There are several ways to start investing in a Mutual Fund scheme.
One can invest in Mutual Funds by submitting a duly completed application form along with a cheque or bank draft at the branch office or designated Investor Service Centre (ISC) of Mutual Funds or Registrar & Transfer Agents of the respective the Mutual Funds.
One may also choose to invest online through the websites of the respective Mutual Funds.
Further, one may invest with the help of / through a financial intermediary i.e., a Mutual Fund Distributor registered with AMFI OR choose to invest directly i.e., without involving or routing the investment through any distributor.
A Mutual Fund Distributor may be an individual or a
non-individual entity, such as bank, brokering house or on-line distribution
channel provider.
Step 5: Diversifying your investments and regular follow-ups
are essential to ensure better results and higher profit.
How to Invest in
Mutual Funds Online?
It is essential to understand how to invest in mutual funds through online mode. Investing in Mutual Funds, Online can be pretty simple and can be made in one of two ways-
1) By Creating an Account on an Official Website (AMC Website)
Every Asset Management Company has an official website where you can find multiple Mutual Funds in each category to invest. You have to follow the instructions provided on the official site of the fund house, fill in all the required information, and submit it.
The KYC process can also be completed online (e-KYC), for
which only the Aadhar Number and PAN are needed. The information provided by
you is verified at the backend, and you can start investing upon successful
verification.
2) Investment Through
an App
Asset Management Companies allow investors to invest in Mutual Funds through mobile applications quickly and hassle-free. The AMCs have mobile applications, and third-party mutual fund aggregators provide a platform to invest in Mutual Funds.
The app enables the investor to invest in Mutual Fund Schemes, view account statements, buy or sell units and check other relevant details about their portfolio. Moreover, investors can invest in various funds offered by different fund houses.
How Do Mutual
Funds Work
An Asset Management Company (AMC) pools investments from
various individuals with common investment objectives. This collective amount
is then invested as per the fund's investment objective. For example, it could
be invested in securities like stocks, bonds, money market instruments,
commodities such as precious metals, and other similar assets.
Financial experts manage these funds called fund managers,
who align with the specified investment objective of the fund and invest in
creating growth or appreciation of the amount for investors.
The AMCs charge an expense ratio which is nothing but the annual maintenance fee to manage the investments of individuals. The investors earn money with regular dividends/interest in capital gains. Furthermore, one can reinvest the capital gains through a growth option or make a steady income with the dividend option. In simple words, mutual funds are the diversification of the investment.
Expense Ratio
The expense ratio is the percentage of average assets under
management that go towards such expenses that Asset Management Companies (AMCs)
incur. For example, AMCs incur administrative expenses, fund management,
distribution, etc., to run their businesses.
One-Time
Charge/Transaction Charge
A nominal amount may have to be paid by investors as
transaction fees. For investments below Rs.10,000, no transaction fee is
levied. This may change depending on the AMC.
Exit Load
Exit load is charged when an investor withdraws money
quickly. It is set as a percentage of the scheme's prevailing Net Asset Value
(NAV).
STT
When an investor decides to sell mutual fund units, a
Securities Transaction Tax (STT) is levied.
STT for Different Schemes
For close-ended schemes and ETFs: 0.001% of the traded value
Open-ended equity-oriented schemes: 0.25% of the traded value
Debt Mutual Fund units: No STT
Stamp Duty
Transfer of units from one Demat to another plus the
off-market transfers: 0.015%
Your next step in investing in Mutual Funds is to choose the appropriate fund once your account is set up and you are fully aware of all the costs involved
Goal of Investing
His becomes the foundation of your investment; defining your investment goals can help you select the proper fund accordingly.
Whether buying a new house, car, wedding child’s education,
retirement, or any other, deciding the goal of the investment is a must. In a
nutshell, one should have a bigger picture of how much wealth one wishes to
accumulate and for what duration.
Choose the Right
Fund for Yourself
Do your homework well, as the market is brimming with options, and choosing the best fit for you might be tricky. Evaluate the fund you select with your investment objective, risk appetite, your affordability.
You can also get help from a financial advisor if you face
difficulties choosing the right one.
Consider the Risk Factors
One important thing to remember comes with a particular set
of risks. Schemes with high returns often come with higher stakes. You can go
with equity schemes if you have a high-risk appetite and your investment
objective is to accomplish high returns.
On the other hand, if you don’t want an investment with high
risk and moderate returns that can fulfil your investment objective, you can go
for debt schemes.
Keep Your KYC
Documents Updated
One cannot invest in a Mutual Fund if one is not compliant with Know Your Customer (KYC). Therefore, investors must comply with KYC guidelines to invest in Mutual Funds. You need your PAN card and valid address proof to become KYC compliant.
Conclusion
One of the main advantages is that your money will be
professionally managed by fund managers who have done extensive market
research. Not to mention, one of the key advantages of investing in Mutual
Funds is the diversification of your portfolio.
Created & Posted by Suraj Kumar
Accountant at TAXAJ
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