Mutual Funds

A mutual fund pools money from many investors and invests it in equities, debt, gold or other securities according to a stated mandate. Each investor owns units, and the per-unit value is the NAV.

NAV is the market value of the portfolio minus expenses and liabilities divided by units outstanding. Mutual fund purchases and redemptions happen at NAV, so it is the key reference price for returns.

Direct plans have no distributor commission and usually a lower expense ratio, which can improve long-term returns. Regular plans include adviser/distributor compensation and may suit investors who need guided service.

ELSS and Tax Saver are commonly used names for equity-linked savings schemes. They offer Section 80C tax deduction subject to limits and have a 3-year lock-in, unlike most open-ended equity funds.

Equity-oriented funds generally have STCG at 20% if held under 12 months and LTCG at 12.5% above the annual exemption. Debt and non-equity funds can be taxed differently depending on holding period and rules. Verify with a tax professional before filing.

Sharpe measures excess return per unit of total volatility. Sortino focuses on downside volatility only. Higher values usually indicate better risk-adjusted returns, but compare only within similar categories.

AUM is fund size. Expense ratio is the annual cost deducted from NAV. Exit load is a redemption fee if you sell before a specified period. Lower cost helps, but mandate, consistency and risk matter too.

SIPs average entry prices and fit monthly income goals. Lump sum can work when cash is available and asset allocation supports immediate investment, but it carries timing risk in volatile categories.

Index funds aim to match the benchmark at low cost. Active funds try to outperform after fees. Active can win in less efficient categories, while index funds are strong for simple, low-cost core exposure.

Debt categories include Liquid, Overnight, Ultra-short, Low Duration, Money Market, Corporate Bond, Banking & PSU, Gilt and others. They differ by maturity, credit risk and interest-rate sensitivity.

Low to Very High indicates increasing volatility and potential drawdown. Equity and thematic funds are usually High/Very High; liquid and overnight debt funds tend to be Low. Match risk level to time horizon.

CAGR assumes one initial investment and one ending value. XIRR handles multiple cash flows at different dates, so it is better for SIPs and irregular purchases or redemptions.