3. o NO GUARANTEE OF RETURN
oFEES COMMISSION
o NO TAILORMADE PORTFOLIO
oTAXES
oMANAGEMENT RISK
oMISLEADING ADVERTISEMENT
oNO TRANSPARENCY
oABSENCE OF QUALIFIED PERSONNEL
4. WHAT IS MUTUAL FUND?
Mutual fund is a mechanism for pooling the resources byMutual fund is a mechanism for pooling the resources by
issuing units to the investors and investing funds inissuing units to the investors and investing funds in
securities in accordance with objectives as disclosed insecurities in accordance with objectives as disclosed in
offer document.offer document.
Investments in securities are spread across a wide cross-Investments in securities are spread across a wide cross-
section of industries and sectors.section of industries and sectors.
The income earned through these investments and theThe income earned through these investments and the
capital appreciation realised are shared by its unit holderscapital appreciation realised are shared by its unit holders
in proportion to the number of units owned by them.in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for theThus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in acommon man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities atdiversified, professionally managed basket of securities at
a relatively low cost.a relatively low cost.
11. Checking
performance of fund
Checking the aim of
fund
Check background of
company
Find out cost of
operation
Facilities provided to
investors by the fund
Check out
transparency of co.
Select the best out
of alternatives
PROCESS
Capital appreciation,
Income @ some interval,
For retirement
From Records &
publication regarding
working
Repurchase, Reissue, Roll
over , Lateral shifting
facilities
Servicing charges, Admin.
Charges, Entry & Exit load
History, Experience,
portfolio management
,Public & pvt. sector co.
Stability, Consistency,
Good returns, steady
returns,
According to Products,
schemes, service qlty .,
operation cost,
12.
13. OFFER DOCUMENT
OD is a prospectus that details the investment objectives and strategies of a particular
fund or group of funds, as well as the finer points of the fund's past performance,
managers and financial information. You can obtain these documents from fund
companies directly, through mail, e-mail or phone. You can also get them from a financial
planner or advisor. All fund companies also provide copies of their ODs on their websites.
You would have come across this line in all Mutual Fund advertisements,
Mutual Fund investments are subject to market risks. Please read the offer document
carefully before investing.
Its an open secret that this 80 to 100 page bulky document is not simple to read and the
legal information it contains is not easy to understand for most investors.
The official document issued by mutual funds prior to the launch of a fund describing the
characteristics of the proposed fund to all its prospective investors. It contains
information required by the Securities and Exchange Board of India, such as investment
objective and policies, services, and fees. Individual investors are encouraged to read and
understand the fund's prospectus.
14. Date of issue
First, verify that you have received an up-to-date edition of the OD. An OD must be
updated at least annually.
Minimum investments
Mutual funds differ both in the minimum initial investment required, and the minimum for
subsequent investments
Investment objectives
The goal of each fund should be clearly defined i.e. from income, to long -term capital
appreciation. The investors need to be sure the fund's objective matches their objective.
Investment policies
An OD will outline the general strategies the fund managers will implement. You'll learn
what types of investments will be included, such as government bonds or common stock.
The prospectus may also include information on minimum bond ratings and types of
companies considered appropriate for a fund. Be sure to consider whether the fund offers
adequate diversification.
FEW THINGS AN INVESTOR MUST READ IN OD
15. Risk factors
Every investment involves some level of risk. In an OD, investors will find descriptions of the
risks associated with investments in the fund. These help investors to refer to their own
objectives and decide if the risk associated with the fund's investments matches their own
risk appetite and tolerance. Since investors have varying degrees of risk tolerance,
understanding the various types of risks in this section( eg credit risk, market risk, interest-
rate risk etc.) is crucial. For e.g. .A Mutual Fund MIP invests in a portfolio of 80% to 90%
bonds and gilts and 10% to 20% of equities, to generate capital appreciation, which is passed
on to customers as monthly income, subject to availability of distributable surplus.
Past Performance data
ODs contain selected per-share data, including net asset value and total return for different
time periods since the fund's inception. Performance data listed in an OD are based on
standard formulas established by Sebi and enable investors to make comparisons with
other funds. They must read the historical performance of the fund critically, looking at both
the long and short-term performance.
Fees and expenses
Entry loads, exit loads, switching charges, annual recurring expenses, management fees,
investor servicing cost all add up over time.
