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You are Here : Mutual Fund FAQs

Q. Are investments"mutual fund units risk-free or safe?

A. This dependsthe underlying instrument that-mutual fund invests inbasedits investment objectives Mutual funds that invest"stock market-related instruments cannot be termed risk-free or safe as investment"sharesinherently risky by naturewhereas funds that invest"fixed-income instrumentsrelatively safethose that invest only"government securities aresafest

Q. Are investments"mutual funds liquid?

A. Yes Investorsopen-ended schemes can redeem their unitsany business dayreceivecurrent market valuetheir investments within-short time period (normally three- to five-days) Investorsclose-ended schemes can redeem their units onlymaturitycan sell it"the secondary market like stocks

Q. As-unitholderhow much time will it take to receive dividendsrepurchase proceeds?

A. A mutual fund is required to despatch tounitholdersdividend warrants within 30 daysthe declarationthe dividendthe redemption or repurchase proceeds within 10 working days fromdateredemption or repurchase request made byunitholder

In casefailures to despatchredemptionrepurchase proceeds withinstipulated time periodAsset Management Company is liable to pay interest as specified by SEBItime to time (15 at present)

Q. Can-mutual fund changeasset allocation while deploying fundsinvestors?

A. Consideringmarket trendsany prudent fund managers can changeasset allocation ie he can invest higher or lower percentagethe fund"equity or debt instruments compared tois disclosed"the offer document It can be done on-short term basisdefensive considerations ie to protectNAV Hencefund managersallowed certain flexibility"alteringasset allocation consideringinterestthe investors In casemutual fund wants to changeasset allocation on-permanent basistheyrequired to informunitholdersgiving them option to exitscheme at prevailing NAV without any load

Q. Can-mutual fund changenaturethe scheme fromone specified"the offer document?

A. Yes Howeverno change"the nature or termsthe schemeknown as fundamental attributesthe scheme egstructureinvestment patternetc can be carried out unless-written communication is sent to each unitholderan advertisement is given"one English daily having nationwide circulation and"a newspaper published"the languagethe region wherehead officethe mutual fund is situated The unitholders haveright to exitscheme atprevailing NAV without any exit load if they do not want to continue"the scheme The mutual fundsalso required to follow similar procedure while convertingscheme form close-ended to open-ended scheme and"casechange"sponsor

Q. Can-mutual fund impose fresh load or increaseload beyondlevel mentioned"the offer documents?

A. Mutual funds cannot increaseload beyondlevel mentioned"the offer document Any change"the load will be applicable only to prospective investmentsnot tooriginal investments In caseimpositionfresh loads or increase"existing loads,mutual fundsrequired to amend their offer documents so thatnew investorsawareloads attimeinvestments

Q. Caninvestor appoint-nominee for his investment"unitsa mutual fund?

A. Yes The nomination can be made by individuals applying for holding unitstheir own behalf singly or jointly Non-individuals including societytrustbody corporatepartnership firmKartaHindu Undivided FamilyholderPowerAttorney cannot nominate

Q. Can non-resident Indians (NRIs) invest"mutual funds?

A. Yesnon-resident Indians can also invest"mutual funds Necessary details"this respectgiven"the offer documentsthe schemes

Q. Do any mutual funds invest"both stocksbonds?

A. Yesbalanced funds invest"a combinationstocksbonds,-typical mix is 6040"favourstocks Returnsbalanced fundsnormally lower than pure equity mutual funds when marketsrisinghowever ifmarket declines,lossesalso normally lower Balanced fundsbest suited for investors who do not plan their asset allocationyet want to invest"equities Buying separate equityincome funds for your portfolio also achievessame results as buying-balanced fund The advantage"the former option is that you can choose your own split (between stocksbonds ie fixed income) rather than letfund manager decidesame

Q. Do mutual funds offer-periodic investment plan?

A. Most private sector funds provide youconvenienceperiodic purchase plans (through-Systematic Investment Plan)automatic withdrawal plansthe automatic reinvestmentdividends You would basically need to give post-dated cheques (monthly or quarterlyperiodic datethe cheque is fixed byAsset Management Company) Most funds allow-monthly investmentas little as Rs500"a provisiongiving 4-6 post-dated chequesfollowlater"more Regular monthly investments are-good way to build-long-term portfolioadd discipline to your investment process

Q. Howmutual funds regulated?

A. All Asset Management Companies (AMCs)regulated by SEBI andorRBI (in caseAMC is promoted by-bank) In additionevery mutual fund has-boarddirectors that representsunit holders interests"the mutual fund

