Before investing, check whether the distributor, adviser or platform is properly registered. Use the AMFI ARN search to verify a mutual fund distributor and the SEBI registered investment advisor list to check an RIA. For platforms, first understand what service they provide, then confirm the relevant registration, contact details and payment process through official sources.

Investment scams can look very convincing today. A website may look professional, an app may seem genuine, and the person speaking to you may sound knowledgeable. But that still doesn’t tell you whether they are actually registered to sell or advise on mutual funds.

That’s why learning how to verify the mutual fund distributor, platform, and advisor is important today. If you don’t know exactly how to verify RIA registration, distributor information, and platform authenticity, just keep reading this guide. 

How to Verify a Mutual Fund Distributor?

If you’re wondering how to verify mutual fund distributors, simply follow these steps:

• Step 1: Ask for the ARN

Every authorised mutual fund distributor has to register with AMFI. They are issued an ARN (short for AMFI Registration Number) upon passing the NISM Series V-A: MFD Certification Examination.

For a company or other non-individual distributors, the company has the ARN, while the employee or salesperson dealing with you may have an EUIN (i.e., Employee Unique Identification Number).

• Step 2: Use the AMFI ARN Search

Now, you need to check the ARN number against the official AMFI database. For this, go to AMFI’s ‘Locate a Mutual Fund Distributor’ page and search using the distributor’s name or ARN number. Using AMFI’s ARN search option is the easiest way to check an ARN number and review the distributor’s authenticity. 

• Step 3: Match the Details

Once you see the result, check that the name shown on AMFI matches the person or company you are dealing with. If an employee is assisting you, you can also ask for their EUIN and check it here.

• Step 4: Check the ARN Status

Make sure the ARN is valid. Also check AMFI’s list of:

• Suspended/terminated ARNs
• Invalid ARNs due to non-compliance under SEBI regulations

This helps ensure the proper validity of the mutual fund distributor in question.

How to Check if a Mutual Fund Advisor is Legit?

If someone is giving you personalised mutual fund advice, check that they are a SEBI-registered Investment Adviser (RIA) before paying a fee or acting on the advice. The easiest way to verify RIA registration is through the official SEBI registered investment advisor list.

Here’s how you can verify RIA registration:

• Step 1: Visit the SEBI Website

Open SEBI’s website and navigate to ‘Intermediaries/Market Infrastructure Institutions’.

• Step 2: Open the Recognised Intermediaries List

Choose ‘Recognised Intermediaries’ and select ‘Investment Adviser’. SEBI maintains the current list of registered Investment Advisers here.

• Step 3: Search for the Adviser

To search, you can use the adviser’s:

• Name or trade name
• SEBI registration number
• Contact person details
• Email ID
• Location

• Step 4: Check Registration Details

The result will show you the:

• Advisor’s name
• Registration number
• Email ID
• Contact number
• Address
• Contact person name
• Validity of the registration (perpetual in most cases)

Make sure these details match the person or firm you are dealing with. 

How to Verify a Mutual Fund Platform?

Before investing through an app or website, first check what the platform actually does. It may be a mutual fund distributor, a SEBI-registered adviser, or an execution platform. Its registration details should match the service it claims to provide.

• Step 1: Check AMFI or SEBI registration

If the platform distributes mutual funds, use the AMFI ARN search to check its ARN and make sure it is valid. Online distribution platforms can operate as AMFI-registered mutual fund distributors.

If it claims to provide investment advice, check whether it appears in the SEBI-registered investment advisor list.

• Step 2: Verify the address and contact details

Compare the platform’s legal name, registered address, email, and phone number with the details shown on AMFI or SEBI. Be careful if the website uses different contact details or only provides a WhatsApp number.

• Step 3: Check how your money is being paid

Your investment money should move through the authorised mutual fund or approved transaction system. Do not transfer money to an employee’s, adviser’s or distributor’s personal bank account or UPI ID. SEBI also provides tools to verify certain registered intermediary bank accounts and UPI IDs.

