Mutual Funds Services

Frequently Asked Questions :: Mutual Fund

What is a Mutual Fund ?

A Mutual Fund is a corporate body that pools the savings of a number of investors and invests the same in a variety of different financial instruments, or securities. The income earned through these investments and the capital appreciation realised by the scheme are shared by its unit holders or investors in proportion to the number of units owned by them. Mutual funds can thus be considered as financial intermediaries in the investment business who collect funds from the public and invest on behalf of the investors. The losses and gains accrue to the investors only. The Investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.

What is Unit ?

A unit is a share of that mutual fund. Just as shares represent the extent of equity ownership in a company, units represent your extent of ownership in a mutual fund.

The price at which you buy that unit is known as the net asset value (NAV) of that unit. The NAV of the entire mutual fund is given by subtracting the total liabilities form the total assets. The NAV of a mutual fund is then defined as the NAV of the entire mutual fund divided by the total number of units of the mutual fund.

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 fee for fund management.

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

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV) and it varies on daily basis. 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

How often is the NAV declared?

NAV is required to be disclosed by the mutual funds on a regular basis – on all business days or weekly – depending on the type of scheme. 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. The NAVs are also available on the websites of mutual funds. All mutual funds are also required to put their NAVs on the website of Association of Mutual Funds in India (AMFI) and thus the investors can access NAVs of all mutual funds at one place

What are the different types of Mutual funds?

Equity Funds/ Growth Funds

Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over the medium to long-term. The returns in such funds are volatile since they are directly linked to the stock markets. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds.

Diversified funds 

These funds invest in companies spread across sectors. These funds are generally meant for risk-taking investors who are not bullish about any particular sector.

Sector funds 

These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector. 

Index funds 

These funds invest in the same pattern as popular market indices like S&P 500 and BSE Index. The value of the index fund varies in proportion to the benchmark index.

Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this scheme are in the form of tax rebates U/s 88 as well saving in Capital Gains U/s 54EA and 54EB. They are best suited for investors seeking tax concessions.

Debt / Income Funds

These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.

Liquid Funds / Money Market Funds 

These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods. 

Gilt Funds

These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk.

Balanced Funds 

These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.

Hedge Funds

These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio

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.

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

Is there any minimum lock-in period for my units?

There is no lock-in period in the case of open-ended funds. However in the case of tax saving funds a minimum lock-in period is applicable. The lock-in period for different tax saving schemes are as follows:

U/s 88 3yrs
U/s 54EA 3yrs
U/s 54EB 3yrs

What is Systematic Investment Plan (SIP)?

  • SIP is a long term investment technique under which you invest a fixed sum of money on a monthly or quarterly basis in a mutual fund scheme at the prevailing NAV.
  • This allows you to save and invest regularly while you are earning.

Benefits of SIP

  • Protects against market volatility.
  • Inculcates saving habit.
  • Invest with small amounts.
  • Eliminates need for timing markets.
  • Helps averaging cost of investment.
  • Improves probability of better returns.

What does it mean to redeem mutual funds?

Generally, all mutual fund shares are 'redeemable', which means that you as an investor can sell your shares back to the fund. The fund prospectus provided at the time of buying usually has the details about redemption of fund shares including the exit load or redemption charges that you will pay for exiting the fund

How can I redeem my mutual funds?

The proceeds from the redemption will be credited to the registered bank account. Mutual funds can also be purchased online. Such units can be redeemed online through a trading account or the AMCs website. You simply have to log in, select the fund and the number of units you wish to redeem and confirm your order

Is SIP is tax free?

Only investments in Equity Linked Savings Schemes (ELSSs) or tax saving mutual fund schemes qualify for a tax deduction under Section 80C of the Income Tax Act. Unfortunately, none of your Systematic Investment Plans (SIPs) are in ELSSs

Can I stop sip online?

You can log into your mutual fund account online and choose 'cancel SIP'. Your SIP will cancel within 30 days of the cancellation request. If you have invested through any online agent, you can cancel SIP through their portal.

Can we withdraw from SIP?

Like any MF investment, either Direct or through any brokers, like FundsIndia, you can redeem or withdraw your SIP investments anytime. Off course you can withdraw anytime. But pls remember that most of the funds applying 1% exit load if you sell funds before one year

Is redemption of mutual funds taxable?

But if debt mutual fund investments are redeemed or sold before three years, the short-term gains are taxed according to your tax slab. Income from debt funds also come in the form of dividends. Any dividend declared by a debt mutual fund is exempt from tax in the hands of investors.

Is SIP is safe?

SIP or Systematic Investment Plan is a very popular term promulgated by mutual funds, their distributors, and financial planners. ... It is also safe for the financial planners to recommend because if anything goes wrong then they can blame the SIP system. But, however is SIP safe for an investor?

Can we increase the amount of SIP in mutual fund?

There are two ways of increasing your SIP amount: 1. If you want to increase the monthly investments, then fill out another SIP auto debit form and select the date on which you want the additional amount to get auto debited. ... The amount will be invested in the fund and your monthly investments will continue.

Can we redeem ELSS mutual fund before 3 years?

Hence, the amount invested cannot be withdrawn before the lock-in period is over. If you have an ongoing SIP in a ELSS Mutual Fund and require to stop it, you can do that. But, redeeming the existing invested units before three years from the date of investment is not possible in the case of ELSS Mutual Funds.

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