Investor Education
Investing is a long-term journey that requires a deep understanding of your personal relationship with risk. Just as each person has different financial goals, each investor has a unique tolerance for risk. Knowing where you fall on the risk spectrum can help you tailor your investment strategy to meet your financial goals while ensuring you are comfortable with the level of risk involved.
This guide introduces five distinct risk profiles— Risk-Averse, Conservative, Balanced, Growth, and Aggressive. Each is designed to help you better understand your risk tolerance.
We’ll explore how these profiles influence your investment choices, long-term strategy, and potential outcomes. Whether you are just starting out or are a seasoned investor, understanding your risk tolerance will empower you to make more confident financial decisions.
1. Risk-Averse: Safety and Preservation First
Risk-averse investors focus on the safety and preservation of their capital above all else. Their main goal is to minimize risk, even if it means accepting lower returns. The key concern for these investors is ensuring that their hard-earned money remains secure. They typically shy away from volatile investments and prefer options that offer predictable and steady returns.
A risk-averse investor prioritizes stability, often avoiding the stock market's unpredictability in favor of safer assets that protect their principal. This type of investor values the security of knowing their investments are not at risk of significant loss, even if that means missing out on potentially higher returns.
Common Investments:- Government bonds: These are considered low-risk investments backed by the government, offering a stable return over time.
- Fixed deposits: These provide a guaranteed return over a fixed period, ensuring that the investor’s principal remains secure.
- Savings accounts: While offering minimal interest, they provide easy access to cash and guaranteed safety.
Example: Vikram, a 65-year-old retiree, relies on his investments to fund his living expenses. He cannot afford to take on risky investments because his priority is to protect his principal and ensure a steady income. Vikram chooses government bonds and fixed deposits, knowing that these low-risk options will preserve his savings while providing a reliable return, even if it’s modest
Risk-averse investors typically have short to medium-term financial goals, such as funding retirement or preserving wealth for future generations. They are more concerned with protecting what they have built over time than pursuing higher returns that come with added risk. These investors prefer security over the potential for large, short-term gains, often holding investments for long periods to ensure consistent, if modest, returns.
Their portfolios are usually heavily weighted towards debt instruments and other safe assets that don’t fluctuate wildly with market movements. As a result, while their wealth may grow slowly, they are insulated from the large swings that more aggressive investors experience during market downturns.
2. Conservative: A Balanced Approach with Caution
Conservative investors seek a middle ground between safety and growth. They are open to taking on some risk but prefer to limit their exposure to significant market volatility. Their primary focus is to preserve their capital while also achieving moderate returns that outpace inflation.
Conservative investors typically prefer to build a diversified portfolio that includes a blend of low-risk assets like bonds and high-quality dividend-paying stocks. While they may allocate a portion of their portfolio to equities, they avoid speculative stocks or sectors that can be volatile. Their long-term strategy is designed to achieve steady growth without exposing themselves to too much risk.
Common Investments:- Blue-chip stocks: These are shares of established, financially sound companies with a long history of stable earnings and dividend payments.
- High-quality bonds: Bonds issued by financially secure corporations or governments that offer higher yields than savings accounts but with less risk than stocks.
- Dividend-paying stocks: Stocks that generally provide regular income in the form of dividends.
Example: Ravi, a 45-year-old father of two, is saving for his children’s education. He prefers a conservative strategy that provides growth with minimal risk. Ravi invests in a mix of blue-chip stocks, dividend-paying stocks, and high-quality bonds. This portfolio allows him to achieve slow but potential growth, ensuring that his savings grow over time without exposing his capital to significant risks.
Conservative investors are typically in the accumulation phase of their financial journey but are cautious about taking on too much risk. They have medium-term goals, such as saving for their children’s education, buying a home, or planning for early retirement. These investors understand that steady, moderate returns over time can compound into significant wealth.
