Month: February 2026

Mutual funds are highly liquid investments, which means an investor can choose to redeem – partly or fully – at their convenience. The only exception to this rule is the Equity Linked Saving Scheme or the ELSS fund, which has a lock-in period of three years before redemption.

Redemption, in layman language, is nothing but selling off your mutual fund investment. It is also referred to as exit from the scheme, and such an exit can be partial or complete depending on your preference.

Why do Investors Sell Mutual Funds?

There are various reasons why you might want to redeem or sell your mutual fund investment. Some of these include the following:

• If you need funds to meet your financial obligations
• If you are not satisfied with the returns offered by your scheme and you find other similar schemes offering better returns, you can switch to another scheme. Switching is, in effect, selling one fund and buying another
• If your investment strategy or mutual fund exit strategy has changed and you no longer wish to remain invested in the existing scheme
• If your risk profile has changed and you want to change your investments too
• If the market is in a downturn and you wish to protect your returns from erosion, you can sell off or switch your investment

How to Sell Mutual Funds?

Selling mutual funds is easy and quick. You can either opt for the online or offline mode to wholly or partly sell your mutual funds. Let’s have a look at both these modes:

The offline mode of selling mutual funds

Under the offline mode, you can either sell your mutual fund through a broker/distributor or directly approach the Asset Management Company (AMC). You would have to fill up a redemption request form stating the units to be redeemed and the details of your mutual fund scheme. Submit the form which the AMC would process. After the form is processed, redemption would be complete, and the AMC would transfer the redemption amount to your bank account. You can also request a cheque which would be mailed to your registered address.

Online mutual fund selling

This mode allows you to sell mutual funds online easily. The different ways in which you can sell or redeem mutual funds online are as follows:

1. Through the website or mobile app of the AMC
2. Through the website or mobile app of the Registrar and Transfer Agent (R & T Agent) through which you invested in the scheme
3. Through the website of an online broker from whom you invested in the scheme
4. Through your Demat or trading account, if you bought your mutual funds using the same

What is Exit Load?

In some cases, you might face an exit load when you sell mutual funds. Exit load is a charge levied on the redemption proceeds if you exit from the scheme within a specified time. This load would be deducted from the amount payable, and then the net amount would be credited to you.

For example, if a mutual fund scheme has an exit load of 1% on redeeming within a year and you exit the scheme before a year expires, the load would be applicable. In such cases, if, on selling the mutual fund, you have earned Rs 1 lakh, the net proceeds payable after the application of exit load would be Rs 99,000.

Tax Implications When Selling Mutual Funds

When selling a mutual fund scheme, you need to be aware of the possible tax implications that you might face. The tax implication depends on the type of scheme that you are redeeming and is applicable as follows:

• If you redeem equity mutual funds within 12 mth of investing, the returns earned would be short-term capital gains. Such gains would be taxed at 15% However, if you sell the fund after 12 mth, the gains would be called long-term capital gains. Such returns, up to Rs 1 lakh, would be tax-free. However, excess returns would be taxed at 10%
• If you sell debt mutual funds within 36 mth, you earn short-term capital gains Such gains are taxed at your slab rates. Mutual fund redemption after 36 mth is called long-term capital gains. Such gains are taxed at 20% with indexation benefits

Do’s and Don’ts When Selling Mutual Funds

While you can sell mutual fund units for your financial and strategic needs, here are some do’s and don’ts to keep in mind when going for a full redemption of mutual funds or partial redemption of mutual funds:

• If the market is falling, don’t be in a hurry to redeem. Mutual funds are suitable long-term investments. If you stay invested, the market volatility will stabilize, and your investment would give you good returns
• Do check the mutual fund exit load, if any. If you can, try and hold onto the scheme to avoid the mutual fund exit charges as it reduces your profits
• Do keep the tax implication in mind when redeeming
• Avoid selling during the lock-in period

Know how to sell mutual funds with exit loads or without and then choose the most suitable mode of selling. Understand the tax implications of the sale and disclose your returns when filing your income tax returns. Sell funds to meet your financial needs or to suit your changing investment strategies but don’t give up on your investment entirely. Invest in other schemes to diversify your portfolio and to create funds for your financial needs.

Filing Income Tax Returns (ITR) is your federal duty if you earn an income in the financial year exceeding Rs. 2.5 lakh. When mutual fund tax filing your returns, you have to declare incomes earned from various sources. If you have made specific investments that earn you tax deductions from tax on mutual fund dividends or exemptions, the same should be declared in the ITR.

Mutual fund investments also give you tax benefits if you choose the ELSS schemes. Moreover, when you redeem your investment and gain profit or suffer a loss, the same should also be reported on your tax return. Let’s understand how to declare mutual fund investment in ITR and the mutual fund tax implications.

Declaring Tax-Eligible Mutual Fund Investment

Equity Linked Saving Schemes, or ELSS, are equity-oriented mutual fund schemes with a distinct tax advantage. Investment into these schemes allows you a deduction from your taxable income to the tune of Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961, that you may declare under the heading ‘Chapter VI A deductions’ in your ITR.

Declaring Capital Gains on Mutual Fund Redemption

Whenever you redeem your mutual fund investments, any profit or loss incurred is termed as capital gain or capital loss, respectively. The detail of such gains or losses should also be declared in your ITR for tax on mutual fund redemption.

However, before jumping on how to declare capital gains tax mutual funds, here’s a quick look at how the gains are taxed:

• In the case of equity mutual funds, gains earned within 12 mth are called short-term capital gains. Such gains are taxed at 15%. On the other hand, gains earned after 12 mth are long-term capital gains. Such gains are tax-free up to Rs. 1 lakh, and gains exceeding the limit are taxed @10%.
• In the case of debt mutual funds, gains earned within 36 mth are called short-term capital gains. They are taxed at your income tax slab rates. However, gains earned after 36 mth are called long-term capital gains. They are taxed at 20% with indexation, a process through which an asset’s acquisition cost is inflated/adjusted to bring it at par with current rates, taking inflation into account.

How to Declare Capital Gains from Mutual Funds?

Now that you know how mutual fund gains are taxed and filing ITR for capital gains, it’s time for step two, which is how to declare mutual fund investment in ITR.

Since mutual fund returns are called capital gains, they are recorded under the heading ‘Income from capital gains.’ You need to mention the amount of gain incurred and the respective tax liability and tax treatment for mutual funds. 

Similarly, losses on redemption should be declared as capital losses under the same heading. You can use the losses to set off the profits earned from other mutual fund investments.

When calculating the amount of capital gains, you can deduct the brokerage paid to your mutual fund distributor or broker, if any, from the gains incurred.

Setting off of Capital Loss from Gains on Redemption of the Fund

If you have incurred a capital loss in the financial year, then on redeeming your mutual fund investments, you can use the loss to offset the profits earned on another scheme. This set-off is allowed in the same financial year as well as for eight subsequent financial years. To offset your capital losses against gains and reduce your subsequent taxation on mutual funds, you should file your ITR with the income tax department within the due date. Failure to do so would not allow you to carry forward your losses for set-offs from future capital gains statement for ITR.

Here are the rules of setting off losses against gains:

• Short term capital loss can be set off against either short term or long term capital gains
• Long term capital loss can be set off only against long term capital gains

ITR Form 2

You would have to file your returns in ITR Form 2 if you have:

• Capital gains or losses from a mutual fund redemption
• You are a salaried taxpayer or a Hindu Undivided Family (HUF)

In this ITR form for mutual funds filing capital gains in ITR, the details of the capital gains or losses suffered would have to be mentioned.

Suppose you incur capital gains or losses from an equity mutual fund on which Securities Transaction Tax (STT) has been paid. Then, in that case, you need to mention the individual details of every mutual fund scheme redeemed. 

You will also need to fill out Schedule 112A for each scheme that you have redeemed in a financial year and on which you have earned a capital gain or loss.

Conclusion

If you have invested in tax-saving ELSS schemes, you may claim a tax deduction when you declare your investment in your mutual fund Income Tax Returns (ITR). Moreover, any gains or losses incurred on redeeming an existing mutual fund investment should also be declared in the ITR for filing tax on mutual fund dividends. Understand thoroughly how to declare mutual fund investment in ITR so that you can comply with the rules of filing ITR for mutual funds and avoid penalties. Also, file your return on time to fulfil your duty and carry forward your losses to subsequent financial years if you have any.

Mutual funds are popular among individual investors for two reasons – diversification by investing in multiple stocks and professional management of funds. However, selecting the best mutual funds among a plethora of options can be tricky. To simplify this daunting task, we have listed the best mutual funds for the long term based on various parameters. Read on to know more.

What are the top 10 mutual funds with the highest returns?

Name	Sub-Category	AUM (Rs. in cr.)	3Y CAGR (%)	5Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
ICICI Pru Overnight Fund	Overnight Fund	10,633.83	125.16	0.00	0.10	0.12	100.00	6.49	329.30
Quant Small Cap Fund	Small Cap Fund	8,075.14	47.73	30.94	0.77	14.69	5,000.00	42.07	65.36
ICICI Pru Infrastructure Fund	Sectoral Fund – Infrastructure	2,917.13	46.65	22.28	1.49	9.85	5,000.00	41.90	38.92
Sundaram LT Micro Cap Tax Adv Fund-Sr VI	Equity Linked Savings Scheme (ELSS)	38.41	45.69	20.85	1.16	10.85	0.00	31.37	44.45
ICICI Pru Bharat 22 FOF	FoFs (Domestic) – Equity Oriented	198.75	45.49	16.32	0.08	11.76	5,000.00	48.04	31.67
Sundaram LT Tax Adv Fund-Sr III	Equity Linked Savings Scheme (ELSS)	34.11	44.83	21.88	1.18	10.46	0.00	32.08	41.81
Sundaram LT Tax Adv Fund-Sr IV	Equity Linked Savings Scheme (ELSS)	21.66	44.66	21.68	1.18	10.38	0.00	32.33	40.69
Quant Infrastructure Fund	Sectoral Fund – Infrastructure	930.50	44.59	28.01	0.77	15.53	5,000.00	19.51	52.27
HDFC Infrastructure Fund	Sectoral Fund – Infrastructure	856.45	44.52	16.80	1.68	13.35	100.00	46.67	32.17
SBI Magnum Children’s Benefit Fund-Investment Plan	Solution Oriented – Children’s Fund	1,118.71	44.48	0.00	0.94	8.16	5,000.00	25.31	0.00

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 mutual funds in India for 2023 across assets for the long term on the Tickertape Mutual Fund Screener are mentioned below.

