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What are Mutual Funds
A mutual fund is a common pool of money into which investors with common investment objectives place their contributions that are to be invested, in accordance with the stated objective of the scheme. The investment manager invests the money collected into assets that are defined by the stated objective of the scheme. For example, an Equity fund would invest in Equity and Equity related instruments and a Debt fund would invest in Bonds, Debentures, Gilts etc.
Which 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 Alliance, Morgan Stanley, Templeton and Private financial companies like Kothari Pioneer, DSP Merrill Lynch, Sundaram, and Kotak Mahindra etc. have floated their own mutual funds.
How many Mutual Funds are there in India currently?
Presently there are 33 Mutual Funds in India and close to 400 mutual fund schemes. We will very soon be putting up detailed analysis of major schemes operating in India.
What are the different types of mutual fund schemes?
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.
Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
What is a Switch?
Some Mutual Funds provide the investor with an option to shift his investment from one scheme to another within that fund. For this option the fund may levy a switching fee. Switching allows the Investor to alter the allocation of their investment among the schemes in order to meet their changed investment needs, risk profiles or changing circumstances during their lifetime.
What is Shut-Out Period?
After the closure of the Initial Offer Period, on an ongoing basis, the Trustee reserves a right to declare Shut-Out period not exceeding 5 days at the end of each month/quarter/half-year, as the case may be, for the investors opting for payment of dividend under the respective Dividends Plans. The declaration of the Shut-Out period is envisaged to facilitate the AMC/the Registrar to determine the Units of the unit holders eligible for receipt of dividend under the various Dividend Options. Further, the Shut-Out period will also help in expeditious processing and dispatch of dividend warrants. During the Shut-Out period investors may make purchases into the Scheme but the Purchase Price for subscription of units will be calculated using the NAV as at the end of the first Business Day in the following month/quarter/half-year as the case may be, depending on the Dividend Plan chosen by the investor. Therefore, if investments are made during the Shut -Out period, Units to the credit of the Unit holder’s account will be created only on the first Business Day of the following month/ quarter/half year, as the case may be, depending on the dividend plan chosen by the investor. The Shut-Out period applies to new investors in the Scheme as well as to Unit holders making additional purchases of Units into an existing folio. The Trustee reserves the right to change the Shut-Out period and prescribe new Shut- Out period, from time to time.
What is Exit Load?
The non refundable fee paid to the Asset Management Company at the time of redemption/ transfer of units between schemes of mutual funds is termed as exit load. It is deducted from the NAV (selling price) at the time of such redemption/ transfer.
What are Tax Saving Schemes?
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
What is a Fund of Funds (FoF) scheme?
A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. A FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.
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.100,000 crore. Out of this UTI accounts for nearly 70 percent while the private funds account for around 22 percent. The balance 8 percent is managed by mutual funds floated by public sector banks and financial institutions.
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. The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament.
Can a mutual fund change the asset allocation while deploying funds of investors?
Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and giving them option to exit the scheme at prevailing NAV without any load.
As a new investor how do I select a particular scheme?
Choice of any scheme would depend to a large extent on the investor preferences. For an investor willing to undertake risks, equity funds would be the most suitable as they offer the maximum returns. Debt funds are suited for those investors who prefer regular income and safety. Gilt funds are best suited for the medium to long-term investors who are averse to risk. Balanced funds are ideal for medium- to long-term investors willing to take moderate risks. Liquid funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods. Tax Saving Funds are ideal for those investors who want to avail tax benefits.
An important aspect while selecting a particular scheme is the duration of the investment. Depending on your time horizon you can select a particular scheme. Besides all this, factors like promoter's image, objective of the fund and returns given by the funds on different schemes should also be taken into account while selecting a particular scheme.
Can I modify /cancel my transactions?