Their portfolios are diversified but lean towards safer, more established investments. While they may include some growth-oriented stocks, they avoid highly speculative investments, preferring to focus on preserving their wealth while achieving modest growth. By balancing risk and reward, conservative investors manage the risk effectively while working towards long term growth.
3. Balanced: Seeking a Middle Ground
Balanced investors look for an equilibrium between risk and reward. They understand that taking on some level of risk is necessary to achieve substantial returns, but they also appreciate the importance of protecting a portion of their portfolio from market volatility. Balanced investors are willing to take moderate risks but seek to mitigate potential losses by diversifying their investments.
A balanced portfolio typically includes a mix of growth stocks, bonds, and other less risky assets like government securities. These investors aim for moderate growth, knowing that they must accept some risk in exchange for potential long term higher returns. They take a long-term view, recognizing that their portfolio will experience fluctuations, but they understand that a well-diversified portfolio has potential to grow over long term
Common Investments:- Growth stocks: These are shares in companies with potential of expansion over time, which may lead to increase in their stock value.
- Mutual funds: These pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, and other securities, spreading out risk.
- Corporate bonds: Bonds issued by companies, that typically offer better yields than government bonds but come with moderate level of risk.
Example: Nisha, a 40-year-old professional, is preparing for her retirement. She invests in a balanced portfolio that includes growth stocks in the technology sector, mutual funds, and corporate bonds. While Nisha accepts some market volatility, the stable portion of her portfolio helps cushion the impact during market downturns . She understands that this mix will help her achieve her retirement goals with diversified risks approach.
Balanced investors are typically long-term planners who want to grow their wealth but are not willing to gamble their entire portfolio on high-risk investments. They understand that diversification is key to mitigating risk while still allowing for growth. These investors typically have long-term goals, such as retirement or building a sizable nest egg, and are comfortable with moderate market volatility.
A balanced approach allows them to take advantage of growth opportunities while maintaining a safety net through diversified risk investments. Their strategy involves regularly reviewing and rebalancing their portfolio to ensure that their mix of stocks and bonds aligns with their risk tolerance and financial goals.
4. Growth: Maximizing Long-Term Potential
Growth investors are focused on maximizing the potential for long-term wealth accumulation. They are willing to take on higher levels of risk in exchange for the opportunity to achieve higher returns. These investors understand that high-reward investments often come with higher volatility, but they are willing to ride out short-term market fluctuations.
Growth investors build portfolios that are heavily weighted towards equities, particularly growth stocks in sectors with strong growth potential, such as technology, healthcare, or emerging markets. They have a long-term horizon and are willing to accept market volatility, knowing that patience will ultimately reward them with higher returns.
Common Investments:- Volatile stocks: Shares of companies in the sectors, which are known for their high growth potential but also their volatility.
- Emerging markets: Investments in developing countries that have the potential for rapid growth but come with higher political and economic risks.
- Real estate: : Investments in properties that are expected to appreciate significantly over time.
Example: Arjun, a 30-year-old tech professional, is focused on accumulating wealth for his future. He invests heavily in stocks from volatile sectors and emerging markets, understands that these sectors has potential to deliver high long-term returns with high risk. Arjun is not concerned with short-term fluctuations in the market because his primary goal is maximizing the value of his portfolio over the next several decades.
Growth investors are typically younger or have a long-term horizon, allowing them to recover from short-term market fluctuations. They are comfortable with a high degree of risk and are focused on long term capital appreciation rather than immediate income. These investors often seek out industries that are expected to grow rapidly, and are willing to endure the volatility that comes with these high-growth sectors.
Their portfolios are often concentrated in equities, with little to no exposure to bonds or other lower-risk assets. Growth investors recognize that their strategy can lead to periods of significant volatility, but they are confident that, over time, the high returns will outweigh the risks. They are patient and willing to wait for their investments to mature, understanding that long-term success requires discipline and resilience.
