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How to Invest in Mutual Funds in India?

April 20, 2022

Want to know How to Invest in Mutual Funds in India? Well, you have landed on the right article!

Saving has been an age-old practice in India. You are eager to save for the future too, but do you know how to ensure wealth creation at a steady pace without giving up the essential expenses? 

No worries! You may want to take a look at the prospects of mutual funds and how they might help you. It is okay to doubt about its efficacy initially, as mutual funds were not too popular just a decade ago.

Yet you have financial professionals endorsing it wholeheartedly. Should you give up the idea of earning a minuscule sum via FDs and post office savings account then? It is time to find out. Here are the facts.

Take a close look and remain aware of the associated pros and cons. Now let's dive in to learn all the possible best way to invest in mutual funds!

Mutual Fund: What Is It?

It is a financial product that will enable you to invest a small sum regularly to obtain a huge benefit after a period. The amount received from multiple investors is used together to purchase various security products.

It is an efficient way of getting big returns for most investors. You certainly do not have to be a millionaire or the CEO of a company to invest in mutual funds. Instead, invest a small amount periodically and watch it grow over time.
 
You are welcome to invest a small sum of INR 500 via a “Systematic Investment Plan (SIP).” You invest different amounts in different mutual funds that are available to the public.

You get a small stake in the company(s) once you provide your money for purchasing a bigger product. Mutual funds have proved to be a reliable form of investment for individuals willing to take a risk.

Be careful to select the right funds that match your financial goals and risk-taking capability.

How Mutual Funds Function

A mutual fund comes into picture when a particular asset management company desires to make a huge investment with the aid of polled resources made available by multiple individuals and institutions or business entities.

A fund manager is appointed to look after the interests of the investors. The concerned manager will make strategic investments in security products on your behalf, thus guaranteeing a maximum return on your investment.

However, the goals of the fund are considered carefully before investing. You should not be worried about the efficacy of the fund manager. It suffices to know that the managers are financial professionals who have an excellent reputation in the market.

They are adept at making investments based on market conditions. You would be charged a small annual fee for the management of your fund.

Start making money from investing in a mutual fund by obtaining regular dividends or earning interest due to the appreciation of the capital. You may go ahead and choose to reinvest the sum to ensure growth or decide to opt for a steady income via the dividend.


You, as the investor, will have no inkling about how the money is used for buying stocks, gold, bonds, or any other security product. It is the onus of the fund manager to ensure the maximization of the invested amount.

The earnings are distributed proportionally among the investors at regular intervals.

Important Tips for Investing in Mutual Funds

There are some important points that you must learn before you learn how to start investing in mutual funds. The idea of earning a good return on a small amount of investment is exciting.

However, you must be careful to assess your risk-taking capacity before proceeding. Investing in mutual funds is not a complicated process, and you can do it within minutes.

Go with the conventional method of submitting completed forms, or simply use the online process to speed it up.

Some of the things worth considering to ensure steady wealth accumulation over a period include:-

  • Investing purpose:- You would be able to fulfill most of your desires when you have the right amount of money in hand. You may be excited about investing in mutual funds, but you must know your goals.
     
    What do you want to do with the accumulated sum? Are you saving for your child’s education and/or marriage? Do you want to build a retirement fund since you have no hopes of getting a pension from the Government?
     
    You may not have a specific purpose in mind. Delve into your mind and think about how much money you want to have and the period by which you want to get it.

    Identifying the purpose will help you to make an informed decision in selecting the right funds.

  • KYC Documents:- You have to prove that you are a bonafide citizen to complete the investment formalities. Have the original and photocopies of your address proof, citizenship document, and identity papers handy.
     
    You would have to submit the copies and the filled-up form to the fund manager or representative of the fund house. Be sure to have the latest passport-sized photograph with you for identification.

  • Available Options:- It is advisable to do some homework instead of selecting a fund spontaneously. You may want to research the said financial product and the company to gauge its performance in the last few months.
     
    Understanding the mission and vision of the company will also help you to make the right decision. Weigh the options against your objectives and check whether they will be the right fit.
     
