Investing your money wisely is a key step towards achieving your financial goals, and mutual funds offer a straightforward and effective way to do just that. Whether you are new to investing or looking to diversify your portfolio, understanding how to invest in mutual funds can set you on the path to financial success. In this article, we will walk you through the process of investing in mutual funds, covering key aspects from online investment to important considerations.
What are Mutual Funds?
Before we dive into the process, let's recap the basics of mutual funds. Mutual funds pool money from multiple investors to invest in a variety of assets such as stocks, bonds, and more. Professional fund managers handle these investments, aiming to achieve the fund's goals while offering investors a convenient and diversified way to grow their wealth.
Explore more about what is mutual fund.
Benefits of investing in mutual funds
Investing in mutual funds can be a wise choice for several compelling reasons.
Firstly, mutual funds offer diversification, which means your money is spread across various assets like stocks, bonds, or other securities. This diversification reduces the risk associated with investing in a single company or asset. Even if one investment performs poorly, it's less likely to significantly impact your overall portfolio.
Secondly, professional management is a key benefit. Mutual funds are managed by skilled fund managers who make investment decisions on your behalf. These experts analyze the market, research potential investments, and adjust the fund's holdings to maximize returns and manage risk.
Another advantage is affordability. You can start investing in mutual funds with a relatively small amount of money. This accessibility means you don't need a large sum to benefit from professional investment management.
Liquidity is another plus. Mutual fund shares are typically easy to buy and sell, providing you with access to your money when needed. This liquidity makes it convenient to manage your investments.
Furthermore, mutual funds offer variety and choice. There are a wide variety of funds available, each with its own investment objective and strategy. Whether you seek long-term growth, regular income, or a mix of both, there's likely a mutual fund to align with your goals.
Lastly, mutual funds are regulated and transparent, providing you with peace of mind. They are subject to financial regulations to protect investors and provide regular updates on holdings and performance, ensuring you have the information needed to make informed decisions.
How to invest in mutual funds
1. Invest in mutual funds through a Mutual Fund Distributor:
Engage an AMFI registered distributor for financial advice and mutual fund transactions, with no direct fees charged to investors. Though regular plan costs are higher, distributors aid in risk assessment and selection. Note the inherent market risks and varied risk/return profiles among mutual fund products.
2. Direct Investment with the AMC:
Invest directly with an Asset Management Company (AMC) via office visits or online portals. For new investors, submitting KYC documents is necessary. Direct plans, with lower expense ratios, are suitable for experienced investors with a grasp of risk and market knowledge, offering higher returns compared to regular plans.
3. Invest through Registered Investment Advisors (RIA):
Opt for SEBI Registered Investment Advisors (RIA) to access direct plans without AMC commissions. RIAs may charge fees, emphasising a perceived lack of conflict of interest. Ensure thorough due diligence, considering the unbiased advice framework mandated by AMFI’s Code of Conduct for mutual fund distributors.
4. Utilise Registrars and Transfer Agents (RTAs):
RTAs handle mutual fund transactions for fund houses. Investors can transact in both direct and regular plans through RTAs, streamlining multiple investments across different AMCs serviced by the same RTA. Check the respective RTA's website to determine AMC coverage.
5. Online Mutual Fund Investment:
- AMC portals: Invest through online banking on mutual fund house websites, ensuring clarity between regular and direct plans.
- RTA portals: Access online investment options on RTA websites using online banking, benefiting from a consolidated view of your mutual fund portfolio.
- Distributor websites: Several distributors provide online investing through their websites, allowing a comprehensive overview of your mutual fund schemes.
6. Invest through Stockbrokers:
Leverage stockbrokers offering online trading and demat services for mutual fund investment. As AMFI-registered distributors, they predominantly provide regular plans.
7. Bank-Enabled Mutual Fund Investment:
Explore wealth management services offered by banks for mutual fund investment. Being distributors, banks typically facilitate regular plans through their branches or online platforms.
8. Mutual Fund Investment via Mobile Apps:
Access mutual fund transactions through mobile apps provided by AMCs or RTAs. Perform various transactions, such as SIPs and redemptions, with ease. Download these apps from Google Play Store for Android phones, while some distributors also offer their own mobile apps for transactions.
How to invest in mutual funds based on asset classes?
Mutual funds are broadly categorised into three types based on distinct asset classes: equity, debt, and hybrid.
- Equity mutual funds: These funds invest in equity and equity-related securities with a primary objective of capital appreciation. Categories include large cap, midcap, small cap, large and midcap, multicap, and thematic or sector-based funds. Each type carries a unique risk-return profile, and your financial advisor can guide you in selecting the right fit.
- Debt mutual funds: Investing in debt and money market instruments, these funds focus on generating income. Categories are based on maturity or duration, such as overnight, liquid, ultra-short duration, low duration, money market, short duration, medium duration, medium to long duration, and long duration. Your financial advisor can assist in choosing the suitable debt funds aligned with your risk tolerance and financial goals.
