Mutual funds are an ideal investment for beginners instead of other investment channels like share, bonds, money market securities or combination of two or all. Like other investment mutual fund carry certain risk but offer the potential for higher returns over the long term. A beginner starting investment can prefer investing in mutual funds as they are affordable with low investment and mutual fund offer diversification, run by professional fund managers. Mutual fund offers liquidity; investors can access their fund whenever needed. Beginners don’t have time and knowledge to research and analyze investment avenues. Lot of investors is interested to invest in mutual fund but not sure about process and factors to look, before choosing a mutual fund. Start small, stay consistent, investment in mutual fund should not be complicated.
Start Investing in Mutual Funds with Steps below
Step 1 – Complete KYC
To start mutual fund, you need to complete KYC (know Your Client) verification by submitting PAN (Permanent Account Number), Adhar Card, Mobile number, Email id, Bank account number and other Bank details. To ensure compliance with KYC norms, you can fill the form online. Online link of KYC form is mentioned below
https://www.camsonline.com/Investors/Transactions/KYC/Paper-less-KYC
https://mfs.kfintech.com/investor/Investor/EKYCVerification
And submit the form with appropriate information.
Step 2 – Check risk appetite and time horizon
Select the mutual fund plan with your financial objectives, risk appetite and time horizon.
Step 3 – Choose Platform
To start SIP you need to register with AMC (Asset Management Company)
Step 4 – Select Bank Account and Amount
Enter your Bank details and amount you wish to invest on monthly basis
Step 5 – Set up Bank Mandate
Set up auto debit mandate to ensure automatic debit from your account and invested on a fixed date.
Step 6 – Monitor Monitor and adjust your portfolio, if needed
How to invest in Mutual Funds – Mutual Funds Are an Ideal Investment for Beginners
Through Bank
Most of the banks are mutual fund distributor and offers wealth management services, with bank you will be investing in regular plan. Banks provide online mutual fund services as well as wealth management services through Branch.
Directly with the AMC (Asset Management Companies)
After being KYC verified, you need to submit your KYC either at AMC office or through AMC online portal. You can buy direct plans, expenses ratio are less in comparison to regular plans and the returns are higher than the return of regular plan. If you are an experienced investor, you can opt for this method.
Through RIA (Registered Investment Advisor)
Through SEBI Registered RIA, you can invest; you can invest in direct plan through RIA. AMC do not pay any commission to RIA and hence there is no conflict of interest. RIA may charge fees for services. You should do your due diligence before deciding to invest through Mutual Fund Distributor or Registered Investment Advisor.
Through Mutual Fund Distributor
You can invest through AMFI registered Mutual Fund Distributors; they do not charge fees from the client and get commission directly from the fund house. You will be investing in regular plans through mutual fund distributor and expenses ratio are more in comparison to direct plans. For beginner it will be wise to invest through mutual fund distributor, because mutual fund distributor may help you for your KYC compliance and guide you to choose right mutual fund product as per your risk appetitie and investment needs.
Through RTA (Registrar & Transfer Agent)
Through RTAs you can invest, RTAs process mutual fund transaction on behalf of the fund houses. You can invest in both direct and regular plan through RTA, but you should know which RTA services the AMC whose scheme you want to buy. The main benefit of investing through RTA is, you can do transaction like investing, redemption, switches and etc of multiple funds of different AMC, provided the AMCs are serviced by the same RTA.
Invest on Mutual Fund Based on Asset Class – Mutual Funds Are an Ideal Investment for Beginners
In three broad categories mutual fund asset class are divided
Debt Mutual Fund
Debt fund also known as fixed income fund or bond funds and primarily invest in Government bond, Treasury bill, Commercial paper, Corporate bond, Certificate of deposits and other money market instruments and generally less volatile than equity funds. These funds are affected by interest rate, credit rating, liquidity and creditworthiness of the issuer. These funds are suitable for investor with a lower risk appetite or those seeking stable return over short term and medium term time horizon.
Equity Mutual Funds
Equity mutual also known as growth funds primarily invest in company’s stock and shares, these funds are known for generating more funds than debt fund however risk is associated with these funds as funds performance is dependent upon various market conditions. Further equity funds are divided in two category viz. passive fund and active fund. Passive fund tracks a market index or segment and fund manager has no active role in selecting stocks where as in active fund scheme are actively managed by the fund manager, who pick the stock wants to invest. Hence it is better for beginner to select fund after considering investment time horizon, risk appetite and market conditions.
Hybrid Mutual Funds
Hybrid mutual fund allocates combination of both Debt and Equity and may include other class of asset like gold. Hybrid fund blend of equity upside and debt for income stability. Thus investor have an option for investing in multiple class asset, hybrid funds are less volatile in comparison to pure equity fund. Further hybrid fund offer various types of fund like aggressive hybrid fund, conservative hybrid fund, dynamic hybrid fund, equity saving fund, multiple asset fund, arbitrage fund and etc. Hybrid fund is advisable for the beginners who are not exposed to the volatility of the equity market.
Disclaimer
This blog is for general informational and educational purposes only and does not constitute financial, investment, tax, or legal advice. The information is based on publicly available sources and market understanding at the time of writing and may change due to global developments. Past performance of markets during geopolitical events does not guarantee future results. Readers are encouraged to conduct their own research and consult qualified professionals before making investment decisions. Finance with Prakash does not provide any assurance regarding outcomes based on this information.