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What is a Mutual Fund ? |
| Mutual Fund is a trust
that pools the savings of a number of investors who share
a common financial goal. Each scheme of a mutual fund
can have different character and objectives. Mutual funds
issue units to the investors, which represent an equitable
right in the assets of the mutual fund. |
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What is the difference between an open
ended and close ended scheme? |
| Open ended funds can issue
and redeem units any time during the life of the scheme
while close ended funds can not issue new units except
in case of bonus or rights issue. Hence, unit capital
of open ended funds can fluctuate on daily basis while
that is not the case for close ended schemes. Other way
of explaining the difference is that new investors can
join the scheme by directly applying to the mutual fund
at applicable net asset value related prices in case of
open ended schemes while that is not the case in case
of close ended schemes. New investors can buy the units
from secondary market only. |
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How are mutual funds different from
portfolio management schemes? |
| In case of mutual funds,
the investments of different investors are pooled to form
a common investible corpus and gain/loss to all investors
during a given period are same for all investors while
in case of portfolio management scheme, the investments
of a particular investor remains identifiable to him.
Here the gain or loss of all the investors will be different
from each other. |
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Can I get fixed monthly income by investing
in mutual fund units? |
| Yes, there are a number
of mutual fund schemes which give you fixed monthly income.
Further, you can also get monthly income by making a single
investment in an open ended scheme and redeeming fix value
of units at regular intervals. |
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What are the tax benefits for investing
in mutual fund units? |
| Dividend income from mutual
fund units will be exempt from income tax with effect
from July 1, 1999. Further, investors can get deduction from
tax under section 80C of Income Tax Act, 1961 by investing
in Equity Linked Saving Schemes of mutual funds. Further
benefits are also available under section 54EA and 54EB
with regard to relief from long term capital gains tax
in certain specified schemes. |
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Are investments in mutual fund units
safe? |
| No stock market related
investments can be termed safe with certainty as they
are inherently risky. However, different funds have different
risk profile which is stated in its objective. Funds which
categorize themselves as low risk, invest generally in
debt which is less risky than equity. Anyway, as mutual
funds have access to services of expert fund managers,
they are always safer than direct investment in the stock
markets. |
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