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Market-linked investments

Mutual Funds

One investment, a ready-made spread of shares, bonds or both, run by a professional fund manager.

Read the guide SIP Calculator
Regulator
SEBI
Minimum
₹100 to ₹5,000, depending on the scheme
Liquidity
Usually 1 to 3 working days, except ELSS and close-ended schemes
Typical horizon
Months (liquid funds) to 7+ years (equity funds)
Risk level: Moderate

Ranges from low (overnight and liquid funds) to very high (small cap and sector funds). Check each scheme's riskometer.

What is it?

A mutual fund pools money from many investors and invests it according to a stated objective, such as large Indian companies, government bonds or a mix of both. Each investor owns units, and the value of one unit is the Net Asset Value (NAV), worked out at the end of every business day.

Mutual funds are run by Asset Management Companies (AMCs) and regulated by SEBI. Since 2017, SEBI has fixed clear categories so that, for example, every "large cap fund" must hold at least 80% of its money in the 100 largest listed companies.

How it works

  1. You invest a lump sum or through a SIP and receive units at that day's NAV.
  2. The fund manager buys and sells securities within the scheme's mandate.
  3. Your return comes from the change in NAV, plus any payouts under an IDCW (dividend) option.
  4. You redeem units whenever you want, except during a lock-in, and receive the money in your bank account.

Types

Equity fundsAt least 65% in shares. Includes large, mid, small, multi and flexi cap, sector and thematic funds, and ELSS.
Debt fundsInvest in bonds and money-market instruments. Range from overnight and liquid funds to long-duration and credit risk funds.
Hybrid fundsMix equity and debt in set ranges, for example aggressive hybrid, balanced advantage, multi-asset and arbitrage funds.
Index funds and fund of fundsTrack an index at low cost, or invest in other funds, including international funds.
Solution-oriented fundsRetirement and children's funds with a lock-in of at least 5 years.

Benefits and risks

Benefits

  • Diversification with a small amount of money.
  • Professional management and daily, transparent NAVs.
  • Easy to start, top up, switch or redeem.
  • Strong investor protections: SEBI rules, independent trustees and a custodian holding the assets.

Risks and drawbacks

  • Returns are not guaranteed; equity funds can fall sharply in the short term.
  • Costs reduce returns: expense ratio every year and, in some schemes, an exit load.
  • Debt funds carry interest-rate and credit risk.
  • Too many overlapping funds can make a portfolio harder to manage, not safer.

How it is taxed

  • Equity-oriented funds (65% or more in Indian shares): gains on units held over 12 months are taxed at 12.5% above ₹1.25 lakh a year in total equity gains; gains within 12 months at 20%.
  • Debt funds bought on or after 1 April 2023 (35% or less in Indian shares): gains are added to your income and taxed at your slab rate, whatever the holding period.
  • IDCW (dividend) payouts are taxed at your slab rate.
  • ELSS investments up to ₹1.5 lakh a year qualify for a deduction only under the old tax regime, with a 3-year lock-in.
Rules for FY 2026-27, reviewed November 2026. Surcharge and cess apply on top. Tax rules change, so confirm before you file. Our tax team can help with your return.

Who it may suit

Most investors who want a diversified, low-maintenance way to invest for goals from one year to several decades away, provided they pick categories that match their horizon and risk tolerance.

Getting started

  1. Complete KYC once with your PAN, Aadhaar and bank details.
  2. Choose a category that fits your goal and time horizon, then a scheme within it.
  3. Pick the direct plan (lower expense ratio) or regular plan (includes distributor commission).
  4. Invest through the AMC website, a registrar platform such as MF Central, or an app, and add a nominee.

Common questions

What is the difference between direct and regular plans?

They are the same fund. A regular plan pays a commission to the distributor out of the fund's expenses, so its expense ratio and NAV differ from the direct plan. Over long periods the gap can add up.

Is a lower NAV fund cheaper or better?

No. NAV only reflects the value of the fund's holdings per unit. A fund with an NAV of ₹20 is not cheaper than one at ₹200; what matters is how the holdings perform.

What is the riskometer?

Every scheme must show a riskometer with six levels, from Low to Very High, and update it monthly. It is a quick guide to how risky the portfolio is.

This guide is general education, not investment, tax or legal advice, and does not recommend any product. Investments in securities markets are subject to market risks; read all related documents carefully before investing.