Mutual Funds for Beginners – How to Invest in mutual funds – Investment Guide for 2021

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Mutual funds investment may seem complicated for first-time investors as it can be confusing at times. Understanding how mutual funds work is the first step in your investment journey.

You can invest as low as Rs 500 in a mutual fund through SIP, which may not be possible with most other investment options. There are several mutual funds available, and you may invest in funds whose investment objectives and risk levels are in sync with your risk profile.

How do Mutual Funds work

A mutual fund is formed when an asset management company (AMC) pools investments from various individuals and institutional investors with common investment objectives. A fund manager professionally manages the pooled investment by strategically investing in securities to generate maximum returns for the investors in line with the investment objectives of the fund.

Fund managers are professionals with an excellent track record of managing investments and have an in-depth understanding of markets. The fund houses charge an expense ratio, which is the annual fee to manage the mutual fund.

The investors make money through regular dividends/interest and capital appreciation. They can either choose to reinvest the capital gains via a growth option or earn a steady income by way of a dividend option. Click here to understand the most commonly used terms in the mutual fund industry.

Why should you invest in Mutual Funds

Convenience

Investing in Mutual Funds is a paperless and straightforward process. Investors can monitor the market and make investments as per their requirements. Moreover, switching between mutual fund schemes and portfolio rebalancing helps to keep returns in line with expectations.

Low initial investment

You can build a diversified mutual fund portfolio by investing as low as Rs 500 a month through SIP in mutual fund schemes of your choice. You also have the option to invest either as a lump sum or a systematic investment plan (SIP). However, when compared to lump sum investments, a SIP is capable of lowering the overall cost of investment while unleashing the power of compounding benefit.

Tax-saving

You get tax deductions under Section 80C of the IT, Act up to a maximum of Rs 1.5 lakh per financial year, for specific financial instruments, and tax-saving mutual funds are one of them. Equity Linked Savings Scheme (ELSS) has become a popular tax-saving option for Indians in the last few years, owing to its higher returns and the shortest lock-in period of three years among all Section 80C options.

Professional fund management

Your mutual fund investments are managed by a professional fund manager who is backed by a team of researchers. The fund manager formulates the investment strategy for your asset allocation. The team of researchers picks suitable securities as per the fund’s investment objectives.

Things to Consider as a First Time Investor

Fix an investment goal

Defining your financial goals, budget, and time horizon plays a significant role in your investments. Doing this will help you decide how much you can set aside towards investing and you must also invest based on your risk profile. Investment always works best when done with a purpose.

Choose the right fund type

It takes more than reading about different mutual fund types to decide on the right category. Experts typically recommend a balanced or debt fund for first-time investors as it comes with minimal risks while offering steady returns.

Shortlist and choose one mutual fund

With a plethora of mutual fund schemes in each category, you need to analyse and compare them to pick the right investment. Investors should not ignore factors such as the fund manager’s credentials, expense ratio, portfolio components, and assets under management.

Diversify your portfolio

Consider investing in more than one mutual fund to diversify your portfolio and earn risk-adjusted returns. A portfolio of funds will help you diversify across asset classes and investment styles. It will also even out risks – when one mutual fund underperforms, as the other funds makes up for the loss maintaining the value of your portfolio. Read here to know more about building a portfolio.

Go for SIPs instead of lump-sum investments

Investing via systematic investment plans (SIP) is advisable for those investing in equity instruments for the first time. While a lump sum investment can put you at the risk of catching a stock market peak, SIP allows you to spread your investments over time and invest across market levels. The benefit of rupee cost averaging that comes with SIPs also helps you average out the cost of your investment and earn higher returns over the long-term.

Keep KYC documents updated

You cannot invest in a mutual fund if you have not completed the Know Your Customer (KYC) process. KYC is a government regulation for most financial transactions in India to identify the source of funds and prevent money laundering. To become KYC-compliant, you need a PAN card and valid address proof. ClearTax helps you there.

Open a Net Banking Account

To invest in mutual funds, you must activate internet banking on your bank account. Mutual funds also allow investments to be made through debit cards and cheques, but doing it via net banking is a more straightforward, fast and secure process to make investments.

