Fake Notes: How to Identify Fake Indian Currency Notes

A fake or counterfeit currency note is an unauthorised imitation of a genuine banknote created to resemble legal currency. Counterfeit notes may copy the colour, design, denomination and other visible elements of genuine Indian banknotes, but they may fail to reproduce one or more security features accurately. 

Knowing how to identify fake currency is important because accepting a counterfeit note can result in a financial loss, and knowingly trying to circulate one can have legal consequences. 

The Reserve Bank of India (RBI) incorporates multiple security features into Indian banknotes to make counterfeiting difficult. These include watermarks, security threads, micro-lettering, raised printing and other denomination-specific features. Checking more than one security feature is a better way to assess a suspicious note than relying on its appearance alone. 

How to Identify Fake Notes: Key Security Features to Check 

Genuine Indian banknotes have several visible and tactile security features. While some can be checked with the naked eye, others are easier to examine under a light source or with magnification. 

Here are some of the important features you can check when carrying out fake currency identification. 

Micro-Lettering 

Indian banknotes contain very small lettering at specific locations on the note. Depending on the denomination and series, these micro-letters may include elements such as RBI, भारत, INDIA and the denomination numeral. 

To examine micro-lettering: 

  1. Place the note under adequate light. 
  1. Use a magnifying glass, if available. 
  1. Examine the small printed characters around the designated areas of the note. 
  1. Check whether the letters and numerals appear sharp and clearly defined. 

Blurred, incomplete or poorly reproduced micro-lettering may be a warning sign. However, you should always check it along with other security features rather than relying on this feature alone. 

The RBI confirms that micro-lettering is used at different places on Indian banknotes and is more clearly visible through a magnifying glass. 

Mahatma Gandhi Watermark 

One of the easiest checks involves the Mahatma Gandhi watermark. 

Hold the banknote against a light source. Genuine RBI banknotes contain a Mahatma Gandhi portrait watermark along with an electrotype watermark displaying the denomination. 

Since the watermark forms part of the banknote paper during manufacturing, it should appear integrated into the note rather than simply printed on its surface. 

A suspicious note may have a watermark that looks: 

  • Blurry 
  • Unnaturally dark 
  • Poorly defined 
  • Printed rather than embedded 
  • Missing altogether 

The RBI states that the Mahatma Gandhi watermark and denomination watermark are best viewed when the banknote is held against light. 

Quality and Paper Texture 

The feel of the note can also provide clues. 

Contrary to the common belief that Indian currency is made from ordinary paper, the RBI states that the banknote paper currently used in India is made using 100% cotton. 

A genuine note therefore has a distinctive texture and feel. 

While checking a note, look for: 

  • Unusually smooth or glossy paper 
  • Paper that feels too thin or too thick 
  • Blurred or bleeding ink 
  • Poorly defined borders or images 
  • Unusual colour variations 

However, an old or heavily circulated genuine note may naturally feel worn. Paper texture should therefore be used along with other security features rather than as the only test. 

Security Thread 

The security thread is another important feature used in Indian banknotes. 

On genuine notes, the security thread is incorporated into the banknote rather than simply being printed as a line on its surface. 

For ₹10, ₹20 and ₹50 denomination notes, the security thread carries inscriptions such as भारत and RBI. 

For denominations of ₹100 and above, the RBI uses a machine-readable windowed security thread. When the note is tilted, the colour of the thread changes from green to blue. 

To check it: 

  1. Hold the note against light. 
  1. Look at the security thread. 
  1. Check whether it forms a continuous line when viewed against light. 
  1. For applicable denominations, tilt the note and observe the colour change. 

A line that appears merely printed on top of the paper without the expected security characteristics may indicate a suspicious note. 

Formatting and Serial Numbers 

The number panels are another useful area to examine. 

In Mahatma Gandhi (New) Series banknotes, the numerals in the number panels generally increase in size from left to right, while the first three alphanumeric characters remain constant in size. 

Check the note for: 

  • Poor alignment 
  • Irregular spacing 
  • Blurred numbers 
  • Inconsistent fonts 
  • Poor print quality 

However, it is important to correct a common misconception: two genuine Indian banknotes can have the same serial number. 

According to the RBI, two or more banknotes may carry the same serial number if they have a different inset letter, year of printing or RBI Governor’s signature. Therefore, finding the same serial number alone does not prove that a note is fake. 

Raised (Intaglio) Printing 

Some Indian banknotes use intaglio printing, which produces a raised effect that can be felt by touch. 

According to RBI guidance, denominations of ₹100 and above carry raised printing on features such as: 

  • Mahatma Gandhi’s portrait 
  • Ashoka Pillar emblem 
  • Certain identification marks 
  • Other denomination-specific features 

You can lightly run your finger over these areas and check for the expected raised effect. 

Remember that this feature varies by denomination and series, so the absence of raised printing on a lower-denomination note does not automatically mean that it is counterfeit. 

Colour-Shifting Ink (Optically Variable Ink) 

Certain Indian banknotes contain colour-shifting or optically variable ink. 

According to the RBI, the denomination numerals on ₹200, ₹500 and ₹2,000 notes use colour-shifting ink. The numeral appears green when the note is held flat and changes towards blue when viewed at an angle. 

To check: 

  1. Hold the note normally and observe the applicable denomination numeral. 
  1. Slowly tilt the note. 
  1. Look for the expected green-to-blue colour shift. 

The colour-changing effect should appear naturally as the viewing angle changes. 

Note: ₹2,000 denomination banknotes were withdrawn from circulation under the RBI’s 2023 withdrawal exercise, but the RBI continues to state that ₹2,000 notes remain legal tender. 

What Should You Do If You Receive a Fake Indian Currency Note? 

If you suspect that a currency note is counterfeit, do not knowingly attempt to spend it or pass it on to someone else. 

You can approach a bank branch for verification or report the matter to the appropriate local authorities. 

Under RBI directions, banknotes tendered at bank counters are examined for authenticity using machines. If a bank determines that a note is counterfeit: 

  • The note will be impounded and will not be returned to the tenderer. 
  • It will be stamped as a counterfeit note. 
  • No credit is provided for the counterfeit note. 
  • The bank must provide an acknowledgement receipt to the person who tendered it. 
  • The bank follows the prescribed reporting procedure with the police and other authorities. 

Avoid trying to use a note once you know or have reason to believe that it is counterfeit. 

Financial requirements can arise for several other reasons as well, from medical expenses and travel to home renovation and other personal needs. 

If you are looking for funds for such requirements, you can consider a Fibe Personal Loan. Eligible customers can get a loan of up to ₹10 lakh, subject to eligibility and applicable terms. Currently published Fibe terms provide repayment tenure of up to 36 months and nil foreclosure charges. 

The application process is digital, and the funds can be used for a variety of eligible personal requirements. 

Visit the Fibe website or download the Fibe app to check your eligibility and applicable loan offer. 

FAQs on Spotting Fake Indian Currency Notes 

1.How can I identify the colour-shifting ink on Indian currency notes? 

According to the RBI, the denomination numerals on ₹200, ₹500 and ₹2,000 banknotes use colour-shifting ink. When the applicable numeral is viewed with the note held flat, it appears green. When the banknote is tilted, it changes towards blue. 

The ₹2,000 denomination has been withdrawn from circulation, although these notes continue to be legal tender. 

2.What are the differences between the old and new series of Indian currency notes? 

The Mahatma Gandhi (New) Series introduced changes in the design, dimensions, colours and placement of several security features. 

Depending on the denomination, the newer series includes features such as Devanagari denomination numerals, Mahatma Gandhi and electrotype watermarks, security threads, ascending-size numerals in number panels, Swachh Bharat logo and denomination-specific motifs on the reverse. 

Security features vary according to the denomination and the series in which the note was issued. 

3.How do I report counterfeit currency to the authorities? 