5. Aggressive: High-Risk, High-Reward Strategy
Aggressive investors are risk-takers by nature. They pursue high-risk, high-reward investment opportunities and are not afraid of market volatility or potential losses. Their goal is to maximize returns as quickly as possible, even if that means exposing themselves to significant risks.
Aggressive investors often focus on speculative investments, such as startups, cryptocurrencies, or emerging markets. These assets have the potential to deliver substantial returns but also come with significant risks. Aggressive investors are typically young or have a long-term horizon, allowing them to recover from any short-term losses and ride out market volatility.
Common Investments:- Cryptocurrencies: Digital currencies that are highly volatile.
- Startups: Investments in early-stage companies that are unproven but could become highly successful.
- Penny stocks: : Shares in small companies that trade at low prices, offering the potential for rapid gains but with a high level of risk.
Example: Shiv, a 25-year-old entrepreneur, is focused on rapidly growing his wealth. He invests in cryptocurrencies and startups, knowing that these investments could either skyrocket or lose significant value. With a long investment horizon and a strong risk appetite, Shiv is comfortable with short-term fluctuations as part of his long-term strategy
Aggressive investors are typically younger or have significant financial flexibility, allowing them to take on more risk. They are comfortable with the possibility of large fluctuations in their portfolio’s value and are willing to bet on high-risk, high-reward investments. These investors constantly seek out the next big opportunity to grow their wealth.
Their portfolios are concentrated in speculative investments, such as tech startups or cryptocurrencies. Aggressive investors understand that their strategy may result in significant volatility, but they are willing to accept that risk in exchange for the chance of high growth. Their focus is on maximizing returns quickly, often using a short-term mindset to capitalize on market trends and innovations.
To Conclude
Understanding your investment risk profile is the foundation for a successful financial journey. By identifying your unique risk profile, you can make smarter, more informed decisions that balance your desire for growth with your ability to handle risk. No matter where you are on your financial journey, the right strategy will help you grow your wealth in a way that aligns with your long-term objectives.
Take the time to explore your financial strengths, discover the right approach for you, and start your journey toward a prosperous future.
An Investor Education And Awareness Initiative by Old Bridge Asset Management Private Limited
Visit www.oldbridgemf.com to know about the process to complete one time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should be cautioned to deal only with registered mutual funds, details of which can be verified on the SEBI website https://www.sebi.gov.in/intermediaries.html. For any queries, complaints & grievance redressal, investor may reach out to the AMC or Investor Relation Officer. Additionally, investors may also lodge complaints on https://scores.sebi.gov.in if they are unsatisfied with the resolutions given by the AMC. SCORE portal facilitates you to lodge your complaint online with SEBI and subsequently view it’s status. Further investors may also lodge complaint through Online Dispute Resolution Portal(‘ODR’) portal available at https://smartodr.in/login
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
Investing in the stock market can often feel overwhelming with countless companies and mutual funds to choose from. For those looking to prioritize long-term growth while maintaining a focused approach, Focused Equity Funds can offer a strategic advantage. Let’s explore why these funds matter and how they can add value to your portfolio.
1. Concentration on High-Quality Companies
Focused Equity Funds invest in a select number of stocks, typically around 30 companies. This concentrated approach allows fund managers to focus on high-potential businesses, instead of spreading investments too thin. By handpicking the most promising companies, these funds aim for long-term returns.
- Why it matters: With fewer companies in the portfolio, fund managers can dedicate more attention and resources to understanding each business deeply, ensuring they select those with solid growth potential.
2. Alignment with Market Leaders
These funds often focus on industry leaders or companies on the path to becoming dominant players. These businesses typically have strong fundamentals, efficient use of capital, and minimal debt. By backing these leaders, investors can benefit from their long-term growth.
- Why it matters: Market leaders tend to handle economic downturns better and emerge stronger, providing both stability and growth opportunities for investors.
