Mutual Funds

How to Invest in Mutual Funds – Step-by-step Process

By admin
23 October 2025
9 mins read

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How to Invest in Mutual Funds – Step-by-step Process

Warren Buffett’s timeless advice to “never depend on a single income” but to “make an investment to create a second source of income” will always hold true. Countless successful investors can testify to the value of this advice. Do you also wish for an investment success story of your own, but don’t know where to start? Get going right here!

This guide will help you understand how to invest in mutual funds (MF).

What are Mutual Funds?

Mutual funds are investment instruments that pool money from many investors to purchase a diversified portfolio of securities like bonds, stocks, and other assets. These portfolios are managed by professional fund managers, offering investors the benefits of diversification, convenience, and potential returns based on market performance.

How do Mutual Funds Work?

An Asset Management Company (AMC) or fund house collects money from various investors with a common investment objective.
Professional experts invest this pooled money in a diversified portfolio of stocks, bonds, or other assets to meet the fund’s objectives.
Mutual funds are classified into two types: passively managed funds and actively managed funds.
Passively managed funds benchmark a specific market index, such as the Sensex or the Nifty 50, thereby requiring minimal management.
Actively managed funds require a fund manager who carefully analyzes and picks investments to maximize returns.
The value of each unit under a mutual fund is called the Net Asset Value (NAV). It is calculated daily based on the total value of assets.
Investors can easily buy or sell mutual fund units at the current NAV, making entry and exit convenient and liquid.
Investors earn returns through capital gains, interest, or dividends, which are either paid out or reinvested back into the fund.

Why Should You Invest in Mutual Funds?

Mutual fund investments offer many benefits, making them an attractive option for beginner-level and seasoned investors.

Mutual funds mitigate risks by spreading your investment across assets, including stocks, bonds, and other securities.
Since experienced fund managers analyze markets and select the best investment opportunities, you benefit from expert decision-making and market monitoring.
Mutual funds are liquid, which means you can easily buy or redeem units whenever you need money.
You can start investing in mutual funds with small amounts, making them accessible and suitable for all types of investors.
The Securities and Exchange Board of India (SEBI) regulates mutual funds, ensuring transparency and investor protection.
Mutual funds offer different schemes tailored to fulfill your goals, whether it is wealth creation, steady income, or tax saving through the Equity-Linked Savings Scheme (ELSS).

Things to Consider Before Investing in Mutual Funds

A novice investor must consider the following crucial aspects before putting money into the market.

Understand your investment objective. Opt for equity funds if you’re looking for capital appreciation and debt funds if you want to earn steady returns with minimal risk.
The mutual funds market has varied risk levels to cater to conservative, moderate, and aggressive risk profiles. Equity funds are best for risk-takers, while debt funds suit risk-averse investors. Hybrid funds are ideal for those who want to walk the middle path.
Calculate the time for which you want to invest money in mutual funds. Choose debt-based funds for short-term investment and equity funds for long-term wealth creation.
NAV is a key deciding factor. However, it isn’t the only one. Consider other parameters, including market volatility, fund management, and fund track record, among others.
While researching yourself is a good idea, consult expert financial advisors whenever needed.

The KYC Process before Investing in Mutual Funds

You must complete the Know Your Customer (KYC) process before making a mutual fund investment.
It verifies your identity, promotes secure transactions, and guarantees adherence to rules.
To proceed, submit documents such as your PAN Card, Aadhaar Card, proof of address, and a passport-size photograph.
You can complete KYC online (e-KYC) by uploading scanned copies or offline by visiting a KYC registration agency.
Once verified, you receive a KYC compliance confirmation, allowing you to invest in any mutual fund across AMCs.

How to Start Investing in Mutual Funds?

Beginning your journey of mutual fund investments is easy.

Set a goal

Determine your financial goals. Do you want to grow your money to buy a car or house, pay for a vacation, or save for your child’s education?

Register with a trusted and reputable online platform

Many online platforms allow you to trade in mutual funds. Pick one that’s reliable to start your investment journey.

Complete KYC

Submit the required documents to verify your details and proceed with making mutual fund investments.

Pick mutual funds

Study the various mutual funds based on performance, market conditions, etc., and select the one that suits your financial goals and risk profile.

Start an SIP

Make small contributions as small as Rs. 100 in the form of Systematic Investment Plans (SIPs) every month.

