SEBI’s Mutual Fund Categorization Explained: A 2025 Investor’s Guide to Smarter Fund Selection

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Paisavidhya

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June 5, 2025

SEBI’s Mutual Fund Categorization: A Complete Guide for Smart Investors (2025)

In a landmark move to bring clarity and simplicity to mutual fund investments, the Securities and Exchange Board of India (SEBI) introduced a comprehensive mutual fund categorization and rationalization framework in 2017. This restructuring initiative has helped investors navigate the vast mutual fund universe more easily, ensuring informed decisions aligned with their financial goals, risk appetite, and investment timelines.

If you’re looking to invest smartly in mutual funds, understanding SEBI’s categorization is crucial.

Why Did SEBI Categorize Mutual Funds?

SEBI’s move to categorize mutual funds stemmed from four key objectives:

Clarity: Standardizing fund categories enables investors to better understand product offerings.
Avoiding Duplication: Limiting fund houses to one scheme per category to eliminate confusion.
Better Comparisons: Allowing investors to easily compare schemes across fund houses.

SEBI’s Mutual Fund Categories Explained

SEBI classified mutual funds into five broad categories to streamline selection:

1. Equity Mutual Funds

Equity funds invest primarily in stocks and are designed for long-term wealth creation.

Fund Type	Minimum Equity Allocation	Key Features

Flexi Cap Fund	65%	No fixed allocation; highly flexible
Large Cap Fund	80%	Focused on top 100 companies

Mid Cap Fund	65%	Mid-sized companies (101st-250th by market cap)
Small Cap Fund	65%	Small-cap companies (beyond 250th)
Sectoral/Thematic Fund	80%	Investment in specific sectors/themes
ELSS (Tax Saver)	80%	3-year lock-in, eligible for tax benefits

Who Should Invest?

Investors with high-risk tolerance.
Long-term investors aiming for substantial capital appreciation.

2. Debt Mutual Funds

Fund Type	Investment Focus	Best Suited For
Liquid Fund	Securities with maturity up to 91 days	Parking short-term surplus
Short Duration Fund	Debt with maturity of 1-3 years	Medium-term stability seekers

Gilt Fund	80% in government securities	Risk-averse investors

Who Should Invest?

Conservative investors focused on capital preservation.
Investors with short- to medium-term financial goals.

3. Hybrid Mutual Funds

Hybrid funds combine equity and debt, providing a balanced risk-reward profile.

Fund Type	Equity Allocation	Debt Allocation	Ideal For
Conservative Hybrid Fund	10–25%	75–90%	Risk-averse investors
Balanced Hybrid Fund	40–60%	40–60%	Balanced growth seekers
Aggressive Hybrid Fund	65–80%	20–35%	Growth-focused investors
Multi Asset Allocation	10% minimum in 3 asset classes	Varied	Diversified portfolio seekers

Who Should Invest?

Moderate risk takers seeking both growth and stability.

4. Solution-Oriented Funds

Designed to meet specific life goals, such as retirement planning or a child’s future.

Fund Type	Lock-in Period	Ideal For
Retirement Fund	5 years or till retirement	Retirement planners
Children’s Fund	5 years or till the child turns 18	Child education planners

Who Should Invest?

Investors focused on long-term financial milestones.

5. Other Mutual Funds

For investors seeking passive investing or diversification across funds.

Fund Type	Investment Mandate	Suitable For
Index Funds/ETFs	95% in index-linked securities	Passive investors
Fund of Funds (FoFs)	95% in other mutual funds	Investors seeking multi-fund diversification

Who Should Invest?

Cost-conscious passive investors.
Those looking for global and sectoral diversification.

How SEBI’s Categorization Benefits Investors

Improved Transparency: Investors can clearly understand a fund’s objective and portfolio strategy.
Easier Comparisons: Standardized benchmarks allow better performance evaluation.
Simplified Selection: Investors can match funds to their financial goals and risk profiles easily.

