A Mutual Fund is an investment vehicle that pools the savings of a number of investors and invests the same in a variety of different financial instruments, or securities. The income earned through these investments and the capital appreciation realised by the scheme are shared by its unit holders in proportion to the number of units owned by them.

Mutual Funds can thus be considered as financial intermediaries in the investment business that collect funds from the public and invest on behalf of the investors. The losses and gains accrue to the investors only. The investment objectives outlined by a Mutual Fund in its prospectus are binding on the Mutual Fund scheme. The investment objectives specify the class of securities a Mutual Fund can invest in. Mutual Funds invest in various asset classes like equity, bonds, debentures, commercial paper and government securities.

An Asset Management Company (AMC) is a highly regulated organisation that pools money from investors and invests the same in a portfolio. They charge a small management fee, which is up to 2.25% per cent of the total funds managed.

• Qualified and experienced professionals manage Mutual Funds. Generally, investors, by themselves, may have reasonable capability, but to assess a financial instrument a professional analytical approach is required in addition to access to research, information, time and methodology to make sound investment decisions and keep monitoring them

• Since Mutual Funds make investments in a number of stocks, the resultant diversification reduces risk. They provide the small investors with an opportunity to invest in a larger basket of securities.

• The investor is spared the time and effort of tracking investments, collecting income, etc. from various issuers, etc

• It is possible to invest in small amounts as and when the investor has surplus funds to invest.

• Mutual Funds are registered with SEBI. SEBI monitors the activities of Mutual Funds.

• In case of open-ended funds, the investment is very liquid as it can be redeemed at any time with the fund.

Investors who:

• lack the knowledge or skill / experience of investing in stock markets directly.

• want to grow their wealth, but do not have the inclination or time to research the stock market.

• wish to invest only small amounts

Mutual Funds do not provide assured returns. Their returns are linked to their performance. They invest in shares, debentures and deposits. All these investments involve an element of risk. The unit value may vary depending upon the performance of the company and companies may default in payment of interest/principal on their debentures/bonds/deposits. Besides this, the government may come up with new regulation which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.

Mutual Funds can be broadly categorized in to:

Categorization as per SEBI:
• Equity Funds:
• Multi Cap Fund
• Large Cap Fund
• Large and Mid-Cap Fund
• Mid Cap Fund
• Small Cap Fund
• Dividend Yield Fund
• Value Fund or Contra Fund
• Focused Fund
• Sectoral/Thematic Fund
• Equity Linked Savings Scheme
• Flexi Cap Fund
• Debt Funds
• Overnight Fund
• Liquid Fund
• Ultra-Short Duration Fund
• Low Duration Fund
• Money Market Fund
• Short Duration Fund
• Medium Duration Fund
• Medium to Long Duration Fund
• Long Duration Fund
• Dynamic Bond
• Corporate Bond Fund
• Credit Risk Fund
• Banking and PSU Fund
• Gilt Fund
• Gilt Fund with 10-year Constant Duration
• Floater Fund
• Hybrid Funds
• Conservative Hybrid Fund
• Balanced Hybrid or Aggressive Hybrid Fund
• Dynamic Asset Allocation or Balanced Advantage
• Multi Asset Allocation
• Arbitrage Fund
• Equity Savings
• Solution Oriented Schemes
• Retirement Fund
• Children’s Fund
• Other Schemes
• Index Funds/Exchange Traded Fund
• Fund of Funds (Overseas/Domestic)

On the basis of flexibility of redemption:
• Open-ended Funds: These funds do not have a fixed date of redemption. Generally, they are open for subscription and redemption throughout. From the investors' perspective, they are much more liquid than closed-ended funds. Investors are permitted to join or withdraw from the fund anytime.
• Close-ended Funds: These funds are open initially for entry during the New Fund Offer (NFO) period and thereafter closed for entry as well as exit. These funds have a fixed date of redemption and can be redeemed only on the fixed date of redemption.
• Interval funds: These funds combine the features of both open-ended and close-ended funds wherein the fund is close-ended for a specific period and open-ended thereafter. Some funds allow fresh subscriptions and redemption at fixed times every year (say every six months) in order to reduce the administrative aspects of daily entry or exit, yet providing reasonable liquidity.

On the basis of management of portfolio:
• Active Funds: Actively managed funds are funds where the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective of the scheme. Since this increases the role of the fund manager, the expenses for running the fund turns out to be higher.
• Passive Funds: Passive funds invest on the basis of a specified index; whose performance it seeks to track. The proportion of each share in the scheme’s portfolio would also be the same as the weightage assigned to the share in the respective index. Since the portfolio is determined by the index itself, the fund manager has no role in deciding on investments. Therefore, these schemes have low running costs.

Different plans offered are:
• Growth Plan - A growth plan is a plan under a scheme wherein the returns from investments are reinvested. The investor thus only realises capital appreciation on the investment. For investors looking to create long-term wealth, growth option is suitable.
• IDCW – The full form in mutual funds for IDCW is "Income Distribution cum Capital Withdrawal." The dividend option in a mutual fund is now known as IDCW. In this option, 'dividends' are declared periodically from the gains made by the mutual fund.
o Dividend Re-investment
o Dividend Payout

There is no lock-in period in the case of open-ended funds. However, in the case of tax saving funds i.e., ELSS Funds, there is a lock-in period of 3 years from the date of allotment of units.

