11. Mutual Funds

SEBI's regulation limits the number of stocks in a focused fund's portfolio to 30.

The proportion of benefits and costs an investor receives in a mutual fund depends on the number of units held by the investor. Investors participate in the benefits and costs of the fund in proportion to the units they hold. The value of the portfolio, which is influenced by the value of securities held, determines the overall benefits and costs of the fund.

The consolidated account statement should be dispatched to investors on or before the tenth day of the succeeding month if there is a transaction in the folio. Otherwise, it should be dispatched every six months.

An investor can register for an STP by specifying the source scheme, target scheme, including plan and option, the amount to be redeemed and invested in each installment, frequency of the STP, period over which the STP will be conducted, and the commencement date. Due notice needs to be given to the mutual fund before the first transfer. The redemption and investment happen at the applicable NAV, and exit loads and taxes apply.

Closed-end funds have to be listed on a stock exchange.

Dynamic asset allocation or balanced advantage funds dynamically manage the investment in equity and debt instruments based on market conditions. The fund manager adjusts the allocation between equity and debt based on their view of market conditions, valuations, and other factors. The objective is to optimize returns and manage risk by taking advantage of market opportunities.

The redemption or additional investment of units does not directly affect the NAV of a mutual fund scheme. The NAV is calculated based on the net assets and the number of outstanding units, and these transactions do not change the net assets. The NAV reflects the per-unit value of the scheme, and the transactions are conducted at the current NAV.

Flexicap funds have no minimum investment limits across market caps, and the funds are free to invest according to their requirements. However, at least 65% of the corpus must be invested in equities.

Sector funds invest in companies that belong to a particular sector, such as technology or banking.

When choosing a hybrid fund, it is important to consider your investment goals, risk tolerance, and time horizon. You should also compare the fees and performance of different funds. Talking to a financial advisor can also be helpful.

The scheme portfolio at the end of the month should be made available on the mutual fund's website on or before the 10th of the following month.

An investor's holdings in a mutual fund are represented in terms of units. Each unit represents a share of the fund, and the number of units allotted to an investor is derived from the amount they have invested. Units can be allotted in decimals to ensure that the investor gets value for their entire investment.

The prescribed turnaround time for the allotment of units in a new fund offer (NFO) is 5 days from the closing date.

The New Fund Offer (NFO) of a mutual fund scheme is kept open for a period not exceeding 15 days. During this time, investors can subscribe to the scheme by submitting their application forms and investing in the fund. The NFO period allows investors to assess the suitability of the fund and make an investment decision.

The minimum investment amount for a SIP varies from scheme to scheme. Some schemes have a minimum investment amount of Rs. 500, while others have a minimum investment amount of Rs. 1,000. You can check the minimum investment amount for a particular scheme on the mutual fund company's website.

Equity funds provide exposure to a portfolio of equity shares and equity-related instruments.

Under the revised guidelines, multi-cap funds are required to invest at least 75% of the assets in equity-related instruments, with a minimum of 25% in large-cap companies, 25% in mid-cap companies, and 25% in small-cap companies.

Diversified equity funds invest across segments, sectors, and sizes of companies, reducing the risk of poor performance in a few stocks or sectors. They provide exposure to different stocks across sectors and market segments. Some diversified equity funds can also be closed-end schemes that operate for a specific time period. After the scheme's time period is over, the assets are redeemed and returned to investors.

Passive funds invest in companies represented in an index in the same proportion as the company's representation in the index, without active selection or investment decisions. Active funds, on the other hand, select stocks for the portfolio based on a strategy to generate higher returns than the index.

Redemption proceeds should be dispatched to investors within 10 business days from the redemption request.

Hybrid funds are not without risk. They can lose money if the stock market declines, interest rates rise, or the bond market declines.

The unaudited half-yearly financial results and portfolio should be disclosed within one month from the close of each half year.

Implications of an SWP for investors include the application of exit loads on each redemption transaction and tax implications in the form of capital gains. The redemption amount is credited to the investor's bank account registered with the mutual fund. If the balance in the folio falls below a specified amount, the SWP ceases automatically. Mutual funds may offer variations of the SWP, such as the facility to withdraw only the appreciation in a folio between installments.

