Investment Planning basically deals with the Investment compponent of your Financial Plan. It talks about Goal based planning. It compares Risk & Return of all invesment products available in India. It talks a great deal about investments in Equity, Debt, Gold and Real Estate. It also talks about Basic principles of investing.

1. 28-05-2012
“AN INVESTMENT IN KNOWLEDGE PAYS
THE BEST INTEREST"
- Benjamin Franklin
PROFILE OF AN AVERAGE RETAIL INVESTOR
Knowledge about investment options is rather vague
“You work hard for Rely on Agents / CA’s / Relatives / Friends
Does not seek advise from professional investment advisors
your money. But does Generally not clear about Risk & Returns
Have developed comfort in Fixed Deposits / Government Savings
your money work Expectation from Equity are unrealistic
Nation of Savers, but not Investors
equally hard for you?”
Presentation on
Financial Planning
ÉTICA WEALTH MANAGEMENT PVT LTD
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2. 28-05-2012
GAJENDRA KOTHARI, CFA, CAIA, ICFA FEW HOUSEKEEPING REQUESTS…
MD & CEO, Etica Wealth Management Pvt Ltd. Not a Sales talk
Vice-
Vice-President & Head – Products (PMS division), UTI AMC Ltd.
Would request you to participate enthusiastically
8 yrs of work experience in the Financial Services Industry
Chartered Financial Analyst (CFA) from CFA Institute, USA No offence to any particular individual
Chartered Alternative Investment Analyst (CAIA) from CAIA, Massachusetts
International Certificate in Financial Advice (ICFA), London, UK
Mobile Silent
Earlier roles -
Institutional Sales (London – 3 yrs),
Institutional Sales (Mumbai – 2yrs),
Retail Sales (Mumbai – 2 years)
Speaker at various investor forums on various personal finance topics
A COMMAN MAN’S CONCERN LIFE STAGES
How can I grow and protect my financial wealth?
Each individual is unique; so are his needs and wants; also, through out life,
unique; wants;
How can I pay and manage my debt / liabilities (Good / Bad / Ugly) (EMIs)?
an individual’s needs and wants keep changing.
changing.
How much should I save to be able to pay for my children’s education?
Therefore, financial planning process must first assess an individual at what
How can I maximize the tax benefits which can be availed of?
in.
stage of life he / she is in.
How can I save enough to be able to retire comfortably and maintain the
Life stage is not a mechanical process based on some ‘age’ criteria but
current lifestyle?
based on a number of milestones
How can I meet emergency requirements / contingencies?
These milestones could be completion of formal education, first job and
How can I maximize what my heirs will inherit?
subsequent major job changes, major life events like marriage, birth of
child, acquisition of major assets, education of children, marriages,
separation, death etc
LIFE STAGES - MILESTONES
Dependent till early 20s - Education & skill acquisition
20s
Career beginners, enjoyers in 20 to 30 - first job / joining business, first
vehicle, marriage & first child
Career advancers in 30s - Young family, children in school, house purchase
30s
Peak earners, achievers 40s - children in college, more savings and less
40s
debts
Pre retirees, empty nesters 50s - grown children, re-arrange financials in
50s re-
preparation for retirement / starting on own etc
Retired 60s - settled children, debts cleared, estate planning..
60s planning..
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3. 28-05-2012
WE ALL HAVE DREAMS…
Investing can help you realize your goals in life!
Buying your Providing a good Having a happy
Dream House future for Children Retired life
WHAT IS FINANCIAL PLANNING ? FINANCIAL PLANNING PROCESS
Financial planning is the process of successfully meeting financial needs of
life through the proper management of finances.
finances.
“Big picture approach”
planning.
It is more than just investment or tax or estate or retirement planning. It is
all these and more. It is an integrated and multi-disciplinary approach
more. multi-
balancing and fine tuning each of these components.
components.
It is also NOT an one time & one size fit all exercise recognizing each
individual’s goals, desires, needs, experiences and expectations are
different
It is your roadmap to Financial Health, & Sustainable Wealth creation and to
achieve Financial Freedom.
Freedom.
WHY YOU NEED FINANCIAL PLANNING? PROBLEMS OF RANDOM INVESTMENT
Wrong selection - flavor of the month.
Life without Financial planning is like Unplanned
Vacation.
Vacation. Wrong timing - mostly near top.
Short term investment.
If you wish to achieve your financial goals successfully
& peacefully you must plan your financial life.
life. Inadequate investment.
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4. 28-05-2012
WHY IS IT IMPORTANT, THE INDIA CONTEXT WHO NEEDS FINANCIAL PLANNING?
Few major socio economic changes which make personal financial planning Whatever may be level of your income or assets, you
more critical in the Indian context need financial planning.
planning.
