What is Mutual Fund?

Mutual fund can be defined as a trust which collects money from different investors and invest this collected pool of money in different Securities, Bonds, Money Market instruments and other relevant financial instruments on behalf of investors with a motive to earn income for their investors. Mutual Fund is managed by professionals and charges nominal fees for the services. Mutual Funds are subjected to market risks.


How the mutual funds in India are regulated?

Answer: SEBI is the apex authority in India to regulate the mutual funds under the regulations of “securities and exchange board of India (Mutual Fund) regulations 1996”. Other agencies which significantly contributes in process of safeguarding and monitoring the interests of Investors and other stakeholders are RBI, AMFI, ministry of finance, SRO etc. All Asset Management Companies (AMCs) are regulated by SEBI. All AMC has a board of directors that represents the unit holder’s interests in the mutual fund.


What is NAV of a mutual fund scheme?

Answer: NAV is a short form of Net Asset Value and can be defined as market value of the securities held by the mutual fund. It is treated as performance parameter of a particular scheme of a mutual fund and may vary on day to day basis.


What is NAV per Unit of a mutual fund scheme?

NAV per unit is the market value of one unit of a scheme and calculated as the market value of securities of a scheme divided by the number of units of the scheme at a particular date.


What is corpus in mutual fund?

Corpus is the Total amount of money invested by all the investors in a mutual fund scheme.


What refers to the term redemption in mutual fund?

The term redemption refers to return of amount (sale or buy back) to the investor who wants to withdraw the invested amount partially or fully as per the applicable NAV.


What is redemption price?

Redemption price refers to the value of applicable NAV minus Exit Load (if any) at which the mutual fund units are redeemed / brought back by the mutual fund scheme.


What is known as brokerage?

Brokerage is the commission paid to the distributors for mobilising money for various schemes of the mutual funds.


I want to know about switching feature in mutual fund.

Switching is a feature offered by several mutual funds that enables an investor to move his investment from one scheme to another within the circumference of same mutual fund.


What is AMC?

AMC refers to Asset Management Company that does all operational functions on day to day basis and manages the investor’s money under the name of mutual fund/trust.


What is RTAs in mutual funds?

RTAs refers to Registrar and Transfer Agents that does all record maintenance functions of investors on day to day basis and manages the processing of NFO, redemption etc under the name of mutual fund/trust.


Who can sell Mutual Fund units?

Only AMFI certified agents/distributors can sell the mutual fund units.


What Stands for KYC?

KYC stands for “Know Your Customer”. It is a process to authentication and ascertaining the identity of an investor.


What refers to centralized KYC (CKYC)?

It is a procedure to facilitate investors to complete their KYC only once before interacting with various entities across the financial services sector. As per AMFI circular dated 22/12/2016, CKYC is mandatory effective from 1 February, 2017.


What is Biometric KYC?

It is the simplest and instant way to comply the KYC requirement by finger print scanning at a prescribed device and the validation is carried out by UIDAI. After validation some other information are captured and the investor’s data is submitted for completion of KYC process. Biometric KYC enables the investor to go for first transaction immediately with a facility of no monetary limit on the investment value.


What is Aadhaar based eKYC?

It is a paperless process of eKYC compliance by submitting required basic details and uploading e Aadhaar, PAN and scanned signature image. This process is based on validation with Aadhaar database and confirmed via OTP send on the registered mobile number with Aadhaar number. Aadhaar based eKYC authorize an investor to cumulatively invest up to Rs 50000 per financial year per Mutual Fund.


What is Trigger in Mutual funds?

Trigger is a value added tool in which the investor gives a onetime instruction to switch units from one scheme to another, subjected to validating the particular criteria.


What is NAV appreciation Trigger?

This is a facility in which investors can specify a particular NAV price which is suitable to them for switching the units from source scheme to target scheme and book profit on the same. By making an application the investor can switch all the units available in the source scheme of the respective Folio to the Target scheme.


What is NAV stop loss Trigger?

This is a facility in which investors can specify a particular NAV price which is suitable to them for switching the units from source scheme to target scheme to stop their loss at a particular price and thereby reducing the impact of loss on their investment. By making an application the investor can switch all the units available in the source scheme of the respective Folio to the Target scheme.


What is specific date trigger?

This is a facility in which investors can specify a particular date which is suitable to them for switching the units from source scheme to target scheme. By making an application the investor can switch all the units available in the source scheme of the respective Folio to the Target scheme.


Does a Mutual Fund AMC have sole right to change the fundamental attributes of a scheme?

The trustees / AMC cannot make any change in the fundamental attributes of a scheme, unless a written communication about the proposed change is sent to each Unit-holder and their approval is sought. The Dissenting unit-holders are given the option to exit at the prevailing Net Asset Value.


How the Mutual Fund distributors are appointed?

The appointment as distributor is done solely by the AMC and subjected to written confirmation by AMC.


Who is known as dormant investors?

The investors who has not transacted during the previous 6 months are called dormant investors.


What is floater and floating rate?

An instrument with a variable interest rate, known as a “floater”. Floating rate indicates that interest rate is tied to a benchmark. Floating rate debt securities tend to hold their values, irrespective of fluctuation in interest rates.


What refers to fundamental analysis of a company?

Fundamental analysis refers to complete study of market position, financial status and professionals working force of the company.


Who accepts and gives delivery of securities for the purchase and sale transactions of the various schemes of the mutual fund?

The custodian accepts and gives delivery of securities for the purchase and sale transactions of the various schemes of the fund. Thus, the custodian settles all the transactions on behalf of the mutual fund schemes.


What kind of expenses can be charged to the scheme?

Initial Issue Expenses come up when the scheme is offered for the first time (NFO) and this expense cannot be charged (either one time or deferred) to the scheme. Such expenses are borne by the AMC. Recurring Expenses may be imposed to the scheme because such expenses may fall down the NAV. SEBI has established the expenses limit which can be charged to the scheme.


What is the use of indexation in mutual fund industry?

The government authorities declare an index number for every financial year to facilitate this calculation. In this indexation process cost of acquisition is adjusted upwards to reflect the impact of inflation. The benefit of Indexation is applicable only on long term capital gains.


The facility of ASBA – ‘Application Supported by Blocked Amount’ can be used for additional purchase of Mutual Funds units or not?

The ASBA ‘Application Supported by Blocked Amount’ facility can only be used for IPO’s of equity shares and NFO’s of Mutual Funds. It cannot be used for additional purchase.


What are Exit Load or Back-end load & Repurchase Loads?

Exit Load or Back-end load or Repurchase load are the charges collected by the mutual funds while redeeming or switching the investments.


What are No Load Schemes?

The schemes that do not charge any load are called “No Load Schemes”.


What is the role of a Fund Manager?

Fund invested by Investor in schemes of mutual fund are managed by fund manager, using advanced scientific and mathematical techniques. The fund manager implements a consistent investment strategy that is aligned with the goals and objectives of the fund and also monitors market and economic trends and does a detailed research to make informed investment decisions.


How does an AMC perform?

The AMC employs professionals to manage the funds. AMCs make investments in compliance with SEBI regulations. The performance of the AMC is supervised by the Trust and assisted by a Custodian and a Registrar.


What is an Asset Management Company (AMC)?

Every mutual fund has an Asset Management Company (AMC) associated with it and the AMC is responsible for managing the investments for the various schemes operated by the mutual fund.


What is the difference between Mutual Fund & Portfolio management?

  • Any person can invest in mutual funds whereas portfolio management services are offered to High Net worth Individuals (HNI’s) and the rich.
  • Any one can invest even a few hundreds of rupees in mutual funds whereas in portfolio management, the investor should have lakhs of rupees.
  • In mutual funds, investor gets units of the scheme whereas in portfolio management, one hold the stocks in a demat account.
  • In mutual funds, the charges are very low but in portfolio management, costs are high.

What is the difference between a Mutual Fund investment and bank deposit?

  • In a mutual fund, the fund manager invests the money as per the guidelines and strategy of the investment scheme. The profit or loss after reducing the expenses or charges are clearly shown in the NAV. Investor needs to be prepared to face volatility in short term to medium term.
  • In a bank deposit, bank has fixed interest rate for the duration you specify. The bank will give you the principal and the interest on maturity of the deposit.

What is a Portfolio?

Portfolio means a collection of investments owned by an individual or an organization. These can be stocks, bonds, mutual funds etc.


How the schemes of mutual funds classified?

Mutual fund schemes are classified on the basis of their structure and their investment objective:-

By structure – Closed Ended Funds, Open Ended & Interval Funds.

By investment objectives – Equity Schemes, Income Schemes, Balance Schemes & Index Funds.