Presented By
CA Swatantra Singh,
B.Com , FCA, MBA
Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
1
“Behavioral Trends in Mutual Funds”
Mutual Fund
An Investor’s Best Friend In the World of Risk”
A wise man should have money
in his head, not in his hand.
-Jonathan Swift (1667-1745)
Mutual Fund
Vehicle for collective investments
to pool their marginal resources &
invest in Securities & distribute
the returns.
Advantages of Mutual Funds
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Portfolio diversification
Professional management
Reduction / diversification of risk
Reduction of transaction cost
Liquidity
Convenience and flexibility
Tax Benefits
Disadvantages of Mutual Funds
– No control over costs
– No tailor-made portfolio
– Managing a portfolio of funds
Fund distribution
and
sales practices
Who can invest
 Who can invest in mutual funds
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Resident individuals
Indian companies
Indian trusts / Charitable institutions
Banks
Non-banking finance companies
Insurance companies
Provident funds
Non-resident Indians (Repatriable and non- repatriable)
Foreign Institutional Investors
Distribution Channels
 Types of distribution channels
– All distributors and employees of distribution
companies to be AMFI certified
– Individual agents
– Distribution Companies
– Banks and non-banking finance companies
• Largest mobilizers form mutual funds
– Direct marketing by mutual funds
Agent commissions..
– Agents are paid commission for distribution of
mutual funds
• 1.50pct to 3.00pct for equity funds
• 0.40pct to 1.25pct for debt funds
– Maximum agency commission restricted to
6pct initial issue expenses
– Agency commission may be paid out of entry /
exit load subject to overall expense limits
Services by Agents..
– Understand all aspects of the schemes
– Understand client profile in terms of
• Age profile
• Risk appetite
• Income and liquidity requirements
– Offer clients investments suitable to investors
profile
– Continuous monitoring of client’s investments
– Personalised after sales service
Investor services by Mutual
Funds..
– Phone transactions - Interactive voice recognition
system
– Cheque writing facility
– Sweep facility to bank accounts
– Periodic statements and tax information
– Loan against units
– Nomination facility
– Transfer of units through listing of close ended
funds
Measuring mutual fund
performance..
 One of the Method
End NAV - Start NAV
Start NAV
12or365
100
No. of months or days
– This method gives the annualised returns in percentage
– If annualised returns are not required, the month / day
calculation is deleted. You then get absolute returns in
percentage
– If annualised, suitable for investments only in growth
option of all types of funds as dividend is not considered
Useful tips for making
Investments in mutual Funds
– Consider the effect of loads
– Compare similar time periods
– For less than one year period calculate returns
on absolute basis except for money market
funds
– For a period of one year and more calculate
returns on annualised basis
– Watch the total Returns since inception
When should one invest through a Mutual Fund ?
 have a small amount to invest
 hold fewer than five stock
 one need better advice on investing
 have difficulty in deciding when to sell
 find the paper work relating to investments
cumbersome
Types of mutual fund
On the basis
of objective
On the basis
of structure
On the basis
of payout
Open ended
Dividend
Close ended
Equity
Index
Dividend
payout
Debt
Diversified
Balanced
Growth
Dividend
Re-invest
Liquid
Sectoral
Gilt
Constitution of Mutual Fund
Fund Sponsor
(Promoter of the Fund)
Fund Sponsor
(Promoter of the Fund)
Fund Sponsor
(Promoter of the Fund)
Custodian
Transfer
Agents
Distributors
Brokers
INVESTMENT IN MUTUAL
FUND
 IDEAL INSTRUMENT TO INVEST FOR
THOSE WHO DON’T HAVE TIME TO DO
THE RESEARCH FOR INVESTMENT IN
EQUITY
 ALSO FOR THOSE WHO DOES NOT HAVE
LARGE SUM TO INVEST IN EQUITY
SHARES OF LARGE CAP OR MIDCAP
PROMINENT COMPANIES & WANTS TO
PARTICIPATE IN GROWTH STORIES OF
THESE KIND OF COMPANIES.
