How do I invest in a scheme of mutual funds?
Mutual funds generally advertise in print or digital media publishing the date of launch of the new schemes. You can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Post offices and banks also help in distribution of mutual funds schemes to the investors.
Can Non-Resident Indians invest in Mutual funds?
Yes, Non-Resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.
What is NAV?
The net asset value (NAV) is the market value of the fund's underlying securities. It is calculated at the end of the trading day. Any open-ended fund buy or sell order received on that day is traded based on the net asset value calculated at the end of the day. The NAV per units is such Net Asset Value divided by the number of outstanding units:
NAV = (Market Value of Assets Liabilities) / Units Outstanding
What is the difference between open-ended and close-ended funds?
Open-ended funds can issue and redeem units any time during the life of the scheme. Close-ended funds cannot issue new units except through a bonus or rights issue. Hence, the unit capital of open ended funds can fluctuate daily. Further, new investors to an open-ended fund can join the scheme by directly applying to the mutual fund at applicable Net Asset Value related prices. In the case of close-ended schemes, new investors can buy units only from the secondary market.
What are dividends?
A mutual fund may receive a dividend or interest income from the securities it owns; it is required to pay out this income to its investors. Most open-ended funds offer an option to purchase additional shares with the dividends.
How much should I invest in debt or equity oriented schemes?
You should take into account your risk taking capability, age factor, financial position, etc., before investing in mutual funds. The schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. You may also consult financial experts before taking investment decisions.
How do I fill up the application form of a mutual fund scheme?
You must mention clearly your name, address, the number of units applied for, and any other information as required in the application form. You must give your bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase.
What should I look for in an offer document?
The offer document contains critical information that is mandatory to be disclosed by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. Before investing in a scheme, you should carefully read the offer document thoroughly.
When will I get a statement of account after investing in a mutual fund?
Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In the case of close ended schemes, the investors would get either a Demat account statement or unit certificates as these are traded in stock exchanges. In the case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme.
How long will it take for transfer of units after purchase from stock markets in case of close ended schemes?
According to SEBI Regulations, transfer of units is required to be done within 30 days from the date of lodgement of certificates with the mutual fund.
As a unit holder, how much time will it take to receive dividends/repurchase proceeds?
A mutual fund is required to dispatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unitholder.In the case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, the Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).
Can a mutual fund change the nature of the scheme from the one specified in the offer document?
Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme, for e.g., structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme from close-ended to open-ended scheme and in the case of a change in sponsor.
How will an investor come to know about the changes, if any, which may occur in the mutual fund?
Mutual funds are required to inform of any material changes to their unitholders. Apart from it, many mutual funds send quarterly newsletters to their investors. New investors may be informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.
How to know the performance of a mutual fund scheme?
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 NAVs of mutual funds are required to be published in newspapers and their respective websites. All mutual funds are also required to put their NAVs on the website of Association of Mutual Funds in India (AMFI) http://www.amfiindia.com/ and thus the investors can access NAV's of all mutual funds at one place.The mutual funds are also required to publish their performance in the form of half yearly results, which also include their returns/yields over a period of time. Investors can also look into other details like percentage of expenses of total assets as these have an effect on the yield and other useful information in the same half yearly format.The mutual funds are also required to send an annual report or abridged annual report to the unitholders at the end of the year.
How to know where the mutual fund scheme has invested money mobilised from the investors?
The mutual funds are required to disclose full portfolios of all of their schemes on a half-yearly basis in newspapers and digital media. The scheme portfolio shows investment made in each security type, their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, the investment made in rated and unrated debt securities, nonperforming assets (NPAs), etc. Some of the mutual funds send newsletters to the unitholders on a quarterly basis that also contain portfolios of the schemes.
Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?
Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make an investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.
If schemes in the same category of different mutual funds are available, should I choose a scheme with lower NAV?
Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme that is issuing units at Rs.10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in the case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. You should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc.
How do I choose a scheme for investment from the number of schemes available?
As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance of other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making an investment decision. It is highly advisable to seek the advice of experts.
Are the companies having names like "mutual benefit" the same as mutual funds schemes?
Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI.
Is the higher net worth of the sponsor a guarantee for better returns?
A higher net worth of the sponsor does not indicate that the scheme would give better returns or the sponsor would compensate in case the NAV falls.
Where can I look out for information on mutual funds?
You can also access the NAVs half yearly results and portfolios of all mutual funds at the website of Association of mutual funds in India (AMFI) www.amfiindia.com. Investors can log on to the website of SEBI http://www.sebi.gov.in and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. There are a number of other websites that give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on a daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.
If mutual fund scheme is wound up, what happens to money invested?
In the 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 provides all the necessary details.
