Saturday, July 25, 2015

All Your Questions About Mutual Funds – Answered!!!

Mutual Funds are a preferred route of Investment for many people and we have had multiple articles in this blog about them. With the stock market being revived with a never before bull-run over the past year, investor interest in mutual funds has gone up as well. The purpose of this article is to help answer many of your common queries about Mutual Funds.

Before we begin:

If you have been a follower of this blog (or any other investment blog/magazine) you may feel that some of the questions are very basic and are ones for which you already know the answer for. However, there may be many novice/new investors who may not be as knowledgeable as you are. So, please bear with me while we cover the basics also as part of this article. 

If you are a Novice Investor who does not know how a Mutual Fund works, I would recommend you read this article first - What is a Mutual Fund?

If you cannot find the answer to your query about Mutual Funds, feel free to sound off in the comments section and I will try my best to answer them. 

1. Are investments in mutual fund units risk-free or safe?

This is a question that cannot be answered in general because there are mutual funds that are safe and there are also mutual funds that are extremely risky. A mutual fund as such is nothing but a pool of money collected from Investors and invested in a certain asset by a professional (AKA the Fund Manager). If the fund invests in the stock market or related instruments, then the fund is definitely not Risk Free or Safe. If the fund invests in Fixed Income Instruments like Bonds, it can be considered relatively safe. Funds that invest only in Government Securities or Government Bonds are the Safest. 
Note: A Mutual Fund is not a Bank. So, even if the fund invests in Fixed Income or Safe Instruments, it always carries a default risk (What if the guy who issued the Bond declares bankruptcy?). 

2. Are investments in mutual funds liquid?

It Depends… 

Investors of open-ended schemes can redeem their units on any business day and receive the current market value on their investments within the next few days (Usually 3 to 5 working days). 
Close Ended schemes or funds on the other hand do not allow investors to redeem their investments until the scheme matures. In this case, if the scheme is listed in the stock market (Like stocks – Ex: Exchange Traded Funds), they may allow you to sell them in the secondary market. 
Investors of close-ended schemes can redeem their units only on maturity but can sell it in the secondary market like stocks

3. How much time does it usually take to receive Dividends? 

A mutual fund is required to pay or release funds to the investors within 30 days of the declaration of the dividend. In case of failures to settle the proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time. This penalty rate is presently 15%. 

Note: Distributing Dividends is based on the fund house/fund managers discretion. There is no guarantee that any mutual fund scheme would declare dividends regularly (Unless the fund objective clearly states the same). The answer above covers the part where a fund declares a dividend in which case you will receive it within 30 days. 

4. What is the history of Mutual Funds in India and role of SEBI in regulating the mutual funds industry in India?

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 other 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. You can learn more about SEBI’s role by clicking here 

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.

5. What is the role of a Fund Manager?

Fund managers are individuals who are responsible for implementing a consistent investment strategy that reflects the goals and objectives of the mutual fund. Normally, fund managers monitor market and economic trends and analyze securities in order to make informed investment decisions. Each fund usually has one or more fund managers who together take the investment decisions (what/when to buy/sell). 

6. What are venture capital funds?

Venture Capital is the fund/initial capital provided to businesses typically at a start-up stage and many times for new/ untested ideas. Venture capital normally comes in where the conventional sources of finance do not fit in. Venture capital funds are mutual funds that manage venture capital money i.e. these funds aggregate money from several investors who want to provide venture capital and deploy this money in venture capital opportunities.

Typically venture capital funds have a higher risk/ higher return profile as compared to normal equity funds and whether you should invest in these would depend on your specific risk profile and investment time-frame. These type of funds are pretty popular in developed markets like US/Europe but are not so much in India. 

7. Can a mutual fund change the asset allocation while deploying funds of investors?

Again, this is a question where I have to say – It Depends. 

Most mutual funds invest in a combination of assets (Equities, Bonds etc.) these days. If the Fund Manager is taking a short-term decision to increase allocation to one asset class to take advantage of a short term market momentum or to protect the fund NAV in the short-term, he/she usually has this flexibility to take such a decision. 