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INVESTMENT IN MUTUAL
FUND
 TODAY MUTUAL FUNDS ASSETS
UNDER MANAGEMENT IS ALMOST
781000 CRORE.
 INVEST IN STOCK MARKET AFTER
EXTENSIVE RESEARCH.
 PROFESSIONAL MANAGEMENT
 DIVERSIFICATION
 EXCELLENT RETURN POTENTIAL IN
LONG RUN
 LIQUIDITY
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Investment
Management
Equity portfolio management..
 Fund management organisation structure
– Fund manager
Performs asset allocation
– Security analyst
Supports the fund managers through analytical
reports (Fundamental, technical and quantitative)
– Security dealers
Executes actual buying and selling through brokers
Equity portfolio management..
 Equity Research
– Fundamental analysis
The study of the Financial health of a particular
company, by studying the past 3 to 5 years Balance
sheets & Profit & Loss accounts
– Technical analysis
The study of the market movements of share price
of a company or industry / sector to predict the
future trend
– Quantitative analysis
The use of mathematical models for equity
valuation
Equity portfolio management..
 Types of equity instruments
– Ordinary shares
– Preference shares
– Equity warrants
– Convertible debentures
 Derivatives
– Futures
– Options
Equity portfolio management..
 Portfolio management process
– Set Investment policy
– Perform security analysis and research
– Construct a portfolio
– Revise the portfolio
– Evaluate the performance of the portfolio
Debt portfolio management..
 Fund management organisation structure
– Fund manager
Performs asset allocation
– Security dealers
Executes actual buying and selling through brokers
– Interest rate forecasting unit
Economists who do research on interest rates
– Risk Managers
Oversee risk levels attained by fund managers
Debt portfolio management..
 Types of debt instruments
– Certificate of deposit
– Commercial paper
– Corporate debentures
– Floating rate bonds
– Government securities
– Treasury bills
– Bank / Financial Institution bonds
– Public sector undertaking bonds
Debt portfolio management..
 Risks in investing in bonds
– Interest rate risk
• Price of bonds are inversely proportional to interest
rates
– Reinvestment risk
• Coupon received may not get invested at the
coupon rate itself
– Call risk
• If bond provides a call option, the bond may get
called if interest rates drop. Reinvestment will then
happen at lower rates
Debt portfolio management..
 Risks of investing in bonds
– Default risk
• Credit risk of default on repayment of interest /
principal by the issuer
– Inflation risk
• Rise in inflation results in lower purchasing power
on coupon received, making the bond lose value
– Liquidity risk
• Illiquidity leads to incorrect pricing and desperate
sales
Debt portfolio management..
 Risks of investing in bonds
– Default risk
• Credit risk of default on repayment of interest /
principal by the issuer
– Inflation risk
• Rise in inflation results in lower purchasing power
on coupon received, making the bond lose value
– Liquidity risk
• Illiquidity leads to incorrect pricing and desperate
sales
WEALTH CREATION - EQUITY
INVESTMENT
ROUTE
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STOCK MARKET FROM THE LOW OF 8000
LAST YEAR NOW CLIMBING HIGHER
- CELEBRATION ALL AROUND
 SENSEX AT 17000
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SENSEX AT 17000
NIFTY AT 5089
 BUT IS IT TRUE THAT EVERYBODY MADE
MONEY?
 ONLY HANDFUL PEOPLE CREATED WEALTH,
SOME MADE LITTLE BIT OF MONEY BUT MOST
OF COMMON PEOPLE HAVE LOST MONEY.
 WHY?
 BECAUSE MAJORITY OF PEOPLE ARE NOT
INVESTORS BUT ARE PUNTERS, DAY TRADERS.
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ALL EYES ON INDIA - INTERESTING INDIA
GROWTH STORY
STILL LONG LONG WAY
TO GO - JOIN THE
BAND WAGON
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INDIA GROWTH STORY
 INDIA IS DOMESTIC CONSUMPTION
STORY
 CHANGING DEMOGRAPHIC
PATTERN WITH HIGH PERCENTAGE
OF YOUTH EARNING IN THE
COUNTRY WITH HIGHER
DISPOSABLE INCOME CREATED
CONSUMPTION BOOM.
