#1भारतीय प्रतिभूति और विनिमय बोर्ड Bi Securities and Exchange Board of India GB Introduction to Mutual Funds#2Disclaimer LEB ❖ Information contained in this presentation is as on September 30, 2022. ❖The information contained in this presentation is only for Educational and Awareness Purposes related to securities market. ❖ This presentation is only for Educational and Investor Awareness Programs and shall not be used for any legal interpretations. ❖ SEBI or Stock Exchanges or Depositories shall not be responsible for any damage or loss to any one of any manner from use of this material. ❖ Suggestions or feedbacks, if any, may please be sent by mail to [email protected]. 2#3Flow of Presentation GB ➤ What is a Mutual Fund ? ➤ Structure of Mutual Fund ➤ What is an Asset Management Company (AMC)? ➤ How does a Mutual Fund Work? ➤ Classification of Mutual Funds ➤ Based on Structure ➤ Based on Investment Objective ➤ Investment Portfolio ➤ Risk vs Return ➤ Categorization of Mutual Funds ➤ How to invest in Mutual Funds? ➤ Centralized KYC ➤ Mutual Fund investment procedure ➤ Investment Modes in Mutual Funds ➤ Mutual Funds ➤ Plans - Growth vs Dividend Options ➤ How to check information about the Mutual Funds (Offer Document)? ➤ Risk-o-Meter ➤ Mutual fund investment on behalf of minor and nomination details 3#4What is a Mutual Fund (MF)? GB Common pool of funds contributed by investors and invested in accordance to the objectives. Investments are held in a trust of which the investors alone are the joint beneficial owners. Trustees oversee the management by investment manager. 4#5Investors Structure of Mutual Fund Execute a Trust Deed Sponsors to form a trust Trustees Mutual Fund is established as a Trust under Indian Trust Act, 1882 Mutual Fund Investment Management. & Day-to-day Operations Asset Management Company Custodian GB Agents/ Distributors Bankers Fund Accountants Registrar & Transfer Agency 5#6What is an Asset Management Company (AMC)? B • Investment manager of the mutual fund. Appointed by the trustees, with SEBI approval. • Trustees and AMC enter into an investment management agreement. Required to invest seed capital of 1% of amount raised subject to a maximum of Rs.50 lakh in all open-ended schemes. Should have a net worth of at least Rs.50 crore at all times. • At least 50% of members of the board of an AMC have to be independent. . AMC of one mutual fund cannot be an AMC or trustee of another fund. AMCs cannot engage in any business other than that of financial advisory and investment management 16#7How does a Mutual Fund Work? iivii Pool their money Delivered to INVESTORS RETURNS Helps generate STOCKS / SECURITIES FUND MANAGER Invest in GB Pool of investors money. Invested according to pre-specified investment objectives. Benefits accrue to those that contribute to this pool. There is thus mutuality in the contribution and the benefit. Hence the name 'mutual' fund. 7#8Classification of Mutual Funds Classification of Mutual Funds GB Based on Structure Based on Investment Objective Based on Investment Style Open Ended Funds Closed Ended Funds Interval Funds Debt Funds Passive Funds Equity Funds Hybrid Funds Active Funds 8#9Classification - Based on Structure Open Ended Funds Closed Ended Funds . ● • • No fixed maturity date. Accept continuous sale and re-purchase requests. Transactions are NAV-based. Unit capital is not fixed. GB Run for a specific period. Offered in an NFO but are closed for further purchases after NFO. Unit capital is kept constant. Interval Funds • Variant of closed-ended funds. • Becomes open-ended at specific intervals. • Have to be mandatorily listed. 9#10Classification - Based on Investment Objective Bi Debt Funds Equity Funds Hybrid Funds • • • Invest in short and long term debt instruments. Aim to provide regular income. Invest in equity securities. Aim to provide growth and capital appreciation over long term. Invest in a combination of equity and debt securities. Proportion of equity and debt may vary. Aim to provide for both income and capital appreciation. 1 10#11Classification - Based on Investment Style CB Passive Funds • Replicate a market index. Invest in same securities and in same proportion as that of index. • No active selection of any stock / sector. • • Expenses are lower. Portfolio is modified every time index composition changes. Active Funds • • • Invests in securities and sectors that may offer a better return than the index. Actively manage the allocation to market securities and cash. May perform better or worse than the market index. Incur a higher cost than passive funds. 