Top 10 equity mutual funds in India

Also known as growth funds, equity funds invest majorly in stocks of companies. These funds can further be classified based on market capitalisation – large-cap, mid-cap, small- or micro-cap funds. Equity mutual funds are also classified based on the sectors that they invest in, which can be infrastructure, IT, and so on. Following is the list of the top 10 equity funds for long-term investment based on the 5-yr CAGR.

Name	Sub-Category	AUM (Rs. in cr.)	3Y CAGR (%)	5Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
Quant Small Cap Fund	Small Cap Fund	8,075.14	47.73	30.94	0.77	14.69	5,000.00	42.07	65.36
ICICI Pru Infrastructure Fund	Sectoral Fund – Infrastructure	2,917.13	46.65	22.28	1.49	9.85	5,000.00	41.90	38.92
Sundaram LT Micro Cap Tax Adv Fund-Sr VI	Equity Linked Savings Scheme (ELSS)	38.41	45.69	20.85	1.16	10.85	Not allowed	31.37	44.45
Sundaram LT Tax Adv Fund-Sr III	Equity Linked Savings Scheme (ELSS)	34.11	44.83	21.88	1.18	10.46	Not allowed	32.08	41.81
Sundaram LT Tax Adv Fund-Sr IV	Equity Linked Savings Scheme (ELSS)	21.66	44.66	21.68	1.18	10.38	Not allowed	32.33	40.69
Quant Infrastructure Fund	Sectoral Fund – Infrastructure	930.50	44.59	28.01	0.77	15.53	5,000.00	19.51	52.27
HDFC Infrastructure Fund	Sectoral Fund – Infrastructure	856.45	44.52	16.80	1.68	13.35	100.00	46.67	32.17
Sundaram LT Micro Cap Tax Adv Fund-Sr IV	Equity Linked Savings Scheme (ELSS)	38.41	44.48	20.67	1.32	11.08	Not allowed	31.49	42.56
Nippon India Small Cap Fund	Small Cap Fund	36,539.55	44.17	26.64	0.72	11.16	Not allowed	38.98	45.87
Sundaram LT Micro Cap Tax Adv Fund-Sr V	Equity Linked Savings Scheme (ELSS)	30.87	43.94	20.23	1.19	10.81	Not allowed	29.72	43.04

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 equity mutual funds in India for 2023 for the long term on the Tickertape Mutual Fund Screener are mentioned below.

• Category > Equity
• Plan: Growth
• 3-yr CAGR: Set from highest to lowest

Top 10 debt mutual funds in India

Debt funds invest in fixed-income instruments like corporate bonds, government bonds, corporate debt securities, and others. These are known for their low cost, relatively stable returns, and higher liquidity. Following is the list of the top 10 debt funds for the long term based on the 5-yr CAGR.

Name	Sub-Category	AUM (Rs. in cr.)	3Y CAGR (%)	5Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
ICICI Pru Overnight Fund	Overnight Fund	10,633.83	125.16	0.00	0.10	0.12	100.00	6.49	329.30
Bank of India Credit Risk Fund	Credit Risk Fund	153.36	41.52	-3.81	1.22	0.37	5,000.00	5.90	44.12
Aditya Birla SL Medium Term Plan	Medium Duration Fund	1,890.60	13.56	9.02	0.87	1.02	1,000.00	7.92	14.38
Bank of India Short Term Income Fund	Short Duration Fund	75.99	11.91	4.09	0.60	7.25	5,000.00	13.86	10.72
UTI Credit Risk Fund	Credit Risk Fund	413.70	11.50	-0.62	0.86	0.71	500.00	7.76	6.16
Baroda BNP Paribas Credit Risk Fund	Credit Risk Fund	165.06	11.45	7.92	0.79	0.65	5,000.00	8.00	10.80
Franklin India ST Income Plan	Short Duration Fund	408.95	10.44	5.59	0.04	0.84	Not allowed	9.35	6.98
UTI Dynamic Bond Fund	Dynamic Bond Fund	467.72	9.90	6.57	0.70	0.92	500.00	6.94	9.97
Nippon India Strategic Debt Fund	Medium Duration Fund	126.42	9.81	-0.33	1.38	1.52	5,000.00	7.77	4.73
Nippon India Credit Risk Fund	Credit Risk Fund	1,016.76	9.53	4.88	0.91	0.76	500.00	8.64	7.41

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 debt mutual funds in India for 2023 for the long term on the Tickertape Mutual Fund Screener are mentioned below.

• Category > Debt
• Plan: Growth
• 3-yr CAGR: Set from highest to lowest

Top 10 hybrid mutual funds in India

Hybrid funds invest in more than one asset class – equity, debt, and others depending on the investment objective. These funds invest across asset classes to diversify the portfolio. Following is the list of the top 10 hybrid funds for the long term based on the 5-yr CAGR.

Name	Sub-Category	AUM (Rs. in cr.)	5Y CAGR (%)	3Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
Quant Multi Asset Fund	Multi Asset Allocation Fund	936.86	23.24	29.21	0.67	9.39	5,000.00	15.55	35.97
Quant Absolute Fund	Aggressive Hybrid Fund	1,335.08	21.56	28.14	0.75	10.33	5,000.00	11.09	34.87
Bank of India Mid & Small Cap Equity & Debt Fund	Aggressive Hybrid Fund	462.92	18.69	28.15	1.55	9.38	5,000.00	28.11	29.96
ICICI Pru Equity & Debt Fund	Aggressive Hybrid Fund	24,990.09	17.93	31.58	1.12	6.99	5,000.00	25.11	27.43
ICICI Pru Multi-Asset Fund	Multi Asset Allocation Fund	21,705.11	17.27	29.80	1.01	5.91	5,000.00	24.68	26.25
HDFC Balanced Advantage Fund	Balanced Advantage Fund	60,640.94	16.76	30.84	0.84	7.02	100.00	28.49	25.12
Kotak Equity Hybrid Fund	Aggressive Hybrid Fund	4,049.59	16.54	23.25	0.47	6.47	100.00	17.85	23.32
Baroda BNP Paribas Aggressive Hybrid Fund	Aggressive Hybrid Fund	863.30	16.07	20.30	0.60	7.61	5,000.00	19.05	18.94
Edelweiss Aggressive Hybrid Fund	Aggressive Hybrid Fund	822.90	15.86	24.50	0.57	7.18	5,000.00	23.62	22.05
DSP Equity & Bond Fund	Aggressive Hybrid Fund	8,121.32	15.17	19.85	0.79	7.23	100.00	20.32	18.00

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 hybrid mutual funds in India for 2023 for the long term on the Tickertape Mutual Fund Screener are mentioned below.

• Category > Hybrid
• Plan: Growth
• 5-yr CAGR: Set from highest to lowest

Best mutual funds for SIP

Investing in mutual funds can be done in two ways – lump sum or systematic investment plan (SIP). Mutual funds SIP allows you to invest a fixed amount systematically on a weekly, monthly or quarterly basis. Some mutual funds also allow you to increase the fixed amount of investment. Here’s a list of the top 10 mutual funds for SIP to invest in 2023.

Best tax-saving mutual funds

An Equity-Linked Savings Scheme (ELSS) is the only type of mutual fund that offers tax benefits. They are diversified equity funds. Section 80C of the Income Tax Act, 1961 allows you to claim a tax deduction on the amount that you invest in ELSS. The maximum deduction you can claim in this regard is Rs. 1,50,000 per year, subject to the overall permissible limit of the section. Here’s more about tax-saving mutual funds and a list of the top 10 ELSS mutual funds.

What are mutual funds?

Mutual funds pool money from several investors and invest in securities like stocks, bonds, debt instruments, and other assets. These are managed by professionals who allocate funds based on the investment objective, which can be long-term wealth creation, tax saving, etc.

What is a mutual fund NAV?

Mutual fund NAV (Net Asset Value) is the price per unit of the scheme. Similar to how you pay the stock price to buy one share, you pay the NAV to buy one unit of a mutual fund. However, the NAV doesn’t change throughout the trading hours like a stock price; it is calculated at the end of the day after taking into consideration the closing prices of all underlying assets. The NAV is also adjusted for the expenses involved in the management, administration, distribution, and other factors.

Types of mutual funds to invest

Based on the underlying assets, mutual funds are classified into various types – equity funds, debt funds, and hybrid funds being the broad ones. Selecting one of these depends on various factors like your investment objective, risk appetite, and return expectations.

How to select the top-performing mutual funds in India?

1. Consider the fund’s track record: Looking at its historic performance gives insights into how it has fared over the years, even when the markets were down.

2. Check the fund’s Alpha value: Alpha indicates whether the fund has generated returns in excess of a benchmark.

3. Check the expense ratio: Expressed in terms of a percentage of the fund’s returns, the expense ratio is the fee charged by the AMC to manage your investment.

4. Investment objective: Map a fund with the objectives of a mutual fund scheme to see if it is in line with your financial goals.

5. Performance of the fund manager: Your investments in a mutual fund are managed by the fund manager. As such, their expertise has a significant bearing on how the fund performs.

Documents required for mutual fund investment

Following are some documents required for mutual fund investment:

• Application form: You would need one form to open a mutual fund account and another if you want to opt for an SIP plan. In addition, you will be required to submit an ECS form if you are opting for an electronic transfer from your bank account. Some fund houses may also ask you to fill up other forms like a risk profile form.
• KYC compliance: You have to verify your PAN for the Know Your Customer (KYC) norms to invest in mutual funds. You can register yourself for KYC via CDSL Ventures Limited (CVL). If you are KYC-compliant, you are required to submit the KYC acknowledgement letter or copy. But if you are not, you need to furnish the following documents:

• KYC form
• Passport-sized photograph
• Identity proof: PAN with photograph, passport, Aadhaar, driving licence or voter ID
• Address proof: Aadhaar, passport, driving licence, voter ID card, registered lease, sale agreement of residence, ration card, flat maintenance bill, insurance copy, utility bills for the last three months.

Tax on mutual funds

Investors are rewarded in two ways when they invest in mutual funds: dividends and capital gains. Both of them are subject to taxes. 

