Want to know more about Mutual Funds?

We have all the FAQs for you!
1. What are Mutual Funds?

Mutual Fund is an assurance that pools the reserves of a no. of investors who have common financial goal; reserves can be in the form of shares, securities, debt, money market equities or a mixture of these. The securities are competently managed on part of unit-holders, and every investor hold a pro-rata division of the total invested portfolio i.e. characterised to any profits while some of the securities are sold, although can also be subject to any loss in the value.

The income acquired through these types of investments and the appreciation of funds is united by its unit owner in proportion to the number of units owned. Therefore, a Mutual Fund shall be the most convenient investment option for a common man as it gives a chance to invest in completely diversified, expert managed basket of securities at comparatively low cost.

2. What are the Types of Mutual Fund?

Equity Oriented Schemes
These types of schemes are also known as Growth Schemes; who look to spend a greater part of their money in equities plus a small portion into money market instruments. These schemes have great potential to give better returns in the longer term. Nonetheless, because funds are invested in equities, the schemes are impacted by the fluctuations in prices particularly in the short term.

Therefore, these Equity schemes are not appropriate for investors who are seeking regular profits or wanting to use their savings in short-term. They are perfect for investors who contain a long-term savings horizon. NAV prices of the equity fund changes with market worth of the underlying equities which are subjective to external factors that are social, political and economic.

IndexSchemes
Index Funds repeat the collection of the particular index in such a way that it is BSE responsive index, NSE 50 index (Nifty). The index schemes put in the equities in the same load which comprises of an index. The NAVs of these schemes would increase or decrease in accordance to the increase or decrease in the index, although not exactly in same proportion due to several causes identified as “tracking error” in critical terms. Essential disclosures in this respect are prepared in offer article of this scheme.

Also, there are ETFs (exchange traded index funds) commenced by mutual funds, which are available on various stock exchanges.

Sector SpecificSchemes
Sector specific scheme is the scheme in which you invest in securities of a particular sector or industry which are specified in the offer article. For example, Pharma, IT, FMCG, oil stocks etc. The profits in these types of funds are built upon the performance of the particular sector/industry. While the funds may offer better returns because they are riskier in comparison with diversified funds. Investors would need to track the performances of that sector/industry and shall exit at right time. They shall seek suggestion of an expert.

Tax SavingSchemes
Tax saving is the scheme which offer rebates on tax to traders in specific terms of the Income Tax Act, 1961. Government gives tax benefit for the investment in particular avenues. e.g. ELSS. Pension schemes offered by mutual funds give tax benefits. These schemes are usually growth oriented and can dominantly invest in equities. The profit opportunity and risk associated to it is like any other equity oriented scheme.

Income/Debt Oriented Scheme
The objective of income funds is to give regular and stable returns. These types of scheme usually invest in fixed income securities like corporate debentures, bonds, govt. securities and money market instruments. The funds are not influenced by the fluctuations in the market. However, the opportunities of appreciation of returns are limited in these types of schemes. The NAVs of these funds are impacted because of interest rates change in the country. When interest rates decreases, NAV of these funds are expected to maximize in short term. Moreover, long term investors might not concern about these fluctuations.

Hybrid/BalancedSchemes
Hybrid schemes are also known as balanced schemes. In these schemes, the funds are invested in both debt and equities. By investing in mixture of instruments, balanced scheme look to achieve income and reasonable returns and are ideal for investors with conventional, long term direction. These gift fund or balanced fund is the example of hybrid schemes.

Money Market/Liquid Schemes
These funds are income funds and the objective is to propose easy liquidity, maintenance of capital and offer moderate profits. These schemes put in solely in safe short term instruments like CoD, treasury bills, commercial paper and interbank call money and government securities. Returns on such schemes fluctuate less in comparison to other funds. Such funds are suitable for corporate and individual investors as an option to invest their surplus funds.

Gold Exchange-Traded Schemes
ETFs are those schemes that are traded on exchanges like stocks. ETFs value is dependent on the NAV of the assets it stands for. Usually, ETFs invest in pool of stocks and try to repeat a stock market index such as CNX Nifty or BSE Sensex, i.e. market sector like technology, energy, commodity such as petroleum or gold.

