Is there such a thing as mutual funds for beginners? Let's dig deeper into mutual funds by comparing them to restaurant dining options.
There are cafes which primarily have snacks & can satiate your hunger for some time. Then, there's the a la carte restaurant — which serves starters, main course, and desserts. Here, you must pick dishes from the menu and pay for every dish you choose.
Let's not forget the grand buffet spread where you must pay a fixed price and taste a wide range of dishes during a multi-course meal. Mutual funds for beginners are like the grand buffet spread amongst the available options to dine out.
In the world of finance, you can have a lot of options for investing. Each one of them has different qualities. Let's explore the different types.
Banks offer you fixed deposits like small bites at a snack bar. It satiates your hunger for low-risk, stable investments (debt and cash).
Investment brokers are like la carte restaurants. You can order from the menu of investment avenues on offer, like stocks and bonds. Like every a la carte, there is a risk that your chosen investment might be bitter to your taste if not suitable for your goals. Also, you need to pay for every item ordered separately. Individually paying for each item makes investing in each stock or bond expensive.
Mutual funds are akin to a grand buffet of investments for a beginner. In a lavish buffet spread, for a fixed price, you get access to various courses like soups, starters, drinks, appetisers, snacks, several signature dishes and a range of desserts. With mutual funds, you do not have to pick and choose or do your research and assess if each asset is suitable for your financial goal. You have access to the entire gamut of investment options.
With mutual funds, you only pay a fixed price, the NAV (Net Asset Value), for one fund unit. You may pay in multiples of the NAV to purchase more fund units. Therefore, even with a small SIP (Systematic Investment Plan) of ₹100, you can invest in every asset your chosen fund invests in.
But, how to invest in mutual funds for beginners in India with just ₹100?
Mutual funds pool money from investors like you and then invest it into financial assets. Since they used the money pooled from many investors, their corpus or investment pool is much bigger than that of an individual retail investor.
Mutual funds invest in a basket of financial assets per their stated theme and objective. Their investment decisions are made by the fund manager, who is experienced and has access to exclusive research from the research team.
If you are a beginner at mutual fund investing, here's how you can invest in mutual funds:
Here are some examples of goals.
Short-term: Buying a 4K smart TV or a new motorbike.
Medium-term: Taking an international vacation or purchasing an SUV.
Long-term: Retirement corpus, children's college fund and so on.
You need to know how comfortable you are with risk. You can determine your risk appetite by considering age, geographical location, job profile, income level, health conditions, number of dependants in the family and more.
High-risk appetite? Allocate a large proportion of equity-based mutual funds in your portfolio! Low-risk appetite? Lean into debt mutual funds for your portfolio.
If you are risk-averse, allocate more money into debt and commodity mutual funds than equity. Why? Equity investments can have high volatility within short periods. Also, these funds are better for long-term goals because they have a long-term, inflation-beating return potential. Debt funds are better suited for short-term goals because they can give stable and low-risk short-term returns. Also, balanced funds can be better for meeting medium-term goals since they mix equity and debt.
Ready to try this out? Use your account on the Fi Money app to invest in mutual funds easily.
Fi makes it even simpler to start a SIP. You can use FIT rules to issue mandates like: "On the 15th of every month, invest ₹10,000/- in a Nifty 50 index fund."
Investing in mutual funds is like getting access to all types of dishes in a buffet at a lower combined cost. These can be a better way for beginners to get a taste of different assets and their impact on their portfolios.
Since your investment choices are based on your risk appetite and goals, it is important to align your investments based on them and then select SIP options.Therefore, you cannot have a one size fits all investment solution for all beginners.
You can first learn about your risk appetite and goals to derive suitable mutual fund investment plans for beginners.
There are various steps to starting to invest in mutual funds in India. Here are some key ones:
Using the Fi Money app is an easy way to start investing in mutual funds for beginners in India. Another way to save for your goals is by creating their named Jars through the Fi Money app. This approach ensures that you can stay on track and committed to your various financial goals.
A Systematic Investment Plan or SIP that perfectly synchronises with your financial goals and risk appetite can be the best for beginners. To ensure this sync, understand your capacity to take risks and your goal horizon.
Can't manage a monthly investment? Don't worry. The Fi Money app helps you invest daily for your goals through SIP. You can set up daily deeds for your investments. For example, you can instruct the app to deduct ₹50 at the end of every day and invest in a mutual fund of your choice.
The question of how much you should invest in mutual funds each month doesn't have a definitive answer in terms of right or wrong. Instead, your investment amount should be determined by considering the financial goals you aspire to achieve and the timeframe you have to accomplish them.
Here are six steps to guide you on investing in stocks and mutual funds as a beginner: