Mutual Funds Investment Guide for Beginners

Posted by

Mutual Fund investments are a popular source of investment, owing to the huge benefits they provide. Mutual Funds are a well-diversified, low-cost and tax-efficient way to grow your savings and create wealth in the long run. They have been an ideal investment vehicle for many tax-savers who do not have the expertise to invest directly in stocks.

Professional advisors provide guidance on various aspects of mutual funds like –

- Which are the best mutual funds to invest in?

- How to invest in mutual funds online?

The simplicity and suitability of mutual funds are immense. However, a vast majority of Indian investors are not able to begin their journey because of the lack of correct guidance in this field. In this blog, we will provide detailed guidance on mutual funds investment for beginners.

Let us summarize a few steps in your mutual funds journey -

1.      Pre-requisites to investing

There are some one-time prerequisites to investing in a mutual fund. One must have a bank account and be KYC-compliant. KYC is the process of verifying the identity of an investor. All you have to do is, submit some of your documents like PAN, Aadhar card, passport-sized photograph etc. to get started.

You can also get your KYC done by filling a form available on the websites of Registrar and Share Transfer Agents and all the mutual fund houses, i.e. AMCs. You will have to provide your registered mobile number and Aadhar number for verification via OTP. Once your verification is complete, you get a step closer to investing in mutual funds.

2.      Selecting the type of fund

Mutual funds are segregated into different classes and each fund aims to achieve definite goals. The common types of mutual funds based on asset class are as under-

Debt Funds

Also known as fixed-income funds, debt funds invest in government securities, corporate bonds and money market instruments. The aim of these funds is to offer regular returns to investors and is relatively stable.

Equity Funds

Equity funds primarily invest a portion of the money in stocks with the essential objective of capital appreciation. However, since the returns on equity funds are associated with market movements, they hold higher risk.


Hybrid Funds

Hybrid Funds are a blend of equity and debt. They invest in a mix of equity and fixed-income securities. Based on their asset allocation, hybrid funds are classified into six categories namely conservative hybrid fund, balanced hybrid fund, aggressive hybrid fund, dynamic asset allocation hybrid fund, equity savings hybrid fund, arbitrage hybrid fund and multi-asset allocation hybrid fund.

Further, funds are also classified on the basis of their structure like open-ended mutual funds, close-ended mutual funds and interval funds and on the basis of their investment objective like growth funds, income funds, liquid funds and tax-saving funds.

3.     Ways to invest in mutual funds

Lump-sum Investment

In lump-sum investment, one can make a single payment to purchase units of mutual funds and this mode of investment is best suited when you have enough surplus cash to invest.

SIP Investment

In Systematic Investment Plan (SIP) investment, one has the flexibility to split the mutual fund purchase into smaller amounts, generally in the form of monthly investments. For example, one can start a SIP by making an investment as low as Rs. 500 per month. SIP further gives you the flexibility to invest on a fortnightly, monthly and quarterly basis.

4.      Eligibility to invest in mutual funds

To make an investment in mutual funds, an investor is required to meet the standard eligibility criteria as under: -

  • The individual should be an Indian Resident, over the age of 18 years.
  • Non-Resident Indians
  • Persons of Indian Origin
  • Companies
  • Charitable Trusts
  • Corporate bodies
  • Private trusts
  • Cooperative societies
  • Foreign Institutional Investors


5.      Buying funds

One can either buy funds directly from a fund house or through an intermediary. To invest, one has to submit filled forms, cheques and other relevant documents at the investor service center of registrars or mutual fund houses or one can also invest online through the websites of mutual fund houses or other online platforms that facilitate buying and selling of mutual funds. Payments can also be made online using net banking or UPI to complete the transaction.

6.      Monitoring the investments

Lastly, investors must keep track of how well the investments are performing. With the help of modern technology, it is easy to know about the market’s ups and downs and accordingly know the status of your investments. However, do not be swayed by this, as all you need to do is monitor the performance of your mutual funds at frequent intervals.

Once you are ready with all your pre-requisites, you can take steps to buy and sell mutual funds. You must also keep in mind the tax implications while selling your funds.

To know about the best mutual funds to invest in and the steps to invest in mutual funds online, connect with mastertrust today.