What is a Mutual Fund?
What is an Asset Management Company?
What is NAV?
How often is the NAV declared?
What are the benefits of investing in Mutual Funds?
Are there any risks involved in investing in Mutual Funds?
What are the different types of Mutual funds?
What are the different plans that Mutual Funds offer?
What is Entry/Exit Load?
What is Sales/Purchase price?
What is redemption price?
What is a Switch?
What is Shut-Out Period?
Is there any minimum lock-in period for my units?
section with minimum lock-in period
Who are the issuers of Mutual funds in India?
What are the factors that influence the performance of Mutual Funds?
As a new investor how do I select a particular scheme?
What are the rights that are available to a Mutual Fund holder?
It is very often said that Mutual Funds have performed badly. Please explain?
Can I avail nomination facility in Mutual Fund schemes purchased through SMB Finmart ?
What is a Mutual Fund?
A Mutual Fund is a body corporate that pools the savings of a number of investors and invests the same in a variety of different financial instruments, or securities. The income earned through these investments and the capital appreciation realised by the scheme are shared by its unit holders in proportion to the number of units owned by them. Mutual funds can thus be considered as financial intermediaries in the investment business who collect funds from the public and invest on behalf of the investors. The losses and gains accrue to the investors only. The Investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.
What is an Asset Management Company?
An Asset Management Company (AMC) is a highly regulated organisation that pools money from investors and invests the same in a portfolio. They charge a small management fee, which is normally 1.5 per cent of the total funds managed.
What is NAV?
NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. NAV is calculated as follows:
NAV= Market value of the fund’s investments+Receivables+Accrued Income– Liabilities-Accrued Expenses
_______________________________________________________________________________
Number of Outstanding units
How often is the NAV declared?
The NAV of a scheme has to be declared at least once a week. However many Mutual Fund declare NAV for their schemes on a daily basis. As per SEBI Regulations, the NAV of a scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. However, NAV of a close-ended scheme targeted to a specific segment or any monthly income scheme (which are not mandatorily required to be listed on a stock exchange) may be published at monthly or quarterly intervals.
What are the benefits of investing in Mutual Funds?
1. Qualified and experienced professionals manage Mutual Funds. Generally, investors, by themselves, may have reasonable capability, but to assess a financial instrument a professional analytical approach is required in addition to access to research and information and time and methodology to make sound investment decisions and keep monitoring them.
2. Since Mutual Funds make investments in a number of stocks, the resultant diversification reduces risk. They provide the small investors with an opportunity to invest in a larger basket of securities.
3. The investor is spared the time and effort of tracking investments, collecting income, etc. from various issuers, etc.
4. It is possible to invest in small amounts as and when the investor has surplus funds to invest.
5. Mutual Funds are registered with SEBI. SEBI monitors the activities of Mutual Funds.
6. In case of open-ended funds, the investment is very liquid as it can be redeemed at any time with the fund unlike direct investment in stocks/bonds.
Are there any risks involved in investing in Mutual Funds?
Mutual Funds do not provide assured returns. Their returns are linked to their performance. They invest in shares, debentures and deposits. All these investments involve an element of risk. The unit value may vary depending upon the performance of the company and companies may default in payment of interest/principal on their debentures/bonds/deposits. Besides this, the government may come up with new regulation which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.
What are the different types of Mutual funds?
(a) On the basis of Objective
Equity Funds/ Growth Funds
Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over the medium to long-term. The returns in such funds are volatile since they are directly linked to the stock markets. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds.
Diversified funds
These funds invest in companies spread across sectors. These funds are generally meant for risk-taking investors who are not bullish about any particular sector.
Sector funds
These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector.
Index funds
These funds invest in the same pattern as popular market indices like S&P 500 and BSE Index. The value of the index fund varies in proportion to the benchmark index.
Tax Saving Funds
These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this scheme are in the form of tax rebates U/s 88 as well saving in Capital Gains U/s 54EA and 54EB. They are best suited for investors seeking tax concessions.
