Mutual Funds: How to Invest in a Mutual Fund for Beginners?
Mutual funds have become a favoured choice among individual investors in the recent past. They can offer a multitude of benefits. Managed by experts, these funds can help you invest effectively and potentially earn good returns. Whether you’re a seasoned investor or just starting out, mutual funds provide a viable investment option. However, for beginners, the task of investing in mutual funds or even understanding mutual funds can seem daunting. This mutual fund guide aims to explore the features, types, and other intricacies of mutual fund investments to make the task seem less intimidating and more approachable. Investors can consider this as an educational introduction to mutual funds, which is not meant to be recommendatory.
What are Mutual Funds?
A mutual fund pools money from multiple investors to invest in assets such as stocks, bonds, and money market instruments. Managed by professionals, these funds aim to generate returns or capital gains. By investing in a mutual fund, individuals access a diversified portfolio, sharing equally in any profits or losses.
Investors buy fund shares, each representing a portion of the total assets. This structure simplifies investment decisions and reduces risk through diversification. Mutual funds, intended for long-term investors due to high transaction costs, offer easy buy-and-sell options, providing liquidity.
Different types of mutual funds include bond, stock, balanced, and index funds. Bond funds invest in fixed-income securities and distribute regular interest payments to shareholders. Stock funds focus on long-term capital growth and dividends, often investing based on company market capitalisation. Balanced funds mix bonds and equities, adjusting allocations as per their strategy. Index funds track market indices like the S&P 500, offering lower fees due to passive management.
Types of Mutual Funds
Starting a mutual fund investment begins with investors sorting out which type of fund interests them the most. Let’s explore a few types on mutual funds based on various factors:
Types of Mutual Funds Based on Asset Classes
An asset class is a group of financial assets with similar characteristics, such as stocks, bonds, real estate, or cash equivalents. Here’s a look at various types of mutual funds categorised by asset class:
- Equity Funds (Stocks): These funds invest in company shares. Large-cap Equity Funds focus on well-established companies, while small-cap funds target smaller, high-growth businesses.
- Debt Funds (Bonds): These funds invest in bonds and aim to provide steady income. Examples include Government Bond Funds and Corporate Bond Funds.
- Money Market Funds (Short-term securities): These invest in low-risk, short-term securities, such as Treasury bills and commercial paper.
- Hybrid Funds (Mix of assets): These combine stocks and bonds, like balanced funds, aiming for growth and stability.
- Flexi-cap funds: These are mutual funds that invest in stocks from companies of any market size, including large-cap, mid-cap, and small-cap. This flexibility allows the fund manager to adapt to changing market conditions and invest where they see the most potential.
- Sectoral funds: Sectoral mutual funds are equity schemes that focus on specific sectors of the economy, like utilities, energy, technology, healthcare and infrastructure.
Types of Mutual Funds Based on Investment Goals
These funds are designed to meet specific financial objectives, offering various options tailored to investors’ unique goals.
- Growth Funds: These focus on capital appreciation by investing in companies with high growth potential, making them suitable for long-term investors seeking significant returns.
- Income Funds: These prioritise regular income by investing in bonds, fixed-income securities, or dividend-yielding stocks, which are ideal for those looking for a steady income stream.
- Liquid Funds: Investing in short-term debt instruments, these funds prioritise liquidity and safety, perfect for investors who need quick access to their money with minimal risk.
- Tax-Saving Funds (ELSS): These funds provide tax benefits under Section 80C by primarily investing in equities, offering a tax-efficient investment option.
- Aggressive Growth Funds: These funds target substantial capital appreciation and accept higher market risks. They are suitable for investors with a long-term horizon and a higher risk tolerance.
- Capital Protection Funds: These funds focus on preserving the principal while generating modest returns. They cater to risk-averse investors who want to protect their investments.
- Fixed Maturity Funds: With a predetermined maturity date, these funds offer a clear investment horizon, ideal for those seeking fixed returns and minimal interest rate risk.
