Question 1

What are direct mutual funds?

Accepted Answer

There are two types of mutual fund plans in India – Regular and Direct. Regular plans are ones which
are done through an investment advisor or mutual fund distributor. Since the investor goes through
an agent, the fees or commission payable to the agent are adjusted in the fund’s Net Asset Value
(NAV). On the contrary, Direct mutual funds are purchased directly from the asset management company
and thus eliminates costs related to third party agents or distributors. This ‘cost-saving’ has a
direct impact on the fund’s expense ratio. Regular plans have higher expense ratio compared to
direct plans and hence the ‘in-hand’ returns generated by direct mutual funds are higher than
regular funds. By investing in direct plans, you can earn up to 1% additional returns on your
investments.

Question 2

Can I save tax using mutual funds?

Accepted Answer

Yes, there is a special type of mutual fund called Equity Linked Savings Scheme (ELSS) that can help
investors save tax under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of
up to Rs. 1.5 Lakh per annum. ELSS usually comes with a lock-in period of 3 years. While it may seem
like a long period, ELSS have one of the lowest lock-in periods compared to other tax saving options
like PPF (15 years), NPS (till retirement) etc. While a tax saving instrument, investors should
remember that ELSS funds are equity-oriented in nature and can be large, mid, or small cap biased.

Question 3

What asset classes are available in mutual funds?

Accepted Answer

Mutual funds are a great way to diversify your portfolio. While there are endless subsets of mutual
funds, the three core asset classes in mutual funds are equity, debt, and hybrid. Equity funds
invest in equity stocks of companies listed on the stock exchange. They carry medium to high risk
and range from relatively safer investments like large cap funds to risky investments (mid and small
cap funds). Debt funds are comparatively safer as they invest in fixed interest generating
investments like fixed deposits, commercial papers, certificates of deposits, treasury bills etc.
They are ideal for conservative investors looking to beat inflation without exposing their capital
to equity markets. Hybrid funds are a mix of both equity and debt. There are six types of hybrid
funds each with a unique mix of equity and debt. These are ideal for beginners to test the waters,
before going all in with equities.

Question 4

What is expense ratio in mutual funds?

Accepted Answer

Mutual funds are managed by a fund manager and a team of analysts and researchers who track market
movements and control fund reallocation to maximise the fund’s performance and returns. To pay for
their services, and the agent’s commission, fund houses factor in an expense ratio that is shared by
all investors proportionately. When you invest in direct mutual funds, commissions are eliminated,
thereby reducing the overall expense ratio, and giving you higher real returns.

Question 5

What is exit load in mutual funds?

Accepted Answer

Mutual funds are avenues for long term wealth creation. And to discourage investors from constantly
churning their portfolio in the short term, mutual funds have the concept of ‘exit load’. Typically,
for equity mutual funds, exit load is levied if you withdraw or sell investments within one year of
purchase. In case of debt funds, the exit load period is reduced to 3 months. Liquid funds carry a
15-day or a 30-day exit load period.

Question 6

Is there any lock-in period in mutual funds?

Accepted Answer

Yes, there are mutual funds that carry lock-in period or a fixed maturity date. These can range from
ELSS (lock-in period of 3 years) to close-ended funds like Fixed Maturity Plans (FMPs) and capital
protection fund that are available for selling after a specific period. Since these funds are not
open to regular buying and selling, fund manager and his investment bets play a critical role in
fund performance.

Question 7

What’s the minimum amount I need to start investing in mutual funds?

Accepted Answer

You can start investing in mutual funds with a small amount of ₹ 500 per month through a SIP. In
fact, many funds also allow entry with just ₹ 100 per month too. It’s an affordable way to begin
your investment journey and grow your money over time, even with a small amount.

Question 8

How do mutual funds give returns on my investment?

Accepted Answer

Mutual funds earn returns through interest, dividends, or price gains from the underlying shares or
bonds. These earnings are either added to your investment or paid out, depending on the plan you
choose such as growth or dividend.

Question 9

Can I take out (redeem) my mutual fund investment anytime?

Accepted Answer

Yes, you can withdraw your money anytime from most mutual funds. But some funds may have a lock-in
period or charge an exit fee if you redeem early. The exit fee is usually around 1% for units
redeemed before one year. ELSS funds offer tax saving benefits, and have a fixed lock-in of three
years. Always check the scheme details before investing.

Question 10

Are mutual funds regulated in India for investor safety?

