FAQs for Mutual Funds

Commonly asked queries on mutual funds, and answers to those

Can I buy mutual funds directly? Or do I need a broker like Zerodha? Or does it depends on MF/AMCs?

Refer to our FAQ on Best platform / app for buying mutual funds.

What is the best mutual fund app for investments?

Are MFs also stored in demat?

Not necessarily. Only if you buy from a broker, then you can see them in your demat account. In all other options, you get statements like demat accounts and it can work out completely online, eg. for a particular AMC, you can have an account wherein you can do all types of transactions. From Karvy/CAMS, you can get overall statements of all of your MF based on the PAN. There is no advantage of having MF units as demat.

Is there a lock in period? Or it depends on MF

Only the ELSS (equity linked tax saving schemes) have a fixed minimum lock-in period of 3 years from the date of allotment. All other MF are liquid without any lock-in period. However, depending on the MF, there can be exit load which is different from lock-in. what are some other/hidden charges? E.g. MFs have annual charges. Like will there be any other charges also I have to look for? And also annual charge is always mentioned in percentages. So annual price also increases every year? There are no hidden charges. The fund management fees is a slightly variable charge which is charged as a percentage of the AUM (assets under management) and the details of which you can find in the prospectus. You can also get the charges details of last few years from the AMC or any of the aggregator sites.

What about dividends of those underlying stocks?

The dividends declared by the underlying stocks go into the AUM of the MF and work like compounding. They are not passed on to you directly or indirectly.

Is MF advised for someone who is looking for long term investment? Like 8-9 years?

Sure. There are some people who have invested continuously for 20 years.

Are MFs like, buy once and forget? Or do I have to keep track of them every month? (Cos if there is no lock in, then, when I see prices have gone up, I can sell it and book profits right?)

That is a complicated question. Basically, it would depend what are your goals and how have you selected the MF for those particular goals. If the underlying criteria for selecting an MF remain same, then you do not usually need to change or flip over.

I am seeing charts of MFs performance and returns seem to be less for a longer period. Something like this: 3 months - 22% 6 months - 12% 1 year - 3% 5 year - 24% 10 year - 14%

A simple basic idea is this. Keep in mind, the returns mentioned are usually simple returns for less than 1 year period and compounded returns for periods over 1 year.

From your data (using backtracing).

Time	Return	NAV
10 years back	14%	10
5 years back	24%	12.7
1 year back	3%	35.9
6 months back	12%	33
3 months back	22%	30.3
Today	-	37

How will buying at an NAV of 37 behave in next 3 months, 6 months, 1 year, 10 years, we don't know? Past data does not mirror into the future. check more at these links 1[1] and 2[2] .

So Growth option means no dividend? Instead dividend money will be put back into buying units?

Yes. Growth option means the gains (and losses) will keep on accumulating within the individual units. The dividend option of the same fund will periodically (regular / irregular intervals) declare a certain amount of dividend which will be sent to your associated bank account directly or if that is not mentioned to your address as a cheque. This is not to be confused with the dividends declared by the companies in their portfolios - that dividend goes back into the corpus of the fund and not directly to you in any way.

CDSL and NSDL, Are they analogous to banks which provide demat for BSE and NSE respectively? And can I keep my shares which I bought in BSE in NSDL? (And NSE shares in CSDL?)

CDSL and NSDL are central depositories which keep the securities (shares, etc) in a demat or certified formats. All demat accounts, I suppose, have to be kept with either of them. The brokers (whether individual or banks) act as an intermediary to open an account with them. Once you open a demat account with either of them, you can trade on either NSE or BSE and it will not matter.

I have opened a new demat and trading account with Karvy. So can I use this same demat with other brokerages? Like Anand Rathi? I mean, the demat is not associated with karvy's trading account right?

Mostly no. If you opened an account with X and you then opened another account with Y, you will have the option to transfer your dematerialised stocks from account X to account Y, without going through the brokerage. This works like bank accounts. You can transfer money from one to another, but your account number will be changed.

Is there any advantage/disadvantage if I buy MF directly from AMC or via Karvy?

I think you are getting a little confused by Karvy. There is a [Karvy backend services provider] (https://www.karvymfs.com/karvy/), along with CAMS, FTAMIL and SBFS, which takes care of nearly all the mutual fund transactions (like what CDSL and NSDL do for shares).

And there is Karvy Financial Services which will act as a distributor (Distributor code ARN-0018).

So when you go through AMC directly, the mechanism is like this: You -- AMC <--> Karvy/CAMS. While when you go through a distributor, it works like You -- Distributor -- AMC <--> Karvy/CAMS.

The relation between AMC and Karvy/CAMS is common and the expenses regarding that are in-built within the fund management charges as Registrar & Transfer Agent Fees. Nowadays, there is a single total expense and the AMC is free to not decide to show the individual bifurcations. However, I had an old SID document which showed this fee to be 0.12%, but included in the total FMC.

Is direct plan recommended for a beginner?

Yes, there is no difference APART from expense ratio. The cons are you have to manage different logins and if there is any need for submission of some more documents (which SEBI does at 2-3 year intervals), you will have to go yourself and submit those papers (It is easy though). It is not heavy paperwork. It is filling up of 2 forms and submitting it yourself.

Regarding the Jagoinvestor article, it gives you the pros and cons.

More perspectives in this Freefincal article. And this is the Smart Tag for Direct Plan in Freefincal.

Direct Plans are not good for:

• Those who do not / cannot learn to find out which MF are beneficial to you (=failure to learn). There is nothing wrong in that, many people cannot go through the jargon.

• Those who cannot control their emotions when any MF will not perform or lose its star rating (=failure to control emotion).

• Those who find it is extremely tedious to manage multiple AMCs.

Many people find easier to go with an agent for license or passport also. Same is the case here.

There are so many direct plan transaction portals - Invezta, Unovest, ORO Wealth, Bharosa Club. How do I choose one?

Freefincal has written an article comparing some of the popular portals.

Why AMC gets to keep trail commission even when I am opting for direct plan?

No. The distribution / trail commission charges are explicitly mentioned as NOT to be included for Direct Plans. You can compare any Direct and Regular plan and see the difference (about 0.4-0.6% difference).

There are no more Percentage Upfront Charges (just for information sake, previously, there was a 2-3% initial investment charges. In USA, going through agents means a charge up to 7%). Except a fixed Rs 100/150 depending upon the amount you invest when going through a distributor. There are no upfront charges for Direct investing.

The Fund Management Charge includes all charges including trail charges in Regular plans, which is absent in Direct ones. As well as custodian, Investment Management & Advisory fees, Registrar & Transfer Agent fees, Investor communication, Investor Education, Audit, Brokerage and transactions charges. Plus Service tax (at actual). Plus a max of 0.3% for smaller cities inflow amount. Plus 0.2% extra permissible expenses. This all gets included in the Total single value of Fund Management Charge, which you can get from the AMC sites. Eg for Franklin Prima Fund, the FMC is 2.48% for Regular fund and 1.5% for Direct fund. For Franklin Fund, check this Factsheet link for every month.

Why cannot I become MF agent myself, sell MFs to myself & pocket trail commissions also? ;-)

Yes. Some people did do that to save some money. Nowadays, this is not required. A penny saved is a penny earned. Becoming an agent needs some investment and regular registration. So unless, your corpus is huge, it will not be economically feasible.

How Karvy will make money if I buy a MF direct plan through them? (Cos I believe there are no free lunches).

As explained above, as Registrar and Transfer Agent fees (included in the net FMC).

When to exit a fund?

• Objective of the fund changes.

• Objective and/or risk tolerance of the investor changes

• Asset class structure changes. Best example of this is Reliance Growth fund. It started as a mid-small cap fund but because of size bloating, it got converted into a large-mid cap fund.

How will know when to exit ?

• If there are major changes, you will be intimated by the AMC (if you have email registered with them).

• Otherwise, check over your period of review (yearly / 2 yearly / 6 monthly etc.). Do the conditions which prompted you to invest in the fund are still there more or less. Like, if you selected using the ELI5 guide, whether the fund still has the Gold / Silver rating plus comparatively decent downside ratio at your Review time. Are there any better ones, etc. Are they really very significantly better ones?

  Morningstar had removed the ratings of the Fidelity funds (which were pretty high) to Under Evaluation when the funds changed hands to LnT.

• Another heuristic is if you listen to Financial advisory programmes on the TV. If you find that most of the recommendations include your particular fund, it is time to be alert (even hyper-alert). If they are not mentioning your fund, enjoy your peace.

Mutual Fund Decision Checklist

• If you’re considering a new mutual fund, is it because it’s a hot recent performer? Have you considered fees or the manager’s tenure and track record? Is the current manager the same individual who delivered the advertised returns?

• Or is it because some smooth talker came and told you great things about it?

• If you are considering selling a mutual fund, if it because its performance has been weak? Is it weak because of the adverse market conditions not suitable for the style of the fund ? Have similar style funds worked well while this fund made some serious errors? Or it is because the fund manager (team) has left?