As experience has shown time and again, the top performers during one period may not necessarily remain as a top performer forever or near the other top performers. In such a case, simply buying into a scheme due to good returns in the recent past may not be a wise approach.

The mutual fund advertisements use the disclaimer: “Past performance may or may not be sustained in future”.

The risk levels in different categories of mutual fund schemes can be understood with the help of product labelling of Mutual Funds.

SEBI had introduced product labelling of mutual funds to address the issue of mis-selling and to provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them.

All the mutual funds were required to ‘Label’ their schemes on the parameters such as - Nature of scheme, Investment objective, Level of risk depicted by colour code boxes etc.

The formula for calculating NAV is: (Total Assets minus Liabilities other than to Unitholders) / No. of outstanding Units

Total assets minus liabilities = 15 cr - 2 cr = Rs 13 cr

Number of outstanding units = Unit Capital / Face value = 10 cr / 10 = 1 crore outstanding units

NAV = 13 cr / 1 cr = Rs. 13

NAV is to be calculated upto 4 decimal places in the case of Index funds, Liquid funds and other Debt funds.

(NAV for equity and balanced funds is to be calculated upto at least 2 decimal places)

SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who qualify any one of the following criteria:

- Multiple point presence (More than 20 locations)

- AUM raised over Rs. 100 crores across the industry in the non-institutional category butincluding high net worth individuals (HNIs)

- The commission received of over Rs. 1 Crore p.a. across industry

- The commission received of over Rs. 50 Lakhs from a single mutual fund

Investors can choose to change their distributor or opt for direct investing. This needs to be done through a written request by the investor to the AMC.

In such cases, AMCs will need to comply, without insisting on any kind of ‘No Objection Certificate’ from the existing distributor.

Treynor Ratio measures the returns earned in excess of that which would have earned on a riskless investment.

Treynor Ratio Formula :

(Return earned on the Scheme - Risk Free Rate) / Beta of the Scheme

= (10 - 7.5) / 0.5

= 5

Since institutional investors like Companies etc. are not natural persons, authorised individuals invest on behalf of the institution.

Therefore, some additional documents are essential and one of them is - Authorisation for the investing institution to invest. This is typically in the form of a Board Resolution.

In the event of breach of the Code of Conduct by an intermediary, the following sequence of steps is initiated by AMFI:

• Write to the intermediary and ask for an explanation within 3 weeks.

• In case explanation is not received within 3 weeks, or is not satisfactory, AMFI will issue a warning letter indicating that any subsequent violation will result in cancellation of AMFI registration.

• If there is a proved second violation by the intermediary, the registration will be cancelled, and intimation sent to all AMCs.

An SIP can be used to initiate a fresh purchase in a scheme and open a folio.

It can be used to make additional purchases in an existing folio.  An SIP can also be initiated during a New Fund Offer (NFO).

A Close-end fund does not have SIP facility.