Mutual funds are professionally managed instruments that pool or collect money from many investors and invest it in securities like stocks and bonds. Each mutual fund scheme has a well-defined mandate and the scheme is required to follow it while investing in securities.

There are 5 mutual fund categories in India.

• Equity mutual funds
• Debt mutual funds
• Hybrid mutual fund
• Solution-oriented funds
• Other funds

Each of the above categories have multiple sub-categories. For example - large cap funds is a sub-category under equity mutual funds category.

One of the best features of mutual funds is the very low investment required to invest in them. While the amount may differ for different schemes, it is in the range of Rs. 100 to Rs. 5,000.

While the internet is rife with ‘best mutual funds,’ the right mutual fund is different for every individual. A holistic understanding of your investment objectives, risk profile and other aspects is necessary before shortlisting mutual funds for investment. A financial advisor is best placed to do this for you.

While the review process and frequency depend on the objective and construction of the portfolio, it is recommended that diversified mutual fund portfolios be reviewed once a year at least.

The expense ratio is the industry term for fees charged by mutual funds for managing and investing your money. The expense ratio is expressed as a percentage (for example: 1%) and indicates the annual fee a mutual fund scheme will charge you as a percentage of your investment.

Yes, many mutual funds (especially equity funds) have exit load applicable for early exit (typically within 1 year of investment). The exit load varies across funds but is 1% for most equity funds.

Yes, mutual funds attract taxation on the capital gains they generate for you. The taxation is applicable on realized (booked) gains and not on notional gains. As of 2023, there are 3 types of taxation applicable on mutual funds depending on their domestic equity allocation: less than 35%, 35-65%, more than 65%.

If domestic equity allocation is less than 35% (examples - debt funds, international equity funds), capital gains are taxed at your marginal income tax rate, irrespective of the holding period.

If domestic equity allocation is 35-65% (examples - certain hybrid funds), short term capital gains (less than 3 years) are taxed at your marginal income tax rate. If the capital gains are more than 3 years old (long term capital gains), then the taxation is flat 20% with the benefit of indexation.

If domestic equity allocation is more than 65% (examples - equity funds), short term capital gains (less than 1 year) are taxed at flat 15%. If the capital gains are more than 1 year (long-term capital gains), then the taxation is flat 10% for capital gains in excess of Rs. 1 lakh

You can analyse as well as track your mutual fund portfolio on the Dezerv Wealth Monitor app. Download the Dezerv Wealth Monitor here.

• Android App: https://play.google.com/store/apps/details?id=com.dezerv.wealth.checkup
• iOS App: https://apps.apple.com/in/app/dezerv-wealth-monitor/id1669925824

Growth mutual fund schemes don’t return your money until you place a withdrawal or redemption order. All the profits and income generated by the underlying stocks and bonds in the form of dividends and interest are reinvested into the scheme. 

IDCW or Income Distribution cum Capital Withdrawal schemes pay out the income they generate to investors at their discretion.

Most mutual fund schemes offer growth as well as IDCW options. Learn more about IDCW vs Growth

You can invest in mutual fund schemes of your choice in one of two ways: SIP or lumpsum.

SIP or Systematic Investment Plan refers to investing a fixed amount in a mutual fund scheme regularly (mostly monthly). A SIP needs to be set up just once, and your money gets invested as per the rule of the SIP automatically until you cancel it.

Lumpsum investment method refers to making a non-recurring, one-time investment in a mutual fund scheme.

The SEBI (Securities Exchange Board of India) is the regulatory body for all entities associated with stocks, bonds and the capital market in general. The SEBI also regulates mutual funds in India with the objective of protecting mutual fund investors.