 What
is a Mutual Fund?
Mutual Fund is essentially a mechanism
of pooling together the savings of a large number
of small investors for collective investment,
with an avowed objective of attractive yields
and capital appreciation, holding the safety and
liquidity as prime parameters.
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What
is the advantage to the economy?
- Channeling the savings
of the public
- Helps strengthen and
develop a strong capital market
- Thereby contributes
to capital formation and the growth of the economy.
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What are the advantages to the investing public?
- Professional Management
- Easy Liquidity
- Eeduction /
Diversification of Risk
- Reduction in
transaction costs
- Return Potential
- Convenience and
Flexibility
- Portfolio
Diversification
- Well Regulated
- Investor Protection
- Switchover Facility
- Low Operating Costs
- Tax Benefit
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What are the various types of schemes available
in a Mutual Fund?
Operational Classification:
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| OPEN
ENDED SCHEMES |
CLOSE
ENDED SCHEMES |
INTERVAL
SCHEMES |
| Accepts
funds from investors on continuous
basis. |
Schemes
are opened for specified time
period. |
Basically
a close ended scheme with
a peculiar feature that every
year for a specified period
(interval) it is made open.
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| Repurchase
facility available. |
Corpus
normally does not change throughout
the year. |
Prior
to and such interval the scheme
operates as close ended. |
| No
listing in the stock exchange
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Such
schemes are normally listed
in the stock exchange. Otherwise
repurchase facility provided.
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During
the said period, mutual fund
is ready to buy or sell the
units directly from or to
the investors. |
| Better
liquidity due to continuous
repurchase. |
Liquidity
normally at the time of redemption.
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| Sale
and Repurchase based on NAV
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Long
term investment strategies
depending on the life of the
scheme. |
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Market
price may be below or above
par. |
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Classification by Investment Objectives: |
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| INCOME
SCHEMES |
To
maximize the current income
is the objective. Periodical
income distribution is the
feature. Investment in low
risk securities. |
| GROWTH
SCHEMES |
To
achieve capital appreciation
is the objective. Investment
in growth oriented securities. |
| BALANCED
SCHEMES |
To
provide current income as
well as capital appreciation
is the objective. Investment
in Equity and Fixed income
securities as per the offer
document. |
| TAX
SAVING SCHEMES |
To
provide tax incentives; e.g.
Equity Linked Saving Schemes
under sec. 88 of Income Tax
Act. |
| SECTOR
FUNDS |
Investment
in securities of certain sector
of the economy. The risk is
confined to one particular
sector. Example: Information
Technology Funds – investing
only in companies dealing
in hardware, software and
other related activities. |
| INDEX
FUNDS |
The
objective is to match the
performance of the stock market
by tracking an Index that
represents the overall market.
The investment is in a diversified
market index. |
| MONEY
MARKET FUNDS |
Investment
is in securities of short
-term nature, which generally
means securities of less than
one- year maturity. The major
advantages are the Liquidity
and safety of principal that
the investors can normally
expect from short-term investments.
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| GILT
FUNDS |
Investment
is in government securities.
Since the issuer is the Government
of India / State, these funds
have little risk of default
as there is no credit risk
involved. |
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Classification by Geography:
DOMESTIC MUTUAL FUND
SCHEMES:
Schemes launched
with a view to mobilize savings of the citizens
of the country.
OFF SHORE SCHEMES:
Mutual fund schemes
launched with a view to mobilize the savings
of the foreign countries for the investments
in local markets. Normally collected through
the countries enjoying zero status.The aim is
normally long- term capital growth by investing
in local equities.
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What is the difference between Fixed Deposits and
Mutual Fund schemes? |
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| Fixed
Deposits |
Mutual Fund schemes |
| Investment
for a fixed period |
No
fixed tenure in Open ended
schemes |
| Assured
return on fixed deposits |
No
assurance for either returns
or capital growth |
| Interest
income is taxable |
Income
earned by way of distribution
from the open ended schemes
are exempted from income tax
till MARCH 2002. |
| Low
returns |
High
returns |
| High
safety in Banks ; otherwise
depends upon rating |
Safety
depends upon the investment
objective |
| Objective
is to earn income |
Objective
is to earn income and capital
growth. |
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| What
is a repurchase / redemption? |
Repurchase is a facility
to liquidate the investments made in any of the
scheme during the tenor of the scheme by surrendering
the unit certificates / statement of accounts at
the Net Asset Value of the scheme.
Redemption is the closure of the scheme at the expiry
of the tenor of the scheme. |
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| What is a Load? |
| The charges made by
the fund managers to the investors to cover the
distribution / sales / marketing expenses are often
called "LOAD". The Load charged to the investor
at the time of entry into a scheme is called Entry
Load. The Load that the investor pays at the time
of exit is called a back-end or Exit Load. |
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| What is CDSC? |
| Contingent Deferred
Sales Charges (CDSC) is imposed at the time of redemption
or repurchase during a specified period .It is a
form of load to recover the selling expenses of
a fund. |
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What is the risk involved in an Income Scheme?
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| Credit Risk:
Risk of default by the issuer of the underlying
securities invested by the Fund.
Liquidity Risk: At circumstances
of extreme volatility the investments become illiquid.
Inflation Risk: Erosion in value
due to inflation.
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What are various types of Income Schemes ?
- Money Market Funds : Investment
only in Government Securities and Treasury Bills.
