Mutual funds investing doubts all explained

Mutual Fund Investments are subject to market risks, read all schemerelated documents carefully.

Myth #1“I am still young.

I don’t need to startsaving so soon.”

UTI MYTH BUSTERS

UTI MYTH BUSTERS

REGISTERED OFFICE: UTI Tower, ‘Gn’ Block, Bandra-Kurla Complex, Bandra (E), Mumbai -

400 051. Phone: 022 – 66786666. For more information please contact the nearest UTI

Financial Centre or your AMFI/NISM certified UTI Mutual Fund, Independent Financial Advisor

(IFA) for a copy of the Key Information Memorandum cum Application Form, Statement of

Additional Information and Scheme Information Document. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

The information on this document is provided for information purposes only it does not

constitute any offer, recommendation or solicitation to any person, to enter into any

transaction or adopt any hedging, trading or investment strategy, nor does it constitute

any prediction of likely future movements in rates or prices or any representation that any

such future movements will not exceed those shown in any illustration. Users of this

document should seek advice regarding the appropriateness of investing in any securities,

financial instruments or investment strategies referred to on this document and should

understand, that statements regarding future prospects may not be realised. Opinions,

projections and estimates are subject to change without notice.

UTI AMC Ltd., is not an investment adviser, and is not purporting to provide you with

investment, legal or tax advice. UTI AMC Ltd., accepts no liability and will not be liable for

any loss or damage arising directly or indirectly (including special, incidental or

consequential loss or damage) from your use of this document, howsoever arising, and

including any loss, damage or expense arising from, but not limited to, any defect, error,

imperfection, fault, mistake or inaccuracy with this document, its contents or associated

services, or due to any unavailability of the document or any part thereof or any contents

or associated services.

Copyright: UTI Asset Management Company Ltd., Copyright in all materials, text, articles

and information contained herein is the property of, and may only be reproduced with

permission of an authorised signatory of, UTI Asset Management Company Ltd.

Copyright in materials created by third parties and the rights under copyright of such

parties are hereby acknowledged. Copyright in all other materials, not belonging to third

parties and copyright in these materials as a compilation vests and shall remain at all times

copyright of UTI Asset Management Company Ltd., and should not be reproduced or used

except for business purposes on behalf of UTI Asset Management Company Ltd., or save

with the express prior written consent of an authorised signatory of UTI Asset Management

Company Ltd. All rights reserved. © UTI Asset Management Company Ltd.

Contact your Wealth Advisor ANANDARAMAN, ARN-30155 MOB.: +919843146519 Email: [email protected]

An individual raising this objection may typically be a well-earning young professional. He/she is career oriented and aggressive but has 'lifestyle goals' and not 'investing' goals.Try to impress upon him/her, the size of impact caused by not investing from an early age.Try to show that he can start investing even with smaller amounts, that will not alter his lifestyle. Try to make the individual fall into a habit of investing.Keywords: habit of investing, impact of delay, power of compounding, lifestyle, wealth creation.

BOTTOM LINE: Don't delay!Start investing in your future today!

CLIENT CONCERN

TALKING POINTS

ILLUSTRATING YOUR MESSAGE

Delay means substantial opportunity loss.

In the example, Young started investing at the age of 26 years. He invested ` 12,000 every year till the age of 50 years (grand total invested: ` 3,00,000). Old did not form a habit of investing till he was 36 years of age. He invested ` 12,000 per year till the age of 60 years (grand total invested: ` 3,00,000).When both turned 60, Young's investment had grown to ` 33,67,148 and Old's investment had grown to `12,98,181 - Young now had nearly double of what Old had! nearly `10,00,000 more! Depending upon your clients financial status, amount of investment can be increase, to amplify the impact on the clients mind i.e. if the investment was ` 1,20,000 pa, Young would have earned ` 1 crore more.Your client can create this habit of investing such amounts, without even having to alter his/her lifestyle i.e. dining out, movies, travel, clothing, etc.

“Time and tide wait for no man.” - Geoffrey Chaucer (1343-1400), British Poet.

“I am still young. I don’t need to start saving so soon.”

How did Mr. Young earn nearly double than Mr. Old by investing the same amount? Simple: by starting early. Take a look at the following:

Note: Mr. Young invested `12000 pa since the age of 26 years for 25 the next years Mr. Old invested `12000 pa from the age of 36 years for the next 25 years You can assume a return of 10% pa

Difference between returns earned by Mr. Young and Mr. Old.

Opportunity cost of delay in investing is bigger than most of us can imagine.

0

Mr. Young Mr. Old

4,000,000

Value at age 60 years

3,000,000

2,000,000

(` in

Lac

s)

1,000,000

Invested Amount

` 1

2,9

8,1

81

` 3

3,6

7,1

48

` 3,00,000 ` 3,00,000

4,000,000

3,000,000

2,000,000

(` in

Lac

s)

1,000,000

Age

026 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60

Mr. Young Mr. Old

Young’s kittybag at theage of 60 -

` 33,67,148

Old’s kittybag at theage of 60 -

` 12,98,181


UTI MYTH BUSTERS



Financial Centre or your AMFI/NISM certified UTI Mutual Fund, Independent financial Advisor



The information on this document is provided for information purposes only, it does not



any prediction of likely future movements in rates or prices or any representation that any

























UTI MYTH BUSTERS

Myth #2In the long run we are all dead.

