Category: Mutual Funds

What is an Open-Ended Mutual Fund & How to Invest in it?

Ever wonder how you can make your money work for you and have liquidity? Well, open-ended mutual funds might be one solution to your issue. Open-ended mutual funds offer you the freedom to buy and sell shares at any time, giving you better control over your financial journey. But how do they work?

In this blog, we will discuss the basics of open-ended mutual funds, their advantages and disadvantages, and how they differ from close-ended mutual funds.

What are Open-Ended Mutual Funds?

An open-ended mutual fund is a pool of money invested in different securities, such as stocks, bonds, or other securities, on behalf of various individual investors. Unlike closed-ended funds, these mutual funds do not have a fixed number of shares, and investors can buy or sell shares at any time based on net asset value. This flexibility allows investors to enter and exit the fund according to their investment goals.

These funds are managed by professional fund managers who make investment decisions to achieve the fund’s objectives. Open-ended mutual funds can be used to implement various investment strategies, making them suitable for investors with different risk appetites and financial goals. Their liquidity and diversification help the investor build a robust portfolio while having access to his invested capital when needed.

How Do Open-Ended Mutual Funds Work in India?

Open Ended mutual funds follow the below process:

1. Investment Pooling: Investors invest in the mutual fund by adding money to the mutual fund’s investment pool. Each investor’s money is combined with money from the other investors to form a corpus or a pool of money.

2. Portfolio Management: The fund managers invest the pooled money in a diversified portfolio of stocks, bonds, and other securities based on the fund’s investment objectives.

3. Net Asset Value Calculation: The NAV of the fund is computed on a daily basis. It represents the net asset value of a fund per unit after accounting for its liabilities. The NAV is used to calculate the price at which buying or redemption of units takes place.

4. Buying and Redeeming Units: Investors buy or redeem the fund’s units at the price set by the NAV.

5. Dividends and Distributions: Any income in the form of dividends or interest is distributed among investors and can be reinvested to buy additional units.

6. Performance Monitoring: The fund manager continuously monitors the fund’s performance and rebalances the portfolio according to the fund objectives. The investors may monitor the fund’s performance through various reports and updates.

In India, open-ended mutual funds fall under the purview of the Securities and Exchange Board of India (SEBI), which assures transparency and protection of investors.

How to Invest in Open-Ended Mutual Funds?

Investors can invest in an open-ended mutual fund in two ways:

During the NFO period: Investors can invest during the New Fund Offer (NFO) period and are allotted units based on par value or face value.
After the NFO period: Investors can buy units of open-ended mutual funds at NAV after the NFO period.

Moreover, an investor can redeem mutual fund units at NAV at any time. However, ELSS is an exception as it has a lock-in period of three years, after which the investor can sell the units just like any other open-ended scheme.

Read Also: History of Mutual Funds in India

Advantages of Open-Ended Mutual Funds

The advantages of open-ended mutual funds are:

Liquidity: There is a high level of liquidity because investors can purchase or redeem units at the NAV on any business day.
Diversification: It pools money from many small investors to form a diversified portfolio, reducing the investment risk of individual investments.
Professional Management: Professional fund managers invest in pooled funds, which is beneficial for people who do not have much time or expertise in making investment decisions.
Regular Updates: Since NAV is calculated on a daily basis, investors get regular updates about their investments.
Flexibility: The investors can invest a small amount of money periodically or even make a lump sum investment. This makes open-ended mutual funds suitable for various kinds of financial goals.

Disadvantages of Open-Ended Mutual Funds

Disadvantages of open-ended mutual funds are:

Market Risk: The value of investments in open-ended mutual funds may vary with market conditions, which can result in potential losses.
Management Fees: Mutual funds charge management fees, which reduces returns.
No Control Over Individual Investments: The investor has no say in the selection of securities or any other investment decision.
Potential for Lower Returns: Depending on the fund’s strategy and the prevailing market conditions, returns may be lower compared to direct investment in individual securities.
Redemption Pressure: Open-ended mutual funds must maintain a cash reserve to meet redemption requests, which reduces the overall returns.

Difference Between Open-Ended and Close-Ended Mutual Funds

Parameters	Open-Ended Mutual Funds	Closed-Ended Mutual Funds
Buy and Redeem	Shares can be bought or redeemed at NAV on any business day.	Investors can subscribe to close-ended mutual funds only during the NFO period or can buy and sell shares on the stock exchange.
Liquidity	Open-ended mutual funds have high liquidity.	Close-ended mutual funds have low liquidity.
Fund Size	The fund size varies because investors can invest or redeem shares at any time.	The fund size is fixed and remains constant throughout its life.
Pricing	Price is based on the Net Asset Value (NAV).	Price is based on the demand and supply of units traded on the stock exchange.
Ways to Invest	Investors can invest in open-ended mutual funds via SIP or make a lump sum investment.	Investors can invest only lump sum amounts in close-ended mutual funds.

Conclusion

In summary, open-ended mutual funds provide flexibility, liquidity, and professional management and, hence, are an apt solution for investors seeking diversification and easy redemptions. On the other hand, investors pay management fees and are exposed to market risks. The closed-ended mutual funds have fixed fund sizes with lower liquidity. Knowing the differences helps investors select funds according to their financial goals. It is advised to consult a financial advisor before investing.

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Frequently Asked Questions (FAQs)

How frequently does an open-ended mutual fund update its NAV?
The NAV is calculated and updated daily, reflecting the current value of the fund’s portfolio.
Do open-ended mutual funds offer diversification?
Yes, they invest in a diversified portfolio of assets, reducing the risk associated with investment in a single security.
Can I redeem my investment from an open-ended mutual fund at any time?
Yes, you can redeem your units at the current NAV.
How are open-ended mutual funds regulated in India?
Open-ended mutual funds are regulated by the Securities and Exchange Board of India, ensuring transparent operations and the safety of investor capital.
Are open-ended mutual funds suitable for a short-term investment horizon?
Open-ended mutual funds are suitable for a short-term investment horizon as they have high liquidity. However, inventors must assess the fund’s investment objectives and strategy before investing.

September 23, 2024

Registrar And Transfer Agent: Definition, Roles, And Responsibilities

Are you a mutual fund investor? If yes, then have you ever wondered how asset management firms (AMCs) manage such a high volume of transactions daily, and how they plan to maintain an archive of all investors, including contact information? RTA, or Registrar and Transfer Agent, oversees the same, making the procedure a lot easier for AMCs.

In this blog, we will cover the meaning of Registrar and Transfer Agents (RTAs) in the mutual funds world and all the services they offer.

What is Registrar and Transfer Agent

Registrar and Transfer Agents, or RTAs, are financial entities that assist asset management companies (AMCs) in keeping track of ownership of mutual fund units. In simple terms, they help companies in record maintenance and typically serve as a middleman between investors and AMCs or securities issuers. RTAs offer services across the country via their digital platform and are registered with the market regulator, i.e. Securities and Exchange Board of India.

Roles and Responsibilities of RTA

There are various critical roles and responsibilities to be fulfilled by RTAs, a few of which are mentioned below:

Maintenance of Records – RTAs are the sole entities responsible for maintaining records of investors or unit holders, including names, addresses, phone numbers, and other relevant information.
Recording of Transactions – RTAs maintain a record of all securities transferred from one investor to another.
Distribution of Dividend – After receiving payout details from asset management companies, RTAs ensure that the dividends are accurately distributed to the respective unit holders of a mutual fund.
Regulatory Compliance – RTAs ensure full adherence to the regulations set by our regulator, i.e., the Securities and Exchange Board of India (SEBI).

