Beginners' guide to mutual funds

01

Chapter 1 · 2 min read

What is a mutual fund?

A mutual fund is a simple idea: many people put their money into one common pool, and a team of qualified professionals invests that pool on everyone's behalf, following a written plan.

Think of a big family wedding. No one person pays for everything; each relative chips in, and one experienced organiser spends the combined amount wisely. A mutual fund works the same way, except the "organiser" is a regulated fund house and the spending is investing in shares, bonds and other securities.

Every rupee in the pool is invested together. Your share of the pool is measured in units.

Four ideas to remember

Pooling. Small amounts from many people become a large amount that can be spread across dozens of companies or bonds, something hard to do on your own with ₹5,000.
Professional management. A fund manager and research team decide what to buy and sell, within the limits written in the scheme's documents.
Units. When you invest, you buy units of the scheme. If you invest ₹5,000 when one unit costs ₹25, you get 200 units.
NAV. The Net Asset Value is the price of one unit. It is worked out at the end of every business day from the market value of everything the fund owns.

02

Chapter 2 · 2 min read

How a mutual fund works & who's who

Indian mutual funds are set up with several independent parties, each keeping an eye on the others. This structure exists so that your money is never held by just one person or company.

You, the investor
You put in the money and own units. The gains and losses of the scheme belong to you and fellow investors.
Fund house (AMC)
The Asset Management Company runs the schemes: it employs the fund managers, does the research and handles day-to-day operations.
Trustees
They hold the fund in trust for investors and check that the AMC follows the rules and acts in your interest.
Custodian
A separate, SEBI-registered entity that safe-keeps the shares and bonds the scheme owns. The fund house does not hold them itself.
Registrar (RTA)
Keeps the record of who owns how many units, processes your purchases and redemptions, and sends your statements.
SEBI, the regulator
The Securities and Exchange Board of India writes and enforces the rules every mutual fund in India must follow.
AMFI, the industry body
The Association of Mutual Funds in India registers distributors (that is where an ARN comes from) and runs investor-awareness programmes.
Your distributor
An AMFI-registered distributor such as Zreyas helps you complete KYC, register, choose schemes for your goals, transact and keep track. Distributors earn commission from fund houses.

Your bank accountScheme's bank accountInvested; held by custodianUnits in your folio

Your money moves directly from your bank account to the scheme's account. It does not pass through your distributor's personal account.

03

Chapter 3 · 3 min read

Key terms you will see everywhere

A handful of words show up on every fund page, statement and form. Learn these and the rest of mutual-fund paperwork becomes much easier to read.

How NAV is worked out

Market value of everything the scheme owns
minus expenses and liabilities÷Total units held by all investors=NAV per unit

Example: a scheme owns investments worth ₹100 crore, owes ₹1 crore in expenses and has 4 crore units outstanding. NAV = ₹99 crore ÷ 4 crore = ₹24.75. Invest ₹10,000 and you receive about 404.04 units.

NAV: The per-unit value of the scheme, published every business day. A higher or lower NAV does not by itself make a fund "expensive" or "cheap".
Units: Your share of the scheme. Your investment value = units held × current NAV.
Expense ratio: The yearly cost of running the scheme, shown as a percentage of its assets and deducted daily before NAV is published. At 1% a year, about ₹1,000 a year is charged on ₹1 lakh.
Exit load: A small charge some schemes take if you redeem early, for example 1% if you withdraw within 12 months. Many debt and liquid schemes have little or none.
Riskometer: A six-level dial every scheme must display, from Low to Very High, showing how risky its holdings are. It is reviewed every month.
Benchmark: An index the scheme compares itself with, such as a broad market index for an equity fund. It helps you judge performance fairly.
SID & KIM: The Scheme Information Document is the scheme's full rulebook; the Key Information Memorandum is its short summary. Read them before investing.
Folio: Your account number with a fund house. One folio can hold several schemes of the same fund house.
CAS: The Consolidated Account Statement shows all your mutual-fund holdings across fund houses, linked by your PAN, in a single document.

