Module 11   Personal Finance (Part 1)Chapter 8

The mutual fund fact-sheet

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8.1 – The Mutual Fund world

In the previous chapter, we set up a hypothetical situation that helped us understand the concept of a fund and how it gets managed. We discussed the idea of ‘pooling of funds’ to invest in the market with a common purpose. I agree we oversimplified the previous chapter, but that’s ok as the objective at this point is to understand the fund structure and the way it serves its investors.

I also hope you are clear about the concept of ‘Net asset value or the NAV’. The mutual fund NAV or the mutual fund unit is an elementary concept, and I hope you have no confusion about this. If yes, I would urge you to read the previous chapter once again.

We will, in this chapter, take that conversation forward and look at one of the most crucial documents from a fund house, i.e. the Fund fact sheet. The factsheet is a document that puts up all the information related to a fund/scheme. By and large, everything that you need to know before investing in a particular fund is available in the fund fact sheet. In this chapter, we will look at fund factsheet and figure out how to read and understand the same.

Before we get to the fund’s fact sheet, I think it is essential to get a grip on how wide and deep the Indian Mutual fund industry is. The discussion will help you understand the length and breadth of the mutual fund industry –

So here are necessary details for you (as on July 2021) –

The number of fund houses45. These are the number of mutual fund companies who have obtained the AMC license from SEBI. Example: Kotak AMC, HDFC AMC, ICICI Pru AMC, Axis AMC, DSP etc.

The number of scheme1510. Each fund house (AMC), can run multiple schemes for people to invest. For example, Nippon AMC runs 145 different schemes, probably the highest in the industry. SBI AMC runs about 144, ICICI Pru AMC manages around 143 schemes. A scheme is a fund with a specific investment objective, more about this when we dig into the factsheet.

Money managed by AMCs35L Crore. This is the aggregate amount of money managed by the entire mutual fund industry (across all AMCs). For example, SBI AMC, which is one of the largest AMC, manages about 5.23L Crs. Axis AMC, on the other hand, manages about 2.08L Crs. Yes AMC manages about 81 Crs. This money is coming in from retail individuals and corporates. Out of this 35.15L Crs, roughly 18.85L Cr is from retail investors like you and me, and about 16.30L Crs is from the corporates

The number of unique Investors2.39 Crs Indians. This is the number of individual investors investing in Mutual funds schemes across all the AMCs.

Again, these are good to know numbers to put things in some perspective. You need not have to know these numbers if your objective is to invest in the markets via mutual funds.

8.2 – The fund factsheet

An asset management company (AMC), manages and runs a mutual fund scheme. An AMC can run many schemes as long as they have SEBI’s approval for it. A mutual fund scheme is essentially a fund with a specific investment objective. An investment objective is the stated goal of the fund. For example, the investment objective of a mutual fund scheme could be an investment in the top 100 large-cap companies in the country or it could be an investment in the top 100 small-cap companies, so on and so forth. The investment objective is stated at the inception of the fund, and the fund manager is expected to stick to this mandate until the life of the fund.

So let us pick a fund fact sheet and dig into what information is available to us. Let us start with Kotak AMC.

By the way, I’ve randomly selected Kotak AMC, please don’t consider this as a recommendation of any sort 🙂

I can go to AMC’s website to find the fund’s factsheet. Here is the snapshot of the same –

 

 

As you can see, there are many different tabs right at the top – Equity, Tax Saver, Hybrid, Debt, Liquid etc. These are all different categories of funds. Over the next few chapters, we will understand what each of these categories means and what to expect from investments made in these categories. For now, let us stick to ‘Equity’ as a category. As you can see, there are many different funds/schemes under Equity as a category. Let us pick ‘Kotak Small Cap Fund’ and see what goes in the fact sheet. Click on the link, and you will find the fund’s factsheet. In Kotak’s case, they call this the ‘One Pager’. Fair enough.

SEBI has mandated that the name of the fund should be indicative of what the fund is like to do. So moment I read, ‘Kotak Small Cap Fund’, I know that this is a fund which focuses on small-cap investments.

