Different investment avenues are available to investors. Mutual funds also offer good investment
opportunities to the investors. Like all investments, they also carry certain risks. The investors
should compare the risks and expected returns after adjustment of tax on various instruments
while taking investment decisions. The investors may seek advice from experts while making
What is a Mutual Fund?
With an objective to make the investors aware of functioning of mutual funds, an attempt has been
made to provide information in question-answer format which may help the investors in taking
Mutual fund is a mechanism for pooling money by issuing units to the investors and investing
funds in securities in accordance with objectives as disclosed in offer document. [i.e. Scheme Information Document (SID) and Statement of Additional Information (SAI)].
What is the history of Mutual Funds in India and role of SEBI in mutual funds industry?
Investments in securities are spread across a wide cross-section of industries and sectors and
thus the risk is diversified because all stocks may not move in the same direction in the same
proportion at the same time. Mutual funds issue units to the investors in accordance with quantum
of money invested by them. Investors of mutual funds are known as unitholders.
The profits or losses are shared by investors in proportion to their investments. Mutual funds
normally come out with a number of schemes which are launched from time to time with different
investment objectives. A mutual fund is required to be registered with Securities and Exchange
Board of India (SEBI) before it can collect funds from the public.
Unit Trust of India was the first mutual fund set up in India in the year 1963. In late 1980s,
Government allowed public sector banks and institutions to set up mutual funds. In the year 1992,
Securities and Exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to
protect the interest of investors in securities and to promote the development of and to regulate
the securities market.
How is a mutual fund set up?
As far as mutual funds are concerned, SEBI formulates policies, regulates and supervises mutual
funds to protect the interest of the investors. SEBI notified regulations for mutual funds in 1993.
Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital
market. The regulations were fully revised in 1996 and have been amended thereafter from time
to time. SEBI has also issued guidelines through circulars to mutual funds from time to time to
protect the interests of investors.
All mutual funds whether promoted by public sector or private sector entities including those
promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management
Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor
who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit
of the unit holders. AMC approved by SEBI manages the funds by making investments in various
types of securities. Custodian, who is required to be registered with SEBI, holds the securities of
various schemes of the fund in its custody. The trustees are vested with the general power of
superintendence and direction over AMC. They monitor the performance and compliance of SEBI
Regulations by the mutual fund.
What is Net Asset Value (NAV) of a scheme?
SEBI Regulations require that at least two-thirds of the directors of trustee company or board of
trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of
the directors of AMC must be independent.
All mutual funds are required to be registered with SEBI before they launch any scheme.
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).
How is the applicable NAV determined?
Mutual funds invest the money collected from investors in securities markets. In simple words,
NAV is the market value of the securities held by the scheme. Since market value of securities
changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the
market value of securities of a scheme divided by the total number of units of the scheme on any
particular date. For example, if the market value of securities of a mutual fund scheme is INR 200
lakh and the mutual fund has issued 10 lakh units of INR 10 each to the investors, then the NAV
per unit of the fund is INR 20 (i.e.200 lakh/10 lakh). NAV is required to be disclosed by the mutual
funds on a daily basis.
The NAV per unit of all mutual fund schemes have to be updated on AMFI’s website and the
Mutual Funds’ website by 9 p.m. of the same day. Fund of Funds are allowed time till 10 a.m. the
following business day to update the information.
Liquid schemes – Subscription
1. Where the application is received up to 2.00 p.m. on a day and funds are available for
utilization before 2:00 p.m. without availing any credit facility, the closing NAV of the day
immediately preceding the day of receipt of application.
What are the different types of mutual fund schemes?
2. Where the application is received after 2.00 p.m. on a day and funds are available for
utilization on the same day without availing any credit facility, the closing NAV of the day
immediately preceding the next business day; and
3. Irrespective of the time of receipt of application (before or after 2:00 p.m. on a day), where thefunds are not available for utilization before 2:00 p.m. without availing any credit facility, theclosing NAV of the day immediately preceding the day on which the funds are available forutilization.
