A Complete Mutual Fund Investment Guide for 2022

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Mutual Fund investment is one of the the most in-demand investing strategies these days. For retail investors, mutual funds in India are an outstanding investing choice than other traditional investment options.

A mutual fund is an investment scheme created when an asset management company (AMC) or fund house collects assets with similar investment goals from a number of investors.

As a lucrative investing path, mutual funds investments in India are gaining momentum day by day. 

Before you make any investment decision to put your money in mutual funds, understanding the fundamentals of mutual fund investment is necessary. Mutual fund for beginners may sound like a daunting term but with proper knowledge one can build a solid mutual fund investment portfolio.  

Are you keen to understand the basics of mutual funds and curious to learn more about what is mutual fund or how a mutual fund works? You will understand everything you need to know about mutual funds and all the facts and knowledge about mutual funds through this quick mutual funds guide. This beginner’s guide to mutual funds will touch each and every aspect of mutual fund investments. 

By investing in mutual funds, individuals might diversify their investments as the asset distribution can accommodate various investment instruments. A proportion of mutual fund units are distributed by AMCs to the shareholders based on the amount they invested.

The investment manager’s primary purpose is to provide clients with maximum returns by investing in shares that are in accordance with the priorities of the investor’s financial goals. This mutual fund investment guide will try to explain each and every part regarding mutual fund investment in India or how to invest in mutual funds.     

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What is Mutual Fund?

A mutual fund gathers funds from a group of investors who have a shared purpose of investment. Then, in equities, various bonds, money market instruments and other securities, the money is invested. Every owner owns units that constitute a portion of the fund’s portfolio. The revenue or the profit generated by this mutual investment is spread across mutual fund investors on a proportionate basis.

In essence, a mutual fund is a shared pool of money that investors contribute to. This accumulated balance is then spent as per the fund’s investment target.

scheme wise composition of assets
Scheme wise distribution of Assets in India (September 2019 to September 2020, Source AMFI)

These mutual funds in India are run by portfolio managers or asset managers who try to generate profit or value for investors by investing in accordance with the stated investment objective.

A debt fund, for example, may have a clear purpose of investing in fixed income assets or goods such as government bonds, debt instruments, etc. Likewise, shares or other equity instruments will be purchased in an equity based portfolio.

How does mutual fund work?

In essence, a mutual fund is a bundle of several financial instruments producing returns over a period of term. When an investor invests in a mutual fund plan, the investor purchases a number of units of that scheme on the basis of the fund’s Net Asset Value (NAV) on the day of the sale.

In order to achieve targeted returns for the portfolio, the fund manager invests the accumulated funds in diverse financial instruments, such as equity securities, debt instruments, futures, arbitrage, etc.

The investors will, according to their preferences, redeem the mutual fund units at suitable duration. These mutual fund units are always redeemed on the fund’s latest NAV, which is expected to be considerably higher relative to the NAV at which the units were acquired.

One of the greatest myths about investments in mutual funds which investors generally believe is that money put in mutual funds is always invested in the share market. But, this isn’t real, completely. If you are a cautious investor and do not like to bear too much risk, then you can also invest in debt instruments via Debt Mutual Funds, where the risk factors are much smaller. As we move further with this mutual fund guide, your will be more familiar with the working of mutual funds. 

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Mutual funds in India pay out two different ways:

  1. Dividend Distributions: Asset management companies (AMC) distribute the dividends to the share or unit holders if a mutual fund has an asset that pays dividends. Dividend is the money a business pays out to shareholders.
  2. Capital gains: When you redeem your money after selling your investments in mutual funds, the profits you gain from such transactions is called capital gain.

What are the benefits of investing in mutual funds?

In recent years, mutual funds have gained widespread popularity across the globe. The interest of investors is also boosted by the steady success; due to the liquidity-driven turnaround in equity markets.

You can therefore consider investing in mutual funds right now, whether you are a beginner or a seasoned investor, and see your wealth rise steadily if you want to stay invested for longer term. In general, according to historical evidence, in the medium to long term investment periods, the best equity mutual funds in the market have given an average annual return of around 15 percent. Apart from steady returns, there are many advantages of mutual fund investments.

Here is a list of benefits of investing in mutual funds which can help you to decide whether investments in mutual funds is suitable for you-


Compared to the holdings of an individual investor, investing your money in mutual funds allows you to acquire instant access to a much broader variety of assets that provide better diversification. This diversification decreases volatility associated with a single market investment, thus reducing the overall risk of the portfolio of investors.

While mutual fund investments are subject to market risks, the benefit is that it is possible to diversify the inherent risk. It is entirely up to the investor’s risk tolerance to determine how much risk he or she is prepared to take. While greater returns appear to be provided by a high-risk fund, the chances of failure in these are equally high.

Investors have the choice of selecting low or medium-risk funds if you are not prepared to take a big risk. A medium-risk fund tries to optimize the risk and yield a medium return, with lower losses while the lowest returns being given by a low-risk fund. Therefore, you can diversify the risk on the basis of your risk-taking capabilities by selecting an adequate fund matching your financial goals.

