How to Invest in Mutual Funds for Beginners with small Amounts
Introduction
Mutual fund investment for beginners in India doesn’t require a large bank balance. In fact, you can start today with as little as ₹100. Yes, that’s right — mutual funds have made investing accessible to every Indian, regardless of their income. But if you’re a beginner, the process can seem confusing. So this article will guide you through every aspect of investing in mutual funds with simple and practical steps, along with a few real-life examples to help you get started confidently.
What Are Mutual Funds?
A mutual fund is a collection of funds from numerous investors, which is then invested in stocks, bonds, or other securities. The fund is managed by a qualified fund manager with the goal of making money for investors. It is similar to putting money into a communal pot that is then invested by a specialist on behalf of everyone.
Why Mutual Funds Are Ideal for Beginners
- Low Minimum Investment: You can start with ₹100–₹500 through SIPs (Systematic Investment Plans).
- Diversification: Your money is invested in multiple securities, reducing risk.
- Professional Management: You don’t need to be a stock market expert. Your mutual fund will be managed by expert
- Regulated and Transparent: Mutual funds are regulated by SEBI; mutual funds are safe and well-audited.
My First Investment Recap: I was saving money from my freelancing work back in 2019. When I learned about SIPs, I was surprised to see that I could begin investing with just ₹500 each month. After watching a YouTube video, I selected a balanced mutual fund, downloaded the Groww app, finished my KYC, and began investing in less than 30 minutes. Seeing the ₹500 rise gradually over the months encouraged me to increase it because it did not feel like a significant investment.
Step-by-Step Guide: How to Start Investing in Mutual Funds with Small Amounts
1. Set Your Goal
Are you investing for
- Emergency fund?
- Buying a bike or car?
- Long-term wealth (10+ years)?
- Retirement?
Define your purpose and timeline. This will decide the type of mutual fund you should invest in.
2. Understanding Your Risk Capacity: Choose the Right Mutual Fund Based on Your Risk Profile
Before investing in mutual funds, it’s important to understand your risk capacity — the level of financial risk you can comfortably take. Here’s a simple step to help you choose the right type of fund based on your risk capacity :
- Low-Risk Investors: Choose Debt or Liquid Funds
If you prefer capital safety and steady returns, debt funds and liquid funds can be best. These funds invest in government securities, bonds, and money market instruments, making them less volatile than equity investments.
- Medium-Risk Investors: Go for Balanced or Hybrid Funds
For those who are willing to assume moderate risks, balanced or hybrid mutual funds are suitable. With a combination of debt and equity, these funds provide you with growth potential and some protection against market declines.
Recommended for beginners—balanced hybrid funds provide stability and growth in one package.
- High-Risk Investors: Opt for Equity or Sector-Specific Funds
If you’re comfortable with market volatility and aiming for higher returns, equity mutual funds or sector-specific funds may be the right choice. These funds invest primarily in stocks and are suitable for long-term wealth creation.
Tip for Beginners: You should start with balanced hybrid funds if you have never invested in mutual funds before. They are perfect for learning the ins and outs of investing while steadily increasing your money because they provide a diversified portfolio with managed risk.
Also Read : Safe Investment Options in India with Monthly Returns
3. Best Platforms for Beginners
When you’re ready to start your mutual fund investment journey, there are several options to choose from:
1. Direct Mutual Fund Platforms
Apps and platforms like Zerodha Coin, Groww, Kuvera, and Paytm Money allow you to invest in direct mutual funds with zero commission. These platforms are ideal for cost-conscious and tech-savvy investors.
2. Through Asset Management Companies (AMCs)
You can also invest directly through the official websites of top mutual fund companies like HDFC Mutual Fund, SBI Mutual Fund, Nippon India, and others. These are reliable but may lack the user-friendly interface of newer apps.
3. Via Banks and Distributors
Traditional banks like ICICI Bank and Axis Bank and certified mutual fund distributors offer investment services, often with expert guidance. However, they usually sell regular mutual funds, which come with higher expense ratios.
Best Choice for Little Investors: Groww and Zerodha Coin are excellent choices if you are a new or a little investor. They provide access to a large selection of mutual fund options, an intuitive user interface, and no hidden fees.
