Learn / Market Basics
Market Basics
NAV, AUM, expense ratio, exit load, direct vs regular plans, NFOs, switches.
Net Asset Value (NAV) — how it's computed daily
NAV is the per-unit price of a mutual fund. AMCs compute it daily by valuing the portfolio at closing prices, subtracting fund expenses, and dividing by units outstanding. Investor transactions get the next available NAV after the cutoff time.
Assets Under Management (AUM) — what size means for performance
AUM is the total rupee value of all assets a fund manages — across all its investors. Size matters most in small- and mid-cap funds, where deploying ever-larger flows into a constrained universe creates real performance drag.
Expense Ratio (TER) — SEBI caps and what you pay
The Total Expense Ratio is the annual cost of running a mutual fund, charged as a percentage of AUM. SEBI caps it on a sliding scale: equity funds can charge up to ~2.25% at small AUM, falling to ~1.05% at very large AUM. Direct plans have meaningfully lower TER than Regular.
Exit load — when and how AMCs charge it
Exit load is a fee charged when you redeem mutual fund units before a specified holding period. It varies by category — most equity funds charge 1% if you exit within 12 months; liquid funds have a tiny graded load in the first week.
Direct vs Regular plan — the 1% drag
Every open-ended mutual fund offers both Direct and Regular plans. Direct skips the distributor / broker commission, saving 0.5-1.0% per year on expense ratio. Over decades the differential compounds to ~25% terminal wealth.
NFO — what to know before investing
A New Fund Offer is a fresh scheme launching, with units sold at a face value of ₹10. The marketing implies you're getting in "cheap" — but NAV in isolation tells you nothing. Most NFOs are worth skipping until they accumulate a 2-3 year track record.
Folio number, scheme code, ISIN — what each identifies
Folio number identifies your investor account at an AMC. Scheme code identifies a mutual fund scheme. ISIN identifies a specific plan + option of that scheme. Each appears on every CAS and statement; knowing what each represents avoids confusion.
CAS — Consolidated Account Statement, read end-to-end
CAMS and KFintech aggregate transactions from all AMCs into a single Consolidated Account Statement, sent monthly by email or downloadable on demand. Reading it well — and reconciling it against your AMC statements — is core portfolio hygiene.
Switching between funds — mechanics, tax, and timing
A switch moves money between schemes of the same AMC in a single operation. Compared to redeem-and-rebuy across AMCs, switching avoids T+1 bank float and one round of paperwork — but the capital gains and stamp duty rules apply exactly the same way.
STT (Securities Transaction Tax) on mutual funds
STT is levied on the redemption of equity-oriented mutual fund units. The current rate is 0.001%, applied to the gross redemption proceeds. Debt funds are exempt. It's small but it explains why some statements show a "STT" deduction.
KYC for mutual funds — process and requirements
Every mutual fund investor in India needs KYC compliance before transacting. The current process — In-Person Verification (IPV) plus PAN and Aadhaar-linked verification — is largely standardised and reusable across AMCs. Re-KYC is occasionally required when SEBI tightens norms or after long inactivity.
Mutual fund account types — individual, joint, minor, HUF
Mutual fund accounts come in several types: individual, joint, minor (with guardian), HUF, NRI (NRE/NRO), trust, corporate. Each has specific rules around contributions, withdrawals, tax treatment, and operational nuances.
Nomination in mutual funds — why and how
A nominee designation lets the AMC transfer mutual fund units to a designated person on the holder's death without lengthy succession paperwork. SEBI made nomination mandatory (or explicit opt-out) in 2022. The five minutes to register a nominee saves months of transmission delay for families.
The risk-o-meter — SEBI's 6-level fund risk scale
The risk-o-meter is SEBI's mandatory disclosure showing each scheme's risk level on a 6-point scale. The rating is computed monthly based on the scheme's portfolio composition. While imperfect, it provides a quick comparison across schemes and a reality check for investors.
The Scheme Information Document (SID) — what to actually read
The Scheme Information Document is the legally-mandated full disclosure for a mutual fund scheme. Few investors read it; the document deserves more attention than it gets. The key sections — investment objective, asset allocation, expense structure, risk factors, fund manager profile — take about 20 minutes and reveal much about whether a scheme matches your needs.
Fund manager change — what to do when it happens
When a fund's manager changes, the strategy and performance can shift meaningfully. Investors should evaluate whether the replacement maintains the original philosophy. Manager changes don't automatically require redemption, but they're a trigger for reviewing the fund's ongoing fit with your portfolio.
Benchmark indices for mutual funds — TRI vs PRI
Every mutual fund has a benchmark — typically a market index that the fund's performance is compared against. SEBI requires Total Return Index (TRI) benchmarks (which include reinvested dividends) rather than Price Return Index (PRI). The choice affects whether fund "outperformance" is genuine.
SEBI Registered Investment Advisor (RIA) vs Mutual Fund Distributor (MFD)
A SEBI RIA is a fee-only advisor regulated to provide investment advice; cannot earn commissions from product sales. An MFD is a commission-earning distributor of mutual fund products; not regulated as an advisor. Both serve roles but have very different conflicts of interest. Know which you're dealing with.