The six riskometer levels

Low
Low to Moderate
Moderate
Moderately High
High
Very High

Tap a level to move the needle. Most equity schemes sit at Very High; overnight funds sit near Low.

04

Chapter 4 · 3 min read

Types of mutual funds

SEBI groups schemes into clear categories so that a "mid cap fund" means roughly the same thing at every fund house. The main families differ in what they invest in, and therefore in how much they can move up and down.

Equity funds

Invest mainly in shares · for 5+ years

Large cap At least 80% in India's 100 largest listed companies. Usually steadier among equity funds.
Mid cap At least 65% in companies ranked 101 to 250 by size. More growth potential, bigger swings.
Small cap At least 65% in companies ranked 251 and below. The sharpest ups and downs; needs patience.
Flexi cap At least 65% in equity, with the manager free to choose any company size.
Multi cap At least 25% each in large, mid and small companies.
Sectoral / thematic Focused on one sector or theme, such as banking or infrastructure. Concentrated and higher risk.
ELSS Equity Linked Savings Scheme: an equity fund with a 3-year lock-in and a tax deduction under the old tax regime (see Chapter 9).
Index funds Simply copy an index, such as a broad market index, at low cost with no stock-picking.

Debt funds

Lend money to governments & companies · days to a few years

Overnight Invest in securities that mature the next day. Very low risk; a parking place for a few days.
Liquid Securities maturing within 91 days. Often used for an emergency fund or short-term parking.
Short duration Portfolio duration of about 1 to 3 years. For goals a couple of years away.
Corporate bond At least 80% in highly rated company bonds (AA+ and above).
Gilt At least 80% in government securities. Very low credit risk, but prices move with interest rates.

Hybrid funds

A mix of shares and bonds in one scheme

Aggressive hybrid 65% to 80% in equity, the rest in debt. Equity-like growth with a cushion.
Balanced advantage Changes the equity–debt mix based on market conditions, using a set model.
Conservative hybrid 10% to 25% in equity, mostly debt. For people who want a little growth with less movement.

Solution-oriented

Retirement funds Built for retirement savings, with a lock-in of 5 years or until retirement age, whichever is earlier.
Children's funds For a child's education or marriage, with a lock-in of 5 years or until the child turns 18, whichever is earlier.

Others

ETFs Index-tracking funds traded on the stock exchange like shares. You need a demat and trading account.
Fund of funds Schemes that invest in other mutual fund schemes, in India or overseas.

New category

Specialised Investment Funds (SIF)

SIFs are a newer category created by SEBI, sitting between mutual funds and portfolio management services. They can use strategies ordinary mutual funds cannot, such as limited short positions, and they need a minimum investment of ₹10 lakh. They suit experienced investors who understand the higher risk; they are not a starting point for beginners.

Where each fund type usually sits: risk vs time horizon

DebtHybridEquitySwipe the chart to see it all

Indicative only. Actual risk depends on each scheme's holdings; always check its own riskometer and SID.

05

Chapter 5 · 2 min read

Ways to invest: lump sum, SIP, STP, SWP

The scheme you pick decides what you invest in. The method decides how your money goes in and comes out. There are five common methods.

Lump sum

Invest a larger amount in one go, for example a ₹2 lakh bonus.

Fits when you already have the money, and the time horizon matches the fund.

SIP

Systematic Investment Plan: a fixed amount, say ₹3,000, invested automatically every month.

Fits when you invest from your monthly income and want discipline without timing the market.

Step-up SIP

Your SIP rises by a set amount or percentage each year, for example 10% when your salary grows.

Fits when your income is likely to increase and you want savings to keep pace.

STP

Systematic Transfer Plan: park a lump sum in a debt or liquid fund and move a fixed amount into an equity fund every week or month.

Fits when you have a large sum but prefer to enter equity gradually.

SWP

Systematic Withdrawal Plan: take a fixed amount out every month, for example ₹25,000, while the rest stays invested.

