Mutual Funds in India
Friends, let us take a stock of some basic information of mutual funds in India.
In India, Mutual Funds are having three tier structure. Mutual Fund is set up as a trust, which is sponsored by a sponsor entity. Sponsor entity takes approval from SEBI to launch mutual fund. This entity then establishes a trustee company to become trustee of the mutual fund. Most importantly, the sponsor establishes Asset Management Company (AMC) to manage the mutual fund assets. Hence, the structure will look like as below. Further, every scheme of the mutual fund needs specific separate clearance from SEBI and then can be launched.
Some of the features of mutual funds are lower investment sizes, professional management, transparency, diversification, liquidity are unique and offer advantages to investors.
- Types of Schemes:
- Equity Schemes: Invests primarily into various shares and equity instruments. (Generally, 65-100%). LTCG beyond 1 year is tax free for resident Indians.
- Debt Schemes: Invests primarily into debentures, bonds, debt market instruments, money market instruments, Govt. Securities etc. LTCG beyond 3 years is applicable with indexation for resident Indians.
- Hybrid Schemes: As the name suggests, it is a combination of Equity + Debt in varied proportions. If more than 65% assets are in Equity, taxation of Equity Schemes are applied. Otherwise, taxation of debt schemes are applied.
- Funds of Funds: As the name suggests, these schemes invest in various mutual fund schemes. If more than 65% assets are in Equity funds, taxation of Equity Schemes are applied. Otherwise, taxation of debt schemes are applied.
- International Funds: As the name suggests, these schemes invest in international securities / funds. Taxation would be same as Debt Schemes, if less than 65% of the assets invested in Indian Equity Instruments.
- Exchange Traded Funds: As the name suggests, these funds are listed on a stock exchanges and gets traded like a share. Hence, investors can buy / sell them freely.
- Index Funds: As the name suggests, these funds are replica (copy) of some index like Sensex, Nifty etc. and provides matching returns of relevant index.
- Closed-end Funds: These funds are closed for subscription / redemption.
- Interval Funds: These funds are closed for subscription / redemption for a fixed interval.
- Open-end Funds: These funds are open for subscription / redemption on continuous basis.
- Transaction Types:
- Lumpsum Investment:
Investing any amount of money in a mutual fund scheme at one go.
- Lumpsum Redemption:
Withdrawing any amount of money from a mutual fund scheme at one go.
- Switch Transactions:
Switching-out from existing scheme of a mutual fund and switching-in the same into another mutual fund scheme. (Basically, transferring from one scheme to another).
- SIP (Systematic Investment Plan):
One can put every month / quarter fixed amount in a mutual fund scheme as a regular investment.
- SWP (Systematic Withdrawal Plan):
One can withdraw every month / quarter fixed amount from a mutual fund scheme as a regular income / withdrawal.
- STP (Systematic Transfer Plan):
One can transfer every month / quarter fixed amount from one scheme of mutual fund to another.
- Mutual Fund Industry in India:
There are around 45 mutual fund companies in India with total Assets Under Management (AUM) as on 30-Jun-17 of approx. Rs. 17 lakh Crore. E.g. ICICI Prudential Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, Franklin Templeton Mutual Fund etc. MF industry in India a growing at a very fast pace recently and is projected to grow multifold in years to come. Thousands of schemes are launched by these companies for the benefit of investors. For more knowledge and information about mutual funds India, one can visit websites of
- By Tejas Patel