Do debt mutual funds offer fixed returns, like bank fixed deposits (FDs)? What is the advantage of debt funds over FDs?
Investors can look to create long-term wealth with mutual funds (MFs). Within the debt fund category, fixed maturity plans offer tax-efficient returns. In general, debt funds offer the benefits of professional management, long-term returns, better tax efficiency and liquidity.
Some years back, I had made a lump sum investment in an MF, but did not do the KYC (Know Your Customer) requirement. Now, I have MF investments for which I have done the KYC, according to the current rules. Is this enough to redeem my older investment or will I have to do KYC for that particular fund?
The KYC requirements are to be fulfilled for investment purposes. In the case of redemption, you simply need to fill the redemption form and submit to the nearest asset management company or CAMS office. The redemption form is very easy to fill and all you need to put is your name, folio number and the number of units you want to redeem.
How do MF pension plans work? How are they different from regular equity funds?
MFs offer pension plans which are hybrid in nature, having investment in both debt and equity component. Pension plans aim to provide periodical income/cash flow to the unit holders after completion of 58 years of age. These plans provide tax rebate up to Rs 1,50,000 under Section 80C of the Income Tax Act. On the other hand, equity funds help investors achieve a variety of financial goals in the long term, including retirement planning.
I get employee stock ownership plans as part of my salary package. If I invest in an MF that invests in my company, will it not be too much of investment in one company's stock? How can I avoid this?
By investing in an MF, you derive the benefit of diversification, professional management and low cost. In a diversified portfolio of 40-45 stocks, the negative performance of one stock does not affect the entire portfolio and increases the possibility of making a sustainable return.These funds aim for medium- to long-term capital appreciation and are suitable for investors having a moderate risk profile and an investment horizon of at least three to five years.
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Nimesh Shah, managing director & chief executive officer, ICICI Prudential Asset Management Company, answers your questions