Money Doesn’t Come Without Guidence ...


Mutual funds are investment avenues that pool the money of several investors like you to invest in financial instruments such as stocks, government securities, debentures to name a few. The appreciation made on the investments is distributed among the investors on the basis of the units held by each of them. Mutual fund companies havefund managers who invest your money on your behalf in the above mentioned avenues to rake in maximum returns. Due to a large pool of investors, the individual risk is spread. So individually you take on low risk. Hence mutual funds are relatively safe investment avenues enabling you to rake in attractive gains. The mutual funds in India are governed by Association of Mutual Funds in India, the umbrella body for mutual funds, which is in turn governed by the Securities and Exchange Board of India.
By structure:
  • Open Ended: These are funds that you can buy and sell anytime throughout the year.
  • Close Ended: These are funds that are open only for a specific period after which you'd have to buy them from the secondary market. For e.g. NFO's.
  • Interval schemes:These schemes combine the features of open ended and close ended schemes and are available for purchase or sale during a select period
By investment objective:
  • Growth: These are highly aggressive schemes and invest mainly in equities.
  • Income: Income funds invest in medium to long-term debt instruments. These are low risk and aim at a fixed current income .
  • Balanced: Also called Hybrid funds, these are a combination of growth, debt and money market funds.
  • Money market schemes: These schemes invest in short term debt instruments and are highly liquid.
  • Tax saving: These are equity linked saving schemes that offer tax benefits under Section 80 C and have a compulsory lock in period of three years.
  • Special schemes: Special schemes: These are select funds that aim at replicating the performance of an index. Also there are funds that invest in specific sectors that fall under this category.
AMC or Asset Management Company is the company that runs and manages mutual funds.
In case of other investment avenues such as fixed deposits, post office savings, PPF you're almost certain about the amount you would be receiving on maturity. The risk is low and you receive returns accordingly. But with mutual funds the returns are not assured since they are linked to the stock market. Stock market investments would mean taking on high risk. But since mutual funds spread the risk among several investors like you, individually you would take on low risk and rake in stock market related returns.
Mutual funds invest in a variety of financial instruments such as equities, debt, government securities to name a few. Note that the value of these investments could fluctuate, thereby influencing your mutual fund NAV. But since the risk is spread among a large pool of individuals you individually take on low risk through diversification and rake in high returns.
Rupee cost averaging means reducing market risk through systematic purchase of a given security. In other words instead of investing a lumpsum in a mutual fund scheme you adopt a disciplined approach to investing a certain fixed amount every month at pre-determined intervals. That way your investment amount remains fixed while the number of units you receive would be more or less depending on the fluctuations of the market. And that brings down your average cost. Such a methodology insulates you against market risks.
NAV or Net Asset Value is the market value of the assets per unit after deducting the liabilities. Here's how the NAV is calculated: {(Market Value of the Scheme's Investments)+Other Assets (including accrued interest)+ Un amortised Issue Expenses (only in case of schemes launched on a load basis) - All Liabilities except unit capital and reserves)}Divided by the number of units outstanding at the end of the day.
In case of Open-ended funds the NAVs are announced daily but in case of close-ended funds they are announced on a weekly basis.
Your tax liability would depend on the fund you invest in as also the amount of time you remain invested. The government has made dividends on mutual funds tax-free. If you're invested in equity fund for lesser than 12 months you are liable to short term capital gains. Whereas, if you remain invested in an equity mutual fund for over 12 months you have no tax liability since long term capital gains are tax free.
Except for Exchange Traded Funds you do not need a demat account to invest in mutual funds.
NFOs or New Fund Offerings are new schemes introduced by mutual fund companies from time to time. During the launch period the fund unit is available for Rs 10 with the relevant loads.
Loads is the fee charged by the mutual fund company for entering or exiting a fund. These are termed asentry load or exit load and can go upto a maximum of 2%. For instance lets say you plan to invest Rs 5,000 in a fund and the entry load is 2%. Your entry load would be 100 and the amount invested would be Rs 4900. A fund would charge you one of the two - either an entry or an exit load. Not both.
If you're looking at investing in equity linked saving schemes (ELSS) the lock in period is three years. Which means your money will remain locked in with the mutual fund company for a period of three years.
As per SEBI rules mutual funds cannot guarantee you assured returns.
SIP or Systematic Investment Plan enables you to invest an amount on a regular basis and bring about a disciplined approach to investing. Through SIP you are able to get more or less units of a fund over a period of time with the investment amount remaining constant. For instance lets say you decide to invest Rs 500 every month in a mutual fund scheme. You could receive either 25, 24 or 22 units each month respectively depending on the highs and lows of the market. This turns out to be beneficial in the long run as your per unit cost gets evened out. If you're planning a SIP note that the minimum amount you can invest is Rs 500. Off late with the change in rules mutual fund companies also allow you to invest Rs 100 or Rs 50 (micro SIP) but for a minimum lock in period of three years.
The performances of Mutual funds are influenced by the performance of the stock market as well as the economy as a whole. Equity Funds are influenced to a large extent by the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole. The performance of the sector funds depends to a large extent on the companies within that sector. Bond-funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond funds with higher credit ratings are less influenced by changes in the economy.
Fund managers are experts who have their pulse on the market and decide on the right pick of stocks, debentures, debt instruments, government securities among others to maximize gains on your investment.
Equity Linked Saving Schemes (ELSS) are tax saving mutual fund schemes that enable you to get tax benefits under Section 80C of the Income Tax Act. But mind you, there's a lock in period of three years. What is an offer document? An offer document provides details about a new mutual fund scheme entering the market. It provides information on the features of the scheme, risk factors, loads - entry or exit load, the track record of the mutual fund company among others. What is KIM? KIM or Key Information Memorandum provides detailed performance related information on the several schemes of a mutual fund company. So before you invest in any scheme you can have a look at the various scheme performances and take an informed decision. But always remember that a fund's past performance is no guarantee of its future success .
You may choose the right mutual fund on the basis of
  • Age
  • Time horizon: The amount of time you plan to remain invested
  • Risk profile: The amount of risk you are comfortable taking with your investments
  • Asset allocation: Diversifying your investments to bring down the inherent risk in each asset class for instance equities, debt, bonds to name a few
  • Background of the mutual fund company
  • The track record of the scheme over a period of time Do you have a penchant for equities or are you concerned about the safety of your capital? And how long do you plan to remain invested?

