Mutual funds
What are mutual funds? A simple guide for beginners
A mutual fund pools money from many investors and is run by professionals. How it works, the main types, what it costs, the risks, and how to start.
By Anudeep Nadendla · 6 November 2026 · 3 min read
A mutual fund pools money from many investors, and a professional fund manager invests it in company shares, bonds, government securities and similar assets. You get units of the fund in proportion to what you put in.
An example: if 100 people put in ₹10,000 each, the fund has ₹10 lakh. That money is spread across many companies. Buying shares of all of them on your own would be hard; through a fund, even a small amount gets that spread.
Who regulates mutual funds?
In India, mutual funds are regulated by SEBI (the Securities and Exchange Board of India). Each fund is set up as a trust: a custodian holds its investments and trustees oversee it. Every fund must publish its portfolio regularly.
The main types
| Type | Invests in | Suits |
|---|---|---|
| Equity funds | Mostly company shares | Goals more than 5 years away; people who can take ups and downs |
| Debt funds | Bonds, deposits, government securities | Shorter periods; people who want steadiness |
| Hybrid funds | A mix of shares and debt | People who want a balance |
| Liquid funds | Very short-term debt | An emergency fund; money needed within months |
| ELSS | Shares, with a 3-year lock-in | A Section 80C deduction under the old tax regime |
Two ways to invest: SIP and lumpsum
Investing a fixed amount every month is a SIP (What is a SIP?). Investing all at once is a lumpsum. The difference is explained in this guide.
Costs: expense ratio, direct and regular plans
A fund charges a yearly percentage to run it, called the expense ratio. It is already taken out of the NAV, so you don't pay it separately.
Every fund has two plans. A direct plan has no distributor commission, so it costs less. A regular plan includes the distributor's commission in its expense ratio; in return the distributor helps you choose funds, handles the paperwork and reviews your investments regularly. You can decide which suits you.
Gamma Wealth is an AMFI-registered mutual fund distributor. We are paid commission by fund houses; we don't charge you any fee.
The truth about risk
- Mutual fund returns are not guaranteed. An equity fund's value can fall for months, sometimes years.
- Holding for longer usually softens the ups and downs, but that is not guaranteed either.
- Spread your money by goal rather than putting it all in one type of fund.
How to start
- 1.Complete your KYC once, with PAN, Aadhaar and bank details.
- 2.Decide your goal and time frame: how much, and by when.
- 3.Choose a fund type that fits the goal.
- 4.Start a SIP or lumpsum, and review once a year.
See how much a month your goal needs in the Goal Planner, or talk it through with us on a free 30-minute call.
Want to talk it through?
Book a free 30-minute call and we’ll look at what fits your goals, with no obligation.