• Tax implications on dividends

Dividends received from mutual funds are subject to Tax Deduction at Source (TDS) @ 10% if the dividend income from a mutual fund is more than Rs. 5,000. The dividend is also subject to taxation according to the tax slab of the assessee, i.e., the dividend earned through mutual funds is added to the taxable income, and tax is calculated according to the tax slab the investor belongs to. 

• Tax implications on capital gains

Taxes vary significantly depending upon the type of capital gains – short-term or long-term – and the type of mutual fund – equity or debt. 

The key factors that determine the tax on mutual funds are the type of fund, type of gain generated, and holding period. To learn about more tax on mutual funds, read Mutual Fund Taxation: How Different Mutual Funds Are Taxed and Other Benefits.

Conclusion

Filtering the top-performing mutual funds in India can be a time-consuming process but not an impossible task. In fact, Tickertape Mutual Fund Screener is built with several filters to help you find mutual fund schemes suitable to your portfolio. Once you screen mutual funds, you can further evaluate them using Tickertape Mutual Fund Pages that host comprehensive information on the respective mutual fund, its manager, peers, and more.

Exchange-Traded Funds, or ETFs, are investment products that combine the features of mutual funds and stocks. Like a mutual fund, they represent a basket of securities; like a stock, they are traded on exchanges in real time.

India’s ETF market began in 2001, and over the years, ETFs have steadily moved from niche products to widely used investment vehicles. Data from the Association of Mutual Funds in India (AMFI) shows that passive funds had assets under management of Rs. 12.48 lakh crore in July 2025, a rise of 14% year-on-year and 118% over the last three months. Passive funds now make up around 17% of the total mutual fund industry AUM.

Understanding ETFs in the Indian Context

What exactly is an ETF?

As mentioned, an ETF combines the features of stocks and mutual funds. This means with one ETF, you get exposure to a wide range of asset classes, including equities, debt, commodities, and multiple securities at once, making investing simpler for a newcomer.

How ETFs Differ from Mutual Funds

While ETFs and mutual funds both offer a way to invest in a diversified basket of securities, they have several fundamental differences. The primary distinction lies in how they are traded and priced. Let’s take a look at a comprehensive comparison of both.

Aspect	ETFs	Mutual Funds
Trading & Pricing	Traded on stock exchanges throughout the day like stocks. Price changes in real time.	Traded on stock exchanges throughout the day like stocks. Price changes in real time.
Demat Requirement	Require a demat and trading account to invest.	Can be purchased directly from AMCs or distributors. No demat account needed.
Unit Structure	Units linked to benchmark values (e.g., 1/100th of Nifty 50 ETF). Provides an explicit, tangible reference for the ETF’s value during trading hours.	Value shown through daily NAV without such benchmark linkage.
Cost & Transparency	ETFs have lower expense ratios	Mutual funds have higher management fees.

Trading and Pricing: ETFs are traded on stock exchanges throughout the day, just like individual stocks. Their price is determined by real-time supply and demand in the market. In contrast, mutual fund units are purchased or redeemed at the Net Asset Value (NAV), which is calculated only once at the end of each trading day based on the closing prices of the underlying assets.

Account Requirements: To invest in ETFs, you must have a demat and trading account, as they are bought and sold on the stock exchange. Mutual funds can often be purchased directly from the Asset Management Company (AMC) or through various distributor platforms without requiring a demat account.

Unit Structure: A mutual fund’s value is represented by its daily NAV. An ETF unit, however, is often designed to represent a specific, measurable fraction of its underlying benchmark. For instance, a Nifty 50 ETF unit might be structured to be approximately 1/100th of the Nifty 50 index value, or a Gold ETF unit could be equivalent to one gram of gold. This direct linkage provides a clear, tangible reference for the ETF’s value during trading hours.

Cost and Transparency: ETFs, being passively managed, generally have lower expense ratios compared to actively managed mutual funds. Additionally, the portfolio holdings of an ETF are disclosed daily, offering a higher degree of transparency than mutual funds, which typically report their portfolios on a monthly or quarterly basis.

Types of ETFs in India

When discussing Exchange-Traded Funds, not every type of ETF is currently available in India. While the global ETF universe spans a wide range of asset classes and strategies, the Indian market is still evolving.

Index Equity ETFs: These track broad market indices or specific segments. For example, say a Nifty 50 ETF holds the 50 largest Indian companies in the Nifty index, giving instant exposure to the overall market. There are also sectoral ETFs focusing on sectors like banking or technology to target specific industries.

Commodity ETFs: Gold ETFs are quite popular in India, allowing you to invest in gold without holding physical gold. There are also newer commodity ETFs (like Silver, Copper, Aluminium ETFs) for diversifying into precious metals. Gold ETFs have been used as a hedge against inflation and saw surging interest during past market crises.

International ETFs: These ETFs enable global exposure by tracking foreign indices. For instance, Indian investors can buy ETFs that track the Nasdaq-100 or S&P 500, gaining exposure to US markets through their regular demat account. 

Debt ETFs: Debt and bond ETFs (such as the Bharat Bond ETFs) allow investors to invest in fixed-income securities. These track indexes of government bonds or corporate bond portfolios, providing a stable income investment option with the flexibility of trading on the exchange.

Today, there are over 250 ETF schemes tracking dozens of different indices. The market has come a long way from a single product in 2001. Regulatory initiatives by SEBI have further fuelled the growth in ETF listings and assets. 

Disclaimer: The above ETF examples are intended solely for educational purposes, offering conceptual clarity to investors based on the information provided. 

How to Invest in ETFs?

Investing in ETFs is a process similar to trading individual stocks, as they are listed and traded on stock exchanges. To begin, an investor is required to have a demat account and a trading account, which can be opened through a registered stockbroker. Once these accounts are set up, you can buy or sell ETF units through your broker’s trading platform during market hours. The price of an ETF fluctuates throughout the trading day based on supply and demand, allowing you to purchase units at real-time market prices, just as you would with a company’s shares.

Key Benefits of Investing in ETFs

Diversification Made Simple: One of the biggest advantages of ETFs is instant diversification. By purchasing one ETF, you get exposure to a basket of stocks or assets, rather than putting all your money into one company. For example, buying a Nifty 50 index ETF effectively makes you a part-owner of all 50 companies in the Nifty 50 index.

Cost-effectiveness: ETFs are known for their low cost, which is a key reason they’re gaining popularity. Because they are passively managed (just tracking an index without active stock-picking), their expense ratios tend to be much lower than those of regular mutual funds.

Liquidity & Flexibility: Another perk of ETFs is the flexibility they offer in trading. Unlike traditional mutual funds, which can only be bought or sold at the end-of-day net asset value (NAV), ETFs trade live on the stock exchange throughout the trading day. You can buy or sell ETF units at market prices anytime during market hours, just like shares of a company.

Transparency & Simplicity: Since an ETF typically tracks a known index or asset, you always know what you’re investing in. The indicative NAVs are available in real time to an investor, and so is the basket of securities that comprises the portfolio. If you buy a Sensex ETF, you can be sure it holds the 30 Sensex stocks in the same proportions as the index. 

Variety of Choices: ETFs come with a lot of choices to suit your investment goals. You can find ETFs covering nearly every major asset class and strategy, ranging from broad equity exposure to a specific sector. Looking for a safe asset or inflation hedge? Gold and Silver ETFs are available to add commodities to your portfolio. 

Accessibility & Global Exposure: Through Indian ETFs, you can gain exposure to global markets and diverse assets with ease. For example, several Indian fund houses offer international ETFs or Fund-of-Fund ETF schemes that track US indices like the Nasdaq-100 or S&P 500. By purchasing these on the NSE/BSE, an Indian investor effectively buys a slice of the US tech or broader market, without needing any overseas account or complicated forex transactions.  

Challenges & Considerations for Indian Investors

While ETFs offer many benefits, it’s also important to be aware of a few challenges and considerations, especially in the Indian context:

Liquidity Concerns: Not all ETFs in India are highly traded. Some niche or new ETFs see low trading volumes, which can result in a bigger bid-ask spread (the difference between buy and sell price). Low liquidity might make it slightly harder to buy/sell large quantities at a fair price. That said, liquidity is improving as retail participation grows, and the most popular ETFs (like Nifty/Sensex ETFs or Gold ETFs) generally have sufficient volume. 

Tracking Error: ETFs aim to replicate an index, but in practice, there can be a small difference between the ETF’s returns and the index’s returns. This difference, known as tracking error, arises due to fund expenses, cash holdings, and execution lags. It’s wise to check an ETF’s tracking record.

How are ETFs Taxed in India?

In India, the taxation of Exchange-Traded Funds (ETFs) depends entirely on the underlying asset they track.

Taxation is primarily applied in two ways:

Capital Gains: Profit from selling ETF units.

Dividends: Income distributed by the ETF.

Here’s a detailed breakdown of how different types of ETFs are taxed as of Financial Year 2025-26:

Equity ETFs

An ETF is classified as an “Equity ETF” if it invests at least 90% of its corpus in listed Indian equities. They are taxed similarly to equity stocks.

• As per Section 112A of the Income Tax Act, long-term capital gains exceeding Rs 1.25 lakh before 23 July 2024 will be taxed at 10%, while those sold on or after 23 July 2024 will be charged at the rate of 12.5% without indexation. 

• As per Section 111A of the Income Tax Act, short-term capital gains tax will be applicable at the rate of 15% on the sale of assets done before 23 July 2024 and 20% on those sold on or after 23 July 2024.

The above tax structure remains the same for gold, debt, and other ETFs.

Indexation is a key benefit here. It adjusts the purchase price of your investment for inflation, which effectively reduces your taxable gain.

Dividend Taxation

If an ETF pays out dividends, this income is added to your total taxable income and taxed according to your income tax slab rate. If your total dividend income from a single fund house exceeds ₹5,000 in a financial year, a 10% Tax Deducted at Source (TDS) is applicable. 

Disclaimer: The above information is intended solely for educational purposes. Please consult your financial advisor before investing.

To Wrap Up

ETFs have truly changed the investment landscape in India by making investing simpler, cheaper, and more accessible. For beginners, ETFs offer a friendly entry into the markets. You can start with even a single unit and get a diversified portfolio. 

To sum up, ETFs in India offer diversification made easy, cost savings, liquidity, transparency, and a world of investment options. Whether you’re just starting to invest or looking to refine your strategy, exploring ETFs could be a way to invest in your financial future. 

