MF education #14 : Types of Equity Schemes

Equity funds invest in equity instruments issued by companies. The funds target long-term appreciation in the value of the portfolio from the gains in the value of the securities held and the dividends earned on it. The securities in the portfolio are typically listed on the stock exchange, and the changes in the price of the securities are reflected in the volatile returns from the portfolio. These funds can be categorized based on the type of equity shares that are included in the portfolio and the strategy or style adopted by the fund manager to pick the securities and manage the portfolio.

Diversified equity fund is a category of funds that invest in a diverse mix of securities that cut across sectors and market capitalization. The risk of the fund’s performance being significantly affected by the poor performance of one sector or segment is low.

Market Segment based funds invest in companies of a particular market size. Equity stocks may be segmented based on market capitalization as large- cap, mid-cap and small-cap stocks (Refer Box 1.2).

• Large- cap funds invest in stocks of large, liquid blue-chip companies with stable performance and returns.

• Mid-cap funds invest in mid-cap companies that have the potential for faster growth and higher returns. These companies are more susceptible to economic downturns. Therefore, evaluating and selecting the right companies becomes important. Funds that invest in such companies have a higher risk, since the selected companies may not be able to withstand the slowdown in revenues and profits. Similarly, the price of the stocks also fall more when markets fall.

• Small-cap funds invest in companies with small market capitalization with intent of benefiting from the higher gains in the price of stocks. The risks are also higher.

Sector funds invest in only a specific sector. For example, a banking sector fund will invest in only shares of banking companies. Gold sector fund will invest in only shares of gold-related companies.

MF education #13 :Definition of Large Cap, Mid Cap and Small Cap:

In order to ensure uniformity in respect of the investment universe for equity schemes, it has been decided by SEBI to define large cap, mid cap and small cap as follows:

a. Large Cap: 1st -100th company in terms of full market capitalization

b. Mid Cap: 101st -250th company in terms of full market capitalization

c. Small Cap: 251st company on wards in terms of full market capitalization

Mutual Funds would be required to adopt the list of stocks prepared by AMFI in this regard and AMFI would adhere to the following points while preparing the list:

a. If a stock is listed on more than one recognized stock exchange, an average of full market capitalization of the stock on all such stock exchanges, will be computed.

b. In case a stock is listed on only one of the recognized stock exchanges, the full market capitalization of that stock on such an exchange will be considered.

c. This list would be uploaded on the AMFI website and the same would be updated every six months based on the data as on the end of June and December of each year. The data shall be available on the AMFI website within 5 calendar days from the end of the 6 months period.

Is it worth paying a financial advisor 1%?

Financial advice typically costs 0.5 percent to 1 percent of your portfolio per year. So, yes, people want to know if they are getting what they pay for. ... Russell estimates a good financial advisor can increase investor returns by 3.75 percent.

ICICI Mutual fund Scheme comparison with Other Scheme

ICICI Mutual Fund Performance as on 16/04/2020

ICICI Mutual Fund Performance as on 16/04/2020 

MF education #12: Concept of Equity and Debt

Equity :

      Equity represents ownership in the company (that has issued the shares) to the extent of shares held. Shareholders participate in the management of the company by exercising the voting rights associated with the shares held. They also participate in the residual profits of the company i.e. the profits remaining after all the dues and claims against the company have been met in the form of dividends. In periods of high revenues and profits, the shareholders benefit from high dividends that may be paid to them. However, there is no assurance given to equity holders either that a dividend will be paid or the amount of dividend. A company may not pay a dividend to its shareholders even if there are distributable profits if the management decides to use the profits for expansion plans, paying off debt and other financial activities that is expected to increase the value of the shares of the company. Apart from dividends, equity investors benefit from the appreciation in the value of the shares.

Investment in equity is investment in a growth-oriented asset. The primary source of return to the investor is from the appreciation in the value of the investment. Dividends are declared by the company when there are adequate profits and provide periodic income to the shareholders.

Debt :

      Debt represents the borrowings of the issuer. Debt as an asset class represents an income-oriented asset. The major source of return from a debt instrument is regular income in the form of interest. The interest is typically known at the time of issue and may be guaranteed either by an undertaking of the government or by security created on the physical assets of the issuer.

The terms of the issue will determine the conditions such as the coupon or interest payable on the debt, the tenor of the borrowing after which the borrower/issuer has to return the principal to the lenders/investors, the security against the assets of the borrower offered as collateral, if any, and other terms.