• Step 4: Watch for ‘guaranteed returns’

Be cautious if a platform promises guaranteed or fixed profits from a mutual fund. Mutual fund returns depend on market performance, so such claims are a major warning sign. 

Additional Tips to Verify Mutual Fund Distributors, RIAs, and Platforms

• Check for name mismatches: The brand name may differ from the legal entity name, so make sure you know which entity is actually registered.
• Be careful with lookalike websites: Fraud sites may copy the name, logo and design of a genuine platform but use a slightly different web address.
• Check whether the person is acting in the right capacity: A distributor and an investment adviser have different roles. Someone registered as one should not present themselves as the other.
• Verify before paying any fee: If an adviser asks for a fee, make sure the payment is being made to the registered entity and not to an unrelated account.
• Check complaint or regulatory history where available: If something feels off, look for public notices, disciplinary action or warnings linked to the entity.
• Do not rely on screenshots of registration certificates: Always verify the details directly on the official AMFI, SEBI or BSE records.

Conclusion

To summarise again:

• For a mutual fund distributor: Use the AMFI ARN search to check the ARN number, status, and registered details.
• For an investment adviser: Use the SEBI registered investment advisor list to verify RIA registration and match the adviser’s details.
• For a mutual fund platform: Check whether it is acting as a distributor, adviser, or execution platform, then verify the relevant AMFI or SEBI registration before investing.

Carefully review these details before you start investing to ensure your money is being invested through properly regulated and verified entities.

How to Verify Mutual Fund Distributors, RIAs, and Platforms FAQs

1. How do I check if a mutual fund distributor is registered in 2026?

Here’s how you can verify mutual fund distributors in 2026:

• Go to AMFI’s ARN search page (also called the ‘Locate a Mutual Fund Distributor’ page). 
• Search using the distributor’s name or ARN.
• Check that the details match and the ARN is valid.

2. What is an ARN number and where do I verify it?

ARN is the short form used for AMFI Registration Number. It is issued to a mutual fund distributor who is registered with the Association of Mutual Funds in India (AMFI). If you want to check an ARN number, use AMFI’s official “Locate a Mutual Fund Distributor” tool. You can either use the ARN or the distributor’s name to search the database and check the registration details.

3. How do I confirm someone is a SEBI-registered investment advisor?

To verify RIA registration, follow these steps: 

• Go to SEBI’s Recognised Intermediaries section and select “Investment Adviser”. 
• Search using the adviser’s name or SEBI registration number. 
• Match the name, registration details, and contact information with the person or firm you are dealing with.

4. What is BASL and why does it matter?

BASL stands for BSE Administration & Supervision Limited. It was the supervisory body for Investment Advisers from 2021. BASL functioned as the IAASB for the next 3 years. 

Under this framework, RIAs had to become members of BASL before registering with SEBI. This meant they were under ongoing supervision through the IAASB. In July 2024, SEBI recognised BSE Limited as the new IAASB, with all existing BASL-member RIAs becoming auto-enlisted with BSE. 

5. Can a distributor accept money in their own account?

No. A mutual fund distributor cannot accept investors’ money (via cheques, UPIs, or demand drafts) for purchase of mutual funds into their own or business accounts. As per SEBI rules, all mutual fund investment contributions have to move from the investor’s account to the AMC or RTA channels.

6. What is the difference between a distributor and an RIA?

A mutual fund distributor is registered with AMFI, has an ARN, and distributes mutual fund schemes, usually through Regular Plans where distribution commission is involved. A Registered Investment Adviser (RIA) is registered with SEBI and provides personalised investment advice in exchange of a client fee. Individual RIAs cannot provide distribution services to clients.

Disclaimer:

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh

Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login

Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.

As per SEBI, every mutual fund scheme must disclose a benchmark against which its performance can be compared. A benchmark is a “reference index” that represents the market segment in which a scheme invests. 

Investors can compare the fund’s returns with those of its benchmark to assess whether the scheme has “outperformed” or “underperformed” the market index over a given period.