Absence of any kind of social security for vast majority of people
Increased longevity due to improved medical care AND ever increasing It is myth that only rich people need financial
medical costs planning.
planning.
Rapidly decreasing career span; retirement (voluntary or otherwise) age is
span;
falling
Gradually (dramatically?) reducing joint / extended family system
More market driven and globalized Indian economy; more choices and more
economy;
risks
CURRENT STATUS & GOAL SETTING FINANCIAL GOALS - EXAMPLES
Mandatory Goals:
Find out the net saving available for investment.
investment. Children education
Children marriage – Not major in the USA
Retirement Planning.
Wealth accumulated till today.
today. Purchase of residential premises.
Purchase of vehicle.
Short term Goals 1-
: 1-2 years.
What is your intention of investment (goal setting)? Medium term goals 3-
: 3-5 years.
Optional Goals: Long term goals 5-
: 5-10 years.
Up gradation of Residence. Distant goals 15-
: 15-20 years.
Simply put, How much money you need? & When you need the Luxury Car.
money? (Time horizon) Purchase of Luxury items at Home.
Vacation Abroad.
Charity - Religious or Social.
Specific financial goals are vital to financial planning.
planning. Inheritance - Estate planning.
Early Retirement - Financial freedom.
BE SMART BEST PRACTICES
goals.
Set measurable goals.
Understand the effect your financial decisions have on other financial issues.
issues.
periodically.
Revaluate your financial plan periodically.
Start now. Do not assume that financial planning is for when you are older.
now. older.
Start with what you have got. Do not assume that financial planning is for the
got.
wealthy.
wealthy.
charge. process.
Take charge. You should be in control of the financial planning process.
Look at the bigger picture. Financial planning is more than retirement planning or tax
picture.
planning.
planning.
investing.
Do not confuse financial planning with investing.
Do not wait for a money crisis to begin financial planning.
planning.
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5. 28-05-2012
WHAT IS COMPREHENSIVE FINANCIAL PLANNING ? COMPONENTS OF FINANCIAL PLANNING
Protection
Comprehensive financial planning uses an integrated Life Insurance
approach to monitor all aspects of someone’s financial Health insurance
Home, Motor Insurance
situation:
- Insurance & Risk Planning
Savings
- Retirement Planning Emergency requirements
- Goal Based Investment Planning Short Term Goals - Vacation Planning
- Tax Planning
- Estate Planning Growth
Retirement Planning
Children Education
House Purchase
Investment Planning
SAVING AND INVESTMENT WHY INVESTMENT PLANNING
Everyone needs to save for a rainy day. Once you have saved
day. Investment Planning is important because it helps you to derive
enough to take care of emergencies, you should start thinking investments.
the maximum benefit from your investments.
about investing and to make your money grow.
grow.
Your success as an investor depends upon your ability to
Investment planning focuses on identifying effective investment choose the right investment options. This, in turn, depends on
options.
strategies according to an investor’s risk appetite and financial goals.
your requirements, needs and goals.
goals.
goals.
Investment Planning also helps you to decide upon the right
There is a wide variety of investment options, including strategy.
investment strategy. Besides your individual requirement, your
Equities, Bonds, Gold, Mutual funds, Bank Deposits, Real investment strategy would also depend upon your age,
Estate, Commodities and Derivatives. appetite.
personal circumstances and your risk appetite.
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BASICS OF INVESTMENT PLANNING
LET TIME AND COMPOUNDING WORK FOR YOU...
Cost of Delay
can be
Devastating !!!
Growth Rate assumed at 15%
STARTING EARLY & INVESTING REGULARLY
Source: Sundaram BNP Paribas AMC
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7. 28-05-2012
POWER OF COMPOUNDING? POWER OF COMPOUNDING?
Which option will you chose from below? How much will you get at the end of month?
1. Receiving Rs 1,00,00,000.00 1. Rs 30,00,00,000.00
2. Receiving double the money than previous day i.e Rs 2. Rs 1,07,37,41,823.00
1,2,4,8,16,32……so on for a month
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8. 28-05-2012
IS THERE ANY SOLUTION TO OVERCOME THIS PROBLEM?
EVEN LOW INFLATION WILL TREBLE COST OF LIVING ARE YOU PREPARED FOR THIS !!!
A Loaf of Bread 1 Liter Milk 1 Kg Apples
Year Amount Year Amount Year Amount
2000 Rs. 10 2000 Rs. 25 2000 Rs. 25
2010 Rs. 16 2010 Rs. 40 2010 Rs. 80
2020* Rs. 26 2020* Rs. 65 2020* Rs. 130
2030* Rs. 42 2030* Rs. 106 2030* Rs. 212
Inflation rate assumed is 4.5% per annum in line with RBI’s comfort range. Inflation rate assumed is 4.5% per annum in line with RBI’s comfort range.
