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The Ultimate Guide to Mutual Funds: Everything You Need to Know to Get Started

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May 9, 2023


What’s Inside

Despite their simplicity, low-cost, and well-diversified way of building wealth, mutual funds are not preferred for investment by the majority of folks who are either unaware of these or find them too complicated.

If you're one of them, here you can find a mutual funds complete guide that will help you step into this investment world with ease.

The Basics of Mutual Funds

A mutual fund is an investment that pools money from several investors and invests these funds collected in various securities such as stocks, shares, bonds, gold, money market instrument, etc.

These are professionally managed by a trust referred to as an Asset Management Company (AMC), also called a mutual fund house. When you purchase a mutual fund, you acquire a small stake in the investments present in the fund, which within time, delivers your return.

You can start investing in mutual funds in two ways, such as:

  • In a lump sum investment, you make one payment to purchase mutual funds.
  • In SIP or Systematic Investment Plan, you pay monthly.

Why is Investing in Mutual Funds a Good Choice?

Next, in the mutual fund guide, learn why mutual funds are becoming increasingly popular investment choices. Among the various benefits, the most crucial factors that drive investors to mutual funds for investment are:

  • Liquidity: Mutual funds can be redeemed at any point in time, but factors such as exit load and penalty should be considered.
  • Diversification: With investments across multiple stocks and instruments, risks are managed and minimised.
  • Expertise: A professional fund manager who possesses the right knowledge of the market and stocks manages your investment.
  • Small investments: Investors are allowed to start investing with any amount as low as INR 500.

Key Things to Keep in Mind by First–Time Investors

For first-time investors, the beginners guide to mutual funds covers essential tips that will help them sail carefully.

  1. List your financial goals, budget, and the time you must achieve these goals. Do assess your risk-taking ability as well.
  2. Classify your goals into short-term and long-term. For the former, think about investing in debt mutual funds, while for the second, invest in equity mutual fund schemes.
  3. As a new investor, SIP is the better choice as you can invest at various market levels and earn higher profits.
  4. As a first-time investor, consulting a financial advisor is the best way to ensure less risk and more profit.

Want to understand the world of mutual funds in a nutshell? Check out this video:


Investing in a good mutual fund scheme yields greater profit and helps secure your financial future. Fi is the ideal gateway for first-time investors. With its smart interface, commission-free investments, and 100% flexibility, you can invest in around 800 direct mutual funds.

Frequently Asked Questions

1. What are mutual funds, and how do they work?

A mutual fund is a kind of investment instrument that funds money from various investors and allocates funds in several securities. Fund managers carefully invest money in different securities to deliver high returns to investors.

2. What are the different types of mutual funds?

Most mutual funds come under four main categories, which are Money Market Funds, Bond Funds, Stock Funds, and Target Date Funds. While Money market funds have relatively low-risk factors, Bond funds produce higher returns. Additionally, Stock funds invest in corporate shares, and Target date funds are a mix of bonds, stocks, and other investments.

3. Which metrics help to assess the performance of mutual funds?

A market benchmark is the standard used to measure the mutual fund's performance. Alpha, a financial ratio, shows the returns generated by the fund over and beyond the return yielded by the benchmark index.

4. What are the benefits and risks of mutual funds investments, and how to manage these risks?

Mutual funds are a low-cost, diversified, and tax-efficient way of building wealth. On the other hand, mutual funds have shortcomings such as not guaranteed returns, high-fee, poor trade execution, and entry or exit load.

Investors can manage the risk after carefully understanding mutual funds and their terms before investing.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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