Many investors evaluate a mutual fund by its historical returns but overlook the “benchmark” against which those returns should be assessed. A lack of comparison may cause investors to remain invested in an underperforming scheme.

Want to avoid this? Read this article to learn what a mutual fund benchmark is and its two major types. Lastly, learn how to assess a scheme’s performance through benchmark comparisons, excess returns, and performance trends.

What is a Benchmark in a Mutual Fund?

A benchmark is a standard against which the performance of a mutual fund scheme is compared. Investors can even think of it as a “reference point”. Generally, the benchmark is selected based on the investment objective and asset allocation of the scheme. 

For example:

• A large cap equity fund may use Nifty 50 TRI.
• A mid cap fund may use Nifty Midcap 150 TRI.
• A small cap fund may use Nifty Smallcap 250 TRI.
• A diversified equity fund may use Nifty 500 TRI, and more.

Therefore, the benchmark gives an investor a reference for judging how the scheme has performed relative to the market segment it represents. SEBI requires mutual fund schemes to disclose a benchmark for performance comparison. 

The benchmark should also correspond to the scheme's investment objective and asset allocation. (Source: SEBI Master Circular, dated March 20, 2026, Chapter 3)

PRI vs TRI in Mutual Fund Benchmarking: How Do They Differ?

A benchmark in mutual funds can be of two broad types: A Price Return Index (PRI) and a Total Return Index (TRI). Now, understand that an index can generate potential returns in two ways:

1. Through changes in the prices of its securities

and

2. Dividends or other distributions received from those securities

If we talk about the difference, a PRI considers only the change in security prices. In contrast, a TRI considers both the change in prices and the dividends received from the securities in the index. For example, 

• Suppose the companies in an index appreciate in value and also pay dividends.
• Now, a TRI includes both these components (appreciation + dividends)  in its return. 
• Whereas a PRI only considers the price appreciation (and ignores dividend or other gains).

For more clarity, let’s understand the difference between PRI vs TRI in detail:

How to Measure a Mutual Fund’s Performance in 2026?

To assess how a scheme has performed, several investors compare its return with the “benchmark return”. But what’s the “right way? Realise that only looking at whether the fund has earned a higher return may not be enough! 

The comparison should cover the “same period” and the “same return” measure, followed by a review of performance across multiple periods. Confused? For your reference, below are some ways to compare a mutual fund’s performance with its benchmark and assess its performance:

1. Compare “Like” With “Like”

You may compare the fund and its benchmark over the same period. 

• Realise that comparing a fund's 5-year return with a benchmark's 1-year return would provide an incorrect comparison because the periods are different.

Next, understand that for longer periods, returns are generally shown as CAGR (Compound Annual Growth Rate), which represents the “annualised” rate of return over a period. SEBI requires “scheme-versus-benchmark” performance to be disclosed as CAGR for 1, 3, 5, 10 years, and since inception. (Source: SEBI Master Circular, dated March 20, 2026, Chapter 3)

Now, to make an assessment, you may calculate the “excess return” as follows:

• Excess Return = Fund CAGR − Benchmark CAGR

Consequently, there could be three potential scenarios:

2. Look for a “Pattern” (Not a Single Year Winner)

A fund beating its benchmark in one year does not establish that it has delivered better performance over the longer term. Equity markets can move through different phases, and a scheme may perform differently during different market conditions.

For this reason, an investor may look at the fund's performance across 1, 3, 5, and 10 years (rather than relying on a single period). The purpose is to see whether the fund has outperformed or underperformed its benchmark across multiple periods.

For more clarity, consider the following hypothetical example:

You can observe that the fund “underperformed” its benchmark over one year, but its three-, five-, and ten-year CAGRs were higher than the benchmark. Such a multi-period analysis may give a more complete picture than looking only at the 1-year return.

3. Compare the Scheme with “Category Peers”

Comparing a mutual fund with its benchmark shows whether it has outperformed or underperformed its market index. However, this does not show how it has performed against other mutual funds in the same category.

