A Mutual Fund is an investment vehicle that pools money from multiple investors to invest in various securities like stocks, bonds, money market instruments, and other assets. These funds are managed by professional fund managers, regulated by SEBI (Securities and Exchange Board of India).
How Mutual Funds Work
- Pooling of Money: Investors contribute money to a common fund.
- Fund Management: A professional fund manager invests this money into a diversified portfolio.
- Returns Distribution: Profits/losses from the investments are shared proportionally among investors based on the number of units they hold.
A Mutual Fund is an investment vehicle that pools money from multiple investors to invest in various securities like stocks, bonds, money market instruments, and other assets. These funds are managed by professional fund managers, regulated by SEBI (Securities and Exchange Board of India).
How Mutual Funds Work
- Pooling of Money: Investors contribute money to a common fund.
- Fund Management: A professional fund manager invests this money into a diversified portfolio.
- Returns Distribution: Profits/losses from the investments are shared proportionally among investors based on the number of units they hold.
Types of Mutual Funds in India
Based on Structure
- Open-Ended Funds: Can be bought or sold anytime.
- Close-Ended Funds: Can be bought only during the NFO (New Fund Offer) and redeemed only at maturity.
- Interval Funds: Combine features of both; redemption is allowed during specific intervals.
Based on Asset Class
- Equity Mutual Funds: Invest mostly in stocks (high risk, high returns).
- Debt Mutual Funds: Invest in fixed income instruments (low risk, moderate returns).
- Hybrid Funds: Mix of equity and debt.
- Gold Funds: Invest in gold or gold-related instruments.
- Index Funds: Mimic a stock market index like Nifty 50 or Sensex.
- Fund of Funds (FoFs): Invest in other mutual funds.
Based on Investment Goals
- Growth Funds: Focus on capital appreciation.
- Income Funds: Focus on regular income.
- Tax-Saving Funds (ELSS): Equity Linked Savings Scheme with tax benefits under Section 80C.
Benefits of Mutual Funds
- Diversification: Reduces risk by investing across multiple assets.
- Professional Management: Experts manage the fund on your behalf.
- Liquidity: Easy to buy/sell (especially open-ended funds).
- Low Entry Barrier: Start with as little as ₹100 via SIPs.
- Transparency: Regulated by SEBI; periodic disclosures and reports.
- Tax Benefits: ELSS schemes offer deductions under Section 80C.
Risks Associated with Mutual Funds
- Market Risk: Performance depends on market movements.
- Interest Rate Risk: Especially in debt funds.
- Credit Risk: Possibility of bond issuer defaulting.
- Liquidity Risk: Difficulty in selling the fund units quickly.
- Fund Manager Risk: Returns are subject to their decisions and strategy.
How to Invest in Mutual Funds
1. Choose the Type of Fund
- Based on your risk profile and goal (short-term, long-term, tax-saving, etc.)
2. Select a Fund House (AMC)
- Examples: SBI Mutual Fund, ICICI Prudential, HDFC Mutual Fund, Nippon India, etc.
3. Complete KYC
- Submit PAN card, Aadhaar, and bank details (mandatory for all investors).
4. Invest via:
- AMC Website or App
- Online Platforms like Groww, Zerodha Coin, Kuvera, ET Money
- Banks or Distributors
- Offline (via agents or AMC branches)
5. Choose SIP or Lump Sum
- SIP (Systematic Investment Plan): Regular monthly investment.
- Lump Sum: One-time investment.
Mutual Fund Returns and NAV
- NAV (Net Asset Value): Price per unit of a mutual fund. It changes daily.
- Returns: Varies by fund type and market performance. Historical performance is no guarantee of future returns.
Taxation on Mutual Funds in India (as of FY 2024-25)
Equity Mutual Funds
- STCG (Short-Term Capital Gains): 15% if held for less than 1 year.
- LTCG (Long-Term Capital Gains): 10% for gains above ₹1 lakh if held for more than 1 year.
Debt Mutual Funds
- STCG: Added to your income and taxed as per your income slab.
- LTCG: No indexation benefit anymore; taxed at slab rate (post-April 2023).
ELSS Funds (Tax-Saving)
- Eligible for deduction up to ₹1.5 lakh under Section 80C.
- 3-year lock-in period.
Ideal Investment Strategy
- Short-Term Goals (1-3 years): Debt funds or Liquid Funds.
- Medium-Term Goals (3-5 years): Hybrid or Balanced Funds.
- Long-Term Goals (5+ years): Equity funds or ELSS (for tax saving).
Key Terms to Know
- NAV: Net Asset Value
- AUM: Assets Under Management
- Expense Ratio: Annual fund management fee
- Exit Load: Charges for early withdrawal
- Benchmark: Standard index used to compare fund performance
Popular Mutual Funds (as of 2025)
- Equity: Mirae Asset Large Cap Fund, Axis Bluechip Fund, ICICI Prudential Flexicap
- Debt: SBI Magnum Ultra Short Duration, HDFC Corporate Bond Fund
- Hybrid: ICICI Prudential Equity & Debt Fund, HDFC Hybrid Equity Fund
- Index: UTI Nifty 50 Index Fund, Nippon India Nifty Next 50 Fund
Tips for Mutual Fund Investors
Avoid chasing high returns; focus on consistency and quality.
