Mastering Mutual Fund Investment - Part 1 of 3 | Partha Majumdar | Skillshare

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Mastering Mutual Fund Investment - Part 1 of 3

teacher avatar Partha Majumdar, Just a Programmer

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Taught by industry leaders & working professionals
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Lessons in This Class

35 Lessons (2h 26m)
    • 1. Introduction to Part 1

    • 2. Why Mutual Fund?

    • 3. Mutual Funds Definition

    • 4. History of Mutual Funds

    • 5. Advantages of Mutual Funds

    • 6. Disadavantages of Mutual Funds

    • 7. Classification of Mutual Funds by Mode of Operation

    • 8. Debt Funds

    • 9. Equity Funds

    • 10. Index Funds

    • 11. Balanced Funds

    • 12. Investment Plans

    • 13. Investment Options

    • 14. Essential Terms New

    • 15. AMC

    • 16. ARN

    • 17. NAV

    • 18. AUM

    • 19. Expense Ratio

    • 20. Entry Load

    • 21. Exit Load

    • 22. NFO

    • 23. SOA

    • 24. DEMAT

    • 25. ISA

    • 26. SIP

    • 27. SWP

    • 28. STP

    • 29. CAGR

    • 30. Risk

    • 31. Tax

    • 32. Bonus Video: Risk Appetite

    • 33. Bonus Video: Mutual Fund Liquidation

    • 34. About Me

    • 35. Closing Notes Part 1

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About This Class

In this world, where interest rates are ever decreasing, and inflation is ever increasing, it has become almost necessary to take some risk and invest in the stock market to be able to save enough for the retirement. However, investing directly in the stock market requires a lot of time and effort and above all, knowledge. And this is why it is probably too risky for small investors to invest directly in the stock market.

A much safer way to invest in the stock market is through mutual funds. Investing in mutual funds requires far less amount of effort on the part of the investor and is much less risky as professionals manage these funds. Further, as many investors pool in their money in each mutual fund, the chances of getting higher returns are much superior due to the ultimate size of the Investment.

This course series - Mastering Mutual Fund Investment - discusses all that you need to know about mutual funds and investing in mutual funds. Whether you are a beginner, just about starting to invest your money OR you are an experienced investor, you will find this course useful as it discusses all the nuances for making the right choice of investing in mutual funds to maximize returns at the minimum risk.

In the first part of the course series, we discuss the minimum essential knowledge one needs having about mutual funds. We discuss what mutual funds are and what are their types, what are the investment options, etc. Also, we take a look at a plethora of essential terms one needs knowledge about investing in mutual funds.


Meet Your Teacher

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Partha Majumdar

Just a Programmer


Partha started his career in 1989 as a programmer. In his first assignment, he was involved in development of a Cricket Tournament management system as a part of the team from Centre for Development of Telematics (C-DOT) requested by the Prime Minister of India, Mr. Rajiv Gandhi. Since then Partha has developed Tea Garden automation solution, Hospital Management solution, Travel Management solution, Manufacturing Resource Planning (MRP II) solution, Insurance Management solution and Tax automation solution (for Government of Thailand).

Partha got involved in Telecom solution with project from Total Access Communications, Bangkok in 1996. Partha developed the completed solution architecture and designed & developed the complete infrastructure services and primitives on top of whic... See full profile

