What is a mutual fund?
A mutual fund pools money from many investors and invests it in a portfolio of securities — shares, bonds, money-market instruments or a combination of these — in line with a stated objective. The pool is managed by a professional fund manager employed by an Asset Management Company registered with SEBI.
Your money buys units. Each unit represents a proportionate share of the fund's portfolio, and its value is the Net Asset Value, or NAV, published at the end of every business day. When the securities held by the fund rise in value, the NAV rises, and so does the value of your holding.
The practical advantage is scale. A monthly investment of a few thousand rupees buys you a spread across dozens of companies or issuers — diversification that would be impossible to assemble directly at that amount.
How you invest
Two routes, and most investors use both:
- Systematic Investment Plan (SIP) — a fixed amount debited every month on a chosen date. You buy more units when markets fall and fewer when they rise, which removes the need to judge entry points.
- Lumpsum — a single investment, typically used for a bonus, a maturity or an inheritance, and often staggered into the market through a Systematic Transfer Plan.
A one-time KYC is required before your first investment. Once completed with any SEBI-registered intermediary, it applies across all fund houses. We handle the onboarding digitally — there is no paperwork to post.
Redemption is equally simple. Units of an open-ended scheme can be sold on any business day, with proceeds credited to your registered bank account, usually within one to three working days depending on the scheme type.
The main categories
SEBI requires every scheme to be classified so that investors can compare like with like:
- Equity funds invest predominantly in shares, and are meant for goals several years away. Within this sit large cap, mid cap, small cap, flexi cap, sectoral and thematic schemes, each with a different risk profile.
- Debt funds invest in bonds and money-market instruments. They are generally steadier than equity and suit shorter horizons, though they carry interest-rate and credit risk of their own.
- Hybrid funds hold both, in proportions set by the scheme's mandate — from conservative hybrids to aggressive hybrids, balanced advantage and multi-asset funds.
- Solution-oriented and other schemes include retirement and children's funds, index funds, ETFs and fund-of-funds.
How mutual funds are taxed
Tax depends on what the fund holds and how long you hold it. The position for individual resident investors:
| Fund type | Short term | Long term |
|---|---|---|
| Equity-oriented (65% or more in equity) | Held up to 12 months — taxed at 20% | Held beyond 12 months — taxed at 12.5% on gains above ₹1.25 lakh in a financial year |
| Debt funds (bought on or after 1 April 2023) | Gains added to your income and taxed at your slab rate, regardless of holding period. No indexation. | |
| Hybrid funds | Taxed as equity if the scheme holds 65% or more in equity, otherwise as a debt fund. Check the scheme document. | |
Points worth keeping in mind
- Mutual fund investments carry market risk. The value of your units can fall as well as rise, and past performance does not indicate future results.
- Every scheme charges an expense ratio, deducted from the NAV. Regular plans, which we distribute, include distributor commission within that ratio.
- Match the scheme to the timeline. Money you need within three years generally has no business being in an equity fund.
- Read the Scheme Information Document and the riskometer before investing.