How to buy Mutual Funds in India – Step by Step Guide

How to buy mutual funds in india-Understand what Mutual Fund Schemes are all aboutHow to buy Mutual Funds in India – Step by Step Guide


Mutual Funds are one of the best investment options where one can save as low as Rs 500 per month and create good wealth in long term. However there are several individuals who do not know about mutual funds and where they need to start with. This article is to enlighten many individuals about mutual funds in India. What are mutual funds? How to open Mutual Fund account in India? How to pickup a good mutual fund for long term investment? How to invest lumpsum and SIP in mutual fund schemes? This article would provide step-by-step guide on how to buy mutual funds in India.

Also Read: Top Performing Equity Mutual Funds in the last 10 years

Step#1 – Understand what Mutual Fund Schemes are all about


Mutual funds are basically investment schemes where the money is pooled from investors and invested in stocks, bonds, money market securities etc. Each investor owns a portion in the fund in the proportion of money invested. They are managed by the professionals and usually run by Asset Management Company who invests the capital of the fund and attempt to gain profit out of it. Investment can be made in two ways in mutual funds – either making a lump sum payment or making a SIP (Systematic Investment Plan) in which every month a fixed amount is invested till a specified period. Each mutual fund bears different risk and reward profiles.

Step#2 – Open Mutual Fund Account Online or Offline


T here are different ways in which you can open a mutual fund account.

a) Opening Mutual Fund Online

You can open your mutual fund online account directly. You have to go to the mutual fund house website and complete all the queries and formalities. The funds where you invest through this process are "direct" plans. In Direct Plan in Mutual funds you would get 0.5% to 1.5% higher returns compared to regular mutual fund schemes. You should opt for direct plan in mutual funds online before trying any other options.

b) Open a demat account / Mutual Fund Account with large brokers

All the major stock brokers are linked to BSE and NSE mutual fund platform. You can open a demat account / Mutual fund Account with any broker to deal in mutual funds.

c) Mutual fund independent portals

There are independent portals run by companies like fundsupermart.com, fundsindia.com etc. Such portals do not charge any transaction fees for dealing in the mutual funds. One can open mutual fund account with these portals too.

d) Mutual Funds through Intermediaries

A lot of intermediaries are available in the form of banks, individuals, small financial advisory companies etc. They generally bring the form at your door steps and comply with all the legal formalities for which they charge some fees. Please note that all the intermediaries have to be registered with the Association of Mutual fund in India (AMFI).

e) Mutual Funds through MFUtility Portals: There are few portals like MF Utility where you can invest them online in direct plans

How to do KYC to invest in Mutual Funds?


Know Your Client (KYC) form was introduced by the SEBI in accordance with the Prevention of Money Laundering Act, 2002. It undergoes changes from time to time. The documents that are to be submitted along with KYC application are:

1) Recent passport size photograph

2) Proof of identity (like copy of pan card/ aadhar card/ passport/ voter ID/ driving license)

3) Address proof (address mentioned on passport, driving license, ration card/ electricity or telephone bill)

4) One needs to submit the copies of all these documents after self- attesting them and also the originals for verification.

5) KYC process is friendly to investors and is in uniformity with across all SEBI regulated intermediaries.

Step#3 – Which Mutual Fund option to select?


While investing in mutual funds, there are three options available in which one could park his funds – growth, dividend and dividend re-investment. One has to choose any one option out of these. However, you can change the option at the later date as per your convenience.

a) Growth option in Mutual Funds

Under this option, the scheme does not distribute any dividends but continues to grow. The gains made are reflected in the NAV (net asset value) of the fund. Means you would get the returns from mutual funds when you redeem/sell.

b) Dividend option in mutual funds

This scheme lays down the provision of paying out profits at regular intervals in case of debt fund and irregular intervals in case of equity fund. It could be monthly, quarterly or half year or yearly depending on the scheme objectives.

c) Dividend re-investment option in mutual funds

Under this scheme, the dividend is not paid but re-invested in the funds by buying more units on your behalf.

All the options have its own pros and cons. So the investor needs to decide carefully after understanding the nature of the fund. The tax implications of different types of funds are also different and this also has to be kept in mind while making decision on the type of fund.

If you do not know what to opt, you can just opt for Growth option so that all returns, you would get at the end of the tenure / when you sell or redeem your mutual fund units.

Step#4 – Understand on how to invest in lump sum in Mutual Funds


How to buy mutual funds in india-How to invest in sip or lumpsum in mutual fundsLump sum investment is the one-time investment made in the mutual funds. Every mutual fund has a specified form that needs to be filled. Contact the intermediary through which you are planning to make the investment or open an online account. Now, fill the form, comply with KYC compliant and other formalities and select the option in the type of fund. Attach the copies of relevant documents and submit them along with a cheque or DD.  If you are investing online, just select lumpsum investment option and transfer the money, pay transaction fees (if applicable) and execute the transaction. Mutual Fund units would get credited in 3-4 working days. You should also understand when lumpsum in mutual funds can be invested. Otherwise, your investment itself can be erased.

