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| What
are Mutual Funds? |
| What are the advantages of Mutual Funds? |
| What are the different types of Mutual Funds? |
| What are the risks of Mutual Funds? |
| Types
of mutual fund schemes |
| Why
Should You Invest In Mutual Funds ? |
| Understanding
And Managing Risk. |
| How To Invest
In Mutual Funds? |
Your Rights as a
Mutual Fund Unitholder
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| What are Mutual Funds? |
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Mutual funds are pools of money that are professionally managed for the
benefit of all shareholders. As an investor in a mutual fund, you own
a portion of the fund, sharing in any increases or decreases in the value
of the fund.
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| What are the advantages of Mutual Funds? |
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One of the biggest advantages in mutual funds is the diversification of
your portfolio. That means your eggs are in several different investment
baskets and better able to withstand market wobbles. Mutual funds may
focus on stocks, bond, cash, or a combination of these asset classes.
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| What are the different types of Mutual Funds? |
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Even though there are thousands to choose from, there are just three types.
You can choose income funds, for people who need money to live on; growth
funds, which pay low dividend or none and works best for investors who
can leave money in the fund so it can grow over a long period of time;
or you can choose balanced funds, a combination of stock and bonds.
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| What are the risks of Mutual Funds? |
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Every investment strategy has risks,
and mutual funds are no exception. Some funds are better suited for long
term growth with very little risk, while others are not. However, one
of the benefits of mutual funds is that you can liquidate (turn into cash)
very easily.
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| Types of
mutual fund schemes |
There are a wide variety of Mutual Fund schemes that cater to your needs,
whatever your age, financial position, risk tolerance and return expectations.
Whether as the foundation of your investment programme or as a supplement,
Mutual Fund schemes can help you meet your financial goals.
A) By Structure
Open-Ended Schemes
These do not have a fixed maturity. You deal directly with the Mutual Fund for
your investments and redemptions. The key feature is liquidity. You can
conveniently buy and sell your units at net asset value ("NAV") related prices.
Close-Ended Schemes
Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are
called close-ended schemes. You can invest directly in the scheme at the time
of the initial issue and thereafter you can buy or sell the units of the scheme
on the stock exchanges where they are listed. The market price at the stock
exchange could vary from the scheme's NAV on account of demand and supply
situation, unitholders' expectations and other market factors. One of the
characteristics of the close-ended schemes is that they are generally traded at
a discount to NAV; but closer to maturity, the discount narrows. Some
close-ended schemes give you an additional option of selling your units
directly to the Mutual Fund through periodic repurchase at NAV related prices.
SEBI Regulations ensure that at least one of the two exit routes are provided
to the investor.
Interval Schemes
These combine the features of open-ended and close- ended schemes. They may be
traded on the stock exchange or may be open for sale or redemption during
pre-determined intervals at NAV related prices.
(B) By Investment Objective
Growth Schemes
Aim to provide capital appreciation over the medium to long term. These schemes
normally invest a majority of their funds in equities and are willing to bear
short- term decline in value for possible future appreciation.
These schemes are not for investors seeking regular income or needing their
money back in the short-term. Ideal for:
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Investors in their prime earning years.
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Investors seeking growth over the long-term
Income Schemes
Aim to provide regular and steady income to investors. These schemes generally
invest in fixed income securities such as bonds and corporate debentures.
Capital appreciation in such schemes may be limited. Ideal for:
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Retired people and others with a need for capital stability and regular income.
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Investors who need some income to supplement their earnings.
Balanced Schemes
Aim to provide both growth and income by periodically distributing a part of
the income and capital gains they earn. They invest in both shares and fixed
income securities in the proportion indicated in their offer documents. In a
rising stock market, the NAV of these schemes may not normally keep pace, or
fall equally when the market falls. Ideal for:
* Investors looking for a combination of income and moderate growth.
Money Market Schemes
Aim to provide easy liquidity, preservation of capital and moderate income.
These schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter- bank call
money. Returns on these schemes may fluctuate, depending upon the interest
rates prevailing in the market. Ideal for:
* Corporate and individual investors as a means to park their surplus funds for
short periods or awaiting a more favourable investment alternative.
