Mutual Funds — Everything You Need to Know
Types of mutual funds, how SIP works, key concepts, and how to pick the right fund for your goals.
Invest primarily in stocks. Best for long-term wealth creation (5+ years). Higher risk, higher potential return. Subtypes: large-cap, mid-cap, small-cap, flexi-cap, sectoral.
Invest in bonds, government securities, and fixed-income instruments. Lower risk than equity. Suitable for 1–3 year goals or as a replacement for FDs.
Invest in both equity and debt in varying proportions. Balanced funds, aggressive hybrid, and conservative hybrid. Good for moderate risk investors.
Track a market index like Nifty 50 or Sensex. Very low cost (expense ratio <0.2%). Ideal for beginners who want market returns without stock-picking stress.
Equity Linked Savings Scheme — invests in stocks and qualifies for ₹1.5 lakh tax deduction under Section 80C. 3-year lock-in. Best tax-saving mutual fund.
Park short-term cash (1–90 days) and earn slightly better than savings account returns. Very low risk. Good alternative to keeping excess cash idle.
| Factor | SIP | Lumpsum |
|---|---|---|
| Best for | Salaried investors with monthly income | Investors with a large corpus ready to invest |
| Market timing risk | Low — rupee cost averaging smoothens entry | High — timing the market is difficult |
| Minimum amount | ₹100/month with most AMCs | Usually ₹1,000–₹5,000 minimum |
| Behavioural advantage | Automated — removes emotion from investing | Requires discipline to not panic-sell |
| 10-year average (Nifty 50) | 14.2% CAGR | 13.4% CAGR |
| Verdict | Recommended for most investors | Good if timing and discipline are strong |
The per-unit price of a mutual fund. NAV changes daily based on the value of the fund's underlying investments. A higher NAV doesn't mean overpriced.
Annual fee charged by the fund house, deducted from your returns. Index funds: 0.1–0.2%. Active funds: 0.5–2%. Lower is better — it directly impacts your returns.
A fee charged when you redeem (sell) your fund before a specified period — usually 1% if sold within 1 year. Check before investing.
Compound Annual Growth Rate — how much your investment grew per year on average. A fund with 14% CAGR over 10 years turned ₹1 lakh into ₹3.7 lakhs.