How to Invest in Mutual Funds?

When it comes to investing your hard-earned money, mutual funds often emerge as a preferred choice. They're an accessible investment avenue, pooling money from several investors to buy into a diverse array of assets managed by financial experts. This simplifies entering the market and mitigates risk through diversification.

You might be wondering how to actually invest in mutual funds, which ones are best suited to your financial goals, and what strategies can optimize your tax situation. This guide will address these points, ensuring you're equipped with the know-how to begin your mutual fund investment journey effectively.

 

What are Mutual Funds?

Mutual funds allow you to pool your money with other investors and purchase a collection of stocks, bonds, or other securities. A professional fund manager oversees these funds and aims to provide gains or income while mitigating risks. 

The performance of these investments, minus any fund expenses, determines the value of these shares, known as the Net Asset Value (NAV). Curious to learn how NAV is calculated? You might find our piece on 'How to Calculate NAV in Mutual Funds?' interesting.

Mutual funds offer a practical option if you're looking to diversify your investment portfolio without having to micromanage each asset.

How to Invest in Mutual Funds?

Getting started with mutual funds is a straightforward process once you've laid the groundwork with clear goals and the necessary documents.

How to Invest in Mutual Funds through AMCs

Investing directly with an Asset Management Company (AMC) can be done online or in person.

Online, it involves setting up an account, filling out personal and bank details, completing a FATCA declaration, and verifying KYC - usually with Aadhaar. Then, you transfer funds to the AMC to invest in your chosen fund.

Offline, you'd visit an AMC branch, filling out forms and providing your KYC documents and a cheque for your investment.

How to Invest in Mutual Funds through Demat Account Online

For those with a Demat account, the process is even simpler. You can use your existing account to invest in mutual funds by logging in, selecting the mutual fund option, choosing a suitable fund, and transferring funds to invest.

How to Invest in Mutual Funds through SIP

SIPs allow you to invest a fixed amount regularly, easing into the market and spreading risk. After completing your KYC, select a mutual fund scheme on the fund house's website, provide your details, set up the auto-debit for the SIP amount, and you're set. Your first SIP payment is made online, with subsequent ones automatically debited.

For a step-by-step guide on setting up an SIP, our blog 'How to Setup Daily SIP in INDmoney?' offers a simple walkthrough.

How to Buy Mutual Funds from Investment Platforms

You can easily use the INDmoney platform. The platform provides single-account access through which you can invest, track, and manage all your mutual fund investments.

To start investing in a mutual fund scheme, you need to log into your INDmoney account. You can explore all mutual fund categories to pick up the best scheme or plan. After researching and selecting the mutual fund scheme, choose the payment type (SIP or lump-sum) and the investment amount. Then you need to fill few personal details such as PAN and bank account details. Finally, transfer the required amount of money online to complete the investment.

Before you finalize your investment, take advantage of INDmoney's mutual fund return calculator. This handy tool can help you project the potential returns from various mutual fund schemes, allowing you to make a more informed decision. Simply input your planned investment amount and let the calculator estimate the growth of your funds, helping you choose the right mutual fund to meet your financial objectives.

To explore how mutual funds have doubled investments, read our analysis in '5 Mutual Funds That Doubled SIP Investments In 5 Years'.

Strategies on How to Invest in Mutual Funds in India

Understanding how to maximize your mutual fund investments involves more than just selecting the "right" fund. It's also about being smart with taxes and choosing strategies that align with your long-term financial goals.

Tax Strategy

1. Investing in Tax-Saving Mutual Funds

Tax-saving mutual funds, like Equity-Linked Savings Schemes (ELSS), offer the dual benefits of growth potential and tax deductions under Section 80C. They predominantly invest in equities and are growth-oriented, aiming for higher returns while saving on taxes.

2. Understanding Long-Term Capital Gains Tax

For equity mutual funds held over a year, long-term capital gains (LTCG) tax applies. The first ₹1 lakh gain is exempt, with a 10% tax on returns above this threshold. Conversely, short-term capital gains tax at 15% applies if you sell within a year.

Investment Strategy

1. Building a Diverse Portfolio

Investing in a variety of mutual funds - be it blue-chip companies, sector-specific funds like banking, real estate, and other industries, or a combination of equity and debt funds based on your needs and goals - can help spread risk and potential for reward. 

Diversification across asset classes and industries is key to a resilient investment portfolio.

2. Adopting the Buy-and-Hold Approach

The buy-and-hold strategy involves investing for the long term, regardless of market fluctuations. Over time, this theory suggests that the peaks and lows in the investment will eventually balance out and potentially result in overall portfolio growth.

Don't miss our guide on 'The Importance of Portfolio Diversification' for detailed insights.

Key Takeaways

• Mutual funds pool money from many investors to purchase diversified assets and are operated by trained fund managers.
• Investors must set clear financial goals and research the various mutual fund types to create a mutual fund investment strategy.
• Investors must have their KYC completed and personal documents at hand for a smooth process.
• AMCs, Demat accounts, SIPs, and investment platforms like INDmoney offer multiple avenues for mutual fund investment.
• Tax-saving mutual funds like ELSS can offer growth while saving taxes under Section 80C.
• Long-term investing often benefits from a diverse portfolio and the stability of a buy-and-hold strategy.

You can extend your mutual fund investment knowledge further by taking our IND Learn course on the Basics of Mutual Funds to break down all the complex subjects related to mutual funds.