How To Start Investing In Mutual Funds: Investment Guide for Beginners

June 27, 2024
how to start investing in mutual funds

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Investing is always fruitful, whether it’s investing with time or with money; you always get something in return. However, for many people investing money can be tricky, especially if they don’t know about the available options. One such option is investing in mutual funds, it is because of the unawareness that less than 4 crore Indians invest in mutual funds in 2023. But with the right knowledge, this problem can be solved.

And if you’re here that probably means you want to know how to start investing in mutual funds. Throughout this article, you’ll get to know how you can start investing in mutual funds and all the information related to mutual funds. So that you can make informed financial investment decisions, let’s get started.

What Is Mutual Funds?

A mutual fund is a pool of money that is given by a number of shareholders for investment in various types of investment assets like stocks, bonds, equity etc. This pool of funds is managed by money managers who allocate the funds appropriately in different investments to gain profit. Then the gained profits are distributed among the fund investors after necessary tax deductions.

Why Should You Invest in Mutual Funds?

1. Professional Management

Mutual funds are managed by professional fund managers and experts in managing investments. They have in-depth market knowledge and can make informed investment decisions, leading to better returns on your investment.

2. Diversification

Investing in mutual funds allows you to diversify your portfolio. Rather than investing in individual stocks or bonds, you can invest in a diversified range of companies or bonds, which reduces investment risk.

3. Low Initial Investment

Most mutual funds have a low minimum investment, which makes them accessible to almost everyone. This means that you do not need a large sum of money to start investing.

4. Tax Benefits

Investing in mutual funds offers tax benefits. Long-term capital gains from mutual funds are taxed at 10%, significantly lower than the tax on other investment options.

5. Variety of Options

Various mutual fund options, such as equity, debt, or hybrid funds, are available in India. These options cater to the different investment preferences of investors, offering flexibility.

6. Convenience

Investing in mutual funds is convenient. In addition to low minimum investments, you can invest online or through a financial advisor, making investing in mutual funds easy and convenient.

How to Invest in Mutual Funds – 5 Easy Steps

Below, we will look at how to start investing in mutual funds in five easy steps.

1. Choose the Right Mutual Fund

Before investing in any mutual fund, it is crucial to understand the type of mutual fund you want to invest in. Different types of mutual funds exist, like equity mutual funds, debt mutual funds, balanced funds, etc. Choose a fund that aligns with your financial goals and risk tolerance level.

2. Understand the Fund’s Objective and Performance

Researching and understanding the objective and performance of the mutual fund you want to invest in is essential. Look at asset allocation, past performance, expense ratios, risk level, etc. This will help you make an informed decision and choose the right mutual fund.

3. Check the Minimum Investment Amount

Every mutual fund has a minimum investment amount. This amount varies from fund to fund, and knowing this amount before investing is important. Make sure you have enough funds to meet the minimum investment requirement.

4. Choose a Broker or Online Platform

To invest in mutual funds in India, you must have a Demat account, which can be opened with a broker or an online platform. Choose a reliable broker or platform that offers a seamless and hassle-free investment process.

5. Invest in the Mutual Fund

Once you have chosen the right mutual fund and the broker or online platform, it’s time to invest. Complete the necessary paperwork, select the amount you want to invest, and make the payment. Your investment will be reflected in your Demat account.

Also read: Angel Investors: What Is Angel Investing & How Does It Work?

How to Invest in Mutual Funds Online?

Mutual funds have become one of the most popular investment options. Check out the two most common ways to start investing in mutual funds online:

1. By creating an account on the official AMC website

One of the easiest and quickest ways of investing in mutual funds online is by creating an account on an official AMC (Asset Management Company) website. This provides a safe and secure way of investing and gives you access to a wide range of mutual fund schemes managed by the AMC.

To invest in mutual funds online through an AMC website, follow these simple steps:

(i) Visit the official website of the AMC
(ii) Register as a new user by providing your details
(iii) Provide KYC (Know Your Customer) details and documentation
(iv) Select the mutual fund scheme you want to invest in
(v) Choose the amount you want to invest and the mode of payment
(vi) Confirm your investment, and you’re done!

2. Through an app

Investing in mutual funds through an app is another easy and convenient way to invest in mutual funds online in India. Most AMCs now have mobile apps that are free and easy to download.
Using an app for mutual fund investment offers a hassle-free experience, and you can keep track of your investments anytime. To invest in mutual funds through an app, follow these simple steps:

(i) Download the app of the respective AMC
(ii) Register as a user by providing your details
(iii) Complete your KYC details and documentation, if not done previously
(iv) Check the funds available for investment
(v) Choose the funds and enter the amount you want to invest
(vi) Select the mode of payment and confirm your transaction.