- Pension Funds: Aiming to build a retirement corpus, these funds invest in a mix of assets, catering to individuals planning for a secure financial future post-retirement.
Types of Mutual Funds Based on Structure
These are funds that are characterised by their structure:
- Open-Ended Funds: These funds let investors buy and sell units anytime, offering liquidity. They are popular for those seeking flexibility in entry and exit, making them suitable for long-term wealth creation.
- Closed-Ended Funds: These funds have a set maturity and a fixed number of units. Investors purchase units only during the initial offer and can trade them on stock exchanges. They cater to those interested in long-term investments with potential tax benefits.
- Interval Funds: Interval funds combine the features of open- and closed-ended funds and allow periodic redemption at specific intervals. They appeal to investors looking for a balance between liquidity and long-term investment.
Types of Mutual Funds Based on Risk Factors
- Very Low-Risk Funds: Liquid and ultra-short-term funds (one month to one year) offer low risk and modest returns, around 6% at best. Investors use these funds to achieve short-term financial goals while keeping their money safe.
- Low-Risk Funds: During rupee depreciation or national crises, investors may hesitate to invest in riskier options. Fund managers suggest liquid, ultra-short-term, or arbitrage funds in such cases. These funds typically offer returns of 6-8%, and investors can switch when market conditions stabilise.
- Medium-Risk Funds: Medium-risk funds balance investments between debt and equity, offering a moderate level of risk. The NAV remains relatively stable, with average returns ranging from 9% to 12%.
- High-Risk Funds: High-risk mutual funds suit investors comfortable with volatility and seeking substantial returns through interest and dividends. Active management and regular reviews are essential, with potential returns of up to 20%.
Specialised Mutual Funds
- Sectoral Funds: Sector funds focus exclusively on specific sectors of the economy, making them theme-based investments. Due to their concentrated holdings in a single sector, they carry higher risk. Investors should monitor sector trends closely. However, sector funds can also offer significant returns, particularly in sectors like banking, IT, and pharmaceuticals, which have shown consistent growth and are expected to continue performing well.
- Index Funds: Index funds are suited for passive investors as they track an index rather than being actively managed. By mimicking index performance, they aim to match rather than beat the market, providing a stable investment option.
- Fund of Funds: Funds of Funds, or multi-manager mutual funds, offer diversification by investing in various funds within a single portfolio. This approach reduces costs while achieving broad market exposure. Emerging market funds involve investing in developing economies, which can be volatile but offer the potential for high returns over the long term. These markets contribute significantly to global growth prospects.
- International Funds: International or foreign funds appeal to investors seeking diversification beyond domestic markets. They can be approached through different strategies, such as hybrid allocation, feeder funds, or theme-based investing.
- Global Funds: Global funds differ from international funds by including investments worldwide and domestic markets. They provide a diverse investment approach but carry risks due to currency and policy variations.
- Real-Estate Funds: Real estate funds provide indirect exposure to real estate markets through investments in established companies or trusts, offering liquidity and risk mitigation compared to direct property investment.
- Commodity Funds: Commodity-focused stock funds suit investors looking to diversify into commodities. These funds invest either directly in commodities like gold or in shares of commodity-related companies.
- Market-Neutral Funds: Market-neutral funds aim to provide stable returns by hedging against market volatility, appealing to investors seeking consistent performance.
- Inverse Funds: Inverse or leveraged funds move opposite to benchmark indices, offering potential gains during market downturns. They involve selling and repurchasing lower-priced shares to profit from market movements.
- Asset Allocation Funds: Asset allocation funds combine different asset classes like debt, equity, and gold based on market conditions, offering flexibility and risk management.
- ETFs: Exchange-traded funds (ETFs) track indices and are traded on exchanges, providing real-time trading opportunities and extensive market exposure. Section 80C of the Indian Tax Act allows taxpayers to claim deductions up to ₹150,000 from their total annual income, providing tax relief.
