2. Mutual Fund FAQ
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. The profits or losses are shared by the investors in proportion
to their investments.
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). In simple words, Net Asset Value is the market value of the securities
held by the scheme. 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.
What are Tax Saving
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.
Are returns from mutual
Generally, Mutual Funds do not offer guaranteed returns to investors. Although,
SEBI regulations allow Mutual Funds to offer guaranteed returns subject to the Fund
meeting certain conditions, most Funds do not offer such guarantees. In case of
a guaranteed return scheme, the sponsor or the AMC, guarantees a minimum level of
return and makes good the difference if the actual returns are less than the guaranteed
minimum. Investments in mutual funds are not guaranteed by the Government of India,
the Reserve Bank of India or any other government body.
Are mutual funds insured?
No. Mutual fund units are not insured by the government, or any government agency,
and do not have any other type of insurance, unlike certain types of checking or
savings accounts and certificates of deposit. There is no guarantee that when you
sell your shares, you will receive what you paid for them. However, because mutual
fund investments are more risky than insured investments, they generally offer potential
for higher long-term returns.
What is the procedure
for redeeming fund units?
All Mutual Funds are open-ended, which means that you can get your money back anytime
you wish. All you need to do is fill in the detachable redemption request on the
account statement and deposit it with any of our Investor Service Centers.
What are the types of
Risk is an inherent aspect of every form of investment. For mutual fund investments,
risks would include variability, or period-by-period fluctuations in total return.
The value of the scheme's investments may be affected by factors affecting capital
markets such as price and volume volatility in the stock markets, interest rates,
currency exchange rates, foreign investment, changes in government policy, political,
economic or other developments.
How are mutual funds
different from Portfolio Management Schemes?
In Mutual Funds, the investments of investors are pooled to form a common investible
corpus and the gain/loss to all investors during a given period are same for all
investors. In the case of portfolio management schemes, the investments of a particular
investor remain identifiable to him. Here the gain or loss of investors will be
different from each other.
What is Exit Load?
The non refundable fee paid to the Asset Management Company at the time of redemption/
transfer of units between schemes of mutual funds is termed as exit load. It is
deducted from the NAV(selling price) at the time of such redemption/ transfer.
How do I choose the
right mutual fund for me?
Every mutual fund has a different objective, some aim for aggressive growth, others
emphasize income by investing in bonds or preferred stocks, while others maintain
a balanced portfolio by investing across the stock, bond, and money markets. With
so many different funds to choose from, use our mutual fund research and you will
surely find a fund that will suit your investment needs.
Will TDS be deducted
on the redemption of units? If yes what will be the basis of deduction of TDS?
TDS is not deducted on the sale proceeds for Resident Indians. In case of NRI's,
TDS will be deducted on the sale proceeds. The TDS will deducted depending upon
whether it is a short-term capital gain or long term capital gains. For short term
capital gain the tax is deducted @ 33% while in case of long term capital gains
it is deducted @ 11%.
How does the investment
process work with mutual funds?
Once an investor opens an account with us, he can login and start investing in a
variety of ways – he can invest a lump sum amount in a new scheme, start disciplined
investing with a Systematic Investment Plan (SIP), set triggers according to the
behavior of the market, the value of units in a scheme, etc.
An investor can easily choose the scheme he wishes to invest in, enter the amount
he wishes to invest, and pay for it either through net banking, or get the amount
to be automatically debited from his account every month (for SIPs) through an easy
one-time bank mandate. That’s it. He doesn’t have to fill any forms / cheques. We’ll
take care of all the other formalities on behalf of the investor.
Do NRIs get access to
all mutual funds?
Non Resident Indians (NRIs) all over the world can invest in all the mutual fund
schemes offered by all Asset Management Companies (AMCs). However, most AMCs do
not allow investments from investors in USA and Canada due to regulatory restrictions.
Such investors can invest in all the mutual fund schemes of L&T Investment Management
What is an iSIP?
An iSIP or an internet-based SIP is a completely paperless way of setting up an
SIP. In an iSIP, after you have set up the SIP, you will have to add the Asset Management
Company (AMC) as a biller in your bank through internet banking. This process will
need to be done for every iSIP in every scheme. The AMC will then present monthly
bills to your bank. If you select the auto-pay option while adding the biller, the
payment will happen automatically when the bank receives the bill.
What is ECS?
An ECS or Electronic Clearing System is a method of transaction that is generally
used by organisations for bulk payments and repetitive transactions. ECS is an older
system which is now being replaced by NACH (National Automated Clearing House).
ECS did not cover the entire country, and involved paperwork for registration and
payment which led to delays.
What is NACH?
The Reserve Bank of India (RBI) has set up a nodal authority for handling all electronic
payments in our banking system. This authority is known as the NPCI (National Payments
Corporation of India). NPCI has set up a new mandate process for handling high volume
regular transactions. This mandate process is known as NACH, or the National Automated
Clearing House system. This system is now all set to replace the ECS in the future.
Will I have a switching
facility between funds?
Unit holders will have an option to switch all or part of their investment in one
fund to another which is available for investment at that time. The Asset Management
Company would currently not charge any fees for such switching.
To process a switch, a unit holder must provide clear instructions. Such instructions
may be provided by completing a form and lodging it on any business day with any
of the Investor Service Centres or the office of the Registrar and Transfer Agent.
The form may also be sent by post.
An account statement reflecting the new holdings will be sent to the unitholder
within 3 days of completion of the transaction.
Who is a custodian?
The custodian is responsible for the possession, handling and safekeeping of all
securities purchased by the Mutual Fund.