Everyone wants to make money through Investing, but cannot choose a better place to invest with low risk and high returns and therefore everyone prefers to invest in Mutual Funds. But people are not told that Mutual Funds for beginners are risky, and because of this, beginners lose more of their money. But don’t take tension, we are here to teach you in every condition. Today we will talk about investing in Mutual Funds for Beginners so that everyone can start their SIPs and Lump sum.



What are Mutual Funds?

Actually, Mutual Funds are an investment option. Many investors put their money into a common pool, and this pool of money is managed by a professional fund manager who invests your money using his deep knowledge and analysis.



How does a Mutual Fund work?

Mutual Funds collect money from many investors like us and put their money into a common pool. The money is managed by a professional fund manager. The fund manager has three key advantages: Knowledge, Information, and Time. Using these advantages, he invests your money and generates returns for you.


Your money can be invested in equity, gold, bonds, and government securities. In return for your money, you get some units, and those units represent your ownership. Units have a value called NAV (Net Asset Value).



NAV (Net Asset Value)

The value of your investment is determined by NAV. NAV is calculated by dividing the total value of the fund's assets minus liabilities by the total outstanding units.



TER (Total Expense Ratio)

It is the annual fee charged by Mutual Funds for managing and operating your investment. It usually ranges from 0.05% to 2.5%.



Exit Load

It is a charge applied when you redeem or withdraw your investment before the specified time period. It usually ranges from 0.05% to 1%.



Types of Mutual Funds


On the basis of Asset Allocation


Equity Mutual Funds

Equity Mutual Funds invest in stocks for long-term growth. They have the potential for high returns with higher risk and are suitable for professional investors.

Large Cap Funds invest in large-capitalization companies that offer steady returns with lower risk.

Large Cap: Top 0 to 100 companies by market capitalization.

Mid Cap Funds rank from 101 to 250 by market capitalization. These companies offer moderate risk with good return potential.

Small Cap Funds invest in companies ranked above 250 by market capitalization (market cap less than ₹5000 crore). These companies offer high returns with higher risk.

Multi Cap Funds allow you to diversify your money across small cap, mid cap, and large cap stocks. With reduced risk, they also offer moderate to high return potential. SEBI regulates strict rules for Multi Cap Funds to ensure investor safety.

Flexi Cap Funds appear similar to Multi Cap Funds, but here the fund manager has full control. He can allocate your investment across large cap, mid cap, and small cap stocks based on market conditions. Because of this flexibility, Flexi Cap Funds carry more risk than Multi Cap Funds.



Debt Funds

Every investor does not want to take high risk. Some prefer to play safe, and they invest in Debt Funds. Debt Funds are good and safe for beginner investors. They invest in bonds and securities with lower risk and moderate returns.

Bonds are issued by governments or private companies when they do not want to sell shares to raise funds. Bonds are a type of loan from the public and provide fixed or moderate returns. Since bonds are loans, the risk of losing money is lower, especially in government bonds.



Hybrid Funds

Hybrid Mutual Funds allow you to invest in both equity and debt instruments and are best for experienced investors. According to SEBI, 65% to 80% (not more than 80%) of the investment is in equity, and 20% to 35% is in debt instruments.



On the Basis of Structure


Open Ended Mutual Funds

In Open Ended Funds, the Asset Management Company (AMC) has no time horizon. You can invest anytime and redeem anytime without any fixed time limit.



Close Ended Mutual Funds

Close Ended Mutual Funds are open only for a limited time. After the specified period, investors receive their investment along with returns. Today, most Mutual Funds are Open Ended.



Objective Based Mutual Funds


Growth Oriented Mutual Funds

These funds focus on capital appreciation or long-term wealth creation rather than regular income. They mainly invest in equity and offer high returns with high risk.



Fixed Income Mutual Funds

These funds invest in bonds and debt instruments to generate regular income. They offer stable returns with lower risk compared to equity funds, best to generate passive income .



Tax Saving Mutual Funds (ELSS)

ELSS provides tax benefits under Section 80C of the Income Tax Act. You can claim deductions up to ₹1.5 lakh in a financial year. These funds have a lock-in period of 3 years and mainly invest in equity, offering higher return potential.



Liquid Funds

Liquid Funds are best for parking money temporarily. They offer high liquidity and usually have no exit load. Returns range between 6% and 8% and are not suitable for wealth creation.


Activity Based Funds

Active Mutual Funds

In Active Mutual Funds, fund managers actively manage your investment and select stocks for better long-term growth. These funds are considered safer than passive funds but have a higher expense ratio.


Passive Mutual Funds

Passive Funds track market indices like S&P 500 or Nifty 50. Their expense ratios are lower compared to actively managed funds.


Flexi Cap Funds vs Multi Cap Funds

Flexi Cap and Multi Cap Funds may look similar, but there is a major difference. In Flexi Cap Funds, the fund manager has full control over allocation. In Multi Cap Funds, SEBI has set strict rules requiring a minimum 25% investment in large cap, mid cap, and small cap stocks. The remaining 25% can be invested freely by the fund manager. Because of this discipline, Multi Cap Funds are safer and better diversified in the long term.



Regular vs Direct Mutual Funds

Direct Mutual Funds

You invest directly through the AMC website or app or brokers that do not charge commission.

  • No distributor or agent commission
  • Low expense ratio
  • Higher return potential

Best for investors who understand Mutual Funds and can invest on their own.


Regular Mutual Funds

You invest through distributors, agents, or banks. These are preferred by investors with little or no knowledge of Mutual Funds.

  • Slightly higher expense ratio
  • Distributor commission is paid from your returns
  • Lower returns compared to Direct Mutual Funds
  • Guidance and customer support provided


Conclusion

Mutual Funds are one of the best investment options for beginners if chosen wisely. Understanding fund types, risk levels, and investment goals is very important before investing. Beginners should start with safer funds like Large Cap, Index Funds, or Hybrid Funds and invest through SIPs for long-term wealth creation. Patience and discipline are the keys to success in Mutual Fund investing. If you stay invested for the long term and avoid panic selling, Mutual Funds can help you achieve your financial goals in 2026 and beyond.