About Mutual Fund

Mutual Funds

What is a Mutual Fund?

A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The money collected is then invested in capital market instruments such as shares, debentures and other securities based on their objective. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by the investors.

What are the advantages of mutual fund?

Flexibility -Mutual funds offer a variety of schemes that will suit your needs over a lifetime. When you enter a new stage in your life, all you need to do is sit down with your financial advisor who will help you to rearrange your portfolio to suit your altered lifestyle..
Affordability –As a small investor, you may find that it is not possible to buy shares of larger corporations. Mutual funds generally buy and sell securities in large volumes which allow investors to benefit from lower trading costs. The smallest investor can get started on mutual funds because of the minimal investment requirements. You can invest with a minimum of Rs.500 in a Systematic Investment Plan on a regular basis.
Liquidity - In open-ended schemes, you have the option of withdrawing or redeeming your money at any point of time at the current NAV
Diversification –Risk is lowered with Mutual Fund as they invest across different industries&stocks.
Professional Management – Qualified professionals manage your money, but they are not alone. They have a research team that continuously analyses the performance and prospects of companies. They also select suitable investments to achieve the objectives of the scheme. It is a continuous process that takes time and expertise which will add value to your investment. Fund managers are in a better position to manage your investments and get higher returns
Low Costs – The economy of scale result in low cost.
Regulations – All mutual funds are required to register with SEBI (Securities Exchange Board of India). They are obliged to follow strict regulations designed to protect investors. All operations are also regularly monitored by the SEBI.
Transparency – The performance of a mutual fund is reviewed by various publications and rating agencies, making it easy for investors to compare fund to another. As a unitholder, you are provided with regular updates, for example daily NAVs, as well as information on the fund's holdings and the fund manager's strategy.

What are the different types of fund

What are open-ended funds?

An open-end fund is one that is available for subscription all through the year and is not listed on the stock exchanges. The majority of mutual funds are open-end funds. Investors have the flexibility to buy or sell any part of their investment at any time at a price linked to the fund's Net Asset Value.

What are close-ended funds?

A closed-end fund has a fixed number of shares outstanding and operates for a fixed duration (generally ranging from 3 to 15 years). The fund would be open for subscription only during a specified period and there is an even balance of buyers and sellers, so someone would have to be selling in order for you to be able to buy it. Closed-end funds are also listed on the stock exchange so it is traded just like other stocks on an exchange or over the counter. Usually the redemption is also specified which means that they terminate on specified dates when the investors can redeem their units.

What are interval funds?

These schemes combine the features of open-ended and closed-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.

What are Growth / Equity Oriented SchemeWhat are 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.

What are 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.

What is Balanced Fund?

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.

What are Money Market / Liquid Fund / income funds?

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

What is Equity Linked Saving Schemes (ELSS)?

Equity linked saving schemes (ELSS), these schemes are open-ended growth schemes with a mandatory 3-year lock- in. These schemes offer the benefit of section 80(C) of IT Act, up to a maximum of Rs 100,000 The main features of ELSS are -

Repurchase: Repurchases are permitted after a period of 3 years.

Lock-in-period: The units under ELSS are prohibited from trading, pledging and transfer during the lock in period of 3 years.

What are Index Funds?

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 weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index.

What are sectoral specific funds?

These are schemes whose objective is to invest only in the equity of those companies existing in a specific sector, as laid down in the fund’s offer document. For example, an FMCG sectoral fund shall invest in companies like HLL, Cadbury’s, Nestle etc., and not in a software company like Infosys. Currently there exist approximately four broad classifications of basic sectors namely – technology, media & telecom (TMT), fast moving consumer goods (FMCG), basic industry (that invest in core industries like petrochemicals, cement, steel, etc.) and pharmaceuticals.

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 an entry load?

The costs of the fund management process that includes marketing and initial costs are charged when you enter the scheme. These charges are termed the entry load. It is the additional charge you pay when you join a scheme.

What is an exit load?

Just like entry load some funds impose a fee when you leave the scheme, i.e., redeem your units, called the exit load.