3. Avoiding Over-Diversification
While diversification is important for managing risk, having too many stocks can reduce the effectiveness of your investment strategy. Focused Equity Funds strike a balance by providing enough diversification to manage risk but remain concentrated enough for strategic investment exposure.
- Why it matters: You get the benefits of diversification while retaining the strategic focus on potential long term performance that can come with a focused portfolio.
4. Opportunities in Emerging Sectors
These funds often target growing sectors, such as technology, healthcare, or renewable energy. By focusing on companies in these industries, investors can potentially benefit from long-term trends that has potential to outperform more traditional sectors.
- Why it matters: Investors gain access to high-growth industries, with strong potentials for long term value appreciation.
5. Disciplined Buy-and-Hold Strategy
Focused Equity Funds usually adopt a buy-and-hold strategy, aiming for long-term wealth creation rather than short-term gains. This disciplined approach helps investors navigate market volatility while benefiting from the growth of selected companies.
- Why it matters: Patience pays off. By staying committed to a well-researched selection of companies, investors can watch their investments grow over time.
Conclusion: A Strategic Choice for Long-Term Growth
Focused Equity Funds offer a targeted approach to investing aiming to build long-term value by investing in select, well-researched performing companies.. By limiting the number of stocks in the portfolio, these funds offer focused exposure to high-quality businesses, without the drawbacks of over-diversification. For investors aiming for long-term capital appreciation, Focused Equity Funds can be a valuable tool.
An Investor Education And Awareness Initiative by Old Bridge Asset Management Private Limited
Visit www.oldbridgemf.com to know about the process to complete one time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should be cautioned to deal only with registered mutual funds, details of which can be verified on the SEBI website https://www.sebi.gov.in/intermediaries.html. For any queries, complaints & grievance redressal, investor may reach out to the AMC or Investor Relation Officer. Additionally investors may also lodge complaints on https://scores.sebi.gov.in if they are unsatisfied with the resolutions given by the AMC. SCORE portal facilitates you to lodge your complaint online with SEBI and subsequently view it’s status. Further investors may also lodge complaint through Online Dispute Resolution Portal(‘ODR’) portal available at https://smartodr.in/login
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
Mutual Fund is a mechanism for collecting funds from investors by issuing units to them and then investing funds in securities on behalf of them. Investments in securities are spread across various sectors and industries, thereby minimizing the risk of losing money. The profits or losses are shared by all the investors in proportion to their investment.
The investors of mutual funds are called unit holders. Mutual fund units are issued to the investors in proportion to the quantum of money invested by them. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.
Mutual funds are packed with a bundle of benefits. A few are mentioned below:
- Managed by experts: Mutual Funds are managed by qualified and experienced professionals. Investors may have reasonable capability but to assess a financial instrument, a professional analytical approach is required. Access to research, information, time and methodology also helps them to make sound investment decisions.
- Reduced risk with diversification: Mutual Funds invest in a number of stocks reducing the risk. It provides small investors with an opportunity to invest in a larger basket of securities.
- Time-efficient option: Investors save their time and effort of tracking investments, collecting income and more from various issuers.
- Small investments: It helps investors to invest in small amounts as and when they have surplus funds to invest.
- Transparent dealings: Mutual Funds are well regulated & governed by SEBI (Mutual Funds) Regulations, 1996 thereby ensuring transparency of investments.
- Easy liquidation: Funds like open-ended funds can be redeemed (liquidated) on any business day (when the stock markets and/or banks are open), so investor have easy access to their money.
Mutual funds are pooled investments. A common pool of money invested by many investors is managed by fund investment managers. The fund managers have in-depth knowledge about how the market works and they use their skills and judgment in investing the total amount, which is called corpus. The corpus is invested in securities like shares, debentures and money market instruments. Profit generated through these investments is then distributed amongst investors in proportion to their investments made.
