How to Invest in Mutual Funds - An Easy Step-by-Step Guide

What are Mutual Funds?

Mutual funds are considered a financial basket, where individuals pool money to invest in various securities, including bonds and equities. Managed by experts and professionals, these funds are accumulated together to provide financial benefits and wealth to investors, aligned with their goals and objectives.

How to Invest in Mutual Funds (Step-by-step)? 

Follow the mentioned steps to invest in Mutual Funds:

Step 1: Establish Your Financial Objectives

Understand your long-term (retirement, education) or short-term (auto purchase) objectives. It will assist you in selecting the appropriate fund type.

Step 2: Determine Your Risk Tolerance

Recognise the level of danger you can tolerate. Debt funds are a better choice for reduced risk, while equity funds can be appropriate if you can handle higher risks.

Step 3: Find a suitable platform to invest

Choose ICICI Bank’s iMobile pay app and start investing.

Step 4: Select the Mode of Investment

Choose between making regular, smaller instalments through a Systematic Investment Plan (SIP) or investing as a single payment.

Step 5: Invest & Monitor

Regularly track your fund’s performance.

How to invest in Mutual Funds through SIP?

Investing in Mutual Funds through Systematic Investment Plan (SIP) offers a convenient and disciplined approach to wealth creation. Follow these simple steps to start your SIP investment process:

• Begin by selecting the mutual fund scheme you wish to invest in and opt for the SIP option offered by the fund.

• Determine the amount you want to invest regularly through SIP and choose the frequency of investment, such as monthly, quarterly, or any other suitable interval. This systematic approach fosters consistent saving habits.

• Ensure easy SIP investments by setting up auto-debit instructions from your bank account to the mutual fund scheme.

How to invest in Mutual Funds through Lumpsum?

When you are planning to Invest in Mutual Funds through a lumpsum method, it involves making a one-time large investment. Here are the steps to do it:-

1. Select a Platform

Create an account with a leading financial institution like ICICI Bank.

2. Determine Your Tolerance for Risk

Recognise how comfortable you are with possible market volatility because lump sum investments carry more risks even though they can provide larger profits.

3. Choose the Proper Mutual Fund

Depending on your objectives, pick a fund: debt funds for safer, short-term objectives or equity funds for long-term gain.

4. Establish the Holding Period

For greater returns, aim to hang onto your investment for a minimum of three years, particularly if you are investing in stock funds.

5. Make the Investment

With your investing objectives in mind, make a one-time investment into the selected fund.

How to invest in Mutual Funds for Tax savings?

Investing in Mutual Funds for tax savings is a smart financial move. Consider Equity Linked Savings Schemes (ELSS) mutual funds, which offer a deduction of up to Rs. 1,50,000 on taxable income under Section 80C of the Income Tax Act. By investing in ELSS, you not only save on taxes but also potentially grow your wealth. Keep in mind that ELSS units are locked in for 3 years, so ensure you have a long-term investment horizon before committing funds.

How much should you invest in Mutual Funds?

Determining the amount to invest in mutual fund schemes hinges on several factors, including financial goals, risk appetite, investment horizon, and current financial status. While there's no statutory minimum investment stipulated, most mutual funds in India set their own minimum investment thresholds.

Typically, the minimum investment amount for mutual fund schemes falls within a broad range. However, certain fund categories may necessitate a higher minimum investment. It's essential to assess your financial capacity and investment objectives carefully before deciding on the amount to invest.

Why should you invest in Mutual Funds? 

Investing in mutual funds offers many advantages that make them an attractive option for both novice and experienced investors. Firstly, mutual funds provide diversification, spreading investments across various assets to mitigate risk. With professional management by seasoned fund managers, investors benefit from expert decision-making and market monitoring. Because mutual funds are liquid, investors can easily buy or sell units. They are also accessible and affordable, catering to investors with varying capital levels.

The flexibility of mutual funds provides options tailored to individual financial objectives and risk preferences. Certain types of mutual funds, like Equity Linked Saving Schemes (ELSS), offer tax benefits. Lastly, regulatory oversight by bodies like the Securities and Exchange Board of India (SEBI) ensures investor protection and transparency.

Things to consider before investing in Mutual Funds? 

Investing in mutual funds offers many advantages that make them an attractive option for both novice and experienced investors. Firstly, mutual funds provide diversification, spreading investments across various assets to mitigate risk. With professional management by seasoned fund managers, investors benefit from expert decision-making and market monitoring. Because mutual funds are liquid, investors can easily buy or sell units. They are also accessible and affordable, catering to investors with varying capital levels.

• Determine financial objectives and investment horizon: Define your investment goals, whether it's saving for retirement, purchasing a home, or other financial milestones.

• Assess risk tolerance: Evaluate how much risk you are comfortable with based on your age, financial situation, and investment goals. Adjust your investment strategy accordingly.

