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Most individuals are not equipped, both analytically as well as psychologically, to invest in equities in the right manner. Moreover, most people do not have the time nor the inclination to conduct the detailed, painstaking research required in order to make prudent investments in the markets. Mutual Funds offer investors the benefits of investing in equities as well as bonds, with a hands-off approach.

There is a wide range of Mutual Funds available in the market, each one having diverse specifications to meet different requirements. Currently there are 52 different Mutual Fund houses, with a combined total of over 3,388 different Mutual Fund schemes. So the question arises - how do I know which one is right for me?!

That is where we step in - with our meticulous research team and rich industry experience, Lemon Fundz helps you plan and execute your Mutual Funds investment portfolio, customized as per your individual risk profile, requirements and goals. And it does not end there - once your portfolio is constructed, we help you monitor it and provide timely advice to maximize the returns and make the most out of the existing opportunities!

>>  What is a Mutual Fund?
>>  Advantages Mutual Funds offer
>>  Types of Mutual Fund Schemes
>>  Mutual Fund Terminology

What is a Mutual Fund?  (Back To Top)

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Advantages Mutual Funds offer  (Back To Top)

Portfolio Diversification: Mutual funds are a convenient and affordable way of investing in a wide range of investments which would be very difficult and time-consuming to purchase and manage individually. Mutual funds typically invest in a broad cross-section of industries and sectors, and thereby offer a degree of diversification that would be difficult to achieve on your own.

Professional management: Mutual Funds appoint experienced, professional Fund Managers who devote themselves exclusively to tracking the markets, analyzing securities and implementing a consistent investment strategy. The Fund Managers are backed by dedicated Research Teams, who actively analyze the overall market conditions as well as individual securities and assist the Fund Manager in selecting the best opportunities for investment.

Flexibility: Mutual Funds employing a variety of investment strategies are available to help meet the needs of every type of investor, from conservative to very aggressive. Also, through features such as Systematic Investment Plans (SIP), Systematic Transfer Plans (STP), Systematic Withdrawal Plans (SWP) and dividend reinvestment plans; you can systematically invest or withdraw funds according to your needs and convenience.

Hassle-free Administration: Investing in a Mutual Fund reduces paperwork and helps avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Moreover, you can track your portfolio online - anywhere, anytime.

Sound Returns: A well-selected portfolio of Mutual Funds has the potential to deliver satisfactory returns over the medium to long term, with low volatility.

Transparency: Regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook, is provided by each Mutual Fund.

Well-Regulated: All Mutual Funds are registered with SEBI and they function within the limits of strict regulations designed to protect the interests of investors. Also the Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework.

Types of Mutual Fund Schemes  (Back To Top)

There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectations.

By Structure

Open Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Closed Ended Schemes: These funds have a pre-specified maturity period. The 'Unit Capital' of such schemes is fixed as it makes a onetime sale of a fixed number of units. After the offer closes, closed ended funds do not allow investors to buy or redeem units directly from funds.

Interval Schemes: These combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.

By Nature

  • Equity Funds
  • Mid-Cap Funds
  • Sector Specific Funds
  • Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

Debt funds:The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government of India, popularly known as 'Gilts'. These Funds carry zero default risk but are associated with interest rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and government securities.

Monthly Income Plans (MIPs): Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, these funds provide easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management with an investment horizon of 1day to 3 months. These schemes are considered to be the safest amongst all categories of mutual funds.

Balanced funds:As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.

By Investment Objective

Growth Schemes: Aims to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation.

Dividend/Income Schemes: Aim to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. They invest in both shares and fixed income securities in the proportion indicated in their offer documents.

Money Market / Liquid Schemes: Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money.

Other Equity related Schemes

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE Nifty. The portfolio of these schemes will consist of only those stocks that constitute the index, and with the same weightage as in the index it replicates. Hence, the returns from such schemes would be more or less equivalent to those of the index it replicates.

Sector Specific Schemes: These schemes invest in the securities of specific sectors, e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries.

Fund of Funds: As the name suggests, these Mutual funds invest in other mutual fund schemes offered by different AMC

Mutual Fund Terminology  (Back To Top)

Net Asset Value (NAV) Net Asset Value (NAV) is a term used to describe the value of an entity's assets less the value of its liabilities. The term is commonly used in relation to collective investment schemes. For Mutual Fund Schemes, the NAV is the total value of the fund's portfolio less its liabilities. Its liabilities may be money owed to lending banks or fees owed to investment managers.

Assets under Management (AUM) In general, the market value of assets an investment company manages on behalf of investors. There are widely differing views on what the term means. Some financial institutions include bank deposits, mutual funds and institutional money in their calculations. Others limit it to funds under discretionary management where the client delegates responsibility to the company.

Units A Mutual Fund unit is what individual investors buy which gives them a "pro rata" share of the value of the investments of the fund. The unit value of the fund is struck by adding up the values of all the investments at their market prices, subtracting amounts owed by the fund and dividing by the number of units held.

New Fund Offer (NFO) A NFO is a security offering in which investors can purchase units of a Mutual Fund. A new fund offer occurs when a mutual fund is launched, allowing the firm to raise capital for purchasing securities. A new fund offer is similar to an initial public offering. Both represent attempts to raise capital to further operations.

Entry / Exit Load Mutual Fund Companies incur some expenses to float a fund and also they have many administrative and operative expenses. So to meet those expenses they collect a percentage of fees from the investors, which are called loads. If they collect the fee when you buy the units, then it is called as entry load. If they charge that fee when you sell your units back to them then it is called as exit load.

Diversification Diversification is a risk management technique, related to hedging, that mixes a wide variety of investments within a portfolio. Diversification minimizes the risk from any one investment. It strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others.

Fund Manager The person(s) responsible for implementing a fund's investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people. Fund managers are paid a fee for their work, which is a percentage of the fund's average assets under management.

Asset Allocation Asset allocation is a term used to refer to how an investor distributes his or her investments among various classes of investment vehicles. A large part of financial planning is finding an asset allocation that is appropriate for a given person in terms of their appetite for and ability to shoulder risk. Examples of various asset classes are: Equity, Bonds, Fixed Deposits, Real Estate, Cash, etc.

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Liquid Fund (Back To Top)

Liquid funds are ultra short-term debt mutual funds that invest in money market instruments such as certificate of deposits, commercial paper and treasury bills, either on an overnight basis, ten days or a month.

Is it safe ?

Yes - Liquid funds invest in ultra short-term debt instruments with maturity typically between three to six months. They have the restriction that they can have only 10% or less in mark-to-market instruments, indicating very low interest-rate risk. The returns are moderate, but the risk is negligible - making these funds the ideal instruments for parking short-term funds.

Returns ?

Annualized Bank Savings Account 's Interest Rate - 3.5% (pre-tax)
Annualized Bank Current Account 's Interest Rate - 0
Annualized Liquid Mutual Funds' return - approx. 4 - 5% (post-tax)

Salient Features :

  • No entry-exit loads
  • High Liquidity - funds credited to your account on T+1 basis
  • Park money even for weekends & earn returns
  • No lock-in period
  • Zero equity exposure

Ideal For :

  • Corporates with high cash balance/inflows
  • HNIs