How To Invest In Mutual Funds?
Mutual Funds have emerged as one of the preferred ways for investors to create long-term wealth and achieve their financial goals. You can read more about what is Mutual Funds
One of the reasons for their popularity is the ease with which you can invest in Mutual Funds. So, how to invest in Mutual Funds?
Before you invest
Before thinking about how to invest in Mutual Funds, consider these four factors:
1: Risk versus return
Decide on the Mutual Funds you want to invest in based on your financial goals and risk-return appetite. One thing you must understand while learning how to invest in Mutual Funds is that there are many types. For example, there are Debt Funds, Equity Funds and Balanced Funds, and the risk-return profile of each is different. Debt Funds involve the least amount of risk, but returns are low. Equity Funds involve more risk, but returns can be substantially higher. Balanced Funds come somewhere in between.
Even within Equity Funds, there are different types. A Large Cap Fund, for example, invests in mature companies with large market capitalisation. These involve less risk than, say, Mid-Cap Funds, which are more volatile but could yield higher returns in the longer term.
2: Growth vs Dividend
While investing in Mutual Funds, you have two options – Growth and Dividend. Shares announce dividends to investors from time to time. If you choose the Dividend option, those dividends will be paid out to you. In the Growth option, any dividend declared will be reinvested in the fund. A Dividend option will be useful if you rely on Mutual Funds for income and use it for day to day expenses. Otherwise, it would be better to choose the Growth option, since you can grow your capital.
3: Lump sum versus SIP
Choose your method of investment. Do you want to invest in a lump sum, or do you want to use the systematic investment plan (SIP) route? You can go in for a lump sum investment if you have the cash ready on hand. For example, if you get a bonus, you could invest it in a Mutual Fund. Otherwise, investing through a SIP is a better idea since you can invest small amounts, you will make the optimum use of cash, and enjoy the benefits of Rupee cost averaging. It will also introduce discipline in your investing.
4: Online or offline?
Decide on whether you want to invest online or offline. Once you have your Central Know Your Customer (CKYC) requirements done, you can invest online. Most asset management companies allow you to invest online through their web sites.
5: Direct or Regular?
Do you want to invest directly with the Mutual Fund company or do you want to use an intermediary like HDFC Bank? You don’t have to pay a commission if you invest directly through an AMC. However, an intermediary can offer more choices, and you will be able to manage all your funds through one account. If you wish to invest directly, you will have to approach each fund house and manage the funds separately individually. You can invest through HDFC Bank’s platforms like InvestNow and ISA (Investment Services Account)
6: How to find the right fund?
There are so many Mutual Fund schemes available in the market, and finding the right one can be difficult. Once you decide on the type of Mutual Fund, you can compare returns online over several periods. You can also use Mutual Fund rankings available online to find the best one. HDFC Bank’s InvestNow platform gives you expert recommendations based on your financial goals and risk appetite.
What you will need to invest in Mutual Funds
You will need a Permanent Account Number (PAN) and a bank account. You also need to complete your CKYC, or Central Know Your Customer process. Further, you also need to submit the FATCA form or complete it online.
How to invest in Mutual Funds?
If you wish to invest online through HDFC Bank, you will need to have an ISA. Investing through an ISA is simple. Just log into your account, select the scheme you need and the number of units you would like to buy, pay for your transaction, and you are done. The units will automatically get credited to your ISA account. Setting up a SIP is equally easy.
If you want to do it offline, you can visit a branch or office of the intermediary (like HDFC Bank), fill up a simple form and invest in the Mutual Fund of your choice.
For SIP investments, fill a SIP form mentioning the number of instalments, amount of investment and date of investment and submit it along with a cheque for your first instalment. For the rest of the instalments, you can issue an ECS mandate, and future instalments will automatically be debited from your account.
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* Mutual Funds are subjected to market risks. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.