If you suspect that you have received a counterfeit note, do not knowingly circulate it. You can approach a bank branch for verification or report it to the appropriate police authorities. 

When a bank detects a counterfeit note, RBI directions require the bank to impound it and provide an acknowledgement receipt to the tenderer. The bank then follows the applicable counterfeit-note reporting procedure. 

4.What are the legal consequences of using fake currency in India? 

The earlier reference to IPC Section 489C needs to be updated. The Bharatiya Nyaya Sanhita, 2023 (BNS) came into force on 1 July 2024 and now contains the relevant provisions. 

Under the BNS: 

  • Section 178 deals with counterfeiting currency notes or banknotes. The offence can attract imprisonment for life or imprisonment of up to 10 years, along with a fine. 
  • Section 179 covers knowingly using, selling, delivering, receiving or otherwise dealing in counterfeit currency as genuine. It can attract imprisonment for life or imprisonment of up to 10 years, along with a fine. 
  • Section 180 deals with possession of counterfeit currency when a person knows or has reason to believe it is counterfeit and intends that it be used as genuine. It can attract imprisonment of up to 7 years, a fine, or both. The section also provides that possession established to be from a lawful source does not constitute an offence under that section. 

Therefore, accidentally receiving a suspicious note is different from knowingly attempting to use counterfeit currency as genuine. 

5.What is the meaning of counterfeit notes? 

Counterfeit notes are unauthorised imitations of genuine currency notes created to resemble legal banknotes. 

They may copy the design, denomination and appearance of genuine currency but do not originate from the authorised currency-issuing process. Counterfeit notes may also fail to reproduce security features such as watermarks, security threads, micro-lettering and raised printing correctly. 

6.How can I identify fake notes without any equipment? 

You can perform several basic checks without special equipment: 

  • Hold the note against light: Look for the Mahatma Gandhi watermark and denomination watermark. 
  • Tilt the note: Check applicable colour-changing features and security threads. 
  • Feel the note: On applicable denominations, check the raised printing. 
  • Look closely: Examine the printing quality, number panels, alignment and security thread. 
  • Compare it: If possible, compare the suspicious note with a genuine note of the same denomination and series. 

Checking several security features together is more reliable than judging the note by just one characteristic. 

7.Can banks detect fake notes at the counter? 

Yes. RBI directions require banknotes tendered over the counter to be examined for authenticity through machines. 

Banks are also required to have appropriate banknote sorting or counterfeit-detection equipment. A note confirmed as counterfeit is impounded rather than returned to the customer, and an acknowledgement receipt is issued. 

8.Are there any apps to verify fake Indian currency notes? 

There is no RBI app that authenticates a banknote as genuine or counterfeit. 

The RBI offers the Mobile Aided Note Identifier (MANI) app, which is designed primarily to help visually impaired persons identify the denomination of Indian banknotes. 

However, the RBI specifically states that MANI does not authenticate whether a note is genuine or counterfeit. 

Be cautious about third-party apps claiming that a smartphone camera alone can conclusively certify the authenticity of an Indian currency note. 

9.What should I do if I receive a fake note from an ATM? 

If you suspect that an ATM has dispensed a counterfeit note: 

  1. Do not attempt to spend or circulate the note. 
  1. Keep the suspicious note safely. 
  1. Record the ATM location, date, approximate time and transaction details. 
  1. Preserve the transaction receipt, SMS or account statement, if available. 
  1. Contact the bank that operates the ATM or your bank immediately and raise a complaint. 
  1. Follow the bank’s process for verification and investigation. 

RBI directions require banks to ensure that only properly sorted and machine-examined banknotes are loaded into ATMs. RBI also treats the dispensation of counterfeit notes through an ATM as a serious compliance issue and requires banks to maintain mechanisms for handling such complaints. 

A complaint does not by itself guarantee reimbursement, so the matter should be reported to the bank promptly with all available transaction details.

A Detailed History of the Mutual Funds in India

If you’ve ever wondered when mutual fund started in India, the answer goes back to 1963, just a decade after India gained independence. The first mutual fund in India was launched by the Government of India and the Reserve Bank of India under the Unit Trust of India (UTI). This marked the beginning of the history of mutual funds in India, a journey that has evolved through multiple phases to become one of the most popular investment options today. 

The very first scheme introduced was Unit Scheme 1964 (US-64), designed to encourage small investors to participate in the markets. Over time, UTI and other players shaped the mutual fund history of the country, making it a trusted tool for wealth creation. From public sector banks entering the space to the arrival of private players and tighter SEBI regulations, every milestone has added to the growth story. 

Phase-wise History of Mutual Funds in India 

The history of mutual funds in India can be understood better through 5 distinct phases. Each phase reflects how regulations, new entrants and investor awareness shaped the industry over the decades. 

Phase 1 (1964 – 1987): Origin of Mutual Funds in India 

The origin of mutual funds dates back to 1963 when UTI launched the first mutual fund in India, known as Unit Scheme 1964 (US-64). This pioneering scheme laid the foundation for the mutual fund industry by attracting retail investors who were looking for returns higher than traditional savings. 

Initially regulated by the RBI, UTI grew rapidly and by 1978, the Industrial Development Bank of India (IDBI) took over its management. Within a decade, UTI managed over ₹6,700 crores of assets. Interestingly, some of the earliest schemes from this period delivered annualised returns between 9% and 22%, proving how powerful market-linked investments could be. 

Phase 2 (1987 – 1993): Public Sector Enters the Scene 

The second phase in the history of mutual funds began when public sector entities joined the industry. The first bank to introduce mutual fund outside UTI was the State Bank of India (SBI Mutual Fund) in 1987. Soon after, other public sector banks and institutions like LIC, GIC, Punjab National Bank, and Bank of Baroda followed suit. 

This period witnessed explosive growth, with the industry’s assets under management (AUM) expanding by nearly 600% by 1993. 

Phase 3 (1993 – 2003): Private Sector and Regulation 

A big milestone in the mutual fund history was the entry of private players. To regulate this growing sector, the Securities and Exchange Board of India (SEBI) was established in April 1992, bringing in a formal regulatory framework. 

In 1993, the first private mutual fund, Kothari Pioneer, was launched. By 1996, SEBI introduced detailed mutual fund regulations, which still form the backbone of the industry today. By 2003, investors could choose from over 30 mutual fund houses and the AUM had grown to ₹1,20,000 crores. 

During this time, investors also saw a wider range of schemes such as multi-cap funds, index funds, ELSS and sectoral funds, many of which remain popular investment choices even today. 

Phase 4 (2003 – 2014): Consolidation and Growth 

This phase marked the end of UTI’s monopoly. In 2003, UTI was split into two entities — UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India (SUUTI). 

The global financial crisis of 2008–09 had a significant impact on mutual funds, leading to heavy redemptions. To protect investors, SEBI abolished entry loads in 2009, making mutual fund investments more transparent and cost-effective. 

Despite the turbulence, by 2014 the industry had regained its footing, preparing for its next big growth cycle. 

Phase 5 (2014 – Present): Modern-Day Mutual Funds 

From 2014 onwards, the mutual fund industry has seen unprecedented expansion. 2 factors played a huge role: 

  • SEBI’s focus on transparency and stronger investor protection 
  • Increased awareness of SIPs and mutual funds through large-scale campaigns 

A key change in this phase was the introduction of Direct Plans alongside Regular Plans. Direct Plans gave investors the option to avoid distributor commissions, making mutual funds more affordable and accessible. 

As a result, retail participation soared. By May 2021, the industry had crossed 10 crore folios and as of October 2024, the average AUM had touched a massive ₹68,50,321 crore. Today, mutual funds are not just about traditional large-cap or debt schemes — investors actively explore flexi-cap, contra, technology and sectoral funds depending on their goals and risk appetite. 

Many Indians are now relying on mutual funds to grow their wealth as fund managers time the market and portfolios can be balanced by choosing a mix of asset classes. However, investing in these schemes limits your access to funds.  

