Mutual Funds & Other

Financial Products
 Basics of Investments:

Risk Management Risk Aversion

Bank Deposits, PPF,

Mutual Funds NSC, Insurance,
Kisan Vikas Patra etc.

Managed Risk/High Return Low Risk/Low Return

 Myths about Mutual Funds
1. Mutual Funds invest only in shares.
2. Mutual Funds are prone to very high
risks/actively traded .
3. Mutual Funds are very new in the financial
market.
4. Mutual Funds are not reliable and people rarely
invest in them.
5. The good thing about Mutual Funds is that you
don’t have to pay attention to them.
 Facts about Mutual Funds
1. Equity Instruments like shares form only a part of
the securities held by mutual funds. Mutual funds
also invest in debt securities
2. The biggest advantage of Mutual Funds is their
ability to diversify the risk.
3. Mutual Funds are the best solution for people
who want to manage risks and get good returns.
4 The truth is as an investor you should always pay
attention to your mutual funds and continuously
monitor them. There are various funds, both as a
long term investment vehicle or as a very short
term cash management vehicle.
 What is mutual fund ?
• A mutual fund is a common pool of money into which
investors place their contributions that are to be invested
in different types of securities in accordance with the
stated objective.

• While instruments like shares give high returns at the

cost of high risk, instruments like NSC and bank deposits
give lower returns and higher safety to the investor.

• Mutual Funds aim to strike a balance between risk and

return and give the best of both to the investor.
 Mutual Funds
Operations Flow Chart
 Advantages of Mutual Funds
• Portfolio diversification: It enables him to hold a diversified investment portfolio
even with a small amount of investment like Rs. 2000/-.

• Professional management: The investment management skills, along with the

needed research into available investment options, ensure a much better return as
compared to what an investor can manage on his own.

• Reduction/Diversification of Risks: The potential losses are also shared with

other investors.

• Reduction of transaction costs: The investor has the benefit of economies of

scale; the funds pay lesser costs because of larger volumes and it is passed on to
the investors.

• Wide Choice to suit risk-return profile: Investors can chose the fund based on
their risk tolerance and expected returns.
 Mutual Funds Vs. Other Investments
Product Return Safety Liquidity Tax Benefit Conven-
ience

Bank Deposit Low High High No High

Equity High Low High or Low No Moderate

Instruments

Debentures Moderate Moderate Low No Low

Fixed Moderate Low Low No Moderate

Deposits by
Companies

Bonds Moderate Moderate Moderate Yes Moderate

 Mutual Funds Vs. Other Investments
Product Return Safety Liquidity Tax Benefit Conven-
ience

RBI Relief Moderate High Low Yes Moderate

Bonds

PPF Moderate High Low Yes Moderate

National Moderate High Low Yes Moderate

Saving
Certificate

National Moderate High Low Yes Moderate

Saving
Scheme

Monthly Moderate High Low Yes Moderate

Income
Scheme
 Mutual Funds Vs. Other Investments
Product Return Safety Liquidity Tax Benefit Conven-
ience

Life Insurance Moderate High Low Yes Moderate

Mutual Funds Moderate Moderate High No High

(Open-end)

Mutual Funds Moderate Moderate High Yes High

(Closed-end)
 Mutual Fund Types
Money Market Funds/Cash Funds
• Invest in securities of short term nature I.e. less than one year
maturity.
• Invest in Treasury bills issued by government, Certificates of
deposit issued by banks, Commercial Paper issued companies and
inter-bank call money.
• Aim to provide easy liquidity, preservation of capital and moderate
income.
Gilt Funds
• Invest in Gilts which are government securities with medium to
long term maturities, typically over one year.
• Gilt funds invest in government paper called dated securities.
• Virtually zero risk of default as it is backed by the Government.
• It is most sensitive to market interest rates. The price falls when
the interest rates goes up and vice-versa.
 Debt Funds
Debt Funds/Income Funds
• Invest in debt instruments issued not only by
government, but also by private companies, banks and
financial institutions and other entities such as
infrastructure companies/utilities.
• Target low risk and stable income for the investor.
• Have higher price fluctuation as compared to money
market funds due to interest rate fluctuation.
• Have a higher risk of default by borrowers as
compared to Gilt funds.
• Debt funds can be categorized further based on their
risk profiles.
• Carry both credit risk and interest rate risks.
 Equity Funds
Equity Funds:
• Invest a major portion of their corpus in equity
shares issued by companies, acquired directly in
initial public offering or through secondary
market and keep a part in cash to take care of
redemptions.
• Risk is higher than debt funds but offer very
high growth potential for the capital.
• Equity funds can be further categorized based
on their investment strategy.
• Equity funds must have a long-term objective.
 Hybrid Funds
Balanced Funds:
• Has a portfolio comprising of debt instruments,
convertible securities, preference and equity shares.
• Almost equal proportion of debt/money market
securities and equities. Normally funds maintain a
Equity-Debt ratio of 55:45 or 60:40.
• Objective is to gain income, moderate capital
appreciation and preservation of capital.
• Ideal for investors with a conservative and long-
term orientation.
 Fund Structure
Fund Sponsor

Trustees

Asset Management
Company

Depository Agent

Custodian
 Mutual Fund Types
• Broad fund types by Nature of Investments: Mutual funds may
invest in equities, bonds or fixed income securities, or short-term
money market securities. So, we have Equity, Bond and Money
Market Funds.