How to Choose the Right Mutual Fund

Before investing, consider these key factors:

Define Your Goal: Retirement, child education, wealth creation, or emergency fund?
Assess Risk Appetite: High, moderate, or low?
Time Horizon: Short-term funds for quick needs; long-term funds for goals like retirement.
Expense Ratios: Lower costs translate to better long-term returns.

Conclusion

SEBI’s mutual fund categorization has made investing more structured and transparent, empowering investors to make smarter choices. Whether you’re seeking high-growth equity options or stable income through debt funds, SEBI’s guidelines ensure that there’s a product for every investor profile. By understanding these categories and aligning them with your investment goals, you can create a robust, goal-driven investment portfolio for a financially secure future.

Why Are International ETFs Trading at a Premium in 2025? Understand iNAV Before You Invest

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Paisavidhya

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June 5, 2025

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Why Are International ETFs Trading at a Premium in 2025? Understand the Importance of iNAV

Passive investing continues to gain popularity among investors seeking low-cost, long-term market exposure. One of the most preferred instruments for passive investing is the Exchange-Traded Fund (ETF). While ETFs offer significant advantages such as liquidity, diversification, and cost efficiency, international ETFs—particularly those offering global exposure—have recently been trading at noticeable premiums. But why is this happening? And what role does iNAV play in your investment decision? Let’s dive in.

What Are ETFs?

An Exchange-Traded Fund (ETF) is an investment vehicle that pools money from investors to buy a diversified portfolio of assets like stocks, bonds, or commodities. Unlike mutual funds, ETFs are traded on stock exchanges in real-time, with their prices fluctuating throughout the trading day.

ETFs are structured to track an underlying index, providing returns that closely mirror their benchmark, minus the expense ratio.

How Do International ETFs Work?

International ETFs function similarly to domestic ETFs but invest in overseas markets. They offer Indian investors access to global indices like the Nasdaq 100. These ETFs purchase and hold international stocks, providing Indian investors exposure to foreign economies and industries.

What Is iNAV?

While investors typically buy and sell ETFs at market prices, iNAV helps them assess if the ETF is trading at a premium or discount relative to its fair value.

Why Are International ETFs Trading at a Premium?

Here’s why:

1. RBI’s Overseas Investment Restrictions

With these limits already breached, AMCs are unable to purchase additional foreign assets, thereby freezing the creation of new ETF units.

2. Supply and Demand Imbalance

While the supply of new ETF units remains restricted, demand for international diversification continues to grow among Indian investors. With limited supply and surging demand, ETF prices rise above their iNAV, creating a premium.

This dynamic explains why major international ETFs like the Mirae Asset FANG+ and Motilal Oswal Nasdaq 100 ETFs are trading at double-digit premiums.

Example: Impact of Premium on Returns

Assume you invest ₹1,00,000 in the MAFANG ETF, which trades at a 23.52% premium over its iNAV:

Market Price: ₹112.50
iNAV: ₹91.08

You buy about 889 units. Even if the underlying index rises by 10%, your effective return will be lower because of the premium you initially paid. If the premium narrows in the future, your returns could suffer even further.

Real-World Data (As of 22 April 2025)

Ticker	iNAV (₹)	Price (₹)	Premium (%)
MAFANG	91.08	112.50	23.52%
MAHKTECH	17.92	21.32	18.97%
MON100	148.11	165.99	12.07%
HNGSNGBEES	325.01	376.96	15.98%
MONQ50	61.29	67.51	10.15%

Source: 1 Finance Research, Company Data

What Should Investors Do?

Check the Premium: Always compare the ETF’s trading price to its iNAV. This information is available on AMC websites and broker platforms.
Explore Mutual Funds: Consider international mutual funds still open for fresh investments.
Seek Professional Advice: If in doubt, consult a qualified financial advisor to make an informed decision.

