Description
A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities
Mutual Funds In India
Mutual funds are money-managing institutions set up to professionally invest the money pooled in from the public. These schemes are managed by Asset Management Companies (AMC), which are sponsored by different financial institutions or companies. Mutual Fund is an ideal investment vehicle where a number of investors come together to pool their money with common investment goal. Each Mutual Fund with different type of schemes is managed by respective Asset Management Company (AMC). An investor can invest his money in one or more schemes of Mutual Fund according to his choice and becomes the unit holder of the scheme. The invested money in a particular scheme of a Mutual Fund is then invested by fund manager in different types of suitable stock and securities, bonds and money market instruments. Each Mutual Fund is managed by qualified professional man, who use this money to create a portfolio which includes stock and shares, bonds, gilt, money-market instruments or combination of all. Thus Mutual Fund will diversify your portfolio over a variety of investment vehicles. Mutual Fund offers an investor to invest even a small amount of money. Mutual Funds schemes are managed by respective Asset Management Companies sponsored by financial institutions, banks, private companies or international firms. The biggest Indian AMC is UTI while Alliance, Franklin Templeton etc are international AMC's. Mutual Funds offers several benefits to an investor such as potential return, liquidity, transparency, income growth, good post tax return and reasonable safety. There are number of options available for an investor offered by a mutual fund. Before investing in a Mutual Fund an investor must identify his needs and preferences. While selecting a Mutual Fund's schemes he should consider the effect of inflation rate, diversification of investment, the time period of investment and the risk factors. There are various type of risk factors as: a. Market Risk b. Credit Risk c. Interest Rate Risk
d. Inflation Risk e. Political Environment CRISIL's composite performance ranking (CPR) measures the performance for each of the open-ended scheme of Mutual Fund. There are four parameters considered to measure the performance of a mutual fund such as Risk-adjusted returns of the scheme's NAV, Diversification of Portfolio, Liquidity and Asset Size. Tax benefits available by investing in mutual funds From April 1, 2003 onwards, all dividends, declared by the debt-oriented mutual funds (mutual funds with less than 50% of assets in equities), are tax-free in hands of the investor. The mutual fund has to pay a dividend distribution tax of 12.5% (that includes surcharge on the dividends declared by the fund. Long-term debt funds, monthly income plans (MIPs), government securities funds (G-sec/gilt funds), are some examples of debt-oriented funds.
Dividends that are declared by equity-oriented funds (mutual funds with more than 50% investment of assets in equities) are tax-free in the hands of investor. Also, no dividend distribution tax is applicable on these funds u/s 115R. Sector funds, balanced funds and diversified equity funds, are examples of equityoriented funds. The amount invested in tax-saving funds such as Equity linked savings schemes (ELSS) is eligible for deduction u/s 80C; but the aggregate amount deductible under this section cannot exceed Rs 100,000. •
Concept of Mutual Funds
Mutual fund is a pool of money from many investors who wish to save or make money. Investing in mutual funds can be a lot easier as compared to buying and selling individual stocks or bonds on your own. Here, the funds are kept in units of Rs. 10/-
• •
An investor can redeem his/her holdings partially or fully at any point of time and collect the proceedings on a t +2 basis. The basic idea behind Mutual Fund is that investors lack time, the inclination and skills required to manage their own investments. Professional Mutual Fund managers are highly experienced personnels and act on behalf of the mutual fund company that manages the investments for the benefit of the investors in return of a management fees. The organization that manages the investment is known as Asset Management Company [AMC] In India, operations of AMC are supervised and regulated by the Securities and Exchange Board of India (SEBI).
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Tax on Mutual Funds
Section 2(42A): A unit of mutual fund is treated as short-term capital asset if the same is held for less than 12 months. The units that are held for more than 12 months are treated as long-term capital asset. Section 10(38): Short-term capital gains on all equity-oriented funds are chargeable to tax @10% (plus the education cess, applicable surcharge). However, such securities transaction tax shall be allowed as rebate under Section 88E of the Act, if the transaction indicates business income. The long-term capital gains on debt-oriented funds are subject to a tax @20% of capital gain after allowing indexation benefit or at 10% flat without indexation benefit, whichever is lesser All Short-term capital gains on debt-oriented funds are subject to a tax at the tax bracket applicable (i.e. marginal tax rate) to the investor. Section 112: Capital gains not covered by exemption u/s 10(38), chargeable on transfer of long-term capital assets shall be subject to following tax rates: • • • For Resident Individual & HUF - 20% plus surcharge, education cess. For Partnership firms as well as Indian companies - 20% plus surcharge. For Foreign companies - 20% (no surcharge).
