How to buy or Invest in Mutual Funds – Beginners Guide
One of the important step in financial planning is to save money and grow such savings. While there are several investment options in India, one of the best ways to save money on a regular basis is through investing in Mutual funds. You can invest as low as Rs 500 per month through Systematic Investment Plan (SIP) in Mutual Funds. If you have started earning money now and want to save in mutual funds or if you are new to mutual funds and thinking how to buy or invest in mutual funds, this article is for you. In this article we would provide how to Buy or invest in Mutual Fund schemes in India.
What are Mutual Funds?
Mutual Funds pool the money of investors either in lump sum or through regular investments and invest in equity markets or debt instruments based on the investment strategy defined in the mutual fund prospectus. You can invest as low as Rs 1,200 per month in mutual funds and become Crorepati.
What are SIP in mutual Funds?
Everyone might not have a large amount of investment. Here comes SIP in mutual funds. Systematic Investment Plan (SIP) is where one would invest fixed amount of money on a regular basis in a specific mutual fund scheme. This could be either daily, weekly, monthly, quarterly or yearly. E.g. One can invest Rs 500 per month for 6 months or 120 months in mutual funds.
Direct Mutual Funds Vs Regular Mutual Funds
There are two categories of mutual funds which every mutual fund beginners should know.
i) Direct plan in mutual funds: These mutual funds are purchased without any intermediaries or brokers, hence mutual fund houses would not pay any commission. Direct mutual funds would provide higher returns in absence of commissions to intermediaries.
ii) Regular mutual funds: On the other hand,regular mutual funds can also be brought through brokers, banks, IFAs etc., However, since they would commission in between, your returns in regular mutual funds would be lower to that extent. You would get 0.25% to 2% lower returns depending on the type of mutual funds you are investing in.
How to buy or Invest in Mutual Funds – Beginners Guide – Quick steps
If you are beginner to mutual funds, this would provide you step-by-step guide about how to buy or invest in mutual funds along with few pointers which they should know. Here is the quick summary.
1) You need to have a bank account, PAN card and KYC compliant. If you do not have a bank account or PAN, I would advise you to get them first. CKYC (Central Know Your Customer) can be done one time for beginners in the financial industry.
2) Pick-up a mutual fund platform to invest.
3) Choose few mutual funds to start with. Decide whether you want to invest a lump sum or SIP. I would advise beginners should start investing smaller amounts through SIP.
4) Execute your mutual fund transactions and track them
How to buy or Invest in Mutual Funds – Beginners Guide – Detailed steps
Now let us get into more specifics on how a beginner in a mutual fund can invest.
1) Do CKYC – Central Know Your Customer
CKYC is must for any beginner. Most of the banks would do this while opening a bank account. You need to submit the following documents to do KYC.
a) Duly filled and signed CYC / Old KYC form + Supplementary CKYC form
b) One proof of Identity with self-attested copy
c) One proof of Address with self-attested copy
d) One photograph incase of CKYC form.
2) Choose a mutual fund platform to invest
There are tons of mutual fund platforms to invest now.
a) How to buy mutual funds directly through AMC website
If you are investing directly through AMCs, your investment returns would be higher as you would be investing in direct plan of mutual fund schemes where no commissions are paid to intermediaries or brokers.
You can approach any AMC website (e.g. SBIMF.com or HDFCfund.com or ICICIpruamc.com etc.,)
You can do new user registration.
You can start investing with the process laid down by respective AMC’s.
A major negative factor in this method is that you need to register with various AMC’s to invest in various mutual fund schemes. This could be a little pain process.
b) How to buy direct mutual funds through Mycams / Karvy
If you are thinking how to buy mutual funds without broker other than approaching each and every individual AMC website, there are few other options like Mycams or Karvy. Mycams is one of the good online portal / mobile app where you can purchase direct mutual funds. With one login you can invest in all AMC mutual fund schemes.
Even Karvy mutual fund portal / mobile app provides option to invest in direct mutual funds, however some AMC funds are not available.
c) Invest in mutual funds through intermediaries
You can invest in mutual funds through any of the intermediaries like banks, distribution companies, online stock broking companies, financial advisory companies, etc., You should visit amfiindia.com who maintains the list of intermediaries and this data is updated regularly. If any mutual fund intermediary is doing malpractice, you would know from this list.
d) Invest in mutual funds through investment advisors or financial advisors
There are many investment advisors or financial advisors, where you can seek help to buy mutual funds. While they can advise you the process, one should check if they are biased towards any specific mutual funds where they would get higher commissions.
e) Buy mutual funds through Online portals
One can approach many online portals / mobile portals like icicidirect or funds India or scripbox or groww etc. to buy mutual fund schemes.
f) Buy mutual funds through Banks
Banks also act as intermediary to buy mutual funds. You can approach your bank and purchase them.
g) Buy mutual funds through your demat account
If you have demat account, you can purchase them online by logging in to your demat account.
3) Pick-up a few mutual funds to start
This is where you need to be cautious. Many investors would get diverted either by mutual fund brokers or friends. Just because your friend is investing in a fund, it does not mean that you need to invest in those funds. One should select mutual funds based on their financial goals.
a) Invest in Top liquid mutual funds if you need money in the short term of 1 week to 6 months time frame. You might need money in such short term for child education or down payment to purchase a car or home, hence this investment option could be better for you.
b) Invest in short term mutual fund schemes if you need money in less than 3 years. You may need money for down payment of home or any other requirement.
c) Invest in balanced mutual funds if you think you need money in 5+ years. Time frame of 5 years is good in balanced funds to earn decent returns where it invests in equity and also in debt.
d) Invest in equity mutual funds like large cap or multicap mutual funds or diversified mutual funds if you have a financial goal of 8-10 years. Again, pick-up some of the Best SIP Mutual Funds in India when you filter them.
e) Generally, financial advisors or brokers would advise to invest in midcap mutual funds or small cap mutual fund schemes. These are for high risk investors who have already seen the pulse of equity mutual funds. Since beginners in mutual funds have not seen how these would fall when the stock market crash happens, they might even exit mutual funds if they have by mistake invested in such funds.
d) Beginners in mutual funds should avoid thematic mutual funds or international mutual funds as these are again very high risk mutual funds.
In a nutshell, they should stick to medium / low risk – high return mutual funds across the mutual fund categories to begin with.
4) Purchase and Track your mutual funds
By this stage you know how to buy mutual funds, how to pick-up your mutual fund schemes, etc., Now it is time to execute them. Log in to your mutual fund account and start putting transactions. You can create SIP’s and start investing in mutual funds.
You should start tracking once a month in the early stages of mutual fund investment and once you are comfortable that your mutual fund investments are going well (not in terms of returns, but that you invested in right mutual funds), you can review your mutual schemes once in a quarter.
5) Make changes in your mutual fund investments if required
Never regret that you made a mistake in choosing a wrong mutual fund scheme. You should know how to get higher returns from mutual funds in India. You can always fine tune and correct your mutual fund portfolio by removing some of them and adding new funds.
Wishing you all the best in mutual fund investing !!!
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Suresh KP
How to buy or Invest in Mutual Funds – Beginners Guide
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Why have you not mentioned MFU for mutual fund investing.
Hello Mani, This article does not provide all possible ways and cover 100% (which would be impossible for anyone to do). It covered majority of them and there are several other ways also.
Hi,
You post is very good.
Thank you for sharing this post.
Thank you Nivesh