Debt / Income Funds
These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.
Liquid Funds / Money Market Funds
These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods.
Gilt Funds
These funds invest in Central and State Government securities. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are averse to risk.
Balanced Funds
These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.
Hedge Funds
These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.
(b) On the basis of Flexibility
Open-ended Funds
These funds do not have a fixed date of redemption. Generally they are open for subscription and redemption throughout the year. Their prices are linked to the daily net asset value (NAV). From the investors' perspective, they are much more liquid than closed-ended funds. Investors are permitted to join or withdraw from the fund after an initial lock-in period.
Close-ended Funds
These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter closed for entry as well as exit. These funds have a fixed date of redemption. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV; but the discount narrows as maturity nears. These funds are open for subscription only once and can be redeemed only on the fixed date of redemption. The units of these funds are listed (with certain exceptions), are tradable and the subscribers to the fund would be able to exit from the fund at any time through the secondary market.
Interval funds
These funds combine the features of both open–ended and close-ended funds wherein the fund is close-ended for the first couple of years and open-ended thereafter. Some funds allow fresh subscriptions and redemption at fixed times every year (say every six months) in order to reduce the administrative aspects of daily entry or exit, yet providing reasonable liquidity.
(c) On the basis of geographic location
Domestic funds
These funds mobilize the savings of nationals within the country.
Offshore Funds
These funds facilitate cross border fund flow. They invest in securities of foreign companies. They attract foreign capital for investment.
What are the different plans that Mutual Funds offer?
Growth Plan and Dividend Plan
A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realises capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income.
Dividend Reinvestment Plan
Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors.
Automatic Investment Plan
Under the Automatic Investment Plan (AIP) also called Systematic Investment Plan (SIP), the investor is given the option for investing in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan their savings through a structured regular monthly savings program.
Automatic Withdrawal Plan
Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a pre-determined interval.
What is Entry/Exit Load?
A Load is a charge, which the AMC may collect on entry and/or exit from a fund. A load is levied to cover the up-front cost incurred by the AMC for selling the fund. It also covers one time processing costs. Some funds do not charge any entry or exit load. These funds are referred to as ‘No Load Fund’. Funds usually charge an entry load ranging between 1.00% and 2.00%. Exit loads vary between 0.25% and 2.00%.
For eg. Let us assume an investor invests Rs. 10,000/- and the current NAV is Rs.13/-. If the entry load levied is 1.00%, the price at which the investor invests is Rs.13.13 per unit. The investor receives 10000/13.13 = 761.6146 units. (Note that units are allotted to an investor based on the amount invested and not on the basis of no. of units purchased).
Let us now assume that the same investor decides to redeem his 761.6146 units. Let us also assume that the NAV is Rs 15/- and the exit load is 0.50%. Therefore the redemption price per unit works out to Rs. 14.925. The investor therefore receives 761.6146 x 14.925 = Rs.11367.10
What is Sales/Purchase price?
Sales/Purchase price is the price paid to purchase a unit of the fund. If the fund has no entry load, then the sales price is the same as the NAV. If the fund levies an entry load, then the sales price would be higher than the NAV to the extent of the entry load levied.
What is redemption price?
Redemption price is the price received on selling units of open-ended scheme. If the fund does not levy an exit load, the redemption price will be same as the NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.
What is repurchase price?
Repurchase price is the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.
What is a Switch?
Some Mutual Funds provide the investor with an option to shift his investment from one scheme to another within that fund. For this option the fund may levy a switching fee. Switching allows the Investor to alter the allocation of their investment among the schemes in order to meet their changed investment needs, risk profiles or changing circumstances during their lifetime.
What is Shut-Out Period?
