Invest in Mutual Funds
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Benefits of Investing in Mutual Funds with Anand Rathi
What Are Mutual Funds?
Mutual funds are investment vehicles that pool (collect) money from investors and invest it across different asset classes (such as stocks, bonds, indices, or a mix). Based on the fund's strategy, the money is invested in a specific proportion for an estimated period.
For example, a large-cap equity fund will invest at least 80% of its money in stocks of the top 100 companies as per market capitalization.
Later, the gains and losses are distributed among investors based on the units they hold.
Types of Mutual Funds Based on Asset Class
Based on the underlying asset dealt, there are different types of mutual funds available.
Equity Mutual Funds
These fund houses invest in equities like stocks of companies listed on the exchanges.
Debt Mutual Funds
They invest primarily in debt securities such as T-bills, government securities, and corporate bonds.
Hybrid Mutual funds
These funds are a combination of both equity and debt securities.
Mutual Fund Tax Benefits
Mutual funds offer multiple tax advantages depending on the type of fund and how long you stay invested.
ELSS Tax Savings (Section 80C)
Invest in Equity Linked Savings Schemes (ELSS) and claim tax deductions up to ₹1.50 lakh under the Income Tax rule (Section 80C). With a 3-year lock-in, ELSS offers an efficient tax-saving route to investors.
Equity Fund Capital Gains
If units held for less than 12 months: Taxed at 20% tax rate as per STCG (Short-term capital gains).
Units held for more than a year: Tax exemption of up to ₹1.25 lakhs. Anything above that is taxed at 12.5% LTCG.
Debt & Hybrid Fund Taxation
Gains from debt mutual funds are taxable as per your income tax slab rates, regardless of holding period. The taxation of Hybrid funds varies based on their equity or debt allocation.
Dividend Taxation
Dividends received from mutual funds are added to your income and taxed as per your slab rates.
Set-Off Benefits
Capital losses can be set off against eligible gains and carried forward for up to 8 years, reducing your future tax burden.
Eligibility Criteria for Investing in Mutual Funds
To invest in mutual funds – whether through a lump sum or SIP, all you need is:
- KYC-verified with a valid PAN
- Age 18+ (minors can invest through a guardian)
- An active bank account for transactions
- Aadhaar with mobile-linked OTP for KYC verification.
- Valid ID & Address proof (PAN, Aadhaar, Voter ID, Passport, Driving Licence, etc.).
- Bank proof (cancelled cheque/bank statement).
- Eligible residency status: Indian Resident / NRI / OCI as permitted.
How To Pick The Right Mutual Fund To Invest In 2026
Among the thousands of mutual funds available, choosing one can be tough. However, these points may help you pick the right mutual fund to invest in 2026.
1. Define Your Investment Goal
Every fund serves a different purpose (such as short-term parking, long-term goals, wealth creation, stability, or tax savings). Thus, understanding why you're investing in mutual funds will help you decide the right fund.
2. Assess Your Risk Appetite
Your risk level decides which mutual fund could suit you. While equity funds are more volatile, debt funds offer stability, and hybrid funds balance both. So, selecting a category must match the risk level you're comfortable taking.
3. Evaluate Fund Performance
With multiple funds available, one factor to consider is how each fund has performed across different market cycles – not just recent returns. It also includes the fund manager's track record in managing these funds. In short, the long-term consistency is more important than temporary highs/lows.
4. Others
Apart from these factors, one's investment horizon and financial goals are also important.
How Mutual Fund Returns Are Calculated (NAV, CAGR, XIRR)?
Every mutual fund will have an NAV (Net Asset Value), CAGR (Compounded Average Growth Rate), and XIRR (Extended Internal Rate of Return) on the dashboard.
Each of these measures something different, so understanding them helps you interpret your returns correctly.
Let us learn how mutual fund returns like NAV, CAGR, and XIRR are calculated.
NAV - Net Asset Value
NAV, or Net Asset Value, is the per-unit value of a mutual fund. The formula for NAV includes the market value of all the securities the fund holds, less expenses, divided by the total number of units.
NAV = (Total Assets – Total Liabilities) ÷ Total Units Outstanding
Usually, when a new mutual fund marks its entry, the unit cost of the fund stands at ₹10 and grows steadily as the assets within the fund increase. Hence, the higher the NAV, the more popular the MF becomes.
However, to calculate NAV returns, the formula gets an upgrade.
NAV returns = (Today's NAV / Previous Day's NAV) - 1
For example, if yesterday's NAV was ₹20 and today's NAV is ₹20.40, then the mutual fund's NAV grew 2% compared to the previous day.
CAGR - Compounded Average Growth Rate
CAGR, or Compounded Average Growth Rate, shows how much your investment has grown every year on average, assuming the returns were steady throughout the period.
