Mutual fund
A mutual fund in India is a collective investment vehicle that pools money from a number of investors who share a common investment objective and invests the pooled corpus in a portfolio of securities (equity, debt, money-market instruments, gold, or a combination) in accordance with the investment mandate set out in the scheme’s offer document. Mutual funds in India are constituted as trusts under the Indian Trusts Act, 1882, and are regulated by the Securities and Exchange Board of India under the SEBI (Mutual Funds) Regulations, 1996 , with operational policy issued by the SEBI Investment Management Department and self-regulatory oversight provided by the Association of Mutual Funds in India (AMFI) .
As of April 2026, the mutual fund industry in India comprises 44 SEBI-registered asset management companies managing aggregate average assets under management of approximately Rs 70 lakh crore (USD 840 billion) across more than 1,500 schemes serving over 22 crore folios. The industry’s monthly systematic investment plan (SIP) inflow run-rate exceeds Rs 26,000 crore across more than 9 crore active SIP accounts, making mutual funds the principal vehicle through which Indian households accumulate market-linked financial assets.
The Indian mutual fund framework is distinctive in three respects relative to peer markets. First, it operates on the three-tier sponsor-trustee-AMC trust structure , in which the sponsor provides initial capital and skin-in-the-game, the trustees hold trust assets for the benefit of unit-holders, and the AMC manages the schemes under the investment-management agreement. Second, every open-ended scheme since January 2013 is required to offer both a direct plan and a regular plan , with the difference between the two total expense ratios (TERs) anchored to the distribution commission. Third, the SEBI scheme rationalisation circular of October 2017 defined 36 standardised scheme categories with precise investment mandates, allowing genuine cross-AMC comparison within each category for the first time.
This article is the canonical landing reference on mutual funds in India. Detailed treatments of specific topics are at the dedicated references: the history of mutual funds in India for the historical narrative, the mutual fund industry in India for the structural overview, and the SEBI Master Circular consolidated under the SEBI (Mutual Funds) Regulations, 1996 reference for the legal framework.
Definition
Regulation 2(q) of the SEBI (Mutual Funds) Regulations, 1996, defines a mutual fund as a fund established in the form of a trust to raise money through the sale of units to the public, or a section of the public, under one or more schemes for investing in securities, including money-market instruments. The defining features distinguishing a mutual fund from other pooled investment vehicles are:
- Trust legal form: a mutual fund is a trust, not a company or partnership.
- SEBI registration: both the mutual fund (under Regulation 9) and the AMC (under Regulation 21) must be separately registered with SEBI.
- NAV-based pricing: all subscriptions and redemptions are at the prevailing Net Asset Value (NAV) computed under Regulation 47.
- Daily liquidity for open-ended schemes, with redemption within the regulatory window from the date of the request.
- Statutory disclosure regime under Regulations 28 to 32 and the Scheme Information Document (SID) framework.
- Statutory investor protections under the SEBI Investor Charter for Mutual Funds, 2021 and the SCORES grievance framework.
Mutual funds in India are distinguished from Portfolio Management Services (PMS), Alternative Investment Funds (AIFs), and Specialised Investment Funds (SIFs) by the lower minimum investment threshold (typically Rs 100 or Rs 500 for an SIP, Rs 1,000 to Rs 5,000 for a lump-sum subscription) and by the higher prescriptiveness of the regulatory regime.
Legal structure
The three-tier trust
A mutual fund in India operates on a three-tier structure mandated by Regulations 7, 16 to 18, and 20 to 25 of the SEBI MF Regulations . The trust structure comprises:
- Sponsor: The financial institution or group that promotes the mutual fund. The sponsor must meet eligibility criteria under Regulation 7, including a five-year financial-services track record, positive net worth in each of the immediately preceding five years, and a minimum 40 per cent skin-in-the-game at the AMC level (revised in 2021). The sponsor eligibility alternative test of 2023 provides an AUM-and-experience pathway for new entrants from outside traditional financial services.
- Trustees: A board of natural persons or a trustee company, responsible for ensuring AMC compliance and for filing half-yearly compliance reports with SEBI under the SEBI mutual-fund half-yearly trustee report framework. Trustees may be held personally liable for serious lapses.