Liquid schemes – Redemption
1. Where the application is received up to 3.00 pm – the closing NAV of day immediately
preceding the next business day; and
2. Where the application is received after 3.00 pm – the closing NAV of the next business day.
Other than Liquid Schemes – Subscription
For amount less than INR 2 lakh
1. Where the application is received up to 3:00 p.m., closing NAV of the day on which the
application is received.
2. Where the application is received after 3:00 p.m., closing NAV of the next business day.
For amount equal to or more than INR 2 lakh
1. Where the application is received up to 3:00 p.m. and funds are available for utilization before3:00 p.m., closing NAV of the day on which the application is received.
2. Where the application is received after 3:00 p.m. and funds are available for utilization, closing
NAV of the next business day.
3. Irrespective of the time of receipt of application (before or after 3:00 p.m.), where the fundsare not available for utilization, closing NAV of the day on which the funds are available foutilization.
Other than Liquid Schemes – Redemption
1. Where the application is received up to 3.00 pm – closing NAV of the day on which theapplication is received; and
2. Where the application is received after 3.00 pm – closing NAV of the next business day.
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. 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 the units 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 units of all close ended schemes need to be mandatorily listed on a recognized stock exchange.
Schemes according to Investment Objective:
The Units of the Scheme cannot be redeemed by the investors directly with the Fund until the Maturity / Final Redemption date. The Units can be purchased / sold during the trading hours like any other publicly traded stock, until the date of suspension of trading by stock exchange(s) where the Scheme / Plan is listed.
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date by switching the option. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
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, Government securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their scheme related documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest in debt and money market instruments with maximum maturity of upto 91 days only. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index (Sensex), NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as “tracking error” in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
What are sector specific funds/schemes?
These are the funds/schemes which invest in the securities of only those sectors or industries as
specified in the offer documents, e.g., Pharmaceuticals, Software, Fast Moving Consumer Goods
(FMCG), Petroleum stocks, Information Technology (IT), Banks, etc. The returns in these funds
are dependent on the performance of the respective sectors/industries. While these funds may
give higher returns, they are more risky compared with diversified funds, investors need to keep
a watch on the performance of those sectors/industries and must exit at an appropriate time. They
may also seek advice of an expert.
What are Tax Saving Schemes?
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,
1961 as the Government offers tax incentives for investment in specified avenues, for example,
Equity Linked Savings Schemes (ELSS) under section 80C and Rajiv Gandhi Equity Saving
Scheme (RGESS) under section 80CCG of the Income Tax Act, 1961. Pension schemes
launched by mutual funds also offer tax benefits. These schemes are growth oriented and invest
pre-dominantly in equities. Their growth opportunities and risks associated are like any equityoriented
What is a Fund of Funds (FoF) scheme?
A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds
is known as a FoF scheme. A FoF scheme enables the investors to achieve greater diversification
through one scheme. It spreads risks across a greater universe.
What are Exchange Traded Funds (ETFs)?
ETFs are mutual fund units that investors can buy or sell at the stock exchange. This is in contrast
to a normal mutual fund unit that an investor buys or sells from the AMC (directly or through a
distributor). In the ETF structure, the AMC does not deal directly with investors or distributors.
Units are issued to a few designated large participants called Authorised Participants (APs). The
APs provide buy and sell quotes for the ETFs on the stock exchange, which enable investors to
buy and sell the ETFs at any given point of time when the stock markets are open for trading.
What is a capital protection-oriented scheme?
ETFs therefore trade like stocks and experience price changes throughout the day as they are
bought and sold. Buying and selling ETFs requires the investor to have demat and trading
A capital protection-oriented scheme is typically a hybrid scheme that invests significantly in fixedincome
securities and a part of its corpus in equities. These are close-ended schemes that come in tenors of fixed maturity
e.g. three to five years.
