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FAQ - Mutual Fund

Q What is a Mutual Fund ?
A Mutual Fund is a pool of money collected from various individuals/ entities for the purpose of investing in stocks/bonds/ or other assets.

Q What is Net Asset Value (NAV) of a Mutual Fund ?
The corpus of a Mutual Fund is broken up into a number of units. The value of each of these units (calculated daily as the total value of fund divided by the number of units) is known as the NAV of the fund.
Q What are the various structures of Mutual Funds ?
Mutual funds are either Open ended or Closed ended. By this we mean the following:
1.Open Ended Scheme: An open ended fund is open for purchase and sale of its units at NAV related prices, throughout the year.
2.Closed Ended Scheme: In a closed ended mutual fund, one can invest in the fund at the time of the initial launch or purchase it later over the stock exchanges on which it is listed. Similarly, it can also be sold over the exchange. These schemes do not allow sale purchase on a continuous basis. Sometimes, the scheme also purchases its units, and then the units can be tendered by the customer.
3.Interval schemes: Schemes which combine the features of open-ended and closed-ended mutual funds are called Interval schemes.

Q What are the various types of mutual funds ?
The broad categorization of mutual funds is as follows:
1.Equity Fund
2.Debt Fund
3.Balanced Fund

1.Equity funds invest mostly into equities. Further classification based upon investment objectives is as follows:
a.Diversified Equity Funds
b.Mid Cap Funds
c.Sector specific funds
d.Tax Savings Funds (ELSS)

2.Debt funds invest mostly in debt papers issued by Government authorities, private companies, banks and financial institutions. Debt funds are further classified as:
a.Gilt Funds
b.Income Funds
c.Monthly Income Plan (MIP)
d.Short Term Plans (STPs)
e.Liquid Funds

3.Balanced Funds: They invest in both equity and debt. They aim to provide investors with both growth (through equity) and stability (through debt).

Q What are the various options in a mutual fund ?
a.Growth Option: Dividend is not paid, and investor realizes only capital appreciation on NAV
b.Dividend Payout option: Dividends are paid out and NAV is reduced to the extent of the dividend.
c.Dividend Re-investment option: Here the dividend declared is re-invested in the open ended scheme by purchase of additional units in the same scheme.

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