Select Your Language

Mutual Fund

Types of Mutual Funds in India

There are three primary types of Mutual Funds by Asset Class in India.

1. Equity mutual funds: These funds invest maximum part of their corpus into equity holdings. The structure of the fund may vary for different schemes and the fund manager’s outlook on different stocks. The Equity funds are sub-classified depending upon their investment objective, as follows:

Diversified equity funds
Mid-cap funds
Small cap funds
Sector specific funds
Tax savings funds (ELSS)

Equity investments rank high on the risk-return grid and hence, are ideal for a longer time frame.

2. Debt mutual funds: These funds invest in debt instruments to ensure low risk and provide a stable income to the investors. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. Debt funds can be further classified as:

Gilt funds
Income funds
Short term plans
Liquid funds

Debt Funds rank lower on the risk-return grid and are suitable for shorter investment time frames.

3. Gold fund: A gold fund is a mutual fund that invests in 99.9% pure gold. This gold investment is a paper investment and does not attract any making charges that a gold jewelery would.

Gold Funds are a great option for those who want to buy gold for their kid’s wedding in few years.

China Looses Shirt, Greek Retreats, D-St Abuzz

As the China’s bourses took a plunge in the recent weeks, the concerned departments immediately went into action for intervention. The government initiative also included halting a IPO setting up a stock buying fund of $19.3 billion and also slapped a ban on the state owned companies selling shares of the listed units.

The probe is going on under  the  public security ministry sniffing some foul short sellings and following could be the reasons for the Chinese leaders to take the action, the rising capital, shielding the broader economy, the political stability, stability of the Yuan and last but not the least the  reputation factor  as China has been pressing ahead globally with an infrastructure bank that rivals existing institutions and pressing the china’s claims in the south China sea and the Chinese Prez has taken the responsibility for the country’s economy by appointing himself at the couple of key positions in the policy committees and on the other hand the collapsing market would counter the China’s claims that it deserves more say in the global market

The global stock markets heaved a sigh of relief and rallied briefly after the European Union leaders cracked a deal with Greece to keep the bankrupt country in the euro zone, and in the Indian bourses the markets were led by banks, auto and tech. As of now the investors will focus on the corporate earnings and the further cues will be generated progress of the monsoon and the monsoon session as well as the how this deal amongst the Greece and the European Union emerges in the Greece parliament.

We may not relate to Greece but China is one of the materially giant market, but still the flavor of the emerging markets will be back on the Indian market as the Greece and the Chinese headwinds are way behind us, as less money could be chasing the stocks in the upcoming months with Rs40K crores worth of the tax free bonds to gush the financial markets , so many clodhoppers investors are waiting to fish for the long term risk free interest returns will park fresh funds in these securities.

The continuous inflows from the local institutions and the HNI as well exhibited a high degree of resilience in the last two months. If a chunk of this slice flows into the tax free bonds and inflow from the FIIs end continues to be muted than in this condition the stocks would face the brunt. On the other hand in the case of the structurally sustainable inflows into the equity mutual funds remains intact but in the second half of the 2016 the inflows of the equity mutual fund may abate mainly due to a very sturdy pipeline of the colossal 40K crores of the tax free bonds, but the strong undercurrent in the transition of the household savings from the physical to the financial assets moderation will be somewhat short-lived.

At the present scenario of the bond yields an investor can earn as much as 7.5% by going for the tax free bonds which maturities of 1 or 2 decades, since they are non taxable and so they appear to be more attractive than the taxable debt instruments, here the timing of the issuance is utmost important because if in one year the equity returns during the bond issuance is lesser than the yield  than some of the HNIs fund may move into the tax free bonds, and if on the other hand the equity markets picks up on time than  a major change is expected in the allocation. In the June 2015 the domestic mutual funds have bought equities worth Rs10,320 crores which is the highest ever since the April of the 2007, and with the persistent  inflows the domestic mutual funds have continued to remain as net buyers of the Indian equities, they have flushed in to the tune of Rs33,600 crores this year. 