CAGR = (Final Value ÷ Initial Value)^(1 ÷ Number of Years) – 1
If you invested once and held the fund for years, CAGR is the most accurate way to understand your long-term return.
(Note: If you want to calculate the same formula for months or days, replace "1" by 12 or 365 to get the respective CAGR rate.)
XIRR - Extended Internal Rate of Return
XIRR calculates returns when investments happen at different times – like SIPs or multiple top-ups and withdrawals.
The formula for XIRR is;
XIRR = (NPV of Cash Flows / Initial Investment) × 100
Because money is invested at different points in time, CAGR cannot measure SIP returns, but XIRR can. It provides a real-time or accurate number, in case you follow SIP plans regularly.
SIP vs. Lumpsum – Which Is Better?
Both SIP and Lumpsum have their own advantages to offer to investors. If someone wants to do a large, one-time payment in a mutual fund, lumpsum can suit them.
Likewise, investors who wish to adopt a disciplined habit of investing in intervals can find this a good solution. However, they do have certain pros and cons as well.
| Point | SIP | Lumpsum |
|---|---|---|
| How it works | Small regular investments | One-time large investment |
| Risk | Lower because investments are spread over time (cost averaging). | Higher, as money is exposed to the market at once. |
| Suitable for? | Beginners or those who wish to make small investments at intervals. | Investors with surplus cash |
| Return potential | Moderate, but stable due to rupee cost averaging. | Rising/bullish markets |
| Tax Benefits | There are no exclusive tax benefits for SIP or Lumpsum. | |
| Discipline | Builds habit | Requires timing & patience |
Common Mistakes To Avoid While Investing
Unlike any financial product, there are certain mistakes investors do while investing in it. Here are some common ones you should avoid while investing in a mutual fund.
- Investing without understanding your goal can lead to wrong product choices.
- Timing the market wrong and investing hassle could results in losses.
- Ignoring risk profile or choosing funds that don't match your risk level.
- Not diversifying or overdependence on one asset or fund can fog investment opportunities.
- Checking returns too often creates panic and impulsive decisions.
- Skipping research and relying only on tips or trends can impact your investment decisions.
Calculate Your Mutual Fund Returns
Returns Estimator
Estimation is based on the past performance
Enter Amount
₹
Select Duration
Yrs
1 Yr
30 Yrs
Expected Rate of Return
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8%
30%
The value of your investment after 5 Years will be
₹4,12,432
Invested Amount
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Est. Returns
₹1,12,432
How To Invest In Mutual Funds In India?
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FAQs
Why should I invest in mutual funds in 2026?
Investing in mutual funds allows investors to access diversified, professionally managed portfolios with low entry barriers, making it easier to grow wealth systematically even in a dynamic market environment.
Is investing in mutual funds safe for beginners?
Mutual funds are considered beginner-friendly because they are managed by professional fund managers who offer diversification and help reducing the overall risk compared to investing in single stocks. However, it is necessary to read all scheme-related documents before investing.
What is the minimum amount needed to start a mutual fund investment?
One can start investing in mutual funds with ₹100-₹500 per month through SIPs, making it accessible for first-time investors.
What are the benefits of investing in mutual funds in India?
Mutual funds offer various benefits like diversification, professional management, liquidity, tax-efficient options, and access to different asset classes through a simple investment process.
Are mutual funds good for long-term wealth creation?
Yes, mutual funds are designed for long-term wealth creation as they benefit from compounding, disciplined investing, and market growth over extended periods. However, a few debt funds also enable short-term parking of funds for liquidity purposes.
What documents are required to invest in mutual funds?
To invest in mutual funds, you need a PAN card, Aadhaar, bank proof, address proof, and a few other documents to complete KYC verification.
What is KYC, and why is it needed for mutual fund investment in 2026?
KYC is a mandatory identity and address verification process required to invest in mutual funds, ensuring regulatory compliance and preventing fraud.
Can I invest in mutual funds without a PAN card?
No, a PAN card is mandatory for mutual fund investments (as a part of the KYC process) as per SEBI regulations.
How do mutual funds generate returns?
Mutual funds generate returns through capital appreciation of underlying securities and, in some schemes, dividends or interest earned by the portfolio. However, it can fluctuate with market volatility.
How to choose the right platform to invest in mutual funds?
Before investing in mutual funds, choose a platform that offers easy onboarding, transparent charges, reliable research tools, real-time portfolio tracking, and secure transactions.
Can I invest in mutual funds online?
Yes, investors can invest in mutual funds online through apps, AMC websites, and investment platforms with a fully digital process.
What is SIP in mutual funds?
A SIP (Systematic Investment Plan) lets you invest a fixed amount at regular intervals, which enables disciplined investing and rupee-cost averaging.