Services Provided to Asset Management Companies

The following are different services provided by RTA to the AMCs:

KYC Verification: One of the primary services is investor KYC verification to comply with SEBI regulations.
Record Maintenance: RTAs keep up-to-date records of each investor’s contact details, including address and ownership information.
Fund Accounting: RTAs assist AMCs with accurate NAV computation and ensure investors receive the correct investment value.
Regulatory Compliance: Helping AMCs adhere to SEBI’s regulatory standards.
Delivery of units: Ensuring the proper and timely delivery of mutual fund units to investors is one of the RTA’s most critical responsibilities.

Services Provided to Mutual Fund Investors

RTAs offer multiple services to the mutual fund investors. Such as:

Transactions – RTAs facilitate mutual fund transactions via online platforms, enabling operations such as redemption, switching, and more.
Statement of Accounts – Additionally, RTAs provide mutual funds investors with a consolidated account statement that presents a comprehensive snapshot of all the mutual fund holdings.
Additional Requests – Through the online portal of RTAs, investors can submit various requests, such as cancellation of SIPs, STP, or SWP, updating bank account details, nomination changes, and much more.
Dividend Distribution – RTAs manage the processing and delivery of dividends to the unitholders of mutual funds.

Services Provided to Alternative Investment Funds (AIFs)

RTAs provide services to alternative investment funds (AIFs) as well. Below mentioned are some of the key services:

Client Onboarding: RTAs assist AIFs in onboarding new clients by verifying their eligibility which includes multiple compliance works such as KYC verification.
Record Maintenance: They maintain comprehensive investor records for AIFs, including details on holdings, invested capital, dividends, capital gains, and more.
Regulatory Compliance: RTAs help AIFs meet all SEBI-mandated requirements and prepare and submit necessary regulatory reports from time to time.

Did You Know?

As of 30 August 2024, there are 321 RTAs on Central Depository Services Limited (CDSL) and 97 RTAs on National Securities Depository Limited (NSDL). CDSL and NSDL are two government-registered depositories in India.

Charges by RTAs

The RTAs levy various charges on companies for providing their services. A few of these are mentioned below:

Transaction-Based Charges – These charges are based on transactions done by the investors, such as purchases and redemptions.
Asset-Based Charges – This fee is determined on the basis of assets under management (AUM) of the companies.
Maintenance Fees – This is an annual fixed fee for keeping the records up to date of asset management companies.
Dividend Fees – This charge is levied for processing and delivering the dividends to the unitholders of mutual funds.
Compliance Fees – RTAs levy a compliance cost for providing services such as KYC verification, anti-money laundering documentation, and other compliance related tasks.

Remember that the investors bear all these costs, because eventually all fees or charges levied by the RTAs are often included in the total expense ratio (TER) of mutual funds.

Conclusion

In summation, Registrars and Transfer Agents (RTAs) play a crucial role for asset management firms because they take all the responsibility of maintaining investor records, managing transaction data, facilitating new investor onboarding, compliance work, and much more.

Further, they also offer their services to Alternative Investment Funds (AIFs) and Portfolio Management Service (PMS) Companies.

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Frequently Asked Questions (FAQs)

Can I directly contact the RTA for my investment-related issues?
Yes, if an investor has any questions related to their investment in mutual funds, they can speak with the relevant RTA directly.
How can I check which mutual funds are managed by which RTA?
You can easily know the RTA of your mutual fund by checking the account statements sent by the AMCs. Alternatively, visit the AMC website and navigate to the Investor or Contact Us section to find the RTA details.
What should I do if RTA does not resolve my complaint?
One can directly complain to RTA via their customer service. In case no satisfactory resolution is provided, one can file a complaint with SEBI via their SCORES online platform.
What is the function of the Registrar and Transfer Agent in the mutual fund industry?
RTAs keep a track of transaction records and investors information. In simple terms, they provide record maintenance services to the AMCs. Apart from this, they also ensure that investors receive appropriate units for their investments.
Who is the regulating authority for the Registrar and Transfer Agents (RTAs)?
The Securities and Exchange Board of India oversees the Registrar and Transfer Agents.

September 14, 2024

Mutual Fund vs PMS: Which is Better?

After putting in a lot of effort, you may have some capital left after paying for all your expenditures. However, one must be cautious when it comes to investing your assets. Nowadays, mutual funds and portfolio management services (PMS) are the most popular investment options available to investors, but do you know how to choose the right one for you?

In this blog, we provide information about mutual funds and PMS and the approach an investor must take to choose between them.

Overview of Mutual Fund

A mutual fund is a type of financial vehicle that pools the capital of several investors with similar investment goals or objectives. The pooled capital is invested in various asset classes, including equities, bonds, commodities, etc., by the fund managers, who are professionals in this field. After deducting expenses and fees, the investor gets the return on their investment. An asset management company, or AMC, is the organization in charge of this procedure.

In India, mutual funds can be categorized based on asset classes, financial goals and structure. There are four types of mutual funds in India based on asset class-

Equity Mutual Fund – Due to its vulnerability to fluctuations in the market, this specific mutual fund type is riskier than others because it typically invests in stocks or equities.
Debt Mutual Fund – Investors who invest in these funds are risk-averse because they invest in fixed-income securities such as government bonds, corporate bonds, and other fixed-income securities.
Hybrid Fund – This fund invests in both debt and equity. The portfolio of hybrid funds will have some allocation to debt to deliver stable and predictable returns, along with some equity allocation to achieve capital appreciation.
Money Market Fund – This type of mutual fund invests in low-risk money market instruments, such as treasury bills and commercial paper, with maturities less than a year.

Overview of Portfolio Management Services

Financial institutions offer portfolio management services or PMS. Investors may purchase this product, and a group of experienced fund managers will use their expertise to determine which asset classes to invest in.

Individuals typically set aside a percentage of their capital for investments, but if they don’t have the investing knowledge, they may not be able to invest it properly. Such investors can invest in portfolio management services (PMS) companies. Investment professionals manage the portfolio according to the client’s risk profile, investment objectives, and preferences. In exchange for these services, investment managers charge fees.

Types of portfolio management services are:

Discretionary PMS– Under this category of portfolio management services, the portfolio managers make all investment-related decisions on behalf of the client. Fund managers are not required to consult with investors before making investment decisions. Most customers select this kind of service.
Non-discretionary PMS– In this type of service, the fund manager needs the client’s approval before investing. The investment team of PMS provides financial advice to the client, who ultimately chooses whether or not to take it.

Difference Between Mutual Funds and PMS

Particular	Mutual Fund	PMS
Minimum Investment Amount	In mutual funds, the minimum investment amount starts from INR 100.	As per SEBI, a minimum investment amount of INR 50 Lakhs is required for PMS.
Customisation	A mutual fund does not allow investors to customize their portfolios.	PMS allows investors to customize portfolios according to their preferences.
Ownership of Assets	Investors don’t directly own underlying assets.	The investor has direct ownership of underlying securities.
Charges	Mutual funds have nominal fees compared to PMS, which generally have higher fees.	PMS has higher fees than mutual funds.
Risk	Mutual funds are suitable for investors with low-risk profiles.	It is typically ideal for high-risk investors.
Transparency	In mutual funds, investors can only track the performance of funds.	Investors of mutual funds can track and view every trade made in their accounts.