    You are welcome to contact a financial advisor if you cannot understand the finance jargon. Eventually, you must be convinced that investing is going to help you meet your financial goals.

  • Risk Factors:- It is best to remember that mutual funds are associated with market risks. It is never as safe as a fixed deposit scheme of the bank. You may have to check the type of risk you are willing to take before opting for a particular fund.

    Go for a high-risk, high return option by investing in an equity plan; however, you may be more comfortable with a moderate risk. A debt scheme should suffice if you are in no mood for risky investments.

How to Invest in Mutual Funds in India?

There are various ways for making mutual fund investments. You may want to take the traditional route by following the offline procedure. There are two ways of investing. By following the below mentioned steps you will get to know how to invest on mutual funds in India.

By visiting the fund house directly

Find the address of the nearest branch office and visit it directly armed with the identity document and address proof. Do not forget to carry a passport-sized photograph and a canceled cheque from the bank where you have an active account.

Check the application form that will be provided and fill it out meticulously, by mentioning the required details. Submit it with the KYC documents and canceled cheque.

Through a broker

Many individuals, specifically the inexperienced ones, prefer to go through a mutual fund broker to make the right investments. You will be provided with complete information about the options available for you.

Moreover, you are free to request advice about making the right choice. However, going through a broker entails a small fee that will be added to the investment amount.

You may prefer to invest in mutual funds from the comfort and privacy of your own home too. Here are some of the most preferred methods.

Official Website

You will be able to begin investments at the earliest by visiting the website of the concerned fund house. Read through the directions and do accordingly.

You should upload the necessary documents for completing the e-KYC formalities. The details will be verified within seconds allowing you to begin investing almost immediately.

App

You do not need to spend time on your computer when trying to invest in mutual funds. The fund houses have simplified the process further by offering Apps that can be downloaded to a mobile phone or handheld device.

You can buy and sell units and check the current status of your investments via the App. You may also opt to use an app with a unified platform catering to mutual funds provided by multiple houses.

Varieties of Mutual Funds

Fund houses classify mutual funds according to their structure, nature, and investment goals. Each classification can be further divided into subcategories. You may feel utterly confused when obtaining such information.

The types of mutual funds that are popular today include:-

  • Equity Funds:- The money is invested in equity shares over medium to long term. Known as growth funds, the risks for such investments are relatively high.

  • Debt Funds:- This is a relatively low-risk or risk-free investment that provides a steady income. The money is usually invested in debentures, government securities, commercial papers, and corporate bonds.

  • Balanced Funds:- These funds are a mixture of growth and debt funds from the balanced fund that provide the best of both worlds for the investor.

    You can thus expect a steady income coupled with increased funds. This will be effective for you when you are prepared to take moderate risks over a long period.

  • Tax Saving Funds:- You can grow the capital by opting for this type of fund and save taxes. You will obtain a tax rebate as Section 80C of the Income Tax Act introduced in 1961.

  • Exchange:-Traded Funds (ETFs)- You can trade in stocks covering various assets by investing in this type of mutual fund. The fund manager will be able to buy and sell foreign currency, gold bars, bonds, and oil futures on the stock market throughout the day and earn a good return on your behalf.

  • Open-ended Plans:- You can enter and exit the stock market at will while the fund manager trades in units. The Net Asset Value (NAV) is considered when buying and selling fund units.

  • Close-ended Plans:- Your manager will purchase a limited number of units in this plan. You are not permitted to exit the plan before the scheme ends.

Why Invest in Mutual Funds?

Apart from gaining a sizable sum by making small investments, mutual funds can provide you with multiple tools to grow your investments effectively.

Some of the additional benefits that will obtain include:-

  • Professional Management:- The fund managers will manage your investments perfectly saving you many anxiety-riddled hours. They will not only identify the right funds for you.
     
    But will also buy and sell units to generate a good return for your investment. You can receive information about an upcoming scheme so that you face no difficulties when it is time to make a decision.