- GILT Funds: Gilt funds are a type of debt mutual fund that primarily invests in government bonds. They are also known as G-Secs or government securities.
Who Should Invest in Mutual Funds?
Mutual funds suit a variety of investors at different stages of their investment journey. It’s crucial to focus not on the fund but its underlying components to gauge its suitability for you. Before investing, research thoroughly and comprehend the risks associated with the fund’s underlying assets. Mutual funds cater to both novice and seasoned investors, offering diversification benefits. Experienced investors can pinpoint funds targeting specific growth areas. Different investors find different funds suitable based on their investment objectives. For example, an investor with a long-term goal, like planning retirement or their children’s education, would find equity mutual funds more suitable. Furthermore, investors can choose between large-cap, small-cap, and mid-cap categories based on risk tolerance. So, it is difficult to point out which investors would find mutual funds the most suitable. However, it is safe to assume that mutual funds have emerged as a viable option for investors throughout categories.
Factors to Consider Before Investing in Mutual Funds
When choosing a mutual fund scheme, consider these key factors:
- Fund Performance: Evaluate the mutual fund’s performance over 3-5 years against its benchmark and category peers for consistency.
- Net Asset Value (NAV): NAV reflects the unit price of mutual funds. While a lower NAV suggests cheaper investment opportunities, higher NAVs can indicate quality investments.
- AMC Performance: Assess the track record of the Asset Management Company (AMC) in managing various schemes to gauge future performance potential.
- Expense Ratio: Consider the operational costs involved, typically between 1-2%, which can impact overall returns.
- Exit Load: Check if there are charges for early withdrawals from the fund.
- Assets Under Management (AUM): A higher AUM indicates more investor participation and fund stability.
- Fund Manager Experience: Review fund managers’ qualifications and past performance in delivering consistent returns compared to benchmarks.
- Tax Implications: It is important to consider the tax implications related to the fund you are investing in. Taxes are usually levied on the income or capital gains earned from these funds’ returns.
- Liquidity: Liquidity in mutual funds refers to how quickly and easily you can buy or sell fund units. Different mutual funds vary in liquidity features, such as lock-in periods, exit loads, and redemption limits. When selecting a mutual fund, choosing one that allows you to withdraw your investment when needed is important.
Each factor plays a crucial role in determining the suitability of a mutual fund investment, ensuring informed decision-making for potential investors.
Why Invest in Mutual Funds?
Mutual funds, managed by investment specialists, offer a pathway to profitable opportunities tailored to your investment goals. Here are a few reasons why you can start your investment journey with mutual funds:
- Diversification: Mutual funds offer diversification by spreading investments across various securities like stocks and bonds. This reduces portfolio risk, ensuring investments are not overly dependent on any single asset.
- Professional Fund Management: Experienced fund managers handle mutual funds, employing market analysis to seek optimal returns while managing risks effectively.
- Easy Access: Mutual funds provide convenient access for new investors to start with small amounts online or through advisors tailored to different risk profiles and investment goals.
- Tax Benefits: Certain funds, like ELSS, offer tax benefits under Section 80C of the Income Tax Act, reducing investors’ tax liabilities.
- Professional Risk Management: Fund managers use diverse strategies to manage risks effectively, enhancing the potential for consistent long-term returns.
- Low Cost: Mutual funds are cost-effective, with lower entry and transaction costs than alternatives like stocks or real estate.
- Long-term Returns: Mutual funds historically offer higher returns through compounding, making them a favoured choice for long-term wealth growth.
- Smaller capital outlay: Mutual funds allow investors to start with relatively small amounts, avoiding the large initial investment required for a diversified stock portfolio. Investors gain access to a diversified portfolio with minimal capital outlay by pooling funds.
- Economies of scale in transaction costs: Mutual funds benefit from lower transaction costs due to bulk securities trading, which is more cost-effective than individual transactions through stock brokers.
