Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets managed by professional fund managers.
Frequently Asked Questions (FAQ) on Mutual Funds
A mutual fund is an investment vehicle that collects money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities (as per the mandate) managed by professional fund managers.
Investors buy shares or units of a mutual fund, which represent ownership in the fund's portfolio. The performance of the fund's underlying assets determines its performance, and investors may earn returns through capital appreciation, dividends, or interest income.
Mutual funds offer diversification, professional management, liquidity, and convenience. They allow investors to access a diversified portfolio of securities without the need for individual stock selection or monitoring.
Mutual funds can be categorised based on their investment objectives, asset classes, or investment strategies. As per SEBI Scheme Categorization, there are five types of mutual funds – Equity, Debt, Hybrid, Others, and Solutions. Then under each type there are multiple sub-types of mutual funds, the full list is given below.
Equity Fund Categories as per SEBI guidelines on Categorization and Rationalization of schemes
| Multi Cap Fund | At least 75% investment in equity & equity related instruments with 25% in each market cap Large, Mid, and Small |
| Flexi Cap Fund | At least 65% investments in equity & equity related instruments |
| Large Cap Fund | At least 80% investment in large cap stocks |
| Large & Mid Cap Fund | At least 35% investment in large cap stocks and 35% in mid cap stocks |
| Mid Cap Fund | At least 65% investment in mid cap stocks |
| Small cap Fund | At least 65% investment in small cap stocks |
| Dividend Yield Fund | Predominantly invest in dividend yielding stocks, with at least 65% in stocks |
| Value Fund | Value investment strategy, with at least 65% in stocks |
| Contra Fund | Scheme follows contrarian investment strategy with at least 65% in stocks |
| Focused Fund | Focused on the number of stocks (maximum 30) with at least 65% in equity & equity related instruments |
| Sectoral/ Thematic Fund | At least 80% investment in stocks of a particular sector/ theme |
| ELSS | At least 80% in stocks in accordance with Equity Linked Saving Scheme, 2005, notified by Ministry of Finance |
Debt Fund Categories as per SEBI guidelines on Categorization and Rationalization of schemes
| Overnight Fund | Overnight securities having maturity of 1 day |
| Liquid Fund | Debt and money market securities with maturity of upto 91 days only |
| Ultra Short Duration Fund | Debt & Money Market instruments with Macaulay duration of the portfolio between 3 months - 6 months |
| Low Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration portfolio between 6 months- 12 months |
| Money Market Fund | Investment in Money Market instruments having maturity upto 1 Year |
| Short Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 1 year - 3 years |
| Medium Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration of portfolio between 3 years - 4 years |
| Medium to Long Duration Fund | Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 4 - 7 years |
| Long Duration Fund | Investment in Debt & Money Market Instruments with Macaulay duration of the portfolio greater than 7 years |
| Dynamic Bond | Investment across duration |
| Corporate Bond Fund | Minimum 80% investment in corporate bonds only in AA+ and above rated corporate bonds |
| Credit Risk Fund | Minimum 65% investment in corporate bonds, only in AA and below rated corporate bonds |
| Banking and PSU Fund | Minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds |
| Gilt Fund | Minimum 80% in G-secs, across maturity |
| Gilt Fund with 10 year constant Duration | Minimum 80% in G-secs, such that the Macaulay duration of the portfolio is equal to 10 years |
| Floater Fund | Minimum 65% in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives) |
Hybrid Fund Categories as per SEBI guidelines on Categorization and Rationalization of schemes
Defining Hybrid Funds: Invest in a mix of equities and debt securities.
SEBI has classified Hybrid funds into 7 sub-categories as follows:
| Conservative Hybrid Fund | 10% to 25% investment in equity & equity related instruments; and 75% to 90% in Debt instruments |
| Balanced Hybrid Fund | 40% to 60% investment in equity & equity related instruments; and 40% to 60% in Debt instruments |
| Aggressive Hybrid Fund | 65% to 80% investment in equity & equity related instruments; and 20% to 35% in Debt instruments |
| Dynamic Asset Allocation or Balanced Advantage Fund | Investment in equity/ debt that is managed dynamically (0% to 100% in equity & equity related instruments; and 0% to 100% in Debt instruments) |
| Multi Asset Allocation Fund | Investment in at least 3 asset classes with a minimum allocation of at least 10% in each asset class |
| Arbitrage Fund | Scheme following arbitrage strategy, with minimum 65% investment in equity & equity related instruments |
| Equity Savings | Equity and equity related instruments (min.65%); debt instruments (min.10%) and derivatives (min. for hedging to be specified in the SID) |
Solution-oriented & Other funds
| Retirement Fund | Lock-in for at least 5 years or till retirement age whichever is earlier |
| Children’s Fund | Lock-in for at least 5 years or till the child attains age of majority whichever is earlier |
| Index Funds/ ETFs | Minimum 95% investment in securities of a particular index |
| Fund of Funds (Overseas/ Domestic) | Minimum 95% investment in the underlying fund(s) |
Consider your investment goals, risk tolerance, investment horizon, and financial needs. Research different mutual funds and compare their performance, fees, and investment strategies, or we can assist you by providing all the necessary information that you seek on funds and handhold through your investing journey.
Mutual funds may charge management fees, also known as expense ratios, to cover the fund's operating expenses.
Mutual funds are regulated by the Securities and Exchange Board of India (SEBI) in India. SEBI sets regulations and guidelines to ensure investor protection, transparency, and integrity in the mutual fund industry.
Most mutual funds offer liquidity, allowing investors to redeem their investment at any time, subject to certain conditions such as exit loads or minimum holding periods for ELSS. However, some funds may have restrictions on redemption during specific periods or under certain circumstances. In general, redeeming from mutual funds is a smooth process where funds should be transferred to your bank account in 2-3 working days. The maximum time set by the regulator is 10 working days.
Remember, investing in mutual funds involves risk, including the risk of loss of principal. Before investing, it's essential to do thorough research, consider your financial goals and risk tolerance, and seek professional support for best experience.