Step#5 – Understand on how to invest through SIP in mutual funds


Systematic Investment Plan (SIP) is a tool which helps to invest small sums of money at regular intervals.  The frequency of a SIP can be daily, weekly, fortnightly, monthly or quarterly. For investing in SIP in mutual funds, you need to fill two forms – one is the specified mutual fund form and the other for SIP. You can choose any date for SIP as per your convenience. If you choose the online option, register yourself to the respective website and fill in the details prompted. You will be provided a login Id and a password. You can log in and get the necessary formalities done. 

Step#6 – How to select a good mutual fund for investment?


While there are several key parameters, you can select the funds based on the following parameters.

Select Mutual funds based on highest returns received in the last 5-10 years, including the years where there was a downturn in stock markets.

Select Mutual funds that are rated by Crisil as Rank-1, Rank-2, Rank-3 and Rank-4 are picked for these top funds list which indicates consistent performance in all market cycles.

Select funds where Value research Online (VRO) rated these funds as 5 star and 4 star. Highest star rating indicates that these funds can perform well compared to its peers in various stock market cycles.

Filter funds based on Mutual fund AUM (Assets under management) which has > 100 Crores. This refers that more and more investors are investing in such funds create investor confidence about the fund.

Invest in funds based on your financial goals.

Invest in funds based on your risk appetite. If you are high risk investor, add more into sector funds, smallcap funds, midcap funds and large cap fund. If you are moderate risk taker, invest small amount in midcap/small cap fund and good amount in large cap funds. If you are low to moderate risk taker invest more in large cap funds and some amount in debt funds.

Quick Summary of How to buy Mutual Funds in India?


Here is the quick summary on how to buy a mutual fund scheme in India:

Step#1 – Understand what Mutual Fund Schemes are all about

Step#2 – Open Mutual Fund Account Online or Offline. Open a Mutual Fund account online / Offline with any stock broker, Mutual fund Intermediaries or directly with Mutual Fund AMC Website.

Step#3 – Which Mutual Fund option to select. Select a Mutual fund option among the 3 options available i.e. growth option, dividend option and dividend reinvestment option. You should also understand among Growth Vs Dividend, which Mutual Fund option is better before you opt it.

Step#4 – Understand on how to invest in lump sum in Mutual Funds

Step#5 – Understand on how to invest through SIP in mutual funds

Step#6 – How to select a good mutual fund for investment. Select a good mutual fund to invest based on your financial goals, risk appetite and tenure. Invest in mutual funds for medium to long term to get superior returns.

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Suresh

How to buy Mutual Funds in India – Step by Step Guide

17 comments

  • sai praveen

    Hi,

    i was going through the blog to get a good idea about investments in Mutual Funds & i Thank you for the information Provided .I am a Newbie, the information was really helpful. i request your suggestions regarding investing in Large cap & Midcap Funds.

    Thanks

     

    • You can look in these funds. 1) Large cap – Birla SL Frontline fund / ICICI Pru focussed blue chip fund 2) Mid-cap – HDFC Mid-cap opps fund / Franklin India smaller co’s / SBI Midcap fund

  • Ajay

    Hello Sir,

    Can you please tell me CAMS ( Computer Age Managment System) Provide direct plans.

  • Bhushan

    Hi Suresh,

    Thanks for the verygood artical/information, please suggestr me
    my Age 35, owned home, No Loan.
    below 19K SIP investing (since 2010 and some started in 2014)
    6k (sector fund) – 2k reliance pharma + 2k Reliance Banking + 2k IcICI Technology
    5k (ELSS) – 2k Axis Long term + 2k Reliance tax saver + 1k DSPBR Tax saver
    2k (balance) – 2k icici Balanced fund
    2k (gold) – 2k Reliance Gold Saving Fund
    2k (Diverified) – 1k icici discovery fund + 1k Reliance Equity Opportunity
    1k (Large cap) – 1k ICICI Focused Bluechip
    1k (Divident) – 1k ICICI Dividend YieldnEq. Fund

    FD – 5Lac(renew every time)
    EPF – 80K/year(my+employer contribution)
    PPF – 60k/year
    RD – 5K/month

    Goal – max possible wealth creation(child education, retirement)
    tenure – minimum 15year to max 25 year

    Please suggest is it good portfolio or suggest any modification
    + i want to invest 6k/month – which sip i add it or take new sip ?

  • JP

    Hello Suresh,

    I have one query. I have already open few mutual fund through FUNDSINDIA. If I want to open the direct mutual fund now, is it require to verify KYC once again (SIP)

    • Abhishek

      Hi JP,

      KYC is dependent only on PAN number. If you have done KYC through any means, the data would be available in CDSL/CAMS/KArvy etc.
      You don’t need to re-verify KYC unless these KRA asks you for some reason.
      You could check your KYC status online. Just google – Check KYC status online – enter your PAN number.
      If it says your PAN is KYC compliant, you dont need to do it again with anybody. The new FundHouse gets your KYC automatically from these KRA(aka. depositiries/registrars)

  • Sudhesh prabhakaran Nair

    Do you advice buying mutual funds through Zerodha? Is there any hidden charges if i go with direct plan?

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