However, if the fund or the fund manager want to alter their asset allocation pattern permanently, they have to follow the points explained in the next Question. 

8. Can a mutual fund change the nature of the scheme from the one specified in the offer document?

Yes. But, any change to the core or fundamental attributes of the scheme like Investment Pattern, Structure etc., cannot be carried out unless a written communication is sent out to all investors. The fund house must also advertise this change in at least one English Daily News Paper that has a nationwide circulation along with an advertisement in the local language of the region where the fund head office is situated. In such a situation, the unit holders have the right to exit the scheme at the current/prevailing NAV without any Exit Load if they don't wish to continue with their investment. 

9. Can I assign a nominee for my investment in a mutual fund?

Yes. Individuals (and also Joint Holders) can make nominations to their mutual fund investments. However, Non-Individuals (like Society, Trust, Corporate Body, Hindu Undivided Family etc.) cannot use the nomination facility when they invest in Mutual Funds. 

10. Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents?

No. Mutual funds cannot increase the load beyond the level mentioned in the offer 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 amend their offer documents so that the new investors are aware of loads at the time of investments. Even if they amend now, they cannot backdate and charge existing investors the extra fees/load. 

11. Can non-resident Indians (NRIs) invest in mutual funds?

Yes, Sure. NRI’s can invest in mutual funds. However, they must have either an NRI DEMAT Account or specify the fact that they are an NRI while applying via paper route and pay using an NRE/NRO Account

12. How are mutual funds regulated?

All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in case the AMC is promoted by a bank). In addition, every mutual fund has a board of directors that represents the unit holders interests in the mutual fund.

13. How can the investors get their complaints resolved?

Investors would find the name of the contact person in the offer document of the mutual fund scheme whom they may 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 should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their complaints,

If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with it regularly. Investors may send their complaints to: 

Securities and Exchange Board of India,Office of Investor Assistance and Education (OIAE) 
Plot No.C4-A , “G” Block, 1st Floor,Bandra-Kurla Complex, Bandra (E), Mumbai – 400 051.

14. I don't have a lot of investible surplus. Can I still invest via the Mutual Fund route? 

Sure you can. Regular investing is a very good way to build up an investment portfolio and this can be done with any amount of money. You can check the fund prospectus/offer documents to check the minimum investment expected by the fund you wish to Invest. Most mutual funds expect an investment of at least Rs. 5000/- for One Time Purchases or Rs. 500/- for Regular/SIP Investments. 

The creators of the Mutual Fund concept knew that not everyone has tons of liquid cash available as investible surplus. Most of the working class like you and me can invest a small amount each month but not a lot. That is why we have the concept of Systematic Investment Plans. MF SIP's are a boon for the common man who wants to invest in the stock market but doesnt have the knowledge or the large corpus to do so. Click here to learn more about what an SIP is and how you could benefit from it. 

15. What is an Entry or Exit Load? 

The Entry Load or Exit Load is nothing but a small fee that you pay while buying into or selling your funds. The amount that actually gest Invested in the fund is usually the Investment minus the Entry Load. Similarly, when you sell your investments, the current market value of your funds minus exit load is the amount you will receive. 

16. Does this "Entry Load" or “Exit Load” eat into our investment returns?

Yes, of course. When you see an offer document for a fund mentioning 1% or 2% as entry load, it may sound small or insignificant. But, it still bites a decent sized chunk of your returns. 

