FOR EXISTING POLICY
FOR NEW POLICY
Mutual funds are considered one of the most popular investment choices in India. They combine every penny into a single pot. By knowing how to invest, you can take advantage of this investment.
Do you want to grow your money but don't know where to start? Mutual funds could be a great option for you. They allow you to access a diversified portfolio managed by financial experts.
If you invest a small amount monthly, you can take advantage of compounding returns in the long run. It's easy to start - decide how much you wish to invest depending on your financial goals and risk tolerance. Now, let's explore how to invest in mutual funds
Table of Content
Mutual Funds: A Quick Recap
A mutual fund is a type of investment. When you invest in a mutual fund, you buy shares of the fund. It is part of the entire fund, not the individual asset. This enables you to invest at a larger capacity since your money is diversified into different assets. Usually, the more diversified, the larger the fund.
Additionally, mutual funds provide the specialisation and risk management that most individual investors lack. Online mutual fund investors seek returns through capital gains from their holdings and income from dividends and interest. The level of returns is contingent on the type of fund and the purpose of that.
Benefits of Investing In Mutual Funds
- As mentioned, mutual funds provide instant diversification. Your money is invested in dozens or even thousands of various assets. This reduces the overall risk.
- Instead of picking your stocks, professional portfolio managers control mutual funds. They analyse companies and reallocate assets depending on the market situation. You benefit from their expertise.
- Unlike direct stock investing, which may demand thousands on entry, mutual funds have low minimums. You can buy them on almost any budget.
- Regular and automated contributions make investing very easy. Mutual funds come with this feature.
- Mutual funds are affordable. The cost of investing is usually less than 1% a year in fees. This can add to your returns.
Ways To Invest in Mutual Funds
There are two ways to invest in mutual funds:
Monthly SIP
SIP or a Systematic Investment Plan allows you to invest a fixed sum in a mutual fund scheme regularly, usually monthly. This is one of the most recommended ways, as it helps you average your purchase cost and builds discipline in investing.
Lumpsum
For one-time large investments, lumpsum is the way to go. This could be suitable when you have received a large payment like a bonus or proceeds from selling an asset.
How to Invest in Mutual Funds?
Through a mutual fund distributor
Mutual fund distributors provide financial advice and assist you in mutual fund transactions. Their payments are in the form of commissions from the fund house. If you are a new investor, using a mutual fund distributor is wise.
Through AMC’s Direct Plan
The AMC (Asset Management Company) can sell Direct Plans through their office or online portal where the policyholder can buy them directly. These plans are cheaper than regular plans. They are suitable for experienced investors who are aware of their risk appetite and who know mutual funds and financial markets.
Through RTAs
RTAs (Registrar and Transfer Agents) act as agents for the fund houses in processing mutual fund transactions. Investing through RTAs enables you to invest either in direct or regular plans. One advantage of investing through RTAs is that you can make multiple transactions (investments, redemptions, switches, etc.) of mutual funds of several AMCs serviced by the same RTA.
Through RIA
RIAs (Registered Investment Advisors) are registered through the Securities and Exchange Board of India (SEBI). They do not charge commissions from AMCs. If the underlying security is an individual stock, you can buy it directly through an RIA, and the RIA may charge a fee for its service. Another advantage of investing through an RIA is freedom of interest.
How to Invest in Mutual Funds Online?
Mutual funds lets investors pool their money and invest in a professionally managed portfolio of stocks, bonds and other securities.They offer a convenient way to invest for retirement, education, and other goals. Here are a few ways to invest in mutual funds online:
Directly with the Asset Management Company (AMC) Website
- Open an account on the AMC's website.
- Complete your KYC verification online.
- Browse and select mutual fund schemes to invest in.
- Invest conveniently through net banking or UPI.
Using a Mutual Fund App
- Download the app of an AMC or mutual fund aggregator.
- Complete registration and e-KYC process.
- Browse schemes and invest online through the app.
- Monitor your investments in one place.
Investment Through Banks
- Invest only from your bank account through cheque, online transfer or a maximum of ₹50,000 cash per financial year.
- Third-party investments are not allowed. The investment must come from an account held by the investor.
- You can invest with your spouse from a joint account.
- You also have an option to invest on behalf of a minor child if the child is the sole holder of the mutual fund account.
- When the child turns 18, promptly change the account status from minor to major.
- The adult child will then be responsible for any tax implications.
Costs of Investing in Mutual Funds
- Expense Ratio: The annual AMC fee ranges from 0.5-2%, usually for fund management.
- Transaction Charges: A nominal fee may be charged on purchases less than ₹10,000. No fee is typically charged above ₹10,000.
- Entry and Exit Loads: Mutual funds can levy loads for buying and redeeming units within a period ranging from 0-3%, depending on the scheme.
- STT (Securities Transaction Tax): 0.001-0.25% tax on purchases, redemptions and switches, depending on the scheme type.
- Stamp Duty: 0.005-0.015% stamp duty is payable during transactions based on prevailing state rates.
Useful Tips On How Can One Invest in Mutual Funds
Choose Your Fund Type
Mutual funds come in many varieties catering to different investment objectives. Common fund types include:
Equity funds invest primarily in stocks aiming for capital appreciation over the long term. They carry higher risk but tend to deliver higher returns over time.
Fixed-income funds provide an option to invest in bonds and other debt instruments to generate interest income. They offer lower volatility than stocks.
Balanced funds maintain a mix of stocks and bonds to balance growth and income.
Target date funds hold a mix of assets that adjust over time as you near retirement.
Assess Your Risk Tolerance
Consider your risk appetite when selecting funds. Higher potential returns may come with higher risk. Conservative investors may favour bond funds, while those with a high tolerance for risk can consider more aggressive equity funds.
Compare Expense Ratios
Mutual funds charge annual fees — the expense ratio — as a percentage of assets. Index funds are known to have low expense ratios. Actively managed funds have higher expenses. Make sure to compare fees before investing as they impact returns.
Decide on The Fund Type
Mutual fund shares come in different classes. Most individual investors opt for "open-end" as opposed to closed-end funds. If you are an NRI (Non-Resident Indian), take a look at the best NRI investment plans.
Choose an Investment Strategy
You can invest with a lump sum, set up automatic monthly investments, or invest sporadically when funds allow.
Review Your Funds Periodically
Monitor your funds at least annually. Make sure your asset allocation still aligns with your goals and risk profile. Rebalance periodically to maintain your target allocation. Evaluate performance and fees to determine if a change is needed.
