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What Should be Your First Mutual Fund?

  • Amith G
  • Jan 12 2022
  • 7 minutes
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In the past couple of decades, mutual funds have attracted many investors in India, both new and seasoned, as they consciously shift away from physical savings to financial investments. While it is easy to begin investing in mutual funds, the maiden mutual fund is always special as one begins to build a corpus to achieve future goals. However, no goal can be achieved without a proper plan in place. Most investors who are beginning with mutual fund investments are often unaware of how to start investing and what should be the first mutual fund investment. This lack of knowledge can partially be blamed on an abundance of options in the mutual fund market.

Every mutual fund investor must adopt a holistic understanding of aspects related to mutual funds so that they can have a smooth investment process and easily decide on which fund to pick for wealth creation. Here, we will explain how investors can pick their first mutual fund by starting off with what is needed to start investing, some of the best mutual fund options for beginners, and various factors that go into the selection of funds.

What do I need to start investing in a mutual fund?

To begin investing in a mutual fund, investors must decide on the platform through which they wish to begin investing. Finity is one of the reputed mutual fund apps which can be easily downloaded on a smartphone to begin investing in mutual funds. An investor needs to be KYC (Know your customer) compliant to start investing. After registering on the app and furnishing relevant details, an investor can begin exploring the vast world of mutual funds through the app. So, how does one choose a mutual fund to invest? The next section will help investors to pick the right mutual fund when starting off.

How to choose a mutual fund scheme?

While choosing a mutual fund scheme, first-time investors must consider:

  1. Investment objectives
  2. Risk-taking ability
  3. Investment time horizon

Goal-based investment planning can help investors in working out asset allocation strategies. This, in turn, guides investors on the percentage allocation across different asset classes, including equities, debt, etc.

Investors who are considering investment for one day or less than three years could opt for debt-oriented funds or arbitrage funds. For an investment time horizon of three to five years, investors can consider hybrid funds which invest in a combination of debt and equity instruments. For long-term goals with a time horizon of 5-7 years or beyond, higher risk schemes like index mutual funds may be best suited.

Before picking a fund for investment, investors must ensure to read the scheme related documents to better understand the mutual fund’s investment objective. This will also allow an insight into which securities are being invested in by the scheme and in what proportions.

For beginners, there are primarily two fund categories that are best suited. These include Index mutual funds and Balanced hybrid funds:

Index mutual funds: 

An Index mutual fund portfolio is built up using the same composition as a chosen market index such as Sensex or NSE Nifty. The fund invests in securities that form part of the chosen benchmark index and replicate the percentage composition as well. One of the unique characteristics of an Index mutual fund is that it is passively managed, meaning it does not have an active involvement of a fund manager. Since the fund portfolio is based on an index’s composition, there is no requirement for a fund manager to actively select stocks. This allows the Index fund’s NAV to move in the same direction as the benchmark index that it mirrors. It is an ideal fund choice for new investors since it is easy to understand and offers higher transparency to investors as compared to other fund categories.

Balanced hybrid funds: 

Balanced hybrid funds are a type of income fund that invest equally in debt and equity. The main objective of these funds is to fetch higher earnings through capital appreciation. These are actively managed by fund managers and are ideal for new investors who have a low to moderate risk appetite. Balanced hybrid funds are preferable as compared to debt funds since these may offer higher returns due to equal amounts of equity exposure. These funds aim to build a balance by including high risk as well as low risk instruments in the portfolio.

Factors to consider before selecting a first mutual fund

Here are some important aspects that new investors should look at while selecting a first mutual fund:

  • New investors should carefully look at the portfolio details availing in the mutual fund fact sheet. This can help in picking the right mutual fund as per individual financial goals and risk appetite.
  • Checking the historical performance of the mutual fund over the past few years is another critical step towards choosing the right first fund. However, it is important to note that past performance does not guarantee good future performance.
  • An investor must select a mutual fund only if he/she is comfortable with the fund manager’s track record using a specific investment style.
  • Selecting a mutual fund with a lower expense ratio like an index fund can result in higher net profits in the hands of the investor. 
  • Performance comparison of mutual funds against a benchmark index and peer funds is also a crucial step. For instance, an investor can compare the performance of a large-cap fund with the Nifty 50 or the BSE Sensex. Select the fund that comes closer to the index performance.
  • Based on risk tolerance and investment objective, investors can diversify their investment portfolio by picking multiple mutual fund schemes, including equity, debt and balanced funds. 
  • It is best to avoid picking funds based on fund house ratings. Conducting independent research is a good start to choosing the right first mutual fund.


To summarise, an investor’s experience with the first mutual fund can carve the path to future investment preferences and strategies. Keeping it simple by opting for safer options like index funds or balanced hybrid funds can help in realising higher returns as compared to traditional investment alternatives. Every first time investor must think long-term and be patient while selecting and remaining invested in a mutual fund.


How much should a beginner invest in mutual funds?

Beginner investors can invest as little as Rs. 500 in a mutual fund SIP to gauge their risk and return expectations against fund performances. It is best to start small and gradually increase investment proportion over time.

Can I lose money in mutual funds?

Mutual fund performance is subject to risks, depending on the investment strategy adopted by a fund. Therefore, the chances of losing money are high in high-risk funds

Is mutual fund tax free?

Investments in Equity Linked Savings Schemes or ELSS can avail tax deduction of up to Rs. 1.5 lakhs under section 80C of the Income Tax Act 1961

Is SIP better or lump sum?

SIP or systematic investment plan allows investors to make small investments in mutual funds with as little as Rs. 500. Lump sum investments are best for seasoned investors who are ready to park their funds with a certain degree of risk associated with mutual funds

Are equity mutual funds safe for new investors?

New investors often lack the risk appetite required for equity mutual fund investments. However, if an investor is familiar with equities, how they function and the associated risks, he/she can explore equity fund options like an index fund with a long-term investment horizon.

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