- Factors to evaluate investments - Safety, Liquidity, Returns, Convenience, Ticket size, Taxability of income, Tax deduction
- Different Asset Classes - Real Estate, Commodities, Fixed Income, Equity
- Investments in equity and bonds can be done only in financial form, whereas one can buy the other two assets, viz., real estate and commodities either in financial or in physical form.
- Real estate and commodities differ from equity and bonds in another way, too. These could be bought as investment or for consumption purposes
- Inflation, or price inflation is the general rise in the prices of various commodities, products, and services that we consume. Inflation erodes the purchasing power of the money.
- The issuer of the Debentures is the borrower, whereas the investor is the lender. The issuer agrees to pay the interest and repay the principal as per an agreed schedule.
- Credit risk is all about the possibility that the issuer pays the dues, but with some delay or the issuer does not pay principal and the interest at all.
- Interest rate risk is the risk that an investment's value will change as a result of a change in interest rates. This risk affects the value of bonds/debt instruments more directly than stocks. Any reduction in interest rates will increase the value of the instrument and vice versa
- confirmation bias is the tendency to look for additional information that confirms to their already held beliefs or views. It also means interpreting new information to confirm the views.
- Familiarity Bias - An individual tends to prefer the familiar over the novel, as the popular proverb goes, 'A known devil is better than an unknown angel.' This leads an investor to concentrate the investments in what is familiar, which at times prevents one from exploring better opportunities
- Herd Mentality - 'Man is a social animal' - Human beings love to be part of a group.
- Loss Aversion explains people's tendency to prefer avoiding losses to acquiring equivalent gains: it is better not to lose Rs. 5,000 than to gain Rs. 5,000. Such a behavior often leads people to stay away from profitable opportunities, due to perception of high risks, even when the risk could be very low.
- Overconfidence bias refers to a person's overconfidence in one's abilities or judgment. This leads one to believe that one is far better than others at something, whereas the reality may be quite different. Under the spell of such a bias, one tends to lower the guards and take on risks without proper assessment.
- Recency bias - The impact of recent events on decision making can be very strong. A bear market or a financial crisis lead people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets. The recent experience overrides analysis in decision making.
- Asset Allocation is a process of allocating money across various asset categories in line with a stated objective.
- Strategic Asset Allocation is allocation aligned to the financial goals of the individual. It considers the returns required from the portfolio to achieve the goals, given the time horizon available for the corpus to be created and the risk profile of the individual
- Tactical asset allocation dynamically changes the allocation between the asset categories. The purpose of such an approach may be to take advantage of the opportunities presented by various markets at different points of time, but the primary reason for doing so is to improve the risk-adjusted return of the portfolio
- A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. A Mutual Fund offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low-cost.
- Net Asset Value (NAV) - Current market price of the unit.
- Sale Price - Is the price you pay when you invest in a scheme. ( Offer Price)
- Sale Price - NAV = Entry Load
- Repurchase Price - Price at which units are repurchased / Redeemed by MF
- NAV - Repurchase Price = Exit Load
- Low Costs - Mutual Funds are a relatively less expensive to directly investing in the capital markets because the benefits of reduction in share brokerage which translate into lower costs for investors.
- Liquidity - In open-ended schemes, you can get your money back promptly at Net Asset Value (NAV) related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price.
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Transparency - You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.
Flexibility - Through features such as Systematic Investment Plans (SIP), Systematic Withdrawal Plans (SWP) and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
Well Regulated - All Mutual Funds are registered and regulated by SEBI
The investment that an investor makes in a scheme is translated into a certain number of 'Units' in the scheme. The number of units multiplied by its face value (Rs10) is the capital of the scheme - its Unit Capital.
When the profitability metric is positive, the true worth of a unit, also called Net Asset Value (NAV) goes up.
When a scheme is first made available for investment, it is called a 'New Fund Offer' (NFO). The money mobilized from investors is invested by the scheme as per the investment objective committed.
The relative size of mutual fund companies is assessed by their assets under management (AUM). The AUM captures the impact of the profitability metric and the flow of unit-holder money to or from the scheme.
Lack of portfolio customization and an overload of schemes & scheme variants are drawbacks of mutual funds.
Investment objective defines the broad investment charter. Investment policy describes in greater detail, the kind of portfolio that will be maintained. Investment strategies are decided on a Day-to-day basis by the senior management of the AMC.
Open-Ended Schemes do not have a fixed maturity. Investors deal with the Mutual Fund for your investments & Redemptions. The key feature is liquidity. Investors can conveniently buy and sell your units at Net Asset Value (NAV) related prices, at any point of time.
Investors can sell their units to the scheme through a re-purchase transaction at re-purchase price, which is linked to NAV.
Close-Ended Schemes have a stipulated maturity period are called close ended schemes. Investors can invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed.
Interval Schemes combine the features of open-ended and close-ended schemes. The periods when an interval scheme becomes open-ended, are called 'transaction periods'; the period between the close of a transaction period, and the opening of the next transaction period is called 'interval period'.