That’s where Fibe’s Loan Against Mutual Funds can be the right solution to bridge a financial gap or achieve your goals. Not only can you pledge over 8,000 mutual fund schemes, but you can also get up to ₹5 lakhs as a loan. While you can access cash, your investment continues to earn returns and you can choose to ease your repayment 

by only paying interest on the loan amount you utilise. To find out more and enjoy a seamless digital application, download the Fibe App now.  

FAQs on Mutual Funds’ History in India 

When and where were mutual funds first established?  

In India, RBI introduced mutual funds by establishing the Unit Trust of India (UTI). During the first phase of mutual funds, it was under the regulation of the RBI. Its aim was to contribute to the growth of the Indian economy and allow small investors to benefit from investing in securities.  

What resources are available for researching the history of specific mutual funds or fund families?  

You can use the following resources to find the history of a specific mutual fund, such as: 

  • Website of the Association of Mutual Funds in India (AMFI) 
  • On Asset Management Companies’ platforms 
  • Via Rating Agencies like ICRA 
  • Scheme-related Documents and Factsheets. 

How to Redeem Mutual Funds?

Wondering how to redeem mutual funds or withdraw your investment smoothly? Whether you’re switching schemes, meeting urgent financial goals or simply rebalancing your portfolio — it’s important to understand how mutual fund redemption works. 

Knowing the right process and rules helps you encash the maximum amount without any hassle. This guide answers your top questions like redeem meaning in mutual fund, how to redeem mutual fund online, the timeline involved and what taxes may apply. 

What is Mutual Fund Redemption? 

Mutual fund redemption means selling your fund units to access your returns. Simply put, when you redeem your mutual fund, you’re withdrawing all or part of your investment at the current Net Asset Value (NAV). 

When you submit a redemption request, the AMC (Asset Management Company) processes your sale and the amount gets credited to your registered bank account after deducting any applicable exit load or taxes. 

The value you receive depends on the NAV of your fund on the day your request is processed. 

There are mainly three ways to redeem your mutual fund units: 

  • Unit-based redemption: You redeem a specific number of units. 
  • Amount-based redemption: You specify the amount you wish to withdraw. 
  • Complete redemption: You withdraw your full investment amount. 

Reasons for Mutual Fund Redemption 

Here are some common reasons why investors choose to redeem their mutual fund investments: 

  1. Underperforming or unsatisfactory schemes: 

If your fund is not meeting your expectations or performing below benchmark levels, it might be time to redeem and switch. 

  1. Better investment opportunities: 

You may want to exit one fund and invest in another with higher potential or better alignment with your goals. 

  1. Financial emergencies: 

Medical bills, education expenses, or urgent home repairs can require quick liquidity. Redeeming mutual funds is one way to access funds. 

  1. Portfolio rebalancing: 

 You might redeem units to rebalance your portfolio if your asset allocation drifts away from your risk profile. 

  1. Change in life stage or goals: 

 For example, as you near retirement, you may move from equity funds to more stable debt funds. 

  1. Lacklustre AMC performance: 

 If your AMC or fund manager’s strategy doesn’t inspire confidence, you might prefer to withdraw. 

How Does Mutual Fund Redemption Work? 

Here’s how mutual fund redemption typically works step by step: 

  1. You decide how many units or how much money you wish to redeem. 
  1. You submit a redemption request to your AMC, distributor, or through your demat/trading account. 
  1. The AMC processes the request based on the NAV applicable on that day. 
  1. After deducting any exit load or taxes, the redeemed amount is credited to your registered bank account. 
  1. You receive an SMS or email confirmation once the redemption is processed successfully. 

How to Redeem Mutual Funds? 

You can redeem your mutual funds in multiple convenient ways. Here’s how: 

  1. Through your AMC (Asset Management Company): 
  1. Visit the AMC’s website or branch. 
  1. Log in using your credentials. 
  1. Choose the scheme and number of units/amount you wish to redeem. 
  1. Confirm your request and the redemption amount will be credited via NEFT or cheque. 
  1. Tip: Opt for online redemption if you need funds faster. 
  1. Through your demat or trading account: 
  1. Log in to your broker or demat account. 
  1. Select the mutual fund and redemption option. 
  1. The amount is credited to your linked bank account once processed. 
  1. Through a Registrar and Transfer Agent (RTA): 
  1. RTAs like CAMS and KFintech (Karvy) allow online or offline redemptions. 
  1. You can visit their branch or website and submit your redemption form. 

Is Mutual Fund Withdrawal Different from Selling Stocks? 

Yes, mutual fund redemption differs from selling stocks. When you sell stocks, the transaction happens instantly on the stock exchange. However, mutual fund redemption takes place through the AMC, not the exchange and your payout depend on the NAV of that day, not live market price. 

What are the Types of Redemption? 

You can choose from the following types based on your need: 

  1. Unit-based redemption: Redeem a fixed number of units 
  1. Amount-based redemption: Specify the amount you wish to withdraw 
  1. Complete redemption: Redeem your entire holding 

Mutual Fund Redemption Process 

Follow these simple steps to redeem your mutual funds: 

  1. Keep your folio number, PAN, and bank details handy 
  1. Choose the method — AMC, demat account, or RTA 
  1. Submit your redemption request before the NAV cut-off time 
  1. Once processed, your amount is transferred to your bank account 

Mutual Fund Redemption Timeline 

The mutual fund redemption time varies depending on the type of fund: 

  • Liquid funds: 1 working day after request submission 
  • Debt funds: 2 to 3 working days 
  • Equity funds: 3 to 4 working days 
  • Average redemption time: 3 working days (except liquid funds) 

Before 3 PM NAV cut-off rule: 

If you place a redemption request before 3 PM on a working day, the same day’s NAV applies. Requests placed after 3 PM will be processed using the next working day’s NAV. 

Things to Remember 

Before redeeming your mutual fund investments, keep these points in mind: 

  • Exit Load: Some funds charge a fee for early redemption. 
  • Bank Updates: Ensure your bank account details are updated to avoid delays. 
  • Holidays: Redemptions may be delayed on public or state-declared holidays. 
  • Taxes: Redemptions may be subject to Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG) depending on the holding period and fund type. 

Can I Redeem Mutual Fund Anytime? 

If you’ve invested in open-ended funds, you can redeem your investment anytime. However, always check the exit load, NAV cut-off time and tax implications before placing the request. 

Instead of redeeming your investment early, you can get instant liquidity by applying for a Loan Against Mutual Funds from Fibe. You can access up to 80% of your NAV value, get up to ₹10 lakhs instantly and pay interest-only EMIs.  
Download the Fibe App to apply within 10 minutes and get your amount credited directly to your account. 

FAQs on Mutual Fund Redemption 

1. What is the redeem meaning in mutual fund? 

Redeeming mutual fund units means selling or withdrawing them to access your returns. 

2. When is the best time to redeem mutual funds? 

It depends on your financial goals and NAV levels. A higher NAV means higher returns. 

3. Is it possible to redeem a mutual fund after one year? 

Yes, most funds can be redeemed after a year, depending on the fund type. 

4. What are the new SEBI cut-off rules for redemption? 

For non-liquid funds, redemption requests before 3 PM get the same day’s NAV. For liquid funds, 2 PM is the cut-off time and requests before that get the previous day’s NAV. 

5. Can I redeem mutual fund anytime? 

Yes, open-ended funds allow you to redeem anytime, but always check the exit load and tax implications first. 

Yield to Maturity (YTM) – Meaning, Formula and Examples

If you’ve ever wondered how much your bond investment could earn by the time it matures, you’re in the right place. This space answers one of the most common investment questions what is yield to maturity meaning and how it helps in comparing bonds and mutual funds. 