For more educational content like this, please refer to the Zerodha Fund House blog.

---

Disclaimers:

An Investor education and awareness initiative by Zerodha Mutual Fund.

Know Your Customer: To invest in the schemes of Mutual Fund (MF), an investor needs to be compliant with the KYC (Know Your Customer) norms and the procedure is -> Fill the Common KYC (CKYC) application form by referring to the instructions given below: 

Enclose self-certified copies of both proof of identity and address. For Proof of Identity, submit any one document – PAN/ passport / voter ID/ driving license/ Aadhaar / NREGA job card/ any other document notified by central government. Proof of address, submit any one document which is the same as the proof of identity, except for PAN (since this document does not specify the address). If your permanent address is different from the correspondence address, then you need to submit proof for both the addresses. Documents Attestation – By any one from the authorized officials as mentioned under instructions printed on the CKYC application form. PAN Exempt Investor Category (PEKRN) – Refers to investments (including SIPs) in MF schemes up to INR 50,000/- per investor per year per Mutual Fund. This set of investors need to submit alternate proof of identity in lieu of PAN. In Person Verification (IPV) – This is a mandatory requirement and can be done by the list of officials mentioned in the instructions printed overleaf on the CKYC application form. Please submit the completed CKYC application form along with supporting documents at any of the point of acceptance like offices of the Mutual Fund/ Registrar, etc.

Investors may also complete their KYC online through Aadhar OTP-based authentication. Visit the respective fund house website or contact their customer care to know more about the process.

Modification to existing details like address/ contact details/ name etc. in KYC records – For any modifications to be done to the existing KYC details, the process remains same as mentioned above, except that only the details to be changed needs to be mentioned on the form along with PAN/ PEKRN and submitted with the relevant proofs. 

Modification to your existing details like contact details/ name/ tax status/ bank details/nomination/ FATCA etc in Fund House records – Please visit the website of the respective Fund House to understand the procedure to update the details (if published) OR reach out to the customer service team of the respective Fund House.

Dealing with registered Mutual Funds shall be part of the blog at the end of the blog

Investors are urged to deal with registered Mutual Funds only, details of which can be verified on the SEBI website (www.sebi.gov.in) under Intermediaries/ Market Infrastructure Institutions.

Redressal of Complaints shall be part of the blog at the end of the blog

If you have any queries, grievances or complaints pertaining to your investments, you may approach the respective Fund House through various avenues published on their website. If you are not satisfied with the responses provided by the Fund House, you may then register your complaint on SCORES (Sebi Complaints Redress System) portal provided by SEBI for which the link is -> https://scores.sebi.gov.in   

Other Disclaimer: The Content of this article/document is for educational and informational purposes only and should not be construed as financial advice. Please consult your financial advisor for advice suited to your specific circumstances.

Investing in mutual funds and other financial products involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, investors should conduct their own research and seek advice from qualified financial advisors to ensure that the respective products and strategies are suitable for their specific financial situation and objectives. 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

In India’s dynamic investment landscape, many retail investors face a common challenge: they either concentrate all their wealth in equities, chasing high returns, or they miss opportunities because managing multiple asset classes simultaneously could feel overwhelming. 

This is where a multi-asset investing approach comes into play. Multi-asset strategies allow investors to build balanced portfolios that benefit from professional fund management while maintaining diversified exposure across different investment vehicles. In fact, mixing asset classes (such as stocks, bonds, gold, and more) can help to smooth out your investment journey and potentially enhance risk-adjusted long-term returns.

This article explains what multi-asset investing is and why it matters for Indian retail investors today. 

Let’s get into it.

What is Multi-Asset Investing?

Multi-asset investing means spreading your investments across multiple asset classes rather than relying on a single type of asset class. In practice, a multi-asset portfolio might include a mix of stocks, bonds, and commodities, each chosen for its different risk and return characteristics. The idea is that by combining assets that don’t move in perfect sync, the overall portfolio aims for greater relative stability in the long-term growth potential, though outcomes can never be guaranteed.

In fact, a multi-asset mutual fund in India is mandated by the capital markets regulator to invest at least 10% of its corpus in each of three asset classes (equity, debt, and another like gold or silver, or other commodities).

Why a Multi-Asset Approach?

By spreading money across varied assets — stocks (equity), bonds or government schemes (debt/fixed income), gold, real estate and more — an investor seeks to balance risk and reward. If one asset is not doing well, the others can potentially cushion the impact. 

You can learn more about the intrinsic relationship between risk and return in investments in this article.

In practice, many Indians are already doing a form of multi-asset investing: for instance, if you have some money in a bank FD, some in PPF, some in gold, and some in an equity mutual fund, you are invested in multiple asset classes. The key difference is doing this in a planned and principle-based way, rather than ad hoc. Multi-asset investing is essentially about “don’t put all your eggs in one basket”, a principle that underlies this strategy.

Why Now?

Several macroeconomic trends have converged to make diversification imperative now. Consider these recent factors:

Market Volatility and Diversification:

Indian equities have delivered strong long-term returns but are prone to sharp corrections and cyclical drawdowns. In recent years, geopolitical shocks, changing interest rate cycles, commodity price swings, and policy reforms have made single-asset investing riskier. These conditions have drawn greater attention to diversification across multiple asset classes that respond differently to market cycles and can help smooth portfolio volatility over time.

Inflation Hedge and Asset Rotation

Gold, silver and other commodities offer natural hedges, while fixed income provides stability. Multi-asset portfolios usually have some allocation to these, which has become more valuable given rupee depreciation and imported inflation.​

Professional Management and Dynamic Rebalancing

In accordance with the scheme’s stated investment objective and SEBI guidelines, multi-asset funds use professional managers to dynamically adjust the asset mix based on macro trends, valuations, and investor objectives. This automatic rebalancing lets Indian investors navigate complex market cycles without manually timing entries and exits across asset classes.

Key Assets in a Multi-Asset Portfolio

A multi-asset portfolio typically includes a combination of equities, fixed-income, and commodities. Here are the major components and what they offer:

Equities (Stocks): Equities are the portfolio’s growth engine, offering the potential for higher long-term returns but also the most volatility. Prices can swing sharply in the short term, but over time, equities have helped investors build wealth. For a young investor or someone with a long horizon, equities often form the bulk of the allocation because of their wealth-creation potential, despite the interim ups and downs.

Fixed Income (Bonds & Deposits): Fixed-income investments, such as government bonds, corporate bonds, or bank fixed deposits, can be considered. They generate regular interest income and typically experience much lower price fluctuation than equities. While that return is modest compared to equities, the low volatility of debt is its key benefit. 

Gold (Other Precious Metals): Gold holds a special place in Indian investment culture, traditionally regarded as a store of value and a hedge against inflation. In a multi-asset portfolio, gold (and to some extent other precious metals like silver) acts as an insurance of sorts. Historically, gold prices have tended to rise during economic uncertainty, currency depreciation, or high inflation periods, essentially when riskier assets falter. Notably, because gold prices are influenced by global factors and are denominated in USD, holding gold also provides a hedge against rupee depreciation.

On the flip side, gold can also stagnate or correct when risk appetite returns. 

Other Assets (Real Estate, etc.): Multi-asset investing can include real estate (through REITs or property investments), commodities like silver or oil, and even international assets or alternative investments. The idea is to introduce additional uncorrelated streams. Real estate, when accessed via REITs, can provide regular income and hedge against inflation. These asset classes may further broaden the diversification. As per defined asset allocation of the scheme, professional multi-asset funds often have the flexibility to add these into the mix for a truly all-weather portfolio.

By combining these varied assets, a multi-asset portfolio harnesses the fact that different asset classes rarely all rise or fall together. That’s the beauty of diversification.

Benefits of Multi-Asset Investing

Multi-asset investing offers several key benefits for retail investors, especially under current conditions:

Diversification and Lower Volatility: The primary benefit is risk reduction through diversification. Though correlations between asset classes may vary over time, the overall volatility is curtailed. If you’re a pure equity or pure gold investor, you take the full hit when that single asset class tumbles, but a diversified portfolio absorbs the impact and may fall less.

Improved Risk-adjusted Returns: By cutting down volatility, multi-asset portfolios may deliver better risk-adjusted returns (measured by metrics like Sharpe ratio) compared to pure equity portfolios. They may not always shoot the lights out in bull markets, but they also avoid extreme downturns, potentially resulting in more stable returns,depending on the market conditions. 

Downside Protection (Capital Preservation): The allocation to defensive assets like bonds, cash, or gold provides a safety net that pure equity investors lack. When equities witness a sharp correction (as observed during certain market corrections , e.g.,late 2024), a multi-asset investor’s portfolio may face relatively lower drawdowns because part of it is anchored in assets that hold value or even gain at such times. 

Open-Ended Structure: Most multi-asset allocation funds are open-ended, allowing investors to enter or exit at any time. Investors can buy or sell units on any business day at the fund’s daily Net Asset Value (NAV), which is calculated at the close of each trading day.

No Need to Time the Market: Trying to predict which asset class will outperform each year is notoriously difficult. A multi-asset mutual fund simplifies this process by entrusting these tasks to professional fund managers. They handle asset allocation, deciding how much to invest in equities, debt, or gold, and continuously monitor and adjust the mix based on market conditions. 

As an investor, this means you get a dynamically managed portfolio that’s always optimally balanced. It essentially outsources the heavy lifting of diversification. 

Alignment with Goals: Most people have multiple objectives, such as safety of principal for some funds (emergency or near-term needs), growth for long-term goals, and hedges against inflation. A multi-asset portfolio inherently covers these bases. In the current climate of uncertainty, this holistic balance can provide peace of mind that you’re prepared for different outcomes.

How Can You Start a Multi-Asset Portfolio?

You can build your own diversified portfolio or invest in ready-made multi-asset products. Here are steps and tips for both approaches:

1. Decide Your Allocation:

Set a mix that fits your goals and risk profile. How much volatility can you stomach, and what returns do you need to aim for your goals? For instance, an investor may prefer 50% equities, 30% debt, and 20% gold. Aim for at least three asset classes for better balance. This mix will be the blueprint of your multi-asset portfolio. Remember that SEBI’s definition of a multi-asset fund requires at least three asset classes

2. DIY Route:

If you opt to construct the portfolio yourself, choose the appropriate investment instruments for each slice:

• Equity: Diversified mutual funds, ETFs, or direct stocks.
• Debt: Bond funds, government schemes (PPF, NSC), or FDs.
• Gold: Sovereign Gold Bonds, Gold ETFs, or Gold Mutual Funds.

