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Guide to Mutual Funds

Must know Concepts and Terms

There are numerous myths, opinions and perceptions that surround a mutual fund. This usually confuses investors and sometimes deters them from investing in mutual funds.

Instead of following opinions given by peers and relatives, investors must know the mutual fund terms and concept before making the investment.

Only then would they be able to say, Mutual Fund Sahi Hai!

Here are a few mutual fund terms which are mandatory for you to know before signing the offer document:

  • Investment Clause: Read the investment terms carefully in the offer document, including the minimum investment requirement and the mutual fund's investment objective

  • The clause on Risk: This is one of the most crucial aspects to be read while reading the offer document. The risk associated with the mutual fund is clearly mentioned in the offer document for the investor’s reference. On the basis of your own risk appetite, the prospective mutual fund investor may choose the scheme that would fit into their requirements.

  • Fee component: Always remember that mutual funds are not just to make money for you but also for themselves via the fee or commission charged in due course. The fee charged consists of annual recurring expenses, management fees, servicing costs, commission, etc., that add up to the total costs.

  • Tax benefits:As discussed in the previous section, mutual funds provide substantial tax savings. In addition to the returns they offer, the dividend income received is subject to tax exemptions under the Income Tax Act 1961.

  • Other Investor Services: This clause is found at the back of the offer document, wherein the other investor services pertaining to the dividend reinvestment scheme, systematic plan, and withdrawal plan are provided for the investors' knowledge.

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Units 28/33