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1. Introduction to Part 1: Oh, and welcome. When a different A friend of mine told me that he got some ₹50 lakh from one of the projects on he did not know what to do with that money. His goal was that he wanted to get a monthly because from this money, so that he could take care of his expenses. That hope. Now I told him what other solutions for him could be that equal investing mutual funds. However, he told me that he had no idea regarding what was which of funds. So I started from the process of guiding him regarding what is mutual funds on how to go. One interesting. How to buy off the cell, etcetera. I took me nearly one year off concerning with him so that you could understand What is your friends all about? This person is now making about 40% returns from this mutual funds for the last two years. I don't know. Incident happened with my cousin in the mom told me that is returning from Saudi Airlines in other money up on, he would be getting a lot of money from his retirement, as is common benefits. He asked me what did you do with that money? I told him that part of the money you could invest in which fronts on the remaining equally invested other instruments. He again told me that he had been investing in mutual funds. However, he was not very happy with investments in, which is fine. I asked him, How does he go about investigating Richard fights? He told me that he has no idea. Basically, are some advices. I'm based on the advice he does it on. It is not giving corporate sites. So I created a portfolio for my cousin. I'm giving him based on when she could invest. I don't. So I told him hard a special counsel about for the current mutual funds and how you should know about going up investment in virtual fighter? No, he has just what started. You really get to know. How is it that should be, But I'm sure he was gonna put becomes for the mutual funds what he's investing in. So these incidents made me realize that there are normal people in this world who do not have any idea regarding what our mutual funds now, this is very important to know about me to fund, basically, because in this world where inflation is raising on interest rates are falling on a daily bases. It is very important that we investing which funds of the share market in general so that we have a decent return from our investment, why it is important to investing which of funds. It is more important that we know about which funds before we invest in mutual funds. Otherwise, investment may not even what you're expecting it. Three. That's why I could do this coast when I take you on a journey from the very basics to the very advanced topics on which your funds now knowing this topics on then applying them to invest in mutual funds is a more or less guarantee for you to be earning a good amount of money from which fund investments. After I came to this course, I expressed my wife to review that goes for me, but once you reviewed it, she told me that the coast has become too big on. It would be difficult for people on something for such a long time on this coast, she says. This turn that I break the clothes into three parts so that people could have concentrated you off what they're learning. So I broke. That goes into three parts of these parts containing off topics off for the team. So this is a three part cause which takes you on a journey from the very basics of mutual funds very fast off itself, which finding this man, this is the first part of the three Park City's mastering visual fund investments. My name, Isparta, Majumdar and I am an Indian. I come from Kolkata. Kolkata was early, known as Calcutta. Calcutta was famous for many things, but nothing more done. It is a city off other terrorism. I live in Bengal Ooh, with my wife and two daughters. I have been investing in mutual funds since 1990. Say all my investments and mutual funds have been in India. Apparently they're not terribly seven people across the globe who seek advice from me regarding investments including mutual fund investments. Though I do not do this work professionally, as I do not charge them, any money for this advice is Now let's take a look at the contents of this post in this particular course, which is the part one of the three part series. We discuss the basics of mutual fund investments. We will introduce her different terms and terminology is one needs to be a red off are investing in reaching for so the course we'll cover why we should invest in mutual fund. What are the mutual funds? Actually on one of the different types of mutual fund? One of the plants and options available for investigating which funds on? Then we rediscovered Separate told our essential terms. What needs to know for investing in mutual funds? The second part of the course we really discussed indicators and metrics. Now some your own words, the cost of getting it for technical. Their knowledge of excel on knowledge of some basic sciences at the level required. The second part. We will discuss how to find information regarding which in front, what are expected returns standard deviations in terms of this nature. What is Vita? Far are square. That's it. What are the shows like? Sharpless, Your turn. A ratio Sortino ratio. How to calculate these ratios? We would see convenience in the third and last part of this particular cause. We will discuss how to create foot soldiers out of mutual funds to discuss some advanced topics like value stocks Road start on from dead. We will move on to value funds, growth funds, Contrafund, Arbitrage funds. And really look at how toe calculate the essential metric for a portfolio. Then you're discussing became regarding what is trustee escort Armand as G scolded Trump. Then we will down down with a location or funds to him Which one portfolio and how to optimize their said I hope you will enjoy the coast if you find there some contents which you are still requiring beyond the content that is assessing the coast. Please write to me on I will try to add those material in the course as well. Are you gonna ask you questions checking on? So you wanna put 1 to 1 basis ordering that group. Thank you for this name. I enjoy the course. Happy learning, Happy investing 2. Why Mutual Fund?: 3. Mutual Funds Definition: in this coast. We start from the very beginning. We start by defining what is a mutual fund. Our mutual fund of the professionally managed investment fund that pulls money from many investors and invests in securities securities basically means the stock market. The investor may be a retail investor like you and me or installation is Mr Like some companies. Let's have a look at the mechanics of how the mutual fund investments work. We will go step by step to understand the whole process. A mutual fund company, also called US AMC Asset Management Company. Now they announce mutual funds. It can be a new mutual fund, all existing mutual fund on seeing announcement Many investors what may want to invest in the mutual fund so they gather their small amounts of money and give it to the mutual fund company or the emcee through a subscription. Now the collected money with the AMC has got it. Invest in the stock markets by investing in the stock markets. They have a you would do call number of portfolios that their porches from the stock market , the mutual fund company, makes profits or losses. Now these profits or losses are passed on to the investors who have invested in the particular mutual fund. In the previous illustration, we used a word. We shall find houses. However, technically they're actually known as asset management companies. AM sees. Also, AMC is not only invest money off the investors in stocks, but also inborn securities, etcetera. Thank you for watching. See you in the last lecture. 4. History of Mutual Funds: Now let's take a brief look at the history off mutual funds. History always helps in terms of understanding where we came from. We find the earliest evidence of mutual funds in 1917 17 72 73 in the Dutch Republic, formed by a person called Adriaan Van Cat, which he created a fund which allowed small investors with an opportunity to diversify their savings in the United States of America. Mutual funds were introduced in the 18 nineties. Mutual fund industry began in India in 1963 with the formation of unit Trust off India, U T I. As an initiative of the government of India and is a Bank of India in 2019 the mutual fund industry, worldwide managers and I said, What approximately US dollar 50 trillions as on big the countries of the largest mutual fund industries is given here. - Thank you for watching. See you in the last lecture 5. Advantages of Mutual Funds: Welcome back. Now let's discuss that. Gone pages and disadvantages off mutual funds. We start with that. Want a GIs? The first advantage is that the mutual funds can be afforded by a very large number of people because it requires very small amount of investment to start investing in mutual funds. So you'll be investing in the share market at a very small capital investment in India. It is possible to invest in mutual funds with as low US ₹500 normally and therefore has launched where you can invest in A and M four with only ₹5000 to start with. The second advantage is that when we put our money in mutual funds, the fund managers, they put the mutual our money along with the money off all other investors into a large number of securities stocks. Barnes. That's it from now. This means that we act. Our money actually gets diversified into multiple number off instruments. Their diversification, we know, is a key to reducing risk. Now the graphs directly see it shows that when the number of instrument is on about 30 the risk is almost negligible. So we get this advantage of diversification by investing in mutual funds. I want those three is that mutual funds are fairly liquid. Generally, mutual funds can be sold. Whenever person wants toe, sell them on the set. He can sell it at the net asset value. We will see what matters and value means later in the course. Andi, get the money transferred to his account within 2 to 3 working days. As for the nonce of day and see now, we will also see that there's a prize for this liquidity way will explode this later. In this course, However, there are some mutual funds which is not liquid between. We will explore late. I'll call the close ended mutual funds. So which it is fair to say that which in front are generally very liquid advantages For like I discussed in the very beginning, mutual farms are managed by professional fund managers. Now every AMC highest this fund managers to manage the portfolios. That way, we invested. Now this fund managers, they have a lot of experience in investing in the stock markets. On their job is to monitor the stock markets on a minute to minute basis. Now, for a small investor it is very difficult to monitor the markets on a minute a minute basis in spite of the fact that there are a lot off TV channels which you prick provide programs on the stock market are there is no information available on the Internet. So the professional fund managers they have access to a lot off information, and their job is to monitor the stock market and investor money or Vice Lee in the instruments I wanted to fight, not through mutual funds. Small investors can participate in investments that may be available only due largely investors. This is like, for example, small investors find it very difficult to participate in investments in foreign markets. Now this channeled off mutual funds allows them producer the sixth advantages that the emcees normally provide a lot of services on conveniences for the investors. For example, the AMC scary all the number of research which would not be possible for small investors to conduct by themselves. The AMC passes on this research results to the investors so that they can make vice decisions based on also and is normally allocated certain PR. But buster relationship managers who advised investors from time to time regarding what could be a good investment, so these services are provided. Besides, in today's world, emcees normally have websites are combine phone interfaces using which investors can interact with the aim sees. I can't get their services for the mutual funds. They have invested it. The next advantage is docked. The mutual fund investments are regulated by the government bodies. So they, the government body with specifically looks after all the mutual fund investments and regulates the laws and procedures from or how they should be conducted in the country. So the chances are fraud in a mutual fund is absolutely minimal. The last advantage that we discuss is that off transparency and ease of comparison now every mutual fund houses required toe provide reports to the investor regarding the performance of the mutual fund. Besides all the details of the transactions that have taken place. Besides this, every Mitchell fund is required to report the same information to the investor. This is dictated by the government now the periodic city off. This report is also fixed by the government in India, for example, every mutual fund houses expected to report on a monthly basis to the investor regarding the performance, etc. Now seeing these different reports from different way Children houses, it is possible to make a comparison and see very. The investor would like to invest more money or red and Mr Would like to withdraw money from. Besides this, the stock market in which the mutual fund is in Western in stents reports to the investor on a consolidated basis regarding all the investments of the investor in that particular stock market, this makes it much more easier for the investor. Do analyze his investments. Thank you for watching See you in the last lecture. 