MUTUAL FUNDS

What is a Mutual Fund

A mutual fund is a vehicle to mobilize money from investors, to invest in different markets and securities, in line with stated investment objectives. In other words, through investment in a mutual fund, an investor can get access to equities, bonds, money market instruments and other securities, that may otherwise be unavailable to them and avail of the professional fund management services offered by an asset management company.

Benefits of Mutual Fund

1. Professional Management

Investing in the securities markets will require the investor to open and manage multiple accounts and relationships such as broking accounts, Demat accounts, and others. Mutual fund investment simplifies the process of investing and holding securities.

The fund management function is not restricted to research and selection of securities to construct a portfolio of investments, but also to take care of various administrative tasks like collection of corporate benefits (for example interest payments, dividends, rights issues, buybacks, etc.), or follow up on the same.

2. Affordable Portfolio Diversification

With diversification, an investor ensures that “all the eggs are not in the same basket”. Consequently, the investor is less likely to lose money on all the investments simultaneously. Thus, diversification helps reduce the risk in investment. 

3. Economies of Scale

The fund management function is not restricted to research and selection of securities to construct a portfolio of investments, but also to take care of various administrative tasks like collection of corporate benefits (for example interest payments, dividends, rights issues, buybacks, etc.), or follow up on the same.

4. Transparency

An investor is well served if relevant information is available on time. The availability of such information is critical for making an informed investment decision. The structure of the mutual funds and the regulations by SEBI have ensured that investors get transparency about their investments.

5. Liquidity

Investors in a mutual fund scheme can recover the market value of their investments, from the mutual fund itself. Depending on the structure of the mutual fund scheme, this would be possible, either at any time, during specific intervals, or only on the closure of the scheme.

6. Tax Benefits

Mutual funds are not liable to pay tax on the income they earn. If the same income were to be earned by the investor directly, then tax may have to be paid in the same financial year.

Classification of Mutual Funds

With a view to bringing standardization in the classification of mutual funds and ensuring the schemes are clearly distinct from one another, SEBI issued a circular on Categorization and Rationalization of Mutual Fund Schemes in 2017.

A. Equity Schemes

These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

1. Multi Cap Fund

An open-ended equity scheme investing across large-cap, mid-cap, and small-cap stocks. Vide SEBI Circular dated September 11, 2020, multi-cap funds shall be defined as those with minimum investment in equity & equity related instruments –75% of total assets in the following manner*:

• Minimum investment in equity & equity related instruments of large-cap companies – 25% of total assets
• Minimum investment in equity & equity related instruments of mid-cap companies -25% of total assets
• Minimum investment in equity & equity related instruments of small-cap companies – 25% of total assets

2. Multi Cap Fund

An open-ended equity scheme predominantly invests in large-cap stocks. The minimum investment in equity and equity-related instruments of large-cap companies shall be 80 percent of total assets.

3. Large and Mid Cap Fund

An open-ended equity scheme investing in both large-cap and mid-cap stocks. The minimum investment in equity and equity-related instruments of large-cap companies shall be 35 percent of total assets. The minimum investment in equity and equity-related instruments of mid-cap stocks shall be 35 percent of total assets.

4. Mid Cap Fund

An open-ended equity scheme predominantly investing in mid-cap stocks. The minimum investment in equity and equity-related instruments of mid-cap companies shall be 65 percent of total assets.

5. Small Cap Fund

An open-ended equity scheme predominantly invests in small-cap stocks. Minimum investment in equity and equity-related instruments of small-cap companies shall be 65 percent of total assets.

6. Dividend Yield Fund

An open-ended equity scheme predominantly invests in dividend-yielding stocks. The scheme should predominantly invest in dividend-yielding stocks. The minimum investment in equity shall be 65 percent of total assets.

7. Value Fund

A value fund is an open-ended equity scheme following a value investment strategy. Minimum investment in equity & equity-related instruments shall be 65 percent of total assets. A contra fund is an open-ended equity scheme following a contrarian investment strategy. Mutual Funds will be permitted to offer either Value fund or Contra fund.