The risk in Mutual Funds investment is mainly refers to the possibility of returns being different from what was originally expected. In other words risk indicates volatility of returns. Generally higher the return higher would be the risk associated with the investment. This relationship of risk and return is central to investing, which all investors should be aware of. Mutual funds are known best for minimizing the risks involved in market investments through its diverse and professional management. Yet, the risks led by price fluctuation, liquidity, credit risks, etc. cannot be avoided. An investor may select schemes prudently depending on his risk taking capability, keep a track of market happenings and take proactive actions if needed.
Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.
Equity based funds generally have high risk profile compared to debt funds.
Mutual Funds are among the most transparent collective investment vehicles in India. They are regulated by the capital market regulator Securities and Exchange Board of India (SEBI). SEBI protects the interest of the capital market investors and ensures prudent functioning of mutual funds.
SEBI has mandated elaborate investment guidelines and reporting requirements to ensure that mutual fund investments are under its regulatory purview. It also stipulates the investment of money by the investors and their valuation on an ongoing basis.
Association of Mutual Funds in India (AMFI), a trade body of mutual funds in India also involves itself in devising compliance and best practices guidelines in the industry to ensure professional ethics.
Yes, non-resident Indians can also invest in mutual funds. NRIs will get all the details pertaining to this in the offer documents of the schemes.
Asset Management Company (AMC) is essentially a Mutual Fund company that invests the funds collected by its mutual fund schemes into securities as specified in the investment objective of each particular scheme. They provide the investors with more diversification and investing options than they would have by themselves.
NAV or Net Asset Value is the per unit market value of the mutual fund. It is the price at which investors purchase or sell fund units. It is calculated by dividing the total value of all the assets in a portfolio, minus the liabilities by the total number of units of the scheme. Since market value of underlying holdings changes every day, the NAV of a scheme also varies on a day to day basis. For example, if the market value of securities of a mutual fund scheme is Rs 100 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.10. NAV is required to be disclosed by the mutual funds on daily basis.
NAVs of mutual fund schemes are published on respective mutual funds’ websites as well as AMFI’s website daily - www.amfiindia.com.
NAV (in Rs terms) = Market or Fair Value of Scheme's investments + Current Assets - Current Liabilities and Provision / Number of Units outstanding under Scheme on the Valuation Date
Schemes are defined as per the Maturity Period:
- Open-ended Fund/ Scheme: An open ended fund or scheme is available for subscription and repurchase on a continuous basis and does not have a fixed maturity period. Investors can buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. One of the key features of open-end schemes is liquidity.
- Close-ended Fund/ Scheme: With a stipulated maturity period e.g. 5-7
years, the fund is open for subscription only during a specified period at the time of
launch of the scheme. It is open for investments at the time of the initial public
issue and thereafter they can buy or sell the units of the scheme on the stock
exchanges where the units are listed.
Mutual Fund Schemes would be broadly classified in the following groups:
- Equity Schemes
- Debt Schemes
- Hybrid Schemes
- Solution Oriented Schemes
- Other Schemes such as Exchange Traded Funds/ Index Funds
It is a good practice to monitor the performance of the mutual fund schemes one has invested in at fixed intervals. This helps to take timely decisions in case they need to exit from the investment.
The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis. The mutual funds are also required to publish their performance in the form of halfyearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.
Investors can monitor their investments with:
- A fund fact sheet: It is like a report card that indicates the health of the scheme. Published by a fund house, it enlists details of each of the schemes managed by the fund house. It usually consists of details of the portfolio which depicts the investments made by the scheme, performance of the scheme and size and investment details of the scheme.
- Analysts’ reports: Investors can also get the performance of mutual fund scheme in the analysts’ reports in the media.
- Websites: There are a number of websites that offer in-depth analysis of mutual fund schemes in terms of comparable schemes, the benchmark index and average performance of all schemes in the category the scheme falls in.
