Earnings and investments are the most integral aspects of our life, and the question of “how to invest in mutual funds” often arises in our minds. Because of the current economic scenario, it has become necessary for us to invest in mutual funds.
Mutual funds are a type of investment vehicle that allows investors to pool their money together and invest in different securities, such as stocks, bonds, and other assets. Therefore, mutual fund investing is a great way to diversify your investment portfolio and reduce your overall risk. Know all the related aspects of mutual funds through this read.
All About Investments in Mutual Funds
Mutual funds are professionally managed and organized investment funds that pool many investors’ money to purchase securities. here are various mutual funds available, and you can invest in funds where the investment objectives as well as the risk levels are in sync with your risk profile. We have arranged every detail that you need to know before investing. Before letting you know how to invest in mutual funds, all related aspects of mutual funds are listed. So, without wasting any time, let’s get to work and dig into the details of mutual funds and the related aspects.
Mutual Funds: How do they Work?
You need to have an idea of how mutual funds work. A mutual fund is technically formed when an asset management company (AMC) pools investments from many individuals and institutional investors along with common investment objectives. A fund manager professionally manages that pooled investment and strategically invests in securities to generate maximum returns for the investors. The primary purpose lies in generating those maximum returns per the fund’s investment objectives.
Moreover, the fund managers are professionals with an excellent track record of managing investments. They are known for having an in-depth understanding of markets. Further, the fund houses charge an expense ratio, which is the annual fee owed to manage the mutual fund.
Moreover, the investors make money with regular dividends or interest and capital appreciation. They have the option to either choose to reinvest the capital gains via a growth option or earn a steady income through a dividend option.
The Perks of Investing in Mutual Funds
The popularity of mutual funds is an answer that there are many perks of investing in mutual funds. Although having a look at them in detail will help in being more static to your decision.
The Convenience- To invest in Mutual Funds, you do not need to worry at all. It is generally a paperless and clear process. Investors can monitor the trends in the market and make investments per the customer’s requirements. Additionally, switching between mutual fund schemes and portfolio rebalance helps keep returns in line with expectations.
Low Initial Investment- You can quickly build a diversified mutual fund portfolio by simply investing as little as Rs 500 a month through SIP in your chosen mutual fund schemes. You will also have the option to invest either as a lump sum or a systematic investment plan (SIP). However, compared to lump-sum investments, a SIP can lower the overall cost of investment while unleashing the power of compounding benefit.
Highly Tax Saving- You will get tax deductions under Section 80C of the IT Act up to Rs 1.5 lakh every financial year. This is for specific financial instruments, and tax-saving mutual funds come under them. Besides this, the Equity Linked Savings Scheme (ELSS) has become a popular tax-saving option for Indians in the past few years, owing to its higher returns and the shortest lock-in period of three years among all Section 80C options.
Receive Professional Fund Management- A professional fund manager manages a team of researchers who supports your mutual fund investments. Also, the fund manager formulates the investment strategy for your asset allocation. The researchers’ team picks suitable securities per the fund’s investment objectives.
Facts to Look Upon Before Investing
You need to look at various facts before investing in mutual funds. So let us check them all and get going with complete preciseness.
Have a definite investment goal- A preeminent role with investments is defining your financial goals, budget, and time horizon. With this, it will be easy for you to decide how much you can set aside for investing, and you must also invest based on your risk profile. Moreover, Investments always work best when done with a purpose.
Be Active in Choosing the Right Type of Fund
It takes more than just reading about different mutual fund types to decide on the correct category. Experts recommend a balanced or debt fund for first-time investors as it comes with minimal risks while offering steady returns.
Shortlist and Choose One Mutual Fund
With many mutual fund schemes in each category, you need to analyse and compare them to pick a suitable investment. Investors should not ignore crucial factors like the fund manager’s credentials, expense ratio, portfolio components, and assets under management.
