Mutual Fund

Application Amount for Fresh Subscription : This is the minimum investment amount for a new investor in a mutual fund scheme. Minimum Additional Amount : This is the minimum investment amount for an existing investor in a mutual fund scheme. Fund Manager : An employee of the asset management company such as a mutual fund or life insurer, who manages investments of the scheme. He is usually part of a larger team of fund managers and research analysts. Entry Load : A mutual fund may have a sales charge or load at the time of entry and/or exit to compensate the distributor/agent. Entry load is charged at the time an investor purchases the units of a mutual fund. The entry load is added to the prevailing NAV at the time of investment. For instance, if the NAV is Rs. 100 and the entry load is 1%, the investor will enter the fund at Rs 101. Note: SEBI, vide circular dated June 30, 2009 has abolished entry load and mandated that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributors. Exit Load : Exit load is charged at the time an investor redeems the units of a mutual fund. The entry load is added to the prevailing NAV at the time of redemption. For instance, if the NAV is Rs 100 and the exit load is 1%, the investor will redeem the fund at Rs 99. SIP : SIP or systematic investment plan works on the principle of making periodic investments of a fixed sum. It works similar to a recurring bank deposit. For instance, an investor may opt for an SIP that invests Rs 500 every 15th of the month in an equity fund for a period of three years. NAV : The NAV or the net asset value is the total asset value per unit of the mutual fund after deducting all related and permissible expenses. The NAV is calculated at the end of every business day. It is the value at which the investor enters or exits the mutual fund. Benchmark : A group of securities, usually a market index, whose performance is used as a standard or benchmark to measure investment performance of mutual funds, among other investments. Some typical benchmarks include the Nifty, Sensex, BSE200, BSE500, 10-Year Gsec. Total Return Index : Total return index calculation considers the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Alpha : Alpha is the excess return on an investment, relative to the return on a benchmark index. CAGR : CAGR (Compound Annual Growth Rate) is the annual rate of return on an investment over a specified period of time, assuming the profits were reinvested over the investment’s lifespan. Yield to Maturity : The Yield to Maturity or the YTM is the rate of return anticipated on a bond if held until maturity. YTM is expressed as an annual rate. The YTM factors in the bond\’s current market price, par value, coupon interest rate and time to maturity. Modified Duration : Modified duration is the price sensitivity and the percentage change in price for a unit change in yield. Standard Deviation : Standard deviation is a statistical measure of the range of an investment\’s performance. When a mutual fund has a high standard deviation, it means its range of performance is wide, implying greater volatility. Sharpe Ratio : The Sharpe Ratio, named after its founder, the Nobel Laureate William Sharpe, is a measure of risk-adjusted returns. It is calculated using standard deviation and excess return to determine reward per unit of risk. Beta : Beta is a measure of an investment\’s volatility vis-✓-vis the market. Beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 implies that the security\’s price will be more volatile than the market. AUM : AUM or assets under management refers to the recent / updated cumulative market value of investments managed by a mutual fund or any investment firm. Holdings : The holdings or the portfolio is a mutual fund\’s latest or updated reported statement of investments/securities. These are usually displayed in terms of percentage to net assets or the rupee value or both. The objective is to give investors an idea of where their money is being invested by the fund manager. Nature of Scheme : The investment objective and underlying investments determine the nature of the mutual fund scheme. For instance, a mutual fund that aims at generating capital appreciation by investing in stock markets is an equity fund or growth fund. Likewise, a mutual fund that aims at capital preservation by investing in debt markets is a debt fund or income fund. Each of these categories may have sub-categories. Rating Profile : Mutual funds invest in securities after evaluating their creditworthiness as disclosed by the ratings. A depiction of the mutual fund in various investments based on their ratings becomes the rating profile of the fund. Typically, this is a feature of debt funds.

