How to start investing in Mutual Funds: A 6-step process

Varun Fatehpuria
February 27, 2023
how to start investing in mutual funds
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Looking to start investing in mutual funds but don’t know where to start? If you’re new to the world of investing, the process can seem very confusing. In this blog, we’ll walk you through a detailed and simple 6-step process and teach you how to start investing in mutual funds. 

Before we get into the specifics of how to start investing in mutual funds, let’s first understand what mutual funds are.

What are Mutual Funds?

A mutual fund is a type of investment vehicle that pools money from multiple investors to purchase stocks, bonds, or other assets. These funds are managed by professional fund managers who use the pooled money to buy and sell securities to achieve the investment objectives of the fund. Mutual funds offer investors the potential for diversification, professional management, and access to a range of asset classes that may not be available to individual investors.

How to start investing in mutual funds: 6-step process

Step 1: Determine your investment objective

The first step in starting your mutual fund investment journey is to determine your investment objective. Your investment objective should be aligned with your financial goals. It’s essential to know why you’re investing and how much you’re willing to invest. If you’re looking to save for a short-term goal such as a vacation or a down payment on a house, you might want to consider investing in a debt mutual fund. If you’re looking to build wealth over the long term, you may want to consider equity mutual funds

Step 2: Assess your risk tolerance and appetite

It is critical to establish your own risk appetite. And while ‘risk’ may look like an abstract concept, it is important to understand it. Put simply, your willingness to take risks depends on your ability to withstand the ups and downs of the market. And your unique life situation. For e.g. It is normally seen that as people age, their risk tolerance reduces gradually as they have a no. of dependents who rely on them financially. While if you are early in your career, you can take on more risk as you have fewer responsibilities. There are many tools available online for free which can help you assess your risk tolerance.  

Step 3: Choose a Mutual Fund

Once you’ve determined your investment objective and risk appetite, the next step is to choose a mutual fund that aligns with your investment goals. There are several types of mutual funds available in India, including equity funds, debt funds, hybrid funds, index funds, international funds etc. To choose a mutual fund, you need to consider various factors such as fund performance, expense ratio, the fund manager’s experience, the fund’s investment objective, and risk tolerance.

In India today there are over 8,000+ mutual fund schemes offered by over 44 mutual fund companies. If you do not know how to select a scheme that is appropriate for you, it is always recommended to take the help of an expert like a mutual fund distributor or an investment advisor. 

Step 4: Complete Your KYC

Before you start investing in mutual funds, you need to also complete your Know Your Customer (KYC) process. KYC is a one-time process that involves providing your identity proof, address proof, and other details to the fund house. KYC helps mutual fund companies verify their investors’ identity, preventing money laundering and fraudulent activities. You can complete your KYC very easily today by authenticating your details via your Aadhaar card. The entire process doesn’t take more than 5-10 minutes. Once you have completed your KYC, you do not need to do it every time for different mutual fund companies. 

Step 5: Open an Account

You can invest in mutual funds through either Statement of Account (SOA) mode or demat mode. Both are effectively digital modes of transactions but while the latter requires you to open a separate demat/trading account, the former can be done with just your email id. You can also visit an individual fund house’s website and open an account but that can be a very cumbersome process if you are investing with different mutual fund companies. If you don’t know where to begin your investment journey, it is always better to take the help of a registered distributor/advisor who can guide you and present you with relevant solutions for your specific needs. 

Step 6: Start Investing

Once your account is set up, you’re ready to start investing. You can invest in mutual funds either through a lump sum investment or a systematic investment plan (SIP). A lump sum investment involves investing a large amount of money in a mutual fund in one go. On the other hand, a SIP involves investing a fixed amount of money at regular intervals, such as monthly, quarterly, or yearly.

When investing in mutual funds, it’s essential to keep a few things in mind:

  1. Diversify your portfolio: It’s important to spread your investments across various mutual funds to diversify your portfolio and reduce your risk.
  2. Review your portfolio regularly: It’s essential to review your mutual fund portfolio regularly and make any necessary changes based on your financial goals, risk tolerance, and market conditions.
  3. Stay Invested: Mutual funds are long-term investments, and it’s important to stay invested and not make hasty decisions based on short-term market fluctuations.
  4. Keep an eye on the expenses: Mutual funds charge fees and expenses for managing the fund, and these can impact your returns over time. It’s important to choose funds with lower expense ratios to maximize your returns.
  5. Consult a financial advisor: If you’re new to investing or not sure which mutual fund to choose, it’s a good idea to consult a financial advisor. A financial advisor can help you choose the right funds based on your financial goals, risk tolerance, and investment horizon.

With this post, we hope we helped you to understand how to start investing in mutual funds.

In conclusion, investing in mutual funds can be a great way to build wealth in India. By following these steps and keeping the above points in mind, you can make informed investment decisions and achieve your financial goals. Remember to start small, diversify your portfolio, and review your investments regularly to maximize your returns. With a little bit of patience and discipline, you can become a successful mutual fund investor. 


1. How should a beginner start investing in mutual funds? 

A beginner can start investing in mutual funds by simply following the above steps.

2. What is the minimum holding period of mutual funds?

While there is no minimum holding period for mutual funds, some specific funds may charge an exit load if you redeem the investments before 1 year. Else, you can withdraw your money whenever you want.

3. What are the 5 types of mutual funds? 

The 5 official types of mutual funds are a) Equity Funds b) Debt funds c) Hybrid funds d) Solution-oriented funds and e) Other funds/Index Funds

    Risk Assessment Test