Other Schemes
Tax Saving Schemes
These schemes offer tax rebates to the investors under tax laws as prescribed
from time to time. This is made possible because the Government offers tax
incentives for investment in specified avenues. For example, Equity Linked
Savings Schemes (ELSS) and Pension Schemes. Recent amendments to the Income Tax
Act provide further opportunities to investors to save capital gains by
investing in Mutual Funds. The details of such tax savings are provided in the
relevant offer documents. Ideal for:
* Investors seeking tax rebates.
Special Schemes
This category includes index schemes that attempt to replicate the performance
of a particular index such as the BSE Sensex or the NSE 50, or industry
specific schemes (which invest in specific industries) or sectoral schemes
(which invest exclusively in segments such as 'A' Group shares or initial
public offerings). Index fund schemes are ideal for investors who are satisfied
with a return approximately equal to that of an index. Sectoral fund schemes
are ideal for investors who have already decided to invest in a particular
sector or segment. Keep in mind that any one scheme may not meet all your
requirements for all time. You need to place your money judiciously in
different schemes to be able to get the combination of growth, income and
stability that is right for you. Remember, as always, higher the return you
seek higher the risk you should be prepared to take.
A few frequently used terms are explained here below:
Net Asset Value ("NAV")
Net Asset Value is the market value of the assets of the scheme minus its
liabilities. The per unit NAV is the net asset value of the scheme divided by
the number of units outstanding on the Valuation Date.
Sale Price Is the price you pay when you invest in a scheme. Also called
Offer Price. It may include a sales load.
Repurchase Price Is the price at which a close-ended scheme repurchases
its units and it may include a back-end load. This is also called Bid Price.
Redemption Price Is the price at which open-ended schemes repurchase
their units and close-ended schemes redeem their units on maturity. Such prices
are NAV related.
Sales Load Is a charge collected by a scheme when it sells the units.
Also called, 'Front-end' load. Schemes that do not charge a load are called 'No
Load' schemes.
Repurchase or 'Back-end' Load Is a charge collected by a scheme when it
buys back the units from the unitholders.
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| Why
Should You Invest In Mutual Fund ? |
The advantages of investing in a Mutual Fund are:
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Professional Management
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Diversification
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Convenient Administration
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Return Potential
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Low Costs
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Liquidity
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Transparency
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Flexibility
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Choice of Schemes
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Well Regulated
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| Understanding
And Managing Risk. |
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All investments whether in shares, debentures or deposits involve risk: share
value may go down depending upon the performance of the company, the industry,
state of capital markets and the economy; generally, however, longer the term,
lesser the risk; companies may default in payment of interest/ principal on
their debentures/bonds/deposits; the rate of interest on an investment may fall
short of the rate of inflation reducing the purchasing power. While risk cannot
be eliminated, skillful management can minimize risk. Mutual Funds help to
reduce risk through diversification and professional management. The experience
and expertise of Mutual Fund managers in selecting fundamentally sound
securities and timing their purchases and sales, help them to build a
diversified portfolio that Minimizes risk and maximizes returns.
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| How To Invest
In Mutual Funds? |
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Identify your investment needs
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Choose the right Mutual Fund
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Select the Ideal mix of shares
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Invest regularly
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Keep your taxes in mind
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Start Early
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The Final Step
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| Your
Rights as a Mutual Fund Unitholder |
As a unitholder in a Mutual Fund scheme coming under the SEBI (Mutual Funds)
Regulations, ("Regulations") you are entitled to:
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Receive unit certificates or statements of accounts confirming your title
within 6 weeks from the date of closure of the subscription or within 6 weeks
from the date your request for a unit certificate is received by the Mutual
Fund;
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Receive information about the investment policies,investment objectives,
financial position and general affairs of the scheme;
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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;
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Vote in accordance with the Regulations to:
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Either approve or disapprove any change in the fundamental investment policies
of the scheme which are likely to modify the scheme or affect your interest in
the Mutual Fund; (as a dissenting unitholder, you would have a right to redeem
your investments);
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Change the asset management company;
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Wind up the schemes.
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Inspect the documents of the Mutual Funds specified in the scheme's offer
document. In addition to your rights, you can expect the following from Mutual
Funds:
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To publish their NAV, in accordance with the regulations: daily, in case of
most open ended schemes and periodically, in case of close-ended schemes;
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To disclose your schemes' portfolio holdings, expenses, policy on asset
allocation, the Report of the Trustees on the operations of your schemes and
their future outlook through periodic newsletters, half- yearly and annual
accounts;
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To adhere to a Code of Ethics which require that investment decisions are taken
in the best interests of the unitholders.
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