“I want short-term returns.”


TALKING POINTS


As client is setting short-term investment goals for himself, explain using the graphs that shorter-term returns are more unpredictable in comparison to longer time frame. Due to this, the chances that client may NOT be able to meet his/her increase in investment goals.On the other hand, the longer the time frame of investment, the lesser the chance of ever facing negative return. Longer term increases probability or predictability of achieving appropriate investment goals.Keywords: Predictability, probability, investment goals, negative returns, volatility.

One-year return is highly unpredictable & on several occasions, the return can be negative.As we move forward with the time frame, the occurrences of negative returns reduce i.e. negative returns of 5-year investment is less than 1-year and 3-year.Occurrences of negative returns for 10-year and 15-year horizon are reduced even further.

CLIENT CONCERN

“One can always trust time. Insert a wedge of time and nearly everything straightens itself out.” Author: Norman Douglas 1868-1952, British Author.

Probability of achieving short-term investment goals faces higher unpredictability.

BOTTOM LINE: Investing long-term willimprove predictability of achieving

investment goals. Long-term returnsrarely are negative.

The best time to sell is only when youhave achieved your financial goals.

Longer horizon moderates the risk of volatility.Investment goals tied to the short-term, face great unpredictability. The longer your investment horizon, the smoother is the trend of returns, meaning that your probability of achieving an appropriate goal increases.

Note: One-year return is absolute while others are CAGR Returns, shown in percentage.

Increasing time horizon, reduces instances of negative returns.

Source: Verity Analytics

-80

-40

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80

120

Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11

1 Year Rolling Returns

Returns very unpredictable, negative on several occasions

-20

0

20

40

60


5 Years Rolling Returns

Lesser instances of negative returns as compared with 3-year

-40

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0

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40

60

80


Lesser instances of negative returns as compared with 1-year

3 Years Rolling Returns

0

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Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11


No instance of negative returns

-10

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20

30

Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11


Hardly any negative instances

“In the long run we are all dead. I want short-term returns”


UTI MYTH BUSTERS


UTI MYTH BUSTERS

Myth #3“I can't give my

hard-earned moneyto Fund Managers...

I can managemy own portfolio.”



Financial Centre or your AMFI/NISM certified UTI Mutual Fund, Independent Financial Advisor



The information on this document is provided for information purposes only. It does not



any prediction, of likely future movements in rates or prices or any representation that any

























CLIENT CONCERNDirect investment in equities too risky...Mutual Funds allow you to benefit from diversification and reduce risk of individual stocks, by spreading the investments among various companies belonging to different industries.

BOTTOM LINE: A few individual scripts may give you higher returns but taming volatility is not possible.

Matching the diversification and expertise of Mutual Funds is difficult.

Professional Management.The client is probably excited with the equity market returns and therefore, feels that investing directly is better.Use the graph to illustrate the risk involved in investing in individual stocks. Emphasize on the lesser risk involved in diversification by pointing out the relative volatility. Also, stress on the importance of professional investment management by experienced Fund Managers.Mutual Funds investors benefit from diversification without investing large sums of money that would be required to create an individual portfolio.Mutual Funds offer diversification across sectors and across market cap.

Talking Points


“Our knowledge is the amassed thought and experience of innumerable minds.” Ralph Waldo Emerson 1803-1882, American Poet, Essayist.

“I can't give my hard-earned money to Fund Managers... I can manage my own portfolio.”

The primary advantage of investing in Mutual Funds is the professional management of your money. By investing in Mutual Fund instead of owning individual stocks or bonds, your risk is spread out.By investing in a large basket of companies through Mutual Funds, loss in any particular company is offset by gains in others.Because a Mutual Fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.

Diversifying through Mutual Funds may be the most fundamentally effective strategy for staying afloat during market downturns.

Compounded annualized returns from 28 September 2001 to 30 2011 of 10 largest open-ended diversified Equity Funds in existence for over 10 years. Past performance of the Sponsors / Mutual Fund / Scheme(s) / Asset Management Company is not necessarily indicative, of future results and may not necessarily provide a basis for comparison with other investments. September.Source: Verity Analytics

Equity Mutual Funds benefit from diversification

L&TBHELReliance IndSBIM & MSAIL

InfosysHULSensexEquity FundsUnitech

19.30%

30.91%

42.42%39.24%

22.94%

28.47%

50.56%

38.01%

24.45%

5.05%-2.28%

-10%

0%

10%

20%

30%

40%

50%

60%

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50

In a Mutual Fund scheme, a downturn of a company / sector gets offset by the better performance of other companies / sectors.

Gro

wth

(%

)

Relative Volatility


UTI MYTH BUSTERS Mutual Fund Investments are subject to market risks, read all scheme

related documents carefully.

UTI MYTH BUSTERS

Myth #4Mutual Fund does notprotect from inflation.

REGISTERED OFFICE: UTI Tower, ‘Gn’ Block, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. Phone: 022 – 66786666. For more information please contact the nearest UTI Financial Centre or your AMFI/NISM certified UTI Mutual Fund, Independent Financial Advisor (IFA) for a copy of the Key Information Memorandum cum Application Form, Statement of Additional Information and Scheme Information Document. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

The information on this document is provided for information purposes only. It does not constitute any o�er, recommendation or solicitation to any person, to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction, of likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on this document and should understand, that statements regarding future prospects may not be realised. Opinions, projections and estimates are subject to change without notice.

