What Are Mutual Funds? Types, How to Invest & Why They Are Best for Beginners

By Direct Margin Academy

Introduction

For beginners entering the Indian share market, mutual funds are one of the safest and most structured ways to start investing. They allow individuals to participate in the stock market without actively trading or timing the market.

At Direct Margin Academy, we guide beginners to understand mutual funds as a foundation for long-term wealth creation before moving into advanced trading strategies.

What Is a Mutual Fund? (Definition)

A mutual fund is an investment vehicle where money from multiple investors is pooled together and invested in stocks, bonds, or other securities by a professional fund manager.

Instead of buying individual stocks, investors buy units of a mutual fund.

Simple Example (Indian Market)

Suppose:

• 10,000 investors invest ₹10,000 each
• Total fund size = ₹10 crore
• Fund manager invests in companies like Reliance, TCS, Infosys
• Investors benefit from market growth without actively trading.

Segments / Types of Mutual Funds in India

1. Equity Mutual Funds

Invest primarily in stocks.

Sub-types:

• Large Cap Funds
• Mid Cap Funds
• Small Cap Funds
• Flexi Cap Funds
• Sectoral / Thematic Funds

High risk, high return (long-term).

2. Debt Mutual Funds

Invest in fixed-income instruments like bonds and treasury bills.

Sub-types:

• Liquid Funds
• Short-Term Debt Funds
• Corporate Bond Funds

Lower risk, stable returns.

3. Hybrid Mutual Funds

Combination of equity + debt.

Examples:

• Balanced Funds
• Aggressive Hybrid Funds

Ideal for moderate risk investors.

4. Index Mutual Funds

Track a specific index like:

• NIFTY 50
• Sensex

Low cost and consistent performance.

5. ELSS (Tax Saving Mutual Funds)

• Eligible for tax deduction under Section 80C
• 3-year lock-in period

Combines tax saving + wealth creation.

How to Invest (Trade) in Mutual Funds

Step-by-Step Process:

1.Complete KYC
2.Choose a platform (AMC, broker, MF app)
3.Select fund based on goal
4.Invest via:

• Lump sum
• SIP (Systematic Investment Plan)

Mutual funds are bought and sold based on NAV, not intraday prices.

How Useful Are Mutual Funds for Beginners?

✔ Professionally managed
✔ Diversified investment
✔ Lower risk than direct equity
✔ SIP allows small investments
✔ Ideal for salaried individuals
✔ Long-term wealth creation

Beginners can start with as low as ₹500 per month.

Case Study 1: SIP in NIFTY Index Fund

• SIP of ₹5,000/month for 10 years
• Market-linked growth

Result: Strong compounding returns

Learning: Time in market beats timing the market.

Case Study 2: ELSS for Tax Saving

• Annual investment of ₹1.5 lakh
• Tax savings + equity growth

Result: Dual benefit

Learning: Smart tax planning with mutual funds.

Common Mistakes Beginners Make

• Chasing past returns
• Investing without goals
• Stopping SIP during market corrections
• Over-diversification

How Direct Margin Academy Guides Mutual Fund Investors

✔ Goal-based fund selection
✔ Risk profiling
✔ SIP planning
✔ Transition from investing to trading

Final Thoughts from Direct Margin Academy

Mutual funds are not about quick profits; they are about financial discipline and consistency. For beginners, they are the best first step into the Indian share market.

“Small investments, done consistently, create big wealth.”

Want to Start Investing the Right Way?

Join Direct Margin Academy’s Beginner Investment & Wealth Creation Program

Build wealth with confidence.