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Faq's On Mutual Fund
What is a Mutual Fund?
- A Mutual Fund is a corporate body that pools the savings of a number of investors and invests the same in a variety of different financial instruments, or securities. The income earned through these investments and the capital appreciation realised by the scheme are shared by its unit holders or investors in proportion to the number of units owned by them. Mutual funds can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. The losses and gains accrue to the investors only. The Investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.
What is an Asset Management Company?
- An Asset Management Company (AMC) is a highly regulated organization that pools money from investors and invests the same in a portfolio. They charge a small fee for fund management.
What is NAV?
- NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. NAV is calculated as follows: NAV= Market value of the fund's investments + Receivables + Accrued Income - Liabilities - Accrued Expenses The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV) and it varies on daily basis. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20.
How often is the NAV declared?
- NAV is required to be disclosed by the mutual funds on a regular basis on all business days or weekly depending on the type of scheme. As per SEBI Regulations, the NAV of a scheme shall be calculated and published at least in two daily newspapers at intervals not exceeding one week. The NAVs are also available on the websites of mutual funds. All mutual funds are also required to put their NAVs on the website of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place.
What are the different types of Mutual Funds
- 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 the medium to long-term. The returns in such funds are volatile since they are directly linked to the stock markets. They are best suited for investors who are seeking capital appreciation. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds.
Diversified Funds:-These funds invest in companies spread across sectors. These funds are generally meant for risk-taking investors who are not bullish about any particular sector.
Sector Funds:-These funds invest primarily in equity shares of companies in a particular business sector or industry. These funds are targeted at investors who are extremely bullish about a particular sector.
Index funds: - These funds invest in the same pattern as popular market indices like S&P 500 and BSE Index. The value of the index fund varies in proportion to the benchmark index.
Tax Saving Funds:- These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided under this scheme are in the form of tax rebates U/s 88 as well saving in Capital Gains U/s 54EA and 54EB. They are best suited for investors seeking tax concessions.
Debt/Income Funds:-These Funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments. They are best suited for the medium to long-term investors who are averse to risk and seek capital preservation. They provide regular income and safety to the investor.
Liquid Funds/ Money Market Funds:-These funds invest in highly liquid money market instruments. The period of investment could be as short as a day. They provide easy liquidity. They have emerged as an alternative for savings and short-term fixed deposit accounts with comparatively higher returns. These funds 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. Since they are Government backed bonds they give a secured return and also ensure safety of the principal amount. They are best suited for the medium to long-term investors who are adverse to risk. Balanced Funds:-These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some proportion. They provide a steady return and reduce the volatility of the fund while providing some upside for capital appreciation. They are ideal for medium- to long-term investors willing to take moderate risks.
Hedge Funds:-These funds adopt highly speculative trading strategies. They hedge risks in order to increase the value of the portfolio.
What is Entry Load?
- The non refundable fee paid to the Asset Management Company at the time of purchase of mutual fund units is termed as Entry Load. Entry Load is added to the NAV (purchase price) when you are purchasing Mutual Fund units.
What is exit load??
- The non refundable fee paid to the Asset Management Company at the time of redemption/ transfer of units between schemes of mutual funds is termed as exit load. It is deducted from the NAV(selling price) at the time of such redemption/ transfer.
What is purchase price?
- Purchase price is the price paid by you to purchase a unit of a mutual fund scheme. If the fund levies an entry load, then the purchase price would be equal to the sum of the NAV and the entry load levied.
What is redemption price?
- Redemption price is the price received on selling units of open-ended scheme. If the fund does not levy an exit load, the redemption price will be same as the NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.
What is re-purchase price?
- Repurchase price is the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.
What is Switch?
- Some Mutual Funds provide the investor with an option to shift his investment from one scheme to another within that fund. For this option the fund may levy a switching fee. Switching allows the Investor to alter the allocation of their investment among the schemes in order to meet their changed investment needs, risk profiles or changing circumstances during their lifetime.
Is there any minimum lock in period for my units?
- There is no lock-in period in the case of open-ended funds. However in the case of tax saving funds a minimum lock-in period is applicable.
What are the factors that influence the performance of the Mutual Funds?
- The performances of Mutual funds are influenced by the performance of the stock market as well as the economy as a whole. Equity Funds are influenced to a large extent by the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole. The performance of the sector funds depends to a large extent on the companies within that sector. Bond-funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond funds with higher credit ratings are less influenced by changes in the economy.
What is KYC and how to get KYC verified?
- Know Your Client KYC Norms(w.e.f January 01, 2012)SEBI, based on feedback from investors, found that though certain basic requirements have been prescribed for Customer Due Diligence (CDD) or Know Your Client (KYC) for various SEBI registered intermediaries such as Mutual Funds, Portfolio Managers, Collective Investment Schemes and Venture Capital Funds, no specific KYC format had been prescribed. As a result, these intermediaries used different KYC formats and supporting documents. Thus, in order to bring uniformity in the Know Your Customer (KYC) process in the securities market and develop a mechanism for centralization of the KYC records and also to avoid duplication of KYC Process across the intermediaries in the securities market; SEBI vide Circular No. MIRSD/SE/Cir-21/2011 dated October 5, 2011, SEBI (KYC Registration Agency) Regulations, 2011 and Circular No. MIRSD/ Cir-26/ 2011 dated December 23, 2011 introduced the concept of KYC Registration Agency (KRA) effective January 01, 2012.