MF education 11 : Equity, Debt, Hybrid, Solution Oriented and Other Schemes

Equity, Debt, Hybrid, Solution Oriented and Other Schemes

        The portfolio of a mutual fund scheme will be driven by the stated investment objective of the scheme. A scheme might have an investment portfolio invested largely in equity shares and equity-related investments such as convertible debentures. The investment objective of such funds is to seek capital appreciation through investment in these growth assets. Such schemes are called equity schemes.

     Schemes with an investment objective of regular income generation limits them to investments in debt securities such as Treasury Bills, Government Securities, Bonds and Debentures are called debt funds. 

Hybrid funds have an investment charter that provides for investment in both debt and equity. Some of them invest in gold along with either debt or equity or both.

       Schemes with an investment objective that is directed towards a particular goal aimed in future such as retirement solution or investments for children are called Solution Oriented Schemes.

Revised mutual fund transactions cut-off timings Extended up to 30 April- 2020- URGENT

Dear Investor, In view of the current lockdown, SEBI has extended  transaction cut off timings  up to 30 April 2020. The new temporary cut off timings for submitting transactions up to  April 30, 2020 are as below : Transaction type Scheme Existing cut off time New cut off timings 1 Subscription Liquid and Overnight schemes 01:30 PM 12.30 PM 2 Subscription All schemes other than Liquid and Overnight schemes(below 2 lacs) 03.00 PM 01.00 PM 3 Subscription All schemes other than Liquid and Overnight schemes (2 lacs & above) 03.00 PM 01.00 PM 4 Redemption/Switch For all schemes, including Liquid and Overnight schemes 03.00 PM 01.00 PM Since this is an unexpected change, you may still receive mails or content with old cut off timings. We request you to ignore those and consider the above mentioned timings as final until further notice. Please note that similar changes are required to be done by our payment gateway service provider as well. In case of any delay from their end, there may be chances of delayed NAV allotment. Transactions received after the new cut off timings will be taken for processing on the next business day.

MF education 10 : Types of Mutual Funds : Part -2

Actively Managed Funds and Passive Funds

Actively managed funds

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. Investors expect actively managed funds to perform better than the market.

Passive funds

Passive funds invest on the basis of a specified index, whose performance it seeks to track. Thus, a passive fund tracking the S&P BSE Sensex would buy only the shares that are part of the composition of the S&P BSE Sensex. The proportion of each share in the scheme’s portfolio would also be the same as the weightage assigned to the share in the computation of the S&P BSE Sensex. Thus, the performance of these funds tends to mirror the concerned index. They are not designed to perform better than the market. Such schemes are also called index schemes. Since 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.

Exchange Traded Funds (ETFs) are also passive funds whose portfolio replicates an index or benchmark such as an equity market index or a commodity index. The units are issued to the investors in a new fund offer (NFO) after which they are available for sale and purchase on a stock exchange. Units are credited to the investor’s demat account and the transactions post-NFO is done through the trading and settlement platforms of the stock exchange. The units of the ETF are traded at real time prices that are linked to the changes in the underlying index.

MF education 9 : Types of Mutual Funds : Part -1

Mutual funds can be classified in various ways, depending on their structure and the nature of investments they make.

(1) Open-Ended Funds, Close-Ended Funds and Interval Funds

Open-ended funds are open for investors to enter or exit at any time, even after the NFO.

When existing investors acquire additional units or new investors acquire units from the open-ended scheme, it is called a sale transaction. It happens at a sale price, which is linked to the NAV.

When investors choose to return any of their units to the scheme and get back their equivalent value (in terms of units), it is called a re-purchase transaction. This happens at a re-purchase price that is linked to the NAV.

Although some unit-holders may exit from the scheme, wholly or partly, the scheme continues operations with the remaining investors. The scheme does not have any kind of time frame in which it is to be closed. The on-going entry and exit of investors implies that the unit capital in an open-ended fund would keep changing on a regular basis.

Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme, from the fund, only during its NFO. The fund makes arrangements for the units to be traded, post-NFO in a stock exchange. This is done through listing of the scheme in a stock exchange. Such listing is compulsory for close-ended schemes. Therefore, after the NFO, investors who want to buy units will have to find a seller for those units in the stock exchange. Similarly, investors who want to sell units will have to find a buyer for those units in the stock exchange. Since post-NFO sale and purchase of units happen to or from counter-party in the stock exchange – and not to or from the scheme – the unit capital of the scheme remains stable or fixed.

