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A mutual fund is an investment pool that is professionally managed by a fund manager. It is essentially the money that many investors have contributed together. Read on to learn about how to start investing in mutual funds.Updated On – 08 Jan 2025

You can invest in Mutual Funds online or via a financial intermediator. Investments in Mutual Funds can be made as a lump sum or in SIPs. Investment in such funds are transparent and the products are managed professionally. Due to the presence of various mutual funds, it will be difficult for beginners to choose the right one.

Important Things to Know Before Investing in Mutual Funds

Some of the important things that beginners should know before investing in mutual funds are mentioned below:

Request Help from a Financial Counselor: Since there is plenty of work and research that must be done before investing in a mutual fund, you can take the help of a financial counselor. The financial counselor will track the funds and help you in choosing the right fund.

Net Banking: To purchase mutual funds, net banking is required. Therefore, you must complete the net banking registration process.
KYC Documents: The relevant KYC documents must be provided to invest in mutual funds. The KYC documents must be up to date.
Use SIPs: Systematic Investment Plans (SIPs) may be a better form of investment that lump sum investments for beginners. Investing in SIPs will ensure that your money is spread in different assets.
Invest in Different Assets: It is important that you invest in various assets. This can help to diversify the investment portfolio.
Type of Mutual Fund: In the case of beginners, it is important that you invest in balanced funds as the returns are stable and the risks are low.
Set a Goal: You must know how much money you wish to invest in a mutual fund as the there are risks.

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5 Simple Steps to Invest in Mutual Funds Online

Assess Your Risk Capacity and Tolerance

Begin by evaluating your ability and willingness to take risks, known as risk profiling.
This step helps determine how much risk you are comfortable with based on your financial situation and goals.

Determine Asset Allocation

Once you understand your risk profile, it’s time to allocate your money across different asset classes.
Ideally your asset allocation should have a mix of both equity (high risk, high return) and debt instruments (low risk, stable return) so as to balance out the risks.

Identify Suitable Mutual Funds

Select funds that match your asset allocation plan.
Compare mutual funds based on factors like investment objectives and past performance to make an informed choice.

Select and Apply for Mutual Fund Schemes

After identifying the right mutual funds, choose the specific schemes you wish to invest in.
You can complete the application either online or offline.

Diversify and Monitor Investments

Ensure your portfolio is diversified to reduce risk and maximize returns.
Regular follow-ups and reviews are important to ensure that you get the best out of your investment.

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How to Invest in Mutual Funds Online?

There are different ways in which mutual fund investments can be made and are mentioned below:

Offline Investment Directly with the Fund House

You can invest in schemes of a mutual fund by visiting the nearest branch office of the fund house. The fund house will provide you with an application form which you will need to fill in and submit, along with the necessary documents.

Proof of Identity
Cancelled Cheque Leaf
Passport Size photograph
Proof of address

Offline Investment through a Broker

A mutual fund broker or a distributor is someone who will help you through the entire process of investment.

He will provide you with all the information you need to make your investment including the features of various schemes, documents needed, etc.
He will also offer guidance on which schemes you should invest in. For this, he will charge you a fee which will be deducted from the total investment amount.

How to Invest in Mutual Funds Online in India for Beginners?

Important Things to Know Before Investing in Mutual Funds

Some of the important things that beginners should know before investing in mutual funds are mentioned below:

Request Help from a Financial Counselor: Since there is plenty of work and research that must be done before investing in a mutual fund, you can take the help of a financial counselor. The financial counselor will track the funds and help you in choosing the right fund.

Net Banking: To purchase mutual funds, net banking is required. Therefore, you must complete the net banking registration process.
KYC Documents: The relevant KYC documents must be provided to invest in mutual funds. The KYC documents must be up to date.
Use SIPs: Systematic Investment Plans (SIPs) may be a better form of investment that lump sum investments for beginners. Investing in SIPs will ensure that your money is spread in different assets.
Invest in Different Assets: It is important that you invest in various assets. This can help to diversify the investment portfolio.
Type of Mutual Fund: In the case of beginners, it is important that you invest in balanced funds as the returns are stable and the risks are low.
Set a Goal: You must know how much money you wish to invest in a mutual fund as the there are risks.

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5 Simple Steps to Invest in Mutual Funds Online

Assess Your Risk Capacity and Tolerance

Begin by evaluating your ability and willingness to take risks, known as risk profiling.
This step helps determine how much risk you are comfortable with based on your financial situation and goals.

Determine Asset Allocation

Once you understand your risk profile, it’s time to allocate your money across different asset classes.
Ideally your asset allocation should have a mix of both equity (high risk, high return) and debt instruments (low risk, stable return) so as to balance out the risks.

Identify Suitable Mutual Funds

Select funds that match your asset allocation plan.
Compare mutual funds based on factors like investment objectives and past performance to make an informed choice.

Select and Apply for Mutual Fund Schemes

After identifying the right mutual funds, choose the specific schemes you wish to invest in.
You can complete the application either online or offline.