Yes, while placing any mutual fund order, modify or cancel option would be available to you till the final confirmation of the order is placed by you. Once you click on Final Confirmation you cannot modify or cancel the order placed by you. You can only modify / cancel any Systematic Investment Plan (SIP) / Systematic Withdrawal Plan (SWP) order placed by you.
Will I get an online confirmation of my transactions?
As soon as you confirm your order you can view the details of your transaction in the order book. Also an email will be sent to your email address.
Why longer dated index options?
Yes, you can transact at any time of the day. However, in order to get the NAV of the current day you would have to transact before the cut-off time of the scheme. If you place any order after the said cut-off time, you would be eligible for NAV of the next day. As per SEBI guidelines the cutoff time for accepting orders in Non-liquid funds is 1500 hrs and in Liquid funds it is 1200 hrs. However taking into account internal transaction processing time, ICICIdirect.com has kept the cutoff time, for accepting orders in Non-liquid funds as 1330 hrs and in Liquid funds as 1030 hrs.
Can I purchase after the time which is displayed beside the scheme?
In order to get the NAV of the same day, you can purchase up to the cut-off time of the scheme, after which you will get the next day's NAV. (If the next day is a holiday, then the NAV of the next working day).
Can non-resident Indians (NRIs) invest in mutual funds?
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes
How much should one invest in debt or equity oriented schemes?
An investor should take into account his risk taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.
Is there a minimum transaction amount for each scheme?
As decided by the fund, there is a minimum transaction amount indicated against each scheme. You will get to see the minimum transaction amount in the Place Order screen.
Can I use the funds allocated for investments in secondary market towards investments in Mutual Fund ?
In order to invest in Mutual Fund, you will need to separately allocate funds for the same. This option is available to you in the Modify Allocation screen.
After my first purchase, can I immediately enter another transaction?
After your first purchase you will not be permitted to transact for a period of 4 to 7 days depending on the processing time of the Mutual Funds' Registrar. After you place an investment order in any Mutual Fund for the first time a Folio Number is generated for that particular fund. Until the Folio number is generated you will not be allowed to place any further orders for that particular Mutual Fund. After the Folio Number is generated you can place any number of order in any schemes of the Mutual Fund.
In the case of Franklin Templeton MF and Birla Sun Life MF, the Folio Number is generated for each scheme offered by the MF. Hence the processing time would be for each scheme of the Mutual Fund. Suppose if you place an order for a Liquid Fund, then a folio number is generated for that scheme only and to place an order for the first time in a balanced fund you will have again wait till a new folio number is generated.
Why should I choose to invest in a mutual fund?
For 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 provide the benefit of cheap 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.
Will TDS be deducted on the redemption of units? If yes what will be the basis of deduction of TDS
TDS is not deducted on the sale proceeds for Resident Indians.
In case of NRI's, TDS will be deducted on the sale proceeds. The TDS will deducted depending upon whether it is a short-term capital gain or long term capital gains. For short term capital gain the tax is deducted @ 33% while in case of long term capital gains it is deducted @ 11%.
Where can I see the TDS deducted on the sale proceeds?
The TDS deducted for NRI can be seen by Clicking on the executed hyperlink against the transaction. You will find the complete details of the redemption including the TDS deducted.
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. 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 there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price that is linked to the net asset value (NAV). In case of closed-ended funds, the total size of the corpus is limited by the size of the initial offer.
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 every fund levies either an entry load or an exit load or both to provide for administrative and other routine costs. The purchase price will be higher than the NAV to the extent of the entry load and the redemption price will be lower than the NAV to the extent of the exit load.
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.
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 promoters image are some of the key factors to be considered while taking an investment decision regarding mutual funds
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 about the different funds and their features please visit our mutual fund glossary
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 every month and at the prevailing NAV the units are credited to his account. Today many funds are offering this facility.
What are the benefits of s Systematic Investment Plan?
A systematic investment plan (SIP) offers 2 major benefits to an investor:
It avoids lump sum investment at one point of time
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 Net Asset Value (NAV) of a scheme?