Lately, SEBI has amended its rules and permitted mutual funds to initiate gold exchange-traded funds (GETFs) in India.

A gold ETF unit is similar to mutual fund unit with gold as underlying asset and would be taken in demat form. An investor will get securities certificate offered by mutual fund backed by gold ETF explaining the ownership of specific amount of gold. These are designed to give investors the means for participation in gold bullion without actually taking physical gold. As gold being one of an important asset class, gold ETFs would give better and affordable means of investment as compared to other investment methods like gold coins, gold futures, bullion, or jewelry.

3. What is Fixed Maturity Plans (FMPs)?

Secure, expected and improved post-tax profits other than fixed deposits by banks

Increasing rate of interest not only means increasing EMIs but also given an opportunity to earn better returns. Debt schemes offer attractive returns with short term rates between 8-10%. Call money moving higher to about 7.5-8% because of tight liquidity conditions. As RBI has decided to increase CRR, the liquidity conditions have turned bad. Monetary tightening is likely to continue until the end of the financial year and investor may consider investing in short term options like FMPs or floating rate schemes. The fixed maturity plans are popularly known as close ended funds as they have fixed tenure. These funds usually invest in debt products whose maturity agrees with maturity of the product.

The objective of FMP is to produce profits while taking care of capital by putting the funds in portfolio which consist of debt & money market securities. The tenure of these securities can be of diverse maturities, which range from one month to five years. FMPs are compared to bank FDs. While FDs offers ‘guaranteed’ return, and the returns in FMPs are analytical. Characteristically, the trust fixes the ‘target amount’ for scheme, which is tied up informally with borrowers ahead of scheme opens. This way the interest rate is earned on investments which offer indicative return to investors.

4. What is Monthly Income Plans?
MIPs are the type of mutual funds that invest in debt instruments. However, only 10-20% of assets are allocated to equities. But the name i.e. Monthly Income Plan is contradiction as these funds doesn’t guarantee monthly income. Just like any other fund, the returns are derived by market. However, many funds struggle to declare monthly dividends as these funds don’t have any such obligation. MIPs are offered with an objective of giving monthly returns to investors; however the periodicity of these funds depends on the option opted by an investor. These are usually annual, half-yearly, quarterly or monthly options. Also, the growth option is presented, where the traders don’t get timely dividends, but these gain in respect to capital appreciation.
5. What are Mutual Funds Advantages?

Following are the advantages of Mutual Funds:

Affordability

A mutual fund invests in complete asset portfolio, i.e. shares or bonds etc. which depends upon objective of the scheme. An investor shall buy in group of equities or else it would be very expensive. Each unit holder gets exposure to the portfolios with a minimum investment of Rs. 500. This investment can get you not more than quarter of Infosys share. It will be affordable for any investor to build portfolio with mutual funds other than investing directly in stocks.

Diversification

It just means that you have to increase your savings across different segments (bonds, real estate, stocks, money market instruments etc.) and diverse sectors (textile, auto, IT ). This type of diversification would put in to steadiness of returns, for e.g. throughout one period, equities may underperform although money market instruments and bonds may do good enough to balance the result of a slouch in equities. Likewise, IT may perform badly however the other sectors like auto & textile sectors may do well and may defend the principal amount and might help you to achieve returns.

Variety

Mutual funds give tremendous type of schemes. This is beneficial in two ways, i.e. it give diverse types of schemes to investors with diverse desires and risk appetites; other than this, it gives an opportunity to investor to put in funds across different schemes, both equity and debt. For e.g., an investor can put his funds in equity scheme and debt scheme which depends on the risk appetite and creates a portfolio easily or can simply buy the balanced scheme.

