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.
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:
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 reduced.
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.
All investments in mutual funds and securities are subject to market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market.
Price Risks: Fall in the prices of the underlying shares/bonds lead to a lower NAV.
Liquidity Risks: Markets being shut for a long period could lead to the suspension of repurchase / redemption of investments.
Default Risk: Bonds of a particular company defaulting on repayment affecting income/debt/hybrid funds.
Credit Risk: Bonds of a particular company being downgraded by the rating agencies cause lower prices.
The best thing about mutual fund is that in reality most if not all financial instruments carry these risks but public is ignorant about it. For example, bank deposits are guaranteed only up to one lakh rupees. Company FDs carry default risks. Price risk is the only additional risk of investing in a MF. This is true for any investment that has a market price (Real estate, Shares, Gold, etc.,).
No. The biggest risk is not investing at all, as inflation erodes the value of money and the future looks far from certain. Hence proper risk taking and planning are essential.
NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. 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. NAV is calculated as:
NAV= Market value of the fund's investments + Receivables + Accrued Income – Liabilities - Accrued Expenses The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV) and it varies on daily basis..
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.
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.
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.
A systematic investment plan (SIP) offers 2 major benefits to an investor:
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 equities.
Please note that in the current Union Budget 2000, the tax on debt funds has been increased from 10 percent to 20 percent.