- Asset Management Company (AMC): A SEBI-registered entity incorporated as a public limited company that manages the schemes pursuant to the investment management agreement. The AMC must have a minimum net worth of Rs 50 crore (Rs 35 crore for MF Lite passive-only AMCs under the 2024 framework), must be majority-controlled by the sponsor, and must have a SEBI-approved compliance officer.
Investors in a mutual fund are unit-holders. They hold units of the trust proportional to their investment, not a direct ownership stake in the underlying securities. The trustees are the legal owners of the trust assets on behalf of the unit-holders.
Operational service providers
Five mutually referencing service providers support the day-to-day functioning of a mutual fund:
| Service provider | Function |
|---|---|
| Custodian | Holds the underlying securities, settles trades, processes corporate actions |
| Registrar and Transfer Agent (RTA) | Maintains the unit-holder register, processes transactions and account statements |
| Fund Accountant | Computes the daily NAV under Regulation 47 and the Eighth Schedule |
| Auditor | Conducts the half-yearly limited review and the annual audit |
| Distributor or RIA | Distributes scheme units, registered through AMFI ARN or as an RIA under SEBI (Investment Advisers) Regulations, 2013 |
CAMS and KFin Technologies operate as the principal RTA duopoly, servicing virtually the entire Indian mutual fund industry.
Scheme categories
The current scheme universe is structured by the SEBI scheme rationalisation circular of 2017 , which defined 36 standardised categories grouped into five buckets. The Flexi Cap category was added in November 2020.
Equity schemes
| Category | Definition |
|---|---|
| Large Cap Fund | Minimum 80 per cent in large-cap stocks (top 100 by market cap on the AMFI list) |
| Mid Cap Fund | Minimum 65 per cent in mid-cap stocks (101st to 250th by market cap) |
| Small Cap Fund | Minimum 65 per cent in small-cap stocks (251st rank and beyond) |
| Multi Cap Fund | Minimum 65 per cent in equity; minimum 25 per cent each in large-, mid-, and small-cap |
| Flexi Cap Fund | Minimum 65 per cent in equity; flexible allocation across market-cap segments |
| Large and Mid Cap Fund | Minimum 35 per cent each in large-cap and mid-cap |
| Focused Fund | Maximum 30 stocks; minimum 65 per cent in equity |
| Value or Contra Fund | An AMC may offer either Value or Contra, not both |
| Dividend Yield Fund | Minimum 65 per cent in high-dividend-yield stocks |
| Sectoral or Thematic Fund | Minimum 80 per cent in the sector or theme; multiple permitted per AMC |
| ELSS | Minimum 80 per cent in equity with 3-year lock-in; tax benefit under Section 80C |
Debt schemes
| Category | Macaulay duration or definition |
|---|---|
| Overnight Fund | Investments in overnight securities only |
| Liquid Fund | Up to 91-day residual maturity |
| Ultra Short Duration Fund | Macaulay duration of 3 to 6 months |
| Low Duration Fund | Macaulay duration of 6 to 12 months |
| Money Market Fund | Money market instruments; up to 1-year residual maturity |
| Short Duration Fund | Macaulay duration of 1 to 3 years |
| Medium Duration Fund | Macaulay duration of 3 to 4 years |
| Medium to Long Duration Fund | Macaulay duration of 4 to 7 years |
| Long Duration Fund | Macaulay duration greater than 7 years |
| Dynamic Bond Fund | Across durations; no specific Macaulay duration |
| Corporate Bond Fund | Minimum 80 per cent in AA+ and above rated corporate bonds |
| Credit Risk Fund | Minimum 65 per cent in AA and below rated bonds |
| Banking and PSU Fund | Minimum 80 per cent in banking and PSU bonds |
| Gilt Fund | Minimum 80 per cent in government securities |
| Gilt Fund with 10-year constant duration | Minimum 80 per cent G-Secs; Macaulay duration 10 years or more |
| Floater Fund | Minimum 65 per cent in floating-rate instruments |
Hybrid schemes
| Category | Definition |
|---|---|
| Conservative Hybrid Fund | 75 to 90 per cent in debt; 10 to 25 per cent in equity |
| Balanced Hybrid Fund | An AMC may offer Balanced Hybrid or Aggressive Hybrid, not both; balanced is 40 to 60 per cent each in equity and debt |
| Aggressive Hybrid Fund | 65 to 80 per cent in equity; 20 to 35 per cent in debt |
| Dynamic Asset Allocation or Balanced Advantage Fund | Asset allocation managed dynamically |
| Multi Asset Allocation Fund | Minimum 10 per cent each in at least 3 asset classes |
| Arbitrage Fund | Minimum 65 per cent in arbitrage strategies |
| Equity Savings Fund | Minimum 65 per cent in equity; minimum 10 per cent in debt; uses hedging |
Solution-oriented and other schemes
Solution-oriented schemes (Retirement Fund and Children’s Fund) carry mandatory lock-ins until the target event (retirement or the child reaching age 18). Other schemes include index funds, exchange-traded funds (ETFs), and fund-of-funds (FoFs) operating in domestic and overseas configurations. The 2024 Specialised Investment Fund (SIF) framework adds a new product class sitting between conventional mutual funds and the higher-threshold PMS and AIF regimes.