Due to diversification, the value of the portfolio could not fluctuate in conjunction. If the value of one asset increases, the value of the other will decrease. As a consequence, the average output of the portfolio has a lower risk of being erratic.

Diversification decreases the risk involved in the development of a strong portfolio and hence further reduces the risk for an investor. Since Mutual Funds consist of several securities, the interests of investors are secured if there is a decline in the purchase of such securities.

Expert management:

Mutual funds are efficiently run by managers of funds who have years of experience working in the financial sector. Together with a team of industry experts who help to select investment options and establish strategies that help to optimize returns for the investors of the scheme, the fund managers are responsible for managing the investment portfolios.

A mutual fund is preferred because investors are not expected to do the research or market analysis and allocation of funds. A fund manager takes care of everything and makes choices on what to do about your portfolio. The director of the fund determines whether to allocate your funds in equity or debt market.

The fund manager also determines whether, and for how long, to keep your funds invested in particular investment avenues. It is very important to check the credentials of fund manager as the expense ratio of mutual funds also covers the fee of fund manager.      

There might not be any awareness or relevant information to new investors about how and where to invest their money. That is why you need an expert fund manager of mutual funds to run your investment portfolio.

The professional fund manager keeps an eye on effective exit and entry and keeps track of all the complexities of investments. A mutual fund investor just needs to invest and be confident that the fund manager who is a specialist in this area can take care of the rest. This is one of the main benefits of mutual fund investment.

It’s convenient to invest in mutual funds as the funds are managed professionally by skilled and seasoned fund managers with extensive knowledge in fund management. Therefore, with the aid of expert managers, even beginners who don’t have any industry experience can invest in mutual funds. Because all investment issues pertaining to these funds are handled by qualified professionals, you can be confident that your money will be invested in safe asset classes.

On top of that, an extensive team of professionals can take care of your investment, develop your investment portfolio, prepare investment strategies on your part, and direct you through every investment phase.


There seem to be funds, such as emerging market funds, investment-grade bond funds, and balanced funds, for the active investors.  As you approach your retirement age, there are also life cycle funds to turn down the investment risk.

There are strategies with a buy and hold approach and those that are investors who are in and out of the holdings regularly. So t here is a great flexibility while investing in mutual fund and there are number of funds which can become a great investment option to fit it, no matter what are your investment goals.

Mutual funds investments also come with a fund switching option. This means that investors may move between schemes or funds in order to take advantage of favorable prices and better investment returns. In several cases, the fund switching option is only available between the investment plans provided by the same fund house and not between the funds offered by the different firms.

Tax Benefits:

A mutual fund investment in India also offers investors tax-saving advantages. Under Section 80C of the Income Tax Act, 1961, if you invest your money in mutual funds such as equity-linked savings schemes (ELSS), you would be allowed to receive tax-deduction benefits.

A mutual fund investor is allowed to have tax deduction benefits up to the amount of Rs.1,50,000 as per the Income Tax Act. Therefore, you will get the advantage of saving income tax on the amount of funds you have invested in the mutual fund schemes when you invest in such tax-saving schemes. Such investments will push down the tax liability while building a great corpus simultaneously. 

Although a 10% Long-Term Capital Gains (LTCG) tax is applied after one year for returns above Rs.1 lakh, in recent times mutual funds have consistently produced higher returns than other tax-saving instruments. The tax proportion on capital depends on many factors such as holding period, various mutual fund investment options in India such as Systematic Withdrawal Plan, Systematic investment plan etc.

Mutual funds investments in India are better than other alternatives for investing as investors can avail tax benefits and mutual funds can also help investors to earn high returns that too with less risk. However, since mutual funds are subject to market risks, before investing, select funds that are relevant according to your financial goals, risk appetite and take advice from experts like financial planner or mutual fund distributors from time to time.


Mutual funds offers great liquidity and these funds can be traded regularly. Due to advancement in technology you can buy mutual funds online as well as sell mutual funds online.  To satisfy their financial needs, one can easily sell mutual funds.

After liquidation, the funds will be deposited within a few days in the investor’s bank account. Moreover, there are mutual funds that provide quicker disbursement as well. They are called funds with instant redemption facilities, whereby the funds are transferred on the same day to investor’s bank.

It is comparatively easier to buy and sell a mutual fund scheme unless you choose close-ended mutual funds. When the value is high, you can sell your mutual fund units anytime. But you need to be extra careful about the mutual fund expenses such as exit load. You also need to note that, transactions of mutual funds occur only once a day after the fund house publishes the NAV of the mutual funds for that day.

The most significant advantage of investing in a mutual fund is that, at any point in time, the investor can redeem the mutual fund units. Mutual funds have flexible withdrawal system, as compared to other financial instruments like fixed deposits or gold, but considerations such as exit load should be kept in mind while doing the redemption of mutual funds.

While making investments in mutual funds, an investor can choose between standard funds and tax-saving funds that, in terms of liquidity, vary from each other. Although you can liquidate your profits a couple of months after making the mutual fund investments in a typical portfolio, the principal and the dividend can be withdrawn only after the expiration of a 3-year lock-in duration as far as the tax-saver funds are concerned.

It is always advisable by mutual fund experts to invest for long term in mutual funds to get double benefits of a tax-saving scheme as well as creating of fast capital growth by the end of the investment tenure.

