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WHAT ARE MUTUAL FUNDS?

Mutual funds are a mechanism for pooling the resources of different investors and investing the collected funds in accordance with specific objectives, in securities so as to realise the investment objective. The investment objective is based largely upon the investors’ capacity to take risk.The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time.

HOW DID MUTUAL FUNDS ORIGINATE?

The concept of pooling money for investment purposes started in the mid 1800s in Europe.The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard University.On March 21st 1924 three securities executives from Boston pooled their money to create the first mutual fund in the world known as the Massachusets Investors Trust. Unit Trust of India was the first mutual fund to be set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds. It was at this time that LIC Mutual Fund came into existence.

HOW DOES LIC MUTUAL FUND WORK ?

In accordance with the Securities & Exchange Borad of India (Mutual Fund) LIC Mutual Fund was set up as a separate Trust by the Life Insurance Corporation of India (who is the Sponsor). LIC has made an initial contribution of Rs.2 crores towards Trust Fund and has appointed a Board of Trustees to supervise the activities of the Fund. The Board of Trustees have entrusted the work of management of the Fund to Jeevan Bima Sahayog Asset Management Company Ltd., which is a company promoted by Life Insurance Corporation of India with an authorised capital of Rs.25 crores. JBS AMC is responsible for promoting different schemes on behalf of LIC Mutual Fund and also to manage them. The day to day operations of the AMC are looked after by experienced and qualified professionals, consisting of senior officials on deputation from Life Insurance Corporation of India as well as directly recruited officials of the AMC.

LIC Mutual Fund has appointed Stock Holding Corporation of India as the custodian for the scheme to take delivery of all properties belonging to the Mutual Fund schemes and hold them in custody and separately from the assets of the custodian and their other clients.

WHAT ARE THE DIFFERENT TYPES OF MUTUAL FUNDS?

Mutual Fund Schemes are generally classified into 2 types viz.

A) Schemes according to Maturity Period:

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.

B) Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Sector specific funds/schemes?

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

HOW TO INVEST IN LIC MUTUAL FUND SCHEMES?

Investment in LICMF schemes can be made either directly or through any of our agents, chief agents or Marketing Associates.Applications for allotment of LICMF units should be made in the prescribed form only. Cheques / DDs should be drawn in favour of "the respective scheme"

WHERE TO SUBMIT APPLICATION FORM

Domestic investors –

Duly filled in applications with subscriptions can be submitted at the authorized collection centres (list given at the end of this document) along with local cheques/DD payable at the authorized centres only. Payment by cash will not be accepted.

NRI’s on a fully repatriable basis-

In case of NRIs, payment may be made by means of a Draft in Indian Rupees purchased abroad or by cheque/DD drawn on Non resident (External) /FCNR Accounts, payable at the authorized centres only. Payments may also be made through Demand drafts or other instruments permitted under the Foreign Exchange Management Act.

NRI’s on a non-repatriable basis-

NRIs can invest by cheques/DD’s drawn out of Non resident (Ordinary) Accounts.

FIIs shall pay their subscription by way of direct remittance from abroad or out of their special Non resident Rupee account maintained with designated bank in India or as may be permitted by law.

Applications under (POA) Power of Attorney /Body Corporate/Registered Society/Trust/Partnership

In case of an application under POA or by a limited company, body corporate, registered society trust or Partnership etc., the relevant POA or the resolution or authority to make the application as the case may be, or duly certified copy thereof, along with the memorandum and articles of association /bye-laws must be lodged at the authorized centre along with the application form.

Presently, our Corporate Office and Area Offices are the only authorized Collection Centres. However, the AMC may at their sole discretion add or delete one or more collection centres at a later date if they so find necessary.

Note: The application form no. should be noted on the reverse of all Cheques and bank drafts accompanying the application form.

WHY ARE BANK ACCOUNT DETAILS MANDATORY?

In order to protect unit holder interest from fraudulent encashment of cheques, the current SEBI Regulations, has made it mandatory for investors to mention in their application/repurchase-redemption request, the bank name and account number of the unit holders .The AMC will not be responsible for any loss arising out of fraudulent encashment of cheques and or any delay /loss in transit. In the absence of these details, applications are liable for rejection.

WHAT ARE THE RISKS INVOLVED?

Investment in Mutual Fund is subject to standard and specific risk factors.For scheme specific risk factors please refer to the full offer documents of the respective scheme.

STANDARD RISK FACTORS:

  • Mutual funds and securities are subject to market risks and there is no assurance and no guarantee that the objectives of the mutual fund will be achieved.
  • The NAV of the units issued under the scheme may go up or down depending on the factors and forces affecting capital markets.
  • Past performance of the Sponsor/AMC/Mutual fund does not indicate the future performance of the schemes of the Mutual Fund.
  • LICMF LIQUID FUND is the name of the scheme and does not in any manner indicate either the quality of the scheme or its future prospects and returns.
  • The sponsor is not liable for any loss resulting from the operation of the scheme beyond the initial contribution made by it for an amount of rupees 2 Crores towards setting up of the Mutual Fund.
  • Investors in the scheme are not being offered any assured /guaranteed returns.

