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  • Do mutual funds offer a periodic investment plan?

    Most private sector funds provide you the convenience of periodic purchase plans (through a Systematic Investment Plan), automatic withdrawal plans and the automatic reinvestment of dividends. You would basically need to give post-dated cheques (monthly or quarterly, periodic date of the cheque is fixed by the Asset Management Company). Most funds allow a monthly investment of as little as Rs500 with a provision of giving 4-6 post-dated cheques and follow up later with more. Regular monthly investments are a good way to build a long-term portfolio and add discipline to your investment process.
  • 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.
  • When will the investor get certificate or statement of account after investing in a mutual fund?

    Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.
  • 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
  • What are Index Funds?

    Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
  • Can an investor appoint a nominee for his investment in units of a mutual fund?

    Yes. The nomination can be made by individuals applying for / holding units on their own behalf singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot nominate.
  • What are Growth Schemes?

    Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.
  • What are the time-tested investment strategies that work?

    Start investing as early as possible - the power of compounding is the single most important reason for you to start investing right now as even a relatively small amount invested early will grow over the course of your working life into a substantial nest egg. Remember, every day that your money is invested, is a day that your money is working for you.
    Buy stocks or equity mutual funds and hold long-term historically, world over, and even in India, stocks have outperformed every other asset class over the long run.
    Invest regularly use the Dollar Cost Averaging approach this will help you to adopt a disciplined approach to investing and works equally well for both buying and selling decisions. Importantly, it increases your potential gains when acting against the market trend, reduces risk when you are playing the market trend and relieves you from the pressures of forecasting tops and bottoms. Dollar Cost Averaging can effectively convert a regular savings plan into a regular investing approach.
    And, Diversify your investment - by diversifying across assets, you can reduce your risk without necessarily having to reduce your returns. To get the maximum benefit of reducing your risk through diversification spread your portfolio across different assets whose returns are not 100% correlated.
  • Mutual funds provide risk diversification?

    Diversification of a portfolio is amongst the primary tenets of portfolio structuring (see The Need to Diversify). And a necessary one to reduce the level of risk assumed by the portfolio holder. Most of us are not necessarily well qualified to apply the theories of portfolio structuring to our holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option.
  • How do I invest with a limited amount?

    Regular investing is a very good way to build up an investment portfolio (read Dollar Cost Averaging to understand why) and this can be done with any amount of money. First, plan out how your investments should be spread out i.e. how much should be invested in equity shares and how much in fixed-income (bonds/ debentures) instruments. This should be based on your risk profile i.e. what your risk taking capacity is (how much risk can you take financially) and what your attitude towards risk is.

    Unless you rate high on aptitude, temperament and knowledge related to investing in shares, equity mutual funds offer a better alternative to investing directly in shares. Income mutual funds also offer a good alternative to fixed-income investment. For regular investment, most mutual fund schemes have a Systematic Investment Plan - this can be either monthly or quarterly installments. Typically, the minimum installment amount is around Rs500 and while choosing this plan, you will need to give around three- to four-post dated cheques at the time of investment

mutual funds glossary

  • 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.