All you need to know about Mutual Fund Investment

Mutual funds can be confusing and intimidating to most people. We’ll try to make it simple and clear for you at a very basic level. Actually, mutual funds are created only when the funds of many investors are deposited. Fund managers are appointed to manage this fund.

It is a trust that collects funds from a large number of investors who have a common objective. Thereafter, the amount invests in various options such as equities, bonds, money market instruments, and/or other securities. Each investor owns units that represent a portion of the fund’s ownership. The income/profit generated from this collective investment is distributed among the investors in the right proportion, after computing the ‘Net Asset Value or NAV of the scheme, some expenses are also deducted from that amount. Simply put, mutual funds are the most viable option for a common man, which provide him an opportunity to invest in a variety of securities managed by a professional, and the cost of which is also relatively low.

How can I invest directly in Mutual Funds?

If your KYC has been completed then you can invest in mutual funds directly offline or online. If you feel uncomfortable in transacting online, you can invest in the fund by visiting the nearest branch.

Online is the easiest way to invest directly in mutual fund schemes and you don’t even have to pay a commission. You can invest online through the fund’s website or its RTA site or through its fintech platform. Investing directly on the fund’s website requires you to manage multiple logins.

Investing in a direct plan means that you take on the responsibility of creating a financial plan, choosing the best funds for your goal, managing your portfolio regularly, and making adjustments when needed. Not everyone knows how to choose the right fund and manage the portfolio in mutual funds. So the direct plan is for those investors who can do it easily. Otherwise, people who are less knowledgeable about mutual funds are advised to invest through a distributor.

How do I know which fund is right for me?

Once the investor decides to invest in a mutual fund, he has to decide on the scheme – Fixed Income, Equity, or Balanced and also decide which Asset Management Company (AMC) to invest with.

First of all, freely discuss with your advisor your investment objective, investment horizon, and risk tolerance.

The decision to choose the fund to invest in will depend on this information.

Equity or balanced funds would be ideal if you have a long-term objective – like retirement planning and are willing to take some risk. So a liquid fund would be ideal.

If the idea is to generate regular income, a monthly income plan or an income fund would be recommended.

After deciding on the type of fund to invest in, decide on the particular scheme of an AMC Will happen. These decisions are generally taken keeping in view the track record of the AMC, suitability of the scheme, portfolio details, etc.

Scheme Factsheet and Key Information Memorandum are the two documents that every investor needs to see before investing. If one needs detailed information then he/she should refer to the scheme information document. All these are easily available on the site of each mutual fund.


There are many options available in equity schemes of mutual funds like index funds, diversified funds, large-cap funds, mid-cap schemes, and tax-saving schemes. Investors can choose the plan that best suits the investment objectives and goals.

Index plan

Investors who do not want a call for a particular stock can invest in an index-based scheme i.e. index scheme as the indexing scheme invests only in those particular stocks which are part of a particular index. If the index goes up, the investors are in profit.

Large Cap and Mid Cap

People with a high-risk appetite can opt for small or mid-cap schemes. This scheme invests in small and medium companies with good potential. These are high in risk but have the potential to deliver high returns. Long-term investment in the stock market is profitable and short-term investors are at high risk. Large-cap mutual funds invest in the stock of a bluechip company. Investing in these is considered safe. This happens because information about them is available everywhere. Mid-cap mutual funds invest in medium and small-sized companies.

Balanced fund

Balanced funds are called hybrid funds. These are common stock, preferred stock, bonds, and short-term bonds. These funds are profitable as they also reduce the risk factor and ensure the safety of the capital to a great extent.

Growth fund

Efforts are made to get maximum benefit with the help of the Growth Fund. These are invested in companies that make rapid progress in the market. One invests in these funds for high returns and hence the risk is high.

Dividend fund

If an investor invests in Dividend Fund. So the dividend was given by the companies from time to time also keeps on getting to the investor. This cash amount is deposited in the account of the investor.

Value fund

These are funds that give preference to safety. There is relatively little profit in them, but the potential for loss is very low.

Money Market Fund

Money markets are generally considered the safest funds. Their main objective is to keep the invested capital safe.

Mutual Fund Investment

It is said that no one should measure the depth of the water with both his feet. Similarly, fueled by any market rally, a first-time investor should not invest heavily in the equity segment of Mutual Funds (MFs). Investing in mutual funds demands patience and a better understanding of risk. However, considering the plethora of investment options in mutual funds and the current market conditions, choosing the right fund is not easy. Still, if you keep in mind some basic precautions related to investing in mutual funds, then you will not incur losses.

First-time investors usually start equity investments in a high market, but by that time the existing investors have already made a substantial amount of money. Experienced investors usually invest when the market is weak. First-time investors do not know about this. Therefore, while investing in the equity market for the first time, investors should take a cautious approach by investing in low-risk funds. Along with this, investors should also try to understand the ups and downs of the market. It is important for a first-time investor to keep these things in mind while investing in equity-oriented funds.

Never invest large sums of money at once.

An investor should avoid investing large sums of money in equities all at once. This is because a fall in the market can create problems for you. First-time investors do not understand the ups and downs of the market. In such a situation, they get nervous when there is little loss. In this panic, new investors often decide to withdraw their money, due to which they have to bear the loss. Hence, it is always advisable to invest in equity-oriented funds through a Systematic Investment Plan (SIP).

Invest in low-risk funds

To get accustomed to market volatility, it is better for first-time investors to go for balanced funds rather than high-risk pure equity funds. New investors should invest in such funds where the risk is low or may not be high. Such funds tend to have less volatility during market volatility than pure equity funds. This does not create a panic situation for new investors. With this, new investors can stay in the market for a long time and understand the ups and downs of the market. Hence, instead of starting with high-risk pure equity funds, it is better to invest in funds that are comparatively less risky.

Do financial planning before investing.

If an investor starts investing in equity-oriented funds to achieve long-term goals through proper financial planning, the chances increase that the investor will stay in the market for a longer period of time. Investors looking to invest for long-term goals tend to ignore minor fluctuations in the market. On the other hand, new investors who invest in order to get instant returns, get scared of market fluctuations and withdraw their money immediately. Hence, it is better to do financial planning before investing in which category of funds to decide how much to invest.

5 Big Benefits of Mutual Funds

  • You can start investing with Rs 100
  • Investment option in each asset class
  • The process of investing in mutual funds is very simple
  • Investor gets expert advice
  • digital payment option
  • Know your investment of Rs 1-1

History of Mutual Funds

India’s first mutual fund came in the form of Unit Trust of India in 1963. In the era of liberalization, the government allowed public sector banks and institutions to bring mutual funds. In 1992, SEBI passed a bill under which investors’ money in the market should be protected and the security market should be controlled. As far as mutual funds are concerned, SEBI notified regulations regarding mutual funds in 1993. Since then, private sector companies have been allowed to enter mutual funds. SEBI from time to time makes rules to protect the money of investors and issues various guidelines.

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