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).
Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
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 glossary
What proportion of my investment should be invested in mutual funds?
Once again this decision will depend on factors like your income, risk aversion and tax status. We at Globe are shortly putting up a personal portfolio analyzer where based on your income, expenditure, investments, tax status etc. we will advice you on the proportion you need to allocate to mutual funds.
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 detailed analyses of the forthcoming schemes of different mutual funds.
Can a Mutual Fund assure fixed returns?
As per Sebi Regulations, mutual funds are not allowed to assure returns. However, funds floated by AMCs of public sector banks and financial institutions were permitted to assure returns to the unit holders provided the parent sponsor was willing to give an explicit guarantee to honor such a commitment. But in general, mutual funds cannot assure fixed returns to their investors.
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?
While the concept remains the same of collecting money from investors, pooling them and investing the funds, the target investors are different. In the case of portfolio management the target investors are high net worth investors while in case of mutual funds the target investors are the retail investors.
How does the concept of entry load work in case of unit purchases?
An entry load is an additional cost that an investor pays at the point of entry. Assume that your proposed investment is Rs.10, 000/-. Also assume that the current NAV of the fund is Rs.12.00 and that the entry load is Rs.0.50. Then you will receive 10000/12.50 = 800 units. For detailed explanation of entry load, refer our mutual fund glossary.
How does the concept of exit load work in case of unit redemptions?
An exit load is levy that an investor pays at the point of exit. This is levied to dissuade investors from exiting the fund. Assume that the current NAV of the fund is Rs.12.00 and that the exit load is Rs.0.50. Now if you sell 800 units then you stand to receive 800X11.5 = Rs. 9200. For detailed explanation of exit load, refer our mutual fund glossary.
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 buy or get allotted the units, a passbook will be given to you mentioning the number of units allotted/bought and redeemed by you. The recording of entries would be similar to your pass book entries in the bank. In mutual fund terminology it is called Account Statement.
Nowadays, I see lot of advertisements of InfoTech funds. Do you advise to invest in them?
As an investor you need to exercise caution in two areas:
Most funds while advertising tend to annualize their monthly returns which are arithmetically correct but technically wrong because usually such returns are not sustainable.
The fund must have a sound strategy for analyzing and investing in InfoTech companies
What are the broad guidelines issued for a MF?
SEBI is the regulatory authority of MFs. SEBI has the following broad guidelines pertaining to mutual funds :
MFs should be formed as a Trust under Indian Trust Act and should be operated by Asset Management Companies (AMCs).
MFs need to set up a Board of Trustees and Trustee Companies. They should also have their Board of Directors.
The net worth of the AMCs should be at least Rs.5 crore.
AMCs and Trustees of a MF should be two separate and distinct legal entities.
The AMC or any of its companies cannot act as managers for any other fund.
AMCs have to get the approval of SEBI for its Articles and Memorandum of Association.
All MF schemes should be registered with SEBI.
MFs should distribute minimum of 90% of their profits among the investors.
There are other guidelines also that govern investment strategy, disclosure norms and advertising code for mutual funds.
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 88 of the Income Tax Act. In such cases the fund prospectuses explicitly states that it is a tax saving fund. In such cases 20 percent of your contribution will qualify for rebate under Section 88 of the Income Tax Act.
Do investments in mutual funds offer tax benefit on capital gains?
Yes. If the capital gains earned by you during a financial year are invested in specified mutual funds then such capital gains are exempt from capital gains tax under Section 54EA and Section 54EB of the Income Tax Act.
What is the difference between Section 54EA and Section 54EB as far as capital gains tax exemptions are concerned?
Under Section 54EA the net Consideration (total sale consideration – relevant expenses) arising out of sale of Long Term capital assets need to be invested in specified in specified mutual funds with a lock-in period of 3 years. Under Section 54EB just the capital gains are re-invested but the lock-in period is 7 years.
