How it works in four steps
- You invest an amount (lump sum or SIP). The fund house issues you units at the day's NAV.
- The pooled money is invested in line with the scheme's objective: for example, large Indian companies or short-term bonds.
- The value of the holdings changes daily and so does the NAV.
- When you redeem, you get the NAV of that day for each unit, less any exit load and tax on gains.
Who is involved
| Party | Role |
|---|---|
| Sponsor | Sets up the fund |
| Trustees | Oversee the fund in the interest of investors |
| Asset management company (AMC) | Runs the schemes and employs the fund managers |
| Custodian | Holds the securities safely |
| Registrar and transfer agent (RTA) | Maintains investor records (CAMS, KFintech) |
| SEBI | Regulates mutual funds under the SEBI (Mutual Funds) Regulations, 2026 |
| AMFI | Industry body; registers distributors and publishes industry data |
Categories
SEBI classifies schemes so that a label tells you what a fund does. Under its February 2026 circular, schemes fall into five broad groups: equity, debt, hybrid, life cycle and other schemes (index funds, ETFs, fund of funds and similar). Equity schemes include large cap, mid cap, small cap, flexi cap, multi cap, ELSS and others. Hybrid funds mix equity and debt. See market cap, debt fund and hybrid fund.
What it costs
Each scheme charges an annual expense ratio, taken from NAV. There is no entry load. Some schemes have an exit load. Regular plans and direct plans differ in cost: see direct vs regular.
How it is taxed
Gains are taxed on redemption, at rates that depend on the fund type and how long you held. See capital gains on mutual funds.
Risks
Mutual fund investments are subject to market risks. A fund can fall in value, and equity funds can fall sharply. Debt funds carry interest-rate and credit risk. Past returns do not guarantee future returns. The riskometer shows the scheme's risk level.
The size of the industry
According to AMFI, the Indian mutual fund industry held ₹87.08 lakh crore in assets at the end of August 2026, with more than 10 crore SIP accounts contributing a record ₹32,297 crore that month.
How to start
- Complete KYC once.
- Decide the goal, time horizon and risk profile.
- Choose a category, then a scheme and plan type.
- Start a SIP or invest a lump sum; keep records of your folio.
- Review once or twice a year, not every week.
Questions people ask
What is a mutual fund in simple words?
A pooled investment run by a professional manager.
Is a mutual fund safe?
It is regulated, but not guaranteed. The risk is the risk of what the fund holds.
What is the full form of MF?
Mutual Fund.
Is mutual fund the same as SIP?
No. A mutual fund is the product; a SIP is a way of investing in it.
Can I lose money in mutual funds?
Yes, especially in the short term in equity funds.
How are mutual funds different from FDs?
An FD pays a fixed, contracted rate; a mutual fund's value moves with the market and carries no guarantee.
Keep going
Run the numbers
SIP calculator
Also useful: Lumpsum calculator
Read next
How we can help
Sources
- SEBI (Mutual Funds) Regulations, 2026
- SEBI circular dated 26 February 2026 on categorisation and rationalisation of mutual fund schemes
- AMFI Monthly Note, August 2026.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. This page is general education, not personal advice. Back to the full glossary