Since the post-NFO sale and purchase transactions happen on the stock exchange between two different investors, and that the fund is not involved in the transaction, the transaction price is likely to be different from the NAV. Depending on the demand-supply situation for the units of the scheme on the stock exchange, the transaction price could be higher or lower than the prevailing NAV.

Interval funds  combine features of both open-ended and close-ended schemes. They are largely close-ended, but become open-ended at pre-specified intervals. For instance, an interval scheme might become open-ended between January 1 to 15, and July 1 to 15, each year. The benefit for investors is that, unlike in a purely close-ended scheme, they are not completely dependent on the

stock exchange to be able to buy or sell units of the interval fund. However, between these intervals, the units have to be compulsorily listed on stock exchanges to allow investors an exit route.

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. No redemption/repurchase of units is allowed except during the specified transaction period (during which both subscription and redemption may be made to and from the scheme).

MF Education 8 : Limitations of a Mutual Fund

Lack of portfolio customization

Some brokerages offer Portfolio Management Schemes (PMS) to large investors. In a PMS, the investor has better control over what securities are bought and sold on his behalf. The investor can get a customized portfolio in case of PMS.

On the other hand, a unit-holder in a mutual fund is just one of several thousand investors in a scheme. Once a unit-holder has bought into the scheme, investment management is left to the fund manager (within the broad parameters of the investment objective). Thus, the unit-holder cannot influence what securities or investments the scheme would invest into.

Choice overload

There are multiple mutual fund schemes offered by 42 mutual funds – and multiple options within those schemes which makes it difficult for investors to choose between them. Greater dissemination of industry information through various media and availability of professional advisors in the market helps investors handle this overload.

In order to overcome this choice overload, SEBI has introduced the categorisation of mutual funds to ensure uniformity in characteristics of similar type of schemes launched by different mutual funds. This will help investors to evaluate the different options available before making informed decision to invest.

No control over costs

All the investor's money is pooled together in a scheme. Costs incurred for managing the scheme are shared by all the Unit-holders in proportion to their holding of Units in the scheme. Therefore, an individual investor has no control over the costs in a scheme.

SEBI has however imposed certain limits on the expenses that can be charged to any scheme. These limits, which vary with the size of assets and the nature of the scheme, are discussed later.

9 point guide on dos and don'ts (related to personal finance) keeping in mind in the lockdown period!

9 point guide on dos and don'ts (related to personal finance)  keeping in mind in  the lockdown period!

Here you go:

(1) Do keep contingency fund ready equaling at least 3 months of gross expenses or more.

(2) Do keep your net banking, payments bank, UPI, BHIM or digital wallet credentials handy.

(3) Do pay all your EMIs and credit card dues in time, if you can. Don't opt for deferment. 

(4) Do make sure that you can access your portfolio of investments, insurance online - through web or app.

(5) Don't stop your SIPs and regular investments, seeing market down every day.

(6) Make new investments in equity in phases if you've surplus money for long term.

(7) Don't listen to doomsday predictions. Let's accept no one can predict future market.

(8) Stick to age old financial principles. Some things do not change with time easily. 

(9) Review your investments, insurances and plan - when due. Avoid knee-jerk reactions.

Daily financial report for 09/04/2020

9/4/2020
BSE:+1266(31159)
NSE:+363(9111)
MID:+398(11374)
SML:+314(10293)
FII|FPI:+1737Cr
DII:-466Cr
B.Crude: 33
Gold$:1662=INR:45294
Silver: 43502
Rs/$: 76.42
6.45 : 2029 G-Sec: 6.49
NSE PE: 20.53

MF Education 7 : Advantages of Mutual Funds for Investors ( Part 2/2 )

Liquidity

At times, investors in financial markets are stuck with a security for which they can’t find a buyer – worse, at times they can’t find the company they invested in. Such investments, whose value the investor cannot easily realize in the market, are technically called illiquid investments and may result in losses for the investor.

Investors in a mutual fund scheme can recover the market value of their investments, 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. Schemes, where the money can be recovered from the mutual fund only on closure of the scheme, are compulsorily listed on a stock exchange. In such schemes, the investor can sell the units through the stock exchange platform to recover the prevailing value of the investment.

Tax Deferral

Mutual funds are not liable to pay tax on the income they earn. If the same income were to be earned by the investor directly, then tax may have to be paid in the same financial year.

