Rs. 100- Rs. 10 crore
Start investing with Rs. 100 | Easy KYC | Expert-managed funds
What Is a Mutual Fund Complete Beginner's Guide
In summary
Mutual funds pool money from investors and invest it across securities based on a scheme's objective. They can help you diversify without selecting individual securities yourself.
- You can invest through an SIP or lumpsum.
- SIPs on the Bajaj Broking website start from Rs. 100 per month.
- Mutual funds offer different risk and investment options.
- Professional fund managers manage scheme portfolios.
- Returns are market-linked and not guaranteed.
KYC is mandatory before investing.
For example, if you have Rs. 3,000 available each month, an SIP can help you invest regularly rather than waiting until you have a large amount available.
The right reason to invest depends on your goal, investment horizon, risk tolerance, and financial situation.
What is a mutual fund?
A mutual fund pools money from multiple investors and invests it in securities such as shares, bonds, and money market instruments according to its investment objective. A professional fund manager manages the scheme's portfolio.
When you invest, you receive units based on the applicable Net Asset Value (NAV). The value of those units can rise or fall depending on the value of the underlying investments.
If you are new to the concept, learn more about mutual funds before deciding whether they fit your financial goals.
Why should you invest in mutual funds?
Mutual funds offer several practical features, but each benefit must be considered alongside the scheme’s risks and costs.
| Reason | How it may help | What to check |
|---|---|---|
| Diversification | Your money is spread across multiple securities. This can reduce the effect of one investment performing poorly. | Diversification cannot eliminate overall market risk. Check sector, issuer, and asset concentration. |
| Professional management | Qualified fund managers research securities and manage the portfolio. | Professional management does not guarantee better returns or prevent losses. |
| Scheme variety | Equity, debt, hybrid, index, ELSS, and other mutual fund schemes address different objectives. | Select a category that matches your goal, time horizon, and ability to accept losses. |
| Flexible investment modes | You may invest through a lumpsum or a Systematic Investment Plan (SIP). | The chosen mode does not determine or guarantee returns. |
| Smaller starting amount | Selected schemes on the Bajaj Broking website accept an SIP starting at Rs. 100 per month. | Minimum amounts differ across schemes and investment modes. |
| Transparency | Schemes disclose their NAV, portfolios, expenses, and risk information periodically. | Read the scheme information document, factsheet, and Riskometer before investing. |
| Liquidity | Units of many open-ended schemes can be redeemed on business days. | Exit loads, settlement periods, lock-ins, and exceptional restrictions may apply. |
Mutual funds can therefore simplify portfolio construction. However, the scheme’s asset allocation remains more important than convenience alone.
What are the potential benefits?
Mutual funds can support different financial goals when selected and monitored carefully.
The main potential benefits are:
- Goal-based choice: You can select schemes for goals such as retirement, education, or an emergency reserve, subject to their risk and investment horizon.
- Rupee-cost averaging: An SIP invests a fixed amount periodically. You receive more units when the NAV is lower and fewer when it is higher. This averaging does not assure a profit or prevent losses.
- Potential for compounding: Reinvested gains may generate further gains over time. However, compounding depends on actual returns, costs, and how long you remain invested.
- Portfolio visibility: Regular statements and disclosures help you monitor investments, transactions, asset allocation, and performance.
- Tax planning: ELSS investments may qualify for a Section 80C deduction under the old tax regime, subject to applicable limits and conditions. Each investment has a three-year lock-in. Tax benefits should not be the only selection factor.
What are the limitations and risks?
Mutual funds are market-linked investments. Their returns are not fixed, assured, or guaranteed.
Before investing, consider these limitations:
- Market risk: Equity, debt, and hybrid schemes can all lose value. Their level and source of risk may differ.
- Scheme expenses: The expense ratio covers operating and management costs. It is charged to the scheme and affects the NAV and your net return.
- Exit load: Some schemes charge an exit load when you redeem units within a specified period.
- Limited security selection: The fund manager selects investments according to the scheme mandate. Individual investors cannot usually choose particular securities.
- Tax consequences: Redemption or switching may create taxable capital gains. Tax treatment depends on the scheme, holding period, applicable law, and your circumstances.
- Liquidity restrictions: ELSS funds have a three-year lock-in. Other schemes may also impose restrictions under exceptional conditions.
Do not select a scheme only because it delivered high historical returns. Past performance does not indicate or guarantee future results.
What should first-time investors check?
A structured review can help you avoid choosing a scheme solely because of recent returns or popularity.
Before making your first investment, check the following:
- Define your goal: Identify why you are investing, how much you need, and when you expect to need it.
