How to Invest in Mutual Funds in India for Beginners in 2020

Mutual Fund investments are among the most popular investment avenues in India. According to industry data, the Average Assets Under Management (AAUM) of the Mutual Fund sector reached a landmark figure of Rs 28 lakh crore in January 2020. Within a decade, the data shows around a 3.5 fold increase in the AAUM.

If you are a beginner, looking to invest your hard-earned money in Mutual Funds, then you must understand the fundamentals of these funds. Read on to find how to invest in Mutual funds in 2020, as a beginner.

What are Mutual Funds?

  • A Mutual Fund is a diversified basket of stocks and bonds, which are managed by professionals of Asset Management Companies (AMCs).
  • Mutual funds are an indirect form of investment, where your funds are invested across a wide variety of asset classes, including stocks, bonds, money market instruments, commodities, gold and real estate.
  • A key highlight of Mutual Funds is the Systematic Investment Plan (SIP), wherein you can invest as little as Rs 500 each month.

Types of Mutual Funds:

On the basis of investment in asset classes, there are primarily three types of Mutual Funds:

Equity Funds:

  • These funds are primarily invested in equity shares of various companies.
  • If you are looking for long term gains, and are comfortable with moderate to high market risks, then you should invest in these funds.
  • These funds generate high returns.

Debt Funds:

  • These funds predominantly invest in government securities, like treasury bills, bonds and corporate deposits.
  • If you don’t want to take market risks, and are comfortable with moderate returns on a short term investment, horizon, then these funds are best suited for you.

Hybrid Funds:

  • These funds are invested in both equity shares and debt securities.
  • They provide the best of both asset classes, and involve low to moderate risks. You can invest in these funds to strike a balance between the risks involved and returns generated.

How to Invest in Mutual Funds?

  • Assess your financial goals and risk appetite:

    Before investing in Mutual Funds, you must assess your financial goals, whether it is for short term, mid term or long term, and invest accordingly. You must also identify the amount of risks that you are willing to take.
  • Open an account with a fund house:

    The next step is to have an account with a fund house of your choice, and complete your KYC.
  • Portfolio creation:

    Now you are required to create your Mutual Fund portfolio. You must analyse the performance of various schemes, and zero in on those which are in sync with your investment horizon and risk appetite. You must always remember to have a diversified portfolio, as it will cushion your returns from underperforming funds.
  • Allocation of funds:

    Next, you must decide the amount which you can invest in your portfolio. Here, you can choose a monthly SIP, and link it with your bank account, so that the amount is automatically debited. Unlike lumpsum investment, which requires a bigger capital, SIP can be started with a lower amount. Regular investments also inculcate financial discipline.
  • Review your portfolio:

    You must regularly monitor your portfolio, and make changes if a particular fund’s performance is not up to the mark. Market experts suggest reviewing and balancing your portfolio at least once every six months. This ensures that you receive the best returns.

Benefits of Investing in Mutual Funds:

Some of the benefits of Mutual Fund investment are as follows:

  • Convenient and flexible:

    In the present digital age, you can invest online in Mutual Funds instantly after completing KYC and other prerequisites. Opening an account with a fund house is a paperless and hassle-free process. Besides, you have the option of switching between different funds, and rebalancing your portfolio.
  • Tax benefits:

    You can consider investing in tax-saving Mutual Funds, known as Equity Linked Savings Scheme (ELSS). Here, you can avail tax deductions upto Rs 1.5 lakh in a year. Section 80C of the Income Tax Act allows tax deductions on these funds.

Conclusion

Thus, Mutual Funds are among the best investment avenues in India. If you are an investor looking for high returns from stock markets, you can also consider investing in shares through a trusted and reliable broker. IIFL provides you with unbeatable propositions, like free online Demat Account and Trading Account. You can receive brokerage cash back up to Rs 10,000 along with free AMC on your online Demat Account for 1 year. Alongside a single Demat Account for investing in various options, you also receive daily and weekly customised market reports. With IIFLs Demat Account and Trading Account, you can trade in equities, currencies, commodities and Mutual Funds on a single platform.

Open Demat Account at IIFL