How to Start Investing in Mutual Funds – A Beginner’s Guide
Mutual funds pool money from multiple investors and invest in various securities such as equities, debt and money market instruments. New investors who do not have specialised knowledge about investments and securities but wish to get high returns can consider mutual fund investments.
This blog explains how to start investing in mutual funds, various costs, who should invest and things to keep in mind before investing in mutual funds. Keep reading!
How to Invest in Mutual Funds?
To directly invest in a mutual fund online, you can follow the given steps:
- Visit the official website of your chosen fund house and sign up for a mutual fund account.
- Fill up the required details and make sure you complete the KYC formalities.
- Select the mutual fund you wish to invest in, depending on your investment goals and risk appetite.
- Confirm your selection and transfer the necessary amount to initiate the investment.
- If you wish to choose the SIP investment mode, issue the necessary instruction to your bank.
Best Ways to invest in Mutual Funds
We have listed all the various ways of how to invest in mutual funds in India.
1. Directly Through an AMC
You can invest in a direct mutual fund through the respective AMC. You will need to complete your KYC online at a KYC Registration Agency (KRA) by filling the registration form and uploading a self-attested ID, address proof, and scanned photograph. A representative (of the AMC) will contact you at your residence to complete the verification process.
2. Through the Official Website
Fund houses allow you to directly invest in their mutual funds from their own websites. Simply log on to AMC’s website, choose the appropriate funds and follow the instructions provided. After you submit the relevant details and fill in the e-KYC, you can start investing.
3. Through Various Apps
There are many popular online brokerage apps such as KFintech, Paytm Money, Groww, Orowealth, etc., offering a range of mutual funds from different AMCs. You can download one of these on your mobile device and use them to buy/sell units, view account statements, or get details about your portfolio. Invest in Navi Nifty 50 Index Fund via any of these platforms with ease.
**Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
4. Offline Mode
You can use the help of a mutual fund broker to make your investment process easier. He/she will provide you guidance with choosing funds, documents for filing, and help you with withdrawals, etc., for a fee.
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Who Should Invest in Mutual Funds?
A major benefit of mutual funds is that it has something to offer to all kinds of investors. But. if you want to know which types of investors should choose mutual funds, then take a look at the following points:
1. People Lacking Knowledge of Stock Investments
An individual requires specialised knowledge to invest in the stock market. But, it is not possible for everyone to possess the required knowledge. Mutual funds are a much better investment option for such people as these schemes are carefully designed by Asset Management Companies (AMCs), and professional fund managers take care of investment-related decisions.
These financial experts use their knowledge and experience to decide on asset allocations and take calls to maximise the fund’s returns.
2. Investors Who Wish to Remain Invested for a Long Tenure
If you wish to remain invested for a long time with the aim of building a substantial corpus for major life events, then you can consider investing in equity-oriented schemes through Systematic Investment Plans (SIPs).
Mutual funds have the potential to build substantial wealth over a long investment horizon with the power of compounding. This is especially true for equity investments, as equity comes with high returns potential but carries high short-term volatility.
3. People Who Want to Diversify Their Portfolios
Portfolio diversification is a significant benefit offered by mutual fund investments. Mutual fund managers carefully allocate assets to diversify the entire portfolio and mitigate risks. It is quite a cost-efficient way to reduce risks associated with one’s portfolio.
4. People Who Lack Discipline in Saving Money
Mutual fund investments, especially those made via SIPs, help to inculcate financial discipline in young investors. It is particularly helpful for investors who have the habit of reckless spending and find it difficult to grow their savings.
5. Investors Who Want Tax Benefits Under Section 80C
If you wish to gain tax benefits under Section 80C of the Income Tax Act (ITA), you can consider investing in Equity Linked Savings Schemes (ELSS). It allows investors to claim tax deductions up to ₹1,50,000 in a financial year. This tax benefit enables investors to save up to ₹46,800 in taxes.
Various Investment Costs in Mutual Funds
1. Expense Ratio
Fee paid by the investor to the fund house.
2. One-time Charge
Also known as transaction charge, a one-time charge is paid during the initial time of investment.
3. Entry Load
While purchasing mutual fund units, the investor pays a nominal charge known as entry load. However, not all funds charge an entry load.
4. Exit Load
Exit load is levied on investors during mutual fund units redemption. A charge anywhere between 0.25%-4% is levied. After the lock-in period, no exit load charges are applied.
5. Load
Commission paid to the intermediaries or AMCs before or after investment. Many times redemption charges are also levied.
6. Account Fee
This charge is levied for maintaining an account.
7. Management Fee
This fee is paid to the fund manager for his expert fund management services.
8. Recurring Fee
This fee is charged for marketing, advising, maintaining the portfolio, etc.
9. Switch Price
This fee is levied if the investor switches from one mutual fund to another.
10. Distribution & Service Fee
This fee is charged for AMC emails, marketing, etc.
Things to Consider Before Investing in Mutual Funds for the First Time
- You must consider the expense ratio of funds. The higher the expense ratio, lower the chances of you gaining any profit.
- Consider your risk appetite. You can choose high-risk or low-risk investments.
- You may not get the same returns every year as mutual funds are subject to market fluctuations.
- Consider the past performance of a fund. If a fund has provided good returns in the past two years, you may consider investing in it.
- Consider investing in various types of mutual funds and investment options to diversify your portfolio.
- Consider your financial goal. Do you want to create an emergency fund, a retirement fund, save tax, etc.
Final Word
Mutual funds offer investors easy access to a range of assets, including equities, bonds, and money market instruments. Though risky, mutual funds offer potentially higher returns. Now that you know how to invest in mutual funds, use this knowledge to choose funds that align with your investment goals and start investing. For low-cost fund options, visit Navi Mutual Fund.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
FAQs
If you wish to invest in a mutual fund without a broker, you can opt for the direct plan. To do this, you need to have a proper financial plan in place and choose funds accordingly. You also need to have a basic knowledge of mutual funds.
You can invest in a direct plan through the website of the respective fund house, stock exchanges or various online portals offering advisory services.
It is important to understand your financial responsibilities and investment objectives before investing in mutual funds for the first time. You can also consider taking the help of financial advisors to help you choose an ideal scheme after proper research. Once you choose the fund house, you can register online and complete your KYC details before initiating the investment.
To invest in mutual funds, you do not need to have a Demat account. You can choose to invest through AMCs, apps, online websites, etc.
You can start investing in mutual funds through SIPs at as low as Rs. 500 per month.
Depending on their type, mutual funds can have high, moderate, or low risks. Equity-oriented funds carry high risks as their performance reflects market performance. On the other hand, debt-oriented funds carry low risks as they invest in debt securities. However, they can still carry some interest risks as their returns depend on the current interest rate regime.
The right mutual fund for your financial needs will depend on various factors such as your risk tolerance, investment goals, how long you are willing to invest, and such. For example, if you want to take moderate risks for decent returns, hybrid funds could be an option worth considering.
Yes. Capital gains from mutual funds have taxes applicable to them. Depending on the number of years you hold the mutual fund units, either long-term capital gains (LTCG) or short-term capital gains (STCG) taxes are applicable.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