If investors are investing in schemes like ETFs, then they must have a Demat account as these schemes are compulsorily allotted in Demat mode. For allotment in physical mode there is no need for a Demat account. Units of all mutual funds schemes can be allotted in both the modes i.e. Physical as well as in Demat. Also, the depositories have allowed the DPs to facilitate holding of mutual funds in Demat account.
In a Direct Plan a mutual fund scheme allows investors to invest in it by directly i.e. without involving or routing the investment through any distributor/agent.
The option of investing in a scheme through direct plan is mandatory by the SEBI Circular no. CIR/IMD/DF/21/2012, dated September 13, 2012.
Yes. All categories and types of investors can invest in Direct Plans as per the needs of the portfolio.
What is a Regular Plan ?Investor may choose to invest in mutual funds with the help of a Mutual Fund distributor/agent in what is termed as a ‘Regular Plan’
The most important difference between a Regular Plan and Direct Plan is the involvement of a broker and brokerage in the transaction. Direct Plan has lower expense ratio than the Regular Plan, as there is no distributor/agent involved, and hence there is saving in terms of distribution cost/commissions paid out to the distributor/agent, which is added back to the returns of the scheme. Hence, a Direct Plan has a separate NAV, which is higher than the “Regular” Plan’s NAV.
A New Fund Offer or NFO is either an offer for a new mutual fund scheme being launched by a company or the launch of additional units of existing close-ended funds that are available for investing.
‘IDCW’ is abbreviation of ‘Income Distribution cum Capital Withdrawal’. SEBI changed the term “Dividend Option” in mutual funds to “IDCW” in April 2021. The objective behind this was to use the correct nomenclature. Many investors misunderstood dividends declared by mutual funds as a bonus over and above the returns delivered by a scheme. This was quite misleading and could affect an investor's investment plan. Therefore, SEBI decided to rename the Dividend plan to IDCW to explain the differences clearly, avoid misconceptions, and promote transparency.
The dividend declared by a mutual fund is, in fact, the income arising from the investors’ invested capital. This is why the NAV of the scheme falls to the extent of the dividend paid by the scheme under the IDCW plan. The resulting reduced NAV after the payment of the dividend is called ex-dividend NAV.
It is important to note that IDCW declared by mutual fund schemes are subject to distributable surplus, which is a function of market conditions and the performance of the scheme. Distribution of scheme profit by way of IDCW is declared at the discretion of the fund manager. IDCW may include dividends paid by the underlying stocks and capital gains made by selling such stocks from the scheme’s portfolio.
The growth option declares no dividend, which means there are no re-investment options either. The dividend distribution tax is also not applicable on these funds. This is why the NAV would capture the full value of portfolio gains in the growth option.
SIPs help in investing a fixed amount at specified periods in various mutual funds scheme. It is a great way to bring discipline in investment habits and helps investors plan for their future. 3 prime benefits of investing in SIP:
- Disciplined investment: SIPs ensures that investments are done at a pre-determined schedule, regularly
- Smaller investments: SIP lets investors invest in small amounts. Thus, investments are not burdensome yet rewarding in the long run with its returns.
- Average investment cost: In an equity mutual fund, investors can earn more units when prices are falling and fewer units when the prices are rising, which helps them in averaging the investment cost.
SWP is an investment that allows investors to withdraw money from their existing mutual fund account at predetermined intervals. If the investor wants a steady stream of cash inflows from the investments, opting for SWP serves is the best choice.
To balance the risk factor involved in investing lump sum of investment money in equity fund or debt fund, Systematic Transfer Plan is the best option. STP could be seen as a combination of SIP and SWP, wherein the investor transfers a fixed amount of money from one scheme to another, usually between debt fund and equity fund. The investor here can avoid the risk of investing all of capital in equity mutual fund as this investment could be risky subject to markets’ volatility and its relative impact on returns in equity fund. On the other hand, investment only in debt fund will create moderate income. An STP thus helps to strike a balance between risk and return. It helps average the risk and returns involved in investments. If investors already have investment in equity scheme but want to exit, they can avoid the risk of a sharp fall in equity markets on the date of lump sum withdrawal by using STP. Investing in STP will help in gradually pulling out money from equity funds.
