How to Invest in Mutual Funds in India – Easy Steps
Mutual funds can be an excellent way to diversify your portfolio and gain exposure to a wide range of asset classes. However, if you are new to investing, it can be difficult to know where to begin. We’ll walk you through the steps of investing in mutual funds in this guide so you can make informed decisions and maximize your returns.
This blog will take you through how to invest in mutual funds and its working. Let’s dive in!
Ways to Invest in Mutual Funds
Here are a few ways to invest in mutual funds;
1. Through a Brokerage Firm
A wide range of mutual funds is available through many brokerage firms. Additional fees, such as transaction fees or account maintenance fees, may apply when you invest through a brokerage firm.
2. Through an App
Invest in mutual funds anytime, anywhere with user-friendly apps offered by SBI MF, Axis MF, ICICI Pru MF, Aditya Birla SL MF, HDFC MF, and more. Easily manage your investments and access details from multiple fund houses on one platform.
3. Official Website
Invest in mutual funds online easily by following the fund house’s official website instructions and completing e-KYC using Aadhar number and PAN. It’s quick, hassle-free, and preferred by most investors.
4. Direct Offline Investment With the Fund House
Invest in mutual funds at the nearest fund house branch office. Complete the application form, submit required documents like proof of address, proof of identity, canceled cheque, and passport size photograph.
How to Invest in Mutual Funds Online?
Here’s how to invest in mutual funds online:
- Choose an Online Investment Platform
There are several online investment platforms available, such as mutual fund company websites, brokerages, and robo-advisors. Research and select an online platform that suits your needs.
- Create an Account
Once you have selected a platform, create an account by providing your personal and financial information. This will include your name, address, email, phone number, social security number, and bank account information.
- Complete your Profile
After creating your account, you will be asked to complete your profile by providing information about your investment goals, risk tolerance, and investment horizon. This information will help the platform suggest mutual funds that match your preferences.
- Choose a Mutual Fund
Use the platform’s search tools and filters to find mutual funds that meet your investment goals and preferences. Once you have selected a fund, review its prospectus and other relevant information.
- Enter your Investment Details
Enter the amount you want to invest in the mutual fund and the account you want to use for the investment. Some platforms may require you to complete a suitability questionnaire before investing
- Review and Confirm Your Investment
Before submitting your investment, review the details to ensure they are correct. Confirm the investment and complete any additional steps required by the platform.
- Monitor Your Investment
Once you have invested in a mutual fund, monitor its performance regularly. Keep track of any fees and expenses associated with the fund, as well as any changes to your investment goals or risk tolerance.
How to Invest in Mutual Funds Offline?
Here are the steps to invest in mutual funds offline:
Step 1: Identify the Mutual Fund Company
Research mutual fund companies and identify the company you would like to invest with.
Step 2: Obtain the Application Form
Contact the mutual fund company or visit their website to obtain the application form. You can also obtain the application form from a mutual fund distributor or a financial advisor.
Step 3: Fill Out the Application Form
Carefully fill out the application form with your personal information, investment amount, and investment details. Make sure to provide accurate and complete information.
Step 4: Submit the Application Form
Once you have filled out the application form, submit it to the mutual fund company or the distributor. You may need to attach a copy of your PAN card or other relevant documents.
Step 5: Make Payment
After submitting the application form, make payment for the investment either through a cheque or a demand draft. The payment should be made in favor of the mutual fund company and should be accompanied by the application form.
Step 6: Confirmation
Once the mutual fund company receives your application form and payment, they will process your investment and provide you with a confirmation. This may be in the form of an account statement or an email confirmation.
Step 7: Track Your Investment
After investing, keep track of your investment by monitoring its performance regularly. You can also reach out to the mutual fund company or distributor for any assistance or queries related to your investment.
Also Read
Types of Mutual Funds
Here are a few types of mutual funds:
1. Equity Funds
Invest primarily in stocks and are appropriate for investors willing to take on higher risks in exchange for potentially higher returns.