In simple terms, Yield to Maturity (YTM) helps you estimate the total return you can expect if you hold a bond until maturity. Whether you’re comparing mutual funds, fixed-income securities, or corporate bonds, understanding YTM, coupon rates and yields helps you assess both risk and reward. 

Think of YTM as your investment’s scorecard — it gives a complete picture of how your bond performs over time, considering interest payments, current price and capital gain or loss. Let’s explore how this works in detail. 

What is Yield to Maturity? 

Yield to Maturity (YTM) is the total return an investor can expect if a bond is held until it matures. It reflects the annualised rate of return including both interest payments (coupons) and any capital gain or loss that happens when the bond reaches maturity. 

To put it simply, YTM shows how much your bond investment will grow based on its current market price, face value, coupon rate and time to maturity. Yield to Maturity is sometimes referred to as the redemption yield or book yield. It gives investors a standardised way to compare bonds with different interest rates and maturities. 

Importantly, YTM is also known as the Internal Rate of Return (IRR) — the rate that equates all future cash flows (interest and principal payments) of a bond to its current market price. 

For example: 

  • If the bond’s market price is lower than its face value, it’s said to be trading at a discount. 
  • If the bond’s market price is higher than its face value, it’s known as a premium bond, usually offering a higher coupon rate than the current market average. 

Yield to Maturity Formula 

Here’s the formula used to calculate YTM: 

YTM=2(FV+PV) C+T(FV−PV)    

Where: 

  • C = Annual coupon payment (interest) 
  • FV = Face value of the bond 
  • PV = Current market price (present value) 
  • T = Time (years) to maturity 

This formula gives an approximate yield value that helps you estimate your returns from the bond. 

How to Calculate YTM? 

Let’s break this down with a simple example to understand how the calculation works. 

Example: 

 Suppose you buy a bond with: 

  • Face Value (FV): ₹1,000 
  • Current Price (PV): ₹950 
  • Annual Coupon Payment (C): ₹80 
  • Time to Maturity (T): 5 years 

Using the formula: 

 YTM=2(1000+950) 80+5(1000−950)    
YTM=80+10975=0.092 or 9.2% 
So, your YTM = 9.2%, meaning you can expect a 9.2% annual return if you hold this bond until maturity. 

If this same bond were priced at ₹1,050 (a premium bond), the YTM would be lower since you’re paying more upfront for the same returns. 

Components of Yield to Maturity 

To understand YTM meaning completely, let’s look at its main components: 

  • Coupon Interest Rate: The annual interest you earn on the bond. 
  • Current Market Price: The current price at which the bond is trading. 
  • Time to Maturity: The remaining period until the bond matures and the principal is repaid. 

These components work together to show how much you stand to earn or lose depending on market movements and holding period. 

Importance of Yield to Maturity in Various Investment Portfolios 

Here’s how YTM helps you make informed portfolio decisions: 

Fixed-Income Investments 

  • YTM gives a clear picture of total returns from fixed-income securities. 
  • It helps assess the risk and reward balance across different bonds. 
  • Enables investors to compare and pick bonds that align with their goals. 

Long-Term Planning 

  • YTM covers the entire lifespan of the bond, offering a long-term return view. 
  • It helps in financial planning for milestones like retirement or wealth building. 
  • Allows you to understand how different assets yield different returns. 
  • Helps gauge the market’s potential risk factors for better strategy building. 

This makes YTM a reliable tool for navigating both fixed-income portfolios and long-term investment planning. 

Limitations of Yield to Maturity 

While YTM is an effective metric, it has certain limitations: 

  • It doesn’t account for taxes on capital gains or interest. 
  • It assumes reinvestment of coupon payments at the same rate, which may not happen in reality. 
  • Transaction costs, brokerage, and other fees are not included. 
  • The final return depends on the bond’s market price when sold. 

If you need liquidity but don’t want to redeem your mutual funds, consider the Fibe Loan Against Mutual Funds. You can get up to ₹10 lakhs without liquidating your investments. Simply check your eligibility, upload your documents, pledge your mutual funds, and receive funds directly in your bank account. 

Download the Fibe App now to apply! 

FAQs on Yield to Maturity 

1. Is higher or lower YTM better? 

Higher YTM usually means higher risk and potentially higher returns. However, a very high YTM could indicate lower bond quality. Always assess your risk appetite before investing. 

2. Is YTM the same as the interest rate? 

No. YTM reflects the total return on maturity, not just the coupon rate. 

3. How does yield to maturity impact bond pricing in the secondary market? 

YTM and bond prices have an inverse relationship — when YTM rises, bond prices fall, and vice versa. 

What is the Difference Between ETF and Mutual Fund?

Many investors often search for mutual funds vs ETFs to understand which is a better investment option. While both let you invest in diversified assets like stocks and bonds, they work quite differently. Mutual funds are professionally managed, while ETFs (Exchange-Traded Funds) usually follow a specific market index. 

Understanding the mutual fund vs ETF difference is crucial because your choice can impact your returns, liquidity and tax efficiency. So, before you decide where to put your money, let’s break down both investment types in simple terms. 

Understand Mutual Funds 

A mutual fund pools money from multiple investors and invests it in a mix of securities such as stocks, bonds or other assets. These funds are managed by professional fund managers who make buy or sell decisions to maximise returns. 

The value of your investment depends on the Net Asset Value (NAV), which represents the per-unit price of the fund after expenses are deducted. 

A key point in the mutual funds vs ETFs debate is active management. Many mutual funds are actively managed, meaning a fund manager tries to outperform the market through research, analysis, and tactical decisions. This can potentially bring higher returns but also comes with higher expense ratios compared to ETFs. 

Mutual funds are ideal for investors who prefer professional management and are okay with slightly higher costs for expert handling of their investments. 

Know About ETFs 

An Exchange-Traded Fund (ETF) is also a type of mutual fund, but it works differently. Instead of being actively managed, most ETFs are passively managed and aim to replicate the performance of a particular index, like the Nifty 50 or Sensex. 

This means ETFs simply try to match the benchmark’s returns rather than outperform it. Investors can buy and sell ETFs on stock exchanges throughout the day, just like stocks. 

However, ETFs may experience a tracking error, which occurs when the ETF’s performance slightly deviates from its benchmark index. Despite this, ETFs generally offer lower expense ratios and are considered more tax-efficient because they generate fewer capital gains distributions compared to mutual funds. 

In short, ETFs provide flexibility, liquidity and cost efficiency, making them a popular choice for investors who prefer a hands-off approach to investing. 

Difference Between Mutual Funds Vs ETFs 

When understanding the mutual fund vs ETF difference, it helps to look at how they differ on key parameters: 

Factor  Mutual Funds  ETFs  
Management Style  Actively or passively managed by professionals  Mostly passively managed to track an index  
Trading Method  Bought or sold at the end of the trading day based on NAV  Traded on stock exchanges like shares throughout the day  
Expense Ratio  Generally higher due to fund management costs  Lower as ETFs have minimal management intervention  
Liquidity  Less liquid; redemptions take a few days  Highly liquid; can be traded anytime during market hours  
Tax Efficiency  Less tax-efficient due to capital gains from active management  More tax-efficient due to fewer capital gains distributions  
Tracking Error  Not applicable to actively managed funds  May have slight tracking error compared to the benchmark  

This table summarises the major mutual fund vs ETF difference you should know before investing. 

Types of Mutual Funds and ETFs 

Just like mutual funds come in different types, ETFs also have various categories. Here are some popular ones to help you choose: 

Types of Mutual Funds 

  • Equity Mutual Funds: Invest mainly in stocks for long-term growth 
  • Debt Mutual Funds: Focus on fixed-income securities like bonds for stability 
  • Hybrid Funds: Combine both equity and debt for balanced risk and reward 
  • Index Funds: Passively track a specific market index, similar to ETFs 

Types of ETFs 

  • Equity ETFs: Track a stock index like Nifty 50 or Sensex 
  • Debt ETFs: Invest in government or corporate bonds 
  • Commodity ETFs: Invest in commodities like gold or silver 
  • International ETFs: Provide exposure to global markets 

Understanding these types helps you diversify your portfolio across risk levels and asset classes. 

