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Mutual Fund FAQ
A mutual fund pools money from many investors and invests it in assets like shares, bonds, or money market instruments, managed by a professional fund manager.
Each investor owns units of the mutual fund, which represent a proportional share in the overall portfolio.
A mutual fund is established as a trust with four key components: sponsor (promoter), trustees (hold property for unitholders), Asset Management Company or AMC (makes investments), and custodian (holds securities). At least two-thirds of trustee directors and 50% of AMC directors must be independent
NAV is the unit price calculated as (Total Assets – Total Liabilities) ÷ Outstanding Units. It’s calculated daily and changes based on market fluctuations of securities in the portfolio.
Entry loads have been abolished by SEBI. Exit loads are charges imposed when redeeming units before a specified period to discourage short-term trading. Exit loads cannot exceed limits mentioned in offer documents.
Open-ended funds allow continuous buying and selling at daily NAV with no fixed maturity. Close-ended funds have a fixed maturity period (2-5 years) and can be traded on stock exchanges after the initial offer period.
A mutual fund is established as a trust with four key components: sponsor (promoter), trustees (hold property for unitholders), Asset Management Company or AMC (makes investments), and custodian (holds securities). At least two-thirds of trustee directors and 50% of AMC directors must be independent
Equity funds invest primarily in stocks to provide capital appreciation over the medium to long term. They carry relatively high risk but offer growth potential.
Debt funds invest in fixed-income securities like bonds, debentures, and government securities to provide steady income with lower risk than equity funds.
Balanced funds invest in both equities and fixed-income securities in proportions of 40-60% each to provide moderate growth with stability.
Liquid funds invest in short-term instruments like treasury bills and commercial paper, offering easy liquidity, capital preservation, and moderate income with minimal fluctuation.
Sectoral funds invest in stocks of specific sectors (e.g., IT, pharmaceuticals). Thematic funds invest across sectors united by a theme (e.g., infrastructure, MNCs). Returns depend on sector/theme performance.
Liquid funds invest in short-term instruments like treasury bills and commercial paper, offering easy liquidity, capital preservation, and moderate income with minimal fluctuation.
ELSS schemes offer tax deductions under Section 80C with a mandatory 3-year lock-in period. They invest predominantly in equities for long-term wealth creation.
An SIP allows investors to invest fixed amounts regularly (monthly, quarterly) over time, practicing rupee-cost averaging. This reduces the impact of market volatility and enables consistent wealth building.
An STP allows investors to transfer investments periodically from one scheme to another within the same mutual fund based on a single instruction.
An SWP allows investors to withdraw fixed amounts regularly (monthly, quarterly, yearly) from their investments, ideal for retirees seeking regular income.
An SIP allows investors to invest fixed amounts regularly (monthly, quarterly) over time, practicing rupee-cost averaging. This reduces the impact of market volatility and enables consistent wealth building.
Read the Key Information Memorandum (KIM) and Scheme Information Document (SID) carefully. These contain investment objectives, risks, fees, asset allocation strategy, fund manager details, and past performance.
IDCW stands for Income Distribution cum Capital Withdrawal. SEBI renamed the dividend option to clarify that it’s not a guaranteed bonus but rather partial withdrawal of invested capital.
Redemption proceeds are transferred within three working days of redemption request (five days for schemes with 80% overseas investments). IDCW payments are made within seven working days from the record date. Delays incur 15% annual interest.
Insurance FAQ
Life insurance is a contract where the insurer pays a lump sum to your nominee if you die during the policy term, in return for regular premiums, providing financial protection to your family.
Key types include term insurance (pure protection), endowment plans (protection plus savings), ULIPs (investment‑linked), and whole‑life policies, each designed for different financial goals and risk profiles.
A common thumb rule is 10–12 times your annual income, but better methods consider your debts, income replacement needs, and future goals like education, so the cover truly matches your responsibilities.
Premiums for eligible life policies can qualify for deductions under Section 80C, and death benefits are generally tax‑exempt subject to Income Tax Act conditions, making life insurance both protective and tax‑efficient.
The policy may lapse or become a reduced‑paid‑up policy; recent IRDAI rules also allow a specified revival period to restart the policy within a few years, usually on paying overdue premiums with interest.
Health insurance is a policy that pays or reimburses hospitalisation and medical expenses up to a defined sum insured, reducing your out‑of‑pocket costs during medical emergencies.
In cashless hospitalisation the insurer settles eligible bills directly with a network hospital, and you only pay non‑covered or excess amounts, easing financial pressure during emergency medical treatment.
Premiums for health insurance for self and family are generally eligible for deduction under Section 80D, with higher limits for senior citizens, encouraging people to maintain adequate medical coverage.
Check the insurer’s claim record, coverage scope, exclusions, waiting periods, premium affordability, and whether the sum insured or life cover meets your financial needs, instead of choosing only the lowest premium.
Critical illness insurance pays a one‑time lump sum if you are diagnosed with specified serious illnesses like cancer, heart attack or stroke, as per the policy terms, regardless of actual hospital bills.
Critical illness policies pay a fixed lump sum on diagnosis of a listed illness, while regular health insurance pays actual hospital bills up to the sum insured, so both products serve different financial purposes.
Commonly covered conditions include major cancers, heart attack, stroke, kidney failure, major organ transplant, and certain paralytic or neurological diseases, though the exact list varies across insurance companies.
Critical illness cover can complement health insurance by providing cash for income loss, long‑term care, or non‑medical costs that hospital policies do not pay, especially important if you are the main earner.
Many insurers allow you to add a critical illness rider to a term plan so you get a lump sum on diagnosis while keeping life cover in the same policy, often at a relatively low additional premium.
The Insurance Regulatory and Development Authority of India (IRDAI) is the statutory body that licenses and regulates insurers and protects policyholders’ interests, ensuring fair practices in the insurance market.
For life insurance, the nominee files a death claim with documents and the insurer must decide within regulatory timelines; for health and critical illness, claims are either cashless through network providers or reimbursed on document submission, following the specific policy conditions.