8. Focused Fund

An open-ended equity scheme investing in a maximum of 30 stocks (the scheme needs to mention where it intends to focus, viz., multi-cap, large cap, mid cap, small cap). Minimum investment in equity & equity-related instruments shall be 65 percent of total assets.

9. Sectoral/ Thematic Savings

An open-ended equity scheme investing in a specific sector such as a bank, or power is a sectoral fund. While an open-ended equity scheme invests in line with an investment theme. For example, an infrastructure thematic fund might invest in shares of companies that are into infrastructure, construction, cement, steel, telecom, power, etc. The minimum investment in equity and equity-related instruments of a particular sector/ theme shall be 80 percent of total assets.

10. Equity Linked Savings

Open-ended equity-linked saving scheme with a statutory lock-in of 3 years and tax benefit. The minimum investment in equity and equity-related instruments shall be 80 percent of total assets (in accordance with the Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance).

11. Flexi Cap Fund

An open-ended equity scheme where the minimum investment in equity and equity-related assets is 65% of the total assets. This would be a dynamic fund where there can be investment across large-cap, mid-cap as well as small-cap stocks.

B. Debt Schemes

The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks, and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

1. Overnight Fund

​​An open-ended debt scheme investing in overnight securities. The investment is in overnight securities having a maturity of 1 day.

2. Liquid Fund

An open-ended liquid scheme whose investment is into debt and money market securities with a maturity of up to 91 days only.

3. Ultra Short Duration Fund

An open-ended ultra-short-term debt scheme investing in debt and money market instruments with Macaulay duration between 3 months and 6 months.

4. Low Duration Fund

An open-ended low-duration debt scheme investing in debt and money market instruments with Macaulay duration between 6 months and 12 months.

5. Money Market Fund

An open-ended debt scheme investing in money market instruments having maturity up to 1 year.

6. Short Duration Fund

An open-ended short-term debt scheme investing in debt and money market instruments with Macaulay duration between 1 year and 3 years.

7. Medium Duration Fund

An open-ended medium-term debt scheme investing in debt and money market instruments with Macaulay’s duration of the portfolio being between 3 years to 4 years. Portfolio Macaulay’s duration under anticipated adverse situations is 1 year to 4 years.

8. Medium to Long Duration Fund

An open-ended medium-term debt scheme investing in debt and money market instruments with Macaulay duration between 4 years and 7 years. Portfolio Macaulay duration under anticipated adverse situations is 1 year to 7 years.

9. Long Duration Fund

An open-ended debt scheme investing in debt and money market instruments with Macaulay duration greater than 7 years.

10. Dynamic Bond Fund

An open-ended dynamic debt scheme investing across duration.

11. Corporate Bond Fund

An open-ended debt scheme predominantly investing in AA+ and above-rated corporate bonds. The minimum investment in corporate bonds shall be 80 percent of total assets (only in AA+ and above rated corporate bonds).

12. Credit Risk Fund

An open-ended debt scheme investing in below highest rated corporate bonds. The minimum investment in corporate bonds shall be 65 percent of total assets (only in AA (excludes AA+ rated corporate bonds) and below rated corporate bonds).

13. Banking and PSU Fund

An open-ended debt scheme predominantly invests in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions, and Municipal Bonds. The minimum investment in such instruments should be 80 percent of total assets.

14. Gilt Fund

An open-ended debt scheme investing in government securities across maturity. The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).

15. Gilt Fund with 10-Year Constant Duration

An open-ended debt scheme investing in government securities having a constant maturity of 10 years. Minimum investment in G-secs is 80 percent of total assets such that the Macaulay duration of the portfolio is equal to 10 years.

16. Floater Fund

An open-ended debt scheme predominantly invests in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives). Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) shall be 65 percent of total assets.