For example, 

• A large cap mutual fund may deliver a 10% return when the Nifty 50 TRI delivers 8%. 
• The fund has outperformed its benchmark by 2 percentage points. 
• However, if most large cap funds have delivered returns of 12% over the same period, the scheme may rank below many of its category peers.

So, how to make a complete analysis? Investors may assess the fund from three different perspectives:

Using all three comparisons may potentially provide a broader view of the fund's performance. 

Note: However, past returns alone do not establish future performance, and benchmark, category peer, and historical performance comparisons do not guarantee future returns. These comparisons should be considered alongside the scheme’s investment objective, risk profile, and market conditions.

Conclusion

So now you know what a benchmark in a mutual fund is and how it can be used to assess a scheme’s performance. To revise, benchmarks are “reference points” against which a mutual fund’s returns are compared. 

Investors can use them to calculate “excess returns” and check whether a scheme has outperformed or underperformed its benchmark over a specific period. For a fair or correct comparison, both returns may cover the same period and use the same return measure, such as CAGR. 

Besides, investors may also review performance across multiple periods (to assess consistency) and compare the scheme with other funds/ peers in its category.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

Benchmark in Mutual Funds FAQs

1. What does it mean when a mutual fund underperforms its benchmark?

Underperformance may happen when a mutual fund scheme delivers a lower return than the benchmark over the same period. For example, 

• Suppose a fund earns 10% while its benchmark earns 12%.
• Now, the fund has underperformed by 2 percentage points. 

2. What is the difference between a mutual fund benchmark and category peers?

A benchmark is a market index used to compare a scheme's performance, while category peers are other mutual funds in the same category. For example, 

• A large cap fund may be compared with the Nifty 50 TRI, which is known as “benchmark comparison”.
• Besides, it can also be compared with other large cap funds, known as “peer comparison”. 

Both comparisons may provide different perspectives on a scheme’s performance.

3. Why is TRI used instead of PRI to compare mutual fund performance?

A Price Return Index (PRI) measures changes in security prices, whereas a Total Return Index (TRI) includes price changes + dividends received from index constituents. 

Since mutual funds may also earn potential dividends from their investments, TRI may be a more appropriate basis for comparing their returns with the benchmark.

Disclaimer:

An Investor Education and Awareness Initiative by Tata Mutual Fund.

To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh

Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login 

Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process.

This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.

The NAV full form is Net Asset Value. It represents the “per unit” value of a mutual fund scheme and is calculated by dividing its net assets by the total number of units outstanding. A higher or lower NAV does not indicate whether a scheme is better, undervalued, or overvalued.

A mutual fund with an NAV of ₹20 is not necessarily a better bargain than one with an NAV of ₹500. Yet, many investors mistake a lower NAV for:

• A lower investment cost 

or 

• Greater potential for returns

To assess mutual funds correctly, it is important to understand what NAV actually represents and how it is calculated. Read this article to first understand what mutual fund NAV is and its formula. Next, understand why NAV alone cannot determine whether a mutual fund is cheap, expensive, or suitable for investment.

What is Net Asset Value (NAV)?

NAV is the value of “one unit” of a mutual fund scheme. As per SEBI Master Circular for Mutual Funds, dated March 20, 2026, Chapter 9, Section 9.1.2, specifies that NAV is calculated by:

• Adding the market or fair value of scheme investments and current assets
• Subtracting current liabilities and provisions from these “gross assets”, and finally
• Dividing the result by units outstanding on the valuation date. (Source: SEBI Circular, dated March 20, 2026).

Mathematically, this can be represented using the following formula:

Where, 

• “Investments” are the current fair value of securities held by the scheme.
• “Current Assets” represent cash, accrued interest, dividends receivable, and other similar-nature assets.
• “Liabilities and Provisions” represent expenses payable, amounts owed, and provisions created for expenses.
• “Units Outstanding” represent the total units held by investors in the scheme.

SEBI requires index funds and debt-oriented schemes to round NAV to “four” decimal places. Other schemes may round the NAV to “two” decimal places, although they may disclose additional decimal places if the relevant disclosure requirements are met. (Source: SEBI Circular, dated March 20, 2026). 

