Mutual Funds are pooled investment instruments that invest in securities like stocks, bonds, money market instruments, gold, REITs, etc. Investors buy units, each representing a share in the fund's portfolio, which is professionally managed to achieve specific scheme objectives.
When an Asset Management Company (AMC) launches a scheme, investors can buy units during the New Fund Offer (NFO) at a face value (usually ₹10). After the NFO, units of open-ended funds can be bought or redeemed at prevailing Net Asset Value (NAV). To invest, investors must complete KYC and use their own bank account. Redemption proceeds (for equity funds) are typically credited in three business days (T+3), though exit loads may apply for early withdrawals.
There are three broad categories of Mutual Funds:-
Mainly invest in shares (large-cap, mid-cap, small-cap, multi-cap, etc.) with the goal of capital appreciation.
Invest in bonds and money market instruments, classified by duration (overnight to long-term). Aim for stable returns.
Combine equity, debt, and sometimes gold or REITs. Sub-types include aggressive, conservative, and balanced advantage funds.
Each category carries different risk-return profiles, catering to varied investor needs.
Equity Funds (≥ 65% equity): Short-term gains (< 12 months) taxed at 20%. Long-term gains are tax-free up to ₹1.25 lakh/year, then taxed at 12.5%.
Debt Funds: For investments post-April 1, 2023, both short- and long-term gains are taxed as per income slab (indexation benefit removed).
Other Funds (35-65% equity or alternative assets): Long-term gains taxed at 12.5% after 2 years; short-term gains taxed at income slab.
Tax-saving ELSS Funds: Investments up to ₹1.5 lakh annually qualify for Section 80C deductions.
