How to Invest in Mutual Funds- Invest Online/Offline

Mutual funds allow investors to reap inflation-beating returns with the help of a diversified portfolio of stocks and/or bonds. Mutual Funds allow investors to start investing with an amount as low as Rs. 500, along with the facility of professional management of funds. No wonder Mutual Funds have become one of the most popular investment instruments today.

How to Invest in Mutual Funds

Investing in Mutual funds involves one of the easiest investment processes making these investments flexible, transparent and reliable for the investors. One can invest in mutual funds in either of the following ways-

• Online mode
• Offline mode

Steps to Invest in Mutual Funds via Online Mode

In order to invest in mutual funds using the digital mode, you must follow the given steps-

Step 1: Visit the website of any one of the following-

• An Asset Management Company (fund house) (for both direct and regular mutual fund schemes)
• A registered investment adviser (RIA) such as Paisabazaar (for direct mutual fund schemes)
• A mutual fund distributor (for regular mutual fund schemes)

Step 2: Complete the e-KYC form available on the concerned authority’s website. You will be required to digitally submit the self-attested copies of the following documents along with the KYC form-

• An identity proof (Aadhaar card, Passport, Voter ID, or Driving Licence)
• PAN card
• An address proof
• A passport-sized photograph

Step 3: Complete the in-Person Verification (IPV) as mandated by capital market regulator, SEBI (Securities and Exchange Board of India). You can complete the IPV in 2 ways- either by visiting any of the following institutions and submitting the original copy of the above-mentioned documents:

• KYC registration agency (KRA)
• AMC
• Mutual fund agent/distributor
• Mutual fund registrar
• Karvy/CAMS office

Or, by completing the IPV (in-person verification) via video conferencing using a webcam at a pre-agreed time with the concerned intermediary.

Step 4: Select a mutual fund scheme on the basis of your investment horizon, risk appetite, availability of funds and other important factors. You can read more about how to select a mutual fund scheme here.

Step 5: Submit the mutual fund application form. This can be done after the completion of the IPV which usually takes 5-7 days. Along with the application form, you must also submit the investment amount. If you wish to invest via SIP (Systematic Investment Plan), you must also fill and submit the SIP form along with the application.

Also Read: Best Mutual Funds to Invest in 2020

Steps to Invest in Mutual Funds via Offline Mode

Step 1: Visit to any one of the following institutions-

• An Asset Management Company (fund house) branch
• A bank
• A Karvy/CAMS office
• A mutual fund agent/distributor

Step: 2: Submit KYC (Know Your Customer) form. Getting your KYC done is mandatory for all first-time mutual fund investors. You need to submit the self-attested copies of the following documents along with the KYC form–

• An identity proof (Aadhaar card, Passport, Voter ID, or Driving Licence)
• PAN card
• An address proof
• A passport-sized photograph

Step 3: Complete the in-Person Verification (IPV) as mandated by capital markets regulator SEBI (Securities and Exchange Board of India). You can complete the IPV in 2 ways. You can either visit any of the following institutions and submit the original copy of the above-mentioned documents-

• KYC registration agency (KRA)
• AMC
• Mutual fund agent/distributor
• Mutual fund registrar
• Karvy/CAMS office

Or, you can complete the IPV via video conferencing using a webcam at a pre-agreed time with the concerned intermediary.

Step 4: Select a mutual fund scheme on the basis of your investment time horizon, risk appetite, availability of funds and other important factors. You can read more about how to select a mutual fund scheme here.

Step 5: Submit the mutual fund application form. This should be done after the completion of the IPV which usually takes 5-7 days. Along with the application form, you should also submit the investment amount. If you wish to invest via SIP (Systematic Investment Plan), fill and submit the SIP form along with the application.

Steps to Invest in Mutual Funds via Mobile Application

Mutual fund houses have introduced mobile applications for investors taking the ease of mutual fund investments to the next level. Each fund house has its own mobile application that can be used by investors to invest in the specific fund. Investing through mobile applications does not require any documents to begin the process of investing. However, getting your KYC done is a mandatory requirement.

The introduction of this paperless process of investing allows investors to choose the funds of their choice by going through the fund’s historical performance, NAV, AUM, etc. and invest according to their own investment horizon, risk appetite, and financial goals.

To invest through a mobile application, you must-

• Begin with downloading the application via App Store/Play Store on your smartphone
• Log in to the application by creating an account
• Get your KYC done
• Once you are done with the d logging in and registering yourself on the application, you can check the available funds and track their performance
• After choosing the fund, you can start investing

Costs Associated with Investing in Mutual Funds

The management of your funds makes you liable to pay certain expenses explained as below-

• Expense Ratio- Expense ratio is a fee that an investor is charged for the professional management of his/her funds. It is calculated as the percentage of the assets payable to the fund manager. You can read more about how Expense Ratio of a fund can be calculated here.
• Entry Load– This fee is charged when you invest in a mutual fund scheme. Entry load was deducted from a fund’s NAV (Net Asset Value) and was generally fixed at around 2.25% of the investment value. Since 2009, SEBI has abolished the entry load on mutual fund investments.
• Exit Load– Exit load is a fee charged when an investor leaves or redeems his investment in a mutual fund scheme. An investor is liable to pay exit load if he/she redeems his funds before a specified time period. Exit Load is charged in order to discourage the investors to withdraw their funds, thereby reducing the number of withdrawals from the scheme.
• Indirect charges– Investors might have to incur a number of indirect expenses during the tenure of his/her investment. These expenses include costs related to maintaining the account, brokerage, Security Transaction Tax (tax that must be paid by the investor while buying and selling stocks), etc.

