--- title: "Mutual Funds | Structure, Types and Hidden Costs" description: "AMC structure, NAV calculation, direct vs regular plans, expense ratio drag over 20 years, exit loads, and SEBI 2018 recategorisation." source_url: "https://www.rupeecase.com/learn/path-6/module-6-3-mutual-funds-structure-types-costs" --- [Path 06 3 of 9](/learn/path-6/)Mutual Funds, Structure, Types and Hidden Costs[Next 6.4](/learn/path-6/module-6-4-etfs-how-they-work) Mutual funds have become the main way Indian households move beyond fixed deposits and gold. In August 2026 the industry managed ₹87.08 lakh crore, and investors put ₹32,297 crore into SIPs in that one month. Yet plan types, categories and fees still confuse most investors, and the difference between a direct and a regular plan, compounded over 20 years, runs into lakhs of rupees. I want you to understand three things after this page: how a fund is structured and why your money is protected, what you are really paying, and what the category label on a fund does and does not promise. **87.08**Lakh crore rupees of industry assets, end Aug 2026 AMFI, Sep 2026 **32,297**Crore rupees of [SIP](/learn/glossary#sip) contributions in Aug 2026 AMFI, Sep 2026 **10.02**Crore contributing SIP accounts, Aug 2026 AMFI, Sep 2026 **28.35**Crore folios, Aug 2026 AMFI, Sep 2026 ## How a mutual fund is structured An Indian mutual fund is set up as a **trust**, not a company, and [SEBI](/learn/glossary#sebi) regulates every part of it. Four roles are kept separate on purpose: 1. **Custodian and registrar**The custodian holds the securities; the registrar keeps the record of your units. 2. **Custodian and registrar**The custodian holds the securities; the registrar keeps the record of your units. 3. **Custodian and registrar**The custodian holds the securities; the registrar keeps the record of your units. 4. **Custodian and registrar**The custodian holds the securities; the registrar keeps the record of your units. The separation is the protection. The [AMC](/learn/glossary#amc) decides what to buy, but it never holds the securities; the custodian does. The scheme's assets belong to the unitholders through the trust, not to the AMC. If an AMC ran into trouble, the trustees would move the schemes to another manager. Your units are not a loan to the AMC. ## How NAV is calculated [NAV](/learn/glossary#nav), net asset value, is calculated at the end of every business day: | Component | Example | | --- | --- | | Market value of all securities held | ₹1,050 crore | | Add: receivables, accrued income | ₹5 crore | | Less: liabilities, accrued expenses | ₹3 crore | | Net assets | ₹1,052 crore | | Units outstanding | 100 crore units | | NAV per unit | ₹10.52 | Invest ₹10,000 at a NAV of ₹52.60 and you receive 190.11 units. Redeem later and you receive your units times that day's NAV. AMFI publishes every scheme's NAV daily, and for equity funds the NAV you get depends on the time your money reaches the fund, not just the time you click. [AMFI, daily NAV of every scheme](https://www.amfiindia.com/net-asset-value) **Myth**A fund with a NAV of ₹12 is cheaper than one with a NAV of ₹450. **Fact**NAV is just the price of one unit. ₹10,000 buys fewer units of the second fund, and both earn exactly the percentage their portfolios earn. ## Direct vs regular plans: the most important decision Every scheme has two plans, **direct** and **regular**. Same portfolio, same manager, different expense ratio. * **Regular plan:** bought through a distributor. The AMC pays the distributor a trail commission out of the fund's assets, so the expense ratio is higher. * **Direct plan:** bought directly from the AMC or through a direct platform. No commission, so a lower expense ratio, lower by about the commission. With the defaults, ₹10 lakh grows to about ₹83.6 lakh in the direct plan and ₹72.3 lakh in the regular plan over 20 years. A difference of 0.8 percentage points a year became ₹11.3 lakh, more than the original investment. For a ₹10,000 monthly SIP over the same 20 years the gap is about ₹7.6 lakh. If you choose your own funds, the regular plan's commission buys you nothing you are using. If a distributor genuinely advises you and keeps you invested through bad years, that service has a price; just know what it is. ## What you pay: the expense ratio after April 2026 The SEBI (Mutual Funds) Regulations, 2026, in force from 1 April 2026, changed how fees are shown. The total expense ratio is now built from two parts: a **base expense ratio**, the AMC's own costs such as the management fee, distributor commission, registrar and custody, capped in slabs that fall as a scheme grows; plus statutory and market charges such as GST, STT, stamp duty, brokerage and exchange fees, shown separately. The point of the split is transparency: you can see what the AMC keeps and what goes to the government and the market. Typical ranges, to calibrate: broad index funds and ETFs often cost a small fraction of 1% a year in their direct plans; active equity funds in direct plans often sit somewhere near 0.5% to 1%; regular plans of the same