What are Mutual Funds?
Investing in mutual funds is fairly simple. Below are the four main ways of investing.
Mutual funds are a mechanism for pooling the resources of different investors and
investing the collected funds in accordance with specific objectives, in securities
so as to realize the investment objective. The investment objective is based largely
upon the investors’ capacity to take risk. The profits or losses are shared by the
investors in proportion to their investments. The mutual funds normally come out
with a number of schemes with different investment objectives which are launched
from time to time.
How did Mutual Funds Originate?
The concept of pooling money for investment purposes started in the mid 1800s in
Europe. The first pooled fund in the U.S. was created in 1893 for the faculty and
staff of Harvard University. On March 21st 1924 three securities executives from
Boston pooled their money to create the first mutual fund in the world known as
the Massachusets Investors Trust. Unit Trust of India was the first mutual fund
to be set up in India in the year 1963. In early 1990s, Government allowed public
sector banks and institutions to set up mutual funds.
What are the different types of Mutual Funds?
Mutual FundS chemes are generally classified into 2 types viz.
A) Schemes according to Maturity Period:
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase
on a continuous basis.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The
fund is open for subscription only during a specified period at the time of launch
of the scheme. Investors can invest in the scheme at the time of the initial public
issue and thereafter they can buy or sell the units of the scheme on the stock exchanges
where the units are listed. In order to provide an exit route to the investors,
some close-ended funds give an option of selling back the units to the mutual fund
through periodic repurchase at NAV related prices.
B) Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different options to
the investors like dividend option, capital appreciation, etc. and the investors
may choose an option depending on their preferences. The investors must indicate
the option in the application form. The mutual funds also allow the investors to
change the options at a later date. Growth schemes are good for investors having
a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are less risky compared
to equity schemes. These funds are not affected because of fluctuations in equity
markets. However, opportunities of capital appreciation are also limited in such
funds. The NAVs of such funds are affected because of change in interest rates in
the country. If the interest rates fall, NAVs of such funds are likely to increase
in the short run and vice versa. However, long term investors may not bother about
these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated
in their offer documents. These are appropriate for investors looking for moderate
growth. They generally invest 40-60% in equity and debt instruments. These funds
are also affected because of fluctuations in share prices in the stock markets.
However, NAVs of such funds are likely to be less volatile compared to pure equity
funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation
of capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and
inter-bank call money, government securities, etc. Returns on these schemes fluctuate
much less compared to other funds. These funds are appropriate for corporate and
individual investors as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have
no default risk. NAVs of these schemes also fluctuate due to change in interest
rates and other economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive
index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the
same weightage comprising of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by the same percentage
due to some factors known as "tracking error" in technical terms. Necessary disclosures
in this regard are made in the offer document of the mutual fund scheme. There are
also exchange traded index funds launched by the mutual funds which are traded on
the stock exchanges.
Sector specific funds/schemes
These are the funds/schemes which invest in the securities of only those sectors
or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds
are dependent on the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and
must exit at an appropriate time. They may also seek advice of an expert.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the
Income Tax Act, 1961 as the Government offers tax incentives for investment in specified
avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by
the mutual funds also offer tax benefits. These schemes are growth oriented and
invest pre-dominantly in equities. Their growth opportunities and risks associated
are like any equity-oriented scheme.
How to invest in quant Mutual Fund Schemes?
Investment in quant MF schemes can be made either directly or through any of our
empanelled distributors. Applications for allotment of quant MF units should be
made in the prescribed form only. Cheques / DDs should be drawn in favour of "the
respective scheme" names. You can also make online investment on our website. Please
visit www.quant-mutual.com and click on Invest Online to make online transactions.
Why are bank account details mandatory?
In order to protect unit holder interest from fraudulent encashment of cheques,
the current SEBI Regulations, has made it mandatory for investors to mention in
their application/repurchase-redemption request, the bank name and account number
of the unit holders .The AMC will not be responsible for any loss arising out of
fraudulent encashment of cheques and or any delay /loss in transit. In the absence
of these details, applications are liable for rejection.
What will investors receive as proof of investment?
Every unit holder of the Scheme will have an account number allotted to him and
a statement of account of the units to the credit of his account will be issued.
For any investments made during the initial offer period the statements of account
will be issued to all investors within 10 days after the closure of the offer. After
the scheme reopens for subscription investors will be issued a statement of account
detailing the number of units allotted. The Fund will endeavor to issue the statement
of account within 5 business days after processing of the application. A fresh statement
of account will be issued after every partial encashment / declaration of dividend
/ issue of bonus units / further purchase of units giving the total number of units
standing to the investors’ credit. On every such operation the previous statement
of account shall automatically stand cancelled.
