What is mutual fund?
Mutual funds are financial instruments which invest in a portfolio of securities. These securities may be stocks, bonds, money market instruments, gold, silver and real estate investment trusts (REITs) etc. You can buy units of mutual funds; each unit represents a certain percentage of the mutual fund scheme portfolio. Mutual funds are managed by professional fund managers who manage the schemes according to the investment objectives of the schemes.
How to invest in mutual funds?
When an asset management company (AMC) house launches a new mutual fund scheme, it invites subscriptions from the public in the New Fund Offer (NFO). In the NFO period, investors are allotted units at par value (usually Rs 10). If you invested Rs 10,000 in a mutual fund scheme during the NFO period, you would be allotted 1,000 units. You need to be KYC compliant to invest in mutual funds. Your financial advisor can help you fulfil KYC requirements. Along with KYC documents, you need to provide bank details to invest in mutual funds. Investors can invest in mutual funds only from their own bank accounts.
At the end of the NFO period, the money pooled from all the investors are invested in a diversified portfolio of securities according to the scheme's mandate. After the NFO, investors can buy units of open ended schemes from the AMC at prevailing Net Asset Values (NAV). You can also redeem open ended mutual fund schemes at any time at prevailing NAVs. The redemption proceeds will be credited to your bank account on T+3 for equity funds. Investors should note that for redemptions within a certain period of time from investment exit loads may apply.
Different types of mutual funds
There are three broad categories of mutual funds:-
Equity funds:
These mutual fund schemes invest in equity and equity related securities. Equity funds have sub-categories based on the market cap segments, where the scheme may primarily invest in e.g. large cap, large and midcap, midcap, small cap, multicap, flexicap etc. The primary investment objective of equity funds is capital appreciation.
Debt funds:
These mutual funds schemes invest in debt and money market instruments. Debt funds have sub-categories based on the maturity profiles of the underlying debt or money market instruments e.g. overnight, liquid, ultra-short duration, low duration, short duration, medium duration, long duration etc. The primary investment objective of equity funds is capital appreciation.
Hybrid funds:
These funds invest in both equity and debt securities. They may also invest in other classes like gold, REITs, InvITs etc. The primary investment objective of hybrid funds is asset allocation. Different types of hybrid funds include aggressive hybrid funds, conservative hybrid funds, balanced advantage funds, equity savings etc.
Different fund categories and sub-categories have different risk profiles. Mutual funds provide investment solutions for a wide spectrum of risk appetites and investment needs. Your financial advisor can help you select the right investment option for you.
Taxation of mutual funds
Mutual funds, whose average equity allocation (i.e. where underlying assets are equity and equity-related securities) is 65% or more, are treated as equity funds from a tax perspective. These include all equity funds and also several hybrid fund categories. Short term capital gains (investment holding period of less than 12 months) in equity funds are taxed at 20%. Long term capital gains (investment holding period of more than 12 months) in equity funds are tax free up to Rs 125,000 in a financial year and taxed at 12.5% thereafter. NRIs are subject to 20% TDS for short term capital gains and 12.5% TDS for long term capital gains.
With regards to Debt funds, short term capital gains (investment holding period of less than 36 months) in non-equity funds are taxed as per the income tax rate of the investor. Long term capital gains (investment holding period of more than 36 months) in non-equity funds are taxed at 20% after allowing for indexation for investments made prior to 1st April 2023. However, following the Amendment to Finance Bill 2023, the indexation benefit on debt mutual funds has been withdrawn. Debt funds will now be taxed at investors tax slab rate. These changes bring taxation of debt and debt oriented mutual funds at par with fixed deposits for investments made from 1st April 2023 onward. NRIs are subject to 30% TDS for short term and long-term capital gains in debt funds.
Other mutual funds including schemes with equity allocation between 35 - 65% and schemes of asset classes other than equity and debt, e.g. commodities, international etc have long term capital gains taxation holding period of 2 years. Short term capital gains are taxed at investors tax slab rate, while long term capital gains are taxed at 12.5% (no indexation). TDS on short term capital gains is 30%, while that on long term capital gains is 12.5%
Investments in mutual fund Equity Linked Savings Schemes (ELSS) up to Rs 150,000 in a financial year qualify for deductions under Section 80C of The Income Tax Act 1961.
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What is a Specialised Investment Fund (SIF)?
A Specialised Investment Fund (SIF) is a fund structure introduced by the Securities and Exchange Board of India (SEBI) that allows Asset Management Companies (AMCs) to employ sophisticated strategies, such as the use of complex derivatives, which were previously exclusive to Portfolio Management Services (PMS).
SIFs offer greater flexibility compared to traditional mutual funds but have a high barrier to entry with a minimum investment requirement.
Key Features of SIFs
Tax Efficiency: The blend of equities, arbitrage, and derivatives makes it a non-equity, non-debt fund, leading to a favorable 12.5% long-term capital gains tax rate after two years.