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Things to Consider as a Beginner Investor

If you’re considering how to start investing in mutual funds, here are eight things to consider:

1. Fix an Investment Goal

Start by determining your investment objective and timeline and setting realistic return expectations. This will help you choose the right mutual fund and assess the performance of your investment.

2. Choose the Right Fund Type

Different types of mutual funds exist in India, such as equity, debt, and hybrid funds. Consider your risk tolerance, investment horizon, and expected returns to decide which type of fund to invest in.

3. Shortlist and Choose One Mutual Fund

Research and shortlist mutual funds based on fund performance, asset under management (AUM), expense ratio, and fund manager track record. Choose the best investment option based on the market trends and long-term growth potential.

4. Diversify your Portfolio

Diversification across different asset classes and categories is critical to reducing the risk of losses. Invest in a mix of equity, debt, and hybrid mutual funds based on your investment goals and risk appetite.

5. Choose SIPs instead of Lump-sum Investments

Systematic Investment Plans (SIPs) allow you to invest small amounts regularly, which can help you average out your investment cost and reduce the impact of market volatility.

6. Keep KYC Documents Updated

As an investor in India, you need to complete the Know-Your-Customer (KYC) process with the mutual fund house. Keep your KYC details updated to ensure a seamless investment experience.

7. Open a Net Banking Account

Online platforms offer the convenience of investing in mutual funds from the comfort of your home. Open a net banking account to make investment transactions and monitor your portfolio efficiently.

8. Seek Advice from a Financial Advisor

If you need more clarification about investing in mutual funds in India, seeking advice from a financial advisor can help you make informed investment decisions and manage your risk effectively.

Invest for Your Future

Investing in mutual funds can be an excellent way for beginners to build wealth. It allows for diversification, professional management, and easy access to the stock market. Before investing, you must understand the different types of mutual funds available, how to start investing in mutual funds by choosing the right one, and the risks involved.
To start investing in mutual funds, you must select a reputable fund house, open an account, and choose the right fund based on your investment goals, risk tolerance, and timeline. You can invest in how to start a mutual fund SIP (Systematic Investment Plan) regularly with a lump sum.

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Some Related Resources:
Best Beginner-Friendly Mutuals Funds To Invest
Calculate Future SIP with Mutual Funds Calculator
10 Types of Investments for Higher Returns
How to Invest Money- A Guide for Beginners

Frequently Asked Questions(FAQs)

Which mutual fund is best for beginners?

The best mutual fund for beginners depends on your needs and goals. Look for a fund with
1 good track record
2 low expense ratio
3 diversified portfolio
Consider starting with a balanced fund that invests in both stocks and bonds.

Can I invest 500 rupees in a mutual fund?

Yes, you can invest 500rs in a mutual fund. Mutual funds offer a variety of investment options with varying minimum investment amounts, and some mutual funds may have a minimum investment requirement as low as 500rs or even less.

Which SIP is best for 1000 per month?

The best SIP for 1000 rupees per month will depend on your individual needs and goals. Look for a fund with a good track record and a low expense ratio. Consider investing in a fund with a dividend reinvestment plan, which will automatically reinvest your dividends into the fund.

What if I invest 5000 a month in mutual funds for 10 years?

If you invest 5000 rupees per month in a mutual fund for 10 years, you could see significant growth in your investment, depending on the fund’s performance. Use a mutual fund calculator to estimate your potential returns.

Are mutual funds better than FD?

Mutual funds and fixed deposits both have their pros and cons:
1. Mutual funds offer the potential for higher returns but also have a higher risk.
2. Fixed deposits offer lower returns but are generally considered to be lower risk.
Consider your needs and goals before deciding which option is best for you.

What is the number 1 mutual fund?

There is no single “number 1” mutual fund. The best fund for you will depend on your individual needs and goals. Look for funds with a good track record, low expense ratios, and a diversified portfolio.

At what age should you start a mutual fund?

It’s always early enough to invest in mutual funds. Ideally, you should start investing in mutual funds as soon as you have a stable income and can afford to invest regularly. This could be as early as your 20s or 30s, when you have a steady job and are starting to build your savings. Speak to a financial advisor to determine the best options for your situation.

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