I’ve downloaded the fund’s one-pager, and here is the very first page –

The introductory paragraph gives us information on the stated objective of the fund. As you can see, the stated objective says ‘Kotak Small Cap generates capital appreciation from a diversified portfolio of equity & equity-related securities by investing predominantly in the small market capitalisation companies across sectors’

From this, we can infer –

  1. The fund manager intends to have a diversified portfolio; therefore it is not focused on a specific sector
  2. Investments are in Equity and equity-related securities. This is mainly stocks
  3. Investments are predominantly in the small market capitalisation companies, which means as the fund name suggests, they look at investments in the small-cap company
  4. The second section talks a bit about how they intend to research these small-cap stocks. Frankly, this should not be of concern to you. I mean think about it – if you knew what to look for when investing in a stock or if you had an opinion on what makes a good stock, then you are better off investing in the stocks directly right? Why mutual funds at all?

But since the information is any way out there, here is a sneak peek into their research methodology –

  • Look at the integrity of the promoters – necessarily ensure they are not scammy
  • Ability to generate cashflow – meaning they look for companies that are operationally profitable and capable of producing a surplus over all the expenses
  • Experience of market cycles – ensure that the company has survived through the test of times and has proved its resilience
  • Simple business model – No complicated verticals and easy to understand companies
  • Quality metrics – This means that all the financial ratios tick right
  • Business quality – Good quality business I guess 🙂
  • Low leverage – Companies with very little or zero debt

Now, I can decipher this because I belong to the same industry. However, most of the investors cannot read through these terms, and frankly, as I mentioned earlier, you don’t have to worry about this.

8.3 – Other fund facts

The fund fact sheet presents a lot more interesting data points. We will also use this opportunity to understand some of the key jargons used in the mutual fund world. Here is the snapshot for the fund’s other facts –

 

The initial section is the investment objective, which we reviewed earlier, so we will skip this section. The next thing you can notice is the benchmark of the fund. A mutual fund scheme should essentially benchmark itself to an index. This is required to evaluate the performance of the fund over a period. A mutual fund should have the appropriate benchmark. For example, a small-cap fund is benchmarked against a small-cap index, as in this case. It is almost mis-selling if the benchmark is not appropriate, for example, a small-cap fund being benchmarked against a large-cap index. To put this context, the performance of a family car such as Wagon R should be benchmarked against another family car such as maybe Swift, and it would be futile to benchmark it against a Ferrari.

The next section details the type of scheme; there are a couple of exciting things to note here. The type is– Open-ended, equity, growth scheme. There are three critical parameters here; let us understand what it means.

Open-ended – When an AMC starts a fund, they have the option to let that fund run for either a fixed period or keep it going forever. For example, I can start a fund today and let it run for three years from today, at the end of 3rd year, the fund will cease to exist, and the investor is obligated to collect his money back (along with the profit or losses). Funds with such defined time are called a ‘closes ended fund’. If a fund does not have an expiry date, then it’s called an open-ended fund. For all practical purposes, its always good to deal with an open-ended fund

Equity – This is a reference to the asset class the mutual fund invests. Equity, as you know, refers to the shares listed in the market. Another asset class is debt, which could be either corporate debt or PSU debt. More on this when we deep dive into debt funds

Growth – Let us skip this for now. We will discuss this in a bit.

Apart from this, this section also details a few other things –

Fund Manager – I find this interesting to know who is managing the fund. I do a quick google search to know his background and his past performance. After all, he will be responsible for managing our hard-earned money, so it makes sense to see a bit about his background

Allotment date – This is the date from which the fund commenced its operations. The allotment date gives you a sense of how old the fund is. It is not that it matters, but the older the fund, slightly easy it gets to analyse vis a viz a new fund.

The next section deals with ‘Plans & Options’. Under plans, there are two variants –

Regular plan – This is interesting. Think about a farmer growing onions. He nurtures the onion saplings, waters it, weeds it, and eventually harvests it and gets the onion ready for consumption. Let us say the cost of the onion is about Rs.30/- per Kg at this point. An intermediary now acts as an ‘agent’ and delivers the onion to people like you and me, and we, in turn, pay him Rs.40/- per Kg. The delta (Rs.10), is what the agent earns. Now replace the farmer with the AMC, the onions with a fund/scheme, and the agent as a mutual fund distributor. The mutual fund distributor is like the middleman between the AMC and the investor. If a mutual fund distributor approaches you and sells you a mutual fund, then he is selling you a ‘regular plan’, which means he is entitled to receive a commission from the AMC for selling this fund to you. There is nothing wrong with this, except that the money is going from your pocket.

Direct plan – Now you don’t need to buy the fund via a distributor. If you know which fund to buy, capable of doing your mutual fund research (which by the way is the end objective of this module), then you can buy that fund directly from the AMC. When you buy directly from the AMC, then there is no distributor involved; hence the distributor commissions are not paid, which means you save on commissions, which naturally means a better return on your investment.

