What a mutual fund is
Many people's money pooled and invested together, owned in units and priced every business day.
This explains how things work. It is not advice about what to buy, sell or hold.
Pooling money
A mutual fund collects money from many investors and invests it in securities, following the objective set out in its offer document. Each investor receives Units in proportion to the money put in, and the fund's gains and losses are shared in the same proportion. Because the money is spread across many companies or bonds, a fall in any one holding moves the whole fund less than it would move that holding alone.
The price of a unit
The NAV (net asset value) is the value of everything the fund holds, less what it owes, divided by the units in issue. It is worked out at the end of each business day and published by every fund. For most schemes, a request received before the cut-off time, with the money for a purchase already with the fund, gets that day's NAV; a later one gets the next business day's. Liquid and overnight funds follow their own timings.
Who runs it
A mutual fund is set up as a trust. A sponsor establishes it; trustees hold its property for the unitholders and supervise the Fund house (AMC), which manages the investments; a custodian holds the securities. SEBI regulates every mutual fund under the same rules, whoever sponsors it, and requires a share of the trustee and AMC boards to be independent of the sponsor.
Plans, options and ways to invest
Each scheme comes as a Direct plan and a Regular plan, which hold the same portfolio at different costs. Within each plan there are Growth and IDCW options, which differ in whether gains stay in the fund or are paid out. Money can go in as a Lump sum or through a SIP (systematic investment plan).
What it does not promise
A mutual fund does not guarantee a return: the NAV rises and falls with the prices of what the fund holds. Every scheme carries SEBI's product label, including a riskometer with six levels from low to very high, describing the kind of risk the scheme takes. A past return describes the past; it does not say what the next period will bring.
Sources
- SEBI www.sebi.gov.in/sebi_data/faqfiles/sep-2024/1727242783639.pdf checked 02 Oct 2026
- AMFI www.amfiindia.com/investor/knowledge-center-info?zoneName=NetAssetValueNAV checked 02 Oct 2026