Guide to Investing in Mutual Funds for Beginners

While the market is replete with innumerable financial instruments, mutual funds have always been a hit with newcomers ready to make their first investment. Their moderate risk-high reward ratio is one of the biggest reasons behind their growing popularity.

However, the market is a volatile entity, and as such your profits and losses can fluctuate. Thus, if you are a beginner in the arena, know all about this financial asset before you make your first investment.

Mutual fund basics

In a mutual fund scheme, different investors pool their money. What’s more, there are different types of fund schemes. One of the most popular types for long-term investments is a Systematic Investment Plan (SIP), meant for investors afraid to invest a lump sum at one go. Instead, SIPs allow you to invest at regular intervals. Thus, this investment avenue offers a simple yet disciplined way to save money.

Since the market is constantly changing, it is important to go slow and steady with your first investment. In fact, you can start investing in a scheme and build a portfolio with as little as Rs. 500. Always remember to compare different schemes before investing in a particular one. Not just returns, you must also take into consideration factors like the company’s reputation in the market.

Some commonly used terms

  • AMC – Asset Management Company, i.e. the fund house that runs the fund.
  • Asset Allocation Funds – Balanced funds that invest across various asset classes – gold, equity, debt, etc.
  • AUM – Asset Under Management, i.e. the entire fund amount that a scheme holds for every investment.
  • ELSS – Equity Linked Savings Scheme, also known as the tax savings fund. These funds are special and exempt from taxation under Section law 80C of the Income Tax.
  • ETF – Exchange Traded Funds, a type of mutual fund that can be traded on stock exchanges like shares.

Choosing the right fund

Choosing the right mutual fund online is crucial for your first investment. Don’t go after schemes with high returns and inflated risks; avoid high risks if you’ve just set out to invest since they can hinder your chances of earning a good return.

There are many things to consider before selecting a mutual fund scheme that is right for you. Comparing several schemes, their past performance, the fund house’s reputation, etc. are some of the factors to keep in mind before investing. In fact, the track record of the fund house will tell you a lot about its caliber and ability to beat the market.


Mutual funds are a good investment route to earn moderate to high returns, and in a disciplined manner. Make sure to choose one that offers the kind of returns you’re looking for and fulfils your investment needs.

With time, mutual funds investments have become easier and digital. Use new-age mobile applications that offer investments in attractive schemes, along with tailored financial products to suit the needs of each investor.