Mutual Fund
A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest in different securities. Investments may be in shares, debt securities, money market securities or a combination of these. Those securities are professionally managed on behalf of the unit-holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits when the securities are sold, but subject to any losses in value as well.




The benefits of investing through a mutual

Professional Investment Management

Mutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale.

Diversification

Mutual funds invest in a broad range of securities. This limits investment risk by reducing the effect of a possible decline in the value of any one security. Mutual fund unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities.

Low Cost

A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

Convenience and Flexibility

You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services. Fund managers decide what securities to trade, collect the interest payments and see that your dividends on portfolio securities are received and your rights exercised. It also uses the services of a high quality custodian and registrar in order to make sure that your convenience remains at the top of our mind.

Personal Service

One call puts you in touch with a specialist who can provide you with information you can use to make your own investment choices. They will provide you personal assistance in buying and selling your fund units, provide fund information and answer questions about your account status.

Liquidity

In open-ended schemes, you can get your money back promptly at net asset value related prices from the mutual fund itself.

Transparency

You get regular information on the value of your investment in addition to disclosure on the specific investments made by the mutual fund scheme.


Types of Mutual Funds


Based on your goals and your investment horizon, Mutual Funds give you the option to invest your money across various asset classes like equity, debt and gold. This allows you to diversify your investments and strive to reduce your portfolio risk.

The different types of Mutual Funds are as follows :-

Equity Funds / Growth Funds


Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over a medium to long-term investment horizon. Equity Funds are high risk funds and their returns are linked to the stock markets. They are best suited for investors who are seeking long term growth.

Different types of Equity Funds

These funds provide you the benefit of diversification by investing in companies spread across sectors and market capitalisation. They are generally meant for investors who seek exposure across the market and do not want to be restricted to any particular sector.

They may be further classified as :-

Diversified Large Cap

These funds focuses investing in large-cap companies with strong financials, quality management and market leadership.

Diversified Mid Cap & Small Cap

These fund focus primarily on small and mid cap companies that exhibit higher growth rates than their well established large cap companies. These fund aims to identify companies at an early stage of business life cycle as they have a greater potential for the upside. These funds are suitable for investors that prefer fund that has potential to deliver high capital appreciation over time but with relatively higher volatility

Diversified Multi Cap

These funds focuses on capturing growth across the entire market capitalization range by following a blend of 'growth' and 'value' investment style. These fund’s exposure to large, mid and small cap stocks varies depending on relative value and risk / return profile of the segments.These funds have the flexibility to have higher allocation to any particular market cap category.

Sector Funds

These funds invest primarily in equity shares of companies in a particular business sector or industry. While these funds may give higher returns, they are riskier as compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

Index Funds

These funds invest in the same pattern as popular stock market indices like CNX Nifty Index and S&P BSE Sensex. The value of the index fund varies in proportion to the benchmark index. NAV of such schemes rise and fall in accordance with the rise and fall in the index. This would vary as compared with the benchmark owing to a factor known as “tracking error”.

Country or Region Funds

These funds invest in securities (equity and/or debt) of a specific country or region with an underlying belief that the chosen country or region is expected to deliver superior performance, which in turn will be favourable for the securities of that country. The returns on country fund are affected not only by the performance of the market where they are invested, but also by changes in the currency exchange rates.

Offshore Funds

These funds mobilise money from investors for the purpose of investment within as well as outside their home country. so we have seen that funds can be categorised based on tenor, investment philosophy, asset class, or geographic region.

Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act, 2961. Opportunities provided under this scheme are in the form of tax rebates under section 80 C of the Income Tax Act, 1961. They are best suited for long investors seeking tax rebate and looking for long term growth.

Debt Fund / Fixed Income Funds


These Funds invest predominantly in rated debt / fixed income securities like corporate bonds, debentures, government securities, commercial papers and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seeking regular and steady income. They are less risky when compared with equity funds.
Debt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally, debt securities have a fixed maturity date & pay a fixed rate of interest.
The returns of a debt mutual fund comprises of :-

• Interest income
• Capital appreciation / depreciation in the value of the security due to changes in market dynamics

Debt securities are also assigned a 'credit rating', which helps assess the ability of the issuer of the securities / bonds to pay back their debt, over a certain period of time. These ratings are issued by independent rating organisations such as CARE, CRISIL, FITCH, Brickwork and ICRA. Ratings are one amongst various criteria used by Fund houses to evaluate the credit worthiness of issuers of fixed income securities.