Capital gains are computed after taking into consideration the cost of acquisition as adjusted by the Cost Inflation Index, notified by Central government. Unit holders can opt for being taxed at 10% (along with applicable surcharge, education cess) without the cost inflation index benefit or 20% (along with applicable surcharge) with cost inflation index benefit, whichever is beneficial. U/s 115AB of the Income Tax Act, 1961, the long term capital gains on units, purchased in foreign currency by an overseas financial, and held for a period greater than 12 months, will be charged at the rate of 10%. Such gains will be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes U/s 115AB, for corporate bodies.
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Types Of Mutual Funds In India
Types Of Mutual Funds In India Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. • Mutual Fund Scheme By Structure • Mutual Fund Scheme By Investment Objective •
Mutual Fund Scheme Other Schemes
Mutual Fund Scheme By Structure Open-end Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (''NAV'') related prices. The key feature of open-end schemes is liquidity. Closed-end Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. Mutual Fund Scheme By Investment Objective
Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time. Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities 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. These are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of money market funds is 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. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.
Other Schemes Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. Special Schemes • Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like Infotech, FMCG, Pharmaceuticals etc. Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50 Sectoral Schemes Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.
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Benefits Of Investment In Mutual Funds
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Professional Management : Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification : The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Convenient Administration : Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Potential Return : Mutual Funds have the potential to provide a higher return to an investor than any other option over a reasonable period of time.
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Liquidity : In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Low Costs : Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index. Flexibility : Investment in Mutual Funds offers a lot of flexibility with features of schemes such as regular investment plan, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds. Affordability : Small investors with low investment fund are unable to high-grade or blue chip stocks. An investor through Mutual Funds can be benefited from a portfolio including of high priced stock.
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Transparency : You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Well regulated : All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. .
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How To Invest In Mutual Funds?
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Step One - Identify your Investment needs Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs.You can begin by defining your investment objectives and needs which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements. Step Two - Choose the right Mutual Fund The important thing is to choose the right mutual fund scheme which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications. For selecting the right scheme as per your specific requirements.
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Step Three - Select the ideal mix of Schemes Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals. Step Four - Invest regularly The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. You can also avail the systematic investment plan facility offered by many open end funds. Step Five- Start early It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.
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•
Step Six - The final step You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor - whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking
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Indian Mutual Fund Schemes.
ALLIANCE CAPITAL MUTUAL FUND BENCHMARK MUTUAL FUND BIRLA MUTUAL FUND BOB MUTUAL FUND BOI MUTUAL FUND CANBANK MUTUAL FUND CHOLAMADALAM CAZENOVE MUTUAL FUND DSP MERRILL LYNCH MUTUAL FUND DUNDEE MUTUAL FUND ESCORTS MUTUAL FUND FIRST INDIA MUTUAL FUND GIC MUTUAL FUND HDFC MUTUAL FUND IDBI-PRINCIPAL MUTUAL FUND IL&FS MUTUAL FUND INDIAN BANK MUTUAL FUND INDFUND MANAGEMENT LTD ING SAVINGS MUTUAL FUND JARDINE FLEMING MUTUAL FUND JEEVAN BEEMA SAHAYOG ASSET MANAGEMENT PVT LTD JM MUTUAL FUND JF MUTUAL FUND KOTAK MAHINDRA MUTUAL FUND
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LIC MUTUAL FUND MORGAN STANLEY MUTUAL FUND PIONEER ITI MUTUAL FUND PNB MUTUAL FUND PRUDENTIAL ICICI MUTUAL FUND RELIANCE MUTUAL FUND
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SBI MUTUAL FUND SHRIRAM MUTUAL FUND STANDARD CHARTERED MUTUAL FUND SUNDARAM MUTUAL FUND SUN F&C MUTUAL FUND TATA MUTUAL FUND TAURUS MUTUAL FUND TEMPLETON MUTUAL FUND UNIT TRUST OF INDIA ZURICH INDIA MUTUAL FUND
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SIP, STP, SWP and No Load Funds.