After the closure of the Initial Offer Period, on an ongoing basis, the Trustee reserves a right to declare Shut-Out period not exceeding 5 days at the end of each month/quarter/half-year, as the case may be, for the investors opting for payment of dividend under the respective Dividends Plans. The declaration of the Shut-Out period is envisaged to facilitate the AMC/the Registrar to determine the Units of the unitholders eligible for receipt of dividend under the various Dividend Options. Further, the Shut-Out period will also help in expeditious processing and despatch of dividend warrants. During the Shut-Out period investors may make purchases into the Scheme but the Purchase Price for subscription of units will be calculated using the NAV as at the end of the first Business Day in the following month/quarter/half-year as the case may be, depending on the Dividend Plan chosen by the investor. Therefore, if investments are made during the Shut –Out period, Units to the credit of the Unitholder’s account will be created only on the first Business Day of the following month/ quarter/half year, as the case may be, depending on the dividend plan chosen by the investor. The Shut-Out period applies to new investors in the Scheme as well as to Unitholders making additional purchases of Units into an existing folio. The Trustee reserves the right to change the Shut-Out period and prescribe new Shut- Out period, from time to time.
Is there any minimum lock-in period for my units?
There is no lock-in period in the case of open-ended funds. However in the case of tax saving funds a minimum lock-in period is applicable. The lock-in period for different tax saving schemes are as follows:
section with minimum lock-in period
U/s 88 - 3 yrs.
U/s 54EA - 3 yrs.
U/s 54EB - 7 yrs.
Who are the issuers of Mutual funds in India?
Unit Trust of India was the first mutual fund which began operations in 1964. Other issuers of Mutual funds are 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, Cholamandalam etc.
What are the factors that influence the performance of Mutual Funds?
The performances of Mutual funds are influenced by the performance of the stock market as well as the economy as a whole. Equity Funds are influenced to a large extent by the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole. The performance of the sector funds depends to a large extent on the companies within that sector. Bond-funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond funds with higher credit ratings are less influenced by changes in the economy.
As a new investor how do I select a particular scheme?
Choice of any scheme would depend to a large extent on the investor preferences. For an investor willing to undertake risks, equity funds would be the most suitable as they offer the maximum returns. Debt funds are suited for those investors who prefer regular income and safety. Gilt funds are best suited for the medium to long-term investors who are averse to risk. Balanced funds are ideal for medium- to long-term investors willing to take moderate risks. Liquid funds are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods. Tax Saving Funds are ideal for those investors who want to avail tax benefits.
An important aspect while selecting a particular scheme is the duration of the investment. Depending on your time horizon you can select a particular scheme. Besides all this, factors like promoter’s image, objective of the fund and returns given by the funds on different schemes should also be taken into account while selecting a particular scheme.
What are the rights that are available to a Mutual Fund holder?
As per SEBI Regulations on Mutual Funds, an investor is entitled to
1. Receive Unit certificates or statements of accounts confirming your title within 6 weeks from the date your request for a unit certificate is received by the Mutual Fund.
2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme;
3. Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase
4. The trustees shall be bound to make such disclosures to the unit holders as are essential in order to keep them informed about any information which may have an adverse bearing on their investments.
5. 75% of the unit holders with the prior approval of SEBI can terminate the AMC of the fund.
6. 75% of the unit holders can pass a resolution to wind-up the scheme.
7. An investor can send complaints to SEBI, who will take up the matter with the concerned Mutual Funds and follow up with them till they are resolved.
It is very often said that Mutual Funds have performed badly. Please explain?
The performance of Mutual Funds is evaluated on the basis of absolute increase or decrease in its Net Asset Value (NAV). However a fund’s performance should be evaluated on the basis of a comparison with the relevant indices and alternative instruments. The NAV varies from fund to fund. Therefore this argument is not entirely true. However some funds have performed poorly with their NAV quoting well below their original IPO price.
Can I avail nomination facility in Mutual Fund schemes purchased through SMB Finmart ?
Currently nomination facility is not available on SMB Finmart site.
Do I need to allocate funds for investing in Mutual Funds?
Yes, just as in the secondary market, you will need to allocate funds for the purpose of investing in Mutual Funds. Under the Modify Allocation option you would have a separate section for allocating money for Mutual Funds. Also the funds which are allocated for investments in Mutual Fund will not be allowed for transactions in the secondary market.
