What Is Mutual Fund Investment? Benefits, Process & Tips For Beginners

A mutual fund is a financial product that collects money from several people and invests it in different assets such as shares, bonds, or other securities.

Suppose 200 people each invest ₹5,000 in a mutual fund. The total pool becomes ₹10 lakh. This amount is then invested across different assets like HDFC Bank shares, SBI bonds, and ITC stocks. 

Each investor owns units based on their ₹5,000 contribution and earns returns proportionally. This blog will guide you through the basics of mutual funds, benefits, how to invest, and key insights drawn from current industry updates.

Understanding Mutual Fund Investment

A mutual fund is a pooled investment. Here, the money of many investors is collected and managed by professionals. This money is invested in a mix of financial assets, like:

• Stocks
• Government bonds
• Company debt
• Money market instruments
   

You receive units of the mutual fund in exchange for your investment. These units are priced daily based on the Net Asset Value (NAV). This reflects what one unit of the fund is worth right now.

What is Net Asset Value (NAV)?

Net Asset Value (NAV) is the price of one unit of a mutual fund or exchange-traded fund (ETF). It shows the actual worth of the fund per unit after adjusting for its total assets and liabilities.

Formula:

Net Asset Value (NAV) = (Total Assets – Total Liabilities) / Number of Units Issued

Imagine a mutual fund owns assets worth ₹500 crore (like stocks, bonds, and cash). Its liabilities are ₹20 crore, and the fund has issued 4 crore units.

NAV = (₹500 crore - ₹20 crore) / 4 crore = ₹120

So, the NAV of this fund will be ₹120 per unit.

Categories Of Mutual Funds

These funds are classified based on where the money is invested. You can choose a fund type that matches your financial goal and comfort with market risk. 
 

This table can help you choose a mutual fund type that aligns with your risk tolerance, investment horizon, and financial goals. You can easily compare these fund types side-by-side with the help of the above-mentioned table and make an informed decision. 

Key Benefits Of Mutual Fund Investment

They offer several useful benefits, particularly for those who do not have the time or knowledge to track the markets.

For example, in 23 years, Baroda BNP Paribas Liquid Fund has multiplied investor wealth close to three times. Its average AUM is more than ₹10,500 crore. It shows that even low-risk funds can help build long-term value with discipline and patience.

1. Professionally Managed

You don’t need to track markets daily. Fund managers handle your investment. For instance, SBI Mutual Fund disclosed its top stock holdings in June 2025, showcasing transparent and strategic fund management.

2. Diversification

Your investment is spread across multiple sectors. This reduces the risk of losses.

3. Affordable Entry Point

You can start with ₹500 monthly via SIPs. It is suitable for beginners.

4. Flexibility

You can invest for your different goals, short-term, retirement, or wealth creation.

5. Tax Benefits

Top tax-saving mutual funds under the category of ELSS can assist you to get tax benefits up to ₹1.5 lakh per year, under section 80C.

Process Of Mutual Fund Investment

If you want to start your journey with mutual funds, then you can begin by following the steps:

Step 1: Set a Clear Goal

You need to decide whether your purpose is saving for a holiday in 2 years or building wealth for retirement in 20 years.

Step 2: Complete KYC

Now, you need to provide your PAN, Aadhaar, photo, and address proof. Many platforms offer online video KYC as well.

Step 3: Choose the Right Fund

Before investing, you need to check the fund’s past returns, risk level, fund house’s reputation, and expense ratio. The following table highlights the key factors you need to check and why it is important:
 

If you carefully examine these factors, then you can identify funds that suit your investment horizon. If you make an informed decision, then it will help you maximise your returns while effectively managing risks.

Step 4: Pick an Investment Method

You can start a SIP for regular investing. Or you can also invest a lump sum if you have a larger amount.

In June 2025, SIP inflows reached a record ₹27,269 crore, marking a new high.

Step 5: Invest Online or Offline

You can invest directly via AMC websites or through trusted apps. New-age distributors like NJ Group have helped democratise mutual fund access.

Expert Tips For Beginners

Before you begin investing, it’s important to follow practical advice as per your financial situation. The table below shares expert tips based on different investor profiles:
 

You need to customise the above-mentioned tips based on your own financial goals, time horizon, and comfort with risk. These tips aren’t one-size-fits-all, so you should match them to your own investor profile.

Popular Performing Funds (Past 5 Years)

Past performance is not indicative of future results. However; as per the Economic Times and Financial Express, the following are the popular performers in the last 5 years:
 

The above-mentioned table highlights the funds that have delivered strong growth in the past. You need to consider these trends alongside your risk appetite before making any decision. 

Mistakes You Should Avoid

While making an investment decision, there is a possibility that you might make some mistakes. So, if you wish to get the best results, then you must avoid the following mistakes:

If you keep the above-mentioned risks in mind while investing, then there are high chances that you will save yourself from market uncertainties. As per India Today, experts are cautioning against risky or misinformed investment advice often found online.

Gen Z And First-Time Investors

According to ET analysis, young investors are embracing mutual funds but need to stay informed and realistic about expectations.

Also, recently, over ₹17,800 crore has been raised by Jio BlackRock’s NFO. This shows the strong interest in mutual fund investments among retail participants.

Final Thoughts

You might have understood by now that mutual fund investment is a smart and flexible way to grow your money over time. You can build your wealth gradually with the option to start small through SIPs. For this, you do not need any deep market knowledge.

Whether your goal is tax saving, long-term growth, or steady returns, there’s a mutual fund investment suited for every need. Recent trends, such as rising SIP inflows and high-performing schemes, show growing investor trust.

FAQs

1. Do I need a demat account to invest?

No, it's not required for mutual funds.

2. Can mutual funds make me rich overnight?

No, mutual funds build wealth steadily, not magically. Think discipline, not jackpot.

3. Is it possible to invest in mutual funds through UPI apps?

Yes, platforms like PhonePe, Paytm, and Groww now support mutual fund investments via UPI.

4. Do mutual funds offer monthly income options?

Yes, certain funds offer SWP (Systematic Withdrawal Plan) for fixed monthly payouts.

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