Q. How caninvestors redress their complaints?

A. Investors would findnamecontact person"the offer documentthe mutual fund scheme whom they may approach"caseany querycomplaints or grievances Trusteesa mutual fund monitoractivitiesthe mutual fund The namesthe directorsasset management companytrusteesalso given"the offer documents Investors should approachconcerned Mutual Fund Investor Service Centrethe Mutual Fund"their complaints,

Ifcomplaints remain unresolved,investors may approach SEBI for facilitating redressaltheir complaints On receiptcomplaintsSEBI takes upmatter"the concerned mutual fundfollows up"it regularly Investors may send their complaints to

SecuritiesExchange BoardIndia,
OfficeInvestor AssistanceEducation (OIAE)

Plot NoC4-A G Block1st Floor,
Bandra-Kurla Complex
Bandra (E)Mumbai 400 051
Phone 26449199-88-77

Q. How do I invest"a limited amount?

A. Regular investing is-very good way to build upinvestment portfolio (read Dollar Cost Averaging to understand why)this can be done"any amountmoney Firstplan out how your investments should be spread out ie how much should be invested"equity shareshow much"fixed-income (bonds debentures) instruments This should be basedyour risk profile ieyour risk taking capacity is (how much risk can you take financially)what your attitude towards risk is

Unless you rate highaptitudetemperamentknowledge related to investing"sharesequity mutual funds offer-better alternative to investing directly"shares Income mutual funds also offer-good alternative to fixed-income investment For regular investmentmost mutual fund schemes have-Systematic Investment Plan - this can be either monthly or quarterly installments Typically,minimum installment amount is around Rs500while choosing this planyou will need to give around three- to four-post dated cheques attimeinvestment

Q. How do you evaluate mutual funds performance?

A. Although past performance is no guarantee forfutureit is-useful wayassessing how well or badly-fund has performed"comparison to its stated objectivespeer group A good way to do this would be to identifyfive best performing funds (within your selected investment objectives) over various periodssay 3 months6 monthsone yeartwo yearsthree years Shortlist funds that appear"the top 5"eachthese time horizons as they would have thus demonstrated their ability to be not only goodalsoconsistent performers To get help through this processyou can use our Find-A-Fund query module

Q. How do you select-mutual fund scheme?

A. Whats strategy got to do"selecting-mutual fund Shouldnt you just goinvest"the best performing fund The answer is no Mutual fund investing requires as much strategic input as any other investment option Butadvantage is thatstrategy here is-natural extensionyour asset allocation plan (use our Asset Allocator to understandyour optimum asset allocation plan should bebasedyour personal risk profile) Moneycontrol recommendsfollowing process

Identify funds whose investment objectives match your asset allocation needs
Just as you would buy-computer that fits your needsbudgetyou should choose-mutual fund that meets your risk tolerance (need)your risk capacity (budget) levels (ie has similar investment objectives as your own) Typical investment objectivesmutual funds include fixed income or equitygeneral equity or sector-focusedhigh risk or low riskblue-chips or turnaroundslong-term or short-term liquidity focus You can use Moneycontrols Find-A-Fund query module to find funds whose investment objectives match yours
Evaluate past performancelook for consistency
Although past performance is no guaranteefuture performanceit is-useful wayassessing how well or badly-fund has performed"comparison to its stated objectivespeer group A good way to do this would be to identifyfive best performing funds (within your selected investment objectives) over various periodssay 3 months6 monthsone yeartwo yearsthree years Shortlist funds that appear"the top 5"eachthese time horizons as they would have thus demonstrated their ability to be not only goodalsoconsistent performers You can engage"such research through Moneycontrols Find-A-Fund query module Orto get such-listuse our Best Picks reportsuse this methodology as its predominant basis

Q. How is-mutual fund set up?

A. A mutual fund is set up"the forma trust,has sponsortrusteesasset management company (AMC)custodian The trust is established by-sponsor or more than one sponsor who is like promotera company The trusteesthe mutual fund hold its property forbenefitthe unitholders Asset Management Company (AMC) approved by SEBI managesfunds by making investments"various typessecurities Custodianwho is registered"SEBIholdssecuritiesvarious schemesthe fund"its custody The trusteesvested"the general powersuperintendencedirection over AMC They monitorperformancecomplianceSEBI Regulations bymutual fund

SEBI Regulations require that at least two thirdsthe directorstrustee company or boardtrustees must be independent ie they should not be associated"the sponsors Also50the directorsAMC must be independent All mutual fundsrequired to be registered"SEBI before they launch any scheme

Q. How is NAV calculated?

A. The valueallsecurities"mutual funds portfolio is calculated daily From thisall expensesdeductedthe resultant value divided bynumberunits"the fund isfunds NAV or its Net Asset Value