Minimum Investment: Requires an initial investment of at least Rs 10 lakh.
Who Should Consider SIFs?
SIFs are best suited for investors who meet specific criteria due to the nature and complexity of the fund:
- Seasoned Investors: Individuals who are experienced and have a strong understanding of, and comfort with, the higher risk associated with complex strategies like long-short positions and derivatives.
- Investors Seeking Diversification: Those looking for new diversification opportunities and the potential to generate returns in various market cycles.
- Investors Comfortable with Limited Liquidity: Investors who are able to commit capital for the long term and are comfortable with the restricted exit windows that some SIFs impose.
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Portfolio Management Services or PMS, is a service offered by the Portfolio Manager or an asset management company, is an investment portfolio in stocks, fixed income, debt, cash and other securities, managed by a professional fund manager that can potentially be tailored to meet specific investment objectives. Unlike mutual funds, where investors own units of the mutual fund scheme, in a PMS, the investors own individual securities. Although the portfolio managers may oversee hundreds of portfolios, your account may be unique.
Types of PMS
Discretionary PMS:
Under this service, the choice as well as the timings of the investment decisions is solely lies with the Portfolio Manager.
Non-Discretionary:
Under this service, while the portfolio manager will suggest only the investment ideas, the investor will decide the investment timings and decisions regarding the portfolio. However the execution of the trades is done by the PMS portfolio manager.
Advisory
Under this service, while the PMS portfolio manager only suggests the investment ideas, the decision as well as the execution of the investment decisions rest solely with the Investors.
Benefits of a PMS
Professional Management
The PMS Service provides professional management of stock portfolios with the main objective of delivering long-term performance while minimising risk.
Continuous Monitoring
The PMS fund manager, constantly monitors the portfolio and periodic changes are made by him/her to optimise the performance.
Flexibility
The Portfolio Manager has fair amount of flexibility in terms of holding cash, for example, it can keep the cash holding even up to 100% depending upon his./her understanding of the market conditions. The portfolio manager can create a reasonable concentration in the investor portfolios by investing disproportionate amounts in favour of foreseeable opportunities in the market situation.
Risk Control
The research team of the PMS Service, provides real time information to support the fund management team and thus control the risk.
Ease of Operation
Portfolio Management Service provides the clients with a customised service and takes care of all the administrative aspects and provides periodic portfolio reporting. It discloses the overall status of the portfolio, holdings and performance on a daily basis. For this, the PMS Service provides a login ID and password for the investor to check his/her PMS details.
Custom made Advice
For select clients, the PMS provider gives the benefit of tailor made investment advice designed to achieve investors various financial goals.
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Alternative Investment Funds (AIFs)
Sophisticated Investment Solutions for Strategic Wealth Creation
Alternative Investment Funds (AIFs) provide access to exclusive, professionally managed investment opportunities beyond traditional equity, debt, and mutual fund instruments. Designed for high-net-worth and institutional investors , AIFs enable portfolio diversification, long-term wealth creation, and potential for superior risk-adjusted returns.
Abacus Capital offers carefully selected AIFs across all categories, providing clients with structured, high-quality investment options tailored to their financial goals.
Categories of AIFs
1. Category I AIFs Socially and Economically Positive Investments
- Invests in start-ups, early-stage ventures, infrastructure projects, and other sectors considered socially or economically beneficial by the government or regulators.
- Suitable for investors seeking impact-driven growth while engaging in emerging opportunities.
2. Category II AIFs - Private Equity and Debt Funds
- Includes private equity funds, debt funds, and funds investing in sectors or strategies not covered by Category I or III.
- Designed for investors looking for structured, long-term capital growth with professional fund management.
3. Category III AIFs - Aggressive or Market-Linked Strategies
- Uses complex strategies such as leveraged trading, hedging, and arbitrage.
- Ideal for investors seeking high-risk, high-reward opportunities, focusing on absolute returns over a set investment period.
Why Invest in AIFs?
- Diversification: Gain access to alternative asset classes to reduce correlation with traditional investments.
- Expert Management: Managed by experienced fund managers employing sophisticated investment strategies.
- Potential for Superior Returns: Designed to maximize risk-adjusted performance over the long term.
- Regulatory Oversight: SEBI-regulated funds ensure transparency, governance, and investor protection.
- Tailored for Sophisticated Investors: Aimed at those with a long-term vision, financial acumen, and strategic investment objectives.
Why Partner with Abacus Capital?
As an authorized AIF partner, we offer comprehensive end-to-end solutions, including investment selection, due diligence, portfolio structuring, and ongoing management support. Our mission is to help clients preserve, grow, and optimize wealth through strategically diversified alternative investments.
Investing in AIFs is more than deploying capital - it is about strategic wealth creation, portfolio resilience, and achieving long-term financial goals. Partner with us to gain access to expertly managed funds across all AIF categories, backed by professional guidance, regulatory compliance, and a commitment to excellence.
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