Please note that in the latest budget this exemption is being withdrawn for investments in mutual funds and is being restricted only to bonds issued by NABARD and by the NHAI.
Can I claim tax exemption under Section 88 and Section 54 for the same investment?
No. You cannot. You can either exempt your income from tax under Section 88 or exempt your capital gains from tax under Section 54.
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.
If I gift mutual fund units, does it attract gift tax?
No. With effect from 1st October 1998, units of a mutual fund gifted by unit holders are no longer chargeable to Gift Tax.
Is my income from mutual funds exempt from income tax?
Yes. Your income from mutual funds in the form of dividends is entirely exempt from income tax provided the fund in question is a equity/growth fund where more than 50 percent of the portfolio is invested in equities.
Please note that in the current Union Budget 2000, the tax on debt funds has been increased from 10 percent to 20 percent.
What are my major rights as a unit holder in a mutual fund?
Some important rights are mentioned below:
Unit holders have a proportionate right in the beneficial ownership of the assets of the scheme and to the dividend declared.
They are entitled to receive dividend warrants within 42 days of the date of declaration of the dividend.
They are entitled to receive redemption cheques within 10 working days from the date of redemption.
75% of the unit holders with the prior approval of SEBI can terminate AMC of the fund.
75% of the unit holders can pass a resolution to wind-up the scheme.
What is an unregistered mutual fund?
An unregistered mutual fund is a general name given to investment companies that are not formally registered with the Securities and Exchange Commission (SEC). On some occasions, these companies are actually breaking the law by running unregistered investment portfolios. However, in most cases, the term unregistered mutual fund is interchangeable with hedge fund.
Although mutual funds and hedge funds generally perform the same functions (managing investment portfolios), mutual funds are registered with the SEC and hedge funds are not. Hedge funds are unregistered because of one of two exemptions in the Investment Company Act of 1940:
Hedge funds need not register with the SEC if they have fewer than one hundred investors who are all considered accredited investors.
A hedge fund is exempted from registration if all of the fund's investors (no matter the number) are considered qualified investors.
When will the investor get certificate or statement of account after investing in a mutual fund?
Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a Demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.
How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?
According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.
As a unit holder, how much time will it take to receive dividends/repurchase proceeds?
A mutual fund is required to dispatch to the unit holders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unit holder.
In case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).
Can a mutual fund change the nature of the scheme from the one specified in the offer document?
Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor.
How will an investor come to know about the changes, if any, which may occur in the mutual fund?
There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unit holders. Apart from it, many mutual funds send quarterly newsletters to their investors.
At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.
Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?
Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.
How to choose a scheme for investment from a number of schemes available?
As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts
Are the companies having names like mutual benefit the same as mutual funds schemes?
Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilize funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.
Is the higher net worth of the sponsor a guarantee for better returns?
In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.
Can an investor appoint a nominee for his investment in units of a mutual fund?
Yes. The nomination can be made by individuals applying for / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.
If mutual fund scheme is wound up, what happens to money invested?
In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.
How can the investors redress their complaints?
Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. Investors should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their complaints,
If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with it regularly. Investors may send their complaints to:
Securities and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
Plot No.C4-A , “G” Block, 1st Floor,
Bandra (E), Mumbai – 400 051.
How to change the address, Name of the Holder, Contact details, Email ID, Bank Details & Tax /Residence Status in Mutual Fund in AMC records?
For change of address, Name of the Holder, contact details, Email ID, Bank Details & Tax/ Residence status in Mutual fund folios you need to send a duly filled & signed Request Letter Change to us along with supporting documents mentioned in the Instructions given on the Request Letter.
Whom can I nominate?
You can nominate any individual as your nominee. However, you cannot nominate the following as your nominee with regard to your mutual fund units:
A Body Corporate
A Partnership Firm
Karta of a Hindu Undivided Family
A Power of Attorney Holder
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