Select the right Mutual Fund Scheme

Purchasing units of mutual fund schemes during the IPO

Mutual funds advertise in newspapers when they come up with a new scheme. On reading the advertisement, contact your broker or the mutual fund office for an application form or download the form from the fund’s website. Fill in the application form and lodge it with your broker along with a cheque for the investment amount. You can also hand over the duly filled in application to the mutual fund office. On receiving the application form, the mutual fund’s registrar will issue an account statement showing you how much you have invested and the units allotted to you (for instance, if you invest Rs 10,000, you will receive 1000 units during the IPO at Rs 10 per unit). The account statement is a record of your investment in the mutual fund scheme.

Purchasing units of close-ended mutual fund schemes after IPO

Units of close-ended mutual fund schemes are available for purchase from the mutual fund segment of the stock market. The unit will be available at the price at which it is quoted on the market. Contact your stockbroker and place a purchase order. The broker will buy the units for which you will have to pay him the purchase cost plus his brokerage. Brokerage charged will be about 0.5-2% of the purchase cost of the units.

For instance, if your purchase cost is Rs 15 per unit and brokerage is 1%, you will pay the broker Rs15.15 per unit (i.e. Rs 15 plus 1% of Rs 15). You also incur costs of stamp duty to have units transferred in your name. However, if you purchase units in dematerialized form no stamp duty is payable.

Purchasing units of open-ended mutual funds after the IPO

Units of open-ended mutual funds are also available for purchase from the mutual fund itself. On the closure of the IPO, the mutual fund’s registrar processes the application received and issues the account statement. During this time, the fund does not accept any new applications. On completing the procedure, the fund reopens the scheme for the sale and repurchase of the investors.

Ask your broker for a form of the scheme. Fill it in and return it to your broker along with the cheque for the amount of investment. On receiving the application, the fund’s registrar processes it and issues you an account statement indicating amount of units allotted and the amount of investment made.

Units of the mutual fund will now be available at the current NAV and not the face value of Rs 10.

How do you redeem your Mutual fund investment?

Should you want to exit a close-ended mutual fund scheme before closure of the scheme, you can do so by selling the units in the mutual fund segment of the stock market. Some mutual funds offer to repurchase units for short periods of time, during which, you can directly sell your units back to the mutual fund. On selling the units in the stock market, you incur a brokerage cost of 0.5-2%. This means that you get a lower amount on the sale. For instance, if you sell 1000 units at Rs 15 per unit and you pay 1% brokerage; you will receive only Rs 14.85 per unit.

You have to give a sell order to your broker, who will then sell your units in the stock exchange.

If the units are in the dematerialised form, you can instruct the Depository to transfer the units to your broker’s account. The broker will then pay you the sale proceeds minus the brokerage.

Selling close-ended mutual fund schemes on scheme closure date Mutual funds inform you about the (closure date of the scheme and the amount due to you. However, on closure date, some mutual funds choose to convert the close-ended scheme to an open-ended one, offering you two options:

Remain invested in the mutual fund in its new form. Request for redemption of the amount due to you. If you want to remain invested, you have to inform the mutual fund accordingly. If you want to exit, a redemption request forming part of the account statement has to be filed by you and sent to the fund or the registrar. Selling units of open ended mutual fund In the case of units of open-ended mutual fund schemes, simply fill in the redemption request on your account statement and lodge it with the mutual fund or your broker. You will receive your cheque within seven working days.