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Mutual funds are among the best investment options in the country. To help our readers, we have created this complete guide on mutual fund investment in India by Scripbox.

What Are Mutual Funds?

A mutual fund is one of the best investment options for everybody. It is a corpus of money pooled from several investors professionally managed by a trust called asset management company (AMC). An AMC is also known as a mutual fund house.

The fund house has experts, known as fund managers, who are responsible for investing the pooled money.

This pooled money is then invested in various assets like equities, debt, corporate bonds, hybrid instruments, money market instruments like CP, CD, and T-bills to generate returns.

Difference Between SIP and Mutual Fund

The systematic investment plan, popular as SIP, is one of the methods to invest in mutual funds. The mutual fund is the actual investment vehicle which pools the corpus of money from various investors and invests them in various asset classes.

To know more about the difference between SIP and Mutual Fund you can go through the article Difference between SIP and Mutual Fund.

Advantages of Mutual Funds

There are several benefits of investing money in mutual funds. Some of them are…

  • Liquidity
  • Diversification
  • Expert Fund Management
  • Safety and Transparency
  • Flexibility to do SIP

You can also read all the benefits and advantages of mutual funds in details.

Types of Mutual Funds in India

In India, you have several types of mutual fund schemes suitable for all types of investment requirements be it for HNIs or retail investors, for long term or short term investment horizon.

Due to time constraints and lack of expertise, you may find it very difficult to invest in financial instruments like T-Bills, G-Secs, NCDs, CP, CDs or Hybrid instruments.

Mutual funds invest pooled money in all types of financial instruments and the types of mutual funds are known by the underlying class of instruments in which the major portion of the investment is made.

Here are some of the types of mutual funds available in India.

  • Mutual fund based on the structure like open-ended, closed-ended and interval mutual funds.
  • Mutual fund based on asset class like equity mutual funds, debt mutual funds, money market funds and balance or hybrid funds.
  • Mutual funds based on investment objectives like growth fund, income fund, ELSS and liquid funds.
  • Mutual fund based on a specialty like sector funds, index funds, emerging market funds, fund of fund and theme-based mutual funds.

Best Ways to Invest in Mutual Funds

You can start investing in mutual funds in two ways, lump sum, and SIP.

1. Lump-sum investment in Mutual Funds

In lump sum investment, you make a single payment to purchase units of mutual funds. The investment is best suited in case you already have surplus cash to invest.

Recommended Read: Best Mutual Funds for Lumpsum Investment

2. SIP Investment in Mutual Funds

In a systematic investment plan (SIP), you have the flexibility to split your purchase into smaller amounts, usually in the form of monthly investments. The method is especially suitable for salaried professionals.

For example, using SIP you can start purchasing 1000 units of the mutual fund every month. In fact, you can start using SIP with as low as Rs. 1000 per month. SIP also gives you the flexibility to invest on fortnightly, monthly and quarterly periods.

Comparison With Other Investments

1.  Mutual Funds Vs Stocks

BasisMutual FundsStocks
OwnershipShares in FundShares in company
Managed byFund ManagerInvestor
Value calculationNet Asset ValuePrice per share
Investment trackingBy the investment team at AMCInvestor
Expertise requiredNIL, as the fund manager, exercises his expertise to find stocks.Investor
Stock selectionNo, because the fund manager does everything on your behalfInvestor
Diversified portfolioYesNeed to buy several shares to create a diversified portfolio 
ExpensesYes, need to pay fees called expense ratioNo, but need to pay STT
Tax deductionOnly in ELSS under section 80CNo

Learn More: Mutual Fund Vs Stocks


BasisTax Saving Mutual Funds or ELSSPublic Provident Fund (PPF)
Returns12% & moreDeclared by Govt. every year presently 7.9%
Tax benefitYes, a deduction up to Rs 1.5 Lakh under section 80CYes, a deduction up to Rs 1.5 Lakh under section 80C
Taxation of returnsGains above Rs. 1 Lakh are taxable @ 10%Tax-Free
RiskMarket riskGovt. backed
Lock-in period3 years15 Years
BackingMutual fund houseGovernment
Partial withdrawalNo After the fifth year
Time period of investmentNo upper time limit15 years, can be extended by another 5 years

Learn More: ELSS Vs PPF

3. ULIP Vs Mutual Fund

BasisULIPsMutual Fund
Product TypeInsurance + InvestmentInvestment
Tax savingsYes, a deduction of up to Rs. 1.5 Lakh eligible for tax savingsOnly ELSS provides tax benefits
Lock-in Period5 yearsFor ELSS 3 years. In case of other mutual funds, there is no lock-in period
Life coverYes, you get sum assured in case of deathNO, you need to buy it separately

Learn More: ULIP Vs Mutual Fund

4. ETF Vs Mutual Fund

BasisETFMutual Fund
CompositionAs per the underlying indexDepends on the investment objective
ProductPooled investment productPooled investment product
TradingCan be like stocksNot traded
ManagementPassively managed by the fund managerDepending on the type can be actively managed by the fund manager
Fees & ExpensesLowVaries with type
Lock-in PeriodNoClose-ended mutual fund and ELSS have a lock-in period

Learn More: ETF Vs Mutual Fund

Type of Mutual Funds Available to Invest in India

1. Tax Saving Mutual Funds

The primary objective of tax saving mutual funds or Equity Linked Savings Schemes is saving of taxes, and generating higher returns with a lower lock-in period.

How to Invest in ELSS

Investment in tax saving mutual funds or ELSS can be done in the same manner as investing in mutual funds by purchasing units in a lump sum or through regular systematic investment plan (SIP).

