FAQs
 
What is a Mutual Fund?
A mutual fund is a trust. It pools money from investors with a defined investment objective and invests in diversified portfolio of securities, through various schemes that caters to different needs of investors. The pool of money thus collected is then invested by the Asset Management Company (AMC) in different types of securities. These could include shares, debentures, convertibles, bonds, money market instruments or other securities, based on the investment objective of a particular scheme. Such objective is clearly laid down in the offer document for that scheme. The fund adds value to the investment in two ways: income earned and any capital appreciation realised through sale. This is shared by unit holders in proportion to the number of units they own.
 
 
What is an Asset Management Company?
An AMC is involved in the daily administration and also acts as investment advisor for the fund. An asset management company is promoted by a sponsor which usually is a reputed corporate entity with sound record of profits. An AMC typically has three departments:

• Fund Management
• Sales & Marketing
• Operations & Accounting

What are the different types of mutual fund schemes?
Mutual fund schemes can be classified as follows:
 
By Structure
Open-ended schemes
Close-ended schemes
Interval schemes
 
By Investment Objective
Growth schemes
Income schemes
Balance schemes
Money Market schemes
 
Other types of schemes
Tax Saving schemes
Special schemes
Index schemes
Sector specific schemes
 
 
By Structure

• Open-end Funds

An Open-end Fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices.

• Close-ended Funds

A Close-ended Fund has a stipulated maturity period which generally ranges from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the Stock Exchanges where they are listed.
 
 
By Investment Objective

• Growth Funds

The aim of growth funds is to provide capital appreciation from over the medium to long term. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors who have a long term outlook and are seeking growth over a period of time.

• Income Funds

The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

• Balanced Funds

The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are ideal for investors looking for a combination of income and moderate growth.

• Money Market Funds

The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.
 
 
Other Schemes

• Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961.

• Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50.

• Sectoral Schemes

Sectoral Funds are those which invest exclusively in a specified sector(s) such as FMCG, Infotech, Pharmaceuticals, etc. These schemes carry higher risk as compared to general equity schemes as the portfolio is less diversified, i.e. restricted to sector(s) / industry (ies).
 
 
What is the difference between an open ended and close ended scheme?
Open ended funds can issue and redeem units any time during the life of the scheme. Close ended funds cannot issue new units except through a bonus or rights issue. Hence, unit capital of open ended funds can fluctuate daily. Further, new investors to an open ended fund can join the scheme by directly applying to the mutual fund at applicable Net Asset Value-related prices. In the case of close ended schemes, new investors can buy units only from the secondary market.
 
 
What is a Prospectus or Scheme Information Document?
It is a document which an open-end fund, or newly issued closed-end fund, is required to provide to investors. Funds say that investors should read it carefully before investing or sending money. A prospectus contains descriptions of:

• Fees, in a standardized format
• Investment Objective
• Some financial data
• Investment methods
• Risk factors and description
• Investment management and compensation
• Dividend and Capital Gain distributions
• Other services

What is the Net Asset Value (NAV)?
The net asset value (NAV) is the market value of the fund's underlying securities. It is calculated at the end of the trading day. Any open-end fund buys or sell order received on that day is traded based on the net asset value calculated at the end of the day. The NAV per units is such Net Asset Value divided by the number of outstanding units:

 
What are Dividends?
A mutual fund may receive dividend or interest income from the securities it owns; it is required to pay out this income to its investors. Most open-end funds offer an option to purchase additional shares with the dividends. Dividends are often made monthly or quarterly, though many funds make distributions only yearly.
 
 
Are investments in mutual fund units safe?
No stock market related investments can be termed safe with certainty; they are inherently risky. However, different funds have a different risk profile, which is stated in its objective. Funds which categorize themselves as low risk, invest generally in debt which is less risky than equity. Anyway, as mutual funds have access to services of expert fund managers, they are always safer than direct investment in the stock markets.
 
 
What are the Risks in a Mutual Fund?
Equity Funds are open to market risk i.e. there is a possibility that the price of the stocks in which the Fund has invested may decrease. Of course, the prices may also go up, making it possible for the Fund to earn profits.
 
Debts Funds are open to two main risks - Credit Risk and Interest Rate Risk. Credit Risk refers to the possibility that the company that has issued the bond or debenture in which the Fund has invested may default on interest or on principal payments. Debt Fund managers take care of this by investing in bonds which have good credit rating.
 