Source: Sundaram BNP Paribas AMC
LIFESTYLE INFLATION – A TIME BOMB WEALTH CREATION IN DIFFERENT ASSET CLASSES
5 years back Today % increase
Ordinary Shoes – Rs 500 Red Tape shoes – Rs 3000 500%
Titan Watch – Rs 1500 Tommy Hilfilger – Rs 7500 400%
Restaurant – Rs 1000 Fine Dining – Rs 5000 400%
Medicine – Rs 500 No Limit ----
School fees – Rs 5000 DPS fees – Rs 1,00,000 1800%
Didn’t exist I Pod – Rs 15,000 ----
Normal mobile – Rs 3,000 I-phone – Rs 30,000 900%
Scooter / MC – Rs 50,000 Sedan Car – Rs 8,00,000 1500%
2 BHK 3 BHK with SP, Club etc No Comparison
Marriage, Foreign vacation & more…….
Today not investing in Equity is Risky
Inflation X Multiply by 5 members - !!!!!!!!!!! Figures as of April 2010
Rs 1000-a-month invested in Equity is an investment made in Sensex
Maid - Washing Machine, Driver - Tata Nano
Source: Sundaram BNP Paribas AMCc
Narayana Murthy Driver
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9. 28-05-2012
WHO’S THE BEST ??? ALL THAT GLITTERS IS NOT GOLD!!!
Asset Class 1 Year 3 Year 5 Year 10 Year 15 Year 20 Year 30 Year
Silver 115.54% 29.77% 48.49% 24.24% 13.63% 12.11% 3.79%
Gold 36.82% 14.46% 38.25% 13.98% 9.06% 6.97% 0.35%
Sensex 10.94% 7.52% 11.51% 18.36% 12.40% 15.10% 17.04%
Bonds 6.00% 8.00% 8.00% 10.00% 12.00% - -
Figures as of March 31, 2011
COMPARISON OF GOLD FUND WITH OTHER GOLD INSTRUMENTS COMPARISON OF GOLD FUND WITH OTHER GOLD INSTRUMENTS
ASSET ALLOCATION IS THE KEY
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10. 28-05-2012
TIME MATTERS, NOT TIMING
Source: Sundaram BNP Paribas AMC
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11. 28-05-2012
ARE YOU CONFUSED???
INVESTMENT OPTIONS BANK DEPOSITS
Deposits in scheduled banks are regulated by RBI and guarantee provided
by Deposit Insurance and Credit Guarantee Corporation (DICGC) - upto Rs
100,000 per depositor per bank.
There is no ceiling on interest rates payable on deposits in savings account
(currently minimum is 4% calculated daily)
Interest rate on Fixed deposits varies with term of deposit.
Bank deposits enjoy high liquidity. Withdraw prematurely a portion or whole
of FD’s, with interest rate corresponding to periods of deposit with some
penalty. Also we have flexi accounts (FDs with ATM facility)
Loans can be raised against bank deposits
Real Returns(-) = Returns (9%) - Tax (20%) - Inflation (8-9%)
SBI – FIXED DEPOSIT RATES POST OFFICE MONTHLY INCOME SCHEME
Provide regular monthly income
Specially suited for retired employees / Senior Citizens
Rate of interest 8.50%
Interest is taxable at the applicable slab rate
Maturity Period - Five Years.
No Bonus on Maturity w.e.f. 01.12.2011.
Auto credit facility to SB Account
Type of Account Minimum Limit Maximum Limit
Single INR 1500 INR 4.5 lakhs
Joint INR 1500 INR 9.0 lakhs
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NATIONAL SAVING CERTIFICATES (VIII AND IX ISSUE)
Scheme specially designed for Government employees, Businessmen and
other salaried classes. Trust and HUF cannot invest.
No maximum limit for investment.
No Tax deduction at source
Certificates can be kept as collateral security to get loan from banks
Investment up to INR 1,00,000/- per annum qualifies for IT Rebate under
section 80C of Income Tax Act.
Maturity period 5 years and 10 years
Rate of interest 8.60% for 5 years and 8.90% for 10 years.
Minimum INR. 100/- No maximum limit available in denominations of
INR. 100/-, 500/-, 1000/-, 5000/- & INR. 10,000/-
SENIOR CITIZEN SAVING SCHEME COMPANY DEPOSITS
The account may be opened in individual capacity or jointly with spouse. Companies solicit fixed deposits from public
The account may be opened by an individual:
Fixed deposits mobilized by manufacturing companies regulated by
Who has attained age of 60 years
Who has attained the age 55 years or more but less than 60 years and has retired under Company law board (deposit term is 1 to 3 years)
a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of
Fixed deposits mobilized by finance companies regulated by RBI (deposit
opening of the account within three months from the date of retirement.