Q. How long will it take for transferunits after purchasestock markets"caseclose-ended schemes?

A. According to SEBI Regulationstransferunits is required to be done within thirty days fromdatelodgmentcertificates"the mutual fund

Q. How many funds or stocks should you diversify your portfolio over?

A. To getmaximum benefitreducing your risk through diversification spread your portfolio across different assets whose returnsnot 100 correlated Different assets should ideally span across different asset classes such as fixed incomeequityreal estategold as well as different investment options withinasset classes eg within equity sharesyour exposure should be to companies"different sectors or within fixed income investmentspartly government riskpartly corporate risk

As-thumb rulediversify your investments across 15-20 different portfolio holdings if youdirectly investing"stocks or bonds If youinvesting through mutual fundsthen three MF schemes for stocksthree schemes for bonds should provide you adequate diversification

Q. How significantfund costs while choosing-scheme?

A. The costinvesting through-mutual fund is not insignificantdeserves due considerationespecially when it comes to fixed income funds Management feesannual expensesthe fundsales loads can take away-significant portionyour returns As-general rule1 towards management fees06 towards other annual expenses should be acceptable Carefully examinefee-fund charges for getting"and outthe fund Againyou can queryentryexit loads under our Find-A-Fund query module or get-pre-defined shortlistfundsthe load specification structure throughMutual Fund Directory section

Q. How to diversify?

A. Dont just zero"on one mutual fund (to avoidriskbeing overly dependentany one fund) Pick twopreferably three mutual funds that would match your investment objective"each asset allocation categoryspread your investment We recommend-6040 split if you have shortlisted 2 fundsa 503020 split if you have shortlisted 3 funds for investment

Q. How to fill upapplication forma mutual fund scheme?

A. An investor must mention clearly his nameaddressnumberunits applied forsuch other information as required"the application form He must give his bank account number so as to avoid any fraudulent encashmentany chequedraft issued bymutual fund at-later date forpurposedividend or repurchase Any changes"the addressbank account numberetc at-later date should be informed tomutual fund immediately

Q. How to identify funds whose investment objectives match your asset allocation needs?

A. Just as you would buy-computer that fits your needsbudgetyou should choose-mutual fund that meets your risk tolerance (need)your risk capacity (budget) levels (ie has similar investment objectives as your own) Typical investment objectivesmutual funds include fixed income or equitygeneral equity or sector-focusedhigh risk or low riskblue-chips or turnaroundslong-term or short-term liquidity focus You can use moneycontrols Find-A-Fund query module to find funds whose investment objectives match yours

Q. How to invest"a schemea mutual fund?

A. Mutual funds normally come out"an advertisement"newspapers publishingdatelaunchthe new schemes Investors can also contactagentsdistributorsmutual funds whospread all overcountry for necessary informationapplication forms Forms can be deposited"mutual funds throughagentsdistributors who provide such services Now-days,post officesbanks also distributeunitsmutual funds However,investors may please note thatmutual funds schemes being marketed by bankspost offices should not be taken as their own schemesno assurancereturns is given by them The only rolebankspost offices is to help"distributionmutual funds schemes toinvestors

Investors should not be carried away by commissiongifts given by agentsdistributors for investing"a particular scheme Onother hand they must considertrack recordthe mutual fundshould take objective decisions

Q. How to select-mutual fund?

A. Whats strategy got to do"selecting-mutual fund Shouldnt you just goinvest"the best performing fund The answer is no Mutual fund investing requires as much strategic input as any other investment option Butadvantage is thatstrategy here is-natural extensionyour asset allocation plan (use our Asset Allocator to understandyour optimum asset allocation plan should bebasedyour personal risk profile) moneycontrol recommendsfollowing process

Q. How willinvestor come to know aboutchangesif any,may occur"the mutual fund?

A. There may be changestime to time"a mutual fund The mutual fundsrequired to inform any material changes to their unitholders Apartitmany mutual funds send quarterly newsletters to their investors

At presentoffer documentsrequired to be revisedupdated at least once"two years Inmeantimenew investorsinformed aboutmaterial changes by wayaddendum tooffer document tilltime offer document is revisedreprinted

Q. I am holding Fund ABC Its NAV is down Please let me know if I should hold this fund or redeem it?

A. Your decision to sellfund should not be basedmarket volatilities

As you know,day-to-day market behavior is not rational Thereforebuyingselling"market fluctuations will usually lead to impulsiveirrational decisions,will never make you money You will tend to buysell atwrong times leading to more losses than gains

Insteadthereother criteria,you should consider to know whether it is time to sell your fund or not These generally includefollowing

a) If you need money thencourse there is no choiceto sell
b) Iffund is not performing as well as its peersbenchmark
c) If younot confidentthe future prospectsthe economy
d) If you have to rebalance your portfolio
e) If there is-change"taxation policy
f) Iffund characteristicsmanager has changed

