUS NAV DOES NOT VARY DUE TO SELING OR BUYING

NAV VARIES ON ANY VARIATION OF MARKET PRICES OF SECURITIES HELD IN THE PORTFOLIO OF MF


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

NAV OF A NO-LOAD FUND

NAV VARIES ON ANY VARIATION OF MARKET PRICES OF SECURITIES HELD IN THE PORTFOLIO OF MF

NAV=(RS 6 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.5

16 MILL UNITS IN TRUST

IF VALUE OF EQUITY IS DOUBLED, NAV SHIFTS

NAV=(RS 12 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.875

16 MILL UNITS IN TRUST

IF VALUE OF EQUITY IS HALFED THEN THE NEW NAV IS

NAV=(RS 3 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.3125

16 MILL UNITS IN TRUST

  • IN ABOVE, FUND SHOULD SWITCH FROM AGGRESSIVE TO DEFENSIVE INVEST TO AVOID RAPID EROSION OF NAV

  • INVEST IN DEBT INSTRTS MAY BE ONE SOLUTION


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

NAV OF A LOAD FUND (20 LACS UNITS ISSUED)

IF MF IS A 4% FRONT LOAD FUND

THEN NAV=NAV(OF NO-LOAD FUND) PER UNIT/1-% OF LOAD

= RS 20= RS 20 = RS 20 = RS 20.80 AS CALLED OFFERING

1-4% 1-4/100 0.96

HERE

  • OFFER PRICE (SALE PRICE) WILL BE 20.80 PER UNIT

  • BID PRICE (REPURCHASE PRICE) WILL BE RS 20.00 PER UNIT

  • DIFFRENCE BETWEEN OFFER & BID PRICE IS 4% i.e. 80 PAISE IS CALLED “SPREAD” PAID TO FUND

  • THERE IS A TWO WAY QUOTE PROVIDED BY IN OPEN FUND


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MUTUAL FUND INDUSTRY

KEY FINANCIALS

  • MARS, PVT SECTOR MF LAUNCHED A GROWTH SCHEME WITH AN INITIAL TARGET OF Rs 100 CR. DEPLOYMENT OF FUNDS IS TO CONFIRM THE FOLLOWING COMPOSITION

  • EQUITY 70%, DEBT 25% MONEY MARKET 5%

  • INITIAL EXPENSES 4%

  • DEBT COMPONENT INVESTED EQUALLY IN AAA & AA RATED INSTRUMENTS AT 18% & 20% RESPECTIVELY

  • EQUITY PORTION INVESTED IN SENSEX SCRIPS

  • AV. YIELD ON MONEY MARKET COMPONENT WAS 8%

  • SENSEX WAS AT 3800 & AT TIME OF INVEST IS AT 2900 AFTER ONE YEAR

  • DEBT & MONEY MKT INSTRTS VALUED AT COST

  • RECURRING EXP MET OUT OF INCOME EARNED ON DEBT & MONEY MKT INSTRTS (assume 3% on size of fund)

  • COMPUTE NAV & SALE PRICE IF FRONT LOAD FACTOR IS 5%


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MUTUAL FUND INDUSTRY

  • PASSING THROUGH CRITICAL PHASE

  • “LIVING DEAD” IN STOCK MARKETS

  • LOST INVESTOR’S CONFIDENCE

  • UTTER FAILURE IN INDIA


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MUTUAL FUND INDUSTRY

FEW EVIDENCES

  • SHRIRAM ASSET MGT CO FINED (JUN 96)

  • MORGAN STANLEY FINED (2/6/97)