Why you should Invest in Mutual Funds

• Small investments– One can start investing in Mutual Funds (via SIPs) with an amount as low as 500. Using the Systematic Investments Plans (SIPs) mode of investing, investors can choose to invest in Mutual Funds at pre-defined intervals that can be fixed for weekly/monthly/quarterly or yearly instalment, thereby avoiding the burden of paying a huge amount at one point.
• Flexibility- SIP installments in mutual funds are to be paid at fixed intervals, which develops a sense of responsibility and reliability among the investors. Mutual funds offer flexibility to its investors in terms of increasing or withdrawing their principal amount depending upon their own needs.
• Rupee Cost Averaging– Mutual funds investments allow investors with investment objectives for the long term to benefit from their investments due to the concept of Rupee Cost Averaging (in SIP investments).
• Power of Compounding- Power of Compounding is another feature that helps investors gain from their investments in Mutual Funds. This ensures that investors benefit not only from the principal amount invested but also from the gains on the principal amount.
• High returns– In comparison to the interest earned on conventional modes of investing, FDs, for instance, Mutual Funds deliver higher returns that help to beat inflation in an efficient manner.
• Tax Benefits– Certain mutual funds like ELSS (Equity Linked Savings Scheme) also offer tax benefits to investors. For example, ELSS offers tax exemption on investments up to Rs.1.5 Lakh under Section 80C of the Income Tax Act.
• Ease of Investment– It is quite convenient to invest in Mutual Funds since there is no direct involvement of the investor with the market. She/he just needs to register with the fund and start investing. There is no need to monitor the financial market on an everyday basis like one does in trading of stocks.
• Economies of scale– Mutual Funds offer economies of scale. When an investor opts to invest in mutual funds instead of individually buying stocks in the market, s/he saves on the transaction costs incurred.
• Aggregate Investing– Mutual Fund investments bridge a gap  between an investor and the fund houses as they accumulate money from lots of small investors and invest in stocks and securities which might otherwise be difficult for an investor to buy individually. Aggregate investing leads to a reduction in transaction costs thereby benefiting the individual investor.

Things to be Considered to Invest in Mutual Funds

As you begin to invest in mutual funds, you must keep a strict check on the following-

• You must strictly consider your risk appetite while investing in mutual funds. For example, if you cannot afford to take much risk with your investments, it is advised that you begin with investing in debt mutual funds as they involve lesser risk. On the other hand, if you have a higher risk appetite, equity mutual funds should be your choice.
• Your suitable investment horizon is an important factor that you must consider when investing in mutual funds. For example, if investing for your own retirement is your goal, you should invest in long term equity funds that generate higher returns in the long term.
• If your purpose of investment is to save on your tax payments, you may choose to invest in mutual funds such as ELSS (Equity Linked Saving Schemes) that will help you save up to Rs.1.5 Lakh per year under Section 80C of the Income Tax Act.
• The returns generated from mutual fund investments are directly linked to the amount of your risk appetite. In most situations, it has been seen that higher risk appetite will involve higher returns.
• It is important to note that you must check the fund’s last 3 to 5 year trailing returns, its NAV (Net Asset Value) and AUM (Assets Under Management) in order to get an idea of the number of investors of the given fund. It is important to ensure that the fund has maintained consistency over a long period of time.

How Do Mutual Funds Work?

When an individual invests in a mutual fund, he is in effect buying certain units of the investment portfolio of the fund. It is a kind of partial ownership of the assets of the mutual fund.

Investors generate returns through mutual funds in the following ways:

• Capital Appreciation- Mutual funds invest in securities with high growth potential or in companies available at attractive market valuations. The NAV of a mutual fund varies in accordance with the stocks held by it. So, when there is a net increase in stock prices held by a mutual fund, the NAV of that mutual fund also increases accordingly, thereby, giving the benefit of capital appreciation on the units held by its investors. Investors can redeem their mutual fund units at higher NAV and realize capital appreciation.
• Dividend Payout- Depending on the type of fund that the investor buys, he/she will benefit from dividends declared by portfolio companies, interest earned from portfolio bonds and other earned income. Investors can choose to receive distributions or simply reinvest the amount in the fund. As an investor, you have to ask the fund house to redeem distributions or reinvest the same amount since usually, the fund houses reinvest the money in the fund.

FAQs

Ques. How much money do you need to invest in a mutual fund?

Ans. One can start investing in mutual funds with only Rs.500 while there is no maximum limit for mutual fund investments. Using the SIP mode of investing, you can continue to invest in mutual funds with small amounts of money at fixed intervals. Lump Sum investments generally start with Rs 5,000.

Ques. Can I invest in cash?

Ans. Yes. As per the guidelines of SEBI, cash investments of upto Rs.50,000 can be made in mutual funds per financial year. However, any repayments for such investments will be made only through the bank channel.

Ques. Can non-resident Indians (NRIs) invest in mutual funds?

Ans. Yes, non-resident Indians can invest in mutual funds under certain specific guidelines that can be read here. However, Canadians and citizens of the United States of America cannot invest in mutual funds in India.

Ques. How much should one invest in debt or equity oriented schemes?

Ans. There is no specific amount for an investor to invest in debt or equity oriented schemes. One can start investing in these schemes with only Rs.500 via SIP mode. Debt funds generally do not have a SIP option. Here you can invest with Rs 5,000 as the minimum

Ques. When will the investor get a certificate or statement of account after investing in a mutual fund?

Ans. Mutual fund houses dispatch certificates or statements of account within six weeks from the date of closure of the initial subscription of the scheme. Additionally, online platforms such as CAMS and KARVY send monthly statements via SMS and email. These  platforms also enable investors to check their returns real time.