If you have saved up ₹ 2000 from your monthly salary that you would like to invest. And you searching online, you see hundreds of options like Nifty 50 Index Funds, Small Cap Mutual Funds, Mid Cap Mutual Funds, Large Cap Mutual Funds, Flexi Cap Funds and Hybrid Mutual Funds don’t confuse after this article you will be able to take correct decision which mutual funds should you buy first so please read this article carefully.
All of these look interesting. Some have amazing past performance and some say they are some of the best funds.
Let’s help you decide.
What is the best mutual fund for a first-time investor?
There isn’t the one perfect fund but if you are a beginner, want to invest for the long term and are happy with the risk of investing in equities then a Nifty 50 Index Fund can be a great place to start.
Because this fund will invest in companies that are part of the Nifty 50 Index in India. This means that you are investing in a known index, rather than relying on the fund managers picks.
You will be indirectly investing in a range of large Indian companies.
Why invest in a Nifty 50 Index Fund?
Diversified portfolio across 50 large companies.
Easy investment strategy.
No need to pick individual stocks.
Generally cheaper than actively managed equity funds.
Good if you want to invest long term in equities.
However, this is not risk free. The value of your investment can go down if the stock market goes down.
If you are looking to invest for 7-10+ years then this could be a good option.
5 different funds to understand as a beginner
It is important to understand what each fund is doing.
1. Nifty 50 Index Fund
This fund tracks the Nifty 50 Index.
Best for: Beginner wanting a diversified portfolio of large Indian companies.
Timeframe: Ideally 7 years +
Risk Level: High
2. Flexi Cap Mutual Fund
This fund allows the fund manager to invest in large, mid and small cap companies.
They can invest more in large companies if they look like great investments and can also invest in smaller companies.
Best for: Those happy with actively managed funds and risk from the equity market.
Timeframe: 5-7+ years
Risk Level: Very High
3. Large Cap Mutual Fund
These funds will invest in large companies.
Although they are more established than smaller companies, the price of shares can still move quite a bit.
Best for: Those looking to invest in large Indian companies.
Timeframe: 5-7+ years
Risk Level: Very High
4. Aggressive Hybrid Fund
These invest in a mix of equity and debt.
The equity part will allow for capital growth and the debt part will add some balance.
Best for: Those wanting to invest in a mix of equity and debt.
Timeframe: 5+ years
Risk Level: High
5. Liquid Fund
If you have money you may need in a few months.
These funds invest in mostly short-term money market/debt.
These can be useful for putting any extra money aside for a short time. However, there is no guarantee you’ll earn anything and there is still some risk.
Best for: Short term investment.
Timeframe: A few days/months.
Risk Level: Low to Moderate.
My suggestions for starting
Rather than blindly invest in top performing funds, understand what category you fall into.
Investor Type Category
Long Term Equity Investor Nifty 50 Index Fund
Happy with Active Management Flexi Cap Fund
Want a mix of equity and debt Aggressive Hybrid Fund
Need money in a few months Liquid Fund
Looking to invest in large companies Large Cap Fund
These are just examples of categories.
One thing to note is that as a beginner you do NOT need to invest in 5 funds. It’s better to invest in one fund that suits you and understand how it works.
How much should I invest in my first SIP?
You don’t need to invest ₹10000 or ₹20000
Just invest an amount that will fit well in your monthly budget.
Monthly SIP Total Investment after 5 years
| Monthly SIP | Total Investment After 5 Years |
| ₹500 | ₹30,000 |
| ₹1000 | ₹60,000 |
| ₹2000 | ₹1,20,000 |
| ₹3000 | ₹1,80,000 |
| ₹4000 | ₹3,00,000 |
This is just the amount you’ve invested.
Let’s look at an example.
If you were to invest ₹2000 a month via SIP for 10 years.
You’ll have invested ₹240,000.
If you earned an assumed 12% annualised return, you could expect to have around ₹4,64,698.
Note that this is just an example. You can earn more or less than 12% depending on the fund and may even lose money.
5 things to look out for before investing in your first fund.
Don’t just invest in a fund that someone has recommended on YouTube/Instagram.
Make sure to look out for.
1. What type of fund it is.
Does it invest in large, mid or small cap? Or debt? Or a mix?
2. Expense Ratio.
This is how much you’ll be paying per year to invest in this fund. The lower the better long term.
3. Riskometer.
Look at the Riskometer provided by SEBI to understand the risk level.
4. Portfolio.
Look at what the fund is investing in. Don’t invest unless you understand what they’re investing in.
5. Past Performance.
Look at how the fund has performed over different timeframes. Make sure it has done well compared to the appropriate benchmark and other funds in the category.
Past performance is not a guarantee.
Should beginners invest in a Direct or Regular plan?
When investing you may come across 2 types of plans.
Direct Growth.
Regular Growth.
Both invest in the same fund. However, they differ in terms of expenses.
Direct – Investing directly with the fund. No commissions paid to a distributor.
Regular – Investing with a distributor. They receive a commission.
Direct funds tend to have lower expense ratio. However, if you’re a beginner and need some help with your investments a qualified adviser/distributor can help.
Do NOT just invest in a Direct plan because it sounds better. Make sure you understand if you can invest in whatever you want.
5 mistakes to avoid as a first-time mutual fund investor.
Many people make the same mistakes when they first start investing.
Avoid.
Investing in a small cap fund because it had a high return last year.
Picking a fund with a low NAV of ₹10.
Investing emergency funds in equity.
Investing in too many funds without understanding how they overlap.
Stopping your SIPs when the stock market goes down.
Expecting to earn a guaranteed return each month.
Investing borrowed money.
Mutual fund investments are linked to the market. Patience and discipline are key.
How to start your first Mutual Fund SIP in India.
Getting started with your first mutual fund SIP is fairly easy.
Steps:
Find a registered mutual fund company (with SEBI) or a good investment platform.
Complete your KYC.
Decide how much you want to invest.
Choose a suitable category.
Look at the different schemes available and check the Riskometer, expense ratio and investment goals.
Choose whether you want a Direct or Regular Plan and Growth or other option.
Choose when you want to invest each month and complete the payment mandate.
Periodically look at your investment.
Final Thoughts: Start small, learn and stay consistent.
Your first mutual fund investment shouldn’t be about picking the fund that will make you rich quickly.
It should be about creating an investing habit and understanding how your money works.
As a beginner, if you have long term goals and can tolerate the risk from the equity market then a Nifty 50 Index Fund is a category to research.
If you want a mix of equity and debt then look at hybrid funds.
Invest an amount that is affordable to you, understand the risks and increase your SIP as your income increases.
One final thing to note – Don’t invest because everyone else is. Invest because you understand why this fund should be part of your plan.
Disclaimer: Mutual fund investments are subject to market risks. Please read all documents related to the scheme carefully. This article is for education purposes only and is not personal investment advice.