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What is a mutual fund?

A mutual fund is a financial instrument that collects money from several investors like you, and invests it in various investment options like shares, bonds, etc. This fund is managed by experts.

What are the types of mutual funds?

Depending on where your money is invested, mutual funds can be classified into three types: Equity, Debt and Hybrid. Equity mutual funds invest in shares of companies listed on the stock exchange. Debt mutual funds invest in bonds of reputed companies and government bonds. Hybrid mutual funds invest in both, shares and bonds.

What is an AMC?

AMC or Asset Management Company is the company that runs and manages mutual funds.

Who are fund managers?

Fund managers are experts who have their pulse on the market and decide on the right pick of stocks, debentures, debt instruments, government securities among others to maximize gains on your investment.

How does a mutual fund operate?

A mutual fund company collects money from many investors, and invests it in various options like shares, bonds, etc. This fund is managed by professionals who understand the market well, and try to achieve growth by making strategic investments. Investors get units of the mutual fund according to the amount they have invested.

How different are mutual funds from other investment avenues?

In case of other investment avenues such as fixed deposits, post office savings, PPF, etc. you're almost certain about the amount you would be receiving on maturity. The risk is low and you receive returns accordingly. But with mutual funds the returns are not assured since they are linked to the stock market. Stock market investments would mean taking on high risk. But since mutual funds spread the risk among several investors like you, individually you would take on low risk and rake in stock market related returns.

What are the benefits of investing in a mutual fund?

Some of the major benefits on investing in a mutual fund are: - Diversification - Professional management - Convenience - Liquidity - Variety of schemes and types - Tax benefits.

How risky is mutual fund investing?

Mutual funds invest in a variety of financial instruments such as equities, debt, government securities to name a few. Note that the value of these investments could fluctuate, thereby influencing your mutual fund NAV. But since the risk is spread among a large pool of individuals you individually take on low risk through diversification and rake in high returns.

Do I need a demat account to invest in mutual funds?

Except for Exchange Traded Funds you do not need a demat account to invest in mutual funds.

Can NRIs invest in mutual funds?

Yes. NRIs can invest in mutual funds. Click here for more details

Is there any lock-in period in mutual funds?

If you're looking at investing in equity linked saving schemes (ELSS) the lock in period is three years, which means your money will remain locked in with the mutual fund company for a period of three years.

What are the factors that influence the performance of Mutual Funds?

The performances of Mutual funds are influenced by the performance of the stock market as well as the economy as a whole. Equity Funds are influenced to a large extent by the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole. The performance of the sector funds depends to a large extent on the companies within that sector. Bond-funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond funds with higher credit ratings are less influenced by changes in the economy.

What is NFO?

NFO stands for a New Fund Offer. When a new fund is launched for investors, it is known as a NFO. A NFO could also be the launch of additional units of a close-ended fund.

What is an offer document?

An offer document provides details about a new mutual fund scheme entering the market. It provides information on the features of the scheme, risk factors, loads - entry or exit load, the track record of the mutual fund company among others.

What is Key Information Memorandum (KIM)?

KIM or Key Information Memorandum provides detailed performance related information on the several schemes of a mutual fund company. So before you invest in any scheme you can have a look at the various scheme performances and take an informed decision. But always remember that a fund's past performance is no guarantee of its future success .

What is a Fund of Funds?

A fund of fund is a kind of mutual fund that invests in a variety of mutual fund schemes.

What are equity mutual funds?

Equity mutual funds collect money from several investors like you, and invest this amount in shares of various companies. The primary objective of equity mutual funds is to invest in shares of different companies and generate good returns.

What are debt mutual funds?

Debt mutual funds collect money from several investors like you, and invest this amount in bonds of reputed companies and government bonds.

What are hybrid mutual funds?

Hybrid mutual funds invest both in shares and bonds. The portion invested in shares helps grow your wealth, while the portion invested in bonds offers stability to your portfolio.

What are Exchange Traded Funds?

Exchange Traded Funds (ETFs) are funds that can be traded on a stock exchange, just like shares. These funds invest in shares, indexes or commodities.

What are index funds?

Index funds are mutual funds that invest in shares of companies comprising a particular index. These funds intend to replicate the performance of a particular index.

What are gilt funds?

A gilt fund is a kind of mutual fund that invest your money only in government securities. These funds are considered to be safe as they bear no default risk.

What are sectoral mutual funds?

Sectoral mutual funds invest your money in shares of companies of one particular sector. The main objective of these funds is to provide high returns from one particular sector that has the potential to grow.

What are liquid funds?

Liquid funds are mutual funds that offer high liquidity. This means, the units of these funds can be sold immediately, and the invested amount can be redeemed quickly.

What are capital protection funds?

Capital protection funds are mutual funds designed to protect your capital. These funds put a major portion of the investment in bonds, and a small portion in shares. Over time, the portion invested in bonds grows to the size of your original investment. So even if the portion invested in shares does not do well, your capital is still protected.

What are ELSS funds?

Equity Linked Saving Schemes (ELSS) are tax saving mutual fund schemes that enable you to get tax benefits under Section 80C of the Income Tax Act. Investment in these funds have a lock-in-period of three years.

What is an open-ended mutual fund?

Open-ended funds can be bought and sold at any time; they have no fixed tenure.

