What are mutual funds? An investment guide for beginners

investing in mutual funds for beginners

so, basically, there are three Major Categories of Mutual Funds– Large-Cap Mutual Fund, Mid-Cap Mutual Fund and Small-Cap Mutual Fund.

Major Categories of Mutual Funds (MFs)

Large-Cap Mutual Funds: These are the blue-chips of India with a market capitalization of over Rs. 10,000 crores. “The following funds are considered safer than others due to their strong financials and being highly liquid. The expected annualized returns from these funds would be 12-15%, said Hemant Sood, Founder, Findock.

Mid-Cap Mutual Funds: Investment The investments made in these funds are made in mid-sized companies in India. They are considered to be the fastest growing companies and aim to eventually enter the Nifty 50 index. According to Hemant Sood, they give slightly better returns with slightly higher risk than large-caps of around 15-18%.

Small-Cap Mutual Fund, These funds invest in companies that are very small in size and have a market capitalization of Rs. 5,000 crores. “They are highly risky due to low liquidity and sometimes financial issues. As they say the higher the risk, the higher the return, and the expected return from small caps is around 20%,” Sood said.

Apart from this, there are various other categories like multi-cap funds, flexi-cap funds and value funds, which invest in undervalued companies, which generate high returns. Also there are sectoral/thematic funds

One can also consider Dividend Yield Funds that invest in companies that invest in high dividend yield, Focused Funds and ELSS Funds that aim for tax savings.

According to tax and investment expert Balwant Jain, “Investing in mutual funds is like betting on a race horse season-on-season. You have to change your bet on different horses, similarly, you have to keep reviewing your funds and The performance has to be seen again and again.”

Tips for beginners investing in mutual funds

Balwant Jain shares some tips for them Investing in mutual funds for the first time,

1) Beginners should start with index funds. An index fund is a type of mutual fund or exchange-traded fund that seeks to track the returns of a market index (Sensex, Nifty).

2) Once you understand this, you can see your risk appetite, then consider investing in large, mid or small-cap mutual funds, suggested Jain.

2) Investing in index funds does not require review. For diversified funds, you need to monitor and review your investments regularly. According to tax and investment experts, if the fund’s performance is below the benchmark level, then you need to do active management. corrective action

3) SIP is the best option for beginners, who have just entered the field of investment. With SIP you can start investing with as little as 500 per month, and take advantage of the growth of the Indian stock market.

4) Don’t get carried away and invest in a fund that is performing well. Your portfolio should not consist of more than 4-5 funds, and should be a mix of small, mid, flexi and large-caps. For large caps, Balwant Jain recommends going for index funds.

These are the different types of categories available when it comes to investment Equity Mutual Fund Schemes Which one can choose as per their return expectation and personal risk appetite. All of these can be used for long term investments as the market can be highly volatile in the short term.

Disclaimer: The views and recommendations given above are those of individual analysts and not Mint’s. We advise investors to do due diligence with certified experts before making any investment decision.