Why you should AVOID Mutual Fund NFO (New Fund Offers)?

When stock market is doing well, you will see Mutual Fund houses launching NFO’s (New Fund Offers). This is because more people invest when stock market is doing well and hence there are investors to whom mutual fund houses can sell these NFO’s.

What is NFO (New Fund Offers)?

NFO is the first time subscription offer for a new scheme launched by the mutual fund houses. The units are at fixed rate which is Rs 10 and can be bought during the subscription period.

What is Open-ended fund?

Open-ended fund is the one which you can buy even after the NFO’s subscription period and can redeem at any point of time.

What is Close-ended fund?

Close-ended fund is the one which you can buy only during the NFO’s subscription period and have to hold the units for the said period.

The Mutual Fund regulator SEBI (Securities and Exchange Board of India) always expresses sharp disapproval for NFO’s which are similar investment objectives from the same mutual fund companies.

Below are the reasons why you should avoid NFO:

  • There is no Track Record

Since NFO is new fund, there is no track record. It is very difficult to analyze and make a investment decision.

  • High initial expenses

Initial expenses of marketing and other expenses high in case of NFO’s

  • It is not cheaper

As the units are priced at Rs. 10, people think it is cheap and invest heavily for better return.  The fund collected from investors will be used for investing in equity/debts and NAV will be declared based on the performance.

Conclusion:

It is always better to invest in existing mutual funds based on the investment objectives, past performance and other factors.

Everything about investing via MF Utility

MF Utility is a “Transaction Aggregating Portal” which facilities to open “Common Account Number (CAN)”, which enable investor to invest in mutual funds by different AMC’s through a single account. MFU offers 24/7 information access includes Online Common Account Statement, Composite Portfolio information, Portfolio holding and scheme related information.

MF Utility (MFU) provides a whole lot of features to the Mutual Fund customers like (Source: https://www.mfuindia.com/SystemFAQ ):-

  • Provides Common Account Number (CAN) facility to Investors
  • Facilitates KYC registration through KYC Registration Agencies (KRAs) for CAN creation
  • Provides standardization of forms, processes and MIS across the industry
  • Provides multiple modes of access and transaction submission options
  • Provides broad and neutral Points of Service (POS) footprint for enhanced coverage
  • Enables transactions through a common transaction form
  • Enables single payment for multiple scheme investments across various Mutual Funds
  • Accepts payments through various physical and electronic modes
  • Provides CAN based consolidated view of investments across the industry
  • Provides industry level alerts, triggers, reminders etc.
  • Provides a centralized complaint management and tracking system

What is CAN?

(Source https://www.mfuindia.com/SystemFAQ)

CAN (Common Account Number) is an industry level Folio allotted by MF Utility (MFU) to an investor. It is a combination comprising of the following:-

Number of Investors i.e. 1 or 2 or 3

Order of holding i.e. A; A&B; A,B&C; B; B&A; B,C&A; C; C&B; C,A&B; and so on

Mode of holding i.e. Single, Joint and Anyone or Survivor

Social (Tax) Status i.e. Individual, Company, Non-Resident etc.,

Using a CAN, the investors will be able to submit single request for multiple transactions in various schemes across Mutual Funds using a single form/payment.

Below are the AMCs with whom you can invest in mutual funds through MF Utility:

How to create a CAN (Common Account Number) Offline?

KYC (Know Your Customer) compliance is compulsory for CAN creation. MF Utility (MFU) facilitates KYC registration for investors along with creation of CAN. Download below forms from MF Utility Site:

  • CAN Registration Forms
  • KYC Registration Forms
  • PayEezz Registration Form

Filled forms should be signed and submitted along with the required documents at any of the MFU Points of Service (https://www.mfuindia.com/MFUPOS ) or sent to the MFU Office (https://www.mfuindia.com/Contact) at Thane for the purpose of opening CAN.

Submit necessary documentary proof as listed below for the information provided in the respective sections of the CAN registration form:

  •     PAN proof where PAN is provided
  •     Proof of KYC for all applicants
  •     Proof of Date of Birth for all applicants
  •     Proof of Bank Account for Bank Mandates registered under the CAN
  •     Proof of Depository Account for Depository accounts registered under the CAN
  •     Proof of Guardian relationship (in case of Minor applicants)

How to create an eCAN (Common Account Number) Online?

Eligibility criteria for an Individual investor are:

INDIVIDUAL INVESTORS WHO:

  1. are KYC compliant (other than eKYC) through any of the KYC Registration Agencies (KRA) / CERSAI (CKYC); (AND)
  2.  a. already have an active folio with any of the AMCs participating in MFU and are registering ONLY the bank account(s) which is/are already registered bank account(s) in any of the active folios held in the participating AMCs (OR) b. do not have any investments in the AMCs participating in MFU

can complete the process of eCAN registration completely ONLINE, by uploading the required document proof(s) through the link provided as part of the confirmation email from MFU and there is no need to submit any document physically/later.

Note: Make sure pop-up blocker is deactivated in your internet browser.

Step 1: Go to eCAN online form site here and select “New Form” as below:

Step 2:

Select “Choice of eCAN registration” from the drop-down and select “Completely Electronic”. Leave blank for “ARN / RIA SEBI REGN No” and “EUIN”. Select appropriate “Tax Status” such as “Resident Individual”. Next is “Holding Nature”, options are “Single”, “Joint” & “Anyone or Survivor”. If you are married and you wish to include your spouse as the second holder of all your mutual fund investments, it is better to choose “Anyone or Survivor” option. This will help you later financial formalities if you do not have any WILL. Hit Save and select Next.

Step 3:

Please fill all the basic details such as Name, DOB, PAN, Aahaar, Moibile number, E-mail. Update all the additional KYC details and FATCA details. Once done Hit “Save” and select Next. If you have selected “Joint” or “Anyone or Survivor” option then in the next step you have update the similar details for the other holders also.

