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 FAQ-Bonds

 
    Why invest in bonds?
    What is my current Investment Status?
    What are my Investment Objectives?
    When do I need my money back?
    How much risk am I willing to take?
    How Price and Yield are related in Bonds?
    How Interest Rate and Maturity in Bonds are related?
   How Interest Rate and Inflation are related?
   Why to Invest in Bond Fund?
   What are Tax Implications of Bond Fund.
    What are the Pros and Cons of Bond Mutual Fund?
    What is the difference between Bond Fund and Bond?
 
     
 

Why invest in bonds?

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI), that pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a basket of assets.

 

 

 

   
 


What is my current Investment Status?

Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64
.


 
   
 

What are my Investment Objectives?

Currently public sector banks like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies like Kothari Pioneer, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their own mutual funds.

 
   
 

When do I need my money back?

Presently there are 33 Mutual Funds in India and close to 400 mutual fund schemes. We will very soon be putting up detailed analysis of major schemes operating in India.

 
   
 

How much risk am I willing to take?

Even in the US the concept of mutual funds has started picking up only in the last decade. This whole process of investor education and investor awareness takes a lot of time. But Indian investors are now beginning to understand the benefits of investing through the mutual funds route and hence the collections are beginning to pick up.

 
   
 


How Price and Yield are related in Bonds?

Currently the total funds under mutual fund management in India are a little over Rs.100,000 crore. Out of this UTI accounts for nearly 70 percent while the private funds account for around 22 percent. The balance 8 percent is managed by mutual funds floated by public sector banks and financial institutions.

 
   
 

How Interest Rate and Maturity in Bonds are related?

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI. The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament.

 
   
 


How Interest Rate and Inflation are related?

For a retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative.
This is because:
Mutual Funds provide the benefit of cheap access to expensive stocks.
Mutual funds diversify the risk of the investor by investing in a basket of assets.
A team of professional fund managers manages them with in-depth research inputs from investment analysts.
Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access.


 
   
 


Why to Invest in Bond Fund?


Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.

 

 
   
 


What are Tax Implications of Bond Fund?

A very important factor that determines the returns on a fund is the timing of the fund's launch. Morgan Stanley Fund was launched when the equity markets were at their peak and then saw a sustained downtrend for close to 5 years. That is the reason the fund has taken such a long time to appreciate.

 

 
   
 


What are the Pros and Cons of Bond Mutual Fund?

No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.

 

 
   
 


What is the difference between Bond Fund and Bond?

A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.