Minimum duration of transaction period is 2 days, and minimum duration of interval period is 15 days. Scheme should be compulsorily listed in Stock Exchange during the interval period.
Actively managed funds are funds where the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective of the scheme. Since this increases the role of the fund manager, the expenses for running the fund turn out to be higher.
Passive funds invest on the basis of a specified index; whose performance it seeks to track. the performance of these funds tends to mirror the concerned index. They are not designed to perform better than the market.
In passive funds, the portfolio is determined by the index itself, the fund manager has no role in deciding on investments. Therefore, these schemes have low running costs
SEBI - Categorization and Rationalization of Mutual Fund Schemes - Equity Schemes (11 sub-categories), Debt Schemes (16 sub-categories), Hybrid Schemes (6 sub-categories), Solution Oriented Schemes (2 sub-categories), Other Schemes (2 sub-categories)
Large Cap: 1st -100th company in terms of full market capitalization
Mid Cap: 101st -250th company in terms of full market capitalization
Small Cap: 251st company onwards in terms of full market capitalization
Multi Cap Fund - An open ended equity scheme investing across large cap, mid cap, small cap stocks - Minimum investment in equity & equity related instruments-75% of total assets. 25% each in Large, Mid and Small Cap Stocks.
Flexi Cap Fund - An open ended dynamic equity scheme investing across large cap, mid cap, small cap stocks - Minimum investment in equity & equity related instruments -65% of total assets
Large Cap Fund - An open ended equity scheme predominantly investing in large cap stocks - Minimum investment in equity & equity related instruments of large cap companies-80% of total assets
Large & Mid Cap Fund -An open ended equity scheme investing in both large cap and midcap stocks - Minimum investment in equity & equity related instruments of large cap companies-35% of total assets . Minimum investment in equity & equity related instruments of mid cap stocks-35% of total assets
Mid Cap Fund - An open ended equity scheme predominantly investing in mid cap stocks - Minimum investment in equity & equity related instruments of mid cap companies - 65% of total assets
Small Cap Fund - An open ended equity scheme predominantly investing in small cap stocks - Minimum investment in equity & equity related instruments of small cap companies-65% of total assets
Dividend Yield Fund - An open ended equity scheme predominantly investing in dividend yielding stocks. Minimum investment in equity-65% of total assets
Value Fund - An open ended equity scheme following a value investment strategy - Minimum investment in equity & equity related instruments -65% of total assets
Contra Fund - An open ended equity scheme following contrarian investment strategy - Minimum investment in equity & equity related instruments -65% of total assets
Focused Fund: An open-ended equity scheme investing in maximum 30 stocks - (the scheme needs to mention where it intends to focus, viz., multi cap, large cap, mid cap, small cap). Minimum investment in equity & equity related instruments shall be 65 percent of total assets.
Sectoral/Thematic: An open-ended equity scheme investing in a specific sector such as bank,IT. etc. Minimum investment in equity and equity related instruments of a particular sector/ theme shall be 80 percent of total assets
Equity Linked Savings Scheme (ELSS): An open-ended equity linked saving scheme with a statutory lock-in of 3 years and tax benefit. The minimum investment in equity and equity related instruments shall be 80 percent of total assets.
There can be only one scheme per category, except in the following cases - Index funds and ETFs replicating different indices, Fund of Funds having different underlying schemes and Sector funds or thematic funds investing in different sectors or themes
Mutual funds in India are permitted to offer either Aggressive Hybrid Fund or Balanced Fund.
Gold Exchange Traded Funds (GETFs) are intended to offer investors a means of participating in the gold bullion market by buying and selling units on the Stock Exchanges, without taking physical delivery of gold. NAV of GOLD ETF depends on Real Prices of GOLD Bullion.
Capital Protected Schemes are close-ended schemes, which are structured to ensure that investors get their principal back, irrespective of what happens to the market.
Fund of Funds (FOFs) are schemes that invest in other mutual fund schemes. Minimum investment in the underlying fund - 95% of total assets.
Fixed Maturity Plans are a kind of close-ended debt fund where the duration of the investment portfolio is closely aligned to the maturity of the scheme.
Infrastructure Debt Funds are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors, specially insurance and pension funds can invest through units and bonds issued by the IDFs.
Infrastructure Debt Funds (IDFs), can be set up either as a Trust or as a Company. A trust based IDF would normally be a Mutual Fund (MF), regulated by SEBI, while a company based
IDF would normally be a NBFC regulated by the Reserve Bank.
IDF means a close ended mutual fund scheme that invests primarily (minimum 90 percent of scheme assets) in the debt securities or securitized debt instrument of infrastructure companies or infrastructure capital companies or infrastructure projects or special purpose vehicles which are created for the purpose of facilitating or promoting investment in infrastructure or bank loans in respect of completed and revenue generating projects of infrastructure companies or projects or special purpose vehicles.
