How to Invest in Mutual Funds: A Beginner’s Guide

Investing in mutual funds involves choosing a scheme that matches your financial goal, investment horizon, and risk level, completing the required KYC process, and making your investment through a suitable route. You can invest through SIP or lumpsum, depending on your investment plan and cash flow.

The key points to remember are:

• Mutual funds pool money from multiple investors and invest it according to the scheme's investment objective.
• KYC is mandatory before investing in mutual funds.
• You can invest through SIP or lumpsum.
• SIP involves investing a fixed amount at regular intervals, while lumpsum means investing an amount at one time.
• You should consider your financial goal, investment horizon, risk level, fund objective, portfolio, costs, and tax implications before investing.
• The SEBI Riskometer can help you understand the risk level of a mutual fund scheme.
• The minimum SIP available through the Bajaj Broking platform is Rs. 100 per month.

• The Bajaj Broking website provides access to 4,000+ mutual fund schemes.

  
  

Understanding these steps can help you approach mutual fund investing with greater clarity and avoid making decisions based only on past returns or fund popularity.

A mutual fund pools money from several investors and invests it in securities according to a defined investment objective. Depending on the scheme, these securities can include shares, bonds, government securities, and money market instruments.

A professional fund manager manages the scheme according to its stated strategy. In return for the money invested, you receive units of the mutual fund.

The value of each unit is represented by its Net Asset Value (NAV). The NAV can change as the value of the securities held by the scheme changes.

You can learn more about mutual funds before deciding whether this type of investment is suitable for your financial goals.

You can also use the mutual fund calculator to estimate the potential value of an investment based on the assumptions you enter. The result is an estimate and does not guarantee actual returns.

When you invest in a mutual fund, your money is pooled with money from other investors. The scheme then invests the pooled money according to its investment objective.

For example, an equity mutual fund generally invests mainly in equity and equity-related securities. A debt mutual fund generally invests in debt and money market instruments.

As an investor, you receive units based on the amount invested and the applicable NAV. The value of your investment can rise or fall as the value of the scheme's investments changes.

This means that mutual funds are market-linked investments. Diversification can spread exposure across different securities, but it does not remove investment risk.

Before investing, it helps to understand your financial position and gather the information required for the investment process.

You generally need to consider:

• Your financial goal
• Your investment horizon
• The amount you can invest
• Your risk tolerance
• Your KYC status
• Your bank account details

• The mutual fund category you want to explore

  
  

You can read about risk tolerance to understand the difference between the amount of risk you are willing to take and the risk involved in an investment.

KYC stands for Know Your Customer. It is a mandatory process for mutual fund investors. It helps verify your identity and other required details before you invest.

You may need documents such as PAN and prescribed identity or address documents. The exact verification process and documents can depend on the applicable requirements and the investment route you use.

KYC is required whether you invest online or offline. Complete the required KYC process before placing your mutual fund investment.

Choosing a mutual fund should begin with your financial goal rather than with a fund's recent return.

Consider the following factors before selecting a scheme:

• Financial goal: Decide what you are investing for, such as retirement, education, or another planned expense.
• Investment horizon: Consider how long you can remain invested before you need the money.
• Risk level: Check how much investment risk you can accept and compare it with the scheme's Riskometer level.
• Investment objective: Understand what the scheme aims to invest in and how it is managed.
• Portfolio: Check the securities and asset classes held by the scheme.
• Costs: Review the expense ratio and any applicable exit load or other charges.
• Past performance: Historical returns can provide information about the fund's past performance, but they do not predict future returns.

You can also explore different types of mutual funds before selecting a category.

Mutual funds can be grouped into different categories based on factors such as the assets they invest in and their investment strategy.

Equity mutual funds

Equity mutual funds primarily invest in shares and equity-related securities. Their value can fluctuate significantly with market conditions.

Different equity categories include large-cap, mid-cap, small-cap, multi-cap, and other categories with specific investment mandates.

Debt mutual funds

Debt funds invest mainly in debt and money market instruments. These can include government securities, corporate bonds, and other permitted fixed-income instruments.

Debt funds are not risk-free. Their risks can include interest rate risk and credit risk, depending on the securities held by the scheme.

Hybrid mutual funds

Hybrid funds invest across more than one asset class, such as equity and debt. The allocation depends on the scheme's investment objective and category.

Different hybrid categories have different asset-allocation requirements and risk levels.

Tax-saving mutual funds

ELSS or Equity Linked Savings Schemes invest primarily in equity and equity-related securities and have a statutory lock-in period of three years.

Tax treatment for ELSS depends on the applicable income-tax rules and the tax regime you follow. Check the current rules before making an investment for tax-saving purposes.

There are several routes through which you can invest in mutual funds. The route you use can affect whether you invest in a Direct Plan or a Regular Plan.

Invest through a mutual fund distributor

A mutual fund distributor can facilitate investments in Regular Plans. The distributor may help with transactions and provide information about available schemes.

Regular Plans include distribution-related expenses in their cost structure.

You can verify whether a distributor is registered with AMFI before investing.

Invest directly with an AMC

An Asset Management Company, or AMC, manages mutual fund schemes and their investments.

You can learn more about an Asset Management Company and the role it plays in managing mutual fund schemes.

Direct Plans are available for investors who invest directly without a distributor. They have a lower expense ratio than the corresponding Regular Plans because distribution commissions are not charged to Direct Plans.

A lower expense ratio does not guarantee higher investment returns.

Invest through a registered investment adviser

A SEBI-registered investment adviser can provide investment advice subject to the applicable regulatory framework. Advisory services and mutual fund distribution are different activities, so check the nature of the service being provided.

If you use an adviser, understand the fees, services, and applicable terms before proceeding.

Use a registrar and transfer agent

Registrars and Transfer Agents (RTAs) provide services related to mutual fund transactions and investor records on behalf of fund houses.

Some RTAs provide online facilities for transactions and access to information about investments in schemes serviced by them.

Invest through an online investment platform

You can use an online investment platform to explore schemes, complete the required process, place investments, and monitor your holdings.

The Bajaj Broking website provides access to mutual fund investment options. Before investing, check the scheme details, investment objective, risk level, costs, and applicable terms.

Invest through a stockbroker or bank

Some stockbrokers and banks distribute mutual fund schemes. Depending on the service, the investment may be made through a Regular Plan.

Before investing, check whether the investment is a Direct Plan or Regular Plan, and understand the associated costs.

Once you have completed the required KYC process and decided which scheme you want to invest in, you can follow the investment process available on the Bajaj Broking website.

Step 1: Complete KYC

Complete the required KYC verification before investing.

Step 2: Set your investment goal

Decide why you are investing and how long you expect to remain invested.

Step 3: Choose a mutual fund scheme

Review the scheme's category, investment objective, portfolio, Riskometer level, costs, and other relevant information.

Step 4: Select SIP or lumpsum

Choose whether you want to invest regularly through an SIP or invest an amount at one time through a lumpsum investment.

Step 5: Enter the investment details

Enter the required investment amount and other details requested by the platform.

Step 6: Complete the transaction

Review the details before submitting the investment request and complete the applicable payment process.

Step 7: Monitor your investment

Review your portfolio periodically and check whether the investment continues to match your financial goals and risk level.

SIP and lumpsum are two ways of investing in a mutual fund.

How to invest through an SIP

An SIP allows you to invest a fixed amount at regular intervals, such as monthly or quarterly, depending on the scheme and platform.

You can:

1. Select a mutual fund scheme.
2. Choose the SIP option.
3. Enter the investment amount and frequency.
4. Set up the applicable payment mandate.
5. Review the details and start the SIP.

You can use the SIP calculator to estimate potential investment values based on your chosen inputs.

The minimum SIP available through the Bajaj Broking platform is Rs. 100 per month, subject to the applicable scheme and platform conditions.