For any other assets you include (say international equity for global diversification, or REITs for real estate), allocate through suitable mutual funds or ETFs available for those. The key is to cover all major bases in your chosen proportion.

Point to note: You will need to rebalance this portfolio periodically to bring the allocations back to target, because market movements will cause drift. Rebalancing enforces discipline.

3. Via Multi-Asset Funds: 

Investing via Multi-Asset Funds: A multi-asset allocation fund is a type of hybrid mutual fund that invests in a mix of asset classes. These funds automatically invest across asset classes per their mandate and dynamically adjust the allocation in response to market conditions. You, as an investor, just buy units of the fund (via lump sum or SIP), and the fund’s managers handle the diversification internally.

4. Stay Disciplined:

Avoid switching based on short-term trends. The real benefit of a multi-asset portfolio lies in consistency. So, review your portfolio periodically, rebalance if needed, but don’t abandon the diversification ethos. 

Disclaimer: This information is for general educational purposes only and not financial advice. Please consult your financial advisor before making any investment decisions, as investing involves risks.

To Wrap Up

As we step into the final quarter of 2025, the investing narrative in India is ever-changing. 

From a financial planning perspective, incorporating multi-asset investments can uplift the robustness of your strategy.  Ultimately, a portfolio should align with an investor’s goals and comfort with risk. A multi-asset approach can help maintain balance between growth and stability, making it easier to stay invested through different market cycles. 

For more educational content like this, please refer to the Zerodha Fund House blog.

Note: Past performance is not indicative of future results. Before making any investment decisions, investors should conduct their own research and seek advice from qualified financial advisors to ensure that the respective funds, products and strategies are suitable for their specific financial situation and objectives.

___________________________________________________________________________

Disclaimers:

An Investor education and awareness initiative by Zerodha Mutual Fund.

Know Your Customer: To invest in the schemes of Mutual Fund (MF), an investor needs to be compliant with the KYC (Know Your Customer) norms and the procedure is -> Fill the Common KYC (CKYC) application form by referring to the instructions given below: 

Enclose self-certified copies of both proof of identity and address. For Proof of Identity, submit any one document – PAN/ passport / voter ID/ driving license/ Aadhaar / NREGA job card/ any other document notified by central government. Proof of address, submit any one document which is the same as the proof of identity, except for PAN (since this document does not specify the address). If your permanent address is different from the correspondence address, then you need to submit proof for both the addresses. Documents Attestation – By any one from the authorized officials as mentioned under instructions printed on the CKYC application form. PAN Exempt Investor Category (PEKRN) – Refers to investments (including SIPs) in MF schemes up to INR 50,000/- per investor per year per Mutual Fund. This set of investors need to submit alternate proof of identity in lieu of PAN. In Person Verification (IPV) – This is a mandatory requirement and can be done by the list of officials mentioned in the instructions printed overleaf on the CKYC application form. Please submit the completed CKYC application form along with supporting documents at any of the point of acceptance like offices of the Mutual Fund/ Registrar, etc.

Investors may also complete their KYC online through Aadhar OTP-based authentication. Visit the respective fund house website or contact their customer care to know more about the process.

Modification to existing details like address/ contact details/ name etc. in KYC records – For any modifications to be done to the existing KYC details, the process remains same as mentioned above, except that only the details to be changed needs to be mentioned on the form along with PAN/ PEKRN and submitted with the relevant proofs. 

Modification to your existing details like contact details/ name/ tax status/ bank details/nomination/ FATCA etc in Fund House records – Please visit the website of the respective Fund House to understand the procedure to update the details (if published) OR reach out to the customer service team of the respective Fund House.

Dealing with registered Mutual Funds shall be part of the blog at the end of the blog

Investors are urged to deal with registered Mutual Funds only, details of which can be verified on the SEBI website (www.sebi.gov.in) under Intermediaries/ Market Infrastructure Institutions.

Redressal of Complaints shall be part of the blog at the end of the blog

If you have any queries, grievances or complaints pertaining to your investments, you may approach the respective Fund House through various avenues published on their website. If you are not satisfied with the responses provided by the Fund House, you may then register your complaint on SCORES (Sebi Complaints Redress System) portal provided by SEBI for which the link is -> https://scores.sebi.gov.in   

Other Disclaimer: The Content of this article/document is for educational and informational purposes only and should not be construed as financial advice. Please consult your financial advisor for advice suited to your specific circumstances.

Investing in mutual funds and other financial products involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, investors should conduct their own research and seek advice from qualified financial advisors to ensure that the respective products and strategies are suitable for their specific financial situation and objectives. 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

CTC (Cost To Company) in an employee’s package is often misunderstood with the in-hand salary. The first one refers to the total salary package of an employee, while the latter is the take-home salary. It is crucial to understand the difference between them as they make up your employment agreement and have separate deductions from your salary. So, let’s get a clear picture of the CTC and the salary you take home.

What is CTC in the Salary?

CTC is the total salary package of an employee. It refers to the total amount of money an employer spends to hire a new employee. The major components of CTC are the basic salary, HRA, health insurance, travel allowance, provident fund and gratuity, etc. 

In other words, CTC is the spending a company incurs on recruiting an employee and sustaining their services. Therefore, CTC is a variable pay since it considers various elements, including direct and indirect benefits.

Understanding CTC Components

CTC have various salary components in India. They can be categorised as direct benefits, indirect benefits, and saving contributions.

• Direct benefits: Sum paid to an employee on a yearly basis, i.e. take-home salary, subject to government taxes.
• Indirect benefits: Amount the employer pays on behalf of the employee.
• Saving Contributions: Saving schemes the employee is entitled to.

Cost to Company (CTC) = Direct benefits + Indirect benefits + Savings contributions.

Let’s have a brief look at all of them:

Direct benefits	Indirect benefits	Saving Contribution
Basic salary	Subsidised meals/food coupons	Employees’ Provident Fund (EPF)
Dearness Allowance (DA)	Income tax savings	Superannuation benefits
House Rent Allowance (HRA)	Company leased accommodation	Gratuity
Medical Allowance	Interest-free loans
Vehicle Allowance	Office space rent
Leave Travel Allowance (LTA)	Life insurance and medical premiums
Bonus/Incentive
Telephone/Mobile phone allowance
City Compensatory Allowance (CCA)

Important Terms To Understand

• Basic salary – It is the non-variable component of the salary and is an integral part of the in-hand salary.
• Dearness Allowance (DA) – It is paid to government employees, pensioners, and private sector employees to curb the effects of inflation.
• House Rent Allowance (HRA) – The employer provides HRA towards the rent payment of the employee who rents their place of residence.
• Leave Travel Allowance (LTA) – When an employee travels for company purposes, the company pays their travel expenses, excluding food and accommodation expenses.
• Vehicle allowance – Employees are eligible for reimbursement of fuel or vehicle charges when used for official purposes.
• Telephone/Mobile phone allowance – It is the reimbursement of the internet and telephone bills of an employee. This allowance usually has a predetermined limit.
• City Compensatory Allowance (CCA) – This employee compensation breakdown is the cost provided by the employer to compensate for the higher cost of living in Tier-1 or metropolitan cities. In some cases, CCA is offered for employees working in Tier-2 cities as well.
• Employees’ Provident Fund (EPF) – It offers retirement benefits. Employees and employers each contribute 12% of the basic salary of employees every month towards the fund. The employer’s contribution is calculated within the CTC for the employee.
• Superannuation – It is a type of fund that an employee receives as a retirement/pension benefit.
• Gratuity – It is the amount paid by the employer in return for the services offered by the employee to the company. Gratuity is usually provided after more than 3 or 5 yrs of service.

What is the Gross Salary?

An employee receives a gross salary from the company before making any mandatory or voluntary deductions. Therefore, gross salary includes basic pay, bonuses, and various allowances and is the amount before deducting any tax. This is the amount you, as an employee, see on your employment contract.

Gross Salary = Basic Pay + HRA + Other allowances/benefits.

What is the In-Hand Salary?

In simple words, in-hand or net salary is the salary that an employee takes home. Also known as take-home pay, it is the amount an employee receives after taxes and other deductions. Hence, it differs from the gross salary, which doesn’t include deductions through professional tax in India.

Net Salary = Gross Salary – Deductions.

Difference Between CTC and In-Hand Salary

Let’s explore the difference between cost to company vs take-home pay in the form of a comparison table.

Aspect	CTC (Cost to Company)	In-Hand Salary
Definition	Total cost incurred by the company for an employee.	The actual salary credited to the employee’s account.
Components	Basic Salary, HRA, PF, Gratuity, Bonus, Insurance, etc.	Basic Salary, HRA, Deductions (PF, Professional Tax), and Other Allowances.
Tax Calculation	Based on CTC, including all components.	Based on the In-Hand Salary, after deductions.
Transparency	Often higher to attract candidates. It may include benefits that do not directly received by the employee.	Reflects the actual take-home pay, providing a clearer picture of earnings.
Negotiation Basis	Generally discussed during job offers and negotiations.	What employees focus on for budgeting and financial salary planning for employees.

Another important terminology is the gross salary; it is the basic pay plus other allowances, bonuses, and benefits. You’ll learn how to calculate the in-hand salary from the gross salary in the following section.

Calculating In-Hand Salary from Gross Salary

Here is an example to demonstrate how you can calculate the in-hand salary from the gross salary when comparing gross salary vs net salary:

Consider you are working in the IT sector with a CTC of Rs. 6,00,000. Here’s a detailed breakdown:

Components	Amount (Rs.)	Common Deductions from Gross Salary	Amount (Rs.)
Basic	25,000	Gift Card	500
HRA	10,000	Provident Fund (Employee)	1,800
Special Allowance	13,333	Professional Tax	200
Gross Earning (A)	48,333	Total Deductions (B)	2,500
Net Pay (A – B)	45,333
Total Pay	45,333

Yearly pay structure for Rs. 6 Lakh package:

Gross Earning (A): Rs. 5,79,996 (Monthly Gross Earnings * 12)

Total Deductions (B): Rs. 30,000 (Monthly Deductions * 12)

Net Pay (A – B): Rs. 5,49,996

Hence, the in-hand salary is Rs. 5,49,996 for a CTC of Rs. 6 lakh. Now, let’s understand the calculation of CTC from the basic salary.