The NAV of a mutual fund scheme is calculated by dividing the net assets of the scheme by the number of outstanding units. It represents the per-unit value of the scheme. Investors' transactions, such as purchases and redemptions, are conducted at the current NAV.

To start an SIP in an existing folio, the investor needs to submit the SIP enrollment form along with either post-dated cheques or the instruction form for electronic payment. The first installment may be used to open the folio if it is a fresh investment. The investor needs to fill out the application form and provide the necessary details for the SIP.

A multi-asset allocation fund typically invests in at least three asset classes. The fund manager allocates a minimum of 10% of the total assets to each of the asset classes. The allocation is adjusted based on the fund manager's view on the performance and prospects of each asset class.

Mark to Market refers to valuing the portfolio of a mutual fund scheme at its current market price. It ensures that the portfolio reflects the current value of the securities held. The market price is obtained from the actual trading of the securities. This process helps in determining the accurate net assets of the scheme and, subsequently, the NAV.

When an investor redeems units from a mutual fund scheme, the NAV of the scheme decreases. The redemption reduces the number of outstanding units, and since the NAV is calculated as net assets divided by the number of outstanding units, a decrease in units leads to a lower NAV. However, the impact on the NAV also depends on the net assets of the scheme.

Trustees are appointed to take care of the interests of the investors in the various schemes launched by the mutual fund. They ensure that the mutual fund operates in the best interests of the investors and acts in accordance with the fund's objectives.

In a closed-ended scheme, units can be redeemed by investors before the term is over by selling the units to other investors on a stock exchange. The units of closed-ended schemes are mandatorily listed on stock exchanges, providing an avenue for investors to exit their investments. The redemption price is determined by the market demand and supply of the units and may not be equal to the NAV.

The offer document provides all the necessary details about a mutual fund scheme, including its investment objectives, investment pattern, costs and fees, and other information essential for an investor to make an informed investment decision. It is also known as the New Fund Offer (NFO) document and is issued by the mutual fund to invite subscriptions from investors.

The primary regulator of mutual funds in India is the Securities and Exchange Board of India (SEBI).

At least 65% of the total assets of a value fund should be invested in equity and equity-related instruments.

The minimum period for transaction periods in interval funds is 15 days.

The primary advantage of systematic investment plans (SIPs) is rupee cost averaging. By investing a fixed sum of money at regular intervals, investors buy more units when the net asset value (NAV) is low and fewer units when the NAV is high. This reduces the average cost per unit over time, allowing investors to benefit from market volatility and potentially lower their average acquisition cost.

The role of an investment adviser is to educate investors about the differences between direct and regular plans, including the advantages and disadvantages of each plan. They should help investors understand the cost aspect, the level of assistance available, and the need for personalized advice. The investment adviser should consider the investor's situation and guide them towards the most suitable plan based on their knowledge, ability to handle transactions, and long-term goals.

Open-ended schemes and closed-ended schemes differ in terms of liquidity and investment flexibility, duration and availability of units, and pricing and valuation methods. Open-ended schemes offer liquidity, allowing investors to enter and exit the scheme at any time at the current NAV. They also provide investment flexibility, allowing investors to invest additional funds continuously. Closed-ended schemes have a fixed duration and offer units only during the new fund offer (NFO). The units of closed-ended schemes are not directly redeemable with the fund and are traded on stock exchanges. The pricing and valuation methods may also differ between open-ended and closed-ended schemes.

The applicable NAV for a purchase, redemption, or switch of units in a mutual fund scheme is determined by the time when the request is received by the mutual fund. This standard practice ensures equity and fairness in allocation, preventing any preferential treatment for investors. The NAV at the time of receiving the request is used for processing the transaction.

Capital protection funds are closed-end hybrid funds that provide capital protection by investing a portion of the principal amount in debt instruments. The remaining portion is invested in equity derivatives to earn higher returns. The objective is to grow the principal amount over the term of the fund while protecting the invested capital.