Factors to Consider Before Investing in Mutual Funds and PMS

The various factors to be considered before investing in mutual funds and PMS are as follows-

Risk Profile – The investor’s risk tolerance will determine whether they choose a mutual fund or PMS as their investment option. If investors are ready to take high risks, they should choose PMS.
Capital – If an investor has a substantial amount of money to invest, they may choose to opt for portfolio management services (PMS). Investors with a small capital to invest can choose mutual funds.
Expense Ratio – Mutual funds investments have a relatively lower expense ratio than PMS.
Return Potential – PMS generally offer higher potential returns than mutual funds. Hence, investors seeking better returns may invest in PMS instead of mutual funds.
Liquidity – Generally, PMS have longer lock-in periods than mutual funds.

Read Also: Types of Mutual Funds in India

Conclusion

In conclusion, there are advantages and disadvantages to investing in PMS and mutual funds. If investors want personalized investment services and have a sizable amount of money to invest, they should choose PMS. Investors should consider mutual funds if they have a lower initial investment amount. Investors should consult a financial advisor before investing.

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Frequently Asked Questions (FAQs)

What is the minimum investment amount required to open a PMS account?
The SEBI guideline states that a minimum investment of INR 50 lakhs is required to open a PMS account.
Which is better: PMS or Mutual Fund?
Mutual funds are suitable for individuals with a low-risk tolerance and a small amount to invest, while PMS is suitable for investors with a high-risk tolerance who have at least INR 50 lakh to invest.
Does PMS have exit loads?
Indeed, exit loads for certain portfolio management service companies typically range from 1% to 3%.
How are the profits from PMS taxed?
Profits earned by the PMS are subject to capital gains tax, and the tax rate varies according to the asset’s holding period.
Can an NRI invest in PMS in India?
NRIs can invest in PMS in India if they follow FEMA regulations and other compliance requirements.

August 28, 2024

Is Your Mutual Fund Investment Safe?

As a novice investor who has recently begun investing in mutual funds, you may be afraid after learning about a mutual fund investment issue faced by an investor while investing via a famous broker. However, your investments in mutual funds are safe as SEBI has put several restrictions in place to protect investors’ interests.

Read our blog to learn how your mutual fund investments are safe from fraud.

Role of SEBI and AMFI

The mutual fund industry in India is currently valued at 61 lakh crore with over 19 crore folios. The Securities and Exchange Board of India is a government organization overseeing the smooth operation of the capital market and regulates mutual funds in India. In addition to the 1996 mutual fund legislation, SEBI has released several guidelines to safeguard investor’s interests.

The Association of Mutual Funds in India (AMFI) is a statutory entity that oversees asset management companies, in addition to SEBI, publishes a code of conduct for participating entities and handles investor complaints.

Modes to Hold Mutual Fund Units

Investment in mutual funds can be held in two different modes:

SOA Mode

The Statement of Accounts, or SOA, is the conventional way to hold mutual fund units. With this approach, the units are kept in a statement form that the asset management business issues periodically. The statement includes information on the folio number, transaction history, and other details. SOA is mailed to the registered address of the investor and is useful for those who prefer physical records.

Demat Mode

An investor must have a Demat account with a depository participant, such as NSDL or CDSL, to hold mutual fund units in demat form. Mutual fund units are stored electronically in a single demat account, much like your other investments, like equities and bonds. This enables investors to track all of their assets in one location.

Difference Between SOA and Demat Mode

Particular	SOA	Demat
Mode of Holdings	Mutual fund units are kept in statement form.	Mutual fund units are held in electronic form in a demat account.
Accessibility	Under this method of holding, investors must interact with AMC or Registrar.	Investors are required to deal with a broker.
Fees	No additional charges apply for holding units of mutual funds in SOA form.	AMC is required to be paid along with transaction charges, brokerage, etc.
Transaction Mode	The transaction orders of mutual funds units can be placed directly with AMC through an online platform and physical forms.	Transaction orders can only be placed through online platforms.
Nominations	Transfer of units involves a lengthy and separate process for each AMC.	The method of nomination and transfer is easy and can be managed through a demat account.

An investor filed a complaint against a famous broker, claiming that the broker had not invested in a mutual fund even though it had deducted money from his account. The app generated a false folio number and also removed the investment details from the dashboard.

Clarification by the Broker: The broker released a formal statement on the matter, claiming that there has been no withdrawal of funds from the customer’s account and no transaction took place. The broker acknowledged that the folio was incorrectly reflected on the customer’s dashboard. The broker credited the claimed amount back to the customer’s account afterward.

How to Safeguard From Fraudulent Activities in Mutual Funds?

It is your responsibility as an investor to safeguard yourself against any fraudulent activity. There are several ways to achieve this:

Online Portals – If you are an online investor, you should only invest via the Asset Management Company’s official website and mobile application.
MF Central Platforms – A software called MF Central, developed by two significant RTAs (Registrar and Transfer Agency), CAMS and Kfintech, allows users to manage their investment portfolios by viewing all of their mutual fund investments in a unified way and updating information across all mutual fund folios.
Consolidated Account Statement – Consolidated Account Statements are useful for investors who have invested in several asset management firms. Investors can stay up to date on their portfolio holdings by generating a monthly CAS statement using CAMS and NSDL.
Grievances – Investors can use SCORES to raise their complaints to SEBI and receive a prompt resolution to their problems.

Conclusion

In summary, investing and thoughtful portfolio construction are important components of financial planning, but proactive measures to safeguard your assets against risks are also necessary. One should take several steps to lower the risk of falling victim to fraud. Investors must always invest through official and verified platforms to protect against fraud. An investor should consult with a financial advisor before investing.

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Frequently Asked Questions (FAQs)

Is it safe to invest in mutual funds using online platforms?
Yes, several online platforms let investors purchase mutual funds. However, as an investor, you must thoroughly investigate the platform before investing to ensure it is official.
Does SEBI govern MF Central?
In September 2021, two RTAs, CAMS and K-Fintech, developed the website MF Central in compliance with a directive from SEBI.
Are there any charges for holding mutual funds in demat form?
While owning a demat mutual fund is free, investors must pay annual maintenance fees and other costs to maintain an active demat account.
What is the full form of SOA in Mutual Funds?
SOA stands for Statement of Accounts, which is a document provided by asset management firms to investors, giving them information about their assets and transactions.
How many nominees can I make in one mutual fund folio?
An investor can nominate up to 3 people for one mutual fund folio.

August 16, 2024

How to Check Mutual Fund Status with Folio Number?

You can see this trend of number identification everywhere, like Aadhaar, PAN card, and Passport. Banks provide an account number to identify their customers when they open an account with that bank; similarly, when you invest in mutual funds through an AMC, you are assigned an identity number in mutual funds, known as a folio number.

In this blog, we will share information about folio number and its benefits.

What is a Folio Number?

A unique number, called a folio number, is assigned to investors who invest through mutual funds. An investor uses this number to track his/her mutual fund investment account. The folio number also helps monitor an investor’s activities, such as buying, selling, dividends, and other associated activities. In principle, the folio number helps in the seamless and effective management of investments.

How do You Find Your Folio Number?

Generally, an investor can find his/her folio number in three ways.

From your fund account statement – AMC will provide you with your mutual fund account statement. In the case of SIPs, this statement is issued to you every month. You can find your folio number in the mutual fund account statement.
From Consolidated Account Statement – These are documents showing individual total investments under several folio numbers of different AMCs. Consolidated account statements are issued by Registrars like CAMS Online and KFintech.
From the Registrar’s website – You can also get your folio number from the Registrar’s website or their branch office. However, you must first prove that you are a legitimate owner of the folio. Nowadays, fund companies also provide the facility wherein you can contact the Registrar’s call center and get your folio number.

