Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Other Types of Mutual Funds

After the Re-categorization of 2018 by SEBI there are some other types of mutual fund categories formed for the mutual fund investors.

Other Types of Mutual Funds
Other Types of Mutual Funds

And now we will cover each of these special categories of mutual funds in detail;

1.   ETFs (Exchange Traded Fund)

The first topic in other types of mutual fund is exchange traded funds which is popularly known as ETFs.

Now let’s look at what ETFs or the exchange traded fund.

As from the name itself it is clear that these are the mutual funds which are being traded on the stock exchange. Which means that this mutual fund can be traded just like stocks on the real time basis in the stock exchange and the buying and selling can happen at the real time price till the stock exchange is open.

Invest in this kind of exchange traded fund a mutual fund investor will need a demat
account for trading, because this fund has the constitution of mutual fund but behave the same manner as the normal share or stock behave in stock exchange and the value of NAV is being traded on the stock exchange.

These ETFs are the exchange traded funds for further divided into subparts

(1) International exchange traded fund:

who invest in the foreign index?

(2) Index exchange traded fund,

which is one of the most common type of exchange traded fund and follow a particular stock exchange index with the aim of reflecting the same performance what the Index does.

(3) Commodity exchange traded funds,

which invest in various commodities, and currently only gold funds are active in Indian mutual fund market which has performed significantly well in the downturn of 2018 market crash. And the gold exchange traded fund has given phenomenal returns in past 1 year.

(4) Bond exchange traded funds,

in these funds as from the name itself it is clear that invest in different type of bonds, and just like gold these mutual funds also perform better when the markets are down.

Generally, exchange traded funds are the passively managed funds with very low cost a low expense ratio, also there is no intervention of fund manager to a great extent as in case of actively managed equity mutual funds because these funds follow a particular index and tries to replicate the performance of index.

And this is the reason these reasons these funds are one of the low-risk categories of Investment available for the mutual fund investors.

Shall we Invest in ETFs (Exchange Traded Funds)?

Exchange traded funds are very good investment option available for the conservative investors, but frequent trading in these funds can increase

the cost of investment due to the brokerage charges applied for buying and selling of
exchange traded funds, and moreover you will have to have trading and Demat account to buy and sell this fund.

But if you are an aggressive investor then it is advisable that you must go for actively managed funds where the fund managers work with their all abilities to beat the benchmark returns, and generate a greater Alpha for the mutual fund investors.

Top Performing ETFs (Exchange Traded Funds)

>>        ICICI Prudential Bank ETF

>>        ICICI Prudential Private Banks ETF

>>        Tata Nifty Private Bank ETF

>>        SBI — ETF Nifty Bank

>>        Nippon India ETF Nifty BeES

>>        Motilal Oswal Nasdaq 100 ETF (MOSt Shares NASDAQ 100)

>>        LIC MF ETF – Sensex

>>        HDFC Sensex ETF

>>        SBI – ETF SENSEX

>>        IDFC Sensex ETF

>>        ICICI Prudential Sensex ETF

>>        Kotak Sensex ETF

>>        Edelweiss ETF – Nifty 50

>>        SBI — ETF Nifty 50

>>        HDFC NIFTY 50 ETF

>>        LICMFETF – Nifty 5O

>>        ICICI Prudential Nifty ETF

>>        IDFC Nifty ETF

>>        Aditya Birla Sun Life Nifty ETF

>>        Motilal Oswal  M 50 ETF (MOSt Shares M 50)

>>        LIC MF ETF – Nifty 100

>>        SBI ETF BSE 100

>>        ICICI Prudential Nifty 100 ETF

>>        Aditya Birla Sun Life SENSEX ETF

>>        Quantum Nifty ETF

>>        Mirae Asset ETF – Nifty 50 (MAN 5O ETF)

>>        Axis Nifty ETF

>>        UTI NIFTY Exchange Traded Fund

>>        UTI SENSEX Exchange Traded Fund

>>        UTI NIFTY Exchange Traded Fund

>>        Invesco India Nifty Exchange Traded Fund

Average Performing ETFs (Exchange Traded Funds)