Professional Management

Skilled investment professional that is looking to increase returns and decrease risk associated with investor’s fund. When you buy mutual funds, you are handling your funds to the professional investment that experiences to make investment decisions. It would a manager’s job to

Find the top securities for the particular mutual fund, given the fund’s declared investment goals

Tracking investments and %age change in markets that adjust the mix of collection, when required

6. What are the Tax Benefits?

The following are the tax benefits of following funds:

Equity Funds

At present, dividends are tax-free to the investor. There’s no allocation of tax payable by Mutual Fund on the dividends allocation. Also, there is no TDS on dividends. The investments for more than 12 months meet the criteria of long term capital gains. Furthermore, for residents there’s no TDS on release of units. The lately introduced STT is valid to equity fund savings.

Debt Funds

At present, dividends are tax-free for the investor. But, there is sharing tax jointly with CESS, as may be appropriate, owed by the Mutual Fund on dividends distributed. There’s no TDS on dividends as well. Investments more than 12 months meet the criteria for long term capital gains. For residents, there’s no TDS on release of units.

7. What are Mutual funds Investment Options?

The following are the Mutual Funds Investment Options:

Direct : Under straight investment ability, an NRI can liberally invest in equity or debt scheme via NRE or NRO account or by foreign exchange allowance from abroad which is in Indian Rupees.

Systematic Investment Plan (SIP): An SIP is the method of investing funds for fixed sum i.e. on regular basis in mutual fund scheme. It is same as regular investment schemes like regular deposits. An SIP permits one to buy units on a specified date every month, that implements a investment plan for themselves. A SIP can be initiated with only Rs. 500/month in ELSS scheme and Rs. 1000/month in equity schemes for diversification. Buying at a lower price and selling at a higher price, is a simple winning approach for stock markets. But the timing the movement in market is not an easy task for anyone. At times, markets can miss the rally and might stay away while markets are expected to do well. Thus, other than timing the market, investing every month can ensure that one is investing funds at the high and low and earn the best possible returns with an opportunity which can be difficult to predict.

Systematic Transfer Plan (STP): STP helps you to make a complete lump sum amount in the money market or in debt oriented scheme and can transfer fractional amounts to any equity oriented at regular basis. This way the funds invested continues to earn and it waits to be fully organized in equity scheme of your choice. You can opt from the frequencies such as quarterly, monthly or weekly if you want to shift your savings from one scheme to the other.

Systematic Withdrawal Plan (SWP): SWP works like the opposite of SIP. This allows you to automatically withdraw the existing savings by redeeming your funds in intervals instead of at one time. As in case of SIP, it helps to reduce risk of misdoing your exit from a scheme.

Growth Option: Dividend is not given under growth plan and thus, investor realizes the appreciation of capital on the fund invested (by increasing NAV)

Dividend Payout Option: Dividends are paid to investors in Dividend payout option. But, the Net Asset Value of mutual fund scheme falls to point of dividend payout.

Dividend Reinvestment Plan: Dividend plans of schemes shall carry an added option for reinvestment of income allocation. This refers to the dividend reinvestment plan. In this plan, dividend declared are again invested on the part of investor, which increases the no. of units detained by the investors.

Open-ended Fund: An open ended scheme or fund is one which is available for subscription and repurchase on the constant basis. These schemes don’t have preset maturity time. Investors can suitably buy and sell units at NAV, which are confirmed on daily basis. The major feature of open ended schemes is liquidity.

Close-ended Fund: A close ended scheme has predetermined maturity time i.e. 5-7 years. These types of funds are open for subscription for the specific period at the commencement of the scheme. Investors can put in their funds in the scheme at the time of IPO and then they can either buy or sell the stocks/units of the scheme on exchange where stocks/units are listed. In respect to offer a way out route to the traders, some of the close ended funds can offer an option of selling back the units to the mutual funds through periodic redemption at NAV related prices. According to SEBI regulations, at least one of two exit routes is offered to the traders i.e. through repurchase and getting listed on exchange. This scheme is also known as income or growth or balanced scheme which considers the investment objective.

8. What are the benefits of investing in a mutual fund?

Following are the benefits of investing in mutual funds:

Access to expert Fund managers: Your fund is managed by expert fund managers who use superior technical and numerical methods.