Different types of Debt Mutual Funds

There are different types of Debt Mutual Funds that invest in various fixed income securities of different time horizons. Some of the debt based & blended category products (which have both debt and equity allocation) are as follows -

Liquid Funds / Money Market Funds

These funds invest in highly liquid money market instruments and provide easy liquidity. The period of investment in these funds could be as short as a day. They aim to earn money market rates and could serve as an alternative to corporate and individual investors, for parking their surplus cash for short periods. Returns on these funds tend to fluctuate less when compared with other funds.

Ultra Short Term Funds

Earlier known as Liquid Plus Funds, they invest in very short term debt securities with a small portion in longer term debt securities. Most ultra short term funds do not invest in securities with a residual maturity of more than 1 year. Also referred to as Cash or Treasury Management Funds, Ultra Short Term Funds are preferred by investors who are willing to marginally increase their risk with an aim to earn commensurate returns. Investors who have short term surplus for a time period of approximately 1 to 9 months should consider these funds.

Floating Rate Funds

These funds primarily invest in floating rate debt securities, where the interest paid changes in line with the changing interest rate scenario in the debt markets. The periodic interest rate of the securities held by these products is reset with reference to a market benchmark. This makes these funds suitable for investments when interest rates in the markets are increasing.

Short Term & Medium Term Income Funds

These funds invest predominantly in debt securities with a maturity of upto 3 years in comparison to a Regular Income Fund. These funds tend to have a average maturity that is longer than Liquid and Ultra Short Term Funds but shorter than pure Income Funds. These funds tend to perform when short term interest rates are high and could potentially benefit from capital gains as liquidity comes back to the market and interest rates go down. These funds are suitable for conservative investors who have low to moderate risk taking appetite and an investment horizon of 9 to 12 months.

Income Funds, Gilt Funds and other dynamically managed debt funds

These funds comprise of investments made in a basket of debt instruments of various maturities & issuers. These funds are suitable for investors who willing to take a relatively higher risk as compared to corporate bond funds,and have longer investment horizon. These funds tend to work when entry and exit are timed properly; investors can consider entering these funds when interest rates have moved up significantly to benefit from higher accrual and when the outlook is that interest rates would decrease. As interest rates go down, investors can potentially benefit from capital gains as well. A few types of dynamically managed debt funds are mentioned below :-

Income funds

Invest in corporate bonds, government bonds and money market instruments. However,they are highly vulnerable to the changes in interest rates and are suitable for investors who have a long term investment horizon and higher risk taking ability. Entry and exit from these funds needs to be timed appropriately. The correct time to invest in these funds is when the market view is that interest rates have touched their peak and are poised to reduce.

Gilt Funds

Invest in government securities of medium and long term maturities issued by central and state governments. These funds do not have the risk of default since the issuer of the instruments is the government. Net Asset Values (NAVs) of the schemes fluctuate due to change in interest rates and other economic factors. These funds have a high degree of interest rate risk, depending on their maturity profile. The higher the maturity profile of the instrument, higher the interest rate risk.

Dynamic Bond Funds

Invest in debt securities of different maturity profiles. These funds are actively managed and the portfolio varies dynamically according to the interest rate view of the fund managers. These funds Invest across all classes of debt and money market instruments with no cap or floor on maturity, duration or instrument type concentration.

Corporate Bond Funds

These funds invest predominantly in corporate bonds and debentures of varying maturities that offer relatively higher interest, and are exposed to higher volatility and credit risk. They seek to provide regular income and growth and are suitable for investors with a moderate risk appetite with a medium to long term investment horizon.

Close Ended Debt Funds

Fixed Maturity Plans (FMPs) are closed ended Debt Mutual Funds that invest in debt instruments with a specific date of maturity that is less than or equal to the maturity date of the scheme. Securities are redeemed on or before maturity and proceeds are paid to the investors.
FMPs are similar to passive debt funds, where the portfolio manager buys and holds the debt securities for the entire duration of the product. FMPs are a good option for conservative investors, as they do not carry any interest rate risk provided the investor stays invested until the maturity of the product. They are also a tax efficient investment option.

GOLD


Gold is seen as a symbol of security and a sign of prosperity. The investment objective of the Scheme is to generate returns that are in line with the performance of gold, subject to tracking errors. The Scheme would invest in gold in the domestic market and intends to track the spot price of gold in the domestic market.

Hybrid Funds


They bridge the gap between equity and debt schemes by investing in a mix of equity and debt securities. This adds a considerable amount of risk to the product and will suit investors looking for commensurate returns with higher levels of risk than regular debt funds.

Monthly Income Plans

(MIPs) strive to offer the benefit of diversification across asset classes by investing a proportion of the portfolio in debt securities (70% to 95%) with a smaller allocation in equity securities (5 % to 30 %).

