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What is a mutual fund?

3 min readReviewed 2026-05-01SEBI-advisor reviewed

A mutual fund pools money from thousands of investors and a SEBI-licensed fund manager invests it as per a stated mandate (large-cap equity, short-duration debt, hybrid, and so on). You own units, not the underlying stocks. The unit price is the NAV, calculated end of day. AMCs are the companies that run the funds (HDFC AMC, Nippon, ICICI Prudential). They charge an annual expense ratio.

An Indian example

An equity mutual fund with a 1.0% expense ratio on a ₹10 lakh portfolio costs you ₹10,000 a year. The same portfolio in a 0.2% index fund costs ₹2,000. Over 25 years that 0.8% gap compounds to roughly ₹15 lakh of foregone returns on a ₹10 lakh starting corpus.

The common mistake

Picking last year's top-performing fund. Performance reverts; expense ratios persist. A boring index fund with low costs beats most active funds over 10+ year windows in India too.

Inside Finlo

A 60-second lesson on this, with a worked drill in rupees, lives inside the Finlo app. Free, forever, on the basics.

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Free, forever, on the basics. SEBI-registered advisor reviewed.