MUTUAL FUND FAQ

A Mutual Fund is a professionally managed collective investment vehicle that pools capital from multiple investors to purchase a diversified portfolio of equities, debt instruments, or money market securities. Rupee Cost Averaging via Systematic Investment Plans (SIP) allows investors to automatically purchase more fund units when market prices drop and fewer units when prices rise, smoothing out market volatility.

Systematic Investment Plan (SIP) involves investing a fixed dollar/rupee amount at regular intervals (monthly/quarterly), promoting financial discipline and eliminating market timing risks. Lumpsum investing deploys a single large lump sum at one point in time, which is suitable during market corrections or when large windfall capital is available.

Equity Linked Savings Scheme (ELSS) is a specialized category of equity mutual funds that offers tax deduction up to ₹1,50,000 under Section 80C of the Income Tax Act (Old Tax Regime). ELSS features the shortest lock-in period (3 years) among all Section 80C tax-saving options, with historical potential for inflation-beating equity returns.

Net Asset Value (NAV) represents the market value per unit of a mutual fund scheme. It is calculated at the close of every financial trading day by taking the total value of all underlying assets in the portfolio, subtracting total liabilities and operational expenses, and dividing the result by the total number of outstanding scheme units.

Systematic Transfer Plan (STP) allows automated, periodic transfer of a fixed amount from a liquid/debt fund into an equity fund, staggering equity exposure. Systematic Withdrawal Plan (SWP) allows investors to withdraw a fixed income stream from their mutual fund corpus monthly, offering tax-efficient cash flows ideal for retirees.

Under current tax laws: Equity Funds held > 12 months incur Long-Term Capital Gains (LTCG) tax at 12.5% on gains exceeding ₹1.25 Lakh per financial year; Equity Funds held < 12 months incur Short-Term Capital Gains (STCG) at 20%. Debt Funds acquired after April 1, 2023 are taxed at applicable marginal income tax slab rates regardless of holding period.