Introduction to Mutual Funds

Introduction to Mutual Funds

Mutual fund is a hot topic always for people, but due to lucrative returns in the pandemic now everyone wants to understand it. “Mutual funds are subjected to market risk” this phrase surmounts our mind when we think of mutual funds. The reverberance of risk associated with mutual funds acts as a hurdle for investor to take the first step towards Mutual fund investments.  This risk factor over-shadows the benefits in lime light. With this blog I’am putting an effort to explain you what is mutual fund in simple language. I will explain you the benefits and cons of mutual funds and types of mutual fund. Here is the simplest guide to mutual funds. So let’s start learning.

What is Mutual Fund ?

Mutual means shared by two or more people. Fund stands for money collected. Mutual Fund is a pool of investment created by the mutual fund trust to be used for investing further in securities, bonds and debts etc. This investment is managed by experienced fund managers for getting maximum benefits in the form of incomes. This benefit or income from the fund, so invested by the Assets Management Company are distributed among the investors in the form of returns.

Why to go for Mutual Funds ?

We do investment in different assets & securities. Investment provides us an additional income and future security. Everyone tries to diversify their investment portfolio which involves investing in securities, shares, bonds and debentures. But if one wants to invest in securities, bonds and debts, they need to do lots of research to avoid loss and have desired returns. This involves a lot of skills and knowledge as well as time to time monitoring is necessary to avoid any uncertainty. Mutual fund Company does the same think on your behalf from the fund invested by you and others. As mutual funds are managed by experts you can relax and concentrate on your work and your funds will keep earning.

Terminologies

In order to understand Mutual Funds better lets understand the few terminologies and abbreviations most used in the mutual funds operation and mechanism.

1.   Sponsors – Mutual fund is formed in the form of Trust, established by Sponsors. Sponsors are like regulators of mutual funds. They appoint AMC for the management of Mutual Funds. The very well recognised mutual fund trust is UTI (Unit Trust of India). There may be one sponsor or one sponsor along with other corporates to form a mutual fund trust.

2.    AMC – Assets Management Company. This company manages the investment of the investor and invest this fund money in securities and bonds. Mutual fund is been formed by sponsors and they hire AMC’s to handle the investment of investors.  AMC do all the work to management the mutual fund like investment, marketing, accounting and other functions. They charge fees for their service from the investors. Example of AMC are SBI Mutual Fund, HDFC Mutual Fund.

3.    AUM – Asset under management. It is the total asset which the AMC manage for the mutual fund. The value of the securities, debts and bonds less the liabilities of the mutual fund is its AUM. 

4.    Fund Manager -  AMC allocated proper fund manager for a particular mutual fund to manage and plan its investment and evaluate its performance. Fund manger is the proper person who manages the portfolio of mutual fund scheme. For example – Mr. Prashant Jain is the Fund Manager of HDFC Balanced Advantage Fund.

5.   NAV – Net asset value. It is the market value of the securities held by the AMC under the respective scheme of mutual fund. It varies on day to day basis as the market fluctuates. But the NAV is same for a scheme throughout the day, as it is valued at the end of the trading day. For example HDFC Balanced Advantage Fund - Growth Plan - Direct Plan : NAV on 09/11/2021 : ₹ 303.8310.

Benefits of mutual funds

There are varies benefits of mutual funds. This is the reason now a days it the prime choice of investors.

1.   Professionally managed – Mutual funds are managed by fund managers. Fund managers are expert in their work and this provides the expert level performances to the mutual fund. Investor doesn’t have to personally get involved in the investment decisions.

2.  Tax Saving – ELSS (Equity linked saving scheme) is the type of mutual fund type which qualify for deduction under Sec. 80C of the Income Tax Act. Will discuss this in detail below.

3.   Liquidity – Mutual provides you easy entry and exit options. There are open end schemes which provide high liquidity.

4.   Generating Income & High Returns - Mutual fund can be used for a generating passive or additional income. Mutual may provide high returns as when the stock market is high the returns on mutual funds are high. Diversification – Investor can diversify his investment portfolio by investing in mutual funds. In place of personally investing in different assets or securities one can invest in mutual fund which has various securities in its scheme structure. Diversification helps to achieve a balanced investment and safe returns in future.

5.    Time Saving – A person can concentrate on his main business or profession and side by side invest in mutual funds to get an additional income as Mutual funds are managed by Fund Managers.

6.    Easy Accessibility – Now one can very easily invest in mutual funds either directly or through a distributor or discount agent.

If one has its advantage then will have disadvantage as well. Here are the disadvantages or some of the cons of mutual funds.

