A guide to mutual fund investment online

A guide to mutual fund investment online

A mutual fund (MF) is a professionally managed trust that pools the savings of many investors and invests them in securities like stocks, bonds, short term money market instruments and commodities such as precious metals. MFs are one of the best investments available to retail investors for creating wealth, especially over the long-term horizon. MF categories are designed so that individuals with different risk appetites and investment preferences can invest in a scheme that best-suits their profile. Different categories of funds perform differently in different times. Each category will have its own cycle of ups and downs and they may not coincide. Depending on your risk appetite and investment objective it offers you a wide range of options to choose ranging from stability, growth and high returns.

With over thousands of schemes to choose from, mutual funds offer investment option for every type of investor from risk averse to someone who is open to execute calculated risk for high returns. For someone seeking a safe investment vehicle with the aim of steady returns, the debt scheme works best and for those who aspire for high returns, there are several equity schemes to choose from. Basically, you need to understand what your risk appetite and financial goal is, before choosing the best MF for you. Each has its own unique characteristics. It just boils down to what your investment aim is.

How should you invest in mutual funds?

  • Become KYC compliant: If you are planning to invest in mutual fund, then you need to know that only the mutual fund KYC compliant people can apply. This is a one-time process that every mutual fund investor needs to fulfill in order to be able to invest in mutual funds. You may either opt for a KYC at the fund house or if it may permit so, an online KYC by submitting documents such as PAN card, Aadhaar card, etc. Most fund houses prefer an in-person KYC before you can start investing.
  • Choose the right plan: Investors interested in MFs, have to make a peculiar choice between a direct plan and a regular plan. Direct and regular are ways in which one can invest in a mutual fund. For eg., if you want to invest in ABC mutual fund, you can invest in it either through a direct plan or a regular plan. Whichever plan you choose, the features, category and sub-category of the fund by itself remain the same. The main difference will be in the cost structures of the plan. In case you choose the direct plan, there will be no guidance and research support. Extensive market research and related paperwork will have to be done by you. Moreover, you will have to continuously monitor your investment. On the contrary, when you opt for a regular plan, you will have to pay commission, but your money will be more professionally managed with very little of your time involved in the research process.
  • Define your investment purpose: The market is rife with mutual fund schemes for all kinds of investors. Since investors have unique investment requirements, it makes sense to check and review many mutual fund schemes available before committing to one scheme. You need to define your investment goals and make sure they align with the MF of your choice.
  • SIP vs. lumpsum: There are two methods by which one can invest in mutual funds i.e. SIP (Systematic Investment plan) and lumpsum. If you have a steady income, it would be advisable to invest in MFs via SIP. The advantage of SIP is that when you invest in a disciplined manner, you tend to get more units when the market is low and less units when the market is high, thus averaging the cost of mutual fund units.

Ways to invest in a mutual fund

Directly with the fund house website or app: You can invest directly in the choice of your fund on their website by furnishing the necessary documents required, and completing the initial KYC. You can choose the plan you want and begin making your investment. They do not charge any commission or distribution expenses, thus helping you save on costs and earn more return on investment. But one major disadvantage of this path is that you will have to do your own research and then make an informed decision. This is a very time-consuming process and if you are new to MFs, you may not be able to make the right choice.

Many portals as well as fund houses allow you to do your KYC online, if you aren’t KYC compliant already. The following documents need to be submitted for completing the process:
  • Recent passport size photograph
  • Proof of identity such as a copy of PAN card or UID (Aadhaar) or passport or voter ID or driving license
  • Proof of address i.e. passport or driving license or ration card or registered lease/sale agreement of residence or latest bank A/C statement or passbook or latest telephone bill (only landline) or latest electricity bill or latest gas bill, which are not older than three months
Indirectly through a brokerage house: Here, there is a lot of hand-holding involved and there will be a broker to guide you through the whole process. You just need to give your requirements and furnish the necessary documents, and all the other procedural work will be completed for you. In fact, you will also get recommendations on the right MFs for your investment needs, and hence, it will save you from the time consuming process of researching the multitude of options available. You will be charged a small fee for the services provided, if you choose this method of investing.

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