What is a mutual fund
How pooled money becomes units, who looks after it, and what a fund does not promise
Industry figures as on 31 August 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Ask the room: when you put ₹50,000 into a mutual fund, what exactly do you own, and who is holding it? Most people say 'the fund house has my money'. Keep that answer for slide 5.
A mutual fund pools money from many investors and invests it as one portfolio. Each investor owns units.
The value of a unit moves with the value of what the portfolio holds. It can rise and it can fall. Nothing in the structure fixes or assures a return.
Trainer notes
AMFI's own definition: a collective investment vehicle that collects and pools money from a number of investors and invests it in equities, bonds, government securities and money market instruments. Everything else in this deck is detail on that one sentence.
Three words to know first
Scheme
One pool of money with a stated objective and its own portfolio. A fund house runs many schemes. An investor buys into one scheme.
Unit
One equal share of a scheme. Money invested is converted into units at the NAV. A holding is a number of units, and it can include fractions.
NAV
Net asset value: the value of one unit. It is the scheme's assets minus its liabilities, divided by the number of units outstanding.
Take-away: NAV = (market value of assets − liabilities) ÷ units outstanding. It is worked out every business day.
Source: SEBI Master Circular for Mutual Funds, 20 March 2026 (NAV computation and disclosure).
Trainer notes
Most schemes disclose the day's NAV by 11 pm the same day. Fund-of-funds schemes and schemes with 80% or more invested overseas disclose by 10 am the next business day. The number of decimal places used for units and NAV is set by each scheme; three for units is an assumption for the illustration.
From rupees to units
ONE SCHEME, ONE DAY
A scheme holds securities and cash worth ₹505 crore. It owes ₹5 crore. There are 20 crore units outstanding.
An investor puts in ₹50,000 at this NAV.
- NAV = (₹505 crore − ₹5 crore) ÷ 20 crore units = ₹25.00 a unit.
- Stamp duty of 0.005% is taken from the amount first: ₹50,000 × 0.005% = ₹2.50. That leaves ₹49,997.50.
- Units allotted = ₹49,997.50 ÷ ₹25.00 = 1,999.900 units.
- If the NAV later reads ₹26.00, the holding is worth ₹51,997.40. If it reads ₹24.00, it is worth ₹47,997.60.
Result: The investor owns units. Their worth on any day is the number of units × that day's NAV.
Illustration: invented scheme, assumed figures; the ₹1 NAV moves are not a forecast. Source: SEBI Master Circular for Mutual Funds, 20 March 2026 (NAV); Indian Stamp Act, 1899 as amended (stamp duty).
Trainer notes
Stamp duty of 0.005% applies to purchases, including SIP instalments and switch-ins, and not to redemptions. There is no entry load. An exit load, where a scheme has one, is taken at redemption and is not shown here.
Who does what
| Who | What it does |
|---|---|
| Sponsor | Sets up the mutual fund as a trust. Holds at least 40% of the AMC's net worth. |
| Trustees | Oversee the AMC for unitholders. Two-thirds of directors must be independent. |
| Asset management company | The fund house (AMC). Its fund managers decide what to buy, hold and sell. |
| Custodian | Holds the scheme's securities, apart from the AMC's own assets. |
| Registrar and transfer agent | Keeps investor records: folios, transactions and account statements. |
Take-away: SEBI sets the rules for all of them. AMFI is the fund houses' association and registers distributors.
Sources: SEBI (Mutual Funds) Regulations, 2026, in force 1 April 2026; AMFI Master Circular for Mutual Fund Distributors.
Trainer notes
Return to the opening question: the fund house manages the money but does not hold it. The securities sit with a custodian and the pool is held in trust. This separation keeps scheme assets apart from the AMC's finances. It does not protect an investor from a fall in market prices. 'Two-thirds independent' refers to the directors of the trustee company. A sponsor-linked custodian is allowed only under conditions.
Open-ended and close-ended schemes
Open-ended
- No fixed maturity date.
- Units can be bought from and sold back to the scheme on a continuing basis, at NAV-based price.
- 1,935 schemes holding 99.8% of industry assets on 31 August 2026.
Close-ended
- Has a fixed maturity period.