- Assess your risk capacity: Your risk profile should reflect both your willingness and financial ability to accept losses.
- Review the Riskometer: SEBI’s categories are Low, Low to Moderate, Moderate, Moderately High, High, and Very High.
- Match the investment horizon: Equity funds generally require a longer horizon than funds designed for short-term liquidity. No category offers guaranteed returns.
- Check costs: Review the expense ratio, exit load, and other disclosed charges. A lower expense ratio alone does not make a fund better.
- Study the scheme: Read its objective, asset allocation, benchmark, portfolio concentration, risk factors, and performance across different periods.
- Compare similar schemes: Compare funds within the same category. Comparing an equity fund with a liquid or debt fund may produce misleading conclusions.
- Complete KYC: Know Your Customer, or KYC, verification is mandatory before investing under the applicable regulatory framework.
Consider consulting a qualified financial adviser if you need personalised assistance. The adviser should consider your income, liabilities, insurance, goals, tax position, and risk capacity.
Should you choose an SIP or lumpsum?
An SIP and a lumpsum are investment methods, not separate mutual fund products. Your cash flow and financial circumstances should guide the choice.
This comparison explains their main differences:
| Factor | SIP | Lumpsum |
|---|---|---|
| Investment pattern | A fixed amount is invested periodically. | A larger amount is invested once. |
| Starting amount | Selected schemes start from Rs. 100 monthly on the Bajaj Broking website. | The minimum depends on the scheme. |
| Market timing | Investments are spread across multiple dates. | The full amount enters the market at one time. |
| Suitable cash flow | May suit investors with regular income. | May suit investors with available surplus funds. |
An SIP can encourage investing discipline and spread purchase prices. However, it cannot protect you from losses. A lumpsum investment may experience a greater immediate effect from market movements.
How to invest through the Bajaj Broking website
KYC must be complete before you invest. The following process provides a general overview, although individual screens may change.
- Visit the platform: Open the mutual fund section on the Bajaj Broking website.
- Explore schemes: Filter schemes by category, investment objective, risk level, and other relevant factors.
- Review the details: Check the scheme documents, Riskometer, costs, exit load, portfolio, and minimum investment.
- Complete KYC: Provide the required identity, address, bank, and verification information if your KYC is incomplete.
- Choose an investment mode: Select an SIP or lumpsum, enter the amount, and complete the payment instructions.
- Track your investment: Use Dashboard, Portfolio, Orders, and MF Profile to review your holdings and transactions.
Avoid selecting a scheme simply because it appears on a platform. Your decision should remain based on the scheme’s suitability for your goal and risk capacity.
Conclusion
Mutual funds can provide diversification, professional portfolio management, investment flexibility, and access to different asset classes. These features may help both new and experienced investors work towards financial goals.
However, mutual funds are not free from risk. Compare the scheme’s objective, Riskometer, costs, portfolio, liquidity, and investment horizon before investing. Choose between an SIP and lumpsum according to your cash flow, rather than expected short-term market movements. Review your portfolio periodically, but avoid reacting to every temporary rise or fall.
Essential tools for mutual fund investors
Explore Investment Tools
Articles and Insights
Frequently Asked Questions
Understanding mutual fund suitability
Investment period and timing
Professional management and diversification
Are mutual funds a good investment?
Mutual funds may be suitable because they offer diversification, professional management, and different investment options. However, returns are market-linked, and only eligible schemes, such as ELSS, provide specific tax benefits.
Are mutual funds safe?
Mutual funds are regulated by SEBI, but they are not risk-free. Check the scheme’s Riskometer, portfolio, investment objective, and time horizon before investing.
Are mutual funds good for short-term investment?
Certain debt or money market funds may support short-term goals, depending on their risk and duration. Equity funds are generally unsuitable for money required soon because prices can fluctuate.
Why are mutual funds suitable for beginners?
Mutual funds offer diversification, professional management, and flexible SIP options. However, beginners should still check the scheme’s objective, Riskometer, costs, and investment horizon before investing.
When to buy mutual funds?
Invest when you have a defined goal, suitable investment horizon, emergency savings, and the capacity to accept risk. Avoid waiting for the “perfect” market level.
Can mutual funds help manage concentration risk in an investment portfolio?
Yes. Mutual funds can spread investments across multiple securities, sectors, or asset classes. This may reduce concentration risk, but it cannot eliminate market risk.
How does professional fund management affect mutual fund investing?
Professional fund managers research securities, build portfolios, and monitor risks according to the scheme’s objective. However, professional management does not guarantee returns or prevent losses.
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.