- Cash / Liquid Funds : Investment
in a combination of money market instruments
and short term debt like Commercial Paper of
Certificate of Deposits.
- The above two funds are ideal
to park the surplus funds for short periods.
- Bond Funds : Investment in
medium to long term Bonds issued by corporates
and governments
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INCOME FUNDS ARE
IDEAL FOR INVESTORS WHO ARE AVERSE TO RISK.
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one should invest in a Growth Fund? |
- Chances of appreciation over time
- Better hedge against inflation
- Growth funds have outperformed the other
asset class over long term
- Better than Gold, real estate: due to better
liquidity and low transaction cost.
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What is the reason for volatility in Growth Funds?
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- Due to the portfolio mix of
stocks
- Depends upon the degree of
diversification in the fund.
- Extent to which the fund manager
tries to hedge
Look at equity as a long -term
investment. Stocks may go up and down in the short
term but in the long term it will always perform.
Is it so?
Yes. For e.g. BSE Sensex in
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HIGH
LOW |
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| 1992
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4547
(Apr) |
2709
(Dec) |
| 1994
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4643
(Sep) |
3576
(May) |
| 1996 |
4131
(Jun) |
2713
(Dec) |
| 1997 |
4605
(Aug) |
3097
(Jan) |
| 1998 |
4322
(Apr) |
2742
(Nov) |
| 1999 |
5151
(Oct) |
3042
(Jan) |
| 2000 |
6151
(Feb) |
3593
(Oct) |
| 2001 |
4462
(Feb) |
2600
(Sep) |
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| This is given as on
5th November, 2001. |
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What are the various types of Growth Funds?
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- Balanced Funds: Ideal for investors
preferring moderate capital appreciation and
income regularly.
- Diversified funds: Ideal for
the investors seeking appreciation over medium
to long term. Investments in equities across
various industries / sectors either large cap
or small cap.
- Index funds: Ideal for the
investors who wishes to and also satisfied with
returns equal to that of index.
- Sector specific fund: Ideal
for investors who wish to invest in a particular
segment or sector.
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| How
to measure the performance of a fund? |
From the investor
point of view to see the returns over a period of
3 months, 6 months, and 12 months etc.
Compare the peer group in the category and benchmark
the return.
Look at the risk -return relationship.
Analyse the long- term performance to understand
the consistency of performance in bull and bear
markets.
The performance of a fund can be measured by quantitative
tools like Sharpe and Treynor ratios. |
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Is it safe to invest in Mutual Funds? |
| Risk can only be minimised
by professional management of fund. RISK CANNOT
BE ELIMINATED. In the long run the fund will always
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| Whether
mutual funds can assure returns? |
| No. There are no assured
returns in Mutual funds. The returns can be higher
over a long period. In case any mutual fund wants
to assure returns they can do so, by clearly expressing
the safety net / safety cushion available equivalent
to the amount assured and the source in place. |
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What is a Systematic Investment Plan? |
| Systematic Investment
Plan is a method of investing into the fund of investor’s
choice at regular intervals over defined time frame.
This helps the investor to invest monthly, quarterly
etc.
Since the amount is invested regularly
and it is constant, the investor is able to get
more number of units in the falling market and
fewer unit when the price is high.
This helps the investor to smoothen
out the market fluctuations and the investment
will be at a low cost over a period. This strategy
in investing is called "Rupee Cost Averaging".
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What is systematic withdrawal plan? |
| Just like the above,
withdrawal of funds in a regular interval; benefit
in the rising market to reap the benefit out of
average increase in the earnings. |
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Why there is no assurance from Mutual Fund?
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| As per SEBI Guidelines;
and also, the reason that any investment has certain
amount of risk like; Market volatility in case of
investment in Equities, Credit risk / interest risks
in case of debt funds etc. However in the medium
to long run there is always growth in the Mutual
Fund schemes due to their wide and varied portfolio.
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What are the services available? |
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Mutual Funds
cannot give personal portfolio advise to investors.
It is only through the investment in the schemes
of mutual funds an investor can benefit. However
the investors are given the information about
the fund, portfolio details, about the market
conditions, etc. whenever they contact our offices
personally.
Mutual Funds have
been permitted by SEBI recently to do Portfolio
Management Services for which the guidelines are
yet to be published.
In general Mutual
Funds are better alternative for bank deposits
to the investors who can invest their money for
a long term growth as well as short term like
money market instruments. The investments are
generally safe as the portfolio consists of wide
varieties of stocks comprising various industries,
the growth being different among different sectors.
The investor should normally follow up the growth
in the NAV, industry etc. They can contact any
of our Investor Relation Centers to have proper
information in this regard.
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Why should I look into Canbank Mutual Fund for investment?
Canbank is thepioneer in Mutual Fund Industry,
started way back in the year 1988.
Sponsored by Canara Bank, one of thegiants
in the Indian Banking sceneCanbank is having
a track record of launching 20 different schemes in the past
14 years .Having a large
investor baseof around 4 lakhs spread all
over the country.Professional managers
with a rich experience and expertise built up
over the years withstrong investment management skills
Wide network of 16 Investor relation centres
providing the high
quality customer service.Offering
you wide range of schemesboth Equity oriented
and Debt oriented to suit your risk appetite.
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What are the services offered by the Investor Relation
Centres?
Presentation of various schemes
Regular communication on schemes
Update information services
Repurchase / Redemption services
Investment Relationship
Feedback on customer queries
Handling investor grievances, if any.
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