No age limit for the retired personnel of Defence services provided they fulfill other specified term is 25 months to 5 years)
conditions.
Interest rates on company deposits are higher than bank fixed deposits
The individual may open one or more account in the multiple of INR1000/- subject to a maximum
INR1000/-
lakh.
limit of INR15 lakh. No tax benefit for depositors on company deposits
Premature closure of account is permitted - After one year but before 2 years on deduction of 1 ½ %
of the deposit. After 2 years but before date of maturity on deduction of 1% of the deposit. No TDS upto Rs. 5000 interest income in a financial year
Interest @ 9.30% per annum (compounded Quarterly, Payable 31st March, 30th June, 30th Sept and Risk is also high compared to Bank Deposits
31st December.)
The investment under this scheme qualify for the benefit of Section 80C of the Income Tax Act, 1961 HDFC Deposits, Mahindra Finance, TATA Motors, Muthoot Finance
from 1.4.2007
PUBLIC PROVIDENT FUND (PPF) EMPLOYEE PROVIDENT FUND
Employer and employee contributes certain minimum amount on monthly basis to
Ideal investment option for both salaried as well as self employed classes.
the provident fund account
Non-Resident Indians (NRIs) are not eligible
Employee can choose to contribute additional amounts
Investment up to INR. 1,00,000 p.a. qualifies for IT Rebate under Sec 80 C of IT Act.
Contribution by employer is fully tax exempt (from the view of employee), contribution
15 year investment scheme, can be extended by 5 years.
by employee is given 80C tax benefit.
Minimum amount Rs. 500/- per year, Maximum amount Rs. 1,00,000/- per year.
Contributions earn an compound interest rate of 8.5% which is totally exempt from
EEE status: No tax on interest and on withdrawal.
taxes. Interest is accumulated in the account and not paid to employee.
Present Interest rate is 8.80% p.a. The rate will now vary every Financial Year.
Employee can take loan against provident fund subject to conditions
Loan facility available from 3rd financial year upto 5th financial year.
Contribution: 12% of Basic + DA
Withdrawal permitted from 6th financial year Pension Fund : 8.33%
Free from court attachment. Provident Fund : 3.67%
Employee Deposit Linked Insurance : 0.5%
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13. 28-05-2012
EPF ALLOCATION PSU BONDS
Public sector undertaking issue debentures known as
PSU bonds
PSU bonds can be tax free or taxable
PSUs can set the interest rate on these bonds subject
to limit fixed by Ministry of Finance
Tax free bonds can be issued by prior approval of MoF
No deduction of TDS, transferable by endorsement, no
stamp duty on transfer, traded on stock exchanges
NABARD, NHAI, REC
TAX FREE BONDS NON-CONVERTIBLE DEBENTURES (NCDS)
Tax-free bond target for infrastructure projects at Rs 60,000 Similar to promissory notes, debentures are used to raise long term debt by
crore companies
Companies – NHAI, IRFC, IIFCL, HUDCO, SIDBI When debentures are offered to retail investors, a trustee is setup for protecting the
Interest income is tax free interest of debenture holders
Interest rate (adjust as per 10 year G-Sec) Company has obligation to pay interest and principal to debenture holders at
Tenure – 10 years and 15 years specified times
Very suitable for people in highest tax bracket Typically debentures are secured by a charge on immovable properties
Safe investment Companies are free to select the coupon rate and redemption period
Debentures can carry call or put features
Debentures may have a convertible clause
DO YOU HAVE ANY ANSWER ? REAL ESTATE
Very illiquid investment
Do you think these investments are safe? Requires very high amount of corpus. You need to be a super HNI to invest in real
estate properties.
The day you have parted with your money, you have Requires a much longer time horizon compared to Equity investment
taken risk Home work required in Real Estate is very high (Due diligence on builders / lengthy
documentation / Clear title etc ). At times, it takes a year to decide and close the
European countries defaulting ??? investment while Equity investment can be done in just a few mouse clicks
Corruption / Scams / Swiss Accounts Not comparable (i.e the return on one property cannot be compared to another
property) and also there is no authentic data available. On the other hand, Equity
Remember UTI-64 fiasco…. investment data is very much comparable and has a long term track record.
Bank Fixed Deposits Guarantee – Rs 1 lakh Transaction costs (Stamp Duty, Broker fees, Legal Charges etc) on Real Estate is very
high compared to Equity investment.