As the correlation between prices of equity and debt is low, this product endeavors to give an investor returns that are relatively higher than debt market returns. MIPs can be classified as debt oriented hybrids that seek to :-

o generate income from the debt securities
o maximise the benefits of long term growth from equity securities
o aim for periodic distribution of dividends

However, an important point to be noted is that monthly income is not assured and it is subject to the availability of distributable surplus in the fund.

Capital Protection Oriented Funds

Are closed ended funds that are hybrid in nature; they allocate money to debt and equity securities. The allocation to debt securities is done in such a way that at the end of the term of the product, the value of debt investment is equal to the original investment in the fund. The equity portion aims to add to the returns of the product at maturity. These funds are oriented towards protection of capital and do not offer guaranteed returns.

Say, for example, AAA bonds are quoting at interest rate of 10% p.a. for a 5 year term.
o This means that at the end of 5 years, the investment of Rs. 100 in such bonds would be worth Rs. 161.05, assuming reinvestment of the interest.
o On the other hand, if one invests Rs. 62.09 in such bonds, the value of the bonds at the end of 5 years would be Rs. 100.

In such a case, the allocation between equity and debt would be 38 : 62 respectively. So, if the equity value reduces to zero, the investor gets back the original amount invested.

The asset allocation is a function of prevailing interest rates on high quality (AAA rated) bonds. It is mandatory for the fund to be rated by at least one rating agency in order to be called a capital protection oriented fund. Debt securities held in the portfolio must be of highest rating.

Multiple Yield Funds

Are close ended income funds that aim to optimize income from debt securities and potential growth from equity. They aim to limit the downside by investing in rated debt instruments of reputed issuers. Through a limited equity exposure, they aim to provide capital appreciation by investing in shares of companies without any sector or market capitalization bias. This exposure will help to participate in the growth of these companies thus seeking to provide the portfolio with an element of potential long term capital appreciation.

Liquid Funds / Money Market Funds

These funds invest in highly liquid money market instruments and provide easy liquidity. The period of investment in these funds could be as short as a day. They are ideal for Corporates, institutional investors and business houses who invest their funds for very short periods.

Gilt Funds

These funds invest in Central and State Government securities and are best suited for the medium to long-term investors who are averse to risk. Government securities have no default risk.

Balanced Funds

These funds invest both in equity shares and debt (fixed income) instruments and strive to provide both growth and regular income. They are ideal for medium- to long-term investors willing to take moderate risks.


Benefits of investing in Debt Mutual Funds

The various benefits of investing in Debt Mutual Funds are listed below :-

Your investments are not affected by equity market volatility

Debt Mutual Funds invest in a range of interest bearing instruments such as Treasury Bills, Government Securities, Corporate Bonds, Money Market Instruments and other debt securities.

Add stability to your investment portfolio

As Debt Mutual Funds mainly invest in debt securities, they are relatively more stable than equity investments. They can also lend stability to your equity portfolio by reducing the risk associated with your complete investment portfolio.

Freedom to withdraw your money when required

All open ended mutual funds give you the freedom to withdraw your money as and when required, although your investments may be subject to an exit load. Close ended mutual funds have a defined maturity date. Such funds are listed and can be traded on the stock exchange.

You can aim for better post tax returns
Earnings from debt instruments can come in two forms :-

• Dividend or interest payments
• Capital gains based on the difference between the purchase price and the sale price of the debt security. Tax on dividend / interest income : Dividend distribution Tax (DDT) is broken up into the following
• Dividend for individual v/s non-individual investors and
• Dividend from liquid v/s non-liquid funds
Tax on capital gains: Capital gains tax are broken up and taxed as follows :-
• Short term capital gains (not exceeding 12 months) – Marginal Tax Rate.
• Long term capital gains (exceeding 12 months) – Indexed Tax Rate (Except for NRIs / QFIs incase of Unlisted Mutual Fund units, where indexation benefit will not be available).

Indexation Benefit

Indexation adjust the purchase value of your investment to indicate the impact of inflation, while calculating long term capital gains tax for investments held for over 1 year.


Statutory Details and Disclaimer

Please read this information carefully
This information published on this web site should be used for information purposes only. It is subject to change without notice and should not be taken as advice. Risk Factors: All investments in mutual funds and securities are subject o market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market and there can be no assurance that the fund's objectives will be achieved.Past performance of the Sponsors, AMC/Fund does not indicate the future performance of the Schemes of the Fund. Mutual Fund investments are subject to market risks. Please read the Scheme Information Document and Statement of Additional Information of the Scheme carefully before investing. cannot be held liable for any loss arising directly or indirectly from the use of, or any action taken in on, any information appearing on this web site.

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