What is a Mutual Fund?
Mutual funds are investment vehicles that pool money from multiple investors and invest them into equity, debt, other related instruments and asset classes after thorough research and analysis.
Each mutual fund portfolio is managed by a fund manager who has a great deal of experience in the industry. Their decisions are substantiated and are taken after following the thorough research done by the AMC’s research analysts.
As individual investors, we do not have enough time to perform such research to make a well-informed choice on “Where to invest to gain maximum returns?” or “Where to invest in the long-term?” We may also not have enough capital to make a diversified portfolio to sustain the blows of market fluctuations. Mutual funds provide a one-stop solution for both issues.
Why Should One Invest In Mutual Funds?
a) Money Managed by Experts
The fund manager and his army of research analysts are experts in the field of investing. They make informed choices with respect to every penny and always aim to provide the promised objective to their pool of investors.
Redemption requests are handled with great ease in fund houses. The investor can also buy/sell his units in the secondary market (in an open-ended fund) for redemption (withdrawal) of the units.
Despite having low ticket sizes for investment, an investor can receive returns that mimic or beat the market performance. He/she can own a portfolio that is diversified across market capitalisation or across sectors or across different companies to sustain the blows of volatility.
d) Lower Cost
The funds charge a small % of the NAV or your gains from the fund as a management fee which is also known as the expense ratio. These are also regulated by SEBI and have an upper limit to ensure that the funds do not overcharge the investors.
e) Fund Switch Options
One can invest into a debt fund and have a plan to have a systematic transfer into equity or vice versa to match the risk appetite, financial goals and other factors.
f) Tax Saving with Equity Linked Savings Scheme (ELSS)
Mutual funds also allow you to save some part of your income and claim it for tax deduction under 80C.
Rupee Cost Averaging: Investing in Mutual funds through SIPs averages the cost of purchase/unit.
Regulation: Funds are highly regulated and are designed to ensure retail investor protection.
8 Ways You Can Invest In Mutual Funds
If you are a new investor, you will need to complete your Know Your Customer (KYC) compliances through distributors, online platforms or mutual fund houses (KRA – KYC Registration Agencies) – SEBI registered intermediaries. This is a one-time mandated process by SEBI to prevent fraudulent transactions.
1. Through an Agent
An investor may contact an agent who would direct the investor to invest in different mutual funds based on risk appetite, investment horizon, goals, and other factors. There is no commission that is to be paid to the agent.
The fee is paid by the fund house and is deducted from the expense ratio paid by the investor to the AMC. Login credentials are given by each fund house which enables the investor to receive real-time data on fund performance.
2. Asset Management Company (AMC)
One can directly invest in the fund house through this route. However, the investor needs to perform some amount of research before choosing the fund and the fund house. He/she can walk into one of the fund houses for offline registration, post which, all the transactions can be performed online through their website. If an investor wants to invest in 5 different funds, each from a different fund house, he/she will have to visit 5 different offices.
3. Demat Account
The investor can directly invest in various funds of different AMCs, corporate bonds, government securities, ETFs, etc through one account. These can be managed from one single location – your Demat Account. However, one needs to pay an additional brokerage charge annually for maintaining the account in addition to the expense ratio (which is to be paid to the AMC).
4. Fintech Investment Platform
These platforms are third-party mutual fund aggregators which aid the investor in investing the corpus after a detailed analysis of their risk profile, goals, investment horizons and more and suggest the best funds to suit their requirements.
They also offer the convenience of managing the investor’s portfolio through their user-friendly sites. Some of the popular firms are Groww, EduFund, Scripbox, FundsIndia, etc.
5. Stock Exchanges
One can invest through NSE or BSE, hence eliminating all the intermediaries/brokers. However, the investor needs to perform a thorough analysis before investing in any fund and ensure that the objectives of the fund match his/her financial goals, risk appetite and other requirements. To go through this route, one needs to complete an online registration with NSE or BSE (one-time process).
6. Registrar and Transfer Agents (RTAs)
One needs to complete the application form and submit a bank draft or cheque at the branch office of the RTA post which one can visit any of the RTAs to start investing. Some of the popular RTAs are CAMS and Karvy. This route enables the investor to choose across multiple fund houses (instead of a single fund house – in the AMC route).
7. Mutual Fund Utilities
It is a shared service platform that hosts all the fund houses (owned by several AMCs in the country) and is used for fund transactions. Investors can use this facility online or offline.
8. Investor Service Centres
These are physical offices across the country belonging to RTAs or the fund houses. They assist the investor with respect to all the steps in the investment journey – investment to redemption.
As an investor, you can use any of the above ways to invest in the mutual fund of your choice and enjoy wealth generation that comes with compounding. You can start your investment journey by downloading the EduFund app and signing up. You can get started immediately and pay zero commissions.