Step 4:

Here you have to provide your Bank Details which you want to register under CAN. At max you can add 3 bank accounts under a CAN. Also select the appropriate “Bank Proof”, as you have to provide this proof once you submit the CAN request. Once done Hit “Save” and select Next.

Step 4:

Update the nominee details. Select “I Agree to the eCAN Terms”, “Save” and “Submit for eCAN”.

Upon clicking ‘Submit for eCAN’ you will be provided with validation errors/warnings, if any and you may have to rectify them and submit again. If there are no validation errors/warnings, the data will be accepted for further process and you will be provided with a PROVISIONAL CAN instantly.

If your eCAN request is successful you will get the following message. The proof documents can be uploaded immediately by selecting “click here to upload the proof documents” button.

You also will get the above confirmation via mail and you can upload the proof documents later also via the link provided in the mail. You should upload the relevant document proof(s) as stated in the email, in the respective image formats. The CAN will be approved and activated for further transactions, after necessary validations / verifications at the MFU office. In case the information / details / proofs / images (including signatures) either submitted by you / sourced by MFU from the KRAs / CERSAI / RTAs does not satisfy the requirements of “Completely Electronic” eCAN, the record will be converted to “Partially Electronic” eCAN and an email will be sent to the registered email ID of the Sole / Primary holder along with a pre-filled “eCAN Registration Form”, which needs to be printed and duly signed by all the holder(s) / guardian and submitted along with the necessary documentary proof(s), to a MFU authorized entity or a MFU Point of Service (POS) for further processing. The CAN will be approved and activated for further transactions, upon submission of the physical documents as stated.

 

What to do next once you  have Ssuccessfully submitted your “eCAN Application” and uploaded “proof documents”?

Wait for two weeks. If everything is fine then you will get a confirmation mail from MF Utility with subject “Allotment of Common Account Number (CAN)”. It will contain two attachments; CAN allotment letter and CAN registration summary.

  • If you do not get any confirmation from MF Utility within two weeks:
    • Call Toll Free: 1800 266 1415 number and ask for the status of your allotted CAN.
    • Write a mail to [email protected] and ask for the status of your allotted CAN.
  • You can also check what is the status of your CAN application form online:

Go to https://www.mfuindia.com/eCANFormFill and provide the Primary Holder’s Mail Id which you have given while filling the eCAN form and select “Look Up” option. A verification mail will be sent with the verification code to the given mail id. Enter the verification code; this will lead to following screen. You can see “i” icon, select that icon; you will the current status.

What to do once you get the CAN confirmation mail from MF Utility?

Post allotment of CAN, you need to request for online access by sending an email to [email protected] after which you will be given an username and password. Once you have user name and password, login to https://mfuonline.com/.

Important Note while creating your “Username” and “Password”: When asked for security question and answer, make sure you remember these information, as once you update there is no way to change these security questions & answers.

For SIP transactions you have to register PayEezz. So how to register PayEezz?

  • Download the PayEezz form from https://www.mfuindia.com -> Forms -> PayEezz Form. Fill the form with your registered CAN number and your Bank Details. Where PayEezz is registered under an existing CAN, investors should submit a cancelled cheque (or a self-attested photocopy) with the name and account number pre-printed on the cheque along with the PayEezz form. If the cheque does not bear the sole/first/primary holder’s name, a copy of the passbook/bank account statement or a letter from the banker has to be submitted which indicates that the sole/first/primary holder is one of the account holders in the account.
  • PRN (PayEezz Reference Number) is the unique reference number allotted to each PayEezz registration. The same will be communicated to the investor/distributor upon successful registration of the PayEezz.
  • To get more information on PayEezz please check here .

How to buy mutual funds through MF Utility portal?

Note: Make sure pop-up blocker is deactivated in your internet browser.

Login to https://mfuonline.com/ with your user name and password.

Once you are logged in you will land to your home page. If you have already invested via Mutual Fund Utilities, you will see your home page as below:

To invest in Mutual Funds Direct Plan, you have to select “CAN Transaction” option as shown in below picture. Here you will have 6 options:

Option 1 is Purchase:  You will choose this if you want to invest one time.

Option 2 is Redeem: You will choose this if you want to redeem few/all units from your existing mutual funds.

Option 3 is Switch:  You will choose this if you want to Switch from one fund to another fund with the same AMC.

Option 4 is SIP: You will choose this if you want to start a Systematic Investment Plan.

Option 5 is STP:  You will choose this if you want to start a Systematic Transfer Plan.

Option 6 is SWP:  You will choose this if you want to start a Systematic Withdraw Plan.

How to use “Purchase” Option to invest in Mutual Fund Direct Plan one time?

Step1: In ARN/Transaction Entry Details, select “Direct” option as below and “Proceed”.

Step 2:

In Transaction Details: Select AMC name, Folio number as “New”, select Scheme Name and Amount, then select “Proceed”.

Step3:

Skip Depository AC details, select “Proceed”.

Step 4:

In this step you have to select the payment option and “Submit” your request.

What is CaRT?

As per information provided in MF Utilities site “Create and Retain Transaction (CaRT) is a facility where frequently ordered transactions can be created and retained as a template to be executed later whenever desired by a SINGLE CLICK. Every such CaRT template can be identified by an exclusive CaRT Name.

    If some funds are expected to be available for investment on a future date, a purchase transaction can be added to the CaRT to be placed later using this facility.

    If there is a future cash out flow, a redemption transaction can be added to the CaRT to be placed later using this facility.

For more information on CaRT, please click here

What is CaST?

As per information provided in MF Utilities site “Create and Schedule Transaction (CaST) is a facility where a Distributor / RIA can create and schedule a transaction to be executed on a defined future date to better manage future cash flow situations. For e.g.