How to Invest?

How do I apply for Investments in a fund?

Obtain an application form along with the Offer Document from your investment advisor / broker / agents, download it from our website or procure it from any of offices or investor service centers
Read and understand the Offer Document and complete the application form
Attach a cheque for the amount you would like to invest. You can also transfer the money electronically if you have an account in bank
The completed application can be mailed to or dropped off at any of AMC offices or investor service centers.

Where do I get applications?

The applications can be obtained from CAMS, SERVICE CENTREs / Fund offices or branches. Alternatively, they can be downloaded from the Website of the funds houses.

What documents do I need to submit with my initial application to buy units of mutual funds?

The following is a list of documents required by an investor while investing in mutual fund for the first time.

Subsequent investments do not need these documents.

Those who indicate "Individual" in the "Status" division of the application form

The application complete in all respects Those who indicate "Corporate" in the "Status" division of the application form
Certified copy of Memorandum of Association/ Articles of Association.
Board Resolution authorizing the company to invest in mutual funds.
List of authorized signatories with specimen signatures.

Those who indicate "Trust" in the "Status" division of the application form

Trust Deed.
List of authorized signatories with specimen signatures.
Board Committee Resolution.

Those who indicate "Societies" in the "Status" division of the application form

Board Committee Resolution.
Bylaws .
List of authorized signatories with specimen signatures

Those who indicate "Partnership Firms" in the "Status" division of the application form

Board Committee Resolution, Partnership Deed.
List of authorized signatories with specimen signatures

Where do I submit my application form?

The Application can be mailed to or dropped off at any of offices of AMC or investor service centers.

Are there any minimum amount limits for subsequent purchases in the same scheme?

Yes, limits of minimum amount are applicable for additional purchases for schemes and will be mentioned in the Offer Document.

How can I transfer money between various schemes? Do loads Prevail?

Yes, you can switch between schemes/investment options/plans. You need to complete a transaction slip, which you can download from website or detach from the bottom of your account statement. A switch from one scheme to the other is treated as redemption from the scheme from where it is switched out & a purchase into the scheme into which it is being switched. Thus you will be liable for any 'applicable' entry load, exit load, or CDSC

What is a lock-in period for my units?

Lock-in period is a time span during which the money invested cannot be redeemed. In the case of open-ended funds there are no lock in periods, however in the case of tax saving funds a minimum lock-in period of 3 years is applicable.

What is a Switch?

Some Mutual Funds provide investor with an option to shift his investment from one scheme to another within that fund this option is known as switching.

Investors can opt to switch units between Dividend Plan and Growth Plan at NAV based prices. Switching is also allowed into/from open-ended schemes currently within the Fund family or schemes that may be launched in the future at NAV based prices.

While switching between Debt and Equity Schemes, one has to take care of exit and entry loads. Switching from a Debt Scheme to Equity scheme involves an entry load while the vice versa does not involve an entry load.

Switches are subject to loads depending upon the Scheme details

Is there a limit to transfer of money from one scheme to another?

Yes, the target scheme will have the minimum subscription amount as specified in the Offer Document.

What is the applicable NAV for switch?

Switch requests are affected the day the request for switch is received. The Applicable NAV for the switch will be the NAV on the day that the request for switch is received

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.

How do Minors apply?

Parents / Lawful Guardians can apply on behalf of a Minor. They can sign the application on behalf of the Minor and status of the Investor in the Account Statement would also reflect the same.

Can an investment be made in joint names?

Yes, investments can be made in joint names.

How many joint names are permissible?

Two joint names are permissible.

What do u mean by "Joint" or "either or survivor"? What option should I opt?

When an investment is made joint mode of holding it means the units are in both the names and transactions needs signature of both. On the other hand when one opts for either or Survivor it means the units are in both the names but transaction can be carried out by either the individuals. And in case if one of them is dead the transaction is not stopped. But in the case of joint holding the living individual have to submit the dead certificate along with the application to the AMC. Thus either or survivor is a better option

Is there a time period to submit the application form?

