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Business News/ Money / Personal-finance/  What’s in a name? Plenty, if it’s a mutual fund

What’s in a name? Plenty, if it’s a mutual fund

A 'growth' option is different; most schemes, equity or debt, have a growth and a dividend option


Effective 2 January 2017, Sundaram Monthly Income Plan-Conservative Plan will be called Sundaram Regular Savings Fund. While the strategy will remain the same—invest up to 10% in equities and the rest in fixed income instruments—the fund house believes the new name better reflects the scheme’s nature; a vehicle to attract people’s savings regularly. Likewise, there are many schemes with different types of names in the Rs14-trillion Indian mutual funds industry. How does a relative beginner recognise which scheme does what among more than 3,000 schemes? There are two types of schemes. One that invests in equities and the other invests in debt. Any scheme with ‘growth’ in its name is an equity fund; it symbolises the growth that the fund aims for in the equity market.

A ‘growth’ option is different; most schemes, equity or debt, have a growth and a dividend option. These are facilities that either give or doesn’t give dividend.

Similarly, any scheme with ‘fixed income’ in its name means it is a debt scheme. The term ‘fixed income’ shows that to be able to earn a fixed income, it will earn and grow slowly and steadily.

Where do they invest

The word ‘Bluechip’ in a scheme’s name means it invests in large, well-established companies and so it is a large-cap fund. Similarly, if you see the word ‘emerging’, it means the scheme invests in small-sized companies that are just emerging or waiting to grow. These are mid-cap and/or small-cap funds. Words like ‘Discovery’ generally mean a mid-cap or small-cap fund since such companies are waiting to be discovered.

How do they invest

Some names signify strategy. If you see the word ‘dynamic’, it signifies flexibility. A dynamic fund swings between equity and debt as per where the fund manager finds her opportunity. If you see the words ‘dynamic bond’, it means that the fund is just as flexible, but only within the ambit of debt instruments. It could either become a liquid fund or a long-term bond fund, depending on what the fund manager believes is a good strategy.

A company’s market capitalisation denotes its size. Large-cap companies are large-sized, mid-cap companies are mid-sized and small-cap or micro-cap companies are small sized firms. The word ‘cap’ in your fund’s name, therefore, speaks of the size of companies it would invest in. So ‘flexicap’ or ‘multicap’ mean the scheme can invest in companies across market capitalisation. The word ‘contra’ denotes contrarian. It means the scheme will not invest in popular sectors or themes of the day; it aims to go against the market and target out-of-favour sectors or themes in the hope of investing in them at throwaway prices.

A ‘dividend yield fund’ aims to give you more than normal dividends by investing in high dividend yield stocks.

What you should do

While some words are commonly used and understood, new schemes, and sometimes fancy names, keep getting launched in the market. If you are not able to understand any scheme’s name, ask your adviser or distributor to explain the strategy and what it does. The fancy name may just mean something. Try to go beyond the basic mandate (equity or debt) of the fund and go a bit deeper understanding of its nature.

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Published: 22 Dec 2016, 04:34 PM IST
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