    If some funds are expected to be available for investment on a future date, a purchase transaction can be scheduled to be executed on an appropriate date to utilise those funds using this facility.

    If there is a planned cash out flow (payments like EMI, rent, premium etc.) on a future date, a redemption transaction can be scheduled to be executed on an appropriate date.

Currently, the scheduled date of the transaction should not be beyond 5 years.”

 For more information on CaST, please click here.

How to use “Redeem” option?

Select your existing fund information, Redeem Option (All units or Specific Amount or Specific Units) and “Submit”.

How to use “Switch” Option?

Select your existing fund information: AMC, Folio No and Switch-Out Scheme. Now select the new Scheme “Switch-In Scheme”, you can select “All Units or Specific Amount or Specific Units” to switch. DO NOT select “Allot in Depository” from “Depository AC Details” and “Submit”.

How to use SIP option?

Note: For investing via SIP, you need to have PayEezz registered and the PayEezz reference number.

Step 1: Select “Direct” option in “ARN/Transaction Entity Details” and “Proceed”.

Step 2:

Select the AMC name, Folio number as “New”, Scheme Name, Amount (which you want to invest as per your selected Frequency), Frequency as “Monthly or Quarterly”, Instalment Date/Day (As per the option available, make sure the instalment start date and month is at least 15 days away from today). At last select the Start Date and End Date.

Step 3:

In the payment details there are two sections. In the first section “Current Dated 1st Instalment Details”, you have to provide all the details so that the first instalment will get paid. In the second section you have to select the PayEezz reference number.

When you sign SIP mandate you provide the tenure, such as 5 years/ 10 years etc in the end-date column. In case you leave this column blank then mutual fund house assume this SIP will continue till December 2099. This is called Perpetual SIP.” Select this Perpetual option as per your interest.

How to use STP option?

Select your existing liquid fund from where you want to do STP “STP-Out Scheme” and choose your “STP-In Scheme” and other details.

How to use SWP?

Select your existing fund information and “Withdraw Option”, “Amount”, “Frequency”, “Installment Date/Day”, “Start Date” and “End Date”.

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How to invest in Mutual funds Direct Plan?

Congratulation!! You know why Mutual Fund Direct Plan is better than a Regular Plan. You can read our article on the benefits of Direct Plan HERE.

Before you invest in Mutual Fund whether in Direct Plan or Regular Plan, you have to complete your KYC (Know Your Customer) formalities. SEBI requires investors to ensure compliance with the KYC norms when they initiate a transaction with any Mutual Fund house.

The Government has appointed the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) to establish a central KYC registry, which simplifies the process of complying to KYC procedures  —  and you need to do it just once; either with a bank, mutual fund, or an insurance company that you’ve invested in.

Get KYC done Offline:

You can visit CAMS-KRA website, download the KYC form and submit the same in pan India network of Customer Service Centers (CSCs). Customer service center locators are present in the website.

Get KYC Online:

  • You can visit CAMS eKYC site and avail the online facility. CAMS eKYC is a paperless Aadhaar-based process for fulfilling KYC requirements to start investing in Mutual Funds. SEBI has recently allowed Aadhaar-based KYC to be used for MF investments, for the convenience of investors. Investors completing KYC through OTP based CAMS eKYC are permitted to invest ₹50,000 Mutual Fund per year. KYC completion using biometric verification permits investments without any upper limit. Investors can avail Biometric CAMS eKYC at CAMS service centres.
  • This is the best way to get your KYC done without physically visiting to any place. This facility is provided by Quantum Mutual Fund House. Follow below steps to get your KYC done
    1. Visit https://ekyc.quantumamc.com/ and enter your PAN number. It also checks if your KYC is already verified.
    2. Enter your personal details along with your Aadhaar number and on the next page further details for Central KYC purpose.
    3. Upload self-attested scanned copies of your pan card and address proof. And for the signature, you need to sign on a plain paper piece of paper and place it in front of the camera and capture it.
    4. This is In Person Verification (IPV). Unlike the physical verification, here your live video is recorded through your device camera.
    5. In this step confirm all your information and submit it. Lastly, all you need to now is wait for 2 weeks while your KYC will be uploaded on Central KYC servers and will be verified during this time period. Further, you will also get a confirmation e-mail about your KYC Status. After the entire process is done, you will receive a 14-digit identification number- KIN (KYC Identification Number)

How to check KYC status?

Please check your KYC status HERE.

How to invest in Mutual Fund Direct Plans?

  • Respective AMC websites: Once you have decided in which fund to invest, you can visit the corresponding AMC websites and invest in direct plan. If you have selected multiple funds, you will need to register and invest in each fund house individually. This can be inconvenient if you have a number of schemes from different fund houses.
  • Mutual Fund Utilities: Mutual Fund Utilities (https://www.mfuindia.com/) is a shared platform of different fund houses. Here you have to create Common Account Number (CAN) and then start investing in different fund houses form a single account. As of Dec 2017 it supports 28 mutual fund AMCs and once you have an account with MFU you can invest across all these fund houses seamlessly.
  • CAMS & KARVY: Registrar and Transfer Agent are the one who handle transactions on behalf of mutual funds. There are four RTAs in India. CAMS, KARVY, Templeton RTA serves Franklin Templeton Mutual Fund and Sundaram RTA serves Sundaram Mutual Fund. Both Karvy & CAMS offer online investment through their website and Apps. Mutual fund AMCs supported by CAMS & KARVY are as below:
KARVY:

Axis Mutual Fund

Baroda Pioneer Mutual Fund

BOI AXA Mutual Fund

Canara Robeco Mutual Fund

DHFL Pramerica Mutual Fund

Edelweiss Mutual Fund

Franklin Templeton Mutual Fund

IDBI Mutual Fund

Indiabulls Mutual Fund

INVESCO Mutual Fund

JM Mutual Fund

LIC Mutual Fund

Mirae Asset Mutual Fund

Motilal Oswal Mutual Fund

Peerless Mutual Fund

Principal Mutual Fund

Quantum Mutual Fund

Reliance Mutual Fund

Sahara Mutual Fund

Taurus Mutual Fund

UTI Mutual Fund

CAMS:

Birla Sun Life Mutual Fund

DSP BlackRock Mutual Fund

HDFC Mutual Fund

HSBC  Mutual Fund

ICICI Prudential Mutual Fund

IDFC Mutual Fund

IIFL  Mutual Fund

Kotak Mutual Fund

L&T Mutual Fund

Mahindra Mutual Fund

PPFAS Mutual Fund

SBI Mutual Fund

Shriram Mutual Fund

Tata Mutual Fund

Union KBC Mutual Fund

What is NOT Direct Investment?

  • Demat Account.
  • Websites like scripbox.com, fundsindia.com etc.
  • Banks, Brokers & Distributors.

Best online choice for investing in Direct Plan?

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Why Mutual Funds Direct Plan is better choice than a Regular Plan?

Starting January 1, 2013 SEBI had mandated all fund houses to have two version of each scheme – Direct Plan & Regular Plan.

Before understanding what is Direct Plan and Regular Plan, let’s understand below terms w.r.t Mutual funds.

  • Expense ratio: This is the fee charged by the Mutual Fund Company to manage the Mutual Fund. It is the expense deducted each fiscal year for the fund; it includes management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund.
  • NAV: Net Asset Value is the sum total of the market value of all the shares held in the mutual fund portfolio including cash, less the liabilities, divided by the total number of units outstanding. The NAV of the scheme will change with every change in the Net Assets of the scheme.

What are Mutual Funds Direct Plan and a Regular Plan?

When you invest in Regular Plan, you invest through a distributor or an intermediary. In case of Direct Plan, you invest directly with the mutual fund house. When you invest via distributor or an intermediary, Asset Management Company (AMC) compensates them with a commission. The actual commission paid can vary across schemes and even across distributors. The mutual fund house does not directly charge you the commission, it gets paid from the fund and thus it affects the fund’s returns indirectly. Since in case of Direct Plan you invest directly with the fund house, they do not have to pay any commission to anyone and hence you can see the difference in Expense Ratio and in terms of return. Remember except expense ratio, everything else (portfolio, fund manager etc) is same for direct and regular plans. To understand better let’s take an example.

Let’s take Franklin India’s one of the equity funds:

Franklin India Bluechip Fund NAV (as on 22-12-2017) Expense Ratio Return 3 months Return 1 Year Return 3 Years
Regular Plan 462.34 2.23 5.82 % 28.68  % 11.02 %
Direct Plan 481.99 1.33 6.06 % 29.79 % 12 %

You can see there is a difference of expense ratio (2.23 – 1.33) 0.9 between the two plans, due to which there is a difference in 3 years return (12 – 11.02) 0.98 %.

If you are thinking 0.98% is a very small number then check this, 20,000/- every month invested in Franklin India Bluechip as SIP for 20 years:

Franklin India Bluechip Fund Invested per Month Invested for Expected Annual Return Future Value  

Difference

Regular Plan 20000 20 Years 11.02 % 1,71,82,462 23,89,086
Direct Plan 20000 20 Years 12 % 1,95,71,548

Yes there is a difference of 23 Lakhs 89 Thousand and 86 Rupees due to 0.98%. Hence you can understand which one is better, Direct Plan or Regular Plan.

SEBI Regulations for Mutual Fund Distributors:

Disclosure of Commission

In order to empower the investors through transparency in payment of commission and load structure, SEBI has, in the circular no. CIR/IMD/DF/21/2012 dated September 13, 2012, mandated that the distributors shall disclose all the commissions (in the form of trail commission or any other mode) payable to them for the different competing schemes of various mutual funds from amongst which the scheme is being recommended to the investor.

If you have already invested in Mutual Funds through any distributor, in your quarterly statement you will be able to see the actual commission paid by the corresponding AMC against the distributor.

Who should NOT invest in Direct Plan?

  • If you know how to choose mutual funds based on your goal but you are LAZY
  • If you think your distributor/broker is your financial planner and he/she suggested all the funds to invest via him/her for your goals. Interestingly you think he/she is doing it for FREE
  • You do not care how much return you get for your investments

Who SHOULD invest in Direct Plan?

  • Everyone, especially who is investing for long term. Take help of “FEE ONLY” registered Financial Planner/Advisor to choose the suitable funds and get the help of planner/advisor to invest in Direct Plan.
  • You care about your money and want your money to work for you.

How to switch existing mutual funds from Regular Plan to Direct Plan?

Switching an existing fund is same as Redeem from Regular Plan and Invest in Direct Plan. Hence all the “redeem” rules are applied in case of “switch” also; rules are such as Exit Load, Capital Gain Taxes etc. It is better for you to first stop all your regular plans and immediately start your direct plans. Wait for the time period to be eligible for exit load exemption on your stopped regular plans and then request for Switch to Direct Plan.

Important Notes:

  • All types of mutual funds can be switched except Exchange Traded Funds.
  • ELSS fund schemes that have a lock-in period, you are eligible to move to Direct Plans once units complete their lock-in period. Your investments into direct plans will have a fresh lock-in of 3 years.
  • Debt funds, the expense ratio of the regular plans is not too high hence the difference in returns is lower. Hence it is better not to switch debt funds from Regular to Direct plan.

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Why you should know about – New Mutual Fund Schemes Categorization

On October 6th 2017 SEBI (Securities and Exchange Board of India) has issued a circular  to all mutual funds/asset management companies/trustee companies/ board of trustees of mutual funds regarding the new categorization of mutual fund schemes.