Yes there are cut-off time before which investor should submit the transaction so that he can take the advantage of that day’s NAV so that if in case the NAV increases the next day he would get less units.

Is Permanent Account Mandatory?

Yes, PAN is mandatory when the investment is or more than Rs. 50, 000.

What are Growth / Equity Oriented SchemeWhat are Growth / Equity Oriented Scheme

What are Income / Debt Oriented Scheme?

What is Balanced Fund?

What are Money Market / Liquid Fund / income funds?

What is Equity Linked Saving Schemes (ELSS)?

Repurchase: Repurchases are permitted after a period of 3 years.

Lock-in-period: The units under ELSS are prohibited from trading, pledging and transfer during the lock in period of 3 years.

What are Index Funds?

What are sectoral specific funds?

What is a Fund of Funds (FoF) scheme?

What is an entry load?

What is an exit load?

Just like entry load some funds impose a fee when you leave the scheme, i.e., redeem your units, called the exit load.

SIP

What is Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a simple method of investing, used across the world as a means to accumulate wealth. It works the same way as a recurring deposit account. SIP involves investing a fixed sum of money in a specific investment scheme, on a regular basis, for a pre-determined number of periods.

What are the advantages of investing in SIP?

Helps you to invest disposable funds each month.
Gives you the benefits of rupee-cost averaging
Relieves you of trying to time the market
Helps you to reach your financial goals

How do I apply for SIP?

Fill up a single SIP form, and a single application form.
Draw post-dated cheques (minimum 5 cheques).
Per cheque minimum SIP amount, there are many funds that have their minimum amount as low as can be as low as Rs 500/-
Auto Debit Facility

Are there any minimum amount limits for subsequent purchase in same scheme?

Yes, there is a minimum amount limits for subsequent purchase in same scheme.

Account statement

What is statement of account?

A document issued by the mutual fund, which gives details of their transactions and holdings of an investor.

Within how much time a person should receive the Account Statement?

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

Can I get my account statement and other communication on email?

Yes, you can get email communication instead of the physical communication of the following:

Account Statement, OR

Quarterly Newsletter & Annual Report, OR

Communication on change of Address, Bank, etc.

You need to provide your email id and subscribe for the above at the time of investing by ticking at the relevant column of the application form / common transaction form.

I have multiple accounts in a fund. Can I consolidate?

Yes, you can consolidate multiple accounts in a fund. The pre-requisite for consolidation is that all static details like Address, Bank, Mode of Holding; Unit holders etc… have to be identical across all accounts in a fund. Upon receipt of a valid request, consolidation into a single account would take place.

How do I get a duplicate account statement?

An account statement can be obtained from the following sources: -

Requesting any of the CAMS SERVICE Centers
Writing / email / phone to back office at CAMS or its SERVICE Centers
Requesting through CAMS Website under Account Information –
Email robot service sends the account statement to the registered email id in no time
Requesting through CAMS Website under Query / Complaints –
Email / physical account statement would be sent to the Investor at their registered address

I have changed my residence. What should I do?

You have to inform the nearest CAMS SERVICE CENTRE / concerned AMC in writing, appropriately signed, so that they can make changes in the database. Alternatively, you can submit a request at the CAMS website to record the change by logging on to the Account Information with a PIN reference under Investors section. An acknowledgement will be sent reflecting the change

I have a new bank account. What should I do?

You have to inform the nearest CAMS SERVICE CENTRE / concerned AMC in writing, appropriately signed, so that they can make the changes in their database. Alternatively, you can submit a request at the CAMS website to record the change by logging on to the Account Information with a PIN reference under Investors section. An acknowledgement will be sent reflecting the change.

Dividend

How do I get dividends?

Dividends would be paid by cheques, drawn in the name of the sole holder/first-named holder (as determined by the account and mailed to the last address recorded in the books). The Bank name and the Account no. as specified in the records will also be mentioned in the cheque. The cheque will be payable at par in all the cities designated by the Fund. In case of other cities, you will be paid by a Demand Draft after deducting the demand draft charges (if any and depending upon the concerned AMC).

