Trading mutual funds for beginners

Trading mutual funds for beginners involves investing in diversified mutual funds.
Trading mutual funds for beginners
3 min

Trading mutual funds for beginners includes investing in diversified mutual funds. It's a way to access various assets without requiring extensive market knowledge, offering potential for growth or income based on the fund's objectives and performance.

Investing in mutual funds has gained considerable popularity in recent years to increase savings and maximise earnings. Trading mutual funds is an important step in your financial journey which involves buying and selling shares of mutual funds to add more diversification to your portfolio.

This guide to trading mutual funds for beginners will help you understand how to start trading mutual funds, investment strategies, charges, and much more.

Understanding mutual funds for beginner investors

A mutual fund combines or pools money from a large number of investors to invest in commodities, bonds, stocks, short-term debt, and even real estate.

It can be treated as a diversified bucket of different asset classes that are maintained and managed by expert professionals of Asset Management Companies (AMCs).

Mutual funds represent a form of indirect investment, where each share owned by an investor signifies a proportional stake in both the fund itself and any income it produces.

What is mutual fund trading?

As the name suggests trading mutual funds means buying and selling mutual fund shares in the open market. Mutual funds have become highly sought-after instruments of investment

since they have low minimum investment requirements, are professionally managed, are tax-efficient, and provide greater liquidity than real estate and fixed deposits.

Different types of mutual funds for beginners?

Investors can choose from a wide variety of funds depending on their risk tolerance, investment goals, and desired asset allocation. Here are three main types of mutual funds that you can select from based on asset class:

  • Debt funds: These are invested in government securities like government bonds, and treasury bills that provide a steady income. They are ideal for investors looking at short-term horizons and not wanting to take any risk.
  • Equity funds: These are funds that get invested in the shares of businesses and companies. These are ideal for long-term investments that generate high returns and are risk-averse.
  • Hybrid funds: They are a mix of equity and debt funds ranging from low to moderate risk that aim for both growth and stability over time.

How to start trading mutual funds for beginners?

You can start trading mutual funds for beginners in India by following the below-given steps:

1. Define your risk tolerance and financial goals

Before trading mutual funds, it is always advisable to define the purpose of the investment - be it retirement, your child’s education or marriage, buying a home, etc. This will give you clarity and help you identify the right investment instrument for your goals.

2. Get all the necessary documents in place

Before you start investing in mutual funds in India you will have to complete and comply with all Mutual Funds KYC (Know Your Customer) regulations. This will include having documents like a PAN card, Aadhar card, address proof, and photographs.

3. Set up a bank account

A bank account is necessary for trading mutual funds. You will need to link your bank account with your mutual fund investment to facilitate purchases and redemptions.

4. Identify the right mutual fund

Different mutual funds come with varied levels of risk and return percentages. You should choose the one that aligns with your financial ambitions. Research the different types of funds and their allocations before trading mutual funds. You can also consult a financial advisor for a more optimized selection based on your risk profile and investment goals.

5. Choose an investment avenue

You can invest and start trading in mutual funds for beginners in different ways:

  • Direct investment with asset management companies (AMCs): Directly apply through websites or offices of AMCs. Since this method has no intermediary, it will have a lower expense ratio.
  • Through a broker or financial advisor: You can also opt for professional advisors or brokers, but they will charge you a fee or a commission for the services they offer.
  • Online apps and fintech platforms: Numerous online platforms can help you in investing and trading mutual funds. Some also offer tools for tracking and analysis.

6. Decide on the mode of investment

You can invest a lumpsum amount in one go or opt for a systematic investment plan or SIP - monthly or quarterly to build a habit of saving.

7. Review and rebalance investments as and when need arises

Monitor the performance of the mutual fund periodically. With time your goals, market conditions or risk tolerance appetite may change. Hence, reviewing and rebalancing your fund allocation and portfolio is advised accordingly.

What are the charges associated with mutual funds?

  • Exit load: This fee is charged for selling mutual fund shares within a specified period after purchase to discourage early withdrawals.
  • Management fees: It is also called management expense ratio (MER) and it covers the cost of managing the fund's assets.
  • Sales and distribution fees: They cover the marketing and distribution expenses of the fund.
  • Transaction Costs: It is the costs incurred from trading activities within the fund, affecting the fund's overall performance but not directly charged to investors.
  • Switching Fee: It is a fee that can be charged when switching investments between mutual funds within the same fund family.

Tax strategy for trading mutual funds for beginner investors?

Here are a few strategies you need to keep in mind to get the maximum benefits from your mutual funds training:

  • Hold your mutual fund investments for more than a year to avoid the short-term capital gain tax which is higher than the long-term capital gains tax
  • Sell your mutual funds that have declined in value to offset long-term capital gains tax. This strategy, known as tax-loss harvesting, can help reduce your overall tax liability.
  • Invest in tax-efficient funds like ETFs and index funds, since they are more tax-efficient than actively traded funds.
  • Systematic Withdrawal Plans (SWPs) can be used to plan withdrawals from mutual funds in a tax-efficient manner, particularly from debt funds, as it helps spread the tax liability over several years and potentially reduce it through indexation.


With this trading mutual funds for beginners guide you can start a rewarding investment journey. Always be mindful of your financial goals and then select the mutual fund that fulfills those requirements. Also, plan well in advance for your taxes and the fees you will incur and decide accordingly.

The Bajaj Finserv Mutual Fund Platform can be your trusted ally on this journey. It helps you compare mutual funds, and choose the right mutual fund schemes to meet your financial needs.

With its lumpsum calculator and SIP calculator, you can also make an informed decision about how much to invest and estimate potential returns.

So start your trading mutual funds smartly with the Bajaj Mutual Fund platform.

Calculate your expected investment returns with the help of our investment calculators

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SIP Calculator Lumpsum Calculator Step Up SIP Calculator
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Frequently asked questions

Can I trade in mutual funds?
Yes, you can trade in mutual funds by buying and selling shares through a mutual fund company or a brokerage, with transactions based on the fund's daily net asset value (NAV).
What is the 30 day rule for mutual funds?
The 30-day rule for mutual funds prevents you from claiming a tax loss if you buy the same or a similar fund within 30 days before or after selling it.
Is mutual fund trading profitable?
Mutual fund trading can be profitable, depending on the fund's performance, market conditions, and effective investment strategies, but it also carries risks like any investment.
Can I invest Rs. 100 daily in mutual funds?
Yes, you can invest Rs. 100 daily in mutual funds through a Systematic Investment Plan (SIP) if the mutual fund platform allows such a small daily contribution.
How do I start trading in mutual funds?
To start trading in mutual funds, complete your KYC (Know Your Customer) process, choose a mutual fund that aligns with your investment goals, and place your buy order through a mutual fund company or brokerage platform.
Can I invest Rs. 1,000 in mutual fund?
Yes, you can invest Rs. 1,000 in a mutual fund, as many funds offer low minimum investment amounts that make it accessible.
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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information 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.