Stay invested for the long term

Be patient and disciplined to enjoy the benefits of compounding and growth.

How to Invest in Mutual Funds (step-by-step)

You can invest in mutual funds by following the steps mentioned below:

1. Determine your financial goals

Understand your short-term or long-term financial objectives to select the relevant fund type.

2. Understand your risk profile

Have a clear understanding of how much risk you can tolerate. Choose equity funds if you can handle higher risks, or debt funds for lower risks.

3. Pick a suitable investment platform

Head to the Tata Capital Moneyfy app to start your mutual fund investment journey.

4. Choose the investment mode

Determine whether you’d like to start with consistent, small investments through a Systematic Investment Plan (SIP) or a lump sum.

5. Invest and track

Allocate money into the chosen funds and monitor the fund’s performance.

How to Invest in Mutual Funds Through SIP?

A Systematic Investment Plan (SIP) enables you to generate wealth conveniently through a disciplined approach. Here’s how to invest money in mutual funds through SIP.

Select the mutual fund scheme suiting your financial goals and opt for the SIP option the fund offers.
Evaluate how much you can invest regularly through SIP based on your budget and determine the investment frequency, such as monthly, quarterly, or other intervals. SIPs help build disciplined saving habits.
Automate SIP investments from your bank to avoid missing payments and ensure easy investing.

How to Invest in Mutual Funds through a Lump Sum?

The other way to invest in mutual funds is through a lump sum. A lump sum refers to a one-time large investment. The steps to invest through a lump sum are mentioned below:

1. Pick a platform

Open an account with a trustworthy financial platform such as Tata Moneyfy.

2. Understand your risk tolerance

Determine how much risk you can handle with potential market volatility, as one-time large payments provide higher profits but also carry significant risks.

3. Select an appropriate mutual fund

Pick a fund based on your investment goals. For safer, short-term investments, choose debt funds, whereas for long-term gains, choose equity funds.

4. Determine the holding period

Try to hold your investments for a minimum of three years for greater returns, especially if you are investing in stock funds.

5. Invest

Make the one-time payment into the selected fund with your investment objectives in mind.

How to Invest in Mutual Funds for Tax Savings?

Mutual funds also offer tax-efficient options such as ELSS. Here’s what you need to do to leverage tax benefits.

Pick an ELSS mutual fund suited to your financial goals.
ELSS is eligible for deductions of up to Rs. 1.5 lakh on taxable income under Section 80C of the Income Tax Act.
With ELSS, you can save on taxes and potentially grow your wealth.
ELSS has a lock-in period of 3 years, so you must invest in them only if you have a long-term investment horizon.

How much should you Invest in Mutual Funds?

The right amount to invest in mutual fund schemes depends on several factors, such as:

Financial goals: Where do you want to spend the wealth you gain from mutual fund investments?
Risk appetite: How much risk can you handle on your investments?
Investment horizon: For how long can you stay invested?
Current financial status: How much excess money do you have today to invest in mutual funds?

Although no standard minimum investment is specified, many mutual funds set a minimum investment benchmark that you must fulfill to start investing.

Important Points to Keep in Mind Before Investing

Common mistakes to avoid while investing in mutual funds

Not defining goals

Investing without a clear purpose can lead to choosing the wrong type of funds. So, always match investments with goals like retirement, education, or wealth creation.

Skipping research

Many investors ignore checking past performance, expense ratio, and the fund manager’s track record. Research helps ensure the fund aligns with your risk appetite and expectations.

Stopping SIPs during market lows

Halting SIPs during downturns prevents you from buying at lower prices. Staying invested helps average out costs and build wealth over time.

Over-diversification

Investing in too many funds causes portfolio overlap and diluted returns. Stick to a focused mix of funds for better results.

Ignoring portfolio review

If you don’t review your portfolio periodically, you can remain stuck with underperforming funds. Make sure you rebalance as needed to align with your risk and goals.

Conclusion

Start your investment journey from exactly where you are! If you’ve been wondering how do I invest in mutual funds online, do so using Tata Capital’s Moneyfy app. You can easily compare different schemes and carefully curate a portfolio that aligns with your risk appetite, investment approach, and other requirements. Become investment-savvy today.

Download Moneyfy App

FAQs

Why is investing in MFs better than savings?

Because, unlike savings, your money won't get locked up in mutual funds! It will work for you to generate higher gains in the long term.

Which funds should a first-time investor invest in?