How to Calculate CTC from Basic Salary?

Let’s continue with the previous example to understand this.

Components	Amount (Rs.)	Common Deductions	Amount (Rs.)
Basic	25,000	Gift Card	500
HRA	10,000	Provident Fund (Employee)	1,800
Special Allowance	13,333	Professional Tax	200
Gross Earning (A)	48,333	Total Deductions (B)	2,500
Net Pay (A – B)	45,333
Total Pay	45,333

Yearly gross pay: Rs. 5,79,996

Yearly in-hand salary: Rs. 5,49,996

Now let’s calculate expenses that are born solely by the company. Please note that these benefits may vary from company to company. (Below mentioned are yearly benefits.)

Medical Insurance: Rs. 14,004

Provident Fund (12% of Basic): 36,000 (12% of 3,00,000) [Basic monthly pay (25,000) * 12]

Total benefits = Medical Insurance + Employer Provident Fund

= 14,004 + 36,000

Total benefits = Rs. 50,004

Hence, the total CTC = In-hand salary + Total benefits = 5,49,996 + 50,004 = Rs. 6,00,000

Hence, the total CTC is Rs. 6,00,000.

Please note that this is an example, and the salary structure India varies for each company. 

How to Calculate Your Taxable Income?

To arrive at your taxable salary components, you have to subtract the eligible deductions from your gross salary. Here are the steps to do the same:

Step 1: Calculate your gross salary by adding HRA, DA, travel allowance, and special allowance to your basic pay.

Step 2: Next, deduct the professional tax, HRA exemptions, and standard deductions from the gross salary.

Step 3: Add any commission/bonus, extra income from interest, etc., to the arrived amount.

Step 4: Then, subtract various deductions as given under Sections 80C, 80D, and Chapter VIA of the Income Tax Act.

Step 5: The amount you arrive at is your taxable income. Now, the income tax slab and rate applicable to you depend on this final income.

You can take the help of online tax calculators or salary calculation tools to arrive quickly at your accurate taxable income and understand the income tax impact on salary.

To Conclude

In conclusion, it’s vital to recognise that the Cost To Company (CTC) isn’t the same as your take-home pay. While a high CTC may look appealing, your in-hand salary could be less impressive. Before committing to a job, carefully check your basic pay and the actual amount you’ll receive.

Essentially, it’s about understanding the difference between the promised CTC and the practical in-hand salary. Don’t be swayed by big numbers on paper. As you enter the professional world, delve into the details and be aware that the CTC involves deductions and complexities. If you encounter discrepancies, reach out to your company’s experts for clarification. It’s crucial to make informed decisions and foster a transparent relationship with your employer.

FAQs About CTC in the Salary

1. How to calculate a 30% hike in salary?

To calculate a 30% salary hike, multiply your current salary by 1.30. This accounts for the 30% increase, giving you the new salary amount. For example, say your current salary is Rs. 50,000. To calculate a 30% increase, multiply your current salary by 1.30 (which represents a 30% increase) – 

₹50,000×1.30 = ₹65,000

So, with a 30% salary hike, your new salary would be ₹65,000.

2. What is the HRA in salary?

House Rent Allowance (HRA) is a part of the salary provided by the employer towards the rent payment of the employee. It is allowed as a deduction from taxable income under Section 10(13A).

3. What is the CTC salary?

Cost to Company (CTC) is the total cost of an employee to the company, including basic pay, reimbursements, various allowances, gratuity, annual bonus, etc. It refers to the total salary package of an employee.

4. What is dearness allowance?

The cost of living adjustment allowance that the government pays to the employees of the public sector and pensioners is known as Dearness Allowance (DA). It is reviewed bi-annually and calculated as a percentage of the basic salary to curb the effects of inflation.

5. What is the impact of allowances on take-home pay?

Allowances increase take-home pay by adding to an employee’s gross salary. These include elements like housing, travel, and dearness allowances, which are either fully or partially tax-exempt under certain conditions. As a result, they boost the net income received after tax deductions, enhancing disposable income.

Let’s explore the basics of two major stock exchanges in India: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The NSE trading platform, founded in 1992, is the country’s biggest stock market using electronic trading and the Nifty 50 index. On the other hand, the BSE trading platform, dating back to 1875, is the oldest exchange, known for introducing the BSE Sensex 30 in 1986. Both exchanges have similarities but also differ in areas like fees and market size. In this beginner-friendly guide, we’ll break down the distinctions between NSE vs BSE to help you understand how they work.

What Is NSE and BSE in The Stock Market?

NSE and BSE are big Indian stock exchanges where people trade stocks in India. Both NSE and BSE make it easy for people to buy and sell stocks, helping the stock market work smoothly. People who invest or trade use NSE and BSE, and these exchanges are important for how money moves in India’s financial world. Both exchanges have similarities but also differ in areas like NSE trading fees, BSE trading fees, and market size.

Understanding the NSE BSE comparison is crucial for investors and traders alike. So, let’s start by understanding what NSE and BSE are in the share market and then dig into the distinctions between the national stock exchange vs bombay stock exchange.

What Is NSE?

Short for National Stock Exchange, NSE is the largest stock exchange in India on the basis of market capitalisation. NSE was founded in 1992, and it brought with it the electronic mode of trading in stocks. Headquartered in Mumbai, NSE uses the NSE Nifty 50 index as its benchmark, which comprises the top 50 stocks of the share market across different sectors.

What is BSE?

BSE is an abbreviation for the Bombay Stock Exchange. It is the oldest stock exchange in India, which was founded in 1875. It has earned permanent recognition under the provisions of the Securities Contract (Regulation) Act, 1956. BSE also boasts of being the first stock exchange in Asia and is recognised among the world’s leading stock exchanges. In 1986, BSE introduced the S&P BSE Sensex, which consists of stocks of the top 30 BSE listed companies.

Similarities Between BSE And NSE 

Now that you know what BSE and NSE are, here’s a look at their similarities:

• Both these exchanges are popular among investors.
• Both allow stock trading.
• Besides equity, you can trade in bonds, mutual funds and ETFs, commodities, derivatives, futures and options, and currencies on these exchanges.
• BSE and NSE are regulated by the Securities and Exchange Board of India (SEBI).
• Both these exchanges have electronic trading facilities.
• The headquarters of NSE and BSE are both located in Mumbai.

What Is The Difference Between BSE And NSE?

While the points mentioned above capture some similarities between NSE and BSE, these exchanges also exhibit notable differences. Let’s look at the NSE BSE differences.

Points of difference	NSE	BSE
Full form	National Stock Exchange	Bombay Stock Exchange
Formed in	1992	1875
Benchmark index	Nifty 50	S&P BSE Sensex
Companies in the index	50	30
Companies listed on the exchange	5,000+	Around 2,000
Transaction charges	The transaction charges are 0.00335% on turnover (buy & sell) for equity delivery and intraday trades, 0.00195% on turnover for futures, and 0.053% on premium value for options.	The transaction charges are 0.00375% for the turnover value of buy and 0.00275% for the turnover value of buy and sell.
Ranking in the world	NSE ranks 8th among the largest stock exchanges in the world.	BSE ranks 10th among the largest stock exchanges in the world.
Use of the electronic trading platform	NSE started the electronic trading platform right from its inception in 1992.	BSE incorporated the electronic trading platform called BOLT (BSE On-Line Trading) in 1995.
Trading volume	Very high	Lower than NSE
Online trading system	Introduced in 1995	Introduced in 1992
Products traded on the platform	Equity stocksEquity derivativesCurrency derivativesCommodity derivativesMutual fundsExchange-Traded FundsSecurity Lending & Borrowing SchemeInstitutional Placement ProgramOffer for SaleCorporate Bonds	Equity stocksEquity derivativesCurrency derivativesCommodity derivativesMutual fundsExchange-Traded FundsOffer for SaleCorporate Bonds
Liquidity	NSE has higher liquidity as they trade more volume compared to BSE.	BSE offers comparably low liquidity.
Market capitalisation	~ Rs. 334.7 lakh cr.	~ Rs. 36,422,360.83 cr.
Network	The network of NSE is over 1,500 cities.	The network of BSE is 450 cities.
Official website address	www.nseindia.com	www.bseindia.com

How Has NSE Become More Popular Than BSE?

Over time, the NSE beat the BSE to become the leading stock exchange in India due to several reasons listed below:

1. Technology: NSE trading infrastructure is advanced and reliable, enabling faster and more efficient NSE trading speed compared to BSE trading speed
2. Products: NSE offered a more comprehensive range of financial products, including derivatives, which attracted more investors and traders.
3. Transparency: NSE strongly focused on transparency and disclosure, which instilled investor confidence and helped prevent fraudulent activities.
4. Liquidity: NSE liquidity was higher, which means the NSE trading volume was also higher, making it easier to buy and sell securities.
5. Efficiency: NSE introduced several measures to increase efficiency, such as market-wide circuit breakers, which helped stabilise the market during times of volatility.
6. Regulatory environment: The Securities and Exchange Board of India (SEBI) introduced several measures favouring NSE, such as allowing it to launch new products without prior approval, which helped NSE grow faster than BSE.

Overall, the combination of technology, product range, transparency, liquidity, efficiency, and regulatory environment made NSE the preferred stock exchange in India, increasing its popularity over BSE trading network.

NSE vs BSE: Which Platform To Choose As A Beginner?

Both NSE and BSE offer trading opportunities in different types of securities. NSE, however, boasts of a large trading volume making it easier for the price discovery mechanism to work effectively. This volume outweighs the limitation of the index containing only a few stocks and can allow better trading opportunities. However, some stocks are listed on the BSE only, so if you wish to invest in such stocks, you would have to trade on the BSE trading platforms.

You can compare the stocks across both these platforms and then choose one as per your requirements. Alternatively, you can opt for arbitrage trading and buy stock from NSE and sell it in BSE. Moreover, there would be a difference in the price of the same stock on NSE and BSE platforms depending on the stock’s liquidity.

To Wrap Up

Go through the difference between NSE vs BSE before you choose either platform. Understand how these platforms work and then trade in them. Both these exchanges experience market volatility, and so a healthy risk appetite is recommended if you wish to trade in them.