The value of the units in a SIP can go up or down, so investors can lose money. SIPs are subject to market risk, so if the market falls, the value of the units in a SIP will fall too. SIPs are not guaranteed, so investors could lose all of their money.

Exchange-traded funds (ETFs) hold a portfolio of securities that replicates an index, and they are listed and traded on the stock exchange. They provide investors with an opportunity to invest in a diversified portfolio of securities that closely tracks a specific index. ETFs offer real-time pricing and can be bought and sold throughout the trading day, unlike traditional mutual funds that calculate Net Asset Value (NAV) at the end of the day.

Capital protection funds are a type of insurance product, not a mutual fund.

A systematic withdrawal plan (SWP) enables investors to structure a regular pay-out from the balance held in a mutual fund investment. It allows for recurring redemptions from a scheme over a period of time at the applicable NAV on the date of each redemption. Investors can eliminate price risk associated with redeeming all units at once by using an SWP. They can benefit from the NAV volatility, redeeming fewer units when the NAV is high and vice versa.

The purpose of a portfolio manager is to select and manage a basket of assets on behalf of clients, aiming to minimize risk and maximize returns. They design customized investment solutions based on the client's goals and risk tolerance. Portfolio managers play a crucial role in asset allocation, diversification, and actively managing the portfolio to achieve optimal results for the clients. Their expertise helps investors make informed investment decisions and navigate the complexities of the financial market.

SIPs allow investors to invest small amounts of money regularly, which can help them to build a corpus over time. SIPs help to reduce the risk of market timing, as investors are not trying to buy or sell at the best possible time. SIPs can help to average out the cost of investment, as investors are buying units at different prices over time.

Equity savings funds have a minimum allocation of 65% of total assets in equity and equity-related instruments. They also allocate a minimum of 10% in debt investments. These funds aim to generate returns by investing in a combination of equity, debt, and arbitrage opportunities.

Portfolio managers in India need to register with SEBI (Securities and Exchange Board of Indi and comply with the regulations specified for portfolio management services. The registration process involves meeting the eligibility criteria, submitting the required documentation, and paying the prescribed fees. Portfolio managers must adhere to SEBI's guidelines and regulatory framework to ensure transparency, fair practices, and investor protection. This registration requirement helps maintain the integrity and professionalism of the portfolio management industry and instills confidence among investors.

The minimum allocation to equity in a conservative hybrid fund is 10%.

Aggressive hybrid funds are predominantly equity-oriented funds that invest between 65% and 80% in the equity market. They also allocate between 20% up to 35% in debt instruments to generate some income and stability to the returns. The objective is to achieve capital appreciation by investing in equities while managing risk through a mix of debt investments.

When the value of the portfolio held by a mutual fund scheme increases, the NAV of the scheme also increases. The NAV is calculated based on the net assets divided by the number of outstanding units. An increase in net assets leads to a higher NAV, reflecting the growth in the value of the scheme.

The growth of the portfolio management industry in India can be attributed to the increase in the number of high net worth individuals (HNIs) and their wealth in the Asia-Pacific region. India is home to a significant population of HNIs, and their population and wealth have been steadily growing. This expansion in the clientele base has led to an increase in the demand for portfolio management services. The industry has benefited from the rising number of clients and the corresponding growth in assets under management (AUM).

An investor can register for an SWP by using the transaction slip and specifying the mutual fund scheme, plan and option, redemption amount, frequency of withdrawal, redemption date for each installment, period or tenor of the SWP, and date of commencement. The mutual fund may specify a minimum period for the SWP, and the redemption amount will be credited to the investor's registered bank account.

Contra funds adopt a contrarian investment strategy and seek to identify undervalued stocks and stocks that are under-performing due to transitory factors.

Mid-cap funds invest in mid-cap companies, which are ranked 101st to 250th in terms of full market capitalization in the list of stocks prepared by AMFI.

The difference between a direct plan and a regular plan is that a direct plan has a lower expense ratio as it does not involve a distributor or intermediary, whereas a regular plan pays out distribution commission to various distributors. Direct plans are suitable for knowledgeable investors who can manage transactions online and want to minimize expenses, while regular plans cater to investors who need assistance and personalized advice in their investments.

