What are Mutual Funds?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Here each shareholder in the mutual fund participates proportionally (based upon the number of shares owned) in the gain or loss of the fund.


Advantages of Mutual Funds:

  • Mutual funds offer investors an affordable way to diversify their investment portfolios
  • Mutual funds allow investors the opportunity to have a financial stake in many different types of investments
  • These investments include: stocks, bonds, money markets, real estate, commodities etc.
  • Individually, an investor may be able to own stock in a few companies, a few bonds, and have money in a money market account. Participation in a mutual fund, however, allows the investor to have much greater exposure to each of these asset classes
  • Most mutual funds are professionally managed by an investment expert known as a portfolio manager
  • This individual makes all of the buying and selling decisions for the fund
  • This provides investors with many options to help them achieve their investment objectives.


Classification of Mutual Funds:
Mutual funds are categorized into the following based upon the fund's investment objective

  • Liquid Funds
  • Income Fund
  • Balanced Funds
  • Growth Funds


Governance of Mutual Funds Industry:

  • The Mutual Funds industry in India is governed by the Securities and Exchange Board of India (Mutual Funds) Regulations 1996.

Some Commonly Used Team

Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.
Sale Price
Sale price is the price you pay when you invest in a scheme. This is also called Offer Price. It may include a sales load.

Repurchase price
Repurchase price is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related.
Redemption Price
Redemption price is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related.
Sales Load
Sales load is a charge collected by a scheme when it sells the units. It is also called, ‘Front-end' load. Schemes that do not charge a load are called ‘No Load' schemes.
Repurchase Load
Repurchase Load is a charge collected by a scheme when it buys back the units from the unit holders.

Why should I choose to Invest in Mutual Fund?
For retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because:
• Mutual Funds provide the benefit of cheap access to expensive stocks.
• Mutual funds diversify the risk of the investor by investing in a basket of assets.
• A team of professional fund managers manages them with in-depth research inputs from investment analysts.
• Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access.
How much return can I expect by investing in mutual funds?
Investors need to be clear that mutual funds are essentially medium to long term investments. Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk of direct investment accompanied with professional fund management.
What is KYC?

KYC is an acronym for "Know your Client", a term commonly used for Client Identification Process. SEBI has prescribed certain requirements relating to KYC norms for Financial Institutions and Financial Intermediaries including Mutual Funds to 'know' their Clients. This would be in the form of verification of identity and address, providing information of financial status, occupation and such other demographic information. Applicant must be KYC compliant while investing with any SEBI registered Mutual Fund.
What are the KYC requirements for a Mutual Fund Investor?

Individual investors will have to fill-up KRA KYC application and need to produce his Proof of identity (Photo PAN card copy or PAN card copy and copy of the passport, driving license etc.) and Proof of Address (any valid documents listed in section B of the KRA KYC Application Form for Individuals). Non -Individual Investors will have to produce certain documents pertaining to its constitution/registration to fulfill the KRA KYC process. A list of Mandatory Certified Documents to be submitted can be found in section C of the KRA KYC application form for Non-Individual Investors.
Where and how does one get to be KYC Compliant? Does the investor have to repeat the KYC process with every Mutual Fund?
The Mutual Fund Industry has appointed CDSL Ventures Limited ("CDSL"), a wholly owned subsidiary of Central Depository Services (India) Limited, to carry out the KYC compliance procedure. CVL through its Points of Service (POS) will accept KYC Application Forms, verify documents and provide the KYC Acknowledgement (across the counter on a best effort basis). The list of PoS will be displayed on the websites of Mutual Funds, CDSL and AMFI. There is no need to repeat the KYC individually for each mutual fund.
What is a KYC Application Form?
An MF KYC Application Form has been designed for Individual and Non-Individual Investors separately. The soft copy of these MF KYC forms will be made available on the website of all mutual funds, AMFI and CVL (CDSL ventures limited). It is important to read the instructions printed on the KYC Application Form while filling-up the form.
Is KYC mandatory?
As per AMFI circular dated 16 August 2010 to AMCs, investors irrespective of the investment amount would have to be KYC compliant with effect from October 01, 2010. This would also apply to new Systematic Investment Plan (SIP) transactions on or after 01 February 2008.

Joint Holders: Joint holders (including first, second and third if any, are required) to be individually KYC compliant before they can invest with any Mutual Fund. . e.g. in case of three joint holders, all holders need to be KYC compliant and copies of each holder's KYC Acknowledgement must be attached to the investment application form with any Mutual Fund.

For transmission (In case of death of the unit holder): If the deceased is the sole applicant, the claimant should submit his/her KYC Acknowledgement along with the other relevant documents to effect the transmission in his/her favour.

We can assist you with more.