What you need to start and how to be KYC compliant.

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Once you have decided your goals and arrived at the amount you want to invest or you have your savings in place and you just want to get investing. You will need help to understand the following things to start your mutual fund investment journey.

We have discussed what is a mutual fund and different types of mutual funds.

Here, we are going to discuss how you can actually get investing and the very basics of doing that.

This guide is going to cover the very basic questions that our trainees have asked us about starting their first Mutual Fund investment.

Things you need before you start your mutual fund investments

To start investing in a fund scheme you need

  • a PAN,
  • bank account and
  • be KYC (know your client) compliant.

The bank account should be in the name of the investor with the Magnetic Ink Character Recognition (MICR) and Indian Financial System Code (IFSC) details. These details are mentioned on every cheque leaf and it is common for an agent or distributor to seek a canceled bank cheque leaf.

How to get your KYC ?

The need for KYC is to comply with the market regulator SEBI in accordance with the Prevention of Money laundering Act, 2002 (‘PMLA’), which undergo changes from time to time.

The KYC process is investor friendly and is uniform across various SEBI regulated intermediaries in the securities market such as Mutual Funds, Portfolio Managers, Depository Participants, Stock Brokers, Venture Capital Funds, Collective Investment Schemes, and others. This way, a single KYC eliminates duplication of the KYC process across these intermediaries and makes investing more investor-friendly.

Documents required to be submitted along with KYC application

  • Recent passport size photograph
  • Proof of identities such as a copy of PAN card or UID (Aadhaar) or passport or voter ID or driving license
  • Proof of address passport or driving license or ration card or registered lease/sale agreement of residence or latest bank A/C statement or passbook or latest telephone bill (only landline) or latest electricity bill or latest gas bill, which are not older than three months.

You will need to submit copies of all these documents by self-attesting them along with originals for verification. In case the original of any document is not produced for verification, then the copies should be properly attested by entities authorized for attesting the documents.

How to check your KYC status?

Given that KYC is a common process across various investment platforms. If you have submitted your documents earlier for opening a D-mat or any other investment, it may be possible that you are already KYC compliant. You can check your existing status and the application status on the following portals:

  1. National Stock Exchange
  2. CAMS Investor Services Private Limited
  4. CDSL Ventures Limited
  5. Mutual Fund Companies – you can also process your KYC with the mutual fund company. However, you have to make an investment in the mutual fund. They will not process your KYC without any investment.

Wealth Cafe Actionable – Where you are a first-time investor, it is advisable to process your KYC along with your mutual fund application. It will reduce the time that goes into the same.



How to practically invest in a mutual fund?

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Mutual Fund Application form

Each mutual fund scheme has a form that investors need to fill. If you start investing in the systematic investment plan (SIP), you need to fill in two forms: one to open an account with the mutual fund and the other to specify your SIP details such as frequency, monthly installment amount, and date on which the SIP sum is to be invested.

Different ways in which you can invest in Mutual Funds

Like the many mutual fund schemes to choose from, there are several ways in which one can invest in them. One can invest online or offline or in direct as well as regular plans.

  1. Direct Plan: Since January 1, 2013, all mutual fund houses have rolled out a new plan under all of their existing fund schemes-the Direct Plan. These plans are targeted at investors who do not make their mutual fund investments through distributors and hence have a lower expense ratio compared to existing fund schemes of the AMC. This means that you, as an investor, will get an opportunity to earn a slightly higher return from your mutual fund despite it having the same portfolio. The direct plans will not charge distribution expenses or commission, resulting in these plans having lower annual charges and eventually, a different (higher) NAV compared to the regular plans. You can easily get the information about the respective mutual fund on their direct website.
  2. Mutual Fund UtilityThe MFU (Mutual Fund Utilities) is a shared platform used by all the AMCs in India. Now, the MFU has made it easier for all the mutual fund investors to manage and track their personal investments on the shared MFU platform. This can be done using the CAN (Common Account Number) service, wherein an investor needs to self-register on the MFU platform and will then be able to use their platform for tracking their own fund’s performance.
  3. CAMS KRA myCAMS is a web-based application developed by CAMS for investors to enable them to create a single login user id through CAMS website or through Mobile App Version and enable them to transact across all participating Mutual Funds who have authorized CAMS
  4. Through intermediaries: There is a wide variety of intermediaries available. These include most banks, distribution companies having a national or regional presence, some stockbrokers (including online brokers) and a large number of individuals and small financial advisory companies. All intermediaries have to be registered with the Association of Mutual Fund in India (AMFI), which also maintains a searchable online directory at The website also lists intermediaries who have been suspended for malpractice to protect investors from going back to them. The intermediary normally brings the required mutual fund application form, helps you fill the forms, submit the forms and other documents to the Mutual Fund office and sometimes even brings in the Account Statement. But, all these services come to you for a fee. Typically, agents charge a flat fee for these services.
  5. Through IFAs: IFAs are independent Financial Advisors, who are individuals who act as agents to facilitate a mutual fund investment. They help you fill the application form and also submit the same with the AMC.
  6. Directly with the AMC: You can invest in a mutual fund scheme by investing directly through the AMC. The first time you invest in any Mutual Fund, you may have to go to the AMC’s office to make your investment (because of submitting your KYC document). Subsequently, future investments in different fund schemes of the same AMC can be made online (provided this facility is offered by the AMC) or offline, using the folio number in your name. Some AMCs may extend the facility of sending an agent to help you fill the application form, collect the cheque and send the acknowledgment.
  7. Through Online Portals: There are several third-party online portals, from where you can invest in various mutual fund schemes across AMCs. Most of the portals have tie-ups with banks to facilitate easy fund transfer at the time of investing. These portals charge an initial fee to set up an account and facilitate future smooth online access to invest and redeem your investments.
  8. Through your bank: Banks are also intermediaries who distribute fund schemes of different AMCs. You can invest directly at your bank branch into fund schemes that you wish to invest in.
  9. Through Demat and Online Trading Account: If you have a demat account, you can buy and sell mutual funds schemes through this account.

Different Ways in which you can make the payment for your Mutual Funds

Cheque – You can draw a cheque in the name of the Mutual Fund AMC along with the exact scheme name and deposit with the mutual fund application form with the mutual fund company office or other agents/intermediaries – depending upon the option you are selecting to invest your money in.

Electronic Money Transfer
The traditional way to transfer money from one bank account to another is to write a cheque and then deposit it. The advent of technology has ensured that one need not go through such a tedious process anymore. Over the years, the RBI has introduced several steps that have resulted in the paperless transfer of funds through electronic funds transfer (EFT). There are several other acronyms that one comes across, especially when transferring funds online or through electronic clearances such as RTGS, NEFT, IMPS, and ECS. Each of these plays an important role in ensuring your investments are timely and you do not lose time when investing. Each of these options plays a role in the way your investments are treated in a mutual fund.

Electronic Clearing Service (ECS): ECS is an electronic mode of payment or receipt for transactions that are repetitive and periodic in nature. For this reason, ECS is most preferred and useful when investing through SIP. Essentially, ECS facilitates the bulk transfer of money from one bank account to many bank accounts or vice versa. Primarily, there are two variants of ECS-ECS Credit and ECS Debit. ECS Credit is used by an institution for affording credit to a large number of beneficiaries having accounts with bank branches at various locations within the jurisdiction of an ECS Centre by raising a single debit to the bank account of the user institution.

ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution.ECS Debit is used by an institution for raising debits to a large number of accounts maintained with bank branches at various locations within the jurisdiction of an ECS Centre for single credit to the bank account of the user institution. ECS Debit is useful for payment of mutual fund SIPs because these are periodic or repetitive in nature and payable to the user institution by a large number of investors.

National Electronic Fund Transfer (NEFT): This is a nationwide payment system facilitating one-to-one funds transfer. Under this scheme, individuals, firms and corporates can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme. Individuals who do not have a bank account (walk-in customers) can also deposit cash (up to R50,000) at the NEFT-enabled branches with instructions to transfer funds using NEFT. At present, NEFT operates in hourly batches – there are twelve settlements from 8 AM to 7 PM on weekdays and six settlements from 8 AM to 1 PM on working Saturdays.

Electronic Funds Transfer (EFT): This is a paperless method by which money is transferred from one bank account to another bank account without the cheque or currency notes. The transaction is done at bank ATM or using Credit Card or Debit card. In the RBI-EFT system, you need to authorize the bank to transfer money from your bank account to other bank accounts that are called a beneficiary account. Funds transfers using this service can be made from any branch of a bank to any other branch of any bank, both inter-city and intra-city. RBI remains intermediary between the sender’s bank called as remitting bank and the receiving bank and affects the transfer of funds. Using this method, funds are credited into the receiver’s account either on the same day or within a maximum period of four days, depending upon the time at which the EFT instructions are given and the city in which the beneficiary account is located. Usually, the transactions done in the first half of the day will get first priority of transfer than the transaction done in the second half.

Real Time Gross Settlement (RTGS): The real-time gross settlement is an instantaneous funds-transfer system, wherein the money is transferred in real time. With this system, you can transfer money to other bank accounts within two hours. In this system, there is a limit that you have to transfer money only above Rs2 lakh and for money below Rs 2 lakh transactions, banks are instructed to offer the NEFT facility to their customers. This is because; RTGS is mainly used for high-value clearing. The RTGS facility is available only up to 4:30 PM on weekdays and up to 2:00 PM on working Saturdays.

Interbank Mobile Payments Service (IMPS) Facility: IMPS is a platform provided by National Payments Corporation of India (NPCI). IMPS allows existing unitholders to use mobile technology/instruments as a channel for accessing their bank accounts and initiating interbank fund transaction in a with convenience and in a secured manner. It allows investing 24*7 via mobile phone.

Wealth Cafe Actionable – There are many options and ways to invest in a mutual fund. If you have the expertise to select a scheme by yourself then go for a direct option or CAMS KRA to invest directly in the scheme. Where you going through an intermediary to invest in a Mutual Fund, you must always understand their basis of selecting a particular scheme for you and review the same at your end before finalizing the option they have selected for you.


Why should you do a SIP?

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Systematic Investment Plan (SIP) as we know it, has become the most favoured route of investments for not only the investors but also Financial Advisors in India. That is not surprising since they have so many advantages: Become a Disciplined Investor A SIP helps you to discipline yourself. You can commit a fixed amount each month to investments, and the amount gets invested at the pre determined date. This ensures that money does not lie in your savings account at a meagre 3.5% and there is no temptation to spend that amount as it is not there to spend. Rupee Cost Averaging Enormous sums of money have been lost by investors in a bid to time the market. But no one has been able to do it consistently. When experts have failed, the rookie investors will obviously not be able to gain much. It is a useless activity, even attempting to time the increasing volatile markets. SIPs ensure that a fixed amount is invested irrespective of the ups and downs in the market and hence the cost of acquisition of investments is averaged out. The timeless principle is “Buy Low Sell High”. However, investors tend to sell out when there is a fall in the markets due to panic. A rising market tempts them to enter the markets at high levels. SIPs help overcome this problem.
                                                                   Bit by Bit, you can grow your fortune
Achieve your Financial Goals Your future financial goals like buying a car, buying a house, a child’s education can be converted into the required monthly SIPs. For example, if you need INR 6 lakhs after 4 years to purchase a car. Assuming that your investments earn 15% per annum, you will need to save INR 9,198 per month to achieve a corpus of INR 6 lakhs. By converting your goals into monthly investments, you can view the achievability of your goals clearly and this also motivates you to stay on track with your investments. Compounding Benefits The biggest advantage of regular long term investments, compounding benefits. The investments made continue to grow year on year and the invested profits participate in growth in future years. Effortless Investments Once initiated an SIP can go on for as long as you want it to run with no further intervention required from your side. With a simple instruction, the SIP can be stopped at anytime. The convenience, returns and all the other benefits of SIPs have made SIPs the most preferred and the favoured form of investments. If you still have any questions, you can ask the same in the comment section below.

Missed call facility to know your mutual fund investment status

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Did you know that you could know all the details about your mutual fund investments by just giving one missed call to the mutual fund company? Many people are not aware of this feature provided by most mutual fund AMC’s.

This facility is available anytime, anywhere in India round the clock.This is the total cost-effective way of knowing the mutual fund balance instantly.

What are the details you will get it by giving a missed call?

1) Your Folio(s) Details

2) The total valuation of your Folio(s)

3)  Scheme-wise valuation(s) for your investment(s)

4) Few AMCs provide facility to send the statement to your registered Email Id too.

Eligibility to know Mutual Fund Valuation with Missed Call facility

It is free but it does not mean all can avail of this facility. There are certain eligibility conditions and they are as below.

  • The facility is available only for folio(s) where you hold any units.
  • The mobile number has to be registered in the folio(s).
  • For receipt of account statement, the email ID has to be registered in the folio(s).

Missed Call Facility – Know Mutual Fund Valuation via SMS instantly

Now let me explain you the procedure to know the mutual fund valuation via SMS instantly at free of cost.

  • Give a missed call to respective Mutual Fund Companies provided Missed Call facility numbers (I shared the list below) from your registered mobile number. You may prefix “+91” to the number if you are not able to get through or if you are dialing from a registered international mobile number.
  • You may hear a message acknowledging receipt of your missed call. (The phone will get cut in case of a few companies, however, you must wait, you will receive all the date in the form of text messages)
  • You will shortly receive SMS on your registered mobile number providing scheme-wise valuation(s) along with total valuation.
  • The details will be received for all your folio(s) where you hold any units and the aforesaid mobile number is registered.
  • If email ID is also registered, then the account statement will be additionally received for the folio(s) on your registered email ID.
  • If your mobile number is not registered, you shall receive an SMS stating the same with a request to get the mobile number registered with us in the folio(s).

List of numbers of Mutual Fund Companies to know Mutual Fund Valuation via SMS instantly

Here are the numbers with respective AMCs whereby giving a missed call, you can know Mutual Fund Valuation via SMS instantly at free of cost.

Sr NoAMC NamePhone Number
1Aditya Birla Sun life8976096036
2DSP Investment Managers Pvt Ltd9015039000
3HDFC Asset Management (India) Pvt Ltd8506936767
4ICICI Prudential Asset Management Company Ltd8882244488
5IDBI Asset Management Ltd9212993399
6L&T Investment Management Ltd9212900020
7SBI Funds Management Pvt Ltd8010968318
8UTI Asset Management Company Ltd9289607090
9Karvy Missed Call Facility to receive SMS from Karvy Services AMCs9212993399
10Quantum AMC6107 3807
11Sundaram AMC8010945114

For Karvy registered AMC

Please visit to get list of AMC served by Karvy

Equity Linked Savings Scheme (ELSS) – Everything you need to know

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ELSS or Equity Linked Savings Scheme is a dedicated mutual fund scheme which helps you save tax. When you invest your money into a mutual fund – ELSS scheme, you get a deduction under section 80C of the Income-tax Act, 1961 of an amount up to INR 1,50,000.

An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high returns. Hence, ELSS is an equity mutual fund bearing similar risks and returns.

1. Lock-In period of ELSS of 3 years and more.

You have to stay invested for 3 years into an ELSS fund to continue the benefit of tax savings. However, many people believe that after 3 years you have to sell the ELSS. This is not true. You can stay invested for as long as you prefer based on your goals and market movements. There is no upper limit. In fact, if you want you can sell your ELSS before 3 years as well, you just have to bear the penalty and pay the tax you saved by investing in ELSS in the first place.

In fact, compared to other 80C investment options available, ELSS has the least waiting period. Like PPF has 15 years, the fixed deposit has 5 years and ELSS has only 3 years.

2. You can invest more than INR 1,50,000 into ELSS

Given that ELSS is an 80C investment option, many people assume that only INR 150,000 can be invested in any ELSS scheme. You can invest a minimum of INR 500 and maximum of anything into ELSS (like any other mutual fund).

3. It gives a higher return and hence, higher risk

ELSS are equity-based mutual funds and hence, the return on the same is higher. High returns mean higher risks. There is a good possibility that at the end of 3 years, there are negative returns in ELSS. As we have always said, equity investments are for long term goals and you must stay invested in equity for at least 7 years to avoid the risk of nil or negative returns. Countless studies prove that one can beat volatility and make superior returns from stocks by staying invested for a long period. You should remind yourself that equity has the potential to offer superior returns than other asset classes over a long period.

4. Growth or Dividend – ELSS Fund

If you choose the Growth option it ensures compounding your capital in the mutual fund investments. The final amount can be redeemed once at the end of the lock-in period.

But, the dividend option gives you some amount for various periods of time. It offers some liquidity even during the lock-in period. This dividend paid out can be further invested in other mutual funds depending on the investor’s portfolio or re-invested back into ELSS Fund.

The dividend received by the investors from these mutual funds is tax-free in the hands of the investors.

5. The tax of ELSS mutual funds

ELSS funds are equity mutual funds. Capital gain tax on ELSS funds is the same as in equity mutual funds.

If you sell your equity mutual funds after a year, the returns will qualify for long-term capital gains a tax (LTCG).

Investors will have to pay 10 % tax on profit gains exceeding ₹ 1 lakh made from the sale of stocks or equity oriented mutual fund schemes held for over one year. If you sell your equity mutual funds before a year, you will have to pay short-term capital gains tax of 15 percent on your returns.

Hence, ELSS helps you to save taxes by allowing a deduction of 1,50,000 but they are themselves not a tax-free product and returns from ELSS are taxable exceeding 1 lakh INR.

Wealth Cafe tip – Do not just look at the returns and invest in ELSS, invest with the same mindset in ELSS as you would in any other mutual fund. Also, do not just sell ELSS after 3 years. Sell them only when your goals for which you investing in ELSS is achieved or reaching near.

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Mutual Funds Taxation

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Income-tax on Long term gains made from mutual fund investments was introduced in the budget last year. It is very important to know how your mutual fund gains are taxed and report correct numbers in your returns.

3 Factors that determine the Mutual Fund Taxation

Any fund which invests 65% or more in equity is called as Equity Fund. For example, large-cap funds, multi-cap funds, small and mid-cap funds or equity-oriented balanced funds (where the equity exposure is 65% or more) are all called equity-oriented funds.

If the equity portion is less than that, then they are all treated as debt funds or non-equity funds. For example liquid funds, ultra-short term funds, short-term funds, income funds, gilt funds, debt-oriented balanced funds, gold funds, fund of funds or money market funds.

  • Holding periods of Investment–

The holding period for Equity and Debt Funds will be different for taxation purpose.

STCGIf the holding period is less than or equal to 12 monthsIf the holding period is less than or equal to 36 months
LTCGIf the holding period is more than 12 monthsIf the holding period is more than 36 months.

Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates

Now that you have clarity on what is Short term capital gains (STCG) and Long term Capital gains (LTCG). Let us move further and understand the Capital Gain Taxation for mutual fund investors.

The biggest change from FY 2018-19 is the introduction of LTCG in Budget 2018. The table below will give you a brief of the same:

 Note: Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.

Where an individual/HUF total income (income from all sources) is less than the slab rate, then any income from long term or short term is a part of the slab rates.

Short Term Capital Gains on Equity Mutual funds/Equity Shares

Cost price of MF (10,000*100)1 January 201810,00,000
Selling price (10,000*120)31 March 201812,00,000
Tax payable (15%)30,000

Note: There is no change in the STCG with the new amendment. STCG remains taxable as it always was. It is to be computed based on the equity or debt fund. There is no impact of 31 January 2018, cut off dates prices for STCG.

Long term Capital Gains on Equity Mutual funds

There is a cut-off date of 31 January 2018, which has been introduced for the purpose of computing LTCG. LTCG is to be computed in 2 parts:

  • Units purchased on or  before 31 January 2018
  • Units purchased post 31 January 2018

Gains up to Rs. 1,00,000 is exempt while computing LTCG from equity-oriented mutual funds or shares.

Long term Capital gains on mutual funds purchased before 31 January 2018 and sold after 12 months.

There was a benefit introduced to investors by considering the cost on 31 January 2018 for the purpose of computing LTCG. However, this method can be a bit confusing so you may take expert advice. We have described the same below for your understanding:

The Cost to be considered :

Higher of Actual cost or (the formula amount)

The Formula Amount is Lower of

  • The highest price of the unit on 31 January 2018 from all recognized stock exchange.
  • Actual Selling Price

For Example:

Date of buying – 1 April 2017

Date of selling – 31 April 2018

Number of Units – 10,000

Price of  MF on following Dates

Sr. NoDatesPrice
1Date of buying (1 April 2017) – Actual Cost100
231 January 2018 (highest price on cut-off date)150
3Date of selling ( 30 April 2018)120

Step 1 – Calculate the Formula Amount i.e. Lower of (2) and (3) i.e. 120 (lower of 150 or 120)

Step 2 – Calculate the cost to be considered i.e. higher of (1) or Step 1 answer – 120 (higher of 100 0r 120)


Cost price of MF (10,000*120)12,00,000
Selling price (10,000*120)12,00,000
LTCG (10%)Nil

Things to Note:

  • Comparison of prices on 31 January 2018 is done to compute the considered cost price.
  • The highest price of the MF/share as on 31 January 2018 is to be considered for this calculation.
  • Final selling price is the lower of 31 January price or the price on the selling date.
  • Hence, this cost determination method may lead to nil gains, benefitting the investor.
  • The gains will not be Nil in all the cases.
  • This method will never lead to a long term capital loss for an individual/HUF.

Long term Capital Gains on mutual funds purchased after1 February 2018

No comparison of prices as on 31 January is required. However, the exemption limit of Rs. 1,00,000 is available.

Cost price of MF (10,000*100)1 February 201810,00,000
Selling price (10,000*120)10 February 201912,00,000
LTCG (10%)20,000

TAX – Savings Equity Mutual Funds

Equity Linked Savings Schemes or tax saving mutual funds are one of the most sort out for financial products under section 80 C of the Income-tax Act, 1961.

ELSS comes up with a lock-in period of 3 years. It means that once you invest in ELSS, you cannot redeem your units before the expiration of 3 years. You can claim a tax deduction of up to Rs 1.5 lakhs and save taxes up to Rs 45,000 by investing in ELSS.

Upon redemption after 3 years, the long-term capital gains (LTCG) up to Rs 1 lakh are tax-free in your hands.  LTCG in excess of Rs 1 lakh is taxed at the rate of 10% without the benefit.

You can read about various ways to save taxes under section 80 C in out Article – How to save tax?

Note: It is not compulsory to redeem ELSS mutual funds after 3 years. You can stay invested for a longer duration. To maintain the 80C benefit, you must stay invested for 3 years.

Mutual Fund Taxation FY 2018-19 – Dividend Distribution Tax (DDT)

There are few investors who opt for dividend option in mutual funds. Hence, let us see the taxation on the dividend of such funds. Earlier there was no DDT for equity investors. However, from the Budget 2018, DDT @10% will be applicable to equity investors also.

Base Tax RateSurcharge and CessTotal Tax
Equity Oriented SchemesNilNilNil
Debt Oriented SchemesNilNilNil


Tax Payable by Mutual Fund Companies

Equity Oriented Schemes10%12% SC + 4% cess11.648%
Money Market/Liquid Schemes/debt funds25%12% SC + 4% cess29.12%
Infrastructure Debt Fund25%12% SC + 4% cess29.12%

Note: In spite of the 10% long term tax now payable on mutual fund investments. It is a very good form of investments and the gains made are far more to compensate the taxes to be payable on the Long term. However, it is advisable to get your returns working reviewed by an expert where you have a lot of equity/ mutual funds gains in a particular FY.


Switching of Mutual Funds – Direct plan to Regular plan

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Switching of mutual fund schemes means a change from a direct plan to a regular plan, a growth plan to a dividend plan in the same fund. Switching of mutual fund means to change the mutual fund option. There is this concept of buying and selling, switching makes this change in the option simpler. It is important to know the cost & process associated with it and then take an informed decision.

It is important to note that one can switch from regular to direct plan but vice-versa is not permitted. However, growth to dividend and vice versa can be done.

We have discussed on what is the process to switch between direct to regular plan or a growth plan to dividend plan.

How to switch?

If you are registered for online mutual fund transaction with individual AMCs –

  1. Login to your mutual fund account. The account can be either online transaction facility provided by individual mutual fund house or through direct online mutual fund platforms provided by CAMS, KARVY, MF Utility etc.
  1. Go to transaction page which allows you to purchase/switch/redeem fund. Choose the switch option and select from the ‘switch from’ drop-down the fund name you want to switch.
  1. Select the same fund name in the ‘switch to’ option and make sure the fund name has ‘Direct Plan’ written at the suffix.
  1. Re-login after four days to check if the switched investments have ‘Direct Plan’ as suffix.

If you don’t want online access

  1. Visit the mutual fund office.
  2. Ask for common transaction – Switch form.
  3. Fill in the required details with folio no. and the right fund name.
  4. Sign and submit the same.
  5. You will receive an account statement to your registered email id after the switch is processed.

If you are registered through broker/ distributor /demat form

The switch to direct fund won’t be possible if investor has transacted from online platforms such as ICICI Direct, Funds India, Birla – Myuniverse etc. or held mutual fund in demat form. One needs to activate online transaction at individual AMCs OR process it offline through forms. Both the ways are explained above.

                                                               Switching between mutual funds can get you gains if done properly otherwise the costs are too high to opt for the same.

The cost of Switching Funds

Even though the fund value is switched to the same fund, such transaction (change from regular to direct) is considered as selling of old investment and buying new ones and would be charged accordingly. Two main costs involved are to be considered while switching of mutual funds.

  1. a) Exit load – Exit load is the charge of redeeming the mutual fund prior to the ideal fund investment horizon. For equity-oriented funds, this is typically charged as 1 percent of the redemption value if redeemed before one year of investment and no exit load thereafter. For debt oriented funds, the exit load ranges from 0-2 percent and depend on the type of fund. Thus, to avoid such charges, one must ensure that the fund has no exit load or hold on to the fund till there is no applicable exit load.
  1. b) Taxation – Switching funds will have tax implications which are as per regular capital gain taxation. With the change in tax laws, for equity oriented mutual funds, now after 1 year, long term capital gains tax rate of 10% will be levied on the gain amounts more than INR 1 lakh and if done prior, the gains will be taxed at 15 percent or as per slab rates.

In case of debt funds, short-term gains i.e. of less than three years holding period will be taxed according to the tax slab and if switched after three years of holding, the gains will be taxed at 20 percent with indexation benefit.

The cost associated with switching funds would also remain same in case of any kind of switching.

When to switch?

The switch should be made only when you are looking at long term investments (investing spanning for more than 7 years). The cost associated with the switch is not worthy for short term investments.

You must only go for a direct mutual fund option when you are sure that you would be able to manage your portfolio and your investments. Growth or dividend option depends on your requirements, where you need some money on regular intervals you may opt for dividend option, otherwise, growth is always preferable option.

A few points to note

  • In case an investor wishes to switch current SIP investment in to a direct plan, the investor needs to stop the SIP and restart it in a direct fund. For SIP do not go for switching.
  • It is recommended that the accumulated amount should be switched only if there is no exit load or tax involved (switch upto gains of 1 lakh each year). Do your cost benefit analysis before taking that decision.
  • Investor can verify if fund has been switched to direct plan/growth plan/ dividend plan once the new account statement has the terms written as a suffix to the fund name or other name into which it is made.

Also, it is important to communicate with your advisor if you have a considerable investment in your long-term portfolio. As discussed many times, a genuine financial advisor will surely promote and help you with the process of switching to direct plan if he/she places client’s interests first.


Passive vs Active Investments

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Have you heard about Index Mutual Funds? Are you aware of the concept? We have discussed the same below Active Fund Mutual funds are distinguished into ‘active funds’ and ‘passive funds. Active are those funds where fund manager plays a bigger role to ensure that the fund earns more than the set benchmark. For example, most equity funds will have either the Sensex or the Nifty index as benchmarks. The fund managers believe they have the ability to select stocks and time the market in a manner that makes the returns on their portfolio higher than what the market gives over a specific period of time. Passive Fund Passive funds are also called as ‘index fund’s. And as it goes by name, the only aim of these funds is to mimic an index. These funds invest only in scrips that are a part of the index and in exactly the same proportion as they are in the underlying index. For example, a passive fund on the Nifty index will buy all 50 stocks in the Nifty in the same proportion as are held by the Nifty. Each time a stock is taken out from or added to the index, the fund will do the same. On a day-to-day basis, this makes lesser work than managing active funds. Investors can expect almost the same return as the index though there will be a small difference between an index fund’s performance and that of its benchmark. This is called tracking error because of the various cost it incurs (brokerage, advertising, marketing, etc.) and the small cash component that every index fund keeps to meet redemptions.
                                                                                              Active or Passive? Which one do you intend to choose?
Should you select ACTIVE OR PASSIVE Funds? The costs in a passive fund are lower than an active fund due to the lower churning of the portfolio and no research required to run such a fund. Typically Index Funds have a fees of 1% of the Assets Under management(AUM). The fees charged by Active Funds vary from 1.50% to 2.25%. As an investor, you need to see if the higher expenses are justified by higher returns from the Active fund because over a long period the higher expense ratio can have a large impact on your returns. The level of risk in investing differs from one fund to another based on their investment objective. Active funds are more risky compared with passive funds since you are taking the risk of a fund manager taking stock calls that may go wrong. Within index funds also, funds mimicking broader indices are less risky than those that mimic a sector or a market segment. For example, the risk is lower in a Nifty Index compared with an index on the Banking Index or the Junior Nifty. Passive Funds (Index Funds) are best suited for the risk-averse investor. However, the clearest disadvantage of passive management is that at times, even if you do not want to participate in a particular stock or sector, you end up participating by investing in the index funds. In an emerging market like India, passive funds may not be the best of the options as many Active Mutual Funds have consistently outperformed the underlying index in the past 15 years. One may, however, consider having an Index Fund in his portfolio to reduce the overall volatility.
Mutual Funds

Mutual Funds Jargons Simplified

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Asset Management Company(AMC) is the business face of the mutual fund as it manages all the affairs of the fund. Investment professionals employed by the AMC determine which securities to buy and sell in the fund’s portfolio, consistent with the fund’s investment objectives and policies. In addition to managing the fund’s portfolio, the AMC often serves as administrator to the fund with the support of the R&T agent and the Custodian.

Bid Price is the price at which a close ended scheme repurchases its units. This is also known as “Repurchase Price”.

Close Ended Scheme is any mutual fund scheme which has fixed tenure. The period of maturity of the scheme is specified at the launch of the Scheme. These can be equity or debt schemes. An example would be Fixed Maturity Plans(FMPs).

Entry Load is an amount paid by an investor at the purchase of the units of mutual funds. The amount is towards the expenses incurred by the AMC for distributing the Mutual Fund Schemes. An amount equivalent to 2.25% is deducted from the amount paid by the investor towards the entry load and the rest amount is invested to buy units of the mutual fund. However, as per the recent ruling by SEBI, there will be no entry load on the money that one invests in any mutual fund scheme and the entire money invested will be used to buy mutual fund units.

Exit Load is the amount paid by an investor when he sells his units of a mutual fund. The same is towards the expenses incurred by the mutual fund towards the floatation of the mutual fund and other operating and administrative expenses. The load is usually a percentage of the amount invested by the investor. It is generally levied on early exit by an investor (before one year for equity fund).

Money Market Instruments mean to include commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity upto one year, call or notice money, certificate of deposit, and any other like instruments as specified by the Reserve Bank of India from time to time. To summarise, these are debt instruments for short term (less than one year) where the liquidity of the investments is high.

Mutual Fund is an institution which pools money from various investors and professionally manages the investment in the various instruments. The investments of the mutual funds are driven by the investment objectives of the scheme.

Net Asset Value (NAV) is the net worth of a scheme. It is calculated as all assets of the scheme less all its liabilities. NAV per unit is NAV of the scheme divided by the number of units outstanding on the date of valuation.

Offer Document is the document that a mutual fund issues to the public and invites them to subscribe for units of a scheme. This is the most important document for an investor as it contains important information about the scheme. Apart from other things, the offer document contains the investment objective of the scheme, tenure of the scheme in case of close ended schemes, details of the trustees, investment manager, expenses, tax impacts, etc.

Offer Price is the price per unit offered to an investor by the mutual fund for subscription to a scheme. It is also known as “Sale Price”.

Open Ended Scheme, as against a close ended scheme is a mutual fund scheme which has no specified duration or maturity. The offer for sale is open with no time limits.

Redemption Price is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are related to the NAV of the scheme.

Repurchase Price is the price at which a close ended scheme repurchases its units. This is also known as “Bid Price”.

Sale Price is the price per unit paid by the investor to subscribe for a scheme. It is also called “Offer Price”.

A Sponsor is the promoter who sets up the Mutual Fund, appoints trustees and the AMC in accordance with the SEBI Regulations.

Trustee is appointed by the sponsor. The trustee holds the property of the mutual fund for the benefit of the unit holders and is responsible to the investors of the fund. The trustee is vested with the general power of superintendence and direction over AMC.

Unit is the interest of the unit holders in the scheme. It just is like a share of a company held by the shareholder.

Unit Holder is a person who is holding the units in a scheme of a mutual fund. The term is comparable to shareholder in case of a company.


How to invest in mutual funds?

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When investing in Mutual Funds, the investor is again spoilt for choices. Just like the numerable mutual fund schemes, the investor has the following routes to actually execute the investments. Direct Investment: Investing in any Mutual Fund involves getting hold of the Common Application Form of the scheme one wants to invest in, filling it up and signing it and submitting it along with the cheque to the Investor Service Centre of the specific Mutual Fund. If the amount of investment exceeds Rs. 50,000 in a year, then it is mandatory for the investor to first get his KYC (Know your customer) done.
                                                                                       Whatever route you may take, you must invest
Your Advisor: The most obvious choice is to invest through your Financial advisor. As he advises you on the investment choices, most Advisors also facilitate the execution of the investments. It saves you the work of doing the running around. A Mutual Fund Agent/Distributor: Just like an insurance agent, a Mutual Fund agent will help you make the investments. Post the banishing of entry loads on Mutual Funds(the 2.25% entry load), an agent may charge you a fee for facilitating the transaction. He may also double as an advisor. Your Bank: If you are a Do-It-Yourself investor, then investing through your bank is a good option. Banks like HDFC bank and ICICI bank offer the facility to do the investments online with no paper work involved as against the conventional route. Mutual Fund Websites: If your bank doesn’t offer you online facility, you can choose to invest through the website of the Mutual Funds directly. Payment can be made online through Netbanking facility offered by the Mutual Funds. However, you needs to remember a separate password for each Mutual Fund you want to transact in. Third party  Websites: The best option for a Do-It-Yourself investor is to purchase mutual funds through the online route provided by some Mutual Fund specialist companies in India. Two of them are and Both do not charge any fee for opening an online account with them. Even Paytm and other apps have now started mutual funds investments. The Stock Exchanges: From December, 2009 Stock exchanges in India have started offering the facility to transact in Mutual Funds through their brokers and sub-brokers. This has widened the reach of the Mutual Funds network. However, this route has not been successful because of the brokerage cost and the conflict between the brokers’ interest in frequent trading versus Mutual Funds being a long-term investment tool. At the end of the day you, as an Investor, will choose the route that offers you good service and value for money.

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