The Sensex since this June has  dipped by mere 1% point as compared to 9% drop in the (Morgan Stanley Capital International)MSCI emerging market index  which is the key benchmark tracked by the global fund managers during the fund allocation in the various emerging markets.

The ministry of finance has mandated some seven large state owned companies to sell tax free bonds to raise Rs40k crores and so some minor impact is expected on the equities in the latter half of the current fiscal year as the tax free bonds with no tax liability on the interest earnings are very enticing investment bet not only for the HNIs but also for the institutions. India is all set to remain the most lucrative markets amongst all the emerging market peers.

The Total Recall

In the recent report by the International Monetary Fund (IMF) reinstates that India will beat China in terms of the growth and is all set to march well ahead of China by the next year i.e. 2016. IMF plays a very important role in the financial and economical aspects in all the countries of the world.

IMF came into the being in 1945 in order to improve the world economy which was in doldrums after the 2nd world war and with just 29 countries showing keen interest in the first meeting which was held on 27.12.1945, whereas most of the countries refrained from showing any interest as against the presence of representatives of keen  44 countries in the previous meeting which was held in the 1944, and now the IMF has 195 countries as its members with headquarters in Washington DC, with a workforce of 2600 people from 147 countries and 26 directors representing a country or representing a group of countries with a quota of $362 billion. The major borrowers are Greece and Ukraine.

At these times when the Greece is suffocating and struggling with its financial crises, the IMF is playing a very important role. Sometimes the harsh role exhibited by the IMF becomes the reason of criticism everywhere but mostly IMF is appreciated as an efficient responsible body, the statistic report which proves as a boon to the markets of the concerned country by bringing in the drastic change about the overview of that country from global point of view.

IMF is also connected with the international financial affairs in one way or the other. So much so that the report of the IMF for India sometimes goes against or sometimes goes in favor of India. A relief of some sorts this report by IMF that India’s growth rate will beat China is a breather. It is imperative to understand that what the functions of IMF are and how is IMF different from the other international association bodies.

1)The source of the Fund:-  To run the IMF the fellow member countries have made quota according to 2)their individual capacities, and this capacity of the member countries are re-determined at least after every five years. A country may also deposit well up to 75% of its finances or wealth. The IMF also earns from the interest from the loan which it gives to the various countries.

3)The Exchange Rate System:- It is the responsibility of IMF to keep the international financial stability and harmony by trying to keep the exchange rate system and the international payments stable which happens to be the backbone of the businesses between any nation.

4)Economical Aid/Subsidies:- IMF helps the financially weak countries by extending them the monetary help in terms of aid or subsidies, technical help, planning, expenditure management and the training about the related aspects to the concerned country. Special Drawing Rights (SDR) is neither a currency nor any claim but this amount is special quota kept aside which the IMF keeps it aside for those fellow countries to help them counter any financial crisis, and the concerned country need not pay any interest until it does not bails itself out of the quota category. IMF gives loans through two arrangements, one is new arrangement to borrow (NAB) and the other is general arrangements to borrow (GAB), presently the IMF has the loan capacity of $500 billion. IMF makes special arrangements during the time of economical crisis of the member countries.

5) Emphatic Gold: - The gold plays a very significant role in planning of the IMF; in 1978 the IMF had determined the limit of transactions done through gold, but now this is only accepted in special circumstances only, the gold deposits with IMF is 2814 metric tones.

5) Surveillance: - The IMF monitors the financial strategy, policies and planning of various countries so that the world economy remains does not goes overboard. 

IMF and the World Bank: - The IMF only gives loan against the reforms for various policies while the World Bank gives the loan to its fellow countries for the various development programmes like construction of the dams. The World Bank gives loans only to the developing nations and the emerging markets whereas the resources of the IMF is for poor, developing as well as the developed nations also.