Interest Rate Risk refers to the possibility that the price of the bond in which the Fund has invested may go down because of an increase in the interest rates in the economy. In general, it is useful to remember that this is a "see-saw" relationship - bond prices (and therefore, NAV) go up when interest rates drop and drops when interest rates rise.
 
 
What are the benefits of a Mutual Fund?

• Your money is managed by experienced and skilled professionals
• Your investment is automatically diversified over a large number of companies and industries, thus reducing the element of risk
• Your money is very liquid, especially in an open-end fund
• The potential to provide a higher return over the medium to long term is better in a wide range of securities than in any one
• The costs of research and investing directly in the individual securities are spread over a large corpus and thousands of investors thus minimising individual share
• There is a high degree of transparency in the operation of a mutual fund, so you can take investment decisions based on more information
• You have a choice of schemes to suit your needs
• The industry is well regulated with many measures oriented towards investor protection

Do Mutual Funds assure returns?
Some mutual funds have floated "assured" return schemes that guarantee a certain annual return. At present, there are very few funds who assure returns as they have realized that it is not possible to assure returns in a volatile market.
 
At present there are no assured return schemes. SEBI Regulations allow a scheme to guarantee returns only if -
(a) such returns are fully guaranteed by the sponsor or the asset management company;
(b) a statement indicating the name of the person who will guarantee the return, is made in the scheme information document;
(c) the manner in which the guarantee is to be met is stated in the scheme information document.
 
Capital Protection oriented schemes have been launched by Mutual Funds. As per SEBI Regulations a close ended capital protection oriented scheme may be launched subject to units of the scheme being rated by a registered credit rating agency from the viewpoint of the ability of its portfolio structure to attain protection of the capital invested.
 
 
How do you make money in a Mutual Fund?
There are three ways in which you can make money in a Mutual Fund

• First you can earn a dividend from the Mutual Fund. Most Debt Funds declare dividends around once in six months in their Dividend Option. If you do not want the dividend, you can choose to be in the Cumulative Option. When a dividend is declared, the NAV of the units will fall, since dividend is paid out of the appreciation in the value of the unit
   
• Next, you can make a profit by selling the mutual fund units at a price higher than that at which you bought them. This is capital gain. (If you sell the units at a lower price, you make a capital loss.)
   
• Finally, the value of the units you hold can appreciate. This is unrealised capital gain. Dividends and capital gains are treated differently

What are the tax benefits for investing in mutual fund units?
20% rebate on contribution up to Rs 10,000/- under ELSS (equity linked saving schemes). Tax Benefits have been further elaborated later.
 
 
Who should invest in Mutual Funds?
Mutual Funds can meet the investment objectives of almost all types of investors. Younger investors who can take some risk while aiming for substantial growth of capital in the long term will find growth schemes (i.e. funds which invest in stocks) an ideal option.
 
Older investors who are risk-averse and prefer a steady income in the medium term can invest in income schemes (i.e. funds which invest in debt instruments). Investors in middle age can allocate their savings between income funds and growth funds and achieve both income and capital growth. Investors who want to benefit from regular savings, save a small sum every month, can use the Systematic Investment Plan.
 
 
As mutual fund schemes invest only in capital markets, are they suitable for small investors?
Mutual funds are meant for small investors. The prime reason is that successful investments in capital markets require careful analysis which is not possible for a small investor. Mutual funds are usually equipped to carry out thorough analysis and can provide superior returns
 
 
 
Investors Education

Introduction
Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.
With an objective to make the investors aware of functioning of mutual funds, an attempt has been made to provide information in question-answer format which may help the investors in taking investment decisions.
 
 
What is a Mutual Fund?
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders.
 
The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.
 
 
What is the history of Mutual Funds in India and role of SEBI in mutual funds industry?
Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds.
In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.
 
As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.
 
All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type.
 
 
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.
 
 
What is Net Asset Value (NAV) of a scheme?
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).
Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 Lakhs and the mutual fund has issued 10 Lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
 
 
What are the different types of mutual fund schemes?
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.
 
There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.
 
 
What are sector specific funds/schemes?
These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.
 
 
What are Tax Saving Schemes?
These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
 
 
What Load can a Mutual Fund charge?
As per SEBI Regulations, mutual fund schemes cannot charge an entry load. A Fund can charge a percentage of NAV for exit. That is, each time one sells units in the fund, a charge may be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the exit load charged is 1%, then the investors offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. The upfront commission to distributors is to be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor. Investors making direct applications to the mutual funds are exempted from entry load. Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption proceeds can be maintained in a separate account which can be used by the AMC to pay commissions to the distributor and to take care of other marketing and selling expenses. Any balance shall be credited to the scheme immediately.
 
