Are you ready to let your money work for you? Imagine a simple, stress-free way to grow your wealth, where experts do the heavy lifting while you watch your savings multiply. Welcome to the world of mutual funds – an accessible gateway to the stock market, offering a tailored investment plan whether you’re a seasoned investor or just starting your financial journey.

However, readers must note that mutual fund investments are subject to market risks, and past performance is not indicative of future results.

In this article, we’ll take you through everything you need to know to begin investing in mutual funds.

Here’s a step-by-step guide;

1. Understand What Mutual Funds Are

A mutual fund is a pool of money collected from various investors to invest in stocks, bonds, or other securities. Each investor owns units of the mutual fund based on their investment.

2. Define Your Investment Goals

-Short-term or long-term goals?

-How much risk can you tolerate?

-Are you investing for retirement, education, or wealth-building?

-Your goals will help you choose the right type of mutual funds (e.g., equity, debt, hybrid).

3. Choose Between Direct and Regular Plans

-Direct Plan: You invest directly with the mutual fund company, leading to lower expense ratios and higher returns as there’s no intermediary.

-Regular Plan: You invest through a distributor or broker, which means you’ll pay a commission and the returns may be slightly lower.

4. KYC (Know Your Customer) Compliance

To invest in mutual funds in India, you need to complete your KYC process. This involves:

-Submitting identity proof (Aadhaar card, PAN card).

-Address proof.

-Passport-sized photograph.

-In-person verification (done either online or through a physical visit).

5. Open an Investment Account

There are two primary ways to invest in mutual funds:

-AMC Websites: Directly from Asset Management Company (AMC) websites.

-Platforms: You may use third-party platforms like Zerodha Coin, Groww, Angel One or Paytm Money, which make it easy to track and invest in multiple funds.

6. Select a Fund Based on Your Goals

-Equity Mutual Funds: Best for long-term growth but comes with higher risk. Suitable for goals over 5+ years.

-Debt Mutual Funds: Lower risk, suited for short-term goals or less volatile income generation.

-Hybrid Mutual Funds: A mix of equity and debt, balancing risk and return.

-Index Funds/ETFs: These mimic the performance of a specific index (like Nifty 50) and are passive, low-cost investments.

7. Systematic Investment Plan (SIP) vs. Lump Sum Investment

-SIP: Invest a fixed amount monthly. It helps in averaging the cost and is suitable for salaried individuals.

-Lump Sum: Invest a large amount at once. Suitable when you have a big sum available for investment and you want to take advantage of market opportunities.

8. Track Performance and Rebalance

Periodically review your mutual fund’s performance. You may need to rebalance your portfolio to align with your goals or change funds based on market conditions or personal financial circumstances.

9. Tax Implications

-Equity Funds: If you sell your mutual fund units within a year of purchase, you will now be taxed 20% on your profits.

For mutual fund units held for over a year, the tax on profits is 12.5%. The tax-free limit for long-term capital gains (LTCG) is Rs 1.25 lakh.

-Debt Funds: Short-Term Capital Gains: If you sell your debt fund units within three years, the gains will be taxed according to your income tax slab.

Long-Term Capital Gains: For debt funds held for more than three years, the tax rate is a flat 12.5%, with no indexation benefits.

The entire gain from selling a debt fund after three years is taxable at a fixed rate of 12.5%.

10. Stay Informed and Regularly Monitor

-Track the performance of your investments periodically.

-Stay informed about market trends, fund manager changes, and any major shifts in the economy.

Investing in mutual funds is a powerful way to grow your wealth and achieve your financial goals, whether short-term or long-term. By understanding the different types of funds, aligning your choices with your risk tolerance, and staying disciplined, you can make the most of what the market has to offer.

However, it’s essential to remember that all investments come with risks, and markets can be unpredictable. Staying informed, periodically reviewing your portfolio, and seeking professional guidance will help you navigate these fluctuations confidently. With a strategic approach, mutual funds can be a valuable tool on your path to financial security.

Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.