Below process needs to be followed for Individuals and Non-Individuals:
Fill the new KYC application form
Documents evidencing Proof of Identity and Proof of Address to be provided (List of requisite KYC documents for individuals and non-individuals are mentioned in the revised KYC Application Form)
In-Person Verification (IPV)
Complete IPV from any of the following:
Any SEBI registered intermediary
NISM/AMFI certified distributors who are KYD compliant
Scheduled Commercial Banks (in case of any applications received directly)
CAMS (Registrar and Transfer Agents) employees.
Submit the KYC form along with necessary documents at the nearest Investor Services centre or any other intermediaries of KRA's as mandated by SEBI. Upon receipt and verification of the above documents, a KYC acknowledgement will be issued to each applicant.
Investor(s) must note that KYC compliance is mandatory at the time of submission of each subscription request with the designated Official Points of Acceptance.
Applications by investors without valid KYC are liable to be rejected.
It is strongly recommend all our Investors to be KYC Compliant by completing the KYC formalities, in accordance with applicable KYC rules in force from time to time, at the earliest so they can continue to invest with us smoothly.
How to add/cancel/modify nominee?
- Nomination Registration
The SEBI (Mutual Fund) Regulations, 1996, notifies that the mutual fund shall provide for nomination facility to the unit holders to nominate a person in whose favor the units shall be transmitted in the event of death of the unit holder. In accordance, with the same, the AMC provides for the nomination facility as permitted under the Regulations.
1. Nomination is mandatory for single mode of holding along with complete details of full address of the nominee.
2. All holders in the folio need to sign the nomination form, irrespective of the mode of holding.
3. Nomination shall not be allowed in a folio held on behalf of a minor.
4. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.
5. The Nominee shall not be a trust (other than a religious or charitable trust), society, body corporate, partnership firm, Karta of Hindu Undivided Family or a Power of Attorney holder.
6. Nomination form cannot be signed by Power of Attorney (PoA) holders.
7. Investors who do not wish to nominate must sign separately confirming their non-intention to nominate.
8. A non-resident Indian can be a Nominee subject to the exchange controls in force, from time to time.
9. Nomination in respect of the units stands withdrawn upon the transfer of units.
10. Investors who want to make multiple nominations need to fill the separate Multiple Nomination Form
To modify/cancel an existing nomination, the investor is required to fill in the Modification/Cancellation form and submit the same duly signed to the Customer Service Center.
The cancellation of nomination can be made only by those individuals who hold units on their own behalf, single or jointly and who made the original nomination and the request has to signed by all the holders.
On cancellation of the nomination, the nomination shall stand withdrawn and the AMC shall not be under any obligation to transfer the units in favor of the Nominee.
What is the process of changing address in the portfolio?
- KYC Complied Folios/Investors:
In case of change of address for KYC complied (verified) folios, the investors shall be required to submit the below stated documents to the designated intermediaries of the KYC Registration Agency:
Proof of new address (POA) and,
Proof of new address (POA) and,
Any other document the KYC Registration Agency may specify from time to time.
KYC not Complied Folios/Investors:
In case of change of address for KYC not complied (not verified) folios, the investors shall be required to submit the below stated documents:
Proof of new address and,
Proof of Identity (POI): Only PAN card copy, if PAN is updated in the folio.
In case where PAN is not updated, copy of PAN card or the other POI as may be prescribed.
However, it is advisable to these investors to complete the KYC process.
Units in Demat Mode:
For investors holding units in demat mode, the procedure for change in address would be as determined by the depository participant.
List of admissible documents for POA and POI as mentioned in the SEBI circular no. MIRSD/SE/Cir-21/2011dated October 5, 2011 shall be considered or any other or additional documents as may be required by SEBI,AMFI or SEBI authorized KYC Registration Agency from time to time.
In case, the original of any of the aforesaid documents are not produced for verification, then the copies should be properly attested/verified by the authorities who are authorized to attest as per SEBI circular no. MIRSD/SE/Cir-21/2011 dated October 5, 2011.
What is the process of changing Bank details?
- Change of Bank Mandate:
In case of change of bank request, the investors shall be required to submit the below stated supporting documents to effect the change:
Change of Bank Mandate Form Original cancelled cheque of the new bank with the investor name mentioned on the cheque.
Copy of the bank statement/pass book duly attested by the new Bank, evidencing the name and bank account details of the investor (The bank statement shall not be later than 3 months old).
In case the request for change in bank account information and redemption request are in the same transaction slip or letter, such change of bank mandate shall not be processed.
However, the valid redemption transaction will be processed and the payout would be released as per the specified service standards and the last registered bank account shall be used for all the purposes.