LIC Guarantee – Talks are going on to remove When it comes to Taxation, Equity investment scores quite favourably compared
sovereign guarantee to Real Estate investment)
Transparency missing / Unaccounted money
Politicians influence
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14. 28-05-2012
EQUITY VS REAL ESTATE
BSE Sensex Return from Jan 01, 1980 – Oct 03, 2011 – 16.72% annually
(with considering dividend reinvestment)
Flat in Samudra Mahal Worli was sold at Rs 700 per sq ft in the 70’s and
was last transacted at Rs 107,000 per sq ft – Rate of Return p.a – 12.79%
(without considering transaction costs and maintenance charges)
Sensex is up 136 times while the flat in Samudra Mahal is up 46 times
(more than 3 times)
I buy on the assumption that they could close the market the next
day and not reopen it for ten years – Warren Buffet
ROLLING RETURN OF SENSEX
Date
Dec-79
Dec-80
Sensex
118.76
148.25
1 Year
24.83
2 Years 3 Years 5 Years 10 Years 15 Years
SENSEX RETURNS - 17.06% P.A
Dec-81 227.72 53.61 38.47
Dec-82 235.83 3.56 26.13 40.92
Dec-83 252.92 7.25 5.39 30.62
Dec-84 271.87 7.49 7.37 9.26 18.02
Dec-85 527.36 93.98 44.40 49.54 28.89
Dec-86 524.45 -0.55 38.89 44.00 18.16
Dec-87 442.17 -15.69 -8.43 27.53 13.40
Dec-88 666.26 50.68 12.71 12.40 21.38
Dec-89 778.64 16.87 32.70 21.85 23.42 20.69
Dec-90 1048.29 34.63 25.44 53.97 14.73 21.60
Dec-91 1908.85 82.09 56.57 69.26 29.48 23.69
Dec-92 2615.37 37.01 57.95 83.27 42.69 27.20
Dec-93 3346.06 27.94 32.40 78.66 38.10 29.47
Dec-94 3926.9 17.36 22.53 43.43 38.21 30.61 26.27
Dec-95 3110.49 -20.79 -3.58 9.06 24.30 19.42 22.50
Dec-96 3085.2 -0.81 -11.36 -3.98 10.08 19.39 18.98
Dec-97 3658.98 18.60 8.46 -3.47 6.95 23.53 20.06
Dec-98 3055.41 -16.50 -0.48 -0.89 -1.80 16.45 18.07
Dec-99 5005.82 63.83 16.97 27.38 4.97 20.45 21.43
Dec-00 3972.12 -20.65 14.02 4.19 5.01 14.25 14.41
Dec-01 3262.33 -17.87 -19.27 3.33 1.12 5.51 12.96
Dec-02 3377.28 3.52 -7.79 -17.86 -1.59 2.59 14.52
Dec-03 5838.96 72.89 33.78 21.24 13.83 5.73 15.57
Dec-04 6602.69 13.08 39.82 42.26 5.69 5.33 15.32
Dec-05 9397.93 42.33 26.87 66.81 18.80 11.69 15.75
Dec-06 13786.91 46.70 44.50 53.66 33.41 16.15 14.09
Dec-07 20286.99 47.15 46.92 75.29 43.13 18.68 14.63
Dec-08 9647.31 -52.45 -16.35 1.32 10.56 12.18 7.31
Dec-09 17464.81 81.03 -7.22 12.55 21.48 13.31 10.46
Dec-10 20509.09 17.43 45.80 0.36 16.89 17.84 13.40
Yearly Rolling Returns 31 30 29 27 22 17
Positive Returns 23 22 25 25 22 17
Negative Returns 8 8 4 2 0 0
SMALL VS MID VS LARGE AXIS BANK - 47.45% P.A
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SBI BANK - 27.06% P.A BHARTI AIRTEL - 37.07% P.A
" A SBI Fixed Deposit doubles your money in 10 years. Had you invested
the same money in SBI stock, it would have given you 1800% returns"
BHEL - 21.61% P.A ONGC - 13.83% P.A
INFOSYS - 57.36% P.A
MUTUAL FUND AS AN INVESTMENT VEHICLE
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INDEX MUTUAL FUND OPERATION FLOW CHART
1. Mutual Fund Concept
2. Organization of a Mutual Fund
3. Advantages / Disadvantages of Mutual Funds
4. Types of Mutual Fund Schemes
5. Mutual Fund Investment Strategies
6. Mutual Funds Vs. Direct Equity Investments
7. Worldwide MF Industry
8. Mutual Funds - Performance
9. Mutual Fund Investment Blunders
10. Mutual Funds Taxation
CONCEPT MUTUAL FUNDS = PACKAGED ATTA
A Mutual Fund is a trust that pools the savings of a number of investors who
goal.
share a common financial goal.
The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities.
securities.
The income earned through these investments and the capital appreciation or
realized are shared by its unit holders in proportion to the number of units
them.
owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as
it offers an opportunity to invest in a diversified, professionally managed
cost.
basket of securities at a relatively low cost.
