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.

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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).