- Mutual Funds & Advantages
- Unique terms
- Who can invest?
- Types of MF
- MF from Top Institutions
Advantages Of Investing In Mutual Funds
Mutual funds have become a very popular investment option in India and this trend still continues with new funds and schemes being introduced in the market regularly. Some of the key reasons why people invest in mutual funds are outlined below.
Professional management: Mutual funds are managed by fund managers of asset management companies. These managers employ their investment expertise to minimise risks and maximise returns to investors. Individuals often find it difficult to decide which assets to invest their savings in due to lack of financial knowledge.
Diversification of risks: Since mutual funds invest in a number of securities, risk is diversified. The chances of all stocks performing badly at the same time is low. Losses suffered on some stocks are offset by gains made on others. This leads to minimization of risks.
Affordable investment option: For those who don’t have sizeable amounts to invest in direct equity or other instruments that require a high initial investment, mutual funds make for an affordable investment avenue. Also, transaction costs are spread out over a number of investors thereby lowering individual costs.
Focused investments: All mutual funds feature schemes clearly specifying which assets are targeted for investments, allowing investors to direct savings to different asset classes in an organised and focused manner. It also gives investors access to certain securities otherwise unavailable to them e.g. foreign sectors or foreign securities which cannot be invested in by individuals.
Choice of assets: There are various types of funds e.g. equity funds, debt funds, money market funds, hybrid funds, sector funds, regional funds, fund of funds, index funds etc. giving investors a wide range of choice.
Easy purchase and redemption: Fund units can be easily bought and sold at prevailing unit prices or NAVs. Unless there’s a lock-in period, it is easy for investors to buy into or out of a fund thereby providing liquidity.
Tax benefits: A number of funds/schemes have been designed to act as tax-saving instruments e.g. ELSS or equity linked saving schemes. Investments made in these schemes qualify for income tax deductions.
High returns: Mutual funds have been known to provide good returns on medium and long-term investments since investors can diversify risk to enhance overall returns.
Regulated investments: All funds come under the purview of SEBI (Securities Exchange Board of India) which ensures dealings are as per regulations. This provides an element of safety to investments made.
Easy to track: It can be hard for investors to regularly review their investment portfolios. Mutual funds provide clear statements of all investments which makes it easy for investors to keep a tab on. Hybrid or balanced funds provide investors an avenue to access both equity and debt funds at one go in a proportion of choice.
SIP options: Systematic Investment Plans let individuals invest small amounts on a regular basis to avail benefits of rupee cost averaging. It’s an alternative to those who cannot invest lump sum amounts thereby appealing to investors across income levels. Mutual funds accept initial investments as low as Rs.500.
Flexibility through fund switching: Many funds offer investors flexibility by letting investors switch between schemes or between funds to avail better returns
- Fund Units or Shares - Investments in a mutual fund are made by buying units or shares of a particular fund. The more the units bought the higher the investment.
- Net Asset Value - This is the unit price or price per share of the fund. The NAV of a fund changes depending on the fund’s performance. Units are purchased or sold/redeemed at the prevailing NAV or unit price at the time of purchase/sale.
- Lock-in Period - Certain funds stipulate a period during which units cannot be sold i.e. investors cannot liquidate their investment during this period. If allowed, it is subject to a penalty or loss of benefits.
- Offer document - This is a formal document that outlines the basic features of the fund. The objective of the fund and the asset classes that the fund will invest in is mentioned in the offer document. It also contains terms and conditions of the fund and other details such as who will manage the fund, risk factors, the fund’s performance history and other financials. Investors should read the offer document carefully before investing in a fund.
- Assets Under Management (AUM): This refers to the total market value of funds being managed by a mutual fund company.
- Expense Ratio: This indicates the expenses incurred by the fund in relation to the total assets.
- New Fund Offer (NFO): New fund offers are new funds/schemes launched in the market by an AMC. Investors can buy units of these new funds at the offer price, which is usually very low. Subsequent purchases in these funds will have to be made at prevailing NAVs.
- Redemption: This is when fund units are sold/transferred/cancelled.
