What are Mutual Funds?
Mutual funds are nothing but units of investment, like of shares or debentures, issued by a Mutual fund company. They are professionally managed collective investment vehicle which pools investments to purchase securities. An investor can purchase units of Mutual fund instead of directly investing in stock market and get proportional return in the form of dividend.
What are the constituents of units of mutual fund?
Stocks, Bonds, Debentures and other type of investments.
Can I buy or sell them anytime?
Talking about the other type of mutual fund which is closed-end mutual fund, they cannot be sold and purchased directly from the mutual fund company instead they can be transacted with other investors in the open market.
At what price will the close-end or open-end units be sold?
For closed-end – Like in share market, may be at premium or at discount.
There are 1000’s of types of mutual funds out there. How can I choose the right one among them?
1. Money Market Mutual Funds – They are consisted of short term debt instruments like treasury bills. They have less return but secured. If you can’t take risk then it is better to park your money in money market funds.
• SBI Premier Liquid Fund – RP (G)
• Religare Invesco Credit Opp (G) – Ultra short term
d) Mirae Emerging Bluechip Fund (G) – Small and mid-cap
• Birla SL MIP II-Savings 5 (G) – MIP conservative
Fund here is BNP Paribas Equity Fund (G) belonging to the equity large cap category.CRISIL ranking is 1. CRISIL mutual fund ranking is the relative ranking of mutual fund schemes within a peer group.Assets are worth 127.22 Crores while NAV is 42.2 which is assets in the portfolio less liabilities.Returns are stated as average 1.6% in the previous 1 month, 8.7% in previous 3 months and so on. Here, consistency should be seen. A fund with more fluctuations depicts that there are instable returns and therefore carries more risk.
Fund returns are compared with the return of other funds from the same category by taking average.Choosing a fund by looking at previous few months may not be the best option. As you can see that in previous 1 month return was low as compared to other funds, and same is for 3 month’s return. But if you see return in previous 6 months it is more than the standard and in previous 1 year it is nearly 3.9 times the standard return.
Source – CNX NIFTY.
Here you can see the investment objective and scheme details.Performance of the fund manager is a critical factor that should be assessed before investing.Sometimes there are conditions on the load of the funds like as stated above, 1% exit load will only be levied if the unit will be redeemed or switched out within 1 year from the date of allotment.
Here you can see where the funds are invested (Top holdings) and in which sector the funds are invested (sector allocation).You can also see the proportion (asset allocation %) in which the funds are invested in equity, debt and other funds.
Will there be any tax on dividend and sale of units?
Dividend – No tax in the hands of the unit holder but the tax is deduced from the dividend itself by the mutual fund company. Dividend Distribution Tax (DDT) will be deducted @25% + 5% surcharge + 3% cess = 27.0375%.