Set clear financial goals.
Invest according to your risk appetite.
Prefer SIPs for market averaging and discipline.
Monitor performance annually — not daily.
Based on Structure
- Open-Ended Funds: Can be bought or sold anytime.
- Close-Ended Funds: Can be bought only during the NFO (New Fund Offer) and redeemed only at maturity.
- Interval Funds: Combine features of both; redemption is allowed during specific intervals.
Based on Asset Class
- Equity Mutual Funds: Invest mostly in stocks (high risk, high returns).
- Debt Mutual Funds: Invest in fixed income instruments (low risk, moderate returns).
- Hybrid Funds: Mix of equity and debt.
- Gold Funds: Invest in gold or gold-related instruments.
- Index Funds: Mimic a stock market index like Nifty 50 or Sensex.
- Fund of Funds (FoFs): Invest in other mutual funds.
Based on Investment Goals
- Growth Funds: Focus on capital appreciation.
- Income Funds: Focus on regular income.
- Tax-Saving Funds (ELSS): Equity Linked Savings Scheme with tax benefits under Section 80C.
Benefits of Mutual Funds
- Diversification: Reduces risk by investing across multiple assets.
- Professional Management: Experts manage the fund on your behalf.
- Liquidity: Easy to buy/sell (especially open-ended funds).
- Low Entry Barrier: Start with as little as ₹100 via SIPs.
- Transparency: Regulated by SEBI; periodic disclosures and reports.
- Tax Benefits: ELSS schemes offer deductions under Section 80C.
Risks Associated with Mutual Funds
- Market Risk: Performance depends on market movements.
- Interest Rate Risk: Especially in debt funds.
- Credit Risk: Possibility of bond issuer defaulting.
- Liquidity Risk: Difficulty in selling the fund units quickly.
- Fund Manager Risk: Returns are subject to their decisions and strategy.
How to Invest in Mutual Funds
1. Choose the Type of Fund
- Based on your risk profile and goal (short-term, long-term, tax-saving, etc.)
2. Select a Fund House (AMC)
- Examples: SBI Mutual Fund, ICICI Prudential, HDFC Mutual Fund, Nippon India, etc.
3. Complete KYC
- Submit PAN card, Aadhaar, and bank details (mandatory for all investors).
4. Invest via:
- AMC Website or App
- Online Platforms like Groww, Zerodha Coin, Kuvera, ET Money
- Banks or Distributors
- Offline (via agents or AMC branches)
5. Choose SIP or Lump Sum
- SIP (Systematic Investment Plan): Regular monthly investment.
- Lump Sum: One-time investment.
Mutual Fund Returns and NAV
- NAV (Net Asset Value): Price per unit of a mutual fund. It changes daily.
- Returns: Varies by fund type and market performance. Historical performance is no guarantee of future returns.
Taxation on Mutual Funds in India (as of FY 2024-25)
Equity Mutual Funds
- STCG (Short-Term Capital Gains): 15% if held for less than 1 year.
- LTCG (Long-Term Capital Gains): 10% for gains above ₹1 lakh if held for more than 1 year.
Debt Mutual Funds
- STCG: Added to your income and taxed as per your income slab.
- LTCG: No indexation benefit anymore; taxed at slab rate (post-April 2023).
ELSS Funds (Tax-Saving)
- Eligible for deduction up to ₹1.5 lakh under Section 80C.
- 3-year lock-in period.
Ideal Investment Strategy
- Short-Term Goals (1-3 years): Debt funds or Liquid Funds.
- Medium-Term Goals (3-5 years): Hybrid or Balanced Funds.
- Long-Term Goals (5+ years): Equity funds or ELSS (for tax saving).
Key Terms to Know
- NAV: Net Asset Value
- AUM: Assets Under Management
- Expense Ratio: Annual fund management fee
- Exit Load: Charges for early withdrawal
- Benchmark: Standard index used to compare fund performance
Popular Mutual Funds (as of 2025)
- Equity: Mirae Asset Large Cap Fund, Axis Bluechip Fund, ICICI Prudential Flexicap
- Debt: SBI Magnum Ultra Short Duration, HDFC Corporate Bond Fund
- Hybrid: ICICI Prudential Equity & Debt Fund, HDFC Hybrid Equity Fund
- Index: UTI Nifty 50 Index Fund, Nippon India Nifty Next 50 Fund
Tips for Mutual Fund Investors
- Set clear financial goals.
- Invest according to your risk appetite.
- Prefer SIPs for market averaging and discipline.
- Monitor performance annually — not daily.
- Avoid chasing high returns; focus on consistency and quality.
If you’re looking to start a Mutual Fund With Motilal Oswal? Contact us for consultation.