1. Greed - Mutual Funds are managed by people only and people have a psychological factor of greed. Mutual fund managers tries to get maximum investment from investors because in return of that investment they get fees. Sometimes they even compromise on the level of fund performance to get maximum investment for earning more fees. They do extra manipulative advertisement to entice investors.

2. Risk – “Mutual Funds are subjected to risk”. As they are based on share market securities and share market is volatile. The market goes up and down, the mutual fund returns also go up and down.

3. Investors sentimental effect - Share market is volatile. Its goes up and down from time to time. Many a times a down fall in Share market spread fear in investors and they start withdrawing from the mutual fund their Investments. This in turn makes the fund manager to withdraw or sale the investment of the Mutual fund. This lowers the value of mutual fund as a result the NAV of the mutual fund decreases.

Types of Mutual Funds

There are various types of mutual funds. They are categorised in four broad categories. 

I. Mutual fund based on fund scheme

II. Mutual fund based on investment objective

III. Based on asset invested

IV. Special funds


I. Mutual fund based on fund scheme.

There are basically two types of mutual funds based on fund scheme :-

(a) Close ended scheme

(b) Open ended scheme


(a) Close ended scheme

In this mutual fund scheme the maturity period of the mutual fund scheme is fixed. There is a well defined initial issue period within which you can purchase the units of the scheme. Once the issue period is closed, only the already issued units can be purchased or sold. Example - Reliance Close Ended Equity Fund - Series A – Growth, etc.

(b) Open ended scheme

In this mutual fund scheme the maturity period is not define. You can purchase the units of mutual funds at any time and sell it at any time. These are highly liquid Mutual Fund schemes. Example - SBI Small Cap Fund, etc.

II. Mutual fund based on investment objective

Every investor has a different investment objective; this mutual fund is based on the objective of the investor. Some investors want more growth on the other hand some investors want fixed income. There are basically of three types :-

(a) Growth funds

(b) Fixed income fund

(c) Balanced fund

(a) Growth funds

These scheme basically target long term growth. They are meant for long term investment. They are highly risk prone because they invest more and more on equities and market securities. Example – Axis Growth Opportunities Fund, etc.

(b) Fixed income fund

These mutual fund schemes provide regular returns for a period of time. They won't provide high returns as they have low risk. Example - Mirae Asset Short Term Fund, etc.

(C)Balanced fund

These mutual fund schemes provide your balance between risk and return. They provide a combination in there investment portfolio of equity and debt to get a stable income. The risk is lower as compared to growth funds but higher as compared to fix income funds. Example - DSP Equity & Bond Fund, etc.

III. Based on asset invested

Here the mutual funds are categorised on the basis of the securities in which they invest. Based on asset invested by mutual fund scheme there are three types of mutual funds :-

(a) Equity fund

(b) Debt fund

(c) Hybrid funds

(a) Equity fund

These funds majorly invest in stock or equities of companies. They can invest in Large cap, Mid Cap or small cap companies. They also invest in bluechip companies as well. They have high risk and provide high return. Example - Axis Small Cap Fund, etc. 

(b) Debt fund

These funds invest in debt market security. They provide Low Returns as compared to equity fund. They usually invest in government securities like Government Bonds, debentures, other government securities. Example - Axis Gilt Fund, etc.

(C) Hybrid funds

These Mutual Funds invest in both equity and debt. They create a combination of equity and debt, in some scheme debt portion is more as compared to equity and in some scheme equity portion is more. They are also called balanced fund. They are more risky then debt funds and less risky than equity funds. In the same way they provide more returns as compared to debt funds and less returns as compared to equity funds. Example - Axis Triple Advantage Fund, etc.

III. Special funds

These fund scheme invest in special kinds of asset as per the investment plan or purpose of the Mutual Fund scheme. They can be categorised in four types :-

(a) Index funds

(b) Sectoral funds

(c) Regional Funds

(d) Tax Saving Funds


(a)Index scheme

Index are market benchmark like Nifty 50 or Sensex. Index scheme invest in index stock. They are highly risky. Example - Tata Index Fund Sensex Direct Plan, etc.

(b) Sectoral funds

These mutual funds invest in specific sectors or industrial sector. Like some mutual funds invest in infrastructural companies and some in IT companies etc. Nippon India Pharma fund Direct Growth is a sectoral fund which invest in pharma companies etc.

(c) Regional funds

These mutual funds invest in specific geographical area. They basically invest in companies working or planning to start working in specific geographical area. These funds are mostly popular and operating in foreign countries. Example – Matthews Korea Fund, etc.

(d) Tax Saving Funds

These mutual funds investment are eligible for tax deduction under Section 80 C of the Income Tax Act. In these mutual funds scheme there is a lock in period which starts from three years. These are the most adored mutual fund scheme in India. ELSS (Equity linked saving scheme) are the tax saving funds. Example – JM Tax Gain Fund, etc.

I tried my best to explain you all about mutual funds. This is just the introduction and I will be coming up with specific blogs over it to share with you further details. If you have any comments and queries, feel free to share over the comment box below. The mutual funds mentioned above are just for education purpose and they are not in any manner a advice or recommendation.

Take care and god bless you all.

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Disclaimer :

The above blog is purely for educational and  guidance purpose. It's just the reflection of the author's personal experience and judgment. The author has just provided the general information & understanding and its not at all an alternative of any legal advice or practitioner. The content stated in the blog should be used by the reader at his own discretion and sole responsibility. The content of the blog can be only used for any other document, write-up, article, blog and any written or printed material whether on paper or digitally in any form, with the prior permission of the author.  

How to apply for PAN (Permanent Account No.) Online and Get it in One Hour

You can apply for a new PAN (Permanent Account No.) or update your current PAN details online. Today I'am going to share this procedure in a easy and simple manner as usual. Let me make this very clear that you can do so by physical offline mode as well, but I always try to share ways which are simple, easy, fast and at your comfort. Contrarily, there is no harm or major expense to avail the services of a professional service provider if facing any issue in applying your PAN online.

You can have your PAN in around one (1) hour by applying through E-PAN with the help of Aadhar and Aadhar linked mobile no. 

What is PAN ? 

PAN is an abbreviation of "Permanent Account Number". It is a Ten (10) character alpha-numeric identifier issued by Income Tax Department to any person. It is a unique identity issued under the Income Tax Act 1956.

PAN Card Mode

Application for Pan card can be for :-

1) Physical PAN Card

A physical PAN card is just like shown is the above picture in physical form. 

2) E-PAN Card

A E-PAN will be in PDF format mailed to you over your registered Email Id and is downloadable. You can take its printout as and when required.

Websites to Apply PAN Card

There are two websites from were you can apply your PAN :

1) https://tin.tin.nsdl.com/pan/index.html

2) https://www.pan.utiitsl.com/PAN/index.jsp​​​​​​​​

I usually prefer NSDL website. But both websites perform the same functions, the processes & utilities are similar, even the form layout is also same. 

Online Modes to apply for PAN 

There are two (2) online modes to  apply for PAN online :

1) Aadhar Based Application

Under this mode of application for PAN, you didn't have to send or upload any documents for address proof or identity proof. The application takes all details from your Aadhar data like, address, photo, signature etc. This is the fastest and simplest method. You didn't need any document submission & verification as it is automatically done through Aadhar linked OTP verification. For the verification of  application a OTP is send to the Aadhar linked mobile no.

2) E-Documents Based Application  

Under this mode of application for PAN, you have to fill all the details, upload all the documents (scanned) and E-sign the application as well. It takes a little longer time for PAN approval in this method in comparison to the above method.

Under this blog we are going to discuss : Application for PAN Aadhar based 

Step 1 : Go to https://tin.tin.nsdl.com/pan/index.htm

• Select from Application type - "New Application".
• Select from Category - "Individual", "Body of Individual" etc. as per requirements. For person its "Individual".
• Select from Title - "Shri", "Kumari" etc. as mentioned in Aadhar.
• Fill in date of birth (DOB), Email and mobile no. - Be careful with the email as your PAN will be mailed over the same mail Id.
• Type the captcha and click on "Submit"

Before submitting carefully check the detail.  

Step 2 : Generate Token No.

• After submitting the basic details a Token no will be generated as shown above. 
• Secure the token no as it will be useful further. The same will be mailed to you over Email ID as well.
• Click on "Continue with PAN Application Form" tab.

Step 3 : Fill in the PAN Application

PAN application is in five (5) parts :

1. Guideline
2. Personal Details
3. Contact & other details
4. AO Code
5. Document Details
   

Step 4 : Fill in the Guidelines

• Where it is asked, "How do you want to submit your PAN application documents" - Select "Submit digitally through e-KYC & e-sign (Paperless)". Under this no document is required to be submitted or uploaded, and no signing is required. BUT FOR THIS YOUR MOBILE NO. SHOULD BE LINKED WITH AADHAR.