To gain more clarity, let’s study an example.

Hypothetical Example Related to the Calculation of NAV

Suppose a mutual fund scheme has the following financial details on a valuation date:

Now, its NAV could be:

Does NAV Indicate Whether a Mutual Fund is Cheap or Expensive?

To several investors, a mutual fund with an NAV of ₹10 or ₹20 appears cheaper than one with an NAV of ₹100 or ₹500. However, a lower NAV does not indicate a mutual fund is undervalued, just as a higher NAV does not represent it is overvalued. 

Two schemes with similar portfolios (and net assets) can have different NAVs just because they have different numbers of units outstanding. If a scheme has a lower NAV:

• It only shows that investors may receive more units for the same investment amount. 
• It DOES NOT mean they receive greater value or that the scheme has more potential to generate returns. 

For a better understanding, let’s consider the following example.

Hypothetical Example

Suppose two mutual fund schemes have net assets worth ₹1 crore each. However, the outstanding units of Scheme A are 10 lakh units, whereas for Scheme B, these are 1 lakh units. 

Now, let’s see how dividing the same net assets among different numbers of outstanding units results in different mutual fund NAVs:

A) Different NAVs of Identical Funds

So, you can observe that Scheme A has an NAV of ₹10, while Scheme B has an NAV of ₹100, even though both have similar net assets of ₹1 crore. 

B) Similar Economic Worth of Investments

In continuation with the above example, now let’s assume you make an investment of ₹10,000 in both the schemes:

Although Scheme A provides 1,000 units and Scheme B provides only 100, both investments are worth ₹10,000. Thus, the difference only lies in the number of units allotted and not in the economic value received.

C) Similar % Gain When the NAV Increases

Now, suppose the underlying portfolios of both schemes appreciate by 10%. Scheme A's NAV rises to ₹11, while Scheme B's NAV rises to ₹110.

You can observe that both investments generate the same percentage return of 10%, with a gain of ₹1,000 each. Therefore, a lower NAV does not give Scheme A an advantage over Scheme B in terms of returns.

Conclusion

So, now you know that a mutual fund scheme with an NAV of ₹20 is not necessarily cheaper or undervalued compared with a scheme with an NAV of ₹500. If we were to revise, NAV is calculated by dividing the net assets of a mutual fund scheme by its outstanding units. It measures the “value per unit” and not the attractiveness of the investment.

As demonstrated in the examples above, two schemes can have different NAVs but generate similar percentage returns (when their portfolios perform identically). 

A lower NAV may result in more units being allotted for the same investment amount, but it does not guarantee higher returns or greater investment value.

Therefore, comparing mutual funds solely by their NAVs is not a sound way to assess their relative attractiveness. Instead, investors may assess:

• Portfolio composition
• Investment strategy
• Scheme and Benchmark riskometer, and 
• Performance against an appropriate benchmark.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

Mutual Fund NAV FAQs

1. Why are liabilities subtracted when calculating NAV?

Liabilities represent amounts the mutual fund scheme owes or the expenses and obligations for which provisions have been made. These amounts reduce the scheme's net assets. For example, 

• Suppose a scheme has total assets of ₹100 crore and liabilities + provisions of ₹5 crore.
• Now, its net assets amount to ₹95 crore

This net asset value is then divided by the total units outstanding to calculate NAV per unit.

2. Is it better to invest in a mutual fund with a lower NAV?

By investing in a mutual fund scheme with a lower NAV, investors may receive more units for the same investment amount. A low NAV does not indicate the scheme is better, undervalued, or has greater potential to generate returns.

3. Can two mutual fund schemes with similar net assets have different NAVs?

Yes, it can happen if both the schemes have different numbers of outstanding units. For example, 

• Suppose two schemes have net assets of ₹10 crore each.
• Now, a scheme with 20 lakh units will have an NAV of ₹50, while a scheme with 50 lakh units will have an NAV of ₹20. 