What is a close-ended mutual fund?

You can buy units of close-ended mutual funds only when a mutual fund company launches the fund. Once you buy them, you have to hold your investment for a fixed tenure.

What is a Systematic Investment Plan (SIP)?

A Systematic Investment Plan (SIP) is a convenient method of investing in mutual funds. Under this plan, an investor contributes a fixed amount towards the mutual fund scheme at regular intervals, and gets units at the prevailing NAV.

What are the benefits of investing in a SIP?

Investing in SIP offers two major benefits: -
1. You can start investing with a small amount, and
2. You can average out your investment, as SIP involves buying units at different points of time and at different NAV levels.

What is rupee cost averaging?

Rupee cost averaging is one method to save regularly and minimize the effect of market volatility on investments. By investing through methods like SIP, you invest a fixed amount in mutual funds at regular intervals. So, you get more units when the NAV is low and fewer units when it is high. Eventually, your average cost per unit is brought down.

What is a Systematic Withdrawal Plan (SWP)?

Under a Systematic Withdrawal Plan (SWP), an investor redeems a fixed number of mutual fund units at regular intervals.

What is Net Asset Value (NAV)?

Net Asset Value (NAV) refers to the price of one unit of a mutual fund scheme.

How is NAV calculated?

NAV can be calculated as follows:-
(Assets of the fund – Liabilities of the fund) / Number of units outstanding for that fund.

How often is the NAV of a fund declared?

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 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 is a sales price?

The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable.

What is a repurchase/redemption price?

Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable.

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.

How do I choose the right fund?

You may choose the right mutual fund on the basis of:

• Your Age
• Time horizon: The amount of time you plan to remain invested
• Risk profile: The amount of risk you are comfortable taking with your investments
• Asset allocation: Diversifying your investments to bring down the inherent risk in each asset class
• Background of the mutual fund company
• The track record of the scheme over a period of time

Will I get a portfolio of what the mutual fund company is buying and selling?

Mutual fund companies send newsletters and information on their portfolio details to investors on a regular basis. In case you've not received the same, you may access the portfolio details on the respective mutual fund website.

What is a Nomination?

An investor can nominate person(s) called nominee(s) to whom his/her Mutual fund Units will be transferred on his/ her demise. The units will get transferred to the nominee in case of Single holding or Joint holding in the following manner:-

• Single holding of units in the folio: The Mutual Funds units will get transferred in the name of the registered nominee on the demise of the Single (primary) holder.
• Joint Holding or more than one unit holder in a folio: The Mutual Funds units will get transferred in the name of the registered nominee on the demise of both the joint holder(s).

What are the benefits of registering a nomination?

Registration of nomination will facilitate easy transfer of funds to the nominee(s) on the demise of the Investor. However, in the absence of nominee, a claimant would have to produce a host of documents like a Will, Legal heir Certificate, No-objection Certificate from other legal heirs etc. to get the units transferred in his/her name.

Can I make a nomination for the mutual fund units purchased?

Yes. You can make nomination for your Mutual Fund units purchased.

Can a nominee be appointed in on behalf of minor folio?

No nominee can be registered under on behalf of minor account.

Can I cancel / change a nomination made by me?

Yes. You can cancel / change your existing nomination at any time before you redeem your mutual fund units.

What is the effect of making a nomination?

Nomination causes all rights and/or amount(s) payable in respect of your Mutual Fund Holdings to vest in and be transferred to your nominee upon your death. If your legal heir is different from your nominee, your legal heir cannot dispute this action as transfer by the respective AMC(s) in favour of a Nominee acts as valid discharge by the AMC(s) against the legal heir of the deceased holder.

Who can make a nomination?

Investors in the Category of "Individuals" are permitted to make a nomination for their mutual fund units. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family and a holder of Power of Attorney are not allowed to nominate.

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. A Trust
b. A Society
c. A Body Corporate
d. A Partnership Firm
e. Karta of a Hindu Undivided Family
f. A Power of Attorney Holder

Can I nominate a Non Resident Indian as my nominee?

Yes. A non-resident Indian can be a nominee subject to the exchange controls in force, from time to time.

Can I nominate a minor as my nominee?

Yes. You are permitted to nominate a minor. However, if you nominate a minor, you must provide the name and address of the minor's guardian in the nomination request.

Can I nominate more than one person in my Mutual Fund Folios ?

Yes, an investor has an option to register up to three nominee in a folio and specify the percentage of the amounts that will go to each nominee. However, If the percentage is not specified, equal shares will go to each of the nominee .

Will my existing mutual fund nomination automatically get updated for all future Mutual Fund purchases also?

No. Nomination made in your existing mutual fund folios will not be automatically updated for new folios created for fresh mutual fund purchases made by you. For all new folios, you will be required to make a separate nomination request.

If an investor has different schemes in a folio, will all units of all schemes be transferred to the nominee?

A nomination is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

What is Arbitrage Mutual Fund?

Arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns.

How arbitrage mutual fund works?

An arbitrage mutual fund scheme purchases stock in the Cash Market and simultaneous sells that stock in the Futures Market.

How does purchasing and selling the same security in two different markets generate returns?

Theoraticlly, the price of a stock is in the Futures Market is higher than the price in the Cash Market. The difference between the price of the stock in the Cash and Futures Market in the income of the arbitrage fund.