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INDIA GROWTH STORY
 IT ALL STARTED WITH LOWER
INTEREST RATE
 LOW INTEREST RATE HELPED HIGH
DEMAND FOR HOUSING, CAR, TWO
WHEELER.
 IN TURN ALL THESE BOOSTED THE
DEMAND FOR CEMENT, STEEL, AUTO
ANCILIARIES, INFRASTRUCTURE,
BANKING & FINANCE FACILITIES,
TECHNOLOGY ETC.
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WHY INVESTMENT
 BECAUSE MONEY
DOES N’T GROW ON
TREE, SO TILL IT
HAPPENS WE HAVE
TO PARK OUR
SAVINGS SMARTLY
TO GET GOOD
RETURN ABOVE
BANK INTEREST.
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WHY INVESTMENT
 TO FULFILL OUR DREAMS LIKE:
WELL FURNISHED APARTMENT
CAR, WORLD TOUR, FARM HOUSE,
CHILDREN’S EDUCATION ETC.
IS IT POSSIBLE WITH YOUR
ROUTINE BUSINESS INCOME OR
FROM SALARY?
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WHY INVESTMENT
 NO SOCIAL
SECURITY IN
INDIA, SO FOR THE
FUTURE, FOR THE
RETIREMENT, FOR
THE RAINY DAY
ONE OUGHT TO
HAVE ENOUGH.
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WHY INVESTMENT
 ACTIVE INCOME
INCOME FROM
OUR BUSINESS,
PROFESSION,
JOB,
WHAT WE DO
ACTIVELY TO
EARN MONEY.
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WHY INVESTMENT
 PASSIVE INCOME –
EARNED FROM
INVESTMENT IN
VARIOUS OPTIONS.
I.E. DIVIDEND,
INTEREST, RENT,
CAPITAL
APPRECIATION ON
SHARES, M.FUND.
40
WHY INVESTMENT
 ACTIVE INCOME :
- Needs constant
devotion of time &
action, Physical work
- To earn more, more
work
- Requires Physical
Presence
 PASSIVE INCOME :
- Needs assets & ideas
to generate income
- Can be earned more
by working smarter &
not harder
- Requires more of
mental presence
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WHY INVESTMENT
- Suffers high rate of
taxation
- There is limited
( business &
profession ) or no
resale value ( Job )
- Has limited or no
leverage potential to
earn active income
- Attracts lower or no
taxation
- Normally asset has
resale value
- Assets and Income
can be leveraged to
earn passive income.
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WHY INVESTMENT
 Those who focus only on earning active
income get left behind to those who
concentrate on complementing their active
income with passive income.
 So, to retire rich and early one must have
more passive income which could take care
of your expenses in later part of your life.
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INVESTMENT DECISION
- MAKING
 CHOOSING THE MOST PROFITABLE &
SUITABLE ALTERNATIVE FROM PLENTY
OF OPTIONS.
 PORTFOLIO HAS TO BE DESIGNED AS
PER OBJECTIVE OF INVESTOR, HIS AGE,
HIS INCOME, TIME HORIZON, RISK &
RETURN PROFILE, FAMILY NEEDS, TAX
STRUCTURE & GOVT. POLICIES.
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THE TRIO OF INVESTMENT
– RETURN , RISK &
TAXATION
 Returns- What are the return on the
investment - in value and percentage
terms on an annualized basis? Return
may be in form of Interest, Dividend,
Rent and / or Capital Appreciation.
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Risk :

What are the risks involved in making
the investment? Normally, higher the
return, higher the risk and lower the risk
then lower would be the return. The
different types of risk includes, price
fluctuations, liquidity, default, Inflation,
interest rate and currency risk.
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Taxation :
 In order to maximize one’s real return on
investment after taxes, taxation needs to
be considered and planned to minimize
its impact.
