Mutual Fund is a body corporate registered with the
Securities and Exchange Board of India (SEBI), that pools up
the money from individual / corporate investors and invests
the same on behalf of the investors /unit holders, in equity
shares, Government securities, Bonds, Call money markets
etc., and distributes the profits. In other words, a mutual
fund allows an investor to indirectly take a position in a
basket of assets
Which was the First Mutual
Fund to be set up in India?
Unit Trust of India is the first
Mutual Fund set up under a separate act, UTI Act in 1963,
and started its operations in 1964 with the issue of units
under the scheme US-64
Which are the other institutions
that have floated Mutual Funds in India?
Currently public sector banks like
SBI, Canara Bank, Bank of India, institutions like IDBI, GIC,
LIC Foreign Institutions like Alliance, Morgan Stanley,
Templeton and Private financial companies like Kothari
Pioneer, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc.
have floated their own mutual funds
How many Mutual Funds are
there in India currently?
Presently there are 33 Mutual Funds
in India and close to 400 mutual fund schemes. We will very
soon be putting up detailed analysis of major schemes
operating in India.
Why has the concept of mutual
funds taken so long to pick up in India?
Even in the US the concept of
mutual funds has started picking up only in the last decade.
This whole process of investor education and investor
awareness takes a lot of time. But Indian investors are now
beginning to understand the benefits of investing through
the mutual funds route and hence the collections are
beginning to pick up.
What is the total size of the
mutual fund sector in India?
Currently the total funds under
mutual fund management in India are a little over Rs.100,000
crore. Out of this UTI accounts for nearly 70 percent while
the private funds account for around 22 percent. The balance
8 percent is managed by mutual funds floated by public
sector banks and financial institutions.
What is the Regulatory Body for
Securities Exchange Board of India
(SEBI) is the regulatory body for all the mutual funds
mentioned above. All the mutual funds must get registered
with SEBI. The only exception is the UTI, since it is a
corporation formed under a separate Act of Parliament.
Why should I choose to invest in
a mutual fund?
For a retail investor who does not
have the time and expertise to analyze and invest in stocks
and bonds, mutual funds offer a viable investment
alternative. This is because:
Funds provide the benefit of cheap access to expensive
funds diversify the risk of the investor by investing in
a basket of assets
team of professional fund managers manages them with
in-depth research inputs from investment analysts.
institutions with good bargaining power in markets,
mutual funds have access to crucial corporate
information which individual investors cannot access.
How do mutual funds diversify
Financial theory states that an
investor can reduce his total risk by holding a portfolio of
assets instead of only one asset. This is because by holding
all your money in just one asset, the entire fortunes of
your portfolio depend on this one asset. By creating a
portfolio of a variety of assets, this risk is substantially
If that is the case then why has
Morgan Stanley Fund given such poor returns?
A very important factor that
determines the returns on a fund is the timing of the
fund’s launch. Morgan Stanley Fund was launched when the
equity markets were at their peak and then saw a sustained
downtrend for close to 5 years. That is the reason the fund
has taken such a long time to appreciate.
Can mutual funds be viewed as
No. Mutual fund investments are not
totally risk free. In fact, investing in mutual funds
contains the same risk as investing in the markets, the only
difference being that due to professional management of
funds the controllable risks are substantially reduced.
What are the risks involved in
investing in mutual funds?
A very important risk involved in
mutual fund investments is the market risk. When the market
is in doldrums, most of the equity funds will also
experience a downturn. However, the company specific risks
are largely eliminated due to professional fund management.
What are open-ended and
closed-ended mutual funds?
In an open-ended mutual fund there
are no limits on the total size of the corpus. Investors are
permitted to enter and exit the open-ended mutual fund at
any point of time at a price that is linked to the net asset
value (NAV). In case of closed-ended funds, the total size
of the corpus is limited by the size of the initial offer.
Do both open-ended and
closed-ended funds come out with an initial offering?
Yes. But the only difference is
that in case of open-ended funds, a month after the initial
offer closes the continuous offer period starts when the
investor can enter and exit the fund at a price linked to
Is the purchase and redemption
in case of open-ended funds done at the NAV?
Generally every fund levies either
an entry load or an exit load or both to provide for
administrative and other routine costs. The purchase price
will be higher than the NAV to the extent of the entry load
and the redemption price will be lower than the NAV to the
extent of the exit load.
What is the investor’s exit
route in case of a closed-ended fund?
According to Sebi regulations, all
closed-ended funds have to be necessarily listed on a
recognized stock exchange. Thus the secondary market
provides an exit route in case of closed-ended funds.
How do I invest money in Mutual
One can invest by approaching a
registered broker of Mutual funds or the respective offices
of the Mutual funds in that particular town/city. An
application form has to be filled up giving all the
particulars along with the cheque or Demand Draft for the
amount to be invested.
What are the parameters on which
a Mutual Fund scheme should be evaluated?
Performance indicators like total
returns given by the fund on different schemes, the returns
on competing funds, the objective of the fund and the
promoters image are some of the key factors to be considered
while taking an investment decision regarding mutual funds.
As a lay investor, how do I go
about analyzing the mutual fund scheme?
As a service to the investing
community, We do it for you. Our research team evaluates
each scheme based on primary as well as secondary
information and presents an unbiased report which will help
you to take a decision on whether a fund is worth investing
What are the different funds we
currently have in India?
Currently there exist balanced
funds, Income fund, Growth funds, Sector funds etc. To get
more details about the different funds and their features
please visit our mutual fund glossary
What are the different types of
plans that any mutual fund scheme offers?
That depends on the strategy of the
concerned scheme. But generally there are 3 broad
categories. A dividend plan entails a regular payment of
dividend to the investors. A reinvestment plan is a plan
where these dividends are reinvested in the scheme itself. A
growth plan is one where no dividends are declared and the
investor only gains through capital appreciation in the NAV
of the fund.
Which plan should I choose?
It depends on your investment
object, which again depends on your income, age, financial
responsibilities, risk taking capacity and tax status. For
example a retired government employee is most likely to opt
for monthly income plan while a high-income youngster is
most likely to opt for growth plan.
What is a Systematic Investment
Plan and how does it operate?
A systematic investment plan is one
where an investor contributes a fixed amount every month and
at the prevailing NAV the units are credited to his account.
Today many funds are offering this facility.
What are the benefits of s
Systematic Investment Plan?
A systematic investment plan (SIP)
offers 2 major benefits to an investor:
avoids lump sum investment at one point of time
a scenario of falling prices, it reduces your overall
cost of acquisition by a process of rupee-cost
averaging. This means that at lower prices you end up
getting more units for the same investment
What is NAV and how it is
NAV is the net asset value of the
fund. Simply put it reflects what the unit held by an
investor is worth at current market prices. For details on
calculation methodology and formulae, please click on our
mutual fund glossary
What proportion of my investment
should be invested in mutual funds?
Once again this decision will
depend on factors like your income, savings, risk aversion
and tax status.
Like IPOs, can there be any
situation wherein I am not allotted the units applied for in
the initial offer?
In case of closed-ended funds there
is a target amount and the funds are permitted a green-shoe
option to retain over-subscriptions up to a certain limit.
In case of open-ended funds there are no such limits and all
applications are honored.
How do I get the information
regarding the forthcoming schemes of different mutual funds?
For the guidance of the investors
our web site is giving a detailed analyses of the
forthcoming schemes of different mutual funds .You can visit
our website to get such information on forthcoming scheme
Can a Mutual Fund assure fixed
As per Sebi Regulations, mutual
funds are not allowed to assure returns. However, funds
floated by AMCs of public sector banks and financial
institutions were permitted to assure returns to the
unitholders provided the parent sponsor was willing to give
an explicit guarantee to honor such a commitment. But in
general, mutual funds cannot assure fixed returns to their
How much return can I expect by
investing in mutual funds?
Investors need to be clear that
mutual funds are essentially medium to long term
investments. Hence, short-term abnormal profits will not be
sustainable in the long run. But in the medium to long run
the mutual funds tend to outperform most other avenues of
investments at the same time avoiding the risk of direct
investment accompanied with professional fund management.
What is the difference between
mutual funds and portfolio management schemes?
While the concept remains the same
of collecting money from investors, pooling them and
investing the funds, the target investors are different. In
the case of portfolio management the target investors are
high networth investors while in case of mutual funds the
target investors are the retail investors.
How does the concept of entry
load work in case of unit purchases?
An entry load is an additional cost
that an investor pays at the point of entry. Assume that
your proposed investment is Rs.10,000/-. Also assume that
the current NAV of the fund is Rs.12.00 and that the entry
load is Rs.0.50. Then you will receive 10000/12.50 = 800
units. For detailed explanation of entry load, refer our
mutual fund glossary.
How does the concept of exit
load work in case of unit redemptions?
An exit load is levy that an
investor pays at the point of exit. This is levied to
dissuade investors from exiting the fund. Assume that the
current NAV of the fund is Rs.12.00 and that the exit load
is Rs.0.50. Now if you sell 800 units then you stand to
receive 800X11.5 = Rs. 9200. For detailed explanation of
exit load, refer our mutual fund glossary.
Can an investor redeem part of
Yes. One can redeem part units
Say I redeem and buy and do
likewise several times then, how do I keep track of my
The moment you buy or get allotted
the units, a passbook will be given to you mentioning the
number of units allotted/bought and redeemed by you. The
recording of entries would be similar to your pass book
entries in the bank. In mutual fund terminology it is called
Nowadays, I see lot of
advertisements of Infotech funds. Do you advise to invest in
As an investor you need to exercise
caution in two areas :
funds while advertising tend to annualize their monthly
returns which is arithmetically correct but technically
wrong because usually such returns are not sustainable.
fund must have a sound strategy for analyzing and
investing in infotech companies
What are the broad guidelines
issued for a MF?
SEBI is the regulatory authority of
MFs. SEBI has the following broad guidelines pertaining to
mutual funds :
should be formed as a Trust under Indian Trust Act and
should be operated by Asset Management Companies (AMCs).
need to set up a Board of Trustees and Trustee
Companies. They should also have their Board of
net worth of the AMCs should be at least Rs.5 crore.
and Trustees of a MF should be two separate and distinct
AMC or any of its companies cannot act as managers for
any other fund.
have to get the approval of SEBI for its Articles and
Memorandum of Association.
MF schemes should be registered with SEBI.
should distribute minimum of 90% of their profits among
There are other guidelines also
that govern investment strategy, disclosure norms and
advertising code for mutual funds.
Am I eligible for rebate on
income tax by investing in a MF?
Yes in case of certain specific
Equity Linked Saving Schemes, tax benefits are available
under Section 88 of the Income Tax Act. In such cases the
fund prospectuses explicitly states that it is a tax saving
fund. In such cases 20 percent of your contribution will
qualify for rebate under Section 88 of the Income Tax Act.
Do investments in mutual funds
offer tax benefit on capital gains?
Yes. If the capital gains earned by
you during a financial year is invested in specified mutual
funds then such capital gains are exempt from capital gains
tax under Section 54EA and Section 54EB of the Income Tax
Act. For more details on scheme specific exemptions.
What is the difference between
Section 54EA and Section 54EB as far as capital gains tax
exemptions are concerned?
Under Section 54EA the net
Consideration (total sale consideration – relevant
expenses) arising out of sale of Long Term capital assets
need to be invested in specified in specified mutual funds
with a lock-in period of 3 years. Under Section 54EB just
the capital gains are re-invested but the lock-in period is
Please note that in the latest
budget this exemption is being withdrawn for investments in
mutual funds and is being restricted only to bonds issued by
NABARD and by the NHAI.
Can I claim tax exemption under
Section 88 and Section 54 for the same investment?
No. You cannot. You can either
exempt your income from tax under Section 88 or exempt your
capital gains from tax under Section 54.
Do mutual fund investments
attract wealth tax?
No. Under the Wealth Tax Act, all
financial assets, including mutual fund units are exempt
totally from Wealth Tax.
If I gift mutual fund units,
does it attract gift tax?
If I gift mutual fund units, does
it attract tax?
Is my income from mutual funds
exempt from income tax?
Yes. Your income from mutual funds
in the form of dividends is entirely exempt from income tax
provided the fund in question is a equity/growth fund where
more than 50 percent of the portfolio is invested in
Please note that in the current
Union Budget 2000, the tax on debt funds has been increased
from 10 percent to 20 percent.
What are my major rights as a
unitholder in a mutual fund?
Some important rights are mentioned
holders have a proportionate right in the beneficial
ownership of the assets of the scheme and to the
are entitled to receive dividend warrants within 42 days
of the date of declaration of the dividend.
are entitled to receive redemption cheques within 10
working days from the date of redemption.
of the unit holders with the prior approval of SEBI can
terminate AMC of the fund.
of the unit holders can pass a resolution to wind-up the