 
Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the Scheme Information documents?
The Mutual Fund can charge the load within the stipulated limit of 7% and without any discrimination to any specific group of unit holders. Further, any change at a later stage shall not affect the existing unit holders adversely. No distinction can be made among unit holders based on the amount of subscription while charging exit loads. AMCs cannot charge entry as well as exit load on Bonus units and of units allotted on reinvestment of Dividend. Mutual funds cannot increase the load beyond the level mentioned in the Scheme Information Document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to issue an addendum and display it on the website/UTI financial centres so that the new investors are aware of loads at the time of investments.
 
 
What is repurchase/redemption price?
Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable.
 
 
What is an assured return scheme?
Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme.
 
A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document.
 
 
Can a mutual fund change the asset allocation while deploying funds of investors?
Considering the market trends, any prudent fund manager 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, it is a change of a fundamental attribute of the scheme and they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.
 
 
How to invest in a scheme of a mutual fund?
Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.
 
Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.
 
 
Can non-resident Indians (NRIs) invest in mutual funds?
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.
 
 
How much should one invest in debt or equity oriented schemes?
An investor should take into account his risk taking capacity, age factor, financial position, investment horizon etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.
 
 
How to fill up the application form of a mutual fund scheme?
An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately.
 
 
What should an investor look into an offer document/ Scheme Information Document?
An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor's track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.
 
 
When will the investor get certificate or statement of account (SoA) after investing in a mutual fund?
In case of open-ended schemes, a SoA is issued by the mutual fund within 30 days from the date of closure of initial public offer 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. For unitholders who have provided an e-mail address, the AMC will send the SoA by e-mail. The unitholder may request for a physical account statement by writing calling the AMC/R&T. For SIP/STRIP transactions SoA is sent once every quarter.
 
 
How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?
According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgement of certificates with the mutual fund.
 
 
As a unitholder, how much time will it take to receive dividends/repurchase proceeds?
A mutual fund is required to dispatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption proceeds within 10 working days from the date of redemption request made by the unitholder.
 
In case of failure to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).
 
 
Can a mutual fund change the nature of the scheme from the one specified in the Scheme Information document?
Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor.
 
 
How will an investor come to know about the changes, if any, which may occur in the mutual fund scheme?
There may be changes from time to time in a mutual fund. In case of change in fundamental attributes Scheme Information Document (SID) shall be revised and updated immediately after completion of duration of exit option. In case of other changes the AMC is required to issue an addendum and display it on the website. The addendum has to be circulated to all the distributors/brokers/UFCs so that the same can be attached to all KIM and SID already in stock till it is updated. Latest applicable addendum is to be a part of KIM and SID. (For e.g. in case of changes in load structure the addendum carrying the latest applicable load structure shall be attached to all KIM and SID already in stock till it is updated). A public notice is to be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the Head Office of the Mutual Fund is situated. Further account statements shall include applicable load structure. KIM and SID shall be updated at least once a year.
 
 
How to know the performance of a mutual fund scheme?
The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) http://www.amfiindia.com/ and thus the investors can access NAVs of all mutual funds at one place.
 
The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.
 
The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.
 
Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.
Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.
 
On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.
 
 
How to know where the mutual fund scheme has invested money mobilised from the investors?
The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders.
 
The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.
 
Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.
 
 
If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV?
Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. This may make emotional sense but not economic sense. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below.
 
Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes.
 
Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. In fact in an existing scheme, the investor has the benefit of evaluating the track record and the portfolio of the scheme, which is not available
 
 
How to choose a scheme for investment from a number of schemes available?
As already mentioned, the investors must read the Scheme Information Document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.
 
 
Are the companies having names like mutual benefit the same as mutual funds schemes?
Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.
 
 
Is the higher net worth of the sponsor a guarantee for better returns?
In the Scheme Information document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.
 
 
Where can an investor look out for information on mutual funds?
Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful literature for the investors.
 
Investors can log on to the web site of SEBI http://www.sebi.gov.in/ and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given.
 
There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard. [Top]
 
 
If mutual fund scheme is wound up, what happens to money invested?
In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.
 
