|FAQs ON MUTUAL FUNDS|
|What is a Mutual Fund?
Which was the First Mutual Fund to be set up in India?
Which are the other institutions that have floated Mutual Funds in India?
How many Mutual Funds are there in India currently?
Why has the concept of mutual funds taken so long to pick up in India?
What is the total size of the mutual fund sector in India?
What is the Regulatory Body for Mutual Funds?
Why should I choose to invest in a mutual fund?
How do mutual funds diversify their risks?
If that is the case then why has Morgan Stanley Fund given such poor returns?
Can mutual funds be viewed as risk-free investments?
What are the risks involved in investing in mutual funds?
What are open-ended and closed-ended mutual funds?
Do both open-ended and closed-ended funds come out with an
Is the purchase and redemption in case of open-ended funds done at the NAV?
What is the investors exit route in case of a closed-ended fund?
How do I invest money in Mutual Funds?
Can Karvy arrange to send me a form for investing in mutual funds?
Can I download the application form directly from the Karvy website?
What are the parameters on which a Mutual Fund scheme should be evaluated?
As a lay investor, how do I go about analyzing the mutual fund scheme?
What are the different funds we currently have in India?
What are the different types of plans that any mutual fund scheme offers?
Which plan should I choose?
|What is a
Systematic Investment Plan and how does it operate?
What are the benefits of s Systematic Investment Plan?
What is NAV and how it is calculated?
What proportion of my investment should be invested in mutual funds?
Like IPOs, can there be any situation wherein I am not allotted the units applied for in the initial offer?
How do I get the information regarding the forthcoming schemes of different mutual funds?
Can a Mutual Fund assure fixed returns?
How much return can I expect by investing in mutual funds?
What is the difference between mutual funds and portfolio management schemes?
How does the concept of entry load work in case of unit purchases?
How does the concept of exit load work in case of unit redemptions?
Can an investor redeem part of the units?
Say I redeem and buy and do likewise several times then, how do I keep track of my portfolio?
Nowadays, I see lot of advertisements of Infotech funds. Do you advise to invest in them?
What are the broad guidelines issued for a MF?
Am I eligible for rebate on income tax by investing in a MF?
Do investments in mutual funds offer tax benefit on capital gains?
What is the difference between Section 54EA and Section 54EB as far as capital gains tax exemptions are concerned?
Can I claim tax exemption under Section 88 and Section 54 for
the same investment?
Do mutual fund investments attract wealth tax?
If I gift mutual fund units, does it attract gift tax?
Is my income from mutual funds exempt from income tax?
What are my major rights as a unitholder in a mutual fund?
A Mutual Fund is a body corporate registered with the
Securities and Exchange Board of India (SEBI), that pools up the money from individual /
corporate investors and invests the same on behalf of the investors /unit holders, in
equity shares, Government securities, Bonds, Call money markets etc., and distributes the
profits. In other words, a mutual fund allows an investor to indirectly take a position in
a basket of assets
Unit Trust of India is the first Mutual Fund set up under a
separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units
under the scheme US-64
Currently public sector banks like SBI, Canara Bank, Bank of
India, institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan
Stanley, Templeton and Private financial companies like Kothari Pioneer, DSP Merrill
Lynch, Sundaram, Kotak Mahindra etc. have floated their own mutual funds
Presently there are 33 Mutual Funds in India and close to 400
mutual fund schemes. We will very soon be putting up detailed analysis of major schemes
operating in India.
Even in the US the concept of mutual funds has started
picking up only in the last decade. This whole process of investor education and investor
awareness takes a lot of time. But Indian investors are now beginning to understand the
benefits of investing through the mutual funds route and hence the collections are
beginning to pick up.
Currently the total funds under mutual fund
management in India are a little over Rs.100,000 crore. Out of this UTI accounts for
nearly 70 percent while the private funds account for around 22 percent. The balance 8
percent is managed by mutual funds floated by public sector banks and financial
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.