  • Higher ROI:- Mutual funds provide better returns compared to fixed deposits, recurring deposits, and other investment products. You may choose according to the risk factor, with both low and high-risk funds being available to the investors.

  • Diversification:- Your portfolio will be effectively balanced when you simultaneously invest in multiple mutual funds. Your returns will be assured, and you will always get a good return despite some of the stocks not performing well.

    The fund manager will balance the portfolio to make it profitable despite the market conditions.

  • Low Cost:- Invest as little as Rs. 5000 as a lumpsum and earn a good return via mutual funds. Alternatively, you can also make a monthly investment by sparing Rs 500 every month. There is a commission to be paid when you decide in favor of the Direct Plan.

Considerations for a First Time Investor

A first-time investor would be lost at the thought of buying stocks and trading on the share market. There is nothing to worry about. Your portfolio will be managed entirely by the fund manager.

And you will not have to be actively involved. However, please consider the following carefully when you hope to accumulate a good sum of money over time:

  • Have an objective in mind.

  • Select the right type of fund.

  • Compare available funds and pick one with impressive performance.

  • Diversify the portfolio by adding a mix of low and high-risk funds so that your finances do not go below a certain level at any time.

  • Opt for a monthly SIP so that the investment evens out with your fund manager being free to buy the profitable units. You will be able to benefit over a long period as the investments are spread out to ensure maximum returns.

  • Have the KYC documents handy and make sure to keep your mutual fund account updated to remain compliant with the government rules.

  • It helps to have a net banking account as it helps you in SIP payments every month.

Mutual Funds Investment Costs

  • The fund value is calculated carefully by the “Asset Management Company (AMC)” at the end of each day.
  • The calculation is based on the Net Asset Value (NAV).
  • An expense ratio will be charged as an administration fee of the AMC.
  • The distribution charges incurred by the AMC will be passed to the investor in the form of sales charges or loads.

It is important to go through the fine print of the document to understand the associated costs that may reduce the ROI considerably.

Conclusion

Mutual funds are professional investment funds that are managed by AMCs. It is important to remain aware of the facts before deciding to invest in mutual funds in the hope of high ROI.

I hope you liked our article on how to invest in mutual funds in India, if you have any comments or suggestions do share them in the comments below. 

Frequently Asked Questions

1. How can I invest in mutual in India?

Get in touch with one of the reputed Asset Management Companies and request information. You are free to invest either offline or online as per your convenience. Check out the pros and cons before going ahead with the process.

2. Can I invest 500 rupees in SIP?

Yes! You are welcome to make a systematic investment of Rs 500 every month and have fund units allotted to you. The investment would be spread out evenly, thus ensuring higher returns. You will also have disciplined and regular savings.

3. Which is the best mutual fund in India?

You cannot decide on the best mutual fund. Instead, check the types, the associated risks, and the performance for the last few months before investing.

Quant Small Cap Fund-Growth Option Direct Plan, ICICI Prudential Technology Fund Direct Plan-Growth, and Aditya Birla Sun Life Digital India Fund Growth have been performing well recently.

4. What are types of mutual funds?

There are many types of mutual funds. However, you may invest in Equity funds, debt funds, or hybrid funds as per your ability for withstanding risks. Find out about Money Market Funds or Capital Market, if you are interested in the short term, secure returns.

5. Is a mutual fund safe?

It is a safe financial tool that will help you to grow your wealth over a period. Remember to inquire about the pros & cons of each fund before investing in it. There may be short-term fluctuations observed, but that is sure to become stable over time.

Ankur Aggarwal

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About the Author

Hi all, I am Ankur Aggarwal – Digital Marketer, Entrepreneur, Traveller, Blogger, and Foodie. Have been blogging since 2010. In 2016 I scored 99.2 percentile in XAT Exam for MBA, left that to pursue my Online business dreams.
The purpose of ankuraggarwal.in is to pass on 100% accurate, genuine and FREE information on Personal Finance, Entrepreneurship, Investing, Career, and Learning Digital Marketing Online. Know more about me here: About Ankur Aggarwal

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