Structure of the scheme - Example
If the fund collects INR 100, it invests INR 80 in fixed-income securities and INR 20 in equities or
equity related instruments. The money is invested in such a way that the INR 80 portion is
expected to grow to become INR 100 in three years (assuming that the scheme has a maturity
period of three years). Thus, the aim is to preserve the INR 100 capital till maturity of the scheme.
Thus, the scheme is oriented towards protection of capital and not with guaranteed returns.
Further, the orientation towards protection of capital originates from the portfolio structure of the
scheme and not from any bank guarantee or insurance cover. Investors are neither offered any
guaranteed/indicated returns nor any guarantee on repayment of capital by the scheme.
What is a Load or no-load Fund?
A Load Fund is one that charges a percentage of NAV for entry or exit and the load structure in a
scheme has to be disclosed in its offer documents. Suppose the NAV per unit is INR 10. If the
entry as well as exit load charged is 1%, then the investors who buy would be required to pay INR
10.10 (10 + 1% of 10) per unit and those who offer their units for repurchase to the mutual fund
will get only INR 9.90 (10 – 1% of 10) per unit. Currently, in India, the exit load charged is credited
to the scheme. The investors should take the loads into consideration while making investment
as these affect their returns. However, the investors should also consider the performance track
record and service standards of the mutual fund which are more important. A no-load fund is one
that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV
and no additional charges are payable on purchase or sale of units.
Can a mutual fund change the asset allocation while deploying funds of investors?
SEBI has mandated that no entry load can be charged for any mutual fund scheme in India.
Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the SID. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.
Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents?
Mutual funds cannot increase the exit load beyond the level mentioned in the offer document. Any
change in the load will be applicable only to prospective investments and not to the original
investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds
are required to amend their offer documents so that the new investors are aware of loads at the
time of investments. As no entry load can be charged for mutual fund schemes in India, no change
can be made with respect to entry load.
What is sale and repurchase/redemption price?
The price or NAV a unit holder is charged while investing in an open-ended scheme is called
What is expense ratio?
Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases
or redeems its units from the unitholders. It may include exit load, if applicable.
Expense ratio represents the annual fund operating expenses of a scheme, expressed as apercentage of the fund’s daily net assets. Operating expenses of a scheme are administration,management, advertising related expenses, etc.
What is a consolidated account statement (CAS)?
An expense ratio of 1% per annum means that each year 1% of the fund’s total assets will beused to cover expenses. Information on expense ratio that may be applicable to a scheme is mentioned in the offer document. Currently, in India, the expense ratio is fungible, i.e., there is nolimit on any particular type of allowed expense as long as the total expense ratio is within theprescribed limit. For limits on expense ratio, refer to regulation 52 of the SEBI (Mutual Funds)Regulations, 1996.
A CAS details all the transactions and investor’s holding at the end of the month including
transaction charges paid to the distributor, across all schemes of all mutual funds, by an investor.
Do I need to pay anything to the distributor who sells me mutual fund schemes?
A CAS for each calendar month is issued to the investors in whose folios transactions have taken
place during that month.
A CAS every half yearly (September/ March) is issued, detailing holding at the end of the six
month, across all schemes of all mutual funds, to all such investors in whose folios no transaction
has taken place during that period.
As stated above, no entry load can be charged for any mutual fund scheme. An investor can
chose to pay a distributor based on the investor’s assessment of various factors including the
service rendered by the distributor. However, for investments made through a distributor,
commission is paid directly by AMC to the distributor such that the total expense ratio for an
investor is within the limits on expense ratio specified under regulation 52 of the SEBI (Mutual
Funds) Regulations, 1996. Hence, the cost borne by investors remains within the limit prescribed
under SEBI Regulations.
How does an investor know how much commission the distributor is earning and what is the TER being charged in a scheme?
Further, a transaction charge of INR 150 and INR 100 per subscription of INR 10,000 and above
by a new and an existing investor, respectively, can be levied by distributor. This transaction
charge can be levied only if a distributor has opted in to levy transaction charge for that type of
mutual fund scheme. Further, the transaction charge, if any, is to be deducted by the AMC from
the subscription amount and paid to the distributor; and the balance is to be invested.
