Presentation on theme: "LIC Mutual Fund Money Market Mutual Funds. LIC Mutual Fund Money Market Mutual Funds To understand money market mutual funds first we need to understand."— Presentation transcript:
LIC Mutual Fund Money Market Mutual Funds To understand money market mutual funds first we need to understand debt instruments.
LIC Mutual Fund What Is A Debt Instrument? A debt instrument represents contract where one party (the party which buy the debt instrument-investor) is lender and the other party (the party which issues the debt instrument-issuer) is borrower.
LIC Mutual Fund Debt Instrument Every debt instrument has following three fundamental features associated with it. Principal: Maturity: Coupon:
LIC Mutual Fund Principal Principal or face value of the debenture (Also called par) represents the amount of debt the investor has given to the issuer.
LIC Mutual Fund Maturity Maturity date is the date on which issuer of the debt instrument repay the principal amount (also called face value) of the debt instrument to the investor.
LIC Mutual Fund Coupon Coupon rate refers to the rate of interest calculated with reference to face value (or principal amount).In other words it is the interest rate which issuer promises to pay the investor.
LIC Mutual Fund Debt Instrument On the basis of maturity period there are two broad categories of the debt instrument Short term debt instrument Long term debt instrument
LIC Mutual Fund Short Term Debt Instrument It is a debt instrument whose maturity is less than one year from the date of issuance.
LIC Mutual Fund Long Term Debt Instrument It is a debt instrument whose maturity more than one year from the date of issuance
LIC Mutual Fund Issuers Of Debt Instruments In India debt instruments are issued by following categories of organizations Government Includes Central Government, State Government, Municipal Corp. etc. Government related organizations Includes organizations like RBI, PSUs etc. Corporates
LIC Mutual Fund Bond When government or government related organizations is the issuer of a long term debt instrument, the instrument is called bond
LIC Mutual Fund Debenture When a private or public limited company is issuer of a long term debt instrument the instrument is called debenture
LIC Mutual Fund What Is A Money Market Instrument? A money market instrument is a short term debt instrument. It includes Commercial papers Commercial bills Treasury bills
LIC Mutual Fund Money Market Instrument Government securities having an unexpired maturity up to one year Call or notice money Certificate of deposit Any other like instruments as specified by the Reserve Bank of India from time to time
LIC Mutual Fund Money Market Mutual Fund Objective: Investing exclusively in money market instruments. Features Liquid Moderate income Comparatively less risky Proper for short term investment
LIC Mutual Fund Returns Of A Money Market Mutual Fund Generally a money market mutual fund provides return Higher than saving bank account but Lower than bank fixed deposits. However there is no guarantee as to actual rate of return.
LIC Mutual Fund Are These Funds Risky? Among all categories of mutual fund, money market mutual funds are considered least risky due to very nature of the debt instruments in which money market schemes invest.
LIC Mutual Fund Risks Involved There are two major risks associated with investment in debt instruments Risk of default Risk of interest rate:
LIC Mutual Fund Risk Of Default Risk of default refers to the risk of failure of issuer of a debt instrument to make interest payment or repayment of principal.
LIC Mutual Fund Risk Of Interest Rate Risk of interest rate refers to the possibility of change in the market value of a debt instrument due to change in general interest rate level.
LIC Mutual Fund Evaluate Risk Of Default Risk of default associated with a money market scheme can be evaluated by looking the rating of papers the money market scheme has invested in.
LIC Mutual Fund Credit Rating Agencies CRISIL ICRA CARE FITCH
LIC Mutual Fund Long Term Debt Instruments Credit Rating Agency Degree of SafetyCRISIL ICRA Highest safetyAAA High safetyAA Adequate SafetyAA Moderate SafetyBBB Inadequate SafetyBB High RiskBB Substantial RiskCC In defaultDD
LIC Mutual Fund Short Term Debt Instruments Credit Rating Agency Degree of SafetyCRISIL ICRA Highest P-1A1 P-2A2 Medium P-3A3 P-4A4 Lowest P-5A5
LIC Mutual Fund Evaluate Risk Of Interest Rate Average maturity of the portfolio
LIC Mutual Fund Taxation Aspect An investor of the money market mutual fund has two options while investing in a money market scheme Growth Dividend
LIC Mutual Fund Taxation Aspect Growth Option No TDS is deducted Entire capital appreciation is given Investor is required to pay applicable short term or long term capital gains tax as per tax slab
LIC Mutual Fund Taxation Aspect Applicable capital gain tax Investors IT SlabNil10%20%30% Short Term Capital Gain TaxNil10%20%30% Long Term Capital Gain Tax With IndexationNil20% Without IndexationNil10%
LIC Mutual Fund Taxation Aspect Dividend Option Dividend paid is tax free Dividend is paid after deducting applicable Dividend Distribution Tax Current rate of DDT is 25%
LIC Mutual Fund Bank FD Vs. MM Scheme Comparison Bank FDLiquid Plus Schemes Money Market Schemes If Returns9%8% Tax30.90%14.16%28.32% Post Tax Returns 6.22%7.00%6.23%