• Where it is asked, "Whether Physical PAN Card is required" - "YES" (I recommend this) or "NO" as per wish. Even after selecting physical card option too, you will get PAN over Email as well. For Physical card fees is a little higher but nominal. 
• Write last Four (4) digit of Aadhar Number.   
• Then agree with aadhar photo printing on PAN.
• Enter Your name as per Aadhar (All details should be same as Aadhar)

Step 5 : Personal Details - Name & Parents Details etc. 

  

Full Name of Applicant

• Title - Enter your Shri, Kumari etc. (As in Aadhar)
• Name - Enter your name
• DOB - Enter Date of Birth
• Gender -  Male, Female etc.
• Registration no. - Leave it BLANK.
• If you were known by any other name previously - Select "Yes" and fill in that name and details, otherwise leave it as default "NO".

Details of Parents (Only in case of Individual Applicant)

• If your mother is a single parent or you wish to have your mothers name printed in PAN then Select "Yes" otherwise leave it as default "NO".
• Enter your Father Name in other case as above.
• Select accordingly whose name is to be printed on PAN
• Click on "Next" button at the bottom
• Click on "Save Draft" Tab on the top right of the screen (just below token id). 

Step 6 : Contact & Other Details

• Source of Income - The selection should be as per your current source of income and not prospective. If no income currently, simply select "No Income"
• Address of Communication - Select "Residence"
• Residence Address - Leave it Blank as it will be by-default taken as your Aadhar address in case of E-KYC application.
• Office Address - Leave Black
• Country Code - India
• Telephone no. & Email ID details - Be very careful in providing the email ID and phone no  as it will be used by department for sending message alerts and E-PAN.
• Representative Assessee - Leave it as default "NO".
• Click on "Next" button at the bottom
• Click on "Save Draft" Tab on the top right of the screen (just below token id). 

 Step 7 : AO (Assessing Officer) Code

Don't bother about Area code, AO Code etc. Once you will select your category, state and city it will be provided to you.

• Select "Indian Citizens", others if applicable.
• Select your State and City accordingly.
• Then all AO Code of your city will be provided to you in the Drop Down Box below. 
• Select the nearest AO Code applicable and it will be auto filled in your form. 
• Click on "Next" button at the bottom
• Click on "Save Draft" Tab on the top right of the screen (just below token id).

   

Step 8 : Document Details

• As we applying through E-KYC all the documents to be attached will be by-default taken as Aadhar. So just fill in the declaration. select "himself/herself" and city. 
• Check the complete information and details thoroughly 
• Click on "Submit" Button.

Step 9 : Form 49A

• After successful submission complete FORM 49A (PAN Application form) will be displayed over the screen.
• Check thoroughly and Click on "Proceed" Button.

Step 10 : Mode of Payment

• Now you have to make payment for the PAN. There are 3 modes of payment :

1. Demand Draft
2. Online payment through Paytm
3. Online payment through Bill Desk - Debit/Credit Card,online etc.

• Click on "Proceed for Payment".
• Make Payment.
• Then Payment Receipt will be provided to you.
• Click on "Continue"

Step 11 : Aadhar Authentication, fill in OTP(One time Password) & E-Sign

• Accept the Terms and conditions - Click over the Check Box.
• Click on "Authenticate"
• Click on "Continue with e-KYC e-Sign".
• OTP Verification window will be displayed - Fill in the OTP and Click on "Submit". OTP will be send over the Aadhar linked mobile no.
• E-Sign Service - Fill in the OTP Received for E-signing and Click on " Submit".

 

Step 12 : Successful E-KYC & PAN Application Generation

• On completion of sucessful E-KYC, PAN Application will be provided over the screen in PDF Formate.
• It will be password protected. Password will be your DOB in ddmmyyyy format.
• You can download this application. The same will be mailed to you over Email ID as well.

Step 13 : PAN in Email 

• PAN will mailed to you over your registered Email ID. It is mustly mailed to you in approx one (1) hour or near about time.
• It will be password protected. Password will be your DOB in ddmmyyyy format.
• You can take the printout of the same and use it.
• If you have applied for Physical PAN Card then same will be send to you on your registered address.

This is the complete process to apply for PAN (Permanent Account No.) Online and get it in One Hour. Any comment and suggestion is most welcome. Share with your friends and family. For any query or assistance, feel free to comment.

Disclaimer :

The above blog is purely for educational and  guidance purpose. It's just the reflection of the author's personal experience and judgment. The author has just provided the general information & understanding and its not at all an alternative of any legal advice or practitioner. It has no connection with the websites mentioned in its contents. The content stated in the blog should be used by the reader at his own discretion and sole responsibility. The content of the blog can be only used for any other document, write-up, article, blog and any written or printed material whether on paper or digitally in any form, with the prior permission of the author.