Mutual funds are gaining significant traction in India, as evidenced by the rising inflow numbers and increasing month-on-month SIP investments. While mutual funds offer transparency and professional management, the sheer number of options—44 AMCs and over 2,500 schemes—can make choosing the right one challenging. If you’re new to investing in mutual funds, you might wonder where to start.
This article will guide beginners on how to invest in mutual funds in India and provide a simple overview of mutual funds to help you get started.
What are Mutual Funds?
A mutual fund is a financial product regulated by SEBI, where an asset management company (AMC) collects money from investors, big or small, and invests it in things like stocks, bonds, and other assets. In return, investors receive units based on the amount they invest.
For beginners, mutual funds offer key advantages like transparency, expert management, and diversification, helping balance returns with risk. They are also flexible, allowing for easy entry and exit.
Even with just Rs 500 per month, one can invest in mutual funds through a lump sum or SIP. Mutual funds are managed by AMCs, with trustees ensuring the safety of investors’ interests.
How to Invest in Mutual Funds Online?
In India, making investments in Mutual Funds online is very simple. You just need to follow these simple steps:
1. Know Your Investment Goal
It is important to set your financial objectives before moving on to invest in mutual funds. Identify why you’re investing—whether for retirement, buying a house, a child’s education, or wealth creation.
Your investment horizon (short-term or long-term) will impact the type of mutual fund you choose. For example, equity funds are suitable for long-term goals, while debt funds might be better for short-term needs.
Clearly understanding your objectives will help align your investments with your financial expectations and risk tolerance.
2. Choose an Investment Distributor and Complete KYC
To start investing in mutual funds online, you need to choose an investment platform or distributor that suits your needs. Each platform allows you to easily browse, compare, and invest in different funds.
Various platforms like Moat Wealth also offer tools like SIP calculators and performance trackers to help you make informed decisions.
Once done, you need to finish the KYC (Know Your Customer) procedure. You’ll need your PAN card, Aadhaar card, and bank account information. As soon as KYC is approved, you can start investing.
3. Pick a Mutual Fund Type
When choosing a mutual fund, you need to consider the type of fund that suits your investment goals and risk appetite. There are three main types:
- Equity funds invest in stocks and are higher risk but can offer attractive returns.
- Debt funds invest in fixed-income securities like bonds and are lower risk with more stable returns
- Hybrid funds combine both equity and debt to balance risk and return.
Your choice depends on how much risk you’re comfortable with and how long you plan to stay invested.
4. Select Direct or Regular Plan
When choosing between Direct and Regular mutual fund plans, consider that Direct Plans have lower fees and potentially higher returns because they don’t involve intermediaries.
In comparison, Regular Plans have higher fees because they include a commission for the distributor who guides you with the investment.
If you’re comfortable managing your investments yourself and want to save on fees, you can go for a Direct Plan. If you prefer professional guidance, a Regular Plan might be better, though it will cost you a bit more.
5. Start SIP or Lump Sum
Finally, you can choose between a Systematic Investment Plan (SIP) or a lump sum. With SIP, you invest a fixed amount regularly (like monthly), which helps in spreading your investment over time and averaging out market fluctuations. This method is convenient for long-term goals and requires less initial capital.
On the other hand, a lump sum investment involves putting a large amount of money in one go. This can be beneficial if you have a substantial amount ready to invest and prefer to take advantage of the market conditions at a specific time.
Both options have their own benefits depending on your financial situation and investment goals.
Read: Differences Between Open-Ended and Close-Ended Mutual Funds
Conclusion
Even though there are many options to invest money in India, mutual funds are still a top choice. One big advantage is that expert fund managers handle your investments, using their in-depth market research to make smart decisions. Plus, mutual funds help spread out your investments across different assets, which reduces risk and can lead to better overall performance.
To invest in mutual funds and achieve your financial goals, get in touch with Moat Wealth.
