uti mutual fund welcome delegates to program “mutual fund – concepts and benefits presented by...

UTI MUTUAL FUNDWelcome

Delegates to Program

“MUTUAL FUND – CONCEPTS AND BENEFITS

Presented by Sh Rakesh Trikha, VP,Regional sales Head , UTI Mutual Fund , New Delhi

An introduction to

Mutual Funds

What are mutual funds?• A pool of money.• Investors having a common interest.• In accordance with the stated objective.• Fund manager invests money on

investors behalf.• Example:- Equity fund invests in equities,

Debts funds invests in bonds, debentures, gilts etc. and Hybrid fund invest in both

Graphical Representation

History Of Mutual FundsIndian MF Industry has gone through 3 phases :-

• Phase 1- 1964 – 1987 (UTI was the only player)

• Phase 2- 1987 – 1993 (Entry of Public sector Banks backed Mutual Funds)

• Phase 3- 1993 onwards. ( Mutual funds from Pvt. Sector start operations and regulatory authority SEBI comes onto being)

Why invest in a mutual fund?..(1)

• Professional Management

experience and resources to thoroughly analyze the

economy/markets to spot good investment opportunities

Why invest in a mutual fund?..(2) • Diversification:

Reduces the risk to which you would've been exposed by

investing in a single stock/bond

Invests in a broad cross section of industries or companies –

negative performance of one security will not have as much

of an impact on the fund

Why invest in a mutual fund?..(3)

• Liquidity & Convenience:

You will be able to get your money back within a short period as compared to other securities

Very little paperwork

Helps avoid problems such as bad deliveries, delayed payments and unnecessary follow up with brokers

and companies

Why invest in a mutual fund?..(4)

• Tax Efficiency:

Some mutual fund schemes offer tax benefits under Section 80-C

TAX FREE Dividends/LONG TERM CAPITAL GAIN( > 12 month) under Equity schemes

Only 10 % Long term capital gain under Debt Schemes v/s High taxation under FD/Post office schemes

Mutual funds offer favourable post-tax returns

Broad Classification

Types of Mutual Funds

Constitution

Investment Objective

Open Ended

Close Ended

Interval

Equity Funds

Debt Funds

Hybrid Funds

Types of Mutual Funds

By Constitution

Open Ended Schemes

• Open-ended schemes do not have a fixed maturity period / lock-in-period.

• Investors can buy or sell units at current NAV on any business day.

Close Ended Schemes• Close-ended schemes have fixed maturity periods.

• Investors can buy into these funds during the period when these funds are open in the initial issue.

• For Example :- UTI – Lifestyle fund, UTI wealth Builder Fund, UTI – Capital Protection Fund

Interval Schemes• These schemes combine the features of open-

ended and closed-ended schemes. • They may be traded on the stock exchange or

may be open for sale or redemption during pre-determined intervals at NAV based prices.

• For example: Tax saving schemes where they are closed ended for 3 years usually and then become open-ended.

Types of Mutual Funds

ByInvestment Objective

Equity Funds

• They invest the funds in stocks and shares of Companies.

• Investors can diversify their risks of investing in the markets in a typical equity oriented Mutual fund.

Debt Funds • These schemes invest in debt

instruments such as corporate bonds, debentures and government securities.

• The prices of these schemes tend to be more stable as compared to Equity schemes.

• These schemes are ideal for conservative investors or those not in a position to take higher Equity risks, such as retired individuals.

Hybrid Funds• Commonly known as Balanced Funds• They invest in both equities as well as debt. • The debt component in the Balanced schemes

seek to regular income and the equity component aims to generate capital appreciation.

• Ideal for investors who would like to take slight exposure to equity but still want an element of safety in their portfolio.

• For Example :- UTI Balance Fund, UTI Mahila Unit Scheme , UTI Children Career Plan

Further classification

Equity Funds Debt FundsHybrid Funds

Diversified

Large-cap

Mid & Small-cap

Sectoral

Index

Tax saving

Balanced

Monthly Income Plan

Liquid

Fixed Maturity Plan

Gilt

Income

Short-term

Equity Funds – Diversified• The investment objectives does not restrict

these funds from investing only in specific industries or sectors.

• These funds have a diversified portfolio of companies spread across a vast spectrum of industries.

• These schemes are exposed to equity price risks.

• For Example :- Leadership Fund ,

Equity Fund- Sectoral• These schemes restrict their investing

to one or more pre-defined sectors.• These schemes are inherently more

risky than general-purpose schemes.• They are best suited for informed

investors who wish to take a view and risk on the concerned sector.

• For Example :- UTI – Software fund, Services Fund, Pharma and Healthcare, Auto etc.

