When do the investments in mutual funds mature?

What is the maturity date of my mutual fund investments? When can I get the money? Read my article in Mid-day Gujarati edition today:

What is the maturity period of mutual fund investments? Can I withdraw on a premature basis? How?

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The English translation is as under:

What is the maturity period of mutual fund investments? Can I withdraw on a premature basis? How?

In some of our earlier article, we have covered the two chief varieties of mutual funds – open-ended funds and close-ended funds. While the latter have a defined maturity period, the former does not have.

The close-ended funds mature on a pre-decided maturity date.

Each scheme may have a different maturity period, just like in case of fixed deposits. The fund house would not encourage any redemption request prior to the maturity period. In other words, there is no premature withdrawal facility in case of close-ended funds. At the same time, on maturity, the investor would get the money back. The scheme cannot hold the investors’ money after maturity of the scheme.

The regulator has made it mandatory for the units of all close-ended funds to be listed on at least one recognized stock exchanges. This is in order to offer an exit route to investors before the scheme’s maturity. However, the trading volumes are very low and hence, though the facility exists, one cannot really get out of a scheme through the stock exchange mechanism. In that case, one should invest in close-ended funds only to the extent of money that can be kept under lock-in.

Open-ended funds are perpetual investment vehicles, in that there is no defined maturity period. Very simply, since there is no maturity period, there is no question of a premature withdrawal. In that case, how and when can one withdraw money from an open-ended fund? Well, simply by filing a redemption request for the amount required, i.e. partial or full, one can take the money out of a scheme on any business day.

First of all, the redemption form is a simple one that requires the investor to fill in the scheme name, folio number, amount (or units) to be withdrawn and put a signature.

If you are transacting electronically, i.e. through website, mobile app or through on of the industry platforms, you do not need to fill up or sign any redemption form. This means, you need not put your signature, but there could be password protection. All the other details like for folio number, etc. must be provided.

One has to take care of the exit loads and taxes. Some schemes may have an exit load if the investment is withdrawn before a certain time period. The taxes depend on the type of the scheme and when one is taking the money out.

The procedure is really very simple and offer great convenience.

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How does one start investing in mutual funds?

Mutual funds are becoming popular vehicles of investing. However, many still have questions regarding how to start. Please click on the link below to read my article on the subject:

How to start investing in mutual funds?

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The English translation of the same is as under:

Someone approached me the other day after an investment seminar and asked, “I understood the importance of mutual funds and that I must start investing. However, I do not know where to start and how. Can you please tell me, how do I invest in mutual funds?”

First of all, if you are starting to invest in mutual funds, or starting to invest altogether, it is better to take help from experts. There are two categories of experts that can be helpful, viz., mutual fund distributors and investment advisers. Both have differences in the way they conduct their business and help investors. However, for a beginner, both could be helpful.

Having said that, it helps to be prepared with the things required even before meeting an expert.

In order to invest in a mutual fund scheme, one must decide why one is investing – there has to be some financial goal – an expense in future for which one invests today’s surplus. The goal could be short term, medium term or long term. Once you know your goal, choosing the options becomes easy.

You must also decide whether you have a lump sum or regular saving to be invested. Mutual funds offer facilities for both.

In order to invest in any financial product, you must complete certain formalities. These are popularly known in the financial markets as KYC – Know Your Customer. This process involves submission of certain documents that prove your identity as well as your address proof. You would be given a confirmation once this is completed. In fact, the regulators have made life simpler for investors through a common KYC for any of the products in the securities markets, i.e. mutual funds, stocks or bonds. The experts that we talked about earlier – the mutual fund distributor or the investment advisor, can also help in completing your KYC.

Once your KYC is completed, you are ready to invest in mutual funds.

The next decision is whether you want to transact online or through an application form.

There are three main online platforms that one can use – MF Utility, NSE NMF II and BSE StarMF. Depending on which platform your mutual fund distributor uses, you can avail of the services. In all these cases, you need to set up your account. This process may take some time. You would not be allowed to transact before such registration.

Most mutual fund companies also offer online transaction facilities through their websites or through mobile apps. Your distributor also may have developed some such facility. Many mutual fund companies allow you to transact even without any registration if your KYC is completed.

Alternately, you can resort the age old practice of filling up an application form and submitting it to the designated offices.

Along with the application form, you would be required to make a payment. In the online mode, the payment would also be online. Hence, you would need to enable your net banking facility. Whereas if you are applying through an application form, you would need to attach a payment instrument along with the form.

Please make sure you are only making the payment from your own bank account, as mutual funds do not allow third party transactions.

So, as one can see, opening an account is a very easy process.

- Amit Trivedi, Author of "Riding The Roller Coaster - Lessons from financial market cycles we repeatedly forget. The book is available in English and Gujarati and is soon launching in Hindi.