SEBI Regulations:

All types of mutual funds in India are governed by the Securities and Exchange Board of India (SEBI) which is India’s capital markets regulator. This implies that the different guidelines as established by SEBI must be followed by all mutual fund houses. This is to safeguards investors’ interests. In addition to this, every month SEBI makes it mandatory for all mutual fund houses to report the mutual fund performance of their portfolios.

The Securities and Exchange Board of India (SEBI) oversees mutual fund investments in India. SEBI has imposed stringent rules and regulations on mutual fund investments that have to be followed by all mutual fund providers in India. All the investments made in the mutual funds must comply with the guidelines of the SEBI. This means that, without any unequal treatment, the investment functions in favour of both investors as well as mutual fund providers. Tracked and monitored by an official body such as SEBI, mutual fund investments are safe and well-regulated.

Low Cost investment:

Mutual funds allow you to understand these desirable priorities of your life very quickly. It is very affordable to invest in mutual funds. An investor can start investing in mutual fund SIP through a predefined intervals with sums as low as Rs.500 for those who cannot commit a large portion of their income to mutual funds or cannot invest lump sum amount in mutual funds.

On the contrary, you can also make a lump sum investment in a mutual fund if you have a big chunk of money to invest through Systematic Transfer Plan (STP). Many investors are uncertain about which is the best mutual fund investment strategy like SIP vs STP but it totally depends on the risk appetite and financial goals of an investor. 

Due to the pooling of investment, an investor gets exposure to the entire asset classes by investing in mutual fund SIP. This decreases the overall transactional prices, benefiting from the lows and highs of the market. As compared to lump sum investments, regular investments provide investors the advantage of averaging the rupee rate.

You don’t have to spend thousands of rupees in mutual funds at one go when you opt for the Systematic Investment Plan (SIP). Instead, by choosing the best SIP investment plan, you can begin your investment with a minimum of Rs.500. Later, you can spend more money in your fund if you have a lump sum and feel the need to raise the amount invested.

Ease of Investments:

Investing in mutual funds is a very simple process which you can do complete in no time. To begin your investment drive, you simply need to contact a mutual fund distributor of your mutual fund Asset Management Company (AMC) and discuss your mutual fund investment goals and also provide the required documents, that’s it. This ease of investing in mutual funds makes it one of the most preferable investment instruments and that is why the mutual fund industry has seen a 9% growth in FY20.

Another advantage of mutual funds investments is that they encourage you to reinvest in additional fund units with your acquired dividends and interest. In essence, without paying standard transaction fees for the purchase of additional mutual fund shares, this helps you to take advantage of the opportunity to expand your portfolio.

The units of a mutual fund scheme can be conveniently bought and redeemed on any working days at the appropriate NAV rates. The units of open-ended mutual funds can be acquired or redeemed on any of the business days unless otherwise notified by the mutual fund house; however the only except to mutual fund redemption is funds which are locked for a certain period of time, such as ELSS for tax exemptions. As the liquidation of the mutual fund units is not limited, the mutual fund subscribers have easy access to their invested capital.

An investor can easily access the mutual fund portfolio and track the mutual fund performance online by visiting the mutual fund distributor’s portfolio logins or opting for monthly mutual fund statements. An investor also gets regular mutual fund sms and email alerts.   


All Mutual Fund products in India have been monitored with the strict implementation of SEBI guidelines. All mutual fund schemes have to follow a transparent process and disclose every piece of information related to the mutual fund investment portfolio.

All AMCs are required to publish information such as list of companies where mutual fund companies have invested, percentage share of mutual fund investments, NAV, dividends, mutual fund performance report, mutual fund’s asset under management etc. This allows an investor to assess the degree of risk of his investment, thereby making the entire investment process transparent as well as safe.

Daily analysis of mutual fund investment portfolios is not a simple task, as fund units are acquired and redeemed on a regular basis by investors. This is why mutual fund firms offer straightforward statements of all investments, making it easy to keep track of their investments for investors. An investor can demand the fund managers or mutual fund distributors for the mutual fund portfolio statement or investors can also download it from the official website of the fund house in which they have invested.

The asset management companies, which are continuously supervised and controlled by the Securities and Exchange Board of India ( SEBI) and the Reserve Bank of India ( RBI), operate strictly in compliance with regulatory requirements to ensure that mutual funds operate in the best interests of investors as well as the mutual fund providers in India.

In addition, fund houses are obligated, as per the current mandate, to publish mutual fund performance data on all funds and to publicly disclose fund information for the benefit of different investor groups, including current and new investors , analysts, etc.


Investment in mutual funds can be made through various sources, such as distributors of the mutual fund, the fund house, mutual fund brokers, and various other mutual fund agencies. However, it is beneficial to go through mutual fund distributors as individuals may find a range of mutual fund schemes provided by various fund houses all at one place.

In addition to this, these mutual fund distributors offer an online investing mode through which individual mutual fund investors can invest the money from anywhere and at any point of time, according to their convenience. Mutual fund distributor fee is also zero as they do not charge any fees for mutual fund investments.  

