What is a Mutual Fund ?

A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI), that pools money from investors and invests the same on behalf of them, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets.

Which was the First Mutual Fund to be set up in India ?

Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64.

WWhich are the other institutions that have floated Mutual Funds in India ?

Currently public sector banks like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC Foreign Institutions like Morgan Stanley, Templeton and Private financial companies like , DSP Blackrock, Sundaram, Kotak Mahindra etc. have floated their own mutual funds.

How many Mutual Funds are there in India currently ?

Presently there are 37 Mutual Funds in India and more than 1000 mutual fund schemes.’

Why has the concept of mutual funds taken so long to pick up in India ?

Even in the US the concept of mutual funds has started picking up only in the last decade. This whole process of investor education and investor awareness takes a lot of time. But Indian investors are now beginning to understand the benefits of investing through the mutual funds route and hence the collections are beginning to pick up.

What is the total size of the mutual fund sector in India

Currently the total funds under mutual fund management in India are a little over Rs.600,000 crore. Reliance is right now the largest fund house in India.

What is the Regulatory Body for Mutual Funds

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI.

Why should I choose to invest in a mutual fund ?

For a retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because :

• Mutual Funds provides easy access to expensive stocks.
• Mutual funds diversify the risk of the investor by investing in a basket of assets.
• A team of professional fund managers manages them with in-depth research inputs from investment analysts.
• Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access

How do mutual funds diversify their risks ?

Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset, which option mutual fund provides, even with smaller amount of investments. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.

Can mutual funds be viewed as risk-free investments ?

No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.

What are the risks involved in investing in mutual funds ?

A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.

What are open-ended and closed-ended mutual funds ?

In an open-ended mutual fund, investors are permitted to enter & exit the fund at any time at the prevailing NAV, subject to loads, if any. In case of Closed-ended schemes, entry is permitted at the time of New Fund Offer Only.

Do both open-ended and closed-ended funds come out with an initial offering ?

Yes. But the only difference is that in case of open-ended funds, a month after the initial offer closes the continuous offer period starts when the investor can enter and exit the fund at a price linked to the NAV.

Is the purchase and redemption in case of open-ended funds done at the NAV ?

Generally purchase & redemption can be done at the prevailing NAV subject to exit load, if any.

What is the investor’s exit route in case of a closed-ended fund ?

According to Sebi regulations, all closed-ended funds have to be necessarily listed on a recognized stock exchange. Thus the secondary market provides an exit route in case of closed-ended funds.

How do I invest money in Mutual Funds ?

One can invest by approaching a registered broker of Mutual funds or the respective offices of the Mutual funds in that particular town/city. An application form has to be filled up giving all the particulars along with the cheque or Demand Draft for the amount to be invested, alongwith the necessary documents.

What are the parameters on which a Mutual Fund scheme should be evaluated ?

Performance indicators like total returns given by the fund on different schemes, the returns on competing funds, the objective of the fund and the fund managers background are some of the key factors to be considered while taking an investment decision regarding mutual funds.

As a lay investor, how do I go about analyzing the mutual fund scheme ?

As a service to the investing community, We do it for you. Our research team evaluates each scheme based on primary as well as secondary information and presents an unbiased report which will help you to take a decision on whether a fund is worth investing or not.

What are the different funds we currently have in India ?

Currently there exist balanced funds, Income fund, Growth funds, Sector funds etc. To get more details you can contact us on our numbers or mail us.

What are the different types of plans that any mutual fund scheme offers ?

That depends on the strategy of the concerned scheme. But generally there are 3 broad categories. A dividend plan entails a regular payment of dividend to the investors. A reinvestment plan is a plan where these dividends are reinvested in the scheme itself. A growth plan is one where no dividends are declared and the investor only gains through capital appreciation in the NAV of the fund.

Which plan should I choose ?

It depends on your investment object, which again depends on your income, age, financial responsibilities, risk taking capacity and tax status. For example a retired government employee is most likely to opt for monthly income plan while a high-income youngster is most likely to opt for growth plan.

What is a Systematic Investment Plan and how does it operate ?

A systematic investment plan is one where an investor contributes a fixed amount on fixed intervals at the prevailing NAV and the units are credited to his account.

What are the benefits of Systematic Investment Plan ?

A systematic investment plan (SIP) offers 2 major benefits to an investor:

• It allows investors to save even smaller amount in a disciplined manner and helps in creating wealth.
• In a scenario of falling prices, it reduces your overall cost of acquisition by a process of rupee-cost averaging. This means that at lower prices you end up getting more units for the same investment.

What is NAV and how it is calculated ?

NAV is the net asset value of the fund. Simply put it reflects what the unit held by an investor is worth at current market prices. For details on calculation methodology and formulae, please click on our mutual fund section.

What proportion of my investment should be invested in mutual funds ?

Once again this decision will depend on factors like your income, savings, risk aversion and tax status.

Like IPOs, can there be any situation wherein I am not allotted the units applied for in the initial offer ?

In case of closed-ended funds there is a target amount and the funds are permitted a green-shoe option to retain over-subscriptions up to a certain limit. In case of open-ended funds there are no such limits and all applications are honored.

How do I get the information regarding the forthcoming schemes of different mutual funds ?

For the guidance of the investors our web site is giving a detailed analyses of the forthcoming schemes of different mutual funds .You can visit our website to get such information on forthcoming scheme openings.

Can a Mutual Fund assure fixed returns ?

As per Sebi Regulations, mutual funds are not allowed to assure returns.

How much return can I expect by investing in mutual funds ?

Investors need to be clear that mutual funds are essentially medium to long term investments. Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk of direct investment accompanied with professional fund management.

What is the difference between mutual funds and portfolio management schemes ?

In Mutual Fund, investor is allotted units, and all gains and losses resulting from day-to-day transaction by mutual funds are treated of mutual funds only. However, they get reflected in NAV. Investor is liable for tax, if any, only at the time of redemption from the fund. Whereas, in case of Portfolio Management Scheme all transactions are done on behalf in investor himself and all transaction are done in his name only.

How does the concept of exit load work in case of unit redemptions ?

An exit load is a levy that an investor pays at the point of exit. This is levied to dissuade investors from exiting the fund very frequently.

Can an investor redeem part of the units ?

Yes. One can redeem part units also.

Say I redeem and buy and do likewise several times then, how do I keep track of my portfolio ?

The moment you do any transaction, be it purchase or redemption, a statement of account will be sent to you showing transactions and the other details of investment.

Am I eligible for rebate on income tax by investing in a MF ?

Yes in case of certain specific Equity Linked Saving Schemes, tax benefits are available under Section 80C of the Income Tax Act.

Do investments in mutual funds offer tax benefit on capital gains ?

Yes, in case of Equity oriented mutual funds, long term capital gains are exempted from tax.

Do mutual fund investments attract wealth tax ?

No. Under the Wealth Tax Act, all financial assets, including mutual fund units are exempt totally from Wealth Tax.

Is my income from mutual funds exempt from income tax ?

Yes. Your income from mutual funds in the form of dividends is entirely exempted from Income tax.