For a retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because:
Financial theory states that an investor can reduce his total
risk by holding a portfolio of assets instead of only one asset. This is because by
holding all your money in just one asset, the entire fortunes of your portfolio depend on
this one asset. By creating a portfolio of a variety of assets, this risk is substantially
A very important factor that determines the returns on a fund
is the timing of the funds launch. Morgan Stanley Fund was launched when the equity
markets were at their peak and then saw a sustained downtrend for close to 5 years. That
is the reason the fund has taken such a long time to appreciate.
No. Mutual fund investments are not totally risk free. In
fact, investing in mutual funds contains the same risk as investing in the markets, the
only difference being that due to professional management of funds the controllable risks
are substantially reduced.
A very important risk involved in mutual fund investments is
the market risk. When the market is in doldrums, most of the equity funds will also
experience a downturn. However, the company specific risks are largely eliminated due to
professional fund management.
In an open-ended mutual fund there are no limits on the total
size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund
at any point of time at a price that is linked to the net asset value (NAV). In case of
closed-ended funds, the total size of the corpus is limited by the size of the initial
Yes. But the only difference is that in case of open-ended
funds, a month after the initial offer closes the continuous offer period starts when the
investor can enter and exit the fund at a price linked to the NAV
Generally every fund levies either an entry load or an exit
load or both to provide for administrative and other routine costs. The purchase price
will be higher than the NAV to the extent of the entry load and the redemption price will
be lower than the NAV to the extent of the exit load.
According to Sebi regulations, all closed-ended funds have to
be necessarily listed on a recognized stock exchange. Thus the secondary market provides
an exit route in case of closed-ended funds.
One can invest by approaching a registered broker of Mutual
funds or the respective offices of the Mutual funds in that particular town/city. An
application form has to be filled up giving all the particulars along with the cheque or
Demand Draft for the amount to be invested.
For schemes marketed by Karvy we can definitely arrange an
application form for you. All you need to do is to visit www.karvy.com
and click on the Mutual Fund Monitor. Go to the respective scheme analysis and click on
the request form icon. Our marketing department will arrange to send the form to your
Yes. For the benefit of our valued investors, we are putting
up downloadable application forms in the Mutual Fund Monitor. Just print the form
fill it up and submit it as advised.
Performance indicators like total returns given by the fund
on different schemes, the returns on competing funds, the objective of the fund and the
promoters image are some of the key factors to be considered while taking an investment
decision regarding mutual funds.
As a service to the investing community, Karvy does it for
you. The Mutual Fund Monitor on www.karvy.com
features incisive analysis of forthcoming mutual fund schemes. Our research team evaluates
each scheme based on primary as well as secondary information and presents an unbiased
report which will help you to take a decision on whether a fund is worth investing or not
Currently there exist balanced funds, Income
fund, Growth funds, Sector funds etc. To get more details about the different funds and
their features please visit our mutual fund glossary
That depends on the strategy of the concerned scheme. But
generally there are 3 broad categories. A dividend plan entails a regular payment of
dividend to the investors. A reinvestment plan is a plan where these dividends are
reinvested in the scheme itself. A growth plan is one where no dividends are declared and
the investor only gains through capital appreciation in the NAV of the fund.
It depends on your investment object, which again depends on
your income, age, financial responsibilities, risk taking capacity and tax status. For
example a retired government employee is most likely to opt for monthly income plan while
a high-income youngster is most likely to opt for growth plan.
A systematic investment plan is one where an investor
contributes a fixed amount every month and at the prevailing NAV the units are credited to
his account. Today many funds are offering this facility.
A systematic investment plan (SIP) offers 2 major benefits to an investor:
NAV is the net asset value of the fund. Simply put it
reflects what the unit held by an investor is worth at current market prices. For details
on calculation methodology and formulae, please click on our mutual fund glossary
Once again this decision will depend on factors like your
income, risk aversion and tax status. We at www.karvy.com are shortly putting up a
personal portfolio analyzer where based on your income, expenditure, investments, tax
status etc. we will advice you on the proportion you need to allocate to mutual funds.
