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Faq

  • Do any mutual funds invest in both stocks and bonds?

    Yes, balanced funds invest in a combination of stocks and bonds, a typical mix is 60:40 in favour of stocks. Returns from balanced funds are normally lower than pure equity mutual funds when markets are rising, however if the market declines, the losses are also normally lower. Balanced funds are best suited for investors who do not plan their asset allocation and yet want to invest in equities. Buying separate equity and income funds for your portfolio also achieves the same results as buying a balanced fund. The advantage with the former option is that you can choose your own split (between stocks and bonds i.e fixed income) rather than let the fund manager decide the same.
  • How is a mutual fund set up?

    A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

    SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
  • Should I opt for SIP or bulk investment?

    Equity markets are highly volatile. The shares prices vary considerably on day-to-day basis. In such a scenario, if you put a lump sum amount of money, you could either gain a lot or lose a lot. It would then become a kind of a lottery.

    Instead, if you invested small amounts regularly, you will average out your total cost of acquisition. Thus, by doing Systematic Investment Planning (SIP) you will cut down the volatility risk and increase your chances of making money.

    Debt markets, on the other hand, are relatively quite stable. If you put your money today or tomorrow or next month, it is not going to make much difference. As such, even if you were to put your lump sum in a debt fund, you are not likely to lose.

    Therefore, the answer is simple:
    If it is a share or an equity fund, do SIP
    If it is a bank FD, NSC or debt MF, both SIP and lump sum are alright
  • What are Offshore Funds?

    Offshore funds specialise in investing in foreign companies or corporations. These funds have non-residential investors and are regulated by the provisions of the foreign countries where these are registered. These funds are regulated by RBI directives
  • What is venture capital? What are venture capital funds?

    Venture Capital is the fund/initial capital provided to businesses typically at a start-up stage and many times for new/ untested ideas. Venture capital normally comes in where the conventional sources of finance do not fit in. Venture capital funds are mutual funds that manage venture capital money i.e. these funds aggregate money from several investors who want to provide venture capital and deploy this money in venture capital opportunities.


    Typically venture capital funds have a higher risk/ higher return profile as compared to normal equity funds and whether you should invest in these would depend on your specific risk profile and investment time-frame.
  • How is NAV calculated?

    The value of all the securities in mutual funds portfolio is calculated daily. From this, all expenses are deducted and the resultant value divided by the number of units in the fund is the funds NAV or its Net Asset Value.
  • How are mutual funds regulated?

    All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in case the AMC is promoted by a bank). In addition, every mutual fund has a board of directors that represents the unit holders interests in the mutual fund.
  • What is Net Asset Value (NAV)?

    NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the Asset Management Company (AMC) at the end of every business day. Net asset value on a particular date reflects the realisable value that the investor will get for each unit that he his holding if the scheme is liquidated on that date.
  • When should you change your investment plan.

    For example, as you grow older you might adopt a more conservative investment approach, pruning some of your riskier (equity-oriented) funds
  • Can a mutual fund change the asset allocation while deploying funds of investors?

    Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.

mutual funds glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
  • Acid Test Ratio

    It is the ratio indicated by dividing a company\'s current assets by current liabilities. It reflects the financial strength of a company and hence called Acid test ratio.
  • Alpha

    Alpha measures the difference between a fund\'s actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates a fund has underperformed, given the expectations established by the fund\'s beta. Some investors see alpha as a measurement of the value added or subtracted by a fund\'s manager. There are limitations to alpha\'s ability to accurately depict a manager\'s added or subtracted value. In some cases, a negative alpha can result from the expenses that are present in the fund figures but are not present in the figures of the comparison index. Alpha is dependent on the accuracy of beta: If the investor accepts beta as a conclusive definition of risk, a positive alpha would be a conclusive indicator of good fund performance. Of course, the value of beta is dependent on another statistic, known as R-squared.
  • Annual Fund Operating Expenses

    The expenses incurred, during a particular year, by Asset Management Company for managing the funds.
  • Asset Allocation

    The process of diversifying the investments in different kinds of assets such as stocks, bonds, real estate, cash in order to optimize risk.
  • Asset Allocation Fund

    A fund that spreads its portfolio among a wide variety of investments, including domestic and foreign stocks and bonds, government securities, gold bullion and real estate stocks. Some of these funds keep the proportions allocated between different sectors relatively constant, while others alter the mix as market conditions change.
  • Asset Management Company (AMC)

    A Company registered with SEBI, which takes investment/divestment decisions for the mutual fund, and manages the assets of the mutual fund.
  • Automatic Investment Plan

    A plan offered by most mutual funds where a small fixed amount is automatically deducted monthly from an investor\'s bank account and invested in the mutual fund of their choice.
  • Automatic Reinvestment

    An investment option for mutual fund unit holders in which the proceeds from either the fund\'s dividends or capital gains, or both, are automatically used to buy more units of the funds.