IDF-MFs can be sponsored by banks and NBFCs. Only banks and Infrastructure Finance companies can sponsor IDF-NBFCs.
Real Estate Mutual Fund scheme invests directly or indirectly in real estate assets - atleast 75 percent of portfolio in real estate assets, mortgage-backed securities, equity shares or debentures of real estate companies- at least 35 percent of the portfolio held in physical assets.
Assets held by the Real Estate Mutual Fund will be valued every 90 days by two valuers accredited by a credit rating agency. The lower of the two values will be taken to calculate the NAV. These funds are closed-end funds and must be listed on a stock exchange.
Mutual funds in India are governed by SEBI (Mutual Fund) Regulations, 1996.The regulations permit mutual funds to invest in securities including money market instruments, or gold or gold related instruments or real estate assets.
Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, who are the main persons behind the mutual fund operation.
The beneficiaries of a mutual fund trust are the investors who invest in various schemes of the mutual fund.
When individuals are appointed trustees for the MF Trust, they are jointly referred to as Board of Trustees. A trustee company functions through its Board of Directors.
Day to day management of the schemes is handled by an AMC. The AMC is appointed by the sponsor or the Trustees.
Custody of the assets of the scheme (securities, gold, gold-related instruments & real estate assets) is with a Custodian, who is appointed by the Trustees.
Investors invest in various schemes of the mutual fund. The record of investors and their unit-holding may be maintained by the AMC itself, or it can appoint a Registrar & Transfer Agent (RTA).
The sponsor needs to have a minimum 40% shareholding in the capital of the AMC.
The sponsor has to appoint at least 4 trustees - at least 2/3rd of them need to be independent. Prior approval of SEBI needs to be taken, before a person is appointed as Trustee.
AMC should have networth of at least Rs 50 crore. At least 50% of the directors should be independent directors. Prior approval of the trustees is required before a person is appointed as director on the board of the AMC.
Fund management - the analysts, the fund managers, and the dealers. The analysts analyse various opportunities, be it individual securities, or sectors, or the state of the markets, or the economy.
The fund managers evaluate the opportunities presented to them by the analysts, the brokers, and other research firms.
The Dealers' responsibility is to place orders with securities brokers based on the instructions of the fund managers
Custodian must be Independent. Custodian tracks corporate benefits. Custodian is appointed by the trustees.
RTA (Registrar and Transfer Agent) is appointed by AMC and maintains investor's records. Investor Service Centres (ISC), are offices of R&T. It is not compulsory to appoint a RTA.
Scheme Auditor & AMC Auditor are different. Scheme Auditor is appointed by Trustee, AMC auditor by AMC.
Role of calculating the NAV & DISCLOSING IT is done by Fund Accountant. It is not compulsory to Outsource Fund Accounting Activity.
Distributors have a key role in selling suitable types of mutual fund schemes to their clients/investors. A distributor can be empanelled with more than one AMCs.
Distributors can be individuals or institutions such as distribution companies, broking companies and banks.
Distributors need to pass the NISM certification Examination (NISM-Series- V-A: Mutual Fund Distributors Certification Exam) and register with AMFI
SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the country. AMFI is an industry body, but not a self-regulatory organization.
Reserve Bank of India (RBI) regulates the banking system & money markets
Securities and Exchange Board of India (SEBI) regulates the securities markets
Insurance Regulatory and Development Authority of India (IRDAI) regulates the insurance market
Pension Fund Regulatory and Development Authority of India (PFRDA) regulates the pension market
When the mutual fund scheme has been in existence for more than 3 years - Performance advertisement of mutual fund schemes shall be provided in terms of CAGR for the past 1 year, 3 years, 5 years and since inception
Point-to-point returns on a standard investment of Rs. 10,000 shall also be shown in addition to CAGR for the scheme to provide ease of understanding to retail investors.
Right to beneficial ownership - Unit-holders have proportionate right to the beneficial ownership of the assets of the scheme. Investor can ask for a Unit Certificate for his Unit-holding
Right to change the distributor - Investors can choose to change their distributor or opt for direct investing through a written request by the investor.
Right to Inspect documents - Unit-holders have the right to inspect key documents such as the Trust Deed, Investment Management Agreement, Custodial Services Agreement, RTA agreement and Memorandum & Articles of Association of the AMC.
The investors can appoint upto 3 nominees, who will be entitled to the 'Units' in the event of the demise of the investors. The investor can also specify the percentage distribution etween the nominees.
Investors can pledge their mutual fund units. This is normally done to offer security to a financier.
Right to grievance redressal - SEBI has mandated that the status of complaints redressed should be published by each AMC in their annual report
If there is a change in the fundamental attributes of a mutual fund scheme, then the unitholders are provided the option to exit at the prevailing NAV without any exit load. This exit window must be open for at least 30 days.
75 percent of unit holders can terminate the appointment of an AMC. Also, 75 percent of the unitholders (unitholding) can pass a resolution to wind up a scheme
Recovery of unclaimed amounts - If the investor claims the money within 3 years, then payment is based on prevailing NAV i.e. after adding the income earned on the unclaimed money.