- Variety of products: Mutual funds offer a range of products, including equity, hybrid, debt, liquid funds, and tax-saving schemes, catering to different risk profiles and investment objectives. Investors can choose products that align with their specific financial goals and risk appetite.
How to Invest in Mutual Funds for Beginners in India?
- AMC Website: Investing in mutual funds directly through the Asset Management Company (AMC) website can be done online and offline. To initiate the process, investors must open a new account, provide personal information, complete the FATCA form, and share bank details. KYC will be verified through Aadhar, and funds can be sent after submitting a photograph of the cancelled check.
- Offline: One can visit the local AMC office and apply for an offline investment by submitting the required form, KYC papers, and payment.
- Demat Accounts: Alternatively, investors can opt for online investment through their existing Demat accounts. No additional effort is required; current Demat and bank accounts can be used to invest and trade in mutual funds. Log into the Demat account, find the option to invest, select a fund, and complete the transaction by transferring the required funds online.
How to Invest in Mutual Funds Through SIP?
To invest in mutual funds through Systematic Investment Plans (SIP):
- Complete KYC online by filling out the registration form and providing self-attested identification and address verification.
- Visit the fund house’s website, choose a suitable plan, and apply by providing your name, phone number, PAN number, username, and password.
- Enter bank account details, set up the SIP auto-debit amount, and you’re done.
- For a beginner’s monthly SIP investment, make the first payment online and the second instalment 30 days later, as notified by the AMC.
How to Invest in Mutual Funds Through Lumpsum Investments?
To invest in mutual funds through lumpsum investments:
- Set up a direct mutual fund investment plan with an asset management provider in person or online.
- Complete KYC by submitting a self-attested ID, address proof, and two passport-sized photos.
- Select the desired investment strategy on the mutual fund company’s website, choose the One-Time option, and enter the amount.
How to Exit Mutual Fund Investments?
- If you bought mutual fund units through your DEMAT or a mutual fund trading account via a broker, you would sell them by placing a sell order with the same broker. The proceeds from the sale will be credited to your bank account, which is linked to the DEMAT account.
- Many investors purchase mutual funds directly from the AMC or through distributors. These platforms allow you to buy, monitor, and sell your mutual funds online.
- Registrar or Transfer Agencies (RTAs) such as CAMS and KFin Technologies Limited manage transactions and records for mutual fund houses. You can also redeem your mutual funds through these agencies.
smallcase Vs Mutual Fund
smallcase and mutual funds represent two fundamentally different investment options. Exploring mutual fund investments reveals contrasts with smallcase offerings. A smallcase is essentially a collection of stocks or ETFs curated based on a specific theme or investment strategy. On the other hand, a mutual fund aggregates capital from several investors to create a diversified portfolio, which may include stocks, bonds, or other financial instruments. In a mutual fund, investors essentially buy units or shares, representing a portion of the fund’s holdings. Here is a table of comparison between a smallcase and a mutual fund.
| Feature | Smallcase | Mutual Fund |
| Structure | A curated portfolio of stocks or ETFs, based on certain themes | A collective pool of investments from many individuals, managed by a professional |
| Investment Choice | Selection from theme-based curated portfolios | Limited direct control over specific investments |
| Management | Self-managed; invest and exit at discretion | Professionally managed with active oversight |
| Diversification | Theme-based, thus potentially limited | Broad diversification across sectors and asset classes |
| Minimum Investment | Typically low (often ₹100 or less) | Varies; generally starts from ₹500 or higher |
| Transparency | High transparency on investments and weightings | Relative opacity; specifics of portfolio composition may not be easily accessible |
| Costs | Generally lower fees (0.5-1.5%) | Typically higher fees (1-2.5%) |
| Flexibility | High; options to invest, adjust, or exit readily | Comparatively lower; may include lock-in periods and exit fees |
| Control | Greater control over investment choices and timing | Reduced control; dependent on the fund manager’s strategies |
| Suitability | Ideal for individuals new to investing, hands-on investors, or those pursuing specific themes | Suited for those preferring passive investment, long-term objectives, or professional asset management |
Taxation on Mutual Funds
Understanding the taxation of mutual funds involves recognising several key factors. These include the type of fund, such as Equity, Debt, or Hybrid funds. Additionally, dividends distributed by mutual fund houses and capital gains from selling assets at a profit impact taxes.
