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FAQs |
What is a Mutual Fund?
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI), that pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets
Which was the First Mutual Fund to be set up in India?
Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64
Why should I choose to invest in a mutual fund?
For a retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because:
• Mutual Funds provide the benefit of cheap access to expensive stocks.
• Mutual funds diversify the risk of the investor by investing in a basket of assets.
• A team of professional fund managers manages them with in-depth research inputs from investment analysts.
• Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access.
What are the risks involved in investing in mutual funds?
A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.
What are open-ended and closed-ended mutual funds?
In an open-ended mutual fund there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price that is linked to the net asset value (NAV). In case of closed-ended funds, the total size of the corpus is limited by the size of the initial offer.
Do both open-ended and closed-ended funds come out with an initial offering?
Yes. But the only difference is that in case of open-ended funds, a month after the initial offer closes the continuous offer period starts when the investor can enter and exit the fund at a price linked to the NAV.
How do I invest money in Mutual Funds?
One can invest by approaching a registered broker of Mutual funds or the respective offices of the Mutual funds in that particular town/city. An application form has to be filled up giving all the particulars along with the cheque or Demand Draft for the amount to be invested.
Which plan should I choose?
It depends on your investment object, which again depends on your income, age, financial responsibilities, risk taking capacity and tax status. For example a retired government employee is most likely to opt for monthly income plan while a high-income youngster is most likely to opt for growth plan.
Can a Mutual Fund assure fixed returns?
As per Sebi Regulations, mutual funds are not allowed to assure returns. However, funds floated by AMCs of public sector banks and financial institutions were permitted to assure returns to the unitholders provided the parent sponsor was willing to give an explicit guarantee to honor such a commitment. But in general, mutual funds cannot assure fixed returns to their investors.
What are the broad guidelines issued for a MF?
SEBI is the regulatory authority of MFs. SEBI has the following broad guidelines pertaining to mutual funds :
• MFs should be formed as a Trust under Indian Trust Act and should be operated by Asset Management Companies (AMCs).
• MFs need to set up a Board of Trustees and Trustee Companies. They should also have their Board of Directors.
• The net worth of the AMCs should be at least Rs.5 crore.
• AMCs and Trustees of a MF should be two separate and distinct legal entities.
• The AMC or any of its companies cannot act as managers for any other fund.
• AMCs have to get the approval of SEBI for its Articles and Memorandum of Association.
• All MF schemes should be registered with SEBI.
• MFs should distribute minimum of 90% of their profits among the investors.
What are my major rights as a unitholder in a mutual fund?
Some important rights are mentioned below:
• Unit holders have a proportionate right in the beneficial ownership of the assets of the scheme and to the dividend declared.
• They are entitled to receive dividend warrants within 42 days of the date of declaration of the dividend.
• They are entitled to receive redemption cheques within 10 working days from the date of redemption.
• 75% of the unit holders with the prior approval of SEBI can terminate AMC of the fund.
• 75% of the unit holders can pass a resolution to wind-up the scheme.
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