If the investor claims the money after 3 years, then payment is based on the NAV at the end of 3 years.
SEBI Complaint Redress System (SCORES) is a web based centralized grievance redress system of SEBI. SCORES enables investors to lodge, follow up on their complaints and track the status of redressal of such complaints online on the website (http://scores.gov.in).
AMFI Code of Ethics (ACE) - sets out the standards of good practices to be followed by the Asset Management Companies in their operations and in their dealings with investors, intermediaries and the public.
SEBI (Mutual Funds) Regulation, 1996 requires all Asset Management Companies and Trustees to abide by the Code of Conduct as specified in the Fifth Schedule to the Regulation. The AMFI Code has been drawn up to supplement that schedule.
While the SEBI Code of Conduct lays down broad principles, the AMFI Code of Ethics (ACE) sets more explicit standards for AMCs and Trustees.
AMFI has also framed a set of guidelines and code of conduct for intermediaries (known as AMFI Guidelines & Norms for Intermediaries (AGNI)), consisting of individual agents, brokers, distribution houses and banks engaged in selling of mutual fund products.
2 documents for understanding about the mutual fund scheme: a) Scheme Information Document (SID), which has details of the particular scheme b) Statement of Additional Information (SAI), which has statutory information about the mutual fund or AMC, that is offering the scheme.
A single SAI is relevant for all the schemes offered by a mutual fund.
In practice, SID and SAI are two separate documents, though the legal technicality is that SAI is part of the SID.
SEBI does not approve or disapprove the Scheme Related Documents.
Scheme Related Documents in the market are 'vetted' by SEBI, and not approved by SEBI.
The Scheme Information Document (SID) contains information about the scheme that a prospective investor ought to know before investing
SID and SAI together are the primary source of information for any investor?existing as well as prospective investors
Riskometer is a pictoral representation of the risk to the principal invested in a mutual fund product. Risk will be categorized in SIX levels.
Type of a scheme - Open ended/Close ended/Interval scheme / Sectoral Fund/Equity Fund/Balance Fund/Income Fund/Index Fund/Any other type of Fund
Investment Objective - Main Objective - Growth/Income/Both. Investment pattern - The tentative Equity/Debt/Money Market portfolio break-up with minimum and maximum asset allocation
Terms of Issue - Liquidity provisions such as listing, repurchase, redemption. Aggregate fees and expenses charged to the scheme. Any safety net or guarantee provided.
KIM is a summary of the SID and SAI. As per SEBI regulations, every application form is to be accompanied by the KIM
Information contained in the KIM - AMC, mutual fund, Trustee, Fund Manager, scheme, Dates of Issue Opening, Closing and Re-opening, Investment Objective, Asset allocation pattern, Risk profile, Plans and Options, Benchmark Index, Dividend Policy, Performance of scheme & benchmark - last 1, 3, 5 yrs & since inception, Expenses, Information regarding investor grievances
Updation of SID - First Updation after NFO - For Scheme launched in the 1st half of FY ? Within 3 months of the end of SAME FY. For Scheme launched in the 2nd half of FY ? Within 3 months of the end of NEXT FY.
Regular Updation - SID needs to be updated every year.
Need Based Updation - SID needs to be updated if there is any change in the fundamental attribute of the scheme.
Updation of SAI - Regular update has to be done by the end of 3 months of every financial year. Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual fund and AMFI.
KIM is to be updated at least once a year. KIM is to be revised in the case of change in fundamental attributes.
Each scheme's NAV is required to be disclosed at the end of each business day. The same is published on the website of the AMC. The Mutual Fund declares the Net Asset Value of the scheme on every business day on AMFI's website www.amfiindia.com (as per the time limit for uploading NAV defined in the applicable guidelines) and also on their website.
In case of open ended schemes, the NAV is calculated for all business days and released to the Press. In case of closed ended schemes, the NAV is calculated at least once a week.
Fund Factsheet contains the basic information of each scheme such as the inception date, corpus size (AUM), current NAV, benchmark and a pictorial depiction of the fund's style of managing the fund.
MF Utilities (MFU) is a transaction aggregating platform that connects investors, RTAs, distributors, banks, AMCs and others. MFU facilitates the distributors with online access to submit investor transactions
Investors who register on the MFU are allotted a Common Account Number (CAN) under which all their mutual fund holdings are consolidated. Investors have to be KYC compliant to register for a CAN.
If an investor is not already KYC compliant, then the MFU will facilitate KYC registration along with the allotment of 'CAN'.
Pre-requisites to become Distributor of a Mutual Fund - Obtaining NISM Certification, Know Your Distributor Requirements, Obtaining AMFI Registration Number, Empanelment with AMCs Trail commission is calculated as a percentage of the net assets attributable to the Units sold by the distributor. The commission payable is calculated on the daily balances and paid out periodically to the distributor.
