There are various financial vehicles that can drive you towards financial security. Among the numerous options available in the market today, mutual funds are one of the most preferred choices for individuals. Mutual funds are known for their diversity, low-risk profile, and systematic investment plans. If you are a beginner and unsure where and how to start investing in mutual funds, this article is for you.  

What are mutual funds?

First things first, let us understand what exactly mutual funds are. A mutual fund is a type of financial instrument which collects funds from various investors and invests these funds in diverse portfolios like stocks, shares, bonds, gold, etc. These funds are managed by professionals who distribute the money on behalf of the investors. Whether to invest in small cap or large cap mutual funds, these experts analyze and take the best decision. Mutual funds can be started at a very low amount, which adds to their popularity among budding investors. 

Types of mutual funds

There are many different types of mutual funds. These are usually categorized based on duration, risk factor, asset class, structure and investment goals. Whether you want to invest in debt mutual funds or equity mutual funds, you must research all the types and make an informed decision based on your preferences. Investing in different types of mutual funds also allows investors to diversify their portfolios.

How to get started?

There are multiple routes to get started with mutual fund investment. Beginners should learn about all the available options and select the route which suits their needs and convenience. One can traditionally start a mutual fund through a bank. Another preferred way is by building your portfolio. A portfolio is a collection of all your mutual funds which determine your returns. You can also invest directly through an AMC or asset management company. Online applications help you start your mutual fund journey quickly and conveniently.

Taxation policies

Mutual funds are taxable due to their profitability. However, different types of funds are taxed differently. For example, an equity fund is taxed differently than a debt fund. There are certain categories of pension funds and retirement funds where you can save taxes. Due to its tax efficiency, a mutual fund is also sometimes seen as a tax saving fund. It is important to learn about all the taxation policies of the government on mutual funds before making an investment so you can maximize your returns and save on taxes. 

Now that you have learned what mutual funds are, what are their various types, features, routes to invest and tax policies, you can consider investing in mutual funds to build on your savings. Mutual funds are relatively easier to understand for beginners compared to other financial instruments like stocks and bonds. They are a good option for risk-aversive people and those investors who want to expand their portfolios.