"Learn what mutual funds are, explore their types and benefits, and get step-by-step expert guidance on how to start investing in mutual funds wisely."
Published: 3 May 2025
Updated: 3 May 2025
What if we tell you that you can invest your savings in the market, and a professional expert will take care of the hassle? Seems like a dream! This is exactly what mutual funds are. Different investors from every corner of the world put their money into shares, and fund managers allocate that amount into a variety of bonds, shares, and other market instruments. Each shareholder owns a piece of the company stock or government bond rather than buying the expensive and risky shares alone. Mutual funds offer multifold advantages such as risk mitigation, transparency, and a beginner-friendly approach. This is why they are one of the most popular investment choices in India for salaried, self-employed, and retirement planners alike.
Curious to know more? Let’s explore how mutual funds work, the types available, and how you can start investing.
Understanding what is mutual funds and what makes them special is key to a safe, secure, and high-value investment game. They are one of the biggest investment tools in the market right now. In mutual funds, various investors pool their money to buy assets together. They share profits and professional expertise to gain wealth over time. These funds are managed by professional experts called fund managers. They analyse the market and use their experience to allocate your resources for maximum gains. They incur a small annual fee, which is known as mutual fund expense ratio.
Here’s how mutual funds work:
Now that you’ve understood how mutual funds work, let’s understand units and their role in mutual funds. Units are like bricks of a wall. They are the representation of your share in the total assets. Their value is determined by NAV, fluctuating with market conditions.
For instance, if 100 investors invest ₹1,000 each into a mutual fund, the total pool of money would be ₹1,00,000. This amount is ready for investment by the expert fund managers. Now, the manager will buy shares of different companies and bonds to allocate this money. After a while, if the total fund value increases to ₹1,25,000, then the NAV increases and so does the value of each unit for the shareholders.
Here’s the formula to calculate NAV (Net Asset Value),
(Total Assets - Total Liabilities) / Number of unit-holders
Mutual funds are the talk of the town for all the right reasons. They are simple to use and offer multifold benefits to investors, both new and experienced alike. Here are some key advantages of investing in mutual funds:
Instead of buying one kind of share or bond, a mutual fund spreads your investment across different assets and government securities.
One of the direct consequences of a well-spread mutual fund portfolio is risk mitigation. With shares in multiple assets, the chances of incurring heavy losses are diminished. It also boosts stable returns, making it a perfect option for people with little to no experience in the investing game.
Investing in mutual funds doesn’t require you to be an expert in the field. With expert fund managers taking care of your investments, you can stay relaxed and stress-free. Financial advisors often highlight mutual fund utility to clients seeking diversified portfolios.
You can start investing in mutual funds from as low as ₹100. This makes generating long-term wealth accessible to every individual.
You can get detailed information about your investments and fund allocation. Additionally, you can check the daily NAV to stay updated on your investments. In fact, you can also get notifications about any changes in your fund’s performance.
Under Section 80C of the Indian Income Tax, up to ₹1.5 lakh investment in ELSS qualifies for tax deduction.
In recent times, SIPs and mutual funds are often used as interchangeable terms. While they are very similar to each other and are great investment instruments, there are some major differences between them. Here is a list to help you understand the difference between SIP and Mutual Fund:
|
Features |
SIP |
Mutual Fund |
|
Definition |
It is a strategy to invest in mutual funds. |
It is an investment instrument accumulated by a pool of investors. |
|
Investment Approach |
It involves fixed regular payments. |
Can be done through lump-sum or regular small payments (like SIPs) |
|
Risk |
Low-risk and stable returns due to Rupee Cost Averaging. |
Can be low and high based on choice of fund. |
|
Suitability |
Beginners and investors who enjoy slow and long-term growth. |
Ideal for investors interested in a diversified portfolio. |
|
Flexibility |
The amount and tenure can be changed anytime. |
Difficult to change or alter your investments. |
At MyMudra, you can access different types of mutual funds to opt for the one that suits you the best. Based on the term, risk and other factors, here are different types of mutual funds you can invest in:
For people who enjoy high risk and high rewards, equity funds are your best bet. These funds primarily focus on company stocks and are ideal for long-term capital gains. They can be divided into three types - market capitalisation, sector focus and thematic investments.
These mutual funds primarily focus on fixed-income securities such as government bonds, corporate bonds and other debt instruments. They offer stable returns and are generally low-risk options.
Enjoy the best of both worlds with hybrid mutual funds. These investments focus on creating a balance between equity and debt, offering growth and higher returns.
With these funds, you can save on your tax on mutual funds. Equity-linked Savings Scheme funds qualify under Section 80C for tax savings. They have a lock-in period of 3 years.
They invest in short-term money market instruments. They are ideal for people who enjoy quick short-term returns and high liquidity.
Index mutual funds aim to replicate a specific stock market index, such as Nifty 50 or the Sensex. They require minimal research and thus incur a smaller management fee, saving you a larger chunk of net profit. They are popular amongst passive investors as they offer low but stable returns.
They are a great choice for retirement savings. Investors hold on to income funds till maturity to enjoy a steady income stream. They invest primarily in government bonds or debt securities.
They are for long-term wealth building and a perfect investment for retirement planning. They often come with a lock-in period.
Investing in mutual funds requires smart planning. The process of beginning your investment journey is an easy one. Here’s a quick guide to help you start with ease:
Ask yourself, “Why are you investing?” Is it to save money, build long-term wealth or quick returns? Also, consider things like risks, time, mutual fund interest rate and your budget.
Research different mutual funds and find the one that suits your needs. You can go to the company’s website or opt for a platform like MyMudra to help you with the top 5 mutual funds in India to begin your journey.
To open an account and start investing, you need to fulfill your KYC authentication. With multiple online platforms, you can do this by submitting your documents in just a few clicks.
Whether you want to go with a lump-sum option or monthly SIPs, the choice is yours. Consider factors such as income stability, long-term growth and risk mitigation before choosing one or the other. You can use MyMudra’s SIP calculator to help you with that.
Just investing your money isn’t enough; you have to keep a check on your funds and their valuation regularly.
My Mudra has access to the best mutual funds in India. You can compare and start investing based on your needs and budget:
|
Funds |
Min. Investment |
5 Years Return |
|
Quant Small Cap Fund |
₹1,000 |
47.78% |
|
ICICI Prudential Commodities Fund |
₹100 |
38.85% |
|
SBI Contra Fund |
₹500 |
35.63% |
|
Tata Small Cap Fund |
₹100 |
35.04% |
|
Bank of India Small Cap Fund |
₹1,000 |
34.75% |
Mutual funds are a promising investment option. When guided with professional help, it works well for beginners as well. The best part is the flexibility that comes with SIPs, wherein you can start as low as Rs.100. So, explore the options and choose what best fits your risk appetite.
My Mudra SIP calculator uses factors such as the monthly SIP amount, duration, and expected rate of returns to provide you with your estimated mutual fund return.
Yes, mutual funds offer high liquidity, meaning you can withdraw your funds whenever or wherever you want.
Hybrid or balanced mutual funds are the best choice for beginners. They offer stable, low-risk returns and require minimal intervention.
No, you don’t need a broker to invest in mutual funds. You can choose AMC websites or trusted platforms like MyMudra to do your research and start investing online.
My Mudra has a wide range of mutual funds for every type of investor. The easy-to-use interface and detailed information about the funds help to make a smart and informed investment. Plus, their secure payment gateways ensure that your money is transferred safely.