Just to let you know, when you buy mutual funds via Zerodha, you are buying a direct plan; hence you will enjoy a better return. We will deep dive into this topic later in this module, but for now, remember when you invest in mutual funds, opt for a direct plan as you will save on commissions and therefore enjoy the better return.

The other bit in this section is about the option. As you can see, this fund has two options –

Dividend payout – Think about it, when you buy a stock of a company and the company issues a dividend, then as an investor, you are entitled to receive these dividends right? Likewise, when the fund manager buys the stock of a company, and the company issues a dividend, then the AMC receives this dividend. Since the funds with the AMC belongs to the investors, this dividend belongs to the investors. The dividend you are entitled to obtain from the AMC is to the extent you’ve invested in the fund. The AMC gives you two options – you can withdraw this dividend, or you can choose to reinvest the dividend amount and buy more units of the fund. The dividend payout option helps you withdraw the dividend as and when the dividend gets paid. This option is now called the “Payout of Income Distribution cum capital withdrawal” option.

There are technicalities here as to how the AMCs issue dividends. We will discuss this at a later point.

Dividend reinvestment plan  – This plan receives the dividend on your behalf and reinvests the dividend into the same fund. So necessarily, you don’t get the dividend in the form of cash, but instead more units or NAV of the same fund. This option is now called the “Reinvestment of Income Distribution cum capital withdrawal” option.

Growth plan – In the growth plan, the investor does not receive any dividends. The profits earned are ploughed back to fund and therefore the ‘compounding effect’, works well here. I personally prefer this plan over the other two.

Next up is the SIP details. SIP stands for ‘systematic investment plan’. In a typical SIP, you will invest the same amount of money every month for as many years as possible. Example of a SIP is investing say Rs.5000/- in Kotak Small-cap fund on 5th of every month for as many months as possible. Think of SIP as investing in instalments. SIP is perhaps one of the most significant financial inventions and has many merits to it. Given the importance of this topic, I think a separate chapter on this topic is justified, and we will do that at a later point. For now, think of SIP in its basic form, i.e. to invest a fixed amount of money every month in the same fund for many years.

As you can see, you can SIP on Kotak Small-cap fund, but for that, the AMC has specified that the minimum SIP amount every month is Rs.1000/- and the minimum number of months is six.

The next section talks about the initial minimum investment in the fund. This is self-explanatory, if you choose not to SIP, then the minimum amount to invest is Rs.500/- and Rs.1000/- for the monthly SIP.

The last section of the fact sheet talks about the load structure of the fund. There is a mention of few terms here like the SIP, STP, switches etc. We will club all these in the SIP chapter. For now, let’s talk about the ‘load structure’.

The load structure is essentially the amount of money, in percentage terms; you will have to pay in case you wish to withdraw from the fund. As you can see, there are two types of load structure –

Entry load –  This is no longer applicable. However, years ago, you’d have to pay a percentage for investing your money in a mutual fund. I guess AMC’s have to mention ‘entry load’ as nil for legacy reasons.

Exit load – This is the amount of money you will have to pay at the time of withdrawal. As you can see, there is a 1% load if you wish to withdraw before the completion of 1 year and no-load post that.

8.4 – Riskometer

Every AMC is supposed to self-asses the riskiness of the fund and lets the customers know about this. The self-assessment is something that SEBI mandates to avoid cases of the misselling of the financial product. For example, a small-cap fund should not be packaged as a low-risk fund and sold to the investors.

Here is how the AMC does a self-assessment of risk –

Riskometer

The needle of the riskometer points to ‘very high’, meaning that the Kotak Smallcap fund is risky. The text next to the riskometer reiterates this. Now, agreed this is a risky fund, but that should not stop you from investing in risky funds.

Remember, the antidote for ‘risk’ in the mutual fund world is ‘time’; hence the longer you stay invested in a mutual fund, the safer it gets.

More on this in the next few chapters, so stay tuned.