6. Disadavantages of Mutual Funds: Welcome back in the last video with Doctor about all the advantages of mutual funds. Now let's take a look at the disadvantages of mutual funds. We have been discussing that the mutual fund a professionally managed by the emcees through professional fund managers. Now this management by the professional fund managers comes out of feet. The emcees charged a certain amount of money from the investors for the management of the mutual funds. Now we're not talking about the fees, which is involved in terms off managing a mutual fund account. This is nearly the same as what you would require for men getting, ah account for trading on shares, etcetera, the mutual funds they have. Certain freeze, which is specifically mentioned, may make for paying the fund managers for managing the initial funds. Normally, we know this has the expense ratios, which we will discuss later in the course. The second disadvantages that, as with share trading, shared training, we can time the when we when we want to purchase the shared off. When we want to sell a shit, we can study the company's records on DSI their performance and make decisions as to when to buy and sell. Now this normally results in good profits, either. If the timing is correct with mutual fund, we do not have this control. This is basically because the mutual fund houses they really invest in the portfolio on we have toe by Andi remain on the portfolio or sell the portfolio based on our judgment. Now there is a some element of timing also involved in mutual funds. Now that it is completely not that mutual funds all the rise and fall along with the market on that time, that can be tied as to anyone to buy, very want to sell the mutual fund. However, this is not as flexible as we have the opportunity with Chairs the third disadvantageous docked with mutual funds. We do not have the opportunity to customize. This is because the portfolio off the mutual find this management of fund managers. Now, if we are trading directly in shares, then we have the opportunity where we can think. Okay, we would like to have this sharing our portfolio argued that could remove this shape. We do not have this flexibility with mutual funds, the only when the fund managers decided to change the shareholding patterns, although within the mutual fine Well, they're very change in the portfolio of the mutual fund. However, we can work out this also by having a portfolio off which will find itself. You see how this can be done. The last disadvantages that discusses that the returns of the mutual fund portfolios depends heavily on the formality of skill and judgment. This is because they don't which will Fund is managed by the fund manager on. It is totally the skill of the fund manager that determines how much the mutual fund will make profits on losses. Now the history of the fund managers and the track record that surprise from legally available. So it is very important to study their backgrounds on then history or performance, it said, before investing in a particular mutual fund. Thank you for watching See you in the less lecture 7. Classification of Mutual Funds by Mode of Operation: Welcome back. Now let's look at different types of mutual funds. The mutual funds can be classified according to many different aspects. We will look at how the most important aspects off translocation. We first look at classifications by mode of operations. This is the only classifications available when mutual funds were initially introduced into the market. However, now there are different ways off classifying well. First, look at how Children's can be classified according to mode of operation. According to more of operations, mutual funds can be classified as open ended mutual funds that closer that mutual funds. So apparently they may look the same, but they're very different from each other. Now there's another 1/3 which and Fun Time, which is not exactly a mutual fund, which we can will also discuss. These are known as the E P ETFs exchange traded funds. These have got characteristics which are hybrid between open and Richard funds on closer and mutual funds. Let's take a look at open in the region finds first now in open ended mutual funds. They first of all offer unlimited number of shares of investment that is, anyone can buy any number off units of mutual funds, which had open ended. Now these mutual funds, which are open ended, they are sold on demand. That is, any time one can purchases. We shall find that anytime they can sell it, there is no restriction on when they can purchase and when they can sell another. When the purchase of mutual funds are seldom mutual fund, it is traded at the n A. B or net asset value. This net asset value off the mutual funds is declared every day. That is hope this NPV basically defines what is the price off one unit of the mutual fund. So based on that price, one can purchase any number off units of mutual fund, which are open ended on any day off. The week which had been trading, is active. This study here are three mutual funds which are open ended in the Indian market. Now open ended mutual funds can be bought and sold it any point of time. Like we discussed, however, toe by and tell the mutual fund you would either have to interact directly with the AMC or through an inter bigot. Now, many place the order for buying or selling the mutual funds. Normally the emcee of the intimidatory, they extended time off two PM on on on the next working day as the time before recent transaction would be executed. So it is not that I placed the order at 10 o'clock and then what? I will get executed exactly 10 o'clock now. This delay does not really matter, because that may be for a mutual fund is always fixed. A date of the day so we will get there may be, as it is defined for that particular day. Most of the mutual funds traded in today's market and open ended mutual funds. However, this was not the case with mutual funds that we should be started. Mutual funds are initially started. All the mutual funds are close ended. However, time has changed and today most of them we shall find that open ended on very few are closed ended. Now that we have seen open ended mutual funds there, let's take a look at closer and mutual funds. Now the most significant difference would you know about him etc. Which funds and closer and mutual funds is dark. The closer that mutual funds cannot be, they traded on a daily basis. You can buy your closer that mutual fund at any point of time. However, these mutual funds have something which you know neither lock and failure now. But during the lock in period, the closer than mutual funds cannot be sold. So supposing a closer and mutual funds has a lock in bill of three years. That means from the day off, purchases the mutual fund. If you cannot sell that mutual fund for a period of three years, the second major difference is that the closer that mutual funds have not fixed number of shares that I needed, like the open ended mutual funds, the closer and mutual funds nor do not have unlimited number of shares now because they have a limited number of shares. These closer and mutual funds are treated between the investors who have invested in this close knit region funds. The one of the most significant defense is that the closer and mutual funds are not always sold that day navy. They also have a net asset value, which is declared most mostly in on a daily basis. However, these closer than mutual funds can be sold at a premium order discovered we're selling a premium basically means that I'm selling it. I may be a selective price, which is more than the enemy, or sending it in this town basically means that I'm selling at a price which is less than the enemy. So this is something which traders off closeted Megyn funds frequently conduct given. Here are three examples off closer that mutual funds from the Indian Market. Incidentally, all these three closer admission funds have a lock in period of three years. That is, once you purchase the units in this vigil fund, you cannot sell them for a period of three years. Now that we have seen water, open ended mutual funds and protein and mutual funds, let's take a look at exchange traded funds. Exchange student funds were introduced in Canada first in 1990 United States Air Force, The A T F was launched in 1993 in India. The first UTF was launched in 2000 and three. My excess turn it funds are hybrid between open and in which, and funds and Rosalynn mutual funds. They are extinct. They are traded just like stocks. So they're listed on the stock market and demonstrated just like stocks. Now I like opening the mutual funds exchange. Mutual funds can be bought and sold at any point of time are based on that dance that is a net asset values. However, the price at which they are sold can be at a premium, or this town just like the closer that mutual funds. However, there's a defense room closer than mutual funds, in the sense that the price from the NAB the premium other discount can always stays within one person. Daughter. Now, thank you for watching See you in the next lecture. 8. Debt Funds: Welcome back In the last video, we saw declassification of mutual funds by mode of operations. Now let's look at the declassification. We classify mutual funds by investment patterns, investment patterns. We mean that Where does the mutual fund investing to get the returns for the for the investors. So, yeah, we basically look at three diaper funds. Initially, the bottom. We have debt funds. Now. These are the least risk funds because they invest in that on the most most risky ones of the equity funds, which invest in equities. In between, we have the Balanced Fund, which invests some amount of money in debts and some amount of money in equities. Really look at what is debt and equity in details in the following lectures. We start with that Fights that finds alternatives. Born fights is basically because the dead funded an instrument pool in with the core holdings are in fixed income instruments, fixed income instruments. Basically, we're refering to short and long term bones are securitized for lots of money market instruments off floating their debts. Now in that funds, the basic learning comes from the interest. What is our from giving up deck? Not the borns. Maybe government born the semi government bonds, so essentially borns means I know you. So I am giving money to somebody expecting a return on that money along with some interest , so that that's why borns are very lotus onder Income is all is guaranteed unless opposed. There are situations like weather person befalls in terms of going bankrupt, etc. That's why debt funds are very glorious funds on, like we know that in tough instrument is low risk. The returns are also know from the instrument. When we say no returns, it should be taken with a pinch of salt because there are times in the economy when the bond market booms. For example, when the government starts borrowing money from the private market in a heavy manner, the bond market booms. Under these circumstances, the dead funds can give you a very high returns. So might be, in general the day trying to keep a return, which is maybe more done, water fixed income like a fixed deposit on recording because it can give an investor another significant thing to notice that debt funds put most of the money in debt. That does not mean the dead finds 100% of the money in debts. So it is possible that the net funds for 80 to 90% of the money in deads on 10 to 20% of the money in equities. So they somebody went off. Ah, this in the date funds from the equities market as well presented here is one example of a debt fund. We take the example of FBI dynamic born front. Look at the holding patterns that is no exposure to equities. This is God zero exposure to equities. It is largely exposed to debt and some instruments similar today. Look at the location of funds here, me or to the funds allocated to government of India sickle t the Central India Central government loans. Now we take a look at the different type of debt funds. These are by far the most popular ones on. That's why we will have a look at each of them. In brief, we first look at gate fights. The primary objective of guilt fund is capital appreciation. You don't understand it by how the guilt finds open it. The government. Let's in the government of India asked for money from the is the Bank of India. It's up. Bank of India gives the government money, but before it can give the government money, that is, the Bank of India collects this money from the market. No, the investors who give money to Reserve Bank of India give it after interest rate agreed and in return for them on either Reserve Bank of India, choose them. Oh, security. Now the security is normally have a maturity in the range of 15 years, 30 years or maybe three years, five years old. Now, when the security machos r B I returns the money to the investor on the investor, it does that security back to the idea. That's why the investments in these gil funds are extremely secure because there's no chance of before in getting the money back from under here. However, the fact that very highly sensitive to interest rates the interest rates are set by R B I, from type to type when the interest rates are going down, gave funds, but from very Heidi. This is true for any bonds. When the interest rates go down, the bond market in general goes up. However, when the interest rates goes up the good Farting suffered very heavy that now that net asset value of guilt funds is extremely watertight. That's why investors who have a moderate to high tolerance for this should look for investing in this girlfriend. Next, we look at income files. Now, unlike guilt funds income funds in investing varieties off fixed income securities such as borns D Ventures, government securities on the Keys they invest in these fixed income securities across different maturity. Pro fights, for example. That income fund may investing. Incorporate Born, which is not a majority. People off two or three years on alternate government security, which we have a maturity peel off 20 years to 30 years now, since the investment has not such very maturity profiles, the strategy is to both hold to maturity and also take a relation. Call now why division call is because we know that bones can be sold before maturity. Old oil of any sell bonds before maturity. They may in the income of them in the loss. Either way, it can happen. But the average maturity is often come. Find this between 17 20 years. Like guilt funds, income funds also are very highly sensitive to interest rates. But interest rates go down. Income for Agnes feel very heavily on when interest rates go up income funds in decreases, so investors in moderate to high risk tolerance levels should invest in in conference. Now, we discussed shot down bed funds. Now the short term debt finds they basically invest in commercial paper. Certificates of deposits are short maturity bonds. Now. The average maturity period off these instruments is normally 23 years. That's why the chances of before in these instrument is very low minimum. These are basically loans which given toe given for different purposes on day after we recovered in a very short period of time. As a result, these are very low risk instruments, so the short term debt funds a very lotus Andi. Investors are looking for getting a regular income. You can invest in the short term debt funds next to discuss trade opportunities funds. Now this period, opportunities find a very similar to Shock Tom that funds differences that credit opportunities funds invest in low rated corporate bonds. The loaded incorporate borns basically means that the bonds which are released for the card prints they're rated by agencies like Priscilla Tsipras Triple A double A triple A plus, etcetera, the the born Sicherle aerated like Triple A or double A. These are the ones that you're taken for investment by this corporate opportunities funds. So they also have a maturity of two or three years all over. The risk is the greater than, uh, short term debt funds. Because these off bonds are slightly lorded, however, these are even the low ratings a little bit lower. They're not at all very in this theater. So the investors with lowering low risk tolerance levels looking for slightly more income than short term debt funds to one regular incomes can invest in this credit opportunities funds. Next, we discussed fixed maturity plants. Now, unlike the other ones we've been discussing so far, fixed maturity plants are close tendered schemes. That is, once this folks maturity plants are announced, the one last to invest in this fix. Maturity plants, once they're from peas, are in force. One cannot invest in these every peas. This is because they fem peas. They involved investing fixed income securities, which are matching the tenure of the scheme for it. This has been announced Now they the strategy is that the investments are healthy maturity on the maturity they income is. You turn back to the investors that it done. Some may be the very stable. Now the investors with lowest a tolerance, looking for stable returns and tax advantage over 3 to 5 years Time Horizon can invest in these FM please. The next debt funds that we discussed are the liquid funds the liquid funds invest in money market instruments like Tom deposits virtually build that, said Trump. Now they provide an opportunity to under turns without compromising on the liquidity off this win. Now here that maturity is typically in less than 91 days. Now this gives substance reasonably high returns on savings bank accounts. So it is very suitable for investors. Are looking foreign returns higher than savings bank returns and having a lot of money lying in the savings account, the last debt fund that we discussed on the monthly income plants. Now these are hybrid mutual funds. The sense that they invest about certified 80% of the portfolio in fixed income securities on about 20 to 25% any pretty's. As a result, they didn't make slightly higher returns than the dead farms. Why? They had also much riskier than the rate fronts. With this, I hope you have a reasonable tour of the debt finds. Next up, we will discuss the equity funds. Thank you for watching. See you in the last lecture. 