The difference in NAV does not indicate that one scheme is cheaper or offers better returns.

Disclaimer:

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh 

Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login 

Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.

A mutual fund’s NAV may fall after an IDCW payout because the fund is not “giving investors any additional/extra income”. It is only transferring a part of the scheme’s existing assets from the fund to unitholders. 

Post-payout, since fewer assets remain in the scheme but the number of units remains unchanged, the NAV (representing the “value per unit”) falls. 

When investing in a mutual fund, investors generally choose between two plans: Growth and IDCW (Income Distribution cum Capital Withdrawal). 

Under the Growth plan, returns remain invested in the scheme. Whereas, under IDCW, the scheme may distribute a portion of its “distributable surplus” to investors, either as a payout or through reinvestment in additional units. 

However, following an IDCW distribution, the scheme's NAV may fall. But what causes this reduction, and how does it influence your investment value? Let's understand in this article.

What is IDCW in Mutual Funds?

IDCW full form is Income Distribution cum Capital Withdrawal. SEBI renamed the old “dividend option” to IDCW with effect from April 1, 2021. The renaming was primarily done to make clear that an IDCW payout may include not only income/gains but also a return of the investor’s own capital. (Source: SEBI Circular - Review of Dividend Option)

In an IDCW option, the amount distributed to investors may come from three different components:

1. Income Earned By The Scheme: This includes income generated from interest on bonds, dividends received from stocks, and other income earned by the mutual fund's investments.
2. Realised Capital Gains: When the scheme sells its investments at a profit, the gains realised may contribute to the amount available for distribution.
3. Investor's Capital: An IDCW payout may also involve a withdrawal from the scheme's capital. Consequently, a portion of the amount distributed may come from the investor's own invested capital.

How Does a IDCW Payout Reduces the NAV?

A mutual fund's Net Asset Value (NAV) represents the value of its “net assets” per unit. It is calculated using the following formula:

*Net assets refer to the scheme's total assets minus its total liabilities.

When a mutual fund declares an IDCW payout, it distributes a portion of the scheme's assets to eligible investors. Consequently, the amount paid out reduces its net assets. 

However, the number of units held by investors remains unchanged. As a result, the NAV per unit falls after the payout. For more clarity, let’s study an example.

Example: How an IDCW Payout Influences Your Investment

Suppose a mutual fund scheme has total net assets of ₹10 lakh and its 50,000 units are outstanding. Thus, the current NAV is ₹20 per unit. Now, you invest ₹20,000 in the scheme and receive 1,000 units.

The fund subsequently declares an IDCW of ₹2 per unit. Assume the payout is made to all 50,000 units and there are no other changes in the scheme's assets or liabilities. Let’s see how such a payout may impact the fund’s NAV:

A) The Scheme's Net Assets Decrease

The fund pays ₹2 per unit across 50,000 units. It distributes a total of ₹1 lakh to investors. 

B) The NAV Falls After the Payout

The number of outstanding units remains 50,000, but the scheme's net assets fall to ₹9 lakh.

Observe that the NAV decreases from ₹20 to ₹18 because the scheme's net assets have reduced while the number of outstanding units remains unchanged.

C) The Value of Your Investment Decreases

Since you hold 1,000 units, the value of your mutual fund investment also falls after the payout.

Therefore, an IDCW payout does not create any additional return or wealth. It only transfers a portion of the value held in your mutual fund investment to you as cash.

Note: The NAV reduction may be greater than the IDCW amount if the scheme bears any applicable tax or statutory levies. Also, market movements and other changes in the scheme's assets or liabilities can influence the actual NAV after the payout.

Conclusion

So, now you know what an IDCW payout option is and how it reduces the NAV of a mutual fund scheme. To revise, IDCW is one of the two options available to mutual fund investors, the other being the “Growth” option. 

Under IDCW, the scheme's distributable surplus is paid out to unitholders in proportion to their holdings. This distributable surplus may come from three components:

1. Income Earned: Interest from bonds, dividends from stocks, and other income generated by the scheme.
2. Realised Capital Gains: Profits earned when the scheme sells its investments.
3. Return of Capital: A portion of the investor's own invested capital.