Mutual funds offer options, whereby the investor can let the money grow in the scheme for several years. By selecting such options, it is possible for the investor to defer the tax liability. This helps investors to legally build their wealth faster than would have been the case, if they were to pay tax on the income each year.

Tax benefits

Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the benefit of deduction of the amount subscribed (upto Rs. 150,000 in a financial year), from their income that is liable to tax. This reduces their taxable income, and therefore the tax liability.

Convenient Options

The options offered under a scheme allow investors to structure their investments in line with their liquidity preference and tax position.

There is also great transaction conveniences like the ability to withdraw only part of the money from the investment account, ability to invest additional amount to the account, setting up systematic transactions, etc.

Investment Comfort

Once an investment is made with a mutual fund, they make it convenient for the investor to make further purchases with very little documentation. This simplifies subsequent investment activity.

Regulatory Comfort

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

Systematic Approach to Investments

Mutual funds also offer facilities that help investor invest amounts regularly through a

Systematic Investment Plan (SIP); or

Withdraw amounts regularly through a Systematic Withdrawal Plan (SWP); or

Move money between different kinds of schemes through a Systematic Transfer Plan (STP).

Such systematic approaches promote investment discipline, which is useful in long-term wealth creation and protection. SWPs allow the investor to structure a regular cash flow from the investment account.

MF Education 6 : Advantages of Mutual Funds for Investors ( Part 1/2 )

Professional Management

Mutual funds offer investors the opportunity to earn an income or build their wealth through professional management of their investible funds. There are several aspects to such professional management viz. investing in line with the investment objective, investing based on adequate research, and ensuring that prudent investment processes are followed.

Investing in the securities markets will require the investor to open and manage multiple accounts and relationships such as broking account, demat account and others. Mutual fund investment simplifies the process of investing and holding securities.

Affordable Portfolio Diversification

Investing in the units of a scheme provide investors the exposure to a range of securities held in the investment portfolio of the scheme in proportion to their holding in the scheme. Thus, even a small investment of Rs. 500 in a mutual fund scheme can give investors proportionate ownership in a diversified investment portfolio.

As will be seen later, with diversification, an investor ensures that “all the eggs are not in the same basket”. Consequently, the investor is less likely to lose money on all the investments at the same time. Thus, diversification helps reduce the risk in investment. In order to achieve the same level of diversification as a mutual fund scheme, investors will need to set apart several lakhs of rupees. Instead, they can achieve the diversification through an investment of less than thousand rupees in a mutual fund scheme.

Economies of Scale

Pooling of large sum of money from many investors makes it possible for the mutual fund to engage professional managers for managing investments. Individual investors with small amounts to invest cannot, by themselves, afford to engage such professional management.

Large investment corpus leads to various other economies of scale. For instance, costs related to investment research and office space gets spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers.

Mutual funds give the flexibility to an investor to organize their investments according to their convenience. Direct investments may require a much higher investment amount than what many investors may be able to invest. For example, investment in gold and real estate require a large outlay. Similarly, an effectively diversified equity portfolio may require a large outlay. Mutual funds offer the same benefits at a much lower investment value since it pools small investments by multiple investors to create a large fund. Similarly, the dividend and growth options of mutual funds allow investors to structure the returns from the fund in the way that suits their requirements.

Thus, investing through a mutual fund offers a distinct economic advantage to an investor as compared to direct investing in terms of cost saving.

Daily financial report for 07/04/2020

BSE:+2476(30067)
NSE:+708(8792)
MID:+552(10771)
SML:+388(9797)
FII|FPI:+741Cr
DII:+422Cr
B.Crude: 33
Gold$:1654=INR:45081
Silver: 43494
Rs/$: 75.62
6.45 : 2029 G-Sec: 6.41
NSE PE: 19.81

EPFO महामारी अग्रिम सुविधा

EPFO ने कर्मचारियों के लिए 'महामारी अग्रिम सुविधा' की शुरुआत की है | अब आप अपने ईपीएफ खाते से 75% तक या 3 महीने के मूल वेतन और मंहगाई भत्ते में से जो भी कम हो, निकाल सकते हैं | अधिक जानकारी के लिए कृपया www.epfindia.gov.in पर जायें | 

Recent Changes in Taxation of Dividend from Mutual Funds

Currently, a 10% dividend distribution tax (DDT) is paid by equity oriented mutual funds and dividends are tax free in the hands of the investors. Finance Act, 2020 has scrapped the Dividend Distribution Tax (DDT) paid by the Mutual Funds on dividend paid to unit holders. However, any dividend income (pay out / reinvestment) has been made taxable in the hands of unitholders from 1st April 2020

In this regard, please find attached herewith a detailed note form HDFC AMC. Please go through the note in detail.