Diversification: Mutual funds intend to decrease the instability of profits through diversification as you are investing in no. of companies through a wide section of industry & sector. It avoids trader from investing “all eggs in one basket”. This naturally reduces risk. Therefore, with the tiny investments, an investor gets diversified portfolio that would not be possible otherwise.

Liquidity: Open ended schemes are given prices on daily basis and thus constantly eager to redeem from investors. This means that an investor can dispose off their investments in mutual fund at anytime without thinking about the buyer at exact price. In case of some other investment segment like bonds or stocks, buyers aren’t surely available and thus, these investment avenues are comparatively less liquid than open ended mutual fund schemes.

Tax Efficiency*:

Equity Funds

Presently, dividends offered are tax free in the hands of an investor. There’s no distribution tax payable on dividends offered by a Mutual Fund. Also, there is no TDS on dividends. Investment for more than 12 months meet the criteria for long term capital gains, exempt from tax currently. Furthermore, for investors there’s no TDS while redeeming units even if they are Resident under Income Tax Act, 1961. STT is applicable while redeeming the equity or equity fund investments.

Debt Funds

Presently, dividends offered are tax free in the hands of an investor. But, there is a distribution tax and cess applicable and payable by Fund on dividends offered. Also, there’s no TDS on dividends. Investments for more than 12 months meet the criteria for long-term capital gains. For investors, there’s no TDS while redeeming units even if they are “resident” under Income Tax Act, 1961.

*This is the general information and investors must take proper legal advice in case they want in their cases)

Low transaction costs: As mutual funds are a pool of funds according to many investors, the amount invested in securities is huge. Thus, this results in paying lesser brokerage because of economies of scale.

Transparency: Open ended schemes prices are confirmed daily. Timely updates on value of investments are obtainable. Even the portfolio is released frequently with fund manager’s outlook and investment strategy.

Well-regulated industry: Mutual funds are wholly registered by SEBI and functions under stringent rules which are made to protect the investor’s interest.

Small convenient investment: Usually, an investor would not be able to diversify his savings (which reduces risk) across the wide range of securities because of small invested fund size and high transaction costs. The mutual fund on the other side gives an investor to obtain diversified range of securities because it invests in wide range of stocks in one portfolio.

Therefore, mutual fund allows diversification of risk without having investor to put in large amount of funds.

9. What are the Types of Mutual Funds offered by different brokers?

Mutual fund schemes are classified on their structure and objectives:

Structure

Open-ended Funds

The open ended fund is one which is available to subscribe throughout the year. They don’t have fixed maturity. An investor can suitably trade units at NAV prices.

Close-ended Funds

A close ended scheme has predefined maturity, which range between 3-15 years. You can subscribe the fund only during a specific period. Investors can put in his savings in this scheme at the time of IPO issue and then can buy/sell units on exchange, only if they are listed. The market price at stock exchanges could fluctuate from fund’s NAV on the back of demand & supply, unit holder’s outlook and various market factors.

By Investment Objective

Growth Funds

The objective of these growth funds is to offer better returns from small to long term. These schemes generally invest their capital in equities. This type of scheme is perfect for investors who have long term plans and are looking for growth in long term.

Income Funds

The objective of this scheme is to offer timely and stable income to investors. These schemes usually invest in fixed returning securities like corporate debentures, bonds and government securities.

Income fund schemes are perfect for stability of returns and constant returns. Appreciation of capital in income funds may be restricted, however risk is usually lower than it is in growth fund.

Balanced Funds

The objective of balanced funds scheme is to offer both growth and timely income. These schemes timely distribute some part of earnings and put the funds in equities as well as fixed income securities in the proportions mentioned in offer documents. This part impacts the risks and the profits related with balanced fund. If equities are offered higher proportion, investor will be open to risk which is same as that of equity market.

Balanced funds have same distribution to equity stocks and fixed income securities which is perfect for investors seeking for mixture of income and modest growth.

Money Market Funds

The objective of money market is to give liquidity, capital preservation and modest income. Such schemes usually put funds in safe short term investment like Commercial paper, Treasury Bills, CoD and Inter-bank call money. The returns on such schemes vary on the basis of interest rates in the market. This is perfect for corp or individual clients to park their funds for short term.