You can purchase the best tax saving ELSS mutual funds directly from the mutual fund house, your broker, online mutual fund investment platform, from registrars like Karvy and CAMS or through AMFI registered agents.

You can purchase best tax saving ELSS mutual funds directly from the mutual fund house

2. Liquid Mutual Funds

Liquid funds have a major holding in in very short duration financial instruments like T-bills, fixed deposits, commercial papers (CPs) and certificate of deposits (CDs).

Investors with a short investment horizon of less than a year and those looking for an alternative to savings account and deposits can invest in liquid mutual funds.

You can find out the best liquid mutual funds in India to start investing.

3. Debt Mutual Funds

The major portion of debt mutual funds comprises investments in non-convertible debentures (NCDs) and bonds. The primary objective of debt mutual fund is capital protection.

Check out the best debt funds in India to invest

4. Large Cap Mutual Funds

Large-cap mutual funds invest a major portion (minimum 80%), of the fund in companies with huge market capitalization and are top 100 companies on the index.

These are established companies with a strong performance record. The return from large-cap funds over a period of time is less volatile, relatively stable and sustainable.

Check out best large cap mutual funds to invest for long term goals

5. Mid Cap Mutual Funds

A mid-cap mutual fund has a larger portion (65%) of the corpus invested in mid-cap companies, i.e. companies ranking from 101st to 250th in terms of market capitalization

6. Multi-Cap Mutual Funds

Multi-cap mutual funds invest 65% of the total assets in companies belonging to all types of market capitalisation. They offer the desired diversification among the large, mid and small-cap funds.

Hence, the risk and returns are lower than the individual cap fund.

Check Out: Best Multi-Cap Mutual Funds

7. Gold Mutual Funds

In India, Gold mutual funds are primarily funds of funds with the objective of investing in gold ETFs.

Gold mutual funds closely mimic the returns generated by the gold ETF over a period of time.

8. Index Funds

Index funds are mutual funds with investment in equities of companies comprising the underlying index. For example, the index fund tracking BSE index will invest in 30 companies, which constitutes the BSE Sensex.

Index funds are passive funds and the returns are almost the same as that generated by the said index.

Learn ETFs vs Index Funds

9. Hybrid Funds

Hybrid Funds are mutual funds with investments in equity and debt in a fixed proportion. For example, a conservative hybrid fund will have 75% to 90% of investment in debt.

A balanced hybrid fund will have 40% to 60% of the investment in debt and an aggressive hybrid fund will have 65% to 80% of the investment in equity instruments.

How to Invest in Mutual Fund

To invest in a mutual fund you can either make a lump sum payment or opt for SIP. To purchase the units you can do so by buying;

  • Directly from the mutual fund house 
  • From your broker 
  • Directly from an online mutual fund investment platform 
  • From registrars like Karvy and CAMS  
  • Through AMFI registered agents

Here is a complete guide on how to invest in mutual fund

Different mutual fund schemes have different investment objectives and the investment horizon depends on the investment objectives.

All the mutual funds which mainly invest in equities for a longer period have the capacity to generate higher returns and hence are the best mutual funds to invest for the long term.

How to Invest in a Mutual Fund for Beginners

For beginners, mutual funds provide a hassle-free investment option. However, the new investor should be clear about his investment goals and understand the risk associated with various asset classes.

The better way to start a mutual fund investment would be using SIP. Here are the best mutual funds for sip.

How to Buy Mutual Funds Online

There are three ways in which you can buy mutual funds online.

  • Directly through AMC website
  • Through your existing Demat account, if your broker is registered as a mutual fund distributor
  • Through an online mutual fund investment platform

Check out the top performing mutual funds in India

Best Way to Invest Rs. 500 Per Month

You can invest Rs. 500 per month in one of the following ways

  • In Mutual Funds through SIP
  • Public Provident Fund
  • Recurring Deposit
  • National Savings Certificate 

No matter what you choose, ensure that it aligns with your financial goals.

How to Buy Direct Mutual Funds

Direct mutual fund plans can be bought through

  • Mutual fund website
  • Registrars & transfer agent – Karvy and CAMS
  • Mutual fund utility portal 
  • Online mutual fund investment platforms

How to Redeem Mutual Fund

Mutual funds can be redeemed online or offline. In online redemption, you need to log into your account and opt for redemption. On clicking the redemption button the redemption request will be generated and the funds will be credited to your linked account.

For offline redemption, you need to fill the “Redemption Request Form” and submit it to the mutual fund house or registrars.

Learn: Step by Step Process on How to Redeem Mutual Fund

How to Calculate Mutual Fund Returns

The returns from mutual fund investment can be calculated in two ways;

1. Absolute Returns

Absolute return is used when you want to calculate point to point returns. The holding period does not come into the picture.

Formula for calculating absolute returns = (current NAV – initial NAV) / initial NAV x 100.

2. Annualised Returns

Annualised returns do not account for the holding period. The annualised returns calculation is used when the holding period is less than 12 months.

Annualised returns are also known as effective annual yield.

Formula for calculating annualised returns = (( 1+ absolute return) ^ (365 / number of days)) – 1.

Start Calculating Returns: Mutual Fund SIP Calculator

How to Track All Mutual Funds Investments in One Place

You can use the MF Utility portal to have a consolidated view of all your mutual fund investments. To use the portal, you need to create an e-CAN (Common Account Number).

Otherwise, you can get a Consolidated Account Statement (CAS) from Karvy and CAMS to view all your mutual fund investments.

Online mutual fund investment platforms can help you track only those investments which are done through them.

Explore Loan Against Mutual Funds