FAQs about NSE and BSE

Which is better, NSE or BSE?

The discussion of which is better, NSE or BSE has no end. Hence, build a financial plan, look for stocks that to invest in according to the plan and budget, and choose whichever platform suits your needs and requirements the best. Alternatively, you can consult a financial advisor before you make any investment decision.

Can I buy in BSE and sell in NSE?

The simple answer to this question is yes. Shares can be bought on one exchange and sold on another only from the next day, i.e., on T+1. For trading purposes, you can buy on NSE and sell on BSE via intraday and deliver shares. It is called arbitrage trading. 

Why is NSE preferred over BSE?

Most traders in India trade on NSE over BSE, as suggested by the trading volume difference in both exchanges, for several reasons. Some of these reasons include the following:

1. Technology: NSE has a more advanced and reliable technology infrastructure than BSE, allowing faster and more efficient trading.
2. Products: NSE offers a wider range of financial products, including derivatives, which attract more investors and traders.
3. Transparency: NSE strongly focuses on transparency and disclosure, which instils investor confidence and helps prevent fraudulent activities.
4. Liquidity: NSE is known for higher liquidity levels, meaning there is more trading activity and higher trading volumes, making it easier for investors to buy and sell securities.
5. Efficiency: NSE has introduced several measures to increase efficiency, such as market-wide circuit breakers, which help stabilise the market during times of volatility.

Overall, the combination of technology, product range, transparency, liquidity, and efficiency makes NSE the preferred stock exchange in India.

Why is the share price different in BSE and NSE?

NSE and BSE are separate entities with different trading platforms. The demand and supply of a stock on each exchange can vary due to several factors, such as liquidity, investor preferences, and trading volumes.

The price of a stock is determined by the demand and supply of the stock on each exchange. In an efficient market, the price of a stock on one exchange should be similar to that on the other exchange. However, the price discovery mechanism may only sometimes function efficiently, leading to price differences.

These price differences create arbitrage opportunities for traders and investors who can buy shares on one exchange and sell them on the other to make a profit, leading to price convergence. Overall, the price differences in the shares of the same company on NSE and BSE can be attributed to various factors. Still, arbitrage opportunities usually help in reducing the differences over time.

What is the timing of BSE and NSE?

The timing of BSE and NSE for equities is the same, from 9:15 am to 3:30 pm.

Can a company be listed in both BSE and NSE?

Yes, a company can be listed on both BSE and NSE. In fact, most blue companies in India are listed on both BSE and NSE.

How does a company get listed on BSE or NSE?

Companies get listed on BSE or NSE by issuing shares via Initial Public Offering (IPOs) on the respective platforms.

There are various financial metrics to analyse a company. Out of all, Return on Equity (ROE) and Return on Capital Employed (ROCE) are used to measure a company’s operational efficiency and potential for attaining future growth. However, they are often confused with each other, whereas in reality, they are quite different. In this article, let’s look at ROE and ROCE in detail and ROE Vs ROCE.

What is ROE?

In simple terms, a ROE interpretation shows how much return shareholders are earning for every rupee they have invested in a company. It indicates the financial health, efficiency, and profitability of a company. Fundamental investors often use ROE to make investment decisions. 

ROE formula = Net income / Shareholders’ equity

The net income can be derived from the income statement and is the profit generated by the company before paying the dividend to its shareholders. Whereas shareholders’ equity can be found in the balance sheet and is the difference between a company’s assets minus its liabilities. 

A higher ROE represents higher profits earned on equity and efficient company management. However, a very high ROE shows that the funds are lying idle with the company. Hence, relying only on ROE for the analysis of a company is not a better idea.

To measure a company’s performance using ROE for equity investors, it is important to compare the ROE of a company to the industry average but also to similar companies within the same industry.

What is ROCE?

ROCE is a financial ratio used to assess the company’s efficiency in generating profits as a percentage of the total capital used by the company. It tells the investors and managers how efficiently the company uses its capital.

ROCE calculation is as per the following ROCE formula:

Return on capital employed = Earnings Before Interest and Tax (EBIT) / Capital employed

EBIT is the operating income from the regular activities of the business, and capital employed refers to the amount invested in a business. 

The higher the value of the ROCE interpretation ratio, the better the chances of profits. It also implies that the capital employment strategies of a company are more efficient. The ROCE of a company can also be viewed in relation to that of its historical periods to assess the consistency at which capital is efficiently employed.

ROE Vs ROCE

Investors often confuse ROE and ROCE with each other while conducting a financial ratios comparison. However, they are different from each other. Here are five differences between return on equity vs return on capital employed:

Difference points	ROE	ROCE
Definition	It is the percentage of a company’s net income that is returned to shareholders as value.	It measures how efficiently a company can generate profits from its capital employed.
Capital	It considers only the shareholder capital employed.	It considers the total capital employed including debt by the company.
Indicator of	Effective management of equity financing to fund operations	Efficient utilisation of total capital
Scope	It is limited as only one factor (equity) is considered.	It offers a wide scope as it comprises both debt and equity.
Applicability	It, more or less, can be used to study all companies and their returns.	It works better for capital-extensive industries.
Stakeholder significance	It is of more significance to the shareholders as it shows them the returns the company provides for every rupee they invest. It also shows them what is left for them after the debt is serviced.	It is of significance to both the shareholders and the lenders as it shows the effectiveness of the total capital employed in the capital.
Income consideration	The income considered here is the profit after all the interest and taxes are charged.	The income considered here is the earnings before taxes and interests are charged.

Combined Analysis of ROE and ROCE

Both ROE and ROCE are useful for evaluating a company’s overall performance. When ROCE exceeds ROE, it indicates that the company has effectively used debt to lower its overall cost of capital. However, the higher ROCE shows that the company is generating higher returns for the debt holders than for the equity holders. This might not be good news for stockholders. 

Conclusion

ROE and ROCE provide a comprehensive picture of the financial performance of the company. Hence, when analysing a company, consider both the factors, ROE and ROCE. To know about a company’s ROE and ROCE for capital efficiency, check their stock pages at Tickertape. You can also list companies based on these parameters using the Tickertape Stock Screener. Explore now!

Frequently Asekd Questions About Comparing ROE and ROCE

1. Which is better – ROE or ROCE?

While ROE for financial analysis considers overall accounting profits in relation to shareholders’ funds, ROCE for investment analysis uses a superior measure due to its focus on overall assets and operating profits. Both return on capital employed vs return on equity play important roles in analysing a company’s financial performance

2. Can ROE be greater than ROCE?

While ROCE is often higher than ROE, the situation can sometimes be reversed. ROE can be greater than ROCE when there is higher growth in net income. The higher the ROE, the better a company is at converting its equity financing into profits.

Hence, when the revenue is growing, and the company is highly leveraged, the ROE will be greater than ROCE due to fixed interest rates and tax benefits on interest payments.

Filing Income Tax Returns (ITR) is your federal duty if you earn an income in the financial year exceeding Rs. 2.5 lakh. When mutual fund tax filing your returns, you have to declare incomes earned from various sources. If you have made specific investments that earn you tax deductions from tax on mutual fund dividends or exemptions, the same should be declared in the ITR.

Mutual fund investments also give you tax benefits if you choose the ELSS schemes. Moreover, when you redeem your investment and gain profit or suffer a loss, the same should also be reported on your tax return. Let’s understand how to declare mutual fund investment in ITR and the mutual fund tax implications.

Declaring Tax-Eligible Mutual Fund Investment

Equity Linked Saving Schemes, or ELSS, are equity-oriented mutual fund schemes with a distinct tax advantage. Investment into these schemes allows you a deduction from your taxable income to the tune of Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961, that you may declare under the heading ‘Chapter VI A deductions’ in your ITR.

Declaring Capital Gains on Mutual Fund Redemption

Whenever you redeem your mutual fund investments, any profit or loss incurred is termed as capital gain or capital loss, respectively. The detail of such gains or losses should also be declared in your ITR for tax on mutual fund redemption.

However, before jumping on how to declare capital gains tax mutual funds, here’s a quick look at how the gains are taxed:

• In the case of equity mutual funds, gains earned within 12 mth are called short-term capital gains. Such gains are taxed at 15%. On the other hand, gains earned after 12 mth are long-term capital gains. Such gains are tax-free up to Rs. 1 lakh, and gains exceeding the limit are taxed @10%.
• In the case of debt mutual funds, gains earned within 36 mth are called short-term capital gains. They are taxed at your income tax slab rates. However, gains earned after 36 mth are called long-term capital gains. They are taxed at 20% with indexation, a process through which an asset’s acquisition cost is inflated/adjusted to bring it at par with current rates, taking inflation into account.

How to Declare Capital Gains from Mutual Funds?

Now that you know how mutual fund gains are taxed and filing ITR for capital gains, it’s time for step two, which is how to declare mutual fund investment in ITR.

Since mutual fund returns are called capital gains, they are recorded under the heading ‘Income from capital gains.’ You need to mention the amount of gain incurred and the respective tax liability and tax treatment for mutual funds. 

Similarly, losses on redemption should be declared as capital losses under the same heading. You can use the losses to set off the profits earned from other mutual fund investments.

When calculating the amount of capital gains, you can deduct the brokerage paid to your mutual fund distributor or broker, if any, from the gains incurred.

Setting off of Capital Loss from Gains on Redemption of the Fund

If you have incurred a capital loss in the financial year, then on redeeming your mutual fund investments, you can use the loss to offset the profits earned on another scheme. This set-off is allowed in the same financial year as well as for eight subsequent financial years. To offset your capital losses against gains and reduce your subsequent taxation on mutual funds, you should file your ITR with the income tax department within the due date. Failure to do so would not allow you to carry forward your losses for set-offs from future capital gains statement for ITR.

Here are the rules of setting off losses against gains:

• Short term capital loss can be set off against either short term or long term capital gains
• Long term capital loss can be set off only against long term capital gains

ITR Form 2

You would have to file your returns in ITR Form 2 if you have:

• Capital gains or losses from a mutual fund redemption
• You are a salaried taxpayer or a Hindu Undivided Family (HUF)

In this ITR form for mutual funds filing capital gains in ITR, the details of the capital gains or losses suffered would have to be mentioned.