STP invests a specific amount at specific intervals in an equity fund. This helps in averaging the cost of equity investment as more units are received when prices are falling and lesser units are received when prices are rising. STP rebalances the portfolio by reallocating investments from debt to equity or vice versa. If investment in debt increases, the money can be reallocated to equity funds through systematic transfer plan and if investment in equity goes up, money can be conveniently switched from equity to debt fund.
There are two types of STPs:
- Fixed STPs: A fixed sum will be transferred to the selected transferee scheme under various plans/options.
- Capital Appreciation STP: The amount of capital that is appreciated gets transferred to the selected transferee scheme under various plans/options. The original lump sum amount invested in the Transferor scheme remains unchanged.
The option offered to investors to shift their investment from one scheme to another within that fund is called a Switch. The process of switching involves a fee. Switching is a good way for the investors to allocate their investment among the schemes in order to match their altering investment needs, risk profiles or changing circumstances during their lifetime.
KYC is an acronym for "Know Your Customer" and is a term used for Customer Identification Process as a part of Account Opening process with any financial entity. KYC establishes an investor’s identity & address through relevant supporting documents such as prescribed photo id (e.g., PAN card) and address proof and In-Person Verification (IPV). KYC compliance is mandatory under the Prevention of Money Laundering Act, 2002 and Rules framed there under, read with the SEBI Master Circular on Anti Money Laundering (AML) Standards/ Combating the Financing of Terrorism (CFT) /Obligations of Securities Market Intermediaries.
Know Your Customer (KYC) is a process of to identify and verify the identity of a company’s clients. In order of make the process uniform and to avoid duplication in the process across the intermediaries in the securities market; SEBI vide Circular No. MIRSD/SE/Cir-21/2011 dated October 5, 2011, SEBI (KYC Registration Agency) Regulations, 2011 and Circular No. MIRSD/ Cir-26/ 2011 dated December 23, 2011 introduced the concept of KYC Registration Agency (KRA) effective January 01, 2012.
Fill the new KYC application form:A standard Account Opening form (AOF) is generally divided in 2 parts:
- Part I contains the basic and uniform KYC details of the investor as prescribed by the Central KYC registry (Uniform KYC) to be used by all registered financial intermediaries and
- Part II additional KYC information as may be sought separately by the financial intermediary such as a mutual fund, stock broker, depository participant opening the investor’s account (Additional KYC).
The duly completed KYC form along with supporting documents such as proof of identity and proof of address and the Account Opening Form may be submitted at any of the Points of Service (POS)/Investor Service Centre (ISC) of any mutual fund. The In Person Verification (IPV) also needs to be completed and certified by an uthorized person on the KYC form itself. Your distributor/financial advisor will be able to assist you in this regard.
In case of mutual funds, the IPV can be performed by an authorised official of a mutual fund, AMFI registered Distributor or an authorised officer of a Scheduled Commercial Bank.
If PAN and KYC details of the investors are already updated in the company’s records then they don’t need to repeat the formalities. In case any further details are required as per new regulations, the investor will be notified. They can then submit the details at any of the mentioned Service Centers. New investors who have not completed their KYC process need to complete formalities as per SEBI’s KRA regulations.
When an investor redeems or transfers his units between schemes of mutual fund, a non refundable fee is deducted from the NAV at the time of such transaction by the Asset Management Company. This fee is known as exit load.
When investors sell units of open-ended scheme, the redemption price at that time is called redemption price. The redemption price is same as NAV, unless the fund levies an exit load in which case the redemption price will be lower than NAV.
The price at which a close-ended scheme repurchases its units is called repurchase price. Repurchase can be at NAV as well as have an exit load.
