Simply Simple FAQ about Mutual Funds

Q1. What are Mutual funds?

A1. A mutual fund is a type of investment where a group of investors pool their money together to buy a variety of assets, such as stocks, bonds, and money market instruments. The assets are managed by professional investment managers, who aim to generate returns for the investors.

Q2. What is the benefit of Mutual Fund?

Mutual funds are an investment option that offers easy access, liquidity, straightforward exits, and remove investment management risk from the individual investor as professional fund managers manage them.

Q3. Who can invest in India in Mutual Funds?

A3. Any one holding, PAN, AADHAR and Valid Bank account can invest

Q4. How to invest in mutual Fund?

A4. Can be done through a AMFI registered agent/ Mutual Fund Advisor/ Financial Consultant or Directly once your KYC is registered.

Mutli-Asset Vs Dynamic Asset Allocation Fund

The nomenclature of multi-asset and dynamic-asset allocation could sometimes confuse investors. Here’s the difference:

Multi-asset

These funds invest 10% each in a minimum of three asset classes (equity/debt/gold/exchange-traded commodity derivatives). The benefit is that you get to hold a diversified portfolio which helps in reducing volatility. Gold had a stellar run during the pandemic led economic meltdown while equities saw a precipitous drop in March 2020. So investing in such a fund would have helped you participate in the gold rally, with the benefit of protecting your portfolio (to the extent of exposure to equities) through debt allocation during the March 2020 crash in Indian markets. In the same vein, if the fund manager had increased exposure to equities post the market correction in March 2020, the fund would benefit from the rally that we are seeing currently. All asset classes don’t perform similarly during all times so allocation to different assets help.

Dynamic asset allocation

These funds have the flexibility to invest in equity and debt dynamically depending on where fund managers see an opportunity. If the markets are overvalued, the fund manager could rebalance the portfolio by moving towards debt to shield the portfolio from volatility. The major difference between dynamic asset and multi-asset funds is that the former can move in a wider range between equity and debt exposure while the latter tend to follow a more stable allocation. Dynamic asset allocation funds eliminate the need for investors to worry about increasing or decreasing their equity exposure on their own. Do note that the taxation of such funds could change depending on the exposure to debt/equity.

Source: https://www.morningstar.in/posts/61188/multi-asset-dynamic-asset-funds-consider.aspx

Differences between NRE and NRO account

	NRE	NRO
Repatri-ability	The deposits in an NRE account along with the interest earned is fully repatriable.	Repatriation is restricted from NRO accounts. You can repatriate just $1 million in a year from an NRO account with the help of a CA.
Taxation	The interest earned on deposits in an NRE account is tax-exempt.	The income from an NRO account is taxed. NRIs can reduce their tax liability by availing tax benefits under the Double Taxation Avoidance Agreement with certain countries.
Deposit rules	You can deposit any amount in a foreign currency in both the NRE and NRO accounts.	INR-denominated funds originating in India can only be deposited in the NRO account.
Fund Transfer	You can transfer funds from an NRE account to another NRE account as well as NRO account.	Funds from an NRO account cannot be transferred to an NRE account.
Joint account	You cannot open a joint NRE account with a resident Indian. The joint account holder for NRE accounts has to be an NRI.	An NRO account doesn’t have any restrictions. You can open an NRO account with a resident Indian as the joint account holder.
Currency fluctuation	The deposits in an NRE account are exposed to exchange rate fluctuations as well as conversion loss.	NRO account deposits are not exposed to daily currency fluctuations.

How do I choose which account to open for myself?

Both the NRE and NRO accounts serve different purposes. An NRE account allows easy repatriability and transferability The NRO account is used to maintain funds generated from Indian income sources so if you have an Indian income source, opt for an NRO account. But, if you just want to convert foreign income into Indian currency, the NRE account would be an ideal choice. NRE account deposits earn tax-free interest with no restrictions on repatriation.