Fits when you need a regular cash flow, such as in retirement.

06

Chapter 6 · 2 min read

The power of compounding & rupee-cost averaging

Compounding means your returns start earning returns of their own. In the early years the growth looks small; given enough time, the growth part can become larger than the money you put in. That is why time in the market matters more than the size of your first SIP.

Years invested20 years

You invest₹12,00,000

Growth₹37,95,740

Illustrative value₹49,95,740

Money you put inGrowth (illustrative)

Illustration — assumed 12% p.a. return, compounded monthly, not a promise. Actual returns vary and can be negative.

Start early: a tale of two SIPs

Asha

Starts a ₹5,000 SIP at 25 and continues to 55 (30 years). Puts in ₹18 lakh.

Illustrative value: ₹1.76 crore

Ravi

Starts the same ₹5,000 SIP at 35 and continues to 55 (20 years). Puts in ₹12 lakh.

Illustrative value: ₹49.96 lakh

Illustration — assumed 12% p.a. return, not a promise. Asha invests only ₹6 lakh more, but her money has ten extra years to compound.

Rupee-cost averaging

With a SIP you invest the same amount every month. When the NAV is high you buy fewer units; when it falls you automatically buy more. Over time, your average cost per unit tends to be lower than the average NAV during that period. You do not need to guess when markets will rise or fall.

Total invested₹6,000

Units bought405

Average cost per unit₹14.81

Average NAV₹15.75

Illustration with assumed NAVs, not a forecast. The NAV ends where it started (₹20), yet 405 units × ₹20 = ₹8,100, because the dip let the SIP collect extra units. Averaging reduces timing risk; it does not prevent losses.

07

Chapter 7 · 2 min read

Risk, and choosing funds for your goal

Every investment carries some risk. In equity funds the main risk is market risk: share prices can fall sharply for months. In debt funds it is mainly interest-rate risk (bond prices fall when rates rise) and credit risk (a borrower may not repay). Inflation is a risk too: money left idle loses buying power every year.

The simplest way to manage risk is to start from your goal and ask: when will I need this money?

Short termUp to 3 years

Emergency fund, a bike next year, school fees.

Usually overnight, liquid or short-duration debt funds. Protecting the money matters more than growing it.

Medium term3 to 5 years

Car, home down payment, a wedding.

Often hybrid funds or a mix of debt and equity, so a market fall close to the goal does less damage.

Long term5 years and more

Retirement, a child's higher education, long-term wealth.

Equity funds have the most time to recover from falls and to compound.

Asset allocation and diversification

Asset allocation is how you split money between equity, debt and other assets. It has a bigger effect on your experience than picking any single fund. A 30-year-old saving for retirement might hold mostly equity, while someone two years from a goal might hold mostly debt.

Diversification means not keeping all your eggs in one basket. One mutual fund is already diversified across many securities, but owning five similar large cap funds is not diversification; it is repetition. Two to four well-chosen schemes across categories are usually enough for a beginner.

Review once a year, not every day

Is each goal still on track, and has its date moved?
Has your mix drifted? A strong equity year can push equity well above your plan; rebalance if needed.
Can you step up your SIP after a salary increase?
As a goal comes within 2 to 3 years, start moving that money towards safer debt options.

08

Chapter 8 · 2 min read

Getting started, step by step

Opening your mutual fund account is a one-time job. With Zreyas it is done online on the NSE Mutual Fund platform, and we walk you through each step on WhatsApp or phone.