Q. Ideally how many different schemes should one invest in?

A. Dont just zero"on one mutual fund (to avoidriskbeing overly dependentany one fund) Pick twopreferably three mutual funds that would match you investment objective"each asset allocation categoryspread your investment We recommend-6040 split if you have shortlisted 2 fundsa 403030 split if you have short-listed 3 funds for investment

Q. If mutual fund scheme is wound up,happens to money invested?

A. In casewinding upa scheme,mutual funds pay-sum basedprevailing NAV after adjustmentexpenses Unitholdersentitled to receive-reportwindingfrommutual fundsgives all necessary details

Q. If schemes"the same categorydifferent mutual fundsavailableshould one choose-scheme"lower NAV?

A. Somethe investors havetendency to prefer-scheme that is available at lower NAV compared toone available at higher NAV Sometimesthey prefer-new schemeis issuing units at Rs 10 whereasexisting schemes"the same categoryavailable at much higher NAVs Investors may please note that"casemutual funds schemeslower or higher NAVssimilar type schemesdifferent mutual funds have no relevance Onother handinvestors should choose-scheme basedits merit considering performance track recordthe mutual fundservice standardsprofessional managementetc This is explained"an example given below

Suppose scheme A is available at-NAVRs15another scheme B at Rs90 Both schemesdiversified equity oriented schemes Investor has put Rs 9,000"eachthe two schemes He would get 600 units (900015)"scheme A100 units (900090)"scheme B Assuming thatmarkets goby 10 per centbothschemes perform equally goodit is reflected"their NAVs NAVscheme A would goto Rs 1650thatscheme B to Rs 99 Thus,market valueinvestments would be Rs 9,900 (600* 1650)"scheme Ait would besame amountRs 9900"scheme B (100*99) The investor would getsame return10his investment"eachthe schemes Thuslower or higher NAVthe schemesallotmenthigher or lower numberunits withinamountinvestor is willing to investshould not befactors for making investment decision Likewiseif-new equity oriented scheme is being offered at Rs10an existing scheme is available for Rs 90should not be-factor for decision making byinvestor Similar iscase"income or debt-oriented schemes

Onother handit is likely thatbetter managed scheme"higher NAV may give higher returns compared to-schemeis available at lower NAVis not managed efficiently Similar iscasefall"NAVs Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme"lower NAV Therefore,investor should give more weightage toprofessional managementa scheme insteadlower NAVany scheme He may get much higher numberunits at lower NAVbutscheme may not give higher returns if it is not managed efficiently

Q. Is it good to buy-fund just before it goes ex-dividend?

A. When-fund goes ex-dividend,unit holders ( asthe ex-dividend date )paid out-dividendthe NAVthe fund declines byamountdividend per unit paid out Forinvestor ( who has boughtfund prior toex-dividend date )this results"an income that is tax-free"the handsthe investora capital loss ( asex-dividend NAV will be lower thancum-dividend NAV at whichinvestor made his investment ) For egif-funds NAV is Rs11it pays out Rs1 as dividendits ex-dividend NAV will be Rs10 In this case,investor has-dividend ( tax-free ) incomeRe1a capital lossRe1 ( Rs11-Rs10 ) Ifinvestor has made-corresponding capital gainthen it is tax-beneficial to purchaseunitsmutual fund just before it goes ex-dividendtakedividendthen sellunits ( atex-dividend rate )bookcapital loss If there were no tax benefitsfrom-pure returns perspectivethere would not be any difference"buying-fund cum- or ex-dividend

Q. Kindly suggest if arbitrage fundsok for earning high returns"low risk?

A. Dont be underwrong impression that arbitrage fundsequity funds,will give you high returnsalso protect your downside

Arbitrage funds are-unique fund"the sense that
As far asrisk profilereturnsconcernedtheylike-debt fund ie low risklow returns
Howeveras far astax lawsconcerned theytreatedpar"equity fundsas suchlong term capital gains tax is nil (however note that-few arbitrage funds have-debt structurewill be taxed as debt funds)

Therefore,"arbitrage funds you can expect 6-9 pa returns like any debt fund Butadvantage is that heretax could be lessthus improving your post-tax returns

However,-small drawback"these funds isredemption it is not possible redeem them aswhen you want,onlythe last Thursdaythe month

Q. Mutual funds provide risk diversification?

A. Diversificationa portfolio is amongstprimary tenetsportfolio structuring (see The Need to Diversify) And-necessary one to reducelevelrisk assumed byportfolio holder Mostusnot necessarily well qualified to applytheoriesportfolio structuring to our holdingshence would be better off leaving that to-professional Mutual funds represent one such option