The trail commission is normally paid by the AMC on a quarterly basis or monthly basis. Since it is calculated on net assets, distributors benefit from increase in net assets arising out of valuation gains in the market.
There shall be no transaction charges on direct investments.
Transaction Charges are levied for transactions done by investor through Opt-in Mutual Fund Distributor
Transaction Charges for Purchase of Rs 10,000 and above by a First Time Investor - Rs 150
Charges for Purchase of Rs 10,000 and above by a regular Investor - Rs 100
The Goods and Services Tax (GST) became applicable with effect from July 2017. GST is payable by any person making taxable supplies of goods/services and whose annual turnover exceeds Rs. 20 lakhs.
A mutual fund distributor, who has registered and obtained a GST number would be required to raise an invoice for the commission, and pay the GST to Government.
AMC / MF is liable to pay GST under reverse charge on commission paid to unregistered distributors
SEBI has mandated Mutual Funds / AMCs to disclose the total commission and expenses paid to distributors who have - Multiple point of presence (More than 20 locations), AUM raised over Rs. 100 crore across industry in the non-institutional category but including high networth individuals (HNIs), Commission received of over Rs. 1 crore p.a. across industry, Commission received of over Rs. 50 lakhs from a single Mutual Fund/AMC
The unit-holders' funds in the scheme is commonly referred to as 'net assets'.
Net asset includes the amounts originally invested, the profits booked in the scheme, as well as appreciation in the investment portfolio.
The difference between the NAV and Re-purchase Price is called the 'exit load'.
Dividends can be paid out of distributable reserves.
Investors would be incentivized to hold their units longer, by reducing the load as the unit holding period increased.
SEBI has banned entry loads. So, the Sale Price needs to be the same as NAV. The exit load charged, if any, after the commencement of the SEBI (Mutual Funds) (Second Amendment) Regulations, 2012, shall be credited to the scheme.
Service tax on exit load shall be paid out of the exit load proceeds and exit load net of service tax shall be credited to the scheme.
Initial issue expenses need to be met by the AMC.
NAV = (Value of stocks + Value of bonds + Value of money market instruments + Dividend accrued but not received + Interest accrued but not received - Fees payable) / No. of outstanding units
The process of valuing each security in the investment portfolio of the scheme at its current market value is called 'mark to market' i.e. marking the securities to their market value
Investment and Advisory Fees are charged to the scheme by the AMC and are fully disclosed in the Scheme Information Document
AMC shall not charge investment and advisory fees on the segregated portfolio. However, TER (excluding the investment and advisory fees) can be charged, on a pro-rata basis only upon recovery of the investments in segregated portfolio.
The Net Asset Value (NAV) of the segregated portfolio shall be declared daily.
The accounts of the schemes need to be maintained distinct from the accounts of the AMC.
The auditor for the AMC has to be different from that of the schemes.
NAV is to be calculated upto 4 decimal places in the case of index funds, liquid funds and other debt funds.
NAV for equity and balanced funds is to be calculated upto at least 2 decimal places.
Investors can hold their units even in a fraction of 1 unit. current stock exchange trading systems restrict transacting on the exchange to whole units
Short Term Capital gains for Equity oriented scheme - Holding Period - less than or equal to 1 year
Short Term Capital gains for Non-Equity Schemes - Holding Period - less than or equal to 3 years
Long Term Capital gains for Equity oriented scheme - Holding Period - greater than 1 year
Long Term Capital gains for Non-Equity Schemes - Holding Period - greater than 3 years
STCG Tax rate for Equity - 15%
STCG Tax rate for Non-Equity - Marginal Rate
LTCG Tax rate for Equity - 10% for gains exceeding Rs 1 Lakh
LTCG Tax rate for Non-Equity - 20% after Indexation
NRI - LTCG tax Non-Equity - Listed Schemes - 20% after indexation
NRI - LTCG tax Non-Equity - Unlisted - 10% without indexation
Companies - STCG tax Non-Equity - 25% if total Turnover is less than 250 crore
Capital loss, short term or long term, cannot be set off against any other head of income (e.g. salaries).
Short term capital loss is to be set off against short term capital gain or long term capital gain.
Long term capital loss can only be set off against long term capital gain
Dividend Distribution Tax - DDT has been abolished. The dividend would be added to the taxable income of the assessee for the year.
Securities Transaction Tax (STT) is applicable on investments in equity and equity mutual fund schemes. STT is not payable at the time of Purchase of Units. At the time of redemption 0.001% STT has to be paid.
Equity Linked Savings Schemes (ELSS) are eligible for deduction under Section 80C of the Income Tax Act. The scheme has a lock-in period of 3 years from the date of investment.
There is no TDS on re-purchase proceeds to resident investors.
In case of dividends from mutual fund schemes, even for resident Indians, TDS is applicable. The tax is required to be deducted at 10 percent on the dividend amount if it exceeds Rs. 5,000.
AMC(s) can charge GST, as per applicable Taxation Laws, to the schemes within the limits prescribed under SEBI (Mutual Fund) Regulations
GST on fees paid on investment management and advisory fees shall be charged to the scheme in addition to the overall limits specified as per the Total Expense Ratio (TER) provisions.
