Mutual Funds Investment Guide – Step by Step

Investing to build wealth is very important to grow rich and a simple and easy way of getting started with that is mutual funds.

Mutual Fund provides you flexibility of using your money to make more money which builds your wealth over time.

Investing in Mutual funds is a very lucrative option, especially for those who do not know anything about stocks as Mutual funds are managed by professionals. It does not require any insights into the market or an understanding of the complex charts and patterns.

Here in this guide, we will dwell deep into the Mutual Funds Investment Guide, Types of Mutual Funds, and much more.

But first, let’s start with understanding what is Mutual Funds.

What is a Mutual Fund?

A Mutual Fund is a fund professionally managed by a fund manager who pools money from various investors and invests the money into a portfolio of stocks to make a profit out of the investment.

Here, instead of a single investor investing his money into the stock, a professional fund manager manages the funds of various investors and tries to outplay the market to maximize the profit.

For this service, mutual fund companies charge a small fee from the investors and provide a stress-free and easy-to-use service.

Types of Mutual Funds

The following are the types of Mutual Funds available for the investor to invest his/her money into-

Equity Funds

Equity Funds are those funds that primarily invest in the stock/share market of listed companies. These funds offer a high rate of return but the risk of investing in these funds is high as well.

Debt Funds

Debt Funds are debt-based mutual funds which are in the form of securities or bonds. Both Government and Public companies get their bond floated in a free market for the investors to invest. The risk here is low and the return is fixed in the form of interest payments.  

Balanced Funds

Mutual funds that have a balanced approach to investing Equity, as well as Debt funds, are known as balanced funds. They aim to provide diversification and manage risk.

Money Market Funds

A Money Market is a market where currency bonds, currency, etc. are traded. Mutual fund dealing with the money market offers stability and low risk along with liquid option for the investor.

Sector Based Funds

Mutual Fund which focuses on a specific sector in the stock market is considered sector-based Mutual Funds. You can have Mutual Fund sectors like Healthcare, digital, etc. as some of the areas of investment.

ELSS Tax Saving Funds

Equity Linked Savings Scene is a tax savings Mutual Fund scheme that offers tax savings benefits up to 1.5 lakhs as per the Income-tax Act, Section 80C.

Global Funds

Global Mutual Funds invests in global stock markets outside of India providing benefits to the investors of major markets across the world.

Getting Started with Mutual Fund

Mutual funds are an amazing option for those who do not know anything about investing in the stock market.

Here is the detailed guide to getting started with Mutual Funds-

Open a Demat Account

For making any kind of investment in any form, you’ll need a Demat account. A Demat Account is a specialized account with digital repository benefits that keeps all the stocks, Mutual Funds, and other digital investments safe and secured in its repository.

It acts as a safe locker but a digital one and is provided by NSDL or CDSL. To open a Demat account, the following are the step-by-step instruction that you’ll have to follow-

• The very first step is to find a bank or an app where you can sign up for the services. Various startups have made signing up for the stock market easy like Zerodha, Paytm Money app, Groww, etc.
• If you have chosen a bank then you can visit the online form of the bank or in the case of the app, just download the app from the Play Store or App store
• Both of these options require you to fill out a few important details like name, address, occupation, and bank account details like Bank IFSC Code, PAN Card Number, Aadhaar card number, etc.
• After filling out these details, you are also required to perform an eKYC by providing your documents and pic as proof of KYC
• After KYC is done, you’ll be onboarded with the service and your Demat account will be activated which will be connected to your stock broker app  

Documents Required for Opening Demat Account

The following are the documents required for opening a Demat Account-

• Application Form
• Proof of Identity- Aadhaar Card, PAN Card, etc.
• Proof of Address- Aadhaar Card, Driving license, Passport, Voter’s ID card, etc.
• Cheque for SIP or lump sum amount

Start Investing

Now that your Demat account and stockbroker are decided and done, all you have to do is find the best Mutual Fund and start investing.

Although, Mutual funds do not require a deep understanding of the stock market if you have a basic understanding then investing in the stock market will become easy, fast, and profitable for you.

Here are some of the tips that you can use for finding the best Mutual Fund.

Tips for Choosing the Best Mutual Funds

The following are the tips that can help you in choosing the best Mutual Funds for your portfolio-

• Set a Financial goal with realistic expectations and do the math of the profit that you can earn based on the forecast that the Mutual Fund shows
• Evaluate the risk involved based on the portfolio of the Mutual Funds and the past record of the Fund manager. The reputation of the Fund manager is very important when it comes to Mutual Fund
• Find out about fees which you’ll have to pay for the services you are getting
• Determine payment frequency- one-time or in SIP format

SIP vs One-time Payment

SIP stands for Systematic Investment Plan, which is nothing but a regular investment into the Mutual Fund. You have an option to invest in a Mutual Fund in two ways- SIP or One-Time Payment.

Both have benefits and depend on the financial goals of the individual. Here is a detailed comparison of SIP and One-Time Payment for Mutual Funds-

Systematic Investment Plan (SIP)	One-Time Payment
Investment through SIP is least affected by market volatility reducing the cost average for the Mutual Fund plan	One-time payment is for those who are aware of the market situation and want to invest strategically which increases the risk factor
Regular SIP payments bring investing discipline to your habit	One-time payment is a one-time payment of the funds for purchasing the Mutual Fund
With SIP, you can start investing with as low as Rs.500 in Mutual Funds	For Lumpsum payment, there is a fixed amount that has to be paid to get started with Mutual Funds
SIP can spread your risk throughout the Mutual Fund term reducing the risk	Lumpsum payment increases the risk by freezing the time of purchase of the Mutual fund hence increasing the risk
SIP also tends to average out the profit hence giving you steady growth of the plan	Lumpsum payment for Mutual Funds may increase your profits exponentially if your timing of the investment is right

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