- Open for subscription only during the new fund offer.
- After that, units are bought and sold on the stock exchange where they are listed.
- 48 schemes holding ₹15,532 crore on 31 August 2026.
Take-away: Almost all mutual fund money in India is in open-ended schemes.
Sources: AMFI Monthly Report, Aug 2026 (counts, assets); SEBI (Mutual Funds) Regulations, 2026, regs. 2, 29 (definitions, listing).
Trainer notes
There is a third type, the interval scheme, which opens for purchase and redemption only during set windows; there were 2 on 31 August 2026. A close-ended scheme launched since 2009 cannot repurchase units before maturity (Reg. 30), and schemes without daily dealing must be listed (Reg. 29). On an exchange the price is set by buyers and sellers and can differ from NAV. Exchange traded funds are open-ended schemes whose units also trade on an exchange.
Direct plan and regular plan
Most schemes have had both since 1 January 2013; ETFs have one. The portfolio and fund manager are the same.
Regular plan
- Bought through a mutual fund distributor.
- Its expense ratio includes the distributor's commission.
- The AMC pays that commission out of the scheme's expenses.
Direct plan
- Bought from the fund house without a distributor.
- Carries no distribution commission.
- So its expense ratio is lower and it has a separate NAV.
Take-away: A distributor is paid a trail commission: a yearly percentage of the assets that stay invested.
Source: SEBI Master Circular for Mutual Funds, 20 March 2026; SEBI (Mutual Funds) Regulations, 2026.
Trainer notes
State the facts and stop; we do not say which plan a client should hold. Upfront commission is not allowed, with two narrow exceptions: small SIPs of investors new to the industry, and a capped incentive for new investors from smaller cities and new women investors. The half-yearly consolidated account statement shows the commission paid to the distributor in rupees. A distributor cannot deal in direct plans; an investor reaches a direct plan through the fund house, a SEBI-registered investment adviser or an execution-only platform. The investor does not pay the distributor separately.
What a fund shows and does not promise
- 6
Riskometer levels
Low, Low to Moderate, Moderate, Moderately High, High and Very High. A scheme's level is reviewed every month, so it can change.
- NO
Assured returns
A scheme does not assure a return or protect the capital invested. A distributor may not promise or indicate a return.
What it describes
The riskometer describes risk. It says nothing about returns. A debt scheme also shows a Potential Risk Class for interest-rate and credit risk.
Take-away: Mutual fund investments are subject to market risks. Returns are not assured.
Source: SEBI Master Circular for Mutual Funds, 20 March 2026; AMFI code of conduct for distributors.
Trainer notes
The riskometer level is disclosed within 10 days of each month-end. The Potential Risk Class is a nine-cell grid: three levels of interest-rate risk by three levels of credit risk. Past performance may or may not be sustained in future. Avoid the word 'safe' for any scheme, including overnight and liquid schemes. Advertisements may not offer an indicative yield or return.
Where the industry stands
As on 31 August 2026, the latest month AMFI has published. These change every month; quote the date.
- NET ASSETS, ₹ LAKH CRORE
- 87.08₹87,07,888 crore managed across all schemes.
- FOLIOS
- 28.35 cr28,35,19,085 investor accounts. One investor can hold many folios.
- SCHEMES
- 1,9851,935 open-ended, 48 close-ended and 2 interval schemes.
- FOLIOS: OPEN-ENDED EQUITY
- 18.92 crAbout two-thirds of all folios are in open-ended equity schemes.
Source: AMFI Monthly Report for August 2026 (net assets under management, folios and scheme counts as on 31 August 2026).
Trainer notes
Refresh from amfiindia.com each month; AMFI publishes the figures monthly. A folio is an account, not a person, so 28.35 crore folios does not mean 28.35 crore investors. Average assets for the month were ₹88.31 lakh crore; the slide uses month-end assets. Do not turn these figures into a comment on where markets are heading.
If you learnt this from older material
What older decks say
- The rule book is the SEBI (Mutual Funds) Regulations, 1996.
- An entry load is charged when you buy.
- Distributors earn upfront commission and a transaction charge.
- There are 36 scheme categories.