GST on all the fees other than investment and advisory fees shall be charged to the scheme within the maximum limit of TER.
GST on exit load, if any, shall be deducted from the exit load and the net amount shall be credited to the scheme.
GST on brokerage and transaction cost paid for execution of trade, if any, shall be within the limit of TER.
The commission payable to the distributors of mutual funds may be subject to GST, as applicable in case of the ARN holder. Such tax cannot be charged to the scheme.
Mutual fund Purchase transactions (Lump-sum investments or SIP or STP or switch-ins or dividend reinvestment) would be subject to levy of stamp duty* @ 0.005% of the amount invested. Transferof mutual fund units (such as transfers between demat accounts) are subject to payment of stampduty* @ 0.015%.
Close-ended Schemes have an NFO Open Date and NFO Close Date. But, they have no Scheme Re-opening Date, because the scheme does not sell or re-purchase units. Investors will need to buy or sell units from the stock exchange where the scheme is listed.
Investors have the option to invest (purchase or subscribe to mutual fund units) directly without routing the investment through a distributor (Direct Plan).
The direct plan shall have a lower expense ratio excluding distribution expenses, commission, etc., and no commission shall be paid from such plans.
Mutual funds issue the Statement of Account every month if there is a transaction during the month. It shows for each transaction (sale/re-purchase), the value of the transaction, the relevant NAV and the number of units transacted.
Annual Account Statement - MF's provide the Account Statement to the Unit-holders who have not transacted during the last 6 months prior to the date of generation of account statements.
Consolidated Account Statement - (CAS) for each calendar month is sent by post/email on or before 10th of the succeeding month provided there has been a financial transaction in the folio in the previous month
Switch is a redemption from one scheme & a purchase into another combined into one transaction.
NACH - National Automated Clearing House (NACH) is a centralised clearing system launched by the National Payments Corporation of India (NPCI).
NACH is a web based solution for Banks, Financial Institutions, Corporate and Governments, to facilitate interbank high volume, electronic transactions which are repetitive and periodic in nature.
NACH is useful for corporate and financial institutions that make payments in bulk like dividend distributions, salaries, interests, pensions, etc
Unified Payment Interface - (UPI) allows fund transfer between accounts through the mobile app.
There are many UPI apps available such as BHIM, banking applications, Aadhaar app etc.which one can download on their phone.
After the application (app) is downloaded, a Virtual Payment Address (VPA) must be created by going through an authentication process
Application Supported by Blocked Amount (ASBA) is a facility where the investment application in a New Fund Offer (NFO) is accompanied by an authorization to the bank to block the amount of the application money in the investor's bank account.
The benefit of ASBA is that the money goes out of the investor's bank account only on allotment. Until then, it keeps earning interest for the investor.
Small investors are allowed cash transactions for purchase of units in mutual funds to the extent of Rs. 50,000/- per investor, per mutual fund, per financial year
Instant Access Facility - IAF facilitates credit of redemption proceeds in the bank account of the investor on the same day of the redemption request.
The MFs/AMCs can offer IAF only in Liquid schemes of the mutual fund. The monetary limit under the IAF is Rs. 50,000 or 90 percent of latest value of investment in the scheme, whichever is lower.
Cutoff timings are not applicable for NFO's and International Funds.
Time Stamping is a fool proof mechanism of capturing the time at which the sale and re-purchase applications are received at official points of acceptance.
All transaction requests need to be submitted at the OPoAs. The time stamping on the transaction requests is done at the official points of acceptance.
SEBI and RBI have allowed Qualified Foreign portfolio investors who meet KYC requirements to invest in equity and debt schemes of Mutual Funds through two routes
1) Direct route - Holding MF units in Demat account through a SEBI registered DP
2) Indirect route - Holding MF units via Unit Confirmation Receipt (UCR)
Individual and non-individual investors are permitted to invest in mutual funds in India. The 'Who can invest' section of the Offer Document is the best source to check on eligibility to invest.
All Investors have to comply with the KYC formalities. In-Person Verification (IPV) done by a SEBI-registered intermediary is compulsory for all investors.
Distributors who have a valid NISM-Series-V-A: Mutual Fund Distributors certificate and a valid ARN can carry out the In-person verification if they have completed the KYD process.
Micro SIPs i.e. SIPs with annual investment below Rs 50,000 per Financial Year per Mutual Fund House is exempted from the PAN Card requirement.
Small investors investing in cash, upto Rs. 50,000 per mutual fund per financial year do not need to provide PAN Card.