2. Debt Funds
Primarily invest in fixed-income securities such as government bonds, corporate bonds, and money market instruments. They are appropriate for investors seeking consistent income with a low-risk tolerance.
3. Balanced Funds
Invest in a mix of stocks and bonds to provide a balance of growth and income. They are appropriate for investors seeking a balanced portfolio with moderate risk.
4. Index Funds
These funds attempt to replicate the performance of a specific index, such as the Nifty or the Sensex. They are appropriate for investors seeking to diversify their portfolios at a lower cost.
5. Sector Funds
Invest in specific industries such as healthcare, technology, and energy. They are appropriate for investors who want to invest in a specific sector or who have an opinion on the performance of a specific industry.
6. International Funds
Invest in stocks of companies listed outside of India. They are appropriate for investors seeking to diversify their portfolios while also gaining exposure to global markets.
7. Exchange-Traded Funds (ETFs)
These funds, like stocks, are traded on stock exchanges and track a specific index or commodity. They are appropriate for investors seeking to diversify their portfolio at a lower cost and with greater liquidity.
8. Money Market Funds
Invest in short-term debt instruments like treasury bills and commercial paper. They are appropriate for investors who want to park their excess funds for short periods with little risk.
Costs Associated with Investing in Mutual Funds
1. Entry Load
The entry load is a fee levied on the initial investment in a mutual fund scheme, covering distribution costs. However, as per SEBI regulations, entry loads are not allowed for fund houses in India since 2009.
2. Exit Load
Fund houses impose an exit load, usually around 1%, on investors who withdraw from a mutual fund scheme within a year of purchase to discourage premature exits and limit withdrawals. No exit load is charged after one year of investment in the same scheme.
3. Expense Ratio
The expense ratio, expressed as a percentage of a mutual fund’s net assets, is a yearly fee charged by asset management firms for managing and operating a mutual fund scheme, covering various expenses such as sales, marketing, administration, and fund manager’s fees. It is calculated by dividing total expenses by total AUM.
4. Transaction Charges
This fee is levied on an individual only once during his or her investment. For investments of Rs. 10,000 and above, a transaction fee of Rs. 100 to Rs. 150 may be levied. Similarly, this fee is levied on SIP investments worth more than Rs. 10,000. No transaction fee applies to investments worth less than Rs. 10,000.
Prerequisites to Start Investing in Mutual Funds
Here are the prerequisites to start investing in mutual funds:
1. PAN Card
A Permanent Account Number (PAN) card is a mandatory requirement for investing in mutual funds in India. It is used for tax purposes and to track investments.
2. Bank Account
You will need a bank account to invest in mutual funds. The account should be in your name, and you should have net banking or mobile banking facilities to make transactions.
3. KYC Registration
You will need to complete a Know Your Customer (KYC) registration process before investing in mutual funds. This involves submitting documents such as your PAN card, address proof, and identity proof to a KYC registration agency.
4. Investment Goals
You should have a clear understanding of your investment goals, such as short-term or long-term goals, income or growth goals, or a combination of both.
5. Risk Appetite
You should determine your risk appetite, which refers to your willingness to take on risks for potentially higher returns. This will help you choose the right type of mutual fund that suits your risk profile.
6. Investment Horizon
You should have a clear idea of your investment horizon, which refers to the period for which you plan to stay invested. This will help you choose the right type of mutual fund that aligns with your investment horizon.
7. Investment Amount
You should have a clear idea of the amount you want to invest in mutual funds. This will help you choose the right type of mutual fund and determine the investment strategy.
Why Should You Invest in Mutual Funds?
1. Professional Management
Mutual funds are managed by professional fund managers who have expertise in selecting stocks, bonds, and other securities. This helps investors to benefit from the fund manager’s knowledge and experience.
