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Mutual Funds

You’ve Got Ambition. Mutual Funds Give It Fuel.

What Is a Mutual Fund?

A mutual fund is a pool of money collected from many investors to invest in a range of assets, like stocks, bonds, and other securities. Instead of picking individual stocks or bonds, your money is spread across a broad selection of investments, managed by financial experts who know how to make your money work for you.

Open-ended mutual funds allow you to redeem your investment at any time at the current NAV.

Liquidity

Benefits of Mutual Funds

Diversification

Mutual funds allow individual investors to diversify their investments by pooling money with others, providing access to a broad portfolio of stocks, bonds, or other securities.

Professional Management

The fund is managed by experienced professionals, taking the burden off individual investors.

Affordability

You can start investing in mutual funds with relatively small amounts, often as low as ₹500 or ₹1,000.

Mutual funds are required to disclose their holdings, NAV, and financial statements regularly, ensuring transparency for investors.

Transparency

Types of Mutual Funds

Mutual funds can be classified based on their investment objective, asset allocation, and structure.

Equity Mutual Funds

Large Cap Mutual Funds

Invests at least 80% in large-cap stocks from the top 100 companies with a market capitalisation of ₹20,000 crore or more. Large-cap funds aim for stability and growth with lower volatility than mid and small-cap funds.

Mid Cap Mutual Funds

By investing at least 65% in mid-cap companies with a market capit alisation of ₹5,000 crore to ₹20,000 crore, these funds aim for growth with moderate risk, balancing the higher potential of mid-caps against the volatility of small-caps.

Small Cap Mutual Funds

Requires a minimum of 65% investment in small-cap companies, which have a market capitalisation of less than ₹5,000 crore. These funds focus predominantly on small-cap stocks to capture higher growth opportunities.

Flexi Cap Mutual Funds

Flexi cap mutual funds are equity funds with the flexibility to invest across large, mid, and small cap companies. This adaptability allows the fund manager to choose investments based on the performance of various companies.

Debt Mutual Funds

Money Market Funds

Focuses on money market instruments with a maturity of up to one year. They provide liquidity and low-risk options for conservative investors.

Corporate Bond Funds

At least 80% of the investments are in high-rated corporate bonds. They focus on quality and stability in the corporate bond market.

Overnight Funds

Invests in securities that mature in just one day. Overnight funds provide liquidity and stability while minimising risk.

Liquid Funds

Invests in debt and money market instruments with a maximum maturity of 91 days. Aims to provide high liquidity and low risk for short-term investments.

Aggressive Funds

Allocates 65-80% to equity and 20-35% to debt. They lean more toward equity for higher returns while still including debt for stability.

Multi Asset Funds

These funds allocate at least 10% of their total assets across a minimum of three asset classes, such as equity, debt, gold, and others.

Hybrid Mutual Funds

Arbitrage Funds

Employs an arbitrage strategy to capitalise on price differences between markets, investing at least 65% in equities with a focus on exploiting these opportunities.

Equity Savings Funds

These funds invest in a mix of equities, debt, and arbitrage opportunities, aiming to balance risk and returns. They provide moderate growth potential with relatively lower volatility than pure equity funds.

The Most Powerful Wealth Habit? A Monthly

SIP in Mutual Funds

₹3,000

₹2,50,000

SIP Required

Final Corpus

Tenure : 5 Years

Annual Returns : 12%

Short-Term Capital Gains (STCG):

Taxed at 20% if held for less than 1 year.

Equity Mutual Funds

Taxation on Mutual Funds

Debt Mutual Funds

Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG):

Taxed according to the investor's income tax slab.

Taxation depends on the type of mutual fund and the holding period:

Long-Term Capital Gains (LTCG):

Taxed at 12.5% on gains above ₹1.25 lakh in a financial year.

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Related Blogs

What is NAV?

NAV stands for Net Asset Value. It is the price of one unit of a mutual fund, updated daily.
Is it better to invest in mutual funds or stocks directly?

If you're a beginner or don’t have time to research, mutual funds are a smarter and safer option since experts manage your money.
Who regulates mutual funds in India?

Mutual funds are regulated by SEBI, ensuring transparency, safety, and investor protection.
How do I choose the right mutual fund?

Consider your goals (e.g., retirement, buying a house), risk tolerance, time horizon, and compare fund performance, expense ratio, and consistency.
Are mutual funds safe?

All investments carry some risk. But mutual funds reduce risk by diversifying—spreading your money across multiple assets. Plus, they’re regulated by SEBI (Securities and Exchange Board of India), making them relatively safe.
What is the difference between Direct and Regular mutual fund plans?

Direct Plans: No distributor commission; lower expense ratio; higher returns over the long term. Regular Plans: Include advisor/distributor commissions; suitable for investors who need guidance.
What is an Expense Ratio and how does it impact returns?

Expense Ratio is the annual fee (as a percentage) charged by the AMC for managing your investment. A high expense ratio eats into your returns, especially in debt funds where margins are thin.
How do you evaluate a fund manager's performance?

Consider metrics like: Alpha (excess return over benchmark) Beta (volatility vs market) Sharpe Ratio (return per unit of risk) Consistency of returns vs peer group  Also, look at their tenure and performance across market cycles.
What are sectoral/thematic funds and how risky are they?

These funds invest in specific sectors (like pharma, tech, banking) or themes (ESG, consumption). They offer high reward potential but are extremely volatile. Ideal for tactical allocation, not core portfolios.
How do SWPs (Systematic Withdrawal Plans) work in mutual funds?

SWPs allow you to withdraw a fixed amount monthly from your investment. Useful for retirement income, with tax efficiency if done via equity funds (since capital gains are taxed, not full withdrawal).
What is the role of AMC risk-o-meter and how should it guide investment decisions?

SEBI mandates a risk-o-meter that categorizes funds from “Low” to “Very High” risk. It helps align fund selection with your personal risk appetite. Reassess this if your life stage or financial goals change.