Are mutual funds insured?
No. Mutual fund units are not insured by the government, or any government agency, and do not have any other type of insurance, unlike certain types of checking or savings accounts and certificates of deposit. There is no guarantee that when you sell your shares, you will receive what you paid for them. However, because mutual fund investments are more risky than insured investments, they generally offer potential for higher long-term returns.
What should I look for in an investment? Are the investments I have now the right ones for me?
Investors differ in their investment needs based on their personal financial goals. It is recommended that you should, at the very beginning, identify your own financial goals, be it planning for a comfortable retired life or childrens education. After defining the financial goals, you need to plan for them in an organised manner and look at investments that help achieve these goals.
To build a successful investment strategy, you should carefully structure your investment plan so that you can achieve your goals without taking more risk than you can afford or are comfortable with. You also need to consider how much time you have to reach your different goals and your personal circumstances.
Investment experts recommend that growth investments, such as equity funds and stocks, are a good choice for funding needs that are 5 years or more away, income funds to meet medium-term needs, and liquid funds for short-term requirements.
How do I enrol in the Systematic Investment Plan?
You can participate in the Systematic Investment Plan (SIP) by investing a minimum of Rs.100/- or more either on a monthly or quarterly basis.
How do I enrol in the Systematic Withdrawal Plan?
A facility to plan for your retirement and other regular monthly income needs through the Systematic Withdrawal Plan (SWP). Depending on your needs for monthly or quarterly income, you can then choose to withdraw wither a fixed sum per month or quarter, or the capital appreciation in the Net Asset Value of your investment.
When is the right time to invest in equities?
No matter how hard we try, it is rarely possible to predict the short-term movements in the equity market and therefore it is difficult to determine the right time to invest. However, "Rupee-Cost Averaging" could help you even out your investment costs and hence use the short-term market fluctuations to your advantage.
What do I get as proof of my holdings?
You get an "account statement" which is similar to a bank passbook. The account statement is a non-transferable document which shows details of all purchases and sales, along with the price at which the purchase or sale was made. It will also show the, amount invested and redeemed to date and the number of units held, helping you track your investments.
A fresh account statement will be sent to you reflecting the updated holdings of the unitholder after every transaction. Under normal circumstances, the account statement will be sent to you within 3 working days after the date of receipt of the purchase or redemption request at any of the Investor Service Centres.
Can I follow my investments in the daily paper?
Yes. Most mutual funds and publicly traded stocks are listed in the business section of your local newspaper or in financial publications such as the Economic Times. Mutual funds are listed in a separate section and are categorised by the stock exchange on which they trade (e.g. the BSE Sensex).
Will I have a switching facility between funds?
Unitholders will have an option to switch all or part of their investment in one fund to another which is available for investment at that time. The Asset Management Company would currently not charge any fees for such switching.
To process a switch, a unitholder must provide clear instructions. Such instructions may be provided by completing a form and lodging it on any business day with any of the Investor Service Centres or the office of the Registrar and Transfer Agent. The form may also be sent by post.
An account statement reflecting the new holdings will be sent to the unitholder within 3 days of completion of the transaction.
What are the benefits of SIP?
1. They promote a disciplined approach because you’re committed to invest a fixed amount on a regular basis.
2. They ensure that you’re not swayed by any market sentiment.
3. You are free to choose any amount and in most schemes you can withdraw at your convenience.
So now do you agree that Mutual Funds are indeed savings in a new avatar?
Are Mutual Funds Flexible?
Most people have differing patterns of earning and spending, which is why investments need to be flexible so as to allow you to invest as per your situation. In order to ensure this flexibility Mutual Funds have certain characteristics like: There are various types of Mutual Funds that invest in various schemes, from money market instruments to equities, thus catering to people who’d like to invest for duration ranging from a day to years. Minimum amounts of investment range from as low as Rs. 500, with no upper limit. In the case of open ended funds, daily investment and withdrawal is possible. Invested funds can be received within 1 to 5 working days. There is no maintenance charge on portfolios. You can invest either directly with the Asset Management Company or through a Financial Intermediary.
What is the time duration for getting my money back from mutual funds?
Liquidity is all about having access to the money you’ve invested at your convenience. After all, what is the point of getting high returns if you can’t use the funds when you need it? Solid liquidity gives you the advantage of getting your money when you need it the most.
In open ended funds, where you can buy and sell on any business day, you can get your money back generally within 3 working days. And to make things even better, there is a 15% penalty imposed on the Asset Management Company if you don’t get your money within 10 working days.
How transparent and safe are Mutual Funds?
Naturally there is a feeling of uncertainty or cautiousness you feel when you’re handing over your savings to somebody. You obviously need to be able to trust the person and you definitely want to know what is happening with your money, at all times. In the case of Mutual Funds, your money is handed over to a professional, whose entire job is to keep track of markets and look out for the best opportunities for you. What’s more, Mutual Funds publish a monthly fact sheet which basically lists out all the important facts you need to know about the scheme you’ve invested in.
These facts are:
• Your portfolio of holdings, that shows details of the companies and the amount invested in each company and the rating of the company’s issuance in case the instrument is a debt instrument.
• Past returns, dividends and performance ratios.
In addition, the NAV is published on AMFI and on each of the fund company websites on a daily basis, ensuring that you’re always in the loop about your investments.
What is the importance of Diversification in Mutual funds?
Like the old saying, “Don’t keep all your eggs in one basket”, diversifying your investments will help you lower your risk. By spreading out your money across different types of investments, investing in multiple companies and investing in more than one sector, you ensure that you always have a back-up plan intact. So when you look to invest, always consider a wide range of options. As you have previously read, Equity Mutual Funds invest in shares of various companies whereas Debt Funds invest in government securities, NCD, CDs, CPs bonds and other fixed income securities. Thus as an investor, you will be able to have a diversified investment basket.
How Mutual Funds do reduces the transaction cost?
The power of bargaining lies in buying anything wholesale. The rate of buying in wholesale will obviously be much lesser compared to the retail rates. Now apply the same principal to Mutual Funds and what do you get? With many people pooling in their savings, you get the advantage of the power of bargaining which reduces the overall transaction cost. And what’s more, as per prevalent tax laws, under provisions of Section 10 (23D) of the Act, any income received by the Mutual Fund is exempt from tax; which simply means that funds don’t pay any tax on the gains obtained from selling securities that they buy on behalf of their investors.
Can anybody invest in Mutual Funds or Mutual funds are for Experts?
Part of the fear of Mutual Funds is that everything will go above your head and that only experts in finance can understand how they work. This is not true at all! Unlike the equity market, you don’t have to take the call on when to buy or sell shares, the fund manager will do it for you. It is his job to track various sectors and companies. He will help you decide where to invest your money. So in actuality, even if you aren’t a financial expert, you will still have access to someone who is, and with his help there’s no doubt you will make the right decisions.
Are Mutual Fund investments only for long term?
Yes, long-term investments have a slight advantage, but that doesn’t mean that Mutual Funds are only for such investors. In fact, there are various short-term schemes where you can invest from a day to a few weeks.
Do one needs to have large sum to invest in Mutual Funds?
This is one of the most long standing myths which today have absolutely no value whatsoever. Most funds today allow investments as low as Rs. 1000, with no limits on the maximum amount. In fact, even for Equity linked savings schemes the amount is as low as Rs. 500. What’s more, there is no monthly or annual maintenance charge even if you don’t transact further. Mutual Funds also offer the SIP facility in many of their schemes which allows you to invest small amounts of your choice regularly.