2. Diversification
Mutual funds invest in a diversified portfolio of stocks, bonds, and other securities, reducing the overall risk for investors. This helps investors to benefit from a range of investment options while spreading their risks across different sectors and companies.
3. Liquidity
Mutual funds are highly liquid, meaning that investors can buy or sell their units at any time. This makes it easy for investors to access their funds and manage their investments based on market conditions and their changing financial goals.
4. Low Minimum Investment
Mutual funds have a low minimum investment requirement, making it accessible for investors with small savings to invest in the stock market.
5. Transparency
Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which ensures that they operate transparently. Investors can access the fund’s portfolio details, expense ratio, and other important information on the mutual fund company’s website.
6. Tax Benefits
Certain types of mutual funds offer tax benefits such as deductions under Section 80C of the Income Tax Act, of 1961. This helps investors to save on their taxes while earning returns on their investments.
Tools and Calculators Associated with Investing in Mutual Funds
1. SIP Calculator
A Systematic Investment Plan (SIP) calculator helps investors to determine the future value of their investments based on their investment amount, investment duration, and expected rate of return.
2. Expense Ratio Calculator
An expense ratio calculator helps investors to determine the total expenses associated with a mutual fund, including management fees, administrative expenses, and other costs.
3. Riskometer
A riskometer helps investors to determine the level of risk associated with a mutual fund. It uses a color-coded scale to indicate the level of risk, with higher-risk funds having a higher potential for returns.
4. Fund Performance Tracker
A fund performance tracker helps investors to track the performance of their mutual fund investments over time. It provides a range of data such as returns, asset allocation, and fund manager details.
5. Portfolio Diversification Tool
A portfolio diversification tool helps investors to create a diversified investment portfolio by selecting mutual funds from different asset classes and sectors.
6. Mutual Fund Screener
A mutual fund screener helps investors to filter mutual funds based on various criteria such as investment objective, risk profile, fund size, and returns.
7. Capital Gains Calculator
A capital gains calculator helps investors to determine the capital gains tax payable on their mutual fund investments. It takes into account the investment duration, purchase price, and sale price of the mutual fund units.
Things to Consider Before Investing in Mutual Funds
1. Investment Objective
Before investing in mutual funds, investors should have a clear understanding of their investment objectives, such as income or growth, short-term or long-term goals, or a combination of both.
2. Risk Profile
Investors should determine their risk profile, which refers to their willingness to take on risks for potentially higher returns. This will help investors to choose the right type of mutual fund that suits their risk profile.
3. Investment Horizon
Investors should have a clear idea of their investment horizon, which refers to the period for which they plan to stay invested. This will help investors to choose the right type of mutual fund that aligns with their investment horizon.
4. Asset Allocation
Investors should consider their existing investment portfolio and diversify their investments across different asset classes such as equities, debt, and gold. This will help investors to spread their risks and optimize their returns.
5. Fund Performance
Investors should analyze the historical performance of the mutual fund and compare it with its benchmark index and peers. This will help investors to evaluate the fund’s consistency and potential for future growth.
6. Expense Ratio
Investors should consider the expense ratio of the mutual fund, which includes management fees, administrative expenses, and other costs. A lower expense ratio indicates a more cost-effective investment option.
7. Fund Manager
Investors should consider the track record and expertise of the fund manager, who is responsible for selecting the securities and managing the portfolio. A skilled and experienced fund manager can potentially generate higher returns.
Final Word
Investing in mutual funds is a great way to diversify your portfolio, benefit from professional management, and achieve your investment goals. By following the steps outlined in this blog, you can easily invest in mutual funds both online and offline, and use the various tools and calculators to make informed decisions. Remember to consider the pre-requisites, factors to consider, and risk tolerance before investing. Happy investing!
Ready to invest in mutual funds and start your journey toward achieving your investment goals? Don’t wait any longer, take the first step now by investing in Navi Mutual Funds. It’s low-cost, diverse and you can start investing with SIP just Rs.10!
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