Conclusion

While international ETFs are an effective way to gain global exposure, understanding the concept of iNAV and the impact of premiums is crucial. A high premium can erode your returns and expose you to greater risks. Smart investing involves more than just market timing—it requires analyzing the real value you are paying for an asset. Always check the iNAV before investing in international ETFs to ensure you are not overpaying for your global aspirations.

AMFI Launches Tarun Yojana, Chhoti SIP, and MITRA to Make Mutual Fund Investing Simpler and Inclusive in 2025

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Paisavidhya

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June 5, 2025

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AMFI Launches Tarun Yojana, Chhoti SIP, and MITRA to Make Mutual Fund Investing Simpler and Inclusive in 2025

In a move set to transform the investment landscape, the Association of Mutual Funds in India (AMFI) has introduced three pivotal initiatives—Chhoti SIP, Tarun Yojana, and MITRA (Mutual Fund Investment Tracing and Retrieval Assistant). These initiatives are designed to make mutual fund investing more accessible, promote financial literacy, and assist investors in tracking and reclaiming their investments. This bold step aligns with SEBI’s broader objective of expanding financial inclusion and encouraging long-term wealth creation among Indian households.

Overview of AMFI’s New Initiatives

1. Chhoti SIP: Redefining Affordability in Investing

This program is targeted at first-time investors and those from economically weaker sections, fostering a culture of saving and investing from a young age.

Through Chhoti SIP, AMFI aims to significantly widen participation, offering a straightforward pathway to financial security for millions who have yet to experience the benefits of mutual fund investments.

2. Tarun Yojana: Empowering Future Generations Through Financial Literacy

Tarun Yojana focuses on integrating financial education into school curriculums, emphasizing the importance of early financial literacy. By instilling knowledge about saving, investing, and responsible financial decision-making in children, AMFI is building a foundation for a more financially aware generation. This long-term initiative is crucial for nurturing smart investors and prudent savers who can navigate complex financial landscapes confidently.

3. MITRA: Reconnecting Investors with Lost Investments

Over time, many investors lose track of their mutual fund holdings due to changes in communication details or negligence. MITRA, a first-of-its-kind platform, facilitates the tracing and retrieval of forgotten or dormant mutual fund investments. It empowers investors and their families to reclaim their rightful assets, ensuring no investment goes unutilized.

Why These Initiatives Are a Game Changer

India’s mutual fund industry has witnessed exponential growth, with Assets Under Management (AUM) exceeding ₹65 lakh crore. Despite this progress, a large portion of the population remains untapped due to barriers like low financial literacy and high minimum investment thresholds.

AMFI’s latest initiatives aim to:

Enhance mutual fund accessibility across socio-economic strata.
Promote systematic investment habits from a young age.
Safeguard investors’ interests by helping recover lost investments.

Through strategic education and simplified investing solutions, AMFI is making significant strides toward a more inclusive financial ecosystem.

Final Thoughts

The launch of Chhoti SIP, Tarun Yojana, and MITRA marks a major milestone in democratizing access to mutual funds in India. These initiatives are not only expected to deepen market participation but also to strengthen India’s journey towards widespread financial inclusion. As mutual fund investing becomes simpler and more approachable, a larger segment of the Indian population stands to benefit from systematic wealth creation.

Top 5 ELSS Mutual Funds to Invest in February 2025 for Maximum Tax Savings and Growth

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Paisavidhya

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June 5, 2025

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Top 5 ELSS Mutual Funds to Save Tax and Build Wealth in February 2025

Looking to maximize your tax savings while growing your wealth? As the financial year nears its end, many investors rush to invest in tax-saving instruments without a strategic plan. However, tax planning should be an integral part of your financial strategy, not a last-minute decision. Among the various tax-saving options, Equity-Linked Savings Schemes (ELSS) stand out for their dual benefit of tax deductions and wealth creation.

In this article, we explore what ELSS mutual funds are and highlight the Top 5 ELSS Mutual Funds for February 2025, based on an in-depth evaluation of performance, risk, and cost metrics.

