Find quick answers to the most common queries we receive from our investors.
Mutual fund is a mechanism for pooling money by issuing units to the investors and investing investors funds in securities in accordance with objectives as disclosed in offer document. 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.
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 unitholders. AMC approved by SEBI manages the funds by making investments in various types of securities.
SEBI Regulations require that at least two-thirds of the directors of trustee company should be independent and should not be associated with the sponsors in any manner. Further, fifty per cent of the directors in the board of AMC should be independent and should not be associated with sponsor or its subsidiaries or the trustees in any manner. All mutual funds are required to be registered with SEBI before they launch any scheme.
NAV is the unit price of a mutual fund scheme. The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). NAV indicates the price at which investors buy or redeem mutual fund units. NAV of a scheme is determined by dividing the net assets (Total Asset – Total Liabilities) of the scheme by the total number of outstanding units on any particular date.
For example, if the total asset of a mutual fund scheme is INR 200 lakh and total liabilities is INR 10 lakh and 10 lakh units are outstanding, then the NAV per unit of the fund is calculated as under: Net asset = Total Asset – Total Liabilities = INR 200 lakh – INR 10 lakh = INR 190 lakh NAV = Net asset/total outstanding units = INR 19 (i.e.190 lakh/10 lakh). NAV of a fund changes every day as a result of changes in the market price of the securities that form a part of the portfolio. Therefore, NAV is determined on a daily basis and required to be disclosed by the mutual funds on a daily basis.
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.
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 mutual fund (directly or through a distributor). In the ETF structure, the mutual fund 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. 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 account.
An entry load can be defined as the amount or fee paid by an investor upon entering a scheme. However, SEBI has abolished the practice of imposing entry loads on mutual funds. Hence, currently the entry load is no longer permitted. Exit load is a fee or charge imposed on investors by a mutual fund when investors redeem/sell their units before a specified period. The purpose of exit load is to discourage short-term trading and to protect long-term investors from the potential adverse effects of short-term trading activities.
The information about the load structure can be found in mutual fund’s offer document or scheme information document (SID). Exit load is calculated as a percentage of NAV. Suppose a mutual fund scheme charged exit load of 1% for redemption within 90 days from the date of purchase. Assume that you redeem 1000 units of a scheme before 90 days of purchase and NAV per unit is INR 50. The exit load will be = 1% X 1000 (numbers of units) X INR 50 (NAV per unit) = INR 500. This amount will be deducted from redemption proceeds and you will get redemption proceeds of INR 49500.
Expense ratio represents the annual fund operating expenses of a scheme, expressed as a percentage of the fund’s daily net assets. Operating expenses of a scheme are administration, management, advertising related expenses, etc. An expense ratio of 1% per annum means that each year 1% of the fund’s total assets will be used 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 no limit on any particular type of allowed expense as long as the total expense ratio is within the prescribed limit. You may refer to regulation 52 of the SEBI (Mutual Funds) Regulations, 1996, for limits on expense ratio.
Mutual funds are required to dispatch statements of accounts within five working days from the date of closure of the initial subscription of the scheme or from the date of receipt of the request from the investors/unitholders. Mutual fund shall issue units in dematerialized form within two working days of the receipt of request from unit holder.
Also, mutual funds are required to send confirmation specifying the number of units allotted to the investor by way of email and/or SMS‟s to the investor’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 investors/unitholders.
Mutual funds are required to issue consolidated account statement (CAS) for each calendar month, on or before fifteenth day of the succeeding month, to the investors in whose folios transaction(s) has/have taken place during that month.
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) also provides the amount of actual commission paid by 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 mutual funds 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 GST (wherever applicable, as per existing rates), operating expenses, etc. Such half-yearly CAS is issued to all mutual fund investors, excluding those investors who do not have any holdings in mutual fund 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.
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.
Mutual fund investments are subject to market risks. An investor should carefully read all the scheme related documents before investing. An abridged offer document known as Key Information Memorandum (KIM)], which contains information in concise form, 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.
There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their investors/unit holders. Apart from it, many mutual funds send newsletters to their investors. At present, Scheme Information Document (SID) is required to be revised and updated within one month from the end of the half-year, based on the relevant data and information as at the end of September and March respectively. In the meantime, the investors are informed about the material changes by way of addendum to the offer document.
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 mutual fund is required to have a dashboard on its website providing performance and key disclosures pertaining to each scheme managed by the mutual fund.
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 unitholders 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.
Yes, there is a difference. Initial Public Offering (IPO) is offered by a company to directly raise money for a single 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 basket of companies, money market instruments, gold, etc.
Almost all the mutual funds have their own web sites, where details of NAVs, SIDs , KIMs and portfolio of the schemes etc. are readily available. 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. 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 advisors to guide them in this regard.
Yes. Regulation 29A of SEBI (Mutual Fund) Regulations, 1996, notifies that the mutual fund shall provide nomination facility to the unit holders to nominate a person in whose favour the units shall be transmitted in the event of death of the unit holder. An investor, investing in mutual fund units has to provide nomination or opt out of nomination through physical or online mode. The requirement of nomination is optional for jointly held folios.
A person may nominate upto three persons and clearly indicate the percentage of allocation/share in favour of each of the nominee against their names, and such allocation/share shall be in whole numbers without any decimals. Further an individual may appoint different nominees for different schemes. Non individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.
The grievance redressal and dispute mechanism is mentioned in the offer documents and website of the respective mutual fund. Investors should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund for resolution of their complaints. Details regarding the name address, and phone number of the investor relation officer whom should be approach in case of any query, complaints etc. can be found in the offer document/SAI of the respective mutual fund. In case of non redressal of the complaint, the investors can approach SEBI for redressing their complaints. Investor may lodge their complaints through SCORES (SEBI Complaints Redress System – https://scores.sebi.gov.in) or by sending their complaints on the address given below:
Securities and Exchange Board of India
Office of Investor Assistance and Education,
Securities and Exchange Board of India,
SEBI Bhavan II, PN-C7, G Block BKC,
Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra 400051
Investors can lodge their complaint through SEBI SCORES mobile app also.