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What is Mutual Funds? | Generating Passive Income Source

how to start mutual fund
Reading Time: 4 minutes.

So you want to get into mutual funds investments, Right? Well investments with clear thinking is a great way to generate passive income for you. Read this post to have clear understanding to start mutual fund investments.

I discussed about efficient ways to get financial independence. Having a passive source of income becomes very necessary in todays scenario.

You probably know about investment in Stocks. Investors directly buy and sell stocks of some companies they trust. It possess high risk since your return depends upon performance of a single company. Your return here will depend on how that company performs.

With mutual funds you have much lower risks because instead of investing in single company you are investing in a pool of companies. Your return is decided by the performance of these companies. So  a mutual fund collects money from its investors and invest on a pool of companies on their behalf.

A term you would have heard (in case you searched about mutual funds), called Asset Management Company(AMC). These are companies that decides where to invest money collected from individuals. The decisions are made by Fund Managers of that AMC based on the goal of the Mutual Fund.


Types of Mutual Funds


  • Equity Funds: These type of funds invest in Stocks. As a result they have higher returns as compared to other type of mutual funds. However they have mid to high risks based on type of stocks selected. Type of stocks that can be invested include:
    • Small Cap Stocks: These are generally companies which are in developmental stage or are startups. There is a very high risk associated with them as they do not have any market presence. They returns will be very high if they became successful otherwise you will end up losing all your money.
    • Mid cap Stocks: Their Market Capitalisation is in between Small Cap and Large Cap stocks i.e 5,000 Crore to 20,000 Crore. They have lower risks as compared to Small Cap stocks. Due to the balance in returns and risk, mid-cap stocks are mostly preferred by most individuals.
    • Large Cap Stocks: These are stocks of well established companies. Market capitalisation of these companies is very high i.e above 20,000 Crore. Due to their strong hold on market, they have low risks as compared to other type of stocks.


  • Balanced Funds: These invest in both Stocks and fixed income securities. This is done to minimise the risk and make provide a surety for minimum return an investor can get in worst case. Returns in this case are generally lower as compared to Equity funds.


  • Fixed Income Funds: These funds give a fixed interest rate on your investments. In India Fixed Deposits (FD) and PPF are some examples oaf Fixed Income Funds.


  • Index Funds: The returns of these funds depends on the performance of a particular Index e.g Sensex or Nifty. They track the performance of particular index. Here cost for investing is low as funds managers need not do lot of work. It is automatically decided by performance of particular index.



How to Start Mutual Fund?

Ways to buy Mutual Funds:

  • Buying directly from Asset Managements Companies. You directly need to go on one of the AMC website and register yourself. After you register you will need to submit some documents like PAN and ADHAAR. Then you can start mutual fund investment. The best thing about investing directly is that you save on small cost you pay to brokers.
  • Buying from Apps or Websites which buy funds from AMCs on your behalf. In past few years many websites and apps have arrived which can buy funds for you from AMCs. In present scenario this is the best way to invest. I will discuss about it later in this post.
  • Buying through a broker who will invest on your behalf. I will not suggest this because now you have better alternatives to that and you will also save the brokerage cost.

Buying Mutual Funds from Websites or Apps like Groww

With increase in internet users, the part played by brokers is now replaced by Apps and websites. These websites lets you manage all your mutual funds. They will purchase funds on your behalf from Asset Management Companies. They have cool graphs and other information that lets you select right funds as per your goals. These are best ways to start mutual fund investment.

Due to competition among these app they give us same interest as that given by AMC directly without even costing for their services. Many of them allow us to purchase direct mutual funds where we do not have to pay any brokerage.

Register yourself and Start investing Free on Groww.

To summarise why TODAY is the best time to invest in mutual funds through such apps:

  • Investing free of any service charges due to competition among them.
  • Single point to manage all your mutual funds. You need not create and remember passwords for each AMCs.
  • Lets you invest in Direct Mutual Funds.
  • Easy withdrawal and SIP cancellation.
  • Graphs are others information to help you choose best mutual funds as per your needs.

Hope you enjoyed learning about mutual funds and how to start mutual fund investments. Feel free to share your thoughts below. I will be happy to help you.


  1. Czjai Reyes-Ocampo

    Very informative post! I invested in a mutual fund myself, and I can’t wait for the time when we can finally reap the fruits of this investment. 🙂

  2. The Tale of Mummyhood

    This is a very interesting read. I must admit that I’d have to do a lot of research to jump at it, but this is an excellent place to start!

  3. Olivia

    This is very helpful to me right now, actually. My husband and have been discussing what we are going to do with our financials come the first of the year and I honestly didn’t know what Mutual Funds are but played it off like I did 😀

  4. Dwight Andrew Alleyne

    This is definitely great information for those who are interested in investing. I always wanting to learn how to invest and where to invest. This is a great start for me. Thank you

  5. Surekha Busa

    Very informative blog. I think i would prefer fixed income fund for myself. It’s more appropriate for me because it’s not that risky.

  6. Non Stop Family

    Hi. I’ve been searching about mutual funds investments and, never got any good information until now. Great post, all very well explained, thanks for sharing

  7. Dhiraj Thapa

    This is a great post I must say. I have never thought of investing on these but the way you put across highlighting points, it added advantage if I do one.

  8. Becca Wilson

    Passive income can be some of the best especially when there are days when you are not working. You just have to figure out which ones work well with your readers/audience.

  9. Madhurima Maiti

    This blog post is full of information. It’s really helpful for those who are looking for ways of investing and earning a passive income. You have also clearly defined each kind of fund. Nice!

  10. Ruth

    Thank you for this very interesting and informative post. I didn’t know about all these different types of funds, I’m sure this will come in handy for a lot of people thinking about investing!

  11. Ellie Plummer

    This is a great post. I don’t really have a clue when it comes to finances and I really need to read up more so this is actually super helpful.

  12. Rhea

    absolutely true, It’s never too late to invest, it is the best option for start with plus as you said it’s easy to understand. it is not complex & mutual funds require no experience or knowledge of economics, financial statements, or financial markets to be a successful investor. Well written post!

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