Likewise we can track our expenses and do better money management by using top money management apps in India, due to the advancement of technology, even mutual funds are easy to access and an investor can check the mutual fund portfolio online from anywhere in the world as well as buy mutual funds online through mutual fund distributors.

The funds are sold and distributed across networks through an asset management company (AMC) like mutual fund agents in India, top mutual fund distributors in India, mutual fund brokerage firms, online mutual fund investment website in India.

Multiple investment options:

The lowest amount of money that can be invested in mutual funds is Rs. 500 which is the best aspect of the Mutual Fund investment. There is no limit on mutual fund investments, whatever an investor wishes to invest, the limit will go upwards.

Before investing in Mutual Funds, the only point one can remember is their profits, expenditures, risk-taking capacity, and investment objectives. Therefore, every person irrespective to his or her income is able to invest in Mutual Funds.

In order to meet the specific financial needs of individuals, there are different types of mutual fund schemes designed by fund houses in India. Equity funds, debt funds, and hybrid funds are some of the broad types of mutual fund schemes available in India. In terms of risk appetite & return on investment, investment maturity period, overall portfolio structure, these schemes vary. 

Based on these factors, risk averse individuals may choose to invest in debt funds, while investors with higher risk appetite may choose to invest in equity funds. Investors who are looking for a blend of both may select hybrid funds.

When investing in a mutual fund, investors get a range of investment alternatives. They can not only choose funds according to their investment target, but they can also select funds depending on the amount of profits they would like to generate.

For example, investors should preferably invest in short-term funds if they are looking for returns in a short period of time, but when investors keep long term horizon to achieve financial goals like retirement planning, marriage planning, child education planning, investing in long-term funds would be better to serve the purpose of investment.

Also, in the course of a dividend distribution facility, mutual funds often have the option of providing a periodic income flow over the term. If your investment goal is to raise your wealth over the investment span, you can choose the option of growth and you have to go for the dividend facility to earn a regular income.

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Difference between mutual funds vs other investments:

A lot of investors keep comparing mutual funds with other top investment avenues in India like mutual funds vs fd, mutual funds vs stock market, share market vs mutual funds, mutual funds vs real estate, mutual fund vs gold and there are a number of such permutations.

The comparison between mutual fund and other investment options is obvious as investors are investing their hard earned money in the mutual funds instead of top investment avenues in India. So here is a detailed comparison between mutual funds and other traditional investment options which will help you to determine which investment option suits the best to your financial planning requirements. 

Stock Market vs Mutual Fund:

Curious investors keeps asking this very common question to financial experts that which is better stock market or mutual funds or they may also ask what is the difference between stock market and mutual funds. The answer is simple!

By investing in the stock market, you can definitely generate wealth, but according to financial experts it might be better to invest in a mutual fund instead of stock market. Investing in stocks appears to be a more appealing choice relative to mutual fund investments for those investors who are searching for exceptionally higher returns.

There is definitely a fair possibility of achieving high returns on stock investments, but the risk tolerance level is also very high. Because of a diversified investment portfolio offered by mutual funds that helps to reduce the overall market volatility risk, mutual funds entail less uncertainty. To understand more on why an investor should select mutual funds over share market investments, check our article on stock vs. mutual fund investments.

 FD vs Mutual Fund:

Fixed income investments such as bank FDs have been the favorite mode of investment for Indians for decades. The idea behind investing in FDs that money is always secure in banks sounds more pleasing than higher yields. But you need to understand that returns from FDs, after paying the tax on the returns, barely beats the inflation rate. Investors void putting their money in mutual funds and instead invest in bank FDs, thinking that the latter is a considerably safer choice.

Yet the fact is that Mutual Funds have the potential to provide FD-beating long term returns. In comparison to to the advantages of investing in FD, mutual funds offer better liquidity as well as they are more tax-efficient. So if you compare Mutual funds vs FDs, mutual funds are better investment options than FDs, based on a number of parameters.

Real estate vs Mutual Fund:

As an investment option, real estate has always been mistaken because it needs major investment, bigger contribution and legal obligations. Many investors are always confused between mutual funds vs real estate which is better investment option?  As far as real estate is concerned, an investor may have loads of properties, but he or she can’t use them in times of need, they’re all worthless as properties offer less liquidity.

As compared to real estate, the assets in the Mutual Fund are highly liquid.  With a single click, mutual fund units can be redeemed at any point of time and the funds will be deposited into the specified bank account within couple of business days. It is not possible to say the same for property investment. It can take months or sometime years to find a buyer for real estate assets, and investors sometimes struggle to sell the house at a reasonable price due to the hurry of selling the property at the earliest.

In addition to this, even if the money we need is lower than the price of the property, in order to get the money, an investor cannot sell the property in parts and he or she will need to sell the whole property. Also real estate investments can be very risky during economic slowdown. The tracking of real estate performance is also difficult to measure. Unlike mutual funds, investors are not able to monitor their real estate investments.

Gold vs Mutual Fund:

Gold, for Indian investors, has always been a favourite investment choice. So, if an investor is feeling whether I should invest in gold or mutual funds? Well that’s the most common investment confusion. Comparing gold with mutual funds, many early investors have asked if gold is a better investment option than mutual funds.