FUND STRUCTURE SBI MUTUAL FUND
Fund Sponsor
Mutual Fund Trust SBI Mutual Fund
Sponsor State Bank of India
Trustees Trustee SBI Mutual Fund Trustee Company
Private Limited
AMC SBI Funds Management Private Limited
Custodian HDFC Bank Limited, Mumbai
Asset Management Company Citibank N.A., Mumbai
Stock Holding Corporation of India Ltd., Mumbai
Bank of Nova Scotia (custodian for Gold)
RTA Computer Age Management Services Pvt. Ltd
R&T
Agent
Custodian
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ADVANTAGES OF MUTUAL FUNDS
Professional Management
Diversification
Potential Higher Return Vs other Avenues
Low Costs
Liquidity
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated
DISADVANTAGES OF MUTUAL FUNDS REALITY CHECK….
Management fees
In a country with a population of close to 120 crores, we at best
Exit Costs have about 1 crore investors – less than 1% ! (even that is
Potential poor performance suspect)
Complicated tax reporting issues
4-5 crore mutual funds investors a myth; these are folios that
Potential market risk with all investments belong to about 60-70 lakh active unique investors
Aggressive or unethical sales personnel / practices -
90% of the reason why investors stay away from Mutual Households’ investments in capital market have fallen from a
Funds high 23.3% of gross financial savings in 1991-92 to a meagre
2.6% in 2008-09!
HOUSEHOLD SAVINGS - WHERE’S THE MONEY PARKED? DECLINING INVESTMENTS IN CAPITAL MARKET
INVESTMENTS / SAVINGS OF THE HOUSEHOLD SECTOR (GROSS) IN CAPITAL MARKET
(Per cent)
# Preliminary P Provisional
Source: SEBI HANDBOOK OF STATISTICS ON THE INDIAN SECURITIES MARKET 2009
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18. 28-05-2012
THANKS TO MR C B BHAVE MUTUAL FUNDS AUM
Mr U K Sinha, SEBI Chairman
AMC WISE AUM
TYPES OF SCHEMES
By Structure
Open Ended Schemes
Close Ended Schemes
By Investment Objectives
Growth Schemes
Income Schemes
Balanced Schemes
Money Market Schemes
Other Schemes
Tax Saving Schemes
Special Schemes
Index Schemes
Sector Specific Schemes
ETFs (including gold ETFs)
Fund of Funds
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RISK-RETURN TRADEOFF
EQUITY
Siamese Twins
Scoreboard – Hybrid & Debt schemes
MF ASSETS BREAK UP
MF ASSETS BREAK UP MF RETAIL ASSETS BREAK UP
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HOW DO MUTUAL FUNDS HELP YOU ?
LIQUID FUNDS VS SAVINGS DEPOSITS
Savings / Current Account Liquid / Ultra Short Term Funds
SAVINGS ACCOUNT Returns on investments range between 0 - Returns on investments range between 8 -
SHORT TERM DEBT FUNDS
6% 9% currently
Interest Taxable If you opt for a dividend option the dividend
is tax free in the hands of the investor
1 day – 1 yr 1 day – 1 yr
Returns are fixed Returns are very much predictable
Mutual
Banks FIXED DEPOSITS
CURRENT ACCOUNT
LIQUID FUNDS FMPS Same day withdrawal 1 day notice
Funds
Current A/c Saving A/c Liquid Fund
Amount - Rs 1,00,000 Rs 1,00,000 Rs 1,00,000
Interest - 0% 4% Return - 8.5%
Time - 1 month 1 month 1 month
RECURRING DEPOSITS
SIPS
Pre-tax – Rs 0 Pre-tax – Rs 333 Pre-tax – Rs 708
Post-tax – Rs 0 Post-tax – Rs 333 Post-tax – Rs 616
Difference – Rs 616 Difference – Rs 283
LIQUID FUNDS VS SAVINGS DEPOSITS SEBI COMMENT ON LIQUID FUNDS
“It amazes me the least risk product in the
country, which is liquid funds, is not sold to
retail investors”
Vaidyanathan,
K N Vaidyanathan, Former ED, SEBI
Current A/c Saving A/c Liquid Fund
Amount - Rs 1,00,000 Rs 1,00,000 Rs 1,00,000
Interest - 0% 4% Return - 8.5%
Time - 1 month 1 month 1 month
Pre-tax – Rs 0 Pre-tax – Rs 333 Pre-tax – Rs 708
Post-tax – Rs 0 Post-tax – Rs 333 Post-tax – Rs 616
Difference – Rs 616 Difference – Rs 283
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21. 28-05-2012
Tax-free Return of 7.3% Transact on the Go……
FMPS VS FIXED DEPOSITS FMPS GAINING GROUND
FMP – TAX @ FMP – TAX @ TAX on FD’s__________________
20 % With 10 % Without @ 30.9% @ 20.6% @ 10.3%