The best option for first-time investors is a Systematic Investment Plan (SIP), wherein you can invest a fixed sum every month, even as little as Rs. 500.

Can I change the tenure after I’ve started investing?

Yes, this can be done in the case of SIPs. You have the flexibility to change the tenure or the investment amount any time you want.

Is it difficult to withdraw money from mutual funds?

No, it is not. MFs are highly liquid and can be redeemed easily anytime you want. However, remember that certain funds, such as ELSS funds, come with a lock-in period of 3 years.

Are mutual funds suitable for those with no experience in the share market?

Yes! Most of it is pretty straightforward and easy to understand. Plus, through proper research and the help of a financial advisor (if need be), you can easily start out without prior experience.

Is it safe to invest in mutual funds?

Investing in mutual funds is a relatively safer option than investing in direct equities. This is because these funds are managed by professional fund managers and are tightly regulated by the Securities and Exchange Board of India (SEBI). That being said, the returns can fluctuate as they depend upon the market performance over the years. It’s essential to choose the right fund and stay invested for the long term.

Are mutual funds tax-free?

Mutual funds are not completely tax-free. The taxation depends on the type of mutual fund and the duration for which you are holding it. For example, gains from equity mutual funds held for a period of less than 12 months attract Short-Term Capital Gains (STCG) tax at a flat rate of 20% per annum. However, if the same funds are held for more than 12 months, gains from them attract Long-term Capital Gains (LTCG) tax at a flat rate of 12.5% per annum, with an exemption limit of Rs. 1.25 lakhs.

Debt mutual funds are taxed differently. If sold within three years, the gains are treated as STCG and added to the investor’s income, taxed as per their applicable slab. If held for over three years, they qualify as LTCG, taxed according to the individual’s slab rate without indexation benefits.

For hybrid funds, taxation depends on their composition. Funds with over 65% equity exposure are taxed as equity funds, while others are treated as debt-oriented schemes.

Lastly, dividends from mutual funds are taxed according to the investor’s income slab and are also subject to 10% TDS under Section 194K if total dividends exceed Rs. 5,000 in a financial year. The deducted TDS can be claimed while filing taxes.

Is a Demat account required for investing in mutual funds?

No. A Demat account is not mandatory for investing in mutual funds. You can invest in mutual funds through online platforms and mobile apps, such as the Tata Moneyfy mobile app. You can also invest in mutual funds directly through the websites of the mutual fund houses or Asset Management Companies (AMCs) using your KYC and bank details.

What is the minimum tenure for investing in mutual funds?

There is no minimum tenure for investing in mutual funds. You can select an appropriate mutual fund scheme as per your financial objectives. For example, if you want to invest for short durations, you can go for ultra-short-term funds and liquid funds. Similarly, if you want to invest for long-term wealth accumulation, you can opt for equity mutual funds.

Do mutual funds pay daily?

No. Mutual funds typically do not pay daily. Most funds allow you to realize profits when you redeem your units or through periodic payouts. However, liquid funds or overnight funds may reflect daily gains in their Net Asset Values (NAVs).

Can I self-invest in mutual funds?

Yes. You can easily invest in mutual funds on your own through online platforms and mobile apps like the Tata Moneyfy mobile app. You can also invest directly through the AMC’s website. However, you must have the required knowledge to select the right mutual fund scheme. If not, you can take the help of a financial advisor or an investment intermediary.

How do I choose an appropriate MF scheme?

Below are the steps that can help you select the right mutual fund scheme:

Identify your financial goals, investment horizon, and risk appetite.
Compare mutual fund schemes based on their past performances, expense ratios, and other factors.
Check the fund manager’s track record and AMC’s credibility.
Choose the scheme that aligns with your return expectations and investment goals.

Is a mutual fund safer than stocks?

Mutual funds are usually considered a safer investment option than stocks. They are managed by professional fund managers, who spread investments across multiple companies. This helps in risk mitigation through diversification. However, returns from mutual funds are not guaranteed, and investors may have to go through price fluctuations.

What is the minimum investment period for mutual funds?

There is no minimum investment period for mutual funds. It means that you can invest in a mutual fund scheme for as little as one day and as long as twenty years. You can determine your investment horizon based on the type of mutual fund and your financial goals. However, if you’ve invested in an Equity-Linked Savings Scheme (ELSS), you cannot withdraw before the initial lock-in period of three years.