Q. Should I opt for SIP or bulk investment?

A. Equity marketshighly volatile The shares prices vary considerablyday-to-day basis In such-scenarioif you put-lump sum amountmoneyyou could either gain-lot or lose-lot It would then become-kinda lottery

Insteadif you invested small amounts regularlyyou will average out your total costacquisition Thusby doing Systematic Investment Planning (SIP) you will cut downvolatility riskincrease your chancesmaking money

Debt markets,the other hand,relatively quite stable If you put your money today or tomorrow or next monthit is not going to make much difference As sucheven if you were to put your lump sum"a debt fundyounot likely to lose

Therefore,answer is simple
If it is-share orequity funddo SIP
If it is-bank FDNSC or debt MFboth SIPlump sumalright

Q. Should you evaluate past performance,look for consistency?

A. Although past performance is no guarantee forfutureit is-useful wayassessing how well or badly-fund has performed"comparison to its stated objectivespeer group A good way to do this would be to identifyfive best performing funds (within your selected investment objectives) over various periodssay 3 months6 monthsone yeartwo yearsthree years Shortlist funds that appear"the top 5"eachthese time horizons as they would have thus demonstrated their ability to be not only goodalsoconsistent performers You can engage"such research through moneycontrols Find-A-Fund query module

Q. WhatBalanced Schemes?

A. Balanced Schemes aim to provide both growthincome by periodically distributing-partthe incomecapital gains they earn These schemes invest"both sharesfixed income securities,"the proportion indicated"their offer documents (normally 5050)

Q. Whatclose-ended mutual fund schemes?

A. Close-ended mutual fund Schemes have-stipulated maturity period whereininvestor can invest directly"the scheme attimethe initial issuethereafter unitsthe scheme can be bought or soldthe stock exchanges wherescheme is listed The market price atstock exchange could vary fromschemes NAVaccountdemandsupply situationunit holders expectationsother market factors Usually-characteristicclose-ended schemes is that theygenerally traded at-discount to NAVcloser to maturity,discount narrows

Q. WhatGilt Funds?

A. These funds invest exclusively"government securities Government securities have no default risk NAVsthese schemes also fluctuate due to change"interest ratesother economic factors as iscase"income or debt oriented schemes

Q. WhatGrowth Schemes?

A. Growth Schemesalso known as equity schemes The aimthese schemes is to provide capital appreciation over medium to long term These schemes normally invest-major parttheir fund"equitiesare willing to bear short-term decline"value for possible future appreciation

Q. WhatIncome Schemes?

A. Income Schemesalso known as debt schemes The aimthese schemes is to provide regularsteady income to investors These schemes generally invest"fixed income securities such as bondscorporate debentures Capital appreciation"such schemes may be limited

Q. WhatIndex Funds?

A. Index schemes attempt to replicateperformancea particular index such asBSE Sensex orNSE 50 The portfoliothese schemes will consistonly those stocks that constituteindex The percentageeach stock tototal holding will be identical tostocks index weightage And hence,returnssuch schemes would be more or less equivalent to thosethe Index

Q. WhatInterval Schemes?

A. Interval Schemesthose that combinefeaturesopen-endedclose-ended schemes The units may be tradedthe stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices

Q. WhatMoney Market Schemes?

A. Money Market Schemes aim to provide easy liquiditypreservationcapitalmoderate income These schemes generally invest"safershort-term instrumentssuch as treasury billscertificatesdepositcommercial paperinter-bank call money

Q. WhatOffshore Funds?

A. Offshore funds specialise"investing"foreign companies or corporations These funds have non-residential investorsare regulated byprovisionsthe foreign countries"theseregistered These fundsregulated by RBI directives

Q. Whatopen-ended mutual fund schemes?

A. Open ended schemes usually do not have-fixed maturity periodare available for subscriptionredemption onongoing basis The units can be boughtsold any time duringlifethe scheme at NAV related prices

Q. Whatsector specific fundsschemes?

A. These arefundsschemesinvest"the securitiesonly those sectors or industries as specified"the offer documents eg PharmaceuticalsSoftwareFast Moving Consumer Goods (FMCG)Petroleum stocksetc The returns"these fundsdependentthe performancethe respective sectorsindustries Whilefunds may give higher returnstheymore risky compared to diversified funds Investors need to keep-watchthe performancethose sectorsindustriesmust exit atappropriate time They may also seek advicean expert

Q. WhatTax-Saving Schemes?

A. Tax-saving schemes offer tax rebates toinvestors under tax laws prescribedtime to time Under Sec88the Income Tax Actcontributions made to any Equity Linked Savings Scheme (ELSS)eligible for rebate @20 for-maximum investmentRs10,000 per financial year