Read Also: How to Cancel Mutual Fund SIP?

How to Use Folio Number to Check Mutual Funds Status?

Method 1 – Check Status Online

An investor can sign into AMC’s website or apps, and with the help of a folio number, the investor can access the details regarding mutual fund transaction history, balance, etc.

Method 2 – Check Status by contacting AMC customer care

If you find the above method burdensome, you may directly contact your AMC through their customer care number available online, visit their office, or even email customer care to check mutual fund status by folio number. You must have your PAN number and other details handy for verification.

Method 3 – Check status through the Consolidated Account Statement

Investors receive periodic Consolidated Accounts Statements from Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). If you are a mutual fund investor, they provide you with folio-wise mutual fund status, performance, and value of your investment.

Method 4 – Contacting Broker

If you invest your money in Mutual Funds through a broker, you may also contact them. These brokers, with the help of AMC, provide you with a folio number to acquire real-time mutual fund status and performance. An investor must keep documents handy while contacting the broker for verification.

Method 5 – Check the Status through the Registrar’s website

Registrars like CAMS and Karvy help investors know their mutual fund status. You just need to visit their website and register using your PAN number or registered mobile number.

Who Allocates Folio Numbers?

When you invest in a mutual fund through an AMC, the AMC assigns you a folio number to your investment. Each AMC assigns its own folio number to investors for the mutual funds managed by that AMC. When you make your first contribution to the fund you are investing in, a folio number gets generated for you by the fund house or AMC.

If you have more than one share of the same mutual fund, the fund house gives you only one folio number. If an investor invests in a scheme provided by a different AMC, then the investor must create a new folio number.

Advantages of Folio Number

Now, let’s delve into the benefits of a folio number.

Accessing the consolidated view – You can approach all schemes with a single folio number through a single statement in which all the details of your investment are also mentioned along with AMC.
Tracking of investments – Through the folio number, investors track their mutual fund investments. You can get your statement of any particular period’s investment and quickly know how many units you hold in a fund.
Helps in Easy Redemption – Investors must mention or give a folio number while redeeming their mutual fund units. This makes the redemption process quick and easy.
Tax Implications – Folio number helps in accurately reporting capital gains; dividends are other income on your mutual fund investment, making the process of tax reporting easier.

Conclusion

Each mutual fund investor gets a unique folio number. Investors can also have multiple folio number investments in schemes provided by different AMCs. One practical step mutual fund investors can take toward better management of their investments is consolidating folio numbers. It would mean merging all investments under a single folio to make tracking easier. Identifying multiple folios, contacting the AMC, filling and submitting a consolidation form, and checking for changes can be quite a complex process. This will involve, among others, ease of tracking, redemption of investments, and ease of tax planning. Overall, consolidation ensures a more seamless and effective investment experience. However, it is advised to consult a financial advisor before investing.

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Frequently Asked Questions (FAQs)

What should be done in case I forget my folio number?
The folio number can be obtained by viewing the mutual fund account statement, calling the fund house, and using online platforms.
Can the status of all the mutual funds that I hold be checked using a single folio number?
If all your investments are with the same fund house, then one folio number can be used to check the status of all mutual funds. For investments under other fund houses, you need to use their respective folio numbers.
Is it safe to share my folio number online?
While the folio number is usually fairly safe, it is best to check your mutual fund status through official or known mediums, as security risks can’t be ruled out altogether.
How often should I check my mutual fund status?
It is a good idea to see your status periodically — say, monthly or quarterly. That will at least let you know how your investments are performing.
Can one folio number have multiple mutual fund schemes?
Yes, multiple mutual fund schemes could be under the same folio number.

August 8, 2024

Who Regulates Mutual Funds in India?

In the fast-paced world of finance, selecting an investment option can be difficult. Mutual funds, which combine investor funds to invest in a variety of assets, present an attractive option. It is extremely important to maintain investor confidence in the markets and ensure that these funds function responsibly and within the laws. The Securities and Exchange Board of India (SEBI) is responsible for regulating India’s securities market, including mutual funds.

This blog explores SEBI’s important function in overseeing mutual funds, protecting the interests of investors, and promoting a robust investment environment.

SEBI Regulates Mutual Funds in India

Imagine investing your hard-earned money in a mutual fund, only to later discover that it was mismanaged. Therefore, it is important to protect investors and ensure fair and transparent functioning of the industry. The Securities and Exchange Board of India (SEBI) regulates the mutual fund industry in India and performs the following functions:

SEBI establishes rules and regulations to protect the interests of investors.
The regulation aims to restrict fund managers from prioritizing their interests and upholding the integrity of the market.
SEBI regulations are designed to promote the development and expansion of the mutual fund industry.

These regulations can help authorities create and maintain a safe and trustworthy investment environment, promoting investor confidence and stability in the financial markets.

Important Regulations and Guidelines

SEBI has established several guidelines to protect investor interests and maintain transparency. Some of these are listed below:

SEBI issues a comprehensive set of regulations that outlines the framework for establishing, operating, and regulating mutual funds in India.
It outlines the norms for mutual fund advertisements and marketing materials to ensure fairness.
SEBI regulations require mutual funds to disclose their holdings periodically, which enables investors to make informed decisions.
SEBI decides the roles and responsibilities of different entities in a mutual fund, such as sponsors, trustees, AMCs, custodians, and registrar & transfer agents (RTAs).
SEBI requires mutual funds to have a strong system in place for addressing investor grievances and measures to prevent insider trading and fraudulent practices.
SEBI mandates clear and comprehensive disclosures in offer documents and regular reports. This consists of information on investment objectives, fees, risks, and performance.

Role of AMFI

The Association of Mutual Funds (AMFI) is responsible for regulating the mutual fund industry in India under the supervision of SEBI. The key roles of AMFI are listed below:

AMFI focuses on ethical conduct among AMCs and intermediaries, which helps minimize fraudulent activities and ensures fair treatment of investors.
It acts as a bridge between SEBI, the government, and the mutual fund industry.
It facilitates transparency in the mutual fund industry by implementing operational guidelines for all AMCs.
AMFI distributes important information regarding mutual funds on its websites, such as the daily NAV and the performance of all mutual fund schemes.
AMFI issues a unique ARN (AMFI Registration Number) to mutual fund distributors. ARN certifies that the distributor has knowledge of dealing in mutual funds.
It is also involved in making mutual funds popular through mass media.

History of Mutual Funds

The year 1963 marked a milestone in the history of mutual funds in India when the Unit Trust of India was established through an Act of Parliament. UTI operated under the regulatory supervision of the Reserve Bank of India.

In 1964, UTI introduced its first mutual fund scheme called “Unit Scheme 1964”. This stage laid the foundation of mutual funds, encouraging retail investors to invest in the stock market.

In 1987, The government permitted the public sector banks, Life Insurance Corporation (LIC), and General Insurance Corporation (GIC) to launch mutual fund schemes.

The arrival of new competitors intensified the competition, and investors had access to various new schemes catering to various risk profiles and financial objectives. The increased complexity resulted in the establishment of SEBI, which started overseeing the mutual fund industry, except UTI, initially.