Equity Funds - Index based• An Index serves as a relevant benchmark to evaluate the

performance of Mutual Funds. • Investors are comfortable investing in a fund that they

believe is a good representative of the entire market. • Index funds move in line with the Index in the falling market

and provide the much-needed risk mitigation.• Pure Index fund :

• UTI MIF (sensex)

• UTI NIF ( Nifty)

• Index based fund : UTI Index select Equity fund

Equity Funds - Tax Saving

• Also known as ELSS ( equity linked saving schemes ).

• Gives a tax benefit to the investors under Sec 80C

• Units purchased cannot be transacted until completion of 3 years from the date of allotment of the respective Units.

• An example of ELSS scheme is the UTI Equity Tax Saving Plan (ETSP).

SECTOR

FUND

SECTOR ROTATION FUND

Thematic fund

DIVERSIFIED FUND

INDEX FUND

Risk

Leadership fund can give higher and sustainable return

Return

FUND POSITIONING

Hybrid Funds• Balanced Funds – They invest in a

combination portfolio where usually 60% is in Equity and 40% in debt.

• Monthly Income Plan – They have a higher component in debt even up to 80% and 20% in equity. They are a safe investment with a kicker from equity for returns.

• There can be multiple combinations depending upon scheme objectives

Debt Funds - Money Market Schemes

• These schemes invest in short term instruments such as commercial paper ("CP"), certificates of deposit ("CD"), treasury bills ("T-Bill") and overnight money ("Call").

• The schemes are the least volatile of all the types of schemes because of their investments in money market instruments with short-term maturities.

Debt Funds - Liquid Funds

• Liquid Schemes invest in call money market and short maturity papers.

• They are highly liquid and one can make investments in them even for a day.

• There are no Entry and Exit loads in liquid funds.

• For Example :- UTI – Liquid Cash Plan.

Debt Funds - Short-term Bond Funds

• They are good for investors who want to make investments for a period of 3-6 months.

• They usually deliver returns which are 25-50 basis points more than the call money market rates.

• They invest in Corporate bonds and Commercial Paper

• Example : UTI Liquid Plus Scheme

Debt Funds - Income Funds• These schemes invest in money markets, bonds

and debentures of corporate with medium and long-term maturities.

• These are suitable for conservative investors who have medium to long-term investment horizon and are looking for regular income through dividend or steady capital appreciation.

• They usually deliver returns which are more than 100 – 150 basis points more than the call money market

• Example : UTI – MIS Advantage Plan

Debt Funds - Gilt Funds

• These schemes primarily invest in Government securities.

• Hence the investor usually does not have to worry about credit risk since Government Debt is generally credit risk free.

• For Example :- UTI Gsec Fund

How do I make money from a

mutual fund?.....

• Capital appreciation:

As the value of securities in the fund increases, the fund's unit price will also increase. You can make a profit by selling the units at a price higher than at which you bought

• Income Distribution:

The fund passes on the profits it has earned in the form of dividends

Options to investGROWTH OPTION

• Best suitable for investors looking for long term investments.

• The amount invested goes on accumulating.

• On redemption one would receive the market value of investment.

• It is also called as money accumulator.

Options to investDIVIDEND OPTION

• Dividend Payout :- Suitable for investors who want regular income. The dividend amount comes in the hand of the investors

• Dividend Reinvestment :- The investor gets units equivalent to the amount of dividend declared which gets re-invested into the scheme.

Modes Of Investment• Lump-sum investment – Making a one time investment

in a scheme

• Systematic Investment Plan – Investing a small sum of money regularly

• Systematic Transfer Plan – making a systematic transfer of profits from 1 fund to another

• Systematic Withdrawal Plan – withdrawal of funds from a scheme on a regular basis to gain regular income.

NAV• The Term NAV means Net Asset Value.• Net Asset Value is the market value of the securities

held by the scheme.

                The market value of securities of a schemeNAV =     ______________________________________________                Total number of units of the scheme on any particular date.

• For example, if the market value of a Mutual Fund scheme is Rs.200 lakhs and it has issued 10 lakh units of Rs.10 each, to the investors, then the NAV per unit of the fund is Rs.20.

Loads or Charges on MF• Entry Load :- Generally all mutual funds

especially equity funds have an entry load on its purchase.

• Entry load is calculated on the current NAV of the fund.

• Generally a fund house charges an entry load of 2% to 2.25%.

Contd..

• Exit Load :- An Exit load is charged by the fund house when one wishes to exit or redeem his units.

• Exit load is also calculated on the current NAV.

• Generally a fund house charges 1% exit load on all equity schemes if exited before 6 months.

Tax Aspects

In case of dividend income• In the hands of the investors, dividend is tax-

free.

• Dividend distribution tax is at the rate of 12.81% payable by the AMC only incase of Debt funds.

Capital Gain Tax

• Capital Gain = selling price – purchase price.