The duration of holding mutual fund units is crucial. According to Indian tax regulations, longer holding periods result in lower tax liabilities. Essentially, the longer you hold your investment, the less tax you’ll pay on capital gains.
Fees and Charges on Mutual Funds
- Entry Load: When investors initially invest in a mutual fund scheme, they may encounter an entry load. This fee covers distribution costs and used to vary among fund houses in India before 2009. However, current SEBI regulations prohibit fund houses from charging entry loads.
- Exit Load: Exiting a mutual fund scheme within a specific period triggers an exit load. This fee, typically around 1% of the redemption value, aims to discourage premature withdrawals and reduce the volume of redemptions. Fund houses commonly impose an exit load if units are redeemed within a year but exempt investors from this fee after one year of investment in the same scheme.
- Transaction Charges: Investors may face a one-time transaction fee, ranging from Rs. 100 to Rs. 150, on investments exceeding Rs. 10,000. This fee also applies to SIP investments above Rs. 10,000, while investments below Rs. 10,000 are exempt from transaction charges.
- Expense Ratio: The expense ratio is a percentage of a fund’s daily net assets. Asset management companies charge an annual fee for managing mutual fund schemes. It encompasses costs such as sales, marketing, administration, distribution, and fund manager fees. Calculated by dividing total expenses incurred by an AMC’s total assets under management, the expense ratio tends to be higher for regular plans than direct plans, as discussed further in the subsequent section.
Financial Jargon Surrounding Mutual Funds
| Term | Description |
| 80C | A section under the Income Tax Act defines exemptions for income tax. |
| AMC (Asset Management Company) | The company that manages a mutual fund. Examples include HDFC Mutual Fund and ICICI Prudential Mutual Fund. |
| Annualised Returns | The returns you would make if investments were made for one year. Adjusted if the investment period is different. |
| Arbitrage Funds | Mutual funds aim to exploit the price difference between the cash and derivatives markets to generate returns. |
| Asset Allocation Funds | Funds that spread investments across various asset classes like equity, debt, or gold. |
| AUM (Assets Under Management) | The total value of the investments managed by a mutual fund. |
| Average Maturity | The weighted average time until all debt securities in a fund are due to be paid off. |
| Balanced Funds | Also known as Hybrid Funds, these invest in debt and equity securities. |
| Benchmark | A standard against which the performance of a mutual fund can be compared. |
| Brokerage | Fees are paid to a broker for buying and selling investments. |
| Credit Rating | An assessment of a borrower’s creditworthiness in general terms or with respect to a particular debt or financial obligation. |
| Crisil | A rating agency that evaluates mutual funds and corporate debts. |
| Debt Funds | Funds that invest primarily in debt instruments. |
| Direct Funds | Mutual funds purchased directly from AMCs, bypassing intermediaries. |
| Dividend Schemes | Mutual fund schemes that offer regular dividends to investors. |
| ELSS (Equity Linked Savings Scheme) | Tax-saving mutual funds that offer tax exemptions under section 80C. |
| Equity Mutual Funds | Funds that invest in the stocks of publicly listed companies. |
| ETF (Exchange Traded Funds) | Mutual funds are traded on stock exchanges similar to stocks. |
| Exit Load | A fee is charged for withdrawing investments from a mutual fund within a specified period. |
| Expense Ratio | The annual fee is a percentage of AUM, covering fund management expenses. |
| Face Value | The nominal value of a security indicates its worth at issuance. |
| Fund Manager | The professional is responsible for making investment decisions in a mutual fund. |
| Fund of Funds | A mutual fund that invests in other mutual funds. |
| Gilt Funds | Mutual funds that invest solely in government bonds. |
| Gold Funds | Mutual funds invest in various forms of gold, including physical gold and gold mining companies’ stocks. |
| Growth Plan | A mutual fund option where dividends are reinvested in the fund. |
