Mutual Funds

What are mutual funds?

A mutual fund gathers money from investors and invests it on their behalf. For management of wealth, the mutual fund company charges a small amount. Mutual funds are said to be a good investment vehicle for investors who do not possess a great deal of knowledge about mutual funds. Investors can select a mutual fund that suits their financial capabilities and spending abilities. They should also keep their financial goal in mind while choosing a mutual fund plan. There are plenty of good mutual fund plans available in the Indian market today. With the help of a good financial consultant, you can choose a mutual fund plan that would suit your budget and will help you in getting good returns after a stipulated time.

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The Singhania Groups believe to satisfy our customers and grow their invenstments, business, and consulting with our customers, continues to grow ever day.

Kinds of Mutual Funds

Mutual funds are categorised depending upon investment objective, structure and asset class. Here is a brief explanation of all the different kinds of mutual funds available in India:

Index Funds:

Under index funds, investment is made in certain indexes on the stock exchange by monitoring the movement and returns of the index.

Hybrid Funds:

Under hybrid funds, investment is made in various asset classes. They invest in debt as well as equity funds so that risks and returns are equally balanced. They are also called balanced funds.

Tax-Saving Funds:

Investments under tax-saving funds are made mainly in equity stocks. These funds offer tax benefits, but are considerably risky in comparison with debt funds. However, the returns on these funds are also quite high.

Liquid Funds:

Investment under sector funds is made in a certain division or sector of the market. For example, investors in manufacturing funds invest only in manufacturing companies or their investment instruments. The performance of the sector determines the returns on investment.

Investments under liquid funds are mainly made in short-term and sometimes very-short-term investment instruments such as T-Bills, CPs, etc. These funds aim at offering liquidity and are relatively less risky. The returns they offer are moderate and are perfect for investors with short-term investment objectives.

Sector Funds:

Equity funds are the most common mutual funds. In these funds, investment is made in equity shares of companies. A lot of people around the country prefer these funds do to the quality results they provide despite being highly risky in nature.

Open-Ended Funds:

Investors prefer open-ended funds because of the liquidity they offer. Shares under this fund are purchased and sold based on the demand at their NAV. The NAV of these funds is dependent on fund’s underlying securities’ value.
Close-Ended Funds: The trading of these funds takes place among investors on an exchange and they usually have a certain number of shares. Similar to stocks, the prices of shares are determined based on demand and supply.
Investment Objective

Income Funds:

Investments under these funds are mainly made in fixed income instruments like bonds, debentures, etc. They offer regular income along with capital protection.

Debt Fund:

In debt funds, investment is made in debt instruments such as fixed income assets, company debentures and government bonds. They are the safest mutual funds option as they offer fixed returns.

Money Market Funds:

Investments under liquid funds are mainly made in short-term and sometimes very-short-term investment instruments such as T-Bills, CPs, etc. These funds aim at offering liquidity and are relatively less risky. The returns they offer are moderate and are perfect for investors with short-term investment objectives.

Close-Ended Funds:

The trading of these funds takes place among investors on an exchange and they usually have a certain number of shares. Similar to stocks, the prices of shares are determined based on demand and supply.
Investment Objective

Growth Funds:

Investments under growth funds are mainly made in equity shares and their aim is to generate capital appreciation. While these funds are risky in nature, they are perfect for investors who are in it for the long haul.

Equity Funds:

Costs associated with investing in Mutual Funds

The fund value is calculated as per the Net Asset Value (NAV), which is the value of the fund’s portfolio net of expenses. This is calculated after every business day by the AMC.

AMCs will charge you an administration fee, which covers their salaries, brokerage, advertising and other administrative expenses. This is usually measured using an expense ratio. The lower the expense ratio, the lower the cost of investing in that Mutual Fund.

AMCs may also charge loads, which are basically sales charges incurred by the company in the form of distribution costs.

If you are unfamiliar with associated charges, you might get into a position where the profits from your investment are reduced considerably due to overhead expenses. So, it’s a good habit to read the fine print for details on expenses and fees related to a Mutual Fund.

What is GST?

Goods and Services Tax (GST) is an indirect tax system that has been introduced by the Government of India to bring economic reform in the country. The GST entails a nine-rule deal that include input tax credit, registration, refund, transition, payment, return, composition, valuation, and invoice. GST will help by including taxes like central excise, service tax, CST, VAT, and customs, among others. While business will become easier for sectors like real estate, construction, and the consumer sector due to less compliance, industries like insurance and mutual funds will experience marginal changes.

Should investers alter their portfolios?

With a few days remaining before the implementation of the Goods and Services Tax (GST) that is due on July 1, investors are panicking about their mutual fund portfolios. They have been consulting their respective financial advisors about their portfolios and the risks associated to it. According to financial experts, investors should not alter their portfolio and most importantly, should not panic. The market will be subjected to a variety of changes all along. These changes do not call for continuous changes in the portfolios. Since, equity mutual funds are a long-term investment, the policyholders should not get scared of any policy changes. The GST will be replacing several taxes that are charged by the state as well as the central government. The new law’s intention is to remove different barriers between states in terms of taxes. This law will also help in creating a single market for goods and services. Also, since the rules and regulations under GST have been talked about for quite some time now, the market is already prepared for it.

Market experts opine that investors should not panic and make changes to their portfolios and let their financial advisors do the thinking. Since the investors do not need to bet on stocks and sectors, they should not be worried about their portfolios. Also, the impact of GST on the mutual fund industry is marginal and is earth-shattering. Since the increase in the service tax was being expected for a long time now, the market is well-prepared to handle it. So, this minor increase is not going to make any devastatingly huge changes to the portfolios of the investors.

However, if you still want to make changes to your portfolio in the mutual funds that you have invested in, you can go ahead and do it. But before making any changes, no matter how minor they are, you should be aware of the impact the new GST law will have on it. Go through your portfolio several times and consult a good financial advisor before making the minutest change in your portfolio.

What are the ways to invest in mutual funds?

There are different ways in which mutual fund investments can be made.
They are:

Offline investment directly with the fund house
You can invest in schemes of a mutual fund by visiting the nearest branch office of the fund house. Just ensure that you carry a copy of the below documents –

Proof of Address
Proof of Identity
Cancelled Cheque Leaf
Passport Size photograph
The fund house will provide you with an application form which you will need to fill and submit, along with the necessary documents.

Offline investment through a broker
A mutual fund broker or a distributor is someone who will help you through the entire process of investment. He will provide you with all the information you need to make your investment including the features of various schemes, documents needed, etc. He will also offer guidance on which schemes you should invest in. For this, he will charge you a fee which will be deducted from the total investment amount.

Online through the official website
Most fund houses these days offer the online facility of investing in mutual funds. All you need to do is follow the instructions provided on the official site of the fund house, fill the relevant information, and submit it. The KYC process can also be completed online (e-KYC) for which you will need to enter your Aadhar number and PAN. The information will be verified at the backend and once the verification is done, you can start investing. The online process of investing in mutual funds is easy, quick, and hassle-free and hence, is preferred by most investors.

Through an app
Many fund houses allow investors to make investments through an app which can be downloaded on your mobile device. The app will allow investors to invest in mutual fund schemes, buy or sell units, view account statements, and check other details concerning your folio. Some of the fund houses that allow investments through an app are SBI Mutual Fund, Axis Mutual Fund, ICICI Prudential Mutual Fund, Aditya Birla SunLife Mutual Funds, and HDFC Mutual Funds. Some apps like myCAMS and Karvy allow investors to invest as well as access the details of all their investments from multiple fund houses, on one platform.

How to invest in mutial funds?

5 Simple Steps to Invest in Mutual Funds Online:-

1.Understand your risk capacity and risk tolerance. This process of
2.identifying the amount of risk you are capable of taking is referred to as risk profiling.

3.The next step is asset allocation. Once you identify your risk profile, you should look to divide your money between various asset classes. Ideally your asset allocation should have a mix of both equity and debt instruments so as to balance out the risks.

4.Then you should identify the funds that invest in each asset class. You can compare mutual funds based on investment objective and past performance.
Decide on the mutual fund schemes you will be investing in and make the application online or offline.

5.Diversification of your investments and follow-ups are important to ensure that you get the best out of your investment.

