Investments are the cornerstone of wealth creation and attaining financial stability. And if you are just starting out, mutual funds are the best way to invest in a diversified portfolio of bonds, stocks, and other securities. Investing in mutual funds for beginners is less risky because professionals manage the funds. Besides, you do not need a demat or trading account to invest in mutual funds.
In this beginners’ guide to mutual funds, we will explore what mutual funds are and the process of investing in mutual funds for beginners.
Mutual funds are investment instruments that pool money from many investors and invest the funds in securities like shares, bonds, gold, etc. Asset Management Companies (AMCs) or fund houses manage these investments for investors.
Professional portfolio managers invest the collected funds in the diversified portfolio on behalf of investors to generate maximum returns. So, they are ideal for beginners and investors with lower risk capacity.
Here is your beginner’s guide to mutual funds:
As you know, KYC stands for “Know Your Customer.” It is a mandatory identification and background check process under the Prevention of Money Laundering Act (2002).
You can complete the KYC online if you invest in mutual funds using an online investment platform. You must log on to a KYC-registered investment platform, create an account, and provide your PAN card details, phone number, and address proof.
You have two options for investing in mutual funds. The first is to make a lumpsum investment, i.e., a single payment to buy mutual fund units. Or you can invest in a Systematic Investment Plan (SIP).
SIPs are better mutual fund investment plans for beginners because you divide your investment into smaller amounts. You can invest in a SIP for as low as Rs 100, and you can also invest in a fortnightly, monthly, or quarterly SIP.
To make informed investment decisions, you must know all the nitty-gritty of investment. So, here is your beginners’ guide to mutual funds jargon and frequently used terms:
| Terms | Description |
| Annualized Returns | Return on the investment made for one year. |
| Asset Allocation Funds | Allocation of funds across different assets like equity, debt, or gold. |
| Asset Under Management | Total funds collected by a fund house under a particular mutual fund scheme |
| Brokerage | Brokers charge brokerage fees to facilitate trading. |
| Debt Funds | Mutual funds that invest in debt instruments like government securities, treasury bills, corporate bonds, etc. |
| Dividend Schemes | Mutual fund schemes that offer dividends instead of reinvesting the returns |
| Equity Mutual Funds | Mutual funds that invest in shares of companies |
| ETF | Exchange Traded Funds are mutual funds that are traded on a stock exchange like stocks. ETFs tracks and matches the performance of an index or pool of securities. |
| Exit Load | Charges levied when you sell a mutual fund |
| Expense Ratio | The amount of money you pay to AMCs to manage your funds |
| Gilt Funds | Mutual funds that invest in government bonds |
| Gold Funds | Mutual funds that invest in gold |
| Growth Plan | A growth plan reinvests the dividend in mutual funds to maximize returns |
| Holdings | Contents of mutual fund’s investment portfolio |
| Liquid Funds | Funds that invest in money market instruments like FDs |
| Lock-in period | Period for which you cannot withdraw your investment |
| Market Cap | The market value of a publicly traded company. |
| NAV | Net Asset Value is the per-share value of a fund. |
| NFO | New Fund Offer is when an AMC launches a new mutual fund. |
| Redemption | Act of withdrawing or selling your investment. |
Invest in mutual funds investment plans for beginners with Tata Capital Moneyfy
Looking for ideal mutual funds for beginners? Check out Tata Capital Moneyfy, a leading online investment platform. Moneyfy is home to the best mutual funds investment plans for beginners from over 40 AMCs. Visit the Moneyfy Website or download the Moneyfy App, and invest in SIPs starting at Rs 100.
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26 June 2023
4 mins read
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