EN
Mutual funds allow you to invest your money in a mix of assets such as stocks and bonds. While many people compare them with stocks, their buying and selling process is different. Understanding how they work and how they are traded can help you make clearer and more informed investment decisions over time.
Key Takeaways
● Mutual funds are priced once a day at NAV, not in real time.
● They are not traded on stock exchanges like stocks.
● ETFs can be bought and sold on exchanges during market hours.
● Mutual funds are generally better suited for long-term investing, not frequent trading.
What Are Mutual Funds?
Mutual funds are investments that pool together funds from various investors and invest in a wide range of assets such as stocks, bonds, and money market instruments. These funds are managed by professional fund managers who arrange investments in accordance with the fund's objectives.
Mutual funds are overseen by the Securities and Exchange Board of India (SEBI), which ensures transparency and investor safety. SEBI broadly classifies mutual funds into five categories: equity, debt, hybrid, solution-oriented, and other funds. Index funds and ETFs fall under the 'other funds' category and are passively managed sub-types, not a separate category alongside equity and debt. Investors receive returns in the form of capital appreciation or income payments.
Read More About: What is Mutual Fund?
Can You Trade Mutual Funds Like Stocks?
No, mutual funds do not trade on exchanges like stocks. They are bought and sold directly through the fund house on the day’s closing Net Asset Value (NAV). However, Exchange Traded Funds (ETFs), a type of mutual fund, are listed on stock exchanges and can be traded anytime during market hours.
Understanding Mutual Fund Transactions
● Buying units: Mutual funds are purchased directly from the fund house or through intermediaries. Minimum investment amounts vary by scheme and AMC, often starting as low as ₹100 for SIPs or ₹500–₹1,000 for lump sum, per SEBI guidelines.
● Research before investing: Investors should review fund objectives, past performance, portfolio details, and risk factors before investing.
● When transactions happen: Orders placed before the applicable cut-off time (typically 3:00 PM IST on business days) are processed at that day's NAV; orders after cut-off or on non-business days apply the next business day's NAV.
● Fees involved: Costs may include expense ratio, exit load, and other charges that affect returns.
● Settlement and redemption: Redemption proceeds are credited per SEBI timelines: T+1 business day for liquid/overnight schemes; up to T+2 for others, with recent intraday borrowing allowed from April 1, 2026, for efficient processing.
● Selling units: Redemption is done through the fund house, and the amount is based on the current NAV after applicable charges.
● Early exit rules: Frequent trading may attract exit loads or restrictions, as mutual funds are designed for long-term investing.
How Are ETFs Different From Regular Mutual Funds?
ETFs are bought and sold on stock exchanges like stocks, so their prices keep changing during the day. Regular mutual funds, on the other hand, are bought or sold through the fund house at the day’s NAV.
Most ETFs simply follow a market index, while mutual funds may be actively managed. ETFs usually have lower costs, while mutual funds can be slightly more expensive.
How Are ETFs Traded Like Stocks?
● Listed on exchanges: ETFs are bought and sold on stock exchanges like regular stocks.
● Real-time pricing: Prices change during the day based on demand and supply.
● Order types: Investors can place market or limit orders while trading ETFs.
● Easy access: A demat and trading account is required to buy or sell ETFs.
Conclusion
Mutual funds are mainly meant for long-term investing and are not traded during the day like stocks. They are bought and sold at the closing NAV. On the other hand, ETFs allow investors to trade similar investments on stock exchanges at real-time prices, making them more flexible for those who want to buy or sell anytime. So, do mutual funds trade on exchanges? The answer is no, except in the case of ETFs and some close-ended funds.
Looking to invest? Open a Demat Account with Angel One and start trading seamlessly.