 

As per the SEBI circular all mutual fund schemes should be categorized into below 5 groups:

  • Equity Schemes
  • Debt Schemes
  • Hybrid Schemes
  • Solution Oriented Schemes
  • Other schemes

Mutual fund houses cannot launch similar schemes with the same theme, which means there will not be any duplicate plans. This one scheme per category rule will not be applicable to exchange traded funds (ETF’s) tracking different indices; fund of funds having different underlying schemes; sectoral and thematic funds investing in different sectors.

As per SEBI circular Mutual Funds would be required to analyze each of their existing schemes in light of the list of categories stated herein and submit their proposals to SEBI after obtaining due approvals from their Trustees as early as possible but not later than 2 months from the date of this circular.

Applicability of this circular:

  1. All existing open ended schemes of all Mutual Funds
  2. All such open ended schemes where SEBI has issued final observations but have not yet been launched.
  3. All open ended schemes in respect of which draft scheme documents have been filed with SEBI as on date
  4. All open ended schemes for which a mutual fund would file draft scheme document.

In order to ensure uniformity in respect of the investment universe for equity schemes, it has been decided to define large cap, mid cap and small cap as follows:

  1. Large Cap: 1st -100th company in terms of full market capitalization
  2. Mid Cap: 101st -250th company in terms of full market capitalization
  3. Small Cap: 251st company onwards in terms of full market capitalization

 

You know SIP is the best way to invest in Mutual Funds. Click Here to know everything about SIP.

 

All 5 groups are described in detail as below:

Equity Schemes:

Sr.No. Category of Schemes Scheme Characteristics Type of scheme (uniform description of scheme)
1 Multi Cap Fund Minimum investment in equity & equity related instruments- 65% of total assets Multi Cap Fund- An open ended equity scheme investing across large cap, mid cap, small cap stocks
2 Large Cap Fund Minimum investment in equity & equity related instruments of large cap companies- 80% of total assets Large Cap Fund- An open ended equity scheme predominantly investing in large cap stocks
3 Large & Mid Cap Fund Minimum investment in equity & equity related instruments of large cap companies- 35% of total assets

Minimum investment in equity & equity related instruments of mid cap stocks- 35% of total assets

Large & Mid Cap Fund- An open ended equity scheme investing in both large cap and mid cap stocks
4 Mid Cap Fund Minimum investment in equity & equity related instruments of mid cap companies- 65% of total assets Mid Cap Fund- An open ended equity scheme predominantly investing in mid cap stocks
5 Small cap Fund Minimum investment in equity & equity related instruments of small cap companies- 65% of total assets Small Cap Fund- An open ended equity scheme predominantly investing in small cap stocks
6 Dividend Yield Fund Scheme should predominantly invest in dividend yielding stocks.

Minimum investment in equity- 65% of total assets

An open ended equity scheme predominantly investing in dividend yielding stocks
7 Value Fund* Scheme should follow a value investment strategy.

Minimum investment in equity & equity related instruments – 65% of total assets

An open ended equity scheme following a value investment strategy
Contra Fund* Scheme should follow a contrarian investment strategy.

Minimum investment in equity & equity related instruments – 65% of total assets

An open ended equity scheme following contrarian investment strategy
8 Focused Fund A scheme focused on the number of stocks (maximum 30)

Minimum investment in equity & equity related instruments – 65% of total assets

An open ended equity scheme investing in maximum 30 stocks (mention where the scheme intends to focus, viz., multi cap, large cap, mid cap, small cap)
   
9 Sectoral/ Thematic Minimum investment in equity & equity related instruments of a particular sector/ particular theme- 80% of total assets An open ended equity scheme investing in __ sector (mention the sector)/

An open ended equity scheme following __ theme (mention the theme)

 
10 ELSS Minimum investment in equity & equity related instruments – 80% of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by Ministry of Finance) An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit  

 

Debt Schemes:

Sr. No. Category of Schemes Scheme Characteristics Type of scheme (uniform description of scheme)
1 Overnight Fund** Investment in overnight securities having maturity of 1 day An open ended debt scheme investing in overnight securities
2 Liquid Fund $ ** Investment in Debt and money market securities with maturity of upto 91 days only An open ended liquid scheme
3 Ultra Short Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months – 6 months An open ended ultra-short term debt scheme investing in instruments with Macaulay duration between 3 months and 6 months (please refer to page no.__)#
4 Low Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months- 12 months An open ended low duration debt scheme investing in instruments with Macaulay duration between 6 months and 12 months (please refer to page no.__)#
5 Money Market Fund Investment in Money Market instruments having maturity upto 1 year An open ended debt scheme investing in money market instruments
6 Short Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year – 3 years An open ended short term debt scheme investing in instruments with Macaulay duration between 1 year and 3 years (please refer to page no.__)#
7 Medium Duration Fund Investment in Debt & Money Market instruments such that the Macaulay

duration of the portfolio is between 3 years – 4 years

An open ended medium term debt scheme investing in instruments with Macaulay

duration between 3 years and 4 years

8 Medium to Long Duration Fund Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 – 7 years An open ended medium term debt scheme investing in instruments with Macaulay duration between 4 years and 7 years (please refer to page no.__)#
9 Long Duration Fund Investment in Debt & Money Market Instruments such that the Macaulay duration of the portfolio is greater than 7 years An open ended debt scheme investing in instruments with Macaulay duration greater than 7 years (please refer to page no.__)#
10 Dynamic Bond Investment across duration An open ended dynamic debt scheme investing across duration
11 Corporate Bond Fund Minimum investment in corporate bonds- 80% of total assets (only in highest rated instruments) An open ended debt scheme predominantly investing in highest rated corporate bonds
12 Credit Risk Fund^ Minimum investment in corporate bonds- 65% of total assets (investment in below highest rated instruments) An open ended debt scheme investing in below highest rated corporate bonds
13 Banking and PSU Fund Minimum investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions- 80% of total assets An open ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions
14 Gilt Fund Minimum investment in Gsecs- 80% of total assets (across maturity) An open ended debt scheme investing in government securities across maturity
15 Gilt Fund with 10 year constant duration Minimum investment in Gsecs- 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years An open ended debt scheme investing in government securities having a constant maturity of 10 years
16 Floater Fund Minimum investment in floating rate instruments- 65% of total assets An open ended debt scheme predominantly investing in floating rate instruments