What holds now
- The 2026 Regulations, in force from 1 April 2026.
- No entry load since 2009. Stamp duty of 0.005% applies.
- Trail only, bar two small exceptions. Charge ended 8 Aug 2025.
- 40 categories, set by SEBI on 26 February 2026.
Take-away: The idea of pooling has not changed. Most of the rules around it have.
Sources: SEBI (Mutual Funds) Regulations, 2026; SEBI Master Circular, 20 Mar 2026; SEBI circulars of 30 Jun 2009, 8 Aug 2025 and 26 Feb 2026.
Trainer notes
The 40 categories are 13 equity, 17 debt, 7 hybrid, 1 life-cycle and 2 other; existing schemes had to comply by 26 August 2026. The transaction charge was ₹100 or ₹150 a purchase. The exit load cap is now 3% of NAV. 'Trail only' has two narrow exceptions set out in the notes to slide 7. The 36-category list dates from 2017, so it appears in newer old material, not the oldest.
Four things people get wrong
Misconception'A ₹10 NAV is cheaper than a ₹100 NAV.'
What is true₹10,000 buys 1,000 units at ₹10 or 100 units at ₹100. If both portfolios rise 10%, both holdings are worth ₹11,000.
Misconception'A mutual fund means the share market.'
What is trueSchemes also hold bonds, money market paper, gold and more. Open-ended debt schemes alone held ₹19.33 lakh crore on 31 August 2026.
Misconception'The fund house holds my money.'
What is trueThe AMC manages it. A custodian holds the securities and the pool is held in trust, overseen by trustees.
Misconception'Debt funds cannot lose value.'
What is trueBond prices fall when interest rates rise, and an issuer can default. A debt scheme's NAV can fall.
Source: AMFI Monthly Report, August 2026 (open-ended debt schemes, net assets ₹19,33,476 crore).
Trainer notes
The first example ignores stamp duty to keep the arithmetic round. The debt figure is from the AMFI Monthly Report for August 2026 (open-ended debt schemes, net assets ₹19,33,476 crore). None of these points is a reason to buy or avoid any type of scheme.
Check yourself
Question 1: A scheme has assets of ₹1,212 crore, liabilities of ₹12 crore and 30 crore units outstanding. What is its NAV?
Answer: (1,212 − 12) ÷ 30 = ₹40.00 a unit. Liabilities are subtracted before dividing.Question 2: An investor puts ₹1,00,000 into that scheme at a NAV of ₹40.00. Stamp duty is 0.005%. How many units are allotted?
Answer: Stamp duty = ₹1,00,000 × 0.005% = ₹5. Units = ₹99,995 ÷ ₹40 = 2,499.875 units.Question 3: A client asks: 'What is the difference between the regular and direct plan of the same scheme, and how are you paid?'
Answer: Same portfolio and fund manager. The regular plan's expense ratio includes the distributor's commission, which the AMC pays as trail out of the scheme's expenses; the direct plan carries no commission, so its expense ratio is lower and its NAV is separate. The commission in rupees appears in the half-yearly account statement. State this plainly and do not say which plan the client should choose.
Trainer notes
Quiz figures are invented for the arithmetic.
Sources and disclaimer
Sources for the figures in this explainer
- Net assets ₹87,07,887.74 crore, 28,35,19,085 folios, 1,985 schemes, break-up by type: AMFI Monthly Report, August 2026.
- Sponsor, trustees, AMC, custodian, expenses: SEBI (Mutual Funds) Regulations, 2026 (in force 1 Apr 2026). Direct plans: Master Circular.
- NAV, loads, commission, riskometer, Potential Risk Class, categories: SEBI Master Circular, 20 Mar 2026. Stamp duty: Indian Stamp Act, 1899.
- Mutual fund: AMFI investor knowledge centre. Open/close-ended: SEBI (Mutual Funds) Regulations, 2026, reg. 2. Interval: AMFI report.
- Distributor conduct: AMFI Master Circular for Mutual Fund Distributors. Rules as verified in Trustner Academy's fact sheet, 7 Oct 2026.
- The scheme, the investor and all figures in the worked example and quiz are invented for illustration.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).