I want to purchase mutual fund units in my child's name. My child is only few months old and does not have any bank account. As it is compulsory to provide details of bank account while applying for any mutual fund, kindly inform me whether the details of the bank account of guardian/parent can be provided for the same in the application form.
-Maneesh Batrani
It is compulsory to provide details of the bank account. The father or legal guardian can give their own bank account details on the behalf of minor.
How is the NAV of a growth scheme calculated, in comparison to a dividend scheme?
-A Nagraj
The net asset value (NAV) per unit is calculated by dividing the value of total net assets with the number of units outstanding. Money invested in both, the dividend and the growth option, is managed alike and they provide similar returns. The difference is that when a dividend is declared, it is paid only to investors who have opted for the dividend option and the NAV falls exactly as much as the dividend paid. In the growth option, your investment performs in line with the portfolio. In case of an open-ended fund, dividend is like a partial withdrawal of your investment.
I want to know whether it is a good idea to go for insurance with systematic investment plans (SIPs) that are being offered by Reliance Mutual Fund and Birla Mutual Fund. Do the asset management companies (AMCs) really bear the cost of insurance or is it another way to attract funds and increase their assets under management (AUMs). Does the net asset value (NAV) of the fund in these plans include the cost of insurance? Also, among the two, which equity scheme is good if I want to invest Rs 5,000 for a 15-year period?
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- Apurva
Some mutual fund houses are offering life insurance benefits on investing through the SIP route in select equity-oriented funds. The main aim of the AMC for providing such benefit is to assure that investors stick with the chosen fund for long period. Reliance and Birla AMCs are bearing the insurance cost of such offerings, although with a catch, as explained in the table below.
| COMPARATIVE ADVANTAGE | ||
| Reliance Mutual Fund | Birla Mutual Fund | |
| Minimum Investment | Rs 1,000 per month | Rs 1,000 per month |
| Sum Insured (if SIP stops before maturity) | No insurance cover | Cover continues if SIP stops after 3 year (at fund value subject to maximum of 100 times SIP installment) |
| Minimum Contribution Period | 3 years | 3 years |
| Maximum Contribution Period | 15 years | Up to attaining age of 55 years |
| Entry Age | >20 years & <46 years | <46 years |
| Maximum Age | Up to 55 years | Up to 55 years |
| Maximum Covered Allowed | Rs 10 lakh | Rs 20 lakh |
| Entry Load | Same as prescribed in schemes | 2.00% |
| Exit Load | 2% if redeemed/switch out before maturity of SIP tenure | 2% up to 3 years and NIL thereafter |
| Insurance Cover | Aggregate balance of unpaid SIP instalments | Up to 100 times of monthly instalment |
| Exit Load (in case of premature death) | 2% of fund value and also on insurance amount | Nil |
Some basic differences in both the AMCs' schemes are given in table. If you are planning for a long-term investment then you can select some proven funds that have delivered good returns in the past. After analysing the different features, you can select the AMC that suits the requirements. Some good funds from Reliance AMC are Reliance Growth and Reliance Regular Saving Equity. Birla AMC has Birla Sun life Frontline Equity and Birla Sun Life Equity.
What is a monthly income plan (MIP) and how does it work? What are the options for investment in MIPs and which are the good ones? I have invested Rs 8,000 in three mutual funds, through an agent. I would like to know whether the entry load will be only on the first purchase or all the SIPs.
-Sudhanshu Kumar Misra
Monthly Income Plan (MIP) is intended for people who have retired or need a constant source of income. It is usually a debt-oriented fund with a little exposure to equity. MIP is suitable for investors looking for a stable predictable monthly income from their investment. You may look at DBS Chola MIP, Birla Sun Life MIP II Savings 5 and Principal MIP.
Coming to your last question, if you have invested through an intermediary, an entry load will be charged. This load will be charged on the first investment as well as all subsequent SIPs.
The benefits of SIPs are often talked about. But I also wish to know more about SWP. Why is it not so popular? I believe it should be a good option for retirees who are in need of a regular cash flow for monthly expenses.
-Meghana Joshi.
Systematic Withdrawal Plan (SWP) is the opposite of SIP, that is, withdrawal of fixed amount at desired periodicity. SWP is particularly useful for investors seeking regular income from their one-time investment. The SWP option is offered in most equity and debt funds. Some fund house like Birla Sun Life and Franklin Templeton also offer interesting SWP variations like SWP - fixed and appreciation. Under the fixed option, the investor can withdraw fixed amount on a monthly or quarterly basis. In appreciation option, you can withdraw up to certain extent of appreciated amount on a periodic basis.