How To Invest In Mutual Funds For Beginners In India

How To Invest In Mutual Funds For Beginners In India

I know you will be hearing a lot that if you want to retire with a good corpus or even retire early then you should invest in stock markets.

In this article, I am going to discuss how to invest in mutual funds for beginners in India and try to help you at least to start because you cannot learn until you invest.

Are you someone who does not know how to start or from where to start your investment journey?

Are you afraid of losing your money in stock markets?

Do you want to know how to select mutual funds that suit your risk appetite?

Keep reading this article and your queries will be answered.

Banks investments are no more an ideal option to provide inflation beating returns. If you keep your money into banks then you are losing it slowly.

In the past 1 year you have seen amazing ups and downs in the indian stock markets. First the fall of March 2020 when everybody ran away from the market leading to one of the worst falls in history.

You might have seen a lot of people running away from the market when the market fell with the intent of not wanting to return back but the same people might have FOMO (fear of missing out) when the market made an all-time high.

I am writing this article to share my experience at this time. Just to let you know I started my investing journey in 2017 with a monthly SIP of Rs.2000 with the intent of learning to invest.

Today my portfolio is showing a return of CAGR of 19% which is pretty good for mutual fund investment.

A lot of people either do not feel the need to invest at the early stage of their career or keep saying that I will start after I learn enough. The time you feel you learned enough will never come.

From my experience, I can guarantee that you will learn investing only when you start investing. As it is said you will learn swimming only by stepping into the water and not sitting on the shore.

Obviously, you should not judge the depth of the river, what I mean is you should know your risk appetite and learn to manage risk.

As per this article, the mutual fund investments in stock markets increased by 4 times this year.

So lots of people are understanding the need and benefits of mutual fund investments and I will try to make it easier and give you enough reason to at least start as early as possible.

Once you go through the complete article you will know step by step how to start your investing journey and how to select the mutual fund that might suit you.

You would also know how to manage the risk so that you will not feel the heat in market crashes instead crashes will be an opportunity for you.

So, let’s start!

How Mutual Funds Work

How Mutual Funds Work

Let’s first start with how mutual funds work. Mutual funds also known as AMC(Asset Management Companies) pool money or collect money from small investors like you and me.

These companies have multiple mutual fund options and they appoint an Asset Manager for each mutual fund.

These Asset Managers are professionals with decent experience in stock markets, money management, and investments.

Mutual fund companies have a team of people for risk management, finding opportunities also they invest in various tools and technology also they have access to the workings and internal news of companies. 

That means they are involved in this business 24 X 7 which would not be possible for someone like you and me who has their own business or job to look after.

Offsource this mutual fund companies have to get revenue to manage all this. For which they charge a commission which is known as Expense Ratio.

Expense Ratios usually range between 0.5 to 2.0%.

How To Select Mutual Funds

How To Select Mutual Funds

The most basic struggle in How To Invest In Mutual Funds For Beginners In India is selecting a mutual fund to start investing in.

There are various types of mutual funds but I do not want to go into it because that might create a lot of confusion for new investors.

I am considering you are someone who wants to make wealth in the long term with moderate risk and for that, you should start with a Large Cap mutual fund.

Large-cap mutual funds basically invest in blue-chip companies of India like HDFC, Reliance, TCS, HUL, etc.

You will find various large-cap mutual funds from different mutual fund companies but which one to select to start.
When you are researching a mutual fund you can use Groww App, you can find all details in one place and this is a well-known and easy app to use for all investments.

Here, you will find a complete Groww App Review, most common questions around this app are answered.

You can use below criterias to make a selection

#1 Asset Allocation

Asset Allocation is how much a mutual fund company invests into Large Cap, Mid Cap, and Small Cap companies. 

Depending on this mutual funds are divided into Large Cap mutual funds, MidCap mutual funds, and small funds there are many more categories but let’s not go into that for now.

Since we are at the starting phase so to keep risk low only consider large-cap mutual funds for investment.

How To Select Mutual Funds

#2 Prefer from top 10 fund houses

You can know the top fund houses by looking at their Asset Under Management(AUM). 

Companies with large AUM can invest in good Fund Managers, Research, and can do better risk management.

Also, they have enough funds for the right asset allocation.

#3 AUM above 1000 Cr.

Never invest in a mutual fund with AUM less than 1000 Cr.

AUM above 1000 Cr

#5 Historical performance

Consider at least 5 -10 years of returns and it should be consistent. Always compare it to a benchmark to get a better picture.

Historical Performance

For large-cap mutual funds, Nifty can be the benchmark to compare with. You can use Groww App to compare funds as well.

Groww App To Compare Mutual Funds

#6 Fund Manager

Have a look at the fund manager of that mutual fund, how experienced he is in the field.

Which other funds he is managing and what is the performance of those funds.

Mutual Fund Manager

#7 Expense Ratio

Check the mutual fund’s expense ratio because that’s the cost for you on your investment and it would be better if it’s low.

Direct mutual funds have fewer expense ratios.

Mutual Fund Expense Ratio

#8 Risk

You can have a look at various stocks your mutual fund invests in. 

The mutual funds should be well-diversified, which means they should not invest heavily into a particular sector of the company but should be well distributed into many sectors and companies.

Mutual Fund Holding Analysis
Mutual Fund Top Holdings

Use excel to list down all the mutual funds and their details in one place, compare and make decisions. It will become very easy.

Procedure to invest in mutual funds

What Is SIP In Mutual Funds?

As you are beginning new, never try to invest a lump sum amount of money at one go. Start a Systematic Investment Plan(SIP).

SIP means a pre-decided amount will be deducted at a pre-decided date from your bank account and will be invested in a pre-decided mutual fund.

SIP’s are a good option to start since you automate your investment and it gets invested at every level so you do not have to always monitor the market to find opportunities.


Below is the complete step-by-step procedure to invest in mutual funds from Groww App.

Step #1:

Step 1

Step #2:

Step 2

Step #3:

Step 3

Step #4:

Step 4

Step #5:

Step 5

How To Track All Mutual Funds In One Place?

Tracking becomes a difficult task if you purchase an individual mutual fund from AMC’s directly. However, this is not a problem if you are using mutual fund investment apps like Groww or any other.

On Groww you can find all the mutual funds from different AMC in one place, you can invest and track all at one dashboard as below.

How To Track All Mutual Funds In One Place

What Is STP In Mutual Funds?

STP is another way to do SIP’s into mutual funds.

The only difference here is that the amount does not get transferred from your bank account to your selected mutual fund every month but from one mutual fund to your selected mutual fund.

You can understand better from this scenario.

Suppose you have a lump sum amount of 1 Lakh and you do not want to invest all at once but in SIP form some amount every month into an equity mutual fund.

You can invest the amount in one of the debt mutual funds of the same AMC of the equity mutual fund you want to invest.

And then create an STP from a debt mutual fund to invest some amount every month to the equity mutual fund.

What Is STP In Mutual Funds

FAQ

Can I invest 500 rupees in mutual fund?

Yes, definitely you will find a lot of good mutual funds that will allow you to start a SIP of as low as Rs. 500.

How to invest in mutual funds online?

How to invest in mutual funds online

For investing in mutual funds online you require to create an account with platforms like Groww, Kuvera, Zerodha, etc.

Once an account is set up it’s very easy to select, invest or start a SIP through these online apps.

Can I close my SIP anytime?

Yes, you can sign in to any app you are using for SIP and Cancel SIP.

Which site is best for mutual fund investment?

Many online platforms are available now to invest in mutual funds in India. Some of the most used and trusted in India are Groww, Kuvera, Zerodha.

All of them have a strong customer base and are regulated platforms. You can use any of them depending on your experience.

Conclusion

This was the complete guide on How to invest in mutual funds for beginners in India. Investing has become easier because of the digital platforms available today. It’s just that we have to be ready to take an effort to grow our money.

Use Groww App which is one of the trusted digital platforms for mutual fund investments.

If you have any queries or if you are stuck anywhere in your investing journey do comment and let me know I will try my best to help you.

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