Diversify and Monitor Investments

Ensure your portfolio is diversified to reduce risk and maximize returns.
Regular follow-ups and reviews are important to ensure that you get the best out of your investment.

Check Your Credit Score for FREE

How to Invest in Mutual Funds Online?

There are different ways in which mutual fund investments can be made and are mentioned below:

Offline Investment Directly with the Fund House

Proof of Identity
Cancelled Cheque Leaf
Passport Size photograph
Proof of address

Offline Investment through a Broker

A mutual fund broker or a distributor is someone who will help you through the entire process of investment.

He will provide you with all the information you need to make your investment including the features of various schemes, documents needed, etc.
He will also offer guidance on which schemes you should invest in. For this, he will charge you a fee which will be deducted from the total investment amount.

Online through the Official Website

Most fund houses these days offer the online facility of investing in mutual funds.
All you need to do is follow the instructions provided on the official site of the fund house, fill in the relevant information, and submit it.
The KYC process can also be completed online (e-KYC) for which you will need to enter your Aadhar number and PAN.
The information will be verified at the backend and once the verification is done, you can start investing.
The online process of investing in mutual funds is easy, quick, and hassle-free and hence, is preferred by most investors.

Through an App

Many fund houses allow investors to make investments through an app which can be downloaded on your mobile device. The app will allow investors to invest in mutual fund schemes, buy or sell units, view account statements, and check other details concerning your folio.
Some of the fund houses that allow investments through an app are SBI Mutual Fund, Axis Mutual Fund, ICICI Prudential Mutual Fund, Aditya Birla SunLife Mutual Funds, and HDFC Mutual Funds. Some apps like myCAMS and Karvy allow investors to invest as well as access the details of all their investments from multiple fund houses, on one platform.

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How to Invest in Mutual Funds through SIP?

The steps to invest in mutual funds through SIP are as follows:

You must finish your KYC before you start investing in a mutual fund. The KYC process can be done online. You need to fill out the KYC registration form online and submit it with the self-attested identity and address verification.
You must then visit the website of the fund house and select the mutual fund scheme.
To open an account, you need to provide your name, mobile number, PAN number, username, and password.

You can invest after entering the bank account information and setting up the SIP auto-debit amount.
To select a mutual fund plan, log into your account at the fund house.
The first instalment of a monthly SIP must be paid online while the second can be paid after 30 days.
The SIP can be continued for as long as you want to. You get to choose the duration of the SIP.

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How to Invest in Mutual Funds through Lumpsum Investment?

A direct mutual fund investment plan can be started with an asset management company. You can choose to invest online as well as offline. To finish your KYC, you need to provide the mutual fund institution with two passport-sized photos, a self-attested ID, and proof of address. You could invest a significant amount of money in mutual funds through an online platform.

Simply log in to the mutual fund company’s website and choose your preferred investment plan. To make a one-time lump payment investment in a mutual fund, choose the One-Time option and enter the desired amount.

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Importance of KYC in Mutual Funds

Whether you are investing in a mutual fund scheme online or through traditional paper-based means, you need to complete the Know Your Customer (KYC) procedure by filling out the required KYC form. KYC refers to the process of identifying a customer as part of opening an account with a financial institution.

Aadhaar, PAN, passport, and other required photo IDs are examples of relevant supporting documentation that are used in KYC to verify an investor’s identity and address. The Prevention of Money Laundering Act, 2002 and its implementing regulations require KYC compliance.

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Costs Involved in Mutual Fund Investments

The various costs that are involved in mutual fund investments are mentioned below:

Expense Ratio

The percentage of average assets under management allocated to these costs borne by Asset Management Companies (AMCs) is known as the expense ratio. In order to operate their businesses, AMCs must pay for the management of funds, distribution, and other costs.

Exit Load

When an investor makes a quick withdrawal, exit load is levied. It is determined as a percentage of the current Net Asset Value (NAV) of the scheme.

Stamp Duty

The government imposes a direct tax known as stamp duty. Whether units are held in physical or demat form, stamp duty is charged on the issuing and transferring of mutual funds. The stamp duty is 0.005% for purchases, switch-in, dividend reinvestment, and new instalments into already-existing STPs and SIPs. It is 0.015% for unit transfers between Demat accounts in addition to off-market transfers.

Securities Transaction Tax

An investor must pay a Securities Transaction Tax (STT) if they choose to sell their mutual fund units. The STT for various schemes are as given below:

Debt Mutual Fund units: Nil

Close-ended schemes and ETFs: 0.001% of the traded value

Open-ended equity-oriented schemes: 0.25% of the traded value

Transaction Charges

Investors may have to pay a small sum as transaction charges. Investments under Rs.10,000 are not subject to a transaction fee. This could vary based on the AMC.

It is important that you do thorough research before investing in mutual funds. It is vital that you invest in different assets and consider the risk factors before making any investments.https://www.youtube.com/embed/Sh9-W557fF8

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How to Invest in Mutual Funds in Detail for Beginners?

