Mutual funds are the dominant savings vehicle for Indian households upgrading from FDs and gold. SIPs hit ₹20,000+ crore per month. But the fee structures, plan types, and regulatory categories are genuinely confusing | and the difference between a direct and regular plan, compounded over 20 years, can mean lakhs of rupees on a ₹10L investment.
How a mutual fund is structured
A mutual fund in India operates as a trust | not a company. The structure has four distinct entities:
- Sponsor: The entity that sets up the fund (e.g., HDFC Bank sponsors HDFC AMC). Must have at least 40% shareholding in the AMC and a sound financial track record.
- Trustees: A board of trustees who oversee the fund and protect unitholders' interests. Must approve major decisions and ensure compliance with SEBI regulations.
- Asset Management Company (AMC): The professional investment manager that actually runs the fund | Mirae Asset, SBI Mutual Fund, Axis AMC, etc. The AMC charges the expense ratio.
- Custodian: Holds the actual securities | registered with SEBI. Prevents the AMC from misusing the assets.
This separation of control | sponsor, trustees, AMC, custodian | is SEBI's structural protection for investors. The Satyam fraud of 2009 showed why asset segregation matters.
How NAV is calculated
NAV (Net Asset Value) is calculated at the end of every business day:
| Component | Example |
|---|---|
| Market value of all securities held | ₹1,050 crore |
| Add: receivables, accrued income | ₹5 crore |
| Less: liabilities, accrued expenses | ₹3 crore |
| Net Assets | ₹1,052 crore |
| Units outstanding | 100 crore units |
| NAV per unit | ₹10.52 |
NAV is published daily by AMFI (Association of Mutual Funds in India). When you invest ₹10,000 in a fund at NAV ₹52.60, you receive 190.11 units (₹10,000 ÷ ₹52.60). When you redeem, you receive units × NAV on that day.
AMFI India | NAV History (all mutual funds)Direct vs regular plans | the most important decision
Every mutual fund scheme has two plans: direct and regular. Same underlying portfolio. Same fund manager. Different expense ratios.
- Regular plan: Bought through a distributor (broker, bank, platform). The AMC pays the distributor a commission of 0.5 to 1.5% per year, taken from the fund's assets. This shows up as a higher expense ratio.
- Direct plan: Bought directly from the AMC or via a direct platform. No distributor commission. Lower expense ratio by exactly the commission amount.
A typical large-cap fund might have an expense ratio of 1.6% for the regular plan and 0.8% for the direct plan. That 0.8% difference, compounded over 20 years on ₹10 lakh at 12% base return:
₹17 lakh on a ₹10 lakh investment over 20 years | just from the direct vs regular plan difference. This is not a small number. For any investor doing their own research, there is no reason to use regular plans. Direct plans are equally accessible and identical in every other way.
SEBI's 2018 fund recategorisation
Before October 2017, AMCs had dozens of schemes with overlapping mandates | a fund called "Bluechip" might actually hold mid-caps. SEBI intervened with a circular mandating 36 standardised categories across equity, debt, hybrid, and solution-oriented funds. Each AMC can have only one scheme per category.
The key equity categories you need to know:
| Category | Mandate | Min. equity allocation |
|---|---|---|
| Large Cap | Top 100 stocks by market cap | 80% in large caps |
| Large & Mid Cap | Top 100 + next 150 | 35% each in large and mid |
| Mid Cap | 101st to 250th by market cap | 65% in mid caps |
| Small Cap | 251st stock onwards | 65% in small caps |
| Multi Cap | All sizes | 25% each minimum in large, mid, small |
| Flexi Cap | Any market cap | 65% equity, no cap size restriction |
| ELSS (Tax Saver) | Equity with 3-year lock-in | 80% equity, tax benefit u/s 80C |
Exit loads | the cost of leaving early
Most equity mutual funds charge an exit load of 1% if you redeem within 1 year of investment. This is the fund's way of discouraging short-term trading in long-term vehicles. Exit loads are returned to the fund scheme (not to the AMC). After 1 year, most equity funds have zero exit load.
Mutual funds are an excellent starting point | SIPs, diversification, professional management. But most actively managed equity funds in India underperform their benchmark net of costs (SPIVA India reports this consistently). A factor-based systematic strategy on RupeeCase sits between passive index funds (low cost, no alpha) and active MFs (high cost, often negative alpha). It's rule-based like a passive fund but factor-tilted to earn the documented factor premia. Direct-plan index ETFs have expense ratios below 0.10%. Our factor strategies target meaningful alpha over those benchmarks. Compare at invest.rupeecase.com.
In 2017 I sat down with my mother's 6 mutual fund statements. Every single fund was a regular plan. She had been investing since 2009, SIP of 15 thousand a month, 8 years of loyal compounding. I pulled both regular and direct NAV histories side by side on AMFI. The gap between direct and regular over those 8 years was around 11 lakh. Eleven lakh. Not on a hedge fund. Not on some exotic structured product. On the same fund, same manager, same portfolio, different plan code. That afternoon we went to KFintech portal and switched everything to direct plans. If you do nothing else this month, go to your CAMS mailback statement, look at the scheme codes, and if any of them end in "Reg" switch them to direct. There is no argument against this. The distributor commission is not buying you anything.
Glossary
Sources & further reading
Quick check, Module 6.3
Direct vs Regular Plan Cost
Regular plans pay distributor commission via higher TER. Direct plans skip the commission. The gap compounds.