9. Equity Funds: Hello. Welcome back. We have been discussing classification of mutual funds. We continue our discussion. We're discussing classifications of mutual funds based on investment patterns. The last video we discussed about debt funds this time in this video, and we will discuss about equity funds. Equity funds are mutual funds, which invest primarily in the stock market. That is, the fund managers of a pretty start finds. Basically, buy shares off different companies and create a portfolio. Let's take a look at one example of equity fund. We look at access Longtime Acquitting fund. Look at the holding pattern. 98% of the investment. These inequities in sectors location. Financials have 40 nearly 40%. Autumn Abi, it's about 14% on you can see the rest of it. The top holdings are the companies listed here. TCs HDFC Buying Kotak Mahindra Bank It's a trap. So this is a typical example of equity fund. Now let's take a look at the different type of equity funds. Now we will pass away equity funds into classifications is the 1st 1 now here is listed on the different type of equity funds. We will take a look at each of them in some defense. However, we will not be using the stratification in the later sections of this course. We first look, I'd be quitting saving schemes. Yeah, Ellis is now. You may have also come across equity linked insurance schemes. They operate in the signal. Um, another. The purpose off. The two are different now. These are tax having vehicles. Now, while saving tax, you would be investing in equity instrument. That is the biggest advantage of this. So the equities is investment is supposed to get you get high returns. I also get the benefit off that saving the biggest advantage of years is is that he said the shortest lock in period off just three years in India now normally fixes income instruments like national savings certificates. It's on because for trying, they have a lock in period off 6 to 7 years. Now, the year lessons family invest in stocks. So it is very important to check the portfolio that is invested in on before investing in the year leases under the most important guideline is that the past performance of Genesis is no guarantee for future earnings. So please money to study the portfolio very carefully and then make judgment with the listener, Ulises or not. Next to look a techno fonts, the sector farms concentrate the investment in a single sector. You have given a few examples. Now, for example, take Reliance far more fun. Lance Farmer Fund on Li. Buy shares off our minders. Now it is best to stay away from such funds because if you're investing in a sector fund, you're betting on a single sector. But you're also betting on very heavily on a few companies. If the companies do well, you get a good return. However, if the companies fail, then you lose most of your money. The sector funds investment should be Onley considered. If you have a well thought out Saturday over here again, past performance should not be taken as a guarantee because we have seen that in a particular sector. In one er, the the return was 105%. On the next year, the return was minus 53%. So in a mutual fund, investments are long term investment, so betting on short term in mutual funds can be very disastrous. The opposite off sectoral funds is equally diversified funds. Now these funds invest in many sectors. They invest in large, small and medium sized companies. Now it is very important to study the composition of the portfolio because the cold portfolio will get you the benefits, all the returns. So it was very bottom to study the core composition of the portfolio of such funds. Next, we discussed global fights. Global funds could be sectoral like, for example, gold funds. The gold funds will be investing in gold industry across the globe. It can be in gold mining or it can be go gold extraction companies are virtually every company that it could be based on geography light Ah fund, based on Brazil, etc. One could be automatic like emerging markets. For example, one of one such fund Is it just we see emerging markets fight so the keep Our key here is that these funds should never be part of your corn port for you. While we will use the classification, we just started for equity funds. We will more use the classification that we're going to study now. This classification of equity funds is based on the size of the company they're invested in . Now I size the company We normally means that if the companies more than 10 billions market capitalization, that is market capitalization is number of shares into the share price. So if it is more than 10 billion market couple, they shouldn't we say it's a large cap company. If the capitalization is between two billion and 10 billion, we call it a mid cap company, and if the market capitalization is less than two billion, we call it a small cap companies. So, based on the type of company the mutual fund is invested in, we say it's a large cap mutual fund or a mid cap or a small cap mutual fund, so large cap mutual funds you invest in large cap companies. Similarly, mid cap and Small Cap Cup Midwich, you'll find you'll even invest in mid cap and small cap companies Recently in India, the government has made it mandatory for the mutual fund houses to declare what kind off cos the mutual fund will invested on. Every mutual fund has to have a single team on which they have to invest in. That has to be declared up front. Now the company, now the mutual funds which invest in all the three type off cos that is large cabinet cap and small cap. We call them the blended Funds. The blended funds basically invest in all three type of mutual funds. So we will you use use this classification more while it is in the later part of the discussions on mutual funds. Thank you for watching. See you in the last lecture. 10. Index Funds: we'll come back in the last lecture. We talked about it. Pretty files. Now we look at another type of equity fund which are called the index Funds Index. Funds are types of mutual funds with a portfolio constructed to match or trend the competence of a market index. Now a marketing next. What we mean is there are many indexes which is available in the market. Like in us, you have certain and poor 500 index. Just know the SNP in next are we in India? We have nifty nifty index of BSE Sensex now 50 50 is a index which comprises off 50 companies shares which are considered in various proportions to determine what is the very off the 50 50 index. Similarly, BSE Sensex is a next off to be such companies now in these. If I if a next one is based on BSE Sensex, then this index fund would wish having chairs in this 30 companies we just part of the basic Sensex. So as and how the basis and sex moves the index one based on me Yes, it's Sensex would also move Like I said a while ago. BSE Sensex is a next off 30 company Hsieh's, which are taken in different proportions now. These promotions are determined by BSE. Bombay Stock Exchange at these are modified were occasionally from banker time. However, these are no more or less stable now in next fund with just based on BSE, Sensex would have the shares off these companies. These 30 companies in the same proportion as is considered by the Bombay Stock Exchange similarly is the case with Nifty 50 or 7500. So we see that in next fund is essentially a pretty fine. However, unlike Equity Fund, where the fund managers determine which portfolio to hold, that is which company shares to buy in which company shares not to buy ourselves now in index funds. The shares of the company's is considered to be part of the ritual. Fine are determined by the Centex are determined by the index. Investing based on wisdom Mutual fund is based on Let's take a look at one example of the next one HDFC in next 1 50 50 plan. Look at the holding Pachter here. 100% of the investment is iniquities because it is following the index. Another thing. Look at the graph, which is shown here over the last 12 months, there has been no change in the location. Off fonts, acro the different sectors. That is because the index does not. Composition does not change very frequently in next. Composition does change, but it takes a very long time before they dance. Opposition is changed. That's why the allocation of funds across different sectors and allocation of funds across different companies do not change very frequently in index funds. The main advantage of index funds is that these are passively managed by passively managed to mean that when our next fund is being managed, the fund managers do not have to do what every day research and buy and sell stocks for the fund. That is because the index determines what stocks to be bought and what stocks to be sold. The and these are not change where the state very clearly. So there is no requirement for in what you call planning the investment in these farms by the fund managers on because there is no active management, the fees on the next one is very low, so whatever you invest comes back to you as an investor, from the index funds. The biggest advantage is that research has shown that there's only a 2% chance that managed mutual fund can beat the index fund performance in fund stayed invested for eight years. So this is a very big research results. So if a person stays invested in next fund for eight years aboard, they he will definitely make more money than what he can expect from a managed mutual funds . Look at the graph. It shows the trend off the BSE Sensex moment, stock exchange, Sensex or the last five years now From this graph, one can easily see that if on stays invested in index fund for a long period, he or she will definitely make a reasonable amount of profits on his investments. However, investment index funds also have some disadvantages. One of the things is you have seen the graph. There's a downtown now during downturns, the index fund. Since they have only followed the index, they cannot be managed if it's a managed fund. Normally the fund managers would fetch that amount based money at that part of time. In some instruments like I should try to overcome the disadvantages off the market going down next find this is not going to be possible Another way, said one, be doing next fund is that in the next fund, the larger companies, if they're suffer in the marketplace, then the index takes a hit. This means stuff. Next funds. Also, we'll have a downturn so the larger find larger companies normally have more weight on the next on. As a result, if they take a hit in the market, then the next once suffers. Thank you for watching See you in the last lecture. 11. Balanced Funds: in the previous few videos we discussed about debt funds. Andi Quitting finds We saw that bed farms primarily investing Betty Instruments by liquid in fronts, primarily invest in stocks. In this video, we will have a look at balanced funds, the balanced funds which have made the power of equity and as well as the province off debt . Ideally, balanced fund should be investing 50% in equities and 50% dead alright. Reality. In India, at least, balanced funds typically have 50 to 70% off their portfolio investments stocks on the remainder in borns on debt instruments. The battles farms are also known as hybrid funds. But this is not entirely true because hybrid funds are farms, which in Western videos kinds off instruments. So balanced fund is actually one type of hybrid front in India. Obviously, that balance funds are actually more better. Tom does equity oriented hybrid fronts. Balanced funds are very good option for intermediate term investors. This is because the balanced fund balances the risk reward ratio on also ensures that there is a return from this investment. The risk reward ratios balance between taking a risk in the equities while negating the risk from debt instruments. So that's why violence funds are very good. Investment options for eight people were looking for intermediate term there, dunce. We take a look at one example of a balanced fund. Look at the holding pattern here, 51 person to the neck, Witty's where 24% isn't dead 10 25% to than others. If you see that kind of the allocation off category of asset allocations, you see that there are recruiting. Find equities and widget is invested like large cap yella, says Marty Katz, etcetera. They're also sectoral investments like in Technology Pharma. There are dead instruments where they have invested in medium to long term dead smart money markets, dynamic boards, corporate bonds, etcetera. And also they have in Western commodities like gold. They just look at some advantages off the balance. Find the balance funds are very well diversified. This is because they invest both in equities and in borns, so they're very well doubled security. And as a result of this diversification, they are for combatively really reduced risk. The risk reduction person thing is very high in balanced funds, no battles funds, a very ideal for people who are close to retirement or are too tight now. One of the biggest advantage of balance fund is that they offer a monthly income that is each re investing a balanced fund. We can get a monthly income. Typically, a find like HDFC Balance Advantage Fund gives close to 1% return every month, which amounts to about 12.36%. Returns for Anna Barrel funds also have some disadvantages. One of the main disadvantage your balance fund, is dark. The fees associated the balance. Funds are normally very high compact toe other mutual funds. This is because the fund managers have to balance between debt and equity instruments on, have to focus on both kinds of instruments and find the right balance to get that Todd. So the few charge of balance finds a normally higher than what he's charged for other mutual funds. The second biggest disadvantage the violence fund, is like the balanced funds cannot be used for tax savings. So he felt person is investing in mutual funds for tax. Every purpose battles funds are not for them because the balance fund offers no taxes. The third disadvantages that the balance funds are not risk free. Only thing is, they are less volatile. Is compact other mutual funds? But they're not his three. Thank you for watching. See you in the last lecture. 