Questions to ask about mutual funds | Investment Ideas about Mutual Fund

  1. What is Mutual Fund in Simple language?

A: it is a combined portfolio of different securities such as shares, bonds, short term and long term debts managed by agent or asset management companies and they charge fees or commission for looking after the same.

  1. Is there any best time or season to start investment in mutual fund?

A: There is no best or worst time to invest in mutual funds, you can start it now with prier information and risk measure capacity.

  1. Can a bank manage my Mutual Fund?

A: First of all, Bank is in the business of accepting money from depositors in a form of savings and offers the same money to borrowers with interest rate to be charged. Whereas mutual fund is completely different product and it is managed by experts and asset Management Company.

  1. Can I invest cash in mutual fund?

A: No, You need to have bank account, from where you can transfer money to your trading or agent’s account.

  1. Are there any different types of Mutual funds?

A: There are three types (a) Equity (b) Debts (c) Hybrid

  1. What are the Hybrid Mutual Funds?

A: It invests in equity as well as bonds at the same time.

  1. Why debt funds are not risky?

A: Debt funds carry low risks, they are not risk free.

  1. What is “subject (to) market risk” when it comes to mutual funds?

A: Mutual funds are made up of different stocks and bonds. These products are affected my market fluctuations and hence, this disclaimer is given.

  1. Can investor sale mutual fund or cash it out?

A: Majority of mutual funds can be liquidated at any time on a business day.

  1. Is there any tax on sale of mutual funds?

A: Income from sale or exchange of mutual fund is taxable. It is your capital gain and you also need to pay tax on dividend if your mutual funds offer the same.

  1. What is NAV?

A: It stands for Net Asset Value.

  1. How is NAV calculated?

A: It is calculated as ‘Total value of Securities and Cash Minus liabilities of Portfolio divided by total number of shares (Outstanding)’. It will give you worth of single share in the fund.

  1. Is mutual fund and SIP same?

A: Mutual fund is a whole product while SIP is just a way of investing in a mutual fund. Let’s say Mutual fund is a car and EMI on that car is SIP. (Example is for demonstration only.) 

  1. How does mutual fund manage risks?

A: It is a product made up of different stocks and debts from diversified categories. Hence, it is likely to say every sector will not have same effects when market gets fluctuated.

  1. What is Mid-term in mutual fund and is it good to invest in the same?

A: Four to six years of investment plan is called mid-term investment. If you are going for mid-term investment then capital appreciation should be your prime motive.

  1. What is the simple way to understand ‘capital appreciation’ here?

A: It is a difference between price of buying and selling the investment or portfolio.

 

  1. Is there any risk-free mutual fund?

A: Majority of financial instruments have high or low effects from market fluctuations. Hence, there is nothing like risk-free mutual fund.

  1. Can anyone manage mutual fund?

A: It is all about expertise and experience when it comes to hard earned money management. And, managers possess certain skills of managing the investments. It is all about experience and knowing how business gets done.

  1. As an investor, how can I measure my risk profile? Is it really important?

A: It is an important to know your own risk profile before you start investing. You should ask certain questions to yourself such as what is your purpose? Why do you want to invest in the particular scheme? What are your expected returns? What is your risk bearing capacity? Answers of all these questions would determine your risk profile.

  1. Is there any central authority to regularize mutual funds?

A: SEBI is the one, which regulates the mutual funds in India. All those who are involved in mutual funds such as custodians, asset management companies etc; need to follow the roles and responsibilities laid down by the SEBI. 

  1. Please highlight some of the common mistakes made by mutual fund investors.

A: Investors might make mistakes irrespective of products they are investing in. (a) when you liquidate your funds too early. (b) You simply drawn by market rumors and take off your investment. (c) Not knowing the right amount to invest in particular fund. (d) Enter into the market without any basic information about funds. (e) Wrong assessment of risks related to mutual funds leads to loss making investment decision.

  1. Why does KYC required in mutual fund investment?

A: KYC is required for everything, from opening a bank account to get a new SIM card. It is a simple process to know about customers. PAN and Aadhar Card details are part of ‘Know Your Customer’ process.

  1. What is the base of getting returns from mutual funds?

A: It is an appreciation value of an investment amount. In simple words, it is the difference between buying and selling of that particular investment.

  1. Which is less risky, long term or short term mutual fund?

A: it all depends on the selection of the portfolio and investor’s risk profile. Long term might help you to manage the risk over the period of time but it is not risk free either.

  1. Are there any hidden charges when it comes to investment in mutual fund? 

A: There are many services that investors may require to avail and those would cost you certain amount to pay as a commission. But there are strict regulations as it is not allowed to charge above certain percentage. SEBI is prime authority to decide upon that. You should always read offer document which contains information about the maximum charges to be allowed.

  1. What should be my expected returns from the mutual fund?

A: It is highly subjective. Mutual funds have different categories and each of them have different factors attached. Hence, it is highly dependent on your choice of schemes and your own ability to understand the scheme.

  1. What is procedure to withdraw money from mutual funds?

A: Mutual fund is one of the high liquid investments. Open end investment schemes allow you to withdraw anytime, but in case of you are into ‘saving schemes’ (ELSS) where lock in period may be three years, and then you might have to pay some load.

  1. What do you mean by ‘Load’ here?

A: When you sale or exit from the mutual funds before some prescribed time, you may need to pay some amount. The maximum amount that can be charged as load is also defined by the mutual fund regulator in India (SEBI).

  1. Can I get dividend on mutual funds?

A: Yes, when there is a profit from sale of securities in its particular portfolio. Dividend can be declared on the face value of the scheme.   

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