How to Start Investing in Mutual Funds in India?

March 24, 2022March 24, 2022

Did you know? You don’t need a muhurat from a pandit to start investing in India. Still, the majority will never invest, let alone think about investing in mutual funds.

When I asked a friend why didn’t he invest in a mutual fund, despite knowing it’s good for his financial health, this was his answer:

Sadly, he isn’t the only one who knows nothing about mutual funds.

According to AMFI, the Assets Under Management (AUM) in the industry grew from 7.85 trillion in 2011 to INR 32.38 trillion in 2021 – more than 4 times in a decade.

Despite the best efforts to educate (Mutual Funds Sahi Hai! Campaign), increased penetration of the internet and growth of the industry (4x in the last 10 years), people are still clueless about the mutual fund industry.

A lot of people look at Mutual Funds (from a distance) as a tool to beat inflation as conventional options aren’t enough in 2021, but most just can understand just a single line:

“Mutual Fund Investments are Subject to Market Risks!”

If there’s something we Indians fear the most – it is the risk of losing money. Hence, Mutual Funds in India aren’t so popular as an investment option.

But what if I tell you it’s not all risks but rewards, too – something that will help you beat inflation and create wealth in the long run, as I shared in my previous blog on basics of investment.

So, let’s begin from the start and see how you can invest in mutual funds and grow your wealth over the years.

What's in this blog?

What is a Mutual Fund and How Do They Work?

Before I share how to invest, let’s look at what is a mutual fund exactly. Like the name suggests, it is a fund pooled mutually by people, i.e. the investors.

In simple terms, a mutual fund is an instrument where a large group of people come together to pool their money which is managed by an experienced person to achieve a common goal.

In case of a mutual fund, this person is a mutual fund manager who is appointed by an AMC to manage the funds it collects from the investors.

A fund manager uses his expertise to build a portfolio of stocks where the incoming money is invested and the returns are given back to the investor.

Benefits of Investing in Mutual Funds

“I know how markets work, why do I need a manager to invest my money in a mutual fund.”

I know you’d be thinking. But fund managers aren’t some brooding professionals who’d charge you money or fee. Instead, they’re hired on the payroll of the AMC to manage funds.

You just have to invest via an app or an intermediary, just like you’re used to investing in other instruments. But investing in mutual funds give you several advantages over investing in stock market on your own.

Professional management – less chances of goof ups

Mutual fund schemes are managed by professional investment experts. They know the ins and outs of the market and the industry.

Moreover, they have a team of researchers and analysts who help them create the best portfolio to achieve the scheme’s investment goal- something an individual can’t appoint himself. All this means leaves you in a better position to sail the turbulent waters of the investment sea.

No lock in’s on most open ended schemes

You can withdraw your money anytime from a mutual fund scheme, which isn’t the case with many other investment instruments.

Apart from the tax saving ELSS schemes ( which have the lowest lock in’s for any tax saving instrument in India) other schemes don’t bind or block your money.

Flexible and systematic

You can invest in a mutual fund from as low as INR 500 per month via the SIP route. Also, there’s no compulsion of an6 kind to invest or pay money. Plus, the availability of a number of schemes and fund types make mutual funds really a flexible option for an average investor.

Moreover, all schemes are regulated and there’s no chance of discrepancies or frauds in the industry.

Beats inflation – chances of wealth creation

An average mutual fund scheme offers a decent return if an investor is prudent, disciplined and believes in the underlying asset class.

It is a known fact that investing in equity mutual funds via the SIP route can give an annualised returns in excess of 12-16%, which is way better than FDs and other instruments. Even with debt funds, the returns are generally higher than conventional instruments.

Not only it is better but will help you actually grow your wealth by beating inflation- which should always be your primary goal with investments.

Investing in Mutual Funds for Beginners

Okay! Enough of the basics, let’s jump on to the real action now. Let’s say that you don’t have any experience of investing. You’ve just begun a job and started getting salary.

You’ve heard about mutual funds in ads, during discussions by friends, etc. but you don’t really know how to begin investing in a mutual fund. So, let me help with the exact steps, plans and ideas to start your first MF investment.

