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How to Invest in SIP A Beginner's Guide
In summary
A mutual fund collects money from many investors and invests it in assets such as shares, bonds, and other securities. A professional fund manager manages the investments according to the scheme’s objective.
- Diversification: Your money can be spread across different investments instead of relying on one company.
- Professional management: A fund manager makes investment decisions on your behalf.
- Convenience: You can invest through an SIP or a lumpsum, depending on the scheme.
- Costs: Fees and other charges can reduce the money you earn.
- Market risk: Your investment value can fall, and returns are not guaranteed.
- Limited control: You do not choose every security held by the fund.
SEBI requires mutual fund schemes to display a Riskometer with 6 risk levels, from Low to Very High. Before investing, check the scheme’s objective, costs, portfolio, and risk level to see whether it suits your needs.
What are mutual funds?
A mutual fund is an investment option that pools money from many investors and invests it in assets such as company shares, bonds, and other securities. A professional fund manager manages this money according to the scheme’s investment objective. When you invest, you receive units in the fund. The value of these units changes based on the performance of the underlying investments. Mutual funds allow you to invest in a range of assets without having to select and manage each investment yourself. However, returns are not guaranteed, and the value of your investment can rise or fall.
What are the advantages of mutual funds?
Mutual funds can make investing easier, especially if you do not have the time or knowledge to choose individual investments yourself.
Diversification
A mutual fund can invest in several companies, sectors, or types of assets. This spreads your money across different investments. If one investment performs poorly, others may help balance the effect. However, diversification cannot prevent losses when many investments fall in value together.
Professional management
A fund manager researches investments and manages the portfolio according to the scheme’s objective. You do not have to study every company or decide when to buy and sell each security yourself.
Options for different budgets and goals
You can choose from equity, debt, hybrid, and other mutual fund categories. Each has a different investment approach and level of risk. Many schemes offer SIPs, which let you invest a fixed amount regularly, while lumpsum investing allows you to invest an amount at one time.
Convenience
You can monitor your investment through statements and online platforms. Depending on the scheme, you can also redeem units when you need money. Check the redemption rules, as some schemes have lock-in periods or exit loads.
What are the disadvantages of mutual funds?
Mutual funds can simplify investing, but they have limitations. Understanding them can help you avoid choosing a scheme that does not suit your needs.
Market risk and uncertain returns
The value of a mutual fund depends on its investments. Share prices may fall, bond values can change, and some issuers may struggle to repay their debt. These factors can reduce your investment value. This is known as market risk.
No mutual fund guarantees profits or protects your original investment in all circumstances. A fund that performed well in the past may also lose value later.
Fees can reduce your returns
Mutual funds charge expenses for managing and operating the scheme. These costs are reflected in the fund’s Net Asset Value and reduce the returns available to investors. Some schemes also charge an exit load if you redeem units within a specified period.
Compare the expense ratio and exit-load conditions before investing. Even small differences in annual costs can affect your money over time.
You have limited control
The fund manager decides which investments to buy, hold, or sell within the scheme’s rules. You cannot ask the fund to exclude a particular company from its portfolio simply because you prefer not to invest in it.
The manager’s decisions also affect performance. Research and experience can support better decisions, but they do not guarantee that the fund will meet its objective.
Some funds have withdrawal restrictions
Not every mutual fund lets you withdraw money whenever you want. For example, ELSS schemes have a three-year lock-in for each investment. Other schemes may charge an exit load for early redemption.
If you may need the money soon, check the withdrawal rules before investing. Do not assume that every mutual fund offers immediate access to your money.
Taxes may apply
You may have to pay tax on gains or certain distributions from mutual funds. The rules depend on the type of scheme, when you acquired the units, how long you held them, and the applicable provisions of the Income Tax Act.
Check the current tax treatment before redeeming units. If you are unsure how the rules apply to your investments, consult a qualified tax professional.
How can you decide whether mutual funds suit you?
Start with your financial goal. Money meant for a long-term goal may suit a different scheme from money you need for an expense next year.
Before investing:
- Set your goal: Decide what you are investing for and when you may need the money.
- Check your risk tolerance: Consider whether you can manage temporary falls in investment value.
- Compare schemes: Review the investment objective, portfolio, benchmark, expense ratio, and Riskometer.
- Read the documents: Check the scheme’s information document for risks, charges, and withdrawal conditions.
- Review your investment: Check whether it remains suitable as your needs and circumstances change.
The Bajaj Broking website lets you explore mutual fund schemes and compare information before making your decision. Complete the required KYC process before investing.
Conclusion
Mutual funds offer access to diversified investments and professional management, but they also carry risks, costs, and limitations. The right choice depends on your goal, investment timeframe, and comfort with risk. Understand how a scheme works and read its documents before investing. Do not choose a fund only because of its past returns.
Last updated: 13 October 2026
Mutual funds are subject to market risk. Please read the scheme-related documents carefully before investing.
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Frequently Asked Questions
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Changes to your investment
Can I nominate someone for my mutual fund investments?
Yes, mutual fund investors can generally register a nominee, subject to the applicable rules and account arrangements. A nominee can help the fund house process a claim if the investor dies. Review your nomination details periodically, particularly after major life changes, and follow the platform or fund house’s procedure to update them.
What records should I keep after investing in mutual funds?
Keep your account statements, transaction confirmations, purchase and redemption details, bank records, and tax-related documents. These can help you track your investments, verify transactions, and calculate gains when required. Store the records securely and retain them according to applicable tax and financial record-keeping requirements. Contact your platform or fund house if a statement is missing.
Can I transfer mutual fund units to another person?
Mutual fund units are not generally transferred in the same way as money between bank accounts. The process depends on the holding mode, scheme, and applicable rules. Transmission after an investor’s death is different from a voluntary transfer. Contact the fund house or registrar to confirm whether your specific request is permitted and which documents are required.
What happens if a mutual fund scheme is merged with another scheme?
A fund house may propose a merger or other change, subject to applicable regulatory requirements. Investors should read the official communication to understand the proposed changes, available options, and relevant dates. Check whether the new scheme’s objective and risk profile suit your needs. Do not assume that a merger automatically makes the investment better or worse.
Can a mutual fund investment affect my credit score?
Investing in mutual funds does not ordinarily affect your credit score because a mutual fund purchase is not itself a loan or credit account. Credit scores generally reflect credit-related information, such as repayment history and outstanding borrowing. However, borrowing money to invest can create repayment obligations and financial risk, so consider your circumstances carefully.
Disclaimer
Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319
BFL does NOT:
(i) provide investment advisory services in any manner or form.
(ii) carry customized/personalized suitability assessment.
(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.
In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.
Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.
Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.
Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.
Disclaimer
Bajaj Finance Limited ("BFL") is an NBFC offering loans, deposits and third-party wealth management products.
The information BFL contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.
Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.