Key takeaways from this chapter

  1. The factsheet of a mutual fund details all the essential parameters worth knowing about the mutual fund
  2. The investment objective of a fund is essentially the guiding principle for the investment the fund manager makes
  3. Open-ended funds don’t have an ‘expiry’ for the fund. It can go on forever
  4. Close-ended funds are time-bound
  5. Regular plans pay out distributor commissions, hence lower yield to investors
  6. The direct plan does not pay distributor commissions; hence the returns are higher for the investor
  7. The MF investor can choose to receive or reinvest the dividends
  8. Riskometer is a self-assessment of risk by the AMC

 

124 comments

  1. Himanshu Arora says:

    Love ur work Karthik, BIG FAN..!!!..keep enlightening us..thanks a ton, in all the PAST, PRESENT and the FUTURE tenses.
    Coming to the chapter, In the benchmark description, don’t know if its in the pipeline, but can u plz include a table citing the various benchmarks and their applications and also the meaning of TRI and other such prefixes and suffixes given with those benchmark names. Thank You

    • Karthik Rangappa says:

      Ah yes, maybe I’ll have a section called benchmarking in one of the chapters, and thanks for the kind words 🙂

  2. Abhishek says:

    Hi Sir,

    what’s the source of details like the number of unique investors?

  3. Anand Puranikmath says:

    Sir, This chapter provides a lot of information about mutual fund fact sheet but we don’t have the time to read the fact sheets of all the mutual funds so I go by the star ratings/rankings given to mutual funds by different apps, how reliable are those rankings and is it wrong to only see the ratings before investing.

    • Karthik Rangappa says:

      Sir, a bit of effort to know the fund is justified no? After all, you are putting your hard-earned money in the fund. Btw, the rating bit too is good to know, more on that in the coming chapters.

  4. Mayank says:

    Is there any difference between Dividend reinvestment plan & Growth plan as in both the cases dividends are being reinvested.

    • Karthik Rangappa says:

      Hmm, yes. Dividend reinvestment pays out the dividend and then reinvests the same back into the fund. So you need to pay taxes on it. Growth does not do this.

  5. kiranintouch says:

    Dear Karthik,

    Thanks again for taking your time and educating us. While we wait for the chapter that tells us how to choose a mutual fund, i have a request. I have already invested my capital in mutual funds and am targeting to achieve portfolio distribution of 50% (equity) and 50%(debt). In this context, i currently have some capital which i would need to invest in a debt fund. Request to guide me to material which i can refer to make investment in debt funds.

    • Karthik Rangappa says:

      Kiran, I think there is some material in Value research or Morningstar. But yes, eventually will cover it here as well.

  6. murali says:

    some more detailing about risk meter in terms of example will be good.

  7. Abhijeet says:

    I want to start investing in mutual funds. I am at the start of my career. I read till this chapter and I want to know everything before I start investing. As the further chapters will take time to be posted , can u suggest me books are website were I can find similar trusted content. Thanks for the amazing content sir. I am a big fan of varsity .

    • Karthik Rangappa says:

      I’m happy to note that you’ve decided to invest in MF at the start of your career. This is heading the right direction 🙂
      There are many good articles posted on the FundsIndia website, I’d also recommend spending some time on Valueresearch and Morningstar.

  8. Mohammed says:

    Hi Kartik,

    I would like to say a big thank you for putting your knowledge and the content out here in such simple language.
    I always wanted to invest but was scared of the market world/terminologies until I stumbled upon Varsity and more specifically, personal finance. Eagerly waiting for the next chapter 🙂

  9. Akash says:

    In the dividend plan of a mutual fund, I think it comes from the corpus of investor’s money only whereas in case of dividends from stocks, it is over and above the amount invested by an investor. So in dividend plan of mutual fund, an investor is not getting anything extra unlike what he/she is getting from the dividends of a stock.

  10. Pavan Kumar S says:

    Hi Karthik,

    Great work. Just want to know, how to evaluate fund manager. what metrics has to be checked.

  11. Syam says:

    As the benefit is good in direct plan, then why there is a need of regular plan?

    • Karthik Rangappa says:

      MF is still a push product in India. The industry still needs good advisors to push this product to masses, hence.

  12. pratik dubey says:

    sir, please write on the index fund and also share some videos regarding how to invest.

  13. Harry says:

    My parents had gotten into a close-ended regular growth plan – Canara Robeco Capital Protection Oriented Fund– Series 8 back in 2017 which matures in 2020 July. They were unaware of what they were getting into and made the investment based on the advice of a friend who happens to be the agent when I review the document now. Thanks to you, I know the meaning of regular and close. I see the fund has not been doing very well. Is there a plan of action to minimize the losses if one gets stuck in MF’s like this one where they realize their mistake later?

    • Karthik Rangappa says:

      I’ve been through it myself, unfortunately, there are only two options – closeout and cut the loss or just let it be and live through it.

