Beginners Guide to How to Invest in Mutual Funds

Investing in mutual fund for beginners may seem complicated as it can be confusing at times. Understanding how mutual fund works is the first step in investing mutual fund for beginners.

If you want to know about investing in mutual fund for beginners, congratulations, you have finally landed in the right place. This article will talk about investing in mutual fund for beginners which includes what mutual funds are, why should you invest in mutual funds and what points you should consider before investing and which mutual fund you can invest in.

What are Mutual Funds?

Any fund that is professionally managed, and it pools money from different investors to purchase various securities is termed as a mutual fund. Investing in mutual fund for beginners can be easy if you know the details about mutual funds.

• The money invested in mutual fund is used to purchase stocks, bonds, company shares and is shared by many investors.

• With the idea of generating the highest possible returns, these funds are taken care of by professional fund managers.

• Securities and Exchange Board of India (SEBI) makes all the important decisions regarding the rules and regulations of these mutual funds.

Investing in mutual fund for beginners is considered one of the easiest ways to gather wealth and is also a safe and hassle-free process.

Types of Mutual Funds

• Equity Funds: It predominantly invests in the equity shares of various companies. Equity funds are considered suitable for investing in mutual funds for beginners who are looking towards long term capital appreciation and who are also comfortable in dealing with moderate to a high level of risk.

• Debt funds: Debt funds are primarily invested in fixed income government securities like bonds and treasury bills, or corporate deposits. Debt funds also offer lesser returns, as it involves lower risk than equity funds. Risk-averse investors with a short term investment horizon are considered most suitable for these funds.

• Hybrid funds: With the idea of maintaining a balance between the risk involved and the returns generated, Hybrid funds invest in a mix of equity shares and debt securities. A fund manager decides how to settle on a ratio of equity and investment to reap the best of both.

Guide to Investing in Mutual Funds

Investing in mutual fund for beginners is not as complicated as they may seem. The process involved in investing in mutual fund for beginners is rather hassle-free and straightforward. All you need to take care of the following steps:

• Understand your purpose of investing, before you start investing; whether you are investing in long-term and whether you can afford any risk with your corpus etc. In choosing the right type of fund that you may invest in, these aspects will help you a long way.

• To start investing, you do not need to have a huge sum of money. With as low as 500 bucks, you can begin with your investment journey.

• You should keep your investment portfolio ( a portfolio means a collection of various mutual funds which help you meet your investment goals) diversified so that if one type of fund fails to perform well, the other one may balance your returns generated.

• It is advised that you invest through Systematic Investment Plan (SIP). Unlike the lump sum mode of investing, where you have to pool the entire amount in just one go, Systematic Investment Plan allows you to pool in a fixed amount of money at regular intervals.

• Understand how mutual funds can help you save on taxes before you start investing. Different types of mutual funds have different taxation policies. For instance, a tax deduction of up to INR 1.5 Lakh under Section 80C of the Income Tax Act can be generated from the investments made in ELSS (Equity Linked Savings Schemes – a type of equity investment).

• To ensure the safety of the transaction, Know Your Customer p=or KYC is a regulation implemented by the government to enable financial transactions in the country. Before you start investing, keep your KYC documents updated.

How to Invest in Mutual Funds?

You can invest in mutual funds through any of the following ways:

1. Offline mode of investing – You may choose to invest through a broker if you are not confident of your knowledge. However, through regular plans that offer different returns and varied expenses in investment, investing in a fund through a broker will make you eligible for various investments. You must visit the nearest branch of the AMC of your fund if you wish to invest in the fund independently. And also, don't forget to carry the following documents:

. Identity Proof (Adhar Card)

. Cancelled cheque

. Passport Size photos ( 4-5)

. PAN Card

.KYC documents

2. Online mode of investing – You may visit online investment platforms where you can choose from and compare more funds – all in one place if you do not wish to add on to your expense of commissions or brokerage. Here, you can look at the details and compare similar schemes and can select the fund in which you want to invest.

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