Investor Charter provides a comprehensive overview of investment policies related to mutual funds, including their structure, valuation, types, and investment options. It serves as a guide for clients to understand the fundamental aspects of mutual funds and encourages them to refer to scheme-specific documents for detailed information on their investment choices.

Scope

This charter provides generic information. Clients are advised to consult scheme-specific documents, such as the Scheme Information Document and Key Information Memorandum (for mutual funds), the Offering Document or Prospectus (for bonds and equity shares), relating to the specific investment they are considering.

I. Mutual Funds

What is a Mutual Fund?

A mutual fund involves pooling money from multiple investors. The fund manager (AMC) invests this pooled money in underlying securities according to the scheme's objectives. This approach enables a wider spread of investments compared to direct investment, which is generally considered to reduce risk.

Unit Valuation

Investors in mutual funds own units representing their investment, not the underlying assets. The Net Asset Value (NAV) is the value of each unit, calculated based on the market value of underlying investments, less expenses and liabilities. A New Fund Offering (NFO) is the initial period when a mutual fund scheme is available for purchase.

Types of Mutual Fund Schemes

Mutual fund schemes are classified by structure and asset category. Numerous specific schemes

exist within these classifications, designed to meet diverse investment objectives related to risk,

return, and investment horizon.

Classification by Structure

1. Open-ended Mutual Funds:

   1. These funds do not have a fixed maturity period

   2. Investors can subscribe to and redeem units on an ongoing basis, directly with the AMC

   3. The funds' size and the number of units outstanding vary daily

   4. AMCs may restrict subscriptions or redemptions under exceptional circumstances

   5. Equity-oriented open-ended funds are designed for medium to long-term investment horizons (5+ years)

      
      

2. Close-ended Mutual Funds:

   1. These funds have a fixed maturity period, typically ranging from 1 month to 5 years

   2. Subscription is only available during the NFO period

   3. Units are listed on stock exchanges, and investors can exit by selling their units on the exchange

   4. The number of fund units remains constant after the NFO period

   5. Unit prices are determined by market forces and may not directly correlate with the underlying NAV

Investment Options

1. Growth Plan: Capital appreciation is realized; dividends are not paid out

2. Dividend Payout Plan: Dividends are distributed to investors, reducing the NAV

3. Dividend Re-investment Plan: Dividends are reinvested to purchase additional units

4. Systematic Investment Plan (SIP): Investors invest a fixed amount at predetermined intervals

5. Systematic Withdrawal Plan (SWP): Investors withdraw a fixed amount/number of units at predetermined intervals

6. Systematic Transfer Plan (STP): Investors switch a fixed amount/units between schemes of the same Mutual Fund at predetermined intervals

Classification by Asset Category

Debt Funds:

1. Cash/Liquid Fund (CF):

   1. Direct Plans have lower expense ratios.

   2. Liquid funds aim to preserve capital, provide liquidity, and generate reasonable returns through short-term debt investments

   3. These funds primarily invest in short-term debt instruments maturing within 91 days

   4. Risks: Interest rate risk, liquidity risk, and default risk

   5. Suitability: Suitable for short-term deployment (more than a few days)
      
      

2. Ultra Short Term Bond Funds (USTBF):

   1. Seek higher returns than liquid funds, requiring slightly longer investment horizons

   2. Risks: Similar to liquid funds (interest rate risk, liquidity risk, and default risk)

   3. Suitability: Suitable for short-term investments (2-3 months)
      
      

3. Short-term Income Funds (STIF):

   1. Aim to generate steady income through investments in fixed-income securities with medium-term maturities

   2. Risks: Carry higher price risk than liquid funds due to investments in medium-term debt instruments

   3. Suitability: Typically suited for investors with a 6 to 12-month investment horizon

      
      

4. Dynamic Bond Funds (DBF):

   1. Actively manage portfolio allocations across maturities to minimize downside risk and maximize returns

   2. Risks: May carry higher price risk than STIF due to investments in medium to longer maturity debt instruments

   3. Suitability: Generally suitable for investors with a 2 to 5-year investment horizon
      
      

5. Income Bond Funds (IF):

   1. Invest in corporate bonds, government securities, money market instruments, and securitized debt with varying maturities

   2. Risks: Carry higher price risk than DBFs due to investments in longer maturity debt instruments

   3. Suitability: Suited for long-term investors
      
      

6. Short Term Gilt Funds (STGF):

   1. Invest in short-term government securities and money market instruments.