Myths about investing in Mutual Funds One of the biggest hurdles in the journey of investing is getting over the myths that bear no foundation or truth. But we believe it because everyone does. Here are some of the most common myths and facts of investors about investing in mutual funds. Mutual Funds need large investment Fact: Mutual funds do not need large amounts to start with, you can start with even as low as Rs.500 per month, through a tool called Systematic Investment Plan (SIP) in a mutual fund wherein you are allowed to invest a regular monthly instalment in the fund. Even lumpsum investments are allowed for minimum of Rs.5000/- with no upper limit. Units are allotted when amount invested and folio number is generated. In fact, the earlier you start investing, the better it would be for your money as it would get to undergo compounding for a longer period. You need a Demat Account to invest in Mutual Funds Fact: You do not need a demat account to invest in mutual funds. By filling up the application form and ensuring that you are KYC compliant, you can choose the fund and submit a cheque to make the investment. Holding mutual fund units in demat mode is optional, except in respect of Exchange Traded Funds. However, to ease the process of investing and get better guidance, you may engage a financial adviser throughout. Only experts can invest in Mutual Funds Mutual Funds are professionally managed by the Fund Managers after proper market research. A Mutual Fund is an inexpensive way for investors to get a full-time professional fund manager to manage their money. Mutual funds are mainly meant for common investors who may lack knowledge or skill set to invest in securities market. One needs to invest in several mutual funds to avail the benefit of diversification Fact: Mutual funds by itself invest across asset classes such as equity, debt and money market instruments, which provide investors with the benefit of diversification of risk. In mutual funds, investors can diversify their portfolio basis their risk appetite and alter it from time to time, whenever and wherever necessary. Investments in Mutual Funds has to be when NAV is lower. Fact: One needs to keep in mind that the NAV of a scheme is a reflection of the market value of the underlying shares held by the fund on any day. Depending on the scheme’s investment strategy the fund managers buy and sell the shares whenever they deemed appropriate. If the fund manager feels that a particular stock has peaked, he can choose to sell it. Buying top rated mutual funds guarantees better returns Fact: Mutual fund performances are subject to market risks and may vary from time to time. Thus, it is not certain that a fund that may have performed well in the past will do so in the future as well. Investments in mutual funds need to be tracked and reviewed from time to time with its benchmark to ensure better performance. Mutual funds are unsuitable for beginners Fact: Any investment, if done without appropriate knowledge can be dangerous. Mutual funds offer high transparency with respect to where and how the funds of the investors are invested. New investors could consider starting an SIP in a mutual fund, through which they could invest small regular amounts every month and gradually increase overtime. Financial advisers should be consulted for professional advice in investing, reviewing and tracking the performance of the mutual funds. Being an equity product investment in mutual fund is same as investing in stock market. Fact: Mutual Funds invest in equity, corporate bonds, government bonds and a money market instrument such as Treasury Bills, Commercial Papers, Certificate of Deposits, Collateral Borrowings & Lending Obligations, etc. Some of the instruments are not available to retail investors due to big ticket size and hence mutual fund investors could participate in such investments through mutual fund schemes.

What is Equity Mutual Fund It’s a mutual fund scheme that invests in stocks of different companies. They are also known as growth funds.  There are two types of mutual fund Active and Passive funds. In Active fund, a fund manager scans the market, conducts research on companies, examines performance and looks for the best stocks to invest. In a Passive Fund, the fund manager builds a portfolio that mirrors a popular market index, say Sensex or Nifty. Why invest in Equity Mutual Fund? Your decision to invest in mutual funds must be in sync with your investment horizon, risk profile, and other objectives. The same is the case for equity fund investments. If you have a long term goal, it is advised to invest in equity funds. It will provide your funds the much-needed time to combat market movements and fluctuations. Types of Equity Mutual Fund Smallcap Equity Funds These equity mutual fund schemes invest in companies that rank above 250 in terms of their full market capitalization (as per SEBI guidelines). These funds are riskier than midcap or largecap equity funds but can offer the relatively higher returns. Midcap Equity Funds These equity mutual fund schemes invest in companies who rank between 101 and 250 by their full market capitalization. These funds are less risky than smallcap funds, but more than largecap funds. Largecap Equity Funds  These equity mutual fund schemes invest in companies who rank between 1 and 100 in terms of full market capitalization. These funds are the least risky as far as equity fund picking goes. Large & Midcap Equity Funds These equity mutual funds equally divide the allocation between largecap and midcap and related instruments and have the potential to offer high returns. Multicap Equity Funds Multicap equity funds invest in stocks across largecap, midcap, and smallcap companies. Depending on the market conditions, the fund manager decides the predominant investments. Some of the advantages and disadvantages are,   Advantages Disadvantages Diversification Not for short term 2. Liquidity 2. No control 3. Tax Benefits 3. Higher Cost 4. Professional Fund Management 4. Choice Overload  