 
How can the investors redress their complaints?
Investors would find the name of contact person in the offer document of the mutual fund scheme whom they can approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved. Investors may send their complaints to:

Securities and Exchange Board of India
Plot No.C4-A,'G' Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051
Tel: +91-22-26449000 / 40459000
E-mail: sebi@sebi.gov.in
 
 
 
TAX, LEGAL & GENERAL INFORMATION
 

A.	Taxation on investing in Mutual Funds
	The disclosures in respect of tax benefits to the Mutual Fund and the unitholders is in accordance with the prevailing tax laws. The information stated below is based on UTI Mutual Fund’s understanding of the tax laws and only for the purpose of providing general information. There can be no guarantee that the tax position will endure indefinitely.   Further statements with regard to tax benefits mentioned herein below are mere expressions of opinion and are not representations of the Mutual Fund. The contents of this section should not be treated as advice relating to legal, taxation, investment or any other matter.   Tax issues concerning Mutual Fund UTI Mutual Fund is a Mutual Fund registered with SEBI and as such is eligible for benefits under section 10 (23D) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) to have its entire income exempt from income tax. The Mutual Fund will receive income without any deduction of tax at source under the provisions of Section 196(iv) of the Act. By virtue of section 45 of the Wealth Tax Act, 1957, wealth tax is not chargeable in respect of net wealth of a Mutual Fund registered under section 10(23D) of the Income Tax Act, 1961, hence UTI Mutual Fund is not liable to pay Wealth Tax under the provisions of the Wealth Tax Act, 1957. Tax issues concerning Unit holders   I. Equity Oriented Funds - Tax Treatment of Investments     A. Tax on income in respect of units: As per the section 10(35) of the Act, income received by investors under the schemes of any Mutual Fund is exempt from income tax in the hands of the recipient unit holders.   B. Dividend Distribution Tax: By virtue of proviso to section 115 (R) (2) of the Act, equity oriented schemes are exempt from income distribution tax. As per section 115T of the Act, equity oriented fund means such fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty five percent of the total proceeds of such fund.   C. TDS on income of units: As per the provisions of section 194K and section 196A of the Act, where any income is credited or paid on or after 1st April 2003 by a Mutual Fund, no tax is required to be deducted at source.   D. Tax on capital gains:   i) Long Term Capital Gains As per section 10(38) of the Act, any income arising from the transfer of a long term capital asset being a unit of an Equity Oriented Scheme chargeable to securities transaction tax (STT) shall not form part of total income, therefore, exempt from Income Tax. As per section 10(38) of the Act, equity oriented fund means a fund where the investible funds are invested by way of equity share in domestic companies to the extent of more than sixty five percent of the total proceeds of such fund and which has been set up under a scheme of a mutual fund specified under section 10(23D) of the Income Tax Act, 1961.   ii) Short term capital gains Units held for not more than twelve month's preceding the date of their transfer are short term capital assets. Capital gains arising from the transfer of short term capital assets being unit of an equity oriented scheme which is chargeable to STT is liable to income tax @ 15% under section 111 A and section 115 AD of the Act. The said tax rate is increased by surcharge, if applicable.   iii) Securities Transaction Tax (STT) As per Chapter VII of Finance (No. 2) Act, 2004 relating to Securities Transaction Tax (STT), with effect from June 01, 2006, the STT is payable by the seller at the rate of 0.25% on the sale of unit of an equity oriented scheme to the Mutual Fund. The STT is collected by the Mutual Fund at source.     With effect from 01st April 2008:   (a) the deduction under section 88E of the Act has been discontinued, and   (b) the amount of STT paid by the assessee during the year in respect of taxable securities transactions entered into in the course of business will be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included in the income computed under the head “Profits and Gains of business or profession”.   E. TDS on Capital Gains     (i) Resident Investors As per Central Board of Direct Taxes (‘CBDT’) circular No.715 dated 8th August 1995, in case of resident unitholders no tax is required to be deducted from capital gains arising at the time of redemption of the units.   (ii) For Non Resident Investors Long term capital gains No tax is deductible from the proceeds payable to non resident investors from long term capital gains arising out of redemption of units of an equity oriented fund. Short term capital gains As per Part II of the First Schedule to the Finance Act 2008 {Clause 1 (b) (i) (C)}, the Mutual Fund is liable to deduct tax @ 15% on short term capital gains. The TDS is to be increased by applicable surcharge.   (iii) In the case of a Company   Other than a Domestic Company:   Long term capital gains No tax is to be deducted from the proceeds payable to non resident investors from long term capital gains arising out of redemption of units of an equity oriented fund.   Short term capital gains As per Part II of the First Schedule to the Finance Act 2008 {Clause 2 (b) (vii)}, the Mutual Fund is liable to deduct tax @ 15% on short term capital gains. The TDS will have to be increased by applicable surcharge.   (iv) Foreign Institutional Investors (FIIs) : In the case of Foreign Institutional Investors (FIIs), no tax would be deductible at source from the capital gains arising on redemption of units in view of section 196 D (2) of the Act.   Education Cess and Surcharge: The tax / TDS (except STT) is to increased by applicable surcharge. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge. UTI Retriement Benefit Plan, UTI Unit Linked Insurance Plan, UTI Equity Linked Savings Schemes (ELSS) i.e. UTI Equity Tax Savings Plan, UTI Long Term Advantage Fund – Series I and Series II- : Tax benefits under section 80 C Contribution made in the above Plans / Schemes will be eligible for deduction of the whole of the amount paid or deposited subject to a maximum of Rs.1,00,000/- under Section 80 C of Income Tax Act, 1961, for the persons and on the terms and conditions as provided therein. Termination of ULIP before 5 years: As per section 80C(5)(iii) of the Act, if the unitholder avails income tax benefit under section 80C of the Income Tax Act, 1961, and if participation in ULIP is terminated or participation in ULIP is ceased by reason of failure to pay any contributions, by not reviving the participation, before contributions have been paid for five years, no deduction shall be allowed under section 80C and the aggregate amount of deduction of income so allowed in the preceding previous year(s) shall be deemed to be the income of the year in which such termination takes place or participation is ceased. Investment under ELSS: If the unitholder avails income tax benefit under section 80C of the Income Tax Act, 1961, investment will have to be kept for a minimum period of three years from the date of allotment of units. After the said period of three years, the units may be tendered for repurchase. In the event of the death of the assessee unitholder, the nominee or legal heir, as the case may be, shall be able to withdraw the investment only after the completion of one year from the date of allotment of the units to the assessee unitholder or anytime thereafter.       II. Other than Equity Oriented Funds - Tax Treatment of Investments   Tax issues concerning Unit holders     A. Tax on income in respect of units As per section 10(35) of the Act, income received by investors under the schemes of Mutual Fund is exempt from income tax in the hands of the recipient unitholders.   B. Dividend Distribution Tax:   i) For Money Market and Liquid Schemes: As per section 115R of the Act, the dividend distribution tax for Money Market and Liquid Fund is 25% plus surcharge.   ii) For Schemes other than Money Market and Liquid Schemes: As per section 115R of the Act, income distribution tax shall be levied at 12.5% plus surcharge for distribution made to individuals or HUF and for any other person at 20% plus surcharge.   For Schemes classified as “other than money market mutual fund or a liquid fund” as per section 115R of the Act, additional tax shall be levied at 12.5% plus surcharge for distribution made to individuals or Hindu Undivided Families and for any other person at 20% plus surcharge. Further education cess @ 2% and secondary and higher education cess @ 1% would be charged on amount of tax plus surcharge. However, if such scheme is at any time classified or held to be as “Liquid Fund / Money Market Fund” additional income tax will be payable at the prevailing rate applicable for “money market mutual fund / liquid fund”, as the case may be. As per section 115R of the Act, the present additional income tax rate to be levied on distribution of income for money market mutual fund and liquid fund is 25% plus applicable surcharge, education cess @ 2% and secondary and higher education cess @ 1%.   In the case of distribution of income already paid for such schemes, the Trustee / AMC reserves the right to recover the differential additional income tax on the income so paid, from the unitholders of the respective Scheme.   C. TDS on income of units As per the provisions of section 194K and section 196A of the Act, where any income is credited or paid on or after 1st April 2003 by a Mutual Fund, no tax is required to be deducted at source.   D. Tax on capital gains     (i) Long Term Capital Gains   Resident Unitholders Any long term capital gain arising on redemption of units by residents is subject to treatment indicated under Section 48 and 112 of the Act. Long term capital gains in respect of units held for more than 12 months is chargeable to tax @ 20% after factoring the cost inflation index or tax at the rate of 10% without indexation, whichever is lower. The said tax rate is to be increased by surcharge, if applicable.   Non Resident Unitholders Under section 115 E of the Act, in case of income of non resident Indians by way of long term capital gains, in respect of units is chargeable at the rate of 20% plus surcharge, if applicable. Chapter XIIA exclusively deals with taxation related to Non-resident Indians. Under section 115 D of the Income Tax Act, a non-resident Indian cannot avail the benefit of indexation.   