Mutual Fund Concepts

Key mutual fund concepts explained. Mahindra Manulife investor education.

Key concepts every investor should know

Mutual Fund Concepts

The Association of Mutual Funds in India oversees industry conduct and promotes investor awareness. Before you start investing, understanding the key terms behind mutual funds is essential. This section walks you through the concepts every investor should know. These will help you make confident and informed investment decisions.

Key Participants in a Mutual Fund

To ensure investor interests are protected, every mutual fund in India operates with a regulated three-tier structure.

Core Terms Every Investor Should Know

These are the basic building blocks of any mutual fund investment.

Picking the Right Fund & Plan

Mutual fund types are many, and you can pick whatever goes with your financial goals.

Fund Types (Equity, Debt, Hybrid)

Choose the core strategy that your fund will follow. The stock market has a high potential for growth for equity funds. In turn, debt funds invest in bonds, providing fixed and regular incomes. Hybrid funds combine both avenues in one balanced approach.

Direct vs Regular Plan

Every mutual fund scheme is available in two plans. Direct schemes can be purchased from the AMC, and because of low costs, can give higher returns. Or you can purchase a regular plan through an intermediary, which includes the cost of commission to these intermediaries.

Growth vs IDCW (Dividend) Option

Do you want to reinvest the income? Growth reinvests all earnings back into the fund, allowing your investment to compound over time. Under the mutual fund dividend option commonly known as IDCW, the fund pays income periodically in some proportion to the investors.

Tax Saving Funds (ELSS)

A special category of equity mutual funds is tax-saving mutual funds, which allow you to obtain tax deductions on investments of up to ₹1.5 lakh under Section 80C of the Income Tax Act. They come with a mandatory lock-in period of three years, meaning the units cannot be sold before this time.

New Fund Offer (NFO)

An NFO is the initial subscription window when an AMC launches a brand-new mutual fund scheme. During this limited period, you can buy units at the offer price (usually ₹10 per unit). Once the NFO closes, the scheme opens for regular purchase at its prevailing NAV. Think of it as the IPO equivalent for mutual funds.

Open-Ended vs Close-Ended Funds

Open-ended funds allow you to buy or sell units at any time at the prevailing NAV. They offer high liquidity and flexibility for investors. Close-ended funds accept investments only during the NFO period. They lock in your money until the scheme reaches its maturity date.

Getting Started with Mutual Funds

Before you can invest, there are a couple of mandatory steps you need to complete.

Know Your Customer (KYC)

This is a one-time identity verification process. It is a mandatory requirement before you can begin investing in any mutual fund. Once your KYC is complete, you are free to invest across any fund house.

Permanent Account Number (PAN)

A PAN card is essential for all mutual fund investments. This unique identification number, issued by the tax authorities, must be linked to your bank account and KYC.

Master Your Strategy: How to Invest and Grow

These are the powerful tools and strategies you can use to build your wealth systematically.

Measuring Fund Performance

How do you know if a fund is performing well? You can use these simple, industry-standard metrics.

From Knowledge to Action