Stocks & Mutual funds

financial markets

Stock markets are volatile in nature. Within no time, the market can reshape. So, if you are planning to invest in equity instruments for the first time, but you have no idea about market trends or types of stocks or when to enter or exit the market. Mutual Fund could be an ideal option for you!

A mutual fund is a financial vehicle that mobilizes your money as the investment in various marketable securities. The investment is always based upon agreed objectives between investors and mutual fund. We can say, via the mutual fund, you can avail benefits of professional fund management services practiced by professional Asset Management Company (AMC). The Fund Manager understand market trends and working better. A fund manager is a financial expert that will make the best use of your investment. So, you will get the best returns for your money!

Types of Mutual Funds In India

Although, the fund manager is going to do all the work, still you need to do your homework before diving into a world of the mutual fund. We are talking about various types of mutual funds in India in this section. So, when you approach any asset management company, you know what you are looking for!

  • Equity Mutual Fund: Equity mutual fund is risky investment fund with highest returns. This fund is completely dependent upon the performance of the market. The return will fluctuate as per the ups and downs of the market. Honestly, if you are seeking better returns in the long run, equity mutual fund is the great option for you. But if you are reluctant to take the risk, don’t opt for this type of fund!
  • Debt Mutual Funds: Debt mutual fund is the perfect case for risk-averse investors. In this case, all your investment will be funded towards debt instruments. Such as, Government bonds and fixed return investment. This way, you will receive an income with fixed rate. Of course, debt instruments are less volatile than equity mutual fund. But again, less risky investment offers fewer returns.
  • Balanced Mutual Funds: The balanced mutual fund is a hybrid of both equity and debt mutual funds. The funds will be distributed in both equity and debt funds. So, after a certain period, you will get a fixed amount of return!
  • Open-Ended Funds: As the name implies, you can enter or exit the market anytime via open-ended funds. It means you have complete freedom to make or redeem investment anytime. There is no compulsion of a stipulated period.
  • Close Ended Funds: Close ended fund is the opposite of open-ended funds. In this case, your investment will be locked down for the certain period. Before maturity date, you can’t request the withdrawal.
  • Equity Linked Savings Schemes: ELSS comes with tax benefits. It is exempt from Income tax imposed under 80 C. But to avail this offer, you need to lock in your funds for at least three years.
  • Sector Funds: Your funds will be invested in particular sectors of the market via sector funds. These sectors include banking, infrastructure or real estate. For instance, your invested for real estate sector only. Your fund manager will invest or reinvest in the stock of real estate companies only.

What Is Asset Management Company?

stocksAsset Management Company is the official body that handles your funds. Such companies have hired professional and expert people who understand the market. They know when to enter or exit the market. They know how to operate for best returns. We call these people the fund managers. The fund managers invest your funds in different mutual funds on your behalf. When you sign for specific scheme or fund, you have allowed fund managers to make the best use of your funds. These professionals are trained to invest in the market with favorable conditions. When the market crashes, these professionals minimize the losses to the possible limit. Simply, a fund manager is a financial expert with vast experience about the stock market. You can trust them for their abilities!

What Is Entry Or Exit Load?

Investment in mutual funds does not come for free. You have to pay a certain amount as fee charges. We call it as entry and exit load, as paid at the time of investment or redemption. Usually, you have to pay either entry or exit load. Currently, an average load of 2% is charged. For instance, a load of Rs. 2 will be charged for an investment of Rs. 100.

How To Track Performance Of Mutual Funds?

This is the trickiest part for most people. You may have heard about share’s price going up or down in the market, tracked by various website tools. This is not the case for mutual funds. We track down the performance based on Net Asset Value. NAV refers to the price of units you have! Let’s explain this concept. For instance, you made an investment of Rs. 2000. The NAV of is Rs. 10, it means you have purchased 200 units. Now the NAV is raised to Rs. 15. Now, your 200 units are worth of Rs. 3000. Rs. 1000 is the return earned on the investment.

