If interest rates are likely to come down soon, will returns from debt mutual funds also fall? What kind of debt funds should I invest in?
We believe the major part of the interest rate easing has already played out. Therefore in the current scenario, short and medium-duration and accrual based funds are likely to offer better risk-adjusted returns and should be considered for fresh investments.
Will I have to pay a fee if I switch between two funds of the same fund house?
A switch from one scheme to another is redemption in one scheme and thereafter fresh purchase in another scheme. Such a switch could attract exit load depending on the fund house and fund’s mandate, for example, if the fund mandates exit load up to a year, it can apply in case you switch before the stipulated time period. While you make the switch, also keep in mind the taxation aspect of your investment.
How important is the Assets Under Management (AUM) size of a mutual fund? Will a fund with bigger AUMs give better returns than one with a smaller AUM?
Asset size does not play a significant role in the performance of a scheme. In fact, an investor should pay more attention to pedigree of the fund house, experience of fund managers, fund’s investment and risk management approach, as these factors directly affect the performance of the scheme.
What should be the time frame for investing in mid-cap and small-cap funds?
The returns from equity as an asset class can be volatile in the short term. However, if one invests for the long term, the investor experience could be rewarding. When it comes to mid and small cap funds, which is generally considered as an aggressive investment option, ideal investment horizon should be at least five years and more.
What are hybrid funds? What is the difference between hybrid funds and balanced funds?
Hybrid funds typically offer a combination of debt and equity asset class. Depending upon the weightage of these asset classes, such funds are classified into two types — equity oriented hybrid funds and debt oriented hybrid funds. Balanced fund is a type of equity fund wherein the equity allocation can be between 65-80 per cent of the portfolio. Hybrid funds are suitable for investors with a moderate risk profile as the portfolio is constructed keeping in mind the conservative risk profile of investors.
I had invested in a three year closed ended fund last year. Now I want to redeem part of the money. Can I redeem it?
As units of closed ended funds can be redeemed with AMC only at the time of maturity; it is recommended that investors invest only that amount of money which will not be required during the lock-in tenure. In case of contingency, an investor can consider selling their units through exchange as the units of closed ended schemes are listed on stock exchanges.
What is the difference between dividend reinvesting option and growth option? Which will give better returns?
Dividend re-investment as the name suggests is an option wherein dividend is automatically reinvested in the scheme itself, at an ex-dividend Net Asset Value (NAV). Meanwhile in the growth option, an investor does not want to receive any part of profits of the mutual funds before his redemption. In other words, both dividend reinvestment and growth options allow compounding.