Can I modify /cancel my transactions?
Yes, while placing any mutual fund order, modify or cancel option would be available to you till the final confirmation of the order is placed by you. Once you click on Final Confirmation you cannot modify or cancel the order placed by you. You can only modify / cancel any Systematic Investment Plan (SIP) / Systematic Withdrawal Plan (SWP) order placed by you.
Will I get an online confirmation of my transactions?
As soon as you confirm your order you can view the details of your transaction in the order book. Also an email will be sent to your email address.
Can I transact anytime during the day?
Yes, you can transact at any time of the day. However, in order to get the NAV of the current day you would have to transact before the cut-off time of the scheme. If you place any order after the said cut-off time, you would be eligible for NAV of the next day.
Can I purchase after the time which is displayed beside the scheme?
In order to get the NAV of the same day, you can purchase up to the cut-off time of the scheme, after which you will get the next day's NAV. (If the next day is a holiday, then the NAV of the next working day).
Is there a minimum transaction amount for each scheme?
As decided by the fund, there is a minimum transaction amount indicated against each scheme. You will get to see the minimum transaction amount in the Place Order screen.
Can I use the funds allocated for investments in secondary market towards investments in Mutual Fund ?
In order to invest in Mutual Fund, you will need to separately allocate funds for the same. This option is available to you in the Modify Allocation screen.
After my first purchase, can I immediately enter another transaction?
After your first purchase you will not be permitted to transact for a period of 4 to 7 days depending on the processing time of the Mutual Funds' Registrar. After you place an investment order in any Mutual Fund for the first time a Folio Number is generated for that particular fund. Until the Folio number is generated you will not be allowed to place any further orders for that particular Mutual Fund. After the Folio Number is generated you can place any number of order in any schemes of the Mutual Fund.
In the case of Franklin Templeton MF and Birla Sun Life MF, the Folio Number is generated for each scheme offered by the MF. Hence the processing time would be for each scheme of the Mutual Fund. Suppose if you place an order for a Liquid Fund, then a folio number is generated for that scheme only and to place an order for the first time in a balanced fund you will have again wait till a new folio number is generated.
Who are the users of this facility and how?
All SMB Finmart customers who are Non-resident Indians, whose accounts are activated, can use the same login Id and password to invest in Mutual Funds.You can invest in units of a Mutual fund from either the Non-Pins NRE or Non-Pins NRO account.
I do not have an account with SMB Finmart, but would like to invest in Mutual Funds. What do I do?
You can contact any SMB Finmart associate or office to open accounts or fill in the application form on the web site and our Customer Service Executive will visit you for opening your e-invest account. Once the processing of your form is completed, you can start investing in Mutual Funds online.
How do I convert my existing portfolio of Mutual Fund units to SMB Finmart Mutual Fund portfolio?
A Transfer-in request form is available on the site. However this facility of Transfer-in can be availed only if you're a sole holder in the physical units else your request will be rejected. This can be accessed through the Place order hyperlink. However to convert your existing portfolio of Mutual Fund units to SMB Finmarts Mutual Fund portfolio you should hold or should have held units in at least one scheme of the mutual fund subscribed through SMB Finmart. Fill in the existing folio number allotted for that scheme. Thereafter you need to take a printout of the form filled and forward it to SMB Finmart. In case of transfer-in of dividend schemes the dividend re-investment option will by default be taken to be re-investment and will appear as "Y". In case the dividend re-investment option as per your records is dividend pay-out "N", to change the dividend re-investment option you can use the modify dividend re-investment hyperlink.
Can I as an NRI buy Mutual Fund Units in the PINS account?
No, you cannot purchase mutual fund units in the PINS account. You can only do so in the Non-Pins account.
When will I be able to see my purchase details?
The details of your transactions will be immediately updated in your order book. An email will also be sent to you and the entry in your portfolio will be displayed within T+3 days.
