Q 1. Concept of Mutual Fund

Mutual Fund is vehicle to mobilize money from investors, to invest in different markets and securities. In other words through investment in mutual fund, a small investor can avail a small investor can avail of professional fund management services offered by an Asset management company.

Q 2. Explain the Role of Mutual Fund?

The primary role of mutual fund is to assist investors in earning an Income or building their wealth, by participating in the opportunities available in the securities and market. Due to diversification of funds reduces risk in mutual fund. Thus mutual fund structure, through its various schemes makes it to possible tap a large corpus of money from diverse investors.

Q 3. What are the advantages of mutual fund for Investors ?

1. A) Professional management- Mutual fund offers investors the opportunity to earn an income or build their wealth through professional management. There are several aspects to such professional management which is investing in line with the investment objective, Investing based on adequate research, and ensuring that prudent investment processes are followed.
2. B) Portfolio Diversification- In mutual fund, there is Higher number of diversification, due it helps to reduce Risk. In mutual fund there is initial minimum amount for Investment as a starts from ₹ 500, which can achieve the Diversification through an investment less than a thousand rupees.
3. C) Economies of Scale- A large no. of investors invests money in mutual funds which provides pooling of large amount of funds by mutual funds and mutual fund companies engages professional experts to manage the investments of investors. Resultantly, it provides economies of scale.
4. D) Liquidity- Mutual fund provides high liquidity as the investor can sell the units of Mutual Fund at the prevailing NAV and take the sales proceeds of mutual fund units.

 5. E) Investment comfort- Once an investment is made with a mutual fund, they make it convenient for the investor to make further purchases with very little documentation. This simplifies subsequent Investment activity.

Q 4. Explain the types of fund-

1. A) Open ended funds-  Open ended funds open for investors to enter or exit any time, even after the NFO. In open funded scheme, we can sell shares directly to Investors.
2. B) Open-end fund shares are purchased at what’s known as their Net Asset Value or NAV. This number reflects the total market value of the assets held in the fund at the end of each trading day, less liabilities and divided by the total number of outstanding fund shares.

Close Ended funds- Close Ended funds do not permit entry and exit at any time. This is done through a listing of the scheme in a stock exchange. Such listing is compulsory for close-ended schemes. Thereafter, whenever investor wants to buy the units then he needs to find out a seller of those units in the recognized stock exchange. Here, in the case where buyer is buying mutual fund units from stock exchange then transaction price may be different from NAV.

Q 5. What is the formula of NAV?

Net asset value= Asset- Liabilities/ No. Of total units

Q 6. Explain the valuation of mutual fund scheme as a profitable?

The valuation of Mutual Fund scheme is done on the following basis:

Value of Mutual Fund Scheme = Interest income +Dividend Income+ Realized capital Gains+ valuation gains- Realizable capital losses- Valuation losses-Scheme expenses.

Example of valuation of Mutual Fund Scheme

Suppose, share of WIPRO is traded in the share market then the closing market value of such share of WIPRO shall be take for computing the value of security of the portfolio. Thus, the number of Infosys shares in the portfolio (say, 1,000) multiplied by its closing price (say, Rs 2700) gives the valuation of Infosys shares in the portfolio (1,000 shares X Rs 2,700 = Rs 27,00,000).Similarly, every security in the portfolio is to be valued.

Q 7. What is meant by actively managed funds and Passive funds ?

1.  A) Actively managed fund is a system managed by fund manager at a high cost or High charge fees. In this case manger make an investment in Alternatives, shares, property, bonds etc It’s an active strategy towards an investment
2. B)  In passive fund, There is no charges and commonly invest in NIFTY (Top 50 companies). For e.g-  In HDFC- 10.67%, In RIL- 2%, TCS- 10.2%, basically it’s known as Diversification. So, there is low changes for risk.

Q 8. Mutual fund scheme categorised into:-

1. A) Debt-

Schemes with an investment objective that limits them to investments in debt securities like Treasury Bills, Government Securities, Bonds and Debentures are called debt funds.

2. B) Equity-

Schemes with an investment objective of investment largely in equity shares and equity related investments like convertible debentures. The investment objective of such funds is to seek capital appreciation through investment in this growth asset. Such schemes are called equity schemes.

3. C) Hybrid-

Schemes with an investment charter of investing in both debt and equity. Investment may be also be done in gold along with either debt or equity or both.