Best Way To Start Investing in Mutual Funds

By now, you know you give your money to a company for managing your portfolio via a mutual fund. But how does it work? How much money to give? Where to begin?

If these questions are in your mind, don’t worry, they’re normal. Let’s start with the process (or way) of investing in a mutual fund. You can invest via two ways:

Lump sum investment
Systematic Investment Plan (SIP)

You must have heard about SIP somewhere. Right? SIP is a route to invest into a mutual fund scheme.

An SIP is fundamentally like an EMI, just that instead of you paying for your loan, you are taking out funds from your today’s richness and accumulating them for tomorrow’s wealth.

Through the SIP route, you can start investing in a mutual fund scheme for as low as INR 500 per month. The money deducted through an SIP is deposited into the folio (similar to an account number in a bank) with your AMC.

You pick a date for SIp and each month a fix amount is deducted and invested into a mutual fund scheme.

Every mutual fund scheme has an NAV (Net Asset Value). You can think of it as the price of one unit of a mutual fund. Say, you invest INR 1000 every month and the NAV is 100, you’re allotted 10 units of the mutual fund.

When you wish to withdraw funds, you sell the available units at market NAV and funds get back to your account.

Here are a few things to help you get started with mutual funds:

Start with equity mutual fund investments
Go with the SIP route always and automate your SIPs
Invest in tax saving funds first if your 80C deduction is under 150000 per year

Where Do You Invest in Mutual Funds?

What do you do when you have to start an FD? You go to a bank or a bank authorised representative.

How do you buy an insurance policy? You contact an insurance agency or a broker.

Similarly, when you have to invest in a mutual fund, you have two options

Through a financial advisor: A financial advisor is a registered mutual fund distributor who helps you pick the right funds, processes your mutual fund application and sends it to the AMC. An advisor acts as an intermediary between you and the AMC. He is paid a commission on every successful application.
Direct route: the direct route allows you to start a mutual fund investment directly with an AMC. Generally, the direct route is more lucrative because of higher return (0.5-1%) but you don’t get any assistance in the application process. You choose the fund yourself and proceed at your own discretion.

A direct mutual fund application can be made online at the AMCs website or on any mutual fund platform once you’ve completed the mandatory KYC requirement ( which can be also completed online)

How to Invest in Mutual Funds Online?

A decade back, it would have been unthinkable for someone that they can start investing on the click of a button.

But now, with internet with us, you can invest in any instrument, let alone mutual funds online.

If we stick to mutual funds in India, you can always visit an AMCs website to begin your investment journey.

Popular AMC websites

You can also use intermediary portals that allow you to invest in direct mutual funds and start an SIP online. Here are some of the leading platforms to help you invest in a mutual fund scheme:

Zerodha

Groww

Funds india

Paytm money

FAQs

Can I Save Tax and Claim 80C Exemption Under Income Tax via Mutual Funds?

Yes, you can invest in an ELSS mutual fund scheme to save tax under section 80C. Some great ELSS funds in India include Franklin India Taxshield and Nippon India TaxSaver plan.

Can I invest 100 RS in mutual funds?

Yes. You can now start investing in mutual funds for as low as INR 100 p.m. via the SIP route. There are many funds from AMCs like Nippon India and ICICI Prudential that allow you to invest INR 100/- in mutual funds.

How do I start investing in mutual funds?

You can now start investing in mutual funds online directly. Go to the AMCs website or use a mutual fund investment app like Zerodha, Paytm Money, FundsIndia, etc. to get started.

How do you make money from a mutual fund?

Mutual fund investors earn returns on the scheme units held by them. Every mutual fund unit has an NAV and with an increase in NAV of a mutual fund, the investor earns a return. Usually, returns from an equity mutual fund falls between 12-16% annually.

Final Words

Mutual fund investments are subject to market risks, but at the same time they’re the easiest way to get started too. If you want to start with equity investments, mutual fund SIPs are the best option for you.

I hope you found answers to several of your MF queries and are no longer unaware about the benefits, ways and platforms for investing in mutual funds in India now.

So, the next time someone taunts you about your MF knowledge,say it proudly: