How do I buy the units of a fund?" someone asked me the other day.

This query was followed

by a mail from a reader who wanted to know if he had to buy mutual fund units from the stock
market.

For all of you who are plagued with similar questions, here is the answer.

We have listed five ways in which you can buy your fund units.

• Have I invested in the right funds?

1. Get in touch with the Asset Management Company

The first step is to track the AMC -- as fund houses are known -- online.

Once you get onto their Web site, you will get their office addresses, phone numbers and a
contact e-mail address. You will even be able to transact online with some of them.

Online addresses of the AMCs

ABN AMRO Mutual Fund

Benchmark Mutual Fund

Birla Sun Life Mutual Fund

BOB Mutual Fund

Canbank Mutual Fund

Chola Mutual Fund

Deutsche Mutual Fund

DSP Merrill Lynch Mutual Fund

Escorts Mutual Fund

Fidelity Mutual Fund

Franklin Templeton Mutual Fund

GIC Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

J M Financial Mutual Fund

Kotak Mahindra Mutual Fund

LIC Mutual Fund

Morgan Stanley Mutual Fund

Principal Mutual Fund

Prudential ICICI Mutual Fund

Reliance Mutual Fund

Sahara Mutual Fund

SBI Mutual Fund

Standard Chartered Mutual Fund

Sundaram Mutual Fund

Tata Mutual Fund

Taurus Mutual Fund

UTI Mutual Fund

Invest online with the mutual fund

Some mutual fund Web sites allow you to invest online. However, you must check if you have an
account with the banks they have partnered with.

For example, Prudential ICICI Mutual Fund allows you to buy funds online if you have a banking
account with any of the following banks: Centurion Bank, HDFC Bank, ICICI Bank, IDBI Bank and
UTI Bank.

You can buy units of SBI Mutual Fund's schemes only if you have an account with the State Bank
of India or HDFC Bank.

Get in touch with the fund house

By going online, you will be able to locate the fund house's address and phone number (toll free
number in some cases). You can call and request them to send an agent over.

Or, if you want, go over personally. Do make an appointment; you may end up wasting time if the
person you want to speak to is not available.

Some, like Prudential ICICI Mutual Fund, have a form you can fill and submit online. Do so and
they will send someone over to meet you.
 • An aggressive tax saving fund

2. Visit your bank

A number of banks are mutual fund agents.

Just walk into your branch and ask if they are selling any funds. See if they have a tie-up with the
fund house you want to invest in.

• 6 large-cap funds to consider

3. Ask around

Ask your colleagues, neighbours, friends and relatives. Someone will know an agent. Just ask
them for his contact details or ask that he get in touch with you.

• Why investing in an SIP is important

4. Visit the AMFI website

The Web site of the Association of Mutual Funds in India has a list of mutual fund agents across
the country.

Under the heading Investors Zone, you will find another one called ARN Search. This refers to
the AMFI Registration Number.

Click on it and you will arrive at a search page. You can locate an agent in your vicinity by just
putting in your PIN code or name of your city.

• 3 balanced funds to consider

5. Check the online finance portals

Do you have an online trading account? Then you could check if they also sell mutual funds
online.

If you do not have an online trading account and are considering opening one, you could look for
a player that offers both.

Some like ICICI Direct sell funds online. But you must have a trading account with them. Others,
like India Bulls and Motilal Oswal, do not have this facility online but if you call and leave your
contact details, they will send an agent over.

Here are some of the prominent players.

5 paisa

Geojit Securities

HDFC Securities
ICICI Direct

India Bulls

InvestSmart Online

Investmentz.com

Kotak Street

Motilal Oswal

Sharekhan

Why investing in an SIP is important

Have a query regarding mutual funds? Maybe we can help.
Drop us a line and our mutual fund experts, Value Research, will do the needful.

I do not understand these new offers of mutual funds very well and neither do I have a lot
of knowledge on the stock market.

These are my current mutual fund investments:

Reliance Opportunity: Rs 100,000

Fidelity: Rs 25,000

Magnum Tax Gain: Rs 50,000

Kotak Contra: Rs 40,000

Birla GenNext: Rs 30,000

Magnum Emerging Business Growth: Rs 45,000

I have a few more investments too.

All these took place during the past six months.

What is your view on my portfolio? I don't want to lose my capital (initial investment) even
if I do not make a profit on some of the funds.

Also, is there any safe mutual fund alternative to the savings bank account?

- Asheesh Kumar Srivastava

Your fund portfolio

A look at the funds you mention above reveals that all the funds are new, except Magnum
Taxgain. Hence, none of them have a performance track record.

We believe it is always better to invest in funds that have proven their worth by performing well
over a period of time, across bullish and bearish phases.

Therefore, we would recommend you select well-established funds for your future investments,
instead of running after new funds. All of these only have promises to back their claims, not actual
performance.

Read How to compare mutual funds when deciding which ones to invest in.

Investing regularly helps

We would also like to suggest you invest smaller amounts regularly instead of investing large
sums of money at one go. You can choose to invest a fixed sum of money, monthly or quarterly, in
various funds. This is referred to as a Systematic Investment Plan.

In Returns delivered by mutual funds, you will see that you get a much higher investing via an SIP
than you would get from a one-time investment.

The hazard with lump sum investing in an equity fund is that if the stock market slumps
immediately after you invest, a substantial part of your capital might get eroded. However, by
investing regularly, the possibility of incurring a substantial loss is diminished. This is
because over a period of time, the cost of your investments gets averaged. You end up buying
some units at a high price and some at a lower price.

Please remember that mutual funds do not guarantee your capital. Hence, although they have the
potential to give great returns, there is also the risk of loss. This risk, however, gets substantially
reduced if one invests regularly over the long term.

Investing in various types of mutual funds

If this risk element bothers you, you should invest in relatively less volatile funds like balanced
funds rather than pure equity funds. Unlike, equity funds that invest only in shares, balanced
funds invest in debt (fixed return investments) and equity (shares). Hence, you get the benefit of
equity but the debt portion adds stability.

To understand balanced funds better, read Why you must invest in a balanced fund and 5 great
balanced funds.

Also read How to invest in mutual funds to understand how to build a mutual fund portfolio.

Safety of capital
Regarding your second query, we have already mentioned that no mutual fund will give you a
guarantee of capital. A mutual fund investment cannot be compared with a bank deposit as far as
safety of capital is concerned.

However, you can consider cash funds. They can provide you with comparable or even better
returns than a savings bank account. The risk of loss in these funds is also minimal.

Cash funds are known as ultra short-term bond funds or liquid funds. They invest in fixed return
instruments of short maturities (tenures). Their main aim is to preserve the principal and earn a
modest return. The money you invest will eventually be returned to you with a little something
added.

Of course, you will not get the spectacular returns of an equity fund but you will also not face the
threat of your investment being reduced to nothing.

To understand cash funds in detail, please read Tired of your savings account?

To locate some good cash funds, please read Great funds to put your spare cash into.

The dividend that you get from these funds is tax-free. The mutual fund pays a tax of 12.5% for
distribution of dividend, which is ultimately passed on to the investor. Yet, it is substantially less
than 30% you pay as tax on interest from bank deposits.

- Please note that in case you sell your units in these funds within a year of buying
them, any gain you make will be added to your income and will be taxable as per your tax
slab. However, if you sell the units after a year, you pay a capital gains tax of 20% without
indexation or 10% with indexation. Indexation is when inflation is taken into account when
calculating your profits. Read All about capital gains to understand this in detail.

3 balanced funds to consider

Wary of buying shares but don't want to miss out on the bull run? Then you should consider a
balanced fund with an equity tilt.

Balanced funds invest in equity (shares) and debt (fixed income instruments). Usually, they put
around 50% of their total investments in debt and 50% in equity.

However, the funds discussed here are more equity oriented with more than 50% of their
investments going into equity. So you do get the benefit of the bull run as well as some stability
with the debt part of the portfolio.

Here are three balanced funds that deserve a good look.

• How to compare mutual funds

Comparing the players

On an average, the category of balanced funds has delivered the following returns.

1-year return: 42.05%

3-year return: 40.29%
5-year return: 19.97%

So when you look at the returns of individual funds, compare it with the category average
mentioned above.

The funds are also given a star rating. The funds with a 5-star rating are the best. Those with a 1-
star rating are the worst.

However, "best" does not indicate the highest return when compared with the rest. It means you
will get a good return without putting your money at too much risk.

Basically, it is a quick and easy way to identify mutual funds that have produced strong risk-
adjusted performances vis-a-vis their peers.

All the returns and the Net Asset Values are as of October 3, 2005.

The returns and NAV mentioned are for the growth scheme of the fund, not dividend. To
understand the difference between growth and dividend schemes, read The best mutual fund
scheme for you.

• Must mutual funds declare dividends?

Prudential ICICI Balanced

Launch: October 1999

NAV: 25.16
1-year return: 47.74%
3-year returns: 42.80%
5-year returns: 21.23%
Rating: 3 stars

Performance record

This fund has beaten the average category returns of one year, three years and five years.

