Best Way to Invest in Mutual Funds Online: Understanding the Different Types of Mutual Funds
Best Ways to Invest in Mutual Funds: Introduction
Mutual Funds in India have been a popular choice of investment among real-time investors, primarily because of their moderate-risk and high-returns philosophy. At least at one point of time in your life, you must have heard either from your parents or grandparents how they wished they had the knack of investment when they were your age and how you must now save your money to invest in mutual funds. Well, they are probably right. Mutual funds at this age of investing are indeed a lucrative option, especially for those who are new to this era of investing.
Also, with the growing potential and need for such investment, the market is now flooded with options as well as inciting details. However, it may sometimes become overwhelming for an investor to process everything and understand where to start. Therefore, this INDmoney article is here at your rescue. By the end of this article, you shall be able to grasp all the viable details that you may be looking for to understand how to buy mutual funds online in India. Let us however look at some of the fundamentals first.
Reasons to Invest in Mutual Funds in India
Heard about the tagline ‘Mutual Funds Sahi Hai’? Well, it’s probably what sums up the reason why you must invest in mutual funds. Mutual funds are the investment vehicles that are managed by the investment professionals who shall help you to park your money in highly rewarding options. They scan through the market depending on your investment goals and the type and fetch you appealing returns on your investment.
Following is the summation of some of the reasons why an investor must start investing in mutual funds:
Low on cost: One of the most attractive reasons to invest in a mutual fund is that you can start at a really low. With SIP as low as 500 Rs per month, mutual funds are worth the risk is taken to set a base for your long-term investment goals. Also investing in direct plans saves you added brokerage and commission fees and can be easily managed even when you are a college student or an early starter at a job.
Expert Management: As we have gathered mutual funds are managed by expert fund managers in the field. These professionals carry out research and keep a track of market fluctuations. They manage your portfolio by identifying the correct stocks and trading them at an appropriate time. This is how they generate favorable returns. It is to be noted that an investor can get a professional summary of his fund manager via the scheme information document (SID) when he buys units of a mutual fund scheme. This acts as an added bonus.
Higher returns: As compared to other moderate-risk investments, mutual funds have a tendency to generate a much higher proportion of returns. These do not have a monotone and can be easily diversified as per the risk appetite of an investor.
Convenient: With the KYC process taking place online, investing in mutual funds has become simpler, faster and better. Now there are many fund houses where an online facility for investing is available. Investing in a mutual fund scheme has now become a process at a click. Investors can easily invest up to Rs.50,000 using this e-KYC facility. However, it must be kept in mind that investments above Rs.50,000, are required to be completed through the physical KYC process.
Disciplined Investing: Systematic Investment Plan (SIP) in mutual funds creates a habit of investing. A SIP is a great way to regularly invest in small amounts, the frequency of which varies. An investor can tune to an auto-debit facility for their SIPs where about a fixed sum shall automatically get debited from the investor's bank account every month.
Types of Mutual Funds Schemes
Mutual funds offer varied schemes in terms of investment type and the risk affordability of an investor. While investing in a mutual fund it is sincerely important to identify your investment goals, and accordingly, select a suitable scheme. Following are some of the common mutual fund schemes that investors commonly invest in.
Growth-oriented or Equity Schemes - As the name suggests, these are funds that generally invest in equity shares. The main investment objective of this kind of scheme is capital appreciation. These funds aim to satisfy the growth needs of investors and therefore primarily concentrate on the high-yielding spectrum of equity scrips of the corporate sector.
Income-Oriented Funds- These funds primarily offer fixed income to investors. Therefore, the main securities in which this scheme circulates are fixed income yielding such as bonds, debentures, government securities, money market instruments, etc.
Hybrid Funds - These funds cater to all risk and return and fixed income and growth perspectives of the investments. These are a justified mix of both equity and debt and utilize the funds as per a balanced concept. Hence are also known as balanced funds.