C. Hybrid Schemes

As the name suggests they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. Hybrid funds are further classified as:

1. Conservative Hybrid Fund

An open-ended hybrid scheme investing predominantly in debt instruments. Investment in debt instruments shall be between 75 percent and 90 percent of total assets while investing in equity and equity instruments shall be between 10 percent and 25 percent of total assets.

2. Balanced Hybrid or Conservative Hybrid Fund

Balanced Hybrid Fund: An open-ended balanced scheme investing in equity and debt instruments. The investment in equity and equity-related instruments shall be between 40 percent and 60 percent of total assets while investment in debt instruments shall be between 40 percent and 60 percent. No arbitrage is permitted in this scheme.

Aggressive Hybrid Fund: An open-ended hybrid scheme investing predominantly in equity and equity-related instruments. Investment in equity and equity-related instruments shall be between 65 percent and 80 percent of total assets while investment in debt instruments shall be between 20 percent and 35 percent of total assets.

Mutual funds in India are permitted to offer either an Aggressive Hybrid Fund or Balanced Fund.

3. Dynamic Asset Allocation or Conservative Hybrid Fund

It is an open-ended dynamic asset allocation fund with investment in equity/debt that is managed dynamically.

4. Multi Asset Allocation Fund

An open-ended scheme investing in at least three asset classes with a minimum allocation of at least 10 percent each in all three asset classes. Foreign securities are not treated as a separate asset class in this kind of scheme.

5. Arbitrage Fund

An open-ended scheme investing in arbitrage opportunities. The minimum investment in equity and equity-related instruments shall be 65 percent of total assets.

6. Equity Savings Fund

An open-ended scheme investing in equity, arbitrage, and debt. The minimum investment in equity and equity-related instruments shall be 65 percent of total assets and the minimum investment in a debt shall be 10 percent of total assets. The minimum hedged and unhedged investment needs to be stated in the SID. Asset Allocation under defensive considerations may also be stated in the SID.

D. Solution-Oriented Schemes

Those funds which focus on a specific solution to an issue are called Solution Oriented Schemes. These can be classified as: 

1. Retirement Funds

An open-ended retirement solution-oriented scheme has a lock-in of 5 years or till retirement age (whichever is earlier). This is meant for long term planning related to acquiring a corpus for retirement.

2. Children’s Funds

An open-ended fund for investment for children having a lock-in for at least 5 years or till the child attains the age of majority (whichever is earlier). This is meant to invest to build a corpus for the child and their needs in the coming years.

E. Other Schemes

These can be classified as: 

1. Index Fund/ Exchange Traded Funds

An open-ended scheme replicating/tracking a specific index. This minimum investment in securities of a particular index (which is being replicated/ tracked) shall be 95 percent of total assets.

2. Fund of Funds (Overseas/ Domestic)

An open-ended fund of fund scheme investing in an underlying fund. The minimum investment in the underlying fund shall be 95 percent of total assets.

Clients Portfolio

Our Web Portal is www.happyfinserv.com, Happy FinServ clients can log on to the company’s exclusive portal site and access various reports:

Features Portfolio Services Online

In Mutual Fund Option following are available

1. Transaction Report – (Updated as per transaction feeds received from RTA)
2. Dividend Income Statement
3. Portfolio Summary Investment
4. Portfolio Composition Report
5. Portfolio Credit Profile
6. Profit and loss analysis. – (Updated as per transaction feeds received from RTA)

(Profit and loss Report (Detail) / Profit and loss Report (Compress) /Capital Gain Report (Detail) / Capital Gain Report (Compress) / Portfolio Details / Summary of Investments)

Important Note: Kindly note that the information available on our website is based on data files available from Registrars of Mutual Funds. There are delays/errors/and mismatches in certain cases. It is therefore important to note that before any transaction verifies the correct data as per details available from the concerned mutual Funds. In case of any discrepancy, the information as shown in the Account statement of mutual funds is considered final. We are not held responsible for any such discrepancy for reasons beyond our control.