Systematic Investment Planning [SIP]
Systematic Investment Planning is a simple process of investing a certain amount of money every month over an extended period of time, not considering whether the market is up or down. Benefits of SIP The main benefits of SIP are as follows: • • Affordable: An individual can invest small amounts in SIP. He/ she need not wait to accumulate a lump sum before investing. Disciplined: since every month, one has to put aside a certain amount for investing through SIP; it ensures that the client gives it the same importance as monthly utility bills. SIP is one of the best methods while saving for a specific goal, such as a house or a car.
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Certain: SIP uses the concept of "Rupee Cost Averaging"; which means that by investing the same amount of money every month; one tends to buy more number of mutual fund units when the market is down and less number of units when the market is up. Over a period of time, ones average cost of unit will be lower and he doesnt have to invest the time and effort to monitor the market movements or time his/her investments. Powerful: SIP is a powerful way of earning substantial returns on investments even by putting in modest monthly investments. This is due to the power of compounding interest.
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SIP through ECS One can also invest in an equity scheme by giving instructions to the banker. The first investment can be done through the bank that one aspires to give debit mandate to and the other installments will automatically, by way of ECS, go through from the same account as per given instructions.
Systematic Transfer Plan A Systematic transfer Plan [STP], as the name indicates, gives an option to the investor, to transfer a certain amount from one scheme to another of the same mutual fund. These plans can be availed on a monthly/ quarterly basis. Incase one wants to modify/terminate an STP, he/she can do so by submitting a written request 5 days in advance. Systematic Withdrawal Plan Systematic Withdrawal Plan is a tax efficient way of receiving regular income. SWP offers the facility of periodic withdrawals of sums from investor?s accounts. The withdrawal / transfer would happen on the date prescribed by the Investment Manager and would be subject to applicable load structures for respective schemes. No Load Funds Recently, there has been an introduction of No-Load schemes for investors who invest directly to mutual funds without intervention of a distributor. It is good move if the people are well informed about the market trends and the products available in the market; however since this is not the case, introduction of this scheme is more a point of concern than a relief on account of the following reasons: • • Investors may be lured into schemes by flashy advertisements and campaigns Not all investors are well informed about the products
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Such an option should be given to distributors also who charge for their services and can hence opt for this scheme for their investors/clients Investors may not be able to have a clear idea about their needs and hence would not be able to choose a portfolio that best suits their needs as well as their risk appetite
doc_799143900.doc
A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities
Mutual Funds In India
Mutual funds are money-managing institutions set up to professionally invest the money pooled in from the public. These schemes are managed by Asset Management Companies (AMC), which are sponsored by different financial institutions or companies. Mutual Fund is an ideal investment vehicle where a number of investors come together to pool their money with common investment goal. Each Mutual Fund with different type of schemes is managed by respective Asset Management Company (AMC). An investor can invest his money in one or more schemes of Mutual Fund according to his choice and becomes the unit holder of the scheme. The invested money in a particular scheme of a Mutual Fund is then invested by fund manager in different types of suitable stock and securities, bonds and money market instruments. Each Mutual Fund is managed by qualified professional man, who use this money to create a portfolio which includes stock and shares, bonds, gilt, money-market instruments or combination of all. Thus Mutual Fund will diversify your portfolio over a variety of investment vehicles. Mutual Fund offers an investor to invest even a small amount of money. Mutual Funds schemes are managed by respective Asset Management Companies sponsored by financial institutions, banks, private companies or international firms. The biggest Indian AMC is UTI while Alliance, Franklin Templeton etc are international AMC's. Mutual Funds offers several benefits to an investor such as potential return, liquidity, transparency, income growth, good post tax return and reasonable safety. There are number of options available for an investor offered by a mutual fund. Before investing in a Mutual Fund an investor must identify his needs and preferences. While selecting a Mutual Fund's schemes he should consider the effect of inflation rate, diversification of investment, the time period of investment and the risk factors. There are various type of risk factors as: a. Market Risk b. Credit Risk c. Interest Rate Risk
d. Inflation Risk e. Political Environment CRISIL's composite performance ranking (CPR) measures the performance for each of the open-ended scheme of Mutual Fund. There are four parameters considered to measure the performance of a mutual fund such as Risk-adjusted returns of the scheme's NAV, Diversification of Portfolio, Liquidity and Asset Size. Tax benefits available by investing in mutual funds From April 1, 2003 onwards, all dividends, declared by the debt-oriented mutual funds (mutual funds with less than 50% of assets in equities), are tax-free in hands of the investor. The mutual fund has to pay a dividend distribution tax of 12.5% (that includes surcharge on the dividends declared by the fund. Long-term debt funds, monthly income plans (MIPs), government securities funds (G-sec/gilt funds), are some examples of debt-oriented funds.
Dividends that are declared by equity-oriented funds (mutual funds with more than 50% investment of assets in equities) are tax-free in the hands of investor. Also, no dividend distribution tax is applicable on these funds u/s 115R. Sector funds, balanced funds and diversified equity funds, are examples of equityoriented funds. The amount invested in tax-saving funds such as Equity linked savings schemes (ELSS) is eligible for deduction u/s 80C; but the aggregate amount deductible under this section cannot exceed Rs 100,000. •
Concept of Mutual Funds
Mutual fund is a pool of money from many investors who wish to save or make money. Investing in mutual funds can be a lot easier as compared to buying and selling individual stocks or bonds on your own. Here, the funds are kept in units of Rs. 10/-
• •
An investor can redeem his/her holdings partially or fully at any point of time and collect the proceedings on a t +2 basis. The basic idea behind Mutual Fund is that investors lack time, the inclination and skills required to manage their own investments. Professional Mutual Fund managers are highly experienced personnels and act on behalf of the mutual fund company that manages the investments for the benefit of the investors in return of a management fees. The organization that manages the investment is known as Asset Management Company [AMC] In India, operations of AMC are supervised and regulated by the Securities and Exchange Board of India (SEBI).
• •
•
Tax on Mutual Funds
Section 2(42A): A unit of mutual fund is treated as short-term capital asset if the same is held for less than 12 months. The units that are held for more than 12 months are treated as long-term capital asset. Section 10(38): Short-term capital gains on all equity-oriented funds are chargeable to tax @10% (plus the education cess, applicable surcharge). However, such securities transaction tax shall be allowed as rebate under Section 88E of the Act, if the transaction indicates business income. The long-term capital gains on debt-oriented funds are subject to a tax @20% of capital gain after allowing indexation benefit or at 10% flat without indexation benefit, whichever is lesser All Short-term capital gains on debt-oriented funds are subject to a tax at the tax bracket applicable (i.e. marginal tax rate) to the investor. Section 112: Capital gains not covered by exemption u/s 10(38), chargeable on transfer of long-term capital assets shall be subject to following tax rates: • • • For Resident Individual & HUF - 20% plus surcharge, education cess. For Partnership firms as well as Indian companies - 20% plus surcharge. For Foreign companies - 20% (no surcharge).
Capital gains are computed after taking into consideration the cost of acquisition as adjusted by the Cost Inflation Index, notified by Central government. Unit holders can opt for being taxed at 10% (along with applicable surcharge, education cess) without the cost inflation index benefit or 20% (along with applicable surcharge) with cost inflation index benefit, whichever is beneficial. U/s 115AB of the Income Tax Act, 1961, the long term capital gains on units, purchased in foreign currency by an overseas financial, and held for a period greater than 12 months, will be charged at the rate of 10%. Such gains will be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes U/s 115AB, for corporate bodies.
•
Types Of Mutual Funds In India
Types Of Mutual Funds In India Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. • Mutual Fund Scheme By Structure • Mutual Fund Scheme By Investment Objective •
Mutual Fund Scheme Other Schemes
Mutual Fund Scheme By Structure Open-end Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (''NAV'') related prices. The key feature of open-end schemes is liquidity. Closed-end Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. Mutual Fund Scheme By Investment Objective
Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time. Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities 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. These are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of money market funds is 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. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.
Other Schemes Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. Special Schemes • Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like Infotech, FMCG, Pharmaceuticals etc. Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50 Sectoral Schemes Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.
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Benefits Of Investment In Mutual Funds
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•
Professional Management : Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification : The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Convenient Administration : Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Potential Return : Mutual Funds have the potential to provide a higher return to an investor than any other option over a reasonable period of time.
•
•
•
•
Liquidity : In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Low Costs : Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index. Flexibility : Investment in Mutual Funds offers a lot of flexibility with features of schemes such as regular investment plan, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds. Affordability : Small investors with low investment fund are unable to high-grade or blue chip stocks. An investor through Mutual Funds can be benefited from a portfolio including of high priced stock.
•
•
•
Transparency : You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Well regulated : All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. .
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•
How To Invest In Mutual Funds?
•
•
Step One - Identify your Investment needs Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs.You can begin by defining your investment objectives and needs which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements. Step Two - Choose the right Mutual Fund The important thing is to choose the right mutual fund scheme which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications. For selecting the right scheme as per your specific requirements.