How to invest in mutual funds
Mutual funds are made easily accessible to investors. Applications can be made in the following ways.
Agents: These are professionals who are trained to reach out to customers to provide information on the various funds provided by a company. They help process applications and deal with related issues e.g. redemption, cancellation, transfer of units and other dealings with the company. Agent commissions, which normally range up to 6%, are added on to the purchase price of fund units.
Direct: Customers can invest directly by visiting the nearest office of the mutual fund company or by going online. Forms can be availed and submitted at the appropriate office or downloaded from the company website and submitted at the office. Alternatively, applications can be processed online. Applying for Mutual Funds and Online transactions are becoming increasingly popular for many reasons, as mentioned below.
- Convenience: Schemes can be applied from the comfort of one’s own office or home.
- Easy comparison: Besides company websites, there are a number of online financial services providers which act as single-point portals for viewing and comparing funds and schemes from multiple companies.
- Independence: All required information, including brochures and other material, are provided online for making informed, independent decisions.
Equity Funds: These are funds that invest in equity stocks/shares of companies. These are considered high-risk funds but also tend to provide high returns.
Debt Funds: These are funds that invest in debt instruments e.g. company debentures, government bonds and other fixed income assets. They are considered safe investments and provide fixed returns.
Money Market Funds: These are funds that invest in liquid instruments e.g. T-Bills, CPs etc. They are considered safe investments for those looking to park surplus funds for immediate but moderate returns.
Balanced or Hybrid Funds: These are funds that invest in a mix of asset classes. In some cases, the proportion of equity is higher than debt while in others it is the other way round. Risk and returns are balanced out this way.
Sector Funds: These are funds that invest in a particular sector of the market e.g. Infrastructure funds invest only in those instruments or companies that relate to the infrastructure sector. Returns are tied to the performance of the chosen sector. The risk involved in these schemes depends on the nature of the sector.
Index Funds: These are funds that invest in instruments that represent a particular index on an exchange so as to mirror the movement and returns of the index e.g. buying shares representative of the BSE Sensex.
Tax-Saving Funds: These are funds that invest primarily in equity shares. Investments made in these funds qualify for deductions under the Income Tax Act. They are considered high on risk but also offer high returns if the fund performs well.
Fund of funds: These are funds that invest in other mutual funds and returns depend on the performance of the target fund.
Based on structure
Open-Ended Funds: These are funds in which units are open for purchase or redemption through the year. All purchases/redemption of these fund units are done at prevailing NAVs. These funds are preferred since they offer liquidity to investors.
Close-Ended Funds: These are funds in which units can be purchased only during the initial offer period. Units can be redeemed at a specified maturity date. To provide for liquidity, these schemes are often listed for trade on a stock exchange.
Based on investment objective
Growth funds: Under these schemes, money is invested primarily in equity stocks with the purpose of providing capital appreciation. They are considered to be risky funds ideal for investors with a long-term investment timeline.
Income funds: Under these schemes, money is invested primarily in fixed-income instruments e.g. bonds, debentures etc. with the purpose of providing capital protection and regular income to investors.
Liquid funds: Under these schemes, money is invested primarily in short-term or very short-term instruments e.g. T-Bills, CPs etc. with the purpose of providing liquidity. They are considered to be low on risk with moderate returns and are ideal for investors with short-term investment timelines. Mutual funds offer investors many benefits. However, the onus of making a sound investment lies on the investor. Funds should be chosen keeping in mind investment objective, liquidity requirements. investment timelines and affordability.
HDFC Asset Management Company Limited (AMC) is a subsidiary of Housing Development Finance Corporation Limited (HDFC). HDFC holds 74% of the paid up share capital of the AMC and the balance 26% of the paid up share capital is held by The Standard Life Assurance Company.
Pioneers in the Indian Mutual Fund industry, we at UTI MF have always aimed at being a trusted, efficient and innovative wealth creators. This is made possible by an immensely strong team of professionals who never fail to lose sight of the objectives of our investors. After all, it is the investor who is at the heart everything we stand for.
Reliance Capital Asset Management Limited (RCAM), is a wholly owned subsidiary of Reliance Capital Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset Management Limited is held by Reliance Capital Limited.
