TL;DR
A mutual fund is a shared pool of money. Many investors put money in; a professional fund manager invests it in stocks, bonds, or both. You own units of the pool. The NAV (Net Asset Value) is the per-unit price, calculated once every business day. When the fund's holdings go up in value, your units are worth more.
You buy units directly from the fund house or through a distributor. In India, SEBI regulates every fund. Costs are low — expense ratios typically range from 0.1% to 2.5% a year depending on the fund type.
The 60-second version
Imagine a shared taxi. Ten people pool their money, one experienced driver takes them all somewhere. Each person owns 1/10th of the ride's outcome. That's a mutual fund.
- The pool — thousands or millions of investors put their money together.
- The driver — a fund manager who decides what to buy and sell, using the pool's money.
- Your share — represented as units you hold. Each unit has a price called NAV (Net Asset Value).
- Your return — how much the unit price grew, plus any dividends the fund paid out.
Why not just pick stocks yourself?
Three practical reasons:
- Diversification — a single fund can hold 30, 50, or 500 stocks. Buying that many individually costs a lot in brokerage fees and takes constant tracking.
- Professional research — the fund manager and their team spend all day analyzing companies. Most people don't have that time.
- Small ticket size — you can start with ₹500. Buying ₹500 worth of, say, Reliance shares gives you fractional exposure to one company. ₹500 in a large-cap mutual fund gives you a tiny slice of India's top 100 companies.
What kinds of mutual funds exist in India?
At the top level, three families:
Within equity, popular categories include , mid cap, small cap, flexi cap, ELSS (tax-saver), and index funds. Each has its own risk-return character.
How does buying and selling actually work?
- You place a buy order on a platform (fund house's website, a distributor app, or a broker).
- NAV is applied — if you place the order before the cut-off (usually 3 PM for equity funds), you get today's NAV. After the cut-off, you get the next business day's NAV.
- Units are credited to your folio — usually within 1-2 business days.
- To sell (called "redemption"), you place a sell order. Money hits your bank in 1-3 business days for most funds. Liquid funds can be same-day.
There's no exchange or bid-ask spread. You buy at NAV; the fund creates the units for you. You sell at NAV; the fund cancels your units and pays you.
What is NAV, exactly?
Net Asset Value = the per-unit price of the fund on a given day.
Formula (roughly): (Value of all the fund's holdings − liabilities) ÷ total units outstanding.
If a fund's NAV is ₹100 and you invest ₹5,000, you get 50 units. If a month later the NAV is ₹110, your 50 units are worth ₹5,500 — a ₹500 gain, or 10%.
NAV is calculated by the fund house once each business day, after markets close, using end-of-day prices of everything the fund holds. There is only one NAV per day per fund.
We show the latest NAV for every Indian mutual fund on the . See a specific fund by its scheme code, for example or .
Direct vs Regular plans — a small choice that adds up
Every mutual fund in India comes in two versions of the same underlying scheme:
- Direct plan — you buy straight from the fund house. No distributor commission.
- Regular plan — bought through a distributor or advisor. Includes their commission.
The difference is usually 0.5% to 1% per year in expense ratio. Over a decade, that can add up to a serious sum. We go deep on this in .
Growth vs IDCW option
Every fund also gives you a choice at the time of buying:
- Growth option — the fund keeps all earnings inside. Your unit price grows. You realize gains only when you sell. Best for long-term compounding.
- IDCW option (Income Distribution cum Capital Withdrawal, formerly called "dividend option") — the fund pays out cash to you periodically. Sometimes this is your original capital being returned to you. Taxed differently.
For most long-term investors, Growth is the simpler and more tax-efficient choice.
Taxes — the short version
- Equity funds — held less than 1 year: STCG at 15%. Held more than 1 year: LTCG at 10% on gains above ₹1 lakh per year.
- Debt funds (since April 2023) — always taxed at your income tax slab rate, regardless of holding period.
- ELSS — an equity fund with a 3-year lock-in that qualifies for tax deduction under Section 80C.
Rules change; verify with the or your CA before filing.
The one caution
Everything you read here — and on the whole of MF Gyan — is descriptive. It explains what mutual funds are and how they behave. It is not investment advice. Whether a particular fund is right for you depends on your goals, income, existing holdings, and risk tolerance. For that conversation, please talk to a .
What next?
- Understand the metric everyone talks about:
- Learn why fund prices are quoted once a day:
- Try our — 37,000+ schemes with returns and risk metrics