How to invest through a lumpsum

A lumpsum investment means investing an amount in a mutual fund at one time rather than through regular instalments.

Before investing, consider:

1. Your financial goal
2. Your investment horizon
3. Your risk level
4. The scheme's investment objective
5. The amount available for investment

You can use the lumpsum calculator to estimate potential values based on your chosen assumptions.

The calculator output is an estimate. It does not guarantee the actual return from a mutual fund.

There is no single investment amount that is suitable for every investor.

The amount you invest should take into account:

• Your income and regular expenses
• Your financial goals
• Your existing savings and investments
• Your investment horizon
• Your risk tolerance

• The minimum investment requirement of the selected scheme

  
  

For example, if you have Rs. 5,000 available each month after accounting for your regular financial commitments, you could assess whether investing part of that amount through an SIP fits your financial plan.

Do not choose an investment amount only because a particular fund has a low minimum investment.

Mutual fund investments can involve different costs. The applicable costs depend on the scheme, plan, transaction, and other factors.

Expense ratio

The expense ratio represents the expenses charged to a mutual fund scheme for managing and operating it. It is expressed as a percentage of the scheme's assets.

You can learn more about the expense ratio before comparing schemes.

Exit load

An exit load is a charge that may apply when you redeem units within a specified period.

Not every scheme has the same exit-load structure. Check the scheme-related documents before investing.

Total Expense Ratio

The Total Expense Ratio is a measure of the expenses charged to a mutual fund scheme. Applicable limits and charges are governed by the relevant regulatory framework.

Check the current scheme information rather than relying on a general percentage.

Taxes and statutory charges

Mutual fund transactions can have applicable taxes and statutory charges. The treatment can depend on the type of mutual fund, transaction, holding period, and applicable tax rules.

Do not assume that all mutual funds have the same tax treatment.

ELSS is a mutual fund category associated with tax-saving investments.

Under applicable tax rules, eligible ELSS investments can qualify for a deduction under Section 80C, subject to the conditions and tax regime applicable to you. ELSS investments also have a statutory three-year lock-in period.

Tax rules can change. Check the current Income Tax Department rules before making an investment for tax-saving purposes.

NRIs may be able to invest in Indian mutual funds subject to applicable rules, KYC requirements, tax rules, banking arrangements, and the policies of individual fund houses.

The process can differ from that followed by resident investors.

An NRI should check:

• The applicable KYC requirements
• The permitted bank account route
• Repatriation requirements
• Tax obligations

• Whether the selected fund house accepts investments from the relevant country of residence

  
  

Because NRI investment rules can vary, verify the current requirements before investing.

Before investing, use this checklist:

• Goal: Know what you are investing for.
• Time horizon: Consider when you may need the money.
• Risk: Check the scheme's Riskometer and understand the risks involved.
• Category: Make sure the fund category matches your investment objective.
• Portfolio: Review what the scheme invests in.
• Costs: Check the expense ratio and any applicable exit load.
• Plan type: Confirm whether you are investing in a Direct Plan or Regular Plan.
• Tax: Understand the applicable tax treatment.

• Documents: Read the scheme-related documents before investing.

  
  

You can also read about your risk profile before comparing mutual fund schemes.

Both Direct and Regular Plans of the same mutual fund scheme invest in the same underlying portfolio and have the same investment objective.

The main difference is how you invest:

A lower expense ratio does not mean that a Direct Plan guarantees higher returns. Investment performance remains subject to market conditions and the performance of the underlying securities.

You do not need to react to every short-term market movement.

Instead, review whether:

• The fund still matches your financial goal.
• Your investment horizon has changed.
• Your risk tolerance has changed.
• The scheme's investment objective remains relevant.
• The portfolio and costs remain consistent with your expectations.

• Your overall asset allocation still makes sense.

  
  

Avoid making decisions solely because a fund has delivered a strong or weak return over a short period.