I have never invested in mutual funds. But now I want to invest Rs 5 lakh. I want to know about the entry load, which is 2.25 per cent. Can I save this by investing a small amount initially and then going for a top-up? I also want to invest through a systematic investment plan (SIP) for 10 years. Is it possible that I go for an SIP with a minimum amount and then top it up with an additional amount? Will it help me to save on the entry load?
- Shilpa Joshi
Your understanding that the entry load is applicable only on the first investment is not right. All investments made through a mutual fund adviser either lump sum or through an SIP will be levied applicable entry loads. To save on the entry load, you should choose your fund and invest directly. This is the only way to avoid the entry load. It is possible to invest directly for subsequent investments, wherein your earlier investment is through a mutual fund adviser.
Also, you are at absolute liberty to change your quantum of investment by way of an SIP.
I had some investments in Grindlays’ mutual fund schemes. I don't find these schemes listed anywhere or in any financial magazines. Please provide me the current names of these schemes.
- Sharad Kale
Grindlays Mutual Fund became Standard Chartered Mutual Fund after the merger of Grindlays Bank with Standard Chartered. A few months ago, IDFC acquired Standard Chartered AMC and the mutual fund has been renamed as IDFC and all the schemes are now prefixed with IDFC in place of Standard Chartered.
I invested in Reliance MF in February this year for one year, hoping to get some good returns. But unfortunately, the markets have crashed and NAVs have slipped. As of now, I have already lost 18 per cent on my investment. I don’t know what to do to recover my losses. I am thinking of transferring my investment from equity to debt through a systematic transfer plan (STP) in the next six months. Is it the right way to recover my losses or reduce it to some extent?
- Vikas Gupta
You should stay invested if you have a few years to spare. Or else, move your money to a fixed income fund. If you move your investment in a fixed income fund, you will certainly recover your losses in 2 years. But you will lose out on the upside of equities, which make a comeback when you least expect it.
First of all, you need to understand that equity funds are not meant for short-term investment. You can expect good returns from equity funds only if you remain invested for a longer term of three to five years. To avoid such a situation, we always suggest to spread your equity investment over time through an SIP.
The star ratings given in the score board are for the growth option of a fund. But what about star rating for the dividend pay-out option? Is the star rating the same for growth, dividend pay-out and dividend re-investment options? If not, from where and how can I find a star rating for the dividend pay-out option?
- R L Desai
You are right. Value Research rates the growth plan of all funds where the underlying portfolio is same. The reason is that in most of the funds, the underlying portfolio of all three options – dividend payout, dividend reinvestment and growth -- are the same. Hence the returns generated by each plan are also the same. Therefore, it does not make much sense in rating all the plans separately. The rating of any one plan applies to all other plans.
But there are certainly exceptions. In many a case, the portfolio of a growth plan would be different from the portfolio of a dividend plan. In these cases, the plans are treated as two separate schemes and rated accordingly. If you go through our website or score board carefully, you will then find an odd mention of a dividend plan with its own rating. If you go further and compare its return with its growth counter-part, you will find that the returns generated by each of the plans is different.
What is the amortisation charge of 6 per cent in close-ended mutual funds? Can I save on it by investing in a close- ended fund directly and not via a distributor?
- Sagar Shah
Earlier, mutual funds used to charge an initial expense of launching a close-ended fund over a period of time, which could have been up to 6 per cent. In 2006, the amortisation of initial issue expense was abolished for open-ended funds and at the beginning of 2008, this was also abolished for close-ended funds.
Now, all the money you invest goes to work, except for the load. And the only way to save or avoid load is to invest directly in the fund without any mutual fund adviser.
What is the role of alpha in the performance of a mutual fund?
- Anup
Alpha is a statistical term that helps to measure the risk-reward profile of a mutual fund. It is the measure of a fund's performance with respect to the performance of the index against which the fund is benchmarked. In simple words, it tells us about the fund's performance, that is, what the fund has earned over and above or under what it was expected to earn.
A positive alpha indicates that a portfolio has produced returns above the expected level at the same level of risk and a negative alpha suggests the portfolio under-performed, given the level of risk assumed.
For example, if the alpha value of a fund is 1 per cent, it means that the fund has outperformed its benchmark index by 1 per cent. Conversely, the negative value of alpha, say 1 per cent, indicates that the fund has under-performed its benchmark index by 1 per cent.