  14. Anurag says:

    Sir,
    Which chapter should I refer for “how to analyse which MF & AMC to choose out of all the information?”
    I am not able to find that chapter.
    Thank you in advance

  15. Jinal Jain says:

    Thanks for wonderful content and sharing knowledge, Karthik.

    As you have said, I am motivated enough to switch from my ac However , it has been just 3 months of SIPs with total of 50k so,
    1) Is it worth to take exit load and quit?
    2) What is step by step by process to do it. My broker had my account with NSE. So any app which I can use convenietely and complete the whole process?

  16. Jalpa says:

    Appreciate that you are putting such a wonderful knowledge on 1 platform.

    1) What should we look for while we select AMC. Should we diversify across AMCs?
    2) While I was going through fund manager part,I was going through research about my fund managers. It was hard to get information about their past investments? Any good source where to do this research.
    3) Fund managers keep changing. So , how big role should it play while we are selecting funds?

    • Karthik Rangappa says:

      1) Good to diversify as that’s the only way we can hedge institutional risk
      2) No, you just have to do the classic google research for this 🙂
      3) The fund managers role is highly process-driven (like pilots), so look at who they are but also look that AMCs investing philosophy.

  17. Siva says:

    1)How to compare two similar mutual funds from different AMC?
    For example small cap fund from Axis AMC, Kotak AMC…etc

    2)Selecting mutual funds based on past returns is correct way? Or Any metrics need to be considered before selecting MUtual funds?

    • Karthik Rangappa says:

      1) I will write about this in the coming chapters
      2) Not the only way, as I mentioned, will write about soon 🙂

  18. Sachidananda Pradhan says:

    What is the difference between dividend reinvestment plan and growth plan?

  19. Arun says:

    Hey

    In MF if entry load nil exit load nil then how can MF houses make money what’s the compensation structure.

    Thanks
    Arun

    • Karthik Rangappa says:

      They charge a % of fee, called the expense ratio which is charged on the money you’ve invested.

  20. Harsavardhan J says:

    Hi Sir,
    1. You’ve mentioned “For all practical purposes it’s good to go with open-ended funds”. Can you please elaborate on this?
    2. Also I’ve read Close-ended funds give the fund managers their liberty to stick with the original objective of starting the fund rather than adding new units and satisfy their clients by buying expensive stocks (high PE) for getting more fee.
    3. Where can I find the shareholding pattern (Promoters, fund managers, analysts and public) of any fund?

    Sorry for adding too many questions. Please explain…

    • Karthik Rangappa says:

      1) Open-ended funds don’t have any lock-in or associated exit load. Hence it makes sense to opt for open-ended funds
      2) Not true
      3) You can check Tijori Finance or Screener for this. I guess they have this functionality.

  21. bhanu says:

    Hi Karthik.
    Great articles
    You mentioned that you manages some funds for some time. So what was your selection criteria.
    Also if you can provide article on when to sell the stock before ita too late that will be very helpful

    • Karthik Rangappa says:

      Thats right. Selection criteria was a mix of basic fundamentals plus a bit of quant. Selling the stock was based on how the company is faring in its operations. You sell when you find gaps in the original thesis.

  22. milind says:

    Can i shift my existing Fund prtfolio from other AMCs to Zerodha ? and will the regular plan become Direct ?

    • Karthik Rangappa says:

      Thats right, but I guess to do that you need to sell the MF and rebuy the same from Coin.

  23. Kamal Wadhwa says:

    Hello Karthik,

    Good information.

    Could you please let me know that Debt fund are still beneficial for investor as they were before. Now I see most of the equity funds are in loss whereas Debt. fund are in profit. Now since interest rates are getting lower & lower, still are they beneficial ?

  24. Sudarshan Praveen says:

    Hey Karthik, i really appreciate this Initiative to spread financial literacy for free. Kudos to the great work,
    I have a doubt, I have been investing in regular plan mutual funds for over 2 years now as suggested by the agent. He is quite knowledgeable and suggests us to invest in different mutual funds. To have such a knowledge & grip over a topic like this requires constant reading of various funds & being updated with market information. So for a passive investor in mutual fund isn’t it better to go for regular plans? As direct & regular plan may defer in returns for about 1-1.5% but on an overall basis we will at-least not end up investing in wrong funds(This is what our agent says & persuades us to go for regular plan). Just wanted your view on this
    Thanks

    • Karthik Rangappa says:

      That’s right Sudarshan. If you know nothing about MF and want advisory then it makes sense to have an agent who can give you good advice. But from my experience, there are hardly good advisors doing a good job. Your advisor could be different, so its really up to you to evaluate him. You can still go in for a direct plan but hire advisor for advice only. Do check out folks from Prime Research, I’ve heard they do a good job.