16. Key Personnel /Fund Managers
This section details the education and work experience of the key management of the fund
company, including the CEO and the Fund Managers. For example, investors need to watch
out for the fund that has been in operation significantly longer than the fund manager has
been managing it. The performance of such a fund can be credited not to the present
manager, but to the previous ones. Get a better gauge of his or her talent and investment
style.
Tax benefits information
Mutual funds enjoy significant tax benefits under Sec 23 D and Sec 115 .For example, Equity
funds enjoy nil long terms capital gains and nil dividend distribution tax benefits. A close
reading of the tax benefits available to the fund investors will enable them to plan their
taxes better and to enhance their post tax returns.
Investor services
Shareholders may have access to certain services, such as automatic reinvestment of
dividends and systematic investment/withdrawal plans.
After reading the sections of the OD investors get an idea as to how fund functions and what
risks it may pose. Most importantly, they will be able to determine if it is right for their
portfolio. If investors need more information , they can consult the fund's annual report,
which is available directly from the fund company or through a financial planner.
Conclusion
20. So, we have seen that OD contains information regarding;
Objective
Asset allocation
Expenses
Accounting and valuation
Key personnel
Operational details
Mandatory details
Types of schemes etc.
Since OD is detailed and little difficult for lay man ,so KIM comes to investor's
rescue.
KIM- Key Information Memorandum is an abridged version of the offer
document which is made in a prescribed format.
SEBI regulation allows MF to summarize the key points in a summary
document called KIM. It is compulsory to provide KIM to all investors along
with application form.
22. LIMITATION TO THE INVESTORS
Unit holders can not sue the trust but they can initiate proceedings against the trustees,
if they feel that they are being cheated.
Except in certain circumstances AMC can not assure a specified level of return to the
investors. AMC can not be sued to make good any shortfall in such scheme.
OBLIGATIONS OF THE INVESTORS
An investor should carefully study the risk factors and other information provided in the
offer documents .Failure to study will not entitled him for any rights thereafter.
It is the responsibility of the investor to monitor his scheme by studying the reports and
other financial statement of the fund. So before investing everybody should take necessary
action to familiar with the scheme.
23. OPEN ENDED
• OPEN FOR ALL THE YEAR
• MIN SUBS AMT 50CR
• NO DURATION
• REFUNDED IF MIN SUBS NOT
ACHIEVED
• REPURCHASED ANY TIME
• REDEEMED AT NAV & LOAD FACTOR
RANGES (4% TO 6%)
• AS REPURCHSED SO NOT LISTED AT
STOCK EX
• DIVID MAY /MAY NOT
• SWITCHOVER ALLOWED
CLOSE ENDED
• OPEN FOR FIXED PERIOD
• MIN SUBS AMT 20CR
• DURATION (5TO7 YEARS)
• REFUNDED IF MIN AMT NOT
ACHIEVED
• MAY BE REPURCHASED (AFTER 2 TO 3
YRS)
• REDEMPTION SPECIFIED & DONE AT
NAV - SERVICE CHARGE
• LISTED AT STOCK EX
• DIVID MAY/MAY NOT BE
• SWITCHOVER ALLOWED
24. Identify funds whose investment objectives match your asset allocation needs
Just as you would buy a computer that fits your needs and budget, you should choose a
mutual fund that meets your risk tolerance (need) and your risk capacity (budget) levels (i.e.
has similar investment objectives as your own).
Evaluate past performance, look for consistency in returns
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.
Diversify
Don't just zero in on one mutual fund (to avoid the risk of being overly dependent on any
one fund). Pick two, preferably three mutual funds that would match your investment
objective in each asset allocation category and spread your investment.
Consider Fund Costs
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.
HOW TO SELECT MUTUAL FUND
25. Achieve balanced portfolio
You should not fully invest in stocks or bonds or real estates only . Portfolio should be
well diversified and balanced to minimize risk.
Keep calm
In the moment of adversity , stay cool because good returns are a result of long time
horizon
Research
Don’t buy without in depth research & understanding or just because it is favored by
some analyst
Fund Manager
He should have experience and a good track record.
Investor servicing
Services like quick response to query ,prompt dispatch of unit certificates, quick transfer
of units etc. creates impression in customer’s mind.
Transparency
Fund must disclose details of working because now customers are aware
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. The income earned through these investments and the capital appreciation realised are 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.
