How to Invest in Mutual Funds in India

June 26, 2025 | 4 min read
FacebookX

Mutual funds are a pool of money from multiple investors to create a diversified portfolio managed by professionals. It is an excellent way to grow your wealth over time, even if you’re a beginner. Here’s a detailed step-by-step process to help you get started confidently.

Step 1: Understand Your Investment Goals

What Are Investment Goals?

Investment goals define the reasons behind your investment decision. Your goal could be wealth creation, retirement planning, saving for a child’s education, or buying a home.

Why Is It Important?

Setting clear goals is important because it helps you choose the right type of mutual fund for your specific needs and financial situation.

 For example:

  • Wealth Creation: Equity funds are ideal.
  • Regular Income: Debt or fixed-income funds work better.
  • Tax Savings: ELSS funds can reduce taxable income under Section 80C.

Action Tip: Outline your goals, their time horizon (short-term vs long-term), and the level of risk you’re comfortable with.

Step 2: Choose the Right Type of Mutual Fund

Types of Mutual Funds

  • Equity Funds: High-risk, high-return investments focused on stocks.
  • Debt Funds: Low-risk, stable returns via bonds and securities.
  • Hybrid Funds: A balanced mix of equity and debt.
  • ELSS Funds: Tax-saving equity funds with a 3-year lock-in period.

If you want to explore detailed information about different types of mutual funds or learn about other mutual fund categories, click the link below for our comprehensive guide.

Mutual Funds Academy

How to Decide

  • Match the fund type with your risk tolerance and investment horizon. 

For instance:

  • Short-term goals (1–3 years): Liquid funds and debt funds are appropriate for goals you intend to reach within one to three years.
  • Long-term goals (5+ years): Equity funds and hybrid funds align well with objectives planned for five years or beyond.

Action Tip: Research funds online or consult a financial advisor to reduce your options.  

Step 3: Complete the KYC Process

What Is KYC?

KYC (Know Your Customer) is a mandatory compliance step in India to verify your identity.

Steps to Complete KYC

  1. Submit documents like PAN card, Aadhaar card, and address proof.
  2. Complete an online KYC process through fund platforms.
  3. Provide a live photo or e-signature for verification.

Action Tip: Keep your documents ready to streamline the process.  

Step 4: Select an Investment Platform

Options Available

  • Direct Platforms: AMC websites like HDFC Mutual Fund or SBI Mutual Fund.
  • Third-Party Platforms: Apps like Groww, Zerodha, or Kuvera.
  • Banks and Brokers: For personalized service, use preferred brokerages or banks (higher fees).

Direct vs Regular Plans

  • Direct Plans: Lower expense ratio, higher returns.
  • Regular Plans: Includes advisory fees for brokers or distributors.

Action Tip: Choose a platform that aligns with your comfort level and fee tolerance.

Step 5: Start Investing

Select Lumpsum or SIP Investment Strategies

  • Lumpsum Investment: Invest a large amount all at once; suitable for those with substantial savings.
  • SIP (Systematic Investment Plan): Invest a fixed amount regularly, ideal for building discipline and reducing market timing risks.

How to Proceed

  • Log in to your chosen platform.
  • Select your mutual fund and investment mode (SIP or lumpsum).
  • Enter the amount and confirm your transaction.

Action Tip: As a beginner, starting with SIPs might reduce risks and establish steady habits.

Step 6: Monitor and Review Your Portfolio

Why Monitor?

Market conditions change, and your financial goals may shift over time. Regularly reviewing your portfolio ensures it stays aligned with your objectives.

How to Monitor

  • Check fund performance against benchmarks every 6 months.
  • Assess if the fund aligns with your goals or if adjustments are needed.

Action Tip: Use tracking apps or platforms to stay informed easily. 

Step 7: Understand Tax Implications

Tax on Mutual Funds

  • Equity Funds: Gains under 12 months taxed at 15%; long-term gains taxed at 10% beyond ₹1.25 lakh.
  • Debt Funds:
    • Short-term gains: Taxed according to your income slab.
    • Long-term gains:
      • Units bought before April 1, 2023, are taxed at 12.5%.
      • Units bought after April 1, 2023, are taxed according to your income slab.

Note: The tax rates and rules above are as per the 2025 Union Budget.

Tax-Saving Option

Some mutual fund investments offer up to ₹1.5 lakh tax deduction under Section 80C, reducing taxable income with potential higher returns and a lock-in period.

Action Tip: Plan your investments to minimize tax costs.  

Step 8: Stay Patient and Invest Long-Term

Why Patience Matters?

Mutual funds deliver their strongest results when held for the long term, so avoid reacting to short-term market volatility. Furthermore, maintain discipline and compounding to build wealth because consistent investing is essential for success.

List of content