PAN Exempt limit of Rs 50,000 is per mutual fund per FY per Investor including Micro-SIP
Central Registry of Securitisation and Asset Reconstruction and Security Interest of India (CERSAI) acts as Central KYC Record Registry under the PML Rules 2005 and its functions are receiving, storing, safeguarding and retrieving the KYC records in digital form of all the clients in the financial sector
After the successful completion of cKYC (Central KYC) process, an investor is allotted a 14 digit KYC Identification Number (KIN) by CERSAI.
e-KYC service of UIDAI - Investors to authorise the transaction through OTP send by Unique Identification Authority of India (UIDAI) to the mobile number linked with Aadhar. However only investments upto Rs 50,000 can be done through e-KYC
KYC template finalised by CERSAI must be used by the registered intermediaries
Mutual funds provide an additional facility through an SIP to enhance the disciplined savings of investors. It is called the SIP Top-Up facility
Nomination can be made in favour of a maximum of 3 nominees.
Where there are multiple nominees, the unitholder(s) must define the percentage holding for each nominee making a total of 100 percent. If the percentages are not clearly indicated, then the nomination will be made equally among the nominees.
Only individual investors can make a nomination. Investments by minors cannot have a nomination. A Power of Attorney holder cannot make a nomination.
The nominee can be an individual, including minors and NRIs, central and state governments and local authorities.
If the nominee is a minor, then a guardian too can be specified.
nomination cannot be made in favour of a trust (except a religious or charitable trust), society, body corporate, partnership, Karta of an HUF or a Power of Attorney holder.
Transmission of Units - process of transferring units to the person entitled to receive it in the event of the death of the unit holder
If the first holder passes away, the second holder is substituted as first holder.
In a singly held folio with nominations, the units are transferred to the nominee.
If a folio is jointly held and has nominations, the right of the joint holder will take precedence.
If there are no nominations in the folio, the units are transmitted to the legal successors
General Risk Factors - Liquidity Risk, Interest Rate Risk, Re-investment Risk, Political Risk, Economic Risk, Foreign Currency Risk
Risk related to equity and equity related securities - short selling and Stock Lending, mid-cap and small-cap companies, Dividend, Derivatives
Risks related to debt funds - Reinvestment Risk, Rating Migration Risk, Term Structure of Interest Rates Risk, Credit Risk, floating rate securities, repo transactions in Corporate Bonds, Creation of Segregated portfolio, investments in Securitized Assets.
Fundamental analysis is a study of the business and financial statements of a firm in order to identify securities suitable for the strategy of the schemes as well as those with high potential for investment returns and where the risks are low.
Fundamental analysis - security selection strategy - identifying long term investment avenues.
Technical Analysts believe that price behaviour of a share over a period throws up trends for the future direction of the price. Along with past prices, the volumes traded indicate the underlying strength of the trend and reflect investor sentiment, which in turn will influence future price of the share.
Technical Analysts therefore study price-volume charts (a reason for their frequently used description as 'chartists') of the company's shares to decide support
Earnings per Share (EPS): Net profit after tax ? No. of equity shares outstanding
Price to Earnings Ratio (P/E Ratio): Market Price per share ? Earnings Per Share (EPS)
The Price Earnings to Growth (PEG) ratio relates the PE ratio to the growth estimated in the company's earnings.
A PEG ratio of one indicates that the market has fairly valued the company's shares, given its expected growth in earnings.
A ratio less than one indicates the equity shares of the company are undervalued, and a ratio greater than one indicates an overvalued share.
Book Value per Share: Net Worth ? No. of equity shares outstanding.
Price to Book Value: Market Price per share ? Book Value per share
Dividend Yield: Dividend per share ? Market price per share
Growth investment style entails investing in high growth stocks i.e. stocks of companies that are likely to grow much faster than the market
Value investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis
Investors need a longer investment horizon to benefit from the price appreciation in such stocks.
A bottom-up approach on the other hand analyses the company-specific factors first and then evaluates the industry factors and finally the macro-economic scenario and its impact on the companies that are being considered for investment.
Stock selection is the key decision in this approach; sector allocation is a result of the stock selection decisions.
Top down approach minimizes the chance of being stuck with large exposure to a poor sector.
Bottom up approach ensures that a good stock is picked, even if it belongs to a sector that is not so hot.
Standard Deviation - is a measure of total risk in an investment. As a measure of risk it is relevant for both debt and equity schemes.
A high standard deviation indicates greater volatility in the returns and greater risk.
Comparing the standard deviation of a scheme with that of the benchmark and peer group funds gives the investor a perspective of the risk in the scheme
Beta - is based on the Capital Asset Pricing Model (CAPM), which states that there are two kinds of risk in investing in equities - systematic risk and non-systematic risk.
Modified duration measures the sensitivity of value of a debt security to changes in interest rates. Higher the modified duration, higher is the interest sensitive risk in a debt portfolio
The credit rating profile indicates the credit or default risk in a scheme.
Government securities do not have a credit risk.
Investments in corporate issuances carry credit risk. Higher the credit rating, lower is the default risk.
Segregated portfolio' means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme. 'Main portfolio' means the scheme portfolio excluding the segregated portfolio.
Asset Management Company (AMC) were allowed to create segregated portfolio in a mutual fund scheme in case of a credit event at issuer level i.e. downgrade in credit rating by a SEBI registered Credit Rating Agency (CRA).