 

Hybrid Schemes:

Sr. No. Category of Schemes Scheme Characteristics Type of scheme (uniform description of scheme)
1 Conservative Hybrid Fund Investment in equity & equity related instruments- between 10% and 25% of total assets;

Investment in Debt instruments- between 75% and 90% of total assets

An open ended hybrid scheme investing predominantly in debt instruments
2 Balanced Hybrid Fund @ Equity & Equity related instruments- between 40% and 60% of total assets;

Debt instruments- between 40% and 60% of total assets

No Arbitrage would be permitted in this scheme

An open ended balanced scheme investing in equity and debt instruments
Aggressive Hybrid Fund @ Equity & Equity related instruments- between 65% and 80% of total assets;

Debt instruments- between 20% 35% of total assets

An open ended hybrid scheme investing predominantly in equity and equity related instruments
3 Dynamic Asset Allocation or

Balanced Advantage

Investment in equity/ debt that is managed dynamically An open ended dynamic asset allocation fund
4 Multi Asset Allocation ## Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes An open ended scheme investing in __, __, __ (mention the three different asset classes)
5 Arbitrage Fund Scheme following arbitrage strategy. Minimum investment in equity & equity related instruments- 65% of total assets An open ended scheme investing in arbitrage opportunities
6 Equity Savings Minimum investment in equity & equity related instruments- 65% of total assets and minimum investment in debt- 10% of total assets

Minimum hedged & unhedged to be stated in the SID.

Asset Allocation under defensive considerations may also be stated in the Offer Document.

An open ended scheme investing in equity, arbitrage and debt

 

 

Solution Oriented Schemes:

Sr. No Category of Schemes Scheme Characteristics Type of scheme (uniform description of scheme)
1 Retirement Fund Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier)
2 Children’s Fund Scheme having a lock-in for at least 5 years or till the child attains age of majority whichever is earlier An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority (whichever is earlier)

 

Other Schemes:

Sr. No Category of Schemes Scheme Characteristics Type of scheme (uniform description of scheme)
1 Index Funds/ ETFs Minimum investment in securities of a particular index (which is being replicated/ tracked)- 95% of total assets An open ended scheme replicating/ tracking _ index
2 FoFs (Overseas/ Domestic) Minimum investment in the underlying fund- 95% of total assets An open ended fund of fund scheme investing in ___ fund (mention the underlying fund)

 

Due to this SEBI circular once the rationalization or merging of mutual fund schemes completed, it might impact your existing mutual fund portfolio. As a investor you should wait for the implementation by the mutual fund houses and once done you can review your portfolio and if required do the necessary changes.

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All about SIP (Systematic Investment Plan)

What is SIP (Systematic Investment plan)?

Systematic Investment Plan is a METHOD of investing in Mutual Funds. Make it a note; it is a METHOD not a product. The method by which you invest a fixed amount of money to a Mutual Fund scheme. It is like a recurring deposit but you invest in mutual fund scheme rather than a bank deposit.

Benefits of investing in Mutual Fund Schemes via SIP:

  • Brings discipline in investing: Once you start investing in mutual fund through SIP, predefined amount of money gets invested monthly or quarterly or half yearly. Hence you acquire the discipline of investing.
  • Enables you to start with smaller amount: If you are new to investment or due to less money left out for investment you can start with as little as 500 Rs per month. As and when your income increases you can increase the SIP amount also.
  • Helps Goal Based Investing: Your financial goals such as Retirement, Child’s Education, Foreign trip all can be achieved through investing via SIP. Once you decide how much money you have to invest for each goal per month you can start your SIP on the selected mutual funds.
  • Helps building Long Term Wealth: Due to compounding you can build long term wealth with small amount invested in equity mutual fund through SIP. For example Rs 1000 per month SIP on equity mutual fund for 30 years with expected 12% annual interest will build Rs. 34,94,964.
  • Rupee Cost Averaging: Through SIP you buy more units when price is low and less when the price is high, thus making rupee cost averaging.

As one of the benefits of SIP investing in equity mutual fund is Rupee Cost Averaging, does it mean you cannot lose your money?

  • Yes SIP investing does Rupee Cost Averaging, but it does not mean that you cannot lose your money. This is because when equity market falls, it does not matter which method you followed while investing, market fall means your equity investment will also definitely fall. Hence do not assume that if you invest in equity via SIP your investment is completely RISK FREE. Make sure you know why you are investing in equity and what kind of risk is associated with the corresponding mutual fund scheme.

You might think market is at high, should I postpone investment via SIP?

  • At any point of time no one can tell whether it is bull market (market is at High) or a bear market (market is at Low). It is next to impossible. Hence once you figure out your goals, you select your mutual funds and decide you will invest via SIP, anytime is a good time. Go ahead and start your investment.

Will you be penalized if you miss your SIP/s?

  • Answer is NO. Let’s say you have not maintained the balanced in your bank account and due to which SIP installment does not get debited. It means you just miss that installment, your mutual fund folio is still active and future SIPs will be debited.

What is Step-Up Systematic Investment Plan (Step-Up SIP)?

