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.

What is an Asset Management Company?

An Asset Management Company (AMC) is a highly regulated organisation that pools money from investors and invests the same in a portfolio. They charge a small management fee, which is normally 1.5 per cent of the total funds managed.

What is NAV?

NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. NAV is calculated as follows: NAV=Market value of the fund's investments +Receivables +Accrued Income- Liabilities-Accrued Expenses / Number of Outstanding units.

What does Net Asset Value (NAV) of a scheme signify and what is the basis of its calculation?

Net asset value on a particular date reflects the realizable value that the investor will get for each unit that he his holding if the scheme is liquidated on that date. It is calculated by deducting all liabilities (except unit capital) of the fund from the realizable value of all assets and dividing by number of units outstanding.

How often is the NAV declared?

The NAV of a scheme has to be declared at least once a week. However many Mutual Fund declare NAV for their schemes on a daily basis. As per SEBI Regulations, the NAV of a scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. However, NAV of a close-ended scheme targeted to a specific segment or any monthly income scheme (which is not mandatory requirement to be listed on a stock exchange) may be published at monthly or quarterly intervals.

What is the difference between an open ended and close ended scheme?

Open ended funds can issue and redeem units any time during the life of the scheme while close ended funds can not issue new units except in case of bonus or rights issue. Hence, unit capital of open ended funds can fluctuate on daily basis while that is not the case for close ended schemes. Other way of explaining the difference is that new investors can join the scheme by directly applying to the mutual fund at applicable net asset value related prices in case of open ended schemes while that is not the case in case of close ended schemes. New investors can buy the units from secondary market only.

How are mutual funds different from portfolio management schemes?

In case of mutual funds, the investments of different investors are pooled to form a common investible corpus and gain/loss to all investors during a given period are same for all investors while in case of portfolio management scheme, the investments of a particular investor remains identifiable to him. Here the gain or loss of all the investors will be different from each other.

Can I get fixed monthly income by investing in mutual fund units?

Yes, there are a number of mutual fund schemes which give you fixed monthly income. Further, you can also get monthly income by making a single investment in an open ended scheme and redeeming fix value of units at regular intervals.

Are there any risks involved in investing in Mutual Funds?

Mutual Funds do not provide assured returns. Their returns are linked to their performance. They invest in shares, debentures and deposits. All these investments involve an element of risk. The unit value may vary depending upon the performance of the company and companies may default in payment of interest/principal on their debentures/bonds/deposits. Besides this, the government may come up with new regulation which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.

What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsors track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

As mutual fund schemes invest in stock markets only, are they suitable for a small investor like me?

Mutual funds are meant only for a small investor like you. The prime reason is that successful investments in stock markets require careful analysis of scrips which is not possible for a small investor. Mutual funds are usually fully equipped to carry out thorough analysis and can provide superior returns.

What are the benefits of investing in Mutual Funds?

Qualified and experienced professionals manage Mutual Funds. Generally, investors, by themselves, may have reasonable capability, but to assess a financial instrument a professional analytical approach is required in addition to access to research and information and time and methodology to make sound investment decisions and keep monitoring them. Since Mutual Funds make investments in a number of stocks, the resultant diversification reduces risk. They provide the small investors with an opportunity to invest in a larger basket of securities. * The investor is spared the time and effort of tracking investments, collecting income, etc. from various issuers, etc. It is possible to invest in small amounts as and when the investor has surplus funds to invest. Mutual Funds are registered with SEBI. SEBI monitors the activities of Mutual Funds. In case of open-ended funds, the investment is very liquid as it can be redeemed at any time with the fund unlike direct investment in stocks/bonds.

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 promoter s image are some of the key factors to be considered while taking an investment decision regarding mutual funds.

What are the different plans that Mutual Funds offer?

Growth Plan and Dividend Plan: A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income. Dividend Reinvestment Plan: Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors. Systematic Investment Plan: Under the Systematic Investment Plan (SIP) also called Automatic Investment Plan (AIP), the investor is given the option for investing in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan their savings through a structured regular monthly savings program. Automatic Withdrawal Plan : Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a pre-determined interval.

What is Entry Load?

The non refundable fee paid to the Asset Management Company at the time of purchase of mutual fund units is termed as Entry Load. Entry Load is added to the NAV (purchase price) when you are purchasing Mutual Fund units.

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 Purchase price?

Purchase price is the price paid by you to purchase a unit of a mutual fund scheme. If the fund levies an entry load, then the purchase price would be equal to the sum of the NAV and the entry load levied.

What is redemption price?

Redemption price is the price received on selling units of open-ended scheme. If the fund does not levy an exit load, the redemption price will be same as the NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.

What is repurchase price?

Repurchase price is the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.

Do I have to pay any entry load for mutual fund purchases made after August 01, 2009?

No. Prior to the implementation of the SEBI guideline, an entry load of 2.25% was charged on all Mutual fund purchases. As per the new guidelines issued by SEBI, with effect from August 1, 2009, entry load will not be charged on purchases in existing mutual fund schemes or on schemes launched thereafter. However, any investment made by you in an NFO which was launched prior to August 1, 2009 will continue to attract entry load and other charges as specified in the offer document.

What exit load will I have to pay as on date?

Exit Load varies for different schemes and is generally charged as a percentage of NAV. The Exit load normally varies from 0.25% to 2% of the redemption value. Some mutual funds however do not charge any exit load. Such mutual funds are referred to as 'No Load Funds'.

How do the new SEBI Guidelines impact my mutual fund transactions?

SEBI Guidelines stipulate that with effect from August 1, 2009, there shall be no entry load for any Mutual Fund scheme whether existing or new. SEBI Guidelines further stipulate that investors will be required to pay upfront commission directly to distributors. This means that earlier if you invested Rs.1000/- in a mutual fund, your total invested amount was reduced to the extent of entry load charged i.e. Rs.22.5 (@ 2.25%) thereby making your actual investment Rs977.5/-. However, w.e.f August 1, 2009, the entire Rs1000/- invested by you would be your investment in the mutual fund. However, while you will not be charged any entry load, you will have to pay 'Transaction charges' directly to your distributor as per the applicable fee structure.

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.