Mutual Funds Sahi Hai!

Is it True or just a Tag of Publicity of AMFI? A Study

Designed by:-

Bipin Dutta,
Odisha Capital Market & Enterprises Ltd.
(Formerly: Bhubaneswar Stock Exchange)

1. Objective of Study

2. Research Methodology

3. Introduction to the Topic/Executive Summery

4. Literature Review

5. Qualitative Study

5.1 Why and where to invest? Is it stocks or securities?

* Savings should be converted into investment for better return.

* Better return cannot be assured on a lone investment instrument/stock.

* Lone investment instrument may not provide better return or may warrant
high risk depending upon the nature of instrument.

* Better return may be assured as well as risk can be diversified if one takes
a basket of different stocks or securities for investment.

* An investor with a meagre size of savings cannot go for an investment

portfolio of securities ranging 30-40 different stocks.

* What is the right, affordable and low risk investment option?

5.2 Mutual Funds Sahi Hai. Is it true or a tag of publicity? Discussion

5.2.1 Pros

* Mutual Fund is a common pool of funds which comes in

- To mobilize small savings and to invest the mobilized capital in

several securities on behalf of the investors.

- To ensure diversification of risk and to provide investors the return

derived from such investment in the form of dividend and capital
appreciation net off incidental expenses.
 - It is not possible for small investor to invest in different stocks to
maintain a portfolio of securities for diversification of risk while
searching for better return.

- So, it is wise to go through a fund manager instead investing

directly by himself/herself in several securities.

* Mutual Funds strategy of Compounding + Reduced Volatility help in longer

investments

* A Mutual Fund is not an investment avenue, but a vehicle to access

various investment avenues. So a Mutual Fund is one where any amount is
ideal to start investing.

*. Investors can invest ”through” and not “in” Mutual Funds.

* When one invest through Mutual Funds, he/she invests in stocks, bonds or
other investment instruments indirectly with the help of professional
managers.

* Diversified Equity Funds can deliver returns which beat inflation as

- The expertise of the professional fund manager who manages the

fund.

- Diversification of risks due to the investments made in a basket of

securities.

- Investing for the long term which lowers the impact of short term
volatility.

* Mutual Funds are ideal for small investors because

- Ease of transacting- Investing, reviewing, managing and redeeming

from a Mutual Fund scheme are all simple processes.

- Easy liquidity, maximum transparency and disclosure, timely

statements of accounts, and tax benefits are all that a small or first
time investor looks out for.

- Dividends in Mutual Funds are tax free at the hands of the investor.

- A Mutual Fund gives the same investment performance, to an

investor who has invested Rs.500/- or one who has invested Rs.5
crore. Thus it has every investor’s interests in mind – small or big.

- Professionally managed, diversified portfolio for someone who

invests even Rs.500/ a month.

* No matter how small the starting amount or modest the objectives, Mutual
Funds Sahi Hai.
5.2.2 Cons

* Usual Factors

- Management Fees
- Locked in Clause
- Wasted Cash
- Mutual Fund Charges
- Price Risk
- Liquidity Risk
- Default Risk
- Credit Risk

* Exceptional Factors

- Equities are not cheap now as Mutual Funds inflows have climbed
high which has led to high rise in equity price resulting in high rise
in P/E.

- Buying at high P/E is not safe.

- Current Mutual Funds inflows through SIP route have been

staggering which prompts Fund Managers’ blind buying in stocks
having less value or no worth.

- Mutual Fund executives are mandated to immediately invest in

equities as their job is to invest regardless of valuations.

- The challenges of MF executives are to buy at levels they are not

comfortable with as equities are not cheap.

- They need to ‘create’ a rationale about some stocks they are

buying into. However, they have no clue about the prospective
earnings of sectors or companies.

- Most of their ‘buy’ reports are based on an ill-defined

understanding of the future as on most occasions the profits they
project do not materialize.

- The result is that their work appears to be brilliant in a bull market,

the reality, however, is that they have done little to stay put on the
ship.

- They have been rewarding with bonus after bonus whereas the real
‘hero’ of this outperformance is the investors who are providing
unprecedented quantities of long-term capital.

- There is no Circuit Breaker mechanism on open ended MF inflows

by the regulator to ensure normalcy.

- AMFI while messaging “Mutual Fund Sahi Hai” has no alarming

message.
5.3 Important Terminology

* Net Asset Value (NAV)

* Entry Load
* Redemption Price
* Repurchase Price
* Switch
* Shut-out Period

5.4 How NAV matters to investment

* NAV – Highs & Lows of it

- Low NAV
- High NAV
- Myth 1 - Low NAV means More Units = More Dividends
- Myth 2 - Fund with High NAV have reached their potential

* Does NAV reflect best estimate of the net market value of a scheme?

6. Case Study (Road map to follow)

6.1 Primary data analysis through investor survey

6.2 Secondary data analysis

7. Findings & conclusion (To justify the title of the topic)