Seek advice from a financial advisor

The entire process of investing in a mutual fund can be tedious and overwhelming. With thousands of mutual funds to choose from, the performance of the funds also has to be monitored. Get the services of a mutual fund expert or distributor, if you find choosing the right mutual funds a herculean task

How to Invest in Mutual Funds

You can invest in mutual funds in a paperless and hassle-free manner at ClearTax. Follow these simple steps to start your investment journey right away:

  • Step 1: Log on to cleartax.in and create an investment account
  • Step 2: Enter all the requested details
  • Step 3: Get your e-KYC done, the whole process can be completed in 5 minutes
  • Step 4: Invest in the right mutual fund

Frequently Asked Questions

How to invest in mutual funds in India?

You can invest in mutual funds directly with the asset management company (AMC) through the direct plan. You must complete your KYC at a KRA (KYC Registration Agency) online by filling the KYC registration form and uploading the self-attested identity proof such as PAN Card and address proof such as Passport/Driving License/Voter ID and also a passport size photograph. You will also have to complete the IPV (In-Person Verification) by SEBI-approved agencies.

You may also invest in mutual funds through a mutual fund distributor by opting for a regular plan. The mutual fund house would pay a commission to the mutual fund distributor or the intermediary. You may invest in mutual funds offline by visiting the mutual fund house and filling up the application form and submitting documents for KYC compliance.

How to invest in mutual funds online in India?

You may invest directly with the mutual fund house through the direct plan. You just have to visit the website of the mutual fund house and fill up your relevant details such as name, email id, mobile number and bank details.

You may complete the KYC online through eKYC where you enter the Aadhaar and PAN details. Your information would be verified at the backend and you may start investing in mutual funds after transferring money online from your bank account.

You may also invest through an online platform such as cleartax invest

  • You must log on to cleartax invest
  • You then select the mutual fund house from the list of fund houses
  • Pick the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • You must select the amount you plan to invest in the mutual fund scheme and the mode as either One Time or Monthly SIP.
  • You must fill up the requisite details such as name, email ID, mobile number and complete the transaction.
How to invest in mutual funds for beginners in India?

You must choose the appropriate mutual fund scheme based on investment objectives and risk tolerance if you are a beginner in mutual funds. You may invest in mutual funds online or offline at your convenience.

You may invest in mutual funds offline in a direct plan of a mutual fund scheme by visiting the branch of the mutual fund house. You can also invest in a regular plan through a mutual fund distributor.

You may invest in direct plans of mutual funds online by visiting the website of a fund house. You may complete your eKYC (Know Your Customer) compliance by submitting Aadhaar and PAN details and then invest in the mutual fund scheme of your choice. You could complete your KYC at a KRA (KYC Registration Agency) before investing in mutual funds.

How to invest in mutual funds without a Demat account?

You may invest in mutual funds directly with the mutual fund house by visiting the branch of the AMC. You just have to fill up the mutual fund application form and submit the self-attested identity and address proof for KYC compliance.

You may submit the cheque for the initial amount and you are allotted a PIN and folio number. You can also approach a mutual fund distributor and invest in the regular plan of the mutual fund.

You may invest in a direct plan of a mutual fund online through an AMC. You must fill up the registration form and complete your eKYC by submitting PAN and Aadhaar details. You may also invest through an online portal such as cleartax invest.

How to invest in mutual funds directly?

You may invest in mutual funds directly by visiting the branch office of the mutual fund house. You must submit your self-attested identity and address proof along with the filled mutual fund application form and passport size photographs for KYC compliance. Make a cheque for the first investment and invest in the mutual fund scheme of your choice.

How to invest in direct mutual funds online in India?

You may invest in direct mutual funds online by visiting the website of the mutual fund house. You may fill in the mutual fund application form and complete your eKYC by submitting your PAN and Aadhaar details.

The AMC would verify your details and you may invest through your online bank account. You may invest in direct mutual funds online in India through online portals such as cleartax invest.

How much to invest in mutual funds per month?

You may invest in a mutual fund scheme through a systematic investment plan or SIP. It is a method of investing in a mutual fund where you invest a fixed amount regularly in a mutual fund scheme of your choice. You may invest as low as Rs 500 per instalment through the SIP in the mutual fund scheme of your choice.

How to invest in mutual funds without a broker?