• Choose the mutual fund type: Select a fund that matches your financial goals and risk tolerance, considering factors such as asset allocation and investment strategy.

• Decide on active or passive management: Understand the differences between actively managed and passively managed funds and choose the management style that best suits your investment objectives.

• Check fund performance: Evaluate the performance of shortlisted funds over recent years and compare them to their peers to gauge their historical returns.

• Analyse expense ratio: Consider the expense ratio, which reflects the fees deducted from your investment. Opt for funds with lower expense ratios to maximise returns.

• Check liquidity and fund size: Assess the ease of buying and selling fund shares and consider the fund's size, as larger funds tend to be more liquid.

• Assess fund manager expertise: Review the experience and track record of the fund manager to ensure they have the expertise to make sound investment decisions.

• Read the policy document: Thoroughly examine the fund's policy document to understand its investment objective, risk profile, fees, and other relevant details.

• Ensure complementarity with existing investments: Ensure that the chosen fund complements your existing investment portfolio and contributes to achieving your overall financial goals.

The KYC process before investing in Mutual Funds

Completing the Know Your Customer (KYC) procedure is required before making a Mutual Fund investment. This promotes safe transactions and guarantees adherence to rules. You will need your Aadhar card, PAN card, and evidence of address, such as a utility bill to finish KYC. By providing your information and uploading scanned copies to the Mutual Fund website or app, you can choose to complete the procedure online. 

How to calculate returns on your Mutual Fund Investments?

You can utilise a SIP Calculator to calculate returns on your Mutual Fund Investments. This tool helps estimate the potential returns from your Systematic Investment Plan (SIP) based on factors such as investment amount, duration, and expected rate of return. By inputting these variables into the SIP Calculator, investors can obtain an approximate idea of the future value of their investments. This enables better financial planning and decision-making by providing insights into the growth potential of their mutual fund investments over time.

Common Mistakes to Avoid While Investing in Mutual Fund

• Absence of Specific Financial Objectives

Many investors make Mutual Fund investments without clearly identifying their short- or long-term goals. Establish clear objectives, such as saving for a trip or retirement, to help you select the best kind of fund for your requirements.

• Unreasonably High Expectations for Returns

High and rapid profit expectations might cause disappointment. Recognise that Mutual Funds are long-term investments that are subject to changes as per market.

• Not Enough Research

It might be expensive to overlook fund specifics including historical performance, risk tolerance, and expense ratios. To make sure a fund fits your investing style, always do a comprehensive evaluation.

• Inadequate Diversification of the Portfolio

Your assets are at greater risk if you just use one kind of fund. Invest in a variety of debt, equity, and hybrid funds to properly balance risk and rewards.

• Ignoring Inflation Impact

Neglecting inflation can erode the real value of your returns. To maintain purchasing power over time, ensure your investments grow faster than inflation.

Mutual Fund Investment FAQs

1. Is it safe to invest in Mutual Funds?

Investing in Mutual Funds is generally considered safe due to diversification, professional management, and regulatory oversight. However, like all investments, there are risks involved, including market fluctuations

2. Is SIP the most profitable mutual fund investment? 

SIP can be profitable over the long term due to its disciplined approach of investing regularly, benefitting from rupee cost averaging and compounding returns.

3. Are Mutual Funds tax free? 

Mutual funds are not entirely tax-free. Depending on the type of mutual fund and the duration of investment, investors may be subject to capital gains tax.

4. Can I get monthly income from a mutual fund?

Certain mutual funds, such as dividend-paying funds or systematic withdrawal plans (SWP), can provide investors with regular monthly income distributions.

5. How to invest in Mutual Funds offline? 

If you are wondering how to invest in mutual funds offline, follow these steps:

• Visit the nearest Asset Management Company (AMC) office.

• Complete your KYC process if not already done.

• Fill and submit the Mutual Fund Form at the AMC branch

6. Is a Demat account required for investing in Mutual Funds?

No, having a Demat account is not mandatory for purchasing mutual fund units.

7. How much money do I need to start investing in Mutual Funds?

You can begin investing in Mutual Funds with as little as Rs. 500. Your financial objectives, risk tolerance, and investment term will all influence the initial investment amount. To determine the appropriate investment amount for you, evaluate your existing financial status.

8. What is the minimum tenure for investing in Mutual Funds?

Investing in a Mutual Fund requires a minimum duration of one day. The reason behind this is that Mutual Fund prices are determined daily based on their Net Asset Value (NAV). However, longer investment periods result in higher profits.

9. Can I withdraw money from Mutual Funds anytime?

You can withdraw funds from Mutual Funds at any time because they are generally liquid assets. However, early withdrawals from some funds may result in trading or redemption penalties. 

For disclaimer, Click here