Why Invest ?
To protect your purchasing power
To generate sustained income post retirement.
To meet key financial needs like housing, higher
education and marriage of children
To generate alternate income for the family in case
of any unforeseen event.
Where can you invest?
• Equities
• Bank Deposits, Debt, Bonds, Company Deposits
• Gold, Real Estate
• PPF, RBI Bonds, Postal Savings
• Insurance Companies – Insurance Policies
Product characteristics Matrix
Products
Return
Risk
Liquidity
Tax
Savings
Convenience
Bank
Deposit
Moderate
Low
High
Yes
High
Equity
Instruments
High
High
Depends
on the
instrument
No
Moderate
Debentures
Moderate
Moderate
Low
No
Low
Fixed
Deposits by
Companies
Moderate
Moderate
Low
No
Moderate
Bonds
Moderate
Moderate
Moderate
Yes
Moderate
Product characteristics Matrix
Product
Return
Risk
Liquidity
Tax
Savings
Convenience
RBI Relief
Bonds
Moderate
Low
Low
Yes
Moderate
PPF
Moderate
Low
Low
Yes
Moderate
National
Saving
Certificate
Moderate
Low
Low
Yes
Moderate
Life
Insurance
Moderate
Low
Low
Yes
Moderate
Monthly
Income
Scheme
Moderate
Low
Low
Yes
Moderate
Income v/s Real Income
Real Return = Returns – Tax - Inflation
Focus on Real Income is important for wealth creation
What is Mutual Fund ?
Mutual funds are investment companies that pool money from
investors at large and offer to sell and buy back its shares on a
continuous basis and use the capital thus raised to invest in
securities of different companies.
Mutual Fund History
• 1964-UTI
• 1987- Public Sector banks, Insurance Companies
– SBI, Canbank, PNB LIC, GIC
• 1993- Private Sector
– Kothari Pioneer ( later merged with Franklin
Templeton),Morgan Stanley
Mutual Fund- Structure
SPONSOR
CUSTODIAN
TRUST
REGISTRAR
AMC
FUND
OPERATIONS COMPLIANCE
MANAGERS
MARKETING
INVESTOR
DISTRIBUTOR
RELATIONS
Mutual Fund Process
SEBI
Investors
Returns
Mutual
Fund
SECURITIES
Mutual fund Types
•By Liquidity or Structure :
 Open Ended Funds
 Closed Ended Funds
 Interval Funds
Mutual fund Types
• By Nature of Investments:
 Equity Funds
 Debt Funds
 Money Market Funds
 Hybrid Funds
By Investments Objective:
Growth Funds – For medium to long term capital appreciation.
Income Funds - For generating regular income and preserving capital
with lesser emphasis on capital appreciation.
Value Funds – for investing in undervalued equities
Types of Equity Funds
Diversified Funds
Invests across sectors and stocks
Diversifies stock or sector specific risks
E.g- Kotak 30, Kotak Lifestyle
Speciality Funds
Funds that have an investment theme
Are diversified but riskier than normal diversified funds
E.g- Kotak MNC, Kotak Global India, Kotak Lifestyle
Aggressive Funds
Target maximum capital appreciation
Are diversified but riskier than normal diversified funds
May trade or invest in mid & small stocks
E.g- Kotak Mid-cap, Kotak Opportunities
Types of Equity funds
Tax Saving Funds
Index Funds
Investments are eligible for tax deduction
Invests exactly as per the benchmark index
Lock-in period of 3 Years
Risk and return are in line with the index
E.g- Kotak Tax Saver
Sector Funds
Value Funds
Invest only in one industry
Invests in currently under valued stocks
Offer no sector diversification hence risky
Have low risk compared to growth funds
E.g- Kotak Tech
E.g- Kotak Contra
Types of Debt Funds
Money Market / Liquid Funds
Gilt Funds
Invest in short term debt securities.
Invests in govt. securities with medium to
long term maturities.
Ideal for short term investments.
Have a very low credit risk.
Lowest in the order of risk level.
Debt / Income Funds
Invests in debt securities issued by
various players including govt. and
private companies.
Invest across various maturities.
May be diversified, focused or have
fixed maturities.
Floating Rate Funds
Invest in securities with variable int. rates
Ideal in a rising rate scenario.