Selecting a Mutual fund

Selecting a mutual fund is based on your personal financial goal, time horizon and return expectancy. In general you should follow the below steps

  1. Set up your investment objective
  2. Set up return expectations
  3. Create the right portfolio based on risk –return matrix
  4. Shortlist funds top funds
  5. Chose a fund which works for you

Can I keep the Mutual fund units in my demat account?

Yes, you can keep your mutual funds in demat format , if you currently hold your mutual funds in physical form they can also be dematerialized. You would need to make a request by submitting a conversion request form which you can get from your broker or any of the registries like NSDL or CSDL. While demat account comes with some obvious benefits like paperless transactions, single statement for all transactions, easy transfer to nominees or legal heirs it also slightly increases cost of transacting as more parties are involved also grievance redressal becomes complicated as different players are responsible for different parts of supply chain.

What are the grievance redressal mechanisms available to Mutual fund investors in India

The Asset Management Companies invest your money in various types of mutual funds. Every mutual fund in its offer document or on its site has a designated person who investors can approach with their grievance, complaint or query. Directors of mutual funds and their trustee’s names are also published in offer document and customers came route their query to concerned mutual fund. If the query stays unresolved with mutual fund, Investors can approach SEBI’s Investor Grievance Redressal Committee.

AMC companies are regulated by Securities and Exchange Board Of India (SEBI). In simple word, SEBI frames the policies and regulations for such fund houses. This is done to avoid cases of embezzlement and frauds. As you know, mutual funds are highly dependent upon market trends. So, SEBI does not stand responsible for return on investment. The returns will be positive of negative as per the market performance.

Investors can send their complaints to:

Security and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
Plot C4-A, “G” Block, 1st Floor,
Bandra-Kurla Complex, Bandra (E), Mumbai 400 051

Phone: 1800-227575 or 1800-2667575 or 022-26449199-8

Online complaint on SEBI’s website: scores.gov.in

Generally, SEBI responds within 30 days to an online complaint. If the grievance is not resolved, the consumer can approach a court or take the cheaper and faster arbitration route, as under:

National Stock Exchange:
http://www.nseindia.com/content/assist/asst_investser.htm

Bombay Stock Exchange:
https://www.bseindia.com/static/investors/cac_tm.aspx
or
https://www.bseindia.com/static/investors/Arbitrage.aspx

Central Depository Services Limited:
Complain number: 1800-225533 or complaints@cdslindia.com

National Securities Depository Limited:
https://nsdl.co.in/grievance.php

What are my rights as mutual fund investor

  1. Access to Scheme information document which contains all details about the mutual fund schemes including nature of the scheme, investment strategy, portfolio split. Details about fund manager and fund management house their qualifications, past experience . Information related to expenses of the scheme including fees and expenses for different investment options
  2. But for ELSS schemes all other schemes need to be allotted within 5 working days of closure of NFO
  3. Dispatch of repurchase or redemption must happen with 10 working days otherwise mutual fund companies are liable to pay interest for the delay
  4. Mutual funds need to publish NAV daily by 9 pm on mutual funds as well as AMFI sites. The only exception is fund of funds who can do it till next day 10 am
  5. Annual reports of mutual funds need to be send to all investors through email and if email is not available mutual funds need to send it through physical email
  6. Dividend and warrants need to be dispatched to investors within 30 days of declaration. In case of delay mutual funds are liable to pay delay cost at 15 % PA
  7. Consolidated account statement to be sent on or before 10th of succeeding month including transaction charges, distributor commission across all schemes of all mutual funds.

Final Verdict

For beginners, making the direct equity investment in such volatile market is not a great idea. A mutual fund seems to be a safer option to expose yourself to a stock market.

This article was contributed by the author of this website and Sarabdeep Singh, who has a complete guide on how to chose mutual funds. Or you should talk to your financial advisor.