Since man-made money and a number of global currencies are secured by the country’s gold reserves, primarily because gold seems like a secure investment, most people from investment arena feels that it is a valuable asset. On the contrary every document related to mutual fund investment says mutual fund investments are subject to market risks. So what do you think whether gold is better than mutual funds?   

Gold has its own disadvantages, like all other asset classes. It raises questions about transportation, safety and inventory. You alone would be responsible for handling, monitoring and securing your gold and protecting it-which for most investors is a hassle. Unless you buy gold online, you will have to live in constant fear of theft.

Apart from this when an investor sells the gold in the form of gold jewellery, it attracts additional charges over and above the actual worth. However, you will unavoidably end up losing some value while selling gold jewellery, as it is very vulnerable. Investing in Soveriegn Gold Bond (SGB) is by far the best option to invest in gold as it eliminates the issues with physical gold investment such as transportation, cost of storage and making charges.    

NPS vs Mutual Fund:

While an investor may say that National Pension Scheme (NPS) has a tax saving aspect and that the net returns in NPS are better because of this, but you need to understand that tax savings are typically consumed and not reinvested again into equity. No doubt, NPS could allow for better returns than equity mutual funds as a very low-cost investment instrument, but the disadvantage of requiring a percentage of the retirement fund to be converted into an annuity is a huge issue for NPS.

This will completely depend on your present age, the age you are expecting to retire, the length of the investment and the size of the retirement fund.  In case, over a longer investment term, NPS is a low-risk and safer investment option. Still you can select SIP if you are ready to face a bit of market risk and have short financial targets.

PPF vs Mutual Fund:

The guaranteed returns provided by PPF are one of the major reasons why investors like PPF. PPF is arguably one of the greatest investment choices as the government supports this investment scheme. But, you need to understand that the government usually changes the PPF returns each quarter, though. The PPF interest rate is set at 7.90 percent as of 1 January 2020.

If you compare mutual funds in India vs PPF, both are ideal investments for tax-saving purposes. Although traditional investors always prefer to invest in PPF, ambitious investors are taking up an ELSS route or investing aggressively in equity-linked savings scheme. Based on investor’s risk profile, one can invest in any of them. As ELSS invests across industries and market capitalization, these funds are equity diversified mutual funds. Over the long term investment horizon, equity has been the highest performing fund.

The period for which you would like to invest in SIPs has no restrictions. But do remember that there is a lock-in period for certain mutual funds like ELSS if you are looking for tax saving benefits. To take benefits of the tax savings, you will have to stay invested for the entire lock-in duration. On the contrary with PPF, the minimum tenure for investment is 15 years. You have the freedom to either withdraw your funds and returns upon completion of 15 years or re-invest the same for a period of five more years.

Insurance vs Mutual Funds:

There is a misconception that insurance is an investment instrument. If a life insurance scheme is used as an investment instrument, it does not offer similar return on investments as compared to the returns on mutual funds. On top of that using insurance as investment instrument is very costly. Yet the latest insurance policies are investment friendly alternatives for changing trends with higher returns as well as insurance incentives.

For example, ULIP generates guaranteed returns. The explanation is that, whether the investment strategy earns money or not, ULIPs guarantee a fixed amount. The returns from mutual funds, by contrast, differ depending on the risk factor. There is a potential for equity mutual funds to deliver higher returns as compared to ULIPs while debt mutual funds offer marginally lower returns.

Basically, ULIP is an insurance plan which has a longer lock-in period. Insurance undertakings therefore establish the lock-in duration for such an investment before which the investment cannot be withdrawn. Depending on the type and function of the investment scheme, ULIPs have a lock-in duration that ranges from three to five years. In particular, mutual funds have a lock-in cycle of only one year, but in some situations, like ELSS investments, the lock-in duration is for three years.

What are the different Types of Mutual Fund Categories?

Many investors believe that there are only two types of mutual fund schemes which are direct and regular mutual fund schemes. But if we further dissect the types, there are vast range of mutual fund categories available in the market. These categories of mutual fund vary depending on the mutual fund investment objective as well as on the nature of the mutual fund scheme.

According to Crisil AMFI India Mutual Fund Performance Insight, there are 13 broad mutual fund categories as listed in the below table:

Sr. No Investment Category Investment Objective Nature of Scheme
1 Large Cap Equity Investment in equity and equity-related securities including equity derivatives predominantly in large cap stocks This scheme is suitable for investors who are seeking long-term capital growth.
2 Diversified Equity Investment in equity and equity-related securities including equity derivatives across market capitalization and sectors This scheme is suitable for investors who are seeking long-term capital growth.
3 Small and Midcap Equity Investment in equity and equity-related securities including equity derivatives predominantly in small and mid-cap stocks This scheme is suitable for investors who are seeking long-term capital growth.
4 Thematic – Infrastructure Funds Investment in equity and equity-related securities including equity derivatives of companies from a specified sector. This scheme is suitable for investors who are seeking long-term capital growth.
5 Equity Linked Savings Scheme (ELSS) Investment in equity and equity-related securities including equity derivatives across market capitalization and sectors. Also have a 3 year lock-in period and provide income tax exemption under section 80 C up to Rs.1 lakh This scheme is suitable for investors who are seeking long-term capital growth.
6 Index Investment in equity securities in the same proportion as the underlying index This scheme is suitable for investors who are seeking long-term capital growth.
7 Balanced Investment in equity and equity-related securities as well as fixed income securities (debt and money market securities). This scheme is suitable for investors who are seeking long-term capital growth and current income.
8 Monthly Income Plan Investment in equity and equity-related securities as well as fixed income securities (debt and money market securities). This scheme is suitable for investors who are seeking long-term capital growth and current income.
9 Long-Term Gilt Funds Investment in government securities This scheme is suitable for investors who are seeking long-term income
10 Long-Term Income Funds Investment in Debt/Money Market Instrument/Govt. Securities. This scheme is suitable for investors who are seeking long-term income
11 Short-Term Income Funds Investment in Debt/Money Market Instrument/Govt. Securities. This scheme is suitable for investors who are seeking medium-term income
12 Ultra Short-Term Debt Funds Investment in Debt/Money Market Instrument/Govt. Securities. This scheme is suitable for investors who are seeking short-term income
13 Liquid Funds Investment in Money Market Instrument/Govt. Securities. This scheme is suitable for investors who are seeking short-term income

What are best mutual fund investment options?

Every person has set some financial priorities based on the top financial goals that everyone should achieve in lifetime. There are number of mutual fund investment options available depending on the financial goals of an investor but commonly there are three best mutual fund investment options where most investors are investing their money.

Systematic Investment Plan (SIP):

Systematic investment plan (SIP) means systematic strategy of investment. An investor can systematically invest in equity mutual funds via SIP by periodically investing a predetermined sum on a monthly basis, on a quarterly basis, on a weekly basis.

SIP is the best investment strategy for mutual funds, where investors invest a pre-defined amount of money in mutual funds at regular intervals. SIP benefits from the average rupee cost and is thus the best approach for investing in a competitive market to reduce risk effectively.

For example, if you start your Rs. 5000 per month investment through SIP, the money will be debited monthly from your account and invested in the mutual funds you have selected for the Systematic Investment Plan (SIP). It is very crucial to use the right investment strategy during volatile market.

The power of compounding effect in mutual fund SIP helps an investor to sail through the market volatility and build a great corpus in the long run. SIP is thus regarded as the most disciplined way to spend capital to accomplish your financial goals.

Systematic Transfer Plan (STP):

A variant of the Systematic Investment Plan ( SIP) is the Systematic Transfer Plan (STP). STP is an investment instrument in which an investor moves the investment amount from one type of asset to another type of asset. The movement of funds occurs slowly over a period of time in this type of mutual fund investment platform.

STP is the second best effective investment strategy after SIP. Similar to the investment of mutual funds through SIP, STP is also one of the best risk reduction strategies in the mutual fund investment category. In our article on Systematic Transfer Plan (STP), we have discussed everything you need to know about STP.

A lump sum amount is first placed into debt mutual funds in STP investments and further transfers are typically made from these debt funds to equity funds.

Systematic Withdrawal Plan (SWP):

SWP refers to the Systematic Withdrawal Plan (SWP), an investment tool in which an investor can reclaim the investment in disciplined manner from the mutual fund scheme. Instead of withdrawing the lump sum amount, depending on the financial requirements of the investor, an investor may withdraw money regularly in every month or quarter or semi annually or annually by fixed or variable installments.

In comparison to the Systematic Investment Plan (SIP), SWP operates inversely. An investor directs the monthly withdrawals from the mutual fund scheme to his or her saving bank account after investing lump sum amount in SWP, on the other hand  investor directs regular contributions from bank account savings to the preferred mutual fund scheme as in SIP.

In order to cope with market uncertainty, SWP is also one of the strongest mutual fund investment tactics. You can check our article on Systematic Withdrawal Plan (SWP) and see whether this mutual fund investment option fits in to your financial requirement.

Best mutual funds in India:

Many new investors start their investment journey by searching for the top mutual funds in India. Some experienced investors directly search for best large cap mutual funds, top ELSS mutual funds, Best mid cap mutual funds in India or top small cap mutual funds. You may invest in top large cap mutual funds with investment horizon of five to seven years so that you can achieve your long term financial goals.

If you are looking for tax saving benefits, you can invest in best ELSS mutual funds in India but remember that ELSS mutual fund locking period can play a crucial role while deciding on investing in ELSS. If you are looking for moderate risk profile investment for seven to ten years, you can invest in top mid cap mutual fund investment schemes in India.

You can also choose best small cap mutual funds if you have a high risk appetite for long term investments. To make things more clear, here is a list of top mutual funds in India which will help you to decide which mutual fund is best for you:

1) ICICI Prudential Long Term Equity Fund

2) Mirae Assets Large Cap Fund

3) Axis Focused Fund Regular

4) HDFC Income Fund and HDFC Tax Saver

5) Kotak Equity Opportunities Fund

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How to choose the best mutual fund?

Choosing a right mutual fund is not an easy decision for most of the investors, with so many types of mutual funds, Asset Management Companies, and a number of schemes available in the market. New investors usually fall prey to the biggest mutual fund investment mistakes that should be avoid right at the financial planning stage.

