HOW TO INVEST IN Mutual Funds?
Investing in mutual funds has become a popular choice in the past few months. As the investment is done in several sectors at the same time, one bad performing sector can be compensated with a better performing sector. There was a time when the answer to how to invest in mutual funds was simple, but now it has become complex with many additional factors. One can invest in mutual funds through various channels. But before you begin investing, it is important to know and understand what is mutual fund investment and how it works.
WHAT IS MUTUAL FUND INVESTMENT?
A mutual fund investment is simply an investment tool in which many investors pool their resources in order to make money through their investment. The pooled resources are used to purchase stocks and bonds and similar financial securities. The collective funds are referred to as assets under management and they are professionally managed by asset management companies. Investors receive their portion of the mutual fund in the form of units. The sum of various mutual fund investments makes up the investor’s ‘investment portfolio’.
Fund management companies charge a small fee for the services rendered.
HOW TO INVEST MONEY IN MUTUAL FUNDS?
The process of mutual fund investment is a simple one. One should follow the below mentioned steps to invest in mutual funds in India:
Get your KYC (Know Your Customer) verified. The forms are available in all the fund offices. The KYC form takes a few days to verify. KYC Compliance is a one-time mandatory procedure.
Contact your advisor and fill the form of mutual fund. The form can be downloaded from http://www.amfiindia.com/know-your-customer.
After the KYC is verified, you can start investing in mutual funds. It can also be used for all other forms of investments. Hence, one does not have to fill many KYC forms.
A person can invest in mutual funds through SIP (Systematic Investment Plan) or lump sum amounts.
WHY INVEST IN MUTUAL FUND?
Mutual funds, no doubt perform better and give better returns what you get if your money is sitting idle in your savings bank account. The money deposited in the bank cannot grow as fast as it can if it is invested in mutual funds, especially if you consider the long term. But with mutual fund, this is not the case. An investor can invest for better returns but at the same time, he should be aware of the mutual fund’s value from time to time.
Mutual Fund investments allow investors to diversify their fund portfolios, through which they can spread out their investments across various asset classes, thereby reducing risk. These funds are professionally managed and provide better return on investment as compared to most other investment types. Fund experts dedicate hours researching and tracking the market before your money is allocated to a particular fund. You can also generate better inflation-adjusted returns with mutual fund investments.
HOW TO INVEST IN MUTUAL FUNDS OFFLINE?
Once the paperwork gets completed, the investor can use the services of a financial company or a bank to start making investment.A person can also walk into the office of a Mutual Fund Company or the office of Registrar & Transfer Agents.
The investor should carry the filled application form, KYC number, and payment instrument. This could be either a cheque or a demand draft. The mutual fund company will then allot a folio number which is the account number held by the investor.
HOW TO INVEST IN MUTUAL FUNDS ONLINE?
KYC formalities should be completed before investing in mutual funds. Before investing, the investor should know that not all mutual funds allow investors to invest online. To invest online, the client should visit the website of the mutual fund company and complete the registration online. Once the application is completed, you will be allotted a login name and password through which transactions can be done.
Most of us are not qualified to apply all kinds of theories for portfolio structure to reduce the level of risk. Hence, we would be better off with a fund manager who understands the nuances of investment.
TYPES OF MUTUAL FUND INVESTMENTS
Now that we know what is mutual fund investment, it is time to list out the various types of mutual funds one can invest in. There are as many as 8 different types of mutual fund investments possible in India. They are
Money Market Funds
Funds of Funds
Based on structure, mutual funds are usually divided into 2 categories i.e. open ended funds and close ended funds. Based on investment objectives these mutual funds can be further categorized as growth funds, liquid funds and income funds.
COSTS ASSOCIATED WHEN INVESTING IN MUTUAL FUNDS
The fund value is calculated on the NAV or Net Asset Value of your fund at the end of each day by the Asset Management Company (AMC). They charge an annual fee to cover their salaries, brokerage, administration and advertising costs. The larger the investment, lower are the cost as per thumb rule.
The AMC might also charge loads, which are sales charges incurred by the company in the form of distribution costs. Hence, one should read everything in the offer document before making a commitment.
Now, that we’ve answered the biggest question; how to invest money in mutual funds online, let us take a look at the tips and tricks involved when investing in mutual funds in India? Below are some of them.
An investor should understand the kind of portfolio they need before investing in mutual funds. It should be a healthy mix of high and low risk instruments. For example, if you are 30 years old, you should have 30% of funds allocated towards debt instruments. The younger you are the more you can invest in equities and high risk funds.
Once the asset allocation is done, you should focus on shortlisting the types of funds you want to invest in. This should be decided based on your ultimate financial goal over a specific tenure. The more money one needs; the more risk factors should one undertake. Once one gets comfortable with investments, they can increase their risk appetite. Also, it is important to determine the time limit of investing in mutual funds and their risk profiles which depends on
When comparing funds, investors must look at the history of the fund. Start by classifying the mutual fund and then review its historical performance against other competitive funds within its universe. This is done by studying the pattern and checking the fund’s performance online. Check out the top 5 fund in the class you wish to invest into and review their consistency vis-à-vis their performance in the last 2-5 years. These points will help you make a better decision and help you define your portfolio. In general, you should think of investing in approximately 20 different assets ranging from low, medium and high risk.
Keep in Touch
Investors should keep a track of their investments by reviewing them periodically. You can keep track online, through newsletters or newspapers. Today, there are various mobile apps which provide all the data needed.
You can track all your investments with the help of the Angel BEE – Mutual Fund Investment App, freely available on the Android Google Play Store and the Apple iOS store. The Angel Bee App has an easy-to-understand dashboard that helps you in keeping track of your portfolio, at any given time. Download the Angel Bee app to explore the smart way of investing.