UTI AMC Ltd ., is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd ., accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.

Copyright: UTI Asset Management Company Ltd ., Copyright in all materials, text, articles and information contained herein is the property of, and may only be reproduced with permission of an authorised signatory of, UTI Asset Management Company Ltd.

Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials, not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of UTI Asset Management Company Ltd and should not be reproduced or used except for business purposes on behalf of UTI Asset Management Company Ltd ., or save with the express prior written consent of an authorised signatory of UTI Asset Management Company Ltd. All rights reserved. © UTI Asset Management Company Ltd.


Equity schemes beat inflation in the long run.Equity Fund investments bring sizeable returns over the long-term, being driven by macro-economic factors. Equity scheme returns outshine fixed income investments like Fixed deposits, Post Office Schemes, etc. and also stay ahead of inflation rate in the long run.

CLIENT CONCERN

BOTTOM LINE: The potential of Equity Fund investments in a fast growing economy can far outpace

the inflation rate.

Ask client what his expectations about inflation are for the future. Also ask about his expectations from the equity market. Help him by informing him about the recent growth rates of Indian economy and rough estimates for the coming years.Use the above figures to arrive at real rate of return. Also calculate real rate of return of schemes with fixed rate of return like Fixed Deposits, NSC, PPF, etc.Do consider the tax bracket of the client, while explaining the above as interest income from FD, NSC and PPF may be taxed.Keywords: Potential of equity market returns, economic growth.

Talking Points


“Beating inflation is like swimming against the current, if you are not fast enough you may be going backwards.”

The trick to beating inflation is simple: the growth rate of your income must be higher or at least keep pace with inflation rate.Inflation is variable and therefore, fixed return investments may not be helpful to beat inflation during high inflation period. The taxation factor also cuts down return.Long-term Equity Fund investments can however, maintain a rate higher than inflation.Typically, in a growing or developing economy like India, rate of inflation will be on the higher side but Equity Fund growth rate would be stronger, because of strong economic growth rate.

Equity Mutual Fund investment are better off than most others tobeat inflation.

Equity Funds Composite - NAV Growth

Source: The Association of Mutual Funds in India, Verity Analytics

Note: Largest Open Ended Diversified Equity Funds in existence for over 10 years are considered forEquity Funds composite

Equity Funds CAGR (10 yrs) 30.91%Average rate of inflation 5%

0

4000

8000

12000

16000

20000

Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11

Mutual Fund does not protect from inflation.




UTI MYTH BUSTERS

Myth #5Equity funds give

great returns.“Why shouldn't I put

all my moneyin equity schemes?”





Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials, not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of UTI Asset Management Company Ltd ., and should not be reproduced or used except for business purposes on behalf of UTI Asset Management Company Ltd ., or save with the express prior written consent of an authorised signatory of UTI Asset Management Company Ltd. All rights reserved. © UTI Asset Management Company Ltd.


Always weigh investment decisions against risk.Equity Funds will offer higher returns but along with higher risk. It can cause greater pain in times of downturn. Merely, diversifying within an asset class may not help; to smoothen out risk, utilise different classes like debt, equity and bonds.

CLIENT CONCERN

BOTTOM LINE: Merely being exposed to high-risk equity funds may hurt

your trading ideas. A partial exposure to debt smoothens out the

risk & volatility.

Use the graphs to show to warn the client about short-term risks, involved in having entire money parked in Equity Funds. If for some reason, he has to sell during a time of selling pressure in the market, the Equity Fund could have depreciated faster than a balanced fund.A balanced fund has some portion invested in debt/money market instruments that brings down volatility of the NAV. The equity portion however, aims for growth of capital.Keywords: risk, trading loss, asset class, bonds/debt, volatility.

Talking Points


“Take calculated risks. This is quite different from being rash.”George S. Patton 1885-1945, American Army General, World War II.

Diversification does not only mean having different Equity Schemes in your portfolio.Diversification also means that assets should be allocated across different asset classes viz. equity and debt. This smooths volatility and can assist better in achieving financial goals.Equity Fund NAV can drop fast in a short-term scenario, which can make it difficult for you to attain your investment goals. Balanced fund typically spread out assets between equity:debt in 60:40 ratio.The returns offered balanced funds are relatively lower than equity schemes but not poor.In several cases, the relative safety given by a balanced scheme could offset the higher return given by an Equity Scheme.

Diversify across asset classes

Propensity of Equity Funds to crash deeper in sell-offs.


Note: Balance schemes typically have allocation in 60:40 proportion between equity and debt.

EQUITY FUNDS

BALANCED FUNDS

Most sectors have higher volatility

-1.00

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Sep

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19.30%

30.91%20.29%

31.60%

7.98%

27.66%

11.22%13.58%16.42%

27.00%

12.94%17.22%

2.04%0%5%

10%15%

20%25%

30%35%

0.50 1.00 1.50 2.00 2.50 3.00

Highlighted area show deep crash in Equity Funds

The above graph shows 1 year rolling returns for Equity and Balanced funds composite considering schemes in existence of over 10 years

X axis - Relative Volatility is calculated on Standard Deviation on a monthly basis over a 5-year periodY axis - CAGR(%) over the last 5 years

Mar

-03

Retu

rns

(%)

BSE HCBSE ITBSE METALBSE METALBSE REALTY

BSE TECK

EQUITY FUNDS

BALANCE FUNDS

BSE SensexBSE AUTOBSE BANKEX BSE CDBSE FMCG

Relative Volatility

Gro

wth

(%

)

“Equity Funds give great returns. Why shouldn't I put all my money in EquitySchemes?”




