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One potential problem for mutual-fund investors is the bewildering choice of funds available. This problem is easily solved by using Value Research’s publications and website. Value Research analyses every mutual fund in India and also rates it on a scale of one star to five stars.

Moreover, Value Research’s analysts also maintain a list of funds under the banner of ‘Fund Analyst’s Choice’. This is a carefully chosen list of funds, which have been classified according to common investing needs.

Once you have invested in funds, you can use www.ValueResearchOnline.com to track your investment portfolio through the most-advanced portfolio manager available in India. ValueResearchOnline.com and the portfolio manager are completely free for investors.

We also publish a monthly magazine, Mutual Fund Insight. Every issue of it has news, data, analyses and interviews of interest to mutual-fund investors as well as a complete scorecard containing up-to-date information on every mutual fund.

Our annual Mutual Fund Yearbook is a handy 200-page guide to investing in mutual funds. It contains detailed guidelines on building a winning portfolio and tracking your portfolio. It also has expert analysis and detailed data on more than 100 handpicked funds and performance data on every mutual fund in India.

set of stocks for far less.

Tax efficiency: When you buy or sell any investments, you have

to pay tax on the profit you make. However, this doesn’t happen when that buying and selling is done on your behalf by a mutual fund. To maximise profits, the fund manager could keep buying and selling stocks as needed, but you have to pay tax only when you redeem your investments from the fund.

Transparent, well-regulated industry: Mutual funds are

obligated by law to release comprehensive data about their operations and investments. Almost all funds release net asset values (NAVs) daily and most release their complete portfolios every month. The SEBI regulates the fund industry very tightly and is constantly refining the applicable rules to protect investors better.

Providing access to inaccessible assets: There are many

investments that you can make only through a mutual fund. For instance, it’s not easy for individuals to buy government bonds, but they can buy funds that invest in such bonds. While investing directly in foreign stocks could be tricky, you can easily invest in global markets by investing in funds that reside in India but invest in international markets.

Capital Protection & Inflation Protection

Mutual funds do not offer any capital protection in a legally enforceable way. Mutual funds invest in market-linked investments and losses are always possible. However, AMCs are allowed to run ‘capital-protection-oriented’ funds. These funds invest in a high proportion in safe fixed-income securities and a small proportion in equities. Investors who stay invested for a fixed period of time are unlikely to suffer any capital loss. Mutual funds do not offer any kind of contractual or formal inflation protection. However, when you invest in well-chosen equity funds for a period of several years, your chances of beating inflation are better than those in any other type of investment.

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Liquidity

As per SEBI rules, all mutual funds must offer liquidity. However there are nuances. Liquidity depends upon whether a fund is open-ended or closed-end. Open-ended funds are perpetual funds that are always available for investment or redemption. In the case of open-ended funds, the AMC itself redeems the money at the NAV-based selling price withing three working days.

Closed-ended funds are launched for a fixed period (generally three to ten years) and you can invest in them only at the time of the initial offer. For closed-ended funds, AMCs get the fund listed on a stock exchange so that you can sell your units like a stock through a stock broker. However, this is not a great option because the stock-exchange price of a fund is generally a lot less than the NAV. In practice, you should consider closed-ended funds to be locked in for their full duration.

Tax-saving funds have a three-year lock-in. These funds help you save tax as per Section 80C of the Income Tax Act, but you cannot redeem them for three years as per the tax law.

Where and How to Invest

You can invest in mutual funds directly through the AMC or through an intermediary.

Directly through the AMC: To invest directly through an AMC,

you can get the AMC’s details through its website. Most AMCs also have a toll-free phone helpline, which can also be a good starting point if you do not use the internet. All AMCs have direct plans for their existing fund schemes. These are meant for investors who want to invest themselves, without the help of an intermediary. Hence, they have a lower expense ratio compared to regular schemes, which are available through intermediaries. This means that you, as an investor, will get an opportunity to earn a slightly higher return from your mutual fund as compared to that of the corresponding regular scheme, despite the same portfolio. Direct plans don’t charge annual recurring commissions, so they have lower annual charges and a different (higher) NAV as Mutual Funds

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compared to regular plans.