Q 9. What is the Role of SEBI in mutual fund ?

SEBI is the regulatory authority for securities markets in India. It regulates, among other entities, mutual funds, depositories, custodians and registrars & transfer agents in the

country. entities, mutual funds, depositories, custodians and registrars & transfer agents in the country.

 SEBI plays a role as fiduciary in mutual fund which helps to ensure fairness, transparency and accountability in securities market and protect the interest of investors as well. SEBI take action against violator, and also authorised to inspect books of account and other documents when it comes across any violation of the Regulation.

Q 10. What is the role of Trustee in mutual fund ?

The trustees plays a a critical role in order to ensure that the mutual fund is in compliance with all the applicable regulations, and therefore, protects the interests of the unit-holders

The SEBI Regulations stipulate that:

-Every trustee has to be a person of ability, integrity and standing .

-A person who is guilty of moral turpitude cannot be appointed trustee -A person convicted of any economic offence or violation of any securities laws cannot be appointed as trustee. Prior approval of SEBI needs to be taken, before a person is appointed as Trustee.

Q 11. What are the types of mutual fund?

1. A) Gilt funds- In Gilt fund, there is a Investment in treasury bill and government securities along with safe or secured return. Under this scheme having low risk.
2. B) Diversified Fund- In diversified fund, there is a invest in both public and private category, It includes bond of corporate or government sector. Under this scheme having moderate risk or low risk.
3. C) Junk Bond Scheme- Junk bond scheme leads to credit risk companies group which having poor credit rating. So, there is highly risk along with High return.
4. D) Fixed Maturity plans- Under this scheme, investor cannot withdraw amount until date of maturity expires.
5. E) Floating rate fund and Liquid scheme- In Floating rate scheme, Rate changes as per the Market price and In liquid scheme we can easily convert into cash as per our personal requirement.

Q 12. What is the minimum limit of amount to invest in mutual Fund ?

We can start invest in mutual fund starts from ₹ 500. It’s a Intial price of amount for Investment, there any common man can afford to invest in mutual fund.

Q 13. Is there taxability of dividend Received?

Dividend received from mutual fund was tax free for investors until 31st March 2020, because company has already paid dividend distribution tax before making the payment.

However, starting from the financial year 2020-21, dividend is taxable in the hands of investor vide Section 194K and therefore, Mutual fund companies are liable to deduct TDS @10% of the amount which is in excess of Rs.5000 in a financial year.

Q 14. How are Mutual Fund taxed when sold?

For the purposes of taxability on sale of Mutual Fund units, Mutual Funds may be divided into two categories:

1. Taxability of sale of Equity Oriented Mutual Fund
2. Taxability of sale of Non-Equity Oriented Mutual Fund

Category 1:  Taxability of sale of Equity Oriented Mutual Fund

In case, if Mutual Funds are sold at a profit then two type of gain may arise:

1. Short Term Capital Gain: If period of holding of mutual fund is less than 12 months then short term capital gain arises. It is taxed as mention below:

*Surcharge and HEC as applicable

2. Long Term Capital Gain:If period of holding of mutual fund is more than 12 months then Long term capital gain arises. It is taxed as mention below:

*Surcharge and HEC as applicable

**Income-tax at the rate of 10% (without indexation benefit ) to be levied on long-term capital gains exceeding Rs. 1 lakh provided transfer of such units is subject to Securities Transaction Tax (‘STT’)

Category 2:  Taxability of sale of Mutual Funds which are other than Equity Oriented Mutual Fund

If Mutual Fund are sold at profit then two type of gain may arise:

1. Short Term Capital Gain : If period of holding of mutual fund is less than 36 months then short term capital gain arises. It is taxed as mention below:

*Surcharge and HEC as applicable

** subject to certain specified condition

2. Long Term Capital Gain : If period of holding of mutual fund is more than 36 months then Long term capital gain arises. It is taxed as mention below:

*Surcharge and HEC as applicable

** subject to indexation

Q 15. Which Mutual Funds comes under Section 80C?

Deduction of up to Rs. 1,50,000 is available where investment is made in Equity Linked Saving Schemes (ELSS).

An additional deduction of Rs. 50,000 is also under Section 80CCD(1B) of the Income Tax Act where investment is made in National Pension Scheme (NPS).