Accepted Answer

Yes, mutual funds are regulated by SEBI (Securities and Exchange Board of India), which ensures fund
houses follow strict rules to protect investors and maintain transparency in how your money is
managed.

Question 11

How is tax applied when I withdraw money from mutual funds?

Accepted Answer

Tax on mutual fund withdrawals depends on how long you held the investment and the type of fund
(debt or equity). It’s called capital gains tax and can be short-term (STCG) or long-term (LTCG),
based on the holding period. Equity funds are most efficient if held for over one year, as LTCG is
levied at 12.5% for gains above ₹ 1.25 lakh.

Question 12

How can I invest in mutual funds using m.Stock?

Accepted Answer

Just log in to your m.Stock account, choose your mutual fund and mode (SIP or lump sum), enter the
amount, and complete the payment online. It’s a quick, paperless process, and you can start
investing in just a few minutes.

Question 13

Is investing in mutual funds really profitable in the long run?

Accepted Answer

Yes, mutual funds are known to grow your money over time, especially if you stay invested for the
long term. With the power of compounding and professional fund management, they often deliver good
returns.

Question 14

How do I choose a mutual fund that fits my financial goals?

Accepted Answer

Start by defining your financial goal, like saving for a house, child’s education, or retirement.
Then choose a fund based on your time frame, risk level, and expected returns. Use m.Stock to easily
compare across several funds based on performance, risk management, expense ratio, and other
important factors.

Question 15

Can I withdraw my money from mutual funds whenever I want?

Accepted Answer

Yes, most mutual funds allow withdrawals anytime. However, some schemes like ELSS have a lock-in
period of three years. Also, early withdrawals may attract an exit load (usually 1% if redeemed
before one year), so it’s good to check the fund details first.

Question 16

Does m.Stock charge any commission on mutual fund investments?

Accepted Answer

No, m.Stock offers mutual fund investments with zero commission. You can invest in direct plans of
top fund houses without paying any extra fees or hidden charges. Direct mutual funds usually mean
lower expense ratios and zero commission allows you to pocket a bigger chunk of your gains.

Question 17

Are mutual fund withdrawals taxed? If yes, what are the charges?

Accepted Answer

Yes, mutual fund withdrawals are taxed as capital gains. The tax depends on the type of fund and how
long you held the investment. Equity and debt funds follow different tax rules. Long-term capital
gains (LTCG) is taxed at 12.5% for gains over ₹ 1.25 lakh, if the units are held for more than a
year. If redeemed earlier, short-term (STCG) tax is levied at 20%. Debt funds are taxed as per your
individual slab rate irrespective of the holding period.

Question 18

Are mutual funds a better investment than stocks?

Accepted Answer

While both have their merits, mutual funds are often safer than investing directly in stocks, as
they offer diversification and are managed by professionals. They're a good choice for beginners,
investors who don’t have the time or knowledge to pick direct stocks, or those who prefer a
hands-off approach.

Question 19

Are mutual funds a better option than fixed deposits (FDs)?

Accepted Answer

While FDs are a safer investment, mutual funds may offer higher returns than FDs, especially over
the long term. LTCG and ELSS make mutual funds a more tax efficient option as well. Choose mutual
funds if you’re comfortable with some risk and want better growth potential.

Question 20

Are mutual funds a better option than ETFs?

Accepted Answer

Mutual funds are ideal for beginners as they are actively managed. People also turn to passively
managed index funds owing to their low costs. Usually, ETFs have lower costs than mutual funds, but
they need more market knowledge. Your choice depends on how involved you want to be in managing your
investments.

Question 21

What are the risks I should know before investing in mutual funds?

Accepted Answer

Mutual funds carry market risk, meaning returns can go up or down based on market volatility. There
may also be interest rate or credit risks, depending on the fund type (such as debt funds). Always
match your risk level with the fund type.

Question 22

What’s better: investing through SIP or putting in a lumpsum amount?

Accepted Answer

SIP is better for most people as it spreads your investment, offers the advantage of rupee cost
averaging, and reduces market timing risk. Lumpsum can work if you have a large amount ready and the
market looks stable for long-term growth.

	Regular Mutual Funds	Direct Mutual Funds
1Low Expense Ratio	Higher due to distributor commission	Lower due to absence of distributor commission
2Higher Net Asset Value (NAV)	May have a comparatively lower NAV	Generally higher due to lower expenses
3Higher Returns	Returns may be lower due to higher expenses	Potential for higher returns
4Transparency	Intermediary involvement may impact clarity	Direct interaction with the fund house fosters transparency

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