In addition, each unit holder will also receive an annual account statement as soon
as practicable after 31st March each year which will detail the investors opening
unit balance as of 1st April of the prior year, all transactions that occurred during
the preceding twelve months and the closing balance of units held as of 31st March.
No unit certificate will be issued under the scheme. However incase of a specific
request unit certificate may be issued within 6 weeks from the receipt of request
from the investor at the appropriate authorized centre.
How will investors be allotted units in the scheme?
Allotment of units will be made after realisation of Cheque/DD for the amount invested
depending upon the NAV of the units, subject to the prevailing load structure in
fractional Units upto 3 decimals.
What is the NAV of Units?
The NAV is the current market value of a mutual fund unit. It is calculated by taking
the funds total investments, cash and any accrued earnings deducting liabilities,
and dividing the remainder by the number of units outstanding.
Total Unit Cap. + Reserves + income (net of expenses & provisions) + (-) Appreciation/
(Depreciation) in investment
NAV = -----------------------------------------------------------------------------------------------------------------------------
No. of Units outstanding
Can investors appoint nominees for their investments in mutual fund units?
Yes. Nominations may be made by individuals applying for or holding units on their
own behalf, either singly or jointly. Those who cannot nominate are - Non-individuals
including societies, trusts, corporate bodies, partnership firms, Kartas of Hindu
undivided families, or holders of power of attorney.
Where can investors track the NAV?
The NAV shall be calculated everyday including holidays and declared on each business
day in accordance with the SEBI guidelines from time to time and will be displayed
/ available at the Corporate office, Registrars office and other Authorized Centers
such as the Area Offices. The NAV along with the sale and repurchase prices will
also be published in atleast 2 daily newspapers along with the sale and repurchase
price on all business days accordance with SEBI guidelines, and made available on
our website and AMFI website on a daily basis.
How do investors redeem their units?
Investors may redeem their entire holdings either in full or in part. Investors
have also the option to request the redemption:
a . of a Specified amount in Rupees
or
b. Of a Specified number of Units of the Scheme
Where the redemption request is for both a specified amount and for a specified
number of units, the Specified Unit request is considered as definite. In case of
a Specified request for an amount in rupees the number of units to be redeemed will
be determined on the basis of the applicable repurchase price. Similarly where the
request is for a specified number of Units for redemption, the redemption amount
payable will be the number of units multiplied by the applicable repurchase price.
Where the request for redemption exceeds the holdings of the Unit holders, the account
of the Unit holder will be closed and the entire holding to the investor’s credit
will be redeemed at the applicable repurchase price.
Repurchase/ redemption shall be effected on receipt of the repurchase/ redemption
request along-with the duly discharged Statement of Account mentioning the number
of units offered amount sought for repurchase/ redemption at the authorised centre
where the Units were originally purchased. The new statement of account, mentioning
the units outstanding to the credit of investor, if any, will be sent to the investor
separately and upon its receipt all previous statements of account will automatically
stand cancelled.
On complete redemption of the holdings the investor’s ceases to be a member of the
Scheme and would not be entitled to any further benefits from the Scheme.
Repurchase / Redemption by NRIs/PIOs
Repurchases / Redemptions By NRI’s / PIO’s will be in accordance with the conditions
mentioned above subject to any procedures laid down by the RBI if any.
Payment to NRI’s / PIO’s will be subject to relevant laws / guidelines of the RBI
as are applicable from time to time.
Subject to RBI approval, in case of NRI unitholders the amounts due on redemption
/ repurchases (subject to tax deduction at source) will be credited to the NRE /
FCNR account of the investor where the original investment in the units was made
on repatriation basis by an NRI either through inward remittance or debit to NRE/FCNR
account.
In all other cases the amounts due on redemption / repurchases (subject to tax deduction
at source) will be paid by means of a rupee cheque payable at the NRO/NRSR account
of the investor as applicable.
How is the Sale/Purchase Price calculated?
Sale /Repurchase prices will be Calculated as per the prevailing load structure
as follows:
NAV
Sale Price = -----------------
1- Entry Load
NAV Repurchase Price = ------------------
1- Entry Load
What is a Load structure?
