Prajna Capital - An Investment Guide

Open ended fund In an open-end fund, the units of a mutual fund are bought and sold by the fund company itself. The price at which you buy this fund is usually higher than the price at which you can sell the fund to the fund company. In this mutual fund, there are no restrictions on the amount of shares the fund can or will issue. Depending upon the demand, the fund continues to issue shares no matter how many investors there are. In this case, the fund companies also give option to the investors to buy back their shares when investors wish to sell. Mostly mutual funds are open-end funds and they are more conservative and provide consistent returns. Generally, Open-end funds are managed actively and are priced according to their net asset value. Closed ended fund Unlike an open-end fund, where the buying and selling of funds are conducted by the fund company itself, the units of close-end funds are traded on a stock exchange. The market price of the shares in closed ended fund is det...

Mutual funds are a convenient way to invest in the markets. Numerous fund houses offer a wide platter of schemes. The choice before the investor is so wide, that he is often baffled. Some investors who have tasted attractive returns in the past believe that all funds can work the magic for them. When they get mediocre results, they realise that their time and money are wasted. Today, the stock markets are badly beaten. People with low risk appetite are locking away their savings in debt instruments. Some investors consider mutual funds a safer route to remain invested in the markets. How does an investor evaluate the performance of mutual funds? How do you ensure that your money is not locked in a low or no return scheme? Don’t rely on past performance A fund that was yielding consistent returns over the past few years can disappoint the investors next year. Past performance is no guarantee for good future performance. Compare its performance over varying timeframes against the b...

For a time horizon of around five years, you can consider investing in a medium term debt fund. A well-rated income fund with a good track record can be chosen. Debt funds (long-term) offer higher tax efficiency and liquidity as compared to fixed deposits. The interest earned from a bank FD is added to one’s income for tax purposes, which is taxed as per the applicable slab of the investor. On the other hand, returns earned from a debt fund held for the long term i.e. greater than one year are treated as long term capital gains ( LTCG ). One can avail the indexation benefit in case of LTCG of debt funds which reduces the tax liability. LTCG is then taxed at 11.33 per cent without indexation or 22.66 per cent with indexation. However, debt funds are not risk-free like bank fixed deposits. They invest in bonds and hence, carry credit risk and liquidity risk related to the specific instruments held by them. They are also affected by interest rate risk. Hence, the choice of whether to i...

SECURITIES market regulator Sebi is in the process of firming up a policy to push retail participation in mutual funds in an effort aimed at neutralising or lowering the impact of large outflows by corporate or institutional investors as happened recently. The regulator is now weighing the option of segregating the investments of corporate and retail investments so that retail investors are not impacted if corporate investors exit from schemes early, a source said. What this could mean is that fund houses would be told to float separate schemes targeting institutional and retail investors, a practice which is prevalent overseas. “In such a scenario, if a large corporate investor pulls out money from a scheme, then the other corporate investors need to worry and not retail investors as is the case now,” said a person associated with the proposed changes that are underway. Sebi is already in talks with the industry as the regulator and the government look at addressing the issue, whic...