A step-by-step guide on how to invest in mutual funds

Published On: 08-Jul-2019

Mutual funds offer you a wide range of investment options across asset classes, be it equity or debt, and even within the sub-categories of asset classes like mid-cap stocks, large-cap stocks etc. If you are wondering how to invest in mutual funds, this article aims to address that question and list down the ways to invest in mutual funds. Investors can invest via two modes: offline and online. We will discuss both modes one by one.

Investing in mutual funds online

With the advent of digital banking and digital investing, it has become possible to invest in mutual funds online with just a few clicks. Thanks to online mutual fund investment platforms, there is no need to physically visit the fund house for investing. While the steps may slightly differ with different website structures of the respective mutual fund house, the procedure below aims to broadly outline the steps of making online investments in mutual funds:

  1. Open the website of the mutual fund house, in which you wish to invest. The Registrar and Transfer Agents (RTA) like CAMS, Karvy etc., also allow investments with their clients’ mutual funds through their websites/mobile apps.

  2. Click the ‘Make a Transaction/Purchase’ button on the homepage or the respective scheme page.

  3. You may be prompted to input your PAN (Permanent Account Number). Once you enter the PAN number, the system will validate the same against the present database to check if you are an existing investor and have completed KYC.

  4. If you are a new investor and are yet to complete your KYC, the browser will redirect you to process your KYC verification online itself. Once you have completed your KYC, you can continue with your investment process.

  5. The online portal will prompt you to input the details one by one, starting with the scheme details, investment amount, bank details etc.

  6. Once you have entered all the details, the portal will check if you want to make a lump sum or SIP investment. In case of SIP, further details like the number of instalments, monthly SIP date, SIP amount etc. will also have to be entered. Further, once you input the details for SIP registration, you will receive a SIP Registration Reference Number, which you need to register for automatic bill payment with your bank through net banking.

  7. After you have entered the desired details, the system will redirect you to the payment gateway, where the payment is required to be made towards the investment.

  8. Upon successful payment, a transaction confirmation will be displayed on the screen with the time stamp. An email is also sent to the registered email address with the transaction confirmation, followed by the account statement.

Investing in mutual funds through offline mode

This is the traditional mode of making investments in mutual funds, wherein the form is submitted physically and thereafter, the entire data is digitized and processed. Here are the steps to invest in mutual funds through offline mode:

  1. Fill out the KYC (Know Your Customer) form along with the application if you are investing in mutual funds for the first time. KYC serves as your information repository for the mutual fund house and is required for making investments of more than ₹50,000 in a year.

  2. Fill out the application form for the desired mutual fund schemes, where the investment is to be made. This application form can be downloaded from the website of the respective mutual fund house or procured from the investor service centre of the mutual fund or the Registrar and Transfer Agent (RTA).

  3. You can also register for a SIP or Systematic Investment Plan, which allows you to invest a fixed sum every month into the mutual fund scheme of your choice.

  4. Submit the application form along with necessary enclosures/cheques at the authorized collection centres of the mutual fund or the Registrar and Transfer Agent (RTA).

  5. A time-stamped acknowledgement will be provided to you at the time of submission.

  6. On the next working day after the submission, you will receive a transaction confirmation message on your mobile number and the account statement with the transaction if you have also provided your email address.

So, now that you know how to invest in mutual funds, take your first step towards investing right away.

Things to Consider Before Investing in Mutual Funds

Mutual funds are a good investment option if you are looking to create wealth in the long term. Before starting your journey in mutual funds, you should be aware of the below basics:

1. Choose the right type of mutual fund

Choosing the right type of mutual fund in India is important based on your risk appetite, income, time horizon, age and other factors. If you are unsure which scheme would be suitable for you, you may consult a financial advisor.

2. SIP vs Lump sum: How to Choose?

Difference between SIP and lump sum is that through an SIP you invest a specific amount periodically whereas in lump sum you invest the whole amount in one go. You may choose your mode of investment through based on your budget, income and expenditure. You may use an SIP calculator to get a better idea on your investments.

3. Difference between growth and dividend

The only difference between growth mutual fund and dividend is that under the growth option, the profits are re-invested, whereas in mutual fund dividends, the profits are distributed. The Net Asset Value (NAV) of the growth option may be higher than the dividend option. This is because re- invested profits may grow in value over time.

Disclaimer:

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

SIP is a feature offered for a disciplined investment of a certain amount on a pre-decided date in a specific mutual fund scheme, regularly over a period of time.