MUTUAL FUNDS – DID YOU KNOW SERIES

MUST KNOW FACTS OF MUTUAL FUNDS

MUST KNOW FACTS OF MUTUAL FUNDS


 

MUTUAL FUNDS – DID YOU KNOW SERIES#1 What is the history of Mutual Funds in India and role of SEBI in the mutual fund’s industry?

In the year 1963, Unit Trust of India was registered as the first mutual fund set up in India. In the early 1990s, Government permitted public sector banks and institutions to set up mutual funds.

Securities and Exchange Board of India (SEBI) Act was passed, in the year 1992. The main objectives and aim of SEBI are to protect the interest of investors in securities and to promote the development and to regulate the securities market.

The regulations were absolutely revised in the year 1996 and have been amended thereafter from time to time. The same set of Regulations govern all mutual funds whether they are promoted by the public sector or private sector entities including those promoted by foreign entities.

#2 Are investments in mutual funds liquid?

Yes, investments in mutual funds are liquid. Unitholders of open-ended schemes can redeem their units on any working day and receive the current market value on their NAVs within three to five working days. On contrary, unitholders of close-ended schemes can redeem their units only on maturity but can sell it in the secondary market like stocks.

#3 What is the role of a Fund Manager?

Mutual fund managers are responsible for monitoring the market, economic trends, analyzing securities and implementing a consistent investment strategy that reflects the goals and objectives of the fund.

#4 What is a venture capital fund?

Venture Capital fund is the initial capital provided to start-ups and many times for new/untested ideas. These funds have a higher risk/higher return profile as compared to normal equity funds.

#5 How to identify which mutual fund is suitable for you?

It’s suggested to choose a mutual fund that matches your risk tolerance and your risk capacity. To understand the process of investing read our blog 10 reasons why you should invest in mutual funds

#6 What should an investor look into an offer document?

The offer document contains useful information, which is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

#7 When should you change your investment plan?

You can think of changing your investment plan when the fund is not performing as per stated objectives when the fund is consistently performing poor than its peer group etc.

#8 When will the investor get a certificate or account statement after investing in a mutual fund?

Within six weeks from the date of closure of the initial subscription of the scheme mutual funds are bound to despatch certificates or statements of accounts.

#9 Why invest mutual funds?

Mutual funds are investment vehicles, and you can use them to invest in asset classes such as equities or fixed income. you use the mutual fund investment route rather than invest yourself unless you have the required temperament, aptitude and technical knowledge.

In this article, we discuss why and how you should choose mutual funds. If you would like to familiarise yourself with the basic concepts and workings of a mutual fund, Understanding Mutual Funds would be a good place to start.

#10 Why should you consider Fund Costs?

The cost of investing through a mutual fund is not insignificant and deserves due consideration, especially when it comes to fixed income funds. Management fees, annual expenses of the fund and sales loads can take away a significant portion of your returns. As a general rule, 1% towards management fees and 0.6% towards other annual expenses should be acceptable. Carefully examine load the fee a fund charges for getting in and out of the fund.

#11 Why should you invest through Mutual Funds?

A mutual fund is an investment instrument managed by fund managers. They are regulated by SEBI and hence offer investors the ability to analyze and evaluate their track record. It is one of the best investing instrument for people with less or no knowledge of asset allocation. It is anytime simple to invest with mutual funds.

Mutual funds help you diversify your portfolio. Hence, it reduces the level of risk assumed by the portfolio holder.

#12 Why should you monitor and review your fund regularly?

Having made an investment in a mutual fund is not the end of the story. You should monitor your investments to see whether its management and performance is in line with the stated objectives and to track its performance.

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