Q. What aredifferent typesMutual Funds?

A. Mutual Fundsclassified by structure"to

Open - Ended Schemes
Close-Ended Schemes
Interval Schemes
and by objective"to

Equity (Growth) Schemes
Income Schemes
Money Market Schemes
Tax Saving Schemes
Balanced Schemes
Offshore funds
Special Schemes like index schemes etc

Q. What aretime-tested investment strategies that work?

A. Start investing as early as possible -powercompounding issingle most important reason for you to start investing right now as even-relatively small amount invested early will grow overcourseyour working life into-substantial nest egg Rememberevery day that your money is investedis-day that your money is working for you
Buy stocks or equity mutual fundshold long-term historicallyworld over,even"Indiastocks have outperformed every other asset class overlong run
Invest regularly useDollar Cost Averaging approach this will help you to adopt-disciplined approach to investingworks equally well for both buyingselling decisions Importantlyit increases your potential gains when acting againstmarket trendreduces risk when youplayingmarket trendrelieves you frompressuresforecasting topsbottoms Dollar Cost Averaging can effectively convert-regular savings plan into-regular investing approach
AndDiversify your investment - by diversifying across assetsyou can reduce your risk without necessarily having to reduce your returns To getmaximum benefitreducing your risk through diversification spread your portfolio across different assets whose returnsnot 100 correlated

Q. What if-fund changes its strategy?

A. A fund that alters its investment objective or approach might no longer fit your strategy

Q. What iffunds poor results persist?

A. If-fund regularly trails other funds that invest"similar securitiesconsider replacing it The poor performance is more often than not-reflectionthe relative expertisethe asset management company

Q. What is-FundFunds (FoF) scheme?

A. A scheme that invests primarily"other schemesthe same mutual fund or other mutual funds is known as-FoF scheme An FoF scheme enablesinvestors to achieve greater diversification through one scheme It spreads risks across-greater universe

Q. What is-Mutual Fund?

A. A Mutual Fund is-vehicle for investing"stocksbonds It is notalternative investment option to stocksbondsrather it poolsmoneyseveral investorsinvests this"stocksbondsmoney market instrumentsother typessecurities Buying-mutual fund is like buying-small slicea big pizza The ownera mutual fund unit gets-proportional sharethe funds gainslossesincomeexpenses

Q. What is-sales or repurchaseredemption price?

A. The price or NAV-unitholder is charged while investing"an open-ended scheme is called sales price It may include sales loadif applicable

Repurchase or redemption price isprice or NAV at whichopen-ended scheme purchases or redeems its units fromunitholders It may include exit loadif applicable

Q. What isAsset Management Company (AMC)?

A. The company that manages-mutual fund is calledAMC For all practical purposesit isorganized forma money portfolio manager An AMC may have several mutual fund schemes"similar or varied investment objectives The AMC hires-professional money managerwho buyssells securities"line"the funds stated objective

Q. What isentry loadan exit load?

A. Some Asset Management Companies (AMCs) have sales chargesor loads,their funds (entry load andor exit load) to compensate for distribution costs Funds that can be purchased without-sales chargecalled no-load funds Entry load is charged attimeinvestor purchasesunitsa scheme The entry load percentage is added toprevailing NAV attimeallotmentunits Exit load is charged attimeredeeming (or transferringinvestment between schemes) The exit load percentage is deducted fromNAV attimeredemption (or transfer between schemes) This amount goes toAsset Management Companynot intopoolfundsthe scheme

Q. What is Net Asset Value (NAV)?

A. NAV istotal asset value (netexpenses) per unitthe fundis calculated byAsset Management Company (AMC) atendevery business day Net asset value on-particular date reflectsrealisable value thatinvestor will get for each unit that he his holding ifscheme is liquidatedthat date

Q. What is Systematic Investment Plan or SIP?

A. SIP worksthe principleregular investments It is like your recurring deposit"you put"a small amount every month It allows you to invest"a MF by making smaller periodic investments (monthly or quarterly)"placea heavy one-time investment ie SIP allows you to pay 10 periodic investmentsRs 500 each"placea one-time investmentRs 5,000"an MF Thusyou can invest"an MF without altering your other financial liabilities It is imperative to understandconceptrupee cost averagingthe powercompounding to better appreciateworkingSIPs

SIP has brought mutual funds withinreachan average person as it enables even those"tight budgets to invest Rs 500 or Rs 1,000 on-regular basis"placemaking-heavyone-time investment

While making small investments through SIP may not seem appealing at firstit enables investors to get intohabitsaving And overyearsit can really add upgive you handsome returns A monthly SIPRs 1000 atrate9 would grow to Rs 669 lakh"10 yearsRs 1783 lakh"30 yearsRs 4420 lakh"40 years