11#12Categorization of Mutual Fund Schemes B Categorization of open-end mutual funds: To ensure uniformity in characteristics of similar type of schemes launched by different mutual funds. Helps investors to evaluate different options available before making informed. decision to invest. Equity Schemes Debt Schemes Hybrid Schemes Categorization of Mutual Fund Schemes Solution oriented Schemes Other Schemes 12 N#13How to invest in Mutual Funds? Via Physical Mutual Fund Application Form Via Online Mode (Website of Mutual Fund) Via Mobile App of Mutual Fund Via AMFI Registered Mutual Fund Distributor (using physical form/online/ mobile app) GB 13#14Centralized KYC (C-KYC) in Securities Market B ➤ KYC registration is centralized through KYC Registration Agencies (KRAs) registered with SEBI. ➤ Each investor to undergo KYC process only once in securities market and details would be shared with other intermediaries by the KRAS. ➤ Standard Account Opening form (AOF) has 2 parts: - Part I: Basic and uniform KYC details of the investor Part II Additional KYC information as may be sought separately by the Mutual Fund 14#15Mutual Funds investment procedure GB Indicate whether you are a First Time Investor/ Existing Investor. Visit official website of KRA and check whether you are KYC compliant or not. You must submit this KYC status. Provide your details like name, address, etc. Submit Bank account details and copy of "Cancelled Cheque". Once documents are accepted by Mutual Fund Company, you may start making investment. 15#16Investment Modes in Mutual Funds GB Lump-sum One time investment. Usually, large sum of money is invested in one go. Investment Investor faces risk of volatility in markets. Systematic Investment Plan (SIP) • • • Staggered Investment. Period of commitment - 6 months, 1/3/ 5 years. Specific intervals - monthly, quarterly, half-yearly. Made on specific dates e.g. 1st, 5th, 10th, 15th of every month. 16#17Investment Modes in Mutual Funds Direct Mutual Fund Directly offered by fund house. No involvement of third party agents - brokers or distributors. No commissions and brokerage. Have low Expense ratio . (because of no commissions). . Have high NAV. Return is higher due to a lower expense ratio GB . Regular Mutual Fund Bought intermediary. through an • Intermediaries can be brokers, advisors or distributors. Commissions and brokerage paid. . • High Expense ratio as there are commissions to pay. Low NAV. Return is lower due to a higher expense ratio 17#18Mutual Fund Plans - Growth vs Dividend Options B Growth Option • • • Gains made in portfolio are retained and reflected in NAV. Realized profit/loss is treated as capital gains or loss. No increase or decrease in number of units, except if units are purchased or sold, by the investor. Dividend Payout Option • Fund declares dividend from realized profits. • • Amount and frequency varies and depends upon distributable surplus. NAV falls after dividend payout to the extent of dividend paid. Dividend Reinvestment Option Dividend is re-invested in same scheme by buying additional units at ex-dividend NAV. • Number of units standing to the credit of the investor, increases each time a dividend is declared, and reinvested back into the scheme. 18 00#19How to check information about the Mutual Funds (Offer Document)? Statement of additional information (SAI) • • Contains generic and statutory information of mutual fund. Contains financial information of mutual fund. • Lays down rights of investor. • Other additional information. Scheme • Scheme type (open or closed end). • Investment objective. information • Asset allocation. document (SID) • Investment strategies. • Terms with regard to liquidity. • Fees and expenses. . • Other information relating to the scheme. GB 19#20LOW LOW Risk-o-Meter and its importance LOW to MODERATE MODERATE MODERATELY HIGH HIGH VERY HIGH VERY HIGH GB Six levels of risk for mutual fund schemes: i. Low Risk ii. Low to Moderate Risk iii. Moderate Risk iv. Moderately High Risk v. High Risk and vi. Very High Risk Importance of Risk-o-meter : - - - Helps align risk that a fund carries with the risk profile of the investor. Equity as asset class: Volatile: High risk Debt as asset class: Stable: Low risk - Hybrid: Moderate: Depends on allocation and concentration 20 20#21Nomination for Trading/Demat/Mutual Fund Units ➤ Investor to get two options regarding nomination GB ❖To provide nomination in the prescribed form up to three person along with their percentage ❖ Opting out of nomination through prescribed declaration form ➤ Folios/Account to be freezed if none is opted till March 31, 2023 ➤ Applicable for opening new Demat account and trading accounts on or after October 01, 2021 ➤ Applicable for investor subscribing to mutual fund units on or after October 01, 2022. ➤ For existing unit holder, AMC shall provide an option to submit In case of physical option, the form shall carry the wet signature In case of online option, AMC shall validate the form using e-Sign Or through two factor authentication (2FA) 21 24#22GB Mutual Fund investment by Minor ➤ Payment on behalf of minor shall be from Bank Account of the minor ■ Joint account of the minor with the guardian ➤ KYC process to be completed upon attaining the status of major 222 22#23Additional Information Bi For further information, you may visit the following web-sites and Mobile App: www.sebi.gov.in/ ➤ https://investor.sebi.gov.in/ ➤ Saathi App Download on the GET IT ON App Store Google Play ☐ For Grievance Redressal, you may visit following website: ➤ www.scores.gov.in/ Or, you may call SEBI at following Toll-free Helpline Numbers from 9:00am to 6:00pm on all days (excluding declared holidays in the state of Maharashtra): 1800 266 7575 1800 22 7575 SEBI: HAR INVESTOR KI TAAQAT Helplines are available in 8 Languages: English, Hindi, Bengali, Gujarati, Marathi, Kannada, Telugu and Tamil 23#24Thank You GB 24 24