What Are ELSS Mutual Funds?

As per SEBI guidelines, these funds must allocate a minimum of 65% of their assets to equities.

Key Features of ELSS Funds:

Tax Benefits: Eligible for tax deduction up to ₹1.5 lakh under Section 80C of the Income Tax Act (Old Regime).
Lock-in Period: Three years, the shortest among all tax-saving investment options under Section 80C.

Top 5 ELSS Mutual Funds to Invest in February 2025

At 1 Finance, we have developed a proprietary Mutual Fund Scoring and Ranking System, which evaluates funds based on performance consistency, risk-adjusted returns, and cost-effectiveness. Here are the top performers:

1. DSP ELSS Tax Saver Fund

Rank: 1
Score: 99/100

A consistently strong performer, the DSP ELSS Tax Saver Fund has demonstrated resilience during market downturns while delivering robust returns.

Key Highlights:

Assets Under Management (AUM): ₹17,771 crore
Expense Ratio: 0.74%
5-Year CAGR: 20.11%

2. JM ELSS Tax Saver Fund

Rank: 2
Score: 95/100

Known for its high risk-adjusted returns, JM ELSS Tax Saver Fund has outpaced the benchmark regularly. However, its slightly higher expense ratio is something investors should consider.

Key Highlights:

AUM: ₹187 crore
Expense Ratio: 1.15%
5-Year CAGR: 19.62%

3. Quant ELSS Tax Saver Fund

Rank: 3
Score: 94/100

The Quant ELSS Tax Saver Fund has outperformed its peers with outstanding returns, driven by its dynamic equity allocation strategy.

Key Highlights:

AUM: ₹11,561 crore
Expense Ratio: 0.65%
5-Year CAGR: 29.44%

4. SBI Long Term Equity Fund

Rank: 4
Score: 91/100

This fund boasts a strong track record of delivering superior risk-adjusted returns over time, making it a reliable choice for conservative equity investors.

Key Highlights:

AUM: ₹11,561 crore
Expense Ratio: 0.93%
5-Year CAGR: 23.06%

5. Kotak ELSS Tax Saver Fund

Rank: 5
Score: 90/100

The Kotak ELSS Tax Saver Fund is known for effectively managing downside risks while offering competitive returns.

Key Highlights:

AUM: ₹6,501 crore
Expense Ratio: 0.57%
5-Year CAGR: 17.85%

Why Choose ELSS for Tax Saving?

Potential for Higher Returns: Exposure to equities can potentially deliver higher inflation-beating returns.
Diversification: ELSS funds invest across sectors and market caps, providing a balanced equity exposure.

Conclusion

Investing in ELSS mutual funds not only enables you to optimize your tax liability but also helps you build a corpus for future goals. The funds listed above have shown strong historical performance and sound risk management. Consulting a SEBI-registered financial advisor can help tailor a tax-saving strategy that best suits your needs.

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How to Invest in the US Stock Market from India: Step-by-Step Guide for 2025

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Paisavidhya

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June 4, 2025

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How to Invest in the US Stock Market from India: A Complete Guide for 2025

Diversification is often called the only free lunch in investing, and rightly so. As Indian investors look to broaden their portfolios beyond domestic markets, the US stock market has emerged as a popular destination. In this guide, we’ll explain how Indian investors can access US stocks, the available investment routes, tax implications, and critical considerations before you begin.

Why Should Indians Invest in US Stocks?

1. Geographical Diversification

Investing in US markets allows Indian investors to diversify beyond domestic equities. The US stock market is the most developed and liquid market globally, offering exposure to global leaders and innovative companies.

2. Currency Advantage

Investing in USD-backed assets can provide a hedge against INR depreciation. As the US dollar appreciates against the Indian rupee, your investment value can grow independently of stock performance.