| Holdings | The securities held within a mutual fund’s portfolio. |
| Index Funds | Funds are designed to replicate the performance of a specific market index. |
| Investment Objective | The goal set by an AMC is to achieve the performance of a mutual fund. |
| KYC (Know Your Customer) | Mandatory identity verification for investors as per SEBI guidelines. |
| Large Cap Funds | Funds that invest in companies with a large market capitalisation. |
| Launch Date | The date on which a mutual fund scheme is introduced. |
| Liquid Funds | Mutual funds invest in short-term, high-liquidity money market instruments. |
| Lock-in Period | Investors cannot withdraw their investments from a fund during a specified period. |
| Long Term | An investment horizon of more than 5 years. |
| Market Cap (Market Capitalization) | The total market value of a company’s outstanding shares. |
| Mean Returns | The average returns generated by a fund over a specified period. |
| Mid Cap Funds | Funds investing in mid-sized companies with moderate market capitalisation. |
| Min Additional Investment | The minimum amount required for subsequent investments in a mutual fund. |
| Min Investment | The minimum initial investment required to buy into a mutual fund. |
| Money Market Fund | Funds that invest in short-term, high-credit-quality financial instruments. |
| NAV (Net Asset Value) | The per-share value of a mutual fund’s assets minus its liabilities. |
| NFO (New Fund Offer) | The initial offering period for a new mutual fund, allows it to raise capital. |
| Nifty | A major stock index in India, representing the weighted average of 50 of the largest Indian companies. |
| Nominee | The designated individual to receive the benefits of an investment in the event of the investor’s death. |
| PAN (Permanent Account Number) | A unique identifier issued by the Indian Income Tax Department for financial transactions. |
| Portfolio | The collection of investments held by an individual or institution. |
| PSU (Public Sector Undertaking) | Government-owned corporations in India. |
| Rating | An evaluation of a financial instrument’s creditworthiness or quality. |
| Redeem | The process of selling mutual fund units back to the fund. |
| Redemption | The act of withdrawing funds from a mutual fund. |
| Regular Funds | Mutual funds purchased through an intermediary, such as an advisor or broker. |
| Returns | The profit or loss generated from an investment over a certain period. |
| Risk | The potential for losing money on an investment. |
| Risk-Free Rate | The theoretical rate of return of an investment with zero risk. |
| RTA (Registrar and Transfer Agent) | A firm that keeps track of the issuance and transfer of mutual fund units. |
| Sector Allocation | The distribution of a mutual fund’s investments across different sectors. |
| Sector Funds | Funds that invest specifically in sectors or industries. |
| Sensex | A stock market index representing 30 of the largest and most established companies in India. |
| Sharpe Ratio | A measure of risk-adjusted return, developed by Nobel laureate William F. Sharpe. |
| Short Term | An investment period of less than 12 months. |
| SID (Scheme Information Document) | A detailed document that provides information about a mutual fund. |
| SIP (Systematic Investment Plan) | A method of investing a fixed amount in a mutual fund at regular intervals. |
| SIP Minimum | The minimum amount required to invest in a mutual fund through SIP. |
| Small Cap Funds | Funds investing in companies with a small market capitalisation. |
| Standard Deviation | A statistical measure of the variance of a fund’s returns. |
| STP (Systematic Transfer Plan) | A plan that allows investors to transfer investments from one mutual fund to another within the same AMC. |
| SWP (Systematic Withdrawal Plan) | A plan allowing investors to withdraw a specific amount from a mutual fund at regular intervals. |
| Ultra Short-Term Funds | Mutual funds that invest in debt securities with very short maturities, offering slightly higher returns than liquid funds. |
| UTR (Unique Transaction Reference) | A number provided by banks for identifying NEFT or RTGS transactions. |
| XIRR (Extended Internal Rate of Return) | A method used to calculate returns on investments that have multiple cash flows at irregular intervals. |