    • RESORTING TO SHORT SALES

    • PRICE RIGGING IN BHEL SCRIPS

    • RENDERING PORTFOLIO MGT SERV TO GROUPS

  • CANSTAR UNABLE TO PURCHASE AT PROMISED NAV

  • LIC MF HAD TO PURCHASE AT PROMISED NAV & BOOK THE LOSS TO AMC


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MUTUAL FUND MONITOR


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MUTUAL FUND MONITOR


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MUTUAL FUND OPEARATION

FAILED IN

ALL CHAINS

OF OPERATIONS

INVESTOR’S

SERVICE

PRODUCT

DESIGN

THE

CHAIN

OF

OPERATION

PRODUCT

MARKETING

OUT

SOURCING

FUND

MANAGEMENT


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MUTUAL FUND OPERATION

  • PRODUCT DESGIN

  • INNOVATION

  • SUPERIOR DESIGN

  • ADAPATABILITY


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MUTUAL FUND OPERATION

PRODUCT DESIGN

  • DID LITTLE TO INNOVATE WITH INNOVATION

  • 70% SCHEMES CLOSE END WITH POOR RETURNS

  • UTI STILL CONTINUES WITH PLAIN VANILLAS

  • INNOVATION ONLY IN OPEN END SCHEMEDS

  • TIME TO DESIGN SECTOR, LOCATION BASED MFs


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MUTUAL FUND OPERATION

PRODUCT DESIGN- PACKAGED POTFOLIO MODEL

  • KNOW BEFOREHAND Cos WERE INVEST BE MADE

  • PORTFOLIO TO CONSIST OF 50 BLUE CHIP Cos WHICH HAVE CREATED ENORMOUS WEALTH TO HOLDERS & THEIR MKT CAP HAVE INCREASED

  • FLEXIBILITY TO TIME INVESTMENTS TO TAKE ADVANTAGE OF PRICE MOVEMENTS

  • FUND INITIALLY TO BE OPEN ENDED

  • AUTOMATICALLY CONVERTED INTO CLOSE ENDED ONCE THE INVESTMENT CEILING IS ACVD


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MUTUAL FUND OPERATION

  • PRODUCT MARKETING

  • COST

  • AGGRESSIVE MARKETING

  • UPFRONT COST


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MUTUAL FUND OPERATION

PRODUCT MARKETING

  • COST & ETHICS ARE TWO IMPORATNT FACTORS

  • UPFRONT COST BORNE BY INVESTOR OR AMC

  • UTI CAN’T AGGRESSIVELY MARKET ITS PRODUCT

  • MORGAN STANLEY MADE MFs AS IPOs & ALL NUANCES OF IPOs WERE BROUGHT IN


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MUTUAL FUND OPERATION

  • FUND MANAGEMENT

  • CAPITAL PROTECTION

  • MARKET TIMING

  • ASSET QUALITY


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MUTUAL FUND OPERATION

FUND MANAGEMENT

  • NON-QUALIFIED, UNPROFESSNL FUND MANAGERS

  • LOOK MFs AS ANOTHER EQUITY PRODUCT

  • IGNORE ASSET ALLOCATION, PORTFOLIO, TURNOVER & COST

  • NO QICK ASSET REALLOCATION ON TIME

  • DON’T INCLUDE HIGH LIQUID BLUE CHIP STOCKS

  • NOT BALANCING RISK RETURN EXPECTATION OF INVESTORS


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MUTUAL FUND OPERATION

FUND MANAGEMENT- SUGGESTED MODEL

  • PROTECT CAPITAL FROM EROSION

  • ALTERNATIVELY GUARANTEE CAPITAL SAFETY

  • POSSESS EXCELLLENT RESEARCH CAPABILITIES

    • TO ENSURE MARKET TIMING

    • INVESTMENT STRATEGY FORMULATION

  • FOLLOW APPROPRIATE ASSET ALLOCATION MODEL SUITING FUND’S OBJECTIVE

  • QUICKLY RESTRURE ASSET ALOCATION ON NEED

  • ENSURE QUALITY OF ASSETS BE IT EQTY OR DEBT

  • ENSURE ECONOMICAL COST OF OPERATIONS BE IT MANAGEMENT FEES OR OTHER EXPENSES


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MUTUAL FUND OPERATION

  • OUTSOURCING

  • COST CONTROL

  • FLEXIBILITY

  • CHOICE


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MUTUAL FUND OPERATION

OUTSOURCING

  • NEW CONCEPT THAN TO DO THINGS IN HOUSE

  • ENDORSED AS A GREAT COST CUTTING MEASURE

  • CONVERTS FIXED COSTS TO VARIABLE COSTS

  • ABROAD OUTSOURCING 100% FROM PRODUCT DESIGN TO INVESTOR SERVICING

  • YET TO COME IN INDIAN FUND MANAGEMENT

  • ONE AREA MAY BE DISTRIBUTION NETWORK


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MUTUAL FUND OPERATION

  • INVESTOR SERVICE

  • CUSTOMER FOCUS

  • BETTER CONFIDENCE

  • EFFICIENT SERVICE


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MUTUAL FUND OPERATION

CUSTOMER FOCUS

  • SCANT ATTENTION TO INVESTOR’S SERVICING

  • IGNORING INVESTOR’S EDUCATION

  • NOT INCLINED TOWARDS TRANSPARENCY

  • NON DISCLOSURE OF PORTFOLIO

  • LACK LUSTER SHOW ON RETURNS FRONT

  • UNIT HOLDERS NOT TREATED AS CUSTOMERS

  • GOOD SERVICE ATTRACTS MULTIPLE CUSTOMERS

  • MORALE “TREAT HIM LIKE CUSTOMER & INVEST IN TECNOLOGY TO REACH HIM FAR & WIDE”

  • LESSONS TO LEARN FROM Pvt SECTOR MFs


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