1) What is Mutual Fund?
→ A mutual fund is the trust that pools the savings of a number of investors who share a common financial goal.
→ Anybody with an investible surplus of as little as a few hundred rupees can invest in Mutual Funds.
→ The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme’s stated objective.
→ It gives the market returns and not assured returns. In the long term, market returns have the potential to perform better than other assured return products.
→ Mutual Fund is the one of the most cost efficient financial products.

2) Why should I invest in mutual funds?
Mutual funds offer benefits like:
→ Professional Management
AMC appoints qualified and experienced fund managers for each scheme who monitor the market and work towards generating optimum returns for unitholders in line with the objective of the scheme.

→ Diversification of Portfolio
According to the investment objective of the scheme, a mutual fund invests in a wide range of securities. It spreads the risks involved across various asset classes, even when the invested amount is small.

→ Allows small investments
Mutual funds allow investors to invest as low as Rs 5000/- and sometimes even lower. This makes it possible for small investors to invest in the capital market.

→ Convenience
Holding units of just one scheme allows the unitholder to diversify his money across a range of securities, without having to keep a track of individual investment in each security.

→ Flexibility
Mutual fund allows unitholders to switch between schemes and plans according to their requirements. However, please note that switching between schemes might involve costs.

→ Transparency
Mutual funds regularly share information about a unitholders investment value and portfolio of the scheme through personal communication and /or its website.

3) What is an SIP?
A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a mutual fund.

The minimum amount to be invested can be as low as Rs.100 and the frequency of investment is usually daily, weekly, fortnightly, monthly or quarterly. An SIP with an Equity fund allows you to participate the stock market without trying to second-guess its movements. Most investors think that buying stocks at low prices and selling them when prices are high is a favourable strategy. But this is hard to achieve and involves risky variables. A more successful investment strategy is to adopt the method called Rupee Cost Averaging. Under Rupee Cost Averaging, more units are purchased when prices are low and fewer units when prices are high.

Please note : That the above table is for illustration purposes only and do not reflect actual NAV of any mutual fund at any point of time.

4) What is an assured return scheme?
Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document.

Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

5) What are the factors that influence the performance of Mutual Funds?
The performances of Mutual funds are influenced by the performance of the securities market and economy. Performance of Equity Funds are linked to a large extent to performance of the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole.

The performance of the sector funds depends to a large extent on the companies within that sector. Bond-funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, bond funds with higher credit ratings are less influenced by changes in the economy.

6) What are the different types of mutual fund schemes?
→ Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

→ Open-ended Fund/ Scheme:
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

→ Close-ended Fund/ Scheme:
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

→ Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

→ Growth / Equity Oriented Scheme:
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

→ Income / Debt Oriented Scheme:
The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

→ Balanced Fund:
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

→ Money Market or Liquid Fund:
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

→ Gilt Fund:
These funds invest exclusively in government securities. Government securities have no default risk. 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.

→ Index Funds:
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.