Mutual Fund Vs ETF Redemption Example 

Let’s understand the mutual fund vs ETF difference with an example. 

Scenario: 

 You’ve invested ₹1 lakh in both a mutual fund and an ETF. 

  • Mutual Fund Redemption: You can redeem your units anytime, but the transaction is processed at the end of the trading day based on the day’s NAV. The amount reflects in your bank account within a few business days. 
  • ETF Redemption: You can sell your ETF units instantly on the stock exchange during trading hours and get the amount based on the market price at that moment. 

So, if you value quick access to your money, ETFs offer more liquidity. 

Are ETFs Riskier Than Mutual Funds? 

When comparing mutual funds vs ETFs, risk depends on what you invest in. ETFs and mutual funds that track the same index carry almost identical market risks. However, ETFs may carry slightly higher short-term risk due to daily price fluctuations since they’re traded throughout the day. 

On the other hand, actively managed mutual funds can sometimes outperform during market volatility because fund managers make strategic decisions. 

So, ETFs are not necessarily riskier — they just behave differently. The key is to align your investment choice with your goals, timeline and risk tolerance. 

Which is Better: ETF or Mutual Fund? 

Choosing between a mutual fund and an ETF depends on your personal financial goals. If you prefer active management and long-term wealth creation, mutual funds are a great fit. But if you value liquidity, lower costs and tax efficiency, ETFs may be better. 

You can even invest in both, using ETFs for flexibility and mutual funds for disciplined growth. 

However, if you ever need quick access to cash without redeeming your investments, you can opt for a Fibe Loan Against Mutual Funds. Get a loan starting from ₹15,000 up to ₹10 lakhs by using your mutual fund as collateral and continue growing your investments uninterrupted. Simply download the Fibe App and apply within minutes. 

Final Thoughts 

Both ETFs and mutual funds are strong investment vehicles for wealth creation. The mutual funds vs ETFs debate isn’t about which is ‘better’ universally, but which one fits your financial goals best. 

If you’re just starting, you can explore both to enjoy diversification, liquidity and steady growth. 

FAQs on Mutual Funds Vs ETFs 

1. Can I invest in both ETFs and mutual funds for retirement? 

Yes, investing in both can help you balance risk and return, building a stable retirement corpus over time. 

2. How do tracking errors differ between ETFs and mutual funds? 

ETFs may experience slight tracking errors as they replicate an index’s performance. The smaller the error, the more accurately the ETF tracks its benchmark. 

3. Can I automate my investments in ETFs like I can with mutual funds? 

Usually, SIPs (Systematic Investment Plans) are available for mutual funds but not for ETFs. ETFs need to be purchased manually through your trading account. 

Liquidity in mutual fund: Converting investment into cash

If you’re investing in mutual funds, one of the most common questions you might have is — how quickly can I get my money back when I need it? That’s exactly what liquidity in mutual funds is all about. Liquidity tells you how easily and quickly your investment can be converted into cash without losing much of its value. Understanding it helps you plan for emergencies, balance risk and make smart exit or reinvestment decisions. Let’s explore what liquidity means, how it impacts your mutual fund investments and what factors you should consider before choosing a scheme. 

What is Liquidity in Mutual Funds? 

In simple terms, liquidity refers to how easily you can convert your investment into cash. In mutual funds, it shows how quickly you can sell your units and get your money without a significant loss in value. 

A highly liquid asset allows quick redemption that is ideal for emergencies. For example, money market instruments, gold and large-cap stocks are considered highly liquid. 

On the other hand, investments like tax-saving fixed deposits or retirement funds have a low liquidity since you can’t withdraw them before a lock-in period end. 

Apart from market liquidity, there’s also accounting liquidity, which shows how quickly an investor or company can meet obligations by liquidating assets. This concept is also useful while evaluating mutual fund portfolios. 

How Does Liquidity Affect Investment Decisions? 

Liquidity plays a huge role in shaping how you build and manage your mutual fund portfolio. Here’s how: 

  • Emergency Readiness: High liquidity ensures quick access to funds when unexpected expenses arise. 
  • Portfolio Flexibility: Lets you switch between schemes or book profits without much hassle. 
  • Market Timing: Helps you take advantage of sudden market opportunities by entering or exiting easily. 
  • Reduced Risk: Low liquidity can increase risk, especially if you can’t redeem your funds during downturns. 
  • Expense Awareness: Selling mutual funds too early may attract exit loads, affecting your final returns. 

Five Things to Know About Liquidity in Mutual Funds 

Here are key points every investor should keep in mind: 

  • Liquidity differs by fund type: Open-ended funds are more liquid than close-ended ones. 
  • Exit load matters: Some mutual funds charge a small fee for early redemption. 
  • NAV fluctuations: Selling during market lows can reduce your overall gains. 
  • Fund manager’s strategy impacts liquidity: Portfolios with large-cap or frequently traded securities are easier to redeem. 
  • Investor demand drives liquidity: Funds with higher investor activity tend to be more liquid. 

Role of Liquidity in Investments 

Liquidity is more than just accessibility — it influences your entire investment experience. Here’s how it plays a role: 

  • Helps balance risk and return by allowing timely exits during volatile markets 
  • Supports short-term financial goals since funds with high liquidity can be redeemed quickly 
  • Increases investor confidence because liquid assets are easier to track and manage 
  • Improves overall portfolio health by maintaining the right mix of liquid and long-term assets 
  • Acts as a financial safety net when sudden financial needs arise 

Why Does Liquidity Matter in Mutual Funds? 

Liquidity in mutual funds affects both your risk exposure and potential returns. Here’s why it’s crucial: 

  • Risk Assessment: Funds with low liquidity often carry higher risk since you may struggle to sell units quickly. 
  • Total Returns: Selling during a market downswing or paying exit loads can affect returns. 
  • Quick Redemption: Highly liquid funds allow faster redemption with minimal losses. 
  • Credibility of the Funds: Liquid funds attract more investors, making them more stable and reliable. 
  • Investment Horizon: Short-term funds offer high liquidity but lower returns, while long-term funds do the opposite. 

Market Liquidity 

Market liquidity refers to the ease of buying and selling securities in the market. For instance, mutual funds invested in large-cap stocks tend to have higher market liquidity because these securities are traded frequently. In contrast, funds with investments in niche or small-cap securities may have lower market liquidity. 

Factors to Consider 

If you’re looking for liquidity in mutual funds, keep these points in mind: 

  • Risk Appetite: Choose liquid funds if you prefer low-risk investments. 
  • Exit Load: Pick funds with low or no exit load for easier withdrawals. 
  • Liquidity Risk: This arises when investors can’t redeem their units quickly, especially in funds holding less commonly traded securities. 
  • Commonly Liquid Funds: Money market securities, Large-cap mutual funds and Government bonds 

A highly liquid fund lets you buy and sell units without affecting the market price. Fund managers maintain this liquidity by managing cash inflows, dividend payouts and investing in liquid instruments. 

If your mutual fund has low liquidity, you don’t need to sell it. You can simply apply for Fibe’s Loan Against Mutual Funds. This allows you to pledge your mutual fund units as collateral and get up to 80% of their value (up to ₹10 lakhs) without liquidating your investment. 

Download the Fibe App and meet your financial needs while keeping your investments intact. 

FAQs on Liquidity in Mutual Funds 

1. How does the lock-in period in mutual funds affect liquidity? 

Lock-in periods provide investment stability and higher returns but reduce liquidity since you can’t withdraw funds before the period ends. 

2. How can I check the liquidity of a specific mutual fund? 

Check its cash ratio, review fund documents and analyse its average daily trading volume to see how often investors buy and sell units. 

