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Mutual Fund Advice For Beginners

Mutual funds can potentially generate lucrative returns but they also carry some risks. It is important for new investors to understand different kinds of mutual funds, their pros and cons, tax implications, etc. Here are 5 mutual fund tips for beginners to help you get started on mutual funds.
February 23, 2021

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Mutual funds are market-related investment instruments. They are prone to various market risks based on their portfolio. Mutual funds are popular among investors for generating lucrative capital gains.

There are various types of Mutual funds. You can choose from debt funds, equity funds, liquid funds, international funds and more. Each of these refers to what the mutual fund buys and thereby affects what you’re investing in.. 

In this blog, we share mutual fund advice for beginners. The tips shared here highlight the basics you need to know before investing in mutual funds.

But remember to always consult a Cube Wealth Coach before investing in any marketing linked asset. Let’s begin!

Mutual Funds Investment Advice for Beginners

1. Understand How Mutual Funds Work

A mutual fund is a large pool of money that is managed by a professional fund manager. The fund manager invests this money in stocks, bonds, and other securities. The objective of the fund is to generate a good return while taking calculated risks. 

Mutual funds invest the corpus into different kinds of instruments. The type of fund is determined based on how it divides its portfolio among different securities. It is also indicative of the level of risk involved and returns expected.

Read this blog to know more about different types of mutual funds

2. Set Investment Goals

Strategic investments help to diversify portfolio risk. They also help to generate better returns.

Some investors may be looking for passive income, others might be more inclined towards short term capital gains. A few conservative investors might want to focus on capital preservation. 

When investing in mutual funds, it is important to have clear objectives. It will help your financial advisor to design a suitable investment strategy and suggest funds that match your goals.

For example, investors aiming at capital preservation, might not be open to high risks. Conservative mutual funds are most suitable for them. 

On the other hand, investors who want to keep the risks and returns balanced may choose hybrid funds. Read this blog to know more about defining your investment goals.

3. Know Your Risk Profile

Returns from mutual fund investments depend on a lot of factors such as an investor’s risk tolerance, desired liquidity, and the corpus available. 

All these terms need to be identified before you start investing in mutual funds. Some of the important things that investors must be aware of and specify to their advisor/planner are: 

  • Investment Goal(s)

As mentioned before, goals are important to determine which type of mutual funds you should invest in. For example, if you want to generate passive income, fixed-income mutual funds may be an option. 

Or, if you are open to high-risk, high return funds, equity funds may become an option. 

  • Risk Appetite

The level of risk an investor is willing to take also impacts the choice of funds. However, the risk analysis quiz that a powerful app like Cube gives you access to can help you identify your risk profile. 

Download the Cube Wealth app to take the risk analysis quiz

  • Tenure/ Liquidity

This ties into both goals and unexpected emergencies. You need to have a clear understanding of how long you want to stay locked-in when it comes to mutual funds.

At the same time, you must also create what we call at Cube the ‘emergency bucket’, a collection of short term funds with high liquidity that can help you during times of crisis.

On the Cube Wealth app, you’ll get fund recommendations based on Cube’s bucket philosophy that can help you build the perfect portfolio. The bucket philosophy includes investments for:

  1. Emergency 
  2. Protection
  3. Short-term
  4. Medium-term
  5. Long-term 

Watch this video to know more about building the perfect portfolio


  • Mode Of Investment

Investors who want to make small but regular investments can choose to invest through a Systematic Investment Plan or SIP.  The other option is to invest a lump sum amount in your preferred fund.

Check out Cube’s neat SIP calculator to find out the returns you can generate by investing via a SIP 

4. Know About Tax Implications And Costs Involved 

When investing in mutual funds, it is important to understand how different mutual funds are taxed. Based on the type of mutual fund, tax implications can be different. 

The two kinds of gains that arise from mutual fund investments are: 

  • Income Gains 

Income gains refer to interest and dividends earned on investments. These gains are added to the taxable income and taxed as per the applicable slab.

  • Capitals Gains

Capital gains refer to the gains made by selling the holding for a price higher than the purchase price. Based on the tenure of the holding, capital gains may be categorized as: 

  1. Short-term capital gains (STCG)
  2. Long-term capital gains (LTCG) 

Read this blog to know more about avoiding tax saving mistakes in 2021

Just like tax implications, it is also important to understand the costs involved in mutual fund investments. Usually, mutual funds have an:

  1. Entry fee (that you pay at the time of investing) 
  2. Exit fee (that you pay at the time of redemption). 

At times, investors may have to pay a penalty amount if they choose a premature redemption. When investing in a mutual fund, it is important to know about all these costs.

5. Learn Mutual Fund/Investment Jargons

Most mutual fund guides contain a lot of abbreviations and jargons that are new to beginners. If you want to invest in mutual funds, it is recommended to brush up on key investment jargons. 

Read our blog on simplifying mutual fund investment returns to know what terms like an expense ratio, AUM, NAV, indexation and risk-adjusted returns mean.

Investing in Mutual Funds - How Cube Can Get You Started?

For beginners, it is important to know that mutual fund investments are a relatively high-risk instrument in comparison to fixed deposits and digital gold investments. 

Therefore, it is suggested to consult a Cube Wealth Coach before you start investing. Cube Wealth is a digital wealth management platform that gives users access to expert investment advice from industry-leading experts like: 

If you are new to mutual funds, Cube Wealth can help you pick the right investments based that match your investment objectives and risk appetite. 

You can reach out to Cube Wealth Coaches on a call or drop a line to feedback@bankoncube.com for any kind of investment-related query. 

Download the Cube Wealth App today to invest in the best mutual funds

Watch this video to know why you should invest using Cube Wealth


Bhavna Sharma
Bhavna is a Business Economics graduate with over 10 years of writing experience. She writes on a variety of topics for Cube Wealth and helps simplify investment-related concepts with both short & long-form content.

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