The best way to start is to settle on a strategy for you to filter out the right mutual fund as per your financial goals. Many investors often use a detailed checklist to determine expected rate of returns from a mutual fund they are planning to buy. To determine if a specific fund is a smart investment, there are total five areas which an investor must analyze.

Remember, it’s not about finding the right mutual fund investment option, but about understanding what works best for you. Second, one should understand their own financial requirements. Try to define how much duration you have left before the money from investment is needed. What is the total sum that you are targeting through your mutual fund investment? If you invest without a target, you are just navigating without any goal and at any time you can plunge into financial distress. So first of all list all your financial priorities and create an investment strategy accordingly.

For emergencies and contingencies, always hold a certain portion aside, which is called emergency fund. It’s also really important to consider your risk profile when selecting the right mutual fund. Investors sometimes blindly invest in funds that often do well for other investors like friends and colleagues, they don’t know that those funds may be more vulnerable to market volatility and may not match their own risk profile and financial goals. So here is a checklist for how to choose the right mutual fund

Financial goals:

Every person has some financial goals that have to be achieved in the lifetime. If you are investing with a particular reason or financial objective, you can make better investment decisions for your mutual fund investments.

You purpose of investment may be to buy a new car or home, save for the education of your child or a family vacation. It may also be an objective to invest in a mutual fund to be able to save and receive better returns than a bank account or fixed deposit. You should make an educated decision with a clear intention in mind.

Apart from setting financial goals, an investor should also focus on the time horizon of the investment. The time horizon corresponds to the span of time over which an investor wants to invest the money in a mutual fund scheme. It can be as short as a day or as long as 5 to 10 years or even more than that. For different time horizons, different mutual fund categories work the best.  If the investment period is more than 5 years, equity funds should preferably be selected.

Risk Appetite:

Almost every investment, at least those investments that give you any substantial returns, are risky. It is generally said that the more risky an investment is, the greater its capability to earn high returns. This is, however, a simplistic analysis that means that you always earn the same returns from a given level of risk. This is absolutely not true, because not all funds perform equally well.

The real risk calculation is whether a fund will give you exactly the sort of returns that mitigate the risk that it takes on. This is clearly not as straightforward to calculate as gains. To test this, there are a large range of statistical methods that can be deployed. 

Risk tolerance represents the amount of risk that an investor is prepared to take with the investment made. Since 2015, SEBI made it compulsory for all mutual fund houses to show a riskometer consisting of 5 risk levels correlated with the principal amount invested. Low, relatively low, moderate, moderately high, and high are the 5 risk levels of the funds. A right mutual fund can be determined by evaluating the riskometer values against your risk appetite. 

Fund Performance:

It is very crucial to check the past fund performances whether the fund’s returns are compatible with your financial goals or not. For example, the return for a specific fund in the first year, for instance, is 7 percent. It was 8.5 percent in the second year while in the third year, returns were 10%. On the other hand, the first-year returns for another fund was 7 percent, the second year return was 3 percent. And it produced a return of 9 percent for the third year.

Of the two funds, it is obvious that the first fund performed better than the second, because of the consistency of the return over the period of time. There are certain other parameters through which an investor can check the past fund performance before taking any investment decision on mutual fund investments.

AMC and AUM:

Third, check who is the fund manager or in charge of the individual mutual fund of an AMC. The capacity of a successful fund manager is to transform the worst-performing mutual fund into the best-performing mutual fund. As fund manager is the most important person to decide on which products or shares to invest and how to spread the investment for a specific mutual fund, the fund manager plays a key role in how the mutual fund performs in future.

If the manager of the fund is successful, then that specific fund will perform well. It is equally important to check the Asset under Management (AUM) for a particular mutual fund scheme.

The entity which handles a mutual fund scheme is an Asset Management Company (AMC), also referred as a fund house. For instance, the name of the AMC that manages schemes such as ICICI Prudential Bluechip Fund, ICICI Prudential India Opportunities Fund, ICICI Prudential Long Term Equity Fund is ICICI Prudential. At the AMC stage, several decisions are taken by the AMC Chief Investment Officer (CIO).

In multiple schemes operated by an AMC, a weak selection of assets made at the AMC stage will affect the overall performance of a mutual fund. Thus, while choosing a mutual fund scheme, it is important to check the past performance of an AMC. There are multiple ways through which you can check the performance of a mutual fund. 

Expense Ratio:

The expense ratio of the fund represents the fee charged by the AMC to control, administer, promote and manage the mutual fund. This amount covers all costs involved for the management of the fund. T his amount is fixed by SEBI (Securities and Exchange Board of India) at 2.25 percent of total fund assets.

Direct plans for mutual fund schemes have a lower expense ratio than standard plans because, in the case of direct plans, no distribution fee is charged. The lower the expense ratio, higher the net returns of a mutual fund scheme. From 1st July 2020, stamp duty has also been levied on the purchase of mutual funds. Mutual fund stamp duty will be a one time charge and will be applicable to all types of mutual funds.

