Mutual Funds

RISK VS RETURN - AT A GLANCE

Advantages of Mutual funds

01. Professional management 

You avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

02. Diversification

Mutual fund invest in a number of companies across a broad cross section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion.You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

03. Convenient administration  

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

04. Return potential

Over a medium to long term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

05. Low costs 

Mutual funds are relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

06. Liquidity 

In open ended scheme you can get your money back promptly at Net Asset Value (NAV) related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of repurchase through Mutual Funds at NAV related prices which some close-ended and interval schemes offer you periodically.

07. Transparency

You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager’s investment strategy and outlook.

08. Flexibility 

Through features such as Systematic Investment Plans (SIP), Systematic Withdrawal Plans (SWP) and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

09. Choice of schemes
Mutual funds offer a variety of schemes to suit your varying needs over a lifetime. 

10. Well regulated 
All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.The operations of Mutual Funds are regularly monitored by SEBI.

Can a Mutual Fund Scheme go bust?

While the AMC manages the investments of the scheme, the assets of the scheme are held by the Custodian. Both operate under the overall control of the Trustees. This system of checks and balances protects the investors from misappropriation of funds, fraud etc.

Even if some sponsors wish to move out of the business, they need to bring in some other sponsor, acceptable to SEBI, before they can exit. The new sponsor would need to put in place the entire framework of Trustees, AMC etc. Therefore, unlike the occasional experience of ‘vanishing companies’ in shares, mutual funds cannot vanish.

It is also pertinent to note that the custodian has custody of the investments in a scheme.  The custodian is independent of the sponsor and the AMC. This ensures structural protection of the scheme assets for the benefit of investors.

Further, in the event of a change in sponsorship that an investor is not comfortable with, the option of exiting from the scheme with the full NAV is available for a 30-day period.

These structural requirements ensure that the investor is fully protected from most of the contingencies that can be envisaged.