Basics of Mutual Fund
Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents?
Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments.
The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable.
Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unit holders. It may include exit load, if applicable.
Considering the market trends, fund managers are allowed flexibility in altering the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments with respect to the limits prescribed in the offer document.
Fund managers resort to alteration in the asset allocation based on market movements, in order to protect the NAV. However, they do so keeping in mind the best interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and giving them option to exit the scheme at prevailing NAV without any load.
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the respective schemes.
No, mutual fund returns are not guaranteed. They depend on market movements and are subject to risks.
No. Mutual fund units are neither insured nor can be insured. Mutual Fund investments are subject to market risks and therefore provide no such guarantee or mitigation unforeseen circumstances. However, because mutual fund investments are more risky than insured investments, they generally offer potential for higher long-term returns.
There is no right time to invest in equities as the markets are prone to constant fluctuation. Thus, one should not predict or try to time the markets before investing. However, it is recommended that one should stay invested in the equity markets for the long term in order to ride market ups and downs and build wealth in the long term.
The fund house issues an "account statement" similar to a bank passbook. The account statement is a non-transferable document which shows details of all purchases and sales, along with the price at which the purchase or sale was made. It also shows the amount invested and redeemed to date and the number of units held.
Post every transaction, a fresh account statement is issued reflecting the updated holdings of the unit holder. Usually, the account statement is sent to the investor within 3 working days of the receipt of the purchase/redemption request by the investor.
Yes. Most mutual funds and publicly traded stocks are listed in the business section of your local newspaper or in financial publications such as the Economic Times.
Unit holders will have an option to switch all or part of their investment from one fund to another which is available for investment at that time. To process a switch, a unit holder must provide clear instructions by completing a form and submitting it at the Investor Service Centres or the office of the Registrar and Transfer Agent on any business day.
Post any change with respect to purchase or redemption, an account statement reflecting the new holdings will be sent to the unit holder within 3 days of completion of the transaction.
Any change that a fund house makes has to be communicated to its investors. The mutual funds are required to inform any material changes to their unit holders. The offer document of a mutual fund is also required to be revised and updated at least once in two years. However, any intermediate material changes are communicated to investors by way of an addendum to the offer document till it is revised and reprinted.
The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAV of a mutual fund scheme is required to be published in newspapers and is also available on the web sites of fund houses. The NAV of mutual fund schemes are also available on the web site of Association of Mutual Funds in India.
Fund houses publish their performance in the form of half-yearly results which include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. At the end of the financial year, fund houses are also required to send annual report or abridged annual report to their unit holders.
Apart from these, many research agencies also publish research reports on performance of several mutual funds and comparison with other mutual funds including the ranking of various schemes in terms of their performance.
The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers and also sent to the unit holders. The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.
Before making any investment in a mutual fund, investors must read the offer document very carefully. They could also look into the track record of performance of the scheme but however, that doesn't similar future performance. They may also compare the performance with other schemes having similar investment objectives.
For debt oriented schemes, investors should consider the quality of debt instrument which can be gauged from their rating. In equity oriented schemes, investors could look at the quality of the portfolio. For qualified advice on investment, investors should consult their financial advisers.
The offer document of a mutual fund scheme shows the financial performance including the net worth of the sponsor for a period of three years, so that the investor is aware of the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or any other sort of compensation in case of loss.
Yes. The nomination can be made by individuals applying for / holding units on their own, singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.
In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.
For queries, concerns and complaints, investors can either approach the concerned Mutual Fund or their Investor Service Centres. Usually the offer document of the scheme contains, the name of a contact person whom they may approach in case of any query, complaints or grievances.
If the complaints remain unresolved, the investors may approach SEBI for facilitating the redressal of their complaints. SEBI would then take the matter up with the concerned mutual fund and follows up with it regularly. The address to send the complaints to is :
Securities and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
Plot No.C4-A , "G" Block, 1st Floor,
Bandra (E), Mumbai - 400 051.
Non Resident Indians (NRI) and Foreign Institutional Investors (FIIs) have been granted special permission by the RBI under Schedule 5 of the Foreign Exchange Management Regulations, 2000 for investing in/redeeming units of mutual funds subject to certain conditions.