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INVESTMENT OPTIONS

•
•
•
•
•
•
•
•
PLENTY OF OPTIONS, SUCH AS :
( a ) Fixed Income Deposits & Securities
( b ) Tax Savings Schemes
( c ) Equity Shares
( d ) Mutual Funds
( e ) Insurance
( f ) Real Estate
( g ) Precious Metals like Gold, Silver
( h ) Derivatives
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INVESTMENT MODEL :
Age Scenario
20's Acquiring vocational skills
and education (degree)
Strategy
Assets Allocation
* No dependants
Equity :
70%
No self-generated assets
Debt
10%
:
Taking a job or setting up
Invest the surplus income
Sml. Saving : 15%
Business / profession
in growth assets like
Insurance : 5%
Shares, mutual funds,
Maximize the tax savings
Start buying life, medical
and accident insurance
30's Marriage & starting a family * Continue to invest a major
Equity :
60%
Getting settled in a job,
portion of income into growth
Debt :
10%
business or profession
assets , Accumulate fund
Sml.Saving :20%
Spouse may or may not
to buy a residence in the future, Insurance :10%
be an earning member
Increase insurance coverage
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
Need for larger house
for entire family
INVESTMENT MODEL :
Age Scenario
Strategy
Assets Allocation
40's Planning for the future needs  Acquire a house with or
Equity :
40%
Buying a residential house
without housing loan
Debt :
15%
High surplus income
Reduce exposure to risky Small Saving: 25%
investment
Insurance : 20%
Increase life cover
Plan for retirement and
needs of the family,
especially children
Create a contingency fund
50s Planning for Retirement
Repay housing loan, if taken Equity :
20%
Children have grown up
Payoff all debts
Debt :
45%
and are towards becoming
Think of retirement needs,
Small Saving: 20%
independent Surplus for
plan and take appropriate action Insurance : 15%
investment is at peak
Ensure that passive income is
much higher than active income
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INVESTMENT MODEL :
Age Scenario
Strategy
Assets Allocation
60+ Retirement
Retire from work, not life Assets generate regular
Equity : 15%
Continue work only if
cash flow for maintenance
Debt : 50%
you want to or work
and expenses
Sml.Saving: 25%
part-time
Ensure that the earning
Insurance : 10%
Children are independent from passive income
and earning on their own are higher than the
rate of inflation
No need for life insurance,
but ensure that maximum
medical insurance is obtained
for oneself and spouse
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INVESTMENT IN EQUITY
SHARES
 COMPELLING REASON TO INVEST
IN EQUITY SHARES :
 BSE Sensex 1978 – 79 = 100
& 2009 – 10 = 17000
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INVESTMENT IN EQUITY
SHARES
 When inflation is almost 8 to 9%, our savings should
generate higher return than that. At present interest on
Bank Deposit, PPF is around 7 to 8%, So, no incentive
for general investor to park money there.
 Previous slide shows Indian Stock Market has given most
handsome return, Equity gave compounded annual return
of almost 18%
 So, make share investment your sleeping partner. Let us
see some example of wealth creationCopy of WEALTH
CREATION FACTS & FIGURES.xls
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FUNDAMENTAL
PRINCIPLES OF
INVESTMENT IN EQUITY
 “Research before you invest and not
after”
 Always invest for long term, Wealth can be
created only in long term, in short term some
quick buck can be made by chance only.
 Warren Buffet says “ only buy something that
you would be perfectly happy to hold if market
shut down for 10 years.
 Don’t buy on some one’s tip. So, don’t indulge
in speculation, it could burn your fingers.
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FUNDAMENTAL
PRINCIPLES OF
INVESTMENT IN EQUITY
 Good Investment Decisions depends on how you
invest, I.e.
- Which stock you invest in
- When you buy the stock
- When you sell the stock
So, trick to create wealth in stock market is
buying the right stock at the right time and selling
the same at right time.
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RESEARCH PROCESS
 ANALYSE THE OVERALL PICTURE OF
VARIOUS SECTORS OF ECONOMY I.e :
CEMENT - STEEL - AUTOMOBILES CONSTRUCTION, REAL ESTATE &
INFRASTRUCTURE - ENGG. & CAPITAL
GOODS - MEDIA & ENTERTAINMENT TELECOM - TECHNOLOGY - TEXTILE
RETAIL - FINANCIAL - FMCG - PHARMA
CONSUMER DURABLES - OIL & GAS ETC.
