Mutual
Funds for Beginners (Part–2): How to Choose the Right Fund, Calculate Returns
& Build a Perfect Portfolio
Welcome back to Part–2 of our Mutual
Fund Beginner Series!
In Part–1, we understood
the basics —
what mutual funds are, how they work, their pros & cons, and the best
beginner-friendly options.
Now in Part–2, we move one
step ahead.
Today, you will learn:
·
How
to choose the right mutual fund
·
How
to calculate your returns
·
How
much to invest monthly
·
How
to build a perfect beginner portfolio
·
How
long you must stay invested
·
Important
rules every smart investor follows
Let’s dive in.
⭐ 1. How to Choose the Right Mutual Fund
Choosing a fund randomly is
the biggest mistake beginners make.
Instead, follow these 5
simple filters:
Filter
1: Define Your Goal Clearly
Before choosing the fund,
ask:
·
Is
this for retirement?
·
Children’s
education?
·
Buying
a house?
·
Short-term
needs (1–3 years)?
·
Long-term
wealth building (5–15 years)?
Your goal decides the fund,
not the market.
Filter
2: Decide Your Risk Level
There are 3 types of
investors:
1.
Conservative
Low-risk, prefer stability →
Choose Debt or Hybrid Funds
2.
Moderate
Can take some risk → Choose
Hybrid or Large-Cap Funds
3.
Aggressive
Are comfortable with market
ups & downs → Choose Equity & Index Funds
Filter
3: Time Horizon (Very Important)
|
Time
Horizon |
Best
Fund Type |
|
Less than 3 years |
Debt funds / Liquid funds |
|
3–5 years |
Hybrid funds |
|
5–10 years |
Index funds / Large-cap funds |
|
10+ years |
Equity funds / Multi-cap funds |
Filter
4: Expense Ratio
Lower expense ratio = Higher
returns over time.
Prefer:
·
Index
funds
·
Direct
plans over
regular plans
Because they charge very low
fees.
Filter
5: Past 5–10 Year Consistency
Ignore 1-year or 6-month
performance.
Look only at:
·
Consistency
over 5–10 years
·
Risk-adjusted
returns
·
Stability
during market crashes (like 2020)
This shows how strong the
fund truly is.
⭐ 2. How Much Should You Invest Per
Month?
This depends on your income,
expenses, and goals.
But here’s a simple rule:
The
50–30–20 Rule
·
50%
→ Necessities
·
30%
→ Lifestyle
·
20%
→ Savings + SIP investments
Out of this 20%, try to
invest at least 10–15%
of your monthly income in SIPs.
Example:
If you earn ₹30,000 per month → Invest ₹3,000 to ₹4,500 in SIP.
If your goal is aggressive
wealth building → Increase to 20%.
⭐ 3. How to Calculate Your Mutual Fund
Returns
Mutual fund returns are
measured through:
1.
Absolute Return
Simple % change over time.
2.
CAGR (Compounded Annual Growth Rate)
Shows yearly growth rate —
best for long-term.
3.
XIRR
Used for SIP investments; it
calculates accurate returns because SIP has monthly deposits.
Most apps like Groww, Kuvera,
Upstox automatically show XIRR
for SIPs.
⭐ 4. The Perfect Beginner Portfolio
(Simple & Powerful)
Here is a super-safe, easy
portfolio for someone starting with mutual funds.
If
Investing ₹5,000–₹20,000 per month
1. 40% – Index Fund (Nifty 50 or Sensex)
o
Low
cost
o
Stable
long-term growth
2. 30% – Hybrid Fund (Balanced Advantage
/ Aggressive Hybrid)
o
Mix
of equity + debt
o
Smooth
returns, low volatility
3. 20% – Large Cap Fund
o
Invests
in top companies in India
o
Low
risk, steady performance
4. 10% – Gold Fund / Gold ETF (Optional)
o
Works
as hedge during crises
o
Protects
your portfolio in market crashes
This portfolio gives:
✔ Growth
✔
Stability
✔
Lower risk
✔
Long-term wealth creation
⭐ 5. How Long Should You Stay Invested?
This depends on your goal:
·
Short-term
goals (1–3 years)
→ Debt funds
·
Medium-term
goals (3–5 years)
→ Hybrid funds
·
Long-term
goals (5–10 years)
→ Equity and Index funds
For
best results:
Stay invested for
7–15 years.
Equity needs time to grow because wealth is created through compounding.
⭐ 6. Rules Every Smart Investor Follows
Here are the golden rules of
mutual fund investing:
✔
Rule 1: Start Early
The earlier you start, the
bigger the compounding effect.
✔
Rule 2: Stay Consistent
SIP works best when continued
without interruption.
✔
Rule 3: Never Time the Market
Even experts can’t do it
consistently.
✔
Rule 4: Avoid Emotional Decisions
Fear and greed destroy
portfolios.
✔
Rule 5: Review Twice a Year
Not daily, not monthly — just
twice a year.
✔
Rule 6: Don’t Compare with Others
Your goals and income are
unique.
✔
Rule 7: Keep Emergency Funds Separate
Never use your mutual fund
money for immediate needs.
⭐ 7. Quick Q&A for Beginners
(SEO-Friendly for Google Snippets)
Q1:
Which mutual fund is best for beginners?
Index funds and Hybrid funds are the best starting
options due to low risk and stable long-term performance.
Q2:
Is SIP better than lumpsum?
Yes, SIP is better for most
beginners because it balances market ups & downs automatically.
Q3:
Can I stop my SIP anytime?
Yes, SIP can be stopped or
paused anytime without penalty.
Q4:
Is mutual fund investment safe?
Yes, they are regulated by SEBI, but returns are
market-linked.
⭐ Conclusion: Start Small, Start Today
Mutual funds are one of the
easiest and smartest ways to build wealth in India.
You don’t need huge money or deep financial knowledge — just discipline and
patience.
By:
·
Choosing
the right fund
·
Investing
through SIP
·
Avoiding
common mistakes
·
Staying
invested long-term
…you can create strong,
stable wealth for your future.
Part–3 Coming Soon:
“How to Select Funds, Use
Apps, Track Performance & Become a Confident Investor.”
Stay aware. Stay empowered.
Follow SKP AwareCast
(YouTube) for more financial wisdom!
Disclaimer
This article is meant
purely for education and general awareness. It is not professional financial advice. All
investment decisions must be taken at your own discretion and risk. The author
will not be responsible for any losses or consequences arising from investment
actions.
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