From 01 October 2016, the Consolidated Account Statement (CAS) issued to investors is required
to provide information in terms of total purchase value/cost of investment in each scheme. Further,
CAS issued for the half-year (ended September/March) shall also provide the amount of actual
commission paid by AMCs/Mutual Funds to distributors (in absolute terms) during the half-year
period against the concerned investor’s total investments in each Mutual Fund scheme. The term
‘commission’ here refers to all direct monetary payments and other payments made in the form
of gifts/rewards, trips, event sponsorships etc. by AMCs/MFs to distributors. Further, a mention
may be made in such CAS indicating that the commission disclosed is gross commission and
does not exclude costs incurred by distributors such as service tax (wherever applicable, as per
existing rates), operating expenses, etc.
Can a mutual fund change the asset allocation while deploying funds of investors?
Such half-yearly CAS shall be issued to all MF investors, excluding those investors who do not
have any holdings in MF schemes and where no commission against their investment has been
paid to distributors, during the concerned half-year period.
Such half-yearly CAS are also required to disclose the scheme’s average Total Expense Ratio (in
percentage terms) for the half year period for each scheme’s applicable plan (regular or direct or
both) where the concerned investor has actually invested in.
Considering the market trends, any prudent fund manager can change the asset allocation, i.e.,
he can invest higher or lower percentage of the fund in equity or debt instruments compared to
what is disclosed in the offer document. It can be done on a short term basis on defensive
considerations i.e. to protect the NAV. Hence, the fund managers are allowed certain flexibility in
altering the asset allocation considering the interest of the investors. In case the mutual fund
wants to change the asset allocation on a permanent basis, they are required to inform the unit
holders and give them option to exit the scheme at prevailing NAV without any load.
How to invest in a scheme of a mutual fund?
Investors can contact the agents and distributors of mutual funds who are spread all over thecountry for necessary information and application forms. Investors must ensure that they invest
through Association of Mutual Funds in India (AMFI) registered distributors and that the distributohas a valid AMFI Registration Number (ARN).
What is application supported by blocked amounts (ASBA)?
Whether a distributor is AMFI registered or not and whether he/she has beensuspended/terminated from doing mutual fund business may be checked athttp://www.amfiindia.com/locate-the-nearest-financial-advisor. An employee of a corporatedistributor is also required to have an Employee Unique Identification Number (EUIN).
The distributors are required to disclose all the commissions (in the form of trail commission orany other mode) payable to them for the different competing schemes of various mutual fundsfrom amongst which the scheme is being recommended to the investor.
Forms can be deposited with mutual funds through the agents and distributors who provide suchservices. These days, post offices and banks also distribute the units of mutual funds. However,the investors may please note that the mutual fund schemes being marketed by banks and postoffices should not be taken as their own schemes and no assurance of returns is given by themThe only role of banks and post offices is to help in distribution of mutual funds schemes to theinvestors.
Investors should not be carried away by commission/gifts, if any, given by agents/distributors forinvesting in a particular scheme. On the other hand, they must consider the track record of themutual fund/scheme and should take objective decisions.
Investors also have the option to invest directly with the mutual fund either by visiting the mutuafund branch or online through Mutual Fund website.
Investors should also refer to the product labelling of the scheme. All the mutual funds are requiredto label their schemes on the following parameters:
a. Nature of scheme such as to create wealth or provide regular income in an indicative timhorizon (short/ medium/ long term).
b. A brief about the investment objective (in a single line sentence) followed by kind of producin which investor is investing (Equity/Debt).
c. Level of risk depicted by a pictorial meter (known as a riskometer) as under:
? Low - principal at low risk
? Moderately Low - principal at moderately low risk
? Moderate - principal at moderate risk
? Moderately High - principal at moderately high risk
? High - principal at high risk
However, investors should consult their financial advisers if they are not clear about the suitability
of the product.
