Mutual Fund Basics

Introduction

Starting your mutual fund investment journey might seem daunting, but it doesn’t have to be. Over the next 10 modules, this guide will provide you with a step-by-step introduction to mutual funds, helping you go from someone unsure about how to invest to a beginner who understands the basics

Module 1: The First Step

Topic: Starting Small In simple terms, a mutual fund means a pool of investments, managed by a professional fund manager. To get started: Choose any Investment Platform: There are many mutual fund investing platforms, including any Asset Management Company (AMC) apps/websites. Pick any of the them that you prefer

Module 2: Reviewing Your First Investment

Topic: Understanding Your Investment Once your investment is successful, you will receive an email from the AMC confirming your investment. This email will likely contain the following details:   Full Name of the scheme you have invested in: Every mutual fund scheme has to follow a particular naming convention. This naming

Module 3: Understanding Different Types of Mutual Fund Schemes

Topic: Categorization of mutual fund schemes These are the different categories of schemes available: 1. Equity Schemes: These schemes primarily invest majority in stocks (equities and equity related instruments) which are listed companies on the exchange. These schemes may be suitable if you have a higher risk appetite and longer

Module 4: Some Important ratios/metrics to understand

Total Expense Ratio (TER): To manage your investments in a mutual fund scheme, the AMC charges something called an expense ratio, expressed as a percentage. As a Mutual fund investor, it is important to be aware that mutual fund investments are not free, and you have to pay for it.

Module 5: How to Invest

Topic: Investing through SIPs and Lumpsum Lumpsum: A lump sum investment is a one time investment that is made in one go in a mutual fund scheme. For instance, investing a sum of ₹ 1,20,000/- in a mutual fund, in one go can be considered as a lump

Module 6: How to Invest

Topic: Direct vs Regular Plan You can choose to invest in Mutual Fund schemes in two ways – 1. Directly from the AMC → Direct Plan 2. Via a distributor → Regular Plan When you buy from the AMC/fund house directly, there is no distributor, hence no distributor commission, and therefore lesser

Module 7: Measuring Performance

Topic: Understanding Investment Performance Post your investment, how do you now calculate the returns on your investments Investment Type Duration Type of Return Lumpsum >1 year CAGR Lumpsum <=1 year Absolute Return SIP <1 year Absolute Return SIP >1 year XIRR CAGR → The compounded annual growth

Module 8: Key Factors to understand before making future investments

Now that you have an introductory understanding of the basics of a mutual fund, it is important to understand a few things. These things may not be exciting to talk about but we still have to do it because they are essential. 1) Emergencies: Think of any unexpected events in

Module 9: Financial Goals

Topic: Creating Financial Goals All of us will have certain aspirations in our life/career. To fulfill those aspirations we would need a certain amount of money/corpus which is why we earn, save and invest. Hence, the goal of investing in mutual funds or any instrument is to achieve

Module 10: Setting the right expectations

Now that you have made it to this module, we assume that you have laid out your financial goals. But before we start thinking about building a mutual fund portfolio, it is essential to set the right expectations from your investments. If your expectations are not in line with your