Intermediaries: There are a wide variety of intermediaries

available. These include banks, stock brokers and a large number of individuals and small financial-advisory companies. All intermediaries have to be registered with the Association of Mutual Funds of India (AMFI), which also maintains a searchable online directory at www.AmfiIndia.com. The website also has a list of intermediaries who have been suspended for some malpractice.

Investing in a fund involves going through a ‘know your customer’ (KYC) process, much like other financial transactions. You will need the following documents for the KYC process: proof of identity (PAN card copy, copy of the passport, driving licence, etc.) and proof of address (Aadhaar card, voter’s ID card, etc.)

How to Exit from a Fund

If you invest online in a fund or if you are registered for online transactions, then you can seek online redemption and the proceeds will be deposited in your bank account. For offline investors, there is a redemption slip that comes with your account statement. This has to be filled up, signed and deposited at the nearest ‘investor service centre’. The intermediary you have invested through will facilitate the process. In all cases, redemption proceeds come to your bank account.

SIP, SWP and STP

There are some special ‘systematic’ ways of investing in and redeeming your money from mutual funds. They are enormously useful in making you a more disciplined investor as well as in enhancing your returns.

Systematic investment plan (SIP): An SIP is a regular investment

in a fund for a fixed sum at a fixed frequency. Generally, the frequency is monthly. SIPs neatly solve two main problems that prevent investors from getting the best-possible returns from mutual funds. Firstly, since SIPs mean investing with a fixed sum

Mutual Funds

regularly, regardless of the NAV or the market level, investors automatically buy more units when the markets are low. This results in a lower average price, which translates into higher returns. If you invest a large sum at one go, you could end up catching a high point of the markets. That would reduce your gains if the market falls. An SIP is a good way to invest at an average price over a period.

Secondly, SIPs are also a great psychological help while investing. Investors inevitably try to time the market. When the market falls, they sell and they don’t invest any more. When it rises, they invest more. This is the opposite of what should be done. An SIP puts an end to all this by automating the process of investing regularly.

Systematic withdrawal plan (SWP): SWPs mean regular

redemptions from a fund. There are a number of variations. Investors can redeem a fixed amount, a fixed number of units or all returns above a certain base level. These provide a convenient way for regular income from a fund.

Systematic transfer plan (STP): An STP is a regular transfer from

one fund to another. It’s like an SIP but the source of money is another fund. The most frequent use of an STP is when you have a lump sum to invest in an equity fund. For reasons listed above, it is always better to invest gradually through an SIP. In order to do so, you can put the lump sum in a debt fund of an AMC and simply give instructions to transfer a fixed amount to a chosen equity fund every month.

Load

Load is a small percentage of your investment that can be deducted by the AMC during redemption. The actual percentage (and whether it will be charged at all) depends on the type of fund and the holding period. Typically, there would be a load of 1 per cent if you redeem your investment within a year and no load after that. Earlier, an entry load was also charged at the time of investment, but in August 2009, it was abolished by SEBI.

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Taxation

Investments in equity-linked savings schemes (ELSS) qualify for tax deductions under Section 80C. Apart from this, other types of mutual funds have tax liability depending on the type of assets they invest in. Taxability of capital gains and dividend is detailed in the accompanying table. Tax implication is different for NRIs, especially in the case of TDS on short- and long-term capital gains.

* Securities transaction tax (STT) will be deducted on equity funds at the time of redemption/switch to other schemes/sale of units.

Financial Year 2016-17 (AY 2017-18)

Dividend

Tax on distributed income (payable by the scheme) rates Individual/HUF$ _{Domestic company}@ _NRI$/#