Introduction
This Mutual Fund FAQs page provides simple, trustworthy answers to the most common questions investors have about mutual funds in India. Whether you are a first-time investor or someone looking to refine your strategy, this guide helps you understand key concepts, processes, risks, and best practices.
1. Basics of Mutual Funds
What is a mutual fund?
A mutual fund pools money from many investors and invests it in stocks, bonds, or other securities. Professional fund managers decide how to allocate the money based on the fund’s objective.
Who regulates mutual funds in India?
Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). The Association of Mutual Funds in India (AMFI) also provides guidelines and standards for the industry.
How do mutual funds make money?
Mutual funds generate returns through capital appreciation, dividends from stocks, and interest income from bonds. Returns vary based on market performance and the fund’s investment strategy.
What is NAV?
NAV (Net Asset Value) is the per-unit value of the mutual fund, calculated daily. It reflects the total value of all securities held by the fund divided by the total number of units.
2. Types of Mutual Funds
What are the major types of mutual funds?
Mutual funds can be classified into:
• Equity funds
• Debt funds
• Hybrid funds
• Sectoral/thematic funds
• Solution-oriented funds (children’s funds, retirement funds)
What is an equity mutual fund?
Equity funds invest primarily in shares of companies. They are suitable for long-term goals and carry moderate to high risk.
What is a debt fund?
Debt funds invest in fixed-income securities like bonds, treasury bills, and money market instruments. They are suitable for conservative investors seeking stability.
What is a hybrid fund?
Hybrid funds invest in a mix of equity and debt to balance growth and stability.
3. SIP, Lumpsum, and Investing Concepts
What is a SIP (Systematic Investment Plan)?
A SIP allows you to invest a fixed amount at regular intervals (monthly, weekly). It helps build discipline and averages market volatility.
What is lumpsum investment?
A lumpsum investment is a one-time bulk amount invested in a mutual fund.
Which is better: SIP or lumpsum?
Both have their uses. SIP is ideal for regular income earners and volatile markets. Lumpsum may be suitable when markets are stable or when deploying accumulated savings.
What is rupee cost averaging?
Rupee cost averaging is a concept where you buy more units when markets fall and fewer units when markets rise, which happens naturally through SIPs.
4. Risk, Returns, and Performance
Are mutual funds risky?
Yes. Mutual funds are subject to market risks. Different categories carry different levels of risk. Equity funds are riskier than debt funds.
Can mutual funds guarantee returns?
No mutual fund can guarantee returns. Returns depend on market conditions and the fund manager’s strategy.
How do I measure mutual fund performance?
Look at CAGR, rolling returns, risk-adjusted metrics (Sharpe ratio), and consistency against benchmarks and peer funds.
Why do fund values fluctuate?
Fund values fluctuate based on changes in the prices of underlying securities.
5. Fees, Charges, and Taxation
What is an expense ratio?
The expense ratio is the annual fee charged by a mutual fund to manage your money.
What is an exit load?
Exit load is a fee charged when you redeem units within a specified period. Not all funds have exit loads.
How are equity funds taxed?
• Short-term capital gains (<1 year): 15 percent
• Long-term capital gains (>1 year): 12.5 percent above ₹1.25 lakh per year
How are debt funds taxed?
Debt funds are taxed based on your income tax slab (as per recent tax rules). Indexation benefits are no longer available.
6. Buying, Selling, and Operational Processes
How do I invest in mutual funds?
You can invest through:
• SEBI-registered mutual fund distributors
• AMCs (fund houses)
What documents are required?
You need:
• PAN
• Aadhaar
• Bank account
• KYC compliance
What is KYC?
Know Your Customer is a mandatory verification process to validate your identity before investing.
How do I redeem my mutual fund units?
You can redeem through your investment platform or AMC. Redemption proceeds are typically credited to your bank account within a few working days.
Can I pause or stop my SIP?
Yes. SIPs can be paused temporarily or cancelled at any time without penalty.
7. Safety, Myths, and Investor Protection
Can a mutual fund shut down?
While rare, funds can be wound up in extreme situations, but investor money is returned after liquidating assets.
Are mutual funds safe from fraud?
Yes. Mutual funds operate under strict SEBI regulations with strong transparency and auditing standards.
Is mutual fund investing only for the wealthy?
No. You can start investing with as little as ₹100 in some schemes.
Takeaways
Mutual funds are a flexible, regulated, and effective way to build long-term wealth. Understanding key concepts helps you make informed decisions and avoid common mistakes. For personalised guidance, expert fund selection, and long-term planning, CapitaGrow can assist at every step.