| Suspended Fund | A mutual fund that has halted new investments either through SIPs or lump-sum payments. |
| Units | Represent the portion of ownership an investor holds in a mutual fund. |
| Folio | A unique identification number is assigned to an investor’s holdings in mutual funds. |
| YTM (Yield to Maturity) | The total return expected on a bond if held until maturity. |
| Modified Duration | A measure of the sensitivity of a bond’s price to changes in interest rates. |
| IFSC Code | An 11-character code used in India to uniquely identify a bank branch for electronic payments. |
| Biller | An entity authorised to collect payments from individuals or organisations. |
| ISIP (Internet-based Systematic Investment Plan) | A completely paperless method of setting up SIPs. |
| Stocks | Shares that represent ownership in a corporation. |
| Shares | Units of stock that represent an ownership interest in a company. |
| Bonds | Debt securities issued by corporations or governments to raise funds. |
| Open-ended Funds | Mutual funds that continuously issue and redeem units based on demand. |
| Closed-ended Funds | Mutual funds that have a fixed number of shares and are traded on stock exchanges. |
| Global Funds | Mutual funds that invest in assets located around the world. |
| Min Withdrawal | The minimum amount that must be withdrawn by an investor from a mutual fund. |
| KIM (Key Information Memorandum) | A document providing essential information about a mutual fund scheme. |
| Indexation | The adjustment of the income thresholds in tax calculations to account for inflation. |
| Income Funds | Funds that aim to provide regular income to investors through dividends or interest payments. |
| Government Securities | Bonds issued by a government authority with a promise of repayment upon maturity. |
| Securities | A broad term for financial instruments that represent some form of financial value. |
| Floating Rate | An interest rate that varies over the lifetime of the loan or investment. |
| Equity Schemes | Mutual fund schemes that primarily invest in stocks. |
| AMFI (Association of Mutual Funds in India) | An industry standards organisation for mutual funds in India. |
| SEBI (Securities and Exchange Board of India) | The regulator for securities and commodity market in India under the jurisdiction of Ministry of Finance, Government of India. |
To Wrap It Up…
Mutual funds are an umbrella term for various investment opportunities. There is a vast array of funds to choose from based on their type, returns, features and individual fund performance. Beginners delving into mutual funds might feel spoilt for choice, but it is important to be aware of all your options before making that final investment decision. This mutual fund investment guide has explored various aspects related to investing money in mutual funds, but it is up to the investors to conduct their own research into the basics of mutual fund investing and make their own choices. Consulting a financial advisor for the same is also considered a wise option.
Frequently Asked Questions About Mutual Funds for Beginners
Yes. You may invest in mutual funds with a minimum investment of Rs. 500 or begin an SIP in a mutual fund, which requires an initial investment of Rs. 500.
Mutual funds may offer a safer investment option than stocks because they diversify your money across various assets, including bonds. Unlike stocks, which only allow you to invest in shares of a select company, mutual funds provide a broader investment scope, allowing you to own a stake in different assets beyond just company shares.
There’s no minimum investment duration for mutual funds, usually—you can invest for a day or an indefinite period. However, ELSS funds require a minimum lock-in period of 3 years.
You have the flexibility to withdraw your mutual fund investments at any time before maturity, usually, except for Equity Linked Savings Scheme (ELSS), which has a fixed three-year lock-in period from the investment date.
Mutual funds may bear fees for operational expenses, covering management, 12b-1, legal, accounting, and administrative costs. Investors choose between load funds, imposing commissions on share transactions, and no-load funds, which don’t charge such commissions.