NAV mechanics
The Net Asset Value (NAV) is the per-unit value of a scheme on a given valuation date. Under Regulation 47:
NAV = (Total assets minus total liabilities) divided by the number of units outstanding
All open-ended scheme subscriptions and redemptions are at the prevailing NAV, with the applicable date determined by the applicable NAV and cut-off rules . The principal cut-off times are 3.00 p.m. for equity and hybrid schemes and 1.30 p.m. for liquid and overnight funds.
The NAV cut-off reform of 2021 , under the SEBI NAV applicability rule of 2021 , tightened the rule for purchases of Rs 2 lakh or more by requiring that funds be realised in the AMC’s bank account before the cut-off for the same-day NAV to apply. The reform addressed the prior arbitrage potential between order submission time and bank-system clearing time. The detailed valuation methodology is covered at the NAV computation reference.
Plans and options
Every open-ended scheme is required to offer:
- Direct plan and regular plan (since 1 January 2013). The direct plan has a lower TER because no trail commission is paid to a distributor. The TER differential is anchored by SEBI rule: the direct-plan TER must be lower than the regular-plan TER by at least the distribution commission. The structural growth of direct plans is documented at the direct plan adoption in India reference.
- Growth option and IDCW option (Income Distribution cum Capital Withdrawal). The growth option accumulates income within the scheme; the IDCW option distributes periodic payouts, reducing NAV by the distribution amount on the record date. Combined, a scheme typically has four NAVs: direct-growth, direct-IDCW, regular-growth, regular-IDCW. The implications of plan switching are treated at growth versus IDCW option and at direct-to-regular switch implications .
Systematic plans
Indian mutual funds support a family of automated transaction mechanisms:
- Systematic Investment Plan (SIP) : Recurring purchase at fixed intervals (typically monthly). The most-used vehicle for retail accumulation; monthly inflows exceed Rs 26,000 crore as of January 2026. Variants include step-up SIP , flex SIP and smart SIP , and trigger-based SIP .
- Systematic Transfer Plan (STP) : Periodic transfer from one scheme to another, typically from a liquid or short-duration fund into an equity fund.
- Systematic Withdrawal Plan (SWP) : Periodic redemption of a fixed amount, used in the post-accumulation phase to generate income from accumulated corpus.
SIP mandate infrastructure operates through physical NACH, e-NACH (via NPCI), and UPI AutoPay (since 2020). The mandate authorises automatic debit from the investor’s bank account on each SIP date.
Distribution
Indian mutual fund distribution operates through several channels:
- AMC portals: Direct subscription through each AMC’s own website or mobile app, supporting both regular and direct plans.
- Aggregator platforms (direct plan): Kuvera , ET Money , INDmoney , Groww , Zerodha Coin, Paytm Money, and similar execution-only platforms that route direct-plan transactions without a distributor commission. The post-2023 Execution-Only Platform framework formalised the regulatory status of these platforms.
- Registrar portals: CAMS Online and KFinKart operated by the two RTAs; MF Central , a joint CAMS and KFin investor portal launched in 2021.
- Industry platforms: Mutual Fund Utility (MFU) , an AMC-owned transaction-processing platform.
- Exchange platforms: BSE StAR MF and NSE NMF II , the stock-exchange-operated mutual fund order routing platforms.
- Mutual fund distributors (regular plan): Banks, national distributors, and approximately 1.5 lakh independent financial advisers registered through the AMFI ARN system . The broader regulatory framework is at the mutual fund distribution in India reference.