UTI MYTH BUSTERS

Myth #6“Market is so volatile,

I should sell.”







Volatility can be a false alarm; hang on!Volatile periods are depressing times, but do not sell. It pays to stay invested in a growing economy.

CLIENT CONCERN

BOTTOM LINE: Volatility is in the nature of the market. But eventually,

the fundamental factors will influence markets and reward you.

BOTTOM LINE: India is the secondfastest growing economy in the

world. Fundamentals are positive forthe long-term.

A client raising this concern is likely to be an individual, who is not familiar with the ways of the stock market from a historical perspective. He may not be an experienced investor and is therefore, contemplating selling off investments in volatile periods.He has set certain pain barriers for himself, in terms of volatility e.g. if Sensex volatility crosses 50% for a month, he will sell-off investments.Agree with client that volatile period test the most experienced of investors. It is hard to sustain but patience finally pays.Try to soothe client concern by diverting his focus from pessimistic views/opinions that he may have read/heard in media/friend circle. Instead, bring his focus to India's economic fundamentals.Keywords: growing economy, macro-economic fundamentals, GDP, patience.

Talking Points


“Patience is the best remedy for every trouble.” Titus Maccius Plautus (254 BC - 184 BC) Author, Rudens

“Market is so volatile, I should sell.”

Use graph to show periods, when stock market volatility was at its highest. The shaded areas are the periods of extreme volatility.Ask client to assume that he sold-off his investments during one of these periods.Then ask him to compare the level of NAV during that period and on the latest date - this will show in most cases, that if he had stayed invested, eventually his investment value would have been bigger today.

Ask client to then look at the GDP graph.Explain to him that India is the second fastest growing economy in the world. It is expected to grow at a rapid pace, which means that business will continue to grow and profits will rise. Staying invested in well-diversified and well-managed funds will be beneficial in the longer run.

Should you react to volatility by selling off?

Periods of stock market volatility on the long-term graph

Past performance may or may not be sustained in future.

Source: BSE, GOI & Verity Analytics

GDP Growth Rate

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Sep.-98 Sep.-00 Sep.-02 Sep.-04 Sep.-06 Sep.-08 Sep.-10 Sep.-11

FY91

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FY98

FY99

FY00

FY01

FY02

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FY05

FY06

FY07

FY08

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FY10

FY11

FY12

CL




UTI MYTH BUSTERS

Myth #7Mutual Fund’s are too risky.They do not assure returns.





Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of UTI Asset Management Company Ltd ., and should not be reproduced or used except for business purposes on behalf of UTI Asset Management Company Ltd ., or save with the express prior written consent of an authorised signatory of UTI Asset Management Company Ltd. All rights reserved. © UTI Asset Management Company Ltd.


No one can guarantee returns.No fund can guarantee returns, when it comes to equity. But you can choose the amount of risk to be taken. Mutual Funds offer an array of options, across the risk-potential returns matrix. Investors can select schemes as per their own risk appetite.

CLIENT CONCERN

Client raising this objection could be unreasonably scared, of risk and or inadequately informed about the offerings of MFs.Explain through the matrix how MFs offer varied options from the risk perspective. Therefore, investor with every degree of risk appetite can select schemes as per personal requirements/goals.Assured returns may not be a rational promise on the part of funds. This is because certain schemes invest into the equity markets, which are driven by variety of variables like economic growth, interest rates, rules and regulations, natural disasters, etc.However, beyond the short-term, equity-oriented investments will give higher returns.Keywords: long-term, risk-return matrix.

Talking Points


Mutual Fund’s are too risky. They do not assure returns

“In this world nothing can be said to be certain, except death and taxes.”Author: Benjamin Franklin 1706-1790, American Scientist, Diplomat.

The nature of stock market is unpredictable, but in the long-term, uncertainties are ironed out and stock markets provide higher return.Avenues like PPF, NSE, Fixed Deposits provide safety and assured return but in the same period, MF investments outperform their returns by a vast margin.

MFs cannot assure returns but higher risk will bring higherreturn beyond the short-term.

Risk Returns Analysis


Equity-oriented Funds cannot assure returns, because portfolios contain investments in the stock market. The nature of the stock market is comparatively riskier but over a long-term, returns are higher.5 years rolling returns for Equity and Debt Funds composite are calculated considering schemes, in existence of over 10 years.

BOTTOM LINE: History reveals thatequity-oriented funds outperformassured-return investments. Risk is

high but with longer term, MF returns are also higher.

HigherRISK

Hig

her

Liquid

Thematic

Equity Funds Composite Debt Funds Composite

5-year Rolling Returns (CAGR)

(%)

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Sep-06 Sep-07 Sep-08 Sep-09 Sep-104.00

6.00

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16.00

18.00MIP Income - LT

Gilt - LT

Arbitrage

Floaters/Income - ST

Gilt -ST

EquityOriented

DebtOriented

Sector

Diversified

Dividend Yields

Index

(%)

Aggressive:Equity Funds

Moderate:Balanced Funds

Conservative:Debt Funds

Conservative Moderate Aggressive

Sep-11

RETU

RN

Leas

t

Least




UTI MYTH BUSTERS

Myth #8“Scheme with lower NAVis more attractive because

I can get more units.”







