Introduction
When it comes to investing, people get more conscious than anything. This is because we have a deep fear of losing our hard earned money in the hands of fraudsters. If you are also the one who has not started investing in Mutual Funds in the lack of sufficient knowledge of this truly reliable wealth creation tool, then by the end of this blog you will definitely think of beginning your first ever investment journey.
What is a Mutual Fund?
Before deep diving into Mutual Funds investment process, its scope and other vital aspects, it is crucial that you understand what type of investment it is actually. So, in simple terms under Mutual Fund investment, money is pooled from thousands of investors like you and this corpus money (total money) is invested into a diversified portfolio including stocks, bonds, and other assets to minimize the risk of loss and optimize the chances of gain thereof.
Know Some Important Mutual Fund Terms
- NAV (Net Asset Value): The per-unit price of a mutual fund, calculated daily after market close.
- Expense Ratio: Annual fee charged by the fund house (typically 0.5% - 2.5% of AUM). A mutual fund's expense ratio is deducted on a daily basis.
- Exit Load: Penalty charged if you redeem before a specified period.
- Folio Number: Unique account number assigned when you first invest with an AMC.
- Direct vs Regular Plans: Direct plans have no distributor commission, resulting in lower expense ratio (0.5% - 1% lower). However, paying a very small amount of commission to Distributor's regular plan can make you earn a lot with customized investment plans based on the study of your individual need and money for investment.
- Lock-in Period: Time during which you cannot redeem investments (3 years for ELSS, 5 years for retirement/children's funds).
Why Invest in Mutual Funds? Top Benefits for Indian Investors
In 2025, with inflation hovering at 3-5% and bank FDs yielding just 6-7%, mutual funds shine brighter. Here's why they're a no-brainer for retail investors (individual or non-professional person):
- Diversification: Spread risk across 50-100 stocks/bonds—one bad apple doesn't spoil the bunch.
- Affordability: You can start a Systematic Investment Plan (SIP) with as little as ₹250 per month. This democratizes investing.
- Professional Management: SEBI-licensed experts handle the heavy lifting.
- Liquidity: Most open-ended funds let you redeem in 1-3 days.
- Tax Efficiency: Equity funds qualify for Long Term Capital Gain (LTCG) perks.
- Low Costs: Zero entry load since 2009; expense ratios under 1% for direct plans.
Step-by-Step Guide: How to Start Your First Investment in Mutual Funds
Step 1: Complete Your KYC (Know Your Customer)
Before investing in any mutual fund in India, you must complete your KYC verification. This is a one-time process regulated by SEBI.
Documents Required:
- PAN Card (mandatory)
- Aadhaar Card or Passport or Voter ID
- Recent photograph
- Bank account details and cancelled cheque
- Address proof (if different from ID proof)
Step 2: Assess Your Financial Goals and Risk Profile
Before selecting funds, clearly define:
Your Investment Goals:
- Short-term (less than 3 years): Emergency fund, vacation, wedding, etc.
- Medium-term (3-5 years): Down payment for a house, vehicle purchase, etc.
- Long-term (5+ years): Retirement, Children's education, and Wealth creation, etc.
Your Risk Tolerance:
- Conservative: Cannot tolerate market volatility, prefer stable returns
- Moderate: Comfortable with some fluctuations for better returns
- Aggressive: Can handle high volatility for potentially higher returns
Step 3: Choose Your Investment Method
SIP (Systematic Investment Plan): The "Common Man's Favourite." You invest a fixed amount (e.g., ₹1,000) every month. It builds discipline and averages out market risks.
Lumpsum: You invest a large one-time amount. It is best when you have a bonus or windfall and the market is low.
Step 4: Select Your Mutual Funds
With over 1,500 mutual fund schemes in India, selection can be tricky. Here's how to choose wisely:
Key Factors to Consider:
- Past Performance: Look at 3-year, 5-year, and 10-year returns
- Consistency: Choose funds that perform well across different market cycles
- Expense Ratio: Lower is better
- Fund Manager Track Record: Check the experience and past performance of the fund manager
- Assets Under Management (AUM): Very small or very large AUMs can impact performance
- Exit Load: Check charges for early withdrawal
- Professional Help: You can take the help of Inbest's Mutual Funds Advisors who can create the best portfolio for you to optimize your wealth in hand.
Step 5: Choose Your Investment Platform
1. Direct Investment with AMC:
- Visit the Asset Management Company's website
- Lower expense ratio (direct plans)
- Requires managing multiple AMC accounts
2. Mutual Fund Distributors/Advisors:
- Get personalized advice
- Help with documentations
- Commission-based recommendations (very nominal amount)
- You may contact Inbest if you are looking for the Best Mutual Funds Distributors in Kolkata.
Common Mistakes to Avoid
Often the first time investors make some common mistakes which can be avoided if you know them beforehand. Some mistakes to avoid are:
- Investing Without Goals: Know why you're investing before you start
- Ignoring Risk Profile: Don't invest in high-risk funds if you're conservative
- Timing the Market: Focus on time in the market, not timing the market
- Overlooking Costs: High expense ratios eat into your returns over time
- Chasing Past Performance: Last year's top fund no way guarantees their success in future
- Over-Diversification: 5-7 funds across categories are sufficient
- Stopping SIP in Market Downturns: This is when you get the best value
- Not Reading Scheme Documents: Understand what you're investing in
- Ignoring Tax Implications: Plan for capital gains tax
- Emotional Investing: Stick to your strategy regardless of market noise
Conclusion: Your Journey to Financial Freedom Starts Now
When you invest without an advisor, you are not saving fees instead you are carrying the all risks load alone. Are you ready to unlock the potential of your portfolio? Contact Inbest's financial advisors today and make your money smarter while securing your future self.
