How to start investing in Mutual Funds
22 Nov 2021

How to start investing in Mutual Funds

A handy Mutual Fund guide for new investors

Key Takeaways

  • Mutual Funds are excellent investment vehicles for beginners.
  • Select the Mutual Funds that align with your investment goals.
  • Thoroughly study the risks and returns before investing in Mutual Funds.
  • Read the necessary documents to know about costs and expense ratios.
  • Learn how to start investing in Mutual Funds through online literature.

Growing up, you are often taught how to save money. But you learn how to grow your money through life experiences. When you start earning, you realise you have plenty of investment options. Although it is never too late, starting your investment journey early on makes quite a difference in terms of the returns you earn. One of the most popular investment vehicles is Mutual Funds. This article explains how to start investing in Mutual Funds. Read on.

Mutual Fund Guide

Types of Mutual Funds

The first chapter in the Mutual Fund investment guide includes Mutual Funds classification. The Securities and Exchange Board of India (SEBI) has classified Mutual Funds into 5 broad types – Equity, Debt, Hybrid, Solution Oriented and Other Schemes. The funds are further divided into open-ended and close-ended and could be dividend or growth-based. As an investor, you need to consider certain criteria before you begin investing. Let's decode them.

How to choose the best Mutual Funds?

Consider the following factors to choose the best Mutual Funds

Consider your risk profile and expected returns

Mutual Funds, as they say, are subject to Market Risks. As such, you should consider your risk profile before investing. Essentially, Equity Mutual Funds are riskier, but they generate significantly higher returns. Debt Funds are safer than equity returns. However, they generate stable but lower returns. With Hybrid Funds, you can create an investment portfolio that generates decent returns while mitigating your risks considerably.

Consider your preferred investment method

If you own a substantial amount of cash, you can choose a lump sum investment. However, if you wish to invest a smaller amount, you can consider the Systematic Investment Plans (SIPs) model of investing in Mutual Funds. Note that lumpsum investments prove fruitful for seasoned investors who can time the market accurately but, SIP is ideal for new investors.

Consider your investment objectives

Mutual Fund schemes are typically classified as growth or dividend schemes. If you opt for Growth Funds, the returns on investment get reinvested until you redeem the units. Conversely, Dividend schemes pay periodic, timely dividends. If your objective is to build wealth, long-term growth schemes would be preferable, and if you seek an income source, investing in dividend schemes could prove worthwhile.

Consider the Costs

Expense ratio, entry load, exit load are a few costs related to Mutual Funds investment that you must know before investing. Furthermore, you have to pay a commission to the fund manager for actively managing your investment portfolio. You also have to bear an expense ratio, which can reduce your overall returns. Remember to check all costs thoroughly before investing.


Before investing in Mutual Funds, you must ensure you familiarise yourself with a sound Mutual Fund investment guide. You can find literature surrounding how to start investing in Mutual Funds online through dedicated investment websites, blogs, videos, etc. So, ensure you check out the various Mutual Fund guides online before investing.

Save your time and energy by investing in Mutual Funds online. Download the digibank app and start the paperless process to open bank account online and be one step closer to investing in Mutual Funds.

*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.