How to invest in mutual funds in detail?

Before you decide to invest in a mutual fund, it is important to keep the below points in mind. Doing so will help you choose the right kind of funds to invest in, and help you accumulate wealth over time.

Identify your purpose for investing –
This is the first step towards investing in a mutual fund. You need to define your investment goals which can be – buying a house, child’s education, wedding, retirement, etc. If you do not have a specific goal, you should at least have a clarity on how much wealth you wish to accumulate and in how much time. Identifying an investment objective helps the investor zero in on the investment options based on level of risk, payment method, lock-in period, etc.

Fulfill the Know Your Customer (KYC) requirements –
In order to invest in a mutual fund, investors need to comply with the KYC guidelines. For this, the investor needs to submit copies of Permanent Account Number (PAN) card, Proof of Residence, age proof, etc. as specified by the fund house.

Know about the schemes available –
The mutual fund market is flooded with options. There are schemes to suit almost every need of the investor. Before investing, make sure you have done your homework by exploring the market to understand the different types of schemes available. After you have done that, align it with your investment objective, your risk appetite, your affordability and see what suits you best. Seek the help of a financial advisor if you are not sure about which scheme to invest in. In the end, it is your money. You need to ensure that it is used to fetch maximum returns.

Consider the risk factors –
Remember that investing in mutual funds comes with a set of risks. Schemes that offer high returns is often accompanied with high risks. If you have a high appetite for risk and wish to accomplish high returns, you can invest in equity schemes. On the other hand, if you do not want to risk your investment and are okay with moderate returns, you can go for debt schemes.

After you have identified your investment objectives, fulfilled the KYC requirements, and explored the various schemes, you can start investing in mutual funds. A bank account is also a mandate while making a mutual fund investment. Most mutual fund houses will ask for a physical or an online copy of a cancelled cheque leaf bearing the IFSC (Indian Financial System Code) and MICR (Magnetic Ink Character Recognition) of the bank.

Why should you invest in mutual funds?

Disciplined investing
To cultivate a habit of regular investing, mutual funds offer a facility known as a Systematic Investment Plan (SIP). An SIP allows investors to invest small amounts regularly, the frequency of which can be weekly, monthly, or quarterly. An auto-debit facility can be set up for your SIP where a fixed sum will automatically be debited from your bank account every month. An SIP offers an excellent way to invest regularly and without having to manually invest each time.

Now that you know about the benefits of investing in mutual funds and how to invest in them, start investing and see your wealth grow.

Things to Remember when redeeming mutual funds are:

Applicable NAV – As the Net Asset Value (NAV) for each day is announced post the closing of the day’s trade, the time of the day when you request for redemption is crucial. However, the NAV of the day is applicable only for redemption requests that come by 3pm in a day, or else the next day’s NAV is applicable.

Bank Accounts – You must keep your bank account that is linked and registered with your AMC, active. When you redeem your mutual funds, the proceeds of the fund is sent to your bank account registered with the AMC. In case that account is inactive, you may be required to submit a cancelled cheque of your new bank account or passbook or you might also have to present a declaration from the bank with the signature of your bank manager.

Turnaround Time – When you send your redemption request, it takes around three working days for the earnings from the funds to get credited to your registered bank account. However, it depends on the time of the week you have filed for redemption.

Funds with Lock-in Period – Open ended schemes can be redeemed at any point of time, whereas some schemes like ELSS (Equity Linked Savings Scheme) cannot be redeemed up to three years from the investment date.

Charges on Redemption – Redeeming your funds might attract certain charges such as exit loads and taxes. The amount charged depends on the duration after which you have requested for redemption of funds. It is advisable to inquire about the charges before making the decision of redeeming your funds. You should approach your fund manager or financial advisor for advice before planning to exit your fund. You can also do online research to understand if you should redeem your fund units or not. You will also be able to find reliable guidelines and tips for mutual fund redemptions online. Ensure you are redeeming for an appropriate reason that will not disturb your financial plan. Some investors redeem from one scheme to invest in another in the same category, this practice is called ‘churning’, however, it is not advisable unless there is some logic to it.