Structure of Mutual Funds

As per SEBI, the structure of mutual funds in India is three-tiered and consists of the following entities:

Sponsor: The sponsor is the initial promoter of the mutual fund. They establish the trust and appoint a trustee and an asset management company (AMC). Sponsors are usually banks and financial institutions. For example, SBI is the promoter of the SBI mutual fund.
Trust and Trustee: The mutual fund operates as a trust. The trustee is like a legal guardian for the fund’s assets. They make sure that AMC works in the interest of the investors.
Asset Management Company (AMC): AMC manages the mutual fund. They employ fund managers who make investment decisions based on their research and invest money collected from investors into different asset classes.

In addition to the three main tiers, other participants also play a key role in the functioning of the mutual fund.

Custodian: It holds and safeguards the securities of a mutual fund.
Registrar and Transfer Agents (RTA): They keep a record of all investors, manage and provide periodic investment statements, and facilitate transactions such as purchase, and redemption of mutual fund units.
Distributors: They sell mutual fund units to investors. These intermediaries recommend mutual funds to investors and, in return, get commissions from the AMCs.

Conclusion

To wrap it up, SEBI plays an important role in regulating India’s mutual funds. Investor-centric regulations and emphasis on market integrity ensure a fair and transparent investment environment that benefits investors. Understanding SEBI’s functions and guidelines will empower investors to make better decisions and navigate the mutual fund landscape easily.

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4	What is an Open-Ended Mutual Fund & How to Invest in it?
5	How to Cancel Mutual Fund SIP?

Frequently Asked Questions (FAQs)

How do I start investing in mutual funds?
You can invest in mutual funds through an AMC or a registered distributor after completing the KYC procedure.
Who regulates mutual funds in India?
The Securities and Exchange Board of India (SEBI) regulates mutual funds in India.
What are the different types of mutual funds based on asset class?
There are various types of mutual funds depending on the asset class, such as equity funds, debt funds, and hybrid funds.
When did mutual funds start in India?
The journey of mutual funds in India began in 1963 with the establishment of the Unit Trust of India (UTI).

July 30, 2024

Long-Term Capital Gain (LTCG) Tax on Mutual Funds

People invest their hard-earned money in mutual funds to reach their financial objectives. The assets held by mutual funds generally increase in value over time, but this is not a surety. However, investors must pay taxes on the profits these investments have generated. In this blog post, we’ll discuss the idea of taxes on long-term capital gains on mutual funds.

What is LTCG Tax?

“Long-Term Capital Gain” (LTCG) is the name of the tax applied to the gains made when selling specific assets after a set amount of time. To put it simply, the government taxes gains earned on an asset known as a long-term capital gain when an investor sells it after holding it for a specific amount of time.

Features of LTCG tax on Mutual Funds

Long-term capital gains taxes have the following features:

LTCG is levied when an investor sells an asset after holding it for a certain period.
The rate of tax depends on the asset class.
The government provides certain exemptions if capital gain arises in some asset classes.
This is chargeable under the head Capital Gain of Income Tax Act.

LTCG on Mutual Funds

Mutual funds come in various forms according to asset classes, and depending on how long you keep the assets, you may have to pay long-term capital gain tax on them.

Equity Mutual Fund

Mutual funds classified as equity funds invest primarily in equity-related securities; the holding duration determines how these funds are taxed. The gain will be referred to as a long-term capital gain if the holding period exceeds 365 days. Equity mutual funds are suitable for investors willing to assume additional risks in exchange for a higher return.

Taxation on Equity Mutual Fund

As per the Income Tax Act, the long-term gains made on equity mutual funds are taxed at 10% over and above 1 lakh. Let us understand this with an example.

On January 1, 2022, an individual invested INR 1 lakh in an equity-oriented mutual fund. On February 25, 2023, he sold it for INR 2.5 lakh, realizing a gain of INR 1.5 lakh due to bullish market conditions.

The investor will not pay taxes on the INR 1 lakh, while the remaining INR 50,000 will be subject to 10% tax. The total amount to be paid as taxes is INR 5,000.

Debt Mutual Fund

Mutual funds that invest your money in fixed-income instruments like corporate bonds, government bonds, debentures, etc., are known as debt mutual funds. Debt funds, which offer lower returns than equities mutual funds, are a good option for investors not ready to take on a lot of risk. A mutual fund falls under the category of debt mutual fund if it invests less than 35% in equity.

Taxation on Debt Mutual Fund

In the past, gains on debt funds held for longer than three years were regarded as long-term and were subject to indexation. Gains realized on these funds before the three-year time frame are classified as short-term capital gains and are subject to taxation as per the individual’s tax slab rate. However, under the current law, profits on these funds are taxed according to your income tax slab, which varies from 10% to 30% depending on your income tax bracket, regardless of the holding term.

If an individual is subject to a 30% tax bracket, invested INR 1 Lakh in a debt-oriented mutual fund on January 1, 2021, and sold it on June 10, 2024, but did so after three years and realized a profit of INR 50,000, he will be liable to pay taxes based on his 30% income tax slab, which means his total tax liability will be approximately INR 15,000.

Hybrid Mutual Fund

The portfolios of hybrid mutual funds are allocated to debt and equity. Like equities and debt funds, the taxation of hybrid funds is contingent upon the holding duration and the portfolio’s asset allocation.

Equity-Oriented Hybrid Funds

The fund will be classified as an equity-oriented hybrid fund if at least 65% of its total assets are allocated to equities and equity-related securities. The gains from equity-oriented hybrid funds are subject to a 10% tax on profits exceeding one lakh Indian rupees upon sale after one year.

Debt-Oriented Hybrid Funds

A mutual fund is classified as debt-oriented if it has an equity exposure between 35% and 64%. The gains realized after 36 months will be considered long-term gains and taxed at 20% with indexation benefits.

For example, if an individual invested INR 1,00,000 in a fund with approximately 60% of its total allocation in debt and the remaining 40% in equity, the fund will be regarded as a debt-oriented hybrid fund. The investor redeemed his investment for INR 1,50,000 and realized a gain of INR 50,000 after four years.

Purchase value after indexation = Original Amount * ( Current year CII / Purchasing year CII)

Here, CII = Cost Inflation Index

Let the CII in the purchase year be 102 and the CII in the current year be 110

Purchase value after indexation = INR 1,00,000 * (110/102) = INR 1,07,843

Total realized gain with indexation benefit = INR 1,50,000 – INR 1,07,843 = INR 42,157

Tax Payable = 20% * INR 42,157 = INR 8,431

Exemptions on Capital Gains

Apart from the INR 1,00,000 exemption on equity mutual funds, an investor can also claim the following exemptions:

Section 10(38)

Under this section, the long-term capital gains resulting from the transfer of equity and equity-oriented mutual funds are exempt from taxes if the following conditions are met:

Transfer should be after October 1, 2004.
It should be a long-term asset.
Security transaction taxes are applicable.

Section 54F

The section 54F allows investors to save capital gains taxes if the proceeds of the sale of a long-term capital asset are used to buy or construct a residential house in India. The tax exemption can be claimed if:

The property must be purchased one year before or two years after the sale of mutual funds.
The property must be constructed within three years from the sale of mutual funds.

Conclusion

To sum up, an investor must be aware of the taxes applicable to the gains realized by their mutual fund investments. A long-term investment horizon has more tax benefits compared to investing for a short time. However, the investment horizon is determined by the individual’s financial conditions, so you should speak with your investment advisor before making decisions.

