Mutual funds are broadly classified into debt funds, equity funds and balanced funds.

In equity funds, a majority of the funds collected is invested in stocks. Debt funds invest your money in debt products like bonds or debentures, while balanced funds invest in a mix of both debt and equity instruments.

Mutual funds based on investment objective: Based on the investment objective of an individual, mutual funds are classified into growth funds, income funds and money market funds.
There are also equity-linked savings schemes (ELSS) that provide tax benefits and exchange-traded funds.

Know your fund manager: One of the most popular advice given to a first-time investor is to check the past performance of the fund manager. But, that alone will not help, experts say.

One should not blindly invest in a product because the fund house is well established or the fund manager handling the fund has been very successful. Big fund houses do not always come out with great products and fund managers may move out. The investor should ideally invest in an existing, well-performing fund, rather than a new fund where the performance is uncertain.

New funds are not cheaper: It is a misconception that it is cheaper to invest at the start of a fund when the net asset value (NAV) is Rs 10. There is no difference between holding 10 units of 1 gm gold coins or one unit of a 10 gm gold coin. The returns will be the same for both based on price appreciation. Even if the NAV of a fund has increased, one can invest since the returns you get are the same.

How often should investors check NAV: Once in a quarter is an appropriate time to check NAV. If a decision on changing or liquidating a fund is to be taken, the investor should ideally wait for at least a year's performance of the fund.

Investing in debt funds directly or through mutual funds: Since many debt instruments like tax-free bonds, tax-saving bonds or non-convertible debentures are also open to retail investors for investment, why should the investments be done through a debt route?

When investing in bonds or debentures directly, the investor has to stay put through the entire lock-in period of three years or five years. When investing in debt products through the mutual fund route, the investor can liquidate as and when he requires funds. Additionally, the investor gets to spread his investments in a variety of products that minimises risk and maximises investments.

Avoid equity mutual funds after crossing 50 years of age: Post 50 years of age, one has to look at safer returns and shorter exits in investments. Equity mutual funds are long-term investment products and returns are variable and are not appropriate for those above 50 years.