Home / Money / Personal Finance /  Mutual Fund for Beginners: Which funds are suitable to initiate your first SIP?

Beginner investors take their first steps toward personal finance, and these investors often attempt to produce high returns at low risk. Before you make a choice, be sure you are aware of how much risk you are okay with. Financial objectives, budget, risk tolerance capacity and time horizon all have a significant influence on how to commence investing for personal finances. And when it comes to investment advice for newbies, mutual funds are frequently the most popular choice because they not only have a history of producing higher returns than other instruments, but they also enable inexperienced investors to select from a variety of funds with the added benefit of portfolio diversification.

Based on the exclusive interview with Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India, the spokesperson said “Mutual funds work well for a first-time investor because they don’t have to try and look at the market dynamics of how it functions. A skilled fund manager invests money in a pool of stocks that are well researched. The manager aims to generate positive returns for an investor, while minimizing risks at the same time. There are other benefits too – for example, first time investors who want to start small can choose to invest small amounts and can also go down the SIP route. This helps investors average out their returns over the long term."

The following FAQs for new mutual fund investors are based on our discussion with Kavitha Krishnan.

Which mutual fund category should one pick as a beginner? Please give suggestions as per aggressive, moderate and conservative risk appetite.

We typically suggest that first time investors tailor their portfolio with a focus on a slightly lower risk. Balanced funds can give investors a flavor of equity as well as debt, taking on the role of basic asset allocation too. So, investors don’t have to think about how much equity and debt they want to hold as part of their portfolio. However, if investors choose to do their own asset allocation between equity and debt, we typically recommend a 70% exposure towards equity and 30% exposure to debt for an aggressive investor. This is typically applicable for people who have a higher risk-taking capability. For the moderate investor, we recommend that they bring down the equity level to 60% wile for a more conservative investor, they could bring it down further to 50%, thus making a corresponding increase towards debt.

It’s also important that fund selection for first time investors is based on a combination of their long-term goals, their investment horizon and their risk appetite. While all these factors might seem slightly overwhelming for a new investor, I would like to highlight the availability of educational content that is quite easily accessible for a first-time investor. Most AMC’s and fintech platforms make available reading material and training as part of their investor education initiative that cover the basics and make investing easy for investors. Moreover, technology has made investing easier, especially now that everything is available on digital platforms. Investors can invest, monitor, redeem and switch their investments through digital modes with ease.

What should be the ideal investment horizon for a beginner?

At Morningstar, we always recommend that anyone who wants to invest, does so over the long term. The power of compounding is something that only that patient investor can comprehend, and this is one of the most important factors to consider while investing. Often, we have witnessed that investors redeem their investments in a rush, when they see a fund underperforming; without actually evaluating the reasons for the fund’s underperformance. The opposite also holds true, as investors rush to invest in a fund that they see is performing well. But both of these types of investors often incur losses – investors who opted to redeem when the markets tumble most likely make mark to market losses in the process and redeemed just as the markets would have witnessed a change in the cycle.

On the other hand, investors who rush into investing in a fund that gives them blockbuster returns, often witness a neutral of a negative return simply because they joined the party a little too late. We think that timing the markets is not something that any investor can or should do, we’d much rather recommend that there is a strong growth in averaging returns and compounding an investors wealth. Wile out forefathers mainly focused on wealth preservation, the current generation is also taking about wealth creation, and maintaining a strict investment discipline is essential when to come to investing.

How senior citizens can plan their retirement planning with Mutual funds? Could you pleasE suggest some funds?

The ideal asset allocation strategy for senior citizens is to focus on wealth preservation, rather than compound their wealth like the younger generation would want to do. Based on this, a large focus on debt funds is an idea avenue for them to invest in. Having said that, the requirements of senior citizens could be different, if they want to earn a consistent income from their investment, they could also opt for plans that payout dividends on a consistent basis as opposed to reinvesting them. This will give senior citizens a timely return, while still giving them the opportunity to preserve their capital. 

In the mutual fund industry, these plans are known as dividend plans. Its important that the NAV and the total return of a growth option will always be higher because dividends that are reinvested compound overtime too. But a dividend payout could prove useful for senior citizens. Mutual funds also allow investors to create more flexible withdrawal plans if required and have a more personalized and diversified portfolio as compared to other financial products.


As with investing in individual stocks, the stock prices, the company fundamentals and the market movements matter, with mutual funds, it’s important that an investor picks the right fund manager. Look for a manager who has a consistent long term track record and prefer to invest in a risk-averse strategy for a first-time investor. While it’s important to look at the past performance of the fund, it’s also essential to remember that past performance is not an indicator of how a fund is likely to do in the future. When it comes to markets, it’s important to remember that they are cyclical in nature. It’s highly likely that a fund that’s been a top performer for one year can take a tumble the year after. What’s important is the manager’s consistent approach when it come to managing a fund and his adherence to the fund’s philosophy, said Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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