Features of Mutual Fund products

There are several mutual fund products in the market. The following features distinguish one mutual fund product from another:

Asset allocation: Proportions in which the fund will invest in securities such as equity, debt, gold, real estate exclusively or in a combination.

Investment objective: It details out focus in creating and managing the portfolio – growth and capital appreciation, generation of regular income or combination of both.

Costs and fees: Mutual fund charges management cost for managing of portfolios./ In some cases, there are entry and exit charges as well.

Operational details: The terms for subscription, redemption and ongoing transactions in the fund

Mutual Funds Benefits

Diversification: Investors can invest in a diversified portfolio with small amounts, sometimes as low as Rs.500. Investors cannot achieve meaningful diversification to a self-managed portfolio with such a small amount.

Professional Management: Investment decisions in a mutual fund are made by fund managers who have the expertise, information and knowledge to make better decisions than what a typical individual investor may be able to make.

Liquidity: Investors can withdraw their investments at any time by either redeeming units from the fund or selling the units on the stock exchange where it is listed at a price that reflects the current value of the portfolio.

Flexibility: Mutual funds allow investors the flexibility to structure their investments in a way that suits them. They can choose to make lump-sum investments or periodic small investments. Similarly, they can choose to receive periodic returns in the form of dividends or to allow the returns to grow in value over time.

Tax efficiency: Mutual funds provide tax-efficient returns since the income is earned and gains are made by the fund. The mutual fund itself is exempt from paying taxes. Taxes may apply on income earned by the investor, subject to prevalent tax laws.

Accessibility: Mutual funds invest in securities that investors may otherwise not be able to access. Instruments such as wholesale debt instruments privately placed and unlisted securities may not be accessible to the retail investor. Mutual funds can invest in them on behalf of the investor.

Mutual Funds Costs

Costs and Fees: The investor pays a fee for the benefit of holding a managed portfolio of securities. The expenses charged include the fee for fund management and the costs associated with the operations of the fund, such as transactions done and fees paid to the various constituents used by the fund.

Limited Control: The investors of a mutual fund do not approve or authorize any investment decision made by the fund manager. The control the investors have in the way the fund is managed is limited.

Indirect Ownership: The investments made by the mutual fund from the investors’ money are held in the name of the mutual fund trust and not directly in the name of the investors. The investors are only the beneficial owners of the investments.

Tax characteristics of investments