How to Invest Mutual Funds - Steps for Investing in 2025

Are you investing in Mutual Funds for the first time? If yes, it is necessary to gain a good understanding of the Mutual Fund market to be able to earn significant profits over a given period of time. You can begin with the Systematic Investment Plan (SIP) or alternatively invest a lump sum amount. Let's understand how you can commence your investment journey.

What Is Mutual Fund?

A Mutual Fund is an investment vehicle that collects and pools money from several investors who share a common investment objective. The collected money is pooled by a professional fund manager. It is then invested in Mutual Fund schemes such as Equities, Debt, money market instruments, Stocks and Bonds etc. that are in line with the investors' objective.

The returns generated from the investment scheme are distributed equally among the investors', post deduction of expenses and other fees.

How Do Mutual Funds Work?

Mutual funds work in a very simple manner. They take in the money from various investors and invest that money in the market via tools like stocks, bonds, government securities, etc, as per the fund’s goal. These are managed by professional fund managers who are well-versed with the market and take the stress away from you regarding market research and risk management.

Investors receive units based on the amount invested and the fund’s Net Asset Value or NAV. As the fund’s value increases or decreases, so does your investment. You can invest via lump sum or SIP, and redeem your units anytime (unless it’s a lock-in fund). 

Types of Mutual Funds

There are several types of Mutual Funds designed to meet the investor goals. Mutual Funds are broadly classified based on:

• Organisation Structure – Open-ended funds, Close-ended funds and Interval Schemes

• Investment Objective – Growth Funds/Equity, Income Funds/Debt, Liquid/Overnight/Money Market Mutual Funds

• Underlying Portfolio – Equity, Debt, Hybrid, Money market instruments, Multi-Asset

• Portfolio Management – Active Funds and Passive Funds

• Thematic/Solution-oriented – Retirement benefit, Tax saving, Child welfare, Arbitrage

• Fund of funds

• Exchange-Traded Funds (ETFs)

• Overseas Funds.

Things to consider before investing in a Mutual Fund scheme:

• Evaluate your investment profile: There is a Mutual Fund scheme to match every individual's needs and objectives. You can invest in either an Equity, Debt or Hybrid Mutual Fund. Choose the type based on your risk profile, time period and investment goal

• Know your goal: Always invest with a goal in focus. List down your budget, financial goals and time horizon to achieve your life goals. This will help you determine exactly how much money you’ll need to invest

• Tax-saving should not be the only purpose: Equity Linked Savings Scheme (ELSS) is the only Mutual Fund tax saving scheme wherein you get tax savings benefit up to Rs lakh under Section 80C of the Income Tax (IT) Act. However, this should not be the only motive for investment. Investing in Mutual Fund schemes for the long-term will help you build a considerable wealth

• SIP or Lump sum: You can invest in a Mutual Fund through an SIP or the Lump sum method. Investment in an SIP gives you the flexibility to contribute a fixed sum monthly, quarterly or yearly. Additionally, you have the option to invest in funds at one go. Generally a lump sum investment is suitable for experienced investors

• No guaranteed returns: Mutual Fund returns are based on market conditions. They help to yield reasonable returns, but there are chances that you may lose some money if the market performance is poor. So choose your Mutual Fund scheme carefully.

Why should you invest in Mutual funds?

Today, most investors are choosing mutual funds for their investment journey. Here are the top reasons why:

1. Mutual funds are a smart way to generate wealth over time, whether you are an experienced or new investor.

2. These pools of money from various investors and invested in a diversified portfolio of stocks, bonds, or other securities. This reduces risk and offers better returns than keeping money idle.

3. You can invest with options such as SIPs or Systematic Investment Plans, in which you can start investing with small amounts regularly.

4. Mutual funds are professionally managed, offering flexibility, transparency, and liquidity. 

How does one invest in Mutual Funds?

You can invest in a Mutual Fund scheme through offline or online methods.

The procedure to invest in mutual funds with ICICI Bank is very simple. You can choose between the online and offline methods as per your preference.

Online via Net Banking:

1. Log in to ICICI Bank Net Banking.
2. Go to Investments and Insurance > Buy Mutual Funds.
3. Choose from the list of top categories, and invest in your preferred scheme.

Online via iMobile App

1. Log in to the iMobile App using your password and username.
2.  Go to Invest > Mutual Funds.
3. Scroll through the Top Categories, choose a scheme, and start investing.

Offline Method:

To start with the offline method, you need to visit the nearest ICICI Bank branch. There, a bank representative will guide you through available mutual fund options and help complete the investment with the required documents and KYC.

Know about the risks

Every Mutual Fund has a certain amount of risk involved based on the type of security you invest in, and the investment methodology followed. Know the rule of thumb that the equity funds, especially the small and mid-cap funds, have the highest risk factor, but they also have the highest reward potential. The debt funds, on the other hand, are relatively low-risk funds, and they offer lower returns. Depending on your risk-taking capacity, you can invest in either of the two funds.

Have a clear investment objective

Once you know the risks involved and the potential benefits of the different Mutual Funds, the next important question you must ask yourself is how long do you want to stay invested? And how much you can afford to invest without compromising on your regular expenses? The Mutual Funds are very flexible. You can start investing with as little as INR 500. Besides, apart from certain Mutual Funds schemes like the Equity-Linked Savings Scheme (ELSS), you can invest and redeem your investment at any time you want. This gives you the liberty to choose the right type of scheme based on your financial goal. For example, if you want to stay invested for long-term and get tax benefits on your income, you can invest in ELSS. If you are looking for a short-term investment scheme with a low-risk profile and get higher returns than the savings account, investing in debt fund would be an ideal choice.

Diversify your investment

Many experts suggest that the best way to capitalise the benefits of Mutual Funds is to have a diversified investment portfolio. What this essentially means that you should not invest all your money in a single asset class, make sure that you invest a smaller sum in different instruments, so that you can balance the overall risk and get valuable returns.

Review the portfolio periodically

One of the biggest mistakes that newbie investors commit is that they ignore monitoring the performance of their investments. A periodic review gives you the chance to know exactly which type of funds are performing well and which funds didn't perform as per your expectations. Once you know about the performance, you can consider reallocation of the funds and invest more in the high-performing assets and maximise the earnings.

Mutual Funds by no means is a ‘get rich soon’ scheme; to be successful, you must have a good understanding of the market as well as a robust investment strategy.