12. Investment Plans: So far we have discussed water. Mutual finds were also discussed. What are the different types of mutual funds now? We come to the question of how does the investor invest in mutual fights so far? Investing in mutual funds the investor lead stop for up investment plan. We will take a look at water investment plans in this video to invest in mutual funds that invest rested jewels between to our two options. Whether you would like to use a direct plan or a regular plan, we will look at each of these in some, Beaton's well, an investor buys directly from the mutual fund company or the AMC. We say that the Mitchell the investor investment idiotic plan even see that there are some advantages off this. So, normally every AMC has a website through which investments can be made in that in their mutual funds available from the AMC all, they also have telly calling facility, using which investor can invest in the mutual fund off his choice, which is provided by that particular AMC. Now we look at regular plants, but an investor invest in mutual funds through an intermediary. The immediately can be advice. Ah, broker or ah bank, it's a drug. Then he is investing on a regular plan. Another intermediate please, like we discussed can be many types. Normally all banks are intermediaries. Also, all the stockbroking houses there were actors, intermediaries India. It is mandatory that the intermediate is. Maybe they start to be able to serve as intermediaries. So here also they're extremely safe because they're always started Abbrederis who are authorized by the government of India. This was the case in all of the countries as well, but the AMC is paid commission toe the injury disease. The message NATO said values off the direct plans are on. The regular plans are usually different for every mutual fund. The net asset value of direct plan on the regular plans are listed separately. Now we discuss the advantages and disadvantages of the direct plan. In the same breath, we will be discussed the advantages and disadvantages off the regular plan as well. We will see that what is an advantage for the rhetoric plan are actually disadvantages with the regular plan and vice versa. The biggest advantage of a garlic plan is that expensive issues are less. We will talk about expense rations more at the later point of the cause. However, for now it is sufficient to understand that sense in a direct plan. There is no need to pay commissions or any other expenses. The savings are passed on to the investors, so these amounts to a huge amount if the investor stays invested for a very long time. The diverse happens in the case of a regular plan, since there are commissions, a total charge for the intermediaries. So the expense ratios are more on. Does the returns us less than the direct plan really notice the nabs offer direct plan and a regular plan off the same mutual fund. You will see that the knave offer direct plan is always greater than the now before they will not plan for the same mutual fund. So when the investor stays invested in a particular mutual fund for a very long term, the savings on organic planner much more. And does the returns from the direct plan investment are much higher as compact toe that through a regular plan. However, the main disadvantage of the direct plan is that the investor needs to do all the world by himself. that is, during the process of buying, selling all the paperwork, it's a 20 is to be done by the investor himself or by herself. Now, normally, when you have ah, intermediary in between, they will conduct all these activities four days. Mr. Also, the important point is that the intermediaries are normally good advisers as well. This leads to taken with a pinch of salt, but now a leader in the communities will pass on research results. That's a privilege can help them first and making good investment choices. This option off getting advice regarding went to buy went to sell How much to buy, how much to sell, it said. Tries not available when they arrested. Invest through Our direct plan is only available to invest heavily in this Threw up they will apply. Thank you for watching See you in the last lecture 13. Investment Options: In the last video, we saw the different investment plants available for mutual funds. Now we will look at what are the different investment options available in investing in mutual funds in terms of investment options. While investigating region finds we have primarily two options. One is a growth option. On one is the dividend option. We will take a look at both of these options and more details. First, we take a look at the growth up. The growth option on mutual funds mean start. The investor will not receive any dividend that may be paid out by the stocks in the mutual fund. We know that the stocks pay a dividend generally and really on it may pay any number of interim dividends. So when the stocks in the mutual fund portfolio pays dividends, the AMC has option to pass on the dividend to the investors. By selecting the growth option, the investor is giving the mutual fund house or AMC the right to the investor Money tool, a device payout to the investor has developed. This money increases the net asset value off the mutual fund. The fund managers may use the money we seemed as dividend from the different stocks to buy more shares in the companies which are already there in the portfolio. All they may use the money to buy new stocks for the portfolio. See, the decision is taken by the mutual fund managers so that the money is you twice in a manner which increases the neck value off the mutual find and gives more returns to their investors. So the bottom line is that in the growth option, the investor realizes higher capital gains on the mutual fund using the same number off shares. Now we should find you normally say number of units, so using the same number of units the investor uniters higher capital gains. Now let us take a look at the dividend option in the dividend option. The mutual fund houses are the emcees payout. The dividend to see from the stocks. So the investors, different mutual funds pay dividends at different intervals. Some paid monthly sum paid quarterly, some prayed and really, for example, HDFC Balance Advantage funds pays dividends on a monthly bases, while access Long Term equity fund pays dividends on an annual basis. However, the dividend payment interval if I every mutual fund is always defined. Investors should know dark when the AMC pays dividends. The natives and value of the nap off the mutual fund reduces by a proportion off the dividend that is played out now. In the dividend option, there are two some options. One is dividend reinvestment option on one is revealing. Pay adoption. Let us take a look at each of them. We first discuss dividend payout option in dividend payout option. Dividend distributions are made by the mutual funds are paid out directly to the invest up as we discussed earlier, every mutual fund has a defined PD obesity actor. The dividends are distributed. So according to the POC, PRD City, the dividend discredited toe the being investors back account. Now let's take a look at they wouldn't reinvestment option in dividend reinvestment option that day. We don't received by the investor from the AMC is reinvested in the same mutual fund by the AMC to protests more units for the investor. When the dividend is declared in the mutual fund, the NPV of the mutual fund gets adjusting. However, now the investor has more chairs or units in the mutual fund. Do do the investment off the dividend, which he has received from names. So we saw that in both growth option and dividend reinvestment option, the investor does not collect the dividend that the mutual fund declares from time to time . However, there's a major difference between these two in the growth option number of units remains unchanged. The dividend reinvestment option. The number of units increases when their purchase from the dividend that is provided to the investor. Now the question is, can one switch between growth option and even adoption on the vice versa? Switching from the growth option to develop adoption or the vice versa has the same implication of selling holdings in one mutual fund and making a fresh fortunes in another mutual fund in India, selling mutual funds tracks capital gains tax. With that, we come to the end of this section. See you in the next section 14. Essential Terms New: Hello and welcome to this new section in the last section. We saw that by we need to invest in mutual funds. Why is it so necessary in the modern world? What? Our mutual funds for the different types of mutual funds? Then we saw what one of the different plans and options we can utilize to invest in mutual funds. In this new section, we will go to some key terms that one needs to know to be able to deal with mutual funds. Knowing these terms will help in terms of making wise deficient regarding investing in mutual funds. We will discuss a plethora of towns in this particular section. Now each of these storms have got very severe implications When making decisions regarding mutual fund investments, especially the terms of your market, they didn't being color. These have financial implications and should be studied very closely. Other times are equally important. They are all decision making, impacting terms in terms of investing in mutual funds. So sit back, enjoy happy learning, happy investing 15. AMC: in this video we discuss about AMC Asset Management Company in the previous section. We have discussed this storm. Now we will look at you and some more details on asset management companies. A company that invests sales clients pulled finds into securities that much declared financial objectives. We have always seen that security. They essentially mean secret ease, that is, stocks, then debts, commodities, etcetera. The key phrase here is declared financial objectives. When I said management company the launches off find a scheme through it on rich the clients expected toe put their money in. They should declare, what of the financial objectives of that scheme? This is very important that this is mandatory in most countries, including India. TMZ's managed mutual funds, hedge funds, pension plants, am season income by charging service fees and commissions to their clients. Generally, emcees have websites. Also, they generally have Kelly calling facility. Using this facility is the investors can invest in the emcees 16. ARN: in this video we discuss about Aaron. I'm free demonstration number. This is very vital. When living rewriting in mutual funds through an intermediary, we will see how I'm free stands for association for mutual funds in India. So Aaron is something which is specific to India. So if you're somewhere outside India, you should look for the cruel it off. Aaron in your country, I'm freezer going body in India. The, um three expansion is Association for Mutual Funds in India. I'm free Conducts a certification program known as I am for the start Mutual fund adviser Any intermediate e who wants to be a community needs to go through these examined passes. Example only then I'm feeling it gives them something known as a Aaron, which stands for I am Free day station number Not every and immediately must have Aaron. When you're investing through intermediary, do not forget to check the Aaron of the comedian 17. NAV: Now we discuss a very important aspect of mutual funds. The net asset value or more commonly known as now and Navy Mid asset value is the Value Act Ridge ah units off mutual funds are bought or sold. So in in a way, we can say that NATO said. Value are now. Is the price off your mutual fund? Every empty declares a knave off each of the mutual funds under its belt at the end off each trading day. As we discussed further, it will become clear why declaring now I was only possible and end of its trading day. Let us look at the formula for calculating net asset value. The present value is calculated US current fund value minus fund liabilities divided by the total number of shares. We will see how to calculate the current fund value, and also we will take a look at how liabilities could be factored in. Number of shares is what is what is subscribed to by the investors in a particular mutual fund. Now let's take a look at how current fun value is calculated. This method is the same for any kind of mutual fund, whether it's a quitting. Find out a dead found out. A hybrid fund that is a balanced fund, etcetera. Suppose a mutual fund has the following portfolio I showed here. So it has HDFC Bank PCs, Reliance wanted electron ICS and Father does 50,000 shares and HDFC t 25,000. NTC's underst are shown here. Let the share price off the stocks be as shown at the time of calculation of the Navy. These are taken on the 15th off March 2019 so now we can calculate the value as number of shares into the share price. The current one value is the sum off all the values off individual stocks. That is, in this case, it is to 86.85 million's. Suppose a fund liabilities a zero and the number of shares is 10 millions in this case. And now, folks out, Toby Toby's 28.685 So we see that the share price is very important factor for calculating the navy. Now, the share price keeps unchanging throughout the day, so that is why to calculate. And maybe the share price of the end of the day is considered so that that is the reason by in every is all be always declared at the end off each trading day. Fund liabilities are expenses required for management and operations of the mutual fund. These include typically management fees, trading freeze, legal fees, auditors fees, operational expenses, etcetera. 18. AUM: welcome. In this lecture we discuss about asset under management. Um, a cylinder encouragement. It's sometimes called funds under management, um, measures the total market value off all the financial assets which had AMC managers on behalf of its clients are themselves, um includes capital raise from the investors on Capitol belonging to the principles off the AMC. Suppose for a mutual fund, AMC puts in ₹2 million into the fund on AMC raises ₹10 million from the investors. Then, um for the mutual fund is to Class 10 is called ₹12 million. A um rises when investment performance is positive or new, customers added, or customers buy more units into the mutual fund. Um falls when the investment performance is negative or the customers redeem their units from the mutual fund. Our customers leave the mutual fund When a um rises. The fees for the mutual fund management also increases on the reverse is also true 19. Expense Ratio: in this lecture, we discuss expensive issue. Now, if you're already invested in neutral finds, you would be seeing occasional emails from your emcee with the subject line like changing PR. Not er basically stands for total expense ratio. So what exactly is it? Expensive issue or total expense issue? Let us discuss it. The expense ratio is the per unit cost in card. In managing the mutual fund empties declared expense ratio once every six months, so investors should get a notification from the NC once every six months regarding what is the current expense ratio for the mutual fund. Notification normally comes in the form of my email lord. The expensive issue, the better it is for the investor. Higher expense ratio simply means stock they. AMC is charging more money for managing the mutual fund. Hi money. Higher fees basically means side. The returns from the mutual fund reduces for the investor index. Funds have lower expense ratios compared to other managed mutual funds. Now we look at the formula for calculating expense ratio. Total expense ratio is equal to total expenses divided by the total assets under management . The expenses involved in managing mutual funds includes management freeze trading fees, legal fees. Auditors freeze operational expenses, etcetera. Expense ratio is generally between 0.5% and two persons. 20. Entry Load: Now we discuss a very important aspect of mutual funds. This is called the entry load. It is very vital simply because this is no direct impact on the amount of money you spent. Many a purchasing mutual funds. Let's have a look at what it is all about. And three low discharged when the investor is for chasing units in the mutual fund at the time of purchase of units. Then reload is charged in fatalities applicable there I mutual funds where there is no entry lord as well. When a mutual fund is launched, then three load is very clearly mentioned in the scheme document. This needs to be the started very carefully. While projecting mutual fund entry load is generally between 0% or 3% in most cases it is one person does your opposite. However, the investor should very carefully check what is the entry lord. Before purchasing the Mitchell find zero person entry load means no Lord, let us further understand entry load through a calculation. Let's first look at the case when there is no entry load. Take the following situation. The investor wants to invest Rupees 5000 to buy a mutual fund The cost of one unit of mutual fund is replaced 10 on There is no entry load, as is our case right now. Then the number of units that will be allocated to the investor will be 5000 by 10 Musical toe 500 units. Next we look at a case when there is entry load. So suppose the investor wants to invest Repeats 5000. The cost of one unit is repeats 10 and the entry load is one person. Then the entry load is 1% over police 5000 which is replaced. So the amount remaining is rupees. 5000 miners rupees 50 which is rupees 4950. So the number of units to be located is rupees 4150 divided by the police, 10 per unit which is equal to 4 95 units. 