1
Complete KYC (once in your life)
KYC (Know Your Customer) is mandatory and valid across all fund houses. Keep these ready:
- PAN card
- Aadhaar (for e-KYC)
- Address proof
- Bank details (cancelled cheque or statement)
- Recent photograph & signature
- Mobile number & email
- Nominee details
KYC can usually be completed online with a short video or in-person verification. Use your own mobile number and email so all alerts reach you.
2
Register free on the NSE MF platform with Zreyas
A one-time registration creates your investor account. After that you can buy, redeem, switch and set up SIP, STP or SWP online, and see all your investments in one place. NRIs can register too.
3
Choose schemes for your goal
Decide the goal, time horizon and amount, then pick schemes that fit. Read the KIM or SID and check the riskometer before you confirm.
4
Set up an e-mandate for SIPs
A one-time bank authorisation (via net banking, debit card or UPI where available) lets each SIP instalment go out automatically. You set the maximum limit, and you can pause or cancel a SIP whenever you like.
5
Track statements and your CAS
You get a confirmation by email and SMS after each transaction, and a Consolidated Account Statement (CAS) for any month you transact (at least every six months otherwise). Keep your email and mobile updated.

09

Chapter 9 · 2 min read

Taxation basics

You pay tax on mutual funds only when you redeem (sell) units at a gain, or when you receive IDCW payouts. Simply holding units is not taxed. These are the broad rules applicable from FY 2025-26:

Type	Held for	How gains are taxed
Equity-oriented funds (65%+ in Indian shares)	Up to 12 months	Short-term gain: 20%
Equity-oriented funds (65%+ in Indian shares)	More than 12 months	Long-term gain: 12.5% on gains above ₹1.25 lakh in a financial year
Debt funds bought on or after 1 April 2023	Any period	Added to your income and taxed at your slab rate
IDCW (dividend) payouts	Not applicable	Added to your income and taxed at your slab rate
ELSS	3-year lock-in	Deduction under Section 80C (up to ₹1.5 lakh a year) only under the old tax regime; gains taxed like other equity funds

Hybrid and other funds are taxed according to how much equity they hold, so check each scheme. In a SIP, every instalment has its own purchase date and holding period, and units are redeemed on a first-in, first-out basis.

Example: you redeem equity fund units held for two years with a gain of ₹1,75,000. The first ₹1.25 lakh of long-term gains in that year is exempt, so 12.5% applies to ₹50,000, about ₹6,250 plus cess.

Tax rules change. Surcharge, cess and special cases are not covered here. Check the current rules or a tax professional before acting on any of this.

10

Chapter 10 · 2 min read

Common myths, busted

Most people who never start investing are held back by one of these beliefs. Here is what is actually true.

"You need a lot of money to start."

Many schemes accept SIPs from ₹500 a month, and some from even less. Starting small and early beats waiting for a big amount.

"SIP is a type of mutual fund."

A SIP is a way of investing, not a product. You can run a SIP in an equity, debt or hybrid scheme.

"Mutual funds are only about the stock market."

There are debt, hybrid, liquid and overnight funds too. Some barely move from day to day.

"Last year's top performer will repeat."

Past performance may or may not be sustained. Consistency, fit with your goal and costs matter more than one great year.

"A low NAV means a cheaper, better fund."

₹10,000 buys more units at a lower NAV, but the percentage change is what decides your return, not the NAV level.

"Stop your SIP when markets fall."

A falling market is when your SIP buys more units. Stopping then gives up the very benefit of rupee-cost averaging.

"My money will be locked in."

Most open-ended schemes let you redeem on any business day. ELSS (3 years) and solution-oriented funds (5 years) are the main lock-in exceptions; some schemes charge an exit load if you leave early.

"More funds means more safety."

Similar funds often hold the same companies. A few schemes across different categories diversify better than many look-alikes.

"Mutual fund returns are fixed, like a deposit."

Returns depend on markets and are not fixed. That is why matching the fund to your time horizon is so important.

"IDCW is a bonus on top of my returns."

IDCW is paid out of the scheme's own value, so the NAV drops by that amount. It is your money coming back, and it is taxed at your slab rate.

11

Chapter 11 · 2 min read

Your rights as an investor

SEBI's rules give every mutual fund investor clear rights. Knowing them helps you invest with confidence.

