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Mutual Fund Basics

Mutual Fund Basics for Beginners

Start your investment journey with our comprehensive guide to mutual funds. Learn the fundamentals, understand the basics, and make informed investment decisions.

What is a Mutual Fund?

A mutual fund is a investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Professional fund managers make investment decisions on behalf of all investors.

Simple Example:

Imagine 1000 people each contributing ₹1000 to buy different stocks. Instead of each person buying 1-2 stocks, the pooled ₹10 lakhs can buy 50+ different stocks. A professional manager decides which stocks to buy/sell. Everyone owns a portion of this diversified portfolio.

Diversification

Risk spread across multiple securities

Professional Management

Expert fund managers handle investments

Regulated

SEBI regulated for investor protection

Types of Mutual Funds

Understanding different fund categories to match your investment goals

📈

Equity Funds

Invest primarily in stocks of companies

Risk LevelHigh
Expected Returns10-15%
Time Horizon5+ years
Suitable ForLong-term wealth creation
Best for: Long-term wealth creation, young investors
🏛️

Debt Funds

Invest in bonds and government securities

Risk LevelLow-Medium
Expected Returns6-9%
Time Horizon1-3 years
Suitable ForConservative investors
Best for: Conservative investors, short-term goals
⚖️

Hybrid Funds

Mix of equity and debt investments

Risk LevelMedium
Expected Returns8-12%
Time Horizon3-5 years
Suitable ForBalanced approach
Best for: Balanced approach, moderate risk appetite
🎯

Solution Oriented

Target specific goals like retirement

Risk LevelVaries
Expected Returns8-15%
Time Horizon5+ years
Suitable ForGoal-based investing
Best for: Goal-based investing, tax saving

How Mutual Funds Work

1

You Invest

You buy units of mutual fund scheme with your money

2

Money Pooled

Your money is combined with thousands of other investors

3

Professional Investment

Fund manager invests in diversified portfolio of securities

4

You Earn Returns

Profits/losses are shared among all investors proportionally

Important Mutual Fund Terms

Essential terminology every mutual fund investor should know

NAV (Net Asset Value)

Price per unit of mutual fund, calculated daily based on portfolio value

Expense Ratio

Annual fee charged by fund house, expressed as percentage of fund value

AUM (Assets Under Management)

Total value of investments managed by the mutual fund scheme

Exit Load

Fee charged when you redeem units before a specified period

Fund Manager

Professional who makes investment decisions for the mutual fund

Benchmark

Index against which fund performance is compared (e.g., Nifty 50, Sensex)

Benefits & Risks

✅ Benefits

  • Diversification:Risk spread across multiple securities
  • Professional Management:Expert fund managers make investment decisions
  • Liquidity:Can redeem units anytime (except ELSS lock-in)
  • Low Minimum Investment:Start with as low as ₹500
  • Tax Efficiency:Better tax treatment compared to traditional investments
  • Transparency:Regular disclosure of portfolio and performance

⚠️ Risks

  • Market Risk:Value can go down due to market movements
  • No Guaranteed Returns:Returns depend on market performance
  • Fund Manager Risk:Performance depends on manager's decisions
  • Expense Ratio:Annual fees reduce your overall returns
  • Interest Rate Risk:Affects debt funds when rates change
  • Liquidity Risk:Some funds may have exit loads or lock-in periods

Ready to Start Investing?

Follow these simple steps to begin your mutual fund journey

1

Learn & Plan

Understand your goals, risk appetite, and investment horizon

2

Complete KYC

One-time process to verify your identity and address

3

Start Investing

Choose funds, start SIP, and begin your wealth creation journey

Calculate Your SIP Now