3. Access to Global Giants

The US markets host some of the world’s most influential companies like Apple, Amazon, Microsoft, and Meta. Investing in these market leaders can enhance your portfolio’s quality and resilience.

Indian investors have multiple ways to invest in the US stock market:

1. Through Mutual Funds

Indian Asset Management Companies (AMCs) offer international mutual funds that invest directly or indirectly in US equities.

Direct Mutual Funds: These funds purchase US stocks directly.
Examples: Franklin India Feeder – Franklin US Opportunities, ICICI Prudential US Bluechip Equity Fund.

Key Advantage: Easy to invest, professional management, and no need for a foreign trading account.

2. Through Exchange-Traded Funds (ETFs)

Indian investors can access US markets via ETFs that track major US indices.

Examples:

Motilal Oswal Nasdaq 100 ETF
Mirae Asset NYSE FANG+ ETF

Note: US-focused ETFs in India are limited and may trade at a premium to their Net Asset Value (NAV), especially due to regulatory investment limits.

3. Direct Investment in US Stocks

You can invest directly in US-listed companies by opening an overseas trading account through platforms like:

INDMoney
Interactive Brokers
HDFC Securities
Vested

Caution: Be mindful of transaction charges, conversion fees, and platform security. Prefer reputed platforms and check for hidden costs, especially for regular investments like SIPs.

Important Regulatory Considerations

RBI Limit on Mutual Fund Overseas Investments: The total overseas investment limit for the Indian mutual fund industry is $7 billion, with a cap of $1 billion per AMC. Due to these caps, fresh allocations in US mutual funds may face delays or restrictions.

Taxation on US Stock Investments

1. Dividend Taxation

India and the US, Indian investors can claim credit for taxes paid in the US while filing their Indian income tax returns.

2. Capital Gains Taxation

Short-Term Capital Gains (STCG): If held for less than 24 months, taxed as per your income slab.
Long-Term Capital Gains (LTCG): If held for more than 24 months, taxed at 12.5% without indexation.

3. Tax Collected at Source (TCS)

No TCS is applicable for remittances under LRS up to $25,000. Beyond that, TCS at 5% (or the applicable rate) is collected.

Which Option Should You Choose?

Beginners: Mutual funds are a great starting point. They provide professional management and minimize the complexity of direct stock investing and tax filings.
Experienced Investors: For those who are comfortable researching stocks and navigating foreign investment rules, direct investment offers better control and access to a broader range of opportunities.

Always consult a financial advisor to align your international investing strategy with your risk profile and long-term goals.

Final Thoughts

Investing in the US stock market can be an excellent way for Indian investors to achieve global diversification and benefit from exposure to the world’s largest companies. Whether you choose mutual funds, ETFs, or direct stocks, understanding the taxation rules, regulatory guidelines, and platform charges is crucial for making an informed decision.

Make sure to evaluate your investment horizon, risk appetite, and financial goals before entering the US markets.

How to Redeem Mutual Funds in India: Step-by-Step Guide for a Smooth Redemption Process (2025)

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Paisavidhya

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June 4, 2025

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How to Redeem Mutual Funds in India: Step-by-Step Guide for a Smooth Redemption Process (2025)

How to Redeem Mutual Funds: A Complete Step-by-Step Guide for 2025

Updated on: [Current Date] | Reading Time: 5 Minutes

Mutual funds have become a cornerstone of modern investment portfolios, offering a simple and diversified path to wealth creation. While investing in mutual funds is often straightforward, many investors feel uncertain when it comes to mutual fund redemption — the process of selling mutual fund units and withdrawing the proceeds.

In this comprehensive guide, we’ll walk you through why investors redeem mutual funds, the various methods available, and the step-by-step process to make your redemption smooth and efficient.

What is Mutual Fund Redemption?

Mutual fund redemption refers to the process where investors sell their mutual fund units back to the Asset Management Company (AMC) and receive the equivalent value based on the prevailing Net Asset Value (NAV). Whether it’s to meet financial goals or manage portfolio performance, understanding how redemption works is crucial for every investor.

