Mutual Funds

Mutual Funds Module

Padmavati Wealth Advisors

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Executive Summary


Concept – Mutual Fund What is Mutual Fund ? Types of Mutual Fund Benefits Drawbacks What is NAV ?

Equity As an Asset Class Why to stay invested for a Long-Term ?

Systematic Investment Plan (SIP) Power of Compounding Rupee cost Averaging

Tax Aspects Past Performance

3

What is Mutual Fund?


Investor

InvestmentAdvisor

Fund ManagerInvestment

Returns/Income

4

Types of Mutual Funds


Mutual Funds

By Structure

Open Ended

Close Ended

By Investment Objective

Equity

Balance

Income

Debt

Other Schemes

ELSS

Index Funds

Sector/Theme Specific

ETFs

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Why Mutual Funds ?


Diversification

No Entry Load

Tax Benefit

Professional Management

Affordability

Transparency

Regulations

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De-merits : Mutual Funds


Exit load No control over costs No tailor-made portfolio No assured Returns Management Risk

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Net Assets Value (NAV)


The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities

Market Value of All Securities Held by Fund + Cash

and Equivalent Holdings - Fund Liabilities & Outstanding Exp

Total Fund Units Outstanding

A fund's NAV will change daily as the value of a fund's securities, cash held, liabilities, and the number of shares outstanding fluctuate.

NAV =

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Risk Return Profile


Money Market Funds

Debt Funds

Income Funds

Balanced Funds

Equity Funds

Risk

Return

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Long Term really matters!!


0

5000

10000

15000

20000

25000

Ap

r-7

9

De

c-8

0

No

v-8

2

Au

g-8

4

Ma

y-8

6

Jan

-88

Se

p-8

9

Jun

-91

Ma

r-9

3

Se

p-9

4

Ma

r-9

6

Se

p-9

7

Fe

b-9

9

Jul-

00

De

c-0

1

Ma

y-0

3

Se

p-0

4

Fe

b-0

6

Jul-

07

First Major Bull Market

22% one-day decline in US, no linkage then

Harshad Mehta Scam

Asian Crisis; Unaffected

Tech bull market & bust

Start of five-year bull market

All time high & correction begins

BS

E S

en

siti

ve In

dex

Deep corrections do not matter for long-term investors

Figures as of July 2008; Data Source: Bloomberg; Analysis: In house

Annual returns 17.6% for equity index

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Volatility of returns reduces over time


3 years 5 years 10 years 15 years 20 years-30

-15

0

15

30

45

60

75

90

High 81.7 53.0 34.7 27.8 21.1

Low -15.5 -7.0 -2.1 7.7 13.7

Average

19.9 18.5 17.2 17.2 16.9

Height of each bar shows the range of returns. Smaller the range shown by the bar, the better for investors

Longer the time frame, the greater is the reduction in risk without an impact on returns

Effective Annual Returns %

Source: Bloomberg; Analysis: as of July 31, 2008

Retu

rns

%

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Systematic Investment Plan (SIP)

SIP is an investment program that allows you to contribute a fixed amount (as low as Rs.1000) in mutual funds at regular intervals.

SIP allows you to combine - Convenience Rupee Cost Averaging Flexibility Power of Compounding Investment experts the world over advocate Systematic Investment Plan (SIP) Instills the much needed investment discipline

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Power of Compounding!!!


Albert Einstein called “The most powerful force in the universe is compound interest“ because of its amazing abilities. Essentially, compounding is the idea that you can make money on the money you’ve already earned.

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Power of Compounding (An Example)


25 30 35 40 45 50 55 60

25 year old Preeti invests Rs.10000 annually for 10 years and stops. She does not withdraw any money.

Rohit begins investingat 35 a similar amountof Rs.10000 annually. He invests for the next25 years and he too does not withdraw any money.

24.6 lacs

76.9 lacs

P.S : 1) Assumed Rate of Return: 13% CAGR 2) Its doesn’t give any guarantee of future returns

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Rupee Cost Averaging


Technique of buying a fixed rupee amount of a particular investment at regular intervals, regardless of the NAV

Month Amount NAV Units

1 1,000 10.00 100.00

2 1,000 9.40 106.38

3 1,000 10.60 94.34

Total 3,000 9.98 300.72

Average Cost of

Purchase

Start early to reap maximum benefits


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25 years 30 years 35 years 40 years 45 years 50 years

155.4

71.6

32.5

14.35.8 1.8

Rs 1000 a-month investment till age 55 Portfolio value reckoned at age 60Asset Allocation: Equity 70% and Fixed Income 30%Returns based on historical average. In the equity, based on the Sensex and in the Fixed income, based on the government bond yieldReturns assumed 15.3%

From age 25, Rs 1000-a-month could deliver Rs 1.55 crore at age 60

Value in Rs lacs

Starting age of investing

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Tax Treatment : Equity Funds


Long Term Capital Gain(More than 1 Yr)

• Tax Free

Short Term Capital Gain(Less than 1 Yr)

• 15%Flat+10%SC+3%Edu.Cess• i.e. 16.995%

Dividends

• Tax Free

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Past Performance of Equity Schemes


Name of the Fund 3yrs CAGR

5yrs CAGR

IDFC Premier Equity Plan A (Diversified Equity Fund) 26.65%

22.70%

(4yrs)

Reliance Regular Savings Equity (Diversified Equity Fund)

21.06%

22.95%

(4yrs)

DSP Black Rock Equity (Diversified Equity Fund) 18.97%

33.91%

Reliance Diversified Power Sector Fund (Sectoral Fund)

36.30%

46.21%

Sundaram BNP Paribus Tax Saver (ELSS) 19.09%

33.04%

Source: Value Research, as on Dt 9th sept 2009

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Back Testing Results

Padmavati Wealth AdvisorsFigures as of July 2008; Data Source: Bloomberg;

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Rich Dad V/S Poor Dad


Income Expense

Salary/ProfitsInterest EarnedDividendsIncome from invst.Rent IncomeConsultancy Fees

House Hold Exp.

Income Statement

Liabilities

Assets

HouseReal EstateEquity SharesFixed DepositsGovt. Bonds

Balance Sheet

Income Expense

SalaryHouse Rent/EMIsCar EMIsInterest on LoanHouse Hold Exp.

Income Statement

Balance Sheet

Liabilities

Assets

Home LoanCar LoanPersonal LoanLoans From Relatives/Friends

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How Qualified Advisor can Make a Difference?


Worst performing

Funds

Best Performing

Funds

Source: Value Research 3 Yrs CAGR Returns

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Mutual fund investments are subject to market risks. Please read the offer document carefully before taking an investment decision.

Risk Factors: All mutual funds and securities investments are subject to market risks, and there can be no assurance or guarantee that fund's objectives will be achieved. NAV may go up or down, depending on the factors and forces affecting the securities market. There is uncertainty of dividend distribution and risk of capital loss

Disclaimer

Happy Investing!!

Padmavati Wealth AdvisorsKunal Doshi+91 98334 67999 | O. 91-22-28081677 [email protected]

Mutual Funds

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