Star ratings — Morningstar, Value Research methodologies
Major rating agencies — Morningstar, Value Research, CRISIL — assign star ratings to mutual fund schemes based on past performance, risk-adjusted returns, and other metrics. The ratings provide quick comparison but can be misleading. Understanding methodology and limitations is essential.
Mutual fund platforms — Direct, ETMoney, Coin, Groww, etc.
Indian investors can buy mutual funds through AMC direct portals, dedicated platforms (Coin, ETMoney, Kuvera, Groww), or brokerage platforms (Zerodha, Upstox). Understanding the cost structure, features, and platform-specific advantages helps choose the right one.
Investor protection — SEBI, AMFI grievance redressal
Indian mutual fund investors have multi-layered protection: AMC customer service first, then AMFI, then SEBI through SCORES. Knowing the escalation path helps resolve issues quickly. Specific protections cover transmission, mis-selling, fraud, and operational errors.
Scheme mergers and wind-up — operational mechanics
Scheme mergers (combining two schemes into one) and wind-ups (terminating a scheme) happen for various reasons. SEBI mandates specific procedures protecting investors. Investors retain redemption rights, cost basis, and have a 30-day exit window during mergers.
Statement of Additional Information (SAI) — supplementary disclosure
The Statement of Additional Information (SAI) supplements the SID with AMC-level information: corporate structure, financial details, fund management team, regulatory compliance, dispute history. Worth knowing it exists even if rarely read in full.
Key Information Memorandum (KIM) — the 4-page summary
The Key Information Memorandum is the abbreviated version of the SID — typically 4-8 pages covering essential scheme details: investment objective, asset allocation, expenses, risks, fund manager. SEBI requires AMCs to provide it at the point of sale. The right place to start when evaluating a new scheme.
Mode of holding — single, joint, EOS, AOS
Joint mutual fund folios can be held in various modes: Single, Joint with all signing, Either or Survivor (EOS), Anyone or Survivor (AOS). Each mode has implications for transactions, succession, and operational ease.
CKYC — Central KYC and cross-sector portability
CKYC (Central KYC) is a Government of India initiative creating a unified KYC database accessible by banks, insurance companies, mutual funds, and other financial institutions. Once you complete CKYC, your KYC ID is portable across sectors, reducing friction at new account opening.
Side-pocketing — segregated portfolios for defaulted assets
Side-pocketing is the AMC's tool to isolate a defaulted bond from the main scheme. The main scheme continues to operate normally; the segregated portfolio holds the defaulted asset for eventual recovery. The mechanism prevents healthy funds from being damaged by single defaults.
Monthly factsheet — the AMC's monthly disclosure
AMCs publish monthly factsheets for each scheme — typically 4-6 pages showing current portfolio holdings, sector allocations, returns, and other key metrics. The factsheet is the most actionable ongoing disclosure for verifying that funds remain aligned with stated strategies.
AMFI — Association of Mutual Funds in India's role
AMFI is the apex industry body for Indian mutual funds. Its roles include investor education, distributor registration and oversight, industry data publication, and SEBI compliance support. Understanding AMFI helps navigate the industry ecosystem.
SIP, SWP, STP — automation logistics
SIP (Systematic Investment Plan), SWP (Systematic Withdrawal Plan), and STP (Systematic Transfer Plan) are three forms of automated mutual fund transactions. Each uses different mechanisms; understanding them helps set up systematic investing efficiently.
Power of Attorney holders for mutual fund accounts
Power of Attorney (POA) allows a designated person to operate your mutual fund account on your behalf. Useful for situations like extended absence, illness, or operational delegation. SEBI requires specific documentation.
Stress testing in liquid and debt funds
SEBI requires liquid and debt mutual fund schemes to periodically disclose stress test results — modelling outcomes under various adverse scenarios. The disclosure provides some insight into fund resilience but has limitations. Understanding what stress tests reveal (and don't) helps interpret them.
Cooling-off periods and cancellation rights
Unlike insurance products with cooling-off periods, mutual fund investments don't have explicit cancellation rights post-investment. However, free-look provisions exist for specific situations, and investor protection mechanisms address mis-selling. Understanding the actual cancellation options helps make better initial decisions.
Mutual Fund Utility (MFU) — single-window transaction platform
Mutual Fund Utility (MFU) is a SEBI-backed industry platform that allows investors to transact across multiple AMCs through a single interface. CAN (Common Account Number) is the identifier. Useful for investors managing positions across many AMCs.
Demat vs non-demat mutual funds
Indian mutual funds can be held in folio (non-demat) form — the traditional approach where the AMC maintains your record — or in demat form, where a depository participant holds units electronically alongside your stocks. ETFs require demat; regular mutual funds can use either. Each has different operational characteristics.
The future of Indian mutual funds — digital transformation and growth
The Indian mutual fund industry has grown 6× over the past decade, reaching ₹70+ lakh crore in AUM. Future trends include continued retail growth, digital transformation, new product categories, ESG mainstreaming, and evolving regulatory frameworks.