Readers' Corner: Mutual Funds

Nimesh Shah, managing director & chief executive officer, ICICI Prudential Asset Management Company

If turns from debt mutual funds are not guaranteed, why should I invest in these instead of bank FDs?

While it is true that debt funds are subject to credit, market and interest-rate risks in the short term, they offer the benefit of professional management, better returns, tax efficiency and liquidity in the long run. 

Therefore, if an investor has a short-term horizon of one year or less, he can opt to keep money in traditional fixed return instruments or look at liquid funds, ultra short term or short-term debt funds, which are debt fund categories. They offer lower risk and better liquidity for short-term cash flows. 

But if the investment horizon is three-five years, long duration debt funds are likely to be more suitable in terms of returns and tax efficiency. We believe risk appetite is very subjective and investors should consult their financial advisor. 

What is the difference between index funds and exchange-traded funds? Which gives better returns? 

Both ETFs and index funds replicate the stocks of a particular index, like Sensex or Nifty. The key difference is that ETFs are available on the exchanges on real time prices whereas index funds are bought and sold by the asset management company on the basis of applicable Net Asset Value (NAV). While both are low cost investment vehicles, index funds offer the benefit of investing through SIP, which can help to create better value over long term.

Why do mutual funds sometimes stop accepting money in some of their funds? Will it impact me if I am already invested in one such fund? 

When a scheme stops taking further investment, it could be due to a prudent risk management policy of the fund house based on their view on a theme/market cycle. Such a decision is taken to ensure investors’ interests are protected. 

Existing investors need not worry. Any fund house with a good pedigree and track record would strive to deliver good investment experience and limiting inflow into a particular fund forms a part of that strategy. Also, mutual fund companies provide intimation of such a development well in advance. 

I want to change the savings bank account linked to my mutual fund for paying the SIP and getting dividends. How 

do I do it? 

To change your bank account, send a written request to the fund house with the required form (available on fund house’s website), duly signed. Also attach proofs of the previous and the new bank account in the form of cancelled cheques with your name and account number appearing therein.

Alternatively, a copy of bank account statements containing the name and address of the account holder and account number could also be attached. The bank manager with his/her full signature, name, employee code, bank seal and contact number should certify this copy.

May a co-operative housing society invest in mutual funds? 

Investments by a co-operative housing society would depend on its constitution/authorised documents registered. A co-operative housing society may certainly invest its maintenance and sinking fund money in mutual funds depending on its investment objective. If the objective is short-term in nature, like that of society’s regular repair work or maintenance, it would be more appropriate to invest in a liquid fund. In a longer-term objective, one could look at income or duration funds.

If I have invested in a closed-end fund, is there any way I can exit it earlier than its maturity period?

Closed-end funds come with a lock-in period and typically redeem investments only at the end of the tenure. However, these funds are listed on the stock exchanges which enables investors to sell their units in the open market, just like stocks.

The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in