Why Do Investors Redeem Mutual Funds?

There are several reasons why investors may choose to redeem their mutual fund investments:

1. Achievement of Financial Goals

Investors often align their mutual fund investments with long-term goals like buying a house, funding education, or retirement planning. Once these objectives are met, redemption becomes the next logical step.

2. Consistent Underperformance

Funds that consistently lag behind their benchmarks or peers can erode overall portfolio returns. Redeeming such funds allows investors to reallocate capital into better-performing alternatives.

3. Financial Emergencies

Unexpected financial crises — such as medical emergencies, job loss, or urgent liquidity needs — may prompt investors to redeem their mutual fund units to access quick cash.

How to Redeem Mutual Funds: Available Options

Once you’ve decided to redeem your mutual funds, there are multiple ways to initiate the redemption:

1. Direct Redemption Through AMC

Investors can redeem mutual funds directly through the AMC’s online portal or by submitting a physical redemption form at the AMC office.

Steps:

Visit the AMC’s official website.
Log in using your registered credentials.
Select the mutual fund you wish to redeem.
Choose the redemption type: full, partial (units or amount-based).
Confirm the transaction via OTP/SMS.
Proceeds are typically credited to your bank account within T+3 days for equity funds.

2. Redemption via Demat Account

If you’ve purchased mutual funds through a Demat account (e.g., Zerodha, Groww, ICICI Direct), you can place a sell order through your broker’s platform.

Advantages:

Seamless integration with your existing investments.
Easy tracking and reporting through a single platform.

3. Through Mutual Fund Distributors or Aggregators

Platforms like CAMS, KFintech, Groww, and Zerodha Coin offer mutual fund redemption services for investor convenience.

Process:

Log in to your account on the distributor’s platform.
Select the fund and specify the redemption details.
Follow the authentication process to complete the request.

Types of Mutual Fund Redemption

Investors have flexible options when redeeming mutual funds:

Redemption Type	Description
Unit-Based Redemption	Specify the number of units you want to redeem at the current NAV.

Full Redemption	Redeem all units in the mutual fund scheme.

Note: Always check for exit loads before redeeming. Equity mutual funds typically levy a 1% exit load if redeemed within 12 months, while debt fund exit loads vary based on the fund category.

Things to Consider Before Redeeming Mutual Funds

Exit Load: Understand if your fund imposes an exit load and how it impacts your redemption amount.
Tax Implications: Capital gains from mutual fund redemptions may be subject to taxation:
- Equity Funds: Short-Term Capital Gains (STCG) are taxed at 15%, while Long-Term Capital Gains (LTCG) above ₹1 lakh are taxed at 10% without indexation.
- Debt Funds: Gains are taxed as per your income slab.
Market Conditions: Redeeming during market downturns might lock in losses; consider if redemption is essential.

Step-by-Step Guide to Redeem Mutual Funds via AMC

Visit the AMC Website: Navigate to the online portal of the AMC managing your fund.
Log In: Use your registered email ID and password or folio number.
Select Fund: Choose the specific mutual fund scheme you want to redeem.
Select Redemption Type: Decide if you want to redeem by amount, number of units, or full redemption.
Verify Details: Confirm your redemption request.
Authenticate Transaction: Complete OTP verification sent to your registered mobile/email.
Receive Funds: The amount is credited to your linked bank account within T+1 to T+3 working days, depending on the fund category.

Final Thoughts: Should You Redeem Your Mutual Funds?

While redeeming mutual funds is sometimes necessary, it’s important not to make hasty decisions. Premature redemption may disrupt your financial planning and dilute the benefits of long-term compounding.

Before redeeming, evaluate your investment goals, consult a qualified financial advisor, and carefully assess market conditions, tax implications, and exit loads. Informed decisions today can safeguard and enhance your wealth tomorrow.