Lets take an example, I want to invest Rs. 1 lakh into a fund that has a 2% entry load and the current NAV is Rs. 10 (New Fund). You may think I will get 10,000 units. But, actually I am only going to get 9,800 units (2% of my investment or Rs. 2,000/- is the fee the fund house deducts as part of the Entry Load). Lets say I sell my investments after 5 years when the NAV is Rs. 35 per unit, I will only get back Rs. 3,43,000. I am effectively losing Rs. 7000/- (If there was 0 entry load, I would have gotten an additional 200 units that at the selling price is worth Rs. 7000)

If the fund also charges an Exit load, I may not get this full amount either. If the fund house charges a 1% Exit Load I will only get back Rs. 3,39,570 (Rs. 3430 is deducted as Exit Load)

Note: Most funds these days DO NOT charge an Entry Load and only charge an Exit Load if you sell your investment without completing at least one full year. The fund house is expected to clearly mention the Entry/Exit loads in the offer document. 

17. What is Net Asset Value (NAV)?

NAV is the total asset value (net of expenses) per unit of the fund and is calculated by the Asset Management Company (AMC) at the end of every business day. Net asset value on a particular date reflects the realizable value that the investor will get for each unit that he/she is holding if the scheme is liquidated on that date.

For ex: If a Mutual fund has investments worth 10 lakhs and has 1 lakh units that are held by investors, the NAV in simple terms will be Rs. 10/- 

If you refer to the article where I explained How a Mutual Fund works, you will be able to understand how this NAV gets calculated even better. Click here to read that article. 

18. 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 submitting of certificates with the mutual fund.

19. How significant are fund costs while choosing a scheme?

One thing that many people fail to consider or even realize while investing in Mutual Funds is the “Cost” incurred by the fund. Many different cost/fee like Management Fee, Sales Load, Advertisement Expenses etc will get deducted from the actual NAV. As a general rule of the thumb, about 1-2% of your annual returns will usually be used to offset these fees. Any fund that can actually keep its costs in this range can be considered an acceptable investment option.

Every investor must carefully examine the offer document of the fund to make sure that he/she isn’t investing in a fund that has exorbitant fees or charges. 

20. How many funds should I invest in, to achieve proper diversification for my Portfolio?

As our forefathers said, keeping all our eggs in the same basket is not a good idea. However, if I want to buy 100 eggs and think about carrying them one each in a basket, it will become an overhead instead of protecting my Egg – right? 

You can consider one or two good funds from the various categories like Diversified Equity, Large Cap Oriented, Small & Mid-Cap, Balanced, ELSS etc and form a core portfolio of about 4-5 well managed funds to achieve optimal diversification. Having more than 5 funds in your portfolio will make it complicated for tracking purposes and result in a situation called “Over Diversification” which isn’t a good thing. 

21. What are the different types of Mutual Funds that I can Invest in?

Mutual Funds are classified by structure into Three Main Types: Open Ended, Close Ended and Interval Schemes. 

Based on Investment Objectives, Mutual Funds can be classified as: 
Equity Schemes  Income Schemes  Money Market Schemes  Tax Saving Schemes  Balanced Schemes  Offshore funds  Index Funds Arbitrage Funds Hedge Funds etc. 
You can refer to my article titled "Different Types of Mutual Funds Available for Investors in India" to learn more about these types of funds. 

22. What are open-ended mutual fund schemes?

Open ended schemes usually do not have a fixed maturity period and are available for subscription and redemption on an ongoing basis. The units can be bought and sold any time during the life of the scheme at NAV related prices.

23. What are close-ended mutual fund schemes?

Close ended mutual fund schemes are those that cannot be subscribed or redeemed by investors on an ongoing basis. Investors can subscribe during the New Fund Offer (NFO) period and have to wait until the scheme matures (usually 2, 3 or 5 years down the line). 

The good news however is the fact that, most of these close ended funds can be bought or sold on the stock exchanges where the scheme is listed. The market price at the stock exchange could vary from the schemes NAV on account of demand and supply situation (like regular stocks), unit holders expectations and other market factors. As a result, you will need to compromise on a small % of your NAV Value if you wish to redeem/sell your units before maturity. 

24. Do Mutual Funds offer any Income Tax Benefit?

Yes. A special type of Mutual Fund called Equity Linked Savings Scheme (ELSS) offer income tax benefits to Investors in India under the Section 80C of the Indian tax laws. These are nothing but  large cap oriented equity mutual funds that have a lock-in period of 3 years. 