Suppose you incur capital gains or losses from an equity mutual fund on which Securities Transaction Tax (STT) has been paid. Then, in that case, you need to mention the individual details of every mutual fund scheme redeemed. 

You will also need to fill out Schedule 112A for each scheme that you have redeemed in a financial year and on which you have earned a capital gain or loss.

Conclusion

If you have invested in tax-saving ELSS schemes, you may claim a tax deduction when you declare your investment in your mutual fund Income Tax Returns (ITR). Moreover, any gains or losses incurred on redeeming an existing mutual fund investment should also be declared in the ITR for filing tax on mutual fund dividends. Understand thoroughly how to declare mutual fund investment in ITR so that you can comply with the rules of filing ITR for mutual funds and avoid penalties. Also, file your return on time to fulfil your duty and carry forward your losses to subsequent financial years if you have any.

Last Updated on Jan 30, 2026 by Harshit Singh

Starting your investment journey can feel overwhelming at first. With a slew of options out there, where should a beginner start? The key is to have a plan before you pick any investment. This guide will break down the essential steps – from setting clear goals to diversifying your money, thinking long-term, and rebalancing your portfolio – in simple terms so that you can make a more informed decision.

Table of Contents

• Set Your Financial Goals First
• Explore Your Investment Options 
• Diversification
  • Key benefits 
• Think Long Term
• Rebalance is Key
• To Wrap Up

Set Your Financial Goals First

Define your financial goals before choosing any investment. Investing isn’t about chasing the hottest stock; it’s about putting your money to work toward a purpose. Whether your goal is saving for a down payment, funding your child’s education, or building a retirement nest egg, be specific about what you’re trying to achieve and when.

For example, investing with a goal “buy a home in 5 years” will look very different from “retire in 30 years.” A short-term goal may require more conservative investing, while a long-term goal can support a more growth-oriented strategy. 

Thus, setting clear goals turns investing from a gamble into a plan. It keeps you focused on what you want to accomplish, rather than reacting to every market whim. And once you start investing, track your progress toward your goal and be ready to adjust if needed (for example, if your circumstances or goals change). 

The goal-first approach may help you avoid the common mistake of randomly picking investments that don’t actually suit your needs.

Explore Your Investment Options 

New investors have a variety of investment options to choose from. Each has its pros and cons, and the good news is you don’t have to pick just one. In fact, a mix of different investment types is also an approach. Holding a broad range of investments can typically lessen the impact of any one asset’s ups and downs on your overall portfolio. This is the essence of diversification, which we’ll cover shortly.

Here are some common investment options beginners can explore:

1. Stocks: You own a slice of a company. High long-term upside, but prices can swing a lot, subject to market volatility. Best for long horizons; riskier if you need the money soon.
2. Bonds: You lend money to a government or company for interest. Typically steadier than stocks, with a usually lower return. Helps cushion a portfolio when markets wobble.
3. Mutual funds: Money is pooled and professionally managed, as per scheme’s objective, across many holdings. Easy diversification with small amounts; equity, debt, and balanced options available.
4. ETFs: Like funds, but they trade on exchanges like stocks. Often low-cost and index-tracking, subject to tracking error, making broad diversification simple.
5. Alternative assets: Real estate, commodities like gold and silver, and other assets can help diversify your portfolio.
6. Model portfolios: Ready-made baskets built for a goal or risk level. Good if investors are seeking diversification and structure without building everything from scratch.

Diversification

You’ve probably heard the saying “don’t put all your eggs in one basket.” In investing, diversification means spreading your money across different investments so that the risk of volatility is lower. 

Think of a diversified portfolio as a team where each player has a role. If one player has a bad day, the team can still win because others can compensate.

Key benefits 

• Lower risk: As risks are spread across assets, stocks, one bad stock won’t sink your whole portfolio.
• Smoother returns: Fewer extreme ups and downs over time.
• Stay invested: Less panic-selling when one piece falls.
• How to diversify effectively: Diversification can occur across asset classes and within each class. Here are some ways to make sure your investments are nicely spread out:
• Mix of asset classes: Allocate your money across major categories like equities (stocks), fixed income (bonds), real assets (real estate/commodities), and more. These broad groups often react differently to economic events. For instance, when stocks are struggling, bonds or gold might do better, and vice versa.
• Variety of Companies: Own a mix of large-cap companies, mid-caps, and small-caps. They have different risk-return profiles. Large caps might be steadier, while small caps can potentially grow faster but swing more in price.
• Geographic Spread (subject to currency risk): Consider both domestic and international investments. Markets in different countries don’t move in perfect sync; global diversification can open opportunities and reduce reliance on any single economy.
• Investment Styles: In stock investing, there are different styles like growth (companies growing fast, often newer firms) and value (stable companies priced cheaply relative to their earnings). These can take turns leading the market, so having some of each adds balance.

Think Long Term

After setting goals and diversifying, the next principle is adopting a long-term mindset. Wealth building is a marathon, not a sprint. 

Focus on the long game: Markets will go up and down, and are subject to fluctuations. In practice, this means you stay invested through the market’s ups and downs.

The power of compounding returns also needs time to work its magic. For example, if your investments earn an average of 10% per year, ₹10,000 invested today could grow to over ₹25,000 in 10 years and over ₹67,000 in 20 years, assuming inflation.

Ride out the storms: If you have a long horizon, you can afford to wait out downturns without panic-selling. Staying focused on your goal and sticking to regular investments (like monthly contributions) can help you take advantage of rupee-cost averaging, i.e. buying more when prices are low, which can boost long-run returns.

In summary, regularly investing small amounts over a long period can help in growing your wealth. Many people underestimate how compounding, coupled with a sound strategy, can turn consistency into meaningful long-term gains.

Rebalance is Key

Last but not least, let’s talk about rebalancing, an important maintenance step as you continue your investing journey. Rebalancing means adjusting your portfolio back to your intended asset mix when market movements have caused it to drift. 

Why is rebalancing necessary? Because over time, different assets will grow at different rates. For example, suppose you decided on a balanced allocation of 60% stocks and 40% bonds for your first investment. If stocks have a great year, their value in your portfolio might jump, such that now 70% of your portfolio is in stocks. That’s more risk than you originally intended, because your portfolio is now more heavily weighted in stocks. To rebalance, you would sell a portion of stocks (take some profit) and put that money into bonds or other assets, bringing the percentages back to 60/40.

How often to rebalance? There’s no hard rule. Common approaches are either once a year (annual checkup) or whenever an allocation deviates by more than a specified threshold (e.g., +/-5% from target). 

One convenient option is that many investment platforms and funds offer automatic rebalancing; for instance, certain model portfolios or robo-advisors periodically rebalance your holdings. Target-date mutual funds (often used for retirement) automatically adjust their mix over time without requiring any action on your part. If you prefer a hands-off approach, using such options can ensure your portfolio stays tuned up.

To Wrap Up

Starting your investing journey can be one of the most rewarding decisions you make for your future. By setting clear goals, you give your investments purpose. By diversifying across different assets, you protect yourself from surprises and create a smoother ride. By maintaining a long-term perspective, you allow time and compound growth to work in your favour, instead of being derailed by short-term noise. And by rebalancing periodically, you keep your plan on track and aligned with your needs.

Stay focused on your objectives, ignore the hype, and give your investments time to grow.

For more educational content like this, please refer to the Zerodha Fund House blog. 

Note: Past performance is not indicative of future results. Before making any investment decisions, investors should conduct their own research and seek advice from qualified financial advisors to ensure that the respective funds, products and strategies are suitable for their specific financial situation and objectives.

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Disclaimers:

An Investor education and awareness initiative by Zerodha Mutual Fund.

Know Your Customer: To invest in the schemes of Mutual Fund (MF), an investor needs to be compliant with the KYC (Know Your Customer) norms and the procedure is -> Fill the Common KYC (CKYC) application form by referring to the instructions given below: 

Enclose self-certified copies of both proof of identity and address. For Proof of Identity, submit any one document – PAN/ passport / voter ID/ driving license/ Aadhaar / NREGA job card/ any other document notified by central government. Proof of address, submit any one document which is the same as the proof of identity, except for PAN (since this document does not specify the address). If your permanent address is different from the correspondence address, then you need to submit proof for both the addresses. Documents Attestation – By any one from the authorized officials as mentioned under instructions printed on the CKYC application form. PAN Exempt Investor Category (PEKRN) – Refers to investments (including SIPs) in MF schemes up to INR 50,000/- per investor per year per Mutual Fund. This set of investors need to submit alternate proof of identity in lieu of PAN. In Person Verification (IPV) – This is a mandatory requirement and can be done by the list of officials mentioned in the instructions printed overleaf on the CKYC application form. Please submit the completed CKYC application form along with supporting documents at any of the point of acceptance like offices of the Mutual Fund/ Registrar, etc.

Investors may also complete their KYC online through Aadhar OTP-based authentication. Visit the respective fund house website or contact their customer care to know more about the process.

Modification to existing details like address/ contact details/ name etc. in KYC records – For any modifications to be done to the existing KYC details, the process remains same as mentioned above, except that only the details to be changed needs to be mentioned on the form along with PAN/ PEKRN and submitted with the relevant proofs. 

Modification to your existing details like contact details/ name/ tax status/ bank details/nomination/ FATCA etc in Fund House records – Please visit the website of the respective Fund House to understand the procedure to update the details (if published) OR reach out to the customer service team of the respective Fund House.

Dealing with registered Mutual Funds shall be part of the blog at the end of the blog

Investors are urged to deal with registered Mutual Funds only, details of which can be verified on the SEBI website (www.sebi.gov.in) under Intermediaries/ Market Infrastructure Institutions.

Redressal of Complaints shall be part of the blog at the end of the blog

If you have any queries, grievances or complaints pertaining to your investments, you may approach the respective Fund House through various avenues published on their website. If you are not satisfied with the responses provided by the Fund House, you may then register your complaint on SCORES (Sebi Complaints Redress System) portal provided by SEBI for which the link is -> https://scores.sebi.gov.in   

Other Disclaimer: The Content of this article/document is for educational and informational purposes only and should not be construed as financial advice. Please consult your financial advisor for advice suited to your specific circumstances.

Investing in mutual funds and other financial products involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, investors should conduct their own research and seek advice from qualified financial advisors to ensure that the respective products and strategies are suitable for their specific financial situation and objectives. 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.