How do I redeem my Mutual Fund scheme units?
Click on the link "Place Order" in the MF Trading section. This will display all the scheme units held by you, with details against each scheme. Select the REDEEM option in the drop down menu and then click on GO to place your redemption request. You can either redeem a certain amount or specify the number of units held by you. There is a minimum transaction amount that is indicated against each scheme. A cut off time is also displayed to get that day's NAV. The details of your transactions will be immediately updated in your order book, an email will be sent and your bank account will be credited after T+3 days (the date of pay-out would differ for scheme and will not necessarily be T+3 days).
Will TDS be deducted on the redemption of units? If yes what will be the basis of deduction of TDS
TDS is not deducted on the sale proceeds for Resident Indians.
In case of NRI's, TDS will be deducted on the sale proceeds. The TDS will deducted depending upon whether it is a short-term capital gain or long term capital gains. For short term capital gain the tax is deducted @ 33% while in case of long term capital gains it is deducted @ 11%.
Where can I see the TDS deducted on the sale proceeds?
The TDS deducted for NRI can be seen by Clicking on the executed hyperlink against the transaction. You will find the complete details of the redemption including the TDS deducted.
How do I switch from a particular scheme?
Click on the link "Place Order" in the MF Trading section. This will display all the scheme units held by you, with details against each scheme. Select the SWITCH option in the drop down menu and then click on GO to place your switch request. Click on the scheme you wish to Switch From. There is a minimum transaction amount indicated against the scheme. Also the scheme you wish to "Switch To" carries a minimum transaction amount. Therefore the amount which you will be switching will be higher of the two. The details of your transactions will be immediately updated in your order book, an email will be sent showing the "Switch From" and "Switch To" units. The entry in your portfolio will be displayed within T+3 days. Since this does not involve any transfer of funds, your bank account will not be affected.
Switch Out is treated as redemption. Hence, in case of NRI's, TDS will be deducted on Switch out transaction also. The gross amount after deducting the TDS will be used for switch in Transaction i.e. units worth equivalent to the net amount will be utilized to switching in into the desired scheme.
How does the Automatic/ Systematic Investment Plan (AIP/ SIP) work?
Select the option for "Systematic Plans". Select the fund name and the scheme. A screen will appear with the details of that scheme similar to that in the Purchase screen. In addition to these details you will have to fill up the frequency with which the investments will be made and the start date. From the date specified a fixed amount will be debited to your bank account. Kindly ensure that adequate clear funds are available for the SIP to be effective, as the amount due shall be debited from your withdrawal balance and not from your allocated funds. An email will be sent showing the details of the amount invested and the entry in your portfolio will be displayed within T+3 days. You can however enter into only one plan per scheme. In case if you do not sufficient funds in your net withdrawal balance for a month, then the SIP would be rejected for that particular month.
How does the Automatic/ Systematic Withdrawal Plan (AWP/SWP) work?
Select the option for "Systematic Withdrawal Plan". Select the fund name and the scheme. A screen will appear with the details of that scheme similar to that in the Redemption screen. In addition to these details you will have to fill up the frequency with which the withdrawals will be made and the start date. From the date specified a fixed amount will be credited to your bank account. An email will be sent showing the details of the amount withdrawn and the entry in your portfolio will be displayed within T+3 days. You can however enter into only one plan per scheme. However if a SWP\AWP request is rejected for insufficient units, then the entire Plan will be scraped automatically. You will also receive an e-mail indicating that the plan has been scrapped.
Will TDS be deducted on dividend received?
No, TDS will not be deducted on Dividend payments for both Resident as well as NRI's.
If I change my address, what do I need to do?
For change of address, you will have to send a letter to us with both the old and new address mentioned in it. All the co-holders should sign this letter. It can be sent by post or faxed to us.
Can I transact on a holiday?
Yes, You can place your request even on a holiday. However, the request would be processed on the next business day and respective NAV would be applicable as per the Mutual Fund's offer document.