How to Invest in Mutual Funds


How to invest in Mutual Funds is unfortunately not a burning question for most investors.

This is because they are more concerned with ‘the best mutual funds’.

How you invest in mutual funds and Why you invest in mutual funds are the two questions if answered well makes your investing journey a smooth one.

If not then you spend a major time recuperating losses than actually making gains.

best mutual funds



KYC stands for Know Your Customer and is only a one time exercise similar to what banks have when you have to open a banking account.

Unlike a banking account kyc though, you need not do a KYC each time you invest in a new mutual fund house.

You only need to do your KYC once before you start investing in mutual funds.

This can be done via offline form or online.

KYC requires basic information like your contact number, email id, communication address, etc. among other things supported by a self- attested pan card copy coupled with another self-attested document capturing your address (aadhar card, electricity bill, driver’s licence, etc.)


Additional reading: Click Here to read about mutual fund mistakes you should avoid making


You can invest either via offline forms or online.

Offline forms have to obviously be supported by cheque copies.

It is a very common misconception that for Sip’s registered via offline forms, cheques have to be submitted every month which is of course not true.

Irrespective of the duration of your Sip, a cheque copy has to be provided only at the time of registration.

Offline or online, Nav is allotted only when the money has been deposited/transferred to the mutual funds account.



Have an Emergency Fund

Ideally you should set aside an emergency fund equivalent to six months expenses before investing in mutual funds.

This could be in a combination of liquid funds and fixed deposits.

The emergency fund could be more than six months of expenses depending on other prevailing conditions but never less.

Having an emergency fund has several benefits, first the very obvious one that you have the finances to fall back upon in case of an emergency.

Secondly you do not feel compelled to touch your investments when in an emergency, if you do then both your valuations as well your goals are affected negatively.

Thirdly when you touch your investments in case of your emergency, you would also need to pay taxes as and when the conditions for the same are met with.

It is better to invest a lower amount to begin with and set aside an emergency fund then to invest the complete amount without any emergency fund and then touch your investments in case of an emergency.


Are you investing in the right mutual funds?

Professional Advice

In a highly populated country like ours, opinions will always be aplenty and mutual funds are no exception to that.

It is one thing to receive unsolicited advice from family and relatives but with mutual funds recent trend suggests that investors also seek advice from strangers on social media who are no more qualified than them for mutual fund ‘advice’.

This never bodes well since the advice you receive, whether solicited or unsolicited has no accountability or qualification and you end up moving in and out of schemes based on differing advices you receive which in turn means higher taxes and exit load charges.

Mutual fund advice is not a one time thing, it is:

  1. Prior to investing
  2. While invested and
  3. How to redeem

So do the simple and sound thing of reaching out to a distributor/advisor for better handling of your mutual fund investment.

Be it wealth or health, only let the qualified professionals enlighten you.


Additional reading: Click Here to read about how to build a mutual fund portfolio. 

Understanding risk profile

Mutual fund investments are subject to market risks

This is often accompanied with most mutual fund related material and yet very rarely do investors dig deeper into this.

Every mutual fund scheme will have its own risks and the ability to withstand it will differ for each investor.

Then comes into the picture other factors such as time horizon, goals, mode of investment, etc.

Even an individual having all the same attributes as someone else can still have a different risk appetite, the personal in personal finance is of more weight than finance.


Goal Aligned Portfolio

Ideally your mutual fund investment should be aligned to life goals, either certain schemes to each goal or your complete portfolio to one goal.

Whether you have any goal or not, we all are going to retire at some point so retirement by default becomes a goal and that becomes all the more important considering the rising health expenses and gradual increase in life expectancy.

Having a goal helps you stay disciplined but more importantly it helps you see the bigger picture with regards to your mutual fund investment.

Goals help you stay calm when the markets are volatile because you know your goals are still far away and there is no need to panic by short term volatility.

High Returns is not a goal, it is a desire and personal finance is about goals and having a plan to achieve them and not about fulfilling desires.


Are you investing in the right mutual funds?

Mode of Investing

There are three modes of investing in mutual funds:

  1. SIP
  2. Lumpsum &
  3. STP


A sip plan in a mutual fund is a mode of investing via which you can make periodic investments into mutual funds if you do not or cannot make lumpsum investments.

The period could be:

  1. Daily
  2. Weekly
  3. Monthly



A lumpsum investment is a one time investment unlike a SIP investment which is periodic.

It can be done as many times as wanted though.

Whether you do a Lumpsum investment or not, it is always better to have an ongoing sip investment.



A Stp in mutual fund is a mode of investing in which you make a lumpsum investment in a debt or liquid fund.

You transfer a portion of this lumpsum investment (debt/liquid) into your primary equity fund either daily, weekly or monthly.

The primary purpose of this exercise is so you do not invest your entire investment into primary equity fund in one go.

This is all the more important if you feel the market is overvalued or is currently going through a very bearish phase.

It also helps during a volatile market so you get to average your investments.

The kind of debt/liquid mutual fund you make the primary lumpsum investment in would depend upon the duration of your STP plan since each debt fund varies with respect to their exit loads.


Growth or Dividend

When you invest in mutual funds you get the following two options:

  1. Growth
  2. Dividend

The growth option means any appreciation the fund makes would be added to your valuation amount and will stay the same way until and unless you decided to withdraw.

The dividend option within itself too gives you further two options:

  1. Dividend pay-out
  2. Dividend reinvestment


In the dividend pay-out option, any dividend declared by your mutual fund scheme would be paid to you.

Whereas in the dividend reinvestment, any dividend declared by your mutual fund scheme would be reinvested in the same scheme.


Avoid Transactional Platforms

A transactional platform could include anything from a bank, brokerage firm to any online portal that allows you to execute transactions.

The issue with such platforms is that there is no personalized or human touch.

A mutual fund portfolio needs to be personalized catering to each individual specifically, there is no such thing as ‘best mutual fund schemes.’

Such platforms only allow you to invest but do not ask you the pertinent questions without which the entire exercise is futile.

You need (not want) an advisor/distributor who can ask you the why and answer the how.

Bank A will mostly if not only promote funds of parent company A, there is too much turnover with banks too so the one who assisted in the beginning may not be the same one during the journey.

        Investing in mutual funds is not a one-time event, it is a lifelong journey.

      There are several examples of those who had a poor first time experience in mutual funds to never invest again.

     How you begin your investing journey in mutual funds is very important, first impressions may not be the last impression but it is a lasting impression.

    Often the experience you undergo at the start is make or break.

    With mutual funds the ‘How you invest ’ is as important as the ‘Why you invest’ question.

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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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