How to purchase mutual funds in India: A detailed guide

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how to purchase mutual funds online

Mutual funds allow even the most casual investor to gain exposure to diversified portfolios of stocks, bonds, and other instruments managed by experts. As a result, the success or failure of the fund is shared among the shareholders in proportion to their holdings. Since mutual funds' portfolios typically consist of many different securities, investors monitor the fund's success by monitoring its overall market capitalisation, which is calculated by adding up the returns of the holdings that make up the portfolio. To secure your future, you must be aware of certain things such as ‘how to purchase mutual funds,’ ‘where to buy mutual funds?’ or ‘how to purchase mutual funds online’ etc.

What is a Mutual Fund?

A mutual fund is a type of investment company that pools many people's money to buy stocks, bonds, money market instruments, and other securities. Money managers are in charge of running a mutual fund, allocating its holdings in the hopes of generating a profit for its shareholders. A mutual fund's portfolio is designed and managed to achieve the goals laid out in the fund's prospectus. After deducting fees and levies, a scheme's "Net Asset Value," or NAV, determines the proportionate distribution of income or profits to investors in the plan. The fund house takes a cut of the capital in exchange for its services. The Securities and Exchange Board of India (SEBI)restricts the maximum allowable fees charged by mutual funds. India has one of the world's highest rates of personal savings. 

Why Invest in Mutual Funds?

Consider the following before investing in a mutual fund. These factors will help you choose wise investments and generate wealth:

Purpose- First, decide your mutual fund investment aim. Investing goals must be specified, such as retirement, a child's education, a wedding, etc. If you don't have a clear plan, know how much wealth you want to accumulate and when. By setting an investment objective, the investor can focus on risk, payment mechanism, lock-in time, etc.

Meet the Know Your Customer (KYC) requirements – Investors must adhere to the KYC standards to invest in mutual funds. The investor must submit copies of their Permanent Account Number (PAN) card, evidence of residency, age verification, and other documents as required by the fund manager.

Learn about the available plans- Mutual fund options abound. Some programmes fulfil investors' needs. Before investing, do your homework to understand the market's many plans. After that, examine your investment objective, risk tolerance, and cost. Consult a financial specialist if you're unclear about your investment strategy. You must maximise its earnings.

Think about the risk factors – Mutual funds have risks. Profitable plans are often risky. If you're risk-tolerant and want significant returns, invest in equity. Consider debt programs if you don't want to risk your money and prefer moderate returns.

After determining your financial goals, completing KYC, and reviewing the schemes, you can invest in mutual funds. Mutual fund mandates are bank accounts. Most mutual fund companies request a physical or digital copy of a bank's MICR and IFSC (Indian Financial System Code).

Types of Indian Mutual Funds

Here are details about numerous mutual fund types:

Equity Mutual Funds: 

Growth funds invest in stocks and stock-related instruments. Growth funds seek capital growth. Risky growth funds offer substantial long-term returns.

Debt Mutual Funds:

Income funds aim to preserve capital. Income funds receive interest by investing in fixed-income assets, including government securities, bonds, and debentures. The income fund seeks stable income and moderate capital growth.

Liquid Mutual Funds:

Liquid funds give investors short-term cash. Liquid funds invest in treasury bills and deposit certificates with a 91-day maturity. Liquid funds are low-risk and earn just above bank deposits. Liquid funds are perfect for consumers who have extra cash to invest.

Tax-Saving Mutual Funds or ELSS:

ELSS or tax-saving mutual funds assist save taxes and planning taxes. Section 80C of the Income Tax Act, 1961, deducts up to Rs.1.5 lakh. ELSS investments have a 3-year lock-in.

Fixed Maturity Funds:

Fixed-maturity mutual funds invest in closed-ended debt funds with a fixed maturity date. At maturity, the investment money is returned to investors after expenditures, and the fund ends.

Retirement Funds: 

Pension funds aim to build a large corpus to pay retirees a regular income. Pension funds have a 5-year lock-in term or till retirement age. Pension funds can be withdrawn as lump sums, regular pensions, or both.

How to Buy Mutual Funds?

Mutual Funds investment is not an easy task. You should know where to buy mutual funds. You can purchase mutual funds directly or through a broker. You can also buy mutual funds online or offline. Here are some steps and instructions given:

Direct Offline Investment with the Fund Manager

Visit the fund house's nearest branch to invest in mutual funds. You must complete and submit a fund house application with accompanying documents. (Keep copies of these documents.)

  • Evidence of Address
  • Evidence of Identity
  • Cancelled Cheque Leaf 
  • Passport-Sized Image

Investing Offline through a Broker

A broker or distributor will help you with your investment. He will offer you all the necessary investment information, including plan details and paperwork. He'll recommend investment projects. He'll deduct a fee from your investment for this.

Via the Official Website

Most fund firms offer online mutual fund investments. Fill out the form on the fund's website and submit it. Online KYC requires PAN and Aadhar numbers. After the information is validated, you can invest. Online mutual fund investing is straightforward, quick, and convenient.

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Retail investors can benefit from capital market movements through mutual funds. Investing in mutual funds can be profitable, but picking the right one can be tricky. Investors should research the fund, analyse the risk-return trade-off, and consider their time horizon or consult a professional financial adviser. Diversification across fund categories, such as stock, debt, and gold, is vital for mutual fund investors. Mutual fund purchases are easy. Apps can buy mutual funds online. Before buying a mutual fund, do research.

  • Can I buy mutual funds without any broker?

  • Are mutual funds investment safe?

  • How do I choose the right mutual fund for me?