A powerful financial vehicle pooling money from numerous investors to purchase a diversified portfolio of securities.
A mutual fund is a financial vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, the fund allocates this collective capital into various assets based on specific investment goals. When you invest, you are issued units representing your share of the total holdings.
In India is regulated by SEBI while AMFI (Association of Mutual Funds in India) which is a non-profit, self-regulatory organization acts as the primary industry body for all Asset Management Companies (AMCs) in India. It works under the guidance of the market regulator, SEBI, to ensure the mutual fund industry operates professionally and ethically.
It pools money from numerous investors to purchase a diversified portfolio of stocks, bonds, and other securities.
Funds are generally categorized by Structure (how you buy/sell) and Asset Class (what they buy). There are many variations to suit different risk profiles.
Structure refers to how the fund is set up and how liquid your investment is.
Units are available for subscription and redemption throughout the year. Most investors choose these for their high liquidity.
These have a fixed maturity date (e.g., 3 or 5 years). You can only buy units during the initial launch (NFO). Less liquid as trading volume is often low.
These combine features of both. They are closed for most of the time but open for redemption/subscription during specific "transaction windows".
Asset class refers to the specific "bucket" of investments. SEBI has standardized these into five main categories.
These invest primarily in stocks, categorized by Market Capitalization:
Invest at least 80% in top 100 companies. Blue-chip companies offering steady growth and lower risk.
Invest at least 65% in companies ranked 101st to 250th. Higher growth potential but more volatile.
Invest at least 65% in companies ranked 251st and below. Explosive returns but very high risk.
Invest in specific sectors (Banking) or themes (Infrastructure). High risk due to lack of diversification.
Invests 80% in equities. Offers tax deductions under Section 80C. Mandatory 3-year lock-in.
Invest in bonds and government securities, classified by Macaulay Duration.
Overnight: 1-day maturity assets (Safest).
Liquid: Assets maturing within 91 days. Good for short-term parking.
From Ultra-Short (3-6 months) to Long (>7 years). Longer duration = higher interest rate sensitivity.
Invest at least 80% in highest-rated (AAA) corporate bonds.
Invest 80% in Government Securities. Zero default risk, but high interest-rate risk.
These funds leverage price differences between the cash and derivatives markets to generate risk-free returns. They are an excellent alternative to Fixed Deposits for parking surplus cash.
These are mutual fund schemes that invest in other mutual fund schemes (domestic or international) rather than directly in stocks or bonds.
To ensure investor safety and transparency, mutual funds operate under a strict structure regulated by SEBI.
The entity (usually a bank) that starts the mutual fund business.
The "Watchdogs" ensuring the fund is managed in your best interest.
The "Fund House" hired to actually manage the money.
Experts supported by research analysts deciding what to buy/sell.
Active: Picking winners to beat the market.
Passive: Mirroring a market index (Index Funds).
A separate bank holds the physical assets to prevent fraud.
The tax result depends on the scheme's equity exposure, how long you hold the units, and whether the return is received as a capital gain or an IDCW payout.
| Fund type | Holding period | Tax treatment |
|---|---|---|
| Equity-oriented funds (65%+ in equity) | Sold within 12 months (STCG) | 20% flat |
| Equity-oriented funds (65%+ in equity) | Sold after 12 months (LTCG) | 12.5%, with the first ₹1.25 lakh of gains per financial year exempt |
| Debt / "specified mutual funds" (35% or less in equity) | Any holding period | Taxed entirely at your income slab rate — no LTCG benefit at all, under Section 50AA |
| Other funds, e.g. many hybrid/multi-asset funds (between 35% and 65% equity) | Sold after 24 months (LTCG) | 12.5%, no indexation |
| Other funds (35%-65% equity) | Sold within 24 months (STCG) | Taxed at your income slab rate |
| Any fund type | Dividend/IDCW payout | Added to your taxable income, taxed at your slab rate |
Rates shown are as applicable for FY 2026-27 and can change; please consult your tax advisor.
Liquid/Debt funds plus Arbitrage Funds.
Hybrid or Large Cap funds.
Flexi Cap or Mid Cap funds.
ELSS.
These are starting points, not product recommendations. Money n Wealth can help map fund category, time horizon, tax position and risk capacity before building a tailored allocation.
Take the first step towards wealth creation. Our experts are here to guide you to the right funds.