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All In One Guide To Mutual Fund Investment – Know Here

Mutual Fund Investment: Living in times where inflation is constantly increasing, savings alone are an insufficient means to guarantee financial security in the future. Money sitting in your savings account, even with interest returns, lacks the ability to beat inflation. If left idle, it is still not generating a new source of income for you. 

Investing has become increasingly popular amongst youngsters and older generations to get the most out of their money. Investment returns have a two-fold effect; you not only increase your wealth but also generate returns that beat inflation. They are also useful when looking for additional sources of income that can help in asset acquisition, like buying property and automobiles or starting a new business. 

But investing is no easy task. Today, there is a broad spectrum of investment opportunities to choose from, like mutual fund investment, stock market investment, derivatives, foreign exchange, and so on. It’s essential to choose wisely and put your money where it has the potential to grow and cater to your financial requirements.

Mutual Funds

For a very long time, the general trend in India was to invest in real estate, gold, or bank fixed deposits. However, that has changed over the past few years, and new market instruments have taken over. Mutual fund investment has proved to be one of the most popular in India due to factors like high liquidity, accessibility, and low risk. 

Mutual fund, known as an investment instrument pools funds from different investors and invests those funds in bonds, equities, gold, government securities, and other assets. This money is pooled by (AMCs), also known as Asset Management Companies, who market all types of mutual funds, manage their investments and allow investor transactions. As these funds are being managed by fund managers, skilled people are required who can analyse and manage investments. 

Mutual funds investment has the potential to fulfil a diverse set of investment objectives due to the plethora of options to choose from.

Choosing the Best Mutual Funds

Mutual funds are segregated on the basis of underlying assets, such as equity, gold, debt, and so on. This means that each mutual fund is investing in different types of assets and therefore has a different risk profile. 

When choosing the mutual fund that is best for you, take into your account your current and future needs, your risk appetite, and your investment horizon. For example, if you are looking to invest money for your child’s higher education or buy your own house a few years from now, you have the option to invest over a long period of time. Thus, equity mutual fund investment can be a good option for you. 

Key Indicators:

  • Investment Objectives: Mutual fund investment, or any form of investment for that matter, requires a thorough understanding of your own life goals and financial objectives. This is essential to comparatively analyse the objectives of mutual fund schemes to see if your goals are aligned with the scheme you want to invest.

For example, if you want to increase your wealth and increase your retirement fund, investing predominantly in equity mutual funds will be a better alternative than doing investment in debt mutual funds due to their capability in generating higher returns in the long run.

  • Fund’s History: The fund history is the performance over several years, that includes times of corrections and gains in markets, which is an indicator of the fund’s strength during volatile market circumstances. Newer mutual funds don’t have a long track record, meaning their success is ambiguous. The best mutual funds to invest in should have a long history of delivering regular returns over the multiple market cycles. 
  • Expense Ratio: An expense ratio helps in measuring the fund’s assets that are used for operating and administrative expenses and is charged by the fund house. The net returns that an investor receives are calculated by subtracting the expense ratio from the total returns. One should be cautious of the expense ratio when opting for mutual fund investment. 


A Systematic Investment Plan is a type of investment strategy to invest fixed amount of money periodically, which can be semi-annually, quarterly, or monthly,. This approach ensures consistency and discipline, so you can reach your financial goals more efficiently. 

  • Low Initial Investment: If you’re intimidated by the idea of putting in too much money, SIP is a great alternative as you can start investing with amounts as low as Rs. 500. Fund houses also offer the option to top up your SIP, meaning you can at any time increase the investment amount. 
  • Rupee Cost Averaging: Essentially, it averages out your purchasing costs over the tenure of the investment period, meaning it is easier to offset losses you incur from one particular fund. 

Debt Mutual Funds

The best mutual fund investment for those looking for small but assured returns is Debt Mutual Funds. Returns are generated by lending money to the government or other debt instruments. 

  • These offer better post-tax returns compared to FDs.
  • SEBI has characterised mutual debt funds into 16 categories based on the market instruments they invest in. Examples are Money Market Fund, Banking, PSU fund, GILT Fund, etc.

Equity Mutual Funds

As the name suggests, equity mutual funds are funds where the investors’ money is pooled and invested in stocks of companies. There are various types of equity mutual funds like large-cap, mid-cap, and small-cap. One can also invest in the sector or industry-specific funds. You have multiple options to choose from depending on your preferences. 

  • Equity funds can be active or passive. Active wherein a fund manager scans the market, conducts research on companies, examines performance, and looks for the best stocks to invest in.
  • On the other hand, a passive fund will mirror a popular index. 

Hybrid Mutual Funds

If you’re looking to diversify your portfolio without much hassle, hybrid is the best form of mutual fund investment for you. These funds invest in more than one asset class, meaning you can invest in debt and equity through the same fund. 

  • The aim of these is to minimise the risk while giving higher returns than debt mutual funds. 
  • The most popular hybrid funds include ICICI Prudential Multi-Asset Fund, Quant Multi Asset Fund Direct-Growth, ICICI Prudential Equity & Debt Fund Direct-Growth, and Axis Triple Advantage Direct Plan-Growth. 

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