Tax Saving Funds - These schemes are made taking into consideration the tax rebates under the tax laws as prescribed under the Income Tax Act 1961. These are mostly government-initiated investments in specified avenues. A classic example of this scheme is Equity Linked Saving Schemes (ELSS).
Exchange-Traded Funds (ETFs) - ETF is a newly introduced scheme and is described as tax-efficient as it is. These mutual funds make smaller distributions of realized and taxable capital gains as compared to other schemes.
Best Ways to Invest in Mutual Funds Online
After understanding the benefits and types of these mutual funds schemes. Now we must analyze the ways in which we can invest in these schemes. Let us look at the same.
- How to Buy Mutual Funds From AMC (Direct Plans)?
Mutual funds investment can be made directly either online or offline just by visiting the AMC website. The process mentioned involves;
- An investor needs to first open a new account
- Then he must provide personal details for the investment
- The next step is to fill FATCA form along with his bank details
- He then will have to upload the image of the canceled cheque
- The verification of KYC through Aadhar shall take place
- Then he shall have to transfer the required money
- To carry out an offline investment, the investor needs to visit the AMC local office and submit an application, and KYC documents, and make a payment.
2. How to Buy Mutual Funds From Investment Platforms (Regular Plans)?
An investor can easily use an online investment platform. The platform provides single account access. This in return helps with investing, tracking, and managing all the varied mutual fund investments with the various AMCs.
The steps required for using an online investment platform are;
- Investor needs to create an account with the investment platform
- He then will have to pick up the scheme or plan
- He must then choose the payment type (SIP or lump-sum) and the investment amount
- Then he needs to fill few personal details such as PAN and bank account details
- Finally, transfer the required amount of money online to complete the investment
3. How to Invest in Mutual Funds through a Demat Account?
There is no requirement of an additional effort for investing in a mutual fund if one already has a Demat account. The existing Demat account and bank account can be flexibly used for investing and making transactions in the mutual fund.
To invest in a mutual fund through a demat account, an investor just needs to log in to his Demat account and look for an option to invest in a mutual fund. For the next step, he needs to choose a suitable fund to invest in. Then he needs to complete the investment by making an online transfer of the required amount.
4. How to Invest in Mutual Funds through Karvy and CAMS?
An investor can invest both online and offline in mutual funds through Karvy and CAMS.
For Online Method: An investor needs to visit the website of CAMS or Karvy. He then has to create an account, provide a folio number, select the desired scheme and make the payment.
For Offline Method: The investor can invest by visiting the local office and completing the application form. He shall have to hand over the canceled cheque as well as a copy of the KYC documents.
Suggestions for Investors to Buy Mutual Funds Online
- An investor must understand his risk capacity as well as risk tolerance. Risk profiling is one of the underrated tasks but is however very vital to not fall into the adept trap.
- The next step shall be asset allocation. Once an investor identifies his risk profile, he should look to distribute the saved money between varied asset classes. Ideally, an asset allocation must have a mix of both equity and debt instruments. This helps to balance out the risks.
- Then an investor must identify the appropriate scheme that can invest in each form of an asset class. He must compare mutual funds based on their investment objectives as well as their past return on investment.
- Diversification of a portfolio is an essential step in the field of investment and so are follow-ups. This is done to ensure that an investor gets the best out of his investment.
Investing in mutual funds seems like one of the best investment options out of the lot and to a fair share it is. However, it is essential for an investor to carefully go through the terms before they invest in a scheme. Take expert advice if needed. Carefully study the market and apply due diligence before stepping into the risk attached to investing in mutual funds.
Is it safe to buy mutual funds online?
Mutual funds are highly regulated and thus are a safer option as compared to others. However, it is important that you go through the terms and conditions carefully.
Can I buy a mutual fund without a broker?
An investor can invest in various mutual fund schemes without paying brokerage by investing through mutual fund's direct plan.
Is demat required for mutual funds?
A demat account makes it convenient for holding mutual funds however it is not mandatory to have a demat account to invest in mutual funds in India.