Short-Term vs. Long-Term Capital Gains: A Complete Guide

When you invest in any capital asset, you can earn either short-term capital gains or long-term capital gains. Depending on your holding period, your income is classified into one of these two types. Based on this classification, tax rules differ. 

To better estimate your returns and manage your taxes, learn about both types of capital gains. This will also help you align your goals to the investment and redeem units at the right time. Read on to learn briefly about what are capital gains and short-term vs long-term capital gains.

Definition of Capital Gains

Capital gain is a term you will often come across when investing in mutual funds. Say you invest your money to buy an asset and hold on to it for a period of time. When its price is higher than the amount you have invested, you sell off the asset. The profit you make in this way is your capital gain from that particular asset.

Based on your holding period, there are two types of capital gains:

  • Short-term capital gain (STCG)
  • Long-term capital gain (LTCG)

What is Short-Term Capital Gain?

If you sell off your asset before a certain tenure to make a profit, it is called a short-term capital gain. In most cases, if your lock-in period is less than 12 months, it is a short-term capital gain. Every asset class has a different lock-in period and defines this duration differently. 

For your gains to be considered STCG, see the holding period for different types of assets:

  • If you sell your debt funds purchased before April 1, 2023, within 2 years 
  • If you sell debt funds purchased after April 1, 2023, at any time 
  • If you sell your immovable assets within 2 years 
  • If you sell you movable assets within 2 years
  • If you sell your equity funds before 1 year 

Formula for Short-Term Capital Gain

To calculate this, you need to subtract the purchase price from the selling price. Here’s the formula you can use to simplify your calculation of STCG:

STCG = Sale Consideration – (Summation of cost of acquisition + Cost of improvement + Transfer)

  • Sale Consideration: The total amount you have received by selling an asset
  • Summation of Cost of Acquisition: The amount you have paid while purchasing the asset
  • Cost of Improvement: The cost that had to be paid during the holding period to improve or modify the asset
  • Transfer: The additional cost you may have paid while selling off the asset

STCG Taxation: STCG is charged at 20% on your capital gains or as per your tax slab, depending on the asset. 

STCG Impact: It directly impacts your tax bill, especially if you fall in the higher tax bracket. 

What is Long-Term Capital Gain?

If you sell your equity assets after 12 months or debt funds (if bought on or before March 31, 2023,) after 24 months, then it will be considered LTCG. For immovable assets, the holding period for LTCG is considered as 24 months. 

  • Formula: There’s no formula to calculate LTCG as it is the total profit after the holding period 
  • Taxation: In India, you will be charged 12.5% on equity funds held for more than 12 months. The same percentage will be applied to debt funds for over 24 months.
  • Impact: It has a lower rate, which makes it easier for you to build wealth

Difference Between Short-term and Long-term Capital Gain

Here are the differences between short-term capital gains and long-term capital gains:

ParametersShort-Term Capital GainsLong-Term Capital Gains
Definition When you sell an asset within the defined short termWhen you sell an asset after the short-term holding period ends 
PeriodFor equity, your holding period <12 months
For immovable assets, your holding period <24 month
For Debt Funds, your holding period <24 months		For Equity, your holding period >12 months
For immovable assets, your holding period >24 month
For Debt Funds, your holding period >24 months
Indexation BenefitsSTCG has no indexation benefitsLTCG no longer has indexation benefits as of July 23, 2024 (even on debt funds)
Tax RatesFor equity, it is 20% and for debt funds, it is based on the tax slab For equity, it is 12.5% on gains over ₹1.25 lakhs 

By deciding on your investment and redemption keeping short-term capital gains and long-term capital gains taxes in mind, you can ensure your financial wellbeing. To benefit from a lower tax burden, try to stay invested for longer. If you require instant funds, try to avoid making early withdrawals of your mutual funds. 

Instead, you can apply for a Loan Against Mutual Funds which gives you 80% of the funds’ value. It has a simple and easy-to-follow application process with loan disbursal in just minutes. To up to ₹10 lakhs with this process, download the Fibe App.

FAQ on Short Vs. Long-Term Capital Gains

Is long-term capital gain more advantageous than short-term capital gain?

In various ways, long-term capital gain has some favourable tax benefits, impacting your financial growth immensely.

Is short-term capital gain taxed at a higher rate compared to long-term capital gain?

Generally, long-term capital gains have lower tax rates and short-term capital gains have higher rates. 

Can I carry forward losses from short-term or long-term capital gains?

If you are comparing short-term vs long-term capital gains, keep in mind income from both can set off short and long-term capital losses, which may be carried forward up to 8 years. To do this, ensure you file your income tax return by the due date.

Fixed Maturity Plan (FMP): Meaning, Features, Taxation & Who Should Invest

What is a fixed maturity plan? A Fixed Maturity Plan (FMP) is a close-ended debt mutual fund scheme with a pre-defined maturity date. The FMP full form is Fixed Maturity Plan. It generally invests in debt and money-market instruments such as government securities, corporate bonds, certificates of deposit, commercial paper and treasury bills, with the portfolio maturity broadly aligned to the tenure of the scheme. Because the scheme has a defined end date, investors typically enter during the New Fund Offer (NFO) and receive the maturity proceeds when the plan ends. Returns are market-linked and are not guaranteed. 

What is a Fixed Maturity Plan (FMP)? 

A Fixed Maturity Plan is a close-ended debt mutual fund. Unlike an open-ended debt fund, an FMP does not remain continuously open for fresh subscriptions and redemptions. Investors usually subscribe during the NFO period, after which the scheme closes to fresh purchases through the fund house. 

The fund manager builds a portfolio of debt and money-market securities whose maturities are generally aligned with the FMP tenure. This helps reduce the impact of interest-rate movements if the securities are held to maturity. However, FMPs still carry credit risk, liquidity risk and the possibility of lower-than-expected returns. 

FMPs are mandatorily listed on a recognised stock exchange. Investors cannot normally redeem units directly with the fund house before maturity, although listed units may be sold on the exchange if there is sufficient liquidity and a buyer is available. The market price may differ from the scheme’s NAV. 

How Fixed Maturity Plans Work 

  1. The fund house launches an NFO. An FMP is offered for a limited subscription period with a clearly stated tenure and maturity date. 
  1. Investors subscribe during the NFO. Investment is generally made as a lump sum because fresh subscriptions are not continuously available after the NFO closes. 
  1. The fund manager creates a debt portfolio. The money is invested in eligible fixed-income and money-market instruments, with maturities usually chosen to broadly match the scheme tenure. 
  1. The portfolio is managed through the tenure. Because securities are often intended to be held close to maturity, day-to-day interest-rate movements may have a smaller effect on the maturity outcome than in an actively traded debt portfolio. Credit events can still affect returns. 
  1. Units remain locked for direct redemption. The AMC does not normally offer premature redemption. Since FMPs are listed, an investor may try to sell units on the exchange, but trading volumes may be limited. 
  1. The scheme matures. At the end of the tenure, the scheme is wound up and the maturity proceeds are paid to unit holders after the portfolio is realised and scheme liabilities are met. 

Features of Fixed Maturity Plans 

Debt-oriented portfolio: FMPs primarily invest in debt and money-market instruments such as government securities, corporate bonds, certificates of deposit, commercial paper and treasury bills. 

Defined maturity period: Each scheme has a fixed tenure. The portfolio maturity profile is generally aligned with the scheme’s maturity date. 

Close-ended structure: Fresh investments are normally accepted only during the NFO. Direct redemption with the AMC is not generally available before maturity. 

Credit quality varies by scheme: FMPs do not automatically invest only in the highest-rated securities. Investors should review the scheme portfolio, credit ratings and concentration before investing. 

Relatively predictable return profile: Holding debt securities close to maturity can make the return profile more predictable than a frequently traded debt portfolio, but the return is not fixed or guaranteed and can be affected by defaults, downgrades and reinvestment. 