• Capital gains are of two types:

Short Term Capital Gain

Long Term Capital Gain

Tax Rules for Mutual Fund Investors

EQUITY SCHEMES (Equity investment < 65% of fund

size)*

SHORT TERM

CAPITAL GAINS

LONG TERM

CAPITAL GAINS

TDS

Resident Individual/HUF

10% NIL NIL

Partnership Firms

10% NIL NIL

NRIs 10% NIL STCG 11.33% (10%+10% SC+ 3%ES)

* UTI Infrastructure Fund, Service Sector, DYF, Leader Ship Fund etc.

Tax Rules for Mutual Fund Investors

NON EQUITY SCHEMES (Equity investment less than

equal to 65% of fund size)

SHORT TERM

CAPITAL GAINS

LONG TERM

CAPITAL GAINS

TDS

Resident Individual/HUF

Marginal rate 10%(20% WITH INDEXATION)

NIL

Partnership Firms 30% 10%(20% WITH INDEXATION)

NIL

NRIs Marginal rate 10%(20% WITH INDEXATION)

STCG-30%, LTCG-20% (after

indexation)

*FMP, MIPs, Liquid Funds etc.

Tax Rules for Mutual Fund Investors

DIVIDEND INCOME

DIVIDEND DISTRIBUTION TAX

ALL SCHEMES EQUITY SCHEMES

LIQUID SCHEMES

NON EQUITY SCHEMES

Resident Individual/HUF

TAX FREE NIL 28.325%(25%+10SC+3%ES)

14.1625(12.5%+10%SC+3%ES)

Partnership Firms

TAX FREE NIL 28.325%(25%+10SC+3%ES)

22.66%(20%+10%SC+3%ES)

NRIs TAX FREE NIL 28.325%(25%+10SC+3%ES)

14.1625(12.5%+10%SC+3%ES)

UTI Liquid and Liquid Plus

UTI Liquid Fund-Cash Plan

UTI Liquid Plus Fund

Entry Load NIL NIL

Exit Load NIL 0.15% if redeemed between 0-7 days

DDT 28.325% 14.1625%

WEALTH TAX &GIFT TAX FOR MF UNITS

WEALTH TAX MF units are exempt

GIFT TAX MF units are exempt

INCOME TAX PROVISIONS ON CLUBBING FOR GIFT OF UNITS

Dividend Income As dividend is tax free in hands of unit holder, hence no tax applicable on either Donee or Donor

ST/LT Capital Gain Loss

If the transferee or donee is:

“spouse Son’s wife or minor son : gain/loss clubbed with that of the donor of units “

Other independent donee : gain/loss treated as donee’s gain/loss and not clubbed with that of donor

Investment option – Tax on Income

Asset Type of income

Tax

Listed equity shares Dividend Exempt

Unlisted equity shares Dividend Exempt

Equity-oriented mutual funds

Income distribution Exempt

Non Equity mutual funds Income distribution Exempt

Derivatives (futures) No income NA

Gold/precious metals No income NA

Paintings No income NA

Real estate Rent Taxable

Investment option – Tax on Capital Gain

Asset Period of holding

required to makeasset long-term

Tax on profit, if asset is long-term

Tax on profit,if asset isshort-term

Listed equity shares 12 months NIL 10%

Unlisted equity shares

12 months 20% Normal rate

Equity-oriented mutual funds

12 months NIL 10%

Non equity mutual funds

12 months 20% Normal rate

Derivatives (futures) N A NIL NA

Gold/precious metals

36 months 20% Normal rate

Paintings 36 months 20% Normal rate

Real estate 36 months 20% Normal rate

Risks Involved in Mutual Funds

• Market RiskDepends on the volatility of market.

• Inflation Risk

Inflation risk occurs when prices rise faster than returns.

Risks Involved in Mutual Funds• Interest Rate Risk This generally applies to debt funds.An

increase or decrease in interest rate affects the bond prices.

• Investment Risks The NAV of the schemes are linked to the

equity performance of such companies and may be more volatile than a more diversified portfolio of Equities.

For Further Queries Reach Your Financial Advisor

orUTI MF Team Dehradun at

S.P.S Oberai , Chief Manager 98975 40022, Relationship Manager(s) 9897000972, 982, 992

website: utimf.comToll Free No 1800 22 1230

THANK YOUTHANK YOUDisclaimer

Risk Factors : - All investments in Mutual Funds and securities are subject to market risk and the NAV of the Funds may go up or down

depending on the factors & forces affecting the securities market. Past performance of the Sponsor/Mutual Fund/ Scheme(s)/AMC is not

necessarily indicative of the future results. UTI CCP (Balanced Plan) is just the name of the scheme and not in any manner indicate the quality of the scheme, its future prospects or returns. The scheme is subjected

to the risks relating to interest rate ,liquidity, securities lending, investment in overseas market, trading in equity and debt derivatives. There may be instances where no income distribution could be made.

Please read offer document and consult your financial advisor before investing