In case of closed-ended funds there is a target amount and
the funds are permitted a green-shoe option to retain over-subscriptions up to a certain
limit. In case of open-ended funds there are no such limits and all applications are
For the guidance of the investors our web site is giving a
detailed analyses of the forthcoming schemes of different mutual funds .You can visit www.karvy.com and click on the
Mutual Fund Monitor to get such information on forthcoming scheme openings.
As per Sebi Regulations, mutual funds are not
allowed to assure returns. However, funds floated by AMCs of public sector banks and
financial institutions were permitted to assure returns to the unitholders provided the
parent sponsor was willing to give an explicit guarantee to honor such a commitment. But
in general, mutual funds cannot assure fixed returns to their investors.
Investors need to be clear that mutual funds are essentially
medium to long term investments. Hence, short-term abnormal profits will not be
sustainable in the long run. But in the medium to long run the mutual funds tend to
outperform most other avenues of investments at the same time avoiding the risk of direct
investment accompanied with professional fund management.
While the concept remains the same of collecting money from
investors, pooling them and investing the funds, the target investors are different. In
the case of portfolio management the target investors are high networth investors while in
case of mutual funds the target investors are the retail investors.
An entry load is an additional cost that an investor pays at
the point of entry. Assume that your proposed investment is Rs.10,000/-. Also assume that
the current NAV of the fund is Rs.12.00 and that the entry load is Rs.0.50. Then you will
receive 10000/12.50 = 800 units. For detailed explanation of entry load, refer our mutual
An exit load is levy that an investor pays at the point of
exit. This is levied to dissuade investors from exiting the fund. Assume that the current
NAV of the fund is Rs.12.00 and that the exit load is Rs.0.50. Now if you sell 800 units
then you stand to receive 800X11.5 = Rs. 9200. For detailed explanation of exit load,
refer our mutual fund glossary.
Yes. One can redeem part units also.
The moment you buy or get allotted the units, a passbook will
be given to you mentioning the number of units allotted/bought and redeemed by you. The
recording of entries would be similar to your pass book entries in the bank. In mutual
fund terminology it is called Account Statement.
As an investor you need to exercise caution in two areas :
SEBI is the regulatory authority of MFs. SEBI has the following broad guidelines pertaining to mutual funds :
There are other guidelines also that govern investment
strategy, disclosure norms and advertising code for mutual funds.
Yes in case of certain specific Equity Linked Saving Schemes,
tax benefits are available under Section 88 of the Income Tax Act. In such cases the fund
prospectuses explicitly states that it is a tax saving fund. In such cases 20 percent of
your contribution will qualify for rebate under Section 88 of the Income Tax Act.
Yes. If the capital gains earned by you during a financial
year is invested in specified mutual funds then such capital gains are exempt from capital
gains tax under Section 54EA and Section 54EB of the Income Tax Act. For more details on
scheme specific exemptions visit our Mutual Fund Monitor at www.karvy.com.
Under Section 54EA the net Consideration (total sale consideration relevant expenses) arising out of sale of Long Term capital assets need to be invested in specified in specified mutual funds with a lock-in period of 3 years. Under Section 54EB just the capital gains are re-invested but the lock-in period is 7 years.
Please note that in the latest budget this exemption is being
withdrawn for investments in mutual funds and is being restricted only to bonds issued by
NABARD and by the NHAI.
No. You cannot. You can either exempt your
income from tax under Section 88 or exempt your capital gains from tax under Section 54.
No. Under the Wealth Tax Act, all financial
assets, including mutual fund units are exempt totally from Wealth Tax.
No. With effect from 1st October
1998, units of a mutual fund gifted by unitholders are no longer chargeable to Gift Tax.
Yes. Your income from mutual funds in the form of dividends is entirely exempt from income tax provided the fund in question is a equity/growth fund where more than 50 percent of the portfolio is invested in equities.
Please note that in the current Union Budget 2000, the tax on
debt funds has been increased from 10 percent to 20 percent.
Some important rights are mentioned below: