PowerMF Blog – Empower Yourself

A Mutual Fund (MF) is a vehicle to pool money from various investors with a promise that the money would be invested with a particular objective by professional fund managers.

As the word itself say “mutual” means many investors come together and contribute to form a common pool of money mutually which is invested according to the predetermined investment objective.

What’s a Predetermined Investment Objective?

Every Mutual Fund Scheme has a predetermined investment objective, i.e. every scheme has a goal or financial result which it wants to realize through investing in various securities according to the type of the fund. A few examples of such investment objectives are listed below:

Eg. 1: To generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities.

Eg: 2: To generate long term growth of capital at controlled risk by investing primarily in ‘Mid-Cap’ Stocks. The level of risk is somewhat higher than a fund focused on large and liquid stocks. The aim is to generate higher returns than a fund focused on large and liquid stocks.

Eg. 3: To generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities including equity derivatives.

Eg. 4: An Open-ended diversified equity scheme with objective to generate long-term capital by investing in a portfolio of equity and equity related securities. The scheme would follow an investment strategy that would take advantage of Special Situations & Contrarian investment style.

Eg.5: To generate long-term capital appreciation from a diversified portfolio of predominantly equity and equity-related securities including equity derivatives in the Indian and international markets.

Eg. 6: To generate reasonable returns through a diversified portfolio of fixed income securities.

Eg. 7: To deliver reasonable returns with lower volatility and higher liquidity through a portfolio of debt and money market instruments.

As you could see from these examples, the basic feature of the scheme comes out clearly in these objectives. So, before you invest, decide on your objective behind making the investment, identify which scheme matches with your investment objective and then make the investment.

What will be the Cost of investing in a Mutual Fund Scheme

The AMC / fund managers manage funds and earn Management Fees for doing the same which is charged to the scheme as a cost. The maximum limit prescribed by SEBI with respect to Management Fees an AMC can charge a scheme is as under:

In addition to the Management Charges, there are other expenses which are debited to the scheme. The type of expenses includes:

• Marketing and selling expenses including agents’ commission;
• Brokerage and transaction cost;
• Trustees’ fees;
• Registrar’s charges;
• Audit fees;
• Custodian fees;
• Expenses on investor communication, account statements, dividend / redemption cheques and warrants;
• Expenses on fund transfers;
• Insurance premium paid by the fund;
• Winding up costs for terminating a fund or a scheme;
• Costs of statutory advertisements

However, the total expenses that can be debited to the scheme (i.e. the maximum cost that can be charged to the customer) is as under:

While this is the cost that can be charged for any ongoing scheme, for a New Fund Offer (NFO),  Initial Issue Expenses can be charged. This is to meet all the sales, marketing and distribution expenses on the initial level. The initial issue expenses in respect of any scheme may not exceed 6% of the funds raised under that scheme.

Now that you know the basics, logon to PowerMF.com and analyze the various mutual fund schemes and their performance.

Happy investing!

If you enjoyed this post, make sure you subscribe to our RSS feed or Email Newsletter.