How to Invest in Mutual Funds?

Mutual Funds are witnessing a record inflow of capital in India in 2024. Many individuals want to invest in them after seeing someone else use mutual funds to realize their financial goals. However, an individual must know the procedures, paperwork, and documentation needed to invest in mutual funds.

Don’t worry; we’ve got you covered. In this blog post, we will review the process of investing in mutual funds via offline and offline modes and factors to consider before investing.

Why Invest in Mutual Funds?

Mutual funds have become one of the most popular investment choices for investors for the reasons listed below:

1. It helps investors to diversify their investments.
2. Through mutual funds, investors can get access to professional expertise.
3. An individual can start his investing journey with a small amount of money.
4. Mutual funds provide the flexibility of lumpsum and SIP investments.
5. They are highly liquid.

How to Invest in Mutual Funds?

Investors follow the following 5 steps to invest in mutual funds:

1. Investors must understand their risk tolerance according to the expected returns and the financial objectives.
2. Investors should decide on asset allocation according to risk tolerance and financial objectives.
3. Identify mutual funds that invest in those specific asset classes and gather information about their past performance, etc.
4. Invest in selected mutual funds using online or offline mode.
5. Keep a check on mutual fund performance to ensure fulfillment of investment goals.

Read Also: What is the 15*15*15 Rule of Mutual Fund Investing?

Modes of Investment in Mutual Funds

There are two modes of investment in Mutual Funds:

1. Online Mode
2. Offline Mode

Let’s dive deep into the details of both modes.

Online Mutual Fund Investment

Due to its convenience, online investing, sometimes called digital investing in mutual funds, is becoming increasingly popular. An individual must follow the steps mentioned below to start investing in mutual funds: 

1. Visit the website of an asset management company, registered investment advisor, or mutual fund distributor and download the e-KYC form.
2. The next step is to finish the Know Your Customer (KYC) process. Fill out the e-KYC form and submit self-attested copies of identity proof, PAN card, address proof, and a passport-sized photograph. 
3. In-person verification (IPV) is performed via video conferencing using a webcam at a prearranged time.
4. After completing the procedures mentioned above, you can choose a mutual fund scheme according to your risk tolerance and investing goal. 
5. Submit the mutual fund application form. Next, you need to decide on the investment method. Lump sum payments can be made directly from your bank account using UPI apps or internet banking. If you use a SIP mode instead, you will need to set up an e-mandate, essentially a standing order instructing your bank account to take a certain amount of money each month and invest it in a specific fund.  

Offline Mutual Fund Investment

The investment process will differ from the online mode if you invest in mutual funds and have chosen to go offline. The offline process to invest in mutual funds is mentioned below: 

1. Visit the office of an asset management company, a bank, a mutual fund agent or distributor, or a Karvy/CAMS office and ask for a KYC form.
2. Fill out a KYC form and submit self-attested copies of identity proof, PAN card, address proof, and a passport-sized photograph.
3. In-person verification (IPV) is done by submitting the original copies of the documents mentioned above.
4. Following your fund selection, you must complete an application form that asks for basic information about the investor, the fund, the amount to be invested, the mode of investment (SIP or lump payment), nominee information, etc. 
5. Submit the application form at the asset management company’s, RTA’s, or distributor’s office with the needed money by check or demand draft. 
6. After submitting the application form, you will receive an acknowledgment slip, which will be treated as proof of your investment.

Points to Consider Before Investing in Mutual Funds

Before you start your investment in a mutual fund, there are several points one should keep in mind, a few of which are mentioned below:

• Risk Appetite: When selecting a mutual fund for investment, one should consider their risk tolerance. For a conservative investor, a debt fund would be appropriate, while for an aggressive investor, an equity-oriented fund would be appropriate. 
• Investment Horizon: The next crucial consideration is time horizon; if you have a longer time horizon, you should consider investing in equity-oriented funds, yielding returns that will beat inflation. On the other hand, if you have a short-term investment horizon, you should consider investing in hybrid funds. 
• Past Performance: The fund’s historical performance is the next crucial factor an investor should consider. While it is not ideal to base an investment decision on past performance, a fund with a strong track record over several market cycles may perform better. 
• Expense Ratio: A mutual fund with a lower expense ratio is preferred by investors because less money is deducted as fees, which enhances returns.
• Liquidity: Investors seeking liquidity in their portfolio or with short-term investment goals should consider an open-ended fund with a minimum exit load.  

Read Also: What is an Open-Ended Mutual Fund & How to Invest in it?

Conclusion

In conclusion, you have the chance to invest in mutual funds and reach your financial objectives using both online and offline modes. Before selecting a mutual fund, an individual must learn everything about the scheme and ensure it aligns with his financial goals. 

However, it is always advised to seek the help of a financial advisor to select the best mutual fund according to your investment objective and risk tolerance. 

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