  25. Ram says:

    Hi Karthik. First of all, thanks for the entire Varisty series.

    With respect to differences between open ended and close ended funds, whether time boundedness is the only difference? Or all the other differences stem from this aspect only?

  26. DR NILESH PAWAR says:

    I HAVE PURCHASED SEVEN DIFFERENT SIP OF RS.5000 EACH .CAN I STOP ALL THE SIP AND CONTNUE WITH THE AMOUNT I HAVE INVESTED TILL TODAY FOR ANOTHER ONE YEAR TO AVOID EXIT LOAD AND CHANCE TO GAIN SOME PROFIT?MEANS CAN I REMAIN INVESTED IN FUND DESPITE STOPPING ALL MY SIP?

  27. Shalini says:

    Varsity is just AMAZINGGG!!!!!
    I have a doubt. What happens to the dividends that AMC receives under growth plan? If they are reinvested, isn’t it the same as dividend reinvestment?

  28. Parashu says:

    Hello sir,

    Could you please let me know if there is a chapter added for different ETFs in India stock market and how to read and download the factsheets of these ETFs. ?

    Thanks a lot in advance,

  29. Nachiket says:

    Hi Karthik,

    Thanks for your material. I have a question regarding the returns of the Mutual fund.
    If the Annualised returns of a mutual fund is 8% for a year and expense ratio is 1.5%, then which one of the condition is true:
    1. The actual performance of the fund is 9.5% (8+1.5)
    2.The actual performance of the fund is 6.5%(8-1.5)

  30. Bharat Akkar says:

    This is good also give details to check fund performance

  31. vaishakh says:

    Sir, all thanks to your great efforts for creating financial awareness. You are creating enormous value for retail investors in India. I will always be grateful for the fact that I got introduced to Varsity and Zerodha at an early age itself 🙂 . And already recommended about it to few of my friends.
    Moving on to questions from this module.
    1) If I liquidate my mutual fund (MF) holdings within a year, i would have to pay 1% as exit load charge. Can I show this charges as expenses to offset my STCG tax ?
    2) Do mutual fund fact-sheet also shows, in which stocks they invest the funds and what are their respective weights, like how SMALLCASE shows the portfolio.
    3) Can you explain in simple terms, ‘What is the difference between mutual funds and Hedge funds ?’ (I tried to find it out via google, but didn’t got the clear answer)
    Thank you sir

    • Karthik Rangappa says:

      Happy to note that, Vaishakh 🙂

      1) I’m not sure about this, I’ll have to find out too. Best to consult with a CA
      2) Yes, they do and it gets updated regularly
      3) Mutual fund is fund management services for everyone, right from someone who has just started his/her job to the ultra-rich, but hedgefund is only for the ultra and super-rich :). Apart from this, conceptually they are similar.

  32. Anant Jain says:

    Can you explain the difference between Dividend Reinvestment plan and Growth Plan a bit more clearly?

  33. Nilesh Gaikwad says:

    Pl provide a button to go to the next chapter in mobile view instead of going back and selecting it.

  34. Yash Sarda says:

    Thank you for such an awesome and simple resource for finance education.
    What are the changes in the NAV in growth and dividend reinvestment plan ?

    • Karthik Rangappa says:

      In dividend option, units are sold and the proceeds are given to you as dividends. This does not happen with growth.

  35. sagar says:

    Hello Karthik,
    Thanks for the knowledge,
    Can i know one place/scenario where dividend re-investment option can be considered over growth.

  36. prit says:

    hey ,pdf of this 11th and 12th module is available?

  37. Madanmohan Manoharan says:

    I love the way you have explained the concepts… I am engineer, never thought learning finance is so easy 🙂 … Thanks for your great articulation of ideas

  38. Alka says:

    Thanks for the content. It helps me to get educated financially.
    I’d like to highlight a grammatical error on this page.
    “The next section talks about the initial minimum investment in the fund. This is self-explanatory, if you choose not to SIP, then the minimum amount to invest is Rs.500/- and Rs.1000/- for the monthly SIP.”
    Here Rs.5000/- should be used in place of Rs 500/-. I almost got confused while reading but then saw the fund facts image and understood this a typo.
    Thanks,

  39. Bhavuk Khanna says:

    Dear Sir,

    Upon checking the portfolio breakup of any mutual fund on sites like moneycontrol, there is always a small percentage attributed to “Net Receiveables”.
    Upon googling this, I found the definition to be: “The total money owed to a company by its customers minus the money owed that will likely never be paid”
    But I am finding it hard to grasp this in context of mutual funds, could you please shed some light on this?