>>        IDBI Gold Exchange Traded Fund

>>        UTI Gold Exchange Traded Fund

>>        HDFC Gold Exchange Traded Fund

>>        Invesco India Gold Exchange Traded Fund

>>        ICICI Prudential NV2O ETF

>>        Tata Nifty ETF

>>        Indiabulls ETF – Nifty 50

>>        ICICI Prudential S&P BSE 500 ETF

>>        ICICI Prudential Midcap Select ETF

>>        Nippon India ETF Nifty Midcap 150

>>        Aditya Birla Sun Life Nifty Next 50 ETF

>>        SBI — ETF Nifty Next 50

>>        Nippon India ETF Junior BeES

>>        ICICI Prudential Nifty Next 50 ETF

>>        Nippon India ETF Infra BeES

Worst Performing ETFs (Exchange Traded Funds)

>>        LIC MF G-SEC Long Term Exchange Traded Fund – Growth

>>        UTI Nifty Next 50 Exchange Traded Fund

>>        SBI—ETF Quality

>>        UTI S & P BSE Sensex Next 50 ETF

>>        Reliance ETF Sensex Next 50

>>        Nippon India ETF Sensex Next 50

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>>        ICICI Prudential Nifty Low Vol 30 ETF

>>        SBI – ETF SENSEX NEXT 50

>>        BHARAT 22 ETF

>>        Nippon India ETF Long Term Gilt

>>        SBI—ETF 10 Year Gilt

>>        Motilal Oswal Midcap 100 ETF (MOSt Shares M100)

>>        CPSE ETF

2.   Index Mutual Funds

Index fund as from the name itself it is clear that these funds follow a particular index for example Nifty Sensex and others. These funds are also passively managed mutual funds with lowest expense ratio as their USP, and just like exchange traded funds, and here also these funds work to replicate a particular index.

The only difference in these mutual funds is that it cannot be traded on stock exchange. And rest all things are similar to exchange traded funds as discussed earlier in this section of other categories mutual funds.

And the index funds has an advantage which exchange traded funds do not have is that we can buy and sell them just like any other Mutual Fund through a systematic transaction named as systematic investment plan and systematic transfer plan systematic withdrawal plan.

And that’s why it is always advisable to choose index fund rather than a exchange traded fund because in exchange traded funds there is also a risk of liquidity at times.

Top Performing Index Funds

>>        Tata Index Fund – SENSEX

>>        Nippon India Index Fund — Sensex Plan

>>        LIC MF Index Fund – Sensex Plan

>>        UTI Nifty Index Fund

>>        HDFC Index Fund – Nifty 50 Plan

>>        Tata Index Fund – NIFTY

>>        SBI Nifty Index Fund

>>        ICICI Prudential Nifty Index Fund

Average Performing Index Funds

>>        LIC MF Index Fund – Nifty Plan

>>        Nippon India Index Fund – Nifty Plan

>>        Aditya Birla Sun Life Index Fund

>>        DSP NIFTY 50 Index Fund – Regular

>>        Franklin India Index Fund – NSE Nifty Plan

>>        Torus Nifty Index Fund

>>        IDBI Nifty Index Fund

Worst Performing Index Funds

>>        ICICI Prudential Nifty Next 50 Index Fund

>>        IDBI Nifty Junior Index Fund

>>        DSP Nifty Next 50 Index Fund

>>        UTI Nifty Next 50 Index Fund

3.   Gold ETFs (Exchange Traded Funds)

As discussed in this section the commodities exchange traded fund gold exchange traded funds are one of the most successful exchange traded funds in terms of Returns this fund generally invest 90% to 100% in physical gold with standard Gold Bullion of purity 0.99 5. And the value of trade of fluctuations of gold price in market on daily basis. And each unit of exchange traded funds generally represents one gram of gold.

There is no lock in period in these exchange traded funds and you can redeem your
investment on real time basis in stock exchanges.

And this gold exchange traded funds gives investor and option to convert them into physical form. Which ranges from 1kg physical gold to minimum of 10-gram physical gold.
And the taxation of these gold exchange traded funds follows the way a of debt fund.

Generally, these funds have lowest risk associated with them and at the same time the gold exchange traded fund has the advantage of no storage risk, storage cost and no purity risk as in case of physical gold.