- Registered investment advisers (RIA): Fiduciary, fee-only advisers regulated under the SEBI (Investment Advisers) Regulations, 2013. The RIA mutual fund framework reference treats the advice-versus-execution boundary.
KYC and onboarding
Every mutual fund investor must complete KYC through a SEBI-registered KYC Registration Agency (KRA): CAMS KRA, KFin KRA, CVL, NDML, or NSE Dotex. KYC involves verification of PAN, address proof, and identity documents. Aadhaar-based eKYC enables fully digital onboarding for resident individual investors. The post-2024 KRA-CKYC ecosystem unifies the underlying KYC record across all SEBI-regulated intermediaries, so a single KYC completion is portable across mutual funds, broking, depository, and insurance.
Investor rights and grievance redressal
Unit-holders enjoy a defined set of statutory rights catalogued at the mutual fund unit-holder rights reference, including:
- Information rights (timely receipt of SID, SAI, KIM, half-yearly portfolio disclosures).
- Transaction rights (subscription and redemption at NAV; fair treatment in allotment).
- Voting rights on material scheme changes.
- Grievance rights through the SCORES portal and the Online Dispute Resolution (ODR) overlay.
- Rights in distress scenarios including segregated portfolios under the side-pocketing framework and forced winding-up procedures.
Nomination on the folio is mandatory for individual folios opened after 1 October 2022, with simplified transmission procedures under Rs 5 lakh under the April 2023 circular. The MITRA forgotten-folio retrieval framework, introduced in 2024, enables investors to recover dormant folios.
Operational documents
Every mutual fund publishes a standardised set of disclosure documents:
| Document | Update frequency | Content |
|---|---|---|
| Scheme Information Document (SID) | Annual | Principal offer document with investment objective, risk factors, fees |
| Statement of Additional Information (SAI) | Annual | AMC-level governance and operational framework |
| Key Information Memorandum (KIM) | With SID | Short summary of the SID distributed with the application form |
| Monthly factsheet | Monthly | Portfolio, performance, ratios, and riskometer |
| Mutual fund annual report | Annual | Scheme-wise income and expenditure account, balance sheet, audit opinion |
| Consolidated Account Statement (CAS) | Monthly or half-yearly | Cross-AMC consolidated view of the investor’s folios |
| Riskometer | Monthly | Six-level portfolio-based risk classification |
Taxation
Taxation of mutual fund redemptions in India turns on the equity orientation of the underlying scheme and the holding period. Under the post-23 July 2024 regime introduced by the Finance (No. 2) Act, 2024:
| Scheme type | Short-term holding | Long-term holding | LTCG threshold | Long-term rate |
|---|---|---|---|---|
| Equity-oriented (more than 65 per cent equity) | Up to 12 months | More than 12 months | Rs 1.25 lakh per year | 12.5 per cent |
| Specified mutual fund (less than 35 per cent equity, after 1 April 2023) | Always short-term | None | None | Slab rate |
| Other (35 to 65 per cent equity) | Up to 24 months | More than 24 months | None | 12.5 per cent |
| Gold and international FoF | Up to 24 months | More than 24 months | None | 12.5 per cent |
Short-term capital gains on equity-oriented schemes are taxed at 20 per cent. The arbitrage fund taxation regime treats arbitrage funds as equity-oriented despite their economic similarity to liquid funds. Stamp duty of 0.005 per cent applies on units issued since 1 July 2020. Securities Transaction Tax (STT) is levied at 0.001 per cent on equity-mutual-fund redemptions. Detailed treatment of the post-2024 tax regime is at the capital gains tax in India reference; SIP-specific FIFO mechanics are at the SIP taxation FIFO reference.
Industry oversight
Mutual funds in India are regulated by SEBI through the SEBI Investment Management Department , with self-regulatory oversight by AMFI . The Reserve Bank of India regulates the banking interface and the overseas-investment limits within which mutual funds operate.
Recent regulatory developments, treated at the mutual fund industry in India reference, include:
- Franklin Templeton winding-up of 2020 and the consequential debt-fund liquidity tightening.
- Karvy 2019 RTA pledge misuse and the structural segregation of broker and RTA functions.
- Side-pocketing framework for distressed debt holdings (2018 onwards).