    • Karthik Rangappa says:

      End of the day, AMC is also a company, they can have debts outstanding. But this is a very small portion I suppose.

  40. Harini R says:

    The best explanation to mutual fund fact-sheet I have read ever. Great work! Thank you very much.

  41. Newbie says:

    Hi Karthik,
    I’m a newbie to MFs, planning to invest some.
    SIP looks like a great option & let’s say I’ve bought it. But, if I want to opt-out of monthly SIPs and invest chunks once in a time, is it possible?

  42. Priya Munot says:

    Why are all SIP calculators only for a period of 30 years?
    Is there a limit for the number of years a SIP can be done?

  43. Swati says:

    Hi Karthik,

    Could you elaborate a little more on the difference between Growth and Dividend re-investment options? Is the difference only in terms of tax for Dividend that is first paid and then re-invested?

    • Karthik Rangappa says:

      Thats right. Dividend reinvestment means the units are sold and you are given the dividends. This does not happen with growth.

  44. viki says:

    HI Karthik, its always good to me to read any chapter from Varsity.
    I have a question as you mentioned in this chapter there are three modes to invest in a MF namely, Groth, divident plan and dividend repayment plan. As you told, growth plan dont distribute dividends and uses it to get more units of the MF.
    Then what is the difference between the Growth plan & dividend repayment plan? Please explain in detail.
    One request, please correct spelling for “mis-selling” for couple of times in this chapter. Please read it carefully, you will get the spelling mistakes.
    Waiting for your answer 🙂

    • Karthik Rangappa says:

      Viki, the only difference between Dividend reinvestment and Growth is that in dividend reinvestment, the dividend is calculated, and units are bought to that extent. WHile this does not happen in growth. For all practical purposes, Dividend reinvestment is not so useful, hence fewer and fewer AMCs are offering this option to investors.

  45. Aravind says:

    Sir, could you pls help in understanding the analysis of mutual funds of various types…like large cap , small cap and all..

  46. Avdhut says:

    Just one newbie Question,
    Suppose I’ve started SIP in particular Fund Let’s say Axis Top-Small 50
    And that Fund life has ended so How I’ll get my money?

  47. Venkat Das says:

    Dear Karthik Ji,

    Kindly accept my heartiest gratitude for sharing such wonderful information through these articles. Around 20 years back i read ” Rich dad, poor dad” and started investing. In between i have read many books. But the kind of clarity your articles has given is more than many books combined. These articles combined can help a lot many people if in Hindi and other languages. I sincerely appreciate your work.

    Ishwar aap par apni kripa banaye rakhe.

    Hari Om,
    Venkat Das

    • Karthik Rangappa says:

      Thanks for the kind words, Venkat. I’m glad you liked the content. Yes, we will translate the content in Hindi soon.

  48. Naveen Kumar says:

    Looks like the dividend reinvestment plan and the growth plan are almost same by principal as of my understanding. Correct me, if I’m wrong.
    By the way, your articles are very helpful for people like me, who are in nascent stage of learning in MF.
    Huge Thanks.

    • Karthik Rangappa says:

      Thanks Naveen.

      Yeah, they are kind of the same. I think you can opt for the growth plan directly.

  49. Ashok says:

    Hi Karthik,

    If you don’t mind can you elaborate little bit on what the below means ? Terms like verticals are new to me so thought of asking about it.
    “Simple business model – No complicated verticals and easy to understand companies.”

    • Karthik Rangappa says:

      Verticals is basically a reference to different business interests for example, RIL has petrochem, ecom, Jio, edtech etc, these are all different verticals of RIL.

  50. DEEPAK KUMAR SHRIVASTAVA says:

    You have enunciated the basic knowledge of Mutual Fund in such a practical way that even a layman if goes through he can develop confidence in the same. Each and every article is very informative and in detail. Although I had been using Zerodha for a long yet I got the article today itself and amazed to have the details available therein.

  51. Raghav says:

    Hey Karthik
    I didn’t understand why the ‘Growth Plan’ is better than the ‘Dividend Reinvestment Plan’ as in both cases the dividends are reinvested to the fund back.

    • Karthik Rangappa says:

      Pretty much, I dont think Div reinvestment options are as popular as Growth. I’d suggest you stick to growth options.

  52. Bhavana says:

    Hey! First of all, thank you for these modules. Being young, I realize how much I can invest in my future if I begin now 🙂

    What is the difference between the Dividend Re-investment plan and the Growth plan? Aren’t we investing the dividends in both cases into the Mutual Fund again?

    • Karthik Rangappa says:

      Happy to note that, Bhavana. Hope you continue to learn from the module here. Both the fund types are similar. I’d suggest you go with the growth type.

  53. T K Singh says:

    Hi,
    Request you to further elaborate on the difference between (1) Dividend reinvestment plan Vs (2) Growth plan.
    In both cases the dividend is invested back in the Mutual fund and investor receives additional NAV. So, what are the key differences ?

  54. Sagar Bhawnani says:

    Hi Karthik, thank you for all the modules and insights. Huge fan!
    In this module, ‘mis-selling’ is spelled as ‘mis-spelling’. Request you to please take a look.
    Thanks once again

  55. Suraj says:

    I am rereading these articles to revise.

    In this article, you have mentioned “SIP is perhaps one of the most significant financial inventions and has many merits to it. Given the importance of this topic, I think a separate chapter on this topic is justified, and we will do that at a later point.”

    But I don’t seem to find any chapter on “SIP”.
    Am I missing something?

    • Karthik Rangappa says:

      Ah, I must have inadvertently missed it. Will try and include this topic in Part 2 of personal finance.

  56. Jitendra N says:

    Quoting a paragraph from the page

    As you can see, you can SIP on Kotak Small-cap fund, but for that, the
    AMC has specified that the minimum SIP amount every month is Rs.1000/-
    and the minimum number of months is six.

    @Karthik Rangappa, if taking the SIP route, is it mandatory that I pay installments at least for six months ?

    1) Does it mean I can stop paying installments after six months ?
    2) What happens , say if I pay installments for just 3 months ?

    Thanks Karthik for these educational documents.

    • Karthik Rangappa says:

      Not really. You can keep SIPs for however long you can via Coin. But if you start a SIP via the AMC directly, then you need to maintain the specs.

      1) Yes
      2) I think there will be an exit load. This is AMC specific.

      Happy reading.

  57. Harish says:

    Hi Karithik.. This module is quite informative and forming a good basis of understanding MFs

    Only thing I didn’t understand was the exit load. The sheet mentions exit load of 1% if redeemed before 365 days. Is the 1% of the entire amount (investment+profit) or only on the profit?

    Also, I had downloaded Varsity app on my mobile. However, modules 11 and 12 are not reflecting. It’s still showing coming soon.

    • Karthik Rangappa says:

      Harish, yes, 1% is on the amount you withdraw. Personal Finance module will show up in the app soon.

  58. Dharmik Thakkar says:

    VARSITY is GOD for learning Stock market or Finance……

  59. Ajay says:

    Good content, as usual! However, the divident payout options could have been explained with more details.

  60. Nafseer Mohammed says:

    Hi Karthik,
    As you mentioned in this article. Waiting for details about SIP,STP,SWP.
    In Zerodha app/Coin in order to create a SIP if initial investment is 5000 and installment amount is also 5000,will my monthly installment 5000 or 10000 ?

  61. HARI.T says:

    I am a starter, though a small investment (Rs.30000) made in a variety of equities ranging 1 share to 10. Due for retirement in 4 years and want to plan for post retirement from now on including period investments.
    can you please inform how to go about it

    • Karthik Rangappa says:

      Hari, never too late to start. Unfortunately, I’m not qualified to advise, I’d suggest you approach a financial advisor for this.

  62. Sonu says:

    Hi,

    I’ve one question. Think of a small-cap fund for now and we know that it will have investments in the Small Cap stocks only, what would happen to the portfolio once these stocks turn out to be Mid Cap or Large-cap stocks will they exit, or if not then won’t it be wrong since the fund objective is to invest in the small-cap companies only? Just curious to know.

    Thanks

    • Karthik Rangappa says:

      They need to stick to the mandate, which means they will have to exit companies that are not small-cap anymore and buy small caps again.

  63. Harshil says:

    Hi, I believe that instead of using a gendered pronoun like “he” or a “she” a more un gendered pronoun would be suitable to prevent any biases as to who a fund manager can be

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