The philosophy of DSP BlackRock Investment Managers Ltd. has been grounded in the belief that experienced investment professionals, using a disciplined process and sophisticated analytical tools, can consistently add value to client portfolios.
Tata Asset Management Pvt. Ltd. is a part of the Tata group - one of Indias largest and most respected industrial group. The Tata Group is one of Indias best-known conglomerate in the private sector with a turnover of around US $ 11.2 billion (equivalent to 2.4 % of Indias GDP). Long known for its adherence to business ethics, it is Indias most respected private business group. With 210,443 employees across 93 companies, it is also Indias largest employer in the private sector.
Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment managers of Birla Sun Life Mutual Fund, is a joint venture between the Aditya Birla Group and the Sun Life Financial Services Inc. of Canada.
SBI Mutual Fund draws strength from Indias premier and largest bank, the State Bank of India. Set up on July 1, 1955, the State Bank of India is the largest banking operation in the country. SBI entered into a Memorandum of Understanding with Société Générale Asset Management (SGAM), which offers retail investors, corporate clients and institutional investors a wide range of investment products.
IDFC is a leading private sector diversified financial institution established by a consortium of strong global and local institutions with the support and sponsorship of the Government of India.
L&T Mutual Fund is one of the premier mutual funds in India that serves the investment needs of investors through a suite of acclaimed mutual fund schemes. With world class investment management practices and an equally competent fund management team, L&T Mutual Fund helps its investors reach their financial goals.
Axis Mutual Fund launched its first scheme in October 2009- a challenging period on any account not just for the Indian but the global investor too. Despite this Axis Mutual Fund in less than three years has got off to a good start. Some numbers that bear this out
Prudential ICICI Asset Management Company, (49%: 51%) a joint venture between Prudential Plc, UKs leading insurance company and ICICI Bank Ltd, Indias premier financial institution. The AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June 1993.
Asset Management Company
Motilal
Oswal Asset Management Company Ltd. (AMC) is a limited company incorporated
under the Companies Act, 1956 on November 14, 2008, having its Registered Office
at Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(W),
Mumbai – 400064. Motilal Oswal Asset Management Company Ltd. has been appointed
as the Investment Manager to Motilal Oswal Mutual Fund by the Trustee vide
Investment Management Agreement (IMA) dated May 21, 2009, executed between
Motilal Oswal Trustee Company Ltd. and Motilal Oswal Asset Management Company
Ltd. The Board of Directors of the Asset Management Company comprises eminent
personalities with varied experience.
With over 50 years of experience in international investment management and offices in over 28 countries Franklin Templeton services more than 10 million unit holders. Franklin Templeton offers over 240 investment products, available under the Franklin, Templeton and Mutual Series brandnames, serviced and supported by 6,400 employees in more than 28 countries.
Kotak Mahindra is one of Indias leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates. The group has a net worth of over Rs.1,550 crore and employs over 3,000 employees in its various businesses. With a presence in 60 cities in India and offices in New York, London, Dubai and Mauritius, it services a customer base of over 5,00,000.
LIC Mutual Fund was set up by the Life Insurance Corporation of India on 20th April 1989 to engage in the business of Mutual Fund and in order to achieve this objective to engage in any other activity or business permitted or authorized. The Fund continues to work towards realizing this objective. The Fund was governed by a Board of Trustees earlier and is governed with effect from 8th April 2003 by LIC Mutual Fund Trustee Company Pvt. Ltd.(Trustee Company) on its incorporation under The Companies Act, 1956.
Mirae Asset Global Investments (India) Pvt. Ltd is a worldwide leader in asset management, with extensive capabilities in asset management, life insurance, securities and capital & venture investments across World. Mirae Asset Global Investments (India) Pvt. Ltd (the AMC) was established as a wholly owned subsidiary of Mirae Asset Financial Group head quartered in Seoul, South Korea in 1997 and came under the spotlight in 1998. Principle of the business: Objectivity, teamwork, citizenship, placing the client first and behind our growth are universal, and we are determined to bring the gains to investors around the world.