  • A Step-Up SIP is also known as Top-Up SIP or Growth SIP. In Step-Up SIP, monthly investment amount increases by a fixed amount or by a fixed percentage each year. Few important points about Step-Up SIP:
    • Must specify Step-Up SIP while enrolling for the SIP facility.
    • Minimum Step-Up SIP amount 500 and in multiple of 500.
    • Once you opt for Step-Up SIP the details cannot be modified. If you want to modify or stop the Step-UP, then you have to cancel the SIP and apply for fresh.

Should you opt for Step-Up SIP?

  • The purpose of Step-Up SIP is you can start small and gradually increase the amount you wish. This helps to invest for long term goal where initially you start with the small amount and you decide the future increment as you predict your future income. Since you cannot modify the details once you opt for Step-Up SIP and you have decided the additional amount (either fixed or by percentage) based on the assumption of your future income, Step-Up SIP is not the better way. If you want to increase your investment in the same mutual fund folio via SIP, you can always start a fresh SIP in the existing folio. In this way you can decide every time how much you can increase based on your present income, also you can individually cancel a SIP from a mutual fund folio if required.

What is Flexi Systematic Investment Plan (Flexi-SIP)?

  • In Flexi SIP, you set a default amount for your investment each month and 7 days prior to your SIP date you have an option to change the investment amount for that month. If do not change the investment amount for a particular month then the default value will be investment.

Should you opt for Flexi SIP?

  • Can be used if you have variable income or apart from your salary you get bonus time to time and you want to invest that surplus to your mutual fund folio. Only condition here is you have to change the investment amount 7 days prior to your SIP date. Without Flexi SIP option also you can invest a lump sum amount to your existing mutual fund folio where your regular SIP is going on irrespective of SIP date.

What is a Perpetual Systematic Investment Plan (Perpetual-SIP)?

  • When you sign SIP mandate you provide the tenure, such as 5 years/ 10 years etc in the end-date column. In case you leave this column blank then mutual fund house assume this SIP will continue till December 2099. This is called Perpetual SIP.

Should you opt for Perpetual SIP?

It’s a good idea to choose Perpetual SIP as you can close the SIP whenever you want to.

What is SIP Pause?

  • Below points are given by ICICI Prudential Mutual Fund house regarding SIP Pause
    • SIP Pause is a facility which facilitates the investor to pause his/her existing SIP for a temporary period*. *SIP can be paused for a minimum period of 1 month to a maximum period of 3 months.
    • SIP is not stopped once the pause facility is availed. It is only paused for the specific period for which pause is opted for.
    • SIP restarts automatically once the pause period is over. No additional form/documents to be submitted.
    • This facility can be availed only once during the tenure of the existing SIP.
    • Registration is need based. Whenever an investor feels that he needs to ‘Pause’ his SIP, he can fill the form. Registration can be done by filling up the Pause form available on icicipruamc.com under the download section.
    • SIP Pause facility will be available for all monthly SIPs except Exchange & Channel folios as the SIP are registered directly with them. Exchange folios refer to folios created by transactions received through stock exchange platform for mutual fund transactions i.e. MFSS and BSE Star Channel folios refer to folios created by transactions received through online mutual fund transaction platform by banks/distributors. For e.g. HSBC qnis, ICICIdirect.com etc.
    • Pause cannot be availed online. A physical form needs to be filled and submitted in the nearest branch or to the relationship manager.
    • Instruct your bank to stop the auto debit service or the post dated cheque once you submit the Pause Form. This is because bank might charge you for the payment dishonour.

Which is better, SIP in Debt mutual fund or Bank RD?

  • When you miss a SIP you will not be charged penalty, where as in case of RD you might be charged with a penalty. Also there will be penalty in case you want to withdraw before maturity in case of RD.
  • Bank RD provides fixed interest rate but Debt mutual fund can be volatile.
  • The interest amount you get from RD is taxable and it will be taxed as per your taxable slab. Whereas if you invest and hold for 3 years a debt mutual fund then you can enjoy the benefit of indexation (for inflation) on your capital gain.

Do you think mis-selling happens in the name of SIP?

  • Nowadays due to Mutual Fund Sahi Hain campaign more people are aware of mutual fund investment and the term Systematic investment plan (SIP). Mutual fund distributers/Bank relationship managers all are selling SIP as a product to the investors who are very new to the equity market. Even they are selling mid-cap mutual funds to senior citizen. If you ask the investor what product they have invested in, they say “I have invested in SIP”. Friends be aware and if possible please inform your parents and relatives.

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How to link Aadhaar to Mutual Fund Folios?

As per the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, it is now MANDATORY to link ALL Mutual Fund folios with Aadhaar Number. This would be done on KRA based and NOT on broker/distributor based.

Below are the links to update Aadhaar on CAMS, KARVY, Templeton and Sundaram BNP Paribas website. Please click on respective links and follow the on-screen instructions and link your Aadhaar Number with your Folio against your PAN. For investment of Minor, done under guardian, the PAN of the guardian needs to be used.

CAMS – Click Here

Step 1:

Step 2:

Step 3:

Once you enter the OTP, you will get the confirmation mail on your register mail id if Aadhaar verification is successful.

KARVY – Click Here

Step 1:

Step 2:

Step 3:

Step 4:

Franklin Templeton – Click Here -> Customer Service -> Update Aadhaar Number

Step 1:

Step 2:

Step 3:

Step 4:

Step 5:

Sundaram BNP Paribas – Click Here

 

Everything you want to know about how to invest in Mutual Fund, CLICK HERE.

Top 5 Mutual Fund Myths

Below are Top 5 Mutual Fund Myths:

Myth #1: Investment in Mutual Fund needs Huge Money

Through SIP you can invest as little as Rs.500 into Mutual Fund every month. If you invest Rs. 500 every month for 20 years, it will generate Rs. 4,99,573/- if the annualized rate of return is 12%.