21. Exit Load: Now we take a look at the exit load. Exit load reduces the neck income for the investor. When the first I started sell the mutual fund, so we'll see how this is calculated. And what is the impact now Exit Low Discharged when the investor is selling his positions are units in a mutual fund. The AMC charges that include Lord and Exit Lords to cover for the distribution costs involved in telling the mutual funds it didn't notice generally, zero if the investor stays invested for a pre defined period, the pre defined figure when the exit load will become zero, is always defined in the scheme document of the Mitchell Fine. It's really clearly stated that if the mutual fund is in Western as stays invested for one year or three years, exit load with zero. What needs to be very careful In studying this aspect of the scheme document. Let us understand exit load through a few examples. First, we take the case when there is no exit load. Suppose the investor wants to sell 500 units in a mutual fund. The current knave of the mutual fund is strictly straight deeper unit on the exit drone right there, Right, he added. Considering is not there. Then amount to receive is repeats 20 per unit into 500 units, which is equal to the police. 10,000. Next, we considered a case with a simple exit load structure. Suppose the investor wants to sell 500 units in a mutual fund. The knave of the mutual fund at this moment is rupees 20 but unit. The exit load is one person flat. Then exit notice. He called the 1% of rupees 20 which is a little ₹200.2 or 20 paces. Then the knave applicable for the investor is rupees 20 minus 20% which is equal to ₹19.80. So the amount the investor will receive will be rupees 19.80 part unique into 500 units, which is the called rupees 9900. We now consider the case. It is more close to reality in this case. Also, we will consider there is exit load. So our situation is that the investor wants to sell 500 units in the mutual fund. The current now off the mutual fund is ₹2.20 per unit. Now the exit load is 1% if redeemed within Vanya. Otherwise it is zero. Now we consider the unit support changed on 1st January 2000 and 18. Suppose that the investor decide to sell the units on 30th of September 2018. That pieces say one year has not lapsed since their investor purchaser units. So 1% exit load will be after cable. In this case, he receives rupees 9900. If the investor, instead of selling on 30th September 2018 sold on 30th of January 19 2001 year would have passed and thus exit load would not apply. In this case, he will receive the complete with police 10,000. We will consider one last example. We have a situation similar to the last example. The investor monster sent 500 units in a mutual fund. The current novels replace 20 per unit Exit floated 1%. If Greenlee one year on otherwise none. However, now the we consider that 200 units were purchased on 1st January 2018 on 400 units were purchased on 1st March 2018. Let's consider the case when the investors selling 500 units on 30th of John 2019 under the circumstances. So for the 1st 200 units, there would be no exit load as one year has elapsed since the 200 units report chains on 1st January 2018. For the remaining 300 units, one person exit load would apply because one year is not the lab since first off March 2018 . So he will receive 5492 please for this remaining 300 units, so the neck amount receivable would be to please 9940. No exit loads can have complex definitions. One off months of definition is provided here for your reference. 22. NFO: we'll come back now we'll discuss about and therefore and they forced are quite different from how stocks are introduced into the market through initial public offering or something known as I pose. So we will study in detail what is n efforts. When the AMC wants to introduce a new mutual finding the market, they launch an effort through the NFO. The the investors can subscribe in tow the mutual fund, which is newly launched. Every NFO has opening date on a closing date. Within this opening later and closing date, investors have toe subscribing to the NFL while purchasing mutual fund through an NFO. The investor pays the face value off every unit off the mutual fund. The face value is declared by the AMC at the time of launching the mutual fund. However, entry load map light while purchasing through in there for through an FO. Investors can purchase any number off units, and mutual fund on any number of investors can perches these units. There is no limit to the number of units that can be sold through an effort. This is different from, she says. We just sold through initial public offering AIPO This number of shares is always limited that the company is going to sell through. I peel en iPhone's work on the first come first serve basis. This is another key difference between an fo and I peel like we mentioned before during an F ordinance, the investor always stays on Lee. The face value. The price for unit does not depend on the demand supply, as is the case with chess in India, emcees normally take about one month to alert the units purchased through an NFO. 23. SOA: we're in investor purchases, mutual funds. He or she can hold the mutual funds in physical or IndyMac Former. Now, in this lecture, we look at what the investor needs to do when he holds the mutual funds. In physical format, When the mutual funds are held in physical format, the investor gets a statement of account, or SRE. We will look at the nuances of SRE and the implications off this in this lecture, the important thing to notice that even when the mutual funds are held by the investor in a physical format, all operations regarding dealing with the mutual funds account is done electronically. When mutual funds are held in the physical format investor greater statement of account. Now the investor needs to keep the statement of accounts very safely. However, the emcees they issue a statement of account every year. This is mandatory by the government, so every year there they AMC, they're supposed to provide a fresh statement of account. Also, they emcees provide a fresh statement of account whenever any transaction takes place in the which will fund account transactions can include buying or selling off Mutual funds are declaration of dividend and payment of dividends, etcetera in India, a statement of accounts generally sent by email as a Pdf file. Very rarely do we find that the statement of account to send in a physical format know, however, the animal statement of a country we sent by a physical format which can be preserved by the investor. The important things to know dinner statement of accounts are as follows. The first thing they invested should notice the folio number, ideally on investor should have one for you. Number with one AMC for all the mutual funds, all different mutual funds what the investor may own in that particular aims. So this is a very important number. This should be quoted whenever doing any transaction. This is especially very important when, when you are dealing in physical for former documents for mutual funds, the next important aspect of the fund details. Now every fund will have a coat on every fund name. It's a try should be checked very carefully. Father, We should be very careful in checking the option. We have selected on dates a growth option or dividend option in a dividend option with dates, the investment option or a payout option all these details should be checked very carefully . All all of these is mentioned in the statement of accounts. The third important aspect is the details of the holdings. Another is away very clearly states all the transactions that I've taken place with gusto the holdings of this particular mutual fund. In fact, I sorry, states, these are actual details Are all the different mutual funds under that for you now, apart from the transaction under they for significantly important thing is the total number off units held by the investor in a mutual fund. So far in this, a soy for all the different mutual funds under that. For your number, it tells what is the balance ihsaa number of units that day. Investor holds the this to be checked very carefully. Another very important aspect of this oil is the bank mandate. Now, even though the mutual fund may be held in the physical format, all redemption requests it's a truck. Go directly to the bank account. The investor will not get any check or anything like that. So the bank details have to be acquitted so that I all the credits can be given to the investor directing the bank account in the current bank account. Another important aspect for the investor did note in the eso is the compliance is now. Every government stipulates that the investors comply with certain documents were provided at the time of for chasing or holding mutual funds like in India. It is mandatory to provide the ban the permanent record number for income tax when you're holding any mutual funds. Similarly, it is mandatory to also provide the all time number, which is the unique identification number in India for many a whole legally mutual funds. Another statement of account very clearly say's what are the compliance is required and whether they have been provided or not. So if any of the compliance is now is not provided by the investor, he or she should make arrangements so that they are provided on. The compliant statement states that it is complied. There is one major disadvantage of holding mutual funds in the physical format that is, in the case off the debt off the investor. Now for transferring the mutual funds to the legal iron one has to apply toe every single AMC redder investor hard invested in mutual funds individually notto each investor to each emcee. The investor has to provide the death certificates the real etcetera toe so that the funds are transferred to the legal IRS account. This can be very cumbersome and time consuming if the investor wants to deal with liquid funds on wants to do daily transactions that this is only possible through physical format of mutual funds. This is because what is possible is that the investor may purchase visual funds before two PM on a particular day. In that case, the previous days and every would be applicable on. Then they investigate. Decide to sell before 5 p.m. On the same day. In this case, though, in a B of the next day would apply. The investor can make money from the difference in the two enemies. Not since they're in the stock market days. A settlement period off to people's to that is the transaction. Bake plus two days they lead. A daily settlement is not possible in stock market. Hence, this is the daily transactions and liquid funds is only possible in the mutual fund is held in the physical form back 24. DEMAT: mutual funds can be bought, held and sold using the Met accounts. In this video, we will see how this is possible and what is to eat what is needed to be done. We will also see the nuances off holding mutual funds through a dramatic now for the people who may not be a family with the Met account, we will very briefly touch upon what exactly is demerit account and how it operates. So what is the matter? Account? The matter can visit account in which investors can hold their shares and born. That's it in a electronic format, De Witt realization is the process of converting physical documents into electronic form. So in the demand account, the investors stocks borns. Mutual funds of 20 may not be but released form. Investors can hold their mutual funds also in the demand account. This de materialization is not a very big advantage in the case of mutual fund investments , because even in the physical form, the mutual funds are held in L. A chronic form only. There is one huge wanting of the might accounts. When they investor dies, all the holdings of the investor can be transferred to the legal heir by just transferring their demand account not to transfer the demand account. That legal aid means to some enter that certificated real etcetera on the demand created new demand account for himself or husband. Then the day might account of the investor can be transferred to the new direct account that is included for the legally in the case and mutual funds ahead in the physical form. Now the legal heir has to apply toe every AMC, whether investor had which and funds to transfer the holdings to his or her account. 25. ISA: mutual funds can be heard in the physical form or in the D Mac form in both the physical form and in the B MATT form. The mutual funds are managed electronically, so there is not much difference between the physical form and that the mat form. However, one of mutual fund holdings have to be transferred from the investor to the legal heir. In the case of the investors dead, the demand account has some benefits over the physical form. When mutual funds held in the D Mac form on Lee, the demand account needs to be transferred on all the mutual funds under that demand, account will be transferred to the legal heir. However, in the case of physical form off holding mutual funds, each individual mutual fund from the AMC each and do your name C has to be transferred individually from the investor to the legal heir on this can be very cumbersome. Banks in India have come out with the intermediary solution we say offer us that investment services account. Now, the Investment Services account holds a mutual fund in physical format. However, it provides the same facilities as the demand for for Mark would provide. We will discuss this in some more details. So what is an Investor Services Account Investor Services account? Busan account offered by the banks through which investor can purchase on sale mutual funds and keep his holdings in the mutual fund. Now the investor services account can be opened by giving a fee on. Normally, the English is services account charges a quarterly fee for today. Investor. The banks provide an option under the Net banking facility where the investor services account details can be seen on using the same interface. The investor can buy and sell mutual funds in these accounts. When investor has invested services account, I say the banks regularly provide them inputs regarding where they were stuck and invest on where. The In Western instance, elite positions. The I s A can be only used toe buy and sell mutual funds When an investor holds mutual funds in our investor services account that mutual funds are held in the physical former. However, there's a major advantage because now the the I say Mr can nominate a person. However, the nomination could be only made for one person. Nevertheless, the Brenda mean in the case of investors dead. They tired investors Services account holdings is transferred to the nominee on producing the necessary documents. So I s a takes away that this advantage investor would have its holding them. It shall find in a physical format. So days one major visit grant date of investor services account using investor services account investors can only projects mutual funds in regular plants. It is not possible to purchase which in front of direct plan using Isaac because here the banks always act as an intermediary. 26. SIP: Now we discuss a very powerful and very popular way off investing in mutual funds that is, through systematic investment plants. A side piece in S I. P. A fixed amount of money is difficult from the investors Back account. I'm invested in up a specific mutual fund. Thus, fixed amount can be a very small amount, like please 500 or it can be any large amount. Also in India, the videos in the city is generally weekly, monthly or quarterly. The fixed amount is depicted on a specified day of the week or a specific date of a month or 1/4. As for the instructions given by the investor, the difficult amounted investor to buy units in the specified mutual fund. As for the knob off the mutual fund on that particular day, the started zero of investing through its I p claims toe free the investor from speculating in the volatile market by dollar cost averaging as the investor is getting more units when the price is low on fuel units and the price is high in the long run, the average cost spurs unit is supposed to be lower. S I P is a very good investment mechanism for small investors. Small investors can keep putting in small amounts of money into mutual funds through its I p. While it's Happy's invest small amounts of investors money into mutual funds, which can generate a lot of returns for the investor, it also instills that simply enough saving regularly for the investors. It's I P's are very flexible. S I p can be stopped at any point of time by the investor. The amount of money Do we debit it at the end of feet period in a site, we can also be changed. However, changing the S I P amount that is amount to be deputed at the end of each period that Samos stopping one its i p and starting a new insight. 