Some of the Salient features of the note are:

Mutual Fund Investor is liable to pay tax on Dividend Income from mutual funds (whether paid or reinvested) at applicable tax rates to him TDS @ 10% (for resident individual) will be deducted from the Dividend Income. Even though TDS is applicable over 5000 aggregate dividend income, in absence of proper information, TDS will be deducted on entire dividend paid by AMC (As per HDFC AMC note and we assume every AMC will follow it) If PAN is not registered in the Mutual Fund folio, then TDS on Dividend Income will be deducted @ 20%. In case of NRIs, TDS for on the Dividend Income will be deducted at 20% If the total income of an Investor (not being a company or firm) does not fall under taxable limit, then he/she can provide Form 15 G for non-deduction of TDS

Our Suggestions:

If the tax slab of an Investor is 10% or higher, then the investor should shift from Dividend Option to Growth Option. It is advisable to check the Taxation impact before the shifting. Security Transaction Tax (STT) @ 0.001%will be levied at the time of shifting from Dividend to Growth option. If an Investor requires regular Income, then he should consider Systematic Withdrawal Plan (SWP) in the Growth Option. Any Gain/Loss arising out of SWP will fall under the head Capital Gains. Please note that Long term capital gains accrued from the sale of equity shares and equity-oriented mutual funds are exempt from tax up to Rs 1 lakh in a financial year. The gains in excess of Rs 1 lakh are taxed at flat 10%.

Disclaimer: The above email is prepared for the purpose of information sharing with the clients. It does not constitute Taxation Advice. You are requested to consult your Tax Consultant before making any decision.

Revised mutual fund transactions cut-off timings from April 7 to 17, 2020 - URGENT

Dear Investor, In view of the current lockdown, SEBI has decided to change transaction cut off timings with effect from 7th April 2020 to 17th April 2020(both days included). The new temporary cut off timings for submitting transactions  from April 7, 2020 are as below : Transaction type Scheme Existing cut off time New cut off timings 1 Subscription Liquid and Overnight schemes 01:30 PM 12.30 PM 2 Subscription All schemes other than Liquid and Overnight schemes(below 2 lacs) 03.00 PM 01.00 PM 3 Subscription All schemes other than Liquid and Overnight schemes (2 lacs & above) 03.00 PM 01.00 PM 4 Redemption/Switch For all schemes, including Liquid and Overnight schemes 03.00 PM 01.00 PM Since this is an unexpected change, you may still receive mails or content with old cut off timings. We request you to ignore those and consider the above mentioned timings as final until further notice. Please note that similar changes are required to be done by our payment gateway service provider as well. In case of any delay from their end, there may be chances of delayed NAV allotment. Transactions received after the new cut off timings will be taken for processing on the next business day.

MF Education 4 : How do Mutual Fund Schemes Operate?

Mutual fund schemes announce their investment objective and seek investments from the investor. Depending on how the scheme is structured, it may be open to accept money from investors, either during a limited period only, or at any time.
The investment that an investor makes in a scheme is translated into a certain number of ‘Units’ in the scheme. Thus, an investor in a scheme is issued units of the scheme.
Typically, every unit has a face value of Rs. 10. (However, older schemes in the market may have a different face value). The face value is relevant from an accounting perspective. The number of units issued by a scheme multiplied by its face value (Rs. 10) is the capital of the scheme – its Unit Capital.
The scheme earns interest income or dividend income on the investments it holds. Further, when it purchases and sells investments, it earns capital gains or incurs capital losses. These are called realized capital gains or realized capital losses as the case may be.
Investments owned by the scheme may be quoted in the market at higher than the cost paid. Such gains in values on securities held are called valuation gains. Similarly, there can be valuation losses when securities are quoted in the market at a price below the cost at which the scheme acquired them.

For running the scheme of mutual funds, operating expenses are incurred.

Investments can be said to have been handled profitably, if the following metric is positive:

(A) +Interest income
(B) + Dividend income
(C) + Realized capital gains
(D) + Valuation gains
(E) – Realized capital losses
(F) – Valuation losses
(G) – Scheme expenses
When the investment activity is profitable, the true worth of a unit increases. When there are losses, the true worth of a unit decreases. The true worth of a unit of the scheme is otherwise called Net Asset Value (NAV) of the scheme.