WHAT WILL INVESTORS RECEIVE AS A PROOF OF THEIR INVESTMENT?

Every unit holder of the Scheme will have an account number allotted to him and a statement of account of the units to the credit of his account will be issued .

For any investments made during the initial offer period the statements of account will be issued to all investors within 10 days after the closure of the offer.After the scheme reopens for subscription investors will be issued a statement of account detailing the number of units allotted. The Fund will endeavor to issue the statement of account within 5 business days after processing of the application.A fresh statement of account will be issued after every partial encashment / declaration of dividend / issue of bonus units / further purchase of units giving the total number of units standing to the investors’ credit. On every such operation the previous statement of account shall automatically stand cancelled.

In addition, each unit holder will also receive an annual account statement as soon as practicable after 31st March each year which will detail the investors opening unit balance as of 1st April of the prior year, all transactions that occurred during the preceding twelve months and the closing balance of units held as of 31st March.

No unit certificate will be issued under the scheme. However incase of a specific request unit certificate may be issued within 6 weeks from the receipt of request from the investor at the appropriate authorized centre .

HOW WILL INVESTORS BE ALLOTTED UNITS IN THE SCHEME?

Allotment of units will be made after realisation of Cheque/DD for the amount invested depending upon the NAV of the units, subject to the prevailing load structure in fractional Units upto 3 decimals.

WHAT IS THE NAV OF UNITS ?

The NAV is the current market value of a mutual fund unit. It is calculated by taking the funds' total investments, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of units outstanding.

                      Total Unit Cap. + Reserves + income (net of expenses & provisions) +                         (-) Appreciation/ (Depreciation)in investment

NAV   =    --------------------------------------------------------------------------------

                                                   No. of Units outstanding

WHERE CAN INVESTORS TRACK THE NAV ?

The NAV shall be calculated everyday including holidays and declared on each business day in accordance with the SEBI guidelines from time to time and will be displayed / available at the Corporate office, Registrars office and other Authorized Centers such as the Area Offices. The NAV along with the sale and repurchase prices will also be published in atleast 2 daily newspapers along with the sale and repurchase price on all business days accordance with SEBI guidelines, and made available on our website and AMFI website on a daily basis.

HOW DO INVESTORS REDEEM THEIR UNITS ?

Investors may redeem their entire holdings either in full or in part. Investors have also the option to request the redemption:

a . of a Specified amount in Rupees

or

b. Of a Specified number of Units of the Scheme

Where the redemption request is for both a specified amount and for a specified number of units, the Specified Unit request is considered as definite. In case of a Specified request for an amount in rupees the number of units to be redeemed will be determined on the basis of the applicable repurchase price. Similarly where the request is for a specified number of Units for redemption, the redemption amount payable will be the number of units multiplied by the applicable repurchase price. Where the request for redemption exceeds the holdings of the Unit holders, the account of the Unit holder will be closed and the entire holding to the investor’s credit will be redeemed at the applicable repurchase price.

Repurchase/ redemption shall be effected on receipt of the repurchase/ redemption request along-with the duly discharged Statement of Account mentioning the number of units offered amount sought for repurchase/ redemption at the authorised centre where the Units were originally purchased. The new statement of account, mentioning the units outstanding to the credit of investor, if any, will be sent to the investor separately and upon its receipt all previous statements of account will automatically stand cancelled.

On complete redemption of the holdings the investor’s ceases to be a member of the Scheme and would not be entitled to any further benefits from the Scheme.

REPURCHASE /REDEMPTIONS BY NRI’s/PIO’s

Repurchases / Redemptions By NRI’s / PIO’s will be in accordance with the conditions mentioned above subject to any procedures laid down by the RBI if any.

Payment to NRI’s / PIO’s will be subject to relevant laws / guidelines of the RBI as are applicable from time to time.

  1. Subject to RBI approval, in case of NRI unitholders the amounts due on redemption / repurchases (subject to tax deduction at source) will be credited to the NRE / FCNR account of the investor where the original investment in the units was made on repatriation basis by an NRI either through inward remittance or debit to NRE/FCNR account.
  2. In all other cases the amounts due on redemption / repurchases (subject to tax deduction at source) will be paid by means of a rupee cheque payable at the NRO/NRSR account of the investor as applicable.

HOW IS THE SALE /REPURCHASE PRICE CALCULATED?

Sale /Repurchase prices will be Calculated as per the prevailing load structure as follows:

                                         NAV

Sale Price   =                   -----------

                                    1 - Entry Load

 

Repurchase Price  =               NAV

                                ------------

                                   1 + Exit Load

WHAT IS AN ENTRY /EXIT LOAD?

There are various administrative and other costs associated with the issue /redemption of units by an investor.These costs are charged to the scheme in the form of entry / exit load respectively. The funds collected as Load would be credited to a separate account in the Scheme accounts and would be utilised to meet such expenses as permitted under the SEBI regulations.

The Trustees reserve the right to review the sale, repurchase / redemption load from time to time and fix it subject to condition that the repurchase price shall not be lower than 93 % of the NAV and the sale price shall not be higher than 107% of the NAV and the difference between the repurchase price and sale price shall not exceed 7% of the sale price as prescribed by SEBI.

ARE THERE ANY OTHER CHARGES THAT INVESTORS ARE LIKELY TO BEAR?

Based on whether the scheme under which you have invested is a no load scheme the AMC may charge a contingent deferred Sales charge or a CDSC. It is intended to enable the AMC to recover the promotional and distribution expenses of the Scheme incurred by it which otherwise the Unit Holder might have to bear. As per regulation 52(5) of the SEBI (MF) Regulations 1996 the AMC may be entitled to levy the CDSC for redemption during the first 4 years after purchase, not exceeding 4% of the redemption proceeds during the first year, 3% in the second year, 2% in the third year and 1% in the fourth year. There may also be the Sales load on conversion of Dividend to units for investments under the Dividend Reinvestment options.

WHAT ARE LOAD AND NO LOAD SCHEMES?

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

WHAT IS AN SIP/SWP?

Investors will have the opportunity to plan their further investments and withdrawals from the scheme via the SIP/SWP . They can invest or withdraw regularly, at a specific frequency (subject to the other provisions of the schemes) thus benefiting from the economics of average cost of purchase and sale. They can further invest a fixed sum of money, a minimum of Rs.500/- and multiples thereof under the SIP. Under the SWP the investors can redeem/repurchase a fixed sum/ number of units- minimum 50 units and multiples thereof. An investor has to have a minimum balance of specified no. of units or specified amount at all times under both SIP & SWP.

ARE THERE ANY TAX BENEFITS FOR INVESTING IN MUTUAL FUNDS?

Investments in mutual funds do classify for tax benefits. For specific provisions please refer to the respective offer documents.

WHAT ARE YOUR RIGHTS AS AN INVESTOR? WHAT RECOURSE DO U HAVE TO YOUR GRIEVANCES?

a) Unitholders under the scheme have a proportionate right in the beneficial ownership of the assets of the mutual fund under the scheme.

b) The unitholders have a right to ask the trustee company/board of trustees about any information which may have an adverse bearing on their investments, and the trustees shall be bound to disclose such information to the unitholders.

c) The appointment of the Asset Management Company in respect of this scheme may be terminated by a majority of Trustees or 75% of the unitholders.

d) Units of the scheme are generally non-transferable. However, transfer of units, in cases outlined under the heading Transferability/ Transmission of units and subject to conditions stated therein, shall be made within 30 days from the date of lodgment.

e) Warrants in respect of dividends, if declared, will be dispatched to the unitholders within 30 days of the declaration of dividend if any.

f) Redemption or repurchase warrants will be dispatched within 10 working days from the date of their receipt of request duly complete in all respects by the appropriate Office.

g) The Trustees may, from time to time, add to or otherwise amend or alter all or any of the terms of this scheme, for duly complying with the guidelines of Government, RBI/SEBI or any other regulatory body or in the interest or convenience of the Fund or the unit holders. and any modification of the fundamental attributes of the scheme, or the trust or the fees and expenses payable or any other modification by the Trustees shall be made bearing in mind that the interest of the unit holders is not affected and no change in any of the above shall be carried out unless –

  • A written communication about the change is sent to each unit holder and an advertisement is given in one English daily newspaper having nation-wide circulation as well as in a newspaper published in the language of the region where the Head office of the Mutual Fund is situated;and
  • The unit holders are given an option to exit at prevailing NAV without any exit load.

h) An Abridged schemewise annual report shall be mailed to all unitholders not later than 6 months from the date of closure of the relevant accounting year and the full annual report shall be available for inspection at the corporate office of LIC Mutual Fund and a copy shall be made available the unitholders on request on payment of nominal fees, if any.

i) DOCUMENTS FOR INSPECTION:

The following documents will be available for inspection to the unit holders at the corporate office of the Mutual Fund:

1. The Trust Deed

2. Deed of Modification

3. Memorandum of Association of Asset Management Company

4. Articles of Association of Asset Management Company

5. Investment Management Agreement

6. Custodial Agreement

7. Registrars Agreement (as and when they are appointed)

8. Audited Balance Sheet of the Mutual Fund

9. The Securities & Exchange Board of India (Mutual Fund) Regulations, 1996

10. Offer Document of the scheme.

11. The Indian Trusts Act 1882 and the consent of the Auditors to act in that capacity.

RECOURSE TO QUERIES / DIFFICULTIES

In case of any difficulties/queries regarding the scheme, investors may contact Shri V. Udayshankar, Deputy Gen.Manager (Mktg.) at the corporate office of JBSAMC. Tel.No. (Direct) - 2044588 or the Area offices at the address mentioned in the document.

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