Myth #2: Mutual Fund with lower NAV will give superior return

NAV is total of the market value of all the shares held in the portfolio including cash, less the liabilities, divided by the total number of units outstanding. Hence high or low NAV does not determine the future returns.

Myth #3: Can’t save TAX through Mutual Fund investment

Equity Linked Saving Schemes (ELSS) is tax saving mutual fund schemes. It is a diversified equity fund that invests in different stocks form different sectors. Minimum 65% exposure to equities, some of the ELSS goes as high as 80% to 85%. Advantages of ELSS are: Avail tax deduction under Section 80C; Dividends are tax free; Gain from ELSS redemption is tax free. Have to remember it has 3 years lock-in period; Suitable for Long term Goal.

Myth #4: Have to be an expert if want to invest in Mutual Fund

Most of the people do not invest in Mutual Fund as they often say “I do not understand Mutual Fund”. The fact is Mutual Fund is the best option for the people who does not understand the Stock Market and how to invest. Your money will be invested by the fund manager of that Mutual Fund, who has better knowledge and qualification. You can take help of Financial Advisor to choose the best Mutual Fund as per your goal.

Myth #5: Invest in many Mutual Funds to diversify

To diversify people invest in too many Mutual Funds, which is not required. As you will see if the investment objectives of the Mutual Funds are similar then almost all of them will be investing in same stocks. Also it is difficult for an individual to track and handle many funds. Hence take maximum of 5-6 Mutual Funds based on your investment goals which has different investment objectives with different market caps.

Summary: SIP is the best way to invest in Mutual Fund, as it will help you to handle market’s ups and downs. Start small and gradually increase as and when your income increases.

To know everything about Mutual Funds CLICK HERE.

To know how to invest in Mutual Funds CLICK HERE.

If you want both, saving TAX and get the benefit from Stock Market, then ELSS is for you.

ELSSWhat is ELSS?

Equity Linked Saving Schemes (ELSS) is tax saving mutual fund schemes. It is a diversified equity fund that invests in different stocks form different sectors. Minimum 65% exposure to equities, some of the ELSS goes as high as 80% to 85%.

Advantages of ELSS:

  1. Avail tax deduction under Section 80C.
  2. Dividends are tax free.
  3. Gain from ELSS redemption is tax free. Have to remember it has 3 years lock-in period.
  4. Suitable for Long term Goal.
  5. Advantage over PPF regarding the 15 years lock-in period and also the returns.
  6. Advantage over other tax saving instrument such as Bank FD, NSC, Post office TD schemes, where returns are taxable based on individual tax slab.

BoyAs ELSS has both Tax saving and Equity market investment benefits, does it mean everyone should invest in ELSS?

 

ELSS has equity exposure, which means it carries market risk. Hence if we need an instrument which ARshould help us to save tax and help us to achieve our long term goal (minimum 5 years), we can choose ELSSS. Since for long term goals it is suggested to invest in equity market. So based on your time horizon for your goal you should choose ELSS. Tax saving should not be the only reason to invest in ELSS.

BoyHow to choose ELSS mutual fund scheme?

 

Please check the checklist while investing in Mutual Fund article.AR

 

BoyShould we invest lump sum or SIP (Systematic Investment Plan)?

 

Lump sum means we are investing a certain amount of money in one shot; we will get number of units ARbased on the NAV of that point of time. Since time to market is just impossible, it is better to choose SIP route. While choosing SIP route, we have to understand that periodic investment through SIP should complete 3 years locking period before redeem. We can choose SWP (Systematic Withdraw Plan), choose a certain amount or certain units, which can be systematically, withdraw after 3 years.

BoyDirect or Regular investment for ELSS?

 

In Direct investment route, mutual fund houses does not have to pay any commission to the distributor ARand has better returns compare to Regular investment. For more information please check here.

Checklist while buying Mutual Fund.

MutualFundNewIt is very important to short list Mutual Funds for our portfolio. Because we give our hard earned money to a Fund House/Fund Manager for investing on our behalf. We can take Financial Advisor’s help to figure out the required Mutual Funds. Make sure, the Advisor is certified, ask for one time charge to give the service (since free service must be having some other motive), does not ask to invest through them and also provide detail information why those funds are suitable for the individual. We can refer the below mentioned check list while choosing a mutual fund:

  1. Ignore Mutual Fund IPO. Even though most of the distributor might give us many wonderful reasons to invest (because they are going to get very good commission), it is always better to ignore IPO. This is because, there is no data to evaluate whether it is worth to choose that fund or not.
  2. Check performance: We need to check the past performance of the mutual fund (at least for more than 7 years), this will let us know in the various market situations how the fund has performed. Need to compare the performance with similar mutual fund from other Fund Houses.
  3. Need to check the Risk associated with the Fund: SD (Standard Deviation) is the way to check the fund’s risk. Need to compare SD with similar funds with different fund houses.
  4. Diversify: Need to check how well the portfolio of the mutual fund has been diversified. Also need to verify whether the portfolio of the mutual fund does not hold more than 50% stocks of few companies.
  5. We also need to verify how frequently the stocks has been bought and sold in the portfolio. If there is too much of transaction, then there will be more volatility in the fund’s portfolio.
  6. Fund Manager: We need to check who is the fund manager, his/her qualification & other fund’s performance if the same manager is managing.
  7. Expense Ratio and Exit Load: Expense ratio is the fee charged by the Mutual Fund Houses to manage the Fund and Exit load is the amount charged by the Mutual Fund Houses when an investor exits the fund. We should check on these charges and make sure we are not overpaid.

If we are not sure and do not have time to investigate a mutual fund, we should consider to get a help from Financial Advisor. If we invest in wrong Mutual fund, then it will directly impact our goals. And over the long term, we will lose more money than the fee of Financial Advisor.

Read more on Mutual Fund and How to Include Mutual fund in our Personal Finance Portfolio.