Are investments in mutual fund units risk-free or safe?
In mutual funds risk depends on the underlying instrument that a mutual fund invests in. In mutual funds risk is categorised as below –
High-Risk Scheme – includes all equity funds like Sectoral Funds, Index Funds, Large-Cap Funds, Small-Cap Funds etc.
Moderate Risk Scheme – includes Hybrid products like Monthly Income Plan (MIPs), Balanced Funds etc.
Low Risk Scheme – Debt Products like Fixed Maturity Plans, Short-term Funds, Gilt Funds, and Income Funds etc.
When aMutual fund that invests in equity related instruments, it cannot be termed risk-free or safe or low-risk investment.Thus, depending on your risk tolerance you need to select the fund.
How much time does it takes to receive dividend proceeds?
Within 30 days of the declaration of the dividend, a mutual fund is supposed to dispatch the dividend warrant to unitholder. The redemption or repurchase then proceeds within 10 business days from the date of a request made by the unitholder.
In case of failure within the specified time frame, Asset Management Company is liable to pay interest as specified by SEBI from time to time.
Are investments in mutual funds liquid?
Yes investments in mutual funds are liquid. In open-ended schemes an investor can redeem his units and receive the current market value on their investments within three- to five- working days. However, an investor of close-ended schemes can redeem their units only on maturity.
Can a fund manager change the asset allocation of the mutual funds while organizing funds of investors?
Yes. Considering the market trends, a wise fund manager or mutual fund can and may change the asset allocation compared to what is disclosed in the offer document. This is usually done as a defensive strategy to protect the NAV on a short-term basis. However, if the fund managers want to change the asset allocation on a permanent basis, they need to inform the unitholders, giving them an option to exit the mutual fund scheme at prevailing NAV without any load.
Can a fund manager change the nature of the mutual fund scheme from the one specified in the offer document?
Yes, a mutual fund can change the nature of the scheme from the one specified in the offer document. However, the mutual fund cannot change the nature or terms of the scheme, which are known as the fundamental attributes of the scheme e.g.investment pattern, structure, etc.
Changes in these fundamental attributes cannot be carried out unless a written communication is sent to each unitholder and an advertisement is given in one national English newspaper and in a vernacular newspaper of the region where the head office of the mutual fund is situated. If the unit holder does not wish to continue with the scheme he has the right to exit the scheme at the prevailing NAV without any exit load.
Can a fund manager increase the load beyond the level mentioned in the offer documents?
No. The fund managers cannot increase the load beyond the level mentioned in the offer document. However, any changes in the load will only be applicable to the prospective investments and not to the original investments.
Can an investor appoint a nominee for his investment in mutual funds?
Yes. A nomination can be made by individuals applying for / holding units. However, non-individuals including society, trust, body corporate, firm, holder of Power of Attorney etc. cannot nominate.
Who regulates mutual funds?
SEBI and/or by the RBI regulates Mutual funds in cases the asset management company is promoted by a bank.
How can an investor redress his grievances?
The offer document of the mutual fund scheme contains the details of the concern authority, which an investor may approach in case of any query, complaints or grievances. The offer documents of the mutual fund scheme also contain the names of the directors and the trustees of Asset Management Company.
Investors can approach the concerned Mutual Fund Service Centre with their complaints, if the complaints remain unresolved, the investors can approach SEBI for facilitating redressal of their complaints.
Is a periodic investment plan offered by mutual funds?
Yes, most private sector funds provide you the ease of periodic purchase plans through SIPs (Systematic Investment Plans), Automatic Withdrawal Plans and Automatic Reinvestments of the dividends. Moreover, these schemes allow an investor can invest with a monthly investment of as little as Rs.500/-.