Mutual Fund

MutualFundNewMutual fund pools money from many investors and then invests into stocks, bonds, short-term instruments, securities/assets or combinations of these investments. The combination of these investment holdings are known as its Portfolio.AR

Types of Mutual funds:

  1. Equity funds: These funds invest in share and stocks with long term investment horizon.
  2. Fixed income funds: These funds invest in government and corporate debt with the objective of steady income.
  3. Money market funds: These funds invest in very short term fixed income instruments, provide better than saving account interest and maintain liquidity.

Open Ended Mutual Fund: Does not have any maturity date. Purchase & Redeem are based on the NAV (net asset value) of the fund.

Closed Ended Mutual Fund: It has a maturity date, on the closing date all the units are redeemed and listed to stock exchange. Investors buy and sell the units among themselves.

AR_RTypes of market caps:

Large Cap Stocks: These stocks are of very large and well established companies. These large companies are well balanced, properly managed; disclose most of the company related information. That is the reason why it is considered as safe stocks. Market capitalisation of these stocks range from Rs. 200 billion to Rs 3500 billion.

Mid Cap Stocks: These stocks are of companies whose market capitalisation range from Rs 50 billionn to Rs 200 billion. They are in-between Large Cap and Small Cap stocks. They are riskier than large cap but they can become tomorrow’s large cap.

Small Cap Stocks: These stocks are of companies whose market capitalisation is less than Rs 200 billion. Usually start-ups and very early stage of companies comes under Small Cap. These stocks are highly risky, but if researched properly and held for long term, it can give investors a very good return.

AR_RVariation of Mutual funds:

Foreign Mutual Fund: Invest in equity of companies outside the home country.

Sector Fund: Invest in specific sector, such as health, financial, technology, banking etc.

Index Fund: It replicates the market return such as NIFTY, SENSEX etc.

Balance Funds: Invest in equity and fixed income.

Large Cap Mutual funds: Invest in large cap stocks having long term investment horizon.

Mid and Small Cap Mutual funds: Based on the fund’s objective, allocation strategy invest in mid and small cap stocks.

Value Cap Mutual funds: Invest in stocks that are currently undervalued in price and have potential to give investors a good return over a long term. In the bull market (market goes up), these mutual fund’s cash reserve increases and vice versa for bear market (market goes down).

Flexi/Multi Cap Mutual funds: Flexibility to invest across sectors and market caps (large, mid & small).

Discovery fund, Opportunity fund, Dynamic Fund etc. Based on the nature of investment, Mutual Fund houses introduce the fund with such names.

AR_RMutual Fund Investment Strategies:

Systematic Investment Plan (SIP): Strategy wherein an investor needs to invest a fixed amount of money in particular mutual fund at every predefined (weekly, monthly etc) time period.

Systematic Transfer Plan (STP): Strategy where an investor invests lump sum amount into a particular scheme and then transfers a fixed/variable amount to another scheme at every predefined time period.

Systematic Withdraw Plan (SWP): Strategy where an investor withdraws a fixed/variable amount from his/her mutual fund on preset date of every month/quarterly/half yearly/yearly.

AR_RImportant Terms used in Mutual Funds:

Net Asset Value (NAV): (Mutual fund’s value of Assets-Value of Liabilities)/number of units outstanding.

Exit Load: This is an amount charged by the Mutual Fund from the investor at the time of exiting the fund. Most of the exit load charged if withdrawn within one or two years (differ mutual fund to mutual funds, please go through the product document carefully before investing) from the time of investing.

Expense Ratio: This is the fee charged by the Mutual Fund Company to manage the Mutual Fund. Please read the product document before investing.

AR_RInvestment Options of Mutual Funds:

Growth Option: This is suitable for long term investor who does not need monthly income, as all money invested will continue to be investment unit redeemed. This gives benefit of compounding, since the funds does not pay out the dividends, but reinvest the same and no taxes for long term capital gain (for equity mutual fund).

Dividend Option: This is suitable for investors who need regular pay out as a dividend. For short term investor (senior citizen) Debt mutual fund with dividend options provides regular income with little capital appreciation. Because of the dividend payout, the effect of compounding will not be seen. Sometimes dividend is not guaranteed so please read the offer document carefully before investing.

Dividend re-investment Option: Fund house declare the dividend, but does not pay out. It reinvests the amount in the same fund. But entry load for the dividend amount will eat out some amount. So it is better to invest with Growth Option.

AR_RRegular Plan Vs Direct Plan Mutual Funds:

Regular plan Mutual Fund are sold by distributor and distributor gets commission from the investor holding. In case of Direct Plan Mutual fund, investor directly buy mutual fund from the Mutual fund house without distributor involvement. Because of this, Direct Plan Mutual Fund’s NAV is higher than the Regular Plan Mutual fund. Over the time, NAV difference increases. If an investor can identify and manage his/her mutual funds by himself/herself then Direct Plan surely is a good option.

AR_RTaxation on Mutual Funds:

Tax is based on Capital Gain from the investment. For example, A invested Rs. 10000 in an mutual fund and at the time of redeem, A received Rs 12000, here Capital Gain is Rs 2000 (12000 – 10000). Capital Gain is again divided into two, Short Term and Long Term. If redeemed before one year, then it is considered as Short Term Capital Gain and redeemed after one year, then it is considered as Long Term Capital gain.

For Equity Mutual funds, short term capital gain is taxed at 15% and there is no tax on long term capital gain. A mutual fund where equity holding is more than 65% of total portfolio is categorized as Equity Fund, because of this Balance Mutual fund also considered as Equity Mutual fund.

For Debt Mutual funds, short term capital gain is taxed based on the investor tax slab. Long term capital gain depends on indexation or not. Without indexation – 10% tax on Capital gain, with indexation – 20% tax on Capital gain.

AR_RKYC (Know Your Client): KYC is an acronym for “Know your Client”, a term commonly used for Client Identification Process. SEBI has prescribed certain requirements relating to KYC norms for Financial Institutions and Financial Intermediaries including Mutual Funds to ‘know’ their clients. This would be in the form of verification of identity and address, financial status, occupation and such other personal information. Applicant must be KYC compliant while investing with any SEBI registered Mutual Fund.

For all information about KYC, downloading KYC form please visit .

AR_RGrievance Redressal Mechanism:

Investor can approach concerned Mutual fund / Investor Service Centre in case of query, complains or grievances. In the offer document or online all the contact details are present. If complains are unresolved, then investor can approach SEBI to get the grievances resolved.

SEBI (Securities and Exchange Board of India) is a statutory body established under SEBI Act 1992. Complains can be logged online at . Also can be logged offline (physical form) at any offices of SEBI. For example,

Securities and Exchange Board of India,

Office of Investor Assistance and Education (OIAE)

Plot No.C4-A , “G” Block, 1st Floor,

Bandra-Kurla Complex,

Bandra (E), Mumbai – 400 051.

Phone: 26449199-88-77

For detail information, can check also.

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