Take your pick of funds based on your answers to the questions above and gain the most.

Open ended schemes: Open ended funds are those funds that do not have a fixed maturity period. You can buy and sell these funds just anytime. These funds offer high liquidity. Close ended schemes: In case of close ended schemes the maturity period ranges between two years to 15 years. You may buy these schemes when they are launched as initial issue or buy or sell the units when they are listed on the stock exchange. You could also sell back the units to the mutual fund company during a specified period.

Sure. NRIs can invest in mutual funds. Click here for more details

What are the tax benefits on mutual funds?

Invest upto Rs 1 lakh in ELSS schemes to avail of tax benefits under Section 80 C of the Income Tax Act. All dividends you receive on debt-oriented funds (funds with equity exposure of less than 65%) are tax-free. Note that in case of debt-oriented funds a dividend distribution tax of 12.5% (plus surcharge) is payable by your mutual fund company on the dividends declared.

Where are shares bought by mutual fund companies deposited?

The safe custody of the assets bought by mutual fund companies is entrusted to one or more custodians (a third party institution such as a bank).

What is the procedure to change my address and bank account details?

In order to change your address and bank account details all you need to do is drop a mail or write to Computer Age Management Services Pvt. Ltd (CAMS) and the respective asset management company.

Where can I get details about mutual funds and their Registrar transfer agents (RTA's)?

Click here for details about mutual funds and their RTA's

What is the turnaround time for NAV and redemption proceeds?

If your mutual fund purchase request is made before 12 noon you get the NAV of the same day. After 12.00 p.m the NAV applicable would be that of the next day. Expect your redemption proceeds to hit your bank account in around four to five days. Please read the respective offer document for further details.

Within how much time will I receive my mutual fund statement?

You'll receive the mutual fund statement as an email in around three days. Expect a physical copy of the same in about 10 to 15 working days.

Can I switch from one mutual fund scheme to another? How often can I do that?

You may make any number of switches from one mutual fund to another. But take into account the entry and exit loads.

What are the tax implications on switching?

Your tax implications depend on how long you remain invested in the respective fund. And accordingly, you would be liable to short term or long-term capital gains.

Will I get a portfolio of what the mutual fund company is buying and selling?

Mutual fund companies send newsletters and information on their portfolio details to investors on a regular basis. In case you've not received the same, you may access the portfolio details on the respective mutual fund website.