Mutual Fund Simplified

CAMS25Many of us wonder on this – How does a mutual fund work and what is there in for me and all sorts of other questions engulf the eager investor. Here is a simpler version of it…

All the money that you invest in a Mutual Fund, provides you credit in terms of a unit issued in your name (in your folio or a relationship account).

The funds that investors like you have invested gets pooled and a qualified Investment Manager ( who knows the trick of the trade) is given the task of managing the mutual fund.

The scheme that you invest in decides on the instruments in which the fund will invest, namely, it could be an Equity, Debt, Gold Fund or could even invest in currencies if the same is declared by the fund.

All your investments keep earning returns and the profits are accumulating and reflect in the Net Asset Value (NAV) which proportionately increases.

It is very simple and easy for you to encash your investments. Yes, you approach a Registrar and Transfer Agent (RTA) like CAMS or approach the AMC branches to redeem the units.

The proceeds now-a-days are directly credited to your account, as long as you have given a valid NEFT code and the account details are correct.

Next important step (you need not be taught) Go to the ATM, swipe the card, take the money and SPEND It…..

Understanding PAN Number

Do we know and understand the PAN (Permanent Account Number) that most of us have now-a-days?

We attempt to provide some basic insights into the logic of PAN .

This is a 10 digit Alpha Numeric Number. The first 5 characters are letters and the next 4 numbers followed by last one letter. This makes it a 10 digit unique number and this can divided in five parts as explained:

The meaning of each number has been explained further.

  1. First three characters are alphabetic series running from AAA to ZZZ as issued by IT Department.
  2. Fourth character of PAN represents the status of the PAN holder.

C — Company
P — Person
H — HUF (Hindu Undivided Family)
F — Firm
A — Association of Persons (AOP)
T — Trust
B — Body of Individuals (BOI)
L — Local Authority
J — Artificial Juridical Person
G — Government

  1. Fifth character represents first character of the PAN holder’s last name/surname.
  2. Next four characters are sequential number running from 0001 to 9999.
  3. Last character in the PAN is an alphabetic check digit.

Date of Issue of PAN card is mentioned at the right side of the photo on the PAN card ( you will see it in vertical imprint).

Collated by CAMS Digital Media Team

Your Financial Security

Financial security provides every individual the impetus for better living. If you are financially secured, things are always on a smooth run in your life. Managing financial security effectively is the need of the hour and we should frame financial objectives and set life goals actively identifying and planning for them.

We belong to a generation where there is growing job insecurity, cascading inflation and lack of a comprehensive pension system.   In this scenario, financial security acquires paramount importance in the overall scheme of things and managing it well is critical for fostering family’s investments and thereby multiply income generation. There is an impending need to actively craft and plan the family’s investments in such a manner so as to be aligned to investment objectives and personal life goals.

What is the key to financial security? Is it an asset of a secured bank balance, property and credit to refer precisely? Well these things give you financial security but maintaining this security is really a big deal. This is exactly where planning for financial security or more comprehensively financial security comes into focus.

Take an example, you inherit a large property of your grandparents. And elated as if on top of the world you start using or spending from the asset in reckless terms. What will be the consequence in course of time? Things get over without giving you an opportunity to recover. On the other hand, another gentleman begins from zero and through conscious financial planning; bit by bit he builds up an asset and may be at the end of the day this turns out to be an empire. In the words of eminent Scientist Albert Einstein, the power of compounding is the eighth wonder of the World. History has many such legend examples where the individual began from nothing and ended with everything.

What do these two examples try to portray?  They actually signify the importance of financial planning and the need to set life goals. Depending on life goals, one could plan for short-term, medium term and long term investments. Benefits of linking investments with life goals via active management or planning are many and varied. Not only does it help manage our investments with a clear objective in mind, but also provides a framework to guide investment selection.

Once the tenor and timelines of goals are clear, one can choose the right mix of asset class based on risk vis a vis return. Mutual Funds offer a plethora of choices for an average investor to pick up the right asset class depending on your profile. Mutual Funds are serviced by Registrar and Transfer Agents (RTA) like CAMS for all their customer servicing needs.

Listed below are some of the choices an Investor can make depending upon his/her goal related objectives.

Nature of   Goal Tenure Preferable mode of investment Benefits
Short to medium term 1-3 years Fixed Income Ensures capital protection and checks volatility
Medium to long term 3-10 years Income fund Best returns complemented with safety with little volatility
Balanced Mutual Fund Capital appreciation with
Long term Above 10 years Equity or hybrid funds Negates volatility combined with better returns acting as a hedge against inflation.

Success in financial planning and ensuring financial security depends upon identifying our life goals, setting timelines, calculate the amount of funds required for life goal fulfillment and link investments to each individual goal. Once our vision and priorities are clear, we should embark on a monthly investment plan or design a plan with disciplined investing over the year selecting the right type of funds suiting our profile. In such a focused manner, expenditure and savings management can be conducted in an admirable manner. Financial planning is no child’s play. You need to dedicate an ample amount of time to work on it and systematically schedule things to earn maximum benefits.

So, what are you waiting for ?? Isn’t the time to enlist your life goals and actively plan for them ? Start the process sooner than later to ensure your financial security.

Do you know what is known as Expense Ratio in Mutual Funds?

Mutual Funds do have expenses to make apart from trying to earn you a good return on what you give them to manage. Do you know this?

Do you know that there are quite a lot of fees that they have to pay to distributors (who sells you the MF Units), the advertisements that you get to see in news papers, the big hoardings that you happen to see when you are traveling etc?

While Mutual Fund is a collective investment trust, the day to day expenses of managing the funds will be a necessity. This is handled by a component called Expense Ratio which is explained here in a simple way….

Like a doctor who charges you for his service, mutual funds too charge a fee for managing your money. This involves the fund management fee, agent commissions, fees payable to the Registrar and Transfer Agent (RTA) and for selling and promoting the Mutual Fund Products related expenses.

All this falls under a single basket called expense ratio. To put it in its perspective, expense ratio is the fee charged by the investment company to manage the funds of investor. For example, if you invest Rs 10,000 in a fund with an expense ratio of 1.5 per cent, then you are paying the fund Rs 150 to manage your money.

Though the expense incurred may appear to be small and insignificant, when compounded, it usually impacts the return of a scheme over a long period.

Factors influencing the expense ratio include the size of the fund sales charges, and the management style of the fund. Smaller funds are a natural disadvantage considering they have to spread their expenses over a smaller number of investors. Different Funds have different expense ratios.

Happy reading!!