When it comes to investing, we unnecessarily complicate the process with thinking about it too much – like, when to start? Where to invest? How much to invest? What if the investment tanks? Investment is the best way to grow your money and to fulfil your future needs. As savings are never enough and money never grows when just kept in your bank accounts. Talking about investments, there are many investment plans available in market but SIP with mutual funds is the one which is now a days considered best among all the investment plans. Understanding SIP! Systematic Investment Plan commonly known as SIP is basically a mode of investment with mutual funds. It is a long-term investment plan generally with the tenure of 10 to 15 years, where one can invest their money periodically which can be daily, weekly, monthly or quarterly options and gets Units of mutual funds. SIP help investors to bring a discipline to their investment methodology. Advantages of Investing through SIP SIP is Pocket Friendly SIP allows to invest in chunks not in bulk this facility with SIP makes it pocket friendly. There is no compulsion that one needs to invest a big amount, one can  even start SIP with a minimum of Rs.500 monthly. SIPs Enables Rupee-cost Averaging It’s a fact that SIP works better than other investment plans available in the market which allows lump sum payment, and this is because of rupee-cost averaging. Under the rupee-cost averaging one can typically buy more of a mutual fund unit when the prices are low, and similar vice versa. This contributes to a good discipline.   Month Amount Rising Market Falling Market Volatile Market   NAV (Rs.) Units Allotted NAV (Rs.) Units Allotted NAV (Rs.) Units Allotted 1 10000 10.00 1000.00 10.00 1000.00 10.00 1000.00 2 10000 12.50 800.00 9.25 1081.08 10.83 923.36 3 10000 12.68 788.64 8.95 1117.32 11.00 909.09 4 10000 13.05 766.28 8.42 1187.65 10.50 952.38 5 10000 13.72 728.86 8.05 1242.24 10.23 977.52 6 10000 13.98 715.31 7.00 1428.57 10.65 938.97 Total 60000 12.50 4799.09 8.50 7056.86 10.52 5701.32 On investment of Rs.10000/- per month, in different market scenarios, you can see how many units are accumulated. In rising markets 4799.09 units, in Falling market 7056.86 units and in volatile market 5701.32 units are accumulated. So, while in falling market one must invest more to get maximum units but in actual sense, they tend to redeem all the units. SIP have the Power of Compounding Compounding occurs when the returns you earn on your investments start earning returns.   Over time, this result in a snowball-effect, that may increase your potential returns manifold.   Name Age Monthly SIP (Rs.) No. of years Investment Amount Value at age 60 yrs (Rs.) Gain Mr. A 20 1000 40   4,80,000 3,14,03,755 3,09,23,755 Mr. B 30 1000 30   3,60,000    70,09,821    66,49,821 Mr. C 40 1000 20   2,40,000    15,15,955    12,75,955 The above table shows the investments of Rs.1000/- per month by Mr. A, Mr. B and Mr. C, but the time horizon of investment differs. Mr. A did monthly investment for 40 years and earned Rs.3,09,23,755/- returns on his investment of Rs.4,80,000/-, Mr. B did monthly investment for 30 years and earned Rs.66,49,821/- returns on investment of Rs.3,60,000/- and Mr. C did monthly investment for 20 years and earned Rs.12,75,955/- on investment of Rs.2,40,000/-. So, we can understand by this example that investing regularly for long term earns more return due to power of compounding.