You may invest in a direct plan of a mutual fund either offline or online directly through the asset management company or AMC. You may visit the branch of the fund house and fill up the mutual fund application form and submit the self-attested identity and address proof along with a passport size photograph to complete your KYC.

You may invest in a direct plan of a mutual fund online by visiting the website of the AMC. You may fill the mutual fund application form with required details such as name, bank details and complete your eKYC by uploading your PAN and Aadhaar details. You may invest in mutual funds through your online bank account.

You may invest in mutual funds through an online portal such as cleartax invest.

  • Log on to cleartax invest
  • Select the mutual fund house from the list of fund houses
  • Pick the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the mutual fund scheme and the mode as either One Time or Monthly SIP.
How to invest in equity mutual funds?

You may invest in a direct plan of an equity fund directly through the asset management company (AMC). You may visit the branch of the fund house and fill up the mutual fund application with required details such as name, mobile number and bank details.

Complete your KYC by submitting the self-attested identity and address proof and submit passport size photographs. You may submit the cheque for the initial amount and you are allotted a PIN and folio number. You can also approach a mutual fund distributor and invest in the regular plan of the mutual fund.

You may invest in equity funds online by visiting the website of the mutual fund house. You may fill in the application form online and complete eKYC by uploading PAN and Aadhaar details. Start investing in the mutual fund scheme with your online bank account.

You may invest in equity mutual funds directly through an online portal such as cleartax invest.

How to invest in mutual funds through SIP online?
  • You must first complete your KYC before investing in a mutual fund.
  • You may do so at a KRA (KYC Registration Agency) online by filling the KYC registration form and submitting the self-attested identity and address proof.
  • You then visit the website of the fund house and choose the mutual fund scheme of your choice.
  • You may fill an application form with required details such as name, mobile number, PAN and create a username and password.
  • You then enter your bank account details and set up the SIP auto-debit amount.
  • You may log on to your account created at the fund house and choose the mutual fund scheme.
  • You must make the first SIP instalment online and the next instalment after 30 days for monthly SIPs. (The AMC will intimate you on the requisite date).
  • You may continue the SIP till the end of the chosen tenure. (You may decide the tenure of the SIP).
What are mutual funds and how to invest in them?

Mutual funds are professionally managed investment where the money is pooled by several investors and used to purchase securities. It may invest your money in equity, debt or a mix of both equity and fixed income instruments depending on the type of mutual fund.

You may invest in the direct plan of mutual funds directly through the AMC both offline and online. You may also invest in mutual funds through a mutual fund distributor.

How to invest in US mutual funds in India?

You may invest in US mutual funds through fund of funds (FoFs) schemes with a mutual fund house in India. It is an Indian mutual fund scheme that invests in US-based equity mutual funds.

However, they have a higher expense ratio as compared to most equity schemes. You may also invest in Indian equity schemes whose portfolio mimics a US stock market index such as S&P 500 or the Nasdaq 100.

You may invest in these fund of funds schemes through an asset management company in India. You could consider completing your KYC before investing in US mutual funds from India.

How to invest a lump sum in mutual funds?

You may invest a lump sum amount in a mutual fund through a direct plan with the asset management company. You could opt for the offline or online mode of investment. You must complete your KYC by submitting a self-attested identity and address proof along with passport size photographs at the branch of the mutual fund house.

You could invest a lump sum amount in mutual funds through an online platform such as cleartax invest. You just have to log on to cleartax invest and select the mutual fund house and the scheme. You then select the amount and the mode of investment as One Time if you want to put a lump sum amount in a mutual fund.

How to invest in mutual funds through a Demat account?

You may invest in mutual funds through a Demat account with your stock broker or through any depository participant. The mutual fund units would be held in the dematerialised form. You can buy and sell mutual fund schemes through your Demat account just like shares. It is a dematerialised account that can hold stocks, mutual funds and other securities.

  • Open a Demat and trading account with a stockbroker
  • You can buy and sell units of mutual fund schemes
  • However, charges are higher as compared to other modes of investing in mutual funds.
How to invest in debt mutual funds?

You may invest in direct plans of debt funds through an AMC. You could visit their branch office and fill the application form. You then complete the KYC by submitting the self-attested identity and address proof and passport size photographs.

You may invest in direct plans of debt mutual funds online by visiting the website of the AMC.