Product label is prominently disclosed in:
a. Front page of initial offering application forms, Key Information Memorandum (KIM) and Scheme Information Documents (SIDs).
b. Common application form – along with the information about the scheme.
c. Scheme advertisements.
ASBA is a facility provided by banks to investors in new fund offers (NFOs) of mutual funds. If you
apply for an NFO via ASBA, your application amount gets blocked in your bank account. While
the amount stays in your account, it cannot be used until the MF unit allotment is done. For more
information, refer to FAQs on ASBA available on SEBI website at
How to fill up the application form of a mutual fund scheme?
An investor must mention clearly his name, address, number of units applied for and such other
information as required in the application form. Know your Customer (KYC) documents need to
be submitted by a first time investor.
What is a direct plan?
SEBI has mandated mutual funds to compulsorily launch a direct plan for direct investments, i.e.,investments not routed through a distributor, from 01 January 2013. Such separate plan has a
lower expense ratio excluding distribution expenses, commission, etc., and no commission is tobe paid from such plans. The plan also has a separate NAV.
What is a Systematic Investment Plan (SIP)?
Investment can be made in lump sum, i.e. a onetime payment, or through a Systematic Investment
A SIP allows an investor to invest regularly. One puts in a small amount every month that is
invested in a mutual fund.
A SIP allows one to take part in the stock market without trying to second-guess its movements.
X decides to invest INR 1,000 per month for a year.
When the market price of shares fall, X benefits by purchasing more units; and is protected by
purchasing less when the price rises as explained below.
||Approx number of units you will get at 1000
Within one year, X has 1,186 units by investing just INR 1,000 every month at an average cost of
12000/1186.15 = 10.1170. This is as against 12,000/10 = 1,000 units or 12000/11.5 = 1043.5
units or 12000/9 = 1,333.3 units if X had invested lump sum on 1 Jan, 1 Jun or 1 May, respectively.
Can I invest in Cash?
Yes, cash investments up to INR 50,000 per investor, per mutual fund, per financial year can be
made in mutual funds. However, any repayment (redemption/dividend) is made only through bank
Can non-resident Indians (NRIs) invest in mutual funds?
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are
given in the offer documents of the schemes.
How much should one invest in debt or equity oriented schemes?
An investor should take into account his risk taking capacity, age factor, financial position, etc. As
already mentioned, the schemes invest in different type of securities as disclosed in the offer
documents and offer different returns and risks.
What should an investor look into an offer document?
Investors may also consult financial experts before taking decisions.
An abridged offer document [known as Key Information Memorandum (KIM)], which contains very
useful information, 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. Mutual fund investments are subject to
market risks. An investor should carefully read all the scheme related documents. Due care must
be given to portions relating to main features of the scheme, risk factors and recurring expenses
to be charged to the scheme, 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.
When will the investor get certificate or statement of account after investing in a mutual fund?
Mutual funds are required to despatch certificates or statements of accounts within five working
days from the date of closure of the initial subscription of the scheme. In case of close-ended
schemes, the investors would get either a demat account statement or unit certificates as these
are traded in the stock exchanges. In case of open-ended schemes, a statement of account is
issued by the mutual fund within five working days from the date of closure of initial public offer of
the scheme and/or from the date of receipt of the request from the unitholders. The procedure of
repurchase is mentioned in the offer document.
As a unit holder, how much time will it take to receive dividends/repurchase proceeds?
Also, AMCs are required to send confirmation specifying the number of units allotted to the
applicant by way of email and/or SMS’s to the applicant’s registered email address and/or mobile
number as soon as possible but not later than five working days from the date of closure of the
initial subscription list and/or from the date of receipt of the request from the unitholders.
A mutual fund is required to dispatch to the unitholders the dividend warrants within 30 days of
the declaration of the dividend and the redemption or repurchase proceeds within 10 working
days from the date of redemption or repurchase request made by the unit holder.
Can a mutual fund change the nature of the scheme from the one specified in the offer document?