• •
Step Three - Select the ideal mix of Schemes Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals. Step Four - Invest regularly The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. You can also avail the systematic investment plan facility offered by many open end funds. Step Five- Start early It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return.
•
•
Step Six - The final step You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor - whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking
• • • • • • • • • • • • • • • • • • • • • • • •
Indian Mutual Fund Schemes.
ALLIANCE CAPITAL MUTUAL FUND BENCHMARK MUTUAL FUND BIRLA MUTUAL FUND BOB MUTUAL FUND BOI MUTUAL FUND CANBANK MUTUAL FUND CHOLAMADALAM CAZENOVE MUTUAL FUND DSP MERRILL LYNCH MUTUAL FUND DUNDEE MUTUAL FUND ESCORTS MUTUAL FUND FIRST INDIA MUTUAL FUND GIC MUTUAL FUND HDFC MUTUAL FUND IDBI-PRINCIPAL MUTUAL FUND IL&FS MUTUAL FUND INDIAN BANK MUTUAL FUND INDFUND MANAGEMENT LTD ING SAVINGS MUTUAL FUND JARDINE FLEMING MUTUAL FUND JEEVAN BEEMA SAHAYOG ASSET MANAGEMENT PVT LTD JM MUTUAL FUND JF MUTUAL FUND KOTAK MAHINDRA MUTUAL FUND
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LIC MUTUAL FUND MORGAN STANLEY MUTUAL FUND PIONEER ITI MUTUAL FUND PNB MUTUAL FUND PRUDENTIAL ICICI MUTUAL FUND RELIANCE MUTUAL FUND
• • • • • • • • • •
SBI MUTUAL FUND SHRIRAM MUTUAL FUND STANDARD CHARTERED MUTUAL FUND SUNDARAM MUTUAL FUND SUN F&C MUTUAL FUND TATA MUTUAL FUND TAURUS MUTUAL FUND TEMPLETON MUTUAL FUND UNIT TRUST OF INDIA ZURICH INDIA MUTUAL FUND
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SIP, STP, SWP and No Load Funds.
Systematic Investment Planning [SIP]
Systematic Investment Planning is a simple process of investing a certain amount of money every month over an extended period of time, not considering whether the market is up or down. Benefits of SIP The main benefits of SIP are as follows: • • Affordable: An individual can invest small amounts in SIP. He/ she need not wait to accumulate a lump sum before investing. Disciplined: since every month, one has to put aside a certain amount for investing through SIP; it ensures that the client gives it the same importance as monthly utility bills. SIP is one of the best methods while saving for a specific goal, such as a house or a car.
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Certain: SIP uses the concept of "Rupee Cost Averaging"; which means that by investing the same amount of money every month; one tends to buy more number of mutual fund units when the market is down and less number of units when the market is up. Over a period of time, ones average cost of unit will be lower and he doesnt have to invest the time and effort to monitor the market movements or time his/her investments. Powerful: SIP is a powerful way of earning substantial returns on investments even by putting in modest monthly investments. This is due to the power of compounding interest.
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SIP through ECS One can also invest in an equity scheme by giving instructions to the banker. The first investment can be done through the bank that one aspires to give debit mandate to and the other installments will automatically, by way of ECS, go through from the same account as per given instructions.
Systematic Transfer Plan A Systematic transfer Plan [STP], as the name indicates, gives an option to the investor, to transfer a certain amount from one scheme to another of the same mutual fund. These plans can be availed on a monthly/ quarterly basis. Incase one wants to modify/terminate an STP, he/she can do so by submitting a written request 5 days in advance. Systematic Withdrawal Plan Systematic Withdrawal Plan is a tax efficient way of receiving regular income. SWP offers the facility of periodic withdrawals of sums from investor?s accounts. The withdrawal / transfer would happen on the date prescribed by the Investment Manager and would be subject to applicable load structures for respective schemes. No Load Funds Recently, there has been an introduction of No-Load schemes for investors who invest directly to mutual funds without intervention of a distributor. It is good move if the people are well informed about the market trends and the products available in the market; however since this is not the case, introduction of this scheme is more a point of concern than a relief on account of the following reasons: • • Investors may be lured into schemes by flashy advertisements and campaigns Not all investors are well informed about the products
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Such an option should be given to distributors also who charge for their services and can hence opt for this scheme for their investors/clients Investors may not be able to have a clear idea about their needs and hence would not be able to choose a portfolio that best suits their needs as well as their risk appetite
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