Even forcash-richSIPs reduceschanceinvesting atwrong timelosing their sleep over-wrong investment decision However,true benefitan SIP is derived by investing at lower levels Other benefits include

1 Discipline
The cardinal rulebuilding your corpus is to stay focusedinvest regularlymaintain discipline"your investing pattern A few hundreds set aside every month will not affect your monthly disposable income You will also find it easier to part"a few hundreds every monthrather than set aside-large sum for investing"one shot

2 Powercompounding
Investment gurus always recommend that one must start investing early"life Onethe main reasons for doing that isbenefitcompounding Lets explain this"an example Person A started investing Rs 10,000 per year atage30 Person B started investingsame amount every year atage35 When they attainedage60 respectivelyA had built-corpusRs 1223 lakh while person Bs corpus was only Rs 789 lakh For this example,-ratereturn8 compounded has been assumed SodifferenceRs 50,000"amount invested made-differencemore than Rs 4 lakh to their end-corpus That difference is due toeffectcompounding The longer(compounding) period,higherreturns

Nowinsteadinvesting Rs 10,000 each yearsuppose A invested Rs 50,000 after every five yearsstarting atage35 The total amount investedthus remainssame -- Rs 3 lakh Howeverwhen he is 60his corpus will be Rs 1043 lakh Againhe losesadvantagecompounding"the early years

3 Rupee cost averaging
This is especially true for investments"equities When you investsame amount"a fund at regular intervals over timeyou buy more units whenprice is lower Thusyou would reduce your average cost per share (or per unit) over time This strategy is called rupee cost averaging With-sensiblelong-term investment approachrupee cost averaging can smoothen outmarkets upsdownsreducerisksinvesting"volatile markets

People who invest through SIPs capturelows as well ashighsthe market InSIPyour average costinvesting comes down since you will go through all phasesthe marketbull or bear

4 Convenience
This is-very convenient wayinvesting You have to just submit cheques along"the filledenrolment form The mutual fund will depositchequesthe requested datecreditunits to ones accountwill sendconfirmation forsame

5 Other advantages
Thereno entry or exit loadsSIP investments
Capital gainswherever applicable,taxed on-first-infirst-out basis

Disclaimer While we have made efforts to ensureaccuracyour content (consistingarticlesinformation)neither this website norauthor shall be held responsible for any losses incidents suffered by people accessingusing or is supplied"the content

Q. What isdifference betweenopen-endedclose-ended scheme?

A. Open-ended schemes can issueredeem units any time duringlifethe scheme while close-ended schemes cannot issue new units except"casebonus or rights issue Hence,numberunitsan open-ended scheme can fluctuate on-daily basis while that is notcase for close-ended schemes Another wayexplaining this difference is that new investors can joinscheme by directly applying tomutual fund at applicable net asset value related prices"caseopen-ended schemes while that is notcase"caseclose-ended schemes,"new investors can buyunitssecondary market only

Q. What ishistoryMutual Funds"IndiaroleSEBI"mutual funds industry?

A. Unit TrustIndia wasfirst mutual fund set up"India"the year 1963 In early 1990sGovernment allowed public sector banksinstitutions to setmutual funds

Inyear 1992Securitiesexchange BoardIndia (SEBI) Act was passed The objectivesSEBI to protectinterestinvestors"securitiesto promotedevelopmentand to regulatesecurities market

As far as mutual fundsconcernedSEBI formulates policiesregulatesmutual funds to protectinterestthe investors SEBI notified regulations formutual funds"1993 Thereaftermutual funds sponsored by private sector entities were allowed to entercapital market The regulations were fully revised"1996have been amended thereaftertime to time SEBI has also issued guidelines tomutual fundstime to time to protectinterestsinvestors

All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entitiesgoverned bysame setRegulations There is no distinction"regulatory requirements formutual fundsallsubject to monitoringinspections by SEBI The risks associated"the schemes launched bymutual funds sponsored byentities aresimilar type

Q. What isrolea Fund Manager?

A. Fund managersresponsible for implementing-consistent investment strategy that reflectsgoalsobjectivesthe fund Normallyfund managers monitor marketeconomic trendsanalyse securities"order to make informed investment decisions

Q. What is venture capital Whatventure capital funds?

A. Venture Capital isfundinitial capital provided to businesses typically at-start-up stagemany times for new untested ideas Venture capital normally comes"whereconventional sourcesfinance do not fit in Venture capital fundsmutual funds that manage venture capital money iefunds aggregate moneyseveral investors who want to provide venture capitaldeploy this money"venture capital opportunities


