How to Start Mutual Fund Investment?
Why Your Mutual Fund Investment Never Works Out the Way You Plan. What should we do About it?
How do you deal with a negative return on your mutual fund investments?
Every investor has the above two main question while starting to invest. We will elaborate this point at the end of the post but would like to ask you to think of an answer to the question that I am going to ask you until then. And the question is – what and how do you expect from your mutual fund investments.
Most Important Documents required for Starting Out Mutual Fund Investment
The below list is the most important thing required to get started, ensure that all the things are in place.
- Bank Account with KYC Compliant
- PAN Card
- Bank Cheque Leaf
Once you have these documents ready now it time to discuss methods in which you can buy the Mutual Funds. There are many options to buy mutual funds let discuss the below.
How to Start Buying Mutual Fund Investments?
There are several ways in which one can buy the Mutual Fund Investments. They are broadly classified into two:
When all the documents are submitted to get an online dashboard for your investment. This is called the online method of investing. Whereas in offline you submit few forms to give them instructions and you would be given a mutual fund holding certificate.
Online Plan again has multiple options for investing. The two online option has its own advantages and disadvantages. They are listed below.
The direct option was rolled out in the year 2013 where the Mutual Fund companies gave the option of directly buying the mutual fund from the Fund Houses itself. This was done keeping in mind to lower the direct expenses. If mutual fund investments are done through an intermediary such as banks, stock brokers, online brokers, some of the regional and national mutual fund dealers, advisory companies, financial advisory companies and individual financial advisors.
All the intermediaries fall under Association of Mutual Fund in India (AMFI), wherein they maintain an online list of all the intermediaries and all a separate list of suspended intermediaries.
1# Direct Mutual Fund Investment
The direct Mutual fund investment option was started almost five years back and it’s gaining popularity gradually. The investor does not realize that they can consult a Registered Investment Advisor and save in direct mutual fund.
These mutual funds are targeted to those who can make their own investment decisions or do not want to invest the amount through a distributor. They can easily enjoy a lower expense ratio compared to existing fund schemes.
The NAV value of the direct and distributor based returns vary because of the differential expense ratio. NAV of direct mutual fund investment would be higher than that of the broker based. The direct mutual fund does not charge brokerage, commission, or annual charges and this leads to saving in your mutual fund investment. Saving leads to the higher return on direct mutual fund investments.
Now one challenge that many first time investors face in direct mutual fund investing is that if they have chosen multiple funds to invest in they would be required to open accounts with multiple mutual fund companies. For example, if they choose one Mutual Fund from HDFC Mutual Fund and another Mutual Fund from the house of Birla they would be required to open two accounts respectively to start investing.
Now there is a solution for this also, Mutual Fund aggregators will help you solve this problem at a very small monthly or yearly fees.
We have worked on the entire list of all the Mutual Fund Aggregators you can have a one-to-one with them. We have also explained in detail the advantage and disadvantages of Direct Mutual Fund Investment [Infographic]
2# Independent Financial Advisors (IFA’s) – through Intermediary
Supposedly you have to have a very good knowledge to invest in direct mutual funds to save money. But for many, this could be a challenge.
Alternate and better option for this is to consult a Registered Independent Financial advisory for structuring you a financial plan. Their charges could vary on an average they charge something around Rs. 10,000 to Rs. 20,000 based on the services you avail from them.
While appointing a Financial Advisor you should look out for how transparent they are. Certain Financial Advisors may face a conflict of interest as they would insist on buying products through them where they might be getting a certain commission.
Registered mutual fund investment advisors would consider your entire finance profile and suggest and give your their recommendations in a report format. Some financial advisors review the performance of the advice on a regular basis and other charge fees for renewal.
“Though investors cannot transact on funds outside the MFU platform, we can track their investments in funds not part of MFU. Besides, we also offer analysis, capital gains report, mark-to-market report, switch analysis, etc. We are more of an adviser and not just a transaction platform,” says Nitin Agarwal, Co-founder and CEO, ORO Wealth
Mutual Fund Investing with banks is a most preferred option for the most because of the trust they have on the banks.
The average investor is not aware that the bank also does charge their commissions. Investing in mutual funds through is seamlessly easy since the documentation part is not cumbersome. There are many options that banks these days offer to their customer.
You can visit any of their branches and process your mutual fund application. If you amount that you would like to invest is on a higher side then you can get in touch with their wealth manager and they will prepare a detailed report by their authorized registered investment advisor to guide you on your investments.
With the increase in online banking majority of banks are offering online mutual fund investment option in your online banking dashboard. With the option to set rules for your mutual fund sip.
4# Online Portal
Investing in mutual funds has never been so easy with online portals. It is a quick, convenient and efficient tool that lets you carry out and manage your investments online and this can also be automated.
Everything is going online right from toiletries to most elite fashion products. Mutual funds have also joined the bandwagon. Most of the online portals don’t stop with mutual funds alone you can get other most popular services like financial consultation, investing in share, saving maximization and automation services.
Options to invest through the online portal are only growing day by day. Scripbox and FundsIndia are few among them.
5# Directly through AMC
Mutual fund investors who are knowledgeable and okay to do formalities by opening multiple accounts in different AMC’s to invest in their respective mutual funds choose this route.
First investment in any particular AMC can be done by visiting the Asset Managing Companies to get registered. Subsequently, some mutual funds companies offer to send their agent to collect the amount. The online portal is also given to manage the mutual fund investments. Different funds of the same AMC’s can be managed through the same online portal.
Changing of mutual funds from one AMC to another becomes cumbersome since the existing AMC account has to be closed and then a new account has to be opened. This is when the online portals bring the ease of doing the transaction for a very little charge.
Payment Options for Systematic Investment Plans
All the options banks give you to transfer amount from one account to another can be used to make payment to mutual funds.
The below are the payment options with the investor to invest in mutual funds.
- National Electronic Fund Transfer
- Electronic Money Transfer
- Electronic Clearing Service (ECS)
- Real Time Gross Settlement RTGS
- IMPS – Interbank Mobile Payment Service (24hours*7Days a Week * 365days)
“A demat holding also becomes easy if you want to change some details, say address, (it can be done with the depository participant and you won’t have to approach several fund houses),” says Nithin Kamath, Founder, and CEO, Zerodha
Over To You
Since you have reached till here you are ready to start your investing in Mutual Funds.
Recent portals like Coin from Zerodha Claim to save Rs 28Lakh on long-term investment through direct mutual fund investments. If you are not taking little efforts to understand your mutual fund investments you are leaving a lot of money on the table.
Wealth Creation, Regular Income & Personal Savings are a long-term process and just appointing a registered financial advisor would not achieve your goals. One should get actively involved in understanding concepts and start immediately to create wealth.