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4	What is TREPS & Why Mutual Funds Invest in it?
5	Debt Mutual Funds: Meaning, Types and Features

Frequently Asked Questions (FAQs)

In the case of equity mutual funds, how much long-term capital gain is tax-free?
Up to INR 1,00,000 in long-term capital gains on equity-oriented mutual funds is exempt from taxes.
Is the amount of tax automatically deducted from the profit?
No, tax is not subtracted automatically; investors must compute gain and pay tax when they file their income tax return.
What tax-saving options are available in mutual funds?
The Equity Linked Savings Scheme (ELSS) is a mutual fund investment that can assist investors save money on taxes by allowing them to claim a maximum deduction of INR 1.5 lakhs under the 80C of the Income Tax Act.
How to avoid LTCG taxes on mutual funds?
An investor can avail exemption under Section 10(38) and Section 54F.
How are debt mutual funds taxed in India?
In India, capital gains from debt mutual funds are included in your income and subject to taxation according to your income tax bracket.

July 23, 2024

What is TREPS & Why Mutual Funds Invest in it?

Financial markets today offer a wide variety of financial products to investors. There is a lot of information about financial products, and you may see something new daily. If you’ve ever looked through a mutual fund’s portfolio, you’ve probably noticed that some of your money is invested in “TREPS.” Are you certain about what it is and why practically every mutual fund has a portion allocated to it?

In this blog, we will explore TREPS, its features, advantages, disadvantages, and the reasons behind mutual funds investing in TREPS.

What is TREPS?

TREPS stands for “Tri-Party Repo Dealing System”, which facilitates the borrowing and lending of funds in a Tri-Party Repo arrangement. Tri-party repo is a type of repo contract where a third entity (other than the borrower and lender) acts as an intermediary between the two parties to facilitate services like collateral selection, payment, settlement, custody, and management during the life of the transaction. It serves as a mechanism for managing liquidity, allowing mutual funds to park their excess capital.

Why Mutual Fund Invest in TREPS?

Mutual funds invest in TREPS for various reasons listed below:

Liquidity: It provides mutual fund flexibility to manage the liquidity for daily needs, as it easily converts securities into cash to meet daily redemptions. Quick conversion into cash also allows mutual funds to take advantage of investment opportunities.
Safety: TREPS are backed by the government and are considered highly safe.
Earnings: It allows the mutual funds to earn a return on the idle cash and helps increase the overall return.
Regulatory Requirement: According to regulations, mutual funds must invest a small portion of their assets in liquid securities such as TREPS.
Portfolio Diversification: Investment in TREPS provides diversification benefits and reduces exposure to market fluctuations.

Impact of TREPS on Mutual Fund NAV

The impact of investing in TREPS on the mutual fund’s NAV depends on various factors, such as current market conditions, current portfolio mix, and the size and duration of investments in TREPS.

Investing in TREPS offers higher returns than cash, which increases net asset value (NAV).

On the other hand, a sizable investment in TREPS can result in lower returns in the long run, and thus, NAV reduces.

Key Players in Mutual Fund TREPS transaction

The key players involved in mutual fund TREPS transactions are as follows-

Sellers: These entities initiate the transaction by selling the securities and agreeing to buy them back later.
Buyers: The buyer is a counterparty that purchases securities and earns interest.
Tri-Party Agent: These agents provide services such as collateral selection, payment, settlement, custody, and transaction management. They are critical in reducing counterparty risk.
Custodian: The custodian stores the securities, ensures their safety, and makes them available at the time of settlement. Its role is usually combined with that of a tri-party agent.
Clearing Corporation: CCIL (Clearing Corporation of India Limited) serves as a clearing house, ensuring that all the executed trades are settled properly and maintaining accounts for all members.
Regulatory Bodies: The regulatory bodies such as SEBI (Securities and Exchange Board of India) set guidelines to protect the investor’s interest.

Advantages of TREPS

TREPS offers the following advantages to its investors:

A mutual fund holds some cash to meet redemption requests. Instead of holding cash, they invest in TREPS as they are highly liquid.
It also allows mutual funds to earn additional income, increasing the overall yield of the portfolio.
Through TREPS, mutual funds can reduce the volatility of a portfolio.
It allows them to manage their cash flows efficiently and act actively on market opportunities.
TREPS is considered a risk-free investment option as the government backs it.

Disadvantages of TREPS

Disadvantages of TREPS are:

Investment in TREPS offers lower returns when compared with other opportunities available in the market.
The involvement of a third party increases the complexity of the transaction, which also increases its cost.
Most mutual funds have investments in TREPS, eventually leading to the concentration of risk.
TREPS are subject to market risk due to changes in interest rates, which can affect the return of mutual funds.

Conclusion

In conclusion, investing in TREPS offers mutual funds a safe, flexible approach to managing capital and boosting portfolio return while preserving adequate liquidity. They also have a positive impact on the mutual fund NAV in the short term, but a longer investment horizon can result in lower returns and negatively impact the NAV.

TREPS are affected by interest rate changes and often offer lower returns than other asset classes. Speak with your investment advisor if you intend to invest in mutual funds.

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4	What is an Open-Ended Mutual Fund & How to Invest in it?
5	How to Cancel Mutual Fund SIP?

Frequently Asked Questions (FAQs)

Who do mutual funds put their money in TREPS?
Mutual funds must place their assets in liquid securities like TREPS to comply with SEBI regulations requiring them to have a certain amount of cash on hand to fulfill investor redemption requests.
What does TREPS stand for?
TREPS stands for Tri-Party Repo Dealing System.
Who can participate in TREPS?
Any institutional investor, including banks, mutual funds, etc., is eligible to invest in TREPS if they meet the regulatory compliance guidelines provided by SEBI and have the required infrastructure.
Is it safe to invest in TREPS?
Yes, it is safe to invest in TREPS as the government backs the underlying assets.
Does TREPS generate higher returns than traditional savings accounts?
TREPS investments have the potential to yield larger returns than traditional savings accounts, which is why mutual funds find them attractive.

July 17, 2024

History of Mutual Funds in India

The Mutual Fund industry has been growing rapidly for the last 5 years. According to the Association of Mutual Funds in India (AMFI), the assets under management (AUM) have increased by 35% from 39.42 lakh crore in 2023 to 53.4 lakh crore in 2024. This trend can be attributed to the younger generation of India, which wishes to achieve its financial goals through investments in mutual funds.

But the popularity mutual funds enjoy today wasn’t the case a few decades back. Therefore, in today’s blog, we will discuss the history of mutual funds in India, the future prospects of the mutual fund industry, and their advantages and disadvantages.

What are Mutual Funds in India?

Mutual funds are pooled investments of many investors that are professionally managed. A professional fund manager uses his/ her expertise to invest those funds in a particular proportion into different asset classes such as equity, debt, commodities, etc. The investment strategy must be consistent with the strategy mentioned in the prospectus.

Mutual funds are best for those investors who lack the knowledge and time to analyze market trends. However, a particular fee is charged to manage these funds, known as the expense ratio.

History of Mutual Fund

The first mutual fund in India was introduced in 1963, with the formation of the Unit Trust of India due to the combined efforts of the Government of India and the Reserve Bank of India. The primary objective of introducing mutual funds in India was to encourage savings and investing habits in the general public to improve economic growth and increase the participation of investors in the economy. UTI is the oldest mutual fund in India and was the only mutual fund until 1993.

This history of mutual funds could be broadly classified into five major phases:

First Phase (1964-1987)

Unit Trust of India was the first mutual fund of India incorporated by an Act of Parliament in 1963 and was under the control of the Reserve Bank of India. UTI launched the first mutual fund scheme called “Unit Scheme 1964” in 1964. In 1978, the Industrial Development Bank of India (IDBI) took over the responsibility of regulating the UTI. Near the end of the first phase, UTI had Rs. 6,700 crores of assets under management (AUM).

