How to Invest in Mutual Funds

Mutual funds investment has become a popular way to grow wealth. According to the news published by the Business Standard, “The mutual fund investor count, which stood at around 38 million in April 2023, has surged by 19 per cent in the past year, according to data from the Association of Mutual Funds in India.” This shows that more and more Indians are now investing in mutual funds. Are you somebody who hasn’t invested in mutual funds yet, or just started investing in them? If so, then this article titled ‘How to Invest in Mutual Funds’ is for you! 

What are Mutual Funds?

Mutual funds are one of the most common ways through which investors grow their wealth. To put it simply, they are an investment vehicle which enables investors to pool their money with other investors to mutually purchase stocks, bonds and other investments. 

Mutual funds are not managed by you directly. Professional fund managers manage them, and they decide which securities should be bought and when they should be sold. You get exposure to all the investments in the fund and any income generated by them. 

Things You Should Know About Mutual Funds Investment

Here are the top things you need to know about investing in mutual funds. By going through this crucial information, you can learn how to invest in mutual funds: 

Set an Investment Goal

When you invest in mutual funds, you must keep in mind your financial goals. Why do you want to invest in mutual funds? Is it to save up for a marriage, education abroad, for post-retirement life or to buy a house? Once you have set your financial goal,  you can invest your money in a mutual fund scheme accordingly. While some mutual fund schemes offer low risks and average returns, some mutual fund schemes offer high risks with high returns. Make sure you choose according to your risk appetite only.

Choose the Right Kind of Mutual Fund

There are various kinds of mutual funds, such as equity funds, debt funds, balanced funds, money market funds, gilt funds, liquid funds, tax-saving funds, pension funds, etc. You must choose the right mutual fund type, and for this, you must do some research of your own as well as speak with a mutual fund distributor for guidance. Generally, balanced or debt funds are a good choice for the first-time investors as they come with low risk and offer stable returns.

While shortlisting the mutual fund, take into account certain elements such as the fund manager’s experience and qualifications, expense ratio, portfolio components and AUM before you finalize on your investment decision.

Diversify Portfolio by Investing in Various Assets

After you invest in one mutual fund scheme, why not invest in another? You can get more returns this way. By investing in various assets, you can diversify your portfolio. The reason why diversifying your portfolio is a good idea is because when one mutual fund doesn’t perform well, the other mutual fund can make up for the loss and keep the value of your portfolio constant. As the saying goes, never put your eggs in one basket!

Invest in Mutual Funds through AMFI-registered Mutual Fund Distributor

Before you invest in mutual funds, make sure you do it through a mutual fund distributor who possesses a mutual fund distributor license from Association of Mutual Funds in India (AMFI). Get in touch with a MF distributor for investment advice and MF transactions, with no direct fee charged to investors. Distributors help the investors in assessing and selecting risk. Mutual fund products have different risk profiles and market risks, so make sure you’re aware of them before making up your mind.

Direct Investment with Asset Management Company

You have the option to invest directly with an Asset Management Company (AMC) by visiting their official online portals or office branch. If you are a new investor, you must submit all the necessary KYC documents.

Invest through SIP instead of Lump-sum Investment

If you’ve never explored the world of stock market as an investor, systematic investment plans (SIPs) can be a good way to do so. By choosing SIP, you do not have to invest your money at one go. You can do it in a periodic manner. What’s even better is that you can start a SIP for as less as Rs. 500 per month. By going for this method of investing in mutual funds, you have the advantage of rupee cost averaging, which lowers the investment cost and maximizes your long-term profits.

Are Mutual Fund Investments Safe?

When you invest in mutual funds, there’s always some risk involved, which can be low, medium, or high. If mutual funds investments are made carefully and correctly, they can provide good returns, keeping risk at a minimum, especially when compared with individual bonds, stocks or other securities. 

Mutual funds are especially a good investment choice for individuals who are not stock market pros, as these funds are managed by professional fund managers. There are certain mutual fund schemes that come with high-risks, high rewards. Your money might be put at high risk when you invest in such schemes. However, if things go well, high-risk schemes can produce high returns.

List of Banks Offering Mutual Funds

The following banks offer mutual fund services:

• ICICI Bank

• HDFC Bank

• IDFC First Bank

• Yes Bank

• Kotak Mahindra Bank

• SBI Bank

• Union Bank of India

• Bank of Baroda

• Federal Bank

• Axis Bank

• Canara Bank

• Bank of India

• Punjab National Bank

• Bandhan Bank

• IDBI Bank

• Tamilnad Mercantile Bank

• South Indian Bank

• DBS Bank

• Deutsche Bank of India

• AU Small Finance Bank

• Dhanlaxmi Bank 

Conclusion

In this article, we gave you an idea about how to invest in mutual funds. Whenever you invest in a MF scheme, make sure it aligns with your financial goals. Additionally, always keep in mind your risk tolerance while investing in such a scheme. With high risk, comes high reward. However, you must only invest in mutual funds based on your risk appetite. If your risk appetite is low, then you must go for a low risk mutual fund scheme offering stable returns. 

If you are interested in selling mutual fund schemes, obtaining a mutual fund distributor license from AMFI is mandatory. For assistance in obtaining this license, connect with Registrationwala.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.