The primary goal of portfolio management is to minimize risk while maximizing return on investments. Portfolio managers strive to construct a well-diversified portfolio that balances risk and potential rewards. Their focus is on achieving optimal asset allocation, actively managing the portfolio, and making informed investment decisions based on thorough research and analysis. By effectively managing risk, portfolio managers aim to generate favorable returns for their clients over the long term.

Sector funds and thematic funds must invest at least 80% of the total assets in the equity and equity-related instruments of the identified sector/theme.

You can start an SIP by contacting a mutual fund company. You will need to provide some basic information, such as your name, address, and contact details. You will also need to choose a mutual fund scheme and an investment amount. Once you have submitted your application, the mutual fund company will set up your SIP and start investing on your behalf.

When an SIP is close to completion of its term, the mutual fund notifies the investor to renew it. The investor can choose to renew it on different terms regarding investment amount, frequency, term, and payment mode. It provides an opportunity to make changes or continue with the same SIP.

Portfolio managers in India are registered and regulated by SEBI (Securities and Exchange Board of Indi. SEBI sets the guidelines and regulations for portfolio management services to ensure investor protection, transparency, and fair practices. Portfolio managers need to comply with SEBI regulations, including registration requirements, disclosure norms, and adherence to ethical standards. The regulatory oversight by SEBI helps maintain the integrity and professionalism of the portfolio management industry in India.

An investor can make payments for an SIP through post-dated cheques, Electronic Clearing Service (ECS), or Standing Instructions (SI). Post-dated cheques bear the date of the installment and are submitted along with the SIP enrollment form. ECS is an electronic payment method where the investor instructs the bank to credit a fixed amount on a specified date. SI is a payment option for SIPs if the investor and the mutual fund hold bank accounts with the same bank.

A switch in mutual funds refers to the transfer of funds from one scheme or option to another scheme or option of the same mutual fund. It can involve transferring between different schemes or options within the same fund. Exit loads and taxes may apply, and the investor specifies the source and target schemes and options as well as the amount to be switched.

A passive fund invests only in the securities included in an index and does not feature selection risks.

A systematic investment plan (SIP) is a method of investing a fixed amount of money at regular intervals in a mutual fund scheme.

An ELSS must hold at least 80% of the portfolio in equity securities.

The key feature that differentiates a regular plan from a direct plan is the presence of a distributor or intermediary in a regular plan. Investors who require assistance in making investments and completing the investment process can opt for a regular plan, whereas direct plans do not involve any distributor or intermediary. Both plans have the same portfolio investments, but direct plans have a lower expense ratio, leading to higher net returns for investors.

Systematic transactions in mutual funds refer to the automation of investment and redemption transactions to meet specific needs. It includes options like systematic investment plans (SIPs), systematic withdrawal plans (SWPs), systematic transfer plans (STPs), and switches. Investors can choose to invest periodically, redeem periodically, or rebalance their portfolio based on their requirements. The transactions are executed at the applicable NAV, and investors can cancel them with prior notice.

Dividend reinvestment is a process where the dividends declared by a mutual fund scheme are used to purchase more units of the same scheme instead of being received as a payout. This allows for compounding returns as the dividend amount gets reinvested back into the fund. The process is automatic, and the investor doesn't need to take any action. The dividend is converted into new units at the net asset value (NAV) post the dividend declaration.

Dividend warrants should be dispatched to investors within 30 days from the dividend declaration.

When recommending a direct plan or a regular plan, an investment adviser should consider factors such as the investor's knowledge and understanding of mutual funds, their ability to handle online transactions, and their long-term goals. The adviser should also assess if the investor requires personalized advice and assistance in managing their portfolio. By evaluating these aspects, the adviser can guide the investor towards the plan that aligns with their needs and preferences.

The average cost per unit in the given SIP example is 14 This is calculated by dividing the total investment amount (Rs 15,000) by the total units allotted (13174).

