Mutual Funds
Basics
A mutual fund is a type of investment vehicle that pools money from multiple investors to invest in a diversified portfolio of assets such as stocks, bonds, or other securities. In India, mutual funds are regulated by the Securities and Exchange Board of India (SEBI), ensuring transparency and investor protection. When you invest in a mutual fund, you buy units of the fund, and the value of these units is determined by the Net Asset Value (NAV), which fluctuates based on market performance. Mutual funds are managed by professional fund managers who make investment decisions aligned with the fund’s objective.
Investors can choose to invest either through a lump sum or via a Systematic Investment Plan (SIP), which allows regular monthly contributions.
Structure
In India, a mutual fund typically consists of:
- Sponsor – Establishes the fund.
- Trustees – Hold the fund’s assets in trust for investors and ensure compliance.
- Asset Management Company (AMC) – Manages investments, appointed by trustees with SEBI approval.
- Custodian – Holds the securities.
- Registrar & Transfer Agent (RTA) – Maintains investor records and processes transactions.
All mutual funds are regulated by SEBI to ensure transparency and investor protection.
Types
By Structure:
- Open‑ended Funds
- Closed‑ended Funds
- Interval Funds
By Asset Class:
- Equity Funds
- Debt Funds
- Hybrid Funds
- Money Market Funds
By Objective:
- Growth Funds
- Income Funds
- Tax‑Saving Funds (ELSS)
- Liquid Funds
- Pension Funds
By Strategy:
- Index Funds
- Sector/Thematic Funds
- Fund of Funds
Safety
Mutual funds are market‑linked investments, so returns are not guaranteed.
Safety depends on the type of fund:
- Debt Funds – Lower volatility but carry credit and interest rate risk.
- Equity Funds – Higher risk due to market fluctuations.
- Hybrid Funds – Balanced risk profile.
SEBI mandates a Risk‑o‑Meter on all schemes to help investors assess risk levels before investing.
Estimated Past Returns
Historical returns vary by category and time horizon:
- Equity Funds – ~10–15% CAGR over 10+ years (volatile year‑to‑year).
- Debt Funds – ~6–9% CAGR over the long term.
- Hybrid Funds – ~8–12% CAGR.
- Liquid Funds – ~4–6% CAGR.
Note: Past performance is not a guarantee of future results, but it serves as a benchmark for expectations