Focus not on NAV but on composition ofthe portfolio.While choosing a fund for investment, do not focus on the NAV figure.It matters little. What matters, is the quality of the portfolio i.e. schemeobjective, asset allocation, Fund Manager/Fund House record etc.and your financial needs/goals.

CLIENT CONCERN

This is a question that many individuals raise, while deciding on fresh investments in funds.You need to erase the perception of the client, that a scheme X with lower NAV figure will be better than a scheme Y with higher NAV because X will buy him higher number of units.Bring to the notice of the client that the difference could only, be because of the inception date: a newer scheme is likely to have lower NAV than an older scheme.An older scheme reflects the record of the Fund House/Manager. Future returns also depend upon the composition of the portfolio and aspects like asset allocation, scheme objective and market developments.Make client understand that absolute return will be the same considering x% appreciation in scheme with higher or lower NAV.The NAV figure will only decide the number of units the investor will receive, for the amount invested.Keywords: scheme objective/theme, investment goals, portfolio composition, economic outlook.

Talking Points


Between two schemes, a scheme with latest inception date may have lower NAV but future returns do not depend on this factor. NAV figure merely decided how many units the investor will get for the amount that he/she has invested.

A NAV is just a figure

High or low NAV will not affect the redemption value; what matters is the rate of growth.


Note: Entry/Exit Loads and taxes are ignored for comparison purpose.

“Scheme with lower NAV is more attractive because I can get more units.”

Fund ‘B’

Purchases date 30/03/2007

Units allotted

Redemption date 31/09/2011

During the same period BSE Sensex rose 25.87%

Units available for redemption

20 75

100000 100000

5000.00 1333.33

25.87% 25.87%

25.17 94.40

5000.00 1333.33

125870 125870

NAV (`)

Amount invested (`)

Assuming funds deliveredsimilar returns

NAV (`)

Redemption Value (`)

Fund ‘A’

BOTTOM LINE: You can buy moreunits in a scheme with lower NAV.

However, it is the portfoliocomposition and your financial

goals that you should concentrate on.




UTI MYTH BUSTERS

Myth #9“In falling marketsI should stop SIP.”





Copyright in materials created by third parties and the rights under copyright of such parties are hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests and shall remain at all times copyright of UTI Asset Management Company Ltd ., and should not be reproduced or used except for business purposes on behalf of UTI Asset Management Company Ltd ., or save with the express prior written consent of an authorised signatory of UTI Asset Management Company Ltd. All rights reserved. © UTI Asset Management Company Ltd.


Falling markets are best for accumulation strategy.Falling markets are testing times for the most seasoned investors.But, think about it in this manner - “I can accumulate more Mutual Fund units when NAV falls” - and a weakening market could well turn-outto be a blessing in disguise.

CLIENT CONCERN

BOTTOM LINE: Lower NAV means agood time to accumulate SIP units.Do not stop SIP even if markets are

falling.

When the client is showing a propensity to stop the habit of systematic investment plan (SIP) during periods of market stress, try to talk the client out of acting in panic.Utilise graphs to illustrate the simple arithmetic of receiving more number of SIP units when NAV drops. Explain the benefit of rupee cost averaging.Use long-term stock market graphs and India's macro-economic story to explain how NAV will rise in the long run. Thus, it makes sense to continue SIP and accumulate as many units as possible.Keywords: accumulation, number of units, lower NAV, long-term prospects, rupee cost averaging.

Talking Points

Fund Details


“They that sow in tears shall reap joy [Psalms 126:5].”Author: Bible Sacred Scriptures.

“In falling markets I should stop SIP.”

Arithmetic of lower NAV and higher number of SIP units. The nature of stock market is unpredictable but in the long-term, uncertainties are ironed out and stock markets provide higher return. Equity Fund investments outperform returns, of most other investments by a vast margin in the long run. Long-term economic prospect of India.

NATURE: Diversified Equity Fund.INVESTMENT OBJECTIVE: "Capital appreciation" through investment in stocks that are relatively undervalued to their expected long-term earnings growth. The fund will utilize in-depth fundamental research to evaluate factors, such as a company's financial structure, its competitive position in the market and its management's commitment to increasing shareholder value, while selecting the universe of stocks for investment by this fund.ASSET ALLOCATION: Upto 80% of the net assets will be invested in the scrips having any one or more of the following characteristics at the time of acquisition: i) Low P/E ratio (PE ratio lower than the market PE or the sector PE) OR ii) Attractive dividend yield OR iii) Low price to book value ratio OR iv) Companies with positive Economic Value Added (EVA) Upto 20% of net assets will be invested in equity / equity related instruments issued by blue chip companies with a potential for consistent growth and with management of high quality and track record. Not more than 20% of net assets will be invested in money market instruments. The endeavour, will be to always retain the value orientation of the portfolio. With this objective, the scheme will regularly book profits in scrips where the valuation of the stocks has increased much higher than the market PE or the sector PE.LOAD STRUCTURE: Entry Load: NilHolding Period < 1 Year, Exit Load = 1%Holding Period >= 1 Year, Exit Load = NilGENERAL SERVICES: Daily NAV, Sale Price / Redemption Price available for Sale / Redemption on all business days.Falling markets are good for accumulating SIP units.