A systematic transfer plan (STP) involves combining redemption from one scheme and investment into another scheme of the same mutual fund for a defined period. It allows investors to transfer funds from a source scheme to a target scheme over time, reducing the risk associated with redeeming all units at once. Exit loads and taxes are applicable, and the transactions occur at the applicable NAV.

Active funds use selection and timing strategies to create portfolios that are expected to generate returns better than the market returns, whereas passive funds invest only in the securities included in an index.

The features of a mutual fund's portfolio are determined by its investment objective, the type of securities it invests in, and the management style adopted by the fund manager. The investment objective sets the purpose and goals of the scheme, while the type of securities and management style define the asset allocation and investment strategy. These factors shape the portfolio's level and type of returns, as well as the risks involved.

The maximum allocation to debt in an aggressive hybrid fund is 65%.

The tax treatment of hybrid funds depends on the type of fund. For example, equity-oriented hybrid funds are taxed as equity funds, while debt-oriented hybrid funds are taxed as debt funds.

The daily NAV of a scheme should be available by 9:00 pm on the mutual fund and AMFI's website.

At least 65% of the total assets of a dividend yield fund should be invested in equity and equity-related instruments.

Small-cap funds invest in companies with small market capitalization, aiming to benefit from higher gains in stock prices. They carry higher risks.

The role of an investment adviser is to educate investors about the differences between direct and regular plans, including the advantages and disadvantages of each plan. They should help investors understand the cost aspect, the level of assistance available, and the need for personalized advice. The investment adviser should consider the investor's situation and guide them towards the most suitable plan based on their knowledge, ability to handle transactions, and long-term goals.

Portfolio management services in India can be offered by SEBI registered entities such as brokerage firms, asset management companies, and independent experts. These entities have to comply with the regulations set by SEBI (Securities and Exchange Board of Indi. Banks, insurance companies, and stock exchanges may also provide investment-related services, but portfolio management services specifically require SEBI registration.

Net assets of a mutual fund scheme change based on various factors. They increase when investors buy additional units, when the value of investments in the portfolio goes up, and when securities held in the portfolio earn income such as dividends or interest. Conversely, net assets decrease when investors redeem their units and when the value of investments in the portfolio falls. Expenses related to the scheme also impact the net assets.

The net asset value (NAV) of an open-ended scheme is calculated by dividing the net assets of the scheme by the number of outstanding units. It represents the per-unit value of the scheme. Investors' transactions, such as purchases and redemptions, are conducted at the current NAV.

Arbitrage funds aim to take advantage of the price differential between the cash and derivatives markets. They buy equity shares in the cash market and sell them in the futures market to earn the interest rate differential. By simultaneously purchasing and selling assets at different prices, these funds aim to lock in profits with lower volatility. The investment strategy focuses on exploiting temporary price discrepancies in different markets.

Interval funds are a variant of closed-end funds that become open-ended during specified periods, allowing investors to purchase and redeem units like in an open-ended fund.

Equity funds can be categorized based on market capitalization as large-cap funds, mid-cap funds, large and mid-cap funds, small-cap funds, multi-cap funds, and flexicap funds.

A value averaging investment plan adjusts the investment amount based on market conditions. When the market is down, it invests more money, and when it is high, it invests a lesser amount. This approach aims to average the value of the investment over time. However, implementing value averaging plans can be complex, and not all mutual funds allow frequent changes in investment amounts.

The Association of Mutual Funds in India (AMFI) oversees the functioning of the mutual fund industry in India and recommends best practices to be followed by industry members.

Balanced hybrid funds allocate between 40% to 60% of the total assets in equity and equity-related instruments. They also invest 40% to 60% in debt instruments. The allocation to both asset classes provides a balance between income generation and potential for capital appreciation.

An SIP can be discontinued or canceled by giving written notice to the mutual fund and the bank. The mutual fund specifies the notice period required before the next installment for processing the cancellation. Dishonored cheques and insufficient funds in the bank account can also lead to discontinuation. If one or more installments fail to go through, the mutual fund may cancel the SIP.

Large-cap funds invest in stocks of large, liquid blue-chip companies with stable performance and returns.