Typically venture capital funds have-higher risk higher return profile as compared to normal equity fundswhether you should invest"these would dependyour specific risk profileinvestment time-frame

Q. What mutual fund is suitable for you?

A. Just as you would buy-computer that fits your needsbudgetyou should choose-mutual fund that meets your risk toleranceyour risk capacity levels (ie has similar investment objectives as your own) Typical investment objectivesmutual funds include fixed income or equitygeneral equity or sector-focusedhigh risk or low riskblue-chips or turnaroundslong-term or short-term liquidity focus You can use our Find-A-Fund query module to find funds whose investment objectives match yours

You can also read our expert articleInvestment"Mutual Funds to understand how best to find-mutual fund to meet your needswhat other factors to consider while evaluating mutual funds for investment

Q. What shouldinvestor look intooffer document?

A. An abridged offer document,contains very useful informationis required to be given toprospective investor bymutual fund The application form for subscription to-scheme isintegral partthe offer document SEBI has prescribed minimum disclosures"the offer document An investorbefore investing"a schemeshould carefully readoffer document Due care must be given to portions relating to main featuresthe schemerisk factorsinitial issue expensesrecurring expenses to be charged toschemeentry or exit loadssponsors track recordeducational qualificationwork experiencekey personnel including fund managersperformanceother schemes launched bymutual fund"the pastpending litigationspenalties imposedetc

Q. When should you change your investment plan?

A. For exampleas you grow older you might adopt-more conservative investment approachpruning someyour riskier (equity-oriented) funds

Q. When willinvestor get certificate or statementaccount after investing"a mutual fund?

A. Mutual fundsrequired to despatch certificates or statementsaccounts within six weeks fromdateclosurethe initial subscriptionthe scheme In caseclose-ended schemes,investors would get either-demat account statement or unit certificates as thesetraded"the stock exchanges In caseopen-ended schemes,-statementaccount is issued bymutual fund within 30 days fromdateclosureinitial public offerthe scheme The procedurerepurchase is mentioned"the offer document

Q. Why Choose Mutual Funds?

A. Mutual fundsinvestment vehicles,you can use them to invest"asset classes such as equities or fixed income moneycontrol recommends that you usemutual fund investment route rather than invest yourselfunless you haverequired temperamentaptitudetechnical knowledge
In this article we discuss whyhow you should choose mutual funds If you would like to familiarise yourself"the basic conceptsworkingsa mutual fundUnderstanding Mutual Funds would be-good place to start

Q. Why should you consider Fund Costs?

A. The costinvesting through-mutual fund is not insignificantdeserves due considerationespecially when it comes to fixed income funds Management feesannual expensesthe fundsales loads can take away-significant portionyour returns As-general rule1 towards management fees06 towards other annual expenses should be acceptable Carefully examine loadfee-fund charges for getting"and outthe fund

Q. Why should you invest through Mutual Funds?

A. Firstlywenot all investment professionals We go to-doctor when we need medical advice or-lawyer for legal guidancesimilarly mutual fundsinvestment vehicles managed by professional fund managers And unless you rate highlythe Investment IQ Quizwe recommend you use this option for investing Mutual fundslike professional money managershowever-key factor"their favour is that theymore regulatedhence offer investorsability to analyseevaluate their track record

Secondlyinvesting is becoming more complex There was-time when things were quite simple -market went up"the arrivalthe first monsoon showersevery year around Diwali Since India started integrating"the world (withstartthe liberalisation process)complex factors such asincrease"short-term US interest rates,collapsethe Brazilian currency or defaultits debt byRussian governmenthave started havingimpactthe Indian stock market Although it is possible forindividual investor to understand Indian companies (and investing)"suchenvironment,process can become fairly time consuming Mutual funds (whose fund managerspaid to understandissueswhose asset management company invests"research) provideoptioninvesting without getting lost"the complexities

Lastly,most importantlymutual funds provide risk diversification Diversificationa portfolio is amongstprimary tenetsportfolio structuring (see The Need to Diversify) And-necessary one to reducelevelrisk assumed byportfolio holder Mostusnot necessarily well qualified to applytheoriesportfolio structuring to our holdingshence would be better off leaving that to-professional Mutual funds represent one such option

Q. Why should you monitorreview your fund?

A. Having madeinvestment"a mutual fundyou should monitor it to see whether its managementperformance is"line"stated objectivesalso whether its performance exceeds or lags your expectations Unlike individual stocksbondsmutual fund reviewsrequired less frequentlyonce"a quarter should be sufficient
A reviewthe funds performance should be carried out"the objectiveholding or selling your investment"the mutual fund You might need to sell your investment"a mutual fund if anythe events below apply
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