What an impact can power of compounding have? If you start walking towards the moon, and start 1 step on the first day and double the steps every day, How long do you think it will take to reach the moon? 2 years? 20 Years? Let’s find out! Within 30 days, you will cover over 3.84 lakh kms and reach the moon. Yes, it will just take 30 days. But what if you delay by 15 days? You will cover only 11 kms. That’s the power of compounding. As Albert Einstein says “Compounding interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t pays it.” In simple words power of compounding means the increase in the value of investment, due to the interest earned on the principle, as well as the accumulated interest. For example, if you invest an amount of Rs.1 Lakhs for 10 years in different investment avenues at different compounding rates as shown in the table.   Investments Avenue Rate of Interest Maturity Amount Savings Account 2.75% Rs.131165 Debt Fund 6% Rs.179084 Equity Funds 12% Rs.310584 Shares 15% Rs.404555 The longer your money can remain uninterrupted, the more your wealth can grow with the help of compounding. Suppose you invest an initial capital of Rs.1 lakh @ 12% compounding rate for different time duration as shown in the table. Years Maturity Amount 10 Rs.310584 20 Rs.964629 30 Rs.2995992 40 Rs.9305097 Key Rules for Compounding Control your Expenses The best way to harness the power of compounding is to raise your investments. But if you have a limited income, you can increase your savings by controlling your expenses. One way to do it is to create a budget and identify areas you can reduce your costs each month. Spending wisely and smartly can increase your savings and you can invest more. This way, you stand a chance to reap better returns. Starting Early You must start early with your investments to make the most out of the power of compounding. For example, if you put your money into an investment plan as soon as you start earning, you can enable your savings to grow significantly over time. Discipline To create a healthy corpus and meet your financial goals on time, it is critical to have investment discipline. Investing regularly at the start of your investment journey can ensure discipline. It is wise not to skip your SIP payments. When you regularly invest month after month, you not only increase your savings but also develop investment discipline. This is a vital habit if you wish to achieve financial success. Be patient Most investors look to chase quick returns. But in the attempt to earn quick money, they can make mistakes that could result in big losses. As we know, the power of compounding magnifies over time. Hence, it can help to have a long-term approach towards investing. One must invest patiently that could reap healthy returns over time. You don’t need to be a financial expert to benefit from the power of compounding. Every investor can take advantage of this concept and put it to good use. However, when invested over the long term, the difference in terms of value is huge.

Several independent studies have shown that over multi-year periods, value averaging investment plan (VIP) can produce slightly superior returns to rupee cost averaging i.e. systematic investment plan (SIP), although both will closely resemble market returns over the same period. What Does Value Averaging Mean? An investing strategy that works like rupee cost averaging in terms of steady monthly contributions, but differs in its approach to the amount of each monthly contribution. In value averaging, the investor sets a target growth rate or amount on his or her asset base or portfolio each month, and then adjusts the next month\’s contribution according to the relative gain or shortfall made on the original asset base. The main goal of value averaging is to acquire more units when prices are falling and fewer units when prices are rising. This happens in rupee cost averaging as well, but the effect is less pronounced. Value Investment Planning (VIP) an Illustration   Month  NAV SIP Amount Rs. SIP Units Bought VIP Amount Rs. VIP Units Bought 1 10 2000 200 2000.00 200 2 11 2000 182 1825.00 166 3 12 2000 167 1684.40 140 4 13 2000 154 1569.67 121 5 11 2000 182 3355.93 305 6 10 2000 200 3060.27 306 7 9 2000 222 3392.90 377 8 8 2000 250 3796.82 475 9 9 2000 222 119.25 13 10 8 2000 250 4339.56 542 11 9 2000 222 0.00 0 12 10 2000 200 0.00 0 Total Amount Invested (Rs.)  Total Units Bought 24000 2451 25144.00 2645 Average Cost Per Unit (Rs.) 9.79 9.5 Market value (Rs.) 24508 26454 CAGR (%) Compound Annualized Gross Return 4.95% 10.60% Note: For SIP a fixed amount of Rs.1000/- per month is considered for investment & returns is 15% p.a. Compounded monthly. The illustration above is merely indicative in nature and should not be construed as investment advice. It does not in any manner imply or suggest performance of any Scheme.