27. SWP: in this lecture ever discuss systematic withdrawal plants? System fighting Withdrawal plants are very good for people who are looking for regular income, so especially this become very useful for people who are retired or nearing retirement. Systematic withdrawal plan is a service offered by mutual funds, which provides investors with a specified amount of payout are pretty finding the well off time. The develops can be monthly, quarterly, half yearly and really, it's a drop. A specified amount of P O can be defined by the investor as a number of units to redeem or a specified amount to redeem. If the investor specifies number of units redeem, then the units would be redeemed. Doctor in every application on that particular day off were withdrawn. If the investor specifies the amount to redeem, then the number of units would be reduced. As for the in a V of that particular day on wisdom, withdrawal is made. The Western requires to specify a particular date on which states that is the baby would be activated like then Mr can say every tent off the month they should be read role of 100 units from my mutual fund. One is the Blue be works on one particular mutual fund in with the investors. Investors we draws through as WP are subject to applicable taxes. 28. STP: welcome back. So far, we have seen systematic investment Plan a saipi on systematic withdrawal plan. Now let's see a combination of the two in something which is known a systematic cancel plans. Systematic Council planted the plan that allows investors to give consent to the AMC toe periodically transfers that amount off units from one scheme to another scheme. Now, the very outset we was understand that it is transfer of units, which means we're redrawing from one mutual fund and investing in other mutual fund. Now that we're going from one Region fund that withdrawals always subject to taxes, etcetera, it s to be instructions can be given toe make transfers daily, weekly, monthly or quarterly. Only I go. It's possible to only make transfers from one front. Another fund of the same AMC Holly war due to digitalization. Now it is possible to transfer from one which, in front of the mutual fund between two different AM sees as well. Now that's what can be made travel date fund to a pretty finder from a pretty fund to are Dead fund are in any combinations which is possible in India. Some am season. Insist on a minimum amount of rupees. 12,000 in s Teepees. However, there are AMC threes. Do not insist on such limitations. Please check the rules as applicable with your AMC on, and please take the religion different countries as well. However, to apply for for STP, the investor needs to do at least six capital transfers from one mutual fund to another. There is no entry load when one does STP. I want exit loads generally applies when one conducts a STP in India, it is allowed for the emcees to charge up to 2% off exit load in s Teepees. STP is enabler disciplined and plant transfer of funds between two mutual fund schemes. Now in generally, investors initiate STP from a date fund to a pretty find. We will see the reason for this STP czar Very excellent strategy for people people who have one lump sum amount of money or people who are approaching the retirement. Now the idea is that take the lump sum amount of money and put it in a debt fund investigator debt fund like a liquid fund. And sure start the investor gets a high return than putting this money in savings deposit or fixed deposits. Also, by putting in a debt fund that this off putting such a huge amount of money in mutual fund is ready minimum are non existent now. Once the money has gone into debt fund, it is earning interest, which is more than fixed deposits or more than a savings bank deposit. However, it is not able to take advantage of equities. So initiate STP from the dead front, so they pretty fun now. Putting it in STP means start in shot in small increments. A small amount of money will get transferred from debt to equity fund. Now. This ensures that the investor gets advantage off dollar cost averaging so that the price off that was a pretty fund is purchased it the lowest dollar cost averaging, it basically means stop when the cost of the mutual fund is lower. You get higher number of units on when the cost of the mutual fund is higher, you get lower number of units. The visual fund that your purchasing in tow now do dough. The fluctuation of market. It has been seen that by dollar cost averaging, we are ultimately the average price that we pay for the purchases. Always, Lord. Then what would have done if he had invested all of us and loves off? Thank you for this thing sitting in the next lecture. 29. CAGR: we invest in mutual funds to get the guns. Now, how much you're turns? I'll be actually getting this. We can find out if you calculate the CH er or the compounded annual growth rate. Now I understand, Cmdr. We may design a complete course. Maybe I will do it in the future. However, in this video we will briefly look at what, exactly? CDR and how it applies sandwich and finds. See, e g. R is a compounded growth over multiple periods. So it is. The growth rate after is the money grows from the initial investment value, so the ending invest in investment value. The growth rate that we're considering here in CH er is a compounded interest rate, not this impotent list. The formal agreement here can be used to compute to see it here. If you consider the principle which we will call PV the present value of the principal invested in the rate off off, which is the ch er for the for a period off end, so n will be in and we'll terms that is number of years, one year, two year, three year etcetera. Then, using this formula beacon, compute what will be the value of that principle ID they repeated and which really not by if we are future value. So if you alter this formula, we can compute the value of our as FBT one will be released to the power of one by end minus one. Thank you for this thing. Seeing the next lecture. 30. Risk: in the last video we discussed about returns. So it is only logical that we now discuss about risk is because this can be turns go 109. When we take more risk, the chances of getting a high return is always there. Don't chances. Maybe that we may lose more money also. So when there is the high returns are likely to be more. There are chances also in the research Low returned to likely to read this well, we're discussing risk in the context of mutual fund investments. We're basically talking off two types of risks. One is a systematic vest, and one is on systematic nous not only in mutual fund, any kind of investment in the stock market basically involved these two kind of risks that is, systematic risk and non systematic risk. Systematic wrists are uncertainties that are inherent in the entire market on a particular market segment. Now these cannot be mitigated. That is why there are alternatives. Market risks are on diversity about risks, On the other hand, on systematic risks are specific to a particular company are two in particular industry. That is why, by having a portfolio where we have the stocks off our security, the multiple number of companies across multiple number of industries. We can diversify the risk return systematic. And that is why the sound system systematic with salt known as I wasn t able disks. We will let us see in the course that when we have a portfolio containing off well diversified 30 securities, then the unsystematic risk is almost negligible. Within system are digging out systematic Chris. We have some other types of risks as well. Now let us could discuss each of them one by one. The fastest that we discuss is credit risk, which is also known as D Fortress Planetary soccer's. When a company or individual fails to return the credit, what has been given to him? So if a company goes bankrupt, bankrupt and is unable to pay his returns is the credit risks? Banks normally face this kind of risk when their assets become non performing. The next wrist epic discusses the country risk in the context of mutual fund investment. This becomes after cable. If suppose we are invested in our mutual fund, which is exposed toe towards a particular country, let's say we have exposure towards emerging markets then the countries, including the emerging markets, step. Their situation possesses a risk for the mutual fund investment. Next, the political situation in the country needs to be considered as a risk. So the political situation in every country tends to go from up and down on their radio kind of factors which impact the situation politics of the country. So this presences in inherent risk in the investments that is made in that particular country. Next, we discussed the investment tress, the investment re soccer's that say, for example, so you are invested about ₹10 lakh in a fixed deposit at 9% interest rate. Now this investment will my Children 10 years. Then it has to be seen whether at the end of the maturity period you'll continue to get 9% interest rate. All are higher interested. All the interested will become lower now. This is normally is decision to take the boozing. Every bank provides a higher interest rate for short durations on lower interest rate for long duration. The this is the bank is providing of Orania fixed deposit at 10% whereas a five year fixed IPOs that 7% now. The decision is with every you should invest for five years at 7% or investor about the other 10% not the end off on you. It is likely that the interesting might come down and over a period of five years, irresponsible that they dressed road goes below 7%. So this is a decision which needs to be taken. This has gotta risk involved in the president. This is and making. Next we discuss investors. We have disgusted in brief earlier. We know that when the interest rates go down, born markets performed very well on when they interested goes up, bond markets fall. So this interested which keeps changing constantly and is dependent on the government's policy. The positive risk for the investors the next displayed discusses the foreign exchanges. We know that the far Nixon market keeps on fluctuating, so this fluctuation in foreign exchange possesses a poses a risk for the investors, especially the companies which are heavily involved in important export, are very heavily impacted by the foreign exchange fluctuations The next. This we're discussing the traditional leaders. Now we know that the inflation increases in the value of money decreases, so we have a riskier. If they inflation increases, then by the time our investment matures, the Valley office, many of the money or the processing power of that money may reduce. This constitutes stay inflation. Adidas, the last year, said. We discusses the market risk. The market risk is that is that the value of the investment may fall due to bullet ality of the market. We know that the equity market is more volatile than the debt market on DSO, the volatility of the market may see that the investments value is reduced. 31. Tax: In this lecture, we discuss the taxes applicable on mutual fund investments. Now the tax laws would be different for every country. So we can only discuss the tax laws as up to cable in India, in India to type of taxes. Apply on mutual fund investments. They're shocked. I mean shocked on capital gains tax and long term capital gains tax. No taxes will be applicable when the mutual fund is sold. Now, the mission fund sold regularly. Taxes will be applicable. Also, when they're sold through is the blue br STP. Their taxes will be applicable. Short term capital gains taxes are applicable if the mutual funds are held for less than 12 months. That is, before 12 months have elapsed from the date approaches the mutual fund. If the mutual fund is sold, then short term capital gains taxes after gave it. The later for Tom's capital gains tax presently is 15%. Now, even in the person falls in the 10% tax bracket in India. For short term capital gains tax, 15% tax rate is applicable. In 2018 government of India introduced long term capital gains tax. Before that, there was a lot of capital gains tax was not there. Long term capital gains taxes applicable if the mutual funds held for more than 12 months, actually any investment in the share market? If it is helpful more than 12 months, it is long term capital gains taxes after gave it. How about long term government against taxes applicable? Only the total sale value is more than one black, not present. The long term capital gains taxes recharged at 10%. 32. Bonus Video: Risk Appetite: Hello and welcome to this bonus lecture. There are a lot of investment options. I really well in this word. However, not all investment options are suitable for everyone. A person must very carefully determine what is his on her risk appetite on. Then, based on his own heart risk appetite, the person must select which investment option he or she would like they invested In this lecture, we discuss a mathematical two days off. How toe use risk appetite to determine the investment option. Before we discuss risk appetite, let us discuss what are the different investment choices available to us? The investment choices mentioned here are no means exhaustive list. Over these are the most commonly used investment options. The investment choices are listed below in the increasing order off. The risk. The least risky is considered to be the government bones. Then we have corporate bonds of municipal bonds. Then we have fixed deposits are recurring deposits. A Morris care option is insurance. Then we have mutual farms, which are considered more risky on then we have the shares, which are very risky government boards and also known especially bills. In many countries, there are various types off these, there are boards like infrastructure bonds in Central National savings certificates gets on because for Trap Provident fund can also be considered as government bonds, though these are fixed return in starts. In comparison, toe numbing boards. Provident Fund can be considered more risky as the dates are varied by the government. From time to time. There are various types of corporate barter municipal bonds. Normally, the riskiness off the corporate boards is determined by the rating, like Triple is less risky and double B is gorgeous kids. There are various types of fixed deposits or recurring deposits. Also, fixed deposits are reconnect opposes. We should by public sector banks by private sector banks by cooperative banks, the co operative bank fixed about It's our motor scares. Compacted public sector fixed deposits among insurance. Also, we have various options. These options are listed here in the increasing order of their riskiness on Reedys, a normally very less risky. Then we have conventional insurance unit click insurance are normally very high risk about mutual funds. Also, we have various options like we have debt funds, which are less risky. We have balanced funds which are balanced between debt and equities. They're very quitting funds, which are more risky. The share market is considered with this guest off most of the options, but there are options which are more risky than share market as well. Other instruments off investments are investment in gold investment in real estate investment in hedge fires. It's a Any investor should create a diversified portfolio, which means that the investments offer investor should be in many off these instruments that are listed here. Never. The investors should invest only in one instrument. Any investor considers various phenomena as before, making an investment