What are Dividend re-investment plans? Do loads prevail?

It is combination feature of both growth and dividend plan. Dividends are declared as in a dividend plan. But are not received instead are reinvested in the scheme

No, there is no load on re-investment of dividends into the same fund. In a dividend reinvestment plan, the dividend is reinvested in the scheme itself. Hence instead of receiving dividend, the unit holders receive units. Thus units would be allotted under the dividend reinvestment.

I have not received my dividends what do I do?

Write a letter to AMC for not receiving the dividend.

Redemption

When and how can I redeem my investments?

In an open ended fund investments can be redeemed any time but in the close ended fund investments can be redeemed only after the expiry of the lock-in period, either by submitting a physical request to any of the Karvy/CAMS SERVICE CENTREs / concerned AMC or requesting the same through the on-line services available under Investors section at the CAMS website.

Within how much time I will receive my redemption request?

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 unitholder.

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).

What is the Repurchase or Back End Load?

It is the charge collected by the scheme when it buys back the units from the unit holders.

What is Systematic Withdrawal Plan (SWP)

The unit holder may set up a Systematic Withdrawal Plan on a monthly, quarterly or semi-annual or annual basis to redeem a fixed number of units. They have to pay capital gain tax, which may be short term or long term. Any Unit holder can avail of this facility subject to the terms and conditions contained in the application form / Offer Document, it may also include exit loads if applicable.

I have not received my redemption proceeds? What should I do?

You can write / email to any of the Karvy/CAMS SERVICE CENTREs or to the AMC concerned addressing the same for further course of action.

Taxation

What is Dividend Distribution Tax?

Dividend Income from the Debt and Fund of Funds schemes only will attract the dividend distribution tax @ 12.5% for Individuals and 20.00% for the non-individuals. The dividends in the hands of the investor will be completely tax-free. However, the Debt-oriented funds have to pay the DDT while Equity oriented funds exempt from it.

Capital Gains Tax

It is tax is paid by the investor to the tax authorities while they filling the income tax returns. More over the capital gains of the equity oriented funds are exempt from tax if your holding period exceeds one year. When you sell any asset you own (house, land, shares, mutual fund units, gold, debentures, bonds), and you make a profit on the sale, it is known as capital gain.

What is Securities Transaction Tax?

Equity oriented funds are subject to securities transactiontax at the rate of 0. 2 percent at the time of selling the funds units. This charge is deducted when you redeem your investments.

What are the tax benefits for investing in mutual fund units?

Dividend income from mutual fund units will be exempt from income tax with effect from July 1, 1999. Further, investors can get rebate from tax under section 80 (C) of Income Tax Act, 1961 by investing in Equity Linked Saving Schemes of mutual funds.

Do I have to pay any tax on equity funds?

These are funds that invest in shares of companies (diversified equity funds and sector funds). They also include balanced funds, which have more than 65% of their total investments in equity. Dividend income from an equity-oriented fund is tax-free.

If I sell my equity funds units before I complete a year do I have to pay any tax?

If you sell the units within a year of buying, it will attract a short-term capital gains tax of 10%.

What if I sell my equity funds units after a year then is there any tax that I have to pay

If you sell the units after a year, no long-term capital gains tax.

What tax has to be paid when dividend is declared by debt funds?

While dividend income is tax-free in the hands of the investors, it attracts a dividend distribution tax of 12.5% (plus surcharge and cess) paid by the mutual fund, has to be is borne by investors.

What if I sell my debt fund units after completing one year?

If you sell the units after a year, you will have to pay a long-term capital gains tax of either 10% without indexation, or 20% with indexation, whichever is lower. Indexation is used to calculate tax when inflation is taken into account. This is good because it reduces the amount of capital gain and the amount you end up paying as tax.

What if I sell my debt fund units before a year?

If you sell the units within a year, the short-term capital gain will be clubbed with the income of the individual investor, to be taxed as per the slab system.