The investor must have a demat account and charges of expense ratio are generally quite higher in exchange traded funds category

Now let’s look at some of the top performing performing in the worst performing gold
exchange traded fund in India

Top Performing Gold Exchange Traded Fund

>>        IDBI Gold Exchange Traded Fund

>>        UTI Gold Exchange Traded Fund

>>        HDFC Gold Exchange Traded Fund

>>        Invesco India Gold Exchange Traded Fund

>>        Aditya Birla Sun Life Gold ETF

>>        Nippon India ETF Gold BeES

>>        Kotak Gold ETF

>>        Quantum Gold Fund

>>        SBI-ETF Gold

>>        ICICI Prudential Gold ETF

>>        Axis Gold ETF

4.   Gold Saving Mutual Fund

Another category which mutual fund investor must be interested in if they want to invest in gold without holding a demat account as in case of gold exchange traded fund and that category is known as Gold Saving Fund.

Gold Saving funds are formed in the constitution of normal Mutual Fund and these funds invest in gold exchange traded funds of the same mutual fund house without investing directly into gold.

The only advantage with the Gold Saving funds is the mutual fund investor is not required any Demat account to invest in Gold Saving funds and can invest in this fund through
systematic transaction of systematic investment plan systematic transfer plan and systematic withdrawal plan.

The allocation in this fund is generally 95% to 100% pure gold through gold exchange traded funds.

No Lock in period but there is an exit load if the redemption is done within a year.

Expense ratio is generally higher compared to the gold exchange traded funds and taxation is same as the debt fund.

So, one who is looking to invest in gold for these points can prove to be a great investment option

Now let us look at some of the best performing average performing and the best performing Gold Saving funds in India

Top Performing Gold Saving Funds

>>        DSP World Gold Fund

>>        Kotak Gold Fund

>>        SBI Gold Fund

>>        Quantum Gold Savings FundFund of Funds

>>        Aditya Birla Sun Life Gold Fund

>>        Nippon India Gold Savings Fund

>>        HDFC Gold FundFund of Funds

>>        Axis Gold Fund

>>        ICICI Prudential Regular Gold Savings Fund (FOF)

>>        IDBI Gold Fund

>>        Invesco India Gold Fund

5.   Fund of Funds (FOF) Scheme

The next category in other types of mutual fund is Fund of Funds scheme which is also popularly known as FOF schemes.

Again here we can see that from the name itself we can judge that these mutual fund invest in the funds of other mutual fund house or in the funds of same mutual fund house rather than directly investing into stocks bonds and other securities and that’s why these funds are sometimes also called as multi-manager investment.

Major Benefits – Fund Of Funds (FOF) Scheme

  1. These funds are highly cost effective in terms of asset allocation, as the fund houses don’t have to pay taxes for switching the money amount fund and rebalance their portfolio, as in case of normal equity fund investment if you are rebalancing your portfolio you will have to pay the capital gain tax according to the equity and debt category and the rate prevailing in the current market.
  2. These funds of funds carries the mutual funds in their investment portfolio which is again selected by the expert fund managers and in other words we say that it this funds of funds can act as a pre define and pre design mutual fund portfolio for the mutual fund investor to generate maximum return at minimum risk.
  3. It therefore avoids, frequent rebalancing and tracking of mutual fund as in case of retail investors investing in other Mutual Funds by themselves, here the fundmanager takes the charge of rebalancing and reshuffling the mutual fund portfolio as per the market situation on behalf of the investor.
  4. These funds provide a very high diversification by investing in different funds from the different fund houses managed by different funds managers in different asset classes.
  5. Mutual Funds which are being made for investing by institutional investors only and through funds of funds the retail investor also gets the chance to invest in this kind of institutional Mutual Fund.
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But if we see the other side of the coin, then there are some demerits also associated with funds of funds

(i).     The biggest demerits of these funds is the taxation part, because even these funds invest primarily in equity oriented schemes the taxation is done like the debt fund

(ii).    And also, so this fund charges some extra expense ratio in addition to the average expense ratio of the funds hold by these funds which makes the cost of holding these funds higher to the mutual fund investors.

Should We Invest in Fund of Funds (FOF) Scheme Fund?

If you have read this book thoroughly then you are not required to invest in funds of fund schemes as investing in these funds make cost higher to you because of that debt taxation and higher expense ratios, which can have a great impact on the return’s generation by the funds of funds.

Investing in Fund of funds is a good option only when you have no time at all event to manage your mutual fund portfolio by yourself so it would be a better choice to leave it to the top fund managers to choose the right funds for you with some amount of additional cost.

Top Performing Fund of Funds (FOF)

>>        Edelweiss Greater China Equity Off-shore Fund

>>        Motilal Oswal Nasdaq 100 Fund of Fund (MOFN 1OOFOF)

>>        Edelweiss US Value Equity Offshore Fund

>>        DSP US Flexible Equity Fund

>>        Principal Global Opportunities Fund

>>        ICICI Prudential Global Stable Equity Fund (FOF)

>>        Franklin India Feeder Franklin U.S.

>>        Opportunities Fund

>>        Kotak US Equity Fund

>>      HSBC Global Consumer Opportunities Fund- Benefiting from China Growing Consumption Power

>>        Invesco India Feeder Invesco Global Equity Income Fund

>>        PGIM India Global Equity Opportunities Fund

Average Performing Fund of Funds (FOF)

>>        PGIM India Euro Equity Fund

>>        Edelweiss Europe Dynamic Equity Offshore Fund

>>        DSP Global Allocation Fund

>>        Aditya Birla Sun Life Global Emerging Opportunities Fund

>>        HSBC Brazil Fund

>>        Kotak Global Emerging Market Fund

>>        DSP World Agriculture Fund

>>        Aditya Birla Sun Life Global Real Estate Fund

>>        IDFC All Seasons Bond Fund

>>        Kotak Asset Allocator Fund

>>        Edelweiss Emerging Markets

>>        Opportunities Equity Offshore Fund

>>        FT India Feeder Franklin European Growth Fund

>>        ICICI Prudential Debt Management Fund (FOF)

>>        Aditya Birla Sun Life Active Debt Multi Manager FoF Scheme

>>        HSBC Asia Pacific (Ex Japan) Dividend Yield Fund

>>        Sundaram Global Brand Fund

>>        ICICI Prudential Moderate Fund (FOF)

>>        ICICI Prudential Asset Allocator Fund (FOF)

>>        Invesco India Feeder Invesco Pan European Equity Fund

>>        HSBC Global Emerging Markets Fund

>>        IDFC Asset Allocation Fund of Funds Conservative Plan

Worst Performing Fund of Funds

>>        Edelweiss ASEAN Equity Off-shore Fund

>>        Franklin India Multi-Asset Solution Fund

>>        Quantum Multi Asset Fund

>>        Franklin India Life Stage Fund of Funds 50s Plus Floating Rate Plan

>>        Aditya Birla Sun Life Financial Planning FOF Conservative Plan

>>        Aditya Birla Sun Life Financial Planning FOF Prudent Plan

>>        IDFC Asset Allocation Fund of Funds Moderate Plan

>>        Aditya Birla Sun Life Asset Allocator Multi Manager FOF Scheme

>>        HSBC Managed Solutions Conservative

>>        Franklin India Life Stage Fund of Funds The 50s Plus Plan

>>        DSP World Energy Fund

>>        Aditya Birla Sun Life Financial Planning FOF Aggressive Plan

>>        Franklin India Life Stage Fund of Funds The4Os Plan

>>        Franklin India Dynamic Asset Allocation Fund of Funds

>>        Quantum Equity Fund of Funds

>>        HSBC Managed Solutions Moderate

>>        HSBC Managed Solutions Growth

>>        ICICI Prudential Passive Strategy Fund (FOF)

>>        DSP World Mining Fund

>>        Franklin India Life Stage Fund of Funds The 30s Plan

>>        HDFC Dynamic PE Ratio Fund of Funds Plan A

>>        IDFC Asset Allocation Fund of Funds Aggressive Plan

>>        Nippon India Junior BeES FoF

>>        Franklin India Life Stage Fund of Funds The 20s Plan

>>        ICICI Prudential Thematic Advantage Fund (FOF)

>>        ICICI Prudential BHARAT 22 FOF

>>        ICICI Prudential Global Advantage Fund (FOF)

6.   Capital Protection Fund

The first most important point, For the investor before investing in capital protection fund is that don’t just go by the name that these are the capital protection funds, there is a guarantee of protection of capital of the investor, which is absolutely not so true about this fund. As these capital protection fund also holds equal amount of risk which any conservative hybrid fund will have and that’s why the returns are subjected to market performance and there is no guarantee of Return and also there is no guarantee of capital protection also.

Other most important point to note for investing in capital protection fund is that it is a close ended Mutual Fund which has the objective of protecting the capital first and then generating Returns and therefore the capital protection fund invests large part of their investment portfolio almost up to 80% in the debt instrument which has the maturity period similar to the lock in period of the capital protection fund. Period can be different for different capital protection fund of different Mutual Fund houses, not necessarily in years but can also be in months and days also.

