Basic understanding of investors about Mutual Funds
1 Balancing diversification and management of funds:
1.1 Ideal number is four to five
1.2 Potential of offering highest return
2. What are the market driven factors:
2.1 Flow
2.2 Sentiment
2.3 Fundamentals
3. What are the different types of risks associated to Bond?
Three types of risk:
1. Interest rate risk
2. Credit rate risk
3. Liquidity risk.
4. Is there any risk of non repayment of FMPs in time?
In case of bond AMCs gives loans to companies, against promoter's equity holding. In case there arises chance of non repayment of loan in time the repayment of FMPs is effected.
In such situations AMCs can sale promoter's holding but they may effect the equity market adversely. The companies in such situations may enter into agreement with the AMCs to allow more time of repayment of loan. Which in turn effects the repayment schedule of FMPs.
5. Does Mutual Fund Companies provide loans to any one?
Mutual Fund Companies are providing loans to promoters by way of subscribing to bonds. This results in higher return than high quality bond in market. Since last 10-15 years Indian Mutual Fund Companies have been giving loans. Such loans are generally secured against the promoter's equity, the valuation of such shares is generally 1.5-2 times higher. Mutual Fund Companies judge the credibility of the promoters in this regard.
6. What is the rules of regulator regarding exposure to one company or many companies under one group in case debt fund?
A scheme can't hold more than 10% in one security.
7. Are all corporate bonds traded in market actively?
Corporate bonds below AAA or A1 in India are not actively traded in India.
8. As of May 2019 is there any standard norm of writing down the NAV of bond in case of any default is made by any company?
There is no rules of SEBI and also there is no standard practice across the industry in this regard. AMCs doesn't have any standard benchmark like quoted price in case of bonds below AAA or A1 grade.
9. Does Government takes any role in case any company defaulted in paying loan to AMCs.
The management of the company will come under the control of Government appointed board
10. Does any investor have the chance of early exit in case of FMP?
No, an investor investing in any FMP scheme offered by Mutual Fund Companies can not exist early in case of investment in FMP, before the date as declared by such scheme having a Fixed Maturity schedule for such plans.
11. How can I compare FMP with other open ended debt funds?
When a FMP is having concentrated portfolio i.e. higher exposure to one company or a group of same company then such FMP caries more risk than open ended debt funds.
It justified to avoid such funds when capital protection is having higher priority in investing decision.
12. What does a rating downgrade of a bond signify to an investor?
The bond has become riskier than before to invest.
Market generally reacts by marking up its yields. Which leads to drop in the market price and in turn the NAV of such mutual Funds schemes are also dropped which are holding such bonds.
13. Can the promoters, sponsors, fund managers, and AMC employees invest in there own scheme?
Yes, Parag Parikh Mutual Fund is the earliest AMC in this trend.
Now in 2019 it has become norm that Fund Managers to invest their own money in the scheme managing by such Fund Managers.
1.1 Ideal number is four to five
1.2 Potential of offering highest return
2. What are the market driven factors:
2.1 Flow
2.2 Sentiment
2.3 Fundamentals
3. What are the different types of risks associated to Bond?
Three types of risk:
1. Interest rate risk
2. Credit rate risk
3. Liquidity risk.
4. Is there any risk of non repayment of FMPs in time?
In case of bond AMCs gives loans to companies, against promoter's equity holding. In case there arises chance of non repayment of loan in time the repayment of FMPs is effected.
In such situations AMCs can sale promoter's holding but they may effect the equity market adversely. The companies in such situations may enter into agreement with the AMCs to allow more time of repayment of loan. Which in turn effects the repayment schedule of FMPs.
5. Does Mutual Fund Companies provide loans to any one?
Mutual Fund Companies are providing loans to promoters by way of subscribing to bonds. This results in higher return than high quality bond in market. Since last 10-15 years Indian Mutual Fund Companies have been giving loans. Such loans are generally secured against the promoter's equity, the valuation of such shares is generally 1.5-2 times higher. Mutual Fund Companies judge the credibility of the promoters in this regard.
6. What is the rules of regulator regarding exposure to one company or many companies under one group in case debt fund?
A scheme can't hold more than 10% in one security.
7. Are all corporate bonds traded in market actively?
Corporate bonds below AAA or A1 in India are not actively traded in India.
8. As of May 2019 is there any standard norm of writing down the NAV of bond in case of any default is made by any company?
There is no rules of SEBI and also there is no standard practice across the industry in this regard. AMCs doesn't have any standard benchmark like quoted price in case of bonds below AAA or A1 grade.
9. Does Government takes any role in case any company defaulted in paying loan to AMCs.
The management of the company will come under the control of Government appointed board
10. Does any investor have the chance of early exit in case of FMP?
No, an investor investing in any FMP scheme offered by Mutual Fund Companies can not exist early in case of investment in FMP, before the date as declared by such scheme having a Fixed Maturity schedule for such plans.
11. How can I compare FMP with other open ended debt funds?
When a FMP is having concentrated portfolio i.e. higher exposure to one company or a group of same company then such FMP caries more risk than open ended debt funds.
It justified to avoid such funds when capital protection is having higher priority in investing decision.
12. What does a rating downgrade of a bond signify to an investor?
The bond has become riskier than before to invest.
Market generally reacts by marking up its yields. Which leads to drop in the market price and in turn the NAV of such mutual Funds schemes are also dropped which are holding such bonds.
13. Can the promoters, sponsors, fund managers, and AMC employees invest in there own scheme?
Yes, Parag Parikh Mutual Fund is the earliest AMC in this trend.
Now in 2019 it has become norm that Fund Managers to invest their own money in the scheme managing by such Fund Managers.
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