Load is an amount that is paid by the investor to subscribe to the units or to redeem
the units from the scheme. This amount is used by the AMC to pay commissions to
the distributor and to take care of other marketing and selling expenses. Load amounts
are variable and are subject to change from time to time. For the current applicable
structure, please refer to the website of the AMC (www.quant-mutual.com) or may
call at Area offices / Business Centers or your distributor. Pursuant to SEBI Circular
no SEBI/IMD/CIR No 4/16831/09 dated June 30 2009 no entry load is charged for all
mutual funds schemes. For details on exit load, please see the SID/ KIM of the respective
schemes.
What is a Systematic Investment Plan?
Investors will have the opportunity to plan their further investments and withdrawals
from the scheme via the SIP/SWP. They can invest or withdraw regularly, at a specific
frequency (subject to the other provisions of the schemes) thus benefiting from
the economics of average cost of purchase and sale. They can further invest a fixed
sum of money, a minimum of Rs.1000 (Rs. 500 for ELSS) and multiples thereof under
the SIP. For more details on SIP, please visit our Investor Education section.
What is a Systematic Withdrawal Plan?
SWP is a facility given to the Unit holders to withdraw amounts from the Scheme
on periodic basis by giving a single instruction. In a SWP the investors can redeem
a fixed sum/ number of units- minimum 50 units and multiples thereof at specified
intervals. An investor has to have a minimum balance of specified no. of units or
specified amount at all times The default SWP date will be 2nd of every month (in
case it falls on a non-business day, the transaction will be effected on the next
business day of the Scheme). The SWP frequency is monthly. The Load Structure prevailing
at the time of submission of the SIP/STP/SWP application will apply for all the
installments indicated in such application.
Are there any tax benefits for investing in Mutual Funds?
Investments in specific mutual funds scheme viz. ELSS or RGESS do classify for tax
benefits. For specific provisions please refer to the respective offer documents.
What are your rights as an investor? What resource do you have to your grievances?
a) Unitholders under the scheme have a proportionate right in the beneficial ownership
of the assets of the mutual fund under the scheme.
b) The unitholders have a right to ask the trustee company/board of trustees about
any information which may have an adverse bearing on their investments, and the
trustees shall be bound to disclose such information to the unitholders.
c) The appointment of the Asset Management Company in respect of this scheme may
be terminated by a majority of Trustees or 75% of the unitholders.
d) Units of the scheme are generally non-transferable. However, transfer of units,
in cases outlined under the heading Transferability/ Transmission of units and subject
to conditions stated therein, shall be made within 30 days from the date of lodgment.
e) Warrants in respect of dividends, if declared, will be dispatched to the unitholders
within 30 days of the declaration of dividend if any.
f) Redemption or repurchase warrants will be dispatched within 10 working days from
the date of their receipt of request duly complete in all respects by the appropriate
Office.
g) The Trustees may, from time to time, add to or otherwise amend or alter all or
any of the terms of this scheme, for duly complying with the guidelines of Government,
RBI/SEBI or any other regulatory body or in the interest or convenience of the Fund
or the unit holders. and any modification of the fundamental attributes of the scheme,
or the trust or the fees and expenses payable or any other modification by the Trustees
shall be made bearing in mind that the interest of the unit holders is not affected
and no change in any of the above shall be carried out unless –
A written communication about the change is sent to each unit holder and an advertisement
is given in one English daily newspaper having nation-wide circulation as well as
in a newspaper published in the language of the region where the Head office of
the Mutual Fund is situated; and The unit holders are given an option to exit at
prevailing NAV without any exit load. h) An Abridged scheme wise annual report shall
be mailed to all unitholders not later than 6 months from the date of closure of
the relevant accounting year and the full annual report shall be available for inspection
at the corporate office of Mutual Fund and a copy shall be made available the unitholders
on request on payment of nominal fees, if any.
i)DOCUMENTS FOR INSPECTION:
The following documents will be available for inspection to the unit holders at
the corporate office of the Mutual Fund:
1. The Trust Deed
2. Deed of Modification
3. Memorandum of Association of Asset Management Company
4. Articles of Association of Asset Management Company
5. Investment Management Agreement
6. Custodial Agreement
7. Registrars Agreement (as and when they are appointed)
8. Audited Balance Sheet of the Mutual Fund
9. The Securities & Exchange Board of India (Mutual Fund) Regulations, 1996
10. Offer Document of the scheme.
11. The Indian Trusts Act 1882 and the consent of the Auditors to act in that capacity.
For detailed guidelines - SEBI Investors Education Programme – Investments in Mutual Funds
SEBI Investors Education Programme – Investments in Mutual Funds