Other Equity Related Schemes

Tax Saving Schemes

These schemes give rebate on tax to investors under particular provisions of Income Tax Act, as government gives tax incentives for investing some specific segments. Investors are recommended to discuss with their advisors for more info.

Index Schemes

Index scheme try to repeat the performance of specific index like BSE Sensex or NSE S&P CNX 50.

Sectoral Schemes

Sectoral Funds is that scheme which invests wholly in some sectors like FMCG, Pharma, IT etc. These schemes have higher risks in comparison to equity schemes because portfolio is not much diversified and is restricted to some sectors or industries.

10. What are the different options that mutual funds offer?

Mutual Funds have a bouquet of products to cater to different investment needs. Below mentioned are are some of the important investment options:

Growth Option

Seek to invest a majority of their funds in equities and a small portion in money market instruments. As the dividend is not paid under this scheme , the investor realises only the capital appreciation with fluctuation of the market value of the underlying stock.

Dividend Payout Option

Investors receive dividend payouts under this option with the NAV falling to the extent of the dividend payout.

Dividend Re-investment Plan

Accrued dividend is automatically re-invested in additional buying of units under open –ended funds. In most cases mutual funds offer the option of collecting dividends or re-investing to the investor.

Retirement Pension Plan

Schemes linked with retirement pension help individuals plan for themselves and allows the same for corporate for their employees.

Insurance Plan

Insurance cover to investors is offered under this scheme by certain funds.

Systematic Investment Plan (SIP)

An SIP is a method of investing a fixed sum on regular basis in a mutual fund scheme. It allows one to buy units on a given date each month so to implement a savings plans for themselves. With the SIP mode of investing rather than timing the market, investing month after month ensures one is invested at the high and the low and makes the best out of an opportunity that is otherwise tough to predict.

Systematic Encashment Plan (SEP)

In contrast to SIP the Systematic Encashment Plan (SEP) permits the investor the facility to extract a pre-determined amount / units from his fund at a pre-determined interval. The investor’s units will be redeemed at the applicable NAV as on that day.

11. What is Net Asset Value (NAV)?

The market value of the assets of the scheme less its liabilities is called the Net asset Value(NAV). The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Usually, NAV is calculated by adding up the current market values of all securities held by the fund in cash and any accrued income, then taking out liabilities and dividing the result by the number of units outstanding.

For example:

Total Value of Securities (Equity, Bonds, Debentures etc.) INR1,000
Cash INR1,500
Liabilities INR500
Total outstanding units 100
NAV [(1000+1500-500)/100] INR20 per unit
12. What are loads?

Load is a charge collected by a mutual fund by selling its units. It can be levied as an exit load (i.e, the charge is collected when the investor sells back the units). * As per SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009, no entry load will be charged for purchase / additional purchase / switch-in accepted by the Fund with effect from August 1, 2009. Likewise no entry load will be charged to applications for registration under Systematic Investment Plan/ Systematic Transfer Plan / Systematic Investment Plan Plus accepted by the Fund with effect from August 1, 2009.

Schemes that do not charge any load are called No Load Schemes.

13. Can the sell price be different from the NAV?

They can be different from the NAV due to exit loads. For example, if the current NAV of a scheme is Rs. 10 and the exit load is 1.5 per cent then the effective sale price will be INR 9.85.

14. What is redemption price?

The price received by the customer on selling of units of an open-ended scheme to the fund is its Redemption price. The redemption price will be same as the NAV if the fund does not levy an exit load, it will be lower than the NAV in case the fund levies an exit load.

15. What is repurchasing price?

Repurchase price refers to the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.

16. What is a switch?

Certain Mutual Funds provide investors with an option to shift investment from one scheme to another within that fund. A switching fee may be allowed for the same. Switching of scheme allows the investor to move investment partly or full from one particular scheme to another to meet his/her changed investment needs, risk profile or change in circumstances during his lifetime.

17. What are the regulations that govern a mutual fund?

The process of setting up a Mutual Fund is initiated by a sponsor who creates a Trust (the fund) under the Indian Trust Act. In turn an Asset Management Company (AMC) is appointed by the Trust. The interests of the investors in the Mutual Fund are guaranteed by the Trustees by ensuring that the operations of the fund comply with the relevant regulations. The fund also has to be approved by the Securities and Exchange Board of India (SEBI), the market regulator.

18. What is an Asset Management Company (AMC)?

The AMC is responsible for managing the investments for the various schemes operated by the Mutual Fund. Every Mutual Fund has an AMC associated with it.

The performance of the AMC is overseen by the trust. Professionals are employed by AMC to manage the funds. They (AMC) may be assisted by a custodian and a registrar.

AMCs are obliged to make investments compliant with SEBI regulations.

19. Who is a custodian?

The custodian is entrusted with the possession and safekeeping of all securities purchased by the Mutual Fund.

20. Are mutual funds allowed to indulge in speculation /day trading?

No. SEBI regulations stipulate all trades executed by mutual funds should be settled by delivery except derivative trades, which are settled in cash.

21. What is an asset management fee?

The fee charged on an annual basis calculated as a percentage of net assets under management is known as the Asset Management Fee being charged by an AMC for portfolio management.

22. What are the types of risks?

Risk is a natural aspect of every form of investment. Mutual funds have underlying assets which fluctuate on daily basis and can lead to capital loss. Then there are price risks due to fall in prices of stocks leading to a lower NAV. The value of the investments may also be affected by factors such as interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.

  • Inflation Risk or can be called as “loss of buying ” Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you’ll actually be able to buy less, not more.
  • Credit Risk:Downgrade of ratings by credit rating agencies. How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
  • Interest Rate Risk:Changing interest rates affect both equities and bonds both are influenced by movements in the interest rates in the financial system. In general, when interest rates rise, prices of the securities fall and vice verca. Interest rate movement in the Indian debt markets can be volatile leading to the likelihood of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV.
  • Investment Risks:The sectoral fund schemes invest primarily in equities of select companies in the particular sectors. As a result, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.
  • Liquidity Risk:Sparingly traded securities carry the danger of not being easily saleable at or near their real values. Liquidity risk is the feature of the Indian fixed income market.
  • Changes in the Government Policy: Government policy changes especially in regard to the tax structure may impact the business prospects of the companies leading to an impact on the investments made by the fund.
23. Are returns from mutual funds guaranteed?

Commonly, Mutual Funds do not offer guaranteed returns to investors. Although, SEBI regulations allow Mutual Funds to offer guaranteed returns subject to the Fund meeting certain conditions, most Funds do not guarantee returns. In case guaranteed return schemes, the AMC guarantees a minimum level of return and makes most of the difference if the actual returns are lesser than the minimum guaranteed. Guarantor`s name and the mode in which the guarantee shall be met must be disclosed in the offer document by the Mutual Fund. Investments in mutual funds are not guaranteed by the Government of India, the Reserve Bank of India or any other government body.

24. Does investing in Mutual Funds mean investing in equities?

No, not necessary. Mutual funds can be divided into various types depending on asset classes. Investments can also be made in debt instruments such as bonds, debentures and government securities apart from equity.

All mutual fund schemes are bound by the investment objectives outlined in its prospectus. The objectives specify the class of securities a fund can invest in. Based on such objectives, the following types of mutual funds currently operate in the country-

  • Growth Schemes
  • Income Schemes
  • Balanced Schemes
  • Money Market Schemes
25. Can the NAV of a debt fund fall?

A debt fund invests in fixed-income instruments. These may include Commercial Paper, Certificates of Deposit, bonds & debentures. Though the rate of interest on these instruments remains the same all through their tenure, the market value keeps changing, depending on how the interest rates in the economy move.

NAV of a debt fund is the market value of its portfolio holdings at any given point of time. With change in interest rates, changes the market value of fixed-income instruments – and consequently, the NAV of a debt fund are likely to fall. Thus the NAV of a debt fund can fall too.