• Broad fund types by Investment Objective: Investors and

hence mutual funds pursue different objectives while investing.
- Growth funds invest for medium to long term capital appreciation.
- Income funds invest to generate regular income and preservation
of capital with little emphasis on capital appreciation.
-Value funds invest in equities that are considered under-valued
today, whose value will be unlocked in future.

• Broad fund types by Risk Profile: Fund’s

portfolio and its investment objective imply
 Debt Funds
Diversified Debt Funds:
• Invests in all available types of debt securities, issued by entities
across all industries and sectors.
• Derives benefit of risk reduction through risk diversification.

Focused Debt Funds:

• Have a narrow focus with less diversification in its investments.
• Include Sector, Specialized and Offshore debt funds.
• Have a higher risk as compared to diversified debt funds.

High Yield Debt Funds:

• Invest in debt instruments that are not backed
by tangible assets and considered “below
investment grade”.
• May earn higher returns though at the cost of
 Debt Funds
Assured Return Funds- An Indian Variant:
• Assured Return or Guaranteed Monthly Income Plans are
essentially Debt/Income funds.
• Returns are indicated in advance for all the future years of the
closed-end funds.
• Any shortfall is borne by the sponsors or managers.
• Market regulator, SEBI has been discouraging fund managers
from offering assured return schemes. If offered, explicit guarantee
is required from a guarantor whose name is specified in advance in
the offer document of the scheme.
 Equity Funds
Aggressive Growth Funds
• Objective is to earn very high returns for the investor.
• Target is maximum capital appreciation.
• Invest in less researched or speculative shares and may adopt
speculative investment strategies.
• High volatility and risk as compared to other funds.

Growth Funds:
• Objective is capital appreciation over a long time, 7 - 10 years
span.
• Invest in companies whose earnings are expected to rise at an
above average rate.
• These companies will be considered to have growth potential, but
not entirely unproven and speculative.
• Less volatile than aggressive growth funds.
 Equity Funds
Specialty Funds
• Thematic funds that have a theme for investments.
• Narrow portfolio orientation and invest only in companies that meet
pre-defined criteria.
• Diversification is limited to one type of investment.
• More volatile than diversified funds.
• Specialty funds are further sub-categorized based on their
investments.

Diversified Equity Funds:

• Invest only in equities except for a very small portion in liquid
money market securities.
• It is not focused on any one or few sectors or shares.
• Reduce the sector or stock specific risks through diversification.
• Lower risks than growth funds.
 Equity (Specialty) Funds
Sector Funds:
• Portfolios consists of investments in only in one industry or sector of the
market such as IT, Pharmaceuticals or FMCG.
• Higher level of company or sector specific risk than diversified funds.

Offshore Funds:
• Invest in equities in one or more foreign countries.
• Sensitive to foreign exchange rate risk and economic conditions of the
countries they invest in.

Small-Cap Equity Funds:

• Invest in shares of companies with relatively low market capitalization
that that of big blue chip companies.
• More volatile than other funds as smaller companies are not very liquid.
• In terms of investment style, it may be aggressive-growth or growth type
or even value fund.
 Equity Funds
Equity Linked Savings Schemes - an Indian Variant:
• Investment in these schemes entitles the investor to claim an income
tax rebate.
• Usually has a lock-in period of 3 years before the end of which funds
cannot be withdrawn.
• There are no specific restrictions on the investment objectives for the
fund managers.
• Generally, such funds would be Diversified Equity Funds.

Equity Income Funds:

• Objective is to give high level of current income along with some steady
capital appreciation.
• Invest in shares of companies with high dividend yields and do not
fluctuate as much as other shares. Ex - Power/Utility sector.
• Less volatile and risky than other equity funds.
 Equity Funds
Equity Index Funds:
• The objective is to match the performance of the stock market by
tracking an index that represents the overall market.
• Invests in shares that constitute the index and in the same proportion.
• Sensitive to overall market risk.
• Example: UTI Nifty Fund

Value Funds:
• Invest in fundamentally sound companies whose shares are currently
under-priced in the market.
• Have lower risk as compared to Growth Funds and take a long term
approach.
• Often invested in cyclical industries.
• Example: Templeton India Growth fund that has shares of
Cement/Aluminum and other cyclical industries.
 Hybrid Funds
Growth & Income Funds:
• Strike a balance between capital appreciation and income for the
investor.
• Portfolio is a mix between companies with good dividend paying
records and those with potential for capital appreciation.
• Less risky than growth funds but more risky than income funds.