  • Create an account with the AMC
  • Complete your eKYC by submitting PAN and Aadhaar details
  • Specify the amount you want to invest and the frequency of your investment
  • You may give online instructions to your bank to transfer the requisite amount to the fund house on a specified date.

You may invest in debt funds through an online platform such as cleartax invest. You have to log on to cleartax invest and pick the mutual fund house and the debt scheme. You then select the amount and the mode of investment as One Time or SIP to commence investing in the debt fund.

How to invest in ELSS online?

You may invest in regular plans of ELSS through a mutual fund distributor. You can invest in the direct plan of the ELSS mutual fund online directly with an AMC. You must create an account with the AMC. Fill up the mutual fund application form with personal details such as name, mobile name and so on.

You may complete your eKYC by submitting your PAN and Aadhaar details. You may give online instructions to your bank to transfer the requisite amount to the fund house on a specified date and start investing in the ELSS mutual fund.

You may invest in ELSS mutual funds online through online platforms such as cleartax invest.

  • Log on to cleartax invest
  • You must pick the mutual fund house from the list of fund houses
  • Select the ELSS based on your investment objectives and risk tolerance and click on Invest now
  • Fill in the amount you plan to invest in the ELSS and the mode as either One Time or Monthly SIP.
How to invest Rs 500 in mutual funds?

You may invest in direct plans of mutual funds either online or offline. You must complete your KYC before investing in mutual funds. However, you may invest in regular plans of mutual funds through a mutual fund distributor.

You may consider investing just Rs 500 per instalment in a SIP of a mutual fund. It is a method of investing regularly in a mutual fund scheme of your choice.

How to invest in large-cap mutual funds?

You may invest in direct plans of large-cap mutual funds either offline or online by investing directly with the AMC. Complete your KYC by submitting self-attested identity and address proofs or eKYC for online mode. You could invest in regular plans of large-cap mutual funds through a mutual fund distributor.

You may invest in large-cap funds through online platforms such as cleartax invest.

  • Log on to cleartax invest.
  • You must opt for the mutual fund house from the list of fund houses
  • Select the large-cap mutual fund based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the large-cap fund and the mode as either One Time or Monthly SIP.
How to invest 1 crore in mutual funds?

You may invest Rs 1 crore in a direct plan of a mutual fund. You may invest online or offline directly with the AMC. However, you must complete your KYC before investing Rs 1 crore in the mutual fund.

You may invest Rs 1 crore in mutual funds through an online platform such as cleartax invest. You just have to log on to cleartax invest and select the mutual fund house and the mutual fund scheme. You then select the amount and the mode of investment as One Time if you want to put a lump sum amount in a mutual fund.

However, it would be prudent to invest in mutual funds through SIP instead of putting Rs 1 crore through a one-time investment. It is a method of investing small amounts regularly in a mutual fund scheme of your choice.

How to invest in money market mutual funds in India?

You may invest in direct plans of money market mutual funds either offline or online by investing directly with the AMC. You must complete your KYC by submitting self-attested identity and address proofs. You must complete eKYC for the online mode of investing in money market mutual funds by submitting PAN and Aadhaar details. You could invest in regular plans of money market funds through a mutual fund distributor.

You may invest in money market mutual funds through online platforms such as cleartax invest.

  • Log on to cleartax invest.
  • You must opt for the mutual fund house from the list of fund houses
  • Select the money market mutual fund from the category of debt funds based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the money market mutual fund and the mode as either One Time or Monthly SIP.
How to invest in STP mutual funds?

A systematic transfer plan or STP allows you to periodically transfer (switch) a certain amount of units from one mutual fund scheme to another mutual fund scheme of the same mutual fund house. You may consider an STP from an equity scheme or debt scheme or vice versa depending on the market conditions.

You may invest in STP in mutual funds through the following steps:

  • You may fill up your STP form and submit it at the office of the AMC. You could fill this form online at the website of the mutual fund house.
  • Select the mutual fund scheme (destination fund) where you intend to invest for the long term.
  • You may then select the mutual fund scheme (source fund) where you want to invest the lump sum amount.
  • You may choose the time frame from where the lump sum amount invested may be moved to the destination fund. You can opt for daily, weekly or monthly STPs according to your convenience.
How much money do you need to invest in mutual funds?