Theme-based funds invest in multiple sectors and stocks that form part of a specific theme, such as infrastructure. They are more diversified than sector funds but still carry high concentration risks.

Conservative hybrid funds have a low risk and low return profile. These funds primarily invest in a debt portfolio with a small allocation to equity instruments. The focus is on generating regular income and providing stability to the portfolio without high fluctuations in Net Asset Value (NAV).

A dividend transfer plan (DTP) involves transferring dividends from one scheme to another scheme of the same mutual fund. It allows investors to invest the earnings from one scheme into another scheme, effectively booking profits or regularly investing in different types of schemes. The initial investment in the original scheme remains intact.

Debt funds invest in a portfolio of

Hybrid funds can be a good option for investors who want to grow their money, generate income, or diversify their portfolio.

Retirement funds under solution-oriented schemes have a lock-in period of 5 years or until the retirement age, whichever is earlier. These funds are specifically oriented towards saving for retirement and encourage long-term investments by imposing the lock-in period.

ETFs have multiple prices throughout the day based on the trading activity, while open-ended funds provide a single NAV (Net Asset Value) for the day.

In addition to the net assets, the NAV of a mutual fund scheme is determined by the number of outstanding units, expenses incurred by the scheme, and dividends and capital gains distributed to investors. The NAV is calculated by dividing the net assets by the number of outstanding units. The expenses and distributions impact the net assets and, consequently, the NAV.

The NAVs of mutual fund schemes (excluding liquid schemes) are calculated every business day. This frequency allows investors to value their portfolio holdings and conduct transactions based on the current NAV. The NAV represents the per-unit value of the scheme and is updated regularly to reflect changes in the net assets and the number of outstanding units. Liquid schemes may have NAV calculated on a daily basis.

Exchange Traded Funds (ETFs) are mutual funds that have the features of a mutual fund but can be traded like stocks on the stock exchange.

Hybrid funds offer a number of benefits, including the potential for both growth and income, lower risk than equity funds, and more liquidity than debt funds.

The key feature that differentiates a regular plan from a direct plan is the presence of a distributor or intermediary in a regular plan. Investors who require assistance in making investments and completing the investment process can opt for a regular plan, whereas direct plans do not involve any distributor or intermediary. Both plans have the same portfolio investments, but direct plans have a lower expense ratio, leading to higher net returns for investors.

ELSS provides investors with tax deduction benefits under section 80C of the Income Tax Act up to a limit of Rs.1,50,000 per year.

The assets of a mutual fund scheme are called net assets. Net assets represent the current value of the portfolio of securities held by the scheme, after deducting fees, expenses, and regulatory expenses. Net assets belong to the investors in the fund and no other entity has a claim to them. The value of net assets changes based on various factors such as investments, redemptions, and changes in the value of securities held in the portfolio.

SEBI categorizes open-end mutual fund products broadly as equity schemes, debt schemes, hybrid schemes, solution-oriented schemes, and other schemes.

The difference between a direct plan and a regular plan is that a direct plan has a lower expense ratio as it does not involve a distributor or intermediary, whereas a regular plan pays out distribution commission to various distributors. Direct plans are suitable for knowledgeable investors who can manage transactions online and want to minimize expenses, while regular plans cater to investors who need assistance and personalized advice in their investments.

Yes, an SIP can be initiated in an NFO. The first installment will be the allotment in the NFO, and subsequent installments can be made after the scheme reopens for continuous purchase. The amount of each installment, whether in the NFO or afterward, will be the same.

Yes, investors can invest in a mutual fund scheme even after the NFO period, especially in the case of open-ended schemes. Open-ended schemes allow investors to enter and exit the fund at any time, subject to certain terms and conditions. Closed-ended schemes, on the other hand, have a fixed maturity period and do not allow additional investments after the NFO period. The minimum investment amount and investment multiples are specified by the mutual fund.

Mutual funds allow investors to diversify their portfolio holdings, invest indirectly in financial markets, and utilize the services of a fund manager to make investment decisions. Investors can choose mutual funds based on their investment objectives and preferences.