Asset Allocation Funds:

• Follow variable asset allocation policy.
• Move in an out of an asset class (equity, debt, money market or
even non-financial assets)
• Asset allocation funds that follow more stable allocation policies are
like balanced funds.
• Asset allocation funds that follow more flexible allocation policies
are like aggressive growth or speculative funds.
 Investment Plans
Automatic Re-investment Plans
Allows the investor to re-invest in additional units the amount of dividends
or other distributions made by the fund instead of receiving it in cash.
 Investment takes place at ex-dividend NAV.
 The investors reap the benefit of compounding his investments.

Automatic Investment Plans

 Allows the investor to invest a fixed sum periodically. Enables him to
save in a disciplined and phased manner.
 Such funds help in ‘rupee cost averaging’.
 Mode of investment could be through direct debit to investor’s salary or
bank account.
 Voluntary Accumulation Plan, a modified version of AIP allows the
investor flexibility in terms of amount and frequency of investment.
 Investment Plans
Systematic Withdrawal Plans
 Allow systematic withdrawals from his fund investment on a periodic
basis.
 The investor must withdraw a specific minimum amount and also
maintain a minimum balance in his fund account.
 The amount withdrawn is treated as redemption of units at the applicable
NAV as specified in the Offer Document.
 SWPs are different from MIPs. SWPs allows investors to get back the
principal amount invested while MIP’s will only pay the income part on
regular basis.
Systematic Transfer Plans
 Allow the investor to transfer on a periodic basis from one scheme to
another within the same fund family.
 A transfer will be treated as redemption of units from one scheme and
investment of units in another scheme.
 Such redemption and investment will be at applicable NAV as mentioned
in the Offer Document.
Financial products selling

Risk Aversion

Bank Deposits, PPF,

NSC, Insurance,
Kisan Vikas Patra etc

Low Risk/Low Return

 Insurance Selling
Objectives
•Using Marketing Agency as a driver
towards creating awareness among
potential customers.
•Strategies for Insurance Selling which
result in high sales.
 Choosing a Advertising Agency
• Used to create a positive impact.
• Branded marketing agents verses
Non-branded marketing agents.
• Emphasis on proper information to
potential customers.
• Right Marketing Agency leads to High
Profitability.
 Insurance Selling
Introduction
a) Present scenario- Red Ocean.

b) Reasons for marketing insurance w.r.t

Life Insurance.
 Strategies for Selling Insurance
• Familiarisation of company name.
• Telephone Marketing.
• Insurance policy holder feedback &
information.
• Community Insurance.
• No partial treatment in terms of cost.
• Faster processing of Insurance claim.
• Customer relations to be maintained.
• Honest and unified approach.
 Bank Deposits
Types
• Savings Bank Account.
• Current Deposit Account.
• Fixed Deposit Account.
• Recurring Deposit Account.
 Public Provident Fund (PPF)
Features:

1) Rate of Interest 8% compounded Annually.

2) Minimum deposit is 500/- & Max Rs. 70,000/- in a financial year.

Pros Cons
1) Lowest Risk Possible 1) Interest rates change. (12% to
8%)

2) Tax Rebate (20% under Section 88)
3) Great Returns (8% compounded)
2) Lengthy lock-in period. (15
yrs/16)
3) Interest calculated on
lowest balance. (5 to last date)
th

4) No tax on interest (sec 10(11) 4) Lack of Liquidity.

income tax)

5) Flexibility of Investment. (max

Rs.60k, min Rs. 500)

6) Exempt from wealth tax

 National Savings Certificate.
Features:
• Minimum investment Rs. 500/-, no
maximum limit.
• Rate of interest 8% compounded.
• Rs. 1000/- grow to 1601/- in 6 years.
• 2 adults, individuals and minor through
guardian can purchase.
• Can be pledged as security for loan.
Senior citizen’s savings scheme
• Interest rate down from 13% to 5%.
• Makes life miserable.
• Stable interest rates from 2004-05.
• Introduction of Senior citizen’s savings
scheme 2004 with higher rate of interest.
• Objective is to bring relief and stability in
interest rates.
 Post office savings bank.
• Minimum amount Rs20/- in case of non- cheque
account, Rs.500/- in case of cheque account.
• Minimum balance of Rs.500/- is to be maintained for a
cheque account.
• Account is opened with cash only.
• Maximum balance permissible Rs. 1,00,000/- in a single
account and 2,00,000/- in Joint account.
• Two/Three adults, individuals, minor through guardian.
• A Minor having 10 years of age can also open an
account directly.
• One individual account and one joint account can only be
opened at a post office.
 Selling of Financial Products
Strategies:
• Using Referral Services.
• Direct mailing.
• Cold Calling
• Offering items having Brand Identity.
• Using Media.
• Celebrity endorsements.
• Sponsoring events.
• Email Marketing.
Thank-you