A systematic Investment Plan or SIP is a method of investing in mutual funds. You may invest a fixed amount regularly in a mutual fund scheme of your choice. You can invest just Rs 500 per instalment in a mutual fund through the SIP.

How to invest in mutual funds in the name of minors?

You can invest in mutual funds in the name of a minor child. The minor child is the sole holder of the mutual fund folio. The guardian for the mutual fund folio must be a parent or a court-appointed guardian.

  • You may approach the branch of an AMC.
  • Submit documents showing the child’s date of birth such as passport or birth certificate while opening a mutual fund folio. You also need documents to establish the relationship between the minor child and the parent/guardian. (For a parent it could be the passport and for the guardian, it is the copy of the court order)
  • The parent/guardian must be KYC-compliant to invest in mutual funds in the name of a minor child
  • You can even register a SIP or STP instruction in the mutual fund folio of a minor child. However, it would cease once the minor child turns 18 years of age.
How to invest in mutual funds for the short term?

You may consider investing in mutual funds depending on investment objectives and risk tolerance. Invest in debt funds to meet your short-term financial goals. You can invest offline or online in direct plans of debt mutual funds with the mutual fund house.

However, you may invest in regular plans of debt funds through a mutual fund distributor. You can invest in debt funds through an online platform such as cleartax invest.

How to invest Rs 10,000 in mutual funds?

You can invest in mutual funds offline or online through a mutual fund house or an intermediary (broker). You may also invest in mutual funds through an online platform such as cleartax invest.

  • Log on to cleartax invest to put Rs 10,000 in mutual funds
  • You must opt for the mutual fund house from the list of fund houses
  • Select the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the mutual fund and the mode as One Time to invest Rs 10,000 in mutual funds.
How to invest in gold through mutual funds?

You may invest in Gold ETFs or gold funds either online or offline directly with a mutual fund house. You can also invest in these funds with the help of a mutual fund distributor.

However, you may consider investing in gold funds or gold ETFs through the SIP route. You may invest just Rs 500 per instalment. You can invest in Gold ETFs and gold funds through online platforms such as cleartax invest.

How to invest in mutual funds for retirement?

You may invest in equity funds or ELSS for retirement. You must invest in equity funds for the long-term to achieve long-term financial goals such as retirement planning.

You may invest in direct plans of equity funds and ELSS through an asset management company. However, you could consider investing through a broker for regular plans of these mutual funds. You could invest in equity funds and ELSS through online platforms such as cleartax invest.

How much to invest to get 3,00,000 in 3 years in mutual funds?

You may invest a lump sum amount in mutual funds or even through the SIP route. You can invest just Rs 500 per instalment in the mutual fund scheme of your choice through the SIP. Consider using ClearTax Mutual Fund Returns Calculator to determine how much to invest to get Rs 3,00,000 in 3 years.

How to invest in mutual funds in Canada?

You may consider investing in a fund of funds that puts money in Canadian mutual funds. You may approach a mutual fund house that offers the requisite facility.

How to invest in International Mutual Funds?

You may invest in International Mutual Funds directly through an AMC in India. It is an Indian mutual fund scheme that invests in stocks of foreign companies. However, you may consider the fund of funds schemes that invest in foreign mutual funds or whose portfolio mimics a stock market index such as the Nasdaq 100 or S&P 500.

You can invest in International Mutual Funds through an online platform such as cleartax invest.

  • Log on to Cleartax invest
  • You must opt for the mutual fund house from the list of fund houses
  • Select the International Mutual Fund under the category ‘Equity’ based on your investment objectives and risk tolerance and click on Invest now
  • Select the amount you plan to invest in the International mutual fund and the mode as One Time or SIP.
How to invest in mutual funds as a student?

You can easily invest in mutual funds if you are a student above 18 years of age. You may invest in direct plans of mutual funds through the AMC. You can also invest in regular plans of mutual funds through a broker.

However, you must complete your KYC by submitting a self-attested identity and address proof and passport size photographs at the branch of the mutual fund house. You may complete eKYC online by submitting your PAN and Aadhaar details before investing in mutual funds.

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Mutual Funds – What are Mutual Funds & Top 10 Mutual Funds to Invest

Mutual Fund Types – Types Based on Asset Class, Structure & Risk

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