Realise that an IDCW payout involves distributing a part of the scheme's assets. Thus, after the payout, “net assets” decrease while the number of outstanding units remains unchanged. Consequently, the NAV per unit falls by the amount distributed per unit, subject to applicable taxes, levies, and other changes in the scheme's value.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

IDCW in Mutual Funds FAQs

1. Does NAV drop by the exact amount of the dividend distributed?

No, the actual reduction may vary due to factors such as:

• Changes in the market value of the scheme's investments
• Changes in its liabilities, and 
• Any applicable taxes or statutory levies borne by the scheme.

Thus, the actual NAV reduction depends on the distribution and any other changes influencing the scheme's net assets.

2. Does a fall in NAV after an IDCW payout mean I lost money?

The fall in NAV only reflects the distribution of a portion of the scheme's assets to investors. For example, 

• Suppose your investment is worth ₹20,000 before a payout.
• You received ₹2,000 as IDCW.
• Now, the NAV reduction may bring its value to ₹18,000.

However, your combined value still remains ₹20,000 (Investment + IDCW), assuming no other changes in the scheme's value and excluding applicable taxes.

3. How is the IDCW amount decided by a mutual fund?

Generally, the AMC decides whether to declare an IDCW and the amount, subject to the scheme's provisions and applicable SEBI regulations. Usually, the decision depends on factors such as:

• The distributable surplus available
• Income earned
• Realised gains, and 
• The scheme's distribution policy

Note: The IDCW payouts are not guaranteed, and a scheme may also choose not to declare an IDCW.

4. What is the difference between IDCW payout and IDCW reinvestment in mutual funds?

The difference lies in how the IDCW amount is used. 

• Under the IDCW payout option, the mutual fund distributes the declared amount to your registered bank account. 
• Whereas, under the IDCW reinvestment option, the declared amount is used to purchase additional units of the same mutual fund scheme at the prevailing NAV. 

As a result, your unit holdings increase in IDCW Reinvestment, but you do not receive the amount as cash in your bank account. In both cases, the NAV reduces to reflect the distribution.

Disclaimer:

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh 

Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login 

Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.

The Mutual Fund Riskometer is a “speedometer” style indicator that shows how risky a mutual fund scheme is. It grades the risk level into 6 different categories, which are:

1. Low
2. Low to Moderate Risk
3. Moderate
4. Moderately High
5. High
6. Very High

Using the Riskometer, investors can assess whether a mutual fund scheme’s risk level aligns with their personal risk appetite/ tolerance limit.  

Every mutual fund scheme carries some degree of risk, which depends on factors, such as (illustrative):

• Its underlying investments
• Market fluctuations
• Credit quality, and 
• Sensitivity to interest rate changes

A Mutual Fund Riskometer considers these factors and categorises the perceived risk into six levels, ranging from “Low” to “Very High”. Want to understand in detail? Read this article to learn what a riskometer is and what its six Riskometer levels (along with colour codes) are.

What is a Mutual Fund Riskometer?

Image Credit: https://investor.sebi.gov.in/riskometer.html 

A Riskometer is a “visual tool” mandated by the Securities and Exchange Board of India (SEBI) that indicates the level of risk associated with a mutual fund scheme. Designed like a car’s speedometer, it uses 6 risk categories, which range from “Low” to “Very High”.

These categories show how much risk the scheme carries. By analysing them, investors may assess whether the scheme’s risk level matches their risk appetite and investment objectives.

Note: The Riskometer does not predict how much potential return a mutual fund may generate. It only indicates the level of risk associated with the scheme’s investments.

Learn More Ways of How to Assess a Scheme’s Risk!

Read more educational blogs on various “risk metrics”, such as Sharpe Ratio, Alpha, Standard Deviation, Maximum Drawdown, and similar topics.

What are the Six Different Mutual Fund Risk Levels?

