A Beginner’s Guide to Investing in a Mutual Fund in 2024

Last Updated on 25/12/2023 by Deepak Singla

Do you find the word “investment” intimidating?

You are not alone.  Investment is still a word clouded in skepticism.  We often doubt about the safety of our invested money, the tenure of investment, the amount of return and so on.  Besides, the myths and misconceptions professed by non-investors only add to our confusion.

Though there are different forms of investments that people make to grow their wealth, investing in mutual funds is the safest and the most secure option of all.

So, if you want to grow your hard-earned money without starting a side business, investing in mutual funds would be your best bet. (Let me tell you here, starting a business is financially riskier than investing in a mutual fund!)

Year 2018 is around the corner and if making more money is there in the list of your New Year resolutions, Congrats! You are going to make this resolution a success and you will thank us later.

So, let’s just begin by answering why people feel intimidated by the thoughts of investing?

Ignorance is the answer!

Here, we will give you 4 most important reasons why you should invest in a mutual fund.

 1. A Perfect Balance Between Risk and Returns

When it comes to investing money, what bothers us the most is the risk? After all, it’s your hard-earned money so it’s natural for you to worry about its security while expecting timely and handsome returns for it.  In case of mutual funds, you can ward off your worries as the invested money is handled by professional fund managers.  Moreover, your asset is allocated among diverse funds which ensure a cushion of security against market fluctuations. So, in a nutshell, this reduces the risk associated with your return on investment.

2. Start Investing with Just Rs.500

The best part of mutual funds is that it suits every type of investors. So, do not regret if you cannot afford to invest in real estates, gold or in a new business venture, you still can make quite a handsome amount of money just by investing in a mutual fund. You can even start investing with as less as Rs.500 every month. This is the minimum amount to invest in mutual funds in India. Then, depending on your financial capacity, you can gradually increase the amount.  So, if you start early, and stay invested long-term while investing regularly, you can build a huge corpus just within a span of few years.

3. Set Investment Goals and Tenure that Suit You

In mutual funds, there are several schemes to choose from. The schemes provide different tenure and financial objectives. So, choose a scheme that is in line with your financial goals and save up to it accordingly. This will also help you get the money you need to full fill many of your dreams or future plans with your loved ones.

4. Money Doesn’t Get Locked Up in a Mutual Fund

Another best thing about mutual fund is that it keeps your money liquid. In other words, your invested money never gets locked up in a mutual fund, hence it is always accessible to you.  Your money grows based on your investment term (long-term or short-term).  Mutual funds are considered the most flexible form of investments and hence, you can redeem your investment completely or partially any time you want.

How to Invest in Mutual Funds in India

You don’t have to be an investment expert to start investing in a mutual fund. The following is a step by step guide for beginners on how to invest in a mutual fund in India.

Step One:   KYC Compliance

KYC compliance is a one-time process. It is the first and the most essential step to be KYC compliant as this would ensure the smooth functioning of your investment process. The filled-up application form, a copy of your PAN Card, proof of your address and a recent passport size photograph are the documents required at the time of KYC compliance.

Step Two:  The Right Asset Class

The second most important step after completing the KYC process is choosing the right asset class. There are mainly three types of asset classes namely stocks, bonds and balanced funds. Based on your risk appetite, you can choose to invest in any one of these three or in a combination of these asset classes.

Step Three: Funds Selection

This is of course one of the most important part while investing in mutual funds in India.  Choosing the right fund is necessary depending on your financial needs and goals. Also, compare various funds based on their market performance in the past few years.  Finally, select the fund that best suits your financial objectives.

Step Four: Asset Allocation and Diversification

If you want to keep your invested money secure against market volatility and still want to get good returns, you must not invest all your money in only one fund, no matter how good the performance record of that fund is. Always diversify your money among various funds with different risk profiles. This will keep your money safe and secure even for a long-term investment.

 Step Five: Keeping a Track and Staying Invested

When it comes to mutual fund, your investment is handled by top-notch financial advisors and asset managers. But still you should keep a track of your funds from time to time. One more important thing is that you must stay invested for the entire investment tenure. Investors often exit mid-way whenever there is a dip in the market. Due to this practice, they fail to meet their financial goals. So, while investing in a mutual fund, it is crucial to stay invested and keep investing regularly to see the growth of your wealth.

The Bottom Line!

Mutual fund is the easiest and the safest way to invest your money. So, if you are wondering when to start investing in a mutual fund in India, the best time is now. The earlier you start investing, the higher returns you will get. So, make it your new year’s resolution and start investing as early as possible.