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Faq

  • Should you evaluate past performance, and look for consistency?

    Although past performance is no guarantee for the future, it is a useful way of assessing how well or badly a fund has performed in comparison to its stated objectives and peer group. A good way to do this would be to identify the five best performing funds (within your selected investment objectives) over various periods, say 3 months, 6 months, one year, two years and three years. Shortlist funds that appear in the top 5 in each of these time horizons as they would have thus demonstrated their ability to be not only good but also, consistent performers. You can engage in such research through moneycontrol's Find-A-Fund query module.
  • What are Balanced Schemes?

    Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
  • 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.
  • 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.
  • What are the different types of Mutual Funds?

    Mutual Funds are classified by structure in to:

    Open - Ended Schemes
    Close-Ended Schemes
    Interval Schemes
    and by objective in to

    Equity (Growth) Schemes
    Income Schemes
    Money Market Schemes
    Tax Saving Schemes
    Balanced Schemes
    Offshore funds
    Special Schemes like index schemes etc
  • 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
  • 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
  • How significant are fund costs while choosing a scheme?

    The cost of investing through a mutual fund is not insignificant and deserves due consideration, especially when it comes to fixed income funds. Management fees, annual expenses of the fund and sales loads can take away a significant portion of your returns. As a general rule, 1% towards management fees and 0.6% towards other annual expenses should be acceptable. Carefully examine the fee a fund charges for getting in and out of the fund. Again, you can query on entry and exit loads under our Find-A-Fund query module or get a pre-defined shortlist of funds on the load specification structure through the Mutual Fund Directory section.
  • What are close-ended mutual fund schemes?

    Close-ended mutual fund Schemes have a stipulated maturity period wherein the investor can invest directly in the scheme at the time of the initial issue and thereafter units of the scheme can be bought or sold on the stock exchanges where the scheme is listed. The market price at the stock exchange could vary from the schemes NAV on account of demand and supply situation, unit holders expectations and other market factors. Usually a characteristic of close-ended schemes is that they are generally traded at a discount to NAV; but closer to maturity, the discount narrows.
  • 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.

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.