Types of Hybrid Funds
Growth & Income Funds
Invests in Equity and Debt markets – Balance funds & MIP’s
Less risky than growth funds but more risky than Income funds
E.g- Kotak Balance, Kotak Income Plus
Asset Allocation Funds
Invests in debt and equity based on an asset allocation policy
May follow variable asset allocation and move in and out of asset classes
E.g- Kotak Dynamic FOF, Kotak Flexi FOF
Risk-return matrix
There is no such thing as a free lunch
Risk shares a direct relationship with returns
Benefits of Mutual Funds
DIVERSIFICATION
Available even in small amounts
PROFESSIONAL
MANAGEMENT
Best Brains in the Country Manage your Money
DIFFERENT
SCHEMES
Providing Solutions For All Needs
TRANSPARENCY
Daily NAV, Monthly Portfolio
CONVENIENCE
Easy to buy,hold & sell
WELL
REGULATED
Governed By SEBI Regulations
Benefits of Mutual Funds
 Dividend from equity funds are entirely tax free
 Dividend from debt funds - tax free for investors
 Capital gain tax for equity funds :
• If kept > 1 year then zero tax
 Capital gain tax for Debt Funds :
• Benefit of lesser tax by two options :
1. 10 % without indexation
2. 20 % with indexation
 Benefit of set off for capital gains or loss upto 8 years
Equity - Concepts
Price/Earning Ratio
 price of the share divided by earnings per share.
 indicates what the investors are willing to pay for the company’s
earning potential.
 Young or fast growing companies have high P/E ratio.
 Established companies in mature industries have lower P/E ratio.
Dividend Yield
 ratio of dividend paid per share to current market price.
 low P/E stocks usually have high dividend yields.
Equity - Concepts
Cyclical stocks
 Earnings are related to the state of the economy
 Have relatively low P/E and high dividend pay outs
Growth Stocks
 Earnings are expected to grow at a higher than expected market rate
 Tend to reinvest earning and have a high P/E ratios
Value Stocks
 Stocks that are currently undervalued i.e. have a relatively low P/E
 Give returns in the long term when market realises their potential
Debt - Concepts
Par Value is the principal amount the investors will be paid upon
maturity of the bond and is also known as the face value.
Coupon is the annual rate of interest paid on the par value of the
bond to the investor.
Maturity refers to the term of the bond I.e. the date on which the
issuer has to repay the principal amount to the bond.
Current Yield Relates interest on a bond to its current market price by
dividing annual coupon interest rate by the coupon market price.
Yield to Maturity is the annual rate of return an investor would realize if
he bought a bond at a particular price, received all the coupon payments,
reinvested the coupons at the same YTM rate and received principal at
maturity.
Debt - Concepts
Interest rates and debt prices share an inverse relationship
Interest Rates
Interest Rates
Bond prices
Bond prices
When interest rates go up the value of existing debt papers go down as
another paper with a higher rate is available in the market. So the existing
paper would have to be sold at a discount and vice-versa.
Investment Process or Financial Planning Process
Investor Profiling
Portfolio
Construction
Asset Allocation
Portfolio Tracking
&
Rebalancing
Execution
&
Servicing
Product Selection
Model Asset Allocation
Equity Funds
Fixed Income funds/ Banks FD's
Age- 35-55
YRS
Age- 25-35
YRS
100
Cash/ Liquid Funds/ Savings A/c
Age- 55
YRS +
90
80
70
60
50
40
30
20
10
0
Aggressive
Portfolio
The above asset allocation is for illustration purpose only
Moderate
Portfolio
Conservative
Portfolio
Investors
High Returns
Aggressive Investor
Savvy Investor
(Kotak 30)
( Kotak Opportunities, Kotak Midcap)
High Risk
Low Risk
Conservative Investor
Irrational Investor
(Kotak MIP, Kotak Debt Funds )
Low Returns
TAX RECKONER FOR MUTUAL FUND
Equity Scheme
STCG LTGC
Resident
15%
Individual / HUF
Partnership
Firm
Domestic
Company
NRI
15%
15%
15%
Other Schemes
Divident Distribution Tax
TDS
Dividend
Income
As per tax
indexation or 20%
slab
Nil
Tax Free
Nil
28.33% 14.16%
30%
10% without
indexation or 20%
with indexation
Nil
Tax Free
Nil
28.33% 22.66%
30%
10% without
indexation or 20%
with indexation
Nil
Tax Free
Nil
28.33% 22.66%
As per tax
indexation or 20% LTCG - 20% after Tax Free
16.99%
slab
indexation
10% without
STCG - 30% &
Nil
28.33% 14.16%
TDS
STCG
LTGC
Equity
Liquid
Schemes
Others
10% without
Nil
Nil
with indexation
Nil
Nil
Nil
Nil
Nil
with indexation
• Securities Transaction Tax : 0.25% on redemption value.
• Wealth Tax : Mutual Fund Units are exempt from wealth tax.
Think Investments. Think JM
Securities