When an investor buys a mutual fund, they receive units or shares in the fund, which represent a portion of the fund's holdings. The value of these units or shares is determined by the value of the underlying securities in the fund's portfolio.

The returns earned by a mutual fund are distributed among its investors in proportion to their investment in the fund. These returns may come in the form of dividends, capital gains, or both. Investors can choose to reinvest these returns into the fund, which can help grow their investment over time.

Mutual funds offer a number of benefits to investors, including diversification, professional management, and liquidity. They also provide access to a wider range of investment opportunities than an individual investor may have on their own.

It's important to note that mutual funds come with certain risks, including market risk and fund management risk. It's essential for investors to carefully consider their investment objectives and risk tolerance before investing in mutual funds, and to seek professional advice if needed.

1. Equity Schemes : These are mutual fund schemes that invest at least 65% of their total assets in equity and equity related instruments. Equity funds are a suitable choice for investors who are looking for an equity exposure in their portfolio but are not well-versed with the capital markets. Because of the numerous schemes available, equity funds are a practical investment for most investors.
2. Debt Schemes : These are schemes that invest in fixed income instruments like corporate and government bonds, and other debt securities.Debt funds are an ideal investment vehicle for conservative investors who are looking for stable returns.
3. Hybrid Schemes : These are mutual fund schemes that invest in both equity and debt, giving the investor the best of both worlds. Investing in equity provides the required growth to the portfolio, while debt investing protects from any downside risk.
4. Solution Oriented Schemes : These are schemes that cater to the needs of long-term investors looking to fund children’s education or creating a retirement corpus. This is a new category of mutual fund schemes. Earlier they were treated as equity or balanced schemes. They have a lock-in period of 5 years which has been increased from the earlier 3-year lock-in period to keep the investors invested for a longer time.
5. Other Schemes : This category includes Index Funds, Exchange Traded Funds (ETFs) and Fund of Funds (FOFs). Index and ETFs are passively managed mutual funds which aim to replicate the performance of a benchmark index by purchasing stocks in the same proportion as the index. FOFs is a scheme that invest in mutual funds rather than investing directly in an asset class.