Benefit from rupee cost averaging- NAV Growth


Note: Graph 1 illustrates number of units purchased by investing `1000 per month on the 1st of every month in UTI Master Value Fund, since 1st September 2005. Price does not include entry load.Graph 2 illustrates growth in investment amount. Past performance may or may not be sustained in future.

UTI Master Value Fund0

10

20

30

40

50

60

70

Sep.-05 Sep.-06 Sep.-07 Sep.-08 Sep.-09 Sep.-10 Sep.-11

NAV (`) Units (Nos.)

Systematic Investment Plan (SIP)

(`)100000

120000

140000160000

02000040000

6000080000


ValueAmount Invested



UTI MYTH BUSTERS

UTI MYTH BUSTERS

Myth #10Metals was the

best sector in 2004.“I will invest in

metals this year.”



UTI AMC Ltd., is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd., accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.




Diversify investments across sectorsGrowth-driven sectors will give strong returns, in a growing economy like India. But, due to structural and global imbalances, volatility is always around the corner. Beware of being driven by recent gains of individual sectors. Diversification across a few sectors, is a better strategy to mitigate sector-specific risk and smoothen your returns’ curve.

CLIENT CONCERN

BOTTOM LINE: Diversify investmentsacross a few growth sectors to mitigate risk and gain optimum

benefit out of a growing economy

Client is being driven by the momentum gained by a certain sector in the last few months/year.Although, growth-driven sectors like metals, capital goods, durables, etc. will certainly perform well in a growing economy like India, client needs to be advised about the risks faced by markets in a structurally imbalanced or developing country like India.Use the graph to show, how some sector performed poorly, after one bonanza year or returns. Similarly, point out the performance of the composite index of diversified funds which was in the top 2 (among the group considered) sectors 5 times out of the last 10 years.Point out that interestingly, the composite diversified especially performed better than others in the years of weak or negative market returns. Although, chasing growth-driven sectors is a good ploy as India has strong fundamentals, it makes lot of sense to spread investments across sectors. This will mitigate risk.Keywords: diversification, structural imbalance, developing country, all eggs in one basket.

Talking Points


A bonanza year for a sector can often be followed by a poor year (see graph). Diversification helps to mitigate sector-specific risk that can emerge due to structural changes possible in a developing nation like India. Instead of putting all the eggs in the basket of one sector, diversification across a few growth-driven sectors can be a better ploy to smoothen the curve of returns. This can allow investors to draw optimum benefit out of a fast growing economy like India. High-potential diversified portfolios can be constructed by dividing assets among a group of Sector Funds.

Diversifying across a few sectors helps to mitigate risks, even in a growingeconomy.

Performance of certain sectors and a diversified funds composite over 10 years.

Note: Composite index of diversified Equity Funds have performed better in five years out of ten.


BSE CD Index

BSE METAL Index

Equity Composite

BSE CG Index

BSE IT Index

BSE OIL & GAS Index

BSE HC Index

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125

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Metal performance was solid in 2004but lacked luster in 2006 & 2007

Divesrified funds are steadierduring years of duress

(%)

Metals was the best sector in 2004. “I will invest in metals this year.”




UTI MYTH BUSTERS

Myth #11Fixed income

investments aresafe investments.







Equity Funds give vastly superior returns thanfixed income.It is a well-known notion, that fixed income or debt investments are safe.It is also a well-known fact, that equity investments outperform debt returns by a big margin in the long run. Debt investments will give limited fixed returns, while equities allow you to build wealth. So, isn't it safe enough to invest in equity funds in the long run and build wealth?

CLIENT CONCERN

BOTTOM LINE: For the long-term, safety of debt investments is a big

opportunity lost, compared with the potential of capital gains from

Equity Funds.

The client is coining a well know phrase/fact because fixed income or debt investments always protect, the principle (barring case of default). However, a look at the graph clearly shows that returns of Equity Funds are vastly higher than so called safe debt investment.Show the graph to client and ask, if the safety of debt would be an appropriate price to pay? Or would he like to build wealth by investing for the long-term in Equity Funds? Keywords: capital gains, growth prospects, long-term.

Talking Points


“Outside show is a poor substitute for inner worth.” Author: Aesop 620-560 BC, Greek Fabulist.

Debt investments protect principle and provide regular but 'fixed income' via regular interest. Long-term equity investments provide the potential of capital gains. In a growing economy like India, potential of capital gains is abundant across industries or sectors. Equity Fund investments give the chance to build wealth over the long-term.

What use is the safety when equities can give extraordinary capital gains over the long-term?

Trend of returns of debt and equity composite


Note: 7 years rolling returns for Equity and Debt Funds composite are calculated considering schemes in existence of over 10 years.

7-year Rolling Returns (CAGR)

Debt Funds CompositeEquity Funds Composite

(%)

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40.00

50.00

Sep.-08 Mar.-09 Sep.-09 Mar.-10 Sep.-10 Mar.-11 Sep.-11

Fixed income investments are safe investments.




UTI MYTH BUSTERS

Myth #12“Markets are lousy,I want to get out.”







Investing is not always about exciting market scenarios but about discipline.Investors should learn to take advantage of unappealing scenarios.

BOTTOM LINE: Investing is not always about exciting market

scenarios but about discipline and achieving of certain life/family goals.