Like most funds launched at the peak of the tech bubble, it had its shares of difficulties. During
the tech bubble, the fund delivered a return of 68% in five months only to end with a 45% loss by
the end of 2000.

Since then, it began to spread its assets across various sectors.

Investments

In recent times, it has reduced investments in energy and metal stocks, while beefing up
investments in auto, chemical and basic engineering stocks.
The high amount of investment in auto, healthcare and metal stocks has slowed down the fund's
growth in the recent times. However, some good picks in engineering, construction, services and
consumer non-durable sectors have more than compensated for it.

In terms of market capitalisation, the fund has started to invest heavily in riskier mid- and small-
cap stocks. In the first eight months of 2005, its allocation to these stocks was around 46%.

But, it has invested in a greater number of stocks which brings down the risk. The total number of
stocks was around 20 to 25 last year and this year, around 35 to 40.

On the debt side, as interest rates moved upwards, the fund decreased its debt allocation. July
end, investments in debt were just 12.61% of the total portfolio.

What to expect

Overall, Prudential ICICI Balanced doesn't take an aggressive stance on either of the two asset
classes. Consequently, conservative investors will find this fund's style to their liking.

Though you cannot expect miracles with this fund, it will take you to your goal in a stable fashion.

The last four calendar years bear testimony to this fact � the fund has consistently been
delivering an above average return.

• Mutual funds give great returns

Kotak Balance

Launch: November 1999

NAV: 21.44
1-year return: 57.77%
3-year returns: 43.55%
5-year returns: 22.43%
Rating: 4 stars

Performance record

This fund too has beaten the average category returns of one year, three years and five years.

Kotak Balance has a reasonable long-term performance record. In four of the last five calendar
years, it has landed a place in the top-half of the category.

Investments

The fund's tryst with mid- and small-cap stocks has proved highly rewarding. On a large-cap diet
till late 2003, the fund missed the mid-cap rally that year. By the time it decided to change tack, it
was too late.

The fund delivered 62.88% but fell short of the 67% average gain of its peers. However, it
reshuffled its portfolio in favour of mid and smaller companies towards the end of 2003 and since
then it has rewarded its investors with some extraordinary returns.
The fund does not hesitate to bet high on small-cap stocks. A high dose of mid- and small-cap
stocks prove rewarding but the reward comes laced with a high degree of volatility.

This year, the fund has gained by timing its exit from non-performing sectors like auto, pharma
and metals and betting on basic engineering, chemical, consumer non-durable and financial
sector stocks.

The fund has also benefited by not being very rigid with its asset allocation in the past.

For example, when the stock market turned bullish early 2002, the fund reduced its debt
exposure from an average of 41% in 2001 to around 33% in 2002.

In the first seven months of 2005, the investments in equity averaged around 66% of the total
portfolio.

On the debt side, corporate bonds (bonds issued by companies) and gilts (bonds issued by the
government) have been completely replaced by commercial paper (debt instruments issued by
companies and banks to meet short-term financing needs).

What to expect

A well-diversified portfolio is a plus here. The fund always keeps 20 to 30 stocks, and limits
exposure in individual stocks to around 6% at the most.

Kotak Balance fund's versatility is hard to beat. However, this fund is on steroids (its one year
return is 57% against a category average of 42%). Therefore, investors should be ready to stay
put for the long term. By doing so, they surely would be rewarded.

• Is the Super SIP a great investment

DSPML Balanced

Launch: May 1999

NAV: 27.07
1-year return: 39.11%
3-year returns: 44.51%
5-year returns: 21.02%
Rating: 4 stars

Performance record

The one-year return delivered by this fund falls short of the category average. However, it has
beaten the three and five year average returns.

Investments

A stress on large-caps over mid-caps, as well as considerable investments in healthcare and

metal stocks, has affected the fund's performance.

But this fund has managed to bounce back out of similar situations in the past.
For example, during its early life, a tech-loaded portfolio resulted in poor performance through
2000 and 2001. It found a place in the bottom half of the category in the two years. It reacted to
the situation by reducing its investments in tech companies.

The fund's performance picked up in the last quarter of 2002, when the overall sentiment in the
equity market revived. Since then, the fund has never looked back. In the last two calendar years,
the fund has put up a top quartile performance.

A large-cap, diversified equity portfolio together with quality debt holdings has worked for the
fund.

The fund has polished its skills of protecting returns in tough times. For example, DSPML
Balanced lost less than the average loss of its peers in the first half of last year. In the first quarter
of 2003 too, the fund slipped only 1.28% against the 3.96% average loss of its peers.

What to expect

This fund is a good turnaround story. A low risk debt portfolio and a bias towards large-cap stocks
makes this fund a safe choice.