preferred investment instrument depends on the disc appetite off the in Lister. So even study about this guy appetite in this lecture risk appetite defines the investors attitude towards risk. The investor can be discovers that means in MR does not like to take any risks or the investor can be this neutral. That is, the investor takes list on something circumstances and does not take risk in other circumstances. All they can be misters who are the seekers who basically look for risky instruments to make higher amount of profit. One mission of this in the investment world is radiance, asked standard deviation. Standard deviation is basically the scratch route off radiance. So great are the villians. We consider the investment instrument to be more risky. Like I mentioned before, government bonds are considered to be zero risk or this free. So if you listen government bonds, you should be assured off getting returns back no less. The risk means less will be that it Dunn's from the investment instrument. In practical terms, fixing vases from big banks can be considered on this free. Though this may not be the case in modern world and, you know, predict no. Mathematically, this free means start started division is equal to zero for the investment instrument. As an example, let's consider how to calculate the standard deviation for a mutual fund suppose way. Have a mutual fund, which gives the falling returns in the months we first find the mean off this return so the mean can be found by adding all the returns on dividing my total number of returns. That is equal to night, so we get a mean off 13.1956% so they should be. They expected it done from this, which you'll find next. Let's calculate Davidians to calculate the villians. We take each return and subtract a mean and square it these square terms, we act them up and divide by and minus one. So that is night minus 18 So we get a brilliance off point for 459%. The started deviation can be kept computed by taking this credit of the obedience. So we get 6.6776% as the standard division off the mutual fund father, it demonstrated here. Now we come to the big question every investor has. Is there a scientific way to determine which instruments to invest in? Fortunately, the answer is yes. There is a scientific way by which we can decide which instruments is suitable for a particular investor. We can determine which investment instrument is suitable for tha investor by finding the utility off the investigate. For the investor, no utility is economic. Tome on. It can be defined mathematically. In economics, we define utility as the sense of pleasure or satisfaction that comes from consumption. So in terms of investments, the utility means that the stents off pleasure or satisfaction that comes from getting returns from our investment. The utility delight from a particular good or service and activity depends on the consumer's taste. Our preference. Mathematically, you ticket we defined us. Utility is equal to expected to dunce minus half off coefficient. ODUs Commission in tow video. It's so we can night it. US utility is equal to E. R. Yeah, representing expected returns minus half off a. A stance or disco. A vision of this commotion into sick must quit but signifies us under division coefficient of risk aversion. A is defined as follows. The person who says to be discovers if the coefficient of risk aversion is greater than zero, so higher the number for a gorilla than Zito. The person is modest of us, a person is said to in this neutral. If coefficient of risk aversion is equal to zero, these thinkers have a coefficient of risk aversion, which is less than zero so smaller, the number less than zero. The person is a bigger risk seeker. To understand how to determine the investment instrument suitable for a person, let's consider an example. So in investment option one investor invests in fixed deposits at 67.10% Parana so in this case dying expected return a 7.10% per annum on the variances in Porto zero. We also consider investment option to in list investor investing in mutual fund. Now we assume that Richard Fund will return 50% act 70% probability at minus 20% that 30% probability. So in this case, the expected return is determined by multiplying the property with the U turn on I think them up. So we get 29% civilians off. This particular investment can be 10.29%. So now the question is which investment option is made up? We will soon find out that whether the investment option is good or bad depends on the investor. We first consider the case of a risk neutral investor. So for this investor A. The coefficient off risk aversion is equal to zero. Let's calculate the utility for this investor so you can see the calculation for option one investment Option one is 7.10% on for investment. Option two it is 29% so clearly for the risk neutral investor the utility from the option to order investigating, we shall find it's more so the investor should possibly invest in the mutual fund rather danda fixed deposit. Next, let's consider the case off her discovers person, and suppose the coefficient of risk aversion is equal to three. So, in this case, from the investment option bond in fixed deposits, the utility is 7.10 Opposite on from investment. Option to that is Mitchell Fine. The utility is 13.565%. So clearly for this, this investor also the mutual fund has got more utility. Next. Let's not risk of US person who has a risk, How much in coefficient Golf five. So in this case from the EU, treaty from the fixed deposit is 7.10 person on the utility from mutual fund is 3.275%. So clearly for this person, the fixed deposit has more utility on, so this person must invest in the fixed deposit. So from this illustrations, I hope you're able toe determine how to utilize utility toe. Determine which is the most suitable is investment instrument foreigner. We declare investor thank you for listening 33. Bonus Video: Mutual Fund Liquidation: Hello. Welcome to the class. My name is Bob without any further today. Nets against God. Mutual fund liquidations also refer to as full closures are never good news. Liquidation involves the sale off all off a fund's assets on the distribution of the proceeds to the fund shareholders. At best, it means the share orders are forced to sell at a time, not off their choosing. Activist. It means the shareholders suffer a loss off capital on pay. Capital gains tax, too, in U. S. A. In 2016 nearly 1/4 of the mutual funds got liquidated. No Mina mutual fund closes down. It can either liquidate the mutual fund or it can most a mutual fund with another mutual fund. Generally, most dead funds are most into another in the fund family. This route is easier for the shareholders because their money is immediately invested in a similar on offer, more successful fund. So why does a mutual fund liquidate? Generally, a mutual fund liquidates when the fun value drops drastically. So when the foreign body drops drastically, it forces investors who bought the farm when it was born expensive to sell at a loss. Worse Yet the fund may have embedded capital gains, which can have immediately back on the investor holding the fund in a taxable account. The Sakas, when a fun doesn't sell a stock that has risen in value since it was purchased. Another common reason for mutual funds. Liquidation is it's four ranking. If the performance ranking is for that's, it flows into the mutual fund reduces as investors choose not to buy into the fund. It also brings down the mutual fund management from Straker thought. If the phone has five funds and four of them are doing well, closing the poor performer gives the former track record based on four successful funds. Work performance also results in bad publicity, which can be too large redemptions, as that said based False. The Cost of Doing Business Increases Fund operates on economy off skits, with bigger being better for a cost saving perspective. As costs increases, it can become unprofitable. The operator fun, fun terminations are common, particularly among new funds. If a fund doesn't gain popularity on grow during the 1st 3 years, it is likely to close several 100 fronts close nearly every year. During the late 19 nineties, and early two thousands mish funds are particularly one that label, as they are often invested in. Facts, are focused on a such a small aspect of the industry that there is a risk the concept will never catch on with the investors. So what are the warning signs? One should always look out for. Signed Started fund is a candidate for closure includes a big drop in performance that is sustained without recovery. A poor track record over several years is another morning because for long term perform and simply isn't appealing to investors, every redemptions are another possible indicator. So what are the actions required on the part of the rest of if one is invested in open ended mutual funds on the science off end up coming. It is time to head for exit as fast as one can. When all investors want to set a particular farm, the selling pressure tends to lower the funds price. Getting out sooner than later can help get a better price. If one is invested in closer good mutual funds, look at the underlying assets give. The fund is selling at a premium cell to maximize the payouts. If the fund is trading at a discount 1 may want to hold because one will get paid on the full value of the assets when the farm value is liquidated. Thank you for listening. 34. About Me: hello and welcome. Let particularly short journey off myself. I am basically a programmer, a computer programmer. However, over the years off writing computer programs, I view everything in life as programming. With that it is playing a game of cricket, a billiards off, whether it is running a department or the company. Everything for me is programming. I like to look for patterns on. I normally find patterns on. Then I make those patterns if we table so that it can make a winning formula in whatever the situation is. So I publicly I say I am just a programmer. My name is far too Majumdar. I'm a Bengali and so we pronounce her last a s o. So it's part Oh, Majumdar. I'm basically from Calcutta. However, I've been living in Bangla or bring Lulu for the last 10 years. So I can say I'm from Bangalore recently, I've been spending a lot of time in Riyadh, so the odds has become a second home for the time being for me, I've been walking and competence after industry for close to 30 years now. I started from the time when we used to use eight inch floppy disks the Winchester disk off 3.5 inches was a major innovation at our time. Now we have progressed a lot on We are in the age of iPhones and Ipads. This journey has bean very exciting on. I have thoroughly enjoyed the same I still continue to enjoy as I'm learning every day. Asking is so much to learn as there is so much development going on in the industry at all points of time. So this is a very good industry which has been for me and I have been fortunate to be part of it. I haven't even realized house time has just flown by. In all these years, it's everything. Seems like it just happened yesterday. My programming journey began in 1989 when a cricket tournament was held in India. All the Jamaal Alero Centenary Cricket Cup. This tournament was played by six Nations. On it was hosted a trust 19 locations in India. Now this tournament wants to remarry through computers, hasn't discharged by the dead Prime minister, Mr Rajiv Gandhi. So we started the coverage relation. They're not being done for the Serie Olympics On on the same lights, retracted automate are computerized economic management for this tournament. This for this job? I was contacted by Center for Developers Telematics Acee dot on walked on the very big names BU Slipper novel A trade on IBM Sarita Lights A total developed us off in this tone. Oh, man, You know the first time when Elektronik scoreboard was used in India on that scoreboard was and starred in Eden Gardens in Calcutta. So my career had a good start and subsequent care got opportunity to walk in very exciting products. Between 19 to 1996 I walked on my knees. Projects betrayed off different industries. Sometimes it was food army. Sometimes it is from Russian exact operation off the hospital are for our tea gardens. It's a truck now. This enabled me to learn a number off domains over these years. Off my information, I got the opportunity to go abroad for the first time. When I was set, The timeline to don't up a mountain me to solution for a company called Computer Integrated Manufacturing Company are simple. Then, after I worked with government of Thailand project on then you local and then I got sent to , you know, for the first time in Belgium, where I was part of the Euro conversion project in 1996. Aside Total Access Communication's Thailand to develop my end to Angelica billing system. This is a huge Project Areas game wants to replace a very popular daily compelling system from Kingston. Now this software took us three years to develop that we had more than 100 and 25 people in the deep I've used bobbled a Informix tuxedo Crystal reports, etcetera. For the first time in this project, the product was awarded The best Are Soft Red. It's out Estacio. Ever since 1996 I've been purely walking in telecom domain, another telecom billing domain, and I have provided solutions to work 40 telcos around the world. Now here are a list of few telcos when I have given solutions on this. Include very very number of solutions, including mobile money. It's a trap. I also helped many telcos to start up like Getco, for example, for the first time, I was part of a technical operator when I joined Mobili in Saudi Arabia in 2019. Though I am still associating with some telecom operators for giving solutions are mainly working on, government predicts in Saudi Arabia. So I've been working with Customs, R. M. C. I. T. Or Ministry of Communication Information Technology, Mr Planning, etcetera. And these are all big data solutions. I've been fortunate to work in the company's. They stood here, reaches the company's I got the opportunity to develop number of software number of software pronounce on baby involved in very many projects on I learned a lot during my stay in each of these companies in 2014 I started my own company, Imaginary Consultancies, Private Limited. Now this was treatment by circumstances, personal needs, ambitions and try on a lot of luck. Ever since, I have partnered with the do vibrates with this man to form a sign Solutions on. Now I have also partnered with a company in Saudi Arabia, tools and solutions to work as a director in that company. My work has taken me to many countries in the world. Besides, I've got the opportunity toe physically near the country's for pleasure. Now, doing all my directions, I have been able to work with people of very many number of countries, much more than I visited on each of them having a very enriching learning experience on the education front. I'm still study. I've enrolled in master of science artificial inclusions. I recently completed Postgraduate diploma in Business Analytics. Andi, I'd love mook. I have over 300 certificates from Oak and I continents. The study from book It helps me to refresh my knowledge and also enhance my knowledge. I highly recommend move for everyone. My current hobbies include share trading. I've been training in chair since 1996 on now I've been applying the I. I love to look for patterns. I've been successful informing patterns which is giving the results of about 77% accuracy. I love blogging and I love traveling. I have ambition to travel to almost all the countries in the world. So for me it's a formal off aren't spent and share experience on again through the experiences shape. Thank you for this name. 35. Closing Notes Part 1: Thank you very much for attending this coast. I hope you enjoyed it. I hope this course will make you more than able to invest in mutual fund. So the great pleasure to bring this goes to you. Please do join me in the part two and part three of this course. Happy investing, Happy learning.