What Is Mutual Fund & How to Invest in Mutual Fund?

Investing can be a powerful way to grow your wealth and choosing high-risk options has the potential to bring impressive returns. By diversifying your portfolio, you can also add a layer of security to protect against market fluctuations. Mutual funds allow you to enjoy the best of both worlds — higher returns with balanced risk.

To start, you need to know the definition of mutual funds as well as how to frame your strategy. 

What is a Mutual Fund?

It’s a type of investment tool where you, along with other investors, pool money to purchase a stock, bond or other security. This pool of investment is managed by Asset Management Companies (AMC) that have managers to review and monitor the investment on your behalf. 

AMCs also help you analyse your financial requirements and suggest schemes accordingly. A mutual fund can help you diversify your portfolio, which is professionally managed. This way, you can gain exposure to a wide variety of financial securities. 

How Mutual Funds Work?

Note these points to understand more about the working process of mutual funds.

• It allows multiple investors to pool funds into an asset
• The total value of the fund depends on the net asset value 
• The asset manager forms a strategy after calculating the optimisation goal and risk 
• You can start an investment with as low as ₹500
• The money you invest may be allocated across different securities with diverse exposure to risk to compensate for any poor-performing assets  
• When you invest in a mutual fund, you acquire ownership over a portion of the investment
• You have complete control over when you want to withdraw, depending on the scheme 
• Based on the capital appreciation and/or interest income of the security, you earn returns 
• You can either make a lump sum investment or invest a fixed amount every month through an SIP (Systematic Investment Plan)

What Are the Importance of Mutual Funds?

Here are some reasons to opt for mutual funds as your investment option.

• It is ideal for those who are new to the financial market or don’t have time/expertise to analyse stocks and bonds
• You have the option to start investing slowly and with a low initial amount and then increase your investment, as per your goal
• With Equity Linked Savings Schemes, you can enjoy tax benefits 
• It is regulated by SEBI (the Securities and Exchange Board of India)

Also Read : Loan Against Mutual Funds

How To Invest in Mutual Funds?

Here are the steps you can follow to plan your investment and start investing.

Step 1: Understanding Your Requirements 

Before proceeding, understand your risk tolerance and financial capacity. This will help you decide your goal and choose a comfortable amount for your mutual fund investment. You can choose between a mix of equity and debt instruments as per your risk appetite. You can also go for hybrid funds, which offer a mix of the two. 

Step 2: Choosing the AMC

There are many great asset management companies and mutual fund schemes available in the market to choose from. By comparing what they have to offer in terms of past performance and expense ratios, you can make a smart choice. 

Step 3: Investing Via a Lump Sum or SIP

Depending on whether you have savings available to invest a certain amount up front or want to invest a sum every month, you can choose between both these options. 

Step 4: Starting the Investment 

After choosing the AMC, you can invest online. You can select an investment platform and open your account. Then you can compare schemes, go through research and rankings, figure out your risk appetite and choose a scheme. Apart from direct investments, you can also invest via a mutual fund distributor or RIAs (Registered Investment Advisors). 

Following these steps, you can easily start your investment. Make sure to complete your KYC process carefully, which is a mandatory step. In addition, know the various fees associated with the investment to be in the know right from the start. 

You can now avail of instant cash of up to ₹10 lakhs while staying invested in the market and growing your portfolio with Fibe Loan Against Mutual Funds. To learn more, download the Fibe app or visit the website today.

FAQs on Mutual Funds 

Are mutual funds safe to invest in?

Since they are market-linked, there is risk involved in this investment. However, your choice of scheme can reduce your risk. Debt funds are less risky as compared to equity funds, and you can select schemes accordingly. 

Can I withdraw money from mutual funds at any time?

Unless there is a lock-in period, you can withdraw your invested amount anytime without any penalties. For instance, ELSS require you to stay invested for 3 years before you can redeem your units. 

When is the right time to invest in mutual funds?

Whenever you feel ready to invest, you can do so. Make sure to do your research and find the scheme that aligns with your financial goals.