Before you decide to invest in a mutual fund, it is important to keep the below points in mind. Doing so will help you choose the right kind of funds to invest in, and help you accumulate wealth over time.

Identify your purpose for investing –
1. This is the first step towards investing in a mutual fund. You need to define your investment goals which can be – buying a house, child’s education, wedding, retirement, etc.
2. If you do not have a specific goal, you should at least have a clarity on how much wealth you wish to accumulate and in how much time.
3. Identifying an investment objective helps the investor zero in on the investment options based on level of risk, payment method, lock-in period, etc.
Fulfill the Know Your Customer (KYC) requirements
1. In order to invest in a mutual fund, investors need to comply with the KYC guidelines.
2. For this, the investor needs to submit copies of Permanent Account Number (PAN) card, Proof of Residence, age proof, etc. as specified by the fund house.
Know about the schemes available
1. The mutual fund market is flooded with options. There are schemes to suit almost every need of the investor.
2. Before investing, make sure you have done your homework by exploring the market to understand the different types of schemes available.
3. After you have done that, align it with your investment objective, your risk appetite, your affordability and see what suits you best.
4. Seek the help of a financial advisor if you are not sure about which scheme to invest in. In the end, it is your money.
5. You need to ensure that it is used to fetch maximum returns.
Consider the risk factors
1. Remember that investing in mutual funds comes with a set of risks.
2. Schemes that offer high returns is often accompanied with high risks. If you have a high appetite for risk and wish to accomplish high returns, you can invest in equity schemes.
3. On the other hand, if you do not want to risk your investment and are okay with moderate returns, you can go for debt schemes.

After you have identified your investment objectives, fulfilled the KYC requirements, and explored the various schemes, you can start investing in mutual funds. A bank account is also a mandate while making a mutual fund investment.

Most mutual fund houses will ask for a physical or an online copy of a cancelled cheque leaf bearing the IFSC (Indian Financial System Code) and MICR (Magnetic Ink Character Recognition) of the bank.

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Why should you Invest in Mutual Funds?

As stated above, mutual funds are professionally managed investment vehicles that will compound your money over a long term. Mutual funds may invest in a variety of instruments like equity, debt, money market, etc., and fetch favourable returns on your investment.

There are more reasons why you should invest in mutual funds and we have picked the top ones for you below:

Professional management
1. Mutual funds are managed by professional fund managers who research and keep a track of the markets, identify the rights stocks, and buy and sell them at an appropriate time so as to generate favourable returns on your investment.
2. Fund managers also analyse the performance of firms before they decide to invest in their stocks. Also, when you buy units of a mutual fund scheme, the scheme information document (SID) will have the professional summary of the fund manager which includes the number of years of work experience, the kind of funds managed, and the performance of the funds managed by him/her. So, you can be rest assured that your money is in the right hands.
Higher returns
1. Compared to term deposits such as Fixed Deposits (FDs), Recurring Deposits (RDs), etc., mutual funds offer better returns on your investments by investing in a variety of instruments.
2. Equity mutual funds present an excellent opportunity to investors to enjoy higher returns but at the same time are accompanied with high risks and hence, are ideal for investors with a high risk appetite. Debt funds, on the other hand, offer lower risk and fetch better returns than term deposits.
Diversification
1. Perhaps one of the greatest benefits that mutual funds offer is diversification. By investing in a wide range of asset classes and stocks, mutual funds reduce the risk by diversifying the portfolio.
2. Therefore, even if one asset/stock is not performing well, the performance of other assets can balance it out and you can still enjoy favourable returns on your investment.
3. To reduce the risk further, you can diversify your portfolio by investing in different kinds of mutual funds. Seek the help of a financial advisor if you are not sure about which funds to invest in and how to diversify or balance your portfolio.
Convenience
1. Investing in mutual funds has been made quick, hassle-free, and simple by many fund houses who offer the online facility of investing. Just by clicking a few buttons, you can start investing in a mutual fund scheme of your choice.
2. Even the KYC process can now be done online and investors can invest up to Rs.50,000 using the e-KYC facility. However, for investments above Rs.50,000, investors are required to complete the physical KYC process.
Low cost
1. You can start investing in a mutual fund for as low as Rs.5,000 (lump sum) and Rs.500 for a monthly SIP (Systematic Investment Plan). Therefore, you do not have to wait to accumulate a large sum in order to start investing.
2. Also, if you invest in a Direct Plan of a mutual fund scheme, you do not have to pay any additional commission to distributors or agents.
Disciplined investing
1. To cultivate a habit of regular investing, mutual funds offer a facility known as a Systematic Investment Plan (SIP).
2. An SIP allows investors to invest small amounts regularly, the frequency of which can be weekly, monthly, or quarterly. An auto-debit facility can be set up for your SIP where a fixed sum will automatically be debited from your bank account every month.
3. An SIP offers an excellent way to invest regularly and without having to manually invest each time. Now that you know about the benefits of investing in mutual funds and how to invest in them, start investing and see your wealth grow.