Diversify your Portfolio
You need to consider investing in more than one mutual fund to diversify your portfolio and earn risk-adjusted returns. Also, a fund portfolio will help you diversify across asset classes and investment styles. Moreover, it will also even out risks – when one mutual fund underperforms, as the other funds make up for the loss of your portfolio’s value. Keep reading to learn more about building a portfolio.
Opt for SIPs instead of Lump-sum Investments
Investing through systematic investment plans (SIP) would be advisable for people investing in equity instruments for the first time. Also, the lump-sum investment can put you at the risk of catching a stock market peak. Hence the SIP will allow you to spread your investments over time and invest across the market ranks. The perk of rupee cost averaging that comes along with the SIPs that help you average out the cost of your investment and also earn higher returns over the long term.
Ensure your KYC Documents are Updated
You certainly cannot invest in a mutual fund if you have not completed the -Know Your Customer (KYC) process. KYC is a government regulation that is introduced for most financial transactions in India. This helps to identify the source of funds and prevent money fraud. In order to become KYC-compliant, you need a PAN card and valid address proof. ClearTax helps you there.
Use a Net Banking Account
To invest in mutual funds, activate the net banking on your bank account. Mutual funds also allow investments through debit cards and cheques, but using net banking is a quite straightforward, fast, and secure process to make investments.
Seek Advice from a Financial Advisor
The complete process of investing in a mutual fund can be complex and overwhelming. With a plethora of mutual funds to choose from, the performance of the funds also needs to be monitored. Therefore, the best advice for you would be to get the services of a mutual fund expert or distributor. This would help you choose suitable mutual funds without it being a hectic task. In addition to finding the best mutual fund, you will also get the perks of expertized advice in various related areas.
Now that you are well-versed with distinct details of mutual funds, let’s see how to start investing:
How to Invest in Mutual Funds
There are myriad ways of investing in mutual funds. However, we will discuss the primary and highly chosen one. Investments here are easy and you can invest in any mutual fund directly with the asset management company (AMC) with the direct plan. Before that, you must complete your KYC at a KRA (KYC Registration Agency) online by filling out the KYC registration form.
Further, you need to upload your self-attested identity proof such as PAN Card and address proof such as a Passport/Driving License/Voter ID coupled with a passport-size photograph. In addition, you also need to complete the IPV (In-Person Verification) by SEBI-approved agencies.
Once you complete your KYC, you may also invest in mutual funds via a mutual fund distributor by opting for a regular plan. Besides this, the mutual fund house would pay a commission to the mutual fund distributor or the intermediary person.
Above all, if you find a good option, you can quickly turn up to these funds offline by visiting the mutual fund house. Further, you just need to fill up the application form and submit documents for KYC compliance.
How to Invest in Mutual Funds Online
With the updated features of the direct plan, you can invest directly with the mutual fund house. The procedure would yet be simple. You just have to browse the website of the mutual fund house and fill up your relevant details. The details include name, email id, mobile number, and bank details.
Furthermore, you can also complete the KYC online through E-KYC, where you enter your Aadhaar and PAN details. Your information will be verified online at the backend. After that, you may start investing in mutual funds after transferring money online from your bank account.
Another option to invest in mutual funds online is ClearTax Invest. All you need to do is log into the ClearTax invest and select the mutual fund house. After that, choose the mutual fund scheme based on your investment objectives and risk tolerance, then click on Invest now. Further, you can select the amount you wish to invest in the mutual fund scheme and the mode as either One Time or Monthly SIP. Although, filling up the requisite details such as name, email ID, and mobile number will complete the transaction.
You must have come across this fact that mutual funds are subject to market risks. Therefore, you need to be very precise before investing. We have detailed out everything that would help you so just sit back and analyse every detail with scrutiny. Amidst the hub of unique mutual funds, landing a good one would be a task. Well, now that you know how to invest in mutual funds, searching for the best one would be easy as you have all the information you need to consider. So, enjoy the perks of investing and lead a balanced life.