Learn · SIPs and compounding

What a mutual fund actually is

Many people's money, one manager, and units in your name.

3 min read

A shared pot

A mutual fund pools money from many people and invests it in shares, bonds or both, following rules written in its scheme document. A fund manager decides what to buy within those rules.

You own units

When you invest, you get units. Each unit is a slice of everything the fund holds. If the holdings go up in value, each unit is worth more; if they fall, each unit is worth less.

Who looks after it

The fund house (AMC) runs the fund. Trustees oversee it, a custodian holds the securities, and a registrar such as CAMS or KFintech keeps the record of who owns which units. SEBI regulates all of it.

Kinds of funds

Equity funds buy company shares: higher ups and downs, better for 5+ years. Debt funds lend to governments and companies: steadier, for shorter goals. Hybrid funds mix the two.

Myth

If the fund house shuts down, my money is gone.

Fact

The fund's assets are held separately by a custodian in the fund's name, not the AMC's. Your units are recorded in your name with the registrar.

₹500

A common minimum monthly SIP

Some funds accept less. Each fund page shows its own minimum.

Words from this lesson

  • AMC: Asset management company: the fund house that runs mutual funds.
  • AMFI: Association of Mutual Funds in India: the industry body.
  • CAS: Consolidated Account Statement: every fund you own, across fund houses, in one PDF.
  • Debt fund: A fund that lends to governments and companies for interest.
  • Equity fund: A fund that mainly buys company shares.
  • Folio: Your account number with a fund house.
  • Hybrid fund: A fund that holds both shares and bonds.
  • Mutual fund: A pool of money from many investors, managed under fixed rules.
  • Registrar (RTA): The company that keeps the record of who owns which units, like CAMS or KFintech.
  • SEBI: Securities and Exchange Board of India: the regulator for mutual funds and markets.

Next in SIPs and compounding: NAV: the price of one unit