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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

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
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…

legal structure3
LEGAL STRUCTURE

INVESTMENT MANAGER & ADVISOR

KOTAK MAHINDRA ASSET

MANAGEMENT CO. LTD.

  • APPOINTS
  • CUSTODIANS
  • REGISTRARS
  • BANKS
  • DISTRIBUTORS
working of a mutual fund
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

mutual funds
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
slide7

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
benefits of mutual funds

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)

slide9

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

rights as a mutual fund unitholder
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
mutual funds11
MUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUNDS)

  • MUTUAL FUND (REGISTERED WITH SEBI) MEANS:
  • A FUND ESTABLISHED IN THE FORM OF TRUST
mutual funds12
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
mutual funds13
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
mutual funds14
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
mutual funds15
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
mutual funds16
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.
mutual funds17
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
mutual funds18
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
mutual funds19
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.
mutual funds20
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%

mutual fund industry
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
mutual fund industry22
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)
mutual fund industry23
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
mutual fund industry24
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

mutual fund industry25
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
mutual fund industry26
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
mutual fund industry27
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%
mutual fund industry28
MUTUAL FUND INDUSTRY
  • PASSING THROUGH CRITICAL PHASE
  • “LIVING DEAD” IN STOCK MARKETS
  • LOST INVESTOR’S CONFIDENCE
  • UTTER FAILURE IN INDIA
mutual fund industry29
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
mutual fund opearation
MUTUAL FUND OPEARATION

FAILED IN

ALL CHAINS

OF OPERATIONS

INVESTOR’S

SERVICE

PRODUCT

DESIGN

THE

CHAIN

OF

OPERATION

PRODUCT

MARKETING

OUT

SOURCING

FUND

MANAGEMENT

mutual fund operation
MUTUAL FUND OPERATION
  • PRODUCT DESGIN
  • INNOVATION
  • SUPERIOR DESIGN
  • ADAPATABILITY
mutual fund operation34
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
mutual fund operation35
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
mutual fund operation36
MUTUAL FUND OPERATION
  • PRODUCT MARKETING
  • COST
  • AGGRESSIVE MARKETING
  • UPFRONT COST
mutual fund operation37
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
mutual fund operation38
MUTUAL FUND OPERATION
  • FUND MANAGEMENT
  • CAPITAL PROTECTION
  • MARKET TIMING
  • ASSET QUALITY
mutual fund operation39
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
mutual fund operation40
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
mutual fund operation41
MUTUAL FUND OPERATION
  • OUTSOURCING
  • COST CONTROL
  • FLEXIBILITY
  • CHOICE
mutual fund operation42
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
mutual fund operation43
MUTUAL FUND OPERATION
  • INVESTOR SERVICE
  • CUSTOMER FOCUS
  • BETTER CONFIDENCE
  • EFFICIENT SERVICE
mutual fund operation44
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