“Mutual Funds Explained: A Complete Beginner’s Guide to Smart Investing”

-TYPES OF MUTUAL FUND

2️⃣ Debt Mutual Funds

Invest in fixed-income instruments like government bonds, corporate bonds, treasury bills, etc.

✔ Suitable for: Safe and stable returns

✔ For short-to-medium term goals

Sub-Types of Debt Funds (with examples)

a) Liquid Funds

Invest in 1–91 days maturity instruments.

✔ For emergency funds

Example: HDFC Liquid Fund, ICICI Prudential Liquid Fund

b) Ultra Short Duration Funds

Invest in slightly longer maturity than liquid funds.

✔ For 3–6 months

Example: SBI Ultra Short Duration Fund

c) Short Duration Funds

Invest in 1–3 year bonds.

✔ For stability + better returns

Example: HDFC Short Term Debt Fund

d) Corporate Bond Funds

Invest in high-rated corporate bonds.

✔ For low-risk steady returns

Example: ICICI Prudential Corporate Bond Fund

e) Gilt Funds

Invest only in government securities.

✔ Very safe

Example: SBI Magnum Gilt Fund

f) Dynamic Bond Funds

Fund manager changes maturity based on interest rates.

✔ Flexible debt investment

Example: Kotak Dynamic Bond Fund

3️⃣ Hybrid Mutual Funds

Hybrid funds invest in both equity + debt, and sometimes gold/REITs.

Sub-Types of Hybrid Funds (with examples)

a) Aggressive Hybrid Funds

Equity: 65–80% + Debt: Remainder

✔ For balanced growth

Example: ICICI Prudential Equity & Debt Fund

b) Conservative Hybrid Funds

Debt: 75–90% + Equity: Small portion

✔ For safety + small growth

Example: HDFC Hybrid Debt Fund

c) Balanced Advantage Funds (BAF)

Automatically adjust equity and debt based on market mood.

✔ Very popular in India

Example: ICICI Prudential Balanced Advantage Fund, HDFC BAF

d) Multi Asset Allocation Funds

Invest in 3+ assets: Equity, Debt, Gold, sometimes Real Estate.

✔ For diversification

Example: ICICI Prudential Multi-Asset Fund

e) Equity Savings Funds

Equity + Arbitrage + Debt

✔ Low risk equity-oriented fund

Example: Kotak Equity Savings Fund

4. Index Funds & ETFs

These are passive funds and very popular among Indian youth and first-time investors.

a) Index Funds: Track indices like NIFTY 50, Sensex, NIFTY Next 50, etc.Low cost and easy to understand.

b) ETFs:Traded on stock exchanges.Types include equity ETF, gold ETF, debt ETF, international ETF.

5.Commodity Funds

Invest in commodities like gold, silver, etc.

Popular example: Gold ETFs and Gold Mutual Funds.

⭐ Quick Summary Table

Category Sub-Types Suitable For Examples

Equity Funds Large, Mid, Small, Flexi, Multi, Sectoral, ELSS Long-term growth SBI Bluechip, PPFAS Flexi Cap

Debt Funds Liquid, Ultra Short, Corporate Bond, Gilt, Short Duration Safety, stability HDFC Liquid, Kotak Gilt

Hybrid Funds Aggressive, Conservative, BAF, Multi Asset, Equity Savings Balanced investments ICICI BAF, HDFC Hybrid

Method of investing in Mutual fund

1)SIP(SYSTEMATIC INVESTMENT PLAN)

2) LUMPSUM

⭐ What is SIP in Mutual Funds? (Detailed Explanation)

A Systematic Investment Plan (SIP) is a disciplined method of investing in mutual funds. Instead of investing a lump sum at once, SIP allows you to invest a small, fixed amount at regular intervals, such as monthly or weekly.

Think of SIP like a recurring deposit (RD), but instead of saving, you are investing, which helps your money grow faster.

🔍 How SIP Actually Works — Step-by-Step

1. You choose a mutual fund scheme

For example: Mirae Asset Large Cap Fund, SBI Small Cap Fund, HDFC Top 100 Fund

2. Decide how much to invest

Most SIPs start at just ₹100 or ₹500 per month.

3. Select the frequency

You can invest:

Monthly,

4. Auto-deduction from your bank

On your selected date (like 5th/10th/25th), the SIP amount is automatically debited and invested.

5. You receive fund units

The price of fund units is called NAV (Net Asset Value).

Units = Amount you invest ÷ NAV of that day.

6. Over time, NAV grows

As the fund value increases, your investment grows.

⭐ What is NAV in Mutual Funds?

NAV stands for Net Asset Value.

It represents the price of one unit of a mutual fund.

Think of NAV like the MRP of a product — the price you pay to buy 1 unit of that fund.

🧠 Simple Definition

NAV = Total value of all securities in the mutual fund – Expenses / Total number of units

This value changes every business day.

🔍 Why NAV Matters?

NAV helps you know:
The value of your investment
The price at which you buy or sell units
How the fund performs daily

It’s the official price of the fund updated every evening by AMFI/SEBI-regulated processes.

🕒 When is NAV Updated?

In India, NAV is updated every business day after 9 PM.

Why?

Because markets close at 3:30 PM → fund managers calculate values → auditing → final NAV published.

📊 Does a Higher NAV Mean a Better Fund?

❌ NO. This is the biggest misconception.

A fund with NAV ₹300 is not better than a fund with NAV ₹30.

NAV only tells the unit price, not quality or returns.

Example:

Fund A: NAV = ₹10

Fund B: NAV = ₹200

Both can give 12% returns.

NAV has no relation with performance.

This is similar to:

A ₹10 toothpaste and a ₹200 toothpaste — price doesn't define quality.

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💡 What Affects NAV?

NAV increases or decreases based on:

✔ 1. Market movement

If stock prices go up → NAV increases

If prices fall → NAV decreases

✔ 2. Expenses of the fund

Expense ratio reduces NAV slightly.

✔ 3. Dividends

In Dividend option

→ when dividends are paid, NAV drops.

🧾 Types of NAV in India

1️⃣ Purchase NAV

NAV applied when buying units.

For equity funds:

If you invest before 3 PM, same-day NAV

After 3 PM, next business day NAV

2️⃣ Redemption NAV

NAV applied when you sell units.

3️⃣ Intraday NAV (iNAV)

For ETFs — updated throughout the day.

🧲 NAV and Your Investment Value

Your total investment value is:

Investment value = NAV × Number of units

Example:

You hold: 1,000 units

Today’s NAV: ₹25

Your value = ₹25,000

🌟 NAV Change Example (Day-to-Day)

If the fund’s holdings increase in value:

Day NAV

Monday ₹15

Tuesday ₹15.25

Wednesday ₹16

This means the fund performed well.

If holdings fall: NAV decreases accordingly.

🏦 NAV and SIP

When you invest through SIP:

At different NAVs → you get different units

Lower NAV = more units

Higher NAV = fewer units

This is the Rupee Cost Averaging effect.

🌱 NAV and Mutual Fund Growth

Growth option: NAV keeps increasing as profits stay invested.

Dividend option: NAV temporarily falls when dividends are paid.

🎯 In Simple Words

NAV = price of 1 mutual fund unit.

It is NOT related to the fund’s quality or potential returns.