Second phase (1987-1993)

In this phase, the Government of India permitted the public sector banks, Life Insurance Corporation of India (LIC), and General Insurance Corporation of India (GIC) to launch mutual fund schemes. Some of the prominent mutual funds established in this phase were:

SBI Mutual Fund
Canbank Mutual Fund
Punjab National Bank Mutual Fund

LIC and GIC established their first mutual funds in June 1989 and December 1990, respectively. Assets under management for the mutual fund industry were Rs. 47,004 crores near the end of this phase.

Third phase (1993-2003)

Before 1993, all the mutual fund corporations were introduced by public sector entities. The scenario changed in 1992 when SEBI was incorporated. After its incorporation, SEBI introduced the first set of SEBI Mutual Fund Regulations that were applicable to all mutual funds except UTI. Kothari Pioneer was the first private-sector mutual fund scheme and was registered in July 1993. Initial regulations were revised and replaced with a more comprehensive set of regulations known as SEBI (Mutual Fund) Regulation in 1996, which is currently applicable. Till 2003, there were 33 MFs with around 1,22,000 crores of assets under management.

Fourth Phase (February 2003 – April 2014)

In February 2003, UTI was split into two parts:

Specified Undertaking of the UTI Trust of India (SUUTI)
UTI Mutual Fund

This phase witnessed consolidation in the mutual fund history and numerous mergers among different private-sector funds. After the financial crisis in 2009, investors lost confidence in the mutual fund industry as most of them entered the markets at their peak. The abolition of the entry load by SEBI and the effects of the global financial crisis resulted in a period of slow growth in the AUM of the mutual fund industry in this phase.

Fifth Phase (Since May 2014)

In September 2012, SEBI introduced several measures to boost the penetration of mutual funds (MFs) in India, particularly in tier II and III cities, and align the interests of various stakeholders. These measures helped reverse the negative trends from the global financial crisis. The industry saw significant improvements post-2014, with steady inflows, a rise in assets under management (AUM), and investor folios.

The AUM crossed ₹10 trillion in May 2014, doubled to ₹20 trillion by August 2017, and reached ₹30 trillion in November 2020. By June 30, 2024, the AUM grew to ₹61.16 trillion. The impressive growth can be attributed to two factors:

Progressive measures implemented by the SEBI
Support from mutual fund distributors

Future Prospects of Mutual Funds

The future of mutual funds in India looks promising due to continued regulatory support and increasing retail participation, especially in smaller cities. The number of investor folios is expected to rise, achieving financial inclusion and investment awareness across the country.

Let’s also look at some pros and cons of investing in Mutual Funds.

Advantages of Investing in Mutual Fund

Various advantages of investing in mutual funds are:

Mutual funds offer diversification benefits as they invest in multiple securities.
The dividend earned from investing in mutual funds can be used for reinvesting.
Mutual funds offer a lump sum and SIP option.
Mutual funds are managed by professional fund managers whose expertise helps the investors to earn substantial returns.

Disadvantages of Investing in Mutual Fund

The disadvantages of investing in mutual funds are:

Many mutual funds have a high expense ratio, which reduces returns.
Mutual fund returns are not guaranteed.
Mutual funds may also impose a lock-in period, which reduces liquidity.
There is no connection between past performance and future performance of mutual fund schemes.

Conclusion

Mutual funds have proved to be a good investment opportunity for investors. They have consistently contributed to the nation’s growth and have also increased the number of participants in the financial markets. Mutual funds have made professional expertise accessible to the general public.

Affordability is one of the major criteria behind the success of mutual funds as SIP provides investors with advantages such as Rupee cost averaging, power of compounding, flexibility, etc. However, it is always advised to consult a financial advisor before investing.

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5	Mutual Fund Fees & Charges in India 2024

Frequently Asked Questions

When did private-sector mutual funds begin operations in India?
Private sector mutual funds began operations in India in 1993.
How did the introduction of Systematic Investment Plans (SIPs) influence the mutual fund industry in India?
The introduction of Systematic Investment Plans (SIPs) made it easier for individuals to invest small amounts regularly. It increases retail participation and promotes disciplined investing.
What role did technological advancements play in the growth of mutual funds in India?
Technological advancements, such as online trading platforms and mobile apps, have made it more convenient for investors to access and manage their mutual fund investments, contributing to the industry’s growth.
When did foreign mutual fund companies enter the Indian market?
Foreign mutual fund companies started entering the Indian market in 1993, following economic reforms and liberalization policies.
Why are index funds popular in India?
Index funds are popular in India as they offer investors a low-cost option to earn returns comparable to the returns of a market index.

July 15, 2024

How to Cancel Mutual Fund SIP?

Mutual fund investors often face strategic decisions, such as whether one should stop SIP temporarily or permanently. While much is said about initiating SIP investment and its benefits, the halting of SIP is rarely discussed.

In this blog, we will discuss the process of cancellation of SIP using online and offline modes, as well as the temporary vs. permanent cancellation of SIP, and understand the reasons behind cancelling SIP.

How to Cancel SIPs Online?

To cancel your mutual fund SIP (Systematic Investment Plan) online, you can follow several methods depending on how you initially set up the SIP:

1. Through the AMC (Asset Management Company) Website

Step 1: Visit the official website of the AMC managing your mutual fund.
Step 2: Log in using your credentials, such as your folio number and bank account details.
Step 3: Navigate to the section where your ongoing SIPs are listed and select the SIP you wish to cancel.
Step 4: Click on the “Cancel SIP” option and confirm your request. The cancellation process usually takes about 21 days to complete.

2. Using Online Distributor Platforms

Step 1: Log into the respective platform.
Step 2: Locate the SIP you want to cancel under the mutual funds section.
Step 3: Select the “Cancel SIP” option and confirm the cancellation.

3. Through an Agent: If an agent facilitated your SIP, contact them to request the cancellation. The agent will process the request with the AMC on your behalf.

How to Cancel SIPs Offline?

The below steps show how to cancel a mutual fund SIP offline, according to many popular websites.

Step 1. Reach out to AMC or RTA:

Go to the nearest Asset Management Company branch office managing your mutual fund or the Registrar and Transfer Agent office.
Ask for a SIP cancellation form from the office.

Step 2. Fill Out the SIP Cancellation Form:

Fill in the form with the requisite information, viz., folio number, mutual fund scheme name, bank account used for the said mutual fund, SIP amount, and the date you wish to end the SIP payments. Kindly ensure that all details are correct.

Step 3. Submit the Form:

Submit the form to the AMC branch or RTA office. The cancellation process takes approximately 14 to 21 days, though some fund houses fast-track it.

Step 4. Verify with Your Bank:

It’s also important to inform the bank to stop the automatic debit instructions relating to the SIP.

Step 5. Get Confirmation:

Once the cancellation request is processed, AMC or RTA will send a confirmation regarding the SIP cancellation.

Read Also: SIP vs Lump Sum: Which is Better?