26. How, and against what, should I benchmark the performance of a mutual fund?

The yardstick to measure a Mutual Fund’s performance can be against other Funds of similar category – for example, the performance of a diversified equity fund should be in comparison to similar funds in the industry or could also be against established market indices like the BSE ,Sensex or the NSE Nifty.. The fund manager usually decides a benchmark index at the time of conceptualisation of the scheme and this serves as a effective tool for comparison.

The period of comparison of Mutual Fund schemes should also be carefully decided. Ideally Equity funds should be compared over a 1-2 year horizon. Any comparison over a shorter period would be imprecise by short term, volatile price movements. Likewise, the ideal comparison period for a debt fund would be 6-12 months while that for a liquid/money market fund would be 1-3 months.

27. Besides the NAV, are there any other parameters which can be compared across different funds of the same category?

Besides Net Asset Value the following parameters should be considered while comparing the funds:

  • AVERAGE RETURNS: An investor should consider the returns given by the fund over a period of time. Need to look into whether all dividends and bonuses have been accounted for. The higher and more consistent the returns the better is the fund.
  • VOLATILITY: In addition to the returns one should also highlight the volatility of the returns given by the fund. Volatility is basically the fluctuation of the returns about the mean return over a period of time. A fund with consistent returns is superior than a fund whose returns fluctuate a lot.
  • CORPUS SIZEA Large corpus is normally considered good because large funds have lower costs but at the same a large corpus may become unwieldy and thus difficult to manage.
  • PERFORMANCE VIS A VIS BENCHMARKS / OTHER SCHEMES: Returns are not the only thing to be seen by the investor but also compare it with benchmarks like the BSE Sensex, S & P Nifty, T-bill index etc depending on the asset class he has invested in. For a clearer picture it is advisable that the returns be compared with the returns given by the other funds in the same category.

It is sensible to consider all the above-mentioned factors while comparing funds and not rely on any one of them in remoteness.

28. How are mutual funds different from Portfolio Management Schemes?

The investments of investors in mutual funds are pooled to form a common investible corpus and the profit/loss to all investors during a given period remains the same for all investors. In the case of portfolio management schemes, the investments of a particular investor remain particular to him. Here the profit or loss of investors will be different from each other.

29. Who can nominate?

Only individuals holding beneficiary accounts singly or jointly can make nomination. Non-individuals including society, trust, body corporate, karta of Hindu Undivided Family, holder of power of attorney cannot nominate.

30. Who can be a nominee?

Only an individual can be a nominee. A nominee shall not be a society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family or a power of attorney holder

31. Are joint holders of accounts allowed to nominate?

Nomination for joint holders is allowed, however in the event of demise of any of the holders the mutual fund units will be transferred to the surviving holder’s name. The units will be transmitted to the nominee account in case of death of all holders.

32. Can a NRI nominate?

No, a minor cannot nominate directly or through its guardian.

33. Can there be more than one nominee?

No, only one nomination can be made per MF investment.

34. Can a minor be a nominee?

Yes, a minor can be a nominee. In case of a minor , the guardian will sign on behalf of the nominee and in addition to the name and photograph of the nominee, the same of the guardian must be submitted to the AMC.

35. Can a NRI be a nominee?

Yes, a NRI can be a nominee subject to the exchange control regulations in force.

36. What is the procedure for nomination?

To nominate account holders should fill nomination form containing their`s as well as nominee`s signatures and photographs and signatures of two witnesses. In case of a minor being a nominee then the signature and the photograph of guardian needs to be attached. This form can be submitted to AMC at the time of initial investment or later after the investment is made.

37. Can the nominee be changed?

Yes, the nomination can be changed by the account holder/s at any given point of time by simply filling up a new nomination form and submitting the same to the AMC.

38. What are Eligibility criteria for Investments in Mutual Funds?

Resident Indian adults either singly or jointly

Minors through parent / legal guardian

Non-resident Indians (NRIs)/ Persons of Indian Origin on full repatriation basis (subject to RBI approval, if required) or on non-repatriation basis.

