Rights of Mutual Fund Investors

There are certain rights enjoyed by the investors with respect to service standards that they can expect from mutual funds:

  • Investors are entitled to receive dividends declared in a scheme, within 30 days.
  • Redemption proceeds have to be sent to the investor within 10 business days from the date receipt of such request by the AMC. Delays in this respect will lead to the AMC paying a penal interest on the proceeds at a rate specified by SEBI from time to time. (The current rate is 15% and is to be borne by the AMC or sponsor and not the fund).
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Precautions must Investors take before Investing in Mutual Funds

Most important of all, there are certain precautions investors should take while investing in mutual funds:

  • Always the investor should keep a photo copy of the application form. This can be filed to know the manner in which application was made (single, joint ownership and order of ownership). Investors will also be able to see how they have signed the forms (many investors change their signatures over time; some investors have different signatures for banking and investment transactions). Investors will also know the choice they have exercised (dividend and redemption option).
  • The investor must preserve the counterfoil/acknowledgement issued by the collecting agency.
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Legal and Regulatory Framework for Mutual Funds in India

Securities and Exchange Board of India (SEBI) is the apex regulator of Indian capital markets. Issuance and trading of capital market instruments and regulation of capital market the intermediaries is under the purview of SEBI. SEBI is the primary regulator of mutual funds in India. SEBI has enacted the SEBI (Mutual Funds) Regulations, 1996, which provides the scope of the regulation of mutual funds in India. It is mandatory that mutual funds should be registered with SEBI. The structure and the formation of mutual funds, appointment of key functionaries and investors, investment restrictions, compliance and penalties are all defined under SEBI Regulations, Mutual funds have to send a seven-year compliance reports to SEBI.… Read the rest

Liquid Mutual Fund Schemes

The objective of liquid mutual fund schemes  is to invest in short-term money market instruments of good credit quality. The fund predominantly invests in money market instruments and provides investors the returns that are available on these instruments. The investment portfolio is very liquid, and enables investors to hold their investments for very short horizons of a day or more. The liquid funds are normally open-ended. It provides with the following options/schemes, which are sub-products within the liquid fund.

  • Overnight Option (Growth): This option is meant to be used by investors with very short-term investment horizon and is fully invested in the call money market.
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Balanced Mutual Funds

Mutual funds that invest both in debt and equity markets are called balanced mutual funds or simply balanced fund. A typical balanced fund would be almost equally invested in both the markets. The variations are equity funds that invest predominantly in equity (about 70%) and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component, by bringing in debt. Similarly, there are predominantly debt funds (over 70% in debt securities) which invest in equity, to provide some growth potential to their funds. A balanced fund also tends to provide investors exposure to both equity and debt markets in one product.… Read the rest

Factors Conducive to the Growth of Mutual Funds

On observing the past trends, it can be seen that certain factors are essential for the growth of the mutual funds industry. These factors are:

  • Investor Base: A mutual fund makes it possible for investors to earn a higher return on their capital by pooling the capital of a large number of small investors and investing the pooled sum in a diversified manner. As the small investors cannot diversify on their own, their presence acts as a catalyst for the mutual funds to grow. As different investors have different investment requirements, their presence also acts as an incentive for the mutual funds to come up with new schemes, thus helping in further evolution of the industry.
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