Temporary vs Permanent Cancellation of SIP

Investors can make a decision regarding temporary vs permanent cancellation of SIP using the following table:

Temporary Cancellation	Permanent Cancellation
A temporary cancellation of a SIP would offer the investor the facility to pause contributions towards a scheme. Most of the AMCs or mutual fund platforms have the facility to pause the SIPs for 1 to 6 months. No deductions will be made from the investor’s account during this period. The SIP automatically starts again at the end of the pause period without any additional instructions from the investor’s end.	A temporary cancellation of an SIP would offer the investor the facility to pause contributions towards a scheme. Most of the AMCs or mutual fund platforms have the facility to pause the SIPs for 1 to 6 months. No deductions will be made from the investor’s account during this period. The SIP automatically starts again at the end of the pause period without any additional instructions from the investor’s end.

Temporary Cancellation

Permanent Cancellation

A temporary cancellation of a SIP would offer the investor the facility to pause contributions towards a scheme. Most of the AMCs or mutual fund platforms have the facility to pause the SIPs for 1 to 6 months. No deductions will be made from the investor’s account during this period. The SIP automatically starts again at the end of the pause period without any additional instructions from the investor’s end.

A temporary cancellation of an SIP would offer the investor the facility to pause contributions towards a scheme. Most of the AMCs or mutual fund platforms have the facility to pause the SIPs for 1 to 6 months. No deductions will be made from the investor’s account during this period. The SIP automatically starts again at the end of the pause period without any additional instructions from the investor’s end.

Pause SIP vs Stop SIP

An investor can choose to pause vs stop SIP based on the information given in the following table:

Pause SIP	Stop SIP
The decision to pause SIP is appropriate for short-term financial disturbances. It keeps the investments consistent and saves one from the hassle of restarting the SIPs later. This is ideal if the investor expects his or her financial condition to stabilize soon.	The decision to stop SIP is ideal if the fund’s underperformance continues, the investor’s goals are met, or there are significant changes in the fund’s management or strategy. It is a permanent solution, often accompanied by switching to another investment or fund.

Reasons for Canceling SIP

There could be various reasons to cancel an initiated Systematic Investment Plan:

Achievement of financial goals: An investor may be near his financial goals, such as buying a house or funding education. Now, the investor wants to realize the profits and move to safer investments so that accumulated wealth is not affected by market volatility.
Changes in mutual fund’s fundamental attributes: There could be a situation where the mutual fund changes its investment strategy, asset allocation, or management. If such changes do not align with your risk tolerance or investment goals, you should cancel your SIP and look for alternatives.
Consistent underperformance: If a mutual fund is underperforming its benchmark and peers for a considerably long period, say three years, then there must be something wrong with the management or investment strategy of the fund. Under such circumstances, cancellation of the SIP and funding better performers may be appropriate.
Mutual fund portfolio rebalancing: Investors try to build a diversified portfolio of mutual funds that invest in different asset classes. Over time, some mutual funds outperform others and exceed their target allocation. The rebalancing process could involve reducing exposure to some mutual funds to go back to the target allocation, possibly leading to the cancellation of the SIPs.
Financial emergency: Unforeseen financial disasters, such as the loss of a job or a medical emergency, may cause one to stop SIPs as money is required elsewhere. In such cases, liquidity for immediate needs may be prioritized over long-term investments.

Conclusion

Whether to pause or stop an SIP fully depends on the financial status and investment objectives of an individual. Pausing can be done in case of short-term disruption to finances, and it also has the added advantage that the investor will not have to re-activate it afresh. Permanent cancellation may have to be done in cases of prolonged underperformance or if the goal is met. Cancelling of SIP can be done conveniently online through the AMC portals/distributor platforms or offline through the offices of AMCs/RTAs. However, you must consult a financial advisor before making any investment decision.

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Frequently Asked Questions (FAQs)

What happens if I miss a SIP installment?
Missing a SIP installment may not significantly impact long-term returns. However, regular investing is recommended to benefit from rupee cost averaging.
Are there any charges for cancelling a SIP?
Most AMCs do not charge for cancelling a SIP. However, check with your specific AMC or distributor for any applicable fees or conditions.
Can I restart my SIP after pausing it?
Yes, when you pause a SIP, it automatically restarts after the pause period ends without requiring additional steps from your end.
What could be the ideal tenure to continue a SIP?
It is always advisable to invest in SIPs for the long term, for at least five years or more, to ride through market cycles for potentially higher returns.
Can I switch SIP from one mutual fund to another?
Yes, one can switch from one mutual fund scheme to another within the same AMC or even across AMCs, subject to conditions and charges.

July 15, 2024

Category: Mutual Funds

What are Open-Ended Mutual Funds?

How Do Open-Ended Mutual Funds Work in India?

How to Invest in Open-Ended Mutual Funds?

Advantages of Open-Ended Mutual Funds

Disadvantages of Open-Ended Mutual Funds

Difference Between Open-Ended and Close-Ended Mutual Funds

Conclusion

Frequently Asked Questions (FAQs)

How frequently does an open-ended mutual fund update its NAV?

Do open-ended mutual funds offer diversification?

Can I redeem my investment from an open-ended mutual fund at any time?

How are open-ended mutual funds regulated in India?

Are open-ended mutual funds suitable for a short-term investment horizon?

What is Registrar and Transfer Agent

Roles and Responsibilities of RTA

Services Provided to Asset Management Companies

Services Provided to Mutual Fund Investors

Services Provided to Alternative Investment Funds (AIFs)

Charges by RTAs

Conclusion

Frequently Asked Questions (FAQs)

Can I directly contact the RTA for my investment-related issues?

How can I check which mutual funds are managed by which RTA?

What should I do if RTA does not resolve my complaint?

What is the function of the Registrar and Transfer Agent in the mutual fund industry?

Who is the regulating authority for the Registrar and Transfer Agents (RTAs)?

Overview of Mutual Fund

Overview of Portfolio Management Services

Difference Between Mutual Funds and PMS

Factors to Consider Before Investing in Mutual Funds and PMS

Conclusion

Frequently Asked Questions (FAQs)

What is the minimum investment amount required to open a PMS account?

Which is better: PMS or Mutual Fund?

Does PMS have exit loads?

How are the profits from PMS taxed?

Can an NRI invest in PMS in India?

Role of SEBI and AMFI

Modes to Hold Mutual Fund Units

SOA Mode

Demat Mode

Difference Between SOA and Demat Mode

Event-related to Risks in Mutual Fund Investment

How to Safeguard From Fraudulent Activities in Mutual Funds?

Conclusion

Frequently Asked Questions (FAQs)

Is it safe to invest in mutual funds using online platforms?

Does SEBI govern MF Central?

Are there any charges for holding mutual funds in demat form?

What is the full form of SOA in Mutual Funds?

How many nominees can I make in one mutual fund folio?

What is a Folio Number?

How do You Find Your Folio Number?

How to Use Folio Number to Check Mutual Funds Status?

Who Allocates Folio Numbers?

Advantages of Folio Number

Conclusion

Frequently Asked Questions (FAQs)

What should be done in case I forget my folio number?

Can the status of all the mutual funds that I hold be checked using a single folio number?

Is it safe to share my folio number online?

How often should I check my mutual fund status?

Can one folio number have multiple mutual fund schemes?

SEBI Regulates Mutual Funds in India

Important Regulations and Guidelines

Role of AMFI

History of Mutual Funds

Structure of Mutual Funds

Conclusion

Frequently Asked Questions (FAQs)

How do I start investing in mutual funds?

Who regulates mutual funds in India?

What are the different types of mutual funds based on asset class?

When did mutual funds start in India?

What is LTCG Tax?

Features of LTCG tax on Mutual Funds

LTCG on Mutual Funds

Equity Mutual Fund

Taxation on Equity Mutual Fund