In the alternative the capital gains tax may be computed by the non residents under section 112, if it is more beneficial to them. Under Section 112 of the Act, long term capital gains are taxed at the rate of tax @ 20% plus surcharge. The benefit of indexation is also available to the non residents under section 48 of the Income Tax Act, 1961. Gains on short term capital asset are taxed as regular income.   FIIs As per section 115 AD of the Act, long term capital gains on sale of units are to be taxed @ 10% and short term gains are to be taxed@ 30%. Such gains in either case would be calculated without indexation benefit as the first and second provisos to section 48 do not apply to FIIs by virtue of section 115 AD (3) of the Act. The applicable tax rate is to be increased by applicable surcharge.   ii) Short Term Capital Gains Units held for not more than twelve months proceeding the date of their transfer are short term capital assets. Capital gains arising from the transfer of short term capital assets will be subject to tax at the normal rates of tax applicable to such assessee.   E. TDS on capital gains   i) Resident Investors As per Central Board of Direct Taxes (‘CBDT’) circular No.715 dated 8th August 1995, in case of resident unitholders no tax is required to be deducted from capital gains arising at the time of redemption of the units.   ii) for Non Resident Investors Long Term Capital Gains As per Part II of the First Schedule to the Finance Act 2008 {Clause 1 (b) (i) (D)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains. Short Term Capital Gains As per Part II of the First Schedule to the Finance Act 2008 {Clause 1 (b) (i) (K)}, the Mutual Fund is liable to deduct tax @ 30% on short term capital gains. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge mentioned above.   iii) Other than a Domestic Company: Long Term Capital Gains As per Part II of the First Schedule to the Finance Act 2008 {Clause 2 (b) (viii)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains. Short Term Capital Gains As per Part II of the First Schedule to the Finance Act 2008 {Clause 2 (b) (ix)}, the Mutual Fund is liable to deduct tax @ 40% on short term capital gains.   (iv) Foreign Institutional Investors (FIIs): In the case of Foreign Institutional Investors (FIIs), no tax would be deductible at source from the capital gains arising on redemption of units in view of section 196 D (2) of the Act. Education Cess and Surcharge: The TDS is to increased by applicable surcharge. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge.   Certain common provisions for equity oriented funds and other than equity oriented funds   1. Double Taxation Avoidance Agreement (DTAA) As per CBDT Circular No. 728 dated October 30, 1995, in the case of remittance to a country with which a DTAA is in force, the tax is to be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee. For the unitholder to obtain the benefit of a lower rate available under a DTAA, the unit holder is required to provide the Mutual Fund with a certificate obtained from his Assessing Officer stating his eligibility for the lower rate.   2. Short Term Capital Losses As per section 94(7), if any person acquires units within a period of 3 months prior to the record date fixed for declaration of dividend or distribution of income and sells or transfers the same within a period of 9 months from such record date, losses arising from such sale to the extent of income received or receivable on such units, which are exempt under the Act, will be ignored for the purpose of computing his income chargeable to tax.   Further, as per Section 94(8), where additional units have been issued to any person without any payment, on the basis of existing units held by such person then the loss on sale of original units shall be ignored for the purpose of computing income chargeable to tax, if the original units were acquired within 3 months prior to the record date fixed for receipt of additional units and sold within 9 months from such record date. However, the loss so ignored shall be considered as cost of acquisition of such additional units held on the date of sale by such person.   3. Investment by Trusts: Investment in units of the Mutual Fund rank as eligible form of investment under section 11(5) and section 13 of the Act read with Rule 17C(i) of the Income Tax Rules, 1962 for Public Religious & Charitable Trust.   4. Wealth Tax Units of Mutual Fund are not covered under the definition of ‘assets’ under section 2(ea) of the Wealth Tax Act, 1957, and hence value of investment in units is completely exempt from Wealth Tax.   5. Gift Tax The Gift Tax Act, 1958 has abolished the levy of Gift Tax in respect of gifts made on or after 1st October 1998. Thus, gifts of units on or after 1st October, 1998 are exempt from Gift Tax. Further, subject to certain exceptions, gifts from persons exceeding Rs.50,000/- are taxable as income in the hands of donee pursuant to section 2(24)(xiv) of the Act read with section 56(2)(vi) of the Act.   As per Finance Act 2009 surcharge for individuals has been abolished.