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Mutual Fund Investment Tips: Know How to Invest Effectively

Updated on June 11, 2024 , 18025 views

Do you want to make your Mutual Fund Investments Effective? Don’t worry, this article will help you with the same. Mutual Fund is an investment vehicle where people share a common objective of trading in shares and Bonds invest their money. The Mutual Fund trades on their behalf in various securities. However, to make an investment effective and efficient, people need to follow certain tips. So, let us look at some of the Mutual Fund Investment Tips that can make your investment smart and you make more money out of it. Also, understand the types of Mutual Fund schemes such as Index Funds, Money market funds, and gold Mutual Funds, Top Mutual Funds to invest, and much more.

Smart Ways to Invest in Mutual Fund

Investment is as art which; if done correctly, can work wonders. In other words, any investment should be done in a correct manner so that people can harness maximum benefits out of it. So, let us look at some of the Mutual Fund investment tips.

1. Invest in Schemes that are In-line with Your Objectives

Before investing in Mutual Funds, people should first determine the objective of the investment. Some of the objectives for which people plan includes Retirement planning, planning for higher education, and so on. Post determining the objective, you should analyse whether the scheme’s objective will help you attain your goals. In this situation, you should also consider the past performance of the scheme, the time horizon of the investment, and other related factors.


2. Understand the Mutual Fund Categories

Mutual Fund schemes are classified into various categories to cater the varied requirements of the individuals. People should have an understanding of the various categories of Mutual Fund schemes. These returns earned by these schemes are varied and even their level of risk. The five broad categories of Mutual Fund schemes include Equity Funds, Debt fund, Hybrid Fund, solution-oriented schemes and other schemes.

Understanding the categories of schemes is not just enough. Along with the scheme categories, people should also understand various plans and options that a scheme has. Most of the Mutual Fund schemes have direct and regular plans where each of the plans has growth option and dividend option. People should be aware of all these categories as it would help them to choose the right scheme as per their requirements.

3. Determine Your Risk-appetite

Risk-appetite or capacity of taking risk is important in case of Mutual Fund investments. Based on risk-appetite; people are classified into risk-averse, risk-seeker, and risk-neutral. You need to determine your risk appetite as it will help you to select the type of scheme. For instance, a risk-seeking individual would choose to invest in equity funds while a risk-averse would prefer debt funds.

4. Diversify Your Investments

We have heard a very common saying that Do not hatch all your eggs in one basket. Similarly, an important rule of Investing is diversification. In this context, diversification means investing the money in various Mutual Fund schemes. By investing in multiple schemes, people can ensure that they can earn maximum returns on their investment. In addition, even if one scheme fails to deliver the required returns, other schemes can compensate its performance. Therefore, through diversification people can ensure that their objective of the investment is met.

5: Understand Mutual Fund Taxation

While investing in Mutual Funds it is always considered to be better if people have knowledge about taxation investments related to Mutual Funds. In Mutual Fund the taxation rules are different for equity funds and debt funds. So, let us understand the impact of tax in case of equity oriented funds and other than equity oriented schemes for the Financial Year 2017-18.

a. Equity Oriented Schemes

In this case, Long-term Capital gains is applicable if the funds are sold after one year from the date they are purchased. Here, long-term Capital Gains is not taxed. However, in case of short-term capital gains, they are taxed at a Flat rate of 15% irrespective of whichever tax bracket they belong.

b. Non-Equity Oriented Schemes

In case of non-equity oriented funds, the taxation rules are different. Here, the short-term capital gains are taxed at the slab rates while long-term capital gains are taxed at 20% however, they are applicable for indexation.

6. Choose ELSS for Better Tax Savings

If possible, try to add an ELSS scheme in your Mutual Fund Portfolio. ELSS or Equity Linked Savings Scheme is a tax saving Mutual Fund that invests a predominant stake of its corpus in equity and equity-related instruments. However, these schemes offer the benefits of both investments as well as tax Deduction where people can claim a tax deduction of up to INR 1,50,000 under Section 80C of income tax Act, 1981. ELSS has a lock-in period of three years.

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Top 3 Best ELSS Funds

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2023 (%)
Tata India Tax Savings Fund Growth ₹41.3681
↑ 0.12
IDFC Tax Advantage (ELSS) Fund Growth ₹147.347
↑ 0.61
DSP BlackRock Tax Saver Fund Growth ₹127.885
↑ 0.63
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 13 Jun 24

7. Have a Disciplined Investment Habit

One of the important principles when it comes to investing is people should have a disciplined investment habit. In Mutual Fund, people can invest through SIP or lump sum mode of investment. In case of lump sum investment, people need to invest considerable amount at one-time. In lump sum mode, the investment amount is higher. On the contrary, to develop a disciplined savings habit people can choose SIP mode of investment. SIP or Systematic Investment plan refers to the investment mode where people invest small amounts at regular intervals. Some of the advantages of SIP are rupee cost averaging, the Power of Compounding, and much more.

8. Analyze Good Mutual Funds Before Investing

While investing in Mutual Funds it is always better to invest in good schemes. While selecting the best schemes, people should not consider just NAV as the base but also; look at various other parameters such as fund age, its Assets Under Management or AUM, the Underlying portfolio forming part of the scheme, and much more. To ease out the process of investment, the table given below shows the top 10 Best Performing Mutual Funds that you can choose for investment.

Top 10 Best Performing Mutual Funds for 2024

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2023 (%)
IDFC Infrastructure Fund Growth ₹52.394
↑ 0.39
Franklin Build India Fund Growth ₹141.817
↑ 1.27
ICICI Prudential Nifty Next 50 Index Fund Growth ₹62.2875
↑ 0.56
IDBI Nifty Junior Index Fund Growth ₹52.5378
↑ 0.47
L&T India Value Fund Growth ₹105.345
↑ 1.03
DSP BlackRock Natural Resources and New Energy Fund Growth ₹92.543
↑ 1.11
L&T Emerging Businesses Fund Growth ₹82.7769
↑ 1.14
Motilal Oswal Multicap 35 Fund Growth ₹53.843
↑ 0.63
Invesco India Growth Opportunities Fund Growth ₹85.64
↑ 0.86
Tata Equity PE Fund Growth ₹343.455
↑ 1.53
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 13 Jun 24

9. Hold Your Investments Longer to Earn Good Returns

In many instances, people are in a dilemma that how much longer should I hold my investments. You should remember that, as a tree also takes time to grow and bear fruits similarly; for an investment to reap good results, it is important to stay longer. In case of equity investment, it is said that the higher you stay invested the better it is for you. If the investment is held for a longer tenure, the probability of losses also gets reduced and the chances of earning higher returns increases.

10. Monitor and Rebalance Your Investments Timely

This is the last and important tip in Mutual Fund investment. People should constantly monitor their portfolio and check whether the Mutual Funds are giving them the required returns or not. In addition, people also need to rebalance their portfolios so that they are able to harness maximum benefits out of their portfolio.


Thus, by adopting the above-mentioned tips, people can earn more. However, it is recommended that individuals understand a scheme’s modalities completely before investing in it. In addition, you can also consult a financial advisor if required. This will ensure that your money is safe and earns more returns.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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