What are the Prerequisites for Mutual Fund Investment?

Mutual Funds are the pool of investment collected from various investors by AMCs. An AMC (Asset Management Company) invests the funds pooled from individual investors in securities with the help of professional fund managers in the capital assets of different companies to meet the financial goal of the investor. 

AMC Mutual Funds can be categorized into two types depending on the fund structure. These are close-ended schemes and open-ended mutual fund schemes. Depending on the nature of the mutual fund, it can be categorised into three types. These are equity funds, debt funds, and balanced schemes. 

What is the Need for learning Prerequisites of MF Investment?

Mutual Funds are one of the best investment options in the current financial scenario. Though FDs and other saving instruments offer guaranteed returns but no capital appreciation. Investing in mutual funds is a risk-taking and handling procedure. The assets can be invested in high-risk funds or low-risk ones. High-risk funds offer greater returns in comparison to low-risk investment schemes. Again Investing in a single scheme is not sufficient to earn higher profits. For this, you need to diversify your investment portfolio. 

To earn money from mutual fund investments can be either via dividends or from capital gains. You can reinvest the dividend in the mutual fund. This will make your money grow with the help of compounding. For capital gains, you need to buy some mutual fund units and wait until its price rises shortly. Then you can sell these units and earn huge returns. 

Prerequisites for a Mutual Fund Investment

There are certain factors that you must consider before making investments in a mutual fund. These are –

  1. KYC Compliant – This must be the first and foremost step which includes submission of identity proof, address proof, date of birth proof, photographs, and PAN card. This can be completed physically or via the internet. After completion of the KYC Complaint, you need to visit an agent or visit a mutual fund investment office. If you change your address or name then it is necessary to update your KYC. 
  2. Make an investment goal – You must have a financial goal, that may be for the long term or a short term. In the long run, the investment grows and you have chances for greater returns. But in the short term investment, you can get back your money within a short period. A long term investment can be retirement planning, a marriage of your child, etc. 
  3. Choose the fund you want to invest in – The asset allocation of the mutual funds are made in different sectors. Some among them are highly risky with great returns. Others have low risk and low but stable returns. And there are some with a mixture of all the fund classes. So choose a fund according to your risk appetite. Understand each fund class properly and go through their advantages and disadvantages. No fund is perfect but again to earn something you must take the risk. Nothing comes for free.
  4. Shortlist the mutual fund schemes – There are a plethora of mutual fund schemes in the market. You need to analyse and compare them. Then find the promising ones, have a great performance for the last few years, and are reliable. The expense ratio in a mutual fund must be checked along with the fund manager’s credentials, components of the portfolio, and other records.

Once it is decided, submit your KYC documents to the AMC and open a mutual fund account. Then you need to decide whether you can invest a large sum of money at a time or a small amount every month.

Other factors that can be added in Mutual Fund Prerequisites


For first time investors, SIP is the best way of investing. SIP stands for Systematic Investment Plan. This means you need to pay a small but fixed amount of money every month for a particular period. This gives you sufficient time to understand the market conditions and the investment process. Moreover, you can skip a SIP in case of a crisis, can stop any time, or even start a new SIP.  It is not always necessary to invest a lump sum amount at a time. One can start investing with Rs 500 through SIP. There are several other hassle-free media for investment.

Importance of Diversification

Another important thing to remember is the diversification of the portfolio. Investment portfolios should be diversified, that is the asset allocation must be made into different fund classes. These need both high-risk funds and low-risk ones. The advantage of such a portfolio is the stability of low-risk debt funds and the capital appreciation of the high-risk equity funds. The fund manager manages the portfolio carefully and knows when to invest and where to invest.

Importance of Fund Manager

Now, you can understand how important the fund manager is in your Investment. They must be professional in this field and have a good performance for the last few years. He is well known for the investment jargon and is well versed with the market condition. Therefore, you don’t need to know much about your investments. These fund units are purchased and sold by the managers after calculating the NAV or Net Asset Value of the mutual fund schemes. 


Another thing to consider while investing in AMC Mutual Funds is the taxation charges and deductions. These are different for different mutual fund schemes. 


Investing in mutual fund schemes is a good thought if you want to have capital growth with no hard work. It will teach you how to save money first and then start spending. All you need to have a good risk appetite. If you are not okay with risks, then there are still some options for you.