When you plan to redeem your mutual fund units, you need to ensure that your scheme does not have any lock-in period. Some of these funds include Equity Linked Saving Scheme (ELSS) funds. They come with a lock-in period of 3 years. Hence, you need to understand the nature of your fund before you start to think about redeeming it. On the other hand, you can redeem open-ended funds whenever you want.

Redemption Process: There are various ways of redeeming mutual funds, however it depends on the mode of purchase:

Redemption if Funds Bought Through AMC – Investing in mutual funds through AMC is the most common mode. If you want to redeem your funds offline, you are required to submit a fully signed redemption request to the AMC’s office. A redemption form usually comprises of details such as name, plan, scheme details, folio number and number of units to be redeemed. Signature of all the holders are needed on the form. Once the form is submitted, the redemption proceeds is credited into the registered bank account.

Redemption if Funds Bought Online – When purchased online, mutual funds can redeemed through the AMC’s website or a trading account. As it is an online process, you are required to log in and select the desired fund and number of units to be redeemed and confirm.

Listen to your fund manager or financial advisor before planning to exit your fund. Ensure you are redeeming for an appropriate reason that will not disturb your financial plan. Some investors redeem from one scheme to invest in another in the same category, this practice is called ‘churning’, however it is not advisable unless there is some logic to it.

Redemption of Mutual Funds :

Choosing the right time to redeem mutual funds is an important decision and is based on several factors. You must carry out a detailed research on the fund’s performance and reasons for redemption. Most often, investors act based on sentiment and redeem units as a reflex action as soon they feel the fund is under performing or the market is jittery. However, this is not a good idea. Investors should understand that even uncertain markets carry some opportunities for giving good returns.

Mutual funds are professionally managed by fund managers whose decisions are proactive and are based on the perceived market movements. But in case the fund performs poorly consistently for a longer period, you may choose to exit.

Mutual fund redemption with a redemption form
If you want to redeem your mutual funds physically, you will be required to get a Redemption Request form, in which you will be required to fill details such the unit holder’s name, name of mutual fund scheme, folio number, number of units to be redeemed from the scheme, plan details, etc. Once the form is filled, you will have to sign it and submit it to the designated office of the Registrar or the asset management company (AMC). You can also present it at any official point of a fund house that accepts transactions. The funds resulting from your redemption will be transferred to the fund unitholder’s registered bank account.

Online mutual fund redemption

You can also redeem your mutual funds online by visiting the official website of your mutual fund. In case you got a mutual fund by going to a third-party mutual fund web portal, you can redeem it on the portal itself.

You will have to choose online transactions on the website.
To access your mutual fund, you will need to log in to the website with the help of your folio number and/or your Permanent Account Number (PAN).
Next, you will have to choose your scheme and select the number of units that you would like to redeem.
You will then have to confirm your transaction.
Apart from redeeming your mutual funds online through your mutual fund’s website or your web portal, you may also redeem via central service providers such as Karvy, CAMS (Computer Age Management Services Pvt. Ltd.), etc.

How important are fund menegers to mutual funds?

Equity trading is one of the fastest way to grow your money. However, the risks associated with trading in stocks is huge and hence diversification of resources is the most popular advice that financial experts give to investors. Mutual funds are an excellent example of diversification of investments in a way that optimizes returns and minimizes losses. Mutual funds are professionally managed funds that invest into a host of financial instruments. One of the most important reasons for people preferring mutual funds over trading in stocks is the guidance available via Fund Managers. Instead of taking the trouble of analyzing various stocks and investment options to zero down on the best investment package, customers prefer mutual funds which are available in various types and are professionally managed by Fund Managers.

Fund managers make up a very important aspect of mutual funds. Most mutual funds are promoted by companies and preferred by customers based on the track record of their fund managers. The period taken into consideration is usually 3-5 years.

There are times when customers rely on the track record of a particular fund or fund manager and then get dismayed when suddenly there is news that the fund manager has quit. This has happened more than several times with different mutual funds and for various customers. The key here is to remember that even if the manager has left, the stocks still are intact. The movement of a fund manager does not in any way affect the value of your investment. The only sensible decision in such a scenario is to be more alert with respect to your mutual fund scheme and to be on top of the tracking process. This will make up for any effect that changing of a fund manager may have on your investments.