Click here to learn more about these ELSS Mutual Funds

25. What are sector specific funds?

These are the funds which invest only in the securities of only those sectors or industries as specified in the offer documents. For Ex: a Pharma Fund will only invest in Pharmaceutical and Healthcare stocks. 
The returns generated by 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. 

26. What are Offshore Funds?

Offshore funds specialize in investing in foreign companies and/or corporations. These funds have non-residential investors and are regulated by the provisions of the foreign countries where these are registered. These funds are also regulated by RBI directives. 

27. What are Money Market Schemes?

Money Market Schemes aim 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 etc. 

28. What are Interval Schemes?

Interval Schemes are those that combine the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

29. What are Index Funds?

Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the corresponding index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. As the fund manager doesn't really have to decide on what or when to buy, the fees associated with such funds are much lower than regular mutual funds. 

30. What are Income Funds?

Income Funds are also known as debt funds. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited because their aim is to provide a regular income and capital protection to their investors.

31. What are Equity Funds?

Equity Funds are those funds that invest a big chunk (or even all) of their portfolio in equity and other equity related instruments. The aim of these schemes is to provide capital appreciation over medium to long term. Because of the nature of the stock market which is volatile in the short term, investors who are willing to bear short-term decline in value for possible future appreciation only should consider them. Risk Averse investors who do not wish to incur any losses (ones who choose capital preservation over capital appreciation) must stay away from such funds. 

Even among Equity funds, there are many different subcategorizations. You can refer to my article titled "Types of Equity Mutual Funds" to learn more about them. 

32. What are Gilt Funds?

These funds invest exclusively in government securities. Government securities have no default risk (on paper). 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. However, with added safety comes lower returns because Government Securities usually offer much lower rate of interest than other bond issuers.

33. What are Balanced Funds?

Balanced Funds are schemes that aim to provide capital appreciation to its investors while at the same time trying to preserve some/all of the capital. As a result of this two-fold idea, these funds invest in both safe (fixed income) as well as risky (equities) instruments. The % allocation for both sides usually hovers around the 40% to 60% range with the fund manager having the flexibility to alter the % based on market situations. 

A point to note here is that the returns generated by such funds may not be as high as pure equity oriented funds if the market is rising. However, if the markets are falling, the losses wouldn't be as much as equity funds either. 

34. Should you evaluate past performance, and look for consistency?

Yes, definitely. Consistent Past performance is a good indicator for any well managed fund. Though past performance is no guarantee that the fund would perform at the same level in future, the chances of a good fund that has consistently given good returns in the past, giving you good returns in future are much higher as against funds that haven’t been so consistent. 

The longer the time period (1 year, 3 years, 5 years etc) where the fund has consistently performed, the higher the fund should be on your shortlist. 

35. Which is better – SIP or one time Bulk Investment?

Actually, there is no One Correct answer for this Question. 

Both SIP and Bulk Investment option have their own merits. For ex: In case of a volatile market (one that is going up and down), going the SIP route would be beneficial because it will help you average out your purchase price and make more profits. On the other hand, if the market is purely going up, then the Bulk route will be beneficial because you will get lesser and lesser units each month. 
However, in the long run, the chances of the SIP route outperforming the bulk route are pretty high because, as I have said many times, the stock market is volatile and keeps going up or down frequently. So, being a regular/consistent investor always has its perks. 

36. Are arbitrage funds a good choice for earning high returns with low risk?

No, not at all. 

Arbitrage Opportunities are a special class of investment where the fund manager tries to make a profit out of the pricing mismatch between the Equity and Derivatives Market. Anything that invest in either the Equities market or the Derivatives market carries with it, the risk of a downside and hence, the low risk part is ruled out. Yes, arbitrage funds can give you good returns but at a high risk (just like regular equity funds)

37. Is it good to buy a fund just before it goes ex-dividend?

This is one of those misconceptions that people have. Buying into a fund just before the ex-dividend date basically means that you are eligible to receive a dividend right after you actually buy into the fund. However, what many people fail to note is that the NAV of the fund falls by an appropriate amount after the fund house actually gives you the dividend. 