- Hybrid mutual funds: These funds diversify across multiple asset classes like equity, fixed income, gold, or real estate investment trusts. Aimed at capital appreciation and income, hybrid funds provide the advantage of asset allocation, spreading investment risk. Types include Aggressive Hybrid, Dynamic Asset Allocation or Balanced Advantage, Equity Savings, Multi Asset Allocation, Conservative Hybrid, and Arbitrage Funds. Your financial advisor can help tailor a hybrid fund strategy that aligns with your risk appetite and investment objectives.
Investors can invest in their desired asset category of mutual funds on the Bajaj Finserv platform.
How to invest in mutual funds for tax saving purpose?
By investing in Equity Linked Savings Schemes (ELSS) mutual funds you can claim a deduction of up to Rs. 1,50,000 on your taxable income under Section 80C of the Income Tax Act. Once you invest, your ELSS units are locked in for 3 years, meaning you cannot withdraw them during this period.
How to invest in Mutual Funds through SIP
- Choose SIP: If you are opting for a Systematic Investment Plan (SIP), select the mutual fund and SIP option.
- Set Amount and Frequency: Decide the amount you want to invest regularly (monthly, quarterly, etc.) through the SIP. This disciplined approach encourages regular saving.
- Auto-Debit: Enable auto-debit from your bank account to ensure seamless SIP investments without manual intervention.
How to invest Lumpsum amount in Mutual Funds
Step 1: Click on ‘Explore Funds’ on top of this page. You will be redirected to the mutual funds listing page.
Step 2: Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list.
Step 3: All the mutual funds of the particular category will be listed, along with the minimum investment amount, annualised return, and rating.
Step 4: Get started by entering your mobile number and sign in using the OTP.
Step 5: Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video.
Step 6: Enter your bank account details.
Step 7: Upload your signature and provide some additional details to continue.
Step 8: Choose and select the mutual fund that you want to invest in.
Step 9: Choose ‘Lumpsum’ and enter the investment amount. Click on ‘Invest Now’
Step 10: Select your payment mode i.e., net banking, UPI, NEFT/ RTGS.
Step 11: Once your payment is done, the investment will be complete.
Your investment will start reflecting in your portfolio within 2-3 working days.
Cost of investment associated with mutual fund investment
- Management fee: The management fee is charged by the mutual fund to cover the costs of managing the fund. This fee is typically deducted from the fund's returns on a daily basis.
- Exit load: An exit load is a fee that is charged when you redeem your units from a mutual fund within a specified period of time. This fee is typically charged to discourage investors from short-term investing.
- Broker commission: This refers to the fee charged by a brokerage firm or financial intermediary for facilitating the buying and selling of securities, including mutual funds. This fee is accrued in the Total Expense Ratio of the fund.
Important points to keep in mind before investing in mutual funds
- Your investment goals: What are your investment goals? Are you saving for retirement, a child's education, or a down payment on a house?
- Your risk tolerance: How much risk are you comfortable taking with your investments?
- Your time horizon: How long do you have until you need to access your money?
- Your investment amount: How much money do you have to invest?
- The fees: Be sure to factor in the fees associated with mutual fund investing when making your decision.
- The liquidity: Mutual funds are generally liquid investments, but it is important to check the liquidity of the specific fund you are interested in.
- The tax implications: Be sure to understand the tax implications of mutual fund investing.
How to start investing in Mutual Funds on the Bajaj Finserv
Here are the steps to initiate your mutual fund investment journey on the Bajaj Finserv platform:
- Choose a Platform: Start by selecting a reliable online investment platform. Bajaj Finserv Mutual Fund Investment Platform offers a user-friendly interface, comprehensive research tools, and 1000+ fund options.
- KYC Verification: Complete your Know Your Customer (KYC) verification. This involves providing necessary documents for proof of identity like PAN card, and address proof to comply with regulatory requirements.
- Select Your Fund: Based on your financial goals and risk tolerance, pick a mutual fund that aligns with your preferences. Consider factors like the fund's historical performance, asset allocation, and expense ratio.
- Investment Amount: Decide how much you want to invest. Many mutual funds have a minimum investment amount, so make sure to meet that requirement. You can also choose between SIP or lumpsum investment options. You can start investing with as low as Rs. 100 at Bajaj Finserv Platform.
- Payment: Choose your payment method – net banking, debit card, NEFT/RTGS, or UPI, and make the investment.
Conclusion
Investing in mutual funds can be a smart way to grow your wealth, but it requires thoughtful planning and informed decisions. By following these steps and considering the factors mentioned, you can embark on your mutual fund investment journey with confidence. Remember, each investor's financial journey is unique, so take your time, research thoroughly, and seek professional advice if needed. Your commitment to understanding and managing your investments can lead you towards achieving your financial dreams.
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