Talking Points

Fund Details

Show him the graph and explain that even if he had invested in any of the market peaks, he would still see capital appreciation and positive returns, in the long run. Economic growth and strong fundamentals outweigh the short-term fluctuations. You can use recent economic growth to illustrate the same. Always have a long-term view, while investing. Adopt periodic investment style like SIPs to eliminate volatility.

NATURE: Diversified Equity Fund.INVESTMENT OBJECTIVE: "Capital appreciation" through investment in stocks, that are relatively undervalued to their expected long-term earnings growth. The fund will utilize in-depth fundamental research, to evaluate factors, such as a company's financial structure, its competitive position in the market and its management's commitment, to increasing shareholder value, while selecting the universe of stocks for investment by this fund.ASSET ALLOCATION: Upto 80% of the net assets will be invested in the scrips having any one or more of the following characteristics at the time of acquisition: i) Low P/E ratio (PE ratio lower than the market PE or the sector PE) OR ii) Attractive dividend yield OR iii) Low price to book value ratio OR iv) Companies with positive Economic Value Added (EVA) Upto 20% of net assets will be invested in equity / equity related instruments, issued by blue chip companies with a potential for consistent growth and with management of high quality and track record. Not more than 20% of net assets will be invested in money market instruments. The endeavour, will be to always retain the value orientation of the portfolio. With this objective, the scheme will regularly book profits in scrips, where the valuation of the stocks has increased much higher than the market PE or the sector PE.LOAD STRUCTURE: Entry Load: NilHolding Period < 1 Year, Exit Load = 1%Holding Period >= 1 Year, Exit Load = NilGENERAL SERVICES: Daily NAV, Sale Price / Redemption Price available for Sale / Redemption on all business days.

By lousy, the client could mean weak or sideways. Given in the above graph are two scenarios, one of flat and then ascending market, second includes a period of weakness/ volatility. The client may be concerned that the market is not appealing enough and may want to sell off investments or may be hesitant to continue investing.Educate and convince the client that, given the economy's growth and other fundamentals, markets are bound to perform well in the long run. Show him the bigger picture. Use the graphs to convince the client about the dynamics of the market. Emphasise on the importance of staying invested for long-term to generate maximum returns. Emphasise that with short-term investment the client may be gambling with his hard earned money.Also discuss the benefits of investment, at regular time periods, using Systematic Investment Plans (SIP).


Given the economy's growth and other fundamentals, markets are bound to perform well in the long run.

Let’s consider two perspectives

Source: BSE, UTI MF, Verity Analytics

Note: Scenario 1. Illustrates performance of Sensex since 1 September 1991 to 30 September 2011.Scenario 2. Illustrates number of units purchased by investing `1000 per month on the 1st of every month in UTI Master Value Fund since 01 September 2005. Price does not include entry load.

UTI Master Value Fund

Units (Nos.)

Perspective - I

0

10

20

30

40

50

60

70


0

5000

10000

15000

20000

25000

Sep-91 Sep-94 Sep-97 Sep-00 Sep-03 Sep-06 Sep-09 Sep-11

BSE Sensex When markets are 'lousy', because they are weak and slumping,it is a good time to rack up MF units.

In uncertain times, patience pays the highest reward. Amid gradual globalisation, political and financial setbacks, markets remained sideways or 'lousy' till 2003. But, for anyone who continued regular investing, the market has offered blockbuster returns since. Sensex has appreciated 5 times in 8 years.

NAV (`)

Perspective - II

CLIENT CONCERN

“Markets are lousy, I want to get out.”




UTI MYTH BUSTERS

Myth #13“I can't handlethe pressure of

short-term volatilityof markets.

I might lose my money.”







For people who cannot handle short-term volatility in markets, Systematic Investment Plan( SIP) is just what the experts recommend.

The example is purely hypothetical and illustrates the returns of the BSE Sensex. In real life, one cannot invest directly in the BSE Sensex. It is also not an indicator of performance of any schemes of UTI MF. Annualised and compounded returns of the BSE Sensex based on 30 September 2011. In the above example, it is considered that a lumpsum amount of `40,000 has been invested at closing value of BSE Sensex as on 02 June 2008. SIP amount assumed of `1000 to be invested on the 1st day of every month in the closing value of BSE Sensex for 40 months.

Lumpsum investment v/s Systematic Investment Plan

Source: BSE, Verity Analytics

BOTTOM LINE: Investing does not have to be always lumpsum.

Investing small amounts at regular intervals proves to be very effective.

The client may be too scared of losing his money, but, at the same time he does not want to lose-out on the opportunity of the returns, that can be generated from investment in equities. Inform him, that if he wants to invest safely in Equity Schemes without losing his money, he can invest small amounts over a period, to average-out the volatility. SIP is the best option for him. Use the graph to illustrate to the customer, the benefits of SIPs vis-à-vis lumpsum investment. Emphasise upon the advantages of SIPs i.e. rupee-cost averaging, compounding and discipline in investment.

Talking Points


Explain to the client that, there are ways to eliminate risks involved in the markets and minimise the possibility of losses, incurred due to short-term market volatility. One of the ways is to invest via Systematic Investment Plans (SIP). The investor gets a two way benefit, while investing in SIPs. If the NAV of the scheme appreciates then the investor will gains through capital appreciation.If the NAV of the scheme falls due to volatility in the markets, even then the investor gains as he can now buy more units of the scheme, with the same amount of money. This feature is called rupee-cost averaging. The investor also gets the benefit of compounding, as the dividends from the scheme are reinvested into the market.