In case of failures to dispatch the redemption/repurchase proceeds within the stipulated time
period, Asset Management Company is liable to pay interest as specified by SEBI from time to
time (15% at present) for the period of delay.
Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes
of the scheme e.g. structure, investment pattern, etc., can be carried out unless a written
communication is sent to each unit holder and an advertisement is given in one English daily
newspaper having nationwide circulation and in a newspaper published in the language of the
region where the head office of the mutual fund is situated. The unit holders have the right to exit
the scheme at the prevailing NAV without any exit load if they do not want to continue with the
scheme. The mutual funds are also required to follow similar procedure while converting the
scheme from close-ended to open-ended scheme.
How will an investor come to know about the changes, if any, which may occur in the mutual fund?
There may be changes from time to time in a mutual fund. The mutual funds are required to inform
any material changes to their unit holders. Apart from it, many mutual funds send quarterly
newsletters to their investors.
How to know the performance of a mutual fund scheme?
At present, Scheme Information Document (SID) is required to be revised and updated at least
once a year. In the meantime, new investors are informed about the material changes by way of
addendum to the offer document till the time offer document is revised and reprinted.
The performance of a scheme is reflected in its NAV which is disclosed on daily basis. The NAVs
of mutual funds are required to be published on the web sites of mutual funds. All mutual funds
are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI)
www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.
Also, each MF is required to have a dashboard on its website providing performance and key
disclosures pertaining to each scheme managed by AMC.
How to know where the mutual fund scheme has invested the money mobilized from investors?
The mutual funds are also required to publish their performance in the form of half-yearly results
which also include their returns over a period of time i.e. last six months, 1 year, 3 years, 5 years
and since inception of schemes. Investors can also look into other details like percentage of
expenses of total assets as these have an effect on the return and other useful information in the
same half-yearly format.
The mutual funds are also required to send annual report or abridged annual report to the unit
holders at the end of the year.
Investors can compare the performance of their schemes with those of other mutual funds under
the same category. They can also compare the performance of equity oriented schemes with the
benchmarks like BSE Sensitive Index, Nifty, etc.
On the basis of performance of the mutual funds, the investors should decide when to enter or
exit from a mutual fund scheme.
The mutual funds are required to disclose full portfolios of all of their schemes on a monthly basis
on their website. Portfolio disclosure on a half yearly basis is published in the newspapers. Mutual
funds may also send the disclosure of half-yearly portfolios to their unit holders.
Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?
The scheme portfolio shows investment made in each security i.e. equity, debentures, money
market instruments, government securities, etc. and their quantity, market value and % to NAV.
These portfolio statements are also required to disclose illiquid securities in the portfolio,
investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.
Yes, there is a difference. Initial Public Offering (IPO) is offered by a company to directly raise
money for the company as per the stated objective. In the case of mutual funds, the money
garnered is used for investing in eligible securities such as equity and debt instruments of
companies, money market instruments, gold, etc. Thus, a mutual fund acts as an intermediary
between investors and companies.
If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV?
Some of the investors have the tendency to prefer a scheme that is available at lower NAV
compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is
issuing units at INR 10 whereas the existing schemes in the same category are available at much
higher NAVs. Investors may please note that in case of mutual fund schemes, lower or higher
NAVs of similar type of schemes of different mutual funds have no relevance. On the other hand,
investors should choose a scheme based on its merit considering performance track record of
the mutual fund, service standards, professional management, etc. This is explained in an
example given below.
How to choose a scheme for investment from a number of schemes available?
Suppose scheme A is available at a NAV of INR 15 and another scheme B at INR 90. Both
schemes are diversified equity oriented schemes. Investor has put INR 9,000 in each of the two
schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B.
