Mutual Funds & Insurance

8/9/2019 Mutual Funds & Insurance

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UnderstandingUnderstanding

Mutual FundsMutual Funds

&&

InsuranceInsurance


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What is a Mutual Fund?What is a Mutual Fund?


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A vehicle for investing in stocks and bondsA vehicle for investing in stocks and bonds

y A vehicle for investing in stocks and bonds.

y Not an alternative investment option to stocks and bonds.

y It pools the money of several investors and invests this instocks, bonds, money market instruments and other typesof securities.

y owner of a mutual fund unit gets a proportional share ofthe funds gains, losses, income and expenses.


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Mutual Fund OperationFlow Chart


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Managed by an Asset Management Company (AMC)Managed by an Asset Management Company (AMC)

y The company that puts together a mutual fund iscalled an AMC .

y AMC may have several mutual fund schemes .

y AMC hires a professional money manager, who

buys and sells securities in line with the fund'sstated objective.


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All AMCs Regulated by SEBI, Funds governed by Board ofAll AMCs Regulated by SEBI, Funds governed by Board of

DirectorsDirectors

y Mutual fund regulations require that the fundsobjectives are clearly spelt out in the prospectus.

y Every mutual fund has a board of directors thatis supposed to represent the shareholders'

interests, rather than the AMCs.


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Important documentsImportant documents

y Two key documents that highlight the fund'sstrategy and performance are 1) the prospectus(legal document) and the shareholder reports

(normally quarterly).


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Professional Money ManagementProfessional Money Management

y Fund managers are responsible for implementinga consistent investment strategy .

y Fund managers monitor market and economictrends and analyze securities


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Types of Mutual FundsTypes of Mutual Funds

Type ofMutual Fund

Schemes

StructureInvestment

Objective

Special

Schemes

Open Ended

Funds

Close Ended

Funds

Interval Funds

Growth Funds

Income Funds

Balanced Funds

Money Market

Funds

Industry Specific

Schemes

Index

SchemesSectoral

Schemes


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OpenOpen-- and Closeand Close--Ended FundsEnded Funds

y Open-ended Funds : can enter and exit thefund scheme at its NAV. They have no maturity

period and are not listed in the stock market.

y Close-Ended Funds: Redemption can takeplace only after the period of the scheme is over.

Close-ended funds are listed on the stockexchanges .


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Some popular objectives of a mutual fund areSome popular objectives of a mutual fund are --

Fund Objective What the fund will invest

in

Equity (Growth) - Only in stocks

Debt (Income) - Only in fixed-incomesecurities

Money

Market - In short-term moneymarket

instruments(including government

securities)

Balanced - Partly in stocks and partly infixed- income securities,

('balance' in returns and risk)


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Advantages of Mutual fundsAdvantages of Mutual funds


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DiversificationDiversification

y Diversification is one of the best ways to reducerisk.

y Mutual funds offer investors an opportunity todiversify across assets.


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LiquidityLiquidity

y Investors can sell their mutual fund units on anybusiness day.

y Receive the current market value on theirinvestments within a short time period (normally

three- to five-days).


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AffordabilityAffordability

yThe minimum initial investment

for a mutual fund is fairly low formost funds (as low as Rs500 forsome schemes.


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ConvenienceConvenience

y Convenience of periodic purchase plans,automatic withdrawal plans and the automatic

reinvestment of interest and dividends.

y Reports and statements .


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Flexibility and varietyFlexibility and variety

y Pick from conservative, blue-chip stock funds,Sectoral funds,

y Funds that aim to provide income with modestgrowth

y Those that take big risks in the search forreturns.

y You can even buy balanced funds, or those thatcombine stocks and bonds in the same fund.


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Tax benefits on Investment in Mutual FundsTax benefits on Investment in Mutual Funds

y 100% Income Tax exemption on all

Mutual Fund dividends .


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INSURA

NCEINSURA

NCEy UNPARALLED RISKCOVER& PROTECTION AGAINSTFUTURE UNCERTAINITIES!!!!!

y In other words, Insurance is a contract between two

parties where one party (the insurer) agrees toprotect the other party (the insured) in the event ofany loss or unforeseen event. Insurance can bebroadly classified into two categories Life Insuranceand Non Life Insurance.


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Why insurancePRIMARYREASONLife is full of uncertaintiesProvides the much required RISKCOVERServes as a financial buffer in the wake ofany un-favorable and un-foreseencircumstancesEnsures that near and dear ones are notleft in financial doldrums due to anyexigencyThe risk cover that insurance provides hasno parallels in the financial world


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Money back plans provides anelement of liquidity by returning aportion of the sum assured at regular

intervals. This is in addition to the riskcover.

Unit linked plans invest a

percentage of the premiums in marketsecurities and provide returns. Thiscombines market linked returns along

with risk cover

SECONDARY REASON

Documents

Mutual Funds & Insurance