Indexation Indexation
Investment 1,00,000 1,00,000 1,00,000 1,00,000 1,00,000
Amount
Return 9.60% 9.60% 9.60% 9.60% 9.60%
Maturity Value 1,09,600 1,09,600 1,09,600 1,09,600 1,09,600
Gain 9,600 9,600 9,600 9,600 9,600
Inflation Rate 8% NA NA NA NA
of indexation
Cost after 1,08,000 NA NA NA NA
inflation
Capital Gain 1,600 9,600 NA NA NA
Tax Rate 20.60% 10.30% 30.9% 20.6% 10.3%
Tax 329.6 988.8 2966.4 1977.6 988.8
Post Tax Gains 9,270 8,611 6,634 7,622 8,611
Post Tax 9.27% 8.61% 6.63% 7.62% 8.61%
Returns
MUTUAL FUND INVESTMENT STRATEGIES DIRECT EQUITY VS MUTUAL FUNDS
Choose in funds consistent with your objectives, constraints, and
Diversification
tax situation
Invest. Don’t speculate. (Stock market is not a casino) Professional Management
Be regular Transaction costs
Own funds in different asset classes Convenience / No demat account required
Do your homework or hire wise experts to help you.
Blue Chip portfolio for as low as Rs. 500
Monitor your investments at a regular interval. Remember, no investment
High Service Standards
is forever.
Transparency
Don’t panic.
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22. 28-05-2012
WORLDWIDE MUTUAL FUND ASSETS US LEADS THE WORLD MUTUAL FUND MARKET
Worldwide MF Assets in Rs 1,097,00,000 crs (31st Dec’10)
India MF Assets in Rs. 7,00,538 crs (31st Mar’11)
0.63% of the worldwide MF assets
1 USD = Rs 44.40 as at Mar 31, 2011 (trillions of U.S. dollars, end of Dec 2010) Source: Investment Company Institute
WORLDWIDE MF ASSETS BY TYPE OF FUND
Data as of Dec 2010 Source: Investment Company Institute
FACTORS TO CONSIDER FOR CHOOSING A FUND PERFORMANCE OF DIVERSIFIED EQUITY FUNDS
Track record / experience of the fund house
Stability of the investment team / adherence to an investment process
Consistent performance of the fund across market cycles
Disclosure and service levels offered by the fund house
Relative performance among its peer group (across time periods)
Investment style (whether it suits your risk profile)
Look for Expense Ratio, Exit load etc
Sensex 9.77 32 7.51 22 11.47 16
Performance as at March 31, 2011
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23. 28-05-2012
PERFORMANCE OF TAX-SAVING EQUITY FUNDS PERFORMANCE OF BALANCED FUNDS
Sensex 9.77 16 7.51 14 11.47 8
Performance as at March 31, 2011
Performance as at March 31, 2011
INVESTMENT MODES PATH TO BUILDING YOUR PORTFOLIO
Systematic Investment Plan (SIP)
Invest a fixed sum every month. (6 months to 10 years-
through post-dated cheques or Direct Debit facilities)
Fewer units when the share prices are high, and more units
when the share prices are low. Average cost price tends to fall
below the average NAV.
Systematic Transfer Plan (STP)
Invest in debt oriented fund and give instructions to transfer a
fixed sum, at a fixed interval, to an equity scheme of the same
mutual fund.
Systematic Withdrawal Plan (SWP)
SYSTEMATIC INVESTMENT PLANNING (SIP) DIFFERENCE IN APPROACH
Earn (Rs 1 lakh) Earn (Rs 1 lakh)
Spend (???) Save (Rs 20,000)
Save (???) Spend (Rs 80,000)
A long journey begins with a small step
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24. 28-05-2012
POWER OF AN SIP
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25. 28-05-2012
SIP CALCULATIONS
Rs 18 lakhs
My
investment in retirement
portfolio at
SENSEX the end of my
50th Birthday
growing to
Rs 3.46 crores Atleast
in 30 years 15 crores
Monthly
pension
Rs 12 lakhs
SIP CALCULATIONS
Monthly Amount Rs 50,000 Rs 1,00,000 My
Period 10 years 10 years retirement
Total Investment Rs 60,00,000 Rs 1,20,00,000 portfolio at
Return @15% Rs 1,37,60,852 Rs 2,75,21,705 the end of my
Return @20% Rs 1,88,04,764 Rs 3,76,09,529 55th Birthday
Period 25 years 25 years
Total Investment Rs 1,50,00,000 Rs 3,00,00,000 Atleast
Return @15% Rs 16,21,76,480 Rs 32,43,52,961 85 crores
Return @20% Rs 42,42,64,335 Rs 84,85,28,670
You earn regularly,
You spend regularly,
Why not invest regularly?
