What is a Mutual Fund?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Equity funds invest this pooled money primarily in common stocks of public limited companies generally with long term capital appreciation. A fund's risk and returns depend on the types of companies it buys. The investors risk and return are also affected by how long they keep their money invested in the fund. One stand the best chance of reaping the rewards of stocks if you keep your money invested for long time.

The following are the categories of Equity Mutual Funds distributed by us

Diversified Funds is a category of funds that invest in a diverse mix of stocks/ securities that cut across sectors & capitalization. Equity Linked Savings Schemes (ELSS) offer tax benefits to investors. However, the investor is expected to retain the Units for at least 3 years. Index Funds are schemes that aim to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions. Infrastructure Funds take exposure to infrastructure sector and companies associated directly or indirectly in this sector. This fund makes it possible for small investors to take exposure to infrastructure. Large Cap Funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large & blue chip companies. Small & Mid Cap Funds are fund that invests in small and mid sized companies. Theses companies are expected to grow in coming future. International/Global Funds invests outside the country in different economies and asset classes. Thematic funds/sector Funds invest in line with an investment theme or underlying sector only. The investment is thus less broad-based compared to a diversified equity fund. Balanced Funds invest & provide exposure in both equity and debt with the allocation based on the market views.

What are the advantages of investing in Mutual Fund?

Professional Management Mutual funds offer investors the opportunity to earn an income or build their wealth through professional management of their investible funds Diversification Units of a scheme give investors exposure to a range of securities held in the investment portfolio of the scheme. Thus, even a small investment in a mutual fund scheme can give investors a diversified investment portfolio. Economies of scales The pooling of large sums of money from so many investors makes it possible for the mutual fund to engage professional managers to manage the investment. Individual investors with small amounts to invest cannot, by themselves, afford to engage such professional management. Liquidity Investors in a mutual fund scheme can recover the value of the moneys invested, from the mutual fund itself. Depending on the structure of the mutual fund scheme, this would be possible, either at any time, or during specific intervals, or only on closure of the scheme. Tax benefits Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the benefit of deduction of the amount invested, from their income that is liable to tax. This reduces their taxable income, and therefore the tax liability. Further, the dividend that the investor receives from the scheme is tax-free in his hands.

Regulatory Comfort The regulator, Securities & Exchange Board of India (SEBI) has mandated strict checks and balances in the structure of mutual funds and their activities. These are detailed in the subsequent units. Mutual fund investors benefit from such protection.

Frequently Used Terms:

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related. Redemption Price Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, 'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes.

Repurchase or 'Back-end' Load Is a charge collected by a scheme when it buys back the units from the unit holders.