What are the regulations that govern a mutual fund?

• Mutual Fund is initiated by a sponsor.
• Sponsor creates a Trust.
• Trust in appoints an Asset Management Company (AMC).
• The trustees will take care of interests of investors in the fund by complying and ensuring relevant regulations.
• The fund also has to be approved by the market regulator, which is the Securities and Exchange Board of India (SEBI).

Who is a custodian?
Custodian is responsible for the procession, handling and safekeeping of all securities purchased by thee mutual fund.

Who is a sponsor?
The sponsor is the promoter of the mutual fund who brings capital and creates a mutual fund trust and sets up the AMC. The sponsor makes an application for registration of the mutual fund and contributes at least 40% of the net worth of the AMC.

What is redemption price?
The amount received by the investor on selling of units of an open-ended scheme to the fund. Redemption price = NAV, if exit load is not levied.
Redemption price < NAV, if exit load is levied.

What is repurchase price?
Repurchase price is different from redemption price and refers to the price at which a close-ended scheme repurchases its units. Repurchase can either be at NAV or can have an exit load.

What is a switch?
Some Mutual Funds provide the investor with an option to shift his investment from one scheme to another within that fund with some charges as fee. Switching allows the Investor to move his investment wholly or partly from one scheme to another to meet his changed investment needs, changed risk profile or changing circumstances during his lifetime.

What are loads?
Load is a charge levied by the mutual fund companies while exiting called exit load. Simply, charges are collected while selling back the units. Some companies may offer with no load.

Are mutual funds allowed to indulge (allow) in speculation/day trading?
No, speculation is not permitted must be settled through cash.

What is an asset management fee?
The fee charged on an annual basis is calculated as a percentage of net assets under management.

How risk is associated?
Of course, risk is an inherent aspect of every form of investment and risks would include variability, or period-by-period fluctuations in total return and also affected by factors like capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.

What are the types of risks?
Investment Risks: More volatile than a more diversified portfolio of equities.
Inflation Risk: Rate of inflation exceeds the earnings on your investment.
Liquidity Risk: Not being easily salable at or near their real values and unable to quickly sell an illiquid bond and this might affect the price of the fund unfavourably.
Interest Rate Risk: When interest rates rise, prices of the securities fall and when interest rates drop, the prices increase. Changing interest rates affect both equities and bonds.
Credit Risk: risk bearing capacity by the investor if capital invested is from credit.
Market Risk: Prices or yields of all the securities in a particular market rise or fall due to broad outside influences when the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected.
Government Policies: Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.

What is the expense ratio?
Expense are which relating to business operations of a scheme like administration, management, advertising related expenses, etc., represents in percentage per year on total assets of the fund. The information regarding expenses which are applicable mentioned in offer document. There is no limit on any particular type of allowed expense as long as the total expense ratio is within the prescribed limit.

What is a folio number?
It is an account number in mutual fund consists of unit of holdings which are recorded in mutual fund holding register.

Can I invest in units in cash?
For each investor in a financial year per mutual fund investment in cash up to Rs. 50,000/- is permitted.

Can Non-Resident Indians (NRIs) invest in mutual funds?
Yes, NRI can invest in mutual funds in India.

How much time does it take to get my money back i.e., repurchase proceeds?
From the date of receipt of request from customer within 10 days the mutual fund company must proceed for redemption or repurchase.
In case of failure, concerned AMC has to pay 15% interest beyond 10 days.

Can an investor appoint a nominee for his investment in units of a mutual fund?
Yes. All Mutual Funds provide a nomination facility to individual investors.

If mutual fund scheme is wound up, what happens to investors’ money?
In case of winding up of a scheme, the mutual funds refund to the unit holders whose names appear in the Unit Holders’ Register value of their outstanding Units at prevailing NAV, after adjustment of all expenses. Unit holders are entitled to receive a report on winding up from the mutual fund which gives all necessary details.

What is the minimum amount need to invest in mutual fund?
One may start an investment with minimum amount of Rs. 500/- in mutual fund through SIP.

What is the major advantage of mutual fund?
Even you are invested minimum amount in a fund, the same will be managed by professionals due to pooling of money from many investors.

Expand AMFI and its role briefly?
AMFI stands for Association of Mutual Funds in India.
AMFI, the association of SEBI (Securities Exchange Board of India) which is dedicated in developing of mutual fund industry in India along in maintenance of standards.
Objectives:
To maintain ethical and professional standards in the operations.
To promote healthy business practices and code of conduct.
To interact with SEBI in all related matters.
To represent RBI, government and other related bodies.
To create national wide awareness program.
To regulate mutual fund companies in all matters like creation, operations and violations.
To protect investor of mutual funds.

What happens when a Mutual Fund company shuts down/gets sold off?
Based on the list of units holding register maintained by the mutual fund company the funds will be distributed by regulatory authority even if the mutual fund company shuts down.

What are the Scheme Related Documents and what information do these documents provide?
The scheme related document is prepared by AMC and submitted to SEBI for approval which contains:
1. Key Information Memorandum (KIM)
Summary of scheme information document and statement of additional information which are important content in scheme like fund managers, plans, options, performance, benchmarks etc.,
2. Scheme Information Document (SID)
Investment objectives and policies, allocation and it patterns, fund team, risk factors, load, provisions of liquidity, unit holder information, branches, service centres etc., information contained in this document
3. Statement of Additional Information (SAI)
Information regarding sponsors, AMC and trustees, custodian, registrar, bankers, auditors and legal counsel.

What is the difference between Mutual Fund Distributor and Investment Adviser?
Actually, one and both are same. Both are interchangeably designed for the purpose of sale of mutual fund.
Investment advisor is registered with SEBI as RIA (Registered Investment Advisor) having fiduciary (trust on the advisor) duty than the distributor.
Distributors earn commission on sales of funds and income as client fee to advisor.
RIA is not only to give an advice but also help in investment for investors but distributors will not.

Do Indian Mutual Funds invest only in India?
No, mutual funds can invest in overseas investment. Generally, most of the funds are invested in India itself because before issuance of the fund to investor SEBI approval is needed.

How can I get a monthly income from Mutual Funds?
The mutual fund scheme will give an option before investment such as where the investor wants to invest like sector, equity, debt, income plan, growth plan, etc.
For instance: Pension funds are invested with a view of long-term investment due to the provisions made by the fund as regular income at or after the time of retirement. These are combination or split in to equity and debt because equity will give good return but risky while debt are low risk and low returns give steady returns in long-run.

Are there penalties if I choose to withdraw earlier?
The option to withdraw or lock in period will be depends on the type of plan or scheme you opted at the time of agreement.
For instance, you opted Equity liked scheme it is having 3 years lock in period and no chance to withdraw the earlier.
The penalties are applicable as per the plan, scheme, mutual fund company, agreement etc., the exit will made after levy of exit load and taxes.