What is a lump sum mutual fund?
A lumpsum investment is a one-time bulk investment made into a mutual fund scheme instead of spreading payments over time.
How are mutual funds taxed in India?
Mutual funds are taxed based on fund type and holding period. Equity funds have separate short-term (20% tax) and long-term capital gains (12.5% tax) rules, while debt funds follow slab-based taxation after indexation removal.
How to calculate capital gains tax in mutual funds?
Capital gains tax is calculated based on the difference between the selling value and the purchase value, and then gains are taxed according to equity or debt rules and the duration of holding.
How to identify top-performing mutual funds?
Top-performing mutual funds can be identified by evaluating long-term consistency, fund manager track record, expense ratio, risk-adjusted returns, and portfolio quality.
Can I redeem my mutual funds anytime?
Yes, open-ended mutual funds can be redeemed anytime, except for ELSS and schemes with lock-in or exit load conditions.
Is investing in mutual funds better, or should I go for stocks?
Mutual funds are generally better for beginners due to diversification and professional management provided. Likewise, stocks require deeper knowledge and active monitoring before making any investment decision.
Direct or regular mutual fund, which one is better?
Direct plans offer lower expense ratios and higher long-term returns, while regular plans include advisory support and are suitable for investors who prefer guidance.
Why is XIRR used for SIPs?
XIRR is used for SIPs because it calculates returns for investments made on different dates and amounts, giving a more accurate measure of SIP performance.
Why do people prefer XIRR over CAGR?
People prefer XIRR because it accounts for irregular investments, cash flows, and dates, whereas CAGR helps to understand average annualized returns (1,3, or 5 years) for a single lump-sum investment.
Which is better: an ETF or a mutual fund?
ETFs suit investors who prefer trading flexibility and low costs, while mutual funds suit those who want professional management and do not need to track prices intraday.
Why do most people lose money in mutual funds rather than gain?
People often lose money in mutual funds due to early withdrawals, market timing, unrealistic expectations, choosing unsuitable schemes, or ignoring tax rules. Hence, it is important to understand the market and the product thoroughly.
How do I withdraw invested money from a mutual fund?
You can withdraw money by placing a redemption request through your app or investment platform, after which the amount is credited to your bank account within a few working days.
Can we buy mutual funds through a credit card?
No, mutual fund investments cannot be made using credit cards or debit cards as per regulatory guidelines.
How do I get started with mutual funds in India?
To get started, complete KYC, choose a trusted platform, select a suitable fund based on your goals and risk profile, and begin investing through SIP or lump sum.
What is the annual XIRR in a mutual fund?
Annual XIRR represents the annualised return of all your cash flows in a mutual fund, including SIPs, top-ups, and withdrawals. For example, if you started investing in January and made a top-up of ₹500, XIRR can give an accurate figure of the returns earned.
What is an NFO in mutual funds?
An NFO (New Fund Offer) is the introductory launch of a new mutual fund scheme where units are offered at a base price, usually ₹10.
What are the hidden costs of investing in mutual funds?
Hidden costs may include expense ratios, exit loads, transaction charges, or other expenses, all of which affect net returns.
Can NRIs (Non-resident Indians) invest in mutual funds in India?
Yes, NRIs can invest in Indian mutual funds using NRE or NRO accounts, subject to KYC, documentation, and country-specific compliance norms.
How can I know where the mutual fund scheme has invested the money?
You can check the scheme's monthly portfolio disclosure, which shows all holdings and is available on AMC websites and investment apps.
How will an investor come to know about changes in their mutual fund?
Investors are informed about changes through email alerts, SMS notifications, and updates published by the fund house.
What is IDCW (Dividend) in mutual funds?
IDCW stands for Income Distribution cum Capital Withdrawal, where the fund distributes part of its gains (and dividends) to investors.
it possible to invest in mutual fund schemes using cash?
No, cash investments are not permitted; payments must be made through banking channels for compliance and transparency.
When will the investor get the statement of account after investing?
Investors typically receive an account statement by email within a few working days after investment confirmation.
Can a mutual fund impose a fresh load or increase the exit load?
A mutual fund cannot increase the exit load against the level mentioned in the offer document. However, such changes apply only to future transactions, not original investments.
Can a mutual fund change asset allocation while deploying funds?
Yes, mutual funds may change asset allocation within predefined limits to manage risk or optimise performance as per the scheme mandate.
How can an investor view unclaimed IDCW or redemption amounts?
Investors can check unclaimed IDCW or redemption amounts through AMC websites, investor services portals, or by contacting the fund house.
If a mutual fund scheme closes, what happens to the money invested?
In case a scheme closes, investors receive the proceeds based on the fund's NAV after liquidation of its assets.
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