Mutual Fund FAQS

What are Mutual funds?

A mutual fund is a body corporate that pools the saving of a number of investors and invests the same in a variety of different instruments, or securities. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.

What is an Asset Management Company?

An Asset Management Company (AMC) is a highly regulated organization that pools money from investors and invests the same in a portfolio. They charge a small management fee, which is normally 1.5 per cent of the total funds managed.

What is Net Asset Value (NAV) of a scheme?

Mutual funds invest the money collected from the investors in securities markets. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. NAV is required to be disclosed by the mutual  funds on a regular basis - daily or weekly - depending on the type of scheme.

Can I get fixed monthly income by investing in mutual fund units?

Yes, there are a number of mutual fund schemes, which give you fixed monthly income. Further, you can also get monthly income by making a single investment in an open-ended scheme and redeeming fix value of units at regular intervals.

What are the tax benefits for investing in mutual funds units?

Further, investors can get rebate from tax under section 88 of Income Tax Act, 1961 by investing in Equity Linked Saving Schemes of mutual funds.

Are investments in mutual fund units safe?

No stock market related investments could be termed safe with certainty, as they are inherently risky, but mutual funds are always safer than direct investment in the stock markets

Is there any minimum lock-in period for my units?

There is no lock-in period in the case of open-ended funds. However in the case of tax saving funds a minimum lock-in period is applicable. The lock-in period for different tax saving schemes are as follows.

What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unit holders   irrespective of performance of the scheme.You should carefully read the offer document whether return is assured for the entire period of the  scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

Can I transact anytime during the day?

Yes, you can transact at any time of the day. However, in order to get the NAV of the current day you would have to transact before the cut-off time of the scheme.

Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds.

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

Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure

How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?

Thirty days from the date of lodgment of certificates with the mutual fund.

Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?

Yes, there is a difference. IPO of companies may open at lower or higher price than the issue price it does depend on market. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities.

Are the companies having names like mutual benefit the same as mutual funds schemes?

No, because these companies do not come under the purview of SEBI .On the other hand, mutual funds can mobilize funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.

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