March 5, 2018

How to Invest in Mutual Funds for Beginners

Mutual fund investing are one of the popular ways for beginners to invest money and get high returns. I am a beginner in investing in Mutual funds is learning about the right funds, systematic investment plans (SIPs), STP, SWP and types of funds. This is a step by step guide on how to invest in a mutual fund for beginners and act as a mutual funds investment guide for beginners. I have shares top tips for investing in mutual funds, how to start a mutual fund account and how do i invest in mutual funds online.

Read the Advisory Warning on Investing in Mutual Funds for Beginners

Disclaimer: I am not a financial expert and not even close to it. All of these information is consolidated and balanced to give an overview of finance and savings to make people like you and me, financially literate. Whatever issues and mistakes are there, kindly point them out and let me know by email, twitter or FB. I will try to add as much sources as possible. If anything is missed, kindly let me know.

 Advice: I have read many questions and answers in Quora, telegram channels, and what not. Most of these advises from share market gurus are to make money for them and not for you. Never trust anyone with your money and whatever decisions you take should be backed up with research and not rumors. Otherwise you will lose all the money for sure. DO NOT SPEND MORE THAN WHAT YOU CAN HANDLE. Avoid Greed, when it kicks out say this statement to yourselves; "Mutual fund investments are subject to market risks."

Note: This is a long consolidated post with information from many sources. Read or not read fully is your choice. This will help you for sure. I will adding more information as my journey with Mutual funds evolves.

mutual fund how to invest and what to check before investing

What are Recommended Actions to be Taken Before Investing in Mutual Funds

Before starting out SIPs, STPs and other investments in Mutual Funds, do the following first.

1. Create an emergency corpus - Emergency fund should be your 6 months salary.

2. Purchase adequate term plan if you have dependents - Term plan is only one claim during the term of policy or no claim at all. Term Plan must be at least 15-17 times of your yearly income or 500 times of your mothly expanse. Review the cover amount at own marriage, and at every child's birth, as well as for home loan. Generally Bank fd rate is 6.5%, so your family can deposit that money in the account.

3. Purchase adequate health cover - Health Policy can be like no claim for few years, then claims, no claims, claims, no claims and so on, till your death - Best Family Health Insurance Plans in 2018

4. Identify your future goals - Checked.

Now start thinking about mutual fund.

Asset allocation

Asset allocation is very important for Growth and Capital Protection. Before investing in mutual funds, try to look at other options to diversity your personal financial portfolio.

Asset allocation = Equity : Debt ratio

1. Cash - Hard cash in your purse and amount in your SB/Current account
3. Equity - Direct and through MFs
4. Real Estate - Direct and through REITs and Investment trusts, Land, House, Domestic, Commerical
5. Precious metals and Gems and stones - Gold, Silver, diamonds
6. Art work
7. Any other thing can't categorized above.

Jumping to Mutual Funds now.

Systematic Investment Plan [SIP]

Systematic Investment Plan is where an investor put money per month over a period of time. At the end of few years, the person would have accrued a good amount of stocks and will have a good returns. In SIP, you can select units of shares of any mutual fund and buy them.

You can use a SIP calculator to find out the return you will get at the end of the period. Use SIP calculator of valueresearchonline. Go to teh website, select fund and scroll down below to see the SIP calc. Select MF house and the fund and start calculating.

SIP calculator of valueresearchonline

Systematic Transfer Plan [STP]

Systematic Transfer Plan is where investor add a lump sum amount and ask the AMC to invest in specific schemes by taking smaller amount from the large amount.

Systematic Withdrawal Plan [SWP]

A lump sum amount is added in mutual fund and the investor or the nominee withdraw money as needed.

In order to start any of the above, you need to do KYC.

Know Your Customer [KYC] and Electronic Know Your Customer [eKYC]

The first step in order to invest in Mutual fund is to create an account. In order to create an account, you need to do a KYC or verify your identity as a customer. There are two ways of doing it.

 1. Go to any Mutual Fund houses or AMCs and fill the KYC form and submit all related documents.



 2. Go to CAMS / KARVY website and do eKYC using AADHAR.

new investment through mycamsonline

Quick links of RTAs to link AADHAAR to your Mutual funds


KARVY - Common Aadhaar linking across Karvy Serviced Mutual Funds / AIF - Submit Before 31st March 2018 to avoid freeze of MF folios



CAMS manages 13 AMcs.
  1. Birla SunLife.
  2. DSP Black Rock.
  3. HDFC Mutual Fund.
  4. ICICI-Prudential Mutual Fund.
  5. IDFC Mutual Fund.
  6. IIFL Mutual Fund.
  7. Kotak Mahindra
  8. L&T.
  9. Mahindra Mutual Fund
  10. PPFAS Mutual fund.
  11. SBI
  12. Tata Mutual Funds.
  13. Union Mutual Funds
If you register in CAMS, you can only do mutual fund transactions with these AMCs. MyCAMs is the web application under CAMS where you can manage your portfolio of funds. This service is completely free.