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And the rest of the 20% of their investment portfolio in capital protection fund they invest in equity related instruments to generate returns through the capital appreciation in the instruments. So basically, these capital protection fund apply a conservative investment approach just like conservative hybrid funds but with the lock in period.

Should We Invest in Capital Protection Fund?

The answer is why to go for closed ended funds and that to a new category which follow a
conservative approach of investing and taxation part will also be done like a debt fund when there are much better performance funds available in the market in open ended scheme and if you really want to have a greater proportion of debt instrument in your Mutual Funds then you can go for normal hybrid funds.

Our take will be if you are comfortable with the lock in period and you are conservative investor then only you go for this fund.

7.   Fixed Maturity Plan Mutual Fund

Fixed maturity plans are again the closed ended debt Mutual Funds, Which are open for investment in their New fund offer (NFO), Then be closed for investment still the locking period of these mutual funds which is mention in the scheme information documents these Mutual Funds at the time of New fund offer.

And again here also the maturity period can defer from fund to fund based on the objective of that fund, and can reach from a period of one month to 5 years.

Fixed maturity plan passively managed mutual funds which invest in high quality debt instruments Rated by various rating agencies with intention to provide steady Returns over the fixed maturity period or the lock in period for protecting the mutual fund investors from the volatility in the market through the ups and downs and by holding these instruments till maturity so that at the time of maturity all these investment instrument attains maturity.

And here also show the returns are not sure they are just indicated in fund based on the instruments all the securities bought buy the mutual funds in their investment portfolio.

And that’s why in comparison to the fixed deposit of bank ok they are at higher risk as the company in whose instruments they invested in has the potential of default in future.
The benefit which fixed maturity plan enjoys over fixed deposit is that they are been taxed as debt funds and that’s why I Fixed maturity plan get the benefit of indexation while filing tax.

And the only way of exit is by selling them on the stock exchanges and that’s why Fixed maturity plans faces problem of liquidity risk also.

Should we Invest in Fixed Maturity Plans?

The answer is yes you can invest in fixed maturity plans if you are conservative investor and
planning to invest in fixed deposit because this fixed maturity plan over a long term of tenure up to the year of three years can prove to be very beneficial and also on the taxation front fixed maturity plan give the benefit of indexation to the mutual fund investors which fixed deposit of bank does not offer at all and currently the rate of fixed deposit return it’s quite low almost below 7% so one can get much better return by taking a little higher risk and fixed maturity plans.

8.   Real Estate Mutual Funds / Real Estate Investment Trust (REIT)

2008 real estate mutual fund regulations for investing directly or indirectly in real estate assets were introduced by SEBI, which is launched under SEBI alternative investment fund regulations, In 2008 the minimum investment in this fund for Rs. 10 lakh which was increased to Rs. 1 crore as a minimum investment amount in May 2012 by SEBI and therefore these funds are not meant for the common investor visa for the high-net-worth individuals who has the high-risk appetite and a greater understanding of real estate market in India.

According to SEBI there were also few foundations or the rules created for real estate fund, in which at least 35 % of the investment portfolio of a real estate Mutual Fund will be in physical assets, and also not less than 75 % of the entire portfolio of the scheme shall be in the physical assets or any Such related securities.

These mutual funds can also invest in securities such as mortgage-backed securities and debt instruments of the company involved in real estate projects and the assets of these funds will be verified by 2 valuers accredited by a credit rating agency after every 90 days.

Later in 2014 budget again new type of find tinder the real estate category was formed and came into existence as real estate investment trust (REIT),

The real estate investment trust is just like mutual funds which allow the investor to invest in income generating real estate, return objective to provide unitholders dividend generated from the rental income and capital gain from the profitable sale of real estate assets.

For investment trust imposes that this mutual fund Invest best at least 80% of their portfolio in completed revenue generating properties which is mostly commercial properties and 20% only can be invested in under construction properties, listed shares of real estate companies and fixed income instruments like Gilt and money market securities issued by buy a companies involved in real estate.

This is a new concept and till date there are no Mutual Funds which has shown interest real estate investment trust so that the investor will have to wait. For quite some long to have such funds in India, as setting up of these funds have various tax and regulatory concerns which the government and SEBI is trying to solve.