- Riskometer six-level revision (2020).
- Multi-cap reclassification of 2020 and Flexi Cap introduction.
- Stress testing framework of 2024 for mid- and small-cap schemes.
- MF Lite framework for passive-only AMCs (2024).
- Specialised Investment Fund (SIF) framework (2024).
- The Finance (No. 2) Act, 2024 reform of the capital gains tax regime.
International comparison
The Indian mutual fund framework draws on the British unit trust tradition but operates closer in form to the United States Investment Company Act, 1940, regulated investment company (RIC) regime in terms of NAV-based pricing, daily liquidity, and statutory portfolio limits. Penetration relative to nominal GDP, at approximately 22 per cent in early 2026, compares to 137 per cent in the United States, 36 per cent in the United Kingdom, and 30 per cent in Japan. The Indian framework is more prescriptive than peer markets in its categorisation regime (the 2017 SEBI rationalisation has no direct counterpart in the United States or the United Kingdom), in its mandatory daily NAV regime, and in its monthly portfolio-based riskometer disclosure.
Recent industry trends
- Direct plan growth: Direct plans crossed 50 per cent of industry AUM in late 2025, a milestone tracked at the direct plan adoption in India reference.
- Passive shift: Index funds, ETFs, and FoFs reached approximately 17 per cent of industry AUM by April 2026, against approximately 9 per cent in March 2020. The shift is documented at the passive investing wave in India reference.
- SIP supercycle: Monthly SIP inflows tripled from approximately Rs 8,400 crore in March 2020 to approximately Rs 26,000 crore in January 2026.
- New AMC entry: WhiteOak (2022), Bajaj Finserv (2023), Helios (2023), Zerodha (2023), and Jio BlackRock (2024) entered as new AMCs, increasing competition in the top tier.
- B30 deepening: B30-sourced SIP registrations crossed 40 per cent of incremental registrations by 2024, against approximately 30 per cent in 2018.
See also
- Mutual fund industry in India
- History of mutual funds in India
- SEBI (Mutual Funds) Regulations, 1996
- SEBI Investment Management Department
- SEBI Act, 1992
- AMFI
- Mutual fund trust structure
- Mutual fund custodian
- Mutual fund RTA
- Mutual fund fund accountant
- Mutual fund auditor
- Net Asset Value (NAV)
- NAV computation methodology
- Applicable NAV and cut-off rules
- Total Expense Ratio (TER)
- SIP in India
- Systematic Transfer Plan (STP)
- Systematic Withdrawal Plan (SWP)
- Regular plan versus direct plan
- SEBI scheme rationalisation circular 2017
- Mutual fund riskometer
- Scheme Information Document (SID)
- Statement of Additional Information (SAI)
- Key Information Memorandum (KIM)
- Consolidated Account Statement (CAS)
- Mutual fund unit-holder rights
- Nomination on mutual fund folio
- Loan against mutual funds
- Side-pocketing for debt mutual funds
- Franklin Templeton winding-up 2020
- Karvy stock-broking 2019
- MITRA forgotten-folio retrieval
- Capital gains tax in India
- Direct plan adoption in India
- Passive investing wave in India
- Active versus passive equity in India
- Mutual fund distribution in India
- CAMS
- KFin Technologies
References
- SEBI (Mutual Funds) Regulations, 1996, as amended.
- Securities and Exchange Board of India Act, 1992 (Act No. 15 of 1992).
- SEBI Master Circular on Mutual Funds, SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/137, 27 May 2024.
- SEBI Circular on Categorisation and Rationalisation of Mutual Fund Schemes, SEBI/HO/IMD/DF3/CIR/P/2017/114, 6 October 2017.
- SEBI Circular on Product Labelling in Mutual Fund Schemes (revised riskometer), SEBI/HO/IMD/DF3/CIR/P/2020/197, 5 November 2020.
- SEBI Circular on Specialised Investment Funds Framework, Securities and Exchange Board of India, November 2024.
- SEBI Circular on MF Lite Framework, Securities and Exchange Board of India, October 2024.
- Finance (No. 2) Act, 2024, Sections 51 to 56 (capital gains tax regime).
- AMFI Industry Data, monthly AUM disclosures, Association of Mutual Funds in India.
- SEBI Investor Charter for Mutual Funds, December 2021.