Mutual Fund

SAVING AND INVESTING ARE DIFFERENT

What is saving?
Simply put, saving is storing your money away instead of just
spending it.

Saving is important
- to be prepared for any uncertainty and creating a rainy day fund
- to build wealth
- to meet your dreams (like buying a house or a car, children
education, foreign holiday, daughter’s wedding, etc)
-to create fund for retirement
What is investing?
Simply put, investing is putting your money to work for you.

SAVING AND INVESTING - NOT THE SAME THING

Saving is convenient for short-term goals or an emergency fund while investing
is for long-term goals. You should make each an integral part of your financial
plan.
Saving Investing
Focus on growing or increasing
Focus Focus on safety of capital. the initial amount of money,
i.e. returns
Typically involves low-risk Involves low-high risk options
Risk options like savings like equity, bonds, gold, real
account, fixed deposits or estate, mutual funds
money market funds
Simply put, a mutual fund is an investment company wherein many investors
pool in different sums of money to make up a large lump sum. The money
collected is invested by the fund manager in shares, bonds and other
securities.

The mutual fund house

charges a nominal fee for
managing the fund in
return for their services.
The investor is liable for
any profit or loss, net of
expenses, arising out of
the investments made.
Why invest in mutual funds?
 Portfolio diversification
 Professional management
 Reduction in risk
 Reduction in transaction cost
 Liquidity
 Convenience and flexibility
 Total Transparency
Mutual Funds: Equity Schemes

Equity Schemes invests in stock market and is good for all kinds of investors as the headache of
managing the money is given to the expert fund managers. Most of the investors today have
atleast some exposure in mutual funds.
Very easy product to sell and can be classified as:

1. Diversified Plans: Large Cap Diversified, Mid and small cap Diversified and Multi-cap
Diversified

2. Thematic and Sector Funds: Themes like PSU and specific sector like IT

3. ELSS (tax saving funds): offers tax exemption of Rs 1 lac under section 80C and comes with 3-
year lock-in
Mutual Funds: Debt Schemes

Debt Schemes are good option for conservative and short term investors.

1.Liquid and ultra short term funds:

Good for all kinds of investors. Money is as safe as in bank account
with lesser tax (only 13.5% DDT) and better return than bank account.
Minimum investment is as low as Rs 5,000. Currently giving upto 8.5-
9% yield. Money can be invested in them for even a day.
 Mutual Funds: Liquid Scheme
Corporates
Amount Invested 30,00,000

Expected return (%) (Pre Tax) 8.50 Can you imagine?

Expected return (%) (Post Tax) 5.74 Rs 30 lacs invested in
Return for 1 day (Pre Tax) Rs 698.63 Liquid / Ultra short term
Return for 1 day (Post Tax) Rs 471.92 funds only for Weekends
i.e. Friday, Saturday &
Return for Weekend (Pre Tax) Rs 1397.26
Individuals Sunday can earn up to Rs
Amount Invested 30,00,000
Return for Weekend (Post Tax) Rs 943.85 62,000 a year tax
Expected return (%) (Pre Tax) 8.50 free!!!!!
If invested for all 52 weekends 49080.16
Expected return (%) (Post Tax) 7.35

Return for 1 day (Pre Tax) Rs 698.63

Return for 1 day (Post Tax) Rs 604.18

Return for Weekend (Pre Tax) Rs 1397.26

Mutual Funds: Debt Schemes

2. FMP:
These are equivalent to bank FDs and are just as safe. There
are monthly, quarterly, half yearly, yearly and longer plans.
So investor with idle cash even for a month or a quarter can
invest. Again benefit over band FD is lower tax and higher
yield.

 Returns higher or equivalent to FDs

 Much more tax efficient than Bank Fixed Deposits
 Available from 1 month upto 3 years
Mutual Funds: Hybrid Schemes

What is Hybrid?
Mutual Funds: Hybrid Schemes

Balanced Funds and Monthly Income Plans are

examples of Hybrid Schemes. They invest in a mix of
equity debt and in some cases gold.

Very good products for conservative investor who are

not very comfortable with equity and for short term and
low income group investors as they can’t take too much
risk.

Monthly Income Plans (MIPs) very popular with

conservative HNI investors as invests 75% in debt and
25% in equity.
How to select the right mutual fund?
There are many factors that decide the choice of mutual funds.
A brief overview is given below:
 For Capital Appreciation go for equity sectoral funds, equity
diversified funds or balanced funds. But investment horizon
should be minimum 2-3 years.
 For Regular Income and Stability you should opt for income
funds/MIPs.
 For Short-Term Parking of Funds go for liquid funds, floating
rate funds, short-term funds.
 For Growth and Tax Savings go for Equity-Linked Savings
Schemes. Lock-in period for Tax saving fund is 3 years.
 Investment
Investment Objective Ideal Instruments
horizon
Ultra Short-term
1 day- 3 months Liquid/Ultra Short-term plans
Investment; 100% safety
Short term but safety &
1month - 3 yrs Fixed Maturity Plans (FMPs)
fixed return
Capital Appreciation –
Over 3 years Balanced Funds
moderate risk
Regular Income Flexible Monthly Income Plans / Income Funds

Tax Saving 3 yrs lock-in Equity-Linked Saving Schemes (ELSS)

Capital Appreciation Long
Over 5 years Equity Funds
term
Portfolio Diversification Long term Gold ETFs and Gold Funds
 What is a SIP?
Is it a type of mutual fund scheme?
Is it a special plan?
 What is a SIP?
To explain it simply, SIP is like a recurring deposit with
the bank wherein you put a fixed amount of money
every month, but the difference being, in SIP the money
goes into the mutual fund.

 It helps to save regularly and thus inculcates a sense of discipline

 It harnesses the power of compounding
It is the best possible way control greed and fear and avoid impulsive buys-
and-sells that otherwise one is gripped by in times of market volatility.
 Rupee cost averaging
 Power of compounding
When you invest every month, not only you generate returns on your capital,
but through a SIP, you generate returns on your returns as well. Sounds
confusing?

Suppose you invest Rs 3,000 every month and in first month you get a 5%
return, so the next month your total amount invested in the mutual fund will
be Rs 3,150 plus the other Rs 3,000 you will put at the start of second month.
So your fund manager has to now generate returns on Rs 6,150 not Rs 3,000.
The same cycle carries month-after-month till you stay invested.

When you invest Rs 3,000 every month for 25 years in the Systematic
Investment Plan of mutual fund scheme, you accumulate Rs 82 lacs* after 25
years. Your total investment in 25 years would be Rs 9 lacs.
(15% compounded return is assumed for the calculation).
Mandatories for mutual fund investment
1.Pan Card
2.Mutual Fund KYC (it is a one time procedure)
3.Bank Account
4.Filled and Signed Application Form with cheque

Requirement for KYC (individuals)

1.Original PAN Card (identity proof) + 2 self-attested copies
2.Original Bank Account Statement (address proof) + 2 self-attested copies
(Driving license, latest electricity and landline telephone bill, voter identity card, ration
card can also be used for address proof)
1.Photograph
2.KYC Form duly signed and filled
Admin Office: 6 Lad Colony, Indore - 452003
Corporate Office: 67 Nehru Road, 3 Flr Krishna Bhavan,
Vile Parle (E), Mumbai - 400057
Phone: 022-42254800
Fax: 022- 42254880
Email: contactus@arihantcapital.com
www.arihantcapital.com