FAQ
Most frequent questions and answers
Investment Related Questions:
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).
Mutual funds invest the money collected from investors in securities markets. In simple words,
NAV is the market value of the securities held by the scheme. Since market value of securities
changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the
market value of securities of a scheme divided by the total number of units of the scheme on
any particular date. For example, if the market value of securities of a mutual fund scheme is
INR 200 lakh and the mutual fund has issued 10 lakh units of INR 10 each to the investors, then
the NAV per unit of the fund is INR 20 (i.e.200 lakh/10 lakh). NAV is required to be disclosed by
the mutual funds on a daily basis.
The NAV per unit of all mutual fund schemes have to be updated on AMFI‟s website and the
Mutual Funds‟ website by 9 p.m. of the same day. Fund of Funds are allowed time till 10 a.m.
the following business day to update the information
These schemes offer tax rebates to the investors under specific provisions of the Income Tax
Act, 1961 as the Government offers tax incentives for investment in specified avenues, for
example, Equity Linked Savings Schemes (ELSS) under section 80C and Rajiv Gandhi Equity
Saving Scheme (RGESS) under section 80CCG of the Income Tax Act, 1961. Pension
schemes launched by mutual funds also offer tax benefits. These schemes are growth oriented
and invest pre-dominantly in equities. Their growth opportunities and risks associated are like
any equity-oriented scheme.
A Load Fund is one that charges a percentage of NAV for entry or exit andthe load structure in a
scheme has to be disclosed in its offer documents. Suppose the NAV per unit is INR 10. If the
entry as well as exit load charged is 1%, then the investors who buy would be required to pay
INR 10.10 (10 + 1% of 10) per unit and those who offer their units for repurchase to the mutual
fund will get only INR 9.90 (10 – 1% of 10) per unit. Currently, in India, the exit load charged is
credited to the scheme. The investors should take the loads into consideration while making
investment as these affect their returns. However, the investors should also consider the
performance track record and service standards of the mutual fund which are more important. A
no-load fund is one that does not charge for entry or exit. It means the investors can enter the
fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
SEBI has mandated that no entry load can be charged for any mutual fund scheme in India.
The price or NAV a unit holder is charged while investing in an open-ended scheme is called
sales price.
Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases
or redeems its units from the unitholders. It may include exit load, if applicable.
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. For limits on expense ratio, refer to regulation 52 of the SEBI (Mutual Funds)
Regulations, 1996.
As stated above, no entry load can be charged for any mutual fund scheme. An investor can
chose to pay a distributor based on the investor‟s assessment of various factors including the
service rendered by the distributor. However, for investments made through a distributor,
commission is paid directly by AMC to the distributor such that the total expense ratio for an
investor is within the limits on expense ratio specified under regulation 52 of the SEBI (Mutual
Funds) Regulations, 1996. Hence, the cost borne by investors remains within the limit
prescribed under SEBI Regulations.
Transaction Charge:
Further, a transaction charge of INR 150 and INR 100 per subscription of INR 10,000 and above
by a new and an existing investor, respectively, can be levied by distributor. This transaction
charge can be levied only if a distributor has opted in to levy transaction charge for that type of
mutual fund scheme. Further, the transaction charge, if any, is to be deducted by the AMC from
the subscription amount and paid to the distributor; and the balance is to be invested.
Investors can contact the agents and distributors of mutual funds who are spread all over the
country for necessary information and application forms. Investors must ensure that they invest
through Association of Mutual Funds in India (AMFI) registered distributors and that the
distributor has a valid AMFI Registration Number (ARN).
The distributors are required to disclose all the commissions (in the form of trail commission or
any other mode) payable to them for the different competing schemes of various mutual funds
from amongst which the scheme is being recommended to the investor.
Forms can be deposited with mutual funds through the agents and distributors who provide
such services. These days, post offices and banks also distribute the units of mutual funds.
However, the investors may please note that the mutual fund schemes being marketed by
banks and post offices should not be taken as their own schemes and no assurance of returns
is given by them. The only role of banks and post offices is to help in distribution of mutual funds
schemes to the investors.
Investors should not be carried away by commission/gifts, if any, given by agents/distributors for
investing in a particular scheme. On the other hand, they must consider the track record of the
mutual fund/scheme and should take objective decisions.
Investors also have the option to invest directly with the mutual fund either by visiting the mutual
fund branch or online through Mutual Fund website.
Investors should also refer to the product labelling of the scheme. All the mutual funds are
required to label their schemes on the following parameters:
a. Nature of scheme such as to create wealth or provide regular income in an indicative time
horizon (short/ medium/ long term).
b. A brief about the investment objective (in a single line sentence) followed by kind of product
in which investor is investing (Equity/Debt).
c. Level of risk depicted by a pictorial meter (known as a riskometer) as under:
- Low – principal at low risk
- Moderately Low – principal at moderately low risk
- Moderate – principal at moderate risk
A SIP allows an investor to invest regularly. One puts in a small amount every month that is
invested in a mutual fund.
A SIP allows an investor to invest regularly. One puts in a small amount every month that is
invested in a mutual fund.
Yes, cash investments up to INR 50,000 per investor, per mutual fund, per financial year can be
made in mutual funds. However, any repayment (redemption/dividend) is made only through
bank channel.
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are
given in the offer documents of the schemes.
Yes, there is a difference. Initial Public Offering (IPO) is offered by a company to directly raise
money for the 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
companies, money market instruments, gold, etc. Thus, a mutual fund acts as an intermediary
between investors and companies.
Company Fixed Deposit (corporate FD) is a term deposit which is held over fixed period at fixed rates of interest. Company Fixed Deposits are offered by Financial and Non-Banking financial companies (NBFCs). The maturities of various company fixed deposits can range from a few months to a few years.
A Demat account is a necessary account to hold financial securities in a digital form and to trade in the share market. In India, Demat accounts are maintained by two depository organizations, the National Securities Depository Limited and the Central Depository Services Limited.
An initial public offering or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail investors. An IPO is typically underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges.
Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing.
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Fixed Rate Bonds
In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond. Owing to a constant interest rate, fixed rate bonds are resistant to changes and fluctuations in the market. -
Floating Rate Bonds
Floating rate bonds have a fluctuating interest rate (coupons) as per the current market reference rate. -
Zero Interest Rate Bonds
Zero Interest Rate Bonds do not pay any regular interest to the investors. In such types of bonds, issuers only pay the principal amount to the bond holders. -
Inflation Linked Bonds
Bonds linked to inflation are called inflation linked bonds. The interest rate of Inflation linked bonds is generally lower than fixed rate bonds. -
Perpetual Bonds
Bonds with no maturity dates are called perpetual bonds. Holders of perpetual bonds enjoy interest throughout. -
Subordinated Bonds
Bonds which are given less priority as compared to other bonds of the company in cases of a close down are called subordinated bonds. In cases of liquidation, subordinated bonds are given less importance as compared to senior bonds which are paid first. -
Bearer Bonds
Bearer Bonds do not carry the name of the bond holder and anyone who possesses the bond certificate can claim the amount. If the bond certificate gets stolen or misplaced by the bond holder, anyone else with the paper can claim the bond amount. -
War Bonds
War Bonds are issued by any government to raise funds in cases of war. -
Serial Bonds
Bonds maturing over a period of time in installments are called serial bonds. -
Climate Bonds
Climate Bonds are issued by any government to raise funds when the country concerned faces any adverse changes in climatic conditions.
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
NPS provides you two types of accounts: Tier I and Tier II. Tier I is mandatory retirement account, whereas Tier II is a voluntary saving Account associated with your PRAN. Tier II offers greater flexibility in terms of withdrawal, unlike Tier I account, you can withdraw from your Tier II account at any point of time.
Insurance Related Questions:
Term insurance is pure protection life insurance policy. It provides coverage for a defined period in exchange for a specified premium amount. In case of an unfortunate event during this time-frame, the insurer provides a guaranteed# payout. It compensates your nominee for the loss of your income.
Health insurance is an insurance product that provides cover for medical and surgical expenses of an insured person, in case of a medical emergency. However, you are required to pay a premium to avail health insurance policy.
More popularly known as motor insurance, this type of insurance provides cover for loss or damage to any vehicle like car, two-wheeler or commercial vehicle, etc. Description: This insurance helps mitigate monetary harms due to accidents causing damage to the vehicles.
Travel Insurance is a type of insurance that covers different risks while travelling. It covers medical expenses, lost luggage, flight cancellations, and other losses that a traveller can incur while travelling. Travel Insurance is usually taken from the day of travel till the time the traveller reaches back to India.
Fire insurance is a contract of insurance against the loss/damage by accidental fire or other occurrences customarily included under a fire policy.
A personal accident policy is a type of insurance policy that offers you protection against death or disability caused due to an accident. In case of death due to an accident, the policy pays out a lump sum amount to the nominee of the policyholder.