Potentially lower expense ratio: Lower portfolio turnover can help keep fund-management costs relatively low compared with some actively managed debt strategies. Always check the actual Total Expense Ratio (TER) in the scheme documents. 

Taxation of Fixed Maturity Plans: Short-Term vs Long-Term Capital Gains 

The tax treatment of FMPs has changed materially in recent years. Since FMPs are debt-oriented mutual funds, the acquisition date of the units is especially important. The summary below reflects the general position for resident individual investors as of September 2026; tax rules can change and individual circumstances may differ. 

Short-term capital gains (STCG): For debt-oriented FMP units acquired on or after 1 April 2023, gains on transfer, redemption or maturity are generally treated as short-term capital gains irrespective of how long the units are held. The gain is taxed at the investor’s applicable income-tax rate, and indexation is not available. 

Long-term capital gains (LTCG): LTCG treatment is mainly relevant to legacy FMP units acquired before 1 April 2023. For transfers on or after 23 July 2024, listed mutual fund units generally qualify as long-term after being held for more than 12 months. Qualifying LTCG is generally taxed at 12.5% without indexation, subject to the applicable tax law and the investor’s circumstances. 

Investment date Capital-gain treatmentGeneral tax treatment 
Units acquired on or after 1 April 2023 Deemed STCG regardless of holding period Applicable slab / tax rate; no indexation 
Legacy units acquired before 1 April 2023 Ordinary holding-period rules apply; listed units transferred on/after 23 July 2024 generally become long-term after more than 12 months Qualifying LTCG generally 12.5% without indexation; STCG taxed at applicable rate 

TDS note: For resident investors, mutual funds generally do not deduct TDS merely because capital gains arise on redemption. Different withholding rules can apply to non-residents, so NRI investors should check the applicable provisions. 

Example: Suppose a resident investor puts ₹2,00,000 into a debt-oriented FMP on 1 June 2024 and receives ₹2,25,000 at maturity in June 2027. Because the units were acquired after 1 April 2023, the ₹25,000 gain is generally treated as STCG even though the holding period is three years. The gain is taxed at the investor’s applicable rate, and indexation is not available. 

Advantages and Limitations of Fixed Maturity Plans 

Advantages 

  • Defined maturity can help align the investment with a known future financial goal. 
  • A portfolio that broadly matches the scheme tenure can reduce interest-rate sensitivity when securities are held close to maturity. 
  • Debt diversification may provide a more stable return profile than equity investments, although returns are still market-linked. 
  • Lower portfolio turnover may help keep costs relatively controlled in some schemes. 

Limitations 

  • Returns are not guaranteed. Defaults, downgrades or adverse credit events can reduce the maturity value. 
  • Liquidity is limited. Although units are listed, secondary-market trading can be thin and an early seller may receive a price below NAV. 
  • Fresh investment is normally possible only during the NFO, so there is limited flexibility to add money later. 
  • Debt-fund tax treatment may reduce the post-tax advantage for units acquired on or after 1 April 2023. 

Who Should Consider Investing in an FMP? 

  • Investors with a lump sum and a clearly defined investment horizon that broadly matches the FMP tenure. 
  • Investors seeking debt exposure and relatively lower day-to-day volatility than equity, while accepting credit and liquidity risk. 
  • Investors who do not need regular access to the invested money before maturity. 
  • Investors comfortable evaluating portfolio credit quality, scheme tenure, expenses and tax implications before investing. 

An FMP may not suit an emergency fund, an investor who needs guaranteed returns, or someone who wants the flexibility of an ongoing SIP or easy redemption at any time. 

Things to Consider Before Investing in a Fixed Maturity Plan 

1. Expected return profile: Review the scheme’s portfolio yield indicators and maturity profile, but do not treat them as guaranteed returns. 

2. Tax implication: Consider the acquisition date and current tax rules when estimating post-tax returns. 

3. Investment objective: Make sure the scheme maturity aligns with the goal for which you are investing. 

4. Expense ratio: Check the TER because costs directly reduce investor returns. 

5. Credit quality of the underlying securities: Review ratings, issuer concentration and the share of lower-rated instruments, if any. Higher yields can come with higher credit risk. 

6. Your investment timeline: Invest only if you can remain invested for the full tenure. Relying on exchange liquidity for an early exit can be risky. 

If you need liquidity without immediately selling eligible mutual fund holdings, Fibe Loan Against Mutual Funds lets eligible customers pledge mutual fund units to access a credit line of up to ₹10 lakh, subject to eligibility and the value/type of pledged holdings. This can provide access to funds while the investments remain pledged instead of being redeemed outright. Learn more on Fibe 

FAQs on Fixed Maturity Plan 

1.What is the lock-in period for a Fixed Maturity Plan? 

The tenure is fixed when the scheme is launched and can range from a few months to several years. Investors should check the Scheme Information Document (SID) for the exact maturity date before investing. 

2.Can I withdraw my investment from an FMP before maturity? 

You generally cannot redeem FMP units directly with the fund house before maturity. Because FMPs are listed on a stock exchange, you may be able to sell units there, but liquidity can be low and the sale price may be below NAV. 

3.How are Fixed Maturity Plans different from regular mutual funds? 

FMPs are close-ended debt funds with a defined maturity and a limited subscription window. Open-ended mutual funds generally allow ongoing purchases and redemptions. FMP returns are market-linked and should not be treated as fixed or guaranteed. 

4.Are Fixed Maturity Plans safe investments? 

FMPs usually have lower equity-market exposure because they invest mainly in debt instruments, but they are not risk-free. Credit risk, liquidity risk, reinvestment risk and issuer defaults can affect returns and capital. 

5.Can I invest in FMP through SIP? 

Generally, no ongoing SIP is available after the NFO because an FMP is close-ended. Investors normally subscribe during the NFO as a lump-sum investment. Any NFO-specific facility should be checked in the scheme documents. 

6.What happens to my FMP if the fund house closes? 

Mutual fund scheme assets are held in trust for unit holders and are separate from the AMC’s own assets. If a scheme is wound up, the trustees follow the applicable SEBI process, realise the scheme assets, meet scheme liabilities and distribute the remaining proceeds to unit holders in proportion to their holdings. 

7.Are returns from FMP guaranteed? 

No. FMP returns are market-linked and are not guaranteed unless a scheme document expressly provides a valid guarantee, which is uncommon. Credit events, defaults, expenses and market conditions can affect the final return.

Taxation on Mutual Funds – A Detailed Guide

Knowing the policies related to taxation on mutual funds can help you calculate your total returns and even choose the right scheme. With a cohesive understanding of this topic, you can maximise your gains and invest according to your financial goals. 

What is Taxation on Mutual Funds?

When investing in mutual funds, you earn dividends or capital gains. In most cases, you are taxed on the scheme, its investments, the holding period and your tax slab. This is why, before investing in mutual funds, you should understand your tax liability for better financial planning. 

What is Securities Transaction Tax (STT)?

Alongside regular tax, your investment may be subject to another taxation scheme called the Securities Transaction Tax (STT). The Ministry of Finance levies this tax on hybrid and equity funds at a rate of 0.001%. 

Factors That Determine Tax

The following determines the income tax in mutual funds that you must pay:

  • Scheme Type: The tax you pay may be different based on whether you’ve invested in equity funds, debt funds or hybrid mutual funds. 
  • Holding Period: This period starts when you buy mutual fund assets and ends when you sell them off. As per the taxation laws, your gains are subject to lower tax if your holding period is longer and vice versa.
  • Dividend: The mutual fund house distributes a portion of the overall profit to all the investors, called a dividend. Tax is calculated on these returns too. 
  • Capital Gains: When you profit from your mutual fund investment by selling units for a higher price, it is called a capital gain. The tax amount also varies for these gains. 

