Faq's on Mutual Funds

• What is a Mutual Fund?

  Mutual Fund is a pool of money collected from different investors, in turn investing in debt & equity related instruments, based on the objective of the scheme.

• Why should investors go for Mutual Funds?

  There are basically two broad reasons for retail investors to go for Mutual Funds. One is that managing the portfolio, will be given to a professional (Fund Manager), who will manage the money effectively & timely. The second one is that the returns from mutual funds will be decent and tax-free in the hands of investors.

• Which is the right scheme for retail investors?

  Of course, Mutual funds have many schemes in equity as well as in debt. The suggested scheme for retail investors will be the diversified Equity scheme of a reputed fund house, because the risk element will be minimized and the returns will be decent. The other factors involved in picking the schemes will be his/her age, income and risk appetite.

• When can an investor enter into a mutual fund scheme?

  There is no good or bad time for investing in mutual funds. Starting early will be the best time for all investors. Whenever the NAV (Net Asset Value) comes down, the investor can enter into the scheme.

• What do you mean by NAV (Net Asset Value)?

  It is defined broadly as the total market capitalization of securities divided by Number of Units outstanding in the scheme. The NAV of any scheme will be in rupees and will be declared on a daily basis by the concerned fund house.

• How can retail investors enter into any of the Mutual fund schemes?

  The first thing is that the Investor has to approach a right distributor like Avdhoot Investment. They can either go for a one time purchase or systematic purchase (SIP - Systematic Investment Plan). The minimum application amount fixed for one time purchase is Rs. 5000/-. However, additional purchases are allowed for Rs.1000/-, subject to acceptance. Investors can invest even Rs. 500/- monthly through the SIP route.

• What is the specialty of this SIP (Systematic Investment Plan) route?

  As per this, the investor will agree to buy units on a specified date of every month, irrespective of the NAV. Sometimes, the NAV may be low and sometimes, the NAV may be high. If the NAV is low, the investor will buy more units and if the NAV is high, the investor will buy fewer units. The price will get averaged. This is called "Rupee Cost Averaging".

• Which is the right time to enter or exit from the scheme?

  It is a proven fact that any time is the right time to enter or exit. It is the investors' choice. What is possible today may be impossible tomorrow. So, investors can enter today itself. Similarly, the right time to exit is also in their hand. Here, the investor has to decide on when to exit. They can fix the time frame of 3 or 4 years (long term). Otherwise, they can fix the % of return. If they achieve the time frame or the desired return (whichever is earlier), they can exit.

• How can we select the best scheme from the available schemes?

  First & foremost is to decide the company, which is having a good track record. The second one is the objective of the scheme, which must match with the Investors' objective. The third one is the performance, which can be taken from the fact sheet or many websites are available for reference. The fourth one is the manager who is managing the scheme. If the above is satisfactory, then investors can enter with their portion of their income as investment in the particular scheme.

• How can an investor classify the portfolio of investment?

  The investment portion of an investor can be designed based on their age, income and risk appetite. There are debt schemes available. These schemes will have fixed returns. Every investor should have a portion of their investment in equities based on their risk appetite. The simple rule is that the debt instrument portion in their portfolio should be equal to their age. The balance may find a place in equity side based on their risk appetite.

• Is it advisable to go for Mutual Fund at this stage?

  Why not? Let us see the past statistics (10 years period), which says that the equity & equity related investments have given an average annual return rate between 18 % & 20%. Our equity market has seen peaks & downs in the last 10 years. If an investor thinks of long term, then equity investments are the best to give better & tax free returns, which can beat inflation. The only choice is the selection of schemes. If the Investor is still not convinced, then they can take the SIP (Systematic Investment Plan) route to beat the volatility.

• What about the taxation on Mutual Funds?

  The returns are tax free in the hands of investors. As far as capital gains are concerned, there is no long-term capital gain, if the units are redeemed after 1 year from the date of purchase. If it is redeemed within one year, it attracts short-term capital gain tax @ 10%.

• Types of Funds
  There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows:

Diversified Equity Mutual Fund SchemeA mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.

Sectoral Equity Mutual Fund Scheme
A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -- usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice.
Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax rebates to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory.
Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.
Gilt Funds - These funds invest exclusively in government securities.
Balanced Funds
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. They generally invest 40-60% in equity and debt instruments.
Fund of Funds
A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.
Glossary

Assets Management Company: A highly regulated organization that pools money from many people into portfolio structured to achieve certain objectives. Typically an AMC manages several funds –open ended/ close ended across several categories- growth, income, balanced.
Balanced Fund: A hybrid portfolio of stocks and bonds.

Close Ended Fund: They neither issue nor redeem fresh units to investors. Some closed ended funds can be bought or sold over the stock exchange if the fund is listed. Else, investor have to wait till redemption date to exit. Most listed close ended funds trade at discount to the NAV.

Open Ended Fund: A diversified and professionally managed scheme, it issues fresh units to incoming investors at NAV plus any applicable sales charge, and it redeems shares at NAV from sellers, less any redemption fees.

Entry/ Exit Load: A charge paid when an investor buys/sells a fund. There could be a load at the time of entry or exit, but rarely at both times.

Expense Ratio : The annual expenses of the funds, including the management fee, administrative cost, divided by the fund under management.

Growth/Equity Fund: A fund holding stocks with good or improving profit prospects. The primary emphasis is on appreciation.

Liquidity: The ease with which an investment can be bought or sold. A person should be able to buy or sell a liquid asset quickly with virtually no adverse price impact.

Net Assets Value : A price or value of one unit of a fund. It is calculated by summing the current market values of all securities held by the fund, adding the cash and any accrued income, then subtracting liabilities and dividing the result by the number of units outstanding.

Interest Rate Risk: The risk borne by fixed-interest securities, and by borrowers with floating rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed-interest securities declines and vice versa.

Credit risk: Credit risk involves the loss arising due to a customer’s or counterparty’s inability or unwillingness to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions.

Capital Market risk : Capital Market Risk is the risk arising due to changes in the Stock Market conditions.

Todays Latest Mutual Fund NAV here

Contact our Mutual Fund's Financial Advisor/ Agent or Finacial Consultant for Financial Planning/ Investment Planning for investing Your Valuable Money here