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Understanding mutual funds What if you could invest your money and have someone else professionally manage it for you? Services like these do exist, but they come with a requirement of high amounts of capital or money to be invested. What if you could avail such a service, even with a small investment and get the advantage of professional money management? Well, this is possible by investing in mutual funds How do Mutual Fund work? In Mutual Fund many investors contribute to form a common pool of money. This fund is invested in accordance with a stated objective. This fund belongs to all the members in the proportion of their investment or it can be said that the ownership of the fund is joint or mutual. Fund Manager uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective. Fund Managers carry out detailed research and market monitoring on regular basis. This may not be possible for every investor. The risk of the investor is limited to their investment. Risk is reduced when the fund is diversified. Mutual Fund Units Here is a simple way to understand the concept of a Mutual Fund Unit. Let’s say that there is a box of 12 Pencil costing Rs.30, three friends decide to buy the same, but they have only ₹10 each and the shopkeeper only sells by the box. So, the friends decide to pool in ₹10 each and buy the box of 12 pencils. Now based on their contribution, they each receive 4 pencils or 4 units, if equated with Mutual Funds. And how do you calculate the cost of one unit. Simply divide the total amount with the total number of pencils: 30/12 = 2.5. So, if you were to multiply the number of units (4) with the cost per unit (2.5), you get the initial investment of ₹10. This result in each friend being a unit holder in the box of pencils that is collectively owned by all of them, with each person being a part owner of the box. What is “Net Asset Value” or NAV. Just like an equity share has a traded price, a mutual fund unit has Net Asset Value per unit. The NAV is the combined market value of the shares, bond and securities held by the fund on any particular day (as reduced by permitted expenses and charges). NAV per unit represents the market value of all the units in a mutual fund scheme on a given day, net of all expenses and liabilities plus income accrued, divided by the outstanding number of units in the scheme. Mutual funds are ideal for the investors who either lack large sums for investment, or for those who neither have the inclination nor the time to research the market, yet want to grow their wealth. The money collected in mutual funds is invested by the professional fund managers in line with the scheme’s stated objective. In return, the fund house charges small fee which is deducted from the investment. The fees charged by mutual funds are regulated and are subject to certain limits specified by the Securities and Exchange Board of India (SEBI). Mutual funds offer multiple product choices for investment across the financial spectrum. As investment goals vary post retirement expenses, money for children’s education or marriage, house purchase, etc. the products required to achieve these goals vary too.  There is plethora of schemes to cater all types of investor needs. In order to reap maximum benefit from mutual fund investments, it is important for investors to diversify across different categories of funds such as equity, debt and gold.

Scheme Type Trail-1st Year onwards Liquid/Ultra Short-Term Schemes 0.05% – 0.70% Short Term Income Funds 0.50% – 0.90% Income Funds 0.40% – 1.00% Gilt Funds 0.15% – 0.90% Hybrid Debt/Monthly Income Plans 0.90% – 1.20% Arbitrage Funds 0.55% – 0.70% Fund of Funds 0.25% – 0.50% ELSS 0.65% – 1.70% Index Funds 0.30% – 1.00% Equity/ Hybrid Equity/ Balance Funds 0.65% – 1.70% Fixed Maturity Plans Variable   Details of Scheme level commission on Mutual funds are available with the Relationship Managers and would be produced on demand. This is on a best effort basis and rates are updated as and when actual rates are received from AMCs. We are a NISM certified / AMFI registered mutual fund distributor and not an RIA. We get compensated / incentivise by AMCs. We don\’t charge any fees for our Mutual Fund investment services.

This email / WhatsApp and any attachments are only for informational purpose only and do not constitute an offer, recommendation or solicitation to buy or sell any Funds or Securities. All Investments in Mutual Funds are subject to market risks and past performance is not indicative of future results. Please read the scheme related documents carefully before investing. We are registered Mutual Fund Distributors (MFD) with Association of Mutual Funds in India (AMFI) and adhere to the guidelines set forth by AMFI (SEBI). This email / WhatsApp and any attachments transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are attached.