When a scheme is first made available for investment, it is called a ‘New Fund Offer’ (NFO). During the NFO, investors get the chance of buying the units at their face value. Post-NFO, when they buy into a scheme, they need to pay a price that is linked to its NAV.

The money mobilized from investors is invested by the scheme in a portfolio of securities as per the stated investment objective. Profits or losses, as the case might be, belong to the investors or unitholders. No other entity involved in the mutual fund in any capacity participates in the scheme’s profits or losses. They are all paid a fee or commission for the contributions they make to launching and operating the schemes. The investor does not however bear a loss higher than the amount invested by him.

Various investors subscribing to an investment objective might have different expectations on how the profits are to be handled. Some may like it to be paid off regularly as dividends. Others might like the money to grow in the scheme. Mutual funds address such differential expectations between investors within a scheme, by offering various options, such as dividend payout option, dividend re-investment option and growth option. An investor buying into a scheme gets to select the preferred option.

The relative size of mutual fund companies is assessed by their assets under management (AUM). When a scheme is first launched, assets under management is the amount mobilized from investors. Thereafter, if the scheme has a positive profitability metric, its AUM goes up; a negative profitability metric will pull it down.

Further, if the scheme is open to receiving money from investors even post-NFO, then such contributions from investors boost the AUM. Conversely, if the scheme pays any money to the investors, either as dividend or as consideration for buying back the units of investors, the AUM falls.

The AUM thus captures the impact of the profitability metric and the flow of unit-holder money to or from the scheme.

MF Education 3 : Why are there different kinds of Mutual Fund Schemes?

Mutual funds seek to mobilize money from all possible investors. Various investors have different investment preferences and needs. In order to accommodate these preferences, mutual funds mobilize different pools of money. Each such pool of money is called a mutual fund scheme.
Every scheme has a pre-announced investment objective. Investors invest in a mutual fund scheme whose investment objective reflects their own needs and preference

Daily Financial Report for 03/04/2020

Today's  Financial Report for 03/04/2020

BSE:-674(27590)

NSE:-170(8083)

MID:-120(10219)

SML:-97(9409)

FII|FPI:-1960Cr

DII:+226Cr

B.Crude: 32

Gold$:1617=INR:43722

Silver: 41223

Rs/$: 76.22

6.45 : 2029 G-Sec: 6.30

NSE PE: 18.22

MF Education 2 : Role of Mutual Funds

Mutual funds perform different roles for the different constituents that participate in it.

Their primary role is to assist investors in earning an income or building their wealth, by participating in the opportunities available in various securities and markets. It is possible for mutual funds to structure a scheme for different kinds of investment objectives. Thus, the mutual fund structure, through its various schemes, makes it possible to tap a large corpus of money from investors with diverse goals/objectives.

Therefore, mutual funds offer different kinds of schemes to cater to the need of diverse investors. In the industry, the words ‘fund’ and ‘scheme’ are used inter-changeably. Various categories of schemes are called “funds”. In order to ensure consistency with what is experienced in the market, this workbook goes by the industry practice. However, wherever a difference is required to be drawn, the scheme offering entity is referred to as “mutual fund” or “the fund”.

The money that is raised from investors, ultimately benefits governments, companies and other entities, directly or indirectly, to raise money for investing in various projects or paying for various expenses.

The projects that are facilitated through such financing, offer employment to people; the income they earn helps the employees buy goods and services offered by other companies, thus supporting projects of these goods and services companies. Thus, overall economic development is promoted.

As a large investor, the mutual funds can keep a check on the operations of the investee company, and their corporate governance and ethical standards.

The mutual fund industry itself, offers livelihood to a large number of employees of mutual funds, distributors, registrars and various other service providers.

Higher employment, income and output in the economy boosts the revenue collection of the government through taxes and other means. When these are spent prudently, it promotes further economic development and nation building.

Mutual funds can also act as a market stabilizer, in countering large inflows or outflows from foreign investors. Mutual funds are therefore viewed as a key participant in the capital market of any economy.

MF Education 1 : Concept of Mutual Fund

   Mutual fund is a vehicle (in the form of a “trust”) to mobilize money from investors, to invest in different markets and securities, in line with the common investment objectives agreed upon, between the mutual fund and the investors. In other words, through investment in a mutual fund, an investor can get access to equities, bonds, money market instruments and/or other securities, that may otherwise be unavailable to them and avail of the professional fund management services offered by an asset management company.