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26. 28-05-2012
Focus on Goals not Market…..
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27. 28-05-2012
GOAL - ADITI’S EDUCATION GOAL - ADITI’S MARRIAGE
Current investment – Rs 10,000 p.m
Current investment – Rs 10,000 p.m
Tenure – 30 years
Tenure – 25 years
Expected Rate of return – 18%
Expected Rate of return – 18%
Aditi’s estimated wealth on her 30th Bday – Rs 14,32,52,892
Aditi’s estimated wealth on her 25th Bday – Rs 5,82,33,121
SIP VS STP TWO GREATEST INVESTMENT BLUNDERS
1. Investing in the NFOs
2. Investing in the schemes which
gives high dividends
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28. 28-05-2012
INVESTING IN NFOS NFO MANIA – NOW HISTORY….
Its new (Old wine in a new bottle, participate in India’s
growth potential)
Its at Rs 10 i.e its cheaper than a existing fund whose
NAV is Rs.110
My friend / relative is buying it
My distributor / agent has strongly recommended it.
I can make good profit in the short term
RS.10 OR RS.100 - NAV MAKES NO DIFFERENCE DOES NAV MATTER?
DON'T FALL FOR THE DIVIDEND BAIT MF EXPENSES
The NAV falls to the extent of dividend payout
Initial Issue Expenses :
One time expense
Expense incurred on advertisement campaigns for Born by the AMC
spreading the word goes from your fund
Earlier 6% charged to the scheme
If the basis of investing in a scheme is flawed, so is
the investment Recurring Expenses :
These can be charged to the scheme.
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29. 28-05-2012
FEES AMCS PROFIT AFTER TAX
SEBI has stipulated the following annual limits on recurring
expenses (including management fees) for schemes other than
index schemes:
Avg weekly New asset Max Expenses for Max Expenses for
Crore)
(Rs Crore) Equity Scheme Debt Scheme
First 100 2.5% 2.25%
Next 300 2.25% 2%
Next 300 2% 1.75%
Above 700 1.75% 1.5%
The management fees cannot exceed :
1.25% on the first Rs 100 crore of net assets of a scheme
1.00% on the balance net assets
FEES BREAK-UP MF TAXATION
Fees of various service providers, such as Trustees, AMC, Registrar &
Transfer Agents, Custodian, & Auditor fees
Selling expenses including scheme advertising and commission to the Short Term Capital
Long Term Capital
distributors Gain Tax
Gain Tax
Mutual Funds (holding period
Expenses on investor communication, account statements, dividend / (holding period >
< 12 months)
redemption cheques / warrants 12months)
Listing fees and Depository fees
Service tax Equity 15%* Nil
As per your tax slab 10% / 20%*
Expenses cannot be charged to the scheme Debt
Penalties and fines for infraction of laws.
Interest on delayed payment to the unit holders.
Legal, marketing, publication and other general expenses not attributable to
any scheme(s). *Additional education cess of 3% on the amount of tax
Expenses on general administration, corporate advertising and $ Additional surcharge of 5% and an education cess of 3% on the amount of tax
%
infrastructure costs.
WARNING SIGNALS BUYING MUTUAL FUNDS
Contacting the Asset Management Company directly
Web Site
Fund's management changes Branch Offices
Performance slips compared to similar funds. Mutual Fund Agents / IFAs
Locate one on AMFI site
Fund's expense ratios climb
Financial Planners
Independent rating services reduce their ratings of the ASK Wealth
Sykes & Ray FP, IMM, Parag Parikh FAS
fund.
National Distributors
Change in management style or a change in the Birla Sunlife, Bajaj Capital, India Infoline
objective of the fund / Scheme Mergers. Banks
Net-Banking
Branch Banking / Relationship Managers
ATMs
Online Platform
Fund Supermart, ICICI Direct, Motilal Oswal, Indiabulls
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30. 28-05-2012
KEEPING TRACK…
Filling up an application form and writing out a
cheque = end of the story… NO!
Mutual Fund investments are subject to market risks.
Periodically evaluate performance of your funds Please read the SID and SAI carefully
Fact sheets and Newsletters and consult your
Websites financial advisor before investing.
Newspapers
Professional advisor
SOURCE
Sundaram BNP Paribas Mutual Fund
Religare Mutual Fund
UTI Mutual Fund
ICICI Prudential Mutual fund
www.valueresearchonline.com
www.outlookmoney.com
Fidelity Mutual Fund
The Finance Literates blog
Bloomberg
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