Mutual Funds for Beginners | How to Earn Money Using Mutual Funds

Mutual Funds collect money from people like us, Rs. 500 hundred for me,  Rs. 500  For you, and create a money pool. A funds manager then uses this pool to invest in stocks, Bonds, assets etc. We don’t have to worry about where it is being invested. Because the fund manager takes care of it. For a commission of 01% or 02%.  If you want to invest long term, Mutual funds are a great option because instead of sitting idle, your money will go earn for you.  But how can I be sure that mutual fund will not run away with my money? Mutual Funds are regulated by SEBI. (Securities and Exchange Board of India) So running away is highly unlikely. However, If you chose a bad fund manager then he lose your money by investing in bad stocks. I’ll tell you what to do so that doesn’t happen. First, let’s find out the different types of mutual funds available. 

1. Equity Funds -: These mutual funds invest shares, stocks of companies.  They are considered high risk, but they also give high returns. 

2. Debt Funds -: These Mutual funds invest in Debt instruments like debentures, Government bonds.  They are safe investments but their returns are also less. 

3. Hybrid funds -: They invest in both equity as well as Debt.  Maybe 50%-50% or 70%-30%. Their aim is to give you moderate returns at moderate risk. Then there are Sector Funds, Gilt Funds, and Tax Savings Funds Etc.   Which are pretty easy to understand, but for now, let’s stick to the basics 

I think the reason why we don’t invest in Mutual Funds is that there are so many in the market; we don’t know which one to pick!

So before you chose a Mutual fund invest in remember these 5 points. 

1. If you want to invest short-term say 1 year or 2 years then don’t choose equity funds. Chose debt funds. Because they are low risk than equity plus they give more returns than a bank.

2. If you want to invest Long-Term, there are 2 options a) Lump-Sump and b) SIP. Lump-sum is when you give a huge amount, say 1 lakh rupees, all at the same time. And SIP is a systematic investment plan. Where you chose to say Rs. 1000 or Rs. 2000 and Every month that amount will directly move from your savings account to your MF account.  If you are new to mutual funds, SIP is the best option. 

3. Now which mutual fund to pick? They will be categorized into 3 types. 

Large-Cap schemes invest in big companies that are already well established. So the risk is less. Mid-Cap Schemes come with Moderate Risk, But Moderate Returns.  And Small-Cap Schemes invest in even smaller companies. So they come with High risk but returns will also be high. If you are new to mutual funds. I would suggest that you pick a mutual fund that falls in the Large-Cap Scheme. 

4. Before selecting a mutual fund, these are the parameters that you must check. 

5.  There is something called Index Funds.  In these, you don’t need a fund, Manager in between, so the expense ratio is very less. There is an investment advisor called Javed Tadavi and he strongly suggests that if you are new, just buy NIFTY50 and Sensex index funds, and personally, this is what I have invested in.  So there were the 5 things that you must keep in mind before you pick a mutual fund.

1. Select the mutual fund you want to opt for based on the 5 things that we’ve just discussed now. 

2. Figure out how much money should you invest in SIP every month to meet your financial goal. For that, we will use a SIP Calculator. Suppose in the next 15 years, you want to make 1 cr. Rupees. The average expected rate of return for any mutual fund is around 16%. Then click on Calculate. So you need to invest around 13k every month for the next 15 years, to make 1 cr. rupees. Now you can even use the return value calculator. In this calculator, we will first enter how much money you can invest in every month.  Let’s assume it’s Rs. 2000/- Let’s also assumes that you will invest it for the next 10 years. As we know the average expected rate of return for a mutual fund is 16%. Click on calculate.  Now this means, that when you invest Rs. 2,40, 000/- Your expected accumulated wealth will be around Rs. 6 lakh. And that will happen if you invest Rs. 2000/- for the next 10 years. 

3. The third thing you need to start a mutual fund account is a PAN Card which is KYC Compliant.  And finally, after doing these 3 things, you can either go to that mutual fund’s Branch office or you can visit their website.

For example Sbimf.com, Hdfcfund.com, Icicpruams.com, etc.

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