Most common terms of mutual fund investments:          

When we visit the website of an Asset Management Company (AMC), we come across different terminologies and phrases that are tough to comprehend. Not all concepts are popular or simple to comprehend as a mutual investor. It is very important to have a list of most common mutual fund terms with definitions readily available to a mutual fund investor.  So, to get a better understanding of mutual funds terms, let us go through the most common mutual fund terms listed in this article.

Best mutual fund tools and calculators:

It is very crucial to use the best mutual fund tools which can help you to make mutual fund investment decisions easily. You can check a range of information like past performances of mutual funds, compare mutual funds, predict how much money do you need for retirement, child education, marriage, etc and also check the latest announcement on dividends. Apart from that you can also track the performance of your existing investment in mutual funds. Here is the list of top mutual fund tools in India to be used to choose the right mutual funds for you. 

Past SIP Performance

Latest NAV

Current NFO

Mutual Fund Comparison

Fund Factsheet

SIP Calculator

STP Calculator

SWP Calculator

Education Calculator

Marriage Calculator

Retirement Calculator

Dividend Announcement

Is it safe to invest in mutual fund?

Right before the first step to understand what mutual funds in India are, investors keep asking the most common and basic questions about the risk in mutual fund investments which are “are mutual funds safe? Is it safe to invest in mutual funds? Are mutual funds safer than stocks? The answer is simple, there is no investment which is 100 percent risk-free.

In the world of personal finance, protection is a contextual and conditional concept, so whether or not mutual funds are good investment options needs more than a just a “yes” or “no” answer. We need to realize precisely what makes mutual funds investment a better choice than other asset classes. According to AMFI India Industry Trend September 2020 mutual fund statistics, assets managed by the Indian mutual fund industry have risen from Rs. 25.60 trillion in September 2019 to Rs. 27.74 trillion in September 2020 which represents 8.35% of increase.


total assets

As for different investors, there are different implications and various definitions of safe investment. Some investors feel that getting guaranteed returns is a safe investment while other investors feel principal amount should be safe while for some investors getting fixed income from investment is a safe investment. Mutual funds as a product don’t guarantee returns but the risk is minimized in various ways.

When mutual funds invest the money in a diversified portfolio that is a mix of various assets and securities, rather than relying on a specific share or a bond, the risk is split into different securities. The risk is hence minimized with diversification. In addition to this, an investor can check the performance of the mutual fund in a timely manner to save it from market crashes and volatility to adjust the investments as and when necessary.

To recapitulate, mutual funds are safe. When investing in them, investors should not be concerned about short-term volatility in returns. You should select the right mutual fund to fit your financial goals and focus for a long-term investment horizon. 

It is important to study the performance of mutual funds before decide to invest your money in mutual funds and research more about mutual funds in advance. The research should be based on the overall past performance of the mutual fund and their future projections.

If you are looking for investing your money in any financial instrument, mutual funds may be the ideal way to go forward, specifically when investing through a Systematic Investment Plan (SIP). SIP offers a great feeling of stability against the risk of market volatility and you can only feel it if you know how power of compounding works in mutual fund SIP which helps you in long run.

Risk involved in mutual fund investment

Here is a list of the main types of investment risk that affect mutual funds in India.

Credit risk:

The possibility that the bond or other security issuer may not have enough funds to meet its interest costs or when they are supposed to repay the bonds for nominal value could a potential mutual fund investment risk. Securities that have a higher default risk prefer to pay greater yields.

Market risk:

The danger of losing any or more of your principal amount is a market risk. There is always a risk that the mutual funds you hold might be caught in a downturn as markets fluctuates in short run.

Interest rate risk:

The risk of increasing interest rates would cause the value of your mutual funds to decrease. If interest rates go up, prices of bond decrease and, as a consequence, returns on mutual funds can also drop.

Inflation risk:

The risk of buying or purchasing power being lost could be a major risk. If your mutual funds earn 6% in a year and the inflation increases by 2%, you are stuck with a net return of just 4%.

Re-balancing risk:

Mutual fund portfolios are regularly re-balanced and closely supervised by the AMC’s fund managers through which an investor can book regular profits and switch the investments from equity to debt instruments or vice versa. Regular re-investments by booking profits are always followed by the possibility that the investments will miss out on growth opportunities in a long run.

Currency risk:

The possibility that your profits will be diminished by a fall in the currency rate could be another risk in mutual fund investment. Even if the valuation of a fund dominated by foreign currency goes up, when they are converted back, a fall in the foreign currency exchange rates can decrease your returns.

We hope that this complete guide on mutual fund investments in India will help you to understand every aspect of safe investment in mutual funds and you will find this beginner’s guide to investing in mutual funds worth reading. 

Mutual fund FAQs:

If you have any questions on mutual fund investments apart from this mutual fund guide India, you can quickly refer to Frequently Asked Questions on Mutual Fund section.

Why Chitale Financial Solutions?

Chitale Financial Solutions offers wide variety of investment avenues for short as well as long term investment needs. With more than 30+ years of experience, we are one stop solution for a number of financial products like Mutual Funds, Insurance, Bonds, Fixed Deposits etc. We serve our clients with highest standard of transparency and integrity by putting investor’s interest first.

You can contact us by calling on +91 8999116127 or email us at sunil@chitalecfs.com  or sayali@chitalecfs.com

Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.

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