Karvy is same as CAMS but one my friend was asked to go to the office and fill KYC form when he was opening the account. He suggested me to go to CAMS and register.

Clearfund - Clearfund is another option where they charge 199 Rs for opening an SIP and adding a fund every time. You can easily go to CAMS / KARVY to start it for free than paying for clearfund.

Zerodha - You have to pay monthly subscription fee to manage the funds in Zerodha. If you are looking for trading and other financial services, you can opt for it.

Other Direct mutual fund portals are Kuvera, Investza, Mymoneysage, Jama, Wealth Trust.

Source: Registrars: CAMS and Karvy: Overview  and  What is cams mutual funds ?

I went and did eKYC in SBIMF and later HDFC MF and dsp blackrock automatically fetched the information. For investingin HDFC or CAMS you need to have a cancelled cheque.

What Type of Fund I should Invest in Mutual Funds for Beginners?

There are mainly 2 type of funds - Direct and Regular.

Regular Plan and Direct Plan

Currently there are 2 versions each for the Mutual funds.
Scheme A – Regular Plan – Growth
Scheme A –  Regular Plan – Dividend
Scheme A – Direct Plan – Growth
Scheme A –  Direct Plan – Dividend

Dividends - They are parts of profit generated by the company. The profit is divided as per the number of shares the company has and distributed to share holders. This means the company will pay you a sum of amount every year. This your returns. Eg: With Five lakhs investment over a period of 5 years, with 12% minimum interest, you will get 6661 Rs per month as dividend.

Growth - They are dividends generated from the shares which are automatically reinserted as investment. The money that the company pay you as dividends are used to buy more shares. This will increase your NAV.

In Regular plans, the Mutual Fund house, or the agent takes commission or fee from your investment. This will decrease your Net asset value (NAV). Think in terms of some guy making money out of your investment without you knowing about it. If your maturity amount is 1 crores, you may be getting 75 lakhs of NAV and 25 would have gone to the agent.

In direct plans, you are saving the money increasing your NAV. Always opt for direct plans.

Open ended fund - In open ended fund you can close, switch funds anytime.

Close Ended Fund - In closed ended fund, there will be lock out period and the mutual fund house may charge exit and entry charges.

Consistent Past Returns - Check the consistent returns given by the funds to the investors. That way you can see the performance of the fund. Following is an example of the returns given by some funds in the previous years.

Invest in Mutual Funds for Beginners

You should go for Open Ended Direct Growth Fund that provided good consistent returns in the past.

How often you track your mutual fund portfolio? (Tracking does not means reviewing)

You should be checking daily gains/NAV, XIRR, Absolute returns, etc. at least per month.

How to Get a List of Mutual Funds and their Returns in a five year period

Freefincal has created an amazing excel template consist of all the mutual funds and their returns of a five year period. This template can be used as Mutual Fund screener for beginners

How to Create an Experimental Portfolio in ValueResearchOnline

An experimental portfolio will help you to understand the performance of your funds without actually doing the investment. It is more like a demo.

Create an account, select my portfolio, select add investments and select mutual fund.
Go to Money control top rate funds list, quora Q&A or ET article on best mf funds to invest and find out top rated mutual funds that you are planning to invest.
Copy the name of the mutual fund and paste it in portfolio.
Add amount, date and price and select save.
Add as many funds possible and find out NET value

Watch Video


AMC - Asset Management Company
SBI Mutual Funds, Aditya birla are some Asset management Companies. You can also call them Mutual Fund Houses [MF houses].

RTA - Registrar and Transfer Agents

CAMS, KARVY, Franklin Templeton and Sundaram BNP Paribas are RTAs. RTAs manages many mutual fund houses or AMCs and helps the investor to invest money in multiple AMCs.
CAMS and Karvy are registrars who manages many AMCs.

Net asset value (NAV)
NAV means the current value of the share that you have. NAV is calculated per day as per the trade price of the shares you have in account.

NAV = (assets - liabilities) / number of outstanding shares

Maturity Amount = The amount that you are going to get once the SIP ends.


1. Money control - Provide Live Stock Price, Stock Trading news, Live CNBC TV18, Share Market, Views and Analysis on Equity and Stock Markets Tips etc.

2. Value Research Online - Share analysis on each mutual fund and gives a rating.

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