funds cost more by the commission. Always read the scheme's latest factsheet for the actual number; it changes as assets change. ## SEBI's fund categories Before SEBI's October 2017 circular, AMCs ran many overlapping schemes, and a fund called "bluechip" could hold mid caps. SEBI standardised the categories across equity, debt, hybrid and solution oriented funds, broadly one scheme per category per AMC, with a few exceptions it has since allowed. The equity categories you will meet most: | Category | Universe | Minimum allocation | | --- | --- | --- | | Large Cap | The 100 largest companies by full market cap | 80% in large caps | | Large and Mid Cap | Top 250 | 35% each in large and mid caps | | Mid Cap | Companies ranked 101 to 250 | 65% in mid caps | | Small Cap | Ranked 251 and below | 65% in small caps | | Multi Cap | All sizes | 25% each in large, mid and small caps | | Flexi Cap | Any size | 65% in equity, no size limits | | ELSS | Any size, 3 year lock in | 80% in equity; tax deduction only in the old tax regime | AMFI publishes the ranked list of companies every six months, so "large cap" means the same thing across every fund. One practical update: ELSS's tax deduction under section 80C is available only if you file under the old tax regime. Under the new regime, which is the default, an ELSS is simply an equity fund with a three year lock in. Where new equity money went in Aug 2026: small and mid cap funds led 1. Large and Mid Cap funds**Rs 3,873 crore** 2. Large and Mid Cap funds**Rs 3,873 crore** 3. Large and Mid Cap funds**Rs 3,873 crore** 4. Large and Mid Cap funds**Rs 3,873 crore** Net inflows, August 2026. AMFI monthly data, Sep 2026. Equity funds overall took Rs 29,329 crore, the 66th straight month of net inflows. That pattern deserves a moment. In August 2026 the [Nifty 50](/learn/glossary#nifty-50) was well below its January high, and investors still put the most money into the riskiest equity categories. Category flows tell you where enthusiasm is, not where value is. ## Exit loads and taxes: the cost of leaving Most equity funds charge an exit load, commonly 1%, if you redeem within a year. The load goes back into the scheme, not to the AMC, to protect the investors who stay. After the load period most equity funds charge nothing. Tax follows the fund type. Equity oriented funds are taxed like listed shares: 20% on short term gains within 12 months, 12.5% on long term gains above ₹1.25 lakh a year. Debt funds bought on or after 1 April 2023 are taxed at your slab rate whatever the holding period. Switching from a regular to a direct plan of the same scheme counts as a redemption, so check the tax and the exit load before you switch. ## Common mistake: owning many funds that own the same stocks The common mistake is collecting funds. Six large cap and flexi cap funds feel diversified, but their top holdings overlap heavily, so you pay six expense ratios for something close to one large cap portfolio. Compare the top 10 holdings of each fund you own. If most names repeat, you own the same thing several times. The second mistake is choosing on last year's return. Category leaders change from year to year. Choose on cost, consistency against the right benchmark and how the fund behaved in falls, using the questions from Module 4.4. ## Mutual funds vs systematic strategies: how this shows up in RupeeCase Mutual funds and RupeeCase A mutual fund pools your money with others and holds the securities in the fund. RupeeCase works differently: each strategy is a published rule, like an index, and the stocks are bought through your own broker into your own demat. There is no expense ratio; the fee is 0.2% of traded value, charged only when a rebalance trades. That makes the costs visible trade by trade, and it means the cost depends on how often the strategy trades. Read the side by side on the [RupeeCase vs mutual funds page](/vs/mutual-funds), and work out the fee in rupees on the [fee calculator](/fee-calculator). Strategy returns there are model, back tested. ## Questions readers ask Is my money safe if the mutual fund company shuts down?The securities are held by an independent custodian for the scheme, not by the AMC, and trustees can move the scheme to another manager. Market risk remains; the structure protects you from the manager, not from the market. Should I switch from regular to direct plans?Switching cuts future costs, but it counts as selling and buying, so it can trigger capital gains tax and exit loads. Many investors stop new SIPs in regular plans and start them in direct plans, then switch old units as they become long term. Does ELSS still save tax?Only under the old tax regime, through the section 80C deduction of up to ₹1.5 lakh. Under the new regime there is no 80C deduction, so ELSS is an equity fund with a three year lock in. What does Mutual Funds, Structure, Types and Hidden Costs cover?India has over ₹60 lakh crore in mutual fund assets. Most investors don't understand the structure they're invested in, or the costs quietly eating their returns. This module fixes that. It works through How a mutual fund is structured, How NAV is calculated, Direct vs regular plans: the most important decision, What you pay: the expense ratio after April 2026 and more. It is module 6.3 of Path 6, Indian Financial Products, about 8 minutes of reading, free. TTry it ## Mutual Funds: Structure, Types and Hidden Costs, in numbers. How much commission drag costs you over decades Your numbers, the module's formula, nothing stored. Calculator ### Direct vs Regular Plan Cost Regular plans pay distributor commission via higher TER. Direct plans skip the commission. The gap compounds. Initial investment (INR)Monthly SIP (INR)YearsGross fund return (%)Direct plan TER (%)Regular plan TER (%) [Full calculator: SIP calculator](/learn/tools/sip-calculator)[Full calculator: Step up SIP calculator](/learn/tools/step-up-sip-calculator) AApply it on RupeeCase ## Large Cap Multi Asset 20 largecap stocks plus LiquidCase and GoldBees. 80/10/10 multi-asset on the Nifty 100. An index built on the rules this path teaches, largecap equity plus debt and gold, conservative core, held stock by stock in your own demat. Risk band: Moderately High. [See the strategy](/strategies/largecap-multi-asset)[Sign up for RupeeCase](https://invest.rupeecase.com/signup?strategy=largecap-multi-asset) [CAGR24.4%Sharpe1.32Max DD−21.0%Minimum125000Model, back tested, as of 27 Apr 2026. Not client returns, not a promise.](/strategies/largecap-multi-asset) QQuick check ## 10 questions, 7 to pass. Pick an answer and the explanation appears. Your result stays on this device and counts towards the Path 06 certificate. CCheck yourself ## Path 06 so far. Your quick check results on this device, stop by stop. 1. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 2. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 3. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 4. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 5. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 6. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 7. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 8. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 9. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) 10. [TPath test, 28 questionsNot yet](/learn/path-6/module-6-9-gold-commodities-international#pathTestSection) Explore next ## Put the module to work. * [GuideHow to read a factsheet: every number on a fund, index or strategy sheetReturns, cost, risk and holdings, in the order that matters, on a real NSE sheet.](/guides/how-to-read-a-factsheet) * [Blog noteA 1 percent fee does not cost you 1 percentCosts: MF, PMS, RupeeCase, a short note](/blog/2026-08-26-evening-one-percent-is-not-one-percent/) * [Blog noteRule of 72: count in doublingsReturns and risk maths, a short note](/blog/2026-07-14-evening-doubling-clock/) * [Blog noteThe index rewrites itselfCosts: MF, PMS, RupeeCase, a short note](/blog/2026-09-02-morning-the-index-rewrites-itself/) Community ## Join my WhatsApp group. Scan the code, fillFill one short form, and join my WhatsApp group. Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera SSources ## Where the figures come from. 1. [AMFI daily NAV](https://www.amfiindia.com/net-asset-value) 2. [AMFI daily NAV](https://www.amfiindia.com/net-asset-value) 3. [AMFI daily NAV](https://www.amfiindia.com/net-asset-value) 4. [AMFI daily NAV](https://www.amfiindia.com/net-asset-value) GTerms ## 6 terms from this module. [AMC](/learn/glossary#amc)Asset Management Company, the professional investment manager that runs the fund and charges the expense ratio. It decides what to buy but does not hold the securities; the custodian does. [NAV](/learn/glossary#nav)Net Asset Value, the per-unit price of a mutual fund scheme, calculated daily as (market value of assets − liabilities) ÷ units outstanding. Direct planA plan that doesn't pay distributor commission, resulting in a lower expense ratio than the regular plan. Identical portfolio, lower cost. Expense ratio (TER)Total Expense Ratio, the annual cost of running the fund as a percentage of AUM. Charged daily against NAV. Includes management fees, distributor commission (in regular plans), admin costs. Exit loadA redemption fee charged if you exit the fund within a specified period (typically 1% within 1 year for equity funds). Returned to the fund scheme, not the AMC. SEBI recategorisationSEBI's 2017 mandate defining 36 standardised mutual fund categories, requiring one scheme per category per AMC. Eliminated category overlap and misleading scheme names. [All 91 terms in the glossary](/learn/glossary) [From the podcast archiveEP30: Sensex Expiry. Sell The Straddle. Brent CooledThe Tanmay Edge, 30 Apr 2026, graded 2/5](/podcast/episodes/2026-04-30)[Pillar guideIndian Markets14 modules across paths 1, 6](/learn/indian-markets) Education only, not investment advice. RupeeCase is a technology platform operated by QC Alpha Technologies Pvt Ltd; it is not a fund, a PMS or a SEBI registered investment adviser. Model returns are back tested and not a promise of future returns. Figures carry the date they were checked.