Information before you invest. The SID, KIM and Statement of Additional Information are free to read on every fund house's website.
Regular statements. A confirmation after each transaction and a Consolidated Account Statement for months in which you transact, with at least a half-yearly statement otherwise.
Daily NAV and portfolio disclosure. NAVs are published every business day and the scheme's holdings are disclosed regularly.
Timely payment. Redemption money must reach your bank within the timeline SEBI prescribes (for most schemes, within three working days).
A say in big changes. If a scheme makes a fundamental change to its nature, you are informed and can exit without an exit load.
Nomination. You can add, change or update nominees so your family can claim units smoothly.

If something goes wrong: the grievance path

1
Contact us or the fund house
Write to Zreyas at zreyas@zohomail.in or to the fund house's investor service. Most issues are solved here quickly.
2
SEBI SCORES
If you are not satisfied, file a complaint on SEBI's online grievance portal, SCORES, which tracks it to closure.
3
SMART ODR
If still unresolved, use the SMART ODR portal for online conciliation and arbitration.

12

Chapter 12 · 1 min read

Glossary A–Z

Bookmark this page and come back whenever a word on a statement or form puzzles you.

Filter glossary terms 32 terms

AMC: Asset Management Company: the fund house that manages mutual fund schemes.
Asset allocation: How your money is divided between equity, debt and other assets.
Benchmark: The index a scheme measures its performance against.
CAS: Consolidated Account Statement showing all your fund holdings under one PAN.
Compounding: Earning returns on past returns, so growth builds on itself over time.
Credit risk: The chance that a bond issuer fails to pay interest or principal on time.
Debt fund: A scheme that lends to governments and companies by buying bonds and money-market instruments.
Diversification: Spreading money across many securities or categories to reduce the impact of any one going wrong.
E-mandate: An online bank authorisation that lets SIP instalments be debited automatically.
ELSS: Equity Linked Savings Scheme: a tax-saving equity fund with a 3-year lock-in.
Equity fund: A scheme that invests mainly in company shares.
ETF: Exchange Traded Fund: an index-tracking fund bought and sold on the stock exchange.
Exit load: A charge on redeeming units before a set period.
Expense ratio: The annual cost of running a scheme, as a percentage of its assets.
Folio: Your account number with a fund house.
Growth option: Gains stay invested in the scheme and are reflected in a rising NAV; nothing is paid out.
Hybrid fund: A scheme that invests in both equity and debt.
IDCW: Income Distribution cum Capital Withdrawal: payouts from the scheme's value, formerly called dividend.
Index fund: A scheme that copies the holdings of a market index.
Interest-rate risk: Bond prices fall when interest rates rise, which can lower a debt fund's NAV.
KIM: Key Information Memorandum: a short summary of a scheme's main features.
KYC: Know Your Customer: one-time identity and address verification required to invest.
Liquidity: How quickly you can turn an investment into cash.
Lock-in: A period during which units cannot be redeemed, such as 3 years for ELSS.
Lump sum: A one-time investment of a larger amount.
NAV: Net Asset Value: the per-unit value of a scheme, published daily.
NFO: New Fund Offer: the first subscription period when a new scheme is launched.
Nominee: The person who will receive your units if something happens to you.
Redemption: Selling units back to the scheme to get your money.
Riskometer: A six-level dial showing a scheme's risk, from Low to Very High.
Rupee-cost averaging: Buying more units when prices are low and fewer when high by investing a fixed amount regularly.
SID: Scheme Information Document: the detailed rulebook of a scheme.
SIF: Specialised Investment Fund: a newer SEBI category with a ₹10 lakh minimum and wider strategies.
SIP: Systematic Investment Plan: investing a fixed amount at regular intervals.
STP: Systematic Transfer Plan: moving a fixed amount from one scheme to another regularly.
Switch: Moving money from one scheme to another within the same fund house in one step.
SWP: Systematic Withdrawal Plan: withdrawing a fixed amount at regular intervals.
Units: Your share of a scheme; value = units × NAV.
Volatility: How much and how quickly an investment's value moves up and down.