Assuming that the markets go up by 10% and both the schemes perform equally good and it is
reflected in their NAVs. NAV of scheme A would go up to INR 16.50 and that of scheme B to INR
Thus, the market value of investments would be INR 9,900 (600* 16.50) in scheme A and it would
be the same amount of INR 9900 in scheme B (100*99). The investor would get the same return
of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and
allotment of higher or lower number of units within the amount an investor is willing to invest,
should not be the factors for making investment decision. Likewise, if a new equity oriented
scheme is being offered at INR 10 and an existing scheme is available for INR 90, NAV should
not be a factor for decision making by the investor. Similar is the case with income or debt-oriented
On the other hand, it is likely that the better managed scheme with higher NAV may give higher
returns compared to a scheme which is available at lower NAV but is not managed efficiently.
Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as
much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more
weightage to the professional management of a scheme instead of lower NAV of any scheme. He
may get much higher number of units at lower NAV, but the scheme may not give higher returns
if it is not managed efficiently.
As already mentioned, the investors must read the offer document of the mutual fund scheme
very carefully. They may also look into the past track record of performance of the scheme or
other schemes of the same mutual fund. They may also compare the performance with other
schemes having similar investment objectives. Though past performance of a scheme is not an
indicator of its future performance and good performance in the past may or may not be sustained
in the future, this is one of the important factors for making investment decision. In case of debt
oriented schemes, apart from looking into past returns, the investors should also see the quality
of debt instruments which is reflected in their rating. Similarly, in equities schemes also, investors
may look for quality of portfolio. They may also seek advice of experts.
Are the companies having names like mutual benefit the same as mutual funds schemes?
Investors should not assume some companies having the name “mutual benefit” as mutual funds.
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
Where can an investor look out for information on mutual funds?
Almost all the mutual funds have their own web sites. Investors can also access the NAVs of all
mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com.
Where can I check whether there is any unclaimed amount (dividend/redemption) in my name lying with a mutual fund?
Investors can log on to the web site of SEBI www.sebi.gov.in and go to “Mutual Funds” section
for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents
filed by mutual funds, etc. Also, in the annual reports of SEBI available on the web site, information
on mutual funds is given.
There are a number of other web sites which give a lot of information of various schemes of
mutual funds including returns over a period of time. Many newspapers also publish useful
information on mutual funds on daily and weekly basis.
Investors may also approach their financial experts and distributors to guide them in this regard.
Mutual Funds provide on their website, the list of names and addresses of investors in whose
folios there are unclaimed amounts (dividend/redemption). The information provided herein shall
contain name of investor, address of investor and name of Mutual Fund/s with whom unclaimed
Can an investor appoint a nominee for his investment in units of a mutual fund?
The website of Mutual Funds is also required to provide information on the process of claiming
the unclaimed amount and the necessary forms/documents required for the same.
The information on unclaimed amount along with its prevailing value (based on income earned
on deployment of such unclaimed amount) is separately disclosed to investors through the
periodic statement of accounts/CAS sent to the investors.
Yes. The nomination can be made by individuals applying for/holding units on their own behalf
singly or jointly. Non individuals including society, trust, body corporate, partnership firm, Karta of
Hindu Undivided Family, holder of Power of Attorney cannot nominate.
If mutual fund scheme is wound up, what happens to money invested?
In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after
adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual
funds which gives all necessary details.
How can investors redress their complaints?
Investors would find the name of contact person in the offer document of the mutual fund scheme
who they may approach in case of any query, complaints or grievances. Trustees of a mutual
fund monitor the activities of the mutual fund. The names of the directors of AMC and trustees
are also given in the offer documents. Investors should approach the concerned Mutual Fund /
Investor Service Centre of the Mutual Fund with their complaints. If the complaints remain
unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On
receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up
with it regularly. Investors may send their complaints to:
Securities and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
What is SEBI Complaints Redress System (SCORES)?
Plot No.C4-A , “G” Block, 1st Floor,
Bandra (E), Mumbai – 400 051.
Investors can also lodge their complaint on scores.gov.in
SEBI takes up complaints against Mutual Funds registered with it and related issues.
SCORES facilitates an investor to lodge his/her complaint online with SEBI and subsequently
view its status.