Chapter 11. Mutual Funds

NAV = (Total assets − Liabilities and expenses) ÷ Units outstanding

Example →

Net assets ₹500 crore, 50 crore units → NAV ₹10.

Trap →

Purchases and redemptions don't change NAV by themselves; units are issued or cancelled in proportion. NAV moves with the portfolio's market value and expenses.

Units = Amount invested ÷ Applicable NAV (fractions allowed)

Example →

₹10,000 at NAV ₹12.50 → 800 units.

Trap →

The applicable NAV depends on cut-off timing and when the fund receives clear funds, not when the order is placed.

IAF limit = lower of ₹50,000 or 90% of the investment value (per day, per scheme, per investor)

Example →

₹40,000 invested → min(₹50,000, ₹36,000) = ₹36,000.

Trap →

It's the lower of the two, and only for liquid funds, not all open-ended schemes.

Deduction up to ₹1,50,000 a year (old tax regime only) · Lock-in 3 years · Tax saved = Amount × marginal rate

Example →

₹1.5 lakh invested by someone in the 30% slab (old regime) → about ₹45,000 tax saved, before cess.

Trap →

The lock-in is 3 years, not 5 (5 years applies to solution-oriented retirement and children's funds). No deduction under the new regime.

Update:

The Income-tax Act, 2025 replaced the 1961 Act from 1 Apr 2026, so the old section number (80C) no longer applies; the deduction is described by what it does.

Short-term (held ≤ 12 months): 20% · Long-term (> 12 months): 12.5% on gains above ₹1.25 lakh a year

Example →

Long-term gain ₹3 lakh → (3 − 1.25) lakh × 12.5% = ₹21,875.

Trap →

Don't use the old rates (15% short-term; 10% above ₹1 lakh long-term). Both the rates and the exemption changed in July 2024.

Units of 'specified mutual funds' bought on or after 1 Apr 2023: gains taxed at the investor's slab rate, regardless of holding period, with no indexation

Example →

30% slab, ₹1 lakh gain on a debt fund held 4 years → ₹30,000 tax.

Trap →

Applying 20% with indexation is wrong for these units; that treatment ended for purchases from 1 Apr 2023.

Update:

From 1 Apr 2025 a 'specified mutual fund' means a fund with more than 65% in debt and money market instruments, so international funds and fund-of-funds aren't automatically taxed at slab rates any more.

Large cap ≥ 80% in companies ranked 1–100 · Mid cap ≥ 65% in 101–250 · Small cap ≥ 65% in 251+ · Multi cap ≥ 75% equity with ≥ 25% each in large, mid and small · Flexi cap ≥ 65% equity, no segment rule

Example →

Rankings follow the official AMFI list by full market capitalisation, not the fund's own view.

Trap →

Multi cap and flexi cap definitions get swapped; only multi cap has the 25/25/25 rule.

Focused fund: at most 30 stocks

Example →

A fund holding 45 stocks can't be categorised as a focused fund.

Trap →

The SEBI limit is 30, not 25 or 50.

Specialised Investment Fund (SIF) ₹10 lakh · PMS ₹50 lakh · AIF ₹1 crore

Example →

A client with ₹15 lakh and a sophisticated risk profile can invest in a SIF but not in PMS.

Trap →

The three thresholds are commonly swapped in question stems.