Religious and Charitable Trusts, Wakfs or endowments of private trusts (subject to receipt of necessary approvals as required) and Private Trusts authorized to invest in mutual fund schemes under their trust deeds

Partnership Firms

Karta of Hindu Undivided Family (HUF)

Banks (including Co-operative Banks and Regional Rural Banks) & Financial Institutions

Foreign Institutional Investors (FIIs) registered with SEBI on full repatriation basis (subject to RBI approval, if required)

Companies, bodies corporate, public sector undertakings, association of persons or bodies of individuals and societies registered under the Societies Registration Act, 1860 (so long as the purchase of units is permitted under the respective constitutions)

Army, Air Force, Navy and other Para-military funds and eligible institutions

Scientific and Industrial Research Organizations

Provident / Pension / Gratuity and such other Funds as and when permitted to invest

International Multilateral Agencies approved by the Government of India / RBI

Trustees, AMC or Sponsor or their associates (if eligible and permitted under prevailing laws), may subscribe to the Units under the Scheme.

Non-resident Indians / Persons of Indian Origin residing abroad on full (NRIs) repatriation basis (subject to RBI approval, required)

Trustees and their associates (being individuals)

Minor through parent / lawful guardian

Hindu Undivided Family (HUF) (through Karta or otherwise)

Indian resident adult individuals either singly or jointly (not exceeding three)

Minimum Amount For Investment

Types of MF Amt (in rupees)
Equity 5000
Debt/Income 10,000
ELSS ( Tax Saving) 500
FMP( Fixed Maturity Period) 500 onwards
MIP (Monthly Income Plan) 5000 onwards
SIP (Systematic Investment Plan) 1000
39. What is Mode of Payment for NRIs to invest in MFs?

NRIs can carry out investment in Mutual Fund on repatriation basis in which the principal amount, dividend as also capital gains can fully be repatriated / remitted abroad or credited into Non Resident External (NRE) account.

To gain repatriation, initially investment should be made from Non Resident External (NRE) account or Foreign Exchange Remittance from abroad.

Even though investment is permissible from Foreign Currency Non Resident (FCNR) account, just about all investment can not be made from FCNR account but for only when balance is transferred / credited into Non Resident External (NRE) account as mutual fund investments in India is predominantly in Rupees and FCNR accounts being term deposits.

Such repatriation is subject to payment of tax as applicable in India.

40. Can NRI investments be on Non Repatriation basis?

If the initial sum is from a Non Resident Ordinary(NRO) account, in that case investment can also be made on non-repatriation basis.

Dividend / gains and also principal amount can be repatriated even if the original investment is made on non-repatriation basis.

Under the liberalised scheme, NRIs can repatriate / remit abroad an amount of US$ 1mn per financial year out of the balances held in NRO account.

If required , such balance can also be transferred from NRO account to NRE account held with any bank in India

41. How are MFs REDEEMED BY NRIs?

In the case of NRIs

Credited, at the NRI / NRO account, wherein the payment for the purchase of the Units redeemed was made out of funds held in NRO account or

Remitted overseas or at the NRI investor’s option, credited to his / its NRE / FCNR / NRO account, where the Units were purchased on repatriation basis and the payment for which was made by inward remittance through normal banking channels or out of funds held in NRE / FCNR account.

42. Is there any Tax Benefit for NRIs to invest in Mutual Funds?

Mutual Fund units are exempt from Wealth Tax.

For Non-Residents

Capital Gains under Section 112 of the Income Tax Act, 1961 & Tax Deduction at Source (TDS)

Redemptions/Exchanges/Switches by non-residents will be subjected to tax deduction at source at the rates in force and certificates for tax deducted will be issued.

01. Long Term Gains of Equity Schemes Tax 0% Tax Deduction (TDS) 0%
02. Short Term Gains of Equity Schemes Tax 10% TDS 10%
03. Long Term Gains of Debt / Hybrid Schemes Tax 10% TDS 20%
04. Short Term Gains of Debt / Hybrid Schemes Tax 0% to 30% TDS 30%