Frequently Asked Questions

Mutual funds can be classified into three categories:
1. kStructure-based mutual fund schemes:
•    Open-ended schemes
•    Close-ended schemes
•    Interval schemes
2. Objective-based mutual fund schemes:
•    Growth schemes
•    Income schemes
•    Balanced schemes
•    Liquid schemes
•    Gilt funds
•    Tax-saving schemes
•    Index funds
3. Special mutual fund schemes
•    Sector-specific funds
 

Mutual funds offer two options:
1. Growth option
In the growth option, any profit made by the mutual fund scheme is reinvested. Investors eventually gain compounded returns. The net asset value (NAV) rises if the scheme makes profits and drops in case of loss.
2. Dividend option
In this case, investors will receive the profits made by the scheme. Investors may receive dividends on a monthly, quarterly, half-yearly, or yearly basis. The dividend amount does not remain constant and investors are not assured of returns. If the scheme doesn’t make profits, investors may not receive dividends.
 

Equity Linked Savings Scheme (ELSS) is a great mutual fund option that can help you save tax. Under section 80C of the Income Tax Act, all investments made in ELSS qualify for a tax deduction of up to Rs 1.5 Lakh.
If you decide to sell your equity mutual funds after a year, the returns will qualify for a 10% long term capital gains (LTCG) tax. LTCG tax was reintroduced in 2018. If you sell your equity mutual funds within a year, you will have to pay short-term capital gains tax of 15% on your returns. You will also have to pay a 10% tax on any dividend you gain.
 

You can transfer funds to your mutual fund ledger either via netbanking or by transferring it from your equity trading account; then you can buy mutual funds using your ledger account.

The time taken for funds to be credited to your bank account depends on when you place a request for the transfer. Usually it takes a maximum of two working days from the day of your request.

While choosing a mutual fund scheme, keep in mind what you wish to achieve with this investment. You should choose a scheme that best fits your goals and requirements.

The Systematic Investment Plan (SIP) is a great periodic investment plan. With SIPs you can invest a specific fixed amount in a mutual fund scheme. You will have the option to invest monthly, bi-monthly, or fortnightly.
•    If you decide to increase the invested amount, a Step-up SIP will enable you to do this.
•    Alert SIP is a type of SIP that intimates investors when the market is done, so that they may invest more.
•    In case of Perpetual SIP, you don’t have to define an end date. The investment plan will go on till you give the fund house instructions to stop it.
 

Yes, balanced funds are a type of mutual funds that invest in a combination of stocks and bonds.

Net asset value (NAV) is a metric that measures how individual scheme performs. It is completely dependent on the market value of the securities every scheme holds, and so it can change from day to day. This value is mandatorily disclosed either daily or weekly, depending on the type of scheme.

To calculate NAV, first the value of all the securities present in a mutual fund portfolio is calculated. Then, after deducting all expenses, a value is obtained. This value is then divided by the total number of units present in the fund. This final value is the NAV of the mutual fund scheme.

Open-ended mutual fund schemes provide liquidity. All your units invested here can be redeemed for the current market value at any time. Close-ended mutual fund schemes, on the other hand, can’t be redeemed as long as the maturity period isn’t over.

Open-ended mutual fund schemes have no fixed duration, i.e. no maturity period. Investors can hence invest in the scheme at any time and withdraw units whenever they want. If you want liquidity, investing in open-ended mutual fund schemes is a good option.

Close-ended mutual fund schemes have a fixed maturity period. Investors subscribe to the scheme when it launches; subscription is open for a limited period. Units of the scheme are listed on stock exchanges and investors can buy or sell units of the scheme there. The NAV of close-ended mutual fund schemes is disclosed on a weekly basis. Some schemes let investors sell back their units to the mutual fund, as an exit route. 

•    Open-ended schemes don’t have a lock-in period, making them a great option if you’re looking for liquidity.
•    Close-ended schemes are traded in stock exchanges, unlike open-ended schemes. 
•    Investors can subscribe to open-ended schemes at any time, whereas subscription to close-ended schemes is open for a very short period. 
•    The corpus is fixed in close-ended schemes because after a certain period of time, no new units are sold. In an open-ended fund, the corpus is variable because investors may continuously keep buying and/or redeeming. 
 

All asset management companies (AMCs) are regulated by Securities and Exchange Board of India (SEBI). SEBI is the regulatory body for the Indian securities market. If an AMC is promoted by a bank, it is regulated by the Reserve Bank of India (RBI). 

An asset management company or AMC is the entity that invests your money in mutual funds. AMCs not only manage your investments but also try to provide you a diversified portfolio.

It depends on the type of instrument a mutual fund invests in. Everyone knows that investing in the stock market is risky as it keeps fluctuating; similarly, investing in stock-market related mutual funds is risky too. Fixed-income instruments and mutual funds that invest in government securities are comparatively safer investment options. 

Assessing the historical performance of a mutual fund can give you some insights into how it performs. Though past performance is no guarantee of how the fund will perform in future, it can still give one a basic understanding.

To determine what mutual funds are most suitable for you, find out if the fund meets your requirements for risk tolerance. Also see if the fund’s investment objectives match yours. There are online tools that can help you with this. You can also consult a financial advisor to get more clarity on choosing mutual funds.

Entry load is a fee charged when an investor purchases units of a mutual fund scheme. The entry load percentage is added to the NAV. This NAV is the same as the NAV at the time of allotment of units.

Exit load is a fee charged when an investor wants to redeem their units or transfer their units between schemes. The exit load percentage is deducted from the NAV. This amount will not be added into the pool of funds; it will instead go to the AMC.

Some of the factors are:
•    The market trend at all times
•    The stocks you invest in
•    Performance of the sector where you have invested
•    Portfolio management or reshuffling
•    Size of the funds pool
 

‘Switching’ happens when investors choose to switch from investing in one mutual fund to another. Additional costs may be applicable for switching. 

No, mutual funds aren’t allowed to indulge in speculation. Mutual funds trade only once a day, after the markets close, unlike stocks and ETFs. 

No, investing in mutual funds doesn’t guarantee returns.

You can buy mutual funds directly from an AMC, or from an independent financial advisor (IFA), online portals, or through your bank. You can buy mutual funds with a demat account or an online trading account.
To sell your mutual funds you can contact your financial advisor or the mutual fund company. Depending on the type of mutual fund scheme you have invested in, you may have to pay a fee for selling your mutual fund units. You can choose how you want the money from your mutual funds to be transferred back to you; you can get it via cheque or have the money directly deposited in your bank.
 

There aren’t many prerequisites for investing in mutual funds. You just need to ensure you have an online trading account or a demat account and that it is activated. Without this you won’t be able to invest in mutual funds.