Let me explain with an example. Lets assume I invest 1 lakh into XYZ mutual fund Dividend scheme which is selling @ Rs. 24/- per unit just before the ex-dividend date where the fund is declaring a Rs. 3/- dividend per unit.

Units purchased: 4166.67 (Value @ NAV Price = 1 lakh)
Dividend Earned = Rs. 12,500/- 
Value/Worth of my units after Dividend = Rs. 87,500/- (Same 4166.67 units)

Basically after I invest the 1 lakh, the fund house is giving me Rs. 12,500/- of my own money back thereby reducing my fund value. So, I might as well wait until the dividend is declared and buy more units for the same amount (4761.9 units @ Rs.21 per unit) which will give me a higher chance of returns in future. 

38. If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV?

This is yet another big misconception that investors in India have. People feel funds with lower NAV’s are cheaper and therefore are better. This is one of the reasons why New Fund Offerings (NFOs) tend to get heavily subscribed even though there is no past performance benchmark to prove how good the fund manager is. 

Let me explain with an example. Lets say MF X is available now for NAV of Rs. 15 per unit and then we have MF Y that is available for NAV of Rs. 150 per unit. Suppose, I want to invest 3 lakh lakh rupees now and I split my money equally between the 2 funds. 

Units got from Investing in Fund X = 10,000 (@ 15 per unit)
Units got from Investing in Fund Y = 1,000 (@ 150 per unit)

10,000 units sounds a lot more than 1,000 units – right? But, this is not a correct comparison because the value of each unit of X is only 15 rupees whereas the value of each unit of Y is 150 rupees. Meaning Y is 10 times more valuable than X. At today’s market valuation (NAV) the value of my investments in both funds is the same – 1.5 lakhs. 

Lets assume that the investment philosophy of both funds is very similar and their returns follow the BSE Sensex Index. At the end of the year, both the funds have grown by 12%. So, are you thinking that my investment in fund X would’ve made more profits for me? After all, I purchased 10000 units of fund X. Right?

Current NAV of Fund X = Rs. 16.80 (12% Growth)
Value of Investments in Fund X ( 10,000 * 16.8) = Rs. 1,68,000/- 

Current NAV of Fund Y = Rs. 168 (12% Growth)
Value of Investments in Fund Y (1,000 * 168) = Rs. 1,68,000/-

Though I had 10,000 units of Fund X and just 1000 units of Fund Y, the profit I made is exactly the same because the two funds gave exactly the same 12% returns. 

Unless the fund with the smaller NAV outperforms the fund with the larger NAV (by better investment choices) there is absolutely no reason on why you should choose either fund by merit of just its NAV. 

39. If mutual fund scheme is wound up, what happens to money that people invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unit holders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.

This is similar to a situation where all the investors simultaneously want to exit the fund on one fateful day. 

40. I am holding XYZ Fund. Its NAV is down. Should I continue to hold this fund or exit it?

Your decision to retain or sell the fund should not be based on market volatilities. The stock market is volatile and the day to day ups or downs can be quite dramatic in the short-run. Impulsive decisions are never a good idea and in the case of the stock market it is probably the worst idea. If the fund is well managed, the fund manager will use the market corrections to buy stocks of good companies at discounted prices and by sticking on to your investment, you will get good profits in the future.

You should consider selling a fund Only If:
- You need cash urgently - The fund has consistently underperformed its benchmark index (At least for 1-2 years)- The Fund’s investment objective or philosophy has changed- The Fund Manager has changed 

You may also want to sell your units to rebalance your portfolio but this is not really considered selling because you will effectively be investing in another fund. Right? 

