Options and value added services

Thanks to the heightened competition in the mutual fund industry, mutual funds now offer various options and value added services to attract and retain customers.


With respect to a number of schemes, Mutual funds offer the following: divided and growth options, systematic investment plan, and systemic withdrawal plan.

Dividend and Growth Options: When you join a scheme, you can choose the dividend option or the growth option. Under the dividend option the gains of the scheme are paid out at regular intervals in the form of dividends. Funds may offer daily weekly, monthly, quarterly half-yearly and annual dividend options.

Under the growth option, investment are ploughed back in to the scheme and no dividends are declared. Though the returns from both the dividend and growth options will be the same, the tax implications may be different.

Systematic investment Plan: Under the Systematic Investment Plan (SIP) the investor can invest regular sums of money every month to buy units of a mutual fund scheme. As the investment is made regularly, the investor buys more units when the price is low and fewer units when the price is high. Essentially it means he resorts to Rupees Cost Averaging.

Systematic Withdrawal Plan: A systematic Withdrawal Plan (SWP) works like a Systematic Investment plan in the opposite direction. The SWP allows the investor to withdraw a fixed amount every month. The mutual fund sends the redemption proceeds to the investor every month automatically thereby relieving the investor of the choice of sending redemption request. The investor can opt for a fixed sum every month or a certain percentage of the capital appreciation in the NAV of the scheme.

Value added Services: Mutual funds offer value added services like redemption over phone, triggers and alerts check book facility, and new points of purchase.

Redemption over Phone: Prudential ICICI for example offers investors the facility of making a redemption request or switch between schemes over the phone.

Triggers and Alerts: A trigger is an actionable facility that lets the investor pre-specify exit targets for his mutual fund investment. Generally triggers are based on value (for example, a 60 percent rise in NAV) or time (a specific day like March 30th). When the target is reached, the fund house will automatically redeem the units of the investor.

Under an alert service the fund house intimates to the investor – by phone post, or email – when a certain trigger point has been reached. It is then up to the investor to decide whether he wants to redeem his units or remain invested . UTI for example, offers the trigger and alert services on some of the schemes.

Check Book Facility: Fund houses take few days to process a redemption request and then future time is lost when the redemption check is in transit. To cut down this delay, some fund houses give investors in certain schemes (typically debt schemes the option to take a redemption check worth 75 percent of the investment value subject to some limit at the time of investment itself. Encashment of the check is deemed as withdrawal at the scheme’s NAV on the day the check is deposited. The investor of course, has to be contact the fund house to get the balance amount. HDFC Mutual Fund and Templeton Mutual Fund, for example offer this facility with respect to their liquid schemes.

New Points of Purchase: For the convenience of their investors, fund houses are supplementing traditional channels of distribution with more points-of-purchase. For example:

1. HDFC Mutual Fund allows investors to buy and sell units though ATMs.
2. Prudential ICICI and Templeton Mutual Fund sell units of their scheme on line to investors who have a Net banking account with any of the banks these mutual funds have tied up with.