How to Invest in Mutual Funds

What are mutual funds?

Mutual funds act in the form of a trust or an AMC( Asset Management Company) whose work is to manage money collected from various investors. AMC invests this collected money in different types of assets in order to achieve profit.

In other words, Mutual funds are nothing but the diversified investment of collected money from different investors for earning.

Why should you invest in mutual funds?

  • Low-risk: Investment means taking risks is right up to some extent. Mutual funds help in reducing the risk by diversifying your capital.
  • Convenience: In this digital era technology made it possible to go paperless and straightforward process. Investors like you and I can have a track on the market and select the right scheme for good achieving investment goals.
  • Low initial investment: As you have chosen good schemes for the investment you can start with just Rs 500/-.
  • SIP: Systematic investment plan is also available which facilitates you to invest monthly automatically.
  • Tax-saving: Section 80C provides tax deductions on particular financial instruments and mutual fund is one of them.
  • Professional fund manager: In mutual funds, your money is totally managed by a professional manager who is followed by a researcher. He can change the holdings in any unfavorable time to reduce risks.

Beginner guidance

  • Fix an investment goal.
  • Choose the right fund type.
  • Shortlist and choose one mutual fund.
  • Diversify portfolio.
  • Most important opt SIP instead of a one-time investment.
  • SIP is important because you know the market is volatile.
  • The price changes daily. If you go for one time you have to buy at the current market price but on SIP sometime you will get more units( allocated after investing in mutual funds).

 

Categories of mutual funds

Equity funds: An equity fund is a fund that typically invests in stocks.  Mainly

They aim to gain profit by investing in stocks. The risk is comparatively higher as they are directly connected with the market.

 

Debt funds: A debt fund invests in fixed income securities like bonds, securities, gilt funds, liquid funds. The risk is quite low compared to equity funds.

 

Money market funds: This is usually run by government banks or corporations by issuing money market securities like bonds, t-bills, dated securities, and certificates of deposits, among others.

The risk is relatively less for short term plans usually 13 months.

 

Hybrid funds: This fund is a mixture of bonds and stocks and also known as asset allocation funds.

Ways to Invest in Mutual Funds

A. Offline

1. Directly with the fund house

You can invest in any scheme of mutual funds by visiting their office. So Don’t forget to be ready with the following documents.

  • Canceled cheque
  • Identity proof
  • Passport size photo
  • Address proof

Rest they will provide you all information regarding application submit.

2. Through a broker

A broker is who guides you through the entire investment process. They will guide you all the process and required documents needed in this investment. He will guide you until unless you use their service. However, They will charge for this facility called brokerage which varies broker to broker.

B. Online

1. Visting official website

Most fund houses offering an online way to invest. Just you need to follow the steps mentioned on the official website. Even E-KYC is available which needs your Aadhar and pan card details and someone at backend verifies it. After that, you will be notified and you can start investing.

2. Through mobile application

There are many brokers that offer you their android/ iOS applications to use for investment.

Some of the applications are

1. Coin by Zerodha

Click to Register on Zerodha

2. Groww

Click to Register on Groww 

3. Paytm money

Click to Register on Paytm Money

Steps are listed below to invest in mutual funds online.

  • Firstly, Understand your risk capacity and risk tolerance. this process of knowing the bearable risk is said to be risk profiling.
  • Secondly, you should divide your investment capital into different assets and it is advisable to mix both equity and debt to reduce risks.
  • Thirdly, its turn to find appropriate mutual funds and compare with similar for their performance and risks.
  • Most importantly, choose a scheme wisely and apply using any of the above ways mentioned.

So Important things to consider before choosing any mutual fund.

  • Tax
  • Exit load
  • Expense ratio
Note: Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.
Shashi (Prachi)

Shashi (Prachi)

Smile it let your teeth breath Equity Research Analyst at HDFC Mutual Fund ll Portfolio Management ll Wealth Management ll CFA Level 1 Candidate

One Comment

Leave a Reply