Returns can be measured in various ways - Simple Returns, Annualised Returns, Compounded Returns, Compounded Annual Growth Rate.
CAGR assumes that all dividend payouts are reinvested in the scheme at the ex-dividend NAV.
Earlier, the Mutual Fund schemes were benchmarked to the Price Return variant of an Index (PRI). PRI only captures capital gains of the index constituents.
With effect from February 1, 2018, the mutual fund schemes are benchmarked to the Total Return variant of an Index (TRI).
The Total Return variant of an index considers all dividends/interest payments that are generated from the basket of constituents that make up the index in addition to the capital gains.
NSE's MIBOR (Mumbai Inter-Bank Offered Rate) is based on short term money market. NSE similarly has indices for the Government Securities Market.
ICICI Securities' Sovereign Bond Index (I-Bex) is based on government securities. It consists of an umbrella index covering the entire market, and sub-indices catering to three contiguous maturity buckets.
The three sub-indices are?Si-Bex (1 to 3 years), Mi-Bex (3 to 7 years) and Li-Bex (more than 7 years )
Liquid schemes invest in securities of upto 91 days' maturity. Therefore, a short term money market benchmark such as NSE's MIBOR or CRISIL Liquid Fund Index is suitable.
Hybrid Funds - invest in a mix of debt and equity. Therefore, the benchmark for a hybrid fund is a blend of an equity and debt index. CRISIL Hybrid Index
Gold ETF - Gold price would be the benchmark for such funds.
Real Estate Funds - A few real estate services companies have developed real estate indices. These have shorter histories, and are yet to earn the wider acceptance that the equity indices enjoy.
International Funds - The benchmark would depend on where the scheme proposes to invest. Thus, a scheme seeking to invest in China might have the Hang Seng Index (Chinese index) as the benchmark.
S&P 500 may be appropriate for a scheme that would invest largely in the US market
Standard benchmarks for Equity scheme - Sensex or Nifty
Standard benchmarks for Long term debt scheme - 10 year dated GoI security
Standard benchmarks for Short-term debt fund - 1 year T-Bill
Gold is a truly international asset, whose quality can be objectively measured. The value of gold in India depends on the international price of gold (which is quoted in foreign currency), the exchange rate for converting the currency into Indian rupees, and any duties on the import of gold.
Unlike gold, which is a global asset, real estate is a local asset. It cannot be transported - and its value is driven by local factors
Sharpe Ratio = (Rs minus Rf) ? Standard Deviation
Treynor Ratio = (Rs minus Rf) ? Beta
Alpha - Non-index schemes too would have a level of return, which is in line with its higher or lower beta as compared to the market. Let us call this the optimal return.
The difference between a scheme's actual return and its optimal return is its Alpha?a measure of the fund manager's performance.
Positive alpha is indicative of outperformance by the fund manager; negative alpha indicate under-performance
The Beta of the market, by definition is 1.
An index fund mirrors the index. Therefore, the index fund too would have a Beta of 1, and it ought to earn the same return as the market.
The difference between an index fund's return and the market return is the tracking error
When an Indian investor invests in equities abroad, he is essentially taking two exposures - An exposure on the international equity market & An exposure to the exchange rate of the rupee.
If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he benefits; if the US Dollar weakens (i.e. Rupee becomes stronger), he loses or the portfolio returns will be lower.
Purchase and sale of securities entails broking costs for the scheme. Frequent churning of the portfolio would not only add to the broking costs, but also be indicative of unsteady investment management.
Portfolio Turnover Ratio is calculated as Value of Purchase and Sale of Securities during a period divided by the average size of net assets of the scheme during the period.
A short holding period may indicate that the fund manager is looking for tactical investments to take advantage of short-term market opportunities rather than identifying and investing in fundamentally strong companies for the long-term.
A portfolio should be divided into core and satellite portfolios. The core portfolio will be invested according to the long term needs and goals of the investor.
The satellite portfolio will be invested to take advantage of expected short-term market movements.
For example, a diversified equity fund, large cap, mid-cap funds, among others may form part of the core portfolio since they generate long-term returns in broad alignment with the markets.
Sector funds on the other hand do well cyclically, and investors will consider investing in them when the economic factors are positive for a particular sector.
long term gilt funds will do well when interest rates are expected to decline.
The exposure to gold funds can be increased when inflation is high or when there are political, economic and fiscal uncertainties.
Conservative investors may like a very small proportion of their overall portfolio to be managed tactically.
A moderate investor may be comfortable with an 80 percent allocation to core investments and a 20 percent exposure to satellite or tactical portfolio.
An investor comfortable with taking higher risk may have an even higher exposure to tactical investments.
Significant Unit holder means any entity holding 5% or more of the total corpus of any scheme.
Amongst index schemes, tracking error is a basis to select the better scheme. Lower the tracking error, the better it is.
Similarly, Gold ETFs need to be selected based on how well they track gold prices.