You won’t have to lose money in markets, if you take calculated risks.SIP is one way.

0

5000

15000

25000

35000

45000

55000

Jun.-08 Apr.-09 Sep.-09 Jul.-10 Dec.-10

SIP invested Lumpsum invested

SIP value Lumpsum value

Sep.-11

Annualised return oflumpsum investment

0.72%

Annualised returnof SIP 5.56%

Investing small amounts at regular intervals proves to be very effective.

Nov.-08 Feb.-10 May-11

` 43,923

` 40,973

` 40,000

CLIENT CONCERN

“I can't handle the pressure of short-term volatility of markets.I might lose my money.”




UTI MYTH BUSTERS

Myth #14“I want international

exposure formy investments.”







When the whole world is investing in India, why do you want to go out?Investors are flocking to put their money into emerging nations, especially India.

Comparison of the GDP growth of India vis-a-vis developed economies.

Source: World Bank, SEBI

The above graph represents the annual growth rate of GDP of USA, UK, Germany, Japan and Indiafrom FY2001-2002 to FY2009-2010 at market prices based on constant local currency. The graph insiderepresents the FII inflows into Indian stock markets from 2001 to 2010.

BOTTOM LINE: Investing in a growing economy is always better than investing in an already grown economy. So, there is no reason to invest outside India as the returns

are quite compelling here.

The client probably thinks the grass is greener on the other side and needs to be informed, that it is not. He might not be aware of the situation of economies around the world. Using the graph, illustrate to him that the Indian economy is doing much better than most of the developed economies and the growth potential here is far better than most of the foreign economies. You can also mention the trouble in the Euro-zone to further fortify your arguments. Educate the client, that since Indian economy is in the beginning of the growth phase the market may provide handsome growth in the long-term. Investment in foreign markets also consists of various other risks, such as interest rate risk, exchange rate risk, geopolitical risk. The rate of return is invariably far lower in developed economies.

Talking Points


Comparison of the Indian economy with other economies. Developed nations have slow economic growth compared to emerging economies. High growth potential in the long-term. Mutual Funds are a preferable way for investment in emerging economies because of their diversification features.

Investing overseas has its own risks that the investor should be aware of.

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2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

USA United Kindgom Germany India

(%)

-75000

-50000

-25000

0

25000

50000

75000

100000

125000

150000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

FII I

nfl

ow (

` in

Cr.)

Year

FII inf low

When the whole world is investing in India, why do you want to go out?

Japan

CLIENT CONCERN

“I want international exposure for my investments.”




UTI MYTH BUSTERS

Myth #15“I want to focus

on few stocksto build wealth.”







Very few people who have concentrated their wealth have succeeded, the key is to diversify in order to minimise risk.

CLIENT CONCERN

BOTTOM LINE: To build wealth without losing your

money…diversification is theway to go.

The client may have seen some scrips generating exponential returns and hence, may be of the view that investing all his funds in such scrips instead of diversifying will bring him great wealth.Use the graphs to explain to him the result of this strategy, if the scrip fails. Many people have gone bankrupt following this strategy. This kind of concentration can only be done if the investor has extra funds and the loss of which does not affect him in any way, which is never the case. Concentration of funds can be disastrous whereas diversification brings in the much needed stability, as the negative impact of one scrip does not have a broad consequence on the overall portfolio.

Talking Points


“Beating inflation is like swimming against the current, if you are not fast enough you may be going backwards.”

Consequences of concentration of funds vis-à-vis diversification. It is virtually impossible to time the market perfectly and consistently. Deep trouble if the strategy fails. Diversification brings stability to the portfolio. Keeps the funds safe. Mutual Funds are a preferable way to diversify.

Concentration of funds in a few stocks can prove to be disastrous.

A Case Study

Source: NSE

Note: The above graphs represent the daily closing prices of the corresponding scrips.

Satyam Computer Services Ltd. SKS Micro Finance Ltd.

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Sep-.01 Sep.-05 Sep.-09 Sep.-110

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Sep.-10 Mar.-11 Sep.-11

To build wealth without losing your money…diversification is the way to go.

Jan.-03 May-04 Jan.-07 May-08 Jan.-11 Nov.-10 Jan.-11 May-11 Jul.-11

Satyam was a respected company and a performing stock on thebourses until the scam of inflated earning numbers hit the company.The stock price never recuperated.

SKS microfinance attracted positive comments and ratings from almostall analysts until recently the company's balance-sheet was in troublewith huge bad debts.

DLF Ltd. Suzlon Energy Ltd.

Suzlon Energy was also considered a potential wealth builder beforethe stock price slipped down, burdened by heavy debt andnever recovered.

0200400600800

100012001400

Sep.-07 Mar.-08 Sep.-08 Mar.-09 Sep.-09 Mar.-10 Sep.-10 Mar.-11 Sep.-110

100

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500

DLF was considered a wealth builder as market analysts peggedreal estate to be the next big thing.

Nov.-05Jun.-06Jan.-07Aug.-07Mar.-08Oct.-08May.-09Dec.-09Jul.-10Feb.-11Sep.-11

“I want to focus on few stocks to build wealth.”


Mutual funds investing doubts all explained

Economy & Finance

Transcript of Mutual funds investing doubts all explained