Everything you need to understand mutual funds — from foundational concepts and NAV mathematics to disciplined SIP compounding, retirement SWP income, fund categories, and latest tax amendments.
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.
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 mutual fund distributor 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.
This is a MUST-HAVE for every individual before making any other investments. We always recommend to add a Critical Illness cover to your Health Insurance.
Again a MUST-HAVE, particularly for those who already have a family / planning to have a family. Start early on this piece to enjoy lesser premium with a higher coverage.
Mandatory for people who are the sole earning member in their family, for others, it is 'Recommended'. Protects dependents from sudden loss of earning capacity.
This is a mandatory requirement for retail investors before they start investing for wealth-creation. A corpus equal to 6 - 12 months’ of monthly expenses should be accumulated in this fund to take care of any type of emergencies. Investors should NOT take risky bets with this corpus, this fund should be kept in a liquid form for immediate redemption anytime.
Investors need to take a very focused approach on this goal. They should estimate a number and start investing for it, however this number may change and needs to be modified in the course of their investing journey.
This should be a key goal for every investor. Unlike other goals, this goal is UNIQUE in the sense that regular income ceases to exist from the day one retires. So we recommend our esteemed clients to prioritize this goal from Day 1.
We insist all our clients to consider this goal as an investment and not as a 'Spending'. Travelling teaches us a lot in the most discrete form and hence, we drive our clients to make at least ONE Travel plan along with their families once a year without fail.
We prefer to discuss this goal in details with investors when we meet them. Real estate commitments require personalized evaluation of cash flows, debt leverage, and emergency liquidity.
NAV is the market value or price of one unit of a mutual fund scheme. It is the per unit price you pay or get when you are buying or selling (redeeming) mutual funds.
The asset of a mutual fund scheme is the market value of the securities and the cash in the scheme portfolio. Net asset value is the value of scheme assets minus the expenses and liabilities. NAVs are calculated based on the closing prices of the scheme portfolio securities at the end of each business day and disclosed by the AMC on a daily basis.
Systematic Investment Plan or SIP is a mutual fund facility through which you can invest fixed amounts every month (or any other interval) in a mutual fund scheme. The SIP amounts are automatically debited from your bank account through an ECS or NACH mandate provided by you to the AMC.
You can invest over a long period of time from your regular savings and create wealth through compounding.
SIP helps you take advantage of market volatility through Rupee Cost Averaging of NAVs.
Systematic Withdrawal Plan (SWP) is a highly convenient mutual fund facility which allows you to draw a fixed amount from your mutual fund scheme at a specified frequency (monthly, quarterly, annual etc). SWP cash-flows are generated by redeeming a certain number of units of your mutual fund scheme based on prevailing NAVs.
The SWP amount is credited to your savings bank account every month or at any other interval specified by you in your SWP mandate. You can continue your SWP for a long period of time if the average return of the scheme is higher than the SWP withdrawal rate.
There are three broad categories of mutual funds:
These mutual fund schemes invest in equity and equity related securities. Sub-categories are based on the market cap segments — large cap, large & midcap, midcap, small cap, multicap, flexicap etc.
These mutual funds schemes invest in debt and money market instruments. Sub-categories based on maturity profiles — overnight, liquid, ultra-short duration, low duration, short duration, medium duration, long duration etc.
These funds invest in both equity and debt securities. They may also invest in other classes like gold, REITs, InvITs etc. Different types include aggressive hybrid funds, conservative hybrid funds, balanced advantage funds, equity savings etc.
| Fund Category | Holding Period to Qualify as Long-Term |
Short-Term Capital Gains (STCG) Tax Rate |
Long-Term Capital Gains (LTCG) Tax Rate |
|---|---|---|---|
| Equity-Oriented Funds (≥ 65% domestic equity) | More than 12 months | 20% | 12.5% (Exempt up to ₹1.25 Lakh per year) |
| Debt & Specified Funds (≥ 35% equity; bought after April 1, 2023) | No LTCG available | Slab Rates | Slab Rates (Taxed as short-term regardless of holding period) |
| Hybrid/Conservative Funds (35% to 65% equity) | More than 24 months | Slab Rates | 12.5% (Without indexation) |
| Dividend Income (IDCW) | N/A | Slab Rates (Added to total income) | Slab Rates (TDS of 10% applies if annual dividends exceed ₹10,000) |
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