Change of Bank Mandate for Systematic Investment Plan (SIP)
In order to change the existing bank account for SIP, investors need to submit following documents 30 days before the next SIP debit date:
A new SIP Form with change of bank details and cancelled cheque of new bank evidencing the name and bank account details of the investor.
Letter to discontinue the existing SIP.
How do I have my name corrected in the portfolio?
- Documents required for effecting Name change Name change request can be accepted from an investor, in the below mentioned scenario(s)
Data Entry Correction
If there is an error in updating of the name in our records as compared to the name filled in the application form same can be corrected by contacting the customer service or by providing a written request for the same.
Investor has changed his/her name
Request letter from the investor.
Request letter from the investor. Notarized copy of Notification in Official Gazette of India
Attestation from the bank manager of the Bank whose mandate has been provided at the time of original investment, confirming the Investors Name, Bank branch, Account number and Signature.
Any official/legal document reflecting the name change viz.:
Bank statement from the same bank of which bank mandate is on our record Passport.
Attestation from School Principal confirming the name change and registered accordingly in the school records-This is for applications made by minor investors.
Notarized copy of Notification in Official Gazette of India
Attestation from the bank manager of the Bank whose mandate has been provided at the time of original investment, confirming the Investors Name, Bank branch, Account number and Signature. Any official/legal document reflecting the name change viz.: Bank statement from the same bank of which bank mandate is on our record Passport. Attestation from School Principal confirming the name change and registered accordingly in the school records-This is for applications made by minor investors
Change of name consequent to marriage:
Investors request Letter
Notarized copy of the marriage certificate
Certified true copy of the state Gazette OR the original copy of the state gazette in which a declaration has been made to that effect.
Change of name consequent to divorce: Investors request Letter
Notarized copy of the divorce certificate
Certified true copy of the state Gazette OR the original copy of the
State gazette in which a declaration has been made to that effect.
Minor Error in the name:
There could be a minor spelling in the name like spelling mistake and when it appears to be a genuine case should be considered for name change after doing a KYC and subject to submission of the following documents-
Investor request letter
Void cheque copy from the investor with his/her name clearly printed on the cheque. The name should match with the name change requested by the Investor.
In absence of such a Cheque, an attestation from the bank manager of the Bank whose mandate has been provided at the time of original investment, confirming the Investors Name, Bank branch, Account number and Signature.
Photo ID with Signature i.e. PAN Card (If not already available), MAPIN Card, Passport, etc.
Indemnity Bond on a plain paper, duly signed by all the holders in that folio.
Name change of a Minor
In case of minor or major name correction and the investor being a minor, the documents will remain the same. The Indemnity bond will be submitted by the Parent/guardian.
What is the process of lien marking/cancellation?
Lien registration- Following documents are required
Request letter from Investor clearly specifying the folio number, scheme, units and the person/ institution in whose favor the lien has to be marked.
Consent letter from the person/institution in whose favor the lien has to be marked/
The letters should clearly mention whether the future dividend (if any) will be in paid to the investor (normal lien) or will be paid to the person/bank/institution in whose favour the lien is marked (dynamic lien)constitution (in whose favor the lien is marked)
Bank name and its account details from the financier on their lien marking request for Lien invocation process.
Lien cancellation procedure.
Consent letter from the person/institution in whose favor the lien has to be removed.
Request letter from Investor clearly specifying the folio number, scheme, units and the person/ institution in whose favor the lien has to be removed (Not Mandatory)
ASL of the constitution. (Required if the authorized signatory has changed )
What is the process of updating change of status from Minor to Major?
Investments made on behalf of Minors
1. Accounts of Minors:
Name of the guardian along with relationship must be mentioned, if the investments are being made on behalf of a minor.
Guardian of the minor should either be a natural guardian (i.e. father or mother) or a court appointed legal guardian.
Joint holding is not allowed, if the first applicant is minor.
If the first applicant is minor, date of birth along with photocopy of supporting documents as enumerated below shall be mandatory while opening the account on behalf of minor:
Birth certificate of the minor, or
School leaving certificate / Mark sheet issued by Higher Secondary
Board of respective states, ICSE, CBSE etc., or
In case of natural guardian, a document evidencing the relationship has to be submitted, if the same is not available as part of the documents submitted as proof of date of birth of the minor applicant.
In case of court appointed legal guardian- a notorised photo copy of the court order should be submitted alongwith the application.
2. Change in Tax Status (Minor Attaining Majority)
Upon attaining majority, a minor has to write to the fund, giving his/her specimen signature duly authenticated by his/her banker, as well his/her new bank mandate, PAN details, KYC acknowledgement letter, in order to facilitate the Fund to update its records and permit the erstwhile minor to operate the account in his/her own right.
List of standard documents to change account status from minor to major.
Services Request form, duly filled and containing details like name of major, folio numbers, etc.
New Bank mandate where account changed from minor to major.
Signature attestation of the major by a manager of a scheduled bank / Bank Certificate Letter
KYC acknowledgement of the major.
In case of existing folios where date of birth may not be available, AMCs shall obtain this information and update their records at the earliest.