41. What is a Fund of Funds (FoF) Mutual Fund Scheme?

A Fund of Funds mutual fund is nothing but a mutual fund scheme that actually invests in other mutual funds. This fund does not directly invest in stocks or bonds or other investment instruments. They buy mutual fund units of other schemes. For Ex: A diversified equity FoF will invest in various different diversified equity mutual fund schemes. 

42. What is an Asset Management Company (AMC)?

The company that manages a mutual fund is called an AMC. Reliance, HDFC, ICICI Prudential, Franklin Templeton, Birla Sun Life etc are all popular AMCs in India. An AMC may have several mutual fund schemes with similar or varied investment objectives. The AMC hires a professional fund manager, who buys and sells securities in line with the fund's stated objective.

43. What is Systematic Investment Plan or SIP?

A Systematic Investment Plan is nothing but a regular commitment from an investor wherein the investor agrees to invest a predetermined amount of money regularly (Usually every month) for a predetermined period (Usually 1 year or more).  Simply speaking, a Mutual Fund SIP is like a Bank Recurring Deposit with a difference that, the Mutual Fund will invest in the stock market while the Bank does not do so. 

Every month, units corresponding to the amount invested by us (At the prevailing NAV on the date of investment) are credited into our MF Account. Click here to learn more about SIP's

44. What is the Benefit of taking the SIP Route to Investing? 

SIPs are most useful when the stock market isnt on a steady upward trend. In the current economic scenario, the markets are extremely volatile and you never know when the market will go up or down. So, if we choose the SIP route, it gives us the benefit of "Cost Averaging". In other words, since you are investing every month, you can take advantage of any dips in the stock market and accumulate additional units. This way, at the end of the SIP Period, you will end up with more units that what you would have accumulated if you had invested in one shot. 

More importantly, parting with Rs. 5000/- every month may not look that difficult, but if you are asked to cough up Rs. 75,000/- in one month that will sound like a lot, wouldnt it? That is exactly why SIPs are easier than one time investments. 

If you want to understand more about SIPs and how they can be beneficial to you, Click Here 

45. When will the investor get the certificate or statement of accounts after investing in a mutual fund?

Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of subscription on the scheme. Depending on how you invested (Via paper form or DEMAT), how you get the statement may vary. For example, investors choosing the DEMAT route may get email statements while investors who chose the traditional paper based route, would get paper based statements by post. 

46. Why should you monitor and review your fund performance?

Having made an investment in a mutual fund, you should monitor it to see whether its management and performance is in line with stated objectives and also whether its performance exceeds or lags your expectations. Unlike individual stocks and bonds, mutual fund reviews are required less frequently, once in a quarter should be sufficient. 

A review of the fund’s performance should be carried out with the objective of holding or selling your investment in the mutual fund. A simple check could be – is the fund able to meet the performance/returns of its benchmark Index? A fund that is based out of BSE Sensex should be able to at least meet or beat the % returns generated by Sensex every quarter. If it is not able to do this and misses the target during consecutive quarters, you may need to consider exiting the fund. 

Hope you found these questions useful. If you have more questions use the comments section and I would be happy to answer them. 

Happy Investing!!


  1. Hello Anand!

    You have a very informative blog, and the information is laid out very clearly.

    With regard to mutual funds, I have a few questions. Consider that I currently hold X units of a mutual fund.

    (a) What is the process of transferring my mutual fund units to my spouse or a blood relative?
    (b) What are the tax implications of this transfer? Upon me (donor) and on the donee.
    (c) What are the tax implications of the sale of these units (by the donee) after they were held for 366 days since the date of first purchase? i.e. capital gains

    Thanks in advance!

    1. Answers:

      a. Contact your fund house for transfer proceedings. If you and the donee have a DEMAT Account, the process is straightforward. The transfer proceeds will be received in their DEMAT Account

      b & c - Tax implications for you - None. For the Donee - Firstly if they are not a blood relative they may be subject to gift tax. Secondly, depending on the type of fund, they may be subject to both short term & long term capital gains depending on how long they hold onto the funds after they get it from you. How long you held the funds becomes irrelevant when you transfer.


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