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RESEARCH PROCESS
 ALSO CONSIDER CERTAIN MACRO &
MICRO ECONOMY FACTORS SUCH AS
INTEREST RATE, INFLATION, FOREIGN
FUND INFLOW & OUT FLOW & IT’S
IMPACT ON CURRENCY STRENGTH ETC.
 EVALUATE OVERALL VALUATION OF
MARKET, IT’S PE RATIO & COMPARE THE
SAME WITH HISTORICAL VALUATION
57
RESEARCH PROCESS
• IDENTIFY STRONG
BUSINESSES / INDUSTRIES
WHICH HAS SUPERIOR RETURN
PROSPECTS, GOOD BUSINESS
MODEL, PREDICTABLE CASH FLOWS
AND SUSTAINABLE LONG TERM
COMPETITIVE ADVANTAGES
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RESEARCH PROCESS
 FIND THE VALUE IN EARLY STAGE,
WHEN PRICE DISCOVERY IS NOT FULL AS
IT IS RELATIVELY LESS KNOWN BY
OTHER MARKET PARTICIPANTS, SO
SHARE WOULD BE AVAILABLE AT CHEAP
PRICE / VALUATION
 COMPANIES IN ITS GESTATION PERIOD
 BUILDING ITS INFRASTRUCTURE,
MARKETING NETWORK, RESEARCH ETC.
59
RESEARCH PROCESS
 STUDY THE FINANCIALS BALANCE SHEET, P & L A/C., CASH FLOW
STATEMENT. ANALYSE VARIOUS
COMPONENT OF B’SHEET LIKE CAPITAL
STRUCTURE, RESERVES, LIABILITIES
 COMPARE ITS QTLY. RESULTS & SEE
THE SEQUENTIAL GROWTH IN SALES,
PROFIT, CASH FLOW, STUDY VARIOUS
RATIOS LIKE, EPS, P/E RATIO, DEBT /
EQUITY RATIO,CURRENT RATIO, PRICE /
BOOK VALUE & DIVIDEND YIELD ETC.
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RESEARCH PROCESS
BUSINESS LIFE CYCLE
MATURITY
DECLINE
GROWTH
INCEPTION
1
2
3
TIME - YEARS
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4
5
BUYING SHARES
 AFTER WEIGHING ALL THE
OPTIONS PURCHASE THE SHARES
OF SELECTED COMPANIES
 REMEMBER TO DIVERSIFY YOUR
PORTFOLIO TO DIFFERENT SECTORS
WHICH ARE DOING WELL
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TRACK YOUR PORTFOLIO
 AFTER BUYING THE SHARES OF GOOD
COMPANIES, KEEP PATIENCE, GIVE IT
TIME TO GROW
 DON’T EXPECT IMMEDIATE GAIN
 CONSTANTLY MONITOR COMPANY’S
PERFORMANCE - TRACK ITS QUARTERLY
RESULTS & ANALYSE THE SAME. IF
FOUND SATISFACTORY ONE MAY ADD
EXPOSURE BY BUYING MORE SHARES.
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TRACK YOUR PORTFOLIO
 ALSO KEEP TRACK OF OVERALL
MARKET CONDITION, SENTIMENTS,
INFLATION, INTEREST RATE, SOME
EVENTS LIKE FINANCE BILL & IT’S
IMPACT ON MARKET IN GENERAL OR ON
SOME SPECIFIC SECTORS.
 KEEP CLOSE WATCH ON GEO –
POLITICAL ENVIRONMENT
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BOOKING PROFIT
 WHEN ONE HAS TO TAKE DECISION TO
SELL ?
ALWAYS REVISIT YOUR INVESTMENT
PERSPECTIVE / OBJECTIVE, EXPECTED
RETURN, TIME HORIZON, NEED OF
MONEY AND SO ON & WHEN ONE FEELS
THAT MY INVESTMENT OBJECTIVES
HAVE BEEN FULFILLED, ONE SHOULD
SELL & BOOK PROFIT FROM THE
INVESTMENT.
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Presented By
66
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: singh.swatantra@gmail.com
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
67