Step 4: Complete Your e-KYC
Before you start investing, you need to complete your Know Your Customer (KYC) process. Most mutual fund platforms offer a quick and paperless e-KYC process.
What You’ll Need:
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PAN Card
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Aadhaar Card
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Selfie or live photo verification
The process usually takes just 5–10 minutes on apps like Groww, Zerodha Coin, or Paytm Money.
Step 5: Pick the Right Mutual Fund
Once you have completed your KYC, it’s time to choose a mutual fund that matches your financial goals and risk capacity.
Here’s what to check before investing:
1. Fund Performance
You should look for mutual funds with a consistent track record over the past 3–5 years. Avoid chasing only the top-performing fund of the moment.
2. Fund Manager Experience
A skilled and experienced fund manager can make a big difference in returns, especially during market volatility.
3. Expense Ratio
This is the annual fee charged by the fund. Lower expense ratio = higher take-home returns, especially in the long term.
4. Fund Ratings
Check independent ratings by platforms like
-
CRISIL
-
Value Research
-
Morningstar
These ratings offer a quick insight into the fund’s performance, risk, and consistency.
If you are still in confusion…
Just Google “Top-rated mutual funds for beginners in 2025”—you’ll find up-to-date, expert-curated lists to help you get started.
6. Start with a SIP (Systematic Investment Plan)
SIP for beginners: The easiest and most disciplined way to begin your mutual fund journey is through a SIP-Systematic Investment Plan
What is a SIP?
A SIP automatically deducts a fixed amount every month from your bank account and invests it in your chosen mutual fund.
It helps you:
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Build wealth gradually
-
Stay disciplined
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Avoid timing the market
How Much Can You Start With?
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Some AMCs like Navi and Tata Mutual Fund allow SIPs starting from ₹100/month
-
Most equity mutual funds have a minimum SIP amount of ₹500/month
Even with a small amount, you can build a long-term investment habit and take advantage of rupee cost averaging — which helps lower your average purchase cost over time.
Real-Life Example: Raju the Tea Seller
Raju, a tea seller in Mumbai, began SIPs of ₹1000 per month in 2016 after his customer, a banker, told him about mutual funds. By 2023, his SIPs had grown to 1.4 lakh. He didn’t know finance, but he was consistent. That’s the power of discipline over knowledge.
Which Mutual Funds to Choose as a Beginner?
Here are beginner-friendly mutual fund categories:
Category | Example Fund | Risk | Best For |
Large Cap Equity | Axis Bluechip Fund | Moderate | 5+ years |
Hybrid Fund | HDFC Balanced Advantage Fund | Low-Moderate | 3–5 years |
Debt Fund | ICICI Prudential Liquid Fund | Low | <3 years |
Index Fund | UTI Nifty 50 Index Fund | Moderate | 5+ years |
Note: You should always research or consult a registered financial advisor before finalizing.
Mistakes to Avoid
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Checking daily performance—mutual funds are for long-term, not trading.
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Investing without a goal—Don’t just pick trending funds.
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Stopping SIPs in a market dip—that’s when you should continue or invest more.
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Investing based on friends’/family’s advice blindly—do your own research.
How Much Should You Invest?
There’s no “perfect” amount. But start with a small amount and stay consistent.
A good piece of advice is
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Start with ₹500–₹2000 monthly.
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As your income increases, raise your SIPs by 10–15% yearly.
Even ₹500/month for 10 years with a 12% average return becomes ₹1.15 lakh. That’s the power of compounding.
Taxation of Mutual Funds (Simplified)
Fund Type | Holding Period | Tax |
Equity Fund | < 1 year | 15% STCG |
Equity Fund | > 1 year | 10% LTCG on gains > ₹1 lakh |
Debt Fund | As per your income slab |
If you’re a beginner, don’t worry about taxation now — just get started. Later, when profits increase, you can consult a tax advisor.
Summary
Mutual fund investing is like growing a tree. You water it (invest) regularly, wait for it to root (market fluctuations), and enjoy the fruits years later (returns).
Don’t chase quick profits. Don’t panic in market dips. Stay consistent. Whether you’re earning ₹15,000/month or 150,000 rs, starting with small SIPs will build your habit and future wealth.
If you found this guide helpful, don’t forget to like, share, and save it for future reference — and help others start their mutual fund journey too!