Each risk level of a mutual fund riskometer represents the “degree of risk” associated with a scheme’s investments. The categories are also colour coded (ranging from Irish Green to Red), which makes it easier to identify a scheme’s risk level. 

Let’s understand them in detail:

(Source: SEBI)

Investors can use these categories to compare the risk levels of mutual fund schemes and assess whether a scheme’s risk profile is consistent with their:

• Risk appetite
• Investment horizon, and 
• Financial objectives

However, the Riskometer only indicates the risk level of a mutual fund scheme. It does not predict or guarantee returns.

What Determines a Mutual Fund’s Riskometer Level?

a mutual fund’s Riskometer level is determined by assessing the risks associated with its underlying investments. Usually, such an assessment considers the type of assets held by the scheme and the factors that may influence their value. 

Some major factors include:

• Underlying Asset Class: The scheme’s investments in different asset class such as equity shares, debt securities, gold, or overseas securities, have different risk characteristics that influence the risk assessment.
• Market Volatility: Changes in market conditions can cause fluctuations in the value of a scheme’s investments. The “extent” of these fluctuations may be considered when assessing risk.
• Credit Risk: For debt investments, credit risk refers to the possibility that an issuer may fail to pay interest or repay the principal as agreed. The credit quality of the securities held influences the scheme’s risk level.
• Interest Rate Risk: Changes in interest rates can impact the market value of debt securities. The extent of this impact may be considered when assessing the risk level of a debt mutual fund scheme.

Conclusion

So, now you know what a mutual fund Riskometer is and its six different risk levels. To recap, a Riskometer is a “speedometer-style” visual tool that indicates the risk associated with a mutual fund scheme across six categories, ranging from “Low” to “Very High”. As per SEBI guidelines, these risk levels are colour-coded as follows:

• Low Risk: Irish Green
• Low to Moderate Risk: Chartreuse
• Moderate Risk: Neon Yellow
• Moderately High Risk: Caramel
• High Risk: Dark Orange
• Very High Risk: Red

Using the Riskometer, investors can assess whether a scheme’s risk level aligns with their risk appetite. The assessment may consider factors related to the scheme’s underlying investments, including:

• Market volatility
• Credit risk, and 
• Interest-rate risk, where applicable. 

However, the Riskometer only indicates the assessed risk level. It does not predict or guarantee returns. Investors should consider their investment objectives and consult a financial advisor before making investment decisions.

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

Mutual Fund Riskometer FAQs

1. Can a mutual fund with a Low Riskometer level still lose money?

Yes, a mutual fund with a Low Riskometer level can still incur losses. The rating only indicates the scheme’s assessed risk level and is NOT a guarantee against losses. 

Changes in market conditions, interest rates, or other factors can influence the value of its underlying investments and NAV (Net Asset Value).

2. Does a “Very High” Riskometer level mean a mutual fund have potential for  higher returns?

No, a Very High Riskometer only indicates that the scheme carries a higher level of risk. Actual returns depend on market conditions, the scheme’s investments, and other factors.

3. Can a mutual fund’s Riskometer level change after I invest?

Yes, a scheme’s Riskometer level can change as its portfolio composition and risk characteristics change.

4. What is the difference between a “scheme” and a “benchmark” Riskometer?

The scheme Riskometer indicates the risk level of a mutual fund scheme based on its own portfolio and risk characteristics. In comparison, the benchmark Riskometer shows the risk level of the index, which is used to compare a mutual fund’s performance. 

For example, 

• Suppose a large cap fund uses the Nifty 50 as its benchmark.
• Now, the benchmark Riskometer shows the risk level of the Nifty 50.
• Whereas, the scheme Riskometer shows the risk level of the mutual fund scheme itself.

5. Where can I check the Riskometer of a mutual fund scheme?

You can check a scheme’s Riskometer on the mutual fund house’s official website, in its latest monthly factsheet.

Disclaimer:

An Investor Education and Awareness Initiative by Tata Mutual Fund. 

To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh 

Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login 

Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.