Taxation of Capital Gains

If your holding period is longer than 12 months, you will need to pay tax based on long-term capital gains. If your holding period is shorter, you will be taxed accordingly. Check the details 

  • Equity funds: If your holding period is less than 12 months, your gain is considered a short-term capital gain. It is a long-term gain if your holding period is more than 12 months. This is also true of hybrid equity-oriented funds. 
  • Debt funds: Gains from such funds are always considered short-term capital gains unless you invested in them before April 1, 2023 and sold them on or before July 23, 2024. This is also true of hybrid debt-oriented funds. 

Taxation on Mutual Funds

To learn about how to pay tax on mutual funds, you can follow the list below, which offers a look at the different types of funds and the taxation rules that apply: 

Taxation on Equity Funds with a Minimum 65% Corpus Invested in Equity Holding PeriodLong-Term Capital Gains TaxShort-Term Capital Gains Tax
Sold before July 23, 2024More than 12 months10%15%
Sold on or after July 23, 2024More than 12 months12.50%20% 
Taxation on Debt Funds with Minimum 65% Corpus Invested in Indian Debt Instruments Before 1st April 2024Holding PeriodFor Long-termFor Short-term
Before July 23, 2024More than 36 months20% with indexation benefitAs per the latest slab rate
On or after July 23, 2024More than 24 months12.50%As per the latest slab rate
If invested after 1st April 2024 and sold on any dateNo period of holdingAs per the latest slab rateAs per the latest slab rate
Taxation on Hybrid Funds with More Than 35% and less than 65% Invested in Equity Holding PeriodFor Long-termFor Short-term
Sold before July 23, 2024More than 36 months20% with indexation benefitSlab rate
Sold on or after July 23, 2024More than 24 months12.50%Slab rate

Also Read : Compounding in Mutual Funds

Taxation on SIP

Due to the periodic investment structure of SIP, you invest a small amount weekly, monthly, quarterly, twice a year or annually. The tax is based on when you invest. If you hold the units from your first investment over a year, any gains are treated as long-term capital gains. If this amount is below ₹1.5 lakhs, no tax is applicable. 

For your second month’s investment, a short-term capital gains tax at a flat rate of 20% is levied. This has no relation to your tax slab. Keep in mind that you also need to pay cess and surcharge. 

Mutual funds may require time to give you the returns you desire, so opting for a longer lock-in period can be helpful. If you need funds during this time, apply for a Loan Against Mutual Funds from Fibe and get up to ₹10 lakhs. This is a great way to continue your investment and increase your potential for gains while accessing funds for immediate use. Apply now to get your loan disbursed within a few minutes.

FAQs on Taxation on Mutual Funds

Are mutual fund taxes payable every year?

Tax on mutual funds only applies when you want to redeem units or sell them. It also applies to any dividends you may receive, which are counted towards your total income. 

How much of my mutual fund investment is exempt from taxes?

Under Section 80C of the Income Tax Act, you can invest up to ₹1.50 lakhs per year in Equity Linked Savings Scheme and get a tax deduction. Your savings can go up to ₹46,800 each year in this way. 

How can I avoid paying taxes on mutual funds?

You can redeem units of your equity fund after a year and if the gains are under ₹1.25 lakhs, you can avoid long-term capital gains tax. 

Are international mutual funds taxed differently in India?

After the recent Budget 2024, the holding period of international funds was reduced to 24 months, where a long-term capital gains tax is levied at 12.5%. This makes investing in these funds more attractive.

Types of Mutual Funds in India

Mutual funds in India come in many types, each offering different benefits—like earning returns, getting dividends, saving on taxes, or reducing risk. To find the right one for you, it’s important to understand what each type offers. This helps you build a balanced portfolio based on your age, goals, and where you are in life. 

There are different types of funds in India and knowing how they work can help you make smarter investment choices. Whether you’re looking for growth or stability, it’s good to explain the types of mutual fund options available, including what securities they invest in and when you can redeem your units. 

Here are a few listed below: 

A) Types of Mutual Funds Based on Asset Class 

  • Debt Funds: These schemes invest in fixed-income instruments to give you returns through appreciation of capital and dividends or interest. They pose a lower risk than equity as they invest in bonds, government securities, and treasury bills.  
  • Equity Mutual Funds: These are investments in company stocks where you earn returns based on revenue and profitability. These are riskier but also have the potential for high returns.  
  • Money Market Funds: Typically, these schemes possess a maturity duration of up to one year. They constitute a short-term, low-risk investment choice that allocates funds to securities such as treasury bills, certificates of deposit, and commercial paper.  
  • Hybrid Mutual Funds: This type is a mix of equity and debt classes to provide a balance of high returns and low-risk stocks. This is why such schemes are also called balance funds.  

B) Types of Mutual Funds Based on the Structure 

  • Open-ended Mutual Funds: This is a scheme which has no fixed entry or exit point. You can invest in such schemes anytime and withdraw your investments without any restrictions. In this way, it offers high liquidity.  
  • Close-ended Mutual Funds: Unlike the open-ended scheme, this investment has a fixed maturity period and offers a restricted number of units for purchase. Consequently, you can invest solely during the initial offering period. Such schemes may include debt and/or equity and are ideal for long-term investment.  
  • Interval Mutual Funds: Merging the advantages of closed and open-ended schemes enables you to purchase and trade finite stocks within a specified timeframe. This is perfect if you seek a long-term investment choice that offers high liquidity.  

C) Types of Mutual Funds Based on the Investment Goal  

  • Aggressive Growth Funds: These are equity-related instruments that give you great returns at a higher market risk, suitable for long-term investment.  
  • Capital Protection Funds: This aims to protect the initial investment while offering modest returns by investing in hybrid schemes. They invest mostly in debt securities to overcome market downturns.  
  • Equity Linked Savings Scheme: This is a tax-saving option that qualifies under section 80 C of the Income Tax Act. It allows you to receive tax deductions up to 1.5 lakhs when you invest for at least 3 years.  
  • Fixed-Maturity Plans: If you are looking to invest in debt securities with a fixed lock-in period, this plan is ideal. It allows you to invest in the short term with lower risk. 
  • Growth Funds: Focusing on capital appreciation, this option primarily invests in equity to get higher returns. It’s ideal if you have a high tolerance for risk and are looking for a long-term investment.  
  • Gold Funds: Investing in gold is a preferred option by Indians as it provides a hedge against inflation and diversifies the investment portfolio. Gold funds allow you to invest in gold EFT.  
  • Income Funds: This debt fund category is designed to provide significant capital growth through dividend distributions by investing in both government and corporate bonds. 
  • Liquid Funds. It allocates funds in debt instruments with a maturity of as much as 90 days, providing flexibility and reliable returns. This is a great way to give yourself the potential to grow your investment within a shorter duration.  
  • Pension Funds: This type of mutual fund scheme aims to provide you with a retirement corpus and comes with a minimum lock-in period of 5 years. You can also invest up to the age of retirement, during which the fund manager invests as per your risk appetite.  

D) Types of Mutual Funds Based on Market Capitalisation 

  • Large Cap Mutual Funds: This type of fund invests in the top 100 companies listed on the stock market that have a market value of ₹20,000 crores or above. Investing in these poses lesser risk as compared to the two options below.  
  • Mid-Cap Mutual Funds: These schemes allocate resources to firms from 101 to 250 based on market capitalization. Such companies possess a market valuation ranging from ₹5,000 to ₹20,000 crores.  
  • Small Cap Mutual Funds: It is called a small-cap mutual fund investment if you decide to invest in companies ranking 251 or below in market capitalisation. These companies have a market value of under ₹5,000 crores. These offer a higher potential for returns.  

Comprehending these different categories and sub-types helps you make better choices as per your investment goal. Different types of funds in India can help you diversify your portfolio to mitigate the risk. You can find the right schemes no matter which stage of life you’re in, but it’s important to assess your needs beforehand.  

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