Equity Linked Saving Scheme or ELSS is a type of mutual fund scheme that invests in equity markets and qualifies for tax savings under Section 80C of the Income Tax Act. Investments of up to Rs 1.5 lakhs done in ELSS Mutual Funds in a financial year are eligible for tax deduction u/s 80C. It translates into a tax saving of up to Rs 46,800 in a financial year. These funds also have the lock-in of just 3 years from the date of allotment of units, lowest amongst all the options available in Section 80C. Dual advantages of Tax-saving & potential for higher returns than traditional Tax-saving investments make ELSS a must have for every investor.

Exchange Traded Funds or ETFs are securities that are traded, like individual stocks, on an exchange. Unlike regular open-end mutual funds, ETFs can be bought and sold throughout the trading day like any stock. Most ETFs charge lower annual expenses than many mutual funds. As with stocks, one must pay a brokerage to buy and sell ETF units.

The performances of Mutual funds are influenced by the performance of the stock market as well as the economy as a whole. Equity Funds are influenced to a large extent by the stock market. The stock market in turn is influenced by the performance of the companies as well as the economy as a whole. The performance of the sector funds depends to a large extent on the companies within that sector. Debt Funds are influenced by interest rates and credit quality. As interest rates rise, bond prices fall, and vice versa. Similarly, debt funds with higher credit ratings are less influenced by changes in the economy.

Choice of any scheme would depend to a large extent on the investor preferences. For an investor willing to undertake risks for long-term returns, Equity Funds would be the most suitable as they offer the maximum returns. Debt Funds are suited for those investors who prefer regular income and safety. Hybrid funds are ideal for medium to long-term investors willing to take moderate risks. Liquid funds are ideal for Corporate, institutional investors, business houses & individuals who invest their funds for very short periods. Tax Saving Funds are ideal for those investors who want to avail tax benefits.

An important aspect while selecting a particular scheme is the duration of the investment. Depending on your time horizon you can select a particular scheme. Besides all this, factors like fund house, objective of the fund and returns given by the funds should also be taken into account while selecting a particular scheme.

The order book reflects details of all the orders placed by you. All successful transactions will be updated in the Unit Holding within T+2 or T+5 days (depending on the AMC's rules and regulation).

You can redeem your Mutual Fund units anytime for investments done in open-ended schemes. However, you cannot redeem units from ELSS Schemes before maturity due to lock-in period of 3 years.

• Capital Gains Tax - Mutual Fund investments are subject to capital gains tax. It is paid on the profit you make while redeeming / selling your Mutual Fund holdings (units). The gain is the difference in Net Asset Value (NAV) of scheme on the date of sale and date of purchase (Selling Price-Purchase Price).
• Stamp Duty on MF Units - With effect from July 1, 2020, mutual fund units issued against Purchase transactions (whether through lump-sum investments or SIP or STP or switch-ins or Reinvestment of Income Distribution cum capital withdrawal option would be subject to levy of stamp duty @ 0.005% of the amount invested. Transfer of mutual fund units (such as transfers between demat accounts) is subject to payment of stamp duty @ 0.015%.
• Dividend Income - In the Union Budget presented by the finance minister in February 2020, the dividend distribution tax has been done away with, whereas the dividend would henceforth be added to the taxable income of the assessee for the year. Thus, the dividends would be taxable in the hands of the recipient at the applicable tax rate.
• Securities Transaction Tax - When an investor sells units of an equity fund in the stock exchange, or offers them for repurchase to the fund, he will have to incur Securities Transaction Tax (STT) i.e., STT is applicable only on redemption/switch to other schemes/sale of units of equity oriented mutual funds whether sold on stock exchange or otherwise. STT is not applicable on purchase of units of an equity scheme. It is also not applicable to transactions in debt securities or debt mutual fund schemes.

Mutual Fund investments are subject to capital gains tax. Capital gains tax is further classified depending on period of holding and is different for equity and debt funds.

Funds with Indian Equity exposure is at least 65% e.g., Equity Funds, Equity Oriented Hybrid Funds:
• Long-Term Capital Gains (LTCG) tax - Holding period of one year or more is considered long-term and LTCG tax of 10% is applicable on equity funds if the cumulative capital gains from equity mutual funds & stocks in a financial year exceeds INR 1 lakh.
• Short-Term Capital Gains (STCG) tax - Profits on holdings of less than a year are subject to 15% STCG tax in equity funds.

Funds with Indian Equity exposure does not exceed 35% of the corpus e.g., Debt Funds, Debt Oriented Hybrid Funds:
• Irrespective of the holding period, all capital gains are treated as short term capital gains and taxed at applicable slab rates

Funds with Indian Equity exposure exceeds 35% but does not exceed 65%
• Investments in these schemes become long-term if held for more than 36 months and taxed at a flat rate of 20% after applying indexation
• For period till 36 months, short term capital gains will be applicable. Short-term capital gains for this category are treated like regular income and taxed at the slab rate applicable