For investors who still fear investing in mutual funds on account of fund manager walking out, index funds are a good deal. Index funds invest in stocks and bonds that track an index like the S&P 500 and do not rely on the expertise of star fund managers to select securities. This saves investors from paying tax bills when they wish to withdraw out of their mutual fund scheme on account of change in fund manager.

Nobody can deny the role played by fund managers in popularizing and maintaining a mutual fund scheme. However, it is necessary to look at a manager’s track record over a period of last 10 years or more to be statistically sound.
The overall market share of actively managed funds is huge as compared to other types of mutual funds. This means, that customers are really looking to avail funds that come with accompanying active role by fund managers. However, mostly, the success of any fund is coupled very tightly to the performance of the market, in general. Of course, the role of fund manager is substantial but the fluctuations in the market are the first force that determine the course of any fund.

Generally, mutual fund companies are well aware of the impact that a fund manager has on the sales and retention of a particular fund. As such, most companies maintain a solid talent pool of mutual fund managers from which a relevant new manager can be picked when an existing fund manager departs. This is because all fund houses are well aware of the fact that customers tend to depart with any change in fund manager.

In a research conducted by Morningstar between years 1990 and 1995, all funds that were doing well kept doing well irrespective of any change in their fund managers while those that were performing poorly continued to do badly regardless of any change in their management. This outcome does point out that although fund managers are essential to a mutual fund, customers do not need to make investment decisions purely based on them and their performance. To sum up, there is concrete evidence from the past and for various fund houses, that suggests that the contribution of fund manager to any mutual fund is mostly overestimated and the movement of markets remains the key contributor to the success or failure of a fund scheme.

What is mutual fund redemtion?

A mutual fund redemption is the process of withdrawing units of a in order to obtain your returns from the fund. When you go for a mutual fund redemption, you will receive funds in your account almost instantly. Hence, mutual funds are very beneficial that way.

How to redeem youe mutual funds unit?

You can redeem your mutual funds through online or offline methods. The redemption can be done on any business day through a convenient method.

Mutual fund redemption should be done in a smart way to ensure that you get good returns. One should take note that the prices of mutual fund units are fixed only once a day. Hence, as a financially sensible investor, you should ideally request a redemption within the time set by your fund house or before the financial markets close their transactions. Your money will be redeemed at the net asset value (NAV) of your fund for that particular day. NAV includes the total of all the assets of a certain fund less the liabilities.

How long will you take to receive when you redeem your fund redemption amount?

When you redeem your mutual fund, you will typically receive your unit’s funds within 1 to 5 working days. If you redeem a debt-related fund or a liquid fund, you will get your money within 1 to 2 working days. On the other hand, when you redeem an equity mutual fund, you will get your amount within 4 to 5 working days.

How much money will you receive when you redeem your mutual fund units?

You can make a simple calculation to know the approximate amount of your mutual fund investments. You only have to multiply the number of units that you hold on a particular day with the NAV of that day for that scheme. This amount will depend on many other factors and they include:

Exit load
Securities Transaction Tax (STT)
NAV that is applicable on your fund units, which refers to the NAV fixed for the day and time when you apply for a redemption
Charges that will need to be paid by an investor to redeem mutual fund units
As an investor, when you plan to redeem any of your mutual fund units, you will have to be prepared to pay a load or certain charges in a few situations.

If you decide to redeem a fund before you complete 1 year of the investment, you may be asked to pay an exit load of 1%. This will depend on the type of your scheme and your mutual fund company.

Exit loads are typically charged for equity mutual funds. When you redeem such a fund, the exit load will be subtracted from the NAV for the redemption of each fund unit. You may not have to pay any exit load for ultra-short-term funds or liquid funds.

How will you get your mutual fund redemption proceeds?

After you redeem unit(s) of your mutual fund, you will receive the money in your registered bank account. For this, the investor will need to provide his or her bank’s IFSC code and account number. Also, the bank and branch will require RTGS and NEFT facilities.

In case the fund house does not have sufficient bank information, then they send the money in the form of cheques to the investor.

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